N-CSR 1 ra540_37590ncsr.txt RA540_37590NCSR.TXT 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 811-21686 --------- OPPENHEIMER PORTFOLIO SERIES ---------------------------- (Exact name of registrant as specified in charter) 6803 SOUTH TUCSON WAY, CENTENNIAL, COLORADO 80112-3924 ------------------------------------------------------ (Address of principal executive offices) (Zip code) Robert G. Zack, Esq. OppenheimerFunds, Inc. TWO WORLD FINANCIAL CENTER, NEW YORK, NEW YORK 10281-1008 --------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: (303) 768-3200 -------------- Date of fiscal year end: JANUARY 31 ---------- Date of reporting period: JANUARY 31, 2007 ---------------- ITEM 1. REPORTS TO STOCKHOLDERS. CONSERVATIVE INVESTOR FUND TOP HOLDINGS AND ALLOCATIONS -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- ASSET CLASS ALLOCATION [THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.] Alternative Investments 11.1% Fixed Income 65.9 Global Equity 5.7 U.S. Equity 17.0 Money Market 0.3 Portfolio holdings and allocations are subject to change. Percentages are as of January 31, 2007, and are based on the total market value of investments in affiliated companies. -------------------------------------------------------------------------------- 9 | CONSERVATIVE INVESTOR FUND PORTFOLIO PERFORMANCE DISCUSSION -------------------------------------------------------------------------------- HOW HAS THE PORTFOLIO PERFORMED? BELOW IS A DISCUSSION BY OPPENHEIMERFUNDS, INC., OF THE PORTFOLIO'S PERFORMANCE DURING ITS FISCAL YEAR ENDED JANUARY 31, 2007, FOLLOWED BY A GRAPHICAL COMPARISON OF THE PORTFOLIO'S PERFORMANCE TO AN APPROPRIATE BROAD-BASED MARKET INDEX. MANAGEMENT'S DISCUSSION OF PORTFOLIO PERFORMANCE. For the 12-month period ending January 31, 2007, Conservative Investor Fund outperformed the Lehman Brothers Aggregate Bond Index, but underperformed the S&P 500 Index. We attribute the Portfolio's results to the outperformance of its allocation to alternative investment funds, primarily its exposure to Oppenheimer Real Estate Fund's Class Y shares. Portfolio performance was further strengthened by its allocation to fixed-income funds, as most of these underlying funds posted strong returns and outperformed their respective benchmarks. In contrast, the Portfolio's holdings in Oppenheimer Commodity Strategy Total Return Fund's Class Y shares detracted from results. During the reporting period, the Portfolio received significant positive contributions to performance from its allocation to alternative investments, primarily from its holdings in Oppenheimer Real Estate's Class Y shares. Oppenheimer Real Estate Fund's Class Y shares posted a return of 38.55% (without sales charge) and strongly outperformed its own benchmark. This strong outperformance can be attributed to the Fund's profitable investments in the office, apartment and industrial sectors. The Portfolio's underlying fixed-income funds, which included Oppenheimer Core Bond Fund, Oppenheimer Limited-Term Government Fund, Oppenheimer Champion Income Fund and Oppenheimer International Bond Fund, posted strong results and significantly added to the Portfolio's total return. The Portfolio's single largest holding at the end of the period, Oppenheimer Core Bond Fund, benefited from multiple factors. Perhaps the most significant contributor was it's positioning within the corporate bond sector, an area of the fixed income market that posted double-digit returns. Additionally, Oppenheimer Core Bond Fund benefited from its interest rate positioning and its mortgage strategy. Oppenheimer Limited-Term Government Fund greatly benefited from active management of its interest-rate sensitivity and mortgage portfolio. The Portfolio's exposure to the high-yield bond market through its allocation to Oppenheimer Champion Income Fund also contributed to performance. Oppenheimer Champion Income, which produced competitive returns for the period, received positive contributions to performance from a variety of higher-quality issues across multiple market sectors. Lastly, the Portfolio's allocation to Oppenheimer International Bond Fund added to returns. Over the period, this Fund outperformed its Lipper peer group primarily due to its emphasis on bonds and currencies from the emerging markets, which continued to gain value in a robust global economy. 10 | CONSERVATIVE INVESTOR FUND On the negative side of performance, the largest detractor was the Portfolio's allocation to Oppenheimer Commodity Strategy Total Return Fund, which declined as a result of its natural gas and petroleum holdings. Over the period, the price of oil eroded due to multiple factors that included an easing of geopolitical tensions, rise in inventories and slowing demand. Additionally, the unseasonably warm winter contributed to the natural gas price decline. The second area that disappointed was the Portfolio's allocation to equity funds. Over the period, the investment climate proved quite volatile for equity investors, especially for those that seek out high-quality companies with strong long-term earnings growth prospects. Despite this difficult investing environment, the Portfolio's underlying equity funds produced strong absolute performance but most lagged their respective benchmarks. 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 Portfolio held until January 31, 2007. Performance is measured from the inception of Classes A, B, C, N and Y on April 5, 2005. The Portfolio's performance reflects the deduction of the maximum initial sales charge on Class A shares, the applicable contingent deferred sales charge on Class B, Class C and Class N shares, and reinvestments of all dividends and capital gains distributions. Past performance cannot guarantee future results. The Portfolio'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 an index of U.S. Government and corporate bonds that includes reinvestment of interest. The index is unmanaged and cannot be purchased directly by investors. Index performance is shown for illustrative purposes only and does not predict or depict the performance of the Portfolio. The S&P 500 Index is a broad-based measure of domestic stock performance that includes the reinvestment of dividends. 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 Portfolio's performance reflects the effects of the Portfolio's business and operating expenses. While index comparisons may be useful to provide a benchmark for the Portfolio's performance, it must be noted that the Portfolio's investments are not limited to the investments in the index. 11 | CONSERVATIVE INVESTOR FUND PORTFOLIO PERFORMANCE DISCUSSION -------------------------------------------------------------------------------- CLASS A SHARES COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN: Oppenheimer Portfolio Series: Conservative Investor 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 Portfolio Series: Conservative Investor Fund Lehman Brothers (Class A) Aggregate Bond Index S&P 500 Index 04/05/2005 $ 9,425 $ 10,000 $ 10,000 04/30/2005 $ 9,406 $ 10,135 $ 9,810 07/31/2005 $ 9,745 $ 10,207 $ 10,514 10/31/2005 $ 9,708 $ 10,150 $ 10,327 01/31/2006 $ 10,099 $ 10,293 $ 11,005 04/30/2006 $ 10,195 $ 10,207 $ 11,322 07/31/2006 $ 10,185 $ 10,356 $ 11,079 10/31/2006 $ 10,530 $ 10,677 $ 12,013 01/31/2007 $ 10,817 $ 10,734 $ 12,603
AVERAGE ANNUAL TOTAL RETURNS OF CLASS A SHARES WITH SALES CHARGE OF THE PORTFOLIO AT 1/31/07 1-Year 0.95% Since Inception (4/5/05) 4.40% 12 | CONSERVATIVE INVESTOR FUND CLASS B SHARES COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN: Oppenheimer Portfolio Series: Conservative Investor 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 Portfolio Series: Conservative Investor Fund Lehman Brothers (Class B) Aggregate Bond Index S&P 500 Index 04/05/2005 $ 10,000 $ 10,000 $ 10,000 04/30/2005 $ 9,970 $ 10,135 $ 9,810 07/31/2005 $ 10,320 $ 10,207 $ 10,514 10/31/2005 $ 10,250 $ 10,150 $ 10,327 01/31/2006 $ 10,644 $ 10,293 $ 11,005 04/30/2006 $ 10,725 $ 10,207 $ 11,322 07/31/2006 $ 10,694 $ 10,356 $ 11,079 10/31/2006 $ 11,039 $ 10,677 $ 12,013 01/31/2007 $ 10,912 $ 10,734 $ 12,603
AVERAGE ANNUAL TOTAL RETURNS OF CLASS B SHARES WITH SALES CHARGE OF THE PORTFOLIO AT 1/31/07 1-Year 1.28% Since Inception (4/5/05) 4.91% THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE PORTFOLIO 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. PORTFOLIO 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 4% (SINCE INCEPTION); AND FOR CLASS C AND N SHARES, THE 1% CONTINGENT DEFERRED SALES CHARGE FOR THE 1-YEAR PERIOD. THERE IS NO SALES CHARGE FOR CLASS Y SHARES. SEE PAGE 17 FOR FURTHER INFORMATION. 13 | CONSERVATIVE INVESTOR FUND PORTFOLIO PERFORMANCE DISCUSSION -------------------------------------------------------------------------------- CLASS C SHARES COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN: Oppenheimer Portfolio Series: Conservative Investor 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 Portfolio Series: Conservative Investor Fund Lehman Brothers (Class C) Aggregate Bond Index S&P 500 Index 04/05/2005 $ 10,000 $ 10,000 $ 10,000 04/30/2005 $ 9,970 $ 10,135 $ 9,810 07/31/2005 $ 10,310 $ 10,207 $ 10,514 10/31/2005 $ 10,250 $ 10,150 $ 10,327 01/31/2006 $ 10,637 $ 10,293 $ 11,005 04/30/2006 $ 10,728 $ 10,207 $ 11,322 07/31/2006 $ 10,698 $ 10,356 $ 11,079 10/31/2006 $ 11,033 $ 10,677 $ 12,013 01/31/2007 $ 11,304 $ 10,734 $ 12,603
AVERAGE ANNUAL TOTAL RETURNS OF CLASS C SHARES WITH SALES CHARGE OF THE PORTFOLIO AT 1/31/07 1-Year 5.28% Since Inception (4/5/05) 6.96% 14 | CONSERVATIVE INVESTOR FUND CLASS N SHARES COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN: Oppenheimer Portfolio Series: Conservative Investor 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 Portfolio Series: Conservative Investor Fund Lehman Brothers (Class N) Aggregate Bond Index S&P 500 Index 04/05/2005 $ 10,000 $ 10,000 $ 10,000 04/30/2005 $ 9,980 $ 10,135 $ 9,810 07/31/2005 $ 10,340 $ 10,207 $ 10,514 10/31/2005 $ 10,290 $ 10,150 $ 10,327 01/31/2006 $ 10,697 $ 10,293 $ 11,005 04/30/2006 $ 10,789 $ 10,207 $ 11,322 07/31/2006 $ 10,779 $ 10,356 $ 11,079 10/31/2006 $ 11,135 $ 10,677 $ 12,013 01/31/2007 $ 11,429 $ 10,734 $ 12,603
AVERAGE ANNUAL TOTAL RETURNS OF CLASS N SHARES WITH SALES CHARGE OF THE PORTFOLIO AT 1/31/07 1-Year 5.84% Since Inception (4/5/05) 7.61% THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE PORTFOLIO 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. PORTFOLIO 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 4% (SINCE INCEPTION); AND FOR CLASS C AND N SHARES, THE 1% CONTINGENT DEFERRED SALES CHARGE FOR THE 1-YEAR PERIOD. THERE IS NO SALES CHARGE FOR CLASS Y SHARES. SEE PAGE 17 FOR FURTHER INFORMATION. 15 | CONSERVATIVE INVESTOR FUND PORTFOLIO PERFORMANCE DISCUSSION -------------------------------------------------------------------------------- CLASS Y SHARES COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN: Oppenheimer Portfolio Series: Conservative Investor Fund (Class Y) Lehman Brothers Aggregate Bond Index S&P 500 Index [THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Oppenheimer Portfolio Series: Conservative Investor Fund Lehman Brothers (Class N) Aggregate Bond Index S&P 500 Index 04/05/2005 $ 10,000 $ 10,000 $ 10,000 04/30/2005 $ 9,980 $ 10,135 $ 9,810 07/31/2005 $ 10,350 $ 10,207 $ 10,514 10/31/2005 $ 10,320 $ 10,150 $ 10,327 01/31/2006 $ 10,734 $ 10,293 $ 11,005 04/30/2006 $ 10,846 $ 10,207 $ 11,322 07/31/2006 $ 10,846 $ 10,356 $ 11,079 10/31/2006 $ 11,223 $ 10,677 $ 12,013 01/31/2007 $ 11,539 $ 10,734 $ 12,603
AVERAGE ANNUAL TOTAL RETURNS OF CLASS Y SHARES OF THE PORTFOLIO AT 1/31/07 1-Year 7.50% Since Inception (4/5/05) 8.17% THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE PORTFOLIO 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. PORTFOLIO 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 4% (SINCE INCEPTION); AND FOR CLASS C AND N SHARES, THE 1% CONTINGENT DEFERRED SALES CHARGE FOR THE 1-YEAR PERIOD. THERE IS NO SALES CHARGE FOR CLASS Y SHARES. SEE PAGE 17 FOR FURTHER INFORMATION. 16 | CONSERVATIVE INVESTOR FUND NOTES -------------------------------------------------------------------------------- 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 Portfolio'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 Portfolio or any gains you may realize if you sell your shares. INVESTORS SHOULD CONSIDER THE PORTFOLIO'S INVESTMENT OBJECTIVES, RISKS, AND OTHER CHARGES AND EXPENSES CAREFULLY BEFORE INVESTING. THE PORTFOLIO'S PROSPECTUS CONTAINS THIS AND OTHER INFORMATION ABOUT THE PORTFOLIO, 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 Portfolio'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 Portfolio were first publicly offered on 4/5/05. Unless otherwise noted, Class A returns include the maximum initial sales charge of 5.75%. CLASS B shares of the Portfolio were first publicly offered on 4/5/05. Unless otherwise noted, Class B returns include the applicable contingent deferred sales charge of 5% (1-year) and 4% (since inception). Class B shares are subject to an annual 0.75% asset-based sales charge. CLASS C shares of the Portfolio were first publicly offered on 4/5/05. Unless otherwise noted, 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. CLASS N shares of the Portfolio were first publicly offered on 4/5/05. 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. 17 | CONSERVATIVE INVESTOR FUND NOTES -------------------------------------------------------------------------------- CLASS Y shares of the Portfolio were first publicly offered on 4/5/05. Class Y shares are offered only to certain institutional investors under special agreements with the Distributor. An explanation of the calculation of performance is in the Portfolio's Statement of Additional Information. 18 | CONSERVATIVE INVESTOR FUND PORTFOLIO EXPENSES -------------------------------------------------------------------------------- PORTFOLIO EXPENSES. As a shareholder of the Portfolio, 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 Portfolio expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio 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 January 31, 2007. 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 Portfolio'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 Portfolio'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 Portfolio 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 19 | CONSERVATIVE INVESTOR FUND PORTFOLIO 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 (8/1/06) (1/31/07) JANUARY 31, 2007 ------------------------------------------------------------------------------- Class A Actual $1,000.00 $1,062.00 $1.98 ------------------------------------------------------------------------------- Class A Hypothetical 1,000.00 1,023.29 1.94 ------------------------------------------------------------------------------- Class B Actual 1,000.00 1,057.80 6.45 ------------------------------------------------------------------------------- Class B Hypothetical 1,000.00 1,018.95 6.33 ------------------------------------------------------------------------------- Class C Actual 1,000.00 1,056.70 6.19 ------------------------------------------------------------------------------- Class C Hypothetical 1,000.00 1,019.21 6.07 ------------------------------------------------------------------------------- Class N Actual 1,000.00 1,060.30 3.38 ------------------------------------------------------------------------------- Class N Hypothetical 1,000.00 1,021.93 3.32 ------------------------------------------------------------------------------- Class Y Actual 1,000.00 1,063.90 0.21 ------------------------------------------------------------------------------- Class Y Hypothetical 1,000.00 1,025.00 0.20 Hypothetical assumes 5% annual return before expenses. Expenses are equal to the Portfolio'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 all underlying fund expenses, based on the 6-month period ended January 31, 2007 are as follows: CLASS EXPENSE RATIOS ---------------------------- Class A 0.38% ---------------------------- Class B 1.24 ---------------------------- Class C 1.19 ---------------------------- Class N 0.65 ---------------------------- Class Y 0.04 The expense ratios reflect voluntary waivers or reimbursements of expenses by the Portfolio's Manager that can be terminated at any time, without advance notice. The "Financial Highlights" tables in the Portfolio's financial statements, included in this report, also show the gross expense ratios, without such waivers or reimbursements. -------------------------------------------------------------------------------- 20 | CONSERVATIVE INVESTOR FUND STATEMENT OF INVESTMENTS January 31, 2007 --------------------------------------------------------------------------------
VALUE SHARES SEE NOTE 1 --------------------------------------------------------------------------------------- INVESTMENTS IN AFFILIATED COMPANIES--100.1% 1 --------------------------------------------------------------------------------------- ALTERNATIVE INVESTMENTS--11.1% Oppenheimer Commodity Strategy Total Return Fund, Cl. Y 1,441,991 $ 9,199,901 --------------------------------------------------------------------------------------- Oppenheimer Real Estate Fund, Cl. Y 506,371 13,499,858 --------------- 22,699,759 --------------------------------------------------------------------------------------- FIXED INCOME--66.0% Oppenheimer Champion Income Fund, Cl. Y 2,477,295 23,732,492 --------------------------------------------------------------------------------------- Oppenheimer Core Bond Fund, Cl. Y 6,523,270 66,406,884 --------------------------------------------------------------------------------------- Oppenheimer International Bond Fund, Cl. Y 1,863,135 11,048,389 --------------------------------------------------------------------------------------- Oppenheimer Limited-Term Government Fund, Cl. Y 3,414,211 33,834,824 --------------- 135,022,589 --------------------------------------------------------------------------------------- GLOBAL EQUITY--5.7% Oppenheimer Global Fund, Cl. Y 155,463 11,599,074 --------------------------------------------------------------------------------------- U.S. EQUITY--17.0% Oppenheimer Capital Appreciation Fund, Cl. Y 2 231,332 11,256,625 --------------------------------------------------------------------------------------- Oppenheimer Main Street Fund, Cl. Y 280,537 11,619,830 --------------------------------------------------------------------------------------- Oppenheimer Value Fund, Cl. Y 439,532 11,946,477 --------------- 34,822,932 --------------------------------------------------------------------------------------- MONEY MARKET--0.3% Oppenheimer Institutional Money Market Fund, Cl. E, 5.35% 3 637,460 637,460 --------------------------------------------------------------------------------------- TOTAL INVESTMENTS, AT VALUE (COST $199,187,678) 100.1% 204,781,814 --------------------------------------------------------------------------------------- LIABILITIES IN EXCESS OF OTHER ASSETS (0.1) (125,261) ----------------------------- NET ASSETS 100.0% $ 204,656,553 =============================
21 | CONSERVATIVE INVESTOR FUND STATEMENT OF INVESTMENTS Continued -------------------------------------------------------------------------------- FOOTNOTES TO STATEMENT OF INVESTMENTS 1. Is or was an affiliate, as defined in the Investment Company Act of 1940, at or during the period ended January 31, 2007 by virtue of the Portfolio owning at least 5% of the voting securities of the issuer or as a result of the Portfolio and the issuer having the same investment advisor. Transactions during the period in which the issuer was an affiliate are as follows:
SHARES GROSS GROSS SHARES JANUARY 31, 2006 ADDITIONS REDUCTIONS JANUARY 31, 2007 ------------------------------------------------------------------------------------------------------------------------- Oppenheimer Capital Appreciation Fund, Cl. Y 99,978 143,194 11,840 231,332 Oppenheimer Champion Income Fund, Cl. Y - 2,511,921 a 34,626 2,477,295 Oppenheimer Commodity Strategy Total Return Fund, Cl. Y 524,309 959,662 41,980 1,441,991 Oppenheimer Core Bond Fund, Cl. Y 2,533,270 4,171,755 181,755 6,523,270 Oppenheimer Global Fund, Cl. Y 66,908 99,627 11,072 155,463 Oppenheimer High Yield Fund, Cl. Y 978,485 1,158,273 2,136,758 - Oppenheimer Institutional Money Market Fund, Cl. E, 5.35% - 8,109,121 7,471,661 637,460 Oppenheimer International Bond Fund, Cl. Y 751,912 1,165,106 53,883 1,863,135 Oppenheimer Limited-Term Government Fund, Cl. Y 1,326,111 2,183,797 95,697 3,414,211 Oppenheimer Main Street Fund, Cl. Y 117,728 177,051 14,242 280,537 Oppenheimer Real Estate Fund, Cl. Y 230,456 315,662 39,747 506,371 Oppenheimer Value Fund, Cl. Y 181,842 273,690 16,000 439,532
VALUE DIVIDEND REALIZED SEE NOTE 1 INCOME GAIN (LOSS) ------------------------------------------------------------------------------------------------------------------------- Oppenheimer Capital Appreciation Fund, Cl. Y $ 11,256,625 $ - $ (2,201) Oppenheimer Champion Income Fund, Cl. Y 23,732,492 723,488 b (1,851) Oppenheimer Commodity Strategy Total Return Fund, Cl. Y 9,199,901 361,527 b (82,458) Oppenheimer Core Bond Fund, Cl. Y 66,406,884 2,445,706 b (44,159) Oppenheimer Global Fund, Cl. Y 11,599,074 153,044 b 3,159 Oppenheimer High Yield Fund, Cl. Y - 472,356 b (6,189) Oppenheimer Institutional Money Market Fund, Cl. E, 5.35% 637,460 3,850 - Oppenheimer International Bond Fund, Cl. Y 11,048,389 318,063 b (7,395) Oppenheimer Limited-Term Government Fund, Cl. Y 33,834,824 1,215,188 b (13,487) Oppenheimer Main Street Fund, Cl. Y 11,619,830 135,170 b (3,124) Oppenheimer Real Estate Fund, Cl. Y 13,499,858 482,342 b 671 Oppenheimer Value Fund, Cl. Y 11,946,477 220,877 b (5,809) ----------------------------------------------- $204,781,814 $ 6,531,611 $ (162,843) ===============================================
a Received 2,090,156 shares as the result of the acquisition of Oppenheimer High Yield Fund. b All or portion of the transactions were the result of a reinvestment of dividends. 2. Non-income producing security. 3. Rate shown is the 7-day yield as of January 31, 2007. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 22 | CONSERVATIVE INVESTOR FUND STATEMENT OF ASSETS AND LIABILITIES January 31, 2007 -------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------- ASSETS ------------------------------------------------------------------------------------------- Investments, at value--see accompanying statement of investments-- affiliated companies (cost $199,187,678) $ 204,781,814 ------------------------------------------------------------------------------------------- Cash 5,099 ------------------------------------------------------------------------------------------- Receivables and other assets: Shares of beneficial interest sold 914,220 Interest and dividends 588,051 Investments sold 48,596 Other 4,946 ----------------- Total assets 206,342,726 ------------------------------------------------------------------------------------------- LIABILITIES ------------------------------------------------------------------------------------------- Payables and other liabilities: Investments purchased 1,275,914 Shares of beneficial interest redeemed 293,819 Distribution and service plan fees 41,623 Shareholder communications 24,806 Legal, auditing and other professional fees 18,625 Transfer and shareholder servicing agent fees 15,429 Trustees' compensation 12,028 Other 3,929 ----------------- Total liabilities 1,686,173 ------------------------------------------------------------------------------------------- NET ASSETS $ 204,656,553 ================= ------------------------------------------------------------------------------------------- COMPOSITION OF NET ASSETS ------------------------------------------------------------------------------------------- Par value of shares of beneficial interest $ 18,774 ------------------------------------------------------------------------------------------- Additional paid-in capital 197,500,739 ------------------------------------------------------------------------------------------- Accumulated net investment income 536,524 ------------------------------------------------------------------------------------------- Accumulated net realized gain on investments 1,006,380 ------------------------------------------------------------------------------------------- Net unrealized appreciation on investments 5,594,136 ----------------- NET ASSETS $ 204,656,553 =================
23 | CONSERVATIVE INVESTOR 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 $110,377,482 and 10,097,912 shares of beneficial interest outstanding) $10.93 Maximum offering price per share (net asset value plus sales charge of 5.75% of offering price) $11.60 ------------------------------------------------------------------------------------------------------------ Class B Shares: Net asset value, redemption price (excludes applicable contingent deferred sales charge) and offering price per share (based on net assets of $21,990,968 and 2,023,368 shares of beneficial interest outstanding) $10.87 ------------------------------------------------------------------------------------------------------------ Class C Shares: Net asset value, redemption price (excludes applicable contingent deferred sales charge) and offering price per share (based on net assets of $50,876,128 and 4,687,414 shares of beneficial interest outstanding) $10.85 ------------------------------------------------------------------------------------------------------------ Class N Shares: Net asset value, redemption price (excludes applicable contingent deferred sales charge) and offering price per share (based on net assets of $21,277,334 and 1,952,535 shares of beneficial interest outstanding) $10.90 ------------------------------------------------------------------------------------------------------------ Class Y Shares: Net asset value, redemption price and offering price per share (based on net assets of $134,641 and 12,282 shares of beneficial interest outstanding) $10.96
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 24 | CONSERVATIVE INVESTOR FUND STATEMENT OF OPERATIONS For the Year Ended January 31, 2007 -------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------ INVESTMENT INCOME ------------------------------------------------------------------------------------------------------------ Dividends from affiliated companies $ 6,531,611 ------------------------------------------------------------------------------------------------------------ Interest 27,556 ------------------------------------------------------------------------------------------------------------ Other income 359 -------------- Total investment income 6,559,526 ------------------------------------------------------------------------------------------------------------ EXPENSES ------------------------------------------------------------------------------------------------------------ Distribution and service plan fees: Class A 188,370 Class B 158,470 Class C 351,781 Class N 68,193 ------------------------------------------------------------------------------------------------------------ Transfer and shareholder servicing agent fees: Class A 56,697 Class B 20,842 Class C 41,409 Class N 16,101 Class Y 22 ------------------------------------------------------------------------------------------------------------ Shareholder communications: Class A 24,184 Class B 11,803 Class C 16,633 Class N 1,999 Class Y 18 ------------------------------------------------------------------------------------------------------------ Trustees' compensation 12,318 ------------------------------------------------------------------------------------------------------------ Custodian fees and expenses 546 ------------------------------------------------------------------------------------------------------------ Other 28,075 -------------- Total expenses 997,461 Less waivers and reimbursements of expenses (81) -------------- Net expenses 997,380 ------------------------------------------------------------------------------------------------------------ NET INVESTMENT INCOME 5,562,146 ------------------------------------------------------------------------------------------------------------ REALIZED AND UNREALIZED GAIN (LOSS) ------------------------------------------------------------------------------------------------------------ Net realized gain (loss) on investments: Affiliated companies (162,843) Distributions received from affiliated companies 1,349,274 -------------- Net realized gain 1,186,431 ------------------------------------------------------------------------------------------------------------ Net change in unrealized appreciation on investments 4,526,707 ------------------------------------------------------------------------------------------------------------ NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 11,275,284 ==============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 25 | CONSERVATIVE INVESTOR FUND STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------------------------------------------
YEAR ENDED JANUARY 31, 2007 2006 1 ------------------------------------------------------------------------------------------------------------- OPERATIONS ------------------------------------------------------------------------------------------------------------- Net investment income $ 5,562,146 $ 1,267,858 ------------------------------------------------------------------------------------------------------------- Net realized gain 1,186,431 318,074 ------------------------------------------------------------------------------------------------------------- Net change in unrealized appreciation 4,526,707 1,067,429 ------------------------------- Net increase in net assets resulting from operations 11,275,284 2,653,361 ------------------------------------------------------------------------------------------------------------- DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS ------------------------------------------------------------------------------------------------------------- Dividends from net investment income: Class A (3,003,750) (681,145) Class B (480,154) (105,273) Class C (1,164,379) (216,389) Class N (517,426) (125,016) Class Y (3,818) (1,638) ------------------------------- (5,169,527) (1,129,461) ------------------------------------------------------------------------------------------------------------- Distributions from net realized gain: Class A (155,287) -- Class B (31,426) -- Class C (73,612) -- Class N (28,428) -- Class Y (185) -- ------------------------------- (288,938) -- ------------------------------------------------------------------------------------------------------------- BENEFICIAL INTEREST TRANSACTIONS ------------------------------------------------------------------------------------------------------------- Net increase in net assets resulting from beneficial interest transactions: Class A 60,904,680 45,236,761 Class B 12,171,265 9,001,293 Class C 30,347,750 18,835,139 Class N 13,094,093 7,498,474 Class Y 31,178 91,201 ------------------------------- 116,548,966 80,662,868 ------------------------------------------------------------------------------------------------------------- NET ASSETS ------------------------------------------------------------------------------------------------------------- Total increase 122,365,785 82,186,768 ------------------------------------------------------------------------------------------------------------- Beginning of period 82,290,768 104,000 2 ------------------------------- End of period (including accumulated net investment income of $536,524 and $143,905, respectively) $ 204,656,553 $ 82,290,768 ===============================
1. For the period from April 5, 2005 (commencement of operations) to January 31, 2006. 2. Reflects the value of the Manager's initial seed money investment on March 15, 2005. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 26 | CONSERVATIVE INVESTOR FUND FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
CLASS A YEAR ENDED JANUARY 31, 2007 2006 1 ------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING DATA ------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.53 $ 10.00 ------------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income 2 .46 .38 Net realized and unrealized gain .29 .33 ------------------------------- Total from investment operations .75 .71 ------------------------------------------------------------------------------------------------------------- Dividends and/or distributions to shareholders: Dividends from net investment income (.33) (.18) Distributions from net realized gain (.02) -- ------------------------------- Total dividends and/or distributions to shareholders (.35) (.18) ------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 10.93 $ 10.53 =============================== ------------------------------------------------------------------------------------------------------------- TOTAL RETURN, AT NET ASSET VALUE 3 7.11% 7.15% ------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA ------------------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $ 110,378 $ 46,318 ------------------------------------------------------------------------------------------------------------- Average net assets (in thousands) $ 76,542 $ 21,844 ------------------------------------------------------------------------------------------------------------- Ratios to average net assets: 4 Net investment income 4.24% 4.50% Total expenses 5 0.38% 0.53% Expenses after waivers and reimbursements and reduction to custodian expenses 0.38% 0.51% ------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 5% 11%
1. For the period from April 5, 2005 (commencement of operations) to January 31, 2006. 2. Per share amounts calculated based on the average shares outstanding during the period. 3. Assumes an investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Sales charges are not reflected in the total returns. Total returns are not annualized for periods of less than one full year. Returns do not reflect the deduction of taxes that a shareholder would pay on portfolio distributions or the redemption of portfolio shares. 4. Annualized for periods of less than one full year. 5. Expenses including all underlying fund expenses were as follows: Year Ended January 31, 2007 0.98% Period Ended January 31, 2006 1.19 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 27 | CONSERVATIVE INVESTOR FUND FINANCIAL HIGHLIGHTS Continued --------------------------------------------------------------------------------
CLASS B YEAR ENDED JANUARY 31, 2007 2006 1 ------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING DATA ------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.49 $ 10.00 ------------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income 2 .36 .32 Net realized and unrealized gain .30 .32 ------------------------------- Total from investment operations .66 .64 ------------------------------------------------------------------------------------------------------------- Dividends and/or distributions to shareholders: Dividends from net investment income (.26) (.15) Distributions from net realized gain (.02) -- ------------------------------- Total dividends and/or distributions to shareholders (.28) (.15) ------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 10.87 $ 10.49 =============================== ------------------------------------------------------------------------------------------------------------- TOTAL RETURN, AT NET ASSET VALUE 3 6.28% 6.44% ------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA ------------------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $ 21,991 $ 9,163 ------------------------------------------------------------------------------------------------------------- Average net assets (in thousands) $ 15,882 $ 4,018 ------------------------------------------------------------------------------------------------------------- Ratios to average net assets: 4 Net investment income 3.36% 3.74% Total expenses 5 1.23% 1.39% Expenses after waivers and reimbursements and reduction to custodian expenses 1.23% 1.34% ------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 5% 11%
1. For the period from April 5, 2005 (commencement of operations) to January 31, 2006. 2. Per share amounts calculated based on the average shares outstanding during the period. 3. Assumes an investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Sales charges are not reflected in the total returns. Total returns are not annualized for periods of less than one full year. Returns do not reflect the deduction of taxes that a shareholder would pay on portfolio distributions or the redemption of portfolio shares. 4. Annualized for periods of less than one full year. 5. Expenses including all underlying fund expenses were as follows: Year Ended January 31, 2007 1.83% Period Ended January 31, 2006 2.05 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 28 | CONSERVATIVE INVESTOR FUND
CLASS C YEAR ENDED JANUARY 31, 2007 2006 1 ----------------------------------------------------------------------------- PER SHARE OPERATING DATA ----------------------------------------------------------------------------- Net asset value, beginning of period $ 10.48 $ 10.00 ----------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income 2 .37 .32 Net realized and unrealized gain .29 .31 ---------------------- Total from investment operations .66 .63 ----------------------------------------------------------------------------- Dividends and/or distributions to shareholders: Dividends from net investment income (.27) (.15) Distributions from net realized gain (.02) -- ---------------------- Total dividends and/or distributions to shareholders (.29) (.15) ----------------------------------------------------------------------------- Net asset value, end of period $ 10.85 $ 10.48 ====================== ----------------------------------------------------------------------------- TOTAL RETURN, AT NET ASSET VALUE 3 6.28% 6.37% ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA ----------------------------------------------------------------------------- Net assets, end of period (in thousands) $ 50,876 $ 19,145 ----------------------------------------------------------------------------- Average net assets (in thousands) $ 35,277 $ 7,647 ----------------------------------------------------------------------------- Ratios to average net assets: 4 Net investment income 3.46% 3.78% Total expenses 5 1.19% 1.36% Expenses after waivers and reimbursements and reduction to custodian expenses 1.19% 1.33% ----------------------------------------------------------------------------- Portfolio turnover rate 5% 11%
1. For the period from April 5, 2005 (commencement of operations) to January 31, 2006. 2. Per share amounts calculated based on the average shares outstanding during the period. 3. Assumes an investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Sales charges are not reflected in the total returns. Total returns are not annualized for periods of less than one full year. Returns do not reflect the deduction of taxes that a shareholder would pay on portfolio distributions or the redemption of portfolio shares. 4. Annualized for periods of less than one full year. 5. Expenses including all underlying fund expenses were as follows: Year Ended January 31, 2007 1.79% Period Ended January 31, 2006 2.02 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 29 | CONSERVATIVE INVESTOR FUND FINANCIAL HIGHLIGHTS Continued -----------------------------------------------------------------------------
CLASS N YEAR ENDED JANUARY 31, 2007 2006 1 ----------------------------------------------------------------------------- PER SHARE OPERATING DATA ----------------------------------------------------------------------------- Net asset value, beginning of period $ 10.51 $ 10.00 ----------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income 2 .44 .41 Net realized and unrealized gain .28 .28 ---------------------- Total from investment operations .72 .69 ----------------------------------------------------------------------------- Dividends and/or distributions to shareholders: Dividends from net investment income (.31) (.18) Distributions from net realized gain (.02) -- ---------------------- Total dividends and/or distributions to shareholders (.33) (.18) ----------------------------------------------------------------------------- Net asset value, end of period $ 10.90 $ 10.51 ====================== ----------------------------------------------------------------------------- TOTAL RETURN, AT NET ASSET VALUE 3 6.84% 6.98% ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA ----------------------------------------------------------------------------- Net assets, end of period (in thousands) $ 21,277 $ 7,569 ----------------------------------------------------------------------------- Average net assets (in thousands) $ 13,671 $ 2,231 ----------------------------------------------------------------------------- Ratios to average net assets: 4 Net investment income 4.08% 4.82% Total expenses 5 0.66% 0.72% Expenses after waivers and reimbursements and reduction to custodian expenses 0.66% 0.71% ----------------------------------------------------------------------------- Portfolio turnover rate 5% 11%
1. For the period from April 5, 2005 (commencement of operations) to January 31, 2006. 2. Per share amounts calculated based on the average shares outstanding during the period. 3. Assumes an investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Sales charges are not reflected in the total returns. Total returns are not annualized for periods of less than one full year. Returns do not reflect the deduction of taxes that a shareholder would pay on portfolio distributions or the redemption of portfolio shares. 4. Annualized for periods of less than one full year. 5. Expenses including all underlying fund expenses were as follows: Year Ended January 31, 2007 1.26% Period Ended January 31, 2006 1.38 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 30 | CONSERVATIVE INVESTOR FUND
CLASS Y YEAR ENDED JANUARY 31, 2007 2006 1 ----------------------------------------------------------------------------- PER SHARE OPERATING DATA ----------------------------------------------------------------------------- Net asset value, beginning of period $ 10.54 $ 10.00 ----------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income 2 .49 .38 Net realized and unrealized gain .30 .35 ---------------------- Total from investment operations .79 .73 ----------------------------------------------------------------------------- Dividends and/or distributions to shareholders: Dividends from net investment income (.35) (.19) Distributions from net realized gain (.02) -- ---------------------- Total dividends and/or distributions to shareholders (.37) (.19) ----------------------------------------------------------------------------- Net asset value, end of period $ 10.96 $ 10.54 ====================== ----------------------------------------------------------------------------- TOTAL RETURN, AT NET ASSET VALUE 3 7.50% 7.34% ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA ----------------------------------------------------------------------------- Net assets, end of period (in thousands) $ 135 $ 96 ----------------------------------------------------------------------------- Average net assets (in thousands) $ 127 $ 71 ----------------------------------------------------------------------------- Ratios to average net assets: 4 Net investment income 4.57% 4.42% Total expenses 5 0.06% 0.30% Expenses after waivers and reimbursements and reduction to custodian expenses 0.06% 0.25% ----------------------------------------------------------------------------- Portfolio turnover rate 5% 11%
1. For the period from April 5, 2005 (commencement of operations) to January 31, 2006. 2. Per share amounts calculated based on the average shares outstanding during the period. 3. Assumes an investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Sales charges are not reflected in the total returns. Total returns are not annualized for periods of less than one full year. Returns do not reflect the deduction of taxes that a shareholder would pay on portfolio distributions or the redemption of portfolio shares. 4. Annualized for periods of less than one full year. 5. Expenses including all underlying fund expenses were as follows: Year Ended January 31, 2007 0.66% Period Ended January 31, 2006 0.96 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 31 | CONSERVATIVE INVESTOR FUND NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 1. SIGNIFICANT ACCOUNTING POLICIES Oppenheimer Portfolio Series (the "Fund") is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. Conservative Investor Fund (the "Portfolio") is a series of the Fund whose investment objective is to seek current income with a secondary objective of long-term growth of capital. The Portfolio is a special type of mutual fund known as a "fund of funds" because it invests in other mutual funds. The Portfolio normally invests in a portfolio consisting of a target weighted allocation in Class A or Class Y shares of other Oppenheimer funds. The Fund's investment advisor is OppenheimerFunds, Inc. (the "Manager"). The Portfolio offers Class A, Class B, Class C, Class N and Class Y shares. Class A shares are sold at their offering price, which is normally net asset value plus a front-end sales charge. Class B, Class C and Class N shares are sold without a front-end sales charge but may be subject to a contingent deferred sales charge (CDSC). Class N shares are sold only through retirement plans. Retirement plans that offer Class N shares may impose charges on those accounts. Class Y shares are sold to certain institutional investors without either a front-end sales charge or a CDSC, however, the institutional investor may impose charges on those accounts. All classes of shares have identical rights and voting privileges with respect to the Portfolio in general and exclusive voting rights on matters that affect that class alone. Earnings, net assets and net asset value per share may differ due to each class having its own expenses, such as transfer and shareholder servicing agent fees and shareholder communications, directly attributable to that class. Class A, B, C and N have separate distribution and/or service plans. No such plan has been adopted for Class Y shares. Class B shares will automatically convert to Class A shares six years after the date of purchase. Under normal market conditions, the Manager will invest the Portfolio's assets in shares of Oppenheimer Core Bond Fund, Oppenheimer Capital Appreciation Fund, Oppenheimer Champion Income Fund, Oppenheimer Global Fund, Oppenheimer International Bond Fund, Oppenheimer Limited-Term Government Fund, Oppenheimer Main Street Fund(R), Oppenheimer Commodity Strategy Total Return Fund(R), Oppenheimer Real Estate Fund, Oppenheimer Value Fund and Oppenheimer Institutional Money Market Fund (individually, an "Underlying Fund" and collectively, the "Underlying Funds"). The following is a summary of significant accounting policies consistently followed by the Portfolio. -------------------------------------------------------------------------------- SECURITIES VALUATION. The Portfolio calculates the net asset value of each class of shares based upon the net asset value of the applicable Underlying Fund 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 trading. For each Underlying Fund, the net asset value per share for a class of shares on a "regular business day" is determined by dividing the value of the Underlying Fund's net assets attributable to that class by the number of shares of that class outstanding on that day. To determine net asset values, the Underlying Fund assets 32 | CONSERVATIVE INVESTOR FUND are valued primarily on the basis of current market quotations. If market quotations are not readily available or do not accurately reflect fair value for a security (in the Manager's judgment) or if a security's value has been materially affected by events occurring after the close of the exchange or market on which the security is principally traded, that security may be valued by another method that the Underlying Fund's Board of Trustees/ Directors believes accurately reflects the fair value. Because some foreign securities trade in markets and on exchanges that operate on weekends and U.S. holidays, the values of some of the Underlying Fund's foreign investments may change on days when investors cannot buy or redeem Underlying Fund shares. Short-term "money market type" debt securities with remaining maturities of sixty days or less are valued at amortized cost (which approximates market value). -------------------------------------------------------------------------------- RISKS OF INVESTING IN THE UNDERLYING FUNDS. Each of the Underlying Funds in which the Portfolio invests has its own investment risks, and those risks can affect the value of the Portfolio's investments and therefore the value of the Portfolio's shares. To the extent that the Portfolio invests more of its assets in one Underlying Fund than in another, the Portfolio will have greater exposure to the risks of that Underlying Fund. -------------------------------------------------------------------------------- INVESTMENT IN OPPENHEIMER INSTITUTIONAL MONEY MARKET FUND. The Portfolio is permitted to invest daily available cash balances in an affiliated money market fund. The Portfolio may invest 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 Portfolio's investment in IMMF is included in the Statement of Investments. As a shareholder, the Portfolio is subject to its proportional share of IMMF's Class E expenses, including its management fee. The Manager will waive fees and/or reimburse Portfolio expenses in an amount equal to the indirect management fees incurred through the Portfolio's investment in IMMF. -------------------------------------------------------------------------------- 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 Portfolio 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 Portfolio must satisfy under the income tax regulations, losses the Portfolio may be able to offset against income and gains realized in future years and 33 | CONSERVATIVE INVESTOR FUND NOTES TO FINANCIAL STATEMENTS Continued -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 1. SIGNIFICANT ACCOUNTING POLICIES Continued 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 TAX PURPOSES ---------------------------------------------------------------------- $548,267 $1,052,469 $-- $5,548,045 1. During the fiscal year ended January 31, 2007, the Portfolio did not utilize any capital loss carryforward. 2. During the fiscal year ended January 31, 2006, the Portfolio did not utilize any capital loss carryforward. 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 Portfolio. Accordingly, the following amounts have been reclassified for January 31, 2007. Net assets of the Portfolio were unaffected by the reclassifications. REDUCTION TO ACCUMULATED NET INCREASE TO REALIZED GAIN PAID-IN CAPITAL ON INVESTMENTS 3 -------------------------------------- $153,114 $153,114 3. $153,114, all of which was long-term capital gain, was distributed in connection with Portfolio share redemptions. The tax character of distributions paid during the years ended January 31, 2007 and January 31, 2006 was as follows: YEAR ENDED PERIOD ENDED JANUARY 31, 2007 JANUARY 31, 2006 -------------------------------------------------------------- Distributions paid from: Ordinary income $ 5,169,527 $ 1,129,461 Long-term capital gain 288,938 -- ----------------------------------- Total $ 5,458,465 $ 1,129,461 =================================== 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 January 31, 2007 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. 34 | CONSERVATIVE INVESTOR FUND Federal tax cost of securities $ 199,233,769 ============== Gross unrealized appreciation $ 7,578,282 Gross unrealized depreciation (2,030,237) -------------- Net unrealized appreciation $ 5,548,045 ============== -------------------------------------------------------------------------------- TRUSTEES' COMPENSATION. The Portfolio has adopted an unfunded retirement plan (the "Plan") for the Portfolio's independent trustees. Benefits are based on years of service and fees paid to each trustee during their period of service. The Plan was frozen with respect to adding new participants effective December 31, 2006 (the "Freeze Date") and existing Plan Participants as of the Freeze Date will continue to receive accrued benefits under the Plan. Active independent trustees as of the Freeze Date have each elected a distribution method with respect to their benefits under the Plan. During the year ended January 31, 2007, the Portfolio's projected benefit obligations were increased by $9,986 and payments of $251 were made to retired trustees, resulting in an accumulated liability of $9,735 as of January 31, 2007. 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 Portfolio. 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 Portfolio or in other Oppenheimer funds selected by the Trustee. The Portfolio purchases shares of the funds selected for deferral by the Trustee in amounts equal to his or her deemed investment, resulting in a Portfolio asset equal to the deferred compensation liability. Such assets are included as a component of "Other" within the asset section of the Statement of Assets and Liabilities. Deferral of trustees' fees under the plan will not affect the net assets of the Portfolio, and will not materially affect the Portfolio's assets, liabilities or net investment income per share. Amounts will be deferred until distributed in accordance to the compensation deferral 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 and 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 Portfolio 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 share 35 | CONSERVATIVE INVESTOR FUND NOTES TO FINANCIAL STATEMENTS Continued -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 1. SIGNIFICANT ACCOUNTING POLICIES Continued holder redemption activity. The Portfolio pays interest to its custodian on such cash overdrafts, to the extent they are not offset by positive cash balances maintained by the Portfolio, 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 Portfolio 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 Portfolio'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 Portfolio. In the normal course of business, the Portfolio may also enter into contracts that provide general indemnifications. The Portfolio's maximum exposure under these arrangements is unknown as this would be dependent on future claims that may be made against the Portfolio. 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. -------------------------------------------------------------------------------- 2. SHARES OF BENEFICIAL INTEREST The Portfolio has authorized an unlimited number of $0.001 par value shares of beneficial interest of each class. Transactions in shares of beneficial interest were as follows:
YEAR ENDED JANUARY 31, 2007 PERIOD ENDED JANUARY 31, 2006 1,2 SHARES AMOUNT SHARES AMOUNT --------------------------------------------------------------------------------------------- CLASS A Sold 6,963,555 $ 74,510,538 4,892,094 $ 50,465,464 Dividends and/or distributions reinvested 273,173 2,955,734 58,785 607,250 Redeemed (1,539,439) (16,561,592) (560,256) (5,835,953) ----------------------------------------------------------------- Net increase 5,697,289 $ 60,904,680 4,390,623 $ 45,236,761 ================================================================= --------------------------------------------------------------------------------------------- CLASS B Sold 1,545,034 $ 16,399,320 949,406 $ 9,789,255 Dividends and/or distributions reinvested 44,717 481,607 9,315 95,942 Redeemed (439,932) (4,709,662) (85,272) (883,904) ----------------------------------------------------------------- Net increase 1,149,819 $ 12,171,265 873,449 $ 9,001,293 =================================================================
36 | CONSERVATIVE INVESTOR FUND
YEAR ENDED JANUARY 31, 2007 PERIOD ENDED JANUARY 31, 2006 1,2 SHARES AMOUNT SHARES AMOUNT --------------------------------------------------------------------------------------------- CLASS C Sold 3,733,906 $ 39,648,370 1,904,973 $ 19,653,821 Dividends and/or distributions reinvested 104,459 1,122,933 19,416 199,792 Redeemed (977,406) (10,423,553) (98,034) (1,018,474) ----------------------------------------------------------------- Net increase 2,860,959 $ 30,347,750 1,826,355 $ 18,835,139 ================================================================= --------------------------------------------------------------------------------------------- CLASS N Sold 1,890,946 $ 20,227,682 1,007,278 $ 10,503,896 Dividends and/or distributions reinvested 43,968 474,413 11,897 122,654 Redeemed (702,789) (7,608,002) (298,865) (3,128,076) ----------------------------------------------------------------- Net increase 1,232,125 $ 13,094,093 720,310 $ 7,498,474 ================================================================= --------------------------------------------------------------------------------------------- CLASS Y Sold 11,192 $ 118,410 14,752 $ 151,331 Dividends and/or distributions reinvested 366 3,967 157 1,619 Redeemed (8,365) (91,199) (5,920) (61,749) ----------------------------------------------------------------- Net increase 3,193 $ 31,178 8,989 $ 91,201 =================================================================
1. For the period from April 5, 2005 (commencement of operations) to January 31, 2006. 2. The Portfolio sold 10,000 shares of Class A at a value of $100,000 and 100 shares of Class B, Class C, Class N and Class Y at a value of $1,000, respectively, to the Manager upon seeding of the Portfolio on March 15, 2005. -------------------------------------------------------------------------------- 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 January 31, 2007, were as follows: PURCHASES SALES -------------------------------------------------------------------------------- Investment securities $126,236,503 $7,287,599 -------------------------------------------------------------------------------- 4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES MANAGEMENT FEES. Under the investment advisory agreement, the Manager does not charge a management fee, but rather collects indirect management fees from investments in the Underlying Funds. The weighted indirect management fees collected from the Underlying Funds, as a percent of average daily net assets of the Portfolio for the year ended January 31, 2007 was 0.54%. -------------------------------------------------------------------------------- TRANSFER AGENT FEES. OppenheimerFunds Services (OFS or the Transfer Agent), a division of the Manager, acts as the transfer and shareholder servicing agent for the Portfolio. The Portfolio pays OFS a per account fee. For the year ended January 31, 2007, the Portfolio paid $123,858 to OFS for services to the Portfolio. 37 | CONSERVATIVE INVESTOR FUND NOTES TO FINANCIAL STATEMENTS Continued -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES Continued Additionally, Class Y shares are subject to minimum fees of $10,000 per annum for assets of $10 million or more. The Class Y shares are subject to the minimum fees in the event that the per account fee does not equal or exceed the applicable minimum fees. OFS may voluntarily waive the minimum fees. -------------------------------------------------------------------------------- OFFERING AND ORGANIZATIONAL COSTS. The Manager paid all offering and organizational costs associated with the registration and seeding of the Portfolio. -------------------------------------------------------------------------------- DISTRIBUTION AND SERVICE PLAN (12b-1) FEES. Under its General Distributor's Agreement with the Portfolio, OppenheimerFunds Distributor, Inc. (the Distributor) acts as the Portfolio's principal underwriter in the continuous public offering of the Portfolio's classes of shares. -------------------------------------------------------------------------------- SERVICE PLAN FOR CLASS A SHARES. The Portfolio 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 Portfolio. 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 Portfolio under the plan are detailed in the Statement of Operations. -------------------------------------------------------------------------------- DISTRIBUTION AND SERVICE PLANS FOR CLASS B, CLASS C AND CLASS N SHARES. The Portfolio has adopted Distribution and Service Plans for Class B, Class C and Class N shares to compensate the Distributor for its services in connection with the distribution of those shares and servicing accounts. Under the plans, the Portfolio pays the Distributor an annual asset-based sales charge of 0.75% on Class B and Class C shares and 0.25% on Class N shares. The Distributor also receives a service fee of 0.25% per year under each plan. If either the Class B, Class C or Class N plan is terminated by the Portfolio 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 Portfolio 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 $339,811, $335,871 and $216,428, respectively. Fees incurred by the Portfolio under the plans are detailed in the Statement of Operations. 38 | CONSERVATIVE INVESTOR FUND -------------------------------------------------------------------------------- SALES CHARGES. Front-end sales charges and contingent deferred sales charges (CDSC) do not represent expenses of the Portfolio. They are deducted from the proceeds of sales of Portfolio 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 CONTINGENT CONTINGENT CONTINGENT CONTINGENT FRONT-END DEFERRED DEFERRED DEFERRED DEFERRED SALES CHARGES SALES CHARGES SALES CHARGES SALES CHARGES SALES CHARGES RETAINED BY RETAINED BY RETAINED BY RETAINED BY RETAINED BY YEAR ENDED DISTRIBUTOR DISTRIBUTOR DISTRIBUTOR DISTRIBUTOR DISTRIBUTOR ------------------------------------------------------------------------------------------------ January 31, 2007 $404,602 $923 $34,975 $14,310 $178
-------------------------------------------------------------------------------- WAIVERS AND REIMBURSEMENTS OF EXPENSES. The Manager has voluntarily agreed to a total expense limitation on the aggregate amount of combined direct (fund-of-funds level) and indirect expense so that "Total expenses" as a percentage of average daily net assets will not exceed the following annual rates: 1.25%, 2.00%, 2.00%, 1.50% and 1.00%, for Class A, Class B, Class C, Class N and Class Y, respectively. The Manager may modify or terminate this undertaking at any time without notice to shareholders. These expense limitations do not include Extraordinary Expenses and other expenses not incurred in the ordinary course of the Portfolio's business. Notwithstanding the foregoing limits, the Manager is not required to waive or reimburse Portfolio expenses in excess of indirect management fees earned from investments in Underlying Funds to assure that expenses do not exceed those limits. OFS has voluntarily agreed to limit transfer and shareholder servicing agent fees for all classes to 0.35% of average annual net assets per class. This undertaking may be amended or withdrawn at any time. The Manager will waive fees and/or reimburse Portfolio expenses in an amount equal to the indirect management fees incurred through the Portfolio's investment in IMMF. During the year ended January 31, 2007, the Manager waived $81 for IMMF management fees. -------------------------------------------------------------------------------- 5. 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 Portfolio's tax returns to determine whether it is "more-likely-than-not" that tax positions taken in the Portfolio's tax return will be ultimately sustained. A tax liability and expense must be recorded in 39 | CONSERVATIVE INVESTOR FUND NOTES TO FINANCIAL STATEMENTS Continued -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 5. RECENT ACCOUNTING PRONOUNCEMENTS Continued 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 January 31, 2007, the Manager has evaluated the implications of FIN 48 and does not currently anticipate a material impact to the Portfolio's financial statements. The Manager will continue to monitor the Portfolio'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 January 31, 2007, 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. -------------------------------------------------------------------------------- 6. 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 excluding the Portfolio) 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 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. 40 | CONSERVATIVE INVESTOR FUND REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- THE BOARD OF TRUSTEES AND SHAREHOLDERS OF OPPENHEIMER PORTFOLIO SERIES: We have audited the accompanying statement of assets and liabilities of Conservative Investor Fund (one of the portfolios constituting the Oppenheimer Portfolio Series), including the statement of investments, as of January 31, 2007, the related statement of operations for the year then ended, and the statements of changes in net assets and the financial highlights for the year then ended and for the period April 5, 2005 (commencement of operations) to January 31, 2006. These financial statements and financial highlights are the responsibility of the Portfolio'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 January 31, 2007, 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 Conservative Investor Fund as of January 31, 2007, the results of its operations for the year then ended, and the changes in its net assets and the financial highlights for the year then ended and for the period April 5, 2005 (commencement of operations) to January 31, 2006, in conformity with U.S. generally accepted accounting principles. KPMG LLP Denver, Colorado March 15, 2007 41 | CONSERVATIVE INVESTOR 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 Portfolio during calendar year 2006. Regulations of the U.S. Treasury Department require the Portfolio to report this information to the Internal Revenue Service. Capital gain distributions of $0.017 per share were paid to Class A, Class B, Class C, Class N and Class Y shareholders, respectively, on December 29, 2006. Whether received in stock or in cash, the capital gain distribution should be treated by shareholders as a gain from the sale of the capital assets held for more than one year (long-term capital gains). Dividends, if any, paid by the Portfolio during the fiscal year ended January 31, 2007 which are not designated as capital gain distributions should be multiplied by 5.84% to arrive at the amount eligible for the corporate dividend-received deduction. A portion, if any, of the dividends paid by the Portfolio during the fiscal year ended January 31, 2007 which are not designated as capital gain distributions are eligible for lower individual income tax rates to the extent that the Portfolio has received qualified dividend income as stipulated by recent tax legislation. $486,335 of the Portfolio'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 January 31, 2007, $23,416 or 0.45% of the ordinary distributions paid by the Portfolio qualifies as an interest related dividend. The foregoing information is presented to assist shareholders in reporting distributions received from the Portfolio 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. 42 | CONSERVATIVE INVESTOR 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. 43 | CONSERVATIVE INVESTOR FUND BOARD APPROVAL OF THE PORTFOLIO'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 managers 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. 44 | CONSERVATIVE INVESTOR FUND 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 Rudi Schadt, Jerry Webman and Kurt Wolfgruber, the members of the Fund's Asset Allocation Team. 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 conservative mixed-asset target allocation funds advised by other investment advisers. The Board noted that the Fund's one-year and since inception performance were better than 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 mixed-asset target allocation conservative funds of funds and other funds with comparable asset levels and distribution features. The Board noted that the Manager has agreed to voluntarily limit the aggregate amount of combined direct (fund-of-funds level) and indirect expenses so that total annual portfolio and underlying fund operating expenses as a percentage of average daily net assets will not exceed the following annual rates: 45 | CONSERVATIVE INVESTOR FUND BOARD APPROVAL OF THE PORTFOLIO'S INVESTMENT ADVISORY AGREEMENT Unaudited / Continued -------------------------------------------------------------------------------- 1.25% for Class A, 2.00% for Class B, 2.00% for Class C, 1.50% for Class N and 1.00% for Class Y. The Manager may modify or terminate that undertaking at any time without notice to shareholders. The Board noted that the Fund does not pay a management fee and that the Fund's total expenses are equal to its peer group median. ECONOMIES OF SCALE. The Board considered whether the Manager may realize economies of scale in managing and supporting the Fund, the extent to which those economies of scale would benefit the Fund's shareholders and the current level of Fund assets. 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. 46 | CONSERVATIVE INVESTOR FUND TRUSTEES AND OFFICERS Unaudited --------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------- NAME, POSITION(S) HELD WITH THE PRINCIPAL OCCUPATION(S) DURING THE PAST 5 YEARS; OTHER TRUSTEESHIPS/DIRECTORSHIPS HELD; FUND, LENGTH OF SERVICE, AGE NUMBER OF PORTFOLIOS IN THE FUND COMPLEX CURRENTLY OVERSEEN INDEPENDENT THE ADDRESS OF EACH TRUSTEE IN THE CHART BELOW IS 6803 S. TUCSON WAY, CENTENNIAL, COLORADO TRUSTEES 80112-3924. EACH TRUSTEE SERVES FOR AN INDEFINITE TERM, OR UNTIL HIS OR HER RESIGNATION, RETIREMENT, DEATH OR REMOVAL. BRIAN F. WRUBLE, General Partner of Odyssey Partners, L.P. (hedge fund) (since September 1995); Director of Chairman of the Board Special Value Opportunities Fund, LLC (registered investment company) (since September of Trustees (since 2007) 2004); Investment Advisory Board Member of Zurich Financial Services (insurance) (since and Trustee (since 2005) October 2004); Board of Governing Trustees of The Jackson Laboratory (non-profit) (since Age: 63 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. MATTHEW P. FINK, Trustee of the Committee for Economic Development (policy research foundation) (since Trustee (since 2005) 2005); Director of ICI Education Foundation (education foundation) (October 1991-August Age: 66 2006); President of the Investment Company Institute (trade association) (October 1991-June 2004); Director of ICI Mutual Insurance Company (insurance company) (October 1991-June 2004). Oversees 49 portfolios in the OppenheimerFunds complex. ROBERT G. GALLI, A trustee or director of other Oppenheimer funds. Oversees 59 portfolios in the Trustee (since 2005) OppenheimerFunds complex. Age: 73 PHILLIP A. GRIFFITHS, Distinguished Presidential Fellow for International Affairs (since 2002) and Member (since Trustee (since 2005) 1979) of the National Academy of Sciences; Council on Foreign Relations (since 2002); Age: 68 Director of GSI Lumonics Inc. (precision medical equipment supplier) (since 2001); Senior Advisor of The Andrew W. Mellon Foundation (since 2001); Chair of Science Initiative Group (since 1999); Member of the American Philosophical Society (since 1996); Trustee of Woodward Academy (since 1983); Foreign Associate of Third World Academy of Sciences; Director of the Institute for Advanced Study (1991-2004); Director of Bankers Trust New York Corporation (1994-1999); Provost at Duke University (1983-1991). Oversees 49 portfolios in the OppenheimerFunds complex. MARY F. MILLER, Trustee of the American Symphony Orchestra (not-for-profit) (since October 1998); and Senior Trustee (since 2005) Vice President and General Auditor of American Express Company (financial services company) Age: 64 (July 1998-February 2003). Oversees 49 portfolios in the OppenheimerFunds complex. JOEL W. MOTLEY, Director of Columbia Equity Financial Corp. (privately-held financial adviser) (since 2002); Trustee (since 2005) Managing Director of Carmona Motley, Inc. (privately-held financial adviser) (since January Age: 54 2002); Managing Director of Carmona Motley Hoffman Inc. (privately-held financial adviser) (January 1998-December 2001); Member of the Finance and Budget Committee of the Council on Foreign Relations, the Investment Committee of the Episcopal Church of America, the Investment Committee and Board of Human Rights Watch and the Investment Committee of Historic Hudson Valley. Oversees 49 portfolios in the OppenheimerFunds complex.
47 | CONSERVATIVE INVESTOR FUND TRUSTEES AND OFFICERS Unaudited / Continued -------------------------------------------------------------------------------- KENNETH A. RANDALL, Director of Dominion Resources, Inc. (electric utility holding company) (February Trustee (since 2005) 1972-October 2005); Former Director of Prime Retail, Inc. (real estate investment trust), Age: 79 Dominion Energy Inc. (electric power and oil & gas producer), Lumberman's Mutual Casualty Company, American Motorists Insurance Company and American Manufacturers Mutual Insurance Company; Former President and Chief Executive Officer of The Conference Board, Inc. (international economic and business research). Oversees 49 portfolios in the OppenheimerFunds complex. RUSSELL S. REYNOLDS, JR., Chairman of The Directorship Search Group, Inc. (corporate governance consulting and Trustee (since 2005) executive recruiting) (since 1993); Life Trustee of International House (non-profit Age: 75 educational organization); Founder, Chairman and Chief Executive Officer of Russell Reynolds Associates, Inc. (1969-1993); Banker at J.P. Morgan & Co. (1958-1966); 1st Lt. Strategic Air Command, U.S. Air Force (1954-1958). Oversees 49 portfolios in the OppenheimerFunds complex. JOSEPH M. WIKLER, Director of the following medical device companies: Medintec (since 1992) and Cathco (since Trustee (since 2005) 1996); Director of Lakes Environmental Association (since 1996); Member of the Investment Age: 65 Committee of the Associated Jewish Charities of Baltimore (since 1994); Director of Fortis/Hartford mutual funds (1994-December 2001). Oversees 49 portfolios in the OppenheimerFunds complex. PETER I. WOLD, President of Wold Oil Properties, Inc. (oil and gas exploration and production company) Trustee (since 2005) (since 1994); Vice President, Secretary and Treasurer of Wold Trona Company, Inc. (soda ash Age: 59 processing and production) (since 1996); Vice President of Wold Talc Company, Inc. (talc mining) (since 1999); Managing Member of Hole-in-the-Wall Ranch (cattle ranching) (since 1979); Director and Chairman of the Denver Branch of the Federal Reserve Bank of Kansas City (1993-1999); and Director of PacifiCorp. (electric utility) (1995-1999). Oversees 49 portfolios in the OppenheimerFunds complex. ------------------------------------------------------------------------------------------------------------------------------- INTERESTED TRUSTEE THE ADDRESS OF MR. MURPHY IS TWO WORLD FINANCIAL CENTER, 225 LIBERTY STREET, 11TH FLOOR, NEW AND OFFICER 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 INDEFINITE 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) and President (since President and Principal September 2000) of the Manager; President and a director or trustee of other Oppenheimer Executive Officer and Trustee funds; President and Director of Oppenheimer Acquisition Corp. ("OAC") (the Manager's parent (since 2005) holding company) and of Oppenheimer Partnership Holdings, Inc. (holding company subsidiary of Age: 57 the Manager) (since July 2001); Director of OppenheimerFunds Distributor, Inc. (subsidiary of the Manager) (since November 2001); Chairman and Director of Shareholder Services, Inc. and of Shareholder Financial Services, Inc. (transfer agent subsidiaries of the Manager) (since July 2001); President and Director of OppenheimerFunds Legacy Program (charitable trust program established by the Manager) (since July 2001); Director of the following investment advisory subsidiaries of the Manager: OFI Institutional Asset Management, Inc., Centennial Asset Management Corporation, Trinity Investment Management Corporation and Tremont Capital Management, Inc. (since November 2001), HarbourView Asset Management Corporation and OFI Private Investments, Inc. (since July 2001); President (since November 1, 2001) and Director (since July 2001) of Oppenheimer Real Asset Management, Inc.; Executive Vice President of Massachusetts Mutual Life Insurance Company (OAC's parent company) (since February 1997); Director of DLB Acquisition Corporation (holding
48 | CONSERVATIVE INVESTOR FUND JOHN V. MURPHY, company parent of Babson Capital Management LLC) (since June 1995); Member of the Investment Continued 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 THE ADDRESSES OF THE OFFICERS IN THE CHART BELOW ARE AS FOLLOWS: FOR MESSRS. SCHADT, WEBMAN, OF THE FUND WOLFGRUBER, 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 INDEFINITE TERM OR UNTIL HIS OR HER RESIGNATION, RETIREMENT, DEATH OR REMOVAL. RUDI W. SCHADT, Vice President, Director of Research in Product Design and Risk Management of the Manager. Vice President and Portfolio Prior to joining the Manager in February 2002 he was a Director and Senior Quantitative Manager (since 2005) Analyst (2000-2001) at UBS Asset Management prior to which he was an Associate Director of Age: 49 Research (since June 1999) and Senior Researcher and Portfolio Manager (from June 1997) at State Street Global Advisors. An officer of 11 portfolios in the OppenheimerFunds complex. DR. JERRY WEBMAN, Chief Economist of the Manager (since 2006); Senior Vice President (since February 1996) and Vice President and Portfolio Senior Investment Officer and Director (since 1997) of the Manager's Fixed Income Manager (since 2005) Investments; Senior Vice President (since May 1999) of HarbourView Asset Management Age: 57 Corporation. An officer of 8 other portfolios in the OppenheimerFunds complex. KURT WOLFGRUBER, Executive Vice President of the Manager (since March 2003) and Chief Investment Officer and Vice President and Portfolio Director of the Manager (since July 2003) of the Manager. He has been Director of HarbourView Manager (since 2005) Asset Management Corporation and of OFI Institutional Asset Management, Inc. (since June Age: 57 2003) and of Tremont Capital Management, Inc. (since October 2001). He is also an officer of 8 other portfolios in the OppenheimerFunds complex. MARK S. VANDEHEY, Senior Vice President and Chief Compliance Officer of the Manager (since March 2004); Vice Vice President and President of OppenheimerFunds Distributor, Inc., Centennial Asset Management Corporation and Chief Compliance Officer Shareholder Services, Inc. (since June 1983). Former Vice President and Director of Internal (since 2005) Audit of the Manager (1997-February 2004). An officer of 96 portfolios in the Age: 56 OppenheimerFunds complex. BRIAN W. WIXTED, Senior Vice President and Treasurer of the Manager (since March 1999); Treasurer of the Treasurer and Principal following: HarbourView Asset Management Corporation, Shareholder Financial Services, Inc., Financial & Accounting Shareholder Services, Inc., Oppenheimer Real Asset Management Corporation, and Oppenheimer Officer (since 2005) Partnership Holdings, Inc. (since March 1999), OFI Private Investments, Inc. (since March Age: 47 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
49 | CONSERVATIVE INVESTOR FUND TRUSTEES AND OFFICERS Unaudited / Continued -------------------------------------------------------------------------------- BRIAN W. WIXTED, 1999), Centennial Asset Management Corporation (March 1999-October 2003) and OppenheimerFunds Continued 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, Vice President of the Manager (since February 2007); Assistant Vice President of the Manager Assistant Treasurer (August 2002-February 2007); Manager/Financial Product Accounting of the Manager (November (since 2004) 1998-July 2002). An officer of 96 portfolios in the OppenheimerFunds complex. Age: 36 BRIAN C. SZILAGYI, Assistant Vice President of the Manager (since July 2004); Director of Financial Reporting Assistant Treasurer and Compliance of First Data Corporation (April 2003-July 2004); Manager of Compliance of (since 2005) Berger Financial Group LLC (May 2001-March 2003); Director of Mutual Fund Operations at Age: 36 American Data Services, Inc. (September 2000-May 2001). An officer of 96 portfolios in the OppenheimerFunds complex. ROBERT G. ZACK, Executive Vice President (since January 2004) and General Counsel (since March 2002) of the Secretary (since 2005) Manager; General Counsel and Director of the Distributor (since December 2001); General Age: 58 Counsel of Centennial Asset Management Corporation (since December 2001); Senior Vice President and General Counsel of HarbourView Asset Management Corporation (since December 2001); Secretary and General Counsel of OAC (since November 2001); Assistant Secretary (since September 1997) and Director (since November 2001) of OppenheimerFunds International Ltd. and OppenheimerFunds plc; Vice President and Director of Oppenheimer Partnership Holdings, Inc. (since December 2002); Director of Oppenheimer Real Asset Management, Inc. (since November 2001); Senior Vice President, General Counsel and Director of Shareholder Financial Services, Inc. and Shareholder Services, Inc. (since December 2001); Senior Vice President, General Counsel and Director of OFI Private Investments, Inc. and OFI Trust Company (since November 2001); Vice President of OppenheimerFunds Legacy Program (since June 2003); Senior Vice President and General Counsel of OFI Institutional Asset Management, Inc. (since November 2001); Director of OppenheimerFunds (Asia) Limited (since December 2003); Senior Vice President (May 1985-December 2003), Acting General Counsel (November 2001-February 2002) and Associate General Counsel (May 1981-October 2001) of the Manager; Assistant Secretary of the following: Shareholder Services, Inc. (May 1985-November 2001), Shareholder Financial Services, Inc. (November 1989-November 2001), and OppenheimerFunds International Ltd. (September 1997-November 2001). An officer of 96 portfolios in the OppenheimerFunds complex. LISA I. BLOOMBERG, Vice President and Associate Counsel of the Manager (since May 2004); First Vice President Assistant Secretary (April 2001-April 2004), Associate General Counsel (December 2000-April 2004), Corporate Vice (since 2004) President (May 1999-April 2001) and Assistant General Counsel (May 1999-December 2000) of UBS Age: 39 Financial Services Inc. (formerly, PaineWebber Incorporated). An officer of 96 portfolios in the OppenheimerFunds complex. KATHLEEN T. IVES, Vice President (since June 1998) and Senior Counsel and Assistant Secretary (since October Assistant Secretary 2003) of the Manager; Vice President (since 1999) and Assistant Secretary (since October (since 2001) 2003) of the Distributor; Assistant Secretary of Centennial Asset Management Corporation Age: 41 (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.
50 | CONSERVATIVE INVESTOR FUND PHILLIP S. GILLESPIE, Senior Vice President and Deputy General Counsel of the Manager (since September 2004); Assistant Secretary First Vice President (2001-September 2004); Director (2000-September 2004) and Vice (since 2004) President (1998-2000) of Merrill Lynch Investment Management. An officer of 96 portfolios in Age: 43 the OppenheimerFunds complex.
THE PORTFOLIO'S STATEMENT OF ADDITIONAL INFORMATION CONTAINS ADDITIONAL INFORMATION ABOUT THE PORTFOLIO'S TRUSTEES AND OFFICERS AND IS AVAILABLE WITHOUT CHARGE UPON REQUEST, BY CALLING 1.800.525.7048. 51 | CONSERVATIVE INVESTOR FUND MODERATE INVESTOR FUND TOP HOLDINGS AND ALLOCATIONS -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- ASSET CLASS ALLOCATION [THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.] Alternative Investments 10.0% Fixed Income 43.9 Global Equity 10.2 U.S. Equity 35.6 Money Market 0.3 Portfolio holdings and allocations are subject to change. Percentages are as of January 31, 2007, and are based on the total market value of investments. -------------------------------------------------------------------------------- 9 | MODERATE INVESTOR FUND PORTFOLIO PERFORMANCE DISCUSSION -------------------------------------------------------------------------------- HOW HAS THE PORTFOLIO PERFORMED? BELOW IS A DISCUSSION BY OPPENHEIMERFUNDS, INC., OF THE PORTFOLIO'S PERFORMANCE DURING ITS FISCAL YEAR ENDED JANUARY 31, 2007, FOLLOWED BY A GRAPHICAL COMPARISON OF THE PORTFOLIO'S PERFORMANCE TO AN APPROPRIATE BROAD-BASED MARKET INDEX. MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE. For the 12-month period ending January 31, 2007, Moderate Investor Fund significantly outperformed its fixed-income benchmark, the Lehman Brothers Aggregate Bond Index, but underperformed its equity benchmark, the S&P 500 Index. We attribute the Portfolio's positive results to the outperformance of its alternative investment funds, primarily its exposure to Oppenheimer Real Estate Fund's Class Y shares. Portfolio performance was further strengthened by its allocation to fixed-income funds, as most of these underlying funds posted strong returns and outperformed their respective benchmarks. In contrast, the Portfolio's exposure to commodities through its allocation to the Oppenheimer Commodity Strategy Total Return Fund was the greatest detractor from results. Additionally, although the Portfolio's underlying equity funds produced strong absolute returns, which boosted Portfolio performance, a majority of them lagged in terms of relative performance to their respective benchmarks On the alternative investments side, the Portfolio's position in Oppenheimer Real Estate Fund's Class Y shares at period end, which posted impressive returns and strongly outperformed its own benchmark, was a boon to the Portfolio's performance. Oppenheimer Real Estate Fund's success can be attributed, in part, to the Fund's profitable investments in the office, apartment and industrial sectors. The Portfolio also benefited from its allocation to fixed-income funds, as the majority of these funds produced both strong absolute and relative returns. The Portfolio's single largest holding at period end, Oppenheimer Core Bond Fund, outperformed due to multiple factors. Perhaps the most significant contributor was its positioning within the corporate bond sector, an area of the fixed-income market that posted double-digit returns. Oppenheimer Limited-Term Government Fund added to the Portfolio's returns as it benefited from active management of its interest-rate sensitivity and mortgage portfolio. The Portfolio's exposure to the high yield bond market, through its allocation to Oppenheimer Champion Income Fund also contributed to performance. The Portfolio also benefited from its allocation to Oppenheimer International Bond Fund's Class Y shares, as this Fund outperformed its Lipper peer group primarily due to its emphasis on bonds and currencies from the emerging markets. On the equity side, the strong absolute gains generated by the Portfolio's underlying funds were not enough to overcome the negative affects of many of these funds weak relative gains, a situation that ultimately hampered the Portfolio's total returns. For example, 10 | MODERATE INVESTOR FUND the Portfolio gained from its holdings in Oppenheimer Global Fund and Oppenheimer Main Street Fund, but both funds lagged behind their respective benchmarks. An exception was Oppenheimer Value Fund's Class Y shares (also the Fund's second largest holding at period end), which posted a strong total return and outpaced its benchmark, the S&P 500 Index. The underperformance of several of the Portfolio's equity funds can be attributed to a variety of factors, which included the continued underperformance of growth stocks versus value stocks and disappointing stock selection. Additionally, over the last 12-months the market tended to not appropriately reward companies that consistently grew their earnings. This situation ended up hurting some of the Portfolio's underlying equity funds, as their investment philosophies tend to emphasize strong earnings growth. Lastly, the Portfolio's exposure to commodities through its allocation to the Oppenheimer Commodity Strategy Total Return Fund was the largest detractor from results. Over the period, oil prices were quite volatile, ranging from $65 to a mid-summer high of close to $80 per barrel then dropping precipitously to around $55 by period end. This volatility and ultimate price erosion is a result of multiple factors that included an easing of geopolitical tensions, a rise in inventories and a slowing demand. Additionally, an unseasonably warm winter contributed to the natural gas price decline. COMPARING THE PORTFOLIO'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 Portfolio held until January 31, 2007. Performance is measured from the inception of Classes A, B, C, N and Y on April 5, 2005. The Portfolio's performance reflects the deduction of the maximum initial sales charge on Class A shares, the applicable contingent deferred sales charge on Class B, Class C and Class N shares, and reinvestments of all dividends and capital gains distributions. Past performance cannot guarantee future results. The Portfolio's performance is compared to the performance of the S&P 500 Index and the Lehman Brothers Aggregate Bond Index. The S&P 500 Index is a broad-based measure of domestic stock performance that includes the reinvestment of dividends. The Lehman Brothers Aggregate Bond Index is an index of U.S. Government and corporate bonds that includes reinvestment of dividends. 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 Portfolio's performance reflects the effects of the Portfolio's business and operating expenses. While index comparisons may be useful to provide a benchmark for the Portfolio's performance, it must be noted that the Portfolio's investments are not limited to the investments in the index. 11 | MODERATE INVESTOR FUND PORTFOLIO PERFORMANCE DISCUSSION -------------------------------------------------------------------------------- CLASS A SHARES COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN: Oppenheimer Portfolio Series: Moderate Investor 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 Portfolio Series: Moderate Investor Fund Lehman Brothers (Class A) Aggregate Bond Index S&P 500 Index 04/05/2005 $ 9,425 $ 10,000 $ 10,000 04/30/2005 $ 9,331 $ 10,135 $ 9,810 07/31/2005 $ 9,821 $ 10,207 $ 10,514 10/31/2005 $ 9,774 $ 10,150 $ 10,327 01/31/2006 $ 10,328 $ 10,293 $ 11,005 04/30/2006 $ 10,491 $ 10,207 $ 11,322 07/31/2006 $ 10,357 $ 10,356 $ 11,079 10/31/2006 $ 10,836 $ 10,677 $ 12,013 01/31/2007 $ 11,230 $ 10,734 $ 12,603
AVERAGE ANNUAL TOTAL RETURNS OF CLASS A SHARES WITH SALES CHARGE OF THE PORTFOLIO AT 1/31/07 1-Year 2.48% Since Inception (4/5/05) 6.57% 12 | MODERATE INVESTOR FUND CLASS B SHARES COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN: Oppenheimer Portfolio Series: Moderate Investor 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 Portfolio Series: Moderate Investor Fund Lehman Brothers (Class B) Aggregate Bond Index S&P 500 Index 04/05/2005 $ 10,000 $ 10,000 $ 10,000 04/30/2005 $ 9,900 $ 10,135 $ 9,810 07/31/2005 $ 10,390 $ 10,207 $ 10,514 10/31/2005 $ 10,330 $ 10,150 $ 10,327 01/31/2006 $ 10,890 $ 10,293 $ 11,005 04/30/2006 $ 11,042 $ 10,207 $ 11,322 07/31/2006 $ 10,869 $ 10,356 $ 11,079 10/31/2006 $ 11,346 $ 10,677 $ 12,013 01/31/2007 $ 11,338 $ 10,734 $ 12,603
AVERAGE ANNUAL TOTAL RETURNS OF CLASS B SHARES WITH SALES CHARGE OF THE PORTFOLIO AT 1/31/07 1-Year 2.80% Since Inception (4/5/05) 7.14% THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE PORTFOLIO 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. PORTFOLIO 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 4% (SINCE INCEPTION); AND FOR CLASS C AND N SHARES, THE 1% CONTINGENT DEFERRED SALES CHARGE FOR THE 1-YEAR PERIOD. THERE IS NO SALES CHARGE FOR CLASS Y SHARES. SEE PAGE 17 FOR FURTHER INFORMATION. 13 | MODERATE INVESTOR FUND PORTFOLIO PERFORMANCE DISCUSSION -------------------------------------------------------------------------------- CLASS C SHARES COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN: Oppenheimer Portfolio Series: Moderate Investor 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 Portfolio Series: Moderate Investor Fund Lehman Brothers (Class C) Aggregate Bond Index S&P 500 Index 04/05/2005 $ 10,000 $ 10,000 $ 10,000 04/30/2005 $ 9,890 $ 10,135 $ 9,810 07/31/2005 $ 10,380 $ 10,207 $ 10,514 10/31/2005 $ 10,320 $ 10,150 $ 10,327 01/31/2006 $ 10,882 $ 10,293 $ 11,005 04/30/2006 $ 11,035 $ 10,207 $ 11,322 07/31/2006 $ 10,872 $ 10,356 $ 11,079 10/31/2006 $ 11,349 $ 10,677 $ 12,013 01/31/2007 $ 11,736 $ 10,734 $ 12,603
AVERAGE ANNUAL TOTAL RETURNS OF CLASS C SHARES WITH SALES CHARGE OF THE PORTFOLIO AT 1/31/07 1-Year 6.85% Since Inception (4/5/05) 9.18% 14 | MODERATE INVESTOR FUND CLASS N SHARES COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN: Oppenheimer Portfolio Series: Moderate Investor 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 Portfolio Series: Moderate Investor Fund Lehman Brothers (Class N) Aggregate Bond Index S&P 500 Index 04/05/2005 $ 10,000 $ 10,000 $ 10,000 04/30/2005 $ 9,900 $ 10,135 $ 9,810 07/31/2005 $ 10,410 $ 10,207 $ 10,514 10/31/2005 $ 10,360 $ 10,150 $ 10,327 01/31/2006 $ 10,935 $ 10,293 $ 11,005 04/30/2006 $ 11,108 $ 10,207 $ 11,322 07/31/2006 $ 10,955 $ 10,356 $ 11,079 10/31/2006 $ 11,443 $ 10,677 $ 12,013 01/31/2007 $ 11,862 $ 10,734 $ 12,603
AVERAGE ANNUAL TOTAL RETURNS OF CLASS N SHARES WITH SALES CHARGE OF THE PORTFOLIO AT 1/31/07 1-Year 7.47% Since Inception (4/5/05) 9.82% THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE PORTFOLIO 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. PORTFOLIO 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 4% (SINCE INCEPTION); AND FOR CLASS C AND N SHARES, THE 1% CONTINGENT DEFERRED SALES CHARGE FOR THE 1-YEAR PERIOD. THERE IS NO SALES CHARGE FOR CLASS Y SHARES. SEE PAGE 17 FOR FURTHER INFORMATION. 15 | MODERATE INVESTOR FUND PORTFOLIO PERFORMANCE DISCUSSION -------------------------------------------------------------------------------- CLASS Y SHARES COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN: Oppenheimer Portfolio Series: Moderate Investor Fund (Class Y) Lehman Brothers Aggregate Bond Index S&P 500 Index [THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Oppenheimer Portfolio Series: Moderate Investor Fund Lehman Brothers (Class Y) Aggregate Bond Index S&P 500 Index 04/05/2005 $ 10,000 $ 10,000 $ 10,000 04/30/2005 $ 9,900 $ 10,135 $ 9,810 07/31/2005 $ 10,420 $ 10,207 $ 10,514 10/31/2005 $ 10,390 $ 10,150 $ 10,327 01/31/2006 $ 10,979 $ 10,293 $ 11,005 04/30/2006 $ 11,173 $ 10,207 $ 11,322 07/31/2006 $ 11,030 $ 10,356 $ 11,079 10/31/2006 $ 11,559 $ 10,677 $ 12,013 01/31/2007 $ 11,987 $ 10,734 $ 12,603
AVERAGE ANNUAL TOTAL RETURNS OF CLASS Y SHARES OF THE PORTFOLIO AT 1/31/07 1-Year 9.18% Since Inception (4/5/05) 10.46% THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE PORTFOLIO 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. PORTFOLIO 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 4% (SINCE INCEPTION); AND FOR CLASS C AND N SHARES, THE 1% CONTINGENT DEFERRED SALES CHARGE FOR THE 1-YEAR PERIOD. THERE IS NO SALES CHARGE FOR CLASS Y SHARES. SEE PAGE 17 FOR FURTHER INFORMATION. 16 | MODERATE INVESTOR FUND NOTES -------------------------------------------------------------------------------- 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 Portfolio'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 Portfolio or any gains you may realize if you sell your shares. INVESTORS SHOULD CONSIDER THE PORTFOLIO'S INVESTMENT OBJECTIVES, RISKS, AND OTHER CHARGES AND EXPENSES CAREFULLY BEFORE INVESTING. THE PORTFOLIO'S PROSPECTUS CONTAINS THIS AND OTHER INFORMATION ABOUT THE PORTFOLIO, 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 Portfolio'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 Portfolio were first publicly offered on 4/5/05. Unless otherwise noted, Class A returns include the maximum initial sales charge of 5.75%. CLASS B shares of the Portfolio were first publicly offered on 4/5/05. Unless otherwise noted, Class B returns include the applicable contingent deferred sales charge of 5% (1-year) and 4% (since inception). Class B shares are subject to an annual 0.75% asset-based sales charge. CLASS C shares of the Portfolio were first publicly offered on 4/5/05. Unless otherwise noted, 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. CLASS N shares of the Portfolio were first publicly offered on 4/5/05. 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. CLASS Y shares of the Portfolio were first publicly offered on 4/5/05. Class Y shares are offered only to certain institutional investors under special agreements with the Distributor. An explanation of the calculation of performance is in the Portfolio's Statement of Additional Information. 17 | MODERATE INVESTOR FUND PORTFOLIO EXPENSES -------------------------------------------------------------------------------- PORTFOLIO EXPENSES. As a shareholder of the Portfolio, 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 Portfolio expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio 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 January 31, 2007. 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 Portfolio'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 Portfolio'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 Portfolio 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 18 | MODERATE INVESTOR FUND 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 (8/1/06) 1/31/07 JANUARY 31, 2007 -------------------------------------------------------------------------------- Class A Actual $ 1,000.00 $ 1,084.30 $ 2.16 -------------------------------------------------------------------------------- Class A Hypothetical 1,000.00 1,023.14 2.09 -------------------------------------------------------------------------------- Class B Actual 1,000.00 1,080.00 6.42 -------------------------------------------------------------------------------- Class B Hypothetical 1,000.00 1,019.06 6.23 -------------------------------------------------------------------------------- Class C Actual 1,000.00 1,079.50 6.20 -------------------------------------------------------------------------------- Class C Hypothetical 1,000.00 1,019.26 6.02 -------------------------------------------------------------------------------- Class N Actual 1,000.00 1,082.70 3.47 -------------------------------------------------------------------------------- Class N Hypothetical 1,000.00 1,021.88 3.37 -------------------------------------------------------------------------------- Class Y Actual 1,000.00 1,086.80 0.00 -------------------------------------------------------------------------------- Class Y Hypothetical 1,000.00 1,025.21 0.00 Hypothetical assumes 5% annual return before expenses. Expenses are equal to the Portfolio'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 all underlying fund expenses, based on the 6-month period ended January 31, 2007 are as follows CLASS EXPENSE RATIOS ------------------------ Class A 0.41% ------------------------ Class B 1.22 ------------------------ Class C 1.18 ------------------------ Class N 0.66 ------------------------ Class Y 0.00 The expense ratios reflect voluntary waivers or reimbursements of expenses by the Portfolio's Manager that can be terminated at any time, without advance notice. The "Financial Highlights" tables in the Portfolio's financial statements, included in this report, also show the gross expense ratios, without such waivers or reimbursements. -------------------------------------------------------------------------------- 19 | MODERATE INVESTOR FUND STATEMENT OF INVESTMENTS January 31, 2007 --------------------------------------------------------------------------------
VALUE SHARES SEE NOTE 1 --------------------------------------------------------------------------------------------- INVESTMENTS IN AFFILIATED COMPANIES--99.8% 1 --------------------------------------------------------------------------------------------- ALTERNATIVE INVESTMENTS--9.9% Oppenheimer Commodity Strategy Total Return Fund, Cl. Y 3,864,044 $ 24,652,598 --------------------------------------------------------------------------------------------- Oppenheimer Real Estate Fund, Cl. Y 1,351,142 36,021,440 -------------- 60,674,038 --------------------------------------------------------------------------------------------- FIXED INCOME--43.8% Oppenheimer Champion Income Fund, Cl. Y 6,341,189 60,748,588 --------------------------------------------------------------------------------------------- Oppenheimer Core Bond Fund, Cl. Y 11,639,178 118,486,838 --------------------------------------------------------------------------------------------- Oppenheimer International Bond Fund, Cl. Y 4,986,529 29,570,116 --------------------------------------------------------------------------------------------- Oppenheimer Limited-Term Government Fund, Cl. Y 5,914,588 58,613,569 -------------- 267,419,111 --------------------------------------------------------------------------------------------- GLOBAL EQUITY--10.2% Oppenheimer Global Fund, Cl. Y 831,381 62,029,320 --------------------------------------------------------------------------------------------- U.S. EQUITY--35.6% Oppenheimer Capital Appreciation Fund, Cl. Y 2 1,239,117 60,295,453 --------------------------------------------------------------------------------------------- Oppenheimer Main Street Fund, Cl. Y 1,499,294 62,100,737 --------------------------------------------------------------------------------------------- Oppenheimer Main Street Opportunity Fund, Cl. Y 2,033,988 30,936,958 --------------------------------------------------------------------------------------------- Oppenheimer Value Fund, Cl. Y 2,348,542 63,833,361 -------------- 217,166,509 --------------------------------------------------------------------------------------------- MONEY MARKET--0.3% Oppenheimer Institutional Money Market Fund, Cl. E, 5.35% 3 1,897,564 1,897,564 --------------------------------------------------------------------------------------------- TOTAL INVESTMENTS, AT VALUE (COST $584,165,120) 99.8% 609,186,542 --------------------------------------------------------------------------------------------- OTHER ASSETS NET OF LIABILITIES 0.2 1,196,303 ---------------------------- NET ASSETS 100.0% $ 610,382,845 ============================
20 | MODERATE INVESTOR FUND FOOTNOTES TO STATEMENT OF INVESTMENTS 1. Is or was an affiliate, as defined in the Investment Company Act of 1940, at or during the period ended January 31, 2007 by virtue of the Portfolio owning at least 5% of the voting securities of the issuer or as a result of the Portfolio and the issuer having the same investment advisor. Transactions during the period in which the issuer was an affiliate are as follows:
SHARES SHARES JANUARY 31, GROSS GROSS JANUARY 31, 2006 ADDITIONS REDUCTIONS 2007 ----------------------------------------------------------------------------------------------------------------------------- Oppenheimer Capital Appreciation Fund, Cl. Y 452,591 820,723 34,197 1,239,117 Oppenheimer Champion Income Fund, Cl. Y -- 6,393,241 a 52,052 6,341,189 Oppenheimer Commodity Strategy Total Return Fund, Cl. Y 1,239,352 2,701,647 76,955 3,864,044 Oppenheimer Core Bond Fund, Cl. Y 3,823,987 8,038,131 222,940 11,639,178 Oppenheimer Global Fund, Cl. Y 307,304 566,577 42,500 831,381 Oppenheimer High Yield Fund, Cl. Y 2,132,328 3,051,493 5,183,821 -- Oppenheimer Institutional Money Market Fund, Cl. E, 5.35% -- 28,804,117 26,906,553 1,897,564 Oppenheimer International Bond Fund, Cl. Y 1,704,413 3,377,939 95,823 4,986,529 Oppenheimer Limited-Term Government Fund, Cl. Y 1,959,654 4,068,792 113,858 5,914,588 Oppenheimer Main Street Fund, Cl. Y 533,482 1,009,269 43,457 1,499,294 Oppenheimer Main Street Opportunity Fund, Cl. Y 729,566 1,370,938 66,516 2,033,988 Oppenheimer Real Estate Fund, Cl. Y 527,524 898,794 75,176 1,351,142 Oppenheimer Value Fund, Cl. Y 829,078 1,563,344 43,880 2,348,542
VALUE DIVIDEND REALIZED SEE NOTE 1 INCOME LOSS ----------------------------------------------------------------------------------------------------------------------------- Oppenheimer Capital Appreciation Fund, Cl. Y $ 60,295,453 $ -- $ 38,812 Oppenheimer Champion Income Fund, Cl. Y 60,748,588 1,199,700 b 2,599 Oppenheimer Commodity Strategy Total Return Fund, Cl. Y 24,652,598 960,594 b 169,353 Oppenheimer Core Bond Fund, Cl. Y 118,486,838 4,199,544 b 69,237 Oppenheimer Global Fund, Cl. Y 62,029,320 815,840 b 28,536 Oppenheimer High Yield Fund, Cl. Y -- 1,737,465 b 15,099 Oppenheimer Institutional Money Market Fund, Cl. E, 5.35% 1,897,564 18,255 -- Oppenheimer International Bond Fund, Cl. Y 29,570,116 817,417 b 13,532 Oppenheimer Limited-Term Government Fund, Cl. Y 58,613,569 2,033,230 b 17,783 Oppenheimer Main Street Fund, Cl. Y 62,100,737 717,241 b 27,770 Oppenheimer Main Street Opportunity Fund, Cl. Y 30,936,958 843,357 b 15,430 Oppenheimer Real Estate Fund, Cl. Y 36,021,440 1,299,152 b 27,261 Oppenheimer Value Fund, Cl. Y 63,833,361 1,174,091 b 22,467 ------------------------------------------------ $ 609,186,542 $ 15,815,886 $ 447,879 ================================================
a Received 5,084,247 shares as the result of the acquisition of Oppenheimer High Yield Fund. b All or portion of the transactions were the result of non-cash dividends. 2. Non-income producing security. 3. Rate shown is the 7-day yield as of January 31, 2007. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 21 | MODERATE INVESTOR FUND STATEMENT OF ASSETS AND LIABILITIES January 31, 2007 -------------------------------------------------------------------------------- ------------------------------------------------------------------------------------- ASSETS ------------------------------------------------------------------------------------- Investments, at value--see accompanying statement of investments-- affiliated companies (cost $584,165,120) $ 609,186,542 ------------------------------------------------------------------------------------- Cash 7,116 ------------------------------------------------------------------------------------- Receivables and other assets: Shares of beneficial interest sold 3,850,796 Interest and dividends 1,199,053 Investments sold 150,185 Other 9,386 --------------- Total assets 614,403,078 ------------------------------------------------------------------------------------- LIABILITIES ------------------------------------------------------------------------------------- Payables and other liabilities: Investments purchased 3,247,894 Shares of beneficial interest redeemed 490,753 Distribution and service plan fees 123,145 Transfer and shareholder servicing agent fees 55,974 Shareholder communications 40,612 Trustees' compensation 32,591 Other 29,264 --------------- Total liabilities 4,020,233 ------------------------------------------------------------------------------------- NET ASSETS $ 610,382,845 =============== ------------------------------------------------------------------------------------- COMPOSITION OF NET ASSETS ------------------------------------------------------------------------------------- Par value of shares of beneficial interest $ 53,628 ------------------------------------------------------------------------------------- Additional paid-in capital 578,274,656 ------------------------------------------------------------------------------------- Accumulated net investment income 999,526 ------------------------------------------------------------------------------------- Accumulated net realized gain on investments 6,033,613 ------------------------------------------------------------------------------------- Net unrealized appreciation on investments 25,021,422 --------------- NET ASSETS $ 610,382,845 ===============
22 | MODERATE INVESTOR FUND ------------------------------------------------------------------------------------------- NET ASSET VALUE PER SHARE ------------------------------------------------------------------------------------------- Class A Shares: Net asset value and redemption price per share (based on net assets of $313,310,580 and 27,438,947 shares of beneficial interest outstanding) $ 11.42 Maximum offering price per share (net asset value plus sales charge of 5.75% of offering price) $ 12.12 ------------------------------------------------------------------------------------------- Class B Shares: Net asset value, redemption price (excludes applicable contingent deferred sales charge) and offering price per share (based on net assets of $101,928,629 and 8,987,009 shares of beneficial interest outstanding) $ 11.34 ------------------------------------------------------------------------------------------- Class C Shares: Net asset value, redemption price (excludes applicable contingent deferred sales charge) and offering price per share (based on net assets of $142,351,224 and 12,562,015 shares of beneficial interest outstanding) $ 11.33 ------------------------------------------------------------------------------------------- Class N Shares: Net asset value, redemption price (excludes applicable contingent deferred sales charge) and offering price per share (based on net assets of $51,619,937 and 4,537,174 shares of beneficial interest outstanding) $ 11.38 ------------------------------------------------------------------------------------------- Class Y Shares: Net asset value, redemption price and offering price per share (based on net assets of $1,172,475 and 102,372 shares of beneficial interest outstanding) $ 11.45
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 23 | MODERATE INVESTOR FUND STATEMENT OF OPERATIONS For the Year Ended January 31, 2007 -------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME --------------------------------------------------------------------------------------------------------------- Dividends from affiliated companies $ 15,815,886 --------------------------------------------------------------------------------------------------------------- Interest 67,307 --------------------------------------------------------------------------------------------------------------- Other income 1,324 ---------------- Total investment income 15,884,517 --------------------------------------------------------------------------------------------------------------- EXPENSES --------------------------------------------------------------------------------------------------------------- Distribution and service plan fees: Class A 511,859 Class B 698,861 Class C 954,943 Class N 135,077 --------------------------------------------------------------------------------------------------------------- Transfer and shareholder servicing agent fees: Class A 217,997 Class B 105,245 Class C 115,898 Class N 34,269 Class Y 3 --------------------------------------------------------------------------------------------------------------- Shareholder communications: Class A 53,284 Class B 29,093 Class C 25,278 Class N 2,898 --------------------------------------------------------------------------------------------------------------- Trustees' compensation 33,399 --------------------------------------------------------------------------------------------------------------- Custodian fees and expenses 1,489 --------------------------------------------------------------------------------------------------------------- Other 37,849 ---------------- Total expenses 2,957,442 Less reduction to custodian expenses (11) Less waivers and reimbursements of expenses (346) ---------------- Net expenses 2,957,085 --------------------------------------------------------------------------------------------------------------- NET INVESTMENT INCOME 12,927,432 --------------------------------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) --------------------------------------------------------------------------------------------------------------- Net realized gain (loss) on investments: Affiliated companies (447,879) Distributions received from affiliated companies 7,169,211 ---------------- Net realized gain 6,721,332 --------------------------------------------------------------------------------------------------------------- Net change in unrealized appreciation on investments 20,367,168 --------------------------------------------------------------------------------------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 40,015,932 ================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 24 | MODERATE INVESTOR FUND STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------------------------------------------
YEAR ENDED JANUARY 31, 2007 2006 1 ----------------------------------------------------------------------------------------------------------------- OPERATIONS ----------------------------------------------------------------------------------------------------------------- Net investment income $ 12,927,432 $ 2,808,609 ----------------------------------------------------------------------------------------------------------------- Net realized gain 6,721,332 1,518,222 ----------------------------------------------------------------------------------------------------------------- Net change in unrealized appreciation 20,367,168 4,654,254 ------------------------------------ Net increase in net assets resulting from operations 40,015,932 8,981,085 ----------------------------------------------------------------------------------------------------------------- DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS ----------------------------------------------------------------------------------------------------------------- Dividends from net investment income: Class A (6,838,205) (1,457,787) Class B (1,753,095) (428,124) Class C (2,462,961) (555,237) Class N (1,056,853) (164,658) Class Y (23,344) (5,308) ------------------------------------ (12,134,458) (2,611,114) ----------------------------------------------------------------------------------------------------------------- Distributions from net realized gain: Class A (694,225) -- Class B (231,731) -- Class C (318,700) -- Class N (111,013) -- Class Y (2,136) -- ------------------------------------ (1,357,805) -- ----------------------------------------------------------------------------------------------------------------- BENEFICIAL INTEREST TRANSACTIONS ----------------------------------------------------------------------------------------------------------------- Net increase in net assets resulting from beneficial interest transactions: Class A 191,855,068 104,188,008 Class B 60,241,093 35,779,888 Class C 88,079,456 46,402,364 Class N 37,858,714 11,835,440 Class Y 845,510 299,664 ------------------------------------ 378,879,841 198,505,364 ----------------------------------------------------------------------------------------------------------------- NET ASSETS ----------------------------------------------------------------------------------------------------------------- Total increase 405,403,510 204,875,335 ----------------------------------------------------------------------------------------------------------------- Beginning of period 204,979,335 104,000 2 ------------------------------------ End of period (including accumulated net investment income of $999,526 and $206,552, respectively) $ 610,382,845 $ 204,979,335 ====================================
1. For the period from April 5, 2005 (commencement of operations) to January 31, 2006. 2. Reflects the value of the Manager's initial seed money investment on March 15, 2005. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 25 | MODERATE INVESTOR FUND FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
CLASS A YEAR ENDED JANUARY 31, 2007 2006 1 ----------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING DATA ----------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.78 $ 10.00 ----------------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income 2 .39 .38 Net realized and unrealized gain .55 .57 ------------------------------------ Total from investment operations .94 .95 ----------------------------------------------------------------------------------------------------------------- Dividends and/or distributions to shareholders: Dividends from net investment income (.27) (.17) Distributions from net realized gain (.03) -- ------------------------------------ Total dividends and/or distributions to shareholders (.30) (.17) ----------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 11.42 $ 10.78 ==================================== ----------------------------------------------------------------------------------------------------------------- TOTAL RETURN, AT NET ASSET VALUE 3 8.73% 9.58% ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA ----------------------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $ 313,311 $ 107,686 ----------------------------------------------------------------------------------------------------------------- Average net assets (in thousands) $ 206,672 $ 43,984 ----------------------------------------------------------------------------------------------------------------- Ratios to average net assets: 4 Net investment income 3.57% 4.39% Total expenses 5 0.40% 0.47% Expenses after waivers and reimbursements and reduction to custodian expenses 0.40% 0.46% ----------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 4% 0%
1. For the period from April 5, 2005 (commencement of operations) to January 31, 2006. 2. Per share amounts calculated based on the average shares outstanding during the period. 3. Assumes an investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Sales charges are not reflected in the total returns. Total returns are not annualized for periods of less than one full year. Returns do not reflect the deduction of taxes that a shareholder would pay on portfolio distributions or the redemption of portfolio shares. 4. Annualized for periods of less than one full year. 5. Expenses including all underlying fund expenses were as follows: Year Ended January 31, 2007 1.01% Period Ended January 31, 2006 1.15 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 26 | MODERATE INVESTOR FUND
CLASS B YEAR ENDED JANUARY 31, 2007 2006 1 ----------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING DATA ----------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.74 $ 10.00 ----------------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income 2 .30 .31 Net realized and unrealized gain .54 .58 ------------------------------------ Total from investment operations .84 .89 ----------------------------------------------------------------------------------------------------------------- Dividends and/or distributions to shareholders: Dividends from net investment income (.21) (.15) Distributions from net realized gain (.03) -- ------------------------------------ Total dividends and/or distributions to shareholders (.24) (.15) ----------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 11.34 $ 10.74 ==================================== ----------------------------------------------------------------------------------------------------------------- TOTAL RETURN, AT NET ASSET VALUE 3 7.80% 8.90% ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA ----------------------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $ 101,929 $ 36,956 ----------------------------------------------------------------------------------------------------------------- Average net assets (in thousands) $ 70,066 $ 15,521 ----------------------------------------------------------------------------------------------------------------- Ratios to average net assets: 4 Net investment income 2.73% 3.56% Total expenses 5 1.21% 1.31% Expenses after waivers and reimbursements and reduction to custodian expenses 1.21% 1.29% ----------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 4% 0%
1. For the period from April 5, 2005 (commencement of operations) to January 31, 2006. 2. Per share amounts calculated based on the average shares outstanding during the period. 3. Assumes an investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Sales charges are not reflected in the total returns. Total returns are not annualized for periods of less than one full year. Returns do not reflect the deduction of taxes that a shareholder would pay on portfolio distributions or the redemption of portfolio shares. 4. Annualized for periods of less than one full year. 5. Expenses including all underlying fund expenses were as follows: Year Ended January 31, 2007 1.82% Period Ended January 31, 2006 1.99 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 27 | MODERATE INVESTOR FUND FINANCIAL HIGHLIGHTS Continued --------------------------------------------------------------------------------
CLASS C YEAR ENDED JANUARY 31, 2007 2006 1 ----------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING DATA ----------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.73 $ 10.00 ----------------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income 2 .30 .31 Net realized and unrealized gain .54 .57 ------------------------------------ Total from investment operations .84 .88 ----------------------------------------------------------------------------------------------------------------- Dividends and/or distributions to shareholders: Dividends from net investment income (.21) (.15) Distributions from net realized gain (.03) -- ------------------------------------ Total dividends and/or distributions to shareholders (.24) (.15) ----------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 11.33 $ 10.73 ==================================== ----------------------------------------------------------------------------------------------------------------- TOTAL RETURN, AT NET ASSET VALUE 3 7.85% 8.82% ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA ----------------------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $ 142,351 $ 47,904 ----------------------------------------------------------------------------------------------------------------- Average net assets (in thousands) $ 95,773 $ 19,527 ----------------------------------------------------------------------------------------------------------------- Ratios to average net assets: 4 Net investment income 2.78% 3.64% Total expenses 5 1.16% 1.23% Expenses after waivers and reimbursements and reduction to custodian expenses 1.16% 1.22% ----------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 4% 0%
1. For the period from April 5, 2005 (commencement of operations) to January 31, 2006. 2. Per share amounts calculated based on the average shares outstanding during the period. 3. Assumes an investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Sales charges are not reflected in the total returns. Total returns are not annualized for periods of less than one full year. Returns do not reflect the deduction of taxes that a shareholder would pay on portfolio distributions or the redemption of portfolio shares. 4. Annualized for periods of less than one full year. 5. Expenses including all underlying fund expenses were as follows: Year Ended January 31, 2007 1.77% Period Ended January 31, 2006 1.91 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 28 | MODERATE INVESTOR FUND
CLASS N YEAR ENDED JANUARY 31, 2007 2006 1 ----------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING DATA ----------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.76 $ 10.00 ----------------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income 2 .40 .40 Net realized and unrealized gain .51 .53 ------------------------------------ Total from investment operations .91 .93 ----------------------------------------------------------------------------------------------------------------- Dividends and/or distributions to shareholders: Dividends from net investment income (.26) (.17) Distributions from net realized gain (.03) -- ------------------------------------ Total dividends and/or distributions to shareholders (.29) (.17) ----------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 11.38 $ 10.76 ==================================== ----------------------------------------------------------------------------------------------------------------- TOTAL RETURN, AT NET ASSET VALUE 3 8.47% 9.35% ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA ----------------------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $ 51,620 $ 12,117 ----------------------------------------------------------------------------------------------------------------- Average net assets (in thousands) $ 27,110 $ 4,158 ----------------------------------------------------------------------------------------------------------------- Ratios to average net assets: 4 Net investment income 3.58% 4.56% Total expenses 5 0.65% 0.68% Expenses after waivers and reimbursements and reduction to custodian expenses 0.65% 0.67% ----------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 4% 0%
1. For the period from April 5, 2005 (commencement of operations) to January 31, 2006. 2. Per share amounts calculated based on the average shares outstanding during the period. 3. Assumes an investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Sales charges are not reflected in the total returns. Total returns are not annualized for periods of less than one full year. Returns do not reflect the deduction of taxes that a shareholder would pay on portfolio distributions or the redemption of portfolio shares. 4. Annualized for periods of less than one full year. 5. Expenses including all underlying fund expenses were as follows: Year Ended January 31, 2007 1.26% Period Ended January 31, 2006 1.36 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 29 | MODERATE INVESTOR FUND FINANCIAL HIGHLIGHTS Continued --------------------------------------------------------------------------------
CLASS Y YEAR ENDED JANUARY 31, 2007 2006 1 ----------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING DATA ----------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 10.79 $ 10.00 ----------------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income 2 .56 .36 Net realized and unrealized gain .43 .61 ------------------------------------ Total from investment operations .99 .97 ----------------------------------------------------------------------------------------------------------------- Dividends and/or distributions to shareholders: Dividends from net investment income (.30) (.18) Distributions from net realized gain (.03) -- ------------------------------------ Total dividends and/or distributions to shareholders (.33) (.18) ----------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 11.45 $ 10.79 ==================================== ----------------------------------------------------------------------------------------------------------------- TOTAL RETURN, AT NET ASSET VALUE 3 9.18% 9.79% ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA ----------------------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $ 1,172 $ 316 ----------------------------------------------------------------------------------------------------------------- Average net assets (in thousands) $ 335 $ 216 ----------------------------------------------------------------------------------------------------------------- Ratios to average net assets: 4 Net investment income 5.06% 4.20% Total expenses 5 0.00% 0.28% Expenses after waivers and reimbursements and reduction to custodian expenses 0.00% 0.12% ----------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 4% 0%
1. For the period from April 5, 2005 (commencement of operations) to January 31, 2006. 2. Per share amounts calculated based on the average shares outstanding during the period. 3. Assumes an investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Sales charges are not reflected in the total returns. Total returns are not annualized for periods of less than one full year. Returns do not reflect the deduction of taxes that a shareholder would pay on portfolio distributions or the redemption of portfolio shares. 4. Annualized for periods of less than one full year. 5. Expenses including all underlying fund expenses were as follows: Year Ended January 31, 2007 0.61% Period Ended January 31, 2006 0.96 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 30 | MODERATE INVESTOR FUND NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 1. SIGNIFICANT ACCOUNTING POLICIES Oppenheimer Portfolio Series (the "Fund") is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. Moderate Investor Fund (the "Portfolio") is a series of the Fund whose investment objective is to seek long term growth of capital and current income. The Portfolio is a special type of mutual fund known as a "fund of funds" because it invests in other mutual funds. The Portfolio normally invests in a portfolio consisting of a target-weighted allocation in Class A or Class Y shares of other Oppenheimer funds. The Fund's investment advisor is OppenheimerFunds, Inc. (the "Manager"). The Portfolio offers Class A, Class B, Class C, Class N and Class Y shares. Class A shares are sold at their offering price, which is normally net asset value plus a front-end sales charge. Class B, Class C and Class N shares are sold without a front-end sales charge but may be subject to a contingent deferred sales charge (CDSC). Class N shares are sold only through retirement plans. Retirement plans that offer Class N shares may impose charges on those accounts. Class Y shares are sold to certain institutional investors without either a front-end sales charge or a CDSC, however, the institutional investor may impose charges on those accounts. All classes of shares have identical rights and voting privileges with respect to the Portfolio in general and exclusive voting rights on matters that affect that class alone. Earnings, net assets and net asset value per share may differ due to each class having its own expenses, such as transfer and shareholder servicing agent fees and shareholder communications, directly attributable to that class. Class A, B, C and N have separate distribution and/or service plans. No such plan has been adopted for Class Y shares. Class B shares will automatically convert to Class A shares six years after the date of purchase. Under normal market conditions, the Manager will invest the Portfolio's assets in shares of Oppenheimer Core Bond Fund, Oppenheimer Capital Appreciation Fund, Oppenheimer Champion Income Fund, Oppenheimer Global Fund, Oppenheimer International Bond Fund, Oppenheimer Limited-Term Government Fund, Oppenheimer Main Street Fund(R), Oppenheimer Main Street Opportunity Fund(R), Oppenheimer Commodity Strategy Total Return Fund(R), Oppenheimer Real Estate Fund, Oppenheimer Value Fund and Oppenheimer Institutional Money Market Fund (individually, an "Underlying Fund" and collectively, the "Underlying Funds"). The following is a summary of significant accounting policies consistently followed by the Portfolio. -------------------------------------------------------------------------------- SECURITIES VALUATION. The Portfolio calculates the net asset value of each class of shares based upon the net asset value of the applicable Underlying Fund 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 trading. For each Underlying Fund, the net asset value per share for a class of shares on a "regular business day" is determined by dividing the value of the Underlying Fund's net assets attributable to that class by the number of shares of that 31 | MODERATE INVESTOR FUND NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 1. SIGNIFICANT ACCOUNTING POLICIES Continued class outstanding on that day. To determine net asset values, the Underlying Fund assets are valued primarily on the basis of current market quotations. If market quotations are not readily available or do not accurately reflect fair value for a security (in the Manager's judgment) or if a security's value has been materially affected by events occurring after the close of the exchange or market on which the security is principally traded, that security may be valued by another method that the Underlying Fund's Board of Trustees/Directors believes accurately reflects the fair value. Because some foreign securities trade in markets and on exchanges that operate on weekends and U.S. holidays, the values of some of the Underlying Fund's foreign investments may change on days when investors cannot buy or redeem Underlying Fund shares. Short-term "money market type" debt securities with remaining maturities of sixty days or less are valued at amortized cost (which approximates market value). -------------------------------------------------------------------------------- RISKS OF INVESTING IN THE UNDERLYING FUNDS. Each of the Underlying Funds in which the Portfolio invests has its own investment risks, and those risks can affect the value of the Portfolio's investments and therefore the value of the Portfolio's shares. To the extent that the Portfolio invests more of its assets in one Underlying Fund than in another, the Portfolio will have greater exposure to the risks of that Underlying Fund. -------------------------------------------------------------------------------- INVESTMENT IN OPPENHEIMER INSTITUTIONAL MONEY MARKET FUND. The Portfolio is permitted to invest daily available cash balances in an affiliated money market fund. The Portfolio may invest 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 Portfolio's investment in IMMF is included in the Statement of Investments. As a shareholder, the Portfolio is subject to its proportional share of IMMF's Class E expenses, including its management fee. The Manager will waive fees and/or reimburse Portfolio expenses in an amount equal to the indirect management fees incurred through the Portfolio's investment in IMMF. -------------------------------------------------------------------------------- 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 Portfolio 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. 32 | MODERATE INVESTOR FUND The tax components of capital shown in the table below represent distribution requirements the Portfolio must satisfy under the income tax regulations, losses the Portfolio 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 TAX PURPOSES ---------------------------------------------------------------------- $ 1,031,319 $ 6,161,658 $ -- $ 24,893,377 1. During the fiscal year ended January 31, 2007, the Portfolio did not utilize any capital loss carryforward. 2. During the fiscal year ended January 31, 2006, the Portfolio did not utilize any capital loss carryforward. 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 Portfolio. Accordingly, the following amounts have been reclassified for January 31, 2007. Net assets of the Portfolio were unaffected by the reclassifications. REDUCTION TO ACCUMULATED INCREASE TO PAID-IN CAPITAL NET REALIZED GAIN ON INVESTMENTS 3 -------------------------------------------------------------------- $ 680,350 $ 680,350 3. $680,350, all of which was long-term capital gain, was distributed in connection with Portfolio share redemptions. The tax character of distributions paid during the years ended January 31, 2007 and January 31, 2006 was as follows: YEAR ENDED PERIOD ENDED JANUARY 31, 2007 JANUARY 31, 2006 ---------------------------------------------------------------------- Distributions paid from: Ordinary income $ 12,134,458 $ 2,611,114 Long-term capital gain 1,357,805 -- ----------------------------------- Total $ 13,492,263 $ 2,611,114 =================================== 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 January 31, 2007 are noted below. The primary difference between book and tax appreciation or depreciation of securities and other investments, if applicable, is 33 | MODERATE INVESTOR FUND NOTES TO FINANCIAL STATEMENTS Continued -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 1. SIGNIFICANT ACCOUNTING POLICIES Continued attributable to the tax deferral of losses or tax realization of financial statement unrealized gain or loss. Federal tax cost of securities $ 584,293,165 ============== Gross unrealized appreciation $ 30,268,682 Gross unrealized depreciation (5,375,305) -------------- Net unrealized appreciation $ 24,893,377 ============== -------------------------------------------------------------------------------- TRUSTEES' COMPENSATION. The Portfolio has adopted an unfunded retirement plan (the "Plan") for the Portfolio's independent trustees. Benefits are based on years of service and fees paid to each trustee during their period of service. The Plan was frozen with respect to adding new participants effective December 31, 2006 (the "Freeze Date") and existing Plan Participants as of the Freeze Date will continue to receive accrued benefits under the Plan. Active independent trustees as of the Freeze Date have each elected a distribution method with respect to their benefits under the Plan. During the year ended January 31, 2007, the Portfolio's projected benefit obligations were increased by $27,088 and payments of $689 were made to retired trustees, resulting in an accumulated liability of $26,399 as of January 31, 2007. 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 Portfolio. 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 Portfolio or in other Oppenheimer funds selected by the Trustee. The Portfolio purchases shares of the funds selected for deferral by the Trustee in amounts equal to his or her deemed investment, resulting in a Portfolio asset equal to the deferred compensation liability. Such assets are included as a component of "Other" within the asset section of the Statement of Assets and Liabilities. Deferral of trustees' fees under the plan will not affect the net assets of the Portfolio, and will not materially affect the Portfolio's assets, liabilities or net investment income per share. Amounts will be deferred until distributed in accordance to the compensation deferral 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 and 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. 34 | MODERATE INVESTOR FUND -------------------------------------------------------------------------------- CUSTODIAN FEES. "Custodian fees and expenses" in the Statement of Operations may include interest expense incurred by the Portfolio 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 Portfolio pays interest to its custodian on such cash overdrafts, to the extent they are not offset by positive cash balances maintained by the Portfolio, 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 Portfolio 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 Portfolio'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 Portfolio. In the normal course of business, the Portfolio may also enter into contracts that provide general indemnifications. The Portfolio's maximum exposure under these arrangements is unknown as this would be dependent on future claims that may be made against the Portfolio. 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. -------------------------------------------------------------------------------- 2. SHARES OF BENEFICIAL INTEREST The Portfolio has authorized an unlimited number of $0.001 par value shares of beneficial interest of each class. Transactions in shares of beneficial interest were as follows:
YEAR ENDED JANUARY 31, 2007 PERIOD ENDED JANUARY 31, 2006 1,2 SHARES AMOUNT SHARES AMOUNT --------------------------------------------------------------------------------------------- CLASS A Sold 20,288,978 $ 223,056,909 10,348,982 $ 108,067,839 Dividends and/or distributions reinvested 639,909 7,205,339 131,505 1,380,804 Redeemed (3,480,234) (38,407,180) (500,193) (5,260,635) ------------------------------------------------------------------ Net increase 17,448,653 $ 191,855,068 9,980,294 $ 104,188,008 ================================================================== --------------------------------------------------------------------------------------------- CLASS B Sold 6,606,757 $ 71,847,371 3,602,759 $ 37,460,502 Dividends and/or distributions reinvested 169,423 1,897,534 38,687 404,664 Redeemed (1,231,276) (13,503,812) (199,441) (2,085,278) ------------------------------------------------------------------ Net increase 5,544,904 $ 60,241,093 3,442,005 $ 35,779,888 ==================================================================
35 | MODERATE INVESTOR FUND NOTES TO FINANCIAL STATEMENTS Continued -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 2. SHARES OF BENEFICIAL INTEREST Continued
YEAR ENDED JANUARY 31, 2007 PERIOD ENDED JANUARY 31, 2006 1,2 SHARES AMOUNT SHARES AMOUNT --------------------------------------------------------------------------------------------- CLASS C Sold 9,578,836 $ 104,254,518 4,610,775 $ 47,936,138 Dividends and/or distributions reinvested 232,677 2,603,646 48,772 509,662 Redeemed (1,715,538) (18,778,708) (193,607) (2,043,436) ------------------------------------------------------------------ Net increase 8,095,975 $ 88,079,456 4,465,940 $ 46,402,364 ================================================================== --------------------------------------------------------------------------------------------- CLASS N Sold 4,596,537 $ 50,879,391 1,274,902 $ 13,414,589 Dividends and/or distributions reinvested 94,107 1,056,826 14,511 152,071 Redeemed (1,279,558) (14,077,503) (163,425) (1,731,220) ------------------------------------------------------------------ Net increase 3,411,086 $ 37,858,714 1,125,988 $ 11,835,440 ================================================================== --------------------------------------------------------------------------------------------- CLASS Y Sold 102,771 $ 1,171,814 35,197 $ 362,730 Dividends and/or distributions reinvested 2,252 25,447 503 5,289 Redeemed (31,969) (351,751) (6,482) (68,355) ------------------------------------------------------------------ Net increase 73,054 $ 845,510 29,218 $ 299,664 ==================================================================
1. For the period from April 5, 2005 (commencement of operations) to January 31, 2006. 2. The Portfolio sold 10,000 shares of Class A at a value of $100,000 and 100 shares of Class B, Class C, Class N and Class Y at a value of $1,000, respectively, to the Manager upon seeding of the Portfolio on March 15, 2005. -------------------------------------------------------------------------------- 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 January 31, 2007, were as follows: PURCHASES SALES -------------------------------------------------------------------------------- Investment securities $ 398,091,239 $ 15,833,706 -------------------------------------------------------------------------------- 4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES MANAGEMENT FEES. Under the investment advisory agreement, the Manager does not charge a management fee, but rather collects indirect management fees from investments in the Underlying Funds. The weighted indirect management fees collected from the Underlying Funds, as a percent of average daily net assets of the Portfolio for the year ended January 31, 2007 was 0.56%. -------------------------------------------------------------------------------- TRANSFER AGENT FEES. OppenheimerFunds Services (OFS or the Transfer Agent), a division of the Manager, acts as the transfer and shareholder servicing agent for the Portfolio. The Portfolio pays OFS a per account fee. For the year ended January 31, 2007, the Portfolio paid $433,544 to OFS for services to the Portfolio. 36 | MODERATE INVESTOR FUND Additionally, Class Y shares are subject to minimum fees of $10,000 per annum for assets of $10 million or more. The Class Y shares are subject to the minimum fees in the event that the per account fee does not equal or exceed the applicable minimum fees. OFS may voluntarily waive the minimum fees. -------------------------------------------------------------------------------- OFFERING AND ORGANIZATIONAL COSTS. The Manager paid all offering and organizational costs associated with the registration and seeding of the Portfolio. -------------------------------------------------------------------------------- DISTRIBUTION AND SERVICE PLAN (12b-1) FEES. Under its General Distributor's Agreement with the Portfolio, OppenheimerFunds Distributor, Inc. (the Distributor) acts as the Portfolio's principal underwriter in the continuous public offering of the Portfolio's classes of shares. -------------------------------------------------------------------------------- SERVICE PLAN FOR CLASS A SHARES. The Portfolio 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 Portfolio. 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 Portfolio under the plan are detailed in the Statement of Operations. -------------------------------------------------------------------------------- DISTRIBUTION AND SERVICE PLANS FOR CLASS B, CLASS C AND CLASS N SHARES. The Portfolio has adopted Distribution and Service Plans for Class B, Class C and Class N shares to compensate the Distributor for its services in connection with the distribution of those shares and servicing accounts. Under the plans, the Portfolio pays the Distributor an annual asset-based sales charge of 0.75% on Class B and Class C shares and 0.25% on Class N shares. The Distributor also receives a service fee of 0.25% per year under each plan. If either the Class B, Class C or Class N plan is terminated by the Portfolio 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 Portfolio 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 $1,467,225, $952,601 and $434,332, respectively. Fees incurred by the Portfolio 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 Portfolio. They are deducted from the proceeds of sales of Portfolio 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 37 | MODERATE INVESTOR FUND NOTES TO FINANCIAL STATEMENTS Continued -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES Continued 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 CONTINGENT CONTINGENT CONTINGENT CONTINGENT FRONT-END DEFERRED DEFERRED DEFERRED DEFERRED SALES CHARGES SALES CHARGES SALES CHARGES SALES CHARGES SALES CHARGES RETAINED BY RETAINED BY RETAINED BY RETAINED BY RETAINED BY YEAR ENDED DISTRIBUTOR DISTRIBUTOR DISTRIBUTOR DISTRIBUTOR DISTRIBUTOR --------------------------------------------------------------------------------------------------- January 31, 2007 $ 1,329,676 $ 6,009 $ 141,693 $ 29,564 $ 7,827
-------------------------------------------------------------------------------- WAIVERS AND REIMBURSEMENTS OF EXPENSES. The Manager has voluntarily agreed to a total expense limitation on the aggregate amount of combined direct (fund-of-funds level) and indirect expense so that "Total expenses" as a percentage of average daily net assets will not exceed the following annual rates: 1.30%, 2.05%, 2.05%, 1.55% and 1.05%, for Class A, Class B, Class C, Class N and Class Y, respectively. The Manager may modify or terminate this undertaking at any time without notice to shareholders. These expense limitations do not include Extraordinary Expenses and other expenses not incurred in the ordinary course of the Portfolio's business. Notwithstanding the foregoing limits, the Manager is not required to waive or reimburse Portfolio expenses in excess of indirect management fees earned from investments in Underlying Funds to assure that expenses do not exceed those limits. OFS has voluntarily agreed to limit transfer and shareholder servicing agent fees for all classes to 0.35% of average annual net assets per class. This undertaking may be amended or withdrawn at any time. The Manager will waive fees and/or reimburse Portfolio expenses in an amount equal to the indirect management fees incurred through the Portfolio's investment in IMMF. During the year ended January 31, 2007, the Manager waived $346 for IMMF management fees. -------------------------------------------------------------------------------- 5. 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 Portfolio's tax returns to determine whether it is "more-likely-than-not" that tax positions taken in the Portfolio'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 January 31, 2007, the Manager has evaluated the implications of FIN 48 and does not currently anticipate a material impact to the Portfolio's financial statements. The Manager will continue to monitor the Portfolio's tax positions prospectively for potential future impacts. 38 | MODERATE INVESTOR FUND 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 January 31, 2007, 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. -------------------------------------------------------------------------------- 6. 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 excluding the Portfolio) 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 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. 39 | MODERATE INVESTOR FUND REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- THE BOARD OF TRUSTEES AND SHAREHOLDERS OF OPPENHEIMER PORTFOLIO SERIES: We have audited the accompanying statement of assets and liabilities of Moderate Investor Fund (one of the portfolios constituting the Oppenheimer Portfolio Series), including the statement of investments, as of January 31, 2007, the related statement of operations for the year then ended, and the statements of changes in net assets and the financial highlights for the year then ended and for the period April 5, 2005 (commencement of operations) to January 31, 2006. These financial statements and financial highlights are the responsibility of the Portfolio'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 January 31, 2007, 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 Moderate Investor Fund as of January 31, 2007, the results of its operations for the year then ended, and the changes in its net assets and the financial highlights for the year then ended and for the period April 5, 2005 (commencement of operations) to January 31, 2006, in conformity with U.S. generally accepted accounting principles. KPMG LLP Denver, Colorado March 15, 2007 40 | MODERATE INVESTOR 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 Portfolio during calendar year 2006. Regulations of the U.S. Treasury Department require the Portfolio to report this information to the Internal Revenue Service. Capital gain distributions of $0.0274 per share were paid to Class A, Class B, Class C, Class N and Class Y shareholders, respectively, on December 29, 2006. Whether received in stock or in cash, the capital gain distribution should be treated by shareholders as a gain from the sale of the capital assets held for more than one year (long-term capital gains). Dividends, if any, paid by the Portfolio during the fiscal year ended January 31, 2007 which are not designated as capital gain distributions should be multiplied by 15.57% to arrive at the amount eligible for the corporate dividend-received deduction. A portion, if any, of the dividends paid by the Portfolio during the fiscal year ended January 31, 2007 which are not designated as capital gain distributions are eligible for lower individual income tax rates to the extent that the Portfolio has received qualified dividend income as stipulated by recent tax legislation. $2,886,157 of the Portfolio'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 January 31, 2007, $54,916 or 0.45% of the ordinary distributions paid by the Portfolio qualifies as an interest related dividend. The foregoing information is presented to assist shareholders in reporting distributions received from the Portfolio 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. 41 | MODERATE INVESTOR 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 web-site 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. 42 | MODERATE INVESTOR FUND BOARD APPROVAL OF THE PORTFOLIO'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 managers 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. 43 | MODERATE INVESTOR FUND BOARD APPROVAL OF THE PORTFOLIO'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 Rudi Schadt, Jerry Webman and Kurt Wolfgruber, the members of the Fund's Asset Allocation Team. 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 mixed-asset target allocation moderate funds advised by other investment advisers. The Board noted that the Fund's one-year and since inception performance were better than 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 moderate mixed-asset target allocation funds of funds and other funds with comparable asset levels and distribution features. The Board noted that the Manager has agreed to voluntarily limit the aggregate amount of combined direct (fund-of-funds level) and indirect expenses so that total annual portfolio and underlying fund operating expenses as a percentage of average daily net assets will not exceed the following annual rates: 1.30% for Class A, 2.05% for Class B and Class C, 1.55% for Class N and 1.05% for Class Y. The 44 | MODERATE INVESTOR FUND Manager may modify or terminate that undertaking at any time without notice to shareholders. The Board noted that the Fund does not pay a management fee and that the Fund's total expenses are lower than its peer group median. ECONOMIES OF SCALE. The Board considered whether the Manager may realize economies of scale in managing and supporting the Fund, the extent to which those economies of scale would benefit the Fund's shareholders and the current level of Fund assets. 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. 45 | MODERATE INVESTOR FUND TRUSTEES AND OFFICERS Unaudited --------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------- NAME, POSITION(S) HELD WITH THE PRINCIPAL OCCUPATION(S) DURING THE PAST 5 YEARS; OTHER TRUSTEESHIPS/DIRECTORSHIPS FUND, LENGTH OF SERVICE, AGE HELD; NUMBER OF PORTFOLIOS IN THE FUND COMPLEX CURRENTLY OVERSEEN INDEPENDENT TRUSTEES THE ADDRESS OF EACH TRUSTEE IN THE CHART BELOW IS 6803 S. TUCSON WAY, CENTENNIAL, COLORADO 80112-3924. EACH TRUSTEE SERVES FOR AN INDEFINITE TERM, OR UNTIL HIS OR HER RESIGNATION, RETIREMENT, DEATH OR REMOVAL. BRIAN F. WRUBLE, General Partner of Odyssey Partners, L.P. (hedge fund) (since September 1995); Chairman of the Board of Director of Special Value Opportunities Fund, LLC (registered investment company) Trustees (since 2007) and (since September 2004); Investment Advisory Board Member of Zurich Trustee (since 2005) Financial Services (insurance) (since October 2004); Board of Governing Trustees of Age: 63 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. MATTHEW P. FINK, Trustee of the Committee for Economic Development (policy research foundation) Trustee (since 2005) (since 2005); Director of ICI Education Foundation (education foundation) (October Age: 66 1991-August 2006); President of the Investment Company Institute (trade association) (October 1991-June 2004); Director of ICI Mutual Insurance Company (insurance company) (October 1991-June 2004). Oversees 49 portfolios in the OppenheimerFunds complex. ROBERT G. GALLI, A trustee or director of other Oppenheimer funds. Oversees 59 portfolios in the Trustee (since 2005) OppenheimerFunds complex. Age: 73 PHILLIP A. GRIFFITHS, Distinguished Presidential Fellow for International Affairs (since 2002) and Member Trustee (since 2005) (since 1979) of the National Academy of Sciences; Council on Foreign Relations Age: 68 (since 2002); Director of GSI Lumonics Inc. (precision medical equipment supplier) (since 2001); Senior Advisor of The Andrew W. Mellon Foundation (since 2001); Chair of Science Initiative Group (since 1999); Member of the American Philosophical Society (since 1996); Trustee of Woodward Academy (since 1983); Foreign Associate of Third World Academy of Sciences; Director of the Institute for Advanced Study (1991-2004); Director of Bankers Trust New York Corporation (1994-1999); Provost at Duke University (1983-1991). Oversees 49 portfolios in the OppenheimerFunds complex. MARY F. MILLER, Trustee of the American Symphony Orchestra (not-for-profit) (since October 1998); Trustee (since 2005) and Senior Vice President and General Auditor of American Express Company (financial Age: 64 services company) (July 1998-February 2003). Oversees 49 portfolios in the OppenheimerFunds complex. JOEL W. MOTLEY, Director of Columbia Equity Financial Corp. (privately-held financial adviser) Trustee (since 2005) (since 2002); Managing Director of Carmona Motley, Inc. (privately-held financial Age: 54 adviser) (since January 2002); Managing Director of Carmona Motley Hoffman Inc. (privately-held financial adviser) (January 1998-December 2001); Member of the Finance and Budget Committee of the Council on Foreign Relations, the Investment Committee of the Episcopal Church of America, the Investment Committee and Board of Human Rights Watch and the Investment Committee of Historic Hudson Valley. Oversees 49 portfolios in the OppenheimerFunds complex.
46 | MODERATE INVESTOR FUND KENNETH A. RANDALL, Director of Dominion Resources, Inc. (electric utility holding company) (February Trustee (since 2005) 1972-October 2005); Former Director of Prime Retail, Inc. (real estate investment Age: 79 trust), Dominion Energy Inc. (electric power and oil & gas producer), Lumberman's Mutual Casualty Company, American Motorists Insurance Company and American Manufacturers Mutual Insurance Company; Former President and Chief Executive Officer of The Conference Board, Inc. (international economic and business research). Oversees 49 portfolios in the OppenheimerFunds complex. RUSSELL S. REYNOLDS, JR., Chairman of The Directorship Search Group, Inc. (corporate governance consulting Trustee (since 2005) and executive recruiting) (since 1993); Life Trustee of International House Age: 75 (non-profit educational organization); Founder, Chairman and Chief Executive Officer of Russell Reynolds Associates, Inc. (1969-1993); Banker at J.P. Morgan & Co. (1958-1966); 1st Lt. Strategic Air Command, U.S. Air Force (1954-1958). Oversees 49 portfolios in the OppenheimerFunds complex. JOSEPH M. WIKLER, Director of the following medical device companies: Medintec (since 1992) and Cathco Trustee (since 2005) (since 1996); Director of Lakes Environmental Association (since 1996); Member of Age: 65 the Investment Committee of the Associated Jewish Charities of Baltimore (since 1994); Director of Fortis/Hartford mutual funds (1994-December 2001). Oversees 49 portfolios in the OppenheimerFunds complex. PETER I. WOLD, President of Wold Oil Properties, Inc. (oil and gas exploration and production Trustee (since 2005) company) (since 1994); Vice President, Secretary and Treasurer of Wold Trona Age: 59 Company, Inc. (soda ash processing and production) (since 1996); Vice President of Wold Talc Company, Inc. (talc mining) (since 1999); Managing Member of Hole-in-the-Wall Ranch (cattle ranching) (since 1979); Director and Chairman of the Denver Branch of the Federal Reserve Bank of Kansas City (1993-1999); and Director of PacifiCorp. (electric utility) (1995-1999). Oversees 49 portfolios in the OppenheimerFunds complex. ------------------------------------------------------------------------------------------------------------------- INTERESTED TRUSTEE THE ADDRESS OF MR. MURPHY IS TWO WORLD FINANCIAL CENTER, 225 LIBERTY STREET, 11TH AND OFFICER 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 INDEFINITE 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) and President President and Principal (since September 2000) of the Manager; President and a director or trustee of other Executive Officer and Trustee Oppenheimer funds; President and Director of Oppenheimer Acquisition Corp. ("OAC") (since 2005) (the Manager's parent holding company) and of Oppenheimer Partnership Holdings, Inc. Age: 57 (holding company subsidiary of the Manager) (since July 2001); Director of OppenheimerFunds Distributor, Inc. (subsidiary of the Manager) (since November 2001); Chairman and Director of Shareholder Services, Inc. and of Shareholder Financial Services, Inc. (transfer agent subsidiaries of the Manager) (since July 2001); President and Director of OppenheimerFunds Legacy Program (charitable trust program established by the Manager) (since July 2001); Director of the following investment advisory subsidiaries of the Manager: OFI Institutional Asset Management, Inc., Centennial Asset Management Corporation, Trinity Investment Management Corporation and Tremont Capital Management, Inc. (since November 2001), HarbourView Asset Management Corporation and OFI Private Investments, Inc. (since July 2001); President (since November 1, 2001) and Director (since July 2001) of Oppenheimer Real Asset Management, Inc.; Executive Vice President of
47 | MODERATE INVESTOR FUND TRUSTEES AND OFFICERS Unaudited / Continued -------------------------------------------------------------------------------- JOHN V. MURPHY, Massachusetts Mutual Life Insurance Company (OAC's parent company) (since February Continued 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: FOR MESSRS. SCHADT, THE FUND WEBMAN, WOLFGRUBER, 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 INDEFINITE TERM OR UNTIL HIS OR HER RESIGNATION, RETIREMENT, DEATH OR REMOVAL. RUDI W. SCHADT, Vice President, Director of Research in Product Design and Risk Management of the Vice President and Portfolio Manager. Prior to joining the Manager in February 2002 he was a Director and Senior Manager (since 2005) Quantitative Analyst (2000-2001) at UBS Asset Management prior to which he was an Age: 49 Associate Director of Research (since June 1999) and Senior Researcher and Portfolio Manager (from June 1997) at State Street Global Advisors. An officer of 11 portfolios in the OppenheimerFunds complex. DR. JERRY WEBMAN, Chief Economist of the Manager (since 2006); Senior Vice President (since February Vice President and Portfolio 1996) and Senior Investment Officer and Director (since 1997) of the Manager's Fixed Manager (since 2005) Income Investments; Senior Vice President (since May 1999) of HarbourView Asset Age: 57 Management Corporation. An officer of 8 other portfolios in the OppenheimerFunds complex. KURT WOLFGRUBER, Executive Vice President of the Manager (since March 2003) and Chief Investment Vice President and Portfolio Officer and Director of the Manager (since July 2003) of the Manager. He has been Manager (since 2005) Director of HarbourView Asset Management Corporation and of OFI Institutional Asset Age: 57 Management, Inc. (since June 2003) and of Tremont Capital Management, Inc. (since October 2001). He is also an officer of 8 other portfolios in the OppenheimerFunds complex. MARK S. VANDEHEY, Senior Vice President and Chief Compliance Officer of the Manager (since March Vice President and Chief 2004); Vice President of OppenheimerFunds Distributor, Inc., Centennial Asset Compliance Officer Management Corporation and Shareholder Services, Inc. (since June 1983). Former Vice (since 2005) President and Director of Internal Audit of the Manager (1997-February 2004). An Age: 56 officer of 96 portfolios in the OppenheimerFunds complex. BRIAN W. WIXTED, Senior Vice President and Treasurer of the Manager (since March 1999); Treasurer of Treasurer and Principal the following: HarbourView Asset Management Corporation, Shareholder Financial Financial & Accounting Services, Inc., Shareholder Services, Inc., Oppenheimer Real Asset Management Officer (since 2005) Corporation, and Oppenheimer Partnership Holdings, Inc. (since March 1999), OFI Age: 47 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
48 | MODERATE INVESTOR FUND BRIAN W. WIXTED, by the Manager) (since June 2003); Treasurer and Chief Financial Officer of OFI Continued 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, Vice President of the Manager (since February 2007); Manager/Financial Product Assistant Treasurer Accounting of the Manager (November 1998-July 2002). An officer of 96 portfolios in (since 2004) the OppenheimerFunds complex. Age: 36 BRIAN C. SZILAGYI, Assistant Vice President of the Manager (since July 2004); Director of Financial Assistant Treasurer Reporting and Compliance of First Data Corporation (April 2003-July 2004); Manager (since 2005) of Compliance of Berger Financial Group LLC (May 2001-March 2003); Director of Age: 36 Mutual Fund Operations at American Data Services, Inc. (September 2000-May 2001). An officer of 96 portfolios in the OppenheimerFunds complex. ROBERT G. ZACK, Executive Vice President (since January 2004) and General Counsel (since March 2002) Secretary (since 2005) of the Manager; General Counsel and Director of the Distributor (since December Age: 58 2001); General Counsel of Centennial Asset Management Corporation (since December 2001); Senior Vice President and General Counsel of HarbourView Asset Management Corporation (since December 2001); Secretary and General Counsel of OAC (since November 2001); Assistant Secretary (since September 1997) and Director (since November 2001) of OppenheimerFunds International Ltd. and OppenheimerFunds plc; Vice President and Director of Oppenheimer Partnership Holdings, Inc. (since December 2002); Director of Oppenheimer Real Asset Management, Inc. (since November 2001); Senior Vice President, General Counsel and Director of Shareholder Financial Services, Inc. and Shareholder Services, Inc. (since December 2001); Senior Vice President, General Counsel and Director of OFI Private Investments, Inc. and OFI Trust Company (since November 2001); Vice President of OppenheimerFunds Legacy Program (since June 2003); Senior Vice President and General Counsel of OFI Institutional Asset Management, Inc. (since November 2001); Director of OppenheimerFunds (Asia) Limited (since December 2003); Senior Vice President (May 1985-December 2003), Acting General Counsel (November 2001-February 2002) and Associate General Counsel (May 1981-October 2001) of the Manager; Assistant Secretary of the following: Shareholder Services, Inc. (May 1985-November 2001), Shareholder Financial Services, Inc. (November 1989-November 2001), and OppenheimerFunds International Ltd. (September 1997-November 2001). An officer of 96 portfolios in the OppenheimerFunds complex. LISA I. BLOOMBERG, Vice President and Associate Counsel of the Manager (since May 2004); First Vice Assistant Secretary President (April 2001-April 2004), Associate General Counsel (December 2000-April (since 2004) 2004), Corporate Vice President (May 1999-April 2001) and Assistant General Counsel Age: 39 (May 1999-December 2000) of UBS Financial Services Inc. (formerly, PaineWebber Incorporated). An officer of 96 portfolios in the OppenheimerFunds complex.
49 | MODERATE INVESTOR FUND TRUSTEES AND OFFICERS Unaudited / Continued -------------------------------------------------------------------------------- KATHLEEN T. IVES, Vice President (since June 1998) and Senior Counsel and Assistant Secretary (since Assistant Secretary October 2003) of the Manager; Vice President (since 1999) and Assistant Secretary (since 2001) (since October 2003) of the Distributor; Assistant Secretary of Centennial Asset Age: 41 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. PHILLIP S. GILLESPIE, Senior Vice President and Deputy General Counsel of the Manager (since September Assistant Secretary 2004); First Vice President (2001-September 2004); Director (2000-September 2004) (since 2004) and Vice President (1998-2000) of Merrill Lynch Investment Management. An officer of Age: 43 96 portfolios in the OppenheimerFunds complex.
THE PORTFOLIO'S STATEMENT OF ADDITIONAL INFORMATION CONTAINS ADDITIONAL INFORMATION ABOUT THE PORTFOLIO'S TRUSTEES AND OFFICERS AND IS AVAILABLE WITHOUT CHARGE UPON REQUEST, BY CALLING 1.800.525.7048. 50 | MODERATE INVESTOR FUND EQUITY INVESTOR FUND TOP HOLDINGS AND ALLOCATIONS -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- ASSET CLASS ALLOCATION [THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.] Global Equity 29.8% U.S. Equity 70.0 Money Market 0.2 Portfolio holdings and allocations are subject to change. Percentages are as of January 31, 2007, and are based on the total market value of investments in affiliated companies. -------------------------------------------------------------------------------- 8 | EQUITY INVESTOR FUND PORTFOLIO PERFORMANCE DISCUSSION -------------------------------------------------------------------------------- HOW HAS THE PORTFOLIO PERFORMED? BELOW IS A DISCUSSION BY OPPENHEIMERFUNDS, INC., OF THE PORTFOLIO'S PERFORMANCE DURING ITS FISCAL YEAR ENDED JANUARY 31, 2007, FOLLOWED BY A GRAPHICAL COMPARISON OF THE PORTFOLIO'S PERFORMANCE TO AN APPROPRIATE BROAD-BASED MARKET INDEX. MANAGEMENT'S DISCUSSION OF PORTFOLIO PERFORMANCE. For its fiscal year ending January 31, 2007, Equity Investor Fund's Class A shares, without sales charge, returned 10.85% and under-performed its benchmark, the S&P 500 Index, which returned 14.53%. We attribute this relative underperformance to the cumulative underperformance of the Portfolio's underlying funds relative to their respective benchmarks. In terms of individual detractors on a fund level, such factors included volatile global equity markets and disappointing stock selection within the Portfolio's underlying funds. Additionally, over the last 12-months, the global market tended to not appropriately reward high-quality companies that consistently grew their earnings. This situation ended up hurting many of the Portfolio's underlying funds, as their investment philosophies tend to emphasize strong earnings growth. Despite the Portfolio's relative underperformance, its absolute performance was favorable. Strong contributions made by three out of the Portfolio's top five allocations helped Portfolio performance. Oppenheimer Global Fund (the Portfolio's largest holding), Oppenheimer Value Fund and Oppenheimer Main Street Fund all boosted Portfolio returns. The strong performance of those Funds can be attributed to successful security selection. An additional positive contributor was the Oppenheimer Developing Markets Fund. Among the top performance detractors to the Portfolio were the Oppenheimer Capital Appreciation Fund (the Portfolio's second largest holding) and the Oppenheimer Global Opportunities Fund. While the Oppenheimer Capital Appreciation Fund was partially hurt by its exposure to the underperforming US growth stock sector, the Oppenheimer Global Opportunities Fund experienced disappointing returns due to both asset allocation and stock selection issues. COMPARING THE PORTFOLIO'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 Portfolio held until January 31, 2007. Performance is measured from the inception of Classes A, B, C, N and Y on April 5, 2005. The Portfolio's performance reflects the deduction of the maximum initial sales charge on Class A shares, the applicable contingent deferred sales charge on Class B, Class C and Class N shares, and reinvestments of all dividends and capital gains distributions. Past performance cannot guarantee future results. The Portfolio's performance is compared to the performance of the S&P 500 Index. The S&P 500 Index is an unmanaged index of equity securities. Index performance reflects the reinvestment of income but does not consider the effect of transaction costs, and 9 | EQUITY INVESTOR FUND PORTFOLIO PERFORMANCE DISCUSSION -------------------------------------------------------------------------------- none of the data in the graphs shows the effect of taxes. The Portfolio s performance reflects the effects of the Portfolio's business and operating expenses. While index comparisons may be useful to provide a benchmark for the Portfolio's performance, it must be noted that the Portfolio's investments are not limited to the investments in the index. 10 | EQUITY INVESTOR FUND CLASS A SHARES COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN: Oppenheimer Portfolio Series: Equity Investor Fund (Class A) S&P 500 Index MSCI World Index [THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Oppenheimer Portfolio Series: Equity Investor Fund (Class A) S&P 500 Index MSCI World Index 04/05/2005 $ 9,425 $ 10,000 $ 10,000 04/30/2005 $ 9,199 $ 9,810 $ 9,788 07/31/2005 $ 9,991 $ 10,514 $ 10,414 10/31/2005 $ 9,972 $ 10,327 $ 10,514 01/31/2006 $ 11,071 $ 11,005 $ 11,612 04/30/2006 $ 11,433 $ 11,322 $ 12,226 07/31/2006 $ 10,746 $ 11,079 $ 11,897 10/31/2006 $ 11,624 $ 12,013 $ 12,817 01/31/2007 $ 12,272 $ 12,603 $ 13,570
AVERAGE ANNUAL TOTAL RETURNS OF CLASS A SHARES WITH SALES CHARGE OF THE PORTFOLIO AT 1/31/07 1-Year 4.48% Since Inception (4/5/05) 11.89% THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE PORTFOLIO 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. PORTFOLIO 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 4% (SINCE INCEPTION); AND FOR CLASS C AND N SHARES, THE 1% CONTINGENT DEFERRED SALES CHARGE FOR THE 1-YEAR PERIOD. THERE IS NO SALES CHARGE FOR CLASS Y SHARES. SEE PAGE 16 FOR FURTHER INFORMATION. 11 | EQUITY INVESTOR FUND PORTFOLIO PERFORMANCE DISCUSSION -------------------------------------------------------------------------------- CLASS B SHARES COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN: Oppenheimer Portfolio Series: Equity Investor Fund (Class B) S&P 500 Index MSCI World Index [THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Oppenheimer Portfolio Series: Equity Investor Fund (Class B) S&P 500 Index MSCI World Index 04/05/2005 $ 10,000 $ 10,000 $ 10,000 04/30/2005 $ 9,750 $ 9,810 $ 9,788 07/31/2005 $ 10,580 $ 10,514 $ 10,414 10/31/2005 $ 10,540 $ 10,327 $ 10,514 01/31/2006 $ 11,670 $ 11,005 $ 11,612 04/30/2006 $ 12,023 $ 11,322 $ 12,226 07/31/2006 $ 11,276 $ 11,079 $ 11,897 10/31/2006 $ 12,185 $ 12,013 $ 12,817 01/31/2007 $ 12,433 $ 12,603 $ 13,570
AVERAGE ANNUAL TOTAL RETURNS OF CLASS B SHARES WITH SALES CHARGE OF THE PORTFOLIO AT 1/31/07 1-Year 4.97% Since Inception (4/5/05) 12.69% 12 | EQUITY INVESTOR FUND CLASS C SHARES COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN: Oppenheimer Portfolio Series: Equity Investor Fund (Class C) S&P 500 Index MSCI World Index [THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Oppenheimer Portfolio Series: Equity Investor Fund (Class C) S&P 500 Index MSCI World Index 04/05/2005 $ 10,000 $ 10,000 $ 10,000 04/30/2005 $ 9,750 $ 9,810 $ 9,788 07/31/2005 $ 10,570 $ 10,514 $ 10,414 10/31/2005 $ 10,530 $ 10,327 $ 10,514 01/31/2006 $ 11,664 $ 11,005 $ 11,612 04/30/2006 $ 12,028 $ 11,322 $ 12,226 07/31/2006 $ 11,280 $ 11,079 $ 11,897 10/31/2006 $ 12,180 $ 12,013 $ 12,817 01/31/2007 $ 12,831 $ 12,603 $ 13,570
AVERAGE ANNUAL TOTAL RETURNS OF CLASS C SHARES WITH SALES CHARGE OF THE PORTFOLIO AT 1/31/07 1-Year 9.00% Since Inception (4/5/05) 14.66% THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE PORTFOLIO 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. PORTFOLIO 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 4% (SINCE INCEPTION); AND FOR CLASS C AND N SHARES, THE 1% CONTINGENT DEFERRED SALES CHARGE FOR THE 1-YEAR PERIOD. THERE IS NO SALES CHARGE FOR CLASS Y SHARES. SEE PAGE 16 FOR FURTHER INFORMATION. 13 | EQUITY INVESTOR FUND PORTFOLIO PERFORMANCE DISCUSSION -------------------------------------------------------------------------------- CLASS N SHARES COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN: Oppenheimer Portfolio Series: Equity Investor Fund (Class N) S&P 500 Index MSCI World Index [THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Oppenheimer Portfolio Series: Equity Investor Fund (Class N) S&P 500 Index MSCI World Index 04/05/2005 $ 10,000 $ 10,000 $ 10,000 04/30/2005 $ 9,750 $ 9,810 $ 9,788 07/31/2005 $ 10,600 $ 10,514 $ 10,414 10/31/2005 $ 10,580 $ 10,327 $ 10,514 01/31/2006 $ 11,734 $ 11,005 $ 11,612 04/30/2006 $ 12,109 $ 11,322 $ 12,226 07/31/2006 $ 11,380 $ 11,079 $ 11,897 10/31/2006 $ 12,301 $ 12,013 $ 12,817 01/31/2007 $ 12,986 $ 12,603 $ 13,570
AVERAGE ANNUAL TOTAL RETURNS OF CLASS N SHARES WITH SALES CHARGE OF THE PORTFOLIO AT 1/31/07 1-Year 9.67% Since Inception (4/5/05) 15.42% 14 | EQUITY INVESTOR FUND CLASS Y SHARES COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN: Oppenheimer Portfolio Series: Equity Investor Fund (Class Y) S&P 500 Index MSCI World Index [THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Oppenheimer Portfolio Series: Equity Investor Fund (Class Y) S&P 500 Index MSCI World Index 04/05/2005 $ 10,000 $ 10,000 $ 10,000 04/30/2005 $ 9,760 $ 9,810 $ 9,788 07/31/2005 $ 10,600 $ 10,514 $ 10,414 10/31/2005 $ 10,600 $ 10,327 $ 10,514 01/31/2006 $ 11,769 $ 11,005 $ 11,612 04/30/2006 $ 12,164 $ 11,322 $ 12,226 07/31/2006 $ 11,444 $ 11,079 $ 11,897 10/31/2006 $ 12,407 $ 12,013 $ 12,817 01/31/2007 $ 13,113 $ 12,603 $ 13,570
AVERAGE ANNUAL TOTAL RETURNS OF CLASS Y SHARES OF THE PORTFOLIO AT 1/31/07 1-Year 11.42% Since Inception (4/5/05) 16.04% THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE PORTFOLIO 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. PORTFOLIO 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 4% (SINCE INCEPTION); AND FOR CLASS C AND N SHARES, THE 1% CONTINGENT DEFERRED SALES CHARGE FOR THE 1-YEAR PERIOD. THERE IS NO SALES CHARGE FOR CLASS Y SHARES. SEE PAGE 16 FOR FURTHER INFORMATION. 15 | EQUITY INVESTOR FUND NOTES -------------------------------------------------------------------------------- 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 Portfolio'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 Portfolio or any gains you may realize if you sell your shares. INVESTORS SHOULD CONSIDER THE PORTFOLIO'S INVESTMENT OBJECTIVES, RISKS, AND OTHER CHARGES AND EXPENSES CAREFULLY BEFORE INVESTING. THE PORTFOLIO'S PROSPECTUS CONTAINS THIS AND OTHER INFORMATION ABOUT THE PORTFOLIO, 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 Portfolio'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 Portfolio were first publicly offered on 4/5/05. Unless otherwise noted, Class A returns include the maximum initial sales charge of 5.75%. CLASS B shares of the Portfolio were first publicly offered on 4/5/05. Unless otherwise noted, Class B returns include the applicable contingent deferred sales charge of 5% (1-year) and 4% (since inception). Class B shares are subject to an annual 0.75% asset-based sales charge. CLASS C shares of the Portfolio were first publicly offered on 4/5/05. Unless otherwise noted, 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. CLASS N shares of the Portfolio were first publicly offered on 4/5/05. 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. CLASS Y shares of the Portfolio were first publicly offered on 4/5/05. Class Y shares are offered only to certain institutional investors under special agreements with the Distributor. An explanation of the calculation of performance is in the Portfolio's Statement of Additional Information. 16 | EQUITY INVESTOR FUND PORTFOLIO EXPENSES -------------------------------------------------------------------------------- PORTFOLIO EXPENSES. As a shareholder of the Portfolio, 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 Portfolio expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio 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 January 31, 2007. 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 Portfolio'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 Portfolio'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 Portfolio 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 17 | EQUITY INVESTOR FUND PORTFOLIO 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 (8/1/06) (1/31/07) JANUARY 31, 2007 ---------------------------------------------------------------------- Class A Actual $ 1,000.00 $ 1,142.00 $ 2.70 ---------------------------------------------------------------------- Class A Hypothetical 1,000.00 1,022.68 2.55 ---------------------------------------------------------------------- Class B Actual 1,000.00 1,138.10 7.03 ---------------------------------------------------------------------- Class B Hypothetical 1,000.00 1,018.65 6.64 ---------------------------------------------------------------------- Class C Actual 1,000.00 1,137.50 6.92 ---------------------------------------------------------------------- Class C Hypothetical 1,000.00 1,018.75 6.53 ---------------------------------------------------------------------- Class N Actual 1,000.00 1,141.10 3.62 ---------------------------------------------------------------------- Class N Hypothetical 1,000.00 1,021.83 3.42 ---------------------------------------------------------------------- Class Y Actual 1,000.00 1,145.80 0.11 ---------------------------------------------------------------------- Class Y Hypothetical 1,000.00 1,025.10 0.10 Hypothetical assumes 5% annual return before expenses. Expenses are equal to the Portfolio'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 all underlying fund expenses, based on the 6-month period ended January 31, 2007 are as follows: CLASS EXPENSE RATIOS ------------------------ Class A 0.50% ------------------------ Class B 1.30 ------------------------ Class C 1.28 ------------------------ Class N 0.67 ------------------------ Class Y 0.02 The expense ratios reflect voluntary waivers or reimbursements of expenses by the Portfolio's Manager that can be terminated at any time, without advance notice. The "Financial Highlights" tables in the Portfolio's financial statements, included in this report, also show the gross expense ratios, without such waivers or reimbursements. -------------------------------------------------------------------------------- 18 | EQUITY INVESTOR FUND STATEMENT OF INVESTMENTS January 31, 2007 --------------------------------------------------------------------------------
VALUE SHARES SEE NOTE 1 --------------------------------------------------------------------------------------------- INVESTMENTS IN AFFILIATED COMPANIES--99.8% 1 --------------------------------------------------------------------------------------------- GLOBAL EQUITY--29.7% Oppenheimer Developing Markets Fund, Cl. Y 425,351 $ 17,371,323 --------------------------------------------------------------------------------------------- Oppenheimer Global Fund, Cl. Y 915,262 68,287,717 --------------------------------------------------------------------------------------------- Oppenheimer Global Opportunities Fund, Cl. Y 430,055 15,761,516 -------------- 101,420,556 --------------------------------------------------------------------------------------------- U.S. EQUITY--69.8% Oppenheimer Capital Appreciation Fund, Cl. Y 2 1,364,861 66,414,138 --------------------------------------------------------------------------------------------- Oppenheimer Main Street Fund, Cl. Y 1,239,380 51,335,107 --------------------------------------------------------------------------------------------- Oppenheimer Main Street Opportunity Fund, Cl. Y 2,241,434 34,092,207 --------------------------------------------------------------------------------------------- Oppenheimer Main Street Small Cap Fund, Cl. Y 1,423,589 33,710,600 --------------------------------------------------------------------------------------------- Oppenheimer Value Fund, Cl. Y 1,940,570 52,744,684 -------------- 238,296,736 --------------------------------------------------------------------------------------------- MONEY MARKET--0.3% Oppenheimer Institutional Money Market Fund, Cl. E, 5.35% 3 812,798 812,798 --------------------------------------------------------------------------------------------- TOTAL INVESTMENTS, AT VALUE (COST $320,374,505) 99.8% 340,530,090 --------------------------------------------------------------------------------------------- OTHER ASSETS NET OF LIABILITIES 0.2 779,347 -------------------------- NET ASSETS 100.0% $ 341,309,437 ==========================
19 | EQUITY INVESTOR FUND STATEMENT OF INVESTMENTS Continued -------------------------------------------------------------------------------- FOOTNOTES TO STATEMENT OF INVESTMENTS 1. Is or was an affiliate, as defined in the Investment Company Act of 1940, at or during the period ended January 31, 2007 by virtue of the Portfolio owning at least 5% of the voting securities of the issuer or as a result of the Portfolio and the issuer having the same investment advisor. Transactions during the period in which the issuer was an affiliate are as follows:
SHARES GROSS GROSS SHARES JAN. 31, 2006 ADDITIONS REDUCTIONS JAN. 31, 2007 ------------------------------------------------------------------------------------------------------------------------ Oppenheimer Capital Appreciation Fund, Cl. Y 393,164 983,560 11,863 1,364,861 Oppenheimer Developing Markets Fund, Cl. Y 131,194 314,497 20,340 425,351 Oppenheimer Global Fund, Cl. Y 265,671 662,425 12,834 915,262 Oppenheimer Global Opportunities Fund, Cl. Y 124,676 323,417 18,038 430,055 Oppenheimer Institutional Money Market Fund, Cl. E, 5.35% -- 18,991,348 18,178,550 812,798 Oppenheimer Main Street Fund, Cl. Y 347,889 901,686 10,195 1,239,380 Oppenheimer Main Street Opportunity Fund, Cl. Y 633,885 1,625,988 18,439 2,241,434 Oppenheimer Main Street Small Cap Fund, Cl. Y 409,733 1,025,265 11,409 1,423,589 Oppenheimer Value Fund, Cl. Y 541,824 1,414,683 15,937 1,940,570
VALUE DIVIDEND REALIZED SEE NOTE 1 INCOME GAIN (LOSS) ------------------------------------------------------------------------------------------------------------------------ Oppenheimer Capital Appreciation Fund, Cl. Y $ 66,414,138 $ -- $ (12,619) Oppenheimer Developing Markets Fund, Cl. Y 17,371,323 526,250 a 6,359 Oppenheimer Global Fund, Cl. Y 68,287,717 877,397 a (15,027) Oppenheimer Global Opportunities Fund, Cl. Y 15,761,516 1,056,485 a (933) Oppenheimer Institutional Money Market Fund, Cl. E, 5.35% 812,798 11,695 -- Oppenheimer Main Street Fund, Cl. Y 51,335,107 579,774 a (5,715) Oppenheimer Main Street Opportunity Fund, Cl. Y 34,092,207 911,538 a (4,346) Oppenheimer Main Street Small Cap Fund, Cl. Y 33,710,600 595,977 a (12,265) Oppenheimer Value Fund, Cl. Y 52,744,684 948,586 a (4,716) -------------------------------------------- $ 340,530,090 $ 5,507,702 $ (49,262) ============================================
a All or portion of the transactions were the results of a reinvestment of dividends. 2. Non-income producing security. 3. Rate shown is the 7-day yield as of January 31, 2007. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 20 | EQUITY INVESTOR FUND STATEMENT OF ASSETS AND LIABILITIES January 31, 2007 -------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------- ASSETS ------------------------------------------------------------------------------------------------------------- Investments, at value--see accompanying statement of investments-- affiliated companies (cost $320,374,505) $ 340,530,090 ------------------------------------------------------------------------------------------------------------- Cash 5,923 ------------------------------------------------------------------------------------------------------------- Receivables and other assets: Shares of beneficial interest sold 2,010,024 Investments sold 82,990 Interest and dividends 4,474 Other 5,647 -------------- Total assets 342,639,148 ------------------------------------------------------------------------------------------------------------- LIABILITIES ------------------------------------------------------------------------------------------------------------- Payables and other liabilities: Investments purchased 903,935 Shares of beneficial interest redeemed 234,836 Distribution and service plan fees 68,119 Transfer and shareholder servicing agent fees 51,098 Shareholder communications 32,192 Trustees' compensation 16,564 Other 22,967 -------------- Total liabilities 1,329,711 ------------------------------------------------------------------------------------------------------------- NET ASSETS $ 341,309,437 ============== ------------------------------------------------------------------------------------------------------------- COMPOSITION OF NET ASSETS ------------------------------------------------------------------------------------------------------------- Par value of shares of beneficial interest $ 27,107 ------------------------------------------------------------------------------------------------------------- Additional paid-in capital 313,032,247 ------------------------------------------------------------------------------------------------------------- Accumulated net investment loss (16,141) ------------------------------------------------------------------------------------------------------------- Accumulated net realized gain on investments 8,110,639 ------------------------------------------------------------------------------------------------------------- Net unrealized appreciation on investments 20,155,585 -------------- NET ASSETS $ 341,309,437 ==============
21 | EQUITY INVESTOR 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 $173,539,184 and 13,740,671 shares of beneficial interest outstanding) $ 12.63 Maximum offering price per share (net asset value plus sales charge of 5.75% of offering price) $ 13.40 ------------------------------------------------------------------------------------------------------- Class B Shares: Net asset value, redemption price (excludes applicable contingent deferred sales charge) and offering price per share (based on net assets of $59,405,873 and 4,736,815 shares of beneficial interest outstanding) $ 12.54 ------------------------------------------------------------------------------------------------------- Class C Shares: Net asset value, redemption price (excludes applicable contingent deferred sales charge) and offering price per share (based on net assets of $70,691,519 and 5,639,824 shares of beneficial interest outstanding) $ 12.53 ------------------------------------------------------------------------------------------------------- Class N Shares: Net asset value, redemption price (excludes applicable contingent deferred sales charge) and offering price per share (based on net assets of $35,651,911 and 2,829,694 shares of beneficial interest outstanding) $ 12.60 ------------------------------------------------------------------------------------------------------- Class Y Shares: Net asset value, redemption price and offering price per share (based on net assets of $2,020,950 and 159,542 shares of beneficial interest outstanding) $ 12.67
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 22 | EQUITY INVESTOR FUND STATEMENT OF OPERATIONS For the Year Ended January 31, 2007 -------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME --------------------------------------------------------------------------------------------------------------- Dividends from affiliated companies $ 5,507,702 --------------------------------------------------------------------------------------------------------------- Interest 33,983 --------------------------------------------------------------------------------------------------------------- Other income 861 ---------------- Total investment income 5,542,546 --------------------------------------------------------------------------------------------------------------- EXPENSES --------------------------------------------------------------------------------------------------------------- Distribution and service plan fees: Class A 268,972 Class B 384,556 Class C 451,719 Class N 93,970 --------------------------------------------------------------------------------------------------------------- Transfer and shareholder servicing agent fees: Class A 209,311 Class B 88,498 Class C 100,720 Class N 29,532 Class Y 142 --------------------------------------------------------------------------------------------------------------- Shareholder communications: Class A 49,029 Class B 24,131 Class C 20,603 Class N 2,473 Class Y 4 --------------------------------------------------------------------------------------------------------------- Trustees' compensation 17,007 --------------------------------------------------------------------------------------------------------------- Custodian fees and expenses 1,138 --------------------------------------------------------------------------------------------------------------- Other 27,749 ---------------- Total expenses 1,769,554 Less reduction to custodian expenses (76) Less waivers and reimbursements of expenses (221) ---------------- Net expenses 1,769,257 --------------------------------------------------------------------------------------------------------------- NET INVESTMENT INCOME 3,773,289 --------------------------------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) --------------------------------------------------------------------------------------------------------------- Net realized gain (loss) on investments: Affiliated companies (49,262) Distributions received from affiliated companies 9,162,902 ---------------- Net realized gain 9,113,640 --------------------------------------------------------------------------------------------------------------- Net change in unrealized appreciation on investments 14,991,693 --------------------------------------------------------------------------------------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 27,878,622 ================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 23 | EQUITY INVESTOR FUND STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------------------------------------------
YEAR ENDED JANUARY 31, 2007 2006 1 ------------------------------------------------------------------------------------------------------------- OPERATIONS ------------------------------------------------------------------------------------------------------------- Net investment income $ 3,773,289 $ 591,687 ------------------------------------------------------------------------------------------------------------- Net realized gain 9,113,640 1,283,674 ------------------------------------------------------------------------------------------------------------- Net change in unrealized appreciation 14,991,693 5,163,892 ------------------------------- Net increase in net assets resulting from operations 27,878,622 7,039,253 ------------------------------------------------------------------------------------------------------------- DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS ------------------------------------------------------------------------------------------------------------- Dividends from net investment income: Class A (2,293,120) (380,503) Class B (510,255) (127,617) Class C (615,967) (120,802) Class N (486,103) (41,332) Class Y (30,630) (6,678) ------------------------------- (3,936,075) (676,932) ------------------------------------------------------------------------------------------------------------- Distributions from net realized gain: Class A (522,857) (67,178) Class B (182,273) (28,621) Class C (214,177) (25,903) Class N (112,075) (7,402) Class Y (5,808) (1,071) ------------------------------- (1,037,190) (130,175) ------------------------------------------------------------------------------------------------------------- BENEFICIAL INTEREST TRANSACTIONS ------------------------------------------------------------------------------------------------------------- Net increase in net assets resulting from beneficial interest transactions: Class A 113,644,714 44,717,597 Class B 36,285,425 17,711,412 Class C 45,942,782 18,857,875 Class N 27,802,175 5,289,149 Class Y 1,165,948 650,857 ------------------------------- 224,841,044 87,226,890 ------------------------------------------------------------------------------------------------------------- NET ASSETS ------------------------------------------------------------------------------------------------------------- Total increase 247,746,401 93,459,036 ------------------------------------------------------------------------------------------------------------- Beginning of period 93,563,036 104,000 2 ------------------------------- End of period (including accumulated net investment loss of $16,141 and $41, respectively) $ 341,309,437 $ 93,563,036 ===============================
1. For the period from April 5, 2005 (commencement of operations) to January 31, 2006. 2. Reflects the value of the Manager's initial seed money investment on March 15, 2005. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 24 | EQUITY INVESTOR FUND FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
CLASS A YEAR ENDED JANUARY 31, 2007 2006 1 ------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING DATA ------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 11.60 $ 10.00 ------------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income 2 .25 .22 Net realized and unrealized gain 1.00 1.52 ------------------------------- Total from investment operations 1.25 1.74 ------------------------------------------------------------------------------------------------------------- Dividends and/or distributions to shareholders: Dividends from net investment income (.18) (.12) Distributions from net realized gain (.04) (.02) ------------------------------- Total dividends and distributions to shareholders (.22) (.14) ------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 12.63 $ 11.60 =============================== ------------------------------------------------------------------------------------------------------------- TOTAL RETURN, AT NET ASSET VALUE 3 10.85% 17.46% ------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA ------------------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $ 173,539 $ 48,132 ------------------------------------------------------------------------------------------------------------- Average net assets (in thousands) $ 109,318 $ 17,321 ------------------------------------------------------------------------------------------------------------- Ratios to average net assets: 4 Net investment income 2.07% 2.47% Total expenses 5 0.50% 0.70% Expenses after waivers and reimbursements and reduction to custodian expenses 0.50% 0.68% ------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 2% 7%
1. For the period from April 5, 2005 (commencement of operations) to January 31, 2006. 2. Per share amounts calculated based on the average shares outstanding during the period. 3. Assumes an investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Sales charges are not reflected in the total returns. Total returns are not annualized for periods of less than one full year. Returns do not reflect the deduction of taxes that a shareholder would pay on portfolio distributions or the redemption of portfolio shares. 4. Annualized for periods of less than one full year. 5. Expenses including all underlying fund expenses were as follows: Year Ended January 31, 2007 1.15% Period Ended January 31, 2006 1.39 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 25 | EQUITY INVESTOR FUND FINANCIAL HIGHLIGHTS Continued --------------------------------------------------------------------------------
CLASS B YEAR ENDED JANUARY 31, 2007 2006 1 ------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING DATA ------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 11.55 $ 10.00 ------------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income 2 .14 .16 Net realized and unrealized gain 1.01 1.50 ------------------------------- Total from investment operations 1.15 1.66 ------------------------------------------------------------------------------------------------------------- Dividends and/or distributions to shareholders: Dividends from net investment income (.12) (.09) Distributions from net realized gain (.04) (.02) ------------------------------- Total dividends and distributions to shareholders (.16) (.11) ------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 12.54 $ 11.55 =============================== ------------------------------------------------------------------------------------------------------------- TOTAL RETURN, AT NET ASSET VALUE 3 9.97% 16.70% ------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA ------------------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $ 59,406 $ 19,078 ------------------------------------------------------------------------------------------------------------- Average net assets (in thousands) $ 38,569 $ 7,050 ------------------------------------------------------------------------------------------------------------- Ratios to average net assets: 4 Net investment income 1.19% 1.83% Total expenses 5 1.31% 1.53% Expenses after waivers and reimbursements and reduction to custodian expenses 1.31% 1.50% ------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 2% 7%
1. For the period from April 5, 2005 (commencement of operations) to January 31, 2006. 2. Per share amounts calculated based on the average shares outstanding during the period. 3. Assumes an investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Sales charges are not reflected in the total returns. Total returns are not annualized for periods of less than one full year. Returns do not reflect the deduction of taxes that a shareholder would pay on portfolio distributions or the redemption of portfolio shares. 4. Annualized for periods of less than one full year. 5. Expenses including all underlying fund expenses were as follows: Year Ended January 31, 2007 1.96% Period Ended January 31, 2006 2.22 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 26 | EQUITY INVESTOR FUND CLASS C YEAR ENDED JANUARY 31, 2007 2006 1 -------------------------------------------------------------------------------- PER SHARE OPERATING DATA -------------------------------------------------------------------------------- Net asset value, beginning of period $ 11.54 $ 10.00 -------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income 2 .14 .15 Net realized and unrealized gain 1.01 1.51 --------------------- Total from investment operations 1.15 1.66 -------------------------------------------------------------------------------- Dividends and/or distributions to shareholders: Dividends from net investment income (.12) (.10) Distributions from net realized gain (.04) (.02) --------------------- Total dividends and distributions to shareholders (.16) (.12) -------------------------------------------------------------------------------- Net asset value, end of period $ 12.53 $ 11.54 ===================== -------------------------------------------------------------------------------- TOTAL RETURN, AT NET ASSET VALUE 3 10.00% 16.64% -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA -------------------------------------------------------------------------------- Net assets, end of period (in thousands) $ 70,691 $ 20,034 -------------------------------------------------------------------------------- Average net assets (in thousands) $ 45,312 $ 6,131 -------------------------------------------------------------------------------- Ratios to average net assets: 4 Net investment income 1.23% 1.71% Total expenses 5 1.29% 1.48% Expenses after waivers and reimbursements and reduction to custodian expenses 1.29% 1.45% -------------------------------------------------------------------------------- Portfolio turnover rate 2% 7% 1. For the period from April 5, 2005 (commencement of operations) to January 31, 2006. 2. Per share amounts calculated based on the average shares outstanding during the period. 3. Assumes an investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Sales charges are not reflected in the total returns. Total returns are not annualized for periods of less than one full year. Returns do not reflect the deduction of taxes that a shareholder would pay on portfolio distributions or the redemption of portfolio shares. 4. Annualized for periods of less than one full year. 5. Expenses including all underlying fund expenses were as follows: Year Ended January 31, 2007 1.94% Period Ended January 31, 2006 2.17 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 27 | EQUITY INVESTOR FUND FINANCIAL HIGHLIGHTS Continued -------------------------------------------------------------------------------- CLASS N YEAR ENDED JANUARY 31, 2007 2006 1 -------------------------------------------------------------------------------- PER SHARE OPERATING DATA -------------------------------------------------------------------------------- Net asset value, beginning of period $ 11.59 $ 10.00 -------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income 2 .29 .24 Net realized and unrealized gain .94 1.49 --------------------- Total from investment operations 1.23 1.73 -------------------------------------------------------------------------------- Dividends and/or distributions to shareholders: Dividends from net investment income (.18) (.12) Distributions from net realized gain (.04) (.02) --------------------- Total dividends and distributions to shareholders (.22) (.14) -------------------------------------------------------------------------------- Net asset value, end of period $ 12.60 $ 11.59 ===================== -------------------------------------------------------------------------------- TOTAL RETURN, AT NET ASSET VALUE 3 10.67% 17.34% -------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA -------------------------------------------------------------------------------- Net assets, end of period (in thousands) $ 35,652 $ 5,608 -------------------------------------------------------------------------------- Average net assets (in thousands) $ 18,874 $ 1,717 -------------------------------------------------------------------------------- Ratios to average net assets: 4 Net investment income 2.47% 2.62% Total expenses 5 0.69% 0.79% Expenses after waivers and reimbursements and reduction to custodian expenses 0.69% 0.78% -------------------------------------------------------------------------------- Portfolio turnover rate 2% 7% 1. For the period from April 5, 2005 (commencement of operations) to January 31, 2006. 2. Per share amounts calculated based on the average shares outstanding during the period. 3. Assumes an investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Sales charges are not reflected in the total returns. Total returns are not annualized for periods of less than one full year. Returns do not reflect the deduction of taxes that a shareholder would pay on portfolio distributions or the redemption of portfolio shares. 4. Annualized for periods of less than one full year. 5. Expenses including all underlying fund expenses were as follows: Year Ended January 31, 2007 1.34% Period Ended January 31, 2006 1.48 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 28 | EQUITY INVESTOR FUND CLASS Y YEAR ENDED JANUARY 31, 2007 2006 1 -------------------------------------------------------------------------------- PER SHARE OPERATING DATA -------------------------------------------------------------------------------- Net asset value, beginning of period $ 11.61 $ 10.00 -------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income 2 .29 .24 Net realized and unrealized gain 1.03 1.52 --------------------- Total from investment operations 1.32 1.76 -------------------------------------------------------------------------------- Dividends and/or distributions to shareholders: Dividends from net investment income (.22) (.13) Distributions from net realized gain (.04) (.02) --------------------- Total dividends and distributions to shareholders (.26) (.15) -------------------------------------------------------------------------------- Net asset value, end of period $ 12.67 $ 11.61 ===================== -------------------------------------------------------------------------------- TOTAL RETURN, AT NET ASSET VALUE 3 11.42% 17.69% -------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA -------------------------------------------------------------------------------- Net assets, end of period (in thousands) $ 2,021 $ 711 -------------------------------------------------------------------------------- Average net assets (in thousands) $ 1,267 $ 331 -------------------------------------------------------------------------------- Ratios to average net assets: 4 Net investment income 2.46% 2.67% Total expenses 5 0.03% 0.30% Expenses after waivers and reimbursements and reduction to custodian expenses 0.03% 0.27% -------------------------------------------------------------------------------- Portfolio turnover rate 2% 7% 1. For the period from April 5, 2005 (commencement of operations) to January 31, 2006. 2. Per share amounts calculated based on the average shares outstanding during the period. 3. Assumes an investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Sales charges are not reflected in the total returns. Total returns are not annualized for periods of less than one full year. Returns do not reflect the deduction of taxes that a shareholder would pay on portfolio distributions or the redemption of portfolio shares. 4. Annualized for periods of less than one full year. 5. Expenses including all underlying fund expenses were as follows: Year Ended January 31, 2007 0.68% Period Ended January 31, 2006 0.99 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 29 | EQUITY INVESTOR FUND NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 1. SIGNIFICANT ACCOUNTING POLICIES Oppenheimer Portfolio Series (the "Fund") is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. Equity Investor Fund formerly known as Aggressive Investor Fund (the "Portfolio") is a series of the Fund whose investment objective is to seek long term growth of capital. The Portfolio is a special type of mutual fund known as a "fund of funds" because it invests in other mutual funds. The Portfolio normally invests in a portfolio consisting of a target-weighted allocation in Class A or Class Y shares of other Oppenheimer funds. The Fund's investment advisor is OppenheimerFunds, Inc. (the "Manager"). The Portfolio offers Class A, Class B, Class C, Class N and Class Y shares. Class A shares are sold at their offering price, which is normally net asset value plus a front-end sales charge. Class B, Class C and Class N shares are sold without a front-end sales charge but may be subject to a contingent deferred sales charge (CDSC). Class N shares are sold only through retirement plans. Retirement plans that offer Class N shares may impose charges on those accounts. Class Y shares are sold to certain institutional investors without either a front-end sales charge or a CDSC, however, the institutional investor may impose charges on those accounts. All classes of shares have identical rights and voting privileges with respect to the Portfolio in general and exclusive voting rights on matters that affect that class alone. Earnings, net assets and net asset value per share may differ due to each class having its own expenses, such as transfer and shareholder servicing agent fees and shareholder communications, directly attributable to that class. Class A, B, C and N have separate distribution and/or service plans. No such plan has been adopted for Class Y shares. Class B shares will automatically convert to Class A shares six years after the date of purchase. Under normal market conditions, the Manager will invest the Portfolio's assets in shares of Oppenheimer Capital Appreciation Fund, Oppenheimer Developing Markets Fund, Oppenheimer Global Fund, Oppenheimer Global Opportunities Fund, Oppenheimer Main Street Fund(R), Oppenheimer Main Street Opportunity Fund(R), Oppenheimer Main Street Small Cap Fund(R), Oppenheimer Value Fund and Oppenheimer Institutional Money Market Fund (individually, an "Underlying Fund" and collectively, the "Underlying Funds"). The following is a summary of significant accounting policies consistently followed by the Portfolio. -------------------------------------------------------------------------------- SECURITIES VALUATION. The Portfolio calculates the net asset value of each class of shares based upon the net asset value of the applicable Underlying Fund 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 trading. For each Underlying Fund, the net asset value per share for a class of shares on a "regular business day" is determined by dividing the value of the Underlying Fund's net assets attributable to that class by the number of shares of that class outstanding on that day. To determine net asset values, the Underlying Fund assets 30 | EQUITY INVESTOR FUND are valued primarily on the basis of current market quotations. If market quotations are not readily available or do not accurately reflect fair value for a security (in the Manager's judgment) or if a security's value has been materially affected by events occurring after the close of the exchange or market on which the security is principally traded, that security may be valued by another method that the Underlying Fund's Board of Trustees/Directors believes accurately reflects the fair value. Because some foreign securities trade in markets and on exchanges that operate on weekends and U.S. holidays, the values of some of the Underlying Fund's foreign investments may change on days when investors cannot buy or redeem Underlying Fund shares. Short-term "money market type" debt securities with remaining maturities of sixty days or less are valued at amortized cost (which approximates market value). -------------------------------------------------------------------------------- RISKS OF INVESTING IN THE UNDERLYING FUNDS. Each of the Underlying Funds in which the Portfolio invests has its own investment risks, and those risks can affect the value of the Portfolio's investments and therefore the value of the Portfolio's shares. To the extent that the Portfolio invests more of its assets in one Underlying Fund than in another, the Portfolio will have greater exposure to the risks of that Underlying Fund. -------------------------------------------------------------------------------- INVESTMENT IN OPPENHEIMER INSTITUTIONAL MONEY MARKET FUND. The Portfolio is permitted to invest daily available cash balances in an affiliated money market fund. The Portfolio may invest 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 Portfolio's investment in IMMF is included in the Statement of Investments. As a shareholder, the Portfolio is subject to its proportional share of IMMF's Class E expenses, including its management fee. The Manager will waive fees and/or reimburse Portfolio expenses in an amount equal to the indirect management fees incurred through the Portfolio's investment in IMMF. -------------------------------------------------------------------------------- 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 Portfolio 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. 31 | EQUITY INVESTOR FUND NOTES TO FINANCIAL STATEMENTS Continued -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 1. SIGNIFICANT ACCOUNTING POLICIES Continued The tax components of capital shown in the table below represent distribution requirements the Portfolio must satisfy under the income tax regulations, losses the Portfolio 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 OTHER UNDISTRIBUTED NET UNDISTRIBUTED ACCUMULATED LOSS INVESTMENTS FOR FEDERAL INVESTMENT INCOME LONG-TERM GAIN CARRYFORWARD 1,2 INCOME TAX PURPOSES -------------------------------------------------------------------------------- $ -- $ 8,112,082 $ -- $ 20,154,142 1. During the fiscal year ended January 31, 2007, the Portfolio did not utilize any capital loss carryforward. 2. During the fiscal year ended January 31, 2006, the Portfolio did not utilize any capital loss carryforward. 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 Portfolio. Accordingly, the following amounts have been reclassified for January 31, 2007. Net assets of the Portfolio were unaffected by the reclassifications. REDUCTION TO REDUCTION TO ACCUMULATED ACCUMULATED NET REALIZED INCREASE TO NET INVESTMENT GAIN ON PAID-IN CAPITAL LOSS INVESTMENTS 3 -------------------------------------------------------------- $ 795,429 $ 146,686 $ 942,115 3. $795,429, all of which was long-term capital gain, was distributed in connection with Portfolio share redemptions. The tax character of distributions paid during the years ended January 31, 2007 and January 31, 2006 was as follows: YEAR ENDED PERIOD ENDED JANUARY 31, 2007 JANUARY 31, 2006 -------------------------------------------------------------- Distributions paid from: Ordinary income $ 3,936,056 $ 807,107 Long-term capital gain 1,037,209 -- ----------------------------------- Total $ 4,973,265 $ 807,107 =================================== 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 January 31, 2007 are noted below. The primary difference between book and tax appreciation or depreciation of securities and other investments, if applicable, is 32 | EQUITY INVESTOR FUND attributable to the tax deferral of losses or tax realization of financial statement unrealized gain or loss. Federal tax cost of securities $ 320,375,948 ================ Gross unrealized appreciation $ 20,793,751 Gross unrealized depreciation (639,609) ---------------- Net unrealized appreciation $ 20,154,142 ================ -------------------------------------------------------------------------------- TRUSTEES' COMPENSATION. The Portfolio has adopted an unfunded retirement plan (the "Plan") for the Portfolio's independent trustees. Benefits are based on years of service and fees paid to each trustee during their period of service. The Plan was frozen with respect to adding new participants effective December 31, 2006 (the "Freeze Date") and existing Plan Participants as of the Freeze Date will continue to receive accrued benefits under the Plan. Active independent trustees as of the Freeze Date have each elected a distribution method with respect to their benefits under the Plan. During the year ended January 31, 2007, the Portfolio's projected benefit obligations were increased by $13,776 and payments of $355 were made to retired trustees, resulting in an accumulated liability of $13,421 as of January 31, 2007. 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 Portfolio. 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 Portfolio or in other Oppenheimer funds selected by the Trustee. The Portfolio purchases shares of the funds selected for deferral by the Trustee in amounts equal to his or her deemed investment, resulting in a Portfolio asset equal to the deferred compensation liability. Such assets are included as a component of "Other" within the asset section of the Statement of Assets and Liabilities. Deferral of trustees' fees under the plan will not affect the net assets of the Portfolio, and will not materially affect the Portfolio's assets, liabilities or net investment income per share. Amounts will be deferred until distributed in accordance to the compensation deferral 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 and 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. 33 | EQUITY INVESTOR FUND NOTES TO FINANCIAL STATEMENTS Continued -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 1. SIGNIFICANT ACCOUNTING POLICIES Continued CUSTODIAN FEES. "Custodian fees and expenses" in the Statement of Operations may include interest expense incurred by the Portfolio 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 Portfolio pays interest to its custodian on such cash overdrafts, to the extent they are not offset by positive cash balances maintained by the Portfolio, 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 Portfolio 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 Portfolio'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 Portfolio. In the normal course of business, the Portfolio may also enter into contracts that provide general indemnifications. The Portfolio's maximum exposure under these arrangements is unknown as this would be dependent on future claims that may be made against the Portfolio. 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. -------------------------------------------------------------------------------- 2. SHARES OF BENEFICIAL INTEREST The Portfolio has authorized an unlimited number of $0.001 par value shares of beneficial interest of each class. Transactions in shares of beneficial interest were as follows:
YEAR ENDED JANUARY 31, 2007 PERIOD ENDED JANUARY 31, 2006 1,2 SHARES AMOUNT SHARES AMOUNT ------------------------------------------------------------------------------------------- CLASS A Sold 10,788,987 $ 127,694,890 4,307,796 $ 46,498,407 Dividends and/or distributions reinvested 217,939 2,704,630 38,611 427,037 Redeemed (1,417,148) (16,754,806) (205,514) (2,207,847) ---------------------------------------------------------------- Net increase 9,589,778 $ 113,644,714 4,140,893 $ 44,717,597 ================================================================
34 | EQUITY INVESTOR FUND
YEAR ENDED JANUARY 31, 2007 PERIOD ENDED JANUARY 31, 2006 1,2 SHARES AMOUNT SHARES AMOUNT ------------------------------------------------------------------------------------------- CLASS B Sold 3,586,753 $ 42,131,412 1,712,718 $ 18,374,371 Dividends and/or distributions reinvested 54,487 671,822 13,238 145,879 Redeemed (556,353) (6,517,809) (74,128) (808,838) ---------------------------------------------------------------- Net increase 3,084,887 $ 36,285,425 1,651,828 $ 17,711,412 ================================================================ ------------------------------------------------------------------------------------------- CLASS C Sold 4,655,073 $ 54,733,344 1,784,313 $ 19,370,332 Dividends and/or distributions reinvested 65,253 803,921 12,844 141,411 Redeemed (816,245) (9,594,483) (61,514) (653,868) ---------------------------------------------------------------- Net increase 3,904,081 $ 45,942,782 1,735,643 $ 18,857,875 ================================================================ ------------------------------------------------------------------------------------------- CLASS N Sold 2,837,844 $ 33,657,788 536,355 $ 5,884,519 Dividends and/or distributions reinvested 41,434 512,955 3,629 40,096 Redeemed (533,502) (6,368,568) (56,166) (635,466) ---------------------------------------------------------------- Net increase 2,345,776 $ 27,802,175 483,818 $ 5,289,149 ================================================================ ------------------------------------------------------------------------------------------- CLASS Y Sold 121,765 $ 1,440,825 69,936 $ 744,994 Dividends and/or distributions reinvested 2,927 36,412 699 7,734 Redeemed (26,372) (311,289) (9,513) (101,871) ---------------------------------------------------------------- Net increase 98,320 $ 1,165,948 61,122 $ 650,857 ================================================================
1. For the period from April 5, 2005 (commencement of operations) to January 31, 2006. 2. The Portfolio sold 10,000 shares of Class A at a value of $100,000 and 100 shares of Class B, Class C, Class N and Class Y at a value of $1,000, respectively, to the Manager upon seeding of the Portfolio on March 15, 2005. -------------------------------------------------------------------------------- 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 January 31, 2007, were as follows: PURCHASES SALES -------------------------------------------------------------- Investment securities $ 237,016,650 $ 4,467,498 -------------------------------------------------------------------------------- 4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES MANAGEMENT FEES. Under the investment advisory agreement, the Manager does not charge a management fee, but rather collects indirect management fees from investments in the Underlying Funds. The weighted indirect management fees collected from the Underlying Funds, as a percent of average daily net assets of the Portfolio for the year ended January 31, 2007 was 0.58%. 35 | EQUITY INVESTOR FUND NOTES TO FINANCIAL STATEMENTS Continued -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES Continued TRANSFER AGENT FEES. OppenheimerFunds Services (OFS or the Transfer Agent), a division of the Manager, acts as the transfer and shareholder servicing agent for the Portfolio. The Portfolio pays OFS a per account fee. For the year ended January 31, 2007, the Portfolio paid $388,730 to OFS for services to the Portfolio. Additionally, Class Y shares are subject to minimum fees of $10,000 per annum for assets of $10 million or more. The Class Y shares are subject to the minimum fees in the event that the per account fee does not equal or exceed the applicable minimum fees. OFS may voluntarily waive the minimum fees. -------------------------------------------------------------------------------- DISTRIBUTION AND SERVICE PLAN (12b-1) FEES. Under its General Distributor's Agreement with the Portfolio, OppenheimerFunds Distributor, Inc. (the Distributor) acts as the Portfolio's principal underwriter in the continuous public offering of the Portfolio's classes of shares. -------------------------------------------------------------------------------- SERVICE PLAN FOR CLASS A SHARES. The Portfolio 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 Portfolio. 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 Portfolio under the plan are detailed in the Statement of Operations. -------------------------------------------------------------------------------- DISTRIBUTION AND SERVICE PLANS FOR CLASS B, CLASS C AND CLASS N SHARES. The Portfolio has adopted Distribution and Service Plans for Class B, Class C and Class N shares to compensate the Distributor for its services in connection with the distribution of those shares and servicing accounts. Under the plans, the Portfolio pays the Distributor an annual asset-based sales charge of 0.75% on Class B and Class C shares and 0.25% on Class N shares. The Distributor also receives a service fee of 0.25% per year under each plan. If either the Class B, Class C or Class N plan is terminated by the Portfolio 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 Portfolio 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 $978,843, $487,187 and $248,623, respectively. Fees incurred by the Portfolio under the plans are detailed in the Statement of Operations. 36 | EQUITY INVESTOR FUND -------------------------------------------------------------------------------- SALES CHARGES. Front-end sales charges and contingent deferred sales charges (CDSC) do not represent expenses of the Portfolio. They are deducted from the proceeds of sales of Portfolio 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 CONTINGENT CONTINGENT CONTINGENT CONTINGENT CLASS A DEFERRED SALES DEFERRED SALES DEFERRED SALES DEFERRED SALES FRONT-END SALES CHARGES CHARGES CHARGES CHARGES CHARGES RETAINED RETAINED BY RETAINED BY RETAINED BY RETAINED BY YEAR ENDED BY DISTRIBUTOR DISTRIBUTOR DISTRIBUTOR DISTRIBUTOR DISTRIBUTOR ------------------------------------------------------------------------------------------------------- January 31, 2007 $ 798,660 $ 48 $ 67,253 $ 13,101 $ 1,835
-------------------------------------------------------------------------------- WAIVERS AND REIMBURSEMENTS OF EXPENSES. The Manager has voluntarily agreed to a total expense limitation on the aggregate amount of combined direct (fund-of-funds level) and indirect expense so that "Total expenses" as a percentage of average daily net assets will not exceed the following annual rates: 1.45%, 2.20%, 2.20%, 1.70% and 1.20%, for Class A, Class B, Class C, Class N and Class Y, respectively. The Manager may modify or terminate this undertaking at any time without notice to shareholders. These expense limitations do not include Extraordinary Expenses and other expenses not incurred in the ordinary course of the Portfolio's business. Notwithstanding the foregoing limits, the Manager is not required to waive or reimburse Portfolio expenses in excess of indirect management fees earned from investments in Underlying Funds to assure that expenses do not exceed those limits. OFS has voluntarily agreed to limit transfer and shareholder servicing agent fees for all classes to 0.35% of average annual net assets per class. This undertaking may be amended or withdrawn at any time. The Manager will waive fees and/or reimburse Portfolio expenses in an amount equal to the indirect management fees incurred through the Portfolio's investment in IMMF. During the year ended January 31, 2007, the Manager waived $221 for IMMF management fees. -------------------------------------------------------------------------------- 5. 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 Portfolio's tax returns to determine whether it is "more-likely-than-not" that tax positions taken in the Portfolio'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 37 | EQUITY INVESTOR FUND NOTES TO FINANCIAL STATEMENTS Continued -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 5. RECENT ACCOUNTING PRONOUNCEMENTS Continued not be fully realized. FIN 48 is effective for fiscal years beginning after December 15, 2006. As of January 31, 2007, the Manager has evaluated the implications of FIN 48 and does not currently anticipate a material impact to the Portfolio's financial statements. The Manager will continue to monitor the Portfolio'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 January 31, 2007, 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. -------------------------------------------------------------------------------- 6. 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 excluding the Portfolio) 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 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. 38 | EQUITY INVESTOR FUND REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- THE BOARD OF TRUSTEES AND SHAREHOLDERS OF OPPENHEIMER PORTFOLIO SERIES: We have audited the accompanying statement of assets and liabilities of Equity Investor Fund, formerly Aggressive Investor Fund (one of the portfolios constituting the Oppenheimer Portfolio Series), including the statement of investments, as of January 31, 2007, the related statement of operations for the year then ended, and the statements of changes in net assets and the financial highlights for the year then ended and for the period April 5, 2005 (commencement of operations) to January 31, 2006. These financial statements and financial highlights are the responsibility of the Portfolio'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 January 31, 2007, 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 Equity Investor Fund as of January 31, 2007, the results of its operations for the year then ended, and the changes in its net assets and the financial highlights for the year then ended and for the period April 5, 2005 (commencement of operations) to January 31, 2006, in conformity with U.S. generally accepted accounting principles. KPMG LLP Denver, Colorado March 15, 2007 39 | EQUITY INVESTOR 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 Portfolio during calendar year 2006. Regulations of the U.S. Treasury Department require the Portfolio to report this information to the Internal Revenue Service. Capital gain distributions of $0.0417 per share were paid to Class A, Class B, Class C, Class N and Class Y shareholders, respectively, on December 29, 2006. Whether received in stock or in cash, the capital gain distribution should be treated by shareholders as a gain from the sale of the capital assets held for more than one year (long-term capital gains). Dividends, if any, paid by the Portfolio during the fiscal year ended January 31, 2007 which are not designated as capital gain distributions should be multiplied by 49.79% to arrive at the amount eligible for the corporate dividend-received deduction. A portion, if any, of the dividends paid by the Portfolio during the fiscal year ended January 31, 2007 which are not designated as capital gain distributions are eligible for lower individual income tax rates to the extent that the Portfolio has received qualified dividend income as stipulated by recent tax legislation. $3,146,085 of the Portfolio'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 January 31, 2007, $23,237 or 0.59% of the ordinary distributions paid by the Portfolio qualifies as an interest related dividend. The foregoing information is presented to assist shareholders in reporting distributions received from the Portfolio 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. 40 | EQUITY INVESTOR 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. 41 | EQUITY INVESTOR FUND BOARD APPROVAL OF THE PORTFOLIO'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 managers 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. 42 | EQUITY INVESTOR FUND 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 Rudi Schadt, Jerry Webman and Kurt Wolfgruber, the members of the Fund's Asset Allocation Team. 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 global multi-cap core funds advised by other investment advisers. The Board noted that the Fund's one-year and since inception 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 multi-cap core funds of funds, one other international multi-cap core fund of funds and other funds with comparable asset levels and distribution features. The Board noted that the Manager has agreed to voluntarily limit the aggregate amount of combined direct (fund-of-funds level) and indirect expenses so that total annual portfolio and underlying fund operating expenses as a percentage of average daily net assets will not exceed the 43 | EQUITY INVESTOR FUND BOARD APPROVAL OF THE PORTFOLIO'S INVESTMENT ADVISORY AGREEMENT Unaudited / Continued -------------------------------------------------------------------------------- following annual rates: 1.45% for Class A, 2.20% for Class B, 2.20% for Class C, 1.70% for Class N and 1.20% for Class Y. The Manager may modify or terminate that undertaking at any time without notice to shareholders. The Board noted that the Fund does not pay a management fee and that the Fund's total expenses are lower than its peer group median. ECONOMIES OF SCALE. The Board considered whether the Manager may realize economies of scale in managing and supporting the Fund, the extent to which those economies of scale would benefit the Fund's shareholders and the current level of Fund assets. 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. 44 | EQUITY INVESTOR FUND TRUSTEES AND OFFICERS Unaudited --------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------- NAME, POSITION(S) HELD WITH THE PRINCIPAL OCCUPATION(S) DURING THE PAST 5 YEARS; OTHER TRUSTEESHIPS/DIRECTORSHIPS FUND, LENGTH OF SERVICE, AGE HELD; NUMBER OF PORTFOLIOS IN THE FUND COMPLEX CURRENTLY OVERSEEN INDEPENDENT THE ADDRESS OF EACH TRUSTEE IN THE CHART BELOW IS 6803 S. TUCSON WAY, CENTENNIAL, TRUSTEES COLORADO 80112-3924. EACH TRUSTEE SERVES FOR AN INDEFINITE TERM, OR UNTIL HIS OR HER RESIGNATION, RETIREMENT, DEATH OR REMOVAL. BRIAN F. WRUBLE, General Partner of Odyssey Partners, L.P. (hedge fund) (since September 1995); Chairman of the Board of Director of Special Value Opportunities Fund, LLC (registered investment company) Trustees (since 2007) and (since September 2004); Investment Advisory Board Member of Zurich Financial Trustee (since 2005) Services (insurance) (since October 2004); Board of Governing Trustees of The Age: 63 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. MATTHEW P. FINK, Trustee of the Committee for Economic Development (policy research foundation) Trustee (since 2005) (since 2005); Director of ICI Education Foundation (education foundation) Age: 66 (October 1991-August 2006); President of the Investment Company Institute (trade association) (October 1991-June 2004); Director of ICI Mutual Insurance Company (insurance company) (October 1991-June 2004). Oversees 49 portfolios in the OppenheimerFunds complex. ROBERT G. GALLI, A trustee or director of other Oppenheimer funds. Oversees 59 portfolios in the Trustee (since 2005) OppenheimerFunds complex. Age: 73 PHILLIP A. GRIFFITHS, Distinguished Presidential Fellow for International Affairs (since 2002) and Trustee (since 2005) Member (since 1979) of the National Academy of Sciences; Council on Foreign Age: 68 Relations (since 2002); Director of GSI Lumonics Inc. (precision medical equipment supplier) (since 2001); Senior Advisor of The Andrew W. Mellon Foundation (since 2001); Chair of Science Initiative Group (since 1999); Member of the American Philosophical Society (since 1996); Trustee of Woodward Academy (since 1983); Foreign Associate of Third World Academy of Sciences; Director of the Institute for Advanced Study (1991-2004); Director of Bankers Trust New York Corporation (1994-1999); Provost at Duke University (1983-1991). Oversees 49 portfolios in the OppenheimerFunds complex. MARY F. MILLER, Trustee of the American Symphony Orchestra (not-for-profit) (since October 1998); Trustee (since 2005) and Senior Vice President and General Auditor of American Express Company Age: 64 (financial services company) (July 1998-February 2003). Oversees 49 portfolios in the OppenheimerFunds complex. JOEL W. MOTLEY, Director of Columbia Equity Financial Corp. (privately-held financial adviser) Trustee (since 2005) (since 2002); Managing Director of Carmona Motley, Inc. (privately-held financial Age: 54 adviser) (since January 2002); Managing Director of Carmona Motley Hoffman Inc. (privately-held financial adviser) (January 1998-December 2001); Member of the Finance and Budget Committee of the Council on Foreign Relations, the Investment Committee of the Episcopal Church of America, the Investment Committee and Board of Human Rights Watch and the Investment Committee of Historic Hudson Valley. Oversees 49 portfolios in the OppenheimerFunds complex.
45 | EQUITY INVESTOR FUND TRUSTEES AND OFFICERS Unaudited / Continued -------------------------------------------------------------------------------- KENNETH A. RANDALL, Director of Dominion Resources, Inc. (electric utility holding company) (February Trustee (since 2005) 1972-October 2005); Former Director of Prime Retail, Inc. (real estate investment Age: 79 trust), Dominion Energy Inc. (electric power and oil & gas producer), Lumberman's Mutual Casualty Company, American Motorists Insurance Company and American Manufacturers Mutual Insurance Company; Former President and Chief Executive Officer of The Conference Board, Inc. (international economic and business research). Oversees 49 portfolios in the OppenheimerFunds complex. RUSSELL S. REYNOLDS, JR., Chairman of The Directorship Search Group, Inc. (corporate governance consulting Trustee (since 2005) and executive recruiting) (since 1993); Life Trustee of International House Age: 75 (non-profit educational organization); Founder, Chairman and Chief Executive Officer of Russell Reynolds Associates, Inc. (1969-1993); Banker at J.P. Morgan & Co. (1958-1966); 1st Lt. Strategic Air Command, U.S. Air Force (1954-1958). Oversees 49 portfolios in the OppenheimerFunds complex. JOSEPH M. WIKLER, Director of the following medical device companies: Medintec (since 1992) and Trustee (since 2005) Cathco (since 1996); Director of Lakes Environmental Association (since 1996); Age: 65 Member of the Investment Committee of the Associated Jewish Charities of Baltimore (since 1994); Director of Fortis/Hartford mutual funds (1994-December 2001). Oversees 49 portfolios in the OppenheimerFunds complex. PETER I. WOLD, President of Wold Oil Properties, Inc. (oil and gas exploration and production Trustee (since 2005) company) (since 1994); Vice President, Secretary and Treasurer of Wold Trona Age: 59 Company, Inc. (soda ash processing and production) (since 1996); Vice President of Wold Talc Company, Inc. (talc mining) (since 1999); Managing Member of Hole-in-the-Wall Ranch (cattle ranching) (since 1979); Director and Chairman of the Denver Branch of the Federal Reserve Bank of Kansas City (1993-1999); and Director of PacifiCorp. (electric utility) (1995-1999). Oversees 49 portfolios in the OppenheimerFunds complex. --------------------------------------------------------------------------------------------------------------------- INTERESTED TRUSTEE AND THE ADDRESS OF MR. MURPHY IS TWO WORLD FINANCIAL CENTER, 225 LIBERTY STREET, 11TH OFFICER 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 INDEFINITE 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) and President President and Principal (since September 2000) of the Manager; President and a director or trustee of Executive Officer and other Oppenheimer funds; President and Director of Oppenheimer Acquisition Corp. Trustee (since 2005) ("OAC") (the Manager's parent holding company) and of Oppenheimer Partnership Age: 57 Holdings, Inc. (holding company subsidiary of the Manager) (since July 2001); Director of OppenheimerFunds Distributor, Inc. (subsidiary of the Manager) (since November 2001); Chairman and Director of Shareholder Services, Inc. and of Shareholder Financial Services, Inc. (transfer agent subsidiaries of the Manager) (since July 2001); President and Director of OppenheimerFunds Legacy Program (charitable trust program established by the Manager) (since July 2001); Director of the following investment advisory subsidiaries of the Manager: OFI Institutional Asset Management, Inc., Centennial Asset Management Corporation, Trinity Investment Management Corporation and Tremont Capital Management, Inc. (since November 2001), HarbourView Asset Management Corporation and OFI Private Investments, Inc. (since July 2001); President (since November 1, 2001) and Director (since July 2001) of Oppenheimer Real Asset Management, Inc.; Executive Vice President of
46 | EQUITY INVESTOR FUND JOHN V. MURPHY, Massachusetts Mutual Life Insurance Company (OAC's parent company) (since Continued 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: FOR MESSRS. THE FUND SCHADT, WEBMAN, WOLFGRUBER, 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 INDEFINITE TERM OR UNTIL HIS OR HER RESIGNATION, RETIREMENT, DEATH OR REMOVAL. RUDI W. SCHADT, Vice President, Director of Research in Product Design and Risk Management of the Vice President and Portfolio Manager. Prior to joining the Manager in February 2002 he was a Director and Manager (since 2005) Senior Quantitative Analyst (2000-2001) at UBS Asset Management prior to which he Age: 49 was an Associate Director of Research (since June 1999) and Senior Researcher and Portfolio Manager (from June 1997) at State Street Global Advisors. An officer of 11 portfolios in the OppenheimerFunds complex. DR. JERRY WEBMAN, Chief Economist of the Manager (since 2006); Senior Vice President (since Vice President and Portfolio February 1996) and Senior Investment Officer and Director (since 1997) of the Manager (since 2005) Manager's Fixed Income Investments; Senior Vice President (since May 1999) of Age: 57 HarbourView Asset Management Corporation. An officer of 8 other portfolios in the OppenheimerFunds complex. KURT WOLFGRUBER, Executive Vice President of the Manager (since March 2003) and Chief Investment Vice President and Portfolio Officer and Director of the Manager (since July 2003) of the Manager. He has been Manager (since 2005) Director of HarbourView Asset Management Corporation and of OFI Institutional Age: 57 Asset Management, Inc. (since June 2003) and of Tremont Capital Management, Inc. (since October 2001). He is also an officer of 8 other portfolios in the OppenheimerFunds complex. MARK S. VANDEHEY, Senior Vice President and Chief Compliance Officer of the Manager (since March Vice President and Chief 2004); Vice President of OppenheimerFunds Distributor, Inc., Centennial Asset Compliance Officer Management Corporation and Shareholder Services, Inc. (since June 1983). Former (since 2005) Vice President and Director of Internal Audit of the Manager (1997-February Age: 56 2004). An officer of 96 portfolios in the OppenheimerFunds complex. BRIAN W. WIXTED, Senior Vice President and Treasurer of the Manager (since March 1999); Treasurer Treasurer and Principal of the following: HarbourView Asset Management Corporation, Shareholder Financial Financial & Accounting Services, Inc., Shareholder Services, Inc., Oppenheimer Real Asset Management Officer (since 2005) Corporation, and Oppenheimer Partnership Holdings, Inc. (since March 1999), OFI Age: 47 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
47 | EQUITY INVESTOR FUND TRUSTEES AND OFFICERS Unaudited / Continued -------------------------------------------------------------------------------- BRIAN W. WIXTED, OFI Trust Company (trust company subsidiary of the Manager) (since May 2000); Continued 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, Vice President of the Manager (since February 2007); Assistant Vice President of Assistant Treasurer the Manager (August 2002-February 2007); Manager/Financial Product Accounting of (since 2004) the Manager (November 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); Director of Financial Assistant Treasurer Reporting and Compliance of First Data Corporation (April 2003-July 2004); (since 2005) Manager of Compliance of Berger Financial Group LLC (May 2001-March 2003); Age: 36 Director of Mutual Fund Operations at American Data Services, Inc. (September 2000-May 2001). An officer of 96 portfolios in the OppenheimerFunds complex. ROBERT G. ZACK, Executive Vice President (since January 2004) and General Counsel (since March Secretary (since 2005) 2002) of the Manager; General Counsel and Director of the Distributor (since Age: 58 December 2001); General Counsel of Centennial Asset Management Corporation (since December 2001); Senior Vice President and General Counsel of HarbourView Asset Management Corporation (since December 2001); Secretary and General Counsel of OAC (since November 2001); Assistant Secretary (since September 1997) and Director (since November 2001) of OppenheimerFunds International Ltd. and OppenheimerFunds plc; Vice President and Director of Oppenheimer Partnership Holdings, Inc. (since December 2002); Director of Oppenheimer Real Asset Management, Inc. (since November 2001); Senior Vice President, General Counsel and Director of Shareholder Financial Services, Inc. and Shareholder Services, Inc. (since December 2001); Senior Vice President, General Counsel and Director of OFI Private Investments, Inc. and OFI Trust Company (since November 2001); Vice President of OppenheimerFunds Legacy Program (since June 2003); Senior Vice President and General Counsel of OFI Institutional Asset Management, Inc. (since November 2001); Director of OppenheimerFunds (Asia) Limited (since December 2003); Senior Vice President (May 1985-December 2003), Acting General Counsel (November 2001-February 2002) and Associate General Counsel (May 1981-October 2001) of the Manager; Assistant Secretary of the following: Shareholder Services, Inc. (May 1985-November 2001), Shareholder Financial Services, Inc. (November 1989-November 2001), and OppenheimerFunds International Ltd. (September 1997-November 2001). An officer of 96 portfolios in the OppenheimerFunds complex. LISA I. BLOOMBERG, Vice President and Associate Counsel of the Manager (since May 2004); First Vice Assistant Secretary President (April 2001-April 2004), Associate General Counsel (December 2000-April (since 2004) 2004), Corporate Vice President (May 1999-April 2001) and Assistant General Age: 39 Counsel (May 1999-December 2000) of UBS Financial Services Inc. (formerly, PaineWebber Incorporated). An officer of 96 portfolios in the OppenheimerFunds complex.
48 | EQUITY INVESTOR FUND KATHLEEN T. IVES, Vice President (since June 1998) and Senior Counsel and Assistant Secretary Assistant Secretary (since October 2003) of the Manager; Vice President (since 1999) and Assistant (since 2001) Secretary (since October 2003) of the Distributor; Assistant Secretary of Age: 41 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. PHILLIP S. GILLESPIE, Senior Vice President and Deputy General Counsel of the Manager (since September Assistant Secretary 2004); First Vice President (2001-September 2004); Director (2000- September (since 2004) 2004) and Vice President (1998-2000) of Merrill Lynch Investment Management. An Age: 43 officer of 96 portfolios in the OppenheimerFunds complex.
THE PORTFOLIO'S STATEMENT OF ADDITIONAL INFORMATION CONTAINS ADDITIONAL INFORMATION ABOUT THE PORTFOLIO'S TRUSTEES AND OFFICERS AND IS AVAILABLE WITHOUT CHARGE, UPON REQUEST, BY CALLING 1.800.525.7048. 49 | EQUITY INVESTOR FUND ACTIVE ALLOCATION FUND TOP HOLDINGS AND ALLOCATIONS -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- ASSET CLASS ALLOCATION [THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.] Alternative Investments 6.2% Fixed Income 23.5 Global Equity 20.2 U.S. Equity 49.8 Money Market 0.3 Portfolio holdings and allocations are subject to change. Percentages are as of January 31, 2007, and are based on the total market value of investments in affiliated companies. -------------------------------------------------------------------------------- 9 | ACTIVE ALLOCATION FUND PORTFOLIO PERFORMANCE DISCUSSION -------------------------------------------------------------------------------- HOW HAS THE PORTFOLIO PERFORMED? BELOW IS A DISCUSSION BY OPPENHEIMERFUNDS, INC., OF THE PORTFOLIO'S PERFORMANCE DURING ITS FISCAL YEAR ENDED JANUARY 31, 2007, FOLLOWED BY A GRAPHICAL COMPARISON OF THE PORTFOLIO'S PERFORMANCE TO AN APPROPRIATE BROAD-BASED MARKET INDEX. MANAGEMENT'S DISCUSSION OF PORTFOLIO PERFORMANCE. For its fiscal year ending January 31, 2007, the Portfolio underperformed its benchmark, the S&P 500 Index. We attribute the Portfolio's underperformance to its allocation to fixed-income funds, which as an asset class underperformed equities over the period. In contrast, contributors to the Portfolio's competitive performance included the strong returns generated by the Portfolio's approximately 20% tactical (active) allocation component, which benefited from significant allocations to international funds and sector focused fixed income funds. Additionally, the Portfolio's static allocation to alternative investments, specifically its holdings in Oppenheimer Real Estate Fund's Class Y shares, greatly added to overall results. During the period, the Portfolio in general benefited from its large equity exposure. Equities proved to be volatile over the period hitting lows in mid-summer and then rapidly advancing through period end. For example, the S&P 500 Index rose 14.53% over the 12-month reporting period, despite returning only 0.67% for the first six months. In addition, the Portfolio's exposure to foreign markets added to returns. In addition to performance gained through its allocations to international equities, the Portfolio's tactical component benefited from its exposure to Oppenheimer Champion Income Fund Class Y Shares and Oppenheimer International Bond Fund Class Y Shares. We also introduced a derivative overlay strategy during the period. The purpose of this new strategy is to help maximize performance results by enabling our portfolio management team to effectively respond to changing market conditions by implementing sizable positions quickly and efficiently. Although this new strategy had a neutral affect on performance over the period, we believe going forward it will add to results. Within the strategic component, the Portfolio's allocation to alternative investments, primarily its position in Oppenheimer Real Estate Fund Class Y Shares, contributed to performance. The success of Oppenheimer Real Estate Fund can be attributed, in part, to its profitable investments in the office, apartment and industrial sectors. Lastly, although fixed income as an asset class underperformed equities over the period, the underlying bond funds held within the strategic component added to the Portfolio's returns. Contributors to performance included the Portfolio's allocations to Oppenheimer Core Bond Fund Class Y Shares and Oppenheimer Strategic Income Fund Class Y Shares. 10 | ACTIVE ALLOCATION FUND COMPARING THE PORTFOLIO'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 Portfolio held until January 31, 2007. Performance is measured from the inception of Classes A, B, C, N and Y on April 5, 2005. The Portfolio's performance reflects the deduction of the maximum initial sales charge on Class A shares, the applicable contingent deferred sales charge on Class B, Class C and Class N shares, and reinvestments of all dividends and capital gains distributions. Past performance cannot guarantee future results. The Portfolio's performance is compared to the performance of the S&P 500 Index. The S&P 500 Index is an unmanaged index of equity securities. 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 Portfolio's performance reflects the effects of the Portfolio's business and operating expenses. While index comparisons may be useful to provide a benchmark for the Portfolio's performance, it must be noted that the Portfolio's investments are not limited to the investments in the index. 11 | ACTIVE ALLOCATION FUND PORTFOLIO PERFORMANCE DISCUSSION -------------------------------------------------------------------------------- CLASS A SHARES COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN: Oppenheimer Portfolio Series: Active Allocation Fund (Class A) S&P 500 Index Lehman Brothers Aggregate Bond Index [THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Oppenheimer Portfolio Series: Active Allocation Fund Lehman Brothers (Class A) S&P 500 Index Aggregate Bond Index 04/05/2005 $ 9,425 $ 10,000 $ 10,000 04/30/2005 $ 9,227 $ 9,810 $ 10,135 07/31/2005 $ 9,868 $ 10,514 $ 10,207 10/31/2005 $ 9,830 $ 10,327 $ 10,150 01/31/2006 $ 10,679 $ 11,005 $ 10,293 04/30/2006 $ 10,948 $ 11,322 $ 10,207 07/31/2006 $ 10,573 $ 11,079 $ 10,356 10/31/2006 $ 11,314 $ 12,013 $ 10,677 01/31/2007 $ 11,869 $ 12,603 $ 10,734
AVERAGE ANNUAL TOTAL RETURNS OF CLASS A SHARES WITH SALES CHARGE OF THE PORTFOLIO AT 1/31/07 1-Year 4.75% Since Inception (4/5/05) 9.86% 12 | ACTIVE ALLOCATION FUND CLASS B SHARES COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN: Oppenheimer Portfolio Series: Active Allocation Fund (Class B) S&P 500 Index Lehman Brothers Aggregate Bond Index [THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Oppenheimer Portfolio Series: Active Allocation Fund Lehman Brothers (Class B) S&P 500 Index Aggregate Bond Index 04/05/2005 $ 10,000 $ 10,000 $ 10,000 04/30/2005 $ 9,790 $ 9,810 $ 10,135 07/31/2005 $ 10,450 $ 10,514 $ 10,207 10/31/2005 $ 10,390 $ 10,327 $ 10,150 01/31/2006 $ 11,272 $ 11,005 $ 10,293 04/30/2006 $ 11,527 $ 11,322 $ 10,207 07/31/2006 $ 11,109 $ 11,079 $ 10,356 10/31/2006 $ 11,863 $ 12,013 $ 10,677 01/31/2007 $ 12,016 $ 12,603 $ 10,734
AVERAGE ANNUAL TOTAL RETURNS OF CLASS B SHARES WITH SALES CHARGE OF THE PORTFOLIO AT 1/31/07 1-Year 5.15% Since Inception (4/5/05) 10.60% THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE PORTFOLIO 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. PORTFOLIO 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 4% (SINCE INCEPTION); AND FOR CLASS C AND N SHARES, THE 1% CONTINGENT DEFERRED SALES CHARGE FOR THE 1-YEAR PERIOD. THERE IS NO SALES CHARGE FOR CLASS Y SHARES. SEE PAGE 17 FOR FURTHER INFORMATION. 13 | ACTIVE ALLOCATION FUND PORTFOLIO PERFORMANCE DISCUSSION -------------------------------------------------------------------------------- CLASS C SHARES COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN: Oppenheimer Portfolio Series: Active Allocation Fund (Class C) S&P 500 Index Lehman Brothers Aggregate Bond Index [THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Oppenheimer Portfolio Series: Active Allocation Fund Lehman Brothers (Class C) S&P 500 Index Aggregate Bond Index 04/05/2005 $ 10,000 $ 10,000 $ 10,000 04/30/2005 $ 9,780 $ 9,810 $ 10,135 07/31/2005 $ 10,440 $ 10,514 $ 10,207 10/31/2005 $ 10,380 $ 10,327 $ 10,150 01/31/2006 $ 11,266 $ 11,005 $ 10,293 04/30/2006 $ 11,520 $ 11,322 $ 10,207 07/31/2006 $ 11,103 $ 11,079 $ 10,356 10/31/2006 $ 11,856 $ 12,013 $ 10,677 01/31/2007 $ 12,416 $ 12,603 $ 10,734
AVERAGE ANNUAL TOTAL RETURNS OF CLASS C SHARES WITH SALES CHARGE OF THE PORTFOLIO AT 1/31/07 1-Year 9.21% Since Inception (4/5/05) 12.61% 14 | ACTIVE ALLOCATION FUND CLASS N SHARES COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN: Oppenheimer Portfolio Series: Active Allocation Fund (Class N) S&P 500 Index Lehman Brothers Aggregate Bond Index [THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Oppenheimer Portfolio Series: Active Allocation Fund Lehman Brothers (Class N) S&P 500 Index Aggregate Bond Index 04/05/2005 $ 10,000 $ 10,000 $ 10,000 04/30/2005 $ 9,790 $ 9,810 $ 10,135 07/31/2005 $ 10,460 $ 10,514 $ 10,207 10/31/2005 $ 10,410 $ 10,327 $ 10,150 01/31/2006 $ 11,318 $ 11,005 $ 10,293 04/30/2006 $ 11,593 $ 11,322 $ 10,207 07/31/2006 $ 11,185 $ 11,079 $ 10,356 10/31/2006 $ 11,961 $ 12,013 $ 10,677 01/31/2007 $ 12,549 $ 12,603 $ 10,734
AVERAGE ANNUAL TOTAL RETURNS OF CLASS N SHARES WITH SALES CHARGE OF THE PORTFOLIO AT 1/31/07 1-Year 9.88% Since Inception (4/5/05) 13.27% THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE PORTFOLIO 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. PORTFOLIO 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 4% (SINCE INCEPTION); AND FOR CLASS C AND N SHARES, THE 1% CONTINGENT DEFERRED SALES CHARGE FOR THE 1-YEAR PERIOD. THERE IS NO SALES CHARGE FOR CLASS Y SHARES. SEE PAGE 17 FOR FURTHER INFORMATION. 15 | ACTIVE ALLOCATION FUND PORTFOLIO PERFORMANCE DISCUSSION -------------------------------------------------------------------------------- CLASS Y SHARES COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN: Oppenheimer Portfolio Series: Active Allocation Fund (Class Y) S&P 500 Index Lehman Brothers Aggregate Bond Index [THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Oppenheimer Portfolio Series: Active Allocation Fund Lehman Brothers (Class Y) S&P 500 Index Aggregate Bond Index 04/05/2005 $ 10,000 $ 10,000 $ 10,000 04/30/2005 $ 9,790 $ 9,810 $ 10,135 07/31/2005 $ 10,490 $ 10,514 $ 10,207 10/31/2005 $ 10,450 $ 10,327 $ 10,150 01/31/2006 $ 11,372 $ 11,005 $ 10,293 04/30/2006 $ 11,668 $ 11,322 $ 10,207 07/31/2006 $ 11,280 $ 11,079 $ 10,356 10/31/2006 $ 12,077 $ 12,013 $ 10,677 01/31/2007 $ 12,687 $ 12,603 $ 10,734
AVERAGE ANNUAL TOTAL RETURNS OF CLASS Y SHARES OF THE PORTFOLIO AT 1/31/07 1-Year 11.56% Since Inception (4/5/05) 13.95% THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE PORTFOLIO 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. PORTFOLIO 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 4% (SINCE INCEPTION); AND FOR CLASS C AND N SHARES, THE 1% CONTINGENT DEFERRED SALES CHARGE FOR THE 1-YEAR PERIOD. THERE IS NO SALES CHARGE FOR CLASS Y SHARES. SEE PAGE 17 FOR FURTHER INFORMATION. 16 | ACTIVE ALLOCATION FUND NOTES -------------------------------------------------------------------------------- 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 Portfolio'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 Portfolio or any gains you may realize if you sell your shares. INVESTORS SHOULD CONSIDER THE PORTFOLIO'S INVESTMENT OBJECTIVES, RISKS, AND OTHER CHARGES AND EXPENSES CAREFULLY BEFORE INVESTING. THE PORTFOLIO'S PROSPECTUS CONTAINS THIS AND OTHER INFORMATION ABOUT THE PORTFOLIO, 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 Portfolio'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 Portfolio were first publicly offered on 4/5/05. Unless otherwise noted, Class A returns include the maximum initial sales charge of 5.75%. CLASS B shares of the Portfolio were first publicly offered on 4/5/05. Unless otherwise noted, Class B returns include the applicable contingent deferred sales charge of 5% (1-year) and 4% (since inception). Class B shares are subject to an annual 0.75% asset-based sales charge. CLASS C shares of the Portfolio were first publicly offered on 4/5/05. Unless otherwise noted, 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. CLASS N shares of the Portfolio were first publicly offered on 4/5/05. 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. CLASS Y shares of the Portfolio were first publicly offered on 4/5/05. Class Y shares are offered only to certain institutional investors under special agreements with the Distributor. An explanation of the calculation of performance is in the Portfolio's Statement of Additional Information. 17 | ACTIVE ALLOCATION FUND PORTFOLIO EXPENSES -------------------------------------------------------------------------------- PORTFOLIO EXPENSES. As a shareholder of the Portfolio, 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 Portfolio expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio 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 January 31, 2007. 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 Portfolio'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 Portfolio'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 Portfolio 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 18 | ACTIVE ALLOCATION FUND 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 (8/1/06) (1/31/07) JANUARY 31, 2007 -------------------------------------------------------------------------------- Class A Actual $ 1,000.00 $ 1,122.50 $ 2.73 -------------------------------------------------------------------------------- Class A Hypothetical 1,000.00 1,022.63 2.60 -------------------------------------------------------------------------------- Class B Actual 1,000.00 1,117.60 6.91 -------------------------------------------------------------------------------- Class B Hypothetical 1,000.00 1,018.70 6.58 -------------------------------------------------------------------------------- Class C Actual 1,000.00 1,118.30 6.80 -------------------------------------------------------------------------------- Class C Hypothetical 1,000.00 1,018.80 6.48 -------------------------------------------------------------------------------- Class N Actual 1,000.00 1,122.00 3.75 -------------------------------------------------------------------------------- Class N Hypothetical 1,000.00 1,021.68 3.57 -------------------------------------------------------------------------------- Class Y Actual 1,000.00 1,124.70 0.59 -------------------------------------------------------------------------------- Class Y Hypothetical 1,000.00 1,024.65 0.56 Hypothetical assumes 5% annual return before expenses. Expenses are equal to the Portfolio'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 all underlying fund expenses, based on the 6-month period ended January 31, 2007 are as follows: CLASS EXPENSE RATIOS ------------------------------------ Class A 0.51% ------------------------------------ Class B 1.29 ------------------------------------ Class C 1.27 ------------------------------------ Class N 0.70 ------------------------------------ Class Y 0.11 The expense ratios reflect voluntary waivers or reimbursements of expenses by the Portfolio's Manager that can be terminated at any time, without advance notice. The "Financial Highlights" tables in the Portfolio's financial statements, included in this report, also show the gross expense ratios, without such waivers or reimbursements. -------------------------------------------------------------------------------- 19 | ACTIVE ALLOCATION FUND STATEMENT OF INVESTMENTS January 31, 2007 --------------------------------------------------------------------------------
VALUE SHARES SEE NOTE 1 ------------------------------------------------------------------------------------------- INVESTMENTS IN AFFILIATED COMPANIES--99.5% 1 ------------------------------------------------------------------------------------------- ALTERNATIVE INVESTMENT--6.2% Oppenheimer Real Estate Fund, Cl. Y 4,290,964 $ 114,397,122 ------------------------------------------------------------------------------------------- FIXED INCOME--23.4% Oppenheimer Champion Income Fund, Cl. Y 3,973,401 38,065,182 ------------------------------------------------------------------------------------------- Oppenheimer Core Bond Fund, Cl. Y 17,144,429 174,530,294 ------------------------------------------------------------------------------------------- Oppenheimer International Bond Fund, Cl. Y 2,779,230 16,480,832 ------------------------------------------------------------------------------------------- Oppenheimer Strategic Income Fund, Cl. Y 41,051,737 174,880,398 ------------------------------------------------------------------------------------------- Oppenheimer U.S. Government Trust, Cl. Y 3,000,034 28,260,323 ---------------- 432,217,029 ------------------------------------------------------------------------------------------- GLOBAL EQUITY--20.1% Oppenheimer Developing Markets Fund, Cl. Y 366,377 14,962,836 ------------------------------------------------------------------------------------------- Oppenheimer Global Fund, Cl. Y 2,405,097 179,444,278 ------------------------------------------------------------------------------------------- Oppenheimer Global Opportunities Fund, Cl. Y 2,450,325 89,804,395 ------------------------------------------------------------------------------------------- Oppenheimer International Growth Fund, Cl. Y 1,566,542 44,364,461 ------------------------------------------------------------------------------------------- Oppenheimer International Small Company Fund, Cl. Y 558,527 15,069,057 ------------------------------------------------------------------------------------------- Oppenheimer Quest International Value Fund, Inc., Cl. A 1,270,789 28,224,216 ---------------- 371,869,243 ------------------------------------------------------------------------------------------- U.S. EQUITY--49.5% Oppenheimer Capital Appreciation Fund, Cl. Y 2 5,035,770 245,040,531 ------------------------------------------------------------------------------------------- Oppenheimer Main Street Fund, Cl. Y 4,361,432 180,650,507 ------------------------------------------------------------------------------------------- Oppenheimer Main Street Opportunity Fund, Cl. Y 6,480,652 98,570,721 ------------------------------------------------------------------------------------------- Oppenheimer Main Street Small Cap Fund, Cl. Y 4,007,613 94,900,278 ------------------------------------------------------------------------------------------- Oppenheimer Small- & Mid- Cap Value Fund, Cl. Y 762,924 29,235,233 ------------------------------------------------------------------------------------------- Oppenheimer Value Fund, Cl. Y 9,865,588 268,146,693 ---------------- 916,543,963 ------------------------------------------------------------------------------------------- MONEY MARKET FUND--0.3% Oppenheimer Institutional Money Market Fund, Cl. E, 5.35% 3 6,349,533 6,349,533 ------------------------------------------------------------------------------------------- TOTAL INVESTMENTS, AT VALUE (COST $1,725,106,789) 99.5% 1,841,376,890 ------------------------------------------------------------------------------------------- OTHER ASSETS NET OF LIABILITIES 0.5 9,308,861 ----------------------------- NET ASSETS 100.0% $ 1,850,685,751 =============================
20 | ACTIVE ALLOCATION FUND FOOTNOTES TO STATEMENT OF INVESTMENTS 1. Is or was an affiliate, as defined in the Investment Company Act of 1940, at or during the period ended January 31, 2007 by virtue of the Portfolio owning at least 5% of the voting securities of the issuer or as a result of the Portfolio and the issuer having the same investment advisor. Transactions during the period in which the issuer was an affiliate are as follows:
SHARES GROSS GROSS SHARES JAN. 31, 2006 ADDITIONS REDUCTIONS JAN. 31, 2007 ------------------------------------------------------------------------------------------------------------------------ Oppenheimer Capital Appreciation Fund, Cl. Y 1,206,388 3,940,179 110,797 5,035,770 Oppenheimer Champion Income Fund, CI. Y -- 4,016,113 a 42,712 3,973,401 Oppenheimer Core Bond Fund, Cl. Y 5,106,446 14,435,409 2,397,426 17,144,429 Oppenheimer Commodity Strategy Total Return Fund, Cl.Y 3,273,185 1,528,500 4,801,685 -- Oppenheimer Developing Markets Fund, Cl. Y 735,369 627,112 996,104 366,377 Oppenheimer Global Fund, Cl. Y 817,108 1,711,507 123,518 2,405,097 Oppenheimer Global Opportunities Fund, Cl. Y 771,757 1,700,456 21,888 2,450,325 Oppenheimer High Yield Fund, Cl. Y -- 3,212,815 3,212,815 -- Oppenheimer Institutional Money Market Fund, Cl. E, 5.35% -- 55,347,770 48,998,237 6,349,533 Oppenheimer International Bond Fund, Cl. Y -- 2,826,079 46,849 2,779,230 Oppenheimer International Growth Fund, Cl. Y -- 5,307,789 3,741,247 1,566,542 Oppenheimer International Small Company Fund, Cl. Y 1,296,021 1,395,685 2,133,179 558,527 Oppenheimer Main Street Fund, Cl. Y 1,422,021 3,054,812 115,401 4,361,432 Oppenheimer Main Street Opportunity Fund, Cl. Y 1,943,920 4,584,594 47,862 6,480,652 Oppenheimer Main Street Small Cap Fund, Cl. Y 1,258,510 2,798,723 49,620 4,007,613 Oppenheimer Quest International Value Fund, Inc., Cl. A -- 4,142,780 2,871,991 1,270,789 Oppenheimer Real Estate Fund, Cl. Y 1,403,079 2,919,127 31,242 4,290,964 Oppenheimer Small- & Mid- Cap Value Fund, Cl. Y -- 774,860 11,936 762,924 Oppenheimer Strategic Income Fund, Cl. Y 12,557,766 28,830,059 336,088 41,051,737 Oppenheimer U.S. Government Trust, Cl. Y 2,764,889 5,067,407 4,832,262 3,000,034 Oppenheimer Value Fund, Cl. Y 2,210,413 11,655,581 4,000,406 9,865,588
VALUE DIVIDEND REALIZED SEE NOTE 1 INCOME GAIN (LOSS) ------------------------------------------------------------------------------------------------------------------------ Oppenheimer Capital Appreciation Fund, Cl. Y $ 245,040,531 $ -- $ (22,587) Oppenheimer Champion Income Fund, CI. Y 38,065,182 745,915 b (16) Oppenheimer Core Bond Fund, Cl. Y 174,530,294 6,357,289 b (807,105) Oppenheimer Commodity Strategy Total Return Fund, Cl. Y -- 194,036 b (795,037) Oppenheimer Developing Markets Fund, Cl. Y 14,962,836 459,594 b 3,506,348 Oppenheimer Global Fund, Cl. Y 179,444,278 2,313,737 b 61,146 Oppenheimer Global Opportunities Fund, Cl. Y 89,804,395 6,104,016 b (53,943) Oppenheimer High Yield Fund, Cl. Y -- 625,415 b (2,637) Oppenheimer Institutional Money Market Fund, Cl. E, 5.35% 6,349,533 65,979 -- Oppenheimer International Bond Fund, Cl. Y 16,480,832 287,999 b (2,638) Oppenheimer International Growth Fund, Cl. Y 44,364,461 466,953 b (2,775,829) Oppenheimer International Small Company Fund, Cl. Y 15,069,057 273,764 b 727,823 Oppenheimer Main Street Fund, Cl. Y 180,650,507 2,049,777 b (9,636) Oppenheimer Main Street Opportunity Fund, Cl. Y 98,570,721 2,665,228 b (12,064) Oppenheimer Main Street Small Cap Fund, Cl. Y 94,900,278 1,692,596 b (31,539) Oppenheimer Quest International Value Fund, Inc., Cl. A 28,224,216 944,545 b 2,210,540 Oppenheimer Real Estate Fund, Cl. Y 114,397,122 4,107,218 b (23,640) Oppenheimer Small- & Mid- Cap Value Fund, Cl. Y 29,235,233 736,822 b (13,088) Oppenheimer Strategic Income Fund, Cl. Y 174,880,398 6,146,225 b (43,749) Oppenheimer U.S. Government Trust, Cl. Y 28,260,323 850,588 b (524,723) Oppenheimer Value Fund, Cl. Y 268,146,693 4,853,831 b (209,697) --------------------------------------------- $1,841,376,890 $41,941,527 $ 1,177,929 =============================================
a Received 3,160,989 shares as the result of the acquisition of Oppenheimer High Yield Fund. b All or portion of the transactions were the result of a reinvestment of dividends. 2. Non-income producing security. 3. Rate shown is the 7-day yield as of January 31, 2007. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 21 | ACTIVE ALLOCATION FUND STATEMENT OF ASSETS AND LIABILITIES January 31, 2007 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- ASSETS -------------------------------------------------------------------------------- Investments, at value--see accompanying statement of investment--Affiliated companies (cost $1,725,106,789) $ 1,841,376,890 -------------------------------------------------------------------------------- Cash 82,074 -------------------------------------------------------------------------------- Cash used for collateral on futures 1,455,226 -------------------------------------------------------------------------------- Unrealized appreciation on swap contracts 71,607 -------------------------------------------------------------------------------- Receivables and other assets: Shares of beneficial interest sold 14,355,365 Interest and dividends 1,309,510 Investments sold 637,430 Futures margins 68,680 Other 22,510 ---------------- Total assets 1,859,379,292 -------------------------------------------------------------------------------- LIABILITIES -------------------------------------------------------------------------------- Unrealized depreciation on swap contracts 152,060 -------------------------------------------------------------------------------- Payables and other liabilities: Investments purchased 6,471,197 Shares of beneficial interest redeemed 1,295,097 Distribution and service plan fees 368,252 Transfer and shareholder servicing agent fees 175,135 Trustees' compensation 93,187 Shareholder communications 86,043 Other 52,570 ---------------- Total liabilities 8,693,541 -------------------------------------------------------------------------------- NET ASSETS $ 1,850,685,751 ================ -------------------------------------------------------------------------------- COMPOSITION OF NET ASSETS -------------------------------------------------------------------------------- Par value of shares of beneficial interest $ 154,079 -------------------------------------------------------------------------------- Additional paid-in capital 1,707,967,526 -------------------------------------------------------------------------------- Accumulated net investment income 2,861,582 -------------------------------------------------------------------------------- Accumulated net realized gain on investments 22,413,507 -------------------------------------------------------------------------------- Net unrealized appreciation on investments 117,289,057 ---------------- NET ASSETS $ 1,850,685,751 ================ 22 | ACTIVE ALLOCATION FUND -------------------------------------------------------------------------------- NET ASSET VALUE PER SHARE -------------------------------------------------------------------------------- Class A Shares: Net asset value and redemption price per share (based on net assets of $956,519,613 and 79,393,209 shares of beneficial interest outstanding) $ 12.05 Maximum offering price per share (net asset value plus sales charge of 5.75% of offering price) $ 12.79 -------------------------------------------------------------------------------- Class B Shares: Net asset value, redemption price (excludes applicable contingent deferred sales charge) and offering price per share (based on net assets of $349,024,430 and 29,151,150 shares of beneficial interest outstanding) $ 11.97 -------------------------------------------------------------------------------- Class C Shares: Net asset value, redemption price (excludes applicable contingent deferred sales charge) and offering price per share (based on net assets of $433,213,171 and 36,221,676 shares of beneficial interest outstanding) $ 11.96 -------------------------------------------------------------------------------- Class N Shares: Net asset value, redemption price (excludes applicable contingent deferred sales charge) and offering price per share (based on net assets of $109,145,668 and 9,083,217 shares of beneficial interest outstanding) $ 12.02 -------------------------------------------------------------------------------- Class Y Shares: Net asset value, redemption price and offering price per share (based on net assets of $2,782,869 and 230,075 shares of beneficial interest outstanding) $ 12.10 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 23 | ACTIVE ALLOCATION FUND STATEMENT OF OPERATIONS For the Year Ended January 31, 2007 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- INVESTMENT INCOME -------------------------------------------------------------------------------- Dividends from affiliated companies $ 41,941,527 -------------------------------------------------------------------------------- Interest 198,791 -------------------------------------------------------------------------------- Other income 3,353 -------------- Total investment income 42,143,671 -------------------------------------------------------------------------------- EXPENSES -------------------------------------------------------------------------------- Distribution and service plan fees: Class A 1,502,817 Class B 2,287,115 Class C 2,711,958 Class N 313,696 -------------------------------------------------------------------------------- Transfer and shareholder servicing agent fees: Class A 739,555 Class B 349,911 Class C 365,147 Class N 50,929 Class Y 73 -------------------------------------------------------------------------------- Shareholder communications: Class A 130,291 Class B 70,468 Class C 59,199 Class N 4,609 -------------------------------------------------------------------------------- Asset allocation fees 1,167,638 -------------------------------------------------------------------------------- Trustees' compensation 95,556 -------------------------------------------------------------------------------- Custodian fees and expenses 5,092 -------------------------------------------------------------------------------- Other 60,136 -------------- Total expenses 9,914,190 Less reduction to custodian expenses (270) Less waivers and reimbursements of expenses (40,776) -------------- Net expenses 9,873,144 -------------------------------------------------------------------------------- NET INVESTMENT INCOME 32,270,527 24 | ACTIVE ALLOCATION FUND -------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) -------------------------------------------------------------------------------- Net realized gain (loss) on investments: Affiliated companies $ 1,177,929 Distributions received from affiliated companies 31,989,767 Closing and expiration of futures contracts (7,123,542) Swap contracts 658,034 -------------- Net realized gain 26,702,188 -------------------------------------------------------------------------------- Net change in unrealized appreciation (depreciation) on: Investments 93,167,482 Futures contracts 1,099,409 Swap contracts (80,453) -------------- Net change in unrealized appreciation 94,186,438 -------------------------------------------------------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 153,159,153 ============== SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 25 | ACTIVE ALLOCATION FUND STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------------------------------------------
YEAR ENDED JANUARY 31, 2007 2006 1 ------------------------------------------------------------------------------------------------------------- OPERATIONS -------------------------------------------------------------------------------------------------------------- Net investment income $ 32,270,527 $ 8,127,024 -------------------------------------------------------------------------------------------------------------- Net realized gain 26,702,188 5,393,678 -------------------------------------------------------------------------------------------------------------- Net change in unrealized appreciation 94,186,438 23,102,619 -------------------------------- Net increase in net assets resulting from operations 153,159,153 36,623,321 -------------------------------------------------------------------------------------------------------------- DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS -------------------------------------------------------------------------------------------------------------- Dividends from net investment income: Class A (17,134,058) (4,500,051) Class B (4,713,190) (1,549,890) Class C (5,972,851) (1,619,117) Class N (1,888,584) (414,437) Class Y (50,117) (6,386) -------------------------------- (29,758,800) (8,089,881) -------------------------------------------------------------------------------------------------------------- Distributions from net realized gain: Class A (3,316,909) (376,546) Class B (1,236,698) (149,661) Class C (1,515,292) (153,460) Class N (381,215) (35,176) Class Y (8,618) (507) -------------------------------- (6,458,732) (715,350) -------------------------------------------------------------------------------------------------------------- BENEFICIAL INTEREST TRANSACTIONS -------------------------------------------------------------------------------------------------------------- Net increase in net assets resulting from beneficial interest transactions: Class A 602,241,849 278,869,967 Class B 210,888,833 109,728,240 Class C 280,476,657 119,590,827 Class N 74,350,364 27,088,823 Class Y 2,130,523 455,957 -------------------------------- 1,170,088,226 535,733,814 -------------------------------------------------------------------------------------------------------------- NET ASSETS -------------------------------------------------------------------------------------------------------------- Total increase 1,287,029,847 563,551,904 -------------------------------------------------------------------------------------------------------------- Beginning of period 563,655,904 104,000 2 -------------------------------- End of period (including accumulated net investment income of $2,861,582 and $53,764, respectively) $1,850,685,751 $ 563,655,904 ================================
1. For the period from April 5, 2005 (commencement of operations) to January 31, 2006. 2. Reflects the value of the Manager's initial seed money investment on March 15, 2005. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 26 | ACTIVE ALLOCATION FUND FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
CLASS A YEAR ENDED JANUARY 31, 2007 2006 1 ---------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING DATA ---------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 11.10 $ 10.00 ---------------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income 2 .35 .43 Net realized and unrealized gain .89 .89 ----------------------------------- Total from investment operations 1.24 1.32 ---------------------------------------------------------------------------------------------------------------- Dividends and/or distributions to shareholders: Dividends from net investment income (.24) (.20) Distributions from net realized gain (.05) (.02) ----------------------------------- Total dividends and/or distributions to shareholders (.29) (.22) ---------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 12.05 $ 11.10 =================================== ---------------------------------------------------------------------------------------------------------------- TOTAL RETURN, AT NET ASSET VALUE 3 11.14% 13.31% ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA ---------------------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $ 956,520 $ 293,578 ---------------------------------------------------------------------------------------------------------------- Average net assets (in thousands) $ 605,517 $ 112,224 ---------------------------------------------------------------------------------------------------------------- Ratios to average net assets: 4 Net investment income 3.10% 4.94% Total expenses 5 0.51% 0.56% Expenses after waivers and reimbursements and reduction to custodian expenses 0.50% 0.55% ---------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 40% 90%
1. For the period from April 5, 2005 (commencement of operations) to January 31, 2006. 2. Per share amounts calculated based on the average shares outstanding during the period. 3. Assumes an investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Sales charges are not reflected in the total returns. Total returns are not annualized for periods of less than one full year. Returns do not reflect the deduction of taxes that a shareholder would pay on portfolio distributions or the redemption of portfolio shares. 4. Annualized for periods of less than one full year. 5. Expenses including all underlying fund expenses were as follows: Year Ended January 31, 2007 1.16% Period Ended January 31, 2006 1.28 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 27 | ACTIVE ALLOCATION FUND FINANCIAL HIGHLIGHTS Continued --------------------------------------------------------------------------------
CLASS B YEAR ENDED JANUARY 31, 2007 2006 1 ---------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING DATA ---------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 11.07 $ 10.00 ---------------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income 2 .26 .36 Net realized and unrealized gain .86 .91 ----------------------------------- Total from investment operations 1.12 1.27 ---------------------------------------------------------------------------------------------------------------- Dividends and/or distributions to shareholders: Dividends from net investment income (.17) (.18) Distributions from net realized gain (.05) (.02) ----------------------------------- Total dividends and/or distributions to shareholders (.22) (.20) ---------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 11.97 $ 11.07 =================================== ---------------------------------------------------------------------------------------------------------------- TOTAL RETURN, AT NET ASSET VALUE 3 10.15% 12.72% ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA ---------------------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $ 349,024 $ 115,629 ---------------------------------------------------------------------------------------------------------------- Average net assets (in thousands) $ 229,365 $ 46,284 ---------------------------------------------------------------------------------------------------------------- Ratios to average net assets: 4 Net investment income 2.26% 4.06% Total expenses 5 1.29% 1.37% Expenses after waivers and reimbursements and reduction to custodian expenses 1.29% 1.34% ---------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 40% 90%
1. For the period from April 5, 2005 (commencement of operations) to January 31, 2006. 2. Per share amounts calculated based on the average shares outstanding during the period. 3. Assumes an investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Sales charges are not reflected in the total returns. Total returns are not annualized for periods of less than one full year. Returns do not reflect the deduction of taxes that a shareholder would pay on portfolio distributions or the redemption of portfolio shares. 4. Annualized for periods of less than one full year. 5. Expenses including all underlying fund expenses were as follows: Year Ended January 31, 2007 1.94% Period Ended January 31, 2006 2.09 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 28 | ACTIVE ALLOCATION FUND
CLASS C YEAR ENDED JANUARY 31, 2007 2006 1 ---------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING DATA ---------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 11.06 $ 10.00 ---------------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income 2 .27 .37 Net realized and unrealized gain .86 .89 ----------------------------------- Total from investment operations 1.13 1.26 ---------------------------------------------------------------------------------------------------------------- Dividends and/or distributions to shareholders: Dividends from net investment income (.18) (.18) Distributions from net realized gain (.05) (.02) ----------------------------------- Total dividends and/or distributions to shareholders (.23) (.20) ---------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 11.96 $ 11.06 =================================== ---------------------------------------------------------------------------------------------------------------- TOTAL RETURN, AT NET ASSET VALUE 3 10.21% 12.66% ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA ---------------------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $ 433,213 $ 125,622 ---------------------------------------------------------------------------------------------------------------- Average net assets (in thousands) $ 272,038 $ 45,647 ---------------------------------------------------------------------------------------------------------------- Ratios to average net assets: 4 Net investment income 2.34% 4.18% Total expenses 5 1.27% 1.33% Expenses after waivers and reimbursements and reduction to custodian expenses 1.26% 1.31% ---------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 40% 90%
1. For the period from April 5, 2005 (commencement of operations) to January 31, 2006. 2. Per share amounts calculated based on the average shares outstanding during the period. 3. Assumes an investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Sales charges are not reflected in the total returns. Total returns are not annualized for periods of less than one full year. Returns do not reflect the deduction of taxes that a shareholder would pay on portfolio distributions or the redemption of portfolio shares. 4. Annualized for periods of less than one full year. 5. Expenses including all underlying fund expenses were as follows: Year Ended January 31, 2007 1.92% Period Ended January 31, 2006 2.05 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 29 | ACTIVE ALLOCATION FUND FINANCIAL HIGHLIGHTS Continued --------------------------------------------------------------------------------
CLASS N YEAR ENDED JANUARY 31, 2007 2006 1 ---------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING DATA ---------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 11.09 $ 10.00 ---------------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income 2 .35 .46 Net realized and unrealized gain .86 .85 ----------------------------------- Total from investment operations 1.21 1.31 ---------------------------------------------------------------------------------------------------------------- Dividends and/or distributions to shareholders: Dividends from net investment income (.23) (.20) Distributions from net realized gain (.05) (.02) ----------------------------------- Total dividends and/or distributions to shareholders (.28) (.22) ---------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 12.02 $ 11.09 =================================== ---------------------------------------------------------------------------------------------------------------- TOTAL RETURN, AT NET ASSET VALUE 3 10.88% 13.18% ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA ---------------------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $ 109,146 $ 28,345 ---------------------------------------------------------------------------------------------------------------- Average net assets (in thousands) $ 62,929 $ 9,156 ---------------------------------------------------------------------------------------------------------------- Ratios to average net assets: 4 Net investment income 3.07% 5.28% Total expenses 5 0.70% 0.73% Expenses after waivers and reimbursements and reduction to custodian expenses 0.70% 0.72% ---------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 40% 90%
1. For the period from April 5, 2005 (commencement of operations) to January 31, 2006. 2. Per share amounts calculated based on the average shares outstanding during the period. 3. Assumes an investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Sales charges are not reflected in the total returns. Total returns are not annualized for periods of less than one full year. Returns do not reflect the deduction of taxes that a shareholder would pay on portfolio distributions or the redemption of portfolio shares. 4. Annualized for periods of less than one full year. 5. Expenses including all underlying fund expenses were as follows: Year Ended January 31, 2007 1.35% Period Ended January 31, 2006 1.45 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 30 | ACTIVE ALLOCATION FUND
CLASS Y YEAR ENDED JANUARY 31, 2007 2006 1 ---------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING DATA ---------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 11.13 $ 10.00 ---------------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income 2 .44 .39 Net realized and unrealized gain .85 .97 ----------------------------------- Total from investment operations 1.29 1.36 ---------------------------------------------------------------------------------------------------------------- Dividends and/or distributions to shareholders: Dividends from net investment income (.27) (.21) Distributions from net realized gain (.05) (.02) ----------------------------------- Total dividends and/or distributions to shareholders (.32) (.23) ---------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 12.10 $ 11.13 =================================== ---------------------------------------------------------------------------------------------------------------- TOTAL RETURN, AT NET ASSET VALUE 3 11.56% 13.72% ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA ---------------------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $ 2,783 $ 482 ---------------------------------------------------------------------------------------------------------------- Average net assets (in thousands) $ 1,317 $ 196 ---------------------------------------------------------------------------------------------------------------- Ratios to average net assets: 4 Net investment income 3.79% 4.44% Total expenses 5 0.11% 0.33% Expenses after waivers and reimbursements and reduction to custodian expenses 0.11% 0.21% ---------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 40% 90%
1. For the period from April 5, 2005 (commencement of operations) to January 31, 2006. 2. Per share amounts calculated based on the average shares outstanding during the period. 3. Assumes an investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Sales charges are not reflected in the total returns. Total returns are not annualized for periods of less than one full year. Returns do not reflect the deduction of taxes that a shareholder would pay on portfolio distributions or the redemption of portfolio shares. 4. Annualized for periods of less than one full year. 5. Expenses including all underlying fund expenses were as follows: Year Ended January 31, 2007 0.76% Period Ended January 31, 2006 1.05 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 31 | ACTIVE ALLOCATION FUND NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 1. SIGNIFICANT ACCOUNTING POLICIES Oppenheimer Portfolio Series (the "Fund") is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. Active Allocation Fund (the "Portfolio") is a series of the Fund whose investment objective is to seek long term growth of capital with a secondary objective of current income. The Portfolio is a special type of mutual fund known as a "fund of funds" because it invests in other mutual funds. The Portfolio normally invests in a portfolio consisting of a target weighted allocation in Class A or Class Y shares of other Oppenheimer funds. The Fund's investment advisor is OppenheimerFunds, Inc. (the "Manager"). The Portfolio offers Class A, Class B, Class C, Class N and Class Y shares. Class A shares are sold at their offering price, which is normally net asset value plus a front-end sales charge. Class B, Class C and Class N shares are sold without a front-end sales charge but may be subject to a contingent deferred sales charge (CDSC). Class N shares are sold only through retirement plans. Retirement plans that offer Class N shares may impose charges on those accounts. Class Y shares are sold to certain institutional investors without either a front-end sales charge or a CDSC, however, the institutional investor may impose charges on those accounts. All classes of shares have identical rights and voting privileges with respect to the Portfolio in general and exclusive voting rights on matters that affect that class alone. Earnings, net assets and net asset value per share may differ due to each class having its own expenses, such as transfer and shareholder servicing agent fees and shareholder communications, directly attributable to that class. Class A, B, C and N have separate distribution and/or service plans. No such plan has been adopted for Class Y shares. Class B shares will automatically convert to Class A shares six years after the date of purchase. Under normal market conditions, the Manager will invest the Portfolio's assets in shares of Oppenheimer Core Bond Fund, Oppenheimer Capital Appreciation Fund, Oppenheimer Global Fund, Oppenheimer Global Opportunities Fund, Oppenheimer Main Street Fund(R), Oppenheimer Main Street Opportunity Fund(R), Oppenheimer Main Street Small Cap Fund(R), Oppenheimer Real Estate Fund, Oppenheimer Strategic Income Fund, Oppenheimer Value Fund and Oppenheimer Institutional Money Market Fund (individually, an "Underlying Fund" and collectively, the "Underlying Funds"). In addition, up to 20% of the Portfolio's net assets may be invested according to a tactical allocation among up to four Oppenheimer funds, which are also considered Underlying Funds, or money market securities based on recommendations made by the Manager. Oppenheimer Funds: Oppenheimer Capital Appreciation Fund Oppenheimer Core Bond Fund Oppenheimer Champion Income Fund Oppenheimer Developing Markets Fund Oppenheimer Discovery Fund Oppenheimer Gold & Special Minerals Fund Oppenheimer Growth Fund 32 | ACTIVE ALLOCATION FUND Oppenheimer International Bond Fund Oppenheimer International Growth Fund Oppenheimer International Small Company Fund Oppenheimer Limited-Term Government Fund Oppenheimer MidCap Fund Oppenheimer Money Market Fund, Inc. Oppenheimer Quest International Value Fund, Inc. Oppenheimer Commodity Strategy Total Return Fund(R) Oppenheimer Small- & Mid- Cap Value Fund Oppenheimer U.S. Government Trust Oppenheimer Value Fund The following is a summary of significant accounting policies consistently followed by the Portfolio. -------------------------------------------------------------------------------- SECURITIES VALUATION. The Portfolio calculates the net asset value of each class of shares based upon the net asset value of the applicable Underlying Fund 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 trading. For each Underlying Fund, the net asset value per share for a class of shares on a "regular business day" is determined by dividing the value of the Underlying Fund's net assets attributable to that class by the number of shares of that class outstanding on that day. To determine net asset values, the Underlying Fund assets are valued primarily on the basis of current market quotations. If market quotations are not readily available or do not accurately reflect fair value for a security (in the Manager's judgment) or if a security's value has been materially affected by events occurring after the close of the exchange or market on which the security is principally traded, that security may be valued by another method that the Underlying Fund's Board of Trustees/Directors believes accurately reflects the fair value. Because some foreign securities trade in markets and on exchanges that operate on weekends and U.S. holidays, the values of some of the Underlying Fund's foreign investments may change on days when investors cannot buy or redeem Underlying Fund shares. Short-term "money market type" debt securities with remaining maturities of sixty days or less are valued at amortized cost (which approximates market value). -------------------------------------------------------------------------------- RISKS OF INVESTING IN THE UNDERLYING FUNDS. Each of the Underlying Funds in which the Portfolio invests has its own investment risks, and those risks can affect the value of the Portfolio's investments and therefore the value of the Portfolio's shares. To the extent that the Portfolio invests more of its assets in one Underlying Fund than in another, the Portfolio will have greater exposure to the risks of that Underlying Fund. -------------------------------------------------------------------------------- INVESTMENT IN OPPENHEIMER INSTITUTIONAL MONEY MARKET FUND. The Portfolio is permitted to invest daily available cash balances in an affiliated money market fund. The Portfolio may invest 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 33 | ACTIVE ALLOCATION FUND NOTES TO FINANCIAL STATEMENTS Continued -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 1. SIGNIFICANT ACCOUNTING POLICIES Continued money market fund under the Investment Company Act of 1940, as amended. The Manager is also the investment advisor of IMMF. The Portfolio's investment in IMMF is included in the Statement of Investments. As a shareholder, the Portfolio is subject to its proportional share of IMMF's Class E expenses, including its management fee. The Manager will waive fees and/or reimburse Portfolio expenses in an amount equal to the indirect management fees incurred through the Portfolio's investment in IMMF. -------------------------------------------------------------------------------- INVESTMENTS WITH OFF BALANCE SHEET RISK. The Portfolio 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 Portfolio's Statement of Assets and Liabilities. -------------------------------------------------------------------------------- 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 Portfolio 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 Portfolio must satisfy under the income tax regulations, losses the Portfolio 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 OTHER UNDISTRIBUTED NET UNDISTRIBUTED ACCUMULATED LOSS INVESTMENTS FOR FEDERAL INVESTMENT INCOME LONG-TERM GAIN CARRYFORWARD 1,2 INCOME TAX PURPOSES ------------------------------------------------------------------------------- $2,923,904 $25,441,757 $-- $114,289,345 1. During the fiscal year ended January 31, 2007, the Portfolio did not utilize any capital loss carryforward. 2. During the fiscal year ended January 31, 2006, the Portfolio did not utilize any capital loss carryforward. 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 34 | ACTIVE ALLOCATION FUND 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 Portfolio. Accordingly, the following amounts have been reclassified for January 31, 2007. Net assets of the Portfolio were unaffected by the reclassifications. REDUCTION TO ACCUMULATED INCREASE TO NET REALIZED INCREASE TO ACCUMULATED NET GAIN ON PAID-IN CAPITAL INVESTMENT INCOME INVESTMENTS 3 ---------------------------------------------------------------- $1,706,263 $296,091 $2,002,354 3. $1,706,263, including $1,698,839 of long-term capital gain, was distributed in connection with Portfolio share redemptions. The tax character of distributions paid during the years ended January 31, 2007 and January 31, 2006 was as follows: YEAR ENDED PERIOD ENDED JANUARY 31, 2007 JANUARY 31, 2006 ---------------------------------------------------------------- Distributions paid from: Ordinary income $ 30,212,092 $ 8,805,231 Long-term capital gain 6,005,440 -- ------------------------------- Total $ 36,217,532 $ 8,805,231 =============================== 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 January 31, 2007 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 $ 1,727,146,806 Federal tax cost of other investments (38,581,222) ---------------- Total federal tax cost $ 1,688,565,584 ================ Gross unrealized appreciation $ 117,372,702 Gross unrealized depreciation (3,083,357) ---------------- Net unrealized appreciation $ 114,289,345 ================ -------------------------------------------------------------------------------- TRUSTEES' COMPENSATION. The Portfolio has adopted an unfunded retirement plan (the "Plan") for the Portfolio's independent trustees. Benefits are based on years of service and fees paid to each trustee during their period of service. The Plan was frozen with respect to adding new participants effective December 31, 2006 (the "Freeze Date") and existing Plan Participants as of the Freeze Date will continue to receive accrued benefits under the Plan. Active independent trustees as of the Freeze Date have each elected a distribution method with respect to their benefits under the Plan. During the year ended January 31, 2007, the Portfolio's projected benefit obligations were increased by $77,487 and payments 35 | ACTIVE ALLOCATION FUND NOTES TO FINANCIAL STATEMENTS Continued -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 1. SIGNIFICANT ACCOUNTING POLICIES Continued of $1,985 were made to retired trustees, resulting in an accumulated liability of $75,502 as of January 31, 2007. 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 Portfolio. 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 Portfolio or in other Oppenheimer funds selected by the Trustee. The Portfolio purchases shares of the funds selected for deferral by the Trustee in amounts equal to his or her deemed investment, resulting in a Portfolio asset equal to the deferred compensation liability. Such assets are included as a component of "Other" within the asset section of the Statement of Assets and Liabilities. Deferral of trustees' fees under the plan will not affect the net assets of the Portfolio, and will not materially affect the Portfolio's assets, liabilities or net investment income per share. Amounts will be deferred until distributed in accordance to the compensation deferral 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 and 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 Portfolio 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 Portfolio pays interest to its custodian on such cash overdrafts, to the extent they are not offset by positive cash balances maintained by the Portfolio, 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 Portfolio 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. 36 | ACTIVE ALLOCATION FUND -------------------------------------------------------------------------------- INDEMNIFICATIONS. The Portfolio'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 Portfolio. In the normal course of business, the Portfolio may also enter into contracts that provide general indemnifications. The Portfolio's maximum exposure under these arrangements is unknown as this would be dependent on future claims that may be made against the Portfolio. 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. -------------------------------------------------------------------------------- 2. SHARES OF BENEFICIAL INTEREST The Portfolio has authorized an unlimited number of $0.001 par value shares of beneficial interest of each class. Transactions in shares of beneficial interest were as follows:
YEAR ENDED JANUARY 31, 2007 PERIOD ENDED JANUARY 31, 2006 1,2 SHARES AMOUNT SHARES AMOUNT ----------------------------------------------------------------------------------------------- CLASS A Sold 57,596,220 $ 654,562,965 27,068,123 $ 285,660,045 Dividends and/or distributions reinvested 1,662,202 19,663,799 438,928 4,665,805 Redeemed (6,303,806) (71,984,915) (1,078,458) (11,455,883) ----------------------------------------------------------------- Net increase 52,954,616 $ 602,241,849 26,428,593 $ 278,869,967 ================================================================= ----------------------------------------------------------------------------------------------- CLASS B Sold 21,225,979 $ 239,218,008 10,764,936 $ 113,091,487 Dividends and/or distributions reinvested 490,803 5,771,900 154,655 1,639,339 Redeemed (3,014,115) (34,101,075) (471,208) (5,002,586) ----------------------------------------------------------------- Net increase 18,702,667 $ 210,888,833 10,448,383 $ 109,728,240 ================================================================= ----------------------------------------------------------------------------------------------- CLASS C Sold 27,543,050 $ 310,509,299 11,696,791 $ 123,196,995 Dividends and/or distributions reinvested 600,867 7,060,230 155,748 1,649,374 Redeemed (3,282,836) (37,092,872) (492,044) (5,255,542) ----------------------------------------------------------------- Net increase 24,861,081 $ 280,476,657 11,360,495 $ 119,590,827 ================================================================= ----------------------------------------------------------------------------------------------- CLASS N Sold 7,119,593 $ 81,030,208 2,664,849 $ 28,261,231 Dividends and/or distributions reinvested 176,954 2,088,058 42,051 446,165 Redeemed (769,703) (8,767,902) (150,627) (1,618,573) ----------------------------------------------------------------- Net increase 6,526,844 $ 74,350,364 2,556,273 $ 27,088,823 =================================================================
37 | ACTIVE ALLOCATION FUND NOTES TO FINANCIAL STATEMENTS Continued -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 2. SHARES OF BENEFICIAL INTEREST Continued
YEAR ENDED JANUARY 31, 2007 PERIOD ENDED JANUARY 31, 2006 1,2 SHARES AMOUNT SHARES AMOUNT ------------------------------------------------------------------------------------------- CLASS Y Sold 197,518 $ 2,248,494 54,640 $ 577,537 Dividends and/or distributions reinvested 4,945 58,703 645 6,870 Redeemed (15,653) (176,674) (12,120) (128,450) --------------------------------------------------------------- Net increase 186,810 $ 2,130,523 43,165 $ 455,957 ===============================================================
1. For the period from April 5, 2005 (commencement of operations) to January 31, 2006. 2. The Portfolio sold 10,000 shares of Class A at a value of $100,000 and 100 shares of Class B, Class C, Class N and Class Y at a value of $1,000, respectively, to the Manager upon seeding of the Portfolio on March 15, 2005. -------------------------------------------------------------------------------- 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 January 31, 2007, were as follows: PURCHASES SALES ------------------------------------------------------------------------------- Investment securities $1,647,337,564 $464,132,371 ------------------------------------------------------------------------------- 4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES MANAGEMENT FEES. Under the investment advisory agreement, the Manager does not charge a management fee, but rather collects indirect management fees from investments in the Underlying Funds. The weighted indirect management fees collected from the Underlying Funds, as a percent of average daily net assets of the Portfolio for the year ended January 31, 2007 was 0.58%. The Portfolio pays the Manager an asset allocation fee equal to an annual rate of 0.10% of the average daily net assets of the Portfolio. -------------------------------------------------------------------------------- TRANSFER AGENT FEES. OppenheimerFunds Services (OFS or the Transfer Agent), a division of the Manager, acts as the transfer and shareholder servicing agent for the Portfolio. The Portfolio pays OFS a per account fee. For the year ended January 31, 2007, the Portfolio paid $1,380,526 to OFS for services to the Portfolio. Additionally, Class Y shares are subject to minimum fees of $10,000 per annum for assets of $10 million or more. The Class Y shares are subject to the minimum fees in the event that the per account fee does not equal or exceed the applicable minimum fees. OFS may voluntarily waive the minimum fees. -------------------------------------------------------------------------------- OFFERING AND ORGANIZATIONAL COSTS. The Manager paid all offering and organizational costs associated with the registration and seeding of the Portfolio. -------------------------------------------------------------------------------- DISTRIBUTION AND SERVICE PLAN (12b-1) FEES. Under its General Distributor's Agreement with the Portfolio, OppenheimerFunds Distributor, Inc. (the Distributor) acts as the 38 | ACTIVE ALLOCATION FUND Portfolio's principal underwriter in the continuous public offering of the Portfolio's classes of shares. -------------------------------------------------------------------------------- SERVICE PLAN FOR CLASS A SHARES. The Portfolio 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 Portfolio. 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 Portfolio under the plan are detailed in the Statement of Operations. -------------------------------------------------------------------------------- DISTRIBUTION AND SERVICE PLANS FOR CLASS B, CLASS C AND CLASS N SHARES. The Portfolio has adopted Distribution and Service Plans for Class B, Class C and Class N shares to compensate the Distributor for its services in connection with the distribution of those shares and servicing accounts. Under the plans, the Portfolio pays the Distributor an annual asset-based sales charge of 0.75% on Class B and Class C shares and 0.25% on Class N shares. The Distributor also receives a service fee of 0.25% per year under each plan. If either the Class B, Class C or Class N plan is terminated by the Portfolio 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 Portfolio 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 $5,145,968, $2,910,863 and $897,937, respectively. Fees incurred by the Portfolio 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 Portfolio. They are deducted from the proceeds of sales of Portfolio 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 CONTINGENT CONTINGENT CONTINGENT CONTINGENT FRONT-END DEFERRED DEFERRED DEFERRED DEFERRED SALES CHARGES SALES CHARGES SALES CHARGES SALES CHARGES SALES CHARGES RETAINED BY RETAINED BY RETAINED BY RETAINED BY RETAINED BY YEAR ENDED DISTRIBUTOR DISTRIBUTOR DISTRIBUTOR DISTRIBUTOR DISTRIBUTOR ----------------------------------------------------------------------------------------------------- January 31, 2007 $ 3,640,370 $ 7,591 $ 350,030 $ 70,255 $ 7,339 -----------------------------------------------------------------------------------------------------
WAIVERS AND REIMBURSEMENTS OF EXPENSES. The Manager has voluntarily agreed to a total expense limitation on the aggregate amount of combined direct (fund-of-funds 39 | ACTIVE ALLOCATION FUND NOTES TO FINANCIAL STATEMENTS Continued -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES Continued level) and indirect expense so that "Total expenses" as a percentage of average daily net assets will not exceed the following annual rates: 1.45%, 2.20%, 2.20%, 1.70% and 1.20%, for Class A, Class B, Class C, Class N and Class Y, respectively. During the year ended January 31, 2007, the Manager reimbursed the Portfolio $20,446, $7,730, $9,156, $2,146 and $44, for the Class A, Class B, Class C, Class N and Class Y shares, respectively. The Manager may modify or terminate this undertaking at any time without notice to shareholders. These expense limitations do not include Extraordinary Expenses and other expenses not incurred in the ordinary course of the Portfolio's business. Notwithstanding the foregoing limits, the Manager is not required to waive or reimburse Portfolio expenses in excess of indirect management fees earned from investments in Underlying Funds to assure that expenses do not exceed those limits. OFS has voluntarily agreed to limit transfer and shareholder servicing agent fees for all classes to 0.35% of average annual net assets per class. This undertaking may be amended or withdrawn at any time. The Manager will waive fees and/or reimburse Portfolio expenses in an amount equal to the indirect management fees incurred through the Portfolio's investment in IMMF. During the year ended January 31, 2007, the Manager waived $1,254 for IMMF management fees. -------------------------------------------------------------------------------- 5. FUTURES CONTRACTS A futures contract is a commitment to buy or sell a specific amount of a commodity or financial instrument at a negotiated price on a stipulated future date. Futures contracts are traded on a commodity exchange. The Portfolio may buy and sell futures contracts that relate to broadly based securities indices (financial futures) or debt securities (interest rate futures) in order to gain exposure to or protection from changes in market value of stocks and bonds or interest rates. The Portfolio may also buy or write put or call options on these futures contracts. The Portfolio generally sells futures contracts as a hedge against increases in interest rates and decreases in market value of portfolio securities. The Portfolio may also purchase futures contracts to gain exposure to market changes as it may be more efficient or cost effective than actually buying securities. Upon entering into a futures contract, the Portfolio is required to deposit either cash or securities (initial margin) in an amount equal to a certain percentage of the contract value. Subsequent payments (variation margin) are made or received by the Portfolio each day. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains and losses. The Portfolio recognizes a realized gain or loss when the contract is closed or has expired. Cash held by the broker to cover initial margin requirements on open futures contracts is noted in the Statement of Assets and Liabilities. Securities held in collateralized accounts to cover initial margin requirements on open futures contracts are noted in the 40 | ACTIVE ALLOCATION FUND Statement of Investments. The Statement of Assets and Liabilities reflects a receivable and/or payable for the daily mark to market for variation margin. Realized gains and losses are reported in the Statement of Operations at the closing and expiration of futures contracts. The net change in unrealized appreciation and depreciation is reported in the Statement of Operations. Risks of entering into futures contracts (and related options) include the possibility that there may be an illiquid market and that a change in the value of the contract or option may not correlate with changes in the value of the underlying securities. As of January 31, 2007, the Portfolio had outstanding futures contracts as follows:
EXPIRATION NUMBER OF VALUATION AS OF UNREALIZED CONTRACT DESCRIPTION DATES CONTRACTS JANUARY 31, 2007 APPRECIATION ------------------------------------------------------------------------------------------ CONTRACTS TO PURCHASE Standard & Poor's 500 E-Mini 3/16/07 501 $ 36,147,150 $ 316,136 ------------ CONTRACTS TO SELL Russell 2000 (The) 3/16/07 226 18,179,440 6,497 U.S. Treasury Nts., 2 yr. 3/30/07 26 5,293,438 17,020 U.S. Treasury Nts., 5 yr. 3/30/07 489 51,115,781 759,756 ------------ 783,273 ------------ $ 1,099,409 ============
-------------------------------------------------------------------------------- 6. TOTAL RETURN SWAP CONTRACTS A total return swap is an agreement under which a set of future cash flows is exchanged between two counterparties. One cash flow stream will typically be based on a reference interest rate or index and the other on the total return of a reference asset such as a security, a basket of securities, or an index. The total return includes appreciation or depreciation on the reference asset, plus any interest or dividend payments. Payments under the swap are based on an agreed upon principal amount but since this principal amount is not exchanged, it represents neither an asset nor a liability to either counter-party, and is referred to as notional. Total return swaps are marked to market daily using different sources, including quotations from counterparties, pricing services, brokers or market makers. The unrealized appreciation (depreciation) related to the change in the valuation of the notional amount of the swap is combined with the amount due to (owed by) the Portfolio at termination or settlement and disclosed separately on the Statement of Assets and Liabilities. The net change in this amount is included on the Statement of Operations. The Portfolio also records any periodic payments received from (paid to) the counterparty, including at termination, under such contracts as realized gain (loss) on the Statement of Operations. The primary risks associated with total return swaps are credit risks (if the counterparty fails to meet its obligations) and market risk (if there is no liquid market for the agreement or unfavorable changes occur in the reference asset). 41 | ACTIVE ALLOCATION FUND NOTES TO FINANCIAL STATEMENTS Continued -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 6. TOTAL RETURN SWAP CONTRACTS Continued As of January 31, 2007, the Portfolio had entered into the following total return swap agreements:
UNREALIZED SWAP NOTIONAL PAID BY RECEIVED BY TERMINATION APPRECIATION COUNTERPARTY AMOUNT/UNITS THE PORTFOLIO THE PORTFOLIO DATES (DEPRECIATION) ---------------------------------------------------------------------------------------------------- Goldman Sachs International: One-Month BBA LIBOR USD and if negative the absolute value of the Total If positive the Return of the Total Return of MSCI Daily the MSCI Daily Total Return Net Total Return Net Emerging Market Emerging Market 3,130 USD Index. USD Index. 12/10/07 $ 3,842 One-Month BBA LIBOR USD and if negative the absolute value of the Total If positive, the Return of the Total Return of MSCI Daily the MSCI Daily Total Return Net Total Return Net Emerging Market Emerging Market 55,206 USD Index. USD Index. 12/10/07 67,765 One-Month BBA LIBOR USD minus spread, plus if negative, the absolute If positive, the value of Lehman Lehman MBS MBS Fixed Fixed Rate Index UBS AG London 18,000,000 Rate Index. Total Return. 7/1/07 (152,060) -------------- $ (80,453) ==============
Abbreviations are as follows: BBA LIBOR USD British Bankers' Association London-Interbank Offered Rate for United States Dollar MBS Mortgage-Backed Security MSCI Morgan Stanley Capital International -------------------------------------------------------------------------------- 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 42 | ACTIVE ALLOCATION FUND evaluation of tax positions taken in the course of preparing the Portfolio's tax returns to determine whether it is "more-likely-than-not" that tax positions taken in the Portfolio'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 January 31, 2007, the Manager has evaluated the implications of FIN 48 and does not currently anticipate a material impact to the Portfolio's financial statements. The Manager will continue to monitor the Portfolio'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 January 31, 2007, 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 excluding the Portfolio) 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 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. 43 | ACTIVE ALLOCATION FUND REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- THE BOARD OF TRUSTEES AND SHAREHOLDERS OF OPPENHEIMER PORTFOLIO SERIES: We have audited the accompanying statement of assets and liabilities of Active Allocation Fund (one of the portfolios constituting the Oppenheimer Portfolio Series), including the statement of investments, as of January 31, 2007, the related statement of operations for the year then ended, and the statements of changes in net assets and the financial highlights for the year then ended and for the period April 5, 2005 (commencement of operations) to January 31, 2006. These financial statements and financial highlights are the responsibility of the Portfolio'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 January 31, 2007, 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 Active Allocation Fund as of January 31, 2007, the results of its operations for the year then ended, and the changes in its net assets and the financial highlights for the year then ended and for the period April 5, 2005 (commencement of operations) to January 31, 2006, in conformity with U.S. generally accepted accounting principles. KPMG LLP Denver, Colorado March 15, 2007 44 | ACTIVE ALLOCATION 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 Portfolio during calendar year 2006. Regulations of the U.S. Treasury Department require the Portfolio to report this information to the Internal Revenue Service. Capital gain distributions of $0.0424 per share were paid to Class A, Class B, Class C, Class N and Class Y shareholders, respectively, on December 29, 2006. Whether received in stock or in cash, the capital gain distribution should be treated by shareholders as a gain from the sale of the capital assets held for more than one year (long-term capital gains). Dividends, if any, paid by the Portfolio during the fiscal year ended January 31, 2007 which are not designated as capital gain distributions should be multiplied by 22.38% to arrive at the amount eligible for the corporate dividend-received deduction. A portion, if any, of the dividends paid by the Portfolio during the fiscal year ended January 31, 2007 which are not designated as capital gain distributions are eligible for lower individual income tax rates to the extent that the Portfolio has received qualified dividend income as stipulated by recent tax legislation. $12,114,010 of the Portfolio'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 January 31, 2007, $152,830 or 0.51% of the ordinary distributions paid by the Portfolio qualifies as an interest related dividend and $571,891 or 100% of the short-term capital gain distribution paid by the Portfolio qualifies as a short-term capital gain dividend. The foregoing information is presented to assist shareholders in reporting distributions received from the Portfolio 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. 45 | ACTIVE ALLOCATION 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. 46 | ACTIVE ALLOCATION FUND BOARD APPROVAL OF THE PORTFOLIO'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 managers 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. 47 | ACTIVE ALLOCATION FUND BOARD APPROVAL OF THE PORTFOLIO'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 Rudi Schadt, Jerry Webman, Kurt Wolfgruber and Caleb Wong, the members of the Fund's Asset Allocation Team. 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 moderate mixed-asset target allocation funds advised by other investment advisers. The Board noted that the Fund's one-year and since inception performance were better than 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, one other mixed-asset target allocation moderate fund of funds, other flexible portfolio funds of funds and other funds with comparable asset levels and distribution features. The Board noted that the Manager has agreed to voluntarily limit the aggregate amount of combined direct (fund-of-funds level) and indirect expenses so that total annual portfolio and underlying fund operating expenses as a percentage of average daily net assets will 48 | ACTIVE ALLOCATION FUND not exceed the following annual rates: 1.45% for Class A, 2.20% for Class B, 2.20% for Class C, 1.70% for Class N and 1.20% for Class Y. The Manager may modify or terminate that undertaking at any time without notice to shareholders. 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 considered whether the Manager may realize economies of scale in managing and supporting the Fund, the extent to which those economies of scale would benefit the Fund's shareholders and the current level of Fund assets. 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. 49 | ACTIVE ALLOCATION FUND TRUSTEES AND OFFICERS Unaudited --------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------- NAME, POSITION(S) HELD WITH THE PRINCIPAL OCCUPATION(S) DURING THE PAST 5 YEARS; OTHER TRUSTEESHIPS/DIRECTORSHIPS FUND, LENGTH OF SERVICE, AGE HELD; NUMBER OF PORTFOLIOS IN THE FUND COMPLEX CURRENTLY OVERSEEN INDEPENDENT THE ADDRESS OF EACH TRUSTEE IN THE CHART BELOW IS 6803 S. TUCSON WAY, CENTENNIAL, TRUSTEES COLORADO 80112-3924. EACH TRUSTEE SERVES FOR AN INDEFINITE TERM, OR UNTIL HIS OR HER RESIGNATION, RETIREMENT, DEATH OR REMOVAL. BRIAN F. WRUBLE, General Partner of Odyssey Partners, L.P. (hedge fund) (since September 1995); Chairman of the Board of Director of Special Value Opportunities Fund, LLC (registered investment company) Trustees (since 2007) and (since September 2004); Investment Advisory Board Member of Zurich Financial Trustee (since 2005) Services (insurance) (since October 2004); Board of Governing Trustees of The Age: 63 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. MATTHEW P. FINK, Trustee of the Committee for Economic Development (policy research foundation) Trustee (since 2005) (since 2005); Director of ICI Education Foundation (education foundation) (October Age: 66 1991-August 2006); President of the Investment Company Institute (trade association) (October 1991-June 2004); Director of ICI Mutual Insurance Company (insurance company) (October 1991-June 2004). Oversees 49 portfolios in the OppenheimerFunds complex. ROBERT G. GALLI, A trustee or director of other Oppenheimer funds. Oversees 59 portfolios in the Trustee (since 2005) OppenheimerFunds complex. Age: 73 PHILLIP A. GRIFFITHS, Distinguished Presidential Fellow for International Affairs (since 2002) and Member Trustee (since 2005) (since 1979) of the National Academy of Sciences; Council on Foreign Relations Age: 68 (since 2002); Director of GSI Lumonics Inc. (precision medical equipment supplier) (since 2001); Senior Advisor of The Andrew W. Mellon Foundation (since 2001); Chair of Science Initiative Group (since 1999); Member of the American Philosophical Society (since 1996); Trustee of Woodward Academy (since 1983); Foreign Associate of Third World Academy of Sciences; Director of the Institute for Advanced Study (1991-2004); Director of Bankers Trust New York Corporation (1994-1999); Provost at Duke University (1983-1991). Oversees 49 portfolios in the OppenheimerFunds complex. MARY F. MILLER, Trustee of the American Symphony Orchestra (not-for-profit) (since October 1998); Trustee (since 2005) and Senior Vice President and General Auditor of American Express Company Age: 64 (financial services company) (July 1998-February 2003). Oversees 49 portfolios in the OppenheimerFunds complex. JOEL W. MOTLEY, Director of Columbia Equity Financial Corp. (privately-held financial adviser) Trustee (since 2005) (since 2002); Managing Director of Carmona Motley, Inc. (privately-held financial Age: 54 adviser) (since January 2002); Managing Director of Carmona Motley Hoffman Inc. (privately-held financial adviser) (January 1998-December 2001); Member of the Finance and Budget Committee of the Council on Foreign Relations, the Investment Committee of the Episcopal Church of America, the Investment Committee and Board of Human Rights Watch and the Investment Committee of Historic Hudson Valley. Oversees 49 portfolios in the OppenheimerFunds complex.
50 | ACTIVE ALLOCATION FUND KENNETH A. RANDALL, Director of Dominion Resources, Inc. (electric utility holding company) (February Trustee (since 2005) 1972-October 2005); Former Director of Prime Retail, Inc. (real estate investment Age: 79 trust), Dominion Energy Inc. (electric power and oil & gas producer), Lumberman's Mutual Casualty Company, American Motorists Insurance Company and American Manufacturers Mutual Insurance Company; Former President and Chief Executive Officer of The Conference Board, Inc. (international economic and business research). Oversees 49 portfolios in the OppenheimerFunds complex. RUSSELL S. REYNOLDS, JR., Chairman of The Directorship Search Group, Inc. (corporate governance consulting Trustee (since 2005) and executive recruiting) (since 1993); Life Trustee of International House Age: 75 (non-profit educational organization); Founder, Chairman and Chief Executive Officer of Russell Reynolds Associates, Inc. (1969-1993); Banker at J.P. Morgan & Co. (1958-1966); 1st Lt. Strategic Air Command, U.S. Air Force (1954-1958). Oversees 49 portfolios in the OppenheimerFunds complex. JOSEPH M. WIKLER, Director of the following medical device companies: Medintec (since 1992) and Trustee (since 2005) Cathco (since 1996); Director of Lakes Environmental Association (since 1996); Age: 65 Member of the Investment Committee of the Associated Jewish Charities of Baltimore (since 1994); Director of Fortis/Hartford mutual funds (1994-December 2001). Oversees 49 portfolios in the OppenheimerFunds complex. PETER I. WOLD, President of Wold Oil Properties, Inc. (oil and gas exploration and production Trustee (since 2005) company) (since 1994); Vice President, Secretary and Treasurer of Wold Trona Age: 59 Company, Inc. (soda ash processing and production) (since 1996); Vice President of Wold Talc Company, Inc. (talc mining) (since 1999); Managing Member of Hole-in-the-Wall Ranch (cattle ranching) (since 1979); Director and Chairman of the Denver Branch of the Federal Reserve Bank of Kansas City (1993-1999); and Director of PacifiCorp. (electric utility) (1995-1999). Oversees 49 portfolios in the OppenheimerFunds complex. ---------------------------------------------------------------------------------------------------------------------- INTERESTED TRUSTEE THE ADDRESS OF MR. MURPHY IS TWO WORLD FINANCIAL CENTER, 225 LIBERTY STREET, 11TH AND OFFICER 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/INDEFINITE 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) and President President and Principal (since September 2000) of the Manager; President and a director or trustee of other Executive Officer and Trustee Oppenheimer funds; President and Director of Oppenheimer Acquisition Corp. ("OAC") (since 2005) (the Manager's parent holding company) and of Oppenheimer Partnership Holdings, Age: 57 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 sub-sidiaries of the Manager) (since July 2001); President and Director of OppenheimerFunds Legacy Program (charitable trust program established by the Manager) (since July 2001); Director of the following investment advisory subsidiaries of the Manager: OFI Institutional Asset Management, Inc., Centennial Asset Management Corporation, Trinity Investment Management Corporation and Tremont Capital Management, Inc. (since November 2001), HarbourView Asset Management Corporation and OFI Private Investments, Inc. (since July 2001); President (since November 1, 2001) and Director (since July 2001) of Oppenheimer Real Asset Management, Inc.; Executive Vice President of
51 | ACTIVE ALLOCATION FUND TRUSTEES AND OFFICERS Unaudited / Continued -------------------------------------------------------------------------------- JOHN V. MURPHY, Massachusetts Mutual Life Insurance Company (OAC's parent company) (since February Continued 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 THE ADDRESSES OF THE OFFICERS IN THE CHART BELOW ARE AS FOLLOWS: FOR MESSRS. OF THE PORTFOLIO SCHADT, WEBMAN, WOLFGRUBER, WONG, 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 INDEFINITE TERM OR UNTIL HIS OR HER RESIGNATION, RETIREMENT, DEATH OR REMOVAL. RUDI W. SCHADT, Vice President, Director of Research in Product Design and Risk Management of the Vice President and Portfolio Manager. Prior to joining the Manager in February 2002 he was a Director and Senior Manager (since 2005) Quantitative Analyst (2000-2001) at UBS Asset Management prior to which he was an Age: 49 Associate Director of Research (since June 1999) and Senior Researcher and Portfolio Manager (from June 1997) at State Street Global Advisors. An officer of 11 portfolios in the OppenheimerFunds complex. DR. JERRY WEBMAN, Chief Economist of the Manager (since 2006); Senior Vice President (since February Vice President and Portfolio 1996) and Senior Investment Officer and Director (since 1997) of the Manager's Manager (since 2005) Fixed Income Investments; Senior Vice President (since May 1999) of HarbourView Age: 57 Asset Management Corporation. An officer of 8 other portfolios in the OppenheimerFunds complex. KURT WOLFGRUBER, Executive Vice President of the Manager (since March 2003) and Chief Investment Vice President and Portfolio Officer and Director of the Manager (since July 2003) of the Manager. He has been Manager (since 2005) Director of HarbourView Asset Management Corporation and of OFI Institutional Asset Age: 57 Management, Inc. (since June 2003) and of Tremont Capital Management, Inc. (since October 2001). He is also an officer of 8 other portfolios in the OppenheimerFunds complex. CALEB WONG, Vice President of the Manager (since June 1999); worked in fixed-income quantitative Vice President and Portfolio research and risk management for the Manager (since July 1996); an officer Manager (since 2005) of 3 portfolios in the OppenheimerFunds complex. Formerly Assistant Vice President Age: 41 of the Manager (January 1997-June 1999); before joining the Manager in July 1996 Mr. Wong was enrolled in the Ph.D. program for Economics at the University of Chicago. MARK S. VANDEHEY, Senior Vice President and Chief Compliance Officer of the Manager (since March Vice President and 2004); Vice President of OppenheimerFunds Distributor, Inc., Centennial Asset Chief Compliance Officer Management Corporation and Shareholder Services, Inc. (since June 1983). Former (since 2005) Vice President and Director of Internal Audit of the Manager (1997-February 2004). Age: 56 An officer of 96 portfolios in the OppenheimerFunds complex.
52 | ACTIVE ALLOCATION FUND BRIAN W. WIXTED, Senior Vice President and Treasurer of the Manager (since March 1999); Treasurer of Treasurer and Principal the following: HarbourView Asset Management Corporation, Shareholder Financial Financial & Accounting Services, Inc., Shareholder Services, Inc., Oppenheimer Real Asset Management Officer (since 2005) Corporation, and Oppenheimer Partnership Holdings, Inc. (since March 1999), OFI Age: 47 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, Vice President of the Manager (since February 2007); Assistant Vice President of Assistant Treasurer the Manager (August 2002-February 2007); Manager/Financial Product Accounting of (since 2004) the Manager (November 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); Director of Financial Assistant Treasurer Reporting and Compliance of First Data Corporation (April 2003-July 2004); Manager (since 2005) of Compliance of Berger Financial Group LLC (May 2001-March 2003); Director of Age: 36 Mutual Fund Operations at American Data Services, Inc. (September 2000-May 2001). An officer of 96 portfolios in the OppenheimerFunds complex. ROBERT G. ZACK, Executive Vice President (since January 2004) and General Counsel (since March Secretary (since 2005) 2002) of the Manager; General Counsel and Director of the Distributor (since Age: 58 December 2001); General Counsel of Centennial Asset Management Corporation (since December 2001); Senior Vice President and General Counsel of HarbourView Asset Management Corporation (since December 2001); Secretary and General Counsel of OAC (since November 2001); Assistant Secretary (since September 1997) and Director (since November 2001) of OppenheimerFunds International Ltd. and OppenheimerFunds plc; Vice President and Director of Oppenheimer Partnership Holdings, Inc. (since December 2002); Director of Oppenheimer Real Asset Management, Inc. (since November 2001); Senior Vice President, General Counsel and Director of Shareholder Financial Services, Inc. and Shareholder Services, Inc. (since December 2001); Senior Vice President, General Counsel and Director of OFI Private Investments, Inc. and OFI Trust Company (since November 2001); Vice President of OppenheimerFunds Legacy Program (since June 2003); Senior Vice President and General Counsel of OFI Institutional Asset Management, Inc. (since November 2001); Director of OppenheimerFunds (Asia) Limited (since December 2003); Senior Vice President (May 1985-December 2003), Acting General Counsel (November 2001-February 2002) and Associate General Counsel (May 1981-October 2001) of the Manager; Assistant Secretary of the following: Shareholder Services, Inc. (May 1985-November 2001), Shareholder Financial Services, Inc. (November 1989-November 2001), and OppenheimerFunds International Ltd. (September 1997-November 2001). An officer of 96 portfolios in the OppenheimerFunds complex.
53 | ACTIVE ALLOCATION FUND TRUSTEES AND OFFICERS Unaudited / Continued -------------------------------------------------------------------------------- LISA I. BLOOMBERG, Vice President and Associate Counsel of the Manager (since May 2004); First Vice Assistant Secretary President (April 2001-April 2004), Associate General Counsel (December 2000-April (since 2004) 2004), Corporate Vice President (May 1999-April 2001) and Assistant General Counsel Age: 39 (May 1999-December 2000) of UBS Financial Services Inc. (formerly, PaineWebber Incorporated). An officer of 96 portfolios in the OppenheimerFunds complex. KATHLEEN T. IVES, Vice President (since June 1998) and Senior Counsel and Assistant Secretary (since Assistant Secretary October 2003) of the Manager; Vice President (since 1999) and Assistant Secretary (since 2001) (since October 2003) of the Distributor; Assistant Secretary of Centennial Asset Age: 41 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. PHILLIP S. GILLESPIE, Senior Vice President and Deputy General Counsel of the Manager (since September Assistant Secretary 2004); First Vice President (2001-September 2004); Director (2000-September 2004) (since 2004) and Vice President (1998-2000) of Merrill Lynch Investment Management. An officer Age: 43 of 96 portfolios in the OppenheimerFunds complex.
THE PORTFOLIO'S STATEMENT OF ADDITIONAL INFORMATION CONTAINS ADDITIONAL INFORMATION ABOUT THE PORTFOLIO'S TRUSTEES AND OFFICERS AND IS AVAILABLE WITHOUT CHARGE UPON REQUEST, BY CALLING 1.800.525.7048. 54 | ACTIVE ALLOCATION 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 the registrant does not have an audit committee financial expert serving on its Audit Committee. In this regard, no member of the Audit Committee was identified as having all of the technical attributes identified in Instruction 2(b) to Item 3 of Form N-CSR to qualify as an "audit committee financial expert," whether through the type of specialized education or experience described in that Instruction. The Board has concluded that while the members of the Audit Committee collectively have the necessary attributes and experience required to serve effectively as an Audit Committee, no single member possesses all of the required technical attributes through the particular methods of education or experience set forth in the Instructions to be designated as an audit committee financial expert. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. (a) Audit Fees The principal accountant for the audit of the registrant's annual financial statements billed $68,500 in fiscal 2007 and $60,000 in fiscal 2006. (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 2007 and $156,805 in fiscal 2006 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. (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 2007 and $6,536 in fiscal 2006 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 2007 and $163,341in fiscal 2006 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 GOVERNANCE COMMITTEE PROVISIONS WITH RESPECT TO NOMINATIONS OF DIRECTORS/TRUSTEES TO THE RESPECTIVE BOARDS 1. The Fund's Governance 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 January 31, 2007, 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. Oppenheimer Portfolio Series By: /s/ John V. Murphy --------------------------- John V. Murphy Principal Executive Officer Date: March 13, 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: March 13, 2007 By: /s/ Brian W. Wixted --------------------------- Brian W. Wixted Principal Financial Officer Date: March 13, 2007