OPPENHEIMER MAIN STREET INCOME & GROWTH FUND
Supplement dated November 1, 1995, to the
Prospectus dated November 1, 1995
The Prospectus is changed as follows:
The following text is added to the paragraph immediately following the
Class A sales charge table on page 27 of the Prospectus:
In addition to paying dealers the regular commission for
sales of Class A shares stated in the sales charge table in
"Class A Shares," and the commissions for Class B shares
described in the third paragraph in "Distribution and Service
Plan for Class B Shares" on page 32 of this Prospectus, the
Distributor will pay additional commission to each participating
broker, dealer and financial institution that has a sales
agreement with the Distributor (these are referred to as
"participating firms") for shares of the Fund sold in
"qualifying transactions" from September 1, 1995, through
November 30, 1995 (that period is referred to as the
"promotion"). The additional commission will be 0.50% of the
offering price of Class A shares and 0.50% of the offering price
of Class B shares of the Fund sold by a registered
representative or sales representative of a participating firm.
"Qualifying transactions" are sales by a registered
representative or sales representative in the amount of $100,000
or more (calculated at offering price) of Class A and/or Class
B shares (if offered) of any one or more of the following funds:
the Fund, Oppenheimer Global Fund, Oppenheimer Global Growth &
Income Fund, Oppenheimer Global Emerging Growth Fund,
Oppenheimer Growth Fund, Oppenheimer International Bond Fund,
Oppenheimer Limited-Term Government Fund, and Oppenheimer
Strategic Income Fund. The amount of additional commissions paid
on sales of shares of some of the other Oppenheimer funds listed
is different than the additional commissions paid for sales of
shares of the Fund. "Qualifying transactions" do not include
sales of Class A shares (a) at net asset value without sales
charge, or (b) subject to a contingent deferred sales charge,
or (c) intended but not yet transacted under a Letter of Intent.
However, if Class A shares of the Fund or any of the other
Oppenheimer funds listed above are purchased at net asset value
without sales charge during the promotion with the proceeds of
shares redeemed within the prior 12 months from another mutual
fund (other than a fund managed by Oppenheimer Management
Corporation or one of its subsidiaries) on which an initial
sales charge or contingent sales charge was paid, the amount of
the purchase will count toward the $100,000 qualifying amount
described above (but not for the payment of additional
commission).
November 1, 1995 PS0700.009
<PAGE>
Oppenheimer
Main Street Income & Growth Fund
Prospectus dated November 1, 1995
Oppenheimer Main Street Income & Growth Fund (the "Fund"), a series of
Oppenheimer Main Street Funds, Inc., is a mutual fund that seeks a 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.
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 November 1, 1995, Statement of Additional Information. For a
free copy, call Oppenheimer Shareholder Services, the Fund's Transfer
Agent, at 1-800-525-7048, or write to the Transfer Agent at the address
on the back cover. The Statement of Additional Information has been filed
with the Securities and Exchange Commission and is incorporated into this
Prospectus by reference (which means that it is legally part of this
Prospectus).
(OppenheimerFunds logo)
Shares of the Fund are not deposits or obligations of any bank, are not
guaranteed by any bank, and are not insured by the F.D.I.C. or any other
agency, and involve investment risks, including the possible loss of the
principal amount invested.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
Contents
ABOUT THE FUND
Expenses
A Brief Overview of the Fund
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>
A B O U T T H E F U N D
Expenses
The Fund pays a variety of expenses directly for management of its
assets, administration, distribution of its shares and other services, and
those expenses are subtracted from the Fund's assets to calculate the
Fund's net asset value per share. All shareholders therefore pay those
expenses indirectly. Shareholders pay other expenses directly, such as
sales charges and account transaction charges. The following tables are
provided to help you understand your direct expenses of investing in the
Fund and your share of the Fund's business operating expenses that you
might expect to bear indirectly. The numbers below are based on the Fund's
expenses during its last fiscal year ended June 30, 1995.
Shareholder Transaction Expenses are charges you pay when you buy
or sell shares of the Fund. Please refer to "About Your Account" from
pages __ through __ for an explanation of how and when these charges
apply.
<TABLE>
<CAPTION>
Class A Class B Class C
Shares Shares Shares
<S> <C> <C> <C>
- --------------------------------------------------------------------------
Maximum Sales 5.75% None None
Charge on Purchases
(as a % of offering price)
- -------------------------------------------------------------------------
Sales Charge on None None None
Reinvested Dividends
- -------------------------------------------------------------------------
Deferred Sales Charge None(1) 5% in the first 1.0% if
(as a % of the lower of the year, declining shares are
original purchase price or to 1% in the redeemed
redemption proceeds) sixth year and within 12
eliminated months of
thereafter(2) purchase(2)
- -------------------------------------------------------------------------
Redemption Fee None(3) None(3) None(3)
- -------------------------------------------------------------------------
Exchange Fee None None None
<FN>
______________________
(1)If you invest $1 million or more ($500,000 or more for purchases by OppenheimerFunds prototype 401(k) plans), in Class A
shares, you may have to pay a sales charge of up to 1% if you sell your shares within 18 calendar months from the end of the
calendar month during which you purchased those shares. See "How to Buy Shares - Class A Shares," below.
(2)See "How to Buy Shares - Class B Shares" and "How to Buy Shares - Class C Shares," below, for more information on the
contingent deferred sales charges.
(3)There is a $10 transaction fee for redemptions paid by Federal Funds wire but not for redemptions paid by check or ACH wire
through AccountLink (see "How to Sell Shares").
</TABLE>
Annual Fund Operating Expenses are paid out of the Fund's assets and
represent the Fund's expenses in operating its business. For example, the
Fund pays management fees to its investment adviser, Oppenheimer
Management Corporation (which is referred to in this Prospectus as the
"Manager"). The rates of the Manager's fees are set forth in "How the
Fund is Managed," below. The Fund has other regular expenses for
services, such as transfer agent fees, custodial fees paid to the bank
that holds its portfolio securities, audit fees and legal expenses. Those
expenses are detailed in the Fund's Financial Statements in the Statement
of Additional Information.
The numbers in the chart below are projections of the Fund's business
expenses based on the Fund's expenses in its last fiscal year. These
amounts are shown as a percentage of the average net assets of each class
of the Fund's shares for that year. The "12b-1 Distribution Plan Fees" for
Class A shares are the service plan fees. For Class B and Class C shares,
the Distribution Plan Fees are the service plan fees and asset-based sales
charge. The service fee for each class is 0.25% of average annual net
assets of the class (for Class A shares, it is a maximum of 0.25%), and
the asset-based sales charge for Class B and Class C shares is 0.75%.
These plans are described in greater detail in "How to Buy Shares."
The actual expenses for each class of shares in future years may be
more or less than the numbers in the chart, depending on a number of
factors, including the actual value of the Fund's assets represented by
each class of shares. Class B shares were not publicly sold before
October 1, 1994. Therefore, the Annual Fund Operating Expenses shown for
Class B shares are based only on expenses for the period from October 1,
1994 through June 30, 1995.
<TABLE>
<CAPTION>
Class A Class B Class C
Shares Shares Shares
<S> <C> <C> <C>
- -------------------------------------------------------------------------
Management Fees 0.47% 0.47% 0.47%
- -------------------------------------------------------------------------
12b-1 Distribution
Plans Fees 0.24% 1.00% 1.00%
- -------------------------------------------------------------------------
Other Expenses 0.36% 0.42% 0.35%
- -------------------------------------------------------------------------
Total Fund
Operating Expenses 1.07% 1.89% 1.82%
</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 $1,000 investments in each class of shares of
the Fund, and that the Fund's annual return is 5%, and that its operating
expenses for each class are the ones shown in the Annual Fund Operating
Expenses 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 1, 3, 5 and 10 years:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years(1)
- --------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $68 $90 $113 $181
Class B Shares $69 $89 $122 $180
Class C Shares $28 $57 $99 $214
If you did not redeem your investment, it would incur the following expenses:
1 year 3 years 5 years 10 years(1)
- --------------------------------------------------------------
Class A Shares $68 $90 $113 $181
Class B Shares $19 $59 $102 $180
Class C Shares $18 $57 $99 $214
<FN>
_____________________
(1)The Class B expenses in years 7 through 10 are based on the Class A
expenses shown above, because the Fund automatically converts your Class
B shares into Class A shares after 6 years. Because of the asset-based
sales charge and the contingent deferred sales charge on Class B and Class
C shares, long-term Class B and Class C shareholders could pay the
economic equivalent of an amount greater than the maximum front-end sales
charge allowed under applicable regulatory requirements. For Class B
shareholders, the automatic conversion of Class B shares to Class A shares
is designed to minimize the likelihood that this will occur. Please refer
to "How to Buy Shares - Buying Class B Shares" for more information.
</TABLE>
These examples show the effect of expenses on an investment, but are
not meant to state or predict actual or expected costs or investment
returns of the Fund, all of which will vary.
A Brief Overview of the Fund
Some of the important facts about the Fund are summarized below, with
references to the section of this Prospectus where more complete
information can be found. You should carefully read the entire Prospectus
before making a decision about investing in the Fund. Keep the Prospectus
for reference after you invest, particularly for information about your
accounts, such as how to sell or exchange shares.
What is the Fund's Investment Objective? The Fund's investment
objective is to seek a high total return (which includes current income
and capital appreciation in the value of its shares).
What does the Fund Invest in? The Fund emphasizes investments in
(1) equity securities, such as common stocks, preferred stocks and
convertible securities, and (2) debt securities, such as bonds and
debentures. The Fund may also assume a temporary defensive position when
appropriate to do so by investing in cash equivalents. The Fund may also
write covered calls and use derivative investments and use certain hedging
instruments to try to manage investment risks. These investments and
investment methods are more fully explained in "Investment Objective and
Policies," starting on page ___.
Who Manages the Fund? The Fund's investment adviser (the "Manager")
is Oppenheimer Management Corporation. The Manager (including a
subsidiary) manages investment company portfolios having over $38 billion
in assets. The Manager is paid an advisory fee by the Fund, based on its
net assets. The Fund's portfolio manager, is Mr. Robert J. Milnamow, who
is employed by the Manager. He is primarily responsible for the selection
of the Fund's securities. The Fund's Board of Trustees, elected by
shareholders, oversees the investment adviser and the portfolio managers.
Please refer to "How the Fund is Managed" starting on page 17 for more
information about the Manager and its fees.
How Risky is the Fund? All investments carry risks to some degree.
The Fund's investments in stocks and bonds are subject to changes in their
value from a number of factors such as changes in general bond and stock
market movements, or the change in value of particular stocks or bonds
because of an event affecting the issuer. Changes in interest rates can
affect stock and bond prices. These changes affect the value of the
Fund's investments and its price per share. The Fund's investments in
foreign securities involve additional risks not associated with
investments in domestic securities, including risks associated with
changes in currency rates.
While the Manager tries to reduce risks by diversifying investments,
by carefully researching securities before they are purchased for the
Fund's portfolio, and in some cases by using hedging techniques, there is
no guarantee of success in achieving the Fund's investment objective and
your shares may be worth more or less than their original cost when you
redeem them. Please refer to "Investment Objective and Policies" starting
on page 10 for a more complete discussion of the Fund's investment risks.
How Can I Buy Shares? You can buy shares through your dealer or
financial institution, or you can purchase shares directly through the
Distributor by completing an Application or by using an Automatic
Investment Plan under AccountLink. Please refer to "How to Buy Shares"
on page 23 for more details.
Will I Pay a Sales Charge to Buy Shares? The Fund offers the
individual investor three classes of shares. All classes have the same
investment portfolio but different expenses. Class A shares are offered
with a front-end sales charge, starting at 5.75%, and reduced for larger
purchases. Class B and Class C shares are offered without a front-end
sales charge, but may be subject to a contingent deferred sales charge if
redeemed within six years or 12 months of purchase, respectively. There
is also an annual asset-based sales charge on Class B and Class C shares.
Please review "How to Buy Shares" starting on page 23 for more details,
including a discussion about which class may be appropriate for you.
How Can I Sell My Shares? Shares can be redeemed by mail or by
telephone call to the Transfer Agent on any business day, or through your
dealer. Please refer to "How to Sell Shares" on page 37. The fund also
offers exchange privileges to other Oppenheimer funds, described in "How
to Exchange Shares" on page 39.
How Has the Fund Performed? The Fund measures its performance by
quoting its average annual total returns and cumulative total returns,
which measure historical performance. Those returns can be compared to
the returns (over similar periods) of other funds. Of course, other funds
may have different objectives, investments, and levels of risk. The
Fund's performance can also be compared to broad-based market indices,
which we have done on pages 21 and 22. Please remember that past
performance does not guarantee future results.
Financial Highlights
The table on the following pages presents selected financial
information about the Fund, including per share data, expense ratios and
other data based on the Fund's average net assets. This information has
been audited by Deloitte & Touche LLP, the Fund's independent auditors,
whose report on the Fund's financial statements for the fiscal year ended
June 30, 1995, is included in the Statement of Additional Information.
Class B shares were publicly offered only during a portion of that period,
commencing October 1, 1994.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
Financial Highlights
-----------------------------------------------------------------------------------------------------
Class A Class B Class C
Period
Ended
Year Ended June 30, June 30, Year Ended June 30,
1995 1994 1993 1992 1991 1990 1989 1988(3) 1995(2) 1995 1994(1)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<C> <C>
PER SHARE
OPERATING DATA:
Net asset value,
beginning of period $20.40 $19.88 $15.46 $13.22 $12.38 $11.67 $10.13 $9.60 $21.49 $20.33
$20.76
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .47 .37 .16 .25 .38 .17 .24(4) .05 .25 .33 .13
Net realized and
unrealized gain
(loss) on
investments, options
written and
foreign currency
transactions 3.66 2.50 6.65 4.72 .87 .88 1.62 .52 2.54 3.62 (.42)
------ ------ ----- ----- ------ ------ ----- ----- ------ ----- -------
Total income (loss)
from investment
operations 4.13 2.87 6.81 4.97 1.25 1.05 1.86 .57 2.79 3.95 (.29)
- ----------------------------------------------------------------------------------------------------------------------------------
Dividends and
distributions to
shareholders:
Dividends from net
investment income (.46) (.36) (.19) (.22) (.41) (.19) (.19) (.04) (.28) (.31) (.14)
Distributions from net
realized gain on
investments, options
written and foreign
currency transactions --(5) -- (2.20) (2.51) -- (.15) (.13) -- --(5) --(5) --
Distributions in
excess of gains -- (1.99) -- -- -- -- -- -- -- -- --
------ ------ ----- ----- ------ ------ ----- ----- ------ ----- -------
Total dividends and
distributions
to shareholders (.46) (2.35) (2.39) (2.73) (.41) (.34) (.32) (.04) (.28) (.31) (.14)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $24.07 $20.40 $19.88 $15.46 $13.22 $12.38 $11.67 $10.13 $24.00 $23.97 $20.33
------ ------ ----- ----- ------ ------ ----- ----- ------ ----- -------
------ ------ ----- ----- ------ ------ ----- ----- ------ ----- -------
==========================================================
==========================================================
==============
TOTAL RETURN, AT
NET ASSET VALUE(6) 20.52% 14.34% 46.38% 39.48% 10.60% 9.07% 18.77% 5.94% 13.15%
19.63% (.97)%
==========================================================
==========================================================
==============
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (in thousands) $1,923,951 $739,552 $58,230 $26,926 $15,968 $13,851 $1,256 $345 $628,499 $461,578
$170,316
- ----------------------------------------------------------------------------------------------------------------------------------
Average net assets
(in thousands) $1,319,271 $270,417 $38,974 $23,018 $14,563 $ 7,520 $ 788 $118 $248,775 $325,025
$71,924
- ----------------------------------------------------------------------------------------------------------------------------------
Number of shares
outstanding at end of
period (in thousands) 79,934 36,251 2,929 1,742 1,208 1,119 108 34 26,189 19,260 8,377
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net
assets:
Net investment income 2.31% 2.46% 1.02% 1.63% 3.15% 2.33% 2.67% 2.86%(7) 1.25%(7) 1.57%
1.86%(7)
Expenses, before
Reimbursement
from or assumption by
the Manager 1.07% 1.28% 1.46% 1.66% 1.84% 2.21% 2.46% 10.54%(7) 1.89%(7) 1.82%
2.11%(7)
Expenses, net of
reimbursement
from or assumption
by the Manager N/A N/A N/A N/A N/A N/A 2.12%(4) N/A N/A N/A
N/A
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover
rate(8) 101.3% 199.4% 283.0% 290.1% 208.9% 214.3% 136.8% 18.8% 101.3% 101.3%
199.4%
<FN>
1. For the period from December 1, 1993 (inception of offering) to June 30,
1994.
2. For the period from October 1, 1994 (inception of offering) to June 30,
1995.
3. For the period from February 3, 1988 (commencement of operations) to June
30, 1988.
4. Net investment income would have been $.20 per share absent the voluntary
expense reimbursement, resulting in an expense ratio of 2.46%.
5. Less than $.005 per share.
6. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption at
the net asset value calculated on the last business day of the fiscal
period. Sales charges are not reflected in the total returns. Total returns
are not annualized for periods of less than one full year.
7. Annualized.
8. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation. Purchases and sales of investment securities (excluding
short-term securities) for the period ended June 30, 1995 were
$3,253,638,111 and $1,681,087,055, respectively.
</TABLE>
<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) from equity and debt securities. 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. The Fund emphasizes investments in
(1) equity securities, such as common stocks, preferred stocks and
convertible securities, and (2) debt securities, such as bonds and
debentures. The Fund may also assume a temporary defensive position when
appropriate to do so by investing in cash equivalents, as discussed below.
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.
Investments in Bonds and Convertible Securities. The Fund invests
in bonds, debentures and other debt securities to seek its investment
objective. The Fund's investments may include investment-grade bonds
rated at least "Baa" by Moody's Investors Service, Inc. ("Moody's") or at
least "BBB" by Standard & Poor's Corporation ("Standard & Poor's") or
having comparable ratings by other rating organizations. While securities
rated "Baa" by Moody's or "BBB" by Standard & Poor's are investment grade,
they may be subject to greater market fluctuations and risks of loss of
income and principal than higher-grade securities and may be considered
to have certain speculative characteristics. If the securities are
unrated, they must be judged by the Manager to be of comparable quality
to bonds rated investment grade.
The Fund may invest up to 25% of its total assets in "lower grade"
debt securities. "Lower-grade" debt securities are those rated below
"investment grade," which means they have a rating lower than "Baa" by
Moody's or lower than "BBB" by Standard & Poor's or similar ratings by
other rating organizations, or if unrated, are determined by the Manager
to be of comparable quality to debt securities rated below investment
grade. Lower-grade high yield debt securities are commonly known as "junk
bonds." The Fund may invest in securities rated as low as "C" or "D" or
which may be in default at the time the Fund buys them.
The Fund may invest no more than 10% of its total assets in lower-
grade debt securities that are not convertible. The Fund considers
convertible securities to be "equity equivalents" because of the
conversion feature and the security's rating has less impact on the
investment decision than in the case of non-convertible securities.
-- Special Risks of Lower-Grade Securities. High yield, lower-
grade securities, whether rated or unrated, often have speculative
characteristics. Lower-grade securities have special risks that make them
riskier investments than investment grade securities. They may be subject
to greater market fluctuations and risk of loss of income and principal
than lower yielding, investment-grade securities. There may be less of
a market for them and therefore they may be harder to sell at an
acceptable price. There is a relatively greater possibility that the
issuer's earnings may be insufficient to make the payments of interest due
on the bonds. The issuer's low creditworthiness may increase the
potential for its insolvency.
These risks mean that the Fund may not achieve the expected income
from lower-grade securities, and that the Fund's net asset value per share
may be affected by declines in value of these securities. However, the
Fund's limitations on investments in these types of securities may reduce
some of the risk, as will the Fund's policy of diversifying its
investments. Also, convertible securities may be less subject to some of
these risks than other debt securities, to the extent they can be
converted into stock, which may be more liquid and less affected by these
other risk factors.
Stock Investment Risks. Because the Fund may invest a significant
portion of its assets in stocks, the value of the Fund's portfolio will
be affected by changes in the stock markets. At times, the stock markets
can be volatile and stock prices can change substantially. This market
risk will affect the Fund's net asset values per share, which will
fluctuate as the values of the Fund's portfolio securities change. Not
all stock prices change uniformly or at the same time, not all stock
markets move in the same direction at the same time, and other factors can
affect a particular stock's prices (for example, poor earnings reports by
an issuer, loss of major customers, major litigation against an issuer,
and changes in government regulations affecting an industry). Not all of
these factors can be predicted.
The Fund attempts to limit market risks by diversifying its
investments, that is, by not holding a substantial amount of the stock of
any one company and by not investing too great a percentage of the Fund's
assets in any one company. Also, the Fund does not concentrate its
investments in any one industry or group of industries. Because changes
in stock and bond market prices can occur at any time, and because yields
on debt securities available at different times will vary, there is no
assurance that the Fund will achieve its investment objective, and when
you redeem your shares, they may be worth more or less than what you paid
for them.
Foreign Securities. The Fund may purchase equity and debt
securities issued or guaranteed by foreign companies or foreign
governments or their agencies. The Fund may buy securities of companies
in any country, developed or underdeveloped. There is no limit on the
amount of the Fund's assets that may be invested in foreign securities.
Foreign currency will be held by the Fund only in connection with the
purchase or sale of foreign securities.
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.
Rights and Warrants. The Fund may invest up to 10% of its total
assets in warrants attached to securities; 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 net assets, with no more
than 2% of its net assets 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.
Investing in Small, Unseasoned Companies. The Fund may invest in
securities of small, unseasoned companies. These are companies that have
been in operation for less than three years, including the operations of
any predecessors. Securities of these companies may have limited
liquidity and may be subject to volatility in their prices. The Fund
currently intends to invest no more than 5% of its net assets in
securities of small, unseasoned issuers.
Portfolio Turnover. A change in the securities held by the Fund is
known as "portfolio turnover." The Fund may engage frequently in short-
term trading to try to achieve its objective. As a result, the Fund's
portfolio turnover may be higher than other mutual funds. The "Financial
Highlights," above, show the Fund's portfolio turnover rate during past
fiscal years. High turnover and short-term trading may cause the Fund to
have relatively larger commission expenses and transaction costs than
funds that do not engage in short-term trading. Additionally, high
portfolio turnover may affect the ability of the Fund to qualify for tax
deductions for payments made to shareholders as a "regulated investment
company" under the Internal Revenue Code. The Fund qualified in its last
fiscal year and intends to do so in the coming year, although it reserves
the right not to qualify.
Can the Fund's Investment Objective and Policies Change? The Fund
has an investment objective, described above, as well as investment
policies it follows to try to achieve its objective. Additionally, the
Fund uses certain investment techniques and strategies in carrying out
those investment policies. The Fund's investment policies and techniques
are not "fundamental" unless this Prospectus or the Statement of
Additional Information says that a particular policy is "fundamental."
The Fund's investment objective is a fundamental policy.
Fundamental policies are those that cannot be changed without the
approval of a "majority" of the Fund's outstanding voting shares. The
term "majority" is defined in the Investment Company Act to be a
particular percentage of outstanding voting shares (and this term is
explained in the Statement of Additional Information). The Board of
Directors of Oppenheimer Main Street Funds, Inc. 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. These techniques
involve certain risks. The Statement of Additional Information contains
more information about these practices, including limitations on their use
that may help to reduce some of the risks.
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. 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.
Temporary Defensive Investments. In times of unstable market or
economic conditions, when the Manager determines it appropriate to do so
to attempt to reduce fluctuations in the value of the Fund's net assets,
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, its agencies or instrumentalities ("U.S. Government
Securities"); (ii) commercial paper rated in the highest category by an
established rating agency; (iii) certificates of deposit or bankers'
acceptances of domestic banks with assets of $1 billion or more; (iv) any
of the foregoing maturing in one year or less (also generally known as
"cash equivalents"); (v) short-term debt obligations; or (vi) repurchase
agreements (explained below).
When-Issued and Delayed Delivery Transactions. The Fund may
purchase securities on a "when-issued" basis, and may purchase or sell
such securities on a "delayed delivery" basis. These terms refer to
securities whose terms and indenture are available and for which a market
exists, but which are not available for immediate delivery. The Fund does
not intend to make such purchases for speculative purposes. During the
period between the purchase and settlement, no payment is made for the
security and no interest accrues to the buyer from the investment.
Repurchase Agreements. The Fund may enter into repurchase
agreements. They are primarily used for liquidity purposes. In a
repurchase transaction, the Fund buys a security and simultaneously sells
it to the vendor for delivery at a future date. Repurchase agreements
must be fully collateralized. However, if the vendor fails to pay the
resale price on the delivery date, the Fund may incur costs in disposing
of the collateral and may experience losses if there is any delay in its
ability to do so. The Fund will not enter into a repurchase agreement that
causes more than 10% of its net assets to be subject to repurchase
agreements having a maturity beyond seven days. There is no limit on the
amount of the Fund's net assets that may be subject to repurchase
agreements of seven days or less.
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.
Illiquid and Restricted Securities. Under the policies established
by the Board of Directors of Oppenheimer Main Street Funds, Inc., the
Manager determines the liquidity of the Fund's investments. Investments
may be illiquid because of the absence of an active trading market, making
it difficult to value them or dispose of them promptly at an acceptable
price. A restricted security is one that has a contractual restriction on
its resale or which cannot be sold publicly until it is registered under
the Securities Act of 1933. The Fund will not invest more than 10% of its
net assets in illiquid or restricted securities (that limit may increase
to 15% if certain state laws are changed or the Fund's shares are no
longer sold in those states). Certain restricted securities, eligible for
resale to qualified institutional purchasers, are not subject to that
limit.
Loans of Portfolio Securities. To attempt to raise income or 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 in the coming
year.
Derivative Investments. In general, a "derivative investment" is
a specially-designed investment. Its performance is linked to the
performance of another investment or security, such as an option, future,
index or currency. In the broadest sense, exchange-traded options and
futures contracts and other hedging instruments the Fund may use may be
considered "derivative investments." The Fund may use other derivative
investments because they offer the potential for increased income and
principal value.
One example of derivative investments the Fund may invest in is an
"index-linked" note, whose principal and/or interest payments depend on
the performance of an underlying index. Currency-indexed securities are
another example. These are typically short-term or intermediate-term debt
securities. Their value at maturity or the rates at which they pay income
are determined by the change in value of the U.S. dollar against one or
more foreign currencies or an index. In some cases, these securities may
pay an amount at maturity based on a multiple of the amount of the
relative currency movements. This variety of index security offers the
potential for greater income or principal but at a greater risk of loss.
Other derivative investments the Fund may invest in include debt
exchangeable for common stock of an issuer or "equity-linked debt
securities" of an issuer. At maturity, the debt security is exchanged for
common stock of the issuer or is payable in an amount based on the price
of the issuer's common stock at the time of maturity. In either case
there is a risk that the amount payable at maturity will be less than the
principal amount of the debt (because the price of the issuer's common
stock may not be as high as was expected).
-- Derivatives may entail special risks. The company issuing the
instrument might not pay the amount due on the maturity of the instrument.
Also, the underlying investment or security on which the derivative is
based might not perform the way the Manager expected it to perform. The
performance of derivative investments may also be influenced by interest
rate changes in the U.S. and abroad. All of these risks mean that the
Fund might realize less income than expected from its investments, or that
it can lose part of the value of its investments, which will affect the
Fund's share price. Certain derivative investments held by the Fund may
trade in the over-the-counter markets and may be illiquid. If that is the
case, the Fund's investment in them will be limited, as discussed in
"Illiquid and Restricted Securities," above.
Hedging. As described below, the Fund may purchase and sell certain
kinds of futures contracts, put and call options, forward contracts and
options on futures and broadly-based securities indices, or enter into
interest rate swap agreements. These are all referred to as "hedging
instruments." The Fund does not use hedging instruments for speculative
purposes, and has limits on the use of them, described below. The hedging
instruments the Fund may use are described below and in greater detail in
"Other Investment Techniques and Strategies" in the Statement of
Additional Information.
The Fund may buy and sell options, futures and forward contracts for
a number of purposes. It may do so to try to manage its exposure to the
possibility that the prices of its portfolio securities may decline, or
to establish a position in the securities market as a temporary substitute
for purchasing individual securities. It may also use certain kinds of
hedging instruments to try to manage its exposure to changing interest
rates.
Some of these strategies, such as selling futures, buying puts and
writing covered calls, hedge the Fund's portfolio against price
fluctuations. Other hedging strategies, such as buying futures and call
options, tend to increase the Fund's exposure to the securities market.
Forward contracts are used to try to manage foreign currency risks on the
Fund's foreign investments. Foreign currency options are used to try to
protect against declines in the dollar value of foreign securities the
Fund owns, or to protect against an increase in the dollar cost of buying
foreign securities. Writing covered call options may also provide income
to the Fund for liquidity purposes or to raise cash to distribute to
shareholders.
-- Futures. The Fund may buy and sell futures contracts that relate
to (1) interest rates (these are referred to as Interest Rate Futures),
(2) broadly-based securities indices (these are referred to as Financial
Futures) or (3) foreign currencies (these are referred to as Forward
Contracts).
-- Put and Call Options. The Fund may buy and sell certain kinds of
put options (puts) and call options (calls). Calls the Fund buys or sells
must be listed on a securities exchange, or quoted on the Automated
Quotation System of the National Association of Securities Dealers, Inc.
("NASDAQ"), or traded in the over-the-counter market. In the case of puts
and calls on a foreign currency, they must be traded on a securities or
commodities exchange or in the over-the-counter market, or must be quoted
by recognized dealers in those options. A call or put option may not be
purchased if the value of all the Fund's put and call options would exceed
5% of the Fund's total assets.
The Fund may buy calls on securities, broadly-based securities
indices, foreign currencies, Interest Rate Futures or Financial Futures.
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).
The Fund may write (that is, sell) call options. Each call the Fund
writes must be "covered" while the call is outstanding. That means the
Fund must own the investment on which the call was written or it must own
other securities that are acceptable for the escrow arrangements required
for calls. The Fund may write calls on Futures contracts it owns, but
these calls must be covered by securities or other liquid assets the Fund
owns and segregated to enable it to satisfy its obligations if the call
is exercised. After writing any call, not more than 25% of the Fund's
total assets may be subject to calls. When the Fund writes a call, it
receives cash (called a premium). The call gives the buyer the ability
to buy the investment on which the call was written from the Fund at the
call price during the period in which the call may be exercised. If the
value of the investment does not rise above the call price, it is likely
that the call will lapse without being exercised, while the Fund keeps the
cash premium (and the investment).
The Fund may buy and sell put options. Buying a put on an investment
gives the Fund the right to sell the investment at a set price to a seller
of a put on that investment. The Fund can buy those puts that relate to
securities the Fund owns, broadly-based securities indices, foreign
currencies, or Interest Rate Futures or Financial Futures (whether or not
the Fund holds the particular Future in its portfolio). Writing puts
requires the segregation of liquid assets to cover the put. The Fund will
not write a put if it will require more than 25% of the Fund's total
assets to be segregated to cover the put obligation.
-- Forward Contracts. Forward contracts are foreign currency
exchange contracts. The are used to buy or sell foreign currency for
future delivery at a fixed price. The Fund uses them to "lock in" the
U.S. dollar price of a security denominated in a foreign currency that the
Fund has bought or sold, or to protect against possible losses from
changes in the relative values of the U.S. dollar and a foreign currency.
The Fund limits its exposure in foreign currency exchange contracts in a
particular foreign currency to the amount of its assets denominated in
that currency or a closely-correlated currency. The Fund may also use
"cross-hedging" where the Fund hedges against changes in currencies other
than the currency in which a security it holds is denominated.
-- Interest Rate Swaps. In an interest rate swap, the Fund and
another party exchange their right to receive, or their obligation to pay,
interest on a security. For example, they may swap a right to receive
floating rate payments for the right to receive fixed rate payments. The
Fund enters into swaps only on securities it owns. The Fund may not enter
into swaps with respect to more than 25% of its total assets. Also, the
Fund will segregate liquid assets (such as cash or U.S. Government
securities) to cover any amounts it could owe under swaps that exceed the
amounts it is entitled to receive, and it will adjust that amount daily,
as needed.
-- Hedging instruments can be volatile instruments and may involve
special risks. The use of hedging instruments requires special skills and
knowledge of investment techniques that are different than what is
required for normal portfolio management. If the Manager uses a hedging
instrument at the wrong time or judges market conditions incorrectly,
hedging strategies may reduce the Fund's return. The Fund could also
experience losses if the prices of its futures and options positions were
not correlated with its other investments or if it could not close out a
position because of an illiquid market for the future or option.
Options trading involves the payment of premiums and has special tax
effects on the Fund. There are also special risks in particular hedging
strategies. For example, if a covered call written by the Fund is
exercised on an investment that has increased in value, the Fund will be
required to sell the investment at the call price and will not be able to
realize any profit if the investment has increased in value above the call
price. In writing a put, there is a risk that the Fund may be required
to buy the underlying security at a disadvantageous price. The use of
Forward Contracts may reduce the gain that would otherwise result from a
change in the relationship between the U.S. dollar and a foreign currency.
Interest rate swaps are subject to credit risks (the other party may fail
to meet its obligation) and also to interest rate risks. The Fund could
be obligated to pay more under its swap agreements that it receives under
them, as a result of interest rate changes. These risks and the hedging
strategies the Fund may use are described in greater detail in the
Statement of Additional Information.
Other Investment Restrictions. The Fund has certain investment
restrictions that are fundamental policies. Under these fundamental
policies the Fund cannot do any of the following:
-- 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;
-- 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
-- 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 and in the Statement of Additional Information apply only
at the time the Fund purchases a security, and the Fund need not dispose
of a security merely because the size of the Fund's assets has 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 is a diversified mutual fund and commenced
operations on February 3, 1988.
The Corporation is governed by a Board of Directors, which is
responsible under Maryland corporate law for protecting the interests of
shareholders. 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 officers
of the Fund and provides more information about them. Although the Fund
is not required by law to hold annual meetings, it may hold shareholder
meetings from time to time on important matters, and shareholders have the
right to call a meeting to remove a Director or to take other action
described in the 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. All classes invest in the same investment portfolio.
Each class has its own dividends and distributions and pays certain
expenses which may be different for the different classes. Each class may
have a different net asset value. Each share has one vote at shareholder
meetings, with fractional shares voting proportionally on matters
submitted to the vote of shareholders. Shares of each class may have
separate voting rights on matters in which interests of one class are
different from interests of another class, and only shares of a particular
class vote as a class on matters that affect that class alone. Shares are
freely transferrable.
The Manager and Its Affiliates. The Fund is managed by the Manager, 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. The Agreement sets forth the fees paid
by the Fund to the Manager and describes the expenses that the Fund is
responsible to pay to conduct its business.
The Manager has operated as an investment adviser since 1959. The
Manager (including a subsidiary) currently manages investment companies,
including other Oppenheimer funds, with assets of more than $38 billion
as of September 30, 1995, and with more than 2.6 million shareholder
accounts. The Manager is owned by Oppenheimer Acquisition Corp., a
holding company that is owned in part by senior officers of the Manager
and controlled by Massachusetts Mutual Life Insurance Company.
Portfolio Manager. The portfolio manager of the Fund is Mr. Robert
J. Milnamow, who is also a Vice President of the Manager. On November 1,
1995, Mr. Milnamow became the person principally responsible for the day-
to-day management of the Fund's portfolio. During the past five years,
Mr. Milnamow was a portfolio manager with Phoenix Securities Group.
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 0.47% of average annual
net assets for each class of shares (as to Class B shares, this percentage
has been annualized).
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,
brokers and other financial institutions that have a sales agreement with
Oppenheimer Funds Distributor, Inc., a subsidiary of the Manager that acts
as the Fund's Distributor. The Distributor also distributes shares of the
other Oppenheimer funds 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 Oppenheimer funds
on an "at-cost" basis. It also acts as shareholder servicing agent for
the other Oppenheimer funds. Shareholders should direct inquiries about
their accounts to the Transfer Agent at the address and toll-free numbers
shown below in this Prospectus and on the back cover.
Performance of the Fund
Explanation of Performance Terminology. The Fund uses the terms "total
return" and "average annual total return" to illustrate its performance.
The performance of each class of shares is shown separately, because the
performance of each class will usually be different as a result of the
different kinds of expenses each class bears. These returns measure the
performance of a hypothetical investment in the Fund over various periods,
and do not show the performance of each shareholder's investment (which
will vary if dividends are received in cash or shares are sold or
additional shares are purchased). The Fund's performance information may
help you see how well your Fund has done over time and to compare it to
other funds or market indices, as we have done below.
It is important to understand that the Fund's total returns represent
past performance and should not be considered to be predictions of future
returns or performance. This performance data is described below, but
more detailed information about how total returns are calculated is
contained in the Statement of Additional Information, which also contains
information about other ways to measure and compare the Fund's
performance. The Fund's investment performance will vary over time,
depending on market conditions, the composition of the portfolio, expenses
and which class of shares you purchase.
Total Returns. There are different types of total returns used to
measure the Fund's performance. Total return is the change in value of
a hypothetical investment in the Fund over a given period, assuming that
all dividends and capital gains distributions are reinvested in additional
shares. The cumulative total return measures the change in value over the
entire period (for example, ten years). An average annual total return
shows the average rate of return for each year in a period that would
produce the cumulative total return over the entire period. However,
average annual total returns do not show the Fund's actual year-by-year
performance.
When total returns are quoted for Class A shares, they reflect the
payment of the current maximum initial sales charge. When total returns
are shown for Class B shares, they reflect the effect of the contingent
deferred sales charge that applies to the period for which total return
is shown. When total returns are shown for a one-year period (or less)
for Class C shares, they reflect the effect of the contingent deferred
sales charge. Total returns may also be quoted "at net asset value,"
without considering the effect of the sales charge, and those returns
would be reduced if sales charges were deducted.
How Has the Fund Performed? Below is a discussion by the Manager of the
Fund's performance during its last fiscal year ended June 30, 1995,
followed by a graphical comparison of the Fund's performance to
appropriate broad-based market indices.
Management's Discussion of Performance. The Federal Reserve's seven
interest rate hikes between February 1994 and February 1995 slowed the
rate of U.S. economic growth during the Fund's fiscal year ended June 30,
1995. In the Manager's view, low inflation and falling interest rates
propelled domestic stock markets to record highs during the six months
ended June 30, 1995, however, there was great variation in the performance
of individual stocks. The Fund's new investments included technology
stocks, financial stocks offering high dividend yields, and airline
stocks.
The Manager's investment strategy during the fiscal year was to
search for securities of companies believed to offer potential for strong
earnings growth and having strong management and the ability to sustain
growth in the future regardless of economic factors.
Comparing the Fund's Performance to the Market. The graphs below
show the performance of a hypothetical $10,000 investment in each class
of shares of the Fund held until June 30, 1995. In the case of Class A
shares, performance is measured from the commencement of operations on
February 3, 1988, and in the case of Class B shares, from the inception
of the class on October 1, 1994, and in the case of Class C shares, from
the inception of the class on December 1, 1993.
The Fund's performance is compared to the performance of the S&P 500
Index. The S&P 500 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 S&P 500 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.
Moreover, the index data does not reflect any assessment of the risk of
the investments included in the index.
Oppenheimer Main Street Income & Growth Fund
Comparison of Change in Value of
$10,000 Hypothetical Investment in:
Oppenheimer Main Street Income & Growth Fund and the S&P 500 Index
(GRAPHS)
Past performance is not predictive of future performance.
Avg. Annual Total Returns at 6/30/95
<TABLE>
<CAPTION>
1 Year 5 Year Life(1)
- ---------------------------------------------
<S> <C> <C> <C>
A Shares 13.59% 24.01% 20.68%
1 Year Life(2)
- ----------------------------------------------
C Shares 18.63% 10.98%
Cumulative Total Return of the Fund at 6/30/94
Life of Class(3)
- -----------------------------------------------
B Shares 8.15%
- -----------------------------------------------
(1)The inception date of the Fund (Class A shares) was 2/3/88. The average
annual total returns and ending account value in the graph reflect
reinvestment of all dividends and capital gains distributions and are
shown net of the applicable 5.75% maximum initial sales charge.
(2)Class C shares of the Fund were first publicly offered on 12/1/93. The
average annual total returns reflect reinvestment of all dividend and
capital gains distributions and are shown net of the applicable 1%
contingent deferred sales charge.
(3)Class B shares of the Fund were first publicly offered on 10/1/94. The
cumulative total return reflects reinvestment of all dividends and capital
gains distributions and are shown net of the applicable 5% contingent
deferred sales charge for the life of the class. The ending account value
in the graph is net of the applicable 5% contingent deferred sales charge.
</TABLE>
A B O U T Y O U R A C C O U N T
How to Buy Shares
Classes of Shares. The Fund offers investors three 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 (up to $500,000 for purchases by
Oppenheimer funds prototype 401(k) plans). If you purchase Class A shares
as part of an investment of at least $1 million in shares of one or more
Oppenheimer funds (at least $500,000 for investments in Oppenheimer funds
prototype 401(k) plans, you will not pay an initial sales charge, but if
you sell any of those shares within 18 months of buying them, you may pay
a contingent deferred sales charge. The amount of that sales charge value
will vary depending on the amount you invested. Sales charges are
described in "Buying Class A Shares" below.
Class B Shares. If you buy Class B shares, you pay no sales charge
at the time of purchase, but if you sell your shares within six years of
buying them, you will normally pay a contingent deferred sales charge.
That sales charge varies depending on how long you own your shares. Sales
charges are described in "Buying Class B Shares" below.
Class C Shares. If you buy Class C shares, you pay no sales charge
at the time of purchase, but if you sell your shares within 12 months of
buying them, you will normally pay a contingent deferred sales charge of
1%. Sales charges are described in "Buying Class C Shares" below.
Which Class of Shares Should You Choose? Once you decide that the Fund
is an appropriate investment for you, the decisions as to which class of
shares is best suited to your needs depends on a number of factors which
you should discuss with your financial advisor. The Fund's operating costs
that apply to a class of shares and the effect of the different types of
sales charges on your investment will vary your investment results over
time. The most important factors to consider are how much you plan to
invest and how long you plan to hold your investment. If your goals and
objectives change over time and you plan to purchase additional shares,
you should re-evaluate those factors to see if you should consider another
class of shares.
In the following discussion, to help provide you and your financial
advisor with a framework in which to choose a class, we have made some
assumptions using a hypothetical investment in the Fund. We used the
sales charge rates that apply to each class, and considered the effect of
the annual asset-based sales charge on Class B and Class C expenses
(which, like all expenses, will affect your investment return). For the
sake of comparison, we have assumed that there is a 10% rate of
appreciation in the investment each year. Of course, the actual
performance of your investment cannot be predicted and will vary, based
on the Fund's actual investment returns, and the operating expenses borne
by each class of shares, and which class of shares you invest in.
The factors discussed below are not intended to be investment advice
or recommendations, because each investor's financial considerations are
different. The discussion below of the factors to consider in purchasing
a particular class of shares assumes that you will purchase only one class
of shares and not a combination of shares of different classes.
How Long Do You Expect to Hold Your Investment?
While future financial needs cannot be predicted with certainty, knowing how
long you
expect to hold your investment will assist you in selecting the
appropriate class of shares. Because of the effect of class-based
expenses, your choice will also depend on how much you plan to invest. For
example, the reduced sales charges available for larger purchases of Class
A shares may, over time, offset the effect of paying an initial sales
charge on your investment (which reduces the amount of your investment
dollars used to buy shares for your account), compared to the effect over
time of higher class-based expenses on Class B or Class C shares, for
which no initial sales charge is paid.
Investing for the Short Term. If you have a short-term investment
horizon (that is, you plan to hold your shares for not more than six
years), you should probably consider purchasing Class A or Class C shares
rather than Class B shares, because of the effect of the Class B
contingent deferred sales charge if you redeem in less than 7 years, as
well as the effect of the Class B asset-based sales charge on the
investment return for that class in the short-term. Class C shares might
be the appropriate choice (especially for investments of less than
$100,000), because there is no initial sales charge on Class C shares, and
the contingent deferred sales charge does not apply to amounts you sell
after holding them one year.
However, if you plan to invest more than $100,000 for the shorter
term, then the more you invest and the more your investment horizon
increases toward six years, Class C shares might not be as advantageous
as Class A shares. That is because the annual asset-based sales charge on
Class C shares will have a greater impact on your account over the longer
term than the reduced front-end sales charge available for larger
purchases of Class A shares. For example, Class A shares might be more
advantageous than Class C shares (as well as Class B shares) for
investments of more than $100,000 expected to be held for 5 or 6 years (or
more). For investments over $250,000 expected to be held 4 to 6 years (or
more), Class A shares may become more advantageous than Class C shares
(and Class B shares). If investing $500,000 or more, Class A shares may
be more advantageous as your investment horizon approaches 3 years or
more.
And for most investors who invest $1 million or more, in most cases
Class A shares will be the most advantageous choice, no matter how long
you intend to hold your shares. For that reason, the Distributor normally
will not accept purchase orders of $500,000 or $1 million or more of Class
B or Class C shares, respectively, from a single investor.
Investing for the Longer Term. If you are investing for the longer
term, for example, for retirement, and do not expect to need access to
your money for seven years or more, Class B shares may be an appropriate
consideration, if you plan to invest less than $100,000. If you plan to
invest more than $100,000 over the long term, Class A shares will likely
be more advantageous than Class B shares or C shares, as discussed above,
because of the effect of the expected lower expenses for Class A shares
and the reduced initial sales charges available for larger investments in
Class A shares under the Fund's Right of Accumulation.
Of course, these examples are based on approximations of the effect
of current sales charges and expenses on a hypothetical investment over
time, using the assumed performance return stated above, and therefore,
should not be relied on as rigid guidelines.
Are There Differences in Account Features That Matter To You?
Because some account features may not be available to Class B or Class C
shareholders, or other features (such as Automatic Withdrawal Plans) may
not be advisable (because of the effect of the contingent deferred sales
charge) for Class B or Class C shareholders, you should carefully review
how you plan to use your investment account before deciding which class
of shares to buy. Share certificates are not available for Class B and
Class C shares, and if you are considering using your shares as collateral
for a loan, that may be a factor to consider.
How Does It Affect Payments to My Broker? A salesperson, such as
a broker, or any other person who is entitled to receive compensation for
selling Fund shares may receive different compensation for selling one
class of shares than for selling another class. It is important that
investors understand that the purpose of the Class B and Class C
contingent deferred sales charges and asset-based sales charges is the
same as the purpose of the front-end sales charge on sales of Class A
shares: that is, to compensate the Distributor for commissions it pays to
dealers and financial institutions for selling shares.
How Much Must You Invest? You can open a Fund account with a minimum
initial investment of $1,000 and make additional investments at any time
with as little as $25. There are reduced minimum investments under special
investment plans.
With Asset Builder Plans, Automatic Exchange Plans, 403(b)(7)
custodial plans and military allotment plans, you can make initial and
subsequent investments of as little as $25; and subsequent purchases of
at least $25 can be made by telephone through AccountLink.
Under pension and profit-sharing plans and Individual Retirement
Accounts (IRAs), you can make an initial investment of as little as $250
(if your IRA is established under an Asset Builder Plan, the $25 minimum
applies), and subsequent investments may be as little as $25.
There is no minimum investment requirement if you are buying shares
by reinvesting dividends from the Fund or other Oppenheimer funds (a list
of them appears in the Statement of Additional Information, or you can ask
your dealer or call the Transfer Agent), or by reinvesting distributions
from unit investment trusts that have made arrangements with the
Distributor.
How Are Shares Purchased? You can buy shares several ways -- through
any dealer, broker or financial institution that has a sales agreement
with the Distributor, directly through the Distributor, or automatically
from your bank account through an Asset Builder Plan under the
OppenheimerFunds AccountLink service. When you buy shares, be sure to
specify Class A, Class B or Class C shares. If you do not choose, your
investment will be made in Class A shares.
Buying Shares Through Your Dealer. Your dealer will place your order
with the Distributor on your behalf.
Buying Shares Through the Distributor. Complete an OppenheimerFunds
New Account Application and return it with a check payable to "Oppenheimer
Funds Distributor, Inc." Mail it to P.O. Box 5270, Denver, Colorado 80217.
If you don't list a dealer on the application, the Distributor will act
as your agent in buying the shares. However, it is recommended that you
discuss your investment first with a financial advisor, to be sure that
it is appropriate for you.
Buying Shares Through OppenheimerFunds AccountLink. You can use
AccountLink to link your Fund account with an account at a U.S. bank or
other financial institution that is an Automated Clearing House (ACH)
member. You can then transmit funds electronically to purchase shares,
to send redemption proceeds, and to have the Transfer Agent transmit
dividends and distributions.
Shares are purchased for your account on the regular business day the
Distributor is instructed by you to initiate the ACH transfer to buy
shares. You can provide those instructions automatically, under an Asset
Builder Plan, described below, or by telephone instructions using
OppenheimerFunds PhoneLink, also described below. You should request
AccountLink privileges on the application or dealer settlement
instructions used to establish your account. Please refer to
"AccountLink" below for more details.
Asset Builder Plans. You may purchase shares of the Fund (and up to
four other Oppenheimer funds) automatically each month from your account
at a bank or other financial institution under an Asset Builder Plan with
AccountLink. Details are on the Application and in the Statement of
Additional Information.
At What Price Are Shares Sold? Shares are sold at the public
offering price based on the net asset value (and any initial sales charge
that applies) that is next determined after the Distributor receives the
purchase order in Denver, Colorado. In most cases, to enable you to
receive that day's offering price, the Distributor must receive your order
by the time of day The New York Stock Exchange closes, which is normally
4:00 P.M., New York time, but may be earlier on some days (all references
to time in this Prospectus mean "New York time"). The net asset value of
each class of shares is determined as of that time on each day The New
York Stock Exchange is open (which is a "regular business day").
If you buy shares through a dealer, the dealer must receive your
order by the closed of The New York Stock Exchange on a regular business
day and transmit it to the Distributor so that it is received before the
Distributor's close of business that day, which is normally 5:00 P.M. The
Distributor may reject any purchase order for the Fund's shares, in its
sole discretion.
Buying Class A Shares. Class A shares are sold at their offering price,
which is normally net asset value plus an initial sales charge. However,
in some cases, described below, purchases are not subject to an initial
sales charge, and the offering price will be the net asset value. In some
cases, reduced sales charges may be available, as described below. Out
of the amount you invest, the Fund receives the net asset value to invest
for your account. The sales charge varies depending on the amount of your
purchase. A portion of the sales charge may be retained by the
Distributor and allocated to your dealer. The current sales charge rates
and commissions paid to dealers and brokers are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
Front-End Sales Charge Commission
As a Percentage of as Percentage
Offering Amount of Offering
Amount of Purchase Price Invested Price
<S> <C> <C> <C>
- ------------------------------------------------------------------------
Less than $25,000 5.75% 6.10% 4.75%
- ------------------------------------------------------------------------
$25,000 or more but
less than $50,000 5.50% 5.82% 4.75%
- ------------------------------------------------------------------------
$50,000 or more but
less than $100,000 4.75% 4.99% 4.00%
- ------------------------------------------------------------------------
$100,000 or more but
less than $250,000 3.75% 3.90% 3.00%
- ------------------------------------------------------------------------
$250,000 or more but
less than $500,000 2.50% 2.56% 2.00%
- ------------------------------------------------------------------------
$500,000 or more but
less than $1 million 2.00% 2.04% 1.60%
</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 of the
Oppenheimer funds in the following cases:
-- Purchases aggregating $1 million or more; or
-- Purchases by an OppenheimerFunds prototype 401(k) plan that (1)
buys shares costing $500,000 or more, or (2) has, at the time of purchase
100 or more eligible participants, or (3) certifies that it projects to
have annual plan purchases of $200,000 or more.
Shares of any of the Oppenheimer funds that offers only one class of
shares that has no class designation are considered "Class A Shares" for
this purpose. The Distributor pays dealers of record commissions on these
purchases in an amount equal to the sum of 1.0% of the first $2.5 million,
plus 0.50% of the next $2.5 million, plus 0.25% of purchases over $5
million. That commission will be paid only on the amount of those
purchases in excess of $1 million ($500,000, for purchases by
OppenheimerFunds prototype 401(k) plans) that were not previously subject
to a front-end sales charge and dealer commission.
If you redeem any of those shares within 18 months of the end of the
calendar month of their purchase, a contingent deferred sales charge
(called the "Class A contingent deferred sales charge") may be deducted
from the redemption proceeds. That sales charge will be equal to 1.0% of
either (1) the aggregate net asset value of the redeemed shares (not
including shares purchased by reinvestment of dividends or capital gain
distributions) or (2) the original cost of the shares, whichever is less.
However, the Class A contingent deferred sales charge will not exceed the
aggregate amount of the commissions the Distributor paid to your dealer
on all Class A shares of all Oppenheimer funds you purchased subject to
the Class A contingent deferred sales charge.
In determining whether a contingent deferred sales charge is payable,
the Fund will first redeem shares that are not subject to the sales
charge, including shares purchased by reinvestment of dividends and
capital gains, and then will redeem other shares in the order that you
purchased them. The Class A contingent deferred sales charge is waived
in certain cases described in "Waivers of Class A Sales Charges" below.
No Class A contingent deferred sales charge is charged on exchanges
of shares under the Fund's Exchange Privilege (described below). However,
if the shares acquired by exchange are redeemed within 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 Oppenheimer funds
(other than money market funds) under OppenheimerFunds-sponsored 403(b)(7)
custodial plans exceed $5 million per year (calculated per quarter), will
receive monthly one-half of the Distributor's retained commissions on
those sales, and if those sales exceed $10 million per year, those dealers
will receive the Distributor's entire retained commission on those sales.
Reduced Sales Charges for Class A Share Purchases. You may be eligible
to buy Class A shares at reduced sales charge rates in one or more of the
following ways:
Right of Accumulation. To qualify for the lower sales charge rates
that apply to larger purchases of Class A shares, you and your spouse can
add together Class A and Class B shares you purchase for your individual
accounts, or jointly, or for trust or custodial accounts on behalf of your
children who are minors. A fiduciary can count all shares purchased for
a trust, estate or other fiduciary account (including one or more employee
benefit plans of the same employer) that has multiple accounts.
Additionally, you can add together current purchases of Class A and
Class B shares of the Fund and other Oppenheimer funds to reduce the sales
charge rate that applies to current purchases of Class A shares. You can
also include Class A and Class B shares of Oppenheimer funds you
previously purchased subject to an initial or contingent deferred sales
charge to reduce the sales charge rate for current purchases of Class A
shares, provided that you still hold your investment in one of the
Oppenheimer funds. 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 Oppenheimer funds are listed in "Reduced Sales Charges" in
the Statement of Additional Information, or a list can be obtained from
the Distributor. The reduced sales charge will apply only to current
purchases and must be requested when you buy your shares.
Letter of Intent. Under a Letter of Intent, if you purchase Class
A shares or Class A and Class B shares of the Fund and other Oppenheimer
funds during a 13-month period, you can reduce the sales charge rate that
applies to your purchases of Class A shares. The total amount of your
intended purchases of both Class A and Class B shares will determine the
reduced sales charge rate for the Class A shares purchased during that
period. This can include purchases made up to 90 days before the date of
the Letter. More information is contained in the Application and in
"Reduced Sales Charges" in the Statement of Additional Information.
Waivers of Class A Sales Charges. The Class A sales charges are not
imposed in the circumstances described below. There is an explanation of
this policy in "Reduced Sales Charges" in the Statement of Additional
Information.
Waivers of Initial and Contingent Deferred Sales Charges for Certain
Purchasers. Class A shares purchased by the following investors are not
subject to any Class A sales charges:
-- the Manager or its affiliates;
-- present or former officers, directors, trustees and employees (and
their "immediate families" as defined in "Reduced Sales Charges" in the
Statement of Additional Information) of the Fund, the Manager and its
affiliates, and retirement plans established by them for their employees;
-- registered management investment companies, or separate accounts
of insurance companies having an agreement with the Manager or the
Distributor for that purpose;
-- dealers or brokers that have a sales agreement with the
Distributor, if they purchase shares for their own accounts or for
retirement plans for their employees;
-- employees and registered representatives (and their spouses) of
dealers or brokers described above or financial institutions that have
entered into sales arrangements with such dealers or brokers (and are
identified to the Distributor) or with the Distributor; the purchaser must
certify to the Distributor at the time of purchase that the purchase is
for the purchaser's own account (or for the benefit of such employee's
spouse or minor children);
-- dealers, brokers or registered investment advisers that have
entered into an agreement with the Distributor providing specifically for
the use of shares of the Fund in particular investment products made
available to their clients (those clients may be charged a transaction fee
by their dealer, broker or advisor for the purchase or sale of Fund
shares); and
-- dealers, brokers or registered investment advisers that have
entered into an agreement with the Distributor to sell shares to defined
contribution employee retirement plans for which the dealer, broker or
investment adviser provides administration services.
Waivers of Initial and Contingent Deferred Sales Charges in Certain
Transactions. Class A shares issued or purchased in the following
transactions are not subject to Class A sales charges:
-- shares issued in plans of reorganization, such as mergers, asset
acquisitions and exchange offers, to which the Fund is a party;
-- shares purchased by the reinvestment of loan repayments by a
participant in a retirement plan for which the Manager or its affiliates
acts as sponsor;
-- shares purchased by the reinvestment of dividends or other
distributions reinvested from the Fund or other Oppenheimer funds (other
than Oppenheimer Cash Reserves) or unit investment trusts for which
reinvestment arrangements have been made with the Distributor; or
-- shares purchased and paid for with the proceeds of shares redeemed
in the past 12 months from a mutual fund (other than a fund managed by the
Manager or any of its subsidiaries) on which an initial sales charge or
contingent sales charge was paid (this waiver also applies to shares
purchased by exchange of shares of Oppenheimer Money Market Fund, Inc.
that were purchased and paid for in this manner); this waiver must be
requested when the purchase order is placed for your shares of the Fund,
and the Distributor may require evidence of your qualification for this
waiver.
Waivers of the Class A Contingent Deferred Sales Charge for Certain
Redemptions. The Class A contingent deferred sales charge is also waived
if shares that would otherwise be subject to the contingent deferred sales
charge are redeemed in the following cases:
-- for retirement distributions or loans to participants or
beneficiaries from qualified retirement plans, deferred compensation plans
or other employee benefit plans, including OppenheimerFunds prototype
401(k) plans (these are all referred to as "Retirement Plans");
-- to return excess contributions made to Retirement Plans;
-- to make Automatic Withdrawal Plan payments that are limited
annually to no more than 12% of the original account value;
-- involuntary redemptions of shares by operation of law or
involuntary redemptions of small accounts (see "Shareholder Account Rules
and Policies," below);
-- if, at the time a purchase order is placed for Class A shares that
would otherwise be subject to the Class A contingent deferred sales
charge, the dealer agrees in writing to accept the dealer's portion of the
commission payable on the sale in installments of 1/18th of the commission
per month (and no further commission will be payable if the shares are
redeemed within 18 months of purchase); or
-- for distributions from OppenheimerFunds prototype 401(k) plans for
any of the following cases or purposes: (1) following death or disability
(as defined in the Internal Revenue Code) of the participant or
beneficiary (the death or disability must occur after the participant's
account was established); (2) hardship withdrawals, as defined in the
plan; (3) under a Qualified Domestic Relations Order, as defined in the
Internal Revenue Code; (4) to meet the minimum distribution requirements
of the Internal Revenue Code; (5) to establish "substantially equal
periodic payments" as described in Section 72(t) of the Internal Revenue
Code, or (6) separation from service.
Service Plan for Class A Shares. The Fund has adopted a Service
Plan for Class A shares to reimburse the Distributor for a portion of its
costs incurred in connection with the personal service and maintenance of
shareholder accounts that hold Class A shares. Reimbursement is made
quarterly at an annual rate that may not exceed 0.25% of the average
annual net assets of Class A shares of the Fund. The Distributor uses all
of those fees to compensate dealers, brokers, banks and other financial
institutions quarterly for providing personal service and maintenance of
accounts of their customers that hold Class A shares and to reimburse
itself (if the Corporation's Board of Directors authorizes such
reimbursements, which it has not yet done) for its other expenditures
under the Plan.
Services to be provided include, among others, answering customer
inquiries about the Fund, assisting in establishing and maintaining
accounts in the Fund, making the Fund's investment plans available and
providing other services at the request of the Fund or the Distributor.
Payments are made by the Distributor quarterly at an annual rate not to
exceed 0.25% of the average annual net assets of Class A shares held in
accounts of the dealer or its customers. The payments under the Plan
increase the annual expenses of Class A shares. For more details, please
refer to "Distribution and Service Plans" in the Statement of Additional
Information.
Buying Class B Shares. Class B shares are sold at net asset value per
share without an initial sales charge. However, if Class B shares are
redeemed within 6 years of their purchase, a contingent deferred sales
charge will be deducted from the redemption proceeds. That sales charge
will not apply to shares purchased by the reinvestment of dividends or
capital gains distributions. The charge will be assessed on the lesser of
the net asset value of the shares at the time of redemption or the
original purchase price. The contingent deferred sales charge is not
imposed on the amount of your account value represented by the increase
in net asset value over the initial purchase price (including increases
due to the reinvestment of dividends and capital gains distributions). The
Class B contingent deferred sales charge is paid to the Distributor to
reimburse its expenses of providing distribution-related services to the
Fund in connection with the sale of Class B shares.
To determine whether the contingent deferred sales charge applies to
a redemption, the Fund redeems shares in the following order: (1) shares
acquired by reinvestment of dividends and capital gains distributions, (2)
shares held for over 6 years, and (3) shares held the longest during the
6-year period. The contingent deferred sales charge is not imposed in the
circumstances described in "Waivers of Class B and Class C Sales Charges"
below.
The amount of the contingent deferred sales charge will depend on the
number of years since you invested and the dollar amount being redeemed,
according to the following schedule:
<TABLE>
<CAPTION>
Years Since
Beginning of
Month in which Contingent Deferred Sales Charge
Purchase Order On Redemptions in That Year
Was Accepted (As % of Amount Subject to Charge)
- --------------------------------------------------------------
<S> <C>
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
</TABLE>
In the table, a "year" is a 12-month period. All purchases are considered
to have been made on the first regular business day of the month in which
the purchase was made.
-- Automatic Conversion of Class B Shares. 72 months after you
purchase Class B shares, those shares will automatically convert to Class
A shares. This conversion feature relieves Class B shareholders of the
asset-based sales charge that applies to Class B shares under the Class
B Distribution and Service Plan, described below. The conversion is based
on the relative net asset value of the two classes, and no sales load or
other charge is imposed. When Class B shares convert, any other Class B
shares that were acquired by the reinvestment of dividends and
distributions on the converted shares will also convert to Class A shares.
The conversion feature is subject to the continued availability of a tax
ruling described in "Alternative Sales Arrangements - Class A, Class B and
Class C Shares" in the Statement of Additional Information.
-- Distribution and Service Plan for Class B Shares. The Fund has
adopted a Distribution and Service Plan for Class B shares to reimburse
the Distributor for 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 service 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 or other distribution 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 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.
Waivers of Class B and Class C Sales Charges. The Class B and
Class C contingent deferred sales charges will not be applied to shares
purchased in certain types of transactions nor will it apply to shares
redeemed in certain circumstances as described below. The reasons for
this policy are in "Reduced Sales Charges" in the Statement of Additional
Information.
Waivers for Redemptions in Certain Cases. The Class B and Class C
contingent deferred sales charges will be waived for redemptions of shares
in the following cases:
-- distributions to participants or beneficiaries from Retirement
Plans, if the distributions are made (a) under an Automatic Withdrawal
Plan after the participant reaches age 59-1/2, as long as the payments are
no more than 10% of the account value annually (measured from the date the
Transfer Agent receives the request), or (b) following the death or
disability (as defined in the Internal Revenue Code) of the participant
or beneficiary (the death or disability must have occurred after the
account was established);
-- redemptions from accounts other than Retirement Plans following
the death or disability of the last surviving shareholder (the death or
disability must have occurred after the account was established, and for
disability you must provide evidence of a determination of disability by
the Social Security Administration);
-- returns of excess contributions to Retirement Plans;
-- distributions from IRAs (including SEP-IRAs and SAR/SEP accounts)
before the participant is age 59-1/2, and distributions from 403(b)(7)
custodial plans or pension or profit sharing plans before the participant
is age 59-1/2 but only after the participant has separated from service,
if the distributions are made in substantially equal periodic payments
over the life (or life expectancy) of the participant or the joint lives
(or joint life and last survivor expectancy) of the participant and the
participant's designated beneficiary (and the distributions must comply
with other requirements for such distributions under the Internal Revenue
Code and may not exceed 10% of the account value annually, measured from
the date the Transfer Agent receives the request);
-- shares redeemed involuntarily, as described in "Shareholder
Account Rules and Policies," below; or
-- distributions from OppenheimerFunds prototype 401(k) plans (1) for
hardship withdrawals; (2) under a Qualified Domestic Relations Order, as
defined in the Internal Revenue Code; (3) to meet minimum distribution
requirements as defined in the Internal Revenue Code; (4) to make
"substantially equal periodic payments" as described in Section 72(t) of
the Internal Revenue Code; or (5) for separation from service.
Waivers for Shares Sold or Issued in Certain Transactions. The
contingent deferred sales charge is also waived on Class B and Class C
shares sold or issued in the following cases:
-- shares sold to the Manager or its affiliates;
-- shares sold to registered management investment companies or
separate accounts of insurance companies having an agreement with the
Manager or the Distributor for that purpose; or
-- shares issued in plans of reorganization to which the Fund is a
party.
Buying Class C Shares. Class C shares are sold at net asset value per
share without an initial sales charge. However, if Class C shares are
redeemed within 12 months of their purchase, a contingent deferred sales
charge of 1.0% will be deducted from the redemption proceeds. That sales
charge will not apply to shares purchased by the reinvestment of dividends
or capital gains distributions. The charge will be assessed on the lesser
of the net asset value of the shares at the time of redemption or the
original purchase price. The contingent deferred sales charge is not
imposed on the amount of your account value represented by the increase
in net asset value over the initial purchase price (including increases
due to the reinvestment of dividends and capital gains distributions). The
Class C contingent deferred sales charge is paid to the Distributor to
reimburse its expenses of providing distribution-related services to the
Fund in connection with the sale of Class C shares.
To determine whether the contingent deferred sales charge applies to
a redemption, the Fund redeems shares in the following order: (1) shares
acquired by reinvestment of dividends and capital gains distributions, (2)
shares held for over 12 months, and (3) shares held the longest during the
12-month period.
Waivers of Class C Sales Charge. The Class C contingent deferred
sales charge will be waived for any of the redemptions or circumstances
described above under "Waivers of Class B and Class C Contingent Deferred
Sales Charges."
Distribution and Service Plan for Class C Shares. The Fund has
adopted a Distribution and Service Plan for Class C shares to reimburse
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 the services 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
total up-front commission paid by the Distributor to the dealer at the
time of sale of Class C shares is 1.0% of the purchase price. The
Distributor plans to pay the asset-based sales charge as an ongoing
commission to the dealer on Class C shares that have been outstanding for
a year or more.
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. These include purchases of shares by telephone
(either through a service representative or by PhoneLink, described
below), automatic investments under Asset Builder Plans, and sending
dividends and distributions or Automatic Withdrawal Plan payments directly
to your bank account. Please refer to the Application for details or call
the Transfer Agent for more information.
AccountLink privileges should be requested on the Application you use
to buy shares, or on your dealer's settlement instructions if you buy your
shares through your dealer. After your account is established, you can
request AccountLink privileges by sending signature-guaranteed
instructions to the Transfer Agent. AccountLink privileges will apply to
each shareholder listed in the registration on your account as well as to
your dealer representative of record unless and until the Transfer Agent
receives written instructions terminating or changing those privileges.
After you establish AccountLink for your account, any change of bank
account information must be made by signature-guaranteed instructions to
the Transfer Agent signed by all shareholders who own the account.
Using AccountLink to Buy Shares. Purchases may be made by telephone
only after your account has been established. To purchase shares in
amounts up to $250,000 through a telephone representative, call the
Distributor at 1-800-852-8457. The purchase payment will be debited from
your bank account.
PhoneLink. PhoneLink is the OppenheimerFunds automated telephone
system that enables shareholders to perform a number of account
transactions automatically using a touch-tone phone. PhoneLink may be
used on already-established Fund accounts after you obtain a Personal
Identification Number (PIN), by calling the special PhoneLink number: 1-
800-533-3310.
-- Purchasing Shares. You may purchase shares in amounts up to
$100,000 by phone, by calling 1-800-533-3310. You must have established
AccountLink privileges to link your bank account with the Fund, to pay for
these purchases.
-- Exchanging Shares. With the OppenheimerFunds Exchange Privilege,
described below, you can exchange shares automatically by phone from your
Fund account to another Oppenheimer funds account you have already
established by calling the special PhoneLink number. Please refer to "How
to Exchange Shares," below, for details.
-- Selling Shares. You can redeem shares by telephone automatically
by calling the PhoneLink number and the Fund will send the proceeds
directly to your AccountLink bank account. Please refer to "How to Sell
Shares," below, for details.
Automatic Withdrawal and Exchange Plans. The Fund has several plans that
enable you to sell shares automatically or exchange them to another
OppenheimerFunds account on a regular basis:
Automatic Withdrawal Plans. If your Fund account is worth $5,000 or
more, you can establish an Automatic Withdrawal Plan to receive payments
of at least $50 on a monthly, quarterly, semi-annual or annual basis. The
checks may be sent to you or sent automatically to your bank account on
AccountLink. You may even set up certain types of withdrawals of up to
$1,500 per month by telephone. You should consult the Application and
Statement of Additional Information for more details.
Automatic Exchange Plans. You can authorize the Transfer Agent to
exchange an amount you establish in advance automatically for shares of
up to five other Oppenheimer funds on a monthly, quarterly, semi-annual
or annual basis under an Automatic Exchange Plan. The minimum purchase
for each Oppenheimer funds account is $25. These exchanges are subject
to the terms of the Exchange Privilege, described below.
Reinvestment Privilege. If you redeem some or all of your Class A shares
of the Fund, you have up to 6 months to reinvest all or part of the
redemption proceeds in Class A shares of the Fund or other Oppenheimer
funds without paying a sales charge. This privilege applies to Class A
shares that you sell purchased with an initial sales charge and to Class
A or Class B shares on which you paid a contingent deferred sales charge
when you redeemed them. This privilege does not apply to Class C shares.
You must be sure to ask the Distributor for this privilege when you send
your payment. Please consult the Statement of Additional Information for
more details.
Retirement Plans. Fund shares are available as an investment for your
retirement plans. If you participate in a plan sponsored by your employer,
the plan trustee or administrator must make the purchase of shares for
your retirement plan account. The Distributor offers a number of different
retirement plans that can be used by individuals and employers:
-- Individual Retirement Accounts including rollover IRAs, for
individuals and their spouses
-- 403(b)(7) Custodial Plans for employees of eligible tax-exempt
organizations, such as schools, hospitals and charitable organizations
-- SEP-IRAs (Simplified Employee Pension Plans) for small business
owners or people with income from self-employment, including SARSEP-IRAs
-- Pension and Profit-Sharing Plans for self-employed persons and
other employers
-- 401(k) Prototype Retirement Plans for Businesses
Please call the Distributor for the OppenheimerFunds plan documents,
which contain important information and applications.
How to Sell Shares
You can arrange to take money out of your account by selling
(redeeming) some or all of your shares on any regular business day. Your
shares will be sold at the next net asset value calculated after your
order is received and accepted by the Transfer Agent. The Fund offers you
a number of ways to sell your shares: in writing or by telephone. You can
also set up Automatic Withdrawal Plans to redeem shares on a regular
basis, as described above. If you have questions about any of these
procedures, and especially if you are redeeming shares in a special
situation, such as due to the death of the owner, or from a retirement
plan, please call the Transfer Agent first, at 1-800-525-7048, for
assistance.
Retirement Accounts. To sell shares in an Oppenheimer funds
retirement account in your name, call the Transfer Agent for a
distribution request form. There are special income tax withholding
requirements for distributions from retirement plans and you must submit
a withholding form with your request to avoid delay. If your retirement
plan account is held for you by your employer, you must arrange for the
distribution request to be sent by the plan administrator or trustee.
There are additional details in the Statement of Additional Information.
Certain Requests Require a Signature Guarantee. To protect you and
the Fund from fraud, certain redemption requests must be in writing and
must include a signature guarantee in the following situations (there may
be other situations also requiring a signature guarantee):
-- You wish to redeem more than $50,000 worth of shares and receive
a check
-- The redemption check is not payable to all shareholders listed on
the account statement
-- The redemption check is not sent to the address of record on your
account statement
-- Shares are being transferred to a Fund account with a different
owner or name
-- Shares are redeemed by someone other than the owners (such as an
Executor)
Where Can I Have My Signature Guaranteed? The Transfer Agent will
accept a guarantee of your signature by a number of financial
institutions, including: a U.S. bank, trust company, credit union or
savings association, or by a foreign bank that has a U.S. correspondent
bank, or by a U.S. registered dealer or broker in securities, municipal
securities or government securities, or by a U.S. national securities
exchange, a registered securities association or a clearing agency. If
you are signing on behalf of a corporation, partnership or other business,
or as a fiduciary you must also include your title in the signature.
Selling Shares by Mail. Write a "letter of instructions" that includes:
-- Your name
-- The Fund's name
-- Your Fund account number (from your account statement)
-- The dollar amount or number of shares to be redeemed
-- Any special payment instructions
-- Any share certificates for the shares you are selling,
-- The signatures of all registered owners exactly as the account is
registered, and
-- Any special requirements or documents requested by the Transfer
Agent to assure proper authorization of the person asking to sell shares.
Use the following address for requests by mail:
Oppenheimer Shareholder Services
P.O. Box 5270, Denver, Colorado 80217
Send courier or Express Mail requests to:
Oppenheimer 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 the close of The New York Stock Exchange that day, which is
normally 4:00 P.M., but may be earlier on some days. You may not redeem
shares held in an OppenheimerFunds retirement plan or under a share
certificate by telephone.
-- To redeem shares through a service representative, call 1-800-852-
8457
-- To redeem shares automatically on PhoneLink, call 1-800-533-3310
Whichever method you use, you may have a check sent to the address
on the account statement, or, if you have linked your Fund account to your
bank account on AccountLink, you may have the proceeds sent to that
account.
Telephone Redemptions Paid by Check. Up to $50,000 may be redeemed
by telephone, in any 7-day period. The check must be payable to all
owners of record of the shares and must be sent to the address on the
account statement. This service is not available within 30 days of
changing the address on an account.
Telephone Redemptions Through AccountLink or by Wire. There are no
dollar limits on telephone redemption proceeds sent to a bank account
designated when you establish AccountLink. Normally the ACH transfer to
your bank is initiated on the business day after the redemption. You do
not receive dividends on the proceeds of the shares you redeemed while
they are waiting to be transferred.
Shareholders may also have the Transfer Agent send redemption
proceeds of $2,500 or more by Federal Funds wire to a designated
commercial bank account. The bank must be a member of the Federal Reserve
wire system. There is a $10 fee for each Federal Funds wire. To place a
wire redemption request, call the Transfer Agent at 1-800-852-8457. The
wire will normally be transmitted on the next bank business day after the
shares are redeemed. There is a possibility that the wire may be delayed
up to seven days to enable the Fund to sell securities to pay the
redemption proceeds. No dividends are accrued or paid on the proceeds of
shares that have been redeemed and are awaiting transmittal by wire. To
establish wire redemption privileges on an account that is already
established, please contact the Transfer Agent for instructions.
Selling Shares Through Your Dealer. The Distributor has made arrangements
to repurchase Fund shares from dealers and brokers on behalf of their
customers. Brokers or dealers may charge for that service. Please refer
to "Special Arrangements for Repurchase of Shares from Dealers and
Brokers" in the Statement of Additional Information for more details.
How to Exchange Shares
Shares of the Fund may be exchanged for shares of certain Oppenheimer
funds at net asset value per share at the time of exchange, without sales
charge. 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 Oppenheimer funds. For example, you can exchange
Class A shares of this Fund only for Class A shares of another fund. At
present, Oppenheimer Money Market Fund, Inc. offers only one class of
shares, which are considered to be "Class A" shares for this purpose. In
some cases, sales charges may be imposed on exchange transactions. Please
refer to "How to Exchange Shares" in the Statement of Additional
Information for more details.
Exchanges may be requested in writing or by telephone:
Written Exchange Requests. Submit an OppenheimerFunds Exchange
Request form, signed by all owners of the account. Send it to the
Transfer Agent at the addresses listed in "How to Sell Shares."
Telephone Exchange Requests. Telephone exchange requests may be made
either by calling a service representative at 1-800-852-8457 or by using
PhoneLink for automated exchanges by calling 1-800-533-3310. Telephone
exchanges may be made only between accounts that are registered with the
same name(s) and address. Shares held under certificates may not be
exchanged by telephone.
You can find a list of Oppenheimer funds currently available for
exchanges in the Statement of Additional Information or obtain one by
calling a service representative at 1-800-525-7048. That list can change
from time to time.
There are certain exchange policies you should be aware of:
-- Shares are normally redeemed from one fund and purchased from the
other fund in the exchange transaction on the same regular business day
on which the Transfer Agent receives an exchange request that is in proper
form by the close of The New York Stock Exchange that day, which is
normally 4:00 P.M., but may be earlier on some days. However, either fund
may delay the purchase of shares of the fund you are exchanging into up
to seven days if it determines it would be disadvantaged by a same-day
transfer of the proceeds to buy shares. For example, the receipt of
multiple exchange requests from a dealer in a "market-timing" strategy
might require the sale of portfolio securities at a time or price
disadvantageous to the Fund.
-- Because excessive trading can hurt fund performance and harm
shareholders, the Fund reserves the right to refuse any exchange request
that will disadvantage it, or to refuse multiple exchange requests
submitted by a shareholder or dealer.
-- The Fund may amend, suspend or terminate the exchange privilege
at any time. Although the Fund will attempt to provide you notice
whenever it is reasonably able to do so, it may impose these changes at
any time.
-- For tax purposes, exchanges of shares involve a redemption of the
shares of the Fund you own and a purchase of the shares of the other fund,
which may result in a capital gain or loss. For more information about
taxes affecting exchanges, please refer to "How to Exchange Shares" in the
Statement of Additional Information.
-- If the Transfer Agent cannot exchange all the shares you request
because of a restriction cited above, only the shares eligible for
exchange will be exchanged.
Shareholder Account Rules and Policies
Net Asset Value Per Share is determined for each class of shares as
of the close of The New York Stock Exchange on each day the Exchange is
open by dividing the value of the Fund's net assets attributable to a
class by the number of shares of that class that are outstanding. The
Corporation'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 and obligations for which
market values cannot be readily obtained. 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 neither the Transfer Agent nor the Fund will
be liable for losses or expenses arising out of telephone instructions
reasonably believed to be genuine. If you are unable to reach the
Transfer Agent during periods of unusual market activity, you may not be
able to complete a telephone transaction and should consider placing your
order by mail.
Redemption or transfer requests will not be honored until the
Transfer Agent receives all required documents in proper form. From time
to time, the Transfer Agent in its discretion may waive certain of the
requirements for redemptions stated in this Prospectus.
Dealers that can perform account transactions for their clients by
participating in NETWORKING through the National Securities Clearing
Corporation are responsible for obtaining their clients' permission to
perform those transactions and are responsible to their clients who are
shareholders of the Fund if the dealer performs any transaction
erroneously or improperly.
The redemption price for shares will vary from day to day because
the value of the securities in the Fund's portfolio fluctuates, and the
redemption price, which is the net asset value per share, will normally
be different for Class A, Class B and Class C shares. Therefore, the
redemption value of your shares may be more or less than their original
cost.
Payment for redeemed shares is made ordinarily in cash and forwarded
by check or through AccountLink (as elected by the shareholder under the
redemption procedures described above) within seven (7) days after the
Transfer Agent receives redemption instructions in proper form, except
under unusual circumstances determined by the Securities and Exchange
Commission delaying or suspending such payments. For accounts registered
in the name of a broker/dealer, payment will be forwarded within three (3)
business days. The Transfer Agent may delay forwarding a check or
processing a payment via AccountLink for recently purchased shares, but
only until the purchase payment has cleared. That delay may be as much
as 10 days from the date the shares were purchased. That delay may be
avoided if you purchase shares by certified check or arrange with your
bank to provide telephone or written assurance to the Transfer Agent that
your purchase payment has cleared.
Involuntary redemptions of small accounts may be made by the Fund
if the account value has fallen below $500 for reasons other than the fact
that the market value of shares has dropped, and in some cases involuntary
redemptions may be made to repay the Distributor for losses from the
cancellation of share purchase orders.
Under unusual circumstances, shares of the Fund may be redeemed "in
kind," which means that the redemption proceeds will be paid with
securities from the Fund's portfolio. Please refer to "How to Sell
Shares" in the Statement of Additional Information for more details.
"Backup Withholding" of Federal income tax may be applied at the
rate of 31% from dividends, distributions and redemption proceeds
(including exchanges) if you fail to furnish the Fund a certified Social
Security or employer identification number when you sign your application,
or if you violate Internal Revenue Service regulations on tax reporting
of income.
The Fund does not charge a redemption fee, but if your dealer or
broker handles your redemption, they may charge a fee. That fee can be
avoided by redeeming your Fund shares directly through the Transfer Agent.
Under the circumstances described in "How To Buy Shares," you may be
subject to a contingent deferred sales charges when redeeming certain
Class A, Class B and Class C shares.
To avoid sending duplicate copies of materials to households, the
Fund will mail only one copy of each annual and semi-annual report to
shareholders having the same last name and address on the Fund's records.
However, each shareholder may call the Transfer Agent at 1-800-525-7048
to ask that copies of those materials be sent personally to that
shareholder.
Dividends, Capital Gains and Taxes
Dividends. The Fund declares dividends separately for Class A, Class B 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 than for Class A shares. There is no
fixed dividend rate and there can be no assurance as to the payment of any
dividends.
Capital Gains. The Fund may make distributions annually in December out
of any net short-term or long-term capital gains, and the Fund may make
supplemental distributions of dividends and capital gains following the
end of its fiscal year. Short-term capital gains are treated as dividends
for tax purposes. Long-term capital gains will be separately identified
in the tax information the Fund sends you after the end of the calendar
year. 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. It does not matter how long you have held
your shares. Dividends paid from short-term capital gains and net
investment income are taxable as ordinary income. Distributions are
subject to federal income tax and may be subject to state or local taxes.
Your distributions are taxable when paid, whether you reinvest them in
additional shares or take them in cash. Every year the Fund will send you
and the IRS a statement showing the amount of each taxable distribution
you received in the previous year.
"Buying a Dividend": When a fund goes ex-dividend, its share price
is reduced by the amount of the distribution. If you buy shares on or
just before the ex-dividend date, or just before the Fund declares a
capital gains distribution, you will pay the full price for the shares and
then receive a portion of the price back as a taxable dividend or capital
gain.
Taxes on Transactions: Share redemptions, including redemptions for
exchanges, are subject to capital gains tax. Generally speaking, a
capital gain or loss is the difference between the price you paid for the
shares and the price you received when you sold them.
Returns of Capital: In certain cases distributions made by the Fund
may be considered a non-taxable return of capital to shareholders. If
that occurs, it will be identified in notices to shareholders. A non-
taxable return of capital may reduce your tax basis in your fund shares.
This information is only a summary of certain federal tax information
about your investment. More information is contained in the Statement of
Additional Information, and in addition you should consult with your tax
adviser about the effect of an investment in the Fund on your particular
tax situation.
<PAGE>
APPENDIX TO PROSPECTUS OF
OPPENHEIMER 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 - Change in Value of
a $10,000 Hypothetical Investment"
A linear graph will be included in the Prospectus of Oppenheimer Main
Street Income & Growth 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 period from February 3, 1988 (commencement of operations)
through June 30, 1995 in the case of Class B shares the graph will cover
the period from the inception of the class (October 1, 1994) through June
30, 1995, and in the case of Class C shares the graph will cover the
period from the inception of the class (December 1, 1993) through June 30,
1995. The graphs will compare such values with hypothetical $10,000
investments over the same time periods in the S&P 500 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 S&P 500 Index is set forth in the Prospectus under
"Performance of the Fund - Comparing the Fund's Performance to the
Market."
<TABLE>
<CAPTION>
Oppenheimer
Main Street
Fiscal Year Income & S&P 500
(Period) Ended Growth Fund A Index
<S> <C> <C>
2/03/88 $ 9,425 $10,000
6/30/88 $ 9,955 $10,815
6/30/89 $11,859 $13,034
6/30/90 $12,934 $15,178
6/30/91 $14,304 $16,297
6/30/92 $19,952 $18,479
6/30/93 $29,205 $20,994
6/30/94 $33,393 $21,288
6/30/95 $40,244 $26,103
Oppenheimer
Main Street
Fiscal Year Income & S&P 500
(Period) Ended Growth Fund B(1) Index
10/01/94 $10,000 $10,000
06/30/95 $10,815 $11,771
Oppenheimer
Main Street
Fiscal Year Income & S&P 500
(Period) Ended Growth Fund C(2) Index
12/01/93 $10,000 $10,000
06/30/94 $ 9,856 $ 9,618
06/30/95 $11,790 $11,794
(1)Class B shares of the Fund were first publicly offered on October 1,
1994.
(2)Class C shares of the Fund were first publicly offered on December 1,
1993.
</TABLE>
<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
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 LLP
555 Seventeenth Street
Denver, Colorado 80202
Legal Counsel
Myer, Swanson, Adams & Wolf, P.C.
1600 Broadway
Denver, Colorado 80202
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 Statement of Additional Information, 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 an offer in
such state.
PR700.1195 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 November 1, 1995
This Statement of Additional Information of Oppenheimer Main Street
Income & Growth Fund is not a Prospectus. This document contains
additional information about the Fund and supplements information in the
Prospectus dated November 1, 1995. 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 2
Investment Policies and Strategies 2
Other Investment Techniques and Strategies 3
Other Investment Restrictions 13
How the Fund is Managed 14
Organization and History 14
Directors and Officers of the Corporation 15
The Manager and Its Affiliates 19
Brokerage Policies of the Fund 20
Performance of the Fund 22
Distribution and Service Plans 24
About Your Account
How To Buy Shares 26
How To Sell Shares 33
How To Exchange Shares 37
Dividends, Capital Gains and Taxes 39
Additional Information About the Fund 40
Financial Information About the Fund
Independent Auditors' Report 41
Financial Statements 42
Appendix A: Description of Ratings A-1
Appendix B: Corporate Industry Classifications 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.
Foreign Securities. "Foreign securities" include equity and debt
securities of companies organized under the laws of countries other than
the United States and debt securities of foreign governments that are
traded on foreign securities exchanges or in the foreign over-the-counter
markets. Securities of foreign issuers that are represented by American
Depository Receipts or that are listed on a U.S. securities exchange or
traded in the U.S. over-the-counter markets are not considered "foreign
securities" for the purpose of the Fund's investment allocations, because
they are not subject to many of the special considerations and risks,
discussed below, that apply to foreign securities traded and held abroad.
Investing in foreign securities offer potential benefits not
available from investing solely in securities of domestic issuers,
including the opportunity to invest in foreign issuers that appear to
offer growth potential, or in foreign countries with economic policies or
business cycles different from those of the U.S., or to reduce
fluctuations in portfolio value by taking advantage of foreign stock
markets that do not move in a manner parallel to U.S. markets. If the
Fund's portfolio securities are held abroad, the countries in which they
may be held and the sub-custodians holding them must be approved by the
Corporation's Board of Directors where required under applicable rules of
the Securities and Exchange Commission.
-- Risks of Foreign Investing. Investments in foreign securities
present special additional risks and considerations not typically
associated with investments in domestic securities: reduction of income
by foreign taxes; fluctuation in value of foreign portfolio investments
due to changes in currency rates and control regulations (e.g., currency
blockage); transaction charges for currency exchange; lack of public
information about foreign issuers; lack of uniform accounting, auditing
and financial reporting standards comparable to those applicable to
domestic issuers; less volume on foreign exchanges than on U.S. exchanges;
greater volatility and less liquidity on foreign markets than in the U.S.;
less regulation of foreign issuers, stock exchanges and brokers than in
the U.S.; greater difficulties in commencing lawsuits; higher brokerage
commission rates than in the U.S.; increased risks of delays in settlement
of portfolio transactions or loss of certificates for portfolio
securities; possibilities in some countries of expropriation, confiscatory
taxation, political, financial or social instability or adverse diplomatic
developments; and unfavorable differences between the U.S. economy and
foreign economies. In the past, U.S. Government policies have
discouraged certain investments abroad by U.S. investors, through
taxation or other restrictions, and it is possible that such restrictions
could be re-imposed.
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.
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." As a result, the rating assigned to the security has less
impact on the Manager's investment decision with respect to convertible
securities than in the case of non-convertible fixed income securities.
To determine whether convertible securities should be regarded as "equity
equivalents," the 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 the issuer's
common stock.
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.
Investing in Small, Unseasoned Companies. The securities of small,
unseasoned companies may have a limited trading market, which may
adversely affect the Fund's ability to dispose of them and can reduce the
price the Fund might be able to obtain for them. If other investment
companies and investors that invest in this type of securities trade the
same securities when the Fund attempts to dispose of its holdings, the
Fund may receive lower prices than might otherwise be obtained, because
of the thinner market for such securities.
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 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 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 Agreements. The Fund may acquire securities subject to
repurchase agreements for liquidity purposes to meet anticipated
redemptions, or pending the investment of the proceeds from sales of Fund
shares, or pending the settlement of purchases of portfolio securities.
In a repurchase transaction, the Fund acquires a security from, and
simultaneously resells it to, an approved vendor. An "approved vendor"
is a U.S. commercial bank or the U.S. branch of a foreign bank or a
broker-dealer that has been designated a primary dealer in government
securities, that must meet credit requirements set by the Corporation's
Board of Directors from time to time. The resale price exceeds the
purchase price by an amount that reflects an agreed-upon interest rate
effective for the period during which the repurchase agreement is in
effect. The majority of these transactions run from day to day, and
delivery pursuant to the resale typically will occur within one to five
days of the purchase. Repurchase agreements are considered "loans" under
the Investment Company Act, collateralized by the underlying security.
The Fund's repurchase agreements require that at all times while the
repurchase agreement is in effect, the value of the collateral must equal
or exceed the repurchase price to fully collateralize the repayment
obligation. Additionally, the Manager will impose creditworthiness
requirements to confirm that the vendor is financially sound and will
continuously monitor the collateral's value.
Short Sales Against-the-Box. In this type of short sale, while the
short position is open, the Fund must own an equal amount of the
securities sold short, or by virtue of ownership of other securities have
the right, without payment of further consideration, to obtain an equal
amount of the securities sold short. Short sales against-the-box may be
made to defer, for Federal income tax purposes, recognition of gain or
loss on the sale of securities "in the box" until the short position is
closed out. They may also be used to protect a gain on a security "in the
box" when the Fund does not want to sell it and recognize a capital gain.
Illiquid and Restricted Securities. To enable the Fund to sell
restricted securities not registered under the Securities Act of 1933, the
Fund may have to cause those securities to be registered. The expenses
of registration of restricted securities may be negotiated by the Fund
with the issuer at the time such securities are purchased by the Fund,
if such registration is required before such securities may be sold
publicly. When registration must be arranged because the Fund wishes to
sell the security, a considerable period may elapse between the time the
decision is made to sell the securities and the time the Fund would be
permitted to sell them. The Fund would bear the risks of any downward
price fluctuation during that period. The Fund may also acquire, through
private placements, securities having contractual restrictions on their
resale, which might limit the Fund's ability to dispose of such securities
and might lower the amount realizable upon the sale of such securities.
The Fund has percentage limitations that apply to purchases of
restricted securities, as stated in the Prospectus. Those percentage
restrictions do not limit purchases of restricted securities that are
eligible for sale to qualified institutional purchasers pursuant to Rule
144A under the Securities Act of 1933, provided that those securities have
been determined to be liquid by the Board of Directors of the Corporation
or by the Manager under Board-approved guidelines. Those guidelines take
into account the trading activity for such securities and the availability
of reliable pricing information, among other factors. If there is a lack
of trading interest in a particular Rule 144A security, the Fund's holding
of that security may be deemed to be illiquid.
Loans of Portfolio Securities. The Fund may lend its portfolio
securities subject to the restrictions stated in the Prospectus. Under
applicable regulatory requirements (which are subject to change), the loan
collateral on each business day must at least equal the value of the
loaned securities and must consist of cash, bank letters of credit or
securities of the U.S. Government (or its agencies or instrumentalities).
To be acceptable as collateral, letters of credit must obligate a bank to
pay amounts demanded by the Fund if the demand meets the terms of the
letter. Such terms and the issuing bank must be satisfactory to the Fund.
When it lends securities, the Fund receives amounts equal to the dividends
or interest on loaned securities and also receives one or more of (a)
negotiated loan fees, (b) interest on securities used as collateral, and
(c) interest on short-term debt securities purchased with such loan
collateral. Either type of interest may be shared with the borrower. The
Fund may also pay reasonable finder's, custodian and administrative fees.
The terms of the Fund's loans must meet applicable tests under the
Internal Revenue Code and must permit the Fund to reacquire loaned
securities on five days' notice or in time to vote on any important
matter.
Hedging. 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 particular securities
(which the Fund will normally purchase, and then terminate that hedging
position), or to attempt to protect against the possibility that portfolio
securities are not fully included in a rise in value of the market the
Fund may: (i) buy Futures, or (ii) buy calls on such Futures or on
securities. Normally, the Fund would then purchase the securities and
terminate the hedging portion.
The Fund's strategy of hedging with Futures and options on Futures
will be incidental to the Fund's activities in the underlying cash market.
In the future, the Fund may employ hedging instruments and strategies that
are not presently contemplated but which may be developed, to the extent
such investment methods are consistent with the Fund's investment
objective, and are legally permissible and disclosed in the Prospectus.
Additional information about the Hedging Instruments the Fund may use is
provided below.
Writing Covered Call Options. As described in the Prospectus, the
Fund may write covered calls. 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. The
Fund will not write puts if, as a result, more than 25% of the Fund's net
assets would be required to be segregated to cover such put options.
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 capital gains for Federal tax
purposes, and when distributed by the Fund, are taxable as ordinary
income.
-- Purchasing Calls and Puts. The Fund may purchase calls to protect
against the possibility that the Fund's portfolio will not participate in
an anticipated rise in the securities market. When the Fund purchases a
call (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 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 at a profit).
When the Fund purchases a call or put on an index or Future
(discussed below), 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.
-- Options on Foreign Currencies. The Fund intends to write and
purchase calls and puts on foreign currencies. The Fund may purchase and
write puts and calls on foreign currencies that are traded on a securities
or commodities exchange or over-the-counter markets or are quoted by major
recognized dealers in such options. It does so to protect against
declines in the dollar value of foreign securities and against increases
in the dollar cost of foreign securities to be acquired. If the Manager
anticipates a rise in the dollar value of a foreign currency in which
securities to be acquired are denominated, the increased cost of such
securities may be partially offset by purchasing calls or writing puts on
that foreign currency. If a decline in the dollar value of a foreign
currency is anticipated, the decline in value of portfolio securities
denominated in that currency may be partially offset by writing calls or
purchasing puts on that foreign currency. However, in the event of
currency rate fluctuations adverse to the Fund's position, it would lose
the premium it paid and transaction costs.
A call written on a foreign currency by the Fund is covered if the
Fund owns the underlying foreign currency covered by the call or has an
absolute and immediate right to acquire that foreign currency without
additional cash consideration (or for additional cash consideration held
in a segregated account by its Custodian) upon conversion or exchange of
other foreign currency held in its portfolio. A call may be written by
the Fund on a foreign currency to provide a hedge against a decline in the
U.S. dollar value of a security which the Fund owns or has the right to
acquire and which is denominated in the currency underlying the option due
to an expected adverse change in the exchange rate. This is a cross-
hedging strategy. In such circumstances, the Fund covers the option by
maintaining in a segregated account with the Fund's Custodian, cash or
U.S. government securities or other liquid, high grade debt securities in
an amount equal to the exercise price of the option.
-- Futures. No payment is paid or received by the Fund on the
purchase or sale of a Future. Upon entering into a Futures transaction,
the Fund will be required to deposit an initial margin payment with the
futures commission merchant (the "futures broker"). The initial margin
payment 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. At any time 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, and
additional cash is required to be paid by or released to the Fund. Any
loss or gain is then realized. 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 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. To do so, the Fund enters
into a Forward Contract, for a fixed amount of U.S. dollars per unit of
foreign currency, for the purchase or sale of the amount of foreign
currency involved in the underlying transaction ("transaction hedge").
The Fund will thereby be able to protect itself against a possible loss
resulting from an adverse change in the relationship between the currency
exchange rates during the period between the date on which the security
is purchased or sold, or on which the payment is declared, and the date
on which such payments are made or received.
The Fund may also use Forward Contracts to lock in the U.S. dollar
value of portfolio positions ("position hedge"). In a position hedge, for
example, when the Fund believes that foreign currency may suffer a
substantial decline against the U.S. dollar, it may enter into a forward
sale contract to sell an amount of that foreign currency approximating the
value of some or all of the Fund's portfolio securities denominated in
such foreign currency. 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 either 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 will not enter into such Forward Contracts or maintain a net
exposure to such contracts where the consummation of the contracts would
obligate the Fund to deliver an amount of foreign currency in excess of
the value of the Fund's portfolio securities or other assets denominated
in that currency or a closely-correlated currency. The Fund, however, in
order to avoid excess transactions and transaction costs, may maintain a
net exposure to Forward Contracts in excess of the value of the Fund's
portfolio securities or other assets denominated in that currency or a
closely-correlated currency provided the excess amount is "covered" by
liquid, high-grade debt securities, denominated in any currency, at least
equal at all times to the amount of such excess. As an alternative, the
Fund may purchase a call option permitting the Fund to purchase the amount
of foreign currency being hedged by a forward sale contract at a price no
higher than the forward contract price 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.
-- 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." The Fund will not invest more
than 25% of its assets in interest rate swap transactions.
-- 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) the mark-to-
market value of 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.
-- Regulatory Aspects of Hedging Instruments. The Fund is required
to operate within certain guidelines and restrictions with respect to the
use of Futures as established by the Commodities Futures Trading
Commission ("CFTC"). In particular, the Fund is excluded from
registration as a "commodity pool operator" if it complies with the
requirements of Rule 4.5 adopted by the CFTC. The Rule does not limit the
percentage of the Fund's assets that may be used for Futures margin and
related options premiums for a bona fide hedging position. However, under
the Rule, the Fund must limit its aggregate initial futures margin and
related options premiums to no more than 5% of the Fund's net assets for
hedging strategies that are not considered bona fide hedging strategies
under the Rule. Under the Rule, the Fund must also, as to its short
positions, use Futures and options thereon solely for bona fine hedging
purposes within the meaning and interest of the applicable provisions of
the CEA.
Transactions in options by the Fund are subject to limitations
established by option exchanges governing the maximum number of options
that may be written or held by a single investor or group of investors
acting in concert, regardless of whether the options were written or
purchased on the same or different exchanges or are held in one or more
accounts or through one or more different exchanges or through one or more
brokers. Thus the number of options which the Fund may write or hold may
be affected by options written or held by other entities, including other
investment companies having the same adviser as the Fund (or an adviser
that is an affiliate of the Fund's adviser). The exchanges also impose
position limits on Futures transactions. An exchange may order the
liquidation of positions found to be in violation of those limits and may
impose certain other sanctions.
Due to requirements under the Investment Company Act, when the Fund
buys or sells a Future, the Fund will identify to the Custodian cash or
readily-marketable, short-term (maturing in one year or less) debt
instruments in an amount equal to the market value of the securities
underlying such Future, less the margin deposit applicable to it.
-- Tax Aspects of Covered Calls and Hedging Instruments. The Fund
intends to qualify as a "regulated investment company" under the Internal
Revenue Code (although it reserves the right not to qualify). That
qualification enables the Fund to "pass through" its income and realized
capital gains to shareholders without having to pay tax on them. This
avoids a "double tax" on that income and capital gains, since shareholders
normally will be taxed on the dividends and capital gains they receive
from the Fund (unless the Fund's shares are held in a retirement account
or the shareholder is otherwise exempt from tax). One of the tests for
the Fund's qualification as a regulated investment company is that less
than 30% of its gross income must be derived from gains realized on the
sale of securities held for less than three months. To comply with this
30% cap, the Fund will limit the extent to which it engages in the
following activities, but will not be precluded from them: (i) selling
investments, including Futures, held for less than three months, whether
or not they were purchased on the exercise of a call held by the Fund;
(ii) purchasing options which expire in less than three months; (iii)
effecting closing transactions with respect to calls or puts written or
purchased less than three months previously; (iv) exercising puts or calls
held by the Fund for less than three months; or (v) writing calls on
investments held less than three months.
Certain foreign currency exchange contracts ("Forward Contracts") in
which the Fund may invest are treated as "section 1256 contracts." Gains
or losses relating to section 1256 contracts generally are characterized
under the Internal Revenue Code as 60% long-term and 40% short-term
capital gains or losses. However, foreign currency gains or losses
arising from certain section 1256 contracts (including Forward Contracts)
generally are treated as ordinary income or loss. In addition, section
1256 contracts held by the Fund at the end of each taxable year are
"marked-to-market" with the result that unrealized gains or losses are
treated as though they were realized. These contracts also may be marked-
to-market for purposes of the excise tax applicable to investment company
distributions and for other purposes under rules prescribed pursuant to
the Internal Revenue Code. An election can be made by the Fund to exempt
these transactions from this marked-to-market treatment.
Certain Forward Contracts entered into by the Fund may result in
"straddles" for Federal income tax purposes. The straddle rules may
affect the character of gains (or losses) realized by the Fund on straddle
positions. Generally, a loss sustained on the disposition of a position
making up a straddle is allowed only to the extent such loss exceeds any
unrecognized gain in the offsetting positions making up the straddle.
Disallowed loss is generally allowed at the point where there is no
unrecognized gain in the offsetting positions making up the straddle, or
the offsetting position is disposed of.
Under the Internal Revenue Code, gains or losses attributable to
fluctuations in exchange rates that occur between the time the Fund
accrues interest or other receivables or accrues expenses or other
liabilities denominated in a foreign currency and the time the Fund
actually collects such receivables or pays such liabilities generally are
treated as ordinary income or ordinary loss. Similarly, on disposition
of debt securities denominated in a foreign currency and on disposition
of foreign currency forward contracts, gains or losses attributable to
fluctuations in the value of a foreign currency between the date of
acquisition of the security or contract and the date of disposition also
are treated as ordinary gain or loss. Currency gains and losses are
offset against market gains and losses on each trade before determining
a net "Section 988" gain or loss under the Internal Revenue Code for that
trade, which may increase or decrease the amount of the Fund's investment
company income available for distribution to its shareholders.
-- Risks of Hedging With Options and Futures. An option position may
be closed out only on a market that provides secondary trading for options
of the same series, and there is no assurance that a liquid secondary
market will exist for any particular option. In addition to the risks
associated with hedging that are discussed in the Prospectus and above,
there is a risk in using short hedging by: (i) selling Futures or (ii)
purchasing puts on broadly-based indices or 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 applicable
index. To compensate for the imperfect correlation of movements in the
price of the portfolio securities being hedged and movements in the price
of the hedging instruments, the Fund 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, broadly-based indices or on 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 a shareholder 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:
-- 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;
-- 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);
-- 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;
-- invest in companies for the purpose of acquiring control or
management thereof;
-- 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;
-- 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;
-- 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
-- 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, (a) with respect to investment
restriction (1) above, not to invest in oil, gas or other mineral leases,
and (b) 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. Should its shares no longer be offered in such states, the Fund
would not be subject to the foregoing undertakings.
For purposes of the Fund's policy not to concentrate its assets as
described in the Prospectus, the Fund has adopted the industry
classifications set forth in Appendix B to this Statement of Additional
Information. This is not a fundamental policy.
How the Fund is Managed
Organization and History. Oppenheimer Main Street Income & Growth Fund
(referred to as the "Fund") is one of two series of Oppenheimer Main
Street Funds, Inc. (the "Corporation"), a Maryland corporation. This
Statement of Additional Information may be used with the Fund's Prospectus
only to offer shares of the Fund.
Each share of the Fund represents an interest in the Fund
proportionately equal to the interest of each other share of the same
class and entitle the holder to one vote per share (and a fractional vote
for a fractional share) on matters submitted to their vote at a
shareholders' meeting. Shareholders of the Fund and of the Corporation's
other series vote together in the aggregate on certain matters at
shareholders' meetings, such as the election of Directors and ratification
of appointment of auditors of the Corporation. Shareholders of a
particular series or class vote separately on proposals which affect that
series or class, and shareholders of a series or class which is not
affected by that matter are not entitled to vote on the proposal. For
example, only shareholders of a series, such as the Fund, vote exclusively
on any material amendment to the investment advisory agreement with
respect to he series. Only shareholders of a class of a series vote on
certain amendments to the Distribution and/or Service Plans if the
amendments affect that class.
The Directors are authorized to create new series and classes of
shares. The Directors may reclassify unissued shares of the Corporation
or its series or classes into additional series or classes of shares. The
Directors may also divide or combine the shares of a class into a greater
or lesser number of shares without thereby changing the proportionate
beneficial interest of a shareholder in the Fund. Shares do not have
cumulative voting rights or preemptive or subscription rights. Shares may
be voted in person or by proxy.
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
Tax-Exempt Fund, Oppenheimer Equity Income Fund, Oppenheimer Variable
Account Funds, Oppenheimer Cash Reserves, Oppenheimer High Yield Fund,
Oppenheimer Strategic Funds Trust, Oppenheimer Strategic Income & Growth
Fund, Oppenheimer Total Return Fund, Inc., Oppenheimer Champion Income
Fund, Oppenheimer Integrity Funds, The New York Tax-Exempt Income Fund,
Inc., 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. (all of the foregoing funds are collectively referred to as the
"Denver-based Oppenheimer funds") except for Mr. Fossel, who is a
Director, Trustee or Managing General Partner of all the Denver-based
Oppenheimer funds except Oppenheimer Integrity Funds and Oppenheimer
Strategic Funds Trust. Messrs. Bishop, Bowen, Donohue, 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 Oppenheimer funds.
As of October 2, 1995, 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; Age: 64
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; Age: 80
197 Desert Lakes Drive, Palm Springs, California 92264
Management Consultant.
Charles Conrad, Jr., Director; Age: 65
19411 Merion Circle, Huntington Beach, California 92648
Vice President of McDonnell Douglas Space Systems Co.; formerly
associated with the National Aeronautics and Space Administration.
Jon S. Fossel, President and Director*; Age: 53
Two World Trade Center, New York, New York 10048-0203
Chairman 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; Age: 66
44 Portland Drive, St. Louis, Missouri 63131
Director of Wave Technologies International, Inc.; 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; Age: 73
2552 East Alameda, Denver, Colorado 80209
Formerly the Managing Partner of Deloitte, Haskins & Sells (an
accounting firm).
Robert M. Kirchner, Director; Age: 74
7500 East Arapahoe Road, Englewood, Colorado 80112
President of The Kirchner Company (management consultants).
Ned M. Steel, Director; Age: 80
3416 South Race Street, Englewood, Colorado 80110
Chartered Property and Casualty Underwriter; Director of Visiting
Nurse Corporation of Colorado; formerly Senior Vice President and a
Director of the Van Gilder Insurance Corp. (insurance brokers).
James C. Swain, Chairman and Director; Age: 61
3410 South Galena Street, Denver, Colorado 80231
Vice Chairman and a Director of the Manager; President and a Director
of Centennial Asset Management Corporation, an investment adviser
subsidiary of the Manager ("Centennial"); formerly Chairman of the
Board of SSI.
Robert J. Milnamow, Vice President and Portfolio Manager; Age: 45
Two World Trade Center, New York, New York 10048-0203
Vice President of the Manager; previously a portfolio manager with
Phoenix Securities Group.
Bruce Bartlett, Vice President; Age: 45
Two World Trade Center, New York, New York 10048-0203
Vice President of the Manager; an officer of other Oppenheimer funds;
formerly a Vice President and Senior Portfolio Manager at First of
America Investment Corporation.
Diane Sobin, Vice President and Portfolio Manager; Age: 33
Two World Trade Center, New York, New York 10048-0203
Vice President of the Manager; an officer of other Oppenheimer funds;
formerly a Vice President and Senior Portfolio Manager at Dean Witter
InterCapital, Inc.
Andrew J. Donohue, Vice President; Age: 45
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 Oppenheimer funds; formerly Senior Vice President and
Associate General Counsel of the Manager and the Distributor, Partner
in, Kraft & McManimon (a law firm), prior to which he was an officer
of First Investors Corporation (a broker-dealer) and First Investors
Management Company, Inc. (broker-dealer and investment adviser), and
director and an officer of First Investors Family of Funds and First
Investors Life Insurance Company.
George C. Bowen, Vice President, Secretary and Treasurer; Age: 59
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 Oppenheimer funds.
Robert J. Bishop, Assistant Treasurer; Age: 36
3410 South Galena Street, Denver, Colorado 80231
Assistant Vice President of the Manager/Mutual Fund Accounting; an
officer of other Oppenheimer funds; 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; Age: 30
3410 South Galena Street, Denver, Colorado 80231
Assistant Vice President of the Manager/Mutual Fund Accounting; an
officer of other Oppenheimer funds; 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.
Robert G. Zack, Assistant Secretary; Age: 47
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 Oppenheimer
funds.
Remuneration of Directors. The officers of the Fund are affiliated
with the Manager; they and the Directors of the Fund who are affiliated
with the Manager (Messrs. Fossel and Swain, who are both officers and
Directors) receive no salary or fee from the Fund. The Directors of the
Corporation (excluding Messrs. Fossel and Swain) received the total
amounts shown below (i) from the Fund, during its fiscal year ended June
30, 1995, and (ii) from all of the Denver-based Oppenheimer Funds
(including the Fund) listed in the first paragraph of this section, (plus
three funds that reorganized into other Oppenheimer funds prior to October
1, 1995: Oppenheimer Strategic Diversified Income Fund, Oppenheimer
Strategic Short-Term Income Fund and Oppenheimer Strategic Investment
Grade Bond Fund) for services in the positions shown:
<TABLE>
<CAPTION>
Total
Compensation
Aggregate From All
Compensation Denver-based
Name and Position From Fund Oppenheimer funds1
<S> <C> <C>
Robert G. Avis - Director $6,215 $53,000.00
William A. Baker - Audit and Review $8,588 $73,257.01
Committee Chairman and Director
Charles Conrad, Jr. - Audit and Review $8,005 $68,293.67
Committee Member and Director
Raymond J. Kalinowski - Director $6,210 $53,000.00
C. Howard Kast - Director $6,210 $53,000.00
Robert M. Kirchner - Audit and Review $8,005 $68,293.67
Committee Member and Director
Ned M. Steel - Director $6,210 $53,000.00
______________
1For the 1994 calendar year.
</TABLE>
Major Shareholders. As of October 2, 1995, the only person who
owned of record or was known by the Fund to own beneficially 5% or more
of the Fund's outstanding Class A, Class B and Class C shares was Merrill
Lynch Pierce Fenner & Smith, Inc., 4800 Deer Lake Drive, East, Floor 3,
Jacksonville, Florida 32246-6484, who was the record owner of
4,711,806.865 Class A shares, 3,512,475.577 Class B shares, and
4,936,156.306 Class C shares, representing approximately 5.52%, 10.41% and
24.50, respectively, of the Fund's outstanding Class A, Class B and Class
C shares, respectively.
The Manager and Its Affiliates. The Manager is wholly-owned by
Oppenheimer Acquisition Corporation ("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 Manager and the Fund have a Code of Ethics. It is designed to
detect and prevent improper personal trading by certain employees,
including portfolio managers, that would compete with or take advantage
of the Fund's portfolio transactions. Compliance with the Code of Ethics
is carefully monitored and strictly enforced by the Manager.
The Investment Advisory Agreement. The investment advisory
agreement between the Manager and the 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 corporate 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 by 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, share issuance costs,
certain printing and registration expenses and non-recurring expenses,
including litigation costs. During the Fund's fiscal years ended June 30,
1993, 1994 and 1995, the management fees paid by the Corporation on behalf
of the Fund to the Manager were $253,182, $1,817,623 and $8,976,524,
respectively.
The advisory agreement contains no expense limitation. However,
independently of the advisory agreement, the Manager has voluntarily
undertaken that the total expenses of the Fund in any fiscal year (with
specified exceptions), shall not exceed the most stringent applicable
state regulatory limitation. Pursuant to the undertaking, the Manager's
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
the Fund's expenses (with specified exclusions) to 2.5% of the first $30
million of average annual net assets, 2.0% of the next $70 million of
average annual net assets, 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 any period in which 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 in the performance of its duties
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 "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 "Main Street" 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 Rule 12b-1 plans), 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, 1993, 1994 and 1995, the aggregate amount of
sales charges on sales of the Fund's Class A shares was $784,013,
$23,502,310 and $36,545,570, respectively, of which the Distributor
retained in the aggregate $87,916 for the fiscal year ended June 30, 1993
and of which the Distributor and an affiliated broker-dealer retained
$6,373,770 and $8,951,501 during the fiscal years ended June 30, 1994 and
1995, respectively. During the fiscal year ended June 30, 1995, sales
charges advanced to broker-dealers by the Distributor on sales of the
Fund's Class B and Class C shares totalled $22,189,541 and $2,739,931,
respectively, of which $309,732 and $48,816 was paid to an affiliated
broker-dealer. During the fiscal year ended June 30, 1995, the
Distributor received contingent deferred sales charges of $393,448 and
$233,149 upon redemption of Class B and Class C shares, respectively. For
additional information about distribution of the Fund's shares and the
expenses connected with such activities, see "Distribution and Service
Plans," below.
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 minimize the commissions paid to the extent
consistent with the interests and policies of the Fund as established by
its 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 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, and the procedures and rules
described above, allocations of brokerage are generally made by the
Manager's portfolio traders based upon recommendations from the Manager's
portfolio managers. In certain instances, portfolio managers may directly
place trades and allocate brokerage, also subject to the provisions of the
advisory agreement and the procedures and rules described above. In
either case, brokerage is allocated under the supervision of the Manager's
executive officers. Transactions in securities other than those for which
an exchange is the primary market are generally done with principals or
market makers. 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 or for certain fixed-income agency transactions in the
secondary market and are otherwise paid only if it appears likely that a
better price or execution can be obtained. When the Fund engages in an
option transaction, ordinarily the same broker will be used for the
purchase or sale of the option and any 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 Board of Directors has permitted the Manager to
use concessions on fixed-price offerings to obtain research, in the same
manner permitted for agency transactions. The Board has also permitted
the Manager to use stated commissions on secondary fixed-income agency
trades to obtain research where the broker has represented to the Manager
that (i) the trade is not from or for the broker's own inventory, (ii) the
trade was executed by the broker on an agency basis at the stated
commission, and (iii) the trade is not a riskless principal transaction.
The research services provided by brokers broaden the scope and
supplement the research activities of the Manager, by making available
additional views for consideration and comparisons, and 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 of the Fund who are
not "interested persons" as defined in the Investment Company Act, and who
have no direct financial interest in the operation of the advisory
agreement or the Distribution and Service Plans described below) 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.
During the Fund's fiscal years ended June 30, 1993, 1994 and 1995,
total brokerage commissions paid by the Fund (not including spreads or
concessions on principal transactions on a net trade basis) were $292,787,
$6,479,920 and $12,685,652, respectively. During the fiscal year ended
June 30, 1995, $628,096 was paid by the Fund to brokers as commissions in
return for research services; the aggregate dollar amount of these
transactions was $292,666,900. The transactions giving rise to those
commissions were allocated in accordance with the Manager's internal
allocation procedures described.
Performance of the Fund
Total Return Information. As described in the Prospectus, from time to
time the "average annual total return," "cumulative total return" and
"total return at net asset value" of an investment in a class of shares
of the Fund may be advertised. An explanation of how these total returns
are calculated for each class and the components of those calculations is
set forth below.
The Fund's advertisements of its performance data must, under
applicable rules of the Securities and Exchange Commission, include the
average annual total returns for each class of shares of the Fund for the
1, 5, and 10-year periods (or the life of the class, if less) ending as
of the most recently-ended calendar quarter prior to the publication of
the advertisement. This enables an investor to compare the Fund's
performance to the performance of other funds for the same periods.
However, a number of factors should be considered before using such
information as a basis for comparison with other investments. An
investment in the Fund is not insured; its returns and share prices are
not guaranteed and normally will fluctuate on a daily basis. When
redeemed, an investor's shares may be worth more or less than their
original cost. Returns for any given past period are not a prediction or
representation by the Fund of future returns. The returns of Class A,
Class B and Class C shares of the Fund are affected by portfolio quality,
the type of investments the Fund holds and its operating expenses
allocated to the particular class.
Average Annual Total Returns. The "average annual total return" of
each class is an average annual compounded rate of return for each year
in a specified number of years. It is the rate of return based on the
change in value of a hypothetical initial investment of $1,000 ("P" in the
formula below) held for a number of years ("n") to achieve an Ending
Redeemable Value ("ERV") of that investment, according to the following
formula:
( ERV ) 1/n
(-----) -1 = Average Annual Total Return
( P )
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, 1995 and for the period from February 3, 1988
(commencement of operations) to June 30, 1995 were 13.59%, 24.01% and
20.68%, respectively. Class B shares were publicly outstanding for only
a portion of the year ended June 30, 1995, and cumulative total returns
for Class B shares are given on the following page. The average annual
total return on Class C shares for the one-year period ended June 30, 1995
and for the period December 1, 1993 (commencement of the public offering
of the class) to June 30, 1995 were 18.63% and 10.98%, respectively.
Cumulative Total Returns. The cumulative "total return" calculation
measures the change in value of a hypothetical investment of $1,000 over
an entire period of years. Its calculation uses some of the same factors
as average annual total return, but it does not average the rate of return
on an annual basis. Cumulative total return is determined as follows:
ERV - P
- ------- = Total Return
P
In calculating total returns for Class A shares, the current maximum
sales charge of 5.75% (as a percentage of the offering price) is deducted
from the initial investment ("P") (unless the return is shown at net asset
value, as described below). For Class B shares, the payment of the
applicable contingent deferred sales charge (5% for the first year, 4% for
the second year, 3% for the third and fourth years, 2% for the fifth year,
1% for the sixth year, and none thereafter) is applied to the investment
result for the period shown (unless the total return is shown at net asset
value, as described below). For Class C shares, the 1.0% contingent
deferred sales charge is applied to the investment result for the one-year
period (or less). Total returns also assume that all dividends and
capital gains distributions during the period are reinvested to buy
additional shares at net asset value per share, and that the investment
is redeemed at the end of the period.
The "cumulative total return" on Class A shares for the period from
February 3, 1988 (commencement of operations) to June 30, 1995 was
302.44%. The cumulative total return on Class B shares for the period
from October 1, 1994 (the commencement of the offering of the class)
through June 30, 1995 was 8.15%. The cumulative total return on Class C
shares for the period from December 1, 1993 (the commencement of the
offering of the class) through June 30, 1995 was 17.90%.
Total Returns at Net Asset Value. From time to time the Fund may
also quote an "average annual total return at net asset value" or a
cumulative total return at net asset value for Class A, Class B or Class
C shares. Each is based on the difference in net asset value per share
at the beginning and the end of the period for a hypothetical investment
in that class of shares (without considering front-end or contingent
deferred sales charges) and takes into consideration the reinvestment of
dividends and capital gains distributions. The "total return at net asset
value" on the Fund's Class A shares for the one year period ended June 30,
1995 was 20.52%. The cumulative total return at net asset value for the
Fund's Class B shares for the period from October 1, 1994 through June 30,
1995 was 17.98%. The cumulative total return at net asset value for the
Fund's Class C shares for the period from December 1, 1993 through June
30, 1995 was 19.63%.
Other Performance Comparisons. From time to time the Fund may publish the
ranking of its Class A, Class B or Class C shares by Lipper Analytical
Services, Inc. ("Lipper"), a widely-recognized independent mutual fund
monitoring service. Lipper monitors the performance of regulated
investment companies, including the Fund, and ranks their performance for
various periods based on categories relating to investment objectives.
The performance of the Fund is ranked against (I) all other funds, (ii)
all other "income & growth" funds and (iii) all other "income & growth"
funds in a specific size category. The Lipper performance rankings are
based on total returns that include the reinvestment of capital gain
distributions and income dividends but do not take sales charges or taxes
into consideration.
From time to time the Fund may publish the ranking of the
performance of its Class A, Class B or Class C shares by Morningstar,
Inc., an independent mutual fund monitoring service that ranks mutual
funds, including the Fund, monthly in broad investment categories (equity,
taxable bond, municipal bond and hybrid) based on risk-adjusted investment
return. Investment return measures a fund's three, five and ten-year
average annual total returns (when available) in excess of 90-day U.S.
Treasury bill returns after considering sales charges and expenses. Risk
measures fund performance below 90-day U.S. Treasury bill monthly returns.
Risk and investment return are combined to produce star rankings
reflecting performance relative to the average fund in a fund's category.
Five stars is the "highest" ranking (top 10%), four stars is "above
average" (next 22.5%), three stars is "average" (next 35%), two stars is
"below average" (next 22.5%) and one star is "lowest" (bottom 10%).
Morningstar ranks the Fund in relation to other rated growth and income
funds. Rankings are subject to change.
The total return on an investment in the Fund's Class A, Class B or
Class C shares may be compared with performance for the same period of
either the Lipper Growth & Income Fund Index or the S&P 500 Index, as
described in the Prospectus. The performance of each index includes a
factor for the reinvestment of income dividends, but does not reflect
reinvestment of capital gains, expenses or taxes.
The performance of the Fund's Class A, Class B, or Class C shares may
also be compared in publications to (i) the performance of various market
indices or to other investments for which reliable performance data is
available, and (ii) to averages, performance rankings or other benchmarks
prepared by recognized mutual fund statistical services.
Investors may also wish to compare the Fund's Class A, Class B or
Class C return to the returns on fixed income investments available from
banks and thrift institutions, such as certificates of deposit, ordinary
interest-paying checking and savings accounts, and other forms of fixed
or variable time deposits, and various other instruments such as Treasury
bills. However, the Fund's returns and share price are not guaranteed by
the FDIC or any other agency and will fluctuate daily, while bank
depository obligations may be insured by the FDIC and may provide fixed
rates of return, and Treasury bills are guaranteed as to principal and
interest by the U.S. government.
From time to time, the Fund's Manager may publish rankings or ratings
of the Manager (or Transfer Agent) or the investor services provided by
them to shareholders of the Oppenheimer funds, other than performance
rankings of the Oppenheimer funds themselves. Those ratings or rankings
of shareholder/investor services by third parties may compare the
Oppenheimer funds' services to those of other mutual fund families
selected by the rating or ranking services and may be based upon the
opinions of the rating or ranking service itself, based on its research
or judgment, or based upon surveys of investors, brokers, shareholders or
others.
Distribution and Service Plans
The 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 Class B
and Class C shares, that vote was cast by the Manager as the sole initial
holder of Class B and Class C shares of the Fund, respectively.
In addition, under the Plans the Manager and the Distributor, in
their sole discretion, from time to time may use their own resources
(which, in the case of the Manager, may include profits from the advisory
fee it receives from the Fund) to make payments to brokers, dealers or
other financial institutions (each is referred to as a "Recipient" under
the Plans) for distribution and administrative services they perform. The
Distributor and the Manager may, in their sole discretion, increase or
decrease the amount of payments they make from their own resources to
Recipients.
Unless terminated as described below, each plan continues in effect
from year to year but only as long as 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. Any 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. No Plan may be amended to
increase materially the amount of payments to be made unless such
amendment is approved by shareholders of the class affected by the
amendment. In addition, because Class B shares of the Fund automatically
convert into Class A shares after six years, the Fund is required to
obtain the approval of Class B as well as Class A shareholders for a
proposed material amendment to the Class A Plan that would materially
increase payments under the Plan. Such approval must be by a "majority"
of the Class A and Class B shares (as defined in the Investment Company
Act), voting separately by class. All material amendments must be
approved by the 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 payments were made and the identity of
each Recipient that received any such payment. The report for the Class
B Plan and 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 requirement for a minimum
amount.
For the fiscal year ended June 30, 1995, payments under the Class A
Plan totaled $3,170,564, all of which was paid by the Distributor to
Recipients, including $123,043 paid to an affiliated broker-dealer as
reimbursement for Class A personal service and account maintenance
services. For the period October 1, 1994 through June 30, 1995, payments
under the Class B Plan totalled $1,824,878, of which the Distributor
retained $1,795,939 as reimbursement for Class B sales commissions and
service fee advances, as well as financing costs. For the fiscal year
ended June 30, 1995, payments under the Class C Plan totalled $3,218,116,
of which the Distributor paid $9,496 to an affiliated broker-dealer as
reimbursement for Class C personal service and maintenance expenses, and
retained $2,894,505 as reimbursement for Class C sales commissions and
service fee advances, as well as financing costs.
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 or 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 charge and the service fee, or to pay
Recipients the service fee on a quarterly basis, without payment in
advance, the Distributor presently intends to pay the service fee to
Recipients in the manner described above. A minimum holding period may
be established from time to time under the Class B Plan and the Class C
Plan by the Board. Initially, the Board has set no minimum holding
period. All payments under the Class B and the Class C Plan are subject
to the limitations imposed by the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. on payments of asset-based sales
charges and service fees.
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 Plan 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 Plan 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).
ABOUT YOUR ACCOUNT
How To Buy Shares
Alternative Sales Arrangements - Class A, Class B and Class C Shares. The
availability of three classes of shares permits the individual investor
to choose the method of purchasing shares that is more beneficial to the
investor depending on the amount of the purchase, the length of time the
investor expects to hold shares and other relevant circumstances.
Investors should understand that the purpose and function of the deferred
sales charge and asset-based sales charge with respect to Class B and
Class C shares are the same as those of the initial sales charge with
respect to Class A shares. Any salesperson or other person entitled to
receive compensation for selling Fund shares may receive different
compensation with respect to one class of shares than another. The
Distributor will not accept any order for $500,000 or $1 million or more
of Class B or Class C shares, respectively, on behalf of a single investor
(not including dealer "street name" or omnibus accounts) because generally
it will be more advantageous for that investor to purchase Class A shares
of the Fund instead.
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 conversion of Class B shares to Class A shares is subject to the
continuing availability of a private letter ruling from the Internal
Revenue Service, or an opinion of counsel or tax adviser, to the effect
that the conversion of Class B shares does not constitute a taxable event
for the holder under Federal income tax law. If such a revenue ruling or
opinion is no longer available, the automatic conversion feature may be
suspended, in which event no further conversions of Class B shares would
occur while such suspension remained in effect. Although Class B shares
could then be exchanged for Class A shares on the basis of relative net
asset value of the two classes, without the imposition of a sales charge
or fee, such exchange could constitute a taxable event for the holder, and
absent such exchange, Class B shares might continue to be subject to the
asset-based sales charge for longer than six years.
The methodology for calculating the net asset value, dividends and
distributions of the Fund's Class A, Class B 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 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.
Determination of Net Asset Values Per Share. The net asset values per
share of Class A, Class B and Class C shares of the Fund are determined
as of the close of business of The New York Stock Exchange (the
"Exchange") on each day that the Exchange is open, by dividing the Fund's
net assets attributable to a class by the number of shares of that class
that are outstanding. The Exchange normally closes at 4:00 P.M. New York
time, but may close earlier on some days (for example, in case of weather
emergencies or on days falling before a holiday). The Exchange's most
recent annual holiday schedule (which is subject to change) states that
it will close on New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. It
may also close on other days. The Fund may invest a substantial portion
of its assets in foreign securities primarily listed on foreign exchanges
which may trade on Saturdays or customary U.S. business holidays on which
the Exchange is closed. Because the Fund's net asset value will not be
calculated on those days, the Fund's net asset values per share of Class
A, Class B and Class C shares may be significantly affected on such days
when shareholders may not 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) securities actively
traded on a foreign securities exchange are valued at the last sales price
available to the pricing service approved by the Corporation's Board of
Directors or to the Manager as reported by the principal exchange on which
the security is traded; (iii) unlisted foreign securities or listed
foreign securities not actively traded are valued as in (i) above, if
available, or at the mean between "bid" and "asked" prices obtained from
active market makers in the security on the basis of reasonable inquiry;
(iv) long-term debt securities having a remaining maturity in excess of
60 days are valued at the mean between the "bid" and "asked" prices
determined by a portfolio pricing service approved by the Fund's Board of
Trustees or obtained from active market makers in the security on the
basis of reasonable inquiry; (v) debt instruments having a maturity of
more than one year when issued, and non-money market type instruments
having a maturity of one year or less when issued, which have a remaining
maturity of 60 days or less are valued at the mean between the "bid" and
"asked" prices determined by a pricing service approved by the Fund's
Board of Trustees or obtained from active market makers in the security
on the basis of reasonable inquiry; (vi) money market-type debt securities
having a maturity of less than one year when issued that having a
remaining maturity of 60 days or less are valued at cost, adjusted for
amortization of premiums and accretion of discounts; (vii) securities
(including restricted securities) not having readily-available market
quotations are valued at fair value under the Board's procedures; and
(viii) securities traded on foreign exchanges are valued at the closing
or last sales prices reported on a principal exchange, or, if none, at the
mean between closing bid and asked prices and reflect prevailing rates of
exchange taken from the closing price on the London foreign exchange
market that day.
Trading in securities on European and Asian exchanges and over-the-
counter markets is normally completed before the close of the Exchange.
Events affecting the values of foreign securities that occur between the
time their prices are determined and the close of the Exchange will not
be reflected in the Fund's calculation of net asset value unless the Board
of Directors or the Manager, under procedures established by the Board of
Directors, determines that the particular event would materially affect
net asset value, in which case an adjustment would be made. Foreign
currency, including forward contracts, will be valued at the closing price
in the London foreign exchange market that day as provided by a reliable
bank, dealer or pricing service. The value of securities denominated in
foreign currency will be converted to U.S. dollars at the time of
valuation.
In the case of Municipal Securities, U.S. Government securities and
corporate bonds, where last sale information is not generally available,
such pricing procedures may include "matrix" comparisons to the prices for
comparable instruments on the basis of quality, yield, maturity and other
special factors involved (such as the tax-exempt status of the interest
paid by Municipal Securities). With the approval of the Corporation's
Board of Directors, the Manager may employ a pricing service, bank or
broker-dealer experienced in such matters to price any of the types of
securities described above. The Directors will monitor the accuracy of
pricing services by comparing prices used for portfolio evaluation to
actual sales prices of selected securities.
Forward currency contracts are valued at the closing price on the
London foreign exchange market. 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 Board of Directors will monitor the accuracy of pricing
services by comparing prices used for portfolio evaluation to actual sales
prices of selected securities.
The Fund values puts, calls and Interest Rate Futures at the last
sales price on the principal exchange or on the NASDAQ on which they are
traded. If there were no sales on the principal exchange, the last sale
or any exchange is used. In the absence of any sales that day, value
shall be the last reported sales price on the prior trading day or closing
bid or asked prices on the principal exchange closets to the last reported
sales price.
When the Fund writes an option, an amount equal to the premium
received by the Fund is included in the Fund's Statement of Assets and
Liabilities as an asset, and an equivalent deferred credit is included in
the liability section. The deferred credit is adjusted ("marked-to-
market") to reflect the current market value of the option. In determining
the Fund's gain on investments, if a call written by the Fund is
exercised, the proceeds are increased by the premium received. If a call
or put written by the Fund expires, the Fund has a gain in the amount of
the premium; if the Fund enters into a closing purchase transaction, it
will have a gain or loss depending on whether the premium was more or less
than the cost of the closing transaction. If the Fund exercises a put it
holds, the amount the Fund receives on its sale of the underlying
investment is reduced by the amount of the premium paid by the Fund.
AccountLink. When shares are purchased through AccountLink, each purchase
must be at least $25.00. Shares will be purchased on the regular business
day the Distributor is instructed to initiate the Automated Clearing House
("ACH") transfer to buy the shares. Dividends will begin to accrue on
shares purchased by the proceeds of ACH transfers on the business day the
Fund receives Federal Funds for the purchase through the ACH system before
the close of The New York Stock Exchange. The Exchange normally closes
at 4:00 P.M., but may close earlier on certain days. If Federal Funds are
received on a business day after the close of the Exchange, the shares
will be purchased and dividends will begin to accrue on the next regular
business day. The proceeds of ACH transfers are normally received by the
Fund 3 days after the transfers are initiated. The Distributor and the
Fund are not responsible for any delays in purchasing shares resulting
from delays in ACH transmissions.
Reduced Sales Charges. As discussed in the Prospectus, a reduced sales
charge rate may be obtained for Class A shares under 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 other
circumstances described in the Prospectus because the Distributor incurs
little or no selling expenses. The term "immediate family" refers to
one's spouse, children, grandchildren, parents, grandparents, parents-in-
law, sons- and daughters-in-law, siblings, a sibling's spouse and a
spouse's siblings.
The Oppenheimer Funds. The Oppenheimer funds are those mutual funds
for which the Distributor acts as the distributor or the sub-distributor
and include the following:
Oppenheimer Tax-Free Bond Fund
Oppenheimer New York Tax-Exempt Fund
Oppenheimer California Tax-Exempt Fund
Oppenheimer Intermediate Tax-Exempt Fund
Oppenheimer Insured Tax-Exempt Fund
Oppenheimer Main Street California Tax-Exempt Fund
Oppenheimer Florida Tax-Exempt Fund
Oppenheimer Pennsylvania Tax-Exempt Fund
Oppenheimer New Jersey Tax-Exempt Fund
Oppenheimer Fund
Oppenheimer Discovery Fund
Oppenheimer Target Fund
Oppenheimer Growth Fund
Oppenheimer Equity Income Fund
Oppenheimer Value Stock Fund
Oppenheimer Asset Allocation Fund
Oppenheimer Total Return Fund, Inc.
Oppenheimer Main Street Income & Growth Fund
Oppenheimer High Yield Fund
Oppenheimer Champion Income Fund
Oppenheimer Bond Fund
Oppenheimer U.S. Government Trust
Oppenheimer Limited-Term Government Fund
Oppenheimer Global Fund
Oppenheimer Global Emerging Growth Fund
Oppenheimer Global Growth & Income Fund
Oppenheimer Gold & Special Minerals Fund
Oppenheimer Strategic Income Fund
Oppenheimer Strategic Income & Growth Fund
Oppenheimer International Bond Fund
and the following "Money Market Funds":
Oppenheimer Money Market Fund, Inc.
Oppenheimer Cash Reserves
Centennial Money Market Trust
Centennial Tax Exempt Trust
Centennial Government Trust
Centennial New York Tax Exempt Trust
Centennial California Tax Exempt Trust
Centennial America Fund, L.P.
Daily Cash Accumulation Fund, Inc.
There is an initial sales charge on the purchase of Class A shares
of each of the Oppenheimer funds except Money Market Funds (under certain
circumstances described herein, redemption proceeds of Money Market Fund
shares may be subject to a contingent deferred sales charge).
Letters of Intent. A Letter of Intent ("Letter") is the investor's
statement of intention to purchase Class A and Class B shares (or shares
of either class) of the Fund (and other eligible Oppenheimer funds) during
the 13-month period from the investor's first purchase pursuant to the
Letter (the "Letter of Intent period"), which may, at the investor's
request, include purchases made up to 90 days prior to the date of the
Letter. The Letter states the investor's intention to make the aggregate
amount of purchases (excluding any purchases made by reinvestment of
dividends or distributions or purchases made at net asset value without
sales charge), which together with the investor's holdings of such funds
(calculated at their respective public offering prices calculated on the
date of the Letter) will equal or exceed the amount specified in the
Letter. This enables the investor to count the shares to be purchased
under the Letter of Intent to obtain the reduced sales charge rate (as set
forth in the Prospectus) that applies under the Right of Accumulation to
current purchases of Class A shares. Each purchase of Class A shares
under the Letter will be made at the public offering price (including the
sales charge) that applies to a single lump-sum purchase of shares in the
amount intended to be purchased under the Letter.
In submitting a Letter, the investor makes no commitment to purchase
shares, but if the investor's purchases of shares within the Letter of
Intent period, when added to the value (at offering price) of the
investor's holdings of shares on the last day of that period, do not equal
or exceed the intended purchase amount, the investor agrees to pay the
additional amount of sales charge applicable to such purchases, as set
forth in "Terms of Escrow," below (as those terms may be amended from time
to time). The investor agrees that shares equal in value to 5% of the
intended purchase amount will be held in escrow by the Transfer Agent
subject to the Terms of Escrow. Also, the investor agrees to be bound by
the terms of the Prospectus, this Statement of Additional Information and
the Application used for such Letter of Intent, and if such terms are
amended, as they may be from time to time by the Fund, that those
amendments will apply automatically to existing Letters of Intent.
For purchases of shares of the Fund and other Oppenheimer funds by
Oppenheimer funds prototype 401(k) plans under a Letter of Intent, the
Transfer Agent will not hold shares in escrow. If the intended purchase
amount under the Letter entered into by an Oppenheimer funds prototype
401(k) plan is not purchased by the plan by the end of the Letter of
Intent period, there will be no adjustment of commissions paid to the
broker-dealer or financial institution of record for accounts held in the
name of that plan.
If the total eligible purchases made during the Letter of Intent
period do not equal or exceed the intended purchase amount, the
commissions previously paid to the dealer of record for the account and
the amount of sales charge retained by the Distributor will be adjusted
to the rates applicable to actual purchases. If total eligible purchases
during the Letter of Intent period exceed the intended purchase amount and
exceed the amount needed to qualify for the next sales charge rate
reduction set forth in the applicable prospectus, the sales charges paid
will be adjusted to the lower rate, but only if and when the dealer
returns to the Distributor the excess of the amount of commissions allowed
or paid to the dealer over the amount of commissions that apply to the
actual amount of purchases. The excess commissions returned to the
Distributor will be used to purchase additional shares for the investor's
account at the net asset value per share in effect on the date of such
purchase, promptly after the Distributor's receipt thereof.
In determining the total amount of purchases made under a Letter,
shares redeemed by the investor prior to the termination of the Letter of
Intent period will be deducted. It is the responsibility of the dealer
of record and/or the investor to advise the Distributor about the Letter
in placing any purchase orders for the investor during the Letter of
Intent period. All of such purchases must be made through the
Distributor.
-- Terms of Escrow That Apply to Letters of Intent.
1. Out of the initial purchase (or subsequent purchases if
necessary) made pursuant to a Letter, shares of the Fund equal in value
to 5% of the intended purchase amount specified in the Letter shall be
held in escrow by the Transfer Agent. For example, if the intended
purchase amount is $50,000, the escrow shall be shares valued in the
amount of $2,500 (computed at the public offering price adjusted for a
$50,000 purchase). Any dividends and capital gains distributions on the
escrowed shares will be credited to the investor's account.
2. If the intended purchase amount specified under the Letter is
completed within the thirteen-month Letter of Intent period, the escrowed
shares will be promptly released to the investor.
3. If, at the end of the thirteen-month Letter of Intent period the
total purchases pursuant to the Letter are less than the intended purchase
amount specified in the Letter, the investor must remit to the Distributor
an amount equal to the difference between the dollar amount of sales
charges actually paid and the amount of sales charges which would have
been paid if the total amount purchased had been made at a single time.
Such sales charge adjustment will apply to any shares redeemed prior to
the completion of the Letter. If such difference in sales charges is not
paid within twenty days after a request from the Distributor or the
dealer, the Distributor will, within sixty days of the expiration of the
Letter, redeem the number of escrowed shares necessary to realize such
difference in sales charges. Full and fractional shares remaining after
such redemption will be released from escrow. If a request is received
to redeem escrowed shares prior to the payment of such additional sales
charge, the sales charge will be withheld from the redemption proceeds.
4. By signing the Letter, the investor irrevocably constitutes
and appoints the Transfer Agent as attorney-in-fact to surrender for
redemption any or all escrowed shares.
5. The shares eligible for purchase under the Letter (or the
holding of which may be counted toward completion of a Letter) include (a)
Class A shares sold with a front-end sales charge or subject to a Class
A contingent deferred sales charge, (b) Class B shares acquired subject
to a contingent deferred sales charge, and (c) Class A shares or Class B
shares acquired in exchange for either (i) Class A shares of one of the
other Oppenheimer funds that were acquired subject to a Class A initial
or contingent deferred sales charge or (ii) Class B shares of one of the
other Oppenheimer funds that were acquired subject to a contingent
deferred sales charge.
6. Shares held in escrow hereunder will automatically be exchanged
for shares of another fund to which an exchange is requested, as described
in the section of the Prospectus entitled "Exchange Privilege," and the
escrow will be transferred to that other fund.
Asset Builder Plans. To establish an Asset Builder Plan from a bank
account, a check (minimum $25) for the initial purchase must accompany the
application. Shares purchased by Asset Builder Plan payments from bank
accounts are subject to the redemption restrictions for recent purchases
described in "How To Sell Shares," in the Prospectus. Asset Builder Plans
also enable shareholders of Oppenheimer Cash Reserves to use those
accounts for monthly automatic purchases of shares of up to four other
Oppenheimer funds.
There is a front-end sales charge on the purchase of certain
Oppenheimer funds, or a contingent deferred sales charge may apply to
shares purchased by Asset Builder payments. An application should be
obtained from the Distributor, completed and returned, and a prospectus
of the selected fund(s) should be obtained from the Distributor or your
financial advisor before initiating Asset Builder payments. The amount
of the Asset Builder investment may be changed or the automatic
investments may be terminated at any time by writing to the Transfer
Agent. A reasonable period (approximately 15 days) is required after the
Transfer Agent's receipt of such instructions to implement them. The Fund
reserves the right to amend, suspend, or discontinue offering such plans
at any time without prior notice.
Cancellation of Purchase Orders. Cancellation of purchase orders for the
Fund's shares (for example, when a purchase check is returned to the Fund
unpaid) causes a loss to be incurred when the net asset value of the
Fund's shares on the cancellation date is less than on the purchase date.
That loss is equal to the amount of the decline in the net asset value per
share multiplied by the number of shares in the purchase order. The
investor is responsible for that loss. If the investor fails to
compensate the Fund for the loss, the Distributor will do so. The Fund
may reimburse the Distributor for that amount by redeeming shares from any
account registered in that investor's name, or the Fund or the Distributor
may seek other redress.
How to Sell Shares
Information on how to sell shares of the Fund is stated in the
Prospectus. The information below supplements the terms and conditions for
redemptions set forth in the Prospectus.
Payments "In Kind". The Prospectus states that payment for shares
tendered for redemption is ordinarily made in cash. However, the Board of
Directors of the Corporation 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 Board of Directors has the right to
cause the involuntary redemption of the shares held in any Fund 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 Directors 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,
or (ii) Class B shares that were subject to the Class B contingent
deferred sales charge when redeemed. This privilege does not apply to
Class C shares. The reinvestment may be made without sales charge only
in Class A shares of the Fund or any of the other Oppenheimer funds into
which shares of the Fund are exchangeable as described below, at the net
asset value next computed after the Transfer Agent receives the
reinvestment order. The shareholder must ask the Distributor for that
privilege at the time of reinvestment. Any capital gain that was realized
when the shares were redeemed is taxable, and reinvestment will not alter
any capital gains tax payable on that gain. If there has been a capital
loss on the redemption, some or all of the loss may not be tax deductible,
depending on the timing and amount of the reinvestment. Under the
Internal Revenue Code, if the redemption proceeds of Fund shares on which
a sales charge was paid are reinvested in shares of the Fund or another
of the Oppenheimer funds within 90 days of payment of the sales charge,
the shareholder's basis in the shares of the Fund that were redeemed may
not include the amount of the sales charge paid. That would reduce the
loss or increase the gain recognized from the redemption. However, in
that case the sales charge would be added to the basis of the shares
acquired by the reinvestment of the redemption proceeds. The Fund may
amend, suspend or cease offering this reinvestment privilege at any time
as to shares redeemed after the date of such amendment, suspension or
cessation.
Transfers of Shares. Shares are not subject to the payment of a
contingent deferred sales charge of any class at the time of transfer to
the name of another person or entity (whether the transfer occurs by
absolute assignment, gift or bequest, not involving, directly or
indirectly, a public sale). The transferred shares will remain subject
to the contingent deferred sales charge, calculated as if the transferee
shareholder had acquired the transferred shares in the same manner and at
the same time as the transferring shareholder. If less than all shares
held in an account are transferred, and some but not all shares in the
account would be subject to a contingent deferred sales charge if redeemed
at the time of transfer, the priorities described in the Prospectus under
"How to Buy Shares" for the imposition of the Class B 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, 401(k) plans,
or pension or profit-sharing plans should be addressed to "Trustee,
OppenheimerFunds Retirement Plans," c/o the Transfer Agent at its address
listed in "How To Sell Shares" in the Prospectus or on the back cover of
this Statement of Additional Information. The request must: (i) state the
reason for the distribution; (ii) state the owner's awareness of tax
penalties if the distribution is premature; and (iii) conform to the
requirements of the plan and the Fund's other redemption requirements.
Participants, other than self-employed persons maintaining a plan account
in their own name, in OppenheimerFunds-sponsored prototype pension or
profit-sharing or 401(k) plans may not directly redeem or exchange shares
held for their account under those plans. The employer or plan
administrator must sign the request. Distributions from pension, profit
sharing plans are subject to special requirements under the Internal
Revenue Code and certain documents (available from the Transfer Agent)
must be completed before the distribution may be made. Distributions from
retirement plans are subject to withholding requirements under the
Internal Revenue Code, and IRS Form W-4P (available from the Transfer
Agent) must be submitted to the Transfer Agent with the distribution
request, or the distribution may be delayed. Unless the shareholder has
provided the Transfer Agent with a certified tax identification number,
the Internal Revenue Code requires that tax be withheld from any
distribution even if the shareholder elects not to have tax withheld. The
Fund, the Manager, the Distributor, the Trustee and the Transfer Agent
assume no responsibility to determine whether a distribution satisfies the
conditions of applicable tax laws and will not be responsible for any tax
penalties assessed in connection with a distribution.
Special Arrangements for Repurchase of Shares from Dealers and Brokers.
The Distributor is the Fund's agent to repurchase its shares from
authorized dealers or brokers. The repurchase price per share will be the
net asset value next computed after the Distributor receives the order
placed by the dealer or broker, except that if the Distributor receives
a repurchase order from the dealer or broker after the close of The New
York Stock Exchange on a regular business day, it will be processed at
that day's net asset value, if the order was received by the dealer or
broker from its customer prior to the time the Exchange closes (normally,
that is 4:00 P.M., but may be earlier on some days) and the order was
transmitted to and received by the Distributor prior to its close of
business that day (normally 5:00 P.M.). Ordinarily, for accounts redeemed
by a broker-dealer under this procedure, payment will be made within three
business days after the shares have been redeemed upon the Distributor's
receipt of the required redemption documents in proper form, with the
signature(s) of the registered owners guaranteed on the redemption
document as described in the Prospectus.
Automatic Withdrawal and Exchange Plans. Investors owning shares of the
Fund valued at $5,000 or more can authorize the Transfer Agent to redeem
shares (minimum $50) automatically on a monthly, quarterly, semi-annual
or annual basis under an Automatic Withdrawal Plan. Shares will be
redeemed three business days prior to the date requested by the
shareholder for receipt of the payment. Automatic withdrawals of up to
$1,500 per month may be requested by telephone if payments are to be made
by check payable to all shareholders of record and sent to the address of
record for the account (and if the address has not been changed within the
prior 30 days). Required minimum distributions from Oppenheimer funds-
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 Oppenheimer
funds New Account Application or signature-guaranteed instructions. The
Fund cannot guarantee receipt of a payment on the date requested and
reserves the right to amend, suspend or discontinue offering such plans
at any time without prior notice. Because of the sales charge assessed
on Class A share purchases, shareholders should not make regular
additional Class A share purchases while participating in an Automatic
Withdrawal Plan. Class B and Class C shareholders should not establish
withdrawal plans because of the imposition of the contingent deferred
sales charges on such withdrawals (except where the Class B and Class C
contingent deferred sales charges are waived as described in the
Prospectus under "Waivers of Class B and Class C Contingent Deferred Sales
Charges").
By requesting an Automatic Withdrawal or Exchange Plan, the
shareholder agrees to the terms and conditions applicable to such plans,
as stated below and in the provisions of the Oppenheimer funds 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 Oppenheimer funds Application or signature-guaranteed
instructions) to exchange a pre-determined amount of shares of the Fund
for shares (of the same class) of other Oppenheimer funds automatically
on a monthly, quarterly, semi-annual or annual basis under an Automatic
Exchange Plan. The minimum amount that may be exchanged to each other
fund account is $25. Exchanges made under these plans are subject to the
restrictions that apply to exchanges as set forth in "How to Exchange
Shares" in the Prospectus and below in this Statement of Additional
Information.
Automatic Withdrawal Plans. Fund shares will be redeemed as
necessary to meet withdrawal payments. Shares acquired without a sales
charge will be redeemed first and shares acquired with reinvested
dividends and capital gains distributions will be redeemed next, followed
by shares acquired with a sales charge, to the extent necessary to make
withdrawal payments. Depending upon the amount withdrawn, the investor's
principal may be depleted. Payments made under withdrawal plans should
not be considered as a yield or income on your investment. It may not be
desirable to purchase additional Class A shares while making automatic
withdrawals because of the sales charges that apply to purchases when
made. Accordingly, a shareholder normally may not maintain an Automatic
Withdrawal Plan while simultaneously making regular purchases of Class A
shares.
The Transfer Agent will administer the investor's Automatic
Withdrawal Plan (the "Plan") as agent for the investor (the "Planholder")
who executed the Plan authorization and application submitted to the
Transfer Agent. The Transfer Agent shall incur no liability to the
Planholder for any action taken or omitted by the Transfer Agent in good
faith to administer the Plan. Certificates will not be issued for shares
of the Fund purchased for and held under the Plan, but the Transfer Agent
will credit all such shares to the account of the Planholder on the
records of the Fund. Any share certificates held by a Planholder may be
surrendered unendorsed to the Transfer Agent with the Plan application so
that the shares represented by the certificate may be held under the Plan.
For accounts subject to Automatic Withdrawal Plans, distributions of
capital gains must be reinvested in shares of the Fund, which will be done
at net asset value without a sales charge. Dividends on shares held in
the account may be paid in cash or reinvested.
Redemptions of shares needed to make withdrawal payments will be made
at the net asset value per share determined on the redemption date.
Checks or ACH transfer payments of the proceeds of Plan withdrawals will
normally be transmitted three business days prior to the date selected for
receipt of the payment (receipt of payment on the date selected cannot be
guaranteed), according to the choice specified in writing by the
Planholder.
The amount and the interval of disbursement payments and the address
to which checks are to be mailed or AccountLink payments are to be sent
may be changed at any time by the Planholder by writing to the Transfer
Agent. The Planholder should allow at least two weeks' time in mailing
such notification for the requested change to be put in effect. The
Planholder may, at any time, instruct the Transfer Agent by written notice
(in proper form in accordance with the requirements of the then-current
Prospectus of the Fund) to redeem all, or any part of, the shares held
under the Plan. In that case, the Transfer Agent will redeem the number
of shares requested at the net asset value per share in effect in
accordance with the Fund's usual redemption procedures and will mail a
check for the proceeds to the Planholder.
The Plan may be terminated at any time by the Planholder by writing
to the Transfer Agent. A Plan may also be terminated at any time by the
Transfer Agent upon receiving directions to that effect from the Fund.
The Transfer Agent will also terminate a Plan upon receipt of evidence
satisfactory to it of the death or legal incapacity of the Planholder.
Upon termination of a Plan by the Transfer Agent or the Fund, shares that
have not been redeemed from the account will be held in uncertificated
form in the name of the Planholder, and the account will continue as a
dividend-reinvestment, uncertificated account unless and until proper
instructions are received from the Planholder or his or her executor or
guardian, or other authorized person.
To use shares held under the Plan as collateral for a debt, the
Planholder may request issuance of a portion of the shares in certificated
form. Upon written request from the Planholder, the Transfer Agent will
determine the number of shares for which a certificate may be issued
without causing the withdrawal checks to stop because of exhaustion of
uncertificated shares needed to continue payments. However, should such
uncertificated shares become exhausted, Plan withdrawals will terminate.
If the Transfer Agent ceases to act as transfer agent for the Fund,
the Planholder will be deemed to have appointed any successor transfer
agent to act as agent in administering the Plan.
How To Exchange Shares
As stated in the Prospectus, shares of a particular class of
Oppenheimer funds having more than one class of shares may be exchanged
only for shares of the same class of other Oppenheimer funds. Shares of
the Oppenheimer funds that have a single class without a class designation
are deemed "Class A" shares for this purpose. All of the Oppenheimer
funds offer Class A, B and C shares except Oppenheimer Money Market Fund,
Inc., Centennial Money Market Trust, Centennial Tax Exempt Trust,
Centennial Government Trust, Centennial New York Tax Exempt Trust,
Centennial California Tax Exempt Trust, Centennial America Fund, L.P., and
Daily Cash Accumulation Fund, Inc., which only offer Class A shares and
Oppenheimer Main Street California Tax-Exempt Fund which only offers Class
A and Class B shares (Class B and Class C shares of Oppenheimer Cash
Reserves are generally available only by exchange from the same class of
shares of other Oppenheimer funds or through OppenheimerFunds sponsored
401(k) plans). A list showing which funds offer which classes can be
obtained by calling the distributor at 1-800-525-7048.
Class A shares of Oppenheimer funds may be exchanged at net asset
value for shares of any Money Market Fund. Shares of any Money Market
Fund purchased without a sales charge may be exchanged for shares of
Oppenheimer funds offered with a sales charge upon payment of the sales
charge (or, if applicable, may be used to purchase shares of Oppenheimer
funds subject to a contingent deferred sales charge). However, shares of
Oppenheimer Money Market Fund, Inc. purchased with the redemption proceeds
of shares of other mutual funds (other than funds managed by the Manager
or its subsidiaries) redeemed within the 12 months prior to that purchase
may subsequently be exchanged for shares of other Oppenheimer funds
without being subject to an initial or contingent deferred sales charge,
whichever is applicable. To qualify for that privilege, the investor or
the investor's dealer must notify the Distributor of eligibility for this
privilege at the time the shares of Oppenheimer Money Market Fund, Inc.
are purchased, and, if requested, must supply proof of entitlement to this
privilege. Shares of this Fund acquired by reinvestment of dividends or
distributions from any other of the Oppenheimer funds or from any unit
investment trust for which reinvestment arrangements have been made with
the Distributor may be exchanged at net asset value for shares of any of
the Oppenheimer funds. No contingent deferred sales charge is imposed on
exchanges of shares of either class purchased subject to a contingent
deferred sales charge. However, when Class A shares acquired by exchange
of Class A shares of other Oppenheimer funds purchased subject to a Class
A contingent deferred sales charge are redeemed within 18 months of the
end of the calendar month of the initial purchase of the exchanged Class
A shares, the Class A contingent deferred sales charge is imposed on the
redeemed shares (see "Class A Contingent Deferred Sales Charge" in the
Prospectus). The Class B contingent deferred sales charge is imposed on
Class B shares acquired by exchange if they are redeemed within six years
of the initial purchase of the exchanged Class B shares. The Class C
contingent deferred sales charge is imposed on Class C shares acquired by
exchange if they are redeemed within 12 months of the initial purchase of
the exchanged Class C shares.
When Class B or Class C shares are redeemed to effect an exchange,
the priorities described in "How To Buy Shares" in the Prospectus for the
imposition of the Class B and Class C contingent deferred sales 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 more than one class must specify
whether they intend to exchange Class A, Class B or Class C shares.
The Fund reserves the right to reject telephone or written exchange
requests submitted in bulk by anyone on behalf of 10 or more accounts. The
Fund may accept requests for exchanges of up to 50 accounts per day from
representatives of authorized dealers that qualify for this privilege. In
connection with any exchange request, the number of shares exchanged may
be less than the number requested if the exchange or the number requested
would include shares subject to a restriction cited in the Prospectus or
this Statement of Additional Information or would include shares covered
by a share certificate that is not tendered with the request. In those
cases, only the shares available for exchange without restriction will be
exchanged.
When exchanging shares by telephone, a shareholder must either have
an existing account in, or obtain and acknowledge receipt of a prospectus
of, the fund to which the exchange is to be made. For full or partial
exchanges of an account made by telephone, any special account features
such as Asset Builder Plans, Automatic Withdrawal Plans and retirement
plan contributions will be switched to the new account unless the Transfer
Agent is instructed otherwise. If all telephone lines are busy (which
might occur, for example, during periods of substantial market
fluctuations), shareholders might not be able to request exchanges by
telephone and would have to submit written exchange requests.
Shares to be exchanged are redeemed on the regular business day the
Transfer Agent receives an exchange request in proper form (the
"Redemption Date"). Normally, shares of the fund to be acquired are
purchased on the Redemption Date, but such purchases may be delayed by
either fund up to five business days if it determines that it would be
disadvantaged by an immediate transfer of the redemption proceeds. The
Fund reserves the right, in its discretion, to refuse any exchange request
that may disadvantage it (for example, if the receipt of multiple exchange
requests from a dealer might require the disposition of portfolio
securities at a time or at a price that might be disadvantageous to the
Fund).
The different Oppenheimer funds available for exchange have different
investment objectives, policies and risks, and a shareholder should assure
that the Fund selected is appropriate for his or her investment and should
be aware of the tax consequences of an exchange. For federal income tax
purposes, an exchange transaction is treated as a redemption of shares of
one fund and a purchase of shares of another. "Reinvestment Privilege,"
above, discusses some of the tax consequences of reinvestment of
redemption proceeds in such cases. The Fund, the Distributor, and the
Transfer Agent are unable to provide investment, tax or legal advice to
a shareholder in connection with an exchange request or any other
investment transaction.
Dividends, Capital Gains and Taxes
Tax Status of the Fund's Dividends and Distributions. The Federal tax
treatment of the Fund's dividends and capital gains distributions is
explained in the Prospectus under the caption "Dividends, Capital Gains
and Taxes." Special provisions of the Internal Revenue Code govern the
eligibility of the Fund's dividends for the dividends-received deduction
for corporate shareholders. Long-term capital gains distributions are not
eligible for the deduction. In addition, the amount of dividends paid by
the Fund which may qualify for the deduction is limited to the aggregate
amount of qualifying dividends that the Fund derives from its portfolio
investments that the Fund has held for a minimum period, usually 46 days.
A corporate shareholder will not be eligible for the deduction on
dividends paid on Fund shares held for 45 days or less. To the extent the
Fund's dividends are derived from gross income from option premiums,
interest income or short-term gains from the sale of securities or
dividends from foreign corporations, those dividends will not qualify for
the deduction.
Under the Internal Revenue Code, by December 31 each year, the Fund
must distribute 98% of its taxable investment income earned from January
1 through December 31 of that year and 98% of its capital gains realized
in the period from November 1 of the prior year through October 31 of the
current year, or else the Fund must pay an excise tax on the amounts not
distributed. While it is presently anticipated that the Fund will meet
those requirements, the Board of Directors and the Manager might determine
in a particular year that it would be in the best interest of shareholders
for the Fund not to make such distributions at the required levels and to
pay the excise tax on the undistributed amounts. That would reduce the
amount of income or capital gains available for distribution to
shareholders.
If the Fund qualifies as a "regulated investment company" under the
Internal Revenue Code, it will not be liable for Federal income taxes on
amounts paid by it as dividends and distribution. The Fund qualified
during its last fiscal year, and intends to qualify in current and future
years, but reserves the right not to do so. The Internal Revenue Code
contains a number of complex tests to determine whether the Fund will
qualify, and the Fund might not meet those tests in a particular year.
For example, if the Fund derives 30% or more of its gross income from the
sale of securities held less than three months, it may fail to qualify
(see "Tax Aspects of Covered Calls and Hedging Instruments," above). If
it did not so qualify, the Fund would be treated for tax purposes as an
ordinary corporation and receive no tax deduction for payments made to
shareholders.
The amount of a class's distributions may vary from time to time
depending on market conditions, the composition of the Fund's portfolio,
and expenses borne by the Fund or borne separately by a class, as
described in "Alternative Sales Arrangements -- Class A, Class B and Class
C Shares," above. Dividends are calculated in the same manner, at the
same time and on the same day for shares of each class. However,
dividends on Class B and Class C shares are expected to be lower as a
result of the asset-based sales charge on Class B and Class C shares, and
Class B and Class C dividends will also differ in amount as a consequence
of any difference in net asset value between the classes.
Dividends, distributions and the proceeds of the redemption of Fund
shares represented by checks returned to the Transfer Agent by the Postal
Service as undeliverable will be invested in shares of Oppenheimer Money
Market Fund, Inc., as promptly as possible after the return of such checks
to the Transfer Agent, to enable the investor to earn a return on
otherwise idle funds.
Dividend Reinvestment in Another Fund. Shareholders of the Fund may elect
to reinvest all dividends and/or capital gains distributions in shares of
the same class of any of the other Oppenheimer funds listed in "Reduced
Sales Charges," above, at net asset value without sales charge. 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 Oppenheimer funds may be invested in
shares of this Fund on the same basis.
Additional Information About the Fund
The Custodian. The Bank of New York is the Custodian of the Fund's
assets. The Custodian's responsibilities include safeguarding and
controlling the Fund's portfolio securities, collecting income on the
portfolio securities and handling the delivery of such securities to and
from the Fund. The Manager has represented to the Fund that the banking
relationships between the Manager and the Custodian have been and will
continue to be unrelated to and unaffected by the relationship between the
Fund and the Custodian. It will be the practice of the Fund to deal with
the Custodian in a manner uninfluenced by any banking relationship the
Custodian may have with the Manager and its affiliates. The Fund's cash
balances in excess of $100,000 are not protected by Federal deposit
insurance. Such uninsured balances may be substantial.
Independent Auditors. The independent auditors of the Fund audit the
Manager's and the Fund's financial statements and perform other related
audit services. They also act as auditors for certain other funds advised
by the Manager and its affiliates.
<PAGE>
-----------------------------------------------------
Independent Auditors' Report
-----------------------------------------------------
The Board of Directors and Shareholders of
Oppenheimer Main Street Income & Growth Fund:
We have audited the accompanying statement of
assets and liabilities, including the statement
of investments, of Oppenheimer Main Street
Income and Growth Fund as of June 30, 1995, the
related statement of operations for the year
then ended, the statements of changes in net
assets for the years ended June 30, 1995 and
1994, and the financial highlights for the
period February 3, 1988 (commencement of
operations) to June 30, 1995. These financial
statements and financial highlights are the
responsibility of the Fund's management. Our
responsibility is to express an opinion on
these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with
generally accepted auditing standards. Those
standards require that we plan and perform the
audit to obtain reasonable assurance about
whether the financial statements and financial
highlights are free of material misstatement.
An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures
in the financial statements. Our procedures
included confirmation of securities owned at
June 30, 1995 by correspondence with the
custodian and brokers; where replies were not
received from brokers, we performed other
auditing procedures. An audit also includes
assessing the accounting principles used and
significant estimates made by management, as
well as evaluating the overall financial
statement presentation. We believe that our
audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements
and financial highlights present fairly, in all
material respects, the financial position of
Oppenheimer Main Street Income and Growth Fund
at June 30, 1995, the results of its
operations, the changes in its net assets, and
the financial highlights for the respective
stated periods, in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Denver, Colorado
July 24, 1995
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS June 30, 1995
---------------------------------------------------------------------------------------------------
FACE MARKET VALUE
AMOUNT SEE NOTE 1
<S> <C> <C> <C>
CONVERTIBLE CORPORATE BONDS AND NOTES--6.0%
- ------------------------------------------------------------------------------------------------------------------------------------
BASIC MATERIALS--0.3%
- ------------------------------------------------------------------------------------------------------------------------------------
CHEMICALS--0.2% IMC Global, Inc., 6.25% Cv. Sub. Debs., 12/1/01 $ 6,000,000 $
6,120,000
- ------------------------------------------------------------------------------------------------------------------------------------
GOLD--0.1% Agnico Eagle Mines Ltd., 3.50% Cv. Sr. Nts., 1/27/04 2,625,000
2,244,375
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER CYCLICALS--1.4%
- ------------------------------------------------------------------------------------------------------------------------------------
LEISURE & ENTERTAINMENT--0.1% Discovery Zone, Inc., Zero Coupon Cv. Sub. Liquid Yield Option
Nts., 10/14/13 10,000,000 3,362,500
- ------------------------------------------------------------------------------------------------------------------------------------
MEDIA--0.9% Time Warner, Inc., 8.75% Cv. Sr. Nts., 1/10/15 24,000,000
24,960,000
- ------------------------------------------------------------------------------------------------------------------------------------
RETAIL: GENERAL--0.3% Federated Department Stores, Inc., 9.72% Cv. Sr. Disc. Nts., 2/15/04 5,000,000
5,056,250
---------------------------------------------------------------------------------------------------
Unifi, Inc., 6% Cv. Sub. Nts., 3/15/02 5,000,000 5,006,250
--------------
10,062,500
- ------------------------------------------------------------------------------------------------------------------------------------
RETAIL: SPECIALTY--0.1% Sports & Recreation, Inc., 4.25% Cv. Sub. Nts., 11/1/00 3,500,000
2,695,000
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER NON-CYCLICALS--1.4%
- ------------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE/DRUGS--0.6% Roche Holdings, Inc., Zero Coupon Cv. Nts., 4/20/10(1) 48,000,000
19,080,000
- ------------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE/SUPPLIES & Fisher Scientific International, Inc., 4.75% Cv. Sub. Nts., 3/1/03(2) 3,000,000
3,213,750
SERVICES--0.8% ---------------------------------------------------------------------------------------------------
ICN Pharmaceuticals, Inc., 8.50% Cv. Sub. Debs., 11/15/99 7,400,000 7,252,000
---------------------------------------------------------------------------------------------------
Novacare, Inc., 5.50% Cv. Sub. Debs., 1/15/00 6,500,000 5,622,500
---------------------------------------------------------------------------------------------------
Pacific Physician Services, Inc., 5.50% Cv. Sub. Debs., 12/15/03 2,500,000 1,918,750
---------------------------------------------------------------------------------------------------
Physicians Clinical Laboratory, Inc., 7.50% Cv. Sub. Debs., 8/15/00(1) 1,000,000 831,250
---------------------------------------------------------------------------------------------------
Theratx, Inc., 8% Cv. Sub. Debs., 2/1/02(1) 6,000,000 5,467,500
--------------
24,305,750
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL--0.1%
- ------------------------------------------------------------------------------------------------------------------------------------
BANKS--0.1% Banco de Galicia y Buenos Aires SA, 7% Cv. Negotiable Obligation
Bonds, 8/1/02 3,000,000 2,115,000
- ------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL--1.0%
- ------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL SERVICES--0.3% WMX Technologies, Inc., 2% Cv. Sub. Nts., 1/24/05 10,000,000
8,425,000
- ------------------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--0.7% AMR Corp., 6.125% Cv. Sub. Debs., 11/1/24 15,000,000
15,675,000
---------------------------------------------------------------------------------------------------
Delta Airlines, Inc., 3.23% Cv. Sub. Nts., 6/15/03 6,000,000 5,775,000
--------------
21,450,000
- ------------------------------------------------------------------------------------------------------------------------------------
TECHNOLOGY--1.8%
- ------------------------------------------------------------------------------------------------------------------------------------
COMPUTER HARDWARE--0.7% Conner Peripherals, Inc., 6.50% Cv. Debs., 3/1/02 3,000,000
2,531,250
---------------------------------------------------------------------------------------------------
Danka Business Systems PLC, 6.75% Cv. Sub. Nts., 4/1/02(1) 8,000,000 8,440,000
---------------------------------------------------------------------------------------------------
Data General Corp., 7.75% Cv. Sub. Debs., 6/1/01 8,000,000 7,240,000
---------------------------------------------------------------------------------------------------
Seagate Technology, Inc., 6.75% Cv. Sub. Debs., 5/1/12 3,000,000 3,135,000
--------------
21,346,250
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
FACE MARKET VALUE
AMOUNT SEE NOTE 1
<S> <C> <C> <C>
COMPUTER SOFTWARE--0.2% First Financial Management Corp., 5% Cv. Debs., 12/15/99 $ 5,000,000
$ 6,675,000
- ------------------------------------------------------------------------------------------------------------------------------------
COMPUTER SOFTWARE & Synoptics Communications, Inc., 5.25% Cv. Sub. Debs., 5/15/03(1) 3,500,000
3,329,375
SERVICES--0.1%
- ------------------------------------------------------------------------------------------------------------------------------------
ELECTRONICS--0.4% ADT Operations, Inc., Zero Coupon Sub. Nts., 7/6/10 10,000,000
3,925,000
---------------------------------------------------------------------------------------------------
Altera Corp., 5.75% Cv. Sub. Nts., 6/15/02(1) 7,000,000 7,446,250
--------------
11,371,250
- ------------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS- Telekom Malaysia Berhad, 4% Cv. Debs., 10/3/04(1) 3,250,000
3,136,250
TECHNOLOGY--0.4% ---------------------------------------------------------------------------------------------------
U.S. Cellular Corp., Zero Coupon Cv. Liquid Yield Option Nts., 6/15/15 16,250,000 5,078,125
---------------------------------------------------------------------------------------------------
Worldcom, Inc., 5% Cv. Sub. Nts., 8/15/03 4,000,000 3,820,000
--------------
12,034,375
--------------
Total Convertible Corporate Bonds and Notes (Cost $166,782,577) 179,576,375
<CAPTION>
SHARES
==========================================================
==========================================================
================
<S> <C> <C> <C>
COMMON STOCKS--78.6%
- ------------------------------------------------------------------------------------------------------------------------------------
BASIC MATERIALS--3.3%
- ------------------------------------------------------------------------------------------------------------------------------------
CHEMICALS--2.4% Bush Boake Allen, Inc.(3) 400,000 12,150,000
---------------------------------------------------------------------------------------------------
Hercules, Inc. 370,000 18,037,500
---------------------------------------------------------------------------------------------------
IMC Global, Inc. 375,000 20,296,875
---------------------------------------------------------------------------------------------------
Mississippi Chemical Corp. 300,000 5,981,250
---------------------------------------------------------------------------------------------------
W.R. Grace & Co. 275,000 16,878,125
--------------
73,343,750
- ------------------------------------------------------------------------------------------------------------------------------------
METALS--0.4%
Aluminum Co. of America 200,500 10,050,063
---------------------------------------------------------------------------------------------------
Zemex Corp.(3) 140,000 1,312,500
--------------
11,362,563
- ------------------------------------------------------------------------------------------------------------------------------------
PAPER--0.5% Scott Paper Co. 300,000 14,850,000
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER CYCLICALS--14.0%
- ------------------------------------------------------------------------------------------------------------------------------------
AUTOS & HOUSING--0.8% Chrysler Corp. 275,000 13,165,625
---------------------------------------------------------------------------------------------------
Edelbrock Corp.(3) 225,000 3,037,500
---------------------------------------------------------------------------------------------------
Oakwood Homes Corp. 350,000 8,968,750
--------------
25,171,875
- ------------------------------------------------------------------------------------------------------------------------------------
LEISURE & ENTERTAINMENT--5.4% Atlantic Southeast Airlines, Inc. 950,000
28,618,750
---------------------------------------------------------------------------------------------------
Aztar Corp.(3) 800,000 7,400,000
---------------------------------------------------------------------------------------------------
Brunswick Corp. 450,000 7,650,000
---------------------------------------------------------------------------------------------------
Buffets, Inc.(3) 910,000 12,512,500
---------------------------------------------------------------------------------------------------
Circus Circus Enterprises, Inc.(3) 951,000 33,522,750
---------------------------------------------------------------------------------------------------
Continental Airlines, Inc., Cl. B(3) 600,000 15,075,000
---------------------------------------------------------------------------------------------------
Eastman Kodak Co. 425,000 25,765,625
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (Continued)
---------------------------------------------------------------------------------------------------
MARKET VALUE
SHARES SEE NOTE 1
<S> <C> <C> <C>
LEISURE & ENTERTAINMENT FelCor Suite Hotels, Inc. 100,000 $
2,550,000
(CONTINUED) ---------------------------------------------------------------------------------------------------
Imax Corp.(3) 225,000 2,503,125
---------------------------------------------------------------------------------------------------
Southwest Airlines Co. 350,000 8,356,250
---------------------------------------------------------------------------------------------------
Walt Disney Co. 325,000 18,078,125
--------------
162,032,125
- ------------------------------------------------------------------------------------------------------------------------------------
MEDIA--2.1% CBS, Inc. 150,000 10,050,000
---------------------------------------------------------------------------------------------------
Comcast Corp., Cl. A Special 650,000 12,065,625
---------------------------------------------------------------------------------------------------
Cox Communications, Inc.(3) 600,000 11,625,000
---------------------------------------------------------------------------------------------------
Houghton Mifflin Co. 125,000 6,593,750
---------------------------------------------------------------------------------------------------
Katz Media Group, Inc.(3) 8,400 133,350
---------------------------------------------------------------------------------------------------
United International Holdings, Inc., Cl. A(3) 350,000 5,862,500
---------------------------------------------------------------------------------------------------
Viacom, Inc., Cl. B(3) 400,000 18,550,000
--------------
64,880,225
- ------------------------------------------------------------------------------------------------------------------------------------
RETAIL: GENERAL--2.3% Big B, Inc. 300,000 4,237,500
---------------------------------------------------------------------------------------------------
Dayton Hudson Corp. 150,000 10,762,500
---------------------------------------------------------------------------------------------------
Dillard Department Stores, Inc., Cl. A 450,000 13,218,750
---------------------------------------------------------------------------------------------------
Duckwall-ALCO Stores, Inc.(3)(4) 300,000 2,775,000
---------------------------------------------------------------------------------------------------
Eckerd Corp.(3) 450,000 14,400,000
---------------------------------------------------------------------------------------------------
Kohl's Corp.(3) 200,000 9,125,000
---------------------------------------------------------------------------------------------------
Unifi, Inc. 600,000 14,400,000
--------------
68,918,750
- ------------------------------------------------------------------------------------------------------------------------------------
RETAIL: SPECIALTY--3.4% Cameron Ashley, Inc.(3) 125,000 1,656,250
---------------------------------------------------------------------------------------------------
Ellett Brothers, Inc. 250,000 1,687,500
---------------------------------------------------------------------------------------------------
Home Shopping Network, Inc.(3) 1,250,000 10,625,000
---------------------------------------------------------------------------------------------------
Nike, Inc., Cl. B 225,000 18,900,000
---------------------------------------------------------------------------------------------------
Nine West Group, Inc.(3) 250,000 9,125,000
---------------------------------------------------------------------------------------------------
Rite Aid Corp. 575,000 14,734,375
---------------------------------------------------------------------------------------------------
Tandy Corp. 240,000 12,450,000
---------------------------------------------------------------------------------------------------
Tech Data Corp.(3) 1,150,000 13,153,125
---------------------------------------------------------------------------------------------------
The Limited, Inc. 775,000 17,050,000
---------------------------------------------------------------------------------------------------
U.S. Office Products Co.(3) 200,000 2,400,000
--------------
101,781,250
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER NON-CYCLICALS--12.7%
- ------------------------------------------------------------------------------------------------------------------------------------
BEVERAGES--0.3% Canandaigua Wine Co., Inc., Cl. A(3) 200,000 8,950,000
- ------------------------------------------------------------------------------------------------------------------------------------
FOOD--1.1% IBP, Inc. 500,000 21,750,000
---------------------------------------------------------------------------------------------------
Penn Traffic Co.(3) 350,000 12,381,250
---------------
34,131,250
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
MARKET VALUE
SHARES SEE NOTE 1
<S> <C> <C> <C>
HEALTHCARE/DRUGS--4.6% Amgen, Inc.(3) 450,000 $
36,196,875
---------------------------------------------------------------------------------------------------
Bergen Brunswig Corp., Cl. A 425,000 9,721,875
---------------------------------------------------------------------------------------------------
Bristol-Myers Squibb Co. 125,000 8,515,625
---------------------------------------------------------------------------------------------------
Dentsply International, Inc. 350,000 12,600,000
---------------------------------------------------------------------------------------------------
Genentech, Inc.(3) 575,000 27,959,375
---------------------------------------------------------------------------------------------------
Genzyme Corp.(3) 300,000 12,000,000
---------------------------------------------------------------------------------------------------
Healthsource, Inc.(3) 125,000 4,375,000
---------------------------------------------------------------------------------------------------
Matrix Pharmaceutical, Inc.(3) 150,000 2,025,000
---------------------------------------------------------------------------------------------------
Merck & Co., Inc. 250,000 12,250,000
---------------------------------------------------------------------------------------------------
Warner-Lambert Co. 150,000 12,956,250
--------------
138,600,000
- ------------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE/SUPPLIES Baxter International, Inc. 250,000 9,093,750
& SERVICES--5.3% ---------------------------------------------------------------------------------------------------
Beverly Enterprises, Inc.(3) 1,150,000 14,231,250
---------------------------------------------------------------------------------------------------
Boston Scientific Corp.(3) 500,000 15,937,500
---------------------------------------------------------------------------------------------------
Columbia/HCA Healthcare Corp. 300,000 12,975,000
---------------------------------------------------------------------------------------------------
Heart Technology, Inc.(3) 450,000 8,718,750
---------------------------------------------------------------------------------------------------
Mariner Health Group, Inc.(3) 125,000 1,406,250
---------------------------------------------------------------------------------------------------
Oxford Health Plans, Inc.(3) 230,000 10,867,500
---------------------------------------------------------------------------------------------------
Spine-Tech, Inc.(3) 200,000 2,150,000
---------------------------------------------------------------------------------------------------
Summit Care Corp.(3) 75,000 1,368,750
---------------------------------------------------------------------------------------------------
Tenet Healthcare Corp.(3) 825,000 11,859,375
---------------------------------------------------------------------------------------------------
Theratx, Inc.(3) 25,000 334,375
---------------------------------------------------------------------------------------------------
U.S. Healthcare, Inc. 400,000 12,250,000
---------------------------------------------------------------------------------------------------
United Healthcare Corp. 1,150,000 47,581,250
---------------------------------------------------------------------------------------------------
Ventritex, Inc.(3) 575,000 9,703,125
--------------
158,476,875
- ------------------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD GOODS--0.3% Avon Products, Inc. 150,000
10,050,000
- ------------------------------------------------------------------------------------------------------------------------------------
TOBACCO--1.1% Philip Morris Cos., Inc. 425,000 31,609,375
- ------------------------------------------------------------------------------------------------------------------------------------
ENERGY--6.2%
- ------------------------------------------------------------------------------------------------------------------------------------
ENERGY SERVICES Apache Corp. 250,000 6,843,750
& PRODUCERS--1.8% ---------------------------------------------------------------------------------------------------
Baker Hughes, Inc. 353,000 7,236,500
---------------------------------------------------------------------------------------------------
BJ Services Co.(3) 225,000 5,118,750
---------------------------------------------------------------------------------------------------
Nabors Industries, Inc.(3) 175,000 1,443,750
---------------------------------------------------------------------------------------------------
Pogo Producing Co. 200,000 4,575,000
---------------------------------------------------------------------------------------------------
Pride Petroleum Services, Inc.(3) 35,000 262,500
---------------------------------------------------------------------------------------------------
Schlumberger Ltd. 350,000 21,743,750
---------------------------------------------------------------------------------------------------
Weatherford International, Inc.(3) 500,000 6,375,000
--------------
53,599,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (Continued)
---------------------------------------------------------------------------------------------------
MARKET VALUE
SHARES SEE NOTE 1
<S> <C> <C> <C>
OIL-INTEGRATED--4.4% Arethusa (Off Shore) Ltd. 225,000 $ 4,050,000
---------------------------------------------------------------------------------------------------
Ashland, Inc. 425,000 14,928,125
---------------------------------------------------------------------------------------------------
Atlantic Richfield Co. 200,000 21,950,000
---------------------------------------------------------------------------------------------------
Occidental Petroleum Corp. 1,250,000 28,593,750
---------------------------------------------------------------------------------------------------
Parker & Parsley Petroleum Co. 250,000 4,906,250
---------------------------------------------------------------------------------------------------
Royal Dutch Petroleum Co. 150,000 18,281,250
---------------------------------------------------------------------------------------------------
Sun Co., Inc. 425,000 11,634,375
---------------------------------------------------------------------------------------------------
Texaco, Inc. 225,000 14,765,625
---------------------------------------------------------------------------------------------------
Total SA, Sponsored ADR 450,000 13,612,500
---------------
132,721,875
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL--7.9%
- ------------------------------------------------------------------------------------------------------------------------------------
BANKS--5.8% Ahmanson (H.F.) & Co. 600,000 13,200,000
---------------------------------------------------------------------------------------------------
BankAmerica Corp. 325,000 17,103,125
---------------------------------------------------------------------------------------------------
Chase Manhattan Corp. 200,000 9,400,000
---------------------------------------------------------------------------------------------------
Coast Savings Financial, Inc.(3) 325,000 6,703,125
---------------------------------------------------------------------------------------------------
Commercial Federal Corp.(3) 300,000 8,175,000
---------------------------------------------------------------------------------------------------
CoreStates Financial Corp. 875,000 30,515,625
---------------------------------------------------------------------------------------------------
First Bank System, Inc. 325,000 13,325,000
---------------------------------------------------------------------------------------------------
First Chicago Corp. 300,000 17,962,500
---------------------------------------------------------------------------------------------------
First Interstate Bancorp 125,000 10,031,250
---------------------------------------------------------------------------------------------------
Mellon Bank Corp. 450,000 18,731,250
---------------------------------------------------------------------------------------------------
Midlantic Corp.(5) 240,000 9,600,000
---------------------------------------------------------------------------------------------------
UJB Financial Corp. 450,000 13,668,750
---------------------------------------------------------------------------------------------------
Washington Mutual, Inc. 300,000 7,031,250
--------------
175,446,875
- ------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL--1.4% Duke Realty Investments, Inc. 200,000
5,650,000
---------------------------------------------------------------------------------------------------
H & R Block, Inc. 575,000 23,646,875
---------------------------------------------------------------------------------------------------
Health Care Property Investors, Inc. 125,000 4,000,000
---------------------------------------------------------------------------------------------------
Piper Jaffray Cos., Inc. 250,000 3,781,250
---------------------------------------------------------------------------------------------------
The PMI Group, Inc. 125,000 5,421,875
--------------
42,500,000
- ------------------------------------------------------------------------------------------------------------------------------------
INSURANCE--0.7% Aetna Life & Casualty Co. 200,000 12,575,000
---------------------------------------------------------------------------------------------------
St. Paul Cos., Inc. 170,000 8,372,500
--------------
20,947,500
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
MARKET VALUE
SHARES SEE NOTE 1
<S> <C> <C> <C>
INDUSTRIAL--6.9%
- ------------------------------------------------------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT--1.7% General Electric Co. 345,000 $
19,449,375
---------------------------------------------------------------------------------------------------
Honeywell, Inc. 450,000 19,406,250
---------------------------------------------------------------------------------------------------
Raychem Corp. 300,000 11,512,500
--------------
50,368,125
- ------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL MATERIALS--0.8% Centex Construction Products, Inc.(3) 600,000
7,725,000
---------------------------------------------------------------------------------------------------
Manville Corp.(3) 400,000 5,500,000
---------------------------------------------------------------------------------------------------
Martin Marietta Materials, Inc. 350,000 7,000,000
---------------------------------------------------------------------------------------------------
U.S. Can Corp.(3) 250,000 3,906,250
--------------
24,131,250
- ------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL SERVICES--1.5% First Data Corp. 250,000 14,218,750
---------------------------------------------------------------------------------------------------
Reynolds & Reynolds Co., Cl. A 350,000 10,325,000
---------------------------------------------------------------------------------------------------
Sensormatic Electronics Corp. 575,000 20,412,500
---------------
44,956,250
- ------------------------------------------------------------------------------------------------------------------------------------
MANUFACTURING--2.0% American Standard Cos., Inc. 350,000
9,581,250
---------------------------------------------------------------------------------------------------
Hanson PLC, ADR 700,000 12,337,500
---------------------------------------------------------------------------------------------------
Harmon Industries, Inc. 135,000 2,261,250
---------------------------------------------------------------------------------------------------
Parker-Hannifin Corp. 600,000 21,750,000
---------------------------------------------------------------------------------------------------
Tyco Laboratories, Inc. 301,100 16,259,400
--------------
62,189,400
- ------------------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--0.9% Airborne Freight Corp. 400,000 8,100,000
---------------------------------------------------------------------------------------------------
Consolidated Freightways, Inc. 600,000 13,275,000
---------------------------------------------------------------------------------------------------
Landstar System, Inc.(3) 200,000 5,150,000
--------------
26,525,000
- ------------------------------------------------------------------------------------------------------------------------------------
TECHNOLOGY--21.3%
- ------------------------------------------------------------------------------------------------------------------------------------
AEROSPACE/DEFENSE--0.7% Lockheed Martin Corp. 325,000
20,515,625
---------------------------------------------------------------------------------------------------
Tracor, Inc.(3) 200,000 2,725,000
--------------
23,240,625
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (Continued)
---------------------------------------------------------------------------------------------------
MARKET VALUE
SHARES SEE NOTE 1
<S> <C> <C> <C>
COMPUTER HARDWARE--5.2% 3DO Co. (The)(3) 399,900 $
4,823,794
---------------------------------------------------------------------------------------------------
Adaptec, Inc.(3) 500,000 18,500,000
---------------------------------------------------------------------------------------------------
ADFlex Solutions, Inc.(3) 150,000 3,675,000
---------------------------------------------------------------------------------------------------
Applied Digital Acess, Inc. 300,000 3,900,000
---------------------------------------------------------------------------------------------------
Bay Networks, Inc.(3) 500,001 20,687,541
---------------------------------------------------------------------------------------------------
Cabletron Systems, Inc.(3) 350,000 18,637,500
---------------------------------------------------------------------------------------------------
Cisco Systems, Inc.(3) 600,000 30,337,500
---------------------------------------------------------------------------------------------------
International Business Machines Corp. 200,000 19,200,000
---------------------------------------------------------------------------------------------------
Moore Corp. Ltd. 375,000 8,296,875
---------------------------------------------------------------------------------------------------
Quantum Corp.(3) 300,000 6,862,500
---------------------------------------------------------------------------------------------------
Sun Microsystems, Inc.(3) 425,000 20,612,500
--------------
155,533,210
- ------------------------------------------------------------------------------------------------------------------------------------
COMPUTER SOFTWARE--7.4% Acclaim Entertainment, Inc.(3) 350,000
6,453,125
---------------------------------------------------------------------------------------------------
Adobe Systems, Inc. 550,000 31,900,000
---------------------------------------------------------------------------------------------------
Autodesk, Inc. 750,000 32,250,000
---------------------------------------------------------------------------------------------------
Black Box Corp.(3) 150,000 2,137,500
---------------------------------------------------------------------------------------------------
Compuware Corp.(3) 850,000 26,137,500
---------------------------------------------------------------------------------------------------
First Financial Management Corp. 100,000 8,550,000
---------------------------------------------------------------------------------------------------
Information Resources, Inc.(3) 400,000 5,700,000
---------------------------------------------------------------------------------------------------
Informix Corp.(3) 500,000 12,687,500
---------------------------------------------------------------------------------------------------
Intersolv, Inc.(3) 75,000 1,743,750
---------------------------------------------------------------------------------------------------
Intuit, Inc.(3) 75,000 5,700,000
---------------------------------------------------------------------------------------------------
Keane, Inc.(3) 200,000 4,975,000
---------------------------------------------------------------------------------------------------
McAfee Associates, Inc.(3) 325,000 9,851,562
---------------------------------------------------------------------------------------------------
Micrografx, Inc.(3) 385,000 3,224,375
---------------------------------------------------------------------------------------------------
NetManage, Inc.(3) 275,000 4,675,000
---------------------------------------------------------------------------------------------------
Nintendo Co. Ltd. 315,000 18,068,906
---------------------------------------------------------------------------------------------------
Oracle Systems Corp.(3) 200,000 7,725,000
---------------------------------------------------------------------------------------------------
Pairgain Technologies, Inc.(3) 300,000 5,737,500
---------------------------------------------------------------------------------------------------
Platinum Software Corp.(3) 465,000 6,742,500
---------------------------------------------------------------------------------------------------
Platinum Technology, Inc.(3) 265,000 4,803,125
---------------------------------------------------------------------------------------------------
Read-Rite Corp.(3) 450,000 12,037,500
---------------------------------------------------------------------------------------------------
Structural Dynamics Research Corp.(3) 360,000 4,657,500
---------------------------------------------------------------------------------------------------
System Software Associates, Inc. 300,000 6,000,000
---------------------------------------------------------------------------------------------------
Virtuality Group PLC(3) 275,000 888,120
--------------
222,645,463
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
MARKET VALUE
SHARES SEE NOTE 1
<S> <C> <C> <C>
ELECTRONICS--4.3% Advanced Micro Devices, Inc. 350,000 $ 12,731,250
---------------------------------------------------------------------------------------------------
Alliance Semiconductor Corp.(3) 150,000 7,350,000
---------------------------------------------------------------------------------------------------
Intel Corp. 300,000 18,993,750
---------------------------------------------------------------------------------------------------
ITI Technologies, Inc.(3) 250,000 5,937,500
---------------------------------------------------------------------------------------------------
Loral Corp. 250,000 12,937,500
---------------------------------------------------------------------------------------------------
Micron Technology, Inc. 325,000 17,834,375
---------------------------------------------------------------------------------------------------
Motorola, Inc. 300,000 20,137,500
---------------------------------------------------------------------------------------------------
Texas Instruments, Inc. 125,000 16,734,375
---------------------------------------------------------------------------------------------------
Thermo Electron Corp.(3) 450,000 18,112,500
--------------
130,768,750
- ------------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS- A+ Communications, Inc.(3) 245,000
3,246,250
TECHNOLOGY--3.7% ---------------------------------------------------------------------------------------------------
AT&T Corp. 500,000 26,562,500
---------------------------------------------------------------------------------------------------
Atlantic Tele-Network, Inc. 250,000 2,031,250
---------------------------------------------------------------------------------------------------
Globalstar Telecommunications Ltd.(4) 500,000 6,625,000
---------------------------------------------------------------------------------------------------
IntelCom Group, Inc.(3) 400,000 3,396,250
---------------------------------------------------------------------------------------------------
LCI International, Inc.(3) 75,000 2,296,875
---------------------------------------------------------------------------------------------------
Millicom International Cellular SA(3) 750,000 22,218,750
---------------------------------------------------------------------------------------------------
Millicom, Inc.(3) 75,000 --
---------------------------------------------------------------------------------------------------
Paging Network, Inc.(3) 200,000 6,850,000
---------------------------------------------------------------------------------------------------
Palmer Wireless, Inc.(3) 225,000 3,684,375
---------------------------------------------------------------------------------------------------
VTEL Corp.(3) 400,000 5,300,000
---------------------------------------------------------------------------------------------------
WorldCom, Inc.(3) 1,075,000 29,025,000
--------------
111,236,250
- ------------------------------------------------------------------------------------------------------------------------------------
UTILITIES--6.3%
- ------------------------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES--3.6% Detroit Edison Co. 550,000 16,225,000
---------------------------------------------------------------------------------------------------
Houston Industries, Inc. 525,000 22,115,625
---------------------------------------------------------------------------------------------------
Pacific Gas & Electric Co. 750,000 21,750,000
---------------------------------------------------------------------------------------------------
Peco Energy Co. 500,000 13,812,500
---------------------------------------------------------------------------------------------------
Public Service Enterprise Group, Inc. 700,000 19,425,000
---------------------------------------------------------------------------------------------------
Texas Utilities Co. 425,000 14,609,375
--------------
107,937,500
- ------------------------------------------------------------------------------------------------------------------------------------
GAS UTILITIES--0.8% Panhandle Eastern Corp. 400,000 9,750,000
---------------------------------------------------------------------------------------------------
Sonat, Inc. 500,000 15,250,000
--------------
25,000,000
- ------------------------------------------------------------------------------------------------------------------------------------
TELEPHONE UTILITIES--1.9% GTE Corp. 825,000 28,153,125
---------------------------------------------------------------------------------------------------
US West, Inc. 700,000 29,137,500
--------------
--------------
57,290,625
--------------
Total Common Stocks (Cost $2,090,882,702) 2,371,195,736
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS (Continued)
---------------------------------------------------------------------------------------------------
MARKET VALUE
SHARES SEE NOTE 1
<S> <C> <C> <C>
PREFERRED STOCKS--3.5%
- ------------------------------------------------------------------------------------------------------------------------------------
AK Steel Holding Corp., 7% Cv. Stock Appreciation Income
Linked Securities 200,000 $ 5,750,000
---------------------------------------------------------------------------------------------------
Atlantic Richfield Co., 9% Exchangeable Notes for Common Stock of
Lyondell Petrochemical Co., 9/15/97 390,000 10,140,000
---------------------------------------------------------------------------------------------------
Compania de Inversiones en Telecomunicaciones SA,
Provisionally Redeemable Income Debt Exchangeable for Stock,
7%, 3/3/98(1) 225,000 11,531,250
---------------------------------------------------------------------------------------------------
Delta Airlines, Inc., $3.50 Cv. Depositary Shares, Series C 350,000 20,475,000
---------------------------------------------------------------------------------------------------
Freeport-McMoRan Copper & Gold, Inc., Cv. Depositary Shares 400,000 8,650,000
---------------------------------------------------------------------------------------------------
James River Corp. of Virginia, Dividend Enhanced Convertible
Stock, 9% Cv. Exchangeable Depositary Shares, Series P 300,000 7,425,000
---------------------------------------------------------------------------------------------------
Kaiser Aluminum Corp., $.65 Cv., Series A 150,000 1,443,750
---------------------------------------------------------------------------------------------------
LCI International, Inc., 5% Cum. Cv. Exchangeable Preferred Stock 200,000 8,350,000
---------------------------------------------------------------------------------------------------
MFS Communications Company, Inc., 8% Depositary Cv. Shares
Representing 1 Share of Dividend Enhanced Convertible Stock 500,000 17,250,000
---------------------------------------------------------------------------------------------------
Unisys Corp., $3.75 Cv., Series A 250,000 10,750,000
---------------------------------------------------------------------------------------------------
WHX Corp., $3.75 Cv., Series B 125,000 5,453,125
--------------
Total Preferred Stocks (Cost $99,912,604) 107,218,125
<CAPTION>
UNITS
<S> <C> <C> <C>
RIGHTS, WARRANTS AND CERTIFICATES--0.0%
- ------------------------------------------------------------------------------------------------------------------------------------
American Satellite Networks, Inc. Wts., Exp. 6/99 (Cost $0) 18,750 --
<CAPTION>
DATE/PRICE SHARES
<S> <C> <C> <C> <C>
PUT OPTIONS PURCHASED--0.0% AT&T Corp., Put Opt. (Cost $45,750) Jul. 95/$45 1,000
6,250
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
FACE MARKET VALUE
AMOUNT SEE NOTE 1
<S> <C> <C> <C>
REPURCHASE AGREEMENTS--11.0% Repurchase agreement with First Chicago Capital Markets, 6.125%,
dated 6/30/95, to be repurchased at $330,337,524 on 7/3/95,
collateralized by U.S. Treasury Bonds, 11.25%, 2/15/15, with a value
of $33,682,964, U.S. Treasury Nts., 4.75%--7.875%, 3/31/96--8/15/01,
with a value of $220,327,251, and U.S.Treasury Bills
maturing 9/28/95--12/14/95, with a value of $83,092,109
(Cost $330,169,000) $330,169,000 $ 330,169,000
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $2,687,792,633) 99.1%
2,988,165,486
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS NET OF LIABILITIES 0.9 25,861,901
------------ --------------
NET ASSETS 100.0% $3,014,027,387
------------ --------------
------------ --------------
<FN>
1. Represents a security sold under Rule 144A, which is exempt from registration under the
Securities Act of 1933, as amended. This security has been determined to be liquid under
guidelines established by the Board of Directors. These securities amount to $59,261,875 or
1.97% of the Fund's net assets, at June 30, 1995.
2. Represents the current interest rate for a variable rate security.
3. Non-income producing security.
4. Affiliated company. Represents ownership of at least 5% of the voting securities of the issuer
and is or was an affiliate, as defined in the Investment Company Act of 1940, at or during the
period ended June 30, 1995. The aggregate fair value of all securities of affiliated companies as
of June 30, 1995 amounted to $9,400,000. Transactions during the period in
which the issuer was an affiliate are as follows:
BALANCE JUNE 30, 1994 GROSS ADDITIONS GROSS REDUCTIONS
BALANCE JUNE 30, 1995
----------------------- --------------------- --------------------- ----------------------
SHARES COST SHARES COST SHARES COST SHARES COST
- -----------------------------------------------------------------------------------------------------------------------------------
Standish Care Co., $4.50 Cv.,
Series A 60,000 $ 649,995 -- $ -- 60,000 $ 649,995 -- $ --
- -----------------------------------------------------------------------------------------------------------------------------------
CMG Information SVS Inc. 234,000 1,967,000 -- -- 234,000 1,967,000 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Duckwall--ALCO Stores, Inc. -- -- 325,000 2,942,188 25,000 231,250 300,000 2,710,938
- -----------------------------------------------------------------------------------------------------------------------------------
Globalstar Telecommunications
Ltd. -- -- 800,000 15,968,750 300,000 6,000,000 500,000 9,968,750
---------- ----------- ---------- -----------
$2,616,995 $18,910,938 $8,848,245 $12,679,688
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
5. A sufficient amount of liquid assets has been designated to cover outstanding call options, as
follows:
SHARES EXPIRATION EXERCISE PREMIUM MARKET
VALUE
SUBJECT TO CALL DATE PRICE RECEIVED SEE NOTE
1
- ----------------------------------------------------------------------------------------------------------------------------------
Midlantic Corp . 40,000 7/95 40.00 $38,799 $45,000
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1995
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS Investments, at value (cost $2,687,792,633)--see accompanying statement $2,988,165,486
-----------------------------------------------------------------------------------------------------
Cash 19,369
-----------------------------------------------------------------------------------------------------
Unrealized appreciation on forward foreign currency exchange contracts--Note 5 189
-----------------------------------------------------------------------------------------------------
Receivables:
Investments sold 36,726,937
Shares of capital stock sold 18,670,958
Interest and dividends 7,239,905
-----------------------------------------------------------------------------------------------------
Other 45,819
--------------
Total assets 3,050,868,663
LIABILITIES Options written, at value (premiums received $38,799)--see accompanying
statement--Note 6 45,000
-----------------------------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased 24,466,574
Shares of capital stock redeemed 9,475,352
Distribution and service plan fees--Note 4 1,651,064
Transfer and shareholder servicing agent fees--Note 4 84,239
Directors' fees 6,047
Other 1,113,000
--------------
Total liabilities 36,841,276
Net Assets $3,014,027,387
--------------
--------------
COMPOSITION OF Par value of shares of capital stock $ 1,253,826
NET ASSETS -----------------------------------------------------------------------------------------------------
Additional paid-in capital 2,713,880,262
-----------------------------------------------------------------------------------------------------
Undistributed net investment income 1,145,174
-----------------------------------------------------------------------------------------------------
Accumulated net realized loss from investments, written options and foreign
currency transactions (2,618,874)
-----------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments and translation of assets
and liabilities denominated in foreign currencies 300,366,999
--------------
Net Assets $3,014,027,387
--------------
--------------
NET ASSET VALUE Class A Shares:
PER SHARE Net asset value and redemption price per share (based on net assets
of $1,923,950,588 and 79,933,834 shares of capital stock outstanding) $24.07
Maximum offering price per share (net asset value plus sales charge of 5.75%
of offering price) $25.54
-----------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price and offering price per share (based on
net assets of $628,498,685 and 26,189,101 shares of capital stock outstanding) $24.00
-----------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price and offering price per share (based on
net assets of $461,578,114 and 19,259,635 shares of capital stock outstanding) $23.97
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 1995
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME Interest $25,316,747
-----------------------------------------------------------------------------------------------------
Dividends (net of withholding taxes of $340,015) 36,196,886
-------------
Total income 61,513,633
EXPENSES Management fees--Note 4 8,976,524
-----------------------------------------------------------------------------------------------------
Distribution and service plan fees:
Class A--Note 4 3,170,564
Class B--Note 4 1,824,878
Class C--Note 4 3,218,116
-----------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 4 3,782,950
-----------------------------------------------------------------------------------------------------
Shareholder reports 1,138,881
-----------------------------------------------------------------------------------------------------
Registration and filing fees:
Class A 578,158
Class B 246,580
Class C 143,142
-----------------------------------------------------------------------------------------------------
Legal and auditing fees 59,536
-----------------------------------------------------------------------------------------------------
Directors' fees and expenses 49,442
-----------------------------------------------------------------------------------------------------
Other 390,917
-------------
Total expenses 23,579,688
Net Investment Income 37,933,945
REALIZED AND UNREALIZED Net realized gain (loss) on:
GAIN (LOSS) ON INVESTMENTS, Investments 11,915,204
OPTIONS WRITTEN AND Closing and expiration of options written--Note 6 (357,261)
FOREIGN CURRENCY Foreign currency transactions 1,622,238
TRANSACTIONS -------------
Net realized gain 13,180,181
-----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on:
Investments 328,720,508
Translation of assets and liabilities denominated in foreign currencies 444,946
-------------
Net change 329,165,454
-------------
Net realized and unrealized gain on investments, options written and
foreign currency transactions 342,345,635
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
$380,279,580
-------------
-------------
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
-----------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30,
1995 1994
<S> <C> <C> <C>
OPERATIONS Net investment income $ 37,933,945 $ 7,435,686
-----------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments, options written
and foreign currency transactions 13,180,181 (12,425,245)
-----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on
investments and translation of assets and liabilities
denominated in foreign currencies 329,165,454 (36,662,021)
------------- -------------
Net increase (decrease) in net assets resulting from
operations 380,279,580 (41,651,580)
DIVIDENDS AND Dividends from net investment income:
DISTRIBUTIONS TO Class A ($.4612 and $.356 per share, respectively) (29,280,412)
(5,859,657)
SHAREHOLDERS Class B ($.2822 per share) (3,312,668) --
Class C ($.3112 and $.136 per share, respectively) (4,868,193) (815,401)
-----------------------------------------------------------------------------------------------------
Distributions from net realized gain on investments,
options written and foreign currency transactions:
Class A ($.0024 per share) (140,642) --
Class B ($.0024 per share) (10,803) --
Class C ($.0024 per share) (35,755) --
-----------------------------------------------------------------------------------------------------
Distributions in excess of gain on investments,
options written and foreign currency transactions:
Class A ($1.989 per share) -- (9,339,980)
CAPITAL STOCK
TRANSACTIONS
Net increase in net assets resulting from Class A capital
stock transactions--Note 2 947,214,116 727,055,604
-----------------------------------------------------------------------------------------------------
Net increase in net assets resulting from Class B capital
stock transactions--Note 2 580,665,761 --
-----------------------------------------------------------------------------------------------------
Net increase in net assets resulting from Class C capital
stock transactions--Note 2 233,648,051 182,249,457
NET ASSETS Total increase 2,104,159,035 851,638,443
-----------------------------------------------------------------------------------------------------
Beginning of period 909,868,352 58,229,909
------------- -------------
End of period (including undistributed net investment
income of $1,145,174 and $706,011, respectively) $3,014,027,387 $909,868,352
------------- -------------
------------- -------------
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
Financial Highlights
-----------------------------------------------------------------------------------------------------
Class A Class B Class C
Period
Ended
Year Ended June 30, June 30, Year Ended June 30,
1995 1994 1993 1992 1991 1990 1989 1988(3) 1995(2) 1995 1994(1)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<C> <C>
PER SHARE
OPERATING DATA:
Net asset value,
beginning of period $20.40 $19.88 $15.46 $13.22 $12.38 $11.67 $10.13 $9.60 $21.49 $20.33
$20.76
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .47 .37 .16 .25 .38 .17 .24(4) .05 .25 .33 .13
Net realized and
unrealized gain
(loss) on
investments, options
written and
foreign currency
transactions 3.66 2.50 6.65 4.72 .87 .88 1.62 .52 2.54 3.62 (.42)
------ ------ ----- ----- ------ ------ ----- ----- ------ ----- -------
Total income (loss)
from investment
operations 4.13 2.87 6.81 4.97 1.25 1.05 1.86 .57 2.79 3.95 (.29)
- ----------------------------------------------------------------------------------------------------------------------------------
Dividends and
distributions to
shareholders:
Dividends from net
investment income (.46) (.36) (.19) (.22) (.41) (.19) (.19) (.04) (.28) (.31) (.14)
Distributions from net
realized gain on
investments, options
written and foreign
currency transactions --(5) -- (2.20) (2.51) -- (.15) (.13) -- --(5) --(5) --
Distributions in
excess of gains -- (1.99) -- -- -- -- -- -- -- -- --
------ ------ ----- ----- ------ ------ ----- ----- ------ ----- -------
Total dividends and
distributions
to shareholders (.46) (2.35) (2.39) (2.73) (.41) (.34) (.32) (.04) (.28) (.31) (.14)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $24.07 $20.40 $19.88 $15.46 $13.22 $12.38 $11.67 $10.13 $24.00 $23.97 $20.33
------ ------ ----- ----- ------ ------ ----- ----- ------ ----- -------
------ ------ ----- ----- ------ ------ ----- ----- ------ ----- -------
==========================================================
==========================================================
==============
TOTAL RETURN, AT
NET ASSET VALUE(6) 20.52% 14.34% 46.38% 39.48% 10.60% 9.07% 18.77% 5.94% 13.15%
19.63% (.97)%
==========================================================
==========================================================
==============
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (in thousands) $1,923,951 $739,552 $58,230 $26,926 $15,968 $13,851 $1,256 $345 $628,499 $461,578
$170,316
- ----------------------------------------------------------------------------------------------------------------------------------
Average net assets
(in thousands) $1,319,271 $270,417 $38,974 $23,018 $14,563 $ 7,520 $ 788 $118 $248,775 $325,025
$71,924
- ----------------------------------------------------------------------------------------------------------------------------------
Number of shares
outstanding at end of
period (in thousands) 79,934 36,251 2,929 1,742 1,208 1,119 108 34 26,189 19,260 8,377
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net
assets:
Net investment income 2.31% 2.46% 1.02% 1.63% 3.15% 2.33% 2.67% 2.86%(7) 1.25%(7) 1.57%
1.86%(7)
Expenses, before
Reimbursement
from or assumption by
the Manager 1.07% 1.28% 1.46% 1.66% 1.84% 2.21% 2.46% 10.54%(7) 1.89%(7) 1.82%
2.11%(7)
Expenses, net of
reimbursement
from or assumption
by the Manager N/A N/A N/A N/A N/A N/A 2.12%(4) N/A N/A N/A
N/A
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover
rate(8) 101.3% 199.4% 283.0% 290.1% 208.9% 214.3% 136.8% 18.8% 101.3% 101.3%
199.4%
<FN>
1. For the period from December 1, 1993 (inception of offering) to June 30,
1994.
2. For the period from October 1, 1994 (inception of offering) to June 30,
1995.
3. For the period from February 3, 1988 (commencement of operations) to June
30, 1988.
4. Net investment income would have been $.20 per share absent the voluntary
expense reimbursement, resulting in an expense ratio of 2.46%.
5. Less than $.005 per share.
6. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption at
the net asset value calculated on the last business day of the fiscal
period. Sales charges are not reflected in the total returns. Total returns
are not annualized for periods of less than one full year.
7. Annualized.
8. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation. Purchases and sales of investment securities (excluding
short-term securities) for the period ended June 30, 1995 were
$3,253,638,111 and $1,681,087,055, respectively.
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
-----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------------------------------
1. SIGNIFICANT Oppenheimer Main Street Income & Growth Fund
ACCOUNTING (the Fund) is a separate series of Oppenheimer
POLICIES Main Street Funds, Inc., an open-end management
investment company registered under the
Investment Company Act of 1940, as amended. The
Fund's investment advisor is Oppenheimer
Management Corporation (the Manager). The Fund
offers Class A, Class B and Class C shares.
Class B and Class C shares may be subject to a
contingent deferred sales charge. All three
classes of shares have identical rights to
earnings, assets and voting privileges, except
that each class has its own distribution and/or
service plan, expenses directly attributable to
a particular class and exclusive voting rights
with respect to matters affecting a single
class. Class B shares will automatically
convert to Class A shares six years after the
date of purchase. The following is a summary of
significant accounting policies consistently
followed by the Fund.
-----------------------------------------------------
INVESTMENT VALUATION. Portfolio securities are
valued at the close of the New York Stock
Exchange on each trading day. Listed and
unlisted securities for which such information
is regularly reported are valued at the last
sale price of the day or, in the absence of
sales, at values based on the closing bid or
asked price or the last sale price on the prior
trading day. Long-term and short-term
"non-money market" debt securities are valued
by a portfolio pricing service approved by the
Board of Directors. Such securities which
cannot be valued by the approved portfolio
pricing service are valued using
dealer-supplied valuations provided the Manager
is satisfied that the firm rendering the quotes
is reliable and that the quotes reflect current
market value, or under consistently applied
procedures established by the Board of
Directors to determine fair value in good
faith. Short-term "money market type" debt
securities having a remaining maturity of 60
days or less are valued at cost (or last
determined market value) adjusted for
amortization to maturity of any premium or
discount. Forward contracts are valued based on
the closing prices of the forward currency
contract rates in the London foreign exchange
markets on a daily basis as provided by a
reliable bank or dealer. Options are valued
based upon the last sale price on the principal
exchange on which the option is traded or, in
the absence of any transactions that day, the
value is based upon the last sale price on the
prior trading date if it is within the spread
between the closing bid and asked prices. If
the last sale price is outside the spread, the
closing bid or asked price closest to the last
reported sale price is used.
-----------------------------------------------------
FOREIGN CURRENCY TRANSLATION. The accounting
records of the Fund are maintained in U.S.
dollars. Prices of securities denominated in
foreign currencies are translated into U.S.
dollars at the closing rates of exchange.
Amounts related to the purchase and sale of
securities and investment income are translated
at the rates of exchange prevailing on the
respective dates of such transactions.
The effect of changes in foreign currency exchange
rates on investments is separately identified
from the fluctuations arising from changes in
market values of securities held and reported
with all other foreign currency gains and
losses in the Fund's results of operations.
-----------------------------------------------------
REPURCHASE AGREEMENTS. The Fund requires the
custodian to take possession, to have legally
segregated in the Federal Reserve Book Entry
System or to have segregated within the
custodian's vault, all securities held as
collateral for repurchase agreements. The
market value of the underlying securities is
required to be at least 102% of the resale
price at the time of purchase. If the seller of
the agreement defaults and the value of the
collateral declines, or if the seller enters an
insolvency proceeding, realization of the value
of the collateral by the Fund may be delayed or
limited.
-----------------------------------------------------
ALLOCATION OF INCOME, EXPENSES AND GAINS AND
LOSSES. Income, expenses (other than those
attributable to a specific class) and gains and
losses are allocated daily to each class of
shares based upon the relative proportion of
net assets represented by such class. Operating
expenses directly attributable to a specific
class are charged against the operations of
that class.
-----------------------------------------------------
FEDERAL INCOME TAXES. The Fund intends to
continue to comply with provisions of the
Internal Revenue Code applicable to regulated
investment companies and to distribute all of
its taxable income, including any net realized
gain on investments not offset by loss
carryovers, to shareholders. Therefore, no
federal income or excise tax provision is
required.
-----------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS. Dividends and
distributions to shareholders are recorded on
the ex-dividend date.
<PAGE>
-----------------------------------------------------
-----------------------------------------------------
1. SIGNIFICANT CLASSIFICATION OF DISTRIBUTIONS TO
ACCOUNTING SHAREHOLDERS. Net investment income (loss) and
POLICIES net realized gain (loss) may differ for
(CONTINUED) financial statement and tax purposes primarily
because of the recognition of certain foreign
currency gains (losses) as ordinary income
(loss) for tax purposes. The character of the
distributions made during the year from net
investment income or net realized gains may
differ from their ultimate characterization for
federal income tax purposes. Also, due to
timing of dividend distributions, the fiscal
year in which amounts are distributed may
differ from the year that the income or
realized gain (loss) was recorded by the Fund.
Effective July 1, 1993, the Fund adopted
Statement of Position 93-2: Determination,
Disclosure, and Financial Statement
Presentation of Income, Capital Gain, and
Return of Capital Distributions by Investment
Companies. As a result, the Fund changed the
classification of distributions to shareholders
to better disclose the differences between
financial statement amounts and distributions
determined in accordance with income tax
regulations. Accordingly, during the year ended
June 30, 1995, amounts have been reclassified
to reflect a decrease in accumulated net
realized loss on investments of $33,509, and a
decrease in undistributed net investment income
of $33,509.
-----------------------------------------------------
OTHER. Investment transactions are accounted for on
the date the investments are purchased or sold
(trade date) and dividend income is recorded on
the ex-dividend date. Discount on securities
purchased is amortized over the life of the
respective securities, in accordance with
federal income tax requirements. Realized gains
and losses on investments and unrealized
appreciation and depreciation are determined on
an identified cost basis, which is the same
basis used for federal income tax purposes.
2. CAPITAL STOCK The Fund has authorized 350,000,000 shares of
$.01 par value capital stock (200,000,000 for
Class A, 100,000,000 for Class B, and
50,000,000 for Class C). Transactions in shares
of capital stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1995(2) YEAR ENDED JUNE 30, 1994(1)
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A:
Sold 55,373,867 $1,208,049,807 34,877,614 $761,137,297
Dividends and distributions
reinvested 1,265,292 27,814,867 704,717 14,641,214
Redeemed (12,955,862) (288,650,558) (2,260,838) (48,722,907)
------------ ------------- ---------- ------------
Net increase 43,683,297 $947,214,116 33,321,493 $727,055,604
------------ ------------- ---------- ------------
------------ ------------- ---------- ------------
-------------------------------------------------------------------------------------------
Class B:
Sold 27,077,516 $600,973,013 -- $ --
Dividends and distributions
reinvested 136,393 3,097,456 -- --
Redeemed (1,024,808) (23,404,708) -- --
------------ ------------- ---------- ------------
Net increase 26,189,101 $580,665,761 -- $ --
------------ ------------- ---------- ------------
------------ ------------- ---------- ------------
-------------------------------------------------------------------------------------------
Class C:
Sold 13,345,163 $288,841,445 8,563,107 $186,240,396
Dividends and distributions
reinvested 208,621 4,536,885 35,985 747,590
Redeemed (2,671,307) (59,730,279) (221,934) (4,738,529)
------------ ------------- ---------- ------------
Net increase 10,882,477 $233,648,051 8,377,158 $182,249,457
------------ ------------- ---------- ------------
------------ ------------- ---------- ------------
<FN>
1. For the year ended June 30, 1994 for Class A shares and for the period from
December 1, 1993 (inception of offering) to June 30, 1994 for Class C
shares.
2. For the year ended June 30, 1995 for Class A and Class C shares and for the
period from October 1, 1994 (inception of offering) to June 30, 1995 for
Class B shares.
</TABLE>
3. UNREALIZED GAINS At June 30, 1995, net unrealized appreciation
AND LOSSES ON of investments of $300,366,841 was composed of
INVESTMENTS gross appreciation of $337,635,238, and gross
depreciation of $37,268,397.
21 Oppenheimer Main Street Income & Growth Fund
<PAGE>
-----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
-----------------------------------------------------
4. MANAGEMENT FEES Management fees paid to the Manager were in
AND OTHER accordance with the investment advisory
TRANSACTIONS agreement with the Fund which provides for a
WITH AFFILIATES fee of .65% on the first $200 million of
average annual net assets with a reduction of
.05% on each $150 million thereafter to $500
million and .45% on net assets in excess of 500
million. The Manager has agreed to reimburse
the Fund if aggregate expenses (with specified
exceptions) exceed the most stringent state
regulatory limit on Fund expenses.
For the year ended June 30, 1995,
commissions (sales charges paid by investors)
on sales of Class A shares totaled $36,545,570,
of which $8,951,501 was retained by Oppenheimer
Funds Distributor, Inc. (OFDI), a subsidiary of
the Manager as general distributor, and by an
affiliated broker/dealer. Sales charges
advanced to broker/dealers by OFDI on sales of
the Fund's Class B and Class C shares totaled
$22,189,541 and $2,739,931, respectively, of
which $309,732 and $48,816 was paid to an
affiliated broker/dealer. During the year ended
June 30, 1995, OFDI received contingent
deferred sales charges of $393,448 and $233,149
upon redemption of Class B and Class C shares.
Oppenheimer Shareholder Services (OSS), a
division of the Manager, is the transfer and
shareholder servicing agent for the Fund, and
for other registered investment companies.
OSS's total costs of providing such services
are allocated ratably to these companies.
Under separate approved plans, each class
may expend up to .25% of average net assets
annually to reimburse OFDI for costs incurred
in connection with the personal service and
maintenance of accounts that hold shares of the
Fund, including amounts paid to brokers,
dealers, banks and other institutions. In
addition, Class B and Class C shares are
subject to an asset-based sales charge of .75%
of net assets annually, to reimburse OFDI for
sales commissions paid from its own resources
at the time of sale and associated financing
costs. In the event of termination or
discontinuance of the Class B or Class C plan,
the Board of Directors may allow the Fund to
continue payment of the asset-based sales
charge to OFDI for distribution expenses
incurred on Class B or Class C shares sold
prior to termination or discontinuance of the
plan. During the year ended June 30, 1995, OFDI
paid $123,043 and $9,496 to an affiliated
broker/dealer as reimbursement for Class A and
Class C personal service and maintenance
expenses, respectively, and retained $1,795,939 and
$2,894,505 as reimbursement for Class B and Class C
sales commissions and service fee advances, as well
as financing costs, respectively.
5. FORWARD CONTRACTS A forward foreign currency exchange contract
(forward contract) is a commitment to purchase
or sell a foreign currency at a future date, at
a negotiated rate.
The Fund uses forward contracts to seek to
manage foreign currency risks. They may also be
used to tactically shift portfolio currency
risk. The Fund generally enters into forward
contracts as a hedge upon the purchase or sale
of a security denominated in a foreign
currency. In addition, the Fund may enter into
such contracts as a hedge against changes in
foreign currency exchange rates on portfolio
positions.
Forward contracts are valued based on the
closing prices of the forward currency contract
rates in the London foreign exchange markets on
a daily basis as provided by a reliable bank or
dealer. The Fund will realize a gain or loss
upon the closing or settlement of the forward
transaction.
In this report, securities held in
segregated accounts to cover net exposure on
outstanding forward contracts are noted in the
Statement of Investments where applicable.
Gains and losses on outstanding contracts
(unrealized appreciation or depreciation on
forward contracts) are reported in the
Statement of Assets and Liabilities. Realized
gains and losses are reported with all other
foreign currency gains and losses in the Fund's
Statement of Operations.
Risks include the potential inability of the
counterparty to meet the terms of the contract
and unanticipated movements in the value of a
foreign currency relative to the U.S. dollar.
At June 30, 1995, the Fund had outstanding
forward contracts to purchase and sell foreign
currencies as follows:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACT VALUATION AS OF APPRECIATION
CONTRACTS TO SELL EXPIRATION DATE AMOUNT (000) JUNE 30, 1995
(DEPRECIATION)
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
British Pound Sterling 7/6/95 77 $ 77,400 $(107)
----------------------------------------------------------------------------------------
British Pound Sterling 7/7/95 157 157,182 296
--------- -----
$234,582 $ 189
--------- -----
--------- -----
</TABLE>
<PAGE>
-----------------------------------------------------
-----------------------------------------------------
6. OPTION ACTIVITY The Fund may buy and sell put and call options,
or write covered call options on portfolio
securities in order to produce incremental
earnings or protect against changes in the
value of portfolio securities.
The Fund generally purchases put options or
writes covered call options to hedge against
adverse movements in the value of portfolio
holdings. When an option is written, the Fund
receives a premium and becomes obligated to
sell or purchase the underlying security at a
fixed price, upon exercise of the option.
Options are valued daily based upon the last
sale price on the principal exchange on which
the option is traded and unrealized
appreciation or depreciation is recorded. The
Fund will realize a gain or loss upon the
expiration or closing of the option
transaction. When an option is exercised, the
proceeds on sales for a written call option,
the purchase cost for a written put option, or
the cost of the security for a purchased put or
call option is adjusted by the amount of
premium received or paid.
In this report, securities designated to
cover outstanding call options are noted in the
Statement of Investments. Shares subject to
call, expiration date, exercise price, premium
received and market value are detailed in a
footnote to the Statement of Investments.
Options written are reported as a liability in
the Statement of Assets and Liabilities. Gains
and losses are reported in the Statement of
Operations.
The risk in writing a call option is that
the Fund gives up the opportunity for profit if
the market price of the security increases and
the option is exercised. The risk in writing a
put option is that the Fund may incur a loss if
the market price of the security decreases and
the option is exercised. The risk in buying an
option is that the Fund pays a premium whether
or not the option is exercised. The Fund also
has the additional risk of not being able to
enter into a closing transaction if a liquid
secondary market does not exist.
Written option activity for the year ended
June 30, 1995 was as follows:
<TABLE>
<CAPTION>
CALL OPTIONS
----------------------
NUMBER OF AMOUNT OF
OPTIONS PREMIUMS
-------------------------------------------------------------------
<S> <C> <C>
Options outstanding at June 30, 1994 1,250 $239,992
-------------------------------------------------------------------
Options written 3,480 1,263,018
-------------------------------------------------------------------
Options closed or expired (3,580) (1,316,466)
-------------------------------------------------------------------
Options exercised (750) (147,745)
-------------------------------------------------------------------
Options outstanding at June 30, 1995 400 $38,799
------- ----------
------- ----------
</TABLE>
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.
Description of Fitch Investors Service, Inc. Ratings
AAA Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated "AAA." Because
bonds rated in the "AAA" and "AA" categories are not significantly
vulnerable to foreseeable future developments, short-term debt of these
issuers is generally rated "F-1+."
A Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than for
bonds with higher ratings.
BB Bonds are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified
which could assist the obligor in satisfying its debt service
requirements.
B Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited
margin of safety and the need for reasonable business and economic
activity through the life of the issue.
CCC Bonds have certain identifiable characteristics which, if not
remedied, may lead to default. The ability to meet obligations requires
an advantageous business and economic environment.
CC Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C Bonds are in imminent default in payment of interest or principal.
DDD, DD, and D Bonds are in default on interest and/or principal payments.
Such bonds are extremely speculative and should be valued on the basis of
their ultimate recovery value in liquidation or reorganization of the
obligor. "DDD" represents the highest potential for recovery of these
bonds, and "D" represents the lowest potential for recovery.
Plus (+) Minus (-) Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category.
Plus and minus signs, however, are not used in the "DDD," "DD," or "D"
categories.
<PAGE>
Appendix B
Corporate Industry Classifications
Aerospace/Defense
Air Transportation
Auto Parts Distribution
Automotive
Bank Holding Companies
Banks
Beverages
Broadcasting
Broker-Dealers
Building Materials
Cable Television
Chemicals
Commercial Finance
Computer Hardware
Computer Software
Conglomerates
Consumer Finance
Containers
Convenience Stores
Department Stores
Diversified Financial
Diversified Media
Drug Stores
Drug Wholesalers
Durable Household Goods
Education
Electric Utilities
Electrical Equipment
Electronics
Energy Services & Producers
Entertainment/Film
Environmental
Food
Gas Utilities
Gold
Health Care/Drugs
Health Care/Supplies & Services
Homebuilders/Real Estate
Hotel/Gaming
Industrial Services
Insurance
Leasing & Factoring
Leisure
Manufacturing
Metals/Mining
Nondurable Household Goods
Oil - Integrated
Paper
Publishing/Printing
Railroads
Restaurants
Savings & Loans
Shipping
Special Purpose Financial
Specialty Retailing
Steel
Supermarkets
Telecommunications - Technology
Telephone - Utility
Textile/Apparel
Tobacco
Toys
Trucking
<PAGE>
Investment Adviser
Oppenheimer Management Corporation
Two World Trade Center
New York, New York 10048-0203
Distributor
Oppenheimer Funds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer 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 LLP
555 Seventeenth Street
Denver, Colorado 80202-3942
Legal Counsel
Myer, Swanson, Adams & Wolf, P.C.
1600 Broadway
Denver, Colorado 80202
<PAGE>
Oppenheimer
Main Street California Tax-Exempt Fund
Prospectus dated November 1, 1995
Oppenheimer Main Street California Tax-Exempt Fund (the "Fund"), a
series of Oppenheimer Main Street Funds, Inc., is a mutual fund that 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.
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 November 1, 1995, Statement of Additional Information. For a
free copy, call Oppenheimer Shareholder Services, the Fund's Transfer
Agent, at 1-800-525-7048, or write to the Transfer Agent at the address
on the back cover. The Statement of Additional Information has been filed
with the Securities and Exchange Commission and is incorporated into this
Prospectus by reference (which means that it is legally part of this
Prospectus).
(Oppenheimer Funds logo)
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 the
principal amount invested.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
Contents
ABOUT THE FUND
Expenses
A Brief Overview of the Fund
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
How to Sell Shares
By Mail
By Telephone
By 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 subtracted from the Fund's assets to calculate the
Fund's net asset value per share. All shareholders therefore pay those
expenses indirectly. Shareholders pay other expenses directly, such as
sales charges and account transaction charges. The following tables are
provided to help you understand your direct expenses of investing in the
Fund and your share of the Fund's operating expenses that you might expect
to bear indirectly. The calculations are based on the Fund's expenses
during its last fiscal year ended June 30, 1995.
Shareholder Transaction Expenses are charges you pay when you buy
or sell shares of the Fund. Please refer to "About Your Account" from
pages 23 through 32 for an explanation of how and when these charges
apply.
<TABLE>
<CAPTION>
Class A Class B
Shares Shares
<S> <C> <C>
- --------------------------------------------------------------------------
Maximum Sales 4.75% None
Charge on Purchases
(as a % of offering price)
- -------------------------------------------------------------------------
Sales Charge on
Reinvested Dividends None None
- -------------------------------------------------------------------------
Deferred Sales Charge None(1) 5% in the first year,
(as a % of the lower of the declining to 1% in
original purchase price or the six year and
redemption proceeds eliminated thereafter(2)
- -------------------------------------------------------------------------
Redemption Fee None(3) None(3)
- -------------------------------------------------------------------------
Exchange Fee None None
(1)If you invest $1 million or more in Class A shares, you may have to pay a sales charge of up to 1% if you sell your shares
within 18 calendar months from the end of the calendar month during which you purchased those shares. See "How to Buy
Shares - Class A Shares," below.
(2) See "How to Buy Shares - Buying Class B Shares," below for more informatin on the contingent deferred sales charge.
(3) There is a $10 transaction fee for redemptions paid by Federal Funds wire but not for redemptions paid by check or ACH
wire through AccountLink (see "How to Sell Shares").
</TABLE>
Annual Fund Operating Expenses are paid out of the Fund's assets and
represent the Fund's expenses in operating its business. For example, the
Fund pays management fees to its investment adviser, Oppenheimer
Management Corporation (which is referred to in this Prospectus as the
"Manager"). The rates of the Manager's fees are set forth in "How the
Fund is Managed," below. The Fund has other regular expenses for
services, such as transfer agent fees, custodial fees paid to the bank
that holds its portfolio securities, audit fees and legal expenses. Those
expenses are detailed in the Fund's Financial Statements in the Statement
of Additional Information.
The numbers in the chart below are projections of the Fund's business
expenses based on the Fund's expenses in its last fiscal year. These
amounts are shown as a percentage of the average net assets of each class
of the Fund's shares for that year. The "12b-1 Distribution Plan Fees"
for Class B shares are the Distribution and Service Plan Fees (Service
Plan fee of 0.25%) and the asset-based sales charge of 0.75%. The actual
expenses for each class of shares in future years may be more or less than
the numbers in the chart, depending on a number of factors, including the
actual amount of the assets represented by each class of shares.
<TABLE>
<CAPTION>
Class A Class B
Shares Shares
<S> <C> <C>
- -------------------------------------------------------------------------
Management Fees 0.37% 0.37%
- -------------------------------------------------------------------------
12b-1 Distribution Plan Fees None 1.00%
- -------------------------------------------------------------------------
Other Expenses 0.20% 0.18%
- -------------------------------------------------------------------------
Total Fund Operating Expenses 0.57% 1.55%
</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 Annual Fund
Operating Expenses 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 1, 3, 5 and 10 years:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years(1)
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------
Class A Shares $53 $65 $78 $115
- -------------------------------------------------------------------------
Class B Shares $66 $79 $104 $134
If you did not redeem your investment, it would incur the following expenses:
Class A Shares $53 $65 $78 $115
- -------------------------------------------------------------------------
Class B Shares $16 $49 $84 $134
(1)The Class B expenses in years 7 through 10 are based on the Class A expenses shown above, because the Fund automatically
converts your Class B shares into Class A shares after 6 years. Because of the asset-based sales charge and 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 allowed under applicable regulatory requirements. The automatic conversion of Class B shares to Class A
shares is designed to minimize the likelihood that this will occur. Please refer to "How to Buy Shares - Buying Class B Shares"
for more information.
</TABLE>
These examples show the effect of expenses on an investment, but are
not meant to state or predict actual or expected costs or investment
returns of the Fund, all of which will vary.
A Brief Overview of the Fund
Some of the important facts about the Fund are summarized below, with
references to the section of this Prospectus where more complete
information can be found. You should carefully read the entire Prospectus
before making a decision about investing in the Fund. Keep the Prospectus
for reference after you invest, particularly for information about your
account, such as how to sell or exchange shares.
What is the Fund's Investment Objective? The Fund's investment
objective is 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 while attempting to preserve capital.
What Does the Fund Invest In? To seek its investment objective,
the Fund primarily invests in investment-grade municipal securities, the
interest of which is exempt from Federal and California individual income
tax. The Fund may also use hedging instruments and certain derivative
investments to try to manage investment risks. These investments are more
fully explained in "Investment Objective and Policies" starting on page
10.
Who Manages the Fund? The Fund's investment adviser (the
"Manager") is Oppenheiemr Management Corporation, which (including a
subsidiary) manages investment company portfolioss currently having over
$38 billion in assets at September 30, 1995. The Manager is paid an
advisory fee by the Fund, based on its assets. The Fund's portfolio
manager is Robert E. Patterson who is employed by the Manager. He is
primarily responsible for the selection of the Fund's securities. The
Fund's Board of Directors, elected by shareholders, oversees the
investment adviser and the portfolio manager. Please refer to "How the
Fund is Managed," starting on page 18 for more information about the
Manager and its fees.
How Risky is the Fund? All investments carry risks to some degree.
The Fund's investments in municipal bonds are subject to changes in their
value from a number of factors such as changes in general bond market
movements, the change in value of particular bonds because of an event
affecting the issuer, or changes in interest rates that can affect bond
prices. These changes affect the value of the the Fund's investments and
its price per share. The fact that the Fund concentrates its investments
in California Municipal Securities and that the Fund is permitted to
invest in a single issuer or a small number of issuers entails greater
risk than an investment in a diversified investment company. In the
Oppenheimer funds spectrum, the Fund is generally more conservative than
high yield bond funds, but more aggressive than money market funds. While
the Manager tries to reduce risks by diversifying investments, by
carefully researching securities before they are purchased for the Fund's
portfolio, and in some cases by using hedging techniques, there is no
guarantee of success in achieving the Fund's objective and your shares may
be worth more or less than their original cost when you redeem them.
Please refer to "Investment Objective and Policies" starting on page 10
for a more complete discussion.
How Can I Buy Shares? You can buy shares through your dealer or
financial institution, or you can purchase shares directly through the
Distributor by completing an Application or by using an Automatic
Investment Plan under AccountLink. Please refer to "How to Buy Shares"
on page 23 for more details.
Will I Pay a Sales Charge to Buy Shares? The Fund has two classes
of shares. Both classes have the same investment portfolio but different
expenses. Class A shares are offered with a front-end sales charge,
starting at 4.75%, and reduced for larger purchases. Class B shares are
offered without a front-end sales charge, 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 owned your shares. There is also
an annual asset-based sales charge on Class B shares. Please review "How
to Buy Shares" starting on page 23 for more details, including a
discussion about factors you and your financial advisor should consider
in determining which class may be appropriate for you.
How Can I Sell My Shares? Shares can be redeemed by mail or by
telephone call to the Transfer Agent on any business day, or through your
dealer or, by writing a check against your Fund account (available for
Class A shares only). Please refer to "How to Sell Shares" on page 33.
The Fund also offers exchange privileges to other Oppenheimer funds,
described in "How to Exchange Shares" on page 36.
How Has the Fund Performed? The Fund measures its performance by
quoting its yield, average annual total return and cumulative total
return, which measure historical performance. Those yields and returns
can be compared to the yields and returns (over similar periods) of other
funds. Of course, other funds may have different objectives, investments,
and levels of risk. The Fund's performance can also be compared to a
broad market index, which we have done on page 22. Please remember that
past performance does not guarantee future results.
Financial Highlights
The table on the following pages presents selected financial
information about the Fund, including per share data and expense ratios
and other data based on the Fund's average net assets. This information
has been audited by Deloitte & Touche LLP, the Fund's independent
auditors, whose report on the Fund's financial statements for the fiscal
year ended June 30, 1995, is included in the Statement of Additional
Information.
<TABLE>
<CAPTION>
CLASS A CLASS B
------------------------------------------------------------------ ------------------
YEAR ENDED JUNE 30, YEAR ENDED JUNE 30,
1995 1994 1993 1992 1991 1990(2) 1995 1994(1)
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
<C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $11.82 $12.66 $12.05 $11.61 $11.56 $11.43 $11.80 $12.90
- --------------------------------------------------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .73 .75 .80 .82 .83(3) .06(3) .62 .38
Net realized and unrealized
gain (loss) on investments .27 (.80) .64 .45 .05 .13 .27 (1.07)
------- ------ ------ ------ ------ ------ ------ ------
Total income (loss)
from investment operations 1.00 (.05) 1.44 1.27 .88 .19 .89 (.69)
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net
investment income (.69) (.73) (.81) (.82) (.83) (.06) (.57) (.37)
Dividends in excess of net
investment income (.04) (.03) -- -- -- -- (.04) (.01)
Distributions from net realized
gain on investments -- -- (.02) (.01) -- -- -- --
Distributions in excess of net
realized gain on investments -- (.03) -- -- -- -- -- (.03)
------- ------ ------ ------ ------ ------ ------ ------
Total dividends and
distributions to shareholders (.73) (.79) (.83) (.83) (.83) (.06) (.61) (.41)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.09 $11.82 $12.66 $12.05 $11.61 $11.56 $12.08 $11.80
------- ------ ------ ------ ------ ------ ------ ------
------- ------ ------ ------ ------ ------ ------ ------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(4) 8.93% (.60)% 12.53% 11.21% 7.94% 1.95%
7.90% (5.42)%
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $78,134 $79,555 $72,387 $40,055 $13,924 $2,027 $2,648 $1,203
- -----------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $76,148 $81,741 $54,840 $26,304 $6,661 $1,685 $1,904 $649
- -----------------------------------------------------------------------------------------------------------------------------------
Number of shares outstanding
at end of period (in thousands) 6,462 6,732 5,719 3,324 1,199 175 219 102
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 6.27% 6.09% 6.46% 6.74% 6.94% 5.48%(5) 5.17%
4.91%(5)
Expenses .57% .53% .39% .32% .33%(3) .20%(3)(5) 1.55% 1.62%(5)
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 14.2% 20.2% 5.8% 25.7% 14.6% 0.0% 14.2% 20.2%
<FN>
1. For the period from October 29, 1993 (inception of offering)
to June 30, 1994.
2. For the period from May 18, 1990 (commencement of operations)
to June 30, 1990.
3. Net investment income would have been $.82 and $.04 per share
in 1991 and 1990 absent the voluntary expense assumption,
resulting in an expense ratio of .42% and 1.93%, respectively.
4. Assumes a hypothetical initial investment on the business day
before the first day of the fiscal period, with all dividends and
distributions reinvested in additional shares on the reinvestment
date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not
reflected in the total returns. Total returns are not annualized
for periods of less than one full year.
5. Annualized.
6. The lesser of purchases or sales of portfolio securities for a
period, divided by the monthly average of the market value of
portfolio securities owned during the period. Securities with a
maturity or expiration date at the time of acquisition of one
year or less are excluded from the calculation. Purchases and
sales of investment securities (excluding short-term securities)
for the period ended June 30, 1995 were $10,984,988 and
$14,179,152, respectively.
See accompanying Notes to Financial Statements.
</TABLE>
Investment Objective and Policies
Objective. The Fund invests its assets 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. The Fund seeks its objective by
following the fundamental policy of investing, under normal market
conditions, at least 80% of its total assets in California Municipal
Securities.
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 personal
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 personal 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 and municipal commercial paper, certificates of
participation 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 to
the respective issuer at the time of issue, is not subject to 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 to the respective issuer at the time
of issue, is not includable in gross income for purposes of the California
personal income tax. From time to time the Fund may purchase private
activity municipal securities, although no independent investigation will
be made by the Manager as to the users of proceeds of bond offerings or
the application of such proceeds. 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.
"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.
Special Considerations - California Municipal Securities. Because the
Fund concentrates its investments in California Municipal Securities, the
market value and marketability of such 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. Investors
should consider these matters as well as economic trends in California,
summarized in the Statement of Additional Information under "Special
Investment Considerations - California Municipal Securities."
Interest Rate Risks. In addition to credit risks, described below,
Municipal Securities are subject to changes in value due to changes in
prevailing interest rates. When prevailing interest rates fall, the
values of outstanding Municipal Securities generally rise and (if
purchased at principal amount) would sell at a premium. Conversely, when
interest rates rise, the values of outstanding Municipal Securities
generally decline and (if purchased at principal amount) would sell at a
discount. The magnitude of these fluctuations will be greater when the
average maturity of the portfolio is longer. Changes in the value of
Municipal Securities held in the Fund's portfolio arising from changes in
interest rates will not affect interest income derived from these
securities but will affect the Fund's net asset value per share.
Credit Risks. Municipal Securities are also subject to credit risks.
Credit risk relates to the ability of the issuer of a Municipal Security
to make interest or principal payments on the security as they become due.
The economic and other factors that can affect that ability are summarized
in the Statement of Additional Information under "Special Investment
Considerations-California Municipal Securities." While the Manager may
rely to some extent on credit ratings by nationally recognized rating
agencies, such as Standard & Poor's or Moody's, in evaluating the credit
risk of securities selected for the Fund's portfolio, it may also use its
own research and analysis. However, many factors affect an issuer's
ability to make timely payments, and there can be no assurance that the
credit risks of a particular security will not change over time.
Investments in Taxable Securities and Temporary Defensive Investment
Strategy. Under normal market conditions, the Fund may invest up to 20%
of its assets in taxable investments, including (i) repurchase agreements;
(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; (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.
For temporary defensive purposes, the Fund may 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. To the extent the Fund assumes a temporary
defensive position, a portion of the Fund's distributions may be subject
to Federal and state income taxes and the Fund may not achieve its
objective.
Municipal Lease Obligations. 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. While some municipal lease securities may be deemed to
be "illiquid" securities (the purchase of which would be limited as
described below 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. See "Investment Objective
and Policies - Municipal Securities - Municipal Lease Obligations" in the
Statement of Additional Information for more details.
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 Investments. The Fund may
invest in variable rate bonds known as "inverse floaters." Yields on
inverse floaters move in the opposite direction from short-term interest
rates. As interest rates rise, inverse floaters produce less current
income. Prices of inverse floaters may be more volatile than the price
of a comparable fixed-rate security. 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. Some inverse floaters have a "cap" whereby if interest rates
rise above the "cap," the security pays additional interest income. If
rates do not rise above the "cap," the Fund will have paid an additional
amount for a feature that proves worthless. 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. The Fund anticipates that it would invest
no more than 10% of its total assets in inverse floaters or such other
municipal derivative securities.
-- Derivatives may entail special risks. The risks of investing in
derivative investments include not only the ability of the issuer of the
derivative investment to pay the amount due on the maturity of the
investment, 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 principal and/or income than
expected. Another risk of investing in derivative investments 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 derivative
investments but that have similar credit quality, redemption provisions
and maturities. Certain derivative investments held by the Fund may trade
in the over-the-counter market and may be illiquid - See "Illiquid and
Restricted Securities," below.
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. Investments 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, because such Municipal Securities, although investment
grade, 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.
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 for the purpose of realizing short-term gains, but
the Fund may sell securities as the Manager deems advisable to take
advantage of differentials in yield to seek to accomplish the Fund's
investment objective. 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 classified as a "non-diversified"
investment company under the Investment Company Act of 1940 (the
"Investment Company Act") so that the proportion of the Fund's assets that
may be invested in the securities of a single issuer is not limited by the
Investment Company Act. 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. 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.
Special Risk Considerations - Borrowing. The Fund may not borrow in
excess of 10% of the value of its total assets and it cannot make any
investment when borrowings exceed 5% of its total assets, and it may
borrow 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.
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 investment policies. The Fund's investment policies and techniques
are not "fundamental" unless this Prospectus or the Statement of
Additional Information says that a particular policy is "fundamental."
The Fund's investment objective is a fundamental policy.
Fundamental policies are those that cannot be changed without the
approval of a "majority" of the Fund's outstanding voting shares. The
term "majority" is defined in the Investment Company Act to be a
particular percentage of outstanding voting shares (and this term is
explained in the Statement of Additional Information). The Board of
Directors of Oppenheimer Main Street Funds, Inc. 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. These techniques
involve certain risks. The Statement of Additional Information contains
more information about these practices, including limitations on their use
that may help to reduce some of the risks.
-- When-Issued and Delayed Delivery Transactions. The Fund may
purchase Municipal Securities on a "when-issued" basis, and may purchase
or sell such securities on a "delayed delivery" basis. "When-issued" and
"delayed delivery" refer to securities that have been created and for
which a market exists, but which are not available for immediate delivery.
The Fund does not intend to make such purchases for speculative purposes.
During the period between the purchase and settlement, no payment is made
for the security and no interest accrues to the buyer from the investment.
There may be a risk of loss if the value of the security declines prior
to the settlement date.
Repurchase Agreements. The Fund may acquire securities subject to
repurchase agreements to generate income, for liquidity purposes to meet
anticipated redemptions, pending the investment of proceeds from sales of
Fund shares, or pending settlement of purchases of portfolio investments.
In a repurchase transaction, the Fund buys a security and simultaneously
sells it to the vendor for delivery at a future date. Repurchase
agreements must 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.
Repurchase agreements having a maturity beyond seven days are subject to
the percentage limitation on illiquid and restricted securities, discussed
below. See "Repurchase Agreements" in the Statement of Additional
Information for more details.
-- Illiquid and Restricted Securities. Under the policies and
procedures established by the Board of Directors of Oppenheimer Main
Street Funds, Inc., the Manager determines the liquidity of the Fund's
investments. Investments may be illiquid because of the absence of an
active trading market, making it difficult to value them or dispose of
them promptly at an acceptable price. A restricted security is one that
has a contractual restriction on its resale or which cannot be sold
publicly until it is registered under the Securities Act of 1933. The
Fund will not invest more than 10% of its net assets in illiquid or
restricted securities (that limit may increase to 15%). The Fund's
percentage limitations on these investments does not apply to certain
restricted securities that are eligible for resale to qualified
institutional buyers.
Puts and Stand-By Commitments. The Fund may acquire "stand-by
commitments" or "puts" with respect to municipal obligations held in its
portfolio. Under a stand-by commitment or put option, the Fund would have
the right to sell specified securities at a specific price on demand to
the issuing broker-dealer or bank. The Fund will acquire stand-by
commitments or puts solely to facilitate portfolio liquidity and does not
intend to exercise its rights thereunder for trading purposes.
Loans of Portfolio Securities. To attempt to raise income or 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 in the coming year.
Hedging. As described below, the Fund may purchase and sell certain
kinds of futures contracts, put and call options, and options on futures
and broadly-based municipal bond indices, or enter into interest rate swap
agreements. These are referred to as "hedging instruments." The Fund
does not use hedging instruments for speculative purposes, and has limits
on the use of them, described below. The hedging instruments the Fund may
use are described below and in greater detail in "Other Investment
Techniques and Strategies" in the Statement of Additional Information.
The Fund may buy and sell options and futures for a number of purposes.
It may do so to try to manage its exposure to the possibility that the
prices of its portfolio securities may decline, or to establish a position
in the securities market as a temporary substitute for purchasing
individual securities. It may do so to try to manage its exposure to
changing interest rates. Some of these strategies, such as selling
futures, buying puts and writing covered calls, hedge the Fund's portfolio
against price fluctuations. Other hedging strategies, such as buying
futures and call options, tend to increase the Fund's exposure to the
securities market. Writing covered call options may also provide income
to the Fund for liquidity purposes, defensive reasons, or to raise cash
to distribute to shareholders.
-- Futures. The Fund may buy and sell futures contracts that relate
to (1) interest rates (these are referred to as Interest Rate Futures),
and (2) municipal bond indices (these are referred to as Municipal Bond
Index Futures). At present, the Fund does not intend to enter into
futures contracts and options on futures if, after any such practice, the
sum of margin deposits on futures and premiums paid on futures would
exceed 5% of of the Fund's total assets. These types of Futures are
described in "Hedging" in the Statement of Additional Information.
-- Put and Call Options. The Fund may buy and sell certain kinds of
put options (puts) and call options (calls).
The Fund may buy calls only on debt securities, broadly-based municipal
bond indices, Municipal Bond Index Futures and Interest Rate Futures, or
to terminate its obligation on a call the Fund previously wrote. The Fund
may write (that is, sell) covered call options. After the Fund writes a
call, not more than 25% of the Fund's total assets may be subject to
calls. Calls the Fund buys or sells must be listed on a domestic
securities or commodities exchange or quoted on the Automated Quotation
System of the National Association of Securities Dealers, Inc. (NASDAQ),
or traded in the over-the-counter market. Each call the Fund writes must
be "covered" while it is outstanding. The Fund must own the investment
on which the call was written or it must own other securities that are
acceptable for the escrow arrangements required for calls. The Fund may
write calls on Futures contracts it owns, but these calls must be covered
by securities or other liquid assets the Fund owns and segregates to
enable it to satisfy its obligations if the call is exercised. A call or
put option may not be purchased if the value of all of the Fund's put and
call options would exceed 5% of the Fund's total assets.
The Fund may buy and sell put options. Buying a put on an investment
gives the Fund the right to sell the investment at a set price to a seller
of a put on that investment. The Fund can buy only those puts that relate
to (1) securities that the Fund owns, (2) municipal bond indices, and (3)
Interest Rate Futures and Municipal Bond Index Futures whether or not the
Fund owns the particular Future in its portfolio. Writing puts requires
the segregation of liquid assets to cover the put. The Fund will not
write a put if it will require more than 25% of the Fund's total assets
to be segregated to cover the put obligation.
-- Interest Rate Swaps. In an interest rate swap, the Fund and another
party exchange their right to receive or their obligation to pay interest
on a security. For example, they may swap a right to receive floating
rate payments for fixed rate payments. The Fund enters into swaps only
on securities it owns. The Fund may not enter into swaps with respect to
more than 25% of its total assets. Also, the Fund will segregate liquid
assets (such as cash or U.S. Government securities) to cover any amounts
it could owe under swaps that exceed the amounts it is entitled to
receive, and it will adjust that amount daily, as needed. Income from
interest rate swaps may be taxable.
-- Hedging instruments can be volatile investments and may involve
special risks. The use of hedging instruments requires special skills and
knowledge of investment techniques that are different from what is
required for normal portfolio management. If the Manager uses a hedging
instrument at the wrong time or judges market conditions incorrectly,
hedging strategies may reduce the Fund's return. The Fund could also
experience losses if the prices of its futures and options positions were
not correlated with its other investments or if it could not close out a
position because of an illiquid market for the future or option. Such
losses might cause previously distributed short-term capital gains to be
re-characterized as a non-taxable return of capital to shareholders.
Options trading involves the payment of premiums and has special tax
effects on the Fund. There are also special risks in particular hedging
strategies. If a covered call written by the Fund is exercised on an
investment that has increased in value, the Fund will be required to sell
the investment at the call price and will not be able to realize any
profit if the investment has increased in value above the call price. If
the value of the investment does not rise above the call price, it is
likely that the call will lapse without being exercised, while the Fund
keeps the cash premium (and the investment). Interest rate swaps are
subject to credit risks (if the other party fails to meet its obligations)
and also to interest rate risks. The Fund could be obligated to pay more
under its swap agreements than it receives under them, as a result of
interest rate changes. These risks are described in greater detail in the
Statement of Additional Information.
Other Investment Restrictions. The Fund has other investment restrictions
that are fundamental policies. Under these fundamental policies, the Fund
cannot do any of the following:
-- 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
-- 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 and in the Statement of Additional Information 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 Corporation is governed by a Board of Directors, which is
responsible under Maryland corporate law for protecting the interests of
shareholders. 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 officers
and provides more information about them. Although the Fund is not
required by law to hold annual meetings, it may hold shareholder meetings
from time to time on important matters, and shareholders have the right
to call a meeting to remove a Director or to take other action described
in the 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 two classes of shares, Class A and
Class B. Both classes invest in the same investment portfolio. Each
class has its own dividends and distributions and pays certain expenses
which may be different for the different classes. Each class may have a
different net asset value. Each share has one vote at shareholder
meetings, with fractional shares voting proportionally on matters
submitted to the vote of shareholders. Shares of each class have separate
voting rights on matters in which the interests of one class are different
from the interests of another class, and only shares of a particular class
vote together on matters that affect that class alone. Shares are freely
transferrable.
The Manager and Its Affiliates. The Fund is managed by the Manager,
Oppenheimer Management Corporation, which is responsible for selecting the
Fund's investments and handles its day-to-day business. The Manager
carries out its duties, subject to the policies established by the Board
of Directors, under an Investment Advisory Agreement which states the
Manager's responsibilities. The Agreement sets forth the fees paid by the
Fund to the Manager, and describes the expenses that the Fund is
responsible to pay to conduct its business.
The Manager has operated as an investment adviser since 1959. The
Manager (including a subsidiary) currently manages investment companies,
including other Oppenheimer funds, with assets of more than $38 billion
as of September 30, 1995, and with more than 2.6 million shareholder
accounts. The Manager is owned by Oppenheimer Acquisition Corp., a
holding company that is owned in part by senior officers of the Manager
and controlled by Massachusetts Mutual Life Insurance Company.
Portfolio Manager. The Portfolio Manager of the Fund is Robert E.
Patterson. He is a Senior Vice President of the Manager. He has been the
person 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 Oppenheimer funds.
Fees and Expenses. Under the Investment Advisory Agreement the Fund
pays the Manager monthly, 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 0.37%
of average annual net assets for Class A shares and 0.37% for Class B
shares.
The Fund pays expenses related to its daily operations, such as
custodian fees, Directors' fees, transfer agency fees, legal fees and
auditing costs. Those expenses are paid out of the Fund's assets and are
not paid directly by shareholders. However, those expenses reduce the net
asset value of shares, and therefore are indirectly borne by shareholders
through their investment. More information about the Investment Advisory
Agreement and the other expenses paid by the Fund is contained in the
Statement of Additional Information.
There is also information about the Fund's brokerage policies and
practices in "Brokerage Policies of the Fund" in the Statement of
Additional Information. That section discusses how brokers and dealers
are selected for the Fund's portfolio transactions. Because the Fund
purchases most of its portfolio securities directly from the sellers and
not through brokers, it therefore incurs relatively little expense for
brokerage. From time to time it may use brokers when buying portfolio
securities. When deciding which brokers to use, the Manager is permitted
by the investment advisory agreement to consider whether brokers have sold
shares of the Fund or any other funds for which the Manager serves as
investment adviser.
The Distributor. The Fund's shares are sold through dealers, brokers
and other financial institutions that have a sales agreement with
Oppenheimer Funds Distributor, Inc., a subsidiary of the Manager that acts
as the Distributor. The Distributor also distributes the shares of the
other "Oppenheimer funds" 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 Oppenheimer funds
on an "at-cost" basis. It also acts as shareholder servicing agent for
the other Oppenheimer funds. Shareholders should direct inquiries about
their accounts to the Transfer Agent at the address and toll-free number
shown below in this Prospectus and on the back cover.
Performance of the Fund
Explanation of Performance Terminology. The Fund uses several types of
yields and total returns to illustrate its performance. The performance
of each class of shares is shown separately, because the performance of
each class of shares will usually be different as a result of the
different kinds of expenses each class bears. These returns and yields
measure the performance of a hypothetical investment in the Fund over
various periods, and do not show the performance of each shareholder's
investment (which will vary if dividends are received in cash, or shares
are sold or additional shares are purchased). The Fund's performance may
be useful to help you see how well your investment has done and to compare
it to other funds or a market index.
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 indices and other ways to measure
and compare the Fund's performance. The Fund's investment performance will
vary over time, depending on market conditions, the composition of the
portfolio, expenses and which class of shares you purchase.
Total Returns. There are different types of "total returns" used to
measure the Fund's performance. Total return is the change in value of
a hypothetical investment in the Fund over a given period, assuming that
all dividends and capital gains distributions are reinvested in additional
shares. The cumulative total return measures the change in value over the
entire period (for example, ten years). An average annual total return
shows the average rate of return for each year in a period that would
produce the cumulative total return over the entire period. However,
average annual total returns do not show the Fund's actual year-by-year
performance.
When total returns are quoted for Class A shares, normally they include
the payment of the current maximum initial sales charge. When total
returns are shown for Class B shares, they reflect the effect of the
contingent deferred sales charge that applies to the period for which
total return is shown. Total returns may also be quoted at "net asset
value," without including the effect of the sales charge, and those
returns would be reduced if sales charges were deducted.
-- 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 income 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, 1995,
followed by a graphical comparison of the Fund's performance to an
appropriate broad-based market index.
Management's Discussion of Performance. The principal market and
economic factor affecting the Fund's performance during its fiscal year
ended June 30, 1995, was a rally in the municipal bond market during the
first six months of 1995, stimulated by a change in the Federal Reserve's
monetary policy. From February 1994 to February 1995, the Federal Reserve
had raised interest rates to prevent an increase in the rate of inflation
by slowing the economy to a more moderate growth rate. From February
1995 to June 1995, general interest rates declined, and prices of
outstanding bonds increased.
Beginning in November 1994, the Fund increased its holdings of
pre-refunded and insured bonds. These bonds had declined greatly during
1994, but provided significant capital appreciation during the six months
ended June 30, 1995. The Fund sold positions in certain bonds that had
been purchased at a discount and which had reached par value. In
addition, the Manager focused investments in "AA" rated bonds that offered
a yield premium over many other higher-rated issues. The Fund also sought
to lock-in attractive interest rates by purchasing bonds with call
protection, which prevents the issuer of a bond from calling or redeeming
it before maturity. The effect of the Orange County, California
bankruptcy filing upon the Fund was minimal. The Fund held no direct
obligations of Orange County. The Fund held several indirect obligations
of Orange County issued by entities invested in the Orange County
investment pool. These indirect obligations were generally insured by
municipal bond insurance or backed by bank letters of credit.
Comparing the Fund's Performance to the Market. The graphs below show
the performance of a hypothetical $10,000 investment in each class of
shares of the Fund from the inception of the class held through June 30,
1995, with all dividends and capital gains distributions reinvested in
additional shares. The graphs reflect the deduction of the 4.75% maximum
initial sales charge on Class A shares and the applicable contingent
deferred sales charge on Class B shares.
Because the Fund invests in a variety of Municipal Securities, the
Fund's performance is compared to the performance of the Lehman Brothers
Municipal Bond Index. The Lehman Brothers Municipal Bond Index is 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. Moreover, the index performance 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:
Main Street California Tax-Exempt Fund
And Lehman Brothers Municipal Bond Index
[Graphs]
Past performance is not predictive of future performance.
Avg. Annual Total Return of the Fund at 6/30/95
<TABLE>
<CAPTION>
A Shares 1 Year 5 Year Life(1)
<S> <C> <C> <C>
- ------------------------------------------------
3.75% 6.82% 7.07%
- ------------------------------------------------
Cumulative Total Return of the Fund at 6/30/95
B Shares 1 Year Life(2)
- ------------------------------------------------
2.90% -1.70%
- ------------------------------------------------
1. The inception date of the Fund (Class A shares) was 5/18/90. The average anual total returns and the ending account value
in the graph reflect reinvestment of all dividends and capital gains distributions and are shown net of the applicable 4.75%
maximum sales charge.
2. Class B shares of the Fund first publicly offered on 10/29/93.
</TABLE>
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 may 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 Oppenheimer funds, you will not pay an initial sales charge, but
if you sell any of those shares within 18 months of buying them, you may
pay a contingent deferred sales charge. The amount of that sales charge
will vary depending on the amount you invested. Sales charges are
described in "Buying Class A Shares" below.
Class B Shares. If you buy Class B shares, you pay no sales charge
at the time of purchase, but if you sell your shares within 6 years, you
will normally pay a contingent deferred sales charge that varies depending
on how long you own your shares. Sales charges are described in "Buying
Class B Shares" below.
Which Class of Shares Should You Choose? Once you decide that the Fund
is an appropriate investment for you, the decision as to which class of
shares is better suited to your needs depends on a number of factors which
you should discuss with your financial advisor. The Fund's operating costs
that apply to a class of shares and the effect of the different types of
sales charges on your investment will vary your investment results over
time. The most important factors to consider are how much you plan to
invest and how long you plan to hold your investment. If your goals and
objectives change over time and you plan to purchase additional shares,
you should re-evaluate those factors to see if you should consider another
class of shares.
In the following discussion, to help provide you and your financial
advisor with a framework in which to choose a class, we have made some
assumptions using a hypothetical investment in the Fund. We used the
sales charge rates that apply to each class of shares, considering the
effect of the annual asset-based sales charge on Class B expenses (which,
like all expenses, will affect your investment return). For the sake of
comparison, we have assumed that there is a 10% rate of appreciation in
the investment each year. Of course, the actual performance of your
investment cannot be predicted and will vary, based on the Fund's actual
investment returns, and the operating expenses borne by each class of
shares, and which class of shares you invest in.
The factors discussed below are not intended to be investment advice
or recommendations, because each investor's financial considerations are
different. The discussion below of the factors to consider in purchasing
a particular class of shares assumes that you will purchase only one class
of shares, and not a combination of shares of different classes.
How Long Do You Expect to Hold Your Investment? While future
financial needs cannot be predicted with certainty, knowing how long you
expect to hold your investment will assist you in selecting the
appropriate class of shares. Because of the effect of class-based
expenses, your choice will also depend on how much you plan to invest. For
example, the reduced sales charges available for larger purchases of Class
A shares may, over time, offset the effect of paying an initial sales
charge on your investment (which reduces the amount of your investment
dollars used to buy shares for your account), compared to the effect over
time of higher class-based expenses on shares of Class B for which no
initial sales charge is paid.
Investing for the Short Term. If you have a short-term investment
horizon (that is, you plan to hold your shares for not more than six
years), you should probably consider purchasing Class A shares rather than
Class B shares, because of the effect of the Class B contingent deferred
sales charge if you redeem in less than 7 years, as well as the effect of
the Class B asset-based sales charge on the investment return for that
class in the short-term.
Class A shares might be more advantageous than Class B shares for
investments of more than $100,000 expected to be held for 5 or 6 years (or
more). For investments over $250,000 expected to be held 4 to 6 years (or
more), Class A shares may become more advantageous than Class B shares.
If investing $500,000 or more, Class A shares may be more advantageous as
your investment horizon approaches 3 years or more.
And for most investors who invest $1 million or more, in most cases
Class A shares will be the most advantageous choice, no matter how long
you intend to hold your shares. For that reason, the Distributor normally
will not accept purchase orders of $500,000 or more of Class B shares from
a single investor. Of course, these examples are based on approximations
of the effect of current sales charges and expenses on a hypothetical
investment over time, using the assumed annual performance return stated
above, and therefore should not be relied on as rigid guidelines.
Investing for the Longer Term. If you are investing for the longer
term, for example, for retirement, and do not expect to need access to
your money for seven (7) years or more, Class B shares may be an
appropriate consideration, if you plan to invest less than $100,000. If
you plan to invest more than $100,000 over the long term, Class A shares
will likely be more advantageous than Class B shares, as discussed above,
because of the effect of the expected lower expenses for Class A shares
and the reduced initial sales charges available for larger investments in
Class A shares under the Fund's Right of Accumulation.
Of course, these examples are based on approximations of the effect
of current sales charges and expenses on a hypothetical over time, using
the assumed performance return stated above, and therefore, should not be
relied on as rigid guidelines.
Are There Differences in Account Features That Matter To You?
Because some account features may not be available to Class B
shareholders, such as checkwriting, or other features (such as Automatic
Withdrawal Plans) may not be advisable (because of the effect of the
contingent deferred sales charge) for Class B shareholders, you should
carefully review how you plan to use your investment account before
deciding which class of shares to buy. Share certificates are not
available for Class B shares, and if you are considering using your shares
as collateral for a loan, that may be a factor to consider.
How Does It Affect Payments to My Broker? A salesperson, such as
a broker, or any other person who is entitled to receive compensation for
selling Fund shares may receive different compensation for selling one
class of shares than for selling another class. It is important that
investors understand that the purpose of the Class B contingent deferred
sales charge and the asset-based sales charge is the same as the purpose
of the front-end sales charge on sales of Class A shares: that is, to
compensate the Distributor for commissions it pays to dealers and
financial institutions for selling shares.
How Much Must You Invest? You can open a Fund account with a minimum
initial investment of $1,000 and make additional investments at any time
with as little as $25. There are reduced minimum investments under special
investment plans:
With Asset Builder Plans, Automatic Exchange Plans 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 Oppenheimer funds (a list
of them appears in the Statement of Additional Information, or you can ask
your dealer or call the Transfer Agent), or by reinvesting distributions
from unit investment trusts that have made arrangements with the
Distributor.
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. However, it is recommended that you
discuss your investment first with a financial advisor to be sure that it
is appropriate for you.
Buying Shares Through OppenheimerFunds AccountLink. You can use
AccountLink to link your Fund account with an account at a U.S. bank or
other financial institution that is an Automated Clearing House (ACH)
member. You can then transmit funds electronically to purchase shares,
to send redemption proceeds, and to have the Transfer Agent transmit
dividends and distributions.
Shares are purchased for your account on AccountLink on the regular
business day the Distributor is instructed by you to initiate the ACH
transfer to buy shares. You can provide those instructions automatically,
under an Asset Builder Plan, described below, or by telephone instructions
using OppenheimerFunds PhoneLink, also described below. You should request
AccountLink privileges on the application or dealer settlement
instructions used to establish your account. Please refer to "AccountLink"
below for more details.
Asset Builder Plans. You may purchase shares of the Fund (and up to
four other Oppenheimer funds) automatically each month from your account
at a bank or other financial institution under an Asset Builder Plan with
AccountLink. Details are on the Application and in the Statement of
Additional Information.
At What Price Are Shares Sold? Shares are sold at the public
offering price based on the net asset value (and any initial sales charge
that applies) that is next determined after the Distributor receives the
purchase order in Denver, Colorado. In most cases, to enable you to
receive that day's offering price, the Distributor must receive your order
by the time of day The New York Stock Exchange closes, which is normally
4:00 P.M. New York time, but may be earlier on some days (all references
to time in this Prospectus mean "New York time"). The net asset value of
each class of shares is determined as of that time on each day The New
York Stock Exchange is open (which is a "regular business day").
If you buy shares through a dealer, the dealer must receive your
order by the close of The New York Stock Exchange on a regular business
day and transmit it to the Distributor so that it is received before the
Distributor's close of business that day, which is normally 5:00 P.M. The
Distributor may reject any purchase order for the Fund's shares, in its
sole discretion.
Buying Class A Shares. Class A shares are sold at their offering price,
which is normally net asset value plus an initial sales charge. However,
in some cases, described below, purchases are not subject to an initial
sales charge, and the offering price will be 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 Charge
Sales Charge as Commission
as Approximate as
Percentage Percentage Percentage
of Offering of Amount of Offering
Amount of Purchase Price Invested Price
- -------------------------------------------------------------------------
<S> <C> <C> <C>
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%
</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 Oppenheimer
funds aggregating $1 million or more.
Shares of any of the Oppenheimer funds that offers only one class of
shares that has no class designation are considered "Class A shares" for
this purpose). The Distributor pays dealers of record commissions on those
purchases in an amount equal to the sum of 1.0% of the first $2.5 million,
plus 0.50% of the next $2.5 million, plus 0.25% of purchases over $5
million. That commission will be paid only on the amount of those
purchases in excess of $1 million that were not previously subject to a
front-end sales charge and dealer commission.
If you redeem any of those shares within 18 months of the end of the
calendar month of their purchase, a contingent deferred sales charge
(called the "Class A contingent deferred sales charge") may be deducted
from the redemption proceeds. That sales charge will be equal to 1.0% of
the aggregate net asset value of either (1) the redeemed shares (not
including shares purchased by reinvestment of dividends or capital gain
distributions) or (2) the original cost of the shares, whichever is less.
However, the Class A contingent deferred sales charge will not exceed the
aggregate amount of the commissions the Distributor paid to your dealer
on all Class A shares of all Oppenheimer funds you purchased subject to
the Class A contingent deferred sales charge.
In determining whether a contingent deferred sales charge is payable,
the Fund will first redeem shares that are not subject to the sales
charge, including shares purchased by reinvestment of dividends and
capital gains, and then will redeem other shares in the order that you
purchased them. The Class A contingent deferred sales charge is waived
in certain cases described in "Waivers of Class A Sales Charges" below.
No Class A contingent deferred sales charge is charged on exchanges
of shares under the Fund's exchange privilege (described below). However,
if the shares acquired by exchange are redeemed within 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.
Reduced Sales Charges for Class A Share Purchases. You may be eligible
to buy Class A shares at reduced sales charge rates in one or more of the
following ways:
-- Right of Accumulation. To qualify for the lower sales charge
rates that apply to larger purchases of Class A shares, you and your
spouse can add together Class A and Class B shares you purchase for your
individual accounts, or jointly, or on behalf of your children who are
minors for trust or custodial accounts. A fiduciary can count all shares
purchased for a trust, estate or other fiduciary account (including one
or more employee benefit plans of the same employer) that has multiple
accounts.
Additionally, you can add together current purchases of Class A and
Class B shares of the Fund and other Oppenheimer funds to reduce the sales
charge rate that applies to current purchases of Class A shares. You can
also include Class A and Class B shares of Oppenheimer funds you
previously purchased subject to an initial or contingent deferred sales
charge to reduce the sales charge rate for current purchases of Class A
shares, provided that you still hold your investment in one of the
Oppenheimer funds. 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 Oppenheimer funds are listed in "Reduced Sales Charges" in
the Statement of Additional Information, or a list can be obtained from
the Distributor. The reduced sales charge will apply only to current
purchases and must be requested when you buy your shares.
-- Letter of Intent. Under a Letter of Intent, if you purchase Class
A Shares or Class A and Class B shares of the Fund and other Oppenheimer
funds during a 13-month period, you can reduce the sales charge rate that
applies to your purchases of Class A shares. The total amount of your
intended purchases of both Class A and Class B shares will determine the
reduced sales charge rate for the Class A shares purchased during that
period. This can include purchases made up to 90 days before the date of
the Letter. More information is contained in the Application and in
"Reduced Sales Charges" in the Statement of Additional Information.
-- Waivers of Class A Sales Charges. The Class A sales charges are
not imposed in the circumstances described below. There is an explanation
of this policy in "Reduced Sales Charges" in the Statement of Additional
Information.
Waivers of Initial and Contingent Deferred Sales Charges for Certain
Purchases. Class A shares purchased by the following investors are not
subject to any Class A sales charges:
-- the Manager or its affiliates;
-- present or former officers, directors, trustees and employees (and
their "immediate families" as defined in "Reduced Sales Charges" in the
Statement of Additional Information) of the Fund, the Manager and its
affiliates, and retirement plans established by them for their employees;
-- registered management investment companies, or separate accounts
of insurance companies having an agreement with the Manager or the
Distributor for that purpose;
-- dealers or brokers that have a sales agreement with the
Distributor, if they purchase shares for their own accounts or for
retirement plans for their employees;
-- employees and registered representatives (and their spouses) of
dealers or brokers described above or financial institutions that have
entered into sales arrangements with such dealers or brokers (and are
identified to the Distributor) or with the Distributor; the purchaser must
certify to the Distributor at the time of purchase that the purchase is
for the purchaser's own account (or for the benefit of such employee's
spouse or minor children); or
-- dealers, brokers or registered investment advisers that have
entered into an agreement with the Distributor providing specifically for
the use of shares of the Fund in particular investment products made
available to their clients (those clients may be charged a transaction fee
by their dealer, broker or adviser for the purchase or sale of Fund
shares).
Waivers of Initial and Contingent Deferred Sales Charges in Certain
Transactions. Class A shares issued or purchased in the following
transactions are not subject to Class A sales charges:
-- shares issued in plans of reorganization, such as mergers, asset
acquisitions and exchange offers, to which the Fund is a party;
-- shares purchased by the reinvestment of dividends or other
distributions reinvested from the Fund or other Oppenheimer funds (other
than Oppenheimer Cash Reserves) or unit investment trusts for which
reinvestment arrangements have been made with the Distributor; or
-- shares purchased and paid for with the proceeds of shares redeemed
in the past 12 months from a mutual fund (other than a fund managed by the
Manager or any of its subsidiaries) on which an initial sales charge or
contingent deferred sales charge was paid (this waiver also applies to
shares purchased by exchange of shares of Oppenheimer Money Market Fund,
Inc. that were purchased and paid for in this manner); this waiver must
be requested when the purchase order is placed for your shares of the
Fund, and the Distributor may require evidence of your qualification for
this waiver.
Waivers of the Class A Contingent Deferred Sales Charge for Certain
Redemptions. The Class A contingent deferred sales charge is also waived
if shares that would otherwise be subject to the contingent deferred sales
charge are redeemed in the following cases:
-- to make Automatic Withdrawal Plan payments that are limited
annually to no more than 12% of the original account value;
-- involuntary redemptions of shares by operation of law or
involuntary redemptions of small accounts (see "Shareholder Account Rules
and Policies," below); or adopted by the Board of Directors; or
-- if, at the time of a purchase an order is placed for Class A
shares that would otherwise be subject to the Class A contingent deferred
sales charge, the dealer agrees in writing to accept the dealer's portion
of the commission that will be payable on the sale in installments of
1/18th of the commission per month (and no further commission payable if
the shares are redeemed within 18 months of purchase).
Buying Class B Shares. Class B shares are sold at net asset value per
share without an initial sales charge. However, if Class B shares are
redeemed within 6 years of their purchase, a contingent deferred sales
charge will be deducted from the redemption proceeds. That sales charge
will not apply to shares purchased by the reinvestment of dividends or
capital gains distributions. The charge will be assessed on the lesser of
the net asset value of the shares at the time of redemption or the
original purchase price. The contingent deferred sales charge is not
imposed on the amount of your account value represented by the increase
in net asset value over the initial purchase price (including increases
due to the reinvestment of dividends and capital gains distributions). The
Class B contingent deferred sales charge is paid to the Distributor to
reimburse its expenses of providing distribution-related services to the
Fund in connection with the sale of Class B shares.
To determine whether the contingent deferred sales charge applies to
a redemption, the Fund redeems shares in the following order: (1) shares
acquired by reinvestment of dividends and capital gains distributions, (2)
shares held for over 6 years, and (3) shares held the longest during the
6-year period. The contingent deferred sales charge is not imposed in the
circumstances described in "Waivers of Class B Sales Charge," below.
The amount of the contingent deferred sales charge will depend on the
number of years since you invested and the dollar amount being redeemed,
according to the following schedule:
<TABLE>
<CAPTION>
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)
- ------------------------------------------------------------------
<S> <C>
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
</TABLE>
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 charges will not be applied to shares purchased in certain types of
transactions nor will it apply to Class B shares redeemed in certain
circumstances, as described below. The reasons for this policy are in
"Reduced Sales Charges" in the Statement of Additional Information.
Waivers for Redemptions of Shares in Certain Cases. The Class B
contingent deferred sales charges will be waived for redemptions of shares
in the following cases:
-- following the death or disability of the last surviving
shareholder (the disability must have occurred after the account was
established and you must provide evidence of a determination of disability
by the Social Security Administration);
-- shares redeemed involuntarily, as described in "Shareholder
Account Rules and Policies," below
-- shares sold to the Manager or its affiliates;
-- shares sold to registered management investment companies or
separate accounts of insurance companies having an agreement with the
Manager or the Distributor for that purpose; or
-- shares issued in plans of reorganization to which the Fund is a
party
-- 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 reimburse
the Distributor for its services and costs in distributing Class B shares
and servicing accounts. Under the Plan, the Fund pays the Distributor an
annual "asset-based sales charge" of 0.75% per year on Class B shares that
are outstanding for 6 years or less. The Distributor also receives a
service fee of 0.25% per year. Both fees are computed on the average
annual net assets of Class B shares, determined as of the close of each
regular business day. The asset-based sales charge allows investors to buy
Class B shares without a front-end sales charge while allowing the
Distributor to compensate dealers that sell Class B shares.
The Distributor uses the service fee to compensate dealers for
providing personal services for accounts that hold Class B shares.
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.
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 service 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 and other distribution 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 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. These include purchases of shares by telephone
(either through a service representative or by PhoneLink, described
below), automatic investments under Asset Builder Plans, and sending
dividends and distributions or Automatic Withdrawal Plan payments directly
to your bank account. Please refer to the Application for details or call
the Transfer Agent for more information.
AccountLink privileges should be requested on the Application you use
to buy shares, or on your dealer's settlement instructions if you buy your
shares through your dealer. After your account is established, you can
request AccountLink privileges by sending signature-guaranteed
instructions to the Transfer Agent. AccountLink privileges will apply to
each shareholder listed in the registration on your account as well as to
your dealer representative of record unless and until the Transfer Agent
receives written instructions terminating or changing those privileges.
After you establish AccountLink for your account, any change of bank
account information must be made by signature-guaranteed instructions to
the Transfer Agent signed by all shareholders who own the account.
Using AccountLink to Buy Shares. Purchases may be made by telephone
only after your account has been established. To purchase shares in
amounts up to $250,000 through a telephone representative, call the
Distributor at 1-800-852-8457. The purchase payment will be debited from
your bank account.
PhoneLink. PhoneLink is the OppenheimerFunds automated telephone
system that enables shareholders to perform a number of account
transactions automatically using a touch-tone phone. PhoneLink may be
used on already-established Fund accounts after you obtain a Personal
Identification Number (PIN), by calling the special PhoneLink number: 1-
800-533-3310.
-- Purchasing Shares. You may purchase shares in amounts up to
$100,000 by phone, by calling 1-800-533-3310. You must have established
AccountLink privileges to link your bank account with the Fund, to pay for
these purchases.
-- Exchanging Shares. With the OppenheimerFunds Exchange Privilege,
described below, you can exchange shares automatically by phone from your
Fund account to another Oppenheimer funds 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
Oppenheimer funds account on a regular basis:
Automatic Withdrawal Plans. If your Fund account is worth $5,000 or
more, you can establish an Automatic Withdrawal Plan to receive payments
of at least $50 on a monthly, quarterly, semi-annual or annual basis. The
checks may be sent to you or sent automatically to your bank account on
AccountLink. You may even set up certain types of withdrawals of up to
$1,500 per month by telephone. You should consult the Application and
Statement of Additional Information for more details.
Automatic Exchange Plans. You can authorize the Transfer Agent to
exchange an amount you establish in advance automatically for shares of
up to five other Oppenheimer funds on a monthly, quarterly, semi-annual
or annual basis under an Automatic Exchange Plan. The minimum purchase
for each Oppenheimer funds account is $25. These exchanges are subject
to the terms of the Exchange Privilege, described below.
Reinvestment Privilege. If you redeem some or all of your Class A or
Class B shares of the Fund, you have up to 6 months to reinvest all or
part of the redemption proceeds in Class A shares of the Fund or other
Oppenheimer funds without paying a sales charge. This privilege applies
to Class A shares that you purchased subject to an initial sales charge
and to Class A or Class B shares on which you paid a contingent deferred
sales charge when you redeemed them. 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 by selling
(redeeming) some or all of your shares on any regular business day. Your
shares will be sold at the next net asset value calculated after your
order is received and accepted by the Transfer Agent. The Fund offers you
a number of ways to sell your shares: in writing, by using the Fund's
checkwriting privilege 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, 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 redemption check is not payable to all shareholders listed on
the account statement
-- The redemption check is not sent to the address of record on your
account statement
-- Shares are being transferred to a Fund account with a different
owner or name
-- Shares are redeemed by someone other than the owners (such as an
Executor)
Where Can I Have My Signature Guaranteed? The Transfer Agent will
accept a guarantee of your signature by a number of financial
institutions, including: a U.S. bank, trust company, credit union or
savings association, or by a foreign bank that has a U.S. correspondent
bank, or by a U.S. registered dealer or broker in securities, municipal
securities or government securities, or by a U.S. national securities
exchange, a registered securities association or a clearing agency. If
you are signing on behalf of a corporation, partnership or other business
or as a fiduciary, you must also include your title in the signature.
Selling Shares by Mail. Write a "letter of instructions" that includes:
-- Your name
-- The Fund's name
-- Your Fund account number (from your account statement)
-- The dollar amount or number of shares to be redeemed
-- Any special payment instructions
-- Any share certificates for the shares you are selling
-- The signatures of all registered owners exactly as the account is
registered, and
-- Any special requirements or documents requested by the Transfer
Agent to assure proper authorization of the person asking to sell shares.
Use the following address for requests by mail:
Oppenheimer Shareholder Services
P.O. Box 5270, Denver, Colorado 80217
Send courier or Express Mail requests to:
Oppenheimer 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 the close of The New York Stock Exchange that day, which is
normally 4:00 P.M. but may be earlier on some days. You may not redeem
shares held under a share certificate by telephone.
-- To redeem shares through a service representative, call 1-800-852-
8457
-- To redeem shares automatically on PhoneLink, call 1-800-533-3310
Whichever method you use, you may have a check sent to the address
on the account statement, or, if you have linked your Fund account to your
bank account on AccountLink, you may have the proceeds wired to that bank
account.
Telephone Redemptions Paid by Check. Up to $50,000 may be redeemed
by telephone, in any 7-day period. The check must be payable to all
owners of record of the shares and must be sent to the address on the
account statement. This service is not available within 30 days of
changing the address on an account.
Telephone Redemptions Through AccountLink or Wire. There are no
dollar limits on telephone redemption proceeds sent to a bank account
designated when you establish AccountLink. Normally the ACH transfer to
your bank is initiated on the business day after the redemption. You do
not receive dividends on the proceeds of the shares you redeemed while
they are waiting to be transferred.
Shareholders may also have the Transfer Agent send redemption
proceeds of $2,500 or more by Federal Funds wire to a designated
commercial bank account. The bank must be a member of the Federal Reserve
wire system. There is a $10 fee for each Federal Funds wire. To place
a wire redemption request, call the Transfer Agent at 1-800-852-8457. The
wire will normally be transmitted on the next bank business day after the
shares are redeemed. There is a possibility that the wire may be delayed
up to seven days to enable the Fund to sell securities to pay the
redemption proceeds. No dividends are accrued or paid on the proceeds of
shares that have been redeemed and are awaiting transmittal by wire. To
establish wire redemption privileges on an account that is already
established, please contact the Transfer Agent for instructions.
Selling Shares Through Your Dealer. The Distributor has made arrangements
to repurchase Fund shares from dealers and brokers on behalf of their
customers. Brokers or dealers may charge for that service. Please refer
to "Special Arrangements for Repurchase of Shares from Dealers and
Brokers" in the Statement of Additional Information for more details.
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. If you previously signed a signature card to establish
checkwriting in another Oppenheimer fund, simply call 1-800-525-7048 to
request checkwriting for an account in this Fund with the same
registration as the previous checkwriting account.
-- 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.
How to Exchange Shares
Shares of the Fund may be exchanged for shares of certain Oppenheimer
funds at net asset value per share at the time of exchange, without sales
charge. To exchange shares, you must meet several conditions:
-- Shares of the fund selected for exchange must be available for
sale in your state of residence
-- The prospectuses of this Fund and the fund whose shares you want
to buy must offer the exchange privilege
-- You must hold the shares you buy when you establish your account
for at least 7 days before you can exchange them; after the account is
open 7 days, you can exchange shares every regular business day
-- You must meet the minimum purchase requirements for the fund you
purchase by exchange
-- Before exchanging into a fund, you should obtain and read its
prospectus
Shares of a particular class may be exchanged only for shares of the
same class in the other Oppenheimer funds. For example, you can exchange
Class A shares of this Fund only for Class A shares of another fund. At
present, Oppenheimer Money Market Fund, Inc., offers only one class of
shares which are considered "Class A" shares for this purpose. In some
cases, sales charges may be imposed on exchange transactions. Please
refer to "How to Exchange Shares" in the Statement of Additional
Information for more details.
Exchanges may be requested in writing or by telephone:
Written Exchange Requests. Submit an OppenheimerFunds Exchange
Request form, signed by all owners of the account. Send it to the
Transfer Agent at the addresses listed in "How to Sell Shares."
Telephone Exchange Requests. Telephone exchange requests may be made
either by calling a service representative at 1-800-852-8457 or by using
PhoneLink for automated exchanges by calling 1-800-533-3310. Telephone
exchanges may be made only between accounts that are registered with the
same name(s) and address. Shares held under certificates may not be
exchanged by telephone.
You can find a list of Oppenheimer funds currently available for
exchanges in the Statement of Additional Information or obtain one by
calling a service representative 1-800-525-7048. That list can change from
time to time.
There are certain exchange policies you should be aware of:
-- Shares are normally redeemed from one fund and purchased from the
other fund in the exchange transaction on the same regular business day
on which the Transfer Agent receives an exchange request that is in proper
form by the close of The New York Stock Exchange that day, which is
normally 4:00 P.M. but may be earlier on some days. However, either fund
may delay the purchase of shares of the fund you are exchanging into up
to seven days if it determines it would be disadvantaged by a same-day
transfer of the proceeds to buy shares. For example, the receipt of
multiple exchange requests from a dealer in a "market-timing" strategy
might require the sale of portfolio securities at a time or price
disadvantageous to the Fund.
-- Because excessive trading can hurt fund performance and harm
shareholders, the Fund reserves the right to refuse any exchange request
that will disadvantage it, or to refuse multiple exchange requests
submitted by a shareholder or dealer.
-- The Fund may amend, suspend or terminate the exchange privilege
at any time. Although the Fund will attempt to provide you notice
whenever it is reasonably able to do so, it may impose these changes at
any time.
-- 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.
-- For tax purposes, exchanges of shares involve a redemption of the
shares of the fund you own and a purchase of the shares of the other fund,
which may result in a capital gain or loss. For more information about
taxes affecting exchanges, please refer to "How to Exchange Shares" in the
Statement of Additional Information.
Shareholder Account Rules and Policies
Net Asset Value Per Share is determined for each class of shares as
of the close of The New York Stock Exchange on each day the Exchange is
open by dividing the value of the Fund's net assets attributable to a
class by the number of shares of that class that are outstanding. The
Corporation'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 and obligations for which
market values cannot be readily obtained. 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 neither the Transfer Agent nor the Fund will
be liable for losses or expenses arising out of telephone instructions
reasonably believed to be genuine. If you are unable to reach the
Transfer Agent during periods of unusual market activity, you may not be
able to complete a telephone transaction and should consider placing your
order by mail.
Redemption or transfer requests will not be honored until the
Transfer Agent receives all required documents in proper form. From time
to time, the Transfer Agent in its discretion may waive certain of the
requirements for redemptions stated in this Prospectus.
Dealers that can perform account transactions for their clients by
participating in NETWORKING through the National Securities Clearing
Corporation are responsible for obtaining their clients' permission to
perform those transactions and are responsible to their clients who are
shareholders of the Fund if the dealer performs any transaction
erroneously or improperly.
The redemption price for shares will vary from day to day because
the value of the securities in the Fund's portfolio fluctuates, and the
redemption price, which is the net asset value per share, will normally
be different for Class A 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 seven (7) days after the
Transfer Agent receives redemption instructions in proper form, except
under unusual circumstances determined by the Securities and Exchange
Commission delaying or suspending such payments. For accounts registered
in the name of a broker-dealer, payment will be forwarded within three (3)
business days. The Transfer Agent may delay forwarding a check or
processing a payment via AccountLink for recently purchased shares, but
only until the purchase payment has cleared. That delay may be as much
as 10 days from the date the shares were purchased. That delay may be
avoided if you purchase shares by certified check or arrange to have your
bank provide telephone or written assurance to the Transfer Agent that
your purchase payment has cleared.
Involuntary redemptions of small accounts may be made by the Fund
if the account value has fallen below $500 for reasons other than the fact
that the market value of shares has dropped, and in some cases involuntary
redemptions may be made to repay the Distributor for losses from the
cancellation of share purchase orders.
Under unusual circumstances, shares of the Fund may be redeemed "in
kind", which means that the redemption proceeds will be paid with
securities from the Fund's portfolio. Please refer to "How to Sell
Shares" in the Statement of Additional Information for more details.
"Backup Withholding" of Federal income tax may be applied at the
rate of 31% from taxable dividends, distributions and redemption proceeds
(including exchanges) if you fail to furnish the Fund a certified Social
Security or Employer Identification Number when you sign your application,
or if you violate Internal Revenue Service regulations on tax reporting
of income.
The Fund does not charge a redemption fee, but if your dealer or
broker handles your redemption, they may charge a fee. That fee can be
avoided by redeeming your Fund shares directly through the Transfer Agent.
Under the circumstances described in "How To Buy Shares," you may be
subject to a contingent deferred sales charges when redeeming certain
Class A and Class B shares.
To avoid sending duplicate copies of materials to households, the
Fund will mail only one copy of each annual and semi-annual report to
shareholders having the same last name and address on the Fund's records.
However, each shareholder may call the Transfer Agent at 1-800-525-7048
to ask that copies of those materials be sent personally to that
shareholder.
Dividends, Capital Gains and Taxes
Dividends. The Fund declares dividends separately for Class A and Class
B shares from net tax-exempt income and/or net investment income each
regular business day and pays those dividends to shareholders monthly on
a date selected by the Board of Directors. Daily dividends will not be
declared or paid on newly purchased shares until Federal Funds (funds
credited to a member bank's account at the Federal Reserve Bank) are
available from the purchase payment for such shares. 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. During the
Fund's fiscal year ended June 30, 1995, the Fund maintained the practice,
to the extent consistent with the amount of the Fund's net investment
income and other distributable income, of attempting to pay dividends on
Class A shares at a constant level, although the amount of such dividends
was subject to change from time to time depending on market conditions,
the composition of the Fund's portfolio and expenses borne by the Fund.
The Board of Directors may change the level of dividends at any time
without notice to shareholders.
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 out of any net short-term or long-term
capital gains in December each year. The Fund may make supplemental
distributions of dividends and capital gains following the end of its
fiscal year (which ends June 30th). Long-term capital gains will be
separately identified in the tax information the Fund sends you after the
end of the calendar year. Short-term capital gains are treated as taxable
dividends for tax purposes. There can be no assurance that the Fund will
pay any capital gains distributions in a particular year.
Distribution Options. When you open your account, specify on your
application how you want to receive your distributions. 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 Oppenheimer Funds Account.
You can reinvest all distributions in another Oppenheimer funds account
you have established.
Taxes. Long-term capital gains are taxable as long-term capital gains
when distributed to shareholders. It does not matter how long you held
your shares. Dividends paid from short-term capital gains 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 taxable 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 period from the commencement of the Fund's operations
(5/18/90) through 6/30/95 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, 1995. 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."
<TABLE>
<CAPTION>
Fiscal Year Oppenheimer Main Street Lehman Brothers
(Period) Ended California Tax-Exempt Fund A Municipal Bond Index
<S> <C> <C>
5/18/90 $ 9,525 $10,000
6/30/90 $ 9,683 $10,088
6/30/91 $10,446 $10,997
6/30/92 $11,615 $12,291
6/30/93 $13,080 $13,761
6/30/94 $13,037 $13,785
6/30/95 $14,182 $15,002
Fiscal Oppenheimer Main Street Lehman Brothers
Period Ended California Tax-Exempt Fund B Municipal Bond Index
10/29/93 $10,000 $10,000
06/30/94 $ 8,985 $ 9,673
06/30/95 $ 9,831 $10,527
</TABLE>
<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
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 LLP
555 Seventeenth Street
Denver, Colorado 80202
Legal Counsel
Myer, Swanson, Adams & Wolf, P.C.
1600 Broadway
Denver, Colorado 80202
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 Statement of Additional Information, 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.
PR725726.1195 *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 November 1, 1995
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 November 1, 1995. It should be read together with the
Prospectus which may be obtained by writing to the Fund's Transfer Agent,
Oppenheimer Shareholder Services, at P.O. Box 5270, Denver, Colorado 80217
or by calling the Transfer Agent at the toll-free number shown above.
Contents
Page
About the Fund
Investment Objective and Policies 2
Investment Policies and Strategies 2
Other Investment Techniques and Strategies 8
Other Investment Restrictions 16
How the Fund is Managed 18
Organization and History 18
Directors and Officers of the Corporation 19
The Manager and Its Affiliates 22
Brokerage Policies of the Fund 24
Performance of the Fund 25
Distribution and Service Plan 29
About Your Account
How To Buy Shares 31
How To Sell Shares 37
How To Exchange Shares 40
Dividends, Capital Gains and Taxes 42
Additional Information About the Fund 45
Financial Information About the Fund
Independent Auditors' Report 46
Financial Statements 47
Appendix A: Description of Ratings A-1
Appendix B: Tax Equivalent Yield Table B-1
Appendix C: Industry Classifications C-1
<PAGE>
ABOUT THE FUND
Investment Objective and Policies
Investment Policies and Strategies. The investment objective and policies
of the Fund are discussed 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 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 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 in which the Fund may invest are "general obligation,"
"revenue" and "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, of real and
personal property so financed as security for such payment.
-- Advance Refunding. The refinancing of outstanding bonds by the
issuance of a new issue of bonds prior to the date on which the
outstanding bonds become due or are callable is known as advance
refunding. Accordingly, for a period of time, both the issue being
refunded and the refunding issue are outstanding. Bonds are "escrowed to
maturity" when the proceeds of the refunding bonds are deposited in escrow
for investment in federal securities in an amount sufficient to pay, when
due, the principal of and interest on the issue being refunded. Bonds are
considered "pre-refunded" when the refunding bond proceeds are escrowed
only until the call date of the refunded issue.
-- 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. The Fund may invest in
instruments with floating or variable interest rates. The interest rate
on a floating rate obligation is based on a stated prevailing market rate,
such as a bank's prime rate, the 91-day U.S. Treasury Bill rate, the rate
of return on commercial paper or bank certificates of deposit, or some
other standard. The rate on the investment is adjusted automatically each
time the market rate is adjusted. The interest rate on a variable rate
obligation is also based on a stated prevailing market rate but is
adjusted automatically at a specified interval of not less than one year.
Some variable rate or floating rate obligations in which the Fund may
invest have a demand feature entitling the holder to demand payment of an
amount approximately equal to the amortized cost of the instrument or the
principal amount of the instrument plus accrued interest at any time, or
at specified intervals not exceeding one year. These notes may or may not
be backed by bank letters of credit.
Variable rate demand notes may include master demand notes, which are
obligations that permit the Fund to invest fluctuating amounts in a note.
The amount may change daily without penalty, pursuant to direct
arrangements between the Fund, as the note purchaser, and the issuer of
the note. The interest rates on these notes fluctuate from time to time.
The issuer of this type of obligation normally has a corresponding right
in its discretion, after a given period, to prepay the outstanding
principal amount of the obligation plus accrued interest. The issuer must
give a specified number of days' notice to the holders of those
obligations. Generally, the changes in the interest rate on those
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 having the same
maturity.
Because these types of obligations are direct lending arrangements
between the note purchaser and issuer of the note, these instruments
generally will not be traded. Generally, there is no established
secondary market for these types of obligations, although they are
redeemable from the issuer at face value. Accordingly, where these
obligations are not secured by letters of credit or other credit support
arrangements, the Fund's right to redeem them is dependent on the ability
of the note issuer to pay principal and interest on demand. These types
of obligations usually are not rated by credit rating agencies. The Fund
may invest in obligations that are not rated only if the Manager
determines at the time of investment that the obligations are of
comparable quality to the other obligations in which the Fund may invest.
The Manager, on behalf of the Fund, will monitor the creditworthiness of
the issuers of the floating and variable rate obligations in the Fund's
portfolio on an ongoing basis.
-- 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,
generally through the acquisition of certificates of participation, that
the Manager has determined to be liquid under guidelines set by the 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.
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. 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.
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.
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 Securities in which the Trust concentrates its investments.
Certain amendments to the California State constitution, legislative
measures, executive orders, civil actions and voter initiatives in recent
years 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 brief 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.
Changes in California constitutional and other laws during the last
several years have caused concerns about the ability of California state
and municipal issuers to obtain sufficient revenue to pay their bond
obligations. In 1978, California voters approved an amendment to the
California Constitution known as Proposition 13, which added Article XIIIA
to the California Constitution. Article XIIIA limits ad valorem taxes on
real property and restricts the ability of taxing entities to increase
real property taxes. However, legislation passed subsequent to
Proposition 13 provided for the redistribution of California's General
Fund surplus to local agencies, the reallocation of revenues to local
agencies and the assumption of certain local obligations by the state so
as to help California municipal issuers raise revenue to pay their bond
obligations. It is unknown whether additional revenue redistribution
legislation will be enacted in the future and whether, if enacted, such
legislation will provide sufficient revenue for such California issuers
to pay their obligations.
The state is also subject to another constitutional amendment,
Article XIIIB, which may have an adverse impact on California state and
municipal issuers. Article XIIIB restricts the state from spending
certain appropriations in excess of an appropriations limit imposed for
each state and local government entity. If revenues exceed such
appropriations limit, such revenues must be returned either as revisions
in the tax rates or fee schedules. In 1988, California voters approved
an initiative known as Proposition 98, which in addition to amending
Article XIIIB, amended Article XVI to require a minimum level of funding
for public schools and community colleges.
Because of the uncertain impact of the aforementioned legislation,
the possible inconsistencies in the respective terms of the statutes and
the impossibility of predicting the level of future appropriations and
applicability of related statutes to such questions, it is not currently
possible to assess the impact of such legislation and policies on the long
term ability of the State of California and California municipal issuers
to pay interest or repay principal on their obligations.
Although the national economic recovery is continuing at a strong
pace, California is still experiencing the effects of a recession.
Unemployment has remained above the national average since 1990.
Substantial contracting in California's defense related industries,
overbuilding in commercial real estate, and consolidation and decline in
the state's financial services industry will likely produce slower overall
growth in 1995 and 1996.
These economic difficulties have exacerbated the budget imbalance
which has been evident since 1985-86, during which time the State has
recorded General Fund operating deficits in several fiscal years. Many
of these problems have been attributable to a great population increase
which has increased demand for educational and social services at a pace
far greater than the growth in revenues.
By June 1995 the state's General Fund had an accumulated deficit, on
a budgeted basis, of approximately $1 billion. On August 3, 1995, the
Governor signed into law a new $57.5 billion budget, which, among other
things, reduces welfare payments and increases education spending from the
previous fiscal year. The budget forecasts levels of revenues and
expenditures which are expected to result in an operating surplus in the
1995-96 fiscal year, and to lead to the elimination of the budget deficit
by June 30, 1996.
Because of the State of California's continuing budget problems, the
state's General Obligation bonds were downgraded in July 1994 from Aa to
A1 by Moody's, from A+ to A by Standard & Poor's and from AA to A by
Fitch. All three rating agencies expressed uncertainty in the state's
ability to balance its budget by 1996.
On December 6, 1994, Orange County (California) became the largest
municipality in the United States to file for protection under the Federal
bankruptcy laws. The filing stemmed from approximately $1.7 billion in
losses suffered by the County's investment pool due to investments in high
risk "derivative" securities. In September 1995 the state legislature
approved legislation permitting Orange County to use for bankruptcy
recovery $820 million over 20 years in sales taxes previously earmarked
for highways, transit and development. Such legislation also permits the
Governor to appoint a trustee to take over Orange County's financial
affairs if the county does not have a full recovery plan filed with the
Bankruptcy Court by May 1996.
Los Angeles County, the nation's largest county, is also experiencing
financial difficulty. In August 1995 the credit rating of the county's
long-term bonds was downgraded for the third time since 1992 as a result
of, among other things, severe operating deficits for the county's health
care system. In September 1995, federal and state aid to Los Angeles
County totalling $514 million was pledged, providing a short-term solution
to the county's budget problems.
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 Agreements. The Fund may acquire securities subject to
repurchase agreements for liquidity purposes to meet anticipated
redemptions, or pending the investment of the proceeds from sales of Fund
shares, or pending the settlement of purchases of portfolio securities.
In a repurchase transaction, the Fund acquires a security from, and
simultaneously resells it to, an approved vendor for delivery on an
agreed-on future date. An "approved vendor" is a U.S. commercial bank or
the U.S. branch of a foreign bank or a broker-dealer which has been
designated a primary dealer in government securities, which must meet
credit requirements set by the Corporation's Board of Directors from time
to time. The resale price exceeds the purchase price by an amount that
reflects an agreed-upon interest rate effective for the period during
which the repurchase agreement is in effect. The majority of these
transactions run from day to day, and delivery pursuant to the resale
typically will occur within one to five days of the purchase. Repurchase
agreements are considered "loans" under the Investment Company Act,
collateralized by the underlying security. The Fund's repurchase
agreements require that at all times while the repurchase agreement is in
effect, the value of the collateral must equal or exceed the repurchase
price to fully collateralize the repayment obligation. Additionally, the
Manager will impose creditworthiness requirements to confirm that the
vendor is financially sound and will continuously monitor the collateral's
value.
Illiquid and Restricted Securities. To enable the Fund to sell
restricted securities not registered under the Securities Act of 1933, the
Fund may have to cause those securities to be registered. The expenses
of registration of restricted securities may be negotiated by the Fund
with the issuer at the time such securities are purchased by the Fund,
if such registration is required before such securities may be sold
publicly. When registration must be arranged because the Fund wishes to
sell the security, a considerable period may elapse between the time the
decision is made to sell the securities and the time the Fund would be
permitted to sell them. The Fund would bear the risks of any downward
price fluctuation during that period. The Fund may also acquire, through
private placements, securities having contractual restrictions on their
resale, which might limit the Fund's ability to dispose of such securities
and might lower the amount realizable upon the sale of such securities.
The Fund has percentage limitations that apply to purchases of
restricted securities, as stated in the Prospectus. Those percentage
restrictions do not limit purchases of restricted securities that are
eligible for sale to qualified institutional purchasers pursuant to Rule
144A under the Securities Act of 1933, provided that those securities have
been determined to be liquid by the Board of Directors of the Corporation
or by the Manager under Board-approved guidelines. Those guidelines take
into account the trading activity for such securities and the availability
of reliable pricing information, among other factors. If there is a lack
of trading interest in a particular Rule 144A security, the Fund's holding
of that security may be deemed to be illiquid.
-- Puts and Standby Commitments. When the Fund buys Municipal
Securities, it may obtain a standby 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 standby
commitment or put either separately in cash or by paying a higher price
for the securities acquired subject to the standby 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 standby commitment will depend on the ability
of the bank or dealer to pay for the securities if the put or standby
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
standby commitments are not transferrable 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 standby commitment is exercised.
However, the Fund might refrain from exercising a put or standby
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 standby 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 standby 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
not to be treated as the tax owner of the underlying Municipal Securities.
Loans of Portfolio Securities. The Fund may lend its portfolio
securities subject to the restrictions stated in the Prospectus. Under
applicable regulatory requirements (which are subject to change), the loan
collateral on each business day must at least equal the value of the
loaned securities and must consist of cash, bank letters of credit or
securities of the U.S. Government (or its agencies or instrumentalities).
To be acceptable as collateral, letters of credit must obligate a bank to
pay amounts demanded by the Fund if the demand meets the terms of the
letter. Such terms and the issuing bank must be satisfactory to the Fund.
When it lends securities, the Fund receives amounts equal to the dividends
or interest on loaned securities and also receives one or more of (a)
negotiated loan fees, (b) interest on securities used as collateral, and
(c) interest on short-term debt securities purchased with such loan
collateral. Either type of interest may be shared with the borrower. The
Fund may also pay reasonable finder's, custodian and administrative fees.
The terms of the Fund's loans must meet applicable tests under the
Internal Revenue Code and must permit the Fund to reacquire loaned
securities on five days' notice or in time to vote on any important
matter.
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, Capital Gains and
Taxes" in the Prospectus).
-- Hedging. 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: (1) sell Interest Rate Futures or Municipal Bond Index
Futures, (2) buy puts on such Futures or securities, or (3) write covered
calls on securities, Interest Rate Futures or Municipal Bond Index Futures
(as described in the Prospectus). Covered calls may also be written on
debt securities to attempt to increase the Fund's income. When hedging
to permit the Fund to establish a position in the debt securities market
as a temporary substitute for purchasing individual debt securities (which
the Fund will normally purchase, and then terminate that hedging
position), the Fund may: (1) buy Interest Rate Futures or Municipal Bond
Index Futures, or (2) buy calls or write puts 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 investment activities in the underlying
cash market. In the future, the Fund may employ hedging instruments and
strategies that are not presently contemplated, but which may be
developed, to the extent such investment methods are consistent with the
Fund's investment objective and are legally permissible and disclosed in
the Prospectus. Additional information about the hedging instruments the
Fund may use is provided below.
-- Writing Covered Call Options. As described in the Prospectus, the
Fund may write covered calls. When the Fund writes a call on a security,
it receives a premium and agrees to sell the underlying investment to a
purchaser of a corresponding call 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 investment) 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 option transaction costs and the premium received on the call
the Fund has written is more or less than the price of the call the Fund
subsequently purchased. A profit may also be realized if the call lapses
unexercised, because the Fund retains the related investments 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. 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. 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.
The Fund may also write calls on Futures without owning a futures
contract or deliverable securities, provided that at the time the call is
written, the Fund covers the call by segregating in escrow an equivalent
dollar value of liquid assets. The Fund will segregate additional liquid
assets if the value of the escrowed assets drops below 100% of the current
value of the Future. In no circumstances would an exercise notice as to
that Future put the Fund in a short futures position.
-- 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. The
Fund will not write puts if, as a result, more than 25% of the Fund's net
assets would be required to be segregated to cover such put options.
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.
-- Purchasing Calls and Puts. When the Fund purchases a call (other
than in a closing purchase transaction), it pays a premium and, except as
to calls on Municipal Bond Index Futures, has the right to buy the
underlying investment from a seller of a corresponding call on the same
investment during the call period at a fixed exercise price. In
purchasing a call, the Fund benefits only if the call is sold at a profit
or if, during the call period, the market price of the underlying
investment is above the sum of the call price plus the transaction costs
and 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 a municipal bond index, Municipal Bond Index
Future or Interest Rate 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 debt securities market generally) rather than on
price movements in individual futures contracts.
When the Fund purchases a put, it pays a premium and, except as to
puts on municipal bond indices, has the right to sell the underlying
investment to a seller of a corresponding put on the same investment
during the put period at a fixed exercise price. Buying a put on a debt
security, Interest Rate Future or Municipal Bond Index Future the Fund
owns enables the Fund to protect itself during the put period against a
decline in the value of the underlying investment below the exercise price
by selling such 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 at 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).
No price is paid or received upon the purchase or sale of an Interest Rate
Future. An Interest Rate Future obligates the seller to deliver and the
purchaser to take a specific type of debt security or cash to settle the
futures transaction, or to enter into an offsetting contract. Upon
entering into a Futures transaction, the Fund will be required to deposit
an initial margin payment in cash or U.S. Treasury bills, with the futures
commission merchant (the "futures broker"). Initial margin payments will
be deposited with the Fund's Custodian in an account registered in the
futures broker's name; however, the futures broker can gain access to that
account only under certain specified conditions. As the Future is marked
to market to reflect changes in its market value, (that is, its value on
the Fund's books is changed) subsequent margin payments, called variation
margin, will be paid to or by the futures broker on a daily basis.
At any time prior to the expiration of the Future, the Fund may elect
to close out its position by taking an opposite position at which time a
final determination of variation margin is made and additional cash is
required to be paid by or released to the Fund. Any gain or loss is then
realized by the Fund on the Future for tax purposes. Although Interest
Rate Futures by their terms call for settlement by the delivery of debt
securities, in most cases the obligation is fulfilled without such
delivery by entering into an offsetting transaction. All futures
transactions are effected through a clearing house associated with the
exchange on which the contracts are traded.
-- Municipal Bond Index Futures. A "municipal bond index" assigns
relative values to the municipal bonds included in that index, and is used
to serve as the basis for trading long-term municipal bond futures
contracts. Municipal Bond Index Futures are similar to Interest Rate
Futures except that settlement is made in cash. No physical delivery is
made of the underlying bonds in the index. 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.
-- 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." The Fund will not invest more
than 25% of its assets in interest rate swap transactions.
-- 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 investments on which the Fund has
written options traded on exchanges, or as to other acceptable escrow
securities, so that no margin will be required for such transactions. OCC
will release the securities covering a call on the expiration of the call
or when the Fund enters into a closing purchase transaction. Call writing
affects the Fund's turnover rate and the brokerage commissions it pays.
Commissions are payable on writing or purchasing a call.
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) the mark-to-
market value of 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.
-- Regulatory Aspects of Hedging Instruments. The Fund must operate
within certain guidelines and restrictions as to its long and short
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 from
registration with the CFTC as a "commodity pool operator" (as defined
under the CEA), if it complies with the CFTC Rule. The Rule does not
limit the percentage of the Fund's assets that may be used for Futures
margin and related options premiums for a bona fide hedging position.
However, under the Rule the Fund must limit its aggregate initial futures
margin and related option premiums to not more than 5% of the Fund's net
assets for hedging strategies that are not considered bona fide hedging
strategies under the Rule. Under the Rule, the Fund 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 of 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, when the Fund purchases
an Interest Rate Future or Municipal Bond Index 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 investments
underlying such Future, less the margin deposit applicable to it.
Due to requirements under the Investment Company Act, when the Fund
buys or sells a Future, the Fund will identify to the 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 and Covered Calls. The Fund
intends to qualify as a "regulated investment company" under the Internal
Revenue Code. That qualification enables the Fund to "pass through" its
income and realize capital gains to shareholders without the Fund having
to pay a tax on them. 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 this
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 Interest Rate Futures and Municipal Bond Index
Futures, held for less than three months, whether or not they were
purchased on the exercise of a call held by the Fund; (ii) writing calls
on investments held 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 or calls 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
of the same series, and there is no assurance that a liquid secondary
market will exist for any particular option. In addition to the risks
associated with hedging that are discussed in the Prospectus and above,
there is a risk in using short hedging by: (i) selling Futures or (ii)
purchasing puts on broadly-based indices or 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 applicable
index. To compensate for the imperfect correlation of movements in the
price of the portfolio securities being hedged and movements in the price
of the hedging instruments, the Fund 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, broadly-based indices, or on 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: (1) 67% or more of the shares present or
represented by proxy at such a shareholder meeting, if the holders of more
than 50% of the outstanding shares are present or represented by proxy,
or (2) more than 50% of the outstanding shares.
Under these additional restrictions, the Fund cannot:
-- 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;
-- 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);
-- 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;
-- invest in companies for the purpose of acquiring control or
management thereof;
-- 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;
-- 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;
-- 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
-- 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.
In connection with the registration of its shares in certain states,
the Fund has made the following undertakings. These undertakings shall
terminate if the Fund ceases to qualify its shares for sale in that state
or if the state's applicable rules or regulations are amended. The Fund
has undertaken that it will not: (1) sell securities short except in
collateralized transactions referred to as short sales "against-the-box";
no more than 15% of the Fund's net assets will be held as collateral for
such short sales at any one time; (2) invest in oil, gas or other mineral
leases; or (3) invest in real estate limited partnership.
Diversification. For purposes of diversification under the
Investment Company Act, and the restriction on investing in any "issuer"
above, 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 is to be treated as
an issue of such government or other entity.
In applying the Fund's policy not to concentrate its investments,
described 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 such bonds are Municipal
Securities as to which there is no industry concentration limitation.
Although this application of the restriction is not technically a
fundamental policy of the Fund, it will not 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.
For purposes of the Fund's policy not to concentrate its assets
described in the Prospectus, the Fund has adopted the industry
classifications set forth in Appendix C to this Statement of Additional
Information. This is not a fundamental policy.
How the Fund is Managed
Organization and History. Oppenheimer Main Street California Tax-Exempt
Fund (referred to as the "Fund") is one of two series of Oppenheimer Main
Street Funds, Inc. (the "Corporation"), a Maryland corporation. This
Statement of Additional Information may be used with the Fund's Prospectus
only to offer shares of the Fund.
Each share of the Fund represents an interest in the Fund
proportionately equal to the interest of each other share of the same
class and entitle the holder to one vote per share (and a fractional vote
for a fractional share) on matters submitted to their vote at a
shareholders' meeting. Shareholders of the Fund and of the Corporation's
other series vote together in the aggregate on certain matters at
shareholders' meetings, such as the election of Directors and ratification
of appointment of auditors of the Corporation. Shareholders of a
particular series or class vote separately on proposals which affect that
series or class, and shareholders of a series or class which is not
affected by that matter are not entitled to vote on the proposal. For
example, only shareholders of a series, such as the Fund, vote exclusively
on any material amendment to the investment advisory agreement with
respect to he series. Only shareholders of a class of a series vote on
certain amendments to the Distribution and/or Service Plans if the
amendments affect that class.
The Directors are authorized to create new series and classes of
shares. The Directors may reclassify unissued shares of the Corporation
or its series or classes into additional series or classes of shares. The
Directors may also divide or combine the shares of a class into a greater
or lesser number of shares without thereby changing the proportionate
beneficial interest of a shareholder in the Fund. Shares do not have
cumulative voting rights or preemptive or subscription rights. Shares may
be voted in person or by proxy.
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 specific
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 applicant's communication to all other shareholders at the applicant's
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
Tax-Exempt Fund, Oppenheimer Equity Income Fund, Oppenheimer Variable
Account Funds, Oppenheimer Cash Reserves, Oppenheimer High Yield Fund,
Oppenheimer Strategic Funds Trust, Oppenheimer Strategic Income & Growth
Fund, Oppenheimer Total Return Fund, Inc., Oppenheimer Champion Income
Fund, Oppenheimer Integrity Funds, The New York Tax-Exempt Income Fund,
Inc., 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. (all of the foregoing funds are collectively referred to as the
"Denver-based Oppenheimer funds"), except for Mr. Fossel, who is a
Director, Trustee or Managing General Partner of all of the Denver-based
Oppenheimer funds except Oppenheimer Integrity Funds and Oppenheimer
Strategic Funds Trust. Messrs. Bishop, Bowen, Donohue, 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 Oppenheimer funds.
As of October 2, 1995, 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; Age: 64
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; Age: 80
197 Desert Lakes Drive, Palm Springs, California 92264
Management Consultant.
Charles Conrad, Jr., Director; Age: 65
19411 Merion Circle, Huntington Beach, Calfornia 92648
Vice President of McDonnell Douglas Space Systems Co.; formerly
associated with the National Aeronautics and Space Administration.
Jon S. Fossel, President and Director*; Age: 53
Two World Trade Center, New York, New York 10048-0203
Chairman 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; Age: 66
44 Portland Drive, St. Louis, Missouri 63131
Director of Wave Technologies International, Inc.; 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; Age: 73
2552 East Alameda, Denver, Colorado 80209
Formerly the Managing Partner of Deloitte, Haskins & Sells (an
accounting firm).
Robert M. Kirchner, Director; Age: 74
7500 East Arapahoe Road, Englewood, Colorado 80112
President of The Kirchner Company (management consultants).
Ned M. Steel, Director; Age: 80
3416 South Race Street, Englewood, Colorado 80110
Chartered Property and Casualty Underwriter; Director of Visiting
Nurse Corporation of Colorado; formerly Senior Vice President and a
Director of the Van Gilder Insurance Corp. (insurance brokers).
James C. Swain, Chairman and Director; Age: 61
3410 South Galena Street, Denver, Colorado 80231
Vice Chairman and a Director of the Manager; President and a Director
of Centennial Asset Management Corporation ("Centennial"), an
investment adviser subsidiary of the Manager; formerly Chairman of
the Board of SSI.
Robert E. Patterson, Vice President and Portfolio Manager; Age: 52
Two World Trade Center, New York, New York 10048-0203
Senior Vice President of the Manager; an officer of other Oppenheimer
funds.
Andrew J. Donohue, Vice President; Age: 45
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 Oppenheimer funds; formerly Senior Vice President and
Associate General Counsel of the Manager and the Distributor, Partner
in Kraft & McManimon (a law firm), prior to which he was an officer
of First Investors Corporation (a broker-dealer) and First Investors
Management Company, Inc. (broker-dealer and investment adviser), and
director and an officer of First Investors Family of Funds and First
Investors Life Insurance Company.
George C. Bowen, Vice President, Secretary and Treasurer; Age: 59
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 Oppenheimer funds.
Robert J. Bishop, Assistant Treasurer; Age: 36
3410 South Galena Street, Denver, Colorado 80231
Assistant Vice President of the Manager/Mutual Fund Accounting; an
officer of other Oppenheimer funds; 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; Age: 30
3410 South Galena Street, Denver, Colorado 80231
Assistant Vice President of the Manager/Mutual Fund Accounting; an
officer of other Oppenheimer funds; 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.
Robert G. Zack, Assistant Secretary; Age: 47
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 Oppenheimer
funds.
Remuneration of Directors. The officers of the Fund are affiliated
with the Manager; they and the Directors of the Fund who are affiliated
with the Manager (Messrs. Fossel and Swain, who are both officers and
Directors) receive no salary or fee from the Fund. The Directors of the
Fund (excluding Messrs. Fossel and Swain) received the total amounts shown
below (i) from the Fund, during its fiscal year ended June 30, 1995, and
(ii) from all of the Denver-based Oppenheimer Funds (including the Fund)
listed in the first paragraph of this section (plus three funds that
reorganized into other Oppenheimer funds prior to October 1, 1995:
Oppenheimer Strategic Diversified Income Fund, Oppenheimer Strategic
Short-Term Income Fund, and Oppenheimer Strategic Investment Grade Bond
Fund), for services in the positions shown:
<TABLE>
<CAPTION>
Total Compensation
Aggregate From All
Compensation Denver-based
Name and Position from Fund Oppenheimer funds1
<S> <C> <C>
Robert G. Avis $377 $53,000.00
Director
William A. Baker $522 $73,257.01
Audit and Review
Committee Chairman
and Director
Charles Conrad, Jr. $485 $68,293.67
Audit and Review
Committee Member
and Director
______________________
1For the 1994 calendar year.
Total Compensation
Aggregate From All
Compensation Denver-based
Name and Position (cont'd.) from Fund Oppenheimer funds1
Raymond J. Kalinowski $377 $53,000.00
Director
C. Howard Kast $377 $53,000.00
Director
Robert M. Kirchner $485 $68,293.67
Audit and Review
Committee Member
and Director
Ned M. Steel $377 $53,000.00
Director
______________________
1For the 1994 calendar year.
</TABLE>
Major Shareholders. To the knowledge of the Fund, as of October 2,
1995, no person owned beneficially 5% or more of the respective
outstanding shares of either class of the Fund.
The Manager and Its Affiliates. The Manager is wholly-owned by
Oppenheimer Acquisition Corp. ("OAC"), a holding company controlled by
Massachusetts Mutual Life Insurance Company. OAC is also owned in part
by certain of the Manager's directors and officers, some of whom may also
serve as officers of the Corporation and two of whom (Messrs. Fossel and
Swain) serve as directors of the Corporation.
The Manager and the Fund have a Code of Ethics. It is designed to
detect and prevent improper personal trading by certain employees,
including portfolio managers, that would compete with or take advantage
of the Fund's portfolio transactions. Compliance with the Code of Ethics
is carefully monitored and strictly enforced.
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 corporate administration for the Fund, including the
compilation and maintenance of records with respect to its operations, the
preparation and filing of specified reports, and composition of proxy
materials and registration statements for continuous public sale of shares
of the Fund.
Expenses not expressly assumed by the Manager under the advisory
agreement or by the Distributor under the General 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, share issuance costs,
certain printing and registration expenses and non-recurring expenses,
including litigation costs. During the Fund's fiscal years ended June 30,
1993, 1994 and 1995, the management fees paid by the Corporation on behalf
of the Fund to the Manager were $120,465, $318,921, and $284,916
respectively.
The advisory agreement contains no expense limitation. 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's 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 the Fund's expenses (with specified
exclusions) to 2.5% of the first $30 million of average annual net assets,
2.0% of the next $70 million of average annual net assets, 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 any period in which 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 in the performance of its duties
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 "Main Street" 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 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 as paid under the
Class B 12b-1 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, 1993, 1994 and 1995, the aggregate amount of sales charges on sales
of the Fund's Class A shares was $1,139,735, $663,089 and $177,634,
respectively, of which the Distributor retained in the aggregate $183,933,
$108,300 and $28,801 in those respective years. During the Fund's fiscal
year ended June 30, 1995, the Distributor advanced sales charges to
broker-dealers in the amount of $52,930, and received contingent deferred
sales charges of $6,447 upon redemptions of Class B shares. For
additional information about distribution of the Fund's shares and the
expenses connected with such activities, please refer to "Distribution and
Service Plans," below.
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, 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, and the procedures and rules
described above, allocations of brokerage are generally made by the
Manager's portfolio traders based upon recommendations from the Manager's
portfolio managers. In certain instances, portfolio managers may directly
place trades and allocate brokerage, also subject to the provisions of the
advisory agreement and the procedures and rules described above. In
either case, brokerage is allocated under the supervision of the Manager's
executive officers. 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 the 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 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. The Board has also
permitted the Manager to use stated commissions on secondary fixed-income
agency trades to obtain research where the broker has represented to the
Manager that (i) the trade is not from or for the broker's own inventory,
(ii) the trade was executed by the broker on an agency basis at the stated
commission, and (iii) the trade is not a riskless principal transaction.
The research services provided by brokers broaden the scope and
supplement the research activities of the Manager, by making available
additional views for consideration and comparisons, and 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 Plan 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, various yields and total returns of an
investment in each class of shares of the Fund may be advertised. An
explanation of these yields and total returns are calculated for each
class and the components of those calculations is set forth below.
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, 1995, the standardized yields for the
Fund's Class A and Class B shares were 4.93% and 3.96%, 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, 1995 were 9.17% and 7.37%, respectively, for an individual in the
California/Federal combined 46.24% 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 (last day of period)
Divided by number of days (accrual period) x 365
The maximum offering price for Class A shares includes the current
maximum front-end sales charge of 4.75%. 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
Class A net 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, 1995 were 5.89% and 6.18% when calculated at
maximum offering price and net asset value, respectively. The dividend
yield on Class B shares for the 30-day period ended June 30, 1995 was
5.15% calculated at net asset value.
Total Return Information.
The Fund's advertisements of its performance data must, under
applicable rules of the Securities and Exchange Commission, include the
average annual total returns for each class of shares of the Fund for the
1, 5 and 10-year periods (or the life of the class, if less) ending as of
the most recently-ended calendar quarter prior to the publication of the
advertisement. This enables an investor to compare the Fund's performance
to the performance of other funds for the same periods. However, a number
of factors should be considered before using such information as a basis
for comparison with other investments. An investment in the Fund is not
insured; its returns and share prices are not guaranteed and normally will
fluctuate on a daily basis. When redeemed, an investor's shares may be
worth more or less than their original cost. Returns for any given past
period are not a prediction or representation by the Fund of future
returns. The returns of Class A and Class B shares of the Fund are
affected by portfolio quality, the type of investments the Fund holds and
its operating expenses allocated to the particular class.
-- Average Annual Total Returns. The "average annual total return"
of each class is an average annual compounded rate of return for each year
in a specified number of years. It is the rate of return based on the
change in value of a hypothetical initial investment of $1,000 ("P" in the
formula below) held for a number of years ("n") to achieve an Ending
Redeemable Value ("ERV") of that investment, according to the following
formula:
( ERV ) 1/n
(-----) -1 = Average Annual Total Return
( P )
The "average annual total return" on an investment in Class A shares
of the Fund for the one and five year periods ended June 30, 1995 were
3.75% and 6.82%, respectively, and for the period from May 18, 1990
through June 30, 1995 was 7.07%.
The "average annual total return" on an investment in Class B shares
of the Fund for the one year period ended June 30, 1995 and forthe period
October 29, 1993 (commencement of operations) through June 30, 1995 was
2.90% and -1.02%, respectively.
-- Cumulative Total Return. The "cumulative total return"
calculation measures the 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
applicable contingent deferred sales charge (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 to the
investment result for the period shown (unless total return is shown at
net asset value, as described below). Total returns also assume that all
dividends and capital gains distributions during the period are reinvested
to buy additional shares at net asset value per share, and that the
investment is redeemed at the end of the period. The "total return" on
an investment in Class A shares of the Fund (using the method described
above) for the period from May 18, 1990 (commencement of operations)
through June 30, 1995, was 41.81%. 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, 1995 was -1.70%.
-- Total Returns at Net Asset Value. From time to time the Fund may
also quote an average annual total return at net asset value or a
cumulative total return at net asset value for Class A or Class B shares.
Each is based on the difference in net asset value per share at the
beginning and the end of the period for a hypothetical investment in that
class of shares (without considering front-end or contingent deferred
sales charges) and takes into consideration the reinvestment of dividends
and capital gains distributions. The average annual total returns at net
asset value for the Fund's Class A shares for the one and five year
periods ended June 30, 1995 and for the period May 18, 1990 (commencement
of operations) through June 30, 1995 were 8.93%, 7.87, and 8.09%,
respectively. The average annual total returns at net asset value on the
Fund's Class B shares for the one year period ended June 30, 1995 and for
the period October 29, 1993 (commencement of operations) through June 30,
1995 were 7.90% and 1.22%, respectively. The cumulative total return at
net asset value on the Fund's Class A shares for the period May 18, 1990
(commencement of operations) through June 30, 1995, was 48.88%. The
cumulative total return at net asset value for the Fund's Class B shares
for the period from October 29, 1993 (commencement of operations) through
June 30, 1995 was 2.05%.
Other Performance Comparisons. 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 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 Lipper and Morningstar.
From time to time the Fund may publish the ranking of the
performance of its Class A, Class B or Class C shares by Morningstar,
Inc., an independent mutual fund monitoring service that ranks mutual
funds, including the Fund, monthly in broad investment categories (equity,
taxable bond, municipal bond and hybrid) based on risk-adjusted investment
return. Investment return measures a fund's three, five and ten-year
average annual total returns (when available) in excess of 90-day U.S.
Treasury bill returns after considering sales charges and expenses. Risk
measures fund performance below 90-day U.S. Treasury bill monthly returns.
Risk and investment return are combined to produce star rankings
reflecting performance relative to the average fund in a fund's category.
Five stars is the "highest" ranking (top 10%), four stars is "above
average" (next 22.5%), three stars is "average" (next 35%), two stars is
"below average" (next 22.5%) and one star is "lowest" (bottom 10%).
Morningstar ranks the Fund in relation to other rated municipal bond
funds. Rankings are subject to change.
The total return on an investment in the Fund's Class A or Class B
shares may be compared with performance for the same period of the Lehman
Brothers Municipal Bond Index, as described in the Prospectus. The
performance of the index includes a factor for the reinvestment of income
dividends, but does not reflect reinvestment of capital gains, expenses
or taxes.
The performance of the Fund's Class A or Class B shares may also be
compared in publications to (i) the performance of various market indices
or to other investments for which reliable performance data is available,
and (ii) to averages, performance rankings or other benchmarks prepared
by recognized mutual fund statistical services.
Investors may also wish to compare the Fund's Class A or Class B
return to the returns on fixed income investments available from banks and
thrift institutions, such as certificates of deposit, ordinary interest-
paying checking and savings accounts, and other forms of fixed or variable
time deposits, and various other instruments such as Treasury bills.
However, the Fund's returns and share price are not guaranteed by the FDIC
or any other agency and will fluctuate daily, while bank depository
obligations may be insured by the FDIC and may provide fixed rates of
return, and Treasury bills are guaranteed as to principal and interest by
the U.S. government.
From time to time, the Fund's Manager may publish rankings or ratings
of the Manager (or Transfer Agent) or the investor services provided by
them to shareholders of the Oppenheimer funds, other than performance
rankings of the Oppenheimer funds themselves. Those ratings or rankings
of shareholder/investor services by third parties may compare the
Oppenheimer funds' services to those of other mutual fund families
selected by the rating or ranking services and may be based upon the
opinions of the rating or ranking service itself, based on its research
or judgment, or based upon surveys of investors, brokers, shareholders or
others.
Distribution and Service 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 for all or a portion of its costs incurred in
connection with the distribution and/or servicing of Class B shares, 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 Class B Plan, 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 Class B Plan) 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 Class B 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 Class
B 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 customer 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.
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. For the fiscal year ended
June 30, 1995, payments under the Class B Plan totaled $18,367, of which
the Distributor retained $17,832 as reimbursement for Class B sales
commissions and service fee advances, as well as financing costs.
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) and
state "blue sky" registration fees.
ABOUT YOUR ACCOUNT
How To Buy Shares
Alternative Sales Arrangements - Class A and Class B Shares. The
availability of two classes of shares permits the individual investor to
choose the method of purchasing shares that is more beneficial to the
investor depending on the amount of the purchase, the length of time the
investor expects to hold shares and other relevant circumstances.
Investors should understand that the purpose and function of the deferred
sales charge and asset-based sales charge with respect to Class B shares
are the same as those of the initial sales charge with respect to Class
A shares. Any salesperson or other person entitled to receive
compensation for selling Fund shares may receive different compensation
with respect to one class of shares than the other. The Distributor will
not accept any order for $500,000 or more of Class B shares on behalf of
a single investor (not including dealer "street name" or omnibus accounts)
because generally it will be more advantageous for that investor to
purchase Class A shares of the Fund instead.
The two classes of shares each represent an interest in the same
portfolio investments of the Fund. However, each class has different
shareholder privileges and features. The net income attributable to Class
B shares and the dividends payable on Class B shares will be reduced by
incremental expenses borne solely by that class, including the asset-based
sales charge to which Class B shares are subject.
The conversion of Class B shares to Class A shares is subject to the
continuing availability of a private letter ruling from the Internal
Revenue Service, or an opinion of counsel or tax adviser, to the effect
that the conversion of Class B shares does not constitute a taxable event
for the holder under Federal income tax law. If such a revenue ruling or
opinion is no longer available, the automatic conversion feature may be
suspended, in which event no further conversions of Class B shares would
occur while such suspension remained in effect. Although Class B shares
could then be exchanged for Class A shares on the basis of relative net
asset value of the two classes, without the imposition of a sales charge
or fee, such exchange could constitute a taxable event for the holder, and
absent such exchange, Class B shares might continue to be subject to the
asset-based sales charge for longer than six years.
The methodology for calculating the net asset value, dividends and
distributions of the Fund's Class A 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 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 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.
Determination of Net Asset Values Per Share. The net asset values per
share of Class A and Class B shares of the Fund are determined as of the
close of business of The New York Stock Exchange (the "Exchange") on each
day that the Exchange is open, by dividing the Fund's net assets
attributable to a class by the number of shares of that class that are
outstanding. The Exchange normally closes at 4:00 P.M. New York time, but
may close earlier on some days (for example, in case of weather
emergencies or on days falling before a holiday). The Exchange's most
recent annual holiday schedule (which is subject to change) states that
it will close on New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. It
may also close on other days. Dealers other than Exchange members may
conduct trading on days on which the Exchange is closed and after 4:00
P.M. Because the Fund's net asset value will not be calculated on those
days, the Fund's net asset values per share of Class A, Class B and Class
C shares may be significantly affected on such days when shareholders may
not 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) debt instruments having a maturity of more than
one year, and non-money market type instruments having a maturity of one
year or less when issued, which have a remaining maturity of 60 days or
less are valued at the mean between the "bid" and asked prices determined
by a pricing service approved by the Fund's Board of Directors or obtained
from active market makers in the security on the basis of reasonably
inquiry; (iv) money market type debt securities having a maturity of less
than one year when issued that having a remaining maturity of 60 days or
less are valued at cost, adjusted for amortization of premiums and
accretion of discounts; (v) securities or assets not having readily-
available market quotations are valued at their fair value as under the
Board's procedures.
In the case of Municipal Securities, U.S. Government securities and
corporate bonds, where last sale information is not generally available,
such pricing procedures may include "matrix" comparisons to the prices for
comparable instruments on the basis of quality, yield, maturity and other
special factors involved (such as the tax-exempt status of the interest
paid by Municipal Securities). With the approval of the Corporation's
Board of Directors, the Manager may employ a pricing service, bank or
broker-dealer experienced in such matters to price any of the types of
securities described above. The Directors will monitor the accuracy of
pricing services by comparing prices used for portfolio evaluation to
actual sales prices of selected securities.
The Fund values puts, calls, Interest Rate Futures and Municipal Bond
Index Futures at the last sales price on the principal exchange or on the
NASDAQ on which they are traded. If there were no sales on the principal
exchange, the last sale or any exchange is used. In the absence of any
sales that day, value shall be the last reported sales price on the prior
trading day or closing bid or asked prices on the principal exchange
closets to the last reported sales price.
When the Fund writes an option, an amount equal to the premium
received by the Fund is included in the Fund's Statement of Assets and
Liabilities as an asset, and an equivalent deferred credit is included in
the liability section. The deferred credit is adjusted ("marked-to-
market") to reflect the current market value of the option. In determining
the Fund's gain on investments, if a call written by the Fund is
exercised, the proceeds are increased by the premium received. If a call
or put written by the Fund expires, the Fund has a gain in the amount of
the premium; if the Fund enters into a closing purchase transaction, it
will have a gain or loss depending on whether the premium was more or less
than the cost of the closing transaction. If the Fund exercises a put it
holds, the amount the Fund receives on its sale of the underlying
investment is reduced by the amount of the premium paid by the Fund.
AccountLink. When shares are purchased through AccountLink, each purchase
must be at least $25. Shares will be purchased on the regular business
day the Distributor is instructed to initiate the Automated Clearing House
transfer to buy the shares. Dividends will begin to accrue on shares
purchased by the proceeds of ACH transfers on the business day the Fund
receives Federal Funds for such purchase through the ACH system before the
close of The New York Stock Exchange. The Exchange normally closed at
4:00 P.M., but may close earlier on certain days. If Federal Funds are
received after the close of the Exchange, the shares will be purchased and
will begin to accrue dividends on the next regular business day. The
proceeds of ACH transfers are normally received by the Fund three (3) days
after the transfers are initiated. The Distributor and the Fund are not
responsible for any delays in purchasing shares from delays in ACH
transmissions.
Reduced Sales Charges. As discussed in the Prospectus, a reduced sales
charge rate may be obtained for Class A shares under 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.
The Oppenheimer Funds. The Oppenheimer funds are those mutual funds
for which the Distributor acts as the distributor or the sub-distributor
and include the following:
Oppenheimer Tax-Free Bond Fund
Oppenheimer New York Tax-Exempt Fund
Oppenheimer California Tax-Exempt Fund
Oppenheimer Intermediate Tax-Exempt Fund
Oppenheimer Insured Tax-Exempt Fund
Oppenheimer Main Street California Tax-Exempt Fund
Oppenheimer Florida Tax-Exempt Fund
Oppenheimer Pennsylvania Tax-Exempt Fund
Oppenheimer New Jersey Tax-Exempt Fund
Oppenheimer Fund
Oppenheimer Discovery Fund
Oppenheimer Target Fund
Oppenheimer Growth Fund
Oppenheimer Equity Income Fund
Oppenheimer Value Stock Fund
Oppenheimer Asset Allocation Fund
Oppenheimer Total Return Fund, Inc.
Oppenheimer Main Street Income & Growth Fund
Oppenheimer High Yield Fund
Oppenheimer Champion Income Fund
Oppenheimer Bond Fund
Oppenheimer U.S. Government Trust
Oppenheimer Limited-Term Government Fund
Oppenheimer Global Fund
Oppenheimer Global Emerging Growth Fund
Oppenheimer Global Growth & Income Fund
Oppenheimer Gold & Special Minerals Fund
Oppenheimer Strategic Income Fund
Oppenheimer Strategic Income & Growth Fund
Oppenheimer International Bond Fund
and the following "Money Market Funds":
Oppenheimer Money Market Fund, Inc.
Oppenheimer Cash Reserves
Centennial Money Market Trust
Centennial Tax Exempt Trust
Centennial Government Trust
Centennial New York Tax Exempt Trust
Centennial California Tax Exempt Trust
Centennial America Fund, L.P.
Daily Cash Accumulation Fund, Inc.
There is an initial sales charge on the purchase of Class A shares
of each of the Oppenheimer funds except Money Market Funds (under certain
circumstances described herein, redemption proceeds of Money Market Fund
shares may be subject to a contingent deferred sales charge).
Letters of Intent. A Letter of Intent ("Letter") is the investor's
statement of intention to purchase Class A and Class B shares (or shares
of either class) of the Fund (and other eligible Oppenheimer funds) during
the 13-month period from the investor's first purchase pursuant to the
Letter (the "Letter of Intent period"), which may, at the investor's
request, include purchases made up to 90 days prior to the date of the
Letter. The Letter states the investor's intention to make the aggregate
amount of purchases (excluding any purchases made by reinvestment of
dividends or distributions or purchases made at net asset value without
sales charge), which together with the investor's holdings of such funds
(calculated at their respective public offering prices calculated on the
date of the Letter) will equal or exceed the amount specified in the
Letter. This enables the investor to count the shares to be purchased
under the Letter of Intent to obtain the reduced sales charge rate (as set
forth in the Prospectus) that applies under the Right of Accumulation to
current purchases of Class A shares. Each purchase of Class A shares
under the Letter will be made at the public offering price (including the
sales charge) that applies to a single lump-sum purchase of shares in the
amount intended to be purchased under the Letter.
In submitting a Letter, the investor makes no commitment to purchase
shares, but if the investor's purchases of shares within the Letter of
Intent period, when added to the value (at offering price) of the
investor's holdings of shares on the last day of that period, do not equal
or exceed the intended purchase amount, the investor agrees to pay the
additional amount of sales charge applicable to such purchases, as set
forth in "Terms of Escrow," below (as those terms may be amended from time
to time). The investor agrees that shares equal in value to 5% of the
intended purchase amount will be held in escrow by the Transfer Agent
subject to the Terms of Escrow. Also, the investor agrees to be bound by
the terms of the Prospectus, this Statement of Additional Information and
the Application used for such Letter of Intent, and if such terms are
amended, as they may be from time to time by the Fund, that those
amendments will apply automatically to existing Letters of Intent.
If the total eligible purchases made during the Letter of Intent
period do not equal or exceed the intended purchase amount, the
commissions previously paid to the dealer of record for the account and
the amount of sales charge retained by the Distributor will be adjusted
to the rates applicable to actual purchases. If total eligible purchases
during the Letter of Intent period exceed the intended purchase amount and
exceed the amount needed to qualify for the next sales charge rate
reduction set forth in the applicable prospectus, the sales charges paid
will be adjusted to the lower rate, but only if and when the dealer
returns to the Distributor the excess of the amount of commissions allowed
or paid to the dealer over the amount of commissions that apply to the
actual amount of purchases. The excess commissions returned to the
Distributor will be used to purchase additional shares for the investor's
account at the net asset value per share in effect on the date of such
purchase, promptly after the Distributor's receipt thereof.
In determining the total amount of purchases made under a Letter,
shares redeemed by the investor prior to the termination of the Letter of
Intent period will be deducted. It is the responsibility of the dealer
of record and/or the investor to advise the Distributor about the Letter
in placing any purchase orders for the investor during the Letter of
Intent period. All of such purchases must be made through the
Distributor.
-- Terms of Escrow That Apply to Letters of Intent.
1. Out of the initial purchase (or subsequent purchases if
necessary) made pursuant to a Letter, shares of the Fund equal in value
to 5% of the intended purchase amount specified in the Letter shall be
held in escrow by the Transfer Agent. For example, if the intended
purchase amount is $50,000, the escrow shall be shares valued in the
amount of $2,500 (computed at the public offering price adjusted for a
$50,000 purchase). Any dividends and capital gains distributions on the
escrowed shares will be credited to the investor's account.
2. If the intended purchase amount specified under the Letter is
completed within the thirteen-month Letter of Intent period, the escrowed
shares will be promptly released to the investor.
3. If, at the end of the thirteen-month Letter of Intent period the
total purchases pursuant to the Letter are less than the intended purchase
amount specified in the Letter, the investor must remit to the Distributor
an amount equal to the difference between the dollar amount of sales
charges actually paid and the amount of sales charges which would have
been paid if the total amount purchased had been made at a single time.
Such sales charge adjustment will apply to any shares redeemed prior to
the completion of the Letter. If such difference in sales charges is not
paid within twenty days after a request from the Distributor or the
dealer, the Distributor will, within sixty days of the expiration of the
Letter, redeem the number of escrowed shares necessary to realize such
difference in sales charges. Full and fractional shares remaining after
such redemption will be released from escrow. If a request is received
to redeem escrowed shares prior to the payment of such additional sales
charge, the sales charge will be withheld from the redemption proceeds.
4. By signing the Letter, the investor irrevocably constitutes and
appoints the Transfer Agent as attorney-in-fact to surrender for
redemption any or all escrowed shares.
5. The shares eligible for purchase under the Letter (or the holding
of which may be counted toward completion of a Letter) include (a) Class
A shares sold with a front-end sales charge or subject to a Class A
contingent deferred sales charge, (b) Class B shares acquired subject to
a contingent deferred sales charge, and (c) Class A or B shares acquired
in exchange for either (i) Class A shares of one of the other Oppenheimer
funds that were acquired subject to a Class A initial or contingent
deferred sales charge or (ii) Class B shares of one of the other
Oppenheimer funds that were acquired subject to a contingent deferred
sales charge.
6. Shares held in escrow hereunder will automatically be exchanged
for shares of another fund to which an exchange is requested, as described
in the section of the Prospectus entitled "Exchange Privilege," and the
escrow will be transferred to that other fund.
Asset Builder Plans. To establish an Asset Builder Plan from a bank
account, a check (minimum $25) for the initial purchase must accompany the
application. Shares purchased by Asset Builder Plan payments from bank
accounts are subject to the redemption restrictions for recent purchases
described in "How To Sell Shares," in the Prospectus. Asset Builder Plans
also enable shareholders of Oppenheimer Cash Reserves to use those
accounts for monthly automatic purchases of shares of up to four other
Oppenheimer funds.
There is a front-end sales charge on the purchase of certain
Oppenheimer funds, or a contingent deferred sales charge may apply to
shares purchased by Asset Builder payments. An application should be
obtained from the Distributor, completed and returned, and a prospectus
of the selected fund(s) should be obtained from the Distributor or your
financial advisor before initiating Asset Builder payments. The amount
of the Asset Builder investment may be changed or the automatic
investments may be terminated at any time by writing to the Transfer
Agent. A reasonable period (approximately 15 days) is required after the
Transfer Agent's receipt of such instructions to implement them. The Fund
reserves the right to amend, suspend, or discontinue offering such plans
at any time without prior notice.
Cancellation of Purchase Orders. Cancellation of purchase orders for 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 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 by seeking 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
Directors of the Fund may determine that it would be detrimental to the
best interests of the remaining shareholders of the Fund to make payment
of a redemption order wholly or partly in cash. In that case the Fund may
pay the redemption proceeds in whole or in part by a distribution "in
kind" of securities from the portfolio of the Fund, in lieu of cash, in
conformity with applicable rules of the Securities and Exchange
Commission. The Fund has elected to be governed by Rule 18f-1 under the
Investment Company Act, pursuant to which the Fund is obligated to redeem
shares solely in cash up to the lesser of $250,000 or 1% of the net assets
of the Fund during any 90-day period for any one shareholder. If shares
are redeemed in kind, the redeeming shareholder might incur brokerage or
other costs in selling the securities for cash. The method of valuing
securities used to make redemptions in kind will be the same as the method
the Fund uses to value it portfolio securities described above under
"Determination of Net Asset Values Per Share" and that valuation will be
made as of the time the redemption price is determined.
Involuntary Redemptions. The Corporation's Board of Directors 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 Directors 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.
Checkwriting. When a check is presented to the Bank for clearance, the
Bank will ask the Fund to redeem a sufficient number of full and
fractional shares in the shareholder's account to cover the amount of the
check. This enables the shareholder to continue receiving dividends on
those shares until the check is presented to the Fund. Checks may not be
presented for payment at the offices of the Bank or the Fund's Custodian.
This limitation does not affect the use of checks for the payment of bills
or to obtain cash at other banks. The Fund reserves the right to amend,
suspend or discontinue offering checkwriting privileges at any time
without prior notice.
Reinvestment Privilege. Within six months of a redemption, a shareholder
may reinvest all or part of the redemption proceeds of (i) Class A shares,
or (ii) Class B shares that were subject to the Class B contingent
deferred sales charge when redeemed. The reinvestment may be made without
sales charge only in Class A shares of the Fund or any of the other
Oppenheimer funds into which shares of the Fund are exchangeable as
described below, at the net asset value next computed after the Transfer
Agent receives the reinvestment order. The shareholder must ask the
Distributor for that privilege at the time of reinvestment. Any capital
gain that was realized when the shares were redeemed is taxable, and
reinvestment will not alter any capital gains tax payable on that gain.
If there has been a capital loss on the redemption, some or all of the
loss may not be tax deductible, depending on the timing and amount of the
reinvestment. Under the Internal Revenue Code, if the redemption proceeds
of Fund shares on which a sales charge was paid are reinvested in shares
of the Fund or another of the Oppenheimer funds within 90 days of payment
of the sales charge, the shareholder's basis in the shares of the Fund
that were redeemed may not include the amount of the sales charge paid.
That would reduce the loss or increase the gain recognized from the
redemption. However, in that case the sales charge would be added to the
basis of the shares acquired by the reinvestment of the redemption
proceeds. The Fund may amend, suspend or cease offering this reinvestment
privilege at any time as to shares redeemed after the date of such
amendment, suspension or cessation.
Transfer of Shares. Shares are not subject to the payment of a contingent
deferred sales charge of either class at the time of transfer to the name
of another person or entity (whether the transfer occurs by absolute
assignment, gift or bequest, not involving, directly or indirectly, a
public sale). The transferred shares will remain subject to the
contingent deferred sales charge, calculated as if the transferee
shareholder had acquired the transferred shares in the same manner and at
the same time as the transferring shareholder. If less than all shares
held in an account are transferred, and some but not all shares in the
account would be subject to a contingent deferred sales charge if redeemed
at the time of transfer, the priorities described in the Prospectus under
"How To Buy Shares" for the imposition of the Class B contingent deferred
sales charge will be followed in determining the order in which shares are
transferred.
Special Arrangements for Repurchase of Shares from Dealers and Brokers.
The Distributor is the Fund's agent to repurchase its shares from
authorized dealers or brokers. The repurchase price per share will be the
net asset value next computed after the Distributor receives an order
placed by the dealer or broker, except that if the Distributor receives
a repurchase order from a dealer or broker after the close of The New York
Stock Exchange on a regular business day, it will be processed at that
day's net asset value if the order was received by the dealer or broker
from its customer prior to the time the Exchange closes (normally, that
is 4:00 P.M. but may be earlier on some days) and the order was
transmitted to and received by the Distributor prior to its close of
business that day (normally 5:00 P.M.). Ordinarily, for accounts
redeemed by a broker-dealer under this procedure, payment will be made
within three business days after the shares have been redeemed upon the
Distributor's receipt of the required redemption documents in proper form,
with the signature(s) of the registered owners guaranteed on the
redemption document as described in the Prospectus.
Automatic Withdrawal and Exchange Plans. Investors owning shares of the
Fund valued at $5,000 or more can authorize the Transfer Agent to redeem
shares (minimum $50) automatically on a monthly, quarterly, semi-annual
or annual basis under an Automatic Withdrawal Plan. Shares will be
redeemed three business days prior to the date requested by the
shareholder for receipt of the payment. Automatic withdrawals of up to
$1,500 per month may be requested by telephone if payments are to be made
by check payable to all shareholders of record and sent to the address of
record for the account (and if the address has not been changed within the
prior 30 days). Required minimum distributions from OppenheimerFunds-
sponsored retirement plans may not be arranged on this basis. Payments
are normally made by check, but shareholders having AccountLink privileges
(see "How To Buy Shares") may arrange to have Automatic Withdrawal Plan
payments transferred to the bank account designated on the
OppenheimerFunds New Account Application or signature-guaranteed
instructions. The Fund cannot guarantee receipt of a payment on the date
requested and reserves the right to amend, suspend or discontinue offering
such plans at any time without prior notice. Because of the sales charge
assessed on Class A share purchases, shareholders should not make regular
additional Class A share purchases while participating in an Automatic
Withdrawal Plan. Class B shareholders should not establish withdrawal
plans because of the imposition of the Class B contingent deferred sales
charge on such withdrawals (except where the Class B contingent deferred
sales charge is waived as described in the Prospectus under "Waivers of
Class B Contingent Deferred Sales Charge").
By requesting an Automatic Withdrawal or Exchange Plan, the
shareholder agrees to the terms and conditions applicable to such plans,
as stated below and in the provisions of the OppenheimerFunds Application
relating to such Plans, as well as the Prospectus. These provisions may
be amended from time to time by the Fund and/or the Distributor. When
adopted, such amendments will automatically apply to existing Plans.
Automatic Exchange Plans. Shareholders can authorize the Transfer
Agent (on the OppenheimerFunds Application or signature-guaranteed
instructions) to exchange a pre-determined amount of shares of the Fund
for shares (of the same class) of other Oppenheimer funds automatically
on a monthly, quarterly, semi-annual or annual basis under an Automatic
Exchange Plan. The minimum amount that may be exchanged to each other
fund account is $25. Exchanges made under these plans are subject to the
restrictions that apply to exchanges as set forth in "How to Exchange
Shares" in the Prospectus and below in this Statement of Additional
Information.
Automatic Withdrawal Plans. Fund shares will be redeemed as
necessary to meet withdrawal payments. Shares acquired without a sales
charge will be redeemed first and shares acquired with reinvested
dividends and capital gains distributions will be redeemed next, followed
by shares acquired with a sales charge, to the extent necessary to make
withdrawal payments. Depending upon the amount withdrawn, the investor's
principal may be depleted. Payments made under withdrawal plans should
not be considered as a yield or income on your investment. It may not be
desirable to purchases additional Class A shares while making automatic
withdrawals because of the sales charges that apply to purchases when
made. Accordingly, a shareholder normally may not maintain an Automatic
Withdrawal Plan while simultaneously making regular purchases of Class A
shares.
The Transfer Agent will administer the investor's Automatic
Withdrawal Plan (the "Plan") as agent for the investor (the "Planholder")
who executed the Plan authorization and application submitted to the
Transfer Agent. The Transfer Agent shall incur no liability to the
Planholder for any action taken or omitted by the Transfer Agent in good
faith to administer the Plan. Certificates will not be issued for shares
of the Fund purchased for and held under the Plan, but the Transfer Agent
will credit all such shares to the account of the Planholder on the
records of the Fund. Any share certificates held by a Planholder may be
surrendered unendorsed to the Transfer Agent with the Plan application so
that the shares represented by the certificate may be held under the Plan.
For accounts subject to Automatic Withdrawal Plans, distributions of
capital gains must be reinvested in shares of the Fund, which will be done
at net asset value without a sales charge. Dividends on shares held in
the account may be paid in cash or reinvested.
Redemptions of shares needed to make withdrawal payments will be made
at the net asset value per share determined on the redemption date.
Checks or ACH transfer payments of the proceeds of Plan withdrawals will
normally be transmitted three business days prior to the date selected for
receipt of the payment (receipt of payment on the date selected cannot be
guaranteed), according to the choice specified in writing by the
Planholder.
The amount and the interval of disbursement payments and the address
to which checks are to be mailed or AccountLink payments are to be sent
may be changed at any time by the Planholder by writing to the Transfer
Agent. The Planholder should allow at least two weeks' time in mailing
such notification for the requested change to be put in effect. The
Planholder may, at any time, instruct the Transfer Agent by written notice
(in proper form in accordance with the requirements of the then-current
Prospectus of the Fund) to redeem all, or any part of, the shares held
under the Plan. In that case, the Transfer Agent will redeem the number
of shares requested at the net asset value per share in effect in
accordance with the Fund's usual redemption procedures and will mail a
check for the proceeds to the Planholder.
The Plan may be terminated at any time by the Planholder by writing
to the Transfer Agent. A Plan may also be terminated at any time by the
Transfer Agent upon receiving directions to that effect from the Fund.
The Transfer Agent will also terminate a Plan upon receipt of evidence
satisfactory to it of the death or legal incapacity of the Planholder.
Upon termination of a Plan by the Transfer Agent or the Fund, shares that
have not been redeemed from the account will be held in uncertificated
form in the name of the Planholder, and the account will continue as a
dividend-reinvestment, uncertificated account unless and until proper
instructions are received from the Planholder or his or her executor or
guardian, or other authorized person.
To use shares held under the Plan as collateral for a debt, the
Planholder may request issuance of a portion of the shares in certificated
form. Upon written request from the Planholder, the Transfer Agent will
determine the number of shares for which a certificate may be issued
without causing the withdrawal checks to stop because of exhaustion of
uncertificated shares needed to continue payments. However, should such
uncertificated shares become exhausted, Plan withdrawals will terminate.
If the Transfer Agent ceases to act as transfer agent for the Fund,
the Planholder will be deemed to have appointed any successor transfer
agent to act as agent in administering the Plan.
How To Exchange Shares
As stated in the Prospectus, shares of a particular class of
Oppenheimer funds having more than one class of shares may be exchanged
only for shares of the same class of other Oppenheimer funds. Shares of
the Oppenheimer funds that have a single class without a class designation
are deemed "Class A" shares for this purpose. All of the Oppenheimer
funds offer Class A, B and C shares except Oppenheimer Money Market Fund,
Inc., Centennial Money Market Trust, Centennial Tax Exempt Trust,
Centennial Government Trust, Centennial New York Tax Exempt Trust,
Centennial California Tax Exempt Trust, Centennial America Fund, L.P., and
Daily Cash Accumulation Fund, Inc., which only offer Class A shares and
Oppenheimer Main Street California Tax-Exempt Fund which only offers Class
A and Class B shares, (Class B and Class C shares of Oppenheimer Cash
Reserves are generally available only by exchange from the same class of
shares of other Oppenheimer funds or through OppenheimerFunds sponsored
401(k) plans). A list showing which funds offer which class can be
obtained by calling the distributor at 1-800-525-7048.
Class A shares of Oppenheimer funds may be exchanged at net asset
value for shares of any Money Market Fund. Shares of any Money Market
Fund purchased without a sales charge may be exchanged for shares of
Oppenheimer funds offered with a sales charge upon payment of the sales
charge (or, if applicable, may be used to purchase shares of Oppenheimer
funds subject to a contingent deferred sales charge). However, shares of
Oppenheimer Money Market Fund, Inc. purchased with the redemption proceeds
of shares of other mutual funds (other than funds managed by the Manager
or its subsidiaries) redeemed within the 12 months prior to that purchase
may subsequently be exchanged for shares of other Oppenheimer funds
without being subject to an initial or contingent deferred sales charge,
whichever is applicable. To qualify for that privilege, the investor or
the investor's dealer must notify the Distributor of eligibility for this
privilege at the time the shares of Oppenheimer Money Market Fund, Inc.
are purchased, and, if requested, must supply proof of entitlement to this
privilege. Shares of this Fund acquired by reinvestment of dividends or
distributions from any other of the Oppenheimer funds or from any unit
investment trust for which reinvestment arrangements have been made with
the Distributor may be exchanged at net asset value for shares of any of
the Oppenheimer funds. No contingent deferred sales charge is imposed on
exchanges of shares of either class purchased subject to a contingent
deferred sales charge. However, when Class A shares acquired by exchange
of Class A shares of other Oppenheimer funds purchased subject to a Class
A contingent deferred sales charge are redeemed within 18 months of the
end of the calendar month of the initial purchase of the exchanged Class
A shares, the Class A contingent deferred sales charge is imposed on the
redeemed shares (see "Class A Contingent Deferred Sales Charge" in the
Prospectus). The Class B contingent deferred sales charge is imposed on
Class B shares acquired by exchange if they are redeemed within six years
of the initial purchase of the exchanged Class B shares.
When Class B shares are redeemed to effect an exchange, the
priorities described in "How To Buy Shares" in the Prospectus for the
imposition of the Class B contingent deferred sales charge will be
followed in determining the order in which the shares are exchanged.
Shareholders should take into account the effect of any exchange on the
applicability and rate of any contingent deferred sales charge that might
be imposed in the subsequent redemption of remaining shares. Shareholders
owning shares of both classes must specify whether they intend to exchange
Class A or Class B shares.
The Fund reserves the right to reject telephone or written exchange
requests submitted in bulk by anyone on behalf of 10 or more accounts. The
Fund may accept requests for exchanges of up to 50 accounts per day from
representatives of authorized dealers that qualify for this privilege. In
connection with any exchange request, the number of shares exchanged may
be less than the number requested if the exchange or the number requested
would include shares subject to a restriction cited in the Prospectus or
this Statement of Additional Information or would include shares covered
by a share certificate that is not tendered with the request. In those
cases, only the shares available for exchange without restriction will be
exchanged.
When exchanging shares by telephone, a shareholder must either have
an existing account in, or obtain and acknowledge receipt of a prospectus
of, the fund to which the exchange is to be made. For full or partial
exchanges of an account made by telephone, any special account features
such as Asset Builder Plans, Automatic Withdrawal Plans and retirement
plan contributions will be switched to the new account unless the Transfer
Agent is instructed otherwise. If all telephone lines are busy (which
might occur, for example, during periods of substantial market
fluctuations), shareholders might not be able to request exchanges by
telephone and would have to submit written exchange requests.
Shares to be exchanged are redeemed on the regular business day the
Transfer Agent receives an exchange request in proper form (the
"Redemption Date"). Normally, shares of the fund to be acquired are
purchased on the Redemption Date, but such purchases may be delayed by
either fund up to five business days if it determines that it would be
disadvantaged by an immediate transfer of the redemption proceeds. The
Fund reserves the right, in its discretion, to refuse any exchange request
that may disadvantage it (for example, if the receipt of multiple exchange
requests from a dealer might require the disposition of portfolio
securities at a time or at a price that might be disadvantageous to the
Fund).
The different Oppenheimer funds available for exchange have different
investment objectives, policies and risks, and a shareholder should assure
that the Fund selected is appropriate for his or her investment and should
be aware of the tax consequences of an exchange. For federal income tax
purposes, an exchange transaction is treated as a redemption of shares of
one fund and a purchase of shares of another. "Reinvestment Privilege,"
above, discusses some of the tax consequences of reinvestment of
redemption proceeds in such cases. The Fund, the Distributor, and the
Transfer Agent are unable to provide investment, tax or legal advice to
a shareholder in connection with an exchange request or any other
investment transaction.
Dividends, Capital Gains and Taxes
Dividends and Distributions. During the Fund's fiscal year ended June 30,
1995, the Fund maintained the practice, to the extent consistent with the
amount of the Fund's net investment income and other distributable income,
of attempting to pay dividends on Class A shares at a constant level of
$.0611 per share each month, although the amount of such dividends was
subject to change from time to time depending on market conditions, the
composition of the Fund's portfolio and expenses borne by the Fund. The
practice of attempting to pay dividends on Class A shares at a constant
level required the Manager, consistent with the Fund's investment
objective and investment restrictions, to monitor the Fund's portfolio and
select higher yielding securities when deemed appropriate to maintain
necessary net investment income levels. This practice did not affect the
net asset value of the Fund's Class A shares. The Board of Directors may
change the Fund's targeted dividend level at any time, without prior
notice to shareholders; the Fund does not otherwise have a fixed dividend
rate and there can be no assurance as to the payment of any dividends or
the realization of any capital gains.
Tax Status of the Fund's Dividends and Distributions. The Fund intends
to qualify under the Internal Revenue Code during each fiscal year to pay
"exempt-interest dividends" to its shareholders. Exempt-interest
dividends which are derived from net investment income earned by the Fund
on Municipal Securities will be excludable from gross income of
shareholders for Federal income tax purposes. Net investment income
includes the allocation of amounts of income from the Municipal Securities
in the Fund's portfolio which are free from Federal income taxes. This
allocation will be made by the use of one designated percentage applied
uniformly to all income dividends made during the Fund's tax year. Such
designation will normally be made following the end of each fiscal year
as to income dividends paid in the prior year. The percentage of income
designated as tax-exempt may substantially differ from the percentage of
the Fund's income that was tax-exempt for a given period. A portion of
the exempt-interest dividends paid by the Fund may be an item of tax
preference for shareholders subject to the alternative minimum tax.
All of the Fund's dividends (excluding capital gains distributions)
paid during calendar-year 1994 were exempt from Federal and California
personal income taxes. The amount of any dividends attributable to tax
preference items for purposes of the alternative minimum tax will be
identified when tax information is distributed by the Fund. 4.50% of the
Fund's dividends (excluding distributions) paid during calendar-year 1994
were a tax preference item for shareholders subject to the alternative
minimum tax.
A shareholder receiving a dividend from income earned by the Fund
from one or more of: (1) certain taxable temporary investments (such as
certificates of deposit, repurchase agreements, commercial paper and
obligations of the U.S. government, its agencies and instrumentalities);
(2) income from securities loans; (3) income or gains from options or
Futures; or (4) an excess of net short-term capital gain over net long-
term capital loss from the Fund, treats the dividend as a receipt of
either ordinary income or long-term capital gain in the computation of
gross income, regardless of whether the dividend is reinvested. The
Fund's dividends will not be eligible for the dividends-received deduction
for corporations. Shareholders receiving Social Security benefits should
be aware that exempt-interest dividends are a factor in determining
whether such benefits are subject to Federal income tax. Losses realized
by shareholders on the redemption of Fund shares within six months of
purchase (which period may be shortened by regulation) will be disallowed
for Federal income tax purposes to the extent of exempt-interest dividends
received on such shares.
If the Fund qualifies as a "regulated investment company" under the
Internal Revenue Code, it will not be liable for Federal income taxes on
amounts paid by it as dividends and distributions. The Fund qualified as
a regulated investment company in its last fiscal year and intends to
qualify in future years, but reserves the right not to qualify. The
Internal Revenue Code contains a number of complex tests to determine
whether the Fund will qualify, and the Fund might not meet those tests in
a particular year. For example, if the Fund derives 30% or more of its
gross income from the sale of securities held less than three months, it
may fail to qualify (see "Tax Aspects of Covered Calls and Hedging
Instruments," above). If it does not qualify, the Fund will be treated for
tax purposes as an ordinary corporation and will receive no tax deduction
for payments of dividends and distributions made to shareholders.
In any year in which the Fund qualifies as a regulated investment
company under the Internal Revenue Code and is exempt from Federal income
tax, (1) the Fund will also be exempt from the California corporate income
and franchise taxes and (2) the Fund will be qualified under California
law to pay certain exempt interest dividends which will be exempt from the
California personal income tax. Individual shareholders of the Fund will
generally not be subject to California personal income tax on exempt-
interest dividends received from the Fund to the extent such distributions
are attributable to interest on California Municipal Securities (and
qualifying obligations of the United States Government), provided that at
least 50% of the Fund's assets at the close of each quarter of its taxable
year are invested in such obligations. Distributions from the Fund
attributable to sources other than California Municipal Securities will
generally be taxable to such shareholders as ordinary income. In
addition, certain distributions to corporate shareholders may be
includable in income subject to the California alternative minimum tax.
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.
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. Certain distributions may also be
includable in income subject to the corporate alternative minimum tax.
The Internal Revenue Code requires that a holder (such as the Fund)
of a zero coupon security accrue as income each year a portion of the
discount at which the security was purchased even though the Fund receives
no interest payment in cash on the security during the year. As an
investment company, the Fund must pay out substantially all of its net
investment income each year or be subject to excise taxes, as described
above. Accordingly, when the Fund holds zero coupon securities, it may
be required to pay out as an income distribution each year an amount which
is greater than the total amount of cash interest the Fund actually
received during that year. Such distributions will be made from the cash
assets of the Fund or by liquidation of portfolio securities, if
necessary. The Fund may realize a gain or loss from such sales. In the
event the Fund realizes net capital gains from such transactions, its
shareholders may receive a larger capital gain distribution than they
would have had in the absence of such transactions.
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 Oppenheimer funds listed in "Reduced Sales Charges,"
above, at net asset value without sales charge. The names of the funds
that offer Class B shares can be obtained by calling the Distributor at
1-800-525-7048. 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.
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 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 Fund's cash balances in excess of $100,000 are not protected by
Federal deposit insurance. Such uninsured balances may be substantial.
Independent Auditors. The independent auditors of the Fund audit the
Manager's and the Fund's financial statements and perform other related
audit services. They also act as auditors for certain other funds advised
by the Manager and its affiliates.
<PAGE>
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Board of Directors and Shareholders of
Oppenheimer Main Street California Tax-Exempt Fund:
We have audited the accompanying statement of assets
and liabilities, including the statement of
investments, of Oppenheimer Main Street California
Tax-Exempt Fund as of June 30, 1995, the related
statement of operations for the year then ended, the
statements of changes in net assets for the years
ended June 30, 1995 and 1994, and the financial
highlights for the period May 18, 1990 to June 30,
1995. These financial statements and financial
highlights are the responsibility of the Fund's
management. Our responsibility is to express an
opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance
with generally accepted auditing standards. Those
standards require that we plan and perform the audit
to obtain reasonable assurance about whether the
financial statements and financial highlights are
free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements.
Our procedures included confirmation of securities
owned at June 30, 1995 by correspondence with the
custodian. An audit also includes assessing the
accounting principles used and significant estimates
made by management, as well as evaluating the overall
financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such financial
statements and financial highlights present fairly,
in all material respects, the financial position of
Oppenheimer Main Street California Tax-Exempt Fund at
June 30, 1995, the results of its operations, the
changes in its net assets, and the financial
highlights for the respective stated periods, in
conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Denver, Colorado
July 24, 1995
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF INVESTMENTS June 30, 1995
RATINGS: MOODY'S/
S&P'S/FITCH'S FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS AND NOTES--96.1%
- ---------------------------------------------------------------------------------------------------------------------------------
CALIFORNIA--81.9% Alameda County, California Certificates of
Participation, Prerefunded, BIG Insured, 7.25%, 6/1/09 Aaa/AAA $1,635,000 $1,867,068
---------------------------------------------------------------------------------------------------
Anaheim, California Public Financing Authority
Tax Allocation Revenue Bonds, MBIA Insured,
6.45%, 12/28/18 Aaa/AAA 2,000,000 2,074,114
---------------------------------------------------------------------------------------------------
California Health Facilities Financing Authority
Revenue Bonds, Episcopal Homes Project,
Series A, OSHPD Insured, 7.80%, 7/1/15 NR/A 1,000,000 1,071,812
---------------------------------------------------------------------------------------------------
California Health Facilities Financing Authority
Revenue Refunding Bonds, Catholic Health Care
West, Series A, MBIA Insured, 5%, 7/1/11 Aaa/AAA 2,500,000 2,273,852
---------------------------------------------------------------------------------------------------
California Housing Finance Agency Revenue Bonds,
Home Mtg., Series C, 6.75%, 2/1/25 Aa/AA- 5,000,000 5,065,770
---------------------------------------------------------------------------------------------------
California Housing Finance Agency Single Family Mtg.
Purchase Revenue Bonds, Series A-2, 6.45%, 8/1/25 Aaa/AAA 2,500,000 2,512,050
---------------------------------------------------------------------------------------------------
California Pollution Control Financing Authority
Revenue Bonds, Pacific Gas & Electric Co.,
Series B, 6.35%, 6/1/09 A2/A 2,000,000 2,039,602
---------------------------------------------------------------------------------------------------
California State Department of Water Resources
Central Valley Project Revenue Bonds,
Series L, 5.50%, 12/1/23 Aa/AA 2,000,000 1,846,410
---------------------------------------------------------------------------------------------------
California State General Obligation Bonds,
FSA Insured, 5.50%, 4/1/19 Aaa/AAA/A 2,500,000 2,318,750
---------------------------------------------------------------------------------------------------
Capistrano, California Unified School District
Community Facilities District Special Tax Bonds,
No. 87-1, 7.60%, 9/1/14 NR/NR 1,000,000 960,948
---------------------------------------------------------------------------------------------------
Contra Costa, California Water District
Revenue Bonds, Prerefunded, Series A, 6.875%, 10/1/20 NR/NR 1,100,000 1,235,314
---------------------------------------------------------------------------------------------------
Corona, California Certificates of Participation,
Prerefunded, Series B, 10%, 11/1/20 Aaa/AAA 3,250,000 4,344,606
---------------------------------------------------------------------------------------------------
Foothill/Eastern Transportation Corridor Agency
California Toll Road Revenue Bonds, Sr. Lien,
Series A, 6.50%, 1/1/32 NR/BBB-/BBB 1,400,000 1,350,905
---------------------------------------------------------------------------------------------------
Los Angeles County, California Transportation
Revenue Bonds, Commission Sales Tax,
Prerefunded, Series A, FGIC Insured, 6.75%, 7/1/18 Aaa/AAA/AAA 1,000,000 1,125,198
---------------------------------------------------------------------------------------------------
Los Angeles, California Convention & Exhibition
Center Authority Refunding Certificates of
Participation, Prerefunded, Series A, 7.375%, 8/15/18 Aaa/AAA 1,000,000 1,120,570
---------------------------------------------------------------------------------------------------
Los Angeles, California Wastewater System Revenue
Refunding Bonds, Series D, FGIC Insured, 8.70%, 11/1/03 Aaa/AAA/AAA 5,115,000 6,316,881
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RATINGS: MOODY'S/
S&P'S/FITCH'S FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
CALIFORNIA Metropolitan Water District of Southern California
(CONTINUED) Revenue Bonds, Waterworks Project, 5%, 7/1/20 Aa/AA $2,500,000
$2,169,650
---------------------------------------------------------------------------------------------------
Metropolitan Water District of Southern California
Revenue Bonds, Waterworks Project, Inverse
Floater, 6.05%, 10/30/20(1) Aa/AA 1,500,000 1,260,000
---------------------------------------------------------------------------------------------------
Northern California Transmission Agency Revenue
Bonds, California-Oregon Transmission Project,
Prerefunded, Series A, MBIA Insured, 7%, 5/1/24 Aaa/AAA 500,000 557,480
---------------------------------------------------------------------------------------------------
Orange County, California Community Facilities
District No. 87-3 Special Tax Bonds, Prerefunded,
Series A, 8.05%, 8/15/08 NR/NR 1,480,000 1,667,406
---------------------------------------------------------------------------------------------------
Orange County, California Community Facilities
District Special Tax Bonds, No. 88-1 Aliso Viejo,
Prerefunded, Series A, 7.35%, 8/15/18 NR/AAA 2,000,000 2,342,346
---------------------------------------------------------------------------------------------------
Pittsburg, California Improvement Bond Act of 1915
Bonds, Assessment District 1990-01, 7.75%, 9/2/20 NR/NR 95,000 97,856
---------------------------------------------------------------------------------------------------
Redding, California Electric System Revenue
Certificates of Participation, FGIC Insured,
Inverse Floater, 7.10%, 6/28/19(1) Aaa/AAA/AAA 1,150,000 1,025,663
---------------------------------------------------------------------------------------------------
Redding, California Electric System Revenue
Certificates of Participation, MBIA Insured,
Inverse Floater, 8.396%, 7/8/22(1) Aaa/AAA 500,000 535,585
---------------------------------------------------------------------------------------------------
Riverside County, California Community Facilities
District Bonds, Special Tax No. 88-12, 7.55%, 9/1/17 NR/NR 1,500,000 1,507,159
---------------------------------------------------------------------------------------------------
Sacramento, California Municipal Utility District
Electric Revenue Refunding Bonds, Series B, FGIC
Insured, Inverse Floater, 8.261%, 8/15/18(1) Aaa/AAA/AAA 1,500,000 1,483,543
---------------------------------------------------------------------------------------------------
Sacramento, California Municipal Utility
District Electric Revenue Refunding Bonds,
Series D, MBIA Insured, 5.25%, 11/15/20 Aaa/AAA/A- 2,000,000 1,798,442
---------------------------------------------------------------------------------------------------
San Bernardino County, California Certificates
of Participation, Medical Center Financing
Project, 5.50%, 8/1/17 Baa1/A- 2,500,000 2,148,832
---------------------------------------------------------------------------------------------------
San Diego County, California Water Authority
Revenue Certificates of Participation, Series B,
MBIA Insured, Inverse Floater, 8.07%, 4/8/21(1) Aaa/AAA 1,000,000 1,011,505
---------------------------------------------------------------------------------------------------
San Francisco, California Bay Area Rapid
Transit District Revenue Refunding Bonds,
AMBAC Insured, 6.75%, 7/1/11 Aaa/AAA/AAA 1,000,000 1,117,116
---------------------------------------------------------------------------------------------------
San Joaquin Hills, California Transportation Corridor
Agency Toll Road Revenue Bonds, Sr. Lien, 6.75%, 1/1/32 NR/NR/BBB 3,500,000 3,495,268
---------------------------------------------------------------------------------------------------
South Orange County, California Public Financing
Authority Special Tax Revenue Bonds, Sr. Lien,
Series A, MBIA Insured, 6.20%, 9/1/13 Aaa/AAA 1,000,000 1,002,059
</TABLE>
<PAGE>
STATEMENT OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
RATINGS: MOODY'S/
S&P'S/FITCH'S FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
CALIFORNIA Southern California Home Financing Authority Single
(CONTINUED) Family Mtg. Revenue Bonds, GNMA and FNMA
Mtg.-Backed Securities, Series A, 7.35%, 9/1/24 NR/AAA $ 285,000 $ 298,192
---------------------------------------------------------------------------------------------------
Southern California Public Power Authority
Transmission Project Revenue Bonds, Inverse
Floater, 6.644%, 7/1/12(1) Aa/AA- 2,500,000 2,403,710
---------------------------------------------------------------------------------------------------
University of California Revenue Bonds,
Multiple Purpose Projects, Prerefunded,
Series A, 6.875%, 9/1/16 NR/A- 1,000,000 1,141,743
---------------------------------------------------------------------------------------------------
Victorville, California Special Tax Bonds,
Community Facilities District No. 90-1
Series A, 8.30%, 9/1/16 NR/NR 450,000 428,059
---------------------------------------------------------------------------------------------------
West Basin, California Municipal Water District
Certificates of Participation, Prerefunded,
AMBAC Insured, 6.85%, 8/1/16 Aaa/AAA/AAA 1,000,000 1,117,307
-----------
66,132,771
- ---------------------------------------------------------------------------------------------------------------------------------
U.S. POSSESSIONS--14.2% Puerto Rico Commonwealth General Obligation
Bonds, Yield Curve Notes, MBIA Insured, Inverse
Floater, 7.384%, 7/1/08(1) Aaa/AAA 1,500,000 1,528,726
---------------------------------------------------------------------------------------------------
Puerto Rico Commonwealth Highway Authority
Revenue Bonds, Prerefunded, Series P, 8.125%, 7/1/13 Aaa/AAA 2,000,000 2,251,906
---------------------------------------------------------------------------------------------------
Puerto Rico Commonwealth Public Improvement
General Obligation Bonds, Prerefunded, 7.25%, 7/1/12 NR/AAA 1,430,000 1,545,016
---------------------------------------------------------------------------------------------------
Puerto Rico Commonwealth Public Improvement
General Obligation Bonds, Prerefunded,
Series A, 7.75%, 7/1/17 NR/AAA 1,000,000 1,134,722
---------------------------------------------------------------------------------------------------
Puerto Rico Housing Bank & Finance Agency
Single Family Mtg. Revenue Bonds, Affordable
Housing Mtg.--Portfolio I, 6.25%, 4/1/29 Aaa/AAA 2,000,000 1,991,390
---------------------------------------------------------------------------------------------------
Puerto Rico Housing Finance Corp. Single Family Mtg.
Revenue Bonds, Portfolio 1, Series B, 7.65%, 10/15/22 Aaa/AAA 320,000 338,844
---------------------------------------------------------------------------------------------------
Puerto Rico Public Buildings Authority Guaranteed
Public Education and Health Facilities
Revenue Bonds, Prerefunded, Series H, 7.875%, 7/1/07 Aaa/AAA 2,500,000 2,728,595
---------------------------------------------------------------------------------------------------
11,519,199
-----------
Total Municipal Bonds and Notes (Cost $78,143,613) 77,651,970
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM TAX-EXEMPT OBLIGATIONS--2.5%
- ---------------------------------------------------------------------------------------------------------------------------------
California Health Facilities Financing Authority
Revenue Bonds, Kaiser Permanente Medical Center
Project, Series B, 3.90% (Cost $2,000,000)(2) 2,000,000 2,000,000
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $80,143,613) 98.6% 79,651,970
- ---------------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS NET OF LIABILITIES 1.4 1,130,735
------ -----------
NET ASSETS 100.0% $80,782,705
------ -----------
------ -----------
</TABLE>
<PAGE>
- -------------------------------------------------------------------------------
1. Represents the current interest rate for a variable rate
bond. Variable rate bonds known as ``inverse floaters'' pay
interest at a rate that varies inversely with short-term
interest rates. As interest rates rise, inverse floaters
produce less current income. Their price may be more
volatile than the price of a comparable fixed-rate security.
Inverse floaters amount to $9,248,732 or 11.4% of the Fund's
net assets, at June 30, 1995.
2. Floating or variable rate obligation maturing in more
than one year. The interest rate, which is based on
specific, or an index of, market interest rates, is subject
to change periodically and is the effective rate on June 30,
1995. This instrument may also have a demand feature which
allows the recovery of principal at any time, or at
specified intervals not exceeding one year, on up to 30
days' notice. Maturity date shown represents effective
maturity based on variable rate and, if applicable, demand
feature.
Distribution of investments by industry, as a percentage of
total investments at value, is as follows:
<TABLE>
<CAPTION>
INDUSTRY MARKET VALUE PERCENT
-----------------------------------------------------------
<S> <C> <C>
Utilities $22,761,490 28.6%
Housing 10,206,246 12.8
Special Tax Bonds 10,079,947 12.7
Lease/Rental 9,481,077 11.9
Transportation 9,340,392 11.7
General Obligation Bonds 9,255,809 11.6
Hospitals 3,345,664 4.2
Pollution Control 2,039,602 2.6
Industrial Development 2,000,000 2.5
Education 1,141,743 1.4
----------- ------
$79,651,970 100.0%
----------- ------
----------- ------
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES June 30, 1995
<TABLE>
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
ASSETS Investments, at value (cost $80,143,613)--see accompanying statement $79,651,970
-------------------------------------------------------------------------------------------------
Cash 177,049
-------------------------------------------------------------------------------------------------
Receivables:
Interest 1,531,628
Shares of capital stock sold 45,617
-------------------------------------------------------------------------------------------------
Other 5,808
-----------
Total assets 81,412,072
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
LIABILITIES Payables and other liabilities:
Shares of capital stock redeemed 323,109
Dividends 279,629
Directors' fees 1,998
Distribution and service plan fees--Note 4 1,556
Transfer and shareholder servicing agent fees 1,550
Other 21,525
-----------
Total liabilities 629,367
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $80,782,705
-----------
-----------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
COMPOSITION OF Par value of shares of capital stock $66,810
NET ASSETS -------------------------------------------------------------------------------------------------
Additional paid-in capital 81,285,897
-------------------------------------------------------------------------------------------------
Overdistributed net investment income (98,805)
-------------------------------------------------------------------------------------------------
Accumulated net realized gain from investment transactions 20,446
-------------------------------------------------------------------------------------------------
Net unrealized depreciation on investments--Note 3 (491,643)
-----------
Net assets $80,782,705
-----------
-----------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE Class A Shares:
PER SHARE Net asset value and redemption price per share (based on
net assets of $78,134,279 and 6,461,742 shares of capital stock outstanding) $12.09
Maximum offering price per share (net asset value
plus sales charge of 4.75% of offering price) $12.69
-------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price and offering price per share (based on net assets
of $2,648,426 and 219,253 shares of capital stock outstanding) $12.08
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
STATEMENT OF OPERATIONS For the Year Ended June 30, 1995
<TABLE>
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME Interest $5,332,382
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
EXPENSES Management fees--Note 4 284,916
-------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 4 71,023
-------------------------------------------------------------------------------------------------
Shareholder reports 43,051
-------------------------------------------------------------------------------------------------
Distribution and service plan fees: Class B--Note 4 18,367
-------------------------------------------------------------------------------------------------
Legal and auditing fees 15,655
-------------------------------------------------------------------------------------------------
Custodian fees and expenses 6,613
-------------------------------------------------------------------------------------------------
Directors' fees and expenses 3,000
-------------------------------------------------------------------------------------------------
Registration and filing fees:
Class A 1,741
Class B 540
-------------------------------------------------------------------------------------------------
Other 15,101
-----------
Total expenses 460,007
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 4,872,375
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED Net realized gain on investments 21,062
GAIN ON INVESTMENTS -------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on investments 1,550,552
-----------
Net realized and unrealized gain on investments 1,571,614
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
$6,443,989
-----------
-----------
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1995 1994
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
OPERATIONS Net investment income $ 4,872,375 $ 4,995,312
-----------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments 21,062 (102,647)
-----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on investments 1,550,552 (5,742,053)
----------- -----------
Net increase (decrease) in net assets resulting from operations 6,443,989 (849,388)
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
DIVIDENDS AND Dividends from net investment income:
DISTRIBUTIONS TO Class A ($.694 and $.729 per share, respectively) (4,502,183)
(4,729,265)
SHAREHOLDERS Class B ($.573 and $.37 per share, respectively) (89,348) (19,459)
-----------------------------------------------------------------------------------------------------
Dividends in excess of net investment income:
Class A ($.040 and $.028 per share, respectively) (258,329) (179,070)
Class B ($.040 and $.014 per share, respectively) (8,756) (737)
-----------------------------------------------------------------------------------------------------
Distributions in excess of net realized gain on investments:
Class A ($.028 per share) -- (186,921)
Class B ($.028 per share) -- (599)
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
CAPITAL STOCK Net increase (decrease) in net assets resulting from
TRANSACTIONS Class A capital stock transactions--Note 2 (2,943,992) 13,070,898
-----------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
Class B capital stock transactions--Note 2 1,383,961 1,264,874
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS Total increase 25,342 8,370,333
-----------------------------------------------------------------------------------------------------
Beginning of period 80,757,363 72,387,030
----------- -----------
End of period (including overdistributed net investment income
of $98,805 and $95,768, respectively) $80,782,705 $80,757,363
----------- -----------
----------- -----------
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A CLASS B
------------------------------------------------------------------ ------------------
YEAR ENDED JUNE 30, YEAR ENDED JUNE 30,
1995 1994 1993 1992 1991 1990(2) 1995 1994(1)
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
<C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $11.82 $12.66 $12.05 $11.61 $11.56 $11.43 $11.80 $12.90
- --------------------------------------------------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .73 .75 .80 .82 .83(3) .06(3) .62 .38
Net realized and unrealized
gain (loss) on investments .27 (.80) .64 .45 .05 .13 .27 (1.07)
------- ------ ------ ------ ------ ------ ------ ------
Total income (loss)
from investment operations 1.00 (.05) 1.44 1.27 .88 .19 .89 (.69)
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net
investment income (.69) (.73) (.81) (.82) (.83) (.06) (.57) (.37)
Dividends in excess of net
investment income (.04) (.03) -- -- -- -- (.04) (.01)
Distributions from net realized
gain on investments -- -- (.02) (.01) -- -- -- --
Distributions in excess of net
realized gain on investments -- (.03) -- -- -- -- -- (.03)
------- ------ ------ ------ ------ ------ ------ ------
Total dividends and
distributions to shareholders (.73) (.79) (.83) (.83) (.83) (.06) (.61) (.41)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.09 $11.82 $12.66 $12.05 $11.61 $11.56 $12.08 $11.80
------- ------ ------ ------ ------ ------ ------ ------
------- ------ ------ ------ ------ ------ ------ ------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(4) 8.93% (.60)% 12.53% 11.21% 7.94% 1.95%
7.90% (5.42)%
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $78,134 $79,555 $72,387 $40,055 $13,924 $2,027 $2,648 $1,203
- -----------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $76,148 $81,741 $54,840 $26,304 $6,661 $1,685 $1,904 $649
- -----------------------------------------------------------------------------------------------------------------------------------
Number of shares outstanding
at end of period (in thousands) 6,462 6,732 5,719 3,324 1,199 175 219 102
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 6.27% 6.09% 6.46% 6.74% 6.94% 5.48%(5) 5.17%
4.91%(5)
Expenses .57% .53% .39% .32% .33%(3) .20%(3)(5) 1.55% 1.62%(5)
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 14.2% 20.2% 5.8% 25.7% 14.6% 0.0% 14.2% 20.2%
<FN>
1. For the period from October 29, 1993 (inception of offering)
to June 30, 1994.
2. For the period from May 18, 1990 (commencement of operations)
to June 30, 1990.
3. Net investment income would have been $.82 and $.04 per share
in 1991 and 1990 absent the voluntary expense assumption,
resulting in an expense ratio of .42% and 1.93%, respectively.
4. Assumes a hypothetical initial investment on the business day
before the first day of the fiscal period, with all dividends and
distributions reinvested in additional shares on the reinvestment
date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not
reflected in the total returns. Total returns are not annualized
for periods of less than one full year.
5. Annualized.
6. The lesser of purchases or sales of portfolio securities for a
period, divided by the monthly average of the market value of
portfolio securities owned during the period. Securities with a
maturity or expiration date at the time of acquisition of one
year or less are excluded from the calculation. Purchases and
sales of investment securities (excluding short-term securities)
for the period ended June 30, 1995 were $10,984,988 and
$14,179,152, respectively.
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SIGNIFICANT Oppenheimer Main Street California Tax-Exempt Fund
ACCOUNTING POLICIES (the Fund) is a separate series of Oppenheimer Main
Street Funds, Inc., an open-end management investment
company registered under the Investment Company Act
of 1940, as amended. The Fund's investment advisor is
Oppenheimer Management Corporation (the Manager). The
Fund offers both Class A and Class B shares. Class A
shares are sold with a front-end sales charge. Class
B shares may be subject to a contingent deferred
sales charge. Both classes of shares have identical
rights to earnings, assets and voting privileges,
except that each class has its own expenses directly
attributable to a particular class and exclusive
voting rights with respect to matters affecting a
single class. In addition, Class B shares have their
own distribution plan and will automatically convert
to Class A shares six years after the date of
purchase. The following is a summary of significant
accounting policies consistently followed by the
Fund.
-----------------------------------------------------
INVESTMENT VALUATION. Portfolio securities are valued
at the close of the New York Stock Exchange on each
trading day. Listed and unlisted securities for which
such information is regularly reported are valued at
the last sale price of the day or, in the absence of
sales, at values based on the closing bid or asked
price or the last sale price on the prior trading
day. Long-term and short-term ``non-money market''
debt securities are valued by a portfolio pricing
service approved by the Board of Directors. Such
securities which cannot be valued by the approved
portfolio pricing service are valued using
dealer-supplied valuations provided the Manager is
satisfied that the firm rendering the quotes is
reliable and that the quotes reflect current market
value, or under consistently applied procedures
established by the Board of Directors to determine
fair value in good faith. Short-term "money market
type" debt securities having a remaining maturity of
60 days or less are valued at cost (or last
determined market value) adjusted for amortization to
maturity of any premium or discount.
-----------------------------------------------------
ALLOCATION OF INCOME, EXPENSES AND GAINS AND LOSSES.
Income, expenses (other than those attributable to a
specific class) and gains and losses are allocated
daily to each class of shares based upon the relative
proportion of net assets represented by such class.
Operating expenses directly attributable to a
specific class are charged against the operations of
that class.
-----------------------------------------------------
FEDERAL TAXES. The Fund intends to continue to comply
with provisions of the Internal Revenue Code
applicable to regulated investment companies and to
distribute all of its taxable income, including any
net realized gain on investments not offset by loss
carryovers, to shareholders. Therefore, no federal
income or excise tax provision is required.
-----------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS. The Fund intends to
declare dividends separately for Class A and Class B
shares from net investment income each day the New
York Stock Exchange is open for business and pay such
dividends monthly. Distributions from net realized
gains on investments, if any, will be declared at
least once each year.
-----------------------------------------------------
CLASSIFICATION OF DISTRIBUTIONS TO SHAREHOLDERS. Net
investment income (loss) and net realized gain (loss)
may differ for financial statement and tax purposes
primarily because of premium amortization. The
character of the distributions made during the year
from net investment income or net realized gains may
differ from their ultimate characterization for
federal income tax purposes. Also, due to timing of
dividend distributions, the fiscal year in which
amounts are distributed may differ from the year that
the income or realized gain (loss) was recorded by
the Fund.
During the year ended June 30, 1995, the
Fund changed the classification of distributions to
shareholders to better disclose the differences
between financial statement amounts and distributions
determined in accordance with income tax regulations.
Accordingly, amounts have been reclassified to
reflect a decrease in paid-in capital of $938, an
increase in overdistributed net investment income of
$16,796, and an increase in accumulated net realized
gain on investments of $17,734.
-----------------------------------------------------
OTHER. Investment transactions are accounted for on
the date the investments are purchased or sold (trade
date) and dividend income is recorded on the
ex-dividend date. Original issue discount on
securities purchased is amortized over the life of
the respective securities, in accordance with federal
income tax requirements. For bonds acquired after
April 30, 1993, accrued market discount is recognized
at maturity or disposition as taxable ordinary
income. Taxable ordinary income is realized to the
extent of the lesser of gain or accrued market
discount. Realized gains and losses on investments
and unrealized appreciation and depreciation are
determined on an identified cost basis, which is the
same basis used for federal income tax purposes.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2. CAPITAL STOCK The Fund has authorized 26,250,000 shares of $.01 par
value capital stock of each class. Transactions in
shares of capital stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1995 YEAR ENDED JUNE 30,
1994(1)
----------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A:
Sold 549,187 $ 6,492,313 1,640,622 $20,818,911
Dividends and distributions reinvested 262,815 3,070,057 275,074 3,448,622
Redeemed (1,081,996) (12,506,362) (903,096) (11,196,635)
---------- ----------- --------- -----------
Net increase (decrease) (269,994) $(2,943,992) 1,012,600 $13,070,898
---------- ----------- --------- -----------
---------- ----------- --------- -----------
--------------------------------------------------------------------------------------------------------
Class B:
Sold 125,642 $ 1,482,012 101,400 $ 1,258,622
Dividends and distributions reinvested 4,898 57,310 1,061 12,907
Redeemed (13,193) (155,361) (555) (6,655)
---------- ----------- --------- -----------
Net increase 117,347 $ 1,383,961 101,906 $ 1,264,874
---------- ----------- --------- -----------
---------- ----------- --------- -----------
<FN>
1. For the year ended June 30, 1994 for Class A
shares and for the period from October 29, 1993
(inception of offering) to June 30, 1994 for Class B
shares.
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3. UNREALIZED GAINS AND At June 30, 1995, net unrealized depreciation on
LOSSES ON INVESTMENTS investments of $491,643 was composed of gross
appreciation of $1,404,320, and gross depreciation of
$1,895,963.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4. MANAGEMENT FEES AND Management fees paid to the Manager were in
OTHER TRANSACTIONS accordance with the investment advisory agreement
WITH AFFILIATES with the Fund which provides for a fee of .55% of
average annual net assets, with a contractual waiver
when net assets are less than $100 million. Annual
fees, reflecting this waiver, are .40% of net assets
of $75 million or more but less than $100 million,
.25% of net assets of $50 million or more but less
than $75 million, .15% of net assets of $25 million
or more but less than $50 million, and 0% of net
assets less than $25 million. The Manager has agreed
to assume Fund expenses (with specified exceptions)
in excess of the regulatory limitation of the state
of California.
For the year ended June 30, 1995,
commissions (sales charges paid by investors) on
sales of Class A shares totaled $177,634, of which
$28,801 was retained by Oppenheimer Funds
Distributor, Inc. (OFDI), a subsidiary of the
Manager, as general distributor, and by an affiliated
broker/dealer. Sales charges advanced to
broker/dealers by OFDI on sales of the Fund's Class B
shares totaled $52,930. During the year ended June
30, 1995, OFDI received contingent deferred sales
charges of $6,447 upon redemption of Class B shares.
Oppenheimer Shareholder Services
(OSS), a division of the Manager, is the transfer and
shareholder servicing agent for the Fund, and for
other registered investment companies. OSS's total
costs of providing such services are allocated
ratably to these companies.
Under a separate approved plan, the
Fund may expend up to .25% of its Class B net assets
annually to reimburse OFDI for costs incurred in
connection with the personal service and maintenance
of accounts that hold Class B shares of the Fund,
including amounts paid to brokers, dealers, banks and
other institutions. In addition, Class B shares are
subject to an asset-based sales charge of .75% of net
assets annually, to reimburse OFDI for sales
commissions paid from its own resources at the time
of sale and associated financing costs. In the event
of termination or discontinuance of the Class B plan,
the Board of Directors may allow the Fund to continue
payment of the asset-based sales charge to OFDI for
distribution expenses incurred on Class B shares sold
prior to termination or discontinuance of the plan.
During the year ended June 30, 1995, OFDI retained
$17,832 as reimbursement for Class B sales
commissions and service fee advances, as well as
financing costs.
<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, and California state
individual income tax rates effective January 1, 1995. "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). For years beginning after January 1, 1996, the top
marginal California personal tax rate will be reduced to 9.3% and the top
combined marginal tax will be 45.22%.
<TABLE>
<CAPTION>
Combined Taxable Income
Joint Return Effective Tax Bracket Oppenheimer California Tax-Exempt Fund Yield of:
But Cali- Com- 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5%
7.0%
Over Not Over Federal fornia bined Is Approximately Equivalent to a Taxable Yield of:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<C>
$ 22,384 $ 35,324 15.00% 4.00% 18.40% 3.68% 4.29% 4.90% 5.51% 6.13% 6.74% 7.35% 7.97%
8.58%
$ 35,324 $ 39,000 15.00% 6.00% 20.10% 3.75% 4.38% 5.01% 5.63% 6.26% 6.88% 7.51% 8.14%
8.76%
$ 39,000 $ 49,038 28.00% 6.00% 32.32% 4.43% 5.17% 5.91% 6.65% 7.39% 8.13% 8.87% 9.60%
10.34%
$ 49,038 $ 61,974 28.00% 8.00% 33.76% 4.53% 5.28% 6.04% 6.79% 7.55% 8.30% 9.06% 9.81%
10.57%
$ 61,974 $ 94,250 28.00% 9.30% 34.70% 4.59% 5.36% 6.13% 6.89% 7.66% 8.42% 9.19% 9.95%
10.72%
$ 94,250 $143,600 31.00% 9.30% 37.42% 4.79% 5.59% 6.39% 7.19% 7.99% 8.79% 9.59% 10.39%
11.19%
$143,600 $214,928 36.00% 9.30% 41.95% 5.17% 6.03% 6.89% 7.75% 8.61% 9.47% 10.34% 11.20%
12.06%
$214,928 $256,500 36.00% 10.00% 42.40% 5.21% 6.08% 6.94% 7.81% 8.68% 9.55% 10.42% 11.28%
12.15%
$256,500 $429,858 39.60% 10.00% 45.64% 5.52% 6.44% 7.36% 8.28% 9.20% 10.12% 11.04% 11.96%
12.88%
$429,858 39.60% 11.00% 46.24% 5.58% 6.51% 7.44% 8.37% 9.30% 10.23% 11.16% 12.09%
13.02%
</TABLE>
<TABLE>
<CAPTION>
Single Return:
But
Over Not Over
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<C>
$ 17,662 $ 23,350 15.00% 6.00% 20.10% 3.75% 4.38% 5.01% 5.63% 6.26% 6.88% 7.51% 8.14%
8.76%
$ 23,350 $ 24,519 28.00% 6.00% 32.32% 4.43% 5.17% 5.91% 6.65% 7.39% 8.13% 8.87% 9.60%
10.34%
$ 24,519 $ 30,987 28.00% 8.00% 33.76% 4.53% 5.28% 6.04% 6.79% 7.55% 8.30% 9.06% 9.81%
10.57%
$ 30,987 $ 56,550 28.00% 9.30% 34.70% 4.59% 5.36% 6.13% 6.89% 7.66% 8.42% 9.19% 9.95%
10.72%
$ 56,550 $107,464 31.00% 9.30% 37.42% 4.79% 5.59% 6.39% 7.19% 7.99% 8.79% 9.59% 10.39%
11.19%
$107,464 $117,950 31.00% 10.00% 37.90% 4.83% 5.64% 6.44% 7.25% 8.05% 8.86% 9.66% 10.47%
11.27%
$117,950 $214,929 36.00% 10.00% 42.40% 5.21% 6.08% 6.94% 7.81% 8.68% 9.55% 10.42% 11.28%
12.15%
$214,929 $256,500 36.00% 11.00% 43.04% 5.27% 6.14% 7.02% 7.90% 8.78% 9.66% 10.53% 11.41%
12.29%
$256,500 39.60% 11.00% 46.24% 5.58% 6.51% 7.44% 8.37% 9.30% 10.23% 11.16% 12.09%
13.02%
</TABLE>
<PAGE>
APPENDIX C
Industry Classifications
General Obligation Bonds
Special Tax Bonds
Lease/Rental
Revenue
Education
Hospitals
Housing
Transportation
Utilities
Student Loans
Corporate Backed Municipals
Industrial Development
Pollution Control
<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 LLP
555 Seventeenth Street
Denver, Colorado 80202-3942
Legal Counsel
Myer, Swanson, Adams & Wolf, P.C.
1600 Broadway
Denver, Colorado 80202
