Oppenheimer
Main Street Income & Growth Fund
Prospectus dated November 1, 1996
Oppenheimer Main Street Income & Growth 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 refer to "Investment Risks" for a discussion on 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, 1996, Statement of Additional Information. For a free copy, call
OppenheimerFunds Services, the Fund's Transfer Agent, at 1-800-525-7048, or
write to the Transfer Agent at the address on the back cover. The Statement of
Additional Information has been filed with the Securities and Exchange
Commission and is incorporated into this Prospectus by reference (which means
that it is legally part of this Prospectus).
(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.
-1-
<PAGE>
<TABLE>
<CAPTION>
Contents
<S> <C>
ABOUT THE FUND
3 Expenses
5 A Brief Overview of the Fund
7 Financial Highlights
10 Investment Objectives and Policies
11 Investment Risks
13 Investment Techniques and Strategies
19 How the Fund is Managed
21 Performance of the Fund
ABOUT YOUR ACCOUNT
25 How to Buy Shares
Class A Shares
Class B Shares
Class C Shares
Class Y Shares
39 Special Investor Services
AccountLink
Automatic Withdrawal and Exchange Plans
Reinvestment Privilege
Retirement Plans
41 How to Sell Shares
By Mail
By Telephone
43 How to Exchange Shares
45 Shareholder Account Rules and Policies
46 Dividends, Capital Gains and Taxes
A-1 Appendix A: Special Sales Charge Arrangements
</TABLE>
-2-
<PAGE>
A B O U T T H E F U N D
Expenses
The Fund pays a variety of expenses directly for management of its assets,
administration, distribution of its shares and other services, and those
expenses are subtracted from the Fund's assets to calculate the Fund's net asset
value per share. All shareholders therefore pay those expenses indirectly.
Shareholders pay other expenses directly, such as sales charges and account
transaction charges. The following tables are provided to help you understand
your direct expenses of investing in the Fund and your share of the Fund's
business operating expenses that you might expect to bear indirectly. The
numbers below are based on the Fund's expenses during its fiscal year ended June
30, 1996.
o Shareholder Transaction Expenses are charges you pay when you buy or
sell shares of the Fund. Please refer to "About Your Account" from pages 26
through 49 for an explanation of how and when these charges apply.
<TABLE>
<CAPTION>
Class A Class B Class C Class Y
Shares Shares Shares Shares
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------
Maximum Sales 5.75% None None None
Charge on Purchases
(as a % of offering price)
- -----------------------------------------------------------------------------
Maximum Deferred Sales Charge None(1) 5% in the first 1.0% if None
(as a % of the lower year, declining shares
of the original offering to 1% in the are redeemed
price or redemption proceeds) sixth year and within 12
eliminated months of
thereafter(2) purchase(2)
- -----------------------------------------------------------------------------
Maximum Sales Charge on None None None None
Reinvested Dividends
- -----------------------------------------------------------------------------
Redemption Fee None(3) None(3) None(3) None(3)
- -----------------------------------------------------------------------------
Exchange Fee None None None None
<FN>
(1)If you invest $1 million or more($500,000 or more for purchases by
"Retirement Plans," as defined in "Class A Contingent Deferred Sales Charge" on
page 31), in Class A shares, you may have to pay
-3-
<PAGE>
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 - Buying Class A Shares," below. (2)See "How to Buy Shares -
Buying Class B Shares" and "How to Buy Shares - Buying 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 transfer through AccountLink. See "How to Sell
Shares," below.
</FN>
</TABLE>
o Annual Fund Operating Expenses are paid out of the Fund's assets and
represent the Fund's expenses in operating its business. For example, the Fund
pays management fees to its investment adviser, OppenheimerFunds, Inc. (which is
referred to in this Prospectus as the "Manager"). The rates of the Manager's
fees are set forth in "How the Fund is Managed," below. The Fund has other
regular expenses for services, such as transfer agent fees, custodial fees paid
to the bank that holds its portfolio securities, audit fees and legal expenses.
Those expenses are detailed in the Fund's Financial Statements in the Statement
of Additional Information.
<TABLE>
<CAPTION>
Annual Fund Operating Expenses
(as a Percentage of Average Net Assets):
Class A Class B Class C Class Y
Shares Shares Shares Shares
<S> <C> <C> <C> <C>
- -----------------------------------------------------------
Management Fees 0.47% 0.47% 0.47% 0.47%
- -----------------------------------------------------------
12b-1 Plans Fees 0.24% 1.00% 1.00% None
- -----------------------------------------------------------
Other Expenses 0.28% 0.29% 0.27% 0.28%
- -----------------------------------------------------------
Total Fund
Operating Expenses 0.99% 1.76% 1.74% 0.75%
</TABLE>
The numbers in the chart above are based on the Fund's expenses in its
fiscal year ended June 30, 1996. 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 fees. The maximum is
0.25% of average net assets for that Class. For Class B and Class C shares, the
Distribution Plan Fees are the service plan fees (the maximum fee
-4-
<PAGE>
for each class is 0.25% of average annual net assets of the respective class)
and the asset-based sales charge of 0.75% of average annual net assets of the
respective class. These plans are described in greater detail in "How to Buy
Shares." Class Y shares were not publicly offered during the fiscal year ended
June 30, 1996. Therefore, the "Other Expenses" for Class Y shares are estimates
based on expenses that would have been payable if Class Y shares had been
outstanding during that fiscal period. 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.
o Examples. To try to show the effect of these expenses on an
investment over time, we have created the hypothetical examples shown below.
Assume that you make $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 $67 $87 $109 $172
Class B Shares $68 $85 $115 $168
Class C Shares $28 $55 $ 94 $205
Class Y Shares $ 8 $24 $ 42 $ 93
If you did not redeem your investment, it would incur the following
expenses:
1 year 3 years 5 years 10 years(1)
<S> <C> <C> <C> <C>
- -------------------------------------------------------------
Class A Shares $67 $87 $109 $172
Class B Shares $18 $55 $ 95 $168
Class C Shares $18 $55 $ 94 $205
Class Y Shares $ 8 $24 $ 42 $ 93
<FN>
(1)In the first example, expenses include the Class A initial sales charge and
the applicable Class B or Class C contingent deferred sales charge. In the
second example, Class A expenses include the initial sales charges but Class B
and Class C expenses do not include contingent deferred sales charges. The Class
B expenses in
-5-
<PAGE>
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.
</FN>
</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 may be more or less than those shown.
A Brief Overview of the Fund
Some of the important facts about the Fund are summarized below, with references
to the section of this Prospectus where more complete information can be found.
You should carefully read the entire Prospectus before making a decision about
investing in the Fund. Keep the Prospectus for reference after you invest,
particularly for information about your accounts, such as how to sell or
exchange shares.
o What is the Fund's Investment Objective? The Fund's investment
objective is to seek a high total return (which includes current income and
capital appreciation in the value of its shares) from equity and debt
securities.
o 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 11.
o Who Manages the Fund? The Fund's investment adviser (the
"Manager") is OppenheimerFunds, Inc. The Manager (including a
-6-
<PAGE>
subsidiary) manages investment company portfolios having over $55 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 Directors, elected by shareholders, oversees the
investment adviser and the portfolio manager. Please refer to "How the Fund is
Managed" starting on page 20 for more information about the Manager and its
fees.
o 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 also 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.
In the Oppenheimer funds spectrum, the Fund is generally more
conservative than aggressive growth funds, but more aggressive than investment
grade bond funds. While the Manager tries to reduce risks by 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 Risks" starting on page 12 for a more complete
discussion of the Fund's investment risks.
o How Can I Buy Shares? You can buy shares through your dealer or
financial institution, or you can purchase shares directly through the
Distributor by completing an Application or by using an Automatic Investment
Plan under AccountLink. Please refer to "How to Buy Shares" on page 26 for more
details.
o 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
-7-
<PAGE>
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 26 for more details, including a discussion about factors you and your
financial advisor should consider in determining which class may be appropriate
for you.
o How Can I Sell My Shares? Shares can be redeemed by mail or by
telephone call to the Transfer Agent on any business day, or through your
dealer. Please refer to "How to Sell Shares" on page 42. The Fund also offers
exchange privileges to other Oppenheimer funds, described in "How to Exchange
Shares" on page 44.
o How Has the Fund Performed? The Fund measures its performance by
quoting its total returns, 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 24 and 25. 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. The Fund recently changed its fiscal year end from
June 30 to August 31 and information for both the fiscal year ended June 30,
1996 and the fiscal period ended August 31, 1996 is included in that table. This
information has been audited by Deloitte & Touche LLP, the Fund's independent
auditors, whose reports on the Fund's financial statements for the fiscal year
ended June 30, 1996 and the fiscal period ended August 31, 1996, are included in
the Statement of Additional Information. Class Y shares were not offered during
the period shown. Accordingly, no information on Class Y shares is reflected in
the tables below or in the Fund's other financial statements.
-8-
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------
Financial Highlights
Class A
------------------------------------------------------------------------
Two Months
Ended
August 31, Year Ended June 30,
1996(2) 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Data:
Net asset value, beginning of period $28.89 $24.07 $20.40 $19.88 $15.46
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .07 .40 .47 .37 .16
Net realized and unrealized gain (loss) (1.01) 4.93 3.66 2.50 6.65
- ------------------------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment
operations (.94) 5.33 4.13 2.87 6.81
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income -- (.43) (.46) (.36) (.19)
Distributions from net realized gain -- (.08) -- -- (2.20)
Distributions in excess of gains -- -- -- (1.99) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions
to shareholders -- (.51) (.46) (2.35) (2.39)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $27.95 $28.89 $24.07 $20.40 $19.88
==============================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return, at Net Asset Value(6) (3.25)% 22.26% 20.52% 14.34% 46.38%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data:
Net assets, end of period (in millions) $3,143 $3,147 $1,924 $740 $58
- ------------------------------------------------------------------------------------------------------------------------------------
Average net assets (in millions) $3,090 $2,516 $1,319 $270 $39
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 1.57%(7) 1.55% 2.31% 2.46% 1.02%
Expenses, before reimbursement from or
assumption by the Manager 0.98%(7) 0.99% 1.07% 1.28% 1.46%
Expenses, net of reimbursement from or
assumption by the Manager N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(8) 17.5% 92.6% 101.3% 199.4% 283.0%
Average brokerage commission rate(9) $0.0590 $0.0571 -- -- --
<PAGE>
------------------------------------------------------------------------
-------------------------------------------------------------------------
Year Ended June 30,
1992 1991 1990 1989 1988(4)
- ------------------------------------------------------------------------------------------------------------------------------------
Per Share Operating Data:
Net asset value, beginning of period $13.22 $12.38 $11.67 $10.13 $9.60
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .25 .38 .17 .24(5) .05
Net realized and unrealized gain (loss) 4.72 .87 .88 1.62 .52
- ------------------------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment
operations 4.97 1.25 1.05 1.86 .57
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.22) (.41) (.19) (.19) (.04)
Distributions from net realized gain (2.51) -- (.15) (.13) --
Distributions in excess of gains -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions
to shareholders (2.73) (.41) (.34) (.32) (.04)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $15.46 $13.22 $12.38 $11.67 $10.13
==============================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return, at Net Asset Value(6) 39.48% 10.60% 9.07% 18.77% 5.94%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental Data:
Net assets, end of period (in millions) $27 $16 $14 $1 $--
- -----------------------------------------------------------------------------------------------------------------------------------
Average net assets (in millions) $23 $15 $8 $1 $--
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 1.63% 3.15% 2.33% 2.67% 2.86%(7)
Expenses, before reimbursement from or
assumption by the Manager 1.66% 1.84% 2.21% 2.46% 10.54%(7)
Expenses, net of reimbursement from or
assumption by the Manager N/A N/A N/A 2.12%(5) N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(8) 290.1% 208.9% 214.3% 136.8% 18.8%
Average brokerage commission rate(9) -- -- -- -- --
<PAGE>
-------------------------------------------------------------
Class B
-------------------------------------------------------------
Two Months
Ended
August 31, Year Ended June 30,
1996(2) 1996 1995(3)
- ------------------------------------------------------------------------------------------------------------------------------------
Per Share Operating Data:
Net asset value, beginning of period $28.77 $24.00 $21.49
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .04 .23 .25
Net realized and unrealized gain (loss) (1.02) 4.87
2.54
- ------------------------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment
operations (.98) 5.10 2.79
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income -- (.25) (.28)
Distributions from net realized gain -- (.08) --
Distributions in excess of gains -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions
to shareholders -- (.33) (.28)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $27.79 $28.77 $24.00
=============================================================
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return, at Net Asset Value(6) (3.41)% 21.34% 13.15%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental Data:
Net assets, end of period (in millions) $1,909 $1,800 $628
- ------------------------------------------------------------------------------------------------------------------------------------
Average net assets (in millions) $1,818 $1,155 $249
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 0.82%(7) 0.74% 1.25%(7)
Expenses, before reimbursement from or
assumption by the Manager 1.74%(7) 1.76% 1.89%(7)
Expenses, net of reimbursement from or
assumption by the Manager N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(8) 17.5% 92.6% 101.3%
Average brokerage commission rate(9) $0.0590 $0.0571 --
<PAGE>
----------------------------------------------------------------
Class C
----------------------------------------------------------------
Two Months
Ended
August 31, Year Ended June 30,
1996(2) 1996 1995 1994(1)
- ----------------------------------------------------------------------------------------------------------------------------
Per Share Operating Data:
Net asset value, beginning of period $28.75 $23.97 $20.33 $20.76
- ----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .04 .21 .33 .13
Net realized and unrealized gain (loss) (1.01) 4.88 3.62 (.42)
- ----------------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment
operations (.97) 5.09 3.95 (.29)
- ----------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income -- (.23) (.31) (.14)
Distributions from net realized gain -- (.08) -- --
Distributions in excess of gains -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions
to shareholders -- (.31) (.31) (.14)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $27.78 $28.75 $23.97 $20.33
=================================================================
- ----------------------------------------------------------------------------------------------------------------------------
Total Return, at Net Asset Value(6) (3.37)% 21.35% 19.63% (0.97)%
- ----------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data:
Net assets, end of period (in millions) $744 $741 $462 $170
- ----------------------------------------------------------------------------------------------------------------------------
Average net assets (in millions) $730 $588 $325 $72
- ----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 0.82%(7) 0.80% 1.57% 1.86%(7)
Expenses, before reimbursement from or
assumption by the Manager 1.73%(7) 1.74% 1.82% 2.11%(7)
Expenses, net of reimbursement from or
assumption by the Manager N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(8) 17.5% 92.6% 101.3% 199.4%
Average brokerage commission rate(9) $0.0590 $0.0571 -- --
<PAGE>
<FN>
1. For the period from December 1, 1993 (inception of offering) to June 30, 1994.
2. The Fund changed its fiscal year end from June 30 to August 31.
3. For the period from October 1, 1994 (inception of offering) to June 30, 1995.
4. For the period from February 3, 1988 (commencement of operations) to June 30,
1988.
5. Net investment income would have been $0.20 per share absent the voluntary
expense reimbursement, resulting in an expense ratio of 2.46%.
6. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all dividends
and distributions reinvested in additional shares on the reinvestment date, and
redemption at the net asset value calculated on the last business day of the
fiscal period. Sales charges are not reflected in the total returns.
Total returns are not annualized for periods of less than one full year.
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 August 31, 1996 were $815,164,979 and $1,001,434,430, respectively.
9. Total brokerage commissions paid on applicable purchases and sales of
portfolio securities for the period divided by the total number of related
shares purchased and sold.
</FN>
</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.
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, OppenheimerFunds,
Inc. (the "Manager"), and perceived relative total anticipated return from such
types of securities.
The Fund may try to hedge against losses in the value of its portfolio
of securities by using hedging strategies and derivative investments described
below. The Fund's portfolio manager may employ special investment techniques in
selecting securities for the Fund. These are also described below. Additional
information may be found about them under the same headings in the Statement of
Additional Information.
o 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,
-9-
<PAGE>
although significant changes will be described in amendments to
this Prospectus.
o 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 years and intends to do so in the coming year,
although it reserves the right not to qualify.
Investment Risks.
All investments carry risks to some degree, whether they are risks that market
prices of the investment will fluctuate (this is known as "market risk") or that
the underlying issuer will experience financial difficulties and may default on
its obligation under a fixed-income investment to pay interest and repay
principal (this is referred to as "credit risk"). These general investment
risks, and the special risks of certain types of investments that the Fund may
hold are described below. They affect the value of the Fund's investments, its
investment performance, and the prices of its shares. These risks collectively
form the risk profile of the Fund.
Because of the types of securities the Fund invests in and the
investment techniques the Fund uses, the Fund is designed for investors who are
investing for the long term. It is not intended for investors seeking assured
income or preservation of capital. While the Manager tries to reduce risks by
diversifying investments, by carefully researching securities before they are
purchased, and in some cases by using hedging techniques, changes in overall
market prices can occur at any time, and because the income earned on securities
is subject to change, there is no assurance that the Fund will achieve its
investment objective. When you redeem your shares, they may be worth more or
less than what you paid for them.
-10-
<PAGE>
o Stock Investment Risks. Because the Fund invests a substantial
portion of its assets in stocks, the value of the Fund's portfolio will be
affected by changes in the stock markets. At times, the stock markets can be
volatile and stock prices can change substantially. This market risk will affect
the Fund's net asset value 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 and not all stock markets move in the same direction at the same
time. Other factors can affect a particular stock's prices, such as poor
earnings reports by an issuer, loss of major customers, major litigation against
an issuer, or changes in government regulations affecting an industry.
Not all of these factors can be predicted.
The Fund attempts to limit market risks by diversifying its
investments, that is, by not holding a substantial amount of stock of any one
company and by not investing too great a percentage of the Fund's assets in any
one company. Also, the Fund does not concentrate its investments in any one
industry or group of industries.
o Interest Rate Risks. In addition to credit risks, described below,
debt securities are subject to changes in their value due to changes in
prevailing interest rates. When prevailing interest rates fall, the value of
already-issued debt securities generally rise. When interest rates rise, the
values of already- issued debt securities generally decline. The magnitude of
these fluctuations will often be greater for longer-term debt securities than
shorter-term debt securities. Changes in the value of securities held by the
Fund mean that the Fund's share prices can go up or down when interest rates
change because of the effect of the change on the value of the Fund's portfolio
of debt securities.
o Foreign Securities Have Special Risks. The Fund may invest in foreign
securities. While foreign securities offer special investment opportunities,
there are also special risks. The change in value of a foreign currency against
the U.S. dollar will result in a change in the U.S. dollar value of securities
denominated in that foreign currency. Foreign issuers are not subject to the
same accounting and disclosure requirements that U.S. companies are subject to.
The value of foreign investments may be affected by exchange control
regulations, expropriation or nationalization of a company's assets, foreign
taxes, delays in settlement of transactions, changes in governmental economic or
monetary policy in the U.S. or abroad, or other political and economic factors.
-11-
<PAGE>
Securities in emerging market countries may be more difficult to sell and their
prices may be more volatile. More information about the risks and potential
rewards of investing in foreign securities is contained in the Statement of
Additional Information.
o Special Risks of Lower-Grade Securities. The Manager may select
high-yield, below investment grade debt securities (including both rated and
unrated securities). These "lower-grade" securities are commonly known as "junk
bonds." All corporate debt securities (whether foreign or domestic) are subject
to some degree of credit risk. Credit risk relates to the ability of the issuer
to meet interest or principal payments on a security as they become due.
Generally, higher yielding lower-grade bonds whether rated or unrated, often
have speculative characteristics and special risks that make them riskier
investments than investment grade securities and are subject to credit risks.
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 and principal due
on the bonds. The issuer's low creditworthiness may increase the potential for
its insolvency. A decline in their values is also likely in the high yield bond
market during a general economic downturn. An economic downturn or an increase
in interest rates could severely disrupt the market for high yield bonds and
adversely affect the value of outstanding bonds and the ability of the issuers
to repay principal and interest. For foreign lower-grade debt securities, these
risks are in addition to the risks of investing in foreign securities, described
above. 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.
o Hedging instruments can be volatile instruments and may
involve special risks. The Fund may invest in a number of
different kinds of hedging instruments. The use of hedging
instruments requires special skills and knowledge of investment
-12-
<PAGE>
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.
o There are special risks in investing in derivative investments. The
Fund can invest in a number of different kinds of "derivative" investments. In
general, a "derivative investment" is a specially designed investment whose
performance is linked to the performance of another investment or security, such
as an option, future, index, currency or commodity. The company issuing the
instrument may fail to pay the amount due on the maturity of the instrument.
Also, the underlying investment or security might not perform the way the
Manager expected it to perform. Markets, underlying securities and indices may
move in a direction not anticipated by the Manager. Performance of derivative
investments may also be influenced by interest rate and stock market changes in
the U.S. and abroad. All of this can mean that the Fund will realize less
principal or income from the investment than expected. Certain derivative
investments held by the Fund may be illiquid. Please refer to "Illiquid and
Restricted Securities."
-13-
<PAGE>
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 are designed to reduce some of the risks.
o 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.
o Warrants and Rights. Warrants basically are options to purchase stock
at set prices that are valid for a limited period of time. Rights are similar to
warrants but normally have a short duration and are distributed directly by the
issuer to its shareholders. The Fund may invest up to 10% of its total assets in
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. For further details
about these investments, please refer to "Warrants and Rights" in the Statement
of Additional Information.
o 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.
o 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, which are bonds rated at least "Baa" by
Moody's Investors Service, Inc. ("Moody's") or at least "BBB" by
-14-
<PAGE>
Standard & Poor's Corporation ("Standard & Poor's") or by Duff & Phelps, Inc.
("Duff & Phelps") or having comparable ratings by another nationally recognized
statistical rating organization. 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 commonly known as "junk bonds." "Lower- grade" debt securities are
those rated below "investment grade," which means they have a rating lower than
"Baa" by Moody's or lower than "BBB" by Standard & Poor's or Duff & Phelps or
similar ratings by other rating organizations, or if unrated, are determined by
the Manager to be of comparable quality to debt securities rated below
investment grade. 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. While securities
rated "Baa" by Moody's or "BBB" by Standard & Poor's or Duff & Phelps are
investment grade and are not regarded as "junk bonds" those securities may be
subject special risks described in "Investment Risks," above.
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.
Other Investment Techniques and Strategies. The Fund may also use the investment
techniques and strategies described below. These techniques involve certain
risks. The Statement of Additional Information contains more information about
these practices, including limitations on their use that may help to reduce some
of the risks.
o 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). After
any such borrowing, the Fund's total assets, less its liabilities other than
borrowings, must remain equal to at least 300% of all borrowings as set forth in
the Investment Company Act. Interest on borrowed money is an expense the Fund
would not otherwise incur, so that it may have substantially reduced net
investment income during periods of substantial borrowings. The Fund's ability
to borrow money from banks subject to the 300% asset coverage requirement is a
-15-
<PAGE>
fundamental policy.
o 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).
o "When-Issued" and Delayed Delivery Transactions. The Fund may
purchase securities on a "when-issued" basis and may purchase or sell securities
on a "delayed delivery" basis. These terms refer to securities that have been
created and for which a market exists, but which are not available for immediate
delivery. There may be a risk of loss to the Fund if the value of the security
declines prior to the settlement date.
o 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.
o 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.
o Illiquid and Restricted Securities. Under the policies and
-16-
<PAGE>
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 (the Board may increase that limit to 15%).
The Manager monitors holdings of illiquid securities on an ongoing basis and at
times the Fund may be required to sell some holdings to maintain adequate
liquidity. Certain restricted securities, eligible for resale to qualified
institutional purchasers, are not subject to that limit.
o 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 total assets. There are some risks in connection
with securities lending. The Fund might experience a delay in receiving
additional collateral to secure a loan, or a delay in recovery of the loaned
securities. The Fund presently does not intend to engage in loans of securities
in the coming year.
o 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
-17-
<PAGE>
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 payments 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).
o 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
-18-
<PAGE>
securities. Writing covered call options may also provide income to the Fund for
liquidity purposes or to raise cash to distribute to shareholders.
o 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).
o 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 National Association of
Securities Dealers' Automated Quotation System ("NASDAQ") of the Nasdaq Stock
Market, Inc., 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 or to terminate
its obligation on a call the Fund previously wrote. 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 on securities, foreign
currencies or Futures, but only if they are "covered." Each call the Fund writes
must be "covered" while the call is outstanding. That means the Fund owns the
investment on which the call was written or the Fund owns and segregates liquid
assets to satisfy its obligation if the call is exercised. 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
-19-
<PAGE>
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.
o Forward Contracts. Forward contracts are foreign currency exchange
contracts. They are used to buy or sell foreign currency for future delivery at
a fixed price. The Fund uses them to "lock in" the U.S. dollar price of a
security denominated in a foreign currency that the Fund has bought or sold, or
to protect against possible losses from changes in the relative values of the
U.S. dollar and a foreign currency. The Fund limits its exposure in foreign
currency exchange contracts in a particular foreign currency to the amount of
its assets denominated in that currency or a closely-correlated currency. The
Fund may also use "cross- hedging" where the Fund hedges against changes in
currencies other than the currency in which a security it holds is denominated.
o 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 of any
type, including equity and debt securities of any grade, 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.
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:
o The Fund cannot buy securities issued or guaranteed by any
one issuer (except the U.S. Government or any of its agencies or
-20-
<PAGE>
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;
o The Fund cannot 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
o The Fund cannot concentrate investments to the extent of 25%
or more of its total assets in any industry; however, there is no
limitation as to investment in U.S. Government Securities.
Unless the prospectus states that a percentage restriction applies
continuously, it applies only at the time the Fund makes an investment, and the
Fund need not sell securities to meet the percentage limits if the value of the
investment increases in proportion to the size of the Fund. Other investment
restrictions are listed in "Investment Restrictions" in the Statement of
Additional Information.
How the Fund is Managed
Organization and History. 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 Fund's Articles of Incorporation.
-21-
<PAGE>
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 four classes of shares, Class A, Class B, Class C
and Class Y. All classes invest in the same investment portfolio. Each class has
its own dividends and distributions and pays certain expenses which may be
different for the different classes. Each class may have a different net asset
value. Each share has one vote at shareholder meetings, with fractional shares
voting proportionally 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 $55 billion as of
September 30, 1996, and with more than 3 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.
o 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.
o Fees and Expenses. Under the Investment Advisory Agreement, the Fund
pays the Manager the following annual fees, which decline on additional assets
as the Fund grows: 0.65% 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
average annual net
-22-
<PAGE>
assets in excess of $500 million. The Fund's management fee for its fiscal year
ended June 30, 1996 was 0.47% and its management fee for its fiscal period ended
August 31, 1996 was 0.46% of average annual net assets for each class of shares.
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.
o The Distributor. The Fund's shares are sold through dealers, brokers
and other financial institutions that have a sales agreement with
OppenheimerFunds Distributor, Inc., a subsidiary of the Manager that acts as the
Fund's Distributor. The Distributor also distributes shares of the other
Oppenheimer funds and is sub- distributor for funds managed by a subsidiary of
the Manager.
o The Transfer Agent. The Fund's transfer agent is OppenheimerFunds
Services, a division of the Manager, which acts as the shareholder servicing
agent for the Fund on an "at-cost" basis. It also acts as 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
-23-
<PAGE>
different as a result of the different kinds of expenses each class bears. These
returns measure the performance of a hypothetical investment in the Fund over
various periods, and do not show the performance of each shareholder's
investment (which will vary if dividends and distributions are received in cash
or shares are sold or additional shares are purchased). The Fund's performance
information may help you see how well your Fund has done over time and to
compare it to other funds or market indices, as we have done below.
It is important to understand that the Fund's total returns represent
past performance and should not be considered to be predictions of future
returns or performance. This performance data is described below, but more
detailed information about how total returns are calculated is contained in the
Statement of Additional Information, which also contains information about other
ways to measure and compare the Fund's performance. The Fund's investment
performance will vary over time, depending on market conditions, the composition
of the portfolio, expenses and which class of shares you purchase.
o Total Returns. There are different types of total returns used to
measure the Fund's performance. Total return is the change in value of a
hypothetical investment in the Fund over a given period, assuming that all
dividends and capital gains distributions are reinvested in additional shares.
The cumulative total return measures the change in value over the entire period
(for example, ten years). An average annual total return shows the average rate
of return for each year in a period that would produce the cumulative total
return over the entire period. However, average annual total returns do not show
the Fund's actual year-by-year performance.
When total returns are quoted for Class A shares, normally the current
maximum initial sales charge has been deducted. When total returns are shown for
Class B or Class C shares, normally the contingent deferred sales charge that
applies to the period for which total return is shown has been deducted.
However, total returns may also be quoted "at net asset value," without
considering the effect of the sales charge, and those returns would be less 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 years ended June 30, 1996 and August 31,
1996, followed by a graphical comparison of the
-24-
<PAGE>
Fund's performance to an appropriate broad-based market index.
o Management's Discussion of Performance. During the fiscal year ended
June 30, 1996 and the fiscal period ended August 31, 1996, the stock market
performed strongly, benefiting the Fund's overall performance, with the Fund
holding more than 75% of its assets in common stocks at June 30, 1996. Strong
corporate earnings bolstered the stock market's performance and the Fund's
dividend earnings. The Fund's holdings in short-term notes and Treasury
securities helped to protect the Fund's net asset value from the significant
volatility of the stock market during the last few months of the fiscal year.
The Manager's overall investment strategy during the last fiscal years
was to position the Funds's holdings primarily in the stock of companies
representing five strategic areas of the stock market: emerging and improving
industries; large growth companies that are among the principal companies in
their respective industries; smaller companies with specialized businesses,
companies undergoing restructuring; and fundamentally strong companies selling
at low market valuations.
o 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, 1996 and August 31, 1996. 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. Class Y shares were not publicly offered during the
fiscal years ended June 30, 1996 or August 31, 1996. Accordingly, no performance
information is presented on Class Y shares in the graphs below.
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
-25-
<PAGE>
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)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Avg. Annual Total Return of the Fund at 6/30/96
- --------------------------------------------------------------
A Shares 1 Year 5 Year Life(1)
- --------------------------------------------------------------
15.23% 26.52% 20.86%
- --------------------------------------------------------------
Avg. Annual Total Return of the Fund at 8/31/96
- --------------------------------------------------------------
A Shares 1 Year 5 Year Life(1)
- --------------------------------------------------------------
5.44% 21.77% 19.95%
- --------------------------------------------------------------
Avg. Annual Total Return of the Fund at 6/30/96
- --------------------------------------------------------------
B Shares 1 Year Life(2)
- --------------------------------------------------------------
16.34% 17.88%
- -------------------------------------------------------------
Avg. Annual Total Return of the Fund at 8/31/96
- -------------------------------------------------------------
B Shares 1 Year Life(2)
- -------------------------------------------------------------
6.01% 14.03%
Avg. Annual Total Return of the Fund at 6/30/96
- -------------------------------------------------------------
C Shares 1 Year Life(2)
- -------------------------------------------------------------
20.35% 14.89%
- -------------------------------------------------------------
</TABLE>
-26-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Avg. Annual Total Return of the Fund at 8/31/96
- -------------------------------------------------------------
C Shares 1 Year Life(2)
- -------------------------------------------------------------
10.05% 12.50%
<FN>
(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 show the change in
share value and include reinvestment of all dividends and capital gains
distributions and are shown net of the applicable 5.75% maximum initial sales
charge. The Fund's fiscal year end has changed from 6/30 to 8/31. (2)Class B
shares of the Fund were first publicly offered on 10/1/94. The average annual
total returns are shown net of the applicable 5% and 4% contingent deferred
sales charge respectively for the 1-year period and for the life of the class.
The ending account value in the graph is net of the applicable 4% contingent
deferred sales charge. (3)Class C shares of the Fund were first publicly offered
on 12/1/93. The 1-year return is shown net of the applicable 1% contingent
deferred sales charge.
</FN>
Past Performance is not predictive of Future Performance.
Graphs are not Drawn to Same Scale.
</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 individual investors three different classes
of shares. Only certain institutional investors may purchase a fourth class of
shares, Class Y shares. The different classes of shares represent investments in
the same portfolio of securities but are subject to different expenses and will
likely have different share prices.
o Class A Shares. If you buy Class A shares, you may pay an initial
sales charge on investments up to $1 million (up to $500,000 for purchases by
"Retirement Plans," as defined in "Class A Contingent Deferred Sales Charge" on
page 32). If you purchase Class A shares as part of an investment of at least $1
million ($500,000 for Retirement Plans) in shares of one or more Oppenheimer
funds, you will not pay an initial sales charge, but if you sell any of those
shares within 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.
-27-
<PAGE>
Sales charge rates are described in "Buying Class A Shares" below.
o Class B Shares. If you buy Class B shares, you pay no sales charge at
the time of purchase, but if you sell your shares within six years of buying
them, you will normally pay a contingent deferred sales charge. That sales
charge varies depending on how long you own your shares as described in "Buying
Class B Shares" below.
o Class C Shares. If you buy Class C shares, you pay no sales charge at
the time of purchase, but if you sell your shares within 12 months of buying
them, you will normally pay a contingent deferred sales charge of 1% as
described in "Buying Class C Shares" below.
o Class Y Shares. Class Y Shares are sold at net asset value per share
without the imposition of a sales charge at the time of purchase to separate
accounts of insurance companies and other institutional investors ("Class Y
Sponsors") having an agreement ("Class Y Agreements") with the Manager or the
Distributor. The intent of Class Y Agreements is to allow tax qualified
institutional investors to invest indirectly (through separate accounts of the
Class Y Sponsor) in Class Y Shares of the Fund and to allow institutional
investors to invest directly in Class Y shares of the Fund. Individual investors
are not permitted to invest directly in Class Y Shares. As of the date of this
Prospectus, Massachusetts Mutual Life Insurance Company (an affiliate of the
Manager and the Distributor) acts as Class Y Sponsor for all outstanding Class Y
Shares of the Fund. While Class Y shares are not subject to a contingent
deferred sales charge, asset-based sales charge or service fee, a Class Y
sponsor may impose charges on separate accounts investing in Class Y shares.
None of the instructions described elsewhere in this Prospectus or the
Statement of Additional Information for the purchase, redemption, reinvestment,
exchange or transfer of shares of the Fund, the selection of classes of shares
or the reinvestment of dividends apply to its Class Y shares. Clients of Class Y
Sponsors must request their Sponsor to effect all transactions in Class Y shares
on their behalf.
Which Class of Shares Should You Choose? Once you decide that the
Fund is an appropriate investment for you, the decisions as to
which class of shares is best suited to your needs depends on a
-28-
<PAGE>
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.
o How Long Do You Expect to Hold Your Investment? While future
financial needs cannot be predicted with certainty, knowing how long you expect
to hold your investment will assist you in selecting the appropriate class of
shares. Because of the effect of class-based expenses, your choice will also
depend on how much you plan to invest. For example, the reduced sales charges
available for larger purchases of Class A shares may, over time, offset the
effect of paying an initial sales charge on your investment (which reduces the
amount of your investment dollars used to buy shares for your account), compared
to the effect over time of higher class-based expenses on Class B or Class C
shares, for which no initial sales charge is paid.
o Investing for the Short Term. If you have a short-term
investment horizon (that is, you plan to hold your shares for not
-29-
<PAGE>
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 investors who invest $1 million or more, in most cases Class A
shares will be the most advantageous choice, no matter how long you intend to
hold your shares. For that reason, the Distributor normally will not accept
purchase orders of $500,000 or more of Class B shares or $1 million or more of
Class C shares, from a single investor.
o Investing for the Longer Term. If you are investing for the longer
term, for example, for retirement, and do not expect to need access to your
money for seven years or more, Class B shares may be an appropriate
consideration, if you plan to invest less than $100,000. If you plan to invest
more than $100,000 over the long term, Class A shares will likely be more
advantageous than Class B shares or C shares, as discussed above, because of the
effect of the expected lower expenses for Class A shares and the reduced initial
sales charges available for larger investments in Class A shares under the
Fund's Right of Accumulation.
-30-
<PAGE>
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, you should analyze
your options carefully.
o Are There Differences in Account Features That Matter To You? Because
some account features may not be available to Class B or Class C shareholders,
or other features (such as Automatic Withdrawal Plans) may not be advisable
(because of the effect of the contingent deferred sales charge) for Class B or
Class C shareholders, you should carefully review how you plan to use your
investment account before deciding which class of shares to buy. 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.
o How Does It Affect Payments to My Broker? A salesperson, such as a
broker, or any other person who is entitled to receive compensation for selling
Fund shares may receive different compensation for selling one class 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 and 401(k) plans and Individual
Retirement Accounts (IRAs), you can make an initial investment of as little as
$250 (if your IRA is established under an Asset Builder Plan, the $25 minimum
applies), and subsequent investments may be as little as $25.
There is no minimum investment requirement if you are buying
-31-
<PAGE>
shares by reinvesting dividends and distributions 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 and from unit investment trusts that have made
arrangements with the Distributor.
o How Are Shares Purchased? You can buy shares several ways -- through
any dealer, broker or financial institution that has a sales agreement with the
Distributor, directly through the Distributor, or automatically from your bank
account through an Asset Builder Plan under the OppenheimerFunds AccountLink
service. The distributor may appoint certain servicing agents as the
Distributor's agent to accept purchase (and redemption) orders. When you buy
shares, be sure to specify Class A, Class B or Class C shares. If you do not
choose, your investment will be made in Class A shares.
o Buying Shares Through Your Dealer. Your dealer will place
your order with the Distributor on your behalf.
o Buying Shares Through the Distributor. Complete an OppenheimerFunds
New Account Application and return it with a check payable to "OppenheimerFunds
Distributor, Inc." Mail it to P.O. Box 5270, Denver, Colorado 80217. If you
don't list a dealer on the application, the Distributor will act as your agent
in buying the shares. However, it is recommended that you discuss your
investment first with a financial advisor, to be sure that it is appropriate for
you.
o Buying Shares Through OppenheimerFunds AccountLink. You can use
AccountLink to link your Fund account with an account at a U.S. bank or other
financial institution that is an Automated Clearing House (ACH) member. You can
then transmit funds electronically to purchase shares, to have the Transfer
Agent send redemption proceeds, or to transmit dividends and distributions.
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.
-32-
<PAGE>
o Asset Builder Plans. You may purchase shares of the Fund (and up to
four other Oppenheimer funds) automatically each month from your account at a
bank or other financial institution under an Asset Builder Plan with
AccountLink. Details are on the Application and in the Statement of Additional
Information.
o 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 or its designated agent 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.
Special Sales Charge Arrangements for Certain Persons. Appendix A in this
prospectus sets forth conditions for the waiver of or exemption from sales
charges or the special sales charge rates that apply to purchases of shares of
the Fund (including purchases by exchange) by a person who was a shareholder of
one of the former Quest for Value Funds (as defined in that Appendix).
Buying Class A Shares. Class A shares are sold at their offering price, which is
normally net asset value plus an initial sales charge. However, in some cases,
described below, purchases are not subject to an initial sales charge, and the
offering price will be the net asset value. In some cases, reduced sales charges
may be available, as described below. Out of the amount you invest, the Fund
receives the net asset value to invest for your account. The sales charge varies
depending on the amount of your purchase. A portion of the sales charge may be
retained by the Distributor and allocated to your dealer as commission. The
current sales charge rates and commissions paid to dealers and brokers are as
follows:
- ------------------------------------------------------------------------------
-33-
<PAGE>
<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.
o Class A Contingent Deferred Sales Charge. There is no
initial sales charge on purchases of Class A shares of any one or
more of the Oppenheimer funds in the following cases:
o Purchases aggregating $1 million or more;
o Purchases by a retirement plan qualified under sections 401(a) or
401(k) of the Internal Revenue Code, by a non-qualified deferred compensation
plan (not including Section 457 plans), employee benefit plan, group retirement
plan (see "How to Buy Shares - Retirement Plans" in the Statement of Additional
Information for further details), an employee's 403(b)(7) custodial plan
account, SEP IRA, SARSEP, or SIMPLE plan (all of these plans are collectively
referred to as "Retirement Plans"); that: (1) buys shares costing $500,000 or
more or (2) has, at the time of purchase, 100 or more eligible participants, or
(3) certifies that it projects to have annual plan purchases of $200,000 or
more; or
o Purchases by an OppenheimerFunds Rollover IRA if the
-34-
<PAGE>
purchases are made (1) through a broker, dealer, bank or registered investment
adviser that has made special arrangements with the Distributor for these
purchases, or (2) by a direct rollover of a distribution from a qualified
retirement plan if the administrator of that plan has made special arrangements
with the Distributor for those purchases.
The Distributor pays dealers of record commissions on those purchases
in an amount equal to (i) 1.0% for non-Retirement Plan accounts, and (ii) for
Retirement Plan accounts, 1.0% of the first $2.5 million, plus 0.50% of the next
$2.5 million, plus 0.25% of purchases over $5 million. That commission will be
paid only on those purchases that were not previously subject to a front-end
sales charge and dealer commission. No sales commission will be paid to the
dealer, broker or financial institution on sales of Class A shares purchased
with the redemption proceeds of shares of a mutual fund offered as an investment
option in a Retirement Plan in which Oppenheimer funds are also offered as
investment options under a special arrangement with the Distributor if the
purchase occurs more than 30 days after the addition of the Oppenheimer funds as
an investment option to the Retirement Plan.
If you redeem any of those shares within 18 months of the end of the
calendar month of their purchase, a contingent deferred sales charge (called the
"Class A contingent deferred sales charge") may be deducted from the redemption
proceeds. That sales charge will be equal to 1.0% of the lesser of (1) the
aggregate net asset value of the redeemed shares (not including shares purchased
by reinvestment of dividends or capital gain distributions) or (2) the original
price (which is the original net asset value) of the redeemed shares. However,
the Class A contingent deferred sales charge will not exceed the aggregate
amount of the commissions the Distributor paid to your dealer on all Class A
shares of all Oppenheimer funds you purchased subject to the Class A contingent
deferred sales charge.
In determining whether a contingent deferred sales charge is payable,
the Fund will first redeem shares that are not subject to the sales charge,
including shares purchased by reinvestment of dividends and capital gains, and
then will redeem other shares in the order that you purchased them. The Class A
contingent deferred sales charge is waived in certain cases described in
"Waivers of Class A Sales Charges" below.
No Class A contingent deferred sales charge is charged on
-35-
<PAGE>
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.
o 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. Until January 1,
1997, 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:
o 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.
-36-
<PAGE>
o 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.
o Waivers of Class A Sales Charges. The Class A sales charges are not
imposed in the circumstances described below. There is an explanation of this
policy in "Reduced Sales Charges" in the Statement of Additional Information.
Waivers of Initial and Contingent Deferred Sales Charges for Certain
Purchasers. Class A shares purchased by the following investors are not subject
to any Class A sales charges:
o the Manager or its affiliates;
o present or former officers, directors, trustees and employees (and
their "immediate families" as defined in "Reduced Sales Charges" in the
Statement of Additional Information) of the Fund, the Manager and its
affiliates, and retirement plans established by them for their employees;
o registered management investment companies, or separate accounts of
insurance companies having an agreement with the Manager or the Distributor for
that purpose;
o dealers or brokers that have a sales agreement with the Distributor,
if they purchase shares for their own accounts or for retirement plans for their
employees;
o employees and registered representatives (and their spouses) of
dealers or brokers described above or financial institutions that have entered
into sales arrangements with such dealers or brokers (and are identified to the
Distributor) or with the Distributor; the purchaser must certify to the
Distributor at the time of purchase that the purchase is for the purchaser's own
account (or for the benefit of such employee's spouse or minor children);
-37-
<PAGE>
o 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 or employee benefit plans
made available to their clients (those clients may be charged a transaction fee
by their dealer, broker, bank or adviser for the purchase or sale of Fund
shares);
o (1) investment advisors and financial planners who charge an
advisory, consulting or other fee for their services and buy shares for their
own accounts or the accounts of their clients, (2) Retirement Plans and deferred
compensation plans and trusts used to fund those Plans (including, for example,
plans qualified or created under sections 401(a), 403(b) or 457 of the Internal
Revenue Code), and "rabbi trusts" that buy shares for their own accounts, in
each case if those purchases are made through a broker or agent or other
financial intermediary that has made special arrangements with the Distributor
for those purchases; and (3) clients of such investment advisors or financial
planners who buy shares for their own accounts may also purchase shares without
sales charge but only if their accounts are linked to a master account of their
investment advisor or financial planner on the books and records of the broker,
agent or financial intermediary with which the Distributor has made such special
arrangements (each of these investors may be charged a fee by the broker, agent
or financial intermediary for purchasing shares);
o directors, trustees, officers or full-time employees of OpCap
Advisors or its affiliates, their relatives or any trust, pension, profit
sharing or other benefit plan which beneficially owns shares for those persons;
o accounts for which Oppenheimer Capital is the investment adviser (the
Distributor must be advised of this arrangement) and persons who are directors
or trustees of the company or trust which is the beneficial owner of such
accounts;
o any unit investment trust that has entered into an
appropriate agreement with the Distributor;
o a TRAC-2000 401(k) plan (sponsored by the former Quest for Value
Advisors) whose Class B or Class C shares of a Former Quest for Value Fund were
exchanged for Class A shares of that Fund due to the termination of the Class B
and Class C TRAC-2000 program on November 24, 1995; or
-38-
<PAGE>
o qualified retirement plans that had agreed with the former Quest for
Value Advisors to purchase shares of any of the Former Quest for Value Funds at
net asset value, with such shares to be held through DCXchange, a sub-transfer
agency mutual fund clearinghouse, provided that such arrangements are
consummated and share purchases commence by December 31, 1996.
Waivers of Initial and Contingent Deferred Sales Charges in Certain
Transactions. Class A shares issued or purchased in the following transactions
are not subject to Class A sales charges:
o shares issued in plans of reorganization, such as mergers, asset
acquisitions and exchange offers, to which the Fund is a party;
o shares purchased by the reinvestment of loan repayments by a
participant in a retirement plan for which the Manager or its affiliates acts as
sponsor;
o shares purchased by the reinvestment of dividends or other
distributions reinvested from the Fund or other Oppenheimer funds (other than
Oppenheimer Cash Reserves) or unit investment trusts for which reinvestment
arrangements have been made with the Distributor;
o shares purchased and paid for with the proceeds of shares redeemed in
the past 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; or
o shares purchased with the proceeds of maturing principal of units of
any Qualified Unit Investment Liquid Trust Series.
Waivers of the Class A Contingent Deferred Sales Charge for Certain
Redemptions. The Class A contingent deferred sales charge is also waived if
shares that would otherwise be subject to the contingent deferred sales charge
are redeemed in the following cases:
-39-
<PAGE>
o to make Automatic Withdrawal Plan payments that are limited annually
to no more than 12% of the original account value;
o involuntary redemptions of shares by operation of law or involuntary
redemptions of small accounts (see "Shareholder Account Rules and Policies,"
below);
o if, at the time 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);
o for distributions from a TRAC-2000 401(k) plan sponsored by
the Distributor due to the termination of the TRAC-2000 program; or
o for distributions from Retirement Plans, deferred compensation plans
or other employee benefit plans for any of the following purposes: (1) following
the death or disability (as defined in the Internal Revenue Code) of the
participant or beneficiary (the death or disability must occur after the
participant's account was established); (2) to return excess contributions; (3)
to return contributions made due to a mistake of fact; (4) hardship withdrawals,
as defined in the plan; (5) under a Qualified Domestic Relations Order, as
defined in the Internal Revenue Code; (6) to meet the minimum distribution
requirements of the Internal Revenue Code; (7) to establish "substantially equal
periodic payments" as described in Section 72(t) of the Internal Revenue Code;
(8) for retirement distributions or loans to participants or beneficiaries; (9)
separation from service; (10) participant-directed redemptions to purchase
shares of a mutual fund (other than a fund managed by the Manager or its
subsidiary) offered as an investment option in a Retirement Plan in which
Oppenheimer funds are also offered as investment options under a special
arrangement with the Distributor; or (11) plan termination or "in-service
distributions", if the redemption proceeds are rolled over directly to an
OppenheimerFunds IRA.
o 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
-40-
<PAGE>
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 service providers or
their customers. The payments under the Plan increase the annual expenses of
Class A shares. For more details, please refer to "Distribution and Service
Plans" in the Statement of Additional Information.
Buying Class B Shares. Class B shares are sold at net asset value per share
without an initial sales charge. However, if Class B shares are redeemed within
6 years of their purchase, a contingent deferred sales charge will be deducted
from the redemption proceeds. That sales charge will not apply to shares
purchased by the reinvestment of dividends or capital gains distributions. The
contingent deferred sales charge will be based on the lesser of the net asset
value of the redeemed shares at the time of redemption or the original offering
price (which is the original net asset value). The contingent deferred sales
charge is not imposed on the amount of your account value represented by the
increase in net asset value over the initial purchase price. 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.
-41-
<PAGE>
The amount of the contingent deferred sales charge will depend on the
number of years since you invested and the dollar amount being redeemed,
according to the following schedule:
<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.
|X| 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.
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
-42-
<PAGE>
contingent deferred sales charge of 1.0% will be deducted from the redemption
proceeds. That sales charge will not apply to shares purchased by the
reinvestment of dividends or capital gains distributions. The contingent
deferred sales charge will be based on the lesser of the net asset value of the
shares at the time of redemption or the original offering price (which is the
original net asset value). The contingent deferred sales charge is not imposed
on the amount of your account value represented by the increase in net asset
value over the initial purchase price. The Class C contingent deferred sales
charge is paid to reimburse the Distributor for its expenses of providing
distribution-related services to the Fund in connection with the sale of Class C
shares.
To determine whether the contingent deferred sales charge applies to a
redemption, the Fund redeems shares in the following order: (1) shares acquired
by reinvestment of dividends and capital gains distributions, (2) shares held
for over 12 months, and (3) shares held the longest during the 12-month period.
All purchases are considered to have been made on the first regular business day
of the month in which the purchase was made.
Distribution and Service Plans for Class B and Class C Shares. The Fund has
adopted Distribution and Service Plans for Class B and Class C shares to
reimburse the Distributor for its services and costs in distributing Class B and
C shares and servicing accounts. Under the Plans, the Fund pays the Distributor
an annual "asset-based sales charge" of 0.75% per year on Class B shares that
are outstanding for 6 years or less and on Class C shares. The Distributor also
receives a service fee of 0.25% per year. If either Plan is terminated by the
Fund, the Board of Trustees may allow the Fund to continue payments of the
asset-based sales charge to the Distributor for distributing shares before the
Plan was terminated.
Under each Plan, both fees are computed on the average of the net asset
value of shares in the respective class, determined as of the close of each
regular business day during the period. The asset-based sales charge allows
investors to buy Class B or C shares without a front-end sales charge while
allowing the Distributor to compensate dealers that sell those shares.
The Distributor uses the service fees to compensate dealers for
providing personal services for accounts that hold Class B or C shares. Those
services are similar to those provided under the Class A Service Plan, described
above. The Distributor pays the
-43-
<PAGE>
0.25% service fees to dealers in advance for the first year after Class B or
Class C shares have been sold by the dealer and retains the service fee paid by
the Fund in that year. After the shares have been held for a year, the
Distributor pays the service fees to dealers on a quarterly basis.
The Distributor currently pays sales commissions of 3.75% of the
purchase price of Class B shares to dealers from its own resources at the time
of sale. Including the advance of the service fee, the total amount paid by the
Distributor to the dealer at the time of sale of Class B shares is 4.00% of the
purchase price. The Fund pays the asset-based sales charge to the Distributor to
reimburse it for its services rendered in distributing Class B shares. The
Distributor retains the asset-based sales charge to recoup the sales commissions
it pays, the advances of service fee payments it makes, and its financing costs
of distributing and selling Class B shares.
The Distributor currently pays sales commissions of 0.75% of the
purchase price of Class C shares to dealers from its own resources at the time
of sale. Including the advance of the service fee, the total amount paid by the
Distributor to the dealer at the time of sale of Class C shares is 1.00% of the
purchase price. Those payments, retained by the Distributor during the first
year Class C shares are outstanding to reimburese the Distributor for its
services rendered in distributing Class C shares. Those payments are at a fixed
rate that is not related to the Distributor's expenses. The Distributor plans to
pay the asset-based sales charge as an ongoing commission to the dealer on Class
C shares that have been outstanding for a year or more.
The Distributor's actual expenses in selling Class B and Class C shares
may be more than the payments it receives from contingent deferred sales charges
collected on redeemed shares and from the Fund under the Distribution and
Service Plan for Class B and Class C shares, respectively. Therefore, those
expenses may be carried over and paid in future years. At June 30, 1996 and
August 31, 1996, the end of the Class B Plan years, the Distributor had incurred
unreimbursed expenses under the Plan of $66,935,637 and $76,673,677,
respectively (equal to 3.72% of the Fund's net assets represented by Class B
shares on June 30, 1996 and 4.02% of the Fund's net assets represented by Class
B shares on August 31, 1996), which have been carried over into the present Plan
year. At June 30, 1996 and August 31, 1996, the end of the Class C Plan years,
the Distributor had incurred unreimbursed expenses under the
-44-
<PAGE>
Plan of $6,883,061 and $7,711,148, respectively (equal to 0.93% of the Fund's
net assets represented by Class C shares on June 30, 1996 and 1.04% of the
Fund's net assets represented by Class C shares on August 31, 1996 ), which have
been carried over into the present Plan year. If either Plan is terminated by
the Fund, the Board of Trustees may allow the Fund to continue payments of the
asset-based sales charge to the Distributor for 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 Class B and Class C 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 and
Class C contingent deferred sales charges will be waived for redemptions of
shares in the following cases, if the Transfer Agent is notified that these
conditions apply to the redemption:
o distributions to participants or beneficiaries from Retirement Plans,
if the distributions are made (a) under an Automatic Withdrawal Plan after the
participant reaches age 59-1/2, as long as the payments are no more than 10% of
the account value annually (measured from the date the Transfer Agent receives
the request), or (b) following the death or disability (as defined in the
Internal Revenue Code) of the participant or beneficiary (the death or
disability must have occurred after the account was established);
o redemptions from accounts other than Retirement Plans following the
death or disability of the last surviving shareholder, including a trustee of a
"grantor" trust or revocable living trust for which the trustee is also the sole
beneficiary (the death or disability must have occurred after the account was
established, and for disability you must provide evidence of a determination of
disability by the Social Security Administration);
o returns of excess contributions to Retirement Plans;
o distributions from retirement plans to make "substantially equal
periodic payments" as permitted in Section 72(t) of the Internal Revenue Code
that do not exceed 10% of the account value annually, measured from the date the
Transfer Agent receives the
-45-
<PAGE>
request);
o shares redeemed involuntarily, as described in "Shareholder
Account Rules and Policies," below; or
o 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:
o shares sold to the Manager or its affiliates;
o shares sold to registered management investment companies or separate
accounts of insurance companies having an agreement with the Manager or the
Distributor for that purpose; or
o shares issued in plans of reorganization to which the Fund
is a party.
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
-46-
<PAGE>
registration on your account as well as to your dealer representative of record
unless and until the Transfer Agent receives written instructions terminating or
changing those privileges. After you establish AccountLink for your account, any
change of bank account information must be made by signature- guaranteed
instructions to the Transfer Agent signed by all shareholders who own the
account.
o Using AccountLink to Buy Shares. Purchases may be made by telephone
only after your account has been established. To purchase shares in amounts up
to $250,000 through a telephone representative, call the Distributor at
1-800-852-8457. The purchase payment will be debited from your bank account.
o PhoneLink. PhoneLink is the OppenheimerFunds automated telephone
system that enables shareholders to perform a number of account transactions
automatically using a touch-tone phone. PhoneLink may be used on
already-established Fund accounts after you obtain a Personal Identification
Number (PIN), by calling the special PhoneLink number: 1-800-533-3310.
o Purchasing Shares. You may purchase shares in amounts up to $100,000
by phone, by calling 1-800-533-3310. You must have established AccountLink
privileges to link your bank account with the Fund, to pay for these purchases.
o Exchanging Shares. With the OppenheimerFunds Exchange Privilege,
described below, you can exchange shares automatically by phone from your Fund
account to another Oppenheimer funds account you have already established by
calling the special PhoneLink number. Please refer to "How to Exchange Shares,"
below, for details.
o Selling Shares. You can redeem shares by telephone automatically by
calling the PhoneLink number and the Fund will send the proceeds directly to
your AccountLink bank account. Please refer to "How to Sell Shares," below, for
details.
Automatic Withdrawal and Exchange Plans. The Fund has several plans that enable
you to sell shares automatically or exchange them to another Oppenheimer funds
account on a regular basis:
o Automatic Withdrawal Plans. If your Fund account is 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.
o Automatic Exchange Plans. You can authorize the Transfer Agent to
exchange an amount you establish in advance automatically for shares of up to
five other Oppenheimer funds on a monthly, quarterly, semi-annual or annual
basis under an Automatic Exchange Plan. The minimum purchase for each
Oppenheimer funds account is $25. These exchanges are subject to the terms of
the Exchange Privilege, described below.
Reinvestment Privilege. If you redeem some or all of your Class A 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 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:
o Individual Retirement Accounts including rollover IRAs, for
individuals and their spouses
o 403(b)(7) Custodial Plans for employees of eligible tax-exempt
organizations, such as schools, hospitals and charitable organizations
o SEP-IRAs (Simplified Employee Pension Plans) for small business
owners or people with income from self-employment, including SARSEP-IRAs
o Pension and Profit-Sharing Plans for self-employed persons
and other employers
o 401(k) Prototype Retirement Plans for Businesses
-47-
<PAGE>
Please call the Distributor for the OppenheimerFunds plan documents,
which contain important information and applications.
How to Sell Shares
You can arrange to take money out of your account by selling (redeeming) some or
all of your shares on any regular business day. Your shares will be sold at the
next net asset value calculated after your order is received and accepted by the
Transfer Agent. The Fund offers you a number of ways to sell your shares: in
writing or by telephone. You can also set up Automatic Withdrawal Plans to
redeem shares on a regular basis, as described above. If you have questions
about any of these procedures, and especially if you are redeeming shares in a
special situation, such as due to the death of the owner, or from a retirement
plan, please call the Transfer Agent first, at 1-800-525-7048, for assistance.
o Retirement Accounts. To sell shares in an OppenheimerFunds retirement
account in your name, call the Transfer Agent for a distribution request form.
There are special income tax withholding requirements for distributions from
retirement plans and you must submit a withholding form with your request to
avoid delay. If your retirement plan account is held for you by your employer,
you must arrange for the distribution request to be sent by the plan
administrator or trustee. There are additional details in the Statement of
Additional Information.
o Certain Requests Require a Signature Guarantee. To protect you and
the Fund from fraud, certain redemption requests must be in writing and must
include a signature guarantee in the following situations (there may be other
situations also requiring a signature guarantee):
o You wish to redeem more than $50,000 worth of shares and
receive a check
o The redemption check is not payable to all shareholders
listed on the account statement
o The redemption check is not sent to the address of record
on your account statement
o Shares are being transferred to a Fund account with a
different owner or name
o Shares are redeemed by someone other than the owners (such
as an Executor)
o Where Can I Have My Signature Guaranteed? The Transfer
-48-
<PAGE>
Agent will accept a guarantee of your signature by a number of
financial institutions, including: a U.S. bank, trust company,
credit union or savings association, or by a foreign bank that has
a U.S. correspondent bank, or by a U.S. registered dealer or broker
in securities, municipal securities or government securities, or by
a U.S. national securities exchange, a registered securities
association or a clearing agency. If you are signing on behalf of
a corporation, partnership or other business, or as a fiduciary you
must also include your title in the signature.
Selling Shares by Mail. Write a "letter of instructions" that
includes:
o Your name
o The Fund's name
o Your Fund account number (from your account statement) o The dollar
amount or number of shares to be redeemed o Any special payment
instructions o Any share certificates for the shares you are selling, o
The signatures of all registered owners exactly as the
account is registered, and
o Any special requirements or documents requested by the Transfer Agent
to assure proper authorization of the person asking to sell shares.
Use the following address for requests by mail:
OppenheimerFunds Services
P.O. Box 5270, Denver, Colorado 80217
Send courier or Express Mail requests to:
OppenheimerFunds 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.
o To redeem shares through a service representative, call 1-
800-852-8457
-49-
<PAGE>
o To redeem shares automatically on PhoneLink, call 1-800-533-
3310
Whichever method you use, you may have a check sent to the address on
the account statement, or, if you have linked your Fund account to your bank
account on AccountLink, you may have the proceeds sent to that account.
o Telephone Redemptions Paid by Check. Up to $50,000 may be redeemed by
telephone in any 7-day period. The check must be payable to all owners of record
of the shares and must be sent to the address on the account statement. This
service is not available within 30 days of changing the address on an account.
o Telephone Redemptions Through AccountLink or by Wire. There are no
dollar limits on telephone redemption proceeds sent to a bank account designated
when you establish AccountLink. Normally the ACH 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
-50-
<PAGE>
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:
o Shares of the fund selected for exchange must be available
for sale in your state of residence
o The prospectuses of this Fund and the fund whose shares you
want to buy must offer the exchange privilege
o You must hold the shares you buy when you establish your account for
at least 7 days before you can exchange them; after the account is open 7 days,
you can exchange shares every regular business day
o You must meet the minimum purchase requirements for the fund
you purchase by exchange
o Before exchanging into a fund, you should obtain and read
its prospectus
Shares of a particular class of the Fund may be exchanged only for
shares of the same class in the other Oppenheimer funds. For example, you can
exchange Class A shares of this Fund only for Class A shares of another fund. 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:
o Written Exchange Requests. Submit an OppenheimerFunds
Exchange Request form, signed by all owners of the account. Send
it to the Transfer Agent at the addresses listed in "How to Sell
Shares."
o Telephone Exchange Requests. Telephone exchange requests may be made
either by calling a service representative at 1-800-852- 8457 or by using
PhoneLink for automated exchanges by calling 1- 800-533-3310. Telephone
exchanges may be made only between accounts that are registered with the same
name(s) and address. Shares held under certificates may not be exchanged by
telephone.
You can find a list of Oppenheimer funds currently available
for exchanges in the Statement of Additional Information or obtain
one by calling a service representative at 1-800-525-7048. That
-51-
<PAGE>
list can change from time to time.
There are certain exchange policies you should be aware of:
o Shares are normally redeemed from one fund and purchased from the
other fund in the exchange transaction on the same regular business day on which
the Transfer Agent receives an exchange request that is in proper form by the
close of The New York Stock Exchange that day, which is normally 4:00 P.M., but
may be earlier on some days. However, either fund may delay the purchase of
shares of the fund you are exchanging into up to 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.
o Because excessive trading can hurt fund performance and harm
shareholders, the Fund reserves the right to refuse any exchange request that
will disadvantage it, or to refuse multiple exchange requests submitted by a
shareholder or dealer.
o The Fund may amend, suspend or terminate the exchange privilege at
any time. Although the Fund will attempt to provide you notice whenever it is
reasonably able to do so, it may impose these changes at any time.
o For tax purposes, exchanges of shares involve a redemption of the
shares of the Fund you own and a purchase of the shares of the other fund, which
may result in a capital gain or loss. For more information about taxes affecting
exchanges, please refer to "How to Exchange Shares" in the Statement of
Additional Information.
o If the Transfer Agent cannot exchange all the shares you request
because of a restriction cited above, only the shares eligible for exchange will
be exchanged.
Shareholder Account Rules and Policies
o Net Asset Value Per Share is determined for each class of shares as
of the close of The New York Stock Exchange which is normally 4:00 p.m., but may
be earlier on some days, on each day the Exchange is open by dividing the value
of the Fund's net assets attributable to a class by the number of shares of that
class that
-52-
<PAGE>
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.
o The offering of shares may be suspended during any period in which
the determination of net asset value is suspended, and the offering may be
suspended by the Board of Directors at any time the Board believes it is in the
Fund's best interest to do so.
o Telephone Transaction Privileges for purchases, redemptions or
exchanges may be modified, suspended or terminated by the Fund at any time. If
an account has more than one owner, the Fund and the Transfer Agent may rely on
the instructions of any one owner. Telephone privileges apply to each owner of
the account and the dealer representative of record for the account unless and
until the Transfer Agent receives cancellation instructions from an owner of the
account.
o The Transfer Agent will record any telephone calls to verify data
concerning transactions and has adopted other procedures to confirm that
telephone instructions are genuine, by requiring callers to provide tax
identification numbers and other account data or by using PINs, and by
confirming such transactions in writing. If the Transfer Agent does not use
reasonable procedures it may be liable for losses due to unauthorized
transactions, but otherwise neither the Transfer Agent nor the Fund will be
liable for losses or expenses arising out of telephone instructions reasonably
believed to be genuine. If you are unable to reach the Transfer Agent during
periods of unusual market activity, you may not be able to complete a telephone
transaction and should consider placing your order by mail.
o Redemption or transfer requests will not be honored until the
Transfer Agent receives all required documents in proper form. From time to
time, the Transfer Agent in its discretion may waive certain of the requirements
for redemptions stated in this Prospectus.
o Dealers that can perform account transactions for their clients by
participating in NETWORKING through the National Securities Clearing Corporation
are responsible for obtaining their
-53-
<PAGE>
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.
o The redemption price for shares will vary from day to day because the
value of the securities in the Fund's portfolio fluctuates, and the redemption
price, which is the net asset value per share, will normally be different for
Class A, Class B Class C and Class Y shares. Therefore, the redemption value of
your shares may be more or less than their original cost.
o Payment for redeemed shares is made ordinarily in cash and forwarded
by check or through AccountLink (as elected by the shareholder under the
redemption procedures described above) within 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.
o 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.
o Under unusual circumstances, shares of the Fund may be redeemed "in
kind," which means that the redemption proceeds will be paid with securities
from the Fund's portfolio. Please refer to "How to Sell Shares" in the Statement
of Additional Information for more details.
o "Backup Withholding" of Federal income tax may be applied at the rate
of 31% from 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
-54-
<PAGE>
Service regulations on tax reporting of income.
o The Fund does not charge a redemption fee, but if your dealer or
broker handles your redemption, they may charge a fee. That fee can be avoided
by redeeming your Fund shares directly through the Transfer Agent. Under the
circumstances described in "How To Buy Shares," you may be subject to a
contingent deferred sales charges when redeeming certain Class A, Class B and
Class C shares.
o To avoid sending duplicate copies of materials to households, the
Fund will mail only one copy of each annual and semi-annual report to
shareholders having the same last name and address on the Fund's records.
However, each shareholder may call the Transfer Agent at 1-800-525-7048 to ask
that copies of those materials be sent personally to that shareholder.
Dividends, Capital Gains and Taxes
Dividends. The Fund declares dividends separately for Class A, Class B, Class C
and Class Y 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
and Class Y 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. 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 dividends and distributions. For OppenheimerFunds
retirement accounts, all distributions are reinvested. For other accounts, you
have four options:
-55-
<PAGE>
o Reinvest All Distributions in the Fund. You can elect to
reinvest all dividends and long-term capital gains distributions in
additional shares of the Fund.
o Reinvest Long-Term Capital Gains Only. You can elect to
reinvest long-term capital gains in the Fund while receiving
dividends by check or sent to your bank account on AccountLink.
o Receive All Distributions in Cash. You can elect to receive
a check for all dividends and long-term capital gains distributions
or have them sent to your bank on AccountLink.
o Reinvest Your Distributions in Another Oppenheimer Fund
Account. You can reinvest all distributions in another Oppenheimer
fund account you have established.
Taxes. If your account is not a tax-deferred retirement account, you should be
aware of the following tax implications of investing in the Fund. Long-term
capital gains are taxable as long-term capital gains when distributed to
shareholders. It does not matter how long you 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.
o "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.
o 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.
o Returns of Capital: In certain cases distributions made by the Fund
may be considered a non-taxable return of capital to shareholders. If that
occurs, it will be identified in notices to shareholders. A non-taxable return
of capital may reduce your tax basis in your fund shares.
-56-
<PAGE>
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.
-57-
<PAGE>
APPENDIX A
Special Sales Charge Arrangements for Shareholders of the Fund
Who Were Shareholders of the Former Quest for Value Funds
The initial and contingent sales charge rates and waivers for Class A,
Class B and Class C shares of the Fund described elsewhere in this Prospectus
are modified as described below for those shareholders of (i) Quest for Value
Fund, Inc., Quest for Value Growth and Income Fund, Quest for Value Opportunity
Fund, Quest for Value Small Capitalization Fund and Quest for Value Global
Equity Fund, Inc. on November 24, 1995, when OppenheimerFunds, Inc. became the
investment adviser to those funds, and (ii) Quest for Value U.S. Government
Income Fund, Quest for Value Investment Quality Income Fund, Quest for Value
Global Income Fund, Quest for Value New York Tax-Exempt Fund, Quest for Value
National Tax-Exempt Fund and Quest for Value California Tax-Exempt Fund when
those funds merged into various Oppenheimer funds on November 24, 1995. The
funds listed above are referred to in this Prospectus as the "Former Quest for
Value Funds." The waivers of initial and contingent deferred sales charges
described in this Appendix apply to shares of the Fund (i) acquired by such
shareholder pursuant to an exchange of shares of one of the Oppenheimer funds
that was one of the Former Quest for Value Funds or (ii) received by such
shareholder pursuant to the merger of any of the Former Quest for Value Funds
into an Oppenheimer fund on November 24, 1995.
Class A Sales Charges
o Reduced Class A Initial Sales Charge Rates for Certain Former
Quest Shareholders
o Purchases by Groups, Associations and Certain Qualified Retirement Plans. The
following table sets forth the initial sales charge rates for Class A shares
purchased by a "Qualified Retirement Plan" through a single broker, dealer or
financial institution, or by members of "Associations" formed for any purpose
other than the purchase of securities if that Qualified Retirement Plan or that
Association purchased shares of any of the Former Quest for Value Funds or
received a proposal to purchase such shares from OCC Distributors prior to
November 24, 1995. For this purpose only, a "Qualified Retirement Plan" includes
any 401(k) plan, 403(b) plan, and SEP/IRA or IRA plan for employees of a single
employer.
-58-
<PAGE>
<TABLE>
<CAPTION>
Front-End Front-End
Sales Sales Commission
Charge Charge as
as a as a Percentage
Number of Percentage Percentage of
Eligible Employees of Offering of Amount Offering
or Members Price Invested Price
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
9 or fewer 2.50% 2.56% 2.00%
- -----------------------------------------------------------------------------------------------------------
At least 10 but not
more than 49 2.00% 2.04% 1.60%
</TABLE>
For purchases by Qualified Retirement plans and Associations having 50
or more eligible employees or members, there is no initial sales charge on
purchases of Class A shares, but those shares are subject to the Class A
contingent deferred sales charge described on pages 31 and 32 of this
Prospectus.
Purchases made under this arrangement qualify for the lower of the
sales charge rate in the table based on the number of eligible employees in a
Qualified Retirement Plan or members of an Association or the sales charge rate
that applies under the Rights of Accumulation described above in the Prospectus.
In addition, purchases by 401(k) plans that are Qualified Retirement Plans
qualify for the waiver of the Class A initial sales charge if they qualified to
purchase shares of any of the Former Quest For Value Funds by virtue of
projected contributions or investments of $1 million or more each year.
Individuals who qualify under this arrangement for reduced sales charge rates as
members of Associations, or as eligible employees in Qualified Retirement Plans
also may purchase shares for their individual or custodial accounts at these
reduced sales charge rates, upon request to the Fund's Distributor.
o Special Class A Contingent Deferred Sales Charge Rates. Class A shares of the
Fund purchased by exchange of shares of other Oppenheimer funds that were
acquired as a result of the merger of Former Quest for Value Funds into those
Oppenheimer funds, and which shares were subject to a Class A contingent
deferred sales
-59-
<PAGE>
charge prior to November 24, 1995, will be subject to a contingent deferred
sales charge at the following rates: if they are redeemed within 18 months of
the end of the calendar month in which they were purchased, at a rate equal to
1.0% if the redemption occurs within 12 months of their initial purchase and at
a rate of 0.50 of 1.0% if the redemption occurs in the subsequent six months.
Class A shares of any of the Former Quest Fund for Value Funds purchased without
an initial sales charge on or before November 22, 1995 will continue to be
subject to the applicable contingent deferred sales charge in effect as of that
date as set forth in the then-current prospectus for such fund.
o Waiver of Class A Sales Charges for Certain Shareholders. Class A shares of
the Fund purchased by the following investors are not subject to any Class A
initial or contingent deferred sales charges:
o Shareholders of the Fund who were shareholders of the AMA Family of
Funds on February 28, 1991 and who acquired shares of any of the Former Quest
for Value Funds by merger of a portfolio of the AMA Family of Funds.
o Shareholders of the Fund who acquired shares of any Former Quest for
Value Fund by merger of any of the portfolios of the Unified Funds.
o Waiver of Class A Contingent Deferred Sales Charge in Certain Transactions.
The Class A contingent deferred sales charge will not apply to redemptions of
Class A shares of the Fund purchased by the following investors who were
shareholders of any Former Quest for Value Fund:
o Investors who purchased Class A shares from a dealer that is or was
not permitted to receive a sales load or redemption fee imposed on a shareholder
with whom that dealer has a fiduciary relationship under the employee Retirement
Income Security Act of 1974 and regulations adopted under that law.
o Participants in Qualified Retirement Plans that purchased shares of
any of the Former Quest For Value Funds pursuant to a special "strategic
alliance" with the distributor of those funds. The Fund's Distributor will pay a
commission to the dealer for purchases of Fund shares as described above in
"Class A Contingent Deferred Sales Charge."
-60-
<PAGE>
Class A, Class B and Class C Contingent Deferred Sales Charge
Waivers
o Waivers for Redemptions of Shares Purchased Prior to March 6, 1995. In the
following cases, the contingent deferred sales charge will be waived for
redemptions of Class A, B or C shares of the Fund acquired by merger of a Former
Quest for Value Fund into the Fund or by exchange from an Oppenheimer fund that
was a Former Quest for Value Fund or into which such fund merged, if those
shares were purchased prior to March 6, 1995: in connection with (i)
distributions to participants or beneficiaries of plans qualified under Section
401(a) of the Internal Revenue Code or from custodial accounts under Section
403(b)(7) of the Code, Individual Retirement Accounts, deferred compensation
plans under Section 457 of the Code, and other employee benefit plans, and
returns of excess contributions made to each type of plan, (ii) withdrawals
under an automatic withdrawal plan holding only either Class B or Class C shares
if the annual withdrawal does not exceed 10% of the initial value of the
account, and (iii) liquidation of a shareholder's account if the aggregate net
asset value of shares held in the account is less than the required minimum
value of such accounts.
o Waivers for Redemptions of Shares Purchased on or After March 6, 1995 but
Prior to November 24, 1995. In the following cases, the contingent deferred
sales charge will be waived for redemptions of Class A, B or C shares of the
Fund acquired by merger of a Former Quest for Value Fund into the Fund or by
exchange from an Oppenheimer fund that was a Former Quest For Value Fund or into
which such fund merged, if those shares were purchased on or after March 6,
1995, but prior to November 24, 1995: (1) distributions to participants or
beneficiaries from Individual Retirement Accounts under Section 408(a) of the
Internal Revenue Code or retirement plans under Section 401(a), 401(k), 403(b)
and 457 of the Code, if those distributions are made either (a) to an individual
participant as a result of separation from service or (b) following the death or
disability (as defined in the Code) of the participant or beneficiary; (2)
returns of excess contributions to such retirement plans; (3) redemptions other
than from retirement plans following the death or disability of the
shareholder(s) (as evidenced by a determination of total disability by the U.S.
Social Security Administration); (4) withdrawals under an automatic withdrawal
plan (but only for Class B or Class C shares) where the annual withdrawals do
not exceed 10% of the initial value of the account; and (5) liquidation of a
shareholder's account if the
-61-
<PAGE>
aggregate net asset value of shares held in the account is less than the
required minimum account value. A shareholder's account will be credited with
the amount of any contingent deferred sales charge paid on the redemption of any
Class A, B or C shares of the Fund described in this section if within 90 days
after that redemption, the proceeds are invested in the same Class of shares in
this Fund or another Oppenheimer fund.
Special Dealer Arrangements
Dealers who sold Class B shares of a Former Quest for Value Fund to Quest for
Value prototype 401(k) plans that were maintained on the TRAC-2000 recordkeeping
system and that were transferred to an OppenheimerFunds prototype 401(k) plan
shall be eligible for an additional one-time payment by the Distributor of 1% of
the value of the plan assets transferred, but that payment may not exceed $5,000
as to any one plan.
Dealers who sold Class C shares of a Former Quest for Value Fund to Quest for
Value prototype 401(k) plans that were maintained on the TRAC-2000 recordkeeping
system and (i) shares held by those plans were exchanged for Class A shares, or
(ii) the plan assets were transferred to an OppenheimerFunds prototype 401(k)
plan, shall be eligible for an additional one-time payment by the Distributor of
1% of the value of the plan assets transferred, but that payment may not exceed
$5,000.
-62-
<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, 1996 and August
31, 1996 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, 1996 and August 31,
1996, 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, 1996 and August 31,
1996. 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 $ 9,984 $10,815
6/30/89 $11,858 $13,034
6/30/90 $12,933 $15,178
6/30/91 $14,304 $16,297
6/30/92 $19,952 $18,479
6/30/93 $29,206 $20,993
6/30/94 $33,392 $21,287
6/30/95 $40,244 $26,828
6/30/96 $49,203 $33,798
8/31/96 $47,602 $32,988
Oppenheimer
Main Street
Fiscal Year Income & S&P 500
(Period) Ended Growth Fund B(1) Index
- --------------- ---------------- --------
<S> <C> <C>
10/01/94 $10,000 $10,000
06/30/95 $11,315 $12,017
6/30/96 $13,730 $15,139
</TABLE>
-63-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
8/31/96 $12,862 $14,776
Oppenheimer
Main Street
Fiscal Year Income & S&P 500
(Period) Ended Growth Fund C(2) Index
- -------------- ---------------- -------
<S> <C> <C>
12/01/93 $10,000 $10,000
06/30/94 $ 9,856 $ 9,779
06/30/95 $11,789 $12,324
6/30/96 $14,308 $15,526
8/31/96 $13,825 $15,154
<FN>
(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.
</FN>
</TABLE>
-64-
<PAGE>
Oppenheimer Main Street Income & Growth Fund
3410 South Galena Street
Denver, Colorado 80231
1-800-525-7048
Investment Adviser
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048
Distributor
OppenheimerFunds Distributor, Inc.
Two World Trade Center
New York, New York 10048
Transfer and Shareholder Servicing Agent
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian of Portfolio Securities
The Bank of New York
One Wall Street
New York, New York 10015
Independent 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, OppenheimerFunds, Inc., OppenheimerFunds
Distributor, Inc., or any affiliate thereof. This Prospectus does not constitute
an offer to sell or a solicitation of an offer to buy any of the securities
offered hereby in any state to any person to whom it is unlawful to make such an
offer in such state.
-65-
<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, 1996
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, 1996. It should be read together with the Prospectus, which may be
obtained upon written request to the Fund's Transfer Agent, OppenheimerFunds
Services, at P.O. Box 5270, Denver, Colorado 80217, or by calling the Transfer
Agent at the toll-free number shown above.
<TABLE>
<CAPTION>
Table of Contents Page
<S> <C>
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......................................................36
Dividends, Capital Gains and Taxes..........................................38
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
</TABLE>
-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.
o 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 or depositories holding them must
be approved by the Corporation's Board of Directors to the extent that approval
required under applicable rules of the Securities and Exchange Commission.
o 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.
o U.S. Government Securities. Obligations of U.S. Government agencies
or instrumentalities (including mortgage-backed securities) may or may not be
guaranteed or supported
-2-
<PAGE>
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.
o 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.
o 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.
o 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, less liquid market for such
securities.
Other Investment Techniques and Strategies
o 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
-3-
<PAGE>
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.
o 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.
o 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.
o 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.
-4-
<PAGE>
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 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.
o 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.
o 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.
o 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
-5-
<PAGE>
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.
o 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
-6-
<PAGE>
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.
o 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.
o 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
-7-
<PAGE>
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.
o 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.
o 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
-8-
<PAGE>
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's Custodian will identify liquid assets for a separate account
having a value equal to the aggregate amount of the Fund's commitment under
Forward Contracts to cover its short positions. 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 another currency that is the
subject of the hedge. 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 these currencies provided the excess amount is "covered" by
liquid securities denominated in any currency, at lest 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 contact 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
-9-
<PAGE>
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.
o 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
-10-
<PAGE>
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.
o 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. The Fund cannot issue
"senior securities", but this does not prohibit it from borrowing money as
described in the prospectus, or entering into margin, collateral or escrow
arrangements as permitted by its other invest policies.
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.
o 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
-11-
<PAGE>
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 of 1940 (the "Investment Company Act"), when the Fund purchases a
Future, the Fund will maintain in a segregated account or accounts with its
Custodian, liquid assets in an amount equal to the market value of the
securities underlying such Future, less the margin deposit applicable to it.
o 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.
o 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
-12-
<PAGE>
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:
o 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;
o The Fund cannot 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);
o The Fund cannot 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;
-13-
<PAGE>
o The Fund cannot invest in companies for the purpose of acquiring
control or management thereof;
o The Fund cannot 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;
o The Fund cannot 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 of such issuer;
o The Fund cannot 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;
o The Fund cannot issue "senior securities," but this does not prohibit
it from borrowing money as described in the Prospectus, or entering into margin,
collateral, segregation or escrow arrangements, or options, futures, hedging
transactions or other investments as permitted by its other investment policies;
or
o The Fund cannot 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
-14-
<PAGE>
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 the 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 Fund. The Fund's Directors and officers and their
principal occupations and business affiliations and occupations during the past
five years are listed below. All of the Directors are also trustees, directors
or managing general partners of Oppenheimer Total Return Fund, Inc., Oppenheimer
Equity Income Fund, Oppenheimer Cash Reserves, Oppenheimer Strategic Income
Fund, Centennial America Fund, L.P., The New York Tax-Exempt Income Fund, Inc.,
Oppenheimer Variable Account Funds, Oppenheimer Champion Income Fund,
Oppenheimer International Bond Fund, Oppenheimer Main Street Funds, Inc.,
Oppenheimer Strategic Income & Growth Fund, Oppenheimer Integrity Funds,
Oppenheimer Limited-Term Government Fund, Oppenheimer Municipal Fund, Panorama
Series Fund, Inc., Centennial Money Market Trust, Centennial Government Trust,
Centennial New York Tax Exempt Trust, Centennial California Tax Exempt Trust,
Daily Cash Accumulation Fund, Inc. and Centennial Tax Exempt Trust (all of the
foregoing funds are collectively referred to as the "Denver-based Oppenheimer
funds") except for Mr. Fossel and Ms. Macaskill, who are Trustees, Directors or
Managing General Partners of all the Denver-based Oppenheimer funds except
Oppenheimer Integrity Funds, Panorama Series Fund, Inc., Oppenheimer
Strategic Income Fund and Oppenheimer Variable Account Funds. In addition Mr.
Fossel is not a Trustee of Centennial New York Tax Exempt Trust or a Managing
General Partner of Centennial America Fund, L.P. Messrs. Bishop, Bowen,
Donohue, Farrar and Zack hold similar positions as officers of all such funds.
Ms. Macaskill is President and Mr. Swain is Chairman of the Denver-based
Oppenheimer funds. As of October 1, 1996, the Directors and officers of the
Fund as a group owned less than 1% of its outstanding shares, not including
shares held of record by an employee benefit plan of the Manager (for which
two of the officers listed below, Ms. Macaskill and Mr. Donohue, are
trustees) other than shares beneficially owned under that
-15-
<PAGE>
plan by the officers of the Fund listed above.
Robert G. Avis, Director*; Age 65
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 81
197 Desert Lakes Drive, Palm Springs, California 92264
Management Consultant.
Charles Conrad, Jr., Director; Age 66
19411 Merion Circle, Huntington Beach, California 92648
Chairman and Chief Executive Officer of Universal Space Lines, Inc. (a
space services management company); formerly Vice President of McDonnell
Douglas Space Systems Co. and associated with the National Aeronautics
and Space Administration.
Jon S. Fossel, Director*; Age 54
Box 44 Mead Street, Waccabuc, New York 10597
Member of the Board of Governors for the Investment Company Institute (a
national association of Investment Companies), Chairman of the Investment
Company Education Foundation, formerly Chairman and President of the
Manager of OppenheimerFunds, Inc. (the "Manager"), President and a
Director of Oppenheimer Acquisition Corp. ("OAC"), the Manager's parent
holding company and Shareholder Services, Inc. ("SSI"), transfer agent
subsidiary of the Manager.
Sam Freedman, Director; Age: 56
4975 Lakeshore Drive, Littleton, Colorado 80123
Formerly Chairman and Chief Executive Officer of OppenheimerFunds
Services, Chairman, Chief Executive Officer and a director of Shareholder
Services, Inc., Chairman, Chief Executive and Officer and director of
Shareholder Financial Services, Inc., Vice President and director of
Oppenheimer Acquisition Corporation and a director of OppenheimerFunds,
Inc.
Raymond J. Kalinowski, Director; Age 67
44 Portland Drive, St. Louis, Missouri 63131
Director of Wave Technologies International Inc. (a computer products
training company); 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 74
2552 East Alameda, Denver, Colorado 80209
Formerly Managing Partner of Deloitte, Haskins & Sells (an accounting
firm).
Robert M. Kirchner, Director; Age 75
7500 E. Arapahoe Road, Englewood, Colorado 80112
-16-
<PAGE>
President of The Kirchner Company (management consultants).
Bridget A. Macaskill, President and Director*; Age: 48
President, Chief Executive Officer and a Director of the Manager and
HarbourView Asset Management Corporation ("HarbourView"), a subsidiary of
the Manager; Chairman and a director of SSI and Shareholder Financial
Services, Inc.; President and a director of OAC and Oppenheimer
Partnership Holdings, Inc., a holding company subsidiary of the Manager; a
director of Oppenheimer Real Asset Management, Inc.; formerly an Executive
Vice President of the Manager.
Ned M. Steel, Director; Age 81
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
Van Gilder Insurance Corp.
(insurance brokers).
James C. Swain, Chairman, Chief Executive Officer and Director*; Age 62
3410 South Galena Street, Denver, Colorado 80231 Vice Chairman and a
Director of the Manager; President and 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: 46
Two World Trade Center, New York, New York 10048-0203
Vice President of the Manager; an officer of other Oppenheimer funds;
previously a portfolio manager with Phoenix Securities Group.
Andrew J. Donohue, Vice President and Secretary; Age 46
Two World Trade Center, New York, New York 10048
Executive Vice President and General Counsel of the Manager and
OppenheimerFunds Distributor, Inc. (the "Distributor"); President and a
director of Centennial; Executive Vice President, General Counsel and a
director of HarbourView, SFSI, SSI and Oppenheimer Partnership Holdings
Inc.; President and a director of Oppenheimer Real Asset Management, Inc.;
General Counsel of OAC; Executive Vice President, Chief Legal Officer and
a director of MultiSource Services, Inc. (a broker-dealer); 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); an officer of First Investors Corporation (a
broker-dealer) and First Investors Management Company, Inc. (broker-dealer
and investment adviser); director and an officer of First Investors Family
of Funds and First Investors Life Insurance Company.
George C. Bowen, Vice President, Assistant Secretary and Treasurer; Age 60
3410 South Galena Street, Denver, Colorado 80231
-17-
<PAGE>
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; Treasurer of OAC; Vice
President and Treasurer of Oppenheimer Real Asset Management, Inc., Chief
Executive Officer, Treasurer and a director of MultiSource Services, Inc.;
an officer of other Oppenheimer funds.
Robert J. Bishop, Assistant Treasurer; Age 37
3410 South Galena Street, Denver, Colorado 80231
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 31
3410 South Galena Street, Denver, Colorado 80231
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, SFSI; an officer of other Oppenheimer funds.
- ------------------
*A Director who is an "interested person" of the Fund as defined in the
Investment Company Act.
o 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 (Ms. Macaskill and Mr. Swain, who are both officers and Directors
and Mr. Fossel) receive no salary or fee from the Fund. The remaining Directors
of the Fund (excluding Mr. Freedman, who did not become a Director until June
27, 1996) received the compensation shown below from the Fund, during its
fiscal year ended June 30, 1996 and the period from July 1, 1996 to August 31,
1996 and from all of the Denver-based Oppenheimer funds (including the Fund)
for which the served as Trustee, Director or Managing General Partner.
Compensation is paid for services in the positions listed beneath their names:
<TABLE>
<CAPTION>
Aggregate Aggregate Total Compensation
Compensation Compensation from all
from the Fund from the Fund Denver-based
Name and Position as of 6-30-96 as of 8-31-96
Oppenheimer Funds1
- ----------------------- ----------------- ----------------- ------------------
<S> <C> <C> <C>
</TABLE>
-18-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Robert G. Avis $6,874 $1,256 $53,000
Director
William A. Baker $9,500 $1,736 $73,255
Audit and Review
Committee Chairman
and Director
Charles Conrad, Jr. $8,430 $1,524 $64,309
Audit and Review
Committee Member
and Director
Raymond J. Kalinowski $8,430 $1,541 $65,000
Risk Management
Oversight Committee Member
and Director
C. Howard Kast $8,430 $1,541 $65,000
Risk Management
Oversight Committee Member
and Director
Robert M. Kirchner $8,857 $1,619 $68,292
Audit and Review
Committee Member
and Director
Ned M. Steel $6,874 $1,257 $53,000
Director
- ----------------------
<FN>
1For the 1995 calendar year, during which the Denver-based Oppenheimer funds,
listed in the first paragraph of this section, included Oppenheimer Strategic
Investment Grade Bond Fund and Oppenheimer Strategic Short-Term Income Fund
(which ceased operations following the acquisition of their assets by other
Oppenheimer funds). Panorama Series Fund, Inc. became a Denver-based Oppenheimer
fund in June of 1996.
</FN>
</TABLE>
o Major Shareholders. As of October 6, 1996, 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, Class C and Class Y 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 5,874,755.430 Class A shares,
7,526,164.272 Class B shares and 7,136,538.617 Class C shares, representing
approximately 5.13%, 10.47% and 26.20% of the Funds outstanding Class A, Class B
and Class C shares, respectively.
The Manager and Its Affiliates. The Manager is wholly-owned by Oppenheimer
Acquisition Corp. ("OAC"), a holding company controlled by Massachusetts Mutual
Life Insurance Company. OAC is also owned in part by certain of the Manager's
directors and officers, some of whom also serve as officers of the Corporation
and three of whom (Ms. Macaskill and Messrs. Fossel and
-19-
<PAGE>
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.
o 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 Distributor's 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, 1994, 1995 and 1996, and the fiscal period ended August 31,
1996 the management fees paid by the Corporation on behalf of the Fund to the
Manager were $1,817,623, $8,976,524, $19,932,096 and $4,428,137, 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 the 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 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
-20-
<PAGE>
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 names "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 names "Oppenheimer" and "Main
Street" as part of its name and the name of the Fund may be withdrawn.
o 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, Class C
and Class Y shares, but is not obligated to sell a specific number of shares.
Expenses normally attributable to sales, are borne by the Distributor. During
the Fund's fiscal years ended June 30, 1994, 1995 and 1996 and the fiscal period
ended August 31, 1996, the aggregate amount of sales charges on sales of the
Fund's Class A shares was $23,502,310, $36,545,570, $34,680,166 and $5,372,166,
respectively, of which the Distributor and an affiliated broker-dealer retained
$6,373,770, $8,951,501, $8,833,275 and $1,443,507, respectively. During the
fiscal year ended June 30, 1996, sales charges advanced to broker-dealers by the
Distributor on sales of the Fund's Class B and Class C shares totalled
$40,733,013 and $2,598,706 and for the fiscal period ended August 31, 1996 sales
charges advanced to broker-dealers by the Distributor on sales of the Fund's
Class B and Class C shares totalled $7,698,420 and $468,253, respectively. Of
those amounts, $852,802 and $40,623 were paid to an affiliated broker-dealer for
the fiscal year ended June 30, 1996 and $226,169 and $11,023 were paid to an
affiliated broker-dealer for the fiscal period ended August 31, 1996. During the
fiscal year ended June 30, 1996, the Distributor received contingent deferred
sales charges of $2,198,614 and $204,629 upon redemption of Class B and Class C
shares, respectively. During the fiscal period ended August 31, 1996, the
Distributor received contingent deferred sales charges of $594,878 and $39,798
upon redemption of Class B and Class C shares, respectively For additional
information about distribution of the Fund's shares and the payments made by the
Fund to the Distributor in connection with such activities, please refer to
"Distribution and Service Plans," below.
o The Transfer Agent. OppenheimerFunds Services, the Fund's Transfer
Agent, is responsible for maintaining the Fund's shareholder registry and
shareholder accounting records, and for shareholder servicing and
administrative functions.
Brokerage Policies of the Fund
Brokerage Provisions of the Investment Advisory Agreement. One of the duties of
the Manager under the advisory agreement is to arrange the portfolio
transactions for the Fund. The advisory agreement contains provisions relating
to the employment of broker-dealers ("brokers") to effect the Fund's portfolio
transactions. In doing so, the Manager is authorized by the advisory agreement
to employ broker-dealers, including "affiliated" brokers, as that term is
defined in the Investment Company Act, as may, in its best judgment based on all
relevant factors, implement the policy of
-21-
<PAGE>
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 be
aware of the current rates of eligible brokers and to minimize the commissions
paid to the extent consistent with the interests and policies of the Fund as
established by its Board of 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 fair and reasonable in relation to
the services provided. Subject to the foregoing considerations, the Manager may
also consider sales of shares of the Fund and other investment companies managed
by the Manager or its affiliates as a factor in the selection of brokers for the
Fund's portfolio transactions.
Description of Brokerage Practices Followed by the Manager. Subject to the
provisions of the advisory agreement, and the procedures and rules described
above, allocations of brokerage are generally made by the Manager's portfolio
traders based upon recommendations from the Manager's portfolio managers. In
certain instances, portfolio managers may directly place trades and allocate
brokerage, also subject to the provisions of the advisory agreement and the
procedures and rules described above. In either case, brokerage is allocated
under the supervision of the Manager's executive officers. Transactions in
securities other than those for which an exchange is the primary market are
generally done with principals or market makers. 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 transaction in the securities to which
the option relates. When possible, concurrent orders to purchase or sell the
same security by more than one of the accounts managed by the Manager or its
affiliates are combined. The transactions effected pursuant to such combined
orders are averaged as to price and allocated in accordance with the purchase or
sale orders actually placed for each account. Option commissions may be
relatively higher than those which would apply to direct purchases and sales of
portfolio securities.
Most purchases of money market instruments and debt obligations are
principal transactions at net prices. Instead of using a broker for those
transactions, the Fund normally deals directly with the selling or purchasing
principal or market maker unless it determines that a better price or execution
can be obtained by using a broker. Purchases of these securities for
underwriters include a commission or concession paid by the issuer to the
underwriter. Purchases from dealers include
-22-
<PAGE>
a spread between the bid and asked prices. The Fund seeks to obtain prompt
execution of these orders at the most favorable net price.
The 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 analysis on particular companies and industries as well
as market or economic trends and portfolio strategy, receipt of market
quotations for portfolio evaluations, information systems, computer hardware and
similar products and services. If a research service also assists the Manager in
a non-research capacity (such as bookkeeping or other administrative functions),
then only the percentage or component that provides assistance to the Manager in
the investment decision-making process may be paid in commission dollars. The
Board of Directors permits the Manager to use concessions on fixed-price
offerings to obtain research, in the same manner as is permitted for agency
transactions. The Board also permits 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 broadens the scope and
supplement the research activities of the Manager, by making available
additional views for consideration and comparisons, and by enabling the Manager
to obtain market information for the valuation of securities held in the Fund's
portfolio or being considered for purchase. The Manager provides information as
to the commissions paid to brokers furnishing such services, together with the
Manager's representation that the amount of such commissions was reasonably
related to the value or benefit of such services.
During the Fund's fiscal years ended June 30, 1994, 1995 and 1996 and
the fiscal period ended August 31, 1996, total brokerage commissions paid by the
Fund (not including spreads or concessions on principal transactions on a net
trade basis) were $6,479,920, $12,685,652, $9,515,620 and $1,913,573,
respectively. During the fiscal year ended June 30, 1996 and the fiscal period
ended August 31, 1996, $2,665,414 and $419,270 was paid by the Fund to brokers
as commissions in return for research services; the aggregate dollar amount of
these transactions was $727,610,967 and $322,599,737. 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," "average annual total
return at net asset value" and "total return at net asset value" of an
investment in a class of shares of the Fund may be advertised. An explanation of
how these total returns are calculated for each class and the components of
those calculations is set forth below.
-23-
<PAGE>
The Fund's advertisements of its performance data must, under
applicable rules of the Securities and Exchange Commission, include the average
annual total returns for each advertised class of shares of the Fund for the 1,
5, and 10-year periods (or the life of the class, if less) ending as of the most
recently-ended calendar quarter prior to the publication of the advertisement.
This enables an investor to compare the Fund's performance to the performance of
other funds for the same periods. However, a number of factors should be
considered before using such information as a basis for comparison with other
investments. An investment in the Fund is not insured; its returns and share
prices are not guaranteed and normally will fluctuate on a daily basis. When
redeemed, an investor's shares may be worth more or less than their original
cost. Returns for any given past period are not a prediction or representation
by the Fund of future returns. The returns of each class of shares of the Fund
are affected by portfolio quality, the type of investments the Fund holds and
its operating expenses allocated to the particular class.
o Average Annual Total Returns. The "average annual total return" of
each class is an average annual compounded rate of return for each year in a
specified number of years. It is the rate of return based on the change in value
of a hypothetical initial investment of $1,000 ("P" in the formula below) held
for a number of years ("n") to achieve an Ending Redeemable Value ("ERV") of
that investment, according to the following formula.
( ERV ) 1/n
(-----) -1 = Average Annual Total Return
( P )
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, 1996 and for the period from February 3, 1988 (commencement of
operations) to June 30, 1996 were 15.23%, 26.52% and 20.86%, respectively. 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
August 31, 1996 and for the period from February 3, 1988 (commencement of
operations) to August 31, 1996 were 5.44%, 21.77% and 19.95%, respectively.
The "average annual total return" on Class B shares for the one-year
period ended June 30, 1996 and for the period October 1, 1994 (commencement of
the public offering of the class) to June 30, 1996 were 16.34% and 17.88%,
respectively. The "average annual total return" on Class B shares for the
one-year period ended August 31, 1996 and for the period October 1, 1994
(commencement of the public offering of the class) to August 31, 1996 were 6.01%
and 14.03%, respectively.
The "average annual total return" on Class C shares for the one-year
period ended June 30, 1996 and for the period December 1, 1993 (commencement of
the public offering of the class) to June 30, 1996 were 20.35% and 14.89%,
respectively. The "average annual total return" on Class C shares for the
one-year period ended August 31, 1996 and for the period December 1, 1993
(commencement of the public offering of the class) to August 31, 1996 were
10.05% and 12.50%, respectively.
-24-
<PAGE>
o Cumulative Total Returns. The cumulative "total return" calculation
measures the change in value of a hypothetical investment of $1,000 over an
entire period of years. Its calculation uses some of the same factors as average
annual total return, but it does not average the rate of return on an annual
basis. Cumulative total return is determined as follows:
ERV - P
- ------- = Total Return
P
In calculating total returns for Class A shares, 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). Class Y shares are not subject to a
sales charge. 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, 1996 and August 31,
1996 were 392.03% and 376.02%, respectively. 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, 1996 and August 31, 1996 were 33.30% and
28.62%, respectively. 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, 1996 and August 31, 1996 were 43.08% and 38.25%, respectively.
o Total Returns at Net Asset Value. From time to time the Fund may also
quote an "average annual total return at net asset value" or a "cumulative total
return at net asset value" for Class A, Class B, Class C or Class Y shares. Each
is based on the difference in net asset value per share at the beginning and the
end of the period for a hypothetical investment in that class of shares (without
considering front-end or contingent deferred sales charges) and takes into
consideration the reinvestment of dividends and capital gains distributions. The
"cumulative total return at net asset value" on the Fund's Class A shares for
the periods ended June 30, 1996 and August 31, 1996 were 422.06% and 405.07%,
respectively. The "cumulative total return" at net asset value for the Fund's
Class B shares for the periods ended June 30, 1996 and August 31, 1996 were
37.30% and 32.62%, respectively. The "cumulative total return" at net asset
value for the Fund's Class C shares for the periods ended June 30, 1996 and
August 31, 1996 were 43.08% and 38.25%, respectively.
Total return information may be useful to investors in reviewing the
performance of the Fund and Class A, Class B, Class C or Class Y shares.
However, when comparing total return of an
-25-
<PAGE>
investment in shares of the Fund with that of other alternatives, investors
should understand that as the Fund is an equity fund seeking capital
appreciation, its shares are subject to greater market risks and volatility than
shares of funds having more conservative investment objectives and policies and
that the Fund is designed for investors who are willing to accept greater risk
of loss in the hopes of realizing greater gains.
Other Performance Comparisons. From time to time the Fund may publish the
ranking of its Class A, Class B, Class C or Class Y shares by Lipper Analytical
Services, Inc. ("Lipper"), a widely- recognized independent mutual fund
monitoring service. Lipper monitors the performance of regulated investment
companies, including the Fund, and ranks their performance for various periods
based on categories relating to investment objectives. The performance of the
Fund is ranked against (i) all other funds, (ii) all other "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. The Fund may also compare its
performance from time to time with that of Morgan Stanley Capital International
index, a capitalized weighted index which is widely utilized as a measure of
world wide stock market performance.
From time to time the Fund may publish the ranking of the performance of
its Class A, Class B, Class C or Class Y shares by Morningstar, Inc., an
independent mutual fund monitoring service that ranks mutual funds, including
the Fund, monthly in broad investment categories (equity, taxable bond,
municipal bond and hybrid) based on risk-adjusted investment return. Investment
return measures a fund's three, five and ten-year average annual total returns
(when available) in excess of 90-day U.S. Treasury bill returns after
considering sales charges and expenses. Risk measures fund performance below
90-day U.S. Treasury bill monthly returns. Risk and investment return are
combined to produce star rankings reflecting performance relative to the average
fund in a fund's category. Five stars is the "highest" ranking (top 10%), four
stars is "above average" (next 22.5%), three stars is "average" (next 35%), two
stars is "below average" (next 22.5%) and one star is "lowest" (bottom 10%).
Morningstar ranks the Fund in relation to other rated growth and income funds.
Rankings are subject to change.
The total return on an investment in the Fund's Class A, Class B, Class
C or Class Y 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, Class C or Class Y
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 returns to the returns
on fixed income
-26-
<PAGE>
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, at no cost to the Fund. The Distributor
and the Manager may, in their sole discretion, increase or decrease the amount
of payments they make from their own resources to Recipients.
Unless terminated as described below, each Plan continues in effect
from year to year but only as long as its continuance is specifically approved
at least annually by the 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. A 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
-27-
<PAGE>
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 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 reports 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, 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. The Board of Directors has set the fees at the maximum
rate and set no minimum amount.
For the fiscal year ended June 30, 1996 and the fiscal period ended
August 31, 1996 payments under the Class A Plan totaled $6,090,603 and
$1,271,041, all of which was paid by the Distributor to Recipients, including
$248,262 and $52,056, respectively, 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, 1996 and from July 1, 1996 through
August 31, 1996, payments under the Class B Plan totalled $11,543,736 and
$3,086,859, respectively, of which the Distributor paid $13,009 and $4,866 to an
affiliated broker-dealer as reimbursement for Class B personal service and
maintenance expenses, and retained $10,854,702 and $2,071,596, respectively, as
reimbursement for Class B sales commissions and service fee advances, as well as
financing costs. For the fiscal year ended June 30, 1996 and the fiscal period
ended August 31, 1996, payments under the Class C Plan totalled $5,863,969 and
$1,234,633, respectively, of which the Distributor paid $82,364 and $17,862,
respectively, to an affiliated broker-dealer as reimbursement for Class C
personal service and maintenance expenses, and retained $2,651,935 and $457,848,
respectively, 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 payment to be paid
by the Distributor to Recipients in advance for the first year such shares are
outstanding, and thereafter on a quarterly
-28-
<PAGE>
basis, as described in the Prospectus. The advance payment is based on the net
asset value of shares sold. An exchange of shares does not entitle the Recipient
to an advance service fee payment. In the event shares are redeemed during the
first year 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 Plans permit the Distributor to
retain both the asset-based sales charges and the service fees on such shares,
or to pay Recipients the service fee on a quarterly basis, without payment in
advance, the Distributor presently intends to pay the service fee to Recipients
in the manner described above. A minimum holding period may be established from
time to time under the Class B Plan and the Class C Plan by the Board. 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 the
Distributor for the following expenses in connection with the distribution of
Class B and Class C shares: (i) financing the advance of the service fee payment
to Recipients under the Class B and the Class C Plan, (ii) compensation and
expenses of personnel employed by the Distributor to support distribution of
Class B and Class C shares, and (iii) costs of sales literature, advertising and
prospectuses (other than those furnished to current shareholders) and certain
other distribution expenses.
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 generally not accept any order at $500,000 or $1 million or
more of Class B or Class C shares,
-29-
<PAGE>
respectively, on behalf of a single investor (not including dealer "street name"
or omnibus accounts) because generally it will be more advantageous for that
investor to purchase Class A shares of the Fund instead. A Fourth Class of
Shares may be purchased only by certain institutional investors at net asset
value per share ("Class Y Shares").
The four classes of shares each represent an interest in the same
portfolio investments of the Fund. However, each class has different shareholder
privileges and features. The net income attributable to Class B and Class C
shares and the dividends payable on Class B and Class C shares will be reduced
by expenses borne solely by that class, 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 after six years is
subject to the continuing availability of a private letter ruling from the
Internal Revenue Service, or an opinion of counsel or tax adviser, to the effect
that the conversion of Class B shares does not constitute a taxable event for
the holder under Federal income tax law. If such a revenue ruling or opinion is
no longer available, the automatic conversion feature may be suspended, in which
event no further conversions of Class B shares would occur while such suspension
remained in effect. Although Class B shares could then be exchanged for Class A
shares on the basis of relative net asset value of the two classes, without the
imposition of a sales charge or fee, such exchange could constitute a taxable
event for the holder, and absent such exchange, Class B shares might continue to
be subject to the asset-based sales charge for longer than six years.
The methodology for calculating the net asset value, dividends and
distributions of the Fund's Class A, Class B, Class C and Class Y shares
recognizes two types of expenses. General expenses that do not pertain
specifically to any class are allocated pro rata to the shares of each class,
based on the percentage of the net assets of such class to the Fund's total
assets, and then equally to each outstanding share within a given class. Such
general expenses include (i) management fees, (ii) legal, bookkeeping and audit
fees, (iii) printing and mailing costs of shareholder reports, Prospectuses,
Statements of Additional Information and other materials for current
shareholders, (iv) fees to Independent 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 and/or Service Plan fees, (ii) transfer and shareholder
servicing agent fees and expenses, (iii) registration fees and (iv) shareholder
meeting expenses, to the extent that such expenses pertain to a specific class
rather than to the Fund as a whole.
Determination of Net Asset Values Per Share. The net asset values per share of
Class A, Class B, Class C and Class Y shares of the Fund are determined as of
the close of business of The New York Stock Exchange (the "Exchange") on each
day that the Exchange is open, by dividing the value of the Fund's net assets
attributable to that class by the number of shares of that class 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
-30-
<PAGE>
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. Trading may occur in debt securities and in foreign
securities when the Exchange is closed (including weekends and holidays).
Because the Fund's net asset value will not be calculated at those times, if
securities held in the Fund's portfolio are traded at such time, the net asset
values per share of Class A, Class B, Class C and Class Y shares of the Fund may
be significantly affected at times 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 Automated Quotation System ("NASDAQ")
of the Nasdaq Stock Market, Inc. for which last sale information is regularly
reported are valued at the last reported sale price on their primary exchange or
NASDAQ that day (or, in the absence of sales that day, at values based on the
last sale price of the preceding trading day, or closing bid and asked prices
that day); (ii) securities traded on a foreign securities exchange are valued
generally 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 at its last trading session
on or immediately preceding the valuation date, or at the mean between "bid" and
"asked" prices obtained from the principal exchange or two active market makers
in the security on the basis of reasonable inquiry; (iii) long-term debt
securities having a remaining maturity in excess of 60 days are valued based on
the mean between the "bid" and "asked" prices determined by a portfolio pricing
service approved by the Corporation's Board of Directors or obtained by the
Manager from two active market makers in the security on the basis of reasonable
inquiry; (iv) debt instruments having a maturity of more than 397 days when
issued, and non-money market type instruments having a maturity of 397 days or
less when issued, which have a remaining maturity of 60 days or less are valued
at the mean between "bid" and "asked" prices determined by a pricing service
approved by the Corporation's Board of Directors or obtained by the Manager from
two active market makers in the security on the basis of reasonable inquiry; (v)
money market-type debt securities that had a maturity of less than 397 days when
issued that have a remaining maturity of 60 days or less are valued at cost,
adjusted for amortization of premiums and accretion of discounts; and (vi)
securities (including restricted securities) not having readily-available market
quotations are valued at fair value determined under the Board's procedures. If
the Manager is unable to locate two market makers willing to give quotes (see
(ii), (iii) and (iv) above), the security may be priced at the mean between the
"bid" and "asked" prices provided by a single active market maker.
In the case of U.S. Government Securities and mortgage-backed
securities, 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. The Manager may use pricing services approved by the Board of
Directors to price any of the types of securities described above to price U.S.
Government Securities, mortgage-backed securities, foreign government securities
and corporate bonds. The Manager will monitor the accuracy of such pricing
services, which may include comparing prices used for portfolio evaluation
-31-
<PAGE>
to actual sales prices of selected securities.
Trading in securities on European and Asian exchanges and
over-the-counter markets is normally completed before the close of the New York
Stock Exchange. Events affecting the values of foreign securities traded in
securities markets that occur between the time their prices are determined and
the close of the New York Stock Exchange will not be reflected in the Fund's
calculation of net asset value unless the Board of Directors or the Manager,
under procedures established by the Board of Directors, determines that the
particular event is likely to effect a material change in the value of such
security. Foreign currency, including forward contracts, will be valued at the
closing price in the London foreign exchange market that day as provided by a
reliable bank, dealer or pricing service. The values of securities denominated
in foreign currency will be converted to U.S. dollars at the closing price in
the London foreign exchange market that day as provided by a reliable bank,
dealer or pricing service.
Puts, calls and Futures are valued at the last sales price on the
principal exchange on which they are traded, or on NASDAQ, as applicable, as
determined by a pricing service approved by the Board of Directors or by the
Manager. If there were no sales that day, value shall be the last sale price on
the preceding trading day if it is within the spread of the closing bid and
asked prices on the principal exchange or on NASDAQ on the valuation date, or,
if not, value shall be the closing bid price on the principal exchange or on
NASDAQ on the valuation date. If the put, call or future is not traded on an
exchange or on NASDAQ, it shall be valued at the mean between bid and asked
prices obtained by the Manager from two active market makers (which in certain
cases may be the bid price if no asked price is available).
When the Fund writes an option, an amount equal to the premium received
is included in the Fund's Statement of Assets and Liabilities as an asset, and
an equivalent credit is included in the liability section. The credit is
adjusted ("marked-to-market") to reflect the current market value of the option.
In determining the Fund's gain on investments, if a call or put written by the
Fund is exercised, the proceeds are increased by the premium received. If a call
or put written by the Fund expires, the Fund has a gain in the amount of the
premium; if the Fund enters into a closing purchase transaction, it will have a
gain or loss depending on whether the premium received was more or less than the
cost of the closing transaction. If the Fund exercises a put it holds, the
amount the Fund receives on its sale of the underlying investment is reduced by
the amount of premium paid by the Fund.
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 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 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
-32-
<PAGE>
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 in expenses realized by
the Distributor, dealers and brokers making such sales. No sales charge is
imposed in certain circumstances described in the Prospectus because the
Distributor, dealer or broker incurs little or no selling expenses. The term
"immediate family" refers to one's spouse, children, grandchildren, parents,
grandparents, aunts, uncles, nieces, nephews, parents-in-law, sons- and
daughters-in-law, siblings, a sibling's spouse and a spouse's siblings.
o The Oppenheimer Funds. The Oppenheimer funds are those mutual funds
for which the Distributor acts as the distributor or the sub-distributor and
include the following:
Oppenheimer Municipal Bond Fund
Oppenheimer New York Municipal Fund
Oppenheimer California Municipal Fund
Oppenheimer Intermediate Municipal Fund
Oppenheimer Insured Municipal Fund
Oppenheimer Main Street California Municipal Fund
Oppenheimer Florida Municipal Fund
Oppenheimer Pennsylvania Municipal Fund
Oppenheimer New Jersey Municipal Fund
Oppenheimer 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 International Growth Fund
Oppenheimer Enterprise Fund
Oppenheimer Bond Fund for Growth
Oppenheimer Life Span Balanced Fund
Oppenheimer Life Span Growth Fund
Oppenheimer Life Span Income 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
Oppenheimer Quest Global Value Fund, Inc.
Oppenheimer Quest Value Fund, Inc.
Oppenheimer Quest Small Cap Value Fund
Oppenheimer Quest Opportunity Value Fund
Oppenheimer Quest Officers Value Fund
Oppenheimer Quest Growth & Income Value Fund
Rochester Fund Municipals*
Rochester Portfolio Series-Limited Term New York Municipal Fund*
Oppenheimer Disciplined Value Fund
-33-
<PAGE>
Oppenheimer Disciplined Allocation 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.
*Shares of the Fund are not presently exchangeable for shares of these funds
There is an initial sales charge on the purchase of Class A shares of
each of the Oppenheimer funds except Money Market Funds (under certain
circumstances described herein, redemption proceeds of Money Market Fund shares
may be subject to a contingent deferred sales charge).
o Letters of Intent. A Letter of Intent (referred to as a "Letter") is
an investor's statement in writing to the Distributor of the intention to
purchase Class A shares or Class A and Class B shares of the Fund (and other
Oppenheimer funds) during a 13-month period (the "Letter of Intent period"),
which may, at the investor's request, include purchases made up to 90 days prior
to the date of the Letter. The Letter states the investor's intention to make
the aggregate amount of purchases of shares which, when added to the investor's
holdings of shares of those funds, will equal or exceed the amount specified in
the Letter. Purchases made by reinvestment of dividends or distributions of
capital gains and purchases made at net asset value without sales charge do not
count toward satisfying the amount of the Letter. A Letter enables an investor
to count the Class A and Class B shares purchased under the Letter to obtain the
reduced sales charge rate on purchases of Class A shares of the Fund (and other
Oppenheimer funds) that applies under the Right of Accumulation to current
purchases of Class A shares. Each purchase of Class A shares under the Letter
will be made at the public offering price (including the sales charge)
applicable 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,
-34-
<PAGE>
the investor agrees to be bound by the terms of the Prospectus, this Statement
of Additional Information and the Application used for such Letter of Intent,
and if such terms are amended, as they may be from time to time by the Fund,
that those amendments will apply automatically to existing Letters of Intent.
For purchases of shares of the Fund and other Oppenheimer funds by
OppenheimerFunds prototype 401(k) plans under a Letter of Intent, the Transfer
Agent will not hold shares in escrow. If the intended purchase amount under the
Letter entered into by an OppenheimerFunds prototype 401(k) plan is not
purchased by the plan by the end of the Letter of Intent period, there will be
no adjustment of commissions paid to the broker-dealer or financial institution
of record for accounts held in the name of that plan.
If the total eligible purchases made during the Letter of Intent period
do not equal or exceed the intended purchase amount, the commissions previously
paid to the dealer of record for the account and the amount of sales charge
retained by the Distributor will be adjusted to the rates applicable to actual
purchases. If total eligible purchases during the Letter of Intent period exceed
the intended purchase amount and exceed the amount needed to qualify for the
next sales charge rate reduction set forth in the applicable prospectus, the
sales charges paid will be adjusted to the lower rate, but only if and when the
dealer returns to the Distributor the excess of the amount of commissions
allowed or paid to the dealer over the amount of commissions that apply to the
actual amount of purchases. The excess commissions returned to the Distributor
will be used to purchase additional shares for the investor's account at the net
asset value per share in effect on the date of such purchase, promptly after the
Distributor's receipt thereof.
In determining the total amount of purchases made under a Letter,
shares redeemed by the investor prior to the termination of the Letter of Intent
period will be deducted. It is the responsibility of the dealer of record and/or
the investor to advise the Distributor about the Letter in placing any purchase
orders for the investor during the Letter of Intent period. All of such
purchases must be made through the Distributor.
o Terms of Escrow That Apply to Letters of Intent.
1. Out of the initial purchase (or subsequent purchases if necessary)
made pursuant to a Letter, shares of the Fund equal in value up to 5% of the
intended purchase amount specified in the Letter shall be held in escrow by the
Transfer Agent. For example, if the intended purchase amount is $50,000, the
escrow shall be shares valued in the amount of $2,500 (computed at the public
offering price adjusted for a $50,000 purchase). Any dividends and capital gains
distributions on the escrowed shares will be credited to the investor's account.
2. If the intended purchase amount specified under the Letter is
completed within the thirteen-month Letter of Intent period, the escrowed shares
will be promptly released to the investor.
3. If, at the end of the thirteen-month Letter of Intent period the
total purchases pursuant to
-35-
<PAGE>
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 "How to Exchange Shares," and the escrow will
be transferred to that other fund.
Asset Builder Plans. To establish an Asset Builder Plan from a bank account, a
check (minimum $25) for the initial purchase must accompany the application.
Shares purchased by Asset Builder Plan payments from bank accounts are subject
to the redemption restrictions for recent purchases described in "Shareholder
Account Rules and Policies," 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.
-36-
<PAGE>
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.
o 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, and the provisions of Maryland law,
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 the Shareholder to
increase the investment, and set other terms and conditions so that the shares
would not be involuntarily redeemed.
o Payments "In Kind". The Prospectus states that payment for shares
tendered for redemption is ordinarily made in cash. However, the Board of
Directors of the 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.
Reinvestment Privilege. Within six months of a redemption, a shareholder may
reinvest all or part of the redemption proceeds of (i) Class A shares that you
purchased subject to an initial or contingent deferred sales charge, or (ii)
Class B shares on which you paid a contingent deferred sales charge
-37-
<PAGE>
when you redeemed them. It does not apply to Class C shares. The reinvestment
may be made without sales charge only in Class A shares of the Fund or any of
the other Oppenheimer funds into which shares of the Fund are exchangeable as
described below, at the net asset value next computed after the Transfer Agent
receives the reinvestment order. The shareholder must ask the Distributor for
that privilege at the time of reinvestment. Any capital gain that was realized
when the shares were redeemed is taxable, and reinvestment will not alter any
capital gains tax payable on that gain. If there has been a capital loss on the
redemption, some or all of the loss may not be tax deductible, depending on the
timing and amount of the reinvestment. Under the Internal Revenue Code, if the
redemption proceeds of Fund shares on which a sales charge was paid are
reinvested in shares of the Fund or another of the Oppenheimer funds within 90
days of payment of the sales charge, the shareholder's basis in the shares of
the Fund that were redeemed may not include the amount of the sales charge paid.
That would reduce the loss or increase the gain recognized from the redemption.
However, in that case the sales charge would be added to the basis of the shares
acquired by the reinvestment of the redemption proceeds. The Fund may amend,
suspend or cease offering this reinvestment privilege at any time as to shares
redeemed after the date of such amendment, suspension or cessation.
Transfer of Shares. Shares are not subject to the payment of a contingent
deferred sales charge at the time of transfer to the name of another person or
entity (whether the transfer occurs by absolute assignment, gift or bequest, not
involving, directly or indirectly, a public sale). The transferred shares will
remain subject to the contingent deferred sales charge, calculated as if the
transferee shareholder had acquired the transferred shares in the same manner
and at the same time as the transferring shareholder. If less than all shares
held in an account are transferred, and some but not all shares in the account
would be subject to a contingent deferred sales charge if redeemed at the time
of transfer, the priorities described in the Prospectus under "How to Buy
Shares" for the imposition of the Class B or the Class C contingent deferred
sales charge will be followed in determining the order in which shares are
transferred.
Distributions From Retirement Plans. Requests for distributions from
OppenheimerFunds- sponsored IRAs, 403(b)(7) custodial plans, 401(k) plans or
pension or profit-sharing plans should be addressed to "Trustee,
OppenheimerFunds Retirement Plans," c/o the Transfer Agent at its address listed
in "How To Sell Shares" in the Prospectus or on the back cover of this Statement
of Additional Information. The request must: (i) state the reason for the
distribution; (ii) state the owner's awareness of tax penalties if the
distribution is premature; and (iii) conform to the requirements of the plan and
the Fund's other redemption requirements. Participants, other than self-employed
persons, maintaining a plan account in their own name, in OppenheimerFunds-
sponsored prototype pension, profit-sharing or 401(k) plans may not directly
redeem or exchange shares held for their account under those plans. The employer
or plan administrator must sign the request. Distributions from pension and
profit sharing plans are subject to special requirements under the 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
-38-
<PAGE>
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 on behalf of their customers. The shareholder should contact the
broker or dealer to arrange this type of redemption. The repurchase price per
share will be the net asset value next computed after the Distributor receives
the order placed by the dealer or broker, except that if the Distributor
receives a repurchase order from a dealer or broker after the close of The New
York Stock Exchange on a regular business day, it will be processed at that
day's net asset value if the order was received by the dealer or broker from its
customers prior to the time the Exchange closes (normally, that is 4:00 P.M.,
but may be earlier on some days) and the order was transmitted to and received
by the Distributor prior to its close of business that day (normally 5:00 P.M.).
Ordinarily, for accounts redeemed by a broker-dealer under this procedure,
payment will be made within three business days after the shares have been
redeemed upon the Distributor's receipt 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 and Class C shareholders
should not establish withdrawal plans because of the imposition of the
contingent deferred sales charge on such withdrawals (except where the Class B
or the Class C contingent deferred sales charge is waived as described in the
Prospectus under "Waivers of Class B Sales or Class C Sales Charges").
By requesting an Automatic Withdrawal or Exchange Plan, the shareholder
agrees to the
-39-
<PAGE>
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.
o Automatic Exchange Plans. Shareholders can authorize the Transfer
Agent (on the OppenheimerFunds Application or signature-guaranteed instructions)
to exchange a pre-determined amount of shares of the Fund for shares (of the
same class) of other Oppenheimer funds automatically on a monthly, quarterly,
semi-annual or annual basis under an Automatic Exchange Plan. The minimum amount
that may be exchanged to each other fund account is $25. Exchanges made under
these plans are subject to the restrictions that apply to exchanges as set forth
in "How to Exchange Shares" in the Prospectus and below in this Statement of
Additional Information.
o Automatic Withdrawal Plans. Fund shares will be redeemed as necessary
to meet withdrawal payments. Shares acquired without a sales charge will be
redeemed first and shares acquired with reinvested dividends and capital gains
distributions will be redeemed next, followed by shares acquired with a sales
charge, to the extent necessary to make withdrawal payments. Depending upon the
amount withdrawn, the investor's principal may be depleted. Payments made under
withdrawal plans should not be considered as a yield or income on your
investment. 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 and the Fund shall incur no liability to the Planholder for any action
taken or omitted by the Transfer Agent in good faith to administer the Plan.
Certificates will not be issued for shares of the Fund purchased for and held
under the Plan, but the Transfer Agent will credit all such shares to the
account of the Planholder on the records of the Fund. Any share certificates
held by a Planholder may be surrendered unendorsed to the Transfer Agent with
the Plan application so that the shares represented by the certificate may be
held under the Plan.
For accounts subject to Automatic Withdrawal Plans, distributions of
capital gains must be reinvested in shares of the Fund, which will be done at
net asset value without a sales charge. Dividends on shares held in the account
may be paid in cash or reinvested.
Redemptions of shares needed to make withdrawal payments will be made
at the net asset value per share determined on the redemption date. Checks or
AccountLink 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.
-40-
<PAGE>
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 Class A shares held under the Plan as collateral for a debt, the
Planholder may request issuance of a portion of the Class A shares in
certificated form. Share certificates are not issued for Class B or Class C
shares. Upon written request from the Planholder, the Transfer Agent will
determine the number of Class A 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 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 Municipal Fund which only offers
Class A and Class B shares (Class B and Class C shares of Oppenheimer Cash
Reserves are generally available only by exchange from the same class of shares
of other Oppenheimer funds or through OppenheimerFunds sponsored 401(k) plans).
A current list showing
-41-
<PAGE>
which funds offer which class can be obtained by calling the distributor at
1-800-525-7048.
For accounts established on or before March 8, 1996 holding Class M
shares of Oppenheimer Bond Fund for Growth, Class M shares can be exchanged only
for Class A shares of other Oppenheimer funds, including Rochester Fund
Municipals and Limited Term New York Municipal Fund. Class A shares of Rochester
Fund Municipals or Limited Term New York Municipal Fund acquired on the exchange
of Class M shares of Oppenheimer Bond Fund for Growth may be exchanged for Class
M shares of that fund. For accounts of Oppenheimer Bond Fund for Growth
established after March 8, 1996, Class M shares may be exchanged for Class A
shares of other Oppenheimer funds except Rochester Fund Municipals and
Limited-Term New York Municipals. Exchanges to Class M shares of Oppenheimer
Bond Fund for Growth are permitted from Class A shares of Oppenheimer Money
Market Fund, Inc. or Oppenheimer Cash Reserves that were acquired by exchange
from Class M shares. Otherwise no exchanges of any class of any Oppenheimer fund
into Class M shares are permitted.
Class A shares of Oppenheimer funds may be exchanged at net asset value
for shares of any Money Market Fund. Shares of any Money Market Fund purchased
without a sales charge may be exchanged for shares of Oppenheimer funds offered
with a sales charge upon payment of the sales charge (or, if applicable, may be
used to purchase shares of Oppenheimer funds subject to a contingent deferred
sales charge). However, shares of Oppenheimer Money Market Fund, Inc. purchased
with the redemption proceeds of shares of other mutual funds (other than funds
managed by the Manager or its subsidiaries) redeemed within the 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 distribution from any other
of the Oppenheimer funds (except Oppenheimer Cash Reserves) or from any unit
investment trust for which reinvestment arrangements have been made with the
Distributor may be exchanged at net asset value for shares of any of the
Oppenheimer funds.
No contingent deferred sales charge is imposed on exchanges of shares
of any class purchased subject to a contingent deferred sales charge. However,
when Class A shares acquired by exchange of Class A shares of other Oppenheimer
funds purchased subject to a Class A contingent deferred sales charge are
redeemed within 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.
-42-
<PAGE>
When Class A, 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 A, Class B or the Class C contingent deferred sales
charge will be followed in determining the order in which the shares are
exchanged. Shareholders should take into account the effect of any exchange on
the applicability and rate of any contingent deferred sales charge that might be
imposed in the subsequent redemption of remaining shares. Shareholders owning
shares of more than one class must specify whether they intend to exchange Class
A, Class B or Class C shares.
The Fund reserves the right to reject telephone or written exchange
requests submitted in bulk by anyone on behalf of more than one account. The
Fund may accept requests for exchanges of up to 50 accounts per day from
representatives of authorized dealers that qualify for this privilege. In
connection with any exchange request, the number of shares exchanged may be less
than the number requested if the exchange or the number requested would include
shares subject to a restriction cited in the Prospectus or this Statement of
Additional Information or would include shares covered by a share certificate
that is not tendered with the request. In those cases, only the shares available
for exchange without restriction will be exchanged.
When exchanging shares by telephone, a shareholder must either have an
existing account in, or obtain and acknowledge receipt of a prospectus of, the
fund to which the exchange is to be made. For full or partial exchanges of an
account made by telephone, any special account features such as Asset Builder
Plans, Automatic Withdrawal Plans, Checkwriting, if available, and retirement
plan contributions will be switched to the new account unless the Transfer Agent
is instructed otherwise. If all telephone lines are busy (which might occur, for
example, during periods of substantial market fluctuations), shareholders might
not be able to request exchanges by telephone and would have to submit written
exchange requests.
Shares to be exchanged are redeemed on the regular business day the
Transfer Agent receives an exchange request in proper form (the "Redemption
Date"). Normally, shares of the fund to be acquired are purchased on the
Redemption Date, but such purchases may be delayed by either fund up to five
business days if it determines that it would be disadvantaged by an immediate
transfer of the redemption proceeds. The Fund reserves the right, in its
discretion, to refuse any exchange request that may disadvantage it (for
example, if the receipt of multiple exchange requests from a dealer might
require the disposition of portfolio securities at a time or at a price that
might be disadvantageous to the Fund).
The different Oppenheimer funds available for exchange have different
investment objectives, policies and risks, and a shareholder should assure that
the Fund selected is appropriate for his or her investment and should be aware
of the tax consequences of an exchange. For federal income tax purposes, an
exchange transaction is treated as a redemption of shares of one fund and a
purchase of shares of another. "Reinvestment Privilege," above, discusses some
of the tax consequences of reinvestment of redemption proceeds in such cases.
The Fund, the Distributor, and the Transfer Agent are unable to provide
investment, tax or legal advice to a shareholder in connection with an exchange
request or any other investment transaction.
-43-
<PAGE>
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 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 relating to qualification which the Fund might not
meet in any 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. 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.
Dividends, distributions and proceeds of the redemption of Fund shares
represented by checks returned to the Transfer Agent by the Postal Service as
undeliverable will be invested in shares of Oppenheimer Money Market Fund, Inc.,
as promptly as possible after the return of such checks to the Transfer Agent,
in order to enable the investor to earn a return on otherwise idle funds.
If prior distributions must be re-characterized at the end of the
fiscal year as a result of the effect of the Fund's investment policies,
shareholders may have a non-taxable return of capital, which will be identified
in notices of shareholders. There is no fixed dividend rate and there can be no
assurance as to the payment of any dividends or the realization of any capital
gains.
-44-
<PAGE>
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 shares of other Oppenheimer funds may be
invested in shares of this Fund on the same basis.
Additional Information About the Fund
The Custodian. The Bank of New York is the Custodian of the Fund's assets. The
Custodian's responsibilities include safeguarding and controlling the Fund's
portfolio securities, collecting income of 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 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
with the custodian in excess of $100,000 are not protected by Federal deposit
insurance. Those uninsured balances at times may be substantial.
Independent Auditors. The independent auditors of the Fund audit the Fund's
financial statements and perform other related audit services. They also act as
auditors for the Manager and certain other funds advised by the Manager and its
affiliates.
-45-
<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, 1996, the related statement of operations for the year then
ended, the statements of changes in net assets for the years ended June 30, 1996
and 1995, and the financial highlights for the period July 1, 1991 to June 30,
1996. 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,
1996 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, 1996, 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.
/s/ Deloitte & Touche LLP
- -------------------------
DELOITTE & TOUCHE LLP
Denver, Colorado
July 22, 1996
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments June 30, 1996
Face Market Value
Amount See Note 1
<S> <C> <C>
===================================================================================================================================
Short-Term Notes--11.0%
- -----------------------------------------------------------------------------------------------------------------------------------
American Express Credit Corp., 5.45%, 7/2/96 $ 40,000,000
$ 39,993,944
---------------------------------------------------------------------------------------------------------------
Associates Corp. of North America, 5.39%, 7/22/96 40,000,000
39,874,233
---------------------------------------------------------------------------------------------------------------
Associates Corp. of North America, 5.60%, 7/1/96 50,000,000
50,000,000
---------------------------------------------------------------------------------------------------------------
Countrywide Home Loan, 5.32%, 7/25/96 50,000,000
49,819,333
---------------------------------------------------------------------------------------------------------------
Countrywide Home Loan, 5.40%, 7/16/96 51,000,000
50,885,250
---------------------------------------------------------------------------------------------------------------
Ford Motor Credit Co., 5.36%, 7/11/96 50,000,000
49,925,556
---------------------------------------------------------------------------------------------------------------
Ford Motor Credit Co., 5.38%, 7/19/96 50,000,000
49,865,500
---------------------------------------------------------------------------------------------------------------
General Electric Capital Corp., 5.27%, 7/10/96 50,000,000
49,932,875
---------------------------------------------------------------------------------------------------------------
Hertz Corp. (The) 5.38%, 7/18/96 45,000,000
44,885,675
---------------------------------------------------------------------------------------------------------------
Hertz Corp. (The) 5.39%, 7/23/96 25,000,000
24,917,653
---------------------------------------------------------------------------------------------------------------
Hertz Corp. (The) 5.39%, 7/24/96 25,000,000
24,913,910
---------------------------------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc., 5.35%, 7/9/96 50,000,000
49,940,556
---------------------------------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc., 5.36%, 7/8/96 50,000,000
49,947,986
---------------------------------------------------------------------------------------------------------------
New Center Asset Trust, 5.32%, 7/2/96 50,000,000
49,992,611
--------------
Total Short-Term Notes (Cost $624,895,082)
624,895,082
===================================================================================================================================
U.S. Government Obligations--1.7%
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Nts., 5%, 1/31/98 50,000,000
49,218,750
---------------------------------------------------------------------------------------------------------------
U.S. Treasury Nts., 5.50%, 11/15/98 50,000,000
49,234,344
--------------
Total U.S. Government Obligations (Cost $100,431,526)
98,453,094
===================================================================================================================================
Non-Convertible Corporate Bonds and Notes--0.2%
- -----------------------------------------------------------------------------------------------------------------------------------
United International Holdings, Inc.,
Zero Coupon Sr. Sec. Disc. Nts., Series B, 14%, 11/15/99(1)
12,000,000 7,920,000
---------------------------------------------------------------------------------------------------------------
United International Holdings, Inc.,
Zero Coupon Sr. Sec. Disc. Nts., 12.45%, 11/15/99(1) 3,000,000
1,980,000
--------------
Total Non-Convertible Corporate Bonds and Notes (Cost $9,599,488)
9,900,000
===================================================================================================================================
Convertible Corporate Bonds and Notes--3.2%
- -----------------------------------------------------------------------------------------------------------------------------------
ADT Operations, Inc., Zero Coupon Cv. Sub. Nts., 6.26%, 7/6/10(1)
15,000,000 8,231,250
---------------------------------------------------------------------------------------------------------------
Altera Corp., 5.75% Cv. Sub. Nts., 6/15/02(2) 5,250,000
5,302,500
---------------------------------------------------------------------------------------------------------------
ALZA Corp., 5% Cv. Sub. Debs., 5/1/06 12,800,000
12,448,000
---------------------------------------------------------------------------------------------------------------
Conner Peripherals, Inc., 6.50% Cv. Debs., 3/1/02 6,000,000
6,270,000
---------------------------------------------------------------------------------------------------------------
Continental Airlines, Inc., 6.75% Cv. Sub. Nts., 4/15/06(2) 15,000,000
18,000,000
---------------------------------------------------------------------------------------------------------------
Corporate Express, Inc., 4.50% Cv. Nts., 7/1/00(2)(3) 20,000,000
19,900,000
---------------------------------------------------------------------------------------------------------------
Federated Department Stores, Inc., 5% Cv. Sub. Nts., 10/1/03
5,000,000 5,825,000
---------------------------------------------------------------------------------------------------------------
First Financial Management Corp., 5% Cv. Debs., 12/15/99
5,000,000 9,451,600
---------------------------------------------------------------------------------------------------------------
Healthsource, Inc., 5% Cv. Sub. Nts., 3/1/03(2) 20,000,000
15,850,000
---------------------------------------------------------------------------------------------------------------
NovaCare, Inc., 5.50% Cv. Sub. Debs., 1/15/00 5,500,000
4,853,750
---------------------------------------------------------------------------------------------------------------
PHP Healthcare Corp., 6.50% Cv. Sub. Debs., 12/15/02(2)
3,000,000 3,933,750
---------------------------------------------------------------------------------------------------------------
Physicians Clinical Laboratory, Inc., 7.50% Cv. Sub. Debs., 8/15/00(3)(4)
1,000,000 100,000
---------------------------------------------------------------------------------------------------------------
Roche Holdings, Inc., Zero Coupon Cv. Nts., 7%, 4/20/10(1)(2)
48,000,000 20,700,000
---------------------------------------------------------------------------------------------------------------
<PAGE>
Sports & Recreation, Inc., 4.25% Cv. Sub. Nts., 11/1/00 7,500,000
5,381,250
</TABLE>
6 Oppenheimer Main Street Income & Growth Fund
<PAGE>
<TABLE>
<CAPTION>
Face Market Value
Amount See Note 1
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Convertible Corporate
Bonds and Notes
(continued)
Staples, Inc., 4.50% Cv. Nts., 10/1/00(2) $ 13,000,000 $
14,121,250
---------------------------------------------------------------------------------------------------------------
Tele-Communications International, Inc., 4.50% Cv. Sub. Debs., 2/15/06
5,400,000 4,644,000
---------------------------------------------------------------------------------------------------------------
Theratx, Inc., 8% Cv. Sub. Debs., 2/1/02 6,000,000
5,917,500
---------------------------------------------------------------------------------------------------------------
Time Warner, Inc., Zero Coupon Cv. Sr. Sub. Nts., 5.08%, 6/22/13(1)
20,000,000 8,225,000
---------------------------------------------------------------------------------------------------------------
U.S. Cellular Corp., Zero Coupon Cv. Liquid Yield Option Nts., 5.98%, 6/15/15(1)
16,250,000 5,443,750
---------------------------------------------------------------------------------------------------------------
WorldCom, Inc., 5% Cv. Sub. Nts., 8/15/03 4,000,000
5,770,000
--------------
Total Convertible Corporate Bonds and Notes (Cost $170,144,816)
180,368,600
Shares
===================================================================================================================================
Common Stocks--75.7%
- -----------------------------------------------------------------------------------------------------------------------------------
Basic Materials--3.6%
- -----------------------------------------------------------------------------------------------------------------------------------
Chemicals--3.1%
IMC Global, Inc. 1,425,000
53,615,625
---------------------------------------------------------------------------------------------------------------
Monsanto Co. 3,854,000
125,255,000
--------------
178,870,625
- -----------------------------------------------------------------------------------------------------------------------------------
Gold--0.5%
Newmont Mining Corp. 600,000
29,625,000
- -----------------------------------------------------------------------------------------------------------------------------------
Consumer Cyclicals--18.0%
- -----------------------------------------------------------------------------------------------------------------------------------
Autos & Housing--1.2%
ITI Technologies, Inc.(5) 250,000
8,250,000
---------------------------------------------------------------------------------------------------------------
Oakwood Homes Corp. 607,800
12,535,875
---------------------------------------------------------------------------------------------------------------
Toyota Motor Corp. 1,900,000
47,464,709
--------------
68,250,584
- -----------------------------------------------------------------------------------------------------------------------------------
Leisure & Entertainment--8.6%
Atlantic Southeast Airlines, Inc. 640,000
18,080,000
---------------------------------------------------------------------------------------------------------------
Continental Airlines, Inc., Cl. B(5) 430,000
26,552,500
---------------------------------------------------------------------------------------------------------------
Disney (Walt) Co. 1,875,000
117,890,625
---------------------------------------------------------------------------------------------------------------
Eastman Kodak Co. 750,000
58,312,500
---------------------------------------------------------------------------------------------------------------
Gaylord Entertainment Co., Cl. A 1,603,035
45,285,739
---------------------------------------------------------------------------------------------------------------
Harrah's Entertainment, Inc. 1,300,000
36,725,000
---------------------------------------------------------------------------------------------------------------
ITT Corp. (New)(5) 1,220,000
80,825,000
---------------------------------------------------------------------------------------------------------------
McDonald's Corp. 2,242,300
104,827,525
---------------------------------------------------------------------------------------------------------------
Primadonna Resorts, Inc.(5) 70,000
1,610,000
--------------
490,108,889
- -----------------------------------------------------------------------------------------------------------------------------------
Media--2.8%
Cox Communications, Inc., Cl. A(5) 600,000
12,975,000
---------------------------------------------------------------------------------------------------------------
Evergreen Media Corp., Cl. A(5) 550,000
23,512,500
---------------------------------------------------------------------------------------------------------------
Infinity Broadcasting Corp., Cl. A(5) 1,150,000
34,500,000
---------------------------------------------------------------------------------------------------------------
Omnicom Group, Inc. 1,227,900
57,097,350
---------------------------------------------------------------------------------------------------------------
Viacom, Inc., Cl. B(5) 750,000
29,156,250
--------------
157,241,100
- -----------------------------------------------------------------------------------------------------------------------------------
Retail: General--1.9%
Dillard Department Stores, Inc., Cl. A 600,000
21,900,000
---------------------------------------------------------------------------------------------------------------
Eckerd Corp.(5) 1,200,000
27,150,000
---------------------------------------------------------------------------------------------------------------
Kohl's Corp.(5) 463,000
16,957,375
---------------------------------------------------------------------------------------------------------------
May Department Stores Co. 529,400
23,161,250
---------------------------------------------------------------------------------------------------------------
Nordstrom, Inc. 415,000
18,467,500
--------------
107,636,125
</TABLE>
7 Oppenheimer Main Street Income & Growth Fund
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments (Continued)
Market Value
Shares See Note 1
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Retail: Specialty--3.5%
Alco Standard Corp. 700,000 $
31,675,000
---------------------------------------------------------------------------------------------------------------
Circuit City Stores, Inc. 1,742,000
62,929,750
---------------------------------------------------------------------------------------------------------------
Nine West Group, Inc.(5) 525,000
26,840,625
---------------------------------------------------------------------------------------------------------------
Office Depot, Inc.(5) 1,500,000
30,562,500
---------------------------------------------------------------------------------------------------------------
Talbots, Inc. (The) 702,200
22,733,725
---------------------------------------------------------------------------------------------------------------
The Sports Authority, Inc.(5) 750,000
24,562,500
--------------
199,304,100
- -----------------------------------------------------------------------------------------------------------------------------------
Consumer Non-Cyclicals--16.9%
<PAGE>
- -----------------------------------------------------------------------------------------------------------------------------------
Beverages--0.2%
Anheuser-Busch Cos., Inc. 112,500
8,437,500
---------------------------------------------------------------------------------------------------------------
LVMH Moet Hennessy Louis Vuitton 20,900
4,956,966
--------------
13,394,466
- -----------------------------------------------------------------------------------------------------------------------------------
Food--1.7%
Campbell Soup Co. 860,000
60,630,000
---------------------------------------------------------------------------------------------------------------
Ralston-Ralston Purina Group 547,700
35,121,262
--------------
95,751,262
- -----------------------------------------------------------------------------------------------------------------------------------
Healthcare/Drugs--7.1%
American Home Products Corp. 1,100,000
66,137,500
---------------------------------------------------------------------------------------------------------------
Amgen, Inc.(5) 900,000
48,600,000
---------------------------------------------------------------------------------------------------------------
Astra AB Free, Series A 1,000,000
44,156,604
---------------------------------------------------------------------------------------------------------------
Merck & Co., Inc. 1,750,000
113,093,750
---------------------------------------------------------------------------------------------------------------
Schering-Plough Corp. 1,372,400
86,118,100
---------------------------------------------------------------------------------------------------------------
Warner-Lambert Co. 800,000
44,000,000
--------------
402,105,954
- -----------------------------------------------------------------------------------------------------------------------------------
Healthcare/Supplies &
Services--5.2%
Baxter International, Inc. 1,426,000
67,378,500
---------------------------------------------------------------------------------------------------------------
Boston Scientific Corp.(5) 1,330,050
59,852,250
---------------------------------------------------------------------------------------------------------------
Guidant Corp. 500,000
24,625,000
---------------------------------------------------------------------------------------------------------------
HEALTHSOUTH Corp.(5) 850,000
30,600,000
---------------------------------------------------------------------------------------------------------------
Manor Care, Inc. 339,000
13,348,125
---------------------------------------------------------------------------------------------------------------
St. Jude Medical, Inc.(5) 600,000
20,100,000
---------------------------------------------------------------------------------------------------------------
Tenet Healthcare Corp.(5) 1,500,000
32,062,500
---------------------------------------------------------------------------------------------------------------
United Healthcare Corp. 973,100
49,141,550
--------------
297,107,925
- -----------------------------------------------------------------------------------------------------------------------------------
Household Goods--0.9%
Colgate-Palmolive Co. 431,900
36,603,525
---------------------------------------------------------------------------------------------------------------
Kao Corp. 1,225,000
16,529,680
--------------
53,133,205
- -----------------------------------------------------------------------------------------------------------------------------------
Tobacco--1.8%
Philip Morris Cos., Inc. 975,000
101,400,000
- -----------------------------------------------------------------------------------------------------------------------------------
Energy--4.8%
- -----------------------------------------------------------------------------------------------------------------------------------
Energy Services &
Producers--2.2%
Apache Corp. 750,000
24,656,250
---------------------------------------------------------------------------------------------------------------
BJ Services Co. 600,000
21,075,000
---------------------------------------------------------------------------------------------------------------
Schlumberger Ltd. 450,000
37,912,500
---------------------------------------------------------------------------------------------------------------
Tidewater, Inc. 600,000
26,325,000
---------------------------------------------------------------------------------------------------------------
Weatherford Enterra, Inc.(5) 600,000
18,000,000
--------------
127,968,750
</TABLE>
8 Oppenheimer Main Street Income & Growth Fund
<PAGE>
<TABLE>
<CAPTION>
Market Value
Shares See Note 1
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Oil-Integrated--2.6%
Ashland, Inc. 475,000 $
18,821,875
---------------------------------------------------------------------------------------------------------------
Atlantic Richfield Co. 325,000
38,512,500
---------------------------------------------------------------------------------------------------------------
Royal Dutch Petroleum Co. 185,000
28,443,750
---------------------------------------------------------------------------------------------------------------
Texaco, Inc. 375,000
31,453,125
---------------------------------------------------------------------------------------------------------------
Unocal Corp. 825,000
27,843,750
--------------
145,075,000
- -----------------------------------------------------------------------------------------------------------------------------------
Financial--8.9%
- -----------------------------------------------------------------------------------------------------------------------------------
Banks--2.1%
Coast Savings Financial, Inc.(5) 325,000
10,643,750
---------------------------------------------------------------------------------------------------------------
Commercial Federal Corp. 400,000
15,300,000
---------------------------------------------------------------------------------------------------------------
First Bank System, Inc. 500,000
29,000,000
---------------------------------------------------------------------------------------------------------------
Summit Bancorp 645,000
22,655,625
---------------------------------------------------------------------------------------------------------------
Wells Fargo & Co. 183,333
43,793,670
--------------
121,393,045
- -----------------------------------------------------------------------------------------------------------------------------------
Diversified Financial--5.6%
American Express Co. 2,122,900
94,734,412
---------------------------------------------------------------------------------------------------------------
Associates First Capital Corp., Cl. A(5) 751,500
28,275,188
---------------------------------------------------------------------------------------------------------------
Dean Witter, Discover & Co. 898,100
51,416,225
---------------------------------------------------------------------------------------------------------------
Nomura Securities Co. Ltd. 1,700,000
33,168,769
---------------------------------------------------------------------------------------------------------------
PMI Group, Inc. (The) 175,000
7,437,500
---------------------------------------------------------------------------------------------------------------
Travelers Group, Inc. 2,277,200
103,897,250
--------------
318,929,344
<PAGE>
- -----------------------------------------------------------------------------------------------------------------------------------
Insurance--1.2%
Allstate Corp. 500,000
22,812,500
---------------------------------------------------------------------------------------------------------------
Amerin Corp.(5) 385,000
10,298,750
---------------------------------------------------------------------------------------------------------------
Everest Reinsurance Holdings, Inc. 1,000,000
25,875,000
---------------------------------------------------------------------------------------------------------------
MGIC Investment Corp. 130,300
7,313,088
--------------
66,299,338
- -----------------------------------------------------------------------------------------------------------------------------------
Industrial--5.0%
- -----------------------------------------------------------------------------------------------------------------------------------
Electrical Equipment--1.8%
General Electric Co. 225,000
19,462,500
---------------------------------------------------------------------------------------------------------------
Honeywell, Inc. 901,900
49,153,550
---------------------------------------------------------------------------------------------------------------
Raychem Corp. 450,000
32,343,750
--------------
100,959,800
- -----------------------------------------------------------------------------------------------------------------------------------
Industrial Materials--0.5%
Avery-Dennison Corp. 482,000
26,449,750
- -----------------------------------------------------------------------------------------------------------------------------------
Industrial Services--0.5%
Millipore Corp. 700,000
29,312,500
- -----------------------------------------------------------------------------------------------------------------------------------
Manufacturing--1.5%
American Standard Cos., Inc.(5) 1,000,000
33,000,000
---------------------------------------------------------------------------------------------------------------
Mitsubishi Heavy Industries Ltd. 4,200,000
36,492,939
---------------------------------------------------------------------------------------------------------------
Olin Corp. 150,100
13,396,425
--------------
82,889,364
- -----------------------------------------------------------------------------------------------------------------------------------
Transportation--0.7%
Conrail, Inc. 638,000
42,347,250
- -----------------------------------------------------------------------------------------------------------------------------------
Technology--17.7%
- -----------------------------------------------------------------------------------------------------------------------------------
Aerospace/Defense--1.0%
Boeing Co. 300,000
26,137,500
---------------------------------------------------------------------------------------------------------------
Rockwell International Corp. 500,000
28,625,000
--------------
54,762,500
</TABLE>
9 Oppenheimer Main Street Income & Growth Fund
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments (Continued)
Market Value
Shares See Note 1
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Computer Hardware--2.1%
Adaptec, Inc.(5) 445,000 $
21,081,875
---------------------------------------------------------------------------------------------------------------
Compaq Computer Corp.(5) 300,000
14,775,000
---------------------------------------------------------------------------------------------------------------
International Business Machines Corp. 350,000
34,650,000
---------------------------------------------------------------------------------------------------------------
QUALCOMM, Inc. 300,000
15,937,500
---------------------------------------------------------------------------------------------------------------
Seagate Technology, Inc.(5) 762,300
34,303,500
--------------
120,747,875
- -----------------------------------------------------------------------------------------------------------------------------------
Computer Software--5.8%
Adobe Systems, Inc. 600,000
21,525,000
---------------------------------------------------------------------------------------------------------------
BMC Software, Inc.(5) 675,000
40,331,250
---------------------------------------------------------------------------------------------------------------
Computer Associates International, Inc. 200,000
14,250,000
---------------------------------------------------------------------------------------------------------------
Electronic Data Systems Corp. 800,000
43,000,000
---------------------------------------------------------------------------------------------------------------
First Data Corp. 776,800
61,852,700
---------------------------------------------------------------------------------------------------------------
Informix Corp.(5) 1,070,000
24,075,000
---------------------------------------------------------------------------------------------------------------
Nintendo Co. Ltd. 1,115,000
82,952,920
---------------------------------------------------------------------------------------------------------------
PLATINUM Technology, Inc.(5) 1,000,000
15,125,000
---------------------------------------------------------------------------------------------------------------
Sungard Data Systems, Inc.(5) 600,000
24,075,000
--------------
327,186,870
- -----------------------------------------------------------------------------------------------------------------------------------
Electronics--4.1%
General Instrument Corp.(5) 600,000
17,325,000
---------------------------------------------------------------------------------------------------------------
General Motors Corp., Cl. H 775,000
46,596,875
---------------------------------------------------------------------------------------------------------------
Hewlett-Packard Co. 740,000
73,722,500
---------------------------------------------------------------------------------------------------------------
Intel Corp. 800,000
58,750,000
---------------------------------------------------------------------------------------------------------------
Loral Space & Communications Ltd.(5) 500,000
6,812,500
---------------------------------------------------------------------------------------------------------------
Thermo Electron Corp. 637,500
26,535,938
---------------------------------------------------------------------------------------------------------------
VeriFone, Inc.(5) 135,500
5,724,875
--------------
235,467,688
- -----------------------------------------------------------------------------------------------------------------------------------
Telecommunications-
Technology--4.7%
ADC Telecommunications, Inc.(5) 575,000
25,875,000
---------------------------------------------------------------------------------------------------------------
Cisco Systems, Inc.(5) 1,000,000
56,625,000
---------------------------------------------------------------------------------------------------------------
LCI International, Inc.(5) 513,500
16,111,063
---------------------------------------------------------------------------------------------------------------
Millicom International Cellular SA(5) 750,000
35,718,750
---------------------------------------------------------------------------------------------------------------
Millicom, Inc.(5) 75,000 --
---------------------------------------------------------------------------------------------------------------
Newbridge Networks Corp.(5) 425,000
27,837,500
---------------------------------------------------------------------------------------------------------------
Tellabs, Inc.(5) 350,000
23,406,250
---------------------------------------------------------------------------------------------------------------
WorldCom, Inc.(5) 1,500,000
83,062,500
<PAGE>
--------------
268,636,063
- -----------------------------------------------------------------------------------------------------------------------------------
Utilities--0.8%
- -----------------------------------------------------------------------------------------------------------------------------------
Gas Utilities--0.8%
Sonat, Inc. 950,000
42,750,000
--------------
Total Common Stocks (Cost $3,717,127,694)
4,305,104,372
</TABLE>
10 Oppenheimer Main Street Income & Growth Fund
<PAGE>
<TABLE>
<CAPTION>
Market Value
Shares See Note 1
<S> <C> <C>
===================================================================================================================================
Preferred Stocks--2.4%
AK Steel Holding Corp., 7% Cv. Stock Appreciation Income Linked Securities
325,000 $ 11,943,750
---------------------------------------------------------------------------------------------------------------
Cablevision Systems Corp., 8.50% Cum. Cv., Series I 439,000
11,414,000
---------------------------------------------------------------------------------------------------------------
Delta Air Lines, Inc., $3.50 Cv. Depositary Shares, Series C 425,000
26,775,000
---------------------------------------------------------------------------------------------------------------
Freeport-McMoRan Copper & Gold, Inc., Depositary Shares
each representing 0.05 Shares of Step-Up Cv. Preferred Stock 919,000
25,042,750
---------------------------------------------------------------------------------------------------------------
Globalstar Telecommunications Ltd.,
6.50% Cv. Preferred Equivalent Obligations due 3/1/06(2)(3) 360,000
15,120,000
---------------------------------------------------------------------------------------------------------------
LCI International, Inc., 5% Cum. Cv. Exchangeable Preferred Stock
250,000 20,625,000
---------------------------------------------------------------------------------------------------------------
SFX Broadcasting, Inc., 6.50% Cv. Preferred(2) 105,000
5,486,250
---------------------------------------------------------------------------------------------------------------
SunAmerica, Inc., $3.10 Depositary Shares (each representing
one-fiftieth of a share of series E Mandatory
Conversion Premium Dividend Preferred Stock) 199,500
14,912,625
---------------------------------------------------------------------------------------------------------------
WHX Corp., $3.75 Cv., Series B 175,000
7,415,625
--------------
Total Preferred Stocks (Cost $117,715,644)
138,735,000
===================================================================================================================================
Other Securities--3.2%
Atlantic Richfield Co., 9% Exchangeable Notes for
Common Stock of Lyondell Petrochemical Co., 9/15/97 425,000
10,359,375
---------------------------------------------------------------------------------------------------------------
Compania de Inversiones en Telecomunicaciones SA,
Provisionally Redeemable Income Debt Exchangeable for Stock, 7%, 3/3/98(2)
225,000 13,190,625
---------------------------------------------------------------------------------------------------------------
Continental Airlines Finance Trust,
8.50% Cv. Trust Originated Preferred Securities(2) 400,000
29,400,000
---------------------------------------------------------------------------------------------------------------
Cooper Industries, Inc., Debt Exchangeable for Commmon Stock,
6% Exchangeable Nts., 1/1/99 845,000
14,153,750
---------------------------------------------------------------------------------------------------------------
Elsag Bailey Financing Trust, 5.50% Cv. Trust Originated Preferred Securities(2)
224,500 11,112,750
---------------------------------------------------------------------------------------------------------------
James River Corp. of Virginia, Depositary Shares each
representing a one-hundredth interest in a share of Series P,
9% Cum. Cv. Preferred Stock, Dividend Enhanced Convertible Stock
500,000 12,625,000
---------------------------------------------------------------------------------------------------------------
Merrill Lynch & Co., 7.25% Structured Yield Product Exchangeable for Stock
321,000 18,176,625
---------------------------------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc., 6% Cv. Preferred,
Structured Yield Product Exchangeable for
Cox Communications, Inc., Common Stock 235,000
5,199,375
---------------------------------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc., 6.50% Cv. Structured Yield
Enhanced Product Exchangeable for Stock due 8/15/98 200,000
10,800,000
---------------------------------------------------------------------------------------------------------------
MFS Communications Co., Inc., 8% Depositary Cv
Shares Representing 1 Share of Dividend Enhanced Convertible Stock
515,000 32,702,500
---------------------------------------------------------------------------------------------------------------
Westinghouse Electric Corp., Participating Equity
Preferred Shares, $1.30 Cv., Series C(2) 1,300,000
22,912,500
--------------
Total Other Securities (Cost $148,630,464)
180,632,500
</TABLE>
11 Oppenheimer Main Street Income & Growth Fund
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments (Continued)
Market Value
Units See Note 1
<S> <C> <C>
===================================================================================================================================
Rights, Warrants and Certificates--0.0%
- -----------------------------------------------------------------------------------------------------------------------------------
American Satellite Network, Inc. Wts., Exp. 6/99 (Cost $0) 18,750
$ --
Face
Amount
===================================================================================================================================
Repurchase Agreements--1.8%
- -----------------------------------------------------------------------------------------------------------------------------------
Repurchase agreement with Canadian Imperial Bank of Commerce,
5.45%, dated 6/28/96, to be repurchased at $103,146,825 on 7/1/96,
collateralized by U.S. Treasury Bonds, 9.125%--11.25%, 2/15/15--5/11/18,
with a value of $36,444,598, and U.S. Treasury Nts., 5.25%--8.50%,
1/11/97--11/15/04, with a value of $68,875,428 (Cost $103,100,000) $
103,100,000 103,100,000
- -----------------------------------------------------------------------------------------------------------------------------------
Total Investments, at Value (Cost $4,991,644,714) 99.2%
5,641,188,648
- -----------------------------------------------------------------------------------------------------------------------------------
Other Assets Net of Liabilities 0.8
48,066,047
-------------- --------------
Net Assets 100.0%
$5,689,254,695
==============
==============
1. For zero coupon bonds, the interest rate shown is the effective yield on the
date of purchase.
2. 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 $195,029,625 or 3.43% of the Fund's net assets, at June 30,
1996.
3. Identifies issues considered to be illiquid--See Note 7 of Notes to Financial
Statements.
4. Non-income producing--issuer is in default of interest payment.
5. Non-income producing security.
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, 1996. There were no
<PAGE>
affiliate securities held as of June 30, 1996. Transactions during the period in
which the issuer was an affiliate are as follows:
<CAPTION>
Balance June 30, 1995 Gross Additions Gross Reductions
Balance June 30, 1996
--------------------- --------------------- --------------------- ---------------------
Shares Cost Shares Cost Shares Cost Shares
Cost
<S> <C> <C> <C> <C> <C> <C>
<C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Duckwall-ALCO Stores, Inc. 300,000 $ 2,710,938 -- $ -- 300,000 $ 2,710,938
-- $ --
- -----------------------------------------------------------------------------------------------------------------------------------
Globalstar Telecommunications Ltd. 500,000 9,968,750 -- -- 500,000 9,968,750
-- --
----------- ----------- ----------- -----------
$12,679,688 $ -- $12,679,688 $
- --
=========== ===========
=========== ===========
See accompanying Notes to Financial Statements.
</TABLE>
12 Oppenheimer Main Street Income & Growth Fund
<PAGE>
<TABLE>
<CAPTION>
Statement of Assets and Liabilities June 30, 1996
<S> <C>
===================================================================================================================================
Assets Investments, at value (cost $4,991,644,714)--see accompanying statement
$5,641,188,648
---------------------------------------------------------------------------------------------------------------
Cash 1,015,309
---------------------------------------------------------------------------------------------------------------
Unrealized appreciation on forward foreign currency exchange contracts--Note 5
3,192,586
---------------------------------------------------------------------------------------------------------------
Receivables:
Investments sold 64,516,681
Shares of capital stock sold
30,987,536
Interest and dividends
8,079,968
---------------------------------------------------------------------------------------------------------------
Other 45,146
--------------
Total assets 5,749,025,874
--------------
===================================================================================================================================
Liabilities Payables and other liabilities:
Investments purchased
44,588,991
Shares of capital stock redeemed
9,895,130
Distribution and service plan fees
3,288,407
Transfer and shareholder servicing agent fees
438,638
Shareholder reports 221,356
Dividends 76,258
Directors' fees 3,365
Other 1,259,034
--------------
Total liabilities 59,771,179
--------------
Net Assets $5,689,254,695
==============
===================================================================================================================================
Composition of Par value of shares of capital stock $
1,973,000
Net Assets
- ---------------------------------------------------------------------------------------------------------------
Additional paid-in capital
4,668,562,298
---------------------------------------------------------------------------------------------------------------
Undistributed net investment income
1,372,571
---------------------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and foreign currency transactions
364,610,273
---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments and translation of assets and
liabilities denominated in foreign currencies
652,736,553
--------------
Net assets $5,689,254,695
==============
===================================================================================================================================
Net Asset Value Class A Shares:
Per Share Net asset value and redemption price per share (based on net assets
of $3,147,462,876 and 108,930,060 shares of capital stock outstanding)
$ 28.89
Maximum offering price per share (net asset value plus sales
charge of 5.75% of offering price) $
30.65
---------------------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price and offering price per share (based on
net assets of $1,800,428,587 and 62,581,931 shares of capital stock outstanding)
$ 28.77
---------------------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price and offering price per share (based on
net assets of $741,363,232 and 25,788,010 shares of capital stock outstanding)
$ 28.75
</TABLE>
See accompanying Notes to Financial Statements
13 Oppenheimer Main Street Income & Growth Fund
<PAGE>
<TABLE>
<CAPTION>
Statement of Operations For the Year Ended June 30, 1996
<S> <C>
===================================================================================================================================
Investment Income Dividends (net of withholding taxes of $547,215)
$ 57,282,711
---------------------------------------------------------------------------------------------------------------
Interest 50,532,908
------------
Total income 107,815,619
===================================================================================================================================
Expenses Distribution and service plan fees--Note 4:
Class A 6,090,603
Class B 11,543,736
Class C 5,863,969
---------------------------------------------------------------------------------------------------------------
Management fees--Note 4
19,932,096
---------------------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 4
8,422,999
---------------------------------------------------------------------------------------------------------------
Shareholder reports 1,640,660
---------------------------------------------------------------------------------------------------------------
Registration and filing fees:
Class A 616,042
Class B 374,111
Class C 89,426
---------------------------------------------------------------------------------------------------------------
Custodian fees and expenses
152,300
---------------------------------------------------------------------------------------------------------------
Legal and auditing fees 78,251
---------------------------------------------------------------------------------------------------------------
Directors' fees and expenses--Note 1
57,304
---------------------------------------------------------------------------------------------------------------
Insurance expenses 48,598
---------------------------------------------------------------------------------------------------------------
Other 578,835
<PAGE>
------------
Total expenses 55,488,930
===================================================================================================================================
Net Investment Income
52,326,689
------------
===================================================================================================================================
Realized and Net realized gain (loss) on investments:
Unrealized Unaffiliated companies (including premiums on options exercised)
383,597,624
Gain (Loss) Affiliated companies
(2,265,938)
Foreign currency transactions
2,544,567
Closing and expiration of options written--Note 6
356,939
------------
Net realized gain 384,233,192
---------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on:
Investments 365,193,559
Translation of assets and liabilities denominated in foreign currencies
(12,824,005)
------------
Net change 352,369,554
------------
Net realized and unrealized gain
736,602,746
------------
===================================================================================================================================
Net Increase in Net Assets Resulting From Operations
$788,929,435
============
</TABLE>
See accompanying Notes to Financial Statements.
14 Oppenheimer Main Street Income & Growth Fund
<PAGE>
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
Year Ended June 30,
1996 1995
<S> <C> <C>
===================================================================================================================================
Operations Net investment income $ 52,326,689 $
37,933,945
---------------------------------------------------------------------------------------------------------------
Net realized gain 384,233,192
13,180,181
---------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation 352,369,554
329,165,454
-------------- --------------
Net increase in net assets resulting from operations 788,929,435
380,279,580
===================================================================================================================================
Dividends and Dividends from net investment income:
Distributions to Class A (40,531,298)
(29,280,412)
Shareholders Class B (11,334,670)
(3,312,668)
Class C (5,305,754)
(4,868,193)
---------------------------------------------------------------------------------------------------------------
Distributions from net realized gain:
Class A (7,115,385)
(140,642)
Class B (3,165,821)
(10,803)
Class C (1,650,409)
(35,755)
===================================================================================================================================
Capital Stock Net increase in net assets resulting from capital stock
Transactions transactions--Note 2:
Class A 790,272,185
947,214,116
Class B 986,624,829
580,665,761
Class C 178,504,196
233,648,051
===================================================================================================================================
Net Assets Total increase 2,675,227,308
2,104,159,035
---------------------------------------------------------------------------------------------------------------
Beginning of period 3,014,027,387
909,868,352
-------------- --------------
End of period (including undistributed net investment
income of $1,372,571 and $1,145,174, respectively) $5,689,254,695
$3,014,027,387
==============
==============
</TABLE>
See accompanying Notes to Financial Statements
15 Oppenheimer Main Street Income & Growth Fund
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Class A
----------------------------------------------------------------------
Year Ended June 30,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C>
<C>
==========================================================================================================================
Per Share Operating Data:
Net asset value, beginning of period $ 24.07 $ 20.40 $ 19.88 $ 15.46 $
13.22
- --------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .40 .47 .37 .16 .25
Net realized and unrealized gain (loss) 4.93 3.66 2.50 6.65 4.72
---------- ---------- ---------- ---------- ----------
Total income (loss) from investment
operations 5.33 4.13 2.87 6.81 4.97
- --------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.43) (.46) (.36) (.19) (.22)
Distributions from net realized gain (.08) --(3) -- (2.20) (2.51)
Distributions in excess of gains -- -- (1.99) -- --
---------- ---------- ---------- ---------- ----------
Total dividends and distributions
to shareholders (.51) (.46) (2.35) (2.39) (2.73)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 28.89 $ 24.07 $ 20.40 $ 19.88 $
15.46
========== ==========
========== ========== ==========
==========================================================================================================================
Total Return, at Net Asset Value(4) 22.26% 20.52% 14.34% 46.38%
39.48%
==========================================================================================================================
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) $3,147,463 $1,923,951 $ 739,552 $ 58,230 $
26,926
- --------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $2,515,880 $1,319,271 $ 270,417 $ 38,974 $
23,018
- --------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 1.55% 2.31% 2.46% 1.02%
1.63%
Expenses 0.99% 1.07% 1.28% 1.46% 1.66%
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 92.6% 101.3% 199.4% 283.0%
290.1%
Average brokerage commission rate(7) $ 0.0571 -- -- -- --
<CAPTION>
<PAGE>
Class B Class C
------------------------------------------- -------------------------
Year Ended June 30, Year Ended June 30,
1996 1995(2) 1996 1995 1994(1)
<S> <C> <C> <C> <C> <C>
========================================================================================================================
Per Share Operating Data:
Net asset value, beginning of period $ 24.00 $ 21.49 $ 23.97 $ 20.33 $20.76
- ------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .23 .25 .21 .33 .13
Net realized and unrealized gain (loss) 4.87 2.54 4.88 3.62 (.42)
---------- ---------- ---------- ---------- ----------
Total income (loss) from investment
operations 5.10 2.79 5.09 3.95 (.29)
- ------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.25) (.28) (.23) (.31) (.14)
Distributions from net realized gain (.08) --(3) (.08) --(3) --
Distributions in excess of gains -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Total dividends and distributions
to shareholders (.33) (.28) (.31) (.31) (.14)
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 28.77 $ 24.00 $ 28.75 $ 23.97 $ 20.33
========== ========== ========== ========== ==========
========================================================================================================================
Total Return, at Net Asset Value(4) 21.34% 13.15% 21.35% 19.63% (0.97)%
========================================================================================================================
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) $1,800,429 $ 628,499 $ 741,363 $ 461,578 $170,316
- ------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $1,155,253 $ 248,775 $ 588,109 $ 325,025 $ 71,924
- ------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 0.74% 1.25%(5) 0.80% 1.57% 1.86%(5)
Expenses 1.76% 1.89%(5) 1.74% 1.82% 2.11%(5)
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 92.6% 101.3% 92.6% 101.3% 199.4%
Average brokerage commission rate(7) $ 0.0571 -- $ 0.0571 -- --
</TABLE>
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. Less than $0.005 per share.
4. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all dividends
and distributions reinvested in additional shares on the reinvestment date, and
redemption at the net asset value calculated on the last business day of the
fiscal period. Sales charges are not reflected in the total returns. Total
returns are not annualized for periods of less than one full year.
5. Annualized.
6. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities owned
during the period. Securities with a maturity or expiration date at the time of
acquisition of one year or less are excluded from the calculation. Purchases and
sales of investment securities (excluding short-term securities) for the period
ended June 30, 1996 were $5,027,520,491 and $3,462,781,241, respectively.
7. Total brokerage commissions paid on applicable purchases and sales of
portfolio securities for the period divided by the total number of related
shares purchased and sold.
See accompanying Notes to Financial Statements.
16 Oppenheimer Main Street Income & Growth Fund
<PAGE>
Notes to Financial Statements
================================================================================
1. Significant
Accounting Policies
Oppenheimer Main Street Income & Growth Fund (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 objective is to seek high total return (which includes current income
and capital appreciation in the value of its shares) from equity and debt
securities. The Fund's investment advisor is OppenheimerFunds, Inc. (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 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 are valued 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 foreign currency exchange 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
<PAGE>
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 Statement 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 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.
17 Oppenheimer Main Street Income & Growth Fund
<PAGE>
Notes to Financial Statements (Continued)
================================================================================
1. Significant
Accounting Policies
(continued)
Classification of Distributions to Shareholders. Net investment income (loss)
and net realized gain (loss) may differ for financial statement and tax purposes
primarily because of the 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.
During the year ended June 30, 1996, 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, 1996,
amounts have been reclassified to reflect an increase in undistributed net
investment income of $5,072,430 and a decrease in accumulated net realized gain
on investments of $5,072,430.
- --------------------------------------------------------------------------------
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.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
================================================================================
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, 1996 Year Ended June 30,
1995(1)
------------------------------------ ------------------------------------
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Class A:
Sold 45,286,889 $ 1,228,619,819 55,373,867 $1,208,049,807
Dividends and distributions reinvested 1,659,231 45,287,552 1,265,292 27,814,867
Redeemed (17,949,894) (483,635,186) (12,955,862) (288,650,558)
--------------- --------------- --------------- ---------------
Net increase 28,996,226 $ 790,272,185 43,683,297 $947,214,116
=============== =============== =============== ===============
- -----------------------------------------------------------------------------------------------------------------------------------
Class B:
Sold 40,869,800 $ 1,108,078,820 27,077,516 $600,973,013
Dividends and distributions reinvested 503,255 13,692,209 136,393 3,097,456
Redeemed (4,980,225) (135,146,200) (1,024,808) (23,404,708)
--------------- --------------- --------------- ---------------
Net increase 36,392,830 $ 986,624,829 26,189,101 $580,665,761
=============== =============== =============== ===============
- -----------------------------------------------------------------------------------------------------------------------------------
Class C:
Sold 10,384,545 $ 281,240,862 13,345,163 $288,841,445
Dividends and distributions reinvested 238,379 6,449,836 208,621 4,536,885
Redeemed (4,094,549) (109,186,502) (2,671,307) (59,730,279)
--------------- --------------- --------------- ---------------
Net increase 6,528,375 $ 178,504,196 10,882,477 $233,648,051
=============== =============== =============== ===============
</TABLE>
1. 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.
================================================================================
3. Unrealized Gains and
Losses on Investments
<PAGE>
At June 30, 1996, net unrealized appreciation on investments and options written
of $649,543,934 was composed of gross appreciation of $703,620,168, and gross
depreciation of $54,076,234.
18 Oppenheimer Main Street Income & Growth Fund
<PAGE>
================================================================================
4. Management Fees
And Other Transactions
With Affiliates
Management fees paid to the Manager were in accordance with the investment
advisory agreement with the Fund which provides for a fee of 0.65% on the first
$200 million of average annual net assets with a reduction of 0.05% on each $150
million thereafter to $500 million and 0.45% 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 applicable regulatory
limit on Fund expenses.
For the year ended June 30, 1996, commissions (sales charges paid by
investors) on sales of Class A shares totaled $34,680,166, of which $8,833,275
was retained by OppenheimerFunds Distributor, Inc. (OFDI), a subsidiary of the
Manager as general distributor, and by an affiliated broker/dealer. Sales
charges advanced to broker/dealers by OFDI on sales of the Fund's Class B and
Class C shares totaled $40,377,013 and $2,598,706, respectively, of which
$852,802 and $40,623 was paid to an affiliated broker/dealer. During the year
ended June 30, 1996, OFDI received contingent deferred sales charges of
$2,198,614 and $204,629 upon redemption of Class B and Class C shares.
OppenheimerFunds Services (OFS), a division of the Manager, is the transfer
and shareholder servicing agent for the Fund, and for other registered
investment companies. OFS's total costs of providing such services are allocated
ratably to these companies.
The Fund has adopted a Service Plan for Class A shares to reimburse OFDI
for a portion of its costs incurred in connection with the personal service and
maintenance of accounts that hold Class A shares. Reimbursement is made
quarterly at an annual rate that may not exceed 0.25% of the average annual net
assets of Class A shares of the Fund. OFDI uses the service fee to reimburse
brokers, dealers, banks and other financial institutions quarterly for providing
personal service and maintenance of accounts of their customers that hold Class
A shares. During the year ended June 30, 1996, OFDI paid $248,262 to an
affiliated broker/dealer as reimbursement for Class A personal service and
maintenance expenses.
The Fund has adopted reimbursement type Distribution and Service Plans for
Class B and Class C shares to reimburse OFDI for its services and costs in
distributing Class B and Class C shares and servicing accounts. Under the Plans,
the Fund pays OFDI an annual asset-based sales charge of 0.75% per year on Class
B shares that are outstanding for 6 years or less and on Class C shares, as
reimbursement for sales commissions paid from its own resources at the time of
sale and associated financing costs. If the Plans are terminated by the Fund,
the Board of Directors may allow the Fund to continue payments of the
asset-based sales charge to OFDI for certain expenses it incurred before the
Plans were terminated. OFDI also receives a service fee of 0.25% per year as
reimbursement for costs incurred in connection with the personal service and
maintenance of accounts that hold shares of the Fund, including amounts paid to
brokers, dealers, banks and other financial institutions. Both fees are computed
on the average annual net assets of Class B and Class C shares, determined as of
the close of each regular business day. During the year ended June 30, 1996,
OFDI paid $13,009 and $82,364, respectively, to an affiliated broker/dealer as
reimbursement for Class B and Class C personal service and maintenance expenses
and retained $10,854,702 and $2,651,935, respectively, as reimbursement for
Class B and Class C sales commissions and service fee advances, as well as
financing costs. At June 30, 1996, OFDI had incurred unreimbursed expenses of
$66,935,637 for Class B and $6,883,061 for Class C.
================================================================================
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.
Securities held in segregated accounts to cover net exposure on outstanding
forward contracts are noted in the Statement of Investments where applicable.
Unrealized appreciation or depreciation on forward contracts is 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.
19 Oppenheimer Main Street Income & Growth Fund
<PAGE>
Notes to Financial Statements (Continued)
================================================================================
5. Forward Contracts
(continued)
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, 1996, the Fund had outstanding forward contracts to sell foreign
currencies as follows:
<TABLE>
<CAPTION>
Contract Valuation as of Unrealized
Contracts to Sell Exchange Date Amount (000s) June 30, 1996
Appreciation
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Japanese Yen (JPY) 7/11/96 $15,591,750 JPY $142,456,643 $ 3,192,586
</TABLE>
================================================================================
6. Option Activity
The Fund may buy and sell put and call options, or write put and 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
<PAGE>
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.
Securities designated to cover outstanding call options are noted in the
Statement of Investments where applicable. Shares subject to call, expiration
date, exercise price, premium received and market value are detailed in a
footnote to the Statement of Investments. Options written are reported as a
liability in the Statement of Assets and Liabilities. Gains and losses are
reported in the Statement of Operations.
The risk in writing a call option is that the Fund gives up the opportunity
for profit if the market price of the security increases and the option is
exercised. The risk in 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, 1996 was as follows:
Call Options
----------------------------
Number of Amount of
Options Premiums
- --------------------------------------------------------------------------------
Options outstanding at June 30, 1995 400 $ 38,799
- --------------------------------------------------------------------------------
Options written 11,750 3,315,011
- --------------------------------------------------------------------------------
Options closed or expired (10,650) (2,608,335)
- --------------------------------------------------------------------------------
Options exercised (1,500) (745,475)
----------- -----------
Options outstanding at June 30, 1996 -- $ --
=========== ===========
================================================================================
7. Illiquid and Restricted
Securities
At June 30, 1996, investments in securities included issues that are illiquid or
restricted. The securities are often purchased in private placement
transactions, are not registered under the Securities Act of 1933, may have
contractual restrictions on resale, and are valued under methods approved by the
Board of Trustees as reflecting fair value. A security may also be considered
illiquid if its valuation has not changed for a certain period of time. The Fund
intends to invest no more than 10% of its net assets (determined at the time of
purchase and reviewed from time to time) in illiquid or restricted securities.
The aggregate value of these securities subject to this limitation at June 30,
1996 was $35,120,000, which represents 0.62% of the Fund's net assets.
Information concerning these securities is as follows:
<TABLE>
<CAPTION>
Valuation Per Unit
Security Acquisition Date Cost Per Unit As of June
30, 1996
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Corporate Express, Inc. 4.50% Cv. Nts., 7/1/00 6/19/96 $ 1.00 $
.99
Globalstar Telecommunications Ltd., 6.50% Cv. Preferred
Equivalent Obligations due 3/1/06 2/29/96 $ 50.00 $ 42.00
Physicians Clinical Laboratory Inc., 7.50% Cv. Sub. Debs., 8/15/00 1/12/94--
10/25/95 $ 1.06 $ .10
</TABLE>
20 Oppenheimer Main Street Income & Growth Fund
<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 & Growth Fund as of
August 31, 1996, the related statements of operations
for the two months then ended and the year ended June
30, 1996, the statements of changes in net assets for
the two months ended August 31, 1996 and the years ended
June 30, 1996 and 1995, and the financial highlights for
the period July 1, 1991 to August 31, 1996. 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 August 31, 1996 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 & Growth Fund at August 31, 1996, 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.
/s/ Deloitte & Touche LLP
--------------------------------------
DELOITTE & TOUCHE LLP
Denver, Colorado
September 23, 1996
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments August 31, 1996
Face Market Value
Amount See Note 1
====================================================================================================================================
<S> <C> <C> <C>
U.S. Government Obligations--1.7%
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Nts., 5%, 1/31/98 $50,000,000 $49,203,094
----------------------------------------------------------------------------------------------------------------
U.S. Treasury Nts., 5.50%, 11/15/98 50,000,000 49,062,500
------------
Total U.S. Government Obligations (Cost $100,435,512)
98,265,594
====================================================================================================================================
Non-Convertible Corporate Bonds and Notes--0.2%
- ------------------------------------------------------------------------------------------------------------------------------------
United International Holdings, Inc., Zero Coupon Sr. Sec. Disc. Nts.,
Series B, 14.04%, 11/15/99(1) 12,000,000 7,920,000
----------------------------------------------------------------------------------------------------------------
United International Holdings, Inc., Zero Coupon Sr. Sec. Disc. Nts.,
12.45%, 11/15/99(1) 3,000,000 1,980,000
------------
Total Non-Convertible Corporate Bonds and Notes (Cost $9,815,861)
9,900,000
====================================================================================================================================
Convertible Corporate Bonds and Notes--2.1%
- ------------------------------------------------------------------------------------------------------------------------------------
ALZA Corp., 5% Cv. Sub. Debs., 5/1/06 12,800,000 12,528,000
----------------------------------------------------------------------------------------------------------------
Continental Airlines, Inc., 6.75% Cv. Sub. Nts., 4/15/06(2) 15,000,000 14,362,500
----------------------------------------------------------------------------------------------------------------
Corporate Express, Inc., 4.50% Cv. Nts., 7/1/00(2) 19,000,000 18,667,500
----------------------------------------------------------------------------------------------------------------
Federated Department Stores, Inc., 5% Cv. Sub. Nts., 10/1/03 5,000,000 5,743,750
----------------------------------------------------------------------------------------------------------------
First Financial Management Corp., 5% Cv. Debs., 12/15/99 5,000,000 9,150,000
----------------------------------------------------------------------------------------------------------------
NovaCare, Inc., 5.50% Cv. Sub. Debs., 1/15/00 5,500,000 4,867,500
----------------------------------------------------------------------------------------------------------------
Physicians Clinical Laboratory, Inc., 7.50% Cv. Sub. Debs., 8/15/00(3)(4) 1,000,000 100,000
----------------------------------------------------------------------------------------------------------------
Roche Holdings, Inc., Zero Coupon Cv. Nts., 7%, 4/20/10(1)(2) 48,000,000 21,060,000
----------------------------------------------------------------------------------------------------------------
Sports & Recreation, Inc., 4.25% Cv. Sub. Nts., 11/1/00 7,500,000 5,465,625
----------------------------------------------------------------------------------------------------------------
Staples, Inc., 4.50% Cv. Nts., 10/1/00(2) 7,000,000 7,708,750
----------------------------------------------------------------------------------------------------------------
Tele-Communications International, Inc., 4.50% Cv. Sub. Debs., 2/15/06 5,400,000 4,549,500
----------------------------------------------------------------------------------------------------------------
Theratx, Inc., 8% Cv. Sub. Debs., 2/1/02 6,000,000 5,745,000
----------------------------------------------------------------------------------------------------------------
Time Warner, Inc., Zero Coupon Cv. Sr. Sub. Nts., 5.08%, 6/22/13(1) 20,000,000 8,350,000
------------
Total Convertible Corporate Bonds and Notes (Cost $114,505,100)
118,298,125
Shares
====================================================================================================================================
Common Stocks--70.5%
- ------------------------------------------------------------------------------------------------------------------------------------
Basic Materials--4.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Chemicals--3.5% IMC Global, Inc. 1,676,400 72,085,200
----------------------------------------------------------------------------------------------------------------
Monsanto Co. 4,004,000 128,628,500
----------------------------------------------------------------------------------------------------------------
Sigma-Aldrich Corp. 60,000 3,165,000
------------
203,878,700
- ------------------------------------------------------------------------------------------------------------------------------------
Gold--0.5% Newmont Mining Corp. 509,100 26,918,662
- ------------------------------------------------------------------------------------------------------------------------------------
Consumer Cyclicals--15.4%
- ------------------------------------------------------------------------------------------------------------------------------------
Autos & Housing--0.2%
Oakwood Homes Corp. 545,200 12,812,200
<PAGE>
</TABLE>
6 Oppenheimer Main Street Income & Growth Fund
<PAGE>
<TABLE>
<CAPTION>
Market Value
Shares See Note 1
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Leisure & Entertainment--7.5%
Atlantic Southeast Airlines, Inc. 305,000 $7,015,000
----------------------------------------------------------------------------------------------------------------
Disney (Walt) Co. 1,625,000 92,625,000
----------------------------------------------------------------------------------------------------------------
Eastman Kodak Co. 925,000 67,062,500
----------------------------------------------------------------------------------------------------------------
Gaylord Entertainment Co., Cl. A 1,603,035 39,274,357
----------------------------------------------------------------------------------------------------------------
Harrah's Entertainment, Inc.(5) 1,800,000 34,200,000
----------------------------------------------------------------------------------------------------------------
ITT Corp. (New)(5) 1,220,000 64,965,000
----------------------------------------------------------------------------------------------------------------
McDonald's Corp. 2,742,300 127,174,162
----------------------------------------------------------------------------------------------------------------
Primadonna Resorts, Inc.(5) 70,000 1,417,500
------------
433,733,519
- ------------------------------------------------------------------------------------------------------------------------------------
Media--2.7% Cox Communications, Inc., Cl. A(5) 760,000 15,010,000
----------------------------------------------------------------------------------------------------------------
Evergreen Media Corp., Cl. A(5) 675,000 21,262,500
----------------------------------------------------------------------------------------------------------------
Infinity Broadcasting Corp., Cl. A(5) 1,150,000 31,481,250
----------------------------------------------------------------------------------------------------------------
Omnicom Group, Inc. 1,227,900 55,715,962
----------------------------------------------------------------------------------------------------------------
Viacom, Inc., Cl. B(5) 1,110,000 34,965,000
------------
158,434,712
- ------------------------------------------------------------------------------------------------------------------------------------
Retail: General--2.4%
Dillard Department Stores, Inc., Cl. A 700,000 23,800,000
----------------------------------------------------------------------------------------------------------------
Eckerd Corp.(5) 1,175,000 28,787,500
----------------------------------------------------------------------------------------------------------------
Kohl's Corp.(5) 463,000 17,594,000
----------------------------------------------------------------------------------------------------------------
May Department Stores Co. 1,029,400 46,837,700
----------------------------------------------------------------------------------------------------------------
Nordstrom, Inc. 615,000 23,985,000
------------
141,004,200
- ------------------------------------------------------------------------------------------------------------------------------------
Retail: Specialty--2.6%
Alco Standard Corp. 600,000 26,175,000
----------------------------------------------------------------------------------------------------------------
Circuit City Stores, Inc. 1,742,000 54,873,000
----------------------------------------------------------------------------------------------------------------
Nine West Group, Inc.(5) 525,000 27,037,500
----------------------------------------------------------------------------------------------------------------
Office Depot, Inc.(5) 1,300,000 20,637,500
----------------------------------------------------------------------------------------------------------------
Talbots, Inc. (The) 702,200 24,050,350
------------
152,773,350
- ------------------------------------------------------------------------------------------------------------------------------------
Consumer Non-Cyclicals--19.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Beverages--0.5% Anheuser-Busch Cos., Inc. 112,500 8,521,875
----------------------------------------------------------------------------------------------------------------
PepsiCo, Inc. 600,000 17,250,000
------------
25,771,875
- ------------------------------------------------------------------------------------------------------------------------------------
Food--4.7% Campbell Soup Co. 780,000 50,797,500
----------------------------------------------------------------------------------------------------------------
CPC International, Inc. 427,100 29,416,512
----------------------------------------------------------------------------------------------------------------
General Mills, Inc. 728,300 40,056,500
----------------------------------------------------------------------------------------------------------------
H.J. Heinz Co. 1,155,000 36,382,500
----------------------------------------------------------------------------------------------------------------
Kellog Co. 580,000 39,150,000
----------------------------------------------------------------------------------------------------------------
Quaker Oats Co. 759,300 24,961,988
----------------------------------------------------------------------------------------------------------------
Ralston-Ralston Purina Group 500,200 31,262,500
----------------------------------------------------------------------------------------------------------------
Sysco Corp. 600,000 19,275,000
------------
271,302,500
</TABLE>
7 Oppenheimer Main Street Income & Growth Fund
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments (Continued)
Market Value
Shares See Note 1
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Healthcare/Drugs--6.4%
American Home Products Corp. 1,100,000 $65,175,000
----------------------------------------------------------------------------------------------------------------
Amgen, Inc.(5) 900,000 52,425,000
----------------------------------------------------------------------------------------------------------------
Astra AB Free, Series A 500,000 21,119,324
----------------------------------------------------------------------------------------------------------------
Johnson & Johnson 400,000 19,700,000
----------------------------------------------------------------------------------------------------------------
Merck & Co., Inc. 1,450,000 95,156,250
----------------------------------------------------------------------------------------------------------------
Schering-Plough Corp. 1,072,400 59,920,350
----------------------------------------------------------------------------------------------------------------
Warner-Lambert Co. 1,000,000 59,500,000
------------
372,995,924
- ------------------------------------------------------------------------------------------------------------------------------------
Healthcare/Supplies &
<PAGE>
Services--4.1%
Baxter International, Inc. 1,426,000 63,635,250
----------------------------------------------------------------------------------------------------------------
Becton, Dickinson & Co. 519,200 21,222,300
----------------------------------------------------------------------------------------------------------------
Boston Scientific Corp.(5) 1,230,050 56,428,544
----------------------------------------------------------------------------------------------------------------
Guidant Corp. 500,000 25,375,000
----------------------------------------------------------------------------------------------------------------
Health Management Association, Inc., Cl. A(5) 258,800 5,887,700
----------------------------------------------------------------------------------------------------------------
HEALTHSOUTH Corp.(5) 1,050,000 33,993,750
----------------------------------------------------------------------------------------------------------------
St. Jude Medical, Inc.(5) 600,000 21,525,000
----------------------------------------------------------------------------------------------------------------
Tenet Healthcare Corp.(5) 450,000 9,450,000
------------
237,517,544
- ------------------------------------------------------------------------------------------------------------------------------------
Household Goods--2.0%
Avon Products, Inc. 253,400 12,131,525
----------------------------------------------------------------------------------------------------------------
Colgate-Palmolive Co. 431,900 35,091,875
----------------------------------------------------------------------------------------------------------------
International Flavors & Fragrances, Inc. 547,000 23,521,000
----------------------------------------------------------------------------------------------------------------
Kao Corp. 1,225,000 14,551,096
----------------------------------------------------------------------------------------------------------------
Procter & Gamble Co. 350,000 31,106,250
------------
116,401,746
- ------------------------------------------------------------------------------------------------------------------------------------
Tobacco--1.3% Philip Morris Cos., Inc. 825,000 74,043,750
- ------------------------------------------------------------------------------------------------------------------------------------
Energy--4.5%
- ------------------------------------------------------------------------------------------------------------------------------------
Energy Services &
Producers--1.3%
Apache Corp. 750,000 22,031,250
----------------------------------------------------------------------------------------------------------------
BJ Services Co.(5) 550,000 20,693,750
----------------------------------------------------------------------------------------------------------------
Schlumberger Ltd. 260,000 21,937,500
----------------------------------------------------------------------------------------------------------------
Weatherford Enterra, Inc.(5) 325,000 9,343,750
------------
74,006,250
- ------------------------------------------------------------------------------------------------------------------------------------
Oil-Integrated--3.2%
Ashland, Inc. 475,000 17,634,375
----------------------------------------------------------------------------------------------------------------
Atlantic Richfield Co. 325,000 37,943,750
----------------------------------------------------------------------------------------------------------------
Chevron Corp. 220,000 12,952,500
----------------------------------------------------------------------------------------------------------------
Mobil Corp. 220,000 24,805,000
----------------------------------------------------------------------------------------------------------------
Royal Dutch Petroleum Co. 185,000 27,634,375
----------------------------------------------------------------------------------------------------------------
Texaco, Inc. 375,000 33,281,250
----------------------------------------------------------------------------------------------------------------
Unocal Corp. 825,000 8,256,250
------------
182,507,500
</TABLE>
8 Oppenheimer Main Street Income & Growth Fund
<PAGE>
<TABLE>
<CAPTION>
Market Value
Shares See Note 1
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Financial--9.4%
- ------------------------------------------------------------------------------------------------------------------------------------
Banks--3.0% BankAmerica Corp. 500,000 $38,750,000
----------------------------------------------------------------------------------------------------------------
Commercial Federal Corp. 375,000 14,625,000
----------------------------------------------------------------------------------------------------------------
First Bank System, Inc. 780,700 50,159,975
----------------------------------------------------------------------------------------------------------------
Summit Bancorp 645,000 24,993,750
----------------------------------------------------------------------------------------------------------------
Wells Fargo & Co. 183,333 45,604,084
------------
174,132,809
- ------------------------------------------------------------------------------------------------------------------------------------
Diversified Financial--5.4%
American Express Co. 2,122,900 92,876,875
----------------------------------------------------------------------------------------------------------------
Associates First Capital Corp., Cl. A 1,027,200 40,574,400
----------------------------------------------------------------------------------------------------------------
Dean Witter, Discover & Co. 898,100 44,905,000
----------------------------------------------------------------------------------------------------------------
Nomura Securities Co. Ltd. 1,700,000 29,585,618
----------------------------------------------------------------------------------------------------------------
PMI Group, Inc. (The) 175,000 8,553,125
----------------------------------------------------------------------------------------------------------------
Travelers Group, Inc. 2,277,200 98,773,550
------------
315,268,568
- ------------------------------------------------------------------------------------------------------------------------------------
Insurance--1.0% Allstate Corp. 500,000 22,312,500
----------------------------------------------------------------------------------------------------------------
Amerin Corp.(5) 385,000 8,758,750
----------------------------------------------------------------------------------------------------------------
Everest Reinsurance Holdings, Inc. 1,000,000 24,375,000
------------
55,446,250
- ------------------------------------------------------------------------------------------------------------------------------------
Industrial--5.8%
- ------------------------------------------------------------------------------------------------------------------------------------
Electrical Equipment--3.0%
AMP, Inc. 600,000 22,950,000
----------------------------------------------------------------------------------------------------------------
Emerson Electric Co. 200,000 16,750,000
----------------------------------------------------------------------------------------------------------------
General Electric Co. 200,000 16,625,000
----------------------------------------------------------------------------------------------------------------
Honeywell, Inc. 1,400,000 81,375,000
----------------------------------------------------------------------------------------------------------------
Raychem Corp. 550,000 37,743,750
------------
175,443,750
<PAGE>
- ------------------------------------------------------------------------------------------------------------------------------------
Industrial Materials--0.5%
Avery-Dennison Corp. 614,500 31,416,313
- ------------------------------------------------------------------------------------------------------------------------------------
Industrial Services--0.7%
Interpublic Group of Companies, Inc. 317,900 14,384,975
----------------------------------------------------------------------------------------------------------------
Millipore Corp. 700,000 26,775,000
------------
41,159,975
- ------------------------------------------------------------------------------------------------------------------------------------
Manufacturing--0.8%
Mitsubishi Heavy Industries Ltd. 4,200,000 33,220,975
----------------------------------------------------------------------------------------------------------------
Olin Corp. 150,100 11,895,425
------------
45,116,400
- ------------------------------------------------------------------------------------------------------------------------------------
Transportation--0.8%
Conrail, Inc. 638,000 43,463,750
- ------------------------------------------------------------------------------------------------------------------------------------
Technology--11.7%
- ------------------------------------------------------------------------------------------------------------------------------------
Aerospace/Defense--1.3%
Boeing Co. 300,000 27,150,000
----------------------------------------------------------------------------------------------------------------
Raytheon Co. 600,000 30,900,000
---------------------------------------------------------------------------------------------------------------
Rockwell International Corp. 300,000 15,600,000
------------
73,650,000
</TABLE>
9 Oppenheimer Main Street Income & Growth Fund
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments (Continued)
Market Value
Shares See Note 1
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computer Hardware--1.4%
Adaptec, Inc.(5) 520,000 $ 25,935,000
----------------------------------------------------------------------------------------------------------------
QUALCOMM, Inc. 300,000 13,012,500
----------------------------------------------------------------------------------------------------------------
Seagate Technology, Inc.(5) 862,300 41,390,400
-------------
80,337,900
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Software--3.4%
BMC Software, Inc.(5) 325,000 24,212,500
----------------------------------------------------------------------------------------------------------------
Electronic Data Systems Corp. 800,000 43,600,000
----------------------------------------------------------------------------------------------------------------
First Data Corp. 776,800 60,590,400
----------------------------------------------------------------------------------------------------------------
Microsoft Corp.(5) 315,000 38,587,500
----------------------------------------------------------------------------------------------------------------
PLATINUM Technology, Inc.(5) 1,000,000 10,750,000
----------------------------------------------------------------------------------------------------------------
Sungard Data Systems, Inc.(5) 434,000 18,553,500
-------------
196,293,900
- ------------------------------------------------------------------------------------------------------------------------------------
Electronics--2.3% General Instrument Corp.(5) 700,000 19,162,500
----------------------------------------------------------------------------------------------------------------
General Motors Corp., Cl. H 675,000 37,715,625
----------------------------------------------------------------------------------------------------------------
Intel Corp. 600,000 47,887,500
----------------------------------------------------------------------------------------------------------------
Thermo Electron Corp.(5) 637,500 25,260,938
----------------------------------------------------------------------------------------------------------------
VeriFone, Inc.(5) 113,900 5,438,725
-------------
135,465,288
- ------------------------------------------------------------------------------------------------------------------------------------
Telecommunications-
Technology--3.3%
ADC Telecommunications, Inc.(5) 425,000 24,118,750
----------------------------------------------------------------------------------------------------------------
Cisco Systems, Inc.(5) 825,000 43,518,750
----------------------------------------------------------------------------------------------------------------
LCI International, Inc.(5) 623,500 22,056,313
----------------------------------------------------------------------------------------------------------------
MFS Communications Co., Inc.(5) 11,556 489,686
----------------------------------------------------------------------------------------------------------------
Millicom, Inc.(5) 75,000 --
----------------------------------------------------------------------------------------------------------------
Newbridge Networks Corp.(5) 275,000 15,846,875
----------------------------------------------------------------------------------------------------------------
Tellabs, Inc.(5) 290,000 18,378,750
----------------------------------------------------------------------------------------------------------------
WorldCom, Inc.(5) 3,210,139 67,412,919
-------------
191,822,043
- ------------------------------------------------------------------------------------------------------------------------------------
Utilities--0.7%
- ------------------------------------------------------------------------------------------------------------------------------------
Gas Utilities--0.7%
Sonat, Inc. 950,000 41,918,750
-------------
Total Common Stocks (Cost $3,714,040,654)
4,085,038,128
====================================================================================================================================
Preferred Stocks--1.1%
- ------------------------------------------------------------------------------------------------------------------------------------
Cablevision Systems Corp., 8.50% Cum. Cv., Series I
439,000 10,920,125
----------------------------------------------------------------------------------------------------------------
Freeport-McMoRan Copper & Gold, Inc.,
Depositary Shares each representing 0.05 Shares
of Step-Up Cv. Preferred Stock 919,000 24,238,625
----------------------------------------------------------------------------------------------------------------
LCI International, Inc., 5% Cum. Cv. Exchangeable Preferred Stock
250,000 22,250,000
----------------------------------------------------------------------------------------------------------------
SFX Broadcasting, Inc., 6.50% Cv. Preferred(2)(5) 105,000 5,801,250
-------------
Total Preferred Stocks (Cost $48,049,847)
63,210,000
</TABLE>
10 Oppenheimer Main Street Income & Growth Fund
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Market Value
Shares See Note 1
====================================================================================================================================
<S> <C> <C> <C>
Other Securities--2.6%
- ------------------------------------------------------------------------------------------------------------------------------------
Atlantic Richfield Co., 9% Exchangeable Nts. for
Common Stock of Lyondell Petrochemical Co., 9/15/97 425,000 $ 9,721,875
----------------------------------------------------------------------------------------------------------------
Compania de Inversiones en Telecomunicaciones SA, 7%
Provisionally Redeemable Income Debt Exchangeable for Stock, 3/3/98(2) 225,000 10,912,500
----------------------------------------------------------------------------------------------------------------
Continental Airlines Finance Trust, 8.50% Cv. Trust
Originated Preferred Securities(2) 125,000 6,625,000
----------------------------------------------------------------------------------------------------------------
Cooper Industries, Inc., 6% Debt Exchangeable Nts. for Common Stock
of Wyman-Gordon Co., 1/1/99 121,000 2,329,250
----------------------------------------------------------------------------------------------------------------
James River Corp. of Virginia, Depositary Shares each
representing a one-hundredth interest in a share of Series P,
9% Cum. Cv. Preferred Stock, Dividend Enhanced Convertible Stock 500,000 12,437,500
----------------------------------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc., 7.25% Structured Yield Product
Exchangeable for Common Stock of SunAmerica, Inc., 6/15/99 321,000 19,219,875
----------------------------------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc., 6% Cv. Structured Yield Product
Exchangeable for Common Stock of Cox Communications, Inc., 6/1/99 235,000 4,905,625
----------------------------------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc., 6.50% Cv. Structured Yield Product
Exchangeable for Common Stock of MGIC Investment Corp. , 8/15/98 200,000 11,600,000
----------------------------------------------------------------------------------------------------------------
MFS Communications Co., Inc., 8% Cv. Depositary Shares
representing one share of Dividend Enhanced Convertible Stock 515,000 37,080,000
----------------------------------------------------------------------------------------------------------------
SunAmerica, Inc., $3.10 Depositary Shares
each representing one-fiftieth of a share of Series E
Mandatory Conversion Premium Dividend Preferred Stock 199,500 16,458,750
----------------------------------------------------------------------------------------------------------------
Westinghouse Electric Corp., Participating Equity
Preferred Stock, $1.30 Cv., Series C(2) 1,300,000 20,312,500
-------------
Total Other Securities (Cost $126,250,433) 151,602,875
Units
====================================================================================================================================
Rights, Warrants and Certificates--0.0%
- ------------------------------------------------------------------------------------------------------------------------------------
American Satellite Network, Inc. Wts., Exp. 6/99 (Cost $0) 18,750 --
Face
Amount
====================================================================================================================================
Short-Term Notes--20.4%
- ------------------------------------------------------------------------------------------------------------------------------------
Broker/Dealers--3.4%
Goldman Sachs & Co., 5.28%, 9/13/96 $50,000,000 49,912,000
----------------------------------------------------------------------------------------------------------------
Goldman Sachs & Co., 5.30%, 9/6/96 50,000,000 49,963,194
----------------------------------------------------------------------------------------------------------------
Goldman Sachs & Co., 5.30%, 9/9/96 50,000,000 49,941,111
----------------------------------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc., 5.28%, 9/19/96 50,000,000 49,868,000
-----------
199,684,305
- ------------------------------------------------------------------------------------------------------------------------------------
Commercial Finance--4.2%
CIT Group Holdings, Inc., 5.28%, 9/27/96 50,000,000 49,809,333
----------------------------------------------------------------------------------------------------------------
CIT Group Holdings, Inc., 5.29%, 10/3/96 50,000,000 49,764,889
----------------------------------------------------------------------------------------------------------------
Countrywide Home Loan, 5.25%, 9/12/96 50,000,000 49,919,792
----------------------------------------------------------------------------------------------------------------
Countrywide Home Loan, 5.32%, 9/16/96 50,000,000 49,889,167
----------------------------------------------------------------------------------------------------------------
Countrywide Home Loan, 5.42%, 9/11/96 45,000,000 44,934,125
-------------
244,317,306
- ------------------------------------------------------------------------------------------------------------------------------------
Consumer Finance--0.9%
American Express Credit Corp., 5.28%, 9/9/96
50,000,000 49,941,333
</TABLE>
11 Oppenheimer Main Street Income & Growth Fund
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments (Continued)
Face Market Value
Amount See Note 1
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Diversified Financial--6.9%
Associates Corp. of North America, 5.28%, 9/18/96 $50,000,000 $ 49,875,333
----------------------------------------------------------------------------------------------------------------
Ford Motor Credit Co., 5.44%, 10/4/96 50,000,000 49,758,000
----------------------------------------------------------------------------------------------------------------
General Electric Capital Corp., 5.27%, 9/17/96 50,000,000 49,882,889
----------------------------------------------------------------------------------------------------------------
General Electric Capital Corp., 5.27%, 9/25/96 50,000,000 49,824,333
----------------------------------------------------------------------------------------------------------------
General Electric Capital Corp., 5.28%, 9/11/96 50,000,000 49,926,667
----------------------------------------------------------------------------------------------------------------
Household Finance Corp., 5.29%, 10/1/96 50,000,000 49,779,583
----------------------------------------------------------------------------------------------------------------
Household Finance Corp., 5.29%, 10/2/96 50,000,000 49,772,236
----------------------------------------------------------------------------------------------------------------
Household Finance Corp., 5.30%, 9/20/96 50,000,000 49,860,139
--------------
398,679,180
- ------------------------------------------------------------------------------------------------------------------------------------
Industrial Services--0.5%
PHH Corp., 5.28%, 9/10/96 30,000,000 29,960,400
- ------------------------------------------------------------------------------------------------------------------------------------
Leasing & Factoring--0.9%
Hertz Corp. (The), 5.29%, 10/7/96 50,000,000 49,735,500
- ------------------------------------------------------------------------------------------------------------------------------------
Special Purpose Financial--3.6%
CIESCO L.P., 5.25%, 9/10/96 50,000,000 49,934,375
----------------------------------------------------------------------------------------------------------------
New Center Asset Trust, 5.27%, 9/24/96 50,000,000 49,831,653
----------------------------------------------------------------------------------------------------------------
New Center Asset Trust, 5.28%, 9/23/96 50,000,000 49,838,667
<PAGE>
----------------------------------------------------------------------------------------------------------------
Sheffield Receivables Corp., 5.30%, 9/26/96 20,750,000 20,673,629
----------------------------------------------------------------------------------------------------------------
Sheffield Receivables Corp., 5.32%, 10/1/96 41,470,000 41,286,150
----------------------------------------------------------------------------------------------------------------
211,564,474
--------------
Total Short-Term Notes (Cost $1,183,882,498)
1,183,882,498
====================================================================================================================================
Repurchase Agreement--1.2%
- ------------------------------------------------------------------------------------------------------------------------------------
Repurchase agreement with Zion First National Bank, 5.25%,
dated 8/30/96, to be repurchased at $70,941,358 on 9/3/96,
collateralized by U.S. Treasury Nts., 5.625%--7.375%,
8/31/97--8/15/03, with a value of
$72,367,620 (Cost $70,900,000) 70,900,000 70,900,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investments, at Value (Cost $5,367,879,904) 99.8% 5,781,097,220
Other Assets Net of Liabilities 0.2 14,271,252
----- --------------
Net Assets 100.0% $5,795,368,472
=====
==============
</TABLE>
1. For zero coupon bonds, the interest rate shown is the
effective yield on the date of purchase.
2. 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 $105,450,000 or 1.82% of the
Fund's net assets, at August 31, 1996.
3. Identifies issues considered to be illiquid--See Note 7
of Notes to Financial Statements.
4. Non-income producing--issuer is in default of interest
payment.
5. Non-income producing security.
See accompanying Notes to Financial Statements.
12 Oppenheimer Main Street Income & Growth Fund
<PAGE>
<TABLE>
<CAPTION>
Statement of Assets and Liabilities August 31, 1996
====================================================================================================================================
<S> <C> <C>
Assets Investments, at value (cost $5,367,879,904)--see accompanying statement
$5,781,097,220
----------------------------------------------------------------------------------------------------------------
Cash 432,123
----------------------------------------------------------------------------------------------------------------
Receivables:
Shares of capital stock sold
27,769,617
Investments sold 13,015,784
Interest and dividends 10,520,370
----------------------------------------------------------------------------------------------------------------
Other 43,163
--------------
Total assets 5,832,878,277
====================================================================================================================================
Liabilities Unrealized depreciation on forward foreign currency exchange contracts--Note 5
1,562
----------------------------------------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased
24,118,260
Shares of capital stock redeemed
9,079,720
Distribution and service plan fees
2,356,260
Daily variation on futures contracts--Note 6
762,500
Shareholder reports 517,774
Transfer and shareholder servicing agent fees
187,783
Dividends 21,458
Directors' fees 1,908
Other 462,580
--------------
Total liabilities 37,509,805
====================================================================================================================================
Net Assets $5,795,368,472
==============
====================================================================================================================================
Composition of Par value of shares of capital stock $ 2,078,980
Net Assets
- ----------------------------------------------------------------------------------------------------------------
Additional paid-in capital 4,964,478,272
----------------------------------------------------------------------------------------------------------------
Undistributed net investment income 17,097,695
----------------------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and foreign currency transactions 399,260,271
----------------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments and translation of assets and
liabilities denominated in foreign currencies 412,453,254
--------------
Net assets $5,795,368,472
==============
====================================================================================================================================
Net Asset Value Class A Shares:
Per Share Net asset value and redemption price per share (based on net assets
of $3,142,824,663 and 112,443,525 shares of capital stock
outstanding) $27.95 Maximum offering price per share (net
asset value plus sales charge of 5.75% of offering price) $29.66
----------------------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price and offering price per share (based on
net assets of $1,908,541,588 and 68,668,350 shares of capital stock outstanding) $27.79
----------------------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price and offering price per share (based on
net assets of $744,002,221 and 26,786,091 shares of capital stock outstanding) $27.78
See accompanying Notes to Financial Statements
</TABLE>
13 Oppenheimer Main Street Income & Growth Fund
<PAGE>
<TABLE>
<CAPTION>
Statements of Operations Two Months
Ended Aug. 31, Year Ended
<PAGE>
1996(1) June 30, 1996
====================================================================================================================================
<S> <C> <C> <C>
Investment Income Dividends $ 11,201,004 $57,829,926
Foreign withholding taxes (144,262) (547,215)
----------------------------------------------------------------------------------------------------------------
Interest 13,334,612 50,532,908
------------- ------------
Total income 24,391,354 107,815,619
====================================================================================================================================
Expenses Distribution and service plan fees--Note 4:
Class A 1,271,041 6,090,603
Class B 3,086,859 11,543,736
Class C 1,234,633 5,863,969
----------------------------------------------------------------------------------------------------------------
Management fees--Note 4 4,428,137 19,932,096
----------------------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 4 1,782,654 8,422,999
----------------------------------------------------------------------------------------------------------------
Shareholder reports 422,226 1,640,660
----------------------------------------------------------------------------------------------------------------
Registration and filing fees:
Class A 142,574 616,042
Class B 97,734 374,111
Class C 24,404 89,426
----------------------------------------------------------------------------------------------------------------
Custodian fees and expenses 50,600 152,300
----------------------------------------------------------------------------------------------------------------
Legal and auditing fees 14,446 78,251
----------------------------------------------------------------------------------------------------------------
Directors' fees and expenses 10,474 57,304
----------------------------------------------------------------------------------------------------------------
Insurance expenses 8,108 48,598
----------------------------------------------------------------------------------------------------------------
Other 80,218 578,835
------------- ------------
Total expenses 12,654,108 55,488,930
====================================================================================================================================
Net Investment Income 11,737,246 52,326,689
====================================================================================================================================
Realized and Net realized gain (loss) on investments:
Unrealized Unaffiliated companies (including premiums on options exercised)
41,797,367 383,597,624
Gain (Loss) Affiliated companies -- (2,265,938)
Foreign currency transactions (3,159,491) 2,544,567
Closing and expiration of options written -- 356,939
------------- ------------
Net realized gain 38,637,876 384,233,192
----------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on:
Investments (245,784,461) 365,193,559
Translation of assets and liabilities denominated in foreign currencies 5,501,162 (12,824,005)
------------- ------------
Net change (240,283,299) 352,369,554
------------- ------------
Net realized and unrealized gain (loss) (201,645,423) 736,602,746
====================================================================================================================================
Net Increase (Decrease) in Net Assets Resulting From Operations $(189,908,177) $788,929,435
============= ============
</TABLE>
1. The Fund changed its fiscal year end from June 30 to
August 31.
See accompanying Notes to Financial Statements.
14 Oppenheimer Main Street Income & Growth Fund
<PAGE>
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
Two Months
Ended
Aug. 31, Year Ended June 30,
1996(1) 1996 1995
====================================================================================================================================
<S> <C> <C> <C> <C>
Operations Net investment income $ 11,737,246 $ 52,326,689 $ 37,933,945
----------------------------------------------------------------------------------------------------------------
Net realized gain 38,637,876 384,233,192 13,180,181
----------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation (240,283,299) 352,369,554 329,165,454
-------------- -------------- --------------
Net increase (decrease) in net assets resulting
from operations (189,908,177) 788,929,435 380,279,580
====================================================================================================================================
Dividends and Dividends from net investment income:
Distributions to Class A -- (40,531,298) (29,280,412)
Shareholders Class B -- (11,334,670) (3,312,668)
Class C -- (5,305,754) (4,868,193)
----------------------------------------------------------------------------------------------------------------
Distributions from net realized gain:
Class A -- (7,115,385) (140,642)
Class B -- (3,165,821) (10,803)
Class C -- (1,650,409) (35,755)
====================================================================================================================================
Capital Stock Net increase in net assets resulting from capital stock
Transactions transactions--Note 2:
Class A 98,647,005 790,272,185 947,214,116
Class B 169,401,905 986,624,829 580,665,761
Class C 27,973,044 178,504,196 233,648,051
====================================================================================================================================
Net Assets Total increase 106,113,777 2,675,227,308 2,104,159,035
----------------------------------------------------------------------------------------------------------------
Beginning of period 5,689,254,695 3,014,027,387 909,868,352
-------------- -------------- --------------
End of period (including undistributed net investment
income of $17,097,695, $1,372,571 and $1,145,174,
respectively) $5,795,368,472 $5,689,254,695 $3,014,027,387
============== ============== ==============
</TABLE>
1. The Fund changed its fiscal year end from June 30 to
August 31.
See accompanying Notes to Financial Statements.
15 Oppenheimer Main Street Income & Growth Fund
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
Class A
------------------------------------------------------------------------------------
Two Months
Ended
August 31, Year Ended June 30,
1996(2) 1996 1995 1994 1993 1992
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Data:
Net asset value, beginning of period $28.89 $24.07 $20.40 $19.88 $15.46 $13.22
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .07 .40 .47 .37 .16 .25
Net realized and unrealized gain (loss) (1.01) 4.93 3.66 2.50 6.65 4.72
------ ------ ------ ------ ------ ------
Total income (loss) from investment operations (.94) 5.33 4.13 2.87 6.81 4.97
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income -- (.43) (.46) (.36) (.19) (.22)
Distributions from net realized gain -- (.08) -- -- (2.20) (2.51)
Distributions in excess of gains -- -- -- (1.99) -- --
------ ------ ------ ------ ------ ------
Total dividends and distributions to
shareholders -- (.51) (.46) (2.35) (2.39) (2.73)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $27.95 $28.89 $24.07 $20.40 $19.88 $15.46
====== ====== ====== ====== ====== ======
====================================================================================================================================
Total Return, at Net Asset Value(4) (3.25)% 22.26% 20.52% 14.34% 46.38% 39.48%
====================================================================================================================================
Ratios/Supplemental Data:
Net assets, end of period (in millions) $3,143 $3,147 $1,924 $ 740 $ 58 $ 27
- ------------------------------------------------------------------------------------------------------------------------------------
Average net assets (in millions) $3,090 $2,516 $1,319 $ 270 $ 39 $ 23
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 1.57%(5) 1.55% 2.31% 2.46% 1.02% 1.63%
Expenses 0.98%(5) 0.99% 1.07% 1.28% 1.46% 1.66%
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 17.5% 92.6% 101.3% 199.4% 283.0% 290.1%
Average brokerage commission rate(7) $0.0590 $0.0571 -- -- -- --
<CAPTION>
Class B Class C
------------------------------------ --------------------------------------
Two Months Two Months
Ended Ended
August 31, Year Ended June 30, August 31, Year Ended
June 30,
1996(2) 1996 1995(3) 1996(2) 1996 1995 1994(1)
===============================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Data:
Net asset value, beginning of period $28.77 $24.00 $21.49 $28.75 $23.97 $20.33 $20.76
- -------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .04 .23 .25 .04 .21 .33 .13
Net realized and unrealized gain (loss) (1.02) 4.87 2.54 (1.01) 4.88 3.62 (.42)
------ ------ ------ ------ ------ ------ ------
Total income (loss) from investment operations (.98) 5.10 2.79 (.97) 5.09 3.95 (.29)
- -------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income -- (.25) (.28) -- (.23) (.31) (.14)
Distributions from net realized gain -- (.08) -- -- (.08) -- --
Distributions in excess of gains -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------
Total dividends and distributions to
shareholders -- (.33) (.28) -- (.31) (.31) (.14)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $27.79 $28.77 $24.00 $27.78 $28.75 $23.97 $20.33
====== ====== ====== ====== ====== ====== ======
===============================================================================================================================
Total Return, at Net Asset Value(4) (3.41)% 21.34% 13.15% (3.37)% 21.35% 19.63% (0.97)%
===============================================================================================================================
Ratios/Supplemental Data:
Net assets, end of period (in millions) $1,909 $1,800 $ 628 $ 744 $ 741 $462 $ 170
- -------------------------------------------------------------------------------------------------------------------------------
Average net assets (in millions) $1,818 $1,155 $ 249 $ 730 $ 588 $325 $ 72
- -------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 0.82%(5) 0.74% 1.25%(5) 0.82%(5) 0.80% 1.57% 1.86%(5)
Expenses 1.74%(5) 1.76% 1.89%(5) 1.73%(5) 1.74% 1.82% 2.11%(5)
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 17.5% 92.6% 101.3% 17.5% 92.6% 101.3% 199.4%
Average brokerage commission rate(7) $0.0590 $0.0571 -- $0.0590 $0.0571 -- --
</TABLE>
1. For the period from December 1, 1993 (inception of offering) to June 30,
1994.
2. The Fund changed its fiscal year end from June 30 to August 31.
3. For the period from October 1, 1994 (inception of offering) to June 30, 1995.
4. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all dividends
and distributions reinvested in additional shares on the reinvestment date, and
redemption at the net asset value calculated on the last business day of the
fiscal period. Sales charges are not reflected in the total returns. Total
returns are not annualized for periods of less than one full year.
5. Annualized.
6. The 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 August 31, 1996 were $815,164,979 and $1,001,434,430, respectively.
7. Total brokerage commissions paid on applicable purchases and sales of
portfolio securities for the period divided by the total number of related
shares purchased and sold.
See accompanying Notes to Financial Statements.
16 & 17 Oppenheimer Main Street Income & Growth Fund
<PAGE>
Notes to Financial Statements
================================================================================
1. Significant Oppenheimer Main Street Income & Growth Fund (the Fund)
<PAGE>
Accounting is a separate series of Oppenheimer Main Street Funds,
Policies Inc., an open-end management investment company
registered under the Investment Company Act of 1940, as
amended. On August 27, 1996, the Board of Trustees
elected to change the fiscal year end of the Fund from
June 30 to August 31. Accordingly, these financial
statements include information for the two month period
from July 1, 1996 to August 31, 1996. The Fund's
investment objective is to seek high total return (which
includes current income and capital appreciation in the
value of its shares) from equity and debt securities. The
Fund's investment adviser is Oppen heimerFunds, Inc. (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 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 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 are
valued 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 foreign currency exchange 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 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 Statement of
Operations.
18 Oppenheimer Main Street Income & Growth Fund
<PAGE>
================================================================================
1. Significant Repurchase Agreements. The Fund requires the custodian
Accounting to take possession, to have legally segregated in the
Policies Federal Reserve Book Entry System or to have segregated
(continued) within the custodian's vault, all securities held as
collateral for repurchase agreements. The market value of
the underlying securities is required to be at least 102%
of the resale price at the time of purchase. If the
seller of the agreement defaults and the value of the
collateral declines, or if the seller enters an
insolvency proceeding, realization of the value of the
collateral by the Fund may be delayed or limited.
---------------------------------------------------------
Allocation of Income, Expenses, and Gains and Losses.
Income, expenses (other than those attributable to a
specific class) and gains and losses are allocated daily
to each class of shares based upon the relative
proportion of net assets represented by such class.
Operating expenses directly attributable to a specific
class are charged against the operations of that class.
---------------------------------------------------------
Federal Taxes. The Fund intends to continue to comply
with provisions of the Internal Revenue Code applicable
to regulated investment companies and to distribute all
of its taxable income, including any net realized gain on
investments not offset by loss carryovers, to
shareholders. Therefore, no federal income or excise tax
provision is required.
---------------------------------------------------------
Distributions to Shareholders. Dividends and
distributions to shareholders are recorded on the
ex-dividend date.
---------------------------------------------------------
Classification of Distributions to Shareholders. Net
investment income (loss) and net realized gain (loss) may
differ for financial statement and tax purposes. The
character of the distributions made during the year from
net investment income or net realized gains may differ
from the 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. In addition, to properly
reflect foreign currency gain in the components of
capital, $3,987,878 of foreign exchange gain determined
according to U.S. federal income tax rules has been
reclassified from net realized gain to undistributed net
investment income.
---------------------------------------------------------
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
<PAGE>
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.
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts
of income and expenses during the reporting period.
Actual results could differ from those estimates.
19 Oppenheimer Main Street Income & Growth Fund
<PAGE>
Notes to Financial Statements (Continued)
================================================================================
2. Capital Stock The Fund has authorized 350 million shares
of $.01 par value capital stock (200 million for Class A,
100 million for Class B, and 50 million for Class C).
Transactions in shares of capital stock were as follows:
<TABLE>
<CAPTION>
Two Months Ended Aug. 31, 1996(2) Year Ended June 30, 1996 Year Ended June 30, 1995(1)
-------------------------------- ------------------------ ---------------------------
Shares Amount Shares Amount Shares Amount
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A:
Sold 7,371,957 $ 205,620,158 45,286,889 $1,228,619,819 55,373,867 $1,208,049,807
Dividends and distributions reinvested -- -- 1,659,231 45,287,552 1,265,292 27,814,867
Redeemed (3,858,492) (106,973,153) (17,949,894) (483,635,186) (12,955,862) (288,650,558)
------------- ------------- ------------- ------------- ------------- -------------
Net increase 3,513,465 $ 98,647,005 28,996,226 $ 790,272,185 43,683,297 $ 947,214,116
============= ============
============= ============ =============
============
- ------------------------------------------------------------------------------------------------------------------------------------
Class B:
Sold 7,450,147 $ 206,982,201 40,869,800 $1,108,078,820 27,077,516 $ 600,973,013
Dividends and distributions reinvested -- -- 503,255 13,692,209 136,393 3,097,456
Redeemed (1,363,728) (37,580,296) (4,980,225) (135,146,200) (1,024,808) (23,404,708)
------------- ------------- ------------- ------------- ------------- -------------
Net increase 6,086,419 $ 169,401,905 36,392,830 $ 986,624,829 26,189,101 $ 580,665,761
============= ============
============= ============ =============
============
- ------------------------------------------------------------------------------------------------------------------------------------
Class C:
Sold 1,781,668 $ 49,599,528 10,384,545 $ 281,240,862 13,345,163 $ 288,841,445
Dividends and distributions reinvested -- -- 238,379 6,449,836 208,621 4,536,885
Redeemed (783,587) (21,626,484) (4,094,549) (109,186,502) (2,671,307) (59,730,279)
------------- ------------- ------------- ------------- ------------- -------------
Net increase 998,081 $ 27,973,044 6,528,375 $ 178,504,196 10,882,477 $ 233,648,051
============= ============ ============= ============ ============= ============
</TABLE>
1. 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.
2. The Fund changed its fiscal year end from June 30 to
August 31.
========================================================
3. Unrealized Gains At August 31, 1996, net unrealized appreciation on
and Losses investments and options written of $412,454,816 was
on Investments composed of gross appreciation of $524,281,123, and
gross depreciation of $111,826,307.
================================================================================
4. Management Fees Management fees paid to the Manager were in accordance
And Other Transactions with the investment advisory agreement with the Fund
With Affiliates which provides for a fee of 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 Manager has
agreed to reimburse the Fund if aggregate expenses (with
specified exceptions) exceed the most stringent
applicable regulatory limit on Fund expenses.
For the period ended August 31, 1996, commissions
(sales charges paid by investors) on sales of Class A
shares totaled $5,372,166, of which $1,443,507 was
retained by OppenheimerFunds Distributor, Inc. (OFDI), a
subsidiary of the Manager as general distributor, and by
an affiliated broker/dealer. Sales charges advanced to
broker/dealers by OFDI on sales of the Fund's Class B
and Class C shares totaled $7,698,420 and $468,253,
respectively, of which $226,169 and $11,023 was paid to
an affiliated broker/dealer. During the two months ended
August 31, 1996, OFDI received contingent deferred sales
charges of $594,878 and $39,798 upon redemption of Class
B and Class C shares.
OppenheimerFunds Services (OFS), a division of the
Manager, is the transfer and shareholder servicing agent
for the Fund, and for other registered investment
companies. OFS's total costs of providing such services
are allocated ratably to these companies.
20 Oppenheimer Main Street Income & Growth Fund
<PAGE>
================================================================================
4. Management Fees The Fund has adopted a Service Plan for Class A shares
And Other to reimburse OFDI for a portion of its costs incurred
Transactions With in connection with the personal service and
Affiliates maintenance of accounts that hold Class A shares.
(continued) Reimbursement is made quarterly at an annual rate that
may not exceed 0.25% of the average annual net assets of
Class A shares of the Fund. OFDI uses the service fee to
reimburse brokers, dealers, banks and other financial
institutions quarterly for providing personal service
and maintenance of accounts of their customers that hold
Class A shares. During the two months ended August 31,
1996, OFDI paid $52,056 to an affiliated broker/dealer
as reimbursement for Class A personal service and
maintenance expenses.
The Fund has adopted reimbursement type Distribution
and Service Plans for Class B and Class C shares to
reimburse OFDI for its services and costs in
distributing Class B and Class C shares and servicing
accounts. Under the Plans, the Fund pays OFDI an annual
asset-based sales charge of 0.75% per year on Class B
shares that are outstanding for 6 years or less and on
Class C shares, as reimbursement for sales
<PAGE>
commissions paid from its own resources at the time of
sale and associated financing costs. If the Plans are
terminated by the Fund, the Board of Directors may allow
the Fund to continue payments of the asset-based sales
charge to OFDI for certain expenses it incurred before
the Plans were terminated. OFDI also receives a service
fee of 0.25% per year as reimbursement for costs
incurred in connection with the personal service and
maintenance of accounts that hold shares of the Fund,
including amounts paid to brokers, dealers, banks and
other financial institutions. Both fees are computed on
the average annual net assets of Class B and Class C
shares, determined as of the close of each regular
business day. During the two months ended August 31,
1996, OFDI paid $4,866 and $17,862, respectively, to an
affiliated broker/dealer as reimbursement for Class B
and Class C personal service and maintenance expenses
and retained $2,701,596 and $457,848, respectively, as
reimbursement for Class B and Class C sales commissions
and service fee advances, as well as financing costs. At
August 31, 1996, OFDI had incurred unreimbursed expenses
of $76,673,677 for Class B and $7,711,148 for Class C.
================================================================================
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.
Securities held in segregated accounts to cover net
exposure on outstanding forward contracts are noted in
the Statement of Investments where applicable.
Unrealized appreciation or depreciation on forward
contracts is 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 August 31, 1996, the Fund had outstanding forward
contracts to sell foreign currencies as follows:
<PAGE>
<TABLE>
<CAPTION>
Contract Valuation as of Unrealized
Contracts to Sell Exchange Date Amount (000s) August 31, 1996 Depreciation
<S> <C> <C> <C> <C>
----------------------------------------------------------------------------------
Swedish Krona (SEK) 9/2/96 4,673 SEK $705,529 $1,562
</TABLE>
21 Oppenheimer Main Street Income & Growth Fund
<PAGE>
Notes to Financial Statements (Continued)
================================================================================
6. Futures The Fund may buy and sell interest rate futures
Contracts contracts in order to gain exposure to or protect
against changes in interest rates. The Fund may also
buy or write put or call options on these futures
contracts.
The Fund generally sells futures contracts to hedge
against increases in interest rates and the resulting
negative effect on the value of fixed rate portfolio
securities. The Fund may also purchase futures contracts
to gain exposure to changes in interest rates as it may
be more efficient or cost effective than actually buying
fixed income securities.
Upon entering into a futures contract, the Fund is
required to deposit either cash or securities in an
amount (initial margin) equal to a certain percentage of
the contract value. Subsequent payments (variation
margin) are made or received by the Fund each day. The
variation margin payments are equal to the daily changes
in the contract value and are recorded as unrealized
gains and losses. The Fund recognizes a realized gain or
loss when the contract is closed or expires.
Securities held in collateralized accounts to cover
initial margin requirements on open futures contracts
are noted in the Statement of Investments. The Statement
of Assets and Liabilities reflects a receivable or
payable for the daily mark to market for variation
margin.
Risks of entering into futures contracts (and related
options) include the possibility that there may be an
illiquid market and that a change in the value of the
contract or option may not correlate with changes in the
value of the underlying securities.
At August 31, 1996, the Fund had outstanding futures
contracts as follows:
<TABLE>
<CAPTION>
Expiration Number of Valuation as of Unrealized
Contracts to Buy Date Contracts August 31, 1996 Depreciation
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Standard & Poor's 500 9/20/96 305 $99,330,875 $762,500
</TABLE>
================================================================================
7. Illiquid and At August 31, 1996, investments in securities
Restricted included issues that are illiquid or restricted. The
Securities securities are often purchased in private placement
transactions, are not registered under the Securities
Act of 1933, may have contractual restrictions on
resale, and are valued under methods approved by the
Board of Directors as reflecting fair value. A security
may also be considered illiquid if its valuation has not
changed for a certain period of time. The Fund intends
to invest no more than 10% of its net assets (determined
at the time of purchase and
<PAGE>
reviewed from time to time) in illiquid or restricted
securities. The aggregate value of these securities
subject to this limitation at August 31, 1996 was
$100,000, which represents less than 0.01% of the Fund's
net assets. Information concerning these securities is
as follows:
<TABLE>
<CAPTION>
Valuation Per Unit
Security Acquisition Date Cost Per Unit As of August
31, 1996
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Physicians Clinical Laboratory, Inc., 1/12/94-10/25/95 $1.06 $0.10
7.50% Cv. Sub. Debs., 8/15/00
</TABLE>
22 Oppenheimer Main Street Income & Growth Fund
<PAGE>
Appendix A
DESCRIPTION OF RATINGS
Ratings of Investments
Description of Moody's Investors Service, Inc. Bond Ratings
Aaa: Bonds which are rated "Aaa" are judged to be the best quality and to carry
the smallest degree of investment risk. Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, the changes that can be
expected are most unlikely to impair the fundamentally strong position of such
issues.
Aa: Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group, they comprise what are generally known
as "high-grade" bonds. They are rated lower than the best bonds because margins
of protection may not be as large as with "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than those of
"Aaa" securities.
A: Bonds which are rated "A" possess many favorable investment attributes and
are to be considered as upper-medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated "Baa" are considered medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and have
speculative characteristics as well.
Ba: Bonds which are rated "Ba" are judged to have speculative elements; their
future cannot be considered well-assured. Often the protection of interest and
principal payments may be very moderate and not well safeguarded during both
good and bad times over the future. Uncertainty of position characterizes bonds
in this class.
B: Bonds which are rated "B" generally lack characteristics of desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated "Caa" are of poor standing and may be in default or
there may be present elements of danger with respect to principal or interest.
Ca: Bonds which are rated "Ca" represent obligations which are speculative in
a high degree and
A-1
<PAGE>
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-2
<PAGE>
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.
Duff & Phelps' Ratings
Long-Term Debt and Preferred Stock
AAA Highest credit quality. The risk factors are negligible, being only slightly
more than for risk- free US Treasury debt.
A-3
<PAGE>
AA+, AA & AA- High credit quality protection factors are strong. Risk is modest
but may vary slightly from time to time because of economic conditions.
A+, A & A- Protection factors are average but adequate. However, risk factors
are more variable and greater in periods of economic stress.
BBB+, BBB & BBB- Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
BB+, BB & BB- Below investment grade but deemed to meet obligations when due.
Present or prospective financial protection factors fluctuate according to
industry conditions or company fortunes. Overall quality may move up or down
frequently within the category.
B+, B & B- Below investment grade and possessing risk that obligations will not
be met when due. Financial protection factors will fluctuate widely according to
economic cycles, industry conditions and/or company fortunes. Potential exists
for frequent changes in the rating within this category or into a higher of
lower rating grade.
CCC Well below investment grade securities. Considerable uncertainty exists as
to timely payment of principal interest or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable economic
industry conditions, and/or with unfavorable company developments.
DD Defaulted debt obligations issuer failed to meet scheduled principal and/or
interest payments.
DP Preferred stock with dividend arreages.
A-4
<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
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
B-1
<PAGE>
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
Restaurants
Savings & Loans
Shipping
Special Purpose Financial
Specialty Retailing
Steel
Supermarkets
Telecommunications - Technology
Telephone - Utility
Textile/Apparel
Tobacco
Toys
Trucking
B-2
<PAGE>
Investment Adviser
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048-0203
Distributor
OppenheimerFunds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer Agent
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian of Portfolio Securities
The Bank of New York
One Wall Street
New York, New York 10015
Independent Auditors
Deloitte & Touche LLP
555 Seventeenth Street, Suite 3600
Denver, Colorado 80202-3942
Legal Counsel
Myer, Swanson, Adams & Wolf, P.C.
1600 Broadway
Denver, Colorado 80202
<PAGE>
Oppenheimer
Main Street California Municipal Fund
Prospectus dated November 1, 1996
Oppenheimer Main Street California Municipal 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, 1996, Statement of Additional Information. For a free copy, call
OppenheimerFunds Services, the Fund's Transfer Agent, at 1-800-525-7048, or
write to the Transfer Agent at the address on the back cover. The Statement of
Additional Information has been filed with the Securities and Exchange
Commission and is incorporated into this Prospectus by reference (which means
that it is legally part of this Prospectus).
(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.
-1-
<PAGE>
<TABLE>
<CAPTION>
Contents
<S> <C>
ABOUT THE FUND
3 Expenses
5 A Brief Overview of the Fund
7 Financial Highlights
10 Investment Objectives and Policies
11 Investment Risks
13 Investment Techniques and Strategies
19 How the Fund is Managed
22 Performance of the Fund
ABOUT YOUR ACCOUNT
25 How to Buy Shares
Class A Shares
Class B Shares
34 Special Investor Services
AccountLink
Automatic Withdrawal and Exchange Plans
Reinvestment Privilege
36 How to Sell Shares
By Mail
By Telephone
By Checkwriting
39 How to Exchange Shares
40 Shareholder Account Rules and Policies
42 Dividends, Capital Gains and Taxes
A-1 Appendix A: Special Sales Charge Agreements
</TABLE>
-2-
<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 fiscal year ended June 30, 1996.
o Shareholder Transaction Expenses are charges you pay when you buy or
sell shares of the Fund. Please refer to "About Your Account" from pages 25
through 42 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)
- -------------------------------------------------------------------------
Maximum 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)
- -------------------------------------------------------------------------
Maximum Sales Charge on
Reinvested Dividends None None
- -------------------------------------------------------------------------
Redemption Fee None(3) None(3)
- -------------------------------------------------------------------------
Exchange Fee None None
<FN>
(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 - Buying Class A Shares," below.
(2) See "How to Buy Shares - Buying Class B Shares," below for more
-3-
<PAGE>
information 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 transfer through AccountLink. See
"How to Sell Shares," below.
</FN>
</TABLE>
o Annual Fund Operating Expenses are paid out of the Fund's assets and
represent the Fund's expenses in operating its business. For example, the Fund
pays management fees to its investment adviser, OppenheimerFunds, Inc. (which is
referred to in this Prospectus as the "Manager"). The rates of the Manager's
fees are set forth in "How the Fund is Managed," below. The Fund has other
regular expenses for services, such as transfer agent fees, custodial fees paid
to the bank that holds its portfolio securities, audit fees and legal expenses.
Those expenses are detailed in the Fund's Financial Statements in the Statement
of Additional Information.
<TABLE>
<CAPTION>
Annual Fund Operating Expenses
(as a Percentage of Average Net Assets):
Class A Class B
Shares Shares
<S> <C> <C>
- -------------------------------------------------------------------
Management Fees .40% .40%
- -------------------------------------------------------------------
12b-1 Plan Fees None 1.00%
- -------------------------------------------------------------------
Other Expenses .18% .20%
- -------------------------------------------------------------------
Total Fund Operating Expenses .58% 1.60%
</TABLE>
The numbers in the chart above are projections of the Fund's business
expenses based on the Fund's expenses in its fiscal year ended June 30, 1996
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.
-4-
<PAGE>
o Examples. To try to show the effect of these expenses on an
investment over time, we have created the hypothetical examples shown below.
Assume that you make a $1,000 investment in each class of shares of the Fund,
and that the Fund's annual return is 5%, and that its operating expenses for
each class are the ones shown in the Annual Fund Operating Expenses 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>
<S> <C> <C> <C> <C>
1 year 3 years 5 years 10 years(1)
- -------------------------------------------------------------------
Class A Shares $53 $65 $ 78 $117
- -------------------------------------------------------------------
Class B Shares $66 $81 $107 $137
If you did not redeem your investment, it would incur the following
expenses:
Class A Shares $53 $65 $ 78 $117
- -------------------------------------------------------------------
Class B Shares $16 $51 $ 87 $137
<FN>
(1)In the first example, expenses include the Class A initial sales charge and
the applicable Class B or Class C contingent deferred sales charge. In the
second example, Class A expenses include the initial sales charges but Class B
and Class C expenses do not include contingent deferred sales charges. The Class
B expenses in years 7 through 10 are based on 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.
</FN>
</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 may be more or less than those shown.
A Brief Overview of the Fund
-5-
<PAGE>
Some of the important facts about the Fund are summarized below, with
references to the section of this Prospectus where more complete information can
be found. You should carefully read the entire Prospectus before making a
decision about investing in the Fund. Keep the Prospectus for reference after
you invest, particularly for information about your account, such as how to sell
or exchange shares.
o What is the Fund's Investment Objective? The Fund's investment
objective is to seek 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.
o 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.
o Who Manages the Fund? The Fund's investment adviser (the "Manager")
is OppenheimerFunds, Inc. which (including a subsidiary) manages investment
company portfolios currently having over $50 billion in assets. The Manager is
paid an advisory fee by the Fund, based on its assets. The Fund's portfolio
manager is Jerry A. Webman, 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
17 for more information about the manager and its fees.
o 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 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
-6-
<PAGE>
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 objectiveand your shares may be worth more or less than their original
cost when you redeem them. Please refer to "Investment Risks" starting on page
11 for a more complete discussion.
o How Can I Buy Shares? You can buy shares through your dealer or
financial institution, or you can purchase shares directly through the
Distributor by completing an Application or by using an Automatic Investment
Plan under AccountLink. Please refer to "How to Buy Shares" on page 25 for more
details.
o 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 25 for more details,
including a discussion about factors you and your financial advisor should
consider in determining which class may be appropriate for you.
o How Can I Sell My Shares? Shares can be redeemed by mail or by
telephone call to the Transfer Agent on any business day, or through your
dealer, or by writing a check against your Fund account (available for Class A
shares only). Please refer to "How to Sell Shares" on page 36. The Fund also
offers exchange privileges to other Oppenheimer funds, described in "How to
Exchange Shares" on page 39.
o 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,
-7-
<PAGE>
which we have done on page 24. 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. The Fund recently changed its fiscal year end
from June 30 to August 31 and information for both the fiscal year ended June
30, 1996 and the fiscal period ended August 31, 1996 is included in that table.
This information has been audited by Deloitte & Touche LLP, the Fund's
independent auditors, whose reports on the Fund's financial statements for the
fiscal year ended June 30, 1996 and the fiscal period ended August 31, 1996, are
included in the Statement of Additional Information.
<TABLE>
<CAPTION>
----------------------------------------------------------------------
Financial Highlights
Class A
----------------------------------------------------------------------
Two Months
Ended
August 31, Year Ended June 30,
1996(2) 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
- ------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Data:
Net asset value, beginning of period $12.15 $12.09 $11.82 $12.66 $12.05
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .12 .73 .73 .75 .80
Net realized and unrealized gain (loss) .01 .07 .27 (.80) .64
- -----------------------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment
operations .13 .80 1.00 (.05) 1.44
- ----------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.12) (.73) (.69) (.73) (.81)
Dividends in excess of net investment
income -- -- (.04) (.03) --
Distributions from net realized gain -- --(5) -- -- (.02)
Distributions in excess of net realized gain -- (.01) -- (.03) --
- ----------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions
to shareholders (.12) (.74) (.73) (.79) (.83)
- --------------------------------------------------------==========================================================================
Net asset value, end of period $12.16 $12.15 $12.09 $11.82 $12.66
==========================================================================
- ---------------------------------------------------------------------------------------------------------------------------------
Total Return, at Net Asset Value(6) 1.12% 6.73% 8.93% (0.60)% 12.53%
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data:
Net assets, end of period (in thousands) $76,817 $76,913 $78,134 $79,555 $72,387
- -----------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $77,584 $78,676 $76,148 $81,741 $54,840
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 6.00%(7) 5.99% 6.27% 6.09% 6.46%
Expenses(8) 0.57%(7) 0.58% 0.57% 0.53% 0.39%
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(9) 1.4% 33.1% 14.2% 20.2% 5.8%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------
----------------------------------------------------
1992 1991 1990(3)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share Operating Data:
Net asset value, beginning of period $11.61 $11.56 $11.43
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .82 .83(4) .06(4)
Net realized and unrealized gain (loss) .45 .05 .13
- -----------------------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment
operations 1.27 .88 .19
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.82) (.83)
(.06)
Dividends in excess of net investment
income -- -- --
Distributions from net realized gain (.01) -- --
Distributions in excess of net realized gain -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions
to shareholders (.83) (.83) (.06)
- -------------------------------------------------------------------===============================================================
Net asset value, end of period $12.05 $11.61 $11.56
================================================================
- -----------------------------------------------------------------------------------------------------------------------------------
Total Return, at Net Asset Value(6) 11.21% 7.94% 1.95%
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data:
Net assets, end of period (in thousands) $40,055 $13,924 $2,027
- -----------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $26,304 $ 6,661 $1,685
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 6.74% 6.94% 5.48%(7)
Expenses(8) 0.32% 0.33%(4) 0.20%(4)(7)
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(9) 25.7% 14.6% 0.0%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------
Class B
---------------------------------------------------------------
Two Months
Ended
August 31, Year Ended June 30,
1996(2) 1996 1995 1994(1)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share Operating Data:
Net asset value, beginning of period $12.14 $12.08 $11.80 $12.90
- -----------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .10 .61 .62 .38
Net realized and unrealized gain (loss) -- .07 .27 (1.07)
- -----------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment
operations .10 .68 .89 (.69)
- -----------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.10) (.61) (.57) (.37)
Dividends in excess of net investment
income -- -- (.04) (.01)
Distributions from net realized gain -- -- (5) -- --
Distributions in excess of net realized gain -- (.01) -- (.03)
- -----------------------------------------------------------------------------------------------------------------------
Total dividends and distributions
to shareholders (.10) (.62) (.61) (.41)
- --------------------------------------------------------===============================================================
Net asset value, end of period $12.14 $12.14 $12.08 $11.80
===============================================================
- -----------------------------------------------------------------------------------------------------------------------
Total Return, At Net Asset Value(6) 0.85% 5.66% 7.90%
(5.42)%
- -----------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data:
Net assets, end of period (in thousands) $5,928 $5,442 $2,648 $1,203
- -----------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $5,767 $3,848 $1,904 $649
- -----------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 4.92%(7) 4.94% 5.17%
4.91%(7)
Expenses(8) 1.62%(7) 1.60% 1.55% 1.62%(7)
- -----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(9) 1.4% 33.1% 14.2% 20.2%
<PAGE>
<FN>
1. For the period from October 29, 1993 (inception of offering) to June 30, 1994.
2. The Fund changed its fiscal year end from June 30 to August 31.
3. For the period from May 18, 1990 (commencement of operations) to June 30, 1990.
4. Net investment income would have been $0.82 and $0.04 per share in 1991 and
1990 absent the voluntary expense assumption, resulting in an expense ratio of
0.42% and 1.93%, respectively.
5. Less than $0.005 per share.
6. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all dividends
and distributions reinvested in additional shares on the reinvestment date, and
redemption at the net asset value calculated on the last business day of the
fiscal period. Sales charges are not reflected in the total returns. Total
returns are not annualized for periods of less than one full year.
7. Annualized.
8. Beginning in fiscal 1995, the expense ratio reflects the effect of gross expenses paid indirectly
by the Fund. Prior year expense ratios have not been adjusted.
9. 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 August 31, 1996 were $2,272,749 and $1,109,040, respectively.
</FN>
</TABLE>
Oppenheimer Main Street California Municipal Fund
<PAGE>
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.
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.
o Can the Fund's Investment Objective and Policies Change?
The Fund has an investment objective, which is described above, as
-8-
<PAGE>
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.
o 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
and may increase the Fund's transaction costs, the Fund incurs little or no
brokerage costs because most of the Fund's portfolio transactions are principal
trades without brokerage commissions.
Investment Risks.
All investments carry risks to some degree, whether they are risks that market
prices of the investment will fluctuate (this is known as "market risk") or that
the underlying issuer will experience financial difficulties and may default on
its obligation under a fixed-income investment to pay interest and repay
principal (this is referred to as "credit risk"). These general investment
risks, and the special risks of certain types of investments that the Fund may
hold are described below. They affect the value of the Fund's investments, its
investment performance, and the prices of its shares. These risks collectively
form the risk profile of the
-9-
<PAGE>
Fund.
Because of the types of securities the Fund invests in and the
investment techniques the Fund uses, the Fund is designed for investors who are
investing for the long term. It is not intended for investors seeking assured
income. While the Manager tries to reduce risks by diversifying investments, by
carefully researching securities before they are purchased, and in some cases by
using hedging techniques, changes in overall market prices can occur at any
time, and because the income earned on securities is subject to change, there is
no assurance that the Fund will achieve its investment objective. When you
redeem your shares, they may be worth more or less than what you paid for them.
o 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."
o 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.
o 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
-10-
<PAGE>
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 Corporation
("Standard & Poor's"), Fitch Investors Service, Inc. ("Fitch") Duff & Phelps,
Inc. ("Duff & Phelps") or Moody's Investor Services, Inc. ("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.
o There are special risks in investing in derivative investments. The
Fund can invest in a number of different kinds of "derivative" investment. In
general, a "derivative investment" is a specially designed investment whose
performance is linked to the performance of another investment or security, such
as an option, future, index, currency or commodity. The company issuing the
instrument may fail to pay the amount due on the maturity of the instrument.
Also, the underlying investment or security might not perform the way the
Manager expected it to perform. Markets, underlying securities and indices may
move in a direction not anticipated by the Manager. Performance of derivative
investments may also be influenced by interest rate and stock market changes in
the U.S. and abroad. All of this can mean that the Fund will realize less
principal or income from the investment than expected. Certain derivative
investments held by the Fund may be illiquid. Please refer to "Illiquid and
Restricted Securities."
o 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 credit risk exposure to a
smaller number of issuers, and 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
-11-
<PAGE>
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.
o Hedging instruments can be volatile investments and may involve
special risks. The Fund may invest in a number of hedging instruments. 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
Investment Techniques and Strategies.
-12-
<PAGE>
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 are designed to reduce some of the risks.
o 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, the interest from which may be subject to Federal alternative
minimum tax; 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.
-13-
<PAGE>
o 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) certain "Temporary Investments"
(described immediately below); (ii) covered call options and hedging instruments
(described in "Hedging" below); and (iii) repurchase agreements (explained
below).
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.
o 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.
o Floating Rate/Variable Rate Obligations. Some of the
Municipal Securities the Fund may purchase may have variable or
-14-
<PAGE>
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.
|X| 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. Derivative Securities are subject to special risks described in
"Investment Risks," above.
o 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, Duff & Phelps or Fitch (or
other similar rating organizations) or, if unrated, judged by the Manager to be
of comparable quality to Municipal Securities rated within such grades. See
Appendix A of the Statement of Additional Information 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, Fitch or Duff & Phelps, (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
-15-
<PAGE>
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.
o 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. Under the Investment Company Act, the Fund can borrow only if it
maintains a 300% ratio of net assets to borrowings at all times.
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.
|X| 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.
o Repurchase Agreements. The Fund may acquire securities
-16-
<PAGE>
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.
|X| 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 (the Board may increase that limit to 15%).
The Fund's percentage limitation on these investments does not apply to certain
restricted securities that are eligible for resale to qualified institutional
buyers. The Manager monitors holdings of illiquid securities on an ongoing basis
and at times the Fund may be required to sell some holdings to maintain adequate
liquidity.
o 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
-17-
<PAGE>
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.
o 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.
o 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.
-18-
<PAGE>
o 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 the Fund's total assets. These
types of Futures are described in "Hedging" in the Statement of Additional
Information.
o 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 National Association of Securities Dealers' Automated Quotation
System ("Nasdaq") of the Nasdaq Stock Market, Inc., 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. 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.
-19-
<PAGE>
o 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 of any type, including
equity and debt securities of any grade, 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.
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:
o The Fund cannot 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
o The Fund cannot 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.
Unless the prospectus states that a percentage restriction applies
continuously, it applies only at the time the Fund makes an investment, and the
Fund need not sell securities to meet the percentage limits if the value of the
investment increases in proportion to the size of the Fund. Other investment
restrictions are listed in "Investment Restrictions" in the Statement of
Additional Information.
How the Fund is Managed
Organization and History. The Fund is one of two investment
portfolios or "series" of Oppenheimer Main Street Funds, Inc. (the
-20-
<PAGE>
"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 of the Fund and provides
more information about them. Although the Fund will not normally hold annual
meetings of its shareholders, it may hold shareholder meetings from time to time
on important matters, and shareholders have the right to call a meeting to
remove a Director or to take other action described in the Fund's Articles of
Incorporation.
The Board of Directors has the power, without shareholder approval, to
divide unissued shares of the Fund into two or more classes. 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 may 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 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.
-21-
<PAGE>
The Manager (including a subsidiary) currently manages investment companies,
including other Oppenheimer funds, with assets of more than $55 billion as of
September 30, 1996, and with more than 3 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.
o Portfolio Manager. The Portfolio Manager of the Fund is
Jerry A. Webman. 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 April, 1996. Mr. Webman also serves as
an officer and portfolio manager for other Oppenheimer funds.
During the past five years, Mr. Webman was a Managing Director with
Prudential Mutual Funds - Investment Management, Inc.
o 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
fiscal years ended June 30, 1996 and August 31, 1996 was 0.40% of average annual
net assets.
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
-22-
<PAGE>
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.
o The Distributor. The Fund's shares are sold through dealers, brokers
and other financial institutions that have a sales agreement with
OppenheimerFunds Distributor, Inc., a subsidiary of the Manager that acts as the
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.
o The Transfer Agent. The Fund's transfer agent is OppenheimerFunds
Services, a division of the Manager, which acts as the shareholder servicing
agent for the Fund on an "at-cost" basis. It also acts as 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 and distributions
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
-23-
<PAGE>
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.
o Total Returns. There are different types of "total returns" used to
measure the Fund's performance. Total return is the change in value of a
hypothetical investment in the Fund over a given period, assuming that all
dividends and capital gains distributions are reinvested in additional shares.
The cumulative total return measures the change in value over the entire period
(for example, ten years). An average annual total return shows the average rate
of return for each year in a period that would produce the cumulative total
return over the entire period. However, average annual total returns do not show
the Fund's actual year-by-year performance.
When total returns are quoted for Class A shares, normally the current
maximum initial sales charge has been deducted. When total returns are shown for
Class B shares, normally the contingent deferred sales charge that applies to
the period for which total return is shown has been deducted. Total returns may
also be quoted at "net asset value," without considering the effect of the sales
charge, and those returns would be less if sales charges were deducted.
|X| 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
-24-
<PAGE>
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 fiscal years ended June 30, 1996 and August 31, 1996,
followed by a graphical comparison of the Fund's performance to an appropriate
broad-based market index.
o Management's Discussion of Performance. During the fiscal year ended
June 30, 1996 and the fiscal period ended August 31, 1996, the Fund's
performance was affected by the weakening in the bond market caused by the
interest rate increases in the past year. During the fiscal periods the Fund
emphasized new investments in pre-refunded bonds (bonds that have escrowed money
to repay bond holders) which have a relatively low sensitivity to changes in
interest rates and decreased its holdings in municipal bonds trading at a
discount (those bonds tend to be more sensitive to interest rate changes.) The
Fund also reduced its average portfolio duration (a measure of the portfolio's
price sensitivity to changes in the interest rates) which reduced the volatility
of the Fund's share price as interest rates changed. The Fund's policy of
seeking to maintain a steady dividend for its Class A shares did not materially
affect portfolio management strategies.
o 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, 1996 and August
31, 1996, 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
-25-
<PAGE>
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 Municipal Fund
And Lehman Brothers Municipal Bond Index
[Graphs]
Past performance is not predictive of future performance.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Avg. Annual Total Return of the Fund at 6/30/96
- ---------------------------------------------------------------------
A Shares 1 Year 5 Year Life of Class(1)
- ---------------------------------------------------------------------
1.66% 6.58% 7.01%
- ---------------------------------------------------------------------
Avg. Annual Total Return of the Fund at 8/31/96
- ---------------------------------------------------------------------
A Shares 1 Year 5 Year Life of Class(1)
- ---------------------------------------------------------------------
1.12% 6.27% 7.00%
- ---------------------------------------------------------------------
Avg. Annual Total Return of the Fund at 6/30/96
- ---------------------------------------------------------------------
B Shares 1 Year Life of Class(2)
- ---------------------------------------------------------------------
0.66% 1.84%
- ---------------------------------------------------------------------
Avg. Annual Total Return of the Fund at 8/31/96
- ---------------------------------------------------------------------
</TABLE>
-26-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
B Shares 1 Year Life of Class(2)
- ----------------------------------------------------------------------
0.00% 2.04%
- ----------------------------------------------------------------------
<FN>
1. The inception date of the Fund (Class A shares) was 5/18/90. The average
annual total returns and the ending account value in the graph show change in
share value and include reinvestment of all dividends and capital gains
distributions and are shown net of the applicable 4.75% maximum sales charge.
The Fund's fiscal year end has changed from 6/30 to 8/31.
2. Class B shares of the Fund first publicly offered on 10/29/93. The average
annual total return reflect reinvestment of all dividends and capital gains
distributions and are shown net of the applicable 5% and 3% contingent deferred
sales charge the one year period and the life of the class, respectively. The
ending account value in the graph is net of the applicable 3% contingent
deferred sales charge.
</FN>
Past performance is not predicative of future performance. Graphs are not drawn
to same scale.
</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.
o 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 value will vary depending
on the amount you invested. Sales charge rates are described in "Buying Class A
Shares" below.
o Class B Shares. If you buy Class B shares, you pay no sales
-27-
<PAGE>
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 as 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, and considered 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.
o How Long Do You Expect to Hold Your Investment? While
future financial needs cannot be predicted with certainty, knowing
how long you expect to hold your investment will assist you in
selecting the appropriate class of shares. Because of the effect of
-28-
<PAGE>
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.
o 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 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.
o Investing for the Longer Term. If you are investing for the longer
term, for example, for retirement, and do not expect to need access to your
money for seven years or more, Class B shares may be an appropriate
consideration, if you plan to invest less than $100,000. If you plan to invest
more than $100,000 over the long term, Class A shares will likely be more
advantageous than Class B shares, 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
-29-
<PAGE>
effect of current sales charges and expenses on a hypothetical investment over
time, using the assumed performance return stated above, and therefore, you
should analyze your options carefully.
o Are There Differences in Account Features That Matter To You? Because
some account features may not be available to Class B 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.
o How Does It Affect Payments to My Broker? A salesperson, such as a
broker, or any other person who is entitled to receive compensation for selling
Fund shares may receive different compensation for selling one class 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.
-30-
<PAGE>
o How Are Shares Purchased? You can buy shares several ways -- through
any dealer, broker or financial institution that has a sales agreement with the
Distributor, directly through the Distributor, or automatically from your bank
account through an Asset Builder Plan under the OppenheimerFunds AccountLink
service. The distributor may appoint certain servicing agents as The
Distributor's agent to accept purchase (and redemption) orders. When you buy
shares, be sure to specify Class A or Class B shares. If you do not choose, your
investment will be made in Class A shares.
o Buying Shares Through Your Dealer. Your dealer will place
your order with the Distributor on your behalf.
o Buying Shares Through the Distributor. Complete an OppenheimerFunds
New Account Application and return it with a check payable to "OppenheimerFunds
Distributor, Inc." Mail it to P.O. Box 5270, Denver, Colorado 80217. If you
don't list a dealer on the application, the Distributor will act as your agent
in buying the shares. However, it is recommended that you discuss your
investment first with a financial advisor to be sure that it is appropriate for
you.
o Buying Shares Through OppenheimerFunds AccountLink. You can use
AccountLink to link your Fund account with an account at a U.S. bank or other
financial institution that is an Automated Clearing House (ACH) member. You can
then transmit funds electronically to purchase shares, to have the Transfer
Agent to send redemption proceeds, or to transmit dividends and distributions to
your bank account.
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.
o Asset Builder Plans. You may purchase shares of the Fund
-31-
<PAGE>
(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.
o 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 or its designated agent 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.
o Special Sales Charge Arrangements for Certain Persons. Appendix A in
this prospectus sets forth conditions for the waiver of or exemption from sales
charge or the special sales charge rates that apply to purchases of shares of
the Fund (including purchases by exchange) by a person who was a shareholder of
one of the former Quest for Value Funds (as defined in that Appendix).
Buying Class A Shares. Class A shares are sold at their offering price, which is
normally net asset value plus an initial sales charge. However, in some cases,
described below, purchases are not subject to an initial sales charge, and the
offering price will be the net asset value. In some cases, reduced sales charges
may be available, as described below. Out of the amount you invest, the Fund
receives the net asset value to invest for your account. The sales charge varies
depending on the amount of your purchase. A portion of the sales charge may be
retained by the Distributor and allocated to your dealer as commission. The
current sales charge rates and commissions paid to dealers and brokers are as
follows:
-32-
<PAGE>
<TABLE>
<CAPTION>
Front-End Front-End
Sales Charge Sales Charge Commission
as as 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.
o Class A Contingent Deferred Sales Charge. There is no initial sales
charge on purchases of Class A shares of any one or more of the Oppenheimer
funds aggregating $1 million or more.
The Distributor pays dealers of record commissions on those purchases
in an amount equal to 1.0% of purchases. 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
-33-
<PAGE>
charge will be equal to 1.0% of the lesser of (1) the aggregate net asset value
of the redeemed shares (not including shares purchased by reinvestment of
dividends or capital gain distributions) or (2) the original offering price
(which is the original net asset value) of the redeemed 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.
o Special Arrangements With Dealers. The Distributor may advance up to
13 months' commissions to dealers that have established special arrangements
with the Distributor for Asset Builder Plans for their clients.
Reduced Sales Charges for Class A Share Purchases. You may be eligible to buy
Class A shares at reduced sales charge rates in one or more of the following
ways:
o Right of Accumulation. To qualify for the lower sales charge rates
that apply to larger purchases of Class A shares, 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
-34-
<PAGE>
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.
o 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.
o Waivers of Class A Sales Charges. The Class A sales charges are not
imposed in the circumstances described below. There is an explanation of this
policy in "Reduced Sales Charges" in the Statement of Additional Information.
Waivers of Initial and Contingent Deferred Sales Charges for Certain
Purchasers. Class A shares purchased by the following investors are not subject
to any Class A sales charges:
o the Manager or its affiliates;
o present or former officers, directors, trustees and employees (and
their "immediate families" as defined in "Reduced Sales Charges" in the
Statement of Additional Information) of the Fund, the Manager and its
affiliates, and retirement plans established by them for their employees;
o registered management investment companies, or separate
-35-
<PAGE>
accounts of insurance companies having an agreement with the
Manager or the Distributor for that purpose;
o dealers or brokers that have a sales agreement with the Distributor,
if they purchase shares for their own accounts or for retirement plans for their
employees;
o employees and registered representatives (and their spouses) of
dealers or brokers described above or financial institutions that have entered
into sales arrangements with such dealers or brokers (and are identified to the
Distributor) or with the Distributor; the purchaser must certify to the
Distributor at the time of purchase that the purchase is for the purchaser's own
account (or for the benefit of such employee's spouse or minor children);
o dealers, brokers, banks 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);
o directors, trustees, officers or full-time employees of OpCap
Advisors or its affiliates, their relatives or any trust, pension, profit
sharing or other benefit plan which beneficially owns shares for those persons;
o accounts for which Oppenheimer Capital is the investment adviser (the
Distributor must be advised of this arrangement) and persons who are directors
or trustees of the company or trust which is the beneficial owner of such
accounts; or
o any unit investment trust that has entered into an appropriate
agreement with the Distributor.
Waivers of Initial and Contingent Deferred Sales Charges in Certain
Transactions. Class A shares issued or purchased in the following transactions
are not subject to Class A sales charges:
o shares issued in plans of reorganization, such as mergers,
asset acquisitions and exchange offers, to which the Fund is a
-36-
<PAGE>
party;
o shares purchased by the reinvestment of dividends or other
distributions reinvested from the Fund or other Oppenheimer funds (other than
Oppenheimer Cash Reserves) or unit investment trusts for which reinvestment
arrangements have been made with the Distributor;
o shares purchased and paid for with the proceeds of shares redeemed in
the past 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; or
o shares purchased with the proceeds of maturing principal units of any
Qualified Unit Investment Liquid Trust Series.
Waivers of the Class A Contingent Deferred Sales Charge for Certain
Redemptions. The Class A contingent deferred sales charge is also waived if
shares that would otherwise be subject to the contingent deferred sales charge
are redeemed in the following cases:
o to make Automatic Withdrawal Plan payments that are limited annually
to no more than 12% of the original account value;
o involuntary redemptions of shares by operation of law or involuntary
redemptions of small accounts (see "Shareholder Account Rules and Policies,"
below);
o if, at the time 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).
-37-
<PAGE>
Buying Class B Shares. Class B shares are sold at net asset value per share
without an initial sales charge. However, if Class B shares are redeemed within
6 years of their purchase, a contingent deferred sales charge will be deducted
from the redemption proceeds. That sales charge will not apply to shares
purchased by the reinvestment of dividends or capital gains distributions. The
contingent deferred sales charge will be based on the lesser of the net asset
value of the redeemed shares at the time of redemption or the original offering
price (which is the original net asset value). The contingent deferred sales
charge is not imposed on the amount of your account value represented by the
increase in net asset value over the initial purchase price. 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 Accepted (As % of Amount Subject to Charge)
<S> <C>
- ----------------------------------------------------------------------------
0-1
5.0%
- ----------------------------------------------------------------------------
1-2
4.0%
- ----------------------------------------------------------------------------
2-3
3.0%
- ----------------------------------------------------------------------------
3-4
</TABLE>
3.0%
-38-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
- ------------------------------------------------------------------
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.
|X| 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.
|X| 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.
-39-
<PAGE>
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 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.
o 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:
o following the death or disability of the last surviving shareholder,
including a trustee of a grantor trust or revocable living trust for which the
trustee is also the sole beneficiary (the disability must have occurred after
the account was
-40-
<PAGE>
established and you must provide evidence of a determination of
disability by the Social Security Administration);
o shares redeemed involuntarily, as described in "Shareholder
Account Rules and Policies," below
o shares sold to the Manager or its affiliates;
o shares sold to registered management investment companies or separate
accounts of insurance companies having an agreement with the Manager or the
Distributor for that purpose; or
o shares issued in plans of reorganization to which the Fund
is a party
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.
-41-
<PAGE>
o Using AccountLink to Buy Shares. Purchases may be made by telephone
only after your account has been established. To purchase shares in amounts up
to $250,000 through a telephone representative, call the Distributor at
1-800-852-8457. The purchase payment will be debited from your bank account.
o PhoneLink. PhoneLink is the OppenheimerFunds automated telephone
system that enables shareholders to perform a number of account transactions
automatically using a touch-tone phone. PhoneLink may be used on
already-established Fund accounts after you obtain a Personal Identification
Number (PIN), by calling the special PhoneLink number: 1-800-533-3310.
o Purchasing Shares. You may purchase shares in amounts up to $100,000
by phone, by calling 1-800-533-3310. You must have established AccountLink
privileges to link your bank account with the Fund, to pay for these purchases.
o Exchanging Shares. With the OppenheimerFunds Exchange Privilege,
described below, you can exchange shares automatically by phone from your Fund
account to another Oppenheimer funds account you have already established by
calling the special PhoneLink number. Please refer to "How to Exchange Shares,"
below, for details.
o Selling Shares. You can redeem shares by telephone automatically by
calling the PhoneLink number and the Fund will send the proceeds directly to
your AccountLink bank account. Please refer to "How to Sell Shares," below, for
details.
Automatic Withdrawal and Exchange Plans. The Fund has several plans that enable
you to sell shares automatically or exchange them to another Oppenheimer funds
account on a regular basis:
o Automatic Withdrawal Plans. If your Fund account is 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.
-42-
<PAGE>
o Automatic Exchange Plans. You can authorize the Transfer Agent to
exchange an amount you establish in advance automatically for shares of up to
five other Oppenheimer funds on a monthly, quarterly, semi-annual or annual
basis under an Automatic Exchange Plan. The minimum purchase for each
Oppenheimer funds account is $25. These exchanges are subject to the terms of
the Exchange Privilege, described below.
Reinvestment Privilege. If you redeem some or all of your Class A 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 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. 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.
o Certain Requests Require a Signature Guarantee. To protect you and
the Fund from fraud, certain redemption requests must be in writing and must
include a signature guarantee in the following situations (there may be other
situations also requiring a signature guarantee):
o You wish to redeem more than $50,000 worth of shares and
receive a check
o The redemption check is not payable to all shareholders
-43-
<PAGE>
listed on the account statement
o The redemption check is not sent to the address of record
on your account statement
o Shares are being transferred to a Fund account with a
different owner or name
o Shares are redeemed by someone other than the owners (such
as an Executor)
o Where Can I Have My Signature Guaranteed? The Transfer
Agent will accept a guarantee of your signature by a number of
financial institutions, including: a U.S. bank, trust company,
credit union or savings association, or by a foreign bank that has
a U.S. correspondent bank, or by a U.S. registered dealer or broker
in securities, municipal securities or government securities, or by
a U.S. national securities exchange, a registered securities
association or a clearing agency. If you are signing on behalf of
a corporation, partnership or other business or as a fiduciary, you
must also include your title in the signature.
Selling Shares by Mail. Write a "letter of instructions" that
includes:
o Your name
o The Fund's name
o Your Fund account number (from your account statement) o The dollar
amount or number of shares to be redeemed o Any special payment
instructions o Any share certificates for the shares you are selling o
The signatures of all registered owners exactly as the
account is registered, and
o Any special requirements or documents requested by the Transfer Agent
to assure proper authorization of the person asking to sell shares.
Use the following address for requests by mail:
OppenheimerFunds Services
P.O. Box 5270, Denver, Colorado 80217
Send courier or Express Mail requests to:
OppenheimerFunds Services
10200 E. Girard Avenue, Building D
Denver, Colorado 80231
-44-
<PAGE>
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.
o To redeem shares through a service representative, call 1-
800-852-8457
o To redeem shares automatically on PhoneLink, call 1-800-533-
3310
Whichever method you use, you may have a check sent to the address on
the account statement, or, if you have linked your Fund account to your bank
account on AccountLink, you may have the proceeds sent to that bank account.
o Telephone Redemptions Paid by Check. Up to $50,000 may be redeemed by
telephone in any 7-day period. The check must be payable to all owners of record
of the shares and must be sent to the address on the account statement. This
service is not available within 30 days of changing the address on an account.
o Telephone Redemptions Through AccountLink or By Wire. There are no
dollar limits on telephone redemption proceeds sent to a bank account designated
when you establish AccountLink. Normally the ACH 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
-45-
<PAGE>
wire redemption privileges on an account that is already established, please
contact the Transfer Agent for instructions.
Selling Shares Through Your Dealer. The Distributor has made arrangements to
repurchase Fund shares from dealers and brokers on behalf of their customers.
Brokers or dealers may charge for that service. Please call your dealer for more
information about this procedure. 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.
o Checks can be written to the order of whomever you wish, but may not
be cashed at the Fund's bank or custodian.
o Checkwriting privileges are not available for accounts holding Class
B shares, or Class A shares that are subject to a contingent deferred sales
charge.
o Checks must be written for at least $100.
o 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.
o 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 10 days.
o Don't use your checks if you changed your Fund account
-46-
<PAGE>
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:
o Shares of the fund selected for exchange must be available
for sale in your state of residence
o The prospectuses of this Fund and the fund whose shares you
want to buy must offer the exchange privilege
o You must hold the shares you buy when you establish your account for
at least 7 days before you can exchange them; after the account is open 7 days,
you can exchange shares every regular business day
o You must meet the minimum purchase requirements for the fund
you purchase by exchange
o Before exchanging into a fund, you should obtain and read
its prospectus
Shares of a particular class of the Fund may be exchanged only for
shares of the same class in the other Oppenheimer funds. For example, you can
exchange Class A shares of this Fund only for Class A shares of another fund. 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:
o Written Exchange Requests. Submit an OppenheimerFunds
Exchange Request form, signed by all owners of the account. Send
it to the Transfer Agent at the addresses listed in "How to Sell
Shares."
-47-
<PAGE>
o Telephone Exchange Requests. Telephone exchange requests may be made
either by calling a service representative at 1-800-852- 8457 or by using
PhoneLink for automated exchanges by calling 1- 800-533-3310. Telephone
exchanges may be made only between accounts that are registered with the same
name(s) and address. Shares held under certificates may not be exchanged by
telephone.
You can find a list of Oppenheimer funds currently available
for exchanges in the Statement of Additional Information or 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:
o Shares are normally redeemed from one fund and purchased from the
other fund in the exchange transaction on the same regular business day on which
the Transfer Agent receives an exchange request that is in proper form by the
close of The New York Stock Exchange that day, which is normally 4:00 P.M. but
may be earlier on some days. However, either fund may delay the purchase of
shares of the fund you are exchanging into up to 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.
o Because excessive trading can hurt fund performance and harm
shareholders, the Fund reserves the right to refuse any exchange request that
will disadvantage it, or to refuse multiple exchange requests submitted by a
shareholder or dealer.
o The Fund may amend, suspend or terminate the exchange privilege at
any time. Although the Fund will attempt to provide you notice whenever it is
reasonably able to do so, it may impose these changes at any time.
o For tax purposes, exchanges of shares involve a redemption of the
shares of the fund you own and a purchase of the shares of the other fund, which
may result in a capital gain or loss. For more information about taxes affecting
exchanges, please refer to "How to Exchange Shares" in the Statement of
Additional Information.
-48-
<PAGE>
o If the Transfer Agent cannot exchange all the shares you request
because of a restriction cited above, only the shares eligible for exchange will
be exchanged.
Shareholder Account Rules and Policies
o Net Asset Value Per Share is determined for each class of shares as
of the close of The New York Stock Exchange which is normally 4:00 p.m., but may
be earlier on some days, on each day the Exchange is open by dividing the value
of the Fund's net assets attributable to a class by the number of shares of that
class that are outstanding. The 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.
o The offering of shares may be suspended during any period in which
the determination of net asset value is suspended, and the offering may be
suspended by the Board of Directors at any time the Board believes it is in the
Fund's best interest to do so.
o Telephone Transaction Privileges for purchases, redemptions or
exchanges may be modified, suspended or terminated by the Fund at any time. If
an account has more than one owner, the Fund and the Transfer Agent may rely on
the instructions of any one owner. Telephone privileges apply to each owner of
the account and the dealer representative of record for the account unless and
until the Transfer Agent receives cancellation instructions from an owner of the
account.
o The Transfer Agent will record any telephone calls to verify data
concerning transactions and has adopted other procedures to confirm that
telephone instructions are genuine, by requiring callers to provide tax
identification numbers and other account data or by using PINs, and by
confirming such transactions in writing. If the Transfer Agent does not use
reasonable procedures it may be liable for losses due to unauthorized
transactions, but otherwise neither the Transfer Agent nor the Fund will be
liable for losses or expenses arising out of telephone instructions
-49-
<PAGE>
reasonably believed to be genuine. If you are unable to reach the Transfer Agent
during periods of unusual market activity, you may not be able to complete a
telephone transaction and should consider placing your order by mail.
o Redemption or transfer requests will not be honored until the
Transfer Agent receives all required documents in proper form. From time to
time, the Transfer Agent in its discretion may waive certain of the requirements
for redemptions stated in this Prospectus.
o Dealers that can perform account transactions for their clients by
participating in NETWORKING through the National Securities Clearing Corporation
are responsible for obtaining their clients' permission to perform those
transactions and are responsible to their clients who are shareholders of the
Fund if the dealer performs any transaction erroneously or improperly.
o The redemption price for shares will vary from day to day because the
value of the securities in the Fund's portfolio fluctuates, and the redemption
price, which is the net asset value per share, will normally be different for
Class A and Class B shares. Therefore, the redemption value of your shares may
be more or less than their original cost.
o Payment for redeemed shares is made ordinarily in cash and forwarded
by check or through AccountLink (as elected by the shareholder under the
redemption procedures described above) within 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.
o Involuntary redemptions of small accounts may be made by the Fund if
the account value has fallen below $500 for reasons other
-50-
<PAGE>
than the fact that the market value of shares has dropped, and in some cases
involuntary redemptions may be made to repay the Distributor for losses from the
cancellation of share purchase orders.
o Under unusual circumstances, shares of the Fund may be redeemed "in
kind", which means that the redemption proceeds will be paid with securities
from the Fund's portfolio. Please refer to "How to Sell Shares" in the Statement
of Additional Information for more details.
o "Backup Withholding" of Federal income tax may be applied at the rate
of 31% from taxable dividends, distributions and redemption proceeds (including
exchanges) if you fail to furnish the Fund a 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.
o The Fund does not charge a redemption fee, but if your dealer or
broker handles your redemption, they may charge a fee. That fee can be avoided
by redeeming your Fund shares directly through the Transfer Agent. Under the
circumstances described in "How To Buy Shares," you may be subject to a
contingent deferred sales charges when redeeming certain Class A and Class B
shares.
o To avoid sending duplicate copies of materials to households, the
Fund will mail only one copy of each annual and semi-annual report to
shareholders having the same last name and address on the Fund's records.
However, each shareholder may call the Transfer Agent at 1-800-525-7048 to ask
that copies of those materials be sent personally to that shareholder.
Dividends, Capital Gains and Taxes
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
-51-
<PAGE>
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 years ended June 30, 1996 and
August 31, 1996, 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. 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 dividends and
distributions. You have four options:
o Reinvest All Distributions in the Fund. You can elect to
reinvest all dividends and long-term capital gains distributions in
additional shares of the Fund.
o Reinvest Long-Term Capital Gains Only. You can elect to
reinvest long-term capital gains in the Fund while receiving
dividends by check or sent to your bank account on AccountLink.
o Receive All Distributions in Cash. You can elect to receive
a check for all dividends and long-term capital gains distributions
or have them sent to your bank on AccountLink.
o Reinvest Your Distributions in Another Oppenheimer Funds
-52-
<PAGE>
Account. You can reinvest all distributions in another Oppenheimer
fund 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 have 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.
o "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.
o 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.
o Returns of Capital: In certain cases, distributions made by the Fund
may be considered a non-taxable return of capital to shareholders. If that
occurs, it will be identified in notices to shareholders.
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.
-53-
<PAGE>
APPENDIX A
Special Sales Charge Arrangements for Shareholders of the Fund
Who Were Shareholders of the Former Quest for Value Funds
The initial and contingent sales charge rates and waivers for Class A
and Class B shares of the Fund described elsewhere in this Prospectus are
modified as described below for those shareholders of (i) Quest for Value Fund,
Inc., Quest for Value Growth and Income Fund, Quest for Value Opportunity Fund,
Quest for Value Small Capitalization Fund and Quest for Value Global Equity
Fund, Inc. on November 24, 1995, when OppenheimerFunds, Inc. became the
investment adviser to those funds, and (ii) Quest for Value U.S. Government
Income Fund, Quest for Value Investment Quality Income Fund, Quest for Value
Global Income Fund, Quest for Value New York Tax-Exempt Fund, Quest for Value
National Tax-Exempt Fund and Quest for Value California Tax-Exempt Fund when
those funds merged into various Oppenheimer funds on November 24, 1995. The
funds listed above are referred to in this Prospectus as the "Former Quest for
Value Funds." The waivers of initial and contingent deferred sales charges
described in this Appendix apply to shares of the Fund (i) acquired by such
shareholder pursuant to an exchange of shares of one of the Oppenheimer funds
that was one of the Former Quest for Value Funds or (ii) received by such
shareholder pursuant to the merger of any of the Former Quest for Value Funds
into an Oppenheimer fund on November 24, 1995.
Class A Sales Charges
o Reduced Class A Initial Shares Charge Rates for Certain Former
Quest Shareholders
o Purchases by Groups and Associations. The following table sets forth the
initial sales charge rates for Class A shares purchased by members of
"Associations" formed for any purpose other than the purchase of securities if
that Association purchased shares of any of the Former Quest for Value Funds or
received a proposal to purchase such shares from OCC Distributors prior to
November 24, 1995.
-54-
<PAGE>
<TABLE>
<CAPTION>
Front-End Front-End
Sales Sales Commission
Charge Charge as
as a as a Percentage
Number of Percentage Percentage of
Eligible Employees of Offering of Amount Offering
or Members Price Invested Price
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------
9 or fewer 2.50% 2.56% 2.00%
- ------------------------------------------------------------------------------------
At least 10 but not
more than 49 2.00% 2.04% 1.60%
</TABLE>
For purchases by Associations having 50 or more eligible employees or
members, there is no initial sales charge on purchases of Class A shares, but
those shares are subject to the Class A contingent deferred sales charge
described on pages 29 and 30 of this Prospectus.
Purchases made under this arrangement qualify for the lower of the
sales charge rate in the table based on the number of members of an Association
or the sales charge rate that applies under the Rights of Accumulation described
above in the Prospectus. Individuals who qualify under this arrangement for
reduced sales charge rates as members of Associations also may purchase shares
for their individual or custodial accounts at these reduced sales charge rates,
upon request to the Fund's Distributor.
o Special Class A Contingent Deferred Sales Charge Rates
Class A shares of the Fund purchased by exchange of shares of other Oppenheimer
funds that were acquired as a result of the merger of Former Quest for Value
Funds into those Oppenheimer funds, and which shares were subject to a Class A
contingent deferred sales charge prior to November 24, 1995, will be subject to
a contingent deferred sales charge at the following rates: if they are redeemed
within 18 months of the end of the calendar month in which they were purchased,
at a rate equal to 1.0% if the redemption occurs within 12 months of their
initial purchase and at a rate of 0.50 of 1.0% if the redemption occurs in the
subsequent six months. Class A shares of any of the Former Quest Fund for Value
Funds purchased without an initial sales charge on or before November 22, 1995
will continue to be subject to the applicable contingent deferred sales
-55-
<PAGE>
charge in effect as of that date as set forth in the then-current
prospectus for such fund.
o Waiver of Class A Sales Charges for Certain Shareholders
Class A shares of the Fund purchased by the following investors are not subject
to any Class A initial or contingent deferred sales charges:
o Shareholders of the Fund who were shareholders of the AMA Family of
Funds on February 28, 1991 and who acquired shares of any of the Former Quest
for Value Funds by merger of a portfolio of the AMA Family of Funds.
o Shareholders of the Fund who acquired shares of any Former Quest for
Value Fund by merger of any of the portfolios of the Unified Funds.
o Waiver of Class A Contingent Deferred Sales Charge in Certain
Transactions
The Class A contingent deferred sales charge will not apply to redemptions of
Class A shares of the Fund purchased by the following investors who were
shareholders of any Former Quest for Value Fund:
o Investors who purchased Class A shares from a dealer that is or was
not permitted to receive a sales load or redemption fee imposed on a shareholder
with whom that dealer has a fiduciary relationship under the Employee Retirement
Income Security Act of 1974 and regulations adopted under the law.
Class A and Class B Contingent Deferred Sales Charge Waivers
o Waivers for Redemptions of Shares Purchased Prior to March 6,
1995
In the following cases, the contingent deferred sales charge will be waived for
redemptions of Class A or B shares of the Fund acquired by merger of a Former
Quest for Value Fund into the Fund or by exchange from an Oppenheimer fund that
was a Former Quest for Value Fund or into which such fund merged, if those
shares were purchased prior to March 6, 1995: in connection with (i)
-56-
<PAGE>
withdrawals under an automatic withdrawal plan holding only Class B shares if
the annual withdrawal does not exceed 10% of the initial value of the account,
and (ii) liquidation of a shareholder's account if the aggregate net asset value
of shares held in the account is less than the required minimum value of such
accounts.
o Waivers for Redemptions of Shares Purchased on or After March 6, 1995 but
Prior to November 24, 1995.
In the following case, the contingent deferred sales charge will be waived for
redemptions of Class A or B shares of the Fund acquired by merger of a Former
Quest for Value Fund into the Fund or by exchange from an Oppenheimer fund that
was a Former Quest For Value Fund or into which such fund merged, if those
shares were purchased on or after March 6, 1995, but prior to November 24, 1995:
(1) redemptions following the death or disability of the shareholder(s) (as
evidenced by a determination of total disability by the U.S. Social Security
Administration); (2) withdrawals under an automatic withdrawal plan (but only
for Class B shares) where the annual withdrawals do not exceed 10% of the
initial value of the account; and (3) liquidation of a shareholder's account if
the aggregate net asset value of shares held in the account is less than the
required minimum account value. A shareholder's account will be credited with
the amount of any contingent deferred sales charge paid on the redemption of any
Class A or B shares of the Fund described in this section if within 90 days
after that redemption, the proceeds are invested in the same Class of shares in
this Fund or another Oppenheimer fund.
-57-
<PAGE>
APPENDIX TO PROSPECTUS OF
Oppenheimer Main Street California Municipal Fund
Graphic material included in Prospectus of Oppenheimer Main
Street California Municipal Fund: "Comparison of Total Return of
Oppenheimer Main Street California Municipal 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 Municipal 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 (May 18, 1990) through June 30,
1996 and August 31, 1996 and in the case of Class B shares the graph will cover
the period from the inception of the class (October 29, 1993) through June 30,
1996 and August 31, 1996. The graphs 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 "Performance of the Fund - Comparing the Fund's Performance to
the Market."
<TABLE>
<CAPTION>
Fiscal Year Oppenheimer Main Street Lehman Brothers
(Period) Ended California Municipal 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 $13,062 $13,761
6/30/94 $12,976 $13,785
6/30/95 $14,130 $15,002
6/30/96 $15,135 $15,997
8/31/96 $15,304 $16,139
</TABLE>
-58-
<PAGE>
<TABLE>
<CAPTION>
Fiscal Oppenheimer Main Street Lehman Brothers
Period Ended California Municipal Fund B Municipal Bond Index
- ------------ --------------------------- --------------------
<S> <C> <C>
10/29/93 $10,000 $10,000
06/30/94 $ 9,432 $ 9,671
06/30/95 $ 10,174 $10,525
06/30/96 $10,753 $11,224
08/31/96 $10,592 $11,323
</TABLE>
-59-
<PAGE>
Oppenheimer Main Street California Municipal Fund
3410 South Galena Street
Denver, Colorado 80231
1-800-525-7048
Investment Adviser
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048
Distributor
OppenheimerFunds Distributor, Inc.
Two World Trade Center
New York, New York 10048
Transfer and Shareholder Servicing Agent
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian of Portfolio Securities
The Bank of New York
One Wall Street
New York, New York 10015
Independent Auditors
Deloitte & Touche LLP
555 Seventeenth Street, Suite 3600
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, OppenheimerFunds, Inc., OppenheimerFunds
Distributor, Inc., or any affiliate thereof. This Prospectus does not constitute
an offer to sell or a solicitation of an offer to buy any of the securities
offered hereby in any state to any person to whom it is unlawful to make such
an offer in such state.
<PAGE>
Oppenheimer Main Street California Municipal Fund
3410 South Galena Street, Denver, Colorado 80231
1-800-525-7048
Statement of Additional Information dated November 1, 1996
This Statement of Additional Information of Oppenheimer Main Street
California Municipal Fund is not a Prospectus. This document contains additional
information about the Fund and supplements information in the Prospectus dated
November 1, 1996. It should be read together with the Prospectus which may be
obtained by writing to the Fund's Transfer Agent, OppenheimerFunds Services, at
P.O. Box 5270, Denver, Colorado 80217 or by calling the Transfer Agent at the
toll-free number shown above.
<TABLE>
<CAPTION>
Contents Page
<S> <C>
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
</TABLE>
-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.
o 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.
o 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.
o 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.
-2-
<PAGE>
o 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.
o 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.
o 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.
o 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:
o 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.
o 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.
o Bond Anticipation Notes. Bond anticipation notes are issued to
provide interim financin until long-term financing can be arranged. In most
cases, the long-term bonds then provide the money for the repayment of the
notes.
o Construction Loan Notes. Construction loan notes are sold to
provide construction
-3-
<PAGE>
financing. After successful completion and acceptance, many projects receive
permanent financing through the Federal Housing Administration.
o 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.
o 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.
|X| 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
-4-
<PAGE>
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.
|X| 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.
o 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
-5-
<PAGE>
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
-6-
<PAGE>
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.
o Ratings of Municipal Securities. Ratings by Moody's, S&P, Duff &
Phelps and Fitch (see Appendix A) represent their respective opinions of the
quality of the Municipal Securities they undertake to rate. However, such
ratings are general and are not absolute standards of quality. Consequently,
Municipal Securities with the same maturity, coupon and rating may have
different yields, while Municipal Securities of the same maturity and coupon
with different ratings may have the same yield. Investment in lower quality
securities may produce a higher yield than securities rated in the higher rating
categories described in the Prospectus (or judged by the Manager to be of
comparable quality). However, the added risk of lower quality securities might
not be consistent with a policy of preservation of capital.
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, S&P,
Duff & Phelps 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.
-7-
<PAGE>
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.
In 1986, California voters approved an initiative known as Proposition
62, which, among other things, requires that any tax for general governmental
purposes imposed by a local government be approved by a two-thirds vote of the
governmental entity's legislative body and by a majority of its electorate and
that any special tax imposed by a local government be approved by a two-thirds
vote of the electorate. In September 1995 the California Supreme Court upheld
the constitutionality of Proposition 62, creating uncertainty as to the legality
of certain local taxes enacted by non-charter cities in California without voter
approval. It is not possible to predict the impact of the decision.
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.
California's economic recovery from the recent recession is continuing
at a strong pace, and recent economic reports indicate that California is on a
stronger economic upturn than the rest of the country. However, some sectors
continue to feel the effects of the recession. Unemployment, particularly in
Southern California, has remained above the national average since 1990,
although the state experienced strong job growth in 1995 and through second
quarter of 1996, In addition, 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
-8-
<PAGE>
slower overall growth in 1996.
On July 15, 1996, the Governor singed into law a new $63 billion budget
which, among other things, significantly increases education spending from the
previous fiscal year and reduces taxes for corporations and banks. Although the
state's budget projects an operating surplus, it continues to rely on federal
actions which are not certain of occurring. Accordingly, the surplus may not be
realized unless the economy outperforms expectations or spending falls below
planned levels.
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 S&P and from AA to A by Fitch. All three rating
agencies expressed uncertainty in the state's ability to balance its budget by
1996. However, in 1996, citing California's improving economy and budget
situation, both Fitch and Standard and Poor's raised their ratings from A to A+.
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. In June 1996, the County completed an $880 million bond offering
secured by real property owned by the County. On June 12, 1996, the County
emerged from bankruptcy.
Los Angeles County, the nation's largest county, is also experiencing
financial difficulty. In August 1995 the credit rating of the country'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 totaling
$514 million was pledged, providing a short-term solution to the country's
budget problems. Despite such efforts, the County is facing a potential budget
gap of $1.0 billion in the 1996-1997 fiscal year.
Other Investment Techniques and Strategies
o 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 shall not
exceed 120 days from 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
-9-
<PAGE>
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.
o 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.
o 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 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.
|X| 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
-10-
<PAGE>
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.
o 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.
o 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
-11-
<PAGE>
Prospectus).
|X| 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.
o 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
-12-
<PAGE>
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.
o 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.
o 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.
-13-
<PAGE>
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).
o 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.
o 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.
o 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
-14-
<PAGE>
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.
o 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
-15-
<PAGE>
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.
o 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.
o 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
-16-
<PAGE>
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.
o 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
-17-
<PAGE>
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 are 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:
o 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;
o The Fund cannot 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);
o The Fund cannot 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;
o The Fund cannot invest in companies for the purpose of acquiring
control or management thereof;
o The Fund cannot 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;
o The Fund cannot 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 of such issuer;
o The Fund cannot 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
-18-
<PAGE>
business investment companies, nor make any such investments at commission
rates in excess of normal brokerage commissions; or
o The Fund cannot 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 partnerships.
o 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 Municipal 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.
-19-
<PAGE>
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 the
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 applicants' communication to all other shareholders
at the applicants' expense.
Directors and Officers of the Fund. The Fund's Directors and officers and their
principal occupations and business affiliations and occupations during the past
five years are listed below. All of the Directors are also trustees, directors
or managing general partners of Oppenheimer Total Return Fund, Inc.,
Oppenheimer Equity Income Fund, Oppenheimer Cash Reserves, Oppenheimer
Strategic Income Fund, Centennial America Fund, L.P., The New York Tax-Exempt
Income Fund, Inc., Oppenheimer Variable Account Funds, Oppenheimer Champion
Income Fund, Oppenheimer International Bond Fund, Oppenheimer Main Street
Funds, Inc., Oppenheimer Strategic Income & Growth Fund, Oppenheimer Integrity
Funds, Oppenheimer Limited-Term Government Fund, Oppenheimer Municipal Fund,
Panorama Series Fund, Inc., Centennial Money Market Trust, Centennial
Government Trust, Centennial New York Tax Exempt Trust, Centennial California
Tax Exempt Trust, Daily Cash Accumulation Fund, Inc. and Centennial Tax Exempt
Trust (all of the foregoing funds are collectively referred to as the "Denver-
based Oppenheimer funds") except for Mr. Fossel and Ms. Macaskill, who are
Trustees, Directors or Managing General Partners of all the Denver-based
Oppenheimer funds except Oppenheimer Integrity Funds, Panorama Series Fund,
Inc., Oppenheimer Strategic Income Fund and Oppenheimer Variable Account Funds.
In addition Mr. Fossel is not a Trustee of Centennial New York Tax Exempt Trust
or a Managing General Partner of Centennial America Fudn, L.P. Messrs. Bishop,
Bowen, Donohue, Farrar and Zack hold similar positions as officers of all such
funds. Ms. Macaskill is President and Mr. Swain is Chairman of the Denver-
based Oppenheimer funds. As of October 6, 1996, the Directors and
-20-
<PAGE>
officers of the Fund as a group owned less than 1% of its outstanding shares,
not including shares held of record by an employee benefit plan of the Manager
(for which two of the officers listed below, Ms. Macaskill and Mr. Donohue, are
trustees) other than shares beneficially owned under that plan by the officers
of the Fund listed above.
Robert G. Avis, Director*; Age 65
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 81
197 Desert Lakes Drive, Palm Springs, California 92264
Management Consultant.
Charles Conrad, Jr., Director; Age 66
19411 Merion Circle, Huntington Beach, California 92648
Chairman and Chief Executive Officer of Universal Space Lines, Inc. (a
space services management company); formerly Vice President of
McDonnell Douglas Space Systems Co. and associated with the National
Aeronautics and Space Administration.
Jon S. Fossel, Director*; Age 54
Box 44 Mead Street, Waccabuc, New York 10597
Member of the Board of Governors for the Investment Company Institute
(a national association of Investment Companies), Chairman of the
Investment Company Education Foundation, formerly Chairman and
President of the Manager of OppenheimerFunds, Inc. (the "Manager"),
President and a Director of Oppenheimer Acquisition Corp. ("OAC"), the
Manager's parent holding company and Shareholder Services, Inc.
("SSI"), transfer agent subsidiary of the Manager.
Sam Freedman, Director; Age: 56
4975 Lakeshore Drive, Littleton, Colorado 80123
Formerly Chairman and Chief Executive Officer of OppenheimerFunds
Services, Chairman, Chief Executive Officer and a director of
Shareholder Services, Inc., Chairman, Chief Executive and Officer and
director of Shareholder Financial Services, Inc., Vice President and
director of Oppenheimer Acquisition Corporation and a director of
OppenheimerFunds, Inc.
Raymond J. Kalinowski, Director; Age 67
44 Portland Drive, St. Louis, Missouri 63131
Director of Wave Technologies International Inc. (a computer products
training company); 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 74
-21-
<PAGE>
2552 East Alameda, Denver, Colorado 80209
Formerly Managing Partner of Deloitte, Haskins & Sells (an accounting
firm).
Robert M. Kirchner, Director; Age 75
7500 E. Arapahoe Road, Englewood, Colorado 80112
President of The Kirchner Company (management consultants).
Bridget A. Macaskill, President and Director*; Age: 48
President, Chief Executive Officer and a Director of the Manager and
HarbourView Asset Management Corporation ("HarbourView"), a subsidiary
of the Manager; Chairman and a director of SSI and Shareholder
Financial Services, Inc.; President and a director of OAC and
Oppenheimer Partnership Holdings, Inc., a holding company subsidiary of
the Manager; a director of Oppenheimer Real Asset Management, Inc.;
formerly an Executive Vice President of the Manager.
Ned M. Steel, Director; Age 81
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 Van Gilder Insurance Corp.
(insurance brokers).
James C. Swain, Chairman, Chief Executive Officer and Director*; Age 62
3410 South Galena Street, Denver, Colorado 80231 Vice Chairman and a
Director of the Manager; President and Director of Centennial Asset
Management Corporation, an investment adviser subsidiary of the Manager
("Centennial"); formerly Chairman of the Board of SSI.
Jerry A. Webman, Vice President and Portfolio Manager; Age: 46
Senior Vice President of the Manager; an officer of other Oppenheimer
funds; previously a Managing Director with Prudential Mutual Funds --
Investment Management, Inc.
Andrew J. Donohue, Vice President and Secretary; Age 46
Two World Trade Center, New York, New York 10048
Executive Vice President and General Counsel of the Manager and
OppenheimerFunds Distributor, Inc. (the "Distributor"); President and a
director of Centennial; Executive Vice President, General Counsel and a
director of HarbourView, SFSI, SSI and Oppenheimer Partnership Holdings
Inc.; President and a director of Oppenheimer Real Asset Management,
Inc.; General Counsel of OAC; Executive Vice President, Chief Legal
Officer and a director of MultiSource Services, Inc. (a broker-dealer);
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); an officer of First
Investors Corporation (a broker-dealer) and First Investors Management
Company, Inc. (broker-dealer and investment adviser); director and an
officer of First Investors
-22-
<PAGE>
Family of Funds and First Investors Life Insurance Company.
George C. Bowen, Vice President, Assistant Secretary and Treasurer; Age
60 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; Treasurer of OAC; Vice
President and Treasurer of Oppenheimer Real Asset Management, Inc.,
Chief Executive Officer, Treasurer and a director of MultiSource
Services, Inc.; an officer of other Oppenheimer funds.
Robert J. Bishop, Assistant Treasurer; Age 37
3410 South Galena Street, Denver, Colorado 80231
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 31
3410 South Galena Street, Denver, Colorado 80231
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, SFSI; an officer of other Oppenheimer
funds.
- ------------------
*A Director who is an "interested person" of the Fund as defined in the
Investment Company Act.
o 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 (Ms. Macaskill and Mr. Swain, who are both officers and Directors
and Mr. Fossel) receive no salary or fee from the Fund. The remaining Directors
of the Fund (excluding Mr. Freedman, who did not become a Director until June
27, 1996) received the compensation shown below from the Fund, during its
fiscal year ended June 30, 1996 and the period from July 1, 1996 to August 31,
1996 and from all of the Denver-based Oppenheimer funds (including the Fund)
for which the served as Trustee, Director or Managing General Partner.
Compensation is paid for services in the positions listed beneath their names:
-23-
<PAGE>
<TABLE>
<CAPTION>
Aggregate Aggregate Total Compensation
Compensation Compensation from all
from the Fund from the Fund Denver-based
Name and Position as of 6-30-96 as of 8-31-96
Oppenheimer Funds1
- ----------------- ------------- ------------- ------------------
<S> <C> <C> <C>
Robert G. Avis $220 $27 $53,000
Director
William A. Baker $300 $38 $73,255
Audit and Review
Committee Chairman
and Director
Charles Conrad, Jr. $270 $33 $64,309
Audit and Review
Raymond J. Kalinowski $273 $33 $65,000
Director
C. Howard Kast $273 $33 $65,000
Director
Robert M. Kirchner $287 $35 $68,292
Audit and Review
Committee Member
and Director
Ned M. Steel $223 $27 $53,000
Director
- ----------------------
<FN>
1For the 1995 calendar year, during which the Denver-based Oppenheimer funds,
listed in the first paragraph of this section, included Oppenheimer Strategic
Investment Grade Bond Fund and Oppenheimer Strategic Short-Term Income Fund
(which ceased operations following the acquisition of their assets by other
Oppenheimer funds). Panorama Series Fund, Inc. became a Denver-based Oppenheimer
fund in June of 1996.
</FN>
</TABLE>
o 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 three of whom (Ms. Macaskill and Messrs. Fossel and Swain) s
erve as directors of the Corporation.
-24-
<PAGE>
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.
o 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 Distributor's 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, 1994, 1995 and 1996 and the fiscal period ended August 31,
1996, the management fees paid by the Corporation on behalf of the Fund to the
Manager were $318,921, $284,916 and $330,555 and 56,478 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 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
-25-
<PAGE>
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 names "Oppenheimer"
and "Main Street" as part of its name and the name of the Fund may be withdrawn.
o 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 are borne by the Distributor. During the Fund's fiscal
years ended June 30, 1994, 1995 and 1996 and the fiscal period ended August 31,
1996, the aggregate amount of sales charges on sales of the Fund's Class A
shares was $663,089, $177,634, $134,177 and $24,568 respectively, of which the
Distributor retained in the aggregate $108,300, $28,801, $28,111 and $4,283 in
those respective years. During the Fund's fiscal year ended June 30, 1996 and
the fiscal period ended August 31, 1996, the Distributor advanced sales charges
to broker-dealers in the amount of $118,388 and $19,208, and received contingent
deferred sales charges of $3,991 and $2,863, respectively, 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.
o The Transfer Agent. OppenheimerFunds Services, the Fund's Transfer
Agent, is responsible for maintaining the Fund's shareholder registry and
shareholder accounting records, and for shareholder servicing and
administrative functions.
Brokerage Policies of the Fund
Brokerage Provisions of the Investment Advisory Agreement. One of the duties of
the Manager under the advisory agreement is to arrange the portfolio
transactions for the Fund. The advisory agreement contains provisions relating
to the employment of broker-dealers ("brokers") to effect the Fund's portfolio
transactions. In doing so, the Manager is authorized by the advisory agreement
to employ broker-dealers, including "affiliated" brokers, as that term is
defined in the Investment Company Act, as may, in its best judgment based on all
relevant factors, implement the policy of the Fund to obtain, at reasonable
expense, the "best execution" (prompt and reliable execution at the most
favorable price obtainable) of such transactions. The Manager need not seek
competitive commission bidding, but is expected to be aware of the current rates
of eligible brokers and to minimize the commissions paid to the extent
consistent with the interests and policies of the Fund as established by its
Board of 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
-26-
<PAGE>
which the Manager or its affiliates have investment discretion. The commissions
paid to such brokers may be higher than another qualified broker would have
charged if a good faith determination is made by the Manager that the commission
is fair and reasonable in relation to the services provided. Subject to the
foregoing considerations, the Manager may also consider sales of shares of the
Fund and other investment companies managed by the Manager or its affiliates as
a factor in the selection of brokers for the Fund's portfolio transactions.
Description of Brokerage Practices Followed by the Manager. Subject to the
provisions of the advisory agreement, and the procedures and rules described
above, allocations of brokerage are generally made by the Manager's portfolio
traders based upon recommendations from the Manager's portfolio managers. In
certain instances, portfolio managers may directly place trades and allocate
brokerage, also subject to the provisions of the advisory agreement and the
procedures and rules described above. 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 transaction in the securities to which
the option relates. When possible, concurrent orders to purchase or sell the
same security by more than one of the accounts managed by the Manager or its
affiliates are combined. The transactions effected pursuant to such combined
orders are averaged as to price and allocated in accordance with the purchase or
sale orders actually placed for each account. Option commissions may be
relatively higher than those which would apply to direct purchases and sales of
portfolio securities.
Most purchases of money market instruments and debt obligations are
principal transactions at net prices. Instead of using a broker for those
transactions, the fund normally deals directly with the selling or purchasing
principal or market maker unless it determines that a better price or execution
can be obtained by using a broker. Purchases of these securities for
underwriters include a commission or concession paid by the issuer to the
underwriter. Purchases from dealers include a spread between the bid and asked
prices. The Fund seeks to obtain prompt execution of these orders at the most
favorable net price.
The 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 analysis 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
-27-
<PAGE>
Manager in a non-research capacity (such as bookkeeping or other administrative
functions), then only the percentage or component that provides assistance to
the Manager in the investment decision-making process may be paid in commission
dollars. The Board of Directors permits 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 permits 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 broadens the scope and
supplement the research activities of the Manager, by making available
additional views for consideration and comparisons, and by enabling the Manager
to obtain market information for the valuation of securities held in the Fund's
portfolio or being considered for purchase. The Manager provides information as
to the commissions paid to brokers furnishing such services, together with the
Manager's representation that the amount of such commissions was reasonably
related to the value or benefit of such services.
Performance of the Fund
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.
Standardized Yields.
o 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.
-28-
<PAGE>
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, 1996, the standardized yields for
the Fund's Class A and Class B shares were 5.10% and 4.26%, respectively. For
the 30-day period ended August 31, 1996 the standardized yields for the Fund's
Class A and Class B shares were 4.99% and 4.20%, respectively.
o 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, 1996 were 9.49% and
7.92%, respectively, for an individual in the California/Federal combined 46.24%
tax bracket. For the 30-day period ended August 31, 1996 the Fund's
tax-equivalent yield for Class A and Class B shares were 9.28% and 7.81%,
respectively, for an individual in the California/Federal combined 46.24% tax
bracket.
o 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
-29-
<PAGE>
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, 1996 were 5.89% and 6.19% when calculated at maximum
offering price and net asset value, respectively. The dividend yields on Class A
shares for the 30-day period ended August 31, 1996 were 5.72% and 6.01% 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, 1996 was
5.03% calculated at net asset value. The dividend yield on Class B shares for
the 30-day period ended August 31, 1996 was 4.99% 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 advertised class of shares of the Fund
for the 1, 5 and 10-year periods (or the life of the class, if less) ending as
of the most recently-ended calendar quarter prior to the publication of the
advertisement. This enables an investor to compare the Fund's performance to the
performance of other funds for the same periods. However, a number of factors
should be considered before using such information as a basis for comparison
with other investments. An investment in the Fund is not insured; its returns
and share prices are not guaranteed and normally will fluctuate on a daily
basis. When redeemed, an investor's shares may be worth more or less than their
original cost. Returns for any given past period are not a prediction or
representation by the Fund of future returns. The returns of 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.
o Average Annual Total Returns. The "average annual total return" of
each class is an average annual compounded rate of return for each year in a
specified number of years. It is the rate of return based on the change in value
of a hypothetical initial investment of $1,000 ("P" in the formula below) held
for a number of years ("n") to achieve an Ending Redeemable Value ("ERV") of
that investment, according to the following formula:
( ERV ) 1/n
(-----) -1 = Average Annual Total Return
( P )
The "average annual total return" 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, 1996 and for the period from May 18, 1990 (commencement of
operations) to June 30, 1996 were 1.66% and 6.58% and 7.01%, respectively. The
"average annual total returns" on an investment in Class A shares of the Fund
for the one and five year periods ended August 31, 1996 and for the period from
May 18, 1990 (commencement of operations) to August 31, 1996 were 1.12%, 6.27%
and 7.00%, respectively.
The "average annual total return" on Class B shares for the one-year
period ended June 30,
-30-
<PAGE>
1996 and for the period October 29, 1993 (commencement of the public offering of
the class) to June 30, 1996 were 0.66% and 1.84%, respectively. The "average
annual total return" on Class B shares for the one-year period ended August 31,
1996 and for the period October 29, 1993 (commencement of the public offering of
the class) to August 31, 1996 were 0% and 2.04%, respectively.
o 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 "cumulative
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, 1996 and August 31, 1996 was 51.35% and 53.04%, respectively.
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, 1996 and
August 31, 1996 was 4.99% and 5.91%, respectively.
o Total Returns at Net Asset Value. From time to time the Fund may also
quote an "average annual total return at net asset value" or a "cumulative total
return at net asset value" for Class A 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, 1996 and for the period May 18,
1990 (commencement of operations) through June 30, 1996 were 6.73%, 7.62%, and
7.86%, respectively. The average annual total returns at net asset value for the
Fund's Class A shares for the one and five year periods ended August 31, 1996
and for the period May 18, 1990 (commencement of operations) through August 31,
1996 were 6.17%, 7.31%, and 7.84%, respectively. The average annual total
returns at net asset value for the Fund's Class B shares for the one year period
ended June 30, 1996 and for the period October 29, 1993 (commencement of
operations) through June 30, 1996 were 5.66% and 2.86%, respectively. The
average annual total returns at net asset value for the Fund's Class B shares
for the one year period ended August 31, 1996
-31-
<PAGE>
and for the period October 29, 1993 (commencement of operations) through August
31, 1996 were 4.99% and 2.99%, respectively. The cumulative total return at net
asset value on the Fund's Class A shares for May 18, 1990 (commencement of
operations) through June 30, 1996 and August 31, 1996 were 58.89% and 60.67%,
respectively. The cumulative total return at net asset value on the Fund's Class
B shares for the period October 29, 1993 (commencement of operations) through
June 30, 1996 and August 31, 1996 were 7.82% and 8.73%, respectively.
Total return information may be useful to investors in reviewing the
performance of the Fund's Class A, and Class B shares. However, when comparing
total return of an investment in shares of the Fund, a number of factors should
be considered before using such information as a basis for comparison with other
investments. No adjustment is made for taxes payable on distributions. An
investment in the Fund's shares is not insured; its total return is not
guaranteed and will fluctuate on a daily basis. Total return for any given past
period is not an indication or representation by the Fund of future rates of
return on its shares. The total return of the Fund's shares is affected by
portfolio quality, portfolio maturity, type of investments held and operating
expenses. When comparing total return of an investment in shares of the fund
with that of other investment instruments, investors should understand that
certain other investment alternatives such as money market instruments,
certificates of deposit, U.S. Government securities or bank accounts provide a
return which remains relatively constant over time and also that bank accounts
may be insured.
o 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
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
California municipal bond funds. The Lipper performance ranking 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 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
-32-
<PAGE>
"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," 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 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
-33-
<PAGE>
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 payments were 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. 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
-34-
<PAGE>
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,
1996, payments under the Class B Plan totaled $38,469, of which the Distributor
retained $33,636 as reimbursement for Class B sales commissions and service fee
advances, as well as financing costs. For the fiscal period ended August 31,
1996, payments under the Class B Plan totaled $9,671, of which the distributor
retained $8,439 as reimbursement for the 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 generally
not accept any order at $500,000 or $1 million 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
-35-
<PAGE>
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 after six years is
subject to the continuing availability of a private letter ruling from the
Internal Revenue Service, or an opinion of counsel or tax adviser, to the effect
that the conversion of Class B shares does not constitute a taxable event for
the holder under Federal income tax law. If such a revenue ruling or opinion is
no longer available, the automatic conversion feature may be suspended, in which
event no further conversions of Class B shares would occur while such suspension
remained in effect. Although Class B shares could then be exchanged for Class A
shares on the basis of relative net asset value of the two classes, without the
imposition of a sales charge or fee, such exchange could constitute a taxable
event for the holder, and absent such exchange, Class B shares might continue to
be subject to the asset-based sales charge for longer than six years.
The methodology for calculating the net asset value, dividends and
distributions of the Fund's Class A 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 value of the Fund's net assets
attributable to a class by the number of shares of that class that are
outstanding. The Exchange normally closes at 4:00 P.M. New York time, but
may close earlier on some 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 including weekends and holidays. Because
the Fund's net asset value will not be calculated at those times, if
securities held in the Fund's portfolio are traded at such time, the net
asset values per share of Class A and Class B shares may be significantly
affected on such days when shareholders may not purchase or redeem
shares.
-36-
<PAGE>
The Corporation's Board of Directors has established procedures for the
valuation of the Fund's securities, generally as follows: (i) long-term debt
securities having a remaining maturity in excess of 60 days are valued based on
the mean between the "bid" and "asked" prices determined by a portfolio pricing
service approved by the Corporations Board of Directors or obtained by the
Manager from two active market makers in the security on the basis of reasonable
inquiry; (ii) debt instruments having a maturity of more than 397 days when
issued, and non-money market type instruments having a maturity of 397 days 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 Corporations Board of Directors or obtained by the Manager from
two active market makers in the security on the basis of reasonable inquiry;
(iii) money market debt securities that had a maturity of less than 397 days
when issued that have a remaining maturity of 60 days or less are valued at
cost, adjusted for amortization of premiums and accretion of discounts; and (iv)
securities (including restricted securities) not having readily-available market
quotations are valued at fair value determined under the Board's procedures. If
the Manager is unable to locate two market makers willing to give quotes (see
(i) and (ii) above), the security may be priced at the mean between the "bid"
and "asked" prices provided by a single active market maker (which in certain
cases may be the "bid" price if no "ask" price is available.
In the case of Municipal Securities, when 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). The Manager may use pricing services
approved by the Board of Directors to price any of the types of securities
described above. The Manager will monitor the accuracy of such pricing services,
which may include comparing prices used for portfolio evaluation to actual sales
prices of selected securities.
Puts, calls and Futures are valued at the last sales price on the
principal exchange on which they are traded, or on NASDAQ, as applicable, as
determined by a pricing service approved by the Board of Directors or by the
Manager. If there were no sales that day, value shall be the last sale price on
the preceding trading day if it is within the spread of the closing bid and
asked prices on the principal exchange or on NASDAQ on the valuation date, or,
if not, value shall be the closing bid price on the principal exchange or on
NASDAQ on the valuation date. If the put, call or future is not traded on an
exchange or on NASDAQ, it shall be valued at the mean between bid and asked
prices obtained by the Manager from two active market makers (which in certain
cases may be the bid price if no asked price is available).
When the Fund writes an option, an amount equal to the premium received
is included in the Fund's Statement of Assets and Liabilities as an asset, and
an equivalent credit is included in the liability section. The credit is
adjusted ("marked-to-market") to reflect the current market value of the option.
In determining the Fund's gain on investments, if a call or put written by the
Fund is exercised, the proceeds are increased by the premium received. If a call
or put written by the Fund expires, the Fund has a gain in the amount of the
premium; if the Fund enters into a closing purchase transaction, it will have a
gain or loss depending on whether the premium
-37-
<PAGE>
received was more or less than the cost of the closing transaction. If the
Fund exercises a put it holds, the amount the Fund receives on its sale of the
underlying investment is reduced by the amount of premium paid by the Fund.
AccountLink. When shares are purchased through AccountLink, each purchase must
be at least $25. Shares will be purchased on the regular business day the
Distributor is instructed to initiate the Automated Clearing House ("ACH")
transfer to buy 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 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 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 in expenses realized by
the Distributor, dealers and brokers making such sales. No sales charge is
imposed in certain circumstances described in the Prospectus because the
Distributor, dealer or broker incurs little or no selling expenses. The term
"immediate family" refers to one's spouse, children, grandchildren, parents,
grandparents, aunts, uncles, nieces, nephews, parents-in-law, sons- and
daughters-in law, siblings a sibling's spouse and a spouse's siblings.
o The Oppenheimer Funds. The Oppenheimer funds are those mutual funds
for which the Distributor acts as the distributor or the sub-distributor and
include the following:
Oppenheimer Municipal Bond Fund
Oppenheimer New York Municipal Fund
Oppenheimer California Municipal Fund
Oppenheimer Intermediate Municipal Fund
Oppenheimer Insured Municipal Fund
Oppenheimer Main Street California Municipal Fund
Oppenheimer Florida Municipal Fund
Oppenheimer Pennsylvania Municipal Fund
Oppenheimer New Jersey Municipal Fund
Oppenheimer 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 International Growth Fund
Oppenheimer Enterprise Fund
Oppenheimer Bond Fund for Growth
Oppenheimer Life Span Balanced Fund
Oppenheimer Life Span Growth Fund
Oppenheimer Life Span Income 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
-38-
<PAGE>
Oppenheimer Global Growth & Income Fund
Oppenheimer Gold & Special Minerals Fund
Oppenheimer Strategic Income Fund
Oppenheimer Strategic Income & Growth Fund
Oppenheimer International Bond Fund
Oppenheimer Quest Global Value Fund, Inc.
Oppenheimer Quest Value Fund, Inc.
Oppenheimer Quest Small Cap Value Fund
Oppenheimer Quest Opportunity Value Fund
Oppenheimer Quest Officers Value Fund
Oppenheimer Quest Growth & Income Value Fund
Rochester Fund Municipals*
Rochester Portfolio Series-Limited Term New York Municipal Fund*
Oppenheimer Disciplined Value Fund
Oppenheimer Disciplined Allocation 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.
*Shares of the Fund are not presently exchangeable for shares of these
funds
There is an initial sales charge on the purchase of Class A shares of
each of the Oppenheimer funds except Money Market Funds (under certain
circumstances described herein, redemption proceeds of Money Market Fund shares
may be subject to a contingent deferred sales charge).
o Letters of Intent. A Letter of Intent (referred to as a"Letter") is
an investor's statement in writing to the Distributor of the intention to
purchase Class A and Class B shares (or shares of either class) of the Fund (and
other Oppenheimer funds) during a 13-month period (the "Letter of Intend
period"), which may, at the investor's request, include purchases made up to 90
days prior to the date of the Letter. The Letter states the investor's intention
to make the aggregate amount of purchases of shares which, when added to the
investor's holdings of shares of those funds, will equal or exceed the amount
specified in the Letter. Purchases made by reinvestment of dividends or
distributions of capital gains and purchases made at net asset value without
sales charge do not count toward satisfying the amount of the Letter. A Letter
enables an investor to count the Class A and Class B shares purchased under the
Letter to obtain the reduced sales charge rate on purchases of Class A shares of
the Fund (and other Oppenheimer funds) that applies under the Right of
Accumulation to current purchases of Class A shares. Each purchase of Class A
shares under the
-39-
<PAGE>
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.
o Terms of Escrow That Apply to Letters of Intent.
1. Out of the initial purchase (or subsequent purchases if necessary)
made pursuant to a Letter, shares of the Fund equal in value up to 5% of the
intended purchase amount specified in the Letter shall be held in escrow by the
Transfer Agent. For example, if the intended purchase amount is $50,000, the
escrow shall be shares valued in the amount of $2,500 (computed at the public
offering price adjusted for a $50,000 purchase). Any dividends and capital gains
distributions on the escrowed shares will be credited to the investor's account.
-40-
<PAGE>
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 "How to Exchange Shares," and the escrow will
be transferred to that other fund.
Asset Builder Plans. To establish an Asset Builder Plan from a bank account, a
check (minimum $25) for the initial purchase must accompany the application.
Shares purchased by Asset Builder Plan payments from bank accounts are subject
to the redemption restrictions for recent purchases described in "Shareholder
Account Rules and Policies," 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
-41-
<PAGE>
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.
o Payments "In Kind". The Prospectus states that payment for shares
tendered for redemption is ordinarily made in cash. However, the Board of
Directors of the 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.
o 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, and the provisions of Maryland law,
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 the Shareholder to
increase the investment, and set other terms and conditions so that the shares
would not be involuntarily
-42-
<PAGE>
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 that you
purchased subject to an initial or contingent deferred sales charge, or (ii)
Class B shares on which you paid a contingent deferred sales charge when you
redeemed them. 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 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 on behalf of their customers. The shareholder should contact the
broker or dealer to arrange this type of redemption.
-43-
<PAGE>
The repurchase price per share will be the net asset value next computed after
the Distributor receives the order placed by the dealer or broker, except that
if the Distributor receives a repurchase order from a dealer or broker after the
close of The New York Stock Exchange on a regular business day, it will be
processed at that day's net asset value if the order was received by the dealer
or broker from its customers prior to the time the Exchange closes (normally,
that is 4:00 P.M. but may be earlier on some days) and the order was transmitted
to and received by the Distributor prior to its close of business that day
(normally 5:00 P.M.). Ordinarily, for accounts redeemed by a broker-dealer under
this procedure, payment will be made within three business days after the shares
have been redeemed upon the Distributor's receipt 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.
o Automatic Exchange Plans. Shareholders can authorize the Transfer Agent
(on the OppenheimerFunds Application or signature-guaranteed instructions)
to exchange a pre-determined amount of shares of the Fund for shares (of the
same class) of other Oppenheimer funds automatically on a monthly, quarterly,
semi-annual or annual basis under an Automatic Exchange Plan. The minimum
amount that may be exchanged to each other fund account is $25. Exchanges
-44-
<PAGE>
made under these plans are subject to the restrictions that apply to exchanges
as set forth in "How to Exchange Shares" in the Prospectus and below in this
Statement of Additional Information.
o Automatic Withdrawal Plans. Fund shares will be redeemed as necessary
to meet withdrawal payments. Shares acquired without a sales charge will be
redeemed first and shares acquired with reinvested dividends and capital gains
distributions will be redeemed next, followed by shares acquired with a sales
charge, to the extent necessary to make withdrawal payments. Depending upon the
amount withdrawn, the investor's principal may be depleted. Payments made under
withdrawal plans should not be considered as a yield or income on your
investment. 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.
-45-
<PAGE>
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 Class A shares held under the Plan as collateral for a debt, the
Planholder may request issuance of a portion of the Class A shares in
certificated form. Share certificates are not issued for Class B shares. Upon
written request from the Planholder, the Transfer Agent will determine the
number of Class A 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 Municipal Fund which only
offers Class A and Class B shares, (Class B and Class C shares of Oppenheimer
Cash Reserves are generally available only by exchange from the same class of
shares of other Oppenheimer funds or through OppenheimerFunds sponsored 401(k)
plans). A current list showing which funds offer which class can be obtained by
calling the distributor at 1-800-525-7048.
For accounts established on or before March 8, 1996 holding Class M
shares of Oppenheimer Bond Fund for Growth, Class M shares can be exchanged only
for Class A shares of other Oppenheimer funds, including Rochester Fund
Municipals and Limited Term New York Municipal Fund. Class A shares of Rochester
Fund Municipals or Limited Term New York Municipal Fund acquired on the exchange
of Class M shares of Oppenheimer Bond Fund for Growth may be exchanged for Class
M shares of that fund. For accounts of Oppenheimer Bond Fund for Growth
established after March 8, 1996, Class M shares may be exchanged for Class A
shares of other Oppenheimer funds except Rochester Fund Municipals and
Limited-Term New York Municipals. Exchanges to Class M shares of Oppenheimer
Bond Fund for Growth are permitted from Class A
-46-
<PAGE>
shares of Oppenheimer Money Market Fund, Inc. or Oppenheimer Cash Reserves that
were acquired by exchange from Class M shares. Otherwise no exchanges of any
class of any Oppenheimer fund into Class M shares are permitted.
Class A shares of Oppenheimer funds may be exchanged at net asset value
for shares of any Money Market Fund. Shares of any Money Market Fund purchased
without a sales charge may be exchanged for shares of Oppenheimer funds offered
with a sales charge upon payment of the sales charge (or, if applicable, may be
used to purchase shares of Oppenheimer funds subject to a contingent deferred
sales charge). However, shares of Oppenheimer Money Market Fund, Inc. purchased
with the redemption proceeds of shares of other mutual funds (other than funds
managed by the Manager or its subsidiaries) redeemed within the 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 distribution from any other
of the Oppenheimer funds (except Oppenheimer Cash Reserves) or from any unit
investment trust for which reinvestment arrangements have been made with the
Distributor may be exchanged at net asset value for shares of any of the
Oppenheimer funds. No contingent deferred sales charge is imposed on exchanges
of shares of 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.
The Fund reserves the right to reject telephone or written exchange
requests submitted in bulk by anyone on behalf of more than one account. The
Fund may accept requests for exchanges of up to 50 accounts per day from
representatives of authorized dealers that qualify for this privilege. 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.
-47-
<PAGE>
When exchanging shares by telephone, a shareholder must either have an
existing account in, or obtain and acknowledge receipt of a prospectus of, the
fund to which the exchange is to be made. For full or partial exchanges of an
account made by telephone, any special account features such as Asset Builder
Plans, Automatic Withdrawal Plans Checkwriting, if available and retirement plan
contributions will be switched to the new account unless the Transfer Agent is
instructed otherwise. If all telephone lines are busy (which might occur, for
example, during periods of substantial market fluctuations), shareholders might
not be able to request exchanges by telephone and would have to submit written
exchange requests.
Shares to be exchanged are redeemed on the regular business day the
Transfer Agent receives an exchange request in proper form (the "Redemption
Date"). Normally, shares of the fund to be acquired are purchased on the
Redemption Date, but such purchases may be delayed by either fund up to five
business days if it determines that it would be disadvantaged by an immediate
transfer of the redemption proceeds. The Fund reserves the right, in its
discretion, to refuse any exchange request that may disadvantage it (for
example, if the receipt of multiple exchange requests from a dealer might
require the disposition of portfolio securities at a time or at a price that
might be disadvantageous to the Fund).
The different Oppenheimer funds available for exchange have different
investment objectives, policies and risks, and a shareholder should assure that
the Fund selected is appropriate for his or her investment and should be aware
of the tax consequences of an exchange. For federal income tax purposes, an
exchange transaction is treated as a redemption of shares of one fund and a
purchase of shares of another. "Reinvestment Privilege," above, discusses some
of the tax consequences of reinvestment of redemption proceeds in such cases.
The Fund, the Distributor, and the Transfer Agent are unable to provide
investment, tax or legal advice to a shareholder in connection with an exchange
request or any other investment transaction.
Dividends, Capital Gains and Taxes
Dividends and Distributions. During the Fund's fiscal years ended June 30, 1996
and August 31, 1996, 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.
-48-
<PAGE>
Dividends, distributions and proceeds of the redemption of Fund shares
represented by checks returned to the Transfer Agent by the Postal Service as
undeliverable will be invested in shares of Oppenheimer Money Market Fund, Inc.,
as promptly as possible after the return of such checks to the Transfer Agent,
in order to enable the investor to earn a return on otherwise idle funds.
Tax Status of the Fund's Dividends and Distributions. The 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.
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.
-49-
<PAGE>
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 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.
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 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
-50-
<PAGE>
charge. 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
reinvestment or must obtain a prospectus for that fund and an application from
the Distributor to establish an account. The investment will be made at the net
asset value per share in effect at the close of business on the payable date of
the dividend or distribution. Dividends and/or distributions from shares of
other Oppenheimer funds may be invested in shares of this Fund on the same
basis.
Additional Information About the Fund
The Custodian. The Bank of New York is the Custodian of the Fund's assets. The
Custodian's responsibilities include safeguarding and controlling the Fund's
portfolio securities collecting income of the portfolio securities and handling
the delivery of securities to and from the Fund. The Manager has represented to
the Fund that the 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 within the
custodian in excess of $100,000 are not protected by Federal deposit insurance.
Those uninsured balances at times may be substantial.
Independent Auditors. The independent auditors of the Fund audit the Fund's
financial statements and perform other related audit services. They also act as
auditors for the Manager and certain other funds advised by the Manager and its
affiliates.
-51-
<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, 1996, the related statement of operations for the year then
ended, the statements of changes in net assets for the years ended June 30, 1996
and 1995, and the financial highlights for the period July 1, 1991 to June 30,
1996. 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,
1996 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, 1996, 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.
/s/ Deloitte & Touche LLP
- -------------------------
DELOITTE & TOUCHE LLP
Denver, Colorado
July 22, 1996
<PAGE>
Statement of Investments June 30, 1996
<TABLE>
<CAPTION>
Ratings: Moody's/
S&P's/Fitch's Face Market
Value
(Unaudited) Amount See Note
1
===================================================================================================================================
Municipal Bonds and Notes--98.2%
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
California--89.3%
Alameda County, California Certificates of Participation,
Prerefunded, BIG Insured, 7.25%, 6/1/09 Aaa/AAA $1,635,000 $ 1,841,067
---------------------------------------------------------------------------------------------------------------
Anaheim, California Public Financing
Authority Tax Allocation Revenue Bonds,
MBIA Insured, 6.45%, 12/28/18 Aaa/AAA 2,000,000 2,093,726
---------------------------------------------------------------------------------------------------------------
Berkeley, California Health Facility Revenue Bonds,
Alta Bates Medical Center, Series A, 6.50%, 12/1/11 Baa/BBB+ 1,500,000 1,513,438
---------------------------------------------------------------------------------------------------------------
California Health Facilities Financing Authority
Revenue Bonds, Episcopal Homes Project,
Series A, 7.80%, 7/1/15 NR/A 1,000,000 1,067,014
---------------------------------------------------------------------------------------------------------------
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 2,322,662
---------------------------------------------------------------------------------------------------------------
California Housing Finance Agency Home Mtg.
Revenue Bonds, Series C, 6.75%, 2/1/25 Aa/AA- 4,990,000 5,212,264
---------------------------------------------------------------------------------------------------------------
California Housing Finance Agency Single Family Mtg.
Purchase Revenue Bonds, Series A-2, 6.45%, 8/1/25 Aaa/AAA 2,500,000 2,560,437
---------------------------------------------------------------------------------------------------------------
California Pollution Control Financing Authority
Revenue Bonds, Pacific Gas & Electric Co. Project,
Series B, 6.35%, 6/1/09 A1/A 2,000,000 2,099,548
---------------------------------------------------------------------------------------------------------------
California State Department of Water Resources
Revenue Bonds, Central Valley Project, Prerefunded,
Series H, 6.90%, 12/1/25 Aaa/AA 1,000,000 1,098,780
---------------------------------------------------------------------------------------------------------------
California State Public Works Board Lease
Revenue Bonds, Department of Corrections,
Series A, AMBAC Insured, 5.25%, 1/1/21 Aaa/AAA/AAA 2,250,000 2,061,718
---------------------------------------------------------------------------------------------------------------
California State Public Works Board Lease Revenue
Bonds, Department of Corrections-Madera State Prison,
Series E, 5.50%, 6/1/15 A1/A-/A- 2,000,000 1,866,268
---------------------------------------------------------------------------------------------------------------
Capistrano, California Unified School District
Community Facilities District Special Tax Bonds,
No. 87-1, 7.60%, 9/1/14 NR/NR 1,000,000 1,015,586
---------------------------------------------------------------------------------------------------------------
Corona, California Certificates of Participation,
Prerefunded, Series B, 10%, 11/1/20 Aaa/AAA 3,250,000 4,235,299
---------------------------------------------------------------------------------------------------------------
Foothill/Eastern Transportation Corridor Agency
California Toll Road Revenue Bonds, Sr. Lien,
Series A, 6.50%, 1/1/32 Baa/BBB-/BBB 1,400,000 1,403,860
---------------------------------------------------------------------------------------------------------------
Long Beach, California Harbor Revenue Bonds,
5.125%, 5/15/18 Aa/AA- 2,000,000 1,775,864
---------------------------------------------------------------------------------------------------------------
Los Angeles County, California Certificates of
Participation, Disney Parking Project,
Zero Coupon, 6.95%, 9/1/11(1) Baa1/BBB/A- 2,340,000 838,337
---------------------------------------------------------------------------------------------------------------
Los Angeles, California Convention & Exhibition
Center Authority Refunding Certificates of
Participation, Prerefunded, Series A, 7.375%, 8/15/18 Aaa/AAA 1,600,000 1,763,333
---------------------------------------------------------------------------------------------------------------
Los Angeles, California Wastewater System Revenue
Refunding Bonds, Series D, FGIC Insured, 8.70%, 11/1/03 Aaa/AAA/AAA 5,115,000 6,311,582
</TABLE>
6 Oppenheimer Main Street California Tax-Exempt Fund
<PAGE>
<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
(continued)
Metropolitan Water District of Southern California
Waterworks Revenue Refunding Bonds, 5.55%, 10/30/20 Aa/AA $3,000,000 $ 2,842,776
---------------------------------------------------------------------------------------------------------------
Newport Mesa, California Unified School District
Special Tax Revenue Refunding Bonds, Community
Facilities District No. 90-1, 6.625%, 9/1/14 NR/NR 2,000,000 1,981,010
---------------------------------------------------------------------------------------------------------------
Orange County, California Community Facilities
District Special Tax Bonds, No. 87-3, Prerefunded,
Series A, 8.05%, 8/15/08 NR/NR 1,480,000 1,624,184
---------------------------------------------------------------------------------------------------------------
Orange County, California Community Facilities
District Special Tax Bonds, No. 88-1, Aliso Viejo,
Prerefunded, Series A, 7.35%, 8/15/18 NR/AAA 3,000,000 3,467,577
---------------------------------------------------------------------------------------------------------------
Pittsburg, California Improvement Bond Act of 1915 Bonds,
Assessment District 1990-01, 7.75%, 9/2/20 NR/NR 95,000 96,129
---------------------------------------------------------------------------------------------------------------
Pomona, California Single Family Mtg. Revenue
Refunding Bonds, Escrowed to Maturity,
Series A, 7.60%, 5/1/23 NR/AAA 2,500,000 3,057,065
---------------------------------------------------------------------------------------------------------------
Redding, California Electric System Revenue
Certificates of Participation, FGIC Insured,
Inverse Floater, 7.28%, 6/1/19(2) Aaa/AAA/AAA 1,150,000 1,052,986
---------------------------------------------------------------------------------------------------------------
Redding, California Electric System Revenue
Certificates of Participation, MBIA Insured,
Inverse Floater, 8.90%, 7/8/22(2) Aaa/AAA 500,000 552,476
---------------------------------------------------------------------------------------------------------------
Regents of the University of California Revenue
Bonds, Multiple Purpose Projects, Prerefunded,
Series A, 6.875%, 9/1/16 NR/A- 250,000 282,516
---------------------------------------------------------------------------------------------------------------
Riverside County, California Community Facilities
District Special Tax Bonds, No. 88-12, 7.55%, 9/1/17 NR/NR 1,500,000 1,512,970
---------------------------------------------------------------------------------------------------------------
Sacramento County, California Single Family Mtg.
Revenue Bonds, Escrowed to Maturity, 8.125%, 7/1/16(3) Aaa/AAA 2,810,000 3,525,400
---------------------------------------------------------------------------------------------------------------
Sacramento, California Municipal Utility District
Electric Revenue Refunding Bonds, FGIC Insured,
Inverse Floater, 8.64%, 8/15/18(2) Aaa/AAA/AAA 1,500,000 1,465,492
---------------------------------------------------------------------------------------------------------------
San Bernardino County, California Certificates of
Participation, Medical Center Financing Project,
5.50%, 8/1/17 Baa1/A- 1,750,000 1,565,247
---------------------------------------------------------------------------------------------------------------
San Diego County, California Water Authority
Revenue Certificates of Participation, Series 91-B,
MBIA Insured, Inverse Floater, 8.67%, 4/8/21(2) Aaa/AAA 1,000,000 1,051,824
---------------------------------------------------------------------------------------------------------------
San Francisco, California Bay Area Rapid Transit
District Sales Tax Revenue Refunding Bonds,
AMBAC Insured, 6.75%, 7/1/11 Aaa/AAA/AAA 1,000,000 1,120,046
---------------------------------------------------------------------------------------------------------------
San Joaquin Hills, California Transportation Corridor
Agency Toll Road Revenue Bonds, Sr. Lien, 6.75%, 1/1/32 NR/NR/BBB 3,500,000 3,574,788
---------------------------------------------------------------------------------------------------------------
Southern California Home Financing Authority
Single Family Mtg. Revenue Bonds, Series A, 7.35%, 9/1/24 NR/AAA 285,000 298,541
---------------------------------------------------------------------------------------------------------------
Southern California Public Power Authority
Power Project Revenue Bonds, San Juan Unit 3,
Series A, MBIA Insured, 5%, 1/1/20 Aaa/AAA 1,000,000 880,565
---------------------------------------------------------------------------------------------------------------
Southern California Public Power Authority
Transmission Project Revenue Bonds,
Inverse Floater, 7.81%, 7/1/12(2) Aa/A+ 2,500,000 2,504,252
-----------
73,536,627
</TABLE>
7 Oppenheimer Main Street California Tax-Exempt Fund
<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>
U.S. Possessions--8.9%
Puerto Rico Commonwealth General Obligation Bonds,
MBIA Insured, Inverse Floater, 7.78%, 7/1/08(2) Aaa/AAA $1,500,000 $ 1,522,179
---------------------------------------------------------------------------------------------------------------
Puerto Rico Commonwealth Highway Authority
Revenue Bonds, Prerefunded, Series P, 8.125%, 7/1/13 Aaa/AAA 2,000,000 2,189,944
---------------------------------------------------------------------------------------------------------------
Puerto Rico Commonwealth Public Improvement
General Obligation Bonds, Prerefunded,
Series A, 7.75%, 7/1/17 NR/AAA 1,000,000 1,107,783
---------------------------------------------------------------------------------------------------------------
Puerto Rico Housing Finance Corp. Single Family Mtg.
Revenue Bonds, Portfolio 1, Series B, 7.65%, 10/15/22 Aaa/AAA 285,000 295,895
---------------------------------------------------------------------------------------------------------------
Puerto Rico Industrial, Medical & Environmental
Pollution Control Facilities Tourist Revenue Bonds,
Mennonite General Hospital Project,
Series A, 6.50%, 7/1/12 NR/BBB-/BBB 600,000 598,224
---------------------------------------------------------------------------------------------------------------
Puerto Rico Public Buildings Authority Guaranteed
Public Education & Health Facilities Revenue Bonds,
Prerefunded, Series H, 7.875%, 7/1/07 Aaa/AAA 1,500,000 1,590,874
---------------------------------------------------------------------------------------------------------------
7,304,899
- -----------------------------------------------------------------------------------------------------------------------------------
Total Investments, at Value (Cost $80,855,707) 98.2% 80,841,526
- -----------------------------------------------------------------------------------------------------------------------------------
Other Assets Net of Liabilities 1.8 1,513,529
---------- -----------
Net Assets 100.0%
$82,355,055
==========
===========
</TABLE>
<PAGE>
1. For zero coupon bonds, the interest rate shown is the effective yield on the
date of purchase.
2. 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 $8,149,209 or 9.90%
of the Fund's net assets at June 30, 1996.
3. Securities with an aggregate market value of $94,094 are held in
collateralized accounts to cover initial margin requirements on open futures
sales contracts. See Note 5 of Notes to Financial Statements.
As of June 30, 1996, securities subject to the alternative minimum tax amounted
to $15,472,055 or 18.79% of the Fund's net assets.
Distribution of investments by industry, as a percentage of total investments at
value, is as follows:
Industry Market Value Percent
- --------------------------------------------------------------------------------
Utilities $17,760,733 22.0%
Housing 14,949,602 18.5
Lease/Rental 14,171,269 17.5
Special Tax Bonds 11,791,182 14.6
Transportation 10,064,501 12.5
Hospitals 5,501,339 6.8
General Obligation Bonds 2,629,962 3.3
Pollution Control 2,099,548 2.6
Education 1,873,390 2.2
----------- -----
$80,841,526 100.0%
=========== =====
See accompanying Notes to Financial Statements.
8 Oppenheimer Main Street California Tax-Exempt Fund
<PAGE>
<TABLE>
<CAPTION>
Statement of Assets and Liabilities June 30, 1996
===================================================================================================================================
<S> <C> <C>
Assets Investments, at value (cost $80,855,707)--see accompanying statement
$80,841,526
---------------------------------------------------------------------------------------------------------------
Cash 387,266
---------------------------------------------------------------------------------------------------------------
Receivables:
Interest 1,553,092
Shares of capital stock sold 1,766
---------------------------------------------------------------------------------------------------------------
Other 5,867
------------
Total assets 82,789,517
===================================================================================================================================
Liabilities Payables and other liabilities:
Dividends 288,015
Shares of capital stock redeemed
88,610
Shareholder reports 28,389
Daily variation on futures contracts--Note 5
13,787
Transfer and shareholder servicing agent fees
3,584
Distribution and service plan fees
3,147
Other 8,930
------------
Total liabilities 434,462
===================================================================================================================================
Net Assets $82,355,055
============
===================================================================================================================================
Composition of
Net Assets Par value of shares of capital stock $
67,763
---------------------------------------------------------------------------------------------------------------
Additional paid-in capital
82,451,294
---------------------------------------------------------------------------------------------------------------
Overdistributed net investment income
(132,853)
---------------------------------------------------------------------------------------------------------------
Accumulated net realized gain on investment transactions
14,344
---------------------------------------------------------------------------------------------------------------
Net unrealized depreciation on investments--Note 3
(45,493)
------------
Net assets $82,355,055
============
===================================================================================================================================
Net Asset Value
Per Share Class A Shares:
Net asset value and redemption price per share (based on
net assets of $76,912,890 and 6,328,049 shares of capital stock outstanding)
$12.15
Maximum offering price per share (net asset value plus sales charge
of 4.75% of offering price)
$12.76
---------------------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price and offering price per share (based on net
assets of $5,442,165 and 448,274 shares of capital stock outstanding)
$12.14
</TABLE>
See accompanying Notes to Financial Statements.
9 Oppenheimer Main Street California Tax-Exempt Fund
<PAGE>
<TABLE>
<CAPTION>
Statement of Operations For the Year Ended June 30, 1996
===================================================================================================================================
<S> <C> <C>
Investment Income Interest
$5,417,420
===================================================================================================================================
Expenses Management fees--Note 4
330,555
---------------------------------------------------------------------------------------------------------------
Shareholder reports 59,148
---------------------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 4
55,205
---------------------------------------------------------------------------------------------------------------
Distribution and service plan fees--Note 4:
Class B 38,469
---------------------------------------------------------------------------------------------------------------
Legal and auditing fees 9,937
---------------------------------------------------------------------------------------------------------------
Custodian fees and expenses
9,164
---------------------------------------------------------------------------------------------------------------
Registration and filing fees:
Class A 5,572
Class B 1,055
<PAGE>
---------------------------------------------------------------------------------------------------------------
Insurance expenses 3,740
---------------------------------------------------------------------------------------------------------------
Directors' fees and expenses
1,857
---------------------------------------------------------------------------------------------------------------
Other 6,361
------------
Total expenses 521,063
Less expenses paid indirectly
(7,886)
------------
Net expenses 513,177
===================================================================================================================================
Net Investment Income
4,904,243
===================================================================================================================================
Realized and
Unrealized
Gain (Loss) Net realized gain (loss) on:
Investments 37,776
Closing of futures contracts
(24,718)
------------
Net realized gain 13,058
---------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on investments
446,150
------------
Net realized and unrealized gain
459,208
===================================================================================================================================
Net Increase in Net Assets Resulting From Operations
$5,363,451
============
</TABLE>
See accompanying Notes to Financial Statements
10 Oppenheimer Main Street California Tax-Exempt Fund
<PAGE>
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
Year Ended June 30,
1996 1995
===================================================================================================================================
<S> <C> <C> <C>
Operations Net investment income $ 4,904,243 $4,872,375
---------------------------------------------------------------------------------------------------------------
Net realized gain 13,058 21,062
---------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation 446,150 1,550,552
----------- -----------
Net increase in net assets resulting from operations 5,363,451 6,443,989
===================================================================================================================================
Dividends and
Distributions to
Shareholders Dividends from net investment income:
Class A (4,694,006) (4,502,183)
Class B (189,244) (89,348)
---------------------------------------------------------------------------------------------------------------
Dividends in excess of net investment income:
Class A -- (258,329)
Class B -- (8,756)
---------------------------------------------------------------------------------------------------------------
Distributions from net realized gain:
Class A (11,115) --
Class B (475) --
---------------------------------------------------------------------------------------------------------------
Distributions in excess of net realized gain:
Class A (60,043) --
Class B (2,568) --
===================================================================================================================================
Capital Stock
Transactions Net increase (decrease) in net assets resulting from capital
stock transactions--Note 2:
Class A (1,651,052) (2,943,992)
Class B 2,817,402 1,383,961
===================================================================================================================================
Net Assets Total increase 1,572,350 25,342
---------------------------------------------------------------------------------------------------------------
Beginning of period 80,782,705 80,757,363
----------- -----------
End of period (including overdistributed net investment income
of $132,853 and $98,805, respectively) $82,355,055 $80,782,705
=========== ===========
</TABLE>
See accompanying Notes to Financial Statements.
11 Oppenheimer Main Street California Tax-Exempt Fund
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
Class A Class B
------------------------------------------------------ -------------------------------
Year Ended June 30, Year Ended June 30,
1996 1995 1994 1993 1992 1996 1995 1994(1)
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Data:
Net asset value,
beginning of period $12.09 $11.82 $12.66 $12.05 $11.61 $12.08 $11.80 $12.90
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .73 .73 .75 .80 .82 .61 .62 .38
Net realized and unrealized
gain (loss) .07 .27 (.80) .64 .45 .07 .27 (1.07)
------- ------- ------- ------- ------- ------ ------ ------
Total income (loss)
from investment operations .80 1.00 (.05) 1.44 1.27 .68 .89 (.69)
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions
to shareholders:
Dividends from net
investment income (.73) (.69) (.73) (.81) (.82) (.61) (.57) (.37)
Dividends in excess of net
investment income -- (.04) (.03) -- -- -- (.04) (.01)
Distributions from net
realized gain --(2) -- -- (.02) (.01) --(2) -- --
Distributions in excess of net
realized gain (.01) -- (.03) -- -- (.01) -- (.03)
------- ------- ------- ------- ------- ------ ------ ------
Total dividends and
distributions to shareholders (.74) (.73) (.79) (.83) (.83) (.62) (.61) (.41)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.15 $12.09 $11.82 $12.66 $12.05 $12.14 $12.08 $11.80
======= ======= ======= ======= ======= ====== ====== ======
<PAGE>
===================================================================================================================================
Total Return, at Net
Asset Value(3) 6.73% 8.93% (0.60)% 12.53% 11.21% 5.66% 7.90% (5.42)%
===================================================================================================================================
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) $76,913 $78,134 $79,555 $72,387 $40,055 $5,442 $2,648 $1,203
- -----------------------------------------------------------------------------------------------------------------------------------
Average net assets
(in thousands) $78,676 $76,148 $81,741 $54,840 $26,304 $3,848 $1,904 $649
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 5.99% 6.27% 6.09% 6.46% 6.74% 4.94% 5.17% 4.91%(4)
Expenses(5) 0.58% 0.57% 0.53% 0.39% 0.32% 1.60% 1.55% 1.62%(4)
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 33.1% 14.2% 20.2% 5.8% 25.7% 33.1% 14.2% 20.2%
</TABLE>
1. For the period from October 29, 1993 (inception of offering) to June 30, 1994
2. Less than $.005 per share.
3. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all dividends
and distributions reinvested in additional shares on the reinvestment date, and
redemption at the net asset value calculated on the last business day of the
fiscal period. Sales charges are not reflected in the total returns. Total
returns are not annualized for periods of less than one full year.
4. Annualized.
5. Beginning in fiscal 1995, the expense ratio reflects the effect of gross
expenses paid indirectly by the Fund. Prior year expense ratios have not been
adjusted.
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, 1996 were $29,530,605 and $26,880,864, respectively.
See accompanying Notes to Financial Statements.
12 Oppenheimer Main Street California Tax-Exempt Fund
<PAGE>
Notes to Financial Statements
================================================================================
1. Significant
Accounting Policies
Oppenheimer Main Street California Tax-Exempt Fund (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 objective is to seek as high a level of current income which
is exempt from Federal and California personal income taxes for individual
investors that is consistent with preservation of capital. The Fund's investment
advisor is OppenheimerFunds, Inc. (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 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 are valued 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, 1996, 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, 1996,
amounts have been reclassified to reflect an increase in overdistributed net
investment income of $55,041 and an increase in accumulated net realized gain on
investments of $55,041.
- --------------------------------------------------------------------------------
Other. Investment transactions are accounted for on the date the investments are
purchased or sold (trade 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, on
disposition or maturity, taxable ordinary income is recognized to the extent of
<PAGE>
the lesser of gain or market discount that would have accrued over the holding
period. Realized gains and losses on investments and unrealized appreciation and
depreciation are determined on an identified cost basis, which is the same basis
used for federal income tax purposes. The Fund concentrates its investments in
California and, therefore, may have more credit risks related to the economic
conditions of California than a portfolio with a broader geographical
diversification.
13 Oppenheimer Main Street California Tax-Exempt Fund
<PAGE>
Notes to Financial Statements (Continued)
================================================================================
1. Significant
Accounting Policies
(continued)
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates.
================================================================================
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, 1996 Year Ended June 30,
1995
--------------------------- ------------------------------
Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A:
Sold 387,788 $ 4,767,548 549,187 $6,492,313
Dividends and distributions reinvested 243,712 2,993,646 262,815 3,070,057
Redeemed (765,193) (9,412,246) (1,081,996) (12,506,362)
------- ----------- --------- ------------
Net decrease (133,693) $(1,651,052) (269,994) $(2,943,992)
======= =========== ========= ============
- -----------------------------------------------------------------------------------------------------------------------------------
Class B:
Sold 247,941 $ 3,048,438 125,642 $1,482,012
Dividends and distributions reinvested 9,629 117,946 4,898 57,310
Redeemed (28,549) (348,982) (13,193) (155,361)
------- ----------- --------- ------------
Net increase 229,021 $ 2,817,402 117,347 $ 1,383,961
======= =========== ========= ============
</TABLE>
================================================================================
3. Unrealized Gains and
Losses on Investments
At June 30, 1996, net unrealized depreciation on investments of $14,181 was
composed of gross appreciation of $1,512,748, and gross depreciation of
$1,526,929.
================================================================================
4. Management Fees
And Other Transactions
With Affiliates
Management fees paid to the Manager were in accordance with the investment
advisory agreement with the Fund which provides for a fee of 0.55% of average
annual net assets, with a contractual waiver when net assets are less than $100
million. Annual fees, reflecting this waiver, are 0.40% of net assets of $75
million or more but less than $100 million, 0.25% of net assets of $50 million
or more but less than $75 million, 0.15% 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, 1996, commissions (sales charges paid by
investors) on sales of Class A shares totaled $134,177, of which $28,111 was
retained by OppenheimerFunds Distributor, Inc. (OFDI), a subsidiary of the
Manager, as general distributor, and by an affiliated broker/dealer. Sales
charges advanced to broker/dealers by OFDI on sales of the Fund's Class B shares
totaled $118,388. During the year ended June 30, 1996, OFDI received contingent
deferred sales charges of $3,991 upon redemption of Class B shares.
OppenheimerFunds Services (OFS), a division of the Manager, is the transfer
and shareholder servicing agent for the Fund, and for other registered
investment companies. OFS's total costs of providing such services are allocated
ratably to these companies.
Expenses paid indirectly represent a reduction of custodian fees for
earnings on cash balances maintained by the Fund.
The Fund has adopted a reimbursement type Distribution and Service Plan for
Class B shares to reimburse OFDI for its services and costs in distributing
Class B shares and servicing accounts. Under the Plan, the Fund pays OFDI an
annual asset-based sales charge of 0.75% per year on Class B shares that are
outstanding for 6 years or less. OFDI also receives a service fee of 0.25% per
year to reimburse dealers for providing personal services for accounts that hold
Class B shares. Both fees are computed on the average annual net assets of Class
B shares, determined as of the close of each regular business day. 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 OFDI for certain expenses it
incurred before the Plan was terminated. During the year ended June 30, 1996,
OFDI retained $33,636 as reimbursement for Class B sales commissions and service
fee advances, as well as financing costs. As of June 30, 1996, OFDI had incurred
unreimbursed expenses of $215,851 for Class B.
14 Oppenheimer Main Street California Tax-Exempt Fund
<PAGE>
================================================================================
5. Futures Contracts
The Fund may buy and sell interest rate futures contracts in order to gain
exposure to or protect against changes in interest rates. The Fund may also buy
or write put or call options on these futures contracts.
The Fund generally sells futures contracts to hedge against increases in
interest rates and the resulting negative effect on the value of fixed rate
portfolio securities. The Fund may also purchase futures contracts to gain
exposure to changes in interest rates as it may be more efficient or cost
effective than actually buying fixed income securities.
Upon entering into a futures contract, the Fund is required to deposit
either cash or securities in an amount (initial margin) equal to a certain
<PAGE>
percentage of the contract value. Subsequent payments (variation margin) are
made or received by the Fund each day. The variation margin payments are equal
to the daily changes in the contract value and are recorded as unrealized gains
and losses. The Fund recognized a realized gain or loss when the contract is
closed or expires.
Securities held in collateralized accounts to cover initial margin
requirements on open futures contracts are noted in the Statement of
Investments. The Statement of Assets and Liabilities reflects a receivable or
payable for the daily mark to market for variation margin.
Risks of entering into futures contracts (and related options) include the
possibility that there may be an illiquid market and that a change in the value
of the contract or option may not correlate with changes in the value of the
underlying securities.
At June 30, 1996, the Fund had outstanding futures contracts to sell debt
securities as follows:
<TABLE>
<CAPTION>
Number of Valuation as of Unrealized
Contracts to Sell Expiration Date Futures Contracts June 30, 1996
Depreciation
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Bonds 9/96 12 $1,314,375 $31,312
</TABLE>
15 Oppenheimer Main Street California Tax-Exempt Fund
<PAGE>
Independent Auditors' Report
================================================================================
The Board of Directors and
Shareholders of Oppenheimer
Main Street California Municipal Fund:
We have audited the accompanying statement of assets and liabilities, including
the statement of investments, of Oppenheimer Main Street California Municipal
Fund as of August 31, 1996, the statements of operations for the two months then
ended and the year ended June 30, 1996, the statements of changes in net assets
for the two months ended August 31, 1996 and the years ended June 30, 1996 and
1995, and the financial highlights for the period July 1, 1991 to August 31,
1996. 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 August
31, 1996 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 Municipal Fund at August 31, 1996, 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.
/s/ Deloitte & Touche LLP
- -------------------------------------
DELOITTE & TOUCHE LLP
Denver, Colorado
September 23, 1996
<TABLE>
<CAPTION>
Statement of Investments August 31, 1996
Ratings: Moody's/
S&P's/Fitch's Face Market
Value
(Unaudited) Amount See Note
1
<S> <C> <C> <C>
====================================================================================================================================
Municipal Bonds and Notes--99.1%
- ------------------------------------------------------------------------------------------------------------------------------------
California--90.3%
Alameda County, California Certificates of Participation,
Prerefunded, BIG Insured, 7.25%, 6/1/09 Aaa/AAA $1,635,000 $ 1,836,546
----------------------------------------------------------------------------------------------------------------
Anaheim, California Public Financing Authority Tax
Allocation Revenue Bonds, MBIA Insured, 6.45%, 12/28/18 Aaa/AAA 2,000,000 2,118,540
----------------------------------------------------------------------------------------------------------------
Berkeley, California Health Facility Revenue Bonds,
Alta Bates Medical Center, Series A, 6.50%, 12/1/11 Baa/BBB+ 1,500,000 1,511,505
----------------------------------------------------------------------------------------------------------------
California Health Facilities Financing
Authority Revenue Bonds:
Episcopal Homes Project, Series A, 7.80%, 7/1/15 NR/A 1,000,000 1,072,470
Refunding, Catholic Health Care West,
Series A, MBIA Insured, 5%, 7/1/11 Aaa/AAA 2,500,000 2,317,875
----------------------------------------------------------------------------------------------------------------
California Housing Finance Agency Home Mtg.
Revenue Bonds, Series C, 6.75%, 2/1/25 Aa/AA- 4,985,000 5,118,698
----------------------------------------------------------------------------------------------------------------
@ California Housing Finance Agency Single Family Mtg.
Purchase Revenue Bonds, Series A-2, 6.45%, 8/1/25 Aaa/AAA 2,500,000 2,522,725
----------------------------------------------------------------------------------------------------------------
California Pollution Control Financing Authority
Revenue Bonds, Pacific Gas & Electric Co. Project,
Series B, 6.35%, 6/1/09 A1/A 2,000,000 2,055,540
----------------------------------------------------------------------------------------------------------------
California State Public Works Board Lease
Revenue Bonds, Department of Corrections:
Series A, AMBAC Insured, 5.25%, 1/1/21 Aaa/AAA/AAA 2,250,000 2,082,622
Madera State Prison, Series E, 5.50%, 6/1/15 A1/A/A- 2,000,000 1,913,060
----------------------------------------------------------------------------------------------------------------
California Statewide Communities Development
Authority Revenue Certificates of Participation,
Cedars-Sinai Medical Center, 5.40%, 11/1/15 A1/NR 1,000,000 882,360
----------------------------------------------------------------------------------------------------------------
Capistrano, California Unified School District Community
Facilities District Special Tax Bonds, No. 87-1, 7.60%, 9/1/14 NR/NR 1,000,000 1,106,200
----------------------------------------------------------------------------------------------------------------
Central California Joint Powers Health Financing
Authority Certificates of Participation, Community
Hospitals of Central California Project, 5%, 2/1/23 A/NR/A- 1,050,000 865,473
----------------------------------------------------------------------------------------------------------------
Corona, California Certificates of Participation,
Prerefunded, Series B, 10%, 11/1/20 Aaa/AAA 3,250,000 4,194,385
----------------------------------------------------------------------------------------------------------------
Duarte, California Certificates of Participation,
City of Hope National Medical Center, 6.25%, 4/1/23 Baa1/NR 500,000 490,005
----------------------------------------------------------------------------------------------------------------
Foothill/Eastern Transportation Corridor Agency
California Toll Road Revenue Bonds,
Sr. Lien, Series A, 6.50%, 1/1/32 Baa/BBB-/BBB 1,400,000 1,404,536
----------------------------------------------------------------------------------------------------------------
Long Beach, California Harbor Revenue Bonds,
5.125%, 5/15/18 Aa/AA- 2,000,000 1,776,780
----------------------------------------------------------------------------------------------------------------
Los Angeles County, California Certificates
of Participation, Disney Parking Project,
Zero Coupon, 6.95%, 9/1/11(1) Baa1/BBB/A- 2,340,000 855,574
----------------------------------------------------------------------------------------------------------------
Los Angeles, California Convention & Exhibition Center
Authority Refunding Certificates of Participation,
Prerefunded, Series A, 7.375%, 8/15/18 Aaa/AAA 1,600,000 1,757,600
----------------------------------------------------------------------------------------------------------------
Los Angeles, California Wastewater System Revenue
Refunding Bonds, Series D, FGIC Insured, 8.70%, 11/1/03 Aaa/AAA/AAA 5,115,000 6,289,813
</TABLE>
6 Oppenheimer Main Street California Municipal Fund
<PAGE>
<TABLE>
<CAPTION>
<PAGE>
Ratings: Moody's/
S&P's/Fitch's Face Market
Value
(Unaudited) Amount See Note
1
<S> <C> <C> <C>
====================================================================================================================================
California
(continued)
Metropolitan Water District of Southern California
Waterworks Revenue Refunding Bonds, 5.55%, 10/30/20 Aa/AA $3,000,000 $ 2,817,780
----------------------------------------------------------------------------------------------------------------
Newport Mesa, California Unified School
District Special Tax Revenue Refunding Bonds,
Community Facilities District No. 90-1, 6.625%, 9/1/14 NR/NR 2,000,000 2,005,900
----------------------------------------------------------------------------------------------------------------
Orange County, California Community
Facilities District Special Tax Bonds:
No. 87-3, Prerefunded, Series A, 8.05%, 8/15/08 NR/NR 1,480,000 1,614,739
No. 88-1, Aliso Viejo, Prerefunded, Series A, 7.35%, 8/15/18 NR/AAA 3,000,000 3,465,420
----------------------------------------------------------------------------------------------------------------
Pittsburg, California Improvement Bond Act of 1915
Bonds, Assessment District 1990-01, 7.75%, 9/2/20 NR/NR 95,000 98,439
----------------------------------------------------------------------------------------------------------------
Pomona, California Single Family Mtg. Revenue Refunding
Bonds, Escrowed to Maturity, Series A, 7.60%, 5/1/23 NR/AAA 2,500,000 2,947,150
----------------------------------------------------------------------------------------------------------------
Redding, California Electric System
Revenue Certificates of Participation:
FGIC Insured, Inverse Floater, 7.494%, 6/1/19(2) Aaa/AAA/AAA 1,150,000 1,037,875
MBIA Insured, Inverse Floater, 9.002%, 7/8/22(2) Aaa/AAA 500,000 568,125
----------------------------------------------------------------------------------------------------------------
Regents of the University of California
Revenue Bonds, Multiple Purpose Projects,
Prerefunded, Series A, 6.875%, 9/1/16 NR/A 250,000 282,148
----------------------------------------------------------------------------------------------------------------
Riverside County, California Community Facilities
District Special Tax Bonds, No. 88-12, 7.55%, 9/1/17 NR/NR 1,500,000 1,573,095
----------------------------------------------------------------------------------------------------------------
Sacramento County, California Single Family
Mtg. Revenue Bonds, Escrowed to Maturity,
8.125%, 7/1/16(3) Aaa/AAA 2,810,000 3,446,577
----------------------------------------------------------------------------------------------------------------
Sacramento, California Municipal Utility District
Electric Revenue Refunding Bonds, FGIC Insured,
Inverse Floater, 8.717%, 8/15/18(2) Aaa/AAA/AAA 1,500,000 1,571,250
----------------------------------------------------------------------------------------------------------------
San Bernardino County, California Certificates
of Participation, Medical Center Financing Project,
5.50%, 8/1/17 Baa1/A- 1,750,000 1,616,073
----------------------------------------------------------------------------------------------------------------
San Diego County, California Water Authority
Revenue Certificates of Participation, Series 91-B,
MBIA Insured, Inverse Floater, 8.73%, 4/8/21(2) Aaa/AAA 1,000,000 1,067,500
----------------------------------------------------------------------------------------------------------------
San Francisco, California Bay Area Rapid Transit
District Sales Tax Revenue Refunding Bonds,
AMBAC Insured, 6.75%, 7/1/11 Aaa/AAA/AAA 1,000,000 1,125,010
----------------------------------------------------------------------------------------------------------------
San Joaquin Hills, California Transportation Corridor
Agency Toll Road Revenue Bonds, Sr. Lien, 6.75%,
1/1/32 NR/NR/BBB 3,500,000 3,581,200
----------------------------------------------------------------------------------------------------------------
Southern California Home Financing Authority Single
Family Mtg. Revenue Bonds, Series A, 7.35%, 9/1/24 NR/AAA 285,000 296,765
----------------------------------------------------------------------------------------------------------------
Southern California Public Power Authority
Power Project Revenue Bonds, San Juan Unit 3,
Series A, MBIA Insured, 5%, 1/1/20 Aaa/AAA 1,000,000 882,620
----------------------------------------------------------------------------------------------------------------
Southern California Public Power Authority Transmission
Project Revenue Bonds, Inverse Floater, 7.569%, 7/1/12(2) Aa/A+ 2,500,000 2,518,750
------------
74,688,723
</TABLE>
7 Oppenheimer Main Street California Municipal Fund
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments (Continued)
Ratings: Moody's/
S&P's/Fitch's Face Market
Value
(Unaudited) Amount See Note
1
<S> <C> <C> <C>
====================================================================================================================================
U.S. Possessions--8.8%
- ------------------------------------------------------------------------------------------------------------------------------------
Puerto Rico Commonwealth General Obligation Bonds,
MBIA Insured, Inverse Floater, 7.887%, 7/1/08(2) Aaa/AAA $1,500,000 $ 1,565,625
----------------------------------------------------------------------------------------------------------------
Puerto Rico Commonwealth Highway Authority
Revenue Bonds, Prerefunded, Series P, 8.125%, 7/1/13 Aaa/AAA 2,000,000 2,178,500
----------------------------------------------------------------------------------------------------------------
Puerto Rico Commonwealth Public Improvement
General Obligation Bonds, Prerefunded, Series A,
7.75%, 7/1/17 NR/AAA 1,000,000 1,105,670
----------------------------------------------------------------------------------------------------------------
Puerto Rico Housing Finance Corp. Single Family Mtg.
Revenue Bonds, Portfolio 1, Series B, 7.65%, 10/15/22 Aaa/AAA 285,000 298,395
----------------------------------------------------------------------------------------------------------------
Puerto Rico Industrial, Medical & Environmental
Pollution Control Facilities Tourist Revenue Bonds,
Mennonite General Hospital Project,
Series A, 6.50%, 7/1/12 NR/BBB-/BBB 600,000 598,932
----------------------------------------------------------------------------------------------------------------
Puerto Rico Public Buildings Authority Guaranteed
Public Education & Health Facilities Revenue Bonds,
Prerefunded, Series H, 7.875%, 7/1/07 Aaa/AAA 1,500,000 1,579,320
------------
7,326,442
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investments, at Value (Cost $82,016,413) 99.1% 82,015,165
- ------------------------------------------------------------------------------------------------------------------------------------
Other Assets Net of Liabilities 0.9 729,904
--------- ------------
Net Assets 100.0% $82,745,069
========= ============
</TABLE>
1. For zero coupon bonds, the interest rate shown is the
effective yield on the date of purchase.
2. Represents the current interest rate for a variable rate
bond. These 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 $8,329,125 or 10.07% of the Fund's net assets at
August 31, 1996.
<PAGE>
3. Securities with an aggregate market value of $165,583
are held in collateralized accounts to cover initial margin
requirements on open futures sales contracts. See Note 5 of
Notes to Financial Statements.
As of August 31, 1996, securities subject to the alternative minimum tax
amounted to $15,217,085 or 18.39% of the Fund's net assets.
Distribution of investments by industry, as a percentage of total investments at
value, is as follows:
Industry Market Value Percent
Utilities $16,753,713 20.4%
Housing 14,630,310 17.8
Lease/Rental 14,255,861 17.4
Special Tax Bonds 11,982,333 14.6
Transportation 10,066,026 12.3
Hospitals 9,317,940 11.4
General Obligation Bonds 2,671,295 3.3
Pollution Control 2,055,540 2.5
Education 282,147 0.3
----------- -----
$82,015,165 100.0%
=========== =====
See accompanying Notes to Financial Statements.
8 Oppenheimer Main Street California Municipal Fund
<PAGE>
<TABLE>
<CAPTION>
Statement of Assets and Liabilities August 31, 1996
<S> <C>
====================================================================================================================================
Assets Investments, at value (cost $82,016,413)--see accompanying statement
$ 82,015,165
----------------------------------------------------------------------------------------------------------------
Receivables:
Interest 1,076,154
Shares of capital stock sold 41,084
Daily variation on futures contracts--Note 5
4,213
----------------------------------------------------------------------------------------------------------------
Other 4,852
------------
Total assets 83,141,468
------------
====================================================================================================================================
Liabilities Bank overdraft 27,084
----------------------------------------------------------------------------------------------------------------
Payables and other liabilities:
Dividends 288,301
Shares of capital stock redeemed
38,801
Shareholder reports 33,331
Transfer and shareholder servicing agent fees
2,535
Distribution and service plan fees
2,439
Other 3,908
------------
Total liabilities 396,399
====================================================================================================================================
Net Assets $ 82,745,069
============
====================================================================================================================================
Composition of
Net Assets Par value of shares of capital stock $
68,064
----------------------------------------------------------------------------------------------------------------
Additional paid-in capital
82,069,527
----------------------------------------------------------------------------------------------------------------
Undistributed net investment income
598,945
----------------------------------------------------------------------------------------------------------------
Accumulated net realized gain on investment transactions
1,187
----------------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments--Notes 3 and 5
7,346
------------
Net assets $ 82,745,069
============
====================================================================================================================================
Net Asset Value Class A Shares:
Per Share Net asset value and redemption price per share (based on
net assets of $76,817,365 and 6,318,241 shares of capital stock outstanding)
$ 12.16
Maximum offering price per share (net asset value plus sales charge of
4.75% of offering price) $
12.77
----------------------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price and offering price per share (based on net
assets of $5,927,704 and 488,126 shares of capital stock outstanding)
$ 12.14
See accompanying Notes to Financial Statements.
</TABLE>
9 Oppenheimer Main Street California Municipal Fund
<PAGE>
<TABLE>
<CAPTION>
Statements of Operations
Two Months Year Ended
Ended Aug. 31, June 30,
1996(1) 1995
<S> <C> <C>
====================================================================================================================================
Investment Income Interest $ 927,063 $
5,417,420
------------ ------------
====================================================================================================================================
Expenses Management fees--Note 4 56,478
330,555
----------------------------------------------------------------------------------------------------------------
Distribution and service plan fees--Note 4:
Class B 9,671 38,469
----------------------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 4 9,321
55,205
----------------------------------------------------------------------------------------------------------------
Shareholder reports 6,976
59,148
----------------------------------------------------------------------------------------------------------------
Custodian fees and expenses 3,720
9,164
----------------------------------------------------------------------------------------------------------------
Registration and filing fees:
Class A 1,601 5,572
Class B 765 1,055
----------------------------------------------------------------------------------------------------------------
Legal and auditing fees 1,330
9,937
----------------------------------------------------------------------------------------------------------------
Directors' fees and expenses 226
1,857
----------------------------------------------------------------------------------------------------------------
Insurance expenses 642
3,740
<PAGE>
----------------------------------------------------------------------------------------------------------------
Other 697 6,361
------------ -----------
Total expenses 91,427
521,063
Less expenses paid indirectly--Note 4 (3,383)
(7,886)
------------ -----------
Net expenses 88,044
513,177
====================================================================================================================================
Net Investment Income 839,019
4,904,243
====================================================================================================================================
Realized and
Unrealized
Gain (Loss) Net realized gain (loss) on:
Investments (15,610) 37,776
Closing of futures contracts (27,098)
(24,718)
------------ -----------
Net realized gain (loss) (42,708)
13,058
----------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on investments
52,839 446,150
------------ -----------
Net realized and unrealized gain 10,131
459,208
====================================================================================================================================
Net Increase in Net Assets Resulting From Operations $ 849,150
$ 5,363,451
============
===========
</TABLE>
1. The Fund changed its fiscal year end from June 30 to
August 31.
See accompanying Notes to Financial Statements.
10 Oppenheimer Main Street California Municipal Fund
<PAGE>
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
Two Months
Ended Aug. 31, Year Ended June 30,
1996(1) 1996 1995
<S> <C> <C> <C>
====================================================================================================================================
Operations Net investment income $ 839,019 $ 4,904,243
$ 4,872,375
- -----------------------------------------------------------------------------------------------------------------
Net realized gain (loss) (42,708) 13,058
21,062
- -----------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation 52,839 446,150
1,550,552
------------ ------------ -------------
Net increase in net assets resulting from operations 849,150 5,363,451
6,443,989
====================================================================================================================================
Dividends and Dividends from net investment income:
Distributions to Class A (773,949) (4,694,006)
(4,502,183)
Shareholders Class B (47,009) (189,244)
(89,348)
- -----------------------------------------------------------------------------------------------------------------
Dividends in excess of net investment income:
Class A -- -- (258,329)
Class B -- -- (8,756)
- -----------------------------------------------------------------------------------------------------------------
Distributions from net realized gain:
Class A -- (11,115) --
Class B -- (475) --
- -----------------------------------------------------------------------------------------------------------------
Distributions in excess of net realized gain:
Class A -- (60,043) --
Class B -- (2,568) --
====================================================================================================================================
Capital Stock Net increase (decrease) in net assets resulting from Transactions
capital stock transactions--Note 2:
Class A (125,718) (1,651,052)
(2,943,992)
Class B 487,540 2,817,402
1,383,961
====================================================================================================================================
Net Assets Total increase 390,014 1,572,350
25,342
- -----------------------------------------------------------------------------------------------------------------
Beginning of period 82,355,055 80,782,705
80,757,363
------------ ------------ -------------
End of period [including undistributed (overdistributed)
net investment income of $598,945, $(132,853) and
$(98,805), respectively] $ 82,745,069 $ 82,355,055 $
80,782,705
============
============ =============
</TABLE>
1. The Fund changed its fiscal year end from June 30 to
August 31.
See accompanying Notes to Financial Statements.
11 Oppenheimer Main Street California Municipal Fund
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
Class A
-----------------------------------------------------------
Two Months
Ended
August 31, Year Ended June 30,
1996(2) 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
==============================================================================================================
Per Share Operating Data:
Net asset value, beginning of period $12.15 $12.09 $11.82 $12.66 $12.05 $11.61
- --------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .12 .73 .73 .75 .80 .82
Net realized and unrealized
gain (loss) .01 .07 .27 (.80) .64 .45
Total income (loss)
from investment operations .13 .80 1.00 (.05) 1.44 1.27
- --------------------------------------------------------------------------------------------------------------
Dividends and distributions to
shareholders:
Dividends from net investment income (.12) (.73) (.69) (.73) (.81) (.82)
Dividends in excess of net
investment income -- -- (.04) (.03) -- --
Distributions from net realized gain -- --(3) -- -- (.02) (.01)
Distributions in excess of net
realized gain -- (.01) -- (.03) -- --
Total dividends and
distributions to shareholders (.12) (.74) (.73) (.79) (.83) (.83)
<PAGE>
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.16 $12.15 $12.09 $11.82 $12.66 $12.05
====== ====== ====== ======
====== ======
=============================================================================================================
Total Return, at Net Asset Value(4) 1.12% 6.73% 8.93% (0.60)% 12.53
11.21%
=============================================================================================================
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) $76,817 $76,913 $78,134 $79,555 $72,387 $40,055
- --------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $77,584 $78,676 $76,148 $81,741 $54,840 $26,304
- --------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 6.00%(5) 5.99% 6.27% 6.09% 6.46% 6.74%
Expenses(6) 0.57%(5) 0.58% 0.57% 0.53% 0.39% 0.32%
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(7) 1.4% 33.1% 14.2% 20.2% 5.8% 25.7%
</TABLE>
<TABLE>
<CAPTION>
Class B
-----------------
Two Months
Ended
August 31, Year Ended June 30,
1996(2) 1996
1995 1994(1)
=============================================================================================================
<S> <C> <C> <C> <C>
Per Share Operating Data:
Net asset value, beginning of period $12.14 $12.08 $11.80 $12.90
- -------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .10 .61 .62 .38
Net realized and unrealized
gain (loss) -- .07 .27 (1.07)
------ ------
Total income (loss)
from investment operations .10 .68 .89 (.69)
- -------------------------------------------------------------------------------------------------------------
Dividends and distributions to
shareholders:
Dividends from net investment income (.10) (.61) (.57) (.37)
Dividends in excess of net
investment income -- -- (.04) (.01)
Distributions from net realized gain -- --(3) -- --
Distributions in excess of net
realized gain -- (.01) -- (.03)
------ ------
Total dividends and
distributions to shareholders (.10) (.62) (.61) (.41)
- -------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.14 $12.14 $12.08 $11.80
====== ====== ======
======
=============================================================================================================
Total Return, at Net Asset Value(4) 0.85% 5.66% 7.90% (5.42)%
=============================================================================================================
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) $5,928 $5,442 $2,648 $1,203
- -------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $5,767 $3,848 $1,904 $649
- -------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 4.92%(5) 4.94% 5.17% 4.91%(5)
Expenses(6) 1.62%(5) 1.60% 1.55% 1.62%(5)
- -------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(7) 1.4% 33.1% 14.2% 20.2%
</TABLE>
1. For the period from October 29, 1993 (inception of offering) to June 30,
1994.
2. The Fund changed its fiscal year end from June 30 to August 31.
3. Less than $.005 per share.
4. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period (or inception of offering), with all dividends
and distributions reinvested in additional shares on the reinvestment date, and
redemption at the net asset value calculated on the last business day of the
fiscal period. Sales charges are not reflected in the total returns. Total
returns are not annualized for periods of less than one full year.
5. Annualized.
6. Beginning in fiscal 1995, the expense ratio reflects the effect of gross
expenses paid indirectly by the Fund. Prior year expense ratios have not been
adjusted.
7. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities owned
during the period. Securities with a maturity or expiration date at the time of
acquisition of one year or less are excluded from the calculation. Purchases and
sales of investment securities (excluding short-term securities) for the period
ended August 31, 1996 were $2,272,749 and $1,109,040, respectively.
See accompanying Notes to Financial Statements.
12 Oppenheimer Main Street California Municipal Fund
<PAGE>
Notes to Financial Statements
================================================================================
1. Significant
Accounting Policies
Oppenheimer Main Street California Municipal Fund (the Fund), operating under
the name Oppenheimer Main Street California Tax-Exempt Fund through October 9,
1996, 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. On August 27, 1996, the Board of Directors elected to change
the fiscal year end of the Fund from June 30 to August 31. Accordingly, these
financial statements include information for the two month period from July 1,
1996 to August 31, 1996. 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 for individual investors that is consistent with preservation of
<PAGE>
capital. The Fund's investment adviser is OppenheimerFunds, Inc. (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 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
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 are valued
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 for tax purposes. The character of the
distributions made during the year from net investment income or net realized
gains may differ from the 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 two months ended August 31, 1996, the Fund adjusted the
classification of distributions to shareholders to reflect the differences
between financial statement amounts and distributions determined in accordance
with income tax regulations. Accordingly, during the two months ended August 31,
1996, amounts have been reclassified to reflect a decrease in paid-in capital of
$743,288, a decrease in overdistributed net investment income of $713,737, and a
decrease in accumulated net realized loss on investments of $29,551.
13 Oppenheimer Main Street California Municipal Fund
<PAGE>
Notes to Financial Statements (Continued)
================================================================================
1. Significant
Accounting Policies
(continued)
Other. Investment transactions are accounted for on the date the investments are
purchased or sold (trade 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, on
disposition or maturity, taxable ordinary income is recognized to the extent of
the lesser of gain or market discount that would have accrued over the holding
period. Realized gains and losses on investments and unrealized appreciation and
depreciation are determined on an identified cost basis, which is the same basis
used for federal income tax purposes. The Fund concentrates its investments in
California and, therefore, may have more credit risks related to the economic
conditions of California than a portfolio with a broader geographical
diversification.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
================================================================================
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>
Two Months Ended
August 31, 1996(1) Year Ended June 30, 1996 Year
Ended June 30, 1995
----------------------- ------------------------ -------------------------
Shares Amount Shares Amount Shares
Amount
<S> <C> <C> <C> <C>
<C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A:
Sold 67,135 $ 819,316 387,788 $ 4,767,548 549,187
$ 6,492,313
Dividends and distributions reinvested 39,490 483,642 243,712 2,993,646
262,815 3,070,057
Redeemed (116,433) (1,428,676) (765,193) (9,412,246)
(1,081,996) (12,506,362)
-------- ----------- -------- ----------- ---------- ------------
Net decrease (9,808) $ (125,718) (133,693) $(1,651,052)
(269,994) $ (2,943,992)
======== =========== ========
=========== ========== ============
- ------------------------------------------------------------------------------------------------------------------------------------
Class B:
Sold 44,022 $ 538,404 247,941 $ 3,048,438 125,642
$ 1,482,012
Dividends and distributions reinvested 2,450 29,980 9,629 117,946
4,898 57,310
Redeemed (6,620) (80,844) (28,549) (348,982) (13,193)
(155,361)
-------- ----------- -------- ----------- ---------- ------------
Net increase 39,852 $ 487,540 229,021 $ 2,817,402 117,347
$ 1,383,961
======== =========== ========
=========== ========== ============
</TABLE>
1. The Fund changed its fiscal year end from June 30 to August 31.
<PAGE>
================================================================================
3. Unrealized Gains and
Losses on Investments
At August 31, 1996, net unrealized depreciation on investments of $1,248 was
composed of gross appreciation of $1,788,329, and gross depreciation of
$1,789,577.
================================================================================
4. Management Fees
And Other Transactions
With Affiliates
Management fees paid to the Manager were in accordance with the investment
advisory agreement with the Fund which provides for a fee of 0.55% of average
annual net assets, with a contractual waiver when net assets are less than $100
million. Annual fees, reflecting this waiver, are 0.40% of net assets of $75
million or more but less than $100 million, 0.25% of net assets of $50 million
or more but less than $75 million, 0.15% 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 two months ended August 31, 1996, commissions (sales charges paid
by investors) on sales of Class A shares totaled $24,568, of which $4,283 was
retained by OppenheimerFunds Distributor, Inc. (OFDI), a subsidiary of the
Manager, as general distributor, and by an affiliated broker/dealer. Sales
charges advanced to broker/dealers by OFDI on sales of the Fund's Class B shares
totaled $19,208. During the two months ended August 31, 1996, OFDI received
contingent deferred sales charges of $2,863 upon redemption of Class B shares.
OppenheimerFunds Services (OFS), a division of the Manager, is the transfer
and shareholder servicing agent for the Fund, and for other registered
investment companies. OFS's total costs of providing such services are allocated
ratably to these companies.
Expenses paid indirectly represent a reduction of custodian fees for
earnings on cash balances maintained by the Fund.
14 Oppenheimer Main Street California Municipal Fund
<PAGE>
================================================================================
4. Management Fees
And Other Transactions
With Affiliates
(continued)
The Fund has adopted a reimbursement type Distribution and Service Plan for
Class B shares to reimburse OFDI for its services and costs in distributing
Class B shares and servicing accounts. Under the Plan, the Fund pays OFDI an
annual asset-based sales charge of 0.75% per year on Class B shares that are
outstanding for 6 years or less. OFDI also receives a service fee of 0.25% per
year to reimburse dealers for providing personal services for accounts that hold
Class B shares. Both fees are computed on the average annual net assets of Class
B shares, determined as of the close of each regular business day. 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 OFDI for certain expenses it
incurred before the Plan was terminated. During the two months ended August 31,
1996, OFDI retained $8,439 as reimbursement for Class B sales commissions and
service fee advances, as well as financing costs. As of August 31, 1996, OFDI
had incurred unreimbursed expenses of $239,334 for Class B.
================================================================================
5. Futures Contracts
The Fund may buy and sell interest rate futures contracts in order to gain
exposure to or protect against changes in interest rates. The Fund may also buy
or write put or call options on these futures contracts.
The Fund generally sells futures contracts to hedge against increases in
interest rates and the resulting negative effect on the value of fixed rate
portfolio securities. The Fund may also purchase futures contracts to gain
exposure to changes in interest rates as it may be more efficient or cost
effective than actually buying fixed income securities.
Upon entering into a futures contract, the Fund is required to deposit
either cash or securities in an amount (initial margin) equal to a certain
percentage of the contract value. Subsequent payments (variation margin) are
made or received by the Fund each day. The variation margin payments are equal
to the daily changes in the contract value and are recorded as unrealized gains
and losses. The Fund recognizes a realized gain or loss when the contract is
closed or expires.
Securities held in collateralized accounts to cover initial margin
requirements on open futures contracts are noted in the Statement of
Investments. The Statement of Assets and Liabilities reflects a receivable or
payable for the daily mark to market for variation margin.
Risks of entering into futures contracts (and related options) include the
possibility that there may be an illiquid market and that a change in the value
of the contract or option may not correlate with changes in the value of the
underlying securities.
At August 31, 1996, the Fund had outstanding futures contracts to sell debt
securities as follows:
<TABLE>
<CAPTION>
Number of Valuation as of Unrealized
Contracts to Sell Expiration Date Futures Contracts August 31, 1996 Appreciation
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Bonds 12/96 5 $533,906 $8,594
</TABLE>
15 Oppenheimer Main Street California Municipal Fund
<PAGE>
APPENDIX A
Description of Ratings Categories
Municipal Bonds
o Moody's Investor Services, Inc. The ratings of Moody's Investors Service, Inc.
("Moody's") for Municipal Bonds are Aaa, Aa, A, Baa, Ba, B, Caa, Ca and C.
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. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well. Bonds which are rated "Ba" are
judged to have speculative elements; their future cannot be considered as well
assured. Often the protection of interest and principal payments may be very
moderate and thereby not well safeguarded during both good and bad times over
the future. Uncertainty of position characterizes bonds in this class. Bonds
which are rated "B" generally lack characteristics of the 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. Bonds which are rated
"Caa" are of poor standing. Such issues may be in default or there may be
present elements of danger with respect to principal or interest. Bonds which
are rated "Ca" represent obligations which are speculative in a high degree.
Such issues are often in default or have other marked shortcomings. Bonds which
are rated "C" are the lowest rated class of bonds, and issues so rated can be
regarded as having extremely poor prospects of ever attaining any real
investment standing. Those bonds in the Aa, A, Baa, Ba and B groups which
Moody's believes possess the strongest investment attributes are designated Aa1,
A1, Baa1, Ba1 and B1 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.
o Standard & Poor's Corporation. The ratings of Standard & Poor's Corporation
("S&P") for Municipal Bonds are AAA (Prime), AA (High Grade), A (Good Grade),
BBB (Medium Grade), BB,
A-1
<PAGE>
B, CCC, CC, and C (speculative grade). Bonds rated in the top four categories
(AAA, AA, A, BBB) are commonly referred to as "investment 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 rating 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.
Bonds rated "BB" have less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which would lead to
inadequate capacity to meet timely interest and principal payments. Bonds rated
"B" have a greater vulnerability to default, but currently has the capacity to
meet interest payments and principal repayments. Adverse business, financial, or
economic conditions will likely impair capacity or willingness to pay interest
and repay principal. Bonds rated "CCC" have a current identifiable vulnerability
to default, and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial, or economic conditions, it is not likely
to have the capacity to pay interest and repay principal. Bonds noted "CC"
typically are debt subordinated to senior debt which is assigned on actual or
implied "CCC" debt rating. Bonds rated "C" typically are debt subordinated to
senior debt which is assigned an actual or implied "CCC-" debt rating. The "C"
rating may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued. Bonds rated "D" are in payment
default. The "D" rating category is used when interest payments or principal
payments are not made on the date due even if the applicable grace period has
not expired, unless S&P believes that such payments will be made during the
grace period. The "D" rating also will be used upon the filing of a bankruptcy
petition if debt service payments are jeopardized.
The ratings from AA to CCC may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
o Fitch. The ratings of Fitch Investors Service, Inc. for Municipal Bonds are
AAA, AA, A, BBB, BB, B, CCC, CC, C, DDD, DD, and D. Municipal Bonds rated AAA
are judged to be of the
A-2
<PAGE>
"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. Bonds
rated AAA, AA, A and BBB are considered to be of investment grade quality. Bonds
rated below BBB are considered to be of speculative quality. The ratings of "BB"
is assigned to bonds considered by Fitch to be "speculative." The rating of "B"
is assigned to bonds considered by Fitch to be "highly speculative." Bonds rated
"CCC" have certain identifiable characteristics which, if not remedied, may lead
to default. Bonds rated "CC" are minimally protected. Default in payment of
interest and/or principal seems probable over time. Bonds rated "C" are in
imminent default in payment of interest or principal. Bonds rated "DDD", "DD"
and "D" are in default on interest and/or principal payments. DDD represents the
highest potential for recovery on these bonds, and D represents the lowest
potential for recovery.
o Duff & Phelps' The ratings of Duff & Phelps are as follows: AAA which are
judged to be the "highest credit quality". The risk factors are negligible,
being only slightly more than for risk-free US Treasury debt. AA+, AA & AA- High
credit quality protection factors are strong. Risk is modest but may vary
slightly from time to time because of economic conditions. A+, A & A- Protection
factors are average but adequate. However, risk factors are more variable and
greater in periods of economic stress. BBB+, BBB & BBB- Below average protection
factors but still considered sufficient for prudent investment. Considerable
variability in risk during economic cycles. BB+, BB & BB- Below investment grade
but deemed to meet obligations when due. Present or prospective financial
protection factors fluctuate according to industry conditions or company
fortunes. Overall quality may move up or down frequently within the category.
B+, B & B- Below investment grade and possessing risk that obligations will not
be met when due. Financial protection factors will fluctuate widely according to
economic cycles, industry conditions and/or company fortunes. Potential exists
for frequent changes in the rating within this category or into a higher of
lower rating grade. CCC Well below investment grade securities. Considerable
uncertainty exists as to timely payment of principal interest or preferred
dividends. Protection factors are narrow and risk can be substantial with
unfavorable economic industry conditions, and/or with unfavorable company
developments. DD Defaulted debt obligations issuer failed to meet scheduled
principal and/or interest payments. DP Preferred stock with dividend arreages.
Municipal Notes
o 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.
A-3
<PAGE>
o S&P's rating for Municipal Notes due in three years or less are SP-1,
SP-2, and SP-3. 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. SP-3 describes issues that have a speculative capacity
to pay principal and interest.
o Fitch's rating for Municipal Notes due in three years or less are
F-1+, F-1, F-2, F-3, F-S and D. 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. F-S describes notes with weak
credit quality. Issues rated D are in actual or imminent payment default.
Corporate Debt
The "other debt securities" included in the definition of temporary
investments are corporate (as opposed to municipal) debt obligations. The
Moody's, S&P and Fitch corporate debt ratings shown do not differ materially
from those set forth above for Municipal Bonds.
Commercial Paper
o Moody's The ratings of commercial paper by Moody's are Prime-1,
Prime-2, Prime-3 and Not Prime. Issuers rated Prime-1 have a superior capacity
for repayment of short-term promissory obligations. Issuers rated Prime-2 have a
strong capacity for repayment of short-term promissory obligations. Issuers
rated Prime-3 have an acceptable capacity for repayment of short-term promissory
obligations. Issuers rated Not Prime do not fall within any of the Prime rating
categories.
o S&P The ratings of commercial paper by S&P are A-1, A-2, A-3, B, C,
and D. A-1 indicates that the degree of safety regarding timely payment is
strong. A-2 indicates capacity for timely payment is satisfactory. However, the
relative degree of safety is not as high as for issues designated A-1. A-3
indicates an adequate capacity for timely payments. They are, however, more
vulnerable to the adverse effects of changes in circumstances than obligations
carrying the higher designations. B indicates only speculative capacity for
timely payment. C indicates a doubtful capacity for payment. D is assigned to
issues in default.
o Fitch The ratings of commercial paper by Fitch are similar to its
ratings of Municipal Notes, above.
A-4
<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, 1996. "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 rate will be 45.22%.
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, 1996. "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 rate will be 45.22%.
<TABLE>
<CAPTION>
Combined Taxable Income
Joint Return Effective Tax Bracket Oppenheimer California Tax-Exempt
Fund Yield of:
-----------------------------------
But Cali- 2.00% 2.50% 3.00% 3.50% 3.82%
4.00% 4.37%
Over Not Over Federal fornia Combined Is Approximately Equivalent to a Taxable
Yield of:
- ---- -------- ------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 22,898 $ 36,138 15.00% 4.00% 18.40% 2.45% 3.06% 3.68% 4.29% 4.68% 4.90% 5.36%
$ 36,138 $ 40,100 15.00% 6.00% 20.10% 2.50% 3.13% 3.75% 4.38% 4.78% 5.01% 5.47%
$ 40,100 $ 50,166 28.00% 6.00% 32.32% 2.96% 3.69% 4.43% 5.17% 5.64% 5.91% 6.46%
$ 50,166 $ 63,400 28.00% 8.00% 33.76% 3.02% 3.77% 4.53% 5.28% 5.77% 6.04% 6.60%
$ 63,400 $ 96,900 28.00% 9.30% 34.70% 3.06% 3.83% 4.59% 5.36% 5.85% 6.13% 6.69%
$ 96,900 $147,700 31.00% 9.30% 37.42% 3.20% 3.99% 4.79% 5.59% 6.10% 6.39% 6.98%
$147,700 $219,872 36.00% 9.30% 41.95% 3.45% 4.31% 5.17% 6.03% 6.58% 6.89% 7.53%
$219,872 $263,750 36.00% 10.00% 42.40% 3.47% 4.34% 5.21% 6.08% 6.63% 6.94% 7.59%
$263,750 $439,744 39.60% 10.00% 45.64% 3.68% 4.60% 5.52% 6.44% 7.03% 7.36% 8.04%
$439,744 and above 39.60% 11.00% 46.24% 3.72% 4.65% 5.58% 6.51% 7.11% 7.44% 8.13%
</TABLE>
B-1
<PAGE>
<TABLE>
<CAPTION>
4.50% 5.00% 5.50% 6.00% 6.50% 7.00%
Is Approximately Equivalent to a Taxable Yield of:
<S> <C> <C> <C> <C> <C>
5.51% 6.13% 6.74% 7.35% 7.97% 8.58%
5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
6.65% 7.39% 8.13% 8.87% 9.60% 10.34%
6.79% 7.55% 8.30% 9.06% 9.81% 10.57%
6.89% 7.66% 8.42% 9.19% 9.95% 10.72%
7.19% 7.99% 8.79% 9.59% 10.39% 11.19%
7.75% 8.61% 9.47% 10.34% 11.20% 12.06%
7.81% 8.68% 9.55% 10.42% 11.28% 12.15%
8.28% 9.20% 10.12% 11.04% 11.96% 12.88%
8.37% 9.30% 10.23% 11.16% 12.09% 13.02%
</TABLE>
<TABLE>
<CAPTION>
Single Return:
But
Over Not Over 2.00% 2.50% 3.00% 3.50% 3.82%
4.00% 4.37%
- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 18,069 $ 24,000 15.00% 6.00% 20.10% 2.50% 3.13% 3.75% 4.38% 4.78% 5.01% 5.47%
$ 24,000 $ 25,083 28.00% 6.00% 32.32% 2.96% 3.69% 4.43% 5.17% 5.64% 5.91% 6.46%
$ 25,083 $ 31,700 28.00% 8.00% 33.76% 3.02% 3.77% 4.53% 5.28% 5.77% 6.04% 6.60%
$ 31,700 $ 58,150 28.00% 9.30% 34.70% 3.06% 3.83% 4.59% 5.36% 5.85% 6.13% 6.69%
$ 58,150 $109,936 31.00% 9.30% 37.42% 3.20% 3.99% 4.79% 5.59% 6.10% 6.39% 6.98%
$109,936 $121,300 31.00% 10.00% 37.90% 3.22% 4.03% 4.83% 5.64% 6.15% 6.44% 7.04%
$121,300 $219,872 36.00% 10.00% 42.40% 3.47% 4.34% 5.21% 6.08% 6.63% 6.94% 7.59%
$219,872 $263,750 36.00% 11.00% 43.04% 3.51% 4.39% 5.27% 6.14% 6.71% 7.02% 7.67%
$263,750 and above 39.60% 11.00% 46.24% 3.72% 4.65% 5.58% 6.51% 7.11% 7.44% 8.13%
4.50% 5.00% 5.50% 6.00% 6.50% 7.00%
5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
6.65% 7.39% 8.13% 8.87% 9.60% 10.34%
6.79% 7.55% 8.30% 9.06% 9.81% 10.57%
6.89% 7.66% 8.42% 9.19% 9.95% 10.72%
7.19% 7.99% 8.79% 9.59% 10.39% 11.19%
7.25% 8.05% 8.86% 9.66% 10.47% 11.27%
7.81% 8.68% 9.55% 10.42% 11.28% 12.15%
7.90% 8.78% 9.66% 10.53% 11.41% 12.29%
8.37% 9.30% 10.23% 11.16% 12.09% 13.02%
</TABLE>
B-2
<PAGE>
APPENDIX C
Municipal Bond Industry Classifications
Electric
Gas
Water
Sewer
Telephone
Adult Living Facilities
Hospital
General Obligation
Special Assessment
Sales Tax
Manufacturing, Non Durables
Manufacturing, Durables
Pollution Control
Resource Recovery
Higher Education
Education
Lease Rental
Non Profit Organization
highways
Marine/Aviation Facilities
Mufti Family Housing
Single Family Housing
C-1
<PAGE>
Investment Adviser
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048-0203
Distributor
OppenheimerFunds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer and Shareholder Servicing Agent
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian of Portfolio Securities
The Bank of New York
One Wall Street
New York, New York 10015
Independent Auditors
Deloitte & Touche LLP
555 Seventeenth Street, Suite 3600
Denver, Colorado 80202-3942
Legal Counsel
Myer, Swanson, Adams & Wolf, P.C.
1600 Broadway
Denver, Colorado 80202
