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As filed with the Securities and Exchange Commission on OMB APPROVAL
February 23, 2006
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Registration No. 2-86903 OMB Number:3235-0336
Expires March 31, 2008
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
PRE-EFFECTIVE AMENDMENT NO. __ / /
POST-EFFECTIVE AMENDMENT NO. __ / /
OPPENHEIMER BALANCED FUND
[GRAPHIC OMITTED][GRAPHIC OMITTED]
(Exact Name of Registrant as Specified in Charter)
6803 South Tucson Way, Centennial, Colorado 80112-3924
[GRAPHIC OMITTED][GRAPHIC OMITTED]
(Address of Principal Executive Offices)
303-768-3200
[GRAPHIC OMITTED][GRAPHIC OMITTED]
(Registrant's Area Code and Telephone Number)
Robert G. Zack, Esq.
Executive Vice President & General Counsel
OppenheimerFunds, Inc.
Two World Financial Center
225 Liberty Street
New York, New York 10148
(212) 323-0250
[GRAPHIC OMITTED][GRAPHIC OMITTED]
(Name and Address of Agent for Service)
As soon as practicable after the Registration Statement becomes effective.
[GRAPHIC OMITTED][GRAPHIC OMITTED]
(Approximate Date of Proposed Public Offering)
Title of Securities Being Registered: Class A, Class B, Class C and Class N shares of
Oppenheimer Balanced Fund.
It is proposed that this filing will become effective on February 23, 2006 pursuant to Rule
488.
No filing fee is due because of reliance on Section 24(f) of the Investment Company Act of
1940, as amended.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement contains the following pages and documents:
Front Cover
Contents Page
Part A
Combined Prospectus and Proxy Statement of Oppenheimer Balanced Fund
Part B
Statement of Additional Information
Part C
Other Information
Signatures
Exhibits
OPPENHEIMER DISCIPLINED ALLOCATION FUND
6803 South Tucson Way, Centennial, Colorado 80112
1.800.225.5677
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON April 20, 2006
To the Shareholders of Oppenheimer Disciplined Allocation Fund:
Notice is hereby given that a Special Meeting of the Shareholders of
Oppenheimer Disciplined Allocation Fund, a series of Oppenheimer Series Fund,
Inc. ("Disciplined Allocation Fund"), a registered open-end management
investment company, will be held at 6803 South Tucson Way, Centennial,
Colorado 80112 at 1:00 p.m., Mountain time, on April 20, 2006, or any
adjournments thereof (the "Meeting"), for the following purposes:
1. To approve an Agreement and Plan of Reorganization between Disciplined
Allocation Fund and Oppenheimer Balanced Fund ("Balanced Fund"), and
the transactions contemplated thereby, including: (a) the transfer of
substantially all the assets of Disciplined Allocation Fund to
Balanced Fund in exchange for Class A, Class B, Class C and Class N
shares of Balanced Fund; (b) the distribution of these shares of
Balanced Fund to the corresponding Class A, Class B, Class C and Class
N shareholders of Disciplined Allocation Fund in complete liquidation
of Disciplined Allocation Fund; and (c) the cancellation of the
outstanding shares of Disciplined Allocation Fund (all of the
foregoing being referred to as the "Proposal"); and
2. To act upon such other matters as may properly come before the Meeting.
Shareholders of record at the close of business on January 20, 2006 are
entitled to notice of, and to vote at, the Meeting. The Proposal is more
fully discussed in the combined Prospectus and Proxy Statement. Please read
it carefully before telling us, through your proxy or in person, how you wish
your shares to be voted. The Board of Directors of Disciplined Allocation
Fund recommends a vote in favor of the Proposal.
YOU CAN VOTE ON THE INTERNET, BY TELEPHONE OR BY MAIL.
WE URGE YOU TO VOTE PROMPTLY.
YOUR VOTE IS IMPORTANT.
By Order of the Board of Directors,
Robert G. Zack, Secretary
March 1, 2006
____________________________________________________________________________________________
PLEASE VOTE THE ENCLOSED PROXY TODAY.
YOUR VOTE IS IMPORTANT NO MATTER HOW MANY SHARES YOU OWN.
OPPENHEIMER BALANCED FUND
6803 South Tucson Way, Centennial, Colorado 80112
1.800.225.5677
COMBINED PROSPECTUS AND PROXY STATEMENT
dated March 1, 2006
SPECIAL MEETING OF SHAREHOLDERS OF
OPPENHEIMER DISCIPLINED ALLOCATION FUND
to be held on April 20, 2006
Acquisition of the Assets of
OPPENHEIMER DISCIPLINED ALLOCATION FUND
6803 South Tucson Way, Centennial, Colorado 80112
1.800.225.5677
By and in exchange for Class A, Class B, Class C and Class N shares of
OPPENHEIMER BALANCED FUND
This combined Prospectus and Proxy Statement solicits proxies from the
shareholders of Oppenheimer Disciplined Allocation Fund ("Disciplined
Allocation Fund"), an open-end management investment company, to be voted at
a Special Meeting of Shareholders (the "Meeting") to approve the Agreement
and Plan of Reorganization (the "Reorganization Agreement") and the
transactions contemplated thereby (the "Reorganization") between Disciplined
Allocation Fund and Oppenheimer Balanced Fund ("Balanced Fund"), an open-end
management investment company. This combined Prospectus and Proxy Statement
constitutes the Prospectus of Balanced Fund and the Proxy Statement of
Disciplined Allocation Fund filed on Form N-14 with the Securities and
Exchange Commission ("SEC"). If shareholders of Disciplined Allocation Fund
vote to approve the Reorganization Agreement and the Reorganization,
substantially all of the assets of Disciplined Allocation Fund will be
transferred to Balanced Fund in exchange for shares of Balanced Fund and the
assumption of certain liabilities, if any, described in the Reorganization
Agreement. The Meeting will be held at the offices of OppenheimerFunds, Inc.
("Manager") at 6803 South Tucson Way, Centennial, Colorado 80112 on April 20,
2006 at 1:00 P.M., Mountain time. The Board of Directors of Disciplined
Allocation Fund is soliciting these proxies on behalf of Disciplined
Allocation Fund. This Prospectus and Proxy Statement will first be sent to
shareholders on or about March 1, 2006.
If the shareholders of Disciplined Allocation Fund vote to approve the
Reorganization Agreement and the Reorganization, shareholders will receive
Class A shares of Balanced Fund equal in value to the value as of the
"Valuation Date," which is the business day preceding the Closing Date of the
Reorganization, of their Class A shares of Disciplined Allocation Fund; Class
B shares of Balanced Fund equal in value to the value as of the Valuation
Date of their Class B shares of Disciplined Allocation Fund; Class C shares
of Balanced Fund equal in value to the value as of the Valuation Date of
their Class C shares of Disciplined Allocation Fund; and Class N shares of
Balanced Fund equal in value to the value as of the Valuation Date of their
Class N shares of Disciplined Allocation Fund. Disciplined Allocation Fund
will then be subsequently dissolved.
This combined Prospectus and Proxy Statement gives information about
the Class A, Class B, Class C and Class N shares of Balanced Fund that you
should know before investing. You should retain it for future reference. A
Statement of Additional Information, dated March 1, 2006, relating to the
Reorganization, has been filed with the SEC as part of the Registration
Statement on Form N-14 (the "Registration Statement") and is incorporated
herein by reference. You may receive a free copy by writing to
OppenheimerFunds Services (the "Transfer Agent") at P.O. Box 5270, Denver,
Colorado 80217 or by calling toll-free 1.800.225.5677.
The Prospectus of Balanced Fund dated January 27, 2006, is enclosed
herewith and considered a part of this combined Prospectus and Proxy
Statement. It is intended to provide you with information about Balanced
Fund. For more information regarding Balanced Fund, in addition to its
Prospectus, see the Statement of Additional Information dated January 27,
2006, which includes audited financial statements of Balanced Fund for the
12-month period ended September 30, 2005. These documents have been filed
with the SEC and are incorporated herein by reference. You may receive a
free copy of these documents by writing to the Transfer Agent at P.O. Box
5270, Denver, Colorado 80217, by calling toll-free 1.800.225.5677 or by
visiting the website at www.oppenheimerfunds.com.
For more information regarding Disciplined Allocation Fund, see the
Prospectus of Disciplined Allocation Fund dated February 28, 2005 as
supplemented September 30, 3005. In addition to its Prospectus, see the
Statement of Additional Information of Disciplined Allocation Fund dated
February 28, 2005, revised December 6, 2005; and the annual report of
Disciplined Allocation Fund dated October 31, 2005 which includes audited
financial statements of Disciplined Allocation Fund for the 12-month period
ended October 31, 2005. See also the audited financial statements of
Disciplined Allocation Fund for the 12-month period ended October 31, 2005.
These documents have been filed with the SEC and are incorporated herein by
reference. You may receive a free copy of these documents by writing to the
Transfer Agent at P.O. Box 5270, Denver, Colorado 80217, by calling toll-free
1.800.225.5677 or by visiting the website at www.oppenheimerfunds.com.
Mutual fund shares are not deposits or obligations of any bank, and are not
insured or guaranteed by the Federal Deposit Insurance Corporation or any
other U.S. government agency. Mutual fund shares involve investment risks
including the possible loss of principal.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
Prospectus and Proxy Statement. Any representation to the contrary is a
criminal offense.
This combined Prospectus and Proxy Statement is dated March 1, 2006.
TABLE OF CONTENTS
COMBINED PROSPECTUS AND PROXY STATEMENT
Page
Synopsis................................................................
What am I being asked to vote on?....................................
What are the general tax consequences of the Reorganization?.........
How do the investment objectives and policies of the Funds compare?..
What are the fees and expenses of each Fund and what are they expected to
be after
the Reorganization?...............................................
What are the capitalizations of the Funds and what would the
capitalization be after
the Reorganization?...............................................
How have the Funds performed?........................................
Management's Discussion of Balanced Fund's Performance..................
How do the account features and shareholder services for the Funds compare?
Purchases, Redemptions and Exchanges..............................
Dividends and Distributions.......................................
Other Shareholder Services........................................
What are the Principal Risks of an Investment in Disciplined Allocation Fund
or
Balanced Fund?..........................................................
Information About the Reorganization....................................
How will the Reorganization be carried out? .........................
Who will pay the expenses of the Reorganization? ....................
What are the tax consequences of the Reorganization? ................
Reasons for the Reorganization..........................................
Board Considerations ................................................
What should I know about Class A, Class B, Class C and Class N Shares of
Balanced Fund?.......................................................
What are the fundamental investment restrictions of the Funds?..........
Other Comparisons Between the Funds.....................................
Management of the Funds...........................................
Investment Management and Fees....................................
Distribution Services.............................................
Transfer Agency and Custody Services..............................
Shareholder Rights................................................
Voting Information .....................................................
How many votes are necessary to approve the Reorganization Agreement?
How do I ensure my vote is accurately recorded?......................
Can I revoke my proxy?...............................................
What other matters will be voted upon at the Meeting? ...............
Who is entitled to vote?.............................................
What other solicitations will be made?...............................
Additional Information About Disciplined Allocation Fund and Balanced Fund
Pending Litigation...................................................
Principal Shareholders...............................................
Exhibit A: Agreement and Plan of Reorganization between Oppenheimer
Disciplined Allocation Fund and Oppenheimer Balanced Fund............ A-1
Exhibit B: Principal Shareholders...................................... B-1
Enclosures:
Prospectus of Oppenheimer Balanced Fund dated January 27, 2006.
41
SYNOPSIS
This is only a summary and is qualified in its entirety by the more
detailed information contained in or incorporated by reference in this
combined Prospectus and Proxy Statement and by the Reorganization Agreement
which is attached as Exhibit A. Shareholders should carefully review this
Prospectus and Proxy Statement and the Reorganization Agreement in their
entirety and, in particular, the current Prospectus of Balanced Fund which
accompanies this Prospectus and Proxy Statement and is incorporated herein by
reference.
What am I being asked to vote on?
You are being asked by the Board of Directors of Disciplined Allocation
Fund to approve the reorganization of your Fund, Disciplined Allocation Fund,
with and into Balanced Fund (each individually a "Fund" and collectively the
"Funds"). If shareholders of Disciplined Allocation Fund approve the
Reorganization, substantially all of the assets of Disciplined Allocation
Fund will be transferred to Balanced Fund, in exchange for an equal value of
shares of Balanced Fund and the assumption of certain liabilities, if any,
described in the Reorganization Agreement. The shares of Balanced Fund will
then be distributed to Disciplined Allocation Fund shareholders, and
Disciplined Allocation Fund will subsequently be liquidated. If the
Reorganization is approved by shareholders of Disciplined Allocation Fund,
you will no longer be a shareholder of Disciplined Allocation Fund, and,
instead, will become a shareholder of Balanced Fund. This exchange will
occur on the Closing Date (as such term is defined in the Reorganization
Agreement attached hereto as Exhibit A) of the Reorganization.
Approval of the Reorganization means that as a shareholder in
Disciplined Allocation Fund, you will receive Class A, Class B, Class C and
Class N shares of Balanced Fund equal in value to the value of the net assets
of Disciplined Allocation Fund transferred to Balanced Fund on the Closing
Date. The shares you receive will be issued at net asset value ("NAV")
without a sales charge and will not be subject to any contingent deferred
sales charge ("CDSC").
In considering whether to approve the Reorganization, you should
consider, among other things:
(i) The number of similarities (as well as some principal differences)
between the Funds (as discussed herein) and the relative
advantages and disadvantages of each Fund.
(ii) That the Reorganization would allow you the ability to continue your
investment in a fund that closely resembles the investment
style you were seeking when you invested in Disciplined
Allocation Fund.
Balanced Fund is an open-end, diversified, management investment company
organized as a Massachusetts business trust. Disciplined Allocation Fund is a
series of Oppenheimer Series Fund, Inc., an open-end, diversified management
investment company organized as a Maryland Corporation. Disciplined
Allocation Fund commenced operations on September 16, 1985. Balanced Fund
commenced operations on April 24, 1987. Disciplined Allocation Fund is
significantly smaller than Balanced Fund. As of January 31, 2006,
Disciplined Allocation Fund had approximately $131 million in net assets. In
contrast, as of January 31, 2006, Balanced Fund had approximately $933
million in net assets. The Manager has concluded that Disciplined Allocation
Fund's assets will not increase substantially in size in the near future. By
merging into Balanced Fund, shareholders of Disciplined Allocation Fund
should have the benefit of economies of scale associated with a larger fund
while maintaining their investment in a fund with similar investment
objectives and policies. Additionally, the Manager is the investment advisor
to both Funds and employs the same team of investment professionals to manage
both Funds. (See the discussion in "Reasons for the Reorganization" beginning
on page __ below for more details.)
The Board of Disciplined Allocation Fund reviewed and discussed with
the Manager and the Board's independent legal counsel the proposed
Reorganization. Information with respect to, but not limited to, each Fund's
respective investment objectives and policies, management fees, distribution
fees and other operating expenses, historical performance and asset size, was
also considered by the Board of Disciplined Allocation Fund.
Based on the considerations discussed above and the reasons more fully
described under "Reasons for the Reorganization" (beginning on page __
below), together with other relevant factors and information, at a meeting
held on December 15, 2005, the Board of Directors of Disciplined Allocation
Fund concluded that the Reorganization would be in the best interests of
shareholders of Disciplined Allocation Fund and that the Fund would not
experience any dilution as a result of the Reorganization. The Board of
Directors of Disciplined Allocation Fund voted to approve the proposed
Reorganization and to recommend that shareholders approve the proposed
Reorganization.
The proposed Reorganization was also approved by the Board of Trustees
of Balanced Fund at a meeting held on December 15, 2005.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE
TO APPROVE THE AGREEMENT AND PLAN OF REORGANIZATION
What are the general tax consequences of the Reorganization?
It is expected that shareholders of Disciplined Allocation Fund will
not recognize any gain or loss for federal income tax purposes as a result of
the exchange of their shares for shares of Balanced Fund. You should,
however, consult your tax advisor regarding the effect, if any, of the
Reorganization in light of your individual circumstances. You should also
consult your tax advisor about state and local tax consequences.
For federal income tax purposes, the holding period of your Disciplined
Allocation Fund shares will be carried over to the holding period for
Balanced Fund shares you receive in connection with the Reorganization. This
exchange will occur on the Closing Date (as such term is defined in the
Reorganization Agreement) of the Reorganization. For further information
about the tax consequences of the Reorganization, please see the "Information
About the Reorganization--What are the Tax Consequences of the Reorganization?"
How do the investment objectives and policies of the Funds compare?
As shown in the chart below, the respective investment objectives and
strategies of the Funds are substantially similar.
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DISCIPLINED ALLOCATION FUND BALANCED FUND
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Investment Objectives
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Seeks to maximize investment return Seeks high total investment return
(including capital appreciation and consistent with preservation of
income) principally by allocating its principal.
assets among stocks, corporate bonds,
U.S. government securities and money
market instruments, according to
changing market conditions.
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Investment Strategies
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The Fund invests mainly in stocks, The Fund buys a variety of different
bonds and money market instruments. types of securities to seek its
The Manager can allocate the Fund's objective. Mainly, these include:
investments among these different
types of securities in different o Equity securities. Primarily common
proportions at different times to seek stocks of U.S. and foreign
the Fund's objective. That allocation companies. The Fund will
is based on the Manager's judgment of normally invest at least 25% of
where the best opportunities are for its total assets in stocks and
total return after evaluating market other equity securities.
and economic conditions.
o Debt securities. Including bonds
At least 25% of the Fund's total and notes issued by domestic
assets normally will be invested in and foreign companies (which
fixed-income senior securities. can include lower-grade,
Otherwise, the Fund is not required to high-yield securities),
allocate its investments among stocks, securities issued or guaranteed
bonds and money market instruments in by the U.S. Government and its
any fixed proportion. The Fund may agencies and instrumentalities,
have none or some of its assets including mortgage-related
invested in each asset class in securities (these are referred
relative proportions that change over to as "U.S. Government
time based on market and economic securities"), and debt
conditions. obligations of foreign
governments. The Fund will
Equity Securities. The Fund can buy a normally invest at least 25% of
variety of domestic and foreign its net assets in fixed-income
equity investments, including common senior securities.
and preferred stocks, warrants and
convertible securities (many of which o Money market instruments, which are
are debt securities that the Manager obligations that have a
considers to be "equity substitutes" maturity of 13 months or less,
because of their conversion feature). including short-term U.S.
The Fund currently emphasizes its Government securities,
equity investments in stocks of corporate and bank debt
domestic issuers. The Fund can buy obligations and commercial
securities of companies in different paper.
capitalization ranges.
Debt Securities. The Fund can invest In selecting securities for the Fund,
in a variety of debt securities the Fund's portfolio managers use
(including convertible securities), different investment styles to carry
such as securities issued or out an asset allocation strategy that
guaranteed by the U.S. government and seeks broad diversification across
its agencies and instrumentalities, asset classes. They normally maintain
including mortgage-related securities a balanced mix of stocks, debt
and collateralized mortgage securities and cash, although the
obligations ("CMOs"), and forward Fund has no requirements to weight
rolls with respect to the portfolio holdings in a fixed
mortgage-related securities. It also proportion. Therefore, the
can buy municipal securities, foreign portfolio's mix of equity and debt
government securities, and domestic securities and cash will change over
and foreign corporate debt time as the portfolio managers seek
obligations. The Fund can buy debt relative values and opportunities in
securities rated below investment different asset classes.
grade (these are commonly called
"junk bonds"), but has limits on Because the goal of total return is
those investments, as discussed to increase overall portfolio value
below. The Fund does not limit its from a combination of capital growth
investments to debt securities of a and income, the Fund invests in
particular maturity range, and may stocks mainly for their capital
hold both short- and long term debt appreciation potential and in debt
securities. securities both for income and for
total return. The income from debt
Money Market Instruments. Under normal securities and money market
market conditions (when the equity and instruments can also help the Fund
debt securities markets are not preserve principal when stock markets
unstable, in the Manager's view), the are volatile.
Fund can hold up to 40% of its total
assets in money market instruments,
such as short-term U.S. government
securities and commercial paper.
In selecting equity securities for The portfolio managers employ both
purchase or sale by the Fund, the "growth" and "value" styles in
Fund's portfolio managers use an selecting stocks. They employ
investment process that combines both fundamental analysis of a company's
"value" and "growth" investment financial statements and management
styles. They use a value strategy to structure, operations and product
find issuers whose securities are development, as well as the industry
believed to be undervalued in the of which the company is part. Value
marketplace. A growth investing style investing seeks stocks that are
encompasses a search for companies temporarily out of favor or
whose stock price is expected to undervalued in the market by various
increase at a greater rate than the measures, such as the stock's
overall market. These issuers may be price/earnings ratio. Growth
entering a growth phase marked by investing seeks stocks that the
increases in earnings, sales, cash managers believe have possibilities
flows or other factors, which suggest for increases in stock price because
that the stock may increase in value of strong earnings growth compared to
over time. the market, the development of new
products or services or other
favorable economic factors.
The portfolio managers construct the
equity portion of the portfolio using
a "bottom up" approach, focusing on
the fundamental prospects of
individual companies and issuers,
rather than on broad economic trends
affecting entire markets and
industries. The portfolio managers
focus on factors that may vary over
time and in particular cases.
Currently they look for:
o Individual stocks that are
attractive based on fundamental
stock analysis and company
characteristics;
o Growth stocks having high earnings
potential and earnings and sales
momentum; and
o Dividend-paying common stocks of
established companies for income.
The portfolio managers monitor
individual issuers for changes in
profit margins or slowing revenues
that might affect future cash flows or
growth. The existence of these changes
in a particular case may trigger a
decision to sell the security. The
portfolio managers may consider
selling a stock for one or more of the
following reasons:
o The stock price has reached its
target,
o The company's fundamentals appear to
be deteriorating, or
o Better stock selections are believed
to have been identified.
These approaches may change over time.
The Fund's portfolio managers analyze
the overall investment opportunities
and risks in different sectors of the
debt securities markets by focusing on
business cycle analysis and relative
values between the corporate and
government sectors. The portfolio
managers' overall strategy is to build
a broadly diversified portfolio of
corporate and government bonds. The
portfolio managers currently focus on
the factors below (which may vary in
particular cases and may change over
time), looking for:
o Debt securities in market sectors
that offer attractive
relative value,
o Investment-grade securities that
offer more income than U.S.
Treasury obligations with a
good balance of risk and
return,
o High income potential from different
types of corporate and
government securities, and
o Broad portfolio diversification to
help reduce the volatility of
the Fund's share prices.
The portfolio managers may
consider selling a bond for one
or more of the following reasons:
o The bond price has reached its
target,
o The bond's fundamentals appear to be
deteriorating, or
o Better bond selections are believed
to have been identified.
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Manager
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OppenheimerFunds, Inc. OppenheimerFunds, Inc.
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Portfolio Managers
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Christopher Leavy Christopher Leavy
Emmanuel Ferreira Emmanuel Ferreira
Angelo G. Manioudakis Angelo G. Manioudakis
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The investment polices of the Funds are substantially similar. Both
Funds primarily invest in stock and other equity investments of U.S. and
foreign companies, debt securities (including those issued by domestic and
foreign companies), and money market instruments (such as short-term U.S.
government securities and commercial paper). With respect to fixed income
investments, both Funds primarily invest in investment-grade debt securities,
which include domestic and foreign government bonds, domestic and foreign
corporate debt obligations, and mortgage related securities issued by private
issuers. Disciplined Allocation Fund also tends invest in money market
instruments to achieve its secondary objective of capital preservation and
can hold up to 40% of its total assets in money market instruments. Also,
Balanced Fund may hold up to 35% in below investment grade ("junk") bonds,
whereas Disciplined Allocation Fund can invest as much as 20% of its total
assets in lower-grade securities.
In terms of set allocation of assets among the classes of securities
purchased, at least 25% of each Fund's respective total assets will normally
be invested in fixed-income senior securities. Balanced Fund will also
normally invest at least 25% of its total assets in stocks and other equity
securities. Otherwise, neither Fund is required to allocate its investments
among stocks, bonds and money market instruments in any fixed proportion --
they may have some or none of their assets invested in each asset class in
relative proportions that change over time based on market and economic
conditions. Currently, however, the Funds focus mainly on U.S. government
securities and investment-grade debt securities. However, if market
conditions change, the Funds' portfolio managers can change the relative
allocation of the Funds' assets.
The members of the same portfolio management team manage both Funds and
the Funds' investment strategies are similar. Both Funds may employ "growth"
and "value" styles in selecting stocks. Both Funds may also invest in bonds
and money market instruments. The portfolio managers of both Funds also may
vary the portfolios' mix of equity and debt securities and cash over time as
they evaluate market and economic conditions to seek the best opportunities.
What are the fees and expenses of each Fund and what are they expected to be
after the Reorganization?
Disciplined Allocation Fund and Balanced Fund each pay a variety of
expenses directly for management of the respective Fund's assets,
administration and/or distribution of shares and other services. Those
expenses are subtracted from each Fund's assets to calculate the Fund's net
asset value per share. Shareholders pay these expenses indirectly.
Shareholders pay other expenses directly, such as sales charges.
The following table is provided to help you understand and compare the
fees and expenses of investing in shares of Disciplined Allocation Fund with
the fees and expenses of investing in shares of Balanced Fund. The pro forma
fees and expenses of the surviving Balanced Fund show what the fees and
expenses are expected to be after giving effect to the Reorganization of
Disciplined Allocation Fund into Balanced Fund.
The chart below reflects the current contractual management fee
schedule for each of the Funds and the proposed management fee schedule for
the surviving Balanced Fund upon the successful completion of the
Reorganization.
PRO FORMA FEE TABLES
For the 12 month period ended December 31, 2005
- ---------------------------------------------------------------------------------
Disciplined Balanced Pro Forma
Allocation
Fund Fund Surviving
Class A Class A Balanced Fund
shares Shares Class A shares
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Shareholder Transaction Expenses (charges paid directly from a shareholder's
investment)
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Maximum Sales Charge (Load) on 5.75% 5.75% 5.75%
purchases (as a % of offering
price)
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Maximum Deferred Sales Charge
(Load) (as a % of the lower of
the original offering price or None(1) None(1) None(1)
redemption proceeds)
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Annual Fund Operating Expenses (as a percentage of average daily net assets)
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Management Fees 0.63% 0.69% 0.69%
- ---------------------------------------------------------------------------------
Distribution and/or Service 0.25%(2) 0.20% 0.20%
(12b-1) Fees
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Other Expenses 0.26% 0.17% 0.16%
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Total Fund Operating Expenses 1.14% 1.06% 1.05%
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Disciplined Balanced Pro Forma
Allocation
Fund Fund Surviving
Class B Class B Balanced Fund
shares Shares Class B shares
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Shareholder Transaction Expenses (charges paid directly from a shareholder's
investment)
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Maximum Sales Charge (Load) on None None None
purchases (as a % of offering
price)
- ---------------------------------------------------------------------------------
Maximum Deferred Sales Charge
(Load) (as a % of the lower of
the original offering price or 5%(2) 5%(2) 5%(2)
redemption proceeds)
- ---------------------------------------------------------------------------------
Annual Fund Operating Expenses (as a percentage of average daily net assets)
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Management Fees 0.63% 0.69% 0.69%
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Distribution and/or Service 1.00% 1.00% 1.00%
(12b-1) Fees
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Other Expenses 0.38% 0.30% 0.27%
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Total Fund Operating Expenses 1.98% 1.99% 1.96%
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Disciplined Balanced Fund Pro Forma
Allocation
Fund Surviving
Class C Class C Balanced Fund
Shares Shares Class C Shares
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Shareholder Transaction Expenses (charges paid directly from a shareholder's
investment)
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Maximum Sales Charge (Load) on None None None
purchases (as a % of offering
price)
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Maximum Deferred Sales Charge 1%(3) 1%(3) 1%(3)
(Load) (as a % of the lower of
the original offering price or
redemption proceeds)
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Annual Fund Operating Expenses (as a percentage of average daily net assets)
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Management Fees 0.63% 0.69% 0.69%
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Distribution and/or Service 1.00% 1.00% 1.00%
(12b-1) Fees
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Other Expenses 0.34% 0.22% 0.21%
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Total Fund Operating Expenses 1.97% 1.91% 1.90%
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Disciplined Balanced Pro Forma
Allocation
Fund Fund Surviving
Class N Class N Balanced Fund
shares Shares Class N shares
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Shareholder Transaction Expenses (charges paid directly from a shareholder's
investment)
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Maximum Sales Charge (Load) on None None None
purchases (as a % of offering
price)
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Maximum Deferred Sales Charge
(Load) (as a % of the lower of
the original offering price or 1%(4) 1%(4) 1%(4)
redemption proceeds)
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Annual Fund Operating Expenses (as a percentage of average daily net assets)
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Management Fees 0.63% 0.69% 0.69%
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Distribution and/or Service 0.50% 0.50% 0.50%
(12b-1) Fees
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Other Expenses 0.42% 0.27% 0.27%
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Total Fund Operating Expenses 1.55% 1.46% 1.46%
- ---------------------------------------------------------------------------------
Expenses may vary in future years. "Other Expenses" include transfer agent
fees, custodial fees, and accounting and legal expenses that each Fund pays.
The transfer agent has voluntarily undertaken to each Fund to limit the
transfer agent fees to 0.35% of average daily net assets per fiscal year for
all classes. That undertaking may be amended or withdrawn at any time.
1. A contingent deferred sales charge may apply to redemptions of investments
of $1 million or more ($500,000 for retirement plan accounts) of Class A
shares. See "How to Buy Shares" in each Fund's Prospectus for details.
2. Applies to redemptions within the first year after purchase. The
contingent deferred sales charge gradually declines from 5% to 1% in years
one through six and is eliminated after that.
3. Applies to shares redeemed within 12 months of purchase.
4. Applies to shares redeemed within 18 months of retirement plan's first
purchase of Class N shares.
Examples
These examples below are intended to help you compare the cost of
investing in each Fund and the surviving Balanced Fund after the
Reorganization. These examples assume an annual return for each class of 5%,
the operating expenses described in the tables above and reinvestment of your
dividends and distributions.
Your actual costs may be higher or lower because expenses will vary
over time. For each $10,000 investment, you would pay the following projected
expenses if you redeemed your shares after the number of years shown or held
your shares for the number of years shown without redeeming, according to the
following examples.
Disciplined Allocation Fund
- --------------------------------------------------------------------------------
If shares are 1 year 3 years 5 years 10 years
redeemed(1):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class A $685 $918 $1,170 $1,889
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B $706 $937 $1,294 $1,923(3)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C $302 $624 $1,073 $2,318
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class N $259 $493 $851 $1,860
- --------------------------------------------------------------------------------
Disciplined Allocation Fund
- --------------------------------------------------------------------------------
If shares are not 1 year 3 years 5 years 10 years
redeemed(2):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class A $685 $918 $1,170 $1,889
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B $206 $637 $1,094 $1,923(3)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C $202 $624 $1,073 $2,318
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class N $159 $493 $851 $1,860
- --------------------------------------------------------------------------------
Balanced Fund
- --------------------------------------------------------------------------------
If shares are 1 year 3 years 5 years 10 years
redeemed(1):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class A $677 $894 $1,129 $1,801
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B $704 $931 $1,283 $1,870(3)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C $296 $606 $1,041 $2,254
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class N $250 $465 $803 $1,759
- --------------------------------------------------------------------------------
Balanced Fund
- --------------------------------------------------------------------------------
If shares are not 1 year 3 years 5 years 10 years
redeemed(2):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class A $677 $894 $1,129 $1,801
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B $204 $631 $1,083 $1,870(3)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C $196 $606 $1,041 $2,254
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class N $150 $465 $803 $1,759
- --------------------------------------------------------------------------------
Pro Forma Surviving Balanced Fund
- --------------------------------------------------------------------------------
If shares are 1 year 3 years 5 years 10 years
redeemed(1):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class A $676 $891 $1,124 $1,790
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B $701 $921 $1,267 $1,847(3)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C $295 $603 $1,036 $2,243
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class N $250 $465 $803 $1,759
- --------------------------------------------------------------------------------
Pro Forma Surviving Balanced Fund
- --------------------------------------------------------------------------------
If shares are not 1 year 3 years 5 years 10 years
redeemed(2):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class A $676 $891 $1,124 $1,790
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B $201 $621 $1,067 $1,847(3)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C $195 $603 $1,036 $2,243
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class N $150 $465 $803 $1,759
- --------------------------------------------------------------------------------
(1.) In the "If shares are redeemed" examples, expenses include the initial
sales charge for Class A and the applicable Class B, Class C and Class N
contingent deferred sales charges.
(2.) In the "If shares are not redeemed" examples, the Class A expenses
include the initial sales charge, but Class B, Class C and Class N
expenses do not include the contingent deferred sales charges.
(3.) Class B expenses for years 7 through 10 are based on Class A expenses,
since Class B shares automatically convert to Class A after 6 years.
What are the capitalizations of the Funds and what would the capitalization
be after the Reorganization?
The following table sets forth the existing capitalization (unaudited)
of Disciplined Allocation Fund and Balanced Fund as of December 31, 2005 and
the pro forma combined capitalization of Balanced Fund as of December 31,
2005 as if the Reorganization had occurred on that date.
- --------------------------------------------------------------------------------
Disciplined Allocation Net Assets Shares Net Asset Value
Fund Outstanding Per Share
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class A $ 7,334,395 $ 14.74
108,080,052
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$
Class B 12,453,364 832,162 $ 14.97
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$
Class C 8,786,721 604,180 $ 14.54
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$
Class N 1,804,477 122,882 $ 14.68
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL $ 8,893,619
131,124,614
- -------------------------------------------------------------
- --------------------------------------------------------------------------------
Balanced Fund Net Assets Shares Net Asset Value
Outstanding Per Share
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class A $ 53,115,407 $ 13.54
719,288,112
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$
Class B 96,126,035 7,247,572 $ 13.26
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$
Class C 89,514,378 6,717,928 $ 13.32
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$
Class N 12,689,772 945,978 $ 13.41
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL $ 68,026,885
917,618,297
- -------------------------------------------------------------
- --------------------------------------------------------------------------------
Balanced Fund Net Assets Shares Net Asset Value
(Pro Forma Surviving
Fund)* Outstanding Per Share
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class A $ 61,096,566 $ 13.54
827,368,164
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$
Class B 108,579,399 8,186,513 $ 13.26
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$
Class C 98,301,100 7,377,364 $ 13.32
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$
Class N 14,494,249 1,080,496 $ 13.41
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL $ 77,740,939
1,048,742,912
- -------------------------------------------------------------
* Reflects the issuance of 7,981,159 Class A shares, 938,941 Class B shares,
659,436 Class C shares and 134,518 Class N shares of Balanced Fund in a
tax-free exchange for the net assets of Disciplined Allocation Fund,
aggregating $131,124,614.
How have the Funds performed?
The following past performance information for each Fund is set forth
below: (i) a bar chart showing changes in each Fund's performance for Class A
shares from year to year for the last ten calendar years (or less, if
applicable) and (ii) tables detailing how the average annual total returns of
each Fund's shares, both before and after taxes, compared to those of
broad-based market indices. The after-tax returns are shown for Class A
shares only and are calculated using the historical highest individual
federal marginal income tax rates in effect during the periods shown and do
not reflect the impact of state or local taxes. The after-tax returns are
calculated based on certain assumptions mandated by regulation and your
actual after-tax returns may differ from those shown, depending on your
individual tax situation. The after-tax returns set forth below are not
relevant to investors who hold their fund shares through tax-deferred
arrangements such as 401(k) plans or IRAs or to institutional investors not
subject to tax. The past investment performance of either Fund, before and
after taxes, is not necessarily an indication of how either Fund will perform
in the future.
Annual Total Returns for Balanced Fund (Class A) as of 12/31 each year
[See appendix to prospectus and proxy statement for data in bar chart showing
annual total returns for Oppenheimer Balanced Fund.]
Sales charges and taxes are not included in the calculations of return in
this bar chart, and if those charges and taxes were included, the returns may
be less than those shown.
During the period shown in the bar chart, the highest return (not annualized)
before taxes for a calendar quarter was 12.05% (2nd Qtr `03) and the lowest
return (not annualized) before taxes for a calendar quarter was -11.03% (3rd
Qtr `01).
Annual Total Returns for Disciplined Allocation Fund (Class A) as of 12/31
each year
[See appendix to prospectus and proxy statement for data in bar chart showing
annual total returns for Oppenheimer Disciplined Allocation Fund.]
Sales charges and taxes are not included in the calculations of return in
this bar chart, and if those charges and taxes were included, the returns may
be less than those shown.
During the period shown in the bar chart, the highest return (not
annualized) before taxes for a calendar quarter was 12.09% (4th Qtr `98)
and the lowest return (not annualized) before taxes for a calendar
quarter was -8.31% (3rd Qtr `01).
- -------------------------------------------------------------------------------------
Disciplined Allocation Fund1,
(2)
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Average Annual Total Returns 5 Years 10 Years
for the periods ended 1 Year (or life of (or life of
December 31, 2005 class, if less) class, if less)
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Class A Shares (inception
9/16/85) -3.32% 1.33% 4.69%
Return Before Taxes -3.69% 0.84% 2.88%
Return After Taxes on
Distributions -1.95% 0.87% 2.99%
Return After Taxes on
Distributions and Sale of
Fund Shares
- -------------------------------------------------------------------------------------
S&P 500 Index (reflects no
deduction for fees, expenses
or taxes) 4.91% 0.54% 9.07%
- -------------------------------------------------------------------------------------
Merrill Lynch Gov't/Corp.
Master Index (reflects no 6.19%
deduction for fees, expenses
or taxes) 2.52% 6.07%
- -------------------------------------------------------------------------------------
Class B Shares (inception -3.30% 1.30% 4.84%(3)
10/02/95)
- -------------------------------------------------------------------------------------
Class C Shares (inception 0.62% 1.66% 4.46%
5/01/96)
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Class N Shares (inception 1.15% 2.73% N/A
3/1/01)
- -------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
Balanced Fund1, (2)
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
Average Annual Total Returns 5 Years 10 Years
for the periods ended 1 Year (or life of (or life of
December 31, 2005 class, if less) class, if less)
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
Class A Shares (inception
4/24/87) -2.37% 3.82% 7.71%
Return Before Taxes -3.86% 2.60% 5.46%
Return After Taxes on
Distributions -0.57% 2.70% 5.48%
Return After Taxes on
Distributions and Sale of
Fund Shares
- ------------------------------------------------------------------------------------
S&P 500 Index (reflects no
deduction for fees, expenses
or taxes) 4.91% 0.54% 9.07%
- ------------------------------------------------------------------------------------
Lehman Brothers Aggregate
Bond Index (reflects no
deduction for fees, expenses 2.43% 5.87% 6.16%
or taxes)
- ------------------------------------------------------------------------------------
Class B Shares (inception -2.23% 3.76% 7.79%(3)
8/29/95)
- ------------------------------------------------------------------------------------
Class C Shares (inception 1.75% 4.18% 7.45%
12/1/93)
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
Class N Shares (inception 2.23% 4.21% N/A
3/1/01)
- ------------------------------------------------------------------------------------
1. The Funds' returns measure the performance of a hypothetical account and
assume that all dividends and capital gains distributions have been
reinvested in additional shares.
2. Both Funds' average annual total returns include the applicable sales
charges: for Class A the current maximum initial sales charge is 5.75%;
for Class B shares, the contingent deferred sales charges is 5% (1-year)
and 2% (5-year); and for Class C and Class N, the 1% contingent deferred
sales charge for the 1-year period.
3. Because Class B shares convert to Class A shares 72 months after purchase,
Class B "10 Years" performance for each Fund does not include the
contingent deferred sales charge and uses Class A performance for the
period after conversion.
The returns measure the performance of a hypothetical account and assume that
all dividends and capital gains distributions have been reinvested in
additional shares. The performance of each Fund's Class A shares are
compared to the S&P 500 Index, an unmanaged index of common stocks. In
addition, the performance of Disciplined Allocation Fund also is compared to
the Merrill Lynch Government and Corporate Master Index, a broad-based index
of U.S. Treasury and government agency securities, corporate and Yankee
bonds. The performance of Balanced Fund also is compared to the Lehman
Brothers Aggregate Bond Index, an unmanaged index of U.S. corporate,
government and mortgage-backed securities. The indices' performance includes
reinvestment of income but does not reflect transaction costs, fees, expenses
or taxes. Each Fund's investments vary from those in the indices.
MANAGEMENT'S DISCUSSION OF BALANCED FUND'S PERFORMANCE. Although Balanced
Fund slightly underperformed its primary benchmark, the S&P 500 during its
fiscal year ended September 30, 2005, the Fund's performance was particularly
robust in its equity portfolio. The Fund's fixed-income investments produced
more modest returns.
In the consumer discretionary area, holdings such as media conglomerate
Liberty Global, Inc., retailer Sears Holdings and homebuilders Toll Brothers
and WCI Communities, Inc. helped boost the Fund's relative performance.
Winners in the consumer staples area included beverage producer Constellation
Brands Inc., Cl. A and food and tobacco giant Altria Group, Inc., which
benefited from easing litigation concerns and a planned corporate
restructuring designed to unlock shareholder value.
In the financials area, investment firm, Lehman Brothers Holdings,
Inc., gained value as investors rewarded efforts to diversify its revenue
sources; the insurance provider, Genworth Financial, Inc., Cl. A, saw its
valuation expand after its spin-off from General Electric; and real estate
owner Host Marriott Corp. benefited from an upswing in occupancy rates and
room prices. Among health care holdings, the Fund successfully avoided
declines posted by large pharmaceutical companies while capturing gains in
medical services providers, such as Pacificare Health Systems, which was
subject to an acquisition offer.
The Fund's equity portfolio suffered relatively few disappointments
during the reporting period. The Fund's telecommunications services holdings
produced slightly lower returns than the benchmark, primarily due to its lack
of participation in gains achieved by the regional bell operating companies.
Although the Fund had less exposure to the high-flying energy and utilities
sectors than the benchmark, strong stock selections offset any resulting
weakness.
We generally maintained the Fund's bond portfolio's average duration in
a range that was shorter than the benchmark, which hindered relative
performance early in the reporting period but later benefited returns.
Duration reflects the sensitivity of the Fund's return to changes in interest
rates. Conversely, the Fund's emphasis on corporate bonds at the lower end of
the investment-grade range helped early in the reporting period, when
investors' appetite for risk grew, but later undermined performance when
weakness in the automotive sector eroded investor sentiment. Among
mortgage-backed securities, the Fund's focus on seasoned, higher-coupon
mortgages that the markets had priced too high a premium for prepayment risk
in our view, helped support returns over the reporting period's first half,
but detracted modestly during the second half.
As of the reporting period's end, the Fund assets were apportioned
44.8% to equities, 46.5% to bonds and 8.7% to cash. In our view, the Fund
remains well positioned to capture the growth opportunities of stocks while
managing risks through diversification across both stocks and bonds.
COMPARING BALANCED FUND'S PERFORMANCE TO THE MARKET. The graphs that follow
show the performance of a hypothetical $10,000 investment in each class of
shares of Balanced Fund held until September 30, 2005. In the case of Class
A, Class B, and Class C shares, performance is measured over a
ten-fiscal-year period. In the case of Class N shares, performance is
measured from inception of the Class on March 1, 2001. The Fund's performance
reflects the deduction of the maximum initial sales charge on Class A shares,
the applicable contingent deferred sales charge on Class B, Class C and Class
N shares, and reinvestments of all dividends and capital gains distributions.
Past performance cannot guarantee future results.
The Fund's performance is compared to the performance of the S&P 500
Index, a broad-based index of equity securities widely regarded as a general
measure of the performance of the U.S. equity securities market. The Fund's
performance is also compared to the Lehman Brothers Aggregate Bond Index, an
unmanaged index of U.S. Government Treasury and agency issues, investment
grade corporate bond issues and fixed-rate mortgage-backed securities. That
index is widely regarded as a measure of the performance of the domestic debt
securities market. Index performance reflects the reinvestment of income but
does not consider the effect of transaction costs, and none of the data in
the graphs shows the effect of taxes. The Fund's performance reflects the
effects of the Fund's business and operating expenses. While index
comparisons may be useful to provide a benchmark for the Fund's performance,
it must be noted that the Fund's investments are not limited to the
investments in either index.
[Insert Graph from Balanced Fund Annual Report]
CLASS A SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer Balanced Fund (Class A)
S&P 500 Index
Lehman Brothers Aggregate Bond Index
1. The Fund changed its fiscal year end from 12/31 to 9/30.
[Insert Graph from Balanced Fund Annual Report]
CLASS B SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer Balanced Fund (Class B)
S&P 500 Index
Lehman Brothers Aggregate Bond Index
[Insert Graph from Balanced Fund Annual Report]
CLASS C SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer Balanced Fund (Class C)
S&P 500 Index
Lehman Brothers Aggregate Bond Index
1. The Fund changed its fiscal year end from 12/31 to 9/30.
[Insert Graph from Balanced Fund Annual Report]
CLASS N SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer Balanced Fund (Class N)
S&P 500 Index
Lehman Brothers Aggregate Bond Index
The performance data quoted represents past performance, which does not
guarantee future results. The investment return and principal value of an
investment in the fund will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost. Current
performance may be lower or higher than the performance quoted. For
performance
data current to the most recent month end, visit us at
www.oppenheimerfunds.com, or call us at 1.800.525.7048. Fund returns include
changes in share price, Reinvested distributions, and the applicable sales
charge: for Class A Shares, The current maximum initial sales charge of
5.75%; for Class B Shares, the Contingent deferred sales charge of 5%
(1-year) and 2% (5-year); and for Class C And N Shares, the contingent 1%
deferred sales charge for the 1-year period. Because Class B Shares convert
to Class A Shares 72 months after purchase, Since-inception return for Class
B Shares uses Class A performance for the Period after conversion.
Total returns and the ending account values in the graphs include changes in
share price and reinvestment of dividends and capital gains distributions in
a hypothetical investment for the periods shown. The Fund's total returns
shown do not reflect the deduction of income taxes on an individual's
investment. Taxes may reduce your actual investment returns on income or
gains paid by the Fund or any gains you may realize if you sell your shares.
HOW DO THE ACCOUNT FEATURES AND SHAREHOLDER SERVICES FOR THE FUNDS COMPARE?
Purchases, Redemptions and Exchanges
Both Funds are part of the OppenheimerFunds family of mutual funds. The
procedures for purchases, exchanges and redemptions of shares of the Funds
are substantially the same. Shares of either Fund may be exchanged for shares
of the same class of other Oppenheimer funds offering such shares. Exchange
privileges are subject to amendment or termination at any time.
Both Funds have the same initial and subsequent minimum investment
amounts for the purchase of shares. These amounts are $1,000 and $50,
respectively. Both Funds have a maximum initial sales charge of 5.75% on
Class A shares for purchases of less than $25,000. The sales charge of 5.75%
is reduced for purchases of Class A shares of $25,000 or more. Investors who
purchase $1 million or more of Class A shares pay no initial sales charge but
may have to pay a contingent deferred sales charge of up to 1% if the shares
are sold within 18 calendar months from the beginning of the calendar month
during which they were purchased. Class B shares of the Funds are sold
without a front-end sales charge but may be subject to a contingent deferred
sales charge ("CDSC") upon redemption depending on the length of time the
shares are held. The CDSC begins at 5% for shares redeemed in the first year
and declines to 1% in the sixth year and is eliminated after that. Class C
shares may be purchased without an initial sales charge, but if redeemed
within 12 months of buying them, a CDSC of 1% may be deducted. Class N shares
are purchased without an initial sales charge, but if redeemed within 18
months of the retirement plan's first purchase of N shares, a CDSC of 1% may
be deducted.
Class A, Class B, Class C and Class N shares of Balanced Fund received
in the Reorganization will be issued at net asset value, without a sales
charge and no CDSC or redemption fee will be imposed on any Disciplined
Allocation Fund shares exchanged for Balanced Fund shares as a result of the
Reorganization. However, any CDSC that applies to Disciplined Allocation Fund
shares as of the date of the exchange will carry over to Balanced Fund shares
received in the Reorganization.
Dividends and Distributions
Both Funds intend to declare dividends separately for each class of
shares from net investment income on a quarterly basis and pay them
quarterly. Dividends and distributions paid to Class A shares will generally
be higher than dividends for Class B, Class C and Class N shares, which
normally have higher expenses than Class A shares. The Funds have no fixed
dividend rate and cannot guarantee that they will pay any dividends or
distributions.
Either 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 each year. The Funds may make supplemental
distributions of dividends and capital gains following the end of their
fiscal years. There can be no assurance that either Fund will pay any
capital gains distributions in a particular year.
Other Shareholder Services
Both Funds also offer the following privileges: (i) the ability to
reduce your sales charge on purchases of Class A shares through rights of
accumulation or letters of intent, (ii) reinvestment of dividends and
distributions at net asset value, (iii) net asset value purchases by certain
individuals and entities, (iv) Asset Builder (automatic investment) Plans,
(v) Automatic Withdrawal and Exchange Plans for shareholders who own shares
of the Funds valued at $5,000 or more, (vi) AccountLink and PhoneLink
arrangements, (vii) exchanges of shares for shares of the same class of
certain other funds at net asset value, (viii) telephone and Internet
redemption and exchange privileges and (ix) wire redemptions of fund shares
(for a fee). All of such services and privileges are subject to amendment or
termination at any time and are subject to the terms of the Funds' respective
prospectuses. For additional information, please see the section in the
current Prospectus of Balanced Fund titled "ABOUT YOUR ACCOUNT."
WHAT ARE THE PRINCIPAL RISKS OF AN INVESTMENT IN DISCIPLINED ALLOCATION FUND
OR BALANCED FUND?
The risks associated with an investment in each Fund are substantially
similar. Like all investments, an investment in either Fund involves risk.
There is no assurance that either Fund will meet its investment objective.
The achievement of the Funds' goals depends upon market conditions,
generally, and on the portfolio manager's analytical and portfolio management
skills. The risks described below collectively form the risk profiles of the
Funds, and can affect the value of the Funds' investments, investment
performance and prices per share. There is also the risk that poor securities
selection by the Manager will cause the Funds to underperform other funds
having a similar objective. These risks mean that you can lose money by
investing in either Fund. When you redeem your shares, they may be worth more
or less than what you paid for them.
In the OppenheimerFunds spectrum, each Fund may be less volatile than
funds that focus only on stock investments, but have less opportunities for
capital growth than funds focused solely on stocks and more risks than the
funds that focus solely on investment grade bonds
RISKS OF INVESTING IN STOCKS. Stocks fluctuate in price, and their short-term
volatility at times may be great. Because each Fund currently has substantial
investments in stocks, the value of each Fund's portfolio will be affected by
changes in the stock markets. Market risk will affect each Fund's per share
prices, which will fluctuate as the values of each Fund's portfolio
securities change. Balanced Fund will normally invest at least 25% of its
total assets in stocks and other equity securities. While Disciplined
Allocation Fund has no limit on the amount of its assets it can invest in
stocks, at least 25% of its total assets normally will be invested in
fixed-income senior securities.
A variety of factors can affect the price of a particular stock and the
prices of individual stocks do not all move in the same direction uniformly
or at the same time. Different stock markets may behave differently from each
other. In particular, because each Fund currently emphasizes investments in
stocks of U.S. issuers, it will be affected primarily by changes in U.S.
stock markets.
Additionally, stocks of issuers in a particular industry may be
affected by changes in economic conditions that affect that industry more
than others, or by changes in government regulations, availability of basic
resources or supplies, or other events affecting that industry. To the extent
that each Fund emphasizes investments in a particular industry, its share
values may fluctuate in response to events affecting that industry.
Other factors can affect a particular stock's price, such as poor
earnings reports by the issuer, loss of major customers, major litigation
against the issuer, or changes in government regulations affecting the issuer
or its industry. Each Fund can invest in securities of large companies but it
can also buy stocks of small- and medium-size companies, which may have more
volatile stock prices than stocks of large companies.
Risks of Value Investing. Value investing seeks stocks having prices that are
low in relation to what is believed to be their real worth or
prospects. Each Fund seeks to realize appreciation in the value of its
holdings when other investors realize the intrinsic value of those
stocks. In using a value investing style, there is the risk that the
market will not recognize that the securities are undervalued and they
might not appreciate in value as the Manager anticipates.
Risks of Growth Investing. Stocks of growth companies, particularly newer
companies, may offer opportunities for greater capital appreciation but
may be more volatile than stocks of larger, more established companies.
If the company's earnings growth or stock price fails to increase as
expected, the stock price of a growth company may decline sharply.
Neither Fund is required to allocate its equity investments among value
and growth stocks in any fixed proportion. Each Fund may invest its
assets in relative proportions that change over time.
CREDIT RISK. Debt securities are subject to credit risk. Credit risk
relates to the ability of the issuer of a security to make interest and
principal payments on the security as they become due. If the issuer fails to
pay interest, each Fund's income might be reduced, and if the issuer fails to
repay principal, the value of that security and of each Fund's shares might
be reduced. While each Fund's investments in U.S. government securities are
subject to little credit risk, each Fund's other investments in debt
securities, particularly high-yield, lower-grade debt securities, are subject
to risks of default. A downgrade in an issuer's credit rating or other
adverse news about an issuer can reduce the value of that issuer's securities.
Special Risks of Lower-Grade Securities. Up to 35% of Balanced Fund's total
assets and up to 20% of Disciplined Allocation Fund's total assets may be
invested in securities below investment-grade to seek income. Therefore, each
Fund's credit risks are greater than those of funds that buy only
investment-grade bonds. Lower-grade debt securities (commonly called "junk
bonds") may be subject to greater market fluctuations and greater risks of
loss of income and principal than investment-grade debt securities.
Securities that are (or that have fallen) below investment grade generally
have greater risks that the issuers of those securities might not meet their
debt obligations. The market for lower-grade securities may be less liquid,
especially during times of general economic distress, and therefore they may
be harder to sell at an acceptable price. These risks can reduce each Fund's
share prices and the income it earns.
Lower-grade debt securities are those rated below "Baa" by Moody's
Investors Service ("Moody's") or lower than "BBB" by Standard & Poor's
("S&P") or that have comparable ratings by other nationally-recognized rating
organizations. They include unrated securities assigned a comparable rating
by the Manager. Balanced Fund can invest in securities rated as low as "C" or
"D" or which are in default at the time Balanced Fund buys them. While
securities rated "Baa" by Moody's or "BBB" by S&P are considered "investment
grade," they have some speculative characteristics.
INTEREST RATE RISKS. Debt securities are subject to changes in value when
prevailing interest rates change. When prevailing interest rates fall, the
values of outstanding debt securities generally rise. When prevailing
interest rates rise, the values of outstanding debt securities generally
fall, and the securities may sell at a discount from their face amount. The
magnitude of these price changes is generally greater for debt securities
with longer-term maturities. However, interest rate changes may have
different effects on the values of mortgage-related securities because of
prepayment risks, discussed below.
PREPAYMENT RISK. Mortgage-related securities, including forward rolls, are
subject to the risks of unanticipated prepayment. The risk is that when
interest rates fall, borrowers under the mortgages that underlie these
securities will prepay their mortgages more quickly than expected, causing
the issuer of the security to prepay the principal to a Fund prior to the
security's expected maturity. A Fund may be required to reinvest the
proceeds at a lower interest rate, reducing its income. Mortgage-related
securities subject to prepayment risk generally offer less potential for
gains when prevailing interest rates fall and have greater potential for loss
when prevailing interest rates rise. The impact of prepayments on the price
of a security may be difficult to predict and may increase the volatility of
the price. If a Fund buys mortgage-related securities at a premium,
accelerated prepayments on those securities could cause each Fund to lose a
portion of its principal investment represented by the premium.
RISKS OF FOREIGN INVESTING. Disciplined Allocation Fund can invest up to 25%
of its total assets in securities of companies or governments in any country,
whether a developed or an emerging market country. These include equity and
debt securities of companies organized under the laws of countries other than
the United States and debt securities of foreign governments and their
agencies and instrumentalities.
Balanced Fund can buy securities issued by companies or governments in
any country, whether a developed or an emerging market country. While
Balanced Fund has no limits on the amounts it can invest in these foreign
securities, it normally expects to invest not more than 50% of its total
assets in foreign securities whether developed or emerging market countries.
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.
Additionally, if a Fund invests a significant amount of its assets in
foreign securities, it might expose the Fund to "time-zone arbitrage"
attempts by investors seeking to take advantage of the differences in value
of foreign securities that might result from events that occur after the
close of the foreign securities market on which a foreign security is traded
and the close of The New York Stock Exchange that day, when the Fund's net
asset value is calculated. If such time-zone arbitrage were successful, it
might dilute the interests of other shareholders. However, each Fund's use of
"fair value pricing" to adjust the closing market prices of foreign
securities under certain circumstances, to reflect what the Manager and the
Board believe to be their fair value, and the imposition of redemption fees
may help deter those activities.
Special Risks of Emerging and Developing Markets. Securities in emerging and
developing markets present risks not found in more mature markets. Those
securities may be more difficult to sell at an acceptable price and their
prices may be more volatile than securities of issuers in more developed
markets. Settlements of trades may be subject to greater delays so that the
proceeds of such a sale of a security may not be received on a timely basis.
Emerging markets might have less developed trading markets and exchanges,
and legal and accounting systems. Investments may be subject to greater risks
of government restrictions on withdrawing the sales proceeds of securities
from the country. Economies of developing countries may be more dependent on
relatively few industries that may be highly vulnerable to local and global
changes. Governments may be more unstable and present greater risks of
nationalization or restrictions on foreign ownership of stocks of local
companies. These investments may be very speculative.
ASSET ALLOCATION RISKS. Because each Fund typically invests in a combination
of stocks, bonds and money market instruments to seek total return, it might
not achieve growth in its share prices to the same degree as funds focusing
on stocks during periods of rapidly rising prices. Also, each Fund's
investments in stocks may make it more difficult for the Manager to preserve
principal in volatile stock markets. Each Fund's use of value and growth
styles in selecting stocks might not be successful, particularly if stocks
selected as value investments fail to appreciate in price to the extent the
Manager expected.
Stock and Other Equity Investments. Equity securities include common stocks,
preferred stocks, warrants and debt securities convertible into common stock.
Balanced Fund will normally invest at least 25% of its total assets in stocks
and other equity securities and Disciplined Allocation Fund has no limit on
the amount of its assets it can invest in stocks. Disciplined Allocation
Fund's equity investments can include interests in real estate investment
trusts. Those securities may be sensitive to changes in interest rates, and
because the real estate market can be very volatile at times, the prices of
those securities may change substantially. Because total return has two
components, capital appreciation and income, the Manager might select stocks
that offer the potential for either or both of those elements.
While many convertible securities are debt securities, the Manager considers
some of them to be "equity equivalents" because of the conversion feature. In
that case their credit rating has less impact on the investment decision than
in the case of other debt securities. Convertible securities are subject to
credit risk and interest rate risk, discussed above.
These securities might be selected for the Funds because they offer the
ability to participate in stock market movements while offering some current
income. Preferred stocks, while a form of equity security, typically have a
fixed dividend that may cause their prices to behave more like those of debt
securities. If interest rates rise, the fixed dividend on preferred stocks
may be less attractive, causing the price of preferred stocks to decline.
Debt Securities. Disciplined Allocation Fund can invest in a variety of debt
securities to seek its objective. The debt securities Disciplined Allocation
Fund buys may be rated by nationally recognized rating organizations or they
may be unrated securities assigned an equivalent credit rating by the
Manager. Disciplined Allocation Fund's debt investments may be "investment
grade" (that is, in the four highest rating categories of a nationally
recognized rating organization) or may be lower-grade securities (sometimes
called "junk bonds") rated as low as "B" by Moody's Investor Services, Inc.
("Moody's"), Standard & Poor's Rating Services ("S&P") or Fitch, Inc.
("Fitch") or having comparable ratings by other nationally recognized rating
organizations (or, if they are unrated, having a comparable rating assigned
by the Manager). Disciplined Allocation Fund does not invest more than 10% of
its total assets in unrated debt securities. A description of the ratings
definitions of nationally recognized rating organizations is included in
Appendix A to the Statement of Additional Information dated February 28,
2005, revised December 6, 2005.
While Disciplined Allocation Fund can invest as much as 20% of its total
assets in lower-grade securities, currently it does not intend to invest more
than 10% of its total assets in these investments. Lower-grade debt
securities may be subject to greater market fluctuations and greater risks of
loss of income and principal than investment-grade debt securities.
Securities that are (or that have fallen) below investment grade are exposed
to a greater risk that the issuers of those securities might not meet their
debt obligations. These risks can reduce Disciplined Allocation Fund's share
prices and the income it earns.
Balanced Fund will normally invest at least 25% of its net assets in
fixed-income senior securities, such as bonds and notes. The debt securities
Balanced Fund buys may be rated by nationally recognized rating organizations
or they may be unrated securities assigned a rating by the Manager.
Balanced Fund has no requirements as to the maturity of the debt
securities it can buy, or as to the market capitalization range of the
issuers of those securities. Balanced Fund's investments may be investment
grade or below investment grade in credit quality. The Manager does not rely
solely on ratings by rating organizations in selecting debt securities but
evaluates business and economic factors affecting an issuer as well.
Balanced Fund's foreign debt investments can be denominated in U.S.
dollars or in foreign currencies. Foreign government securities might not be
backed by the government's full faith and credit. The Fund can buy "Brady
Bonds." Those are U.S. dollar-denominated debt securities collateralized by
zero-coupon U.S. Treasury securities. They are typically issued by
governments of emerging market countries and are considered speculative
securities with higher risks of default. Balanced Fund will buy foreign
currency only in connection with the purchase and sale of foreign securities
and not for speculation.
U.S. Government Securities. Each Fund can invest in securities issued or
guaranteed by the U.S. Treasury or other government agencies or
federally-chartered corporate entities referred to as "instrumentalities."
These are referred to as "U.S. government securities" in this Prospectus and
Proxy Statement.
o U.S. Treasury Obligations. These include Treasury bills (having maturities
of one year or less when issued), Treasury notes (having maturities of
more than one year and up to ten years when issued), and Treasury bonds
(having maturities of more than ten years when issued). Treasury
securities are backed by the full faith and credit of the United States
as to timely payments of interest and repayments of principal. Each
Fund also can buy U. S. Treasury securities that have been "stripped"
of their coupons by a Federal Reserve Bank, zero-coupon U.S. Treasury
securities, and Treasury Inflation-Protection Securities.
o Obligations Issued or Guaranteed by U.S. Government Agencies or
Instrumentalities. These include direct obligations and
mortgage-related securities that have different levels of credit
support from the U.S. government. Some are supported by the full faith
and credit of the U.S. government, such as Government National Mortgage
Association pass-through mortgage certificates ("Ginnie Maes"). Some
are supported by the right of the issuer to borrow from the U.S.
Treasury under certain circumstances, such as Federal National Mortgage
Association bonds ("Fannie Maes"). Others are supported by the credit
of the entity that issued them, such as Federal Home Loan Mortgage
Corporation obligations ("Freddie Macs"). Securities issued by Fannie
Mae, Freddie Mac and the Federal Home Loan Banks are neither guaranteed
nor issued by the U.S. Government.
o Mortgage-Related U.S. Government Securities. Each Fund can buy interests in
pools of residential or commercial mortgages, in the form of CMOs and
other "pass-through" mortgage securities. CMOs that are U.S. government
securities have collateral to secure payment of interest and principal.
They may be issued in different series, each having different interest
rates and maturities. The collateral is either in the form of mortgage
pass-through certificates issued or guaranteed by a U.S. agency or
instrumentality or mortgage loans insured by a U.S. government agency.
Each Fund can have substantial amounts of its assets invested in
mortgage-related U.S. government securities.
The prices and yields of CMOs are determined, in part, by assumptions
about the cash flows from the rate of payments of the underlying mortgages.
Changes in interest rates may cause the rate of expected prepayments of those
mortgages to change. In general, prepayments increase when general interest
rates fall and decrease when general interest rates rise.
o Forward Rolls. Each Fund can enter into "forward roll" transactions with
respect to mortgage-related securities. In this type of transaction, a
mortgage-related security is sold to a buyer and simultaneously agrees
to repurchase a similar security at a later date at a set price.
During the period between the sale and the repurchase, a Fund will not
be entitled to receive interest and principal payments on the
securities that have been sold. It is possible that the market value of
the securities the Fund sells may decline below the price at which the
Fund is obligated to repurchase securities, or that the counterparty
might default in its obligation. A substantial portion of the Fund's
assets may be subject to forward roll transactions at any given time.
o Private-Issuer Mortgage-Backed Securities. Each Fund can invest a
substantial portion of its assets in mortgage-backed securities issued
by private issuers, which do not offer the credit backing of U.S.
government securities. Primarily these include multi-class debt or
pass-through certificates secured by mortgage loans. They may be issued
by banks, savings and loans, mortgage bankers and other
non-governmental issuers. Private issuer mortgage-backed securities are
subject to the credit risks of the issuers (as well as the interest
rate risks and prepayment risks of CMOs), although in some cases they
may be supported by insurance or guarantees.
If interest rates rise rapidly, prepayments of mortgages (the risks of
which are described above) may occur at a slower rate than expected,
and the expected maturity of long-term or medium-term mortgage-related
securities could lengthen as a result. That could cause their values to
fluctuate more, and the prices of a Fund's shares to fall.
Money Market Instruments. The Fund can invest in money market instruments,
which include short-term certificates of deposit, bankers' acceptances,
commercial paper, U.S. Government obligations, and other debt instruments
(including bonds) issued by corporations. These securities may have variable
or floating interest rates. The Fund's investments in commercial paper in
general will be limited to paper in the top two rating categories of S&P or
Moody's.
Zero-Coupon and "Stripped" Securities. Some of the government and corporate
debt securities the Fund buys are zero-coupon bonds that pay no interest.
They are issued at a substantial discount from their face value. "Stripped"
securities are the separate income or principal components of a debt
security. Some CMOs or other mortgage-related securities may be stripped,
with each component having a different proportion of principal or interest
payments. One class might receive all the interest and the other all the
principal payments.
Zero-coupon and stripped securities are subject to greater fluctuations in
price from interest rate changes than interest-bearing securities. Either
Fund may have to pay out the imputed income on zero-coupon securities without
receiving the actual cash currently. Interest-only securities are
particularly sensitive to changes in interest rates.
The values of interest-only mortgage-related securities are also very
sensitive to prepayments of underlying mortgages. Principal-only securities
are also sensitive to changes in interest rates. For example, when
prepayments decrease, the yields on principal-only securities also decrease.
The market for some of these securities may be limited, making it difficult
for each Fund to dispose of its holdings at an acceptable price.
While Balanced Fund has no limits on the amount it can invest in zero-coupon
securities, Disciplined Allocation Fund can only invest up to 50% of its
total assets in zero-coupon securities issued by either the U.S. government
or U.S. companies.
Derivative Investments. In general terms, a derivative investment is an
investment contract whose value depends on (or is derived from) the value of
an underlying asset, interest rate or index. Options, futures,
mortgage-related securities, asset-backed securities and "stripped"
securities are examples of derivatives each Fund can use.
o Credit Derivatives. Either Fund may enter into credit default swaps, both
(i) directly and (ii) indirectly in the form of a swap embedded within
a structured note, to protect against the risk that a security will
default. Each Fund pays a fee to enter into the trade and receives a
fixed payment during the life of the swap. If there is a credit
event, a Fund either delivers the defaulted bond (if a Fund has taken
the short position in the credit default swap) or pays the par amount
of the defaulted bond (if a Fund has taken the long position in the
credit default swap note). Risks of credit default swaps include the
cost of paying for credit protection if there are no credit events.
o There are Special Risks in Using Derivative Investments. If the issuer of
the derivative does not pay the amount due, a Fund can lose money on
the investment. Also, the underlying security or investment on which
the derivative is based, and the derivative itself, might not perform
the way the Manager expected it to perform. If that happens, a Fund's
share prices could decline or a Fund could get less income than
expected. Interest rate and stock market changes in the U.S. and abroad
may also influence the performance of derivatives. Some derivative
investments held by a Fund may be illiquid. Each Fund has limits on the
amount of particular types of derivatives it can hold. However, using
derivatives can cause a Fund to lose money on its investment and/or
increase the volatility of its share prices.
Hedging. Each Fund can buy and sell futures contracts, put and call options,
swaps, and forward contracts. These are all referred to as "hedging
instruments." Neither Fund uses hedging instruments for speculative
purposes. Each Fund has limits on its use of hedging instruments and is not
required to use them in seeking its investment objective.
Each Fund could buy and sell options, futures and forward contracts for a
number of purposes. Some of these strategies would hedge each Fund's
portfolio against price fluctuations. Other hedging strategies, such as
buying futures and call options, would tend to increase each Fund's exposure
to the securities market. Each Fund may also try to manage its exposure to
changing interest rates by using hedging instruments.
There are also special risks in particular hedging strategies. For example,
options trading involves the payment of premiums and can increase portfolio
turnover. If a covered call written by a Fund is exercised on an investment
that has increased in value, each 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 Manager used a hedging instrument at the wrong time or judged market
conditions incorrectly, the hedge might fail and the strategy could reduce
each Fund's return. Each 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.
Loans of Portfolio Securities. Balanced Fund has entered into a Securities
Lending Agreement with JP Morgan Chase. Under that agreement portfolio
securities of Balanced Fund may be loaned to brokers, dealers and other
financial institutions. The Securities Lending Agreement provides that loans
must be adequately collateralized and may be made only in conformity with
Balanced Fund's Securities Lending Guidelines, adopted by Balanced Fund's
Board of Trustees. The value of the securities loaned may not exceed 25% of
the value of Balanced Fund's net assets.
Convertible Securities. Many convertible securities are a form of debt
security, but the Manager regards some of them as "equity substitutes"
because of their feature allowing them to be converted into common stock.
Therefore, their credit ratings have less impact on the Manager's investment
decision than in the case of other debt securities. Disciplined Allocation
Fund's investments in convertible securities may include securities rated as
low as "B" by Moody's, S&P or Fitch or having comparable ratings by other
nationally recognized rating organizations (or, if they are unrated, having
comparable ratings assigned by the Manager and subject to each Fund's
limitation on investing in unrated securities as stated above). Those ratings
are below "investment grade" and the securities are subject to greater risk
of default by the issuer than investment-grade securities. Balanced Fund has
no restrictions on the grade of convertible securities in may invest in.
"When-Issued" and "Delayed-Delivery" Transactions. Disciplined Allocation
Fund can purchase securities on a "when-issued" basis and can purchase or
sell securities on a "delayed-delivery" basis. Between the purchase and
settlement, no payment is made for the security and no interest accrues to
the buyer from the investment. There is a risk of loss to Disciplined
Allocation Fund if the value of the when-issued security declines prior to
the settlement date. No income accrues to Disciplined Allocation Fund on a
when-issued security until Disciplined Allocation Fund receives the security
on settlement of the trade.
Asset-Backed Securities. Disciplined Allocation Fund can buy asset-backed
securities, which are fractional interests in pools of loans collateralized
by the loans or other assets or receivables. They are issued by trusts and
special purpose corporations that pass the income from the underlying pool to
the buyer of the security. These securities are subject to the risk of
default by the issuer as well as by the borrowers of the underlying loans in
the pool.
Illiquid and Restricted Securities. Investments may be illiquid because they
do not have an active trading market, making it difficult to value them or
dispose of them promptly at an acceptable price. Restricted securities may
have terms that limit their resale to other investors or may require
registration under applicable securities laws before they may be sold
publicly. Each Fund will not invest more than 10% of its net assets in
illiquid or restricted securities. The Board can increase that limit to 15%.
Certain restricted securities that are eligible for resale to qualified
institutional purchasers may not be subject to that limit. The Manager
monitors holdings of illiquid securities on an ongoing basis to determine
whether to sell any holdings to maintain adequate liquidity.
PORTFOLIO TURNOVER. A change in the securities held by the Funds is known as
"portfolio turnover." The Funds may engage in active and frequent short-term
trading to try to achieve their objective and may have a high portfolio
turnover rate of over 100% annually. Increased portfolio turnover creates
higher brokerage and transaction costs for the Funds (and may reduce
performance). However, most of the Funds' portfolio transactions are
principal trades that do not entail brokerage fees. If the Funds realize
capital gains when they sell their portfolio investments, they must generally
pay those gains out to shareholders, increasing their taxable distributions.
TEMPORARY DEFENSIVE AND INTERIM INVESTMENTS. In times of adverse or unstable
market, economic or political conditions, each Fund can invest up to 100% of
its assets in temporary investments that are inconsistent with each Fund's
principal investment strategies. Generally, they would be short-term U.S.
government securities, high-grade commercial paper, bank obligations or
repurchase agreements. Each Fund can also hold these types of securities
pending the investment of proceeds from the sale of Fund shares or portfolio
securities or to meet anticipated redemptions of Fund shares. To the extent
each Fund invests in these securities, it might not achieve its investment
objective.
INFORMATION ABOUT THE REORGANIZATION
This is only a summary of the material terms of the Reorganization
Agreement. You should read the form of Reorganization Agreement, which is
attached as Exhibit A.
How will the Reorganization be carried out?
If the shareholders of Disciplined Allocation Fund approve the
Reorganization Agreement, the Reorganization will take place after various
conditions are satisfied by Disciplined Allocation Fund and Balanced Fund,
including delivery of certain documents. The Closing Date is presently
scheduled for on or about May 12, 2006 and the "Valuation Date" (which is the
business day preceding the Closing Date of the Reorganization) is presently
scheduled for on or about May 11, 2006.
If the shareholders of Disciplined Allocation Fund vote to approve the
Reorganization Agreement, you will receive Class A, Class B, Class C and
Class N shares of Balanced Fund equal in value to the value as of the
Valuation Date of your shares of Disciplined Allocation Fund. Disciplined
Allocation Fund will then be liquidated and its outstanding shares will be
cancelled. The stock transfer books of Disciplined Allocation Fund will be
permanently closed at the close of business on the Valuation Date.
Shareholders of Disciplined Allocation Fund who vote their Class A,
Class B, Class C and Class N shares in favor of the Reorganization will be
electing in effect to redeem their shares of Disciplined Allocation Fund at
net asset value on the Valuation Date, after Disciplined Allocation Fund
subtracts a cash reserve, and reinvest the proceeds in Class A, Class B,
Class C and Class N shares of Balanced Fund at net asset value. The cash
reserve is that amount retained by Disciplined Allocation Fund, which is
deemed sufficient in the discretion of the Board of Disciplined Allocation
Fund for the payment of Disciplined Allocation Fund's outstanding debts,
taxes and expenses of liquidation. The cash reserve will consist of
approximately $159,000 in cash. Balanced Fund is not assuming any debts of
Disciplined Allocation Fund except debts for unsettled securities
transactions and outstanding dividend and redemption checks. Any debts paid
out of the cash reserve will be those debts, taxes or expenses of liquidation
incurred by Disciplined Allocation Fund on or before the Closing Date.
Disciplined Allocation Fund will recognize capital gains or losses on any
sales of portfolio securities made prior to the Reorganization. The sales of
portfolio securities contemplated in the Reorganization are anticipated to be
in the ordinary course of business of Disciplined Allocation Fund's
activities.
Under the Reorganization Agreement, within one year after the Closing
Date, Disciplined Allocation Fund shall: (a) either pay or make provision for
all of its debts and taxes; and (b) either (i) transfer any remaining amount
of the Cash Reserve to Balanced Fund, if such remaining amount is not
material (as defined below) or (ii) distribute such remaining amount to the
shareholders of Disciplined Allocation Fund who were shareholders on the
Valuation Date. The remaining amount shall be deemed to be material if the
amount to be distributed, after deducting the estimated expenses of the
distribution, equals or exceeds one cent per share of the number of
Disciplined Allocation Fund shares outstanding on the Valuation Date. In
order to qualify for this rebate, it is not necessary for a shareholder of
Disciplined Allocation Fund to continue to hold Balanced Fund shares received
in the Reorganization. If the Cash Reserve is insufficient to satisfy any of
Disciplined Allocation Fund's liabilities, the Manager will assume
responsibility for any such unsatisfied liability. Within one year after the
Closing Date, Disciplined Allocation Fund will complete its liquidation.
Under the Reorganization Agreement, either Disciplined Allocation Fund
or Balanced Fund may abandon and terminate the Reorganization Agreement for
any reason and there shall be no liability for damages or other recourse
available to the other Fund, provided, however, that in the event that one of
the Funds terminates the Reorganization Agreement without reasonable cause,
it shall, upon demand, reimburse the other Fund for all expenses, including
reasonable out-of-pocket expenses and fees incurred in connection with the
Reorganization Agreement.
To the extent permitted by law, the Funds may agree to amend the
Reorganization Agreement without shareholder approval. They may also agree to
terminate and abandon the Reorganization at any time before or, to the extent
permitted by law, after the approval of shareholders of Disciplined
Allocation Fund.
Who will pay the expenses of the Reorganization?
The cost of printing and mailing this Proxy will be borne by
Disciplined Allocation Fund and is estimated to be approximately $24,000. The
Funds will share equally the cost of the tax opinion. Any documents such as
existing prospectuses or annual reports that are included in the proxy
mailing or at a shareholder's request will be a cost of the Fund issuing the
document. Any other out-of-pocket expenses associated with the Reorganization
will be paid by the Funds in the amounts incurred by each. The approximate
cost of the Reorganization is $38,000 for Disciplined Allocation Fund and
$14,000 for Balanced Fund.
What are the tax consequences of the Reorganization?
The Reorganization is intended to qualify as a tax-free reorganization
for federal income tax purposes under Section 368(a)(1) of the Internal
Revenue Code of 1986, as amended. Based on certain assumptions and
representations received from Disciplined Allocation Fund and Balanced Fund,
it is expected to be the opinion of Deloitte & Touche LLP that; (i)
shareholders of Disciplined Allocation Fund will not recognize any gain or
loss for federal income tax purposes as a result of the exchange of their
shares for shares of Balanced Fund; (ii) shareholders of Balanced Fund will
not recognize any gain or loss upon receipt of Disciplined Allocation Fund's
assets (iii) and the holding period of Balanced Fund shares received in that
exchange will include the period that Disciplined Allocation Fund shares were
held (provided such shares were held as a capital asset on the Closing Date).
Please see the Agreement and Plan of Reorganization for more details.
If the tax opinion is not received by the Closing Date, the Fund may
still pursue the Reorganization, pending re-solicitation of shareholders and
shareholder approval which would delay the reorganization by several months.
In addition, neither Fund is expected to recognize a gain or loss as a direct
result of the Reorganization. Although not likely, in the event such a tax
opinion is not received, the reorganization may not qualify as a tax-free
reorganization.
Prior to the Valuation Date, Disciplined Allocation Fund may pay a
dividend which will have the effect of distributing to Disciplined Allocation
Fund's shareholders all of Disciplined Allocation Fund's investment company
taxable income, if any, for taxable years ending on or prior to the Closing
Date (computed without regard to any deduction for dividends paid) and all of
its net capital gains, if any, realized in taxable years ending on or prior
to the Closing Date (after reduction for any available capital loss
carry-forward). As of Disciplined Allocation Fund's fiscal year ended October
31, 2005, the Fund had $5,050,942 of net capital loss carry-forward available
to offset any realized capital gains and thereby reduce the capital gains
distributions. Any such dividends will be included in the taxable income of
Disciplined Allocation Fund's shareholders as ordinary income and capital
gain, respectively.
You will continue to be responsible for tracking the purchase cost and
holding period of your shares and should consult your tax advisor regarding
the effect, if any, of the Reorganization in light of your individual
circumstances. You should also consult your tax advisor as to state and local
and other tax consequences, if any, of the Reorganization because this
discussion only relates to federal income tax consequences.
REASONS FOR THE REORGANIZATION
Board Considerations
At a meeting of the Board of Directors/Trustees of Disciplined
Allocation Fund and Balanced Fund held December 15, 2005, the Board
considered whether to approve the proposed Reorganization and reviewed and
discussed with the Manager and the Board's independent legal counsel the
proposed Reorganization. Information with respect to the Funds' respective
investment objectives and policies, management fees, distribution fees and
other operating expenses, historical performance and asset size also was
considered by the Board.
The Board reviewed information demonstrating that Disciplined
Allocation Fund is a significantly smaller fund with approximately $133.9
million in net assets as of September 29, 2005. In comparison, Balanced Fund
had approximately $921.4 million in net assets as of September 29, 2005. The
Board considered that Disciplined Allocation Fund has not seen any
significant influx of money into the Fund and the Manager does not expect the
assets of the Fund to grow substantially, which might result in decreased
fund operating expenses. The Board also considered that Disciplined
Allocation Fund's assets are unlikely to increase substantially in size in
the near future, and, as a result, its expense ratios would likely remain the
same as fixed expenses are borne by a relatively small fund. Economies of
scale realized by the larger, surviving Balanced Fund may benefit
shareholders of Disciplined Allocation Fund.
At that meeting, the Board considered the fact that both Funds have
similar investment objectives and are managed by the same team of investment
professionals. Additionally, the Board considered that both Funds invest
primarily in stocks, corporate bonds, U.S. government securities and money
market instruments. Although there is no set allocation of assets among the
classes of securities either Fund buys, currently the Funds focus mainly in a
variety of equity and debt securities of U.S. and foreign issuers, as well as
money market instruments.
The Board also considered that the procedures for purchases, exchanges
and redemptions of shares of both Funds are substantially similar and that
both Funds offer the same investor services and options.
The Board also considered the terms and conditions of the
Reorganization, including that there would be no sales charge imposed in
effecting the Reorganization and that the Reorganization is expected to be a
tax-free reorganization. The Board concluded that Disciplined Allocation
Fund's participation in the transaction is in the best interests of
Disciplined Allocation Fund and that the Reorganization would not result in a
dilution of the interests of existing shareholders of Disciplined Allocation
Fund.
After consideration of the above factors, and such other factors and
information as the Board of Disciplined Allocation Fund deemed relevant, the
Board, including the Directors who are not "interested persons" (as defined
in the Investment Company Act) of either Disciplined Allocation Fund or the
Manager (the "Independent Trustees"), unanimously approved the Reorganization
and the Reorganization Agreement and voted to recommend its approval by the
shareholders of Disciplined Allocation Fund. The Board also determined that
the Reorganization was in the best interests of Balanced Fund and its
shareholders and that no dilution would result to those shareholders.
Balanced Fund shareholders do not vote on the Reorganization. The Board on
behalf of Balanced Fund, including the Independent Trustees, unanimously
approved the Reorganization and the Reorganization Agreement.
Neither Funds' Board members are required to attend the meeting nor do
they plan to attend the meeting.
For the reasons discussed above, the Board, on behalf of Disciplined
Allocation Fund, recommends that you vote FOR the Reorganization Agreement.
If shareholders of Disciplined Allocation Fund do not approve the
Reorganization Agreement, the Reorganization will not take place.
What should I know about Class A, Class B, Class C and Class N Shares of
Balanced Fund?
Upon consummation of the Reorganization, Class A, Class B, Class C and
Class N shares of Balanced Fund will be distributed to shareholders of Class
A, Class B, Class C and Class N shares of Disciplined Allocation Fund,
respectively, in connection with the Reorganization. The shares of Balanced
Fund will be recorded electronically in each shareholder's account. Balanced
Fund will then send a confirmation to each shareholder. Shareholders of
Disciplined Allocation Fund holding certificates representing their shares
will not be required to surrender their certificates in connection with the
reorganization. However, former shareholders of Disciplined Allocation Fund
whose shares are represented by outstanding share certificates will not be
allowed to redeem or exchange shares of Balanced Fund they receive in the
Reorganization until the exchanged Disciplined Allocation Fund certificates
have been returned to the Transfer Agent.
Each share will be fully paid and non-assessable when issued, will have
no preemptive or conversion rights and will be transferable on the books of
Balanced Fund. Balanced Fund's Declaration of Trust contains an express
disclaimer of shareholder or Trustee liability for the Fund's obligations,
and provides for indemnification and reimbursement of expenses out of its
property for any shareholder held personally liable for its obligations.
Neither Fund permits cumulative voting.
WHAT ARE THE FUNDAMENTAL INVESTMENT RESTRICTIONS OF THE FUNDS?
Both Disciplined Allocation Fund and Balanced Fund have certain
additional investment restrictions that, together with their investment
objectives, are fundamental policies, changeable only by shareholder
approval. Generally, these investment restrictions are similar between the
Funds. Please see the Statement of Additional Information for each Fund for
descriptions of those investment restrictions, which are incorporated by
reference into the Statement of Additional Information dated March 1, 2006
related to this Reorganization.
OTHER COMPARISONS BETWEEN THE FUNDS
The description of certain other key features of the Funds below is
supplemented by Balanced Fund's Prospectus and Statement of Additional
Information, which are incorporated by reference.
Management of the Funds
Each Fund is governed by the same Board of Trustees, which is
responsible for protecting the interests of each Fund's shareholders under
either Maryland law or Massachusetts law, as applicable, and other applicable
laws. For a listing of the Balanced Fund's Board of Trustees and
biographical information, please refer to the Statement of Additional
Information to this Prospectus and Proxy Statement.
Investment Management and Fees
The day-to-day management of the business and affairs of each Fund is
the responsibility of the Manager. Pursuant to each Fund's investment
advisory agreement, the Manager acts as the investment advisor for both
Funds, manages the assets of both Funds and makes their respective investment
decisions. The Manager employs the Funds' portfolio managers. Christopher
Leavy and Emmanuel Ferreira, supported by other members of the Manager's
value portfolio team are primarily responsible for the day-to-day management
of the equity portion of Disciplined Allocation Fund's investments. Angelo
Manioudakis, supported by other members of the Manager's high grade
fixed-income team are primarily responsible for the day-to-day management of
the fixed-income portion of Disciplined Allocation Fund's investments.
Christopher Leavy and Emmanuel Ferreira, supported by other members of the
Manager's value portfolio team are primarily responsible for the day-to-day
management of the equity portion of Balanced Fund's investments. Angelo
Manioudakis, supported by other members of the Manager's high grade
fixed-income team are primarily responsible for the day-to-day management of
the fixed-income portion of Balanced Fund's investments.
Both Funds obtain investment management services from the Manager
according to the terms of management agreements that are substantially
similar although Balanced Fund's management fee rates were higher than those
of Disciplined Allocation Fund during the Funds' last completed fiscal year.
The chart below shows the current contractual management fee schedule for
each of the Funds. While Disciplined Allocation Fund has a lower management
fee than Balanced Fund, the total operating expenses for Balanced Fund are
lower than Disciplined Allocation Fund.
- ---------------------------------------------------------------
Disciplined Allocation Fund(1) Balanced Fund(1)
- ---------------------------------------------------------------
- ---------------------------------------------------------------
0.625% of the first $300 0.75% of the first $200
million of average annual net million of average annual
assets of the Fund, 0.500% of net assets of the Fund,
the next $100 million, and 0.72% of the next $200
0.450% of average annual net million, 0.69% of the next
assets in excess of $400 $200 million, 0.66% of the
million. next $200 million, 0.60% of
the next $700 million, and
0.58% of average annual net
assets in excess of $1.5
billion.
- ---------------------------------------------------------------
1. Based on average annual net assets of the respective Fund.
The advisory agreements require the Manager, at its expense, to provide
the Funds with adequate office space, facilities and equipment. The
agreements also require the Manager to provide and supervise the activities
of all administrative and clerical personnel required to provide effective
administration for the Funds. Those responsibilities include the compilation
and maintenance of records with respect to their operations, the preparation
and filing of specified reports, and composition of proxy materials and
registration statements for continuous public sale of shares of the Funds.
Each Fund pays expenses not expressly assumed by the Manager under the
advisory agreement. The advisory agreements list examples of expenses paid by
each Fund. The major categories relate to interest, taxes, brokerage
commissions, fees to Independent Trustees, legal and audit expenses,
custodian bank and transfer agent expenses, share issuance costs, certain
printing and registration costs, and non-recurring expenses, including
litigation costs.
Both investment advisory agreements generally provide that in the
absence of willful misfeasance, bad faith, gross negligence in the
performance of its duties or reckless disregard of its obligations and duties
under the investment advisory agreement, the Manager is not liable for any
loss sustained by reason of good faith errors or omissions in connection with
any matters to which the agreement(s) relate.
The Manager is controlled by Oppenheimer Acquisition Corp., a holding
company owned in part by senior officers of the Manager and ultimately
controlled by Massachusetts Mutual Life Insurance Company, a mutual life
insurance company that also advises pension plans and investment companies.
The Manager has been an investment advisor since January 1960. The Manager
(including subsidiaries and an affiliate) managed more than $200 billion in
assets as of December 31, 2005, including other Oppenheimer funds with more
than 6 million shareholder accounts. The Manager is located at 225 Liberty
Street, 11th Floor, New York, New York 10281-1008.
Distribution Services
OppenheimerFunds Distributor, Inc. (the "Distributor") acts as the
principal underwriter in a continuous public offering of shares of the Funds,
but is not obligated to sell a specific number of shares. Both Funds have
adopted a Service Plan and Agreement under Rule 12b-1 of the Investment
Company Act for their Class A shares. The Service Plan provides for the
reimbursement to the Distributor for a portion of its costs incurred in
connection with the services provided to accounts that hold Class A shares of
the respective Funds. Under the Class A Service Plans, reimbursement is made
at a rate of up to 0.25% of average annual net assets of Class A shares of
the respective Funds. The Distributor currently uses the fees it receives
from the Funds to pay dealers, brokers and other financial institutions (they
are referred to as "recipients") for personal services and account
maintenance services they provide for their customers that hold Class A
shares of the respective Funds.
Both Funds have adopted Distribution and Service Plans and Agreements
under Rule 12b-1 of the Investment Company Act for Class B, Class C and Class
N shares. These plans compensate the Distributor for its services and costs
in connection with the distribution of Class B, Class C and Class N shares
and for servicing shareholder accounts. Under the plans, the Funds pay the
Distributor an annual asset-based sales charge of 0.75% on Class B and Class
C shares and 0.25% on Class N shares. The Distributor also receives a service
fee of 0.25% per year under the Class B, Class C and Class N plans.
The asset-based sales charge and service fees increase Class B and
Class C expenses by 1.0% and increase Class N expenses by 0.50% of the net
assets per year of the respective class. Because these fees are paid out of
the Funds' assets on an on-going basis, over time these fees will increase
the cost of your investment and may cost you more than other types of sales
charges.
The Distributor uses the service fees to compensate dealers for
providing personal services for accounts that hold Class B, Class C or Class
N shares. The Distributor normally pays the 0.25% service fees to dealers in
advance for the first year after the shares are sold by the dealer. After the
shares have been held for a year, the Distributor pays the service fees to
dealers on a periodic basis.
The Manager and the Distributor, in their discretion, also may pay
dealers or other financial intermediaries and service providers for
distribution and/or shareholder servicing activities. These payments are
made out of the Manager's and/or the Distributor's own resources, including
from the profits derived from the advisory fees the Manager receives from a
Fund. These cash payments, which may be substantial, are paid to many firms
having business relationships with the Manager and Distributor. These
payments are in addition to any distribution fees, servicing fees, or
transfer agency fees paid directly or indirectly by a Fund to these
financial intermediaries and any commissions the Distributor pays to these
firms out of the sales charges paid by investors. These payments by the
Manager or Distributor from their own resources are not reflected in the Pro
Forma Fee Tables contained in this Prospectus and Proxy Statement because
they are not paid by either Fund.
"Financial intermediaries" are firms that offer and sell Fund shares to
their clients, or provide shareholder services to each Fund, or both, and
receive compensation for doing so. Your securities dealer or financial
adviser, for example, is a financial intermediary, and there are other types
of financial intermediaries that receive payments relating to the sale or
servicing of each Fund's shares. In addition to dealers, the financial
intermediaries that may receive payments include sponsors of fund
"supermarkets," sponsors of fee-based advisory or wrap fee programs, sponsors
of college and retirement savings programs, banks and trust companies
offering products that hold fund shares, and insurance companies that offer
variable annuity or variable life insurance products.
In general, these payments to financial intermediaries can be
categorized as "distribution-related" or "servicing" payments. Payments for
distribution-related expenses, such as marketing or promotional expenses, are
often referred to as "revenue sharing." Revenue sharing payments may be made
on the basis of the sales of shares attributable to that dealer, the average
net assets of a Fund and other Oppenheimer funds attributable to the accounts
of that dealer and its clients, negotiated lump sum payments for distribution
services provided, or sales support fees. In some circumstances, revenue
sharing payments may create an incentive for a dealer or financial
intermediary or its representatives to recommend or offer shares of a Fund or
other Oppenheimer funds to its customers. These payments also may give an
intermediary an incentive to cooperate with the Distributor's marketing
efforts. A revenue sharing payment may, for example, qualify the Fund for
preferred status with the intermediary receiving the payment or provide
representatives of the Distributor with access to representatives of the
intermediary's sales force, in some cases on a preferential basis over funds
of competitors. Additionally, as firm support, the Manager or Distributor may
reimburse expenses related to educational seminars and "due diligence" or
training meetings (to the extent permitted by applicable laws or the rules of
the NASD) designed to increase sales representatives' awareness about
Oppenheimer funds, including travel and lodging expenditures. However, the
Manager does not consider a financial intermediary's sale of shares of a Fund
or other Oppenheimer funds when selecting brokers or dealers to effect
portfolio transactions for the funds.
Various factors are used to determine whether to make revenue sharing
payments. Possible considerations include, without limitation, the types of
services provided by the intermediary, sales of fund shares, the redemption
rates on accounts of clients of the intermediary or overall asset levels of
Oppenheimer funds held for or by clients of the intermediary, the willingness
of the intermediary to allow the Distributor to provide educational and
training support for the intermediary's sales personnel relating to the
Oppenheimer funds, the availability of the Oppenheimer funds on the
intermediary's sales system, as well as the overall quality of the services
provided by the intermediary and the Manager or Distributor's relationship
with the intermediary. The Manager and Distributor have adopted guidelines
for assessing and implementing each prospective revenue sharing arrangement.
To the extent that financial intermediaries receiving distribution-related
payments from the Manager or Distributor sell more shares of the Oppenheimer
funds or retain more shares of the funds in their client accounts, the
Manager and Distributor benefit from the incremental management and other
fees they receive with respect to those assets.
Payments may also be made by the Manager, the Distributor or the
Transfer Agent to financial intermediaries to compensate or reimburse them
for administrative or other client services provided such as sub-transfer
agency services for shareholders or retirement plan participants, omnibus
accounting or sub-accounting, participation in networking arrangements,
account set-up, recordkeeping and other shareholder services. Payments may
also be made for administrative services related to the distribution of Fund
shares through the intermediary. Firms that may receive servicing fees
include retirement plan administrators, qualified tuition program sponsors,
banks and trust companies, and others. These fees may be used by the service
provider to offset or reduce fees that would otherwise be paid directly to
them by certain account holders, such as retirement plans.
The Statement of Additional Information contains more information about
revenue sharing and service payments made by the Manager or the Distributor.
Your dealer may charge you fees or commissions in addition to those disclosed
in this Prospectus and Proxy Statement. You should ask your dealer or
financial intermediary for details about any such payments it receives from
the Manager or the Distributor and their affiliates, or any other fees or
expenses it charges.
Transfer Agency and Custody Services
Both Funds receive shareholder accounting and other clerical services
from OppenheimerFunds Services, a division of the Manager, in its capacity as
transfer agent and dividend paying agent. It acts on an annual per-account
fee basis for both Funds. The terms of the transfer agency agreement for both
Funds, and of a voluntary undertaking to limit transfer agent fees (to 0.35%
per fiscal year for each class of both Funds) are substantially similar.
Citibank, N.A., located at 388 Greenwich Street, New York, New York, 10013,
and JP Morgan Chase Bank, located at 4 Chase Metro Tech Center, Brooklyn, NY
11245, respectively, act as custodian of the securities and other assets of
Disciplined Allocation Fund and Balanced Fund, respectively.
Shareholder Rights
Disciplined Allocation Fund is a series of Oppenheimer Series Fund,
Inc. and is organized as a Maryland corporation, Balanced Fund is organized
as a Massachusetts business trust. The Funds are not required to, and do not,
hold annual meetings of shareholders and have no current intention to hold
such meetings, except as required by the Investment Company Act.
Under the Investment Company Act, the Funds are required to hold a
shareholder meeting if, among other reasons, the numbers of
Directors/Trustees elected by shareholders is less than a majority of the
total number of Directors/Trustees, or if they seek to change a fundamental
investment policy. The Trustees of Balanced Fund will call a meeting of
shareholders to vote on the removal of a Trustee upon the written request of
the record holders of 10% of its outstanding shares. If the Trustees receive
a request from at least 10 shareholders stating that they wish to communicate
with other shareholders to request a meeting to remove a Trustee, the
Trustees will then either make the Fund's shareholder list available to the
applicants or mail their communication to all other shareholders at the
applicants' expense. The shareholders making the request must have been
shareholders for at least six months and must hold shares of the Fund valued
at $25,000 or more or constituting at least 1% of the Fund's outstanding
shares. The Trustees may also take other action as permitted by the
Investment Company Act.
VOTING INFORMATION
How do I vote?
Please take a few moments to complete your proxy ballot promptly. You
may vote your shares by completing and signing the enclosed proxy ballot(s)
and mailing the proxy ballot(s) in the postage paid envelope provided. You
also may vote your shares by telephone or via the internet by following the
instructions on the attached proxy ballot(s) and accompanying materials. You
may cast your vote by attending the Meeting in person if you are a record
owner.
If you need assistance, have any questions regarding the Proposal or
need a replacement proxy ballot, you may contact us toll-free at
1-800-225-5677 (1-800-CALL-OPP). Any proxy given by a shareholder, whether
in writing, by telephone or via the internet, is revocable as described below
under the paragraph titled "Revoking a Proxy".
If you simply sign and date the proxy but give no voting instructions,
your shares will be voted in favor of the Reorganization Agreement.
Telephone Voting
Please have the proxy ballot in hand and call the number on the
enclosed materials and follow the instructions. After you provide your
voting instructions, those instructions will be read back to you and you must
confirm your voting instructions before ending the telephone call. The
voting procedures used in connection with telephone voting are designed to
reasonably authenticate the identity of shareholders, to permit shareholders
to authorize the voting of their shares in accordance with their instructions
and to confirm that their instructions have been properly recorded.
As the Special Meeting date approaches, certain shareholders may
receive telephone calls from a representative of the solicitation firm (if
applicable) if their vote has not yet been received. Authorization to permit
the solicitation firm to execute proxies may be obtained by telephonic
instructions from shareholders of Disciplined Allocation Fund. Proxies that
are obtained telephonically will be recorded in accordance with the
procedures discussed herein. These procedures have been designed to
reasonably ensure that the identity of the shareholder providing voting
instructions is accurately determined and that the voting instructions of the
shareholder are accurately recorded.
In all cases where a telephonic proxy is solicited, the solicitation
firm representative is required to ask for each shareholder's full name,
address, title (if the shareholder is authorized to act on behalf of an
entity, such as a corporation) and to confirm that the shareholder has
received the Proxy Statement and ballot. If the information solicited agrees
with the information provided to the solicitation firm, the solicitation firm
representative has the responsibility to explain the process, read the
proposal listed on the proxy ballot, and ask for the shareholder's
instructions on such proposal. The solicitation firm representative,
although he or she is permitted to answer questions about the process, is not
permitted to recommend to the shareholder how to vote. The solicitation firm
representative may read any recommendation set forth in the Proxy Statement.
The solicitation firm representative will record the shareholder's
instructions. Within 72 hours, the shareholder will be sent a confirmation
of his or her vote asking the shareholder to call the solicitation firm
immediately if his or her instructions are not correctly reflected in the
confirmation. For additional information, see also the section below titled
"Solicitation of Proxies".
Internet Voting
You also may vote over the internet by following the instructions in
the enclosed materials. You will be prompted to enter the control number on
the enclosed proxy ballot. Follow the instructions on the screen, using your
proxy ballot as a guide.
Who is entitled to vote and how are votes counted?
Shareholders of record of Disciplined Allocation Fund at the close of
business on January 20, 2006 (the "record date") will be entitled to vote at
the Meeting. On January 20, 2006, there were 8,834,073.73 outstanding shares
of Disciplined Allocation Fund, consisting of 7,282,124.579 Class A shares,
824,379.304 Class B shares, 603,416.760 Class C shares and 124,153.087 Class
N shares. Each shareholder will be entitled to one vote for each full share,
and a fractional vote for each fractional share of Disciplined Allocation
Fund held on the Record Date.
The individuals named as proxies on the proxy ballots (or their
substitutes) will vote according to your directions if your proxy ballot is
received and properly executed, or in accordance with the instructions you
provide if you vote by telephone, internet or mail. You may direct the proxy
holders to vote your shares on the proposal by checking the appropriate box
"FOR" or "AGAINST", or instruct them not to vote those shares on the proposal
by checking the "ABSTAIN" box.
Quorum and Required Vote
The presence in person or by proxy of a majority of Disciplined Allocation
Fund's shares outstanding and entitled to vote constitutes a quorum. Shares
whose proxies reflect an abstention on the proposal are counted as shares
present and entitled to vote for purposes of determining whether the required
quorum of shares exists for the Proposal. However, because of the need to
obtain a vote of a majority of the shares outstanding and entitled to vote,
abstentions will have the same effect as a vote "against" the Proposal. In
the absence of a quorum, the shareholders present or represented by proxy and
entitled to vote thereat have the power to adjourn the meeting from time to
time without further notice.
The affirmative vote of the holders of a majority of the shares of
Disciplined Allocation Fund outstanding and entitled to vote is necessary to
approve the Reorganization Agreement and the transactions contemplated
thereby. Balanced Fund shareholders do not vote on the Reorganization.
In absence of a quorum or if a quorum is present but sufficient votes
to approve the Proposal are not received by the date of the Meeting, the
persons named in the enclosed proxy (or their substitutes) may propose and
approve one or more adjournments of the Meeting to permit further
solicitation of proxies. All such adjournments will require the affirmative
vote of a majority of the shares present in person or by proxy at the session
of the Meeting to be adjourned. The persons named as proxies on the proxy
ballots (or their substitutes) will vote the Shares present in person or by
proxy (including broker non-votes and abstentions) in favor of such an
adjournment if they determine additional solicitation is warranted and in the
interests of the Fund's shareholders.
Solicitation of Proxies
Broker-dealer firms, banks, custodians, nominees and other fiduciaries
may be required to forward soliciting material to the beneficial owners of
the shares of record on behalf of Disciplined Allocation Fund and to obtain
authorization for the execution of proxies. For those services, they will be
reimbursed by the Fund for their reasonable expenses incurred in connection
with the proxy solicitation to the extent the Fund would have directly borne
those expenses.
In addition to solicitations by mail, solicitations may be conducted by
telephone or email including by a proxy solicitation firm hired at
Disciplined Allocation Fund's expense. If a proxy solicitation firm is hired,
it is anticipated that the cost to Disciplined Allocation Fund of engaging a
proxy solicitation firm would not exceed $7,500, plus the additional costs
which would be incurred in connection with contacting those shareholders who
have not voted, in the event of a need for re-solicitation of votes.
Currently, if the Manager determines to retain the services of a proxy
solicitation firm on behalf of the Fund, the Manager anticipates retaining
Computershare Fund Services. Any proxy solicitation firm engaged by the
Fund, among other things, will be: (i) required to maintain the
confidentiality of all shareholder information; (ii) prohibited from selling
or otherwise disclosing shareholder information to any third party; and (iii)
required to comply with applicable telemarketing laws.
Voting By Broker-Dealers
Shares owned of record by broker-dealers for the benefit of their
customers ("street account shares") will be voted by the broker-dealer based
on instructions received from its customers. If no instructions are received,
the broker-dealer does not have discretionary power ("broker non-vote") to
vote such street account shares on the Proposal under applicable stock
exchange rules. This "broker non-vote" occurs when a proxy is received from
a broker and the broker does not have discretionary authority to vote the
shares on that matter. Broker non-votes will not be counted as present nor
entitled to vote for purposes of determining a quorum nor will they be
counted as votes "for" or "against" the Proposal. Beneficial owners of
street account shares cannot vote at the meeting. Only record owners may
vote at the meeting.
Voting by the Trustee for OppenheimerFunds-Sponsored Retirement Plans
Shares held in OppenheimerFunds-sponsored retirement accounts for which
votes are not received as of the last business day before the Meeting Date,
will be voted by the trustee for such accounts in the same proportion as
Shares for which voting instructions from the Fund's other shareholders have
been timely received.
Revoking a Proxy
You may revoke a previously granted proxy at any time before it is
exercised by: (1) delivering a written notice to the Fund expressly revoking
your proxy, (2) signing and sending to the Fund a later-dated proxy, (3)
telephone or internet or (4) attending the Meeting and casting your votes in
person if you are a record owner. Please be advised that the deadline for
revoking your proxy by telephone or the internet is 3:00 p.m., Eastern Time,
on the last business day before the Meeting.
What other matters will be voted upon at the Meeting?
The Board of Directors of Disciplined Allocation Fund does not intend
to bring any matters before the Meeting other than those described in this
Prospectus and Proxy Statement. Neither the Board nor the Manager is aware of
any other matters to be brought before the Meeting by others. Matters not
known at the time of the solicitation may come before the Meeting. The proxy
as solicited confers discretionary authority with respect to such matters
that might properly come before the Meeting, including any adjournment or
adjournments thereof, and it is the intention of the persons named as
attorneys-in-fact in the proxy (or their substitutes) to vote the proxy in
accordance with their judgment on such matters.
Shareholder Proposals
The Funds are not required and do not intend to hold shareholder
meetings on a regular basis. Special meetings of shareholders may be called
from time to time by either a Fund or the shareholders (for certain matters
and under special conditions described in the Funds' Statements of Additional
Information). Under the proxy rules of the SEC, shareholder proposals that
meet certain conditions may be included in a fund's proxy statement for a
particular meeting. Those rules currently require that for future meetings,
the shareholder must be a record or beneficial owner of Fund shares either
(i) with a value of at least $2,000 or (ii) in an amount representing at
least 1% of the Fund's securities to be voted, at the time the proposal is
submitted and for one year prior thereto, and must continue to own such
shares through the date on which the meeting is held. Another requirement
relates to the timely receipt by a Fund of any such proposal. Under those
rules, a proposal must have been submitted a reasonable time before the Fund
began to print and mail this Proxy Statement in order to be included in this
Proxy Statement. A proposal submitted for inclusion in a Fund's proxy
material for the next special meeting after the meeting to which this Proxy
Statement relates must be received by the Fund a reasonable time before the
Fund begins to print and mail the proxy materials for that meeting. Notice of
shareholder proposals to be presented at the Meeting must have been received
within a reasonable time before the Fund began to mail this Proxy Statement.
The fact that the Fund receives a proposal from a qualified shareholder in a
timely manner does not ensure its inclusion in the proxy materials because
there are other requirements under the proxy rules for such inclusion.
Shareholder Communications to the Board
Shareholders who desire to communicate generally with the Board should
address their correspondence to the Board of Directors/Trustees of the
applicable Fund and may submit their correspondence by mail to the Fund at
6803 South Tucson Way, Centennial, CO 80112, attention Secretary of the Fund;
and if the correspondence is intended for a particular Director/Trustee, the
shareholder should so indicate.
Reports to Shareholders and Financial Statements
To avoid sending duplicate copies of materials to households, the Funds
mail only one copy of each report to shareholders having the same last name
and address on the Funds' records. The consolidation of these mailings,
called householding, benefits the Funds through reduced mailing expenses.
If you want to receive multiple copies of these materials or request
householding in the future, you may call the transfer agent at
1.800.647.7374. You may also notify the transfer agent in writing at 6803
South Tucson Way, Centennial, Colorado 80112. Individual copies of
prospectuses and reports will be sent to you within 30 days after the
transfer agent receives your request to stop householding.
ADDITIONAL INFORMATION ABOUT DISCIPLINED ALLOCATION FUND AND BALANCED
FUND
Both Funds also file proxy materials, proxy voting reports and other
information with the SEC in accordance with the informational requirements of
the Securities and Exchange Act of 1934 and the Investment Company Act. These
materials can be inspected and copied at: the SEC's Public Reference Room in
Washington, D.C. (Phone: 1.202.942.8090) or the EDGAR database on the SEC's
website at www.sec.gov. Copies may be obtained upon payment of a duplicating
fee by electronic request at the SEC's e-mail address: publicinfo@sec.gov or
by writing to the SEC's Public Reference Section, Washington, D.C.
20549-0102.
Pending Litigation
A consolidated amended complaint has been filed as putative derivative
and class actions against the Manager, Distributor and Transfer Agent, as
well as 51 of the Oppenheimer funds (collectively the "funds") including the
Funds, 30 present and former Directors or Trustees and 8 present and former
officers of certain of the funds. This complaint, initially filed in the U.S.
District Court for the Southern District of New York on January 10, 2005 and
amended on March 4, 2005, consolidates into a single action and amends six
individual previously-filed putative derivative and class action complaints.
Like those prior complaints, the complaint alleges that the Manager charged
excessive fees for distribution and other costs, improperly used assets of
the funds in the form of directed brokerage commissions and 12b-1 fees to pay
brokers to promote sales of the funds, and failed to properly disclose the
use of fund assets to make those payments in violation of the Investment
Company Act of 1940 and the Investment Advisers Act of 1940. Also, like those
prior complaints, the complaint further alleges that by permitting and/or
participating in those actions, the Directors/Trustees and the officers
breached their fiduciary duties to Fund shareholders under the Investment
Company Act and at common law. The complaint seeks unspecified compensatory
and punitive damages, rescission of the funds' investment advisory
agreements, an accounting of all fees paid, and an award of attorneys' fees
and litigation expenses.
The defendants believe the claims asserted in these lawsuits to be
without merit, and intend to defend the suits vigorously. The Manager and the
Distributor do not believe that the pending actions are likely to have a
material adverse effect on the Funds or on their ability to perform their
respective investment advisory or distribution agreements with the Funds.
Principal Shareholders
As of January 31, 2006, the officers and Directors of Disciplined
Allocation Fund as a group and of Balanced Fund as a group, owned less than
1% of the outstanding voting shares of any class of their respective Fund. As
of January 31, 2006, the only persons who owned of record or were known by
Disciplined Allocation Fund or Balanced Fund to own beneficially 5% or more
of any class of the outstanding shares of that respective Fund are listed in
Exhibit B.
EXHIBITS TO THE COMBINED PROXY
STATEMENT AND PROSPECTUS
Exhibit
A Agreement and Plan of Reorganization between Oppenheimer Disciplined
Allocation Fund and Oppenheimer Balanced Fund
B Principal Shareholders
A-12
A-1
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") dated as of
December 15, 2005 by and between Oppenheimer Disciplined Allocation Fund, a
series of Oppenheimer Series Fund, Inc. ("Disciplined Allocation Fund"), a
Maryland corporation and Oppenheimer Balanced Fund ("Balanced Fund"), a
Massachusetts business trust.
W I T N E S S E T H:
WHEREAS, the parties are each open-end investment companies of the
management type; and
WHEREAS, the parties hereto desire to provide for the reorganization
pursuant to Section 368(a)(1) of the Internal Revenue Code of 1986, as
amended (the "Code"), of Disciplined Allocation Fund through the acquisition
by Balanced Fund of substantially all of the assets of Disciplined Allocation
Fund in exchange for the voting shares of beneficial interest ("shares") of
Class A, Class B, Class C and Class N shares of Balanced Fund and the
assumption by Balanced Fund of certain liabilities of Disciplined Allocation
Fund, which Class A, Class B, Class C and Class N shares of Balanced Fund are
to be distributed by Disciplined Allocation Fund pro rata to its shareholders
in complete liquidation of Disciplined Allocation Fund and complete
cancellation of its shares;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties hereto agree as follows:
1. The parties hereto hereby adopt this Agreement and Plan of
Reorganization (the "Agreement") pursuant to Section 368(a)(1) of the Code as
follows: The reorganization will be comprised of the acquisition by Balanced
Fund of substantially all of the assets of Disciplined Allocation Fund in
exchange for Class A, Class B, Class C and Class N shares of Balanced Fund
and the assumption by Balanced Fund of certain liabilities of Disciplined
Allocation Fund, followed by the distribution of such Class A, Class B, Class
C and Class N shares of Balanced Fund to the Class A, Class B, Class C and
Class N shareholders of Disciplined Allocation Fund in exchange for their
Class A, Class B, Class C and Class N shares of Disciplined Allocation Fund,
all upon and subject to the terms of the Agreement hereinafter set forth.
The share transfer books of Disciplined Allocation Fund will be
permanently closed at the close of business on the Valuation Date (as
hereinafter defined) and only redemption requests received in proper form on
or prior to the close of business on the Valuation Date shall be fulfilled by
Disciplined Allocation Fund; redemption requests received by Disciplined
Allocation Fund after that date shall be treated as requests for the
redemption of the shares of Balanced Fund to be distributed to the
shareholder in question as provided in Section 5 hereof.
2. On the Closing Date (as hereinafter defined), all of the assets of
Disciplined Allocation Fund on that date, excluding a cash reserve (the "cash
reserve") to be retained by Disciplined Allocation Fund sufficient in its
discretion for the payment of the expenses of Disciplined Allocation Fund's
dissolution and its liabilities, but not in excess of the amount contemplated
by Section 10E, shall be delivered as provided in Section 8 to Balanced Fund,
in exchange for and against delivery to Disciplined Allocation Fund on the
Closing Date of a number of Class A, Class B, Class C and Class N shares of
Balanced Fund, having an aggregate net asset value equal to the value of the
assets of Disciplined Allocation Fund so transferred and delivered.
3. The net asset value of Class A, Class B, Class C and Class N shares of
Balanced Fund and the value of the assets of Disciplined Allocation Fund to
be transferred shall in each case be determined as of the close of business
of The New York Stock Exchange on the Valuation Date. The computation of the
net asset value of the Class A, Class B, Class C and Class N shares of
Balanced Fund and the Class A, Class B, Class C and Class N shares of
Disciplined Allocation Fund shall be done in the manner used by Balanced Fund
and Disciplined Allocation Fund, respectively, in the computation of such net
asset value per share as set forth in their respective prospectuses. The
methods used by Balanced Fund in such computation shall be applied to the
valuation of the assets of Disciplined Allocation Fund to be transferred to
Balanced Fund.
Disciplined Allocation Fund shall declare and pay, immediately prior to
the Valuation Date, a dividend or dividends which, together with all previous
such dividends, shall have the effect of distributing to Disciplined
Allocation Fund's shareholders all of Disciplined Allocation Fund's
investment company taxable income for taxable years ending on or prior to the
Closing Date (computed without regard to any dividends paid) and all of its
net capital gain, if any, realized in taxable years ending on or prior to the
Closing Date (after reduction for any capital loss carry-forward).
4. The closing (the "Closing") shall be at the offices of
OppenheimerFunds, Inc. (the "Agent"), 6803 S Tucson Way, Centennial, CO
80112, on such time or such other place as the parties may designate or as
provided below (the "Closing Date"). The business day preceding the Closing
Date is herein referred to as the "Valuation Date."
In the event that on the Valuation Date either party has, pursuant to
the Investment Company Act of 1940, as amended (the "Act"), or any rule,
regulation or order thereunder, suspended the redemption of its shares or
postponed payment therefore, the Closing Date shall be postponed until the
first business day after the date when both parties have ceased such
suspension or postponement; provided, however, that if such suspension shall
continue for a period of 60 days beyond the Valuation Date, then the other
party to the Agreement shall be permitted to terminate the Agreement without
liability to either party for such termination.
5. In conjunction with the Closing, Disciplined Allocation Fund shall
distribute on a pro rata basis to the shareholders of Disciplined Allocation
Fund as of the Valuation Date Class A, Class B, Class C and Class N shares of
Balanced Fund received by Disciplined Allocation Fund on the Closing Date in
exchange for the assets of Disciplined Allocation Fund in complete
liquidation of Disciplined Allocation Fund; for the purpose of the
distribution by Disciplined Allocation Fund of Class A, Class B, Class C and
Class N shares of Balanced Fund to Disciplined Allocation Fund's
shareholders, Balanced Fund will promptly cause its transfer agent to: (a)
credit an appropriate number of Class A, Class B, Class C and Class N shares
of Balanced Fund on the books of Balanced Fund to each Class A, Class B,
Class C and Class N shareholder of Disciplined Allocation Fund in accordance
with a list (the "Shareholder List") of Disciplined Allocation Fund
shareholders received from Disciplined Allocation Fund; and (b) confirm an
appropriate number of Class A, Class B, Class C and Class N shares of
Balanced Fund to each Class A, Class B, Class C and Class N shareholder of
Disciplined Allocation Fund.
The Shareholder List shall indicate, as of the close of business on the
Valuation Date, the name and address of each shareholder of Disciplined
Allocation Fund, indicating his or her share balance. Disciplined Allocation
Fund agrees to supply the Shareholder List to Balanced Fund not later than
the Closing Date. Shareholders of Disciplined Allocation Fund holding
certificates representing their shares shall not be required to surrender
their certificates to anyone in connection with the reorganization. After
the Closing Date, however, it will be necessary for such shareholders to
surrender their certificates in order to redeem, transfer or pledge the
shares of Balanced Fund which they received.
6. Within one year after the Closing Date, Disciplined Allocation Fund
shall (a) either pay or make provision for payment of all of its liabilities
and taxes, and (b) either (i) transfer any remaining amount of the cash
reserve to Balanced Fund, if such remaining amount (as reduced by the
estimated cost of distributing it to shareholders) is not material (as
defined below) or (ii) distribute such remaining amount to the shareholders
of Disciplined Allocation Fund on the Valuation Date. Such remaining amount
shall be deemed to be material if the amount to be distributed, after
deduction of the estimated expenses of the distribution, equals or exceeds
one cent per share of Disciplined Allocation Fund outstanding on the
Valuation Date.
7. Prior to the Closing Date, there shall be coordination between the
parties as to their respective portfolios so that, after the Closing,
Balanced Fund will be in compliance with all of its investment policies and
restrictions. At the Closing, Disciplined Allocation Fund shall deliver to
Balanced Fund two copies of a list setting forth the securities then owned by
Disciplined Allocation Fund. Promptly after the Closing, Disciplined
Allocation Fund shall provide Balanced Fund a list setting forth the
respective federal income tax bases thereof.
8. Portfolio securities or written evidence acceptable to Balanced Fund of
record ownership thereof by The Depository Trust Company or through the
Federal Reserve Book Entry System or any other depository approved by
Disciplined Allocation Fund pursuant to Rule 17f-4 and Rule 17f-5 under the
Act shall be endorsed and delivered, or transferred by appropriate transfer
or assignment documents, by Disciplined Allocation Fund on the Closing Date
to Balanced Fund, or at its direction, to its custodian bank, in proper form
for transfer in such condition as to constitute good delivery thereof in
accordance with the custom of brokers and shall be accompanied by all
necessary state transfer stamps, if any. The cash delivered shall be in the
form of certified or bank cashiers' checks or by bank wire or intra-bank
transfer payable to the order of Balanced Fund for the account of Balanced
Fund. Class A, Class B, Class C and Class N shares of Balanced Fund
representing the number of Class A, Class B, Class C and Class N shares of
Balanced Fund being delivered against the assets of Disciplined Allocation
Fund, registered in the name of Disciplined Allocation Fund, shall be
transferred to Disciplined Allocation Fund on the Closing Date. Such shares
shall thereupon be assigned by Disciplined Allocation Fund to its
shareholders so that the shares of Balanced Fund may be distributed as
provided in Section 5.
If, at the Closing Date, Disciplined Allocation Fund is unable to make
delivery under this Section 8 to Balanced Fund of any of its portfolio
securities or cash for the reason that any of such securities purchased by
Disciplined Allocation Fund, or the cash proceeds of a sale of portfolio
securities, prior to the Closing Date have not yet been delivered to it or
Disciplined Allocation Fund's custodian, then the delivery requirements of
this Section 8 with respect to said undelivered securities or cash will be
waived and Disciplined Allocation Fund will deliver to Balanced Fund by or on
the Closing Date with respect to said undelivered securities or cash executed
copies of an agreement or agreements of assignment in a form reasonably
satisfactory to Balanced Fund, together with such other documents, including
a due bill or due bills and brokers' confirmation slips as may reasonably be
required by Balanced Fund.
9. Balanced Fund shall not assume the liabilities (except for portfolio
securities purchased which have not settled and for shareholder redemption
and dividend checks outstanding) of Disciplined Allocation Fund, but
Disciplined Allocation Fund will, nevertheless, use its best efforts to
discharge all known liabilities, so far as may be possible, prior to the
Closing Date. The cost of printing and mailing the proxies and proxy
statements will be borne by Disciplined Allocation Fund. Disciplined
Allocation Fund and Balanced Fund will share equally in the cost of the tax
opinion. Any documents such as existing prospectuses or annual reports that
are included in that mailing will be a cost of the Fund issuing the
document. Any other out-of-pocket expenses of Balanced Fund and Disciplined
Allocation Fund associated with this reorganization, including legal,
accounting and transfer agent expenses, will be borne by Disciplined
Allocation Fund and Balanced Fund, respectively, in the amounts so incurred
by each.
10. The obligations of Balanced Fund hereunder shall be subject to the
following conditions:
A. The Board of Directors of Disciplined Allocation Fund shall have
authorized the execution of the Agreement, and the shareholders of
Disciplined Allocation Fund shall have approved the Agreement and the
transactions contemplated hereby, and Disciplined Allocation Fund shall have
furnished to Balanced Fund copies of resolutions to that effect certified by
the Secretary or the Assistant Secretary of Disciplined Allocation Fund; such
shareholder approval shall have been by the affirmative vote required by the
Maryland Law and its charter documents at a meeting for which proxies have
been solicited by the Proxy Statement and Prospectus (as hereinafter defined).
B. Balanced Fund shall have received an opinion dated as of the
Closing Date from counsel to Disciplined Allocation Fund, to the effect that
(i) Disciplined Allocation Fund is a corporation duly organized, validly
existing and in good standing under the laws of the State of Maryland with
full corporate powers to carry on its business as then being conducted and to
enter into and perform the Agreement; and (ii) that all action necessary to
make the Agreement, according to its terms, valid, binding and enforceable on
Disciplined Allocation Fund and to authorize effectively the transactions
contemplated by the Agreement have been taken by Disciplined Allocation
Fund. Maryland counsel may be relied upon for this opinion.
C. The representations and warranties of Disciplined Allocation Fund
contained herein shall be true and correct at and as of the Closing Date, and
Balanced Fund shall have been furnished with a certificate of the President,
or a Vice President, or the Secretary or the Assistant Secretary or the
Treasurer or the Assistant Treasurer of Disciplined Allocation Fund, dated as
of the Closing Date, to that effect.
D. On the Closing Date, Disciplined Allocation Fund shall have furnished to
Balanced Fund a certificate of the Treasurer or Assistant Treasurer of
Disciplined Allocation Fund as to the amount of the capital loss carry-over
and net unrealized appreciation or depreciation, if any, with respect to
Disciplined Allocation Fund as of the Closing Date.
E. The cash reserve shall not exceed 10% of the value of the net
assets, nor 30% in value of the gross assets, of Disciplined Allocation Fund
at the close of business on the Valuation Date.
F. A Registration Statement on Form N-14 filed by Balanced Fund under the
Securities Act of 1933, as amended (the "1933 Act"), containing a preliminary
form of the Proxy Statement and Prospectus, shall have become effective under
the 1933 Act.
G. On the Closing Date, Balanced Fund shall have received a letter
from a senior executive officer of OppenheimerFunds, Inc. acceptable to
Balanced Fund, stating that nothing has come to his or her attention which in
his or her judgment would indicate that as of the Closing Date there were any
material, actual or contingent liabilities of Disciplined Allocation Fund
arising out of litigation brought against Disciplined Allocation Fund or
claims asserted against it, or pending or to the best of his or her knowledge
threatened claims or litigation not reflected in or apparent from the most
recent audited financial statements and footnotes thereto of Disciplined
Allocation Fund delivered to Balanced Fund. Such letter may also include
such additional statements relating to the scope of the review conducted by
such person and his or her responsibilities and liabilities as are not
unreasonable under the circumstances.
H. Balanced Fund shall have received an opinion, dated as of the
Closing Date, of Deloitte & Touche LLP, to the same effect as the opinion
contemplated by Section 11.E. of the Agreement.
I. Balanced Fund shall have received at the Closing all of the assets of
Disciplined Allocation Fund to be conveyed hereunder, which assets shall be
free and clear of all liens, encumbrances, security interests, restrictions
and limitations whatsoever.
11. The obligations of Disciplined Allocation Fund hereunder shall be
subject to the following conditions:
A. The Board of Trustees of Balanced Fund shall have authorized the
execution of the Agreement, and the transactions contemplated thereby, and
Balanced Fund shall have furnished to Disciplined Allocation Fund copies of
resolutions to that effect certified by the Secretary or the Assistant
Secretary of Balanced Fund.
B. Disciplined Allocation Fund's shareholders shall have approved
the Agreement and the transactions contemplated hereby, by an affirmative
vote required by the Maryland Law and its charter documents and Disciplined
Allocation Fund shall have furnished Balanced Fund copies of resolutions to
that effect certified by the Secretary or an Assistant Secretary of
Disciplined Allocation Fund.
C. Disciplined Allocation Fund shall have received an opinion dated
as of the Closing Date from counsel to Balanced Fund, to the effect that (i)
Balanced Fund is a business trust duly organized, validly existing and in
good standing under the laws of the Commonwealth of Massachusetts with full
powers to carry on its business as then being conducted and to enter into and
perform the Agreement; (ii) all actions necessary to make the Agreement,
according to its terms, valid, binding and enforceable upon Balanced Fund and
to authorize effectively the transactions contemplated by the Agreement have
been taken by Balanced Fund, and (iii) the shares of Balanced Fund to be
issued hereunder are duly authorized and when issued will be validly issued,
fully-paid and non-assessable, except as set forth under "Shareholder and
Trustee Liability" in Balanced Fund's Statement of Additional Information.
Massachusetts counsel may be relied upon for this opinion.
D. The representations and warranties of Balanced Fund contained
herein shall be true and correct at and as of the Closing Date, and
Disciplined Allocation Fund shall have been furnished with a certificate of
the President, a Vice President or the Secretary or the Assistant Secretary
or the Treasurer or the Assistant Treasurer of the Trust to that effect dated
as of the Closing Date.
E. Disciplined Allocation Fund shall have received an opinion of
Deloitte & Touche LLP to the effect that the federal tax consequences of the
transaction, if carried out in the manner outlined in the Agreement and in
accordance with (i) Disciplined Allocation Fund's representation that there
is no plan or intention by any Disciplined Allocation Fund shareholder who
owns 5% or more of Disciplined Allocation Fund's outstanding shares, and, to
Disciplined Allocation Fund's best knowledge, there is no plan or intention
on the part of the remaining Disciplined Allocation Fund shareholders, to
redeem, sell, exchange or otherwise dispose of a number of Balanced Fund
shares received in the transaction that would reduce Disciplined Allocation
Fund shareholders' ownership of Balanced Fund shares to a number of shares
having a value, as of the Closing Date, of less than 50% of the value of all
of the formerly outstanding Disciplined Allocation Fund shares as of the same
date, and (ii) the representation by each of Disciplined Allocation Fund and
Balanced Fund that, as of the Closing Date, Disciplined Allocation Fund and
Balanced Fund will qualify as regulated investment companies or will meet the
diversification test of Section 368(a)(2)(F)(ii) of the Code, will be as
follows:
a. The transactions contemplated by the Agreement will qualify as a tax-free
"reorganization" within the meaning of Section 368(a)(1) of the Code, and
under the regulations promulgated thereunder.
b. Disciplined Allocation Fund and Balanced Fund will each qualify as a
"party to a reorganization" within the meaning of Section 368(b)(2) of the
Code.
c. No gain or loss will be recognized by the shareholders of Disciplined
Allocation Fund upon the distribution of Class A, Class B, Class C and Class
N shares of beneficial interest in Balanced Fund to the shareholders of
Disciplined Allocation Fund pursuant to Section 354 of the Code.
d. Under Section 361(a) of the Code no gain or loss will be recognized by
Disciplined Allocation Fund by reason of the transfer of substantially all
its assets in exchange for Class A, Class B, Class C and Class N shares of
Balanced Fund.
e. Under Section 1032 of the Code no gain or loss will be recognized by
Balanced Fund by reason of the transfer of substantially all of Disciplined
Allocation Fund's assets in exchange for Class A, Class B, Class C and Class
N shares of Balanced Fund and Balanced Fund's assumption of certain
liabilities of Disciplined Allocation Fund.
f. The shareholders of Disciplined Allocation Fund will have the same tax
basis and holding period for the Class A, Class B, Class C and Class N shares
of beneficial interest in Balanced Fund that they receive as they had for
Disciplined Allocation Fund shares that they previously held, pursuant to
Section 358(a) and 1223(1), respectively, of the Code.
g. The securities transferred by Disciplined Allocation Fund to Balanced Fund
will have the same tax basis and holding period in the hands of Balanced Fund
as they had for Disciplined Allocation Fund, pursuant to Section 362(b) and
1223(1), respectively, of the Code.
F. The cash reserve shall not exceed 10% of the value of the net
assets, nor 30% in value of the gross assets, of Disciplined Allocation Fund
at the close of business on the Valuation Date.
G. A Registration Statement on Form N-14 filed by Balanced Fund
under the 1933 Act, containing a preliminary form of the Proxy Statement and
Prospectus, shall have become effective under the 1933 Act.
H. On the Closing Date, Disciplined Allocation Fund shall have
received a letter from a senior executive officer of OppenheimerFunds, Inc.
acceptable to Disciplined Allocation Fund, stating that nothing has come to
his or her attention which in his or her judgment would indicate that as of
the Closing Date there were any material, actual or contingent liabilities of
Balanced Fund arising out of litigation brought against Balanced Fund or
claims asserted against it, or pending or, to the best of his or her
knowledge, threatened claims or litigation not reflected in or apparent by
the most recent audited financial statements and footnotes thereto of
Balanced Fund delivered to Disciplined Allocation Fund. Such letter may also
include such additional statements relating to the scope of the review
conducted by such person and his or her responsibilities and liabilities as
are not unreasonable under the circumstances.
I. Disciplined Allocation Fund shall acknowledge receipt of the Class A,
Class B, Class C and Class N shares of Balanced Fund.
12. Disciplined Allocation Fund hereby represents and warrants that:
A. The audited financial statements of Disciplined Allocation Fund as of
October 31, 2005 heretofore furnished to Balanced Fund, present fairly the
financial position, results of operations, and changes in net assets of
Disciplined Allocation Fund as of that date, in conformity with generally
accepted accounting principles applied on a basis consistent with the
preceding year; and that from October 31, 2005 through the date hereof there
have not been, and through the Closing Date there will not be, any material
adverse change in the business or financial condition of Disciplined
Allocation Fund, it being agreed that a decrease in the size of Disciplined
Allocation Fund due to a diminution in the value of its portfolio and/or
redemption of its shares shall not be considered a material adverse change;
B. Contingent upon approval of the Agreement and the transactions
contemplated thereby by Disciplined Allocation Fund's shareholders,
Disciplined Allocation Fund has authority to transfer all of the assets of
Disciplined Allocation Fund to be conveyed hereunder free and clear of all
liens, encumbrances, security interests, restrictions and limitations
whatsoever;
C. The Prospectus, as amended and supplemented, contained in Disciplined
Allocation Fund's Registration Statement under the 1933 Act, as amended, is
true, correct and complete, conforms to the requirements of the 1933 Act and
does not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading. The Registration Statement, as amended,
was, as of the date of the filing of the last Post-Effective Amendment, true,
correct and complete, conformed to the requirements of the 1933 Act and did
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading;
D. There is no material contingent liability of Disciplined Allocation Fund
and no material claim and no material legal, administrative or other
proceedings pending or, to the knowledge of Disciplined Allocation Fund,
threatened against Disciplined Allocation Fund, not reflected in such
Prospectus;
E. Except for the Agreement, there are no material contracts outstanding to
which Disciplined Allocation Fund is a party other than those ordinary in the
conduct of its business;
F. Disciplined Allocation Fund is one of two investment portfolios, or
"series," of Oppenheimer Series Fund, Inc., an open-end management investment
company organized as a Maryland corporation duly organized, validly existing
and in good standing under the laws of the State of Maryland; has all
necessary and material Federal and state authorizations to own all of its
assets and to carry on its business as now being conducted; and is duly
registered under the Act and such registration has not been rescinded or
revoked and is in full force and effect;
G. All Federal and other tax returns and reports of Disciplined Allocation
Fund required by law to be filed have been filed, and all federal and other
taxes shown due on said returns and reports have been paid or provision shall
have been made for the payment thereof and to the best of the knowledge of
Disciplined Allocation Fund no such return is currently under audit and no
assessment has been asserted with respect to such returns; and
H. Disciplined Allocation Fund has elected that the Fund be treated as a
regulated investment company and, for each fiscal year of its operations,
Disciplined Allocation Fund has met the requirements of Subchapter M of the
Code for qualification and treatment as a regulated investment company and
Disciplined Allocation Fund intends to meet such requirements with respect to
its current taxable year.
13. Balanced Fund hereby represents and warrants that:
A. The audited financial statements of Balanced Fund as of September 30, 2005
heretofore furnished to Disciplined Allocation Fund, present fairly the
financial position, results of operations, and changes in net assets of
Balanced Fund, as of that date, in conformity with generally accepted
accounting principles applied on a basis consistent with the preceding year;
and that from September 30, 2005 through the date hereof there have not been,
and through the Closing Date there will not be, any material adverse changes
in the business or financial condition of Balanced Fund, it being understood
that a decrease in the size of Balanced Fund due to a diminution in the value
of its portfolio and/or redemption of its shares shall not be considered a
material or adverse change;
B. The Prospectus, as amended and supplemented, contained in Balanced Fund's
Registration Statement under the 1933 Act, is true, correct and complete,
conforms to the requirements of the 1933 Act and does not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading.
The Registration Statement, as amended, was, as of the date of the filing of
the last Post-Effective Amendment, true, correct and complete, conformed to
the requirements of the 1933 Act and did not contain any untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading;
C. Except for this Agreement, there is no material contingent liability of
Balanced Fund and no material claim and no material legal, administrative or
other proceedings pending or, to the knowledge of Balanced Fund, threatened
against Balanced Fund, not reflected in such Prospectus;
D. Except for this Agreement, there are no material contracts outstanding to
which Balanced Fund is a party other than those ordinary in the conduct of
its business;
E. Balanced Fund is a business trust duly organized, validly existing and in
good standing under the laws of the Commonwealth of Massachusetts; Balanced
Fund has all necessary and material Federal and state authorizations to own
all its properties and assets and to carry on its business as now being
conducted; the Class A, Class B, Class C and Class N shares of Balanced Fund
which it issues to Disciplined Allocation Fund pursuant to the Agreement will
be duly authorized, validly issued, fully-paid and non-assessable, except as
set forth under "Shareholder & Trustee Liability" in Balanced Fund's
Statement of Additional Information, will conform to the description thereof
contained in Balanced Fund's Registration Statement and will be duly
registered under the 1933 Act and in the states where registration is
required; and Balanced Fund is duly registered under the Act and such
registration has not been revoked or rescinded and is in full force and
effect;
F. All federal and other tax returns and reports of Balanced Fund required by
law to be filed have been filed, and all federal and other taxes shown due on
said returns and reports have been paid or provision shall have been made for
the payment thereof and to the best of the knowledge of Balanced Fund, no
such return is currently under audit and no assessment has been asserted with
respect to such returns and to the extent such tax returns with respect to
the taxable year of Balanced Fund ended December 31, 2004 have not been
filed, such returns will be filed when required and the amount of tax shown
as due thereon shall be paid when due;
G. Balanced Fund has elected to be treated as a regulated investment
company and, for each fiscal year of its operations, the Fund has met the
requirements of Subchapter M of the Code for qualification and treatment as a
regulated investment company and Balanced Fund intends to meet such
requirements with respect to its current taxable year;
H. Balanced Fund has no plan or intention (i) to dispose of any of
the assets transferred by Disciplined Allocation Fund, other than in the
ordinary course of business, or (ii) to redeem or reacquire any of the Class
A, Class B, Class C and Class N shares issued by it in the reorganization
other than pursuant to valid requests of shareholders; and
I. After consummation of the transactions contemplated by the
Agreement, Balanced Fund intends to operate its business in a substantially
unchanged manner.
14. Each party hereby represents to the other that no broker or finder has
been employed by it with respect to the Agreement or the transactions
contemplated hereby. Each party also represents and warrants to the other
that the information concerning it in the Prospectus and Proxy Statement and
Prospectus will not as of its date contain any untrue statement of a material
fact or omit to state a fact necessary to make the statements concerning it
therein not misleading and that the financial statements concerning it will
present the information shown fairly in accordance with generally accepted
accounting principles applied on a basis consistent with the preceding year.
Each party also represents and warrants to the other that the Agreement is
valid, binding and enforceable in accordance with its terms and that the
execution, delivery and performance of the Agreement will not result in any
violation of, or be in conflict with, any provision of any charter, by-laws,
contract, agreement, judgment, decree or order to which it is subject or to
which it is a party. Balanced Fund hereby represents to and covenants with
Disciplined Allocation Fund that, if the reorganization becomes effective,
Balanced Fund will treat each shareholder of Disciplined Allocation Fund who
received any of Balanced Fund's shares as a result of the reorganization as
having made the minimum initial purchase of shares of Balanced Fund received
by such shareholder for the purpose of making additional investments in
shares of Balanced Fund, regardless of the value of the shares of Balanced
Fund received.
15. Balanced Fund agrees that it will prepare and file a Registration
Statement on Form N-14 under the 1933 Act which shall contain a preliminary
form of proxy statement and prospectus contemplated by Rule 145 under the
1933 Act. The final form of such proxy statement and prospectus is referred
to in the Agreement as the "Proxy Statement and Prospectus." Each party
agrees that it will use its best efforts to have such Registration Statement
declared effective and to supply such information concerning itself for
inclusion in the Proxy Statement and Prospectus as may be necessary or
desirable in this connection. Disciplined Allocation Fund covenants and
agrees to liquidate under the laws of the State of Maryland, following the
Closing, and, upon Closing, to cause the cancellation of its outstanding
shares.
16. The obligations of the parties shall be subject to the right of either
party to abandon and terminate the Agreement for any reason and there shall
be no liability for damages or other recourse available to a party not so
terminating this Agreement, provided, however, that in the event that a party
shall terminate this Agreement without reasonable cause, the party so
terminating shall, upon demand, reimburse the party not so terminating for
all expenses, including reasonable out-of-pocket expenses and fees incurred
in connection with this Agreement.
17. The Agreement may be executed in several counterparts, each of which
shall be deemed an original, but all taken together shall constitute one
Agreement. The rights and obligations of each party pursuant to the
Agreement shall not be assignable.
18. All prior or contemporaneous agreements and representations are merged
into the Agreement, which constitutes the entire contract between the parties
hereto. No amendment or modification hereof shall be of any force and effect
unless in writing and signed by the parties and no party shall be deemed to
have waived any provision herein for its benefit unless it executes a written
acknowledgment of such waiver.
19. Balanced Fund understands that the obligations of Disciplined
Allocation Fund under the Agreement are not binding upon any Director or
shareholder of Disciplined Allocation Fund personally, but bind only
Disciplined Allocation Fund and Disciplined Allocation Fund's property.
20. Disciplined Allocation Fund understands that the obligations of
Balanced Fund under the Agreement are not binding upon any director or
shareholder of Balanced Fund personally, but bind only Balanced Fund and
Balanced Fund's property. Disciplined Allocation Fund represents that it has
notice of the provisions of the Declaration of Trust of Balanced Fund
disclaiming shareholder and trustee liability for acts or obligations of
Balanced Fund.
IN WITNESS WHEREOF, each of the parties has caused the Agreement to be
executed and attested by its officers thereunto duly authorized on the date
first set forth above.
OPPENHEIMER SERIES FUND, INC., on behalf
of its series OPPENHEIMER DISCIPLINED
ALLOCATION FUND
By: /s/Robert G. Zack
Robert G. Zack
Secretary
OPPENHEIMER BALANCED FUND
By: /s/Robert G. Zack
Robert G. Zack
Secretary
B-1
EXHIBIT B
PRINCIPAL SHAREHOLDERS
Principal Shareholders of Disciplined Allocation Fund. As of January
31, 2006, the only persons who owned of record or were known by Disciplined
Allocation Fund to own beneficially 5% or more of any class of the
outstanding shares of Disciplined Allocation Fund were:
Citigroup Global Mkts Inc., Attn Cindy Tempesta, 7th Floor, 333 West 34th
Street, New York, NY 10001-2483, which owned 41,847.044 Class C shares or
6.86% of the Class C shares then outstanding.
MLPF&S for the sole benefit of its customers, Attn Fund Admn/#97J24, 4800
Deer Lake Drive E., Floor 3, Jacksonville, FL 32246-6484, which owned
37,410.232 Class C shares or 6.14% of the then outstanding shares.
MG Trust Cust, Herman Herman Katz & Cotlar PSP, 700 17th Street Suite 300,
Denver, CO 80202-3531, which owned 53,653.777 Class N shares or 43.47% of the
Class N shares then outstanding.
Pershing LLC, P.O. Box 2052, Jersey City, NJ 07303-9998, which owned
10,854.924 Class N shares or 8.79% of the Class N shares then outstanding.
Orchard Trust Co. LLC, FBO Oppen Recordkeeperpro, 8515 East Orchard Road,
Greenwood Village, CO 80111-5002, which owned 6,567.003 Class N shares or
5.32% of the Class N shares then outstanding.
Principal Shareholders of Balanced Fund. As of January 31, 2006, the
only persons who owned of record or were known by Balanced Fund to own
beneficially 5% or more of any class of the outstanding shares of Balanced
Fund were:
Wilmington Trust Co. TR, Movado Group Inc., FBO WTC Movagrou Exec DCP A/C,
1100 N. Market Street, Wilmington, DE 19801-1243, which owned 71,750.565
Class N shares or 7.95% of the Class N shares then outstanding.
RPSS TR, Woolsey Bros Farm Supply Inc., 401(K) Plan, Attn Herb Woolsey, P.O.
Box 363, Vandalia, IL 62471-0363, which owned 48,231.664 Class N shares or
5.35% of the Class N shares then outstanding.
Orchard Trust Co. LLC, FBO Oppen Recordkeeperpro, 8515 East Orchard Road,
Greenwood Village, CO 80111-5002, which owned 49,031.268 Class N shares or
5.43% of the then Class N shares outstanding.
Appendix to Combined Prospectus and Proxy Statement of Oppenheimer Balanced
Fund
Graphic material included under the heading "How have the Funds
performed?":
A bar chart will be included in the combined Prospectus and Proxy Statement, depicting
the annual total return of a hypothetical investment in Class A shares of
Balanced Fund for each of the ten most recent calendar years, without
deducting sales charges. Set forth below are the relevant data points that
will appear on the bar chart.
- --------------------------------------------------------------------------------
Calendar Year Ended: Oppenheimer Balanced Fund
Annual Total Returns
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
12/31/96 17.23%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
12/31/97 17.77%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
12/31/98 7.05%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
12/31/99 10.60%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
12/31/00 6.57%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
12/31/01 1.68%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
12/31/02 -10.60%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
12/31/03 23.91%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
12/31/04 9.67%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
12/31/05 3.59%
- --------------------------------------------------------------------------------
A bar chart will be included in the combined Prospectus and Proxy Statement,
depicting the annual total returns of a hypothetical investment in Class A
shares of Disciplined Allocation Fund for each of the ten most calendar
years, without deducting sales charges. Set forth below is the relevant data
point that will appear on the bar chart.
- --------------------------------------------------------------------------------
Calendar Year Ended: Oppenheimer Disciplined Allocation
Fund
Annual Total Returns
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
12/31/96 9.59%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
12/31/97 17.90%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
12/31/98 10.85%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
12/31/99 -1.78%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
12/31/00 5.27%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
12/31/01 -5.96%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
12/31/02 -9.00%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
12/31/03 18.89%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
12/31/04 8.58%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
12/31/05 2.58%
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
TO PROSPECTUS AND PROXY STATEMENT
OF
OPPENHEIMER BALANCED FUND
PART B
Acquisition of the Assets of
OPPENHEIMER DISCIPLINED ALLOCATION FUND
By and in exchange for Shares of
OPPENHEIMER BALANCED FUND
This Statement of Additional Information to this Prospectus and Proxy
Statement (the "SAI") relates specifically to the proposed delivery of
substantially all of the assets of Oppenheimer Disciplined Allocation Fund
("Disciplined Allocation Fund") for Class A, Class B, Class C and Class N
shares of Oppenheimer Balanced Fund ("Balanced Fund") (the "Reorganization").
This SAI consists of this Cover Page and the following documents which
are incorporated into this SAI by reference: (i) the Statement of Additional
Information of Disciplined Allocation Fund dated February 28, 2005 revised
December 6, 2005; (ii) the Statement of Additional Information of Balanced
Fund dated January 27, 2006, which includes audited financial statements of
Balanced Fund for the 12-month period ended September 30, 2005; (iii) the
annual report of Disciplined Allocation Fund which includes audited financial
statements of Disciplined Allocation Fund for the 12-month period ended
October 31, 2005.
This SAI also includes the pro forma financial statements for the
Surviving Balanced Fund for the 12-month period ended December 31, 2005.
This SAI is not a Prospectus; you should read this SAI in conjunction
with the combined Prospectus and Proxy Statement dated March 1, 2006,
relating to the Reorganization. You can request a copy of the Prospectus and
Proxy Statement by calling 1.800.647.1963 or by writing OppenheimerFunds
Services at P.O. Box 5270, Denver, Colorado 80217. The date of this SAI is
March 1, 2006.
PRO FORMA FINANCIAL STATEMENTS
Shown below are unaudited pro forma financial statements for the
combined Balanced Fund, assuming the Reorganization had been consummated as
of December 31, 2005. The first table presents pro forma Statements of
Assets and Liabilities for the combined Balanced Fund. The second table
presents pro forma Statements of Operations for the combined Balanced Fund.
The third table presents a pro forma Statement of Investments for the
combined Balanced Fund.
The unaudited pro forma statement of investments and statement of
assets and liabilities reflect the financial position of Disciplined
Allocation and Balanced Funds at December 31, 2005. The unaudited pro forma
statement of operations reflects the results of operations of Disciplined
Allocation and Balanced Funds for the year ended December 31, 2005. The
unaudited pro forma combined financial statements may not necessarily be
representative of what the actual combined financial statements would have
been had the Reorganization occurred at December 31, 2005. The historical
cost of investment securities will be carried forward to the surviving entity
and results of operations of Disciplined Allocation Fund for pre-combination
periods will not be restated. The unaudited pro forma statement of
investments, and statements of assets and liabilities and operations should
be read in conjunction with the historical financial statements of the Funds
incorporated by reference in the Statements of Additional Information for
each Fund.
PROFORMA COMBINED STATEMENT OF INVESTMENTS AS OF DECEMBER 31, 2005 (UNAUDITED)
Oppenheimer Balanced Fund and Oppenheimer Disciplined Allocation Fund
OPPENHEIMER OPPENHEIMER OPPENHEIMER OPPENHEIMER
BALANCED DISCIPLINED COMBINED BALANCED DISCIPLINED COMBINED
FUND ALLOCATION FUND PROFORMA FUND ALLOCATION FUND PROFORMA
SHARES SHARES SHARES VALUE VALUE VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS--51.0%
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY--6.2%
- ------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED CONSUMER SERVICES--0.2%
Corinthian Colleges, Inc.(1) 182,505 29,000 211,505 $ 2,149,909 $ 341,620 $ 2,491,529
- ------------------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES--0.3%
WCI Communities, Inc.(1) 97,400 19,000 116,400 2,615,190 510,150 3,125,340
- ------------------------------------------------------------------------------------------------------------------------------------
MEDIA--5.5%
Liberty Global, Inc., Series A 591,194 108,331 699,525 13,301,865 2,437,448 15,739,313
- ------------------------------------------------------------------------------------------------------------------------------------
Liberty Global, Inc., Series C(1) 591,194 108,331 699,525 12,533,313 2,296,617 14,829,930
- ------------------------------------------------------------------------------------------------------------------------------------
Liberty Media Corp., Cl. A(1) 2,290,700 407,700 2,698,400 18,027,809 3,208,599 21,236,408
- ------------------------------------------------------------------------------------------------------------------------------------
Viacom, Inc., Cl. B 195,900 0 195,900 6,386,340 0 6,386,340
-------------------------------------------
50,249,327 7,942,664 58,191,991
- ------------------------------------------------------------------------------------------------------------------------------------
SPECIALTY RETAIL--0.2%
Gap, Inc. (The) 118,800 0 118,800 2,095,632 0 2,095,632
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--4.0%
- ------------------------------------------------------------------------------------------------------------------------------------
BEVERAGES--0.9%
Constellation Brands, Inc., Cl. A(1) 329,100 39,400 368,500 8,632,293 1,033,462 9,665,755
- ------------------------------------------------------------------------------------------------------------------------------------
FOOD PRODUCTS--0.6%
Tyson Foods, Inc., Cl. A 328,900 0 328,900 5,624,190 0 5,624,190
- ------------------------------------------------------------------------------------------------------------------------------------
FOOD & STAPLES RETAILING--0.1%
Wal-Mart Stores, Inc. 0 20,200 20,200 0 945,360 945,360
- ------------------------------------------------------------------------------------------------------------------------------------
TOBACCO--2.4%
Altria Group, Inc. 293,100 44,500 337,600 21,900,432 3,325,040 25,225,472
- ------------------------------------------------------------------------------------------------------------------------------------
ENERGY--4.7%
- ------------------------------------------------------------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES--0.8%
Halliburton Co. 103,300 22,200 125,500 6,400,468 1,375,512 7,775,980
- ------------------------------------------------------------------------------------------------------------------------------------
OIL & GAS--3.9%
BP plc, ADR 70,900 43,200 114,100 4,553,198 2,774,304 7,327,502
- ------------------------------------------------------------------------------------------------------------------------------------
Kinder Morgan, Inc. 24,700 4,300 29,000 2,271,165 395,385 2,666,550
- ------------------------------------------------------------------------------------------------------------------------------------
LUKOIL, Sponsored ADR 126,100 19,700 145,800 7,439,900 1,162,300 8,602,200
- ------------------------------------------------------------------------------------------------------------------------------------
Petroleo Brasileiro SA, Preference 448,000 0 448,000 7,129,145 0 7,129,145
- ------------------------------------------------------------------------------------------------------------------------------------
Talisman Energy, Inc. 200,400 0 200,400 10,619,502 0 10,619,502
- ------------------------------------------------------------------------------------------------------------------------------------
TotalFinaElf SA, Sponsored ADR 37,500 0 37,500 4,740,000 0 4,740,000
-------------------------------------------
36,752,910 4,331,989 41,084,899
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIALS--9.7%
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL MARKETS--1.5%
UBS AG 142,731 23,158 165,889 13,588,256 2,204,685 15,792,941
- ------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS--1.9%
Bank of America Corp. 100,652 17,502 118,154 4,645,090 807,717 5,452,807
- ------------------------------------------------------------------------------------------------------------------------------------
Wachovia Corp. 89,274 16,088 105,362 4,719,024 850,412 5,569,436
- ------------------------------------------------------------------------------------------------------------------------------------
Wells Fargo & Co. 123,400 20,900 144,300 7,753,222 1,313,147 9,066,369
-------------------------------------------
17,117,336 2,971,276 20,088,612
- ------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES--2.8%
Capital One Financial Corp. 96,400 17,200 113,600 8,328,960 1,486,080 9,815,040
- ------------------------------------------------------------------------------------------------------------------------------------
Citigroup, Inc. 137,700 23,277 160,977 6,682,581 1,129,633 7,812,214
- ------------------------------------------------------------------------------------------------------------------------------------
JPMorgan Chase & Co. 251,900 35,000 286,900 9,997,911 1,389,150 11,387,061
-------------------------------------------
25,009,452 4,004,863 29,014,315
- ------------------------------------------------------------------------------------------------------------------------------------
INSURANCE--2.3%
American International Group, Inc. 44,100 7,700 51,800 3,008,943 525,371 3,534,314
- ------------------------------------------------------------------------------------------------------------------------------------
Everest Re Group Ltd. 51,500 9,000 60,500 5,168,025 903,150 6,071,175
- ------------------------------------------------------------------------------------------------------------------------------------
Genworth Financial, Inc., Cl. A 268,300 38,400 306,700 9,277,814 1,327,872 10,605,686
- ------------------------------------------------------------------------------------------------------------------------------------
Platinum Underwriters Holdings Ltd. 102,500 16,400 118,900 3,184,675 509,548 3,694,223
-------------------------------------------
20,639,457 3,265,941 23,905,398
- ------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE--0.4%
Host Marriott Corp. 205,100 0 205,100 3,886,645 0 3,886,645
- ------------------------------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE--0.8%
Countrywide Financial Corp. 101,100 15,600 116,700 3,456,609 533,364 3,989,973
- ------------------------------------------------------------------------------------------------------------------------------------
Freddie Mac 53,000 9,200 62,200 3,463,550 601,220 4,064,770
-------------------------------------------
6,920,159 1,134,584 8,054,743
- ------------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE--6.4%
- ------------------------------------------------------------------------------------------------------------------------------------
BIOTECHNOLOGY--1.3%
MedImmune, Inc.(1) 124,300 17,400 141,700 4,352,986 609,348 4,962,334
- ------------------------------------------------------------------------------------------------------------------------------------
Wyeth 155,900 27,500 183,400 7,182,313 1,266,925 8,449,238
-------------------------------------------
11,535,299 1,876,273 13,411,572
- ------------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES--0.8%
Beckman Coulter, Inc. 88,400 0 88,400 5,029,960 0 5,029,960
- ------------------------------------------------------------------------------------------------------------------------------------
Boston Scientific Corp.(1) 0 24,600 24,600 0 602,454 602,454
- ------------------------------------------------------------------------------------------------------------------------------------
Cooper Cos., Inc. (The) 37,300 6,500 43,800 1,913,490 333,450 2,246,940
-------------------------------------------
6,943,450 935,904 7,879,354
- ------------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES--0.5%
Manor Care, Inc. 69,500 12,200 81,700 2,764,015 485,194 3,249,209
- ------------------------------------------------------------------------------------------------------------------------------------
Tenet Healthcare Corp.(1) 280,900 45,900 326,800 2,151,694 351,594 2,503,288
-------------------------------------------
4,915,709 836,788 5,752,497
- ------------------------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS--3.8%
GlaxoSmithKline plc, ADR 118,500 20,500 139,000 5,981,880 1,034,840 7,016,720
- ------------------------------------------------------------------------------------------------------------------------------------
Pfizer, Inc. 394,140 52,600 446,740 9,191,345 1,226,632 10,417,977
- ------------------------------------------------------------------------------------------------------------------------------------
Sanofi-Aventis SA, ADR 198,100 34,700 232,800 8,696,590 1,523,330 10,219,920
- ------------------------------------------------------------------------------------------------------------------------------------
Schering-Plough Corp.(2) 245,800 48,700 294,500 5,124,930 1,015,395 6,140,325
- ------------------------------------------------------------------------------------------------------------------------------------
Watson Pharmaceuticals, Inc.(1) 168,300 29,900 198,200 5,471,433 972,049 6,443,482
-------------------------------------------
34,466,178 5,772,246 40,238,424
- ------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIALS--5.4%
- ------------------------------------------------------------------------------------------------------------------------------------
AEROSPACE & DEFENSE--3.5%
Empresa Brasileira de Aeronautica
SA, ADR 142,100 0 142,100 5,556,110 0 5,556,110
- ------------------------------------------------------------------------------------------------------------------------------------
Honeywell International, Inc. 247,800 34,800 282,600 9,230,550 1,296,300 10,526,850
- ------------------------------------------------------------------------------------------------------------------------------------
Orbital Sciences Corp.(1) 957,717 131,300 1,089,017 12,297,086 1,685,892 13,982,978
- ------------------------------------------------------------------------------------------------------------------------------------
United Technologies Corp. 94,800 15,200 110,000 5,300,268 849,832 6,150,100
-------------------------------------------
32,384,014 3,832,024 36,216,038
- ------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES--1.7%
Cendant Corp. 916,400 130,900 1,047,300 15,807,900 2,258,025 18,065,925
- ------------------------------------------------------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT--0.2%
GrafTech International Ltd.(1) 230,900 41,100 272,000 1,436,198 255,642 1,691,840
- ------------------------------------------------------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY--11.1%
- ------------------------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT--1.0%
Cisco Systems, Inc.(1) 536,600 46,200 582,800 9,186,592 790,944 9,977,536
- ------------------------------------------------------------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS--1.6%
Hutchinson Technology, Inc.(1) 136,800 21,400 158,200 3,891,960 608,830 4,500,790
- ------------------------------------------------------------------------------------------------------------------------------------
International Business Machines Corp. 152,700 0 152,700 12,551,940 0 12,551,940
-------------------------------------------
16,443,900 608,830 17,052,730
- ------------------------------------------------------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT &
INSTRUMENTS--0.5%
Flextronics International Ltd.(1) 485,300 48,600 533,900 5,066,532 507,384 5,573,916
- ------------------------------------------------------------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT--1.4%
ATI Technologies, Inc.(1,3) 333,300 52,500 385,800 5,662,767 891,975 6,554,742
- ------------------------------------------------------------------------------------------------------------------------------------
Freescale Semiconductor, Inc., Cl. A(1) 294,700 44,200 338,900 7,423,493 1,113,398 8,536,891
-------------------------------------------
13,086,260 2,005,373 15,091,633
- ------------------------------------------------------------------------------------------------------------------------------------
SOFTWARE--6.6%
Compuware Corp.(1) 272,929 48,000 320,929 2,448,173 430,560 2,878,733
- ------------------------------------------------------------------------------------------------------------------------------------
Microsoft Corp. 744,800 123,000 867,800 19,476,520 3,216,450 22,692,970
- ------------------------------------------------------------------------------------------------------------------------------------
Novell, Inc.(1) 837,000 129,200 966,200 7,390,710 1,140,836 8,531,546
- ------------------------------------------------------------------------------------------------------------------------------------
Synopsys, Inc.(1) 285,300 48,200 333,500 5,723,118 966,892 6,690,010
- ------------------------------------------------------------------------------------------------------------------------------------
Take-Two Interactive Software, Inc.(1) 1,370,500 215,450 1,585,950 24,257,850 3,813,465 28,071,315
-------------------------------------------
59,296,371 9,568,203 68,864,574
- ------------------------------------------------------------------------------------------------------------------------------------
MATERIALS--1.1%
- ------------------------------------------------------------------------------------------------------------------------------------
CHEMICALS--0.5%
Praxair, Inc. 85,800 16,400 102,200 4,543,968 868,544 5,412,512
- ------------------------------------------------------------------------------------------------------------------------------------
METALS & MINING--0.6%
Companhia Vale do Rio Doce, Sponsored
ADR 162,900 0 162,900 5,905,125 0 5,905,125
- ------------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES--0.9%
- ------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION
SERVICES--0.9%
IDT Corp., Cl. B(1) 696,200 153,700 849,900 8,145,540 1,798,290 9,943,830
- ------------------------------------------------------------------------------------------------------------------------------------
WorldCom, Inc./WorldCom Group(1,4) 450,000 0 450,000 0 0 0
-----------------------------------------
8,145,540 1,798,290 9,943,830
- ------------------------------------------------------------------------------------------------------------------------------------
UTILITIES--1.5%
- ------------------------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES--1.5%
AES Corp. (The)(1) 554,200 121,500 675,700 8,772,986 1,923,345 10,696,331
- ------------------------------------------------------------------------------------------------------------------------------------
Reliant Energy, Inc.(1) 453,900 66,900 520,800 4,684,248 690,408 5,374,656
-------------------------------------------
13,457,234 2,613,753 16,070,987
-------------------------------------------
Total Common Stocks (Cost $347,642,276,
Cost $58,596,257, Combined Cost $12,358,533) 466,201,926 67,915,369 534,117,295
- ------------------------------------------------------------------------------------------------------------------------------------
RIGHTS, WARRANTS AND CERTIFICATES--0.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies, Inc. Wts., Exp.
12/10/07 (Cost $0) 11,758 0 11,758 6,643 0 6,643
- ------------------------------------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES--5.8%
- ------------------------------------------------------------------------------------------------------------------------------------
Ace Securities Corp., Home Equity Loan
Pass-Through Certificates,
Series 2002-HE7, Cl. A2B, 4.559%,
11/25/35(5) 780,000 110,000 890,000 780,482 110,068 890,550
- ------------------------------------------------------------------------------------------------------------------------------------
Aesop Funding II LLC, Automobile
Asset-Backed Certificates,
Series 2005-1A, Cl. A2, 4.43%, 4/20/08(5) 550,000 80,000 630,000 550,392 80,057 630,449
- ------------------------------------------------------------------------------------------------------------------------------------
BMW Vehicle Owner Trust, Automobile Loan
Certificates, Series 2005-A, Cl. A2,
3.66%, 12/26/07 1,666,853 221,737 1,888,590 1,661,738 221,057 1,882,795
- ------------------------------------------------------------------------------------------------------------------------------------
Capital Auto Receivables Asset Trust,
Automobile Mtg.-Backed Nts.:
Series 2004-2, Cl. A3, 3.58%, 1/15/09 1,870,000 270,000 2,140,000 1,835,704 265,048 2,100,752
Series 2005-1, Cl. A2B, 3.73%, 7/16/07 677,025 98,891 775,916 676,151 98,764 774,915
- ------------------------------------------------------------------------------------------------------------------------------------
Capital One Prime Auto Receivables Trust,
Automobile Loan Asset-Backed Securities,
Series 2005-1, Cl. A2, 4.24%, 11/15/07 2,090,000 310,000 2,400,000 2,085,320 309,306 2,394,626
- ------------------------------------------------------------------------------------------------------------------------------------
Centex Home Equity Co. LLC, Home Equity
Loan Asset-Backed
Certificates:
Series 2004-D, Cl. AF1, 2.98%, 4/25/20 138,501 20,006 158,507 138,111 19,949 158,060
Series 2005-B, Cl. AF1, 4.02%, 3/26/35 339,915 44,989 384,904 338,165 44,757 382,922
Series 2005-C, Cl. AF1, 4.196%, 6/25/35 871,421 126,389 997,810 866,825 125,723 992,548
Series 2005-D, Cl. AF1, 5.04%, 10/25/35 1,695,734 243,536 1,939,270 1,691,262 242,894 1,934,156
Series 2005-D, Cl. AV2, 4.649%,
10/25/35(5) 1,530,000 220,000 1,750,000 1,530,945 220,136 1,751,081
- ------------------------------------------------------------------------------------------------------------------------------------
Chase Manhattan Auto Owner Trust,
Automobile Loan Pass-Through Certificates,
Series 2005-A, Cl. A2, 3.72%, 12/15/07 1,530,000 230,000 1,760,000 1,523,434 229,013 1,752,447
- ------------------------------------------------------------------------------------------------------------------------------------
CIT Equipment Collateral, Equipment
Receivable-Backed Nts., Series 2004-DFS,
Cl. A2, 2.66%, 11/20/06 654,173 93,453 747,626 652,305 93,186 745,491
- ------------------------------------------------------------------------------------------------------------------------------------
Citibank Credit Card Issuance Trust, Credit
Card Receivable Nts., Series 2003-C4,
Cl. C4, 5%, 6/10/15 270,000 40,000 310,000 265,036 39,265 304,301
- ------------------------------------------------------------------------------------------------------------------------------------
Citigroup Mortgage Loan Trust, Inc., CMO,
Series 2005-WF2, Cl.
AF2, 4.922%, 8/25/35(5) 2,097,153 310,014 2,407,167 2,090,571 309,041 2,399,612
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Consumer Credit Reference Index Securities
Program, Credit Card Asset-Backed
Certificates, Series 2002-B, Cl. FX,
10.421%, 3/22/07(6) 1,720,000 250,000 1,970,000 1,718,497 249,782 1,968,279
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Countrywide Asset-Backed Certificates,
Inc., Home Equity Asset-Backed Certificates:
Series 2002-4, Cl. A1, 4.749%, 2/25/33(5) 27,360 4,125 31,485 27,414 4,333 31,747
Series 2005-16, Cl. 2AF2, 5.382%, 5/25/36(5) 550,000 80,000 630,000 550,000 80,000 630,000
Series 2005-17, Cl. 1AF1, 4.58%,
12/27/35(5) 1,150,000 170,000 1,320,000 1,149,963 169,995 1,319,958
Series 2005-17, Cl. 1AF2, 5.363%,
12/27/35(5) 370,000 50,000 420,000 370,091 50,012 420,103
Series 2005-7, Cl. AF1B, 4.317%,
11/25/35(5) 1,070,389 157,410 1,227,799 1,064,810 156,590 1,221,400
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DaimlerChrysler Auto Trust, Automobile
Loan Pass-Through Certificates:
Series 2004-B, Cl. A2, 2.48%, 2/8/07 36,664 2,444 39,108 36,669 2,445 39,114
Series 2004-C, Cl. A2, 2.62%, 6/8/07 846,625 127,666 974,291 844,535 127,351 971,886
Series 2005-A, Cl. A2, 3.17%, 9/8/07 1,286,022 179,706 1,465,728 1,282,236 179,177 1,461,413
Series 2005-B, Cl. A2, 3.75%, 12/8/07 0 184,096 184,096 0 183,666 183,666
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Equity One ABS, Inc., Home Equity
Asset-Backed Security, Series 2004-3, Cl.
AF2, 3.80%, 7/25/34(5) 1,610,000 230,000 1,840,000 1,603,612 229,088 1,832,700
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First Franklin Mortgage Loan Asset-Backed
Certificates, Home Equity Receivables,
Series 2005-FF10, Cl. A3, 4.589%,
11/25/35(5) 2,270,000 330,000 2,600,000 2,271,402 330,204 2,601,606
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Ford Credit Auto Owner Trust, Automobile
Loan Pass-Through Certificates:
Series 2005-A, Cl. A3, 3.48%, 11/17/08 1,370,000 190,000 1,560,000 1,353,538 187,717 1,541,255
Series 2005-B, Cl. A2, 3.78%, 9/15/07 957,896 134,105 1,092,001 955,902 133,826 1,089,728
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GS Auto Loan Trust, Automobile Loan
Asset-Backed Securities,
Series 2005-1, Cl. A2, 4.32%, 5/15/08 4,010,000 590,000 4,600,000 3,999,465 588,450 4,587,915
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Honda Auto Receivables Owner Trust,
Automobile Receivable
Obligations:
Series 2005-1, Cl. A2, 3.21%, 5/21/07 569,442 79,599 649,041 567,886 79,382 647,268
Series 2005-3, Cl. A2, 3.73%, 10/18/07 1,420,000 210,000 1,630,000 1,413,216 208,997 1,622,213
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Household Home Equity Loan Trust, Home
Equity Loan Pass- Through Certificates,
Series 2005-3, Cl. A1, 4.63%, 1/20/35(5) 1,126,447 163,516 1,289,963 1,127,251 163,633 1,290,884
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Lehman XS Trust, Home Equity Mtg.
Pass-Through Certificates,
Series 2005-2, Cl. 2A1B, 3.63%, 8/25/35(5) 1,775,305 263,582 2,038,887 1,777,812 263,955 2,041,767
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Litigation Settlement Monetized Fee Trust,
Asset-Backed Certificates,
Series 2001-1A, Cl. A1, 8.33%, 4/25/31(4) 0 596,634 596,634 0 606,419 606,419
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MBNA Credit Card Master Note Trust, Credit
Card Receivables,
Series 2003-C7, Cl. C7, 5.719%, 3/15/16(5) 2,540,000 360,000 2,900,000 2,694,057 381,835 3,075,892
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Nissan Auto Lease Trust, Automobile Lease
Obligations, Series
2004-A, Cl. A2, 2.55%, 1/15/07 117,010 16,849 133,859 116,980 16,845 133,825
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Onyx Acceptance Owner Trust, Automobile
Receivable Obligations,
Series 2005-B, Cl. A2, 4.03%, 4/15/08 1,170,000 170,000 1,340,000 1,166,404 169,477 1,335,881
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Popular ABS Mortgage Pass-Through Trust,
Home Equity Pass-Through Certificates:
Series 2004-5, Cl. A F2, 3.735%, 11/10/34(5) 500,000 70,000 570,000 494,016 69,162 563,178
Series 2005-1, Cl. A F2, 3.914%, 5/25/35(5) 390,000 60,000 450,000 384,629 59,174 443,803
Series 2005-2, Cl. A F2, 4.415%, 4/25/35(5) 630,000 90,000 720,000 623,828 89,118 712,946
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Residential Asset Mortgage Products, Inc.,
Home Equity Asset-Backed Pass-Through
Certificates, Series
2004-RS7, Cl. AI3, 4.45%, 7/25/28 1,130,000 170,000 1,300,000 1,124,322 169,146 1,293,468
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Structured Asset Securities Corp., CMO
Pass-Through Certificates,
Series 2005-4XS, Cl. 3A1, 5.18%, 3/26/35 2,401,697 324,196 2,725,893 2,402,603 324,318 2,726,921
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USAA Auto Owner Trust, Automobile Loan
Asset-Backed Nts.:
Series 2004-2, Cl. A2, 2.41%, 2/15/07 37,292 5,119 42,411 37,280 5,117 42,397
Series 2004-3, Cl. A2, 2.79%, 6/15/07 386,411 58,449 444,860 385,795 58,356 444,151
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Volkswagen Auto Lease Trust, Automobile
Lease Asset-Backed Securities:
Series 2004-A, Cl. A2, 2.47%, 1/22/07 377,103 53,181 430,284 376,479 53,093 429,572
Series 2005-A, Cl. A2, 3.52%, 4/20/07 1,484,067 212,010 1,696,077 1,479,517 211,360 1,690,877
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Wachovia Auto Owner Trust, Automobile
Receivable Nts., Series
2004-B, Cl. A2, 2.40%, 5/21/07 177,962 25,652 203,614 177,714 25,616 203,330
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Wells Fargo Home Equity Trust, Home Equity
Asset-Backed Certificates,
Series 2004-2, Cl. AI1B, 2.94%, 9/25/18(5) 735,337 103,777 839,114 730,150 103,046 833,196
- ------------------------------------------------------------------------------------------------------------------------------------
WFS Financial Owner Trust, Automobile
Receivable Obligations,
Series 2002-2, Cl. A4, 4.50%, 2/20/10 345,678 46,090 391,768 345,850 46,113 391,963
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Whole Auto Loan Trust, Automobile Loan
Receivable Certificates,
Series 2004-1, Cl. A2A, 2.59%, 5/15/07 628,951 91,556 720,507 626,633 91,219 717,852
------------------------------------------
Total Asset-Backed Securities
(Cost $52,194,243, Cost $8,299,229,
Combined Cost $60,493,472) 51,966,997 8,276,081 60,243,078
- ------------------------------------------------------------------------------------------------------------------------------------
MORTGAGE-BACKED OBLIGATIONS--29.8%
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GOVERNMENT AGENCY--24.8%
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FHLMC/FNMA/SPONSORED--24.6%
Federal Home Loan Mortgage Corp.:
4.50%, 5/1/19 4,780,723 413,604 5,194,327 4,659,869 403,148 5,063,017
5%, 1/1/36(7) 5,010,000 601,000 5,611,000 4,850,306 581,843 5,432,149
6%, 9/1/24 1,042,916 0 1,042,916 1,060,298 0 1,060,298
6%, 4/1/17-7/1/24 0 840,199 840,199 0 856,592 856,592
6.50%, 4/1/18-4/1/34 2,123,623 296,475 2,420,098 2,184,457 304,964 2,489,421
7%, 5/1/29 420,542 0 420,542 438,428 0 438,428
7%, 6/1/29 0 415,143 415,143 0 432,800 432,800
7%, 5/1/29-11/1/32 2,559,977 376,307 2,936,284 2,667,658 392,137 3,059,795
8%, 4/1/16 0 84,436 84,436 0 89,971 89,971
9%, 8/1/22-5/1/25 0 23,289 23,289 0 25,237 25,237
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Federal Home Loan Mortgage Corp., CMO
Gtd. Real Estate Mtg.Investment
Conduit Multiclass Pass-Through
Certificates:
Series 1669, Cl. G, 6.50%, 2/15/23 10,794 1,542 12,336 10,782 1,540 12,322
Series 2034, Cl. Z, 6.50%, 2/15/28 505,209 68,272 573,481 521,874 70,524 592,398
Series 2053, Cl. Z, 6.50%, 4/15/28 550,628 76,103 626,731 567,384 78,419 645,803
Series 2055, Cl. ZM, 6.50%, 5/15/28 709,094 106,364 815,458 727,853 109,178 837,031
Series 2075, Cl. D, 6.50%, 8/15/28 1,668,566 209,642 1,878,208 1,719,017 215,981 1,934,998
Series 2080, Cl. Z, 6.50%, 8/15/28 449,028 65,483 514,511 460,259 67,121 527,380
Series 2387, Cl. PD, 6%, 4/15/30 521,787 76,395 598,182 526,748 77,121 603,869
Series 2456, Cl. BD, 6%, 3/15/30 182,904 26,129 209,033 183,281 26,183 209,464
Series 2500, Cl. FD, 4.869%, 3/15/32(5) 235,312 34,045 269,357 237,901 34,420 272,321
Series 2526, Cl. FE, 4.769%, 6/15/29(5) 310,235 43,961 354,196 312,471 44,277 356,748
Series 2551, Cl. FD, 4.769%, 1/15/33(5) 241,402 34,298 275,700 243,655 34,618 278,273
Series 2583, Cl. KA, 5.50%, 3/15/22 1,254,138 177,215 1,431,353 1,256,532 177,553 1,434,085
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Federal Home Loan Mortgage Corp., CMO
Pass-Through Participation
Certificates, Series 151,
Cl. F, 9%, 5/15/21 50,585 0 50,585 50,508 0 50,508
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Federal Home Loan Mortgage Corp.,
Interest-Only Stripped Mtg.-
Backed Security:
Series 176, Cl. IO, 6/1/26(8) 433,238 62,920 496,158 92,219 13,393 105,612
Series 183, Cl. IO, 4/1/27(8) 680,719 97,622 778,341 141,611 20,308 161,919
Series 184, Cl. IO, 12/1/26(8) 737,101 105,372 842,473 145,756 20,837 166,593
Series 192, Cl. IO, 2/1/28(8) 206,117 30,715 236,832 42,132 6,279 48,411
Series 200, Cl. IO, 1/1/29(8) 244,889 36,410 281,299 53,237 7,915 61,152
Series 2003-118, Cl. S, 12/25/33(8) 3,525,963 511,445 4,037,408 385,180 55,871 441,051
Series 2130, Cl. SC, 3/15/29(8) 558,307 84,462 642,769 41,632 6,298 47,930
Series 2796, Cl. SD, 7/15/26(8) 828,676 110,529 939,205 64,313 8,578 72,891
Series 2920, Cl. S, 1/15/35(8) 4,870,804 688,106 5,558,910 235,458 33,263 268,721
Series 3000, Cl. SE, 7/15/25(8) 4,510,205 666,879 5,177,084 164,831 24,372 189,203
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Federal Home Loan Mortgage Corp.,
Principal-Only Stripped Mtg.-
Backed Security, Series 176, Cl. PO,
6/1/26(9) 175,656 35,131 210,787 148,178 29,636 177,814
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Federal National Mortgage Assn.:
5%, 6/1/18-7/1/18 4,646,677 657,311 5,303,988 4,605,093 651,429 5,256,522
5%, 1/1/36(7) 24,834,000 3,774,000 28,608,000 24,065,686 3,657,240 27,722,926
5.50%, 1/1/21(7) 17,227,000 2,699,000 19,926,000 17,334,669 2,715,869 20,050,538
5.50%, 2/1/33 0 261,861 261,861 0 260,023 260,023
5.50%, 3/1/33-4/1/33 3,742,761 506,867 4,249,628 3,716,483 503,308 4,219,791
5.50%, 4/1/33 959,581 0 959,581 952,844 0 952,844
5.50%, 7/1/33 1,372,120 0 1,372,120 1,362,486 0 1,362,486
5.50%, 5/1/33-1/1/34 25,072,975 3,457,848 28,530,823 24,896,936 3,433,569 28,330,505
5.50%, 12/1/33 0 53,644 53,644 0 53,267 53,267
5.50%, 1/1/34-11/1/34 0 479,929 479,929 0 476,179 476,179
5.50%, 1/1/36(7) 53,775,000 7,090,000 60,865,000 53,254,028 7,021,312 60,275,340
6%, 5/1/16-9/1/32 8,048,653 0 8,048,653 8,165,643 0 8,165,643
6%, 7/1/16-11/1/32 11,053,504 1,241,140 12,294,644 11,286,404 1,266,780 12,553,184
6%, 11/1/17-10/1/19 0 464,806 464,806 0 475,267 475,267
6%, 2/1/21(7) 1,500,000 0 1,500,000 1,531,407 0 1,531,407
6%, 1/1/36(7) 7,057,000 2,008,000 9,065,000 7,123,159 2,026,825 9,149,984
6.50%, 3/1/36 0 43,060 43,060 0 44,384 44,384
6.50%, 12/1/27-11/1/31 2,979,838 0 2,979,838 3,071,471 0 3,071,471
6.50%, 10/1/30 290,325 42,889 333,214 299,160 44,194 343,354
6.50%, 1/1/36(7) 15,167,000 2,702,000 17,869,000 15,560,402 2,772,084 18,332,486
7%, 11/1/17 1,649,721 227,819 1,877,540 1,715,310 236,876 1,952,186
7%, 2/25/22 0 150,587 150,587 0 153,834 153,834
7.50%, 1/1/08-6/1/08 0 19,140 19,140 0 19,583 19,583
7.50%, 8/1/29 645,719 73,239 718,958 677,870 76,886 754,756
8.50%, 7/1/32 45,728 7,415 53,143 49,515 8,030 57,545
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Federal National Mortgage Assn.
Grantor, Trust, CMO, Trust 2002-
T1, Cl. A2, 7%, 11/25/31 1,612,983 232,205 1,845,188 1,669,975 240,409 1,910,384
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Federal National Mortgage Assn., CMO
Gtd. Real Estate Mtg.Investment
Conduit Pass-Through Certificates:
Trust 1993-87, Cl. Z, 6.50%, 6/25/23 1,319,239 179,996 1,499,235 1,361,554 185,769 1,547,323
Trust 1996-35, Cl. Z, 7%, 7/25/26 0 272,403 272,403 0 283,322 283,322
Trust 1998-63, Cl. PG, 6%, 3/25/27 37,898 5,646 43,544 37,808 5,632 43,440
Trust 2001-50, Cl. NE, 6%, 8/25/30 284,351 42,388 326,739 286,019 42,636 328,655
Trust 2001-51, Cl. OD, 6.50%, 10/25/31 1,806,060 262,583 2,068,643 1,860,146 270,447 2,130,593
Trust 2001-70, Cl. LR, 6%, 9/25/30 334,768 48,554 383,322 337,978 49,020 386,998
Trust 2001-72, Cl. NH, 6%, 4/25/30 199,753 29,870 229,623 201,302 30,101 231,403
Trust 2001-74, Cl. PD, 6%, 5/25/30 80,868 11,284 92,152 81,072 11,312 92,384
Trust 2002-77, Cl. WF, 4.77%, 12/18/32(5) 374,214 52,966 427,180 377,075 53,371 430,446
Trust 2003-17, Cl. EQ, 5.50%, 3/25/23 630,000 0 630,000 634,782 0 634,782
Trust 2003-28, Cl. KG, 5.50%, 4/25/23 1,045,000 0 1,045,000 1,067,831 0 1,067,831
Trust 2004-101, Cl. BG, 5%, 1/25/20 1,633,000 236,000 1,869,000 1,611,598 232,907 1,844,505
Trust 2005-71, Cl. DB, 4.50%, 8/25/25 0 160,000 160,000 0 150,280 150,280
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Federal National Mortgage Assn., CMO
Gtd. Real Estate Mtg.Investment
Conduit Pass-Through Certificates,
Interest-Only Stripped Mtg.-Backed
Security
Trust 1993-223, Cl. PM, 6.50%, 10/25/23(8) 0 58,737 58,737 0 5,956 5,956
Trust 2002-38, Cl. SO, 2.806%, 4/25/32(8) 878,236 81,762 959,998 51,298 4,776 56,074
Trust 2002-47, Cl. NS, 3.806%, 4/25/32(8) 920,863 132,023 1,052,886 74,255 10,646 84,901
Trust 2002-51, Cl. S, 3.806%, 8/25/32(8) 845,498 121,287 966,785 68,486 9,824 78,310
Trust 2002-77, Cl. IS, 3.96%, 12/18/32(8) 1,496,254 139,299 1,635,553 125,814 11,713 137,527
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Federal National Mortgage Assn.,
Interest-Only Stripped Mtg.-
Backed Security:
Trust 2001-65, Cl. S, 3.706%, 11/25/31(8) 2,060,650 302,474 2,363,124 190,709 27,993 218,702
Trust 2001-81, Cl. S, 3.756%, 1/25/32(8) 471,506 66,698 538,204 41,054 5,807 46,861
Trust 2002-52, Cl. SD, 3.806%, 9/25/32(8) 1,034,124 148,347 1,182,471 85,113 12,210 97,323
Trust 2002-77, Cl. SH, 3.96%, 12/18/32(8) 613,851 87,336 701,187 57,821 8,227 66,048
Trust 2002-9, Cl. MS, 3.906%, 3/25/32(8) 631,954 93,691 725,645 55,246 8,191 63,437
Trust 2002-96, Cl. SK, 3.806%, 4/25/32(8) 5,339,626 786,683 6,126,309 458,868 67,605 526,473
Trust 2003-4, Cl. S, 4.056%, 2/25/33(8) 1,132,019 167,458 1,299,477 120,178 17,778 137,956
Trust 2004-54, Cl. DS, 2.906%, 11/25/30(8) 930,491 124,863 1,055,354 53,571 7,189 60,760
Trust 2005-19, Cl. SA, 2.556%, 3/25/35(8) 13,056,238 1,840,753 14,896,991 726,880 102,480 829,360
Trust 2005-40, Cl. SA, 2.506%, 5/25/35(8) 2,885,085 396,403 3,281,488 153,724 21,121 174,845
Trust 2005-6, Cl. SE, 2.506%, 2/25/35(8) 3,309,749 464,773 3,774,522 172,195 24,181 196,376
Trust 2005-71, Cl. SA, 2.556%, 8/25/25(8) 2,892,185 421,960 3,314,145 172,831 25,216 198,047
Trust 214, Cl. 2, 7.50%, 3/1/23(8) 1,352,626 0 1,352,626 312,597 0 312,597
Trust 222, Cl. 2, 7%, 6/1/23(8) 1,516,880 218,096 1,734,976 359,853 51,740 411,593
Trust 240, Cl. 2, 7%, 9/1/23(8) 2,330,050 341,888 2,671,938 485,219 71,196 556,415
Trust 247, Cl. 2, 7.50%, 10/1/23(8) 0 365,475 365,475 0 81,509 81,509
Trust 252, Cl. 2, 7.50%, 11/1/23(8) 1,121,979 161,929 1,283,908 247,758 35,758 283,516
Trust 273, Cl. 2, 7%, 8/1/26(8) 324,393 47,128 371,521 66,955 9,727 76,682
Trust 319, Cl. 2, 6.50%, 2/1/32(8) 453,497 66,664 520,161 102,822 15,115 117,937
Trust 321, Cl. 2, 6.50%, 3/1/32(8) 4,704,270 657,034 5,361,304 1,061,722 148,288 1,210,010
Trust 329, Cl. 2, 5.50%, 1/1/33(8) 1,167,197 109,088 1,276,285 258,678 24,176 282,854
Trust 331, Cl. 9, 6.50%, 2/1/33(8) 0 181,681 181,681 0 41,222 41,222
Trust 333, Cl. 2, 5.50%, 3/1/33(8) 13,772,744 1,656,094 15,428,838 3,086,231 371,102 3,457,333
Trust 334, Cl. 17, 6.50%, 2/1/33(8) 771,279 108,969 880,248 170,907 24,146 195,053
Trust 338, Cl. 2, 5.50%, 6/1/33(8) 5,393,055 894,982 6,288,037 1,205,204 200,005 1,405,209
Trust 350, Cl. 2, 5.50%, 2/1/34(8) 5,010,115 735,650 5,745,765 1,111,082 163,143 1,274,225
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Federal National Mortgage Assn.,
Principal-Only Stripped Mtg.-
Backed Security, Trust 1993-184, Cl.
M, %, 9/25/23(9) 516,511 0 516,511 433,563 0 433,563
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Federal National Mortgage Assn.,
Principal-Only Stripped Mtg.-
Backed Security, Trust 1993-184, Cl.
M, %, 9/25/23(9) 0 71,275 71,275 0 59,829 59,829
224,900,168 33,370,391 258,270,559
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GNMA/GUARANTEED--0.2%
Government National Mortgage Assn.:
4.375%, 3/20/26(5) 35,589 0 35,589 35,910 0 35,910
7%, 4/15/26 225,806 0 225,806 237,776 0 237,776
7%, 4/15/09-2/15/24 0 118,240 118,240 0 123,510 123,510
7.50%, 5/15/27 1,232,551 0 1,232,551 1,298,868 0 1,298,868
7.50%, 3/15/09 0 69,557 69,557 0 72,229 72,229
8%, 5/15/17 0 47,926 47,926 0 51,304 51,304
8.50%, 8/15/17-12/15/17 0 30,423 30,423 0 32,831 32,831
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Government National Mortgage Assn.,
Interest-Only Stripped Mtg.-
Backed Security:
Series 2001-21, Cl. SB, 3.23%, 1/16/27(8) 1,103,317 204,545 1,307,862 75,973 14,085 90,058
Series 2002-15, Cl. SM, 3.13%, 2/16/32(8) 1,052,766 0 1,052,766 73,205 0 73,205
Series 2002-76, Cl. SY, 3.33%, 12/16/26(8) 2,152,668 275,321 2,427,989 94,392 12,072 106,464
Series 2004-11, Cl. SM, 3.28%, 1/17/30(8) 778,163 99,775 877,938 32,818 4,208 37,026
-----------------------------------------
1,848,942 310,239 2,159,181
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NON-AGENCY--5.0%
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COMMERCIAL--4.6%
Banc of America Commercial Mortgage,
Inc., Commercial Mtg. Pass Through
Certificates:
Series 2005-3, Cl. A2, 4.501%, 7/10/43 1,580,000 230,000 1,810,000 1,542,679 224,567 1,767,246
Series 2004-6, Cl. A3, 4.512%, 12/10/42 1,480,000 210,000 1,690,000 1,433,938 203,464 1,637,402
Series 2005-2, Cl. A4, 4.783%, 7/10/43(5) 1,910,000 280,000 2,190,000 1,875,267 274,908 2,150,175
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Banc of America Funding Corp., CMO
Pass-Through Certificates,
Series 2004-2, Cl. 2A1, 6.50%, 7/20/32 1,480,415 198,406 1,678,821 1,482,022 198,622 1,680,644
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Banc of America Mortgage Securities,
Inc., CMO Pass-Through
Certificates:
Series 2004-E, Cl. 2A9, 3.712%, 6/25/34(5) 31,105 4,212 35,317 31,095 4,211 35,306
Series 2005-E, Cl. 2A2, 4.983%, 6/25/35(5) 334,530 49,560 384,090 333,012 49,335 382,347
Series 2004-8, Cl. 5A1, 6.50%, 5/25/32 1,160,846 164,368 1,325,214 1,178,984 166,936 1,345,920
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Bear Stearns Commercial Mortgage
Securities, Inc., Commercial Mtg.
Obligations, Series 2005-PWR7, Cl.
A2, 4.945%, 2/11/41 750,000 100,000 850,000 741,753 98,900 840,653
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Citigroup/Deutsche Bank Commercial
Mortgage Trust, Commercial
Mtg. Obligations, Series 2005-CD1, Cl.
A4, 5.225%, 7/15/44 1,810,000 260,000 2,070,000 1,829,996 262,872 2,092,868
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Countrywide Alternative Loan Trust, CMO:
Series 2004-J9, Cl. 1A1, 4.559%, 10/25/34(5) 427,764 63,080 490,844 428,096 63,129 491,225
Series 2005-J3, Cl. 3A1, 6.50%, 9/25/34 1,883,672 0 1,883,672 1,907,481 0 1,907,481
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First Chicago/Lennar Trust 1,
Commercial Mtg. Pass-Through
Certificates, Series 1997-CHL1, Cl. D,
7.674%, 4/29/39(5,6) 1,170,000 170,000 1,340,000 1,175,850 170,850 1,346,700
- ------------------------------------------------------------------------------------------------------------------------------------
First Union National Bank/Lehman
Brothers/Bank of America
Commercial Mtg. Trust, Pass-Through
Certificates, Series 1998-C2,
Cl. A2, 6.56%, 11/18/35 887,553 126,793 1,014,346 912,761 130,394 1,043,155
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GE Capital Commercial Mortgage Corp.,
Commercial Mtg.
Obligations:
Series 2004-C3, Cl. A2, 4.433%, 7/10/39 960,000 0 960,000 943,764 0 943,764
Series 2005-CA, Cl. A3, 4.578%, 6/10/48 650,000 90,000 740,000 632,683 87,602 720,285
Series 2005-C3, Cl. A2, 4.853%, 7/10/45 940,000 140,000 1,080,000 933,768 139,072 1,072,840
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GMAC Commercial Mortgage Securities,
Inc., Commercial Mtg.
Pass-Through Certificates:
Series 2004-C3, Cl. A4, 4.547%, 12/10/41 940,000 140,000 1,080,000 910,482 135,604 1,046,086
Series 1997-C1, Cl. A3, 6.869%, 7/15/29 544,365 71,784 616,149 556,763 73,419 630,182
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Greenwich Capital Commercial Funding
Corp., Commercial Mtg. Pass-Through
Certificates:
Series 2005-G G3, Cl. A2, 4.305%,
8/10/42 1,330,000 190,000 1,520,000 1,295,927 185,132 1,481,059
Series 2005-G G5, Cl. A2, 5.117%,
4/10/37(3) 1,050,000 150,000 1,200,000 1,053,206 150,458 1,203,664
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GS Mortgage Securities Corp. II,
Commercial Mtg. Pass-Through
Certificates:
Series 2004-C1, Cl. A1, 3.659%,
10/10/28 992,056 147,335 1,139,391 961,427 142,786 1,104,213
Series 2004-GG2, Cl. A3, 4.602%,
8/10/38 620,000 0 620,000 612,409 0 612,409
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JPMorgan Chase Commercial Mortgage
Securities Corp., Commercial Mtg.
Pass-Through Certificates,
Series 2005-LDP2, Cl.
A2, 4.575%, 7/15/42 380,000 60,000 440,000 372,481 58,813 431,294
- ------------------------------------------------------------------------------------------------------------------------------------
LB-UBS Commercial Mortgage Trust,
Commercial Mtg. Pass-
Through Certificates, Series 2005-C5,
Cl. A2, 4.885%, 9/15/30 1,120,000 160,000 1,280,000 1,112,665 158,952 1,271,617
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Mastr Alternative Loan Trust, CMO
Pass-Through Certificates:
Series 2004-9, Cl. A3, 4.70%, 8/25/34(5) 3,541,867 543,496 4,085,363 3,525,714 541,017 4,066,731
Series 2004-6, Cl. 10A1, 6%, 7/25/34 1,914,262 283,571 2,197,833 1,924,763 285,127 2,209,890
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Mastr Seasoned Securities Trust, Mtg.
Pass-Through Certificates,
Series 2004-2, Cl. A1, 6.50%, 8/25/32 2,771,666 406,678 3,178,344 2,798,516 410,618 3,209,134
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Nomura Asset Securities Corp.,
Commercial Mtg. Pass-Through
Certificates, Series 1998-D6, Cl.
A1B, 6.59%, 3/15/30 1,130,000 160,000 1,290,000 1,168,589 165,464 1,334,053
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Prudential Mortgage Capital Co. II
LLC, Commercial Mtg. Pass-
Through Certificates, Series PRU-HTG
2000-C1, Cl. A2, 7.306%,
10/6/15 1,362,000 192,000 1,554,000 1,490,033 210,049 1,700,082
- ------------------------------------------------------------------------------------------------------------------------------------
Residential Accredit Loans, Inc.,
Mtg. Asset-Backed Pass-Through
Certificates, Series 2003-QS1, Cl.
A2, 5.75%, 1/25/33 987,329 145,007 1,132,336 989,234 145,287 1,134,521
- ------------------------------------------------------------------------------------------------------------------------------------
Salomon Brothers Mortgage Securities
VII, Inc., Commercial Mtg.
Pass-Through Certificates, Series
1996-C1, Cl. F, 8.301%, 1/20/28(4,5) 250,000 0 250,000 205,000 0 205,000
- ------------------------------------------------------------------------------------------------------------------------------------
Wachovia Bank Commercial Mortgage
Trust, Commercial Mtg.
Obligations:
Series 2005-C17, Cl. A2, 4.782%,
3/15/42 2,190,000 300,000 2,490,000 2,165,842 296,691 2,462,533
Series 2005-C20, Cl. A5, 5.087%,
7/15/42(5) 1,120,000 160,000 1,280,000 1,112,655 158,951 1,271,606
- ------------------------------------------------------------------------------------------------------------------------------------
Washington Mutual Mortgage Securities
Corp., CMO Pass-Through Certificates,
Series 2005-AR5, Cl.
A1, 4.681%, 5/25/35(5) 1,346,336 189,533 1,535,869 1,345,369 189,397 1,534,766
- ------------------------------------------------------------------------------------------------------------------------------------
Wells Fargo Mortgage-Backed
Securities Trust, CMO, Series 2004-
DD, Cl. 2A1, 4.522%, 1/25/35(5) 1,257,852 181,858 1,439,710 1,254,004 181,302 1,435,306
------------------------------------------
42,238,228 5,563,929 47,802,157
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OTHER--0.1%
JPMorgan Chase Commercial Mortgage
Securities Corp., Commercial Mtg.
Pass-Through Certificates,
Series 2005-LDP4, Cl. A2, 4.79%, 10/15/42 1,360,000 200,000 1,560,000 1,342,689 197,454 1,540,143
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RESIDENTIAL--0.3%
Countrywide Alternative Loan Trust,
CMO, Series 2005-J1, Cl.
3A1, 6.50%, 8/25/32(3) 2,918,059 424,270 3,342,329 2,970,038 431,828 3,401,866
-------------------------------------------
Total Mortgage-Backed Obligations
(Cost $274,548,094, Cost $40,044,218,
Combined Cost $314,592,312) 273,300,065 39,873,841 313,173,906
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--5.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Fannie Mae Unsec. Nts., 3.69%, 10/5/07(10) 1,245,000 0 1,245,000 1,148,133 0 1,148,133
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Federal Home Loan Bank Unsec. Bonds:
3.125%, 11/15/06 2,600,000 0 2,600,000 2,564,437 0 2,564,437
3.50%, 11/15/07 1,020,000 140,000 1,160,000 997,395 136,897 1,134,292
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Federal Home Loan Mortgage Corp.
Unsec. Nts.:
3.625%, 9/15/06(11) 3,495,000 0 3,495,000 3,470,423 0 3,470,423
3.625%, 9/15/06 0 1,065,000 1,065,000 0 1,057,511 1,057,511
4.125%, 7/12/10(3) 1,406,000 250,000 1,656,000 1,372,460 244,036 1,616,496
4.375%, 11/16/07 1,280,000 195,000 1,475,000 1,272,060 193,790 1,465,850
6.625%, 9/15/09 235,000 240,000 475,000 249,879 255,195 505,074
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Federal National Mortgage Assn.
Unsec. Nts.:
4%, 2/28/07 2,310,000 320,000 2,630,000 2,290,621 317,316 2,607,937
4.25%, 7/15/07 2,170,000 550,000 2,720,000 2,154,626 546,103 2,700,729
4.75%, 12/15/10(3) 130,000 0 130,000 130,144 0 130,144
6%, 5/15/11 4,005,000 600,000 4,605,000 4,240,690 635,309 4,875,999
6.625%, 9/15/09 135,000 0 135,000 143,669 0 143,669
7.25%, 1/15/10(11) 1,500,000 0 1,500,000 1,635,806 0 1,635,806
7.25%, 1/15/10(11) 0 750,000 750,000 0 817,903 817,903
7.25%, 5/15/30(3) 1,215,000 170,000 1,385,000 1,613,196 225,715 1,838,911
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Tennessee Valley Authority Bonds:
4.65%, 6/15/35 (3) 1,560,000 280,000 1,840,000 1,480,640 265,756 1,746,396
5.375%, 11/13/08(3) 375,000 109,000 484,000 381,948 111,019 492,967
Series A, 6.79%, 5/23/12 11,936,000 950,000 12,886,000 13,226,496 1,052,712 14,279,208
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U.S. Treasury Bonds:
5.375%, 2/15/31(3) 1,486,000 269,000 1,755,000 1,669,661 302,247 1,971,908
8.875%, 8/15/17(3) 465,000 0 465,000 646,314 0 646,314
STRIPS, 4.96%, 2/15/16(10) 0 171,000 171,000 0 108,568 108,568
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U.S. Treasury Nts.:
3.875%, 7/15/10-9/15/10(3) 2,744,000 297,000 3,041,000 2,688,218 291,028 2,979,246
4.25%, 11/30/07 202,000 0 202,000 201,471 0 201,471
4.25%, 8/15/15(3) 293,000 0 293,000 289,303 0 289,303
4.25%, 11/30/07-8/15/15 0 86,000 86,000 0 85,235 85,235
4.375%, 12/15/10 254,000 0 254,000 254,278 0 254,278
4.375%, 11/15/08(3) 640,000 0 640,000 640,300 0 640,300
4.375%, 11/15/08-12/15/10 0 113,000 113,000 0 113,074 113,074
5%, 8/15/11(3) 810,000 0 810,000 836,293 0 836,293
5%, 2/15/11(3) 440,000 76,000 516,000 453,321 78,301 531,622
------------------------------------------
Total U.S. Government Obligations
(Cost $46,704,517, Cost $8,931,513,
Combined Cost $55,636,030) 46,051,782 6,837,715 52,889,497
- ------------------------------------------------------------------------------------------------------------------------------------
FOREIGN GOVERNMENT OBLIGATIONS--0.2%
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United Mexican States Nts., 7.50%,
1/14/12 (Cost $1,779,531, Cost
$249,445, Combined Cost $2,028,976) 1,620,000 235,000 1,855,000 1,810,350 262,613 2,072,963
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NON-CONVERTIBLE CORPORATE BONDS AND
NOTES--13.2%
- ------------------------------------------------------------------------------------------------------------------------------------
ABN Amro Bank NV (NY Branch), 7.125%
Sub. Nts., Series B, 10/15/93 500,000 0 500,000 600,600 0 600,600
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Aetna, Inc., 7.375% Sr. Unsec. Nts., 3/1/06 1,675,000 250,000 1,925,000 1,681,703 251,001 1,932,704
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Albertson's, Inc., 8% Sr. Unsec. Debs.,
5/1/31(3) 1,080,000 155,000 1,235,000 1,065,399 152,905 1,218,304
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Allied Waste North America, Inc.,
8.875% Sr. Nts., Series B, 4/1/08(3) 840,000 125,000 965,000 890,400 132,500 1,022,900
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Allstate Financial Global Funding II,
4.25% Nts., 9/10/08(6) 365,000 50,000 415,000 358,984 49,176 408,160
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Archer Daniels Midland Co., 5.375%
Nts., 9/15/35 940,000 135,000 1,075,000 904,883 129,957 1,034,840
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AT&T Wireless Services, Inc., 8.125%
Sr. Unsec. Nts., 5/1/12 1,255,000 180,000 1,435,000 1,451,891 208,239 1,660,130
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Bankers Trust Corp., 7.375% Unsec. Sub.
Nts., 5/1/08 140,000 20,000 160,000 147,498 21,071 168,569
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Barclays Bank plc, 6.278% Perpetual
Bonds(12) 1,460,000 220,000 1,680,000 1,470,059 221,516 1,691,575
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Beazer Homes USA, Inc., 6.875% Sr.
Unsec. Nts., 7/15/15 895,000 130,000 1,025,000 862,556 125,288 987,844
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British Sky Broadcasting Group plc,
7.30% Unsec. Nts., 10/15/06 335,000 48,000 383,000 340,485 48,786 389,271
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British Telecommunications plc, 8.875%
Bonds, 12/15/30 795,000 115,000 910,000 1,066,809 154,318 1,221,127
- ------------------------------------------------------------------------------------------------------------------------------------
CenterPoint Energy, Inc., 7.25% Sr.
Nts., Series B, 9/1/10 990,000 145,000 1,135,000 1,063,063 155,701 1,218,764
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Chancellor Media CCU, 8% Sr. Unsec.
Nts., 11/1/08 1,660,000 240,000 1,900,000 1,765,943 255,317 2,021,260
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CIT Group, Inc.:
4.75% Sr. Nts., 8/15/08(3) 265,000 0 265,000 264,151 0 264,151
7.75% Sr. Unsec. Unsub. Nts., 4/2/12 680,000 100,000 780,000 772,177 113,556 885,733
- ------------------------------------------------------------------------------------------------------------------------------------
Citigroup, Inc., 6.625% Unsec. Sub.
Nts., 6/15/32 705,000 105,000 810,000 799,278 119,041 918,319
- ------------------------------------------------------------------------------------------------------------------------------------
Coca-Cola Co. (The), 7.375% Unsec.
Debs., 7/29/93 440,000 0 440,000 570,798 0 570,798
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ConAgra Foods, Inc., 6% Nts., 9/15/06 925,000 130,000 1,055,000 931,564 130,922 1,062,486
- ------------------------------------------------------------------------------------------------------------------------------------
Constellation Energy Group, Inc., 7.60%
Unsec. Nts., 4/1/32 1,230,000 175,000 1,405,000 1,484,375 211,192 1,695,567
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Countrywide Financial Corp., 4.50%
Nts., Series A, 6/15/10 925,000 135,000 1,060,000 898,771 131,172 1,029,943
- ------------------------------------------------------------------------------------------------------------------------------------
Cox Communications, Inc., 4.625% Unsec.
Nts., 1/15/10 1,865,000 270,000 2,135,000 1,807,051 261,611 2,068,662
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Credit Suisse First Boston, Inc. (USA),
5.50% Nts., 8/15/13 1,685,000 250,000 1,935,000 1,721,514 255,418 1,976,932
- ------------------------------------------------------------------------------------------------------------------------------------
D.R. Horton, Inc., 6.125% Nts., 1/15/14 780,000 115,000 895,000 781,392 115,205 896,597
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DaimlerChrysler NA Holdings Corp., 8%
Nts., 6/15/10 1,610,000 230,000 1,840,000 1,762,414 251,773 2,014,187
- ------------------------------------------------------------------------------------------------------------------------------------
Dana Corp., 6.50% Unsec. Nts., 3/1/09(3) 1,205,000 175,000 1,380,000 970,025 140,875 1,110,900
- ------------------------------------------------------------------------------------------------------------------------------------
Delhaize America, Inc., 9% Unsub.
Debs., 4/15/31 1,175,000 170,000 1,345,000 1,387,226 200,705 1,587,931
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Deutsche Telekom International Finance
BV, 8% Unsub. Nts., 6/15/10(5) 1,105,000 160,000 1,265,000 1,253,990 181,573 1,435,563
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Dominion Resources, Inc., 8.125% Sr.
Unsub. Nts., 6/15/10 1,280,000 190,000 1,470,000 1,424,029 211,379 1,635,408
- ------------------------------------------------------------------------------------------------------------------------------------
DTE Energy Co., 6.45% Sr. Unsub. Nts.,
6/1/06 830,000 120,000 950,000 835,402 120,781 956,183
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EOP Operating LP:
6.763% Sr. Unsec. Nts., 6/15/07 295,000 0 295,000 301,234 0 301,234
8.10% Unsec. Nts., 8/1/10 1,210,000 205,000 1,415,000 1,337,706 226,636 1,564,342
8.375% Nts., 3/15/06 560,000 0 560,000 563,862 0 563,862
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Federated Department Stores, Inc.,
6.625% Sr. Unsec. Nts., 9/1/08 1,165,000 170,000 1,335,000 1,208,092 176,288 1,384,380
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FedEx Corp., 2.65% Unsec. Nts., 4/1/07 1,875,000 275,000 2,150,000 1,824,390 267,577 2,091,967
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FirstEnergy Corp.:
5.50% Sr. Unsub. Nts., Series A, 11/15/06 730,000 105,000 835,000 732,776 105,399 838,175
7.375% Sr. Unsub. Nts., Series C,
11/15/31 915,000 130,000 1,045,000 1,083,068 153,879 1,236,947
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Ford Motor Credit Co.:
5.80% Sr. Unsec. Nts., 1/12/09 2,250,000 325,000 2,575,000 1,964,066 283,698 2,247,764
7.375% Nts., 10/28/09 375,000 55,000 430,000 332,847 48,818 381,665
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France Telecom SA, 8.50% Sr. Unsec.
Nts., 3/1/31(5) 275,000 40,000 315,000 368,037 53,533 421,570
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Gap, Inc. (The):
6.90% Nts., 9/15/07 1,360,000 135,000 1,495,000 1,390,202 137,998 1,528,200
9.55% Unsub. Nts., 12/15/08(5) 199,000 29,000 228,000 221,291 32,248 253,539
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General Mills, Inc., 3.875% Nts.,
11/30/07 1,400,000 195,000 1,595,000 1,373,184 191,265 1,564,449
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General Motors Acceptance Corp.:
6.15% Nts., 4/5/07 2,870,000 410,000 3,280,000 2,711,645 387,378 3,099,023
8% Bonds, 11/1/31(3) 1,315,000 190,000 1,505,000 1,262,951 182,480 1,445,431
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Goldman Sachs Group, Inc. (The), 5.70%
Sr. Unsec. Nts., 9/1/12 2,650,000 380,000 3,030,000 2,729,752 391,436 3,121,188
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Harrah's Operating Co., Inc., 5.625% Sr.
Unsec. Bonds, 6/1/15 940,000 135,000 1,075,000 925,140 132,866 1,058,006
- ------------------------------------------------------------------------------------------------------------------------------------
HCA, Inc., 7.125% Sr. Unsec. Nts., 6/1/06 865,000 125,000 990,000 876,418 126,650 1,003,068
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Hilton Hotels Corp., 8.25% Sr. Unsec.
Nts., 2/15/11 800,000 114,000 914,000 877,644 125,064 1,002,708
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HSBC Finance Corp., 4.75% Sr. Unsec.
Nts., 7/15/13 1,840,000 265,000 2,105,000 1,780,546 256,437 2,036,983
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IPALCO Enterprises, Inc., 8.375% Sr.
Sec. Nts., 11/14/08(5) 810,000 110,000 920,000 852,525 115,775 968,300
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iStar Financial, Inc.:
5.125% Sr. Unsec. Nts., Series B, 4/1/11(3) 575,000 85,000 660,000 560,908 82,917 643,825
5.15% Sr. Unsec. Nts., 3/1/12 700,000 100,000 800,000 678,797 96,971 775,768
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J.C. Penney Co., Inc. (Holding Co.),
7.40% Nts., 4/1/37(3) 1,610,000 235,000 1,845,000 1,806,765 263,720 2,070,485
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JPMorgan Capital XV, 5.875% Nts., 3/15/35 1,220,000 180,000 1,400,000 1,217,171 179,583 1,396,754
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K. Hovnanian Enterprises, Inc., 6.50%
Sr. Nts., 1/15/14 895,000 130,000 1,025,000 860,387 124,972 985,359
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Kaiser Aluminum & Chemical Corp.,
10.875% Sr. Nts., Series B, 10/15/06(13) 250,000 0 250,000 253,750 0 253,750
- ------------------------------------------------------------------------------------------------------------------------------------
KB Home, 5.75% Sr. Unsec. Unsub. Nts.,
2/1/14 1,145,000 165,000 1,310,000 1,085,311 156,399 1,241,710
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Kinder Morgan, Inc., 6.50% Sr. Unsec.
Nts., 9/1/12 985,000 145,000 1,130,000 1,044,904 153,818 1,198,722
- ------------------------------------------------------------------------------------------------------------------------------------
Kraft Foods, Inc., 5.25% Nts., 6/1/07 1,105,000 160,000 1,265,000 1,109,859 160,704 1,270,563
- ------------------------------------------------------------------------------------------------------------------------------------
Kroger Co. (The), 6.80% Sr. Unsec.
Nts., 4/1/11 2,095,000 300,000 2,395,000 2,199,559 314,973 2,514,532
- ------------------------------------------------------------------------------------------------------------------------------------
Lear Corp., 8.11% Sr. Unsec. Nts.,
Series B, 5/15/09(3) 1,450,000 210,000 1,660,000 1,350,484 195,587 1,546,071
- ------------------------------------------------------------------------------------------------------------------------------------
Lennar Corp., 5.95% Sr. Unsec. Nts.,
3/1/13(3) 895,000 130,000 1,025,000 902,117 131,034 1,033,151
- ------------------------------------------------------------------------------------------------------------------------------------
Liberty Media Corp., 5.70% Sr. Unsec.
Nts., 5/15/13(3) 930,000 140,000 1,070,000 871,188 131,147 1,002,335
- ------------------------------------------------------------------------------------------------------------------------------------
Liberty Property Trust, 5.65% Sr. Nts.,
8/15/14 885,000 130,000 1,015,000 897,816 131,883 1,029,699
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Marsh & McLennan Cos., Inc., 5.875% Sr.
Unsec. Bonds, 8/1/33 1,110,000 170,000 1,280,000 1,066,094 163,276 1,229,370
- ------------------------------------------------------------------------------------------------------------------------------------
May Department Stores Co., 7.90% Unsec.
Debs., 10/15/07 625,000 90,000 715,000 650,989 93,742 744,731
- ------------------------------------------------------------------------------------------------------------------------------------
MBNA Corp., 7.50% Sr. Nts., Series F,
3/15/12 1,380,000 200,000 1,580,000 1,556,288 225,549 1,781,837
- ------------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc., 5% Sr.
Unsub. Nts., Series C, 2/3/14 1,825,000 265,000 2,090,000 1,805,239 262,131 2,067,370
- ------------------------------------------------------------------------------------------------------------------------------------
MetLife, Inc., 5.70% Sr. Unsec. Nts.,
6/15/35 915,000 135,000 1,050,000 921,663 135,983 1,057,646
- ------------------------------------------------------------------------------------------------------------------------------------
MidAmerican Energy Holdings Co., 5.875%
Sr. Unsec. Nts., 10/1/12 1,525,000 220,000 1,745,000 1,576,534 227,434 1,803,968
- ------------------------------------------------------------------------------------------------------------------------------------
Morgan Stanley, 6.60% Nts., 4/1/12 855,000 125,000 980,000 920,191 134,531 1,054,722
- ------------------------------------------------------------------------------------------------------------------------------------
National City Bank, 6.20% Sub. Nts.,
12/15/11 124,000 17,000 141,000 131,368 18,010 149,378
- ------------------------------------------------------------------------------------------------------------------------------------
Nationwide Financial Services, Inc.:
5.90% Nts., 7/1/12 675,000 95,000 770,000 704,678 99,177 803,855
6.25% Sr. Unsec. Nts., 11/15/11 195,000 30,000 225,000 205,491 31,614 237,105
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NiSource Finance Corp.:
3.20% Nts., 11/1/06 250,000 0 250,000 246,434 0 246,434
7.875% Sr. Unsec. Nts., 11/15/10 1,070,000 190,000 1,260,000 1,186,730 210,729 1,397,459
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Pemex Project Funding Master Trust,
5.75% Unsec. Unsub. Nts.,
Series 12, 12/15/15(3,6) 1,480,000 215,000 1,695,000 1,474,450 214,194 1,688,644
- ------------------------------------------------------------------------------------------------------------------------------------
Petroleum Export Ltd. Cayman SPV,
4.623% Sr. Nts., Cl. A1, 6/15/10(6) 2,717,000 395,000 3,112,000 2,692,908 391,498 3,084,406
- ------------------------------------------------------------------------------------------------------------------------------------
PF Export Receivables Master Trust,
3.748% Sr. Nts., Series B, 6/1/13(6) 533,014 64,478 597,492 506,467 61,266 567,733
- ------------------------------------------------------------------------------------------------------------------------------------
Popular North America, Inc., 5.20%
Nts., 12/12/07 1,855,000 265,000 2,120,000 1,854,048 264,864 2,118,912
- ------------------------------------------------------------------------------------------------------------------------------------
Portland General Electric Co., 8.125%
First Mortgage Nts., 2/1/10(6) 715,000 95,000 810,000 789,860 104,946 894,806
- ------------------------------------------------------------------------------------------------------------------------------------
Prudential Holdings LLC, 8.695% Bonds,
Series C, 12/18/23(6) 1,510,000 295,000 1,805,000 1,918,597 374,825 2,293,422
- ------------------------------------------------------------------------------------------------------------------------------------
Prudential Insurance Co. of America,
8.30% Nts., 7/1/25 1,530,000 260,000 1,790,000 1,985,654 337,431 2,323,085
- ------------------------------------------------------------------------------------------------------------------------------------
PSE&G Energy Holdings LLC, 7.75% Unsec.
Nts., 4/16/07 810,000 115,000 925,000 842,400 119,600 962,000
- ------------------------------------------------------------------------------------------------------------------------------------
PSE&G Power LLC, 6.875% Sr. Unsec.
Nts., 4/15/06 915,000 130,000 1,045,000 919,803 130,682 1,050,485
- ------------------------------------------------------------------------------------------------------------------------------------
PSEG Funding Trust I, 5.381% Nts.,
11/16/07 900,000 130,000 1,030,000 901,769 130,255 1,032,024
- ------------------------------------------------------------------------------------------------------------------------------------
R&B Falcon Corp., 9.50% Sr. Unsec.
Nts., 12/15/08 750,000 0 750,000 842,455 0 842,455
- ------------------------------------------------------------------------------------------------------------------------------------
Safeway, Inc., 7.50% Sr. Unsec. Nts.,
9/15/09 1,195,000 175,000 1,370,000 1,277,374 187,063 1,464,437
- ------------------------------------------------------------------------------------------------------------------------------------
SBC Communications, Inc., 5.30% Nts.,
11/15/10 1,365,000 195,000 1,560,000 1,370,588 195,798 1,566,386
- ------------------------------------------------------------------------------------------------------------------------------------
Sempra Energy, 7.95% Sr. Unsec. Unsub.
Nts., 3/1/10 1,330,000 190,000 1,520,000 1,462,269 208,896 1,671,165
- ------------------------------------------------------------------------------------------------------------------------------------
Simon Property Group LP, 5.375% Nts.,
6/1/11(3,6) 1,380,000 195,000 1,575,000 1,384,840 195,684 1,580,524
- ------------------------------------------------------------------------------------------------------------------------------------
Socgen Real Estate LLC, 7.64% Bonds,
12/29/49(5,6,12) 75,000 10,000 85,000 78,065 10,409 88,474
- ------------------------------------------------------------------------------------------------------------------------------------
Sprint Capital Corp., 8.75% Nts.,
3/15/32 1,100,000 160,000 1,260,000 1,464,209 212,967 1,677,176
- ------------------------------------------------------------------------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide,
Inc., 7.375% Nts., 5/1/07 1,350,000 190,000 1,540,000 1,383,750 194,750 1,578,500
- ------------------------------------------------------------------------------------------------------------------------------------
Sterling Chemicals, Inc., 10% Sr. Sec.
Nts., 12/19/07(3,4,14) 57,774 0 57,774 55,752 0 55,752
- ------------------------------------------------------------------------------------------------------------------------------------
TCI Communications, Inc., 9.80% Sr.
Unsec. Debs., 2/1/12 1,640,000 245,000 1,885,000 1,980,825 295,916 2,276,741
- ------------------------------------------------------------------------------------------------------------------------------------
Time Warner Entertainment Co. LP:
8.375% Sr. Nts., 7/15/33 1,050,000 130,000 1,180,000 1,244,005 154,020 1,398,025
10.15% Sr. Nts., 5/1/12 308,000 65,000 373,000 375,452 79,235 454,687
- ------------------------------------------------------------------------------------------------------------------------------------
Travelers Property Casualty Corp.,
3.75% Sr. Unsec. Nts., 3/15/08 1,325,000 195,000 1,520,000 1,292,959 190,285 1,483,244
- ------------------------------------------------------------------------------------------------------------------------------------
TXU Energy Co., 6.125% Nts., 3/15/08 1,165,000 165,000 1,330,000 1,184,748 167,797 1,352,545
- ------------------------------------------------------------------------------------------------------------------------------------
Tyco International Group SA:
6.125% Unsec. Unsub. Nts., 11/1/08 1,560,000 225,000 1,785,000 1,593,432 229,822 1,823,254
6.125% Unsec. Unsub. Nts., 1/15/09 212,000 31,000 243,000 216,822 31,705 248,527
6.375% Sr. Unsec. Unsub. Nts., 2/15/06 1,135,000 165,000 1,300,000 1,136,885 165,274 1,302,159
- ------------------------------------------------------------------------------------------------------------------------------------
Univision Communications, Inc., 3.50%
Sr. Unsec. Nts., 10/15/07 1,465,000 210,000 1,675,000 1,421,756 203,801 1,625,557
- ------------------------------------------------------------------------------------------------------------------------------------
Verizon Global Funding Corp.:
5.85% Nts., 9/15/35 915,000 135,000 1,050,000 884,796 130,544 1,015,340
7.25% Sr. Unsec. Unsub. Nts., 12/1/10 840,000 120,000 960,000 912,453 130,350 1,042,803
- ------------------------------------------------------------------------------------------------------------------------------------
Vornado Realty LP, 5.625% Sr. Unsec.
Unsub. Nts., 6/15/07(3) 1,795,000 260,000 2,055,000 1,808,177 261,909 2,070,086
- ------------------------------------------------------------------------------------------------------------------------------------
Western Forest Products, Inc., 15% Sec.
Nts., 7/28/09(6,14) 302,804 0 302,804 325,515 0 325,515
- ------------------------------------------------------------------------------------------------------------------------------------
Yum! Brands, Inc., 8.50% Sr. Unsec.
Nts., 4/15/06 1,785,000 260,000 2,045,000 1,802,564 262,558 2,065,122
-------------------------------------------
Total Non-Convertible Corporate Bonds
and Notes (Cost $121,636,568,
Cost $17,110,532,
Combined Cost $138,747,100) 121,248,168 17,110,631 138,358,799
- ------------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM NOTES--0.2%
- ------------------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Bank, 3.40%, 1/3/06 0 2,000,000 2,000,000 0 1,999,622 1,999,622
- ------------------------------------------------------------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS--8.3%
- ------------------------------------------------------------------------------------------------------------------------------------
Undivided interest of 5.72% in joint
repurchase agreement (Principal
Amount/Value $1,414,200,000, with a
maturity value of
$1,414,844,247) with UBS Warburg LLC,
4.10%, dated 12/30/05, to
be repurchased at $80,860,820 on
1/3/06, collateralized by Federal
Home Loan Mortgage Corp., 5%, 1/1/35,
with a value of
$157,513,104 and Federal National
Mortgage Assn., 5%--5.50%,
3/1/34--10/1/35, with a value of
$1,301,420,187 80,824,000 0 80,824,000 80,824,000 0 80,824,000
- ------------------------------------------------------------------------------------------------------------------------------------
Undivided interest of 0.55% in
joint repurchase agreement
(Principal Amount/Value
$1,203,488,000, with a maturity
value of $1,204,036,256) with
UBS Warburg LLC, 4.10%, dated
12/30/05, to be repurchased at
$6,605,008 on 1/3/06,
collateralized by Federal Home
Loan Mortgage Corp., 5%--5.50%,
1/1/35--11/1/35, with a value of
$565,118,538 and Federal
National Mortgage Assn., 5.50%-
- -6%, 11/1/34--1/1/36, with a
value of $676,946,908 0 6,602,000 6,602,000 0 6,602,000 6,602,000
--------------------------------------------
Total Joint Repurchase Agreements
(Cost $80,824,000, Cost
$6,602,000, Combined Cost
$87,426,000) 80,824,000 6,602,000 87,426,000
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH
COLLATERAL FROM SECURITIES
LOANED--2.3%
- ------------------------------------------------------------------------------------------------------------------------------------
ASSET BACKED FLOATING NOTE--0.2%
- ------------------------------------------------------------------------------------------------------------------------------------
Whitehawk CDO Funding Corp.,
4.561%, 3/15/06(15) 2,000,000 0 2,000,000 2,000,000 0 2,000,000
- ------------------------------------------------------------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS--2.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Undivided interest of 0.66% in
joint repurchase agreement
(Principal Amount/Value
$3,150,000,000, with a maturity
value of $3,151,501,500) with
Nomura \ Securities, 4.29%,
dated 12/30/05, to be
repurchased at $20,946,025 on
1/3/06, collateralized by U.S.
Agency Mortgages, 3.34%--9.50%,
6/1/08--5/1/38, with a value of
$3,213,000,000(15) 20,936,045 0 20,936,045 20,936,045 0 20,936,045
- ------------------------------------------------------------------------------------------------------------------------------------
MASTER FLOATING NOTE--0.1%
- ------------------------------------------------------------------------------------------------------------------------------------
Bear Stearns, 4.37%, 1/3/06(15) 1,000,000 0 1,000,000 1,000,000 0 1,000,000
----------------------------------------------
Total Investments Purchased
with Cash Collateral from
Securities Loaned
(Cost $23,936,045) 698,051,300 95,106,773 793,158,073 23,936,045 0 23,936,045
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST
$949,265,274, COST $139,833,194,
COMBINED COST $1,089,098,468) 116.1% 113.5% 115.8% 1,065,345,976 148,877,872 1,214,223,848
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES IN EXCESS OF
OTHER ASSETS (16.1) (13.5) (15.8) (147,727,679) (17,753,257) (165,480,936)
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS 100.0% 100.0% 100.0% $ 917,618,297 $ 131,124,615 $1,048,742,912
=========================================================================================
FOOTNOTES TO STATEMENT OF INVESTMENTS
1. Non-income producing security.
2. A sufficient amount of liquid assets has been designated to cover
outstanding written call options, as follows:
3. Partial or fully-loaned security. Loaned securities only apply to
Oppenheimer Balanced Fund.
4. Illiquid security. The aggregate value of illiquid securities as of
December 31, 2005 was $260,752, $606,419 (Combined $867,171), which
represents 0.03%, 0.46% (Combined 0.08%) of the Fund's net assets.
5. Represents the current interest rate for a variable or increasing rate
security.
6. Represents securities sold under Rule 144A, which are exempt from
registration under the Securities Act of 1933, as amended. These
securities have been determined to be liquid under guidelines established
by the Board of Trustees. These securities amount to $12,424,033 or 1.35%,
$1,822,630 or 1.39% (Combined $14,246,663 or 1.36%) of the Fund's net
assets as of December 31, 2005.
7. When-issued security or forward commitment to be delivered and settled
after December 31, 2005.
8. Interest-Only Strips represent the right to receive the monthly interest
payments on an underlying pool of mortgage loans. These securities
typically decline in price as interest rates decline. Most other fixed
income securities increase in price when interest rates decline. The
principal amount of the underlying pool represents the notional amount on
which current interest is calculated. The price of these securities is
typically more sensitive to changes in prepayment rates than traditional
mortgage -backed securities (for example, GNMA pass-throughs). These
securities amount to $12,719,828 or 1.39%, $1,835,519 or 1.40% (Combined
$14,555,347 or 1.39%) of the Fund's net assets as of December 31, 2005.
9. Principal-Only Strips represent the right to receive the monthly principal
payments on an underlying pool of mortgage loans. The value of these
securities generally increases as interest rates decline and prepayment
rates rise. The price of these securities is typically more volatile than
that of coupon-bearing bonds of the same maturity. These securities amount
to $581,471 or 0.06%, $89,465 or 0.07% (Combined $671,206 or 0.06%) of the
Fund's net assets as of December 31, 2005.
10. Zero coupon bond reflects effective yield on the date of purchase.
11. All or a portion of the security is held in collateralized accounts to
cover initial margin requirements on open futures sales contracts. The
aggregate market value of such securities is $1,737,694, $239,918
(Combined $1,977,612).
12. This bond has no contractual maturity date, is not redeemable and
contractually pays an indefinite stream of interest.
13. Issue is in default. Non-income producing.
14. Interest or dividend is paid-in-kind.
15. The security has been segregated to satisfy the forward commitment to
return the cash collateral received in securities lending transactions
upon the borrower's return of the securities loaned.
PROFORMA COMBINED STATEMENTS OF ASSETS AND LIABILITIES AS OF DECEMBER 31, 2005
(UNAUDITED)
OPPENHEIMER DISCIPLINED ALLOCATION FUND AND OPPENHEIMER BALANCED FUND
OPPENHEIMER PROFORMA
OPPENHEIMER DISCIPLINED COMBINED
BALANCED ALLOCATION PROFORMA OPPENHEIMER
FUND FUND ADJUSTMENTS BALANCED FUND
--------------------------------------------------------------------
ASSETS:
Investments, at value (cost * ) $1,065,345,976 $148,877,872 $1,214,223,848
Cash 110,524 53,841 $164,365
Futures margin 12,954 911 $13,865
Unrealized appreciation on swap contracts 14,858 2,825 $17,683
Receivables:
Investments sold 20,753,848 2,818,060 $23,571,908
Interest, dividends and principal paydowns 3,955,633 569,507 $4,525,140
Shares of beneficial interest sold 432,371 2,140 $434,511
Other 26,067 6,298 $32,365
--------------------------------------------------------------------
Total assets $1,090,652,231 $152,331,454 $1,242,983,685
--------------------------------------------------------------------
LIABILITIES:
Return of collateral for securities loaned 23,936,045 -- $23,936,045
Payables and other liabilities:
Investments purchased 147,944,298 20,895,539 $168,839,837
Shares of beneficial interest redeemed 253,971 129,963 $383,934
Distributions and service plan fees 489,556 81,774 $571,330
Trustees' and Directors' fees 157,344 29,291 $186,635
Shareholder reports 89,538 26,676 $116,214
Transfer and shareholder servicing agent fees 118,236 21,111 $139,347
Other 44,946 22,485 $67,431
--------------------------------------------------------------------
Total liabilities 173,033,934 21,206,839 -- 194,240,773
--------------------------------------------------------------------
NET ASSETS $917,618,297 $131,124,615 -- $1,048,742,912
====================================================================
COMPOSITION OF NET ASSETS:
Paid-in capital:
Par value of shares of capital stock -- 126,601 (126,601)(1) --
Additional paid-in capital 797,372,167 126,474,364 126,601 (1) 923,973,132
Undistributed net investment income 3,901,393 56,644 3,958,037
Accumulated net realized gain from investments and
foreign currency transactions (272,314) (4,657,879) (4,930,193)
Net unrealized appreciation on investments and translation
of assets and liabilities denominated in foreign currencies 116,617,051 9,124,885 125,741,936
--------------------------------------------------------------------
NET ASSETS 917,618,297 131,124,615 -- 1,048,742,912
====================================================================
PROFORMA COMBINED STATEMENTS OF ASSETS AND LIABILITIES AS OF DECEMBER 31, 2005
(UNAUDITED)
OPPENHEIMER DISCIPLINED ALLOCATION FUND AND OPPENHEIMER BALANCED FUND
OPPENHEIMER PROFORMA
OPPENHEIMER DISCIPLINED COMBINED
BALANCED ALLOCATION PROFORMA OPPENHEIMER
FUND FUND ADJUSTMENTS BALANCED FUND
-----------------------------------------------------------------------
NET ASSET VALUE PER SHARE
Class A Shares:
Net asset value and redemption price per share
(based on net assets of $719,288,112,
$108,080,052, and $827,368,164 and 53,115,407,
7,334,395, and 61,096,566 shares of beneficial
interest or capital shares outstanding for
Oppenheimer Balanced Fund, Oppenheimer
Disciplined Allocation Fund and combined
Oppenheimer Balanced Fund, respectively) $13.54 $14.74 $13.54(2)
Maximum offering price per share (net asset
value plus sales charge of 5.75% of offering
price) $14.37 $15.64 $14.37(2)
Class B Shares:
Net asset value and redemption price per share
(based on net assets of $96,126,035,
$12,453,364, and $108,579,399 and 7,247,572,
832,162 and 8,186,513 shares of beneficial
interest or capital shares outstanding for
Oppenheimer Balanced Fund, Oppenheimer
Disciplined Allocation Fund and combined
Oppenheimer Balanced Fund, respectively) $13.26 $14.97 $13.26(2)
Class C Shares:
Net asset value and redemption price per share
(based on net assets of $89,514,378,
$8,786,722, and $98,301,099 and 6,717,928,
604,180 and 7,377,364 shares of beneficial
interest or capital shares outstanding for
Oppenheimer Balanced Fund, Oppenheimer
Disciplined Allocation Fund and combined
Oppenheimer Balanced Fund, respectively) $13.32 $14.54 $13.32(2)
Class N Shares:
Net asset value and redemption price per share
(based on net assets of $12,689,772,
$1,804,477, and $14,494,249 and 945,978,
122,882 and 1,080,496 shares of beneficial
interest or capital shares outstanding for
Oppenheimer Balanced Fund, Oppenheimer
Disciplined Allocation Fund and combined
Oppenheimer Balanced Fund, respectively) $13.41 $14.68 $13.41(2)
*Cost $949,265,274 $139,833,194 $1,089,098,468
(1) Represents the conversion from par value shares to no par value shares.
(2) Oppenheimer Disciplined Allocation Fund Class A shares will be exchanged
for Oppenheimer Balanced Fund Class A shares.
Oppenheimer Disciplined Allocation Fund Class B shares will be exchanged
for Oppenheimer Balanced Fund Class B shares.
Oppenheimer Disciplined Allocation Fund Class C shares will be exchanged
for Oppenheimer Balanced Fund Class C shares.
Oppenheimer Disciplined Allocation Fund Class N shares will be exchanged
for Oppenheimer Balanced Fund Class N shares.
PROFORMA COMBINED STATEMENTS OF OPERATIONS AS OF DECEMBER 31, 2005 (UNAUDITED)
OPPENHEIMER DISCIPLINED ALLOCATION FUND AND OPPENHEIMER BALANCED FUND
OPPENHEIMER PROFORMA
OPPENHEIMER DISCIPLINED COMBINED
BALANCED ALLOCATION PROFORMA OPPENHEIMER
FUND FUND ADJUSTMENTS BALANCED FUND
----------------------------------------------------------
INVESTMENT INCOME:
Interest $18,544,489 $2,629,950 $21,174,439
Dividends (net of foreign withholding taxes of $184,559 and $4,246) 5,949,384 887,547 $6,836,931
Portfolio lending fees 58,120 -- $58,120
Other income 33,230 5,926 39,156
---------------------------------------------------------
Total income $24,585,223 $3,523,423 28,108,646
---------------------------------------------------------
EXPENSES:
Management fees 6,197,873 820,415 7,018,288
Distribution and service plan fees:
Class A 1,426,130 266,719 1,692,849
Class B 945,599 132,763 1,078,362
Class C 821,808 78,308 900,116
Class N 55,187 8,483 63,670
Transfer and shareholder servicing agent fees
Class A 852,491 172,490 1,024,981
Class B 214,244 32,518 246,762
Class C 143,540 20,921 164,461
Class N 28,189 5,813 34,002
Shareholder reports
Class A 122,010 35,578 157,588
Class B 41,721 8,974 50,695
Class C 23,220 4,810 28,030
Class N 2,887 710 3,597
Custodian fees and expenses 4,559 750 5,309
Legal, auditing and other professional fees 67,543 44,430 (21,408)(1) 90,565
Insurance expenses 9,523 3,742 13,265
Trustees' or Directors' fees and expenses 29,054 2,960 32,014
Registration and filing fees: 10,694 1,640 12,334
Other 7,564 7,704 15,268
Total Expenses 11,003,836 1,649,728 (21,408) 12,632,156
---------------------------------------------------------
Less management fee waiver -- -- --
Less waivers and reimbursements of expenses
Class A -- -- --
Class B -- -- --
Class C -- -- --
Class N -- (41) 41 (1) --
Net Expenses 11,003,836 1,649,687 (21,367) 12,632,156
---------------------------------------------------------
PROFORMA COMBINED STATEMENTS OF OPERATIONS AS OF DECEMBER 31, 2005 (UNAUDITED)
OPPENHEIMER PROFORMA
OPPENHEIMER DISCIPLINED COMBINED
BALANCED ALLOCATION PROFORMA OPPENHEIMER
FUND FUND ADJUSTMENTS BALANCED FUND
-------------------------------------------------------------
NET INVESTMENT INCOME 13,581,387 1,873,736 15,455,123
-------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) from:
Investments 37,283,490 6,005,377 43,288,867
Foreign currency transactions (72,589) 1,852 (70,737)
Swap contracts (137,030) (25,898) (162,928)
Closing of futures contracts 3,107,135 581,505 3,688,640
-------------------------------------------------------------
Net realized gain 40,181,006 6,562,836 46,743,842
-------------------------------------------------------------
Net change in unrealized appreciation or depreciation on:
Investments (24,111,796) (5,423,351) (29,535,147)
Translation of assets and liabilities denominated in
foreign currencies 130 224 354
Swap contracts 96,477 15,589 112,066
Futures contracts 424,885 61,564 486,449
-------------------------------------------------------------
Net unrealized gain (23,590,304) (5,345,974) (28,936,278)
-------------------------------------------------------------
Net realized and unrealized gain 16,590,702 1,216,862 17,807,564
-------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $30,172,089 $3,090,598 $33,262,687
=============================================================
(1) Elimination of expense.
NOTES TO PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - BASIS OF COMBINATION:
On December 15, 2005, the Board of Directors of Disciplined Allocation
Fund and the Board of Trustees of Balanced Fund approved a proposed Agreement
and Plan of Reorganization ("Reorganization"). The Reorganization
contemplates the transfer of substantially all the assets of Oppenheimer
Disciplined Allocation Fund to Oppenheimer Balanced Fund and the assumption
by Balanced Fund of certain liabilities of Disciplined Allocation Fund in
exchange for shares of Balance Fund equal in value to the value as of the
Valuation Date of the corresponding shares of Disciplined Allocation Fund.
The Reorganization provides for the complete liquidation of Disciplined
Allocation Fund. The Reorganization is subject to approval by shareholders
of Disciplined Allocation Fund. A special meeting of shareholders of
Disciplined Allocation Fund is scheduled for April 20, 2006.
The Reorganization intends to be accounted for as a tax free
reorganization of investment companies. The unaudited pro forma combined
financial statements are presented for the information of the reader and may
not necessarily be representative of what the actual combined financial
statements would have been had the Reorganization occurred at December 31,
2005. The unaudited pro forma statement of investments and statement of
assets and liabilities reflect the financial position of Disciplined
Allocation Fund and Balanced Fund at December 31, 2000. The unaudited pro
forma statement of operations reflects the results of operations of
Disciplined Allocation Fund and Balanced Fund for the year ended December 31,
2005. These statements have been derived from the Funds' respective books and
records utilized in calculating daily net asset value at the dates indicated
above for Disciplined Allocation and Balanced Funds under generally accepted
accounting principles. The historical cost of investment securities will be
carried forward to the surviving entity and results of operations of the
Balanced Fund for pre-combination periods will not be restated. The
unaudited pro forma statement of investments, and statements of assets and
liabilities and operations should be read in conjunction with the historical
financial statements of the Funds incorporated by reference in the Statements
of Additional Information for the Funds.
NOTE 2- SHARES:
The unaudited pro forma net asset value per share assumes additional
common shares of beneficial interest issued in connection with the proposed
acquisition of Disciplined Allocation Fund by Balanced Fund as of December
31, 2005. The number of additional shares issued was calculated by dividing
the net asset value of each Class of Disciplined Allocation Fund by the
respective Class net asset value per share of Balanced Fund.
NOTE 3 - UNAUDITED PRO FORMA ADJUSTMENTS:
The accompanying unaudited pro forma financial statements reflect
changes in the Balanced Fund's shares as if the Reorganization had taken
place on December 31, 2005.
PROXY CARD
OPPENHEIMER DISCIPLINED ALLOCATION FUND
Proxy for a Special Meeting of Shareholders to be held on April 20, 2006
The undersigned, revoking prior proxies, hereby appoints Brian Wixted,
Brian Szilagyi and Kathleen Ives, and each of them, as attorneys-in-fact
and proxies of the undersigned, with full power of substitution, to vote
shares held in the name of the undersigned on the record date at the
Special Meeting of Shareholders of Oppenheimer Disciplined Allocation Fund
(the "Fund") to be held at 6803 South Tucson Way, Centennial, Colorado,
80112, on April 20, 2006, at 1:00 p.m. Mountain time, or at any adjournment
thereof, upon the proposal described in the Notice of Meeting and
accompanying Prospectus and Proxy Statement, which have been received by
the undersigned.
This proxy is solicited on behalf of the Fund's Board of Directors, and the
proposal (set forth on the reverse side of this proxy card) has been
proposed by the Board of Directors. When properly executed, this proxy will
be voted as indicated on the reverse side or "FOR" the proposal if no
choice is indicated. The proxy will be voted in accordance with the proxy
holders' best judgment as to any other matters that may arise at the
Meeting.
VOTE VIA THE INTERNET: https://vote.proxy-direct.com
VOTE VIA THE TELEPHONE: 1-866-241-6192
CONTROL NUMBER: 999 9999 9999 999
Note: Please sign this proxy exactly as your name or names appear hereon.
Each joint owner should sign. Trustees and other fiduciaries should
indicate the capacity in which they sign. If a corporation, partnership or
other entity, this signature should be that of a duly authorized
individual who should state his or her title.
Signature
Signature of joint owner, if any
Date
PLEASE VOTE ON THE REVERSE SIDE, SIGN AND DATE THIS PROXY AND RETURN
PROMPTLY IN THE ENCLOSED ENVELOPE
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK. Example: [ ]
1. To approve an Agreement and Plan of Reorganization between Oppenheimer
Disciplined Allocation Fund ("Disciplined Allocation Fund") and
Oppenheimer Balanced Fund ("Balanced Fund") and the transactions
contemplated thereby, including: (a) the transfer of substantially
all the assets of Disciplined Allocation Fund to Balanced Fund in
exchange for Class A, Class B, Class C and Class N shares of
Balanced Fund, (b) the distribution of such shares of Balanced Fund
to the Class A, Class B, Class C and Class N shareholders of
Disciplined Allocation Fund in complete liquidation of Disciplined
Allocation Fund and (c) the cancellation of the outstanding shares
of Disciplined Allocation Fund.
Oppenheimer
Balanced Fund
Prospectus dated January 27, 2006
Oppenheimer Balanced Fund is a
mutual fund that seeks high total
return consistent with the
preservation of principal. It
invests in a variety of equity and
debt securities of U.S. and foreign
issuers, as well as money market
instruments.
This Prospectus contains
important information about the
Fund's objective, its investment
policies, strategies and risks. It
also contains important information
about how to buy and sell shares of
the Fund and other account features.
Please read this Prospectus
As with all mutual funds, the carefully before you invest and keep
Securities and Exchange Commission it for future reference about your
has not approved or disapproved the account.
Fund's securities nor has it
determined that this Prospectus is
accurate or complete. It is a
criminal offense to represent
otherwise.
(logo) OppenheimerFunds
The Right Way to Invest
CONTENTS
- ---------------------------------------------------------------------------------
ABOUT THE FUND
The Fund's Investment Objective and Principal Investment
Strategies
Main Risks of Investing in the Fund
The Fund's Past Performance
Fees and Expenses of the Fund
About the Fund's Investments
How the Fund is Managed
ABOUT YOUR ACCOUNT
How to Buy Shares
Class A Shares
Class B Shares
Class C Shares
Class N Shares
Special Investor Services
AccountLink
PhoneLink
OppenheimerFunds Internet Website
Retirement Plans
How to Sell Shares
By Mail
By Telephone
How to Exchange Shares
Shareholder Account Rules and Policies
Dividends, Capital Gains and Taxes
Financial Highlights
- ---------------------------------------------------------------------------------
A B O U T T H E F U N D
The Fund's Investment Objective and Principal Investment Strategies
WHAT IS THE FUND'S INVESTMENT OBJECTIVE? The Fund seeks high total investment
return consistent with preservation of principal.
WHAT DOES THE FUND MAINLY INVEST IN? The Fund buys a variety of different
types of securities to seek its objective. Mainly, these include:
o Equity securities. Primarily common stocks of U.S. and foreign
companies.
o Debt securities. Including bonds and notes issued by domestic and
foreign companies (which can include lower-grade, high-yield
securities), securities issued or guaranteed by the U.S. Government and
its agencies and instrumentalities, including mortgage-related
securities (these are referred to as "U.S. Government securities"),
debt obligations of foreign governments, and money market instruments,
which are obligations that have a maturity of 13 months or less,
including short-term U.S. Government securities, corporate and bank
debt obligations and commercial paper.
These investments are more fully explained in "About the Fund's
Investments," below.
HOW DO THE PORTFOLIO MANAGERS DECIDE WHAT SECURITIES TO BUY OR SELL? In
selecting securities for the Fund, the Fund's portfolio managers use
different investment styles to carry out an asset allocation strategy that
seeks broad diversification across asset classes. They normally maintain a
balanced mix of stocks, debt securities and cash, although the Fund has no
requirements to weight the portfolio holdings in a fixed proportion.
Therefore, the portfolio's mix of equity and debt securities and cash will
change over time as the portfolio managers seek relative values and
opportunities in different asset classes.
Because the goal of total return is to increase overall portfolio value
from a combination of capital growth and income, the Fund invests in stocks
mainly for their capital appreciation potential and in debt securities both
for income and for total return. The income from debt securities and money
market instruments can also help the Fund preserve principal when stock
markets are volatile.
The portfolio managers employ both "growth" and "value" styles in
selecting stocks. They employ fundamental analysis of a company's financial
statements and management structure, operations and product development, as
well as the industry of which the company is part. Value investing seeks
stocks that are temporarily out of favor or undervalued in the market by
various measures, such as the stock's price/earnings ratio. Growth investing
seeks stocks that the managers believe have possibilities for increases in
stock price because of strong earnings growth compared to the market, the
development of new products or services or other favorable economic factors.
WHO IS THE FUND DESIGNED FOR? The Fund is designed primarily for investors
seeking high total return from their investment over the long term, from a
fund employing different investment styles in allocating its assets among a
variety of types of securities. While the Fund seeks to select investments
consistent with the preservation of principal, investors should be willing to
assume the risks of short-term share price fluctuations that are typical for
a fund with significant investments in stocks and foreign securities. Since
the Fund's income level will fluctuate, it is not designed for investors
needing an assured level of current income. Because of its focus on seeking
total return over the long-term, the Fund may be appropriate for a part of an
investor's retirement plan portfolio. However, the Fund is not a complete
investment program.
Main Risks of Investing in the Fund
All investments have risks to some degree. The Fund's investments are subject
to changes in their value from a number of factors described below. There is
also the risk that poor security selection by the Fund's investment manager,
OppenheimerFunds, Inc. (the "Manager"), will cause the Fund to underperform
other funds having similar objectives.
RISKS OF INVESTING IN STOCKS. Stocks fluctuate in price, and their short-term
volatility at times may be great. The Fund will normally invest at least 25%
of its total assets in stocks and other equity securities, and the value of
the Fund's portfolio therefore will be affected by changes in the stock
markets. Market risk will affect the Fund's net asset values per share, which
will fluctuate as the values of the Fund's portfolio securities change. A
variety of factors can affect the price of a particular stock and the prices
of individual stocks do not all move in the same direction uniformly or at
the same time. Different stock markets may behave differently from each
other.
Other factors can affect a particular stock's price, such as poor
earnings reports by the issuer, loss of major customers, major litigation
against the issuer, or changes in government regulations affecting the issuer
or its industry. The Fund has no requirements to invest in companies in any
particular capitalization range, and can invest in securities of large
companies and also small and medium-size companies, which may have more
volatile stock prices than large companies.
RISKS OF FOREIGN INVESTING. The Fund can buy securities issued by companies
or governments in any country, whether a developed or an emerging market
country. While the Fund has no limits on the amounts it can invest in foreign
securities, it normally expects to invest not more than 50% of its total
assets in foreign securities. Foreign securities may offer special investment
opportunities, but there are also special risks. The change in value of a
foreign currency against the U.S. dollar will result in a change in the U.S.
dollar value of foreign 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.
Additionally, if a fund invests a significant amount of its assets in
foreign securities, it may be exposed to "time-zone arbitrage" attempts by
investors seeking to take advantage of the differences in value of foreign
securities that might result from events that occur after the close of the
foreign securities market on which a foreign security is traded and the close
of the New York Stock Exchange (the "NYSE") that day, when its net asset
value is calculated. If such time-zone arbitrage were successful, it might
dilute the interests of other shareholders. However, the Fund's use of "fair
value pricing" to adjust the closing market prices of foreign securities
under certain circumstances, to reflect what the Manager and the Board
believe to be their fair value, and the imposition of redemption fees, may
help deter those activities.
Special Risks of Emerging and Developing Markets. Securities in emerging and
developing markets present risks not found in more mature markets.
Those securities may be more difficult to sell at an acceptable price
and their prices may be more volatile than securities of issuers in
more developed markets. Settlements of trades may be subject to greater
delays so that the Fund might not receive the proceeds of a sale of a
security on a timely basis.
Emerging markets might have less developed trading markets and
exchanges, and legal and accounting systems. Investments may be subject
to greater risks of government restrictions on withdrawing the sales
proceeds of securities from the country. Economies of developing
countries may be more dependent on relatively few industries that may
be highly vulnerable to local and global changes. Governments may be
more unstable and present greater risks of nationalization or
restrictions on foreign ownership of stocks of local companies. These
investments may be very speculative.
CREDIT RISK. Debt securities are subject to credit risk. Credit risk is the
risk that the issuer of a security might not make interest and principal
payments on the security as they become due. If the issuer fails to pay
interest, the Fund's income might be reduced and if the issuer fails to repay
principal, the value of that security and of the Fund's shares might fall. A
downgrade in an issuer's credit rating or other adverse news about an issuer
can reduce the market value of that issuer's securities. While the Fund's
investments in U.S. Government securities are subject to little credit risk,
the Fund's other investments in debt securities, particularly high-yield
lower-grade debt securities, are subject to risks of default.
Special Risks of Lower-Grade Securities. The Fund can invest up to 35% of its
total assets in securities below investment-grade to seek income.
Therefore, the Fund's credit risks are greater than those of funds that
buy only investment-grade bonds. Lower-grade debt securities (commonly
called "junk bonds") may be subject to greater market fluctuations and
greater risks of loss of income and principal than investment-grade
debt securities. Securities that are (or that have fallen) below
investment grade generally have greater risks that the issuers of those
securities might not meet their debt obligations. The market for
lower-grade securities may be less liquid, especially during times of
general economic distress, and therefore they may be harder to sell at
an acceptable price. These risks can reduce the Fund's share prices and
the income it earns.
INTEREST RATE RISKS. The values of debt securities are subject to change when
prevailing interest rates change. When interest rates fall, the values of
already-issued debt securities generally rise. When interest rates rise, the
values of already-issued debt securities generally fall and they may sell at
a discount from their face amount. The magnitude of these fluctuations will
often be greater for debt securities having longer maturities than
shorter-term debt securities. The Fund's share prices can go up or down when
interest rates change because of the effect of the changes on the value of
the Fund's investments in debt securities.
PREPAYMENT RISK. Prepayment risk occurs when the issuer of a security can
prepay the principal prior to the security's maturity. Securities subject to
prepayment risk, including the mortgage-related securities that the Fund can
buy, have greater potential for loss when interest rates rise. The impact of
prepayments on the price of a security may be difficult to predict and may
increase the volatility of the price. Additionally, the Fund might buy
mortgage-related securities at a premium. Accelerated prepayments on those
securities could cause the Fund to lose a portion of its principal investment
represented by the premium the Fund paid.
If interest rates rise rapidly, prepayments might occur at slower rates
than expected, which could have the effect of lengthening the expected
maturity of a short or medium-term security. That could cause its value to
fluctuate more widely in response to changes in interest rates. In turn, this
could cause the value of the Fund's shares to fluctuate more.
The prices and yields of mortgage-related securities are determined, in
part, by assumptions about the cash flows from the rate of payments of the
underlying mortgages. Changes in interest rates may cause the rate of
expected prepayments of those mortgages to change. In general, prepayments
increase when general interest rates fall and decrease when interest rates
rise.
If prepayments of mortgages underlying a mortgage-related security
occur faster than expected when interest rates fall, the market value and
yield of the mortgage-related security could be reduced. Additionally, the
Fund may have to reinvest the prepayment proceeds in other securities paying
interest at lower rates, which could reduce the Fund's yield.
ASSET ALLOCATION RISKS. Because the Fund typically invests in a combination
of stocks, bonds and money market instruments to seek total return, it might
not achieve growth in its share prices to the same degree as funds focusing
on stocks during periods of rapidly rising prices. Also, the Fund's
investments in stocks may make it more difficult for the Manager to preserve
principal in volatile stock markets. The Fund's use of value and growth
styles in selecting stocks might not be successful, particularly if stocks
selected as value investments fail to appreciate in price to the extent the
Manager expected.
HOW RISKY IS THE FUND OVERALL? The risks described above collectively form
the overall risk profile of the Fund, and can affect the value of the Fund's
investments, its investment performance and the prices of its shares.
Particular investments and investment strategies also have risks. These risks
mean that you can lose money by investing in the Fund. When you redeem your
shares, they may be worth more or less than what you paid for them. There is
no assurance that the Fund will achieve its investment objective.
In the short term, domestic and foreign stock markets can be volatile,
and the price of the Fund's shares will go up and down in response to those
changes. The Fund's income-oriented investments may help cushion the Fund's
total return from changes in stock prices, but debt securities are subject to
credit, prepayment and interest rate risks. In the OppenheimerFunds spectrum,
the Fund may be less volatile than funds that focus only on stock
investments, but has less opportunities for capital growth than funds focused
solely on stocks and more risks than the funds that focus solely on
investment grade bonds.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
The Fund's Past Performance
The bar chart and table below show one measure of the risks of investing in
the Fund, by showing changes in the Fund's performance (for its Class A
shares) from year to year for the last 10 calendar years and by showing how
the average annual total returns of the Fund's shares, both before and after
taxes, compare to those of broad-based market indices. The after-tax returns
for the other classes of shares will vary.
The after-tax returns are shown for Class A shares only and are calculated
using the historical highest individual federal marginal income tax rates in
effect during the periods shown, and do not reflect the impact of state or
local taxes. In certain cases, the figure representing "Return After Taxes
on Distributions and Sale of Fund Shares" may be higher than the other return
figures for the same period. A higher after-tax return results when a
capital loss occurs upon redemption and translates into an assumed tax
deduction that benefits the shareholder. The after-tax returns are
calculated based on certain assumptions mandated by regulation and your
actual after-tax returns may differ from those shown, depending on your
individual tax situation. The after-tax returns set forth below are not
relevant to investors who hold their fund shares through tax-deferred
arrangements such as 401(k) plans or IRAs or to institutional investors not
subject to tax. The Fund's past investment performance, before and after
taxes, is not necessarily an indication of how the Fund will perform in the
future.
Annual Total Returns (Class A) (as of 12/31 each year)
[See appendix to prospectus for data in bar chart showing annual total
returns]
Sales charges and taxes are not included in the calculations of return in
this bar chart, and if those charges and taxes were included, the returns may
be less than those shown.
For the period from 1/1/05 through 12/31/05, the cumulative return (not
annualized) before taxes for Class A shares was 3.59%.
During the period shown in the bar chart, the highest return (not annualized)
before taxes for a calendar quarter was 12.05% (2nd Qtr '03) and the lowest
return (not annualized) before taxes for a calendar quarter was -11.03% (3rd
Qtr '01).
- -------------------------------------------------------------------------------------
Average Annual Total Returns 5 Years 10 Years
for the periods ended (or life of (or life of
December 31, 2005 1 Year class, if less) class, if less)
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Class A Shares (inception
4/24/87) -2.37% 3.82% 7.71%
Return Before Taxes -3.86% 2.60% 5.46%
Return After Taxes on -0.57% 2.70% 5.48%
Distributions
Return After Taxes on
Distributions and Sale of
Fund Shares
- -------------------------------------------------------------------------------------
S&P 500 Index (reflects no
deduction for fees, expenses
or taxes) 4.91% 0.54% 9.07%(1)
- -------------------------------------------------------------------------------------
Lehman Bros. Aggregate Bond
Index (reflects no deduction
for fees, expenses or taxes) 2.43% 5.87% 6.16%(1)
- -------------------------------------------------------------------------------------
Class B Shares (inception -2.23% 3.76% 7.79%
8/29/95)
- -------------------------------------------------------------------------------------
Class C Shares (inception 1.75% 4.18% 7.45%
12/1/93)
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Class N Shares (inception 2.23% 4.21% N/A
3/1/01)
- -------------------------------------------------------------------------------------
(1) From 12/31/95
The Fund's average annual total returns include the applicable sales charge:
for Class A, the current maximum initial sales charge of 5.75%; for Class B,
the contingent deferred sales charges of 5% (1-year) and 2% (5 years); and
for Class C and Class N, the 1% contingent deferred sales charge for the
1-year period. Because Class B shares convert to Class A shares 72 months
after purchase, Class B "life-of-class" performance does not include any
contingent deferred sales charge and uses Class A performance for the period
after conversion. The returns measure the performance of a hypothetical
account and assume that all dividends and capital gains distributions have
been reinvested in additional shares. The performance of the Fund's Class A
shares is compared to the Standard & Poor's 500 Index, an unmanaged index of
U.S. equity securities, and to the Lehman Brothers Aggregate Bond Index, an
unmanaged index of U.S. corporate, government and mortgage-backed
securities. The indices' performance includes reinvestment of income but
does not reflect transaction costs, fees, expenses or taxes. The Fund's
investments vary from those in the indices.
Fees and Expenses of the Fund
The following tables are provided to help you understand the fees and
expenses you may pay if you buy and hold shares of the Fund. The Fund pays a
variety of expenses directly for management of its assets, administration,
distribution of its shares and other services. Those expenses are subtracted
from the Fund's assets to calculate the Fund's net asset values per share.
All shareholders therefore pay those expenses indirectly. Shareholders pay
other transaction expenses directly, such as sales charges. The numbers
below are based on the Fund's expenses during its fiscal year ended September
30, 2005.
--------------------------------------------------------------------------
Shareholder Fees (charges paid directly from your investment):
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Class A Class B Class C Class N
Shares Shares Shares Shares
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Maximum Sales Charge (Load) on
purchases (as % of offering 5.75% None None None
price)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Maximum Deferred Sales Charge
(Load) (as % of the lower of
the original offering None(1) 5.00%(2) 1.00%(3) 1.00%(4)
price or redemption proceeds)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Annual Fund Operating Expenses (deducted from Fund assets):
(% of average daily net assets)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Class A Class B Class C Class N
Shares Shares Shares Shares
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Management Fees 0.70% 0.70% 0.70% 0.70%
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Distribution and/or Service 0.20% 1.00% 1.00% 0.50%
(12b-1) Fees
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Other Expenses 0.15% 0.28% 0.21% 0.30%
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Total Annual Operating Expenses 1.05% 1.98% 1.91% 1.50%
--------------------------------------------------------------------------
Expenses may vary in future years. "Other Expenses" include transfer agent
fees, custodial fees, and accounting and legal expenses that the Fund pays.
The Transfer Agent has voluntarily undertaken to the Fund to limit the
transfer agent fees to 0.35% of average daily net assets per fiscal year for
all classes. That undertaking may be amended or withdrawn at any time. For
the Fund's fiscal year ended September 30, 2005, the transfer agent fees did
not exceed the expense limitation described above.
1. A contingent deferred sales charge may apply to redemptions of
investments of $1 million or more ($500,000 for certain retirement plan
accounts) of Class A shares. See "How to Buy Shares" for details.
2. Applies to redemptions in first year after purchase. The contingent
deferred sales charge gradually declines from 5% to 1% in years one
through six and is eliminated after that.
3. Applies to shares redeemed within 12 months of purchase.
4. Applies to shares redeemed within 18 months of a retirement plan's
first purchase of Class N shares.
EXAMPLES. The following examples are intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds. The
examples assume that you invest $10,000 in a class of shares of the Fund for
the time periods indicated and reinvest your dividends and distributions.
The first example assumes that you redeem all of your shares at the end
of those periods. The second example assumes that you keep your shares. Both
examples also assume that your investment has a 5% return each year and that
the class's operating expenses remain the same. Your actual costs may be
higher or lower because expenses will vary over time. Based on these
assumptions your expenses would be as follows:
------------------------------------------------------------------------------
If shares are redeemed: 1 Year 3 Years 5 Years 10 Years
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Class A Shares $676 $891 $1,124 $1,790
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Class B Shares $703 $927 $1,278 $1,859(1)
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Class C Shares $296 $606 $1,041 $2,254
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Class N Shares $254 $478 $824 $1,804
------------------------------------------------------------------------------
------------------------------------------------------------------------------
If shares are not 1 Year 3 Years 5 Years 10 Years
redeemed:
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Class A Shares $676 $891 $1,124 $1,790
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Class B Shares $203 $627 $1,078 $1,859(1)
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Class C Shares $196 $606 $1,041 $2,254
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Class N Shares $154 $478 $824 $1,804
------------------------------------------------------------------------------
In the first example, expenses include the initial sales charge for Class A
and the applicable Class B, Class C and Class N contingent deferred sales
charges. In the second example, the Class A expenses include the sales
charge, but Class B, Class C and Class N expenses do not include the
contingent deferred sales charges.
1. Class B expenses for years 7 through 10 are based on Class A expenses,
since Class B shares automatically convert to Class A shares 72 months
after purchase.
About the Fund's Investments
THE FUND'S PRINCIPAL INVESTMENT POLICIES AND RISKS. The allocation of the
Fund's portfolio among different investments will vary over time based upon
the Manager's evaluation of economic and market trends. The Fund's portfolio
might not always include all of the different types of investments described
in this Prospectus. The Statement of Additional Information contains more
detailed information about the Fund's investment policies and risks.
At times the Fund may focus more on investing for capital appreciation
with less emphasis on seeking income, while seeking to preserve principal. At
other times, for example when stock markets are less stable, the Fund might
have greater relative emphasis on income-seeking investments, such as
government securities and money market instruments.
The Manager tries to reduce risks by carefully researching securities
before they are purchased. The Fund attempts to reduce its exposure to market
risks by diversifying its investments, that is, by not holding a substantial
amount of stock of any one company and by not investing too great a
percentage of the Fund's assets in any one issuer. Also, the Fund does not
concentrate 25% or more of its total assets in investments in any one
industry. However, changes in the overall market prices of securities and the
income they pay can occur at any time. The share prices of the Fund will
change daily based on changes in market prices of securities and market
conditions and in response to other economic events.
In seeking broad diversification of the Fund's portfolio over asset
classes, issuers and economies, the portfolio managers consider overall and
relative economic conditions in U.S. and foreign markets. They seek broad
diversification by investing in different countries to help moderate the
special risks of investing in foreign securities and lower-grade, high-yield
debt securities.
Stock Investments. The Fund's stock investments may be exchange-traded or
over-the-counter securities. Over-the-counter securities may have less
liquidity than exchange-traded securities. Stocks represent an
ownership interest in a company and common stocks rank below preferred
stocks and bonds in their claim for dividends and assets if the issuer
is liquidated or becomes bankrupt.
Debt Securities. The Fund will normally invest at least 25% of its net assets
in fixed-income senior securities, such as bonds and notes. The debt
securities the Fund buys may be rated by nationally recognized rating
organizations or they may be unrated securities assigned a rating by
the Manager.
The Fund has no requirements as to the maturity of the debt securities
it can buy, or as to the market capitalization range of the issuers of
those securities. The Fund's investments may be investment grade or
below investment grade in credit quality. The Manager does not rely
solely on ratings by rating organizations in selecting debt securities
but evaluates business and economic factors affecting an issuer as well.
The Fund's foreign debt investments can be denominated in U.S. dollars
or in foreign currencies. Foreign government securities might not be
backed by the government's full faith and credit. The Fund can buy
"Brady Bonds." Those are U.S. dollar-denominated debt securities
collateralized by zero-coupon U.S. Treasury securities. They are
typically issued by governments of emerging market countries and are
considered speculative securities with higher risks of default. The
Fund will buy foreign currency only in connection with the purchase and
sale of foreign securities and not for speculation.
o U.S. Government Securities. The Fund can invest in securities issued or
guaranteed by the U.S. Treasury or other U.S. Government agencies or
federally-chartered corporate entities referred to as
"instrumentalities." These are referred to as "U.S. Government
securities" in this Prospectus. They can include collateralized
mortgage obligations ("CMOs") and other mortgage-related securities.
o U.S. Treasury Obligations. These include Treasury bills (having
maturities of one year or less when issued), Treasury notes (having
maturities of more than one and up to ten years when issued), and
Treasury bonds (having maturities of more than ten years when issued).
Treasury securities are backed by the full faith and credit of the
United States as to timely payments of interest and repayment of
principal. Although not rated, Treasury obligations have little credit
risk, but prior to their maturity they are subject to interest rate
risk.
o Obligations of U.S. Government Agencies or Instrumentalities. These
include direct obligations and mortgage-related securities that have
different levels of credit support from the U.S. Government. These have
relatively little credit risk. Some are supported by the full faith and
credit of the U.S. Government, such as Government National Mortgage
Association pass-through mortgage certificates (called "Ginnie Maes").
Some are supported by the right of the issuer to borrow from the U.S.
Treasury under certain circumstances, such as Federal National Mortgage
Association bonds ("Fannie Maes"). Others are supported only by the
credit of the entity that issued them.
o Mortgage-Related U.S. Government Securities. The Fund can buy interests
in pools of residential or commercial mortgages, in the form of CMOs
and other "pass-through" mortgage securities. CMOs that are U.S.
Government securities have collateral to secure payment of interest and
principal. They may be issued in different series each having different
interest rates and maturities. The collateral is either in the form of
mortgage pass-through certificates issued or guaranteed by a U.S.
agency or instrumentality or mortgage loans insured by a U.S.
Government agency.
o Forward Rolls. The Fund can enter into "forward roll" (also referred to
as "mortgage dollar rolls") transactions with respect to
mortgage-related securities. In this type of transaction, the Fund
sells a mortgage-related security to a buyer and simultaneously agrees
to repurchase a similar security at a later date at a set price.
During the period between the sale and the repurchase, the Fund will
not be entitled to receive interest and principal payments on the
securities that have been sold. It is possible that the market value of
the securities the Fund sells may decline below the price at which the
Fund is obligated to repurchase securities, or that the counterparty
might default in its obligation. A substantial portion of the Fund's
assets may be subject to forward roll transactions at any given time.
o Private-Issuer Mortgage-Backed Securities. The Fund can invest in
mortgage-backed securities issued by private issuers, which do not
offer the credit backing of U.S. Government mortgage-related
securities. Primarily these would include multi-class debt or
pass-through certificates secured by mortgage loans. They may be issued
by banks, savings and loans, mortgage bankers and other
non-governmental issuers. Private issuer mortgage-backed securities are
subject to the credit risks of the issuers (as well as interest rate
risks and prepayment risks), although in some cases they may be
supported by insurance or guarantees.
? High-Yield, Lower-Grade Debt Securities. The Fund can purchase a
variety of lower-grade, high-yield debt securities, to seek current
income. These securities are sometimes called "junk bonds." The Fund
limits these investments to not more than 35% of its total assets.
Lower-grade debt securities are those rated below "Baa" by Moody's
Investors Service ("Moody's") or lower than "BBB" by Standard & Poor's
("S&P") or that have comparable ratings by other nationally-recognized
rating organizations. They include unrated securities assigned a
comparable rating by the Manager. The Fund can invest in securities
rated as low as "C" or "D" or which are in default at the time the Fund
buys them. While securities rated "Baa" by Moody's or "BBB" by S&P are
considered "investment grade," they have some speculative
characteristics.
o Money Market Instruments. The Fund can invest in money market
instruments, which include short-term certificates of deposit, bankers'
acceptances, commercial paper, U.S. Government obligations, and other
debt instruments (including bonds) issued by corporations. These
securities may have variable or floating interest rates. The Fund's
investments in commercial paper in general will be limited to paper in
the top two rating categories of S&P or Moody's.
CAN THE FUND'S INVESTMENT OBJECTIVE AND POLICIES CHANGE? The Fund's Board of
Trustees can change non-fundamental investment policies without shareholder
approval, although significant changes will be described in amendments to
this Prospectus. Fundamental policies cannot be changed without the approval
of a majority of the Fund's outstanding voting shares. The Fund's objective
is a fundamental policy. Other investment restrictions that are fundamental
policies are listed in the Statement of Additional Information. An investment
policy is not fundamental unless this Prospectus or the Statement of
Additional Information says that it is.
OTHER INVESTMENT STRATEGIES. To seek its objective, the Fund can use the
investment techniques and strategies described below. The Fund might not
always use all of them. These techniques have risks, although some are
designed to help reduce overall investment or market risks.
Other Equity Investments. The Fund's equity investments are mainly common
stocks, but also include preferred stocks and securities convertible
into common stock. The Manager considers some convertible securities to
be "equity equivalents" because of the conversion feature and in that
case their rating has less impact on the investment decision than in
the case of other debt securities.
Investing in Small- and Mid-Cap Stocks. The Fund may investment in small- and
mid-cap companies. Small- and mid-cap companies can include both
established and newer companies. While these companies might offer
greater opportunities for capital appreciation than larger or more
established companies, they involve greater risks of loss or price
fluctuations than larger issuers.
Small- and mid-cap companies may have more limited product lines or
markets for their products, limited access to financial resources and
less depth in management skill than larger, more established companies.
Their stocks may be less liquid than those of larger issuers. That
means the Fund could have greater difficulty selling a security of a
small- or mid-cap issuer at an acceptable price, especially in periods
of market volatility. That factor increases the potential for losses to
the Fund. Also, it may take a longer period of time before the Fund
realizes a gain on an investment in a small- or mid-cap company than in
a larger company, if it realizes any gain at all.
Zero-Coupon and "Stripped" Securities. Some of the U.S. Government debt
securities the Fund buys are zero-coupon bonds that pay no interest.
They are issued at a substantial discount from their face value.
"Stripped" securities are the separate income or principal components
of a debt security. Some CMOs or other mortgage-related securities may
be stripped, with each component having a different proportion of
principal or interest payments. One class might receive all the
interest and the other all the principal payments.
Zero-coupon and stripped securities are subject to greater fluctuations
in price from interest rate changes than interest-bearing securities.
The Fund may have to pay out the imputed income on zero-coupon
securities without receiving the actual cash currently. Interest-only
securities are particularly sensitive to changes in interest rates.
The values of interest-only mortgage related securities are also very
sensitive to prepayments of underlying mortgages. When prepayments tend
to fall, the timing of the cash flows to these securities increases,
making them more sensitive to changes in interest rates. The market for
some of these securities may be limited, making it difficult for the
Fund to dispose of its holdings quickly at an acceptable price.
Illiquid and Restricted Securities. Investments may be illiquid because they
do not have an active trading market, making it difficult to value them
or dispose of them promptly at an acceptable price. Restricted
securities may have terms that limit their resale to other investors or
may require registration under applicable securities laws before they
may be sold publicly. The Fund will not invest more than 10% of its net
assets in illiquid or restricted securities. The Board can increase
that limit to 15%. Certain restricted securities that are eligible for
resale to qualified institutional purchasers may not be subject to that
limit. The Manager monitors holdings of illiquid securities on an
ongoing basis to determine whether to sell any holdings to maintain
adequate liquidity.
Derivative Investments. The Fund can invest in a number of different kinds of
"derivative" investments. In general terms, a derivative investment is
an investment contract whose value depends on (or is derived from) the
value of an underlying asset, interest rate or index. In the broadest
sense, options, futures contracts, and other hedging instruments the
Fund might use may be considered "derivative" investments. In addition
to using derivatives for hedging, the Fund might use other derivative
investments because they offer the potential for increased value. The
Fund currently does not use derivatives to a substantial degree and is
not required to use them in seeking its objective.
Derivatives have risks. If the issuer of the derivative investment does
not pay the amount due, the Fund can lose money on the investment. The
underlying security or investment on which a derivative is based, and
the derivative itself, may not perform the way the Manager expected it
to. As a result of these risks, the Fund could realize less principal
or income from the investment than expected or its hedge might be
unsuccessful. As a result, the Fund's share prices could fall. Certain
derivative investments held by the Fund might be illiquid.
o Credit Derivatives. The Fund may enter into credit default swaps, both
(i) directly and (ii) indirectly in the form of a swap embedded within
a structured note, to protect against the risk that a security will
default. The Fund pays a fee to enter into the trade and receives a
fixed payment during the life of the swap. If there is a credit
event, the Fund either delivers the defaulted bond (if the Fund has
taken the short position in the credit default swap) or pays the par
amount of the defaulted bond (if the Fund has taken the long position
in the credit default swap note). Risks of credit default swaps include
the cost of paying for credit protection if there are no credit events.
Hedging. The Fund can buy and sell futures contracts, put and call options,
and forward contracts. These are all referred to as "hedging
instruments." The Fund is not required to use hedging instruments to
seek its objective. The Fund does not use hedging instruments for
speculative purposes, and has limits on its use of them.
The Fund could buy and sell options, futures and forward contracts for
a number of purposes. It might 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 might do
so to try to manage its exposure to changing interest rates. Forward
contracts can be used to try to manage foreign currency risks on the
Fund's foreign investments.
There are also special risks in particular hedging strategies. Options
trading involves the payment of premiums and can increase portfolio
turnover. 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 Manager used a hedging instrument at the wrong time or judged
market conditions incorrectly, the strategy could 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.
o Temporary Defensive and Interim Investments. In times of adverse or
unstable market, economic or political conditions, the Fund can invest up
to 100% of its assets in temporary defensive investments that are
inconsistent with the Fund's principal investment strategies. Generally,
they would be high-quality, short-term money market instruments, such as
U.S. government securities, highly rated commercial paper, short-term
corporate debt obligations, bank deposits or repurchase agreements. The
Fund can also hold these types of securities pending the investment of
proceeds from the sale of Fund shares or portfolio securities or to meet
anticipated redemptions of Fund shares. To the extent the Fund invests in
these securities, it might not achieve its investment objective of high
total return.
o Portfolio Turnover. A change in the securities held by the Fund is
known as "portfolio turnover." The Fund may engage in active and frequent
trading to try to achieve its objective and may have a high portfolio
turnover rate of over 100% annually. Increased portfolio turnover creates
higher brokerage and transaction costs for the Fund (and may reduce
performance). If the Fund realizes capital gains when it sells its
investments, it must generally pay those gains out to the shareholders,
increasing their taxable distributions. The Financial Highlights table at
the end of this prospectus shows the Fund's portfolio turnover rate during
past fiscal years.
o Loans of Portfolio Securities. The Fund has entered into a Securities
Lending Agreement with JP Morgan Chase. Under that agreement portfolio
securities of the Fund may be loaned to brokers, dealers and other
financial institutions. The Securities Lending Agreement provides that
loans must be adequately collateralized and may be made only in conformity
with the Fund's Securities Lending Guidelines, adopted by the Fund's Board
of Trustees. The value of the securities loaned may not exceed 25% of the
value of the Fund's net assets.
PORTFOLIO HOLDINGS. The Fund's portfolio holdings are included in semi-annual
and annual reports that are distributed to shareholders of the Fund
within 60 days after the close of the period for which such report is
being made. The Fund also discloses its portfolio holdings in its
Statements of Investments on Form N-Q, which are filed with the
Securities and Exchange Commission (the "SEC") no later than 60 days
after the close of its first and third fiscal quarters. These required
filings are publicly available at the SEC. Therefore, portfolio
holdings of the Fund are made publicly available no later than 60 days
after the close of each of the Fund's fiscal quarters.
A description of the Fund's policies and procedures with respect to the
disclosure of the Fund's portfolio securities is available in the
Fund's Statement of Additional Information.
How the Fund Is Managed
THE MANAGER. The Manager 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 Fund's Board of Trustees, under an investment
advisory agreement that states the Manager's responsibilities. The agreement
sets the fees the Fund pays to the Manager and describes the expenses that
the Fund is responsible to pay to conduct its business.
The Manager has been an investment adviser since 1960. The Manager and
its subsidiaries and controlled affiliates managed more than $200 billion in
assets as of December 31, 2005, including other Oppenheimer funds, with more
than 6 million shareholder accounts. The Manager is located at Two World
Financial Center, 225 Liberty Street, 11th Floor, New York, New York
10281-1008.
Advisory Fees. Under the investment advisory agreement, the Fund pays the
Manager an advisory fee at an annual rate that declines on additional
assets as the Fund grows: 0.75% of the first $200 million of average
annual net assets of the Fund, 0.72% of the next $200 million, 0.69% of
the next $200 million, 0.66% of the next $200 million, 0.60% of the
next $700 million, and 0.58% of average annual net assets in excess of
$1.5 billion. The Fund's management fee for its last fiscal year ended
September 30, 2005 was 0.70% of average annual net assets for each
class of shares.
A discussion regarding the basis for the Board of Trustees' approval of
the Fund's investment advisory contract is available in the Fund's
Annual Report to shareholders for the year ended September 30, 2005.
Portfolio Managers. The equity component of the Fund's portfolio is managed
by Emmanuel Ferreira and Christopher Leavy, and the fixed-income
component of the Fund's portfolio is managed by Angelo Manioudakis and
a team of investment professionals including Benjamin J. Gord, Geoffrey
Caan, Charles Moon and Antulio N. Bomfim who are primarily responsible
for the day-to-day management of the Fund's investments. Messrs.
Ferreira, Leavy and Manioudakis have been portfolio managers of the
Fund since January 2003.
Mr. Ferreira is the lead manager of the equity component of the Fund's
portfolio and has been a Vice President of the Manager and Vice
President of the Fund since January 2003. He is a portfolio manager
and officer of other portfolios in the OppenheimerFunds complex. He
was formerly Portfolio Manager at Lashire Investments from July 1999
through December 2002.
Mr. Leavy has been a Senior Vice President of the Manager since
September 2000 and Vice President of the Fund since January 2003. He
is a portfolio manager and officer of other portfolios in the
OppenheimerFunds complex. Mr. Leavy was a portfolio manager at Morgan
Stanley Dean Witter Investment Management from 1997 through September
2000.
The Fund's fixed-income component has been managed by a portfolio
management team comprised of Angelo Manioudakis, Benjamin Gord, Charles
Moon, Geoffrey Caan and Antulio N. Bomfim. This portfolio management
team is primarily responsible for the day-to-day management of the
fixed-income component of the Fund.
Mr. Manioudakis has been a Senior Vice President of the Manager and of
HarbourView Asset Management Corporation since April 2002. He has been
a Senior Vice President of OFI Institutional Asset Management, Inc.
since June 2002. He has been a Vice President of the Fund since
January 2003. He is also a portfolio manager and officer of other
portfolios in the OppenheimerFunds complex. Mr. Manioudakis was
Executive Director and portfolio manager for Miller, Anderson &
Sherrerd, a division of Morgan Stanley Investment Management from
August 1993 through April 2002.
Mr. Gord has been a portfolio manager of the Fund since 2003 and a Vice
President of the Manager since April 2002. He is also a portfolio
manager of other portfolios in the OppenheimerFunds complex. Mr. Gord
was an Executive Director and a senior fixed income analyst at Miller,
Anderson & Sherrerd, a division of Morgan Stanley Investment Management
from April 1992 through March 2002.
Mr. Caan has been a portfolio manager of the Fund since 2003 and a Vice
President of the Manager since August 2003. He is also a portfolio
manager of other portfolios in the OppenheimerFunds complex. Mr. Caan
was a Vice President of ABN AMRO N.A., Inc. from June 2002 through
August 2003, and a Vice President of Zurich Scudder Investments from
January 1999 through June 2002.
Mr. Moon has been a portfolio manager of the Fund since 2003 and a Vice
President of the Manager since April 2002. He is also a portfolio
manager of other portfolios in the OppenheimerFunds complex. Mr. Moon
was an Executive Director and a portfolio manager at Miller, Anderson &
Sherrerd, a division of Morgan Stanley Investment Management from June
1999 through March 2002.
Mr. Bomfim has been a portfolio manager of the Fund since 2003 and a
Vice President of the Manager since October 2003. He is also a
portfolio manager of other portfolios in the OppenheimerFunds complex.
Mr. Bomfim was a Senior Economist at the Board of Governors of the
Federal Reserve System from June 1992 to October 2003.
The Statement of Additional Information provides additional information
about the Portfolio Managers' compensation, other accounts they manage
and their ownership of Fund shares.
Pending Litigation. A consolidated amended complaint has been filed as
putative derivative and class actions against the Manager, Distributor
and Transfer Agent, as well as 51 of the Oppenheimer funds
(collectively the "funds") including the Fund, 30 present and former
Directors or Trustees and 8 present and former officers of certain of
the funds. This complaint, initially filed in the U.S. District Court
for the Southern District of New York on January 10, 2005 and amended
on March 4, 2005, consolidates into a single action and amends six
individual previously-filed putative derivative and class action
complaints. Like those prior complaints, the complaint alleges that the
Manager charged excessive fees for distribution and other costs,
improperly used assets of the funds in the form of directed brokerage
commissions and 12b-1 fees to pay brokers to promote sales of the
funds, and failed to properly disclose the use of fund assets to make
those payments in violation of the Investment Company Act and the
Investment Advisers Act of 1940. Also, like those prior complaints, the
complaint further alleges that by permitting and/or participating in
those actions, the Directors/Trustees and the officers breached their
fiduciary duties to fund shareholders under the Investment Company Act
and at common law. The complaint seeks unspecified compensatory and
punitive damages, rescission of the funds' investment advisory
agreements, an accounting of all fees paid, and an award of attorneys'
fees and litigation expenses.
The defendants believe the claims asserted in these lawsuits to
be without merit, and intend to defend the suits vigorously. The
Manager and the Distributor do not believe that the pending actions are
likely to have a material adverse effect on the Fund or on their
ability to perform their respective investment advisory or distribution
agreements with the Fund.
ABOUT YOUR ACCOUNT
How to Buy Shares
You can buy shares several ways, as described below. The Fund's Distributor,
OppenheimerFunds Distributor, Inc., may appoint servicing agents to accept
purchase (and redemption) orders. The Distributor, in its sole discretion,
may reject any purchase order for the Fund's shares.
Buying Shares Through Your Dealer. You can buy shares through any dealer,
broker or financial institution that has a sales agreement with the
Distributor. Your dealer will place your order with the Distributor on
your behalf. A broker or dealer may charge for that service.
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 do not list a dealer on the application, Class A
shares are your only purchase option. The Distributor will act as your
agent in buying Class A shares. However, we recommend that you discuss
your investment with a financial advisor before you make a purchase to
be sure that the Fund is appropriate for you. Class B, Class C or Class
N shares may not be purchased by a new investor directly from the
Distributor without the investor designating another registered
broker-dealer. If a current investor no longer has another
broker-dealer of record for an existing Class B, Class C or Class N
account, the Distributor is automatically designated as the
broker-dealer of record, but solely for the purpose of acting as the
investor's agent to purchase the shares.
Paying by Federal Funds Wire. Shares purchased through the Distributor may be
paid for by Federal Funds wire. The minimum investment is $2,500.
Before sending a wire, call the Distributor's Wire Department at
1.800.225.5677 to notify the Distributor of the wire and to receive
further instructions.
o Buying Shares Through OppenheimerFunds AccountLink. With AccountLink,
you pay for shares by electronic funds transfers from your bank
account. Shares are purchased for your account by a transfer of money
from your bank account through the Automated Clearing House (ACH)
system. You can provide those instructions automatically, under an
Asset Builder Plan, described below, or by telephone instructions using
OppenheimerFunds PhoneLink, also described below. Please refer to
"AccountLink," below for more details.
o Buying Shares Through Asset Builder Plans. You may purchase shares of
the Fund automatically from your account at a bank or other financial
institution under an Asset Builder Plan with AccountLink. Details are
in the Asset Builder application and the Statement of Additional
Information.
WHAT IS THE MINIMUM AMOUNT YOU MUST INVEST? In most cases, you can buy Fund
shares with a minimum initial investment of $1,000 and make additional
investments at any time with as little as $50. There are reduced minimums
available under the following special investment plans:
o If you establish one of the many types of retirement plan accounts that
OppenheimerFunds offers, more fully described below under "Special
Investor Services," you can start your account with as little as $500.
o By using an Asset Builder Plan or Automatic Exchange Plan (details are
in the Statement of Additional Information), or government allotment
plan, you can make subsequent investments (after making the initial
investment of $500) for as little as $50. For any type of account
established under one of these plans prior to November 1, 2002, the
minimum additional investment will remain $25.
o The minimum investment requirement does not apply to reinvesting
dividends from the Fund or other Oppenheimer funds (a list of them
appears in the Statement of Additional Information, or you can ask your
dealer or call the Transfer Agent), or reinvesting distributions from
unit investment trusts that have made arrangements with the Distributor.
AT WHAT PRICE ARE SHARES SOLD? Shares are sold at their offering price which
is the net asset value per share plus any initial sales charge that applies.
The offering price that applies to a purchase order is based on the next
calculation of the net asset value per share that is made after the
Distributor receives the purchase order at its offices in Colorado, or after
any agent appointed by the Distributor receives the order.
Net Asset Value. The Fund calculates the net asset value of each class of
shares as of the close of the NYSE, on each day the NYSE is open for
trading (referred to in this Prospectus as a "regular business day").
The NYSE normally closes at 4:00 p.m., Eastern time, but may close
earlier on some days. All references to time in this Prospectus mean
"Eastern time."
The net asset value per share for a class of shares on a "regular
business day" is determined by dividing the value of the Fund's net
assets attributable to that class by the number of shares of that class
outstanding on that day. To determine net asset values, the Fund
assets are valued primarily on the basis of current market quotations.
If market quotations are not readily available or do not accurately
reflect fair value for a security (in the Manager's judgment) or if a
security's value has been materially affected by events occurring after
the close of the NYSE or market on which the security is principally
traded, that security may be valued by another method that the Board of
Trustees believes accurately reflects the fair value. Because some
foreign securities trade in markets and on exchanges that operate on
weekends and U.S. holidays, the values of some of the Fund's foreign
investments may change on days when investors cannot buy or redeem Fund
shares.
The Board has adopted valuation procedures for the Fund and has
delegated the day-to-day responsibility for fair value determinations
to the Manager's Valuation Committee. Fair value determinations by the
Manager are subject to review, approval and ratification by the Board
at its next scheduled meeting after the fair valuations are
determined. In determining whether current market prices are readily
available and reliable, the Manager monitors the information it
receives in the ordinary course of its investment management
responsibilities for significant events that it believes in good faith
will affect the market prices of the securities of issuers held by the
Fund. Those may include events affecting specific issuers (for
example, a halt in trading of the securities of an issuer on an
exchange during the trading day) or events affecting securities markets
(for example, a foreign securities market closes early because of a
natural disaster). The Fund uses fair value pricing procedures to
reflect what the Manager and the Board believe to be more accurate
values for the Fund's portfolio securities, although it may not always
be able to accurately determine such values. In addition, the
discussion of "time-zone arbitrage" describes effects that the Fund's
fair value pricing policy is intended to counteract.
If, after the close of the principal market on which a security held by
the Fund is traded and before the time as of which the Fund's net asset
values are calculated that day, a significant event occurs that the
Manager learns of and believes in the exercise of its judgment will
cause a material change in the value of that security from the closing
price of the security on the principal market on which it is traded,
the Manager will use its best judgment to determine a fair value for
that security.
The Manager believes that foreign securities values may be affected by
volatility that occurs in U.S. markets on a trading day after the close
of foreign securities markets. The Manager's fair valuation procedures
therefore include a procedure whereby foreign securities prices may be
"fair valued" to take those factors into account.
The Offering Price. To receive the offering price for a particular day, the
Distributor or its designated agent must receive your order, in good
order, by the time the NYSE closes that day. If your order is received
on a day when the NYSE is closed or after it has closed, the order will
receive the next offering price that is determined after your order is
received.
Buying Through a Dealer. If you buy shares through a dealer, your dealer must
receive the order by the close of the NYSE (normally 4:00 p.m.) and
transmit it to the Distributor so that it is received before the
Distributor's close of business on a regular business day (normally
5:00 p.m.) to receive that day's offering price, unless your dealer has
made alternative arrangements with the Distributor. Otherwise, the
order will receive the next offering price that is determined.
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WHAT CLASSES OF SHARES DOES THE FUND OFFER? The Fund offers investors four
different classes of shares. The different classes of shares represent
investments in the same portfolio of securities, but the classes are subject
to different expenses and will likely have different share prices. When you
buy shares, be sure to specify the class of shares. If you do not choose a
class, your investment will be made in Class A shares.
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- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class A Shares. If you buy Class A shares, you pay an initial sales charge
(on investments up to $1 million for regular accounts or lesser amounts
for certain retirement plans). The amount of that sales charge will
vary depending on the amount you invest. The sales charge rates are
listed in "How Can You Buy Class A Shares?" below.
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Class B Shares. If you buy Class B shares, you pay no sales charge at the
time of purchase, but you will pay an annual asset-based sales charge.
If you sell your shares within 6 years of buying them, you will
normally pay a contingent deferred sales charge. That contingent
deferred sales charge varies depending on how long you own your shares,
as described in "How Can You Buy Class B Shares?" below.
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Class C Shares. If you buy Class C shares, you pay no sales charge at the
time of purchase, but you will pay an annual asset-based sales charge.
If you sell your shares within 12 months of buying them, you will
normally pay a contingent deferred sales charge of 1.0%, as described
in "How Can You Buy Class C Shares?" below.
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Class N Shares. If you buy Class N shares (available only through certain
retirement plans), you pay no sales charge at the time of purchase, but
you will pay an annual asset-based sales charge. If you sell your
shares within 18 months of the retirement plan's first purchase of
Class N shares, you may pay a contingent deferred sales charge of 1.0%,
as described in "How Can You Buy Class N Shares?" below.
WHICH CLASS OF SHARES SHOULD YOU CHOOSE? Once you decide that the Fund is an
appropriate investment for you, the decision as to which class of shares is
best suited to your needs depends on a number of factors that you should
discuss with your financial advisor. Some factors to consider are how much
you plan to invest and how long you plan to hold your investment. If your
goals and objectives change over time and you plan to purchase additional
shares, you should re-evaluate those factors to see if you should consider
another class of shares. The Fund's operating costs that apply to a class of
shares and the effect of the different types of sales charges on your
investment will vary your investment results over time.
The discussion below is not intended to be investment advice or a
recommendation, because each investor's financial considerations are
different. The discussion below assumes that you will purchase only one class
of shares and not a combination of shares of different classes. Of course,
these examples are based on approximations of the effects of current sales
charges and expenses projected over time, and do not detail all of the
considerations in selecting a class of shares. You should analyze your
options carefully with your financial advisor before making that choice.
How Long Do You Expect to Hold Your Investment? While future financial needs
cannot be predicted with certainty, knowing how long you expect to hold
your investment will assist you in selecting the appropriate class of
shares. Because of the effect of class-based expenses, your choice will
also depend on how much you plan to invest. For example, the reduced
sales charges available for larger purchases of Class A shares may,
over time, offset the effect of paying an initial sales charge on your
investment, compared to the effect over time of higher class-based
expenses on shares of Class B, Class C or Class N. For retirement plans
that qualify to purchase Class N shares, Class N shares will generally
be more advantageous than Class B and Class C shares.
o Investing for the Shorter Term. While the Fund is meant to be a
long-term investment, if you have a relatively short-term investment
horizon (that is, you plan to hold your shares for not more than six
years), you should most likely invest in Class A or Class C shares
rather than Class B shares. That is because of the effect of the Class
B contingent deferred sales charge if you redeem within six years, as
well as the effect of the Class B asset-based sales charge on the
investment return for that class in the short-term. Class C shares
might be the appropriate choice (especially for investments of less
than $100,000), because there is no initial sales charge on Class C
shares, and the contingent deferred sales charge does not apply to
amounts you sell after holding them one year.
However, if you plan to invest more than $100,000 for the shorter term,
then as your investment horizon increases toward six years, Class C
shares might not be as advantageous as Class A shares. That is because
the annual asset-based sales charge on Class C shares will have a
greater impact on your account over the longer term than the reduced
front-end sales charge available for larger purchases of Class A
shares.
If you 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 more than $100,000 of Class B shares or $1 million
or more of Class C shares from a single investor. Dealers or other
financial intermediaries purchasing shares for their customers in
omnibus accounts are responsible for compliance with those limits.
o Investing for the Longer Term. If you are investing less than $100,000
for the longer-term, for example for retirement, and do not expect to
need access to your money for seven years or more, Class B shares may
be appropriate.
Are There Differences in Account Features That Matter to You? Some account
features may not be available to Class B, Class C and Class N
shareholders. Other features may not be advisable (because of the
effect of the contingent deferred sales charge) for Class B, Class C
and Class N shareholders. Therefore, you should carefully review how
you plan to use your investment account before deciding which class of
shares to buy.
Additionally, the dividends payable to Class B, Class C and Class N
shareholders will be reduced by the additional expenses borne by those
classes that are not borne by Class A, such as the Class B, Class C and
Class N asset-based sales charge described below and in the Statement
of Additional Information.
How Do Share Classes Affect Payments to Your Broker? A financial advisor may
receive different compensation for selling one class of shares than for
selling another class. It is important to remember that Class B, Class
C and Class N contingent deferred sales charges and asset-based sales
charges have the same purpose as the front-end sales charge on sales of
Class A shares: to compensate the Distributor for concessions and
expenses it pays to dealers and financial institutions for selling
shares. The Distributor may pay additional compensation from its own
resources to securities dealers or financial institutions based upon
the value of shares of the Fund owned by the dealer or financial
institution for its own account or for its customers.
HOW CAN YOU BUY CLASS A SHARES? Class A shares are sold at their offering
price, which is normally net asset value plus an initial sales charge.
However, in some cases, described below, purchases are not subject to an
initial sales charge, and the offering price will be the net asset value. In
other cases, reduced sales charges may be available, as described below or in
the Statement of Additional Information. Out of the amount you invest, the
Fund receives the net asset value to invest for your account.
The sales charge varies depending on the amount of your purchase. A
portion of the sales charge may be retained by the Distributor or allocated
to your dealer as a concession. The Distributor reserves the right to reallow
the entire concession to dealers. The current sales charge rates and
concessions paid to dealers and brokers are as follows:
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Amount of Purchase Front-End Sales Front-End Sales Concession As a
Charge As a
Charge As a Percentage of
Percentage of Net Percentage of
Offering Price Amount Invested Offering Price
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Less than $25,000 5.75% 6.10% 4.75%
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$25,000 or more but 5.50% 5.82% 4.75%
less than $50,000
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$50,000 or more but 4.75% 4.99% 4.00%
less than $100,000
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$100,000 or more but 3.75% 3.90% 3.00%
less than $250,000
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$250,000 or more but 2.50% 2.56% 2.00%
less than $500,000
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$500,000 or more but 2.00% 2.04% 1.60%
less than $1 million
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Due to rounding, the actual sales charge for a particular transaction may be
higher or lower than the rates listed above.
SPECIAL SALES CHARGE ARRANGEMENTS AND WAIVERS. Appendix C to the Statement of
Additional Information details the conditions for the waiver of sales charges
that apply in certain cases, and the special sales charge rates that apply to
purchases of shares of the Fund by certain groups, or under specified
retirement plan arrangements or in other special types of transactions. To
receive a waiver or special sales charge rate, you must advise the
Distributor when purchasing shares or the Transfer Agent when redeeming
shares that a special condition applies.
Can You Reduce Class A Sales Charges? You and your spouse may be eligible to
buy Class A shares of the Fund at reduced sales charge rates set forth in the
table above under the Fund's "Right of Accumulation" or a "Letter of Intent."
The Fund reserves the right to modify or to cease offering these programs at
any time.
o Right of Accumulation. To qualify for the reduced Class A sales charge
that would apply to a larger purchase than you are currently making
(as shown in the table above), you can add the value of any Class A,
Class B or, Class C shares of the Fund or other Oppenheimer funds
that you or your spouse currently own, or are currently purchasing,
to the value of your Class A share purchase. Your Class A shares of
Oppenheimer Money Market Fund, Inc. or Oppenheimer Cash Reserves on
which you have not paid a sales charge will not be counted for this
purpose. In totaling your holdings, you may count shares held in
your individual accounts (including IRAs and 403(b) plans), your
joint accounts with your spouse, or accounts you or your spouse hold
as trustees or custodians on behalf of your children who are minors.
A fiduciary can count all shares purchased for a trust, estate or
other fiduciary account that has multiple accounts (including
employee benefit plans for the same employer). If you are buying
shares directly from the Fund, you must inform the Distributor of
your eligibility and holdings at the time of your purchase in order
to qualify for the Right of Accumulation. If you are buying shares
through your financial intermediary you must notify your
intermediary of your eligibility for the Right of Accumulation at
the time of your purchase.
To count shares of eligible Oppenheimer funds held in accounts at
other intermediaries under this Right of Accumulation, you may be
requested to provide the Distributor or your current intermediary
with a copy of all account statements showing your current holdings
of the Fund or other eligible Oppenheimer funds, including
statements for accounts held by you and your spouse or in retirement
plans or trust or custodial accounts for minor children as described
above. The Distributor or intermediary through which you are buying
shares will calculate the value of your eligible Oppenheimer fund
shares, based on the current offering price, to determine which
Class A sales charge rate you qualify for on your current purchase.
o Letters of Intent. You may also qualify for reduced Class A sales
charges by submitting a Letter of Intent to the Distributor. A
Letter of Intent is a written statement of your intention to
purchase a specified value of Class A, Class B or Class C shares of
the Fund or other Oppenheimer funds over a 13-month period. The
total amount of your intended purchases of Class A, Class B and
Class C shares will determine the reduced sales charge rate that
will apply to your Class A share purchases of the Fund during that
period. You can choose to include purchases made up to 90 days
before the date that you submit a Letter. Your Class A shares of
Oppenheimer Money Market Fund, Inc. or Oppenheimer Cash Reserves on
which you have not paid a sales charge will not be counted for this
purpose. Submitting a Letter of Intent does not obligate you to
purchase the specified amount of shares. You may also be able to
apply the Right of Accumulation to these purchases.
If you do not complete the Letter of Intent, the front-end sales
charge you paid on your purchases will be recalculated to reflect
the actual value of shares you purchased. A certain portion of your
shares will be held in escrow by the Fund's Transfer Agent for this
purpose. Please refer to "How to Buy Shares - Letters of Intent" in
the Fund's Statement of Additional Information for more complete
information.
Other Special Sales Charge Arrangements and Waivers. The Fund and the
Distributor offer other opportunities to purchase shares without front-end or
contingent deferred sales charges under the programs described below. The
Fund reserves the right to amend or discontinue these programs at any time
without prior notice.
o Dividend Reinvestment. Dividends and/or capital gains distributions
received by a shareholder from the Fund may be reinvested in shares
of the Fund or any of the other Oppenheimer funds without a sales
charge, at the net asset value per share in effect on the payable
date. You must notify the Transfer Agent in writing to elect this
option and must have an existing account in the fund selected for
reinvestment.
o Exchanges of Shares. Shares of the Fund may be exchanged for shares of
certain other Oppenheimer funds at net asset value per share at the
time of exchange, without sales charge, and shares of the Fund can
be purchased by exchange of shares of certain other Oppenheimer
funds on the same basis. Please refer to "How to Exchange Shares" in
this Prospectus and in the Statement of Additional Information for
more details, including a discussion of circumstances in which sales
charges may apply on exchanges.
o Reinvestment Privilege. Within six months of a redemption of certain
Class A and Class B shares, the proceeds may be reinvested in Class
A shares of the Fund, or any of the other Oppenheimer funds into
which shares of the Fund may be exchanged, without a sales charge.
This privilege applies to redemptions of Class A shares that were
subject to an initial sales charge or Class A or Class B shares that
were subject to a contingent deferred sales charge when redeemed.
The investor must ask the Transfer Agent or financial intermediary
for that privilege at the time of reinvestment and must identify the
account from which the redemption was made.
o Other Special Reductions and Waivers. The Fund and the Distributor
offer additional arrangements to reduce or eliminate front-end sales
charges or to waive contingent deferred sales charges for certain
types of transactions and for certain classes of investors
(primarily retirement plans that purchase shares in special programs
through the Distributor). These are described in greater detail in
Appendix C to the Statement of Additional Information, which may be
ordered by calling 800.225.5677 or through the OppenheimerFunds
website, at www.oppenheimerfunds.com (follow the hyperlinks: "Access
Accounts and Services" - "Forms & Literature" - "Order Literature" -
"Statements of Additional Information"). A description of these
waivers and special sales charge arrangements is also available for
viewing on the OppenheimerFunds website (follow the hyperlinks:
"Research Funds" - "Fund Documents" - "View a description . . .").
To receive a waiver or special sales charge rate under these
programs, the purchaser must notify the Distributor (or other
financial intermediary through which shares are being purchased) at
the time of purchase, or notify the Transfer Agent at the time of
redeeming shares for those waivers that apply to contingent deferred
sales charges.
o Purchases by Certain Retirement Plans. There is no initial sales charge
on purchases of Class A shares of the Fund by retirement plans that
have $5 million or more in plan assets. In that case the Distributor
may pay from its own resources, at the time of sale, concessions in
an amount equal to 0.25% of the purchase price of Class A shares
purchased within the first six months of account establishment by
those retirement plans to dealers of record, subject to certain
exceptions described in "Retirement Plans" in the Statement of
Additional Information.
There is also no initial sales charge on purchases of Class A shares
of the Fund by certain retirement plans that are part of a
retirement plan or platform offered by banks, broker-dealers,
financial advisors, insurance companies or recordkeepers. No
contingent deferred sales charge is charged upon the redemption of
such shares.
Class A Contingent Deferred Sales Charge. There is no initial sales charge on
purchases of Class A shares of any one or more of the Oppenheimer funds
aggregating $1 million or more, or on purchases of Class A shares by
certain retirement plans that satisfied certain requirements prior to
March 1, 2001 ("grandfathered retirement accounts"). However, those
Class A shares may be subject to a Class A contingent deferred sales
charge, as described below. Retirement plans holding shares of
Oppenheimer funds in an omnibus account(s) for the benefit of plan
participants in the name of a fiduciary or financial intermediary
(other than OppenheimerFunds-sponsored Single DB Plus plans) are not
permitted to make initial purchases of Class A shares subject to a
contingent deferred sales charge.
The Distributor pays dealers of record concessions in an amount equal
to 1.0% of purchases of $1 million or more other than purchases by
grandfathered retirement accounts. For grandfathered retirement
accounts, the concession is 0.75% of the first $2.5 million of
purchases plus 0.25% of purchases in excess of $2.5 million. In either
case, the concession will not be paid on purchases of shares by
exchange or that were previously subject to a front-end sales charge
and dealer concession.
If you redeem any of those shares within an 18-month "holding period"
measured from the beginning 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:
o the aggregate net asset value of the redeemed shares at the time of
redemption (excluding shares purchased by reinvestment of dividends or
capital gain distributions) or
o the original net asset value of the redeemed shares.
The Class A contingent deferred sales charge will not exceed the aggregate
amount of the concessions the Distributor paid to your dealer on all
purchases of Class A shares of all Oppenheimer funds you made that were
subject to the Class A contingent deferred sales charge.
HOW CAN YOU BUY CLASS B SHARES? Class B shares are sold at net asset value
per share without an initial sales charge. However, if Class B shares are
redeemed within six years from the beginning of the calendar month of their
purchase, a contingent deferred sales charge will be deducted from the
redemption proceeds. The Class B contingent deferred sales charge is paid to
compensate the Distributor for its expenses of providing distribution-related
services to the Fund in connection with the sale of Class B shares.
The 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 for the Class B contingent deferred sales
charge holding period:
- -------------------------------------------------------------------------------
Years Since Beginning of Month in Contingent Deferred Sales Charge on
Which Purchase Order was Accepted Redemptions in That Year
(As % of Amount Subject to Charge)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
0 - 1 5.0%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1 - 2 4.0%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2 - 3 3.0%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
3 - 4 3.0%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
4 - 5 2.0%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
5 - 6 1.0%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
More than 6 None
- -------------------------------------------------------------------------------
In the table, a "year" is a 12-month period. In applying the contingent
deferred sales charge, all purchases are considered to have been made on the
first regular business day of the month in which the purchase was made.
Automatic Conversion of Class B Shares. Class B shares automatically convert
to Class A shares 72 months after you purchase them. This conversion
feature relieves Class B shareholders of the asset-based sales charge
that applies to Class B shares under the Class B Distribution and
Service Plan, described below. The conversion is based on the relative
net asset value of the two classes, and no sales load or other charge
is imposed. When any Class B shares that you hold convert, any other
Class B shares that were acquired by reinvesting dividends and
distributions on the converted shares will also convert to Class A
shares. For further information on the conversion feature and its tax
implications, see "Class B Conversion" in the Statement of Additional
Information.
HOW CAN YOU BUY CLASS C SHARES? Class C shares are sold at net asset value
per share without an initial sales charge. However, if Class C shares are
redeemed within a holding period of 12 months from the beginning of the
calendar month of their purchase, a contingent deferred sales charge of 1.0%
will be deducted from the redemption proceeds. The Class C contingent
deferred sales charge is paid to compensate the Distributor for its expenses
of providing distribution-related services to the Fund in connection with the
sale of Class C shares.
HOW CAN YOU BUY CLASS N SHARES? Class N shares are offered for sale to
retirement plans (including IRAs and 403(b) plans) that purchase $500,000 or
more of Class N shares of one or more Oppenheimer funds or to group
retirement plans (which do not include IRAs and 403(b) plans) that have
assets of $500,000 or more or 100 or more eligible participants. See
"Availability of Class N shares" in the Statement of Additional Information
for other circumstances where Class N shares are available for purchase.
Class N shares are sold at net asset value without an initial sales
charge. A contingent deferred sales charge of 1.0% will be imposed upon the
redemption of Class N shares, if:
o The group retirement plan is terminated or Class N shares of all
Oppenheimer funds are terminated as an investment option of the plan
and Class N shares are redeemed within 18 months after the plan's first
purchase of Class N shares of any Oppenheimer fund, or
o With respect to an IRA or 403(b) plan, Class N shares are redeemed
within 18 months of the plan's first purchase of Class N shares of any
Oppenheimer fund.
Retirement plans that offer Class N shares may impose charges on plan
participant accounts. The procedures for buying, selling, exchanging and
transferring the Fund's other classes of shares (other than the time those
orders must be received by the Distributor or Transfer Agent in Colorado) and
the special account features applicable to purchasers of those other classes
of shares described elsewhere in this Prospectus do not apply to Class N
shares offered through a group retirement plan. Instructions for buying,
selling, exchanging or transferring Class N shares offered through a group
retirement plan must be submitted by the plan, not by plan participants for
whose benefit the shares are held.
DISTRIBUTION AND SERVICE (12b-1) PLANS.
Service Plan for Class A Shares. The Fund has adopted a Service Plan for
Class A shares. It reimburses the Distributor for a portion of its
costs incurred for services provided to accounts that hold Class A
shares. Reimbursement is made quarterly at an annual rate of up to
0.25% of the average annual net assets of Class A shares of the Fund.
The Distributor currently uses all of those fees to pay dealers,
brokers, banks and other financial institutions periodically for
providing personal service and maintenance of accounts of their
customers that hold Class A shares. With respect to Class A shares
subject to a Class A contingent deferred sales charge purchased by
grandfathered retirement accounts, the Distributor pays the 0.25%
service fee to dealers in advance for the first year after the shares
are sold by the dealer. The Distributor retains the first year's
service fee paid by the Fund. After the shares have been held by
grandfathered retirement accounts for a year, the Distributor pays the
service fee to dealers periodically.
Distribution and Service Plans for Class B, Class C and Class N Shares. The
Fund has adopted Distribution and Service Plans for Class B, Class C
and Class N shares to pay the Distributor for its services and costs in
distributing Class B, Class C and Class N shares and servicing
accounts. Under the plans, the Fund pays the Distributor an annual
asset-based sales charge of 0.75% on Class B and Class C shares and
0.25% on Class N shares. The Distributor also receives a service fee of
0.25% per year under the Class B, Class C and Class N plans.
The asset-based sales charge and service fees increase Class B and
Class C expenses by 1.0% and increase Class N expenses by 0.50% of the
net assets per year of the respective class. Because these fees are
paid out of the Fund's assets on an on-going basis, over time these
fees will increase the cost of your investment and may cost you more
than other types of sales charges.
The Distributor uses the service fees to compensate dealers for
providing personal services for accounts that hold Class B, Class C or
Class N shares. The Distributor normally pays the 0.25% service fees to
dealers in advance for the first year after the shares are sold by the
dealer. After the shares have been held for a year, the Distributor
pays the service fees to dealers periodically.
The Distributor currently pays a sales concession 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 therefore 4.00% of the purchase price. The
Distributor normally retains the Class B asset-based sales charge. See
the Statement of Additional Information for exceptions.
The Distributor currently pays a sales concession of 0.75% of the
purchase price of Class C shares to dealers from its own resources at
the time of sale. Including the advance of the service fee, the total
amount paid by the Distributor to the dealer at the time of sale of
Class C shares is therefore 1.0% of the purchase price. The Distributor
pays the asset-based sales charge as an ongoing concession to the
dealer on Class C shares that have been outstanding for a year or more.
The Distributor normally retains the asset-based sales charge on Class
C shares during the first year after the purchase of Class C shares.
See the Statement of Additional Information for exceptions.
The Distributor currently pays a sales concession of 0.75% of the
purchase price of Class N 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 N shares is therefore 1.0% of the purchase price. The Distributor
normally retains the asset-based sales charge on Class N shares. See
the Statement of Additional Information for exceptions.
For certain group retirement plans held in omnibus accounts, the
Distributor will pay the full Class C or Class N asset-based sales
charge and the service fee to the dealer beginning in the first year
after the purchase of such shares in lieu of paying the dealer the
sales concession and the advance of the first year's service fee at the
time of purchase. New group omnibus plans may not purchase Class B
shares.
For Class C shares purchased through the OppenheimerFunds Recordkeeper
Pro program, the Distributor will pay the Class C asset-based sales
charge to the dealer of record in the first year after the purchase of
such shares in lieu of paying the dealer a sales concession at the time
of purchase. The Distributor will use the service fee it receives from
the Fund on those shares to reimburse FASCorp for providing personal
services to the Class C accounts holding those shares.
OTHER PAYMENTS TO FINANCIAL INTERMEDIARIES AND SERVICE PROVIDERS. The Manager
and the Distributor, in their discretion, also may pay dealers or other
financial intermediaries and service providers for distribution and/or
shareholder servicing activities. These payments are made out of the
Manager's and/or the Distributor's own resources, including from the profits
derived from the advisory fees the Manager receives from the Fund. These cash
payments, which may be substantial, are paid to many firms having business
relationships with the Manager and Distributor. These payments are in
addition to any distribution fees, servicing fees, or transfer agency fees
paid directly or indirectly by the Fund to these financial intermediaries and
any commissions the Distributor pays to these firms out of the sales charges
paid by investors. These payments by the Manager or Distributor from their
own resources are not reflected in the tables in the section called "Fees and
Expenses of the Fund" in this prospectus because they are not paid by the
Fund.
"Financial intermediaries" are firms that offer and sell Fund shares to
their clients, or provide shareholder services to the Fund, or both, and
receive compensation for doing so. Your securities dealer or financial
adviser, for example, is a financial intermediary, and there are other types
of financial intermediaries that receive payments relating to the sale or
servicing of the Fund's shares. In addition to dealers, the financial
intermediaries that may receive payments include sponsors of fund
"supermarkets," sponsors of fee-based advisory or wrap fee programs, sponsors
of college and retirement savings programs, banks and trust companies
offering products that hold Fund shares, and insurance companies that offer
variable annuity or variable life insurance products.
In general, these payments to financial intermediaries can be
categorized as "distribution-related" or "servicing" payments. Payments for
distribution-related expenses, such as marketing or promotional expenses, are
often referred to as "revenue sharing." Revenue sharing payments may be made
on the basis of the sales of shares attributable to that dealer, the average
net assets of the Fund and other Oppenheimer funds attributable to the
accounts of that dealer and its clients, negotiated lump sum payments for
distribution services provided, or sales support fees. In some circumstances,
revenue sharing payments may create an incentive for a dealer or financial
intermediary or its representatives to recommend or offer shares of the Fund
or other Oppenheimer funds to its customers. These payments also may give an
intermediary an incentive to cooperate with the Distributor's marketing
efforts. A revenue sharing payment may, for example, qualify the Fund for
preferred status with the intermediary receiving the payment or provide
representatives of the Distributor with access to representatives of the
intermediary's sales force, in some cases on a preferential basis over funds
of competitors. Additionally, as firm support, the Manager or Distributor may
reimburse expenses related to educational seminars and "due diligence" or
training meetings (to the extent permitted by applicable laws or the rules of
the NASD) designed to increase sales representatives' awareness about
Oppenheimer funds, including travel and lodging expenditures. However, the
Manager does not consider a financial intermediary's sale of shares of the
Fund or other Oppenheimer funds when selecting brokers or dealers to effect
portfolio transactions for the funds.
Various factors are used to determine whether to make revenue sharing
payments. Possible considerations include, without limitation, the types of
services provided by the intermediary, sales of Fund shares, the redemption
rates on accounts of clients of the intermediary or overall asset levels of
Oppenheimer funds held for or by clients of the intermediary, the willingness
of the intermediary to allow the Distributor to provide educational and
training support for the intermediary's sales personnel relating to the
Oppenheimer funds, the availability of the Oppenheimer funds on the
intermediary's sales system, as well as the overall quality of the services
provided by the intermediary and the Manager or Distributor's relationship
with the intermediary. The Manager and Distributor have adopted guidelines
for assessing and implementing each prospective revenue sharing arrangement.
To the extent that financial intermediaries receiving distribution-related
payments from the Manager or Distributor sell more shares of the Oppenheimer
funds or retain more shares of the funds in their client accounts, the
Manager and Distributor benefit from the incremental management and other
fees they receive with respect to those assets.
Payments may also be made by the Manager, the Distributor or the
Transfer Agent to financial intermediaries to compensate or reimburse them
for administrative or other client services provided such as sub-transfer
agency services for shareholders or retirement plan participants, omnibus
accounting or sub-accounting, participation in networking arrangements,
account set-up, recordkeeping and other shareholder services. Payments may
also be made for administrative services related to the distribution of Fund
shares through the intermediary. Firms that may receive servicing fees
include retirement plan administrators, qualified tuition program sponsors,
banks and trust companies, and others. These fees may be used by the service
provider to offset or reduce fees that would otherwise be paid directly to
them by certain account holders, such as retirement plans.
The Statement of Additional Information contains more information about
revenue sharing and service payments made by the Manager or the Distributor.
Your dealer may charge you fees or commissions in addition to those disclosed
in this prospectus. You should ask your dealer or financial intermediary for
details about any such payments it receives from the Manager or the
Distributor and their affiliates, or any other fees or expenses it charges.
Special Investor Services
ACCOUNTLINK. You can use our AccountLink feature to link your Fund account
with an account at a U.S. bank or other financial institution. It must be an
Automated Clearing House (ACH) member. AccountLink lets you:
o transmit funds electronically to purchase shares by telephone (through
a service representative or by PhoneLink) or automatically under Asset
Builder Plans, or
o have the Transfer Agent send redemption proceeds or transmit dividends
and distributions directly to your bank account. Please call the
Transfer Agent for more information.
You may purchase shares by telephone only after your account has been
established. To purchase shares in amounts up to $250,000 through a telephone
representative, call the Distributor at 1.800.225.5677. The purchase payment
will be debited from your bank account.
AccountLink privileges should be requested on your Application or your
dealer's settlement instructions if you buy your shares through a dealer.
After your account is established, you can request AccountLink privileges by
sending signature-guaranteed instructions and proper documentation 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 you make to the bank account information must be
made by signature-guaranteed instructions to the Transfer Agent signed by all
shareholders who own the account.
PHONELINK. PhoneLink is the OppenheimerFunds automated telephone system that
enables shareholders to perform a number of account transactions
automatically using a touch-tone phone. PhoneLink may be used on
already-established Fund accounts after you obtain a Personal Identification
Number (PIN), by calling the PhoneLink number, 1.800.225.5677.
Purchasing Shares. You may purchase shares in amounts up to $100,000 by
phone, by calling 1.800.225.5677. You must have established AccountLink
privileges to link your bank account with the Fund to pay for these
purchases.
Exchanging Shares. With the OppenheimerFunds Exchange Privilege, described
below, you can exchange shares automatically by phone from your Fund
account to another OppenheimerFunds account you have already
established by calling the special PhoneLink number.
Selling Shares. You can redeem shares by telephone automatically by calling
the PhoneLink number and the Fund will send the proceeds directly to
your AccountLink bank account. Please refer to "How to Sell Shares,"
below for details.
CAN YOU SUBMIT TRANSACTION REQUESTS BY FAX? You may send requests for certain
types of account transactions to the Transfer Agent by fax (telecopier).
Please call 1.800.225.5677 for information about which transactions may be
handled this way. Transaction requests submitted by fax are subject to the
same rules and restrictions as written and telephone requests described in
this Prospectus.
OPPENHEIMERFUNDS INTERNET WEBSITE. You can obtain information about the Fund,
as well as your account balance, on the OppenheimerFunds Internet website, at
www.oppenheimerfunds.com. Additionally, shareholders listed in the account
registration (and the dealer of record) may request certain account
transactions through a special section of that website. To perform account
transactions or obtain account information online, you must first obtain a
user I.D. and password on that website. If you do not want to have Internet
account transaction capability for your account, please call the Transfer
Agent at 1.800.225.5677. At times, the website may be inaccessible or its
transaction features may be unavailable.
AUTOMATIC WITHDRAWAL AND EXCHANGE PLANS. The Fund has several plans that
enable you to sell shares automatically or exchange them to another
OppenheimerFunds account on a regular basis. Please call the Transfer Agent
or consult the Statement of Additional Information for details.
RETIREMENT PLANS. You may buy shares of the Fund for your retirement plan
account. If you participate in a plan sponsored by your employer, the plan
trustee or administrator must buy the shares for your plan account. The
Distributor also offers a number of different retirement plans that
individuals and employers can use:
Individual Retirement Accounts (IRAs). These include regular IRAs, Roth IRAs,
SIMPLE IRAs and rollover IRAs.
SEP-IRAs. These are Simplified Employee Pension Plan IRAs for small business
owners or self-employed individuals.
403(b)(7) Custodial Plans. These are tax-deferred plans for employees of
eligible tax-exempt organizations, such as schools, hospitals and
charitable organizations.
401(k) Plans. These are special retirement plans for businesses.
Pension and Profit-Sharing Plans. These plans are designed for businesses and
self-employed individuals.
Please call the Distributor for OppenheimerFunds retirement plan
documents, which include applications and important plan information.
How to Sell Shares
You can sell (redeem) some or all of your shares on any regular business day.
Your shares will be sold at the next net asset value calculated after your
order is received in proper form (which means that it must comply with the
procedures described below) and is accepted by the Transfer Agent. The Fund
lets you sell your shares by writing a letter, by wire, or by telephone. You
can also set up Automatic Withdrawal Plans to redeem shares on a regular
basis. If you have questions about any of these procedures, and especially if
you are redeeming shares in a special situation, such as due to the death of
the owner or from a retirement plan account, please call the Transfer Agent
first, at 1.800.225.5677, for assistance.
Certain Requests Require a Signature Guarantee. To protect you and the Fund
from fraud, the following redemption requests must be in writing and
must include a signature guarantee (although there may be other
situations that also require a signature guarantee):
o You wish to redeem more than $100,000 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 being redeemed by someone (such as an Executor) other than
the owners.
Where Can You Have Your Signature Guaranteed? The Transfer Agent will accept
a guarantee of your signature by a number of financial institutions,
including:
o a U.S. bank, trust company, credit union or savings association,
o a foreign bank that has a U.S. correspondent bank,
o a U.S. registered dealer or broker in securities, municipal securities
or government securities, or
o 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.
Retirement Plan Accounts. There are special procedures to sell shares in an
OppenheimerFunds retirement plan account. Call the Transfer Agent for a
distribution request form. Special income tax withholding requirements
apply to distributions from retirement plans. You must submit a
withholding form with your redemption request to avoid delay in getting
your money and if you do not want tax withheld. If your employer holds
your retirement plan account for you in the name of the plan, you must
ask the plan trustee or administrator to request the sale of the Fund
shares in your plan account.
Receiving Redemption Proceeds by Wire. While the Fund normally sends your
money by check, you can arrange to have the proceeds of shares you sell
sent by Federal Funds wire to a bank account you designate. It must be
a commercial bank that is a member of the Federal Reserve wire system.
The minimum redemption you can have sent by wire is $2,500. There is a
$10 fee for each request. To find out how to set up this feature on
your account or to arrange a wire, call the Transfer Agent at
1.800.225.5677.
HOW DO YOU SELL SHARES BY MAIL? Write a letter of instruction 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 documents requested by the Transfer Agent to assure proper
authorization of the person asking to sell the shares.
Use the following address for Send courier or express mail
requests by mail: requests to:
OppenheimerFunds Services OppenheimerFunds Services
P.O. Box 5270 10200 E. Girard Avenue, Building D
Denver, Colorado 80217 Denver, Colorado 80231
HOW DO YOU SELL SHARES BY TELEPHONE? You and your dealer representative of
record may also sell your shares by telephone. To receive the redemption
price calculated on a particular regular business day, your call must be
received by the Transfer Agent by the close of the NYSE 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-sponsored qualified retirement plan
account or under a share certificate by telephone.
o To redeem shares through a service representative or automatically on
PhoneLink, call 1.800.225.5677.
Whichever method you use, you may have a check sent to the address on
the account statement, or, if you have linked your Fund account to your bank
account on AccountLink, you may have the proceeds sent to that bank account.
Are There Limits on Amounts Redeemed by Telephone?
Telephone Redemptions Paid by Check. Up to $100,000 may be redeemed by
telephone in any seven-day period. The check must be payable to all
owners of record of the shares and must be sent to the address on the
account statement. This service is not available within 30 days of
changing the address on an account.
Telephone Redemptions Through AccountLink or by Wire. There are no dollar
limits on telephone redemption proceeds sent to a bank account
designated when you establish AccountLink. Normally the ACH transfer to
your bank is initiated on the business day after the redemption. You do
not receive dividends on the proceeds of the shares you redeemed while
they are waiting to be transferred.
If you have requested Federal Funds wire privileges for your account,
the wire of the redemption proceeds 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.
CAN YOU SELL 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. If your
shares are held in the name of your dealer, you must redeem them through your
dealer.
HOW CONTINGENT DEFERRED SALES CHARGES AFFECT REDEMPTIONS. If you purchase
shares subject to a Class A, Class B, Class C or Class N contingent deferred
sales charge and redeem any of those shares during the applicable holding
period for the class of shares, the contingent deferred sales charge will be
deducted from the redemption proceeds (unless you are eligible for a waiver
of that sales charge based on the categories listed in Appendix C to the
Statement of Additional Information and you advise the Transfer Agent of your
eligibility for the waiver when you place your redemption request.)
A contingent deferred sales charge will be based on the lesser of the
net asset value of the redeemed shares at the time of redemption or the
original net asset value. A contingent deferred sales charge is not imposed
on:
o the amount of your account value represented by an increase in net
asset value over the initial purchase price,
o shares purchased by the reinvestment of dividends or capital gains
distributions, or
o shares redeemed in the special circumstances described in Appendix C to
the Statement of Additional Information.
To determine whether a 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 the holding period that applies to the class, and
3. shares held the longest during the holding period.
Contingent deferred sales charges are not charged when you exchange
shares of the Fund for shares of other Oppenheimer funds. However, if you
exchange them within the applicable contingent deferred sales charge holding
period, the holding period will carry over to the fund whose shares you
acquire. Similarly, if you acquire shares of this Fund by exchanging shares
of another Oppenheimer fund that are still subject to a contingent deferred
sales charge holding period, that holding period will carry over to this Fund.
How to Exchange Shares
If you want to change all or part of your investment from one Oppenheimer
fund to another, you can exchange your shares for shares of the same class of
another Oppenheimer fund that offers the exchange privilege. For example, you
can exchange Class A shares of the Fund only for Class A shares of another
fund. 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 prospectus of the selected fund must offer the exchange privilege.
o When you establish an account, you must hold the shares you buy for at
least seven days before you can exchange them. After your account is
open for seven days, you can exchange shares on any regular business
day, subject to the limitations described below.
o You must meet the minimum purchase requirements for the selected fund.
o Generally, exchanges may be made only between identically registered
accounts, unless all account owners send written exchange instructions
with a signature guarantee.
o Before exchanging into a fund, you must obtain its prospectus and
should read it carefully.
For tax purposes, an exchange of shares of the Fund is considered a
sale of those shares and a purchase of the shares of the fund into which you
are exchanging. An exchange may result in a capital gain or loss.
You can find a list of the Oppenheimer funds that are currently
available for exchanges in the Statement of Additional Information or you can
obtain a list by calling a service representative at 1.800.225.5677. The
funds available for exchange can change from time to time.
A contingent deferred sales charge (CDSC) is not charged when you
exchange shares of the Fund for shares of another Oppenheimer fund. However,
if you exchange your shares during the applicable CDSC holding period, the
holding period will carry over to the fund shares that you acquire.
Similarly, if you acquire shares of the Fund in exchange for shares of
another Oppenheimer fund that are subject to a CDSC holding period, that
holding period will carry over to the acquired shares of the Fund. In either
of these situations, a CDSC may be imposed if the acquired shares are
redeemed before the end of the CDSC holding period that applied to the
exchanged shares.
There are a number of other special conditions and limitations that
apply to certain types of exchanges. These conditions and circumstances are
described in detail in the "How to Exchange Shares" section in the Statement
of Additional Information.
HOW DO YOU SUBMIT EXCHANGE REQUESTS? Exchanges may be requested in writing,
by telephone or internet, or by establishing an Automatic Exchange Plan.
Written Exchange Requests. Send a request letter, signed by all owners of the
account, to the Transfer Agent at the address on the back cover.
Exchanges of shares for which share certificates have been issued
cannot be processed unless the Transfer Agent receives the certificates
with the request letter.
Telephone and Internet Exchange Requests. Telephone exchange requests may be
made either by calling a service representative or by using PhoneLink
by calling 1.800.225.5677. You may submit internet exchange requests on
the OppenheimerFunds internet website, at www.oppenheimerfunds.com. You
must have obtained a user I.D. and password to make transactions on
that website. Telephone and/or internet exchanges may be made only
between accounts that are registered with the same name(s) and address.
Shares for which share certificates have been issued may not be
exchanged by telephone or the internet.
Automatic Exchange Plan. Shareholders can authorize the Transfer Agent to
exchange a pre-determined amount of shares automatically on a monthly,
quarterly, semi-annual or annual basis.
Please refer to "How to Exchange Shares" in the Statement of Additional
Information for more details.
ARE THERE LIMITATIONS ON FREQUENT PURCHASES, REDEMPTIONS AND EXCHANGES?
Risks from Excessive Purchase, Redemption and Short-Term Exchange Activity.
The OppenheimerFunds exchange privilege affords investors the ability to
switch their investments among Oppenheimer funds if their investment needs
change. However, there are limits on that privilege. Frequent purchases,
redemptions and exchanges of fund shares may interfere with the Manager's
ability to manage the fund's investments efficiently, increase the fund's
transaction and administrative costs and/or affect the fund's performance,
depending on various factors, such as the size of the fund, the nature of its
investments, the amount of fund assets the portfolio manager maintains in
cash or cash equivalents, the aggregate dollar amount and the number and
frequency of trades. If large dollar amounts are involved in exchange and/or
redemption transactions, the Fund might be required to sell portfolio
securities at unfavorable times to meet redemption or exchange requests, and
the Fund's brokerage or administrative expenses might be increased.
Therefore, the Manager and the Fund's Board of Trustees have adopted the
following policies and procedures to detect and prevent frequent and/or
excessive exchanges, and/or purchase and redemption activity, while balancing
the needs of investors who seek liquidity from their investment and the
ability to exchange shares as investment needs change. There is no guarantee
that the policies and procedures described below will be sufficient to
identify and deter excessive short-term trading.
o Timing of Exchanges. Exchanged shares are normally redeemed from one
fund and the proceeds are reinvested in the fund selected for exchange
on the same regular business day on which the Transfer Agent or its
agent (such as a financial intermediary holding the investor's shares
in an "omnibus" or "street name" account) receives an exchange request
that conforms to these policies. The request must be received by the
close of the NYSE that day, which is normally 4:00 p.m. Eastern time,
but may be earlier on some days, in order to receive that day's net
asset value on the exchanged shares. Exchange requests received after
the close of the NYSE will receive the next net asset value calculated
after the request is received. However, the Transfer Agent may delay
transmitting the proceeds from an exchange for up to five business days
if it determines, in its discretion, that an earlier transmittal of the
redemption proceeds to the receiving fund would be detrimental to
either the fund from which the exchange is being made or the fund into
which the exchange is being made. The proceeds will be invested in the
fund into which the exchange is being made at the next net asset value
calculated after the proceeds are received. In the event that such a
delay in the reinvestment of proceeds occurs, the Transfer Agent will
notify you or your financial representative.
o Limits on Disruptive Activity. The Transfer Agent may, in its
discretion, limit or terminate trading activity by any person, group or
account that it believes would be disruptive, even if the activity has
not exceeded the policy outlined in this Prospectus. The Transfer Agent
may review and consider the history of frequent trading activity in all
accounts in the Oppenheimer funds known to be under common ownership or
control as part of the Transfer Agent's procedures to detect and deter
excessive trading activity.
o Exchanges of Client Accounts by Financial Advisers. The Fund and the
Transfer Agent permit dealers and financial intermediaries to submit
exchange requests on behalf of their customers (unless the customer has
revoked that authority). The Distributor and/or the Transfer Agent have
agreements with a number of financial intermediaries that permit them
to submit exchange orders in bulk on behalf of their clients. Those
intermediaries are required to follow the exchange policies stated in
this Prospectus and to comply with additional, more stringent
restrictions. Those additional restrictions include limitations on the
funds available for exchanges, the requirement to give advance notice
of exchanges to the Transfer Agent, and limits on the amount of client
assets that may be invested in a particular fund. A fund or the
Transfer Agent may limit or refuse bulk exchange requests submitted by
such financial intermediaries if, in the Transfer Agent's judgment,
exercised in its discretion, the exchanges would be disruptive to any
of the funds involved in the transaction.
o Redemptions of Shares. These exchange policy limits do not apply to
redemptions of shares. Shareholders are permitted to redeem their
shares on any regular business day, subject to the terms of this
Prospectus. Further details are provided under "How to Sell Shares."
o Right to Refuse Exchange and Purchase Orders. The Distributor and/or
the Transfer Agent may refuse any purchase or exchange order in their
discretion and are not obligated to provide notice before rejecting an
order. The Fund may amend, suspend or terminate the exchange privilege
at any time. You will receive 60 days' notice of any material change in
the exchange privilege unless applicable law allows otherwise.
o Right to Terminate or Suspend Account Privileges. The Transfer Agent
may send a written warning to direct shareholders that the Transfer
Agent believes may be engaging in excessive purchases, redemptions
and/or exchange activity and reserves the right to suspend or terminate
the ability to purchase shares and/or exchange privileges for any
account that the Transfer Agent determines, in carrying out these
policies and in the exercise of its discretion, has engaged in
disruptive or excessive trading activity, with or without such warning.
o Omnibus Accounts. If you hold your shares of the Fund through a
financial intermediary such as a broker-dealer, a bank, an insurance
company separate account, an investment adviser, an administrator or
trustee of a retirement plan or 529 plan, that holds your shares in an
account under its name (these are sometimes referred to as "omnibus" or
"street name" accounts), that financial intermediary may impose its own
restrictions or limitations to discourage short-term or excessive
trading. You should consult your financial intermediary to find out
what trading restrictions, including limitations on exchanges, they may
apply.
While the Fund, the Distributor, the Manager and the Transfer Agent encourage
financial intermediaries to apply the Fund's policies to their customers who
invest indirectly in the Fund, the Transfer Agent may not be able to detect
excessive short term trading activity facilitated by, or in accounts
maintained in, the "omnibus" or "street name" accounts of a financial
intermediary. Therefore the Transfer Agent might not be able to apply this
policy to accounts such as (a) accounts held in omnibus form in the name of a
broker-dealer or other financial institution, or (b) omnibus accounts held in
the name of a retirement plan or 529 plan trustee or administrator, or (c)
accounts held in the name of an insurance company for its separate
account(s), or (d) other accounts having multiple underlying owners but
registered in a manner such that the underlying beneficial owners are not
identified to the Transfer Agent.
However, the Transfer Agent will attempt to monitor overall purchase and
redemption activity in those accounts to seek to identify patterns that may
suggest excessive trading by the underlying owners. If evidence of possible
excessive trading activity is observed by the Transfer Agent, the financial
intermediary that is the registered owner will be asked to review account
activity, and to confirm to the Transfer Agent and the Fund that appropriate
action has been taken to curtail any excessive trading activity. However, the
Transfer Agent's ability to monitor and deter excessive short-term trading in
omnibus or street name accounts ultimately depends on the capability and
cooperation of the financial intermediaries controlling those accounts.
Additional Policies and Procedures. The Fund's Board has adopted the
following additional policies and procedures to detect and prevent frequent
and/or excessive exchanges and purchase and redemption activity:
o 30-Day Limit. A direct shareholder may exchange some or all of the
shares of the Fund held in his or her account to another eligible
Oppenheimer fund once in a 30 calendar-day period. When shares are
exchanged into a fund account, that account will be "blocked" from
further exchanges into another fund for a period of 30 calendar days
from the date of the exchange. The block will apply to the full
account balance and not just to the amount exchanged into the
account. For example, if a shareholder exchanged $1,000 from one
fund into another fund in which the shareholder already owned shares
worth $10,000, then, following the exchange, the full account
balance ($11,000 in this example) would be blocked from further
exchanges into another fund for a period of 30 calendar days. A
"direct shareholder" is one whose account is registered on the
Fund's books showing the name, address and tax ID number of the
beneficial owner.
o Exchanges Into Money Market Funds. A direct shareholder will be
permitted to exchange shares of a stock or bond fund for shares of a
money market fund at any time, even if the shareholder has exchanged
shares into the stock or bond fund during the prior 30 days.
However, all of the shares held in that money market fund would then
be blocked from further exchanges into another fund for 30 calendar
days.
o Dividend Reinvestments/B Share Conversions. Reinvestment of dividends
or distributions from one fund to purchase shares of another fund
and the conversion of Class B shares into Class A shares will not be
considered exchanges for purposes of imposing the 30-day limit.
o Asset Allocation. Third-party asset allocation and rebalancing
programs will be subject to the 30-day limit described above. Asset
allocation firms that want to exchange shares held in accounts on
behalf of their customers must identify themselves to the Transfer
Agent and execute an acknowledgement and agreement to abide by these
policies with respect to their customers' accounts. "On-demand"
exchanges outside the parameters of portfolio rebalancing programs
will be subject to the 30-day limit. However, investment programs by
other Oppenheimer "funds-of-funds" that entail rebalancing of
investments in underlying Oppenheimer funds will not be subject to
these limits.
o Automatic Exchange Plans. Accounts that receive exchange proceeds
through automatic or systematic exchange plans that are established
through the Transfer Agent will not be subject to the 30-day block
as a result of those automatic or systematic exchanges (but may be
blocked from exchanges, under the 30-day limit, if they receive
proceeds from other exchanges).
Shareholder Account Rules and Policies
More information about the Fund's policies and procedures for buying, selling
and exchanging shares is contained in the Statement of Additional Information.
A $12 annual "Minimum Balance Fee" is assessed on each Fund account with a
value of less than $500. The fee is automatically deducted from each
applicable Fund account annually in September. See the Statement of
Additional Information to learn how you can avoid this fee and for
circumstances under which this fee will not be assessed.
The offering of shares may be suspended during any period in which the
determination of net asset value is suspended, and the offering may be
suspended by the Board of Trustees at any time the Board believes it is
in the Fund's best interest to do so.
Telephone transaction privileges for purchases, redemptions or exchanges may
be modified, suspended or terminated by the Fund at any time. The Fund
will provide you notice whenever it is required to do so by applicable
law. If an account has more than one owner, the Fund and the Transfer
Agent may rely on the instructions of any one owner. Telephone
privileges apply to each owner of the account and the dealer
representative of record for the account unless the Transfer Agent
receives cancellation instructions from an owner of the account.
The Transfer Agent will record any telephone calls to verify data concerning
transactions and has adopted other procedures to confirm that telephone
instructions are genuine, by requiring callers to provide tax
identification numbers and other account data or by using PINs, and by
confirming such transactions in writing. The Transfer Agent and the
Fund will not be liable for losses or expenses arising out of telephone
instructions reasonably believed to be genuine.
Redemption or transfer requests will not be honored until the Transfer Agent
receives all required documents in proper form. From time to time, the
Transfer Agent in its discretion may waive certain of the requirements
for redemptions stated in this Prospectus.
Dealers that perform account transactions for their clients by participating
in NETWORKING through the National Securities Clearing Corporation are
responsible for obtaining their clients' permission to perform those
transactions, and are responsible to their clients who are shareholders
of the Fund if the dealer performs any transaction erroneously or
improperly.
The redemption price for shares will vary from day to day because the value
of the securities in the Fund's portfolio fluctuates. The redemption
price, which is the net asset value per share, will normally differ for
each class of shares. The redemption value of your shares may be more
or less than their original cost.
Payment for redeemed shares ordinarily is made in cash. It is forwarded by
check, or through AccountLink or by Federal Funds wire (as elected by
the shareholder) within seven days after the Transfer Agent receives
redemption instructions in proper form. However, under unusual
circumstances determined by the Securities and Exchange Commission,
payment may be delayed or suspended. For accounts registered in the
name of a broker-dealer, payment will normally be forwarded within
three business days after redemption.
The Transfer Agent may delay processing any type of redemption payment as
described under "How to Sell Shares" for recently purchased shares, but
only until the purchase payment has cleared. That delay may be as much
as 10 days from the date the shares were purchased. That delay may be
avoided if you purchase shares by Federal Funds wire or certified
check, or arrange with your bank to provide telephone or written
assurance to the Transfer Agent that your purchase payment has cleared.
Involuntary redemptions of small accounts may be made by the Fund if the
account value has fallen below $500 for reasons other than the fact
that the market value of shares has dropped. In some cases, involuntary
redemptions may be made to repay the Distributor for losses from the
cancellation of share purchase orders.
Shares may be "redeemed in kind" under unusual circumstances (such as a lack
of liquidity in the Fund's portfolio to meet redemptions). This means
that the redemption proceeds will be paid with liquid securities from
the Fund's portfolio. If the Fund redeems your shares in kind, you may
bear transaction costs and will bear market risks until such time as
such securities are converted into cash.
Federal regulations may require the Fund to obtain your name, your date of
birth (for a natural person), your residential street address or
principal place of business and your Social Security Number, Employer
Identification Number or other government issued identification when
you open an account. Additional information may be required in certain
circumstances or to open corporate accounts. The Fund or the Transfer
Agent may use this information to attempt to verify your identity. The
Fund may not be able to establish an account if the necessary
information is not received. The Fund may also place limits on account
transactions while it is in the process of attempting to verify your
identity. Additionally, if the Fund is unable to verify your identity
after your account is established, the Fund may be required to redeem
your shares and close your account.
"Backup withholding" of federal income tax may be applied against taxable
dividends, distributions and redemption proceeds (including exchanges)
if you fail to furnish the Fund your correct, certified Social Security
or Employer Identification Number when you sign your application, or if
you under-report your income to the Internal Revenue Service.
To avoid sending duplicate copies of materials to households, the Fund will
mail only one copy of each prospectus, annual and semi-annual report
and annual notice of the Fund's privacy policy to shareholders having
the same last name and address on the Fund's records. The consolidation
of these mailings, called householding, benefits the Fund through
reduced mailing expense.
If you want to receive multiple copies of these materials, you may call
the Transfer Agent at 1.800.225.5677. You may also notify the Transfer
Agent in writing. Individual copies of prospectuses, reports and
privacy notices will be sent to you commencing within 30 days after the
Transfer Agent receives your request to stop householding.
Dividends, Capital Gains and Taxes
DIVIDENDS. The Fund intends to declare dividends separately for each class of
shares from net investment income on a quarterly basis and pay them
quarterly. Dividends and distributions paid to Class A shares will generally
be higher than dividends for Class B, Class C and Class N shares, which
normally have higher expenses than Class A shares. The Fund has no fixed
dividend rate and cannot guarantee that it will pay any dividends or
distributions.
CAPITAL GAINS. The Fund may realize capital gains on the sale of portfolio
securities. If it does, it may make distributions out of any net short-term
or long-term capital gains annually. The Fund may make supplemental
distributions of dividends and capital gains following the end of its fiscal
year. There can be no assurance that the Fund will pay any capital gains
distributions in a particular year.
WHAT CHOICES DO YOU HAVE FOR RECEIVING DISTRIBUTIONS? When you open your
account, specify on your application how you want to receive your dividends
and distributions. You have four options:
Reinvest All Distributions in the Fund. You can elect to reinvest all
dividends and capital gains distributions in additional shares of the
Fund.
Reinvest Dividends or Capital Gains. You can elect to reinvest some
distributions (dividends, short-term capital gains or long-term capital
gains distributions) in the Fund while receiving the other types of
distributions by check or having them sent to your bank account through
AccountLink.
Receive All Distributions in Cash. You can elect to receive a check for all
dividends and capital gains distributions or have them sent to your
bank through AccountLink.
Reinvest Your Distributions in Another OppenheimerFunds Account. You can
reinvest all distributions in the same class of shares of another
OppenheimerFunds account you have established.
TAXES. If your shares are not held in a tax-deferred retirement account, you
should be aware of the following tax implications of investing in the Fund.
Distributions are subject to federal income tax and may be subject to state
or local taxes. Dividends paid from short-term capital gains and net
investment income are taxable as ordinary income. Long-term capital gains are
taxable as long-term capital gains when distributed to shareholders. It does
not matter how long you have held your shares. Whether you reinvest your
distributions in additional shares or take them in cash, the tax treatment is
the same.
Every year the Fund will send you and the IRS a statement showing the
amount of any taxable distribution you received in the previous year. Any
long-term capital gains will be separately identified in the tax information
the Fund sends you after the end of the calendar year.
The Fund intends to qualify each year as a "regulated investment
company" under the Internal Revenue Code, but reserves the right not to
qualify. It qualified during its last fiscal year. The Fund, as a regulated
investment company, will not be subject to federal income taxes on any of its
income, provided that it satisfies certain income, diversification and
distribution requirements.
Avoid "Buying a 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.
Remember, There May be Taxes on Transactions. Because the Fund's share prices
fluctuate, you may have a capital gain or loss when you sell or
exchange your shares. A capital gain or loss is the difference between
the price you paid for the shares and the price you received when you
sold them. Any capital gain is subject to capital gains tax.
Returns of Capital Can Occur. In certain cases, distributions made by the
Fund may be considered a non-taxable return of capital to shareholders.
If that occurs, it will be identified in notices to shareholders.
This information is only a summary of certain federal income tax
information about your investment. You should consult with your tax advisor
about the effect of an investment in the Fund on your particular tax
situation.
Financial Highlights
The Financial Highlights Table is presented to help you understand the Fund's
financial performance for the past five fiscal years. Certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have earned (or lost) on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by KPMG LLP the Fund's
independent registered public accounting firm, whose report, along with the
Fund's financial statements, is included in the Statement of Additional
Information, which is available upon request.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
CLASS A YEAR ENDED SEPTEMBER 30, 2005 2004 2003 2002 2001
- -------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 13.75 $ 12.55 $ 10.51 $ 12.14 $ 14.23
----------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .24 1 .14 .21 .35 .43
Net realized and unrealized gain (loss) 1.38 1.16 2.08 (1.29) (1.40)
----------------------------------------------------------------------
Total from investment operations 1.62 1.30 2.29 (.94) (.97)
- -------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.16) (.10) (.22) (.31) (.38)
Tax return of capital distribution -- -- (.03) -- --
Distributions from net realized gain (.70) -- -- (.38) (.74)
----------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.86) (.10) (.25) (.69) (1.12)
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 14.51 $ 13.75 $ 12.55 $ 10.51 $ 12.14
======================================================================
- -------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 12.13% 10.37% 21.98% (8.58)% (7.27)%
- -------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $725,836 $651,754 $575,799 $483,311 $562,281
- -------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $694,147 $631,041 $523,477 $570,796 $626,251
- -------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income 1.69% 1.05% 1.78% 2.84% 3.16%
Total expenses 1.05% 1.07% 1.11% 1.15% 1.01%
Expenses after payments and waivers and
reduction to custodian expenses 1.05% 1.06% 1.11% 1.15% 1.01%
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 73% 4 61% 4 205% 31% 40%
1. Per share amounts calculated based on the average shares outstanding during
the period.
2. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in the
total returns. Total returns are not annualized for periods of less than one
full year. Returns do not reflect the deduction of taxes that a shareholder
would pay on Fund distributions or the redemption of Fund shares.
3. Annualized for periods of less than one full year.
4. The portfolio turnover rate excludes purchase and sales of To Be Announced
(TBA) mortgage-related securities as follows:
PURCHASE TRANSACTIONS SALE TRANSACTIONS
- --------------------------------------------------------------------------------
Year Ended September 30, 2005 $2,097,453,846 $2,135,377,175
Year Ended September 30, 2004 $1,069,526,653 $1,026,457,980
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
40 | OPPENHEIMER BALANCED FUND
CLASS B YEAR ENDED SEPTEMBER 30, 2005 2004 2003 2002 2001
- --------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 13.53 $ 12.40 $ 10.38 $ 12.01 $ 14.08
- --------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .11 1 .02 .09 .25 .31
Net realized and unrealized gain (loss) 1.36 1.13 2.07 (1.29) (1.36)
-----------------------------------------------------------------------
Total from investment operations 1.47 1.15 2.16 (1.04) (1.05)
- --------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.07) (.02) (.11) (.21) (.28)
Tax return of capital distribution -- -- (.03) -- --
Distributions from net realized gain (.70) -- -- (.38) (.74)
- --------------------------------------------------------------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.77) (.02) (.14) (.59) (1.02)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 14.23 $ 13.53 $ 12.40 $ 10.38 $ 12.01
=======================================================================
- --------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 11.17% 9.26% 20.91% (9.38)% (7.96)%
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $98,271 $84,924 $64,944 $54,757 $63,487
- --------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $92,677 $77,082 $57,836 $64,702 $67,959
- --------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income 0.76% 0.11% 0.81% 2.02% 2.37%
Total expenses 1.98% 4 2.02% 4,5 2.08% 4 1.97% 4 1.81% 4
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 73% 6 61% 6 205% 31% 40%
1. Per share amounts calculated based on the average shares outstanding during
the period.
2. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in the
total returns. Total returns are not annualized for periods of less than one
full year. Returns do not reflect the deduction of taxes that a shareholder
would pay on Fund distributions or the redemption of Fund shares.
3. Annualized for periods of less than one full year.
4. Reduction to custodian expenses less than 0.01%.
5. Voluntary waiver of transfer agent fees less than 0.01%.
6. The portfolio turnover rate excludes purchase and sales of To Be Announced
(TBA) mortgage-related securities as follows:
PURCHASE TRANSACTIONS SALE TRANSACTIONS
- --------------------------------------------------------------------------------
Year Ended September 30, 2005 $2,097,453,846 $2,135,377,175
Year Ended September 30, 2004 $1,069,526,653 $1,026,457,980
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
41 | OPPENHEIMER BALANCED FUND
FINANCIAL HIGHLIGHTS Continued
- --------------------------------------------------------------------------------
CLASS C YEAR ENDED SEPTEMBER 30, 2005 2004 2003 2002 2001
- --------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 13.59 $ 12.44 $ 10.42 $ 12.06 $ 14.13
- --------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .11 1 .04 .11 .24 .31
Net realized and unrealized gain (loss) 1.37 1.13 2.06 (1.29) (1.37)
-----------------------------------------------------------------------
Total from investment operations 1.48 1.17 2.17 (1.05) (1.06)
- --------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.08) (.02) (.12) (.21) (.27)
Tax return of capital distribution -- -- (.03) -- --
Distributions from net realized gain (.70) -- -- (.38) (.74)
-----------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.78) (.02) (.15) (.59) (1.01)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 14.29 $ 13.59 $ 12.44 $ 10.42 $ 12.06
=======================================================================
- --------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 11.18% 9.45% 20.98% (9.41)% (8.00)%
- --------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $87,820 $68,018 $47,212 $33,300 $36,171
- --------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $78,091 $60,095 $38,407 $37,412 $39,030
- --------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income 0.83% 0.19% 0.90% 2.03% 2.37%
Total expenses 1.91% 4 1.93% 4,5 1.98% 4 1.96% 4 1.81% 4
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 73% 6 61% 6 205% 31% 40%
1. Per share amounts calculated based on the average shares outstanding during
the period.
2. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in the
total returns. Total returns are not annualized for periods of less than one
full year. Returns do not reflect the deduction of taxes that a shareholder
would pay on Fund distributions or the redemption of Fund shares.
3. Annualized for periods of less than one full year.
4. Reduction to custodian expenses less than 0.01%.
5. Voluntary waiver of transfer agent fees less than 0.01%.
6. The portfolio turnover rate excludes purchase and sales of To Be Announced
(TBA) mortgage-related securities as follows:
PURCHASE TRANSACTIONS SALE TRANSACTIONS
- --------------------------------------------------------------------------------
Year Ended September 30, 2005 $2,097,453,846 $2,135,377,175
Year Ended September 30, 2004 $1,069,526,653 $1,026,457,980
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
42 | OPPENHEIMER BALANCED FUND
FINANCIAL HIGHLIGHTS Continued
CLASS N YEAR ENDED SEPTEMBER 30, 2005 2004 2003 2002 2001 1
- ------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- ------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 13.65 $ 12.49 $ 10.48 $ 12.13 $ 13.67
- ------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .17 2 .10 .20 .39 .24
Net realized and unrealized gain (loss) 1.38 1.12 2.01 (1.38) (1.48)
---------------------------------------------------------------
Total from investment operations 1.55 1.22 2.21 (.99) (1.24)
- ------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.12) (.06) (.17) (.28) (.30)
Tax return of capital distribution -- -- (.03) -- --
Distributions from net realized gain (.70) -- -- (.38) --
---------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.82) (.06) (.20) (.66) (.30)
- ------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 14.38 $ 13.65 $ 12.49 $ 10.48 $ 12.13
===============================================================
- ------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 3 11.66% 9.77% 21.27% (8.94)% (9.30)%
- ------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $11,803 $ 8,772 $ 3,349 $ 798 $ 95
- ------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $10,278 $ 5,701 $ 1,604 $ 454 $ 12
- ------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income 1.24% 0.55% 1.24% 2.49% 5.81%
Total expenses 1.50% 1.58% 1.76% 1.48% 1.32%
Expenses after payments and waivers and
reduction to custodian expenses 1.50% 1.57% 1.62% 1.48% 1.32%
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 73% 5 61% 5 205% 31% 40%
1. For the period from March 1, 2001 (inception of offering) to September 30,
2001.
2. Per share amounts calculated based on the average shares outstanding during
the period.
3. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in the
total returns. Total returns are not annualized for periods of less than one
full year. Returns do not reflect the deduction of taxes that a shareholder
would pay on Fund distributions or the redemption of Fund shares.
4. Annualized for periods of less than one full year.
5. The portfolio turnover rate excludes purchase and sales of To Be Announced
(TBA) mortgage-related securities as follows:
PURCHASE TRANSACTIONS SALE TRANSACTIONS
- --------------------------------------------------------------------------------
Year Ended September 30, 2005 $2,097,453,846 $2,135,377,175
Year Ended September 30, 2004 $1,069,526,653 $1,026,457,980
INFORMATION AND SERVICES
For More Information on Oppenheimer Balanced Fund
The following additional information about the Fund is available without
charge upon request:
STATEMENT OF ADDITIONAL INFORMATION. This document includes additional
information about the Fund's investment policies, risks, and operations. It
is incorporated by reference into this Prospectus (which means it is legally
part of this Prospectus).
ANNUAL AND SEMI-ANNUAL REPORTS. Additional information about the Fund's
investments and performance is available in the Fund's Annual and Semi-Annual
Reports to shareholders. The Annual Report includes a discussion of market
conditions and investment strategies that significantly affected the Fund's
performance during its last fiscal year.
How to Get More Information
You can request the Statement of Additional Information, the Annual and
Semi-Annual Reports, the notice explaining the Fund's privacy policy and
other information about the Fund or your account:
- ------------------------------------------------------------------------------
By Telephone: Call OppenheimerFunds Services toll-free:
1.800.CALL OPP (225.5677)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
By Mail: Write to:
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217-5270
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
On the Internet: You can request these documents by e-mail or
through the OppenheimerFunds website. You may
also read or download certain documents on the
OppenheimerFunds website at:
www.oppenheimerfunds.com
- ------------------------------------------------------------------------------
Information about the Fund including the Statement of Additional Information
can be reviewed and copied at the SEC's Public Reference Room in Washington,
D.C. Information on the operation of the Public Reference Room may be
obtained by calling the SEC at 1.202.942.8090. Reports and other information
about the Fund are available on the EDGAR database on the SEC's Internet
website at www.sec.gov. Copies may be obtained after payment of a duplicating
fee by electronic request at the SEC's e-mail address: publicinfo@sec.gov or
by writing to the SEC's Public Reference Section, Washington, D.C. 20549-0102.
No one has been authorized to provide any information about the Fund or to
make any representations about the Fund other than what is contained in this
Prospectus. This Prospectus is not an offer to sell shares of the Fund, nor a
solicitation of an offer to buy shares of the Fund, to any person in any
state or other jurisdiction where it is unlawful to make such an offer.
The Fund's shares are distributed by: [logo] OppenheimerFunds
Distributor, Inc.
The Fund's SEC File No.: 811-3864
PR0240.001.0106
Printed on recycled paper
Appendix to Prospectus of
Oppenheimer Balanced Fund
Graphic material included in the Prospectus of Oppenheimer Balanced
Fund under the heading "Annual Total Returns (Class A) (as of 12/31 each
year)":
A bar chart will be included in the Prospectus of Oppenheimer Balanced
Fund (the "Fund") depicting the annual total returns of a hypothetical
investment in Class A shares of the Fund for each of the past ten calendar
years, without deducting sales charges or taxes. Set forth below are the
relevant data points that will appear in the bar chart:
Calendar Annual
Year Total
Ended Returns
12/31/96 17.23%
12/31/97 17.77%
12/31/98 7.05%
12/31/99 10.60%
12/31/00 6.57%
12/31/01 1.68%
12/31/02 -10.60%
12/31/03 23.91%
12/31/04 9.67%
12/31/05 3.59%
------------------------------------------------------------------------------
Oppenheimer Balanced Fund
------------------------------------------------------------------------------
6803 S. Tucson Way, Centennial, Colorado 80112-3924
1.800.CALL OPP (225.5677)
Statement of Additional Information dated January 27, 2006
This Statement of Additional Information is not a Prospectus. This
document contains additional information about the Fund and supplements
information in the Prospectus dated January 27, 2006. It should be read
together with the Prospectus. You can obtain the Prospectus by writing to the
Fund's Transfer Agent, OppenheimerFunds Services, at P.O. Box 5270, Denver,
Colorado 80217, or by calling the Transfer Agent at the toll-free number
shown above, or by downloading it from the OppenheimerFunds Internet website
at www.oppenheimerfunds.com.
Contents
Page
About the Fund
Additional Information About the Fund's Investment Policies and Risks.. 2
The Fund's Investment Policies..................................... 2
Other Investment Techniques and Strategies.........................
Other Investment Restrictions......................................
Disclosure of Portfolio Holdings...................................
How the Fund is Managed ...............................................
Organization and History...........................................
Board of Trustees and Oversight Committees.........................
Trustees and Officers of the Fund..................................
The Manager........................................................
Brokerage Policies of the Fund.........................................
Distribution and Service Plans.........................................
Payments to Fund Intermediaries........................................
Performance of the Fund................................................
About Your Account
How To Buy Shares......................................................
How To Sell Shares.....................................................
How To Exchange Shares.................................................
Dividends, Capital Gains and Taxes.....................................
Additional Information About the Fund..................................
Financial Information About the Fund
Report of Independent Registered Public Accounting Firm................
Financial Statements...................................................
Appendix A: Ratings Definitions........................................ A-1
Appendix B: Industry Classifications................................... B-1
Appendix C: Special Sales Charge Arrangements and Waivers.............. C-1
42
-------------------------------------------------------------------------
ABOUT THE FUND
-------------------------------------------------------------------------
Additional Information About the Fund's Investment Policies and Risks
The investment objective, the principal investment policies and the
main risks of the Fund are described in the Prospectus. This Statement of
Additional Information contains supplemental information about those policies
and risks and the types of securities that the Fund's investment manager,
OppenheimerFunds, Inc. (the "Manager"), can select for the Fund. Additional
information is also provided about the strategies that the Fund may use to
try to achieve its objective.
The Fund's Investment Policies.
The composition of the Fund's portfolio and the techniques and strategies
that the Manager may use will vary over time. The Fund is not required to use
all of the investment techniques and strategies described below in seeking
its objective. It may use some of the special investment techniques and
strategies at some times or not at all.
In selecting securities for the Fund's portfolio, the Manager evaluates
the merits of particular securities primarily through the exercise of its own
investment analysis. That process may include, among other things, evaluation
of the issuer's historical operations, prospects for the industry of which
the issuer is part, the issuer's financial condition, its pending product
developments and business (and those of competitors), the effect of general
market and economic conditions on the issuer's business, and legislative
proposals that might affect the issuer.
|_| Investments in Equity Securities. The Fund's investments in equity
securities can include those of foreign and U.S. companies. Equity securities
include common stocks, preferred stocks, rights and warrants, and securities
convertible into common stock. The Fund's investments can include stocks of
companies in any market capitalization range, if the Manager believes the
investment is consistent with the Fund's objective, including the
preservation of principal. Certain equity securities might be selected not
only for their appreciation possibilities but because they may provide
dividend income.
Small-cap growth companies may offer greater opportunities for capital
appreciation than securities of large, more established companies. However,
these securities also involve greater risks than securities of larger
companies. Securities of small capitalization issuers may be subject to
greater price volatility in general than securities of large-cap and mid-cap
companies. Therefore, to the degree that the Fund has investments in smaller
capitalization companies at times of market volatility, the Fund's share
price may fluctuate more. Those investments may be limited to the extent the
Manager believes that such investments would be inconsistent with the goal of
preservation of principal. As noted below, the Fund limits investments in
unseasoned small-cap issuers.
|_| Preferred Stocks. Preferred stock, unlike common stock, has a
stated dividend rate payable from the corporation's earnings. Preferred stock
dividends may be cumulative or non-cumulative, participating, or auction
rate. "Cumulative" dividend provisions require all or a portion of prior
unpaid dividends to be paid before dividends can be paid on the issuer's
common stock.
If interest rates rise, the fixed dividend on preferred stocks may be
less attractive, causing the price of preferred stocks to decline. Preferred
stock may have mandatory sinking fund provisions, as well as provisions
allowing calls or redemptions prior to maturity, which also have a negative
impact on prices when interest rates decline. The rights of preferred stock
on distribution of a corporation's assets in the event of a liquidation are
generally subordinate to the rights associated with a corporation's debt
securities. Preferred stock generally has a preference over common stock on
the distribution of a corporation's assets in the event of liquidation of the
corporation. Preferred stock may be "participating" stock, which means that
it may be entitled to a dividend exceeding the stated dividend in certain
cases.
|_| Growth Companies. The Fund may invest in securities of
"growth" companies. Growth companies are those companies that the Manager
believes are entering into a growth cycle in their business, with the
expectation that their stock will increase in value. They may be established
companies as well as newer companies in the development stage.
Growth companies may have a variety of characteristics that in the
Manager's view define them as "growth" issuers. They may be generating or
applying new technologies, new or improved distribution techniques or new
services. They may own or develop natural resources. They may be companies
that can benefit from changing consumer demands or lifestyles, or companies
that have projected earnings in excess of the average for their sector or
industry. In each case, they have prospects that the Manager believes are
favorable for the long term. The portfolio managers of the Fund look for
growth companies with strong, capable management, sound financial and
accounting policies, successful product development and marketing and other
factors.
|_| Value Investing. In selecting equity investments for the Fund's
portfolio, the portfolio manager also uses a value investing style coupled
with fundamental analysis of issuers. In using a value approach, the manager
looks for stocks and other equity securities that appear to be temporarily
undervalued, by various measures, such as price/earnings ratios. Value
investing seeks stocks having prices that are low in relation to their real
worth or future prospects, with the hope that the Fund will realize
appreciation in the value of its holdings when other investors realize the
intrinsic value of the stock.
Using value investing requires research as to the issuer's underlying
financial condition and prospects. Some of the measures used to identify
these securities include, among others:
o Price/earnings ratio, which is the stock's price divided by its
earnings per share. A stock having a price/earnings ratio lower than
its historical range, or lower than the market as a whole or that of
similar companies may offer attractive investment opportunities.
o Price/book value ratio, which is the stock price divided by the book
value of the company per share. It measures the company's stock
price in relation to its asset value.
o Dividend yield, which is measured by dividing the annual dividend by
the stock price per share.
o Valuation of assets which compares the stock price to the value of the
company's underlying assets, including their projected value in the
marketplace and liquidation value.
|_| Convertible Securities. While some convertible securities are
a form of debt security, in many cases their conversion feature (allowing
conversion into equity securities) causes them to be regarded by the Manager
more as "equity equivalents." As a result, the credit 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 debt fixed-income
securities. Convertible securities are subject to the credit risks and
interest rate risks described below in "Debt 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.
The value of a convertible security is a function of its "investment
value" and its "conversion value." If the investment value exceeds the
conversion value, the security will behave more like a debt security and the
security's price will likely increase when prevailing interest rates fall and
decrease when prevailing interest rates rise. If the conversion value exceeds
the investment value, the security will behave more like an equity security.
In that case it will likely sell at a premium over its conversion value and
its price will tend to fluctuate directly with the price of the underlying
security.
|_| 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.
|_| Debt Securities. The Fund can invest in a variety of domestic and
foreign debt securities for current income. Foreign debt securities are
subject to the risks of foreign securities described below. In general,
domestic and foreign fixed-income securities are also subject to two
additional types of risk: credit risk and interest rate risk.
|_| Credit Risk. Credit risk relates to the ability of the issuer to
meet interest or principal payments or both as they become due. In general,
lower-grade, higher-yield bonds are subject to credit risk to a greater
extent than lower-yield, higher-quality bonds.
The Fund's debt investments can include investment-grade and
non-investment-grade bonds (commonly referred to as "junk bonds").
Investment-grade bonds are bonds rated at least "Baa" by Moody's Investors
Service, Inc. ("Moody's"), at least "BBB" by Standard & Poor's Rating Service
("Standard & Poor's") or Fitch, Inc. ("Fitch"), or have comparable ratings by
another nationally-recognized statistical rating organization.
In making investments in debt securities, the Manager may rely to some
extent on the ratings of ratings organizations or it may use its own research
to evaluate a security's credit-worthiness. If the securities are unrated, to
be considered part of the Fund's holdings of investment-grade securities,
they must be judged by the Manager to be of comparable quality to bonds rated
as investment-grade by a rating organization.
|_| Special Risks of Lower-Grade Securities. The Fund can invest a
substantial portion of its assets in lower-grade debt securities. Because
lower-grade securities tend to offer higher yields than investment-grade
securities, the Fund may invest in lower-grade securities if the Manager is
trying to achieve greater income. In some cases, the appreciation
possibilities of lower-grade securities may be a reason they are selected for
the Fund's portfolio. However, these investments will be made only when
consistent with the Fund's goal of preservation of principal that is part of
the Fund's objective.
The Fund may invest up to 35% of its total assets in "lower-grade" debt
securities. "Lower-grade" debt securities are those rated below "investment
grade" which means they have a rating lower than "Baa" by Moody's or lower
than "BBB" by Standard & Poor's or similar ratings by other rating
organizations. If they are unrated, and are determined by the Manager to be
of comparable quality to debt securities rated below investment grade, they
are included in the limitation on the percentage of the Fund's assets that
can be invested in lower-grade securities. The Fund can invest in securities
rated as low as "C" or "D" or which are in default at the time the Fund buys
them.
Some of the special credit risks of lower-grade securities are
discussed below. There is a greater risk that the issuer may default on its
obligation to pay interest or to repay principal than in the case of
investment-grade securities. The issuer's low creditworthiness may increase
the potential for its insolvency. An overall decline in values in the
high-yield bond market is also more likely during a period of a general
economic downturn. An economic downturn or an increase in interest rates
could severely disrupt the market for high-yield bonds, adversely affecting
the values of outstanding bonds as well as the ability of issuers to pay
interest or repay principal. In the case of foreign high-yield bonds, these
risks are in addition to the special risks of foreign investing discussed in
the Prospectus and in this Statement of Additional Information.
However, the Fund's limitations on these investments may reduce some of
the risks to the Fund, as will the Fund's policy of diversifying its
investments. Additionally, to the extent they can be converted into stock,
convertible securities may be less subject to some of these risks than
non-convertible high-yield bonds, since stock may be more liquid and less
affected by some of these risk factors.
While securities rated "Baa" by Moody's or "BBB" by Standard & Poor's
or Fitch are investment-grade and are not regarded as junk bonds, those
securities may be subject to special risks, and have some speculative
characteristics. The debt security ratings definitions of the principal
rating definitions are included in Appendix A to this Statement of Additional
Information.
|_| Interest Rate Risk. Interest rate risk refers to the
fluctuations in value of fixed-income securities resulting from the inverse
relationship between price and yield. For example, an increase in general
interest rates will tend to reduce the market value of already-issued
fixed-income investments, and a decline in general interest rates will tend
to increase their value. In addition, debt securities with longer maturities,
which tend to have higher yields, are subject to potentially greater
fluctuations in value from changes in interest rates than obligations with
shorter maturities.
Fluctuations in the market value of fixed-income securities after the
Fund buys them will not affect the interest payable on those securities, nor
the cash income from them. However, those price fluctuations will be
reflected in the valuations of the securities, and therefore the Fund's net
asset values will be affected by those fluctuations.
|_| Mortgage-Related Securities. Mortgage-related securities are a form
of derivative investment collateralized by pools of commercial or residential
mortgages. Pools of mortgage loans are assembled as securities for sale to
investors by government agencies or entities or by private issuers. These
securities include collateralized mortgage obligations ("CMOs"), mortgage
pass-through securities, stripped mortgage pass-through securities, interests
in real estate mortgage investment conduits ("REMICs") and other real estate
related securities.
Mortgage-related securities that are issued or guaranteed by agencies
or instrumentalities of the U.S. government have relatively little credit
risk (depending on the nature of the issuer) but are subject to interest rate
risks and prepayment risks, as described in the Prospectus.
As with other debt securities, the prices of mortgage-related
securities tend to move inversely to changes in interest rates. The Fund can
buy mortgage-related securities that have interest rates that move inversely
to changes in general interest rates, based on a multiple of a specific
index. Although the value of a mortgage-related security may decline when
interest rates rise, the converse is not always the case.
In periods of declining interest rates, mortgages are more likely to be
prepaid. Therefore, a mortgage-related security's maturity can be shortened
by unscheduled prepayments on the underlying mortgages. Therefore, it is not
possible to predict accurately the security's yield. The principal that is
returned earlier than expected may have to be reinvested in other investments
having a lower yield than the prepaid security. Therefore, these securities
may be less effective as a means of "locking in" attractive long-term
interest rates, and they may have less potential for appreciation during
periods of declining interest rates, than conventional bonds with comparable
stated maturities.
Prepayment risks can lead to substantial fluctuations in the value of a
mortgage-related security. In turn, this can affect the value of the Fund's
shares. If a mortgage-related security has been purchased at a premium, all
or part of the premium the Fund paid may be lost if there is a decline in the
market value of the security, whether that results from interest rate changes
or prepayments on the underlying mortgages. In the case of stripped
mortgage-related securities, if they experience greater rates of prepayment
than were anticipated, the Fund may fail to recoup its initial investment on
the security.
During periods of rapidly rising interest rates, prepayments of
mortgage-related securities may occur at slower than expected rates. Slower
prepayments effectively may lengthen a mortgage-related security's expected
maturity. Generally, that would cause the value of the security to fluctuate
more widely in response to changes in interest rates. If the prepayments on
the Fund's mortgage-related securities were to decrease broadly, the Fund's
effective duration, and therefore its sensitivity to interest rate changes,
would increase.
As with other debt securities, the values of mortgage-related
securities may be affected by changes in the market's perception of the
creditworthiness of the entity issuing the securities or guaranteeing them.
Their values may also be affected by changes in government regulations and
tax policies.
|_| Collateralized Mortgage Obligations. CMOs are multi-class bonds
that are backed by pools of mortgage loans or mortgage pass-through
certificates. They may be collateralized by:
(1) pass-through certificates issued or guaranteed by Ginnie Mae,
Fannie Mae, or Freddie Mac,
(2) unsecuritized mortgage loans insured by the Federal Housing
Administration or guaranteed by the Department of Veterans'
Affairs,
(3) unsecuritized conventional mortgages,
(4) other mortgage-related securities, or
(5) any combination of these.
Each class of CMO, referred to as a "tranche," is issued at a specific
coupon rate and has a stated maturity or final distribution date. Principal
prepayments on the underlying mortgages may cause the CMO to be retired much
earlier than the stated maturity or final distribution date. The principal
and interest on the underlying mortgages may be allocated among the several
classes of a series of a CMO in different ways. One or more tranches may have
coupon rates that reset periodically at a specified increase over an index.
These are floating rate CMOs, and typically have a cap on the coupon rate.
Inverse floating rate CMOs have a coupon rate that moves in the reverse
direction to an applicable index. The coupon rate on these CMOs will increase
as general interest rates decrease. These are usually much more volatile than
fixed rate CMOs or floating rate CMOs.
|_| U.S. Government Securities. These are securities issued or
guaranteed by the U.S. Treasury or other U.S. government agencies or
federally-chartered corporate entities referred to as "instrumentalities."
The obligations of U.S. government agencies or instrumentalities in which the
Fund may invest may or may not be guaranteed or supported by the "full faith
and credit" of the United States. "Full faith and credit" means generally
that the taxing power of the U.S. government is pledged to the payment of
interest and repayment of principal on a security. If a security is not
backed by the full faith and credit of the United States, the owner of the
security must look principally to the agency issuing the obligation for
repayment. The owner might be able to assert a claim against the United
States if the issuing agency or instrumentality does not meet its commitment.
The Fund will invest in securities of U.S. government agencies and
instrumentalities only if the Manager is satisfied that the credit risk with
respect to such instrumentality is minimal.
|_| U.S. Treasury Obligations. These include Treasury bills (having
maturities of one year or less when issued), Treasury notes (having
maturities of from one to ten years), and Treasury bonds (having maturities
of more than ten years). Treasury securities are backed by the full faith and
credit of the United States as to timely payments of interest and repayments
of principal. They also can include U. S. Treasury securities that have been
"stripped" by a Federal Reserve Bank, zero-coupon U.S. Treasury securities
described below, and Treasury Inflation-Protection Securities ("TIPS").
|_| Treasury Inflation-Protection Securities. The Fund can buy these
U.S. Treasury securities, called "TIPS," that are designed to provide an
investment vehicle that is not vulnerable to inflation. The interest rate
paid by TIPS is fixed. The principal value rises or falls semi-annually based
on changes in the published Consumer Price Index. If inflation occurs, the
principal and interest payments on TIPS are adjusted to protect investors
from inflationary loss. If deflation occurs, the principal and interest
payments will be adjusted downward, although the principal will not fall
below its face amount at maturity.
|_| Obligations Issued or Guaranteed by U.S. Government Agencies or
Instrumentalities. These include direct obligations and mortgage-related
securities that have different levels of credit support from the government.
Some are supported by the full faith and credit of the U.S. government, such
as Government National Mortgage Association pass-through mortgage
certificates (called "Ginnie Maes"). Some are supported by the right of the
issuer to borrow from the U.S. Treasury under certain circumstances, such as
Federal National Mortgage Association bonds ("Fannie Maes"). Others are
supported only by the credit of the entity that issued them, such as Federal
Home Loan Mortgage Corporation obligations ("Freddie Macs").
|_| U.S. Government Mortgage-Related Securities. The Fund can invest in
a variety of mortgage-related securities that are issued by U.S. government
agencies or instrumentalities, some of which are described below.
|_| GNMA Certificates. The Government National Mortgage Association
("GNMA") is a wholly-owned corporate instrumentality of the United States
within the U.S. Department of Housing and Urban Development. GNMA's principal
programs involve its guarantees of privately-issued securities backed by
pools of mortgages. Ginnie Maes are debt securities representing an interest
in one or a pool of mortgages that are insured by the Federal Housing
Administration or the Farmers Home Administration or guaranteed by the
Veterans Administration.
The Ginnie Maes in which the Fund invests are of the "fully modified
pass-through" type. They provide that the registered holders of the
Certificates will receive timely monthly payments of the pro-rata share of
the scheduled principal payments on the underlying mortgages, whether or not
those amounts are collected by the issuers. Amounts paid include, on a pro
rata basis, any prepayment of principal of such mortgages and interest (net
of servicing and other charges) on the aggregate unpaid principal balance of
the Ginnie Maes, whether or not the interest on the underlying mortgages has
been collected by the issuers.
The Ginnie Maes purchased by the Fund are guaranteed as to timely
payment of principal and interest by GNMA. It is expected that payments
received by the issuers of Ginnie Maes on account of the mortgages backing
the Ginnie Maes will be sufficient to make the required payments of principal
of and interest on those GNMA Certificates. However if those payments are
insufficient, the guaranty agreements between the issuers of the Certificates
and GNMA require the issuers to make advances sufficient for the payments. If
the issuers fail to make those payments, GNMA will do so.
Under federal law, the full faith and credit of the United States is
pledged to the payment of all amounts that may be required to be paid under
any guaranty issued by GNMA as to such mortgage pools. An opinion of an
Assistant Attorney General of the United States, dated December 9, 1969,
states that such guaranties "constitute general obligations of the United
States backed by its full faith and credit." GNMA is empowered to borrow from
the United States Treasury to the extent necessary to make any payments of
principal and interest required under those guaranties.
Ginnie Maes are backed by the aggregate indebtedness secured by the
underlying FHA-insured, FMHA-insured or VA-guaranteed mortgages. Except to
the extent of payments received by the issuers on account of such mortgages,
Ginnie Maes do not constitute a liability of those issuers, nor do they
evidence any recourse against those issuers. Recourse is solely against GNMA.
Holders of Ginnie Maes (such as the Fund) have no security interest in or
lien on the underlying mortgages.
Monthly payments of principal will be made, and additional prepayments
of principal may be made, to the Fund with respect to the mortgages
underlying the Ginnie Maes held by the Fund. All of the mortgages in the
pools relating to the Ginnie Maes in the Fund are subject to repayment
without any significant premium or penalty, at the option of the mortgagors.
While the mortgages on one-to-four-family dwellings underlying certain Ginnie
Maes have a stated maturity of up to 30 years, it has been the experience of
the mortgage industry that the average life of comparable mortgages, as a
result of prepayments, refinancing and payments from foreclosures, is
considerably less.
|_| Federal Home Loan Mortgage Corporation Certificates. FHLMC, a
corporate instrumentality of the United States, issues FHLMC Certificates
representing interests in mortgage loans. FHLMC guarantees to each registered
holder of a FHLMC Certificate timely payment of the amounts representing a
holder's proportionate share in:
(i) interest payments less servicing and guarantee fees,
(ii) principal prepayments and
(iii) the ultimate collection of amounts representing the holder's
proportionate interest in principal payments on the
mortgage loans in the pool represented by the FHLMC
Certificate, in each case whether or not such amounts are
actually received.
The obligations of FHLMC under its guarantees are obligations solely of
FHLMC and are not backed by the full faith and credit of the United States.
|_| Federal National Mortgage Association (Fannie Mae) Certificates.
Fannie Mae, a federally-chartered and privately-owned corporation, issues
Fannie Mae Certificates which are backed by a pool of mortgage loans. Fannie
Mae guarantees to each registered holder of a Fannie Mae Certificate that the
holder will receive amounts representing the holder's proportionate interest
in scheduled principal and interest payments, and any principal prepayments,
on the mortgage loans in the pool represented by such Certificate, less
servicing and guarantee fees, and the holder's proportionate interest in the
full principal amount of any foreclosed or other liquidated mortgage loan. In
each case the guarantee applies whether or not those amounts are actually
received. The obligations of Fannie Mae under its guarantees are obligations
solely of Fannie Mae and are not backed by the full faith and credit of the
United States or any of its agencies or instrumentalities other than Fannie
Mae.
|_| Zero-Coupon U.S. Government Securities. The Fund may buy
zero-coupon U.S. government securities. These will typically be U.S. Treasury
Notes and Bonds that have been stripped of their unmatured interest coupons,
the coupons themselves, or certificates representing interests in those
stripped debt obligations and coupons.
Zero-coupon securities do not make periodic interest payments and are
sold at a deep discount from their face value at maturity. The buyer
recognizes a rate of return determined by the gradual appreciation of the
security, which is redeemed at face value on a specified maturity date. This
discount depends on the time remaining until maturity, as well as prevailing
interest rates, the liquidity of the security and the credit quality of the
issuer. The discount typically decreases as the maturity date approaches.
Because zero-coupon securities pay no interest and compound
semi-annually at the rate fixed at the time of their issuance, their value is
generally more volatile than the value of other debt securities that pay
interest. Their value may fall more dramatically than the value of
interest-bearing securities when interest rates rise. When prevailing
interest rates fall, zero-coupon securities tend to rise more rapidly in
value because they have a fixed rate of return.
The Fund's investment in zero-coupon securities may cause the Fund to
recognize income and make distributions to shareholders before it receives
any cash payments on the zero-coupon investment. To generate cash to satisfy
those distribution requirements, the Fund may have to sell portfolio
securities that it otherwise might have continued to hold or to use cash
flows from other sources such as the sale of Fund shares.
|_| Forward Rolls. The Fund can enter into "forward roll"
transactions with respect to mortgage-related securities. In this type of
transaction, the Fund sells a mortgage-related security to a buyer and
simultaneously agrees to repurchase a similar security (the same type of
security, having the same coupon and maturity) at a later date at a set
price. The securities that are repurchased will have the same interest rate
as the securities that are sold, but typically will be collateralized by
different pools of mortgages (with different prepayment histories) than the
securities that have been sold. Proceeds from the sale are invested in
short-term instruments, such as repurchase agreements. The income from those
investments, plus the fees from the forward roll transaction, are expected to
generate income to the Fund in excess of the yield on the securities that
have been sold.
The Fund will only enter into "covered" rolls. That is, to assure its
future payment of the purchase price, the Fund will identify on its books
liquid assets in an amount equal to the payment obligation under the roll.
These transactions have risks. During the period between the sale and
the repurchase, the Fund will not be entitled to receive interest and
principal payments on the securities that have been sold. It is possible that
the market value of the securities the Fund sells may decline below the price
at which the Fund is obligated to repurchase securities.
|_| Money Market Instruments. The following is a brief description of
the types of money market securities the Fund can invest in. Money market
securities are high-quality, short-term debt instruments that may be issued
by the U.S. government, corporations, banks or other entities. They may have
fixed, variable or floating interest rates.
|_| U.S. Government Securities. These include obligations issued or
guaranteed by the U.S. government or any of its agencies or
instrumentalities, described above.
|_| Bank Obligations. The Fund can buy time deposits, certificates
of deposit and bankers' acceptances. They must be:
o obligations issued or guaranteed by a domestic bank
(including a foreign branch of a domestic bank) having total
assets of at least $500 million, or
o banker's acceptances (which may or may not be supported by
letters of credit) but only if guaranteed by a U.S.
commercial bank with total assets of at least U.S. $500
million.
The Fund can purchase certificates of deposit of $100,000 or less of a
domestic bank even if that bank has assets of less than $500 million, if the
certificate of deposit is fully insured as to principal by the Federal
Deposit Insurance Corporation. The Fund can buy only one such certificate of
deposit from any one bank with that amount of assets and limits its
investments in those certificates of deposit to 10% of its total assets.
"Banks" include U.S. commercial banks, savings banks and savings and loan
associations.
|_| Commercial Paper. The Fund can invest in commercial paper if it is
rated within the top two rating categories of Standard & Poor's and Moody's.
If the paper is not rated, it may be purchased if issued by a company having
a credit rating of at least "AA" by Standard & Poor's or "Aa" by Moody's.
The Fund can buy commercial paper, including U.S. dollar-denominated
securities of foreign branches of U.S. banks, issued by other entities if the
commercial paper is guaranteed as to principal and interest by a bank,
government or corporation whose certificates of deposit or commercial paper
may otherwise be purchased by the Fund.
|_| Variable Amount Master Demand Notes. Master demand notes are
corporate obligations that permit the investment of fluctuating amounts by
the Fund at varying rates of interest under direct arrangements between the
Fund, as lender, and the borrower. They permit daily changes in the amounts
borrowed. The Fund has the right to increase the amount under the note at any
time up to the full amount provided by the note agreement, or to decrease the
amount. The borrower may prepay up to the full amount of the note without
penalty. These notes may or may not be backed by bank letters of credit.
Because these notes are direct lending arrangements between the lender
and borrower, it is not expected that there will be a trading market for
them. There is no secondary market for these notes, although they are
redeemable (and thus are immediately repayable by the borrower) at principal
amount, plus accrued interest, at any time. Accordingly, the Fund's right to
redeem such notes is dependent upon the ability of the borrower to pay
principal and interest on demand.
The Fund has no limitations on the type of issuer from whom these notes
will be purchased. However, in connection with such purchases and on an
ongoing basis, the Manager will consider the earning power, cash flow and
other liquidity ratios of the issuer, and its ability to pay principal and
interest on demand, including a situation in which all holders of such notes
made demand simultaneously. Investments in master demand notes are subject to
the limitation on investments by the Fund in illiquid securities, described
in the Prospectus. Currently, the Fund does not intend that its investments
in variable amount master demand notes will exceed 5% of its total assets.
|_| Portfolio Turnover. The Fund can engage in short-term trading to
try to achieve its objective. "Portfolio turnover" describes the rate at
which the Fund traded its portfolio securities during its last fiscal year.
For example, if a fund sold all of its securities during the year, its
portfolio turnover rate would have been 100%. The Fund's portfolio turnover
rate will fluctuate from year to year.
Increased portfolio turnover creates higher brokerage and transaction
costs for the Fund,
which may reduce its overall performance. Additionally, the realization of
capital gains from selling portfolio securities may result in distributions
of taxable long-term capital gains to shareholders, since the Fund will
normally distribute all of its capital gains realized each year, to avoid
excise taxes under the Internal Revenue Code.
Other Investment Techniques and Strategies. In seeking its objective, the
Fund may from time to time use the types of investment strategies and
investments described below. It is not required to use all of these
strategies at all times, and at times may not use them.
|_| Foreign Securities. The Fund expects to have substantial
investments in foreign securities. These include equity securities issued by
foreign companies and debt securities issued by foreign companies or
governments, including supra-national entities. "Foreign securities" include
equity and debt securities of companies organized under the laws of countries
other than the United States and debt securities issued or guaranteed by
governments other than the U.S. government or by foreign supra-national
entities. They also include securities of companies (including those that are
located in the U.S. or organized under U.S. law) that derive a significant
portion of their revenue or profits from foreign businesses, investments or
sales, or that have a significant portion of their assets abroad. They may be
traded on foreign securities exchanges or in the foreign over-the-counter
markets.
Securities of foreign issuers that are represented by American
Depository Receipts or that are listed on a U.S. securities exchange or
traded in the U.S. over-the-counter markets are 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.
Because the Fund may purchase securities denominated in foreign
currencies, a change in the value of such foreign currency against the U.S.
dollar will result in a change in the amount of income the Fund has available
for distribution. Because a portion of the Fund's investment income may be
received in foreign currencies, the Fund will be required to compute its
income in U.S. dollars for distribution to shareholders, and therefore the
Fund will absorb the cost of currency fluctuations. After the Fund has
distributed income, subsequent foreign currency losses may result in the
Fund's having distributed more income in a particular fiscal period than was
available from investment income, which could result in a return of capital
to shareholders.
Investing in foreign securities offers potential benefits not available
from investing solely in securities of domestic issuers. They include the
opportunity to invest in foreign issuers that appear to offer growth
potential, or in foreign countries with economic policies or business cycles
different from those of the U.S., or to reduce fluctuations in portfolio
value by taking advantage of foreign stock markets that do not move in a
manner parallel to U.S. markets. The Fund will hold foreign currency only in
connection with the purchase or sale of foreign securities.
|_| Foreign Debt Obligations. The debt obligations of foreign
governments and entities may or may not be supported by the full faith and
credit of the foreign government. The Fund may buy securities issued by
certain "supra-national" entities, which include entities designated or
supported by governments to promote economic reconstruction or development,
international banking organizations and related government agencies. Examples
are the International Bank for Reconstruction and Development (commonly
called the "World Bank"), the Asian Development bank and the Inter-American
Development Bank.
The governmental members of these supra-national entities are
"stockholders" that typically make capital contributions and may be committed
to make additional capital contributions if the entity is unable to repay its
borrowings. A supra-national entity's lending activities may be limited to a
percentage of its total capital, reserves and net income. There can be no
assurance that the constituent foreign governments will continue to be able
or willing to honor their capitalization commitments for those entities.
The Fund can invest in U.S. dollar-denominated "Brady Bonds." These
foreign debt obligations may be fixed-rate par bonds or floating-rate
discount bonds. They are generally collateralized in full as to repayment of
principal at maturity by U.S. Treasury zero-coupon obligations that have the
same maturity as the Brady Bonds. Brady Bonds can be viewed as having three
or four valuation components: (i) the collateralized repayment of principal
at final maturity; (ii) the collateralized interest payments; (iii) the
uncollateralized interest payments; and (iv) any uncollateralized repayment
of principal at maturity. Those uncollateralized amounts constitute what is
called the "residual risk."
If there is a default on collateralized Brady Bonds resulting in
acceleration of the payment obligations of the issuer, the zero-coupon U.S.
Treasury securities held as collateral for the payment of principal will not
be distributed to investors, nor will those obligations be sold to distribute
the proceeds. The collateral will be held by the collateral agent to the
scheduled maturity of the defaulted Brady Bonds. The defaulted bonds will
continue to remain outstanding, and the face amount of the collateral will
equal the principal payments which would have then been due on the Brady
Bonds in the normal course. Because of the residual risk of Brady Bonds and
the history of defaults with respect to commercial bank loans by public and
private entities of countries issuing Brady Bonds, Brady Bonds are considered
speculative investments.
|_| Risks of Foreign Investing. Investments in foreign securities
may offer special opportunities for investing but also present special
additional risks and considerations not typically associated with investments
in domestic securities. Some of these additional risks are:
o reduction of income by foreign taxes;
o fluctuation in value of foreign investments due to changes in currency
rates, currency devaluation or currency control regulations
(for example, currency blockage);
o transaction charges for currency exchange;
o lack of public information about foreign issuers;
o lack of uniform accounting, auditing and financial reporting standards
in foreign countries comparable to those applicable to domestic
issuers;
o less volume on foreign exchanges than on U.S. exchanges;
o greater volatility and less liquidity on foreign markets than in the
U.S.;
o less governmental regulation of foreign issuers, stock exchanges and
brokers than in the U.S.;
o greater difficulties in commencing lawsuits;
o higher brokerage commission rates than in the U.S.;
o increased risks of delays in settlement of portfolio transactions or
loss of certificates for portfolio securities;
o possibilities in some countries of expropriation, confiscatory
taxation, political, financial or social instability or adverse
diplomatic developments; and
o unfavorable differences between the U.S. economy and foreign economies.
In the past, U.S. government policies have discouraged certain
investments abroad by U.S. investors, through taxation or other restrictions,
and it is possible that such restrictions could be re-imposed.
|_| Special Risks of Emerging Markets. Emerging and developing markets
abroad may also offer special opportunities for growth investing but have
greater risks than more developed foreign markets, such as those in Europe,
Canada, Australia, New Zealand and Japan. There may be even less liquidity in
their securities markets, and settlements of purchases and sales of
securities may be subject to additional delays. They are subject to greater
risks of limitations on the repatriation of income and profits because of
currency restrictions imposed by local governments. Those countries may also
be subject to the risk of greater political and economic instability, which
can greatly affect the volatility of prices of securities in those countries.
The Manager will consider these factors when evaluating securities in these
markets, because the selection of those securities must be consistent with
the Fund's goal of preservation of principal.
|_| Passive Foreign Investment Companies. Some securities of
corporations domiciled outside the U.S. which the Fund may purchase, may be
considered passive foreign investment companies ("PFICs") under U.S. tax
laws. PFICs are those foreign corporations which generate primarily passive
income. They tend to be growth companies or "start-up" companies. For federal
tax purposes, a corporation is deemed a PFIC if 75% or more of the foreign
corporation's gross income for the income year is passive income or if 50% or
more of its assets are assets that produce or are held to produce passive
income. Passive income is further defined as any income to be considered
foreign personal holding company income within the subpart F provisions
defined by IRCss.954.
Investing in PFICs involves the risks associated with investing in
foreign securities, as described above. There are also the risks that the
Fund may not realize that a foreign corporation it invests in is a PFIC for
federal tax purposes. Federal tax laws impose severe tax penalties for
failure to properly report investment income from PFICs. Following industry
standards, the Fund makes every effort to ensure compliance with federal tax
reporting of these investments. PFICs are considered foreign securities for
the purposes of the Fund's minimum percentage requirements or limitations of
investing in foreign securities.
Subject to the limits under the Investment Company Act, the Fund may
also invest in foreign mutual funds which are also deemed PFICs (since nearly
all of the income of a mutual fund is generally passive income). Investing in
these types of PFICs may allow exposure to varying countries because some
foreign countries limit, or prohibit, all direct foreign investment in the
securities of companies domiciled therein.
In addition to bearing their proportionate share of a fund's expenses
(management fees and operating expenses), shareholders will also indirectly
bear similar expenses of such entities. Additional risks of investing in
other investment companies are described below under "Investment in Other
Investment Companies."
|_| Zero-Coupon Securities. The Fund can buy zero-coupon and delayed
interest securities, and "stripped" securities. Stripped securities are debt
securities whose interest coupons are separated from the security and sold
separately. The Fund can buy different types of zero-coupon or stripped
securities, including, among others, U.S. Treasury notes or bonds that have
been stripped of their interest coupons, U.S. Treasury bills issued without
interest coupons, and certificates representing interests in stripped
securities.
The Fund may buy zero-coupon and delayed interest securities, and
"stripped" securities of corporations and of foreign government issuers.
These are similar in structure to zero-coupon and "stripped" U.S. government
securities, but in the case of foreign government securities may or may not
be backed by the "full faith and credit" of the issuing foreign government.
Zero coupon securities issued by foreign governments and by corporations will
be subject to greater credit risks than U.S. government zero-coupon
securities.
Zero-coupon securities do not make periodic interest payments and are
sold at a deep discount from their face value. The buyer recognizes a rate of
return determined by the gradual appreciation of the security, which is
redeemed at face value on a specified maturity date. This discount depends on
the time remaining until maturity, as well as prevailing interest rates, the
liquidity of the security and the credit quality of the issuer. In the
absence of threats to the issuer's credit quality, the discount typically
decreases as the maturity date approaches. Some zero-coupon securities are
convertible, in that they are zero-coupon securities until a predetermined
date, at which time they convert to a security with a specified coupon rate.
Because zero-coupon securities pay no interest and compound
semi-annually at the rate fixed at the time of their issuance, their value is
generally more volatile than the value of other debt securities. Their value
may fall more dramatically than the value of interest-bearing securities when
interest rates rise. When prevailing interest rates fall, zero-coupon
securities tend to rise more rapidly in value because they have a fixed rate
of return.
The Fund's investment in zero-coupon securities may cause the Fund to
recognize income and make distributions to shareholders before it receives
any cash payments on the zero-coupon investment. To generate cash to satisfy
those distribution requirements, the Fund may have to sell portfolio
securities that it otherwise might have continued to hold or to use cash
flows from other sources such as the sale of Fund shares.
|_| Commercial (Privately-Issued) Mortgage-Related Securities. The Fund
may invest in commercial mortgage-related securities issued by private
entities. Generally these are multi-class debt or pass-through certificates
secured by mortgage loans on commercial properties. They are subject to the
credit risk of the issuer. These securities typically are structured to
provide protection to investors in senior classes from possible losses on the
underlying loans. They do so by having holders of subordinated classes take
the first loss if there are defaults on the underlying loans. They may also
be protected to some extent by guarantees, reserve funds or additional
collateralization mechanisms.
|_| "Stripped" Mortgage-Related Securities. The Fund can invest in
stripped mortgage-related securities that are created by segregating the cash
flows from underlying mortgage loans or mortgage securities to create two or
more new securities. Each has a specified percentage of the underlying
security's principal or interest payments. These are a form of derivative
investment.
Mortgage securities may be partially stripped so that each class
receives some interest and some principal. However, they may be completely
stripped. In that case all of the interest is distributed to holders of one
type of security, known as an "interest-only" security, or "I/O," and all of
the principal is distributed to holders of another type of security, known as
a "principal-only" security or "P/O." Strips can be created for pass-through
certificates or CMOs.
The yields to maturity of I/Os and P/Os are very sensitive to principal
repayments (including prepayments) on the underlying mortgages. If the
underlying mortgages experience greater than anticipated prepayments of
principal, the Fund might not fully recoup its investment in an I/O based on
those assets. If underlying mortgages experience less than anticipated
prepayments of principal, the yield on the P/Os based on them could decline
substantially.
|_| Floating Rate and Variable Rate Obligations. Variable rate
demand obligations have a demand feature that allows the Fund to tender the
obligation to the issuer or a third party prior to its maturity. The tender
may be at par value plus accrued interest, according to the terms of the
obligations.
The interest rate on a floating rate demand note is adjusted
automatically according to a stated prevailing market rate, such as a bank's
prime rate, the 91-day U.S. Treasury Bill rate, or some other standard. The
instrument's rate is adjusted automatically each time the base rate is
adjusted. The interest rate on a variable rate demand note is also based on a
stated prevailing market rate but is adjusted automatically at specified
intervals of not less than one year. Generally, the changes in the interest
rate on such securities reduce the fluctuation in their market value. As
interest rates decrease or increase, the potential for capital appreciation
or depreciation is less than that for fixed-rate obligations of the same
maturity. The Manager may determine that an unrated floating rate or variable
rate demand obligation meets the Fund's quality standards by reason of being
backed by a letter of credit or guarantee issued by a bank that meets those
quality standards.
Floating rate and variable rate demand notes that have a stated
maturity in excess of one year may have features that permit the holder to
recover the principal amount of the underlying security at specified
intervals not exceeding one year and upon no more than 30 days' notice. The
issuer of that type of note normally has a corresponding right in its
discretion, after a given period, to prepay the outstanding principal amount
of the note plus accrued interest. Generally the issuer must provide a
specified number of days' notice to the holder.
|_| Investing in Small, Unseasoned Companies. The Fund can invest in
securities of small, unseasoned companies. These are companies that have been
in operation for less than three years, including the operations of any
predecessors. Securities of these companies may be subject to volatility in
their prices. They may have a limited trading market, which may adversely
affect the Fund's ability to dispose of them and can reduce the price the
Fund might be able to obtain for them. Other investors that own a security
issued by a small, unseasoned issuer for which there is limited liquidity
might trade the security when the Fund is attempting to dispose of its
holdings of that security. In that case the Fund might receive a lower price
for its holdings than might otherwise be obtained. The Fund currently does
not intend to invest more than 5% of its net assets in those securities.
|_| Investment in Other Investment Companies. The Fund can also invest
in the securities of other investment companies, which can include open-end
funds, closed-end funds and unit investment trusts, subject to the limits set
forth in the Investment Company Act of 1940 (the "Investment Company Act")
that apply to those types of investments. For example, the Fund can invest
in Exchange-Traded Funds, which are typically open-end funds or unit
investment trusts, listed on a stock exchange. The Fund might do so as a way
of gaining exposure to the segments of the equity or fixed-income markets
represented by the Exchange-Traded Funds' portfolio, at times when the Fund
may not be able to buy those portfolio securities directly.
Investing in another investment company may involve the payment of
substantial premiums above the value of such investment company's portfolio
securities and is subject to limitations under the Investment Company Act.
The Fund does not intend to invest in other investment companies unless the
Manager believes that the potential benefits of the investment justify the
payment of any premiums or sales charges. As a shareholder of an investment
company, the Fund would be subject to its ratable share of that investment
company's expenses, including its advisory and administration expenses. The
Fund does not anticipate investing a substantial amount of its net assets in
shares of other investment companies.
|_| When-Issued and Delayed-Delivery Transactions. The Fund may invest
in securities on a "when-issued" basis and may purchase or sell securities on
a "delayed-delivery" or "forward commitment" basis. When-issued and
delayed-delivery are terms that refer to securities whose terms and indenture
are available and for which a market exists, but which are not available for
immediate delivery.
When such transactions are negotiated, the price (which is generally
expressed in yield terms) is fixed at the time the commitment is made.
Delivery and payment for the securities take place at a later date. The
securities are subject to change in value from market fluctuations during the
period until settlement. The value at delivery may be less than the purchase
price. For example, changes in interest rates in a direction other than that
expected by the Manager before settlement will affect the value of such
securities and may cause a loss to the Fund. During the period between
purchase and settlement, no payment is made by the Fund to the issuer and no
interest accrues to the Fund from the investment. No income begins to accrue
to the Fund on a when-issued security until the Fund receives the security at
settlement of the trade.
The Fund will engage in when-issued transactions to secure what the
Manager considers to be an advantageous price and yield at the time of
entering into the obligation. When the Fund enters into a when-issued or
delayed-delivery transaction, it relies on the other party to complete the
transaction. Its failure to do so may cause the Fund to lose the opportunity
to obtain the security at a price and yield the Manager considers to be
advantageous.
When the Fund engages in when-issued and delayed-delivery transactions,
it does so for the purpose of acquiring or selling securities consistent with
its investment objective and policies for its portfolio or for delivery
pursuant to options contracts it has entered into, and not for the purpose of
investment leverage. Although the Fund will enter into delayed-delivery or
when-issued purchase transactions to acquire securities, it may dispose of a
commitment prior to settlement. If the Fund chooses to dispose of the right
to acquire a when-issued security prior to its acquisition or to dispose of
its right to delivery or receive against a forward commitment, it may incur a
gain or loss.
At the time the Fund makes the commitment to purchase or sell a
security on a when-issued or delayed-delivery basis, it records the
transaction on its books and reflects the value of the security purchased in
determining the Fund's net asset value. In a sale transaction, it records the
proceeds to be received. The Fund will identify on its books liquid assets at
least equal in value to the value of the Fund's purchase commitments until
the Fund pays for the investment.
When-issued and delayed-delivery transactions can be used by the Fund
as a defensive technique to hedge against anticipated changes in interest
rates and prices. For instance, in periods of rising interest rates and
falling prices, the Fund might sell securities in its portfolio on a forward
commitment basis to attempt to limit its exposure to anticipated falling
prices. In periods of falling interest rates and rising prices, the Fund
might sell portfolio securities and purchase the same or similar securities
on a when-issued or delayed-delivery basis to obtain the benefit of currently
higher cash yields.
|_| Participation Interests. The Fund can invest in participation
interests, subject to the Fund's limitation on investments in illiquid
investments. A participation interest is an undivided interest in a loan made
by the issuing financial institution in the proportion that the buyers
participation interest bears to the total principal amount of the loan. No
more than 5% of the Fund's net assets can be invested in participation
interests of the same borrower. The issuing financial institution may have no
obligation to the Fund other than to pay the Fund the proportionate amount of
the principal and interest payments it receives.
Participation interests are primarily dependent upon the
creditworthiness of the borrowing corporation, which is obligated to make
payments of principal and interest on the loan. There is a risk that a
borrower may have difficulty making payments. If a borrower fails to pay
scheduled interest or principal payments, the Fund could experience a
reduction in its income. The value of that participation interest might also
decline, which could affect the net asset value of the Fund's shares. If the
issuing financial institution fails to perform its obligations under the
participation agreement, the Fund might incur costs and delays in realizing
payment and suffer a loss of principal and/or interest.
|_| Repurchase Agreements. The Fund can acquire securities subject to
repurchase agreements. It may do so for liquidity purposes to meet
anticipated redemptions of Fund shares, or pending the investment of the
proceeds from sales of Fund shares, or pending the settlement of portfolio
securities transactions, or for temporary defensive purposes, as described
below.
In a repurchase transaction, the Fund buys a security from, and
simultaneously resells it to, an approved vendor for delivery on an
agreed-upon future date. The resale price exceeds the purchase price by an
amount that reflects an agreed-upon interest rate effective for the period
during which the repurchase agreement is in effect. Approved vendors include
U.S. commercial banks, U.S. branches of foreign banks, or broker-dealers that
have been designated as primary dealers in government securities. They must
meet credit requirements set by the Fund's Manager from time to time.
The majority of these transactions run from day to day, and delivery
pursuant to the resale typically occurs within one to five days of the
purchase. Repurchase agreements having a maturity beyond seven days are
subject to the Fund's limits on holding illiquid investments. 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 having maturities of seven days or less.
Repurchase agreements, considered "loans" under the Investment Company
Act, are collateralized by the underlying security. The Fund's repurchase
agreements require that at all times while the repurchase agreement is in
effect, the value of the collateral must equal or exceed the repurchase price
to fully collateralize the repayment obligation. However, if the vendor fails
to pay the resale price on the delivery date, the Fund may incur costs in
disposing of the collateral and may experience losses if there is any delay
in its ability to do so. The Manager will monitor the vendor's
creditworthiness to confirm that the vendor is financially sound and will
continuously monitor the collateral's value. They must meet credit
requirements set by the Manager from time to time.
Pursuant to an Exemptive Order issued by the Securities and Exchange
Commission (the "SEC"), the Fund, along with other affiliated entities
managed by the Manager, may transfer uninvested cash balances into one or
more joint repurchase accounts. These balances are invested in one or more
repurchase agreements, secured by U.S. government securities. Securities that
are pledged as collateral for repurchase agreements are held by a custodian
bank until the agreements mature. Each joint repurchase arrangement requires
that the market value of the collateral be sufficient to cover payments of
interest and principal; however, in the event of default by the other party
to the agreement, retention or sale of the collateral may be subject to legal
proceedings.
|_| Illiquid and Restricted Securities. Under the policies and
procedures established by the Fund's Board of Trustees, the Manager
determines the liquidity of certain of the Fund's investments. To enable the
Fund to sell its holdings of a restricted security not registered under
applicable securities laws, the Fund may have to cause those securities to be
registered. The expenses of registering restricted securities may be
negotiated by the Fund with the issuer at the time the Fund buys the
securities. When the Fund must arrange registration because the Fund wishes
to sell the security, a considerable period may elapse between the time the
decision is made to sell the security and the time the security is registered
so that the Fund could sell it. The Fund would bear the risks of any downward
price fluctuation during that period.
The Fund may also acquire restricted securities through private
placements. Those securities have contractual restrictions on their public
resale. Those restrictions might limit the Fund's ability to dispose of the
securities and might lower the amount the Fund could realize upon the sale.
The Fund has limitations that apply to purchases of restricted
securities, as stated in the Prospectus. Those percentage restrictions do not
limit purchases of restricted securities that are eligible for sale to
qualified institutional purchasers under Rule 144A of the Securities Act of
1933, if those securities have been determined to be liquid by the Manager
under Board-approved guidelines. Those guidelines take into account the
trading activity for such securities and the availability of reliable pricing
information, among other factors. If there is a lack of trading interest in a
particular Rule 144A security, the Fund's holdings of that security may be
considered to be illiquid.
Illiquid securities include repurchase agreements maturing in more than
seven days and participation interests that do not have puts exercisable
within seven days.
|_| Loans of Portfolio Securities. The Fund may lend its portfolio
securities pursuant to the Securities Lending Agreement (the "Securities
Lending Agreement") with JPMorgan Chase, subject to the other restrictions
stated in the Prospectus. The Fund will lend such portfolio securities to
attempt to increase the Fund's income. Under the Securities Lending
Agreement and applicable regulatory requirements (which are subject to
change), the loan collateral must, on each business day, be at least equal to
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), or other cash equivalents in which the Fund is permitted
to invest. To be acceptable as collateral, letters of credit must obligate a
bank to pay to JPMorgan Chase, as agent, amounts demanded by the Fund if the
demand meets the terms of the letter. Such terms of the letter of credit and
the issuing bank must be satisfactory to JPMorgan Chase and the Fund. The
Fund will receive, pursuant to the Securities Lending Agreement, 80% of all
annual net income (i.e., net of rebates to the Borrower) from securities
lending transactions. JPMorgan Chase has agreed, in general, to guarantee the
obligations of borrowers to return loaned securities and to be responsible
for expenses relating to securities lending. The Fund will be responsible,
however, for risks associated with the investment of cash collateral,
including the risk that the issuer of the security in which the cash
collateral has been invested defaults. The Securities Lending Agreement may
be terminated by either JPMorgan Chase or the Fund on 30 days' written
notice. The terms of the Fund's loans must also meet applicable tests under
the Internal Revenue Code and permit the Fund to reacquire loaned securities
on five business days' notice or in time to vote on any important matter.
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 if the borrower defaults. The
Fund must receive collateral for a loan. When it lends securities, the Fund
receives amounts equal to the dividends or interest on loaned securities. It
also receives one or more of (a) negotiated loan fees, (b) interest on
securities used as collateral, and (c) interest on any short-term debt
securities purchased with such loan collateral. Either type of interest may
be shared with the borrower. The Fund may also pay reasonable finder's,
custodian and administrative fees in connection with these loans. The terms
of the Fund's loans must meet applicable tests under the Internal Revenue
Code and must permit the Fund to reacquire loaned securities on five days'
notice or in time to vote on any important matter.
|_| Borrowing and Leverage. The Fund may not borrow money, except to
the extent permitted under the Investment Company Act, the rules or
regulations thereunder or any exemption therefrom that is applicable to the
Fund, as such statute, rules or regulations may be amended or interpreted
from time to time. Borrowing may entail "leverage," and may be a speculative
investment strategy. Any borrowing will be made only from banks and, pursuant
to the requirements of the Investment Company Act, will be made only to the
extent that the value of the Fund's assets, less its liabilities other than
borrowings, is equal to at least 300% of all borrowings including the
proposed borrowing. If the value of the Fund's assets, when computed in that
manner, should fail to meet the 300% asset coverage requirement, the Fund is
required within three days to reduce its bank debt to the extent necessary to
meet that coverage requirement. To do so, the Fund may have to sell a portion
of its investments at a time when it would otherwise not want to sell the
securities. Interest on money the Fund borrows is an expense the Fund would
not otherwise incur, so that during periods of substantial borrowings, its
expenses may increase more than the expenses of funds that do not borrow. The
use of leverage also may make the Fund's share prices more sensitive to
interest rate changes.
|_| Asset-Backed Securities. Asset-backed securities are fractional
interests in pools of assets, typically accounts receivable or consumer
loans. They are issued by trusts or special-purpose corporations. They are
similar to mortgage-backed securities, described above, and are backed by a
pool of assets that consist of obligations of individual borrowers. The
income from the pool is passed through to the holders of participation
interest in the pools. The pools may offer a credit enhancement, such as a
bank letter of credit, to try to reduce the risks that the underlying debtors
will not pay their obligations when due. However, the enhancement, if any,
might not be for the full par value of the security. If the enhancement is
exhausted and any required payments of interest or repayments of principal
are not made, the Fund could suffer a loss on its investment or delays in
receiving payment.
The value of an asset-backed security is affected by changes in the
market's perception of the asset backing the security, the creditworthiness
of the servicing agent for the loan pool, the originator of the loans, or the
financial institution providing any credit enhancement, and is also affected
if any credit enhancement has been exhausted. The risks of investing in
asset-backed securities are ultimately related to payment of consumer loans
by the individual borrowers. As a purchaser of an asset-backed security, the
Fund would generally have no recourse to the entity that originated the loans
in the event of default by a borrower. The underlying loans are subject to
prepayments, which may shorten the weighted average life of asset-backed
securities and may lower their return, in the same manner as in the case of
mortgage-backed securities and CMOs, described above. Unlike mortgage-backed
securities, asset-backed securities typically do not have the benefit of a
security interest in the underlying collateral.
|_| Derivatives. The Fund can invest in a variety of derivative
investments to seek income or for hedging purposes. Some derivative
investments the Fund can use are the hedging instruments described below in
this Statement of Additional Information. However, the Fund is not obligated
to use derivatives in seeking its objective.
Some of the derivative investments the Fund can use 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 it is payable in an amount based on the price of the issuer's
common stock at the time of maturity. Both alternatives present 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 might not be as high as
the Manager expected.
Other derivative investments the Fund can invest in include
mortgage-related securities (described above) and "index-linked" notes.
Principal and/or interest payments on these notes depend on the performance
of an underlying index. Currency-indexed securities are another derivative
the Fund may use. Typically these are short-term or intermediate-term debt
securities. Their value at maturity or the rates at which they pay income are
determined by the change in value of the U.S. dollar against one or more
foreign currencies or an index. In some cases, these securities may pay an
amount at maturity based on a multiple of the amount of the relative currency
movements. This type of index security offers the potential for increased
income or principal payments but at a greater risk of loss than a typical
debt security of the same maturity and credit quality.
|_| Credit Derivatives. The Fund may enter into credit default swaps,
both directly ("unfunded swaps") and indirectly in the form of a swap
embedded within a structured note ("funded swaps"), to protect against the
risk that a security will default. Unfunded and funded credit default swaps
may be on a single security, or on a basket of securities. The Fund pays a
fee to enter into the swap and receives a fixed payment during the life of
the swap. The Fund may take a short position in the credit default swap
(also known as "buying credit protection"), or may take a long position in
the credit default swap note (also known as "selling credit protection").
The Fund would take a short position in a credit default swap (the
"unfunded swap") against a long portfolio position to decrease exposure to
specific high yield issuers. If the short credit default swap is against a
corporate issue, the Fund must own that corporate issue. However, if the
short credit default swap is against sovereign debt, the Fund may own either:
(i) the reference obligation, (ii) any sovereign debt of that foreign
country, or (iii) sovereign debt of any country that the Manager determines
is closely correlated as an inexact bona fide hedge.
If the Fund takes a short position in the credit default swap, if there
is a credit event (including bankruptcy, failure to timely pay interest or
principal, or a restructuring), the Fund will deliver the defaulted bonds and
the swap counterparty will pay the par amount of the bonds. An associated
risk is adverse pricing when purchasing bonds to satisfy the delivery
obligation. If the swap is on a basket of securities, the notional amount of
the swap is reduced by the par amount of the defaulted bond, and the fixed
payments are then made on the reduced notional amount.
Taking a long position in the credit default swap note (i.e.,
purchasing the "funded swap") would increase the Fund's exposure to specific
high yield corporate issuers. The goal would be to increase liquidity in
that market sector via the swap note and its associated increase in the
number of trading instruments, the number and type of market participants,
and market capitalization.
If the Fund takes a long position in the credit default swap note, if
there is a credit event the Fund will pay the par amount of the bonds and the
swap counterparty will deliver the bonds. If the swap is on a basket of
securities, the notional amount of the swap is reduced by the par amount of
the defaulted bond, and the fixed payments are then made on the reduced
notional amount.
The Fund will invest no more than 25% of its total assets in "unfunded"
credit default swaps. The Fund will limit its investments in "funded" credit
default swap notes to no more than 10% of its total assets.
Other risks of credit default swaps include the cost of paying for
credit protection if there are no credit events, pricing transparency when
assessing the cost of a credit default swap, counterparty risk, and the need
to fund the delivery obligation (either cash or the defaulted bonds,
depending on whether the Fund is long or short the swap, respectively).
|_| Hedging. Although the Fund can use hedging instruments, it is not
obligated to use them in seeking its objective. To attempt to protect against
declines in the market value of the Fund's portfolio, to permit the Fund to
retain unrealized gains in the value of portfolio securities that have
appreciated, or to facilitate selling securities for investment reasons, the
Fund could:
|_| sell futures contracts,
|_| buy puts on such futures or on securities, or
|_| write covered calls on securities or futures. Covered calls may also be
used to increase the Fund's income, but the Manager does not expect
to engage extensively in that practice.
The Fund can use hedging to establish a position in the securities
market as a temporary substitute for purchasing particular securities. In
that case the Fund would normally seek to purchase the securities and then
terminate that hedging position. The Fund might also use this type of hedge
to attempt to protect against the possibility that its portfolio securities
would not be fully included in a rise in value of the market. To do so the
Fund could:
|_| buy futures, or
|_| buy calls on such futures or on securities.
The Fund's strategy of hedging with futures and options on futures will
be incidental to the Fund's activities in the underlying cash market. The
particular hedging instruments the Fund can use are described below. The Fund
may employ new hedging instruments and strategies when they are developed, if
those investment methods are consistent with the Fund's investment objective
and are permissible under applicable regulations governing the Fund.
|_| Futures. The Fund can buy and sell futures contracts that relate to
(1) broadly-based stock indices (these are referred to as "stock index
futures"), (2) an individual stock ("single stock futures"), (3) bond indices
(these are referred to as "bond index futures"), (4) debt securities (these
are referred to as "interest rate futures"), (5) foreign currencies (these
are referred to as "forward contracts") and (6) commodities.
A broadly-based stock index is used as the basis for trading stock
index futures. They may in some cases be based on stocks of issuers in a
particular industry or group of industries. A stock index assigns relative
values to the common stocks included in the index and its value fluctuates in
response to the changes in value of the underlying stocks. A stock index
cannot be purchased or sold directly. Bond index futures are similar
contracts based on the future value of the basket of securities that comprise
the index. These contracts obligate the seller to deliver, and the purchaser
to take, cash to settle the futures transaction. There is no delivery made of
the underlying securities to settle the futures obligation. Either party may
also settle the transaction by entering into an offsetting contract.
An interest rate future obligates the seller to deliver (and the
purchaser to take) cash or a specified type of debt security to settle the
futures transaction. Either party could also enter into an offsetting
contract to close out the position. Similarly, a single stock future
obligates the seller to deliver (and the purchaser to take) cash or a
specified equity security to settle the futures transaction. Either party
could also enter into an offsetting contract to close out the position.
Single stock futures trade on a very limited number of exchanges, with
contracts typically not fungible among the exchanges.
The Fund can invest a portion of its assets in commodity futures
contracts. Commodity futures may be based upon commodities within five main
commodity groups: (1) energy, which includes crude oil, natural gas, gasoline
and heating oil; (2) livestock, which includes cattle and hogs; (3)
agriculture, which includes wheat, corn, soybeans, cotton, coffee, sugar and
cocoa; (4) industrial metals, which includes aluminum, copper, lead, nickel,
tin and zinc; and (5) precious metals, which includes gold, platinum and
silver. The Fund may purchase and sell commodity futures contracts, options
on futures contracts and options and futures on commodity indices with
respect to these five main commodity groups and the individual commodities
within each group, as well as other types of commodities.
No 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"). Initial margin payments will be deposited with the
Fund's custodian bank in an account registered in the futures broker's name.
However, the futures broker can gain access to that account only under
specified conditions. As the future is marked to market (that is, its value
on the Fund's books is changed) to reflect changes in its market value,
subsequent margin payments, called variation margin, will be paid to or by
the futures broker daily.
At any time prior to expiration of the future, the Fund may elect to
close out its position by taking an opposite position, at which time a final
determination of variation margin is made and any additional cash must be
paid by or released to the Fund. Any loss or gain on the future is then
realized by the Fund for tax purposes. All futures transactions (except
forward contracts) are effected through a clearinghouse associated with the
exchange on which the contracts are traded.
Put and Call Options. The Fund can buy and sell certain kinds of put
options ("puts") and call options ("calls"). The Fund can buy and sell
exchange-traded and over-the-counter put and call options, including index
options, securities options, currency options, commodities options, and
options on the other types of futures described above.
|_| Writing Covered Call Options. The Fund can write (that is, sell)
covered calls. If the Fund sells a call option, it must be covered. That
means the Fund must own the security subject to the call while the call is
outstanding, or, for certain types of calls, the call may be covered by
segregating liquid assets to enable the Fund to satisfy its obligations if
the call is exercised. Up to 35% of the Fund's total assets may be subject to
calls the Fund writes.
When the Fund writes a call on a security, it receives cash (a
premium). The Fund agrees to sell the underlying security to a purchaser of a
corresponding call on the same security during the call period at a fixed
exercise price regardless of market price changes during the call period. The
call period is usually not more than nine months. The exercise price may
differ from the market price of the underlying security. The Fund has the
risk of loss that the price of the underlying security may decline during the
call period. That risk may be offset to some extent by the premium the Fund
receives. If the value of the investment does not rise above the call price,
it is likely that the call will lapse without being exercised. In that case
the Fund would keep the cash premium and the investment.
When the Fund writes a call on an index, it receives cash (a premium).
If the buyer of the call exercises it, the Fund will pay an amount of cash
equal to the difference between the closing price of the call and the
exercise price, multiplied by a specified multiple that determines the total
value of the call for each point of difference. If the value of the
underlying investment does not rise above the call price, it is likely that
the call will lapse without being exercised. In that case, the fund would
keep the cash premium.
The Fund's custodian, or a securities depository acting for the
custodian, will act as the Fund's escrow agent, through the facilities of the
Options Clearing Corporation ("OCC"), as to the investments on which the Fund
has written calls traded on exchanges or as to other acceptable escrow
securities. In that way, no margin will be required for such transactions.
OCC will release the securities on the expiration of the option or when the
Fund enters into a closing transaction.
When the Fund writes an over-the-counter ("OTC") option, it will enter
into an arrangement with a primary U.S. government securities dealer which
will establish a formula price at which the Fund will have the absolute right
to repurchase that OTC option. The formula price will generally be based on a
multiple of the premium received for the option, plus the amount by which the
option is exercisable below the market price of the underlying security (that
is, the option is "in the money"). When the Fund writes an OTC option, it
will treat as illiquid (for purposes of its restriction on holding illiquid
securities) the mark-to-market value of any OTC option it holds, unless the
option is subject to a buy-back agreement by the executing broker.
To terminate its obligation on a call it has written, the Fund may
purchase a corresponding call in a "closing purchase transaction." The Fund
will then realize a profit or loss, depending upon whether the net of the
amount of the option transaction costs and the premium received on the call
the Fund wrote is more or less than the price of the call the Fund purchases
to close out the transaction. The Fund may realize a profit if the call
expires unexercised, because the Fund will retain the underlying security and
the premium it received when it wrote the call. Any such profits are
considered short-term capital gains for federal income tax purposes, as are
the premiums on lapsed calls. When distributed by the Fund they are taxable
as ordinary income. If the Fund cannot effect a closing purchase transaction
due to the lack of a market, it will have to hold the callable securities
until the call expires or is exercised.
The Fund may also write calls on a futures contract without owning the
futures contract or securities deliverable under the contract. To do so, at
the time the call is written, the Fund must cover the call by segregating an
equivalent dollar amount of liquid assets. The Fund will segregate additional
liquid assets if the value of the segregated assets drops below 100% of the
current value of the future. Because of this segregation requirement, in no
circumstances would the Fund's receipt of an exercise notice as to that
future require the Fund to deliver a futures contract. It would simply put
the Fund in a short futures position, which is permitted by the Fund's
hedging policies.
|_| Writing Put Options. The Fund can sell put options. 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.
If the Fund writes a put, the put must be covered by segregated liquid
assets. The premium the Fund receives from writing a put represents a profit,
as long as the price of the underlying investment remains equal to or above
the exercise price of the put. However, the Fund also assumes the obligation
during the option period to buy the underlying investment from the buyer of
the put at the exercise price, even if the value of the investment falls
below the exercise price. If a put the Fund has written expires unexercised,
the Fund realizes a gain in the amount of the premium less the transaction
costs incurred. If the put is exercised, the Fund must fulfill its obligation
to purchase the underlying investment at the exercise price. That price will
usually exceed the market value of the investment at that time. In that case,
the Fund may incur a loss if it sells the underlying investment. That loss
will be equal to the sum of the sale price of the underlying investment and
the premium received minus the sum of the exercise price and any transaction
costs the Fund incurred.
When writing a put option on a security, to secure its obligation to
pay for the underlying security the Fund will identify liquid assets on its
books with a value equal to or greater than the exercise price of the
underlying securities. The Fund therefore forgoes the opportunity of
investing the segregated assets or writing calls against those assets.
As long as the Fund's obligation as the put writer continues, it may be
assigned an exercise notice by the broker-dealer through which the put was
sold. That notice will require the Fund to take delivery of the underlying
security and pay 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. That obligation terminates upon expiration of the put. It
may also terminate if, before it receives an exercise notice, the Fund
effects a closing purchase transaction by purchasing a put of the same series
as it sold. Once the Fund has been assigned an exercise notice, it cannot
effect a closing purchase transaction.
The Fund may decide to effect a closing purchase transaction to realize
a profit on an outstanding put option it has written or to prevent the
underlying security from being put. Effecting a closing purchase transaction
will also permit the Fund to write another put option on the security, or to
sell the security and use the proceeds from the sale for other investments.
The Fund will realize a profit or loss from a closing purchase transaction
depending on whether the cost of the transaction is less or more than the
premium received from writing the put option. Any profits from writing puts
are considered short-term capital gains for federal tax purposes, and when
distributed by the Fund, are taxable as ordinary income.
|_| Purchasing Calls and Puts. The Fund can 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 buys a call (other
than in a closing purchase transaction), it pays a premium. The Fund then 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 it sells the call at a profit or if, during the
call period, the market price of the underlying investment is above the sum
of the call price plus the transaction costs and the premium paid for the
call and the Fund exercises the call. If the Fund does not exercise the call
or sell it (whether or not at a profit), the call will become worthless at
its expiration date. In that case the Fund will have paid the premium but
lost the right to purchase the underlying investment.
The Fund can buy puts whether or not it holds the underlying investment
in its portfolio. 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 an investment the Fund does not own (such as an index
or future) permits the Fund either to resell the put or to buy the underlying
investment and sell it at the exercise price. The resale price will vary
inversely to the price of the underlying investment. If the market price of
the underlying investment is above the exercise price and, as a result, the
put is not exercised, the put will become worthless on its expiration date.
Buying a put on securities or futures the Fund owns enables the Fund to
attempt to protect itself during the put period against a decline in the
value of the underlying investment below the exercise price by selling the
underlying investment at the exercise price to a seller of a corresponding
put. If the market price of the underlying investment is equal to or above
the exercise price and, as a result, the put is not exercised or resold, the
put will become worthless at its expiration date. In that case the Fund will
have paid the premium but lost the right to sell the underlying investment.
However, the Fund may sell the put prior to its expiration. That sale may or
may not be at a profit.
When the Fund purchases a call or put on an index or future, it pays a
premium, but settlement is in cash rather than by delivery of the underlying
investment to the Fund. Gain or loss depends on changes in the index in
question (and thus on price movements in the securities market generally)
rather than on price movements in individual securities or futures contracts.
The Fund may buy a call or put only if, after the purchase, the value
of all call and put options held by the Fund will not exceed 5% of the Fund's
total assets.
|_| Buying and Selling Options on Foreign Currencies. The Fund can buy
and sell calls and puts on foreign currencies. They include puts and calls
that trade on a securities or commodities exchange or in the over-the-counter
markets or are quoted by major recognized dealers in such options. The Fund
could use these calls and puts to try to protect against declines in the
dollar value of foreign securities and increases in the dollar cost of
foreign securities the Fund wants to acquire.
If the Manager anticipates a rise in the dollar value of a foreign
currency in which securities to be acquired are denominated, the increased
cost of those securities may be partially offset by purchasing calls or
writing puts on that foreign currency. If the Manager anticipates a decline
in the dollar value of a foreign currency, the decline in the dollar value of
portfolio securities denominated in that currency might be partially offset
by writing calls or purchasing puts on that foreign currency. However, the
currency rates could fluctuate in a direction adverse to the Fund's position.
The Fund will then have incurred option premium payments and transaction
costs without a corresponding benefit.
A call the Fund writes on a foreign currency is "covered" if the Fund
owns the underlying foreign currency covered by the call or has an absolute
and immediate right to acquire that foreign currency without additional cash
consideration (or it can do so for additional cash consideration identified
on its books) upon conversion or exchange of other foreign currency held in
its portfolio.
The Fund could write a call 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. That decline might be one that occurs due to an
expected adverse change in the exchange rate. This is known as a
"cross-hedging" strategy. In those circumstances, the Fund covers the option
by identifying on its books cash, U.S. government securities or other liquid,
high grade debt securities in an amount equal to the exercise price of the
option.
|_| Risks of Hedging with Options and Futures. The use of hedging
instruments requires special skills and knowledge of investment techniques
that are different than what is required for normal portfolio management. If
the 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.
The Fund's option activities could affect its portfolio turnover rate
and brokerage commissions. The exercise of calls written by the Fund might
cause the Fund to sell related portfolio securities, thus increasing its
turnover rate. The exercise by the Fund of puts on securities will cause the
sale of underlying investments, increasing portfolio turnover. Although the
decision whether to exercise a put it holds is within the Fund's control,
holding a put might cause the Fund to sell the related investments for
reasons that would not exist in the absence of the put.
The Fund could pay a brokerage commission each time it buys a call or
put, sells a call or put, or buys or sells an underlying investment in
connection with the exercise of a call or put. Those commissions could be
higher on a relative basis than the commissions for direct purchases or sales
of the underlying investments. Premiums paid for options are small in
relation to the market value of the underlying investments. Consequently, put
and call options offer large amounts of leverage. The leverage offered by
trading in options could result in the Fund's net asset value being more
sensitive to changes in the value of the underlying investment.
If a covered call written by the Fund is exercised on an investment
that has increased in value, the Fund will be required to sell the investment
at the call price. It will not be able to realize any profit if the
investment has increased in value above the call price.
An option position may be closed out only on a market that provides
secondary trading for options of the same series, and there is no assurance
that a liquid secondary market will exist for any particular option. The Fund
might experience losses if it could not close out a position because of an
illiquid market for the future or option.
There is a risk in using short hedging by selling futures or purchasing
puts on broadly-based indices or futures to attempt to protect against
declines in the value of the Fund's portfolio securities. The risk is that
the prices of the futures or the applicable index will correlate imperfectly
with the behavior of the cash prices of the Fund's securities. For example,
it is possible that while the Fund has used hedging instruments in a short
hedge, the market may advance and the value of the securities held in the
Fund's portfolio might decline. If that occurred, the Fund would lose money
on the hedging instruments and also experience a decline in the value of its
portfolio securities. However, while this could occur for a very brief period
or to a very small degree, over time the value of a diversified portfolio of
securities will tend to move in the same direction as the indices upon which
the hedging instruments are based.
The risk of imperfect correlation increases as the composition of the
Fund's portfolio diverges from the securities included in the applicable
index. To compensate for the imperfect correlation of movements in the price
of the portfolio securities being hedged and movements in the price of the
hedging instruments, the Fund might use hedging instruments in a greater
dollar amount than the dollar amount of portfolio securities being hedged. It
might do so if the historical volatility of the prices of the portfolio
securities being hedged is more than the historical volatility of the
applicable index.
The ordinary spreads between prices in the cash and futures markets are
subject to distortions, due to differences in the nature of those markets.
First, all participants in the futures market are subject to margin deposit
and maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or
taking delivery. To the extent participants decide to make or take delivery,
liquidity in the futures market could be reduced, thus producing distortion.
Third, from the point of view of speculators, the deposit requirements in the
futures market are less onerous than margin requirements in the securities
markets. Therefore, increased participation by speculators in the futures
market may cause temporary price distortions.
The Fund can use hedging instruments to establish a position in the
securities markets as a temporary substitute for the purchase of individual
securities (long hedging) by buying futures and/or calls on such futures,
broadly-based indices or on securities. It is possible that when the Fund
does so the market might decline. If the Fund then concludes not to invest in
securities because of concerns that the market might decline further or for
other reasons, the Fund will realize a loss on the hedging instruments that
is not offset by a reduction in the price of the securities purchased.
|_| Forward Contracts. Forward contracts are foreign currency exchange
contracts. They are used to buy or sell foreign currency for future delivery
at a fixed price. The Fund uses them to "lock in" the U.S. dollar price of a
security denominated in a foreign currency that the Fund has bought or sold,
or to protect against possible losses from changes in the relative values of
the U.S. dollar and a foreign currency. The Fund limits its exposure in
foreign currency exchange contracts in a particular foreign currency to the
amount of its assets denominated in that currency or a closely-correlated
currency. The Fund may also use "cross-hedging" where the Fund hedges against
changes in currencies other than the currency in which a security it holds is
denominated.
Under a forward contract, one party agrees to purchase, and another
party agrees to sell, a specific currency at a future date. That date may be
any fixed number of days from the date of the contract agreed upon by the
parties. The transaction price is set at the time the contract is entered
into. These contracts are traded in the inter-bank market conducted directly
among currency traders (usually large commercial banks) and their customers.
The Fund may use forward contracts to protect against uncertainty in
the level of future exchange rates. The use of forward contracts does not
eliminate the risk of fluctuations in the prices of the underlying securities
the Fund owns or intends to acquire, but it does fix a rate of exchange in
advance. Although forward contracts may reduce the risk of loss from a
decline in the value of the hedged currency, at the same time they limit any
potential gain if the value of the hedged currency increases.
When the Fund enters into a contract for the purchase or sale of a
security denominated in a foreign currency, or when it anticipates receiving
dividend payments in a foreign currency, the Fund might desire to "lock-in"
the U.S. dollar price of the security or the U.S. dollar equivalent of the
dividend payments. To do so, the Fund could enter into a forward contract for
the purchase or sale of the amount of foreign currency involved in the
underlying transaction, in a fixed amount of U.S. dollars per unit of the
foreign currency. This is called a "transaction hedge." The transaction hedge
will protect the Fund against a loss from an adverse change in the currency
exchange rates during the period between the date on which the security is
purchased or sold or on which the payment is declared, and the date on which
the payments are made or received.
The Fund could also use forward contracts to lock in the U.S. dollar
value of portfolio positions. This is called a "position hedge." When the
Fund believes that foreign currency might suffer a substantial decline
against the U.S. dollar, it could enter into a forward contract to sell an
amount of that foreign currency approximating the value of some or all of the
Fund's portfolio securities denominated in that foreign currency. When the
Fund believes that the U.S. dollar might suffer a substantial decline against
a foreign currency, it could enter into a forward contract to buy that
foreign currency for a fixed dollar amount. Alternatively, the Fund could
enter into a forward contract to sell a different foreign currency for a
fixed U.S. dollar amount if the Fund believes that the U.S. dollar value of
the foreign currency to be sold pursuant to its forward contract will fall
whenever there is a decline in the U.S. dollar value of the currency in which
portfolio securities of the Fund are denominated. That is referred to as a
"cross hedge."
The Fund will cover its short positions in these cases by identifying
on its books liquid assets having a value equal to the aggregate amount of
the Fund's commitment under forward contracts. The Fund will not enter into
forward contracts or maintain a net exposure to such contracts if the
consummation of the contracts would obligate the Fund to deliver an amount of
foreign currency in excess of the value of the Fund's portfolio securities or
other assets denominated in that currency or another currency that is the
subject of the hedge.
However, to avoid excess transactions and transaction costs, the Fund
may maintain a net exposure to forward contracts in excess of the value of
the Fund's portfolio securities or other assets denominated in foreign
currencies if the excess amount is "covered" by liquid securities denominated
in any currency. The cover must be at least equal at all times to the amount
of that excess. As one alternative, the Fund may purchase a call option
permitting the Fund to purchase the amount of foreign currency being hedged
by a forward sale contract at a price no higher than the forward contract
price. As another alternative, the Fund may purchase a put option permitting
the Fund to sell the amount of foreign currency subject to a forward purchase
contract at a price as high or higher than the forward contact price.
The precise matching of the amounts under forward contracts and the
value of the securities involved generally will not be possible because the
future value of securities denominated in foreign currencies will change as a
consequence of market movements between the date the forward contract is
entered into and the date it is sold. In some cases the Manager might decide
to sell the security and deliver foreign currency to settle the original
purchase obligation. If the market value of the security is less than the
amount of foreign currency the Fund is obligated to deliver, the Fund may
have to purchase additional foreign currency on the "spot" (that is, cash)
market to settle the security trade. If the market value of the security
instead exceeds the amount of foreign currency the Fund is obligated to
deliver to settle the trade, the Fund might have to sell on the spot market
some of the foreign currency received upon the sale of the security. There
will be additional transaction costs on the spot market in those cases.
The projection of short-term currency market movements is extremely
difficult, and the successful execution of a short-term hedging strategy is
highly uncertain. Forward contracts involve the risk that anticipated
currency movements will not be accurately predicted, causing the Fund to
sustain losses on these contracts and to pay additional transactions costs.
The use of forward contracts in this manner might reduce the Fund's
performance if there are unanticipated changes in currency prices to a
greater degree than if the Fund had not entered into such contracts.
At or before the maturity of a forward contract requiring the Fund to
sell a currency, the Fund might sell a portfolio security and use the sale
proceeds to make delivery of the currency. In the alternative the Fund might
retain the security and offset its contractual obligation to deliver the
currency by purchasing a second contract. Under that contract the Fund will
obtain, on the same maturity date, the same amount of the currency that it is
obligated to deliver. Similarly, the Fund might close out a forward contract
requiring it to purchase a specified currency by entering into a second
contract entitling it to sell the same amount of the same currency on the
maturity date of the first contract. The Fund would realize a gain or loss as
a result of entering into such an offsetting forward contract under either
circumstance. The gain or loss will depend on the extent to which the
exchange rate or rates between the currencies involved moved between the
execution dates of the first contract and offsetting contract.
The costs to the Fund of engaging in forward contracts varies with
factors such as the currencies involved, the length of the contract period
and the market conditions then prevailing. Because forward contracts are
usually entered into on a principal basis, no brokerage fees or commissions
are involved. Because these contracts are not traded on an exchange, the Fund
must evaluate the credit and performance risk of the counterparty under each
forward contract.
Although the Fund values its assets daily in terms of U.S. dollars, it
does not intend to convert its holdings of foreign currencies into U.S.
dollars on a daily basis. The Fund may convert foreign currency from time to
time, and will incur costs in doing so. Foreign exchange dealers do not
charge a fee for conversion, but they do seek to realize a profit based on
the difference between the prices at which they buy and sell various
currencies. Thus, a dealer might offer to sell a foreign currency to the Fund
at one rate, while offering a lesser rate of exchange if the Fund desires to
resell that currency to the dealer.
|_| Interest Rate Swap Transactions. The Fund can enter into interest
rate swap agreements. 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 might swap the right to receive floating rate
payments for fixed rate payments. The Fund can enter into swaps only on
securities that it owns. The Fund will not enter into swaps with respect to
more than 25% of its total assets. Also, the Fund will identify liquid assets
on the Fund's books (such as cash or U.S. government securities) to cover any
amounts it could owe under swaps that exceed the amounts it is entitled to
receive, and it will adjust that amount daily, as needed.
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 be greater than the
payments it received. Credit risk arises from the possibility that the
counterparty will default. If the counterparty 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 can enter into swap transactions with certain counterparties
pursuant to master netting agreements. A master netting agreement provides
that all swaps done between the Fund and that counterparty shall be regarded
as parts of an integral agreement. If amounts are payable on a particular
date in the same currency in respect of one or more swap transactions, the
amount payable on that date in that currency shall be the net amount. In
addition, the master netting agreement may provide that if one party defaults
generally or on one swap, the counterparty can terminate all of the swaps
with that party. Under these agreements, if a default results 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 for each swap. It is measured by the
mark-to-market value at the time of the termination of each swap. The gains
and losses on all swaps are then netted, and the result is the counterparty's
gain or loss on termination. The termination of all swaps and the netting of
gains and losses on termination is generally referred to as "aggregation."
|_| Regulatory Aspects of Hedging Instruments. The Commodities Futures
Trading Commission (the "CFTC") recently eliminated limitations on futures
trading by certain regulated entities including registered investment
companies and consequently registered investment companies may engage in
unlimited futures transactions and options thereon provided that the Fund
claims an exclusion from regulation as a commodity pool operator. The Fund
has claimed such an exclusion from registration as a commodity pool operator
under the Commodity Exchange Act ("CEA"). The Fund may use futures and
options for hedging and non-hedging purposes to the extent consistent with
its investment objective, internal risk management guidelines adopted by the
Fund's investment advisor (as they may be amended from time to time), and as
otherwise set forth in the Fund's prospectus or this Statement of Additional
Information.
Transactions in options by the Fund are subject to limitations
established by the option exchanges. The exchanges limit the maximum number
of options that may be written or held by a single investor or group of
investors acting in concert. Those limits apply regardless of whether the
options were written or purchased on the same or different exchanges or are
held in one or more accounts or through one or more different exchanges or
through one or more brokers. Thus, the number of options that the Fund may
write or hold may be affected by options written or held by other entities,
including other investment companies having the same advisor as the Fund (or
an advisor that is an affiliate of the Fund's advisor). The exchanges also
impose position limits on futures transactions. An exchange may order the
liquidation of positions found to be in violation of those limits and may
impose certain other sanctions.
Under interpretations of the staff of the SEC regarding applicable
provisions of the Investment Company Act, when the Fund purchases a future,
it must identify liquid assets on its books in an amount equal to the
purchase price of the future, less the margin deposit applicable to it.
|_| Tax Aspects of Certain Hedging Instruments. Certain foreign
currency exchange contracts in which the Fund may invest are treated as
"Section 1256 contracts" under the Internal Revenue Code. In general, gains
or losses relating to Section 1256 contracts are characterized as 60%
long-term and 40% short-term capital gains or losses under the Code. However,
foreign currency gains or losses arising from Section 1256 contracts that are
forward contracts generally are treated as ordinary income or loss. In
addition, Section 1256 contracts held by the Fund at the end of each taxable
year are "marked-to-market," and unrealized gains or losses are treated as
though they were realized. These contracts also may be marked-to-market for
purposes of determining the excise tax applicable to investment company
distributions and for other purposes under rules prescribed pursuant to the
Internal Revenue Code. An election can be made by the Fund to exempt those
transactions from this marked-to-market treatment.
Certain forward contracts the Fund enters into may result in
"straddles" for federal income tax purposes. The straddle rules may affect
the character and timing of gains (or losses) recognized by the Fund on
straddle positions. Generally, a loss sustained on the disposition of a
position making up a straddle is allowed only to the extent that the loss
exceeds any unrecognized gain in the offsetting positions making up the
straddle. Disallowed loss is generally allowed at the point where there is no
unrecognized gain in the offsetting positions making up the straddle, or the
offsetting position is disposed of.
Under the Internal Revenue Code, the following gains or losses are
treated as ordinary income or loss:
(1) gains or losses attributable to fluctuations in exchange rates
that occur between the time the Fund accrues interest or other
receivables or accrues expenses or other liabilities denominated in
a foreign currency and the time the Fund actually collects such
receivables or pays such liabilities, and
(2) gains or losses attributable to fluctuations in the value of a
foreign currency between the date of acquisition of a debt security
denominated in a foreign currency or foreign currency forward
contracts and the date of disposition.
Currency gains and losses are offset against market gains and losses on
each trade before determining a net "Section 988" gain or loss under the
Internal Revenue Code for that trade, which may increase or decrease the
amount of the Fund's investment income available for distribution to its
shareholders.
|_| Temporary Defensive and Interim Investments. When market, economic
or political conditions are unstable, or the Manager believes it is otherwise
appropriate to reduce holdings in stocks, the Fund can invest in a variety of
debt securities for defensive purposes. The Fund can also purchase these
securities for liquidity purposes to meet cash needs due to the redemption of
Fund shares, or to hold while waiting to reinvest cash received from the sale
of other portfolio securities. The Fund can buy:
o obligations issued or guaranteed by the U. S. government or its
instrumentalities or agencies,
o commercial paper (short-term, unsecured, promissory notes of domestic
or foreign companies) rated in the three top rating categories of a
nationally recognized rating organization,
o short-term debt obligations of corporate issuers, rated investment
grade (rated at least Baa by Moody's Investors Service, Inc. or at
least BBB by Standard & Poor's Corporation, or a comparable rating
by another rating organization), or unrated securities judged by the
Manager to have a comparable quality to rated securities in those
categories,
o certificates of deposit and bankers' acceptances of domestic and
foreign banks having total assets in excess of $1 billion, and
o repurchase agreements.
Short-term debt securities would normally be selected for defensive or
cash management purposes because they can normally be disposed of quickly,
are not generally subject to significant fluctuations in principal value and
their value will be less subject to interest rate risk than longer-term debt
securities.
Other Investment Restrictions
|_| What Are "Fundamental Policies?" Fundamental policies are those
policies that the Fund has adopted to govern its investments that can be
changed only by the vote of a "majority" of the Fund's outstanding voting
securities. Under the Investment Company Act, a "majority" vote is defined as
the vote of the holders of the lesser of:
o 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
o more than 50% of the outstanding shares.
The Fund's investment objective is a fundamental policy. Other policies
described in the Prospectus or this Statement of Additional Information are
"fundamental" only if they are identified as such. The Fund's Board of
Trustees can change non-fundamental policies without shareholder approval.
However, significant changes to investment policies will be described in
supplements or updates to the Prospectus or this Statement of Additional
Information, as appropriate. The Fund's most significant investment policies
are described in the Prospectus.
|_| What Are the Fund's Additional Fundamental Policies? The following
investment restrictions are fundamental policies of the Fund.
o The Fund cannot buy securities or other instruments issued or
guaranteed by any one issuer if more than 5% of its total assets would
be invested in securities or other instruments of that issuer or if it
would then own more than 10% of that issuer's voting securities. This
limitation applies to 75% of the Fund's total assets. The limit does
not apply to securities issued or guaranteed by the U.S. government or
any of its agencies or instrumentalities or securities of other
investment companies.
o The Fund cannot make loans, except to the extent permitted under the
Investment Company Act, the rules or regulations thereunder or any
exemption therefrom that is applicable to the Fund, as such statute,
rules or regulations may be amended or interpreted from time to time.
o The Fund cannot invest 25% or more of its total assets in any one
industry. That limit does not apply to securities issued or guaranteed
by the U.S. government or its agencies and instrumentalities or
securities issued by investment companies.
o The Fund cannot invest in real estate, physical commodities or
commodity contracts, except to the extent permitted under the
Investment Company Act, the rules or regulations thereunder or any
exemption therefrom, as such statute, rules or regulations may be
amended or interpreted from time to time.
o The Fund cannot underwrite securities of other companies. A permitted
exception is in case it is deemed to be an underwriter under the
Securities Act of 1933 when reselling any securities held in its own
portfolio.
o The Fund may not borrow money, except to the extent permitted under the
Investment Company Act, the rules or regulations thereunder or any
exemption therefrom that is applicable to the Fund, as such statute,
rules or regulations may be amended or interpreted from time to time.
o The Fund cannot issue senior securities, except to the extent permitted
under the Investment Company Act, the rules or regulations thereunder
or any exemption therefrom, as such statute, rules or regulations may
be amended or interpreted from time to time.
Unless the Prospectus or this Statement of Additional Information
states that a percentage restriction applies on an ongoing basis, it applies
only at the time the Fund makes an investment (except in the case of
borrowing and investments in illiquid securities). The Fund need not sell
securities to meet the percentage limits if the value of the investment
increases in proportion to the size of the Fund.
For purposes of the Fund's policy not to concentrate its investments as
described above, the Fund has adopted the industry classifications set forth
in Appendix B to this Statement of Additional Information. This is not a
fundamental policy.
|_| Does the Fund Have Additional Restrictions That Are Not
"Fundamental" Policies?
The Fund has an additional operating policy that is not "fundamental," and
which can be changed by the Board of Trustees without shareholder approval:
o The Fund cannot invest in the securities of other registered
investment companies or registered unit investment trusts in reliance
on sub-paragraph (F) or (G) of section 12(d)(1) of the Investment
Company Act.
Disclosure of Portfolio Holdings. The Fund has adopted policies and
procedures concerning the dissemination of information about its portfolio
holdings by employees, officers and/or directors of the Manager, Distributor
and Transfer Agent. These policies are designed to assure that non-public
information about portfolio securities is distributed only for a legitimate
business purpose, and is done in a manner that (a) conforms to applicable
laws and regulations and (b) is designed to prevent that information from
being used in a way that could negatively affect the Fund's investment
program or enable third parties to use that information in a manner that is
harmful to the Fund.
o Public Disclosure. The Fund's portfolio holdings are made publicly
available no later than 60 days after the close of each of the
Fund's fiscal quarters in semi-annual and annual reports to
shareholders, or in its Statements of Investments on Form N-Q, which
are publicly available at the SEC. In addition, the top 10 or more
holdings are posted on the OppenheimerFunds' website at
www.oppenheimerfunds.com in the "Fund Profiles" section. Other
general information about the Fund's portfolio investments, such as
portfolio composition by asset class, industry, country, currency,
credit rating or maturity, may also be posted with a 15-day lag.
Until publicly disclosed, the Fund's portfolio holdings are
proprietary, confidential business information. While recognizing the
importance of providing Fund shareholders with information about their Fund's
investments and providing portfolio information to a variety of third parties
to assist with the management, distribution and administrative process, the
need for transparency must be balanced against the risk that third parties
who gain access to the Fund's portfolio holdings information could attempt to
use that information to trade ahead of or against the Fund, which could
negatively affect the prices the Fund is able to obtain in portfolio
transactions or the availability of the securities that portfolio managers
are trading on the Fund's behalf.
The Manager and its subsidiaries and affiliates, employees, officers,
and directors, shall neither solicit nor accept any compensation or other
consideration (including any agreement to maintain assets in the Fund or in
other investment companies or accounts managed by the Manager or any
affiliated person of the Manager) in connection with the disclosure of the
Fund's non-public portfolio holdings. The receipt of investment advisory fees
or other fees and compensation paid to the Manager and its subsidiaries
pursuant to agreements approved by the Fund's Board shall not be deemed to be
"compensation" or "consideration" for these purposes. It is a violation of
the Code of Ethics for any covered person to release holdings in
contravention of portfolio holdings disclosure policies and procedures
adopted by the Fund.
A list of the top 10 or more portfolio securities holdings (based on
invested assets), listed by security or by issuer, as of the end of each
month may be disclosed to third parties (subject to the procedures below) no
sooner than 15 days after month-end.
Except under special limited circumstances discussed below, month-end
lists of the Fund's complete portfolio holdings may be disclosed no sooner
than 30-days after the relevant month-end, subject to the procedures below.
If the Fund's complete portfolio holdings have not been disclosed publicly,
they may be disclosed pursuant to special requests for legitimate business
reasons, provided that:
o The third-party recipient must first submit a request for release of
Fund portfolio holdings, explaining the business reason for the
request;
o Senior officers (a Senior Vice President or above) in the Manager's
Portfolio and Legal departments must approve the completed request
for release of Fund portfolio holdings; and
o The third-party recipient must sign the Manager's portfolio holdings
non-disclosure agreement before receiving the data, agreeing to keep
information that is not publicly available regarding the Fund's
holdings confidential and agreeing not to trade directly or
indirectly based on the information.
The Fund's complete portfolio holdings positions may be released to the
following categories of entities or individuals on an ongoing basis, provided
that such entity or individual either (1) has signed an agreement to keep
such information confidential and not trade on the basis of such information
or (2) is subject to fiduciary obligations, as a member of the Fund's Board,
or as an employee, officer and/or director of the Manager, Distributor, or
Transfer Agent, or their respective legal counsel, not to disclose such
information except in conformity with these policies and procedures and not
to trade for his/her personal account on the basis of such information:
o Employees of the Fund's Manager, Distributor and Transfer Agent who
need to have access to such information (as determined by senior
officers of such entity),
o The Fund's independent registered public accounting firm,
o Members of the Fund's Board and the Board's legal counsel,
o The Fund's custodian bank,
o A proxy voting service designated by the Fund and its Board,
o Rating/ranking organizations (such as Lipper and Morningstar),
o Portfolio pricing services retained by the Manager to provide portfolio
security prices, and
o Dealers, to obtain bids (price quotations if securities are not priced
by the Fund's regular pricing services).
Portfolio holdings information of the Fund may be provided, under
limited circumstances, to brokers and/or dealers with whom the Fund trades
and/or entities that provide investment coverage and/or analytical
information regarding the Fund's portfolio, provided that there is a
legitimate investment reason for providing the information to the broker,
dealer or other entity. Month-end portfolio holdings information may, under
this procedure, be provided to vendors providing research information and/or
analytics to the fund, with at least a 15-day delay after the month end, but
in certain cases may be provided to a broker or analytical vendor with a 1-2
day lag to facilitate the provision of requested investment information to
the manager to facilitate a particular trade or the portfolio manager's
investment process for the Fund. Any third party receiving such information
must first sign the Manager's portfolio holdings non-disclosure agreement as
a pre-condition to receiving this information.
Portfolio holdings information (which may include information on
individual securities positions or multiple securities) may be provided to
the entities listed below (1) by portfolio traders employed by the Manager in
connection with portfolio trading, and (2) by the members of the Manager's
Security Valuation Group and Accounting Departments in connection with
portfolio pricing or other portfolio evaluation purposes:
o Brokers and dealers in connection with portfolio transactions
(purchases and sales)
o Brokers and dealers to obtain bids or bid and asked prices (if
securities held by the Fund are not priced by the fund's regular
pricing services)
o Dealers to obtain price quotations where the fund is not identified as
the owner
Portfolio holdings information (which may include information on the
Fund's entire portfolio or individual securities therein) may be provided by
senior officers of the Manager or attorneys on the legal staff of the
Manager, Distributor, or Transfer Agent, in the following circumstances:
o Response to legal process in litigation matters, such as responses to
subpoenas or in class action matters where the Fund may be part of
the plaintiff class (and seeks recovery for losses on a security) or
a defendant,
o Response to regulatory requests for information (the SEC, NASD, state
securities regulators, and/or foreign securities authorities,
including without limitation requests for information in inspections
or for position reporting purposes),
o To potential sub-advisers of portfolios (pursuant to confidentiality
agreements),
o To consultants for retirement plans for plan sponsors/discussions at
due diligence meetings (pursuant to confidentiality agreements),
o Investment bankers in connection with merger discussions (pursuant to
confidentiality agreements)
Portfolio managers and analysts may, subject to the Manager's policies
on communications with the press and other media, discuss portfolio
information in interviews with members of the media, or in due diligence or
similar meetings with clients or prospective purchasers of Fund shares or
their financial intermediary representatives.
The Fund's shareholders may, under unusual circumstances (such as a
lack of liquidity in the Fund's portfolio to meet redemptions), receive
redemption proceeds of their Fund shares paid as pro rata shares of
securities held in the Fund's portfolio. In such circumstances, disclosure of
the Fund's portfolio holdings may be made to such shareholders.
The Chief Compliance Officer of the Fund and the Manager, Distributor,
and Transfer Agent (the "CCO") shall oversee the compliance by the Manager,
Distributor, Transfer Agent, and their personnel with these policies and
procedures. At least annually, the CCO shall report to the Fund's Board on
such compliance oversight and on the categories of entities and individuals
to which disclosure of portfolio holdings of the Funds has been made during
the preceding year pursuant to these policies. The CCO shall report to the
Fund's Board any material violation of these policies and procedures during
the previous calendar quarter and shall make recommendations to the Board as
to any amendments that the CCO believes are necessary and desirable to carry
out or improve these policies and procedures.
The Manager and/or the Fund have entered into ongoing arrangements to
make available information about the Fund's portfolio holdings. One or more
of the Oppenheimer funds may currently disclose portfolio holdings
information based on ongoing arrangements to the following parties:
A.G. Edwards & Sons
ABG Securities
ABN AMRO
Advest
AG Edwards
American Technology Research
Auerbach Grayson
Banc of America Securities
Barclays
Baseline
Bear Stearns
Belle Haven
Bloomberg
BNP Paribas
BS Financial Services
Buckingham Research Group
Caris & Co.
CIBC World Markets
Citigroup
Citigroup Global Markets
Collins Stewart
Craig-Hallum Capital Group LLC
Credit Agricole Cheuvreux N.A. Inc.
Credit Suisse First Boston
Daiwa Securities
Davy
Deutsche Bank
Deutsche Bank Securities
Dresdner Kleinwort Wasserstein
Emmet & Co
Empirical Research
Enskilda Securities
Essex Capital Markets
Exane BNP Paribas
Factset
Fidelity Capital Markets
Fimat USA Inc.
First Albany
First Albany Corporation
Fixed Income Securities
Fortis Securities
Fox-Pitt, Kelton
Friedman, Billing, Ramsey
Fulcrum Global Partners
Garp Research
George K Baum & Co.
Goldman
Goldman Sachs
HSBC
HSBC Securities Inc
ING Barings
ISI Group
Janney Montgomery
Jefferies
Jeffries & Co.
JP Morgan
JP Morgan Securities
JPP Eurosecurities
Keefe, Bruyette & Woods
Keijser Securities
Kempen & Co. USA Inc.
Kepler Equities/Julius Baer Sec
KeyBanc Capital Markets
Leerink Swan
Legg Mason
Lehman
Lehman Brothers
Lipper
Loop Capital Markets
MainFirst Bank AG
Makinson Cowell US Ltd
Maxcor Financial
Merrill
Merrill Lynch
Midwest Research
Mizuho Securities
Morgan Stanley
Morningstar
Natexis Bleichroeder
Ned Davis Research Group
Nomura Securities
Pacific Crest
Pacific Crest Securities
Pacific Growth Equities
Petrie Parkman
Pictet
Piper Jaffray Inc.
Plexus
Prager Sealy & Co.
Prudential Securities
Ramirez & Co.
Raymond James
RBC Capital Markets
RBC Dain Rauscher
Research Direct
Robert W. Baird
Roosevelt & Cross
Russell Mellon
Ryan Beck & Co.
Sanford C. Bernstein
Scotia Capital Markets
SG Cowen & Co.
SG Cowen Securities
Soleil Securities Group
Standard & Poors
Stone & Youngberg
SWS Group
Taylor Rafferty
Think Equity Partners
Thomas Weisel Partners
UBS
Wachovia
Wachovia Corp
Wachovia Securities
Wescott Financial
William Blair
Yieldbook
54
How the Fund is Managed
Organization and History. The Fund is an open-end, diversified management
investment company with an unlimited number of authorized shares of
beneficial interest. The Fund was organized as a Massachusetts business trust
in September 1983. Prior to February 2004, the Fund's name was Oppenheimer
Multiple Strategies Fund.
|_| Classes of Shares. The Trustees are authorized, without shareholder
approval, to create new series and classes of shares, to reclassify unissued
shares into additional series or classes and to divide or combine the shares
of a class into a greater or lesser number of shares without changing the
proportionate beneficial interest of a shareholder in the Fund. Shares do not
have cumulative voting rights, preemptive rights or subscription rights.
Shares may be voted in person or by proxy at shareholder meetings.
The Fund currently has four classes of shares: Class A, Class B, Class
C and Class N. All classes invest in the same investment portfolio. Only
retirement plans may purchase Class N shares. Each class of shares:
o has its own dividends and distributions,
o pays certain expenses which may be different for the different classes,
o will generally have a different net asset value,
o will generally have separate voting rights on matters in which
interests of one class are different from interests of another
class, and
o votes as a class on matters that affect that class alone.
Shares are freely transferable, and each share of each class has one
vote at shareholder meetings, with fractional shares voting proportionally,
on matters submitted a vote of shareholders. Each share of the Fund
represents an interest in the Fund proportionately equal to the interest of
each other share of the same class.
|_| Meetings of Shareholders. As a Massachusetts business trust, the
Fund is not required to hold, and does not plan to hold, regular annual
meetings of shareholders, but may hold shareholder meetings from time to
time on important matters or when required to do so by the Investment
Company Act or other applicable law. Shareholders have the right, upon a
vote or declaration in writing of two-thirds of the outstanding shares of
the Fund, to remove a Trustee or to take other action described in the
Fund's Declaration of Trust.
The Trustees will call a meeting of shareholders to vote on the removal
of a Trustee upon the written request of the record holders of 10% of its
outstanding shares. If the Trustees receive a request from at least 10
shareholders stating that they wish to communicate with other shareholders to
request a meeting to remove a Trustee, the Trustees will then either make the
Fund's shareholder list available to the applicants or mail their
communication to all other shareholders at the applicants' expense. The
shareholders making the request must have been shareholders for at least six
months and must hold shares of the Fund valued at $25,000 or more or
constituting at least 1% of the Fund's outstanding shares. The Trustees may
also take other action as permitted by the Investment Company Act.
|_| Shareholder and Trustee Liability. The Fund's Declaration of Trust
contains an express disclaimer of shareholder or Trustee liability for the
Fund's obligations. It also provides for indemnification and reimbursement of
expenses out of the Fund's property for any shareholder held personally
liable for its obligations. The Declaration of Trust also states that upon
request, the Fund shall assume the defense of any claim made against a
shareholder for any act or obligation of the Fund and shall satisfy any
judgment on that claim. Massachusetts law permits a shareholder of a business
trust (such as the Fund) to be held personally liable as a "partner" under
certain circumstances. However, the risk that a Fund shareholder will incur
financial loss from being held liable as a "partner" of the Fund is limited
to the relatively remote circumstances in which the Fund would be unable to
meet its obligations.
The Fund's contractual arrangements state that any person doing
business with the Fund (and each shareholder of the Fund) agrees under its
Declaration of Trust to look solely to the assets of the Fund for
satisfaction of any claim or demand that may arise out of any dealings with
the Fund. Additionally, the Trustees shall have no personal liability to any
such person, to the extent permitted by law.
Board of Trustees and Oversight Committees. The Fund is governed by a Board
of Trustees, which is responsible for protecting the interests of
shareholders under Massachusetts law. The Trustees meet periodically
throughout the year to oversee the Fund's activities, review its performance,
and review the actions of the Manager.
The Board of Trustees has an Audit Committee, a Regulatory & Oversight
Committee, a Governance Committee and a Proxy Committee. Each committee is
comprised solely of Trustees who are not "interested persons" under the
Investment Company Act (the "Independent Trustees"). The members of the Audit
Committee are Joel W. Motley (Chairman), Mary F. Miller, Kenneth A. Randall
and Joseph M. Wikler. The Audit Committee held 5 meetings during the Fund's
fiscal year ended September 30, 2005. The Audit Committee furnishes the Board
with recommendations regarding the selection of the Fund's independent
registered public accounting firm (also referred to as the "independent
Auditors"). Other main functions of the Audit Committee outlined in the Audit
Committee Charter, include, but are not limited to: (i) reviewing the scope
and results of financial statement audits and the audit fees charged;
(ii) reviewing reports from the Fund's independent Auditors regarding the
Fund's internal accounting procedures and controls; (iii) reviewing reports
from the Manager's Internal Audit Department; (iv) maintaining a separate
line of communication between the Fund's independent Auditors and the
Independent Trustees; (v) reviewing the independence of the Fund's
independent Auditors; and (vi) pre-approving the provision of any audit or
non-audit services by the Fund's independent Auditors, including tax
services, that are not prohibited by the Sarbanes-Oxley Act, to the Fund, the
Manager and certain affiliates of the Manager.
The members of the Regulatory & Oversight Committee are Robert G. Galli
(Chairman), Matthew P. Fink, Phillip A. Griffiths, Joel W. Motley and Brian
F. Wruble. The Regulatory & Oversight Committee held 5 meetings during the
Fund's fiscal year ended September 30, 2005. The Regulatory & Oversight
Committee evaluates and reports to the Board on the Fund's contractual
arrangements, including the Investment Advisory and Distribution Agreements,
transfer agency and shareholder service agreements and custodian agreements
as well as the policies and procedures adopted by the Fund to comply with the
Investment Company Act and other applicable law, among other duties as set
forth in the Regulatory & Oversight Committee's Charter.
The members of the Governance Committee are, Phillip A. Griffiths
(Chairman), Kenneth A. Randall, Russell S. Reynolds, Jr. and Peter I. Wold.
The Governance Committee held 8 meetings during the Fund's fiscal year ended
September 30, 2005. The Governance Committee reviews the Fund's governance
guidelines, the adequacy of the Fund's Codes of Ethics, and develops
qualification criteria for Board members consistent with the Fund's
governance guidelines, among other duties set forth in the Governance
Committee's Charter.
The Governance Committee's functions also include the selection and
nomination of Trustees, including Independent Trustees for election. The
Governance Committee may, but need not, consider the advice and
recommendation of the Manager and its affiliates in selecting nominees. The
full Board elects new Trustees except for those instances when a shareholder
vote is required.
To date, the Governance Committee has been able to identify from its
own resources an ample number of qualified candidates. Nonetheless, under the
current policy of the Board, if the Board determines that a vacancy exists or
is likely to exist on the Board, the Governance Committee will consider
candidates for Board membership including those recommended by the Fund's
shareholders. The Governance Committee will consider nominees recommended by
Independent Board members or recommended by any other Board members including
Board members affiliated with the Fund's Manager. The Governance Committee
may, upon Board approval, retain an executive search firm to assist in
screening potential candidates. Upon Board approval, the Governance Committee
may also use the services of legal, financial, or other external counsel that
it deems necessary or desirable in the screening process. Shareholders
wishing to submit a nominee for election to the Board may do so by mailing
their submission to the offices of OppenheimerFunds, Inc., Two World
Financial Center, 225 Liberty Street, 11th Floor, New York, New York
10281-1008, to the attention of the Board of Trustees of Oppenheimer Balanced
Fund, c/o the Secretary of the Fund.
Submissions should, at a minimum, be accompanied by the following: (1)
the name, address, and business, educational, and/or other pertinent
background of the person being recommended; (2) a statement concerning
whether the person is an "interested person" as defined in the Investment
Company Act; (3) any other information that the Fund would be required to
include in a proxy statement concerning the person if he or she was
nominated; and (4) the name and address of the person submitting the
recommendation and, if that person is a shareholder, the period for which
that person held Fund shares. Shareholders should note that a person who owns
securities issued by Massachusetts Mutual Life Insurance Company (the parent
company of the Manager) would be deemed an "interested person" under the
Investment Company Act. In addition, certain other relationships with
Massachusetts Mutual Life Insurance Company or its subsidiaries, with
registered broker-dealers, or with the Funds' outside legal counsel may cause
a person to be deemed an "interested person."
The Governance Committee has not established specific qualifications
that it believes must be met by a trustee nominee. In evaluating trustee
nominees, the Governance Committee considers, among other things, an
individual's background, skills, and experience; whether the individual is an
"interested person" as defined in the Investment Company Act; and whether the
individual would be deemed an "audit committee financial expert" within the
meaning of applicable SEC rules. The Governance Committee also considers
whether the individual's background, skills, and experience will complement
the background, skills, and experience of other Trustees and will contribute
to the Board. There are no differences in the manner in which the Governance
Committee evaluates nominees for trustees based on whether the nominee is
recommended by a shareholder. Candidates are expected to provide a mix of
attributes, experience, perspective and skills necessary to effectively
advance the interests of shareholders.
The members of the Proxy Committee are Russell S. Reynolds, Jr.
(Chairman), Matthew P. Fink and Mary F. Miller. The Proxy Committee held 1
meeting during the Fund's fiscal year ended September 30, 2005. The Proxy
Committee provides the Board with recommendations for the proxy voting of
portfolio securities held by the Fund and monitors proxy voting by the Fund.
Trustees and Officers of the Fund. Except for Mr. Murphy, each of the
Trustees is an Independent Trustee. All of the Trustees are also directors or
trustees of the following Oppenheimer funds (referred to as "Board I Funds"):
Oppenheimer AMT-Free Municipals Oppenheimer International Growth Fund
Oppenheimer International Large Cap
Oppenheimer AMT-Free New York Municipals Core Fund
Oppenheimer International Small Company
Oppenheimer Balanced Fund Fund
Oppenheimer California Municipal Fund Oppenheimer International Value Fund
Oppenheimer Limited Term California
Oppenheimer Capital Appreciation Fund Municipal Fund
Oppenheimer Developing Markets Fund Oppenheimer Money Market Fund, Inc.
Oppenheimer Discovery Fund Oppenheimer Multi-State Municipal Trust
Oppenheimer Dividend Growth Fund Oppenheimer Portfolio Series
Oppenheimer Emerging Growth Fund Oppenheimer Real Estate Fund
Oppenheimer Emerging Technologies Fund Oppenheimer Select Value Fund
Oppenheimer Enterprise Fund Oppenheimer Series Fund, Inc.
Oppenheimer Global Fund OFI Tremont Core Strategies Hedge Fund
Oppenheimer Global Opportunities Fund OFI Tremont Market Neutral Hedge Fund
Oppenheimer Tremont Market Neutral Fund
Oppenheimer Gold & Special Minerals Fund LLC
Oppenheimer Growth Fund Oppenheimer Tremont Opportunity Fund LLC
Oppenheimer International Diversified Fund Oppenheimer U.S. Government Trust
In addition to being a Board member of each of the Board I Funds,
Messrs. Galli and Wruble are directors or trustees of ten other portfolios,
and Messrs. Wikler and Wold are trustees of one other portfolio, in the
OppenheimerFunds complex.
Present or former officers, directors, trustees and employees (and
their immediate family members) of the Fund, the Manager and its affiliates,
and retirement plans established by them for their employees are permitted to
purchase Class A shares of the Fund and the other Oppenheimer funds at net
asset value without sales charge. The sales charge on Class A shares is
waived for that group because of the reduced sales efforts realized by the
Distributor.
Messrs. Ferreira, Leavy, Manioudakis, Gillespie, Murphy, Petersen,
Szilagyi, Vandehey, Wixted and Zack and Mss. Bloomberg and Ives, who are
officers of the Fund, hold the same offices with one or more of the other
Board I Funds. As of December 30, 2005 the Trustees and officers of the Fund,
as a group, owned of record or beneficially less than 1% of any class of
shares of the Fund. The foregoing statement does not reflect ownership of
shares held of record by an employee benefit plan for employees of the
Manager, other than the shares beneficially owned under that plan by the
officers of the Fund listed above. In addition, none of the Independent
Trustees (nor any of their immediate family members) owns securities of
either the Manager, or the Distributor of the Board I Funds or of any entity
directly or indirectly controlling, controlled by or under common control
with the Manager, or the Distributor.
Biographical Information. The Trustees and officers, their positions
with the Fund, length of service in such position(s) and principal
occupations and business affiliations during at least the past five years are
listed in the charts below. The charts also include information about each
Trustee's beneficial share ownership in the Fund and in all of the registered
investment companies that the Trustee oversees in the Oppenheimer family of
funds ("Supervised Funds"). The address of each Trustee in the chart below is
6803 S. Tucson Way, Centennial, Colorado 80112-3924. Each Trustee serves for
an indefinite term, or until his or her resignation, retirement, death or
removal.
----------------------------------------------------------------------------------------
Independent Trustees
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
Name, Principal Occupation(s) During the Past 5 Dollar Aggregate
Dollar
Range Of
Range of Shares
Position(s) Held Shares Beneficially
with the Fund, Years; Other Trusteeships/Directorships Beneficially Owned in
Length of Held; Number of Portfolios in the Fund Owned in Supervised
Service, Age Complex Currently Overseen the Fund Funds
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
As of December 31, 2005
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
Clayton K. Director of American Commercial Lines None Over
Yeutter, (barge company) (since January 2005); $100,000
Chairman of the Attorney at Hogan & Hartson (law firm)
Board of (since June 1993); Director of Covanta
Trustees since Holding Corp. (waste-to-energy company)
2003, (since 2002); Director of Weyerhaeuser
Trustee since Corp. (1999-April 2004); Director of
1993 Caterpillar, Inc. (1993-December 2002);
Age: 75 Director of ConAgra Foods (1993-2001);
Director of Texas Instruments (1993-2001);
Director of FMC Corporation (1993-2001).
Oversees 38 portfolios in the
OppenheimerFunds complex.
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
Matthew P. Fink, Trustee of the Committee for Economic None Over
Trustee since Development (policy research foundation) $100,000
2005 (since 2005); Director of ICI Education
Age: 65 Foundation (education foundation) (since
October 1991); President of the Investment
Company Institute (trade association)
(1991-2004); Director of ICI Mutual
Insurance Company (insurance company)
(1991-2004). Oversees 38 portfolios in the
OppenheimerFunds complex.
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
Robert G. Galli, A director or trustee of other Oppenheimer None Over
Trustee since funds. Oversees 48 portfolios in the $100,000
1993 OppenheimerFunds complex.
Age: 72
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
Phillip A. Distinguished Presidential Fellow for None Over
Griffiths, International Affairs (since 2002) and $100,000
Trustee since Member (since 1979) of the National
1999 Academy of Sciences; Council on Foreign
Age: 67 Relations (since 2002); Director of GSI
Lumonics Inc. (precision medical equipment
supplier) (since 2001); Senior Advisor of
The Andrew W. Mellon Foundation (since
2001); Chair of Science Initiative Group
(since 1999); Member of the American
Philosophical Society (since 1996);
Trustee of Woodward Academy (since 1983);
Foreign Associate of Third World Academy
of Sciences; Director of the Institute for
Advanced Study (1991-2004); Director of
Bankers Trust New York Corporation
(1994-1999); Provost at Duke University
(1983-1991). Oversees 38 portfolios in the
OppenheimerFunds complex.
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
Mary F. Miller, Trustee of the American Symphony Orchestra None Over
Trustee since (not-for-profit) (since October 1998); and $100,000
2004 Senior Vice President and General Auditor
Age: 63 of American Express Company (financial
services company) (July 1998-February
2003). Oversees 38 portfolios in the
OppenheimerFunds complex.
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
Joel W. Motley, Director of Columbia Equity Financial None Over
Trustee since Corp. (privately-held financial adviser) $100,000
2002 (since 2002); Managing Director of Carmona
Age: 53 Motley, Inc. (privately-held financial
adviser) (since January 2002); Managing
Director of Carmona Motley Hoffman Inc.
(privately-held financial adviser)
(January 1998-December 2001); Member of
the Finance and Budget Committee of the
Council on Foreign Relations, the
Investment Committee of the Episcopal
Church of America, the Investment
Committee of Human Rights Watch and the
Investment Committee of Historic Hudson
Valley. Oversees 38 portfolios in the
OppenheimerFunds complex.
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
Kenneth A. Director of Dominion Resources, Inc. $10,001-$50,0Over
Randall, (electric utility holding company) $100,000
Trustee since (February 1972-October 2005); Former
1983 Director of Prime Retail, Inc. (real
Age: 78 estate investment trust), Dominion Energy
Inc. (electric power and oil & gas
producer), Lumberman's Mutual Casualty
Company, American Motorists Insurance
Company and American Manufacturers Mutual
Insurance Company; Former President and
Chief Executive Officer of The Conference
Board, Inc. (international economic and
business research). Oversees 38 portfolios
in the OppenheimerFunds complex.
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
Russell S. Chairman of The Directorship Search Group, None $10,001-$50,000
Reynolds, Jr., Inc. (corporate governance consulting and
Trustee since executive recruiting) (since 1993); Life
1989 Trustee of International House (non-profit
Age: 74 educational organization); Former Trustee
of The Historical Society of the Town of
Greenwich. Oversees 38 portfolios in the
OppenheimerFunds complex.
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
Joseph M. Wikler, Director of the following medical device None Over
Trustee since companies: Medintec (since 1992) and $100,000
2005 Cathco (since 1996); Director of Lakes
Age: 64 Environmental Association (since 1996);
Member of the Investment Committee of the
Associated Jewish Charities of Baltimore
(since 1994); Director of Fortis/Hartford
mutual funds (1994-December 2001).
Oversees 39 portfolios in the
OppenheimerFunds complex.
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
Peter I. Wold, President of Wold Oil Properties, Inc. None Over
Trustee since (oil and gas exploration and production $100,000
2005 company) (since 1994); Vice President,
Age: 57 Secretary and Treasurer of Wold Trona
Company, Inc. (soda ash processing and
production) (since 1996); Vice President
of Wold Talc Company, Inc. (talc mining)
(since 1999); Managing Member of
Hole-in-the-Wall Ranch (cattle ranching)
(since 1979); Director and Chairman of the
Denver Branch of the Federal Reserve Bank
of Kansas City (1993-1999); and Director
of PacifiCorp. (electric utility)
(1995-1999). Oversees 39 portfolios in the
OppenheimerFunds complex.
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
Brian F. Wruble, General Partner of Odyssey Partners, L.P. $10,001-$50,0Over
Trustee since (hedge fund) (since September 1995); $100,000
2005 Director of Special Value Opportunities
Age: 62 Fund, LLC (registered investment company)
(since September 2004); Director of Zurich
Financial Investment Advisory Board (since
October 2004); Board of Governing Trustees
of The Jackson Laboratory (non-profit)
(since August 1990); Trustee of the
Institute for Advanced Study (non-profit
educational institute) (since May 1992);
Special Limited Partner of Odyssey
Investment Partners, LLC (private equity
investment) (January 1999-September 2004);
Trustee of Research Foundation of AIMR
(2000-2002) (investment research,
non-profit); Governor, Jerome Levy
Economics Institute of Bard College
(August 1990-September 2001) (economics
research); Director of Ray & Berendtson,
Inc. (May 2000-April 2002) (executive
search firm). Oversees 48 portfolios in
the OppenheimerFunds complex.
----------------------------------------------------------------------------------------
The address of Mr. Murphy is Two World Financial Center, 225 Liberty
Street, 11th Floor, New York, New York 10281-1008. Mr. Murphy serves as a
Trustee for an indefinite term, or until his resignation, retirement, death
or removal and as an officer for an annual term, or until his resignation,
retirement, death or removal. Mr. Murphy is an "Interested Trustee" because
he is affiliated with the Manager by virtue of his positions as an officer
and director of the Manager, and as a shareholder of its parent company.
- -------------------------------------------------------------------------------------------
Interested Trustee and Officer
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Name, Position(s) Principal Occupation(s) During the Past 5 Dollar Aggregate
Dollar Range
Range of Of Shares
Shares Beneficially
Held with Fund, Years; Other Trusteeships/Directorships Beneficially Owned in
Length of Held; Number of Portfolios in the Fund Owned in Supervised
Service, Age Complex Currently Overseen the Fund Funds
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
As of December 31, 2005
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
John V. Murphy, Chairman, Chief Executive Officer and None Over $100,000
President and Director (since June 2001) and President
Principal (since September 2000) of the Manager;
Executive Officer President and a director or trustee of
since 2001 and other Oppenheimer funds; President and
Trustee since Director of Oppenheimer Acquisition Corp.
2001 ("OAC") (the Manager's parent holding
Age: 56 company) and of Oppenheimer Partnership
Holdings, Inc. (holding company subsidiary
of the Manager) (since July 2001); Director
of OppenheimerFunds Distributor, Inc.
(subsidiary of the Manager) (since November
2001); Chairman and Director of Shareholder
Services, Inc. and of Shareholder Financial
Services, Inc. (transfer agent subsidiaries
of the Manager) (since July 2001);
President and Director of OppenheimerFunds
Legacy Program (charitable trust program
established by the Manager) (since July
2001); Director of the following investment
advisory subsidiaries of the Manager: OFI
Institutional Asset Management, Inc.,
Centennial Asset Management Corporation,
Trinity Investment Management Corporation
and Tremont Capital Management, Inc. (since
November 2001), HarbourView Asset
Management Corporation and OFI Private
Investments, Inc. (since July 2001);
President (since November 1, 2001) and
Director (since July 2001) of Oppenheimer
Real Asset Management, Inc.; Executive Vice
President of Massachusetts Mutual Life
Insurance Company (OAC's parent company)
(since February 1997); Director of DLB
Acquisition Corporation (holding company
parent of Babson Capital Management LLC)
(since June 1995); Member of the Investment
Company Institute's Board of Governors
(since October 3, 2003); Chief Operating
Officer of the Manager (September 2000-June
2001); President and Trustee of MML Series
Investment Fund and MassMutual Select Funds
(open-end investment companies) (November
1999-November 2001); Director of C.M. Life
Insurance Company (September 1999-August
2000); President, Chief Executive Officer
and Director of MML Bay State Life
Insurance Company (September 1999-August
2000); Director of Emerald Isle Bancorp and
Hibernia Savings Bank (wholly-owned
subsidiary of Emerald Isle Bancorp) (June
1989-June 1998). Oversees 87 portfolios in
the OppenheimerFunds complex.
- -------------------------------------------------------------------------------------------
The addresses of the officers in the chart below are as follows: for
Messrs. Ferreira, Leavy, Manioudakis, Gillespie and Zack and Ms. Bloomberg,
Two World Financial Center, 225 Liberty Street, New York, New York
10281-1008, for Messrs. Petersen, Szilagyi, Vandehey, and Wixted and Ms.
Ives, 6803 S. Tucson Way, Centennial, Colorado 80112-3924. Each officer
serves for an annual term or until his or her resignation, retirement, death
or removal.
- --------------------------------------------------------------------------------------
Other Officers of the Fund
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Name, Position(s) Held Principal Occupation(s) During Past 5 Years
with Fund, Length of
Service, Age
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Emmanuel Ferreira, Vice President of the Manager since January 2003; Portfolio
Vice President and Manager at Lashire Investments (July 1999-December 2002). An
Portfolio Manager officer of 5 portfolios in the OppenheimerFunds complex.
since 2003
Age: 38
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Christopher Leavy, Senior Vice President of the Manager since September 2000;
Vice President and portfolio manager of Morgan Stanley Dean Witter Investment
Portfolio Manager Management (1997-September 2000). An officer of 8 portfolios
since 2003 in the OppenheimerFunds complex.
Age: 34
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Angelo Manioudakis, Senior Vice President of the Manager (since April 2002), of
Vice President and HarbourView Asset Management Corporation (since April, 2002
Portfolio Manager and of OFI Institutional Asset Management, Inc. (since June
since 2003 2002); Executive Director and portfolio manager for Miller,
Age: 39 Anderson & Sherrerd, a division of Morgan Stanley Investment
Management (August 1993-April 2002). An officer of 14
portfolios in the OppenheimerFunds complex.
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Mark S. Vandehey, Senior Vice President and Chief Compliance Officer of the
Vice President and Manager (since March 2004); Vice President of
Chief Compliance OppenheimerFunds Distributor, Inc., Centennial Asset
Officer since 2004 Management Corporation and Shareholder Services, Inc. (since
Age: 55 June 1983). Former Vice President and Director of Internal
Audit of the Manager (1997-February 2004). An officer of 87
portfolios in the OppenheimerFunds complex.
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Brian W. Wixted, Senior Vice President and Treasurer of the Manager (since
Treasurer and Principal March 1999); Treasurer of the following: HarbourView Asset
Financial & Accounting Management Corporation, Shareholder Financial Services,
Officer Inc., Shareholder Services, Inc., Oppenheimer Real Asset
since 1999 Management Corporation, and Oppenheimer Partnership
Age: 46 Holdings, Inc. (since March 1999), OFI Private Investments,
Inc. (since March 2000), OppenheimerFunds International Ltd.
(since May 2000), OppenheimerFunds plc (since May 2000), OFI
Institutional Asset Management, Inc. (since November 2000),
and OppenheimerFunds Legacy Program (charitable trust
program established by the Manager) (since June 2003);
Treasurer and Chief Financial Officer of OFI Trust Company
(trust company subsidiary of the Manager) (since May 2000);
Assistant Treasurer of the following: OAC (since March
1999),Centennial Asset Management Corporation (March
1999-October 2003) and OppenheimerFunds Legacy Program
(April 2000-June 2003); Principal and Chief Operating
Officer of Bankers Trust Company-Mutual Fund Services
Division (March 1995-March 1999). An officer of 87
portfolios in the OppenheimerFunds complex.
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Brian Petersen, Assistant Vice President of the Manager (since August 2002);
Assistant Treasurer Manager/Financial Product Accounting of the Manager
since 2004 (November 1998-July 2002). An officer of 87 portfolios in
Age: 35 the OppenheimerFunds complex.
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Brian C. Szilagyi, Assistant Vice President of the Manager (since July 2004);
Assistant Treasurer Director of Financial Reporting and Compliance of First Data
since 2005 Corporation (April 2003-July 2004); Manager of Compliance of
Age: 35 Berger Financial Group LLC (May 2001-March 2003). An officer
of 87 portfolios in the OppenheimerFunds complex.
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Robert G. Zack, Executive Vice President (since January 2004) and General
Secretary since 2001 Counsel (since March 2002) of the Manager; General Counsel
Age: 57 and Director of the Distributor (since December 2001);
General Counsel of Centennial Asset Management Corporation
(since December 2001); Senior Vice President and General
Counsel of HarbourView Asset Management Corporation (since
December 2001); Secretary and General Counsel of OAC (since
November 2001); Assistant Secretary (since September 1997)
and Director (since November 2001) of OppenheimerFunds
International Ltd. and OppenheimerFunds plc; Vice President
and Director of Oppenheimer Partnership Holdings, Inc.
(since December 2002); Director of Oppenheimer Real Asset
Management, Inc. (since November 2001); Senior Vice
President, General Counsel and Director of Shareholder
Financial Services, Inc. and Shareholder Services, Inc.
(since December 2001); Senior Vice President, General
Counsel and Director of OFI Private Investments, Inc. and
OFI Trust Company (since November 2001); Vice President of
OppenheimerFunds Legacy Program (since June 2003); Senior
Vice President and General Counsel of OFI Institutional
Asset Management, Inc. (since November 2001); Director of
OppenheimerFunds (Asia) Limited (since December 2003);
Senior Vice President (May 1985-December 2003), Acting
General Counsel (November 2001-February 2002) and Associate
General Counsel (May 1981-October 2001) of the Manager;
Assistant Secretary of the following: Shareholder Services,
Inc. (May 1985-November 2001), Shareholder Financial
Services, Inc. (November 1989-November 2001), and
OppenheimerFunds International Ltd. (September 1997-November
2001). An officer of 87 portfolios in the OppenheimerFunds
complex.
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Kathleen T. Ives, Vice President (since June 1998) and Senior Counsel and
Assistant Secretary Assistant Secretary (since October 2003) of the Manager;
since 2001 Vice President (since 1999) and Assistant Secretary (since
Age: 40 October 2003) of the Distributor; Assistant Secretary of
Centennial Asset Management Corporation (since October
2003); Vice President and Assistant Secretary of Shareholder
Services, Inc. (since 1999); Assistant Secretary of
OppenheimerFunds Legacy Program and Shareholder Financial
Services, Inc. (since December 2001); Assistant Counsel of
the Manager (August 1994-October 2003). An officer of 87
portfolios in the OppenheimerFunds complex.
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Lisa I. Bloomberg, Vice President and Associate Counsel of the Manager (since
Assistant Secretary May 2004); First Vice President (April 2001-April 2004),
since 2004 Associate General Counsel (December 2000-April 2004),
Age: 37 Corporate Vice President (May 1999-April 2001) and Assistant
General Counsel (May 1999-December 2000) of UBS Financial
Services Inc. (formerly, PaineWebber Incorporated). An
officer of 87 portfolios in the OppenheimerFunds complex.
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Phillip S. Gillespie, Senior Vice President and Deputy General Counsel of the
Assistant Secretary Manager (since September 2004); Mr. Gillespie held the
since 2004 following positions at Merrill Lynch Investment Management:
Age: 41 First Vice President (2001-September 2004); Director
(2000-September 2004) and Vice President (1998-2000). An
officer of 87 portfolios in the OppenheimerFunds complex.
- --------------------------------------------------------------------------------------
|_| Remuneration of the Officers and Trustees. The officers and the
interested Trustee of the Fund, who are affiliated with the Manager, receive
no salary or fee from the Fund. The Independent Trustees' compensation from
the Fund, shown below, is for serving as a Trustee and member of a committee
(if applicable), with respect to the Fund's fiscal year ended September 30,
2005. The total compensation from the Fund and fund complex represents
compensation, including accrued retirement benefits, for serving as a Trustee
and member of a committee (if applicable) of the Boards of the Fund and other
funds in the OppenheimerFunds complex during the calendar year ended
December 31, 2005.
- --------------------------------------------------------------------------------------
Name and Other Fund Aggregate Estimated Total
Retirement
Benefits
Compensation Accrued as Annual Compensation
Position(s) (as From the Part of Fund Benefits Upon From the Fund
applicable) (14) Fund(1) Expenses Retirement(2) and Fund Complex
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Fiscal year ended September Year ended
30, 2005 December 31, 2005
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Clayton K. Yeutter $3,646(3) None $86,171 $173,700
Chairman of the Board
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Matthew P. Fink $283 None $2,641 $61,936
Proxy Committee
Member and Regulatory
& Oversight Committee
Member
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Robert G. Galli $2,714 None $100,824(4) $264,812(5)
Regulatory &
Oversight Committee
Chairman
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Phillip A. Griffiths $3,164(6) None $34,972 $150,760
Governance Committee
Chairman and
Regulatory &
Oversight Committee
Member
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Mary F. Miller
Audit Committee
Member and Proxy $1,673 None $7,128 $103,254
Committee Member
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Joel W. Motley $3,164(7) None $23,945 $150,760
Audit Committee
Chairman and
Regulatory &
Oversight Committee
Member
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Kenneth A. Randall $2,814 None(8) $85,944 $134,080
Audit Committee
Member and Governance
Committee Member
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Edward V. Regan(9) $1,740 None $70,977 $54,605
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Russell S. Reynolds, $2,261 None $66,602 $108,593
Jr.
Proxy Committee
Chairman and
Governance Committee
Member
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Joseph M. Wikler $160 None None $60,386(1(0))
Audit Committee Member
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Peter I. Wold
Governance Committee $160 None None $60,386(1(1))
Member
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Brian F. Wruble $0 None $37,139(1(2)) $159,354(1(3))
Regulatory &
Oversight Committee
Member
- --------------------------------------------------------------------------------------
1. "Aggregate Compensation From the Fund" includes fees and deferred
compensation, if any.
2. "Estimated Annual Benefits Upon Retirement" is based on a straight life
payment plan election with the assumption that a Trustee will retire at
the age of 75 and is eligible (after 7 years of service) to receive
retirement plan benefits with respect to certain Board I Funds as
described below under "Retirement Plan for Trustees."
3. Includes $912 deferred by Mr. Yeutter under the "Deferred Compensation
Plan" described below.
4. Includes $45,840 estimated benefits to be paid to Mr. Galli for serving
as a director or trustee of 10 other Oppenheimer funds that are not Board
I Funds.
5. Includes $135,500 paid to Mr. Galli for serving as a director or
trustee of 10 other Oppenheimer funds (at December 31, 2005) that are not
Board I Funds.
6. Includes $3,164 deferred by Mr. Griffiths under the "Deferred
Compensation Plan" described below.
7. Includes $1,266 deferred by Mr. Motley under the "Deferred Compensation
Plan" described below.
8. Due to actuarial considerations, no additional retirement benefits were
accrued with respect to Mr. Randall.
9. Mr. Regan retired as a Trustee of the Board I funds effective June 30,
2005.
10. Includes $23,500 paid to Mr. Wikler for serving as a director or
trustee of one other Oppenheimer fund (at December 31, 2005) that is not a
Board I Fund.
11. Includes $23,500 paid to Mr. Wold for serving as a director or trustee
of one other Oppenheimer fund (at December 31, 2005) that is not a Board I
Fund.
12. Estimated benefits to be paid to Mr. Wruble for serving as a director
or trustee of 10 other Oppenheimer funds that are not Board I Funds. Mr.
Wruble's service as a director or trustee of such funds will not be
counted towards the fulfillment of his eligibility requirements for
payments under the Board I retirement plan, described below.
13. Includes $135,500 paid to Mr. Wruble for serving as a director or
trustee of 10 other Oppenheimer funds (at December 31, 2005) that are not
Board I Funds.
14. Mr. Spiro retired as a Trustee of the Board I funds effective
October 31, 2004. Mr. Spiro received $114 for serving as a Trustee of the
Fund for the fiscal year ended September 30, 2005. He did not receive any
compensation from the Supervised Funds for the calendar year ended
December 31, 2005.
|_| Retirement Plan for Trustees. The Board I Funds have adopted a
retirement plan that provides for payments to retired Independent Trustees.
Payments are up to 80% of the average compensation paid during a Trustee's
five years of service in which the highest compensation was received. A
Trustee must serve as director or trustee for any of the Board I Funds for at
least seven years to be eligible for retirement plan benefits and must serve
for at least 15 years to be eligible for the maximum benefit. The amount of
retirement benefits a Trustee will receive depends on the amount of the
Trustee's compensation, including future compensation and the length of his
or her service on the Board.
|_| Deferred Compensation Plan. The Board of Trustees has adopted a
Deferred Compensation Plan for Independent Trustees that enables them to
elect to defer receipt of all or a portion of the annual fees they are
entitled to receive from certain Board I Funds. Under the plan, the
compensation deferred by a Trustee is periodically adjusted as though an
equivalent amount had been invested in shares of one or more Oppenheimer
funds selected by the Trustee. The amount paid to the Trustee under the plan
will be determined based upon the amount of compensation deferred and the
performance of the selected funds.
Deferral of the Trustees' fees under the plan will not materially
affect the Fund's assets, liabilities or net income per share. The plan will
not obligate the Fund to retain the services of any Trustee or to pay any
particular level of compensation to any Trustee. Pursuant to an Order issued
by the SEC, the Fund may invest in the funds selected by the Trustee under
the plan without shareholder approval for the limited purpose of determining
the value of the Trustee's deferred compensation account.
|_| Major Shareholders. As of December 30, 2005, the only persons or
entities who owned of record or were known by the Fund to own beneficially 5%
or more of any class of the Fund's outstanding shares were:
Wilmington Trust Co. TR, Movado Group Inc., FBO WTC Movagrou, EXE
CDP, 1100 N. Market Street, Wilmington, DE 19801-1243, which owed
74,760.864 Class N shares (7.89% of the Class N shares then
outstanding).
Orchard Trust Co. LLC, FBO Oppen. RecordkeeperPro, 8515 E.
Orchard Road, Greenwood Village, CO 80111-500, which owed
47,673.498 Class N shares (5.03% of the Class N shares then
outstanding).
RPSS TR Woolsey Bros. Farm Supply Inc., 401(k) Plan, Attn.: Herb
Woolsey, P.O. Box 363, Vandalia, IL 62471-0363, which owned
48,212.926 Class N shares (5.09% of the Class N shares then
outstanding).
The Manager. The Manager is wholly-owned by Oppenheimer Acquisition Corp., a
holding company controlled by Massachusetts Mutual Life Insurance Company, a
global, diversified insurance and financial services organization.
|_| Code of Ethics. The Fund, the Manager and the Distributor 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. Covered
persons include persons with knowledge of the investments and investment
intentions of the Fund and other funds advised by the Manager. The Code of
Ethics does permit personnel subject to the Code to invest in securities,
including securities that may be purchased or held by the Fund, subject to a
number of restrictions and controls. Compliance with the Code of Ethics is
carefully monitored and enforced by the Manager.
The Code of Ethics is an exhibit to the Fund's registration statement
filed with the SEC and can be reviewed and copied at the SEC's Public
Reference Room in Washington, D.C. You can obtain information about the hours
of operation of the Public Reference Room by calling the SEC at
1.202.942.8090. The Code of Ethics can also be viewed as part of the Fund's
registration statement on the SEC's EDGAR database at the SEC's Internet
website at www.sec.gov. Copies may be obtained, after paying a duplicating
fee, by electronic request at the following E-mail address:
publicinfo@sec.gov., or by writing to the SEC's Public Reference Section,
Washington, D.C. 20549-0102.
|_| Portfolio Proxy Voting. The Fund has adopted Portfolio Proxy
Voting Policies and Procedures under which the Fund votes proxies relating to
securities ("portfolio proxies") held by the Fund. The Fund's primary
consideration in voting portfolio proxies is the financial interests of the
Fund and its shareholders. The Fund has retained an unaffiliated third-party
as its agent to vote portfolio proxies in accordance with the Fund's
Portfolio Proxy Voting Guidelines and to maintain records of such portfolio
proxy voting. The Portfolio Proxy Voting Policies and Procedures include
provisions to address conflicts of interest that may arise between the Fund
and the Manager or the Manager's affiliates or business relationships. Such a
conflict of interest may arise, for example, where the Manager or an
affiliate of the Manager manages or administers the assets of a pension plan
or other investment account of the portfolio company soliciting the proxy or
seeks to serve in that capacity. The Manager and its affiliates generally
seek to avoid such conflicts by maintaining separate investment decision
making processes to prevent the sharing of business objectives with respect
to proposed or actual actions regarding portfolio proxy voting decisions.
Additionally, the Manager employs the following two procedures: (1) if the
proposal that gives rise to the conflict is specifically addressed in the
Guidelines, the Manager will vote the portfolio proxy in accordance with the
Guidelines, provided that they do not provide discretion to the Manager on
how to vote on the matter; and (2) if such proposal is not specifically
addressed in the Guidelines or the Guidelines provide discretion to the
Manager on how to vote, the Manager will vote in accordance with the
third-party proxy voting agent's general recommended guidelines on the
proposal provided that the Manager has reasonably determined that there is no
conflict of interest on the part of the proxy voting agent. If neither of the
previous two procedures provides an appropriate voting recommendation, the
Manager may retain an independent fiduciary to advise the Manager on how to
vote the proposal or may abstain from voting. The Guidelines' provisions with
respect to certain routine and non-routine proxy proposals are summarized
below:
o The Fund generally votes with the recommendation of the issuer's
management on routine matters, including ratification of the
independent registered public accounting firm, unless circumstances
indicate otherwise.
o The Fund evaluates nominees for director nominated by management on a
case-by-case basis, examining the following factors, among others:
Composition of the board and key board committees, attendance at
board meetings, corporate governance provisions and takeover
activity, long-term company performance and the nominee's investment
in the company.
o In general, the Fund opposes anti-takeover proposals and supports the
elimination, or the ability of shareholders to vote on the
preservation or elimination, of anti-takeover proposals, absent
unusual circumstances.
o The Fund supports shareholder proposals to reduce a super-majority vote
requirement, and opposes management proposals to add a
super-majority vote requirement.
o The Fund opposes proposals to classify the board of directors.
o The Fund supports proposals to eliminate cumulative voting.
o The Fund opposes re-pricing of stock options without shareholder
approval.
o The Fund generally considers executive compensation questions such as
stock option plans and bonus plans to be ordinary business activity.
The Fund analyzes stock option plans, paying particular attention to
their dilutive effect. While the Fund generally supports management
proposals, the Fund opposes plans it considers to be excessive.
The Fund is required to file Form N-PX, with its complete proxy voting
record for the 12 months ended June 30th, no later than August 31st of each
year. The Fund's Form N-PX filing is available (i) without charge, upon
request, by calling the Fund toll-free at 1.800.525.7048 and (ii) on the
SEC's website at www.sec.gov.
|_| The Investment Advisory Agreement. The Manager provides investment
advisory and management services to the Fund under an investment advisory
agreement between the Manager and the Fund. The Manager selects securities
for the Fund's portfolio and handles its day-to-day business. The portfolio
managers of the Fund are employed by the Manager and are the persons who are
principally responsible for the day-to-day management of the Fund's
portfolio. Other members of the Manager's Equity Portfolio Departments
provide the portfolio managers with counsel and support in managing the
Fund's portfolio.
The agreement requires the Manager, at its expense, to provide the Fund
with adequate office space, facilities and equipment. It also requires the
Manager to provide and supervise the activities of all administrative and
clerical personnel required to provide effective administration for the Fund.
Those responsibilities include the compilation and maintenance of records
with respect to its operations, the preparation and filing of specified
reports, and composition of proxy materials and registration statements for
continuous public sale of shares of the Fund.
The Fund pays expenses not expressly assumed by the Manager under the
advisory agreement. The advisory agreement lists examples of expenses paid by
the Fund. The major categories relate to interest, taxes, brokerage
commissions, fees to certain Trustees, legal and audit expenses, custodian
and transfer agent expenses, share issuance costs, certain printing and
registration costs and non-recurring expenses, including litigation costs.
The management fees paid by the Fund to the Manager are calculated at the
rates described in the Prospectus, which are applied to the assets of the
Fund as a whole. The fees are allocated to each class of shares based upon
the relative proportion of the Fund's net assets represented by that class.
The management fees paid by the Fund to the Manager during its last three
fiscal years were:
--------------------------------------------------------------------
Fiscal Year ended 9/30: Management Fees Paid to OppenheimerFunds,
Inc.
--------------------------------------------------------------------
--------------------------------------------------------------------
2003 $4,456,996
--------------------------------------------------------------------
--------------------------------------------------------------------
2004 $5,468,668
--------------------------------------------------------------------
--------------------------------------------------------------------
2005 $6,085,297
--------------------------------------------------------------------
The investment advisory agreement states that in the absence of willful
misfeasance, bad faith, gross negligence in the performance of its duties or
reckless disregard of its obligations and duties under the investment
advisory agreement, the Manager is not liable for any loss the Fund sustains
for any investment, adoption of any investment policy, or the purchase, sale
or retention of any security.
The agreement permits the Manager to act as investment advisor for any
other person, firm or corporation and to use the name "Oppenheimer" in
connection with other investment companies for which it may act as investment
advisor or general distributor. If the Manager shall no longer act as
investment advisor to the Fund, the Manager may withdraw the right of the
Fund to use the name "Oppenheimer" as part of its name.
Portfolio Managers. The Fund's portfolio is managed by Emmanuel Ferreira,
Christopher Leavy, Angelo Manioudakis and a team of investment professionals
including Benjamin Gord, Geoffrey Caan, Charles Moon and Antulio N. Bomfim
(each is referred to as a "Portfolio Manager" and collectively they are
referred to as the "Portfolio Managers"). They are the persons who are
responsible for the day-to-day management of the Fund's investments.
|_| Other Accounts Managed by the Portfolio Managers. The Fund's
portfolio is managed by Emmanuel Ferreira, Christopher Leavy, Angelo
Manioudakis and a team of investment professionals including Benjamin J.
Gord, Geoffrey Caan, Charles Moon and Antulio N. Bomfim who are responsible
for the day-to-day management of the fund's investments. In addition to
managing the Fund's investment portfolio, Messrs. Ferreira, Leavy,
Manioudakis, Gord, Caan, Moon and Bomfim also manage other investment
portfolios on behalf of the Manager or its affiliates. The following table
provides information, as of September 30, 2005, regarding the other
portfolios managed by Messrs. Ferreira, Leavy, Manioudakis, Gord, Caan, Moon
and Bomfim. None of those portfolios has an advisory fee based on
performance:
Portfolio RegistereTotal Other Total Other Total
Assets in
Assets in Other
Registered Pooled Pooled Assets
InvestmenInvestment InvestmentInvestment in Other ,2)
CompaniesCompanies Vehicles Vehicles AccountsAccounts
Managers Managed Managed(1) Managed Managed(1) Managed(Managed(1)(
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Emmanuel Ferreira 4 $3,560.8 None None None None
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Christopher Leavy 11 $9,618.1 2 $152.2 None None
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Angelo 17 $12,751.7 6 $198.3 1 $39.5
Manioudakis
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Benjamin Gord 14 $12,220.4 6 $198.3 1 $39.5
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Geoffrey Caan 14 $12,220.4 6 $198.3 1 $39.5
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Charles Moon 14 $12,220.4 6 $198.3 1 $39.5
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Antulio N. Bomfim 14 $12,220.4 6 $198.3 1 $39.5
1. In millions.
2. Does not include personal accounts of portfolio managers and their
families, which are subject to the Code of Ethics.
As indicated above, each of the Portfolio Managers also manages other
funds. Potentially, at times, those responsibilities could conflict with the
interests of the Fund. That may occur whether the investment strategies of
the other fund are the same as, or different from, the Fund's investment
objectives and strategies. For example the Portfolio Manager may need to
allocate investment opportunities between the Fund and another fund having
similar objectives or strategies, or he may need to execute transactions for
another fund that could have a negative impact on the value of securities
held by the Fund. Not all funds and accounts advised by the Manager have the
same management fee. If the management fee structure of another fund is more
advantageous to the Manager than the fee structure of the Fund, the Manager
could have an incentive to favor the other fund. However, the Manager's
compliance procedures and Code of Ethics recognize the Manager's fiduciary
obligations to treat all of its clients, including the Fund, fairly and
equitably, and are designed to preclude the Portfolio Managers from favoring
one client over another. It is possible, of course, that those compliance
procedures and the Code of Ethics may not always be adequate to do so. At
different times, one or more of the Fund's Portfolio Managers may manage
other funds or accounts with investment objectives and strategies that are
similar to those of the Fund, or may manage funds or accounts with investment
objectives and strategies that are different from those of the Fund.
|_| Compensation of the Portfolio Managers. The Fund's Portfolio
Managers are employed and compensated by the Manager, not the Fund. Under the
Manager's compensation program for its portfolio managers and portfolio
analysts, their compensation is based primarily on the investment performance
results of the funds and accounts they manage, rather than on the financial
success of the Manager. This is intended to align the portfolio managers' and
analysts' interests with the success of the funds and accounts and their
investors. The Manager's compensation structure is designed to attract and
retain highly qualified investment management professionals and to reward
individual and team contributions toward creating shareholder value. As of
September 30, 2005 each Portfolio Managers' compensation consisted of three
elements: a base salary, an annual discretionary bonus and eligibility to
participate in long-term awards of options and appreciation rights in regard
to the common stock of the Manager's holding company parent. Senior portfolio
managers may also be eligible to participate in the Manager's deferred
compensation plan.
The base pay component of each portfolio manager is reviewed regularly
to ensure that it reflects the performance of the individual, is commensurate
with the requirements of the particular portfolio, reflects any specific
competence or specialty of the individual manager, and is competitive with
other comparable positions, to help the Manager attract and retain talent.
The annual discretionary bonus is determined by senior management of the
Manager and is based on a number of factors, including a fund's pre-tax
performance for periods of up to five years, measured against an appropriate
benchmark selected by management. The Lipper benchmark with respect to the
Fund is Lipper Balanced Funds. Other factors include management quality
(such as style consistency, risk management, sector coverage, team leadership
and coaching) and organizational development. The Portfolio Managers'
compensation is not based on the total value of the Fund's portfolio assets,
although the Fund's investment performance may increase those assets. The
compensation structure is also intended to be internally equitable and serve
to reduce potential conflicts of interest between the Fund and other funds
and accounts managed by the Portfolio Managers. The compensation structure
of the other funds and accounts managed by the Portfolio Manager is the same
as the compensation structure of the Fund, described above.
|_| Ownership of Fund Shares. As of September 30, 2005 the
Portfolio Managers did not beneficially own any shares of the Fund.
Brokerage Policies of the Fund
Brokerage Provisions of the Investment Advisory Agreement. One of the duties
of the Manager under the investment advisory agreement is to arrange the
portfolio transactions for the Fund. The advisory agreement contains
provisions relating to the employment of broker-dealers to effect the Fund's
portfolio transactions. 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, that the Manager thinks, in its best
judgment based on all relevant factors, will implement the policy of the Fund
to obtain, at reasonable expense, the "best execution" of the Fund's
portfolio transactions. "Best execution" means prompt and reliable execution
at the most favorable price obtainable for the services provided. The Manager
need not seek competitive commission bidding. However, it 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 Trustees.
Under the investment advisory agreement, in choosing brokers to execute
portfolio transactions for the Fund, the Manager may select brokers (other
than affiliates) that provide both brokerage and research services to the
Fund. The commissions paid to those brokers may be higher than another
qualified broker would charge, if the Manager makes a good faith
determination that the commission is fair and reasonable in relation to the
services provided.
Brokerage Practices Followed by the Manager. The Manager allocates brokerage
for the Fund subject to the provisions of the investment advisory agreement
and other applicable rules and procedures described below.
The Manager's portfolio traders allocate brokerage based upon
recommendations from the Manager's portfolio managers, together with the
portfolio traders' judgment as to the execution capability of the broker or
dealer. In certain instances, portfolio managers may directly place trades
and allocate brokerage. In either case, the Manager's executive officers
supervise the allocation of brokerage.
Transactions in securities other than those for which an exchange is
the primary market are generally done with principals or market makers. In
transactions on foreign exchanges, the Fund may be required to pay fixed
brokerage commissions and therefore would not have the benefit of negotiated
commissions that are available in U.S. markets. Brokerage commissions are
paid primarily for transactions in listed securities or for certain
fixed-income agency transactions executed in the secondary market. Otherwise,
brokerage commissions are paid only if it appears likely that a better price
or execution can be obtained by doing so. In an option transaction, the Fund
ordinarily uses the same broker for the purchase or sale of the option and
any transaction in the securities to which the option relates.
Other accounts advised by the Manager have investment policies similar
to those of the Fund. Those other accounts may purchase or sell the same
securities as the Fund at the same time as the Fund, which could affect the
supply and price of the securities. If two or more accounts advised by the
Manager purchase the same security on the same day from the same dealer, the
transactions under those combined orders are averaged as to price and
allocated in accordance with the purchase or sale orders actually placed for
each account. When possible, the Manager tries to combine concurrent orders
to purchase or sell the same security by more than one of the accounts
managed by the Manager or its affiliates. The transactions under those
combined orders are averaged as to price and allocated in accordance with the
purchase or sale orders actually placed for each account.
Rule 12b-1 under the Investment Company Act prohibits any fund from
compensating a broker or dealer for promoting or selling the fund's shares by
(1) directing to that broker or dealer any of the fund's portfolio
transactions, or (2) directing any other remuneration to that broker or
dealer, such as commissions, mark-ups, mark downs or other fees from the
fund's portfolio transactions, that were effected by another broker or dealer
(these latter arrangements are considered to be a type of "step-out"
transaction). In other words, a fund and its investment adviser cannot use
the fund's brokerage for the purpose of rewarding broker-dealers for selling
the fund's shares.
However, the Rule permits funds to effect brokerage transactions
through firms that also sell fund shares, provided that certain procedures
are adopted to prevent a quid pro quo with respect to portfolio brokerage
allocations. As permitted by the Rule, the Manager has adopted procedures
(and the Fund's Board of Trustees has approved those procedures) that permit
the Fund to direct portfolio securities transactions to brokers or dealers
that also promote or sell shares of the Fund, subject to the "best execution"
considerations discussed above. Those procedures are designed to prevent: (1)
the Manager's personnel who effect the Fund's portfolio transactions from
taking into account a broker's or dealer's promotion or sales of the Fund
shares when allocating the Fund's portfolio transactions, and (2) the Fund,
the Manager and the Distributor from entering into agreements or
understandings under which the Manager directs or is expected to direct the
Fund's brokerage directly, or through a "step-out" arrangement, to any broker
or dealer in consideration of that broker's or dealer's promotion or sale of
the Fund's shares or the shares of any of the other Oppenheimer funds.
The investment advisory agreement permits the Manager to allocate
brokerage for research services. The research services provided by a
particular broker may be useful both to the Fund and to one or more of the
other accounts advised by the Manager or its affiliates. Investment research
may be supplied to the Manager by the broker or by a third party at the
instance of a broker through which trades are placed.
Investment research services include information and analysis on
particular companies and industries as well as market or economic trends and
portfolio strategy, market quotations for portfolio evaluations, analytical
software 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.
Although the Manager currently does not do so, the Board of Trustees
may permit the Manager to use stated commissions on secondary fixed-income
agency trades to obtain research if the broker represents 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 Board of
Trustees may also permit the Manager to use commissions on fixed-price
offerings to obtain research, in the same manner as is permitted for agency
transactions.
The research services provided by brokers broaden the scope and
supplement the research activities of the Manager. That research provides
additional views and comparisons for consideration, and helps the Manager to
obtain market information for the valuation of securities that are either
held in the Fund's portfolio or are being considered for purchase. The
Manager provides information to the Board about 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 fiscal years ended September 30, 2003, 2004 and 2005, the
Fund paid the total brokerage commissions indicated in the chart below.
During the fiscal year ended September 30, 2005, the Fund paid $356,340 in
commissions to firms that provide brokerage and research services to the Fund
with respect to $278,001,533 of aggregate portfolio transactions. All such
transactions were on a "best execution" basis, as described above. The
provision of research services was not necessarily a factor in the placement
of all such transactions.
- -------------------------------------------------------------------------
Fiscal Year Ended September Total Brokerage Commissions Paid by the
30, Fund*
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
2003 $1,011,309
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
2004 $742,092
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
2005 $383,713
- -------------------------------------------------------------------------
* Amounts do not include spreads or commissions on principal
transactions on a net trade basis.
Distribution and Service Plans
The Distributor. Under its General Distributor's Agreement with the Fund, the
Distributor acts as the Fund's principal underwriter in the continuous public
offering of the Fund's classes of shares. The Distributor bears the expenses
normally attributable to sales, including advertising and the cost of
printing and mailing prospectuses, other than those furnished to existing
shareholders. The Distributor is not obligated to sell a specific number of
shares.
The sales charges and concessions paid to, or retained by, the
Distributor from the sale of shares and the contingent deferred sales charges
retained by the Distributor on the redemption of shares during the Fund's
three most recent fiscal years are shown in the tables below.
- --------------------------------------------
Aggregate Class A
Fiscal Front-End Front-
Year Sales Charges End Sales
Ended on Class A Charges
9/30: Shares Retained by
Distributor(1)
- --------------------------------------------
- --------------------------------------------
2003 $444,448 $149,815
- --------------------------------------------
- --------------------------------------------
2004 $1,133,173 $385,955
- --------------------------------------------
- --------------------------------------------
2005 $1,317,632 $407,881
- --------------------------------------------
1. Includes amounts retained by a broker-dealer that is an affiliate or a
parent of the Distributor.
- -------------------------------------------------------------------------
Concessions Concessions Concessions Concessions
on Class A on Class B on Class C on Class N
Fiscal Year Shares Shares Shares Shares
Ended 9/30 Advanced by Advanced by Advanced by Advanced by
Distributor(1)Distributor(1)Distributor(1)Distributor(1)
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
2003 $26,447 $389,821 $69,428 $14,816
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
2004 $19,092 $755,174 $177,932 $36,065
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
2005 $34,719 $573,577 $182,944 $18,914
- -------------------------------------------------------------------------
1. The Distributor advances concession payments to financial
intermediaries for certain sales of Class A shares and for sales of
Class B, Class C and Class N shares from its own resources at the time
of sale.
- ----------------------------------------------------------------------------
Fiscal Year Class A Class B Class C Class N
Ended Contingent Contingent Contingent Contingent
9/30 Deferred Deferred Sales Deferred Deferred
Sales Charges Sales Sales Charges
Charges Retained Charges Retained by
Retained by Distributor Retained Distributor
by by
Distributor Distributor
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
2003 $2,174 $172,208 $4,803 $4,571
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
2004 $205 $141,739 $8,124 $1,701
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
2005 $2,396 $175,201 $21,759 $6,448
- ----------------------------------------------------------------------------
Distribution and Service Plans. The Fund has adopted a Service Plan for Class
A shares and Distribution and Service Plans for Class B, Class C and Class N
shares under Rule 12b-1 of the Investment Company Act. Under those plans the
Fund pays the Distributor for all or a portion of its costs incurred in
connection with the distribution and/or servicing of the shares of the
particular class. Each plan has been approved by a vote of the Board of
Trustees, including a majority of the Independent Trustees(1), cast in person
at a meeting called for the purpose of voting on that plan.
Under the Plans, the Manager and the Distributor may make payments to
affiliates. In their sole discretion, they may also from time to time make
substantial payments from their own resources, which include the profits the
Manager derives from the advisory fees it receives from the Fund, to
compensate brokers, dealers, financial institutions and other intermediaries
for providing distribution assistance and/or administrative services or that
otherwise promote sales of the Fund's shares. These payments, some of which
may be referred to as "revenue sharing," may relate to the Fund's inclusion
on a financial intermediary's preferred list of funds offered to its clients.
Unless a plan is terminated as described below, the plan continues in
effect from year to year but only if the Fund's Board of Trustees and its
Independent Trustees specifically vote annually to approve its continuance.
Approval must be by a vote cast in person at a meeting called for the purpose
of voting on continuing the plan. A plan may be terminated at any time by the
vote of a majority of the Independent Trustees or by the vote of the holders
of a "majority" (as defined in the Investment Company Act) of the outstanding
shares of that class.
The Board of Trustees and the Independent Trustees must approve all
material amendments to a plan. An amendment to increase materially the amount
of payments to be made under a plan must be approved by shareholders of the
class affected by the amendment. Because Class B shares of the Fund
automatically convert into Class A shares 72 months after purchase, the Fund
must obtain the approval of both Class A and Class B shareholders for a
proposed material amendment to the Class A plan that would materially
increase payments under the plan. That approval must be by a majority of the
shares of each class, voting separately by class.
While the plans are in effect, the Treasurer of the Fund shall provide
separate written reports on the plans to the Board of Trustees at least
quarterly for its review. The reports shall detail the amount of all payments
made under a plan and the purpose for which the payments were made. Those
reports are subject to the review and approval of the Independent Trustees.
Each plan states that while it is in effect, the selection and
nomination of those Trustees of the Fund who are not "interested persons" of
the Fund is committed to the discretion of the Independent Trustees. This
does not prevent the involvement of others in the selection and nomination
process as long as the final decision as to selection or nomination is
approved by a majority of the Independent Trustees.
Under the plans for a class, no payment will be made to any recipient
in any period in which the aggregate net asset value of all Fund shares of
that class held by the recipient for itself and its customers does not exceed
a minimum amount, if any, that may be set from time to time by a majority of
the Independent Trustees.
|_| Class A Service Plan Fees. Under the Class A service plan, the
Distributor currently uses the fees it receives from the Fund to pay brokers,
dealers and other financial institutions (they are referred to as
"recipients") for personal services and account maintenance services they
provide for their customers who hold Class A shares. The services include,
among others, answering customer inquiries about the Fund, assisting in
establishing and maintaining accounts in the Fund, making the Fund's
investment plans available and providing other services at the request of the
Fund or the Distributor. The Class A service plan permits reimbursements to
the Distributor at a rate of up to 0.25% of average annual net assets of
Class A shares. The Board has set the rate at that level. The Distributor
does not receive or retain the service fee on Class A shares in accounts for
which the Distributor has been listed as the broker-dealer of record. While
the plan permits the Board to authorize payments to the Distributor to
reimburse itself for services under the plan, the Board has not yet done so,
except in the case of the special arrangement described below, regarding
grandfathered retirement accounts. The Distributor makes payments to
recipients periodically at an annual rate not to exceed 0.25% of the average
annual net assets consisting of Class A shares held in the accounts of the
recipients or their customers.
With respect to purchases of Class A shares subject to a contingent
deferred sales charge by certain retirement plans that purchased such shares
prior to March 1, 2001 ("grandfathered retirement accounts"), the Distributor
currently intends to pay the service fee to recipients in advance for the
first year after the shares are purchased. During the first year the shares
are sold, the Distributor retains the service fee to reimburse itself for the
costs of distributing the shares. After the first year shares are
outstanding, the Distributor makes service fee payments to recipients
periodically on those shares. The advance payment is based on the net asset
value of shares sold. Shares purchased by exchange do not qualify for the
advance service fee payment. If Class A shares purchased by grandfathered
retirement accounts are redeemed during the first year after their purchase,
the recipient of the service fees on those shares will be obligated to repay
the Distributor a pro rata portion of the advance payment of the service fee
made on those shares.
For the fiscal year ended September 30, 2005 payments under the Class A
plan totaled $1,399,566, of which $2,206 was retained by the Distributor
under the arrangement described above, regarding grandfathered retirement
accounts, and included $84,134 paid to an affiliate of the Distributor's
parent company. Any unreimbursed expenses the Distributor incurs with respect
to Class A shares in any fiscal year cannot be recovered in subsequent years.
The Distributor may not use payments received under the Class A plan to pay
any of its interest expenses, carrying charges, or other financial costs, or
allocation of overhead.
|_| Class B, Class C and Class N Distribution and Service Plan Fees.
Under each plan, distribution and service 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. Each plan provides for
the Distributor to be compensated at a flat rate, whether the Distributor's
distribution expenses are more or less than the amounts paid by the Fund
under the plan during the period for which the fee is paid. The types of
services that recipients provide are similar to the services provided under
the Class A service plan, described above.
Each plan permits the Distributor to retain both the asset-based sales
charges and the service fees or to pay recipients the service fee on a
periodic basis, without payment in advance. However, the Distributor
currently intends to pay the service fee to recipients in advance for the
first year after Class B, Class C and Class N shares are purchased. After the
first year Class B, Class C or Class N shares are outstanding, after their
purchase, the Distributor makes service fee payments periodically on those
shares. The advance payment is based on the net asset value of shares sold.
Shares purchased by exchange do not qualify for the advance service fee
payment. If Class B, Class C or Class N shares are redeemed during the first
year after their purchase, the recipient of the service fees on those shares
will be obligated to repay the Distributor a pro rata portion of the advance
payment of the service fee made on those shares. Class B, Class C or Class N
shares may not be purchased by an investor directly from the Distributor
without the investor designating another registered broker-dealer. If the
investor no longer has another broker-dealer of record for an existing
account, the Distributor is automatically designated as the broker-dealer of
record, but solely for the purpose of acting as the investor's agent to
purchase the shares. In those cases, the Distributor retains the asset-based
sales charge paid on Class B, Class C and Class N shares, but does not retain
any service fees as to the assets represented by that account.
The asset-based sales charge and service fees increase Class B and
Class C expenses by 1.00% and the asset-based sales charge and service fees
increase Class N expenses by 0.50% of the net assets per year of the
respective classes.
The Distributor retains the asset-based sales charge on Class B and
Class N shares. The Distributor retains the asset-based sales charge on Class
C shares during the first year the shares are outstanding. It pays the
asset-based sales charge as an ongoing concession to the recipient on Class C
shares outstanding for a year or more. If a dealer has a special agreement
with the Distributor, the Distributor will pay the Class B, Class C or Class
N service fee and the asset-based sales charge to the dealer periodically in
lieu of paying the sales concession and service fee in advance at the time of
purchase.
The asset-based sales charge on Class B, Class C and Class N shares
allow investors to buy shares without a front-end sales charge while allowing
the Distributor to compensate dealers that sell those shares. The Fund pays
the asset-based sales charge to the Distributor for its services rendered in
distributing Class B, Class C and Class N shares. The payments are made to
the Distributor in recognition that the Distributor:
o pays sales concessions to authorized brokers and dealers at the time of
sale and pays service fees as described above,
o may finance payment of sales concessions and/or the advance of the
service fee payment to recipients under the plans, or may provide
such financing from its own resources or from the resources of an
affiliate,
o employs personnel to support distribution of Class B, Class C and Class
N shares,
o bears the costs of sales literature, advertising and prospectuses
(other than those furnished to current shareholders) and state "blue
sky" registration fees and certain other distribution expenses,
o may not be able to adequately compensate dealers that sell Class B,
Class C and Class N shares without receiving payment under the plans
and therefore may not be able to offer such Classes for sale absent
the plans,
o receives payments under the plans consistent with the service fees and
asset-based sales charges paid by other non-proprietary funds that
charge 12b-1 fees,
o may use the payments under the plan to include the Fund in various
third-party distribution programs that may increase sales of Fund
shares,
o may experience increased difficulty selling the Fund's shares if
payments under the plan are discontinued because most competitor
funds have plans that pay dealers for rendering distribution
services as much or more than the amounts currently being paid by
the Fund, and
o may not be able to continue providing, at the same or at a lesser cost,
the same quality distribution sales efforts and services, or to
obtain such services from brokers and dealers, if the plan payments
were to be discontinued.
During a calendar year, the Distributor's actual expenses in selling
Class B, Class C and Class N shares may be more than the payments it receives
from the contingent deferred sales charges collected on redeemed shares and
from the asset-based sales charges paid to the Distributor by the Fund under
the distribution and service plans. Those excess expenses are carried over on
the Distributor's books and may be recouped from asset-based sales charge
payments from the Fund in future years. However, the Distributor has
voluntarily agreed to cap the amount of expenses under the plans that may be
carried over from year to year and recouped that relate to (i) expenses the
Distributor has incurred that represent compensation and expenses of its
sales personnel and (ii) other direct distribution costs it has incurred,
such as sales literature, state registration fees, advertising and
prospectuses used to offer Fund shares. The cap on the carry-over of those
categories of expenses is set at 0.70% of annual gross sales of shares of the
Fund. If those categories of expenses exceed the capped amount, the
Distributor bears the excess costs. If the Class B, Class C or Class N plan
were to be terminated by the Fund, the Fund's Board of Trustees may allow the
Fund to continue payments of the asset-based sales charge to the Distributor
for distributing shares prior to the termination of the plan.
- -------------------------------------------------------------------------------
Distribution and Service Fees Paid to the Distributor for the Fiscal Year
Ended 9/30/05
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Distributor's Distributor's
Aggregate Unreimbursed
Total Amount Unreimbursed Expenses as %
Payments Retained by Expenses of Net Assets
Class Under Plan Distributor Under Plan of Class
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Class B Plan $924,866(1) $734,324 $2,799,628 2.85%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Class C Plan $778,708(2) $178,007 $1,392,035 1.59%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Class N Plan $51,254(3) $25,868 $134,366 1.14%
- -------------------------------------------------------------------------------
1. Includes $10,405 paid to an affiliate of the Distributor's parent
company.
2. Includes $20,237 paid to an affiliate of the Distributor's parent
company.
3. Includes $2,159 paid to an affiliate of the Distributor's parent
company.
All payments under the plans are subject to the limitations imposed by
the Conduct Rules of the NASD on payments of asset-based sales charges and
service fees.
Payments to Fund Intermediaries
Financial intermediaries may receive various forms of compensation or
reimbursement from the Fund in the form of 12b-1 plan payments as described
in the preceding section of this Statement of Additional Information. They
may also receive payments or concessions from the Distributor, derived from
sales charges paid by the clients of the financial intermediary, also as
described in this Statement of Additional Information. Additionally, the
Manager and/or the Distributor (including their affiliates) may make payments
to financial intermediaries in connection with their offering and selling
shares of the Fund and other Oppenheimer funds, providing marketing or
promotional support, transaction processing and/or administrative services.
Among the financial intermediaries that may receive these payments are
brokers and dealers who sell and/or hold shares of the Fund, banks (including
bank trust departments), registered investment advisers, insurance companies,
retirement plan and qualified tuition program administrators, third party
administrators, and other institutions that have selling, servicing or
similar arrangements with the Manager or Distributor. The payments to
intermediaries vary by the types of product sold, the features of the Fund
share class and the role played by the intermediary.
Possible types of payments to financial intermediaries include, without
limitation, those discussed below.
o Payments made by the Fund, or by an investor buying or selling shares
of the Fund may include:
o depending on the share class that the investor selects, contingent
deferred sales charges or initial front-end sales charges, all
or a portion of which front-end sales charges are payable by
the Distributor to financial intermediaries (see "About Your
Account" in the Prospectus);
o ongoing asset-based payments attributable to the share class selected,
including fees payable under the Fund's distribution and/or
service plans adopted under Rule 12b-1 under the Investment
Company Act, which are paid from the Fund's assets and
allocated to the class of shares to which the plan relates
(see "About the Fund -- Distribution and Service Plans"
above);
o shareholder servicing payments for providing omnibus accounting,
recordkeeping, networking, sub-transfer agency or other
administrative or shareholder services, including retirement
plan and 529 plan administrative services fees, which are paid
from the assets of a Fund as reimbursement to the Manager or
Distributor for expenses they incur on behalf of the Fund.
o Payments made by the Manager or Distributor out of their respective
resources and assets, which may include profits the Manager derives
from investment advisory fees paid by the Fund. These payments are
made at the discretion of the Manager and/or the Distributor. These
payments, often referred to as "revenue sharing" payments, may be in
addition to the payments by the Fund listed above.
o These types of payments may reflect compensation for marketing support,
support provided in offering the Fund or other Oppenheimer
funds through certain trading platforms and programs,
transaction processing or other services;
o The Manager and Distributor each may also pay other compensation to the
extent the payment is not prohibited by law or by any
self-regulatory agency, such as the NASD. Payments are made
based on the guidelines established by the Manager and
Distributor, subject to applicable law.
These payments may provide an incentive to financial intermediaries to
actively market or promote the sale of shares of the Fund or other
Oppenheimer funds, or to support the marketing or promotional efforts of the
Distributor in offering shares of the Fund or other Oppenheimer funds. In
addition, some types of payments may provide a financial intermediary with an
incentive to recommend the Fund or a particular share class. Financial
intermediaries may earn profits on these payments, since the amount of the
payment may exceed the cost of providing the service. Certain of these
payments are subject to limitations under applicable law. Financial
intermediaries may categorize and disclose these arrangements to their
clients and to members of the public in a manner different from the
disclosures in the Fund's prospectus and this Statement of Additional
Information. You should ask your financial intermediary for information about
any payments it receives from the Fund, the Manager or the Distributor and
any services it provides, as well as the fees and commissions it charges.
Although brokers or dealers that sell Fund shares may also act as a
broker or dealer in connection with the execution of the purchase or sale of
portfolio securities by the Fund or other Oppenheimer funds, a financial
intermediary's sales of shares of the Fund or such other Oppenheimer funds is
not a consideration for the Manager when choosing brokers or dealers to
effect portfolio transactions for the Fund or such other Oppenheimer funds.
Revenue sharing payments can pay for distribution-related or asset
retention items including, without limitation,
o transactional support, one-time charges for setting up access for the
Fund or other Oppenheimer funds on particular trading systems, and
paying the intermediary's networking fees;
o program support, such as expenses related to including the Oppenheimer
funds in retirement plans, college savings plans, fee-based advisory
or wrap fee programs, fund "supermarkets", bank or trust company
products or insurance companies' variable annuity or variable life
insurance products;
o placement on the dealer's list of offered funds and providing
representatives of the Distributor with access to a financial
intermediary's sales meetings, sales representatives and management
representatives.
Additionally, the Manager or Distributor may make payments for firm
support, such as business planning assistance, advertising, and educating a
financial intermediary's sales personnel about the Oppenheimer funds and
shareholder financial planning needs.
For the year ended December 31, 2004, the following financial
intermediaries that are broker-dealers offering shares of the Oppenheimer
funds, and/or their respective affiliates, received revenue sharing or
similar distribution-related payments from the Manager or Distributor for
marketing or program support:
ADVEST INC. AEGON
A.G. Edwards & Sons, Inc AIG Network
Allianz Life Insurance Company Allstate Life Insurance Company
Ameritas Life Insurance Corporation American Centurian Life Insurance
American Enterprise Life Insurance American Express Financial Advisors
Inc.
American Portfolios Annuity Investors Life
AXA Advisors Banc One Securities Corporation
Bank of New York Cadaret Grant & Co. Inc.
Charter One Securities Inc. Chase Investment Services
Citigroup Financial Network CitiStreet
Citizens Bank of Rhode Island CJM Planning Corp.
Columbus Life Insurance Company Commonwealth Financial Network
CUNA Brokerage Services Inc. CUSO Financial Services, L.P.
Federal Kemper First Allied Securities Inc
First Global Capital GE Financial Assurance
GlenBrook Life and Annuity Co. Great West Life & Annuity Co., Inc.
HD Vest Hewitt Associates
HSBC Brokerage (USA) Inc. ING Network
Jefferson Pilot Securities Corporation John Hancock Variable Life Insurance
Company
Kemper Life Assurance Company Legend Equities Corporation
Legg Mason Wood Walker, Incorporated Lincoln National Life Insurance
Company
Lincoln Financial Advisors Corporation Lincoln Investment Planning
Linsco/Private Ledger Corp. MassMutual Financial Group and
affiliates
McDonald Investments, Inc. Merrill Lynch & Co., Inc. and
affiliates
Metlife and affiliates Minnesota Life Insurance Company
Morgan Stanley DW Inc. NPH Network
Nationwide and affiliates New York Life Securities, LLC
PacLife Network Park Avenue Securities LLC
Planmember Securities Corporation Prime Capital Services, Inc.
Princor Financial Services Corporation Protective Life Insurance Co.
Provident Mutual Insurance Company Prudential Investment Management
Services LLC
Raymond James Financial Services, Inc. Raymond James & Associates, Inc.
RBC Dain Rauscher Inc. Securities America, Inc.
Security Benefit Life Insurance Company Signator Investments
Sun Life Insurance Company Suntrust Investment Services, Inc.
Tower Square Securities, Inc Travelers Life & Annuity Co., Inc.
UBS Financial Services Inc. Union Central Life Insurance Company
Wachovia Securities LLC Wells Fargo Investments, LLC
For the year ended December 31, 2004, the following firms, which in
some cases are broker-dealers, received payments from the Manager or
Distributor for administrative or other services provided (other than revenue
sharing arrangements), as described above:
ABN AMRO ADP
Alliance Benefit Group AMVESCAP Retirement Plans
American Stock & Transfer Baden Retirement
BCG Benefit Administration Co., LLC
Benefit Administration, Inc. Benefit Plans Administrative Services
Benetech, Inc. BISYS Retirement Services
Boston Financial Data Services Ceridian
Circle Trust Company Citigroup
CitiStreet CPI
Daily Access.Com, Inc. Digital Retirement Solutions
Dyatech ERISA Administrative Services, Inc.
ExpertPlan.com FAScore
FBD Consulting Federated Investors
Fidelity Institutional First National Bank of Omaha
First Trust Corp. Franklin Templeton
Geller Group Gold K
Great West Financial Services Hartford Life Insurance Co.
Equities, Inc.
ICMA - RC Services In West Pension Mgmt
Independent Plan Coordinators Ingham Group
Interactive Retirement Systems, Ltd. Invesmart, Inc.
Kaufman & Goble Leggette & Co., Inc.
Manulife MassMutual Financial Group and
affiliates
Matrix Settlement & Clearance Services Mellon HR Solutions
Merrill Lynch & Co., Inc. Metavante
Metlife Securities Inc. MFS Investment Management
Mid Atlantic Capital Corp. Milliman USA
Morgan Stanley DW Inc. National City Bank
National Financial Services Corp. National Investors Services Corp.
Nationwide Investment Service Corp. New York Life Investment Management,
Inc.
Northwest Plan Services Pension Administration and Consulting
PFPC, Inc. PSMI Group
Putnam Fiduciary Trust Company Quads Trust Company
RSM McGladrey SAFECO
Charles Schwab & Co., Inc. Security Trust Company
Sentinel / National Life Standard Insurance Co
Stanley, Hunt, Dupree & Rhine State Street Bank & Trust Company
Suntrust Investment Services, Inc. Swerdlin & Co.
T. Rowe Price Brokerage Services, L.P. Taylor, Perky & Parker, LLC
The 401k Company The Investment Center, Inc.
Trusource Union Bank and Trust Co.
USI Consulting Group Vanguard Group
Web401K.com Wilmington Trust Company
Performance of the Fund
Explanation of Performance Terminology. The Fund uses a variety of terms to
illustrate its investment performance. Those terms include "cumulative total
return," "average annual total return," "average annual total return at net
asset value" and "total return at net asset value." An explanation of how
total returns are calculated is set forth below. The charts below show the
Fund's performance as of the Fund's most recent fiscal year end. You can
obtain current performance information by calling the Fund's Transfer Agent
at 1.800.225.5677 or by visiting the OppenheimerFunds Internet website at
www.oppenheimerfunds.com.
The Fund's illustrations of its performance data in advertisements must
comply with rules of the SEC. Those rules describe the types of performance
data that may be used and how it is to be calculated. In general, any
advertisement by the Fund of its performance data must include the average
annual total returns for the advertised class of shares of the Fund.
Use of standardized performance calculations enables an investor to
compare the Fund's performance to the performance of other funds for the same
periods. However, a number of factors should be considered before using the
Fund's performance information as a basis for comparison with other
investments:
o Total returns measure the performance of a hypothetical account in the
Fund over various periods and do not show the performance of each
shareholder's account. Your account's performance will vary from the
model performance data if your dividends are received in cash, or
you buy or sell shares during the period, or you bought your shares
at a different time and price than the shares used in the model.
o The Fund's performance returns may not reflect the effect of taxes on
dividends and capital gains distributions.
o An investment in the Fund is not insured by the FDIC or any other
government agency.
o The principal value of the Fund's shares, and total returns are not
guaranteed and normally will fluctuate on a daily basis.
o When an investor's shares are redeemed, they may be worth more or less
than their original cost.
o Total returns for any given past period represent historical
performance information and are not, and should not be considered, a
prediction of future returns.
The performance of each class of shares is shown separately, because
the performance of each class of shares will usually be different. That is
because of the different kinds of expenses each class bears. The total
returns of each class of shares of the Fund are affected by market
conditions, the quality of the Fund's investments, the maturity of those
investments, the types of investments the Fund holds, and its operating
expenses that are allocated to the particular class.
|_| Total Return Information. There are different types of "total
returns" to measure the Fund's performance. Total return is the change in
value of a hypothetical investment in the Fund over a given period, assuming
that all dividends and capital gains distributions are reinvested in
additional shares and that the investment is redeemed at the end of the
period. Because of differences in expenses for each class of shares, the
total returns for each class are separately measured. The cumulative total
return measures the change in value over the entire period (for example, ten
years). An average annual total return shows the average rate of return for
each year in a period that would produce the cumulative total return over the
entire period. However, average annual total returns do not show actual
year-by-year performance. The Fund uses standardized calculations for its
total returns as prescribed by the SEC. The methodology is discussed below.
In calculating total returns for Class A shares, the current maximum
sales charge of 5.75% (as a percentage of the offering price) is deducted
from the initial investment ("P" in the formula below) (unless the return is
shown without sales charge, as described below). For Class B shares, payment
of the applicable contingent deferred sales charge is applied, depending on
the period for which the return is shown: 5.0% in the first year, 4.0% in the
second year, 3.0% in the third and fourth years, 2.0% in the fifth year, 1.0%
in the sixth year and none thereafter. For Class C shares, the 1.0%
contingent deferred sales charge is deducted for returns for the one-year
period. For Class N shares, the 1.0% contingent deferred sales charge is
deducted for returns for the one-year period, and total returns for the
periods prior to 03/01/01 (the inception date for Class N shares) are based
on the Fund's Class A returns, adjusted to reflect the higher Class N 12b-1
fees.
o Average Annual Total Return. The "average annual total return" of each
class is an average annual compounded rate of return for each year in a
specified number of years. It is the rate of return based on the change in
value of a hypothetical initial investment of $1,000 ("P" in the formula
below) held for a number of years ("n" in the formula) to achieve an Ending
Redeemable Value ("ERV" in the formula) of that investment, according to the
following formula:
- 1 = Average Annual Total
ERV l/n Return
P
o Average Annual Total Return (After Taxes on Distributions). The
"average annual total return (after taxes on distributions)" of Class A
shares is an average annual compounded rate of return for each year in a
specified number of years, adjusted to show the effect of federal taxes
(calculated using the highest individual marginal federal income tax rates in
effect on any reinvestment date) on any distributions made by the Fund during
the specified period. It is the rate of return based on the change in value
of a hypothetical initial investment of $1,000 ("P" in the formula below)
held for a number of years ("n" in the formula) to achieve an ending value
("ATVD" in the formula) of that investment, after taking into account the
effect of taxes on Fund distributions, but not on the redemption of Fund
shares, according to the following formula.
ATVD - 1= Average Annual Total Return (After Taxes on
1/n Distributions)
P
o Average Annual Total Return (After Taxes on Distributions and
Redemptions). The "average annual total return (after taxes on distributions
and redemptions)" of Class A shares is an average annual compounded rate of
return for each year in a specified number of years, adjusted to show the
effect of federal taxes (calculated using the highest individual marginal
federal income tax rates in effect on any reinvestment date) on any
distributions made by the Fund during the specified period and the effect of
capital gains taxes or capital loss tax benefits (each calculated using the
highest federal individual capital gains tax rate in effect on the redemption
date) resulting from the redemption of the shares at the end of the period.
It is the rate of return based on the change in value of a hypothetical
initial investment of $1,000 ("P" in the formula below) held for a number of
years ("n" in the formula) to achieve an ending value ("ATVDR" in the
formula) of that investment, after taking into account the effect of taxes on
Fund distributions and on the redemption of Fund shares, according to the
following formula:
ATVDR - 1 = Average Annual Total Return (After Taxes on Distributions
l/n and Redemptions)
P
o Cumulative Total Return. The "cumulative total return" calculation
measures the change in value of a hypothetical investment of $1,000 over an
entire period of years. Its calculation uses some of the same factors as
average annual total return, but it does not average the rate of return on an
annual basis. Cumulative total return is determined as follows:
ERV - P = Total Return
- -----------
P
o Total Returns at Net Asset Value. From time to time the Fund may also
quote a cumulative or an average annual total return "at net asset value"
(without deducting sales charges) for Class A, Class B, Class C or Class N
shares. Each is based on the difference in net asset value per share at the
beginning and the end of the period for a hypothetical investment in that
class of shares (without considering front-end or contingent deferred sales
charges) and takes into consideration the reinvestment of dividends and
capital gains distributions.
--------------------------------------------------------------------------------
The Fund's Total Returns for the Periods Ended 9/30/05
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Cumulative Total Average Annual Total Returns
Returns (10 years
Class of or Life of Class)
Shares
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
5-Years 10-Years
1-Year (or (or
life-of-class life-of-class if
if less) less)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
After Without After Without After Without After Without
Sales Sales Sales Sales Sales Sales Sales Sales
Charge Charge Charge Charge Charge Charge Charge Charge
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class 116.06% 129.24% 5.68% 12.13% 3.82% 5.06% 8.01% 8.65%
A(1)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class 117.79% 117.79% 6.17% 11.17% 3.80% 4.14% 8.09% 8.09%
B(2)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class 110.90% 110.90% 10.18% 11.18% 4.19% 4.19% 7.75% 7.75%
C(3)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class 22.86% 22.86% 10.66% 11.66% 4.60% 4.60% N/A N/A
N(4)
--------------------------------------------------------------------------------
1. Inception of Class A: 4/24/87.
2. Inception of Class B: 8/29/95.
3. Inception of Class C: 12/1/93.
4. Inception of Class N: 3/1/01.
- --------------------------------------------------------------------------
Average Annual Total Returns for Class A(1) Shares (After Taxes)
For the Periods Ended 9/30/05
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
1-Year 5-Years
10-Years
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
After Taxes on Distributions 4.29% 2.57% 5.71%
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
After Taxes on 4.42% 2.63% 5.65%
Distributions and
Redemption of Fund Shares
- --------------------------------------------------------------------------
1. Inception of Class A: 4/24/87.
Other Performance Comparisons. The Fund compares its performance annually to
that of an appropriate broadly-based market index in its Annual Report to
shareholders. You can obtain that information by contacting the Transfer
Agent at the addresses or telephone numbers shown on the cover of this
Statement of Additional Information. The Fund may also compare its
performance to that of other investments, including other mutual funds, or
use rankings of its performance by independent ranking entities. Examples of
these performance comparisons are set forth below.
|_| Lipper Rankings. From time to time the Fund may publish the ranking
of the performance of its classes of shares by Lipper, Inc. ("Lipper").
Lipper is a widely-recognized independent mutual fund monitoring service.
Lipper monitors the performance of regulated investment companies, including
the Fund, and ranks their performance for various periods in categories based
on investment styles. The Lipper performance rankings are based on total
returns that include the reinvestment of capital gain distributions and
income dividends but do not take sales charges or taxes into consideration.
Lipper also publishes "peer-group" indices of the performance of all mutual
funds in a category that it monitors and averages of the performance of the
funds in particular categories.
|_| Morningstar Ratings. From time to time the Fund may publish the
star rating of the performance of its classes of shares by Morningstar, Inc.,
an independent mutual fund monitoring service. Morningstar rates mutual funds
in their specialized market sector. The Fund is rated among domestic hybrid
funds.
Morningstar proprietary star ratings reflect historical risk-adjusted
total investment return. For each fund with at least a three-year history,
Morningstar calculates a Morningstar Rating(TM)based on a Morningstar
Risk-Adjusted Return measure that accounts for variation in a fund's monthly
performance (including the effects of sales charges, loads, and redemption
fees), placing more emphasis on downward variations and rewarding consistent
performance. The top 10% of funds in each category receive 5 stars, the next
22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2
stars, and the bottom 10% receive 1 star. (Each share class is counted as a
fraction of one fund within this scale and rated separately, which may cause
slight variations in the distribution percentages.) The Overall Morningstar
Rating for a fund is derived from a weighted average of the performance
figures associated with its three-, five-and ten-year (if applicable)
Morningstar Rating metrics.
|_| Performance Rankings and Comparisons by Other Entities and
Publications. From time to time the Fund may include in its advertisements
and sales literature performance information about the Fund cited in
newspapers and other periodicals such as The New York Times, The Wall Street
Journal, Barron's, or similar publications. That information may include
performance quotations from other sources, including Lipper and Morningstar.
The performance of the Fund's classes of shares may be compared in
publications to the performance of various market indices or other
investments, and averages, performance rankings or other benchmarks prepared
by recognized mutual fund statistical services.
Investors may also wish to compare the returns on the Fund's share
classes to the return on fixed-income investments available from banks and
thrift institutions. Those include certificates of deposit, ordinary
interest-paying checking and savings accounts, and other forms of fixed or
variable time deposits, and various other instruments such as Treasury bills.
However, the Fund's returns and share price are not guaranteed or insured by
the FDIC or any other agency and will fluctuate daily, while bank depository
obligations may be insured by the FDIC and may provide fixed rates of return.
Repayment of principal and payment of interest on Treasury securities is
backed by the full faith and credit of the U.S. government.
From time to time, the Fund may publish rankings or ratings of the
Manager or Transfer Agent, and of the investor services provided by them to
shareholders of the Oppenheimer funds, other than performance rankings of the
Oppenheimer funds themselves. Those ratings or rankings of shareholder and
investor services by third parties may include comparisons of their services
to those provided by other mutual fund families selected by the rating or
ranking services. They may be based upon the opinions of the rating or
ranking service itself, using its research or judgment, or based upon surveys
of investors, brokers, shareholders or others.
From time to time the Fund may include in its advertisements and sales
literature the total return performance of a hypothetical investment account
that includes shares of the Fund and other Oppenheimer funds. The combined
account may be part of an illustration of an asset allocation model or
similar presentation. The account performance may combine total return
performance of the Fund and the total return performance of other Oppenheimer
funds included in the account. Additionally, from time to time, the Fund's
advertisements and sales literature may include, for illustrative or
comparative purposes, statistical data or other information about general or
specific market and economic conditions. That may include, for example,
o information about the performance of certain securities or commodities
markets or segments of those markets,
o information about the performance of the economies of particular
countries or regions,
o the earnings of companies included in segments of particular
industries, sectors, securities markets, countries or regions,
o the availability of different types of securities or offerings of
securities,
o information relating to the gross national or gross domestic product of
the United States or other countries or regions,
o comparisons of various market sectors or indices to demonstrate
performance, risk, or other characteristics of the Fund.
ABOUT YOUR ACCOUNT
How to Buy Shares
Additional information is presented below about the methods that can be used
to buy shares of the Fund. Appendix C contains more information about the
special sales charge arrangements offered by the Fund, and the circumstances
in which sales charges may be reduced or waived for certain classes of
investors.
When you purchase shares of the Fund, your ownership interest in the shares
of the Fund will be recorded as a book entry on the records of the Fund. The
Fund will not issue or re-register physical share certificates.
AccountLink. When shares are purchased through AccountLink, each purchase
must be at least $50 and shareholders must invest at least $500 before an
Asset Builder Plan (described below) can be established on a new account.
Accounts established prior to November 1, 2002 will remain at $25 for
additional purchases. Shares will be purchased on the regular business day
the Distributor is instructed to initiate the Automated Clearing House
("ACH") transfer to buy the shares. Dividends will begin to accrue on shares
purchased with the proceeds of ACH transfers on the business day the Fund
receives Federal Funds for the purchase through the ACH system before the
close of the New York Stock Exchange (the "NYSE"). The NYSE normally closes
at 4:00 p.m., but may close earlier on certain days. If Federal Funds are
received on a business day after the close of the NYSE, the shares will be
purchased and dividends will begin to accrue on the next regular business
day. The proceeds of ACH transfers are normally received by the Fund three
days after the transfers are initiated. If the proceeds of the ACH transfer
are not received on a timely basis, the Distributor reserves the right to
cancel the purchase order. The Distributor and the Fund are not responsible
for any delays in purchasing shares resulting from delays in ACH
transmissions.
Reduced Sales Charges. As discussed in the Prospectus, a reduced sales charge
rate may be obtained for Class A shares under Right of Accumulation and
Letters of Intent because of the economies of sales efforts and reduction in
expenses realized by the Distributor, dealers and brokers making such sales.
No sales charge is imposed in certain other circumstances described in
Appendix C to this Statement of Additional Information because the
Distributor or dealer or broker incurs little or no selling expenses.
The Oppenheimer Funds. The Oppenheimer funds are those mutual funds for which
the Distributor acts as the distributor and currently include the following:
Oppenheimer AMT-Free Municipals Oppenheimer Limited Term Municipal Fund
Oppenheimer AMT-Free New York Municipals Oppenheimer Main Street Fund
Oppenheimer Main Street Opportunity
Oppenheimer Balanced Fund Fund
Oppenheimer Core Bond Fund Oppenheimer Main Street Small Cap Fund
Oppenheimer California Municipal Fund Oppenheimer MidCap Fund
Oppenheimer Capital Appreciation Fund Oppenheimer New Jersey Municipal Fund
Oppenheimer Capital Income Fund Oppenheimer Pennsylvania Municipal Fund
Oppenheimer Principal Protected Main
Oppenheimer Champion Income Fund Street Fund
Oppenheimer Principal Protected Main
Oppenheimer Convertible Securities Fund Street Fund II
Oppenheimer Principal Protected Main
Oppenheimer Developing Markets Fund Street Fund III
Oppenheimer Disciplined Allocation Fund Oppenheimer Quest Balanced Fund
Oppenheimer Quest Capital Value Fund,
Oppenheimer Discovery Fund Inc.
Oppenheimer Quest International Value
Oppenheimer Dividend Growth Fund Fund, Inc.
Oppenheimer Quest Opportunity Value
Oppenheimer Emerging Growth Fund Fund
Oppenheimer Emerging Technologies Fund Oppenheimer Quest Value Fund, Inc.
Oppenheimer Enterprise Fund Oppenheimer Real Asset Fund
Oppenheimer Equity Fund, Inc. Oppenheimer Real Estate Fund
Oppenheimer Rochester National
Oppenheimer Global Fund Municipals
Oppenheimer Global Opportunities Fund Oppenheimer Select Value Fund
Oppenheimer Gold & Special Minerals Fund Oppenheimer Senior Floating Rate Fund
Oppenheimer Small- & Mid- Cap Value
Oppenheimer Growth Fund Fund
Oppenheimer High Yield Fund Oppenheimer Strategic Income Fund
Oppenheimer International Bond Fund Oppenheimer Total Return Bond Fund
Oppenheimer International Diversified Fund Oppenheimer U.S. Government Trust
Oppenheimer International Growth Fund Oppenheimer Value Fund
Oppenheimer International Small Company
Fund Limited-Term New York Municipal Fund
Oppenheimer International Value Fund Rochester Fund Municipals
Oppenheimer Limited Term California
Municipal Fund Oppenheimer Portfolio Series:
Active Allocation Fund
Aggressive Investor Fund
Conservative Investor Fund
Oppenheimer Limited-Term Government Fund Moderate Investor Fund
And the following money market funds:
Oppenheimer Cash Reserves Centennial Money Market Trust
Oppenheimer Money Market Fund, Inc. Centennial New York Tax Exempt Trust
Centennial California Tax Exempt Trust Centennial Tax Exempt Trust
Centennial Government Trust
There is an initial sales charge on the purchase of Class A shares of
each of the Oppenheimer funds described above except the money market funds.
Under certain circumstances described in this Statement of Additional
Information, redemption proceeds of certain money market fund shares may be
subject to a contingent deferred sales charge.
Letters of Intent. Under a Letter of Intent ("Letter"), you can reduce the
sales charge rate that applies to your purchases of Class A shares if you
purchase Class A, Class B or Class C shares of the Fund or other Oppenheimer
funds during a 13-month period. The total amount of your purchases of Class
A, Class B and Class C shares will determine the sales charge rate that
applies to your Class A share purchases during that period. You can choose to
include purchases that you made up to 90 days before the date of the Letter.
Class A shares of Oppenheimer Money Market Fund, Inc. and Oppenheimer Cash
Reserves on which you have not paid a sales charge and any Class N shares you
purchase, or may have purchased, will not be counted towards satisfying the
purchases specified in a Letter.
A Letter is an investor's statement in writing to the Distributor of
his or her intention to purchase a specified value of Class A, Class B and
Class C shares of the Fund and other Oppenheimer funds during a 13-month
period (the "Letter period"). At the investor's request, this may include
purchases made up to 90 days prior to the date of the Letter. The Letter
states the investor's intention to make the aggregate amount of purchases of
shares which will equal or exceed the amount specified in the Letter.
Purchases made by reinvestment of dividends or capital gains distributions
and purchases made at net asset value (i.e. without paying a front-end or
contingent deferred sales charge) do not count toward satisfying the amount
of the Letter.
Each purchase of Class A shares under the Letter will be made at the
offering price (including the sales charge) that would apply to a single
lump-sum purchase of shares in the amount intended to be purchased under the
Letter.
In submitting a Letter, the investor makes no commitment to purchase
shares. However, if the investor's purchases of shares within the Letter
period, when added to the value (at offering price) of the investor's
holdings of shares on the last day of that period, do not equal or exceed the
intended purchase amount, the investor agrees to pay the additional amount of
sales charge applicable to such purchases. That amount is described in "Terms
of Escrow," below (those terms may be amended by the Distributor from time to
time). The investor agrees that shares equal in value to 5% of the intended
purchase amount will be held in escrow by the Transfer Agent subject to the
Terms of Escrow. Also, the investor agrees to be bound by the terms of the
Prospectus, this Statement of Additional Information and the application used
for a Letter. If those terms are amended, as they may be from time to time by
the Fund, the investor agrees to be bound by the amended terms and that those
amendments will apply automatically to existing Letters.
If the total eligible purchases made during the Letter period do not
equal or exceed the intended purchase amount, the concessions previously paid
to the dealer of record for the account and the amount of sales charge
retained by the Distributor will be adjusted to the rates applicable to
actual total purchases. If total eligible purchases during the Letter period
exceed the intended purchase amount and exceed the amount needed to qualify
for the next sales charge rate reduction set forth in the Prospectus, the
sales charges paid will be adjusted to the lower rate. That adjustment will
be made only if and when the dealer returns to the Distributor the excess of
the amount of concessions allowed or paid to the dealer over the amount of
concessions that apply to the actual amount of purchases. The excess
concessions returned to the Distributor will be used to purchase additional
shares for the investor's account at the net asset value per share in effect
on the date of such purchase, promptly after the Distributor's receipt
thereof.
The Transfer Agent will not hold shares in escrow for purchases of
shares of the Fund and other Oppenheimer funds by OppenheimerFunds prototype
401(k) plans under a Letter. If the intended purchase amount under a Letter
entered into by an OppenheimerFunds prototype 401(k) plan is not purchased by
the plan by the end of the Letter period, there will be no adjustment of
concessions paid to the broker-dealer or financial institution of record for
accounts held in the name of that plan.
In determining the total amount of purchases made under a Letter,
shares redeemed by the investor prior to the termination of the Letter period
will be deducted. It is the responsibility of the dealer of record and/or the
investor to advise the Distributor about the Letter when placing any purchase
orders for the investor during the Letter period. All of such purchases must
be made through the Distributor.
|_| Terms of Escrow That Apply to Letters of Intent.
1. Out of the initial purchase (or subsequent purchases if necessary)
made pursuant to a Letter, shares of the Fund equal in value up to 5% of the
intended purchase amount specified in the Letter shall be held in escrow by
the Transfer Agent. For example, if the intended purchase amount is $50,000,
the escrow shall be shares valued in the amount of $2,500 (computed at the
offering price adjusted for a $50,000 purchase). Any dividends and capital
gains distributions on the escrowed shares will be credited to the investor's
account.
2. If the total minimum investment specified under the Letter is
completed within the 13-month Letter period, the escrowed shares will be
promptly released to the investor.
3. If, at the end of the 13-month Letter period the total purchases
pursuant to the Letter are less than the intended purchase amount specified
in the Letter, the investor must remit to the Distributor an amount equal to
the difference between the dollar amount of sales charges actually paid and
the amount of sales charges which would have been paid if the total amount
purchased had been made at a single time. That sales charge adjustment will
apply to any shares redeemed prior to the completion of the Letter. If the
difference in sales charges is not paid within twenty days after a request
from the Distributor or the dealer, the Distributor will, within sixty days
of the expiration of the Letter, redeem the number of escrowed shares
necessary to realize such difference in sales charges. Full and fractional
shares remaining after such redemption will be released from escrow. If a
request is received to redeem escrowed shares prior to the payment of such
additional sales charge, the sales charge will be withheld from the
redemption proceeds.
4. By signing the Letter, the investor irrevocably constitutes and
appoints the Transfer Agent as attorney-in-fact to surrender for redemption
any or all escrowed shares.
5. The shares eligible for purchase under the Letter (or the holding of
which may be counted toward completion of a Letter) include:
(a) Class A shares sold with a front-end sales charge or subject to a Class
A contingent deferred sales charge,
(b) Class B and Class C shares of other Oppenheimer funds acquired subject
to a contingent deferred sales charge, and
(c) Class A, Class B or Class C shares acquired by exchange of either (1)
Class A shares of one of the other Oppenheimer funds that were
acquired subject to a Class A initial or contingent deferred
sales charge or (2) Class B or Class C 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. As explained in the Prospectus, you must initially
establish your account with $500. Subsequently, you can establish an Asset
Builder Plan to automatically purchase additional shares directly from a bank
account for as little as $50. For those accounts established prior to
November 1, 2002 and which have previously established Asset Builder Plans,
additional purchases will remain at $25. Shares purchased by Asset Builder
Plan payments from bank accounts are subject to the redemption restrictions
for recent purchases described in the Prospectus. Asset Builder Plans are
available only if your bank is an ACH member. Asset Builder Plans may not be
used to buy shares for OppenheimerFunds employer-sponsored qualified
retirement accounts.
If you make payments from your bank account to purchase shares of the
Fund, your bank account will be debited automatically. Normally the debit
will be made two business days prior to the investment dates you selected on
your application. Neither the Distributor, the Transfer Agent nor the Fund
shall be responsible for any delays in purchasing shares that result from
delays in ACH transmissions.
Before you establish Asset Builder payments, you should obtain a
prospectus of the selected fund(s) from your financial advisor (or the
Distributor) and request an application from the Distributor. Complete the
application and return it. You may change the amount of your Asset Builder
payment or you can terminate these automatic investments at any time by
writing to the Transfer Agent. The Transfer Agent requires a reasonable
period (approximately 10 days) after receipt of your instructions to
implement them. The Fund reserves the right to amend, suspend or discontinue
offering Asset Builder plans at any time without prior notice.
Retirement Plans. Certain types of retirement plans are entitled to purchase
shares of the Fund without sales charges or at reduced sales charge rates, as
described in Appendix C to this Statement of Additional Information. Certain
special sales charge arrangements described in that Appendix apply to
retirement plans whose records are maintained on a daily valuation basis by
Merrill Lynch Pierce Fenner & Smith, Inc. ("Merrill Lynch") or an independent
record keeper that has a contract or special arrangement with Merrill Lynch.
If on the date the plan sponsor signed the Merrill Lynch record keeping
service agreement the plan has less than $1 million in assets invested in
applicable investments (other than assets invested in money market funds),
then the retirement plan may purchase only Class C shares of the Oppenheimer
funds. If on the date the plan sponsor signed the Merrill Lynch record
keeping service agreement the plan has $1 million or more in assets but less
than $5 million in assets invested in applicable investments (other than
assets invested in money market funds), then the retirement plan may purchase
only Class N shares of the Oppenheimer funds. If on the date the plan
sponsor signed the Merrill Lynch record keeping service agreement the plan
has $5 million or more in assets invested in applicable investments (other
than assets invested in money market funds), then the retirement plan may
purchase only Class A shares of the Oppenheimer funds.
OppenheimerFunds has entered into arrangements with certain record
keepers whereby the Transfer Agent compensates the record keeper for its
record keeping and account servicing functions that it performs on behalf of
the participant level accounts of a retirement plan. While such compensation
may act to reduce the record keeping fees charged by the retirement plan's
record keeper, that compensation arrangement may be terminated at any time,
potentially affecting the record keeping fees charged by the retirement
plan's record keeper.
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 values of the Fund's
shares on the cancellation date is less than on the purchase date. That loss
is equal to the amount of the decline in the net asset value per share
multiplied by the number of shares in the purchase order. The investor is
responsible for that loss. If the investor fails to compensate the Fund for
the loss, the Distributor will do so. The Fund may reimburse the Distributor
for that amount by redeeming shares from any account registered in that
investor's name, or the Fund or the Distributor may seek other redress.
Classes of Shares. Each class of shares of the Fund represents an interest in
the same portfolio of investments of the Fund. However, each class has
different shareholder privileges and features. The net income attributable to
Class B, Class C or Class N shares and the dividends payable on Class B,
Class C or Class N shares will be reduced by incremental expenses borne
solely by that class. Those expenses include the asset-based sales charges to
which Class B, Class C and Class N shares are subject.
The availability of different classes of shares permits an investor to
choose the method of purchasing shares that is more appropriate for the
investor. That may depend on the amount of the purchase, the length of time
the investor expects to hold shares, and other relevant circumstances. Class
A shares normally are sold subject to an initial sales charge. While Class B,
Class C and Class N shares have no initial sales charge, the purpose of the
deferred sales charge and asset-based sales charge on Class B, Class C and
Class N shares is the same as that of the initial sales charge on Class A
shares - to compensate the Distributor and brokers, dealers and financial
institutions that sell shares of the Fund. A salesperson who is entitled to
receive compensation from his or her firm for selling Fund shares may receive
different levels of compensation for selling one class of shares rather than
another.
The Distributor will not accept a purchase order of more than $100,000
for Class B shares or a purchase order of $1 million or more to purchase
Class C shares on behalf of a single investor (not including dealer "street
name" or omnibus accounts).
Class B, Class C or Class N shares may not be purchased by an investor
directly from the Distributor without the investor designating another
registered broker-dealer.
|_| Class A Shares Subject to a Contingent Deferred Sales Charge. For
purchases of Class A shares at net asset value whether or not subject to a
contingent deferred sales charge as described in the Prospectus, no sales
concessions will be paid to the broker-dealer of record, as described in the
Prospectus, on sales of Class A shares purchased with the redemption proceeds
of shares of another mutual fund offered as an investment option in a
retirement plan in which Oppenheimer funds are also offered as investment
options under a special arrangement with the Distributor, if the purchase
occurs more than 30 days after the Oppenheimer funds are added as an
investment option under that plan. Additionally, that concession will not be
paid on purchases of Class A shares by a retirement plan made with the
redemption proceeds of Class N shares of one or more Oppenheimer funds held
by the plan for more than 18 months.
|_| Class B Conversion. Under current interpretations of applicable
federal income tax law by the Internal Revenue Service, the conversion of
Class B shares to Class A shares 72 months after purchase is not treated as a
taxable event for the shareholder. If those laws or the IRS interpretation of
those laws should change, the automatic conversion feature may be suspended.
In that event, no further conversions of Class B shares would occur while
that suspension remained in effect. Although Class B shares could then be
exchanged for Class A shares on the basis of relative net asset value of the
two classes, without the imposition of a sales charge or fee, such exchange
could constitute a taxable event for the shareholder, and absent such
exchange, Class B shares might continue to be subject to the asset-based
sales charge for longer than six years.
|_| Availability of Class N Shares. In addition to the description of
the types of retirement plans which may purchase Class N shares contained in
the prospectus, Class N shares also are offered to the following:
o to all rollover IRAs (including SEP IRAs and SIMPLE IRAs),
o to all rollover contributions made to Individual 401(k) plans,
Profit-Sharing Plans and Money Purchase Pension Plans,
o to all direct rollovers from OppenheimerFunds-sponsored Pinnacle and
Ascender retirement plans,
o to all trustee-to-trustee IRA transfers,
o to all 90-24 type 403(b) transfers,
o to Group Retirement Plans (as defined in Appendix C to this Statement
of Additional Information) which have entered into a special
agreement with the Distributor for that purpose,
o to Retirement Plans qualified under Sections 401(a) or 401(k) of the
Internal Revenue Code, the recordkeeper or the plan sponsor for
which has entered into a special agreement with the Distributor,
o to Retirement Plans of a plan sponsor where the aggregate assets of all
such plans invested in the Oppenheimer funds is $500,000 or more,
o to Retirement Plans with at least 100 eligible employees or $500,000 or
more in plan assets,
o to OppenheimerFunds-sponsored Ascender 401(k) plans that pay for the
purchase with the redemption proceeds of Class A shares of one or
more Oppenheimer funds, and
o to certain customers of broker-dealers and financial advisors that are
identified in a special agreement between the broker-dealer or
financial advisor and the Distributor for that purpose.
The sales concession and the advance of the service fee, as described
in the Prospectus, will not be paid to dealers of record on sales of Class N
shares on:
o purchases of Class N shares in amounts of $500,000 or more by a
retirement plan that pays for the purchase with the redemption
proceeds of Class A shares of one or more Oppenheimer funds
(other than rollovers from an OppenheimerFunds-sponsored Pinnacle
or Ascender 401(k) plan to any IRA invested in the Oppenheimer
funds),
o purchases of Class N shares in amounts of $500,000 or more by a
retirement plan that pays for the purchase with the redemption
proceeds of Class C shares of one or more Oppenheimer funds held
by the plan for more than one year (other than rollovers from an
OppenheimerFunds-sponsored Pinnacle or Ascender 401(k) plan to
any IRA invested in the Oppenheimer funds), and
o on purchases of Class N shares by an OppenheimerFunds-sponsored
Pinnacle or Ascender 401(k) plan made with the redemption
proceeds of Class A shares of one or more Oppenheimer funds.
No sales concessions will be paid to the broker-dealer of record, as
described in the Prospectus, on sales of Class N shares purchased with the
redemption proceeds of shares of another mutual fund offered as an investment
option in a retirement plan in which Oppenheimer funds are also offered as
investment options under a special arrangement with the Distributor, if the
purchase occurs more than 30 days after the Oppenheimer funds are added as an
investment option under that plan.
|_| Allocation of Expenses. The Fund pays expenses related to its daily
operations, such as custodian fees, Trustees' fees, transfer agency fees,
legal fees and auditing costs. Those expenses are paid out of the Fund's
assets and are not paid directly by shareholders. However, those expenses
reduce the net asset values of shares, and therefore are indirectly borne by
shareholders through their investment.
The methodology for calculating the net asset value, dividends and
distributions of the Fund's share classes recognizes two types of expenses.
General expenses that do not pertain specifically to any one class are
allocated pro rata to the shares of all classes. The allocation is based on
the percentage of the Fund's total assets that is represented by the assets
of each class, and then equally to each outstanding share within a given
class. Such general expenses include management fees, legal, bookkeeping and
audit fees, printing and mailing costs of shareholder reports, Prospectuses,
Statements of Additional Information and other materials for current
shareholders, fees to unaffiliated Trustees, custodian expenses, share
issuance costs, organization and start-up costs, interest, taxes and
brokerage commissions, and non-recurring expenses, such as litigation costs.
Other expenses that are directly attributable to a particular class are
allocated equally to each outstanding share within that class. Examples of
such expenses include distribution and service plan (12b-1) fees, transfer
and shareholder servicing agent fees and expenses, and shareholder meeting
expenses (to the extent that such expenses pertain only to a specific class).
Fund Account Fees. As stated in the Prospectus, a $12 annual "Minimum Balance
Fee" is assessed on each Fund account with a share balance valued under $500.
The Minimum Balance Fee is automatically deducted from each such Fund account
in September.
Listed below are certain cases in which the Fund has elected, in its
discretion, not to assess the Fund Account Fees. These exceptions are
subject to change:
o A fund account whose shares were acquired after September 30th of the
prior year;
o A fund account that has a balance below $500 due to the automatic
conversion of shares from Class B to Class A shares. However,
once all Class B shares held in the account have been converted
to Class A shares the new account balance may become subject to
the Minimum Balance Fee;
o Accounts of shareholders who elect to access their account documents
electronically via eDoc Direct;
o A fund account that has only certificated shares and, has a balance
below $500 and is being escheated;
o Accounts of shareholders that are held by broker-dealers under the NSCC
Fund/SERV system;
o Accounts held under the Oppenheimer Legacy Program and/or holding
certain Oppenheimer Variable Account Funds;
o Omnibus accounts holding shares pursuant to the Pinnacle, Ascender,
Custom Plus, Recordkeeper Pro and Pension Alliance Retirement
Plan programs; and
o A fund account that falls below the $500 minimum solely due to market
fluctuations within the 12-month period preceding the date the
fee is deducted.
To access account documents electronically via eDocs Direct, please
visit the Service Center on our website at www.oppenheimerfunds.com or call
1.888.470.0862 for instructions.
The Fund reserves the authority to modify Fund Account Fees in its
discretion.
Determination of Net Asset Values Per Share. The net asset values per share
of each class of shares of the Fund are determined as of the close of
business of the NYSE on each day that the NYSE is open. The calculation is
done by dividing the value of the Fund's net assets attributable to a class
by the number of shares of that class that are outstanding. The NYSE normally
closes at 4:00 p.m., Eastern time, but may close earlier on some other days
(for example, in case of weather emergencies or on days falling before a U.S.
holiday). All references to time in this Statement of Additional Information
mean "Eastern time." The NYSE's most recent annual announcement (which is
subject to change) states that it will close on New Year's Day, Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. It may also close on other
days.
Dealers other than NYSE members may conduct trading in certain
securities on days on which the NYSE is closed (including weekends and
holidays) or after 4:00 p.m. on a regular business day. Because the Fund's
net asset values will not be calculated on those days, the Fund's net asset
values per share may be significantly affected on such days when shareholders
may not purchase or redeem shares. Additionally, trading on European and
Asian stock exchanges and over-the-counter markets normally is completed
before the close of the NYSE.
Changes in the values of securities traded on foreign exchanges or
markets as a result of events that occur after the prices of those securities
are determined, but before the close of the NYSE, will not be reflected in
the Fund's calculation of its net asset values that day unless the Manager
determines that the event is likely to effect a material change in the value
of the security. The Manager, or an internal valuation committee established
by the Manager, as applicable, may establish a valuation, under procedures
established by the Board and subject to the approval, ratification and
confirmation by the Board at its next ensuing meeting.
|_| Securities Valuation. The Fund's Board of Trustees has established
procedures for the valuation of the Fund's securities. In general those
procedures are as follows:
o Equity securities traded on a U.S. securities exchange or on NASDAQ(R)
are valued as follows:
(1) if last sale information is regularly reported, they are valued at the
last reported sale price on the principal exchange on which
they are traded or on NASDAQ(R), as applicable, on that day, or
(2) if last sale information is not available on a valuation date, they are
valued at the last reported sale price preceding the valuation
date if it is within the spread of the closing "bid" and
"asked" prices on the valuation date or, if not, at the
closing "bid" price on the valuation date.
o Equity securities traded on a foreign securities exchange generally are
valued in one of the following ways:
(1) at the last sale price available to the pricing service approved by the
Board of Trustees, or
(2) at the last sale price obtained by the Manager from the report of the
principal exchange on which the security is traded at its last
trading session on or immediately before the valuation date, or
(3) at the mean between the "bid" and "asked" prices obtained from the
principal exchange on which the security is traded or, on the
basis of reasonable inquiry, from two market makers in the
security.
o Long-term debt securities having a remaining maturity in excess of 60
days are valued based on the mean between the "bid" and "asked" prices
determined by a portfolio pricing service approved by the Fund's Board of
Trustees or obtained by the Manager from two active market makers in the
security on the basis of reasonable inquiry.
o The following securities are valued at the mean between the "bid" and
"asked" prices determined by a pricing service approved by the Fund's Board
of Trustees or obtained by the Manager from two active market makers in the
security on the basis of reasonable inquiry:
(1) debt instruments that have a maturity of more than 397 days when
issued,
(2) debt instruments that had a maturity of 397 days or less when issued
and have a remaining maturity of more than 60 days, and
(3) non-money market debt instruments that had a maturity of 397 days or
less when issued and which have a remaining maturity of 60
days or less.
o The following securities are valued at cost, adjusted for amortization
of premiums and accretion of discounts:
(1) money market debt securities held by a non-money market fund that had a
maturity of less than 397 days when issued that have a
remaining maturity of 60 days or less, and
(2) debt instruments held by a money market fund that have a remaining
maturity of 397 days or less.
o Securities (including restricted securities) not having
readily-available market quotations are valued at fair value determined under
the Board's procedures. If the Manager is unable to locate two market makers
willing to give quotes, a security may be priced at the mean between the
"bid" and "asked" prices provided by a single active market maker (which in
certain cases may be the "bid" price if no "asked" price is available).
In the case of U.S. government securities, mortgage-backed securities,
corporate bonds and foreign government securities, when last sale information
is not generally available, the Manager may use pricing services approved by
the Board of Trustees. The pricing service may use "matrix" comparisons to
the prices for comparable instruments on the basis of quality, yield and
maturity. Other special factors may be involved (such as the tax-exempt
status of the interest paid by municipal securities). The Manager will
monitor the accuracy of the pricing services. That monitoring may include
comparing prices used for portfolio valuation to actual sales prices of
selected securities.
The closing prices in the New York foreign exchange market on a
particular business day that are provided to the Manager by a bank, dealer or
pricing service that the Manager has determined to be reliable are used to
value foreign currency, including forward contracts, and to convert to U.S.
dollars securities that are denominated in foreign currency.
Puts, calls, and futures are valued at the last sale price on the
principal exchange on which they are traded or on NASDAQ(R), as applicable, as
determined by a pricing service approved by the Board of Trustees or by the
Manager. If there were no sales that day, they shall be valued at the last
sale price on the preceding trading day if it is within the spread of the
closing "bid" and "asked" prices on the principal exchange or on NASDAQ(R)on
the valuation date. If not, the value shall be the closing bid price on the
principal exchange or on NASDAQ(R)on the valuation date. If the put, call or
future is not traded on an exchange or on NASDAQ(R), it shall be valued by the
mean between "bid" and "asked" prices obtained by the Manager from two active
market makers. In certain cases that may be at the "bid" price if no "asked"
price is available.
When the Fund writes an option, an amount equal to the premium received
is included in the Fund's Statement of Assets and Liabilities as an asset. An
equivalent credit is included in the liability section. The credit is
adjusted ("marked-to-market") to reflect the current market value of the
option. In determining the Fund's gain on investments, if a call or put
written by the Fund is exercised, the proceeds are increased by the premium
received. If a call or put written by the Fund expires, the Fund has a gain
in the amount of the premium. If the Fund enters into a closing purchase
transaction, it will have a gain or loss, depending on whether the premium
received was more or less than the cost of the closing transaction. If the
Fund exercises a put it holds, the amount the Fund receives on its sale of
the underlying investment is reduced by the amount of premium paid by the
Fund.
How to Sell Shares
The information below supplements the terms and conditions for redeeming
shares set forth in the Prospectus.
Sending Redemption Proceeds by Federal Funds Wire. The Federal Funds wire of
redemption proceeds may be delayed if the Fund's custodian bank is not open
for business on a day when the Fund would normally authorize the wire to be
made, which is usually the Fund's next regular business day following the
redemption. In those circumstances, the wire will not be transmitted until
the next bank business day on which the Fund is open for business. No
dividends will be paid on the proceeds of redeemed shares awaiting transfer
by Federal Funds wire.
Reinvestment Privilege. Within six months of a redemption, a shareholder may
reinvest all or part of the redemption proceeds of:
o Class A shares purchased subject to an initial sales charge or Class A
shares on which a contingent deferred sales charge was paid, or
o Class B shares that were subject to the Class B contingent deferred
sales charge when redeemed.
The reinvestment may be made without sales charge only in Class A
shares of the Fund or any of the other Oppenheimer funds into which shares of
the Fund are exchangeable as described in "How to Exchange Shares" below.
Reinvestment will be at the net asset value next computed after the Transfer
Agent receives the reinvestment order. The shareholder must ask the Transfer
Agent for that privilege at the time of reinvestment. This privilege does not
apply to Class C, and Class N shares. The Fund may amend, suspend or cease
offering this reinvestment privilege at any time as to shares redeemed after
the date of such amendment, suspension or cessation.
Any capital gain that was realized when the shares were redeemed is
taxable, and reinvestment will not alter any capital gains tax payable on
that gain. If there has been a capital loss on the redemption, some or all of
the loss may not be tax deductible, depending on the timing and amount of the
reinvestment. Under the Internal Revenue Code, if the redemption proceeds of
Fund shares on which a sales charge was paid are reinvested in shares of the
Fund or another of the Oppenheimer funds within 90 days of payment of the
sales charge, the shareholder's basis in the shares of the Fund that were
redeemed may not include the amount of the sales charge paid. That would
reduce the loss or increase the gain recognized from the redemption. However,
in that case the sales charge would be added to the basis of the shares
acquired by the reinvestment of the redemption proceeds.
Payments "In Kind". The Prospectus states that payment for shares tendered
for redemption is ordinarily made in cash. However, under certain
circumstances, the Board of Trustees of the Fund may determine that it would
be detrimental to the best interests of the remaining shareholders of the
Fund to make payment of a redemption order wholly or partly in cash. In that
case, the Fund may pay the redemption proceeds in whole or in part by a
distribution "in kind" of liquid securities from the portfolio of the Fund,
in lieu of cash.
The Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act. Under that rule, the Fund is obligated to redeem shares solely
in cash up to the lesser of $250,000 or 1% of the net assets of the Fund
during any 90-day period for any one shareholder. If shares are redeemed in
kind, the redeeming shareholder might incur brokerage or other costs in
selling the securities for cash. The Fund will value securities used to pay
redemptions in kind using the same method the Fund uses to value its
portfolio securities described above under "Determination of Net Asset Values
Per Share." That valuation will be made as of the time the redemption price
is determined.
Involuntary Redemptions. The Fund's Board of Trustees has the right to cause
the involuntary redemption of the shares held in any account if the aggregate
net asset value of those shares is less than $500 or such lesser amount as
the Board may fix. The Board will not cause the involuntary redemption of
shares in an account if the aggregate net asset value of such shares has
fallen below the stated minimum solely as a result of market fluctuations. If
the Board exercises this right, it may also fix the requirements for any
notice to be given to the shareholders in question (not less than 30 days).
The Board may alternatively set requirements for the shareholder to increase
the investment, or set other terms and conditions so that the shares would
not be involuntarily redeemed.
Transfers of Shares. A transfer of shares to a different registration is not
an event that triggers the payment of sales charges. Therefore, shares are
not subject to the payment of a contingent deferred sales charge of any class
at the time of transfer to the name of another person or entity. It does not
matter whether the transfer occurs by absolute assignment, gift or bequest,
as long as it does not involve, directly or indirectly, a public sale of the
shares. When shares subject to a contingent deferred sales charge are
transferred, the transferred shares will remain subject to the contingent
deferred sales charge. It will be calculated as if the transferee shareholder
had acquired the transferred shares in the same manner and at the same time
as the transferring shareholder.
If less than all shares held in an account are transferred, and some
but not all shares in the account would be subject to a contingent deferred
sales charge if redeemed at the time of transfer, the priorities described in
the Prospectus under "How to Buy Shares" for the imposition of the Class B,
Class C and Class N 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, SEP-IRAs, SIMPLE IRAs, 403(b)(7) custodial
plans, 401(k) plans or pension or profit-sharing plans should be addressed to
"Trustee, OppenheimerFunds Retirement Plans," c/o the Transfer Agent at its
address listed in "How To Sell Shares" in the Prospectus or on the back cover
of this Statement of Additional Information. The request must:
(1) state the reason for the distribution;
(2) state the owner's awareness of tax penalties if the distribution is
premature; and
(3) conform to the requirements of the plan and the Fund's other redemption
requirements.
Participants (other than self-employed plan sponsors) in
OppenheimerFunds-sponsored pension or profit-sharing plans with shares of the
Fund held in the name of the plan or its fiduciary may not directly request
redemption of their accounts. The plan administrator or fiduciary must sign
the request.
Distributions from pension and profit sharing plans are subject to
special requirements under the Internal Revenue Code and certain documents
(available from the Transfer Agent) must be completed and submitted to the
Transfer Agent before the distribution may be made. Distributions from
retirement plans are subject to withholding requirements under the Internal
Revenue Code, and IRS Form W-4P (available from the Transfer Agent) must be
submitted to the Transfer Agent with the distribution request, or the
distribution may be delayed. Unless the shareholder has provided the Transfer
Agent with a certified tax identification number, the Internal Revenue Code
requires that tax be withheld from any distribution even if the shareholder
elects not to have tax withheld. The Fund, the Manager, the Distributor, and
the Transfer Agent assume no responsibility to determine whether a
distribution satisfies the conditions of applicable tax laws and will not be
responsible for any tax penalties assessed in connection with a distribution.
Special Arrangements for Repurchase of Shares from Dealers and Brokers. The
Distributor is the Fund's agent to repurchase its shares from authorized
dealers or brokers on behalf of their customers. Shareholders should contact
their broker or dealer to arrange this type of redemption. The repurchase
price per share will be the net asset value next computed after the
Distributor receives an order placed by the dealer or broker. However, if the
Distributor receives a repurchase order from a dealer or broker after the
close of the NYSE 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 NYSE closes. Normally, the NYSE closes at
4:00 p.m., but may do so earlier on some days. Additionally, the order must
have been transmitted to and received by the Distributor prior to its close
of business that day (normally 5:00 p.m.).
Ordinarily, for accounts redeemed by a broker-dealer under this
procedure, payment will be made within three business days after the shares
have been redeemed upon the Distributor's receipt of the required redemption
documents in proper form. The signature(s) of the registered owners on the
redemption documents must be guaranteed as described in the Prospectus.
Automatic Withdrawal and Exchange Plans. Investors owning shares of the Fund
valued at $5,000 or more can authorize the Transfer Agent to redeem shares
(having a value of at least $50) automatically on a monthly, quarterly,
semi-annual or annual basis under an Automatic Withdrawal Plan. Shares will
be redeemed three business days prior to the date requested by the
shareholder for receipt of the payment. Automatic withdrawals of up to $1,500
per month may be requested by telephone if payments are to be made by check
payable to all shareholders of record. Payments must also be sent to the
address of record for the account and the address must not have been changed
within the prior 30 days. Required minimum distributions from
OppenheimerFunds-sponsored retirement plans may not be arranged on this
basis.
Payments are normally made by check, but shareholders having
AccountLink privileges (see "How To Buy Shares") may arrange to have
Automatic Withdrawal Plan payments transferred to the bank account designated
on the account application or by signature-guaranteed instructions sent to
the Transfer Agent. Shares are normally redeemed pursuant to an Automatic
Withdrawal Plan three business days before the payment transmittal date you
select in the account application. If a contingent deferred sales charge
applies to the redemption, the amount of the check or payment will be reduced
accordingly.
The Fund cannot guarantee receipt of a payment on the date requested.
The Fund reserves the right to amend, suspend or discontinue offering these
plans at any time without prior notice. Because of the sales charge assessed
on Class A share purchases, shareholders should not make regular additional
Class A share purchases while participating in an Automatic Withdrawal Plan.
Class B, Class C and Class N shareholders should not establish automatic
withdrawal plans, because of the potential imposition of the contingent
deferred sales charge on such withdrawals (except where the Class B, Class C
or Class N contingent deferred sales charge is waived as described in
Appendix C to this Statement of Additional Information).
By requesting an Automatic Withdrawal or Exchange Plan, the shareholder
agrees to the terms and conditions that apply to such plans, as stated below.
These provisions may be amended from time to time by the Fund and/or the
Distributor. When adopted, any amendments will automatically apply to
existing Plans.
|_| Automatic Exchange Plans. Shareholders can authorize the Transfer
Agent to exchange a pre-determined amount of shares of the Fund for shares
(of the same class) of other Oppenheimer funds automatically on a monthly,
quarterly, semi-annual or annual basis under an Automatic Exchange Plan. The
minimum amount that may be exchanged to each other fund account is $50.
Instructions should be provided on the OppenheimerFunds application or
signature-guaranteed instructions. Exchanges made under these plans are
subject to the restrictions that apply to exchanges as set forth in "How to
Exchange Shares" in the Prospectus and below in this Statement of Additional
Information.
|_| Automatic Withdrawal Plans. Fund shares will be redeemed as
necessary to meet withdrawal payments. Shares acquired without a sales charge
will be redeemed first. Shares acquired with reinvested dividends and capital
gains distributions will be redeemed next, followed by shares acquired with a
sales charge, to the extent necessary to make withdrawal payments. Depending
upon the amount withdrawn, the investor's principal may be depleted. Payments
made under these plans should not be considered as a yield or income on your
investment.
The Transfer Agent will administer the investor's Automatic Withdrawal
Plan as agent for the shareholder(s) (the "Planholder") who executed the plan
authorization and application submitted to the Transfer Agent. Neither the
Fund nor the Transfer Agent shall incur any liability to the Planholder for
any action taken or not taken by the Transfer Agent in good faith to
administer the plan. Share certificates will not be issued for shares of the
Fund purchased for and held under the plan, but the Transfer Agent will
credit all such shares to the account of the Planholder on the records of the
Fund. Any share certificates held by a Planholder may be surrendered
unendorsed to the Transfer Agent with the plan application so that the shares
represented by the certificate may be held under the plan.
For accounts subject to Automatic Withdrawal Plans, distributions of
capital gains must be reinvested in shares of the Fund, which will be done at
net asset value without a sales charge. Dividends on shares held in the
account may be paid in cash or reinvested.
Shares will be redeemed to make withdrawal payments at the net asset
value per share determined on the redemption date. Checks or AccountLink
payments representing the proceeds of Plan withdrawals will normally be
transmitted three business days prior to the date selected for receipt of the
payment, according to the choice specified in writing by the Planholder.
Receipt of payment on the date selected cannot be guaranteed.
The amount and the interval of disbursement payments and the address to
which checks are to be mailed or AccountLink payments are to be sent may be
changed at any time by the Planholder by writing to the Transfer Agent. The
Planholder should allow at least two weeks' time after mailing such
notification for the requested change to be put in effect. The Planholder
may, at any time, instruct the Transfer Agent by written notice to redeem
all, or any part of, the shares held under the plan. That notice must be in
proper form in accordance with the requirements of the then-current
Prospectus of the Fund. In that case, the Transfer Agent will redeem the
number of shares requested at the net asset value per share in effect and
will mail a check for the proceeds to the Planholder.
The Planholder may terminate a plan at any time by writing to the
Transfer Agent. The Fund may also give directions to the Transfer Agent to
terminate a plan. The Transfer Agent will also terminate a plan upon its
receipt of evidence satisfactory to it that the Planholder has died or is
legally incapacitated. Upon termination of a plan by the Transfer Agent or
the Fund, shares that have not been redeemed will be held in uncertificated
form in the name of the Planholder. The account will continue as a
dividend-reinvestment, uncertificated account unless and until proper
instructions are received from the Planholder, his or her executor or
guardian, or another authorized person.
If the Transfer Agent ceases to act as transfer agent for the Fund, the
Planholder will be deemed to have appointed any successor transfer agent to
act as agent in administering the plan.
How to Exchange Shares
As stated in the Prospectus, shares of a particular class of Oppenheimer
funds having more than one class of shares may be exchanged only for shares
of the same class of other Oppenheimer funds. Shares of Oppenheimer funds
that have a single class without a class designation are deemed "Class A"
shares for this purpose. You can obtain a current list showing which funds
offer which classes of shares by calling the Distributor.
o All of the Oppenheimer funds currently offer Class A, B, C, N and Y
shares with the following exceptions:
The following funds only offer Class A shares:
Centennial California Tax Exempt Trust Centennial New York Tax Exempt
Trust
Centennial Government Trust Centennial Tax Exempt Trust
Centennial Money Market Trust
The following funds do not offer Class N shares:
Limited Term New York Municipal Fund Oppenheimer New Jersey Municipal Fund
Oppenheimer AMT-Free Municipals Oppenheimer Principal Protected Main
Street Fund II
Oppenheimer AMT-Free New York Oppenheimer Pennsylvania Municipal
Municipals Fund
Oppenheimer California Municipal Fund Oppenheimer Rochester National
Municipals
Oppenheimer International Value Fund Oppenheimer Senior Floating Rate Fund
Oppenheimer Limited Term California Rochester Fund Municipals
Municipal Fund
Oppenheimer Limited Term Municipal
Fund
Oppenheimer Money Market Fund, Inc.
The following funds do not offer Class Y shares:
Limited Term New York Municipal Fund Oppenheimer Limited Term California
Municipal Fund
Oppenheimer AMT-Free Municipals Oppenheimer Limited Term Municipal Fund
Oppenheimer AMT-Free New York Municipals Oppenheimer New Jersey Municipal Fund
Oppenheimer Balanced Fund Oppenheimer Pennsylvania Municipal Fund
Oppenheimer California Municipal Fund Oppenheimer Principal Protected Main
Street Fund
Oppenheimer Capital Income Fund Oppenheimer Principal Protected Main
Street Fund II
Oppenheimer Cash Reserves Oppenheimer Principal Protected Main
Street Fund III
Oppenheimer Champion Income Fund Oppenheimer Quest Capital Value Fund,
Inc.
Oppenheimer Convertible Securities Fund Oppenheimer Quest International Value
Fund, Inc.
Oppenheimer Disciplined Allocation Fund Oppenheimer Rochester National Municipals
Oppenheimer Dividend Growth Fund Oppenheimer Total Return Bond Fund
Oppenheimer Gold & Special Minerals Fund
o Oppenheimer Money Market Fund, Inc. only offers Class A and Class Y
shares.
o 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.
o Class M shares of Oppenheimer Convertible Securities Fund may be
exchanged only for Class A shares of other Oppenheimer funds. They may
not be acquired by exchange of shares of any class of any other
Oppenheimer funds except Class A shares of Oppenheimer Money Market
Fund, Inc. or Oppenheimer Cash Reserves acquired by exchange of Class M
shares.
o Class A shares of Oppenheimer funds may be exchanged at net asset value
for shares of any money market fund offered by the Distributor. Shares
of any money market fund purchased without a sales charge may be
exchanged for shares of Oppenheimer funds offered with a sales charge
upon payment of the sales charge. They may also be used to purchase
shares of Oppenheimer funds subject to an early withdrawal charge or
contingent deferred sales charge.
o Shares of the Fund acquired by reinvestment of dividends or
distributions from any of the other Oppenheimer funds or from any unit
investment trust for which reinvestment arrangements have been made
with the Distributor may be exchanged at net asset value for shares of
any of the Oppenheimer funds.
o Shares of Oppenheimer Principal Protected Main Street Fund may be
exchanged at net asset value for shares of any of the Oppenheimer
funds. However, shareholders are not permitted to exchange shares of
other Oppenheimer funds for shares of Oppenheimer Principal Protected
Main Street Fund until after the expiration of the warranty period
(8/5/2010).
o Shares of Oppenheimer Principal Protected Main Street Fund II may be
exchanged at net asset value for shares of any of the Oppenheimer
funds. However, shareholders are not permitted to exchange shares of
other Oppenheimer funds for shares of Oppenheimer Principal Protected
Main Street Fund II until after the expiration of the warranty period
(3/3/2011).
o Shares of Oppenheimer Principal Protected Main Street Fund III may be
exchanged at net asset value for shares of any of the Oppenheimer
funds. However, shareholders are not permitted to exchange shares of
other Oppenheimer funds for shares of Oppenheimer Principal Protected
Main Street Fund III until after the expiration of the warranty period
(12/16/2011).
The Fund may amend, suspend or terminate the exchange privilege at any
time. Although the Fund may impose these changes at any time, it will provide
you with notice of those changes whenever it is required to do so by
applicable law. It may be required to provide 60 days' notice prior to
materially amending or terminating the exchange privilege. That 60 day notice
is not required in extraordinary circumstances.
|X| How Exchanges Affect Contingent Deferred Sales Charges. No
contingent deferred sales charge is imposed on exchanges of shares of any
class purchased subject to a contingent deferred sales charge, with the
following exceptions:
o When Class A shares of any Oppenheimer fund (other than Oppenheimer
Rochester National Municipals and Rochester Fund Municipals) acquired by
exchange of Class A shares of any Oppenheimer fund purchased subject to a
Class A contingent deferred sales charge are redeemed within 18 months
measured from the beginning 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.
o When Class A shares of Oppenheimer Rochester National Municipals and
Rochester Fund Municipals acquired by exchange of Class A shares of any
Oppenheimer fund purchased subject to a Class A contingent deferred sales
charge are redeemed within 24 months of the beginning 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.
o If any Class A shares of another Oppenheimer fund that are exchanged
for Class A shares of Oppenheimer Senior Floating Rate Fund are subject to
the Class A contingent deferred sales charge of the other Oppenheimer fund at
the time of exchange, the holding period for that Class A contingent deferred
sales charge will carry over to the Class A shares of Oppenheimer Senior
Floating Rate Fund acquired in the exchange. The Class A shares of
Oppenheimer Senior Floating Rate Fund acquired in that exchange will be
subject to the Class A Early Withdrawal Charge of Oppenheimer Senior Floating
Rate Fund if they are repurchased before the expiration of the holding period.
o When Class A shares of Oppenheimer Cash Reserves and Oppenheimer Money
Market Fund, Inc. acquired by exchange of Class A shares of any Oppenheimer
fund purchased subject to a Class A contingent deferred sales charge are
redeemed within the Class A holding period of the fund from which the shares
were exchanged, the Class A contingent deferred sales charge of the fund from
which the shares were exchanged is imposed on the redeemed shares.
o Except with respect to the Class B shares described in the next two
paragraphs, the 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.
o With respect to Class B shares of Oppenheimer Limited Term California
Municipal Fund, Oppenheimer Limited-Term Government Fund, Oppenheimer Limited
Term Municipal Fund, Limited Term New York Municipal Fund and Oppenheimer
Senior Floating Rate Fund, the Class B contingent deferred sales charge is
imposed on the acquired shares if they are redeemed within five years of the
initial purchase of the exchanged Class B shares.
o With respect to Class B shares of Oppenheimer Cash Reserves that were
acquired through the exchange of Class B shares initially purchased in the
Oppenheimer Capital Preservation Fund, the Class B contingent deferred sales
charge is imposed on the acquired shares if they are redeemed within five
years of that initial purchase.
o With respect to Class C 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.
o With respect to Class N shares, a 1% contingent deferred sales charge
will be imposed if the retirement plan (not including IRAs and 403(b) plans)
is terminated or Class N shares of all Oppenheimer funds are terminated as an
investment option of the plan and Class N shares are redeemed within 18
months after the plan's first purchase of Class N shares of any Oppenheimer
fund or with respect to an individual retirement plan or 403(b) plan, Class N
shares are redeemed within 18 months of the plan's first purchase of Class N
shares of any Oppenheimer fund.
o When Class B, Class C or Class N 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, Class C or Class N contingent deferred
sales charge will be followed in determining the order in which the shares
are exchanged. Before exchanging shares, shareholders should take into
account how the exchange may affect any contingent deferred sales charge that
might be imposed in the subsequent redemption of remaining shares.
Shareholders owning shares of more than one class must specify which
class of shares they wish to exchange.
|_| Limits on Multiple Exchange Orders. The Fund reserves the right to
reject telephone or written exchange requests submitted in bulk by anyone on
behalf of more than one account.
|_| Telephone Exchange Requests. When exchanging shares by telephone, a
shareholder must have an existing account in the fund to which the exchange
is to be made. Otherwise, the investors must obtain a prospectus of that fund
before the exchange request may be submitted. 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.
|_| Processing Exchange Requests. Shares to be exchanged are redeemed
on the regular business day the Transfer Agent receives an exchange request
in proper form (the "Redemption Date"). Normally, shares of the fund to be
acquired are purchased on the Redemption Date, but such purchases may be
delayed by either fund up to five business days if it determines that it
would be disadvantaged by an immediate transfer of the redemption proceeds.
The Fund reserves the right, in its discretion, to refuse any exchange
request that may disadvantage it. For example, if the receipt of multiple
exchange requests from a dealer might require the disposition of portfolio
securities at a time or at a price that might be disadvantageous to the Fund,
the Fund may refuse the request.
When you exchange some or all of your shares from one fund to another,
any special account feature such as an Asset Builder Plan or Automatic
Withdrawal Plan, will be switched to the new fund account unless you tell the
Transfer Agent not to do so. However, special redemption and exchange
features such as Automatic Exchange Plans and Automatic Withdrawal Plans
cannot be switched to an account in Oppenheimer Senior Floating Rate Fund.
In connection with any exchange request, the number of shares exchanged
may be less than the number requested if the exchange or the number requested
would include shares subject to a restriction cited in the Prospectus or this
Statement of Additional Information, or would include shares covered by a
share certificate that is not tendered with the request. In those cases, only
the shares available for exchange without restriction will be exchanged.
The different Oppenheimer funds available for exchange have different
investment objectives, policies and risks. A shareholder should assure that
the fund selected is appropriate for his or her investment and should be
aware of the tax consequences of an exchange. For federal income tax
purposes, an exchange transaction is treated as a redemption of shares of one
fund and a purchase of shares of another. "Reinvestment Privilege," above,
discusses some of the tax consequences of reinvestment of redemption proceeds
in such cases. The Fund, the Distributor, and the Transfer Agent are unable
to provide investment, tax or legal advice to a shareholder in connection
with an exchange request or any other investment transaction.
Dividends, Capital Gains and Taxes
Dividends and Distributions. The Fund has no fixed dividend rate and there
can be no assurance as to the payment of any dividends or the realization of
any capital gains. The dividends and distributions paid by a class of shares
will vary from time to time depending on market conditions, the composition
of the Fund's portfolio, and expenses borne by the Fund or borne separately
by a class. Dividends are calculated in the same manner, at the same time,
and on the same day for each class of shares. However, dividends on Class B,
Class C and Class N shares are expected to be lower than dividends on Class A
shares. That is because of the effect of the asset-based sales charge on
Class B, Class C and Class N shares. Those dividends will also differ in
amount as a consequence of any difference in the net asset values of the
different classes of shares.
Dividends, distributions and proceeds of the redemption of Fund shares
represented by checks returned to the Transfer Agent by the Postal Service as
undeliverable will be invested in shares of Oppenheimer Money Market Fund,
Inc. Reinvestment will be made as promptly as possible after the return of
such checks to the Transfer Agent, to enable the investor to earn a return on
otherwise idle funds. Unclaimed accounts may be subject to state escheatment
laws, and the Fund and the Transfer Agent will not be liable to shareholders
or their representatives for compliance with those laws in good faith.
Tax Status of the Fund's Dividends, Distributions and Redemptions of Shares.
The federal tax treatment of the Fund's dividends and capital gains
distributions is briefly highlighted in the Prospectus. The following is only
a summary of certain additional tax considerations generally affecting the
Fund and its shareholders.
The tax discussion in the Prospectus and this Statement of Additional
Information is based on tax law in effect on the date of the Prospectus and
this Statement of Additional Information. Those laws and regulations may be
changed by legislative, judicial, or administrative action, sometimes with
retroactive effect. State and local tax treatment of ordinary income
dividends and capital gain dividends from regulated investment companies may
differ from the treatment under the Internal Revenue Code described below.
Potential purchasers of shares of the Fund are urged to consult their tax
advisers with specific reference to their own tax circumstances as well as
the consequences of federal, state and local tax rules affecting an
investment in the Fund.
|_| Qualification as a Regulated Investment Company. The Fund has
elected to be taxed as a regulated investment company under Subchapter M of
the Internal Revenue Code of 1986, as amended. As a regulated investment
company, the Fund is not subject to federal income tax on the portion of its
net investment income (that is, taxable interest, dividends, and other
taxable ordinary income, net of expenses) and capital gain net income (that
is, the excess of net long-term capital gains over net short-term capital
losses) that it distributes to shareholders. 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 their Fund shares are
held in a retirement account or the shareholder is otherwise exempt from
tax).
The Internal Revenue Code contains a number of complex tests relating
to qualification that the Fund might not meet in a particular year. If it did
not qualify as a regulated investment company, the Fund would be treated for
tax purposes as an ordinary corporation and would receive no tax deduction
for payments made to shareholders.
To qualify as a regulated investment company, the Fund must distribute
at least 90% of its investment company taxable income (in brief, net
investment income and the excess of net short-term capital gain over net
long-term capital loss) for the taxable year. The Fund must also satisfy
certain other requirements of the Internal Revenue Code, some of which are
described below. Distributions by the Fund made during the taxable year or,
under specified circumstances, within 12 months after the close of the
taxable year, will be considered distributions of income and gains for the
taxable year and will therefore count toward satisfaction of the
above-mentioned requirement.
To qualify as a regulated investment company, the Fund must derive at
least 90% of its gross income from dividends, interest, certain payments with
respect to securities loans, gains from the sale or other disposition of
stock or securities or foreign currencies (to the extent such currency gains
are directly related to the regulated investment company's principal business
of investing in stock or securities) and certain other income.
In addition to satisfying the requirements described above, the Fund
must satisfy an asset diversification test in order to qualify as a regulated
investment company. Under that test, at the close of each quarter of the
Fund's taxable year, at least 50% of the value of the Fund's assets must
consist of cash and cash items (including receivables), U.S. government
securities, securities of other regulated investment companies, and
securities of other issuers. As to each of those issuers, the Fund must not
have invested more than 5% of the value of the Fund's total assets in
securities of each such issuer and the Fund must not hold more than 10% of
the outstanding voting securities of each such issuer. No more than 25% of
the value of its total assets may be invested in the securities of any one
issuer (other than U.S. government securities and securities of other
regulated investment companies), or in two or more issuers which the Fund
controls and which are engaged in the same or similar trades or businesses.
For purposes of this test, obligations issued or guaranteed by certain
agencies or instrumentalities of the U.S. government are treated as U.S.
government securities.
|_| Excise Tax on Regulated Investment Companies. Under the Internal
Revenue Code, by December 31 each year, the Fund must distribute 98% of its
taxable investment income earned from January 1 through December 31 of that
year and 98% of its capital gains realized in the period from November 1 of
the prior year through October 31 of the current year. If it does not, the
Fund must pay an excise tax on the amounts not distributed. It is presently
anticipated that the Fund will meet those requirements. To meet this
requirement, in certain circumstances the Fund might be required to liquidate
portfolio investments to make sufficient distributions to avoid excise tax
liability. However, the Board of Trustees and the Manager might determine in
a particular year that it would be in the best interests of shareholders for
the Fund not to make such distributions at the required levels and to pay the
excise tax on the undistributed amounts. That would reduce the amount of
income or capital gains available for distribution to shareholders.
|_| Taxation of Fund Distributions. The Fund anticipates distributing
substantially all of its investment company taxable income for each taxable
year. Those distributions will be taxable to shareholders as ordinary income
and treated as dividends for federal income tax purposes.
Special provisions of the Internal Revenue Code govern the eligibility
of the Fund's dividends for the dividends-received deduction for corporate
shareholders. Long-term capital gains distributions are not eligible for the
deduction. The amount of dividends paid by the Fund that may qualify for the
deduction is limited to the aggregate amount of qualifying dividends that the
Fund derives from portfolio investments that the Fund has held for a minimum
period, usually 46 days. A corporate shareholder will not be eligible for the
deduction on dividends paid on Fund shares held for 45 days or less. To the
extent the Fund's dividends are derived from gross income from option
premiums, interest income or short-term gains from the sale of securities or
dividends from foreign corporations, those dividends will not qualify for the
deduction.
The Fund may either retain or distribute to shareholders its net
capital gain for each taxable year. The Fund currently intends to distribute
any such amounts. If net long term capital gains are distributed and
designated as a capital gain distribution, it will be taxable to shareholders
as a long-term capital gain and will be properly identified in reports sent
to shareholders in January of each year. Such treatment will apply no matter
how long the shareholder has held his or her shares or whether that gain was
recognized by the Fund before the shareholder acquired his or her shares.
If the Fund elects to retain its net capital gain, the Fund will be
subject to tax on it at the 35% corporate tax rate. If the Fund elects to
retain its net capital gain, the Fund will provide to shareholders of record
on the last day of its taxable year information regarding their pro rata
share of the gain and tax paid. As a result, each shareholder will be
required to report his or her pro rata share of such gain on their tax return
as long-term capital gain, will receive a refundable tax credit for his/her
pro rata share of tax paid by the Fund on the gain, and will increase the tax
basis for his/her shares by an amount equal to the deemed distribution less
the tax credit.
Investment income that may be received by the Fund from sources within
foreign countries may be subject to foreign taxes withheld at the source. The
United States has entered into tax treaties with many foreign countries which
entitle the Fund to a reduced rate of, or exemption from, taxes on such
income. The Fund may be subject to U.S. Federal income tax, and an interest
charge, on certain distributions or gains from the sale of shares of a
foreign company considered to be a PFIC, even if those amounts are paid out
as dividends to shareholders. To avoid imposition of the interest charge, the
Fund may elect to "mark to market" all PFIC shares that it holds at the end
of each taxable year. In that case, any increase or decrease in the value of
those shares would be recognized as ordinary income or as ordinary loss (but
only to the extent of previously recognized "mark-to-market" gains).
Distributions by the Fund that do not constitute ordinary income
dividends or capital gain distributions will be treated as a return of
capital to the extent of the shareholder's tax basis in their shares. Any
excess will be treated as gain from the sale of those shares, as discussed
below. Shareholders will be advised annually as to the U.S. federal income
tax consequences of distributions made (or deemed made) during the year. If
prior distributions made by the Fund must be re-characterized as a
non-taxable return of capital at the end of the fiscal year as a result of
the effect of the Fund's investment policies, they will be identified as such
in notices sent to shareholders.
Distributions by the Fund will be treated in the manner described above
regardless of whether the distributions are paid in cash or reinvested in
additional shares of the Fund (or of another fund). Shareholders receiving a
distribution in the form of additional shares will be treated as receiving a
distribution in an amount equal to the fair market value of the shares
received, determined as of the reinvestment date.
The Fund will be required in certain cases to withhold 28% of ordinary
income dividends, capital gains distributions and the proceeds of the
redemption of shares, paid to any shareholder (1) who has failed to provide a
correct taxpayer identification number or to properly certify that number
when required, (2) who is subject to backup withholding for failure to report
the receipt of interest or dividend income properly, or (3) who has failed to
certify to the Fund that the shareholder is not subject to backup withholding
or is an "exempt recipient" (such as a corporation). Any tax withheld by the
Fund is remitted by the Fund to the U.S. Treasury and all income and any tax
withheld is identified in reports mailed to shareholders in January of each
year with a copy sent to the IRS.
|_| Tax Effects of Redemptions of Shares. If a shareholder redeems
all or a portion of his/her shares, the shareholder will recognize a gain or
loss on the redeemed shares in an amount equal to the difference between the
proceeds of the redeemed shares and the shareholder's adjusted tax basis in
the shares. All or a portion of any loss recognized in that manner may be
disallowed if the shareholder purchases other shares of the Fund within 30
days before or after the redemption.
In general, any gain or loss arising from the redemption of shares of
the Fund will be considered capital gain or loss, if the shares were held as
a capital asset. It will be long-term capital gain or loss if the shares were
held for more than one year. However, any capital loss arising from the
redemption of shares held for six months or less will be treated as a
long-term capital loss to the extent of the amount of capital gain dividends
received on those shares. Special holding period rules under the Internal
Revenue Code apply in this case to determine the holding period of shares and
there are limits on the deductibility of capital losses in any year.
|_| Foreign Shareholders. Under U.S. tax law, taxation of a
shareholder who is a foreign person (to include, but not limited to, a
nonresident alien individual, a foreign trust, a foreign estate, a foreign
corporation, or a foreign partnership) primarily depends on whether the
foreign person's income from the Fund is effectively connected with the
conduct of a U.S. trade or business. Typically, ordinary income dividends
paid from a mutual fund are not considered "effectively connected" income.
Ordinary income dividends that are paid by the Fund (and are deemed not
"effectively connected income") to foreign persons will be subject to a U.S.
tax withheld by the Fund at a rate of 30%, provided the Fund obtains a
properly completed and signed Certificate of Foreign Status. The tax rate may
be reduced if the foreign person's country of residence has a tax treaty with
the U.S. allowing for a reduced tax rate on ordinary income dividends paid by
the Fund. Any tax withheld by the Fund is remitted by the Fund to the U.S.
Treasury and all income and any tax withheld is identified in reports mailed
to shareholders in March of each year with a copy sent to the IRS.
If the ordinary income dividends from the Fund are effectively
connected with the conduct of a U.S. trade or business, then the foreign
person may claim an exemption from the U.S. tax described above provided the
Fund obtains a properly completed and signed Certificate of Foreign Status.
If the foreign person fails to provide a certification of his/her foreign
status, the Fund will be required to withhold U.S. tax at a rate of 28% on
ordinary income dividends, capital gains distributions and the proceeds of
the redemption of shares, paid to any foreign person. Any tax withheld by the
Fund is remitted by the Fund to the U.S. Treasury and all income and any tax
withheld is identified in reports mailed to shareholders in January of each
year with a copy sent to the IRS.
The tax consequences to foreign persons entitled to claim the benefits
of an applicable tax treaty may be different from those described herein.
Foreign shareholders are urged to consult their own tax advisors or the U.S.
Internal Revenue Service with respect to the particular tax consequences to
them of an investment in the Fund, including the applicability of the U.S.
withholding taxes described above.
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 into which you may exchange
shares. Reinvestment will be made without sales charge at the net asset value
per share in effect at the close of business on the payable date of the
dividend or distribution. To elect this option, the shareholder must notify
the Transfer Agent in writing and must have an existing account in the fund
selected for reinvestment. Otherwise the shareholder first must obtain a
prospectus for that fund and an application from the Distributor to establish
an account. Dividends and/or distributions from shares of certain other
Oppenheimer funds may be invested in shares of this Fund on the same basis.
Additional Information About the Fund
The Distributor. The Fund's shares are sold through dealers, brokers and
other financial institutions that have a sales agreement with
OppenheimerFunds Distributor, Inc., a subsidiary of the Manager that acts as
the Fund's Distributor. The Distributor also distributes shares of the other
Oppenheimer funds and is sub-distributor for funds managed by a subsidiary of
the Manager.
The Transfer Agent. OppenheimerFunds Services, the Fund's Transfer Agent, is
a division of the Manager. It is responsible for maintaining the Fund's
shareholder registry and shareholder accounting records, and for paying
dividends and distributions to shareholders. It also handles shareholder
servicing and administrative functions. It serves as the Transfer Agent for
an annual per account fee. It also acts as shareholder servicing agent for
the other Oppenheimer funds. Shareholders should direct inquiries about their
accounts to the Transfer Agent at the address and toll-free numbers shown on
the back cover.
The Custodian. J.P. Morgan Chase Bank is the custodian of the Fund's assets.
The custodian's responsibilities include safeguarding and controlling the
Fund's portfolio securities and handling the delivery of such securities to
and from the Fund. It is 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 Registered Public Accounting Firm. KPMG LLP serves as the
independent registered public accounting firm for the Fund. KPMG LLP audits
the Fund's financial statements and performs other related audit services.
KPMG LLP also acts as the independent registered public accounting firm for
the Manager and certain other funds advised by the Manager and its
affiliates. Audit and non-audit services provided by KPMG LLP to the Fund
must be pre-approved by the Audit Committee.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE BOARD OF TRUSTEES AND SHAREHOLDERS OF OPPENHEIMER BALANCED FUND:
We have audited the accompanying statement of assets and liabilities of
Oppenheimer Balanced Fund, including the statement of investments, as of
September 30, 2005, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the years in the
two-year period then ended, and the financial highlights for each of the years
in the five-year period then ended. 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 the standards of the Public
Company Accounting Oversight Board (United States). 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 as of September 30, 2005, by correspondence
with the custodian and brokers or by other appropriate auditing procedures where
replies from brokers were not received. 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, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Oppenheimer Balanced Fund as of September 30, 2005, the results of its
operations for the year then ended, the changes in its net assets for each of
the years in the two-year period then ended, and the financial highlights for
each of the years in the five-year period then ended, in conformity with U.S.
generally accepted accounting principles.
KPMG LLP
Denver, Colorado
November 16, 2005
STATEMENT OF INVESTMENTS September 30, 2005
- --------------------------------------------------------------------------------
VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------------------------------------------
COMMON STOCKS--51.1%
- --------------------------------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY--6.4%
- --------------------------------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES--0.3%
WCI Communities, Inc. 1 97,400 $ 2,763,238
- --------------------------------------------------------------------------------------------------------------------
MEDIA--5.9%
Liberty Global, Inc., Series A 569,594 15,424,606
- --------------------------------------------------------------------------------------------------------------------
Liberty Global, Inc., Series C 1 569,594 14,667,046
- --------------------------------------------------------------------------------------------------------------------
Liberty Media Corp., Cl. A 1 2,207,100 17,767,155
- --------------------------------------------------------------------------------------------------------------------
Viacom, Inc., Cl. B 188,800 6,232,288
---------------
54,091,095
- --------------------------------------------------------------------------------------------------------------------
SPECIALTY RETAIL--0.2%
Gap, Inc. (The) 118,800 2,070,684
- --------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--3.7%
- --------------------------------------------------------------------------------------------------------------------
BEVERAGES--0.8%
Constellation Brands, Inc., Cl. A 1 288,600 7,503,600
- --------------------------------------------------------------------------------------------------------------------
FOOD PRODUCTS--0.6%
Tyson Foods, Inc., Cl. A 328,900 5,936,645
- --------------------------------------------------------------------------------------------------------------------
TOBACCO--2.3%
Altria Group, Inc. 282,400 20,815,704
- --------------------------------------------------------------------------------------------------------------------
Energy--5.0%
- --------------------------------------------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES--0.8%
Halliburton Co. 103,300 7,078,116
- --------------------------------------------------------------------------------------------------------------------
OIL & GAS--4.2%
BP plc, ADR 70,900 5,023,265
- --------------------------------------------------------------------------------------------------------------------
Kinder Morgan, Inc. 23,800 2,288,608
- --------------------------------------------------------------------------------------------------------------------
LUKOIL, Sponsored ADR 168,300 9,696,395
- --------------------------------------------------------------------------------------------------------------------
Petroleo Brasileiro SA, Preference 448,000 7,145,261
- --------------------------------------------------------------------------------------------------------------------
Talisman Energy, Inc. 200,400 9,805,378
- --------------------------------------------------------------------------------------------------------------------
TotalFinaElf SA, Sponsored ADR 37,500 5,093,250
---------------
39,052,157
- --------------------------------------------------------------------------------------------------------------------
FINANCIALS--9.4%
- --------------------------------------------------------------------------------------------------------------------
CAPITAL MARKETS--0.9%
UBS AG 97,591 8,292,465
- --------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS--1.6%
Bank of America Corp. 96,952 4,081,679
- --------------------------------------------------------------------------------------------------------------------
Wachovia Corp. 85,974 4,091,503
- --------------------------------------------------------------------------------------------------------------------
Wells Fargo & Co. 118,900 6,963,973
---------------
15,137,155
19 | OPPENHEIMER BALANCED FUND
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES--3.5%
Alliance Capital Management Holding LP 73,700 $ 3,526,545
- --------------------------------------------------------------------------------------------------------------------
Capital One Financial Corp. 92,900 7,387,408
- --------------------------------------------------------------------------------------------------------------------
Citigroup, Inc. 132,700 6,040,504
- --------------------------------------------------------------------------------------------------------------------
JPMorgan Chase & Co. 144,300 4,896,099
- --------------------------------------------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc. 69,400 8,083,712
- --------------------------------------------------------------------------------------------------------------------
Morgan Stanley 46,900 2,529,786
---------------
32,464,054
- --------------------------------------------------------------------------------------------------------------------
INSURANCE--2.2%
American International Group, Inc. 42,500 2,633,300
- --------------------------------------------------------------------------------------------------------------------
Assured Guaranty Ltd. 2 101,200 2,421,716
- --------------------------------------------------------------------------------------------------------------------
Everest Re Group Ltd. 49,600 4,855,840
- --------------------------------------------------------------------------------------------------------------------
Genworth Financial, Inc., Cl. A 325,700 10,500,568
---------------
20,411,424
- --------------------------------------------------------------------------------------------------------------------
REAL ESTATE--0.4%
Host Marriott Corp. 197,600 3,339,440
- --------------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE--0.8%
Countrywide Financial Corp. 137,400 4,531,452
- --------------------------------------------------------------------------------------------------------------------
Freddie Mac 51,100 2,885,106
---------------
7,416,558
- --------------------------------------------------------------------------------------------------------------------
HEALTH CARE--6.3%
- --------------------------------------------------------------------------------------------------------------------
BIOTECHNOLOGY--1.4%
MedImmune, Inc. 1 168,600 5,673,390
- --------------------------------------------------------------------------------------------------------------------
Wyeth 150,200 6,949,754
---------------
12,623,144
- --------------------------------------------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES--0.8%
Beckman Coulter, Inc. 85,200 4,599,096
- --------------------------------------------------------------------------------------------------------------------
Cooper Cos., Inc. (The) 35,900 2,750,299
---------------
7,349,395
- --------------------------------------------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES--0.6%
Manor Care, Inc. 67,000 2,573,470
- --------------------------------------------------------------------------------------------------------------------
Tenet Healthcare Corp. 1 280,900 3,154,507
---------------
5,727,977
- --------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS--3.5%
GlaxoSmithKline plc, ADR 118,500 6,076,680
20 | OPPENHEIMER BALANCED FUND
VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS Continued
Pfizer, Inc. 291,740 $ 7,284,748
- --------------------------------------------------------------------------------------------------------------------
Sanofi-Aventis SA, ADR 190,900 7,931,895
- --------------------------------------------------------------------------------------------------------------------
Schering-Plough Corp. 3 245,800 5,174,090
- --------------------------------------------------------------------------------------------------------------------
Watson Pharmaceuticals, Inc. 1 168,300 6,161,463
---------------
32,628,876
- --------------------------------------------------------------------------------------------------------------------
INDUSTRIALS--6.1%
- --------------------------------------------------------------------------------------------------------------------
AEROSPACE & DEFENSE--3.4%
Empresa Brasileira de Aeronautica SA, ADR 142,100 5,485,060
- --------------------------------------------------------------------------------------------------------------------
Honeywell International, Inc. 361,700 13,563,750
- --------------------------------------------------------------------------------------------------------------------
Orbital Sciences Corp. 1 957,717 11,971,463
- --------------------------------------------------------------------------------------------------------------------
Raytheon Co. 2,200 83,644
---------------
31,103,917
- --------------------------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES--2.1%
Cendant Corp. 873,700 18,033,168
- --------------------------------------------------------------------------------------------------------------------
Corinthian Colleges, Inc. 1 79,300 1,052,311
---------------
19,085,479
- --------------------------------------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT--0.1%
GrafTech International Ltd. 1 230,900 1,253,787
- --------------------------------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES--0.5%
Tyco International Ltd. 167,700 4,670,445
- --------------------------------------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY--10.7%
- --------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT--0.5%
Cisco Systems, Inc. 1 262,700 4,710,211
- --------------------------------------------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS--1.9%
Hewlett-Packard Co. 204,479 5,970,787
- --------------------------------------------------------------------------------------------------------------------
Hutchinson Technology, Inc. 1 100 2,612
- --------------------------------------------------------------------------------------------------------------------
International Business Machines Corp. 147,100 11,800,362
---------------
17,773,761
- --------------------------------------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS--0.7%
Flextronics International Ltd. 1 485,300 6,236,105
- --------------------------------------------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES--0.1%
Net2Phone, Inc. 1 676,600 1,184,050
- --------------------------------------------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT--1.3%
ATI Technologies, Inc. 1,2 321,100 4,476,134
- --------------------------------------------------------------------------------------------------------------------
Freescale Semiconductor, Inc., Cl. A 1 294,700 6,898,927
---------------
11,375,061
21 | OPPENHEIMER BALANCED FUND
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------------------------------------------
SOFTWARE--6.2%
Compuware Corp. 1 345,329 $ 3,280,626
- --------------------------------------------------------------------------------------------------------------------
Microsoft Corp. 717,600 18,463,848
- --------------------------------------------------------------------------------------------------------------------
Novell, Inc. 1 900,300 6,707,235
- --------------------------------------------------------------------------------------------------------------------
Synopsys, Inc. 1 274,900 5,195,610
- --------------------------------------------------------------------------------------------------------------------
Take-Two Interactive Software, Inc. 1 1,078,000 23,813,020
---------------
57,460,339
- --------------------------------------------------------------------------------------------------------------------
MATERIALS--1.1%
- --------------------------------------------------------------------------------------------------------------------
CHEMICALS--0.4%
Praxair, Inc. 82,700 3,963,811
- --------------------------------------------------------------------------------------------------------------------
METALS & MINING--0.7%
Companhia Vale do Rio Doce, Sponsored ADR 162,900 6,338,439
- --------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES--0.9%
- --------------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES--0.9%
IDT Corp., Cl. B 1 696,200 8,486,678
- --------------------------------------------------------------------------------------------------------------------
WorldCom, Inc./WorldCom Group 1,4 450,000 --
---------------
8,486,678
- --------------------------------------------------------------------------------------------------------------------
UTILITIES--1.5%
- --------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES--1.5%
AES Corp. (The) 1 534,000 8,773,620
- --------------------------------------------------------------------------------------------------------------------
Reliant Energy, Inc. 1 344,500 5,319,080
---------------
14,092,700
---------------
Total Common Stocks (Cost $338,291,466) 472,436,510
UNITS
- --------------------------------------------------------------------------------------------------------------------
RIGHTS, WARRANTS AND CERTIFICATES--0.0%
- --------------------------------------------------------------------------------------------------------------------
Lucent Technologies, Inc. Wts., Exp. 12/10/071 (Cost $0) 11,758 11,170
PRINCIPAL
AMOUNT
- --------------------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES--6.1%
- --------------------------------------------------------------------------------------------------------------------
Aesop Funding II LLC, Automobile Asset-Backed Certificates,
Series 2005-1A, Cl. A2, 3.856%, 4/20/08 5 $ 550,000 550,400
- --------------------------------------------------------------------------------------------------------------------
BMW Vehicle Owner Trust, Automobile Loan Certificates, Series 2005-A,
Cl. A2, 3.66%, 12/26/07 2,180,000 2,175,063
- --------------------------------------------------------------------------------------------------------------------
Capital Auto Receivables Asset Trust, Automobile Mtg.-Backed Nts.:
Series 2004-2, Cl. A3, 3.58%, 1/15/09 1,870,000 1,837,191
Series 2005-1, Cl. A2B, 3.73%, 7/16/07 890,000 889,040
- --------------------------------------------------------------------------------------------------------------------
Capital One Prime Auto Receivables Trust, Automobile Loan Asset-Backed
Securities, Series 2005-1, Cl. A2, 4.24%, 11/15/07 2,090,000 2,088,255
22 | OPPENHEIMER BALANCED FUND
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES Continued
- --------------------------------------------------------------------------------------------------------------------
Centex Home Equity Co. LLC, Home Equity Loan Asset-Backed Certificates:
Series 2004-D, Cl. AF1, 2.98%, 4/25/20 $ 335,381 $ 333,576
Series 2005-B, Cl. AF1, 4.02%, 3/26/35 468,991 466,549
Series 2005-C, Cl. AF1, 4.196%, 6/25/35 1,146,541 1,142,992
- --------------------------------------------------------------------------------------------------------------------
Chase Funding Mortgage Loan Asset-Backed Certificates, Home Equity
Mtg. Obligations:
Series 2003-5, Cl. 1A2, 2.451%, 11/25/18 100,455 100,219
Series 2004-1, Cl. 1A2, 2.427%, 6/25/19 492,516 491,088
- --------------------------------------------------------------------------------------------------------------------
Chase Manhattan Auto Owner Trust, Automobile Loan Pass-Through
Certificates:
Series 2002-A, Cl. A4, 4.24%, 9/15/08 201,835 202,003
Series 2005-A, Cl. A2, 3.72%, 12/15/07 1,530,000 1,523,867
- --------------------------------------------------------------------------------------------------------------------
CIT Equipment Collateral, Equipment Receivable-Backed Nts.,
Series 2004-DFS, Cl. A2, 2.66%, 11/20/06 1,161,920 1,157,308
- --------------------------------------------------------------------------------------------------------------------
Citibank Credit Card Issuance Trust, Credit Card Receivable Nts.:
Series 2001-A6, Cl. A6, 5.65%, 6/16/08 1,760,000 1,775,560
Series 2003-C4, Cl. C4, 5%, 6/10/15 270,000 267,509
- --------------------------------------------------------------------------------------------------------------------
Citigroup Mortgage Loan Trust, Inc., Collateralized Mtg. Obligations,
Series 2005-WF2, Cl. AF2, 4.922%, 8/25/35 5 2,415,000 2,416,509
- --------------------------------------------------------------------------------------------------------------------
Consumer Credit Reference Index Securities Program, Credit Card
Asset-Backed Certificates, Series 2002-B, Cl. FX, 10.421%, 3/22/07 4 500,000 523,296
- --------------------------------------------------------------------------------------------------------------------
Countrywide Asset-Backed Certificates, Inc., Home Equity Asset-Backed
Certificates:
Series 2002-4, Cl. A1, 4.20%, 2/25/33 5 27,360 27,611
Series 2005-7, Cl. AF1B, 4.317%, 11/25/35 1,264,092 1,259,555
- --------------------------------------------------------------------------------------------------------------------
DaimlerChrysler Auto Trust, Automobile Loan Pass-Through Certificates:
Series 2002-A, Cl. A4, 4.49%, 10/6/08 402,983 403,502
Series 2004-B, Cl. A2, 2.48%, 2/8/07 445,903 445,503
Series 2004-C, Cl. A2, 2.62%, 6/8/07 1,474,075 1,469,116
Series 2005-A, Cl. A2, 3.17%, 9/8/07 1,909,240 1,903,520
- --------------------------------------------------------------------------------------------------------------------
Equity One ABS, Inc., Home Equity Mtg. Pass-Through Certificates,
Series 2004-3, Cl. AF2, 3.80%, 7/25/34 1,610,000 1,602,699
- --------------------------------------------------------------------------------------------------------------------
Ford Credit Auto Owner Trust, Automobile Loan Pass-Through Certificates:
Series 2004-A, Cl. A2, 2.13%, 10/15/06 692,399 691,457
Series 2005-A, Cl. A3, 3.48%, 11/17/08 1,370,000 1,354,997
Series 2005-B, Cl. A2, 3.77%, 9/15/07 1,369,663 1,367,872
- --------------------------------------------------------------------------------------------------------------------
GS Auto Loan Trust, Automobile Loan Asset-Backed Securities,
Series 2005-1, Cl. A2, 4.32%, 5/15/08 4,010,000 4,005,690
- --------------------------------------------------------------------------------------------------------------------
Harley-Davidson Motorcycle Trust, Motorcycle Receivable Nts.,
Series 2003-3, Cl. A1, 1.50%, 1/15/08 209,714 209,474
- --------------------------------------------------------------------------------------------------------------------
Honda Auto Receivables Owner Trust, Automobile Receivable Obligations:
Series 2005-1, Cl. A2, 3.21%, 5/21/07 876,603 874,183
Series 2005-3, Cl. A2, 3.73%, 10/18/07 1,420,000 1,413,570
- --------------------------------------------------------------------------------------------------------------------
Lehman XS Trust, Home Equity Obligations, Series 2005-2, Cl. 2A1B,
5.18%, 8/25/35 2,047,596 2,056,007
23 | OPPENHEIMER BALANCED FUND
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES Continued
- --------------------------------------------------------------------------------------------------------------------
MBNA Credit Card Master Note Trust, Credit Card Receivables,
Series 2003-C7, Cl. C7, 5.118%, 3/15/16 5 $ 2,540,000 $ 2,699,577
- --------------------------------------------------------------------------------------------------------------------
Nissan Auto Lease Trust, Automobile Lease Obligations, Series 2004-A,
Cl. A2, 2.55%, 1/15/07 618,910 617,616
- --------------------------------------------------------------------------------------------------------------------
Onyx Acceptance Owner Trust, Automobile Receivable Obligations:
Series 2002-B, Cl. A4, 4.71%, 3/15/09 874,304 874,952
Series 2005-B, Cl. A2, 4.03%, 4/15/08 1,170,000 1,167,205
- --------------------------------------------------------------------------------------------------------------------
Popular ABS Mortgage Pass-Through Trust, Home Equity Pass-Through
Certificates:
Series 2004-5, Cl. A F2, 3.735%, 11/10/34 500,000 493,223
Series 2005-1, Cl. A F2, 3.914%, 5/25/35 390,000 384,494
Series 2005-2, Cl. A F2, 4.415%, 4/25/35 630,000 625,044
- --------------------------------------------------------------------------------------------------------------------
Residential Asset Mortgage Products, Inc., Home Equity Asset-Backed
Pass-Through Certificates, Series 2004-RS7, Cl. AI3, 4.45%, 7/25/28 1,130,000 1,123,928
- --------------------------------------------------------------------------------------------------------------------
Structured Asset Securities Corp., Collateralized Mtg. Obligations
Pass-Through Certificates, Series 2005-4XS, Cl. 3A1, 5.18%, 3/26/35 2,910,757 2,916,468
- --------------------------------------------------------------------------------------------------------------------
Toyota Auto Receivables Owner Trust, Automobile Mtg.-Backed
Obligations, Series 2002-B, Cl. A4, 4.39%, 5/15/09 1,775,005 1,776,506
- --------------------------------------------------------------------------------------------------------------------
USAA Auto Owner Trust, Automobile Loan Asset-Backed Nts.:
Series 2004-2, Cl. A2, 2.41%, 2/15/07 474,817 474,156
Series 2004-3, Cl. A2, 2.79%, 6/15/07 817,160 815,133
- --------------------------------------------------------------------------------------------------------------------
Volkswagen Auto Lease Trust, Automobile Lease Asset-Backed Securities:
Series 2004-A, Cl. A2, 2.47%, 1/22/07 937,624 935,018
Series 2005-A, Cl. A2, 3.52%, 4/20/07 1,610,000 1,604,621
- --------------------------------------------------------------------------------------------------------------------
Wachovia Auto Owner Trust, Automobile Receivable Nts., Series 2004-B,
Cl. A2, 2.40%, 5/21/07 495,129 493,837
- --------------------------------------------------------------------------------------------------------------------
Wells Fargo Home Equity Trust, Collateralized Mtg. Obligations,
Series 2004-2, Cl. AI1B, 2.94%, 9/25/18 1,165,689 1,156,278
- --------------------------------------------------------------------------------------------------------------------
WFS Financial Owner Trust, Automobile Receivable Obligations,
Series 2002-2, Cl. A4, 4.50%, 2/20/10 431,952 432,649
- --------------------------------------------------------------------------------------------------------------------
Whole Auto Loan Trust, Automobile Loan Receivable Certificates,
Series 2004-1, Cl. A2A, 2.59%, 5/15/07 990,220 985,843
---------------
Total Asset-Backed Securities (Cost $56,799,958) 56,601,729
- --------------------------------------------------------------------------------------------------------------------
MORTGAGE-BACKED OBLIGATIONS--28.0%
- --------------------------------------------------------------------------------------------------------------------
GOVERNMENT AGENCY--22.8%
- --------------------------------------------------------------------------------------------------------------------
FHLMC/FNMA/SPONSORED--22.6%
Federal Home Loan Mortgage Corp.:
6%, 9/1/24 1,096,376 1,122,834
6.50%, 4/1/18-4/1/34 2,319,317 2,394,121
7%, 5/1/29-11/1/32 3,297,323 3,446,780
- --------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Collateralized Mtg. Obligations,
Pass-Through Participation Certificates, Series 151, Cl. F, 9%, 5/15/21 56,589 56,557
24 | OPPENHEIMER BALANCED FUND
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------------------------------------------
FHLMC/FNMA/SPONSORED Continued
Federal Home Loan Mortgage Corp., Gtd. Real Estate Mtg. Investment
Conduit Multiclass Pass-Through Certificates:
Series 1669, Cl. G, 6.50%, 2/15/23 $ 93,821 $ 93,869
Series 2034, Cl. Z, 6.50%, 2/15/28 530,209 547,241
Series 2053, Cl. Z, 6.50%, 4/15/28 602,219 620,170
Series 2055, Cl. ZM, 6.50%, 5/15/28 764,406 785,563
Series 2075, Cl. D, 6.50%, 8/15/28 1,822,953 1,875,891
Series 2080, Cl. Z, 6.50%, 8/15/28 488,789 501,074
Series 2387, Cl. PD, 6%, 4/15/30 688,648 694,094
Series 2456, Cl. BD, 6%, 3/15/30 342,466 343,769
Series 2498, Cl. PC, 5.50%, 10/15/14 38,038 38,076
Series 2500, Cl. FD, 4.268%, 3/15/32 5 264,248 266,359
Series 2526, Cl. FE, 4.168%, 6/15/29 5 338,949 340,745
Series 2551, Cl. FD, 4.168%, 1/15/33 5 264,568 266,634
Series 2583, Cl. KA, 5.50%, 3/15/22 1,664,936 1,671,320
- --------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Interest-Only Stripped Mtg.-Backed
Security:
Series 176, Cl. IO, 1.348%, 6/1/26 6 475,750 94,645
Series 183, Cl. IO, (0.93)%, 4/1/27 6 747,993 147,557
Series 184, Cl. IO, 4.60%, 12/1/26 6 810,653 150,535
Series 192, Cl. IO, 6.677%, 2/1/28 6 224,225 40,778
Series 200, Cl. IO, 5.407%, 1/1/29 6 267,435 50,620
Series 2130, Cl. SC, 0.191%, 3/15/29 6 595,528 47,700
Series 2796, Cl. SD, 7.381%, 7/15/26 6 896,222 73,418
Series 2920, Cl. S, 10.714%, 1/15/35 6 5,362,034 300,967
Series 3000, Cl. SE, 31.046%, 7/15/25 6 4,856,862 234,781
- --------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Principal-Only Stripped
Mtg.-Backed Security, Series 176, Cl. PO, 6.729%, 6/1/26 7 192,892 164,833
- --------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn.:
4.50%, 10/1/20 8 10,642,000 10,422,509
5%, 6/1/18-7/1/18 4,867,627 4,859,689
5%, 10/1/35-11/1/35 8 26,745,000 26,177,548
5.50%, 3/1/33-1/1/34 11,777,057 11,786,195
5.50%, 10/1/20-11/1/35 8 31,140,000 31,171,755
6%, 4/1/16-11/1/32 15,868,416 16,311,413
6%, 10/1/20-10/1/35 8 33,737,000 34,469,349
6.50%, 12/1/27-11/1/31 3,514,260 3,632,496
6.50%, 10/1/34-11/1/35 8 27,080,382 27,878,438
7%, 11/1/17 1,811,086 1,893,845
7.50%, 8/1/29 707,508 750,199
8.50%, 7/1/32 53,863 58,585
- --------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn. Grantor Trust, Commercial Mtg.
Obligations, Trust 2002-T1, Cl. A2, 7%, 11/25/31 1,737,114 1,810,157
- --------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Collateralized Mtg. Obligations,
Gtd. Real Estate Mtg. Investment Conduit Pass-Through Certificates:
Trust 1993-87, Cl. Z, 6.50%, 6/25/23 1,416,151 1,461,676
Trust 1998-63, Cl. PG, 6%, 3/25/27 116,456 116,392
Trust 2001-50, Cl. NE, 6%, 8/25/30 356,757 358,883
25 | OPPENHEIMER BALANCED FUND
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------------------------------------------
FHLMC/FNMA/SPONSORED Continued
Federal National Mortgage Assn., Collateralized Mtg. Obligations,
Gtd. Real Estate Mtg. Investment Conduit Pass-Through Certificates: Continued
Trust 2001-51, Cl. OD, 6.50%, 10/25/31 $ 1,933,308 $ 1,997,364
Trust 2001-70, Cl. LR, 6%, 9/25/30 412,134 416,474
Trust 2001-72, Cl. NH, 6%, 4/25/30 275,519 277,043
Trust 2001-74, Cl. PD, 6%, 5/25/30 111,315 111,815
Trust 2002-77, Cl. WF, 4.189%, 12/18/32 5 414,443 417,166
Trust 2002-94, Cl. MA, 4.50%, 8/25/09 104,733 104,574
Trust 2003-10, Cl. HP, 5%, 2/25/18 2,480,000 2,472,509
Trust 2003-17, Cl. EQ, 5.50%, 3/25/23 630,000 637,724
Trust 2003-28, Cl. KG, 5.50%, 4/25/23 1,045,000 1,073,703
Trust 2004-101, Cl. BG, 5%, 1/25/20 1,633,000 1,632,297
- --------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Collateralized Mtg. Obligations,
Gtd. Real Estate Mtg. Investment Conduit Pass-Through Certificates,
Interest-Only Stripped Mtg.-Backed Security:
Trust 2002-38, Cl. SO, 3.181%, 4/25/32 6 972,649 67,661
Trust 2002-47, Cl. NS, 1.931%, 4/25/32 6 1,009,917 96,438
Trust 2002-51, Cl. S, 2.125%, 8/25/32 6 927,263 91,446
Trust 2002-77, Cl. IS, 3.876%, 12/18/32 6 1,657,106 164,330
- --------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Interest-Only Stripped Mtg.-Backed Security:
Trust 214, Cl. 2, 7.023%, 3/1/23 6 1,457,269 285,723
Trust 222, Cl. 2, 3.82%, 6/1/23 6 1,628,310 321,567
Trust 240, Cl. 2, 6.83%, 9/1/23 6 2,484,414 475,806
Trust 252, Cl. 2, 1.409%, 11/1/23 6 1,216,040 235,781
Trust 254, Cl. 2, 5.103%, 1/1/24 6 620,366 122,711
Trust 273, Cl. 2, 5.892%, 7/1/26 6 349,686 67,342
Trust 319, Cl. 2, 1.406%, 2/1/32 6 502,715 105,023
Trust 321, Cl. 2, (3.70)%, 3/1/32 6 5,159,207 1,088,147
Trust 329, Cl. 2, 4.906%, 1/1/33 6 1,235,207 263,308
Trust 333, Cl. 2, 5.73%, 3/1/33 6 5,730,968 1,238,574
Trust 334, Cl. 17, (5.478)%, 2/1/33 6 845,987 166,819
Trust 346, Cl. 2, 8.63%, 12/1/33 6 3,023,049 645,744
Trust 350, Cl. 2, 6.05%, 2/1/34 6 5,328,022 1,135,655
Trust 2001-65, Cl. S, 18.657%, 11/25/31 6 2,236,445 205,816
Trust 2001-81, Cl. S, 4.542%, 1/25/32 6 519,498 48,376
Trust 2002-9, Cl. MS, 3.043%, 3/25/32 6 700,539 68,012
Trust 2002-52, Cl. SD, (0.566)%, 9/25/32 6 1,145,295 111,308
Trust 2002-77, Cl. SH, 9.172%, 12/18/32 6 672,238 67,234
Trust 2002-96, Cl. SK, 18.902%, 4/25/32 6 5,756,563 528,418
Trust 2003-4, Cl. S, 17.135%, 2/25/33 6 1,224,278 127,533
Trust 2004-54, Cl. DS, 3.602%, 11/25/30 6 1,026,050 70,706
Trust 2005-6, Cl. SE, 11.131%, 2/25/35 6 3,687,741 219,620
Trust 2005-19, Cl. SA, 9.55%, 3/25/35 6 14,571,059 857,348
Trust 2005-40, Cl. SA, 11.533%, 5/25/35 6 3,259,188 192,938
Trust 2005-71, Cl. SA, 22.845%, 8/25/25 6 3,112,132 177,220
- --------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Principal-Only Stripped Mtg.-Backed
Security, Trust 1993-184, Cl. M, 8.244%, 9/25/23 7 549,646 470,690
---------------
208,388,023
26 | OPPENHEIMER BALANCED FUND
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------------------------------------------
GNMA/GUARANTEED--0.2%
Government National Mortgage Assn.:
4.375%, 3/20/26 5 $ 38,264 $ 38,772
7%, 4/15/26 249,097 262,765
7.50%, 5/15/27 1,238,676 1,317,853
- --------------------------------------------------------------------------------------------------------------------
Government National Mortgage Assn., Interest-Only Stripped
Mtg.-Backed Security:
Series 2001-21, Cl. SB, 4.769%, 1/16/27 6 1,203,083 93,605
Series 2002-15, Cl. SM, 0.751%, 2/16/32 6 1,128,432 84,627
Series 2002-76, Cl. SY, 5.958%, 12/16/26 6 2,313,179 191,178
Series 2004-11, Cl. SM, 0.305%, 1/17/30 6 878,085 64,497
---------------
2,053,297
- --------------------------------------------------------------------------------------------------------------------
NON-AGENCY--5.2%
- --------------------------------------------------------------------------------------------------------------------
COMMERCIAL--4.7%
Banc of America Commercial Mortgage, Inc., Commercial Mtg.
Pass-Through Certificates:
Series 2004-6, Cl. A3, 4.512%, 12/10/42 1,480,000 1,447,596
Series 2005-2, Cl. A4, 4.783%, 7/10/43 1,910,000 1,894,253
Series 2005-3, Cl. A2, 4.501%, 7/10/43 1,580,000 1,554,747
- --------------------------------------------------------------------------------------------------------------------
Banc of America Funding Corp., Collateralized Mtg. Obligations
Pass-Through Certificates, Series 2004-2, Cl. 2A1, 6.50%, 7/20/32 1,631,841 1,644,078
- --------------------------------------------------------------------------------------------------------------------
Banc of America Mortgage Securities, Inc., Collateralized Mtg. Obligations
Pass-Through Certificates:
Series 2004-8, Cl. 5A1, 6.50%, 5/25/32 1,288,082 1,312,637
Series 2004-E, Cl. 2A9, 3.712%, 6/25/34 355,086 355,084
Series 2005-E, Cl. 2A2, 4.989%, 6/25/35 5 414,048 413,297
- --------------------------------------------------------------------------------------------------------------------
Bear Stearns Commercial Mortgage Securities, Inc., Commercial Mtg.
Obligations, Series 2005-PWR7, Cl. A2, 4.945%, 2/11/41 750,000 749,866
- --------------------------------------------------------------------------------------------------------------------
Countrywide Alternative Loan Trust, Collateralized Mtg. Obligations:
Series 2004-J9, Cl. 1A1, 4.01%, 10/25/34 5 688,769 689,358
Series 2005-J3, Cl. 3A1, 6.50%, 9/25/34 2,091,212 2,135,411
- --------------------------------------------------------------------------------------------------------------------
First Chicago/Lennar Trust 1, Commercial Mtg. Pass-Through Certificates,
Series 1997-CHL1, Cl. D, 7.67%, 4/29/39 5,9 1,170,000 1,172,925
- --------------------------------------------------------------------------------------------------------------------
First Union National Bank/Lehman Brothers/Bank of America Commercial
Mtg. Trust, Pass-Through Certificates, Series 1998-C2, Cl. A2, 6.56%, 11/18/35 925,715 961,010
- --------------------------------------------------------------------------------------------------------------------
GE Capital Commercial Mortgage Corp., Commercial Mtg. Obligations:
Series 2004-C3, Cl. A2, 4.433%, 7/10/39 960,000 949,547
Series 2005-CA, Cl. A3, 4.578%, 6/10/48 650,000 638,690
Series 2005-C3, Cl. A2, 4.853%, 7/10/45 940,000 941,870
- --------------------------------------------------------------------------------------------------------------------
GMAC Commercial Mortgage Securities, Inc., Commercial Mtg.
Pass-Through Certificates:
Series 1997-C1, Cl. A3, 6.869%, 7/15/29 623,553 642,808
Series 2004-C3, Cl. A4, 4.547%, 12/10/41 940,000 920,942
- --------------------------------------------------------------------------------------------------------------------
Greenwich Capital Commercial Funding Corp., Commercial Mtg.
Pass-Through Certificates, Series 2005-G G3, Cl. A2, 4.305%, 8/10/42 1,330,000 1,304,597
27 | OPPENHEIMER BALANCED FUND
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------------------------------------------
COMMERCIAL Continued
GS Mortgage Securities Corp. II, Commercial Mtg. Pass-Through Certificates:
Series 2004-C1, Cl. A1, 3.659%, 10/10/28 $ 994,884 $ 969,455
Series 2004-GG2, Cl. A3, 4.602%, 8/10/38 620,000 616,325
- --------------------------------------------------------------------------------------------------------------------
GSR Mortgage Loan Trust, Collateralized Mtg. Obligations, Series 2004-12,
Cl. 3A1, 4.494%, 12/25/34 5 486,273 485,009
- --------------------------------------------------------------------------------------------------------------------
JPMorgan Chase Commercial Mortgage Securities Corp., Commercial
Mtg. Pass-Through Certificates, Series 2005-LDP2, Cl. A2, 4.575%, 7/15/42 380,000 375,494
- --------------------------------------------------------------------------------------------------------------------
LB-UBS Securities Commercial Mortgage Trust, Commercial Mtg.
Pass-Through Certificates, Series 2005-C5, Cl. A2, 4.885%, 9/15/40 1,120,000 1,122,258
- --------------------------------------------------------------------------------------------------------------------
Mastr Alternative Loan Trust, Pass-Through Collateralized Mtg.
Obligations, Series 2004-6, Cl. 10A1, 6%, 7/25/34 2,087,534 2,112,539
- --------------------------------------------------------------------------------------------------------------------
Mastr Asset Securitization Trust, Pass-Through Collateralized Mtg.
Obligations, Series 2004-9, Cl. A3, 4.70%, 8/25/34 5 3,541,867 3,530,498
- --------------------------------------------------------------------------------------------------------------------
Mastr Seasoned Securities Trust, Collateralized Mtg. Obligations,
Series 2004-2, Cl. A1, 6.50%, 8/25/32 3,085,015 3,125,507
- --------------------------------------------------------------------------------------------------------------------
Nomura Asset Securities Corp., Commercial Mtg. Pass-Through
Certificates, Series 1998-D6, Cl. A1B, 6.59%, 3/15/30 2 1,130,000 1,180,705
- --------------------------------------------------------------------------------------------------------------------
Prudential Mortgage Capital Co. II LLC, Commercial Mtg. Pass-Through
Certificates, Series PRU-HTG 2000-C1, Cl. A2, 7.306%, 10/6/15 1,362,000 1,510,317
- --------------------------------------------------------------------------------------------------------------------
Residential Accredit Loans, Inc., Mtg. Asset-Backed Pass-Through
Certificates, Series 2003-QS1, Cl. A2, 5.75%, 1/25/33 1,119,764 1,124,803
- --------------------------------------------------------------------------------------------------------------------
Salomon Brothers Mortgage Securities VII, Inc., Commercial Mtg.
Pass-Through Certificates, Series 1996-C1, Cl. F, 8.301%, 1/20/28 4,5 250,000 205,000
- --------------------------------------------------------------------------------------------------------------------
Wachovia Bank Commercial Mortgage Trust, Commercial Mtg. Obligations:
Series 2005-C17, Cl. A2, 4.782%, 3/15/42 2,190,000 2,183,995
Series 2005-C20, Cl. A5, 5.087%, 7/15/42 1,120,000 1,123,976
- --------------------------------------------------------------------------------------------------------------------
Washington Mutual Mortgage Securities Corp., Collateralized Mtg.
Pass-Through Certificates, Series 2005-AR5, Cl. A1, 4.684%, 5/25/35 5 1,607,509 1,608,345
- --------------------------------------------------------------------------------------------------------------------
Wells Fargo Mortgage-Backed Securities Trust, Collateralized Mtg. Obligations:
Series 2004-DD, Cl. 2 A1, 4.53%, 1/25/35 5 1,704,981 1,701,845
Series 2004-N, Cl. A10, 3.803%, 8/25/34 464,377 464,786
Series 2004-W, Cl. A2, 4.594%, 11/25/34 5 198,363 197,903
---------------
43,367,476
- --------------------------------------------------------------------------------------------------------------------
OTHER--0.2%
JPMorgan Chase Commercial Mortgage Securities Corp., Commercial
Mtg. Pass-Through Certificates, Series 2005-LDP4, Cl. A2, 4.79%, 10/15/42 1,360,000 1,356,682
- --------------------------------------------------------------------------------------------------------------------
RESIDENTIAL--0.3%
Countrywide Alternative Loan Trust, Collateralized Mtg. Obligations,
Series 2005-J1, Cl. 3A1, 6.50%, 8/25/32 8 3,135,035 3,184,020
---------------
Total Mortgage-Backed Obligations (Cost $260,283,492) 258,349,498
28 | OPPENHEIMER BALANCED FUND
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--5.4%
- --------------------------------------------------------------------------------------------------------------------
Fannie Mae Unsec. Nts., 3.69%, 10/5/07 10 $ 1,245,000 $ 1,140,481
- --------------------------------------------------------------------------------------------------------------------
Federal Home Loan Bank Unsec. Bonds:
3.125%, 11/15/06 2,600,000 2,564,458
3.50%, 11/15/07 1,020,000 1,001,705
- --------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp. Unsec. Nts.:
3.625%, 9/15/06 3,495,000 3,472,087
4.125%, 7/12/10 2 1,406,000 1,384,469
6.625%, 9/15/09 2 235,000 253,034
- --------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn. Unsec. Nts.:
4%, 2/28/07 2,310,000 2,297,568
4.25%, 7/15/07-8/15/10 2 2,420,000 2,412,457
6%, 5/15/11 3,900,000 4,177,321
6.625%, 9/15/09 135,000 145,200
7.25%, 1/15/10 11 1,500,000 1,658,450
7.25%, 5/15/30 2 1,215,000 1,608,186
- --------------------------------------------------------------------------------------------------------------------
Tennessee Valley Authority Bonds:
4.65%, 6/15/35 2 1,560,000 1,491,221
5.375%, 11/13/08 375,000 385,443
Series A, 6.79%, 5/23/12 11,936,000 13,415,694
- --------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds, 5.375%, 2/15/31 1,064,000 1,192,346
- --------------------------------------------------------------------------------------------------------------------
U.S. Treasury Nts.:
3.625%, 6/15/10 2 792,000 772,201
3.75%, 3/31/07 2 3,980,000 3,955,750
3.875%, 7/31/07-9/15/10 2 2,914,000 2,876,930
4%, 8/31/07 2 110,000 109,661
4.125%, 5/15/15 2 646,000 635,074
4.25%, 8/15/15 1,270,000 1,262,460
5%, 2/15/11-8/15/11 2 1,340,000 1,391,615
---------------
Total U.S. Government Obligations (Cost $50,112,907) 49,603,811
- --------------------------------------------------------------------------------------------------------------------
FOREIGN GOVERNMENT OBLIGATIONS--0.2%
- --------------------------------------------------------------------------------------------------------------------
United Mexican States Nts., 7.50%, 1/14/12 (Cost $1,786,191) 1,620,000 1,821,690
- --------------------------------------------------------------------------------------------------------------------
NON-CONVERTIBLE CORPORATE BONDS AND NOTES--13.4%
- --------------------------------------------------------------------------------------------------------------------
ABN Amro Bank NV (NY Branch), 7.125% Sub. Nts., Series B, 10/15/93 500,000 598,658
- --------------------------------------------------------------------------------------------------------------------
Aetna, Inc., 7.375% Sr. Unsec. Nts., 3/1/06 1,675,000 1,694,552
- --------------------------------------------------------------------------------------------------------------------
Albertson's, Inc., 8% Sr. Unsec. Debs., 5/1/31 1,080,000 985,969
- --------------------------------------------------------------------------------------------------------------------
Allied Waste North America, Inc., 8.875% Sr. Nts., Series B, 4/1/08 840,000 879,900
- --------------------------------------------------------------------------------------------------------------------
Allstate Financial Global Funding LLC, 4.25% Nts., 9/10/08 9 365,000 360,657
- --------------------------------------------------------------------------------------------------------------------
AOL Time Warner, Inc., 7.70% Debs., 5/1/32 1,010,000 1,199,472
- --------------------------------------------------------------------------------------------------------------------
Archer Daniels Midland Co., 5.375% Nts., 9/15/35 940,000 914,099
- --------------------------------------------------------------------------------------------------------------------
AT&T Wireless Services, Inc., 8.125% Sr. Unsec. Nts., 5/1/12 1,210,000 1,420,787
- --------------------------------------------------------------------------------------------------------------------
Bank of America Corp., 4.875% Sr. Unsec. Nts., 1/15/13 23,000 22,954
29 | OPPENHEIMER BALANCED FUND
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------------------------------------------
NON-CONVERTIBLE CORPORATE BONDS AND NOTES Continued
- --------------------------------------------------------------------------------------------------------------------
Bankers Trust Corp., 7.375% Unsec. Sub. Nts., 5/1/08 $ 140,000 $ 148,898
- --------------------------------------------------------------------------------------------------------------------
Barclays Bank plc, 6.278% Perpetual Bond 12 1,460,000 1,438,480
- --------------------------------------------------------------------------------------------------------------------
Beazer Homes USA, Inc., 6.875% Sr. Nts., 7/15/15 9 895,000 872,625
- --------------------------------------------------------------------------------------------------------------------
British Telecommunications plc, 8.875% Bonds, 12/15/30 795,000 1,081,590
- --------------------------------------------------------------------------------------------------------------------
Canadian National Railway Co., 4.25% Nts., 8/1/09 238,000 234,533
- --------------------------------------------------------------------------------------------------------------------
CenterPoint Energy, Inc., 7.25% Sr. Nts., Series B, 9/1/10 2 975,000 1,059,667
- --------------------------------------------------------------------------------------------------------------------
Chancellor Media CCU, 8% Sr. Unsec. Nts., 11/1/08 2 1,660,000 1,788,653
- --------------------------------------------------------------------------------------------------------------------
CIGNA Corp.:
7% Sr. Unsec. Nts., 1/15/11 610,000 666,154
7.40% Unsec. Nts., 5/15/07 1,230,000 1,279,709
- --------------------------------------------------------------------------------------------------------------------
CIT Group, Inc.:
4.75% Sr. Nts., 8/15/08 265,000 265,249
7.75% Sr. Unsec. Unsub. Nts., 4/2/12 680,000 780,516
- --------------------------------------------------------------------------------------------------------------------
Citigroup, Inc., 6.625% Unsec. Sub. Nts., 6/15/32 705,000 797,500
- --------------------------------------------------------------------------------------------------------------------
Coca-Cola Co. (The), 7.375% Unsec. Debs., 7/29/93 440,000 576,799
- --------------------------------------------------------------------------------------------------------------------
ConAgra Foods, Inc., 6% Nts., 9/15/06 925,000 936,805
- --------------------------------------------------------------------------------------------------------------------
Constellation Energy Group, Inc., 7% Unsec. Nts., 4/1/12 2 1,455,000 1,601,623
- --------------------------------------------------------------------------------------------------------------------
Countrywide Financial Corp., 4.50% Nts., Series A, 6/15/10 925,000 906,653
- --------------------------------------------------------------------------------------------------------------------
Cox Communications, Inc., 4.625% Unsec. Nts., 1/15/10 1,865,000 1,825,251
- --------------------------------------------------------------------------------------------------------------------
Credit Suisse First Boston, Inc., (USA), 5.50% Nts., 8/15/13 1,685,000 1,738,955
- --------------------------------------------------------------------------------------------------------------------
CSX Corp., 6.25% Unsec. Nts., 10/15/08 860,000 895,434
- --------------------------------------------------------------------------------------------------------------------
D.R. Horton, Inc., 6.125% Nts., 1/15/14 2 780,000 782,161
- --------------------------------------------------------------------------------------------------------------------
DaimlerChrysler NA Holdings Corp.:
7.20% Unsec. Nts., 9/1/09 880,000 939,616
8% Nts., 6/15/10 682,000 755,923
- --------------------------------------------------------------------------------------------------------------------
Delhaize America, Inc., 9% Unsub. Debs., 4/15/31 1,175,000 1,362,226
- --------------------------------------------------------------------------------------------------------------------
Deutsche Telekom International Finance BV, 8.50% Unsub. Nts., 6/15/10 1,105,000 1,254,007
- --------------------------------------------------------------------------------------------------------------------
Dominion Resources, Inc., 8.125% Sr. Unsub. Nts., 6/15/10 1,280,000 1,444,303
- --------------------------------------------------------------------------------------------------------------------
DTE Energy Co., 6.45% Sr. Unsub. Nts., 6/1/06 830,000 840,223
- --------------------------------------------------------------------------------------------------------------------
EOP Operating LP:
6.763% Sr. Unsec. Nts., 6/15/07 295,000 304,022
8.10% Unsec. Nts., 8/1/10 1,210,000 1,359,192
8.375% Nts., 3/15/06 560,000 569,764
- --------------------------------------------------------------------------------------------------------------------
Federated Department Stores, Inc., 6.625% Sr. Unsec. Nts., 9/1/08 1,165,000 1,220,526
- --------------------------------------------------------------------------------------------------------------------
FedEx Corp., 2.65% Unsec. Nts., 4/1/07 1,875,000 1,822,824
- --------------------------------------------------------------------------------------------------------------------
FirstEnergy Corp.:
5.50% Sr. Unsub. Nts., Series A, 11/15/06 730,000 736,369
7.375% Sr. Unsub. Nts., Series C, 11/15/31 755,000 888,303
30 | OPPENHEIMER BALANCED FUND
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------------------------------------------
NON-CONVERTIBLE CORPORATE BONDS AND NOTES Continued
- --------------------------------------------------------------------------------------------------------------------
Ford Motor Credit Co.:
5.80% Sr. Unsec. Nts., 1/12/09 $ 1,540,000 $ 1,437,986
6.25% Unsec. Nts., 12/8/05 628,000 628,778
7.375% Nts., 10/28/09 375,000 362,541
- --------------------------------------------------------------------------------------------------------------------
France Telecom SA:
7.75% Sr. Unsec. Nts., 3/1/11 5 855,000 971,913
8.50% Sr. Unsec. Nts., 3/1/31 5 275,000 369,671
- --------------------------------------------------------------------------------------------------------------------
Franklin Resources, Inc., 3.70% Nts., 4/15/08 585,000 571,745
- --------------------------------------------------------------------------------------------------------------------
Gap, Inc. (The):
6.90% Nts., 9/15/07 1,360,000 1,403,320
9.55% Unsub. Nts., 12/15/08 5 199,000 224,086
- --------------------------------------------------------------------------------------------------------------------
General Mills, Inc., 3.875% Nts., 11/30/07 1,400,000 1,376,217
- --------------------------------------------------------------------------------------------------------------------
General Motors Acceptance Corp., 6.125% Unsec. Unsub. Nts., 2/1/07 3,645,000 3,624,712
- --------------------------------------------------------------------------------------------------------------------
Goldman Sachs Group, Inc. (The), 5.70% Sr. Unsec. Nts., 9/1/12 1,685,000 1,750,139
- --------------------------------------------------------------------------------------------------------------------
Harrah's Operating Co., Inc., 5.625% Bonds, 6/1/15 9 940,000 930,958
- --------------------------------------------------------------------------------------------------------------------
HCA, Inc., 7.125% Sr. Unsec. Nts., 6/1/06 561,000 571,039
- --------------------------------------------------------------------------------------------------------------------
Hertz Corp. (The), 6.35% Nts., 6/15/10 2 1,860,000 1,760,613
- --------------------------------------------------------------------------------------------------------------------
Hilton Hotels Corp., 8.25% Sr. Unsec. Nts., 2/15/11 804,000 911,745
- --------------------------------------------------------------------------------------------------------------------
HSBC Finance Corp., 4.75% Sr. Unsec. Nts., 7/15/13 1,840,000 1,798,780
- --------------------------------------------------------------------------------------------------------------------
IPALCO Enterprises, Inc., 8.375% Sr. Sec. Nts., 11/14/08 5 810,000 862,650
- --------------------------------------------------------------------------------------------------------------------
iStar Financial, Inc., 4.875% Sr. Unsec. Nts., Series B, 1/15/09 2 1,285,000 1,273,644
- --------------------------------------------------------------------------------------------------------------------
J.C. Penney Co., Inc., (Holding Co.), 7.40% Nts., 4/1/37 2 1,610,000 1,748,863
- --------------------------------------------------------------------------------------------------------------------
JPMorgan Capital XV, 5.875% Nts., 3/15/35 1,220,000 1,198,328
- --------------------------------------------------------------------------------------------------------------------
K. Hovnanian Enterprises, Inc., 6.50% Sr. Nts., 1/15/14 2 895,000 865,736
- --------------------------------------------------------------------------------------------------------------------
Kaiser Aluminum & Chemical Corp., 10.875% Sr. Nts., Series B, 10/15/06 14 250,000 244,375
- --------------------------------------------------------------------------------------------------------------------
KB Home, 5.75% Sr. Unsec. Unsub. Nts., 2/1/14 1,145,000 1,090,582
- --------------------------------------------------------------------------------------------------------------------
Kinder Morgan, Inc., 6.50% Sr. Unsec. Nts., 9/1/12 985,000 1,055,969
- --------------------------------------------------------------------------------------------------------------------
Kraft Foods, Inc., 5.25% Nts., 6/1/07 2,040,000 2,061,587
- --------------------------------------------------------------------------------------------------------------------
Kroger Co. (The), 6.80% Sr. Unsec. Nts., 4/1/11 1,285,000 1,371,036
- --------------------------------------------------------------------------------------------------------------------
Lear Corp., 8.11% Sr. Unsec. Nts., Series B, 5/15/09 2 1,450,000 1,443,165
- --------------------------------------------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc., 7% Nts., 2/1/08 1,165,000 1,223,657
- --------------------------------------------------------------------------------------------------------------------
Lehman Brothers, Inc., 6.625% Sr. Sub. Nts., 2/15/08 185,000 193,119
- --------------------------------------------------------------------------------------------------------------------
Lennar Corp., 5.95% Sr. Unsec. Nts., 3/1/13 880,000 896,114
- --------------------------------------------------------------------------------------------------------------------
Liberty Media Corp., 5.70% Sr. Unsec. Nts., 5/15/13 2 930,000 850,966
- --------------------------------------------------------------------------------------------------------------------
Liberty Property Trust, 5.65% Sr. Nts., 8/15/14 885,000 903,560
- --------------------------------------------------------------------------------------------------------------------
Marsh & McLennan Cos., Inc., 5.875% Sr. Unsec. Bonds, 8/1/33 1,110,000 1,008,623
- --------------------------------------------------------------------------------------------------------------------
May Department Stores Co.:
3.95% Nts., 7/15/07 616,000 607,606
7.90% Unsec. Debs., 10/15/07 735,000 773,805
- --------------------------------------------------------------------------------------------------------------------
MBNA Corp., 7.50% Sr. Nts., Series F, 3/15/12 1,380,000 1,571,020
31 | OPPENHEIMER BALANCED FUND
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------------------------------------------
NON-CONVERTIBLE CORPORATE BONDS AND NOTES Continued
- --------------------------------------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc., 5% Sr. Unsub. Nts., Series C, 2/3/14 $ 1,825,000 $ 1,818,118
- --------------------------------------------------------------------------------------------------------------------
MetLife, Inc., 5.70% Sr. Unsec. Nts., 6/15/35 915,000 912,822
- --------------------------------------------------------------------------------------------------------------------
MidAmerican Energy Holdings Co., 5.875% Sr. Unsec. Nts., 10/1/12 1,525,000 1,593,471
- --------------------------------------------------------------------------------------------------------------------
Morgan Stanley, 6.60% Nts., 4/1/12 855,000 927,513
- --------------------------------------------------------------------------------------------------------------------
National City Bank, 6.20% Sub. Nts., 12/15/11 124,000 133,116
- --------------------------------------------------------------------------------------------------------------------
Nationwide Financial Services, Inc.:
5.90% Nts., 7/1/12 675,000 706,960
6.25% Sr. Unsec. Nts., 11/15/11 195,000 209,199
- --------------------------------------------------------------------------------------------------------------------
NiSource Finance Corp.:
3.20% Nts., 11/1/06 250,000 246,055
7.875% Sr. Unsec. Nts., 11/15/10 1,070,000 1,204,261
- --------------------------------------------------------------------------------------------------------------------
Northrop Grumman Corp., 7.125% Sr. Nts., 2/15/11 1,125,000 1,244,679
- --------------------------------------------------------------------------------------------------------------------
Pemex Project Funding Master Trust, 5.75% Unsec. Unsub. Nts.,
Series 12, 12/15/15 9 1,480,000 1,467,050
- --------------------------------------------------------------------------------------------------------------------
Petroleum Export Ltd. Cayman SPV, 4.623% Sr. Nts., Cl. A1, 6/15/10 9 2,750,000 2,737,290
- --------------------------------------------------------------------------------------------------------------------
PF Export Receivables Master Trust, 3.748% Sr. Nts., Series B, 6/1/13 9 547,925 518,471
- --------------------------------------------------------------------------------------------------------------------
Portland General Electric Co., 8.125% First Mortgage Nts., 2/1/10 9 715,000 798,606
- --------------------------------------------------------------------------------------------------------------------
Prudential Holdings LLC, 8.695% Bonds, Series C, 12/18/23 9 1,510,000 1,935,227
- --------------------------------------------------------------------------------------------------------------------
Prudential Insurance Co. of America, 8.30% Nts., 7/1/25 9 1,530,000 1,983,660
- --------------------------------------------------------------------------------------------------------------------
PSE&G Energy Holdings LLC, 7.75% Unsec. Nts., 4/16/07 810,000 832,275
- --------------------------------------------------------------------------------------------------------------------
PSE&G Power LLC, 6.875% Sr. Unsec. Nts., 4/15/06 915,000 926,049
- --------------------------------------------------------------------------------------------------------------------
R&B Falcon Corp., 9.50% Sr. Unsec. Nts., 12/15/08 750,000 852,734
- --------------------------------------------------------------------------------------------------------------------
Safeway, Inc., 7.50% Sr. Unsec. Nts., 9/15/09 1,195,000 1,287,161
- --------------------------------------------------------------------------------------------------------------------
Sempra Energy, 7.95% Sr. Unsec. Unsub. Nts., 3/1/10 900,000 1,000,418
- --------------------------------------------------------------------------------------------------------------------
Simon Property Group LP:
5.45% Unsec. Nts., 3/15/13 2 820,000 829,812
5.625% Unsec. Unsub. Nts., 8/15/14 545,000 559,056
- --------------------------------------------------------------------------------------------------------------------
Sprint Capital Corp., 8.75% Nts., 3/15/32 1,100,000 1,479,528
- --------------------------------------------------------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc., 7.375% Nts., 5/1/07 1,350,000 1,398,938
- --------------------------------------------------------------------------------------------------------------------
Sterling Chemicals, Inc., 10% Sr. Sec. Nts., 12/19/07 4,13 136,379 135,697
- --------------------------------------------------------------------------------------------------------------------
SunTrust Banks, Inc.:
4% Nts., 10/15/08 965,000 946,618
7.75% Unsec. Sub. Nts., 5/1/10 86,000 96,440
- --------------------------------------------------------------------------------------------------------------------
TCI Communications, Inc., 9.80% Sr. Unsec. Debs., 2/1/12 1,640,000 2,019,421
- --------------------------------------------------------------------------------------------------------------------
Telecom Italia Capital, 5.25% Nts., 10/1/15 235,000 231,361
- --------------------------------------------------------------------------------------------------------------------
Time Warner Entertainment Co. LP, 10.15% Sr. Nts., 5/1/12 308,000 386,795
- --------------------------------------------------------------------------------------------------------------------
Travelers Property Casualty Corp., 3.75% Sr. Unsec. Nts., 3/15/08 1,325,000 1,289,001
- --------------------------------------------------------------------------------------------------------------------
TXU Corp., 6.55% Sr. Unsec. Nts., Series R, 11/15/34 1,165,000 1,087,064
- --------------------------------------------------------------------------------------------------------------------
Tyco International Group SA, 6.375% Sr. Unsec. Unsub. Nts., 2/15/06 1,135,000 1,142,681
32 | OPPENHEIMER BALANCED FUND
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------------------------------------------
NON-CONVERTIBLE CORPORATE BONDS AND NOTES Continued
- --------------------------------------------------------------------------------------------------------------------
Univision Communications, Inc.:
2.875% Sr. Unsec. Nts., 10/15/06 $ 241,000 $ 236,292
3.50% Sr. Unsec. Nts., 10/15/07 1,255,000 1,218,540
- --------------------------------------------------------------------------------------------------------------------
Verizon Global Funding Corp., 5.85% Nts., 9/15/35 915,000 902,996
- --------------------------------------------------------------------------------------------------------------------
Vornado Realty LP, 5.625% Sr. Unsec. Unsub. Nts., 6/15/07 2 1,765,000 1,780,424
- --------------------------------------------------------------------------------------------------------------------
Waste Management, Inc., 6.875% Sr. Unsec. Nts., 5/15/09 1,700,000 1,810,204
- --------------------------------------------------------------------------------------------------------------------
Western Forest Products, Inc., 15% Sec. Nts., 7/28/09 4,13 302,804 296,748
- --------------------------------------------------------------------------------------------------------------------
Yum! Brands, Inc., 8.50% Sr. Unsec. Nts., 4/15/06 1,785,000 1,821,750
---------------
Total Non-Convertible Corporate Bonds and Notes (Cost $124,571,538) 124,194,750
- --------------------------------------------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS--8.0%
Undivided interest of 7.71% in joint repurchase agreement (Principal Amount/
Value $951,774,000, with a maturity value of $952,055,566) with UBS Warburg
LLC, 3.55%, dated 9/30/05, to be repurchased at $73,416,713 on 10/3/05,
collateralized by Federal National Mortgage Assn., 5%, 10/1/35, with
a value of $972,647,107 (Cost $73,395,000) 73,395,000 73,395,000
- --------------------------------------------------------------------------------------------------------------------
Total Investments, at Value (excluding Investments Purchased with
Cash Collateral from Securities Loaned) (Cost $905,240,552) 1,036,414,158
- --------------------------------------------------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH COLLATERAL FROM SECURITIES LOANED--2.0%
- --------------------------------------------------------------------------------------------------------------------
ASSET BACKED FLOATING NOTE--0.2%
Whitehawk CDO Funding Corp., 3.94%, 12/15/05 15 2,000,000 2,000,000
- --------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS--1.7%
Undivided interest of 0.46% in joint repurchase agreement (Principal Amount/
Value $3,300,000,000, with a maturity value of $3,301,064,250) with Nomura
Securities, 3.87%, dated 9/30/05, to be repurchased at $15,313,636 on 10/3/05,
collateralized by U.S. Agency Mortgages, 5%--5.50%, 9/1/20--8/1/35,
with a value of $3,366,000,000 15 15,308,699 15,308,699
- --------------------------------------------------------------------------------------------------------------------
MASTER FLOATING NOTES--0.1%
Bear Stearns, 4.06%, 10/3/05 15 1,000,000 1,000,000
---------------
Total Investments Purchased with Cash Collateral from Securities Loaned
(Cost $18,308,699) 18,308,699
- --------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $923,549,251) 114.2% 1,054,722,857
- --------------------------------------------------------------------------------------------------------------------
LIABILITIES IN EXCESS OF OTHER ASSETS (14.2) (130,992,894)
--------------------------------
NET ASSETS 100.0% $ 923,729,963
================================
33 | OPPENHEIMER BALANCED FUND
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
FOOTNOTES TO STATEMENT OF INVESTMENTS
1. Non-income producing security.
2. Partial or fully-loaned security. See Note 10 of Notes to Financial
Statements.
3. A sufficient amount of liquid assets has been designated to cover outstanding
written call options, as follows:
CONTRACTS EXPIRATION EXERCISE PREMIUM VALUE
SUBJECT TO CALL DATE PRICE RECEIVED SEE NOTE 1
- -------------------------------------------------------------------------------------------------
Schering-Plough Corp. 786 1/23/06 $22.50 $96,477 $55,020
4. Illiquid security. The aggregate value of illiquid securities as of September
30, 2005 was $1,160,741, which represents 0.13% of the Fund's net assets. See
Note 9 of Notes to Financial Statements.
5. Represents the current interest rate for a variable or increasing rate
security.
6. Interest-Only Strips represent the right to receive the monthly interest
payments on an underlying pool of mortgage loans. These securities typically
decline in price as interest rates decline. Most other fixed income securities
increase in price when interest rates decline. The principal amount of the
underlying pool represents the notional amount on which current interest is
calculated. The price of these securities is typically more sensitive to changes
in prepayment rates than traditional mortgage-backed securities (for example,
GNMA pass-throughs). Interest rates disclosed represent current yields based
upon the current cost basis and estimated timing and amount of future cash
flows. These securities amount to $10,821,512 or 1.17% of the Fund's net assets
as of September 30, 2005.
7. Principal-Only Strips represent the right to receive the monthly principal
payments on an underlying pool of mortgage loans. The value of these securities
generally increases as interest rates decline and prepayment rates rise. The
price of these securities is typically more volatile than that of coupon-bearing
bonds of the same maturity. Interest rates disclosed represent current yields
based upon the current cost basis and estimated timing of future cash flows.
These securities amount to $635,523 or 0.07% of the Fund's net assets as of
September 30, 2005.
8. When-issued security or forward commitment to be delivered and settled after
September 30, 2005. See Note 1 of Notes to Financial Statements.
9. Represents securities sold under Rule 144A, which are exempt from
registration under the Securities Act of 1933, as amended. These securities have
been determined to be liquid under guidelines established by the Board of
Trustees. These securities amount to $12,777,469 or 1.38% of the Fund's net
assets as of September 30, 2005.
10. Zero coupon bond reflects effective yield on the date of purchase.
11. All or a portion of the security is held in collateralized accounts to cover
initial margin requirements on open futures sales contracts. The aggregate
market value of such securities is $1,105,633. See Note 6 of Notes to Financial
Statements.
12. This bond has no contractual maturity date, is not redeemable and
contractually pays an indefinite stream of interest.
13. Interest or dividend is paid-in-kind.
14. Issue is in default. Non-income producing. See Note 1 of Notes to Financial
Statements.
15. The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 10 of Notes to Financial
Statements.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
34 | OPPENHEIMER BALANCED FUND
STATEMENT OF ASSETS AND LIABILITIES September 30, 2005
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------------------------------------------
Investments, at value (including securities loaned of $29,832,219) (cost $923,549,251)
- --see accompanying statement of investments $1,054,722,857
- ------------------------------------------------------------------------------------------------------------
Cash 170,029
- ------------------------------------------------------------------------------------------------------------
Receivables and other assets:
Investments sold (including $30,078,948 sold on a when-issued basis
or forward commitment) 41,022,383
Interest, dividends and principal paydowns 4,157,781
Shares of beneficial interest sold 1,004,348
Futures margins 144,584
Other 27,349
---------------
Total assets 1,101,249,331
- ------------------------------------------------------------------------------------------------------------
LIABILITIES
- ------------------------------------------------------------------------------------------------------------
Options written, at value (premiums received $96,477)
- --see accompanying statement of investments 55,020
- ------------------------------------------------------------------------------------------------------------
Return of collateral for securities loaned 18,308,699
- ------------------------------------------------------------------------------------------------------------
Unrealized depreciation on swap contracts 71,343
- ------------------------------------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased (including $155,457,045 purchased on a when-issued basis
or forward commitment) 156,919,863
Shares of beneficial interest redeemed 1,258,969
Distribution and service plan fees 495,372
Trustees' compensation 155,682
Transfer and shareholder servicing agent fees 111,556
Shareholder communications 70,090
Other 72,774
---------------
Total liabilities 177,519,368
- ------------------------------------------------------------------------------------------------------------
NET ASSETS $ 923,729,963
===============
- ------------------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
- ------------------------------------------------------------------------------------------------------------
Paid-in capital $ 741,307,555
- ------------------------------------------------------------------------------------------------------------
Accumulated net investment income 5,145,284
- ------------------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and foreign currency transactions 45,784,524
- ------------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments and translation of assets and liabilities
denominated in foreign currencies 131,492,600
---------------
NET ASSETS $ 923,729,963
===============
35 | OPPENHEIMER BALANCED FUND
STATEMENT OF ASSETS AND LIABILITIES Continued
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
- ------------------------------------------------------------------------------------------------------------
Class A Shares:
Net asset value and redemption price per share (based on net assets of $725,836,301 and
50,010,844 shares of beneficial interest outstanding) $14.51
Maximum offering price per share (net asset value plus sales charge of 5.75% of offering price) $15.40
- ------------------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales charge)
and offering price per share (based on net assets of $98,270,880 and 6,907,567 shares
of beneficial interest outstanding) $14.23
- ------------------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales charge)
and offering price per share (based on net assets of $87,820,386 and 6,145,816 shares
of beneficial interest outstanding) $14.29
- ------------------------------------------------------------------------------------------------------------
Class N Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales charge)
and offering price per share (based on net assets of $11,802,396 and 820,597 shares of
beneficial interest outstanding) $14.38
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
36 | OPPENHEIMER BALANCED FUND
STATEMENT OF OPERATIONS For the Year Ended September 30, 2005
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INVESTMENT INCOME
- --------------------------------------------------------------------------------
Interest $ 16,658,051
- --------------------------------------------------------------------------------
Dividends (net of foreign withholding taxes of $175,859) 7,225,027
- --------------------------------------------------------------------------------
Portfolio lending fees 52,528
- --------------------------------------------------------------------------------
Other income 33,230
-------------
Total investment income 23,968,836
- --------------------------------------------------------------------------------
EXPENSES
- --------------------------------------------------------------------------------
Management fees 6,085,297
- --------------------------------------------------------------------------------
Distribution and service plan fees:
Class A 1,399,566
Class B 924,866
Class C 778,708
Class N 51,254
- --------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees:
Class A 833,080
Class B 208,495
Class C 135,453
Class N 26,986
- --------------------------------------------------------------------------------
Shareholder communications:
Class A 121,101
Class B 42,473
Class C 22,879
Class N 2,814
- --------------------------------------------------------------------------------
Trustees' compensation 27,672
- --------------------------------------------------------------------------------
Custodian fees and expenses 23,909
- --------------------------------------------------------------------------------
Other 91,278
-------------
Total expenses 10,775,831
Less reduction to custodian expenses (20,670)
-------------
Net expenses 10,755,161
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME 13,213,675
37 | OPPENHEIMER BALANCED FUND
STATEMENT OF OPERATIONS Continued
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investments $ 55,523,311
Closing of futures contracts 3,868,560
Foreign currency transactions 483,399
Swap contracts (34,072)
-------------
Net realized gain 59,841,198
- ------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on:
Investments 25,331,740
Translation of assets and liabilities denominated in foreign currencies (35,485)
Futures contracts (838,889)
Option contracts 41,457
Swap contracts (86,475)
-------------
Net change in unrealized appreciation 24,412,348
- ------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 97,467,221
=============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
38 | OPPENHEIMER BALANCED FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 2005 2004
- -----------------------------------------------------------------------------------------------------------------
OPERATIONS
- -----------------------------------------------------------------------------------------------------------------
Net investment income $ 13,213,675 $ 6,881,213
- -----------------------------------------------------------------------------------------------------------------
Net realized gain 59,841,198 64,202,686
- -----------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation 24,412,348 240,460
---------------------------------
Net increase in net assets resulting from operations 97,467,221 71,324,359
- -----------------------------------------------------------------------------------------------------------------
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------
Dividends from net investment income:
Class A (7,922,968) (4,777,266)
Class B (487,362) (111,890)
Class C (462,164) (122,220)
Class N (90,860) (30,405)
- -----------------------------------------------------------------------------------------------------------------
Distributions from net realized gain:
Class A (33,213,932) --
Class B (4,435,493) --
Class C (3,587,318) --
Class N (466,585) --
- -----------------------------------------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS
- -----------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from beneficial interest transactions:
Class A 36,521,136 20,788,123
Class B 8,636,193 13,846,692
Class C 15,819,238 16,261,663
Class N 2,483,994 4,986,013
- -----------------------------------------------------------------------------------------------------------------
NET ASSETS
- -----------------------------------------------------------------------------------------------------------------
Total increase 110,261,100 122,165,069
- -----------------------------------------------------------------------------------------------------------------
Beginning of period 813,468,863 691,303,794
---------------------------------
End of period (including accumulated net investment income (loss)
of $5,145,284 and $(681,095), respectively) $ 923,729,963 $ 813,468,863
=================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
39 | OPPENHEIMER BALANCED FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
CLASS A YEAR ENDED SEPTEMBER 30, 2005 2004 2003 2002 2001
- -------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 13.75 $ 12.55 $ 10.51 $ 12.14 $ 14.23
----------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .24 1 .14 .21 .35 .43
Net realized and unrealized gain (loss) 1.38 1.16 2.08 (1.29) (1.40)
----------------------------------------------------------------------
Total from investment operations 1.62 1.30 2.29 (.94) (.97)
- -------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.16) (.10) (.22) (.31) (.38)
Tax return of capital distribution -- -- (.03) -- --
Distributions from net realized gain (.70) -- -- (.38) (.74)
----------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.86) (.10) (.25) (.69) (1.12)
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 14.51 $ 13.75 $ 12.55 $ 10.51 $ 12.14
======================================================================
- -------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 12.13% 10.37% 21.98% (8.58)% (7.27)%
- -------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $725,836 $651,754 $575,799 $483,311 $562,281
- -------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $694,147 $631,041 $523,477 $570,796 $626,251
- -------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income 1.69% 1.05% 1.78% 2.84% 3.16%
Total expenses 1.05% 1.07% 1.11% 1.15% 1.01%
Expenses after payments and waivers and
reduction to custodian expenses 1.05% 1.06% 1.11% 1.15% 1.01%
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 73% 4 61% 4 205% 31% 40%
1. Per share amounts calculated based on the average shares outstanding during
the period.
2. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in the
total returns. Total returns are not annualized for periods of less than one
full year. Returns do not reflect the deduction of taxes that a shareholder
would pay on Fund distributions or the redemption of Fund shares.
3. Annualized for periods of less than one full year.
4. The portfolio turnover rate excludes purchase and sales of To Be Announced
(TBA) mortgage-related securities as follows:
PURCHASE TRANSACTIONS SALE TRANSACTIONS
- --------------------------------------------------------------------------------
Year Ended September 30, 2005 $2,097,453,846 $2,135,377,175
Year Ended September 30, 2004 $1,069,526,653 $1,026,457,980
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
40 | OPPENHEIMER BALANCED FUND
CLASS B YEAR ENDED SEPTEMBER 30, 2005 2004 2003 2002 2001
- --------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 13.53 $ 12.40 $ 10.38 $ 12.01 $ 14.08
- --------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .11 1 .02 .09 .25 .31
Net realized and unrealized gain (loss) 1.36 1.13 2.07 (1.29) (1.36)
-----------------------------------------------------------------------
Total from investment operations 1.47 1.15 2.16 (1.04) (1.05)
- --------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.07) (.02) (.11) (.21) (.28)
Tax return of capital distribution -- -- (.03) -- --
Distributions from net realized gain (.70) -- -- (.38) (.74)
- --------------------------------------------------------------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.77) (.02) (.14) (.59) (1.02)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 14.23 $ 13.53 $ 12.40 $ 10.38 $ 12.01
=======================================================================
- --------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 11.17% 9.26% 20.91% (9.38)% (7.96)%
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $98,271 $84,924 $64,944 $54,757 $63,487
- --------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $92,677 $77,082 $57,836 $64,702 $67,959
- --------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income 0.76% 0.11% 0.81% 2.02% 2.37%
Total expenses 1.98% 4 2.02% 4,5 2.08% 4 1.97% 4 1.81% 4
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 73% 6 61% 6 205% 31% 40%
1. Per share amounts calculated based on the average shares outstanding during
the period.
2. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in the
total returns. Total returns are not annualized for periods of less than one
full year. Returns do not reflect the deduction of taxes that a shareholder
would pay on Fund distributions or the redemption of Fund shares.
3. Annualized for periods of less than one full year.
4. Reduction to custodian expenses less than 0.01%.
5. Voluntary waiver of transfer agent fees less than 0.01%.
6. The portfolio turnover rate excludes purchase and sales of To Be Announced
(TBA) mortgage-related securities as follows:
PURCHASE TRANSACTIONS SALE TRANSACTIONS
- --------------------------------------------------------------------------------
Year Ended September 30, 2005 $2,097,453,846 $2,135,377,175
Year Ended September 30, 2004 $1,069,526,653 $1,026,457,980
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
41 | OPPENHEIMER BALANCED FUND
FINANCIAL HIGHLIGHTS Continued
- --------------------------------------------------------------------------------
CLASS C YEAR ENDED SEPTEMBER 30, 2005 2004 2003 2002 2001
- --------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 13.59 $ 12.44 $ 10.42 $ 12.06 $ 14.13
- --------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .11 1 .04 .11 .24 .31
Net realized and unrealized gain (loss) 1.37 1.13 2.06 (1.29) (1.37)
-----------------------------------------------------------------------
Total from investment operations 1.48 1.17 2.17 (1.05) (1.06)
- --------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.08) (.02) (.12) (.21) (.27)
Tax return of capital distribution -- -- (.03) -- --
Distributions from net realized gain (.70) -- -- (.38) (.74)
-----------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.78) (.02) (.15) (.59) (1.01)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 14.29 $ 13.59 $ 12.44 $ 10.42 $ 12.06
=======================================================================
- --------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 11.18% 9.45% 20.98% (9.41)% (8.00)%
- --------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $87,820 $68,018 $47,212 $33,300 $36,171
- --------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $78,091 $60,095 $38,407 $37,412 $39,030
- --------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income 0.83% 0.19% 0.90% 2.03% 2.37%
Total expenses 1.91% 4 1.93% 4,5 1.98% 4 1.96% 4 1.81% 4
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 73% 6 61% 6 205% 31% 40%
1. Per share amounts calculated based on the average shares outstanding during
the period.
2. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in the
total returns. Total returns are not annualized for periods of less than one
full year. Returns do not reflect the deduction of taxes that a shareholder
would pay on Fund distributions or the redemption of Fund shares.
3. Annualized for periods of less than one full year.
4. Reduction to custodian expenses less than 0.01%.
5. Voluntary waiver of transfer agent fees less than 0.01%.
6. The portfolio turnover rate excludes purchase and sales of To Be Announced
(TBA) mortgage-related securities as follows:
PURCHASE TRANSACTIONS SALE TRANSACTIONS
- --------------------------------------------------------------------------------
Year Ended September 30, 2005 $2,097,453,846 $2,135,377,175
Year Ended September 30, 2004 $1,069,526,653 $1,026,457,980
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
42 | OPPENHEIMER BALANCED FUND
FINANCIAL HIGHLIGHTS Continued
CLASS N YEAR ENDED SEPTEMBER 30, 2005 2004 2003 2002 2001 1
- ------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- ------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 13.65 $ 12.49 $ 10.48 $ 12.13 $ 13.67
- ------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .17 2 .10 .20 .39 .24
Net realized and unrealized gain (loss) 1.38 1.12 2.01 (1.38) (1.48)
---------------------------------------------------------------
Total from investment operations 1.55 1.22 2.21 (.99) (1.24)
- ------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.12) (.06) (.17) (.28) (.30)
Tax return of capital distribution -- -- (.03) -- --
Distributions from net realized gain (.70) -- -- (.38) --
---------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.82) (.06) (.20) (.66) (.30)
- ------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 14.38 $ 13.65 $ 12.49 $ 10.48 $ 12.13
===============================================================
- ------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 3 11.66% 9.77% 21.27% (8.94)% (9.30)%
- ------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $11,803 $ 8,772 $ 3,349 $ 798 $ 95
- ------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $10,278 $ 5,701 $ 1,604 $ 454 $ 12
- ------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income 1.24% 0.55% 1.24% 2.49% 5.81%
Total expenses 1.50% 1.58% 1.76% 1.48% 1.32%
Expenses after payments and waivers and
reduction to custodian expenses 1.50% 1.57% 1.62% 1.48% 1.32%
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 73% 5 61% 5 205% 31% 40%
1. For the period from March 1, 2001 (inception of offering) to September 30,
2001.
2. Per share amounts calculated based on the average shares outstanding during
the period.
3. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in the
total returns. Total returns are not annualized for periods of less than one
full year. Returns do not reflect the deduction of taxes that a shareholder
would pay on Fund distributions or the redemption of Fund shares.
4. Annualized for periods of less than one full year.
5. The portfolio turnover rate excludes purchase and sales of To Be Announced
(TBA) mortgage-related securities as follows:
PURCHASE TRANSACTIONS SALE TRANSACTIONS
- --------------------------------------------------------------------------------
Year Ended September 30, 2005 $2,097,453,846 $2,135,377,175
Year Ended September 30, 2004 $1,069,526,653 $1,026,457,980
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
43 | OPPENHEIMER BALANCED FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Oppenheimer Balanced Fund (the Fund) is registered under the Investment Company
Act of 1940, as amended, as an open end management investment company. The
Fund's investment objective is to seek high total investment return consistent
with preservation of principal. The Fund's investment advisor is
OppenheimerFunds, Inc. (the Manager).
The Fund offers Class A, Class B, Class C and Class N shares. Class A
shares are sold at their offering price, which is normally net asset value plus
a front-end sales charge. Class B, Class C and Class N shares are sold without a
front-end sales charge but may be subject to a contingent deferred sales charge
(CDSC). Class N shares are sold only through retirement plans. Retirement plans
that offer Class N shares may impose charges on those accounts. All classes of
shares have identical rights and voting privileges with respect to the Fund in
general and exclusive voting rights on matters that affect that class alone.
Earnings, net assets and net asset value per share may differ due to each class
having its own expenses, such as transfer and shareholder servicing agent fees
and shareholder communications, directly attributable to that class. Class A, B,
C and N have separate distribution and/or service plans. 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.
- --------------------------------------------------------------------------------
SECURITIES VALUATION. The Fund calculates the net asset value of its shares as
of the close of The New York Stock Exchange (the Exchange), normally 4:00 P.M.
Eastern time, on each day the Exchange is open for business. Securities may be
valued primarily using dealer-supplied valuations or a portfolio pricing service
authorized by the Board of Trustees. Securities listed or traded on National
Stock Exchanges or other domestic exchanges are valued based on the last sale
price of the security traded on that exchange prior to the time when the Fund's
assets are valued. Securities traded on NASDAQ are valued based on the closing
price provided by NASDAQ prior to the time when the Fund's assets are valued. In
the absence of a sale, the security is valued at the last sale price on the
prior trading day, if it is within the spread of the closing "bid" and "asked"
prices, and if not, at the closing bid price. Securities traded on foreign
exchanges are valued based on the last sale price on the principal exchange on
which the security is traded, in the country that is identified by the portfolio
pricing service, prior to the time when the Fund's assets are valued. In the
absence of a sale, the security is valued at the official closing price on the
principal exchange. Corporate, government and municipal debt instruments having
a remaining maturity in excess of sixty days and all mortgage-backed securities
will be valued at the mean between the "bid" and "asked" prices. Futures
contracts traded on a commodities or futures exchange will be valued at the
final settlement price or official closing price on the principal exchange as
reported by such principal exchange at its trading session ending at, or most
recently prior to, the time when the Fund's assets are valued. Securities
(including restricted securities) for which market quotations are not readily
available are valued at their fair value. Foreign
44 | OPPENHEIMER BALANCED FUND
and domestic securities whose values have been materially affected by what the
Manager identifies as a significant event occurring before the Fund's assets are
valued but after the close of their respective exchanges will be fair valued.
Fair value is determined in good faith using consistently applied procedures
under the supervision of the Board of Trustees. Short-term "money market type"
debt securities with remaining maturities of sixty days or less are valued at
amortized cost (which approximates market value).
- --------------------------------------------------------------------------------
SECURITIES ON A WHEN-ISSUED BASIS OR FORWARD COMMITMENT. Delivery and payment
for securities that have been purchased by the Fund on a when-issued basis or
forward commitment can take place up to ten days or more after the trade date.
Normally the settlement date occurs within six months after the trade date;
however, the Fund may, from time to time, purchase securities whose settlement
date extends six months or more beyond trade date. During this period, such
securities do not earn interest, are subject to market fluctuation and may
increase or decrease in value prior to their delivery. The Fund maintains
internally designated assets with a market value equal to or greater than the
amount of its purchase commitments. The purchase of securities on a when-issued
basis or forward commitment may increase the volatility of the Fund's net asset
value to the extent the Fund executes such transactions while remaining
substantially fully invested. The Fund may also sell securities that it
purchased on a when-issued basis or forward commitment prior to settlement of
the original purchase. As of September 30, 2005, the Fund had purchased
$155,457,045 of securities issued on a when-issued basis or forward commitment
and sold $30,078,948 of securities issued on a when-issued basis or forward
commitment.
- --------------------------------------------------------------------------------
SECURITY CREDIT RISK. The Fund invests in high-yield securities, which may be
subject to a greater degree of credit risk, market fluctuations and loss of
income and principal, and may be more sensitive to economic conditions than
lower-yielding, higher-rated fixed-income securities. The Fund may acquire
securities in default, and is not obligated to dispose of securities whose
issuers subsequently default. As of September 30, 2005, securities with an
aggregate market value of $244,375, representing 0.03% of the Fund's net assets,
were in default.
- --------------------------------------------------------------------------------
FOREIGN CURRENCY TRANSLATION. The Fund's accounting records are maintained in
U.S. dollars. The values of securities denominated in foreign currencies and
amounts related to the purchase and sale of foreign securities and foreign
investment income are translated into U.S. dollars as of the close of The New
York Stock Exchange (the Exchange), normally 4:00 P.M. Eastern time, on each day
the Exchange is open for business. Foreign exchange rates may be valued
primarily using dealer supplied valuations or a portfolio pricing service
authorized by the Board of Trustees.
Reported net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales and maturities of short-term securities, sales of
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign
45 | OPPENHEIMER BALANCED FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued
withholding taxes recorded on the Fund's books and the U.S. dollar equivalent of
the amounts actually received or paid. Net unrealized foreign exchange gains and
losses arise from changes in the values of assets and liabilities, including
investments in securities at fiscal period end, resulting from changes in
exchange rates.
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.
- --------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the Fund, along with other affiliated funds
advised by the Manager, may transfer uninvested cash balances into joint trading
accounts on a daily basis. These balances are invested in one or more repurchase
agreements. Securities pledged as collateral for repurchase agreements are held
by a custodian bank until the agreements mature. Each agreement requires that
the market value of the collateral be sufficient to cover payments of interest
and principal. In the event of default by the other party to the agreement,
retention of the collateral may be subject to legal proceedings.
- --------------------------------------------------------------------------------
ALLOCATION OF INCOME, EXPENSES, GAINS AND LOSSES. Income, expenses (other than
those attributable to a specific class), gains and losses are allocated on a
daily basis 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 comply with provisions of the Internal
Revenue Code applicable to regulated investment companies and to distribute
substantially all of its investment company taxable income, including any net
realized gain on investments not offset by capital loss carryforwards, if any,
to shareholders, therefore, no federal income or excise tax provision is
required.
The tax components of capital shown in the table below represent distribution
requirements the Fund must satisfy under the income tax regulations, losses the
Fund may be able to offset against income and gains realized in future years and
unrealized appreciation or depreciation of securities and other investments for
federal income tax purposes.
NET UNREALIZED
APPRECIATION
BASED ON COST OF
SECURITIES AND
UNDISTRIBUTED UNDISTRIBUTED ACCUMULATED OTHER INVESTMENTS
NET INVESTMENT LONG-TERM LOSS FOR FEDERAL INCOME
INCOME GAIN CARRYFORWARD 1,2,3,4 TAX PURPOSES
----------------------------------------------------------------------------
$14,225,407 $38,133,390 $444,925 $130,662,367
1. The Fund had $44,552 of post-October foreign currency losses which were
deferred.
2. The Fund had $400,373 of straddle losses which were deferred.
46 | OPPENHEIMER BALANCED FUND
3. During the fiscal year ended September 30, 2005, the Fund utilized $248,875
of capital loss carryforward to offset capital gains realized in that fiscal
year.
4. During the fiscal year ended September 30, 2004, the Fund utilized $4,257,280
of capital loss carryforward to offset capital gains realized in that fiscal
year.
Net investment income (loss) and net realized gain (loss) may differ for
financial statement and tax purposes. The character of dividends and
distributions made during the fiscal 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 dividends and distributions, the
fiscal year in which amounts are distributed may differ from the fiscal year in
which the income or net realized gain was recorded by the Fund. Accordingly, the
following amounts have been reclassified for September 30, 2005. Net assets of
the Fund were unaffected by the reclassifications.
INCREASE TO REDUCTION TO
ACCUMULATED ACCUMULATED NET
INCREASE TO NET INVESTMENT REALIZED GAIN
PAID-IN CAPITAL INCOME ON INVESTMENTS 5
--------------------------------------------------------------
$3,848,071 $1,576,058 $5,424,129
5. $3,600,291, including $2,911,989 of long-term capital gain, was distributed
in connection with Fund share redemptions.
The tax character of distributions paid during the years ended September 30,
2005 and September 30, 2004 was as follows:
YEAR ENDED YEAR ENDED
SEPT. 30, 2005 SEPT. 30, 2004
--------------------------------------------------------------
Distributions paid from:
Ordinary income $ 20,732,822 $ 5,041,781
Long-term capital gain 29,933,860 --
-------------------------------
Total $ 50,666,682 $ 5,041,781
===============================
The aggregate cost of securities and other investments and the composition of
unrealized appreciation and depreciation of securities and other investments for
federal income tax purposes as of September 30, 2005 are noted below. The
primary difference between book and tax appreciation or depreciation of
securities and other investments, if applicable, is attributable to the tax
deferral of losses or tax realization of financial statement unrealized gain or
loss.
Federal tax cost of securities $ 924,122,414
Federal tax cost of other investments (123,047,206)
--------------
Total federal tax cost $ 801,075,208
==============
Gross unrealized appreciation $ 148,655,942
Gross unrealized depreciation (17,993,575)
--------------
Net unrealized appreciation $ 130,662,367
==============
47 | OPPENHEIMER BALANCED FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued
TRUSTEES' COMPENSATION. The Fund has adopted an unfunded retirement plan for the
Fund's independent trustees. Benefits are based on years of service and fees
paid to each trustee during the years of service. During the year ended
September 30, 2005, the Fund's projected benefit obligations were increased by
$5,423 and payments of $9,637 were made to retired trustees, resulting in an
accumulated liability of $124,605 as of September 30, 2005.
The Board of Trustees has adopted a deferred compensation plan for
independent trustees that enables trustees to elect to defer receipt of all or a
portion of the annual compensation they are entitled to receive from the Fund.
For purposes of determining the amount owed to the Trustee under the plan,
deferred amounts are treated as though equal dollar amounts had been invested in
shares of the Fund or in other Oppenheimer funds selected by the Trustee. The
Fund purchases shares of the funds selected for deferral by the Trustee in
amounts equal to his or her deemed investment, resulting in a Fund asset equal
to the deferred compensation liability. Such assets are included as a component
of "Other" within the asset section of the Statement of Assets and Liabilities.
Deferral of trustees' fees under the plan will not affect the net assets of the
Fund, and will not materially affect the Fund's assets, liabilities or net
investment income per share. Amounts will be deferred until distributed in
accordance to the Plan.
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions to
shareholders, which are determined in accordance with income tax regulations,
are recorded on the ex-dividend date. Income distributions, if any, are declared
and paid quarterly. Capital gain distributions, if any, are declared and paid
annually.
- --------------------------------------------------------------------------------
INVESTMENT INCOME. Dividend income is recorded on the ex-dividend date or upon
ex-dividend notification in the case of certain foreign dividends where the
ex-dividend date may have passed. Non-cash dividends included in dividend
income, if any, are recorded at the fair market value of the securities
received. Interest income, which includes accretion of discount and amortization
of premium, is accrued as earned.
- --------------------------------------------------------------------------------
CUSTODIAN FEES. Custodian Fees and Expenses in the Statement of Operations may
include interest expense incurred by the Fund on any cash overdrafts of its
custodian account during the period. Such cash overdrafts may result from the
effects of failed trades in portfolio securities and from cash outflows
resulting from unanticipated shareholder redemption activity. The Fund pays
interest to its custodian on such cash overdrafts at a rate equal to the Federal
Funds Rate plus 0.50%. The Reduction to Custodian Expenses line item, if
applicable, represents earnings on cash balances maintained by the Fund during
the period. Such interest expense and other custodian fees may be paid with
these earnings.
- --------------------------------------------------------------------------------
SECURITY TRANSACTIONS. Security transactions are recorded on the trade date.
Realized gains and losses on securities sold are determined on the basis of
identified cost.
48 | OPPENHEIMER BALANCED FUND
- --------------------------------------------------------------------------------
OTHER. The preparation of financial statements in conformity with U.S. 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. SHARES OF BENEFICIAL INTEREST
The Fund has authorized an unlimited number of no par value shares of beneficial
interest of each class. Transactions in shares of beneficial interest were as
follows:
YEAR ENDED SEPTEMBER 30, 2005 YEAR ENDED SEPTEMBER 30, 2004
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------
CLASS A
Sold 6,341,196 $ 89,407,865 6,122,137 $ 82,783,982
Dividends and/or
distributions reinvested 2,700,256 37,680,524 313,143 4,294,088
Redeemed (6,426,942) (90,567,253) (4,905,906) (66,289,947)
--------------------------------------------------------------
Net increase 2,614,510 $ 36,521,136 1,529,374 $ 20,788,123
==============================================================
- ------------------------------------------------------------------------------------------------
CLASS B
Sold 2,164,968 $ 29,908,987 2,864,209 $ 38,137,332
Dividends and/or
distributions reinvested 334,015 4,563,228 7,693 103,111
Redeemed (1,865,946) (25,836,022) (1,835,055) (24,393,751)
--------------------------------------------------------------
Net increase 633,037 $ 8,636,193 1,036,847 $ 13,846,692
==============================================================
- ------------------------------------------------------------------------------------------------
CLASS C
Sold 1,913,961 $ 26,621,005 2,004,496 $ 26,837,027
Dividends and/or
distributions reinvested 273,835 3,758,922 8,365 112,683
Redeemed (1,047,238) (14,560,689) (801,328) (10,688,047)
--------------------------------------------------------------
Net increase 1,140,558 $ 15,819,238 1,211,533 $ 16,261,663
==============================================================
- ------------------------------------------------------------------------------------------------
CLASS N
Sold 295,550 $ 4,136,828 553,663 $ 7,419,779
Dividends and/or
distributions reinvested 39,150 541,581 2,182 29,726
Redeemed (156,565) (2,194,415) (181,488) (2,463,492)
--------------------------------------------------------------
Net increase 178,135 $ 2,483,994 374,357 $ 4,986,013
==============================================================
49 | OPPENHEIMER BALANCED FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3. PURCHASES AND SALES OF SECURITIES
The aggregate cost of purchases and proceeds from sales of securities, other
than short-term obligations, for the year ended September 30, 2005, were as
follows:
PURCHASES SALES
- --------------------------------------------------------------------
Investment securities $1,289,673,154 $ 476,962,320
U.S. government and government
agency obligations 90,915,994 100,960,839
To Be Announced (TBA)
mortgage-related securities 2,097,453,846 2,135,377,175
- --------------------------------------------------------------------
- --------------------------------------------------------------------------------
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
MANAGEMENT FEES. Management fees paid to the Manager are in accordance with the
investment advisory agreement with the Fund which provides for a fee at an
annual rate of 0.75% of the first $200 million of average annual net assets of
the Fund, 0.72% of the next $200 million, 0.69% of the next $200 million, 0.66%
of the next $200 million, 0.60% of the next $700 million, and 0.58% of average
annual net assets in excess of $1.5 billion.
- --------------------------------------------------------------------------------
TRANSFER AGENT FEES. OppenheimerFunds Services (OFS), a division of the Manager,
acts as the transfer and shareholder servicing agent for the Fund. The Fund pays
OFS a per account fee. For the year ended September 30, 2005, the Fund paid
$1,190,778 to OFS for services to the Fund.
- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE PLAN (12b-1) FEES. Under its General Distributor's
Agreement with the Fund, OppenheimerFunds Distributor, Inc. (the Distributor)
acts as the Fund's principal underwriter in the continuous public offering of
the Fund's classes of shares.
- --------------------------------------------------------------------------------
SERVICE PLAN FOR CLASS A SHARES. The Fund has adopted a Service Plan for Class A
shares. It reimburses the Distributor for a portion of its costs incurred for
services provided to accounts that hold Class A shares. Reimbursement is made
quarterly at an annual rate of up to 0.25% of the average annual net assets of
Class A shares of the Fund. The Distributor currently uses all of those fees to
pay dealers, brokers, banks and other financial institutions quarterly for
providing personal services and maintenance of accounts of their customers that
hold Class A shares. Any unreimbursed expenses the Distributor incurs with
respect to Class A shares in any fiscal year cannot be recovered in subsequent
years. Fees incurred by the Fund under the Plan are detailed in the Statement of
Operations.
- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE PLANS FOR CLASS B, CLASS C AND CLASS N SHARES. The Fund
has adopted Distribution and Service Plans for Class B, Class C and Class N
shares to compensate the Distributor for its services in connection with the
distribution of those shares and servicing accounts. Under the plans, the Fund
pays the Distributor an annual asset-based sales charge of 0.75% on Class B and
Class C shares and 0.25% on Class N shares. The Distributor also receives a
service fee of 0.25% per year under each plan. If either the Class B, Class C or
Class N plan is terminated by the Fund or by the shareholders of a class, the
Board of Trustees and its independent trustees must determine whether the
50 | OPPENHEIMER BALANCED FUND
Distributor shall be entitled to payment from the Fund of all or a portion of
the service fee and/or asset-based sales charge in respect to shares sold prior
to the effective date of such termination. The Distributor's aggregate
uncompensated expenses under the plan at September 30, 2005 for Class B, Class C
and Class N shares were $2,799,628, $1,392,035 and $134,366, respectively. Fees
incurred by the Fund under the plans are detailed in the Statement of
Operations.
- --------------------------------------------------------------------------------
SALES CHARGES. Front-end sales charges and contingent deferred sales charges
(CDSC) do not represent expenses of the Fund. They are deducted from the
proceeds of sales of Fund shares prior to investment or from redemption proceeds
prior to remittance, as applicable. The sales charges retained by the
Distributor from the sale of shares and the CDSC retained by the Distributor on
the redemption of shares is shown in the table below for the period indicated.
CLASS A CLASS B CLASS C CLASS N
CLASS A CONTINGENT CONTINGENT CONTINGENT CONTINGENT
FRONT-END DEFERRED DEFERRED DEFERRED DEFERRED
SALES CHARGES SALES CHARGES SALES CHARGES SALES CHARGES SALES CHARGES
RETAINED BY RETAINED BY RETAINED BY RETAINED BY RETAINED BY
YEAR ENDED DISTRIBUTOR DISTRIBUTOR DISTRIBUTOR DISTRIBUTOR DISTRIBUTOR
- ---------------------------------------------------------------------------------------------------
September 30, 2005 $407,881 $2,396 $175,201 $21,759 $6,448
- ---------------------------------------------------------------------------------------------------
WAIVERS AND REIMBURSEMENTS OF EXPENSES. OFS has voluntarily agreed to limit
transfer and shareholder servicing agent fees for all classes to 0.35% of
average annual net assets per class. This undertaking may be amended or
withdrawn at any time.
- --------------------------------------------------------------------------------
5. FOREIGN CURRENCY CONTRACTS
A foreign currency contract is a commitment to purchase or sell a foreign
currency at a future date, at a negotiated rate. The Fund may enter into foreign
currency contracts to settle specific purchases or sales of securities
denominated in a foreign currency and for protection from adverse exchange rate
fluctuation. Risks to the Fund include the potential inability of the
counterparty to meet the terms of the contract.
The net U.S. dollar value of foreign currency underlying all contractual
commitments held by the Fund and the resulting unrealized appreciation or
depreciation are determined using prevailing foreign currency exchange rates.
Unrealized appreciation and depreciation on foreign currency contracts are
reported in the Statement of Assets and Liabilities as a receivable or payable
and in the Statement of Operations with the change in unrealized appreciation or
depreciation.
The Fund may realize a gain or loss upon the closing or settlement of the
foreign transaction. Contracts closed or settled with the same broker are
recorded as net realized gains or losses. Such realized gains and losses are
reported with all other foreign currency gains and losses in the Statement of
Operations.
As of September 30, 2005, the Fund had no outstanding foreign currency
contracts.
51 | OPPENHEIMER BALANCED FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
6. FUTURES CONTRACTS
A futures contract is a commitment to buy or sell a specific amount of a
commodity or financial instrument at a negotiated price on a stipulated future
date. Futures contracts are traded on a commodity exchange. The Fund may buy and
sell futures contracts that relate to broadly based securities indices
(financial futures) or debt securities (interest rate futures) in order to gain
exposure to or protection from changes in market value of stocks and bonds or
interest rates.
The Fund may also buy or write put or call options on these futures
contracts.The Fund generally sells futures contracts as a hedge against
increases in interest rates and decreases in market value of portfolio
securities. The Fund may also purchase futures contracts to gain exposure to
market changes as it may be more efficient or cost effective than actually
buying securities.
Upon entering into a futures contract, the Fund is required to deposit
either cash or securities (initial margin) in an amount 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 has expired.
Cash held by the broker to cover initial margin requirements on open
futures contracts is noted in the Statement of Assets and Liabilities.
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 and/or payable for the
daily mark to market for variation margin. Realized gains and losses are
reported in the Statement of Operations as the closing and expiration of futures
contracts. The net change in unrealized appreciation and depreciation is
reported in the Statement of Operations.
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.
As of September 30, 2005, the Fund had outstanding futures contracts as follows:
VALUATION AS OF UNREALIZED
EXPIRATION NUMBER OF SEPTEMBER 30, APPRECIATION
CONTRACT DESCRIPTION DATES CONTRACTS 2005 (DEPRECIATION)
- -----------------------------------------------------------------------------------------------
CONTRACTS TO PURCHASE
U.S. Long Bonds 12/20/05 310 $35,465,938 $ (756,638)
-----------
CONTRACTS TO SELL
U.S. Treasury Nts., 2 yr. 12/30/05 428 88,121,188 593,961
U.S. Treasury Nts., 5 yr. 12/20/05 477 50,971,922 297,015
U.S. Treasury Nts., 10 yr. 12/20/05 175 19,236,328 209,961
-----------
1,100,937
-----------
$ 344,299
===========
52 | OPPENHEIMER BALANCED FUND
- --------------------------------------------------------------------------------
7. 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
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. Contracts subject to call, expiration
date, exercise price, premium received and market value are detailed in a note
to the Statement of Investments. Options written are reported as a liability in
the Statement of Assets and Liabilities. Realized 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 September 30, 2005 was as follows:
CALL OPTIONS
-----------------------
NUMBER OF AMOUNT OF
CONTRACTS PREMIUMS
- ---------------------------------------------------------
Options outstanding as of
September 30, 2004 -- $ --
Options written 786 96,477
-----------------
Options outstanding as of
September 30, 2005 786 $96,477
=================
- --------------------------------------------------------------------------------
8. TOTAL RETURN SWAP CONTRACTS
The Fund may enter into a total return swap transaction to maintain a total
return on a particular investment, or portion of its portfolio, or for other
non-speculative purposes. Because the principal amount is not exchanged, it
represents neither an asset nor a liability to either counterparty, and is
referred to as notional. The Fund records an increase or decrease to unrealized
gain (loss), in the amount due to or owed by the Fund at
53 | OPPENHEIMER BALANCED FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
8. TOTAL RETURN SWAP CONTRACTS Continued
termination or settlement. Total return swaps are subject to risks (if the
counterparty fails to meet its obligations).
As of September 30, 2005, the Fund had entered into the following total return
swap agreements:
PAID RECEIVED
BY THE RATE BY THE RATE
FUND AT AS OF FUND AT AS OF
SWAP NOTIONAL SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30, TERMINATION UNREALIZED
COUNTERPARTY AMOUNT 2005 2005 2005 2005 DATE DEPRECIATION
- -------------------------------------------------------------------------------------------------------------------
One-Month
LIBOR Change of
minus Total Return
0.25% of Lehman
(+ or -) Brothers
Rate CMBS
UBS AG $5,260,000 Received 5.04893% Index (1.36)%* 12/1/05 $71,343
*Represents an additional amount paid by the Fund at September 30, 2005.
Index abbreviations are as follows:
CMBS Commercial Mortgage Backed Securities
LIBOR London-Interbank Offered Rate
- --------------------------------------------------------------------------------
9. ILLIQUID SECURITIES
As of September 30, 2005, investments in securities included issues that are
illiquid. A security may be considered illiquid if it lacks a readily available
market or if its valuation has not changed for a certain period of time. The
Fund will not invest more than 10% of its net assets (determined at the time of
purchase and reviewed periodically) in illiquid securities. Securities that are
illiquid are marked with the applicable footnote on the Statement of
Investments.
- --------------------------------------------------------------------------------
10. SECURITIES LENDING
The Fund lends portfolio securities from time to time in order to earn
additional income. In return, the Fund receives collateral in the form of US
Treasury obligations or cash, against the loaned securities and maintains
collateral in an amount not less than 100% of the market value of the loaned
securities during the period of the loan. The market value of the loaned
securities is determined at the close of business of the funds and any
additional required collateral is delivered to the Fund on the next business
day. If the borrower defaults on its obligation to return the securities loaned
because of insolvency or other reasons, the Fund could experience delays and
cost in recovering the securities loaned or in gaining access to the collateral.
Cash collateral is invested in cash equivalents. The Fund retains a portion of
the interest earned from the collateral. The Fund continues to receive the
economic benefit of interest or dividends paid on the securities loaned in
54 | OPPENHEIMER BALANCED FUND
the form of a substitute payment received from the borrower. As of September 30,
2005, the Fund had on loan securities valued at $29,832,219. Collateral of
$30,627,203 was received for the loans, of which $18,308,699 was received in
cash and subsequently invested in approved instruments.
- --------------------------------------------------------------------------------
11. LITIGATION
A consolidated amended complaint has been filed as putative derivative and class
actions against the Manager, OFS and the Distributor, as well as 51 of the
Oppenheimer funds (as "Nominal Defendants") including the Fund, 30 present and
former Directors or Trustees and 8 present and former officers of the funds.
This complaint, initially filed in the U.S. District Court for the Southern
District of New York on January 10, 2005 and amended on March 4, 2005,
consolidates into a single action and amends six individual previously-filed
putative derivative and class action complaints. Like those prior complaints,
the complaint alleges that the Manager charged excessive fees for distribution
and other costs, improperly used assets of the funds in the form of directed
brokerage commissions and 12b-1 fees to pay brokers to promote sales of the
funds, and failed to properly disclose the use of assets of the funds to make
those payments in violation of the Investment Company Act of 1940 and the
Investment Advisers Act of 1940. Also, like those prior complaints, the
complaint further alleges that by permitting and/or participating in those
actions, the Directors/Trustees and the Officers breached their fiduciary duties
to shareholders of the funds under the Investment Company Act of 1940 and at
common law. The complaint seeks unspecified compensatory and punitive damages,
rescission of the funds' investment advisory agreements, an accounting of all
fees paid, and an award of attorneys' fees and litigation expenses.
The defendants believe that the allegations contained in the Complaints
are without merit and that they have meritorious defenses against the claims
asserted. The defendants intend to defend these lawsuits vigorously and to
contest any claimed liability. The defendants believe that it is premature to
render any opinion as to the likelihood of an outcome unfavorable to them and
that no estimate can yet be made with any degree of certainty as to the amount
or range of any potential loss.
55 | OPPENHEIMER BALANCED FUND
Appendix A
RATINGS DEFINITIONS
Below are summaries of the rating definitions used by the
nationally-recognized rating agencies listed below. Those ratings represent
the opinion of the agency as to the credit quality of issues that they rate.
The summaries below are based upon publicly available information provided by
the rating organizations.
Moody's Investors Service, Inc. ("Moody's")
LONG-TERM RATINGS: BONDS AND PREFERRED STOCK ISSUER RATINGS
Aaa: Bonds and preferred stock rated "Aaa" are judged to be the best quality.
They carry the smallest degree of investment risk. Interest payments are
protected by a large or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to change, the
changes that can be expected are most unlikely to impair the fundamentally
strong position of such issues.
Aa: Bonds and preferred stock 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 risk appear
somewhat larger than that of "Aaa" securities.
A: Bonds and preferred stock 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 some
time in the future.
Baa: Bonds and preferred stock rated "Baa" are considered medium-grade
obligations; that is, they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and have speculative characteristics as well.
Ba: Bonds and preferred stock 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
thereby not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B: Bonds and preferred stock 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.
Caa: Bonds and preferred stock 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.
Ca: Bonds and preferred stock rated "Ca" represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
C: Bonds and preferred stock rated "C" are the lowest class of rated bonds
and can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from "Aa" through "Caa." The modifier "1" indicates that the
obligation ranks in the higher end of its generic rating category; the
modifier "2" indicates a mid-range ranking; and the modifier "3" indicates a
ranking in the lower end of that generic rating category. Advanced refunded
issues that are secured by certain assets are identified with a # symbol.
PRIME RATING SYSTEM (SHORT-TERM RATINGS - TAXABLE DEBT)
These ratings are opinions of the ability of issuers to honor senior
financial obligations and contracts. Such obligations generally have an
original maturity not exceeding one year, unless explicitly noted.
Prime-1: Issuer has a superior ability for repayment of senior short-term
debt obligations.
Prime-2: Issuer has a strong ability for repayment of senior short-term debt
obligations. Earnings trends and coverage ratios, while sound, may be more
subject to variation. Capitalization characteristics, while appropriate, may
be more affected by external conditions. Ample alternate liquidity is
maintained.
Prime-3: Issuer has an acceptable ability for repayment of senior short-term
obligations. The effect of industry characteristics and market compositions
may be more pronounced. Variability in earnings and profitability may result
in changes in the level of debt protection measurements and may require
relatively high financial leverage. Adequate alternate liquidity is
maintained.
Not Prime: Issuer does not fall within any Prime rating category.
Standard & Poor's Ratings Services ("Standard & Poor's"), a division of The
McGraw-Hill Companies, Inc.
LONG-TERM ISSUE CREDIT RATINGS
Issue credit ratings are based in varying degrees, on the following
considerations:
o Likelihood of payment-capacity and willingness of the obligor to meet
its financial commitment on an obligation in accordance with the terms
of the obligation;
o Nature of and provisions of the obligation; and
o Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the
laws of bankruptcy and other laws affecting creditors' rights.
The issue ratings definitions are expressed in terms of default risk. As
such, they pertain to senior obligations of an entity. Junior obligations are
typically rated lower than senior obligations, to reflect the lower priority
in bankruptcy, as noted above.
AAA: An obligation rated "AAA" have the highest rating assigned by Standard &
Poor's. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong.
AA: An obligation rated "AA" differ from the highest rated obligations only
in small degree. The obligor's capacity to meet its financial commitment on
the obligation is very strong.
A: An obligation rated "A" are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations
in higher-rated categories. However, the obligor's capacity to meet its
financial commitment on the obligation is still strong.
BBB: An obligation rated "BBB" exhibit adequate protection parameters.
However, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
BB, B, CCC, CC, and C
An obligation rated `BB', `B', `CCC', `CC', and `C' are regarded as having
significant speculative characteristics. `BB' indicates the least degree of
speculation and `C' the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
BB: An obligation rated "BB" are less vulnerable to nonpayment than other
speculative issues. However, they face major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could
lead to the obligor's inadequate capacity to meet its financial commitment on
the obligation.
B: An obligation rated "B" are more vulnerable to nonpayment than obligations
rated "BB", but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet
its financial commitment on the obligation.
CCC: An obligation rated "CCC" are currently vulnerable to nonpayment, and
are dependent upon favorable business, financial, and economic conditions for
the obligor to meet its financial commitment on the obligation. In the event
of adverse business, financial, or economic conditions, the obligor is not
likely to have the capacity to meet its financial commitment on the
obligation.
CC: An obligation rated "CC" are currently highly vulnerable to nonpayment.
C: Subordinated debt or preferred stock obligations rated "C" are currently
highly vulnerable to nonpayment. The "C" rating may be used to cover a
situation where a bankruptcy petition has been filed or similar action taken,
but payments on this obligation are being continued. A "C" also will be
assigned to a preferred stock issue in arrears on dividends or sinking fund
payments, but that is currently paying.
D: An obligation rated "D" are in payment default. The "D" rating category is
used when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless Standard & Poor's believes
that such payments will be made during such grace period. The "D" rating also
will be used upon the filing of a bankruptcy petition or the taking of a
similar action if payments on an obligation 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.
c: The `c' subscript is used to provide additional information to investors
that the bank may terminate its obligation to purchase tendered bonds if the
long-term credit rating of the issuer is below an investment-grade level
and/or the issuer's bonds are deemed taxable.
p: The letter `p' indicates that the rating is provisional. A provisional
rating assumes the successful completion of the project financed by the debt
being rated and indicates that payment of debt service requirements is
largely or entirely dependent upon the successful, timely completion of the
project. This rating, however, while addressing credit quality subsequent to
completion of the project, makes no comment on the likelihood of or the risk
of default upon failure of such completion. The investor should exercise his
own judgment with respect to such likelihood and risk.
Continuance of the ratings is contingent upon Standard & Poor's receipt of an
executed copy of the escrow agreement or closing documentation confirming
investments and cash flows.
r: The `r' highlights derivative, hybrid, and certain other obligations that
Standard & Poor's believes may experience high volatility or high variability
in expected returns as a result of noncredit risks. Examples of such
obligations are securities with principal or interest return indexed to
equities, commodities, or currencies; certain swaps and options; and
interest-only and principal-only mortgage securities. The absence of an `r'
symbol should not be taken as an indication that an obligation will exhibit
no volatility or variability in total return.
N.R. Not rated.
Debt obligations of issuers outside the United States and its territories are
rated on the same basis as domestic corporate and municipal issues. The
ratings measure the creditworthiness of the obligor but do not take into
account currency exchange and related uncertainties.
Bond Investment Quality Standards
Under present commercial bank regulations issued by the Comptroller of the
Currency, bonds rated in the top four categories (`AAA', `AA', `A', `BBB',
commonly known as investment-grade ratings) generally are regarded as
eligible for bank investment. Also, the laws of various states governing
legal investments impose certain rating or other standards for obligations
eligible for investment by savings banks, trust companies, insurance
companies, and fiduciaries in general
SHORT-TERM ISSUE CREDIT RATINGS
Short-term ratings are generally assigned to those obligations considered
short-term in the relevant market. In the U.S., for example, that means
obligations with an original maturity of no more than 365 days-including
commercial paper.
A-1: A short-term obligation rated "A-1" is rated in the highest category by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is strong. Within this category, certain obligations are
designated with a plus sign (+). This indicates that the obligor's capacity
to meet its financial commitment on these obligations is extremely strong.
A-2: A short-term obligation rated "A-2" is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to
meet its financial commitment on the obligation is satisfactory.
A-3: A short-term obligation rated "A-3" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity of the obligor to meet its
financial commitment on the obligation.
B: A short-term obligation rated "B" is regarded as having significant
speculative characteristics. The obligor currently has the capacity to meet
its financial commitment on the obligation; however, it faces major ongoing
uncertainties which could lead to the obligor's inadequate capacity to meet
its financial commitment on the obligation.
C: A short-term obligation rated "C" is currently vulnerable to nonpayment
and is dependent upon favorable business, financial, and economic conditions
for the obligor to meet its financial commitment on the obligation.
D: A short-term obligation rated "D" is in payment default. The "D" rating
category is used when payments on an obligation are not made on the date due
even if the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grace period. The "D"
rating also will be used upon the filing of a bankruptcy petition or the
taking of a similar action if payments on an obligation are jeopardized.
NOTES:
A Standard & Poor's note rating reflects the liquidity factors and market
access risks unique to notes. Notes due in three years or less will likely
receive a note rating. Notes maturing beyond three years will most likely
receive a long-term debt rating. The following criteria will be used in
making that assessment:
o Amortization schedule-the larger the final maturity relative to other
maturities, the more likely it will
be treated as a note; and
o Source of payment-the more dependent the issue is on the market for its
refinancing, the more likely
it will be treated as a note.
SP-1: Strong capacity to pay principal and interest. An issue with a very
strong capacity to pay debt service is given a (+) designation.
SP-2: Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.
SP-3: Speculative capacity to pay principal and interest.
Fitch, Inc.
International credit ratings assess the capacity to meet foreign currency or
local currency commitments. Both "foreign currency" and "local currency"
ratings are internationally comparable assessments. The local currency rating
measures the probability of payment within the relevant sovereign state's
currency and jurisdiction and therefore, unlike the foreign currency rating,
does not take account of the possibility of foreign exchange controls
limiting transfer into foreign currency.
INTERNATIONAL LONG-TERM CREDIT RATINGS
The following ratings scale applies to foreign currency and local currency
ratings.
Investment Grade:
AAA: Highest Credit Quality. "AAA" ratings denote the lowest expectation of
credit risk. They are assigned only in the case of exceptionally strong
capacity for timely payment of financial commitments. This capacity is highly
unlikely to be adversely affected by foreseeable events.
AA: Very High Credit Quality. "AA" ratings denote a very low expectation of
credit risk. They indicate a very strong capacity for timely payment of
financial commitments. This capacity is not significantly vulnerable to
foreseeable events.
A: High Credit Quality. "A" ratings denote a low expectation of credit risk.
The capacity for timely payment of financial commitments is considered
strong. This capacity may, nevertheless, be more vulnerable to changes in
circumstances or in economic conditions than is the case for higher ratings.
BBB: Good Credit Quality. "BBB" ratings indicate that there is currently a
low expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and
in economic conditions are more likely to impair this capacity. This is the
lowest investment-grade category.
Speculative Grade:
BB: Speculative. "BB" ratings indicate that there is a possibility of credit
risk developing, particularly as the result of adverse economic change over
time. However, business or financial alternatives may be available to allow
financial commitments to be met. Securities rated in this category are not
investment grade.
B: Highly Speculative. "B" ratings indicate that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met. However, capacity for continued payment is contingent
upon a sustained, favorable business and economic environment.
CCC, CC C: High Default Risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained, favorable
business or economic developments. A "CC" rating indicates that default of
some kind appears probable. "C" ratings signal imminent default.
DDD, DD, and D: Default. The ratings of obligations in this category are
based on their prospects for achieving partial or full recovery in a
reorganization or liquidation of the obligor. While expected recovery values
are highly speculative and cannot be estimated with any precision, the
following serve as general guidelines. "DDD" obligations have the highest
potential for recovery, around 90%-100% of outstanding amounts and accrued
interest. "DD" indicates potential recoveries in the range of 50%-90%, and
"D" the lowest recovery potential, i.e., below 50%.
Entities rated in this category have defaulted on some or all of their
obligations. Entities rated "DDD" have the highest prospect for resumption of
performance or continued operation with or without a formal reorganization
process. Entities rated "DD" and "D" are generally undergoing a formal
reorganization or liquidation process; those rated "DD" are likely to satisfy
a higher portion of their outstanding obligations, while entities rated "D"
have a poor prospect for repaying all obligations.
Plus (+) and minus (-) signs may be appended to a rating symbol to denote
relative status within the major rating categories. Plus and minus signs are
not added to the "AAA" category or to categories below "CCC," nor to
short-term ratings other than "F1" (see below).
INTERNATIONAL SHORT-TERM CREDIT RATINGS
The following ratings scale applies to foreign currency and local currency
ratings. A short-term rating has a time horizon of less than 12 months for
most obligations, or up to three years for U.S. public finance securities,
and thus places greater emphasis on the liquidity necessary to meet financial
commitments in a timely manner.
F1: Highest credit quality. Strongest capacity for timely payment of
financial commitments. May have an added "+" to denote any exceptionally
strong credit feature.
F2: Good credit quality. A satisfactory capacity for timely payment of
financial commitments, but the margin of safety is not as great as in the
case of higher ratings.
F3: Fair credit quality. Capacity for timely payment of financial commitments
is adequate. However, near-term adverse changes could result in a reduction
to non-investment grade.
B: Speculative. Minimal capacity for timely payment of financial commitments,
plus vulnerability to near-term adverse changes in financial and economic
conditions.
C: High default risk. Default is a real possibility. Capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business
and economic environment.
D: Default. Denotes actual or imminent payment default.
B-1
Appendix B__
Industry Classifications
Aerospace & Defense Household Products
Air Freight & Couriers Industrial Conglomerates
Airlines Insurance
Auto Components Internet & Catalog Retail
Automobiles Internet Software & Services
Beverages IT Services
Biotechnology Leisure Equipment & Products
Building Products Machinery
Chemicals Marine
Consumer Finance Media
Commercial Banks Metals & Mining
Commercial Services & Supplies Multiline Retail
Communications Equipment Multi-Utilities
Computers & Peripherals Office Electronics
Construction & Engineering Oil & Gas
Construction Materials Paper & Forest Products
Containers & Packaging Personal Products
Distributors Pharmaceuticals
Diversified Financial Services Real Estate
Diversified Telecommunication Road & Rail
Services
Electric Utilities Semiconductors and Semiconductor
Equipment
Electrical Equipment Software
Electronic Equipment & Instruments Specialty Retail
Energy Equipment & Services Textiles, Apparel & Luxury Goods
Food & Staples Retailing Thrifts & Mortgage Finance
Food Products Tobacco
Gas Utilities Trading Companies & Distributors
Health Care Equipment & Supplies Transportation Infrastructure
Health Care Providers & Services Water Utilities
Hotels Restaurants & Leisure Wireless Telecommunication Services
Household Durables
C-11
Appendix C
OppenheimerFunds Special Sales Charge Arrangements and Waivers
In certain cases, the initial sales charge that applies to purchases of Class
A shares(1) of the Oppenheimer funds or the contingent deferred sales charge
that may apply to Class A, Class B or Class C shares may be waived.(2) That
is because of the economies of sales efforts realized by OppenheimerFunds
Distributor, Inc., (referred to in this document as the "Distributor"), or by
dealers or other financial institutions that offer those shares to certain
classes of investors. Not all waivers apply to all funds.
For the purposes of some of the waivers described below and in the Prospectus
and Statement of Additional Information of the applicable Oppenheimer funds,
the term "Retirement Plan" refers to the following types of plans:
1)plans created or qualified under Sections 401(a) or 401(k) of the
Internal Revenue Code,
2) non-qualified deferred compensation plans,
3) employee benefit plans(3)
4) Group Retirement Plans(4)
5) 403(b)(7) custodial plan accounts
6) Individual Retirement Accounts ("IRAs"), including traditional
IRAs, Roth IRAs, SEP-IRAs, SARSEPs or SIMPLE plans
The interpretation of these provisions as to the applicability of a special
arrangement or waiver in a particular case is in the sole discretion of the
Distributor or the transfer agent (referred to in this document as the
"Transfer Agent") of the particular Oppenheimer fund. These waivers and
special arrangements may be amended or terminated at any time by a particular
fund, the Distributor, and/or OppenheimerFunds, Inc. (referred to in this
document as the "Manager").
Waivers that apply at the time shares are redeemed must be requested by the
shareholder and/or dealer in the redemption request.
I. Applicability of Class A Contingent Deferred Sales Charges in Certain
Cases
- ------------------------------------------------------------------------------
Purchases of Class A Shares of Oppenheimer Funds That Are Not Subject to
Initial Sales Charge but May Be Subject to the Class A Contingent Deferred
Sales Charge (unless a waiver applies).
There is no initial sales charge on purchases of Class A shares of any
of the Oppenheimer funds in the cases listed below. However, these purchases
may be subject to the Class A contingent deferred sales charge if redeemed
within 18 months (24 months in the case of Oppenheimer Rochester National
Municipals and Rochester Fund Municipals) of the beginning of the calendar
month of their purchase, as described in the Prospectus (unless a waiver
described elsewhere in this Appendix applies to the redemption).
Additionally, on shares purchased under these waivers that are subject to the
Class A contingent deferred sales charge, the Distributor will pay the
applicable concession described in the Prospectus under "Class A Contingent
Deferred Sales Charge."(5) This waiver provision applies to:
Purchases of Class A shares aggregating $1 million or more.
Purchases of Class A shares by a Retirement Plan that was permitted to
purchase such shares at net asset value but subject to a contingent
deferred sales charge prior to March 1, 2001. That included plans
(other than IRA or 403(b)(7) Custodial Plans) that: 1) bought shares
costing $500,000 or more, 2) had at the time of purchase 100 or more
eligible employees or total plan assets of $500,000 or more, or 3)
certified to the Distributor that it projects to have annual plan
purchases of $200,000 or more.
Purchases by an OppenheimerFunds-sponsored Rollover IRA, if the
purchases are made:
1) through a broker, dealer, bank or registered investment adviser
that has made special arrangements with the Distributor for those
purchases, or
2) by a direct rollover of a distribution from a qualified
Retirement Plan if the administrator of that Plan has made
special arrangements with the Distributor for those purchases.
Purchases of Class A shares by Retirement Plans that have any of the
following record-keeping arrangements:
1) The record keeping is performed by Merrill Lynch Pierce Fenner &
Smith, Inc. ("Merrill Lynch") on a daily valuation basis for the
Retirement Plan. On the date the plan sponsor signs the
record-keeping service agreement with Merrill Lynch, the Plan
must have $3 million or more of its assets invested in (a) mutual
funds, other than those advised or managed by Merrill Lynch
Investment Management, L.P. ("MLIM"), that are made available
under a Service Agreement between Merrill Lynch and the mutual
fund's principal underwriter or distributor, and (b) funds
advised or managed by MLIM (the funds described in (a) and (b)
are referred to as "Applicable Investments").
2) The record keeping for the Retirement Plan is performed on a
daily valuation basis by a record keeper whose services are
provided under a contract or arrangement between the Retirement
Plan and Merrill Lynch. On the date the plan sponsor signs the
record keeping service agreement with Merrill Lynch, the Plan
must have $5 million or more of its assets (excluding assets
invested in money market funds) invested in Applicable
Investments.
3) The record keeping for a Retirement Plan is handled under a
service agreement with Merrill Lynch and on the date the plan
sponsor signs that agreement, the Plan has 500 or more eligible
employees (as determined by the Merrill Lynch plan conversion
manager).
II. Waivers of Class A Sales Charges of Oppenheimer Funds
- ------------------------------------------------------------------------------
A. Waivers of Initial and Contingent Deferred Sales Charges for Certain
Purchasers.
Class A shares purchased by the following investors are not subject to any
Class A sales charges (and no concessions are paid by the Distributor on such
purchases):
The Manager or its affiliates.
Present or former officers, directors, trustees and employees (and
their "immediate families") of the Fund, the Manager and its
affiliates, and retirement plans established by them for their
employees. The term "immediate family" refers to one's spouse,
children, grandchildren, grandparents, parents, parents-in-law,
brothers and sisters, sons- and daughters-in-law, a sibling's
spouse, a spouse's siblings, aunts, uncles, nieces and nephews;
relatives by virtue of a remarriage (step-children, step-parents,
etc.) are included.
Registered management investment companies, or separate accounts of
insurance companies having an agreement with the Manager or the
Distributor for that purpose.
Dealers or brokers that have a sales agreement with the Distributor, if
they purchase shares for their own accounts or for retirement plans
for their employees.
Employees and registered representatives (and their spouses) of dealers
or brokers described above or financial institutions that have
entered into sales arrangements with such dealers or brokers (and
which are identified as such to the Distributor) or with the
Distributor. The purchaser must certify to the Distributor at the
time of purchase that the purchase is for the purchaser's own
account (or for the benefit of such employee's spouse or minor
children).
Dealers, brokers, banks or registered investment advisors that have
entered into an agreement with the Distributor providing
specifically for the use of shares of the Fund in particular
investment products made available to their clients. Those clients
may be charged a transaction fee by their dealer, broker, bank or
advisor for the purchase or sale of Fund shares.
Investment advisors and financial planners who have entered into an
agreement for this purpose with the Distributor and who charge an
advisory, consulting or other fee for their services and buy shares
for their own accounts or the accounts of their clients.
"Rabbi trusts" that buy shares for their own accounts, if the purchases
are made through a broker or agent or other financial intermediary
that has made special arrangements with the Distributor for those
purchases.
Clients of investment advisors or financial planners (that have entered
into an agreement for this purpose with the Distributor) who buy
shares for their own accounts may also purchase shares without sales
charge but only if their accounts are linked to a master account of
their investment advisor or financial planner on the books and
records of the broker, agent or financial intermediary with which
the Distributor has made such special arrangements . Each of these
investors may be charged a fee by the broker, agent or financial
intermediary for purchasing shares.
Directors, trustees, officers or full-time employees of OpCap Advisors
or its affiliates, their relatives or any trust, pension, profit
sharing or other benefit plan which beneficially owns shares for
those persons.
Accounts for which Oppenheimer Capital (or its successor) is the
investment advisor (the Distributor must be advised of this
arrangement) and persons who are directors or trustees of the
company or trust which is the beneficial owner of such accounts.
A unit investment trust that has entered into an appropriate agreement
with the Distributor.
Dealers, brokers, banks, or registered investment advisers that have
entered into an agreement with the Distributor to sell shares to
defined contribution employee retirement plans for which the dealer,
broker or investment adviser provides administration services.
Retirement Plans and deferred compensation plans and trusts used to
fund those plans (including, for example, plans qualified or created
under sections 401(a), 401(k), 403(b) or 457 of the Internal Revenue
Code), in each case if those purchases are made through a broker,
agent or other financial intermediary that has made special
arrangements with the Distributor for those purchases.
A TRAC-2000 401(k) plan (sponsored by the former Quest for Value
Advisors) whose Class B or Class C shares of a Former Quest for
Value Fund were exchanged for Class A shares of that Fund due to the
termination of the Class B and Class C TRAC-2000 program on November
24, 1995.
A qualified Retirement Plan that had agreed with the former Quest for
Value Advisors to purchase shares of any of the Former Quest for
Value Funds at net asset value, with such shares to be held through
DCXchange, a sub-transfer agency mutual fund clearinghouse, if that
arrangement was consummated and share purchases commenced by
December 31, 1996.
Effective October 1, 2005, taxable accounts established with the
proceeds of Required Minimum Distributions from Retirement Plans.
B. Waivers of the Class A Initial and Contingent Deferred Sales Charges in
Certain Transactions.
1. Class A shares issued or purchased in the following transactions are
not subject to sales charges (and no concessions are paid by the
Distributor on such purchases):
Shares issued in plans of reorganization, such as mergers, asset
acquisitions and exchange offers, to which the Fund is a party.
Shares purchased by the reinvestment of dividends or other
distributions reinvested from the Fund or other Oppenheimer funds or
unit investment trusts for which reinvestment arrangements have been
made with the Distributor.
Shares purchased by certain Retirement Plans that are part of a
retirement plan or platform offered by banks, broker-dealers,
financial advisors or insurance companies, or serviced by
recordkeepers.
Shares purchased by the reinvestment of loan repayments by a
participant in a Retirement Plan for which the Manager or an
affiliate acts as sponsor.
Shares purchased in amounts of less than $5.
2. Class A shares issued and purchased in the following transactions are
not subject to sales charges (a dealer concession at the annual rate of
0.25% is paid by the Distributor on purchases made within the first 6
months of plan establishment):
Retirement Plans that have $5 million or more in plan assets.
Retirement Plans with a single plan sponsor that have $5 million or
more in aggregate assets invested in Oppenheimer funds.
C. Waivers of the Class A Contingent Deferred Sales Charge for Certain
Redemptions.
The Class A contingent deferred sales charge is also waived if shares that
would otherwise be subject to the contingent deferred sales charge are
redeemed in the following cases:
To make Automatic Withdrawal Plan payments that are limited annually to
no more than 12% of the account value adjusted annually.
Involuntary redemptions of shares by operation of law or involuntary
redemptions of small accounts (please refer to "Shareholder Account
Rules and Policies," in the applicable fund Prospectus).
For distributions from Retirement Plans, deferred compensation plans or
other employee benefit plans for any of the following purposes:
1) Following the death or disability (as defined in the Internal
Revenue Code) of the participant or beneficiary. The death or
disability must occur after the participant's account was
established.
2) To return excess contributions.
3) To return contributions made due to a mistake of fact.
4) Hardship withdrawals, as defined in the plan.(6)
5) Under a Qualified Domestic Relations Order, as defined in the
Internal Revenue Code, or, in the case of an IRA, a divorce or
separation agreement described in Section 71(b) of the Internal
Revenue Code.
6) To meet the minimum distribution requirements of the Internal
Revenue Code.
7) To make "substantially equal periodic payments" as described in
Section 72(t) of the Internal Revenue Code.
8) For loans to participants or beneficiaries.
9) Separation from service.(7)
10) Participant-directed redemptions to purchase shares of a
mutual fund (other than a fund managed by the Manager or a
subsidiary of the Manager) if the plan has made special
arrangements with the Distributor.
11) Plan termination or "in-service distributions," if the
redemption proceeds are rolled over directly to an
OppenheimerFunds-sponsored IRA.
For distributions from 401(k) plans sponsored by broker-dealers that
have entered into a special agreement with the Distributor allowing
this waiver.
For distributions from retirement plans that have $10 million or more
in plan assets and that have entered into a special agreement with
the Distributor.
For distributions from retirement plans which are part of a retirement
plan product or platform offered by certain banks, broker-dealers,
financial advisors, insurance companies or record keepers which have
entered into a special agreement with the Distributor.
III. Waivers of Class B, Class C and Class N Sales Charges of Oppenheimer
Funds
- ---------------------------------------------------------------------------------
The Class B, Class C and Class N contingent deferred sales charges will not
be applied to shares purchased in certain types of transactions or redeemed
in certain circumstances described below.
A. Waivers for Redemptions in Certain Cases.
The Class B, Class C and Class N contingent deferred sales charges will be
waived for redemptions of shares in the following cases:
Shares redeemed involuntarily, as described in "Shareholder Account
Rules and Policies," in the applicable Prospectus.
Redemptions from accounts other than Retirement Plans following the
death or disability of the last surviving shareholder. The death or
disability must have occurred after the account was established, and
for disability you must provide evidence of a determination of
disability by the Social Security Administration.
The contingent deferred sales charges are generally not waived
following the death or disability of a grantor or trustee for a
trust account. The contingent deferred sales charges will only be
waived in the limited case of the death of the 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 (as defined in the
Internal Revenue Code).
Distributions from accounts for which the broker-dealer of record has
entered into a special agreement with the Distributor allowing this
waiver.
Redemptions of Class B shares held by Retirement Plans whose records
are maintained on a daily valuation basis by Merrill Lynch or an
independent record keeper under a contract with Merrill Lynch.
Redemptions of Class C shares of Oppenheimer U.S. Government Trust from
accounts of clients of financial institutions that have entered into
a special arrangement with the Distributor for this purpose.
Redemptions of Class C shares of an Oppenheimer fund in amounts of $1
million or more requested in writing by a Retirement Plan sponsor
and submitted more than 12 months after the Retirement Plan's first
purchase of Class C shares, if the redemption proceeds are invested
to purchase Class N shares of one or more Oppenheimer funds.
Distributions(8) from Retirement 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 in an Oppenheimer fund.
2) To return excess contributions made to a participant's account.
3) To return contributions made due to a mistake of fact.
4) To make hardship withdrawals, as defined in the plan.(9)
5) To make distributions required under a Qualified Domestic
Relations Order or, in the case of an IRA, a divorce or
separation agreement described in Section 71(b) of the Internal
Revenue Code.
6) To meet the minimum distribution requirements of the Internal
Revenue Code.
7) To make "substantially equal periodic payments" as described in
Section 72(t) of the Internal Revenue Code.
8) For loans to participants or beneficiaries.(10)
9) On account of the participant's separation from service.(11)
10) Participant-directed redemptions to purchase shares of a
mutual fund (other than a fund managed by the Manager or a
subsidiary of the Manager) offered as an investment option in a
Retirement Plan if the plan has made special arrangements with
the Distributor.
11) Distributions made on account of a plan termination or
"in-service" distributions, if the redemption proceeds are rolled
over directly to an OppenheimerFunds-sponsored IRA.
12) For distributions from a participant's account under an
Automatic Withdrawal Plan after the participant reaches age 59 1/2,
as long as the aggregate value of the distributions does not
exceed 10% of the account's value, adjusted annually.
13) Redemptions of Class B shares under an Automatic Withdrawal
Plan for an account other than a Retirement Plan, if the
aggregate value of the redeemed shares does not exceed 10% of the
account's value, adjusted annually.
14) For distributions from 401(k) plans sponsored by
broker-dealers that have entered into a special arrangement with
the Distributor allowing this waiver.
Redemptions of Class B shares or Class C shares under an Automatic
Withdrawal Plan from an account other than a Retirement Plan if the
aggregate value of the redeemed shares does not exceed 10% of the
account's value annually.
B. Waivers for Shares Sold or Issued in Certain Transactions.
The contingent deferred sales charge is also waived on Class B and Class C
shares sold or issued in the following cases:
Shares sold to the Manager or its affiliates.
Shares sold to registered management investment companies or separate
accounts of insurance companies having an agreement with the Manager
or the Distributor for that purpose.
Shares issued in plans of reorganization to which the Fund is a party.
Shares sold to present or former officers, directors, trustees or
employees (and their "immediate families" as defined above in
Section I.A.) of the Fund, the Manager and its affiliates and
retirement plans established by them for their employees.
IV. Special Sales Charge Arrangements for Shareholders of Certain
Oppenheimer Funds Who Were Shareholders of Former Quest for Value Funds
- -------------------------------------------------------------------------------
The initial and contingent deferred sales charge rates and waivers for Class
A, Class B and Class C shares described in the Prospectus or Statement of
Additional Information of the Oppenheimer funds are modified as described
below for certain persons who were shareholders of the former Quest for Value
Funds. To be eligible, those persons must have been shareholders on November
24, 1995, when OppenheimerFunds, Inc. became the investment advisor to those
former Quest for Value Funds. Those funds include:
Oppenheimer Quest Value Fund, Inc. Oppenheimer Small- & Mid- Cap
Value Fund
Oppenheimer Quest Balanced Fund Oppenheimer Quest
International Value Fund, Inc.
Oppenheimer Quest Opportunity Value Fund
These arrangements also apply to shareholders of the following funds
when they merged (were reorganized) into various Oppenheimer funds on
November 24, 1995:
Quest for Value U.S. Government Income Fund Quest for Value New York
Tax-Exempt Fund
Quest for Value Investment Quality Income Fund Quest for Value
National Tax-Exempt Fund
Quest for Value Global Income Fund Quest for Value California
Tax-Exempt Fund
All of the funds listed above are referred to in this Appendix as the
"Former Quest for Value Funds." The waivers of initial and contingent
deferred sales charges described in this Appendix apply to shares of an
Oppenheimer fund that are either:
acquired by such shareholder pursuant to an exchange of shares of an
Oppenheimer fund that was one of the Former Quest for Value Funds,
or
purchased by such shareholder by exchange of shares of another
Oppenheimer fund that were acquired pursuant to the merger of any of
the Former Quest for Value Funds into that other Oppenheimer fund on
November 24, 1995.
A. Reductions or Waivers of Class A Sales Charges.
|_| Reduced Class A Initial Sales Charge Rates for Certain Former Quest
for Value Funds Shareholders.
Purchases by Groups and Associations. The following table sets forth the
initial sales charge rates for Class A shares purchased by members of
"Associations" formed for any purpose other than the purchase of securities.
The rates in the table apply if that Association purchased shares of any of
the Former Quest for Value Funds or received a proposal to purchase such
shares from OCC Distributors prior to November 24, 1995.
- --------------------------------------------------------------------------------
Initial Sales Initial Sales Charge Concession as
Number of Eligible Charge as a % of as a % of Net Amount % of Offering
Employees or Members Offering Price Invested Price
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
9 or Fewer 2.50% 2.56% 2.00%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
At least 10 but not 2.00% 2.04% 1.60%
more than 49
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
For purchases by Associations having 50 or more eligible employees or
members, there is no initial sales charge on purchases of Class A shares, but
those shares are subject to the Class A contingent deferred sales charge
described in the applicable fund's Prospectus.
Purchases made under this arrangement qualify for the lower of either
the sales charge rate in the table based on the number of members of an
Association, or the sales charge rate that applies under the Right of
Accumulation described in the applicable fund's Prospectus and Statement of
Additional Information. Individuals who qualify under this arrangement for
reduced sales charge rates as members of Associations also may purchase
shares for their individual or custodial accounts at these reduced sales
charge rates, upon request to the Distributor.
|_| Waiver of Class A Sales Charges for Certain Shareholders. Class A
shares purchased by the following investors are not subject to any Class A
initial or contingent deferred sales charges:
o Shareholders who were shareholders of the AMA Family of Funds on
February 28, 1991 and who acquired shares of any of the Former
Quest for Value Funds by merger of a portfolio of the AMA Family
of Funds
o Shareholders who acquired shares of any Former Quest for Value Fund by
merger of any of the portfolios of the Unified Funds
|_| Waiver of Class A Contingent Deferred Sales Charge in Certain
Transactions. The Class A contingent deferred sales charge will not apply to
redemptions of Class A shares purchased by the following investors who were
shareholders of any Former Quest for Value Fund:
Investors who purchased Class A shares from a dealer that is or was not
permitted to receive a sales load or redemption fee imposed on a shareholder
with whom that dealer has a fiduciary relationship, under the Employee
Retirement Income Security Act of 1974 and regulations adopted under that law.
B. Class A, Class B and Class C Contingent Deferred Sales Charge Waivers.
|_| Waivers for Redemptions of Shares Purchased Prior to March 6,
1995. In the following cases, the contingent deferred sales charge will be
waived for redemptions of Class A, Class B or Class C shares of an
Oppenheimer fund. The shares must have been acquired by the merger of a
Former Quest for Value Fund into the fund or by exchange from an Oppenheimer
fund that was a Former Quest for Value Fund or into which such fund merged.
Those shares must have been purchased prior to March 6, 1995 in connection
with:
o 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 value, adjusted
annually, and.
o 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
|_| Waivers for Redemptions of Shares Purchased on or After March 6,
1995 but Prior to November 24, 1995. In the following cases, the contingent
deferred sales charge will be waived for redemptions of Class A, Class B or
Class C shares of an Oppenheimer fund. The shares must have been acquired by
the merger of a Former Quest for Value Fund into the fund or by exchange from
an Oppenheimer fund that was a Former Quest For Value Fund or into which such
Former Quest for Value Fund merged. Those shares must have been purchased on
or after March 6, 1995, but prior to November 24, 1995:
o 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);
o 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 value; adjusted annually, and
o liquidation of a shareholder's account if the aggregate net asset value
of shares held in the account is less than the required minimum
account value.
A shareholder's account will be credited with the amount of any
contingent deferred sales charge paid on the redemption of any Class A, Class
B or Class C shares of the Oppenheimer fund described in this section if the
proceeds are invested in the same Class of shares in that fund or another
Oppenheimer fund within 90 days after redemption.
V. Special Sales Charge Arrangements for Shareholders of Certain
Oppenheimer Funds Who Were Shareholders of Connecticut Mutual Investment
Accounts, Inc.
- ---------------------------------------------------------------------------
The initial and contingent deferred sale charge rates and waivers for Class A
and Class B shares described in the respective Prospectus (or this Appendix)
of the following Oppenheimer funds (each is referred to as a "Fund" in this
section):
Oppenheimer U. S. Government Trust,
Oppenheimer Core Bond Fund,
Oppenheimer Value Fund and
Oppenheimer Disciplined Allocation Fund
are modified as described below for those Fund shareholders who were
shareholders of the following funds (referred to as the "Former Connecticut
Mutual Funds") on March 1, 1996, when OppenheimerFunds, Inc. became the
investment adviser to the Former Connecticut Mutual Funds:
Connecticut Mutual Liquid Account Connecticut Mutual Total Return
Account
Connecticut Mutual Government Securities Account CMIA LifeSpan Capital
Appreciation Account
Connecticut Mutual Income Account CMIA LifeSpan Balanced Account
Connecticut Mutual Growth Account CMIA Diversified Income Account
A. Prior Class A CDSC and Class A Sales Charge Waivers.
|_| Class A Contingent Deferred Sales Charge. Certain shareholders of a
Fund and the other Former Connecticut Mutual Funds are entitled to continue
to make additional purchases of Class A shares at net asset value without a
Class A initial sales charge, but subject to the Class A contingent deferred
sales charge that was in effect prior to March 18, 1996 (the "prior Class A
CDSC"). Under the prior Class A CDSC, if any of those shares are redeemed
within one year of purchase, they will be assessed a 1% contingent deferred
sales charge on an amount equal to the current market value or the original
purchase price of the shares sold, whichever is smaller (in such redemptions,
any shares not subject to the prior Class A CDSC will be redeemed first).
Those shareholders who are eligible for the prior Class A CDSC are:
1) persons whose purchases of Class A shares of a Fund and other
Former Connecticut Mutual Funds were $500,000 prior to March 18,
1996, as a result of direct purchases or purchases pursuant to
the Fund's policies on Combined Purchases or Rights of
Accumulation, who still hold those shares in that Fund or other
Former Connecticut Mutual Funds, and
2) persons whose intended purchases under a Statement of Intention
entered into prior to March 18, 1996, with the former general
distributor of the Former Connecticut Mutual Funds to purchase
shares valued at $500,000 or more over a 13-month period entitled
those persons to purchase shares at net asset value without being
subject to the Class A initial sales charge
Any of the Class A shares of a Fund and the other Former Connecticut
Mutual Funds that were purchased at net asset value prior to March 18, 1996,
remain subject to the prior Class A CDSC, or if any additional shares are
purchased by those shareholders at net asset value pursuant to this
arrangement they will be subject to the prior Class A CDSC.
|_| Class A Sales Charge Waivers. Additional Class A shares of a Fund
may be purchased without a sales charge, by a person who was in one (or
more) of the categories below and acquired Class A shares prior to March
18, 1996, and still holds Class A shares:
1) any purchaser, provided the total initial amount invested in the
Fund or any one or more of the Former Connecticut Mutual Funds
totaled $500,000 or more, including investments made pursuant to
the Combined Purchases, Statement of Intention and Rights of
Accumulation features available at the time of the initial
purchase and such investment is still held in one or more of the
Former Connecticut Mutual Funds or a Fund into which such Fund
merged;
2) any participant in a qualified plan, provided that the total
initial amount invested by the plan in the Fund or any one or
more of the Former Connecticut Mutual Funds totaled $500,000 or
more;
3) Directors of the Fund or any one or more of the Former
Connecticut Mutual Funds and members of their immediate families;
4) employee benefit plans sponsored by Connecticut Mutual Financial
Services, L.L.C. ("CMFS"), the prior distributor of the Former
Connecticut Mutual Funds, and its affiliated companies;
5) one or more members of a group of at least 1,000 persons (and
persons who are retirees from such group) engaged in a common
business, profession, civic or charitable endeavor or other
activity, and the spouses and minor dependent children of such
persons, pursuant to a marketing program between CMFS and such
group; and
6) an institution acting as a fiduciary on behalf of an individual
or individuals, if such institution was directly compensated by
the individual(s) for recommending the purchase of the shares of
the Fund or any one or more of the Former Connecticut Mutual
Funds, provided the institution had an agreement with CMFS.
Purchases of Class A shares made pursuant to (1) and (2) above may be
subject to the Class A CDSC of the Former Connecticut Mutual Funds described
above.
Additionally, Class A shares of a Fund may be purchased without a sales
charge by any holder of a variable annuity contract issued in New York State
by Connecticut Mutual Life Insurance Company through the Panorama Separate
Account which is beyond the applicable surrender charge period and which was
used to fund a qualified plan, if that holder exchanges the variable annuity
contract proceeds to buy Class A shares of the Fund.
B. Class A and Class B Contingent Deferred Sales Charge Waivers.
In addition to the waivers set forth in the Prospectus and in this Appendix,
above, the contingent deferred sales charge will be waived for redemptions of
Class A and Class B shares of a Fund and exchanges of Class A or Class B
shares of a Fund into Class A or Class B shares of a Former Connecticut
Mutual Fund provided that the Class A or Class B shares of the Fund to be
redeemed or exchanged were (i) acquired prior to March 18, 1996 or (ii) were
acquired by exchange from an Oppenheimer fund that was a Former Connecticut
Mutual Fund. Additionally, the shares of such Former Connecticut Mutual Fund
must have been purchased prior to March 18, 1996:
1) by the estate of a deceased shareholder;
2) upon the disability of a shareholder, as defined in Section 72(m)(7) of
the Internal Revenue Code;
3) for retirement distributions (or loans) to participants or
beneficiaries from retirement plans qualified under Sections 401(a) or
403(b)(7)of the Code, or from IRAs, deferred compensation plans created
under Section 457 of the Code, or other employee benefit plans;
4) as tax-free returns of excess contributions to such retirement or
employee benefit plans;
5) in whole or in part, in connection with shares sold to any state,
county, or city, or any instrumentality, department, authority, or
agency thereof, that is prohibited by applicable investment laws from
paying a sales charge or concession in connection with the purchase of
shares of any registered investment management company;
6) in connection with the redemption of shares of the Fund due to a
combination with another investment company by virtue of a merger,
acquisition or similar reorganization transaction;
7) in connection with the Fund's right to involuntarily redeem or
liquidate the Fund;
8) in connection with automatic redemptions of Class A shares and Class B
shares in certain retirement plan accounts pursuant to an Automatic
Withdrawal Plan but limited to no more than 12% of the original value
annually; or
9) as involuntary redemptions of shares by operation of law, or under
procedures set forth in the Fund's Articles of Incorporation, or as
adopted by the Board of Directors of the Fund.
VI. Special Reduced Sales Charge for Former Shareholders of Advance
America Funds, Inc.
- ------------------------------------------------------------------------------
Shareholders of Oppenheimer AMT-Free Municipals, Oppenheimer U.S. Government
Trust, Oppenheimer Strategic Income Fund and Oppenheimer Capital Income Fund
who acquired (and still hold) shares of those funds as a result of the
reorganization of series of Advance America Funds, Inc. into those
Oppenheimer funds on October 18, 1991, and who held shares of Advance America
Funds, Inc. on March 30, 1990, may purchase Class A shares of those four
Oppenheimer funds at a maximum sales charge rate of 4.50%.
VII. Sales Charge Waivers on Purchases of Class M Shares of Oppenheimer
Convertible Securities Fund
- ------------------------------------------------------------------------------
Oppenheimer Convertible Securities Fund (referred to as the "Fund" in this
section) may sell Class M shares at net asset value without any initial sales
charge to the classes of investors listed below who, prior to March 11, 1996,
owned shares of the Fund's then-existing Class A and were permitted to
purchase those shares at net asset value without sales charge:
the Manager and its affiliates,
present or former officers, directors, trustees and employees (and
their "immediate families" as defined in the Fund's Statement of
Additional Information) of the Fund, the Manager and its affiliates,
and retirement plans established by them or the prior investment
advisor of the Fund for their employees,
registered management investment companies or separate accounts of
insurance companies that had an agreement with the Fund's prior
investment advisor or distributor for that purpose,
dealers or brokers that have a sales agreement with the Distributor, if
they purchase shares for their own accounts or for retirement plans
for their employees,
employees and registered representatives (and their spouses) of dealers
or brokers described in the preceding section or financial
institutions that have entered into sales arrangements with those
dealers or brokers (and whose identity is made known to the
Distributor) or with the Distributor, but only if the purchaser
certifies to the Distributor at the time of purchase that the
purchaser meets these qualifications,
dealers, brokers, or registered investment advisors that had entered
into an agreement with the Distributor or the prior distributor of
the Fund specifically providing for the use of Class M shares of the
Fund in specific investment products made available to their
clients, and
dealers, brokers or registered investment advisors that had entered
into an agreement with the Distributor or prior distributor of the
Fund's shares to sell shares to defined contribution employee
retirement plans for which the dealer, broker, or investment advisor
provides administrative services.
Oppenheimer Balanced Fund
Internet Website:
www.oppenheimerfunds.com
Investment Advisor
OppenheimerFunds, Inc.
Two World Financial Center
225 Liberty Street, 11th Floor
New York, New York 10281-1008
Distributor
OppenheimerFunds Distributor, Inc.
Two World Financial Center
225 Liberty Street, 11th Floor
New York, New York 10281-1008
Transfer Agent
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217
1.800.CALL OPP (225.5677)
Custodian Bank
JPMorgan Chase Bank
4 Chase Metro Tech Center
Brooklyn, New York 11245
Independent Registered Public Accounting Firm
KPMG LLP
707 Seventeenth Street
Denver, Colorado 80202
Legal Counsel
Mayer, Brown, Rowe & Maw LLP
1675 Broadway
New York, New York 10019
1234
PX240.001.0106
(1) In accordance with Rule 12b-1 of the Investment Company Act, the term
"Independent Trustees" in this Statement of Additional Information refers to
those Trustees who are not "interested persons" of the Fund and who do not
have any direct or indirect financial interest in the operation of the
distribution plan or any agreement under the plan.
(1) Certain waivers also apply to Class M shares of Oppenheimer Convertible
Securities Fund.
(2) In the case of Oppenheimer Senior Floating Rate Fund, a
continuously-offered closed-end fund, references to contingent deferred sales
charges mean the Fund's Early Withdrawal Charges and references to
"redemptions" mean "repurchases" of shares.
(3) An "employee benefit plan" means any plan or arrangement, whether or not
it is "qualified" under the Internal Revenue Code, under which Class N shares
of an Oppenheimer fund or funds are purchased by a fiduciary or other
administrator for the account of participants who are employees of a single
employer or of affiliated employers. These may include, for example, medical
savings accounts, payroll deduction plans or similar plans. The fund accounts
must be registered in the name of the fiduciary or administrator purchasing
the shares for the benefit of participants in the plan.
(4) The term "Group Retirement Plan" means any qualified or non-qualified
retirement plan for employees of a corporation or sole proprietorship,
members and employees of a partnership or association or other organized
group of persons (the members of which may include other groups), if the
group has made special arrangements with the Distributor and all members of
the group participating in (or who are eligible to participate in) the plan
purchase shares of an Oppenheimer fund or funds through a single investment
dealer, broker or other financial institution designated by the group. Such
plans include 457 plans, SEP-IRAs, SARSEPs, SIMPLE plans and 403(b) plans
other than plans for public school employees. The term "Group Retirement
Plan" also includes qualified retirement plans and non-qualified deferred
compensation plans and IRAs that purchase shares of an Oppenheimer fund or
funds through a single investment dealer, broker or other financial
institution that has made special arrangements with the Distributor.
(5) However, that concession will not be paid on purchases of shares in
amounts of $1 million or more (including any right of accumulation) by a
Retirement Plan that pays for the purchase with the redemption proceeds of
Class C shares of one or more Oppenheimer funds held by the Plan for more
than one year.
(6) This provision does not apply to IRAs.
(7) This provision only applies to qualified retirement plans and 403(b)(7)
custodial plans after your separation from service in or after the year you
reached age 55.
(8) The distribution must be requested prior to Plan termination or the
elimination of the Oppenheimer funds as an investment option under the Plan.
(9) This provision does not apply to IRAs.
(10) This provision does not apply to loans from 403(b)(7) custodial plans
and loans from the OppenheimerFunds-sponsored Single K retirement plan.
(11) This provision does not apply to 403(b)(7) custodial plans if the
participant is less than age 55, nor to IRAs.
OPPENHEIMER BALANCED FUND
FORM N-14
PART C
OTHER INFORMATION
Item 15. - Indemnification
Reference is made to the provisions of Article Seven of Registrant's Amended
and Restated Declaration of Trust filed as Exhibit 16(1) to this Registration
Statement, and incorporated herein by reference.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "1933 Act") may be permitted to trustees, officers
and controlling persons of Registrant pursuant to the foregoing provisions or
otherwise, Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the 1933 Act and is, therefore, unenforceable. In the event that
a claim for indemnification against such liabilities (other than the payment
by Registrant of expenses incurred or paid by a trustee, officer or
controlling person of Registrant in the successful defense of any action,
suit or proceeding) is asserted by such trustee, officer or controlling
person, Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the 1933 Act and will be governed by the final
adjudication of such issue.
Item 16. - Exhibits
(1) (i) Amendment dated 2/19/04 to the Amended and Restated Declaration of
Trust dated 3/6/97: Previously filed with Registrant's Post-Effective
Amendment No. 39, 11/23/04, and incorporated herein by reference.
(ii) Amended and Restated Declaration of Trust dated 3/6/97: Previously
filed with Post-Effective No. 29, 11/24/97, and incorporated herein by
reference.
(2) Amended and Restated By-Laws dated 12/14/00: Previously filed with
Registrant's Post-Effective Amendment No. 39, 11/23/04, and incorporated
herein by reference.
(3) Not Applicable.
(4) Not Applicable.
(5) (i) Specimen Class A Share Certificate: Previously filed with
Registrant's Post-Effective Amendment No. 37, 11/21/02, and incorporated
herein by reference.
(ii) Specimen Class B Share Certificate: Previously filed with
Registrant's Post-Effective Amendment No. 37, 11/21/02, and incorporated
herein by reference.
(iii) Specimen Class C Share Certificate: Previously filed with
Registrant's Post-Effective Amendment No. 37, 11/21/02, and incorporated
herein by reference.
(iv) Specimen Class N Share Certificate: Previously filed with
Registrant's Post-Effective Amendment No. 37, 11/21/02, and incorporated
herein by reference.
(6) Amended and Restated Investment Advisory Agreement dated January 1,
2005: Previously filed with Registrant's Post-Effective Amendment No. 40,
11/23/05, and incorporated herein by reference.
(7) (i) General Distributor's Agreement dated 12/10/92: Previously filed
with Registrant's Post-Effective Amendment No. 15, 4/19/93, refiled with
Registrant's Post-Effective Amendment No. 20, 3/2/95, pursuant to Item 102 of
Regulation S-T and incorporated herein by reference.
(ii) Form of Dealer Agreement of OppenheimerFunds Distributor, Inc.:
Previously filed with Post-Effective Amendment No. 45 to the Registration
Statement of Oppenheimer High Yield Fund (Reg. No. 2-62076), 10/26/01, and
incorporated herein by reference.
(iii) Form of Broker Agreement of OppenheimerFunds Distributor, Inc.:
Previously filed with Post-Effective Amendment No. 45 to the Registration
Statement of Oppenheimer High Yield Fund (Reg. No. 2-62076), 10/26/01, and
incorporated herein by reference.
(iv) Form of Agency Agreement of OppenheimerFunds Distributor, Inc.:
Previously filed with Post-Effective Amendment No. 45 to the Registration
Statement of Oppenheimer High Yield Fund (Reg. No. 2-62076), 10/26/01, and
incorporated herein by reference.
(v) Form of Trust Company Fund/SERV Purchase Agreement of OppenheimerFunds
Distributor, Inc.: Previously filed with Post-Effective Amendment No. 45 to
the Registration Statement of Oppenheimer High Yield Fund (Reg. No. 2-62076),
10/26/01, and incorporated herein by reference.
(vi) Form of Trust Company Agency Agreement of OppenheimerFunds Distributor,
Inc.: Previously filed with Post-Effective Amendment No. 45 to the
Registration Statement of Oppenheimer High Yield Fund (Reg. No. 2-62076),
10/26/01, and incorporated herein by reference.
(8) (i) Amended and Restated Retirement Plan for Non-Interested Trustees or
Directors dated 8/9/01: Previously filed with Post-Effective Amendment No. 34
to the Registration Statement of Oppenheimer Gold & Special Minerals Fund
(Reg. No. 2-82590), 10/25/01, and incorporated herein by reference.
(ii) Form of Deferred Compensation Plan for Disinterested
Trustees/Directors: Previously filed with Post-Effective Amendment No. 26 to
the Registration Statement of Oppenheimer Gold & Special Minerals Fund (Reg.
No. 2-82590), 10/28/98, and incorporated by reference.
(9) (i) Global Custody Agreement dated August 16, 2002: Previously filed
with Post-Effective Amendment No. 41 to the Registration Statement of
Oppenheimer Variable Account Funds (Reg. No. 2-93177), 4/28/03, and
incorporated herein by reference.
(ii) Amendment dated October 2, 2003 to the Global Custody Agreement
dated August 16, 2002: Previously filed with Pre-Effective Amendment No. 1 to
the Registration Statement of Oppenheimer Principal Protected Trust II (Reg.
333-108093), 11/6/03, and incorporated herein by reference.
(10) (i) Amended and Restated Service Plan and Agreement for Class A shares
dated 4/15/04: Previously filed with Registrant's Post-Effective Amendment
No. 39, 11/23/04, and incorporated herein by reference.
(ii) Amended and Restated Distribution and Service Plan and Agreement
for Class B shares dated 2/12/98: Previously filed with Registrant's
Post-Effective Amendment No. 30, 1/22/98, and incorporated herein by
reference.
(iii) Amended and Restated Distribution and Service Plan and Agreement for
Class C shares dated 2/18/04: Previously filed with Registrant's
Post-Effective Amendment No. 39, 11/23/04, and incorporated herein by
reference.
(iv) Distribution and Service Plan and Agreement for Class N shares
dated 10/12/00: Previously filed with Registrant's Post-Effective Amendment
No. 37, 11/21/02, and incorporated herein by reference.
(v) Oppenheimer Funds Multiple Class Plan under Rule 18f-3 updated
through 8/11/05: Previously filed with Post-Effective Amendment No. 5 to the
Registration Statement of Oppenheimer Main Street Opportunity Fund (Reg. No.
333-40186), 9/27/05, and incorporated herein by reference.
(11) Opinion and Consent of Counsel: To be filed by Amendment.
(12) Tax Opinion: To be filed by Amendment.
(13) Not Applicable.
(14) Consent of KPMG LLP: Filed herewith.
(15) Not Applicable.
(16) (i) Powers of Attorney for John Murphy and Brian Wixted: Previously
filed with Post-Effective Amendment No. 16 to the Registration Statement of
Oppenheimer Enterprise Fund (Reg. No. 33-58343), 12/21/05, and incorporated
herein by reference.
(iii) Power of Attorney for all Trustees/Directors (except Mr. Wruble):
Previously filed with Post-Effective Amendment No. 2 to the Registration
Statement of Oppenheimer Limited Term California Fund (Reg. No. 333-111230),
9/29/05, and incorporated herein by reference.
Power of Attorney for Mr. Brian Wruble: Previously filed with Post-Effective
Amendment No. 49 to the Registration Statement of Oppenheimer Capital
Appreciation Fund (Reg. No. 2-69719), 10/19/05, and incorporated herein by
reference.
(17) Not Applicable.
Item 17. - Undertakings
(1) The undersigned registrant agrees that prior to any public reoffering
of the securities registered through the use of a prospectus which is a part
of this registration statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the Securities Act [17 CFR
230.145c], the reoffering prospectus will contain the information called for
by the applicable registration form for the reofferings by persons who may be
deemed underwriters, in addition to the information called for by the other
items of the applicable form.
(2) The undersigned registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to the
registration statement and will not be used until the amendment is effective,
and that, in determining any liability under the 1933 Act, each
post-effective amendment shall be deemed to be a new registration statement
or the securities offered therein, and the offering of the securities at that
time shall be deemed to be the initial bona fide offering of them.
SIGNATURES
As required by the Securities Act of 1933, as amended, this registration
statement has been signed on behalf of the registrant, in the City of New
York and State of New York, on the 22nd day of February, 2006.
Oppenheimer Balanced Fund
By: /s/ John V. Murphy*
---------------------------------------------
John V. Murphy, President,
Principal Executive Officer & Trustee
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities on
the dates indicated:
Signatures Title Date
/s/ Clayton K. Yeutter* Chairman of the Board February 22, 2006
- --------------------------------- of Trustees
Clayton K. Yeutter
/s/ John V. Murphy* President, Principal
- --------------------------------- Executive Officer
February 22, 2006
John V. Murphy & Trustee
/s/ Brian W. Wixted* Treasurer, Principal February 22, 2006
- --------------------------------- Financial and
Brian W. Wixted Accounting Officer
/s/ Matthew P. Fink* Trustee February 22, 2006
- --------------------
Matthew P. Fink
/s/ Robert G. Galli* Trustee February 22, 2006
- ----------------------------------
Robert G. Galli
/s/ Phillip A. Griffiths* Trustee February 22, 2006
- ---------------------------------
Phillip A. Griffiths
/s/ Mary F. Miller* Trustee February 22, 2006
- --------------------
Mary F. Miller
/s/ Joel W. Motley* Trustee February 22, 2006
- ------------------------
Joel W. Motley
/s/ Kenneth A. Randall* Trustee February 22, 2006
- ---------------------------------
Kenneth A. Randall
/s/ Russell S. Reynolds, Jr.* Trustee February 22, 2006
- ---------------------------------
Russell S. Reynolds, Jr.
/s/ Joseph M. Wikler*
- ------------------------ Trustee February 22, 2006
Joseph M. Wikler
/s/ Peter I. Wold*
- ------------------- Trustee February 22, 2006
Peter I. Wold
/s/ Brian F. Wruble*
- ------------------- Trustee February 22, 2006
Brian F. Wruble
*By: /s/ Mitchell J. Lindauer
-----------------------------------------
Mitchell J. Lindauer, Attorney-in-Fact
OPPENHEIMER BALANCED FUND
Registration No. 2-86903
EXHIBIT INDEX
Exhibit No. Description
(14) Consent of KPMG LLP
