UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-4576
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BOND FUND SERIES
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(Exact name of registrant as specified in charter)
6803 SOUTH TUCSON WAY, CENTENNIAL, COLORADO 80112-3924
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(Address of principal executive offices) (Zip code)
ROBERT G. ZACK, ESQ.
OPPENHEIMERFUNDS, INC.
TWO WORLD FINANCIAL CENTER, NEW YORK, NEW YORK 10281-1008
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(Name and address of agent for service)
Registrant's telephone number, including area code: (303) 768-3200
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Date of fiscal year end: DECEMBER 31
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Date of reporting period: DECEMBER 31, 2006
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ITEM 1. REPORTS TO STOCKHOLDERS.
TOP HOLDINGS AND ALLOCATIONS
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TOP CONVERTIBLE CORPORATE BOND AND NOTES SECTORS
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Health Care 16.5%
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Consumer Discretionary 10.1
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Information Technology 10.1
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Industrials 6.3
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Energy 4.9
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Financials 3.7
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Telecommunication Services 3.1
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Utilities 2.7
Portfolio holdings and strategies are subject to change. Percentages are as of
December 31, 2006, and are based on net assets.
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PORTFOLIO ALLOCATION
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Convertible Corporate Bonds and Notes 57.8%
Stocks 36.6
Cash Equivalents 4.3
Bonds and Notes 1.3
Portfolio holdings and strategies are subject to change. Percentages are as of
December 31, 2006, and are based on the total market value of investments.
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10 | OPPENHEIMER CONVERTIBLE SECURITIES FUND
FUND PERFORMANCE DISCUSSION
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HOW HAS THE FUND PERFORMED? BELOW IS A DISCUSSION BY OPPENHEIMERFUNDS, INC., OF
THE FUND'S PERFORMANCE DURING ITS FISCAL YEAR ENDED DECEMBER 31, 2006, FOLLOWED
BY A GRAPHICAL COMPARISON OF THE FUND'S PERFORMANCE TO APPROPRIATE BROAD-BASED
MARKET INDICES.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE. For the fiscal year ended December
31, 2006, Oppenheimer Convertible Securities Fund's Class A shares (without
sales charge) delivered solid, positive performance that finished in the second
quartile of its peer group of similarly managed funds, as ranked by Lipper, Inc.
The Fund's returns for the 12-month review period outpaced those of the Lehman
Brothers Aggregate Bond Index, which returned 4.33%, but lagged the S&P 500
Index, which for the period returned 15.78%.
Several factors worked in our favor this year and contributed to the
Fund's satisfactory absolute performance. The most significant contributor to
returns were the favorable tailwinds generated by the U.S. equity markets, which
performed well for the period and supported convertible bond returns. With
stocks in virtually every industry sector posting positive gains for the year,
most correlating convertibles--depending on their individual level of equity
sensitivity--enjoyed corresponding gains thanks to price appreciation in their
underlying stocks. As a result, we are pleased that macro conditions this period
generally favored convertible bonds and helped craft an auspicious backdrop for
convertibles and for the Fund.
Next, there were a number of holdings that were significant outperformers
for the portfolio and added to year-end returns. For example, the portfolio's
second largest holding at the end of the review period and biggest contributor
to performance, NII Holdings, Inc., came from the wireless telecom sector, a
segment that represents barely 4% of the convertible bond universe. NII, a
large, wireless operator that provides Nextel-branded wireless service in Latin
America, has successfully expanded its subscriber base in response to recent
favorable regulatory developments that have curbed the tariffs associated with
expansion in the wireless industry. As NII enjoyed greater latitude to expand
its presence in lucrative markets such as Brazil and Mexico, as well as to move
into new markets such as Chile, its stock appreciated measurably, a trend that
helped significantly boost the value of the company's convertible bonds.
Similarly, our third-largest holding, Merrill Lynch & Co., Inc., a
diversified financial services company, performed quite well due to strong
performance in its underlying stock. In a period that delivered mixed results
for financial services stocks, Merrill's stock fared well thanks to robust
trading and investment-banking revenues, and as a result, its convertible bond
performed well. In addition, holdings such as MetLife, Inc., a provider of life
insurance and other financial services, performed well for the year and added to
Fund returns. In general, both our
11 | OPPENHEIMER CONVERTIBLE SECURITIES FUND
FUND PERFORMANCE DISCUSSION
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stock selection within the financial services category, and our decision to
overweight our exposure to select financial convertibles, benefited the Fund's
fiscal year results.
Stock selection also led us to several outperformers in the lodging and
media sectors. Names like Hilton Hotels Corp., which performed well due to
continued strength in the hotels sector, Time Warner, Inc. (held by the Fund
under an issuance by Liberty Media Corp.) and Walt Disney Co., all added to Fund
returns this year. Time Warner enjoyed a particularly profitable fourth-quarter
this year due to success in cable television and motion pictures. Similarly,
Disney successfully promoted its content through its various distribution
channels, while celebrating strong revenues through its theme parks and motion
picture businesses. As a result, the convertibles issued by these companies
fared well.
Another positive contributor to returns this period was our decision to
underweight the portfolio's exposure to health-care related convertibles. Health
care stocks proved to be the market's worst-performing stocks this year within
the S&P 500 Index, a broad measure of stock-market performance. Our relative
underexposure to convertibles issued by companies in this sector significantly
benefited our returns.
On the negative side, our biggest detractor from performance relative to
our peers was our underweight in a single name: General Motors Corp. (GM). GM
far and away outperformed most other convertibles this year due to cost-cutting
and structural changes that were received positively by the investor community.
(While the Fund benefited from the exposure that we had to GM, any underweight
in such a performance outlier, not surprisingly, cost us returns in the short
term.) We are convinced that maintaining a more diversified portfolio of a
variety of securities without extensive exposure to any one name serves to help
buffer the Fund from unnecessary risk.
Otherwise, an array of individual names that faltered over the year
detracted from our returns, although less significantly than our underweight in
GM. Holdings like Legg Mason, Inc., an asset management company whose stock
struggled this year after the company acquired a competitor's asset-management
business, hurt us. Difficulties in business integration after its acquisition
caused Legg Mason's quarterly results to fall short of analysts' expectations,
and as such, its stock underperformed. Similarly, our sizable position in Teva
Pharmaceutical Finance II LLC., the largest generic pharmaceutical company in
the world, detracted from performance when the company's stock fell due to
continued price pressures stemming from increased competition in the generic
drug business. Weakness in Teva's stock led to difficulties for its associated
convertible, and as such, cost us marginal performance for the year.
12 | OPPENHEIMER CONVERTIBLE SECURITIES FUND
COMPARING THE 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 the
Fund held until December 31, 2006. In the case of Class A, Class B, Class C and
Class M shares, performance is over a 10-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 and Class M 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.
The Fund's performance is compared to the performance of the Lehman
Brothers Aggregate Bond Index and the S&P 500 Index. The Lehman Brothers
Aggregate Bond Index is a broad-based, unmanaged index of U.S. corporate bond
issues, U.S. government securities and mortgage-backed securities, widely
recognized as a measure of the performance of the domestic debt securities
market. The S&P 500 Index is a broad-based index of equity securities widely
regarded as a general measurement of the performance of the U.S. equity
securities market. 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 the indices.
13 | OPPENHEIMER CONVERTIBLE SECURITIES FUND
FUND PERFORMANCE DISCUSSION
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CLASS A SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer Convertible Securities Fund (Class A)
Lehman Brothers Aggregate Bond Index
S&P 500 Index
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Oppenheimer
Convertible Lehman Brothers
Securities Aggregate
Fund (Class A) Bond Index S&P 500 Index
12/31/1996 9,425 10,000 10,000
03/31/1997 9,607 9,944 10,269
06/30/1997 10,376 10,309 12,060
09/30/1997 11,186 10,652 12,963
12/31/1997 11,194 10,965 13,335
03/31/1998 12,133 11,136 15,194
06/30/1998 11,816 11,396 15,698
09/30/1998 10,566 11,878 14,140
12/31/1998 11,651 11,918 17,149
03/31/1999 11,840 11,859 18,003
06/30/1999 12,609 11,755 19,269
09/30/1999 12,320 11,835 18,069
12/31/1999 14,374 11,820 20,756
03/31/2000 15,196 12,081 21,231
06/30/2000 14,886 12,291 20,667
09/30/2000 15,053 12,662 20,467
12/31/2000 13,683 13,194 18,867
03/31/2001 13,188 13,595 16,631
06/30/2001 13,652 13,671 17,604
09/30/2001 12,381 14,302 15,021
12/31/2001 13,231 14,308 16,626
03/31/2002 13,337 14,322 16,672
06/30/2002 12,551 14,851 14,440
09/30/2002 11,480 15,531 11,946
12/31/2002 12,360 15,776 12,953
03/31/2003 12,687 15,995 12,545
06/30/2003 13,817 16,395 14,475
09/30/2003 14,185 16,372 14,858
12/31/2003 15,196 16,423 16,666
03/31/2004 15,647 16,860 16,948
06/30/2004 15,476 16,448 17,240
09/30/2004 15,302 16,974 16,917
12/31/2004 16,378 17,136 18,478
03/31/2005 15,653 17,053 18,082
06/30/2005 15,692 17,567 18,329
09/30/2005 16,510 17,448 18,989
12/31/2005 16,624 17,552 19,385
03/31/2006 17,109 17,438 20,200
06/30/2006 17,143 17,425 19,909
09/30/2006 17,605 18,089 21,036
12/31/2006 18,384 18,313 22,444
AVERAGE ANNUAL TOTAL RETURNS OF CLASS A SHARES WITH SALES CHARGE OF THE FUND AT
12/31/06
1-Year 4.27% 5-Year 5.54% 10-Year 6.28%
14 | OPPENHEIMER CONVERTIBLE SECURITIES FUND
CLASS B SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer Convertible Securities Fund (Class B)
Lehman Brothers Aggregate Bond Index
S&P 500 Index
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Oppenheimer
Convertible Lehman Brothers
Securities Aggregate
Fund (Class B) Bond Index S&P 500 Index
12/31/1996 10,000 10,000 10,000
03/31/1997 10,175 9,944 10,269
06/30/1997 10,969 10,309 12,060
09/30/1997 11,803 10,652 12,963
12/31/1997 11,793 10,965 13,335
03/31/1998 12,757 11,136 15,194
06/30/1998 12,393 11,396 15,698
09/30/1998 11,061 11,878 14,140
12/31/1998 12,183 11,918 17,149
03/31/1999 12,358 11,859 18,003
06/30/1999 13,126 11,755 19,269
09/30/1999 12,810 11,835 18,069
12/31/1999 14,906 11,820 20,756
03/31/2000 15,728 12,081 21,231
06/30/2000 15,380 12,291 20,667
09/30/2000 15,527 12,662 20,467
12/31/2000 14,079 13,194 18,867
03/31/2001 13,543 13,595 16,631
06/30/2001 13,992 13,671 17,604
09/30/2001 12,666 14,302 15,021
12/31/2001 13,520 14,308 16,626
03/31/2002 13,594 14,322 16,672
06/30/2002 12,769 14,851 14,440
09/30/2002 11,660 15,531 11,946
12/31/2002 12,521 15,776 12,953
03/31/2003 12,852 15,995 12,545
06/30/2003 13,997 16,395 14,475
09/30/2003 14,370 16,372 14,858
12/31/2003 15,394 16,423 16,666
03/31/2004 15,851 16,860 16,948
06/30/2004 15,678 16,448 17,240
09/30/2004 15,501 16,974 16,917
12/31/2004 16,592 17,136 18,478
03/31/2005 15,857 17,053 18,082
06/30/2005 15,896 17,567 18,329
09/30/2005 16,725 17,448 18,989
12/31/2005 16,840 17,552 19,385
03/31/2006 17,332 17,438 20,200
06/30/2006 17,366 17,425 19,909
09/30/2006 17,835 18,089 21,036
12/31/2006 18,630 18,313 22,444
AVERAGE ANNUAL TOTAL RETURNS OF CLASS B SHARES WITH SALES CHARGE OF THE FUND AT
12/31/06
1-Year 4.75% 5-Year 5.63% 10-Year 6.42%
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); FOR CLASS C AND
N SHARES, THE 1% CONTINGENT DEFERRED SALES CHARGE FOR THE 1-YEAR PERIOD; AND FOR
CLASS M SHARES, A MAXIMUM INITIAL SALES CHARGE OF 3.25%. BECAUSE CLASS B SHARES
CONVERT TO CLASS A SHARES 72 MONTHS AFTER PURCHASE, 10-YEAR RETURNS FOR CLASS B
SHARES USES CLASS A PERFORMANCE FOR THE PERIOD AFTER CONVERSION. SEE PAGE 19 FOR
FURTHER INFORMATION.
15 | OPPENHEIMER CONVERTIBLE SECURITIES FUND
FUND PERFORMANCE DISCUSSION
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CLASS C SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer Convertible Securities Fund (Class C)
Lehman Brothers Aggregate Bond Index
S&P 500 Index
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Oppenheimer
Convertible Lehman Brothers
Securities Aggregate
Fund (Class C) Bond Index S&P 500 Index
12/31/1996 10,000 10,000 10,000
03/31/1997 10,167 9,944 10,269
06/30/1997 10,962 10,309 12,060
09/30/1997 11,797 10,652 12,963
12/31/1997 11,788 10,965 13,335
03/31/1998 12,754 11,136 15,194
06/30/1998 12,389 11,396 15,698
09/30/1998 11,064 11,878 14,140
12/31/1998 12,179 11,918 17,149
03/31/1999 12,354 11,859 18,003
06/30/1999 13,124 11,755 19,269
09/30/1999 12,819 11,835 18,069
12/31/1999 14,908 11,820 20,756
03/31/2000 15,731 12,081 21,231
06/30/2000 15,382 12,291 20,667
09/30/2000 15,520 12,662 20,467
12/31/2000 14,079 13,194 18,867
03/31/2001 13,542 13,595 16,631
06/30/2001 13,992 13,671 17,604
09/30/2001 12,663 14,302 15,021
12/31/2001 13,519 14,308 16,626
03/31/2002 13,591 14,322 16,672
06/30/2002 12,764 14,851 14,440
09/30/2002 11,663 15,531 11,946
12/31/2002 12,519 15,776 12,953
03/31/2003 12,828 15,995 12,545
06/30/2003 13,957 16,395 14,475
09/30/2003 14,289 16,372 14,858
12/31/2003 15,291 16,423 16,666
03/31/2004 15,704 16,860 16,948
06/30/2004 15,504 16,448 17,240
09/30/2004 15,311 16,974 16,917
12/31/2004 16,345 17,136 18,478
03/31/2005 15,590 17,053 18,082
06/30/2005 15,600 17,567 18,329
09/30/2005 16,382 17,448 18,989
12/31/2005 16,463 17,552 19,385
03/31/2006 16,912 17,438 20,200
06/30/2006 16,912 17,425 19,909
09/30/2006 17,334 18,089 21,036
12/31/2006 18,073 18,313 22,444
AVERAGE ANNUAL TOTAL RETURNS OF CLASS C SHARES WITH SALES CHARGE OF THE FUND AT
12/31/06
1-Year 8.78% 5-Year 5.98% 10-Year 6.10%
16 | OPPENHEIMER CONVERTIBLE SECURITIES FUND
CLASS M SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer Convertible Securities Fund (Class M)
Lehman Brothers Aggregate Bond Index
S&P 500 Index
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Oppenheimer
Convertible Lehman Brothers
Securities Aggregate
Fund (Class M) Bond Index S&P 500 Index
12/31/1996 9,625 10,000 10,000
03/31/1997 9,851 9,944 10,269
06/30/1997 10,620 10,309 12,060
09/30/1997 11,436 10,652 12,963
12/31/1997 11,435 10,965 13,335
03/31/1998 12,380 11,136 15,194
06/30/1998 12,041 11,396 15,698
09/30/1998 10,753 11,878 14,140
12/31/1998 11,844 11,918 17,149
03/31/1999 12,025 11,859 18,003
06/30/1999 12,783 11,755 19,269
09/30/1999 12,482 11,835 18,069
12/31/1999 14,538 11,820 20,756
03/31/2000 15,351 12,081 21,231
06/30/2000 15,019 12,291 20,667
09/30/2000 15,166 12,662 20,467
12/31/2000 13,767 13,194 18,867
03/31/2001 13,251 13,595 16,631
06/30/2001 13,701 13,671 17,604
09/30/2001 12,409 14,302 15,021
12/31/2001 13,256 14,308 16,626
03/31/2002 13,335 14,322 16,672
06/30/2002 12,533 14,851 14,440
09/30/2002 11,460 15,531 11,946
12/31/2002 12,307 15,776 12,953
03/31/2003 12,625 15,995 12,545
06/30/2003 13,749 16,395 14,475
09/30/2003 14,086 16,372 14,858
12/31/2003 15,088 16,423 16,666
03/31/2004 15,518 16,860 16,948
06/30/2004 15,350 16,448 17,240
09/30/2004 15,190 16,974 16,917
12/31/2004 16,248 17,136 18,478
03/31/2005 15,529 17,053 18,082
06/30/2005 15,571 17,567 18,329
09/30/2005 16,385 17,448 18,989
12/31/2005 16,500 17,552 19,385
03/31/2006 16,984 17,438 20,200
06/30/2006 17,019 17,425 19,909
09/30/2006 17,480 18,089 21,036
12/31/2006 18,262 18,313 22,444
AVERAGE ANNUAL TOTAL RETURNS OF CLASS M SHARES WITH SALES CHARGE OF THE FUND AT
12/31/06
1-Year 7.08% 5-Year 5.92% 10-Year 6.21%
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); FOR CLASS C AND
N SHARES, THE 1% CONTINGENT DEFERRED SALES CHARGE FOR THE 1-YEAR PERIOD; AND FOR
CLASS M SHARES, A MAXIMUM INITIAL SALES CHARGE OF 3.25%. BECAUSE CLASS B SHARES
CONVERT TO CLASS A SHARES 72 MONTHS AFTER PURCHASE, 10-YEAR RETURNS FOR CLASS B
SHARES USES CLASS A PERFORMANCE FOR THE PERIOD AFTER CONVERSION. SEE PAGE 19 FOR
FURTHER INFORMATION.
17 | OPPENHEIMER CONVERTIBLE SECURITIES FUND
FUND PERFORMANCE DISCUSSION
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CLASS N SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer Convertible Securities Fund (Class N)
Lehman Brothers Aggregate Bond Index
S&P 500 Index
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Oppenheimer
Convertible Lehman Brothers
Securities Aggregate
Fund (Class N) Bond Index S&P 500 Index
03/01/2001 10,000 10,000 10,000
03/31/2001 9,690 10,050 9,367
06/30/2001 10,020 10,107 9,915
09/30/2001 9,073 10,573 8,460
12/31/2001 9,698 10,578 9,364
03/31/2002 9,770 10,588 9,390
06/30/2002 9,188 10,979 8,132
09/30/2002 8,398 11,482 6,728
12/31/2002 9,027 11,663 7,295
03/31/2003 9,257 11,825 7,065
06/30/2003 10,072 12,121 8,153
09/30/2003 10,328 12,103 8,368
12/31/2003 11,054 12,141 9,387
03/31/2004 11,371 12,464 9,545
06/30/2004 11,233 12,159 9,710
09/30/2004 11,094 12,548 9,528
12/31/2004 11,861 12,668 10,407
03/31/2005 11,323 12,607 10,184
06/30/2005 11,339 12,986 10,323
09/30/2005 11,916 12,899 10,695
12/31/2005 11,984 12,976 10,918
03/31/2006 12,320 12,892 11,377
06/30/2006 12,329 12,882 11,213
09/30/2006 12,648 13,372 11,848
12/31/2006 13,205 13,538 12,641
AVERAGE ANNUAL TOTAL RETURNS OF CLASS N SHARES WITH SALES CHARGE OF THE FUND AT
12/31/06
1-Year 9.19% 5-Year 6.37% Since Inception (3/1/01) 4.88%
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); FOR CLASS C AND
N SHARES, THE 1% CONTINGENT DEFERRED SALES CHARGE FOR THE 1-YEAR PERIOD; AND FOR
CLASS M SHARES, A MAXIMUM INITIAL SALES CHARGE OF 3.25%. BECAUSE CLASS B SHARES
CONVERT TO CLASS A SHARES 72 MONTHS AFTER PURCHASE, 10-YEAR RETURNS FOR CLASS B
SHARES USES CLASS A PERFORMANCE FOR THE PERIOD AFTER CONVERSION. SEE PAGE 19 FOR
FURTHER INFORMATION.
18 | OPPENHEIMER CONVERTIBLE SECURITIES FUND
NOTES
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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.
INVESTORS SHOULD CONSIDER THE FUND'S INVESTMENT OBJECTIVES, RISKS, AND OTHER
CHARGES AND EXPENSES CAREFULLY BEFORE INVESTING. THE FUND'S PROSPECTUS CONTAINS
THIS AND OTHER INFORMATION ABOUT THE FUND, AND MAY BE OBTAINED BY ASKING YOUR
FINANCIAL ADVISOR, CALLING US AT 1.800.525.7048 OR VISITING OUR WEBSITE AT
WWW.OPPENHEIMERFUNDS.COM. READ THE PROSPECTUS CAREFULLY BEFORE INVESTING.
The Fund's investment strategy and focus can change over time. The mention of
specific fund holdings does not constitute a recommendation by OppenheimerFunds,
Inc.
CLASS A shares of the Fund were first publicly offered on 5/1/95. The Fund's
maximum sales charge for Class A shares was lower prior to 3/11/96, so actual
performance may have been higher. Class A returns include the current maximum
initial sales charge of 5.75%.
CLASS B shares of the Fund were first publicly offered on 5/1/95. Class B
returns include the applicable contingent deferred sales charge of 5% (1-year)
and 2% (5-year). Because Class B shares convert to Class A shares 72 months
after purchase, the 10-year return for Class B uses Class A performance for the
period after conversion. Class B shares are subject to an annual 0.75%
asset-based sales charge.
CLASS C shares of the Fund were first publicly offered on 3/11/96. Class C
returns include the contingent deferred sales charge of 1% for the 1-year
period. Class C shares are subject to an annual 0.75% asset-based sales charge.
19 | OPPENHEIMER CONVERTIBLE SECURITIES FUND
NOTES
- --------------------------------------------------------------------------------
CLASS M shares of the Fund were first publicly offered on 6/3/86. Class M
returns include the current maximum initial sales charge of 3.25%. Prior to
March 11, 1996, Class M shares were designated as Class A shares. While Class M
shares are subject to an annual 0.50% asset-based sales charge, the Board has
set that charge at zero effective February 11, 2004.
CLASS N shares of the Fund were first publicly offered on 3/1/01. Class N shares
are offered only through retirement plans. Unless otherwise noted, Class N
returns include the contingent deferred sales charge of 1% for the 1-year
period. Class N shares are subject to an annual 0.25% asset-based sales charge.
An explanation of the calculation of performance is in the Fund's Statement of
Additional Information.
20 | OPPENHEIMER CONVERTIBLE SECURITIES FUND
FUND EXPENSES
- --------------------------------------------------------------------------------
FUND EXPENSES. As a shareholder of the Fund, you incur two types of costs: (1)
transaction costs, which may include sales charges (loads) on purchase payments,
contingent deferred sales charges on redemptions; and redemption fees, if any;
and (2) ongoing costs, including management fees; distribution and service fees;
and other Fund expenses. These examples are intended to help you understand your
ongoing costs (in dollars) of investing in the Fund and to compare these costs
with the ongoing costs of investing in other mutual funds.
The examples are based on an investment of $1,000.00 invested at the beginning
of the period and held for the entire 6-month period ended December 31, 2006.
ACTUAL EXPENSES. The "actual" lines of the table provide information about
actual account values and actual expenses. You may use the information on this
line for the class of shares you hold, together with the amount you invested, to
estimate the expense that you paid over the period. Simply divide your account
value by $1,000.00 (for example, an $8,600.00 account value divided by $1,000.00
= 8.60), then multiply the result by the number in the "actual" line under the
heading entitled "Expenses Paid During Period" to estimate the expenses you paid
on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES. The "hypothetical" lines of the
table provide information about hypothetical account values and hypothetical
expenses based on the Fund's actual expense ratio for each class of shares, and
an assumed rate of return of 5% per year before expenses, which is not the
Fund's actual return. The hypothetical account values and expenses may not be
used to estimate the actual ending account balance or expenses you paid for the
period. You may use this information to compare the ongoing costs of investing
in the Fund and other funds. To do so, compare this 5% hypothetical example for
the class of shares you hold with the 5% hypothetical examples that appear in
the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as front-end
or contingent deferred sales charges (loads), or a $12.00 fee imposed annually
on accounts valued at less than $500.00 (subject to exceptions described in
21 | OPPENHEIMER CONVERTIBLE SECURITIES FUND
FUND EXPENSES
- --------------------------------------------------------------------------------
the Statement of Additional Information). Therefore, the "hypothetical" lines of
the table are useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different funds. In addition, if
these transactional costs were included, your costs would have been higher.
- --------------------------------------------------------------------------------
BEGINNING ENDING EXPENSES
ACCOUNT ACCOUNT PAID DURING
VALUE VALUE 6 MONTHS ENDED
(7/1/06) (12/31/06) DECEMBER 31, 2006
- --------------------------------------------------------------------
Class A Actual $ 1,000.00 $ 1,072.80 $ 4.97
- --------------------------------------------------------------------
Class A Hypothetical 1,000.00 1,020.42 4.85
- --------------------------------------------------------------------
Class B Actual 1,000.00 1,068.60 9.11
- --------------------------------------------------------------------
Class B Hypothetical 1,000.00 1,016.43 8.88
- --------------------------------------------------------------------
Class C Actual 1,000.00 1,068.70 9.11
- --------------------------------------------------------------------
Class C Hypothetical 1,000.00 1,016.43 8.88
- --------------------------------------------------------------------
Class M Actual 1,000.00 1,073.00 4.77
- --------------------------------------------------------------------
Class M Hypothetical 1,000.00 1,020.62 4.65
- --------------------------------------------------------------------
Class N Actual 1,000.00 1,071.10 6.13
- --------------------------------------------------------------------
Class N Hypothetical 1,000.00 1,019.31 5.97
Hypothetical assumes 5% annual return before expenses.
Expenses are equal to the Fund's annualized expense ratio for that class,
multiplied by the average account value over the period, multiplied by 184/365
(to reflect the one-half year period). Those annualized expense ratios,
excluding affiliated fund indirect expenses, based on the 6-month period ended
December 31, 2006 are as follows:
CLASS EXPENSE RATIOS
- ------------------------
Class A 0.95%
- ------------------------
Class B 1.74
- ------------------------
Class C 1.74
- ------------------------
Class M 0.91
- ------------------------
Class N 1.17
The expense ratios reflect voluntary waivers or reimbursements of expenses by
the Fund's Manager and Transfer Agent that can be terminated at any time,
without advance notice. The "Financial Highlights" tables in the Fund's
financial statements, included in this report, also show the gross expense
ratios, without such waivers or reimbursements.
- --------------------------------------------------------------------------------
22 | OPPENHEIMER CONVERTIBLE SECURITIES FUND
STATEMENT OF INVESTMENTS December 31, 2006
- --------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- ----------------------------------------------------------------------------------------------------
CONVERTIBLE CORPORATE BONDS AND NOTES--57.4%
- ----------------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY--10.1%
- ----------------------------------------------------------------------------------------------------
AUTOMOBILES--0.4%
Ford Motor Co., 4.25% Cv. Sr. Unsec. Nts., 12/15/36 1 $ 1,700,000 $ 1,818,150
- ----------------------------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE--3.5%
Carnival Corp., 2% Cv. Sr. Unsec. Unsub. Debs., 4/15/21 5,000,000 6,425,000
- ----------------------------------------------------------------------------------------------------
Hilton Hotels Corp., 3.375% Cv. Sr. Unsec. Unsub. Nts., 4/15/23 2,500,000 3,956,250
- ----------------------------------------------------------------------------------------------------
Scientific Games Corp., 0.75% Cv. Sr. Sub. Nts., 12/1/24 4,000,000 4,595,000
--------------
14,976,250
- ----------------------------------------------------------------------------------------------------
MEDIA--5.0%
Lamar Advertising Co., 2.875% Cv. Sr. Nts., 12/31/10 4,000,000 5,445,000
- ----------------------------------------------------------------------------------------------------
Liberty Media Corp., 0.75% Cv. Sr. Unsec. Unsub. Debs., 3/30/23 5,000,000 6,362,500
- ----------------------------------------------------------------------------------------------------
Walt Disney Co. (The), 2.125% Cv. Sr. Unsec. Nts., 4/15/23 5,000,000 6,100,000
- ----------------------------------------------------------------------------------------------------
XM Satellite Radio Holdings, Inc., 1.75% Cv. Sr. Nts., 12/1/09 1 4,000,000 3,415,000
--------------
21,322,500
- ----------------------------------------------------------------------------------------------------
SPECIALTY RETAIL--1.2%
Lowe's Cos., Inc., 0% Cv. Sr. Nts., 10/19/21 2 4,500,000 4,893,750
- ----------------------------------------------------------------------------------------------------
ENERGY--4.9%
- ----------------------------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES--4.2%
Cameron International Corp., 2.50% Cv. Sr. Unsec. Nts., 6/15/26 1 5,000,000 5,393,750
- ----------------------------------------------------------------------------------------------------
Halliburton Co., 3.125% Cv. Sr. Nts., 7/15/23 1 3,000,000 5,088,750
- ----------------------------------------------------------------------------------------------------
Schlumberger Ltd., 2.125% Cv. Sr. Unsec. Nts., 6/1/23 4,500,000 7,408,125
--------------
17,890,625
- ----------------------------------------------------------------------------------------------------
OIL & GAS--0.7%
Peabody Energy Corp., 4.75% Cv. Jr. Unsec. Sub. Debs., 12/15/66 3,000,000 2,876,250
- ----------------------------------------------------------------------------------------------------
FINANCIALS--3.7%
- ----------------------------------------------------------------------------------------------------
CAPITAL MARKETS--2.0%
Merrill Lynch & Co., Inc., 0% Cv. Sr. Unsec. Unsub. Nts., 3/13/32 2 6,500,000 8,656,050
- ----------------------------------------------------------------------------------------------------
REAL ESTATE--0.7%
Host Marriott LP, 3.25% Cv. Sr. Debs., 4/15/24 1 2,000,000 2,975,000
- ----------------------------------------------------------------------------------------------------
REAL ESTATE MANAGEMENT & DEVELOPMENT--1.0%
Forest City Enterprises, Inc., 3.625% Cv. Nts., 10/15/11 3 4,000,000 4,253,800
- ----------------------------------------------------------------------------------------------------
HEALTH CARE--16.5%
- ----------------------------------------------------------------------------------------------------
BIOTECHNOLOGY--5.0%
Amgen, Inc., 0.375% Cv. Sr. Nts., 2/1/13 1 7,500,000 7,406,250
- ----------------------------------------------------------------------------------------------------
Amylin Pharmaceuticals, Inc., 2.50% Cv. Sr. Unsec. Nts., 4/15/11 1 2,000,000 2,522,500
- ----------------------------------------------------------------------------------------------------
Genzyme Corp., 1.25% Cv. Sr. Nts., 12/1/23 1 4,000,000 4,180,000
- ----------------------------------------------------------------------------------------------------
Gilead Sciences, Inc., 0.50% Cv. Sr. Nts., 5/1/11 1 3,000,000 3,078,750
- ----------------------------------------------------------------------------------------------------
Invitrogen Corp., 1.50% Cv. Sr. Unsec. Nts., 2/15/24 2,000,000 1,717,500
23 | OPPENHEIMER CONVERTIBLE SECURITIES FUND
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- ---------------------------------------------------------------------------------------------------
BIOTECHNOLOGY Continued
PDL BioPharma, Inc., 2% Cv. Sr. Unsec. Nts., 2/15/12 $ 2,000,000 $ 2,115,000
-------------
21,020,000
- ---------------------------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES--4.1%
Cytyc Corp.:
2.25% Cv. Sr. Nts., 3/15/24 1 2,000,000 2,160,000
2.25% Cv. Sr. Nts., 3/15/24 2,000,000 2,160,000
- ---------------------------------------------------------------------------------------------------
Fisher Scientific International, Inc.,3.25% Cv.Sr.Sub.Nts.,3/1/24 6,000,000 7,792,500
- ---------------------------------------------------------------------------------------------------
Medtronic, Inc., 1.50% Cv. Sr. Unsec. Nts., 4/15/11 5,000,000 5,325,000
-------------
17,437,500
- ---------------------------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES--0.8%
Omnicare, Inc., 3.25% Cv. Sr. Unsec. Debs., 12/15/35 4,000,000 3,490,000
- ---------------------------------------------------------------------------------------------------
PHARMACEUTICALS--6.6%
Advanced Medical Optics, Inc., 2.50% Cv. Sr. Sub. Nts., 7/15/24 3,000,000 2,917,500
- ---------------------------------------------------------------------------------------------------
Allergan, Inc., 1.50% Cv. Nts., 4/1/26 1 5,000,000 5,475,000
- ---------------------------------------------------------------------------------------------------
Medicis Pharmaceutical Corp., 1.50% Cv. Sr. Unsec. Sub. Nts., 6/4/33 4,000,000 4,230,000
- ---------------------------------------------------------------------------------------------------
Sepracor, Inc., 0% Cv. Sr. Sub. Nts., 10/15/24 2 3,000,000 3,243,750
- ---------------------------------------------------------------------------------------------------
Teva Pharmaceutical Finance II LLC, 0.50% Cv. Sr. Debs.,
Series A,2/1/24 (cv.into ADRs of Teva Pharmaceutical Industries Ltd.) 6,500,000 6,621,875
- ---------------------------------------------------------------------------------------------------
Wyeth, 5.109% Cv. Sr. Unsec. Nts., 1/15/24 4 5,000,000 5,453,000
-------------
27,941,125
- ---------------------------------------------------------------------------------------------------
INDUSTRIALS--6.3%
- ---------------------------------------------------------------------------------------------------
AEROSPACE & DEFENSE--2.8%
Alliant Techsystems, Inc., 2.75% Cv. Sr. Sub. Nts., 9/15/11 1 6,500,000 6,678,750
- ---------------------------------------------------------------------------------------------------
Lockheed Martin Corp., 5.124% Cv. Sr. Nts., 8/15/33 4 4,000,000 5,328,040
-------------
12,006,790
- ---------------------------------------------------------------------------------------------------
AIRLINES--1.4%
AirTran Holdings, Inc., 7% Cv. Sr. Nts., 7/1/23 2,500,000 3,334,375
- ---------------------------------------------------------------------------------------------------
UAL Corp., 5% Cv. Bonds, 2/1/21 2,000,000 2,323,080
-------------
5,657,455
- ---------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES--1.1%
FTI Consulting, Inc., 3.75% Cv. Sr. Unsec. Sub. Nts., 7/15/12 4,000,000 4,620,000
- ---------------------------------------------------------------------------------------------------
MACHINERY--1.0%
Danaher Corp., 2.518% Cv. Sr.Unsec.Unsub.Liquid Yield Option Nts.,
1/22/21 2 3,000,000 3,202,500
- ---------------------------------------------------------------------------------------------------
SystemOne Technologies, Inc.:
2.888% Cv. Sub. Nts., 12/31/06 3,5 3,931,593 629,055
8.25% Cv. Sub. Nts., 12/31/06 3,5 3,212,132 513,941
-------------
4,345,496
24 | OPPENHEIMER CONVERTIBLE SECURITIES FUND
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- ---------------------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY--10.1%
- ---------------------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT--1.2%
Comverse Technology, Inc., 0% Cv. Sr. Unsec. Zero Yield Puttable
Securities, 5/15/23 2 $ 4,000,000 $ 5,050,000
- ---------------------------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS--1.5%
EMC Corp., 1.75% Cv. Sr. Nts., 12/1/11 3 6,000,000 6,241,200
- ---------------------------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES--0.4%
Yahoo!, Inc., 0% Cv. Sr. Unsec. Nts., 4/1/08 2 1,500,000 1,950,000
- ---------------------------------------------------------------------------------------------------
IT CONSULTING & SERVICES--1.6%
DST Systems, Inc., 3.625% Cv. Sr. Unsec. Debs., Series B, 8/15/23 5,000,000 6,712,500
- ---------------------------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT--2.5%
Agere Systems, Inc.,6.50% Cv.Unsec.Unsub.Nts., 12/15/09 (cv. into
Agere Systems, Inc., Cl. A common stock) 5,000,000 5,112,500
- ---------------------------------------------------------------------------------------------------
Intel Corp.:
2.95% Cv. Unsec. Sub. Debs., 12/15/35 1 4,000,000 3,640,000
2.95% Cv. Unsec. Sub. Debs., 12/15/35 2,000,000 1,820,000
-------------
10,572,500
- ---------------------------------------------------------------------------------------------------
SOFTWARE--2.9%
Amdocs Ltd., 0.50% Cv. Nts., 3/15/24 5,000,000 5,331,250
- ---------------------------------------------------------------------------------------------------
Red Hat, Inc., 0.50% Cv. Sr. Unsec. Sub. Debs., 1/15/24 3,000,000 3,221,250
- ---------------------------------------------------------------------------------------------------
Symantec Corp., 0.75% Cv. Sr. Nts., 6/15/11 1 3,000,000 3,630,000
-------------
12,182,500
- ---------------------------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES--3.1%
- ---------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES--0.6%
Level 3 Communications, Inc., 2.875% Cv. Sub. Nts., 7/15/10 2,500,000 2,634,375
- ---------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES--2.5%
American Tower Corp., 3% Cv. Sr. Nts., 8/15/12 1,000,000 1,906,250
- ---------------------------------------------------------------------------------------------------
NII Holdings, Inc., 2.75% Cv. Nts., 8/15/25 1 6,000,000 8,707,500
-------------
10,613,750
- ---------------------------------------------------------------------------------------------------
UTILITIES--2.7%
- ---------------------------------------------------------------------------------------------------
MULTI-UTILITIES & UNREGULATED POWER--2.7%
CenterPoint Energy,Inc., 3.75% Cv. Sr. Unsec.Nts., Series B, 5/15/23 4,000,000 5,830,000
- ---------------------------------------------------------------------------------------------------
CMS Energy Corp., 2.875% Cv. Sr. Nts., 12/1/24 4,500,000 5,760,000
-------------
11,590,000
-------------
Total Convertible Corporate Bonds and Notes (Cost $229,046,704) 243,727,566
25 | OPPENHEIMER CONVERTIBLE SECURITIES FUND
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
VALUE
SHARES SEE NOTE 1
- ---------------------------------------------------------------------------------------------------
PREFERRED STOCKS--28.4%
- ---------------------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY--2.7%
- ---------------------------------------------------------------------------------------------------
AUTOMOBILES--2.7%
Ford Motor Co. Capital Trust II, 6.50% Cum. Cv., Non-Vtg. 155,000 $ 5,301,000
- ---------------------------------------------------------------------------------------------------
General Motors Corp.:
4.50% Cv. Sr. Debs., Series A 150,000 3,792,000
5.25% Cv. Sr. Unsec. Debs., Series B 100,000 2,119,000
-------------
11,212,000
- ---------------------------------------------------------------------------------------------------
ENERGY--3.0%
- ---------------------------------------------------------------------------------------------------
OIL & GAS--3.0%
Chesapeake Energy Corp., 4.50% Cum. Cv., Non-Vtg. 65,000 6,246,500
- ---------------------------------------------------------------------------------------------------
El Paso Corp., 4.99% Cv. 5,000 6,637,500
-------------
12,884,000
- ---------------------------------------------------------------------------------------------------
FINANCIALS--12.0%
- ---------------------------------------------------------------------------------------------------
CAPITAL MARKETS--4.2%
Affiliated Managers Group, Inc.:
5.10% Cv. 1 120,000 6,315,000
5.10% Cv. 20,000 1,052,500
- ---------------------------------------------------------------------------------------------------
E*TRADE Financial Corp., 6.125% Cum. Cv., Non-Vtg. 135,000 3,948,750
- ---------------------------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc., 6.25% Cv. Premium Income Equity
Linked Nts. (linked to General Mills, Inc. common stock) 240,000 6,604,800
-------------
17,921,050
- ---------------------------------------------------------------------------------------------------
COMMERCIAL BANKS--2.3%
Marshall & Ilsley Corp., 6.50% Cv. 200,000 5,454,000
- ---------------------------------------------------------------------------------------------------
Washington Mutual Capital Trust 2001, 5.375% Cum. Cv. Units
(each unit consists of one preferred stock and one warrant to
purchase shares of Washington Mutual, Inc.), Non-Vtg. 6 75,000 4,284,000
-------------
9,738,000
- ---------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES--1.3%
Citigroup Funding, Inc., 5.02% Cv., Series GNW 175,000 5,656,000
- ---------------------------------------------------------------------------------------------------
INSURANCE--2.6%
MetLife, Inc., 6.375% Cv. Equity Units, Series B (each equity unit consists
of a fractional interest in trust preferred securities as well as a stock
purchase contract to purchase MetLife, Inc., Series A and Series B) 6 200,000 6,116,000
- ---------------------------------------------------------------------------------------------------
Platinum Underwriters Holdings Ltd., 6% Cv., Series A, Non-Vtg. 160,000 4,900,000
-------------
11,016,000
- ---------------------------------------------------------------------------------------------------
REAL ESTATE--1.6%
Simon Property Group, Inc., 6% Cv., Non-Vtg. 80,000 6,512,000
26 | OPPENHEIMER CONVERTIBLE SECURITIES FUND
VALUE
SHARES SEE NOTE 1
- ---------------------------------------------------------------------------------------------------
HEALTH CARE--1.3%
- ---------------------------------------------------------------------------------------------------
PHARMACEUTICALS--1.3%
Schering-Plough Corp., 6% Cv. 100,000 $ 5,689,000
- ---------------------------------------------------------------------------------------------------
INDUSTRIALS--1.3%
- ---------------------------------------------------------------------------------------------------
AEROSPACE & DEFENSE--1.3%
Northrop Grumman Corp., 7% Cum. Cv., Series B 40,000 5,320,000
- ---------------------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY--1.2%
- ---------------------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT--1.2%
Lucent Technologies Capital Trust I, 7.75% Cum. Cv., Non-Vtg. 5,000 5,166,250
- ---------------------------------------------------------------------------------------------------
MATERIALS--2.2%
- ---------------------------------------------------------------------------------------------------
CHEMICALS--1.1%
Celanese Corp., 4.25% Cum. Cv. 130,000 4,680,000
- ---------------------------------------------------------------------------------------------------
METALS & MINING--1.1%
Freeport-McMoRan Copper & Gold, Inc., 5.50% Cv. 3,500 4,573,188
- ---------------------------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES--0.8%
- ---------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES--0.8%
Crown Castle International Corp., 6.25% Cv. 64,000 3,512,000
- ---------------------------------------------------------------------------------------------------
UTILITIES--3.9%
- ---------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES--3.9%
AES Trust VII, 6% Cv., Non-Vtg. 75,000 3,731,250
- ---------------------------------------------------------------------------------------------------
Entergy Corp., 7.625% Cv. 100,000 5,948,000
- ---------------------------------------------------------------------------------------------------
NRG Energy, Inc., 5.75% Cv. 25,000 6,746,875
-------------
16,426,125
-------------
Total Preferred Stocks (Cost $110,676,252) 120,305,613
- ---------------------------------------------------------------------------------------------------
COMMON STOCKS--8.0%
- ---------------------------------------------------------------------------------------------------
Alltel Corp. 50,000 3,024,000
- ---------------------------------------------------------------------------------------------------
Altria Group, Inc. 65,000 5,578,300
- ---------------------------------------------------------------------------------------------------
Bank of America Corp. 60,000 3,203,400
- ---------------------------------------------------------------------------------------------------
Hess Corp. 49,830 2,470,073
- ---------------------------------------------------------------------------------------------------
Johnson & Johnson 80,000 5,281,600
- ---------------------------------------------------------------------------------------------------
Legg Mason, Inc. 25,000 2,376,250
- ---------------------------------------------------------------------------------------------------
Microchip Technology, Inc. 90,000 2,943,000
- ---------------------------------------------------------------------------------------------------
Monsanto Co. 100,000 5,253,000
- ---------------------------------------------------------------------------------------------------
SystemOne Technologies, Inc. 3,7 197,142 1,380
- ---------------------------------------------------------------------------------------------------
Tyco International Ltd. 130,644 3,971,578
-------------
Total Common Stocks (Cost $28,136,735) 34,102,581
27 | OPPENHEIMER CONVERTIBLE SECURITIES FUND
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- ----------------------------------------------------------------------------------------------
STRUCTURED NOTES--1.3%
- ----------------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc., Cv. Linked Nts., 6%, 12/5/07
(linked to Corning, Inc.) 3,7 (Cost $5,999,776) $ 285,705 $ 5,526,963
SHARES
- ----------------------------------------------------------------------------------------------
MONEY MARKET FUND--4.3%
- ----------------------------------------------------------------------------------------------
Oppenheimer Institutional Money Market Fund, Cl. E, 5.25% 8,9
(Cost $18,266,066) 18,266,066 18,266,066
- ----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $392,125,533) 99.4% 421,928,789
- ----------------------------------------------------------------------------------------------
OTHER ASSETS NET OF LIABILITIES 0.6 2,358,080
-----------------------------
NET ASSETS 100.0% $ 424,286,869
=============================
FOOTNOTES TO STATEMENT OF INVESTMENTS
1. 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 $72,484,400 or 17.08% of the Fund's net
assets as of December 31, 2006.
2. Zero coupon bond reflects effective yield on the date of purchase.
3. Illiquid security. The aggregate value of illiquid securities as of December
31, 2006 was $17,166,339, which represents 4.05% of the Fund's net assets. See
Note 6 of accompanying Notes.
4. Represents the current interest rate for a variable or increasing rate
security.
5. Issue is in default. See Note 1 of accompanying Notes.
6. Units may be comprised of several components, such as debt and equity and/or
warrants to purchase equity at some point in the future. For units, which
represent debt securities, principal amount disclosed represents total
underlying principal.
7. Non-income producing security.
8. Rate shown is the 7-day yield as of December 31, 2006.
9. Represents ownership of an affiliated fund, at or during the period ended
December 31, 2006. Transactions during the period in which the issuer was an
affiliate are as follows:
SHARES SHARES
DECEMBER 31, GROSS GROSS DECEMBER 31,
2005 ADDITIONS REDUCTIONS 2006
- -------------------------------------------------------------------------------------------
Oppenheimer Institutional
Money Market Fund, Cl. E, 5.25%* -- 78,400,578 60,134,512 18,266,066
VALUE DIVIDEND
SEE NOTE 1 INCOME
- -------------------------------------------------------------------------------------------
Oppenheimer Institutional
Money Market Fund, Cl. E, 5.25%* $ 18,266,066 $ 255,288
* The money market fund and the Fund are affiliated by having the same
investment advisor.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
28 | OPPENHEIMER CONVERTIBLE SECURITIES FUND
STATEMENT OF ASSETS AND LIABILITIES December 31, 2006
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
ASSETS
- -----------------------------------------------------------------------------------
Investments, at value--see accompanying statement of investments:
Unaffiliated companies (cost $373,859,467) $ 403,662,723
Affiliated companies (cost $18,266,066) 18,266,066
---------------
421,928,789
- -----------------------------------------------------------------------------------
Cash 626,977
- -----------------------------------------------------------------------------------
Receivables and other assets:
Investments sold 2,519,423
Interest and dividends 1,837,007
Shares of beneficial interest sold 528,690
Other 30,177
---------------
Total assets 427,471,063
- -----------------------------------------------------------------------------------
LIABILITIES
- -----------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased 2,118,000
Shares of beneficial interest redeemed 614,925
Distribution and service plan fees 254,548
Trustees' compensation 65,375
Transfer and shareholder servicing agent fees 55,579
Shareholder communications 49,342
Other 26,425
---------------
Total liabilities 3,184,194
- -----------------------------------------------------------------------------------
NET ASSETS $ 424,286,869
===============
- -----------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
- -----------------------------------------------------------------------------------
Paid-in capital $ 478,543,642
- -----------------------------------------------------------------------------------
Accumulated net investment loss (2,420,816)
- -----------------------------------------------------------------------------------
Accumulated net realized loss on investments (81,639,213)
- -----------------------------------------------------------------------------------
Net unrealized appreciation on investments 29,803,256
---------------
NET ASSETS $ 424,286,869
===============
29 | OPPENHEIMER CONVERTIBLE SECURITIES 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 $240,088,014 and
16,958,853 shares of beneficial interest outstanding) $ 14.16
Maximum offering price per share (net asset value plus sales charge of 5.75% of offering price) $ 15.02
- -----------------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales charge)
and offering price per share (based on net assets of $40,596,924 and 2,863,217 shares of
beneficial interest outstanding) $ 14.18
- -----------------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales charge)
and offering price per share (based on net assets of $55,737,300 and 3,939,081 shares of
beneficial interest outstanding) $ 14.15
- -----------------------------------------------------------------------------------------------------------
Class M Shares:
Net asset value and redemption price per share (based on net assets of $70,996,026 and
5,018,133 shares of beneficial interest outstanding) $ 14.15
Maximum offering price per share (net asset value plus sales charge of 3.25% of offering price) $ 14.63
- -----------------------------------------------------------------------------------------------------------
Class N Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales charge)
and offering price per share (based on net assets of $16,868,605 and 1,191,048 shares of
beneficial interest outstanding) $ 14.16
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
30 | OPPENHEIMER CONVERTIBLE SECURITIES FUND
STATEMENT OF OPERATIONS For the Year Ended December 31, 2006
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INVESTMENT INCOME
- --------------------------------------------------------------------------------
Dividends:
Unaffiliated companies $ 7,341,838
Affiliated companies 255,288
- --------------------------------------------------------------------------------
Interest 7,313,060
- --------------------------------------------------------------------------------
Other income 5,245
---------------
Total investment income 14,915,431
- --------------------------------------------------------------------------------
EXPENSES
- --------------------------------------------------------------------------------
Management fees 2,107,898
- --------------------------------------------------------------------------------
Distribution and service plan fees:
Class A 563,788
Class B 479,898
Class C 573,326
Class M 174,110
Class N 28,132
- --------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees:
Class A 353,712
Class B 86,608
Class C 97,628
Class M 82,842
Class N 9,058
- --------------------------------------------------------------------------------
Shareholder communications:
Class A 46,862
Class B 12,259
Class C 12,656
Class M 10,170
Class N 1,192
- --------------------------------------------------------------------------------
Accounting service fees 130,398
- --------------------------------------------------------------------------------
Custodian fees and expenses 3,692
- --------------------------------------------------------------------------------
Administration service fees 1,500
- --------------------------------------------------------------------------------
Other 82,959
---------------
Total expenses 4,858,688
Less waivers and reimbursements of expenses (4,889)
---------------
Net expenses 4,853,799
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME 10,061,632
31 | OPPENHEIMER CONVERTIBLE SECURITIES FUND
STATEMENT OF OPERATIONS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN
- --------------------------------------------------------------------------------
Net realized gain on:
Investments $ 28,507,724
Closing and expiration of option contracts written 627,461
---------------
Net realized gain 29,135,185
- --------------------------------------------------------------------------------
Net change in unrealized appreciation on investments 3,105,320
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 42,302,137
===============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
32 | OPPENHEIMER CONVERTIBLE SECURITIES FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 2006 2005
- -------------------------------------------------------------------------------------------------
OPERATIONS
- -------------------------------------------------------------------------------------------------
Net investment income $ 10,061,632 $ 12,354,631
- -------------------------------------------------------------------------------------------------
Net realized gain 29,135,185 12,688,258
- -------------------------------------------------------------------------------------------------
Net change in unrealized appreciation 3,105,320 (23,076,957)
--------------------------------
Net increase in net assets resulting from operations 42,302,137 1,965,932
- -------------------------------------------------------------------------------------------------
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------
Dividends from net investment income:
Class A (7,800,060) (12,158,423)
Class B (1,112,118) (2,373,869)
Class C (1,396,887) (2,499,131)
Class M (2,400,470) (3,875,859)
Class N (244,472) (98,537)
--------------------------------
(12,954,007) (21,005,819)
- -------------------------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS
- -------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
beneficial interest transactions:
Class A (27,464,457) (58,200,165)
Class B (21,179,903) (23,575,464)
Class C (10,458,453) (16,051,502)
Class M (13,103,309) (18,593,755)
Class N 13,889,747 419,514
--------------------------------
(58,316,375) (116,001,372)
- -------------------------------------------------------------------------------------------------
NET ASSETS
- -------------------------------------------------------------------------------------------------
Total decrease (28,968,245) (135,041,259)
- -------------------------------------------------------------------------------------------------
Beginning of period 453,255,114 588,296,373
--------------------------------
End of period (including accumulated net investment loss of
$2,420,816 and $4,601,685, respectively) $ 424,286,869 $ 453,255,114
================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
33 | OPPENHEIMER CONVERTIBLE SECURITIES FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
CLASS A YEAR ENDED DECEMBER 31, 2006 2005 2004 2003 2002
- ------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 13.22 $ 13.63 $ 13.27 $ 11.29 $ 12.76
- ------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .35 1 .35 1 .43 1 .56 .57
Net realized and unrealized gain (loss) 1.04 (.16) .58 1.98 (1.41)
--------------------------------------------------------------------------
Total from investment operations 1.39 .19 1.01 2.54 (.84)
- ------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.45) (.60) (.65) (.56) (.63)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 14.16 $ 13.22 $ 13.63 $ 13.27 $ 11.29
==========================================================================
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 10.63% 1.50% 7.74% 22.95% (6.59)%
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 240,088 $ 251,033 $ 319,478 $ 310,641 $ 202,968
- ------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 239,978 $ 277,049 $ 321,729 $ 252,347 $ 190,677
- ------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income 2.57% 2.66% 3.24% 4.48% 4.77%
Total expenses 0.95% 4 0.97% 0.94% 0.94% 0.99%
Expenses after payments and waivers
and reduction to custodian expenses 0.95% 0.96% 0.94% 0.94% 0.99%
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 54% 50% 54% 61% 52%
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 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. Expenses including indirect expenses from affiliated fund were as follows:
Year Ended December 31, 2006 0.95%
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
34 | OPPENHEIMER CONVERTIBLE SECURITIES FUND
CLASS B YEAR ENDED DECEMBER 31, 2006 2005 2004 2003 2002
- ----------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 13.24 $ 13.65 $ 13.29 $ 11.30 $ 12.79
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .24 1 .24 1 .33 1 .43 .43
Net realized and unrealized gain (loss) 1.04 (.15) .58 2.02 (1.38)
------------------------------------------------------------------------------
Total from investment operations 1.28 .09 .91 2.45 (.95)
- ----------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.34) (.50) (.55) (.46) (.54)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 14.18 $ 13.24 $ 13.65 $ 13.29 $ 11.30
==============================================================================
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 9.75% 0.68% 6.92% 22.07% (7.44)%
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 40,597 $ 58,483 $ 84,816 $ 133,058 $ 154,350
- ----------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 47,985 $ 68,098 $ 102,670 $ 139,757 $ 213,259
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income 1.74% 1.84% 2.47% 3.79% 3.95%
Total expenses 1.75% 4,5 1.79% 6 1.75% 6 1.74% 6,7 1.77% 6
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 54% 50% 54% 61% 52%
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 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. Voluntary waiver of affiliated funds management fees less than 0.01%.
5. Expenses including indirect expenses from affiliated fund were as follows:
Year Ended December 31, 2006 1.75%
6. Reduction to custodian expenses less than 0.01%.
7. Voluntary waiver of transfer agent fees less than 0.01%.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
35 | OPPENHEIMER CONVERTIBLE SECURITIES FUND
FINANCIAL HIGHLIGHTS Continued
- --------------------------------------------------------------------------------
CLASS C YEAR ENDED DECEMBER 31, 2006 2005 2004 2003 2002
- ----------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 13.21 $ 13.62 $ 13.27 $ 11.28 $ 12.76
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .24 1 .25 1 .33 1 .46 .46
Net realized and unrealized gain (loss) 1.04 (.16) .57 1.99 (1.40)
------------------------------------------------------------------------------
Total from investment operations 1.28 .09 .90 2.45 (.94)
- ----------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.34) (.50) (.55) (.46) (.54)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 14.15 $ 13.21 $ 13.62 $ 13.27 $ 11.28
==============================================================================
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 9.78% 0.72% 6.89% 22.14% (7.39)%
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 55,737 $ 62,231 $ 80,995 $ 82,149 $ 61,031
- ----------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 57,353 $ 69,275 $ 82,470 $ 69,787 $ 66,391
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income 1.77% 1.89% 2.48% 3.73% 3.97%
Total expenses 1.74% 4,5 1.74% 6 1.70% 6 1.70% 6,7 1.76% 6
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 54% 50% 54% 61% 52%
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 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. Voluntary waiver of affiliated funds management fees less than 0.01%.
5. Expenses including indirect expenses from affiliated fund were as follows:
Year Ended December 31, 2006 1.74%
6. Reduction to custodian expenses less than 0.01%.
7. Voluntary waiver of transfer agent fees less than 0.01%.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
36 | OPPENHEIMER CONVERTIBLE SECURITIES FUND
CLASS M YEAR ENDED DECEMBER 31, 2006 2005 2004 2003 2002
- ----------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 13.21 $ 13.62 $ 13.27 $ 11.28 $ 12.76
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .36 1 .36 1 .43 1 .50 .49
Net realized and unrealized gain (loss) 1.03 (.16) .57 2.00 (1.40)
------------------------------------------------------------------------------
Total from investment operations 1.39 .20 1.00 2.50 (.91)
- ----------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.45) (.61) (.65) (.51) (.57)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 14.15 $ 13.21 $ 13.62 $ 13.27 $ 11.28
==============================================================================
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 10.68% 1.55% 7.69% 22.59% (7.16)%
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 70,996 $ 79,023 $ 100,877 $ 114,600 $ 108,426
- ----------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 73,597 $ 86,969 $ 106,194 $ 110,337 $ 122,897
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income 2.60% 2.72% 3.24% 4.16% 4.24%
Total expenses 0.91% 4,5 0.91% 6 0.95% 6,7 1.32% 6,7 1.51% 6
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 54% 50% 54% 61% 52%
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 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. Voluntary waiver of affiliated funds management fees less than 0.01%.
5. Expenses including indirect expenses from affiliated fund were as follows:
Year Ended December 31, 2006 0.91%
6. Reduction to custodian expenses less than 0.01%.
7. Voluntary waiver of transfer agent fees less than 0.01%.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
37 | OPPENHEIMER CONVERTIBLE SECURITIES FUND
FINANCIAL HIGHLIGHTS Continued
- --------------------------------------------------------------------------------
CLASS N YEAR ENDED DECEMBER 31, 2006 2005 2004 2003 2002
- ------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 13.22 $ 13.63 $ 13.27 $ 11.29 $ 12.76
- ------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .31 1 .28 1 .37 1 .49 .55
Net realized and unrealized gain (loss) 1.02 (.15) .58 2.00 (1.43)
--------------------------------------------------------------------------
Total from investment operations 1.33 .13 .95 2.49 (.88)
- ------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.39) (.54) (.59) (.51) (.59)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 14.16 $ 13.22 $ 13.63 $ 13.27 $ 11.29
==========================================================================
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 10.19% 1.04% 7.31% 22.45% (6.92)%
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 16,869 $ 2,485 $ 2,131 $ 1,458 $ 388
- ------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 5,669 $ 2,378 $ 1,781 $ 743 $ 205
- ------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income 2.26% 2.17% 2.79% 3.87% 4.38%
Total expenses 1.23% 4 1.45% 1.37% 1.37% 1.43%
Expenses after payments and waivers
and reduction to custodian expenses 1.23% 1.43% 1.37% 1.35% 1.38%
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 54% 50% 54% 61% 52%
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 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. Expenses including indirect expenses from affiliated fund were as follows:
Year Ended December 31, 2006 1.23%
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
38 | OPPENHEIMER CONVERTIBLE SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Oppenheimer Convertible Securities Fund (the Fund), a portfolio of the Bond Fund
Series, 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 a high level of total return on its assets through a combination of current
income and capital appreciation. The Fund's investment advisor is
OppenheimerFunds, Inc. (the Manager).
The Fund offers Class A, Class B, Class C, Class M 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 M shares are sold with a reduced front-end
sales charge. 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, M 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(R) 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, as 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. Options are
valued daily based upon the last sale price on the principal exchange on which
the option is traded. Securities (including restricted securities) for which
39 | OPPENHEIMER CONVERTIBLE SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued
market quotations are not readily available are valued at their fair value.
Foreign 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. Investments in
open-end registered investment companies (including affiliated funds) are valued
at that fund's net asset value. Short-term "money market type" debt securities
with remaining maturities of sixty days or less are valued at amortized cost
(which approximates market value).
- --------------------------------------------------------------------------------
STRUCTURED NOTES. The Fund invests in structured notes whose market values,
interest rates and/or redemption prices are linked to the performance of
underlying foreign currencies, interest rate spreads, stock market indices,
prices of individual securities, commodities or other financial instruments or
the occurrence of other specific events. The structured notes are often
leveraged, increasing the volatility of each note's market value relative to the
change in the underlying linked financial element or event. Fluctuations in
value of these securities are recorded as unrealized gains and losses in the
accompanying Statement of Operations. The Fund records a realized gain or loss
when a structured note is sold or matures.
- --------------------------------------------------------------------------------
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 December 31, 2006, securities with an
aggregate market value of $1,142,996, representing 0.27% of the Fund's net
assets, were in default.
- --------------------------------------------------------------------------------
AFFILIATED FUNDS. The Fund is permitted to invest daily available cash balances
in affiliated money market funds. Each day, the Fund invests the available cash
in Class E shares of Oppenheimer Institutional Money Market Fund ("IMMF") which
seeks current income and stability of principal. IMMF is a registered open-end
management investment company, regulated as a money market fund under the
Investment Company Act of 1940, as amended. The Manager is also the investment
advisor of IMMF. The Fund's investment in IMMF is included in the Statement of
Investments. As a shareholder, the Fund is subject to its proportional share of
IMMF's Class E expenses, including its management fee. The Manager will waive
fees and/or reimburse Fund expenses in an amount equal to the indirect
management fees incurred through the Fund's investment in IMMF.
- --------------------------------------------------------------------------------
INVESTMENTS WITH OFF BALANCE SHEET RISK. The Fund enters into financial
instrument transactions (such as swaps, futures, options and other derivatives)
that may have off-balance sheet market risk. Off-balance sheet market risk
exists when the maximum potential loss on a particular financial instrument is
greater than the value of such financial instrument, as reflected in the Fund's
Statement of Assets and Liabilities.
40 | OPPENHEIMER CONVERTIBLE SECURITIES FUND
- --------------------------------------------------------------------------------
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 TAX PURPOSES
--------------------------------------------------------------------------
$ 973,299 $ -- $ 80,698,872 $ 25,801,736
1. As of December 31, 2006, the Fund had $80,698,872 of net capital loss
carryforwards available to offset future realized capital gains, if any, and
thereby reduce future taxable gain distributions. As of December 31, 2006,
details of the capital loss carryforward were as follows:
EXPIRING
------------------------
2010 $ 80,698,872
=============
2. During the fiscal year ended December 31, 2006, the Fund utilized $21,096,894
of capital loss carryforward to offset capital gains realized in that fiscal
year.
3. During the fiscal year ended December 31, 2005, the Fund utilized $7,504,322
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 December 31, 2006. Net assets of
the Fund were unaffected by the reclassifications.
41 | OPPENHEIMER CONVERTIBLE SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued
REDUCTION TO INCREASE TO
REDUCTION ACCUMULATED ACCUMULATED NET
TO PAID-IN NET INVESTMENT REALIZED LOSS
CAPITAL LOSS ON INVESTMENTS
----------------------------------------------------------------
$ 285,664 $ 5,073,244 $ 4,787,580
The tax character of distributions paid during the years ended December 31, 2006
and December 31, 2005 was as follows:
YEAR ENDED YEAR ENDED
DECEMBER 31, 2006 DECEMBER 31, 2005
----------------------------------------------------------------
Distributions paid from:
Ordinary income $ 12,954,007 $ 21,005,819
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 December 31, 2006 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 $ 396,127,053
==============
Gross unrealized appreciation $ 39,475,377
Gross unrealized depreciation (13,673,641)
--------------
Net unrealized appreciation $ 25,801,736
==============
- --------------------------------------------------------------------------------
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 December
31, 2006, the Fund's projected benefit obligations were decreased by $29,737 and
payments of $3,660 were made to retired trustees, resulting in an accumulated
liability of $56,548 as of December 31, 2006.
The Board of Trustees has adopted a compensation deferral 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
42 | OPPENHEIMER CONVERTIBLE SECURITIES FUND
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, to the extent they are not
offset by positive cash balances maintained by the Fund, 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.
- --------------------------------------------------------------------------------
INDEMNIFICATIONS. The Fund's organizational documents provide current and former
trustees and officers with a limited indemnification against liabilities arising
in connection with the performance of their duties to the Fund. In the normal
course of business, the Fund may also enter into contracts that provide general
indemnifications. The Fund's maximum exposure under these arrangements is
unknown as this would be dependent on future claims that may be made against the
Fund. The risk of material loss from such claims is considered remote.
- --------------------------------------------------------------------------------
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.
43 | OPPENHEIMER CONVERTIBLE SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 DECEMBER 31, 2006 YEAR ENDED DECEMBER 31, 2005
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------
CLASS A
Sold 2,318,909 $ 31,684,747 2,229,111 $ 29,269,773
Dividends and/or
distributions reinvested 444,736 6,153,926 717,744 9,447,315
Redeemed (4,798,119) (65,303,130) (7,396,919) (96,917,253)
-------------------------------------------------------------
Net decrease (2,034,474) $ (27,464,457) (4,450,064) $ (58,200,165)
=============================================================
- ----------------------------------------------------------------------------------------
CLASS B
Sold 219,096 $ 2,994,379 384,419 $ 5,032,394
Dividends and/or
distributions reinvested 51,658 716,244 118,262 1,559,371
Redeemed (1,825,531) (24,890,526) (2,299,068) (30,167,229)
-------------------------------------------------------------
Net decrease (1,554,777) $ (21,179,903) (1,796,387) $ (23,575,464)
=============================================================
- ----------------------------------------------------------------------------------------
CLASS C
Sold 363,323 $ 4,952,367 369,150 $ 4,830,334
Dividends and/or
distributions reinvested 71,329 988,545 125,570 1,652,747
Redeemed (1,206,502) (16,399,365) (1,730,481) (22,534,583)
-------------------------------------------------------------
Net decrease (771,850) $ (10,458,453) (1,235,761) $ (16,051,502)
=============================================================
- ----------------------------------------------------------------------------------------
CLASS M
Sold 46,520 $ 635,319 58,022 $ 752,410
Dividends and/or
distributions reinvested 121,268 1,676,096 206,256 2,712,110
Redeemed (1,132,431) (15,414,724) (1,688,476) (22,058,275)
-------------------------------------------------------------
Net decrease (964,643) $ (13,103,309) (1,424,198) $ (18,593,755)
=============================================================
- ----------------------------------------------------------------------------------------
CLASS N
Sold 1,037,870 $ 14,367,145 71,550 $ 939,101
Dividends and/or
distributions reinvested 16,642 234,685 6,529 86,038
Redeemed (51,480) (712,083) (46,439) (605,625)
-------------------------------------------------------------
Net increase 1,003,032 $ 13,889,747 31,640 $ 419,514
=============================================================
44 | OPPENHEIMER CONVERTIBLE SECURITIES FUND
- --------------------------------------------------------------------------------
3. PURCHASES AND SALES OF SECURITIES
The aggregate cost of purchases and proceeds from sales of securities, other
than short-term obligations and money market funds, for the year ended December
31, 2006, were as follows:
PURCHASES SALES
-------------------------------------------------------
Investment securities $ 205,513,183 $ 257,240,392
- --------------------------------------------------------------------------------
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
MANAGEMENT FEES. Management fees paid to the Manager were in accordance with the
investment advisory agreement with the Fund which provides for a fee at an
annual rate of average net assets as shown in the following table:
FEE SCHEDULE
--------------------------------------------------------
Up to $50 million 0.6250%
Next $250 million 0.5000
Over $300 million 0.4375
- --------------------------------------------------------------------------------
ACCOUNTING FEES. Accounting fees paid to the Manager were in accordance with the
accounting services agreement with the Fund which provides for an annual fee of
$12,000 for the first $30 million of average daily net assets and $9,000 for
each additional $30 million of average daily net assets. During the year ended
December 31, 2006, the Fund paid $130,398 to the Manager for accounting and
pricing services.
- --------------------------------------------------------------------------------
ADMINISTRATION SERVICE FEES. The Fund pays the Manager a fee of $1,500 per year
for preparing and filing the Fund's tax returns.
- --------------------------------------------------------------------------------
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 December 31, 2006, the Fund paid
$642,643 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
periodically 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 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
periods. Fees incurred by the Fund under the Plan are detailed in the Statement
of Operations.
45 | OPPENHEIMER CONVERTIBLE SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES Continued
DISTRIBUTION AND SERVICE PLANS FOR CLASS B, CLASS C, CLASS M AND CLASS N SHARES.
The Fund has adopted Distribution and Service Plans for Class B, Class C, Class
M 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. While the Class
M plan permits an annual asset-based sales charge payment of 0.50%, the Board
has set that payment at zero effective February 11, 2004. The Distributor also
receives a service fee of 0.25% per year under each plan. If either the Class B,
Class C, Class M 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 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
determines its uncompensated expenses under the plan at calendar quarter ends.
The Distributor's aggregate uncompensated expenses under the plan at December
31, 2006 for Class B, Class C and Class N shares were $2,207,450, $2,567,276 and
$157,611, 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 following table for the period
indicated.
CLASS A CLASS B CLASS C CLASS N
CLASS A CLASS M CONTINGENT CONTINGENT CONTINGENT CONTINGENT
FRONT-END FRONT-END DEFERRED DEFERRED DEFERRED DEFERRED
SALES CHARGES SALES CHARGES SALES CHARGES SALES CHARGES SALES CHARGES SALES CHARGES
RETAINED BY RETAINED BY RETAINED BY RETAINED BY RETAINED BY RETAINED BY
YEAR ENDED DISTRIBUTOR DISTRIBUTOR DISTRIBUTOR DISTRIBUTOR DISTRIBUTOR DISTRIBUTOR
- -----------------------------------------------------------------------------------------------------------------
December 31, 2006 $ 44,839 $ 78 $ 2,889 $ 138,403 $ 2,021 $ 309
- --------------------------------------------------------------------------------
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. During the year ended December 31, 2006,
OFS waived $15 for Class N shares. This undertaking may be amended or withdrawn
at any time.
The Manager will waive fees and/or reimburse Fund expenses in an amount
equal to the indirect management fees incurred through the Fund's investment in
IMMF. During the year ended December 31, 2006, the Manager waived $4,874 for
IMMF management fees.
46 | OPPENHEIMER CONVERTIBLE SECURITIES FUND
- --------------------------------------------------------------------------------
5. 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 or put options are noted
in the Statement of Investments where applicable. Contracts subject to call or
put, 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 December 31, 2006 was as follows:
CALL OPTIONS
------------------------
NUMBER OF AMOUNT OF
CONTRACTS PREMIUMS
- ----------------------------------------------------------------------
Options outstanding as of December 31, 2005 -- $ --
Options written 5,600 1,012,830
Options closed or expired (5,600) (1,012,830)
------------------------
Options outstanding as of December 31, 2006 -- $ --
========================
47 | OPPENHEIMER CONVERTIBLE SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
6. ILLIQUID SECURITIES
As of December 31, 2006, 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.
- --------------------------------------------------------------------------------
7. RECENT ACCOUNTING PRONOUNCEMENTS
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48 ("FIN 48"), ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES.
FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an
enterprise's financial statements in accordance with FASB Statement No. 109,
ACCOUNTING FOR INCOME TAXES. FIN 48 requires the evaluation of tax positions
taken in the course of preparing the Fund's tax returns to determine whether it
is "more-likely-than-not" that tax positions taken in the Fund's tax return will
be ultimately sustained. A tax liability and expense must be recorded in respect
of any tax position that, in Management's judgment, will not be fully realized.
FIN 48 is effective for fiscal years beginning after December 15, 2006. As of
December 31, 2006, the Manager has evaluated the implications of FIN 48 and does
not currently anticipate a material impact to the Fund's financial statements.
The Manager will continue to monitor the Fund's tax positions prospectively for
potential future impacts.
In September 2006, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 157, FAIR VALUE MEASUREMENTS. This standard establishes a
single authoritative definition of fair value, sets out a framework for
measuring fair value and expands disclosures about fair value measurements. SFAS
No. 157 applies to fair value measurements already required or permitted by
existing standards. SFAS No. 157 is effective for financial statements issued
for fiscal years beginning after November 15, 2007, and interim periods within
those fiscal years. As of December 31, 2006, the Manager does not believe the
adoption of SFAS No. 157 will materially impact the financial statement amounts;
however, additional disclosures may be required about the inputs used to develop
the measurements and the effect of certain of the measurements on changes in net
assets for the period.
- --------------------------------------------------------------------------------
8. LITIGATION
A consolidated amended complaint was filed as a putative class action against
the Manager and the Transfer Agent and other defendants (including 51 of the
Oppenheimer funds including the Fund) in the U.S. District Court for the
Southern District of New York on January 10, 2005 and was amended on March 4,
2005. The complaint alleged, among other things, that the Manager charged
excessive fees for distribution and other costs, and that by permitting and/or
participating in those actions, the Directors/Trustees and the Officers
48 | OPPENHEIMER CONVERTIBLE SECURITIES FUND
of the funds breached their fiduciary duties to fund shareholders under the
Investment Company Act of 1940 and at common law. The plaintiffs sought
unspecified damages, an accounting of all fees paid, and an award of attorneys'
fees and litigation expenses.
In response to the defendants' motions to dismiss the suit, seven of the
eight counts in the complaint, including the claims against certain of the
Oppenheimer funds, as nominal defendants, and against certain present and former
Directors, Trustees and Officers of the funds, and the Distributor, as
defendants, were dismissed with prejudice, by court order dated March 10, 2006,
and the remaining count against the Manager and the Transfer Agent was dismissed
with prejudice by court order dated April 5, 2006. The plaintiffs filed an
appeal of those dismissals on May 11, 2006.
The Manager believes that the allegations contained in the complaint are
without merit and that there are substantial grounds to sustain the district
court's rulings. The Manager also believes that it is premature to render any
opinion as to the likelihood of an outcome unfavorable to it, the funds, the
Directors/Trustees or the Officers on the appeal of the decisions of the
district court, and that no estimate can yet be made with any degree of
certainty as to the amount or range of any potential loss.
49 | OPPENHEIMER CONVERTIBLE SECURITIES FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE BOARD OF TRUSTEES AND SHAREHOLDERS OF OPPENHEIMER BOND FUND SERIES:
We have audited the accompanying statement of assets and liabilities of
Oppenheimer Convertible Securities Fund, (a portfolio of the Bond Fund Series),
including the statement of investments, as of December 31, 2006, 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 December 31, 2006, 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 Convertible Securities Fund as of December 31, 2006, 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
February 8, 2007
50 | OPPENHEIMER CONVERTIBLE SECURITIES FUND
FEDERAL INCOME TAX INFORMATION Unaudited
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
In early 2007, if applicable, shareholders of record received information
regarding all dividends and distributions paid to them by the Fund during
calendar year 2006. Regulations of the U.S. Treasury Department require the Fund
to report this information to the Internal Revenue Service.
Dividends, if any, paid by the Fund during the fiscal year ended December
31, 2006 which are not designated as capital gain distributions should be
multiplied by 20.28% to arrive at the amount eligible for the corporate
dividend-received deduction.
A portion, if any, of the dividends paid by the Fund during the fiscal
year ended December 31, 2006 which are not designated as capital gain
distributions are eligible for lower individual income tax rates to the extent
that the Fund has received qualified dividend income as stipulated by recent tax
legislation. $2,837,085 of the Fund's fiscal year taxable income may be eligible
for the lower individual income tax rates. In early 2007, shareholders of record
received information regarding the percentage of distributions that are eligible
for lower individual income tax rates.
Recent tax legislation allows a regulated investment company to designate
distributions not designated as capital gain distributions, as either interest
related dividends or short-term capital gain dividends, both of which are exempt
from the U.S. withholding tax applicable to non U.S. taxpayers. For the fiscal
year ended December 31, 2006, $11,035,397 or 85.19% of the ordinary
distributions paid by the Fund qualifies as an interest related dividend.
The foregoing information is presented to assist shareholders in reporting
distributions received from the Fund to the Internal Revenue Service. Because of
the complexity of the federal regulations which may affect your individual tax
return and the many variations in state and local tax regulations, we recommend
that you consult your tax advisor for specific guidance.
51 | OPPENHEIMER CONVERTIBLE SECURITIES FUND
PORTFOLIO PROXY VOTING POLICIES AND PROCEDURES;
UPDATES TO STATEMENTS OF INVESTMENTS Unaudited
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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. A description of the Fund's Portfolio Proxy Voting Policies and Procedures
is available (i) without charge, upon request, by calling the Fund toll-free at
1.800.525.7048, (ii) on the Fund's website at www.oppenheimerfunds.com, and
(iii) on the SEC's website at www.sec.gov. In addition, 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 voting record is
available (i) without charge, upon request, by calling the Fund toll-free at
1.800.525.7048, and (ii) in the Form N-PX filing on the SEC's website at
www.sec.gov.
The Fund files its complete schedule of portfolio holdings with the SEC
for the first quarter and the third quarter of each fiscal year on Form N-Q. The
Fund's Form N-Q filings are available on the SEC's website at
http://www.sec.gov. Those forms may 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 1-800-SEC-0330.
52 | OPPENHEIMER CONVERTIBLE SECURITIES FUND
BOARD APPROVAL OF THE FUND'S INVESTMENT
ADVISORY AGREEMENT Unaudited
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Each year, the Board of Trustees (the "Board"), including a majority of the
independent Trustees, is required to determine whether to renew the Fund's
investment advisory agreement (the "Agreement"). The Investment Company Act of
1940, as amended, requires that the Board request and evaluate, and that the
Manager provide, such information as may be reasonably necessary to evaluate the
terms of the Agreement. The Board employs an independent consultant to prepare a
report that provides information, including comparative information, that the
Board requests for that purpose. In addition, the Board receives information
throughout the year regarding Fund services, fees, expenses and performance.
The Manager and the independent consultant provided information to the
Board on the following factors: (i) the nature, quality and extent of the
Manager's services, (ii) the investment performance of the Fund and the Manager,
(iii) the fees and expenses of the Fund, including comparative expense
information, (iv) the profitability of the Manager and its affiliates, including
an analysis of the cost of providing services by the Manager and its affiliates,
(v) the extent to which economies of scale are realized as the Fund grows and
whether fee levels reflect these economies of scale for Fund investors and (vi)
other benefits to the Manager from its relationship with the Fund. The Board was
aware that there are alternatives to retaining the Manager.
NATURE AND EXTENT OF SERVICES. The Board considered information about the
nature and extent of the services provided to the Fund and information regarding
the Manager's key personnel who provide such services. The Manager's duties
include providing the Fund with the services of the portfolio manager and the
Manager's investment team, who provide research, analysis and other advisory
services in regard to the Fund's investments; securities trading services;
oversight of third party service providers; monitoring compliance with
applicable Fund policies and procedures and adherence to the Fund's investment
restrictions. The Manager is responsible for providing certain administrative
services to the Fund as well. Those services include providing and supervising
all administrative and clerical personnel who are necessary in order to provide
effective corporate administration for the Fund; compiling and maintaining
records with respect to the Fund's operations; preparing and filing reports
required by the Securities and Exchange Commission; preparing periodic reports
regarding the operations of the Fund for its shareholders; preparing proxy
materials for shareholder meetings; and preparing the registration statements
required by Federal and state securities laws for the sale of the Fund's shares.
The Manager also provides the Fund with office space, facilities and equipment.
53 | OPPENHEIMER CONVERTIBLE SECURITIES FUND
BOARD APPROVAL OF THE FUND'S INVESTMENT
ADVISORY AGREEMENT Unaudited / Continued
- --------------------------------------------------------------------------------
QUALITY OF SERVICES. The Board also considered the quality of the services
provided and the quality of the Manager's resources that are available to the
Fund. The Board took account of the fact that the Manager has had over forty
years of experience as an investment adviser and that its assets under
management rank it among the top mutual fund managers in the United States. The
Board evaluated the Manager's administrative, accounting, legal and compliance
services, and information the Board has received regarding the experience and
professional qualifications of the Manager's personnel and the size and
functions of its staff. In its evaluation of the quality of the portfolio
management services provided, the Board considered the experience of Edward
Everett and the Manager's Growth Equity investment team and analysts. The Board
members also considered their experiences with the Manager and its officers and
other personnel through their service on the boards of the Fund and other funds
advised by the Manager. The Board considered information regarding the quality
of services provided by affiliates of the Manager, which its members have become
knowledgeable about in connection with the renewal of the Fund's service
agreements. In light of the foregoing, the Board concluded that the Fund
benefits from the services provided under the Agreement and from the Manager's
experience, reputation, personnel, operations, and resources.
INVESTMENT PERFORMANCE OF THE MANAGER AND THE FUND. During the year, the
Manager provided information on the investment performance of the Fund and the
Manager at each Board meeting, including comparative performance information.
The Board also reviewed information, prepared by the Manager and by the
independent consultant, comparing the Fund's historical performance to relevant
market indices and to the performance of all other retail front-end load and
no-load convertible securities funds advised by other investment advisers. The
Board noted that the Fund's one-year, three-year, five-year and ten-year
performance were below its peer group median.
MANAGEMENT FEES AND EXPENSES. The Board reviewed the fees paid to the
Manager and its affiliates and the other expenses borne by the Fund. The Board
also evaluated the comparability of the fees charged and the services provided
to the Fund to the fees and services for other clients or accounts advised by
the Manager. The independent consultant provided comparative data in regard to
the fees and expenses of the Fund, other convertible securities funds and other
funds with comparable asset levels and distribution features. The Board noted
that the Fund's contractual and actual management fees and total expenses are
lower than its peer group median.
ECONOMIES OF SCALE. The Board reviewed the extent to which the Manager may
realize economies of scale in managing and supporting the Fund, the extent to
which those
54 | OPPENHEIMER CONVERTIBLE SECURITIES FUND
economies of scale benefit the Fund's shareholders and the current level of Fund
assets in relation to the Fund's breakpoint schedule for its management fees.
The Board also noted the Fund's breakpoints, which are intended to share
economies of scale that may exist as the Fund grows with its shareholders.
BENEFITS TO THE MANAGER. The Board considered information regarding the
Manager's costs in serving as the Fund's investment adviser, including the costs
associated with the personnel and systems necessary to manage the Fund, and
information regarding the Manager's profitability from its relationship with the
Fund. The Board considered that the Manager must be able to pay and retain
experienced professional personnel at competitive rates to provide services to
the Fund and that maintaining the financial viability of the Manager is
important in order for the Manager to continue to provide significant services
to the Fund and its shareholders. In addition to considering the profits
realized by the Manager, the Board considered information regarding the direct
and indirect benefits the Manager receives as a result of its relationship with
the Fund, including compensation paid to the Manager's affiliates for services
provided.
CONCLUSIONS. These factors were also considered by the independent
Trustees meeting separately from the full Board, assisted by experienced counsel
to the Fund and the independent Trustees. Fund counsel is independent of the
Manager within the meaning and intent of the Securities and Exchange Commission
Rules.
Based on its review of the information it received and its evaluations
described above, the Board, including a majority of the independent Trustees,
concluded that the nature, extent and quality of the services provided to the
Fund by the Manager are a benefit to the Fund and in the best interest of the
Fund's shareholders and that the amount and structure of the compensation
received by the Manager and its affiliates are reasonable in relation to the
services provided. Accordingly, the Board elected to continue the Agreement for
another year. In arriving at this decision, the Board did not single out any
factor or factors as being more important than others, but considered all of the
factors together. The Board judged the terms and conditions of the Agreement,
including the management fee, in light of all of the surrounding circumstances.
55 | OPPENHEIMER CONVERTIBLE SECURITIES FUND
TRUSTEES AND OFFICERS Unaudited
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
NAME, POSITION(S) HELD WITH THE PRINCIPAL OCCUPATION(S) DURING THE PAST 5 YEARS; OTHER
FUND, LENGTH OF SERVICE, AGE TRUSTEESHIPS/DIRECTORSHIPS HELD; NUMBER OF PORTFOLIOS IN THE FUND
COMPLEX CURRENTLY OVERSEEN
INDEPENDENT THE ADDRESS OF EACH TRUSTEE IN THE CHART BELOW IS 6803 S. TUCSON
TRUSTEES WAY, CENTENNIAL, COLORADO 80112-3924. EACH TRUSTEE SERVES FOR AN
INDEFINITE TERM, OR UNTIL HIS OR HER RESIGNATION, RETIREMENT,
DEATH OR REMOVAL.
THOMAS W. COURTNEY, Principal of Courtney Associates, Inc. (venture capital firm)
Chairman of the Board of (since 1982); General Partner of Trivest Venture Fund (private
Trustees (since 2001), venture capital fund); President of Investment Counseling
Trustee (since 1995) Federated Investors, Inc. (1973-1982); Trustee of the following
Age: 73 open-end investment companies: Cash Assets Trust (1984), Premier
VIT (formerly PIMCO Advisors VIT), Tax Free Trust of Arizona
(since 1984) and four funds for the Hawaiian Tax Free Trust.
Oversees 10 portfolios in the OppenheimerFunds complex.
JOHN CANNON, Director of Neuberger Berman Income Managers Trust, Neuberger &
Trustee (since 1999) Berman Income Funds and Neuberger Berman Trust, (open-end
Age: 77 investment companies) (1995-present); Director of Neuberger Berman
Equity Funds (open-end investment company) (since November
2000); Trustee, Neuberger Berman Mutual Funds (open-end investment
company) (since October 1994); Mr. Cannon held the following
positions at CDC Investment Advisors (registered investment
adviser): Chairman and Treasurer (December 1993-February 1996),
Independent Consultant and Chief Investment Officer (1996-June
2000) and Consultant and Director (December 1993-February 1999).
Oversees 3 portfolios in the OppenheimerFunds complex.
DAVID K. DOWNES, President, Chief Executive Officer and Board Member of CRAFund
Trustee (since 2005) Advisors, Inc. (investment management company) (since January
Age: 66 2004); President of The Community Reinvestment Act Qualified
Investment Fund (investment management company) (since January
2004); Independent Chairman of the Board of Trustees of Quaker
Investment Trust (registered investment company) (since January
2004); Director of Internet Capital Group (information technology
company) (since October 2003); Chief Operating Officer and Chief
Financial Officer of Lincoln National Investment Companies, Inc.
(subsidiary of Lincoln National Corporation, a publicly traded
company) and Delaware Investments U.S., Inc. (investment
management subsidiary of Lincoln National Corporation) (1995-
2003); President, Chief Executive Officer and Trustee of Delaware
Investment Family of Funds (1995-2003); President and Board Member
of Lincoln National Convertible Securities Funds, Inc. and the
Lincoln National Income Funds, TDC (1995-2003); Chairman and Chief
Executive Officer of Retirement Financial Services, Inc.
(registered transfer agent and investment adviser and subsidiary
of Delaware Investments U.S., Inc.) (1995-2003); President and
Chief Executive Officer of Delaware Service Company, Inc.
(1995-2003); Chief Administrative Officer, Chief Financial
Officer, Vice Chairman and Director of Equitable Capital
Management Corporation (investment subsidiary of Equitable Life
Assurance Society) (1985-1992); Corporate Controller of Merrill
Lynch & Company (financial services holding company) (1977-1985);
held the following positions at the Colonial Penn Group, Inc.
(insurance company): Corporate Budget Director (1974-1977),
Director of STCM Management Company, Inc. (sponsor and adviser
(1969-1972); held the following positions at Price Waterhouse &
Company (financial services firm): Tax Manager (1967-1969), Tax
Senior (1965-1967) and Staff Accountant (1963-1965); United States
Marine Corps (1957-1959). Oversees 10 portfolios in the
OppenheimerFunds complex.
56 | OPPENHEIMER CONVERTIBLE SECURITIES FUND
ROBERT G. GALLI, A director or trustee of other Oppenheimer funds. Oversees 59
Trustee (since 1998) portfolios in the OppenheimerFunds complex.
Age: 73
LACY B. HERRMANN, Founder and Chairman Emeritus of Aquila Group of Funds (open-end
Trustee (since 1995) investment company) (since December 2004); Chairman of Aquila
Age: 77 Management Corporation and Aquila Investment Management LLC (since
August 1984); Chief Executive Officer and President of Aquila
Management Corporation (August 1984-December 1994); Vice
President, Director and Secretary of Aquila Distributors, Inc.
(distributor of Aquila Management Corporation); Treasurer of
Aquila Distributors, Inc.; President and Chairman of the Board of
Trustees of Capital Cash Management Trust ("CCMT"); President and
Director of STCM Management Company, Inc. (sponsor and adviser to
CCMT); Chairman, President and Director of InCap Management
Corporation; Sub-Advisor and Administrator of Prime Cash Fund &
Short Term Asset Reserves; Director of OCC Cash Reserves, Inc.
(open-end investment company) (June 2003-December 2004); Trustee of
Premier VIT (formerly PIMCO Advisors VIT) (investment company)
(since 1994); Trustee of OCC Accumulation Trust (open-end investment
company) (until December 2004); Trustee Emeritus of Brown University
(since June 1983). Oversees 10 portfolios in the OppenheimerFunds
complex.
BRIAN F. WRUBLE, General Partner of Odyssey Partners, L.P. (hedge fund) (since
Trustee (since 2001) September 1995); Director of Special Value Opportunities Fund, LLC
Age: 63 (registered investment company) (since September 2004); Investment
Advisory Board Member of Zurich Financial Services (insurance)
(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) and Managing Principal (1997-December 1998); 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 59 portfolios in the OppenheimerFunds complex.
- -----------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE THE ADDRESS OF MR. MURPHY IS TWO WORLD FINANCIAL CENTER, 225
AND OFFICER 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 DUE TO HIS POSITIONS
WITH OPPENHEIMERFUNDS, INC. AND ITS AFFILIATES.
JOHN V. MURPHY, Chairman, Chief Executive Officer and Director (since June 2001)
President and Principal and President (since September 2000) of the Manager; President and
Executive Officer (since 2001) director or trustee of other Oppenheimer funds; President and
and Trustee (since 2005) Director of Oppenheimer Acquisition Corp. ("OAC") (the Manager's
Age: 57 parent holding 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
57 | OPPENHEIMER CONVERTIBLE SECURITIES FUND
TRUSTEES AND OFFICERS Unaudited / Continued
- --------------------------------------------------------------------------------
JOHN V. MURPHY, Private Investments, Inc. (since July 2001); President (since
Continued 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
96 portfolios in the OppenheimerFunds complex.
- -----------------------------------------------------------------------------------------------------
OTHER OFFICERS OF THE ADDRESSES OF THE OFFICERS IN THE CHART BELOW ARE AS FOLLOWS:
THE FUND FOR MESSRS. EVERETT, ZACK, GILLESPIE AND MS. BLOOMBERG, TWO WORLD
FINANCIAL CENTER, 225 LIBERTY STREET, NEW YORK, NEW YORK
10281-1008, FOR MESSRS. VANDEHEY, WIXTED, PETERSEN, SZILAGYI 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.
EDWARD EVERETT, Vice President of the Manager (since January 2000); Assistant Vice
Vice President and Portfolio President of the Manager and of the Fund (January 1996-January
Manager (since 2000) 2000). An officer of 1 portfolio in the OppenheimerFunds complex.
Age: 40
MARK S. VANDEHEY, Senior Vice President and Chief Compliance Officer of the Manager
Vice President and Chief (since March 2004); Vice President of OppenheimerFunds
Compliance Officer Distributor, Inc., Centennial Asset Management Corporation and
(since 2004) Shareholder Services, Inc. (since June 1983). Former Vice
Age: 56 President and Director of Internal Audit of the Manager (1997-
February 2004). An officer of 96 portfolios in the
OppenheimerFunds complex.
BRIAN W. WIXTED, Senior Vice President and Treasurer of the Manager (since March
Treasurer and Principal 1999); Treasurer of the following: HarbourView Asset Management
Financial & Accounting Corporation, Shareholder Financial Services, Inc., Shareholder
Officer (since 1999) Services, Inc., Oppenheimer Real Asset Management Corporation, and
Age: 47 Oppenheimer Partnership 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 96
portfolios in the OppenheimerFunds complex.
BRIAN S. PETERSEN, Assistant Vice President of the Manager (since August 2002);
Assistant Treasurer Manager/Financial Product Accounting of the Manager (November
(since 2004) 1998-July 2002). An officer of 96 portfolios in the
Age: 36 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: 36 Berger Financial Group LLC (May 2001-March 2003); Director of
Mutual Fund Operations at American Data Services, Inc. (September
2000-May 2001). An officer of 96 portfolios in the
OppenheimerFunds complex.
58 | OPPENHEIMER CONVERTIBLE SECURITIES FUND
ROBERT G. ZACK, Executive Vice President (since January 2004) and General Counsel
Secretary (since 2001) (since March 2002) of the Manager; General Counsel and Director of
Age: 58 the Distributor (since December 2001); General Counsel of
Centennial Asset Management Corporation (since December 2001);
Senior Vice President and General Counsel of Harbour-View 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 96 portfolios in the
OppenheimerFunds complex.
KATHLEEN T. IVES, Vice President (since June 1998) and Senior Counsel and Assistant
Assistant Secretary Secretary (since October 2003) of the Manager; Vice President
(since 2001) (since 1999) and Assistant Secretary (since October 2003) of the
Age: 41 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 96
portfolios in the OppenheimerFunds complex.
LISA I. BLOOMBERG, Vice President and Associate Counsel of the Manager (since May
Assistant Secretary 2004); First Vice President (April 2001-April 2004), Associate
(since 2004) General Counsel (December 2000-April 2004), Corporate Vice
Age: 39 President (May 1999-April 2001) and Assistant General Counsel (May
1999-December 2000) of UBS Financial Services Inc. (formerly,
PaineWebber Incorporated). An officer of 96 portfolios in the
OppenheimerFunds complex.
PHILLIP S. GILLESPIE, Senior Vice President and Deputy General Counsel of the Manager
Assistant Secretary (since September 2004); Mr. Gillespie held the following positions
(since 2004) at Merrill Lynch Investment Management: First Vice President
Age: 43 (2001-September 2004); Director (2000-September 2004) and Vice
President (1998-2000). An officer of 96 portfolios in the
OppenheimerFunds complex.
THE FUND'S STATEMENT OF ADDITIONAL INFORMATION CONTAINS ADDITIONAL INFORMATION
ABOUT THE FUND'S TRUSTEES AND OFFICERS AND IS AVAILABLE WITHOUT CHARGE UPON
REQUEST, BY CALLING 1.800.525.7048.
59 | OPPENHEIMER CONVERTIBLE SECURITIES FUND
ITEM 2. CODE OF ETHICS.
The registrant has adopted a code of ethics that applies to the registrant's
principal executive officer, principal financial officer, principal accounting
officer or controller or persons performing similar functions.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Board of Trustees of the registrant has determined that Edward L. Cameron,
the Chairman of the Board's Audit Committee, and George C. Bowen, a member of
the Board's Audit Committee, are audit committee financial experts and that
Messrs. Cameron and Bowen are "independent" for purposes of this Item 3.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees
The principal accountant for the audit of the registrant's annual financial
statements billed $21,000 in fiscal 2006 and $20,000 in fiscal 2005.
(b) Audit-Related Fees
The principal accountant for the audit of the registrant's annual financial
statements billed no such fees during the last two fiscal years.
The principal accountant for the audit of the registrant's annual financial
statements billed $225,954 in fiscal 2006 and $156,805 in fiscal 2005 to the
registrant's investment adviser or any entity controlling, controlled by, or
under common control with the adviser that provides ongoing services to the
registrant.
Such services include: internal control reviews and professional services
relating to FAS 123R review.
(c) Tax Fees
The principal accountant for the audit of the registrant's annual financial
statements billed no such fees to the registrant during the last two fiscal
years.
The principal accountant for the audit of the registrant's annual financial
statements billed no such fees in fiscal 2006 and $6,536 in fiscal 2005 to the
registrant's investment adviser or any entity controlling, controlled by, or
under common control with the adviser that provides ongoing services to the
registrant.
Such services include: Preparation of form 5500.
(d) All Other Fees
The principal accountant for the audit of the registrant's annual financial
statements billed no such fees during the last two fiscal years.
The principal accountant for the audit of the registrant's annual financial
statements billed no such fees during the last two fiscal years to the
registrant's investment adviser or any entity controlling, controlled by, or
under common control with the adviser that provides ongoing services to the
registrant.
(e) (1) During its regularly scheduled periodic meetings, the registrant's
audit committee will pre-approve all audit, audit-related, tax and other
services to be provided by the principal accountants of the registrant.
The audit committee has delegated pre-approval authority to its Chairman
for any subsequent new engagements that arise between regularly scheduled
meeting dates provided that any fees such pre-approved are presented to
the audit committee at its next regularly scheduled meeting.
Under applicable laws, pre-approval of non-audit services maybe waived
provided that: 1) the aggregate amount of all such services provided
constitutes no more than five percent of the total amount of fees paid by
the registrant to it principal accountant during the fiscal year in which
services are provided 2) such services were not recognized by the
registrant at the time of engagement as non-audit services and 3) such
services are promptly brought to the attention of the audit committee of
the registrant and approved prior to the completion of the audit.
(2) 100%
(f) Not applicable as less than 50%.
(g) The principal accountant for the audit of the registrant's annual
financial statements billed $225,954 in fiscal 2006 and $163,341 in fiscal
2005 to the registrant and the registrant's investment adviser or any
entity controlling, controlled by, or under common control with the
adviser that provides ongoing services to the registrant related to
non-audit fees. Those billings did not include any prohibited non-audit
services as defined by the Securities Exchange Act of 1934.
(h) No such services were rendered.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
THE FUND'S AUDIT COMMITTEE PROVISIONS WITH RESPECT TO NOMINATIONS OF
DIRECTORS/TRUSTEES TO THE RESPECTIVE BOARDS
1. The Fund's Audit Committee (the "Committee") will evaluate potential
Board candidates to assess their qualifications. The Committee shall have
the authority, upon approval of the Board, to retain an executive search
firm to assist in this effort. The Committee may consider recommendations
by business and personal contacts of current Board members and by
executive search firms which the Committee may engage from time to time
and may also consider shareholder recommendations. The Committee may
consider the advice and recommendation of the Funds' investment manager
and its affiliates in making the selection.
2. The Committee shall screen candidates for Board membership. The Committee
has not established specific qualifications that it believes must be met
by a trustee nominee. In evaluating trustee nominees, the 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 of 1940; and whether the individual would be
deemed an "audit committee financial expert" within the meaning of
applicable SEC rules. The Committee also considers whether the
individual's background, skills, and experience will complement the
background, skills, and experience of other nominees and will contribute
to the Board. There are no differences in the manner in which the
Committee evaluates nominees for trustees based on whether the nominee is
recommended by a shareholder.
3. The Committee may consider nominations from shareholders for the Board at
such times as the Committee meets to consider new nominees for the Board.
The Committee shall have the sole discretion to determine the candidates
to present to the Board and, in such cases where required, to
shareholders. Recommendations for trustee nominees should, at a minimum,
be accompanied by the following:
o the name, address, and business, educational, and/or other pertinent
background of the person being recommended;
o a statement concerning whether the person is an "interested person"
as defined in the Investment Company Act of 1940;
o any other information that the Funds would be required to include in
a proxy statement concerning the person if he or she was nominated;
and
o 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.
The recommendation also can include any additional information which the
person submitting it believes would assist the Committee in evaluating the
recommendation.
4. Shareholders should note that a person who owns securities issued by
Massachusetts Mutual Life Insurance Company (the parent company of the
Funds' investment adviser) would be deemed an "interested person" under
the Investment Company Act of 1940. 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."
5. Before the Committee decides to nominate an individual as a trustee,
Committee members and other directors customarily interview the individual
in person. In addition, the individual customarily is asked to complete a
detailed questionnaire which is designed to elicit information which must
be disclosed under SEC and stock exchange rules and to determine whether
the individual is subject to any statutory disqualification from serving
as a trustee of a registered investment company.
ITEM 11. CONTROLS AND PROCEDURES.
Based on their evaluation of the registrant's disclosure controls and procedures
(as defined in rule 30a-3(c) under the Investment Company Act of 1940 (17 CFR
270.30a-3(c)) as of December 31, 2006, the registrant's principal executive
officer and principal financial officer found the registrant's disclosure
controls and procedures to provide reasonable assurances that information
required to be disclosed by the registrant in the reports that it files under
the Securities Exchange Act of 1934 (a) is accumulated and communicated to
registrant's management, including its principal executive officer and principal
financial officer, to allow timely decisions regarding required disclosure, and
(b) is recorded, processed, summarized and reported, within the time periods
specified in the rules and forms adopted by the U.S. Securities and Exchange
Commission.
There have been no changes in the registrant's internal controls over financial
reporting that occurred during the registrant's second fiscal quarter of the
period covered by this
report that have materially affected, or are reasonably likely to materially
affect, the registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
(a) (1) Exhibit attached hereto.
(2) Exhibits attached hereto.
(3) Not applicable.
(b) Exhibit attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Bond Fund Series
By: /s/ John V. Murphy
---------------------------
John V. Murphy
Principal Executive Officer
Date: February 8, 2007
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ John V. Murphy
---------------------------
John V. Murphy
Principal Executive Officer
Date: February 8, 2007
By: /s/ Brian W. Wixted
---------------------------
Brian W. Wixted
Principal Financial Officer
Date: February 8, 2007