As filed with the Securities and Exchange Commission on July 9, 1999
1933 Act File No. 333-_____
1940 Act File No. 811-09373
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-2
(Check appropriate box or boxes)
[X] REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[ ] Pre-Effective Amendment No.__
[ ] Post-Effective Amendment No. __
and/or
[X] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[ ] Amendment No. __
OPPENHEIMER SENIOR FLOATING RATE FUND
Exact Name of Registrant Specified in Charter
Two World Trade Center
New York, New York 10048
Address of Principal Executive Offices (Number, Street, City, State, Zip Code)
(212) 323-0200
Registrant's Telephone Number, Including Area Code
Andrew J. Donohue, Esq.
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048
Name and Address (Number, Street, State, Zip Code) of Agent for Service
Approximate Date of Proposed Public Offering:
As soon as practicable after the effective date of this Registration
Statement.
If any securities being registered on this form will be offered on a delayed
or continuous basis in reliance on Rule 415 under the Securities Act of 1933,
other than securities offered in connection with a dividend reinvestment
plan, check the following box. [X]
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
====================------------------------------------------------
Proposed Proposed
Title of Securities Amount Maximum Maximum Amount of
Being Registered Being Price Per Aggregate Registration
Registered Unit(1) Offering Fee(2)
Price(1)
====================================================================
Shares of
Beneficial
Interest (Par 100,000 $2 $200,000 $55.60
Value $.001 per
share) of Class A
====================================================================
====================================================================
Shares of
Beneficial
Interest (Par 100,000 $2 $200,000 $55.60
Value $.001 per
share) of Class B
====================================================================
====================================================================
Shares of
Beneficial
Interest (Par 100,000 $2 $200,000 $55.60
Value $.001 per
share) of Class C
====================================================================
(1) Estimated solely for purposes of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933.
(2) Previously paid.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933, as amended, or until the Registration
Statement shall become effective on such date as the Securities and Exchange
Commission, acting pursuant to Section 8(a), may determine.
<PAGE>
OPPENHEIMER SENIOR FLOATING RATE FUND
CROSS-REFERENCE SHEET
PART A
Item Caption Location(s) in
No. Prospectus
1. Outside Front Cover................ Outside front cover
2. Cover Pages; Other Offering Cover pages
Information........................
3. Fee Table and Synopsis............. Fees and Expenses of
the Fund
4. Financial Highlights............... Not applicable
5. Plan of Distribution............... A Brief Overview of
the Fund; How to Buy
Shares
6. Selling Shareholders............... Not applicable
7. Use of Proceeds.................... Use of Proceeds of
the Fund's Offering
8. General Description of the Registrant Main Risks of
Investing in the
Fund; The Fund and
Its Investments;
Additional
Information About the
Fund
9. Management......................... How the Fund is
Managed
10. Capital Stock, Long-Term Debt, and Dividends, Capital
Other Securities................... Gains and Taxes
11. Defaults and Arrears on Senior Not applicable
Securities.........................
12. Legal Proceedings.................. Not applicable
13. Table of Contents of the Statement Table of Contents of
of Additional Information.......... the Statement of
Additional Information
<PAGE>
PART B
Additional Location in Statement
Item No. Caption of Additional
Information
14. Cover Page........................ Cover page
15. Table of Contents................. Cover page
16. General Information and History... About the Fund -- How
the Fund is Managed --
Organization and
History
17. Investment Objective and Policies. About the Fund --
Additional Information
About the Fund's
Investment Policies
and Risks
18. Management........................ About the Fund -- How
the Fund is Managed --
Trustees and Officers,
The Manager
19. Control Persons and Principal Not applicable
Holders of Securities.............
20. Investment Advisory and Other About the Fund -- How
Services.......................... the Fund is Managed --
The Manager
21. Brokerage Allocation and Other About the Fund --
Practices......................... Brokerage Policies of
the Fund
22. Tax Status........................ About Your Account --
Dividends, Capital
Gains and Taxes
23. Financial Statements.............. Financial Information
About the Fund
PART C
Information required to be included in Part C is set forth under
the appropriate item, so numbered, in Part C of this Registration
Statement.
<PAGE>
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Oppenheimer Senior Floating Rate Fund
- -------------------------------------------------------------------------------
Prospectus dated September ____, 1999
Oppenheimer Senior Floating Rate Fund seeks as high a level of current income
and preservation of capital as is consistent with investing primarily in senior
floating rate loans and other debt securities. The Fund seeks to achieve its
goal primarily by investing at least 80% of its total assets in adjustable rate
senior loans that are made to U.S. and foreign borrowers (these are referred to
as "Senior Loans"). Under normal market conditions the Fund can also invest up
to 20% of its total assets in other securities. The Fund is a newly-organized,
non-diversified closed-end management investment company that continuously
offers its shares. The Fund has three classes of shares: Class A shares, Class B
shares and Class C shares. Please refer to "How to Buy Shares."
The Fund can invest up to 100% of its assets in Senior Loans and other debt
securities that are rated below investment grade or in unrated securities deemed
to be of comparable quality. These securities may be considered speculative and
involve risks that are greater than risks associated with investment grade
securities, including the possible loss of income and principal. Please refer to
"Main Risks of Investing in the Fund."
This Prospectus contains important information about the Fund's objective,
investment policies, strategies and risks. It also contains important
information about how to buy shares of the Fund and other account features.
Please read this Prospectus carefully before you invest and keep it for future
reference about your account.
The Fund's Statement of Additional Information dated September , 1999, which the
Fund may amend from time to time, has been filed with the Securities and
Exchange Commission and is incorporated by reference into this prospectus. The
Table of Contents of the Statement of Additional Information appears on page
____ of this Prospectus. For a free copy of the Statement of Additional
Information, call your investment representative or call the Fund's Distributor
at 1-800-525-7048.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
The Securities and Exchange Commission has not approved or disapproved the
Fund's securities nor has it determined that this Prospectus is accurate or
complete. It is a criminal offense to represent otherwise.
<PAGE>
- ----------------------------------------------------------------------
Price to the Sales Load Proceeds to the
Public (2) Fund (4)
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Per Class A share N/A N/A N/A
(1)
- ----------------------------------------------------------------------
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Per Class B share $x.00 None (3) $x.00
- ----------------------------------------------------------------------
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Per Class C share $x.00 None (3) $x.00
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Total None
- ----------------------------------------------------------------------
(1)Class A shares are not being offered directly at this time. Class A shares
will be available only upon the automatic conversion of Class B shares or by
exchange of Class A shares of other Oppenheimer funds.
(2)The shares are offered on a best efforts basis at a price of $x.00 per share
on the date of this Prospectus and will be offered continuously at a price
equal to net asset value after that date. The Fund will invest the proceeds
of the offering initially in short-term money market instruments and other
short-term debt obligations until it can invest the proceeds in a manner
consistent with its investment objective and policies. The Fund estimates
that it will invest the proceeds of the offering in investments consistent
with its investment objective and policies over a period of three months
after the commencement of its offering, subject to market conditions.
(3)Class B shares and Class C are subject to an annual service fee, an annual
asset-based distribution fee, and an Early Withdrawal Charge. The Distributor
will pay sales commissions to participating dealers from its own assets at
the time of sale.
(4)This amount assumes the sale of all shares registered by the Fund in its
registration statement, and it excludes approximately $___ of organizational
and initial offering expenses payable by the Fund. These amounts will be
charged as operating expenses of the Fund and amortized over a five-year
period starting on the date the Fund commences operations.
No market currently exists for the Fund's shares. The Fund does not currently
anticipate that a secondary market will develop for its shares. As a result, you
should consider the Fund's shares to be an illiquid investment. This means that
you may not be able to freely sell your shares. See "Illiquidity of the Fund's
Shares" and "Periodic Repurchase Offers."
To provide shareholders with liquidity, the Fund will make quarterly
Repurchase Offers for a percentage (between 5% and 25%) of the Fund's shares at
net asset value. The repurchase price will be at the net asset value determined
as of the close of business (currently 4:00 p.m. New York time) on the
repurchase pricing date, normally the day a Repurchase Offer ends but not more
than 14 days after the Repurchase Offer ends. Each Repurchase Offer will last
for a period between three weeks and six weeks. The Fund will notify
shareholders at the beginning of each Repurchase Offer. The Fund's first
Repurchase Offer is expected to commence in January 2000, and a Repurchase Offer
will be made every three months after the end of the first Repurchase Offer. An
early withdrawal charge may apply to Class B Shares held less than 5 years and
Class C Shares held less than one year that are accepted for repurchase. See
"Periodic Repurchase Offers."
(OppenheimerFunds logo)
<PAGE>
CONTENTS
A B O U T T H E F U ND
Fees and Expenses of the Fund
A Brief Overview of the Fund
Main Risks of Investing in the Fund
Use of Proceeds of the Fund's Offering
The Fund and Its Investments
Performance Information
How the Fund Is Managed
A B O U T Y O U R A C C O U N T
How to Buy Shares
Special Investor Services
AccountLink
PhoneLink
OppenheimerFunds Web Site
Retirement Plans
Periodic Repurchase Offers
How to Exchange Shares
Shareholder Account Rules and Policies
Dividends, Capital Gains and Taxes
Additional Information About the Fund
Table of Contents of the Statement of Additional Information
<PAGE>
A B O U T T H E F U N D
Fees and Expenses of the Fund
The Fund pays a variety of expenses directly for management of its assets,
administration, distribution of its shares and other services. Those expenses
are subtracted from the Fund's assets to calculate the Fund's net asset value
per share. All shareholders therefore pay those expenses indirectly.
Shareholders pay other expenses directly, such as early withdrawal charges and
account transaction charges. The following tables are provided to help you
understand the fees and expenses you may pay if you buy and hold shares of the
Fund.
Shareholder Transaction Expenses (charges paid directly from your investment):
- --------------------------------------------------------------------
Class A Class B shares Class C shares
shares
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Sales Charge (Load) None2 None None
on purchases
(as % of offering
price)1
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Dividend Reinvestment None None None
Fees
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Early Withdrawal
Charges (Load) (as % None 3%3 1%4
of the lower of the
original purchase
price or repurchase
price)
- --------------------------------------------------------------------
1. If a securities dealer handles your purchase transaction, it may charge you a
fee.
2. Class A shares are not currently offered for direct purchase by investors.
Class B shares automatically convert to Class A shares six years after
purchase.
3. Applies to shares repurchased in the first year after you bought them. The
Early Withdrawal Charge is 2.0% for shares repurchased during the second year
after purchase, 1.5% during the third and fourth years, and 1% during the
fifth year. There is no Early Withdrawal Charge after the fifth anniversary
of purchase. See "How to Buy Shares" for details.
4. Applies to shares repurchased within 12 months after you bought them. See
"How to Buy Shares" for details.
<PAGE>
Annual Fund Operating Expenses (deducted from Fund assets):5 (as a % of average
annual net assets attributable to shares)
- -------------------------------------------------------------------
Class A Class B Class C shares
shares shares
- -------------------------------------------------------------------
- -------------------------------------------------------------------
Management Fees 0.xx% 0.xx% 0.xx%
- -------------------------------------------------------------------
- -------------------------------------------------------------------
Distribution and/or 0.25% 1.00% 1.00%
Service Fees5
- -------------------------------------------------------------------
- -------------------------------------------------------------------
Other Expenses6 0.xx% 0.xx% 0.xx%
- -------------------------------------------------------------------
- -------------------------------------------------------------------
Total Annual 0.xx% x.xx% x.xx%
Operating Expenses
- -------------------------------------------------------------------
5. Because the Fund is a new Fund without an operating history, this information
is based on estimated fees, expenses and net assets for the fiscal year
ending _______________, 2000. Actual expenses may be different in the current
and future fiscal years. Under the Fund's Distribution Plans, Class B shares
and Class C shares pay an annual distribution fee of 0.75% of average daily
net assets. Class B shares will automatically convert to Class A shares six
years after the end of the month in which the were originally purchased.
Class A shares are not subject to any distribution fees. Each class of shares
is subject to an annual service fee of up to 0.25% of average annual net
assets. Because the distribution fees may be considered an asset-based sales
charge, long-term shareholders of Class C may pay more than the economic
equivalent of the maximum front-end sales charges permitted by the National
Association of Securities Dealers, Inc.
6. "Other expenses" include transfer agent fees, custodial expenses, and
accounting and legal expenses the Fund pays.
<PAGE>
EXAMPLES. These examples are intended to help you understand the cost of
investing in the Fund. The examples assume that you invest $1,000 in a class of
shares of the Fund for the time periods indicated and reinvest your dividends
and distributions.
The first example assumes that your shares are repurchased by the Fund at
the end of those periods. The second example assumes that you keep your shares.
Both examples also assume that your investment has a 5% return each year and
that a class's operating expenses remain the same as the estimated expenses used
in the Annual Fund Operating Expense table above. The examples should not be
considered a representation of future expenses, and actual expenses may be
greater or less than those shown. Based on these assumptions your expenses would
be as follows:
- ---------------------------------------------------------------------
Assuming you do not
tender of shares 1 Year 3 Years 5 Years 10 Years1
for repurchase by
the Fund:
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
Class A shares $xx $xx $xx $xx
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
Class B shares $xx $xx $xx $xx
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
Class C shares $xx $xx $xx $xx
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
Assuming you tender
your shares for
repurchase by the 1 Year 3 Years 5 Years 10 Years1
Fund on the last day of the period and a contingent deferred sales charge
applies:
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
Class A shares $xx $xx $xx $xx
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
Class B shares $xx $xx $xx $xx
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
Class C shares $xx $xx $xx $xx
- ---------------------------------------------------------------------
In the first example, the expenses of Class B and Class C do not include the
early withdrawal charge. In the second example, expenses for Class B and Class C
include the applicable early withdrawal charges. 1. Class B expenses for years
seven through 10 are based on estimated Class A expenses, since Class B shares
automatically convert to Class A after six years.
A Brief Overview of the Fund
- -------------------------------------------------------------------------------
This section summarizes information that is discussed in more detail later in
this Prospectus. You should carefully read the more detailed information.
For a more complete discussion of risks of investing in the Fund, please refer
to "Main Risks of Investing in the Fund," below.
- -------------------------------------------------------------------------------
What is the Fund? The Fund is a continuously offered, closed-end, management
investment company, organized as a Massachusetts business trust. The Fund is
non-diversified. That means that under the Investment Company Act of 1940, the
Fund is not limited in the amount of assets that it may invest in any single
issuer of securities. However, the Fund intends to diversify its assets to the
extent required under the Internal Revenue Code so that it can qualify as a
"regulated investment company" for tax purposes. See "Information About the
Fund" and "Dividends, Capital Gains and Taxes."
What is the Fund's Investment Objective? The Fund seeks as high a level of
current income and preservation of capital as is consistent with investing
primarily in senior floating rate loans and other debt securities.
What does the Fund Invest In? Under normal market conditions the Fund will
invest at least 80% of its total assets in collateralized floating or adjustable
rate senior loans to U.S. and foreign borrowers (these are referred to as
"Senior Loans" in this prospectus). The Fund will do so either as an original
lender or as purchaser of an assignment of a loan or a participation interest in
a loan. Loans to foreign borrowers must be dollar-denominated and payable in
U.S. dollars. Senior Loans are loans made to corporations, partnerships and
other businesses. They pay interest at rates that float above or are adjusted
periodically, based on a benchmark that reflects current interest rates, such as
the prime rate offered by one or more major U.S. banks (referred to as "Prime
Rate"), the certificate of deposit ("CD") rate, or the London Inter-Bank Offered
Rate (referred to as "LIBOR").
The Fund's investments in Senior Loans must either be rated "B" or higher
by a rating organization such as Standard & Poor's or Moody's, or, if unrated,
determined by the Manager to be of comparable quality. See "The Fund and Its
Investments - Credit Quality." Some of these securities involve high risk, as
described below.
The Fund can also invest up to 20% of its total assets in cash and other
securities, such as unsecured floating rate senior loans, secured or unsecured
fixed-rate loans, collateralized loan obligations, and investment-grade
short-term debt obligations, under normal market conditions. The Fund can use
derivative instruments, including options, futures contracts, asset-backed
securities, interest rate swaps and total return swaps, to hedge its portfolio
or to try to enhance returns. The Fund can borrow money and use other techniques
to manage its cash flow and to finance repurchase offers. The Fund will not
borrow money for purposes of investment leverage.
What are the Main Risks of Investing in the Fund? The Fund is subject to a
number of investment risks, described in "Main Risks of Investing in the Fund,"
below. In summary, the Fund's investments are subject to interest rate risk, the
risk of fluctuation in price from changes in prevailing interest rates. Also,
the Fund invests mainly in debt obligations that are subject to credit risks,
including the risk that the borrower will not pay interest and will not repay
the principal amount of the obligation in a timely manner. Although the Fund's
investments in Senior Loans must be collateralized, the risk of default is still
greater in the case of the lower-grade obligations in which the Fund can invest
without limit. Many of the Fund's investments are illiquid, which may make it
difficult for the Fund to dispose of them at an acceptable price when it wants
to.
There are other risks of investing in the Fund. The Fund is
non-diversified, which means that it can invest a greater amount of its assets
in one issuer's debt, and therefore it will be exposed to greater risks than
funds that diversify their investments over a wider range of issuers. The Fund's
shares are illiquid, which means that investors may not be able to dispose of
their shares when they want to. The Fund is a new Fund, with no operating
history.
Unlike an open-end mutual fund, the Fund does not redeem its shares daily. Even
though the Fund will make quarterly tender offers to repurchase a portion of its
shares to try to provide liquidity to shareholders, you should consider an
investment in the Fund to be illiquid.
No market currently exists for the Fund's shares and the Fund does not
anticipate that a secondary market will develop for its shares. The Fund does
not intend to list shares on any national securities exchange or arrange for the
quotation of the price of its shares on any over-the-counter market.
Who is the Fund Designed For? The Fund is designed primarily for investors
seeking high current income from a fund that will invest primarily in senior
loan obligations that may have higher risks than conventional debt securities.
The Fund's investment strategy allows investors to participate in the corporate
loan market, which may be difficult for individuals to invest in directly
because Senior Loans have very large minimum investments, typically $5 million
or more. Since the Fund's income level will fluctuate, it is not designed for
investors needing an assured level of current income.
The Fund does not seek capital appreciation.
The Fund is designed as a long-term investment and not as a short-term
tracding vehicle. It may be appropriate for a portion of an investor's overall
investment portfolio. However, the Fund is not a complete investment program.
How Can I Buy Shares? The Fund's Distributor, OppenheimerFunds Distributor,
Inc., intends to offer the Fund's Class B and Class C shares continuously
through securities dealers. The initial offering price for Class B and Class C
shares on the date of this prospectus is $xx.00 per share, and after that date
the offering price will be equal to the net asset value per share of the
respective class. Minimum initial investment is $1,000 ($250 for retirement
accounts). Minimum subsequent investments are $100 ($25 for individual
retirement accounts).
The Distributor reserves the right to waive any minimum investment
requirements and to refuse any order for the purchase of shares. The Distributor
may suspend the continuous offering of shares at any time. The Fund's Class A
shares may not be purchased directly at this time. They are available only upon
the automatic conversion of Class B shares of the Fund and by exchange of Class
A shares of certain other Oppenheimer funds.
How Do the Fund's Repurchase Offers Provide Liquidity? The Fund intends to make
quarterly Tender Offers to repurchase shares from shareholders. The Fund may
impose an early withdrawal charge on Class B and Class C shares if you sell your
shares within specified time periods after purchasing them. That early
withdrawal charge may be waived in certain circumstances. See "How to Buy
Shares."
Each quarter the Fund will offer to repurchase between 5% and 25% of its
outstanding shares. In response to each Repurchase Offer, shareholders may
choose to tender some or all of their shares to the Fund for repurchase. Shares
accepted for repurchase will be repurchased at a price equal to the net asset
value per share. Each Repurchase Offer will last for a period between three
weeks and six weeks. The Fund will notify shareholders in writing at the
beginning of each Repurchase Offer. If more shares are tendered than the amount
of the Repurchase Offer, the repurchases will be pro-rated. Please refer to
"Periodic Repurchase Offers" below for details.
Are There Any Sales Charges for Investing in the Fund? If your shares are
repurchased by the Fund, in some cases you may be subject to an early withdrawal
charge for Class B and Class C shares: o If your Class B shares are repurchased
by the Fund within five years of the end of the month in which you originally
purchased them, the early withdrawal charge is 3% for repurchases during the
first year; 2% during the second year; 1.5% during the third and fourth years;
1% during the fifth year; with no charge for repurchases after five years.
o If your Class C shares are repurchased by the Fund within 12 months of
the end of the month in which you originally purchased them, you will
pay a 1% contingent deferred sales charge.
The Fund may waive the early withdrawal charge in specified transactions
and for certain classes of investors described in Appendix C in the Statement of
Additional Information. The Fund does not currently charge any other repurchase
fee, but the Board of Trustees could impose that type of fee in the future, to
help cover Fund expenses.
The early withdrawal charge is based on the lesser of the then current net
asset value or the original purchase price of the repurchased shares (but does
not apply to shares purchases by reinvesting dividends or capital gains
distributions). Please refer to "How to Buy Shares" and "Periodic Repurchase
Offers."
Who Manages the Fund? OppenheimerFunds, Inc. is the Fund's investment
advisor (and is referred to as the "Manager" in this prospectus). The Fund's
portfolio managers are employed by the Manager.
Main Risks of Investing in the Fund.
All investments carry risks to some degree. The Fund's investments in Senior
Loans and other debt securities are subject to changes in their value from a
number of factors. They include changes in general bond market movements in the
U.S. and abroad (this is referred to as "market risk") or the change in value of
particular Senior Loans or other debt securities because of an event affecting
the borrower or issuer (this is known as "credit risk"). Changes in interest
rates can also affect prices of debt securities (this is known as "interest rate
risk"). The Fund can invest in foreign loans and other debt securities.
Therefore, it will be subject to the risks that economic, political or other
events can have on the values of loans to borrowers or securities of issuers in
particular foreign countries.
The risks described below and elsewhere in this prospectus collectively
form the risk profile of the Fund and can affect the value of the Fund's
investments, its investment performance and its net asset values per share.
These risks mean that you can lose money by investing in the Fund. When you sell
your shares, they may be worth more or less than what you paid for them. The
following information summarizes the main risks of investing in the Fund. There
is no assurance that the Fund will achieve its investment objective.
Credit Risk. Debt securities are subject to credit risk. Credit risk relates to
the ability of the borrower of a Senior Loan or the issuer of a debt security to
make interest and principal payments on the loan or security as they become due.
If the borrower or issuer fails to pay interest, the Fund's income might be
reduced. If the borrower or issuer fails to repay principal, the value of that
security and the net asset values of the Fund's shares might be reduced. The
Fund's investments in Senior Loans and other debt securities, particularly those
below investment grade, are subject to risks of default.
While most of the Fund's investments in Senior Loans will be secured by
collateral, lenders may have difficulty liquidating the collateral, or enforcing
their rights under the terms of the Senior Loans. Also, the Fund can invest part
of its assets in loans and other debt obligations that are not collateralized.
Interest Rate Risk. In general, the value of a debt security changes as
prevailing interest rates change. For fixed-rate debt securities, when
prevailing interest rates fall, the values of already-issued debt securities
generally rise. When interest rates rise, the values of already-issued debt
securities generally fall, and they may sell at a discount from their face
amount.
The Senior Loans in which the Fund invests have floating interest rates.
For that reason, the Manager expects that the net asset values of the Fund's
shares will fluctuate less than the shares of funds that invest in fixed rate
debt obligations. However, the interest rates of some Senior Loans adjust only
periodically. Between the times that interest rates on Senior Loans adjust, the
interest rates on those Senior Loans may not correlate to prevailing interest
rates. That will affect the value of the loans and may cause the net asset
values of the Fund's shares to fluctuate.
Non-Diversification Risk. The Fund is "non-diversified" under the Investment
Company Act. That means that the Fund can invest in the securities of a single
issuer without limit. This policy gives the Fund more flexibility to invest in
the obligations of a single borrower or issuer than if it were a "diversified"
fund. However, the Fund intends to diversify its investments so that it
qualifies as a "regulated investment company" under the Internal Revenue Code
(although it reserves the right not to qualify). Under that requirement, with
respect to 50% of its total assets, the Fund may invest up to 25% of its assets
in the securities of any one borrower or issuer. To the extent the Fund invests
a relatively high percentage of its assets in the obligations of a single issuer
or a limited number of issuers, the Fund is subject to additional risk of loss
if those obligations lose market value or the borrower or issuer of those
obligations defaults.
Borrowing. The Fund can borrow money in an amount up to 33 1/3% of its total
assets (after counting the assets purchased with the amount borrowed). The Fund
will borrow if necessary only to obtain short-term credit to allow it to
repurchase shares during Repurchase Offers, to manage cash flow, and to fund
commitments to purchase Senior Loans. The Fund will not borrow money for
long-term leverage purposes. Borrowing imposes additional costs on the Fund that
it would not otherwise have, reducing the income available to pay shareholders.
Borrowing may impose other risks. Lenders to the Fund will have preference
over shareholders as to payments of interest and repayments of principal on
amounts that the Fund borrows. Lending terms may limit the Fund's activities,
including its ability to pay dividends to shareholders. Lending agreements may
also grant the lenders certain voting rights if the Fund defaults in the payment
of interest or principal.
Limited Secondary Market for Senior Loans. Due to restrictions on transfer in
loan agreements and the nature of the private syndication of Senior Loans,
Senior Loans generally are not as easily purchased or sold as publicly-traded
securities. As a result, many Senior Loans are illiquid, which means that the
Fund may be limited in its ability to sell Senior Loans at an acceptable price
when it want to, in order to generate cash, avoid losses, or to meet repurchase
requests.
Highly leveraged Senior Loans and Senior Loans in default also may be less
liquid than other Senior Loans. If the Fund voluntarily or involuntarily sold
those Senior Loans, it might not receive the full value it expected. The market
for illiquid securities is more volatile than the market for liquid securities.
The Fund could have difficulty selling illiquid portfolio securities. The
inability to dispose of assets may make it difficult for the Fund to raise
proceeds necessary to repurchase shares in a Repurchase Offer. The Board of
Trustees will consider the liquidity of the Fund's portfolio securities to
determine whether to suspend or postpone a Repurcahse Offer.
Possible Limited Availability of Senior Loans. Direct investments in Senior
Loans and, to a lesser degree, investments in participation interests in or
assignments of Senior Loans may be limited. There is a risk that the Fund may
not be able to invest at least 80% of its total assets in Senior Loans. The
limited availability may be due to a number of factors. There may be more
willing purchasers of direct loans than there are willing purchasers of
Participation Interests or Assignments. Direct lenders may allocate only a small
number of Senior Loans to new investors, including the Fund. Also, lenders or
Agents may have an incentive to market the less desirable Senior Loans to
investors such as the Fund while retaining attractive loans for themselves. This
would reduce the amount of attractive investments for the Fund. If market demand
for Senior Loans increases, the interest paid by Senior Loans that the Fund
holds may decrease. Also, the Fund may have difficulty finding Senior Loans to
invest in that meet its credit criteria.
Special Risks of Lower-Grade Securities. The Fund can invest up to 100% of
its total assets in Senior Loans and other securities that are rated below BBB
by Standard & Poor's or Moody's or another rating organization, or, if unrated,
considered by the Manager to be of comparable quality. These obligations are
below investment grade. The Fund may also invest in other debt obligations rated
C or D by Standard & Poor's or Moody's or that are in default at the time of
purchase. Debt securities below investment grade tend to offer higher yields
than investment grade securities to compensate investors for the higher risk,
and are commonly referred to as "junk bonds."
Lower-grade securities involve much higher risk than investment grade
securities and may be considered speculative. These securities may expose the
Fund to financial, market and interest rate risks and credit risks that are
significantly greater than the risks associated with investment-grade
securities. To the extent that the Fund holds lower grade securities, its net
asset values are likely to fluctuate more, especially in response to economic
downturns. A projection of an economic downturn or a period of rising interest
rates, for example, could cause a decline in the prices of high-yield
securities. The prices of high-yield securities structured as zero-coupon or
pay-in-kind securities may be more volatile than securities that pay interest
periodically and in cash. In addition, the secondary market for high-yield
securities generally is less liquid than the market for investment-grade bonds.
The lack of liquidity could adversely affect the price at which the Fund could
sell a high-yield security.
Illiquidity of Fund Shares. The Fund is a closed-end investment company designed
primarily for long-term investors and not as a trading vehicle. The Fund does
not intend to list its shares on any national securities exchange or arrange for
their quotation on any over-the-counter market. The Fund's shares are not
readily marketable, and you should consider them to be illiquid. For these
reasons, the Fund has adopted a policy to offer each quarter to repurchase
between 5% and 25% of the shares outstanding. Under certain circumstances, you
may pay an early withdrawal charge if your shares are accepted for repurchase in
a periodic Repurchase Offer. See "Periodic Repurchase Offers" and "How to Buy
Shares." In addition, there is no guarantee that you will be able to sell all
the shares that you desire to sell during any one Repurchase Offer.
Year 2000 Risks. Because many computer software systems in use today cannot
distinguish the year 2000 from the year 1900, the markets for securities in
which the Fund invests could be detrimentally affected by computer failures
beginning January 1, 2000. Failure of computer systems used for securities
trading could result in settlement and liquidity problems for the Fund and other
investors. That failure could have a negative impact on the handling of
securities trades, pricing and accounting services. Data processing errors by
government issuers of securities could result in economic uncertainties, and
those issuers may incur substantial costs in attempting to prevent or fix such
errors, all of which could have a negative effect on the Fund's investments and
returns.
The Manager, the Distributor and the Transfer Agent have been working on
necessary changes to their computer systems to deal with the year 2000 and
expect that their systems will be adapted in time for that event, although there
cannot be assurance of success. Additionally, the services they provide depend
on the interaction of their computer systems with those of brokers, information
services, the Fund's Custodian Bank and other parties. Therefore, any failure of
the computer systems of those parties to deal with the year 2000 may also have a
negative effect on the services they provide to the Fund. The extent of that
risk cannot be ascertained at this time.
Concentration. Although the Fund cannot invest 25% or more of its total assets
in securities or obligations of borrowers in a single industry, the Fund may
look to the creditworthiness of the agent bank and other intermediate
participants in a Senior Loan as "issuers" of a Senior Loan. Those parties
typically are commercial banks, thrift institutions, insurance companies and
finance companies (and their holding companies). Therefore the Fund may be
deemed to be concentrated in the group of industries including the financial
services and banking industries, and will be subject to the risks associated
with institutions in those industries.
Risks of Foreign Investing. The Fund can invest in Senior Loans and unsecured
loans that are made to, or other debt securities issued by, foreign borrowers or
U.S. subsidiaries of foreign borrowers. While the Fund's Senior Loans must be
dollar-denominated, and interest and principal payments must be payable in U.S.
dollars, foreign obligations have risks not typically involved in domestic
investments.
Foreign investing can result in higher transaction and operating costs for
the Fund. Foreign issuers are not subject to the same accounting and disclosure
requirements that U.S. issuers are subject to. The value of foreign investments
may be affected by exchange control regulations, expropriation or
nationalization of a company's assets, foreign taxes, delays in settlement of
transactions, changes in governmental economic or monetary policies in the U.S.
or abroad, or other political and economic factors. Foreign countries may impose
withholding taxes on income paid on the debt securities of issuers in those
countries. The Fund may experience difficulty in repatriating foreign assets to
the U.S. See "Foreign Investments."
Risks of Using Derivatives and Hedging Strategies. If the Manager uses a
derivative instrument at the wrong time or judges market conditions incorrectly,
these strategies may result in a significant loss to the Fund and may reduce the
Fund's performance. The Fund could also experience losses if the prices of its
hedging instruments, futures and options positions were not properly correlated
with its other investments or if it could not close out a position because of an
illiquid market for the future, option or derivative instrument.
There are special risks in particular hedging strategies that the Fund may
use. For example, if a covered call written by the Fund is exercised on an
investment that has increased in value above the call price, the Fund will be
required to sell the investment at the call price and will not be able to
realize any profit on the investment above the call price. In writing a put,
there is a risk that the Fund may be required to buy the underlying security at
a disadvantageous price if the market value is below the put price.
How Risky is the Fund Overall? Investing in a closed-end fund like the Fund
presents the risk that you may not be able to dispose of your investment readily
when you want to, even though the Fund will make quarterly Repurchase Offers for
a portion of its shares. The Fund's investment risks mean that the Fund's share
prices can go up or down, despite the expectation that investments in adjustable
rate Senior Loans may reduce short-term price volatility. The Fund's other fixed
income investments may also be subject to short-term price volatility. The
Fund's emphasis on investments in loans exposes the Fund to the credit risks of
the borrowers who might not meet their debt service requirement in a timely
fashion, which could reduce the Fund's income, and subject it to losses of
principal value as well, even though most of the Fund's investments are
collateralized.
The Fund has significantly more risks than a money market fund, but is
expected to have less share price volatility than bond funds emphasizing
investments in medium and long-term investments.
Use of Proceeds of the Fund's Offering
The Fund will use the proceeds of the offering of its shares to invest in
accordance with its investment objectives and policies. Those proceeds will be
reduced by the Fund's organizational and initial offering expenses, that will be
amortized over a 5-year period starting on the commencement of the Fund's
operations. Because at the date of this Prospectus the Fund is a new fund, the
investment of those proceeds in Senior Loans and other debt securities will
depend upon the amount and timing of proceeds available to the Fund as well as
the availability of Senior Loans and other debt securities. The investment of
80% of the Fund's total assets in Senior Loans may not occur for 90 days or more
after the Fund commences its offering, and in the interim the Fund may invest
its assets in short-term money market obligations and other high-quality
short-term debt securities. This may result in a lower level of income for the
Fund during that period.
The Fund and Its Investments
The Fund is a closed-end, non-diversified management investment company,
organized as a Massachusetts business trust on June 2, 1999. The Fund
continuously offers its shares through the Distributor.
What is the Fund's Investment Objective? The Fund seeks as high a level of
current income and preservation of capital as is consistent with investing
primarily in senior floating rate loans and other debt obligations. There is no
assurance that the Fund will achieve its investment objective. The Fund's
objective is not fundamental, which means that the Fund's Board of Trustees can
change the Fund's objective without shareholder approval. However, the objective
will not be changed without prior notice to shareholders.
What Are the Fund's Principal Investment Policies? The allocation of the Fund's
portfolio among the different types of permitted investments will vary over time
based upon the evaluation of economic and market trends by the Manager. Under
normal circumstances: o the Fund will invest at least 80% of its total assets in
Senior Loans, rated B or higher by one or more rating organizations, or, if
unrated, determined to be of comparable quality by the Manager.
o the Fund may invest up to 20% of its total assets in other investments,
including:
o unsecured senior floating rate loans
o secured or unsecured short-term investment grade debt obligations
o debt obligations (other than senior loans) of foreign issuers and
foreign governments (but not in emerging markets)
o secured or unsecured fixed-rate loans
o equity securities, including stocks and warrants
o asset-backed securities, such as collateralized loan obligations
o cash and cash equivalents
The Fund may also invest in derivative instruments, such as options,
currency and interest rate swap agreements, futures and structured notes, to
hedge the Fund's portfolio or to seek to enhance income. These investments and
strategies are described in detail below.
How Do the Portfolio Managers Decide What Investments to Buy or Sell? In
selecting investments for the Fund, the Fund's portfolio managers evaluate
overall investment opportunities and risks of the types of investments the Fund
can hold. They analyze the credit standing and risks of borrowers whose loans or
debt securities they are considering for the Fund's portfolio. They evaluate
information about borrowers from their own research or supplied by agent banks
as well as other sources. They select only those Senior Loans made to borrowers
and debt securities issued by borrowers that they believe are likely to pay the
interest and repay the principal on their indebtedness when it becomes due. The
portfolio managers consider many factors, including among others, o the
borrower's past and expected future financial performance o the experience and
depth of the borrower's management o the collateral for the loan or other debt
security in which the Fund proposes to invest
o the borrower's tangible assets and cash flows
o in the case of participation interests in and assignments of loans, the
credit quality of the debt obligations of the agent bank servicing the
loan and other intermediaries imposed between the borrower and the Fund
to assure their indebtedness is investment grade.
Can the Fund's Investment Objective and Policies Change? The Fund's Board of
Trustees can change non-fundamental investment policies without shareholder
approval, although significant changes will be described in amendments to this
Prospectus. Fundamental policies cannot be changed without the approval of a
majority of the Fund's outstanding voting shares. The Fund's investment
objective is not a fundamental policy. Some investment restrictions that are
fundamental policies are listed in the Statement of Additional Information. An
investment policy is not fundamental unless this Prospectus or the Statement of
Additional Information says that it is.
Senior Loans. The Senior Loans the Fund invests in are loans made to U.S.
or foreign corporations, partnerships or other business entities (referred to as
"borrowers"). The Senior Loans are often issued in connection with
recapitalizations, acquisitions, leveraged buyouts, and refinancings of
borrowers. The Fund's Senior Loans, including loans to foreign borrowers, must
be U.S. dollar-denominated and interest and principal must be payable in U.S.
dollars. The Fund's Senior Loans must also be fully secured by collateral, as
discussed below.
What Are Floating Interest Rates? Senior loans are debt obligations on
which interest is payable at rates that adjust periodically, using a base rate
plus a premium or spread above the base rate. The base rate usually is a
benchmark that floats or changes to reflect current interest rates, such as o
the prime rate offered by one or more major U.S. banks (referred to as the
"Prime Rate") or o the London Inter-Bank Offered Rate ("LIBOR"), or o the
certificate of deposit ("CD") rate or other base rate used by commercial
lenders.
The applicable rate is defined in the loan agreement. Borrowers tend to
select the base lending rate that results in the lowest interest cost, and the
rate selected may change from time to time. If the benchmark interest rate on a
Senior Loan changes, the rate payable to lenders under the Senior Loan will, in
turn, change at the next scheduled adjustment date. If the benchmark rate
increases, the Fund would earn interest at a higher rate, but after the
adjustment date. If the benchmark rate decreases, the Fund would earn interest
at a lower rate after the adjustment date.
Interest rates may adjust daily, monthly, quarterly, semi-annually or
annually. The Fund does not intend to invest more than 5% of its total assets in
Senior Loans with interest rates that adjust less often than semi-annually. The
Fund may use interest rate swap agreements and other investment practices to
shorten the effective interest rate adjustment period of a Senior Loan. Because
investments in Senior Loans with longer interest rate adjustment periods may
increase fluctuations in the Fund's net asset values as a result of interest
rate changes, the Fund will attempt to maintain a dollar-weighted average time
until the next interest rate adjustment of 90 days or less for its portfolio of
Senior Loans.
How Are Senior Loans Created? Senior Loans typically are negotiated
between a borrower and one or more commercial banks or other financial
institutions as lenders, represented by one or more lenders acting as agent of
all of the lenders and are syndicated among a group of commercial banks and
financial institutions.
The agent is responsible for negotiating the terms of the loan agreement
that establishes the terms and conditions of the Senior Loan and the rights of
the borrower and the lenders. The agent typically administers and enforces the
loan on behalf of the other lenders in the syndicate. The agent normally is
responsible to collect principal and interest payments from the borrower and to
apportion those payments among the lenders that are parties to the agreement.
The borrower compensates the agent for its services. That compensation may
include fees for funding and structuring the loan as well as fees on a
continuing basis for other services. The purchaser of a Senior Loan may receive
certain syndication or participation fees in connection with its purchase. Other
fees payable with respect to a Senior Loan, which are separate from interest
payments, may include facility, commitment, amendment and prepayment fees.
The Fund will generally rely on the agent under a particular Senior Loan
to collect the Fund's portion of the loan payments, and to use any appropriate
remedies against the borrower if necessary. In addition, an institution (which
may or may not be the agent) holds any collateral under the loan on behalf of
the lenders. If the agent under a Senior Loan became insolvent or was declared a
bankrupt or had a receiver appointed, the agent's appointment under the Senior
Loan may be terminated and a successor would be appointed. While the assets held
under the loan should remain available to the lenders, if these assets were
determined by a court or regulatory authority to be subject to the claims of the
agent's creditors, the Fund might incur delays and costs in realizing payment on
the loan, or it might suffer a loss of principal and/or interest.
Senior Loans often provide for restrictive covenants designed to limit the
activities of the borrower in an effort to protect the right of Lenders to
receive timely payments of interest on and repayment of principal of the Senior
Loans.
How Does the Fund Invest in Senior Loans? The Fund may act as one of the
original lenders originating a Senior Loan, or it may purchase an assignment of
portions of Senior Loans from third parties, or it may invest in participation
interests in Senior Loans. Senior Loans also include debt obligations of foreign
borrowers that are in the form of dollar-denominated notes rather than loan
agreements.
The Fund may be required to pay and may receive various fees and
commissions in connection with buying, selling and holding interests in Senior
Loans. Borrowers typically pay a variety of fees to lenders when a Senior Loan
is originated. The Fund may receive those fees directly if it acts as an
original lender or if it acquires an assignment of a Senior Loan. When the Fund
buys an assignment, it may be required to pay a fee to the assigning lender or
forgo a portion of the interest or fees payable to it. The seller of a
participation interest may deduct a portion of the interest and any fees payable
to the Fund as an administrative fee. Similarly, the Fund might be required to
pass along to a buyer of a Senior Loan from the Fund a portion of the fees that
the Fund is entitled to.
The Fund may have obligations under a Senior Loan, including the
obligation to make additional loans in certain circumstance. In that case, the
Fund will reserve against that contingency by segregating on its books cash or
other liquid securities in an amount equal to the obligation. The Fund will not
purchase a Senior Loan that would require the Fund to make additional loans if
as a result of that purchase all of the Fund's additional loan commitments would
exceed 20% of the Fund's total assets or would cause the Fund to fail to meet
the diversification requirements imposed under the Internal Revenue Code to
qualify as an investment company.
o Acting as an Original Lender. When the Fund acts as an original lender,
it participates in structuring the Senior Loan. As an original lender
it will have a direct contractual relationship with the borrower and
may enforce the borrower" compliance with the terms of the loan
agreement. The Fund may also have rights with respect to any funds
acquired by other lenders as a set-off against the borrower. Lenders
have full voting and consent rights under lending agreements. Action
by lender votes or consent may require approval of a specified
percentage of lenders, or, in some cases, unanimous consent. The Fund
will not act as the agent or collateral holder for a Senior Loan, nor
as a guarantor or sole negotiator with respect to a Senior Loan.
o Buying Assignments of Loans. If the Fund purchases an Assignment from a
lender, the Fund typically will succeed to all of the rights and
obligations under the loan agreement of the assigning Lender and will
generally become a "lender" for the purposes of the particular loan
agreement. In that case the Fund will have direct contractual rights
under the loan agreement and any related collateral security documents
in favor of the lenders under that loan agreement. In some cases the
rights and obligations acquired by a purchaser of an assignment may
differ from, and be more limited than, those held by the assigning
lender.
o Buying Participation Interests. Participation interests may be acquired
from a lender or from other holders of participation interests. If the
Fund buys a participation interest from a lender or other Participant,
the Fund will not have a direct contractual relationship with the
borrower and will be required to rely on the lender or participant
that sold the participation interest to enforce the Fund's rights
against the borrower and also to collect payments due under the Senior
Loan. In that case, the Fund is subject to the credit risk of both the
borrower and the selling lender or participant interposed between the
borrower and the Fund under the loan (these are referred to as
intermediate participants).
In the case of participation interests the Fund might have to
assert any rights as it may have against the borrower through an
intermediate participant if the borrower fails to pay interest and
principal when due. In that case the Fund may be subject to greater
delays, risks and expenses than if the Fund could assert its rights
directly against the borrower. The Fund may not have any right to vote
on whether to waive enforcement of restrictive covenants breached by a
borrower, and may not benefit directly from collateral supporting the
Senior Loan in which it has purchased a participation interest.
Also, under a participation interest the Fund might be deemed to be
a creditor of the intermediate participant rather than the borrower, so
that the Fund will be exposed to the credit risks of the intermediate
participant. Therefore, the Fund will invest in loans through the
purchase of participation interests only if at the time of investment
the outstanding debt obligations of the Agent bank and any intermediate
participants are investment grade. That means they must be rated BBB or
A-3 or higher by Standard & Poor's, or Baa or P-3 or higher by Moody's,
or have a similar rating by another rating organization. If they are
unrated, they must be deemed comparable to investment grade securities
by the Manager.
What is the Priority of a Senior Loan? Senior Loans generally hold a
senior position in the capital structure of the borrower. They may include loans
that hold the most senior position, loans that hold an equal ranking with other
senior debt, or loans that are, in the judgment of the Manager, in the category
of senior debt of the borrower. This senior position in the borrower's capital
structure generally gives the holders of Senior Loans a claim on some or all of
the borrower's assets that is senior to that of subordinated debt, preferred
stock and common stock of the borrower in the event that the borrower defaults
or becomes bankrupt.
Does the Fund Have Collateral Requirements for Senior Loans? The Senior
Loans in which the Fund invests must be collateralized with (1) working capital
assets, such as accounts receivable and inventory, (2) tangible fixed assets,
such as real property, buildings and equipment, (3) intangible assets such as
trademarks or patents, or (4) security interests in shares of stock of
subsidiaries or affiliates. A loan agreement may or may not require the borrower
to pledge additional collateral to secure a Senior Loan if the value of the
initial collateral declines.
Collateral may consist of assets that may not be readily liquidated, and
there is no assurance that the liquidation of those assets would satisfy a
borrower's obligations under a Senior Loan. In the case of loans to a non-public
company, the company's shareholders or owners may provide collateral in the form
of secured guarantees and/or security interests in assets that they own.
The Fund will not invest in Senior Loans unless, at the time of
investment, the Manager determines that the value of the collateral equals or
exceeds the aggregate outstanding principal amount of the Senior Loan. The Fund
may invest up to 20% of its total assets in Senior Loans that are not secured by
specific collateral. Unsecured Senior Loans involve a greater risk of loss.
Can Senior Loans Affect Concentration of Investments? The Fund can invest
in Senior Loans to borrowers engaged in any industry. The Fund cannot invest 25%
or more of its total assets in Senior Loans to borrowers and securities of other
issuers in any one industry. Selling lenders and other intermediaries positioned
between the Fund and the borrower will likely be in the banking, finance and
financial services industries. The Fund may be deemed to be concentrated in that
group of industries and therefore may be more at risk from any single economic,
political or regulatory occurrence affecting those industries. Companies in the
financial services industries may be more susceptible to particular economic and
regulatory events such as fluctuations in interest rates, changes in the
monetary policy of the Board of Governors of the Federal Reserve System,
governmental regulations concerning those industries and affecting capital
raising activities and fluctuations in the financial markets.
Does the Fund Have Credit Quality Standards for Senior Loans? Rating
organizations, such as Standard & Poor's or Moody's Investor Services, rate debt
obligations by rating the issuer, after evaluating the issuer's financial
soundness. Generally, the lower the investment rating, the more risky the
investment. Securities rated below "BBB-" by Standard & Poor's or "Baa3" by
Moody's are commonly referred to as "junk bonds." The Fund will invest at least
80% of its total assets in Senior Loans that are rated "B" or higher by one or
more rating organizations, or, if unrated, determined by the Manager to be of
comparable quality. Senior Loans rated "B" generally are below investment grade
and are regarded by rating organizations as predominantly speculative with
respect to the borrower's ability to repay interest and principal when due over
a long period.
The Fund may invest in Senior Loans that are rated both investment grade
and below investment grade by different rating organizations. The Fund can
invest up to 100% of its assets in Senior Loans that are below investment grade.
Many Senior Loans are not rated by rating organizations. The lack of a rating
does not necessarily imply that a loan is of lesser investment quality. There is
no limit on the Fund's investment in unrated Senior Loans. Appendix A to the
Statement of Additional Information includes the definitions of the rating
categories of the principal rating organizations.
How Does the Manager Analyze Senior Loans? The Manager performs its own
credit analysis of Senior Loans. The Manager obtains information from the Agents
that originate or administer the loans, other lenders and other sources. If a
Senior Loan is rated, the Manager will also evaluate the rating organization's
information about the borrower. The Manager will continue to analyze the credit
of a Senior Loan while the Fund owns that Senior Loan.
In its analysis, the Manager may consider many factors, including the
borrower's past and future projected financial performance; the quality and
depth of management; the quality of the collateral; the borrower's cash flow;
factors affecting the borrower's industry; the borrower's position in the market
and its tangible assets. Typically, the borrowers use the proceeds of Senior
Loans to finance leveraged buyouts, recapitalizations, mergers, acquisitions,
stock repurchases, debt refinancings, and, to a lesser extent, other purposes.
Those may be highly leveraged transactions that pose special risks.
The Manager will consider a Senior Loan for the Fund's portfolio only if
the Manager determines that a borrower under a Senior Loan is likely to repay
its obligations. For example, the Manager may determine that a borrower can meet
debt service requirements from cash flow or other sources, including the sale of
assets, despite the borrower's low credit rating. The Manager may determine that
Senior Loans of borrowers that are experiencing financial distress, but that
appear able to pay their interest, present attractive investment opportunities.
There can be no assurance that the Manager's analysis will disclose factors that
may impair the value of a Senior Loan.
Does the Fund Have Maturity Limits for Senior Loans? The Fund has no
limits as to the maturity of Senior Loans it may purchase. Senior loans
typically have a stated term of between five and nine years. However, because
Senior Loans typically amortize principal over their stated life and frequently
are prepaid, their average credit exposure is expected to be two to three years.
Senior Loans usually have mandatory and optional prepayment provisions. If
a borrower prepays a Senior Loan, the Fund will have to reinvest the proceeds in
other Senior Loans or securities that may pay lower interest rates. However,
prepayment and facility fees the Fund received may help reduce any adverse
impact on the Fund's yield. Because the interest rates on Senior Loans adjust
periodically, the Manager believes that the Fund should generally be able to
reinvest prepayments in Senior Loans that have yields similar to those that have
been prepaid.
What are the Risks of Default on Senior Loans? Generally, Senior Loans
involve less risk from default than other debt obligations, because in most
instances they take preference over subordinated debt obligations and common
stock with respect to payment of interest and principal. However, the Fund is
subject to the risk that the borrower under a Senior Loan will default on
scheduled interest or principal payments. The risk of default will increase in
the event of an economic downturn or a substantial increase in interest rates
(which will increase the cost of the borrower's debt service as the interest
rate on its Senior Loan is upwardly adjusted). The Fund may own a debt
obligation of a borrower that is about to become insolvent. The Fund can also
purchase debt obligations that are issued in connection with a restructuring of
the borrower under bankruptcy laws.
o Collateralized Senior Loans. Senior Loans that the Fund will purchase
must be backed by collateral. However, the value of the
collateral may decline after the Fund buys the Senior Loan,
particularly if the collateral consists of equity securities of the
borrower or its affiliates. If a borrower defaults, insolvency laws
may limit the Fund's access to the collateral, or the borrower may be
unable to liquidate the collateral. If the collateral becomes illiquid
or loses substantially all of its value, the collateral may not be
sufficient to protect the Fund in the event of a default of scheduled
interest or principal payments. See "Highly Leveraged Transactions" and
"Insolvency Considerations With Respect to Borrowers of Senior Loans,"
below.
The Manager will value the collateral for loans by methods that may
include reference to the borrower's financial statements, an independent
appraisal, or obtaining market values from pricing services. The Manager
may assign a value to the collateral that is higher than the value
assigned by the borrower. The agent bank for a loan may rely on
independent appraisals, but the agent may be unable to obtain them in
all cases. If a lender accelerates the repayment of a Senior Loan
because of the borrower's violation of a restrictive covenant under the
loan agreement, the borrower might default in payment of the Senior
Loan.
If a borrower defaults on a collateralized Senior Loan, the Fund may
receive assets other than cash or securities in full or partial
satisfaction of the borrower's obligation under the Senior Loan. Those
assets may be illiquid, and the Fund might not be able to realize the
benefit of the assets for legal, practical or other reasons. The Fund
might hold those assets until the Manager determined it was appropriate
to dispose of them.
o Highly Leveraged Transactions. The Fund can invest a significant
portion of its assets in Senior Loans issued in connection with highly
leveraged transactions. These transactions may include operating
loans, leveraged buyout loans, leveraged capitalization loans, and
other types of acquisition financing. The Fund can also invest in
Senior Loans of borrowers that are experiencing, or are likely to
experience, financial difficulty. In addition, the Fund can invest in
Senior Loans of borrowers that have filed for bankruptcy protection or
that have had involuntary bankruptcy petitions filed against them by
creditors. Those Senior Loans are subject to greater credit and
liquidity risks than other Senior Loans.
o Insolvency Considerations With Respect to Borrowers. Various laws
enacted for the protection of creditors may apply to Senior Loans. A
bankruptcy proceeding could delay or limit the ability of the Fund to
collect the principal and interest payments on Senior Loans. In a
lawsuit brought by creditors of a borrower under a Senior Loan, a court
or a trustee in bankruptcy could take certain actions that would be
adverse to the Fund. For example:
o Other creditors might convince the court to set aside a Senior Loan
or the collateralization as a "fraudulent conveyance" or
"preferential transfer." In this event, the court could recover
from the Fund the interest and principal payments that the borrower
made before becoming insolvent. There can be no assurance that the
Fund would be able to prevent that recapture.
o A bankruptcy court may restructure the payment obligations under
the Senior Loan so as to reduce the amount to which the Fund would
be entitled.
o The court might discharge the amount of the Senior Loan that
exceeds the value of the collateral.
o The court could subordinate the Fund's rights to the rights of
other creditors of the borrower under applicable law.
Although the Fund's senior or collateralized position under a Senior
Loan provides some assurance that the Fund would be able to recover most
of its investment in the event of a borrower's default, the collateral
might be insufficient to cover the borrower's debts. A bankruptcy court
might find that the collateral securing the Senior Loan is invalid or
require the borrower to use the collateral to pay other outstanding
obligations. If the collateral consists of stock of the borrower or its
subsidiaries, the stock may lose all of its value in the event of a
bankruptcy, which would leave the Fund exposed to greater potential
loss.
o Decline in Market Value. If a borrower defaults on a scheduled interest
or principal payment on a Senior Loan, the Fund may experience a
reduction of its income. In addition, the value of the Senior Loan would
decline, which may, in turn, cause the Fund's net asset values to fall.
Other Investments. Under normal circumstances, the Fund can invest up to 20% of
its total assets (measured at the time of purchase) in investments other than
Senior Loans. Those other investments are described below. More information can
be found about them in the Statement of Additional Information.
Subordinated Debt Obligations. The Fund can purchase fixed-rate and
adjustable-rate subordinated debt obligations rated B or better by a rating
organization or, if unrated, judged by the Manager to be of comparable quality.
Subordinated debt obligations do not have the same level of priority as Senior
Loans and accordingly involve more risk than Senior Loans. If a borrower becomes
insolvent, the borrower's assets may be insufficient to meet its obligations to
the holders of its subordinated debt.
Short-Term, Investment-Grade Debt Obligations. The Fund can hold cash and
invest in cash equivalents such as highly-rated commercial paper, bank
obligations, repurchase agreements, Treasury bills and short-term U.S.
government securities.
Repurchase Agreements. The Fund can acquire securities subject to
repurchase agreements. It might do so for liquidity purposes to meet anticipated
repurchases of Fund shares, or pending the investment of the proceeds from sales
of Fund shares, or pending the settlement of portfolio securities transactions,
or for temporary defensive purposes, as described below.
In a repurchase transaction, the Fund buys a security from, and
simultaneously resells it to, an approved vendor for delivery on an agreed-upon
future date. The resale price exceeds the purchase price by an amount that
reflects an agreed-upon interest rate effective for the period during which the
repurchase agreement is in effect. Approved vendors include U.S. commercial
banks, U.S. branches of foreign banks, or broker-dealers that have been
designated as primary dealers in government securities. They must meet credit
requirements set by the Fund's Board of Trustees from time to time.
Unsecured Loans. The Fund can invest in floating rate senior loans that
are not secured by specific collateral of the borrower. They involve more risk
than secured loans. In particular, if the borrower is unable to pay interest or
defaults in the payment of principal, there will be no specific collateral on
which the Fund can foreclose. Additionally, the borrowers under these loans need
not meet the Fund's credit quality requirements for collateralized Senior Loans,
and therefore these loans may present great risks than collateralized Senior
Loans.
U.S. Government Securities. The Fund can invest in securities issued or
guaranteed by the U.S. Treasury or other government agencies or
federally-chartered corporate entities referred to as "instrumentalities."
These are referred to as "U.S. government securities" in this prospectus.
o U.S. Treasury Obligations. These include Treasury bills (which have
maturities of one year or less when issued), Treasury notes (which
have maturities of from one to ten years when issued), and Treasury
bonds (which have maturities of more than ten years when issued).
Treasury securities are backed by the full faith and credit of the
United States as to timely payments of interest and repayments of
principal. The Fund can also buy U.S. Treasury securities that have
been "stripped" of their coupons by a Federal Reserve Bank,
zero-coupon U.S. Treasury securities described below, and Treasury
Inflation-Protection Securities ("TIPS").
o Obligations Issued or Guaranteed by U.S. Government Agencies or
Instrumentalities. These include direct obligations and
mortgage-related securities that have different levels of credit
support from the U.S. government. Some are supported by the full
faith and credit of the U.S. government, such as Government National
Mortgage Association pass-through mortgage certificates (called
"Ginnie Maes"). Some are supported by the right of the issuer to
borrow from the U.S. Treasury under certain circumstances, such as
Federal National Mortgage Association bonds ("Fannie Maes"). Others
are supported only by the credit of the entity that issued them, such
as Federal Home Loan Mortgage Corporation obligations ("Freddie Macs").
Asset-Backed Securities. The Fund can buy asset-backed securities, which
are fractional interests in pools of receivables or loans that are
collateralized by the loans, other assets or receivables. They are issued by
trusts and special purpose corporations that pass the income from the underlying
pool to the buyer of the interest. These securities are subject to the risk of
default by the issuer as well as by the borrowers of the underlying loans in the
pool.
Neither the Fund nor the Manager select the borrowers whose loans are
included in the pools or the collateral backing those loans. Collateralized loan
obligations are subject to the credit risk of the borrower and the institution
that creates the pool, as well as prepayment risks.
Equity Securities and Warrants. The Fund can acquire warrants and other
equity securities as part of a unit combining the Senior Loan and equity
securities of a borrower or its affiliates. The acquisition of equity securities
will be incidental to the Fund's purchase of a loan. The Fund may also acquire
equity securities and warrants issued in exchange for a Senior Loan or in
connection with the restructuring of a Senior Loan, subordinated and unsecured
loans, and high-yield securities.
Equity securities include common stocks, preferred stocks, or securities
convertible into common stock. Common stocks and preferred stocks represent
shares of ownership in a corporation or business entity. Preferred stocks
usually pay dividends and have priority over the issuer's bonds, but not over
its common stock, in claims on the issuer's assets in the event of insolvency.
Convertible securities are debt obligations or preferred stocks that convert
into common stock and usually pay higher dividends than common stocks. The value
of convertible securities is typically affected by the value of the underlying
stock into which they convert. Warrants are options to buy a stated number of
shares of common stock at a specified price for a specific time period. Equity
securities are subject to financial and market risks and fluctuate in value.
Investments in Other Investment Companies. The Fund can purchase shares of
other investment companies to the extent permitted by the Investment Company
Act. Investment companies typically pay management, custodian and other
transaction costs. Therefore, the Fund would be subject to duplicate expenses to
the extent that it purchases shares of other investment companies.
Other Investment Strategies. In seeking its objective, the Fund can also use the
investment techniques and strategies described below. The Manager might not
always use all of the different types of techniques and investments described
below. These techniques involve certain risks, although some are designed to
help reduce investment or market risks.
High-Yield, Lower-Grade Debt Securities of U.S. Issuers. The Fund can
purchase a variety of lower-grade, high-yield debt securities of U.S. issuers,
including bonds, debentures, notes, preferred stocks, loan participation
interests, structured notes, asset-backed securities, among others, to seek high
current income. The Fund has no requirements as to the maturity of the debt
securities it can buy, or as to the market capitalization range of the issuers
of those securities. There are no restrictions on the amount that the Fund may
invest in debt securities below investment grade.
Lower-grade debt securities are those rated below Baa by Moody's or lower
than BBB by Standard & Poor's or that have comparable ratings by other rating
organizations or that are deemed to be of comparable quality by the Manager if
they are unrated. The Fund can invest in securities rated as low as C or D or
that are in default at the time the Fund buys them. These lower-grade securities
are sometimes called "junk bonds" and are considered speculative. While
securities rated Baa by Moody's or BBB by Standard & Poor's are considered
"investment grade," they have some speculative characteristics.
While investment-grade securities are subject to risks of non-payment of
interest and principal, lower-grade debt securities, whether rated or unrated,
have greater risks than investment-grade securities. They may be subject to
greater market fluctuations and risk of loss of income and principal than
investment-grade securities. There may be less of a market for them and
therefore they may be harder to sell at an acceptable price. There is a
relatively greater possibility that the issuer's earnings may be insufficient to
make the payments of interest and principal due on the bonds. These risks mean
that the Fund may not achieve the expected income from lower-grade securities,
and that the Fund's net asset values per share may be affected by declines in
value of these securities.
Foreign Securities. The Fund can invest in U.S. dollar-denominated Senior
Loans and can buy debt securities of governments and companies in countries that
the Manager deems to be developed countries. Not more than 20% of the Fund's
total assets may be invested in foreign securities, including Senior Loans.
While foreign securities offer special investment opportunities, there are also
special risks that can reduce the Fund's share prices and returns.
The change in value of a foreign currency against the U.S. dollar will
result in a change in the U.S. dollar value of securities denominated in that
foreign currency. Currency rate changes can also affect the distributions the
Fund makes from the income it receives from foreign securities as foreign
currency values change against the U.S. dollar. Foreign investing can result in
higher transaction and operating costs for the Fund. Foreign issuers are not
subject to the same accounting and disclosure requirements that U.S. companies
are subject to. The differences in foreign laws affecting creditors' rights may
pose special risks in the case of Senior Loans and other loans to foreign
borrowers.
The value of foreign investments may be affected by exchange control
regulations, expropriation or nationalization of a company's assets, foreign
taxes, delays in settlement of transactions, changes in governmental economic or
monetary policies in the U.S. or abroad, or other political and economic
factors. The Fund will not invest in securities of issuers in developing or
emerging market countries.
Zero-Coupon and "Stripped" Securities. Some of the government and
corporate debt securities the Fund can buy are zero-coupon obligations that pay
no interest. These securities are issued at a substantial discount from their
face value. "Stripped" securities are the separate income or principal
components of a debt security. Some collateralized loan obligations may be
stripped, with each component having a different proportion of principal or
interest payments. One class might receive all the interest and the other all
the principal payments.
Zero-coupon and stripped securities are subject to greater fluctuations in
price from interest rate changes than interest-bearing securities. The Fund may
have to pay out the imputed income on zero-coupon securities without receiving
the actual cash currently. Interest-only and principal-only securities are
particularly sensitive to changes in interest rates.
The values of interest-only securities are also very sensitive to
prepayments of underlying obligations. When prepayments tend to fall, the timing
of the cash flows to principal-only securities increases, making them more
sensitive to changes in interest rates. The market for some of these securities
may be limited, making it difficult for the Fund to dispose of its holdings at
an acceptable price. The Fund can invest up to 20% of its total assets in
zero-coupon securities issued by either the U.S. government or U.S.
companies.
"When-Issued" and "Delayed-Delivery" Transactions. The Fund can purchase
securities on a "when-issued" basis and may purchase or sell securities on a
"delayed-delivery" basis. These terms refer to securities that have been created
and for which a market exists, but which are not available for immediate
delivery. There might be a risk of loss to the Fund if the value of the security
declines prior to the settlement date.
Derivative Investments. The Fund can invest in a variety of "derivative"
investments, including futures contracts, put and call options, forward
contracts, options on futures and broadly-based securities indices, interest
rate swaps, currency swaps, total return swaps and structured notes. In general
terms, a derivative investment is an investment contract whose value depends on
(or is derived from) the value of an underlying asset, interest rate or index.
The Fund may use strategies with derivative instruments to hedge the Fund's
portfolio against price fluctuations. Some strategies, such as buying futures
and call options, would tend to increase the Fund's exposure to the securities
market. The Fund may also use derivative investments because they offer the
potential for increased income or a reduction of credit risk (by reducing the
effective maturity of an obligation). The Fund will not use derivative
instruments for speculative purposes. The Fund has established limits on its use
of derivative instruments. The Fund is not required to use them in seeking its
goal.
o Options, Futures and Options on Futures. The Fund can buy and sell
options, futures contracts and options on futures contracts for a
number of purposes. It might do so to try to manage its exposure to
the possibility that the prices of its portfolio securities may
decline, or to establish a position in the securities market as a
temporary substitute for purchasing individual securities. It might
do so to try to manage its exposure to changing interest rates. The
Fund will use them only as a means to hedge or manage the risks
associated with the assets it holds, or in anticipation of buying or
selling assets. Writing covered call options could be used to provide
income to the Fund for liquidity purposes or to raise cash to
distribute to shareholders.
o Forward Contracts. Forward contracts can be used to try to manage
foreign currency risks on the Fund's foreign investments. Foreign
currency options may be used to try to protect against declines in the
dollar value of foreign securities the Fund owns, or to protect against
an increase in the dollar cost of buying foreign securities.
o Interest Rate Swaps, Currency Swaps and Total Return Swaps. Interest
rate swaps involve the exchange by the Fund with another party of
their respective commitments or rights to pay or receive interest,
such as an exchange of fixed rate payments for Senior Loans. For
example, if the Fund holds a Senior Loan with an interest rate that is
adjusted only twice a year, it might swap the right to receive
interest at that fixed rate for the right to receive interest at a
rate that is adjusted every week. In that case, if interest rates
rise, the increased interest received by the Fund would help offset a
decline in the value of the Senior Loan. On the other hand, if
interest rates fall, the Fund's benefit from falling interest rates
would decrease.
Foreign currency swaps involve the exchange by the Fund and a
counterparty of the right to receive foreign currency for the right to
receive U.S. dollars. The relative amounts of the currencies to be
received by each party are fixed at the time the swap is entered into.
This locks in the right of the parties to receive a predetermined amount
of a particular currency. The Fund may use these swaps to try to protect
against fluctuations in exchange rates as to the currencies in which its
foreign investments are denominated.
In addition, the Fund can invest in total return swaps with
appropriate counterparties. Total return swaps involve the payment by
the Fund of a floating rate of interest in exchange for the total rate
of return on a Senior Loan. For example, instead of investing in a
particular Senior Loan, the Fund could instead enter into a total return
swap and receive the total return of the Senior Loan, less the "funding
cost," which is a floating rate payment to the counterparty.
Under a swap, the Fund typically pays a fee determined by multiplying
the face value of the swap agreement by an agreed-upon interest rate. If
the value of the underlying asset declines over the term of the swap,
the Fund would be required to pay the dollar value of that decline to
the counterparty in addition to the swap fees.
The Fund intends to invest in swap transactions only if they are
exempt from regulation by the Commodity Futures Trading Commission under
the Commodity Exchange Act. These qualifying swap transactions are
described in more detail in the Statement of Additional Information.
The risk of loss with respect to interest rate swaps and total return
swaps is limited to the current market value of the hedge at the time of
its expiration or termination. If the other party to a swap defaults,
then the Fund's risk of loss consists of the market value of the cost of
replacement. The Manager will evaluate the creditworthiness of interest
rate swap counterparties.
There is no central exchange or market for swap transactions and
therefore they are less liquid investments than exchange-traded
instruments. If the Fund were to sell a swap it owned to a third party,
the Fund would still remain primarily liable for the obligations under
the swap contract.
o "Structured" Notes. The Fund can buy "structured" notes, which are
specially-designed derivative debt investments. Their principal
repayments or interest payments are linked to the value of an index
(such as a currency or securities index) or commodity. The terms of the
instrument may be "structured" by the purchaser (the Fund) and the
borrower issuing the note.
The principal and/or interest payments depend on the performance of
one or more other securities or indices, and the values of these notes
will therefore fall or rise in response to the changes in the values of
the underlying security or index. They are subject to both credit and
interest rate risks and therefore the Fund could receive more or less
than it originally invested when the notes mature, or it might receive
less interest than the stated coupon payment if the underlying
investment or index does not perform as anticipated. Their values may be
very volatile and they may have a limited trading market, making it
difficult for the Fund to sell its investment at an acceptable price.
o Risks of Derivative Instruments. Markets underlying securities and
indices may move in a direction not anticipated by the Manager. Interest
rate and stock market changes in the U.S. and abroad may also influence
the performance of derivatives. As a result of these risks the Fund
could realize less principal or income from the investment than
expected. The Fund may hold certain derivative investments that are
illiquid.
Options trading involves the payment of premiums and has special tax
effects on the Fund. There are also special risks in particular hedging
strategies. For example, if a covered call written by the Fund is
exercised on an investment that has increased in value, the Fund will be
required to sell the investment at the call price and will not be able
to realize any profit if the investment has increased in value above the
call price. In writing a put, there is a risk that the Fund may be
required to buy the underlying security at a disadvantageous price.
If the Manager used a hedging instrument at the wrong time or judged
market conditions incorrectly, the strategy could reduce the Fund's
return. The Fund could also experience losses if the prices of its
futures and options positions were not correlated with its other
investments or if it could not close out a position because of an
illiquid market.
Temporary Defensive Investments. In times of unstable market or economic
conditions, the Fund can invest up to 100% of its assets in temporary defensive
investments. These would ordinarily be short-term U.S. government securities,
highly-rated commercial paper, bank obligations or repurchase agreements. To the
extent the Fund invests defensively in these securities, it might not achieve
the primary aspect of its investment objective, high current income.
Borrowing. The Fund can borrow money in amounts up to 33 1/3% of the value
of its total assets at the time of the borrowings. The Fund may borrow money to
finance the repurchase of shares through Repurchase Offers, to fund commitments
to purchase Senior Loans, and for other temporary, extraordinary or emergency
purposes. The Fund can also borrow money in anticipation of cash flows in and
out of the Fund. The Fund may obtain a line of credit from a financial
institution to finance share repurchases through Repurchase Offers. Typically,
that type of line of credit will bear interest at a floating rate.
The Fund will not borrow money for long-term leverage purposes. This
policy is not fundamental, and the Trustees may change this policy without
shareholder approval. The Fund will not purchase additional portfolio securities
at any time that borrowings exceed 5% of the Fund's total assets (excluding the
amount borrowed). Borrowing money involves transaction and interest costs. The
Fund may pay a commitment fee or other fee to maintain a line of credit, and
will pay interest on amounts it borrows. These costs can reduce the income the
Fund has available for distribution to investors.
Under the Investment Company Act, the Fund may not incur indebtedness
unless immediately after it incurs debt it has "asset coverage" of at least 300%
of the aggregate outstanding principal amount of the indebtedness. If the Fund
fails to meet that test, it may be restricted from declaring or paying
dividends. Failure to pay certain dividends could cause the Fund to fail to
qualify as a regulated investment company, which could make the Fund liable for
income and excise taxes. The Fund may be required to dispose of portfolio
investments on unfavorable terms if market fluctuations reduce its asset
coverage to less than 300%.
Lending Portfolio Securities. To raise cash for liquidity purposes or
income, the Fund can lend its portfolio securities to brokers, dealers and other
types of financial institutions approved by the Fund's Board of Trustees. These
loans are limited to not more than 25% of the value of the Fund's total assets.
The Fund currently does not intend to lend securities, but if it does so, such
loans will not likely exceed 5% of the Fund's total assets.
There are some risks in connection with securities lending. The Fund might
experience a delay in receiving additional collateral to secure a loan, or a
delay in recovery of the loaned securities if the borrower defaults. The Fund
must receive collateral for a loan. Under current applicable regulatory
requirements (which are subject to change), on each business day the value of
the loan collateral must be at least equal to the value of the loaned
securities. It must consist of cash, bank letters of credit, securities of the
U.S. government or its agencies or instrumentalities, or other cash equivalents
in which the Fund is permitted to invest. To be acceptable as collateral,
letters of credit must obligate a bank to pay amounts demanded by the Fund if
the demand meets the terms of the letter. The terms of the letter of credit and
the issuing bank both must be satisfactory to the Fund.
When it lends securities, the Fund receives amounts equal to the dividends
or interest on loaned securities. It also receives one or more of (a) negotiated
loan fees, (b) interest on securities used as collateral, and (c) interest on
any short-term debt securities purchased with the loan collateral. Either type
of interest may be shared with the borrower. The Fund may also pay reasonable
finders', custodian and administrative fees in connection with these loans. The
terms of the Fund's loans must meet applicable tests under the Internal Revenue
Code and must permit the Fund to reacquire loaned securities on five days'
notice or in time to vote on any important matter.
Performance Information
Explanation of Performance Terminology. The Fund uses a variety of terms to
illustrate its performance. These terms include "standardized yield," "dividend
yield," "average annual total return," and "cumulative total return." " The
Statement of Additional Information contains an explanation of how yields and
total returns are calculated.
After the first calendar quarter of Fund operations, you can obtain
current performance information for the Fund by calling the Fund's Transfer
Agent at 1-800-525-7048 or by visiting the OppenheimerFunds Internet web site at
http://www.oppenheimerfunds.com.
How the Fund Is Managed
The Manager. The Fund's Manager, OppenheimerFunds, Inc., chooses the Fund's
investments and handles its day-to-day business. The Manager selects the Fund's
portfolio securities and the brokers through which the Fund executes its
portfolio transactions, furnishes offices, facilities, and equipment, and
provides the services of its employees to carry out the Fund's business and
regulatory filings. The Manager performs its duties, subject to the policies
established by the Fund's Board of Trustees, under an Investment Advisory
Agreement that states the Manager's responsibilities. The Agreement sets the
fees paid by the Fund to the Manager and describes the expenses that the Fund is
responsible to pay to conduct its business. For example, the Fund pays for its
own brokerage costs, custodian, transfer agent, accounting and legal fees.
The Manager has operated as an investment adviser since January 1960. The
Manager (including subsidiaries) currently manages private accounts and
investment companies, including other Oppenheimer funds, with assets of more
than $110 billion as of June 30, 1999, and with more than 4 million shareholder
accounts. The Manager is located at Two World Trade Center, 34th Floor, New
York, New York 10048-0203.
Portfolio Managers. The portfolio managers of the Fund are Arthur Zimmer,
and Joseph Welsh. Mr. Zimmer is also a Vice President of the Fund and a
Senior Vice President of the Manager, and has been a portfolio manager with
OppenheimerFunds since 1990. He also serves as an officer and portfolio
manager for other Oppenheimer funds.
Mr. Welsh is an Assistant Vice President of the Manager and of the
Fund. He joined the Manager in January 1995 as a high yield bond analyst.
Prior to joining the Manager, Mr. Welsh was a high yield bond analyst for
W.R. Huff Asset Management (from November 1991 to December 1994).
Advisory Fees. Under the Investment Advisory Agreement, the Fund pays the
Manager an advisory fee at an annual rate that declines as the Fund's assets
grow: 0.75% of the first $200 million of average annual net assets of the Fund,
0.72% of the next $200 million, 0.69% of the next $200 million, 0.66% of the
next $200 million, and 0.60% of average annual net assets in excess of $800
million.
A b o u t Y o u r A c c o u n t
How to Buy Shares
How Do I Buy Shares? On the commencement of the Fund's public offering of its
shares on the date of this Prospectus, Class A, Class B and Class C shares of
the Fund will be offered at the net asset value of $10.00 per share. After that
date, the Fund will sell its Class B and Class C shares continuously at the
offering price for its classes of shares. The offering price will be the net
asset value per share of the particular class of shares next determined after
the Distributor, OppenheimerFunds Distributor, Inc., receives the purchase
order. You can buy shares several ways: o through any dealer, broker or
financial institution that has a sales
agreement with the Fund's Distributor, or
o directly through the Distributor, or
o automatically through an Asset Builder Plan under the OppenheimerFunds
AccountLink service.
The Distributor may appoint certain servicing agents to accept purchase
orders. The Distributor, in its sole discretion, may reject any purchase order
for the Fund's shares.
o Buying Shares Through Your Dealer. Your dealer will place your order
with the Distributor on your behalf.
o Buying Shares Through the Distributor. Complete an OppenheimerFunds New
Account Application and return it with a check payable to
"OppenheimerFunds Distributor, Inc." Mail it to P.O. Box 5270,
Denver, Colorado 80217. If you do not list a dealer on the
application, the Distributor will act as your agent in buying the
shares. However, we recommend that you discuss your investment with a
financial advisor before you make a purchase to be sure that the Fund
is appropriate for you.
You can pay for shares you purchase through the Distributor by Federal
Funds wire. The minimum investment is $2,500. Before sending a wire,
call the Distributor's Wire Department at 1-800-525-7048 to notify the
Distributor of the wire, and to receive further instructions.
o Buying Shares Through OppenheimerFunds AccountLink. With AccountLink,
you can purchase shares for your account on the regular business day the
Distributor initiates the Automated Clearing House (ACH) transfer to buy
the shares. You can provide those instructions automatically, under an
Asset Builder Plan, described below, or by telephone instructions using
OppenheimerFunds PhoneLink, also described below. Please refer to
"AccountLink," below for more details.
o Buying Shares Through Asset Builder Plans. You may purchase shares of
the Fund (and up to four other Oppenheimer funds) automatically each
month from your account at a bank or other financial institution under
an Asset Builder Plan with AccountLink. Details are in the Asset Builder
Application and the Statement of Additional Information.
How Much Must I Invest? You can buy Fund shares with a minimum initial
investment of $1,000 and make additional investments at any time with as
little as $25. There are reduced minimum investments under special investment
plans.
o With Asset Builder Plans, 403(b) plans, Automatic Exchange Plans and
military allotment plans, you can make initial and subsequent
investments for as little as $25. Subsequent purchases of at least $25
can be made by telephone through AccountLink.
o Under retirement plans, such as IRAs, pension and profit-sharing plans
and 401(k) plans, you can start your account with as little as $250. If
your IRA is started under an Asset Builder Plan, the $25 minimum
applies. Additional purchases may be as little as $25.
o The minimum investment requirement does not apply to reinvesting
dividends from the Fund or other Oppenheimer funds (a list of them
appears in the Statement of Additional Information, or you can ask your
dealer or call the Transfer Agent), or reinvesting distributions from
unit investment trusts that have made arrangements with the Distributor.
At What Price Are Shares Sold? The Fund sells its Class A and Class B shares at
their offering price, which is equal to the "net asset value" per share. The
offering price that applies to a purchase order is the net asset value per share
next calculated after the Distributor receives the purchase order at its offices
in Denver, Colorado, or after any agent appointed by the Distributor receives
the order and sends it to the Distributor.
The Fund calculates the net asset value of each class of shares as of the
close of The New York Stock Exchange, on each day the Exchange is open for
trading (referred to in this Prospectus as a "regular business day"). The
Exchange normally closes at 4:00 p.m., New York time, but may close earlier on
some days. (All references to time in this Prospectus mean "New York time").
o To buy shares at the offering price for a particular day, in most cases
the Distributor or its designated agent must receive your order by the
time of day The New York Stock Exchange closes that day. If your order
is received on a day when the Exchange is closed or after it has closed,
the order will receive the next offering price that is determined after
your order is received.
o If you buy shares through a dealer, your dealer must receive the order
by the close of The New York Stock Exchange and transmit it to the
Distributor so that it is received before the Distributor's close of
business on a regular business day (normally 5:00 p.m.) to receive that
day's offering price. Otherwise, the order will receive the next
offering price that the Fund determines.
How the Fund Calculates its Net Asset Values. For debt securities traded
in recognized market, the valuations are, in general based on market value. The
Board has adopted special procedures for valuing illiquid and restricted
securities and obligations for which market values cannot be readily obtained.
Because some foreign securities trade in markets and on exchanges that
operate on U.S. holidays and weekends, the value of some of the Fund's foreign
investments might change significantly on days when investors cannot buy shares.
The Fund determines the net asset value per share by dividing the value of the
Fund's net assets attributable to a class by the number of shares of that class
that are outstanding. To determine net asset value, the Fund's Board of Trustees
has established procedures to value the Fund's securities. Because Senior Loans
are not actively traded in a public market or exchange, the Manager values
Senior Loans held by the Fund at fair value, following procedures established by
the Fund's Board of Trustees. In making such valuations, the Manager considers
such factors and data as: (1) fundamental analytical data relating to the Senior
Loan, including the cost, size, current interest rate and base lending rate of
the Senior Loan, the terms and conditions of the loan agreement and any related
agreements, and the position of the loan in the borrower's capital structure,
(2) the creditworthiness of the borrower based upon an evaluation of its
financial condition, financial statements and information about its business
cash flows, capital structure and future prospects; (3) the nature, adequacy and
value of the collateral, (4) information relating to the market for the loan,
including any price quotations from reliable dealers for trading in the loan and
interests in similar loans, (5) the market environment and investor attitude
toward the loan and similar loans, (6) the reputation and financial condition of
the agent and any intermediate participants, and (7) general economic and market
conditions affecting the fair value of the loan.
What Classes of Shares Does the Fund Offer? The Fund has three different classes
of shares. The different classes of shares represent investments in the same
portfolio of securities, but the classes are subject to different expenses and
will likely have different share prices. When you buy shares, be sure to specify
the class of shares. If you do not choose a class, the Fund will issue you Class
B shares.
o Class A Shares. Class A shares are not available for direct purchase.
Class A shares will be available only upon automatic conversion of Class
B shares and by exchange of Class A shares of certain other Oppenheimer
funds on which a sales charge was paid. (See "Automatic Conversion of
Class B Shares," below.)
o Class B Shares. If you buy Class B shares, you pay no sales charge at
the time of purchase, but you will pay an annual asset-based sales
charge. If you tender your shares for repurchase and they are
repurchased by the Fund within five years after you originally bought
them, normally you will pay an Early Withdrawal Charge. That Early
Withdrawal Charge varies depending on how long you own your shares, as
described in "How Can I Buy Class B Shares?" below.
o Class C Shares. If you buy Class C shares, you pay no sales charge at
the time of purchase, but you will pay an annual asset-based sales
charge. If you sell your shares within 12 months after your originally
bought them, normally you will pay an Early Withdrawal Charge of 1%, as
described in "How Can I Buy Class C Shares?" below.
Which Class of Shares Should You Choose? Once you decide that the Fund is an
appropriate investment for you, the decision as to which class of shares is best
suited to your needs depends on a number of factors that you should discuss with
your financial adviser. Some factors to consider are how much you plan to invest
and how long you plan to hold your investment. If your goals and objectives
change over time and you plan to purchase additional shares, you should
re-evaluate those factors to see if you should consider another class of shares.
The Fund's operating costs that apply to a class of shares and the effect of the
different types of sales and early withdrawal charges on your investment will
vary your investment results over time.
The discussion below is not intended to be investment advice or a
recommendation, because each investor's financial considerations are different.
You should review these factors with your financial adviser. The discussion
below assumes that you will purchase only one class of shares and not a
combination of shares of different classes.
How Long Do You Expect to Hold Your Investment? While future financial
needs cannot be predicted with certainty, knowing how long you expect to hold
your investment will assist you in selecting the appropriate class of shares.
Because of the effect of class-based expenses, your choice will also depend on
how much you plan to invest. For example, after five years, Class B shares
convert to Class A shares, which have lower expenses than Class C shares.
o Investing for the Shorter Term. While the Fund is intended as a
long-term investment, if you have a relatively short-term investment
horizon (that is, you plan to hold your shares for less than six
years), you should probably consider purchasing Class C shares rather
than Class B shares. That is because of the effect of the Class B
early withdrawal charge if you tender your shares for repurchase
within six years, as well as the effect of the Class B asset-based
sales charge on the investment return for that class in the short
term. Class C shares might be the appropriate choice (especially for
investments of less than $100,000), because the early withdrawal
charge does not apply to amounts you tender for repurchase after
holding them one year.
o Investing for the Longer Term. If you are investing less than $100,000
for the longer-term, for example for retirement, and do not expect to
need access to your money for five years or more, Class B shares may be
appropriate.
Of course, these examples are based on approximations of the effect of
current sales and early withdrawal charges and expenses projected over time, and
do not detail all of the considerations in selecting a class of shares. You
should analyze your options carefully with your financial adviser before making
that choice.
How Does It Affect Payments to My Broker? A salesperson, such as a broker, may
receive different compensation for selling one class of shares than for selling
another class. It is important to remember that Class B and Class C early
withdrawal charges compensate the Distributor for commissions and expense
reimbursements it pays to dealers and financial institutions for selling shares.
The Distributor may pay additional compensation from its own resources to
securities dealers or financial institutions based upon the value of shares of
the Fund owned by the dealer or financial institution for its own account or for
its customers.
Are There Any Early Withdrawal Charge Waivers? Appendix C to the Statement of
Additional Information details the conditions for the waiver of early withdrawal
charges that apply in certain cases, or that apply to purchases of shares of the
Fund by certain groups, or under specified retirement plan arrangements or in
other special types of transactions.
How Can I Buy Class B Shares? The Fund sells Class B shares at their current net
asset value per share without an initial sales charge. However, if you tender
your Class B shares for repurchase in a Tender Offer and they are accepted for
repurchase within five years of the end of the month in which you originally
purchased them, the Fund will deduct an early withdrawal charge from the
repurchase proceeds. The Class B early withdrawal charge is used to compensate
the Distributor for its expenses in providing distribution-related services to
the Fund in connection with the sale of Class B shares.
The early withdrawal charge will be based on the lesser of the net asset
value of the repurchased shares at the time of repurchase or the original net
asset value. The early withdrawal charge is not imposed on: o the amount of your
share value represented by an increase in net asset value over the initial
purchase price, o shares purchased by the reinvestment of dividends or capital
gains distributions, or o shares repurchased in the special circumstances
described in Appendix C to the Statement of Additional Information.
To determine whether the early withdrawal charge applies to a
repurchase, the Fund repurchases shares in the following order:
1. shares you acquire by reinvestment of dividends and capital gains
distributions,
2. shares you have held for more than five years, and
3. shares you have held the longest during the five-year period.
The amount of the early withdrawal charge will depend on the number of
years since you invested and the dollar amount the Fund has repurchased,
according to the following schedule:
- ----------------------------------------------------------------------
Years Since the End of the Month Early Withdrawal Charge on
in Which Purchase Order was Shares Accepted for Repurchase
Accepted in a Tender Offer That Year (As
% of Amount Subject to Charge)
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
0 - 1 3.0%
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
1 - 2 2.0%
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
2 - 3 1.5%
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
3 - 4 1.5%
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
4 - 5 1.0%
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
5 and following None
- ----------------------------------------------------------------------
In the table, a "year" is a 12-month period. In applying the early withdrawal
charge, the Fund considers you to have purchased your shares on the first
regular business day of the month in which the purchase was made.
Automatic Conversion of Class B Shares. Class B shares automatically convert to
Class A shares six years after the end of the month in which you originally
purchased them. This conversion feature relieves Class B shareholders of the
asset-based sales charge that applies to Class B shares under the Class B
Distribution and Service Plan, described below. The conversion is based on the
relative net asset value of the two classes, and no early withdrawal charge or
other charge is imposed. When Class B shares convert, a pro-rata amount of your
Class B shares that were acquired by the reinvestment of dividends and
distributions on the converted shares will also convert to Class A shares. The
conversion feature is subject to the continued availability of a tax ruling
described in the Statement of Additional Information.
How Can I Buy Class C Shares? The Fund sells Class C shares at net asset value
per share without an initial sales charge. However, if you tender your Class C
shares for purchase in a Tender Offer within 12 months after the end of the
month in which you originally purchased them, the Fund will deduct an early
withdrawal charge of 1.0% from the repurchase proceeds. The Class C contingent
deferred sales charge is used to compensate the Distributor for its expenses in
providing distribution-related services to the Fund in connection with the sale
of Class C shares.
The early withdrawal charge will be based on the lesser of the net asset
value of the repurchased shares at the time of repurchase or the original net
asset value. The early withdrawal charge is not imposed on: o the amount of your
share value represented by an increase in net asset value over the initial
purchase price,
o shares purchased by the reinvestment of dividends or capital gains
distributions, or
o shares repurchased in the special circumstances described in Appendix C
to the Statement of Additional Information.
To determine whether the early withdrawal charge applies to a
repurchase, the Fund repurchases shares in the following order:
1. shares you acquire by reinvestment of dividends and capital gains
distributions,
2. shares you have held for more 12 months, and
3. shares you have held the longest during the 12-month period.
Distribution and Service Plans
Service Plan for Class A Shares. The Fund has adopted a Service Plan for
Class A shares. It reimburses the Distributor for a portion of its costs
incurred for services provided to accounts that hold Class A shares. The Fund
will pay this fee quarterly at an annual rate of up to 0.25% of the average
annual net assets of Class A shares of the Fund. The Distributor will use all of
those fees to pay dealers, brokers, banks and other financial institutions
quarterly for providing personal service and maintenance of accounts of their
customers that hold Class A shares.
Distribution and Service Plans for Class B and Class C Shares. The Fund
has adopted Distribution and Service Plans for Class B and Class C shares to pay
the Distributor for its services and costs in distributing Class B and Class C
shares and servicing accounts. Under the plans, the Fund pays the Distributor an
annual asset-based sales charge of 0.75% per year on Class B shares and on Class
C shares. The Fund also pays the Distributor a service fee of 0.25% per year
under each plan.
The asset-based sales charge and service fees increase Class B and Class C
expenses by 1.00% of the net assets per year of the respective class. Because
these fees are paid out of the Fund's assets on an ongoing basis, over time
these fees will increase the cost of your investment and may cost you more than
other types of sales charges.
The Distributor uses the service fees to compensate dealers for providing
personal services for accounts that hold Class B or Class C shares. The
Distributor pays the 0.25% service fees to dealers in advance for the first year
after the dealer has sold the shares. After the shares have been held for one
year, the Distributor pays the service fees to dealers on a quarterly basis.
The Distributor currently pays sales commission of 2.75% of the purchase
price of Class B shares to dealers from its own resources at the time of sale.
Including the advance of the service fee, the total amount that the Distributor
pays to the dealer at the time of sales of Class B shares is therefore 3.00% of
the purchase price. The Distributor retains the Class B asset-based sales
charge.
The Distributor currently pays sales commissions of 0.75% of the purchase
price of Class C shares to dealers from its own resources at the time of sale.
Including the advance of the service fee, the total amount that the Distributor
pays to the dealer at the time of sale of Class C shares is therefore 1.00% of
the purchase price. The Distributor pays the asset-based sales charge as an
ongoing commission to the dealer on Class C shares that have been outstanding
for a year or more.
Special Investor Services
AccountLink. You can use the OppenheimerFunds AccountLink feature to link your
Fund account with an account at a U.S. bank or other financial institution. It
must be an Automated Clearing House (ACH) member.
AccountLink lets you:
o transmit funds electronically to purchase shares by telephone (through a
service representative or by PhoneLink) or automatically under Asset
Builder Plans, or
o have the Transfer Agent send repurchase proceeds or transmit dividends
and distributions directly to your bank account. Please call the
Transfer Agent for more information.
You may purchase shares by telephone only after the Fund has established
your account. You can then purchase shares in amounts up to $250,000 through a
telephone representative. To do so, call the Distributor at 1-800-852-8457. The
Fund will debit the purchase payment from your bank account.
You should request AccountLink privileges on your purchase Application or
your dealer's settlement instructions if you buy your shares through a dealer.
You can also establish AccountLink privileges after you open your Fund account
by sending signature-guaranteed instructions to the Transfer Agent. AccountLink
privileges will apply to each shareholder listed in the registration on your
account as well as to your dealer representative of record unless and until the
Transfer Agent receives written instructions terminating or changing those
privileges. After you establish AccountLink for your account, you can change any
bank account information by providing signature-guaranteed instructions to the
Transfer Agent signed by all shareholders who own the account.
PhoneLink. PhoneLink is the OppenheimerFunds automated telephone system that
enables shareholders to perform a number of account transactions automatically
using a touch-tone phone. You may use PhoneLink on already established Fund
accounts after you obtain a Personal Identification Number (PIN), by calling the
special PhoneLink number, 1-800-533-3310.
Purchasing Shares. You may purchase shares in amounts up to $100,000 by
phone, by calling 1-800-533-3310. You must have established AccountLink
privileges to link your bank account with the Fund to pay for these purchases.
Exchanging Shares. With the OppenheimerFunds Exchange Privilege, described
below, you can request exchanges of your Fund shares by phone to another
OppenheimerFunds account you have already established by calling the special
PhoneLink number. You can exchange shares only in connection with a repurchase
through a Repurchase Offer.
OppenheimerFunds Internet Web Site. You can obtain information about the Fund,
as well as your account balance, on the OppenheimerFunds Internet web site, at
http://www.oppenheimerfunds.com. Additionally, shareholders listed in the
account registration (and the dealer of record) may request certain account
transactions through a special section of that web site. To perform account
transactions, you must first obtain a personal identification number (PIN) by
calling the Transfer Agent at 1-800-533-3310. If you do not want to have
Internet account transaction capability for your account, please call the
Transfer Agent at 1-800-525-7048.
Retirement Plans. You may buy shares of the Fund for your retirement plan
account. If you participate in a plan sponsored by your employer, the plan
trustee or administrator must buy the shares for your plan account. The
Distributor also offers a number of different retirement plans that can be used
by individuals and employers: o Individual Retirement Accounts (IRAs), including
regular IRAs, Roth IRAs, SIMPLE IRAs, rollover IRAs and Education IRAs.
o SEP-IRAs, which are Simplified Employee Pensions Plan IRAs for small
business owners or self-employed individuals.
403(b)(7) Custodial Plans, that are tax-deferred plans for employees of
eligible tax-exempt organizations, such as schools, hospitals and
charitable organizations.
o 401(k) Plans, which are special retirement plans for businesses.
o Pension and Profit-Sharing Plans, designed for businesses and
self-employed individuals.
Please call the Distributor for OppenheimerFunds retirement plan
documents, which include applications and important plan information.
Special Considerations for Retirement Plan Investors. Unlike shares of an
open-end fund, the Fund' shares are not redeemable daily and unlike traditional
closed-end funds, the Fund has not registered its shares on an exchange.
Therefore the Fund's shares cannot be readily sold. Although the Fund has
adopted a policy of making quarterly Repurchase Offers, they may not provide
retirement plan investors with the degree of liquidity they may need to make
mandatory retirement plan distributions. Even during a Repurchase Offer, a
retirement plan investor might not be able to have all of the shares repurchased
that are necessary to meet minimum distribution requirements. Accordingly,
retirement plan investors may wish to consider limiting the amount of their plan
assets that are invested in the Fund.
Periodic Repurchase Offers
The Fund has adopted repurchase policies, described below. Each quarter,
the Fund intends to make a "Repurchase Offer," to repurchase a portion of the
Fund's outstanding shares from shareholders. The Repurchase Offers are designed
to provide some liquidity for Fund investors who wish to sell some or all of
their shares, because the Fund is not aware of any currently existing secondary
market for its shares. It does not anticipate that a secondary market will
develop. A secondary market is a market, exchange facility or system for quoting
bid and asking prices where investors can readily buy and sell securities after
their initial distribution. Without a secondary market, Fund shares are not
liquid, which means that you may not be able to readily sell them.
For purposes of Repurchase Offers, all of the Fund's classes of shares are
considered to be a single class, so that Offers are not pro-rated among the
classes of shares. The Fund normally will repurchase shares that are tendered by
the Repurchase Request Deadlines and accepted for repurchase at the Net Asset
Values per share determined as of the Fund's close of business (which is the
close of business of The New York Stock Exchange, normally 4:00 p.m. New York
time) on the Repurchase Pricing Date. The Repurchase Pricing Date is normally
the regular business day the Repurchase Offer ends or a day not more than 14
days after the Repurchase Offer ends, as described below.
Repurchase Offer Notices. The Fund will send shareholders a written notification
of each Repurchase Offer. The Fund will send the notification to shareholders at
least 21 days but not more than 42 days before the Repurchase Request Deadline
for a Repurchase Offer. The notification will include information about the
Repurchase Offer, including: o the percentage of the Fund's shares to be
repurchased (the "Repurchase Amount")
o how you may request the Fund to repurchase your shares
o the Repurchase Request Deadline, which is the date that the Repurchase
Offer ends and the date by which the Transfer Agent must receive your
repurchase request.
o the Repurchase Pricing Date, which is the day the Fund uses to calculate
the Net Asset Values per share that applies to shares repurchased in a
Repurchase Offer.
o the Repurchase Payment Deadline, which is the date by which the Fund
will send the payment to shareholders for Fund shares accepted for
repurchase. The date will be not more than 7 days after the Repurchase
Pricing Date.
A shareholder may tender all or some of his or her shares for Repurchase.
You may withdraw or change a Repurchase Request at any time up until the
Repurchase Request Deadline for a particular Repurchase Offer, but not after
that date. The Repurchase Request Deadline will be strictly observed.
Repurchase Request Deadline. The Fund's Board of Trustees will establish
the Repurchase Request Deadline for each Repurchase Offer based on factors such
as market conditions, the level of the Fund's assets and shareholder servicing
considerations. It is anticipated that the Repurchase Request Deadline for each
quarterly Repurchase Offer will be the close of business on the last regular
business day of January, April, July and October. The first quarterly Repurchase
Offer will commence in January 2000.
Repurchase Pricing Date. The repurchase price of the Fund's shares for a
particular Repurchase Offer will be the net asset value determined as of the
close of The New York Stock Exchange on the Repurchase Pricing Date for that
Offer. The Fund anticipates that the Repurchase Pricing Date for an Offer
normally will be the same date as the Repurchase Request Deadline for that
offer. In that case, the Fund will set the Repurchase Request Deadline for a
time no later than the close of the New York Stock Exchange on that date. The
Fund, however, may choose to make the Repurchase Pricing Date for a Repurchase
Offer as many as 14 days after the Repurchase Request Deadline for that Offer.
If that day is not a regular business day, then the Repurchase Pricing Date for
that Offer will be the following regular business day.
The Fund does not presently plan to deduct any repurchase fees from the
repurchase proceeds (other than any applicable Early Withdrawal Charges.)
However, in the future the Board of Trustees may determine to impose a
repurchase fee payable to the Fund to help it defray its expenses of making
Repurchase Offers.
Repurchase Payment Deadline. The Fund will pay repurchase proceeds in
cash, usually within seven days after each Repurchase Pricing Date. The payment
date is referred to as the "Repurchase Payment Deadline." During the period from
notification to shareholders of a Repurchase Offer until the Repurchase Pricing
Date, the Fund will maintain liquid assets equal to 100% of the Repurchase Offer
Amount.
Repurchase Offer Amounts. Each quarter, the Fund's Board, in its sole
discretion, will determine the number of shares that the Fund will offer to
repurchase (the "Repurchase Offer Amount") for a particular Repurchase Offer.
The Repurchase Offer Amount will be at least 5% but not more than 25% of the
total number of shares of all classes of the Fund (in the aggregate) outstanding
on the Repurchase Request Deadline. If shareholders tender more than the
Repurchase Offer Amount for a particular Repurchase Offer, the Fund may
repurchase up to an additional 2% of the shares outstanding on the Repurchase
Request Deadline.
The Fund may not be able to repurchase the entire amount of shares a
shareholder has tendered in a Repurchase Request for a particular Repurchase
Offer if the aggregate tenders exceed the Repurchase Offer Amount. If Fund
shareholders tender more shares than the Fund decides to repurchase, the Fund
will repurchase the tendered shares on a pro rata basis, rounded down to the
nearest full share. If a Repurchase Offer is oversubscribed, shareholders may be
unable to liquidate some or all of their investment during that Repurchase
Offer. In that case, the shareholder may have to wait until a later Repurchase
Offer to tender shares for repurchase and would be subject to the risk of share
price fluctuations during that period. If you own fewer than 100 shares,
however, the Fund may decide to accept all of those shares before repurchasing
shares tendered by other shareholders on a pro rata basis.
"Fundamental" Policies on Repurchases. The following policies of the Fund
concerning Repurchase Offers are fundamental, which means that the Board of
Trustees cannot change these policies without the vote of the holders of a
"majority of the fund's outstanding voting securities," as that term is
defined in the Investment Company Act:
o Periodic Repurchase Offers. The Fund will make periodic Repurchase
Offers, pursuant to Rule 23c-3 under the Investment Company Act (as that
Rule may be amended from time to time).
o Repurchase Request Deadline. Repurchase Offers shall be made at periodic
intervals of three months between Repurchase Request Deadlines. The
Repurchase Request Deadlines will be at the time on the regular business
day (normally the last regular business day) in the months of January,
April, July and October to be determined by the Fund's Board of
Trustees.
o Repurchase Pricing Date. The Repurchase Pricing Date for a particular
Repurchase Offer shall be not more than 14 days after the Repurchase
Request Deadline for that Repurchase Offer. If that day is not a regular
business day, then the Repurchase Pricing Date will be the following
regular business day.
Other Repurchase Policies. Other policies in this Prospectus describing
Repurchase Offers and related procedures are not fundamental, which means that
the Board can change them without approval of shareholders. The Fund's Board of
Trustees may establish other policies for repurchases of shares that are
consistent with the Investment Company Act and other relevant laws and
regulations. For example, once every two years, the Board may, if it chooses,
make an additional Repurchase Offer to repurchase shares in addition to regular
quarterly Repurchase Offers.
Special Considerations and Risks of Repurchases. In addition to the limitations
and considerations discussed elsewhere in this Prospectus, there are a number of
other factors affecting Repurchase Orders that investors should consider, as
summarized below:
o Limitation of Size of Repurchase Offers. The Fund may limit the size of
any particular Repurchase Offer (below the minimum amount normally
required under the Fund's policies) for the reasons discussed above or
as a result of liquidity concerns.
o Early Withdrawal Charges. You may be subject to Early Withdrawal Charges
if the Fund repurchases your Class B shares within 5 years after you
purchased them or repurchases your Class C shares within 1 year after
you purchased them.
o Borrowing. The Fund may borrow money to finance the repurchase of shares
in Repurchase Offers, subject to its investment restrictions on
borrowing. Interest on the borrowings may increase the Fund's expenses
and reduce the Fund's net investment income. See "Investment
Restrictions" in the Statement of Additional Information.
o Differences Between Market Value and Net Asset Value. If a secondary
market were to develop for the Fund's shares, the shares could, at
times, trade in that market at a discount from the net asset value
per share. A number of factors could cause those differences,
including the relative demand for and supply of shares and the
performance of the Fund. The Fund's policy of making quarterly
Repurchase Offers for shares at net asset value might not
alleviate the discount of the market price from net asset value
per share.
o Decrease in Fund Assets. Although the Board believes that the Fund's
policy of making quarterly Repurchase Offers will generally benefit
shareholders by providing liquidity, the repurchase of shares could
cause the Fund's total assets to decrease unless offset by ongoing new
sales of shares. The Fund's expense ratio might therefore increase as
a result of repurchases. Repurchase Offers may also decrease the
Fund's investment flexibility, in part because the Fund's need to hold
liquid assets to satisfy repurchase requests. The impact may depend
on the number of shares that the Fund repurchases and the ability of
the Fund to sell additional shares.
o Asset Coverage for Senior Securities. Repurchases of Fund shares may
significantly reduce the asset coverage for any Fund borrowings or
outstanding senior securities. The Fund may not repurchase shares if
the repurchase results in its asset coverage levels falling below the
requirements of the Investment Company Act. As a result, in order to
be able to repurchase shares tendered, the Fund may be forced to repay
all or a part of its outstanding borrowings or to redeem all or part
of its outstanding senior securities to maintain the required asset
coverage.
o Forced Sale of Portfolio Securities. The Fund intends to finance
Repurchase Offers with cash on hand, cash raised through borrowings, or
the sale of portfolio securities. To complete a Repurchase Offer, the
Fund might be required to sell portfolio securities to raise cash. This
might cause the Fund to realize gains or losses at a time when the
Manager would otherwise not want the Fund to do so.
o Alternative Means to Provide Liquidity to Shareholders. The Board will
consider other means to provide liquidity for shareholders if
Repurchase Offers do not enable the Fund to repurchase the amount of
shares tendered by shareholders. Those actions might include
evaluating of any secondary market that may exist for shares and
determining whether that market provides liquidity for shareholders.
The Board might consider all available options to provide liquidity.
One possibility that the Board may consider is listing the shares on a
major domestic stock exchange or arranging for the quotation of shares
on an over-the-counter market.
o Taxes. The Fund's repurchase of shares is a taxable event to the
tendering shareholder. See "Dividends, Capital Gains and Taxes."
Suspension or Postponement of Repurchase Offers. The Fund may postpone or
suspend Repurchase Offers. In addition, the Fund may delay a Repurchase Offer
but only if it meets certain regulatory requirements, which will be described in
the notice of the Repurchase Offer. A postponement or delay may occur only if
approved by a vote of a majority of the Board of Trustees, including a majority
of the Independent Trustees. The Fund will send you a notice if there is a
suspension or postponement of a Repurchase Offer and if an Offer is renewed
after a suspension or postponement. A suspension or postponement may be done
only in limited circumstances. These circumstances include the following: o If
the repurchase of shares would cause the Fund to lose its status as a regulated
investment company under Subchapter M of the Internal Revenue Code,
o During an emergency that makes it impractical for the Fund to dispose of
securities it owns or to determine the Net Asset Values of the Fund's
shares,
o During other periods that the SEC permits the suspension or postponement
of offers by the Fund for the protection of its shareholders,
o If the Fund's shares were to be listed on a stock exchange or are quoted
on an inter-dealer quotation system of a national securities association
(such as Nasdaq) and the repurchase would cause the shares to lose that
listing or quotation, or
o During any period in which the New York Stock Exchange or any other
market on which the Fund's portfolio securities are traded is closed
(other than customary weekend or holiday closings) or trading in those
markets is restricted.
Repurchase Procedures. You can tender some or all of your Fund shares for
repurchase after you receive Notification of a Repurchase Offer. You can tender
shares by written instructions or by telephone. Your Repurchase Request must be
received by the Fund's Transfer Agent by its close of business on the Repurchase
Request Deadline. That deadline will be enforced strictly and if your request is
not received by that time, you may have to wait until the next Repurchase Offer
is made to tender your shares for repurchase.
Your Repurchase Request must be in proper form (which means that it must
comply with the procedures described below) and must first be accepted by the
Fund, as described above. If you have questions about any of these procedures,
and especially if you are tendering shares in a special situation, such as due
to the death of the owner or from a retirement plan account, please call the
Transfer Agent first, at 1-800-525-7048, for assistance.
Certain Requests Require a Signature Guarantee. To protect you and the
Fund from fraud, the following repurchase requests must be in writing and must
include a signature guarantee (although there may be other situations that also
require a signature guarantee): o You wish to have the Fund repurchase shares
worth $50,000 or more and send you a check
o The check for the repurchase is not payable to all shareholders listed
on the account statement
o The repurchase check is not sent to the address of record on your
account statement
o Your shares are being transferred to the name of a different owner
o Shares are being repurchased by someone (such as an Executor) other than
the owners listed in the account registration
Where Can I Have My Signature Guaranteed? The Transfer Agent will
accept a guarantee of your signature by a number of financial institutions,
including:
o a U.S. bank, trust company, credit union or savings association, or
o a foreign bank that has a U.S. correspondent bank, or
o a U.S. registered dealer or broker in securities, municipal securities
or government securities, or
o a U.S. national securities exchange, a registered securities association
or a clearing agency.
If you are signing on behalf of a corporation, partnership or other business or
as a fiduciary, you must also include your title in the signature.
Retirement Plan Accounts. There are special procedures to tender shares
held in an OppenheimerFunds retirement plan account. Call the Transfer Agent for
a distribution request form. Special income tax withholding requirements apply
to distributions from retirement plans. You must submit a withholding form with
your repurchase request to avoid delay in getting your money and if you do not
want tax withheld. If your employer holds your retirement plan account for you
in the name of the plan, you must ask the plan trustee or administrator to
request the repurchase of the Fund shares in your plan account.
Sending Repurchase Proceeds by Wire. While the Fund normally sends your
money by check, you can arrange to have the proceeds of repurchased shares sent
by Federal Funds wire to a bank account you designate. The account must be at
must be a commercial bank that is a member of the Federal Reserve wire system.
The minimum amount you can have sent by wire is $2,500. There is a $10 fee for
each wire. To find out how to set up this feature on your account or to arrange
a wire, call the Transfer Agent at 1-800-852-8457.
How Do I Tender Shares for Repurchase by Mail? You can use the Fund's
Repurchase Request Form or you can write a letter of instructions to the
Transfer Agent that includes: o Your name o The Fund's name o Your Fund account
number (from your account statement) o The dollar amount or number of shares to
be repurchased o Any special payment instructions o The signatures of all
registered owners exactly as listed in the account statement, and
o Any special documents requested by the Transfer Agent to assure proper
authorization of the person asking the Fund to repurchase the shares
(such as Letters Testamentary of an Executor).
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Use the following address for Send courier or express mail
requests by mail: requests to:
OppenheimerFunds Services
P.O. Box 5270 OppenheimerFunds Services
Denver, Colorado 80217-5270 10200 E. Girard Avenue, Building
D
Denver, Colorado 80231
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Can I Submit Repurchase Requests by Telephone? You and your dealer
representative of record may also submit Repurchase Requests by telephone. You
may not submit Repurchase Requests by telephone for Fund shares held in an
OppenheimerFunds retirement plan account. o To request repurchase through a
service representative, call 1-800-852-8457
o To request repurchases on PhoneLink, call 1-800-533-3310
Whichever method you use, you may have a check sent to the address on the
account statement, or, if you have linked your Fund account to your bank account
on AccountLink, you may have the proceeds sent to that bank account.
Are There Limits on Repurchase Requests Submitted by Telephone? If you
request payment by check, you may request repurchase of up to $50,000 by
telephone in a single Repurchase Offer. The check must be payable to all owners
of record of the shares and must be sent to the address on the account
statement. This service is not available within 30 days of changing the address
on an account.
There are no dollar limits on repurchase requests submitted by telephone
if you have the proceeds sent to a bank account you designate when you establish
AccountLink. Normally the ACH transfer to your bank is initiated on the business
day after the Repurchase Payment Deadline. You do not receive dividends on the
proceeds of the shares while they are waiting to be transferred.
Reinvestment Privilege. If the Fund repurchases some or all of your Class A or
Class B shares of the Fund, you have up to six months to reinvest all or part of
the repurchase proceeds in Class A shares of the Fund or other Oppenheimer funds
without paying sales charge. This privilege applies only to Class A shares you
acquired by conversion of Class B shares or by exchange of Class A shares of
another Oppenheimer Fund on which you paid a sales charge, or Class B shares on
which you paid an early withdrawal charge when you tendered them for repurchase.
This privilege does not apply to Class C shares. You must be sure to ask the
Distributor for this privilege when you send your payment.
How to Exchange Shares
You may exchange shares of the Fund for shares of certain Oppenheimer funds at
net asset value per share at the time of exchange, without a sales charge. You
may exchange your shares only in connection with a quarterly Purchase Offer. To
exchange shares, you must meet several conditions: o Your request must comply
with the terms of the Repurchase Offer. o Shares of the fund selected for
exchange must be available for sale in your state of residence.
o The prospectuses of this Fund and the fund whose shares you want to
buy must offer the exchange privilege.
o You must hold the Fund shares for at least seven days before you can
exchange them in a Repurchase Offer.
o You must meet the minimum purchase requirements for the fund you
purchase by exchange.
o Before exchanging into a fund, you must obtain and read its prospectus.
You may exchange shares of a particular class of the Fund only for shares
of the same class in the other Oppenheimer funds. For example, you can exchange
Class B shares of this Fund only for Class B shares of another Oppenheimer fund.
In some cases, sales charges may be imposed on exchange transactions. For tax
purposes, exchanges of shares involve a sale of the shares of the fund you own
and a purchase of the shares of the other fund, which may result in a capital
gain or loss. Please refer to "How to Exchange Shares" in the Statement of
Additional Information for more details.
You can find a list of Oppenheimer funds currently available for exchanges
in the Statement of Additional Information or obtain one by calling a service
representative at 1-800-525-7048. That list can change from time to time.
How Do I Submit Exchange Requests? When you receive notice of a Repurchase
Offer, you may submit your exchange request in writing or by telephone.
Written Exchange Requests. You must submit your OppenheimerFunds Exchange
Request form, signed by all owners of the account, before the Repurchase Request
Deadline for a Repurchase Offer. Send it to the Transfer Agent at the address on
the back cover of this Prospectus.
Telephone Exchange Requests. You can submit exchange requests by
telephone. Either call a service representative at 1-800-852-8457 or use
PhoneLink by calling 1-800-533-3310. You can make telephone exchanges only
between accounts that are registered in the same name(s) and address.
Are There Limitations on Exchanges? There are certain exchange policies you
should be aware of:
o The Transfer Agent must receive your exchange request no later than the
close of business (normally 4:00 p.m. New York time) on the Repurchase
Request Deadline.
o The Fund is not an appropriate investment for investors who are (or use)
market timers. Because excessive trading can hurt fund performance and
harm shareholders, the Fund reserves the right to refuse any exchange
request that it believes will disadvantage it, or to refuse multiple
exchange requests submitted by a shareholder or dealer.
o The Fund may amend, suspend or terminate the exchange privilege at any
time. The Fund will provide you notice whenever it is required to do so
by applicable law, but it may impose changes at any time for emergency
purposes.
o If the Transfer Agent cannot exchange all the shares you request because
of a restriction cited above, only the shares eligible for exchange will
be exchanged, and if a Repurchase Offer is oversubscribed, it is
possible that only a pro-rata amount of your shares may be exchanged.
Shareholder Account Rules and Policies
More information about the Fund's policies and procedures for buying, tendering
shares for repurchase, and exchanging shares is contained in the Statement of
Additional Information.
Offering of Shares. The Fund may suspend the offering of shares during any
period in which the determination of net asset value is suspended, and the Fund
may suspend the offering at any time the Board believes it is in the Fund's best
interest to do so.
Share Certificates. Share certificates are not available.
Telephone Transaction Privileges. The Fund may modify, suspend or terminate
Telephone Transaction Privileges at any time. If an account has more than one
owner, the Fund and the Transfer Agent may rely on the instructions of any one
owner. Telephone privileges apply to each owner of the account and the dealer
representative of record for the account unless the Transfer Agent receives
cancellation instructions from an owner of the account.
Recording of Calls. The Transfer Agent will record telephone calls to verify
data concerning transactions. It has adopted other procedures to confirm that
telephone instructions are genuine, by requiring callers to provide tax
identification numbers and other account data or by using PINs, and by
confirming such transactions in writing. The Transfer Agent and the Fund will
not be liable for losses or expenses arising out of telephone instructions they
reasonably believe to be genuine.
Requests Must Be In Proper Form. The Transfer Agent will not honor any requests
to repurchase or exchange shares in a Repurchase Offer unless it receives all
required documents in proper form by the Repurchase Request Deadline.
Networking Arrangements. Dealers that can perform account transactions for their
clients by participating in Networking through the National Securities Clearing
Corporation must obtain their clients' permission to perform those transactions.
Those dealers are responsible to their clients who are shareholders of the Fund
if the dealer performs any transaction erroneously or improperly.
The Fund's Net Asset Values Will Vary. The Net Asset Values for the Fund's
different classes of shares will vary from day to day because the values of the
securities in the Fund's portfolio fluctuate. The repurchase price, which is the
applicable net asset value per share, will normally differ for each class of
shares. The repurchase value of your shares may be more or less than their
original cost.
Payment for Repurchased Shares. The Fund ordinarily makes payment for
repurchased shares in cash. The Fund will send the money by check or through
AccountLink or by Federal Funds wire (as elected by the shareholder) within
seven days after the Repurchase Pricing Date for the relevant Repurchase Order
(if the Transfer Agent has received repurchase documentation in proper form by
the Regular Request Deadline). However, under unusual circumstances determined
by the SEC, payment may be delayed or suspended.
Involuntary Redemptions of Small Accounts. The Fund may involuntarily repurchase
the shares in your account if the account value has fallen below $200 for
reasons other than the fact that the market value of the shares has dropped. In
some cases, the Fund may make involuntary repurchases to repay the Distributor
for losses from the cancellation of share purchase orders.
"Backup Withholding." The Fund may apply "backup withholding" of federal income
tax against taxable dividends, distributions and repurchase proceeds (including
exchanges) if you fail to furnish the Fund your correct, certified Social
Security or Employer Identification Number when you sign your application, or if
you under-report your income to the Internal Revenue Service.
Multiple Copies. To avoid sending duplicate copies of materials to
households, the Fund will mail only one copy of each annual and semi-annual
report to shareholders having the same last name and address on the Fund's
records. However, each shareholder may call the Transfer Agent at
1-800-525-7048 to ask that copies of those materials be sent personally to
that shareholder.
Dividends, Capital Gains and Taxes
Dividends. The Fund intends to declare dividends separately for each class of
shares from net investment income on each regular business day and to pay those
dividends to shareholders monthly on a date selected by the Board of Trustees.
The Fund will not pay or declare daily dividends on newly-purchased shares until
Federal Funds are available to the Fund from the purchase payment for the
shares.
The amount of any dividends the Fund pays may vary over time, depending on
market conditions, the composition of the Fund's investment portfolio and the
expenses borne by the particular class of shares. Dividends and other
distributions paid on Class A shares will generally be higher than dividends for
Class B and Class C shares, which normally have higher expenses than Class A
shares. The Fund has no fixed dividend rate and cannot guarantee that it will
pay any dividends or other distributions.
Capital Gains Distributions. The Fund may realize capital gains on the sale of
portfolio securities. If it does, it may make distributions out of any net
short-term or long-term capital gains in December of each year. The Fund may
make supplemental distributions of dividends and capital gains following the end
of its fiscal year. There can be no assurance that the Fund will pay any capital
gains distributions in a particular year.
What Choices Do I Have for Receiving Distributions? When you open your account,
specify on your application how you want to receive your dividends and
distributions. If you do not select an option, all dividends and distributions
will be reinvested in Fund shares for your accounts. You have four options:
Reinvest All Distributions in the Fund. You can elect to reinvest all
dividends and capital gains distributions in additional shares of the Fund.
Reinvest Certain Types of Distributions. You can elect to reinvest one or
more types of distributions - dividends, short-term capital gains or long-term
capital gains -- in the Fund while receiving your other distributions by check
or having them sent to your bank account through AccountLink.
Receive All Distributions in Cash. You can elect to receive a check for
all dividends and capital gains distributions or have them sent to your bank
through AccountLink.
Reinvest Your Distributions in Another OppenheimerFunds Account. You can
reinvest all distributions in the same class of shares of another Oppenheimer
fund in which you have established an account.
Taxes. The Fund intends to qualify as a regulated investment company under the
Internal Revenue Code. That means that in each year it qualifies, it will pay no
federal income tax on the earnings or capital gains it distributes to its
shareholders. If your Fund shares are not held in a tax-deferred retirement
account, you should be aware of the following tax implications of investing in
the Fund. o Whether you receive them in cash or reinvest them, dividends and
capital gains distributions are subject to federal income tax and may be subject
to state and local taxes.
o Dividends paid from net investment income and short-term capital gains
are taxable as ordinary income. Distributions of the Fund's long-term
capital gains are taxable as long-term capital gains. It does not matter
how long you have held your shares.
o Dividends that are attributable to interest the Fund receives on certain
U.S. government obligations may be exempt from certain state and local
income taxes. The extent to which dividends are attributable to interest
on U.S. government obligations will be provided on the tax statements
you receive from the Fund.
o Every year the Fund will send you and the IRS a statement showing the
amount of any taxable dividends and other distributions the Fund paid to
you in the previous year. The tax information the Fund sends you will
separately identify any long-term capital gains distribution the Fund
paid to you.
o Because the Fund's share prices fluctuate, you may have a capital gain
or loss when all your shares are repurchased or you exchange them. A
capital gain or loss is the difference between the price you paid for
the shares and the price you received when they were accepted for
repurchase or exchange. Generally, when shares of the Fund you have
tendered are repurchased, you must recognize any capital gain or loss on
those shares.
o It is possible (although the Fund believes it is unlikely) that if a
shareholder tenders less than all of his or her shares in a Repurchase
Offer, the offer might not be treated as a sale or exchange for
federal income tax purposes. In that case the payment of the
repurchase proceeds may be subject to income tax as ordinary income, a
return of capital or capital gain, depending on the Fund's earnings
and profits and the shareholder's basis in the shares. If that occurs,
there is a risk that non-tendering shareholders could be considered to
have received a "deemed" distribution subject to tax in whole or in
part as ordinary income. The income tax consequences of the repurchase
of shares pursuant to Repurchase Offers will be disclosed in the
related Repurchase Offer documents.
o Under certain circumstances, the Fund may be able to "pass-through" to
you the right to a credit or deduction for any foreign taxes paid by the
Fund.
o If you buy shares on the date or just before the Fund declares a
distribution, a portion of the purchase price for the shares will be
returned to you as a taxable distribution.
o You should review the more detailed discussion of federal income tax
considerations in the Statement of Additional Information.
Returns of Capital Can Occur. In certain cases, distributions made by the Fund
may be considered a non-taxable return of capital to shareholders. The Fund will
identify returns of capital in shareholder notices.
This information is only a summary of certain federal income tax information
about your investment. You should consult with your tax adviser about the effect
of an investment in the Fund on your particular tax situation.
Additional Information About the Fund
The Fund's Voting Shares. Shares of the Fund are freely transferable, and each
share of the Fund represents an interest in the Fund proportionately equal to
the interests of each other share of the same class. Each class of shares of the
Fund pays its own dividends and other distributions, and pays certain expenses
which may be different from those of other classes.
Each share of each class has one vote at shareholder meetings, with
fractional shares voting proportionally, on matters submitted to the vote of
shareholders. There are no cumulative voting rights. Shares of all classes are
voted in the aggregate and not by class, except when voting by class is required
by law or when matters affect a particular class or classes. Each class may have
separate voting rights on matters in which the interests of that class are
different from the interests of another class.
The Fund's Classes of shares do not have pre-emptive or conversion rights
(other than the automatic conversion of Class B shares for Class A shares
described above) or redemption provisions. In the event of a liquidation of the
Fund, shareholders are entitled to share pro rata in the net assets of the Fund
available for distribution to shareholders of a class after all expenses and
debts have been paid.
Anti-Takeover Provisions. The Fund has certain anti-takeover provisions in its
Declaration of Trust. They are intended to limit the ability of entities or
persons to acquire control of the Fund, to cause it to engage in certain
transactions or to modify its structure. The affirmative vote or consent of the
holders of two-thirds of the outstanding shares of the Fund is required for the
following transactions: o Merger, consolidation or statutory exchange of the
Fund into any other business trust, corporation or other entity,
o Conversion of the Fund from a closed-end to an open-end investment
company (except that if the Board of Trustees recommend such conversion,
the approval of a majority of the Fund's outstanding voting shares will
be sufficient),
o Issuance of any securities of the Fund to any person or entity for cash,
o Sale, lease, or exchange of all or any substantial part of the assets of
the Fund to any entity or person (except assets having an aggregate
market value of less than $1 million or assets sold in the ordinary
course of the Fund's business),
o Sale, lease or exchange to the Fund, in exchange for securities of the
Fund, of any assets of any entity or person (except assets having an
aggregate market value of less than $1 million) if such person or entity
is directly or indirectly the beneficial owner of 5% or more of the
Fund's outstanding shares.
However, the affirmative vote or consent of two-thirds of the outstanding
shares of the Fund will not be required for those transactions if the Board of
Trustees under certain conditions approves the transaction. Additionally, the
provisions of the Fund's Declaration of Trust containing the above anti-takeover
provisions cannot be amended without the affirmative vote of two-thirds of the
outstanding voting shares of the Fund.
These provisions may make it more difficult to convert the Fund to an
open-end investment company or to consummate any of the other transactions
without the approval of the Board of Trustees. The anti-takeover provisions
could also deprive shareholders of the Fund of the opportunity to sell their
Fund shares at a premium over Net Asset Value in the event that a secondary
market for the Fund's shares develops, by discouraging third parties from
seeking to obtain control of the Fund by a tender offer or similar transaction.
The Board has considered these provisions and has concluded that they are in the
best interests of the Fund and its shareholders because they will likely require
persons seeking control of the Fund to negotiate with its management regarding
the price to be paid.
Table of Contents of the Statement of Additional Information
About the Fund
Additional Information About the Fund's Investment Policies and Risks
The Fund's Investment Policies............................
Other Investment Techniques and Strategies................
Investment Restrictions...................................
How the Fund is Managed......................................
Organization and History....................................
Trustees and Officers.....................................
The Manager...............................................
Brokerage Policies of the Fund...............................
Liquidity Requirements.......................................
Distribution and Service Plans...............................
Performance of the Fund......................................
About Your Account
How To Buy Shares............................................
How To Tender Shares for Repurchase..........................
How To Exchange Shares.......................................
Dividends, Capital Gains and Taxes...........................
Additional Information About the Fund........................
Appendix A: Ratings of Fixed Income Investments.............. A-1
Appendix B: Industry Classifications......................... B-1
Appendix C: Special Sales Charge Arrangements and Waivers.... C-1
Appendix D: CFTC Exemptions for Swap Transactions............ D-1
For More Information About Oppenheimer Senior Floating Rate Fund:
The following additional information about the Fund is available without charge
upon request:
Statement of Additional Information
This document includes additional information about the Fund's investment
policies, risks, and operations. It is incorporated by reference into this
Prospectus (which means it is legally part of this Prospectus).
Annual and Semi-Annual Reports
Additional information about the Fund's investments and performance is available
in the Fund's Annual and Semi-Annual Reports to shareholders. The Annual Report
includes a discussion of market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year.
- ----------------------------------------------------------------------------
How to Get More Information:
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
You can request the Statement of Additional Information, the Annual and
Semi-Annual Reports, and other information about the Fund or your account:
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
By Telephone:
- ----------------------------------------------------------------------------
Call OppenheimerFunds Services toll-free:
1-800-525-7048
By Mail:
Write to:
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217-5270
On the Internet:
You can read or down-load documents on the OppenheimerFunds web site:
http://www.oppenheimerfunds.com
You can also obtain copies of the Statement of Additional Information and other
Fund documents and reports by visiting the SEC's Public Reference Room in
Washington, D.C. (Phone 1-800-SEC-0330) or the SEC's Internet web site at
http://www.sec.gov. Copies may be obtained upon payment of a duplicating fee by
writing to the SEC's Public Reference Section, Washington, D.C. 20549-6009.
No one has been authorized to provide any information about the Fund or to make
any representations about the Fund other than what is contained in this
Prospectus. This Prospectus is not an offer to sell shares of the Fund, nor a
solicitation of an offer to buy shares of the Fund, to any person in any state
or other jurisdiction where it is unlawful to make such an offer.
The Fund's shares are distributed by:
OppenheimerFunds Distributor, Inc.
SEC File No. 811-09373
Printed on recycled paper.
<PAGE>
Oppenheimer Senior Floating Rate Fund
6803 South Tucson Way
Englewood, Colorado 80112
1-800-525-7048
Manager
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048-0203
Distributor
OppenheimerFunds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer Agent
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian Bank
Independent Auditors
Deloitte & Touche, LLP
555 Seventeenth Street, Suite 3600
Denver, Colorado 80202-3942
Legal Counsel
Meyer, Swanson, Adams & Wolf, P.C.
1600 Broadway
Denver, Colorado 80202
Psp291.9/99
<PAGE>
- -------------------------------------------------------------------------------
Oppenheimer Senior Floating Rate Fund
- -------------------------------------------------------------------------------
6803 South Tucson Way, Englewood, Colorado 80112
1-800-525-7048
Statement of Additional Information dated September ______, 1999
This Statement of Additional Information is not a Prospectus. This document
contains additional information about the Fund and supplements information in
the Prospectus dated September ______, 1999. It should be read together with the
Prospectus. You can obtain the Prospectus by writing to the Fund's Transfer
Agent, OppenheimerFunds Services, at P.O. Box 5270, Denver, Colorado 80217, or
by calling the Transfer Agent at the toll-free number shown above, or by
downloading it from the OppenheimerFunds Internet web site at
www.oppenheimerfunds.com.
Contents
Page
About the Fund
Additional Information About the Fund's Investment Policies and Risks
The Fund's Investment Policies............................
Other Investment Techniques and Strategies................
Investment Restrictions...................................
How the Fund is Managed......................................
Organization and History.....................................
Trustees and Officers........................................
The Manager...............................................
Brokerage Policies of the Fund...............................
Distribution and Service Plans...............................
Performance of the Fund......................................
About Your Account
How To Buy Shares............................................
Periodic Offers to Repurchase Shares.........................
How To Exchange Shares.......................................
Dividends, Capital Gains and Taxes...........................
Additional Information About the Fund........................
Financial Information About the Fund
Independent Auditors' Report.................................
Financial Statements.........................................
Appendix A: Ratings Definitions............................. A-1
Appendix B: Industry Classifications........................ B-1
Appendix C: Special Sales Charge Arrangements and Waivers... C-1
Appendix D: CFTC Regulations................................ D-1
- -------------------------------------------------------------------------------
<PAGE>
ABOUT THE FUND
- -------------------------------------------------------------------------------
Additional Information About the Fund's Investment Policies and Risks
The investment objective, the principal investment policies and the main
risks of the Fund are described in the Prospectus. This Statement of Additional
Information contains supplemental information about those policies and risks and
the types of securities that the Fund's investment Manager, OppenheimerFunds,
Inc., can select for the Fund. Additional information is also provided about the
strategies that the Fund may use to try to achieve its objective.
The Fund's Investment Policies. The composition of the Fund's portfolio and the
techniques and strategies that the Manager may use in selecting portfolio
securities will vary over time. The Fund is not required to use all of the
investment techniques and strategies described below in seeking its goal. It may
use some of the special investment techniques and strategies at some times or
not at all.
The Manager's Credit Analysis for All Securities. In selecting securities for
the Fund's portfolio, the Manager evaluates the merits of particular securities
primarily through the exercise of its own investment analysis. That process may
include, among other things, evaluation of the issuer's historical operations,
prospects for the industry of which the issuer is part, the issuer's financial
condition, its pending product developments and business (and those of
competitors), the effect of general market and economic conditions on the
issuer's business, and legislative proposals that might affect the issuer.
Additionally, in analyzing a particular issuer, the Manager may consider
the trading activity in the issuer's securities, present and anticipated cash
flow, estimated current value of its assets in relation to their historical
cost, the issuer's experience and managerial expertise, responsiveness to
changes in interest rates and business conditions, debt maturity schedules,
current and future borrowing requirements, and any change in the financial
condition of an issuer and the issuer's continuing ability to meet its future
obligations. The Manager also may consider anticipated changes in business
conditions, levels of interest rates of bonds as contrasted with levels of cash
dividends, industry and regional prospects, the availability of new investment
opportunities and the general economic, legislative and monetary outlook for
specific industries, the nation and the world.
Senior Loans. Floating or variable interest rates on floating or variable rate
Senior Loans is established as the sum of a base lending rate plus a specified
margin. These base lending rates generally are LIBOR, the Prime Rate of a
designated U.S. bank, the CD Rate, or another base lending rate used by
commercial lenders. The interest rate on Prime Rate-based Corporate Loans and
Corporate Debt Securities floats daily as the Prime Rate changes, while the
interest rate on LIBOR-based and CD-based Corporate Loans and Corporate Debt
Securities is reset periodically, typically between 30 days and one year.
Certain of the floating or variable rate Senior Loans in which the Fund will
invest may permit the borrower to select an interest rate reset period of up to
one year. A portion of the Fund's investments may consist of Senior Loans with
interest rates that are fixed for the term of the loan. Investment in Senior
Loans with longer interest rate reset periods or fixed interest rates may
increase fluctuations in the Fund's net asset value as a result of changes in
interest rates. However, the Fund may attempt to hedge all of its fixed rate
Senior Loans against interest rate fluctuations by entering into interest rate
swap or total return swap transactions. The Fund also will attempt to maintain a
portfolio of Senior Loans that will have a dollar weighted average period to the
next interest rate adjustment of no more than 90 days.
Senior Loans have been structured so that borrowers pay higher margins
when they elect LIBOR and CD-based borrower options, in order to permit lenders
to obtain generally consistent yields on Senior Loans, regardless of whether
borrowers select the LIBOR or CD-based options, or the Prime-based option. In
recent years, however, the differential between the lower LIBOR and CD base
rates and the higher Prime Rate base rates prevailing in the commercial bank
markets has widened to the point where the higher margins paid by borrowers for
LIBOR and CD-based pricing options do not currently compensate for the
differential between the Prime Rate and the LIBOR and CD base rates.
Consequently, borrowers have increasingly selected the LIBOR-based pricing
option, resulting in a yield on Senior Loans that is consistently lower than the
yield available from the Prime Rate-based pricing option. This trend will
significantly limit the ability of the Fund to achieve a net return to
shareholders that consistently approximates the average published Prime Rate of
leading U.S. banks. Because changes to this trend are inherently unpredictable,
the Manager cannot predict whether or not the trend will continue.
The Manager's Credit Analysis of Senior Loans. The Manager performs its
own credit analysis of Senior Loans. The Manager obtains information from the
agents that originate or administer the loans, other lenders and other sources.
The Manager will continue to analyze the credit of Senior Loans while the Fund
owns the Senior Loans.
In its analysis, the Manager may consider many factors, including the
borrower's past and future projected financial performance; the quality of
management; collateral; cash flow; industry; position in the market; and
tangible assets.
A borrower's capital structure may include Senior Loans, senior and junior
unsubordinated debt, preferred stock and common stock. Senior Loans typically
have the most senior claim on the borrower's assets, while common stock has the
lowest priority. Typically, the borrowers use the proceeds of Senior Loans to
finance leveraged buyouts, recapitalizations, mergers, acquisitions, stock
repurchases, debt refinancings, and, to a lesser extent, other purposes.
When the Manager determines that a borrower of a Senior Loan is likely to
repay its obligations, it will consider that Senior Loan for investment in the
Fund. For example, the Manager may determine that a borrower can meet debt
service requirements from cash flow or other sources, including the sale of
assets, despite the borrower's low credit rating. The Manager may determine that
Senior Loans of borrowers that are experiencing financial distress, but that
appear able to pay their interest, may present investment opportunities.
Restrictive Covenants. The Borrower, under a Senior Loan, and the issuer
of a debt obligation must comply with various restrictive covenants contained in
any agreement between the borrower and the lending syndicate or in any trust
indenture in the case of a Senior Loan or comparable document in connection with
a debt obligation. A restrictive covenant is a promise by the borrower to not
take certain actions which may impair the rights of lenders. These covenants, in
addition to requiring the scheduled payment of interest and principal, may
include restrictions on dividend payments and other distributions to
shareholders, provisions requiring the borrower to maintain specific financial
ratios or relationships and limits on total debt. In addition, a covenant may
require the borrower to prepay the Senior Loan or debt obligation with any
excess cash flow. Excess cash flow generally includes net cash flow after
scheduled debt service payments and permitted capital expenditures, among other
things, as well as the proceeds from asset dispositions or sales of securities.
A breach of a covenant (after giving effect to any cure period) in a loan
agreement that is not waived by the Agent and the lending syndicate normally is
an event of acceleration. This means that the Agent has the right to demand
immediate repayment in full of the outstanding Senior Loan. Acceleration may
also occur in the case of the breach of a covenant in a debt obligation
agreement.
Participation Interests. The Fund may invest in Participation Interests,
subject to the Fund's limitation on investments in illiquid investments. A
participation interest is an undivided interest in a loan made by the issuing
financial institution in the proportion that the buyer's participation interest
bears to the total principal amount of the loan. The issuing financial
institution may have no obligation to the Fund other than to pay the Fund the
proportionate amount of the principal and interest payments it receives.
Participation Interests are primarily dependent upon the creditworthiness
of the borrowing corporation, which is obligated to make payments of principal
and interest on the loan. There is a risk that a borrower may have difficulty
making payments. If a borrower fails to pay scheduled interest or principal
payments, the Fund could experience a reduction in its income. The value of that
participation interest might also decline, which could affect the net asset
value of the Fund's shares. If the issuing financial institution fails to
perform its obligations under the participation agreement, the Fund might incur
costs and delays in realizing payment and suffer a loss of principal and/or
interest.
Foreign Securities. The Fund may invest up to 20% of its total assets in foreign
securities. For the most part, these will be debt securities issued or
guaranteed by foreign companies or governments, that are members of the
Organisation for Economic Co-Operation and Development (other than the U.S.).
They may also include "supra-national" entities. "Foreign securities" include
equity and debt securities of companies organized under the laws of countries
other than the United States and debt securities issued or guaranteed by
governments other than the U.S. government or by foreign supra-national
entities. They also include securities of companies (including those that are
located in the U.S. or organized under U.S. law) that derive a significant
portion of their revenue or profits from foreign businesses, investments or
sales, or that have a significant portion of their assets abroad. They may be
traded on foreign securities exchanges or in the foreign over-the-counter
markets.
The percentage of the Fund's assets that will be allocated to foreign
securities will vary over time depending on a number of factors. Those factors
may include the relative yields of foreign and U.S. securities, the economies of
foreign countries, the condition of a country's financial markets, the interest
rate climate of particular foreign countries and the relationship of particular
foreign currencies to the U.S. dollar. The Manager analyzes fundamental economic
criteria (for example, relative inflation levels and trends, growth rate
forecasts, balance of payments status, and economic policies) as well as
technical and political data.
Securities of foreign issuers that are represented by American Depository
Receipts or that are listed on a U.S. securities exchange or traded in the U.S.
over-the-counter markets are not considered "foreign securities" for the purpose
of the Fund's investment allocations, because they are not subject to many of
the special considerations and risks, discussed below, that apply to foreign
securities traded and held abroad.
Generally, the Fund will purchase only securities of foreign issuers or
borrowers that are denominated in U.S. dollars.
Investing in foreign securities offers potential benefits not available
from investing solely in securities of domestic issuers. They include the
opportunity to invest in foreign issuers that appear to offer high income
potential, or in foreign countries with economic policies or business cycles
different from those of the U.S., or to reduce fluctuations in portfolio value
by taking advantage of foreign securities markets that do not move in a manner
parallel to U.S. markets. The Fund will hold foreign currency only in connection
with the purchase or sale of foreign securities.
Foreign Debt Obligations. The debt obligations of foreign governments
and entities may or may not be supported by the full faith and credit of the
foreign government. The Fund may buy securities issued by certain supra-national
entities, which include entities designated or supported by governments to
promote economic reconstruction or development, international banking
organizations and related government agencies. Examples are the International
Bank for Reconstruction and Development (commonly called the "World Bank"), the
Asian Development Bank and the Inter-American Development Bank.
The governmental members of these supra-national entities are
"stockholders" that typically make capital contributions and may be committed to
make additional capital contributions if the entity is unable to repay its
borrowings. A supra-national entity's lending activities may be limited to a
percentage of its total capital, reserves and net income. There can be no
assurance that the constituent foreign governments will continue to be able or
willing to honor their capitalization commitments for those entities.
Risks of Foreign Investing. Investments in foreign securities may
offer special opportunities for investing but also present special additional
risks and considerations not typically associated with investments in domestic
securities. Some of these additional risks are:
o reduction of income by foreign taxes;
o fluctuation in value of foreign investments due to changes in
currency rates or currency control regulations (for example, currency
blockage);
o transaction charges for currency exchange;
o lack of public information about foreign issuers;
o lack of uniform accounting, auditing and financial reporting
standards in foreign countries comparable to those applicable to
domestic issuers;
o less volume on foreign exchanges than on U.S. exchanges;
o greater volatility and less liquidity on foreign markets than in the
U.S.;
o less governmental regulation of foreign issuers, stock exchanges and
brokers than in the U.S.;
o greater difficulties in commencing lawsuits;
o higher brokerage commission rates than in the U.S.;
o increased risks of delays in settlement of portfolio transactions or
loss of certificates for portfolio securities;
o possibilities in some countries of expropriation, confiscatory
taxation, political, financial or social instability or adverse
diplomatic developments; and
o unfavorable differences between the U.S. economy and foreign economies.
In the past, U.S. government policies have discouraged certain
investments abroad by U.S. investors, through taxation or other restrictions,
and it is possible that such restrictions could be re-imposed.
Risks of Conversion to Euro. On January 1, 1999,
eleven countries in the European Union adopted the euro as their official
currency. However, their current currencies (for example, the franc, the mark,
and the lire) will also continue in use until January 1, 2002. After that date,
it is expected that only the euro will be used in those countries. A common
currency is expected to confer some benefits in those markets, by consolidating
the government debt market for those countries and reducing some currency risks
and costs. But the conversion to the new currency will affect the Fund
operationally and also has potential risks, some of which are listed below.
Among other things, the conversion will affect:
o issuers in which the Fund invests, because of changes in the competitive
environment from a consolidated currency market and greater operational
costs from converting to the new currency. This might depress securities
values.
o vendors the Fund depends on to carry out its business, such as its
Custodian (which holds the foreign securities the Fund buys), the
Manager (which must price the Fund's investments to deal with the
conversion to the euro), brokers, foreign markets and securities
depositories. If they are not prepared, there could be delays in
settlements and additional costs to the Fund.
o exchange contracts and derivatives that are outstanding during the
transition to the euro. The lack of currency rate calculations between
the affected currencies and the need to update the Fund's contracts
could pose extra costs to the Fund.
The Manager is upgrading (at its expense) its computer and bookkeeping
systems to deal with the conversion. The Fund's Custodian has advised the
Manager of its plans to deal with the conversion, including how it will update
its record keeping systems and handle the redenomination of outstanding foreign
debt. The Fund's portfolio managers will also monitor the effects of the
conversion on the issuers in which the Fund invests. The possible effect of
these factors on the Fund's investments cannot be determined with certainty at
this time, but they may reduce the value of some of the Fund's holdings and
increase its operational costs.
Other Debt Securities. In addition to Senior Loans, the Fund can invest in a
variety of debt securities to seek its objective. Foreign debt securities are
subject to the risks of foreign securities described above. In general, debt
securities (including Senior Loans) are also subject to two additional types of
risk: credit risk and interest rate risk.
Credit Risks. Credit risk relates to the ability of the issuer to meet
interest or principal payments or both as they become due. In general,
lower-grade, higher-yield bonds are subject to credit risk to a greater extent
that lower-yield, higher-quality bonds.
The Fund's debt investments can include high yield, non-investment-grade
bonds (commonly referred to as "junk bonds"). Investment-grade bonds are bonds
rated at least "Baa" by Moody's Investors Service, Inc., at least "BBB" by
Standard & Poor's Ratings Group or Duff & Phelps, Inc., or that have comparable
ratings by another nationally-recognized rating organization ("NRSRO").
In making investments in debt securities, the Manager may rely to some
extent on the ratings of ratings organizations or it may use its own research to
evaluate a security's credit-worthiness. If securities the Fund buys are
unrated, they are assigned a rating by the Manager of comparable quality to
bonds having similar yield and risk characteristics within a rating category of
a rating organization.
The Fund does not have investment policies establishing specific maturity
ranges for the Fund's investments, and they may be within any maturity range
(short, medium or long) depending on the Manager's evaluation of investment
opportunities available within the debt securities markets. The Fund may shift
its investment focus to securities of longer maturity as interest rates decline
and to securities of shorter maturity as interest rates rise.
Interest Rate Risk. Interest rate risk refers to the fluctuations in value
of fixed-income securities resulting from the inverse relationship between price
and yield. For example, an increase in general interest rates will tend to
reduce the market value of already-issued fixed-income investments, and a
decline in general interest rates will tend to increase their value. In
addition, debt securities with longer maturities, which tend to have higher
yields, are subject to potentially greater fluctuations in value from changes in
interest rates than obligations with shorter maturities.
While the changes in value of the Fund's portfolio securities after they
are purchased will be reflected in the net asset value of the Fund's shares,
those changes normally do not affect the interest income paid by those
securities (unless the security's interest is paid at a variable rate pegged to
particular interest rate changes). However, those price fluctuations will be
reflected in the valuations of the securities, and therefore the Fund's net
asset values will be affected by those fluctuations.
Special Risks of Lower-Grade Securities. The Fund can invest without limit
in lower-grade debt securities, if the Manager believes it is consistent with
the Fund's objective. Because lower-rated securities tend to offer higher yields
than investment grade securities, the Fund may invest in lower-grade securities
to try to achieve higher income.
"Lower-grade" debt securities are those rated below "investment grade"
which means they have a rating lower than "Baa" by Moody's or lower than "BBB"
by Standard & Poor's or Duff & Phelps, or similar ratings by other NRSROs. If
they are unrated, and are determined by the Manager to be of comparable quality
to debt securities rated below investment grade, they are considered part of the
Fund's portfolio of lower-grade securities. The Fund can invest in securities
rated as low as "C" or "D" or which may be in default at the time the Fund buys
them.
Some of the special credit risks of lower-grade securities are discussed
below. There is a greater risk that the issuer may default on its obligation to
pay interest or to repay principal than in the case of investment grade
securities. The issuer's low creditworthiness may increase the potential for its
insolvency. An overall decline in values in the high yield bond market is also
more likely during a period of a general economic downturn. An economic downturn
or an increase in interest rates could severely disrupt the market for high
yield bonds, adversely affecting the values of outstanding bonds as well as the
ability of issuers to pay interest or repay principal. In the case of foreign
high yield bonds, these risks are in addition to the special risk of foreign
investing discussed in the Prospectus and in this Statement of Additional
Information.
To the extent they can be converted into stock, convertible securities may
be less subject to some of these risks than non-convertible high yield bonds,
since stock may be more liquid and less affected by some of these risk factors.
While securities rated "Baa" by Moody's or "BBB" by Standard & Poor's or
Duff & Phelps are investment grade and are not regarded as junk bonds, those
securities may be subject to special risks, and have some speculative
characteristics. Definitions of the debt security ratings categories of the
principal rating organizations are included in Appendix A to this Statement of
Additional Information.
U.S. Government Securities. These are securities issued or guaranteed by
the U.S. Treasury, other government agencies or federally-charted corporate
entities referred to as "instrumentalities." The obligations of U.S. government
agencies or instrumentalities in which the Fund may invest may or may not be
guaranteed or supported by the "full faith and credit" of the United States.
"Full faith and credit" means generally that the taxing power of the U.S.
government is pledged to the payment of interest and repayment of principal on a
security. If a security is not backed by the full faith and credit of the United
States, the owner of the security must look principally to the agency issuing
the obligation for repayment. The owner might not be able to assert a claim
against the United States if the issuing agency or instrumentality does not meet
its commitment. The Fund will invest in securities of U.S. government agencies
and instrumentalities only if the Manager is satisfied that the credit risk with
respect to the agency or instrumentality is minimal.
U.S. Treasury Obligations. These include Treasury bills (maturities
of one year or less when issued), Treasury notes (maturities of one to ten
years), and Treasury bonds (maturities of more than ten years). Treasury
securities are backed by the full faith and credit of the United States as to
timely payments of interest and repayments of principal. They also can
include U. S. Treasury securities that have been "stripped" by a Federal
Reserve Bank, zero-coupon U.S. Treasury securities described below, and
Treasury Inflation-Protection Securities ("TIPS").
Treasury Inflation-Protection Securities. The Fund can buy these U.S.
Treasury securities, called "TIPS," that are designed to provide an investment
vehicle that is not vulnerable to inflation. The interest rate paid by TIPS is
fixed. The principal value rises or falls semi-annually based on changes in the
published Consumer Price Index. If inflation occurs, the principal and interest
payments on TIPS are adjusted to protect investors from inflationary loss. If
deflation occurs, the principal and interest payments will be adjusted downward,
although the principal will not fall below its face amount at maturity.
Obligations Issued or Guaranteed by U.S. Government Agencies or
Instrumentalities. These include direct obligations and mortgage-related
securities that have different levels of credit support from the government.
Some are supported by the full faith and credit of the U.S. government, such as
Government National Mortgage Association pass-through mortgage certificates
(called "Ginnie Maes"). Some are supported by the right of the issuer to borrow
from the U.S. Treasury under certain circumstances, such as Federal National
Mortgage Association bonds ("Fannie Maes"). Others are supported only by the
credit of the entity that issued them, such as Federal Home Loan Mortgage
Corporation obligations ("Freddie Macs").
Zero-Coupon U.S. Government Securities. The Fund may buy zero-coupon
U.S. government securities. These will typically be U.S. Treasury Notes and
Bonds that have been stripped of their unmatured interest coupons, the
coupons themselves, or certificates representing interests in those stripped
debt obligations and coupons.
Zero-coupon securities do not make periodic interest payments and are sold
at a deep discount from their face value at maturity. The buyer recognizes a
rate of return determined by the gradual appreciation of the security, which is
redeemed at face value on a specified maturity date. This discount depends on
the time remaining until maturity, as well as prevailing interest rates, the
liquidity of the security and the credit quality of the issuer. The discount
typically decreases as the maturity date approaches.
Because zero-coupon securities pay no interest and compound semi-annually
at the rate fixed at the time of their issuance, their value is generally more
volatile than the value of other debt securities that pay interest. Their value
may fall more dramatically than the value of interest-bearing securities when
interest rates rise. When prevailing interest rates fall, zero-coupon securities
tend to rise more rapidly in value because they have a fixed rate of return.
The Fund's investment in zero-coupon securities may cause the Fund to
recognize income and make distributions to shareholders before it receives any
cash payments on the zero-coupon investment. To generate cash to satisfy those
distribution requirements, the Fund may have to sell portfolio securities that
it otherwise might have continued to hold or to use cash flows from other
sources such as the sale of Fund shares.
Portfolio Turnover. "Portfolio turnover" describes the rate at which the Fund
traded its portfolio securities during its last fiscal year. For example, if a
fund sold all of its securities during the year, its portfolio turnover rate
would have been 100%. The Fund's portfolio turnover rate will fluctuate from
year to year, and the Fund may continue to have a portfolio turnover rate of
more than 100% annually.
Increased portfolio turnover creates higher brokerage and transaction
costs for the Fund, which may reduce its overall performance. Additionally, the
realization of capital gains from selling portfolio securities may result in
distributions of taxable long-term capital gains to shareholders, since the Fund
will normally distribute all of its capital gains realized each year, to avoid
excise taxes under the Internal Revenue Code.
Other Investment Techniques and Strategies. In seeking its objective, the Fund
may from time to time use the types of investment strategies and investments
described below. It is not required to use all of these strategies at all times
and at times the Fund may not use them.
Other Zero-Coupon Securities. The Fund may buy zero-coupon and delayed
interest securities, and "stripped" securities of corporations and of foreign
government issuers. These are similar in structure to zero-coupon and "stripped"
U.S. government securities, but in the case of foreign government securities may
or may not be backed by the "full faith and credit" of the issuing foreign
government. Zero-coupon securities issued by foreign governments and by
corporations will be subject to greater credit risks than U.S. government
zero-coupon securities.
"Stripped" Securities. The Fund can invest in stripped mortgage-related
securities that are created by segregating the cash flows from underlying
mortgage loans or mortgage securities to create two or more new securities. Each
has a specified percentage of the underlying security's principal or interest
payments. These are a form of derivative investment.
Mortgage securities may be partially stripped so that each class receives
some interest and some principal. However, they may be completely stripped. In
that case all of the interest is distributed to holders of one type of security,
known as an "interest-only" security, or "I/O," and all of the principal is
distributed to holders of another type of security, known as a "principal-only"
security or "P/O." Strips can be created for pass-through certificates or CMOs.
The yields to maturity of I/Os and P/Os are very sensitive to principal
repayments (including prepayments) on the underlying mortgages. If the
underlying mortgages experience greater than anticipated prepayments of
principal, the Fund might not fully recoup its investment in an I/O based on
those assets. If underlying mortgages experience less than anticipated
prepayments of principal, the yield on the P/Os based on them could decline
substantially.
Preferred Stocks. Preferred stock, unlike common stock, has a stated
dividend rate payable from the corporation's earnings. Preferred stock
dividends may be cumulative or non-cumulative, participating, or auction
rate. "Cumulative" dividend provisions require all or a portion of prior
unpaid dividends to be paid.
If interest rates rise, the fixed dividend on preferred stocks may be less
attractive, causing the price of preferred stocks to decline. Preferred stock
may have mandatory sinking fund provisions, as well as call/redemption
provisions prior to maturity, which can be a negative feature when interest
rates decline. Preferred stock also generally has a preference over common stock
on the distribution of a corporation's assets in the event of liquidation of the
corporation. Preferred stock may be "participating" stock, which means that it
may be entitled to a dividend exceeding the stated dividend in certain cases.
The rights of preferred stock on distribution of a corporation's assets in the
event of a liquidation are generally subordinate to the rights associated with a
corporation's debt securities.
Floating Rate and Variable Rate Obligations. Variable rate obligations can
have a demand feature that allows the Fund to tender the obligation to the
issuer or a third party prior to its maturity. The tender may be at par value
plus accrued interest, according to the terms of the obligations.
The interest rate on a floating rate demand note is adjusted automatically
according to a stated prevailing market rate, such as a bank's prime rate, the
91-day U.S. Treasury Bill rate, or some other standard. The instrument's rate is
adjusted automatically each time the base rate is adjusted. The interest rate on
a variable rate note is also based on a stated prevailing market rate but is
adjusted automatically at specified intervals of not less than one year.
Generally, the changes in the interest rate on such securities reduce the
fluctuation in their market value. As interest rates decrease or increase, the
potential for capital appreciation or depreciation is less than that for
fixed-rate obligations of the same maturity. The Manager may determine that an
unrated floating rate or variable rate demand obligation meets the Fund's
quality standards by reason of being backed by a letter of credit or guarantee
issued by a bank that meets those quality standards.
Floating rate and variable rate demand notes that have a stated maturity
in excess of one year may have features that permit the holder to recover the
principal amount of the underlying security at specified intervals not exceeding
one year and upon no more than 30 days' notice. The issuer of that type of note
normally has a corresponding right in its discretion, after a given period, to
prepay the outstanding principal amount of the note plus accrued interest.
Generally the issuer must provide a specified number of days' notice to the
holder.
"When-Issued" and "Delayed-Delivery" Transactions. The Fund may invest in
securities on a "when-issued" basis and may purchase or sell securities on a
"delayed-delivery" (or "forward-commitment") basis. When-issued and
delayed-delivery are terms that refer to securities whose terms and indenture
are available and for which a market exists, but which are not available for
immediate delivery.
When such transactions are negotiated, the price (which is generally
expressed in yield terms) is fixed at the time the commitment is made. Delivery
and payment for the securities take place at a later date (generally within 45
days of the date the offer is accepted). The securities are subject to change in
value from market fluctuations during the period until settlement. The value at
delivery may be less than the purchase price. For example, changes in interest
rates in a direction other than that expected by the Manager before settlement
will affect the value of such securities and may cause a loss to the Fund.
During the period between purchase and settlement, no payment is made by the
Fund to the issuer and no interest accrues to the Fund from the investment. No
income begins to accrue to the Fund on a when-issued security until the Fund
receives the security at settlement of the trade.
The Fund will engage in when-issued transactions to secure what the
Manager considers to be an advantageous price and yield at the time of entering
into the obligation. When the Fund enters into a when-issued or delayed-delivery
transaction, it relies on the other party to complete the transaction. Its
failure to do so may cause the Fund to lose the opportunity to obtain the
security at a price and yield the Manager considers to be advantageous.
When the Fund engages in when-issued and delayed-delivery transactions, it
does so for the purpose of acquiring or selling securities consistent with its
investment objective and policies or for delivery pursuant to options contracts
it has entered into, and not for the purpose of investment leverage. Although
the Fund will enter into delayed-delivery or when-issued purchase transactions
to acquire securities, it may dispose of a commitment prior to settlement. If
the Fund chooses to dispose of the right to acquire a when-issued security prior
to its acquisition or to dispose of its right to delivery or receive against a
forward commitment, it may incur a gain or loss.
At the time the Fund makes the commitment to purchase or sell a security
on a when-issued or delayed-delivery basis, it records the transaction on its
books and reflects the value of the security purchased in determining the Fund's
net asset value. In a sale transaction, it records the proceeds to be received.
The Fund will identify on its books liquid assets at least equal in value to the
value of the Fund's purchase commitments until the Fund pays for the investment.
When-issued and delayed-delivery transactions can be used by the Fund as a
defensive technique to hedge against anticipated changes in interest rates and
prices. For instance, in periods of rising interest rates and falling prices,
the Fund might sell securities in its portfolio on a forward commitment basis to
attempt to limit its exposure to anticipated falling prices. In periods of
falling interest rates and rising prices, the Fund might sell portfolio
securities and purchase the same or similar securities on a when-issued or
delayed-delivery basis to obtain the benefit of currently higher cash yields.
Repurchase Agreements. The Fund can acquire securities subject to
repurchase agreements. It might do so for liquidity purposes to meet anticipated
redemptions of Fund shares, or pending the investment of the proceeds from sales
of Fund shares, or pending the settlement of portfolio securities transactions,
or for temporary defensive purposes, as described below.
In a repurchase transaction, the Fund buys a security from, and
simultaneously resells it to, an approved vendor for delivery on an agreed-upon
future date. The resale price exceeds the purchase price by an amount that
reflects an agreed-upon interest rate effective for the period during which the
repurchase agreement is in effect. Approved vendors include U.S. commercial
banks, U.S. branches of foreign banks, or broker-dealers that have been
designated as primary dealers in government securities. They must meet credit
requirements set by the Fund's Board of Trustees from time to time.
The majority of these transactions run from day to day, and delivery
pursuant to the resale typically occurs within one to five days of the purchase.
Repurchase agreements having a maturity beyond seven days are subject to the
Fund's limits on holding illiquid investments. The Fund will not enter into a
repurchase agreement that causes more than 10% of its net assets to be subject
to repurchase agreements having a maturity beyond seven days. There is no limit
on the amount of the Fund's net assets that may be subject to repurchase
agreements having maturities of seven days or less.
Repurchase agreements, considered "loans" under the Investment Company
Act, are collateralized by the underlying security. The Fund's repurchase
agreements require that at all times while the repurchase agreement is in
effect, the value of the collateral must equal or exceed the repurchase price to
fully collateralize the repayment obligation. However, if the vendor fails to
pay the resale price on the delivery date, the Fund may incur costs in disposing
of the collateral and may experience losses if there is any delay in its ability
to do so. The Manager will monitor the vendor's creditworthiness requirements to
confirm that the vendor is financially sound and will continuously monitor the
collateral's value.
Illiquid and Restricted Securities. Under the policies and procedures
established by the Fund's Board of Trustees, the Manager determines the
liquidity of certain of the Fund's investments. To enable the Fund to sell its
holdings of a restricted security not registered under the Securities Act of
1933, the Fund may have to cause those securities to be registered. The expenses
of registering restricted securities may be negotiated by the Fund with the
issuer at the time the Fund buys the securities. When the Fund must arrange
registration because the Fund wishes to sell the security, a considerable period
may elapse between the time the decision is made to sell the security and the
time the security is registered so that the Fund could sell it. The Fund would
bear the risks of any downward price fluctuation during that period.
The Fund may also acquire restricted securities through private
placements. Those securities have contractual restrictions on their public
resale. Those restrictions might limit the Fund's ability to dispose of the
securities and might lower the amount the Fund could realize upon the sale.
Illiquid securities include repurchase agreements maturing in more than seven
days and participation interests that do not have puts exercisable within seven
days.
Investments in Equity Securities. The Fund can invest limited amounts of
its assets in securities other than debt securities, including certain types of
equity securities of both foreign and U.S. companies. However, it does not
anticipate investing significant amounts of its assets in these securities as
part of its normal investment strategy. Those equity securities include
preferred stocks (described above), rights and warrants, and securities
convertible into common stock. Certain equity securities may be selected because
they may provide dividend income.
Risks of Investing in Stocks. Stocks fluctuate in price, and their
short-term volatility at times may be great. To the extent that the Fund invests
in equity securities, the value of the Fund's portfolio will be affected by
changes in the stock markets. Market risk can affect the Fund's net asset value
per share, which will fluctuate as the values of the Fund's portfolio securities
change. The prices of individual stocks do not all move in the same direction
uniformly or at the same time. Different stock markets may behave differently
from each other.
Other factors can affect a particular stock's price, such as poor earnings
reports by the issuer, loss of major customers, major litigation against the
issuer, or changes in government regulations affecting the issuer or its
industry. The Fund can invest in securities of large companies and mid-size
companies, but may also buy stocks of small companies, which may have more
volatile stock prices than large companies.
Convertible Securities. While convertible securities are a form of
debt security, in many cases their conversion feature (allowing conversion into
equity securities) causes them to be regarded more as "equity equivalents." As a
result, the rating assigned to the security has less impact on the Manager's
investment decision with respect to convertible securities than in the case of
non-convertible fixed income securities. Convertible securities are subject to
the credit risks and interest rate risks described above.
To determine whether convertible securities should be regarded as "equity
equivalents," the Manager examines the following factors: (1) whether, at the
option of the investor, the convertible security can be
exchanged for a fixed number of shares of common stock of the
issuer,
(2) whether the issuer of the convertible securities has restated its
earnings per share of common stock on a fully diluted basis
(considering the effect of conversion of the convertible securities),
and
(3) the extent to which the convertible security may be a defensive
"equity substitute," providing the ability to participate in any
appreciation in the price of the issuer's common stock.
Rights and Warrants. The Fund can invest up to 5% of its total assets
in warrants or rights. That limit does not apply to warrants and rights the Fund
has acquired as part of units of securities or that are attached to other
securities that the Fund buys. The Fund does not expect that it will have
significant investments in warrants and rights.
Warrants basically are options to purchase equity securities at specific
prices valid for a specific period of time. Their prices do not necessarily move
parallel to the prices of the underlying securities. Rights are similar to
warrants, but normally have a short duration and are distributed directly by the
issuer to its shareholders. Rights and warrants have no voting rights, receive
no dividends and have no rights with respect to the assets of the issuer.
Loans of Portfolio Securities. To raise cash for liquidity purposes or
income, the Fund can lend its portfolio securities to brokers, dealers and other
types of financial institutions approved by the Fund's Board of Trustees. These
loans are limited to not more than 25% of the value of the Fund's total assets.
The Fund currently does not intend to lend securities, but if it does so, such
loans will not likely exceed 5% of the Fund's total assets.
There are some risks in connection with securities lending. The Fund might
experience a delay in receiving additional collateral to secure a loan, or a
delay in recovery of the loaned securities if the borrower defaults. The Fund
must receive collateral for a loan. Under current applicable regulatory
requirements (which are subject to change), on each business day the loan
collateral must be at least equal to the value of the loaned securities. It must
consist of cash, bank letters of credit, securities of the U.S. government or
its agencies or instrumentalities, or other cash equivalents in which the Fund
is permitted to invest. To be acceptable as collateral, letters of credit must
obligate a bank to pay amounts demanded by the Fund if the demand meets the
terms of the letter. The terms of the letter of credit and the issuing bank both
must be satisfactory to the Fund.
When it lends securities, the Fund receives amounts equal to the dividends
or interest on loaned securities. It also receives one or more of (a) negotiated
loan fees, (b) interest on securities used as collateral, and (c) interest on
any short-term debt securities purchased with such loan collateral. Either type
of interest may be shared with the borrower. The Fund may also pay reasonable
finders', custodian and administrative fees in connection with these loans. The
terms of the Fund's loans must meet applicable tests under the Internal Revenue
Code and must permit the Fund to reacquire loaned securities on five days'
notice or in time to vote on any important matter.
Borrowing. The Fund has the ability to borrow from banks on an unsecured
basis to raise cash in order to repurchase its shares in a tender offer. The
Fund will not borrow money to invest in portfolio securities. This speculative
technique is known as "leverage." The Fund may borrow only from banks, although
the Fund may enter into reverse repurchase agreements, which are considered as
borrowings. Under current regulatory requirements, borrowings can be made only
to the extent that the value of the Fund's assets, less its liabilities other
than borrowings, is equal to at least 300% of all borrowings (including the
proposed borrowing). If the value of the Fund's assets fails to meet this 300%
asset coverage requirement, the Fund will reduce its bank debt within three days
to meet the requirement. To do so, the Fund might have to sell a portion of its
investments at a disadvantageous time.
The Fund will pay interest on these loans, and that interest expense will
raise the overall expenses of the Fund and reduce its returns. If it does
borrow, its expenses will be greater than comparable funds that do not borrow
for leverage. Additionally, the Fund's net asset value per share might fluctuate
more than that of funds that do not borrow. Currently, the Fund does not
contemplate using this technique in the next year but if it does so, it will not
likely be to a substantial degree.
Asset-Backed Securities. Asset-backed securities are fractional interests
in pools of assets, typically accounts receivable or consumer loans. They are
issued by trusts or special-purpose corporations. They are similar to
mortgage-backed securities, described above, and are backed by a pool of assets
that consist of obligations of individual borrowers. The income from the pool is
passed through to the holders of participation interest in the pools. The pools
may offer a credit enhancement, such as a bank letter of credit, to try to
reduce the risks that the underlying debtors will not pay their obligations when
due. However, the enhancement, if any, might not be for the full par value of
the security. If the enhancement is exhausted and any required payments of
interest or repayments of principal are not made, the Fund could suffer losses
on its investment or delays in receiving payment.
The value of an asset-backed security is affected by changes in the
market's perception of the asset backing the security, the creditworthiness of
the servicing agent for the loan pool, the originator of the loans, or the
financial institution providing any credit enhancement, and is also affected if
any credit enhancement has been exhausted. The risks of investing in
asset-backed securities are ultimately related to payment of consumer loans by
the individual borrowers. As a purchaser of an asset-backed security, the Fund
would generally have no recourse to the entity that originated the loans in the
event of default by a borrower. The underlying loans are subject to prepayments,
which may shorten the weighted average life of asset-backed securities and may
lower their return, in the same manner as in the case of mortgage-backed
securities and CMOs, described above. Unlike mortgage-backed securities,
asset-backed securities typically do not have the benefit of a security interest
in the underlying collateral.
Derivatives. The Fund can invest in a variety of derivative investments to
seek income or for hedging purposes. Some derivative investments the Fund can
use are the hedging instruments described below in this Statement of Additional
Information.
Hedging. The Fund can use hedging instruments. It is not obligated to use
them in seeking its objective although it can write covered calls to seek high
current income if the Manager believes that it is appropriate to do so. To
attempt to protect against declines in the market value of the Fund's portfolio,
to permit the Fund to retain unrealized gains in the value of portfolio
securities that have appreciated, or to facilitate selling securities for
investment reasons, the Fund could:
o sell futures contracts,
o buy puts on such futures or on securities, or
o write covered calls on securities or futures. Covered calls may also be
used to increase the Fund's income.
The Fund can use hedging to establish a position in the securities market
as a temporary substitute for purchasing particular securities. In that case,
the Fund would normally seek to purchase the securities and then terminate that
hedging position. The Fund might also use this type of hedge to attempt to
protect against the possibility that its portfolio securities would not be fully
included in a rise in value of the market. To do so the Fund could:
o buy futures, or
o buy calls on such futures or on securities.
The Fund is not obligated to use hedging instruments, even though it is
permitted to use them in the Manager's discretion, as described below. The
Fund's strategy of hedging with futures and options on futures will be
incidental to the Fund's activities in the underlying cash market. The
particular hedging instruments the Fund can use are described below. The Fund
may employ new hedging instruments and strategies when they are developed, if
those investment methods are consistent with the Fund's investment objective and
are permissible under applicable regulations governing the Fund.
Futures. The Fund can buy and sell futures contracts that relate to (1)
broadly-based securities indices (these are referred to as "financial futures"),
(2) commodities (these are referred to as "commodity index futures"), (3) debt
securities (these are referred to as "interest rate futures"), and (4) foreign
currencies (these are referred to as "forward contracts").
A broadly-based stock index is used as the basis for trading stock index
futures. They may in some cases be based on stocks of issuers in a particular
industry or group of industries. A stock index assigns relative values to the
securities included in the index and its value fluctuates in response to the
changes in value of the underlying securities. A stock index cannot be purchased
or sold directly. Bond index futures are similar contracts based on the future
value of the basket of securities that comprise the index. These contracts
obligate the seller to deliver, and the purchaser to take, cash to settle the
futures transaction. There is no delivery made of the underlying securities to
settle the futures obligation. Either party may also settle the transaction by
entering into an offsetting contract.
An interest rate future obligates the seller to deliver (and the purchaser
to take) cash or a specified type of debt security to settle the futures
transaction. Either party could also enter into an offsetting contract to close
out the position.
No money is paid or received by the Fund on the purchase or sale of a
future. Upon entering into a futures transaction, the Fund will be required to
deposit an initial margin payment with the futures commission merchant (the
"futures broker"). Initial margin payments will be deposited with the Fund's
Custodian bank in an account registered in the futures broker's name. However,
the futures broker can gain access to that account only under specified
conditions. As the future is marked to market (that is, its value on the Fund's
books is changed) to reflect changes in its market value, subsequent margin
payments, called variation margin, will be paid to or by the futures broker
daily. Alternatively, the Fund may maintain accounts with futures brokers,
provided that the Fund and the futures brokers comply with the requirements of
the rules under the 1940 Act.
At any time prior to the expiration of the futures contract, the Fund may
elect to close out its position by taking an opposite position, at which time a
final determination of variation margin is made and any additional cash must be
paid by or released to the Fund. Any loss or gain on the future is then realized
by the Fund for tax purposes. All futures transactions (other than forward
contracts) are effected through a clearinghouse associated with the exchange on
which the contracts are traded.
Put and Call Options. The Fund may buy and sell certain kinds of put
options ("puts") and call options ("calls"). The Fund can buy and sell
exchange-traded and over-the-counter put and call options, including index
options, securities options, currency options, commodities options, and options
on the other types of futures described above.
Writing Covered Call Options. The Fund can write (that is, sell)
covered calls. If the Fund sells a call option, it must be covered. That means
the Fund must own the security subject to the call while the call is
outstanding, or, for certain types of calls, the call may be covered by
segregating liquid assets to enable the Fund to satisfy its obligations if the
call is exercised. There is no limit on the amount of the Fund's total assets
that may be subject to covered calls the Fund writes.
When the Fund writes a call on a security, it receives cash (a premium).
The Fund agrees to sell the underlying security to a purchaser of a
corresponding call on the same security during the call period at a fixed
exercise price regardless of market price changes during the call period. The
call period is usually not more than nine months. The exercise price may differ
from the market price of the underlying security. The Fund has the risk of loss
that the price of the underlying security may decline during the call period.
That risk may be offset to some extent by the premium the Fund receives. If the
value of the investment does not rise above the call price, it is likely that
the call will lapse without being exercised. In that case the Fund would keep
the cash premium and the investment.
When the Fund writes a call on an index, it receives cash (a premium). If
the buyer of the call exercises it, the Fund will pay an amount of cash equal to
the difference between the closing price of the call and the exercise price,
multiplied by the specified multiple that determines the total value of the call
for each point of difference. If the value of the underlying investment does not
rise above the call price, it is likely that the call will lapse without being
exercised. In that case the Fund would keep the cash premium.
The Fund's Custodian, or a securities depository acting for the Custodian,
will act as the Fund's escrow agent, through the facilities of the Options
Clearing Corporation ("OCC"), as to the investments on which the Fund has
written calls traded on exchanges or as to other acceptable escrow securities.
In that way, no margin will be required for such transactions. OCC will release
the securities on the expiration of the option or when the Fund enters into a
closing transaction.
When the Fund writes an over-the-counter ("OTC") option, it will enter
into an arrangement with a primary U.S. government securities dealer which will
establish a formula price at which the Fund will have the absolute right to
repurchase that OTC option. The formula price will generally be based on a
multiple of the premium received for the option, plus the amount by which the
option is exercisable below the market price of the underlying security (that
is, the option is "in the money"). When the Fund writes an OTC option, it will
treat as illiquid (for purposes of its restriction on holding illiquid
securities) the mark-to-market value of any OTC option it holds, unless the
option is subject to a buy-back agreement by the executing broker.
To terminate its obligation on a call it has written, the Fund may
purchase a corresponding call in a "closing purchase transaction." The Fund will
then realize a profit or loss, depending upon whether the net of the amount of
the option transaction costs and the premium received on the call the Fund wrote
is more or less than the price of the call the Fund purchases to close out the
transaction. The Fund may realize a profit if the call expires unexercised,
because the Fund will retain the underlying security and the premium it received
when it wrote the call. Any such profits are considered short-term capital gains
for Federal income tax purposes, as are the premiums on lapsed calls. When
distributed by the Fund they are taxable as ordinary income. If the Fund cannot
effect a closing purchase transaction due to the lack of a market, it will have
to hold the callable securities until the call expires or is exercised.
The Fund may also write calls on a futures contract without owning the
futures contract or securities deliverable under the contract. To do so, at the
time the call is written, the Fund must cover the call by segregating an
equivalent dollar amount of liquid assets. The Fund will segregate additional
liquid assets if the value of the segregated assets drops below 100% of the
current value of the future. Because of this segregation requirement, in no
circumstances would the Fund's receipt of an exercise notice as to that future
require the Fund to deliver a futures contract. It would simply put the Fund in
a short futures position, which is permitted by the Fund's hedging policies.
Writing Put Options. The Fund can sell put options on securities,
broadly-based securities indices, foreign currencies and futures. A put option
on securities gives the purchaser the right to sell, and the writer the
obligation to buy, the underlying investment at the exercise price during the
option period. The Fund will not write puts if, as a result, more than 50% of
the Fund's net assets would be required to be segregated to cover such put
options.
If the Fund writes a put, the put must be covered by segregated liquid
assets. The premium the Fund receives from writing a put represents a profit, as
long as the price of the underlying investment remains equal to or above the
exercise price of the put. However, the Fund also assumes the obligation during
the option period to buy the underlying investment from the buyer of the put at
the exercise price, even if the value of the investment falls below the exercise
price.
If a put the Fund has written expires unexercised, the Fund realizes a
gain in the amount of the premium less the transaction costs incurred. If the
put is exercised, the Fund must fulfill its obligation to purchase the
underlying investment at the exercise price. That price will usually exceed the
market value of the investment at that time. In that case, the Fund may incur a
loss if it sells the underlying investment. That loss will be equal to the sum
of the sale price of the underlying investment and the premium received minus
the sum of the exercise price and any transaction costs the Fund incurred.
When writing a put option on a security, to secure its obligation to pay
for the underlying security the Fund will deposit in escrow liquid assets with a
value equal to or greater than the exercise price of the underlying securities.
The Fund therefore forgoes the opportunity of investing the segregated assets or
writing calls against those assets.
As long as the Fund's obligation as the put writer continues, it may be
assigned an exercise notice by the broker-dealer through which the put was sold.
That notice will require the Fund to take delivery of the underlying security
and pay the exercise price. The Fund has no control over when it may be required
to purchase the underlying security, since it may be assigned an exercise notice
at any time prior to the termination of its obligation as the writer of the put.
That obligation terminates upon expiration of the put. It may also terminate if,
before it receives an exercise notice, the Fund effects a closing purchase
transaction by purchasing a put of the same series as it sold. Once the Fund has
been assigned an exercise notice, it cannot effect a closing purchase
transaction.
The Fund may decide to effect a closing purchase transaction to realize a
profit on an outstanding put option it has written or to prevent the underlying
security from being put. Effecting a closing purchase transaction will also
permit the Fund to write another put option on the security, or to sell the
security and use the proceeds from the sale for other investments. The Fund will
realize a profit or loss from a closing purchase transaction depending on
whether the cost of the transaction is less or more than the premium received
from writing the put option. Any profits from writing puts are considered
short-term capital gains for Federal tax purposes, and when distributed by the
Fund, are taxable as ordinary income.
Purchasing Calls and Puts. The Fund can purchase calls on securities,
broadly-based securities indices, foreign currencies and futures. It may do so
to protect against the possibility that the Fund's portfolio will not
participate in an anticipated rise in the securities market. When the Fund buys
a call (other than in a closing purchase transaction), it pays a premium. The
Fund then has the right to buy the underlying investment from a seller of a
corresponding call on the same investment during the call period at a fixed
exercise price.
The Fund benefits only if it sells the call at a profit or if, during the
call period, the market price of the underlying investment is above the sum of
the call price plus the transaction costs and the premium paid for the call and
the Fund exercises the call. If the Fund does not exercise the call or sell it
(whether or not at a profit), the call will become worthless at its expiration
date. In that case the Fund will have paid the premium but lost the right to
purchase the underlying investment.
The Fund can buy puts on securities, broadly-based securities indices,
foreign currencies and futures, whether or not it owns the underlying
investment. When the Fund purchases a put, it pays a premium and, except as to
puts on indices, has the right to sell the underlying investment to a seller of
a put on a corresponding investment during the put period at a fixed exercise
price.
Buying a put on an investment the Fund does not own (such as an index or
future) permits the Fund either to resell the put or to buy the underlying
investment and sell it at the exercise price. The resale price will vary
inversely to the price of the underlying investment. If the market price of the
underlying investment is above the exercise price and, as a result, the put is
not exercised, the put will become worthless on its expiration date.
Buying a put on securities or futures the Fund owns enables the Fund to
attempt to protect itself during the put period against a decline in the value
of the underlying investment below the exercise price by selling the underlying
investment at the exercise price to a seller of a corresponding put. If the
market price of the underlying investment is equal to or above the exercise
price and, as a result, the put is not exercised or resold, the put will become
worthless at its expiration date. In that case the Fund will have paid the
premium but lost the right to sell the underlying investment. However, the Fund
may sell the put prior to its expiration. That sale may or may not be at a
profit.
When the Fund purchases a call or put on an index or future, it pays a
premium, but settlement is in cash rather than by delivery of the underlying
investment to the Fund. Gain or loss depends on changes in the index in question
(and thus on price movements in the securities market generally) rather than on
price movements in individual securities or futures contracts.
The Fund may also purchase calls and puts on spread options. Spread
options pay the difference between two interest rates, two exchange rates or two
referenced assets. Spread options are used to hedge the decline in the value of
an interest rate, currency or asset compared to a reference or base interest
rate, currency or asset. The risks associated with spread options are similar to
those of interest rate options, foreign exchange options and debt or equity
options.
The Fund may buy a call or put only if, after the purchase, the value of
all call and put options held by the Fund will not exceed 5% of the Fund's total
assets.
Buying and Selling Options on Foreign Currencies. The Fund can buy
and sell calls and puts on foreign currencies. They include puts and calls that
trade on a securities or commodities exchange or in the over-the-counter markets
or are quoted by major recognized dealers in such options. The Fund could use
these calls and puts to try to protect against declines in the dollar value of
foreign securities and increases in the dollar cost of foreign securities the
Fund wants to acquire.
If the Manager anticipates a rise in the dollar value of a foreign
currency in which securities to be acquired are denominated, the increased cost
of those securities may be partially offset by purchasing calls or writing puts
on that foreign currency. If the Manager anticipates a decline in the dollar
value of a foreign currency, the decline in the dollar value of portfolio
securities denominated in that currency might be partially offset by writing
calls or purchasing puts on that foreign currency. However, the currency rates
could fluctuate in a direction adverse to the Fund's position. The Fund will
then have incurred option premium payments and transaction costs without a
corresponding benefit.
A call the Fund writes on a foreign currency is "covered" if the Fund owns
the underlying foreign currency covered by the call or has an absolute and
immediate right to acquire that foreign currency without additional cash
consideration (or it can do so for additional cash consideration held in a
segregated account by its Custodian bank) upon conversion or exchange of other
foreign currency held in its portfolio.
The Fund could write a call on a foreign currency to provide a hedge
against a decline in the U.S. dollar value of a security which the Fund owns or
has the right to acquire and which is denominated in the currency underlying the
option. That decline might be one that occurs due to an expected adverse change
in the exchange rate. This is known as a "cross-hedging" strategy. In those
circumstances, the Fund covers the option by maintaining cash, U.S. government
securities or other liquid, high grade debt securities in an amount equal to the
exercise price of the option, in a segregated account with the Fund's Custodian
bank.
Risks of Hedging with Options and Futures. The use of hedging
instruments requires special skills and knowledge of investment techniques that
are different than what is required for normal portfolio management. If the
Manager uses a hedging instrument at the wrong time or judges market conditions
incorrectly, hedging strategies may reduce the Fund's return. The Fund could
also experience losses if the prices of its futures and options positions were
not correlated with its other investments.
The Fund's option activities could affect its portfolio turnover rate and
brokerage commissions. The exercise of calls written by the Fund might cause the
Fund to sell related portfolio securities, thus increasing its turnover rate.
The exercise by the Fund of puts on securities will cause the sale of underlying
investments, increasing portfolio turnover. Although the decision whether to
exercise a put it holds is within the Fund's control, holding a put might cause
the Fund to sell the related investments for reasons that would not exist in the
absence of the put.
The Fund could pay a brokerage commission each time it buys a call or put,
sells a call or put, or buys or sells an underlying investment in connection
with the exercise of a call or put. Those commissions could be higher on a
relative basis than the commissions for direct purchases or sales of the
underlying investments. Premiums paid for options are small in relation to the
market value of the underlying investments. Consequently, put and call options
offer large amounts of leverage. The leverage offered by trading in options
could result in the Fund's net asset value being more sensitive to changes in
the value of the underlying investment.
If a covered call written by the Fund is exercised on an investment that
has increased in value, the Fund will be required to sell the investment at the
call price. It will not be able to realize any profit if the investment has
increased in value above the call price.
An option position may be closed out only on a market that provides
secondary trading for options of the same series, and there is no assurance that
a liquid secondary market will exist for any particular option. The Fund might
experience losses if it could not close out a position because of an illiquid
market for the future or option.
There is a risk in using short hedging by selling futures or purchasing
puts on broadly-based indices or futures to attempt to protect against declines
in the value of the Fund's portfolio securities. The risk is that the prices of
the futures or the applicable index will correlate imperfectly with the behavior
of the cash prices of the Fund's securities. For example, it is possible that
while the Fund has used hedging instruments in a short hedge, the market might
advance and the value of the securities held in the Fund's portfolio might
decline. If that occurred, the Fund would lose money on the hedging instruments
and also experience a decline in the value of its portfolio securities. However,
while this could occur for a very brief period or to a very small degree, over
time the value of a portfolio of securities will tend to move in the same
direction as the indices upon which the hedging instruments are based.
The risk of imperfect correlation increases as the composition of the
Fund's portfolio diverges from the securities included in the applicable index.
To compensate for the imperfect correlation of movements in the price of the
portfolio securities being hedged and movements in the price of the hedging
instruments, the Fund might use hedging instruments in a greater dollar amount
than the dollar amount of portfolio securities being hedged. It might do so if
the historical volatility of the prices of the portfolio securities being hedged
is more than the historical volatility of the applicable index.
The ordinary spreads between prices in the cash and futures markets are
subject to distortions, due to differences in the nature of those markets.
First, all participants in the futures market are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities markets. Therefore,
increased participation by speculators in the futures market may cause temporary
price distortions.
The Fund can use hedging instruments to establish a position in the
securities markets as a temporary substitute for the purchase of individual
securities (long hedging) by buying futures and/or calls on such futures,
broadly-based indices or on securities. It is possible that when the Fund does
so the market might decline. If the Fund then concludes not to invest in
securities because of concerns that the market might decline further or for
other reasons, the Fund will realize a loss on the hedging instruments that is
not offset by a reduction in the price of the securities purchased.
Forward Contracts. Forward contracts are foreign currency exchange
contracts. They are used to buy or sell foreign currency for future delivery at
a fixed price. The Fund uses them to "lock in" the U.S. dollar price of a
security denominated in a foreign currency that the Fund has bought or sold, or
to protect against possible losses from changes in the relative values of the
U.S. dollar and a foreign currency. The Fund limits its exposure in foreign
currency exchange contracts in a particular foreign currency to the amount of
its assets denominated in that currency or a closely-correlated currency. The
Fund may also use "cross-hedging" where the Fund hedges against changes in
currencies other than the currency in which a security it holds is denominated.
Under a forward contract, one party agrees to purchase, and another party
agrees to sell, a specific currency at a future date. That date may be any fixed
number of days from the date of the contract agreed upon by the parties. The
transaction price is set at the time the contract is entered into. These
contracts are traded in the inter-bank market conducted directly among currency
traders (usually large commercial banks) and their customers.
The Fund may use forward contracts to protect against uncertainty in the
level of future exchange rates. The use of forward contracts does not eliminate
the risk of fluctuations in the prices of the underlying securities the Fund
owns or intends to acquire, but it does fix a rate of exchange in advance.
Although forward contracts may reduce the risk of loss from a decline in the
value of the hedged currency, at the same time they limit any potential gain if
the value of the hedged currency increases.
When the Fund enters into a contract for the purchase or sale of a
security denominated in a foreign currency, or when it anticipates receiving
dividend payments in a foreign currency, the Fund might desire to "lock-in" the
U.S. dollar price of the security or the U.S. dollar equivalent of the dividend
payments. To do so, the Fund could enter into a forward contract for the
purchase or sale of the amount of foreign currency involved in the underlying
transaction, in a fixed amount of U.S. dollars per unit of the foreign currency.
This is called a "transaction hedge." The transaction hedge will protect the
Fund against a loss from an adverse change in the currency exchange rates during
the period between the date on which the security is purchased or sold or on
which the payment is declared, and the date on which the payments are made or
received.
The Fund could also use forward contracts to lock in the U.S. dollar value
of portfolio positions. This is called a "position hedge." When the Fund
believes that foreign currency might suffer a substantial decline against the
U.S. dollar, it could enter into a forward contract to sell an amount of that
foreign currency approximating the value of some or all of the Fund's portfolio
securities denominated in that foreign currency. When the Fund believes that the
U.S. dollar might suffer a substantial decline against a foreign currency, it
could enter into a forward contract to buy that foreign currency for a fixed
dollar amount. Alternatively, the Fund could enter into a forward contract to
sell a different foreign currency for a fixed U.S. dollar amount if the Fund
believes that the U.S. dollar value of the foreign currency to be sold pursuant
to its forward contract will fall whenever there is a decline in the U.S. dollar
value of the currency in which portfolio securities of the Fund are denominated.
That is referred to as a "cross hedge."
The Fund will cover its short positions in these cases by identifying to
its Custodian bank assets having a value equal to the aggregate amount of the
Fund's commitment under forward contracts. The Fund will not enter into forward
contracts or maintain a net exposure to such contracts if the consummation of
the contracts would obligate the Fund to deliver an amount of foreign currency
in excess of the value of the Fund's portfolio securities or other assets
denominated in that currency or another currency that is the subject of the
hedge.
However, to avoid excess transactions and transaction costs, the Fund may
maintain a net exposure to forward contracts in excess of the value of the
Fund's portfolio securities or other assets denominated in foreign currencies if
the excess amount is "covered" by liquid securities denominated in any currency.
The cover must be at least equal at all times to the amount of that excess. As
one alternative, the Fund may purchase a call option permitting the Fund to
purchase the amount of foreign currency being hedged by a forward sale contract
at a price no higher than the forward contract price. As another alternative,
the Fund may purchase a put option permitting the Fund to sell the amount of
foreign currency subject to a forward purchase contract at a price as high or
higher than the forward contract price.
The precise matching of the amounts under forward contracts and the value
of the securities involved generally will not be possible because the future
value of securities denominated in foreign currencies will change as a
consequence of market movements between the date the forward contract is entered
into and the date it is sold. In some cases the Manager might decide to sell the
security and deliver foreign currency to settle the original purchase
obligation. If the market value of the security is less than the amount of
foreign currency the Fund is obligated to deliver, the Fund might have to
purchase additional foreign currency on the "spot" (that is, cash) market to
settle the security trade. If the market value of the security instead exceeds
the amount of foreign currency the Fund is obligated to deliver to settle the
trade, the Fund might have to sell on the spot market some of the foreign
currency received upon the sale of the security. There will be additional
transaction costs on the spot market in those cases.
The projection of short-term currency market movements is extremely
difficult, and the successful execution of a short-term hedging strategy is
highly uncertain. Forward contracts involve the risk that anticipated currency
movements will not be accurately predicted, causing the Fund to sustain losses
on these contracts and to pay additional transactions costs. The use of forward
contracts in this manner might reduce the Fund's performance if there are
unanticipated changes in currency prices to a greater degree than if the Fund
had not entered into such contracts.
At or before the maturity of a forward contract requiring the Fund to sell
a currency, the Fund might sell a portfolio security and use the sale proceeds
to make delivery of the currency. In the alternative the Fund might retain the
security and offset its contractual obligation to deliver the currency by
purchasing a second contract. Under that contract the Fund will obtain, on the
same maturity date, the same amount of the currency that it is obligated to
deliver. Similarly, the Fund might close out a forward contract requiring it to
purchase a specified currency by entering into a second contract entitling it to
sell the same amount of the same currency on the maturity date of the first
contract. The Fund would realize a gain or loss as a result of entering into
such an offsetting forward contract under either circumstance. The gain or loss
will depend on the extent to which the exchange rate or rates between the
currencies involved moved between the execution dates of the first contract and
offsetting contract.
The costs to the Fund of engaging in forward contracts varies with factors
such as the currencies involved, the length of the contract period and the
market conditions then prevailing. Because forward contracts are usually entered
into on a principal basis, no brokerage fees or commissions are involved.
Because these contracts are not traded on an exchange, the Fund must evaluate
the credit and performance risk of the counterparty under each forward contract.
Although the Fund values its assets daily in terms of U.S. dollars, it
does not intend to convert its holdings of foreign currencies into U.S. dollars
on a daily basis. The Fund may convert foreign currency from time to time, and
will incur costs in doing so. Foreign exchange dealers do not charge a fee for
conversion, but they do seek to realize a profit based on the difference between
the prices at which they buy and sell various currencies. Thus, a dealer might
offer to sell a foreign currency to the Fund at one rate, while offering a
lesser rate of exchange if the Fund desires to resell that currency to the
dealer.
Interest Rate and Total Return Swap Transactions. Interest rate swaps
involve the exchange by the Fund with another party of their respective
commitments or rights to pay or receive interest, such as an exchange of fixed
rate payments for Senior Loans. For example, if the Fund holds a Senior Loan
with an interest rate that is reset only once a year, it may swap the right to
receive interest at this fixed rate for the right to receive interest at a rate
that is reset every week. Thus, if interest rates rise, the increased interest
received by the Fund would offset a decline in the value of the Senior Loan. On
the other hand, if interest rates fall, the Fund's benefit from falling interest
rates would decrease.
In addition, the Fund may invest in total return swaps with
appropriate counterparties. Total return swaps involve the payment by the Fund
of a floating rate of interest in exchange for the total rate of return on a
Senior Loan. For example, if the Fund wished to invest in a Senior Loan, it
could instead enter into a total return swap and receive the total return of the
Senior Loan, less the "funding cost", which is a floating rate payment to the
counterparty.
The Fund typically pays a fee determined by multiplying the face value of
the swap agreement by an agreed upon interest rate. If the underlying asset
value declines in value over the term of the swap, the Fund would be required to
pay the dollar value of that decline to the counterparty in addition to its fee
payments.
The Fund intends to invest only in swap transactions that are exempt from
regulation by the Commodity Futures Trading Commission under the Commodity
Exchange Act.
Swap agreements entail both interest rate risk and credit risk. There is a
risk that, based on movements of interest rates in the future, the payments made
by the Fund under a swap agreement will be greater than the payments it
received. Credit risk arises from the possibility that the counterparty will
default. If the counterparty defaults, the Fund's loss will consist of the net
amount of contractual interest payments that the Fund has not yet received. The
Manager will monitor the creditworthiness of counterparties to the Fund's
interest rate swap transactions on an ongoing basis.
The Fund can enter into swap transactions with certain counterparties
pursuant to master netting agreements. A master netting agreement provides that
all swaps done between the Fund and that counterparty shall be regarded as parts
of an integral agreement. If amounts are payable on a particular date in the
same currency in respect of one or more swap transactions, the amount payable on
that date in that currency shall be the net amount. In addition, the master
netting agreement may provide that if one party defaults generally or on one
swap, the counterparty can terminate all of the swaps with that party. Under
these agreements, if a default results in a loss to one party, the measure of
that party's damages is calculated by reference to the average cost of a
replacement swap for each swap. It is measured by the mark-to-market value at
the time of the termination of each swap. The gains and losses on all swaps are
then netted, and the result is the counterparty's gain or loss on termination.
The termination of all swaps and the netting of gains and losses on termination
is generally referred to as "aggregation."
Regulatory Aspects of Hedging Instruments. When using futures and
options on futures, the Fund is required to operate within certain guidelines
and restrictions with respect to the use of futures as established by the
Commodities Futures Trading Commission (the "CFTC"). In particular, the Fund is
exempted from registration with the CFTC as a "commodity pool operator" if the
Fund complies with the requirements of Rule 4.5 adopted by the CFTC. The Rule
does not limit the percentage of the Fund's assets that may be used for futures
margin and related options premiums for a bona fide hedging position. However,
under the Rule, the Fund must limit its aggregate initial futures margin and
related options premiums to not more than 5% of the Fund's net assets for
hedging strategies that are not considered bona fide hedging strategies under
the Rule. Under the Rule, the Fund must also use short futures and options on
futures solely for bona fide hedging purposes within the meaning and intent of
the applicable provisions of the Commodity Exchange Act.
Transactions in options by the Fund are subject to limitations established
by the option exchanges. The exchanges limit the maximum number of options that
may be written or held by a single investor or group of investors acting in
concert. Those limits apply regardless of whether the options were written or
purchased on the same or different exchanges or are held in one or more accounts
or through one or more different exchanges or through one or more brokers. Thus,
the number of options that the Fund may write or hold may be affected by options
written or held by other entities, including other investment companies having
the same adviser as the Fund (or an adviser that is an affiliate of the Fund's
adviser). The exchanges also impose position limits on futures transactions. An
exchange may order the liquidation of positions found to be in violation of
those limits and may impose certain other sanctions.
Under the Investment Company Act, when the Fund purchases a future, it
must maintain cash or readily marketable short-term debt instruments in an
amount equal to the market value of the securities underlying the future, less
the margin deposit applicable to it.
Tax Aspects of Certain Hedging Instruments. Certain foreign currency
exchange contracts in which the Fund may invest are treated as "Section 1256
contracts" under the Internal Revenue Code. In general, gains or losses relating
to Section 1256 contracts are characterized as 60% long-term and 40% short-term
capital gains or losses under the Code. However, foreign currency gains or
losses arising from Section 1256 contracts that are forward contracts generally
are treated as ordinary income or loss. In addition, Section 1256 contracts held
by the Fund at the end of each taxable year are "marked-to-market," and
unrealized gains or losses are treated as though they were realized. These
contracts also may be marked-to-market for purposes of determining the excise
tax applicable to investment company distributions and for other purposes under
rules prescribed pursuant to the Internal Revenue Code. An election can be made
by the Fund to exempt those transactions from this marked-to-market treatment.
Certain forward contracts the Fund enters into may result in "straddles"
for federal income tax purposes. The straddle rules may affect the character and
timing of gains (or losses) recognized by the Fund on straddle positions.
Generally, a loss sustained on the disposition of a position making up a
straddle is allowed only to the extent that the loss exceeds any unrecognized
gain in the offsetting positions making up the straddle. Disallowed loss is
generally allowed at the point where there is no unrecognized gain in the
offsetting positions making up the straddle, or the offsetting position is
disposed of.
Under the Internal Revenue Code, the following gains or losses are
treated as ordinary income or loss:
1. gains or losses attributable to fluctuations in exchange rates that
occur between the time the Fund accrues interest or other receivables or
accrues expenses or other liabilities denominated in a foreign currency
and the time the Fund actually collects such receivables or pays such
liabilities, and
2. gains or losses attributable to fluctuations in the value of a foreign
currency between the date of acquisition of a debt security denominated
in a foreign currency or foreign currency forward contracts and the date
of disposition.
Currency gains and losses are offset against market gains and losses on
each trade before determining a net "Section 988" gain or loss under the
Internal Revenue Code for that trade, which may increase or decrease the amount
of the Fund's investment income available for distribution to its shareholders.
Temporary Defensive Investments. When market conditions are unstable, or
the Manager believes it is otherwise appropriate to reduce holdings in stocks,
the Fund can invest in a variety of debt securities for defensive purposes. The
Fund can also purchase these securities for liquidity purposes to meet cash
needs due to the redemption of Fund shares, or to hold while waiting to reinvest
cash received from the sale of other portfolio securities. The Fund's temporary
defensive investments can include the following short-term (maturing in one year
or less) dollar-denominated debt obligations:
o obligations issued or guaranteed by the U. S. government or its
instrumentalities or agencies,
o commercial paper (short-term, unsecured promissory notes) of domestic or
foreign companies,
o debt obligations of domestic or foreign corporate issuers,
o certificates of deposit and bankers' acceptances of domestic and foreign
banks having total assets in excess of $1 billion, and
o repurchase agreements.
Short-term debt securities would normally be selected for defensive or
cash management purposes because they can normally be disposed of quickly, are
not generally subject to significant fluctuations in principal value and their
value will be less subject to interest rate risk than longer-term debt
securities.
Investment Restrictions
What Are "Fundamental Policies?" Fundamental policies are those policies
that the Fund has adopted to govern its investments that can be changed only by
the vote of a "majority" of the Fund's outstanding voting securities. Under the
Investment Company Act, a "majority" vote is defined as the vote of the holders
of the lesser of:
o 67% or more of the shares present or represented by proxy at a
shareholder meeting, if the holders of more than 50% of the
outstanding shares are present or represented by proxy, or
o more than 50% of the outstanding shares.
The Fund's investment objective is a fundamental policy. Other policies
described in the Prospectus or this Statement of Additional Information are
"fundamental" only if they are identified as such. The Fund's Board of Trustees
can change non-fundamental policies without shareholder approval. However,
significant changes to investment policies will be described in supplements or
updates to the Prospectus or this Statement of Additional Information, as
appropriate. The Fund's most significant investment policies are described in
the Prospectus.
Does the Fund Have Additional Fundamental Policies? The following
investment restrictions are fundamental policies of the Fund:
o The Fund cannot invest more than 25% (the Fund interprets this policy to
apply to "25% or more" of its total assets) of its total assets in any
one industry. That limit does not apply to Securities issued or
guaranteed by the U.S. government or its agencies and instrumentalities.
Each foreign government is treated as an "industry" and utilities are
divided according to the services they provide.
o The Fund cannot borrow money in excess of 50% of the value of its total
assets (as a non-fundamental operating policy, that limit is applied to
50% of the Fund's net assets). The Fund may only borrow subject to the
300% asset coverage requirement set forth in its policy on borrowing.
o The Fund cannot make loans, except as permitted under the 1940 Act, as
amended and as interpreted or modified by regulatory authority having
jurisdiction. However, the Fund can invest in Senior Loans and debt
obligations in accordance with its investment objective and policies.
The Fund may also lend its portfolio securities as set forth in its
policy on securities lending and may enter into repurchase agreements.
o The Fund cannot buy or sell real estate. However, the Fund can purchase
securities secured by real estate or interests in real estate, or issued
by companies, including real estate investment trusts, that invest in
real estate or interests in real estate. The Fund may hold and sell real
estate as acquired as a result of the Fund's ownership of securities.
o The Fund cannot buy or sell commodities or commodity contracts. However,
the Fund can buy and sell derivative instruments and other hedging
instruments, including, but not limited to, futures contracts, options
and swaps.
o The Fund cannot underwrite securities of other companies. A permitted
exception is in case it is deemed to be an underwriter under the
Securities Act of 1933 when reselling any securities held in its own
portfolio.
o The Fund cannot buy securities on margin. However, the Fund can make
margin deposits in connection with its use of derivative instruments and
hedging instruments.
o The Fund cannot make short sales of securities or maintain a short
position, unless at all times when a short position is open the Fund
owns an equal amount of those securities, or by virtue of ownership of
other securities has the right to obtain an equal amount of the
securities sold short without payment of further consideration. The Fund
may, however, write puts, sell futures contracts and engage in other
derivatives instruments.
o The Fund cannot issue "senior securities," except as permitted under the
1940 Act, as amended and as interpreted or modified by regulatory
authority having jurisdiction, provided that this limitation does not
prohibit certain investment activities for which assets of the Fund
are designated as segregated, or margin, collateral or escrow
arrangements are established, to cover the related obligations.
Examples of those activities include borrowing money, reverse
repurchase agreements, delayed-delivery and when-issued arrangements
for portfolio securities transactions, and contracts to buy or sell
derivatives, hedging instruments, options or futures.
Notwithstanding the Fund's investment policies and restrictions, the Fund
may invest all or part of its investable assets in a management investment
company with substantially the same investment objective policies and
restrictions as the Fund. This could allow creation of a "master/feeder"
structure in the future, although the Fund has no current intention to
restructure in this manner.
Unless the Prospectus or this Statement of Additional Information states
that a percentage restriction applies on an ongoing basis, it applies only at
the time the Fund makes an investment. The Fund need not sell securities to meet
the percentage limits if the value of the investment increases in proportion to
the size of the Fund.
For purposes of the Fund's policy not to concentrate its investments, the
Fund has adopted the industry classifications set forth in Appendix B to this
Statement of Additional Information. This is not a fundamental policy.
Fundamental Policies Concerning Tender Offers. The following policies
concerning the Tender Offers are fundamental, which means that the Board of
Trustees cannot change the policies without the vote of the holders of a
"majority of the fund's outstanding voting securities," as that term is defined
in the 1940 Act:
o Quarterly Tender Offers. The Fund will make quarterly Tender Offers.
o Repurchase Request Deadline. The time between the notification to the
shareholders and the Repurchase Request Deadline will be at least three
weeks, but no more than six weeks.
o Repurchase Pricing Date. The Fund may set the Repurchase Pricing Date to
occur no more than 14 days after the Repurchase Request Deadline. The
Fund, however, may set the Repurchase Pricing Date to occur as many as
14 days after the Repurchase Request Deadline. If that day is not a
business day, then the Repurchase Pricing Date will be the following
business day.
How the Fund is Managed
Organization and History. The Fund is a closed-end, non-diversified management
investment company with an unlimited number of authorized shares of beneficial
interest. The Fund was organized as a Massachusetts business trust in June 1999.
The Fund is governed by a Board of Trustees, which is responsible for
protecting the interests of shareholders under Massachusetts law. The Trustees
meet periodically throughout the year to oversee the Fund's activities, review
its performance, and review the actions of the Manager. Although the Fund will
not normally hold annual meetings of its shareholders, it may hold shareholder
meetings from time to time on important matters, and shareholders have the right
to call a meeting to remove a Trustee or to take other action described in the
Fund's Declaration of Trust.
Classes of Shares. The Board of Trustees has the power, without
shareholder approval, to divide unissued shares of the Fund into two or more
classes. The Board has done so, and the Fund currently has three classes of
shares: Class A, Class B and Class C. All classes invest in the same investment
portfolio. Each class of shares:
o has its own dividends and distributions,
o pays certain expenses which may be different for the different classes,
o may have a different net asset value,
o may have separate voting rights on matters in which interests of one
class are different from interests of another class, and o votes as
a class on matters that affect that class alone.
Shares are freely transferable, and each share of each class has one vote
at shareholder meetings, with fractional shares voting proportionally on matters
submitted to the vote of shareholders. Each share of the Fund represents an
interest in the Fund proportionately equal to the interest of each other share
of the same class.
The Trustees are authorized to create new series and classes of shares.
The Trustees may reclassify unissued shares of the Fund into additional series
or classes of shares. The Trustees also may divide or combine the shares of a
class into a greater or lesser number of shares without changing the
proportionate beneficial interest of a shareholder in the Fund. Shares do not
have cumulative voting rights or preemptive or subscription rights. Shares may
be voted in person or by proxy at shareholder meetings.
Meetings of Shareholders. As a Massachusetts business trust, the Fund is
not required to hold, and does not plan to hold, regular annual meetings of
shareholders. The Fund will hold meetings when required to do so by the
Investment Company Act or other applicable law. It will also do so when a
shareholder meeting is called by the Trustees or upon proper request of the
shareholders.
Shareholders have the right, upon the declaration in writing or vote of
two-thirds of the outstanding shares of the Fund, to remove a Trustee. The
Trustees will call a meeting of shareholders to vote on the removal of a Trustee
upon the written request of the record holders of 10% of its outstanding shares.
If the Trustees receive a request from at least 10 shareholders stating that
they wish to communicate with other shareholders to request a meeting to remove
a Trustee, the Trustees will then either make the Fund's shareholder list
available to the applicants or mail their communication to all other
shareholders at the applicants' expense. The shareholders making the request
must have been shareholders for at least six months and must hold shares of the
Fund valued at $25,000 or more or constituting at least 1% of the Fund's
outstanding shares, whichever is less. The Trustees may also take other action
as permitted by the Investment Company Act.
Shareholder and Trustee Liability. The Fund's Declaration of Trust
contains an express disclaimer of shareholder or Trustee liability for the
Fund's obligations. It also provides for indemnification and reimbursement of
expenses out of the Fund's property for any shareholder held personally liable
for its obligations. The Declaration of Trust also states that upon request, the
Fund shall assume the defense of any claim made against a shareholder for any
act or obligation of the Fund and shall satisfy any judgment on that claim.
Massachusetts law permits a shareholder of a business trust (such as the Fund)
to be held personally liable as a "partner" under certain circumstances.
However, the risk that a Fund shareholder will incur financial loss from being
held liable as a "partner" of the Fund is limited to the relatively remote
circumstances in which the Fund would be unable to meet its obligations.
The Fund's contractual arrangements state that any person doing business
with the Fund (and each shareholder of the Fund) agrees under its Declaration of
Trust to look solely to the assets of the Fund for satisfaction of any claim or
demand that may arise out of any dealings with the Fund. The contracts further
state that the Trustees shall have no personal liability to any such person, to
the extent permitted by law.
Trustees and Officers of the Fund. The Fund's Trustees and officers and their
principal occupations and business affiliations during the past five years are
listed below. Trustees denoted with an asterisk (*) below are deemed to be
"interested persons" of the Fund under the Investment Company Act. All of the
Trustees are also trustees, directors or managing general partners of the
following Denver-based Oppenheimer funds1:
Oppenheimer Cash Reserves Oppenheimer Total Return Fund,
Inc.
Oppenheimer Champion Income Fund Oppenheimer Variable Account Funds
Oppenheimer Capital Income Fund Panorama Series Fund, Inc.
Oppenheimer High Yield Fund Centennial America Fund, L. P.
Oppenheimer International Bond Centennial California Tax Exempt
Fund Trust
Oppenheimer Integrity Funds Centennial Government Trust
Oppenheimer Limited-Term Centennial Money Market Trust
Government Fund
Oppenheimer Main Street Funds, Centennial New York Tax Exempt
Inc. Trust
Oppenheimer Municipal Fund Centennial Tax Exempt Trust
Oppenheimer Real Asset Fund
Oppenheimer Strategic Income Fund
Ms. Macaskill and Messrs. Swain, Bishop, Wixted, Donohue, Farrar and Zack,
who are officers of the Fund, respectively hold the same offices with the other
Denver-based Oppenheimer funds. As of September 1, 1999, the Trustees and
officers of the Fund as a group owned less than 1% of the outstanding shares of
the Fund. The foregoing statement does not reflect shares held of record by an
employee benefit plan for employees of the Manager other than shares
beneficially owned under that plan by the officers of the Fund listed below. Ms.
Macaskill and Mr. Donohue, are trustees of that plan.
Robert G. Avis,* Trustee; Age: 67
One North Jefferson Ave., St. Louis, Missouri 63103
Vice Chairman of A.G. Edwards & Sons, Inc. (a broker-dealer) and A.G.
Edwards, Inc. (its parent holding company); Chairman of A.G.E. Asset
Management and A.G. Edwards Trust Company (its affiliated investment adviser
and trust company, respectively).
William A. Baker, Trustee; Age: 84
197 Desert Lakes Drive, Palm Springs, California 92264
Management Consultant.
Jon S. Fossel, Trustee; Age: 56
P.O. Box 44, Mead Street, Waccabuc, New York 10597
Formerly Chairman and a director of the Manager, President and a director of
Oppenheimer Acquisition Corp. ("OAC"), the Manager's parent holding company,
and Shareholder Services, Inc. ("SSI") and Shareholder Financial Services,
Inc. ("SFSI"), transfer agent subsidiaries of the Manager.
Sam Freedman, Trustee; Age: 58
4975 Lakeshore Drive, Littleton, Colorado 80123
Formerly Chairman and Chief Executive Officer of OppenheimerFunds Services;
Chairman, Chief Executive Officer and a director of SSI; Chairman, Chief
Executive and Officer and director of SFSI; Vice President and director of OAC
and a director of OppenheimerFunds, Inc.
Raymond J. Kalinowski, Trustee; Age: 69
44 Portland Drive, St. Louis, Missouri 63131
Director of Wave Technologies International, Inc. (a computer products
training company), self-employed consultant (securities matters).
C. Howard Kast, Trustee; Age: 77
2552 East Alameda, Denver, Colorado 80209
Formerly Managing Partner of Deloitte, Haskins & Sells (an accounting firm).
Robert M. Kirchner, Trustee; Age: 77
7500 E. Arapahoe Road, Englewood, Colorado 80112
President of The Kirchner Company (management consultants).
Ned M. Steel, Trustee; Age: 83
3416 South Race Street, Englewood, Colorado 80110
Chartered Property and Casualty Underwriter; a director of Visiting Nurse
Corporation of Colorado.
James C. Swain, Chairman, Chief Executive Officer and Trustee*; Age: 65 6803
South Tucson Way, Englewood, Colorado 80112 Vice Chairman of the Manager (since
September 1988); formerly President and a director of Centennial Asset
Management Corporation, an investment adviser subsidiary of the Manager
("Centennial"), and Chairman of the Board of SSI.
Bridget A. Macaskill, President; Age: 50
Two World Trade Center, 34th Floor, New York, New York 10048
President (since June 1991), Chief Executive Officer (since September 1995) and
a Director (since December 1994) of the Manager; President and director (since
June 1991) of HarbourView; Chairman and a director of SSI (since August 1994),
and SFSI (September 1995); President (since September 1995) and a director
(since October 1990) of OAC; President (since September 1995) and a director
(since November 1989) of Oppenheimer Partnership Holdings, Inc., a holding
company subsidiary of the Manager; a director of Oppenheimer Real Asset
Management, Inc. (since July 1996); President and a director (since October
1997) of OppenheimerFunds International Ltd., an offshore fund manager
subsidiary of the Manager ("OFIL"); Chairman, President and a director of
Oppenheimer Millennium Funds plc (since October 1997); President and a director
of other Oppenheimer funds; Member, Board of Governors, NASD, Inc.; a director
of Hillsdown Holdings plc (a U.K. food company); formerly a director of NASDAQ
Stock Market, Inc.
George Bowen,* Trustee; Age: .
6803 South Tucson Way, Englewood, Colorado 80112
Formerly (until April 1999) Mr. Bowen held the following positions: Senior
Vice President (since September 1987) and Treasurer (since March 1985) of the
Manager; Vice President (since June 1983) and Treasurer (since March 1985) of
the Distributor; Vice President (since October 1989) and Treasurer (since
April 1986) of HarbourView Asset Management Corporation; Senior Vice
President (since February 1992), Treasurer (since July 1991) Assistant
Secretary and a director (since December 1991) of Centennial Asset Management
Corporation; President, Treasurer and a director of Centennial Capital
Corporation (since June 1989); Vice President and Treasurer (since August
1978) and Secretary (since April 1981) of Shareholder Services, Inc.; Vice
President, Treasurer and Secretary of Shareholder Financial Services, Inc.
(since November 1989); Assistant Treasurer of Oppenheimer Acquisition Corp.
(since March 1998); Treasurer of Oppenheimer Partnership Holdings, Inc.
(since November 1989); Vice President and Treasurer of Oppenheimer Real Asset
Management, Inc. (since July 1996); Chief Executive Officer, Treasurer;
Treasurer of OppenheimerFunds International Ltd. and Oppenheimer Millennium
Funds plc (since October 1997).
Brian Wixted, Assistant Secretary, and Treasurer; Age: __
6803 South Tucson Way, Englewood, Colorado 80112
[To Come]
Arthur Zimmer, Vice President and Portfolio Manager, Age: __ 6803 South Tucson
Way, Englewood, Colorado 80112 Senior Vice President of the Manager (since
________); an officer of other Oppenheimer funds.
Russell Read, Vice President and Portfolio Manager; Age: ___.
Two World Trade Center, 34th Floor, New York, New York 10048-0203
Senior Vice President of the Manager (since ________); an officer of other
Oppenheimer funds.
Andrew J. Donohue, Vice President and Secretary; Age: 48 Two World Trade Center,
34th Floor, New York, New York 10048 Executive Vice President (since January
1993), General Counsel (since October 1991) and a Director (since September
1995) of the Manager; Executive Vice President and General Counsel (since
September 1993) and a director (since January 1992) of the Distributor;
Executive Vice President, General Counsel and a director of HarbourView, SSI,
SFSI and Oppenheimer Partnership Holdings, Inc. (since September 1995) and a
director of Centennial (since September 1995); President, General Counsel and a
director of Oppenheimer Real Asset Management, Inc. (since July 1996); General
Counsel (since May 1996) and Secretary (since April 1997) of OAC; Vice President
and a director of OFIL and Oppenheimer Millennium Funds plc (since October
1997); an officer of other Oppenheimer funds.
Robert J. Bishop, Assistant Treasurer; Age: 40
6803 South Tucson Way, Englewood, Colorado 80112
Vice President of the Manager/Mutual Fund Accounting (since May 1996); an
officer of other Oppenheimer funds; formerly an Assistant Vice President of the
Manager/Mutual Fund Accounting (April 1994-May 1996), and a Fund
Controller for the Manager.
Scott Farrar, Assistant Treasurer; Age: 33
6803 South Tucson Way, Englewood, Colorado 80112
Vice President of the Manager/Mutual Fund Accounting (since May 1996); Assistant
Treasurer of Oppenheimer Millennium Funds plc (since October 1997); an officer
of other Oppenheimer funds; formerly an Assistant Vice President of the
Manager/Mutual Fund Accounting (April 1994-May 1996), and a Fund Controller for
the Manager.
Robert G. Zack, Assistant Secretary; Age: 50
Two World Trade Center, 34th Floor, New York, New York 10048-0203 Senior Vice
President (since May 1985) and Associate General Counsel (since May 1981) of the
Manager, Assistant Secretary of SSI (since May 1985), and SFSI (since November
1989); Assistant Secretary (since October 1997) of OFIL and Oppenheimer
Millennium Funds plc; an officer of other Oppenheimer funds.
Remuneration of Trustees. The officers of the Fund and one of the Trustees
of the Fund (Mr. Swain) are affiliated with the Manager and receive no salary or
fee from the Fund. The remaining Trustees of the Fund received the compensation
shown below. As of the date of this Statement of Additional Information, the
Fund has paid no compensation to the Trustees because the Fund previously had no
operations. The compensation from all of the Denver-based Oppenheimer funds
includes the compensation from the Fund and represents compensation received as
a director, trustee, managing general partner or member of a committee of the
Board during the calendar year 1998.
- ----------------------------------------------------------------
Trustee's Name and Aggregate Total Compensation
Position Compensation from all
from Fund Denver-Based
Oppenheimer Funds1
- ----------------------------------------------------------------
- ----------------------------------------------------------------
Robert G. Avis N/A $67,998
- ----------------------------------------------------------------
- ----------------------------------------------------------------
William A. Baker N/A $69,998
- ----------------------------------------------------------------
- ----------------------------------------------------------------
Jon. S. Fossel N/A $67,496
- ----------------------------------------------------------------
- ----------------------------------------------------------------
Sam Freedman N/A $67,998
Audit and Review
Committee
Member
- ----------------------------------------------------------------
- ----------------------------------------------------------------
Raymond J. Kalinowski N/A $73,998
Audit and Review
Committee Member
- ----------------------------------------------------------------
- ----------------------------------------------------------------
C. Howard Kast N/A $76,998
Audit and Review
Committee Chairman
- ----------------------------------------------------------------
- ----------------------------------------------------------------
Robert M. Kirchner N/A $67,998
- ----------------------------------------------------------------
- ----------------------------------------------------------------
Ned M. Steel N/A $67,998
- ----------------------------------------------------------------
1. For the 1998 calendar year.
Deferred Compensation Plan. The Board of Trustees has adopted a Deferred
Compensation Plan for disinterested Trustees that enables them to elect to defer
receipt of all or a portion of the annual fees they are entitled to receive from
the Fund. Under the plan, the compensation deferred by a Trustee is periodically
adjusted as though an equivalent amount had been invested in shares of one or
more Oppenheimer funds selected by the Trustee. The amount paid to the Trustee
under the plan will be determined based upon the performance of the selected
funds.
Deferral of Trustee's fees under the plan will not materially affect the
Fund's assets, liabilities and net income per share. The plan will not obligate
the fund to retain the services of any Trustee or to pay any particular level of
compensation to any Trustee. Pursuant to an Order issued by the Securities and
Exchange Commission, the Fund may invest in the funds selected by the Trustee
under the plan without shareholder approval for the limited purpose of
determining the value of the Trustee's deferred fee account.
Major Shareholders. As of the date of this Statement of Additional
Information, OppenheimerFunds, Inc. was the only shareholder of record.
The Manager. The Manager is wholly-owned by Oppenheimer Acquisition Corp., a
holding company controlled by Massachusetts Mutual Life Insurance Company. The
Manager and the Fund have a Code of Ethics. It is designed to detect and prevent
improper personal trading by certain employees, including portfolio managers,
that would compete with or take advantage of the Fund's portfolio transactions.
Compliance with the Code of Ethics is carefully monitored and enforced by the
Manager.
The Investment Advisory Agreement. The Manager provides investment
advisory and management services to the Fund under an investment advisory
agreement between the Manager and the Fund. The Manager selects securities for
the Fund's portfolio and handles its day-to-day business. The portfolio managers
of the Fund are employed by the Manager and are the persons who are principally
responsible for the day-to-day management of the Fund's portfolio. Other members
of the Manager's Fixed-Income Portfolio Team provide the portfolio managers with
counsel and support in managing the Fund's portfolio.
The agreement requires the Manager, at its expense, to provide the Fund
with adequate office space, facilities and equipment. It also requires the
Manager to provide and supervise the activities of all administrative and
clerical personnel required to provide effective administration for the Fund.
Those responsibilities include the compilation and maintenance of records with
respect to its operations, the preparation and filing of specified reports, and
composition of proxy materials and registration statements for continuous public
sale of shares of the Fund.
The Fund pays expenses not expressly assumed by the Manager under the
advisory agreement. The advisory agreement lists examples of expenses paid by
the Fund. The major categories relate to interest, taxes, brokerage commissions,
fees to certain Trustees, legal and audit expenses, custodian and transfer agent
expenses, share issuance costs, certain printing and registration costs and
non-recurring expenses, including litigation costs. The management fees paid by
the Fund to the Manager are calculated at the rates described in the Prospectus,
which are applied to the assets of the Fund as a whole. The fees are allocated
to each class of shares based upon the relative proportion of the Fund's net
assets represented by that class.
The investment advisory agreement states that in the absence of willful
misfeasance, bad faith, gross negligence in the performance of its duties or
reckless disregard of its obligations and duties under the investment advisory
agreement, the Manager is not liable for any loss resulting from a good faith
error or omission on its part with respect to any of its duties under the
agreement.
The agreement permits the Manager to act as investment adviser for any
other person, firm or corporation and to use the name "Oppenheimer" in
connection with other investment companies for which it may act as investment
adviser or general distributor. If the Manager shall no longer act as investment
adviser to the Fund, the Manager may withdraw the right of the Fund to use the
name "Oppenheimer" as part of its name.
Brokerage Policies of the Fund
Brokerage Provisions of the Investment Advisory Agreement. One of the duties of
the Manager under the investment advisory agreement is to arrange the portfolio
transactions for the Fund. The advisory agreement contains provisions relating
to the employment of broker-dealers to effect the Fund's portfolio transactions.
The Manager is authorized by the advisory agreement to employ broker-dealers,
including "affiliated" brokers, as that term is defined in the Investment
Company Act. The Manager may employ broker-dealers that the Manager thinks, in
its best judgment based on all relevant factors, will implement the policy of
the Fund to obtain, at reasonable expense, the "best execution" of the Fund's
portfolio transactions. "Best execution" means prompt and reliable execution at
the most favorable price obtainable. The Manager need not seek competitive
commission bidding. However, it is expected to be aware of the current rates of
eligible brokers and to minimize the commissions paid to the extent consistent
with the interests and policies of the Fund as established by its Board of
Trustees.
Under the investment advisory agreement, the Manager may select brokers
(other than affiliates) that provide brokerage and/or research services for the
Fund and/or the other accounts over which the Manager or its affiliates have
investment discretion. The commissions paid to such brokers may be higher than
another qualified broker would charge, if the Manager makes a good faith
determination that the commission is fair and reasonable in relation to the
services provided. Subject to those considerations, as a factor in selecting
brokers for the Fund's portfolio transactions, the Manager may also consider
sales of shares of the Fund and other investment companies for which the Manager
or an affiliate serves as investment adviser.
Brokerage Practices Followed by the Manager. The Manager allocates brokerage for
the Fund subject to the provisions of the investment advisory agreement and the
procedures and rules described above. Generally, the Manager's portfolio traders
allocate brokerage based upon recommendations from the Manager's portfolio
managers. In certain instances, portfolio managers may directly place trades and
allocate brokerage. In either case, the Manager's executive officers supervise
the allocation of brokerage.
Transactions in securities other than those for which an exchange is the
primary market are generally done with principals or market makers. In
transactions on foreign exchanges, the Fund may be required to pay fixed
brokerage commissions and therefore would not have the benefit of negotiated
commissions available in U.S. markets. Brokerage commissions are paid primarily
for transactions in listed securities or for certain fixed-income agency
transactions in the secondary market. Otherwise brokerage commissions are paid
only if it appears likely that a better price or execution can be obtained by
doing so. In an option transaction, the Fund ordinarily uses the same broker for
the purchase or sale of the option and any transaction in the securities to
which the option relates.
Other funds advised by the Manager have investment policies similar to
those of the Fund. Those other funds may purchase or sell the same securities as
the Fund at the same time as the Fund, which could affect the supply and price
of the securities. If two or more funds advised by the Manager purchase the same
security on the same day from the same dealer, the transactions under those
combined orders are averaged as to price and allocated in accordance with the
purchase or sale orders actually placed for each account.
Most purchases of debt obligations are principal transactions at net
prices. Instead of using a broker for those transactions, the Fund normally
deals directly with the selling or purchasing principal or market maker unless
the Manager determines that a better price or execution can be obtained by using
the services of a broker. Purchases of portfolio securities from underwriters
include a commission or concession paid by the issuer to the underwriter.
Purchases from dealers include a spread between the bid and asked prices. The
Fund seeks to obtain prompt execution of these orders at the most favorable net
price.
The investment advisory agreement permits the Manager to allocate
brokerage for research services. The investment research services provided by a
particular broker may be useful only to one or more of the advisory accounts of
the Manager and its affiliates. The investment research received for the
commissions of those other accounts may be useful both to the Fund and one or
more of the Manager's other accounts. Investment research may be supplied to the
Manager by a third party at the instance of a broker through which trades are
placed.
Investment research services include information and analysis on
particular companies and industries as well as market or economic trends and
portfolio strategy, market quotations for portfolio evaluations, information
systems, computer hardware and similar products and services. If a research
service also assists the Manager in a non-research capacity (such as bookkeeping
or other administrative functions), then only the percentage or component that
provides assistance to the Manager in the investment decision-making process may
be paid in commission dollars.
The Board of Trustees permits the Manager to use stated commissions on
secondary fixed-income agency trades to obtain research if the broker represents
to the Manager that: (i) the trade is not from or for the broker's own
inventory, (ii) the trade was executed by the broker on an agency basis at the
stated commission, and (iii) the trade is not a riskless principal transaction.
The Board of Trustees permits the Manager to use concessions on fixed-price
offerings to obtain research, in the same manner as is permitted for agency
transactions.
The research services provided by brokers broadens the scope and
supplements the research activities of the Manager. That research provides
additional views and comparisons for consideration, and helps the Manager to
obtain market information for the valuation of securities that are either held
in the Fund's portfolio or are being considered for purchase. The Manager
provides information to the Board about the commissions paid to brokers
furnishing such services, together with the Manager's representation that the
amount of such commissions was reasonably related to the value or benefit of
such services.
Distribution and Service Plans
The Distributor. Under its General Distributor's Agreement with the Fund, the
Distributor acts as the Fund's principal underwriter in the continuous public
offering of the different classes of shares of the Fund. The Distributor is not
obligated to sell a specific number of shares. Expenses normally attributable to
sales are borne by the Distributor.
Distribution and Service Plans. The Fund has adopted a Service Plan for Class A
shares and Distribution and Service Plans for Class B and Class C shares. Under
those plans the Fund pays the Distributor for all or a portion of its costs
incurred in connection with the distribution and/or servicing of the shares of
the particular class.
Each plan has been approved by a vote of the Board of Trustees, including
a majority of the Independent Trustees2, cast in person at a meeting called for
the purpose of voting on that plan. Each plan has also been approved by the
holders of a "majority" (as defined in the Investment Company Act) of the shares
of the applicable class. The shareholder votes for the plans for Class B and
Class C shares were cast by the Manager as the sole initial holder of those
classes of shares of the Fund.
Under the plans, the Manager and the Distributor, in their sole discretion,
from time to time, may use their own resources (at no direct cost to the Fund)
to make payments to brokers, dealers or other financial institutions for
distribution and administrative services they perform. The Manager may use its
profits from the advisory fee it receives from the Fund. In their sole
discretion, the Distributor and the Manager may increase or decrease the amount
of payments they make from their own resources to plan recipients.
Unless a plan is terminated as described below, the plan continues in effect
from year to year but only if the Fund's Board of Trustees and its Independent
Trustees specifically vote annually to approve its continuance. Approval must be
by a vote cast in person at a meeting called for the purpose of voting on
continuing the plan. A plan may be terminated at any time by the vote of a
majority of the Independent Trustees or by the vote of the holders of a
"majority" (as defined in the Investment Company Act) of the outstanding shares
of that class.
The Board of Trustees and the Independent Trustees must approve all material
amendments to a plan. An amendment to increase materially the amount of payments
to be made under a plan must be approved by shareholders of the class affected
by the amendment. Because Class B shares of the Fund automatically convert into
Class A shares after five years, the Fund must obtain the approval of both Class
A and Class B shareholders for a proposed material amendment to the Class A Plan
that would materially increase payments under the Plan. That approval must be by
a "majority" (as defined in the Investment Company Act) of the shares of each
Class, voting separately by class.
While the Plans are in effect, the Treasurer of the Fund shall provide
separate written reports on the plans to the Board of Trustees at least
quarterly for its review. The Reports shall detail the amount of all payments
made under a plan, the purpose for which the payments were made, under the Class
A and Class B Plans, and the identity of each recipient of a payment. The
reports on the Class B Plan shall also include the Distributor's distribution
costs for that quarter and in the case of the Class B plan, the amount of those
costs for previous fiscal periods that are unreimbursed. Those reports are
subject to the review and approval of the Independent Trustees.
Each plan states that while it is in effect, the selection and nomination of
those Trustees of the Fund who are not "interested persons" of the Fund is
committed to the discretion of the Independent Trustees. This does not prevent
the involvement of others in the selection and nomination process as long as the
final decision as to selection or nomination is approved by a majority of the
Independent Trustees.
Under the plans for a class, no payment will be made to any recipient in any
quarter in which the aggregate net asset value of all Fund shares of that class
held by the recipient for itself and its customers does not exceed a minimum
amount, if any, that may be set from time to time by a majority of the
Independent Trustees. The Board of Trustees has set no minimum amount of assets
to qualify for payments under the plans.
Class A Service Plan Fees. Under the Class A service plan, the Distributor
currently uses the fees it receives from the Fund to pay brokers, dealers and
other financial institutions (they are referred to as "recipients") for personal
services and account maintenance services they provide for their customers who
hold Class A shares. The services include, among others, answering customer
inquiries about the Fund, assisting in establishing and maintaining accounts in
the Fund, making the Fund's investment plans available and providing other
services at the request of the Fund or the Distributor. While the plan permits
the Board to authorize payments to the Distributor to reimburse itself for
services under the plan, the Board has not yet done so. The Distributor makes
payments to plan recipients quarterly at an annual rate not to exceed 0.25% of
the average annual net assets consisting of Class A shares held in the accounts
of the recipients or their customers.
Any unreimbursed expenses the Distributor incurs with respect to Class A
shares in any fiscal year cannot be recovered in subsequent years. The
Distributor may not use payments received under the Class A Plan to pay any of
its interest expenses, carrying charges, or other financial costs, or allocation
of overhead.
Class B and Class C Service and Distribution Plan Fees. Under each plan,
service fees and distribution fees are computed on the average of the net asset
value of shares in the respective class, determined as of the close of each
regular business day during the period. The Class B plan allows the Distributor
to be reimbursed for its services and costs in distributing Class B shares and
servicing accounts. The Class C plan provides for the Distributor to be
compensated at a flat rate, whether the Distributor's distribution expenses are
more or less than the amounts paid by the Fund under the plan during the period
for which the fee is paid. The types of services that recipients provide are
similar to the services provided under the Class A service plan, described
above.
The Class B and the Class C Plans permit the Distributor to retain both the
asset-based sales charges and the service fees or to pay recipients the service
fee on a quarterly basis, without payment in advance. However, the Distributor
currently intends to pay the service fee to recipients in advance for the first
year after the shares are purchased. After the first year shares are
outstanding, the Distributor makes service fee payments quarterly on those
shares. The advance payment is based on the net asset value of shares sold.
Shares purchased by exchange do not qualify for the advance service fee payment.
If Class B or Class C shares are redeemed during the first year after their
purchase, the recipient of the service fees on those shares will be obligated to
repay the Distributor a pro rata portion of the advance payment of the service
fee made on those shares.
The Distributor retains the asset-based sales charge on Class B shares. The
Distributor retains the asset-based sales charge on Class C shares during the
first year the shares are outstanding. It pays the asset-based sales charge as
an ongoing commission to the recipient on Class C shares outstanding for a year
or more. If a dealer has a special agreement with the Distributor, the
Distributor will pay the Class B and/or Class C service fee and the asset-based
sales charge to the dealer quarterly in lieu of paying the sales commissions and
service fee in advance at the time of purchase.
The asset-based sales charges on Class B and Class C shares allow investors
to buy shares without a front-end sales charge while allowing the Distributor to
compensate dealers that sell those shares. The Fund pays the asset-based sales
charges to the Distributor for its services rendered in distributing Class B and
Class C shares. The payments are made to the Distributor in recognition that the
Distributor:
o pays sales commissions to authorized brokers and dealers at the time of
sale and pays service fees as described above,
o may finance payment of sales commissions and/or the advance of the
service fee payment to recipients under the plans, or may provide such
financing from its own resources or from the resources of an affiliate,
o employs personnel to support distribution of Class B and Class C shares,
and
o bears the costs of sales literature, advertising and prospectuses
(other than those furnished to current shareholders) and state "blue
sky" registration fees and certain other distribution expenses.
The Distributor's actual expenses in selling Class B and Class C shares may
be more than the payments it receives from the early withdrawal charges
collected on redeemed shares and from the Fund under the plans. If either the
Class B or the Class C plan is terminated by the Fund, the Board of Trustees may
allow the Fund to continue payments of the asset-based sales charge to the
Distributor for distributing shares before the plan was terminated. The Class B
plan allows for the carry-forward of unreimbursed distribution expenses, to be
recovered from asset-based sales charges in subsequent fiscal periods.
All payments under the Class B and the Class C plans are subject to the
limitations imposed by the Conduct Rules of the National Association of
Securities Dealers, Inc. on payments of asset-based sales charges and service
fees.
Performance of the Fund
Explanation of Performance Terminology. The Fund's illustrations of its
performance data in advertisements must comply with rules of the SEC. Those
rules describe the types of performance data that may be used and how it is to
be calculated. In general, any advertisement by the Fund of its performance data
must include the average annual total returns for the advertised class of shares
of the Fund. Those returns must be shown for the 1-, 5- and 10-year periods (or
the life of the class, if less) ending as of the most recently ended calendar
quarter prior to the publication of the advertisement (or its submission for
publication). Certain types of yields may also be shown, provided that they are
accompanied by standardized average annual total returns.
Use of standardized performance calculations enables an investor to
compare the Fund's performance to the performance of other funds for the same
periods. However, you should consider a number of factors before using the
Fund's performance information as a basis for comparison with other investments:
o Yields and total returns measure the performance of a hypothetical
account in the Fund over various periods and do not show the performance
of each shareholder's account. Your account's performance will vary from
the model performance data if your dividends are received in cash, or
you buy or sell shares during the period, or you bought your shares at a
different time and price than the shares used in the model.
o The Fund's performance returns do not reflect the effect of taxes on
dividends and capital gains distributions.
o An investment in the Fund is not insured by the FDIC or any other
government agency.
o The principal value of the Fund's shares, and its yields and total
returns, are not guaranteed and normally will fluctuate on a daily
basis.
o When you sell your shares, they may be worth more or less than their
original cost.
o Yields and total returns for any given past period represent historical
performance information and are not, and should not be considered, a
prediction of future yields or returns.
o The performance of each class of shares is shown separately. The
performance of each class of shares will usually be different, because
each class bears different expenses. The yields and total returns of
each class of shares of the Fund are affected by market conditions, the
quality of the Fund's investments, the maturity of those investments,
the types of investments the Fund holds, and its operating expenses that
are allocated to the particular class.
The Fund uses a variety of terms to illustrate its performance. These
terms include "standardized yield," "dividend yield," "average annual total
return," "cumulative total return," "average annual total return at net asset
value" and "total return at net asset value." An explanation of how yields and
total returns are calculated is set forth below. The charts below show the
Fund's performance as of the Fund's most recent fiscal year end. You can obtain
current performance information by calling the Fund's Transfer Agent at
1-800-525-7048 or by visiting the OppenheimerFunds Internet web site at
http://www.oppenheimerfunds.com.
The Fund's illustrations of its performance data in advertisements must
comply with rules of the Securities and Exchange Commission. Those rules
describe the types of performance data that may be used and how it is to be
calculated. In general, any advertisement by the Fund of its performance data
must include the average annual total returns for the advertised class of shares
of the Fund. Those returns must be shown for the 1-, 5- and 10-year periods (or
the life of the class, if less) ending as of the most recently ended calendar
quarter prior to the publication of the advertisement (or its submission for
publication). Certain types of yields may also be shown, provided that they are
accompanied by standardized average annual total returns.
Use of standardized performance calculations enables an investor to
compare the Fund's performance to the performance of other funds for the same
periods. However, a number of factors should be considered before using the
Fund's performance information as a basis for comparison with other investments:
o Yields and total returns measure the performance of a hypothetical
account in the Fund over various periods and do not show the performance
of each shareholder's account. Your account's performance will vary from
the model performance data if your dividends are received in cash, or
you buy or sell shares during the period, or you bought your shares at a
different time and price than the shares used in the model.
o The Fund's performance returns do not reflect the effect of taxes on
dividends and capital gains distributions.
o An investment in the Fund is not insured by the FDIC or any other
government agency.
o The principal value of the Fund's shares, and its yields and total
returns are not guaranteed and normally will fluctuate on a daily basis.
o When an investor's shares are redeemed, they may be worth more or less
than their original cost.
o Yields and total returns for any given past period represent historical
performance information and are not, and should not be considered, a
prediction of future yields or returns.
The performance of each class of shares is shown separately, because the
performance of each class of shares will usually be different. That is because
of the different kinds of expenses each class bears. The yields and total
returns of each class of shares of the Fund are affected by market conditions,
the quality of the Fund's investments, the maturity of those investments, the
types of investments the Fund holds, and its operating expenses that are
allocated to the particular class.
Yields. The Fund uses a variety of different yields to illustrate its
current returns. Each class of shares calculates its yield separately because of
the different expenses that affect each class.
Standardized Yield. The "standardized yield" (sometimes referred to
just as "yield") is shown for a class of shares for a stated 30-day period. It
is not based on actual distributions paid by the Fund to shareholders in the
30-day period, but is a hypothetical yield based upon the net investment income
from the Fund's portfolio investments for that period. It may therefore differ
from the "dividend yield" for the same class of shares, described below.
Standardized yield is calculated using the following formula set forth in
rules adopted by the Securities and Exchange Commission, designed to assure
uniformity in the way that all funds calculate their yields:
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The symbols above represent the following factors:
a =dividends and interest earned during the 30-day period.
b =expenses accrued for the period (net of any expense assumptions).
c =the average daily number of shares of that class outstanding during
the 30-day period that were entitled to receive dividends.
d =the maximum offering price per share of that class on the last day of
the period, adjusted for undistributed net investment income.
The standardized yield for a particular 30-day period may differ from the
yield for other periods. The SEC formula assumes that the standardized yield for
a 30-day period occurs at a constant rate for a six-month period and is
annualized at the end of the six-month period. Additionally, because each class
of shares is subject to different expenses, it is likely that the standardized
yields of the Fund's classes of shares will differ for any 30-day period.
Dividend Yield. The Fund may quote a "dividend yield" for each class
of its shares. Dividend yield is based on the dividends paid on a class of
shares during the actual dividend period. To calculate dividend yield, the
dividends of a class declared during a stated period are added together, and the
sum is multiplied by 12 (to annualize the yield) and divided by the maximum
offering price on the last day of the dividend period. The formula is shown
below:
Dividend Yield = dividends paid x 12/maximum offering price (payment date)
The maximum offering price for Class A, Class B and Class C shares is the
net asset value per share, without considering the effect of early withdrawal
charges.
Total Return Information. There are different types of "total returns" to
measure the Fund's performance. Total return is the change in value of a
hypothetical investment in the Fund over a given period, assuming that all
dividends and capital gains distributions are reinvested in additional shares
and that the investment is redeemed at the end of the period. Because of
differences in expenses for each class of shares, the total returns for each
class are separately measured. The cumulative total return measures the change
in value over the entire period (for example, ten years). An average annual
total return shows the average rate of return for each year in a period that
would produce the cumulative total return over the entire period. However,
average annual total returns do not show actual year-by-year performance. The
Fund uses standardized calculations for its total returns as prescribed by the
SEC. The methodology is discussed below.
For Class B shares, payment of the applicable early withdrawal charge is
applied, depending on the period for which the return is shown: 3.0% in the
first year, 2.0% in the second year, 1.5% in the third and fourth years, 1.0% in
the fifth year, and none thereafter. For Class A shares, the 1% early withdrawal
charge is deducted for returns for the 18-month period. For Class C shares, the
1% early withdrawal charge is deducted for returns for the 1-year period.
Average Annual Total Return. The "average annual total return" of
each class is an average annual compounded rate of return for each year in a
specified number of years. It is the rate of return based on the change in value
of a hypothetical initial investment of $1,000 ("P" in the formula below) held
for a number of years ("n" in the formula) to achieve an Ending Redeemable Value
("ERV" in the formula) of that investment, according to the following formula:
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Cumulative Total Return. The "cumulative total return" calculation
measures the change in value of a hypothetical investment of $1,000 over an
entire period of years. Its calculation uses some of the same factors as average
annual total return, but it does not average the rate of return on an annual
basis. Cumulative total return is determined as follows:
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Total Returns at Net Asset Value. From time to time the Fund may also
quote a cumulative or an average annual total return "at net asset value"
(without deducting sales charges) for Class A, Class B or Class C shares. Each
is based on the difference in net asset value per share at the beginning and the
end of the period for a hypothetical investment in that class of shares (without
considering front-end or early withdrawal charges) and takes into consideration
the reinvestment of dividends and capital gains distributions.
Other Performance Comparisons. The Fund compares its performance annually to
that of an appropriate broadly-based market index in its Annual Report to
shareholders. You can obtain that information by contacting the Transfer Agent
at the addresses or telephone numbers shown on the cover of this Statement of
Additional Information. The Fund may also compare its performance to that of
other investments, including other mutual funds, or use rankings of its
performance by independent ranking entities. Examples of these performance
comparisons are set forth below.
Lipper Rankings. From time to time the Fund may publish the ranking of the
performance of its classes of shares by Lipper Analytical Services, Inc. Lipper
is a widely-recognized independent mutual fund monitoring service. Lipper
monitors the performance of regulated investment companies, including the Fund,
and ranks their performance for various periods based on categories relating to
investment objectives. Lipper currently ranks the Fund's performance against all
other multi-sector income funds. The Lipper performance rankings are based on
total returns that include the reinvestment of capital gain distributions and
income dividends but do not take sales charges or taxes into consideration.
Lipper also publishes "peer-group" indices of the performance of all mutual
funds in a category that it monitors and averages of the performance of the
funds in particular categories.
Morningstar Rankings. From time to time, the Fund may publish the star
ranking of the performance of its classes of shares by Morningstar, Inc., an
independent mutual fund monitoring service. Morningstar ranks mutual funds in
broad investment categories: domestic stock funds, international stock funds,
taxable bond funds and municipal bond funds. The Fund is ranked among taxable
bond funds.
Morningstar star rankings are based on risk-adjusted total investment
return. Investment return measures a fund's (or class's) one-, three-, five- and
ten-year average annual total returns (depending on the inception of the fund or
class) in excess of 90-day U.S. Treasury bill returns after considering the
fund's sales charges and expenses. Risk measures a fund's (or class's)
performance below 90-day U.S. Treasury bill returns. Risk and investment return
are combined to produce star rankings reflecting performance relative to the
average fund in a fund's category. Five stars is the "highest" ranking (top 10%
of funds in a category), four stars is "above average" (next 22.5%), three stars
is "average" (next 35%), two stars is "below average" (next 22.5%) and one star
is "lowest" (bottom 10%). The current star ranking is the fund's (or class's)
3-year ranking or its combined 3- and 5-year ranking (weighted 60%/40%
respectively), or its combined 3-, 5-, and 10-year ranking (weighted 40%, 30%
and 30%, respectively), depending on the inception date of the fund (or class).
Rankings are subject to change monthly.
The Fund may also compare its performance to that of other funds in its
Morningstar category. In addition to its star rankings, Morningstar also
categorizes and compares a fund's 3-year performance based on Morningstar's
classification of the fund's investments and investment style, rather than how a
fund defines its investment objective. Morningstar's four broad categories
(domestic equity, international equity, municipal bond and taxable bond) are
each further subdivided into categories based on types of investments and
investment styles. Those comparisons by Morningstar are based on the same risk
and return measurements as its star rankings but do not consider the effect of
sales charges.
Performance Rankings and Comparisons by Other Entities and Publications.
From time to time the Fund may include in its advertisements and sales
literature performance information about the Fund cited in newspapers and other
periodicals such as The New York Times, The Wall Street Journal, Barron's, or
similar publications. That information may include performance quotations from
other sources, including Lipper and Morningstar. The performance of the Fund's
classes of shares may be compared in publications to the performance of various
market indices or other investments, and averages, performance rankings or other
benchmarks prepared by recognized mutual fund statistical services.
Investors may also wish to compare the returns on the Fund's share classes
to the return on fixed-income investments available from banks and thrift
institutions. Those include certificates of deposit, ordinary interest-paying
checking and savings accounts, and other forms of fixed or variable time
deposits, and various other instruments such as Treasury bills. However, the
Fund's returns and share price are not guaranteed or insured by the FDIC or any
other agency and will fluctuate daily, while bank depository obligations may be
insured by the FDIC and may provide fixed rates of return. Repayment of
principal and payment of interest on Treasury securities is backed by the full
faith and credit of the U.S. government.
From time to time, the Fund may publish rankings or ratings of the Manager
or Transfer Agent, and of the investor services provided by them to shareholders
of the Oppenheimer funds, other than performance rankings of the Oppenheimer
funds themselves. Those ratings or rankings of shareholder and investor services
by third parties may include comparisons of their services to those provided by
other mutual fund families selected by the rating or ranking services. They may
be based upon the opinions of the rating or ranking service itself, using its
research or judgment, or based upon surveys of investors, brokers, shareholders
or others.
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ABOUT YOUR ACCOUNT
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How to Buy Shares
Additional information is presented below about the methods that can be
used to buy shares of the Fund. Appendix C contains more information about the
special sales charge arrangements offered by the Fund, and the circumstances in
which sales charges may be reduced or waived for certain classes of investors.
AccountLink. When shares are purchased through AccountLink, each purchase must
be at least $25. Shares will be purchased on the regular business day the
Distributor is instructed to initiate the Automated Clearing House ("ACH")
transfer to buy the shares. Dividends will begin to accrue on shares purchased
with the proceeds of ACH transfers on the business day the Fund receives Federal
Funds for the purchase through the ACH system before the close of The New York
Stock Exchange. The Exchange normally closes at 4:00 P.M., but may close earlier
on certain days. If Federal Funds are received on a business day after the close
of the Exchange, the shares will be purchased and dividends will begin to accrue
on the next regular business day. The proceeds of ACH transfers are normally
received by the Fund 3 days after the transfers are initiated. The Distributor
and the Fund are not responsible for any delays in purchasing shares resulting
from delays in ACH transmissions.
The Oppenheimer Funds. The Oppenheimer funds are those mutual funds for
which the Distributor acts as the distributor or the sub-distributor and
currently include the following:
Oppenheimer Bond Fund Oppenheimer Limited-Term
Government Fund
Oppenheimer Capital Appreciation Oppenheimer Main Street Fund California
Municipal Fund Oppenheimer California Municipal Oppenheimer Main Street Income &
Fund Growth Fund Oppenheimer Champion Income Fund Oppenheimer MidCap Fund
Oppenheimer Convertible Oppenheimer Multiple Strategies Securities Fund Fund
Oppenheimer Developing Markets Oppenheimer Municipal Bond Fund Fund Oppenheimer
Disciplined Oppenheimer New York Municipal Allocation Fund Fund Oppenheimer
Disciplined Value Fund Oppenheimer New Jersey Municipal
Fund
Oppenheimer Discovery Fund Oppenheimer Pennsylvania
Municipal Fund
Oppenheimer Enterprise Fund Oppenheimer Quest Balanced Value
Fund
Oppenheimer Capital Income Fund Oppenheimer Quest Capital Value
Fund, Inc.
Oppenheimer Florida Municipal Fund Oppenheimer Quest Global Value
Fund, Inc.
Oppenheimer Global Fund Oppenheimer Quest Opportunity
Value Fund
Oppenheimer Global Growth & Oppenheimer Quest Small Cap
Income Fund Value Fund
Oppenheimer Gold & Special Oppenheimer Quest Value Fund,
Minerals Fund Inc.
Oppenheimer Growth Fund Oppenheimer Real Asset Fund
Oppenheimer High Yield Fund Oppenheimer Strategic Income Fund
Oppenheimer Insured Municipal Fund Oppenheimer Total Return Fund,
Inc.
Oppenheimer Intermediate Oppenheimer U. S. Government
Municipal Fund Trust
Oppenheimer International Bond Oppenheimer World Bond Fund
Fund
Oppenheimer International Growth Limited-Term New York Municipal
Fund Fund
Oppenheimer International Small Rochester Fund Municipals
Company Fund
and the following money market
funds:
Centennial America Fund, L. P. Centennial New York Tax Exempt
Trust
Centennial California Tax Exempt Centennial Tax Exempt Trust
Trust
Centennial Government Trust Oppenheimer Cash Reserves
Centennial Money Market Trust Oppenheimer Money Market Fund,
Inc.
There is an initial sales charge on the purchase of Class A shares of each
of the Oppenheimer funds described above except the money market funds. Under
certain circumstances described in this Statement of Additional Information,
redemption proceeds of certain money market fund shares may be subject to an
early withdrawal charge.
Asset Builder Plans. To establish an Asset Builder Plan to buy shares directly
from a bank account, you must enclose a check (minimum $25) for the initial
purchase with your application. Shares purchased by Asset Builder Plan payments
from bank accounts are subject to the redemption restrictions for recent
purchases described in the Prospectus. Asset Builder Plans also enable
shareholders of Oppenheimer Cash Reserves to use their fund account to make
monthly automatic purchases of shares of up to four other Oppenheimer funds.
If you make payments from your bank account to purchase shares of the
Fund, your bank account will be automatically debited, normally four to five
business days prior to the investment dates selected in the Application. Neither
the Distributor, the Transfer Agent nor the Fund shall be responsible for any
delays in purchasing shares resulting from delays in ACH transmissions.
Before initiating Asset Builder payments, obtain a prospectus of the
selected fund(s) from the Distributor or your financial advisor and request an
application from the Distributor, complete it and return it. The amount of the
Asset Builder investment may be changed or the automatic investments may be
terminated at any time by writing to the Transfer Agent. The Transfer Agent
requires a reasonable period (approximately 15 days) after receipt of such
instructions to implement them. The Fund reserves the right to amend, suspend,
or discontinue offering Asset Builder plans at any time without prior notice.
Retirement Plans. Certain types of Retirement Plans are entitled to purchase
shares of the Fund without a sales charge or at reduced sales charge rates, as
described in Appendix C to this Statement of Additional Information. Certain
special sales charge arrangements described in that Appendix apply to retirement
plans whose records are maintained on a daily valuation basis by Merrill Lynch
Pierce Fenner & Smith, Inc. or an independent record keeper that has a contract
or special arrangement with Merrill Lynch. If on the date the plan sponsor
signed the Merrill Lynch record keeping service agreement the plan has less than
$3 million in assets (other than assets invested in money market funds) invested
in applicable investments, then the retirement plan may purchase only Class B
shares of the Oppenheimer funds. Any retirement plans in that category that
currently invest in Class B shares of the Fund will have their Class B shares
converted to Class A shares of the Fund when the plan's applicable investments
reach $5 million.
Cancellation of Purchase Orders. Cancellation of purchase orders for the Fund's
shares (for example, when a purchase check is returned to the Fund unpaid)
causes a loss to be incurred when the net asset value of the Fund's shares on
the cancellation date is less than on the purchase date. That loss is equal to
the amount of the decline in the net asset value per share multiplied by the
number of shares in the purchase order. The investor is responsible for that
loss. If the investor fails to compensate the Fund for the loss, the Distributor
will do so. The Fund may reimburse the Distributor for that amount by redeeming
shares from any account registered in that investor's name, or the Fund or the
Distributor may seek other redress.
Classes of Shares. Each class of shares of the Fund represents an interest in
the same portfolio of investments of the Fund. However, each class has different
shareholder privileges and features. The net income attributable to Class B or
Class C shares and the dividends payable on Class B or Class C shares will be
reduced by incremental expenses borne solely by that class. Those expenses
include the asset-based sales charges to which Class B and Class C are subject.
The availability of different classes of shares permits an investor to
choose the method of purchasing shares that is more appropriate for the
investor. That may depend on the amount of the purchase, the length of time the
investor expects to hold shares, and other relevant circumstances. While Class B
and Class C shares have no initial sales charge, the purpose of the deferred
sales charge and asset-based sales charge on Class B and Class C shares is to
compensate the Distributor and brokers, dealers and financial institutions that
sell shares of the Fund. A salesperson who is entitled to receive compensation
from his or her firm for selling Fund shares may receive different levels of
compensation for selling one class of shares than another.
Class B Conversion. The conversion of Class B shares to Class A shares
after six years is subject to the continuing availability of a private letter
ruling from the Internal Revenue Service, or an opinion of counsel or a tax
adviser, to the effect that the conversion of Class B shares does not constitute
a taxable event for the shareholder under Federal income tax law. If such a
revenue ruling or opinion is no longer available, the automatic conversion
feature may be suspended, in which event no further conversions of Class B
shares would occur while such suspension remained in effect. Although Class B
shares could then be exchanged for Class A shares on the basis of relative net
asset value of the two classes, without the imposition of a sales charge or fee,
such exchange could constitute a taxable event for the shareholder, and absent
such exchange, Class B shares might continue to be subject to the asset-based
sales charge for longer than six years.
Allocation of Expenses. The Fund pays expenses related to its daily
operations, such as custodian fees, Trustees' fees, transfer agency fees, legal
fees and auditing costs. Those expenses are paid out of the Fund's assets and
are not paid directly by shareholders. However, those expenses reduce the net
asset value of shares, and therefore are indirectly borne by shareholders
through their investment.
The methodology for calculating the net asset value, dividends and
distributions of the Fund's share classes recognizes two types of expenses.
General expenses that do not pertain specifically to any one class are allocated
pro rata to the shares of all classes. The allocation is based on the percentage
of the Fund's total assets that is represented by the assets of each class, and
then equally to each outstanding share within a given class. Such general
expenses include management fees, legal, bookkeeping and audit fees, printing
and mailing costs of shareholder reports, Prospectuses, Statements of Additional
Information and other materials for current shareholders, fees to unaffiliated
Trustees, custodian expenses, share issuance costs, organization and start-up
costs, interest, taxes and brokerage commissions, and non-recurring expenses,
such as litigation costs.
Other expenses that are directly attributable to a particular class are
allocated equally to each outstanding share within that class. Examples of such
expenses include distribution and service plan fees, transfer and shareholder
servicing agent fees and expenses and shareholder meeting expenses (to the
extent that such expenses pertain only to a specific class).
Determination of Net Asset Values Per Share. The net asset values per share of
each class of shares of the Fund are determined as of the close of business of
The New York Stock Exchange on each day that the Exchange is open. The
calculation is done by dividing the value of the Fund's net assets attributable
to a class by the number of shares of that class that are outstanding. The
Exchange normally closes at 4:00 P.M., New York time, but may close earlier on
some other days (for example, in case of weather emergencies or on days falling
before a holiday). The Exchange's most recent annual announcement (which is
subject to change) states that it will close on New Year's Day, Presidents' Day,
Martin Luther King, Jr. Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day. It may also close on other days.
Dealers other than Exchange members may conduct trading in certain
securities on days on which the Exchange is closed (including weekends and U.S.
holidays) or after 4:00 P.M. on a regular business day. The Fund's net asset
values will not be calculated on those days and the values of some of the Fund's
portfolio securities may change significantly on those days, when shareholders
may not purchase or redeem shares. Additionally, trading on European and Asian
stock exchanges and over-the-counter markets normally is completed before the
close of The New York Stock Exchange.
Changes in the values of securities traded on foreign exchanges or markets
as a result of events that occur after the prices of those securities are
determined, but before the close of The New York Stock Exchange, will not be
reflected in the Fund's calculation of its net asset values that day unless the
Manager determines that the event is likely to effect a material change in the
value of the security. The Manager may make that determination, under procedures
established by the Board.
Securities Valuation. The Fund's Board of Trustees has established
procedures for the valuation of the Fund's securities. In general those
procedures are as follows:
Equity securities traded on a U.S. securities exchange or on NASDAQ are
valued as follows:
1. if last sale information is regularly reported, they are valued at
the last reported sale price on the principal exchange on which they are
traded or on NASDAQ, as applicable, on that day, or
2. if last sale information is not available on a valuation date,
they are valued at the last reported sale price preceding the valuation
date if it is within the spread of the closing "bid" and "asked" prices on
the valuation date or, if not, at the closing "bid" price on the valuation
date.
Equity securities traded on a foreign securities exchange generally are
valued in one of the following ways:
1. at the last sale price available to the pricing service approved by the
Board of Trustees, or
2. at the last sale price obtained by the Manager from the report of the
principal exchange on which the security is traded at its last trading
session on or immediately before the valuation date, or
3. at the mean between the "bid" and "asked" prices obtained from the
principal exchange on which the security is traded or, on the basis of
reasonable inquiry, from two market makers in the security.
Long-term debt securities having a remaining maturity in excess of 60 days
are valued based on the mean between the "bid" and "asked" prices determined by
a portfolio pricing service approved by the Fund's Board of Trustees or obtained
by the Manager from two active market makers in the security on the basis of
reasonable inquiry.
The following securities are valued at the mean between the "bid" and
"asked" prices determined by a pricing service approved by the Fund's Board of
Trustees or obtained by the Manager from two active market makers in the
security on the basis of reasonable inquiry:
1. debt instruments that have a maturity of more than 397 days when issued, 2.
debt instruments that had a maturity of 397 days or less when issued and
have a remaining maturity of more than 60 days, and
3. non-money market debt instruments that had a maturity of 397 days or
less when issued and which have a remaining maturity of 60 days or less.
The following securities are valued at cost, adjusted for amortization of
premiums and accretion of discounts:
1. money market debt securities held by a non-money market fund that had a
maturity of less than 397 days when issued that have a remaining
maturity of 60 days or less, and
2. debt instruments held by a money market fund that have a remaining
maturity of 397 days or less.
Securities (including restricted securities) not having readily-available
market quotations are valued at fair value determined under the Board's
procedures. If the Manager is unable to locate two market makers willing to give
quotes, a security may be priced at the mean between the "bid" and "asked"
prices provided by a single active market maker (which in certain cases may be
the "bid" price if no "asked" price is available).
In the case of U.S. government securities, mortgage-backed securities,
corporate bonds and foreign government securities, when last sale information is
not generally available, the Manager may use pricing services approved by the
Board of Trustees. The pricing services may use "matrix" comparisons to the
prices for comparable instruments on the basis of quality, yield and maturity.
Other special factors may be involved (such as the tax-exempt status of the
interest paid by municipal securities). The Manager will monitor the accuracy of
the pricing services. That monitoring may include comparing prices used for
portfolio valuation to actual sales prices of selected securities.
The closing prices in the London foreign exchange market on a particular
business day that are provided to the Manager by a bank, dealer or pricing
service that the Manager has determined to be reliable are used to value foreign
currency, including forward contracts, and to convert to U.S. dollars securities
that are denominated in foreign currency.
Puts, calls, and futures are valued at the last sale price on the
principal exchange on which they are traded or on NASDAQ, as applicable, as
determined by a pricing service approved by the Board of Trustees or by the
Manager. If there were no sales that day, they shall be valued at the last sale
price on the preceding trading day if it is within the spread of the closing
"bid" and "asked" prices on the principal exchange or on NASDAQ on the valuation
date. If not, the value shall be the closing bid price on the principal exchange
or on NASDAQ on the valuation date. If the put, call or future is not traded on
an exchange or on NASDAQ, it shall be valued by the mean between "bid" and
"asked" prices obtained by the Manager from two active market makers. In certain
cases that may be at the "bid" price if no "asked" price is available.
When the Fund writes an option, an amount equal to the premium received is
included in the Fund's Statement of Assets and Liabilities as an asset. An
equivalent credit is included in the liability section. The credit is adjusted
("marked-to-market") to reflect the current market value of the option. In
determining the Fund's gain on investments, if a call or put written by the Fund
is exercised, the proceeds are increased by the premium received. If a call or
put written by the Fund expires, the Fund has a gain in the amount of the
premium. If the Fund enters into a closing purchase transaction, it will have a
gain or loss, depending on whether the premium received was more or less than
the cost of the closing transaction. If the Fund exercises a put it holds, the
amount the Fund receives on its sale of the underlying investment is reduced by
the amount of premium paid by the Fund.
Periodic Offers to Repurchase Shares
Information on how the Fund's periodic offers to repurchase shares
("Tender Offers") is stated in the Prospectus. The information below provides
additional information about the procedures and conditions for selling shares in
a Tender Offer.
Reinvestment Privilege. Within six months after the Fund repurchases shares as
part of a Tender offer, a shareholder may reinvest all or part of the proceeds
of the Class B shares that were subject to an early withdrawal charge at the
time of repurchase.
[The reinvestment may be made without a sales charge only in Class A
shares of the Fund or any of the other Oppenheimer funds into which shares of
the Fund are exchangeable as described in "How to Exchange Shares" below.
Reinvestment will be at the net asset value next computed after the Transfer
Agent receives the reinvestment order. The shareholder must ask the Transfer
Agent for that privilege at the time of reinvestment. This privilege does not
apply to Class C or Class Y shares. The Fund may amend, suspend or cease
offering this reinvestment privilege at any time as to shares redeemed after the
date of such amendment, suspension or cessation.]
Any capital gain that was realized when the shares were redeemed is
taxable, and reinvestment will not alter any capital gains tax payable on that
gain. If there has been a capital loss on the redemption, some or all of the
loss may not be tax deductible, depending on the timing and amount of the
reinvestment. Under the Internal Revenue Code, if the redemption proceeds of
Fund shares on which a sales charge was paid are reinvested in shares of the
Fund or another of the Oppenheimer funds within 90 days of payment of the sales
charge, the shareholder's basis in the shares of the Fund that were redeemed may
not include the amount of the sales charge paid. That would reduce the loss or
increase the gain recognized from the redemption. However, in that case the
sales charge would be added to the basis of the shares acquired by the
reinvestment of the redemption proceeds.
Involuntary Redemptions. The Fund's Board of Trustees has the right to cause the
involuntary redemption of the shares held in any account if the aggregate net
asset value of those shares is less than $200 or such lesser amount as the Board
may fix. The Board will not cause the involuntary redemption of shares in an
account if the aggregate net asset value of such shares has fallen below the
stated minimum solely as a result of market fluctuations. If the Board exercises
this right, it may also fix the requirements for any notice to be given to the
shareholders in question (not less than 30 days). The Board may alternatively
set requirements for the shareholder to increase the investment, or set other
terms and conditions so that the shares would not be involuntarily redeemed.
Transfers of Shares. A transfer of shares to a different registration is not an
event that triggers the payment of sales charges. Therefore, shares are not
subject to the payment of an early withdrawal charge of any class at the time of
transfer to the name of another person or entity. It does not matter whether the
transfer occurs by absolute assignment, gift or bequest, as long as it does not
involve, directly or indirectly, a public sale of the shares. When shares
subject to an early withdrawal charge are transferred, the transferred shares
will remain subject to the early withdrawal charge. It will be calculated as if
the transferee shareholder had acquired the transferred shares in the same
manner and at the same time as the transferring shareholder.
If less than all shares held in an account are transferred, and some but
not all shares in the account would be subject to an early withdrawal charge if
sold in a Tender Offer at the time of transfer, the priorities described in the
Prospectus under "How to Buy Shares" for the imposition of the Class A, Class B
or Class C early withdrawal charge will be followed in determining the order in
which shares are transferred.
Distributions From Retirement Plans. Requests for distributions from
OppenheimerFunds-sponsored IRAs, 403(b)(7) custodial plans, 401(k) plans or
pension or profit-sharing plans should accompany Repurchase Requests, and sent
to the Transfer Agent in the manner described in the Notice to Shareholders of
the Tender Offer. The request for distributions must:
1. state the reason for the distribution;
2. state the owner's awareness of tax penalties if the distribution is
premature; and
3. conform to the requirements of the plan and the Fund's other Tender
Offer requirements.
Participants (other than self-employed persons) in
OppenheimerFunds-sponsored pension or profit-sharing plans with shares of the
Fund held in the name of the plan or its fiduciary may not directly request the
Fund to repurchase shares for their accounts. The plan administrator or
fiduciary must sign the request.
Distributions from pension and profit sharing plans are subject to special
requirements under the Internal Revenue Code and certain documents (available
from the Transfer Agent) must be completed and submitted to the Transfer Agent
before the distribution may be made. Distributions from retirement plans are
subject to withholding requirements under the Internal Revenue Code, and IRS
Form W-4P (available from the Transfer Agent) must be submitted to the Transfer
Agent with the distribution request, or the distribution may be delayed. Unless
the shareholder has provided the Transfer Agent with a certified tax
identification number, the Internal Revenue Code requires that tax be withheld
from any distribution even if the shareholder elects not to have tax withheld.
The Fund, the Manager, the Distributor, and the Transfer Agent assume no
responsibility to determine whether a distribution satisfies the conditions of
applicable tax laws and will not be responsible for any tax penalties assessed
in connection with a distribution.
How to Exchange Shares
As stated in the Prospectus, shares of a particular class of Oppenheimer
funds having more than one class of shares may be exchanged only for shares of
the same class of other Oppenheimer funds. You may exchange your shares only in
connection with a Tender Offer. Shares of Oppenheimer funds that have a single
class without a class designation are deemed "Class A" shares for this purpose.
You can obtain a current list showing which funds offer which classes by calling
the Distributor at 1-800-525-7048.
All of the Oppenheimer funds currently offer Class A, B and C shares
except Oppenheimer Money Market Fund, Inc., Centennial Money Market Trust,
Centennial Tax Exempt Trust, Centennial Government Trust, Centennial New York
Tax Exempt Trust, Centennial California Tax Exempt Trust, and Centennial America
Fund, L.P., which only offer Class A shares.
Oppenheimer Main Street California Municipal Fund currently offers only
Class A and Class B shares.
Class B and Class C shares of Oppenheimer Cash Reserves are generally
available only by exchange from the same class of shares of other Oppenheimer
funds or through OppenheimerFunds-sponsored 401 (k) plans.
Class A shares of Oppenheimer funds may be exchanged at net asset value
for shares of any money market fund offered by the Distributor. Shares of any
money market fund purchased without a sales charge may be exchanged for shares
of Oppenheimer funds offered with a sales charge upon payment of the sales
charge. They may also be used to purchase shares of Oppenheimer funds subject to
an early withdrawal charge or contingent deferred sales charge.
Shares of Oppenheimer Money Market Fund, Inc. purchased with the
redemption proceeds of shares of other mutual funds (other than funds managed by
the Manager or its subsidiaries) redeemed within the 30 days prior to that
purchase may subsequently be exchanged for shares of other Oppenheimer funds
without being subject to an initial sales charge, early withdrawal charge or
contingent deferred sales charge. To qualify for that privilege, the investor or
the investor's dealer must notify the Distributor of eligibility for this
privilege at the time the shares of Oppenheimer Money Market Fund, Inc. are
purchased. If requested, they must supply proof of entitlement to this
privilege.
Shares of the Fund acquired by reinvestment of dividends or distributions
from any of the other Oppenheimer funds or from any unit investment trust for
which reinvestment arrangements have been made with the Distributor may be
exchanged at net asset value for shares of any of the Oppenheimer funds.
How Exchanges Affect Contingent Deferred Sales Charges. No contingent
deferred sales charge is imposed on exchanges of shares of any class purchased
subject to an early withdrawal. However, when Class A shares acquired by
exchange of Class A shares of other Oppenheimer funds purchased subject to a
Class A early withdrawal charge are redeemed within 18 months of the end of the
calendar month of the initial purchase of the exchanged Class A shares, the
Class A early withdrawal charge is imposed on the redeemed shares. The Class B
contingent deferred sales charge is imposed on Class B shares acquired by
exchange if they are redeemed within 6 years of the initial purchase of the
exchanged Class B shares. The Class C contingent deferred sales charge is
imposed on Class C shares acquired by exchange if they are redeemed within 12
months of the initial purchase of the exchanged Class C shares.
When Class B or Class C shares are redeemed to effect an exchange, the
priorities described in "How To Buy Shares" in the Prospectus for the imposition
of the Class B or the Class C contingent deferred sales charge will be followed
in determining the order in which the shares are exchanged. Before exchanging
shares, shareholders should take into account how the exchange may affect any
contingent deferred sales charge that might be imposed in the subsequent
redemption of remaining shares. Shareholders owning shares of more than one
class must specify which class of shares they wish to exchange.
Processing Exchange Requests. You may exchange your shares only in
connection with a Tender Offer. Shares to be exchanged are sold under the terms
of the Tender Offers described in the Prospectus. The Transfer Agent must
receive your exchange request no later than the close of business (normally 4:00
p.m. New York time) on the Repurchase Request Deadline. Normally, shares of the
fund to be acquired are purchased on the Repurchase Pricing Date, but such
purchases may be delayed by either fund up to five business days if it
determines that it would be disadvantaged by an immediate transfer of the
repurchase proceeds.
In connection with any exchange request, the number of shares exchanged
may be less than the number requested if the exchange or the number requested
would include shares subject to a restriction cited in the Prospectus or this
Statement of Additional Information, or would include shares covered by a share
certificate that is not tendered with the request. In those cases, only the
shares available for exchange without restriction will be exchanged.
The different Oppenheimer funds available for exchange have different
investment objectives, policies and risks. A shareholder should assure that the
fund selected is appropriate for his or her investment and should be aware of
the tax consequences of an exchange. For federal income tax purposes, an
exchange transaction is treated as a redemption of shares of one fund and a
purchase of shares of another. "Reinvestment Privilege," above, discusses some
of the tax consequences of reinvestment of redemption proceeds in such cases.
The Fund, the Distributor, and the Transfer Agent are unable to provide
investment, tax or legal advice to a shareholder in connection with an exchange
request or any other investment transaction.
Dividends, Capital Gains and Taxes
Dividends and Distributions. Dividends will be payable on shares held of record
at the time of the previous determination of net asset value, or as otherwise
described in "How to Buy Shares." Daily dividends will not be declared or paid
on newly purchased shares until such time as Federal Funds (funds credited to a
member bank's account at the Federal Reserve Bank) are available from the
purchase payment for such shares. Normally, purchase checks received from
investors are converted to Federal Funds on the next business day. Shares
purchased through dealers or brokers normally are paid for by the third business
day following the placement of the purchase order.
Shares that the Fund repurchases through the Tender Offer procedure will
be paid dividends through and including the Repurchase Pricing Date. If the Fund
repurchases all shares in an account, all dividends accrued on shares of the
same class in the account will be paid together with the repurchase proceeds.
The Fund has no fixed dividend rate for Class A, Class B and Class C
shares. There can be no assurance as to the payment of any dividends or the
realization of any capital gains. The dividends and distributions paid by a
class of shares will vary from time to time depending on market conditions, the
composition of the Fund's portfolio, and expenses borne by the Fund or borne
separately by a class. Dividends are calculated in the same manner, at the same
time, and on the same day for each class of shares. However, dividends on Class
B and Class C shares are expected to be lower than dividends on Class A shares.
That is because of the effect of the asset-based sales charge on Class B and
Class C shares. Those dividends will also differ in amount as a consequence of
any difference in the net asset values of the different classes of shares.
Dividends, distributions and proceeds of the purchases of shares by the
Fund represented by checks returned to the Transfer Agent by the Postal Service
as undeliverable will be invested in shares of Oppenheimer Money Market Fund,
Inc. Reinvestment will be made as promptly as possible after the return of such
checks to the Transfer Agent, to enable the investor to earn a return on
otherwise idle funds. Unclaimed accounts may be subject to state escheatment
laws, and the Fund and the Transfer Agent will not be liable to shareholders or
their representatives for compliance with those laws in good faith.
Tax Status of the Fund's Dividends and Distributions. The Federal tax treatment
of the Fund's dividends and capital gains distributions is briefly highlighted
in the Prospectus.
Information set forth in the prospectus and this Statement of Additional
Information that relates to federal taxation is only a summary of certain key
federal tax considerations generally affecting purchasers of shares of the Fund.
The following is only a summary of certain additional tax considerations
generally affecting the Fund and its shareholders that are not described in the
Prospectus. No attempt has been made to present a complete explanation of the
federal tax treatment of the Fund or the implications to shareholders, and the
discussions here and in the Fund's prospectus are not intended as substitutes
for careful tax planning. Accordingly, potential purchasers of shares of the
Fund are urged to consult their tax advisers with specific reference to their
own tax circumstances. In addition, the tax discussion in the prospectus and
this Statement of Additional Information is based on tax law in effect on the
date of the prospectus and this Statement of Additional Information; such laws
and regulations may be changed by legislative, judicial, or administrative
action, sometimes with retroactive effect.
Qualification as a Regulated Investment Company. The Fund has elected to
be taxed as a regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). As a regulated investment
company, the Fund is not subject to federal income tax on the portion of its net
investment income (i.e., taxable interest, dividends, and other taxable ordinary
income, net of expenses) and capital gain net income (i.e., the excess of
capital gains over capital losses) that it distributes to shareholders, provided
that it distributes at least 90% of its investment company taxable income (i.e.,
net investment income and the excess of net short-term capital gain over net
long-term capital loss) for the taxable year (the "Distribution Requirement"),
and satisfies certain other requirements of the Code that are described below.
Distributions by the Fund made during the taxable year or, under specified
circumstances, within twelve months after the close of the taxable year, will be
considered distributions of income and gains for the taxable year and will
therefore count toward satisfaction of the Distribution Requirement.
In addition to satisfying the Distribution Requirement, a regulated
investment company must derive at least 90% of its gross income from dividends,
interest, certain payments with respect to securities loans, gains from the sale
or other disposition of stock or securities or foreign currencies (to the extent
such currency gains are directly related to the regulated investment company's
principal business of investing in stock or securities) and other income
(including but not limited to gains from options, futures, or forward contracts)
derived with respect to its business of investing in such stock, securities, or
currencies (the "Income Requirement").
In general, gain or loss recognized by the Fund on the disposition of an
asset will be a capital gain or loss. In addition, gain will be recognized as a
result of certain constructive sales, including short sales "against the box."
However, gain recognized on the disposition of a debt obligation purchased by
the Fund at a market discount (generally, at a price less than its principal
amount) will be treated as ordinary income to the extent of the portion of the
market discount which accrued while the Fund held the debt obligation. In
addition, under the rules of Code Section 988, gain or loss recognized on the
disposition of a debt obligation denominated in a foreign currency or an option
with respect thereto (but only to the extent attributable to changes in foreign
currency exchange rates), and gain or loss recognized on the disposition of a
foreign currency forward contract, futures contract, option or similar financial
instrument, or of foreign currency itself, except for regulated futures
contracts or non-equity options subject to Code Section 1256 (unless the Fund
elects otherwise), generally will be treated as ordinary income or loss.
Further, the Code also treats as ordinary income a portion of the capital
gain attributable to a transaction where substantially all of the return
realized is attributable to the time value of the Fund's net investment in the
transaction and: (1) the transaction consists of the acquisition of property by
the Fund and a contemporaneous contract to sell substantially identical property
in the future; (2) the transaction is a straddle within the meaning of Section
1092 of the Code; (3) the transaction is one that was marketed or sold to the
Fund on the basis that it would have the economic characteristics of a loan but
the interest-like return would be taxed as capital gain; or (4) the transaction
is described as a conversion transaction in the Treasury Regulations. The amount
of such gain that is treated as ordinary income generally will not exceed the
amount of the interest that would have accrued on the net investment for the
relevant period at a yield equal to 120% of the federal long-term, mid-term, or
short-term rate, depending on the type of instrument at issue, reduced by the
sum of: (1) prior inclusions of ordinary income items from the conversion
transaction and (2) the capitalized interest on acquisition indebtedness under
Code Section 263(g). However, if the Fund has a built-in loss with respect to a
position that becomes a part of a conversion transaction, the character of such
loss will be preserved upon a subsequent disposition or termination of the
position. No authority exists that indicates that the character of the income
treated as ordinary under this rule will not pass through to the Fund's
shareholders.
[In general, for purposes of determining whether capital gain or loss
recognized by the Fund on the disposition of an asset is long-term or
short-term, the holding period of the asset may be affected if (1) the asset is
used to close a "short sale" (which includes for certain purposes the
acquisition of a put option) or is substantially identical to another asset so
used, (2) the asset is otherwise held by the Fund as part of a "straddle" (which
term generally excludes a situation where the asset is stock and the Fund grants
a qualified covered call option (which, among other things, must not be
deep-in-the-money) with respect thereto), or (3) the asset is stock and the Fund
grants an in-the-money qualified covered call option with respect thereto. In
addition, the Fund may be required to defer the recognition of a loss on the
disposition of an asset held as part of a straddle to the extent of any
unrecognized gain on the offsetting position.]
[Any gain recognized by the Fund on the lapse of, or any gain or loss
recognized by the Fund from a closing transaction with respect to, an option
written by the Fund will be treated as a short-term capital gain or loss.]
[Certain transactions that may be engaged in by the Fund (such as
regulated futures contracts, certain foreign currency contracts, and options on
futures contracts) will be subject to special tax treatment as "Section 1256
Contracts." Section 1256 Contracts are treated as if they are sold for their
fair market value on the last business day of the taxable year, even though a
taxpayer's obligations (or rights) under such Section 1256 Contracts have not
terminated (by delivery, exercise, entering into a closing transaction, or
otherwise) as of such date. Any gain or loss recognized as a consequence of the
year-end deemed disposition of Section 1256 Contracts is taken into account for
the taxable year together with any other gain or loss that previously was
recognized upon the termination of Section 1256 Contracts during that taxable
year. Any capital gain or loss for the taxable year with respect to Section 1256
Contracts (including any capital gain or loss arising as a consequence of the
year-end deemed sale of such Section 1256 Contracts) generally is treated as 60%
long-term capital gain or loss and 40% short-term capital gain or loss. The
Fund, however, may elect not to have this special tax treatment apply to Section
1256 Contracts that are part of a "mixed straddle" with other investments of the
Fund that are not Section 1256 Contracts.]
The Fund may enter into notional principal contracts, including interest
rate swaps, caps, floors, and collars. Treasury Regulations provide, in general,
that the net income or net deduction from a notional principal contract for a
taxable year is included in or deducted from gross income for that taxable year.
The net income or deduction from a notional principal contract for a taxable
year equals the total of all of the periodic payments (generally, payments that
are payable or receivable at fixed periodic intervals of one year or less during
the entire term of the contract) that are recognized from that contract for the
taxable year and all of the non-periodic payments (including premiums for caps,
floors, and collars) that are recognized from that contract for the taxable
year. No portion of a payment by a party to a notional principal contract is
recognized prior to the first year to which any portion of a payment by the
counterparty relates. A periodic payment is recognized ratably over the period
to which it relates. In general, a non-periodic payment must be recognized over
the term of the notional principal contract in a manner that reflects the
economic substance of the contract. A non-periodic payment that relates to an
interest rate swap, cap, floor, or collar is recognized over the term of the
contract by allocating it in accordance with the values of a series of
cash-settled forward or option contracts that reflect the specified index and
notional principal amount upon which the notional principal contract is based
(or, in the case of a swap, under an alternative method contained in the
proposed regulations and, in the case of a cap or floor, under an alternative
method which the Internal Revenue Service may provide in a revenue procedure).
The Fund may purchase securities of certain foreign investment funds or
trusts which constitute passive foreign investment companies ("PFICs") for
federal income tax purposes. If the Fund invests in a PFIC, it has three
separate options. First, it may elect to treat the PFIC as a qualified electing
fund (a "QEF"), in which event the Fund will each year have ordinary income
equal to its pro rata share of the PFIC's ordinary earnings for the year and
long-term capital gain equal to its pro rata share of the PFIC's net capital
gain for the year, regardless of whether the Fund receives distributions of any
such ordinary earnings or capital gains from the PFIC. Second, a Fund that
invests in stock of a PFIC may make a mark-to-market election with respect to
such stock. Pursuant to such election, the Fund will include as ordinary income
any excess of the fair market value of such stock at the close of any taxable
year over the Fund's adjusted tax basis in the stock. If the adjusted tax basis
of the PFIC stock exceeds the fair market value of the stock at the end of a
given taxable year, such excess will be deductible as ordinary loss in an amount
equal to the lesser of the amount of such excess or the net mark-to-market gains
on the stock that the Fund included in income in previous years. The Fund's
holding period with respect to its PFIC stock subject to the election will
commence on the first day of the next taxable year. If the Fund makes the
mark-to-market election in the first taxable year it holds PFIC stock, it will
not incur the tax described below under the third option.
Finally, if the Fund does not elect to treat the PFIC as a QEF and does
not make a mark-to-market election, then, in general, (1) any gain recognized by
the Fund upon the sale or other disposition of its interest in the PFIC or any
excess distribution received by the Fund from the PFIC will be allocated ratably
over the Fund's holding period of its interest in the PFIC stock, (2) the
portion of such gain or excess distribution so allocated to the year in which
the gain is recognized or the excess distribution is received shall be included
in the Fund's gross income for such year as ordinary income (and the
distribution of such portion by the Fund to shareholders will be taxable as an
ordinary income dividend, but such portion will not be subject to tax at the
Fund level), (3) the Fund shall be liable for tax on the portions of such gain
or excess distribution so allocated to prior years in an amount equal to, for
each such prior year, (i) the amount of gain or excess distribution allocated to
such prior year multiplied by the highest tax rate (individual or corporate) in
effect for such prior year, plus (ii) interest on the amount determined under
clause (i) for the period from the due date for filing a return for such prior
year until the date for filing a return for the year in which the gain is
recognized or the excess distribution is received, at the rates and methods
applicable to underpayments of tax for such period, and (4) the distribution by
the Fund to its shareholders of the portions of such gain or excess distribution
so allocated to prior years (net of the tax payable by the Fund thereon) will
again be taxable to the shareholders as an ordinary income dividend.
Treasury Regulations permit a regulated investment company, in determining
its investment company taxable income and net capital gain (i.e., the excess of
net long-term capital gain over net short-term capital loss) for any taxable
year, to elect (unless it has made a taxable year election for excise tax
purposes as discussed below) to treat all or any part of any net capital loss,
any net long-term capital loss or any net foreign currency loss (including, to
the extent provided in Treasury Regulations, losses recognized pursuant to the
PFIC mark-to-market election) incurred after October 31 as if it had been
incurred in the succeeding year.
In addition to satisfying the requirements described above, the Fund must
satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of the Fund's
taxable year, at least 50% of the value of the Fund's assets must consist of
cash and cash items, U.S. Government securities, securities of other regulated
investment companies, and securities of other issuers (provided that, as to each
issuer, the Fund has not invested more than 5% of the value of the Fund's total
assets in securities of each such issuer and the Fund does not hold more than
10% of the outstanding voting securities of each such issuer), and no more than
25% of the value of its total assets may be invested in the securities of any
one issuer (other than U.S. Government securities and securities of other
regulated investment companies), or in two or more issuers which the Fund
controls and which are engaged in the same or similar trades or businesses.
[Generally, an option (call or put) with respect to a security is treated as
issued by the issuer of the security, not the issuer of the option.] For
purposes of asset diversification testing, obligations issued or guaranteed by
certain agencies or instrumentalities of the U.S. Government, such as the
Federal Agricultural Mortgage Corporation, the Farm Credit System Financial
Assistance Corporation, a Federal Home Loan Bank, the Federal Home Loan Mortgage
Corporation, the Federal National Mortgage Association, the Government National
Mortgage Corporation, and the Student Loan Marketing Association, are treated as
U.S. Government securities.
If for any taxable year the Fund does not qualify as a regulated
investment company, all of its taxable income (including its net capital gain)
will be subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable to the
shareholders as ordinary dividends to the extent of the Fund's current and
accumulated earnings and profits. Such distributions may be eligible for the
dividends-received deduction in the case of corporate shareholders.
Excise Tax on Regulated Investment Companies. A 4% non-deductible excise
tax is imposed on a regulated investment company that fails to distribute in
each calendar year an amount equal to 98% of its ordinary taxable income for the
calendar year and 98% of its capital gain net income for the one-year period
ended on October 31 of such calendar year (or, at the election of a regulated
investment company having a taxable year ending November 30 or December 31, for
its taxable year (a "taxable year election")). The balance of such income must
be distributed during the next calendar year. For the foregoing purposes, a
regulated investment company is treated as having distributed any amount on
which it is subject to income tax for any taxable year ending in such calendar
year.
For purposes of calculating the excise tax, a regulated investment
company: (1) reduces its capital gain net income (but not below its net capital
gain) by the amount of any net ordinary loss for the calendar year and (2)
excludes foreign currency gains and losses and ordinary gains or losses arising
as a result of a PFIC mark-to-market election (or upon the actual disposition of
the PFIC stock subject to such election) incurred after October 31 of any year
(or after the end of its taxable year if it has made a taxable year election) in
determining the amount of ordinary taxable income for the current calendar year
(and, instead, include such gains and losses in determining the company's
ordinary taxable income for the succeeding calendar year). The Fund intends to
make sufficient distributions or deemed distributions of its ordinary taxable
income and capital gain net income prior to the end of each calendar year to
avoid liability for the excise tax. However, investors should note that the Fund
may in certain circumstances be required to liquidate portfolio investments to
make sufficient distributions to avoid excise tax liability.
Fund Distributions. The Fund anticipates distributing substantially all of
its investment company taxable income for each taxable year. Such distributions
will be taxable to shareholders as ordinary income and treated as dividends for
federal income tax purposes. Distributions attributable to dividends received by
the Fund from domestic corporations will qualify for the 70% dividends-received
deduction for corporate shareholders only to the extent discussed below.
Distributions attributable to interest received by the Fund will not, and
distributions attributable to dividends paid by a foreign corporation generally
should not, qualify for the dividend-received deduction.
Ordinary income dividends paid by the Fund with respect to a taxable year
will qualify for the 70% dividends-received deduction generally available to
corporations (other than corporations such as S corporations, which are not
eligible for the deduction because of their special characteristics, and other
than for purposes of special taxes such as the accumulated earnings tax and the
personal holding company tax) to the extent of the amount of qualifying
dividends received by the Fund from domestic corporations for the taxable year.
A dividend received by the Fund will not be treated as a qualifying dividend (1)
if it has been received with respect to any share of stock that the Fund has
held for less than 46 days (91 days in the case of certain preferred stock),
excluding for this purpose under the rules of Code Section 246(c)(3) and (4):
(i) any day more than 45 days (or 90 days in the case of certain preferred
stock) after the date on which the stock becomes ex-dividend and (ii) any period
during which the Fund has an option to sell, is under a contractual obligation
to sell, has made and not closed a short sale of, is the grantor of a
deep-in-the-money or otherwise nonqualified option to buy, or has otherwise
diminished its risk of loss by holding other positions with respect to, such (or
substantially identical) stock; (2) to the extent that the Fund is under an
obligation (pursuant to a short sale or otherwise) to make related payments with
respect to positions in substantially similar or related property; or (3) to the
extent the stock on which the dividend is paid is treated as debt-financed under
the rules of Code Section 246A. Moreover, the dividends-received deduction for a
corporate shareholder may be disallowed or reduced (1) if the corporate
shareholder fails to satisfy the foregoing requirements with respect to its
shares of the Fund or (2) by application of Code Section 246(b) which in general
limits the dividends-received deduction to 70% of the shareholder's taxable
income (determined without regard to the dividends-received deduction and
certain other items). With respect to the Prime Money Market Fund, International
Equity Fund and the Emerging Markets Debt Fund, only an insignificant portion of
the Fund will be invested in stock of domestic corporations; therefore the
ordinary dividends distributed by the Fund generally will not qualify for the
dividends-received deduction for corporate shareholders.
The Fund may either retain or distribute to shareholders its net capital
gain for each taxable year. The Fund currently intends to distribute any such
amounts. If net capital gain is distributed and designated as a capital gain
dividend, it will be taxable to shareholders as long-term capital gain,
regardless of the length of time the shareholder has held his or her shares or
whether such gain was recognized by the Fund prior to the date on which the
shareholder acquired his shares. The Code provides, however, that under certain
conditions only 50% of the capital gain recognized upon the Fund's disposition
of domestic qualified "small business" stock will be subject to tax.
Conversely, if the Fund elects to retain its net capital gain, the Fund
will be subject to tax thereon (except to the extent of any available capital
loss carryovers) at the 35% corporate tax rate. If the Fund elects to retain its
net capital gain, it is expected that the Fund also will elect to have
shareholders of record on the last day of its taxable year treated as if each
received a distribution of his pro rata share of such gain, with the result that
each shareholder will be required to report his pro rata share of such gain on
his tax return as long-term capital gain, will receive a refundable tax credit
for his pro rata share of tax paid by the Fund on the gain, and will increase
the tax basis for his shares by an amount equal to the deemed distribution less
the tax credit.
Alternative Minimum Tax ("AMT") is imposed in addition to, but only to the
extent it exceeds, the regular tax and is computed at a maximum marginal rate of
28% for non-corporate taxpayers and 20% for corporate taxpayers on the excess of
the taxpayer's alternative minimum taxable income ("AMTI") over an exemption
amount. For purposes of the corporate AMT, the corporate dividends-received
deduction is not itself an item of tax preference that must be added back to
taxable income or is otherwise disallowed in determining a corporation's AMTI.
However, corporate shareholders generally will be required to take the full
amount of any dividend received from the Fund into account (without a
dividends-received deduction) in determining their adjusted current earnings.
Investment income that may be received by the Fund from sources within
foreign countries may be subject to foreign taxes withheld at the source. The
United States has entered into tax treaties with many foreign countries which
entitle the Fund to a reduced rate of, or exemption from, taxes on such income.
It is impossible to determine the effective rate of foreign tax in advance since
the amount of the Fund's assets to be invested in various countries is not
known: If more than 50% of the value of the Fund's total assets at the close of
its taxable year consist of the stock or securities of foreign corporations, the
Fund may elect to "pass through" to the Fund's shareholders the amount of
foreign taxes paid by the Fund. If the Fund so elects, each shareholder would be
required to include in gross income, even though not actually received, his pro
rata share of the foreign taxes paid by the Fund, but would be treated as having
paid his pro rata share of such foreign taxes and would therefore be allowed to
either deduct such amount in computing taxable income or use such amount
(subject to various Code limitations) as a foreign tax credit against federal
income tax (but not both). For purposes of the foreign tax credit limitation
rules of the Code, each shareholder would treat as foreign source income his pro
rata share of such foreign taxes plus the portion of dividends received from the
Fund representing income derived from foreign sources. No deduction for foreign
taxes could be claimed by an individual shareholder who does not itemize
deductions. Each shareholder should consult his own tax adviser regarding the
potential application of foreign tax credit rules.
Distributions by the Fund that do not constitute ordinary income dividends
or capital gain dividends will be treated as a return of capital to the extent
of (and in reduction of) the shareholder's tax basis in his shares; any excess
will be treated as gain from the sale of his shares, as discussed below.
Distributions by the Fund will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Fund (or of another fund). Shareholders receiving a
distribution in the form of additional shares will be treated as receiving a
distribution in an amount equal to the fair market value of the shares received,
determined as of the reinvestment date. In addition, if the net asset value at
the time a shareholder purchases shares of the Fund reflects undistributed net
investment income, recognized net capital gain, or unrealized appreciation in
the value of the assets of the Fund, distributions of such amounts will be
taxable to the shareholder in the manner described above, although such
distributions economically constitute a return of capital to the shareholder.
Ordinarily, shareholders are required to take distributions by the Fund
into account in the year in which the distributions are made. However, dividends
declared in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders (and made by the Fund) on December 31 of
such calendar year if such dividends are actually paid in January of the
following year. Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made) during the year.
The Fund will be required in certain cases to withhold and remit to the
U.S. Treasury 31% of ordinary income dividends and capital gain dividends, and
the proceeds of redemption of shares, paid to any shareholder (1) who has failed
to provide a correct taxpayer identification number, (2) who is subject to
backup withholding for failure to report the receipt of interest or dividend
income properly, or (3) who has failed to certify to the Fund that it is not
subject to backup withholding or is an "exempt recipient" (such as a
corporation).
Tender of Shares. A shareholder will recognize gain or loss on the tender
of shares of the Fund in an amount equal to the difference between the proceeds
of the tender of the shares and the shareholder's adjusted tax basis in the
shares. All or a portion of any loss so recognized may be disallowed if the
shareholder purchases other shares of the Fund within 30 days before or after
the tender. In general, any gain or loss arising from (or treated as arising
from) the tender of shares of the Fund will be considered capital gain or loss
and will be long-term capital gain or loss if the shares were held for longer
than one year. However, any capital loss arising from the tender of shares held
for six months or less will be will be treated as a long-term capital loss to
the extent of the amount of capital gain dividends received on such shares. For
this purpose, the special holding period rules of Code Section 246(c)(3) and (4)
(discussed above in connection with the dividends-received deduction for
corporations) generally will apply in determining the holding period of shares.
Capital losses in any year are deductible only to the extent of capital gains
plus, in the case of a noncorporate taxpayer, $3,000 of ordinary income.
If a shareholder (1) incurs a sales load in acquiring shares of the Fund,
(2) tenders such shares less than 91 days after they are acquired and (3)
subsequently acquires shares of the Fund or another fund at a reduced sales load
pursuant to a right acquired in connection with the acquisition of the shares
disposed of, then the sales load on the shares disposed of (to the extent of the
reduction in the sales load on the shares subsequently acquired) shall not be
taken into account in determining gain or loss on such shares but shall be
treated as incurred on the acquisition of the subsequently acquired shares.
Foreign Shareholders. Taxation of a shareholder who, as to the United
States, is a nonresident alien individual, foreign trust or estate, foreign
corporation, or foreign partnership ("foreign shareholder"), depends on whether
the income from the Fund is effectively connected with a U.S. trade or business
carried on by such shareholder.
If the income from the Fund is not effectively connected with a U.S. trade
or business carried on by a foreign shareholder, ordinary income dividends paid
to such foreign shareholder will be subject to U.S. withholding tax at the rate
of 30% (or lower applicable treaty rate) upon the gross amount of the dividend.
Furthermore, under certain circumstances, such a foreign shareholder may be
subject to U.S. withholding tax at the rate of 30% (or lower applicable treaty
rate) on the gross income resulting from the Fund's election to treat any
foreign taxes paid by it as paid by its shareholders, but may not be allowed a
deduction against such gross income or a credit against the U.S. withholding tax
for the foreign shareholder's pro rata share of such foreign taxes which it is
treated as having paid. Such a foreign shareholder generally would be exempt
from U.S. federal income tax on gains realized on the sale of shares of the
Fund, capital gain dividends, and amounts retained by the Fund that are
designated as undistributed capital gains.
If the income from the Fund is effectively connected with a U.S. trade or
business carried on by a foreign shareholder, then ordinary income dividends,
capital gain dividends, and any gains realized upon the sale of shares of the
Fund will be subject to U.S. federal income tax at the rates applicable to U.S.
citizens or domestic corporations.
In the case of foreign noncorporate shareholders, the Fund may be required
to withhold U.S. federal income tax at a rate of 31% on distributions that are
otherwise exempt from withholding tax (or taxable at a reduced treaty rate)
unless such shareholders furnish the Fund with proper notification of their
foreign status.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein. Foreign shareholders are urged to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in the Fund,
including the applicability of foreign taxes.
Effect of Future Legislation, State and Local Tax Considerations. The
foregoing general discussion of U.S. federal income tax consequences is based on
the Code and the Treasury Regulations issued thereunder as in effect on the date
of this Statement of Additional Information. Future legislative or
administrative changes or court decisions may significantly change the
conclusions expressed herein, and any such changes or decisions may have a
retroactive effect.
Rules of state and local taxation of ordinary income dividends and capital
gain dividends from regulated investment companies may differ from the rules for
U.S. federal income taxation described above. Shareholders are urged to consult
their tax advisers as to the consequences of these and other state and local tax
rules affecting investment in the Fund.
Special provisions of the Internal Revenue Code govern the eligibility of
the Fund's dividends for the dividends-received deduction for corporate
shareholders. Long-term capital gains distributions are not eligible for the
deduction. The amount of dividends paid by the Fund that may qualify for the
deduction is limited to the aggregate amount of qualifying dividends that the
Fund derives from portfolio investments that the Fund has held for a minimum
period, usually 46 days. A corporate shareholder will not be eligible for the
deduction on dividends paid on Fund shares held for 45 days or less. To the
extent the Fund's dividends are derived from gross income from option premiums,
interest income or short-term gains from the sale of securities or dividends
from foreign corporations, those dividends will not qualify for the deduction.
Under the Internal Revenue Code, by December 31 each year, the Fund must
distribute 98% of its taxable investment income earned from January 1 through
December 31 of that year and 98% of its capital gains realized in the period
from November 1 of the prior year through October 31 of the current year. If it
does not, the Fund must pay an excise tax on the amounts not distributed. It is
presently anticipated that the Fund will meet those requirements. However, the
Board of Trustees and the Manager might determine in a particular year that it
would be in the best interests of shareholders for the Fund not to make such
distributions at the required levels and to pay the excise tax on the
undistributed amounts. That would reduce the amount of income or capital gains
available for distribution to shareholders.
The Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code (although it reserves the right not to qualify). That
qualification enables the Fund to "pass through" its income and realized capital
gains to shareholders without having to pay tax on them. This avoids a double
tax on that income and capital gains, since shareholders normally will be taxed
on the dividends and capital gains they receive from the Fund (unless the Fund's
shares are held in a retirement account or the shareholder is otherwise exempt
from tax). If the Fund qualifies as a "regulated investment company" under the
Internal Revenue Code, it will not be liable for Federal income taxes on amounts
paid by it as dividends and distributions. The Fund qualified as a regulated
investment company in its last fiscal year. The Internal Revenue Code contains a
number of complex tests relating to qualification which the Fund might not meet
in any particular year. If it did not so qualify, the Fund would be treated for
tax purposes as an ordinary corporation and receive no tax deduction for
payments made to shareholders.
If prior distributions made by the Fund must be re-characterized as a
non-taxable return of capital at the end of the fiscal year as a result of the
effect of the Fund's investment policies, they will be identified as such in
notices sent to shareholders.
Dividend Reinvestment in Another Fund. Shareholders of the Fund may elect to
reinvest all dividends and/or capital gains distributions in shares of the same
class of any of the other Oppenheimer funds listed above. Reinvestment will be
made without sales charge at the net asset value per share in effect at the
close of business on the payable date of the dividend or distribution. To elect
this option, the shareholder must notify the Transfer Agent in writing and must
have an existing account in the fund selected for reinvestment. Otherwise the
shareholder first must obtain a prospectus for that fund and an application from
the Distributor to establish an account. Dividends and/or distributions from
shares of certain other Oppenheimer funds (other than Oppenheimer Cash Reserves)
may be invested in shares of this Fund on the same basis.
Additional Information About the Fund
The Distributor. The Fund's shares are sold through dealers, brokers and other
financial institutions that have a sales agreement with OppenheimerFunds
Distributor, Inc., a subsidiary of the Manager that acts as the Fund's
Distributor. The Distributor also distributes shares of the other Oppenheimer
funds and is the sub-distributor for funds managed by a subsidiary of the
Manager.
The Transfer Agent. OppenheimerFunds Services, the Fund's Transfer Agent, is a
division of the Manager. It is responsible for maintaining the Fund's
shareholder registry and shareholder accounting records, and for paying
dividends and distributions to shareholders. It also handles shareholder
servicing and administrative functions. It acts on an "at-cost" basis. It also
acts as shareholder servicing agent for the other Oppenheimer funds.
Shareholders should direct inquiries about their accounts to the Transfer Agent
at the address and toll-free numbers shown on the back cover.
The Custodian. The ___________is the Custodian of the Fund's assets. The
Custodian's responsibilities include safeguarding and controlling the Fund's
portfolio securities and handling the delivery of such securities to and from
the Fund. It will be the practice of the Fund to deal with the Custodian in a
manner uninfluenced by any banking relationship the Custodian may have with the
Manager and its affiliates. The Fund's cash balances with the custodian in
excess of $100,000 are not protected by Federal deposit insurance. Those
uninsured balances at times may be substantial.
Independent Auditors. Deloitte & Touche LLP are the independent auditors of the
Fund. They audit the Fund's financial statements and perform other related audit
services. They also act as auditors for the Manager and for certain other funds
advised by the Manager and its affiliates.
<PAGE>
A-6
KL2:329902.2
Appendix A
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RATINGS DEFINITIONS
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Below are summaries of the rating definitions used by the nationally-recognized
rating agencies listed below. Those ratings represent the opinion of the agency
as to the credit quality of issues that they rate. The summaries below are based
upon publicly-available information provided by the rating organizations.
Moody's Investors Service, Inc.
- -------------------------------------------------------------------------------
Long-Term (Taxable) Bond Ratings
Aaa: Bonds rated Aaa are judged to be the best quality. They carry the smallest
degree of investment risk. Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, the changes that can be expected are
most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group, they comprise what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as with Aaa securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than those of Aaa securities.
A: Bonds rated A possess many favorable investment attributes and are to be
considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa: Bonds rated Baa are considered medium grade obligations; that is, they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and have speculative
characteristics as well.
Ba: Bonds rated Ba are judged to have speculative elements. Their future cannot
be considered well-assured. Often the protection of interest and principal
payments may be very moderate and not well safeguarded during both good and bad
times over the future. Uncertainty of position characterizes bonds in this
class.
B: Bonds rated B generally lack characteristics of desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Caa: Bonds rated Caa are of poor standing and may be in default or there may
be present elements of danger with respect to principal or interest.
Ca: Bonds rated Ca represent obligations which are speculative in a high
degree and are often in default or have other marked shortcomings.
C: Bonds rated C are the lowest class of rated bonds and can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa through Caa. The modifier "1" indicates that the
obligation ranks in the higher end of its category; the modifier "2" indicates a
mid-range ranking and the modifier "3" indicates a ranking in the lower end of
the category.
Short-Term Ratings - Taxable Debt
These ratings apply to the ability of issuers to repay punctually senior debt
obligations having an original maturity not exceeding one year:
Prime-1: Issuer has a superior ability for repayment of senior short-term debt
obligations.
Prime-2: Issuer has a strong ability for repayment of senior short-term debt
obligations. Earnings trends and coverage, while sound, may be subject to
variation. Capitalization characteristics, while appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Prime-3: Issuer has an acceptable ability for repayment of senior short-term
obligations. The effect of industry characteristics and market compositions may
be more pronounced. Variability in earnings and profitability may result in
changes in the level of debt protection measurements and may require relatively
high financial leverage. Adequate alternate liquidity is maintained.
Not Prime: Issuer does not fall within any Prime rating category.
Standard & Poor's Rating Services
- -------------------------------------------------------------------------------
Long-Term Credit Ratings
AAA: Bonds rated "AAA" have the highest rating assigned by Standard & Poor's.
The obligor's capacity to meet its financial commitment on the obligation is
extremely strong.
AA: Bonds rated "AA" differ from the highest rated obligations only in small
degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A: Bonds rated "A" are somewhat more susceptible to adverse effects of changes
in circumstances and economic conditions than obligations in higher-rated
categories. However, the obligor's capacity to meet its financial commitment on
the obligation is still strong.
BBB: Bonds rated BBB exhibit adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity of the obligor to meet its financial commitment on the
obligation.
Bonds rated BB, B, CCC, CC and C are regarded as having significant speculative
characteristics. BB indicates the least degree of speculation and C the highest.
While such obligations will likely have some quality and protective
characteristics, these may be outweighed by large uncertainties or major
exposures to adverse conditions.
BB: Bonds rated BB are less vulnerable to nonpayment than other speculative
issues. However, these face major uncertainties or exposure to adverse business,
financial, or economic conditions which could lead to the obligor's inadequate
capacity to meet its financial commitment on the obligation.
B: A bond rated B is more vulnerable to nonpayment than an obligation rated BB,
but the obligor currently has the capacity to meet its financial commitment on
the obligation.
CCC: A bond rated CCC is currently vulnerable to nonpayment, and is dependent
upon favorable business, financial, and economic conditions for the obligor to
meet its financial commitment on the obligation. In the event of adverse
business, financial or economic conditions, the obligor is not likely to have
the capacity to meet its financial commitment on the obligation. CC: An
obligation rated CC is currently highly vulnerable to nonpayment.
C: The C rating may be used where a bankruptcy petition has been filed or
similar action has been taken, but payments on this obligation are being
continued.
D: Bonds rated D are in default. Payments on the obligation are not being
made on the date due.
The ratings from AA to CCC may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within the major rating categories. The
"r" symbol is attached to the ratings of instruments with significant noncredit
risks.
Short-Term Issue Credit Ratings
A-1: Rated in the highest category. The obligor's capacity to meet its financial
commitment on the obligation is strong. Within this category, a plus (+) sign
designation indicates the issuer's capacity to meet its financial obligation is
very strong.
A-2: Obligation is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than obligations in higher rating
categories. However, the obligor's capacity to meet its financial commitment on
the obligation is satisfactory.
A-3: Exhibits adequate protection parameters. However, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity of the obligor to meet its financial commitment on the obligation.
B: Regarded as having significant speculative characteristics. The obligor
currently has the capacity to meet its financial commitment on the obligation.
However, it faces major ongoing uncertainties which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
C: Currently vulnerable to nonpayment and is dependent upon favorable
business, financial, and economic conditions for the obligor to meet its
financial commitment on the obligation.
D: In payment default. Payments on the obligation have not been made on the
due date. The rating may also be used if a bankruptcy petition has been filed
or similar actions jeopardize payments on the obligation.
- -------------------------------------------------------------------------------
Fitch IBCA, Inc.
International Long-Term Credit Ratings
Investment Grade:
AAA: Highest Credit Quality. "AAA" ratings denote the lowest expectation of
credit risk. They are assigned only in the case of exceptionally strong
capacity for timely payment of financial commitments. This capacity is highly
unlikely to be adversely affected by foreseeable events.
AA: Very High Credit Quality. "AA" ratings denote a very low expectation of
credit risk. They indicate a very strong capacity for timely payment of
financial commitments. This capacity is not significantly vulnerable to
foreseeable events.
A: High Credit Quality. "A" ratings denote a low expectation of credit risk.
The capacity for timely payment of financial commitments is considered
strong. This capacity may, nevertheless, be more vulnerable to changes in
circumstances or in economic conditions than is the case for higher ratings.
BBB: Good Credit Quality. "BBB" ratings indicate that there is currently a
low expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and
in economic conditions are more likely to impair this capacity. This is the
lowest investment-grade category.
Speculative Grade:
BB: Speculative. "BB" ratings indicate that there is a possibility of credit
risk developing, particularly as the result of adverse economic change over
time. However, business or financial alternatives may be available to allow
financial commitments to be met.
B: Highly Speculative. "B" ratings indicate that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met. However, capacity for continued payment is contingent
upon a sustained, favorable business and economic environment.
CCC, CC C: High Default Risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained, favorable
business or economic developments. A "CC" rating indicates that default of
some kind appears probable. "C" ratings signal imminent default.
DDD, DD, and D: Default. Securities are not meeting current obligations and
are extremely speculative. "DDD" designates the highest potential for
recovery of amounts outstanding on any securities involved.
Plus (+) and minus (-) signs may be appended to a rating symbol to denote
relative status within the rating category. Plus and minus signs are not added
to the "AAA" category or to categories below "CCC."
International Short-Term Credit Ratings
F1: Highest credit quality. Strongest capacity for timely payment. May have an
added "+" to denote exceptionally strong credit feature.
F2: Good credit quality. A satisfactory capacity for timely payment, but the
margin of safety is not as great as in higher ratings.
F3: Fair credit quality. Capacity for timely payment is adequate. However,
near-term adverse changes could result in a reduction to non-investment grade.
B: Speculative. Minimal capacity for timely payment, plus vulnerability to
near-term adverse changes in financial and economic conditions.
C: High default risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon a sustained, favorable
business and economic environment.
D: Default. Denotes actual or imminent payment default.
Duff & Phelps Credit Rating Co. Ratings
- -------------------------------------------------------------------------------
Long-Term Debt and Preferred Stock
AAA: Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+, AA, AA-: High credit quality. Protection factors are strong. Risk is
modest but may vary slightly from time to time because of economic conditions.
A+, A & A-: Protection factors are average but adequate. However, risk
factors are more variable in periods of greater economic stress.
BBB+, BBB & BBB-: Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
BB+, BB & BB-: Below investment grade but deemed likely to meet obligations when
due. Present or prospective financial protection factors fluctuate according to
industry conditions. Overall quality may move up or down frequently within the
category.
B+, B & B-: Below investment grade and possessing risk that obligations will not
be met when due. Financial protection factors will fluctuate widely according to
economic cycles, industry conditions and/or company fortunes. Potential exists
for frequent changes in the rating within this category or into a higher of
lower rating grade.
CCC: Well below investment-grade securities. Considerable uncertainty exists as
to timely payment of principal, interest or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.
DD: Defaulted debt obligations. Issuer failed to meet scheduled principal
and/or interest payments.
DP: Preferred stock with dividend arrearages.
Short-Term Debt:
High Grade:
D-1+: Highest certainty of timely payment. Safety is just below risk-free
U.S. Treasury short-term debt.
D-1: Very high certainty of timely payment. Risk factors are minor.
D-1-: High certainty of timely payment. Risk factors are very small.
Good Grade:
D-2: Good certainty of timely payment. Risk factors are small.
Satisfactory Grade:
D-3: Satisfactory liquidity and other protection factors qualify issues as to
investment grade. Risk factors are larger and subject to more variation.
Nevertheless, timely payment is expected.
Non-Investment Grade:
D-4: Speculative investment characteristics. Liquidity is not sufficient to
insure against disruption in debt service.
Default:
D-5: Issuer failed to meet scheduled principal and/or interest payments.
<PAGE>
B-1
KL2:329902.2
Appendix B
- -------------------------------------------------------------------------------
Industry Classifications
- -------------------------------------------------------------------------------
Aerospace/Defense Food and Drug Retailers
Air Transportation Gas Utilities
Asset-Backed Health Care/Drugs
Auto Parts and Equipment Health Care/Supplies & Services
Automotive Homebuilders/Real Estate
Bank Holding Companies Hotel/Gaming
Banks Industrial Services
Beverages Information Technology
Broadcasting Insurance
Broker-Dealers Leasing & Factoring
Building Materials Leisure
Cable Television Manufacturing
Chemicals Metals/Mining
Commercial Finance Nondurable Household Goods
Communication Equipment Office Equipment
Computer Hardware Oil - Domestic
Computer Software Oil - International
Conglomerates Paper
Consumer Finance Photography
Consumer Services Publishing
Containers Railroads
Convenience Stores Restaurants
Department Stores Savings & Loans
Diversified Financial Shipping
Diversified Media Special Purpose Financial
Drug Wholesalers Specialty Printing
Durable Household Goods Specialty Retailing
Education Steel
Electric Utilities Telecommunications - Technology
Electrical Equipment Telephone - Utility
Electronics Textile/Apparel
Energy Services & Producers Tobacco
Entertainment/Film Trucks and Parts
Environmental Wireless Services
Food
<PAGE>
C-8
KL2:329902.2
Appendix C
- -------------------------------------------------------------------------------
OppenheimerFunds Special Sales Charge Arrangements and Waivers
- -------------------------------------------------------------------------------
In certain cases, the early withdrawal that may apply to Class B or Class
C shares may be waived. That is because of the economies of sales efforts
realized by the Distributor or the dealers or other financial institutions
offering those shares to certain classes of investors or in certain
transactions.
Not all waivers apply to all funds. For example, waivers relating to
Retirement Plans do not apply to Oppenheimer municipal funds, because shares of
those funds are not available for purchase by or on behalf of retirement plans.
Other waivers apply only to shareholders of certain funds that were merged into
or became Oppenheimer funds.
For the purposes of some of the waivers described below and in the
Prospectus and Statement of Additional Information of the applicable Oppenheimer
funds, the term "Retirement Plan" refers to the following types of plans:
1. plans qualified under Sections 401(a) or 401(k) of the Internal
Revenue Code,
2. non-qualified deferred compensation plans,
3. employee benefit plans1
4. GROUP Retirement Plans2
5. 403(b)(7) custodial plan accounts
6. SEP-IRAs, SARSEPs or SIMPLE plans
The interpretation of these provisions as to the applicability of a waiver
in a particular case is determined solely by the Distributor or the Transfer
Agent of the fund. These waivers and special arrangements may be amended or
terminated at any time by the applicable Fund and/or the Distributor. Waivers
that apply at the time shares are redeemed must be requested by the shareholder
and/or dealer in the redemption request.
- --------------
1. An "employee benefit plan" means any plan or arrangement, whether or not it
is "qualified" under the Internal Revenue Code, under which Class A shares of
an Oppenheimer fund or funds are purchased by a fiduciary or other
administrator for the account of participants who are employees of a single
employer or of affiliated employers. These may include, for example, medical
savings accounts, payroll deduction plans or similar plans. The fund accounts
must be registered in the name of the fiduciary or administrator purchasing
the shares for the benefit of participants in the plan.
2. The term "Group Retirement Plan" means any qualified or non-qualified
retirement plan for employees of a corporation or sole proprietorship,
members and employees of a partnership or association or other organized
group of persons (the members of which may include other groups), if the
group has made special arrangements with the Distributor and all members of
the group participating in (or who are eligible to participate in) the plan
purchase Class A shares of an Oppenheimer fund or funds through a single
investment dealer, broker or other financial institution designated by the
group. Such plans include 457 plans, SEP-IRAs, SARSEPs, SIMPLE plans and
403(b) plans other than plans for public school employees. The term "Group
Retirement Plan" also includes qualified retirement plans and non-qualified
deferred compensation plans and IRAs that purchase Class A shares of an
Oppenheimer fund or funds through a single investment dealer, broker or other
financial institution that has made special arrangements with the Distributor
enabling those plans to purchase Class A shares at net asset value but
subject to the Class A early withdrawal charge.
- -------------------------------------------------------------------------------
Waivers of Class B and Class C Sales Charges of Oppenheimer Funds
- -------------------------------------------------------------------------------
The Class B and Class C early withdrawals will not be applied to shares
purchased in certain types of transactions or redeemed in certain circumstances
described below.
Waivers for Redemptions in Certain Cases.
The Class B and Class C early withdrawals will be waived for redemptions of
shares in the following cases:
Shares redeemed involuntarily, as described in "Shareholder Account
Rules and Policies," in the applicable Prospectus.
Distributions to participants or beneficiaries from Retirement
Plans, if the distributions are made:
(a) under an Automatic Withdrawal Plan after the participant reaches age
59-1/2, as long as the payments are no more than 10% of the account
value annually (measured from the date the Transfer Agent receives the
request), or
(b) following the death or disability (as defined in the Internal Revenue
Code) of the participant or beneficiary (the death or disability must
have occurred after the account was established).
Redemptions from accounts other than Retirement Plans following the
death or disability of the last surviving shareholder, including a trustee of a
grantor trust or revocable living trust for which the trustee is also the sole
beneficiary. The death or disability must have occurred after the account was
established, and for disability you must provide evidence of a determination of
disability by the Social Security Administration.
Returns of excess contributions to Retirement Plans.
Distributions from Retirement Plans to make "substantially equal
periodic payments" as permitted in Section 72(t) of the Internal Revenue Code
that do not exceed 10% of the account value annually, measured from the date the
Transfer Agent receives the request.
Distributions from OppenheimerFunds prototype 401(k) plans and from
certain Massachusetts Mutual Life Insurance Company prototype 401(k) plans:
(1) for hardship withdrawals;
(2) under a Qualified Domestic Relations Order, as defined in the Internal
Revenue Code;
(3) to meet minimum distribution requirements as defined in the Internal
Revenue Code;
(4) to make "substantially equal periodic payments" as described in Section
72(t) of the Internal Revenue Code;
(5) for separation from service; or (6) for loans to participants or
beneficiaries.
Distributions from 401(k) plans sponsored by broker-dealers that
have entered into a special agreement with the Distributor allowing this waiver.
Redemptions of Class B shares held by Retirement Plans whose records
are maintained on a daily valuation basis by Merrill Lynch or an independent
record keeper under a contract with Merrill Lynch.
Redemptions of Class C shares of Oppenheimer U.S. Government Trust
from accounts of clients of financial institutions that have entered into a
special arrangement with the Distributor for this purpose.
Waivers for Shares Sold or Issued in Certain Transactions.
The early withdrawal is also waived on Class B and Class C shares sold or
issued in the following cases:
Shares sold to the Manager or its affiliates.
Shares sold to registered management investment companies or
separate accounts of insurance companies having an agreement with the Manager or
the Distributor for that purpose.
Shares issued in plans of reorganization to which the Fund is
a party.
- -------------------------------------------------------------------------------
Special Sales Charge Arrangements for Shareholders of Certain Oppenheimer
Funds Who Were Shareholders of the Former Quest for Value Funds
- -------------------------------------------------------------------------------
[The contingent deferred sales charge rates and waivers for Class B and
Class C shares described in the Prospectus or Statement of Additional
Information of the Oppenheimer funds are modified as described below for certain
persons who were shareholders of the former Quest for Value Funds. To be
eligible, those persons must have been shareholders on November 24, 1995, when
OppenheimerFunds, Inc. became the investment advisor to those former Quest for
Value Funds. Those funds include:
Oppenheimer Quest Value Fund, Inc., Oppenheimer Quest Balanced Value Fund,
Oppenheimer Quest Opportunity Value Fund, Oppenheimer Quest Small Cap
Value Fund and Oppenheimer Quest Global Value Fund, Inc.
These arrangements also apply to shareholders of the following funds when
they merged into various Oppenheimer funds on November 24, 1995:
Quest for Value U.S. Government Income Fund, Quest for Value Investment
Quality Income Fund, Quest for Value Global Income Fund, Quest for Value
New York Tax-Exempt Fund, Quest for Value National Tax-Exempt Fund and
Quest for Value California Tax-Exempt Fund
All of the funds listed above are referred to in this Appendix as the
"Former Quest for Value Funds." The waivers of initial and contingent deferred
sales charges described in this Appendix apply to shares of an Oppenheimer fund
that are either:
acquired by such shareholder pursuant to an exchange of shares of
an Oppenheimer fund that was one of the Former Quest for Value Funds or
purchased by such shareholder by exchange of shares of another
Oppenheimer fund that were acquired pursuant to the merger of any of the Former
Quest for Value Funds into that other Oppenheimer fund on November 24, 1995.]
[Class B and Class C Contingent Deferred Sales Charge Waivers
Waivers for Redemptions of Shares Purchased Prior to March 6, 1995.
In the following cases, the contingent deferred sales charge will be waived for
redemptions of Class A, Class B or Class C shares of an Oppenheimer fund. The
shares must have been acquired by the merger of a Former Quest for Value Fund
into the fund or by exchange from an Oppenheimer fund that was a Former Quest
for Value Fund or into which such fund merged. Those shares must have been
purchased prior to March 6, 1995 in connection with:
withdrawals under an automatic withdrawal plan holding only either
Class B or Class C shares if the annual withdrawal does not exceed 10% of the
initial value of the account, and
liquidation of a shareholder's account if the aggregate net asset
value of shares held in the account is less than the required minimum value of
such accounts.]
[Waivers for Redemptions of Shares Purchased on or After March 6,
1995 but Prior to November 24, 1995. In the following cases, the contingent
deferred sales charge will be waived for redemptions of Class A, Class B or
Class C shares of an Oppenheimer fund. The shares must have been acquired by the
merger of a Former Quest for Value Fund into the fund or by exchange from an
Oppenheimer fund that was a Former Quest For Value Fund or into which such
Former Quest for Value Fund merged. Those shares must have been purchased on or
after March 6, 1995, but prior to November 24, 1995:
redemptions following the death or disability of the
shareholder(s) (as evidenced by a determination of total disability by the
U.S. Social Security Administration);
withdrawals under an automatic withdrawal plan (but only for Class B
or Class C shares) where the annual withdrawals do not exceed 10% of the initial
value of the account; and
liquidation of a shareholder's account if the aggregate net asset
value of shares held in the account is less than the required minimum account
value.
A shareholder's account will be credited with the amount of any contingent
deferred sales charge paid on the redemption of any Class A, Class B or Class C
shares of the Oppenheimer fund described in this section if the proceeds are
invested in the same Class of shares in that fund or another Oppenheimer fund
within 90 days after redemption. ]
- -------------------------------------------------------------------------------
Special Sales Charge Arrangements for Shareholders of Certain Oppenheimer Funds
Who Were Shareholders of Connecticut Mutual Investment Accounts, Inc.
- -------------------------------------------------------------------------------
The contingent deferred sale charge rates and waivers for Class A and
Class B shares described in the Prospectus or this Appendix for Oppenheimer U.
S. Government Trust, Oppenheimer Bond Fund, Oppenheimer Disciplined Value Fund
and Oppenheimer Disciplined Allocation Fund (each is included in the reference
to "Fund" below) are modified as described below for those shareholders who were
shareholders of Connecticut Mutual Liquid Account, Connecticut Mutual Government
Securities Account, Connecticut Mutual Income Account, Connecticut Mutual Growth
Account, Connecticut Mutual Total Return Account, CMIA LifeSpan Capital
Appreciation Account, CMIA LifeSpan Balanced Account and CMIA Diversified Income
Account (the "Former Connecticut Mutual Funds") on March 1, 1996, when
OppenheimerFunds, Inc. became the investment adviser to the Former Connecticut
Mutual Funds.
[Class B Contingent Deferred Sales Charge Waivers
In addition to the waivers set forth in the Prospectus and in this Appendix,
above, the contingent deferred sales charge will be waived for redemptions of
Class A and Class B shares of a Fund and exchanges of Class A or Class B shares
of a Fund into Class A or Class B shares of a Former Connecticut Mutual Fund
provided that the Class A or Class B shares of the Fund to be redeemed or
exchanged were (i) acquired prior to March 18, 1996 or (ii) were acquired by
exchange from an Oppenheimer fund that was a Former Connecticut Mutual Fund.
Additionally, the shares of such Former Connecticut Mutual Fund must have been
purchased prior to March 18, 1996: 1. by the estate of a deceased shareholder;
2. upon the disability of a shareholder, as defined in Section 72(m)(7) of
the Internal Revenue Code;
3. for retirement distributions (or loans) to participants or beneficiaries
from retirement plans qualified under Sections 401(a) or 403(b)(7)of the
Code, or from IRAs, deferred compensation plans created under Section
457 of the Code, or other employee benefit plans;
4. as tax-free returns of excess contributions to such retirement or
employee benefit plans;
5. in whole or in part, in connection with shares sold to any state,
county, or city, or any instrumentality, department, authority, or
agency thereof, that is prohibited by applicable investment laws from
paying a sales charge or commission in connection with the purchase of
shares of any registered investment management company;
6. in connection with the redemption of shares of the Fund due to a
combination with another investment company by virtue of a merger,
acquisition or similar reorganization transaction;
7. in connection with the Fund's right to involuntarily redeem or liquidate
the Fund;
8. in connection with automatic redemptions of Class A shares and Class B
shares in certain retirement plan accounts pursuant to an Automatic
Withdrawal Plan but limited to no more than 12% of the original value
annually; or
9. as involuntary redemptions of shares by operation of law, or under
procedures set forth in the Fund's Articles of Incorporation, or as
adopted by the Board of Directors of the Fund. ]
- -------------------------------------------------------------------------------
Special Reduced Sales Charge for Former Shareholders of Advance America
Funds, Inc.
- -------------------------------------------------------------------------------
Shareholders of Oppenheimer Municipal Bond Fund, Oppenheimer U.S.
Government Trust, Oppenheimer Strategic Income Fund and Oppenheimer Equity
Income Fund who acquired (and still hold) shares of those funds as a result of
the reorganization of series of Advance America Funds, Inc. into those
Oppenheimer funds on October 18, 1991, and who held shares of Advance America
Funds, Inc. on March 30, 1990, may purchase Class A shares of those four
Oppenheimer funds at a maximum sales charge rate of 4.50%.
<PAGE>
Appendix D
- -------------------------------------------------------------------------------
CFTC EXEMPTION FOR SWAP TRANSACTIONS
- -------------------------------------------------------------------------------
Section 35.2 Exemption
A swap agreement is exempt from all provisions of the Act and any person or
class of persons offering, entering into, rendering advice, or rendering other
services with respect to such agreement, is exempt for such activity from all
provisions of the Act (except in each case the provisions of Sections
2(a)(1)(B), 4b, and 4o of the Act and Section 32.9 of this chapter as adopted
under Section 4c(b) of the Act, and the provisions of Sections 6(c) and 9(a)(2)
of the Act to the extent these provisions prohibit manipulation of the market
price of any commodity in interstate commerce or for future delivery on or
subject to the rules of any contract market), provided the following terms and
conditions are met:
(a) the swap agreement is entered into solely between eligible swap
participants at the time such persons enter into the swap agreement;
(b) the swap agreement is not part of a fungible class of agreements that
are standardized as to their material economic terms;
(c) the creditworthiness of any party having an actual or potential
obligation under the swap agreement would be a material consideration in
entering into or determining the terms of the swap agreement, including pricing,
cost, or credit enhancement terms of the swap agreement; and
(d) the swap agreement is not entered into and traded on or through a
multilateral transaction execution facility; provided, however, that subsections
(b) and (d) of Rule 35.2 shall not be deemed to preclude arrangements or
facilities between parties to swap agreements, that provide for netting of
payment obligations resulting from such swap agreements nor shall these
subsections be deemed to preclude arrangements or facilities among parties to
swap agreements, that provide for netting of payments resulting from such swap
agreements; provided further, that any person may apply to the Commission for
exemption from any of the provisions of the Act (except 2(a)(1)(B)) for other
arrangements or facilities, on such terms and conditions as the Commission deems
appropriate, including but not limited thereto, the applicability of other
regulatory regimes.
<PAGE>
- -------------------------------------------------------------------------------
Oppenheimer Senior Floating Rate Fund
- -------------------------------------------------------------------------------
Internet Web Site:
www.oppenheimerfunds.com
Investment Adviser
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048-0203
Distributor
OppenheimerFunds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer Agent
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian Bank
New York, New York
Independent Auditors
Deloitte & Touche LLP
555 Seventeenth Street
Denver, Colorado 80202
Legal Counsel
Myer, Swanson, Adams & Wolf, P.C.
1600 Broadway
Denver, Colorado 80202
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
1. Financial Statements: Not applicable
2. Exhibits
(a) Declaration of Trust of Registrant.
(b) By-Laws of Registrant.
(c) Not Applicable.
(d) Articles Fourth, Fifth and Seventh of Registrant's Declaration
of Trust define the rights of holders of the securities being
registered hereby.
(e) Not Applicable.
(f) Not Applicable.
(g) Form of Investment Advisory Agreement between Registrant and
OppenheimerFunds, Inc.
(h) (1) Form of General Distributor's Agreement between
Registrant and OppenheimerFunds Distributors, Inc.*
(2) Form of Dealer Agreement of OppenheimerFunds Distributor,
Inc.: Filed with Post-Effective Amendment No. 14 of
Oppenheimer Main Street Funds, Inc. (Reg. No. 33-17850),
9/30/94, and incorporated herein by reference.
(3) Form of OppenheimerFunds Distributor, Inc. Broker
Agreement: Filed with Post-Effective Amendment No. 14 of
Oppenheimer Main Street Funds, Inc. (Reg. No. 33-17850),
9/30/94, and incorporated herein by reference.
(4) Form of OppenheimerFunds Distributor, Inc. Agency
Agreement: Filed with Post-Effective Amendment No. 14 of
Oppenheimer Main Street Funds, Inc. (Reg. No. 33-17850),
9/30/94, and incorporated herein by reference.
(i) Form of Deferred Compensation Plan for Disinterested Trustees: Filed
with Post-Effective Amendment No. 40 to the Registration
Statement of Oppenheimer High Yield Fund (Reg. No. 2-62076),
10/27/98, and incorporated herein by reference.
(j) Form of Custodian Agreement.*
(k) (1) Form of Service Plan for Class A shares.*
(2) Form of Distribution and Service Plan for Class B shares.*
(3) Form of Distribution and Service Plan for Class C shares*
(4) Form of Multiple Class Plan of Registrant.*
(l) (1) Opinion of Goodwin, Proctor & Hoar, special Massachusetts
counsel to Registrant, as to the legality of the Fund's
shares.*
(2) Opinion of Kramer Levin Naftalis & Frankel LLP,
counsel to Registrant, as to the legality of the Fund's
shares.*
(3) Consent of Kramer Levin Naftalis & Frankel LLP, special
counsel to Registrant.
(m) Not Applicable
(n) Independent Auditors' Consent.*
(o) Not Applicable.
(p) Subscription Agreement for Initial Capital.*
(q) Not Applicable.
*To be filed by amendment.
ITEM 25. MARKETING ARRANGEMENTS
See Form of General Distributor's Agreement to be filed by amendment as
Exhibit (h) to this Registration Statement.
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION*
Registration Fees........................... $
Printing and Engraving Expenses............. $
Legal Fees and Expenses..................... $
National Association of Securities Dealers, Inc. Fees $
Accounting Fees and Expenses................ $
Miscellaneous Expenses...................... $
Total
* To be completed by amendment.
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
Not Applicable.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
Not Applicable.
ITEM 29. INDEMNIFICATION
Reference is made to the provisions of Article Seven of Registrant's
Amended and Restated Declaration of Trust filed as Exhibit 2(a) to this
Registration Statement, and incorporated herein by reference.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to trustees, officers and controlling persons of
Registrant pursuant to the foregoing provisions or otherwise, Registrant has
been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
Registrant of expenses incurred or paid by a trustee, officer or controlling
person of Registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustee, officer or controlling person,
Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act of 1933 and will be governed
by the final adjudication of such issue.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
The description of the business of OppenheimerFunds, Inc. is set forth
under the caption "How the Fund is Managed" in the Prospectus and the
Statement of Additional Information forming part of this Registration
Statement.
The information as to the Directors and Officers of OppenheimerFunds,
Inc. set forth in OppenheimerFunds, Inc.'s Form ADV filed with the Securities
and Exchange Commission (File No. 801-825), as amended through the date
hereof, is incorporated herein by reference.
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS
1. Accounts and records of the Fund are maintained at (i) the Fund's office
at 6803 South Tucson Way, Englewood, Colorado 80112 and (ii) the offices of
OppenheimerFunds, Inc. at Two World Trade Center, New York, New York 10048.
2. OppenheimerFunds Services, P.O. Box 5270 Denver, Colorado 80217,
maintains all the required records in its capacity as transfer, dividend
paying and shareholder service agent of the Registrant.
ITEM 32. MANAGEMENT SERVICES
Not Applicable.
ITEM 33. UNDERTAKINGS
1. Not Applicable.
2. Not Applicable.
3. Not Applicable.
4. a. To file during any period in which offers or sales are being
made, a post-effective amendment to this registration statement: (i) to
include any prospectus required by Section 10(a)(3) of the Securities Act of
1933; (ii) to reflect in the Prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement; and (iii) to include any material information with
respect to the plan of distribution not previously disclosed in the
registration statement or any material change to such information in the
registration statement.
b. That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
c. To remove from registration by means of post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
5. Not Applicable.
6. The Registrant undertakes to send by first class mail or other
means designed to ensure equally prompt delivery, within two business days of
receipt of a written or oral request, any Statement of Additional Information.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, and State of New York, on
this 9th day of July, 1999.
OPPENHEIMER SENIOR FLOATING RATE FUND
By:
Bridget Macaskill
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated:
/s/ Bridget A. Macaskill President (Principal Executive July 9, 1999
Bridget A. Macaskill Officer
/s/ Brian Wixted Treasurer (Principal Financial July 9, 1999
Brian Wixted and Accounting Officer)
/s/ Andrew J. Donohue Trustee July 9, 1999
Andrew J. Donohue
/s/ Robert G. Zack Trustee July 9, 1999
Robert G. Zack
<PAGE>
OPPENHEIMER SENIOR FLOATING RATE FUND
EXHIBITS FILED
Exhibit No. Exhibit
2(a) Declaration of Trust
2(b) By-Laws
2(g) Form of Investment Advisory Agreement between Registrant and
OppenheimerFunds, Inc.
n1a\291\partc
FORM OF
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of the ___ day of September, 1999, by and between
Oppenheimer Senior Floating Rate Fund (the "Fund"), and OppenheimerFunds,
Inc. ("OFI").
WHEREAS, the Fund is a closed-end management investment company registered
as such with the Securities and Exchange Commission (the "Commission") pursuant
to the Investment Company Act of 1940 (the "Investment Company Act"), and OFI is
an investment adviser registered as such with the Commission under the
Investment Advisers Act of 1940;
WHEREAS, the Fund desires that OFI shall act as its investment adviser
pursuant to this Agreement;
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, it is agreed by and between the parties, as follows:
1. General Provision.
The Fund hereby employs OFI and OFI hereby undertakes to act as the
investment adviser of the Fund and to perform for the Fund such other duties and
functions as are hereinafter set forth. OFI shall, in all matters, give to the
Fund and its Board of Trustees the benefit of its best judgment, effort, advice
and recommendations and shall, at all times conform to, and use its best efforts
to enable the Fund to conform to (i) the provisions of the Investment Company
Act and any rules or regulations thereunder; (ii) any other applicable
provisions of state or federal law; (iii) the provisions of the Declaration of
Trust and By-Laws of the Fund as amended from time to time; (iv) policies and
determinations of the Board of Trustees of the Fund; (v) the fundamental
policies and investment restrictions of the Fund as reflected in its
registration statement under the Investment Company Act or as such policies may,
from time to time, be amended by the Fund's shareholders; and (vi) the
Prospectus and Statement of Additional Information of the Fund in effect from
time to time. The appropriate officers and employees of OFI shall be available
upon reasonable notice for consultation with any of the Trustees and officers of
the Fund with respect to any matters dealing with the business and affairs of
the Fund, including, without limitation the valuation of any of the Fund's
portfolio securities that are either not registered for public sale or not being
traded on any securities market.
2. Investment Management.
(a) OFI shall, subject to the direction and control by the Fund's Board of
Trustees, (i) regularly provide investment advice and recommendations to the
Fund with respect to its investments, investment policies and the purchase and
sale of securities; (ii) supervise continuously the investment program of the
Fund and the composition of its portfolio and determine what securities shall be
purchased or sold by the Fund; and (iii) arrange, subject to the provisions of
paragraph 7 hereof, for the purchase of securities and other investments for the
Fund and the sale of securities and other investments held in the portfolio of
the Fund.
(b) Provided that the Fund shall not be required to pay any compensation
other than as provided by the terms of this Agreement and subject to the
provisions of paragraph "7" hereof, OFI may obtain investment information,
research or assistance from any other person, firm or corporation to supplement,
update or otherwise improve its investment management services.
(c) Provided that nothing herein shall be deemed to protect OFI from
willful misfeasance, bad faith or gross negligence in the performance of its
duties, or reckless disregard of its obligations and duties under the Agreement,
OFI shall not be liable for any loss sustained by reason of good faith errors or
omissions in connection with any matters to which this Agreement relates.
(d) Nothing in this Agreement shall prevent OFI or any officer or
affiliate thereof from acting as investment adviser for any other person, firm,
fund, corporation or other entity and shall not in any way limit or restrict OFI
or any of its directors, officers, employees or affiliates from buying, selling
or trading any securities for its own account or for the account of others for
whom it or they may be acting, provided that such activities will not adversely
affect or otherwise impair the performance by OFI of its duties and obligations
under this Agreement and under the Investment Advisers Act of 1940.
3. Other Duties of OFI.
OFI shall, at its own expense, provide and supervise the activities of all
administrative and clerical personnel as shall be required to provide effective
corporate administration for the Fund, including the compilation and maintenance
of such records with respect to its operations as may reasonably be required;
the preparation and filing of such reports with respect thereto as shall be
required by the Commission, including, without limitation, notices pursuant to
Rule 23c-3 under the Investment Company Act; composition of periodic reports and
notices with respect to the Fund's operations for the shareholders of the Fund,
including, without limitation, notification of repurchase offers pursuant to
Rule 23c-3 under the Investment Company Act; composition of proxy materials for
meetings of the Fund's shareholders and the composition of such registration
statements as may be required by federal securities laws and notices required
under applicable state securities laws for continuous public sale of shares of
the Fund. OFI shall, at its own cost and expense, also provide the Fund with
adequate office space, facilities and equipment.
4. Allocation of Expenses.
All other costs and expenses not expressly assumed by OFI under this
Agreement, or to be paid by the General Distributor of the shares of the Fund,
shall be paid by the Fund, including, but not limited to (i) interest and taxes;
(ii) brokerage commissions; (iii) premiums for fidelity and other insurance
coverage requisite to its operations; (iv) the fees and expenses of its
Trustees; (v) legal and audit expenses; (vi) custodian and transfer agent fees
and expenses; (vii) expenses incident to the repurchase of its shares; (viii)
expenses incident to the issuance of its shares against payment therefor by or
on behalf of the subscribers thereto; (ix) fees and expenses, other than as
hereinabove provided, incident to the registration under federal securities laws
and notice filings or registration under state securities laws of shares of the
Fund for public sale; (x) expenses of printing and mailing reports, notices and
proxy materials to shareholders of the Fund; (xi) except as noted above, all
other expenses incidental to holding meetings of the Fund's shareholders; and
(xii) such extraordinary non-recurring expenses as may arise, including
litigation affecting the Fund and any obligation which the Fund may have to
indemnify its officers and Trustees with respect thereto. Any officers or
employees of OFI or any entity controlling, controlled by or under common
control with OFI, who may also serve as officers, Trustees or employees of the
Fund shall not receive any compensation from the Fund for their services.
5. Compensation of OFI.
The Fund agrees to pay OFI and OFI agrees to accept as full compensation
for the performance of all functions and duties on its part to be performed
pursuant to the provisions hereof, a fee computed on the aggregate net assets of
the Fund as of the close of each business day and payable monthly at the
following annual rates:
0.75% of the first $200 million of average net assets; 0.72% of
the next $200 million; 0.69% of the next $200 million; 0.66% of
the next $200 million; and 0.60% of average net assets over $800
million.
6. Use of Name "Oppenheimer."
OFI hereby grants to the Fund a royalty-free, non-exclusive license to use
the name "Oppenheimer" in the name of the Fund for the duration of this
Agreement and any extensions or renewals thereof. Such license may, upon
termination of this Agreement, be terminated by OFI, in which event the Fund
shall promptly take whatever action may be necessary to change its name and
discontinue any further use of the name "Oppenheimer" in the name of the Fund or
otherwise. The name "Oppenheimer" may be used or licensed by OFI in connection
with any of its activities or licensed by OFI to any other party.
7. Portfolio Transactions and Brokerage.
(a) OFI is authorized, in arranging the Fund's portfolio transactions, to
employ or deal with such members of securities or commodities exchanges, brokers
or dealers, including "affiliated" broker dealers (as that term is defined in
the Investment Company Act) (hereinafter all of the foregoing are referred to as
"broker-dealers"), as may, in its best judgment, implement the policy of the
Fund to obtain, at reasonable expense, the "best execution" (prompt and reliable
execution at the most favorable security price obtainable) of the Fund's
portfolio transactions as well as to obtain, consistent with the provisions of
subparagraph (c) of this paragraph 7, the benefit of such investment information
or research as may be of significant assistance to the performance by OFI of its
investment management functions.
(b) OFI shall select broker-dealers to effect the Fund's portfolio
transactions on the basis of its estimate of their ability to obtain best
execution of particular and related portfolio transactions. The abilities of a
broker-dealer to obtain best execution of particular portfolio transaction(s)
will be judged by OFI on the basis of all relevant factors and considerations
including, insofar as feasible, the execution capabilities required by the
transaction or transactions; the ability and willingness of the broker-dealer to
facilitate the Fund's portfolio transactions by participating therein for its
own account; the importance to the Fund of speed, efficiency or confidentiality;
the broker-dealer's apparent familiarity with sources from or to whom particular
securities might be purchased or sold; as well as any other matters relevant to
the selection of a broker-dealer for particular and related transactions of the
Fund.
(c) OFI shall have discretion, in the interests of the Fund, to allocate
brokerage on the Fund's portfolio transactions to broker-dealers other than
affiliated broker-dealers, qualified to obtain best execution of such
transactions who provide brokerage and/or research services (as such services
are defined in Section 23(e)(3) of the Securities Exchange Act of 1934) for the
Fund and/or other accounts for which OFI and its affiliates exercise "investment
discretion" (as that term is defined in Section 3(a)(35) of the Securities
Exchange Act of 1934) and to cause the Fund to pay such broker-dealers a
commission for effecting a portfolio transaction for the Fund that is in excess
of the amount of commission another broker-dealer adequately qualified to effect
such transaction would have charged for effecting that transaction, if OFI
determines, in good faith, that such commission is reasonable in relation to the
value of the brokerage and/or research services provided by such broker-dealer,
viewed in terms of either that particular transaction or the overall
responsibilities of OFI and its investment advisory affiliates with respect to
the accounts as to which they exercise investment discretion. In reaching such
determination, OFI will not be required to place or attempt to place a specific
dollar value on the brokerage and/or research services provided or being
provided by such broker-dealer. In demonstrating that such determinations were
made in good faith, OFI shall be prepared to show that all commissions were
allocated for the purposes contemplated by this Agreement and that the total
commissions paid by the Fund over a representative period selected by the Fund's
trustees were reasonable in relation to the benefits to the Fund.
(d) OFI shall have no duty or obligation to seek advance competitive
bidding for the most favorable commission rate applicable to any particular
portfolio transactions or to select any broker-dealer on the basis of its
purported or "posted" commission rate but will, to the best of its ability,
endeavor to be aware of the current level of the charges of eligible
broker-dealers and to minimize the expense incurred by the Fund for effecting
its portfolio transactions to the extent consistent with the interests and
policies of the Fund as established by the determinations of its Board of
Trustees and the provisions of this paragraph 7.
(e) The Fund recognizes that an affiliated broker-dealer (i) may act as
one of the Fund's regular brokers so long as it is lawful for it so to act; (ii)
may be a major recipient of brokerage commissions paid by the Fund; and (iii)
may effect portfolio transactions for the Fund only if the commissions, fees or
other remuneration received or to be received by it are determined in accordance
with procedures contemplated by any rule, regulation or order adopted under the
Investment Company Act for determining the permissible level of such
commissions.
(f) Subject to the foregoing provisions of this paragraph 7, OFI may also
consider sales of Fund shares and shares of other investment companies managed
by OFI or its affiliates as a factor in the selection of broker-dealers for the
Fund's portfolio transactions.
8. Duration.
This Agreement will take effect on the date first set forth above. Unless
earlier terminated pursuant to paragraph 9 hereof, this Agreement shall remain
in effect until two years from the date of execution hereof, and thereafter will
continue in effect from year to year, so long as such continuance shall be
approved at least annually by the Fund's Board of Trustees, including the vote
of the majority of the trustees of the Fund who are not parties to this
Agreement or "interested persons" (as defined in the Investment Company Act) of
any such party, cast in person at a meeting called for the purpose of voting on
such approval, or by the holders of a "majority" (as defined in the Investment
Company Act) of the outstanding voting securities of the Fund and by such a vote
of the Fund's Board of Trustees.
9. Termination.
This Agreement may be terminated (i) by OFI at any time without penalty
upon giving the Fund sixty days' written notice (which notice may be waived by
the Fund); or (ii) by the Fund at any time without penalty upon sixty days'
written notice to OFI (which notice may be waived by OFI) provided that such
termination by the Fund shall be directed or approved by the vote of a majority
of all of the Trustees of the Fund then in office or by the vote of the holders
of a "majority" (as defined in the Investment Company Act) of the outstanding
voting securities of the Fund.
10. Assignment or Amendment.
This Agreement may not be amended without the affirmative vote or written
consent of the holders of a "majority" (as defined in the Investment Company
Act) of the outstanding voting securities of the Fund, and shall automatically
and immediately terminate in the event of its "assignment," as defined in the
Investment Company Act.
11. Disclaimer of Shareholder Liability.
OFI understands that the obligations of the Fund under this Agreement are
not binding upon any Trustee or shareholder of the Fund personally, but bind
only the Fund and the Fund's property. OFI represents that it has notice of the
provisions of the Declaration of Trust of the Fund disclaiming shareholder
liability for acts or obligations of the Fund.
12. Definitions.
The terms and provisions of this Agreement shall be interpreted and
defined in a manner consistent with the provisions and definitions of the
Investment Company Act.
Oppenheimer Senior Floating Rate Fund
By: /s/ Andrew J. Donohue
---------------------
Andrew J. Donohue
Vice President & Secretary
OppenheimerFunds, Inc.
By: /s/ Robert G. Zack
------------------
Robert G. Zack
Senior Vice President
n1a\291\advisoryagreement
DECLARATION OF TRUST
OF
OPPENHEIMER SENIOR FLOATING RATE FUND
This DECLARATION OF TRUST, made this 27th day of May, 1999, by and among
the individuals executing this Declaration of Trust as the Trustees.
WHEREAS, the Trustees wish to establish a trust fund under the laws of
the Commonwealth of Massachusetts, for the investment and reinvestment of
funds contributed thereto;
NOW, THEREFORE, the Trustees declare that all money and property
contributed to the trust fund thereunder shall be held and managed under this
Declaration of Trust in trust as herein set forth below.
FIRST: This Trust shall be known as OPPENHEIMER SENIOR FLOATING RATE
FUND. The address of Oppenheimer Senior Floating Rate Fund is Two World
Trade Center, New York, NY 10048. The Registered Agent for Service is
Massachusetts Mutual Life Insurance Company, 1295 State Street, Springfield,
Massachusetts 01111, Attention: Stephen Kuhn, Esq.
SECOND: Whenever used herein, unless otherwise required by the context
or specifically provided:
1. All terms used in this Declaration of Trust that are defined in the
1940 Act (defined below) shall have the meanings given to them in the 1940
Act.
2. "Board" or "Board of Trustees" or the "Trustees" means the Board of
Trustees of the Trust.
3. "By-Laws" means the By-Laws of the Trust as amended from time to
time.
4. "Class" means a class of a series of shares of the Trust
established and designated under or in accordance with the provisions of
Article FOURTH.
5. "Commission" means the Securities and Exchange Commission.
6. "Declaration of Trust" shall mean this Declaration of Trust as it
may be amended or restated from time to time.
7. The "1940 Act" refers to the Investment Company Act of 1940 and the
Rules and Regulations of the Commission thereunder, all as amended from time
to time.
8. "Series" refers to series of shares of the Trust established and
designated under or in accordance with the provisions of Article FOURTH.
9. "Shareholder" means a record owner of Shares of the Trust.
10. "Shares" refers to the transferable units of interest into which
the beneficial interest in the Trust or any Series or Class of the Trust (as
the context may require) shall be divided from time to time and includes
fractions of Shares as well as whole Shares.
11. The "Trust" refers to the Massachusetts business trust created by
this Declaration of Trust, as amended or restated from time to time.
12. "Trustees" refers to the individual trustees in their capacity as
trustees hereunder of the Trust and their successor or successors for the
time being in office as such trustees.
THIRD: The purpose or purposes for which the Trust is formed and the
business or objects to be transacted, carried on and promoted by it are as
follows:
1. To hold, invest or reinvest its funds, and in connection therewith
to hold part or all of its funds in cash, and to purchase or otherwise
acquire, hold for investment or otherwise, sell, sell short, assign,
negotiate, transfer, exchange or otherwise dispose of or turn to account or
realize upon, securities (which term "securities" shall for the purposes of
this Declaration of Trust, without limitation of the generality thereof, be
deemed to include any stocks, shares, bonds, financial futures contracts,
indexes, debentures, notes, mortgages or other obligations, and any
certificates, receipts, warrants or other instruments representing rights to
receive, purchase or subscribe for the same, or evidencing or representing
any other rights or interests therein, or in any property or assets) created
or issued by any issuer (which term "issuer" shall for the purposes of this
Declaration of Trust, without limitation of the generality thereof, be deemed
to include any persons, firms, associations, corporations, syndicates,
business trusts, partnerships, investment companies, combinations,
organizations, governments, or subdivisions thereof) and in financial
instruments (whether they are considered as securities or commodities); and
to exercise, as owner or holder of any securities or financial instruments,
all rights, powers and privileges in respect thereof; and to do any and all
acts and things for the preservation, protection, improvement and enhancement
in value of any or all such securities or financial instruments.
2. To borrow money and pledge assets in connection with any of the
objects or purposes of the Trust, and to issue notes or other obligations
evidencing such borrowings, to the extent permitted by the 1940 Act and by
the Trust's fundamental investment policies under the 1940 Act.
3. To issue and sell its Shares in such Series and Classes and amounts
and on such terms and conditions, for such purposes and for such amount or
kind of consideration (including without limitation thereto, securities) now
or hereafter permitted by the laws of the Commonwealth of Massachusetts and
by this Declaration of Trust, as the Trustees may determine.
4. To purchase or otherwise acquire, hold, dispose of, resell,
transfer, reissue, redeem or cancel its Shares, or to classify or reclassify
any unissued Shares or any Shares previously issued and reacquired of any
Series or Class into one or more Series or Classes that may have been
established and designated from time to time, all without the vote or consent
of the Shareholders of the Trust, in any manner and to the extent now or
hereafter permitted by this Declaration of Trust.
5. To conduct its business in all its branches at one or more offices
in New York, Colorado and elsewhere in any part of the world, without
restriction or limit as to extent.
6. To carry out all or any of the foregoing objects and purposes as
principal or agent, and alone or with associates or to the extent now or
hereafter permitted by the laws of Massachusetts, as a member of, or as the
owner or holder of any stock of, or share of interest in, any issuer, and in
connection therewith or make or enter into such deeds or contracts with any
issuers and to do such acts and things and to exercise such powers, as a
natural person could lawfully make, enter into, do or exercise.
7. To do any and all such further acts and things and to exercise any
and all such further powers as may be necessary, incidental, relative,
conducive, appropriate or desirable for the accomplishment, carrying out or
attainment of all or any of the foregoing purposes or objects.
The foregoing objects and purposes shall, except as otherwise
expressly provided, be in no way limited or restricted by reference to, or
inference from, the terms of any other clause of this or any other Article of
this Declaration of Trust, and shall each be regarded as independent and
construed as powers as well as objects and purposes, and the enumeration of
specific purposes, objects and powers shall not be construed to limit or
restrict in any manner the meaning of general terms or the general powers of
the Trust now or hereafter conferred by the laws of the Commonwealth of
Massachusetts nor shall the expression of one thing be deemed to exclude
another, though it be of at similar or dissimilar nature, not expressed;
provided, however, that the Trust shall not carry on any business, or
exercise any powers, in any state, territory, district or country except to
the extent that the same may lawfully be carried on or exercised under the
laws thereof.
FOURTH:
1. The beneficial interest in the Trust shall be divided into Shares,
all with par value of $0.001 per share, but the Trustees shall have the
authority from time to time, without obtaining shareholder approval, to
create one or more Series of Shares in addition to the Series specifically
established and designated in part 3 of this Article FOURTH, and to divide
the shares of any Series into three or more Classes pursuant to part 2 of
this Article FOURTH, all as they deem necessary or desirable, to establish
and designate such Series and Classes, and to fix and determine the relative
rights and preferences as between the different Series of Shares or Classes
as to right of redemption and the price, terms and manner of redemption,
liabilities and expenses to be borne by any Series or Class, special and
relative rights as to dividends and other distributions and on liquidation,
sinking or purchase fund provisions, conversion on liquidation, conversion
rights, and conditions under which the several Series or Classes shall have
individual voting rights or no voting rights. Except as aforesaid, all Shares
of the different Series shall be identical.
(a) The number of authorized Shares and the number of Shares of
each Series and each Class of a Series that may be issued is unlimited, and
the Trustees may issue Shares of any Series or Class of any Series for such
consideration and on such terms as they may determine (or for no
consideration if pursuant to a Share dividend or split-up), all without
action (or approval of the Shareholders. All Shares when so issued on the
terms determined by the Trustees shall be fully paid and non-assessable. The
Trustees may classify or reclassify any unissued Shares or any Shares
previously issued and reacquired of any Series into one or more Series or
Classes of Series that may be established and designated from time to time.
The Trustees may hold as treasury Shares (of the same or some other Series),
reissue for such consideration and on such terms as they may determine, or
cancel, at their discretion from time to time, any Shares of any Series
reacquired by the Trust.
(b) The establishment and designation of any Series or any Class
of any Series in addition to that established and designated in part 3 of
this Article FOURTH shall be effective upon the execution by a majority of
the Trustees of an instrument setting forth such establishment and
designation and the relative rights and preferences of such Series or such
Class of such Series or as otherwise provided in such instrument. At any time
that there are no Shares outstanding of any particular Class or Series
previously established and designated, the Trustees may by an instrument
executed by a majority of their number abolish that Class or Series and the
establishment and designation thereof. Each instrument referred to in this
paragraph shall be an amendment to this Declaration of Trust, and the
Trustees may make any such amendment without shareholder approval.
(c) Any Trustee, officer or other agent of the Trust, and any
organization in which any such person is interested may acquire, own, hold
and dispose of Shares of any Series or Class of any Series of the Trust to
the same extent as if such person were not a Trustee, officer or other agent
of the Trust; and the Trust may issue and sell or cause to be issued and sold
and may purchase Shares of any Series or Class of any Series from any such
person or organization; such organization subject only to the general
limitations, restrictions or other provisions applicable to the sale or
purchase of Shares of such Series or Class generally.
2. The Trustees shall have the authority from time to time, without
obtaining shareholder approval, to divide the Shares of any Series such Class
or Classes as they deem necessary or desirable, and to establish and
designate such Classes. In such event, each Class of a Series shall represent
interests in the designated Series of the Trust and have such voting,
dividend, liquidation and other rights as may be established and designated
by the Trustees. Expenses and liabilities related directly or indirectly to
the Shares of a Class of a Series may be borne solely by such Class (as shall
be determined by the Trustees) and, as provided in Article FIFTH, a Class of
a Series may have exclusive voting rights with respect to matters relating
solely to such Class. The bearing of expenses and liabilities solely by a
Class of Shares of a Series shall be appropriately reflected (in the manner
determined by the Trustees) in the net asset value, dividend and liquidation
rights of the Shares of such Class of a Series. The division of the Shares
of a Series into Classes and the terms and conditions pursuant to which the
Shares of the Classes of a Series will be issued must be made in compliance
with the 1940 Act. No division of Shares of a Series into Classes shall
result in the creation of a Class of Shares having a preference as to
dividends or distributions or a preference in the event of any liquidation,
termination or winding up of the Trust, to the extent such a preference is
prohibited by Section 18 of the 1940 Act as to the Trust.
The relative rights and preferences of Class A shares, Class B shares
and Class C shares shall be the same in all respects except that, and unless
and until the Board of Trustees shall determine otherwise: (i) when a vote
of Shareholders is required under this Declaration of Trust or when a meeting
of Shareholders is called by the Board of Trustees, the Shares of a Class
shall vote exclusively on matters that affect that Class only; (ii) the
expenses and liabilities related to a Class shall be borne solely by such
Class (as determined and allocated to such Class by the Trustees from time to
time in a manner consistent with parts 2 and 3 of Article FOURTH); and (iii)
pursuant to paragraph 10 of Article NINTH, the Shares of each Class shall
have such other rights and preferences as are set forth from time to time in
the then effective prospectus and/or statement of additional information
relating to the Shares. Dividends and distributions on any one Class of
shares may differ from the dividends and distributions on any other Class,
and the net asset value of any one Class of shares may differ from the net
asset value of any other such Class.
3. Without limiting the authority of the Trustees set forth in part 1
of this Article FOURTH to establish and designate any further Series, the
Trustees hereby establish one Series of Shares having the same name as the
Trust, and said Shares shall be divided into three Classes, which shall be
designated Class A, Class B and Class C. The Shares of that Series and any
Shares of any further Series or Classes that may from time to time be
established and designated by the Trustees shall (unless the Trustees
otherwise determine with respect to some further Series or Classes at the
time of establishing and designating the same) have the following relative
rights and preferences:
(a) Assets Belonging to Series and Classes. All consideration
received by the Trust for the issue or sale of Shares of a particular Series
or any Class thereof, together with all assets in which such consideration is
invested or reinvested, all income, earnings, profits, and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation of such
assets, and any funds or payments derived from any reinvestment of such
proceeds in whatever form the same may be, shall irrevocably belong to that
Series or Class thereof for all purposes, subject only to the rights of
creditors, and shall be so recorded upon the books of account of the Trust.
Such consideration, assets, income, earnings, profits, and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation of such
assets, and any funds or payments derived from any reinvestment of such
proceeds, in whatever form the same may be, together with any General Items
allocated to that Series or Class as provided in the following sentence, are
herein referred to as "assets belonging to" that Series or Class and are
allocable to such Series or Class thereof. In the event that there are any
assets, income, earnings, profits, and proceeds thereof, funds, or payments
which are not readily identifiable as belonging to any particular Series or
Class (collectively "General Items"), the Trustees shall allocate such
General Items to and among any one or more of the Series or Classes
established and designated from time to time in such manner and on such basis
as they, in their sole discretion, deem fair and equitable; and any General
Items so allocated to a particular Series or Class shall belong to that
Series or Class. Each such allocation by the Trustees shall be conclusive and
binding upon the shareholders of all Series and Classes for all purposes.
(b) (1) Liabilities Belonging to Series. The liabilities,
expenses, costs, charges and reserves attributable to each Series shall be
charged and allocated to the assets belonging to each particular Series. Any
general liabilities, expenses, costs, charges and reserves of the Trust which
are not identifiable as belonging to any particular Series shall be allocated
and charged by the Trustees to and among any one or more of the Series
established and designated from time to time in such manner and on such basis
as the Trustees in their sole discretion deem fair and equitable. The
liabilities, expenses, costs, charges and reserves allocated and so charged
to each Series are herein referred to as "liabilities belonging to" that
Series. Each allocation of liabilities, expenses, costs, charges and reserves
by the Trustees shall be conclusive and binding upon the shareholders of all
Series for all purposes.
(2) Liabilities Belonging to a Class. If a Series is divided
into more than one Class, the liabilities, expenses, costs, charges and
reserves attributable to a Class shall be charged and allocated to the Class
to which such liabilities, expenses, costs, charges or reserves are
attributable. Any general liabilities, expenses, costs, charges or reserves
belonging to the Series that are not identifiable as belonging to any
particular Class shall be allocated and charged
by the Trustees to and among any one or more of the Classes of that Series
established and designated from time to time in such manner and on such basis
as the Trustees in their sole discretion deem fair and equitable. The
liabilities, expenses, costs, charges and reserves allocated and so charged
to each Class are herein referred to as "liabilities belonging to" that
Class. Each allocation of liabilities, expenses, costs, charges and reserves
by the Trustees shall be conclusive and binding upon the holders of all
Classes for all purposes.
(c) Dividends. Dividends and distributions on Shares of a
particular Series or Class may be paid to the holders of Shares of that
Series or Class, with such frequency as the Trustees may determine, which may
be daily or otherwise pursuant to a standing resolution or resolutions
adopted only once or with such frequency as the Trustees may determine, from
such of the income, capital gains accrued or realized, and capital and
surplus, from the assets belonging to that Series, as the Trustees may
determine, after providing for actual and accrued liabilities belonging to
such Series or Class. All dividends and distributions on Shares of a
particular Series or Class shall be distributed pro rata to the Shareholders
of such Series or Class in proportion to the number of Shares of such Series
or Class held by such Shareholders at the date and time of record established
for the payment of such dividends or distributions, except that in connection
with any dividend or distribution program or procedure the Trustees may
determine that no dividend or distribution shall be payable on Shares as to
which the Shareholder's purchase order and/or payment have not been received
by the time or times established by the Trustees under such program or
procedure. Such dividends and distributions may be made in cash or Shares or
a combination thereof as determined by the Trustees or pursuant to any
program that the Trustees may have in effect at the time for the election by
each Shareholder of the mode of the making of such dividend or distribution
to that Shareholder. Any such dividend or distribution paid in Shares will be
paid at the net asset value thereof as determined in accordance with
paragraph 13 of Article SEVENTH.
(d) Liquidation. In the event of the liquidation or dissolution
of the Trust, the Shareholders of each Series and all Classes of each Series
that have been established and designated shall be entitled to receive, as a
Series or Class, when and as declared by the Trustees, the excess of the
assets belonging to that Series over the liabilities belonging to that Series
or Class. The assets so distributable to the Shareholders of any particular
Class and Series shall be distributed among such Shareholders in proportion
to the number of Shares of such Class of that Series held by them and
recorded on the books of the Trust.
(e) Transfer. All Shares of each particular Series or Class shall
be transferable, but transfers of Shares of a particular Class and Series
will be recorded on the Share transfer records of the Trust applicable to
such Series or Class of that Series only at such times as Shareholders shall
have the right to require the Trust to redeem Shares of such Series or Class
of that Series and at such other times as may be permitted by the Trustees.
(f) Equality. Each Share of a Series shall represent an equal
proportionate interest in the assets belonging to that Series (subject to the
liabilities belonging to such Series or any Class of that Series), and each
Share of any particular Series shall be equal to each other Share of that
Series and shares of each Class of a Series shall be equal to each other
Share of such Class; but the provisions of this sentence shall not restrict
any distinctions permissible under this Article FOURTH that may exist with
respect to Shares of the different Classes of a Series. The Trustees may from
time to time divide or combine the Shares of any particular Class or Series
into a greater or lesser number of Shares of that Class or Series without
thereby changing the proportionate beneficial interest in the assets
belonging to that Series or allocable to that Class in any way affecting the
rights of Shares of any other Class or Series.
(g) Fractions. Any fractional Share of any Class and Series, if
any such fractional Share is outstanding, shall carry proportionately all the
rights and obligations of a whole Share of that Class and Series, including
those rights and obligations with respect to voting, receipt of dividends and
distributions, redemption of Shares, and liquidation of the Trust.
(h) Conversion Rights. Subject to compliance with the
requirements of the 1940 Act, the Trustees shall have the authority to
provide that (i) holders of Shares of any Series shall have the right to
exchange said Shares into Shares of one or more other Series of Shares, (ii)
holders of Shares of any Class shall have the right to exchange said Shares
into Shares of one or more other Classes of the same or a different Series,
and/or (iii) the Trust shall have the right to carry out exchanges of the
aforesaid kind, in each case in accordance with such requirements and
procedures as may be established by the Trustees.
(i) Ownership of Shares. The ownership of Shares shall be
recorded on the books of the Trust or of a transfer or similar agent for the
Trust, which books shall be maintained separately for the Shares of each
Class and Series that has been established and designated. No certification
certifying the ownership of Shares need be issued except as the Trustees may
otherwise determine from time to time. The Trustees may make such rules as
they consider appropriate for the issuance of Share certificates, the use of
facsimile signatures, the transfer of Shares and similar matters. The record
books of the Trust as kept by the Trust or any transfer or similar agent, as
the case may be, shall be conclusive as to who are the Shareholders and as to
the number of Shares of each Class and Series held from time to time by each
such Shareholder.
(j) Investments in the Trust. The Trustees may accept investments
in the Trust from such persons and on such terms and for such consideration,
not inconsistent with the provisions of the 1940 Act, as they from time to
time authorize. The Trustees may authorize any distributor, principal
underwriter, custodian, transfer agent or other person to accept orders for
the purchase or sale of Shares that conform to such authorized terms and to
reject any purchase or sale orders for Shares whether or not conforming to
such authorized terms.
(k) Status of Shares and Limitation of Personal Liability. Shares
shall be deemed to be personal property giving only the rights provided in
this instrument. Every Shareholder by virtue of having become a Shareholder
shall be held to have expressly assented and agreed to the terms hereof and
to have become a party hereto. The death of a Shareholder during the
continuance of the Trust shall not operate to terminate the Trust nor entitle
the representative of any deceased Shareholder to an accounting or to take
any action in court or elsewhere against the Trust or the Trustees, but only
to the rights of said decedent under this Trust. Ownership of Shares shall
not entitle the Shareholder to any title in or to the whole or any part of
the Trust property or right to call for a partition or division of the same
or for an accounting, nor shall the ownership of Shares constitute the
Shareholders partners. Neither the Trust nor the Trustees, nor any officer,
employee or agent of the Trust shall have any power to bind personally any
Shareholder, nor except as specifically provided herein to call upon any
Shareholder for the payment of any sum of money or assessment whatsoever
other than such as the Shareholder may at any time personally agree to pay.
FIFTH: The following, provisions are hereby adopted with respect to
voting Shares of the Trust and certain other rights:
1. The Shareholders shall have the power to vote (a) for the election
of Trustees when that issue is submitted to them, (b) with respect to the
amendment of this Declaration of Trust except where the Trustees are given
authority to amend the Declaration of Trust without shareholder approval, (c)
to the same extent as the shareholders of a Massachusetts business
corporation, as to whether or not a court action, proceeding or claim should
be brought or maintained derivatively or as a class action on behalf of the
Trust or the Shareholders, and (d) with respect to those matters relating to
the Trust as may be required by the 1940 Act or required by law, by this
Declaration of Trust, or the By-Laws of the Trust or any registration
statement of the Trust filed with the Commission or any State, or as the
Trustees may consider desirable.
2. The Trust will not hold shareholder meetings unless required by the
1940 Act, the provisions of this Declaration of Trust, or any other
applicable law. The Trustees may call a meeting of shareholders from time to
time.
3. Except as herein otherwise provided, at all meetings of
Shareholders, each Shareholder shall be entitled to one vote on each matter
submitted to a vote of the Shareholders of the affected Series for each Share
standing in his name on the books of the Trust on the date, fixed in
accordance with the By-Laws, for determination of Shareholders of the
affected Series entitled to vote at such meeting (except, if the Board so
determines, for Shares redeemed prior to the meeting), and each such Series
shall vote separately ("Individual Series Voting"); a Series shall be deemed
to be affected when a vote of the holders of that Series on a matter is
required by the 1940 Act; provided, however, that as to any matter with
respect to which a vote of Shareholders is required by the 1940 Act or by any
applicable law that must be complied with, such requirements as to a vote by
Shareholders shall apply in lieu of Individual Series Voting as described
above. If the Shares of a Series shall be divided into Classes as provided in
Article FOURTH, the Shares of each Class shall have identical voting rights
except that the Trustees, in their discretion, may provide a Class of a
Series with exclusive voting rights with respect to matters which relate
solely to such Classes. If the Shares of any Series shall be divided into
Classes with a Class having exclusive voting rights with respect to certain
matters, the quorum and voting requirements described below with respect to
action to be taken by the Shareholders of the Class of such Series on such
matters shall be applicable only to the Shares of such Class. Any fractional
Share shall carry proportionately all the rights of a whole Share, including
the right to vote and the right to receive dividends. The presence in person
or by proxy of the holders of one-third of the Shares, or of the Shares of
any Series or Class of any Series, outstanding and entitled to vote thereat
shall constitute a quorum at any meeting of the Shareholders or of that
Series or Class, respectively; provided however, that if any action to be
taken by the Shareholders or by a Series or Class at a meeting requires an
affirmative vote of a majority, or more than a majority, of the shares
outstanding and entitled to vote, then in such event the presence in person
or by proxy of the holders of a majority of the shares outstanding and
entitled to vote at such a meeting shall constitute a quorum for all
purposes. At a meeting at which is a quorum is present, a vote of a majority
of the quorum shall be sufficient to transact all business at the meeting,
except as otherwise provided in Article NINTH and except that a plurality
shall elect a Trustee. If at any meeting of the Shareholders there shall be
less than a quorum present, the Shareholders or the Trustees present at such
meeting may, without further notice, adjourn the same from time to time until
a quorum shall attend, but no business shall be transacted at any such
adjourned meeting except such as might have been lawfully transacted had the
meeting not been adjourned. Proxies may be given by or on behalf of a
Shareholder orally or in writing or pursuant to any electronic, telephonic,
or mechanical data gathering process. A proxy with respect to Shares held in
the name of two or more persons shall be valid if executed by any of them
unless at or prior to exercise of the proxy and the Trust receives a specific
written notice to the contrary from any of them. A proxy purporting to be
executed by or on behalf of a shareholder shall be deemed valid unless
challenged at or prior to its exercise and the burden of proving invalidity
shall rest on the challenger. Until Shares are issued, the Trustees may
exercise all rights of Shareholders and may take any action required by law,
this Declaration of Trust or the By-Laws to be taken by Shareholders.
4. Each Share of each Series or Class thereof that has been
established and designated is subject to redemption or repurchase by the
Trust upon such terms and conditions as may from time to time be determined
by the Trustees and set forth in the then current Prospectus of the Trust.
Upon such redemption by the holders of the Shares so redeemed shall have no
further right with respect thereto other than to receive payment of such
redemption price. The method of computing net asset value, the time at which
such net asset value shall be computed and the time within which the Trust
shall make payment therefor, shall be determined as hereinafter provided in
Article SEVENTH of this Declaration of Trust. Notwithstanding the foregoing,
the Trustees, when permitted or required to do so by the 1940 Act, may
suspend the right of the Shareholders to require the Trust to repurchase
Shares.
5. No Shareholder shall, as such holder, have any right to purchase or
subscribe for any Shares of the Trust which it may issue or sell, other than
such right, if any, as the Trustees, in their discretion, may determine.
6. All persons who shall acquire Shares shall acquire the same subject
to the provisions of the Declaration of Trust.
7. Cumulative voting for the election of Trustees shall not be allowed.
SIXTH:
1. The persons who shall act as initial Trustees until the first
meeting or until their successors are duly chosen and qualify are the initial
trustees executing this Declaration of Trust or any counterpart thereof.
However, the By-Laws of the Trust may fix the number of Trustees at a number
greater or lesser than the number of initial Trustees and may authorize the
Trustees to increase or decrease the number of Trustees, to fill any
vacancies on the Board which may occur for any reason including any vacancies
created by any such increase in the number of Trustees, to set and alter the
terms of office of the Trustees and to lengthen or lessen their own terms of
office or make their terms of office of indefinite duration, all subject to
the 1940 Act. Unless otherwise provided by the By-Laws of the Trust, the
Trustees need not be Shareholders.
2. A Trustee at any time may be removed either with or without cause
by resolution duly adopted by the affirmative vote of the holders of
two-thirds of the outstanding Shares, present in person or by proxy at any
meeting of Shareholders called for such purpose; such a meeting shall be
called by the Trustees when requested in writing to do so by the record
holders of not less than ten per centum of the outstanding Shares. A Trustee
may also be removed by the Board of Trustees as provided in the By-Laws of
the Trust.
3. The Trustees shall make available a list of names and addresses of
all Shareholders as recorded on the books of the Trust, upon receipt of the
request in writing signed by not less than ten Shareholders (who have been
shareholders for at least six months) holding in the aggregate shares of the
Trust valued at not less than $25,000 at current offering price (as defined
in the then effective Prospectus and/or Statement of Additional Information
relating to the Shares under the Securities Act of 1933, as amended from time
to time) or holding not less than 1% in amount of the entire amount of Shares
issued and outstanding; such request must state that such Shareholders wish
to communicate with other Shareholders with a view to obtaining signatures to
a request for a meeting to take action pursuant to part 2 of this Article
SIXTH and be accompanied by a form of communication to the Shareholders. The
Trustees may, in their discretion, satisfy their obligation under this part 3
by either making available the Shareholder list to such Shareholders at the
principal offices of the Trust, or at the offices of the Trust's transfer
agent, during regular business hours, or by mailing a copy of such
communication and form of request, at the expense of such requesting
Shareholders, to all other Shareholders, and the Trustees may also take such
other action as may be permitted under Section 16(c) of the 1940 Act.
4. The Trust may at any time or from time to time apply to the
Commission for one or more exemptions from all or part of said Section 16(c)
of the 1940 Act, and, if an exemptive order or orders are issued by the
Commission, such order or orders shall be deemed part of said Section 16(c)
for the purposes of parts 2 and 3 of this Article SIXTH.
SEVENTH: The following provisions are hereby adopted for the purpose of
defining, limiting and regulating the powers of the Trust, the Trustees and
the Shareholders.
1. As soon as any Trustee is duly elected by the Shareholders or the
Trustees and shall have accepted this Trust, the Trust estate shall vest in
the new Trustee or Trustees, together with the continuing Trustees, without
any further act or conveyance, and he or she shall be deemed a Trustee
hereunder.
2. The death, declination, resignation, retirement, removal, or
incapacity of the Trustees, or any one of them, shall not operate to annul or
terminate the Trust but the Trust shall continue in full force and effect
pursuant to the terms of this Declaration of Trust.
3. The assets of the Trust shall be held separate and apart from any
assets now or hereafter held in any capacity other than as Trustee hereunder
by the Trustees or any successor Trustees. All of the assets of the Trust
shall at all times be considered as vested in the Trustees. No Shareholder
shall have, as a holder of beneficial interest in the Trust, any authority,
power or right whatsoever to transact business for or on behalf of the Trust,
or on behalf of the Trustees, in connection with the property or assets of
the Trust, or in any part thereof.
4. The Trustees in all instances shall act as principals, and are and
shall be free from the control of the Shareholders. The Trustees shall have
full power and authority to do any and all acts and to make and execute, and
to authorize the officers and agents of the Trust to make and execute, any
and all contracts and instruments that they may consider necessary or
appropriate in connection with the management of the Trust. The Trustees
shall not in any way be bound or limited by present or future laws or customs
in regard to Trust investments, but shall have full authority and power to
make any and all investments which they, in their uncontrolled discretion,
shall deem proper to accomplish the purpose of this Trust. Subject to any
applicable limitation in this Declaration of Trust or by the By-Laws of the
Trust, the Trustees shall have power and authority:
(a) to adopt By-Laws not inconsistent with this Declaration of
Trust providing for the conduct of the business of the Trust and to amend and
repeal them to the extent that they do not reserve that right to the
Shareholders;
(b) to elect and remove such officers and appoint and terminate
such officers as they consider appropriate with or without cause, and to
appoint and designate from among the Trustees such committees as the Trustees
may determine, and to terminate any such committee and remove any member of
such committee;
(c) to employ as custodian of any assets of the Trust a bank or
trust company or any other entity qualified and eligible to act as a
custodian, subject to any conditions set forth in this Declaration of Trust
or in the By-Laws;
(d) to retain a transfer agent and shareholder servicing agent, or
both;
(e) to provide for the distribution of Shares either through a
principal underwriter or the Trust itself or both;
(f) to set record dates in the manner provided for in the By-Laws
of the Trust;
(g) to delegate such authority as they consider desirable to any
officer of the Trust and to any agent, custodian or underwriter;
(h) to vote or give assent, or exercise any rights of ownership,
with respect to stock or other securities or property held in Trust
hereunder; and to execute and deliver powers of attorney to such person or
persons as the Trustees shall deem proper, granting to such person or persons
such power and discretion with relation to securities or property as the
Trustees shall deem proper;
(i) to exercise powers and rights of subscription or otherwise
which in any manner arise out of ownership of securities held in trust
hereunder;
(j) to hold any security or property in a form not indicating any
trust, whether in bearer, unregistered or other negotiable form, either in
its own name or in the name of a custodian or a nominee or nominees, subject
in either case to proper safeguards according to the usual practice of
Massachusetts business trusts or investment companies;
(k) to consent to or participate in any plan for the
reorganization, consolidation or merger of any corporation or concern, any
security of which is held in the Trust; to consent to any contract, lease,
mortgage, purchase, or sale of property by such corporation or concern, and
to pay calls or subscriptions with respect to any security held in the Trust;
(l) to compromise, arbitrate, or otherwise adjust claims in favor
of or against the Trust or any matter in controversy including, but not
limited to, claims for taxes;
(m) to make, in the manner provided in the By-Laws, distributions
of income and of capital gains to Shareholders;
(n) to borrow money to the extent and in the manner permitted by
the 1940 Act and the Trust's fundamental policy thereunder as to borrowing;
(o) to enter into investment advisory or management contracts,
subject to the 1940 Act, with any one or more corporations, partnerships,
trusts, associations or other persons;
(p) to change the name of the Trust or any Class or Series of the
Trust as they consider appropriate without shareholder approval;
(q) to establish officers' and Trustees' fees or compensation and
fees or compensation for committees of the Trustees to be paid by the Trust
or each Series thereof in such manner and amount as the Trustees may
determine;
(r) to invest all or substantially all of the Trust's assets in
another registered investment company;
(s) to determine whether a minimum and/or maximum value should
apply to accounts holding Shares, to fix such values and establish the
procedures to cause the involuntary redemption of accounts that do not
satisfy such criteria; and
(t) to engage, employ or appoint any person or entities to perform
any act for the Trust or the Trustees and to authorize their compensation.
5. No one dealing with the Trustees shall be under any obligation to
make any inquiry concerning the authority of the Trustees, or to see to the
application of any payments made or property transferred to the Trustees or
upon their order.
6. (a) The Trustees shall have no power to bind any Shareholder
personally or to call upon any Shareholder for the payment of any sum of
money or assessment whatsoever other than such as the Shareholder may at any
time personally agree to pay by way of subscription to any Shares or
otherwise. This paragraph shall not limit the right of the Trustees to assert
claims against any shareholder based upon the acts or omissions of such
shareholder or for any other reason. There is hereby expressly disclaimed
shareholder and Trustee liability for the acts and obligations of the Trust.
Every note, bond, contract or other undertaking issued by or on behalf of the
Trust or the Trustees relating to the Trust shall include a notice and
provision limiting the obligation represented thereby to the Trust and its
assets (but the omission of such notice and provision shall not operate to
impose any liability or obligation on any Shareholder).
(b) Whenever this Declaration of Trust calls for or permits any
action to be taken by the Trustees hereunder, such action shall mean that
taken by the Board of Trustees by vote of the majority of a quorum of
Trustees as set forth from time to time in the By-Laws of the Trust or as
required by the 1940 Act.
(c) The Trustees shall possess and exercise any and all such
additional powers as are reasonably implied from the powers herein contained
such as may be necessary or convenient in the conduct of any business or
enterprise of the Trust, to do and perform anything necessary, suitable, or
proper for the accomplishment of any of the purposes, or the attainment of
any one or more of the objects, herein enumerated, or which shall at any time
appear conducive to or expedient for the protection or benefit of the Trust,
and to do and perform all other acts and things necessary or incidental to
the purposes herein before set forth, or that may be deemed necessary by the
Trustees.
(d) The Trustees shall have the power, to the extent not
inconsistent with the 1940 Act, to determine conclusively whether any moneys,
securities, or other properties of the Trust are, for the purposes of this
Trust, to be considered as capital or income and in what manner any expenses
or disbursements are to be borne as between capital and income whether or not
in the absence of this provision such moneys, securities, or other properties
would be regarded as capital or income and whether or not in the absence of
this provision such expenses or disbursements would ordinarily be charged to
capital or to income.
7. The By-Laws of the Trust may divide the Trustees into classes and
prescribe the tenure of office of the several classes, but if such division
into classes is made, no class of Trustee shall be elected for a period
shorter than that from the time of the election following the division into
classes until the next meeting and thereafter for a period shorter than the
interval between meetings or for a period longer than five years, and the
term of office of at least one class shall expire each year.
8. The Shareholders shall have the right to inspect the records,
documents, accounts and books of the Trust, subject to reasonable regulations
of the Trustees, not contrary to Massachusetts law, as to whether and to what
extent, and at what times and places, and under what conditions and
regulations, such right shall be exercised.
9. Any officer elected or appointed by the Trustees or by the
Shareholders or otherwise, may be removed at any time, with or without cause,
in such lawful manner as may be provided in the By-Laws of the Trust.
10. The Trustees shall have power to hold their meetings, to have an
office or offices and, subject to the provisions of the laws of
Massachusetts, to keep the books of the Trust outside of said Commonwealth at
such places as may from time to time be designated by them. Action may be
taken by the Trustees without a meeting by unanimous written consent or by
telephone, teleconferencing or other method of electronic communication.
11. Securities held by the Trust shall be voted in person or by proxy
by the President or a Vice-President, or such officer or officers of the
Trust as the Trustees shall designate for the purpose, or by a proxy or
proxies thereunto duly authorized by the Trustees, except as otherwise
ordered by vote of the holders of a majority of the Shares outstanding and
entitled to vote in respect thereto.
12. (a) Subject to the provisions of the 1940 Act, any Trustee,
officer or employee, individually, or any partnership of which any Trustee,
officer or employee may be a member, or any corporation or association of
which any Trustee, officer or employee may be an officer, partner, director,
trustee, employee or stockholder, or otherwise may have an interest, may be a
party to, or may be pecuniarily or otherwise interested in, any contract or
transaction of the Trust, and in the absence of fraud no contract or other
transaction shall be thereby affected or invalidated; provided that in such
case a Trustee, officer or employee or a partnership, corporation or
association of which a Trustee, officer or employee is a member, officer,
director, trustee, employee or stockholder is so interested, such fact shall
be disclosed or shall have been known to the Trustees including those
Trustees who are not so interested and who are neither "interested" nor
"affiliated" persons as those terms are defined in the 1940 Act, or a
majority thereof; and any Trustee who is so interested, or who is also a
director, officer, partner, trustee, employee or stockholder of such other
corporation or a member of such partnership or association which is so
interested, may be counted in determining the existence of a quorum at any
meeting of the Trustees which shall authorize any such contract or
transaction, and may vote thereat to authorize any such contract or
transaction, with like force and effect as if he were not so interested.
(b) Specifically, but without limitation of the foregoing, the
Trust may enter into a management or investment advisory contract or
underwriting contract and other contracts with, and may otherwise do business
with any manager or investment adviser for the Trust and/or principal
underwriter of the Shares of the Trust or any subsidiary or affiliate of any
such manager or investment adviser and/or principal underwriter and may
permit any such firm or corporation to enter into any contracts or other
arrangements with any other firm or corporation relating to the Trust
notwithstanding that the Trustees of the Trust may be composed in part of
partners, directors, officers or employees of any such firm or corporation,
and officers of the Trust may have been or may be or become partners,
directors, officers or employees of any such firm or corporation, and in the
absence of fraud the Trust and any such firm or corporation may deal freely
with each other, and no such contract or transaction between the Trust and
any such firm or corporation shall be invalidated or in any way affected
thereby, nor shall any Trustee or officer of the Trust be liable to the Trust
or to any Shareholder or creditor thereof or to any other person for any loss
incurred by it or him solely because of the existence of any such contract or
transaction; provided that nothing herein shall protect any director or
officer of the Trust against any liability to the Trust or to its security
holders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
(c) As used in this paragraph the following terms shall have the
meanings set forth below:
(i) the term "indemnitee" shall mean any present or former
Trustee, officer or employee of the Trust, any present or former Trustee,
partner, director or officer of another trust, partnership, corporation or
association whose securities are or were owned by the Trust or of which the
Trust is or was a creditor and who served or serves in such capacity at the
request of the Trust, and the heirs, executors, administrators, successors
and assigns of any of the foregoing; however, whenever conduct by an
indemnitee is referred to, the conduct shall be that of the original
indemnitee rather than that of the heir, executor, administrator, successor
or assignee;
(ii) the term "covered proceeding" shall mean any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, to which an indemnitee is or was a party or
is threatened to be made a party by reason of the fact or facts under which
he or it is an indemnitee as defined above;
(iii)the term "disabling conduct" shall mean willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of the office in question;
(iv) the term "covered expenses" shall mean expenses
(including attorney's fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by an indemnitee in connection with a
covered proceeding; and
(v) the term "adjudication of liability" shall mean, as to
any covered proceeding and as to any indemnitee, an adverse determination as
to the indemnitee whether by judgment, order, settlement, conviction or upon
a plea of nolo contendere or its equivalent.
(d) The Trust shall not indemnify any indemnitee for any covered
expenses in any covered proceeding if there has been an adjudication of
liability against such indemnitee expressly based on a finding of disabling
conduct.
(e) Except as set forth in paragraph (d) above, the Trust shall
indemnify any indemnitee for covered expenses in any covered proceeding,
whether or not there is an adjudication of liability as to such indemnitee,
such indemnification by the Trust to be to the fullest extent now or
hereafter permitted by any applicable law unless the By-Laws limit or
restrict the indemnification to which any indemnitee may be entitled. The
Board of Trustees may adopt by-law provisions to implement subparagraphs (c),
(d) and (e) hereof.
(f) Nothing herein shall be deemed to affect the right of the
Trust and/or any indemnitee to acquire and pay for any insurance covering any
or all indemnities to the extent permitted by applicable law or to affect any
other indemnification rights to which any indemnitee may be entitled to the
extent permitted by applicable law. Such rights to indemnification shall not,
except as otherwise provided by law, be deemed exclusive of any other rights
to which such indemnitee may be entitled under any statute, By-Laws, contract
or otherwise.
13. The Trustees are empowered, in their absolute discretion, to
establish bases or times, or both, for determining the net asset value per
Share of any Class and Series in accordance with the 1940 Act and to
authorize the voluntary purchase by any Class and Series, either directly or
through an agent, of Shares of any Class and Series upon such terms and
conditions and for such consideration as the Trustees shall deem advisable in
accordance with the 1940 Act.
14. Payment of the net asset value per Share of any Class and Series
properly surrendered to it for redemption or repurchase shall be made by the
Trust in a manner consistent with the prospectus and any applicable law or
regulation. Any payment may be made in portfolio securities of such Series
or Class of that Series and/or in cash, as the Trustees shall deem advisable,
and no Shareholder shall have a right, other than as determined by the
Trustees, to have Shares redeemed in kind.
15. The Trust shall have the right, at any time and without prior
notice to the Shareholder, to redeem Shares of the Class and Series held by
such Shareholder held in any account registered in the name of such
Shareholder for its current net asset value, if and to the extent that such
redemption is necessary to reimburse either that Series or Class of the Trust
or the distributor (i.e., principal underwriter) of the Shares for any loss
either has sustained by reason of the failure of such Shareholder to make
timely and good payment for Shares purchased or subscribed for by such
Shareholder, regardless of whether such Shareholder was a Shareholder at the
time of such purchase or subscription, subject to and upon such terms and
conditions as the Trustees may from time to time prescribe.
EIGHTH: The name "Oppenheimer" included in the name of the Trust and of
any Series shall be used pursuant to a royalty-free, non-exclusive license
from OppenheimerFunds, Inc. ("OFI"), incidental to and as part of any one or
more advisory, management or supervisory contracts which may be entered into
by the Trust with OFI. Such license shall allow OFI to inspect and subject to
the control of the Board of Trustees to control the nature and quality of
services offered by the Trust under such name. The license may be terminated
by OFI upon termination of such advisory, management or supervisory contracts
or without cause upon 60 days' written notice, in which case neither the
Trust nor any Series or Class shall have any further right to use the name
"Oppenheimer" in its name or otherwise and the Trust, the Shareholders and
its officers and Trustees shall promptly take whatever action may be
necessary to change its name and the names of the Trust and any Series or
Classes accordingly.
NINTH:
1. In case any Shareholder or former Shareholder shall be held to be
personally liable solely by reason of his being or having been a Shareholder
and not because of his acts or omissions or for some other reason, the
Shareholder or former Shareholder (or the Shareholders, heirs, executors,
administrators or other legal representatives or in the case of a corporation
or other entity, its corporate or other general successor) shall be entitled
out of the Trust estate to be held harmless from and indemnified against all
loss and expense arising from such liability. The Trust shall, upon request
by the Shareholder, assume the defense of any such claim made against any
Shareholder for any act or obligation of the Trust and satisfy any judgment
thereon.
2. It is hereby expressly declared that a trust and not a partnership
is created hereby. No individual Trustee hereunder shall have any power to
bind the Trust, the Trust's officers or any Shareholder. All persons
extending credit to, doing business with, contracting with or having or
asserting any claim against the Trust or the Trustees shall look only to the
assets of the Trust for payment under any such credit, transaction, contract
or claim; and neither the Shareholders nor the Trustees, nor any of their
agents, whether past, present or future, shall be personally liable therefor;
notice of such disclaimer shall be given in each agreement, obligation or
instrument entered into or executed by the Trust or the Trustees. Nothing in
this Declaration of Trust shall protect a Trustee against any liability to
which such Trustee would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of the office of Trustee hereunder.
3. The exercise by the Trustees of their powers and discretion
hereunder in good faith and with reasonable care under the circumstances then
prevailing, shall be binding upon everyone interested. Subject to the
provisions of paragraph 2 of this Article NINTH, the Trustees shall not be
liable for errors of judgment or mistakes of fact or law. The Trustees may
take advice of counsel or other experts with respect to the meaning and
operations of this Declaration of Trust, applicable laws, contracts,
obligations, transactions or any other business the Trust may enter into, and
subject to the provisions of paragraph 2 of this Article NINTH, shall be
under no liability for any act or omission in accordance with such advice or
for failing to follow such advice. The Trustees shall not be required to give
any bond as such, nor any surety if a bond is required.
4. This Trust shall continue without limitation of time but subject to
the provisions of sub-sections (a), (b), (c) and (d) of this paragraph 4.
(a) The Trustees, subject to the applicable provisions of the 1940
Act, may sell and convey the assets of a Series (which sale may be subject
to the retention of assets for the payment of liabilities and expenses) to
another issuer for a consideration which may be or include securities of such
issuer. Upon making provision for the payment of liabilities, by assumption
by such issuer or otherwise, the Trustees shall distribute the remaining
proceeds ratably among the holders of the outstanding Shares of the Series
the assets of which have been so transferred.
(b) The Trustees, subject to the applicable provisions of the 1940
Act, may at any time sell and convert into money all the assets of a Series.
Upon making provisions for the payment of all outstanding obligations, taxes
and other liabilities, accrued or contingent, of that Series, the Trustees
shall distribute the remaining assets of that Series ratably among the
holders of the outstanding Shares of that Series in proportion to the number
of Shares that the Series or Class thereof held by them.
(c) The Trustees, subject to the applicable provisions of the 1940
Act, may otherwise alter, convert or transfer the assets of a Series.
(d) Upon completion of the distribution of the remaining proceeds
or the remaining assets as provided in sub-sections (a) and (b), and in
subsection (c) where applicable, the Series the assets of which have been so
transferred shall terminate, and if all the assets of the Trust have been so
transferred, the Trust shall terminate and the Trustees shall be discharged
of any and all further liabilities and duties hereunder and the right, title
and interest of all parties shall be canceled and discharged.
5. The original or a copy of this instrument and of each restated
declaration of trust or instrument supplemental hereto shall be kept at the
office of the Trust where it may be inspected by any Shareholder. A copy of
this instrument and of each supplemental or restated declaration of trust
shall be filed with the Secretary of the Commonwealth of Massachusetts, as
well as any other governmental office where such filing may from time to time
be required. Anyone dealing with the Trust may rely on a certificate by an
officer of the Trust as to whether or not any such supplemental or restated
declarations of trust have been made and as to any matters in connection with
the Trust hereunder, and, with the same effect as if it were the original,
may rely on a copy certified by an officer of the Trust to be a copy of this
instrument or of any such supplemental or restated declaration of trust. In
this instrument or in any such supplemental or restated declaration of trust,
references to this instrument, and all expressions like "herein", "hereof"
and "hereunder" shall be deemed to refer to this instrument as amended or
affected by any such supplemental or restated declaration of trust. This
instrument may be executed in any number of counterparts, each of which shall
be deemed an original.
6. The Trust set forth in this instrument is created under and is to
be governed by and construed and administered according to the laws of the
Commonwealth of Massachusetts. The Trust shall be of the type commonly
called a Massachusetts business trust, and without limiting the provisions
hereof, the Trust may exercise all powers which are ordinarily exercised by
such a trust.
7. The Board of Trustees is empowered to cause the redemption of the
Shares held in any account if the aggregate net asset value of such Shares
(taken at cost or value, as determined by the Board) has been reduced to $200
or less upon such notice to the shareholder in question, with such permission
to increase the investment in question and upon such other terms and
conditions as may be fixed by the Board of Trustees in accordance with the
1940 Act.
8. In the event that any person advances the organizational expenses
of the Trust, such advances shall become an obligation of the Trust subject
to such terms and conditions as may be fixed by, and on a date fixed by, or
determined with criteria fixed by the Board of Trustees, to be amortized over
a period or periods to be fixed by the Board.
9. Whenever any action is taken under this Declaration of Trust
including action which is required or permitted by the 1940 Act or any other
applicable law, such action shall be deemed to have been properly taken if
such action is in accordance with the construction of the 1940 Act or such
other applicable law then in effect as expressed in "no action" letters of
the staff of the Commission or any release, rule, regulation or order under
the 1940 Act or any decision of a court of competent jurisdiction,
notwithstanding that any of the foregoing shall later be found to be invalid
or otherwise reversed or modified by any of the foregoing.
10. Any action which may be taken by the Board of Trustees under this
Declaration of Trust or its By-Laws may be taken by the description thereof
in the then effective prospectus and/or statement of additional information
relating to the Shares under the Securities Act of 1933 or in any proxy
statement of the Trust rather than by formal resolution of the Board.
11. Whenever under this Declaration of Trust, the Board of Trustees is
permitted or required to place a value on assets of the Trust, such action
may be delegated by the Board, and/or determined in accordance with a formula
determined by the Board, to the extent permitted by the 1940 Act.
12. The Trustees may amend or otherwise supplement this instrument, by
making a Restated Declaration of Trust or a Declaration of Trust supplemental
hereto, which thereafter shall form a part hereof. Such amendment may be
made if authorized by vote of the Trustees, and, if approval of Shareholders
is also required under applicable law, such approval shall be made by a
favorable vote of number of shareholders required by applicable law.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this instrument as of the
27th day of May, 1999.
/s/ Andrew J. Donohue /s/ Robert G. Zack
- --------------------- ------------------
Andrew J. Donohue Robert G. Zack
Two Word Trade Center, 34th Floor Two Word Trade Center, 34th Floor
New York, NY 10048 New York, NY 10048
OPPENHEIMER SENIOR FLOATING RATE FUND
(the "Fund")
BY-LAWS
as
of ______________, 1999
ARTICLE I
SHAREHOLDERS
Section 1. Place of Meeting. All meetings of the Shareholders (which terms
as used herein shall, together with all other terms defined in the Fund's
Declaration of Trust as amended from time to time, have the same meaning as in
the Declaration of Trust) shall be held at the principal office of the Fund or
at such other place as may from time to time be designated by the Board of
Trustees and stated in the notice of meeting.
Section 2. Shareholder Meetings. Meetings of the Shareholders for any
purpose or purposes may be called by the Chairman of the Board of Trustees, if
any, or by the President or by the Board of Trustees and shall be called by the
Secretary upon receipt of the request in writing signed by Shareholders holding
not less than one third in amount of the entire number of Shares issued and
outstanding and entitled to vote thereat. Such request shall state the purpose
or purposes of the proposed meeting. In addition, meetings of the Shareholders
shall be called by the Board of Trustees upon receipt of the request in writing
signed by Shareholders that hold in the aggregate not less than ten percent in
amount of the entire number of Shares issued and outstanding and entitled to
vote thereat, stating that the purpose of the proposed meeting is the removal of
a Trustee.
Section 3. Notice of Meetings of Shareholders. Not less than ten days' and
not more than 120 days' written or printed notice of every meeting of
Shareholders, stating the time and place thereof (and the general nature of the
business proposed to be transacted at any special or extraordinary meeting),
shall be given to each Shareholder entitled to vote thereat either by mail or by
presenting it to him personally or by leaving it at his residence or usual place
of business. If mailed, such notice shall be deemed to be given when deposited
in the United States mail addressed to the Shareholder at his post office
address as it appears on the records of the Fund, with postage thereon prepaid.
No notice of the time, place or purpose of any meeting of Shareholders
need be given to any Shareholder who attends in person or by proxy or to any
Shareholder who, in writing executed and filed with the records of the meeting,
either before or after the holding thereof, waives such notice.
Section 4. Record Dates. The Board of Trustees may fix, in advance, a
date, not exceeding 120 days and not less than ten days preceding the date of
any meeting of Shareholders, and not exceeding 120 days preceding any dividend
payment date or any date for the allotment of rights, as a record date for the
determination of the Shareholders entitled to notice of and to vote at such
meeting, or entitled to receive such dividend or rights, as the case may be; and
only Shareholders of record on such date shall be entitled to notice of and to
vote at such meeting or to receive such dividends or rights, as the case may be.
Section 5. Access to Shareholder List. The Board of Trustees shall make
available a list of the names and addresses of all shareholders as recorded on
the books of the Fund, upon receipt of the request in writing signed by not less
than ten Shareholders of the Fund (who have been such for at least six months)
holding in the aggregate the lesser of (i) Shares valued at $25,000 or more at
current offering price (as defined in the Fund's Prospectus), or (ii) one
percent in amount of the entire number of shares of the Fund issued and
outstanding; such request must state that such Shareholders wish to communicate
with other Shareholders with a view to obtaining signatures to a request for a
meeting pursuant to Section 2 of Article I of these By-Laws and accompanied by a
form of communication to the Shareholders. The Board of Trustees may, in its
discretion, satisfy its obligation under this Section 5 by either making
available the Shareholder List to such Shareholders at the principal offices of
the Fund, or at the offices of the Fund's transfer agent, during regular
business hours, or by mailing a copy of such Shareholders' proposed
communication and form of request, at their expense, to all other Shareholders.
Section 6. Quorum, Adjournment of Meetings. The presence in person or by
proxy of the holders of record of more than 50% of the Shares of the stock of
the Fund issued and outstanding and entitled to vote thereat, shall constitute a
quorum at all meetings of the Shareholders. If at any meeting of the
Shareholders there shall be less than a quorum present, the Shareholders present
at such meeting may, without further notice, adjourn the same from time to time
until a quorum shall attend, but no business shall be transacted at any such
adjourned meeting except such as might have been lawfully transacted had the
meeting not been adjourned. This Section 6 may be altered, amended or repealed
only upon the affirmative vote of the holders of the majority of all the Shares
of the Fund at the time outstanding and entitled to vote.
Section 7. Voting and Inspectors. At all meetings of Shareholders, every
Shareholder of record entitled to vote thereat shall be entitled to one vote for
each Share of the Fund standing in his name on the books of the Fund (and such
Shareholders of record holding fractional shares shall have proportionate voting
rights as provided in the Declaration of Trust) on the date for the
determination of Shareholders entitled to vote at such meeting, either in person
or by proxy authorized or appointed by electronic transmission or by instrument
in writing subscribed by such Shareholder or his duly authorized
attorney-in-fact. No proxy which is dated more than three months before the
meeting shall be accepted unless such proxy shall, on its face, name a longer
period for which it is to remain in force.
All elections of Trustees shall be had by a plurality of the votes cast
and all questions shall be decided by a majority of the votes cast, in each case
at a duly constituted meeting, except as otherwise provided in the Declaration
of Trust or in these By-Laws or by specific statutory provision superseding the
restrictions and limitations contained in the Declaration of Trust or in these
By-Laws.
At any election of Trustees, the Board of Trustees prior thereto may, or,
if they have not so acted, the Chairman of the meeting may, and upon the request
of the holders of ten per cent (10%) of the Shares entitled to vote at such
election shall, appoint two inspectors of election who shall first subscribe an
oath or affirmation to execute faithfully the duties of inspectors at such
election with strict impartiality and according to the best of their ability,
and shall after the election make a certificate of the result of the vote taken.
No candidate for the office of Trustee shall be appointed such Inspector.
The Chairman of the meeting may cause a vote by ballot to be taken upon
any election or matter, and such vote shall be taken upon the request of the
holders of ten per cent (10%) of the Shares entitled to vote on such election or
matter.
Section 8. Conduct of Shareholders' Meetings. The meetings of the
Shareholders shall be presided over by the Chairman of the Board of Trustees, if
any, or if he shall not be present, by the President, or if he shall not be
present, by a Vice-President, or if none of them is present, by a chairman to be
elected at the meeting. The Secretary of the Fund, if present, shall act as
Secretary of such meetings, or if he is not present, an Assistant Secretary
shall so act; if neither the Secretary nor an Assistant Secretary is present,
then the meeting shall elect its secretary.
Section 9. Concerning Validity of Proxies, Ballots, Etc. At every meeting
of the Shareholders, all proxies shall be received and taken in charge of and
all ballots shall be received and canvassed by the secretary of the meeting, who
shall decide all questions touching the qualification of voters, the validity of
the proxies, and the acceptance or rejection of votes, unless inspectors of
election shall have been appointed as provided in Section 7, in which event such
inspectors of election shall decide all such questions.
ARTICLE II
BOARD OF TRUSTEES
Section 1. Number and Tenure of Office. The business and property of the
Fund shall be conducted and managed by a Board of Trustees consisting of the
number of initial Trustees, which number may be increased or decreased as
provided in Section 2 of this Article. Each Trustee shall, except as otherwise
provided herein, hold office until the meeting of Shareholders of the Fund next
succeeding his election or until his successor is duly elected and qualifies.
Trustees need not be Shareholders.
Section 2. Increase or Decrease in Number of Trustees. The Board of
Trustees, by the vote of a majority of the entire Board, may increase the number
of Trustees to a number not exceeding fifteen, and may elect Trustees to fill
the vacancies created by any such increase in the number of Trustees until the
next annual meeting or until their successors are duly elected and qualify; the
Board of Trustees, by the vote of a majority of the entire Board, may likewise
decrease the number of Trustees to a number not less than three but the tenure
of office of any Trustee shall not be affected by any such decrease. Vacancies
occurring other than by reason of any such increase shall be filled as provided
for a Massachusetts business trust. In the event that after the proxy material
has been printed for a meeting of Shareholders at which Trustees are to be
elected and any one or more nominees named in such proxy material dies or become
incapacitated, the authorized number of Trustees shall be automatically reduced
by the number of such nominees, unless the Board of Trustees prior to the
meeting shall otherwise determine.
Section 3. Removal, Resignation and Retirement. A Trustee at any time may
be removed either with or without cause by resolution duly adopted by the
affirmative votes of the holders of two-thirds of the outstanding Shares of the
Fund, present in person or by proxy at any meeting of Shareholders at which such
vote may be taken, provided that a quorum is present. Any Trustee at any time
may be removed for cause by resolution duly adopted at any meeting of the Board
of Trustees provided that notice thereof is contained in the notice of such
meeting and that such resolution is adopted by the vote of at least two thirds
of the Trustees whose removal is not proposed. As used herein, "for cause" shall
mean any cause which under Massachusetts law would permit the removal of a
Trustee of a business trust.
Any Trustee may resign or retire as Trustee by written instrument signed
by him and delivered to the other Trustees or to any officer of the Fund, and
such resignation or retirement shall take effect upon such delivery or upon such
later date as is specified in such instrument and shall be effective as to the
Fund and each Series of the Fund hereunder. Notwithstanding the foregoing, any
and all Trustees shall be subject to the provisions with respect to mandatory
retirement set forth in the Fund's Retirement Plan for Non-Interested Trustees
or Directors adopted by the Fund, as the same may be amended from time to time.
Section 4. Place of Meeting. The Trustees may hold their meetings, have
one or more offices, and keep the books of the Fund outside Massachusetts, at
any office or offices of the Fund or at any other place as they may from time to
time by resolution determine, or, in the case of meetings, as shall be specified
or fixed in the respective notices or waivers of notice thereof.
Section 5. Regular Meetings. Regular meetings of the Board of Trustees
shall be held at such time and on such notice, if any, as the Trustees may from
time to time determine. One such regular meeting during each fiscal year of the
Fund shall be designated an annual meeting of the Board of Trustees.
Section 6. Special Meetings. Special meetings of the Board of Trustees may
be held from time to time upon call of the Chairman of the Board of Trustees, if
any, the President or two or more of the Trustees, by oral or telegraphic or
written notice duly served on or sent or mailed to each Trustee not less than
one day before such meeting. No notice need be given to any Trustee who attends
in person, or to any Trustee who in writing executed and filed with the records
of the meeting either before or after the holding thereof waives such notice.
Such notice or waiver of notice need not state the purpose or purposes of such
meeting.
Section 7. Quorum. One-third of the Trustees then in office shall
constitute a quorum for the transaction of business, provided that a quorum
shall in no case be less than two Trustees. If at any meeting of the Board there
shall be less than a quorum present (in person or by open telephone line, to the
extent permitted by the Investment Company Act of 1940 (the "1940 Act")), a
majority of those present may adjourn the meeting from time to time until a
quorum shall have been obtained. The act of the majority of the Trustees present
at any meeting at which there is a quorum shall be the act of the Board, except
as may be otherwise specifically provided by statute, by the Declaration of
Trust, by these By-Laws or by any contract or agreement to which the Fund is a
party.
Section 8. Executive Committee. The Board of Trustees may, by the
affirmative vote of a majority of the entire Board, elect from the Trustees an
Executive Committee to consist of such number of Trustees (not less than three)
as the Board may from time to time determine. The Board of Trustees by such
affirmative vote shall have power at any time to change the members of such
Committee and may fill vacancies in the Committee by election from the Trustees.
When the Board of Trustees is not in session, the Executive Committee shall have
and may exercise any or all of the powers of the Board of Trustees in the
management of the business and affairs of the Fund (including the power to
authorize the seal of the Fund to be affixed to all papers which may require it)
except as provided by law or by any contract or agreement to which the Fund is a
party and except the power to increase or decrease the size of, or fill
vacancies on, the Board, to remove or appoint executive officers or to dissolve
or change the permanent membership of the Executive Committee, and the power to
make or amend the By-Laws of the Fund. The Executive Committee may fix its own
rules of procedure, and may meet when and as provided by such rules or by
resolution of the Board of Trustees, but in every case the presence of a
majority shall be necessary to constitute a quorum. In the absence of any member
of the Executive Committee, the members thereof present at any meeting, whether
or not they constitute a quorum, may appoint a member of the Board of Trustees
to act in the place of such absent member.
Section 9. Other Committees. The Board of Trustees, by the affirmative
vote of a majority of the entire Board, may appoint other committees which shall
in each case consist of such number of members (not less than two) and shall
have and may exercise, to the extent permitted by law, such powers as the Board
may determine in the resolution appointing them. A majority of all members of
any such committee may determine its action, and fix the time and place of its
meetings, unless the Board of Trustees shall otherwise provide. The Board of
Trustees shall have power at any time to change the members and, to the extent
permitted by law, powers of any such committee, to fill vacancies, and to
discharge any such committee.
Section 10. Informal Action by and Telephone Meetings of Trustees and
Committees. Any action required or permitted to be taken at any meeting of the
Board of Trustees or any committee thereof may be taken without a meeting, if a
written consent to such action is signed by all members of the Board, or of such
committee, as the case may be. Trustees or members of the Board of Trustees may
participate in a meeting by means of a conference telephone or similar
communications equipment; such participation shall, except as otherwise required
by the 1940 Act, have the same effect as presence in person.
Section 11. Compensation of Trustees. Trustees shall be entitled to
receive such compensation from the Fund for their services as may from time to
time be voted by the Board of Trustees.
Section 12. Dividends. Dividends or distributions payable on the Shares of
any Series may, but need not be, declared by specific resolution of the Board as
to each dividend or distribution; in lieu of such specific resolutions, the
Board may, by general resolution, determine the method of computation thereof,
the method of determining the Shareholders of the Series to which they are
payable and the methods of determining whether and to which Shareholders they
are to be paid in cash or in additional Shares.
ARTICLE III
OFFICERS
Section 1. Executive Officers. The executive officers of the Fund may
include a Chairman of the Board of Trustees, and shall include a President, one
or more Vice Presidents (the number thereof to be determined by the Board of
Trustees), a Secretary and a Treasurer. The Chairman of the Board of Trustees,
if any, shall be selected from among the Trustees. The Board of Trustees or the
Executive Committee may also in its discretion appoint Assistant Secretaries,
Assistant Treasurers, and other officers, agents and employees, who shall have
such authority and perform such duties as the Board or the Executive Committee
may determine. The Board of Trustees may fill any vacancy which may occur in any
office. Any two offices, except those of President and Vice President, may be
held by the same person, but no officer shall execute, acknowledge or verify any
instrument in more than one capacity, if such instrument is required by law or
these By-Laws to be executed, acknowledged or verified by two or more officers.
Section 2. Term of Office. The term of office of all officers shall be
until their respective successors are chosen and qualify; however, any officer
may be removed from office at any time with or without cause by the vote of a
majority of the entire Board of Trustees.
Section 3. Powers and Duties. The officers of the Fund shall have such
powers and duties as generally pertain to their respective offices, as well as
such powers and duties as may from time to time be conferred by the Board of
Trustees or the Executive Committee.
ARTICLE IV
SHARES
Section 1. Certificates of Shares. Each Shareholder of any Series of the
Fund may be issued a certificate or certificates for his Shares of that Series,
in such form as the Board of Trustees may from time to time prescribe, but only
if and to the extent and on the conditions described by the Board.
Section 2. Transfer of Shares. Shares of any Series shall be transferable
on the books of the Fund by the holder thereof in person or by his duly
authorized attorney or legal representative, upon surrender and cancellation of
certificates, if any, for the same number of Shares of that Series, duly
endorsed or accompanied by proper instruments of assignment and transfer, with
such proof of the authenticity of the signature as the Fund or its agent may
reasonably require; in the case of shares not represented by certificates, the
same or similar requirements may be imposed by the Board of Trustees.
Section 3. Share Ledgers. The share ledgers of the Fund, containing the
name and address of the Shareholders of each Series and the number of shares of
that Series, held by them respectively, shall be kept at the principal offices
of the Fund or, if the Fund employs a transfer agent, at the offices of the
transfer agent of the Fund.
Section 4. Lost, Stolen or Destroyed Certificates. The Board of Trustees
may determine the conditions upon which a new certificate may be issued in place
of a certificate which is alleged to have been lost, stolen or destroyed; and
may, in their discretion, require the owner of such certificate or his legal
representative to give bond, with sufficient surety to the Fund and the transfer
agent, if any, to indemnify it and such transfer agent against any and all loss
or claims which may arise by reason of the issue of a new certificate in the
place of the one so lost, stolen or destroyed.
ARTICLE V
SEAL
The Board of Trustees shall provide a suitable seal of the Fund, in such
form and bearing such inscriptions as it may determine.
ARTICLE VI
FISCAL YEAR
The fiscal year of the Fund shall be fixed by the Board of Trustees.
ARTICLE VII
AMENDMENT OF BY-LAWS
The By-Laws of the Fund may be altered, amended, added to or repealed by
the Shareholders or by majority vote of the entire Board of Trustees, but any
such alteration, amendment, addition or repeal of the By-Laws by action of the
Board of Trustees may be altered or repealed by the Shareholders.
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