OPPENHEIMER HIGH YIELD FUND
Supplement dated September 30, 1994
to the Prospectus dated October 4, 1993
The Prospectus is amended as follows:
1. The supplement dated July 1, 1994, and the supplement dated October
4, 1993 for use in the states of Arizona, Texas, Vermont and Washington,
are hereby superceded.
2. The first paragraph on the front cover is deleted and replaced with
the following:
Oppenheimer High Yield Fund (the "Fund") is a mutual fund with the
investment objective of seeking a high level of current income
primarily through investing in a diversified portfolio of high
yield, fixed-income securities, commonly known as "junk bonds." As
a secondary objective, the Fund seeks capital growth when consistent
with its primary objective.
The Fund may invest up to 100% of its assets in "junk bonds,"
which are securities that may be considered to be speculative and
involve greater risks, including risk of default, than higher-rated
securities. An investment in the Fund does not constitute a
complete investment program and is not appropriate for persons
unwilling or unable to assume the high degree of risk associated
with investing in lower-rated, high yield securities Investors
should carefully consider these risks before investing.
3. At a shareholder meeting called for June 20, 1994, shareholders of
the Fund approved a Service Plan for Class A shares under Rule 12b-1 of
the Investment Company Act of 1940 that applies to all Class A shares of
the Fund, regardless of the date on which the shares were purchased. If
that new Plan were in effect during the Fund's fiscal year ended June 30,
1993, the Annual Fund Operating Expenses table on page 2 would be revised
as follows: "12b-1 (Distribution and-back slash-or Service Plan) Fees" and
"Total Fund Operating Expenses" for Class A shares would have been .17%
and 1.04%, respectively. The hypothetical examples of expenses for Class
A shares shown on page 3 would have been $58, $79, $102 and $169 for the
1, 3, 5 and 10 year periods, respectively, whether or not such shares were
redeemed at the end of the period.
4. The fifth sentence of the first paragraph under the caption Class
A Service Plan on page 16 is revised by having the phrase "which are
attributable to sales made on and after April 1, 1991" deleted. In
addition, the second sentence in the second paragraph under that caption
is deleted.
5. The fifth and sixth paragraphs under the caption Class B
Distribution and Service Plan on page 18 are revised to read as follows:
"If the Class B 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 certain expenses it incurred before the Plan was
terminated."
6. The section captioned "Covered Call Options and Hedging" on pages
6-8 is deleted and replaced with the following:
Writing Covered Calls
The Fund may sell ("write") call options to generate income
through the receipt of premiums from expired calls and any net
profits from closing purchase transactions. The Fund may write call
options on debt or equity securities, securities indices or Futures
(discussed below) only if (i) the calls are listed on a securities
or commodities exchange or quoted on the automated quotation system
of the National Association of Securities Dealers, Inc. ("NASDAQ")
or traded in the over-the-counter market, (ii) each call is
"covered" while it is outstanding, that is, the Fund must own the
securities on which call is written or it must own other securities
that are acceptable for the escrow arrangements required for calls,
and (iii) not more than 50% of the Fund's total assets are subject
to calls.
Hedging With Options and Futures Contracts. The Fund may buy and
sell options and futures contracts to try to manage its exposure to
declining prices on its portfolio securities or to establish a
position in the debt or equity securities markets as a temporary
substitute for purchasing individual securities. Some of these
strategies, such as selling futures, buying puts and writing covered
calls, hedge the Fund's portfolio against price fluctuations. Other
hedging strategies, such as buying futures and buying call options,
tend to increase the Fund's exposure to the market. The Fund does
not use hedging instruments for speculative purposes. The hedging
instruments the Fund may use are described below and in greater
detail in "Other Investment Techniques and Strategies" in the
Statement of Additional Information.
-- Calls and Puts. The Fund may purchase call options on debt or
equity securities, securities indices, Interest Rate Futures or
Financial Futures (discussed below), if the calls are listed on a
securities or commodities exchange or quoted on NASDAQ or traded in
the over-the-counter market. The Fund may also purchase calls in
"closing purchase transactions" to terminate its call obligations.
The Fund may write and purchase put options on debt or equity
securities, securities indices or Futures if (i) the put is listed
on a securities or commodities exchange or quoted on NASDAQ or
traded in the over-the-market, and (ii) any put written is covered
by segregated liquid assets with not more than 50% of the Fund's
assets subject to puts. A call or put may not be purchased if the
value of all of the Fund's put and call options would exceed 5% of
the Fund's total assets.
-- Interest Rate Futures and Financial Futures. The Fund may buy
and sell Futures. An Interest Rate Future obligates the seller to
deliver and the purchaser to take a specific type of debt security
at a specific future date for a fixed price. That obligation may
be satisfied by actual delivery of the debt security or by entering
into an offsetting contract. A securities index assigns relative
values to the securities included in that index and is used as a
basis for trading long-term Financial Futures contracts. Financial
Futures reflect the price movements of securities included in the
index. They differ from Interest Rate Futures in that settlement
is made in cash rather than by delivery of the underlying
investment. At present, the Fund does not intend to enter into
Futures contracts and options on Futures, if, after any such
purchase, the sum of margin deposits on Futures and premiums paid
on Futures options would exceed 5% of the Fund's total assets.
-- Foreign Currency Options. The Fund may purchase and write
puts and calls on foreign currencies that are traded on a securities
or commodities exchange or quoted by major recognized dealers in
such options, for the purpose of protecting against declines in the
dollar value of foreign securities and against increases in the
dollar cost of foreign securities to be acquired.
-- Forward Contracts. The Fund may enter into foreign currency
exchange contracts ("Forward Contracts"), which obligate the seller
to deliver and the purchaser to take a specific amount of foreign
currency at a specific future date for a fixed price. The Fund may
enter into a Forward Contract in order to "lock in" the U.S. dollar
price of a security denominated in a foreign currency which it has
purchased or sold but which has not yet settled, or to protect
against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and a foreign currency. There
is a risk that use of Forward Contracts may reduce gain that would
otherwise result from a change in the relationship between the U.S.
dollar and a foreign currency.
-- Interest Rate Swap Transactions. The Fund may enter into
interest rate swaps. In an interest rate swap, the Fund and another
party exchange their respective commitments to pay or receive
interest on a security, (e.g., an exchange of floating rate payments
for fixed rate payments). The Fund will not use interest rate swaps
for leverage. Swap transactions will be entered into only as to
security positions held by the Fund. The Fund may not enter into
swap transactions with respect to more than 25% of its total assets.
The Fund will segregate liquid assets (e.g., cash, U.S. Government
securities or other appropriate high grade debt obligations) equal
to the net excess, if any, of its obligations over its entitlements
under the swap and will mark that amount daily.
-- Risks of Options and Futures Trading. Hedging instruments can
be volatile investments and may involve special risks. If the
Manager uses a hedging instrument at the wrong time or judges market
conditions incorrectly, hedging strategies may reduce the Fund's
return. The Fund could also experience losses if the prices of its
futures and options positions were not correlated with its other
investments or if it could not close out a position because of an
illiquid market for the future or option. Options trading involves
the payment of premiums and has special tax effects on the Fund.
There are also special risks in particular hedging strategies. For
example, in writing puts, there is a risk that the Fund may be
required to buy the underlying security at a disadvantageous price.
These risks and the hedging strategies the Fund may use are
described in greater detail in the Statement of Additional
Information.
7. The following is added on page 10 immediately above the heading
"Investment Restrictions":
Derivative Investments. The Fund can invest in a number of
different kinds of "derivative investments." In general, a
"derivative investment" is a specially designed investment whose
performance is linked to the performance of another investment or
security, such as an option, future, index or currency. In the
broadest sense, derivative investments include exchange-traded
options and futures contracts (see "Writing Covered Calls" and
"Hedging with Options and Futures Contracts"). The risks of
investing in derivative investments include not only the ability of
the company issuing the instrument to pay the amount due on the
maturity of the instrument, but also the risk that the underlying
investment or security might not perform the way the Manager
expected it to perform. The performance of derivative investments
may also be influenced by interest rate changes in the U.S. and
abroad. All of this can mean that the Fund will realize less
principal and/or income than expected. Certain derivative
investments held by the Fund may trade in the over-the-counter
market and may be illiquid. See "Illiquid and Restricted
Securities."
Examples of derivative investments the Fund may invest in
include, among others, "index-linked" notes. These are debt
securities of companies that call for payment on the maturity of the
note in different terms than the typical note where the borrower
agrees to pay a fixed sum on the maturity of the note. The payment
on maturity of an index-linked note depends on the performance of
one or more market indices, such as the S & P 500 Index. Further
examples of derivative investments the Fund may invest in include
"debt exchangeable for common stock" of an issuer or "equity-linked
debt securities" of an issuer. At maturity, the principal amount of
the debt security is exchanged for common stock of the issuer or is
payable in an amount based on the issuer's common stock price at the
time of maturity. In either case there is a risk that the amount
payable at maturity will be less than the principal amount of the
debt.
Other examples of derivative investments the Fund may invest in
are currency-indexed securities. These are typically short-term or
intermediate-term debt securities whose maturity values or interest
rates are determined by reference to one or more specified foreign
currencies. Certain currency-indexed securities purchased by the
Fund may have a payout factor tied to a multiple of the movement of
the U.S. dollar (or the foreign currency in which the security is
denominated) against the movement in the U.S. dollar, the foreign
currency, another currency, or an index. Such securities may be
subject to increased principal risk and increased volatility than
comparable securities without a payout factor in excess of one, but
the Manager believes the increased yield justifies the increased
risk.
8. The following is added under the caption "Mortgage-Backed Securities
and CMOs" on page 8 to precede the sentence that reads, "Mortgage-backed
securities may be less effective than debt obligations of similar maturity
at maintaining yields during period of declining interest rates":
The Fund may also invest in CMOs that are "stripped," that is, the
security is divided into two parts, one of which receives the principal
payments (P/O) and the other which receives the interest (I/O). I/Os
and P/Os are subject to increased volatility in price due to interest
rate changes. Rapid repayment of mortgage principal in a sharply
declining interest rate environment reduced the value of an I/O since
the interest will not be paid on prepaid mortgages, and increases the
value of the value of the corresponding P/O because the payments are
nearer. If rates rise, the value of the P/O falls as early payments
decline and the value of the I/O increases as prospects for a long
stream of interest payments increase.
9. The section captioned "Participation Interests" on page 10 is
deleted and replaced with the following:
-- Participation Interests. The Fund may acquire participation
interests in loans that are made to U.S. or foreign companies (the
"borrower"). They may be interests in, or assignments of, the loan
and are acquired from banks or brokers that have made the loan or
are members of the lending syndicate. No more than 5% of the
Fund's net assets can be invested in participation interest of the
same issuer. The Manager has set certain creditworthiness
standards for issuers of loan participations, and monitors their
creditworthiness. The value of loan participation interests depends
primarily upon the creditworthiness of the borrower, and its ability
to pay interest and principal. Borrowers may have difficulty making
payments. If a borrower fails to make scheduled interest or
principal payments, the Fund could experience a decline in the net
asset value of its shares. Some borrowers may have senior
securities rated as low as "C" by Moody's or "D" by Standard &
Poor's, but may be deemed acceptable credit risks. Participation
interests are subject to the Fund's limitations on investments in
illiquid securities. See "Illiquid and Restricted Securities".
September 30, 1994 PS280
