Oppenheimer High Yield Fund
Prospectus dated October 25, 1994
Oppenheimer High Yield 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. As a
secondary objective, the Fund seeks capital growth when consistent with
its primary objective. The Fund invests principally in lower-rated, high
yield debt securities of U.S. companies, commonly known as "junk bonds."
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 is not a complete investment program and is not
appropriate for investors unable or unwilling to assume the high degree
of risk associated with investing in lower-rated, high yield securities.
Investors should carefully consider these risks before investing. Please
refer to "Investment Policies and Strategies" for more information about
the types of securities the Fund invests in and the risks of investing in
the Fund.
The Fund offers two classes of shares: (1) Class A shares, which are sold
at a public offering price that includes a front-end sales charge, and (2)
Class B shares,which are sold without a front-end sales charge, although
you may pay a sales charge when you redeem your shares, depending on how
long you hold them. Class B shares are also subject to an annual "asset-
based sales charge." Each class of shares bears different expenses. In
deciding which class of shares to buy, you should consider how much you
plan to purchase, how long you plan to keep your shares, and other factors
discussed in "How to Buy Shares" starting on page 14.
This Prospectus explains concisely what you should know before investing
in the Fund. Please read this Prospectus carefully and keep it for future
reference. You can find more detailed information about the Fund in the
October 25, 1994, Statement of Additional Information. For a free copy,
call Oppenheimer Shareholder Services, the Fund's Transfer Agent, at 1-
800-525-7048, or write to the Transfer Agent at the address on the back
cover. The Statement of Additional Information has been filed with the
Securities and Exchange Commission and is incorporated into this
Prospectus by reference (which means that it is legally part of this
Prospectus).
Because of the Fund's investment policies and practices, the Fund's shares
may be considered to be speculative. Shares of the Fund are not deposits
or obligations of any bank, are not guaranteed by any bank, and are not
insured by the F.D.I.C. or any other agency, and involve investment risks,
including the possible loss of principal amount invested.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Contents
ABOUT THE FUND
Expenses
Financial Highlights
Investment Objective and Policies
How the Fund is Managed
Performance of the Fund
ABOUT YOUR ACCOUNT
How to Buy Shares
Class A Shares
Class B Shares
Special Investor Services
AccountLink
Automatic Withdrawal and Exchange
Plans
Reinvestment Privilege
Retirement Plans
How to Sell Shares
By Mail
By Telephone
Checkwriting
How to Exchange Shares
Shareholder Account Rules and Policies
Dividends, Capital Gains and Taxes
Appendix: Description of Ratings
<PAGE>
ABOUT THE FUND
Expenses
The Fund pays a variety of expenses directly for management of its
assets, administration, distribution of its shares and other services, and
those expenses are reflected in the Fund's net asset value per share. As
a shareholder, you pay those expenses indirectly. Shareholders pay other
expenses directly, such as sales charges. The following tables are
provided to help you understand your direct expenses of investing in the
Fund and your share of the Fund's operating expenses that you might expect
to bear indirectly. The calculations are based on the Fund's expenses
during its fiscal year ended June 30, 1994.
- Shareholder Transaction Expenses are charges you pay when you buy
or sell shares of the Fund. Please refer to pages ---- through ----- for
an explanation of how and when these charges apply.
Class A Shares Class B Shares
Maximum Sales Charge on Purchases
(as a % of offering price) 4.75% None
Sales Charge on Reinvested Dividends None None
Deferred Sales Charge
(as a % of the lower of the original
purchase price or redemption proceeds) None(1) 5% in the first
year declining
to 1% in the sixth year and
eliminated thereafter
Exchange Fee $5.00(2) $5.00(2)
(1) If you invest more than $1 million in Class A shares, you may have to
pay a sales charge of up to 1% if you sell your shares within 18
calendar months from the end of the calendar month during which you
purchased those shares. See "How to Buy Shares," below.
(2) Fee is waived for automated exchanges, as described in "How to
Exchange Shares."
- Annual Fund Operating Expenses are paid out of the Fund's assets
and represent the Fund's expenses in operating its business. For example,
the Fund pays management fees to its investment adviser, Oppenheimer
Management Corporation (the "Manager"), and other regular expenses for
services, such as transfer agent fees, custodial fees paid to the bank
that holds its portfolio securities, audit fees and legal and other
expenses. The following numbers are projections of the Fund's business
expenses based on the Fund's expenses in its last fiscal year. These
amounts are shown as a percentage of the average net assets of each class
of the Fund's shares for that year. The "12b-1 Distribution Plan Fees" for
Class A shares are the Service Plan Fees (which are a maximum of 0.25% of
average annual net assets of that class), and for Class B shares are the
Distribution and Service Plan Fee (maximum of 0.25% for the service fee)
and the asset-based sales charge of 0.75%. The actual expenses for each
class of shares in future years may be more or less, depending on a number
of factors, including the actual amount of the assets represented by each
class of shares.
An amended Service Plan for the Fund's Class A shares took effect July 1,
1994, that applies to all Class A shares of the Fund regardless of the
date on which the shares were purchased. "12b-1 Distribution Plan Fees"
are based on expenses that would have been incurred if that Plan had been
in effect during the Fund's fiscal year ended June 30, 1994.
Class A Shares Class B Shares
Management Fees .66% .66%
12b-1 Distribution Plan Fees
(restated) .20%* 1.00%**
Other Expenses .17% .22%
Total Fund Operating Expenses 1.03% 1.88%
*Service Plan fees only
**Includes Service Plan Fee and
asset-based sales charge
- Examples. To try to show the effect of these expenses on an
investment over time, we have created the hypothetical examples shown
below. Assume that you make a $1,000 investment in each class of shares
of the Fund, and that the Fund's annual return is 5%, and that its
operating expenses for each class are the ones shown in the chart above.
If you were to redeem your shares at the end of each period shown below,
your investment would incur the following expenses by the end of each
period shown:
1 year 3 years 5 years 10 years(1)
Class A Shares $58 $79 $102 $167
Class B Shares $69 $89 $122 $178
If you did not redeem your investment, it would incur the following
expenses:
Class A Shares $58 $79 $102 $167
Class B Shares $19 $59 $102 $178
(1) The Class B expenses in years 7 through 10 are based on the Class A
expenses shown above, because the Fund automatically converts your
Class B shares into Class A shares after 6 years. Long-term Class B
shareholders could pay the economic equivalent of more than the
maximum front-end sales charge allowed under applicable regulations,
because of the effect of the asset-based sales charge and contingent
deferred sales charge. The automatic conversion is designed to
minimize the likelihood that this will occur. Please refer to "How
to Buy Shares--Class B Shares" for more information.
These examples show the effect of expenses on an investment, but are not
meant to state or predict actual or expected costs or investment returns
of the Fund, all of which will vary.
Financial Highlights
The table on this page presents selected financial information about the
Fund, including per share data and expense ratios and other data based on
the Fund's average net assets. This information has been audited by
Deloitte & Touche LLP, the Fund's independent auditors, whose report on
the Fund's financial statements for the fiscal year ended June 30, 1994
is included in the Statement of Additional Information.
Class A Class B
- ------ ------
Year Year Year
Ended Ended
Ended
June 30, June 30, June 30,
1994 1993 1992 1991 1990 1989 1988 1987
1986 1985 1994 1993(1)
- ------
Per Share Operating Data:
Net asset value, beginning of period $14.16 $13.76 $13.08
$13.60
$15.42 $16.00 $17.09 $17.54 $17.15 $16.70
$14.12
$13.87
- ------
Income (loss) from investment
operations:
Net investment income 1.42 1.60 1.79 1.91 1.89
2.02
2.06 2.18 2.28 2.41 1.35 .23
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions (.54) .36 .68 (.51) (1.79)
(.68)
(1.03) (.47) .47 .44 (.60) .27
- ------ ------ ------ ------ ------ ------ ------
- ------ ------ ------ ------ ------
Total income from investment
operations .88 1.96 2.47 1.40 .10 1.34 1.03
1.71
2.75 2.85 .75 .50
- ------
Dividends from net investment income (1.41) (1.56) (1.79)
(1.92)
(1.92) (1.92) (2.12) (2.16) (2.36) (2.40)
(1.30)
(.25)
- ------
Net asset value, end of period $13.63 $14.16 $13.76 $13.08
$13.60 $15.42 $16.00 $17.09 $17.54 $17.15 $13.57
$14.12
- ------ ------ ------ ------ ------ ------ ------
- ------ ------ ------ ------ ------
- ------ ------ ------ ------ ------ ------ ------
- ------ ------ ------ ------ ------
- ------
Total Return, at Net Asset Value(2) 6.27% 15.31% 20.06%
11.90%
.85% 8.97% 6.75% 10.63% 17.26% 18.20% 5.31%
3.54%
- ------
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) $1,049,446 $1,119,056 $902,562 $657,182
$650,989 $860,588 $857,767 $760,934 $627,256 $474,972
$87,509 $10,493
- ------
Average net assets (in thousands) $1,111,103 $978,671 $768,339
$601,758 $734,703 $863,178 $791,471 $691,968 $527,731
$426,557 $51,816 $4,405
- ------
Number of shares outstanding
at end of period (in thousands) 77,002 79,047 65,581
50,258
47,870 55,810 53,617 44,531 35,767 27,690 6,449
743
- ------
Ratios to average net assets:
Net investment income 10.10% 11.59% 13.15% 14.94%
13.00%
12.88% 12.72% 12.79% 13.24% 14.13% 8.98% 10.84%(3)
Expenses .96% .97% .92% .96% .93% .88% .89%
.88%
.89% .93% 1.88% 2.28%(3)
- ------
Portfolio turnover rate(4) 96.7% 87.2% 64.0% 90.4%
63.2%
57.0% 41.1% 46.2% 90.5% 113.0% 96.7% 87.2%
1. For the period from May 3, 1993 (inception of offering) to June 30,
1993.
2. Assumes a hypothetical initial investment on the business day before
the first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption
at the net asset value calculated on the last business day of the fiscal
period. Sales charges are not reflected in the total returns.
3. Annualized.
4. The lesser of purchases or sales of portfolio securities for a year,
divided by the monthly average of the market value of portfolio securities
owned during the year. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation. Purchases and sales of investment securities (excluding
short-term securities) for the year ended June 30, 1994 were
$1,072,458,797 and $1,129,551,081, respectively.
<PAGE>
Investment Objectives and Policies
Objective. The Fund's primary objective is to earn a high level of
current income by investing mainly in a diversified portfolio of high-
yield, fixed-income securities (long-term debt and preferred stock issues,
including convertible securities). Accordingly, the Fund's investments
may be considered speculative. As a secondary objective, the Fund seeks
capital growth when consistent with its primary objective.
Investment Policies and Strategies. The high yield and high income sought
by the Fund is ordinarily associated with securities in the lower rating
categories of the established rating services.
Consistent with its primary investment objective, the Fund anticipates
that under normal conditions at least 80% of the value of its total assets
will be invested in fixed-income securities. The Fund's remaining assets
may be held in cash or cash equivalents, in rights or warrants, or
invested in common stock and other equity securities when such investments
are consistent with its investment objectives or are acquired as part of
a unit consisting of a combination of fixed-income securities and equity
investments. Since market risks are inherent in all securities to varying
degrees, there can be no assurance that the Fund's investment objectives
will be met.
- Special Risks - High Yield Securities. In seeking high current
income, the Fund may invest in higher-yielding, lower-rated debt
securities, commonly known as "junk bonds." There is no restriction on the
amount of the Fund's assets that could be invested in these types of
securities. Lower-rated debt securities are those rated "Baa" or lower
by Moody's Investors Service, Inc. ("Moody's") or "BBB" or lower by
Standard & Poor's Corporation ("S&P"). These securities may be rated as
low as "C" or "D" or may be in default at time of purchase.
The Manager does not rely solely on ratings of securities by rating
agencies when selecting investments for the Fund, but evaluates other
economic and business factors as well. The Fund may invest in unrated
securities that the Manager believes offer yields and risks comparable to
rated securities. Lower rated securities are considered speculative and
involve greater risk. They may be less liquid than higher-rated
securities. If the Fund were forced to sell a lower-rated debt security
during a period of rapidly-declining prices, it might experience
significant losses especially if a substantial number of other holders
decide to sell at the same time. An economic downturn or increase in
interest rates could disrupt an issuer's ability to pay principal and
interest to a greater extent than issuers of higher rated securities.
Other risks may involve the default of the issuer or price changes in
the issuer's securities due to changes in the issuer's financial strength
or economic conditions. The Fund is not obligated to dispose of
securities when issuers are in default or if the rating of the security
is reduced. These risks are discussed in more detail in the Statement of
Additional Information.
- Portfolio Turnover
Generally, the Fund will not trade for short-term profits, but when
circumstances warrant, to take advantage of differences in securities
prices and yields or of fluctuations in interest rates, consistent with
its investment objectives, the Fund may sell securities without regard to
the length of time held. As most purchases made by the Fund are principal
transactions at net prices, the Fund incurs little or no brokerage costs.
Short-term trading may affect the Fund's tax status.
- How the Fund's Portfolio Securities Are Rated. As of June 30, 1994,
the Fund's portfolio included corporate bonds in the following S&P rating
categories (the amounts shown are dollar-weighted average values of the
bonds in each category measured as a percentage of the Fund's total
assets): AAA, 0%; AA, 0%; A, 0%; BBB, 1.81%; BB, 8.51%; B, 45.19%; CCC,
5.29%; CC, .46%; C, 0%; D, .40%; unrated (by S&P or Moody's), 10.73%. The
Appendix to this Prospectus describes the rating categories. The
allocation of the Fund's assets in securities in the different rating
categories will vary over time.
- Interest Rate Risks. In addition to credit risks, described below,
debt securities are subject to changes in value due to changes in
prevailing interest rates. When prevailing interest rates fall, the
values of outstanding debt securities generally rise. Conversely, when
interest rates rise, the values of outstanding debt securities generally
decline. The magnitude of these fluctuations will be greater when the
average maturity of the portfolio securities is longer.
- Credit Risks. Debt securities are also subject to credit risks.
Credit risk relates to the ability of the issuer of a debt security to
make interest or principal payments on the security as they become due.
Generally, higher-yielding, lower-rated bonds (which are the type of bonds
the Fund seeks to invest in) are subject to greater credit risk than
higher-rated bonds. Securities issued or guaranteed by the U.S.
Government are subject to little, if any, credit risk if they are backed
by the "full faith and credit of the U.S. Government," which in general
terms means that the U.S. Treasury stands behind the obligation to pay
interest and principal. While the Manager may rely to some extent on
credit ratings by nationally recognized rating agencies, such as Standard
& Poor's or Moody's, in evaluating the credit risk of securities selected
for the Fund's portfolio, it may also use its own research and analysis.
However, many factors affect an issuer's ability to make timely payments,
and there can be no assurance that the credit risks of a particular
security will not change over time.
- Can the Fund's Investment Objective and Policies Change? The Fund
has an investment objective, which is described above, as well as
investment policies it follows to try to achieve its objective.
Additionally, the Fund uses certain investment techniques and strategies
in carrying out those policies. The Fund's investment policies and
practices are not "fundamental" unless the Prospectus or Statement of
Additional Information says that a particular policy is "fundamental."
Fundamental policies are those that cannot be changed without the
approval of a "majority" of the Fund's outstanding voting shares. The
term "majority" is defined in the Investment Company Act to be a
particular percentage of outstanding voting shares (and this term is
explained in the Statement of Additional Information). The Fund's
investment objective is a fundamental policy. The Fund's Board of Trustees
may change non-fundamental policies without shareholder approval, although
significant changes will be described in amendments to this Prospectus.
Other Investment Techniques and Strategies. The Fund may also use the
investment techniques and strategies described below, which involve
certain risks. The Statement of Additional Information
contains more information about these practices, including limitations
designed to reduce some of the risks.
- Foreign Securities. The Fund may purchase debt (and equity)
securities issued or guaranteed by foreign companies or foreign
governments or their agencies. The Fund may buy securities of companies
in any country, developed or underdeveloped. There is no limit on the
amount of the Fund's assets that may be invested in foreign securities.
Foreign currency will be held by the Fund only in connection with the
purchase or sale of foreign securities. If the Fund's securities are held
abroad, the countries in which they are held and the sub-custodians
holding them must be approved by the Fund's Board of Trustees.
Foreign securities have special risks. For example, foreign issuers are
not subject to the same accounting and disclosure requirements that U.S.
companies are subject to. The value of foreign investments may be affected
by changes in foreign currency rates, exchange control regulations,
expropriation or nationalization of a company's assets, foreign taxes,
delays in settlement of transactions, changes in governmental economic or
monetary policy in the U.S. or abroad, or other political and economic
factors. More information about the risks and potential rewards of
investing in foreign securities is contained in the Statement of
Additional Information.
- 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, currency or commodity. In the broadest sense, derivative
investments include exchange-traded options and futures contracts (see
"Writing Covered Calls" and "Hedging with Options and Futures Contracts"),
as well as the investments discussed in this section. 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" or "commodity-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 or an index of commodity futures,
such as crude oil, gasoline or natural gas. 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.
- - Writing Covered Calls. The Fund may write (that is, sell) covered call
options ("calls") to generate income. The Fund receives cash (called a
premium) when it writes a call. The call gives the buyer the ability to
buy the security from the Fund at the call price during the period in
which the call may be exercised. If the value of the security does not
rise above the call price, it is likely that the call will lapse without
being exercised, while the Fund keeps the cash premium (and the security).
The Fund may write calls only if the following conditions are met: (i)
the calls are listed on a domestic 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 the 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. The Fund can also write covered calls on Futures
Contracts it owns (these are described in the next section), but these
calls must be covered by securities or other liquid assets the Fund owns,
which the Fund must segregate from its other assets so that it will be
able to satisfy its delivery obligations if the call is exercised.
If a covered call written by the Fund is exercised, the Fund will be
required to sell the security at the call price and will not be able to
realize any profit if the security has increased in value above the call
price.
- 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.
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
("puts") 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. Buying a put on an investment gives the Fund the
right to sell the investment to a seller of a put on that investment at
a set price. 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.
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.
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.
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.
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 to market that amount daily.
Hedging instruments can be volatile investments and may involve special
risks. 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 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.
- -When-Issued Securities. The Fund may invest in debt securities on a
"when-issued" or "delayed delivery" basis. In those transactions, the
Fund obligates itself to purchase or sell securities with delivery and
payment to occur at a later date to secure what is considered to be an
advantageous price and yield at the time the obligation is entered into.
The price, which is generally expressed in yield terms, is fixed at the
time the commitment to purchase is made, but delivery and payment for
when-issued securities takes place at a later date (normally within 45
days of purchase). The Fund is subject to the risk of adverse market
fluctuation between purchase and settlement. During the period between
purchase and settlement, no payment is made by the Fund for the security,
and no interest accrues to the Fund from the investment. Although the
Fund is subject to the risk of market fluctuation between purchase and
settlement, the Manager does not believe that the Fund's net asset value
or income will be materially adversely affected by its purchase of
securities on a "when-issued" or "delayed delivery" basis. See
"Investment Objectives and Policies--When-Issued and Delayed Delivery
Transactions" in the Additional Statement for more details.
- -Asset-Backed Securities. The Fund may invest in securities which
represent undivided fractional interests in pools of consumer loans,
similar in structure to the mortgaged-backed securities in which the Fund
may invest, described below. Payments of principal and interest are
passed through to holders of asset-backed securities and are typically
supported by some form of credit enhancement, such as a letter of credit,
surety bond, limited guarantee by another entity or having a priority to
certain of the borrower's other securities. The degree of credit
enhancement varies, and generally applies to only a fraction of the asset-
backed security's par value until exhausted. If the credit enhancement
of an asset-backed security held by the Fund has been exhausted, and if
any required payments of principal and interest are not made with respect
to the underlying loans, the Fund may experience losses or delays in
receiving payment. Further details are set forth in the Additional
Statement under "Investment Objectives and Policies -- Asset-Backed
Securities."
- -Mortgage-Backed Securities and CMOs. The Fund's investments may include
securities which represent participation interests in pools of residential
mortgage loans which may or may not be guaranteed by agencies or
instrumentalities of the U.S. Government (e.g., GNMA, FNMA and FHLMC
certificates), including collateralized mortgage-backed obligations
(CMOs). Such securities differ from conventional debt securities which
provide for periodic payment of interest in fixed amounts (usually semi-
annually) with principal payments at maturity or specified call dates.
Mortgage-backed securities provide monthly payments which are, in effect,
a "pass-through" of the monthly interest and principal payments (including
any prepayments) made by the individual borrowers on the pooled mortgage
loans. The Fund's reinvestment of scheduled principal payments and
unscheduled prepayments it receives may occur at lower rates than the
original investment, thus reducing the yield of the Fund. CMOs in which
the Fund may invest are securities issued by a U.S. Government
instrumentality that are collateralized by a portfolio of mortgages or
mortgage-backed securities. The issuer's obligation to make interest and
principal payments is secured by the underlying portfolio of mortgages or
mortgage-backed securities. 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 will reduce the value of
an I/O since the interest will not be paid on prepaid mortgages, and
increases 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. Mortgage-backed securities may be less
effective than debt obligations of similar maturity at maintaining yields
during periods of declining interest rates. The Fund may also enter into
"forward roll" transactions with banks that provide for future delivery
of the mortgage-backed securities in which it may invest. The Fund would
be required to place cash, U.S. Government securities or other high-grade
debt securities in a segregated account with its Custodian in an amount
equal to its purchase payment obligation under the roll. Further details
are set forth in the Additional Statement under "Mortgage-Backed
Securities."
- Loans of Portfolio Securities. To raise cash for liquidity purposes,
the Fund may lend its portfolio securities to certain types of eligible
borrowers approved by the Board of Trustees. Each loan must be
collateralized in accordance with applicable regulatory requirements.
After any loan, the value of the securities loaned must not exceed 10% of
the value of the Fund's net 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. The Fund presently does not intend to engage in loans
of securities that will exceed 5% of the value of the Fund's total assets
in the coming year.
- Illiquid and Restricted Securities. Under the policies established
by the Fund's Board of Trustees, the Manager determines the liquidity of
certain of the Fund's investments. Investments may be illiquid because of
the absence of an active trading market, making it difficult to value them
or dispose of them promptly at an acceptable price. A restricted security
is one that has a contractual restriction on its resale or which cannot
be sold publicly until it is registered under the Securities Act of 1933.
The Fund currently intends to invest no more than 10% of its net assets
in illiquid and restricted securities. (That limit may increase to 15%
if certain state laws are changed or if the Fund's shares are no longer
sold in those states). Certain restricted securities, eligible for resale
to qualified institutional purchasers, are not subject to that limit.
- Repurchase Agreements. The Fund may enter into repurchase
agreements. There is no limit on the amount of the Fund's net assets that
may be subject to repurchase agreements of seven days or less. Repurchase
agreements must be fully collateralized. However, if the vendor of the
securities under a repurchase agreement 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 Fund will not enter into a repurchase agreement which causes more than
10% of its net assets to be subject to repurchase agreements having a
maturity beyond seven days.
- Participation Interests. The Fund may acquire participation
interests in U.S. dollar-denominated 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. The Manager has
set certain creditworthiness standards for issuers of loan participations,
and monitors their creditworthiness. Some borrowers may have senior
securities rated as low as "C" by Moody's or "D" by S&P, but may be deemed
acceptable credit risks. Participation interests are considered
investments in illiquid securities (see "Illiquid and Restricted
Securities," above). Their value primarily depends 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 reduction in its income and a decline in the net asset value
of its shares. Further details are set forth in the Additional Statement
under "Investment Objective and Policies."
- Temporary Defensive Investments. When market prices are falling or
in other unusual economic or business circumstances, the Fund may invest
all or a portion of its assets in defensive securities. Securities
selected for defensive purposes may include cash or cash equivalents, such
as U.S. Treasury Bills and other short-term obligations of the U.S.
Government, its agencies or instrumentalities, or commercial paper rated
"A-1" or better by Standard & Poor's Corporation or "P-1" or better by
Moody's Investors Service, Inc.
Other Investment Restrictions. The Fund has other investment restrictions
which are fundamental policies. Under these fundamental policies, the
Fund cannot do any of the following: (1) buy securities issued or
guaranteed by any one issuer (except the U.S. Government or its agencies
or instrumentalities) if with respect to 75% of its total assets, more
than 5% of the Fund's total assets would be invested in the securities of
that issuer, or the Fund would then own more than 10% of that issuer's
voting securities; (2) borrow money, except from banks as a temporary
measure for extraordinary or emergency purposes and not for the purpose
of leveraging its investments, and then only up to 10% of the market value
of the Fund's assets; no additional investments may be made whenever
borrowings exceed 5% of the Fund's assets; (3) buy a security if, as a
result of such purchase, more than 25% of its total assets would be
invested in the securities of issuers principally engaged in the same
industry; for purposes of this limitation, utilities will be divided
according to their services; for example, gas, gas transmission, electric
and telephone utilities will each be considered a separate industry; (4)
make loans, except by purchasing debt obligations in which the Fund may
invest consistent with its investment policies, or by entering into
repurchase agreements or as described in "Loans of Portfolio Securities";
(5) invest more than 5% of the value of its assets in rights and warrants
nor more than 2% of such value in rights and warrants which are not listed
on the New York or American Stock Exchanges; rights and warrants attached
to other securities or acquired in units are not subject to this
limitation; or (6) buy securities of an issuer which, together with any
predecessor, has been in operation for less than three years, if as a
result, the aggregate of such investments would exceed 5% of the value of
the Fund's net assets.
All of the percentage restrictions described above and elsewhere in this
Prospectus apply only at the time the Fund purchases a security, and the
Fund need not dispose of a security merely because the Fund's assets have
changed or the security has increased in value relative to the size of the
Fund. There are other fundamental policies discussed in the Statement of
Additional Information.
How the Fund is Managed
Organization and History. The Fund was originally incorporated in
Maryland in 1978 but was reorganized in 1986 as a Massachusetts business
trust. The Fund is an open-end, diversified management investment company,
with an unlimited number of authorized shares of beneficial interest.
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.
"Trustees and Officers of the Fund" in the Statement of Additional
Information names the Trustees and provides more information about them
and the officers of the Fund. Although the Fund is not required by law
to hold annual meetings, 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.
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 two classes of shares, Class A and
Class B. Each class has its own dividends and distributions and pays
certain expenses which may be different for the different classes. Each
class may have a different net asset value. Each share has one vote at
shareholder meetings, with fractional shares voting proportionally. Only
shares of a particular class vote together on matters that affect that
class alone. Shares are freely transferrable.
The Manager and Its Affiliates. The Fund is managed by the Manager, which
chooses the Fund's investments and handles its day-to-day business. The
Manager carries out its duties, subject to the policies established by the
Board of Trustees, under an Investment Advisory Agreement which states the
Manager's responsibilities and its fees, and describes the expenses that
the Fund pays to conduct its business.
The Manager has operated as an investment adviser since 1959. The
Manager and its affiliates currently manage investment companies,
including other OppenheimerFunds, with assets of more than $28 billion as
of June 30, 1994, and with more than 1.8 million shareholder accounts.
The Manager is owned by Oppenheimer Acquisition Corp., a holding company
that is owned in part by senior officers of the Manager and controlled by
Massachusetts Mutual Life Insurance Company, a mutual life insurance
company.
- Portfolio Manager. The Portfolio Manager of the Fund is Ralph
Stellmacher. He has been the person principally responsible for the day-
to-day management of the Fund's portfolio, since January, 1988. Mr.
Stellmacher is a Senior Vice President of the Manager and Vice President
of the Fund, and also serves as an officer of other OppenheimerFunds.
- Fees and Expenses. Under the Investment Advisory Agreement, the Fund
pays the Manager the following annual fees, which decline on additional
assets as the Fund grows: 0.75% of the first $200 million of aggregate 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 the next $200 million and
0.50% of aggregate net assets over $1 billion. The Fund's management fee
for its last fiscal year was 0.66% of average annual net assets for both
Class A and Class B shares, which may be higher than the rate paid by some
other mutual funds.
The Fund pays expenses related to its daily operations, such as
custodian fees, Trustees' fees, transfer agency fees, legal 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. More information about the investment advisory
agreement and the other expenses paid by the Fund is contained in the
Statement of Additional Information.
There is also information about the Fund's brokerage policies and
practices in "Brokerage Policies of the Fund" in the Statement of
Additional Information. That section discusses how brokers and dealers are
selected for the Fund's portfolio transactions. When deciding which
brokers to use, the Manager is permitted by the investment advisory
agreement to consider whether brokers have sold shares of the Fund or any
other funds for which the Manager serves as investment adviser.
- The Distributor. The Fund's shares are sold through dealers and
brokers that have a sales agreement with Oppenheimer Funds Distributor,
Inc., a subsidiary of the Manager that acts as the Distributor. The
Distributor also distributes the shares of other mutual funds managed by
the Manager (the "OppenheimerFunds") and is sub-distributor for funds
managed by a subsidiary of the Manager.
- The Transfer Agent. The Fund's transfer agent is Oppenheimer
Shareholder Services, a division of the Manager, which acts as the
shareholder servicing agent for the Fund and the other OppenheimerFunds
on an "at-cost" basis. Shareholders should direct inquiries about their
account to the Transfer Agent at the address and toll-free numbers shown
below in this Prospectus and on the back cover.
Performance of the Fund
Explanation of Performance Terminology. The Fund uses certain terms to
illustrate its performance: "total return," "average annual total return"
and "yield." These terms are used to show the performance of each class
of shares separately, because the performance of each class of shares will
usually be different, as a result of the different kinds of expenses each
class bears. This performance information may be useful to help you see
how well your investment has done and to compare it to other funds or
market indices, as we have done below.
It is important to understand that the fund's yields and total returns
represent past performance and should not be considered to be predictions
of future returns or performance. This performance data is described
below, but more detailed information about how total returns and yields
are calculated is contained in the Statement of Additional Information,
which also contains information about other ways to measure and compare
the Fund's performance. The Fund's investment performance will vary,
depending on market conditions, the composition of the portfolio, expenses
and which class of shares you purchase.
- Total Returns. There are different types of total returns used 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. 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 the Fund's actual year-by-year
performance.
When total returns are quoted for Class A shares, they reflect the
payment of the maximum initial sales charge. Total returns may also be
quoted "at net asset value," without considering the effect of the sales
charge, and those returns would be reduced if sales charges were deducted.
When total returns are shown for Class B shares, they reflect the effect
of the contingent deferred sales charge. They may also be shown based on
the change in net asset value, without considering the effect of the
contingent deferred sales charge.
- Yield. Each Class of shares calculates its yield by dividing the
annualized net investment income per share on the portfolio during a
30-day period by the maximum offering price on the last day of the period.
The yield of each Class will differ because of the different expenses of
each Class of shares. The yield data represents a hypothetical investment
return on the portfolio, and does not measure an investment return based
on dividends actually paid to shareholders. To show that return, a
dividend yield may be calculated. Dividend yield is calculated by
dividing the dividends of a Class derived from net investment income
during a stated period by the maximum offering price on the last day of
the period. Yields and dividend yields for Class A shares reflect the
deduction of the maximum initial sales charge, but may also be shown based
on the Fund's net asset value per share. Yields for Class B shares do not
reflect the deduction of the contingent deferred sales charge.
How Has the Fund Performed? Below is a discussion by the Manager of the
Fund's performance during its last fiscal year ended June 30, 1994,
followed by a graphical comparison of the Fund's performance to an
appropriate broad-based market index and a narrower market index.
- Management's Discussion of Performance. During the Fund's past
fiscal year, the Manager began shortening the average maturity of the
Fund's portfolio, in expectation of a stable or rising interest rate
environment. This was designed to help reduce share price declines when
interest rates increase, because shorter-term bonds are less sensitive to
interest rate changes than longer-term bonds. The portfolio includes
lower-rated bonds in cyclical industries, which are less sensitive to
interest rate changes and are expected to perform well as the economy
grows.
- Comparing the Fund's Performance to the Market. The chart below
shows the performance of a hypothetical $10,000 investment in each Class
of shares of the Fund held until June 30, 1994; in the case of Class A
shares, over a ten-year period, and in the case of Class B shares, from
the inception of the Class on May 3, 1993, with all dividends and capital
gains distributions reinvested in additional shares. The graph reflects
the deduction of the 4.75% maximum initial sales charge on Class A shares
and the maximum 5.0% contingent deferred sales charge on Class B shares.
The Fund's performance is compared to the performance of the Lehman
Brothers Corporate Bond Index and the Salomon Brothers High Yield Market
Index. The Lehman Brothers Corporate Bond Index is an unmanaged index of
publicly-issued nonconvertible investment grade corporate debt of U.S.
issuers, widely recognized as a measure of the U.S. fixed-rate corporate
bond market. The Salomon Brothers High Yield Market Index is an unmanaged
index of below-investment grade (but rated at least BB+/Ba1 by S&P or
Moody's) U.S. corporate debt obligations, widely recognized as a measure
of the performance of the high-yield corporate bond market, the market in
which the Fund principally invests. Index performance reflects the
reinvestment of dividends but does not consider the effect of capital
gains or transaction costs, and none of the data below shows the effect
of taxes. Also, the Fund's performance reflects the effect of Fund
business and operating expenses. While index comparisons may be useful
to provide a benchmark for the Fund's performance, it must be noted that
the Fund's investments are not limited to the securities in any one index.
Moreover, the index data does not reflect any assessment of the risk of
the investments included in the index.
Comparison of Change in Value
of $10,000 Hypothetical Investment in:
Oppenheimer High Yield Fund,
the Lehman Brothers Corporate Bond Index
and the Salomon Brothers High Yield Market Index
(Graph)
Past performance is not predictive of future performance.
Oppenheimer High Yield Fund
Average Annual Total Returns of the Fund at 6/30/94
1-Year 5-Year 10-Year
Class A: 1.22% 9.60% 10.93%
Average Annual Total Return of the Fund at 6/30/94
1-Year Life*
Class B: 0.31% 4.34%
_________________________________________
* Class B shares of the Fund first publicly offered on 5/3/93.
ABOUT YOUR ACCOUNT
How to Buy Shares
Classes of Shares. The Fund offers investors two different classes of
shares. The different classes of shares represent investments in the same
portfolio of securities but are subject to different expenses and will
likely have different share prices.
- Class A Shares. When you buy Class A shares, you pay an initial
sales charge (on investments up to $1 million). If you purchase shares of
the Fund as part of an investment of at least $1 million in shares of one
or more OppenheimerFunds, you will not pay an initial sales charge but if
you sell any of those shares within 18 months after your purchase, you may
pay a contingent deferred sales charge, which will vary depending on the
amount you invested.
- Class B Shares. If you buy Class B shares, you pay no sales charge
at the time of purchase, but if you sell your shares within six years of
buying them, you will normally pay a contingent deferred sales charge that
varies depending on how long you own your shares.
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 better suited to your needs depends on a number of factors which
you should discuss with your financial advisors:
- How Much Do You Plan to Invest? If you plan to invest a
substantial amount over the long term, the reduced sales charges available
for larger purchases of Class A shares may be more beneficial to you than
purchasing Class B shares, because of the higher annual expenses Class B
shares will likely bear. For purchases over $1 million, the contingent
deferred sales charge on Class A shares may be more beneficial. The
Distributor will not accept any order for $1 million or more for Class B
shares on behalf of a single investor for that reason.
- How Long Do You Expect to Hold Your Investment? While future
financial needs cannot be predicted with certainty, investors who prefer
not to pay an initial sales charge and who plan to hold their shares for
more than six years might consider Class B shares. Investors who plan to
redeem shares within seven years might consider whether the front-end
sales charge on Class A shares would result in higher net expenses after
redemption.
- Are There Differences in Account Features That Matter to You?
Because some account features may not be available for Class B
shareholders, you should carefully review how you plan to use your
investment account before deciding which class of shares is better for
you. Additionally, the dividends payable to Class B shareholders will be
reduced by the additional expenses borne solely by that class, such as the
asset-based sales charge to which Class B shares are subject, as described
below and in the Statement of Additional Information.
- How Does It Affect Payments to My Broker? A salesperson or any
other person who is entitled to receive compensation for selling Fund
shares may receive different compensation for selling one class than for
selling another class. It is important that investors understand that the
purpose of the contingent deferred sales charge and asset-based sales
charge for Class B shares is the same as the purpose of the front-end
sales charge on sales of Class A shares.
How Much Must You Invest? You can open a Fund account 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:
With Asset Builder Plans, Automatic Exchange Plans, 403(b)(7)
custodial plans and military allotment plans, you can make initial and
subsequent investments of as little as $25; and subsequent purchases of
at least $25 can be made by telephone through AccountLink.
Under pension and profit-sharing plans and Individual Retirement
Accounts (IRAs), you can make an initial investment of as little as $250
(if your IRA is established under an Asset Builder Plan, the $25 minimum
applies), and subsequent investments may be as little as $25.
There is no minimum investment requirement if you are buying shares
by reinvesting dividends from the Fund or other OppenheimerFunds (a list
of them appears in the Statement of Additional Information, or you can ask
your dealer or call the Transfer Agent), or by reinvesting distributions
from unit investment trusts that have made arrangements with the
Distributor.
- How Are Shares Purchased? You can buy shares several ways -- through
any dealer, broker or financial institution that has a sales agreement
with the Distributor, or directly through the Distributor, or
automatically from your bank account through an Asset Builder Plan under
the OppenheimerFunds AccountLink service. When you buy shares, be sure to
specify Class A or Class B shares. If you do not choose, your investment
will be made in Class A shares.
- Buying Shares Through Your Dealer. Your dealer will place your order
with the Distributor on your behalf.
- Buying Shares Through the Distributor. Complete an OppenheimerFunds
New Account Application and return it with a check payable to "Oppenheimer
Funds Distributor, Inc." Mail it to P.O. Box 5270, Denver, Colorado 80217.
If you don't list a dealer on the application, the Distributor will act
as your agent in buying the shares.
- Buying Shares Through OppenheimerFunds AccountLink. You can use
AccountLink to link your Fund account with an account at a U.S. bank or
other financial institution that is an Automated Clearing House (ACH)
member, to transmit funds electronically to purchase shares, to send
redemption proceeds, and to transmit dividends and distributions. Shares
are purchased for your account on the regular business day the Distributor
is instructed by you to initiate the ACH transfer to buy shares. You can
provide those instructions automatically, under an Asset Builder Plan,
described below, or by telephone instructions using OppenheimerFunds
PhoneLink, also described below. You must request AccountLink privileges
on the application or dealer settlement instructions used to establish
your account. Please refer to "AccountLink" below for more details.
- Asset Builder Plans. You may purchase shares of the Fund (and up to
four other OppenheimerFunds) automatically each month from your account
at a bank or other financial institution under an Asset Builder Plan with
AccountLink. Details are on the Application and in the Statement of
Additional Information.
- At What Price Are Shares Sold? Shares are sold at the public
offering price based on the net asset value that is next determined after
the Distributor receives the purchase order in Denver. In most cases, to
enable you to receive that day's offering price, the Distributor must
receive your order by 4:00 P.M., New York time (all references to time in
this Prospectus mean "New York time"). The net asset value of each class
of shares is determined as of that time on each day The New York Stock
Exchange is open (which is a "regular business day"). If you buy shares
through a dealer, the dealer must receive your order by 4:00 P.M., on a
regular business day and transmit it to the Distributor so that it is
received before the Distributor's close of business that day, which is
normally 5:00 P.M. The Distributor may reject any purchase order for the
Fund's shares, in its sole discretion.
Class A Shares. Class A shares are sold at their offering price, which
is normally net asset value plus an initial sales charge. However, in
some cases, described below, where purchases are not subject to an initial
sales charge, the offering price may be net asset value. In some cases,
reduced sales charges may be available, as described below. Out of the
amount you invest, the Fund receives the net asset value to invest for
your account. The sales charge varies depending on the amount of your
purchase. A portion of the sales charge may be retained by the
Distributor and allocated to your dealer. The current sales charge rates
and commissions paid to dealers and brokers are as follows:
Front-End
Front-End Sales Charge as Commission
Sales Charge as Approximate as Percentage
Percentage of Percentage of of Offering
Amount of Purchase Offering Price Amount Invested Price
Less than $50,000 4.75% 4.98% 4.00%
$50,000 or more
but less than $100,000 4.50% 4.71% 3.75%
$100,000 or more
but less than $250,000 3.50% 3.63% 2.75%
$250,000 or more
but less than $500,000 2.50% 2.56% 2.00%
$500,000 or more but less
than $1 million 2.00% 2.04% 1.60%
$1 million or more None None None
The Distributor reserves the right to reallow the entire commission
to dealers. If that occurs, the dealer may be considered an "underwriter"
under Federal securities laws.
- Class A Contingent Deferred Sales Charge. There is no initial
sales charge on purchases of Class A shares of any one or more
OppenheimerFunds aggregating $1 million or more. However, the Distributor
pays dealers of record commissions on such purchases in an amount equal
to the sum of 1.0% of the first $2.5 million, plus 0.50% of the next $2.5
million, plus 0.25% of share purchases over $5 million. That commission
will be paid only on the amount of those purchases in excess of $1 million
that were not previously subject to a front-end sales charge and dealer
commission.
If you redeem any of those shares within 18 months of the end of the
calendar month of their purchase, a contingent deferred sales charge
(called the "Class A contingent deferred sales charge") will be deducted
from the redemption proceeds. That sales charge will be equal to 1.0% of
the aggregate net asset value of either (1) the redeemed shares (not
including shares purchased by reinvestment of dividends or capital gain
distributions) or (2) the original cost of the shares, whichever is less.
However, the Class A contingent deferred sales charge will not exceed the
aggregate commissions the Distributor paid to your dealer on all Class A
shares of all OppenheimerFunds you purchased subject to the Class A
contingent deferred sales charge. In determining whether a contingent
deferred sales charge is payable, the Fund will first redeem shares that
are not subject to the sales charge, including shares purchased by
reinvestment of dividends and capital gains, and then will redeem other
shares in the order that you purchased them. The Class A contingent
deferred sales charge is waived in certain cases described in "Waivers of
Class A Sales Charges" below.
No Class A contingent deferred sales charge is charged on exchanges
of shares under the Fund's Exchange Privilege (described below). However,
if the shares acquired by exchange are redeemed within 18 months of the
end of the calendar month of the purchase of the exchanged shares, the
sales charge will apply.
- Special Arrangements With Dealers. The Distributor may advance
up to 13 months' commissions to dealers that have established special
arrangements with the Distributor for Asset Builder Plans for their
clients. Dealers whose sales of Class A shares of OppenheimerFunds (other
than money market funds) under OppenheimerFunds-sponsored 403(b)(7)
custodial plans exceed $5 million per year (calculated per quarter), will
receive monthly one-half of the Distributor's retained commissions on
those sales, and if those sales exceed $10 million per year, those dealers
will receive the Distributor's entire retained commission on those sales.
Reduced Sales Charges for Class A Share Purchases. You may be eligible
to buy Class A shares at reduced sales charge rates in one or more of the
following ways:
- Right of Accumulation. You and your spouse can cumulate Class A
shares you purchase for your own accounts, or jointly, or on behalf of
your children who are minors, under trust or custodial accounts. A
fiduciary can cumulate shares purchased for a trust, estate or other
fiduciary account (including one or more employee benefit plans of the
same employer) that has multiple accounts.
Additionally, you can cumulate current purchases of Class A shares
of the Fund and other OppenheimerFunds with Class A shares of
OppenheimerFunds you previously purchased subject to a sales charge,
provided that you still hold your investment in one of the
OppenheimerFunds. The value of those shares will be based on the greater
of the amount you paid for the shares or their current value (at offering
price). The OppenheimerFunds are listed in "Reduced Sales Charges" in the
Statement of Additional Information, or a list can be obtained from the
Transfer Agent. The reduced sales charge will apply only to current
purchases and must be requested when you buy your shares.
- Letter of Intent. Under a Letter of Intent, you may purchase
Class A shares of the Fund and other OppenheimerFunds during a 13-month
period at the reduced sales charge rate that applies to the aggregate
amount of the intended purchases, including purchases made up to 90 days
before the date of the Letter. More information is contained in the
Application and in "Reduced Sales Charges" in the Statement of Additional
Information.
- Waivers of Class A Sales Charges. No sales charge is imposed on
sales of Class A shares to the following investors: (1) the Manager or its
affiliates; (2) present or former officers, directors, trustees and
employees (and their "immediate families" as defined in "Reduced Sales
Charges" in the Statement of Additional Information) of the Fund, the
Manager and its affiliates, and retirement plans established by them for
their employees; (3) registered management investment companies, or
separate accounts of insurance companies having an agreement with the
Manager or the Distributor for that purpose; (4) dealers or brokers that
have a sales agreement with the Distributor, if they purchase shares for
their own accounts or for retirement plans for their employees; (5)
employees and registered representatives (and their spouses) of dealers
or brokers described above or financial institutions that have entered
into sales arrangements with such dealers or brokers (and are identified
to the Distributor) or with the Distributor; the purchaser must certify
to the Distributor at the time of purchase that the purchase is for the
purchaser's own account (or for the benefit of such employee's spouse or
minor children); (6) dealers, brokers or registered investment advisers
that have entered into an agreement with the Distributor providing
specifically for the use of shares of the Fund in particular investment
products made available to their clients; (7) dealers, brokers or
registered investment advisers that have entered into an agreement with
the Distributor to sell shares to defined contribution employee retirement
plans for which the dealer, broker or investment adviser provides
administrative services.
Additionally, no sales charge is imposed on shares that are (a)
issued in plans of reorganization, such as mergers, asset acquisitions and
exchange offers, to which the Fund is a party, or (b) purchased by the
reinvestment of loan repayments by a participant in a retirement plan for
which the Manager or its affiliates acts as sponsor, or (c) purchased by
the reinvestment of dividends or other distributions reinvested from the
Fund or other OppenheimerFunds (other than Oppenheimer Cash Reserves) or
unit investment trusts for which reinvestment arrangements have been made
with the Distributor. There is a further discussion of this policy in
"Reduced Sales Charges" in the Statement of Additional Information.
The Class A contingent deferred sales charge does not apply to
purchases of Class A shares at net asset value, described above and also
waived if shares are redeemed in the following cases: (1) retirement
distributions or loans to participants or beneficiaries from qualified
retirement plans, deferred compensation plans or other employee benefit
plans ("Retirement Plans"), (2) returns of excess contributions made to
Retirement Plans, (3) Automatic Withdrawal Plan payments that are limited
to no more than 12% of the original account value annually, (4)
involuntary redemptions of shares by operation of law or under the
procedures set forth in the Fund's Declaration of Trust or adopted by the
Board of Trustees, and (5) if at the time an order is placed for Class A
shares that would otherwise be subject to the Class A contingent deferred
sales charge, the dealer agrees to accept the dealer's portion of the
commission payable on the sale in installments of 1/18th of the commission
per month (with no further commission payable if the shares are redeemed
within 18 months of purchase).
- Service Plan for Class A Shares. The Fund has adopted a Service
Plan for Class A shares to reimburse the Distributor for a portion of its
costs incurred in connection with the personal service and maintenance of
accounts that hold Class A shares. Reimbursement is made quarterly at an
annual rate that may not exceed 0.25% of the average annual net assets of
Class A shares of the Fund. The Distributor uses all of those fees to
compensate dealers, brokers, banks and other financial institutions
quarterly for providing personal service and maintenance of accounts of
their customers that hold Class A shares and to reimburse itself (if the
Fund's Board of Trustees authorizes such reimbursements, which it has not
yet done) for its other expenditures under the Plan.
Services to be provided 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.
Payments are made by the Distributor quarterly at an annual rate not to
exceed 0.25% of the average annual net assets of Class A shares held in
accounts of the dealer or its customers. The payments under the Plan
increase the annual expenses of Class A shares. For more details, please
refer to "Distribution and Service Plans" in the Statement of Additional
Information.
Class B Shares. Class B shares are sold at net asset value per share
without an initial sales charge. However, if Class B shares are redeemed
within 6 years of their purchase, a contingent deferred sales charge will
be deducted from the redemption proceeds. That sales charge will not
apply to shares purchased by the reinvestment of dividends or capital
gains distributions. The charge will be assessed on the lesser of the net
asset value of the shares at the time of redemption or the original
purchase price. The contingent deferred sales charge is not imposed on the
amount of your account value represented by the increase in net asset
value over the initial purchase price (including increases due to the
reinvestment of dividends and capital gains distributions). The Class B
contingent deferred sales charge is paid to the Distributor to reimburse
its expenses of providing distribution-related services to the Fund in
connection with the sale of Class B shares.
To determine whether the contingent deferred sales charge applies to
a redemption, the Fund redeems shares in the following order: (1) shares
acquired by reinvestment of dividends and capital gains distributions, (2)
shares held for over 6 years, and (3) shares held the longest during the
6-year period.
The amount of the contingent deferred sales charge will depend on the
number of years since you invested and the dollar amount being redeemed,
according to the following schedule:
Contingent Deferred Sales Charge
Years Since Purchase On Redemptions in That Year
Payment Was Made (As % of Amount Subject to Charge)
- --------------------------------------------------------------
0-1 5.0%
- --------------------------------------------------------------
1-2 4.0%
- --------------------------------------------------------------
2-3 3.0%
- --------------------------------------------------------------
3-4 3.0%
- --------------------------------------------------------------
4-5 2.0%
- --------------------------------------------------------------
5-6 1.0%
- --------------------------------------------------------------
6 and following None
- --------------------------------------------------------------
In the table, a "year" is a 12-month period. All purchases are considered
to have been made on the first regular business day of the month in which
the purchase was made.
- Waivers of Class B Sales Charge. The Class B contingent deferred
sales charge will be waived if the shareholder requests it for any of the
following redemptions: (1) 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; (2) redemptions from accounts
other than Retirement Plans following the death or disability by the
Social Security Administration); (3) returns of excess contributions to
Retirement Plans; and (4) distributions from IRAs (including SEP-IRAs and
SAR-SEP accounts) before the participant is age 59-1/2, and distributions
from 403(b)(7) custodial plans or pension or pension or profit sharing
plans before the participant is age 59-1/2 but only after the participant
has separated from service, if the distributions are made in substantially
equal periodic payments over the life (or life expectancy) of the
participant or the joint lives (or joint and last survivor expectancy) of
the participant and the participant's designated beneficiary (and the
distributions must comply with the other requirements for such
distributions under the Internal Revenue Code and may not exceed 10% of
the account value annually, measured from the date the Transfer Agent
receives the request).
The contingent deferred sales charge is also waived on Class B shares
in the following cases: (i) shares sold to the Manager or its affiliates;
(ii) 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; (iii) shares issued in plans of
reorganization to which the Fund is a party; and (iv) shares redeemed in
involuntary redemptions as described below. Further details about this
policy are contained in "Reduced Sales Charges" in the Statement of
Additional Information.
- Automatic Conversion of Class B Shares. 72 months after you
purchase Class B shares, those shares will automatically convert to Class
A shares. This conversion feature relieves Class B shareholders of the
asset-based sales charge that applies to Class B shares under the Class
B Distribution and Service Plan, described below. The conversion is based
on the relative net asset value of the two classes, and no sales load or
other charge is imposed. When Class B shares convert, any other 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 "Alternative Sales Arrangements - Class A and Class
B Shares" in the Statement of Additional Information.
- Distribution and Service Plan for Class B Shares. The Fund has
adopted a Distribution and Service Plan for Class B shares to compensate
the Distributor for its services and costs in distributing Class B shares
and servicing accounts. Under the Plan, the Fund pays the Distributor an
annual "asset-based sales charge" of 3.75% per year on Class B shares that
are outstanding for 6 years or less. The Distributor also receives a
service fee of 0.25% per year. Both fees are computed on the average
annual net assets of Class B shares, determined as of the close of each
regular business day. The asset-based sales charge allows investors to buy
Class B shares without a front-end sales charge while allowing the
Distributor to compensate dealers that sell Class B shares.
The Distributor uses the service fee to compensate dealers for
providing personal service for accounts that hold Class B shares. Those
services are similar to those provided under the Class A Service Plan,
described above. The asset-based sales charge and service fees increase
Class B expenses by up to 1.00% of average net assets per year.
The Distributor pays the 0.25% service fee to dealers in advance for
the first year after Class B shares have been sold by the dealer. After
the shares have been held for a year, the Distributor pays the fee on a
quarterly basis. The Distributor pays sales commissions of 0.75% of the
purchase price to dealers from its own resources at the time of sale. The
Distributor retains the asset-based sales charge to recoup the sales
commissions it pays, the advances of service fee payments it makes, and
its financing costs.
Because the Distributor's actual expenses in selling Class B shares
may be more than the payments it receives from contingent deferred sales
charges collected on redeemed shares and from the Fund under the
Distribution and Service Plan for Class B shares, those expenses may be
carried over and paid in future years. At June 30, 1994, the end of the
Plan year, the Distributor had incurred unreimbursed expenses under the
Plan of $3,755,026 (equal to 4.29% of the Fund's net assets represented
by Class B shares on that date), which have been carried over into the
present Plan year. If the 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.
Special Investor Services
AccountLink. OppenheimerFunds AccountLink links your Fund account to your
account at your bank or other financial institution to enable you to send
money electronically between those accounts to perform a number of types
of account transactions, including purchases of shares by telephone
(either through a service representative or by PhoneLink, described
below), automatic investments under Asset Builder Plans, and sending
dividends and distributions or Automatic Withdrawal Plan payments directly
to your bank account. Please refer to the Application for details or call
the Transfer Agent for more information.
AccountLink privileges must be requested on the Application you use
to buy shares, or on your dealer's settlement instructions if you buy your
shares through your dealer. After your account is established, you can
request AccountLink privileges on 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, any change of bank account
information must be made by signature-guaranteed instructions to the
Transfer Agent signed by all shareholders who own the account.
- Using AccountLink to Buy Shares. Purchases may be made by
telephone only after your account has been established. To purchase shares
in amounts up to $250,000 through a telephone representative, call the
Distributor at 1-800-852-8457. The purchase payment will be debited from
your bank account.
- PhoneLink. PhoneLink is the OppenheimerFunds automated telephone
system that enables shareholders to perform a number of account
transactions automatically using a touch-tone phone. PhoneLink may be
used on already-established Fund accounts after you obtain a Personal
Identification Number (PIN), by calling the 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 exchange shares automatically by phone from your
Fund account to another OppenheimerFunds account you have already
established by calling the special PhoneLink number. Please refer to "How
to Exchange Shares," below, for details.
- Selling Shares. You can redeem shares by telephone automatically
by calling the PhoneLink number and the Fund will send the proceeds
directly to your AccountLink bank account. Please refer to "How to Sell
Shares," below for details.
Automatic Withdrawal and Exchange Plans. The Fund has several plans that
enable you to sell shares automatically or exchange them to another
OppenheimerFunds account on a regular basis:
- Automatic Withdrawal Plans. If your Fund account is $5,000 or
more, you can establish an Automatic Withdrawal Plan to receive payments
of at least $50 on a monthly, quarterly, semi-annual or annual basis. The
checks may be sent to you or sent automatically to your bank account on
AccountLink. You may even set up certain types of withdrawals of up to
$1,500 per month by telephone. You should consult the Application and
Statement of Additional Information for more details.
- Automatic Exchange Plans. You can authorize the Transfer Agent to
exchange an amount you establish in advance automatically for shares of
up to five other OppenheimerFunds on a monthly, quarterly, semi-annual or
annual basis under an Automatic Exchange Plan. The minimum purchase for
each other OppenheimerFunds account is $25. These exchanges are subject
to the terms of the Exchange Privilege, described below.
Reinvestment Privilege. If you redeem some or all of your Fund shares,
you have up to 6 months to reinvest all or part of the redemption proceeds
in Class A shares of the Fund or other OppenheimerFunds without paying
sales charge. This privilege applies to Fund shares that you purchased
with an initial sales charge or on which you paid a contingent deferred
sales charge when you redeemed them. You must be sure to ask the
Distributor for this privilege when you send your payment. Please consult
the Statement of Additional Information for more details.
Retirement Plans. Fund shares are available as an investment for your
retirement plans. If you participate in a plan sponsored by your employer,
the plan trustee or administrator must make the purchase of shares for
your retirement plan account. The Distributor offers a number of different
retirement plans that can be used by individuals and employers:
- Individual Retirement Accounts including rollover IRAs, for
individuals and their spouses
- 403(b)(7) Custodial Plans for employees of eligible tax-exempt
organizations, such as schools, hospitals and charitable organizations
- SEP-IRAs (Simplified Employee Pension Plans) for small business
owners or people with income from self-employment, including SARSEP-IRAs
- Pension and Profit-Sharing Plans for self-employed persons and
small business owners
Please call the Distributor for the OppenheimerFunds plan documents,
which contain important information and applications.
How to Sell Shares
You can arrange to take money out of your account on any regular
business day by selling (redeeming) some or all of your shares. Your
shares will be sold at the next net asset value calculated after your
order is received and accepted by the Transfer Agent. The Fund offers you
a number of ways to sell your shares: in writing, by using the Fund's
checkwriting privilege or by telephone. You can also set up Automatic
Withdrawal Plans to redeem shares on a regular basis, as described above.
If you have questions about any of these procedures, and especially if you
are redeeming shares in a special situation, such as due to the death of
the owner, or from a retirement plan, please call the Transfer Agent
first, at 1-800-525-7048, for assistance.
- Retirement Accounts. To sell shares in an OppenheimerFunds
retirement account in your name, call the Transfer Agent for a
distribution request form. There are special income tax withholding
requirements for distributions from retirement plans and you must submit
a withholding form with your request to avoid delay. If your retirement
plan account is held for you by your employer, you must arrange for the
distribution request to be sent by the plan administrator or trustee.
There are additional details in the Statement of Additional Information.
- Certain Requests Require a Signature Guarantee. To protect you and
the Fund from fraud, certain redemption requests must be in writing and
must include a signature guarantee in the following situations (there may
be other situations also requiring a signature guarantee):
- You wish to redeem more than $50,000 worth of shares and receive
a check
- The check is not payable to all shareholders listed on the account
statement
- The check is not sent to the address of record on your statement
- Shares are being transferred to a Fund account with a different
owner or name
- Shares are redeemed by someone other than the owners (such as an
Executor)
- Where Can I Have My Signature Guaranteed? The Transfer Agent will
accept a guarantee of your signature by a number of financial
institutions, including: a U.S. bank, trust company, credit union or
savings association, or by a foreign bank that has a U.S. correspondent
bank, or by a U.S. registered dealer or broker in securities, municipal
securities or government securities, or by a U.S. national securities
exchange, a registered securities association or a clearing agency. If
you are signing as a fiduciary or on behalf of a corporation, partnership
or other business, you must also include your title in the signature.
Selling Shares by Mail. Write a "letter of instructions" that includes:
- Your name
- The Fund's name
- Your Fund account number (from your statement)
- The dollar amount or number of shares to be redeemed
- Any special payment instructions
- Any share certificates for the shares you are selling, and
- Any special requirements or documents requested by the Transfer
Agent to assure proper authorization of the person asking to sell shares.
Use the following address for requests by mail:
Oppenheimer Shareholder Services
P.O. Box 5270, Denver, Colorado 80217
Send courier or Express Mail requests to:
Oppenheimer Shareholder Services
10200 E. Girard Avenue, Building D
Denver, Colorado 80231
Selling Shares by Telephone. You and your dealer representative of record
may also sell your shares by telephone. To receive the redemption price
on a regular business day, your call must be received by the Transfer
Agent by 4:00 P.M. You may not redeem shares held in an OppenheimerFunds
retirement plan or under a share certificate by telephone.
- To redeem shares through a service representative, call
1-800-852-8457
- To redeem shares automatically on PhoneLink, call 1-800-533-3310
Whichever method you use, you may have a check sent to the address
on the account, or, if you have linked your Fund account to your bank
account on AccountLink, you may have the proceeds wired to that account.
- Telephone Redemptions Paid by Check. Up to $50,000 may be redeemed
by telephone, once in each 7-day period. The check must be payable to all
owners of record of the shares and must be sent to the address on the
account. This service is not available within 30 days of changing the
address on an account.
- Telephone Redemptions Through AccountLink. There are no dollar
limits on telephone redemption proceeds sent to a bank account designated
when you establish AccountLink. Normally the ACH wire to your bank is
initiated on the business day after the redemption. You do not receive
dividends on the proceeds of the shares you redeemed while they are
waiting to be wired.
Checkwriting. To be able to write checks against your Fund account, you
may request that privilege on your account Application or you can contact
the Transfer Agent for signature cards, which must be signed (with a
signature guarantee) by all owners of the account and returned to the
Transfer Agent so that checks can be sent to you to use. Shareholders with
joint accounts can elect in writing to have checks paid over the signature
of one owner.
- Checks can be written to the order of whomever you wish, but may
not be cashed at the Fund's bank or custodian.
- Checkwriting privileges are not available for accounts holding
Class B shares or Class A shares that are subject to a contingent deferred
sales charge.
- Checks must be written for at least $100.
- Checks cannot be paid if they are written for more than your
account value.
Remember: your shares fluctuate in value and you should not write a
check close to the total account value.
- You may not write a check that would require the Fund to redeem
shares that were purchased by check or Asset Builder Plan payments within
the prior 15 days.
- Don't use your checks if you changed your Fund account number.
The Fund will charge a $10 fee for any check that is not paid because
(1) the owners of the account told the Fund not to pay the check, or (2)
the check was for more than the account balance, or (3) the check did not
have the proper signatures, or (4) the check was written for less than
$100.
How to Exchange Shares
Shares of the Fund may be exchanged for shares of certain
OppenheimerFunds at net asset value per share at the time of exchange,
without sales charge. A $5 service fee will be deducted from the fund
account you are exchanging into to help defray administrative costs. That
charge is waived for automated exchanges made by brokers on Fund/SERV and
for automated exchanges between already established accounts on PhoneLink,
described below. To exchange shares, you must meet several conditions:
- Shares of the fund selected for exchange must be available for
sale in your state of residence
- The prospectuses of this Fund and the fund whose shares you want
to buy must offer the exchange privilege
- You must hold the shares you buy when you establish your account
for at least 7 days before you can exchange them; after the account is
open 7 days, you can exchange shares every regular business day
- You must meet the minimum purchase requirements for the fund you
purchase by exchange
- Before exchanging into a fund, you should obtain and read its
prospectus
Shares of a particular class may be exchanged only for shares of the
same class in the other OppenheimerFunds. For example, you can exchange
Class A shares of this Fund only for Class A shares of another fund. At
present, not all of the OppenheimerFunds offer the same classes of shares.
If a fund has only one class of shares that does not have a class
designation, they are "Class A" shares for exchange purposes. In some
cases, sales charges may be imposed on exchange transactions. Certain
OppenheimerFunds offer Class A shares and either Class B or Class C
shares, and a list can be obtained by calling the Distributor at 1-800-
525-7048. Please refer to "How to Exchange Shares" in the Statement of
Additional Information for more details.
Exchanges may be requested in writing or by telephone:
- Written Exchange Requests. Submit an OppenheimerFunds Exchange
Request form, signed by all owners of the account. Send it to the
Transfer Agent at the addresses listed in "How to Sell Shares."
- Telephone Exchange Requests. Telephone exchange requests may be
made either by calling a service representative at 1-800-852-8457 or by
using PhoneLink for automated exchanges, by calling 1-800-533-3310.
Telephone exchanges may be made only between accounts that are registered
with the same name(s) and address. Shares held under certificates may not
be exchanged by telephone.
You can find a list of OppenheimerFunds currently available for
exchanges in the Statement of Additional Information or by calling a
service representative the Transfer Agent at 1-800-525-7048. Exchanges of
shares involve a redemption of the shares of the fund you own and a
purchase of shares of the other fund.
There are certain exchange policies you should be aware of:
- Shares are normally redeemed from one fund and purchased from
the other fund in the exchange transaction on the same regular business
day on which the Transfer Agent receives an exchange request by 4:00 P.M.
that is in proper form, but either fund may delay the purchase of shares
of the fund you are exchanging into if it determines it would be
disadvantaged by a same-day transfer of the proceeds to buy shares. For
example, the receipt of multiple exchange requests from a dealer in a
"market-timing" strategy might require the disposition of securities at
a time or price disadvantageous to the Fund.
- Because excessive trading can hurt fund performance and harm
shareholders, the Fund reserves the right to refuse any exchange request
that will disadvantage it, or to refuse multiple exchange requests
submitted by a shareholder or dealer.
- The Fund may amend, suspend or terminate the exchange privilege
at any time. Although the Fund will attempt to provide you notice
whenever it is reasonably able to do so, it may impose these changes at
any time.
- 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.
The Distributor has entered into agreements with certain dealers and
investment advisers permitting them to exchange their clients' shares by
telephone. These privileges are limited under those agreements and the
Distributor has the right to reject or suspend those privileges. As a
result, those exchanges may be subject to notice requirements, delays and
other limitations that do not apply to shareholders who exchange their
shares directly by calling or writing to the Transfer Agent.
Shareholder Account Rules and Policies
- Net Asset Value Per Share is determined for each class of shares
as of 4:00 P.M. each day The New York Stock Exchange is open 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 Fund's Board of
Trustees has established procedures to value the Fund's securities to
determine net asset value. In general, securities values are based on
market value. There are special procedures for valuing illiquid and
restricted securities, obligations for which market values cannot be
readily obtained, and call options and hedging instruments. These
procedures are described more completely in the Statement of Additional
Information.
- The offering of shares may be suspended during any period in which
the determination of net asset value is suspended, and the offering may
be suspended by the Board of Trustees at any time the Board believes it
is in the Fund's best interest to do so.
- Telephone Transaction Privileges for purchases, redemptions or
exchanges may be modified, suspended or terminated by the Fund at any
time. 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 and until the Transfer Agent receives cancellation
instructions from an owner of the account.
- The Transfer Agent will record any telephone calls to verify data
concerning transactions and has adopted other procedures to confirm that
telephone instructions are genuine, by requiring callers to provide tax
identification numbers and other account data or by using PINs, and by
confirming such transactions in writing. If the Transfer Agent does not
use reasonable procedures it may be liable for losses due to unauthorized
transactions, but otherwise it will not be liable for losses or expenses
arising out of telephone instructions reasonably believed to be genuine.
If you are unable to reach the Transfer Agent during periods of unusual
market activity, you may not be able to complete a telephone transaction
and should consider placing your order by mail.
- Redemption or transfer requests will not be honored until the
Transfer Agent receives all required documents in proper form. From time
to time, the Transfer Agent in its discretion may waive certain of the
requirements for redemptions stated in this Prospectus.
- Dealers that can perform account transactions for their clients
by participating in NETWORKING through the National Securities Clearing
Corporation are responsible for obtaining their clients' permission to
perform those transactions and are responsible to their clients who are
shareholders of the Fund if the dealer performs any transaction
erroneously.
- The redemption price for shares will vary from day to day because
the value of the securities in the Fund's portfolio fluctuates, and the
redemption price, which is the net asset value per share, will normally
be different for Class A and Class B shares. Therefore, the redemption
value of your shares may be more or less than their original cost.
- Payment for redeemed shares is made ordinarily in cash and
forwarded by check or through AccountLink (as elected by the shareholder
under the redemption procedures described above) within 7 days after the
Transfer Agent receives redemption instructions in proper form, except
under unusual circumstances determined by the Securities and Exchange
Commission delaying or suspending such payments. The Transfer Agent may
delay forwarding a check or processing a payment via AccountLink for
recently purchased shares, but only until the purchase payment has
cleared. That delay may be as much as 15 days from the date the shares
were purchased. That delay may be avoided if you purchase shares by
certified check or arrange with your bank to provide telephone or written
assurance to the Transfer Agent that your purchase payment has cleared.
- Involuntary redemptions of small accounts may be made by the Fund
if the account value has fallen below $200 for reasons other than the fact
that the market value of shares has dropped, and in some cases involuntary
redemptions may be made to repay the Distributor for losses from the
cancellation of share purchase orders.
- Under unusual circumstances, shares of the Fund may be redeemed
"in kind", which means that the redemption proceeds will be paid with
securities from the Fund's portfolio. Please refer to the Statement of
Additional Information for more details.
- "Backup Withholding" of Federal income tax may be applied at the
rate of 31% from dividends, distributions and redemption proceeds
(including exchanges) if you fail to furnish the Fund a certified Social
Security or taxpayer identification number when you sign your application,
or if you violate Internal Revenue Service regulations on tax reporting
of dividends.
- The Fund does not charge a redemption fee, but if your dealer or
broker handles your redemption, they may charge a fee. That fee can be
avoided by redeeming your Fund shares directly through the Transfer Agent.
Under the circumstances described in "How To Buy Shares," you may be
subject to a contingent deferred sales charges when redeeming certain
Class A and Class B shares.
- To avoid sending duplicate copies of materials to households, the
Fund will mail only one copy of each annual and semi-annual report and
updated prospectus to shareholders having the same surname 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 declares dividends separately for Class A and Class
B shares from net investment income each regular business day and pays
those dividends to shareholders monthly. Normally dividends are paid on
or about the last business day of each month, but the Board of Trustees
can change that date. It is expected that dividends paid on Class A shares
will generally be higher than for Class B shares because expenses
allocable to Class B shares will generally be higher.
During the Fund's fiscal year ended June 30, 1994, the Fund
maintained the practice, to the extent consistent with the amount of the
Fund's net investment income and other distributable income, of attempting
to pay dividends on Class A shares at a constant level, although the
amount of such dividends were subject to change 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 that Class. The
practice of attempting to pay dividends on Class A shares at a constant
level required the Manager, consistent with the Fund's investment
objectives and investment restrictions, to monitor the Fund's portfolio
and select higher yielding securities when deemed appropriate to maintain
necessary net investment income levels. The Fund was able to pay
dividends at the targeted dividend level from net investment income and
other distributable income without any impact on the Fund's net asset
value per share. The Board of Trustees may change the Fund's targeted
dividend level at any time, without prior notice to shareholders; the Fund
does not otherwise have a fixed dividend rate and there can be no
assurance as to the payment of any dividends or the realization of any
capital gains.
Capital Gains. The Fund may make distributions annually in December out
of any net short-term or long-term capital gains, and the Fund may make
supplemental distributions of dividends and capital gains following the
end of its fiscal year. Long-term capital gains will be separately
identified in the tax information the Fund sends you after the end of the
year. Short-term capital gains are treated as dividends for tax purposes.
There can be no assurances that the Fund will pay any capital gains
distributions in a particular year.
Distribution Options. When you open your account, specify on your
application how you want to receive your distributions. For
OppenheimerFunds retirement accounts, all distributions are reinvested.
For other accounts, you have four options:
- Reinvest All Distributions in the Fund. You can elect to
reinvest all dividends and long-term capital gains distributions in
additional shares of the Fund.
- Reinvest Long-Term Capital Gains Only. You can elect to reinvest
long-term capital gains in the Fund while receiving dividends by check or
sent to your bank account on AccountLink.
- Receive All Distributions in Cash. You can elect to receive a
check for all dividends and long-term capital gains distributions or have
them sent to your bank on AccountLink.
- Reinvest Your Distributions in Another OppenheimerFunds Account.
You can reinvest all distributions in another OppenheimerFunds account you
have established.
Taxes. If your account is not a tax-deferred retirement account, you
should be aware of the following tax implications of investing in the
Fund. Long-term capital gains are taxable as long-term capital gains when
distributed to shareholders. Dividends paid from short-term capital gains
and net investment income are taxable as ordinary income. Distributions
are subject to federal income tax and may be subject to state or local
taxes. Your distributions are taxable when paid, whether you reinvest
them in additional shares or take them in cash. Every year the Fund will
send you and the IRS a statement showing the amount of each taxable
distribution you received in the previous year.
- "Buying a Dividend": When a fund goes ex-dividend, its share
price is reduced by the amount of the distribution. If you buy shares on
or just before the ex-dividend date, or just before the Fund declares a
capital gains distribution, you will pay the full price for the shares and
then receive a portion of the price back as a taxable dividend or capital
gain.
- Taxes on Transactions: Share redemptions, including redemptions
for exchanges, are subject to capital gains tax. A capital gain or loss
is the difference between the price you paid for the shares and the price
you received when you sold them.
- Returns of Capital: In certain cases distributions made by the
Fund may be considered a non-taxable return of capital to shareholders.
If that occurs, it will be identified in notices to shareholders.
This information is only a summary of certain federal tax information
about your investment. More information is contained in the Statement of
Additional Information, and in addition you should consult with your tax
adviser about the effect of an investment in the Fund on your particular
tax situation.
<PAGE>
Appendix
Description of Moody's Investors Service, Inc. Bond Ratings
Aaa: Bonds which are rated "Aaa" are judged to be the best quality
and to 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 which are 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 which are 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.
The investments in which the Fund will principally invest will be in the
lower-rated categories described below.
Baa: Bonds which are rated "Baa" are considered medium grade
obligations, i.e., 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 which are 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 which are 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 which are 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 which are rated "Ca" represent obligations which are
speculative in a high degree and are often in default or have other marked
shortcomings.
C: Bonds which are rated "C" can be regarded as having extremely
poor prospects of ever retaining any real investment standing.
Description of S&P Bond Ratings
AAA: "AAA" is the highest rating assigned to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
AA: Bonds rated "AA" also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority
of instances they differ from "AAA" issues only in small degree.
A: Bonds rated "A" have a strong capacity to pay principal and
interest, although they are somewhat more susceptible to adverse effects
of change in circumstances and economic conditions.
The investments in which the Fund will principally invest will be in
the lower-rated categories, described below.
BBB: Bonds rated "BBB" are regarded as having an adequate capacity
to pay principal and interest. Whereas they normally exhibit protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for
bonds in this capacity than for bonds in the "A" category.
BB, B, CCC, CC: Bonds rated "BB," "B," "CCC" and "CC" are regarded,
on balance, as predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal in accordance with the terms
of the obligation. "BB" indicates the lowest degree of speculation and
"CC" the highest degree. While such bonds will likely have some quality
and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
C, D: Bonds on which no interest is being paid are rated "C." Bonds
rated "D" are in default and payment of interest and/or repayment of
principal is in arrears.
<PAGE>
APPENDIX TO PROSPECTUS OF
OPPENHEIMER HIGH YIELD FUND
Graphic material included in Prospectus of Oppenheimer High Yield
Fund: "Comparison of Total Return of Oppenheimer High Yield Fund with the
Lehman Brothers Corporate Bond Index and
the Salomon Brothers High Yield Market Index- Change in Value of a $10,000
Hypothetical Investment"
A linear graph will be included in the Prospectus of Oppenheimer High
Yield Fund (the "Fund") depicting the initial account value and subsequent
account value of a hypothetical $10,000 investment in the Fund. In the
case of the Fund's Class A shares, that graph will cover each of the
Fund's last ten fiscal years from 6/30/84 through 6/30/94 and in the case
of the Fund's Class B shares, will cover the period from inception of the
class (5/3/93) through 6/30/94. The graph will compare such values with
hypothetical $10,000 investments over the same time periods in the Lehman
Brothers Corporate Bond Index and the Salomon Brothers High Yield Market
Index. Set forth below are the relevant data points that will appear on
the linear graph. Additional information with respect to the foregoing,
including a description of the Lehman Brothers Corporate Bond Index and
the Salomon Brothers High Yield Market Index, is set forth in the
Prospectus under "Fund Information - Management's Discussion of
Performance."
Salomon Brothers
Fiscal Oppenheimer Lehman Brothers High Yield Market
Year Ended High Yield Fund A Corporate Bond Index Index
06/30/84 $9,525 $10,000 $10,000
06/30/85 $11,259 $13,477 $12,743
06/30/86 $13,202 $16,346 $15,670
06/30/87 $14,605 $17,391 $17,058
06/30/88 $15,590 $18,834 $18,740
06/30/89 $16,988 $21,275 $20,776
06/30/90 $17,133 $22,890 $19,247
06/30/91 $19,172 $25,298 $22,678
06/30/92 $23,018 $29,206 $28,411
06/30/93 $26,542 $33,267 $34,753
06/30/94 $28,207 $32,152 $34,945
Salomon Brothers
Fiscal Oppenheimer Lehman Brothers High Yield Market
Year Ended High Yield Fund B Corporate Bond Index Index
05/03/93 $10,000 $10,000 $10,000
06/30/93 $10,354 $10,243 $10,300
06/30/94 $10,504 $ 9,900 $10,357
<PAGE>
Oppenheimer High Yield Fund
3410 South Galena Street
Denver, Colorado 80231
1-800-525-7048
Investment Adviser
Oppenheimer Management Corporation
Two World Trade Center
New York, New York 10048-0203
Distributor
Oppenheimer Funds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer Agent and Shareholder Servicing Agent
Oppenheimer Shareholder Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian of Portfolio Securities
The Bank of New York
One Wall Street
New York, New York 10015
Independent Auditors
Deloitte & Touche LLP
1560 Broadway
Denver, Colorado 80202
Legal Counsel
Myer, Swanson & Adams, P.C.
1600 Broadway
Denver, Colorado 80202
No dealer, broker, salesperson or any other person has been authorized to
give any information or to make any representations other than those
contained in this Prospectus or the Additional Statement, and if given or
made, such information and representations must not be relied upon as
having been authorized by the Fund, Oppenheimer Management Corporation,
Oppenheimer Funds Distributor, Inc. or any affiliate thereof. This
Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any of the securities offered hereby in any state to any
person to whom it is unlawful to make such an offer in such state.
PR281.1094.R * Printed on recycled paper
Oppenheimer High Yield Fund
3410 South Galena Street, Denver, Colorado 80231
1-800-525-7048
Statement of Additional Information dated October 25, 1994
This Statement of Additional Information of Oppenheimer High Yield
Fund is not a Prospectus. This document contains additional information
about the Fund and supplements information in the Prospectus dated October
25, 1994. It should be read together with the Prospectus, which may be
obtained by writing to the Fund's Transfer Agent, Oppenheimer Shareholder
Services, at P.O. Box 5270, Denver, Colorado 80217 or by calling the
Transfer Agent at the toll-free number shown above.
Contents
Page
About the Fund 2
Investment Objective and Policies 2
Investment Policies and Strategies 2
Other Investment Techniques and Strategies 6
Other Investment Restrictions 15
How the Fund is Managed 16
Organization and History 16
Trustees and Officers of the Fund 17
The Manager and Its Affiliates 19
Brokerage Policies of the Fund 21
Performance of the Fund 22
Distribution and Service Plans 26
About Your Account 28
How To Buy Shares 28
How To Sell Shares 34
How To Exchange Shares 38
Dividends, Capital Gains and Taxes 40
Additional Information About the Fund 41
Financial Information About the Fund 42
Independent Auditors' Report 42
Financial Statements 43
<PAGE>
ABOUT THE FUND
Investment Objective and Policies
Investment Policies and Strategies. The investment objective and policies
of the Fund are described in the Prospectus. Set forth below is
supplemental information about those policies and the types of securities
in which the Fund invests, as well as the strategies the Fund may use to
try to achieve its objective. Capitalized terms used in this Statement
of Additional Information have the same meaning as those terms have in the
Prospectus.
The Fund's investment manager, Oppenheimer Management Corporation (the
"Manager"), evaluates the investment merits of fixed-income securities
primarily through the exercise of its own investment analysis. This may
include consideration of the financial strength of the issuer, including
its historic and current financial condition, the trading activity in its
securities, present and anticipated cash flow, estimated current value of
assets in relation to 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 the 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.
All fixed-income securities are subject to two types of risks: credit
risk and interest rate risk. Credit risk relates to the ability of the
issuer to meet interest or principal payments or both as they become due.
Generally, higher yielding bonds are subject to credit risk to a greater
extent than higher quality bonds. Interest rate risk refers to the
fluctuations in net asset value of fixed-income securities resulting
solely from the inverse relationship between price and yield of fixed-
income securities. An increase in interest rates will tend to reduce the
market value of fixed-income investments, and a decline in interest rates
will tend to increase their value. In addition, debt securities with
longer maturities, which tend to produce higher yields, are subject to
potentially greater capital appreciation and depreciation than obligations
with shorter maturities. Fluctuations in the market value of fixed-income
securities subsequent to their acquisition will not affect cash income
from such securities but will be reflected in the Fund's net asset value.
- - Warrants and Rights. The Fund may, to the limited extent described in
the Prospectus, invest 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 by the
issuer to its shareholders. Warrants and rights have no voting rights,
receive no dividends and have no rights with respect to the assets of the
issuer.
- Foreign Securities. "Foreign securities" include equity and debt
securities of companies organized under the laws of countries other than
the United States and debt securities of foreign governments that are
traded on foreign securities exchanges or in the foreign over-the-counter
markets. Securities of foreign issuers that are represented by American
Depository Receipts or that are listed on a U.S. securities exchange or
traded in the U.S. over-the-counter markets are not considered "foreign
securities" for the purpose of the Fund's investment allocations, because
they are not subject to many of the special considerations and risks,
discussed below, that apply to foreign securities traded and held abroad.
Investing in foreign securities offers potential benefits not available
from investing solely in securities of domestic issuers, including the
opportunity to invest in foreign issuers that appear to offer growth
potential, or in foreign countries with economic policies or business
cycles different from those of the U.S., or to reduce fluctuations in
portfolio value by taking advantage of foreign stock markets that do not
move in a manner parallel to U.S. markets. If the Fund's portfolio
securities are held abroad, the countries in which they may be held and
the sub-custodians holding them must be approved by the Fund's Board of
Trustees under applicable rules of the Securities and Exchange Commission.
- Risks of Foreign Investing. Investments in foreign securities
present special additional risks and considerations not typically
associated with investments in domestic securities: reduction of income
by foreign taxes; fluctuation in value of foreign portfolio investments
due to changes in currency rates and control regulations (e.g., currency
blockage); transaction charges for currency exchange; lack of public
information about foreign issuers; lack of uniform accounting, auditing
and financial reporting standards comparable to those applicable to
domestic issuers; less volume on foreign exchanges than on U.S. exchanges;
greater volatility and less liquidity on foreign markets than in the U.S.;
less regulation of foreign issuers, stock exchanges and brokers than in
the U.S.; greater difficulties in commencing lawsuits; higher brokerage
commission rates than in the U.S.; increased risks of delays in settlement
of portfolio transactions or loss of certificates for portfolio
securities; possibilities in some countries of expropriation, confiscatory
taxation, political, financial or social instability or adverse diplomatic
developments; and 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.
- - Asset-Backed Securities. The value of asset-backed securities is
affected by changes in the market's perception of 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 a credit enhancement is exhausted. The risks of investing in
asset-backed securities are ultimately dependent upon payment of consumer
loans by the individuals, and 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 shorten
the weighted average life of asset-backed securities and may lower their
return, in the same manner as described below for prepayments of a pool
of mortgage loans underlying mortgage-backed securities.
- - Mortgage-Backed Securities. These securities represent participation
interests in pools of residential mortgage loans which may or may not be
guaranteed by agencies or instrumentalities of the U.S. Government. Such
securities differ from conventional debt securities which provide for
periodic payment of interest in fixed amounts (usually semi-annually) with
principal payments at maturity or specified call dates. The mortgage-
backed securities in which the Fund may invest may be based on the full
faith and credit of the U.S. Treasury (e.g. direct pass-through
certificates of the Government National Mortgage Association); some are
supported by the right of the issuer to borrow from the U.S. Government
(e.g. obligations of the Federal Home Loan Bank); and some are backed by
only the credit of the issuer itself. Any such guarantees do not extend
to the value of or yield of the mortgage-backed securities themselves or
to the net asset value of the Fund's shares.
The yield on mortgage-backed securities is based on the average expected
life of the underlying pool of mortgage loans. The actual life of any
particular pool will be shortened by any unscheduled or early payments of
principal and interest. Principal prepayments generally result from the
sale of the underlying property or the refinancing or foreclosure of
underlying mortgages. The occurrence of prepayments is affected by a wide
range of economic, demographic and social factors and, accordingly, it is
not possible to predict accurately the average life of a particular pool.
Yield on such pools is usually computed by using the historical record of
prepayments for that pool, or, in the case of newly-issued mortgages, the
prepayment history of similar pools. The actual prepayment experience of
a pool of mortgage loans may cause the yield realized by the Fund to
differ from the yield calculated on the basis of the expected average life
of the pool.
Prepayments tend to increase during periods of falling interest rates,
while during periods of rising interest rates, prepayments will most
likely decline. When prevailing interest rates rise, the value of a pass-
through security may decrease as do other debt securities, but, when
prevailing interest rates decline, the value of a pass-through security
is not likely to rise on a comparable basis with other debt securities
because of the prepayment feature of pass-through securities. The Fund's
reinvestment of scheduled principal payments and unscheduled prepayments
it receives may occur at a time of higher or lower prevailing rates than
the original investment, thus affecting the yield of the Fund. Monthly
interest payments received by the Fund have a compounding effect which may
increase the yield to shareholders more than debt obligations that pay
interest semi-annually. Because of those factors, mortgage-backed
securities may be less effective than Treasury bonds of similar maturity
at maintaining yields during periods of declining interest rates.
Accelerated prepayments adversely affect yields for pass-through
securities purchased at a premium (i.e. at a price in excess of principal
amount) and may involve additional risk of loss of principal because the
premium may not have been fully amortized at the time the obligation is
repaid. The opposite is true for pass-through securities purchased at a
discount. The Fund may purchase mortgage-backed securities at a premium
or at a discount.
-GNMA Certificates. Certificates of the Government National Mortgage
Association ("GNMA Certificates") are mortgage-backed securities which
evidence an undivided interest in a pool or pools of mortgages. The GNMA
Certificates that the Fund may purchase are of the "modified pass-through"
type, which entitle the holder to receive timely payment of all interest
and principal payments due on the mortgage pool, net of fees paid to the
"issuer" and GNMA, regardless of whether the mortgagor actually makes the
payments.
The National Housing Act authorizes GNMA to guarantee the timely payment
of principal and interest on securities backed by a pool of mortgages
insured by the Federal Housing Administration ("FHA") or guaranteed by the
Veterans Administration ("VA"). The GNMA guarantee is backed by the full
faith and credit of the U.S. Government. GNMA is also empowered to borrow
without limitation from the U.S. Treasury if necessary to make any
payments required under its guarantee.
The average life of a GNMA Certificate is likely to be substantially
shorter than the original maturity of the mortgages underlying the
securities. Prepayments of principal by mortgagors and mortgage
foreclosures will usually result in the return of the greater part of
principal investment long before the maturity of the mortgages in the
pool. Foreclosures impose no risk to principal investment because of the
GNMA guarantee, except to the extent that the Fund has purchased the
certificates at a premium in the secondary market.
-FNMA Securities. The Federal National Mortgage Association ("FNMA")
was established to create a secondary market in mortgages insured by the
FHA. FNMA issues guaranteed mortgage pass-through certificates ("FNMA
Certificates"). FNMA Certificates resemble GNMA Certificates in that each
FNMA Certificate represents a pro rata share of all interest and principal
payments made and owed on the underlying pool. FNMA guarantees timely
payment of interest and principal on FNMA Certificates. The FNMA
guarantee is not backed by the full faith and credit of the U.S.
Government.
-FHLMC Securities. The Federal Home Loan Mortgage Corporation (FHLMC")
was created to promote development of a nationwide secondary market for
conventional residential mortgages. FHLMC issues two types of mortgage
pass-through securities ("FHLMC Certificates"), which are not guaranteed
or backed by the full faith and credit of the U.S. Government: mortgage
participation certificates ("PCs") and guaranteed mortgage certificates
("GMCs"). PCs resemble GNMA Certificates in that each PC represents a pro
rata share of all interest and principal payments made and owed on the
underlying pool. FHLMC guarantees timely monthly payment of interest on
PCs and the ultimate payment of principal. GMCs also represent a pro rata
interest in a pool of mortgages. However, these instruments pay interest
semi-annually and return principal once a year in guaranteed minimum
payments. The expected average life of these securities is approximately
ten years. The FHLMC guarantee is not backed by the full faith and credit
of the U.S. Government.
- Participation Interests. The Fund may invest in participation
interests, subject to the limitation on illiquid investments. These
participation interests provide the Fund an undivided interest in a loan
made by the issuing bank in the proportion that the Fund's participation
interest bears to the total principal amount of the loan. No more than
5% of the Fund's net assets can be invested in participation interests of
the same issuing bank. The Fund must look to the creditworthiness of the
borrowing corporation, which is obligated to make payments of principal
and interest on the loan. In the event the borrower fails to pay
scheduled interest or principal payments, the Fund would experience a
reduction in its income and might experience a decline in the net asset
value of its shares. In the event of a failure by the bank to perform its
obligation in connection with the participation agreement, the Fund might
incur certain costs and delays in realizing payment or may suffer a loss
of principal and/or interest.
- Brady Bonds. The Fund may invest in U.S. dollar-denominated,
collateralized Brady Bonds. These debt obligations of foreign entities
may be fixed-rate par bonds or floating rate discount bonds and are
generally collateralized in full as the principal due at maturity by U.S.
Treasury zero coupon obligations which have the same maturity as the Brady
Bonds. Brady Bonds are often viewed as having three or four valuation
components: (i) the collateralized repayment of principal at final
maturity; (ii) the collateralized interest payments; (iii) the
uncollateralized interest payments; and (iv) any uncollateralized
repayment of principal at maturity (these uncollateralized amounts
constitute the "residual risk"). In the event of default with respect to
collateralized Brady Bonds as a result of which the payment obligations
of the issuer are accelerated, the zero coupon Treasury securities held
as collateral for the payment of principal will not be distributed to
investors nor will such obligations be sold and the proceeds distributed.
The collateral will be held by the collateral agent to the scheduled
maturity of the defaulted Brady Bonds, which will continue to be
outstanding, at which time the face amount of the collateral will equal
the principal payments which would have then been due on the Brady Bonds
in the normal course. In addition, in light of the residual risk of Brady
Bonds and, among other factors, the history of defaults with respect to
commercial bank loans by public and private entities of countries issuing
Brady Bonds, investments in Brady Bonds are to be viewed as speculative.
Other Investment Techniques and Strategies
- Loans of Portfolio Securities. The Fund may lend its portfolio
securities subject to the restrictions stated in the Prospectus. Under
applicable regulatory requirements (which are subject to change), the loan
collateral on each business day must at least equal the value of the
loaned securities and must consist of cash, bank letters of credit or
securities of the U.S. Government (or its agencies or instrumentalities).
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. Such terms and the issuing bank must be satisfactory to the Fund.
When it lends securities, the Fund receives amounts equal to the dividends
or interest on loaned securities and also receives one or more of (a)
negotiated loan fees, (b) interest on securities used as collateral, and
(c) interest on short-term debt securities purchased with such loan
collateral. Either type of interest may be shared with the borrower. The
Fund may also pay reasonable finder's, custodian and administrative fees.
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.
-When-Issued and Delayed Delivery Transactions. The Fund may purchase
securities on a "when-issued" basis, and may purchase or sell such
securities on a "delayed delivery" basis. Although the Fund will enter
into such transactions for the purpose of acquiring securities for its
portfolio or for delivery pursuant to options contracts it has entered
into, the Fund may dispose of a commitment prior to settlement. "When-
issued" or "delayed delivery" refers 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, but delivery and payment for the securities
take place at a later date. During the period between commitment by the
Fund and settlement (generally within two months but not to exceed 120
days), no payment is made for the securities purchased by the purchaser,
and no interest accrues to the purchaser from the transaction. Such
securities are subject to market fluctuation; the value at delivery may
be less than the purchase price. The Fund will maintain a segregated
account with its Custodian, consisting of cash, U.S. Government Securities
or other high grade debt obligations at least equal to the value of
purchase commitments until payment is made.
The Fund will engage in when-issued transactions in order to secure
what is considered to be an advantageous price and yield at the time of
entering into the obligation. When the Fund engages in when-issued or
delayed delivery transactions, it relies on the buyer or seller, as the
case may be, to consummate the transaction. Failure to do so may result
in the Fund losing the opportunity to obtain a price and yield considered
to be advantageous. If the Fund chooses to (i) dispose of the right to
acquire a when-issued security prior to its acquisition or (ii) dispose
of its right to deliver or receive against a forward commitment, it may
incur a gain or loss. (At the time the Fund makes a commitment to
purchase or sell a security on a when-issued or forward commitment basis,
it records the transaction and reflects the value of the security
purchased, or if a sale, the proceeds to be received in determining its
net asset value).
To the extent the Fund engages in when-issued and delayed delivery
transactions, it will do so for the purpose of acquiring or selling
securities consistent with its investment objective and policies and not
for the purposes of investment leverage. The Fund enters into such
transactions only with the intention of actually receiving or delivering
the securities, although (as noted above), when-issued securities and
forward commitments may be sold prior to settlement date. In addition,
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.
When-issued transactions and forward commitments allow the Fund a
technique to use 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 forward commitment basis, thereby obtaining the benefit of
currently higher cash yields.
- Repurchase Agreements. The Fund may acquire securities subject to
repurchase agreements for liquidity purposes to meet anticipated
redemptions, or pending the investment of the proceeds from sales of Fund
shares, or pending the settlement of purchases of portfolio securities.
In a repurchase transaction, the Fund acquires a security from, and
simultaneously resells it to, an approved vendor. An "approved vendor"
is a U.S. commercial bank or the U.S. branch of a foreign bank or a
broker-dealer which has been designated a primary dealer in government
securities, which must meet credit requirements set by the Fund's Board
of Trustees from time to time. 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. The
majority of these transactions run from day to day, and delivery pursuant
to the resale typically will occur within one to five days of the
purchase. Repurchase agreements are considered "loans" under the
Investment Company Act, 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. Additionally, the Manager will impose creditworthiness
requirements to confirm that the vendor is financially sound and will
continuously monitor the collateral's value.
- Restricted and Illiquid Securities. To enable the Fund to sell
restricted securities not registered under the Securities Act of 1933, the
Fund may have to cause those securities to be registered. The expenses
of registration of restricted securities may be negotiated by the Fund
with the issuer at the time such securities are purchased by the Fund,
if such registration is required before such securities may be sold
publicly. When registration must be arranged because the Fund wishes to
sell the security, a considerable period may elapse between the time the
decision is made to sell the securities and the time the Fund would be
permitted to sell them. The Fund would bear the risks of any downward
price fluctuation during that period. The Fund may also acquire, through
private placements, securities having contractual restrictions on their
resale, which might limit the Fund's ability to dispose of such securities
and might lower the amount realizable upon the sale of such securities.
The Fund has percentage limitations that apply to purchases of
restricted securities, as stated in the Prospectus. Those percentage
restrictions do not limit purchases of restricted securities that are
eligible for sale to qualified institutional purchasers pursuant to Rule
144A under the Securities Act of 1933, provided that those securities have
been determined to be liquid by the Board of Trustees of the Fund or by
the Manager under Board-approved guidelines. Those guidelines take into
account the trading activity for such securities and the availability of
reliable pricing information, among other factors. If there is a lack of
trading interest in a particular Rule 144A security, the Fund's holding
of that security may be deemed to be illiquid.
-Writing and Purchasing Calls. As described in the Prospectus, the
Fund may write covered calls. When the Fund writes a call on an
investment, it receives a premium and agrees to sell the callable
investment to a purchaser of a corresponding call during the call period
(usually not more than 9 months) at a fixed exercise price (which may
differ from the market price of the underlying investment) regardless of
market price changes during the call period. To terminate its obligation
on a call it has written, the Fund may purchase a corresponding call in
a "closing purchase transaction." A profit or loss will be realized,
depending upon whether the net of the amount of option transaction costs
and the premium received on the call the Fund has written is more or less
than the price of the call the Fund subsequently purchased. A profit may
also be realized if the call lapses unexercised because the Fund retains
the underlying investment and the premium received. Those profits are
considered short-term capital gains for Federal income tax purposes, as
are premiums on lapsed calls, and when distributed by the Fund are taxable
as ordinary income. If the Fund could not effect a closing purchase
transaction due to the lack of a market, it would have to hold the
callable investment until the call lapsed or was exercised.
The Fund may also write calls on Futures without owning a futures
contract or deliverable securities, provided that at the time the call is
written, the Fund covers the call by segregating in escrow an equivalent
dollar value of liquid assets. The Fund will segregate additional liquid
assets if the value of the escrowed assets drops below 100% of the current
value of the Future. In no circumstances would an exercise notice as to
a Future put the Fund in a short futures position.
When the Fund buys a call, it pays a premium and has the right (other
than in a closing purchase transaction) 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 the call
is sold 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 call is
exercised. If the call is not exercised or sold (whether or not at a
profit), it will become worthless at its expiration date and the Fund will
loss its premium payment and the right to purchase the underlying
investment.
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 options that are traded on exchanges, or as to other
acceptable escrow securities, so that no margin will be required from the
Fund for such option transactions. OCC will release the securities
covering a call on the expiration of the call or when the Fund enters into
a closing purchase transaction. Call writing affects the Fund's turnover
rate and the brokerage commissions it pays. Commissions, normally higher
than on general securities transactions, are payable on writing or
purchasing a call.
- -Hedging With Options and Futures Contracts. The Fund may use hedging
instruments for the purposes described in the Prospectus. When hedging
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 which have appreciated, or to facilitate selling
securities for investment reasons, the Fund may: (i) sell Interest Rate
Futures, (ii) buy puts on such Futures or on debt securities, or (iii)
write calls on debt securities held by it or on Interest Rate Futures.
When hedging to attempt to protect against the possibility that portfolio
securities are not fully included in a rise in value of the bond market,
the Fund may: (i) buy Interest Rate Futures, or (ii) buy calls on such
Futures or on debt securities. The Fund's strategy of hedging with
Futures and options on Futures will be incidental to the Fund's activities
in the underlying cash market. Additional Information about the Hedging
Instruments the Fund may use is provided below.
-- Interest Rate Futures and Forward Contracts. The Fund may buy and
sell futures contracts relating to debt securities ("Interest Rate
Futures") and foreign currency exchange contracts ("Forward Contracts"),
discussed below. Interest Rate Futures obligate one party to deliver and
the other to take a specific debt security or amount of foreign currency,
respectively, at a specified price on a specified date. No price is paid
or received upon the purchase or sale of an Interest Rate Future. Upon
entering into a Futures transaction, the Fund will be required to deposit
an initial margin payment in cash or U.S. Treasury bills with the futures
commission merchant (the "futures broker"). The initial margin will be
deposited with the Fund's Custodian 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 to reflect changes in its market value, subsequent margin payments,
called variation margin, will be paid to or by the futures broker on a
daily basis. Prior to expiration of the Future, if the Fund elects to
close out its position by taking an opposite position, a final
determination of variation margin is made, additional cash is required to
be paid by or released to the Fund, and any loss or gain is realized.
Although Interest Rate Futures, by their terms, call for settlement by
delivery or acquisition of debt securities, in most cases the obligation
is fulfilled by entering into an offsetting position. All futures
transactions are effected through a clearinghouse associated with the
exchange on which the contracts are traded.
A Forward Contract involves bilateral obligations of one party to
purchase, and another party to sell, a specific currency at a future date
(which may be any fixed number of days from the date of the contract
agreed upon by the parties), at a price set at the time the contract is
entered into. These contracts are traded in the interbank market
conducted directly between 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 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.
In addition, although Forward Contracts limit the risk of loss due to a
decline in the value of the hedged currencies, at the same time they limit
any potential gain that might result should the value of the currencies
increase. The Fund will not speculate with Forward Contracts or foreign
currency exchange rates.
The Fund may enter into Forward Contracts with respect to specific
transactions. For example, when the Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency, or when
the Fund anticipates receipt of dividend payments in a foreign currency,
the Fund may desire to "lock-in" the U.S. dollar price of the security or
the U.S. dollar equivalent of such payment by entering into a Forward
Contract, for a fixed amount of U.S. dollars per unit of foreign currency,
for the purchase or sale of the amount of foreign currency involved in the
underlying transaction ("transaction hedge"). The Fund will thereby be
able to protect itself against a possible loss resulting from an adverse
change in the relationship between 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 such payments are
made or received.
The Fund may also use Forward Contracts to lock in the U.S. dollar
value of portfolio positions ("position hedge"). In a position hedge, for
example, when the Fund believes that foreign currency may suffer a
substantial decline against the U.S. dollar, it may enter into a forward
sale contract to sell an amount of that foreign currency approximating the
value of some or all of the Fund's portfolio securities denominated in
such foreign currency, or when the Fund believes that the U.S. dollar may
suffer a substantial decline against a foreign currency, it may enter into
a forward purchase contract to buy that foreign currency for a fixed
dollar amount. In this situation the Fund may, in the alternative, enter
into a forward contract to sell a different foreign currency for a fixed
U.S. dollar amount where the Fund believes that the U.S. dollar value of
the currency to be sold pursuant to the 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 ("cross-hedge").
The Fund's Custodian will place cash not available for investment or
U.S. Government securities or other liquid high-quality debt securities
in a separate account of the Fund having a value equal to the aggregate
amount of the Fund's commitments under its Forward Contracts. If the
value of the securities placed in a separate account declines, additional
cash or securities will be placed in the account on a daily basis so that
the value of the account will equal the amount of the Fund's commitments
with respect to such contracts. As an alternative to maintaining all or
part of the separate account, 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 or 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.
Unanticipated changes in currency prices may result in poorer overall
performance for the Fund than if it had not entered into such contracts.
The precise matching of the Forward Contract amounts and the value of
the securities involved will not generally be possible because the future
value of such securities in foreign currencies will change as a
consequence of market movements in the value of these securities between
the date the Forward Contract is entered into and the date it is sold.
Accordingly, it may be necessary for the Fund to purchase additional
foreign currency on the spot (i.e., cash) market (and bear the expense of
such purchase), if the market value of the security is less than the
amount of foreign currency the Fund is obligated to deliver and if a
decision is made to sell the security and make delivery of the foreign
currency. Conversely, it may be necessary to sell on the spot market some
of the foreign currency received upon the sale of the portfolio security
if its market value exceeds the amount of foreign currency the Fund is
obligated to deliver. 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 transactions
costs. The Fund may enter into Forward Contracts or maintain a net
exposure on such contracts only if: (1) the consummation of the contracts
would not 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 (2) the Fund maintains cash, U.S.
Government securities or liquid high-grade debt securities in a segregated
account in an amount not less than the value of the Fund's total assets
committed to the consummation of the contract.
At or before the maturity of a Forward Contract requiring the Fund to
sell a currency, the Fund may either sell a portfolio security and use the
sale proceeds to make delivery of the currency or retain the security and
offset its contractual obligation to deliver the currency by purchasing
a second contract pursuant to which the Fund will obtain, on the same
maturity date, the same amount of the currency that it is obligated to
deliver. Similarly, the Fund may 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 to the extent the exchange rate or rates between the
currencies involved moved between the execution dates of the first
contract and offsetting contract.
The cost 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 fees or commissions are
involved. Because such contracts are not traded on an exchange, the Fund
must evaluate the credit and performance risk of each particular
counterparty under a 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 investors should be aware of the costs of currency
conversion. 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 may
offer to sell a foreign currency to the Fund at one rate, while offering
a lesser rate of exchange should the Fund desire to resell that currency
to the dealer.
- Writing and Purchasing Puts. A put option gives the purchaser the
right to sell, and the writer the obligation to buy, the underlying
security at the exercise price during the option period. As noted above
under "Writing and Purchasing Calls," an additional reason for writing
options on a securities portfolio is to attempt to realize, through the
receipt of premiums, a greater return than would be realized on the
securities alone. Writing a put, covered by segregated liquid assets
equal to the exercise price of the put, has the same economic effect to
the Fund as writing a covered call.
The premium the Fund receives from writing a put option will reflect,
among other things, the current market price of the underlying security,
the relationship of the exercise price to such market price, the
historical price volatility of the underlying security, the option period,
supply and demand, and interest rates. When the Fund writes a put, it has
gained a profit in the form of the premium as long as the price of the
underlying security remains above the exercise price, but has assumed an
obligation to purchase the underlying security from the buyer of the put
option at the exercise price at any time during the option period, even
though the security may fall below the exercise price. If the put expires
unexercised, the Fund (as the writer of the put) realizes a gain in the
amount of the premium. If the put option is exercised, the Fund must
fulfill its obligation to purchase the underlying security at the exercise
price, which will usually exceed the then market value of the underlying
security. The Fund may incur a loss equal to the difference between the
exercise price of the option and the sum of the sale price of underlying
security plus the premium received from the sale of the option.
When writing put options, to secure its obligation to pay for the
underlying security, the Fund will deposit in escrow with its Custodian
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. So long as the obligation of the put
writer continues, it may be assigned an exercise notice by the broker-
dealer through whom such option was sold, requiring the Fund to take
delivery of the underlying security against payment of 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.
This obligation terminates upon expiration of the put, or such earlier
time at which the Fund effects a closing purchase transaction by
purchasing a put of the same series as that previously sold. Once the
Fund has been assigned an exercise notice, it is thereafter not allowed
to effect a closing purchase transaction. The Fund may effect a closing
purchase transaction to realize a profit on an outstanding put option it
has written or to prevent an underlying security from being put.
Furthermore, effecting such a closing purchase transaction will permit the
Fund to write another put option to the extent that the exercise price
thereof is secured by the deposited assets, or to utilize the proceeds
from the sale of such assets for other investments by the Fund. The Fund
will realize a profit or loss from a closing purchase transaction if the
cost of the transaction is less or more than the premium received from
writing the option. As with writing covered calls, any and all such
profits described herein from writing puts are considered short-term gains
for Federal tax purposes, and when distributed to shareholders by the
Fund, are taxable as ordinary income.
When the Fund buys a put, it pays a premium and 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 a debt security or Future 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. Thus, in the
event of a decline in the market, the Fund could exercise or sell the put
at a profit that would offset some or all of its loss on the underlying
investment. If a put held by the Fund is exercised, the amount the Fund
receives on its sale of the underlying investment is reduced by the amount
of the premium paid by the Fund. If the market price of the underlying
investment is above the exercise price and, as a result, the put is not
exercised or resold, the put will become worthless as its expiration date
and the Fund will lose its premium payment and the right to sell the
underlying investment; the put may, however, be sold prior to expiration
(whether or not a profit).
- Interest Rate Swap Transactions. 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 have been greater than those received by it.
Credit risk arises from the possibility that the counterparty will
default. If the counterparty to an interest rate swap 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 will enter into swap
transactions with appropriate counterparties pursuant to master netting
agreements. A master netting agreement provides that all swaps done
between the Fund and that counterparty under the master agreement shall
be regarded as parts of an integral agreement. If on any date amounts are
payable in the same currency in respect of one or more swap transactions,
the net amount payable on that date in that currency shall be paid. In
addition, the master netting agreement may provide that if one party
defaults generally or on one swap, the counterparty may terminate the
swaps with that party. Under such agreements, if there is a default
resulting 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 with
respect to each swap (i.e., the mark-to-market value at the time of the
termination of each swap). The gains and losses on all swaps are then
netted, and the result is the counterparty's gain or loss on termination.
The termination of all swaps and the netting of gains and losses on
termination is generally referred to as "aggregation."
- Regulatory Aspects of Hedging Instruments. The Fund is required
to operate within certain guidelines and restrictions with respect to its
use of Futures and options on Futures established by the Commodity Futures
Trading Commission ("CFTC"). In particular the Fund is excluded 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. Under
this Rule the Fund will not, as to any positions, whether long, short or
a combination thereof, enter into Futures transactions and options thereon
for which the aggregate initial margins and premiums exceed 5% of the fair
market value of the Fund's assets, with certain exclusions as defined in
the Rule. Under the Rule, the Fund also must use short Futures and
Futures options positions 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 each of the exchanges governing the maximum number of
options which may be written or held by a single investor or group of
investors acting in concert, 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 exchanges or brokers. Thus the
number of options which the Fund may write or hold may be affected by
options written or held by other entities, including other investment
companies having the same or an affiliated investment adviser. Position
limits also apply to futures contracts. An exchange may order the
liquidation of positions found to be in violation of those limits and may
impose certain other sanctions. Due to requirements of the Investment
Company Act, when the Fund purchases a Future, the Fund will maintain, in
a segregated account or accounts with its custodian bank, cash or readily-
marketable, short-term (maturing in one year or less) debt instruments in
an amount equal to the market value of such Future, less the margin
deposit applicable to it.
- Tax Aspects of Hedging Instruments and Covered Calls. The Fund
intends to qualify as a "regulated investment company" under the Internal
Revenue Code. One of the tests for such qualification is that less than
30% of its gross income must be derived from gains realized on the sale
of securities held for less than three months. Due to this limitation,
the Fund will limit the extent to which it engages in the following
activities, but will not be precluded from them: (i) selling investments,
including Futures, held for less than three months, whether or not they
were purchased on the exercise of a call held by the Fund; (ii) purchasing
calls or puts which expire in less than three months; (iii) effecting
closing transactions with respect to calls or puts purchased less than
three months previously; (iv) exercising puts or calls held by the Fund
for less than three months; and (v) writing calls on investments held for
less than three months.
Certain foreign currency exchange contracts in which the Fund may
invest are referred to as "section 1256 contracts." Gains or losses
relating to section 1256 contracts generally are characterized under the
Internal Revenue Code as 60% long-term and 40% short-term capital gains
or losses. However, foreign currency gains or losses arising from certain
section 1256 contracts (including foreign currency exchange 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" with the result that unrealized gains or losses are
treated as though they were realized. These contracts also may be marked-
to-market for purposes of 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
these transactions from this marked-to-market treatment.
Certain foreign currency forward contracts entered into by the Fund may
result in "straddles" for Federal income tax purposes. The straddle rules
may affect the character of gains (or losses) realized by the Fund on
straddle positions. Generally, a loss sustained on the disposition of a
position(s) making up a straddle is allowed only to the extent such 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.
Under the Internal Revenue Code, gains or losses attributable to
fluctuations in exchange rates which 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 generally are
treated as ordinary income or ordinary loss. Similarly, on disposition
of debt securities denominated in a foreign currency and on disposition
of foreign currency forward contracts, gains or losses attributable to
fluctuations in the value of a foreign currency between the date of
acquisition of the security or contract and the date of disposition also
are treated as ordinary gain or loss. Currency gains and losses are
offset against market gains and losses before determining a net "Section
988" gain or loss under the Internal Revenue Code, which may increase or
decrease the amount of the Fund's investment company income available for
distribution to its shareholders.
- Risks of Hedging With Options and Futures. In addition to the
risks with respect to options discussed in the Prospectus and above, there
is a risk in using short hedging by selling Futures to attempt to protect
against declines in the value of the Fund's portfolio (due to an increase
in interest rates) that the prices of such Futures will correlate
imperfectly with the behavior of the cash (i.e., market value) prices of
the Fund's securities. The ordinary spreads between prices in the cash
and futures markets are subject to distortions due to differences in the
natures of those markets. First, all participants in the futures markets
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 markets depend 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 markets could be reduced, thus producing distortion. Third, from
the point of view of speculators, the deposit requirements in the futures
markets are less onerous than margin requirements in the securities
markets. Therefore, increased participation by speculators in the futures
markets may cause temporary price distortions.
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 debt securities being hedged and movements in the price of
the Hedging Instruments, the Fund may use hedging instruments in a greater
dollar amount than the dollar amount of debt securities being hedged if
the historical volatility of the prices of the debt securities being
hedged is more than the historical volatility of the applicable index.
It is also possible that if the Fund has used hedging instruments in a
short hedge, the market may advance and the value of the debt securities
held in the Fund's portfolio may decline. If that occurred, the Fund would
lose money on the hedging instruments and also experience a decline in
value in its portfolio securities. However, while this could occur for
a very brief period or to a very small degree, over time the value of a
diversified portfolio of equity securities will tend to move in the same
direction as the indices upon which the hedging instruments are based.
If the Fund uses Hedging Instruments to establish a position in the
debt securities markets as a temporary substitute for the purchase of
individual debt securities (long hedging) by buying Futures and/or calls
on such Futures or on debt securities, it is possible that the market may
decline; if the Fund then concludes not to invest in such securities at
that time because of concerns as to possible further market decline 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 debt securities
purchased.
Other Investment Restrictions
The Fund's most significant investment restrictions are set forth in
the Prospectus. There are additional investment restrictions that the Fund
must follow that are also fundamental policies. Fundamental policies and
the Fund's investment objective cannot be changed without the vote of a
"majority" of the Fund's outstanding voting securities. Under the
Investment Company Act, such a "majority" vote is defined as the vote of
the holders of the lesser of (1) 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 (2) more than 50% of the
outstanding shares.
Under these additional restrictions, the Fund cannot: (1) buy or sell
real estate, or commodities or commodity contracts; however, the Fund may
invest in debt securities secured by real estate or interests therein or
issued by companies, including real estate investment trusts, which invest
in real estate or interests therein, and the Fund may buy and sell any of
the Hedging Instruments which it may use, whether or not such Hedging
Instrument is considered to be a commodity or a commodity contract; (2)
buy securities on margin or engage in short sales, except that the Fund
may make margin deposits in connection with any of the Hedging Instruments
which it may use; (3) pledge, hypothecate, mortgage or otherwise encumber
its assets; however, escrow or other collateral arrangements in connection
with Hedging Instruments are not prohibited hereby; (4) underwrite
securities issued by other persons except to the extent that, in
connection with the disposition of its portfolio investments, it may be
deemed to be an underwriter under Federal securities laws; (5) buy and
retain securities of any issuer if those officers, Trustees or Directors
of the Fund or the Manager who beneficially own more than .5% of the
securities of such issuer together own more than 5% of the securities of
such issuer; (6) invest in mineral-related programs or leases; (7) buy the
securities of any company for the purpose of exercising management
control; or (8) buy securities of other investment companies, except in
connection with a merger, consolidation, reorganization or acquisition of
assets.
How the Fund Is Managed
Organization and History. 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, or 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. In addition, if the Trustees
receive a request from at least 10 shareholders (who have been
shareholders for at least six months) holding shares of the Fund valued
at $25,000 or more or holding at least 1% of the Fund's outstanding
shares, whichever is less, 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, or the Trustees may take such other action as set
forth under Section 16(c) of the Investment Company Act.
The Fund's Declaration of Trust contains an express disclaimer of
shareholder or Trustee liability for the Fund's obligations, and provides
for indemnification and reimbursement of expenses out of its property for
any shareholder held personally liable for its obligations. The
Declaration of Trust also provides that the Fund shall, upon request,
assume the defense of any claim made against any shareholder for any act
or obligation of the Fund and satisfy any judgment thereon. Thus, while
Massachusetts law permits a shareholder of a business trust (such as the
Fund) to be held personally liable as a "partner" under certain
circumstances, the risk of a Fund shareholder incurring financial loss on
account of shareholder liability is limited to the relatively remote
circumstances in which the Fund would be unable to meet its obligations
described above. Any person doing business with the Trust, and any
shareholder of the Trust, agrees under the Trust's Declaration of Trust
to look solely to the assets of the Trust for satisfaction of any claim
or demand which may arise out of any dealings with the Trust, and 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 business affiliations and occupations during the past five
years are listed below. All of the Trustees are also trustees, directors
or managing general partners of Oppenheimer Total Return Fund, Inc.,
Oppenheimer Equity Income Fund, Oppenheimer Cash Reserves, Oppenheimer
Strategic Income Fund, Centennial America Fund, L.P., The New York Tax-
Exempt Income Fund, Inc., Oppenheimer Variable Account Funds, Oppenheimer
Champion High Yield Fund, Oppenheimer Main Street Funds, Inc., Oppenheimer
Strategic Short-Term Income Fund, Oppenheimer Strategic Income & Growth
Fund, Oppenheimer Strategic Investment Grade Bond Fund, Oppenheimer
Integrity Funds, Oppenheimer Limited-Term Government Fund, Oppenheimer
Tax-Exempt Bond Fund, Centennial Money Market Trust, Centennial Government
Trust, Centennial New York Tax Exempt Trust, Centennial California Tax
Exempt Trust, Daily Cash Accumulation Fund, Inc. and Centennial Tax Exempt
Trust (all of the foregoing funds are collectively referred to as the
"Denver-based OppenheimerFunds"). Mr. Fossel is President and Mr. Swain
is Chairman of the Denver-based OppenheimerFunds. As of September 30,
1994, all of the Trustees and officers of the Fund as a group owned less
than 1% of its outstanding shares.
Robert G. Avis, Trustee*
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
197 Desert Lakes Drive, Palm Springs, California 92264
Management Consultant.
Charles Conrad, Jr., Trustee
1447 Vista del Cerro, Las Cruces, New Mexico 88005
Vice President of McDonnell Douglas Space Systems Co.; formerly
associated with the National Aeronautics and Space Administration.
Jon S. Fossel, President and Trustee*
Two World Trade Center, New York, New York 10048-0203
Chairman, Chief Executive Officer and a director of the Manager;
President and a director of Oppenheimer Acquisition Corp. ("OAC"), the
Manager's parent holding company; President and a director of
HarbourView Asset Management Corporation, a subsidiary of the Manager
("HarbourView"); a director of Shareholder Services, Inc. ("SSI") and
Shareholder Financial Services, Inc. ("SFSI"), transfer agent
subsidiaries of the Manager; formerly President of the Manager.
Raymond J. Kalinowski, Trustee
44 Portland Drive, St. Louis, Missouri 63131
Formerly Vice Chairman and a Director of A.G. Edwards, Inc., parent
holding company of A.G. Edwards & Sons, Inc. (a broker-dealer), of
which he was a Senior Vice President.
C. Howard Kast, Trustee
2552 East Alameda, Denver, Colorado 80209
Formerly Managing Partner of Deloitte, Haskins & Sells (an accounting
firm).
Robert M. Kirchner, Trustee
7500 E. Arapahoe Road, Englewood, Colorado 80112
President of The Kirchner Company (management consultants).
Ned M. Steel, Trustee
3416 South Race Street, Englewood, Colorado 80110
Chartered Property and Casualty Underwriter; formerly Senior Vice
President and a Director of Van Gilder Insurance Corp. (insurance
brokers).
James C. Swain, Chairman and Trustee*
3410 South Galena Street, Denver, Colorado 80231
Vice Chairman of the Manager; President and Director of Centennial
Asset Management Corporation, an investment adviser subsidiary of the
Manager ("Centennial"); formerly Chairman of the Board of SSI.
Ralph W. Stellmacher, Vice President and Portfolio Manager
Two World Trade Center, New York, New York 10048-0203
Senior Vice President of the Manager; an officer of other
OppenheimerFunds.
Andrew J. Donohue, Vice President
Two World Trade Center, New York, New York 10048
Executive Vice President and General Counsel of the Manager and
Oppenheimer Funds Distributor, Inc. (the "Distributor"); an officer of
other OppenheimerFunds; formerly Senior Vice President and Associate
General Counsel of the Manager and the Distributor; Partner in Kraft
& McManimon (a law firm); an officer of First Investors Corporation (a
broker-dealer) and First Investors Management Company, Inc. (broker-
dealer and investment adviser); director and an officer of First
Investors Family of Funds and First Investors Life Insurance Company.
George C. Bowen, Vice President, Secretary and Treasurer
3410 South Galena Street Denver, Colorado 80231
Senior Vice President and Treasurer of the Manager; Vice President and
Treasurer of the Distributor and HarbourView; Senior Vice President,
Treasurer, Assistant Secretary and a director of Centennial; Vice
President, Treasurer and Secretary of SSI and SFSI; an officer of
other OppenheimerFunds.
Robert J. Bishop, Assistant Treasurer
3410 South Galena Street, Denver, Colorado 80231
Assistant Vice President of the Manager/Mutual Fund Accounting; an
officer of other OppenheimerFunds; formerly a Fund Controller for the
Manager, prior to which he was an Accountant for Yale & Seffinger,
P.C., an accounting firm, and previously an Accountant and Commissions
Supervisor for Stuart James Company Inc., a broker-dealer.
Scott Farrar, Assistant Treasurer
3410 South Galena Street, Denver, Colorado 80231
Assistant Vice President of the Manager/Mutual Fund Accounting; an
officer of other OppenheimerFunds; formerly a Fund Controller for the
Manager, prior to which he was an International Mutual Fund Supervisor
for Brown Brothers Harriman & Co., a bank, and previously a Senior
Fund Accountant for State Street Bank & Trust Company, before which he
was a sales representative for Central Colorado Planning.
Robert G. Zack, Assistant Secretary
Two World Trade Center, New York, New York 10048-0203
Senior Vice President and Associate General Counsel of the Manager,
Assistant Secretary of SSI, SFSI; an officer of other
OppenheimerFunds.
_____________________
* A Trustee who is an "interested person" as defined in the
Investment Company Act.
-Remuneration of Trustees. The officers of the Fund are
affiliated with the Manager; they and the Trustees of the Fund who are
affiliated with the Manager (Mr. Swain and Mr. Fossel, who are both
officers and Trustees) receive no salary or fee from the Fund. During the
Fund's fiscal year ended June 30, 1994, the remuneration (including
expense reimbursements) paid to all Trustees of the Fund (excluding Mr.
Swain and Mr. Fossel) as a group for services as Trustees and as members
of one or more committees of the Board totaled $41,245.
-Major Shareholders. As of September 30, 1994 no person owned of
record or was known by the Fund to own beneficially 5% or more of either
class of the Fund's outstanding shares.
The Manager and Its Affiliates. The Manager is wholly-owned by Oppenheimer
Acquisition Corp. ("OAC"), a holding company controlled by Massachusetts
Mutual Life Insurance Company. OAC is also owned in part by certain of
the Manager's directors and officers, some of whom may also serve as
officers of the Fund, and two of whom (Messrs. Fossel and Swain) serve as
Trustees of the Fund.
- The Investment Advisory Agreement. The investment advisory
agreement between the Manager and the Fund requires the Manager, at its
expense, to provide the Fund with adequate office space, facilities and
equipment, and to provide and supervise the activities of all
administrative and clerical personnel required to provide effective
corporate administration for the Fund, including 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.
Expenses not expressly assumed by the Manager under the advisory
agreement or by the Distributor under the General Distributors Agreement
are paid by the Fund. The advisory agreement lists examples of expenses
paid by the Fund, the major categories of which 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. For the Fund's fiscal years ended June 30, 1992, 1993
and 1994, the management fees paid by the Fund to the Manager were
$5,419,874, $6,696,256 and $7,655,008, respectively.
The advisory agreement contains no provision limiting the Fund's
expenses. However, independently of the advisory agreement, the Manager
has undertaken that the total expenses of the Fund in any fiscal year
(including the management fee but excluding taxes, interest, brokerage
commissions, distribution assistance payments and extraordinary expenses
such as litigation costs) shall not exceed the most stringent expense
limitation imposed under state law applicable to the Fund. Pursuant to the
undertaking, the Manager's fee will be reduced at the end of a month so
that there will not be any accrued but unpaid liability under this
undertaking. Currently, the most stringent state expense limitation is
imposed by California, and limits the Fund's expenses (with specified
exclusions) to 2.5% of the first $30 million of average annual net assets,
2% of the next $70 million of average annual net assets, and 1.5% of
average annual net assets in excess of $100 million. The Manager reserves
the right to terminate or amend the undertaking at any time. Any
assumption of the Fund's expenses under this limitation would lower the
Fund's overall expense ratio and increase its total return during any
period in which expenses are limited.
The advisory agreement provides that in the absence of willful
misfeasance, bad faith or gross negligence in the performance of its
duties, or reckless disregard for its obligations and duties under the
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 thereunder. The advisory 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 right
of the Fund to use the name "Oppenheimer" as part of its name may be
withdrawn.
- The Distributor. Under its General Distributor's Agreement
with the Fund, the Distributor acts as the Fund's principal underwriter
in the continuous public offering of the Fund's Class A and Class B shares
but is not obligated to sell a specific number of shares. Expenses
normally attributable to sales (other than those paid under the Class B
Distribution and Service Plan), including advertising and the cost of
printing and mailing prospectuses, other than those furnished to existing
shareholders, are borne by the Distributor. During the Fund's fiscal
years ended June 30, 1992, 1993 and 1994, the aggregate sales charges on
sales of the Fund's Class A shares were $5,794,352, $6,556,648 and
$4,185,629, respectively, of which the Distributor and an affiliated
broker-dealer retained in the aggregate $1,365,344, $1,562,280 and
$1,023,367 in those respective years. The contingent deferred sales
charges collected by the Distributor on the redemption of Class B shares
during the period from May 3, 1993 (the inception of the class) through
June 30, 1993 and the fiscal year ended June 30, 1994 totalled $1,147 and
$113,664, respectively. For additional information about distribution of
the Fund's shares and the expenses connected with such activities, please
refer to "Distribution and Service Plans," below.
- The Transfer Agent. Oppenheimer Shareholder Services, the
Fund's Transfer Agent, is responsible for maintaining the Fund's
shareholder registry and shareholder accounting records, and for
shareholder servicing and administrative functions.
Brokerage Policies of the Fund
Brokerage Provisions of the Investment Advisory Agreement. One of the
duties of the Manager under the advisory agreement is to arrange the
portfolio transactions for the Fund. The advisory agreement contains
provisions relating to the employment of broker-dealers ("brokers") to
effect the Fund's portfolio transactions. In doing so, 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, as may, in its best judgment based on all relevant factors,
implement the policy of the Fund to obtain, at reasonable expense, the
"best execution" (prompt and reliable execution at the most favorable
price obtainable) of such transactions. The Manager need not seek
competitive commission bidding but is expected to minimize the commissions
paid to the extent consistent with the interest and policies of the Fund
as established by its Board of Trustees.
Under the advisory agreement, the Manager is authorized to select
brokers 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 have charged if a good faith
determination is made by the Manager that the commission is fair and
reasonable in relation to the services provided. Subject to the foregoing
considerations, the Manager may also consider sales of shares of the Fund
and other investment companies managed by the Manager or its affiliates
as a factor in the selection of brokers for the Fund's portfolio
transactions.
Description of Brokerage Practices Followed by the Manager. Subject to
the provisions of the advisory agreement and the procedures and rules
described above, allocations of brokerage are made by portfolio managers
of the Manager under the supervision of the Manager's executive officers.
As most purchases made by the Fund are principal transactions at net
prices, the Fund does not incur substantial brokerage costs. The Fund
usually deals directly with the selling or purchasing principal or market
maker without incurring charges for the services of a broker on its behalf
unless it is determined that a better price or execution may be obtained
by utilizing the services of a broker. Purchases of portfolio securities
from underwriters include a commission or concession paid by the issuer
to the underwriter, and purchases from dealers include a spread between
the bid and asked price. The Fund seeks to obtain prompt execution of
orders at the most favorable net prices. When the Fund engages in an
option transaction, ordinarily the same broker will be used for the
purchase or sale of the option and any transaction in the securities to
which the option relates. When possible, concurrent orders to purchase
or sell the same security by more than one of the accounts managed by the
Manager or its affiliates are combined. The transactions effected
pursuant to such combined orders are averaged as to price and allocated
in accordance with the purchase or sale orders actually placed for each
account.
The 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, and investment research received for the commissions of those
other accounts may be useful both to the Fund and one or more of such
other accounts. Such research, which may be supplied by a third party at
the instance of a broker, includes information and analyses on particular
companies and industries as well as market or economic trends and
portfolio strategy, receipt of 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 research services provided by brokers broadens the scope and
supplement the research activities of the Manager, by making available
additional views for consideration and comparisons, and by enabling the
Manager to obtain market information for the valuation of securities held
in the Fund's portfolio or being considered for purchase. The Board of
Trustees, including the "independent" Trustees of the Fund (those Trustees
of the Fund who are not "interested persons" as defined in the Investment
Company Act, and who have no direct or indirect financial interest in the
operation of the advisory agreement or the Distribution Plans described
below) annually reviews information furnished by the Manager as to the
commissions paid to brokers furnishing such services so that the Board may
ascertain whether the amount of such commissions was reasonably related
to the value or benefit of such services.
During the Fund's fiscal years ended June 30, 1992, 1993 and 1994,
total brokerage commissions paid by the Fund (not including any spreads
or concessions on principal transactions on a net trade basis) amounted
to $57,677, $7,850, and $70,384, respectively. During the fiscal year
ended June 30, 1994, $17,341 was paid to brokers as commissions in return
for research services; the aggregate dollar amount of these transactions
was $2,487,029. The transactions giving rise to those commissions were
allocated in accordance with the Manager's internal allocation procedures.
Performance of the Fund
Yield and Total Return Information. As described in the Prospectus, from
time to time the "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" of an investment
in a class of shares of the Fund may be advertised. An explanation of how
these total returns are calculated for each class and the components of
those calculations is set forth below.
The Fund's advertisements of its performance data must, under
applicable rules of the Securities and Exchange Commission, include the
average annual total returns for each class of shares of the Fund 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. This 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 such
information as a basis for comparison with other investments. An
investment in the Fund is not insured; its returns and share prices are
not guaranteed and normally will fluctuate on a daily basis. When
redeemed, an investor's shares may be worth more or less than their
original cost. Returns for any given past period are not a prediction or
representation by the Fund of future returns. The returns of Class A and
Class B shares of the Fund are affected by portfolio quality, the type of
investments the Fund holds and its operating expenses allocated to the
particular class.
- Standardized Yields
- Yield. The Fund's "yield" (referred to as "standardized yield")
for a given 30-day period for a class of shares is calculated using the
following formula set forth in rules adopted by the Securities and
Exchange Commission that apply to all funds that quote yields:
Standardized Yield = 2 ((------ + 1) - 1)
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
reimbursements).
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 of a class of shares for a 30-day period may
differ from its yield for any other period. 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.
This standardized yield 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
calculated for that period. The standardized yield may differ from the
"dividend yield" of that class, described below. 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
the 30-day period ended June 30, 1994, the standardized yields for the
Fund's Class A and Class B shares were 8.87% and 8.40%, respectively.
- Dividend Yield and Distribution Return. From time to time the Fund
may quote a "dividend yield" or a "distribution return" for each class.
Dividend yield is based on the Class A or Class B share dividends derived
from net investment income during a stated period. Distribution return
includes dividends derived from net investment income and from realized
capital gains declared during a stated period. Under those calculations,
the dividends and/or distributions for that class declared during a stated
period of one year or less (for example, 30 days) are added together, and
the sum is divided by the maximum offering price per share of that class
on the last day of the period. When the result is annualized for a period
of less than one year, the "dividend yield" is calculated as follows:
Dividend Yield of the Class =
Dividends of the Class
- ----------------------------------------------------
Max Offering Price of the Class (last day of period)
Divided by number of days (accrual period) x 365
The maximum offering price for Class A shares includes the maximum front-
end sales charge. For Class B shares, the maximum offering price is the
net asset value per share, without considering the effect of contingent
deferred sales charges.
From time to time similar yield or distribution return calculations
may also be made using the Class A net asset value (instead of its
respective maximum offering price) at the end of the period. The dividend
yields on Class A shares for the 30-day period ended June 30, 1994, were
9.48% and 9.95% when calculated at maximum offering price and at net asset
value, respectively. The dividend yield on Class B shares for the 30-day
period ended June 30, 1994, 1993, was 9.22% when calculated at net asset
value.
- - Total Return Information
- Average Annual Total Returns. 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") to achieve an Ending
Redeemable Value ("ERV") of that investment, according to the following
formula:
( ERV ) 1/n
(-----) -1 = Average Annual Total Return
( P )
- Cumulative Total Returns. The cumulative "total return"
calculation measures the change in value of a hypothetical investment of
$1,000 over an entire period of years. Its calculation uses some of the
same factors as average annual total return, but it does not average the
rate of return on an annual basis. Cumulative total return is determined
as follows:
ERV - P
- ------- = Total Return
P
In calculating total returns for Class A shares, the current maximum
sales charge of 4.75% (as a percentage of the offering price) is deducted
from the initial investment ("P") (unless the return is shown at net asset
value, as described below). For Class B shares, payment of contingent
deferred sales charge of 5.0% for the first year, 4.0% for the second
year, 3.0% for the third and fourth years, 2.0% in the fifth year, 1.0%
in the sixth year and none thereafter is applied, as described in the
Prospectus. Total returns also assume that all dividends and capital
gains distributions during the period are reinvested to buy additional
shares at net asset value per share, and that the investment is redeemed
at the end of the period. The "average annual total returns" on an
investment in Class A shares of the Fund for the one, five and ten year
periods ended June 30, 1994 were 1.22%, 9.60% and 10.93%, respectively.
The "average annual total returns" on an investment in Class B shares of
the Fund for the fiscal year ended June 30, 1994 and for the period from
May 3, 1993 (inception of the Class) through June 30, 1994 were .31% and
4.34%, respectively. The cumulative "total return" on Class A shares for
the ten year period ended June 30, 1994 was 182.07%. During a portion of
the periods for which total returns are shown for Class A shares, the
Fund's maximum initial sales charge rate was higher; as a result,
performance returns on actual investments during those periods may be
lower than the results shown. The cumulative total return on Class B
shares for the fiscal year ended June 30, 1994 and for the period from May
3, 1993 through June 30, 1994 was 5.04%.
- Total Returns at Net Asset Value. From time to time the Fund may
also quote an average annual total return at net asset value or a
cumulative total return at net asset value for Class A or Class B shares.
Each is based on the difference in net asset value per share at the
beginning and the end of the period for a hypothetical investment in that
class of shares (without considering front-end or contingent deferred
sales charges) and takes into consideration the reinvestment of dividends
and capital gains distributions. The cumulative total return at net asset
value of the Fund's Class A shares for the ten-year period ended June 30,
1994 was 196.14%. The average annual total returns at net asset value for
the one, five and ten-year periods ended June 30, 1994, for Class A shares
were 6.27%, 10.67% and 11.47%, respectively. The average annual total
return at net asset value for Class B shares for the fiscal year ended
June 30, 1994 and for the period from May 3, 1993 through June 30, 1994
was 5.31% and 7.72%, respectively.
Total return information may be useful to investors in reviewing the
performance of the Fund's Class A or Class B shares. However, when
comparing total return of an investment in Class A or Class B shares of
the Fund with that of other alternatives, investors should understand that
as the Fund invests in high yield securities, its shares are subject to
greater market risks than shares of funds having other investment
objectives and that the Fund is designed for investors who are willing to
accept greater risk of loss in the hopes of realizing greater gains.
Other Performance Comparisons. From time to time the Fund may publish the
ranking of its Class A or Class B shares by Lipper Analytical Services,
Inc. ("Lipper"), a widely-recognized independent 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. The performance of the Fund is ranked against
(i) all other funds (excluding money market funds), (ii) all other high
current yield or fixed income funds and (iii) all other such funds in a
specific size category. 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.
From time to time the Fund may publish the ranking of the performance
of its Class A or Class B shares by Morningstar, Inc., an independent
mutual fund monitoring service that ranks mutual funds, including the
Fund, monthly in broad investment categories (equity, taxable bond,
municipal bond and hybrid) based on risk-adjusted investment return.
Investment return measures a fund's three, five and ten-year average
annual total returns (when available) in excess of 90-day U.S. Treasury
bill returns after considering sales charges and expenses. Risk reflects
fund performance below 90-day U.S. Treasury bill monthly returns. Risk
and 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%), 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%). Morningstar ranks the Class
A and Class B shares of the Fund in relation to other corporate bond
funds. Rankings are subject to change.
The total return on an investment in the Fund's Class A or Class B
shares may be compared with performance for the same period of the Lehman
Brothers Corporate Bond Index and the Salomon Brothers High Yield Market
Index. The Lehman Brothers Corporate Bond Index is an unmanaged index of
publicly-issued nonconvertible investment grade corporate debt of U.S.
issuers, widely recognized as a measure of the U.S. fixed-rate corporate
bond market. The Salomon Brothers High Yield Market Index is an unmanaged
index of below-investment grade (but rated at least BB+/Ba1 by Standard
& Poor's or Moody's) U.S. corporate debt obligations, widely recognized
as a measure of the performance of the high-yield corporate bond market,
the market in which the Fund principally invests. Each Index includes a
factor for the reinvestment of interest but does not reflect expenses or
taxes.
Investors may also wish to compare the Fund's Class A or Class B
return to the returns on fixed income investments available from banks and
thrift institutions, such as 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 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, and Treasury bills are guaranteed as to principal and interest by
the U.S. government.
Distribution and Service Plans
The Fund has adopted a Service Plan for Class A shares and a
Distribution and Service Plan for Class B shares under Rule 12b-1 of the
Investment Company Act pursuant to which the Fund will reimburse the
Distributor quarterly for all or a portion of its costs incurred in
connection with the distribution and/or servicing of the shares of that
class, as described in the Prospectus. Each Plan has been approved by a
vote of (i) the Board of Trustees of the Fund, including a majority of the
Independent Trustees, cast in person at a meeting called for the purpose
of voting on that Plan, and (ii) the holders of a "majority" (as defined
in the Investment Company Act) of the shares of each class.
In addition, under the Plans the Manager and the Distributor, in
their sole discretion, from
time to time may use their own resources (which, in the case of the
Manager, may include profits from the advisory fee it receives from the
Fund) to make payments to brokers, dealers or other financial institutions
(each is referred to as a "Recipient" under the Plans) for distribution
and administrative services they perform. The Distributor and the Manager
may, in their sole discretion, increase or decrease the amount of payments
they make from their own resources to Recipients.
Unless terminated as described below, each Plan continues in effect
from year to year but only as long as its continuance is specifically
approved at least annually by the Fund's Board of Trustees and its
Independent Trustees by a vote cast in person at a meeting called for the
purpose of voting on such continuance. Either 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. Neither Plan may be amended
to increase materially the amount of payments to be made unless such
amendment is approved by shareholders of the class affected by the
amendment. All material amendments must be approved by the Independent
Trustees.
While the Plans are in effect, the Treasurer of the Fund shall
provide separate written reports to the Fund's Board of Trustees at least
quarterly on the amount of all payments made pursuant to each Plan, the
purpose for which each payment was made and the identity of each Recipient
that received any payment. The report for the Class B Plan shall also
include the distribution costs for that quarter, and such costs for
previous fiscal periods that have been carried forward, as explained in
the Prospectus and below. Those reports, including the allocations on
which they are based, will be subject to the review and approval of the
Independent Trustees in the exercise of their fiduciary duty. Each Plan
further provides 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 such selection and nomination if the
final decision on selection or nomination is approved by a majority of the
Independent Trustees.
Under the Plans, no payment will be made to any Recipient in any
quarter if the aggregate net asset value of all Fund shares, held by the
Recipient for itself and its customers, did not exceed a minimum amount,
if any, that may be determined from time to time by a majority of the
Fund's Independent Trustees. Initially, the Board of Trustees has set the
fee at the maximum rate (except for assets representing Class A shares
acquired prior to April 1, 1991, for which the rate is 0.15% for the
current fiscal year) and set no minimum amount. For the fiscal year ended
June 30, 1994, payments under the Class A Plan totalled $1,441,211, all
of which was paid by the Distributor to Recipients, including $29,748 paid
to MML Investor Services, Inc., an affiliate of the Distributor. Payments
made under the Class B Plan during that fiscal period totalled $522,438.
Any unreimbursed expenses incurred by the Distributor with respect
to Class A shares for any fiscal year may not be recovered in subsequent
years. Payments received by the Distributor under the Plan for Class A
shares will not be used to pay any interest expense, carrying charge, or
other financial costs, or allocation of overhead by the Distributor. The
Class B Plan allows the service fee payment to be paid by the Distributor
to Recipients in advance for the first year Class B shares are
outstanding, and thereafter on a quarterly basis, as described in the
Prospectus. The advance payment is based on the net asset value of the
Class B shares sold. An exchange of shares
does not entitle the Recipient to an advance service fee payment. In the
event Class B shares are redeemed during the first year that the shares
are outstanding, the Recipient will be obligated to repay a pro rata
portion of the advance payment for those shares to the Distributor.
Although the Class B Plan permits the Distributor to retain both the
asset-based sales charges and the service fee on Class B shares, or to pay
Recipients the service fee on a quarterly basis, without payment in
advance, the Distributor intends to pay the service fee to Recipients in
the manner described above. A minimum holding period may be established
from time to time under the Class B Plan by the Board. Initially, the
Board has set no minimum holding period. All payments under the Class B
Plan are subject to the limitations imposed by the Rules of Fair Practice
of the National Association of Securities Dealers, Inc. on payments of
asset-based sales charges and service fees. The Distributor anticipates
that it will take a number of years for it to recoup (from the Fund's
payments to the Distributor under the Class B Plan and recoveries of the
contingent deferred sales charge) the sales commissions paid to authorized
brokers or dealers.
Asset-based sales charge payments are designed to permit an investor
to purchase shares of the Fund without the assessment of a front-end sales
load and at the same time permit the Distributor to compensate brokers and
dealers in connection with the sale of Class B shares of the Fund. The
Distributor's actual distribution expenses for any given year may exceed
the aggregate of payments received pursuant to the Class B Plan and from
contingent deferred sales charges, and such expenses will be carried
forward and paid in future years. The Fund will be charged only for
interest expenses, carrying charges or other financial costs that are
directly related to the carry-forward of actual distribution expenses.
For example, if the Distributor incurred distribution expenses of
$4,000,000 in a given fiscal year, of which $2,000,000 was recovered in
the form of contingent deferred sales charges paid by investors and
$1,600,000 were reimbursed in the form of payments made by the Fund to the
Distributor under the Class B Plan, the balance of $400,000 (plus
interest) would be subject to recovery in future fiscal years from such
sources.
The Class B Plan allows for the carry-forward of distribution
expenses, to be recovered from asset-based sales charges in subsequent
fiscal periods, as described in the Prospectus. The asset-based sales
charge paid to the Distributor by the Fund under the Class B Plan is
intended to allow the Distributor to recoup the cost of sales commissions
paid to authorized brokers and dealers at the time of sale, plus financing
costs, as described in the Prospectus. Such payments may also be used to
pay for the following expenses in connection with the distribution of
Class B shares: (i) financing the advance of the service fee payment to
Recipients under the Class B Plan, (ii) compensation and expenses of
personnel employed by the Distributor to support distribution of Class B
shares, and (iii) costs of sales literature, advertising and prospectuses
(other than those furnished to current shareholders) and state "blue sky"
registration fees.
ABOUT YOUR ACCOUNT
How To Buy Shares
Alternative Sales Arrangements - Class A and Class B Shares. The
availability of two classes of shares permits an investor to choose the
method of purchasing shares that is more beneficial to the investor
depending on the amount of the purchase, the length of time the investor
expects to hold shares and other relevant circumstances. Investors should
understand that the purpose and function of the deferred sales charge and
asset-based sales charge with respect to Class B shares are the same as
those of the initial sales charge with respect to Class A shares. Any
salesperson or other person entitled to receive compensation for selling
Fund shares may receive different compensation with respect to one class
of shares than the other. The Distributor will not accept any order for
$1 million or more of Class B shares on behalf of a single investor (not
including dealer "street name" or omnibus accounts) because generally it
will be more advantageous for that investor to purchase Class A shares of
the Fund instead.
The two classes of shares each represent an interest in the same
portfolio investments of the Fund. However, each class has different
shareholder privileges and features. The net income attributable to Class
B shares and the dividends payable on Class B shares will be reduced by
incremental expenses borne solely by that class, including the asset-based
sales charge to which Class B shares are subject.
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 tax adviser, to
the effect that the conversion of B shares does not constitute a taxable
event for the holder 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
holder, and absent such exchange, Class B shares might continue to be
subject to the asset-based sales charge for longer than six years.
The methodology for calculating the net asset value, dividends and
distributions of the Fund's Class A and Class B shares recognizes two
types of expenses. General expenses that do not pertain specifically to
either class are allocated pro rata to the shares of each class, based on
the percentage of the net assets of such class to the Fund's total assets,
and then equally to each outstanding share within a given class. Such
general expenses include (i) management fees, (ii) legal, bookkeeping and
audit fees, (iii) printing and mailing costs of shareholder reports,
Prospectuses, Statements of Additional Information and other materials for
current shareholders, (iv) fees to Independent Trustees, (v) custodian
expenses, (vi) share issuance costs, (vii) organization and start-up
costs, (viii) interest, taxes and brokerage commissions, and (ix) non-
recurring expenses, such as litigation costs. Other expenses that are
directly attributable to a class are allocated equally to each outstanding
share within that class. Such expenses include (i) Distribution Plan
fees, (ii) incremental transfer and shareholder servicing agent fees and
expenses, (iii) registration fees and (iv) shareholder meeting expenses,
to the extent that such expenses pertain to a specific class rather than
to the Fund as a whole.
Determination of Net Asset Values Per Share. The net asset values per
share of Class A and Class B shares of the Fund are determined each day
The New York Stock Exchange (the "NYSE") is open, as of 4:00 P.M., New
York time, that day, by dividing the value of the Fund's net assets
attributable to that class by the number of shares of that class
outstanding. The NYSE's most recent annual announcement (which is subject
to change) states that it will close on New Year's Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day. It may also close on other days. The Fund may invest
a portion of its assets in foreign securities primarily listed on foreign
exchanges which may trade on Saturdays or customary U.S. business holidays
on which the NYSE is closed. Because the Fund's net asset value will not
be calculated on those days, the Fund's net asset values per share may be
significantly affected on such days when shareholders may not purchase or
redeem shares.
The Fund's Board of Trustees has established procedures for the
valuation of the Fund's securities, generally as follows: (i) equity
securities traded on a securities exchange or on NASDAQ for which last
sale information is regularly reported are valued at the last reported
sale price on their primary exchange or NASDAQ that day (or, in the
absence of sales that day, at values based on the last sales prices of the
preceding trading day, or closing bid and asked prices); (ii) securities
traded on NASDAQ and other unlisted equity securities for which last sale
prices are not regularly reported but for which over-the-counter market
quotations are readily available are valued at the highest closing bid
price at the time of valuation, or, if no closing bid price is reported,
on the basis of a closing bid price obtained from a dealer who maintains
an active market in that security; (iii) debt securities having a maturity
in excess of 60 days are valued at the mean between the bid and asked
prices determined by a portfolio pricing service approved by the Board or
obtained from active market makers on the basis of reasonable inquiry;
(iv) short-term debt securities having a remaining maturity of 60 days or
less are valued at cost, adjusted for amortization of premiums and
accretion of discounts; (v) securities (including restricted securities)
not having readily-available market quotations are valued at fair value
under the Board's procedures; and (vi) securities traded on foreign
exchanges are valued at the closing or last sales prices reported on a
principal exchange, or, if none, at the mean between closing bid and asked
prices and reflect prevailing rates of exchange taken from the closing
price on the London foreign exchange market that day.
Trading in securities on European and Asian exchanges and over-the-
counter markets is normally completed before the close of the NYSE.
Events affecting the values of foreign securities traded in stock markets
that occur between the time their prices are determined and the close of
the NYSE will not be reflected in the Fund's calculation of net asset
value unless the Board of Trustees or the Manager, under procedures
established by the Board of Trustees, determines that the particular event
would materially affect the Fund's net asset value, in which case an
adjustment would be made. Foreign currency will be valued as close to the
time fixed for the valuation date as is reasonably practicable. The
values of securities denominated in foreign currency will be converted to
U.S. dollars at the prevailing rates of exchange at the time of valuation.
Puts, calls and Futures held by the Fund are valued at the last sales
price on the principal exchange on which they are traded, or on NASDAQ,
as applicable, or, if there are no sales that day, in accordance with (i),
above. Forward currency contracts are valued at the closing price on the
London foreign exchange market. When the Fund writes an option, an amount
equal to the premium received by the Fund is included in the Fund's
Statement of Assets and Liabilities as an asset, and an equivalent
deferred credit is included in the liability section. The deferred credit
is "marked-to-market" to reflect the current market value of the option.
In determining the Fund's gain on investments, if a call 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
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.
AccountLink. When shares are purchased through AccountLink, each purchase
must be at least $25.00. Shares will be purchased on the regular business
day the Distributor is instructed to initiate the Automated Clearing House
transfer to buy the shares. Dividends will begin to accrue on such shares
on the day the Fund receives Federal Funds for such purchase through the
ACH system before 4:00 P.M., which is normally 3 days after the ACH
transfer is initiated. The Distributor and the Fund are not responsible
for any delays. If the Federal Funds are received after 4:00 P.M.,
dividends will begin to accrue on the next regular business day after such
Federal Funds are received.
Reduced Sales Charges. As discussed in the Prospectus, a reduced sales
charge rate may be obtained for Class A shares under Right of Accumulation
and Letters of Intent because of the economies of sales efforts and
reduction in expenses realized by the Distributor, dealers and brokers
making such sales. No sales charge is imposed in certain other
circumstances described in the Prospectus because the Distributor incurs
little or no selling expenses. The term "immediate family" refers to
one's spouse, children, grandchildren, grandparents, parents, parents-in-
law, brothers and sisters, sons- and daughters-in-law, a sibling's spouse
and a spouse's siblings.
- The OppenheimerFunds. The OppenheimerFunds are those mutual funds
for which the Distributor acts as the distributor or the sub-distributor
and include the following:
Oppenheimer Tax-Free Bond Fund
Oppenheimer New York Tax-Exempt Fund
Oppenheimer California Tax-Exempt Fund
Oppenheimer Intermediate Tax-Exempt Bond Fund
Oppenheimer Insured Tax-Exempt Bond Fund
Oppenheimer Main Street California Tax-Exempt Fund
Oppenheimer Florida Tax-Exempt Fund
Oppenheimer Pennsylvania Tax-Exempt Fund
Oppenheimer New Jersey Tax-Exempt Fund
Oppenheimer Fund
Oppenheimer Discovery Fund
Oppenheimer Time Fund
Oppenheimer Target Fund
Oppenheimer Growth Fund
Oppenheimer Equity Income Fund
Oppenheimer Value Stock Fund
Oppenheimer Asset Allocation Fund
Oppenheimer Total Return Fund, Inc.
Oppenheimer Main Street Income & Growth Fund
Oppenheimer High Yield Fund
Oppenheimer Champion High Yield Fund
Oppenheimer Investment Grade Bond Fund
Oppenheimer U.S. Government Trust
Oppenheimer Limited-Term Government Fund
Oppenheimer Mortgage Income Fund
Oppenheimer Global Fund
Oppenheimer Global Emerging Growth Fund
Oppenheimer Global Environment Fund
Oppenheimer Global Growth & Income Fund
Oppenheimer Gold & Special Minerals Fund
Oppenheimer Strategic Income Fund
Oppenheimer Strategic Investment Grade Bond Fund
Oppenheimer Strategic Short-Term Income Fund
Oppenheimer Strategic Income & Growth Fund
Oppenheimer Strategic Diversified Income Fund
and the following "Money Market Funds":
Oppenheimer Money Market Fund, Inc.
Oppenheimer Cash Reserves
Centennial Money Market Trust
Centennial Tax Exempt Trust
Centennial Government Trust
Centennial New York Tax Exempt Trust
Centennial California Tax Exempt Trust
Centennial America Fund, L.P.
Daily Cash Accumulation Fund, Inc.
<PAGE>
There is an initial sales charge on the purchase of Class A shares
of each of the OppenheimerFunds except Money Market Funds (under certain
circumstances described herein, redemption proceeds of Money Market Fund
shares may be subject to a contingent deferred sales charge).
- Letters of Intent. A Letter of Intent ("Letter") is the
investor's statement of intention to purchase Class A shares of the Fund
(and other eligible OppenheimerFunds) sold with a front-end sales charge
during the 13-month period from the investor's first purchase pursuant to
the Letter (the "Letter of Intent period"), which may, at the investor's
request, include purchases made up to 90 days prior to the date of the
Letter. The Letter states the investor's intention to make the aggregate
amount of purchases (excluding any purchases made by reinvestments of
dividends or distributions or purchases made at net asset value without
sales charge), which together with the investor's holdings of such funds
(calculated at their respective public offering prices calculated on the
date of the Letter) will equal or exceed the amount specified in the
Letter. This enables the investor to obtain the reduced sales charge rate
(as set forth in the Prospectus) applicable to purchases of shares in that
amount (the "intended purchase amount"). Each purchase under the Letter
will be made at the public offering price applicable to a single lump-sum
purchase of shares in the intended purchase amount, as described in the
Prospectus.
In submitting a Letter, the investor makes no commitment to purchase
shares, but if the investor's purchases of shares within the Letter of
Intent period, when added to the value (at offering price) of the
investor's holdings of shares on the last day of that period, do not equal
or exceed the intended purchase amount, the investor agrees to pay the
additional amount of sales charge applicable to such purchases, as set
forth in "Terms of Escrow," below (as those terms may be amended from time
to time). The investor agrees that shares equal in value to 5% of the
intended purchase amount will be held in escrow by the Transfer Agent
subject to the Terms of Escrow. Also, the investor agrees to be bound by
the terms of the Prospectus, this Statement of Additional Information and
the Application used for such Letter of Intent, and if such terms are
amended, as they may be from time to time by the Fund, that those
amendments will apply automatically to existing Letters of Intent.
If the total eligible purchases made during the Letter of Intent
period do not equal or exceed the intended purchase amount, the
commissions previously paid to the dealer of record for the account and
the amount of sales charge retained by the Distributor will be adjusted
to the rates applicable to actual purchases. If total eligible purchases
during the Letter of Intent period exceed the intended purchase amount and
exceed the amount needed to qualify for the next sales charge rate
reduction set forth in the applicable prospectus, the sales charges paid
will be adjusted to the lower rate, but only if and when the dealer
returns to the Distributor the excess of the amount of commissions allowed
or paid to the dealer over the amount of commissions that apply to the
actual amount of purchases. The excess commissions returned to the
Distributor will be used to purchase additional shares for the investor's
account at the net asset value per share in effect on the date of such
purchase, promptly after the Distributor's receipt thereof.
In determining the total amount of purchases made under a Letter,
shares redeemed by the investor prior to the termination of the Letter of
Intent period will be deducted. It is the responsibility of the dealer
of record and/or the investor to advise the Distributor about the Letter
in placing any purchase orders for the investor during the Letter of
Intent period. All of such purchases must be made through the
Distributor.
- Terms of Escrow That Apply to Letters of Intent.
1. Out of the initial purchase (or subsequent purchases if
necessary) made pursuant to a Letter, shares of the Fund equal in value
to 5% of the intended purchase amount specified in the Letter shall be
held in escrow by the Transfer Agent. For example, if the intended
purchase amount is $50,000, the escrow shall be shares valued in the
amount of $2,500 (computed at the public offering price adjusted for a
$50,000 purchase). Any dividends and capital gains distributions on the
escrowed shares will be credited to the investor's account.
2. If the intended purchase amount specified under the Letter is
completed within the thirteen-month Letter of Intent period, the escrowed
shares will be promptly released to the investor.
3. If, at the end of the thirteen-month Letter of Intent period the
total purchases pursuant to the Letter are less than the intended purchase
amount specified in the Letter, the investor must remit to the Distributor
an amount equal to the difference between the dollar amount of sales
charges actually paid and the amount of sales charges which would have
been paid if the total amount purchased had been made at a single time.
Such sales charge adjustment will apply to any shares redeemed prior to
the completion of the Letter. If such difference in sales charges is not
paid within twenty days after a request from the Distributor or the
dealer, the Distributor will, within sixty days of the expiration of the
Letter, redeem the number of escrowed shares necessary to realize such
difference in sales charges. Full and fractional shares remaining after
such redemption will be released from escrow. If a request is received
to redeem escrowed shares prior to the payment of such additional sales
charge, the sales charge will be withheld from the redemption proceeds.
4. By signing the Letter, the investor irrevocably constitutes and
appoints the Transfer Agent as attorney-in-fact to surrender for
redemption any or all escrowed shares.
5. The shares eligible for purchase under the Letter (or the holding
of which may be counted toward completion of the Letter) do not include
any shares sold without a front-end sales charge or without being subject
to a Class A contingent deferred sales charge unless (for the purpose of
determining completion of the obligation to purchase shares under the
Letter) the shares were acquired in exchange for shares of one of the
OppenheimerFunds whose shares were acquired by payment of a sales charge.
6. Shares held in escrow hereunder will automatically be exchanged
for shares of another fund to which an exchange is requested, as described
in the section of the Prospectus entitled "Exchange Privilege," and the
escrow will be transferred to that other fund.
Asset Builder Plans. To establish an Asset Builder Plan from a bank
account, a check (minimum $25) for the initial purchase must accompany the
application. Shares purchased by Asset Builder Plan payments from bank
accounts are subject to the redemption restrictions for recent purchases
described in "How To Sell Shares," in the Prospectus. Asset Builder Plans
also enable shareholders of Oppenheimer Cash Reserves to use those
accounts for monthly automatic purchases of shares of up to four other
OppenheimerFunds.
There is a front-end sales charge on the purchase of certain
OppenheimerFunds, or a contingent deferred sales charge may apply to
shares purchased by Asset Builder payments. An application should be
obtained from the Distributor, completed and returned, and a prospectus
of the selected fund(s) should be obtained from the Distributor or your
financial advisor before initiating Asset Builder payments. 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. A reasonable period (approximately 15 days) is required after the
Transfer Agent's receipt of such instructions to implement them. The Fund
reserves the right to amend, suspend, or discontinue offering such plans
at any time without prior notice.
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.
How to Sell Shares
Information on how to sell shares of the Fund is stated in the
Prospectus. The information below supplements the terms and conditions for
redemptions set forth in the Prospectus.
- Payments "In Kind". The Prospectus states that payment for
shares tendered for redemption is ordinarily made in cash. However, the
Board of Trustees of the Fund may determine that it would be detrimental
to the best interests of the remaining shareholders of the Fund to make
payment of a redemption order wholly or partly in cash. In that case the
Fund may pay the redemption proceeds in whole or in part by a distribution
"in kind" of securities from the portfolio of the Fund, in lieu of cash,
in conformity with applicable rules of the Securities and Exchange
Commission. The Fund has elected to be governed by Rule 18f-1 under the
Investment Company Act, pursuant to which the Fund is obligated to redeem
shares solely in cash up to the lesser of $250,000 or 1% of the net assets
of the Fund during any 90-day period for any one shareholder. If shares
are redeemed in kind, the redeeming shareholder might incur brokerage or
other costs in selling the securities for cash. The method of valuing
securities used to make redemptions in kind
will be the same as the method the Fund uses to value it portfolio
securities described above under "Determination of Net Asset Values Per
Share" and that valuation will be made as of the time the redemption price
is determined.
- Involuntary Redemptions. The Fund's Board of Trustees has the
right to cause the involuntary redemption of the shares held in any
account if the aggregate net asset value of those shares is less than $200
or such lesser amount as the Board may fix. The Board of Trustees will
not cause the involuntary redemption of shares in an account if the
aggregate net asset value of the shares has fallen below the stated
minimum solely as a result of market fluctuations. Should the Board elect
to exercise this right, it may also fix, in accordance with the Investment
Company Act, the requirements for any notice to be given to the
shareholders in question (not less than 30 days), or the Board may set
requirements for granting permission to the Shareholder to increase the
investment, and set other terms and conditions so that the shares would
not be involuntarily redeemed.
Reinvestment Privilege. Within six months of a redemption, a shareholder
may reinvest all or part of the redemption proceeds of (i) Class A shares,
or (ii) Class B shares that were subject to the Class B contingent
deferred sales charge when redeemed. The reinvestment may be made without
sales charge only in Class A shares of the Fund or any of the other
OppenheimerFunds into which shares of the Fund are exchangeable as
described below, at the net asset value next computed after the Transfer
Agent receives the reinvestment order. The shareholder must ask the
Distributor for that privilege at the time of reinvestment. 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 OppenheimerFunds 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. 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.
Transfers of Shares. Shares are not subject to the payment of a
contingent deferred sales charge of either class at the time of transfer
to the name of another person or entity (whether the transfer occurs by
absolute assignment, gift or bequest, not involving, directly or
indirectly, a public sale). The transferred shares will remain subject
to the contingent deferred sales charge, calculated as if the transferee
shareholder had acquired the transferred shares in the same manner and at
the same time as the transferring shareholder. If less than all shares
held in an account are transferred, and some but not all shares in the
account would be subject to a contingent deferred sales charge if redeemed
at the time of transfer, the priorities described in the Prospectus under
"How to Buy Shares" for the imposition of the Class B contingent deferred
sales charge will be followed in determining the order in which shares are
transferred.
Distributions From Retirement Plans. Requests for distributions from
OppenheimerFunds-sponsored IRAs, 403(b)(7) custodial plans, or pension or
profit-sharing plans should be addressed to "Trustee, OppenheimerFunds
Retirement Plans," c/o the Transfer Agent at its address listed in "How
To Sell Shares" in the Prospectus or on the back cover of this Statement
of Additional Information. The request must: (i) state the reason for the
distribution; (ii) state the owner's awareness of tax penalties if the
distribution is premature; and (iii) conform to the requirements of the
plan and the Fund's other redemption requirements. Participants (other
than self-employed persons) in OppenheimerFunds-sponsored pension or
profit-sharing plans may not directly request redemption of their
accounts. The employer or plan administrator 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 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, the Trustee and the
Transfer Agent assume no responsibility to determine whether a
distribution satisfies the conditions of applicable tax laws and will not
be responsible for any tax penalties assessed in connection with a
distribution.
Special Arrangements for Repurchase of Shares from Dealers and Brokers.
The Distributor is the Fund's agent to repurchase its shares from
authorized dealers or brokers. The repurchase price will be the net asset
value next computed after the receipt of an order placed by such dealer
or broker, except that orders received from dealers or brokers after 4:00
P.M. on a regular business day will be processed at that day's net asset
value if such orders were received by the dealer or broker from its
customers prior to 4:00 P.M., and were transmitted to and received by the
Distributor prior to its close of business that day (normally 5:00 P.M.).
Payment ordinarily will be made within seven days after the Distributor's
receipt of the required redemption documents, with signature(s) guaranteed
as described in the Prospectus.
Automatic Withdrawal and Exchange Plans. Investors owning shares of the
Fund valued at $5,000 or more can authorize the Transfer Agent to redeem
shares (minimum $50) automatically on a monthly, quarterly, semi-annual
or annual basis under an Automatic Withdrawal Plan. Shares will be
redeemed three business days prior to the date requested by the
shareholder for receipt of the payment. Automatic withdrawals of up to
$1,500 per month may be requested by telephone if payments are to be made
by check payable to all shareholders of record and sent to the address of
record for the account (and if the address has not been changed within the
prior 30 days). Required minimum distributions from OppenheimerFunds-
sponsored retirement plans may not be arranged on this basis. Payments
are normally made by check, but shareholders having AccountLink privileges
(see "How To Buy Shares") may arrange to have Automatic Withdrawal Plan
payments transferred to the bank account designated on the
OppenheimerFunds New Account Application or signature-guaranteed
instructions. The Fund cannot guarantee receipt of a payment on the date
requested and reserves the right to amend, suspend or discontinue offering
such plans at any time without prior notice. Because of the sales charge
assessed on Class A share purchases, shareholders should not make regular
additional Class A share purchases while participating in an Automatic
Withdrawal Plan. Class B shareholders should not establish withdrawal
plans, because of the imposition of the Class B contingent deferred sales
charge on such withdrawals (except where the Class B contingent deferred
sales charge is waived as described in the Prospectus under "Class B
Contingent Deferred Sales Charge").
By requesting an Automatic Withdrawal or Exchange Plan, the
shareholder agrees to the terms and conditions applicable to such plans,
as stated below and in the provisions of the OppenheimerFunds Application
relating to such Plans, as well as the Prospectus. These provisions may
be amended from time to time by the Fund and/or the Distributor. When
adopted, such amendments will automatically apply to existing Plans.
- Automatic Exchange Plans. Shareholders can authorize the
Transfer Agent (on the OppenheimerFunds Application or signature-
guaranteed instructions) to exchange a pre-determined amount of shares of
the Fund for shares (of the same class) of other OppenheimerFunds
automatically on a monthly, quarterly, semi-annual or annual basis under
an Automatic Exchange Plan. The minimum amount that may be exchanged to
each other fund account is $25. Exchanges made under these plans are
subject to the restrictions that apply to exchanges as set forth in "How
to Exchange Shares" in the Prospectus and below in this Statement of
Additional Information.
- Automatic Withdrawal Plans. Fund shares will be redeemed as
necessary to meet withdrawal payments. Shares acquired without a sales
charge will be redeemed first and shares acquired with reinvested
dividends and capital gains distributions will be redeemed next, followed
by shares acquired with a sales charge, to the extent necessary to make
withdrawal payments. Depending upon the amount withdrawn, the investor's
principal may be depleted. Payments made under withdrawal plans should
not be considered as a yield or income on your investment.
The Transfer Agent will administer the investor's Automatic
Withdrawal Plan (the "Plan") as agent for the investor (the "Planholder")
who executed the Plan authorization and application submitted to the
Transfer Agent. The Transfer Agent shall incur no liability to the
Planholder for any action taken or omitted by the Transfer Agent in good
faith to administer the Plan. Certificates will not be issued for shares
of the Fund purchased for and held under the Plan, but the Transfer Agent
will credit all such shares to the account of the Planholder on the
records of the Fund. Any share certificates held by a Planholder may be
surrendered unendorsed to the Transfer Agent with the Plan application so
that the shares represented by the certificate may be held under the Plan.
For accounts subject to Automatic Withdrawal Plans, distributions of
capital gains must be reinvested in shares of the Fund, which will be done
at net asset value without a sales charge. Dividends on shares held in
the account may be paid in cash or reinvested.
Redemptions of shares needed to make withdrawal payments will be made
at the net asset value per share determined on the redemption date.
Checks or AccountLink payments of the proceeds of Plan withdrawals will
normally be transmitted three business days prior to the date selected for
receipt of the payment (receipt of payment on the date selected cannot be
guaranteed), according to the choice specified in writing by the
Planholder.
The amount and the interval of disbursement payments and the address
to which checks are to be mailed or AccountLink payments are to be sent
may be changed at any time by the Planholder by writing to the Transfer
Agent. The Planholder should allow at least two weeks' time in mailing
such notification for the requested change to be put in effect. The
Planholder may, at any time, instruct the Transfer Agent by written notice
(in proper form in accordance with the requirements of the then-current
Prospectus of the Fund) to redeem all, or any part of, the shares held
under the Plan. In that case, the Transfer Agent will redeem the number
of shares requested at the net asset value per share in effect in
accordance with the Fund's usual redemption procedures and will mail a
check for the proceeds to the Planholder.
The Plan may be terminated at any time by the Planholder by writing
to the Transfer Agent. A Plan may also be terminated at any time by the
Transfer Agent upon receiving directions to that effect from the Fund.
The Transfer Agent will also terminate a Plan upon receipt of evidence
satisfactory to it of the death or legal incapacity of the Planholder.
Upon termination of a Plan by the Transfer Agent or the Fund, shares that
have not been redeemed from the account will be held in uncertificated
form in the name of the Planholder, and the account will continue as a
dividend-reinvestment, uncertificated account unless and until proper
instructions are received from the Planholder or his or her executor or
guardian, or other authorized person.
To use shares held under the Plan as collateral for a debt, the
Planholder may request issuance of a portion of the shares in certificated
form. Upon written request from the Planholder, the Transfer Agent will
determine the number of shares for which a certificate may be issued
without causing the withdrawal checks to stop because of exhaustion of
uncertificated shares needed to continue payments. However, should such
uncertificated shares become exhausted, Plan withdrawals will terminate.
If the Transfer Agent ceases to act as transfer agent for the Fund,
the Planholder will be deemed to have appointed any successor transfer
agent to act as agent in administering the Plan.
How To Exchange Shares
As stated in the Prospectus, shares of a particular class of
OppenheimerFunds having more than one class of shares may be exchanged
only for shares of the same class of other OppenheimerFunds. Shares of
the OppenheimerFunds that have a single class without a class designation
are deemed "Class A" shares for this purpose. All of the OppenheimerFunds
offer Class A shares (except for Oppenheimer Strategic Diversified Income
Fund), but only the following other OppenheimerFunds offer Class B shares:
Oppenheimer Strategic Income & Growth Fund
Oppenheimer Strategic Investment Grade Bond Fund
Oppenheimer Strategic Short-Term Income Fund
Oppenheimer New York Tax-Exempt Fund
Oppenheimer Tax-Free Bond Fund
Oppenheimer California Tax-Exempt Fund
Oppenheimer Pennsylvania Tax-Exempt Fund
Oppenheimer Florida Tax-Exempt Fund
Oppenheimer Insured Tax-Exempt Bond Fund
Oppenheimer Main Street California Tax-Exempt Fund
Oppenheimer Main Street Income & Growth Fund
Oppenheimer Total Return Fund, Inc.
Oppenheimer Investment Grade Bond Fund
Oppenheimer Value Stock Fund
Oppenheimer Limited-Term Government Fund
Oppenheimer High Yield Fund
Oppenheimer Mortgage Income Fund
Oppenheimer Cash Reserves (Class B shares are only
available by exchange)
Oppenheimer Growth Fund
Oppenheimer Equity Income Fund
Oppenheimer Global Fund
Oppenheimer Discovery Fund
Class A shares of OppenheimerFunds may be exchanged at net asset
value for shares of any Money Market Fund. Shares of any Money Market
Fund purchased without a sales charge may be exchanged for shares of
OppenheimerFunds offered with a sales charge upon payment of the sales
charge (or, if applicable, may be used to purchase shares of
OppenheimerFunds subject to a contingent deferred sales charge). Shares
of this Fund acquired by reinvestment of dividends or distributions from
any other of the OppenheimerFunds 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 OppenheimerFunds.
No contingent deferred sales charge is imposed on exchanges of shares of
either class purchased subject to a contingent deferred sales charge.
However, when Class A shares acquired by exchange of Class A shares of
other OppenheimerFunds purchased subject to a Class A contingent deferred
sales 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 contingent deferred sales charge is imposed on the redeemed shares (see
"Class A Contingent Deferred Sales Charge" in the Prospectus). The Class
B contingent deferred sales charge is imposed on Class B shares acquired
by exchange if they are redeemed within six years of the initial purchase
of the exchanged Class B shares.
When Class B 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 contingent deferred sales charge will be
followed in determining the order in which the shares are exchanged.
Shareholders should take into account the effect of any exchange on the
applicability and rate of any contingent deferred sales charge that might
be imposed in the subsequent redemption of remaining shares. Shareholders
owning shares of both classes must specify whether they intend to exchange
Class A or Class B shares.
The Fund reserves the right to reject telephone or written exchange
requests submitted in bulk by anyone on behalf of 10 or more accounts. The
Fund may accept requests for exchanges of up to 50 accounts per day from
representatives of authorized dealers that qualify for this privilege. 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.
When exchanging shares by telephone, a shareholder must either have
an existing account in, or obtain and acknowledge receipt of a prospectus
of, the fund to which the exchange is to be made. For full or partial
exchanges of an account made by telephone, any special account features
such as Asset Builder Plans, Automatic Withdrawal Plans and retirement
plan contributions will be switched to the new account unless the Transfer
Agent is instructed otherwise. If all telephone lines are busy (which
might occur, for example, during periods of substantial market
fluctuations), shareholders might not be able to request exchanges by
telephone and would have to submit written exchange requests.
Shares to be exchanged are redeemed on the regular business day the
Transfer Agent receives an exchange request in proper form (the
"Redemption Date"). Normally, shares of the fund to be acquired are
purchased on the Redemption Date, but such purchases may be delayed by
either fund up to five business days if it determines that it would be
disadvantaged by an immediate transfer of the redemption proceeds. The
Fund reserves the right, in its discretion, to refuse any exchange request
that may disadvantage it (for example, if the receipt of multiple exchange
requests from a dealer might require the disposition of portfolio
securities at a time or at a price that might be disadvantageous to the
Fund).
The different OppenheimerFunds available for exchange have different
investment objectives, policies and risks, and 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
Tax Status of the Fund's Dividends and Distributions. The Federal tax
treatment of the Fund's dividends and capital gains distributions is
explained in the Prospectus under the caption "Dividends, Capital Gains
and Taxes." 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. In addition, the amount of dividends paid by
the Fund which may qualify for the deduction is limited to the aggregate
amount of qualifying dividends that the Fund derives from its 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, or else the Fund must pay an excise tax on the amounts not
distributed. While it is presently anticipated that the Fund will meet
those requirements, the Fund's Board of Trustees and the Manager might
determine in a particular year that it would be in the best interest 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.
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 OppenheimerFunds listed in "Reduced
Sales Charges," above, at net asset value without sales charge. Class B
shareholders should be aware that as of the date of this Statement of
Additional Information, not all of the OppenheimerFunds offer Class B
shares. To elect this option, a shareholder must notify the Transfer
Agent in writing and either have an existing account in the fund selected
for reinvestment or must obtain a prospectus for that fund and an
application from the Distributor to establish an account. The investment
will be made at the net asset value per share in effect at the close of
business on the payable date of the dividend or distribution. Dividends
and/or distributions from certain of the OppenheimerFunds may be invested
in shares of this Fund on the same basis.
Additional Information About the Fund
The Custodian. The Bank of New York is the Custodian of the Fund's
assets. The Custodian's responsibilities include safeguarding and
controlling the Fund's portfolio securities, collecting income on the
portfolio securities and handling the delivery of such securities to and
from the Fund. The Manager has represented to the Fund that the banking
relationships between the Manager and the Custodian have been and will
continue to be unrelated to and unaffected by the relationship between the
Fund and the Custodian. 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.
Independent Auditors. The independent auditors of the Fund 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>
Independent Auditors' Report
The Board of Trustees and Shareholders of Oppenheimer High Yield Fund:
We have audited the accompanying statement of assets and liabilities,
including the statement of investments, of Oppenheimer High Yield Fund as
of June 30, 1994, the related statement of operations for the year then
ended, the statements of changes in net assets for the years ended June
30, 1994 and 1993, and the financial highlights for the period July 1,
1984 to June 30, 1994. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned at June 30, 1994 by correspondence with
the custodian and brokers; where replies were not received from brokers,
we performed other auditing procedures. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion. In our opinion, such financial statements and financial
highlights present fairly, in all material respects, the financial
position of Oppenheimer High Yield Fund at June 30, 1994, the results of
its operations, the changes in ts net assets, and the financial highlights
for the respective stated periods, in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE
Denver, Colorado
July 22, 1994
Statement of Investments June 30, 1994
Face Market Value
Amount See Note 1
- ------
Repurchase Agreements--11.1%
- ------
Repurchase agreement with First Chicago Capital Markets, 4.22%, dated
6/30/94,
to be repurchased at $126,414,817 on 7/1/94, collateralized by U.S.
Treasury
Nts., 3.875%--9.25%, 12/31/94--11/30/98, with a value of $91,885,422 and
by U.S.
Treasury Bills, 0%, 6/29/95, with a value of $37,090,121 (Cost
$126,400,000)
$126,400,000 $126,400,000
- ------
Long-Term Government Obligations--8.3%
- ------
Argentina (Republic of):
Bonds, Bonos de Consolidacion de Deudas:
Series I, 3.704%, 4/1/01(4)(6) 21,319,700(1) 11,689,853
Series I, 4.375%, 4/1/01(4)(6) 6,821,400 4,687,018
Series I, 4.375%, 4/1/07(4)(6) 12,505,900 6,894,740
Past Due Interest Bonds, 5%, 3/31/05(4) 17,500,000 12,654,688
Federal National Mortgage Assn., Interest-Only Stripped Mtg.-Backed
Security,
Trust 240, Class 2,
7%, 9/25/23(9) 53,974,161 19,877,672
- ------
Italy (Republic of) Treasury Bonds, Buoni Poliennali del Tes:
12%, 5/1/97 8,250,000,000(1) 5,399,066
12%, 1/1/98(8) 5,250,000,000(1) 3,422,504
- ------
Morocco (Kingdom of) Loan Participation Agreement, Tranche A,
4.50%, 1/1/09(4)(5) 15,000,000 10,494,375
- ------
Polish People's Republic Loan Participation Agreement:
5.0625%, 2/3/24(2) 8,000,000 2,920,000
7.9375%, 2/8/24(2) 7,000,000(1) 1,594,460
7.9375%, 2/8/24(2) 3,000,000(1) 807,215
- ------
Spain (Kingdom of) Gtd. Bonds, Bonos y Obligacion del Estado:
9%, 2/28/97 600,000,000(1) 4,510,460
12.25%, 3/25/00 1,000,000,000(1) 8,178,143
- ------
United Kingdom Treasury Nts. (Gilt), 12.25%, 3/26/99 500,000(1)
880,519
- ------
Total Long-Term Government Obligations (Cost $99,978,774) 94,010,713
- ------
Municipal Bonds and Notes--0.7%
- ------
San Joaquin Hills, California Transportation Corridor Agency Toll Road Capital
Appreciation Revenue Bonds, Jr. Lien, 0%:
1/1/12 15,000,000 3,529,424
1/1/28 74,000,000 4,226,214
- ------
Total Municipal Bonds and Notes (Cost $7,229,399) 7,755,638
- ------
Corporate Bonds and Notes--75.5%
- ------
Basic Materials--11.6%
- ------
Chemicals--3.8%
Atlantis Group, Inc., 11% Sr. Nts., 2/15/03
5,400,000 5,454,000
- ------
Carbide/Graphite Group, Inc., 11.50% Sr. Nts., 9/1/03
9,000,000 9,247,500
- ------
Envirodyne Industries, Inc., 10.25% Sr. Nts., 12/1/01
876,000 766,500
- ------
Georgia Gulf Co., 15% Sr. Sub. Nts., 4/15/00
1,700,000 1,807,440
- ------
NL Industries, Inc., 0%/13% Sr. Sec. Disc. Nts., 10/15/05(3)
8,280,000 5,092,200
- ------
OSI Specialities Holding Co., Units(5)
1,969,000 1,191,245
<PAGE>
Oppenheimer High Yield Fund
- ------
Face Market Value
Amount See Note 1
- ------
Chemicals
(continued)
Rexene Corp.:
9% Fst. Priority Nts., 11/15/99(4) $3,675,000 $3,583,125
10% 2nd Priority Nts., 11/15/02(6) 5,171,000 4,794,665
- ------
Synthetic Industries, Inc., 12.75% Sr. Sub. Debs., 12/1/02
11,000,000 12,017,500
- ------
43,954,175
- ------
Metals--4.1% Armco, Inc., 8.50% SF Debs., 9/1/01
26,985,000 25,264,706
- ------
Kaiser Aluminum & Chemical Corp., 12.75% Sr. Sub. Nts., 2/1/03
10,285,000 10,490,700
- ------
Stelco, Inc.:
9.75% Debs., 4/1/95 4,000,000(1) 2,855,519
10.25% Debs., 4/30/96 3,700,000(1) 2,624,617
10.40% Debs., 11/30/09 7,700,000(1) 5,239,100
- ------
46,474,642
- ------
Paper and Forest Products--3.7%
Equitable Bag, Inc., 12.375% Sr. Nts., 8/15/02(2)
870,000 613,350
- ------
Gaylord Container Corp., 0%/12.75% Sr. Sub. Disc. Debs., 5/15/05(3)
12,550,000 10,636,125
- ------
Pacific Lumber Co., 10.50% Sr. Nts., 3/1/03 12,050,000 11,628,250
- ------
PT Inti Indorayon Utama, 9.125% Sr. Nts., 10/15/00 3,975,000
3,438,375
- ------
Riverwood International Corp.:
11.25% Sr. Sub. Nts., 6/15/02 9,000,000 9,382,500
10.375% Sr. Sub. Nts., 6/30/04 2,700,000 2,706,750
- ------
Stone Container Corp.:
10.75% Sr. Sub. Nts., 6/15/97 1,300,000 1,300,000
9.875% Sr. Nts., 2/1/01 2,450,000 2,290,750
- ------
41,996,100
- ------
Consumer Cyclicals--27.2%
- ------
Automotive--2.9%
Envirotest Systems Corp.:
9.125% Sr. Nts., 3/15/01 4,500,000 4,286,250
9.625% Sr. Sub. Nts., 4/1/03 11,625,000 11,072,812
- ------
Foamex LP/Foamex Capital Corp.:
11.25% Sr. Nts., 10/1/02 6,600,000 6,732,000
11.875% Sr. Sub. Debs., 10/1/04 4,000,000 4,140,000
- ------
Foamex LP/JPS Automotive Corp., Units(5) 6,750,000 3,510,000
- ------
JPS Automotive Products Corp., 11.125% Sr. Nts., 6/15/01
2,500,000 2,512,500
- ------
SPX Corp., 11.75% Sr. Sub. Nts., 6/1/02 250,000 256,250
- ------
32,509,812
- ------
Construction Supplies and Development--1.8%
Baldwin Co., 10.375% Sr. Nts., Series B, 8/1/03 2,500,000
2,262,500
- ------
NVR, Inc., 11% Gtd. Sr. Nts., 4/15/03 2,760,000 2,718,600
- ------
Triangle Pacific Corp., 10.50% Sr. Nts., 8/1/03 5,000,000
4,975,000
- ------
USG Corp., 10.25% Sr. Sec. Nts., 12/15/02 10,650,000 10,703,250
- ------
20,659,350
- ------
Consumer Goods and Services--7.3%
Coleman Holdings, Inc., 0% Sr. Sec. Disc. Nts., Series B, 5/27/98
14,500,000 9,715,000
- ------
Collins & Aikman Group, Inc., 11.875% Sr. Sub. Debs., 6/1/01
10,706,000 10,866,590
- ------
Consoltex Group, Inc., 11% Gtd. Sr. Sub. Nts., Series A, 10/1/03
9,050,000 8,869,000
- ------
Genesco, Inc., 10.375% Sr. Nts., 2/1/03 3,500,000 2,878,750
- ------
Harman International Industries, Inc., 12% Sr. Sub. Nts., 8/1/02
12,000,000 13,020,000
<PAGE>
Oppenheimer High Yield Fund
- ------
Statement of Investments (Continued)
Face Market Value
Amount See Note 1
- ------
Consumer Goods and Services (continued)
Insilco Corp., 10.375% Sr. Sec. Nts., 7/1/97 $9,736,000 $9,784,680
- ------
Interco, Inc.:
9% Sec. Nts., Series B, 6/1/04 4,873,000 4,531,890
9% Sec. Nts., Series B, 6/1/04(5) 7,500,000 7,162,500
- ------
Pope, Evans & Robbins, Inc., 7% Sr. Nts., 5/15/98(6)(10)
6,163,620 277,363
- ------
Protection One Alarm Monitoring, Inc., 12% Sr. Sub. Nts., 11/1/03
6,500,000 6,207,500
- ------
PT Polysindo Eka Perkasa, 13% Sr. Nts., 6/15/01 4,400,000
4,384,112
- ------
Revlon, Inc., 10.875% Debs., 7/15/10 5,150,000 5,014,812
- ------
82,712,197
- ------
Entertainment--6.3% Arizona Charlie's, Inc., 12% Fst. Mtg. Nts.,
Series A,
11/15/00(5)
2,750,000 2,763,750
- ------
Aztar Corp., 11% Sr. Sub. Nts., 10/1/02 4,600,000 4,347,000
- ------
Aztar Mortgage Funding, Inc., 13.50% Gtd. Fst. Mtg. Nts., 9/15/96
4,900,000 4,973,500
- ------
Capital Gaming International, Inc., Units(5) 2,250,000 2,306,250
- ------
Capitol Queen & Casino, Inc., 12% Fst. Mtg. Nts., Series A, 11/15/00(5)
2,000,000 1,720,000
- ------
Casino America, Inc., 11.50% Fst. Mtg. Nts., 11/15/01
1,150,000 1,098,250
- ------
Empress River Casino Finance Corp., 10.75% Gtd. Sr. Nts., 4/1/02
400,000 386,000
- ------
Gillett Holdings, Inc.:
0% Sr. Sec. Nts., 6/30/95 2,452 2,415
12.25% Sr. Sub. Nts., Series A, 6/30/02 12,075,200 12,860,088
- ------
GNF Corp., 10.625% Gtd. Fst. Mtg. Nts., Series B, 4/1/03 6,000,000
4,440,000
- ------
MGM Grand Hotel Finance Corp.:
11.75% Fst. Mtg. Nts., Series A, 5/1/99 2,500,000 2,656,250
12% Fst. Mtg. Nts., 5/1/02 3,500,000 3,841,250
- ------
Maritime Group Ltd., Units(5) 2,066,000 1,989,042
- ------
Marvel (Parent) Holdings, Inc., 0% Sr. Sec. Disc. Nts., 4/15/98
2,750,000
1,705,000
- ------
Resorts International, Inc., 0% Sec. Fst. Mtg.
Non-Recourse Pass-Through Nts., 6/30/00 6,785,000 6,377,900
- ------
Station Casinos, Inc.:
9.625% Sr. Sub. Nts., Series A, 6/1/03 12,050,000 11,025,750
9.625% Sr. Sub. Nts., Series B, 6/1/03 2,800,000 2,520,000
- ------
Treasure Bay Gaming & Resorts, Inc.:
Units(5) 2,725,000 2,629,625
12.25% Fst Mtg. Nts., 11/15/00(5) 1,150,000 1,040,750
- ------
Trump's Castle Funding, Inc.:
11.75% Mtg. Nts., 11/15/03 634 485
7% Sub. Nts., 11/15/05(6) 572 420
- ------
United Gaming, Inc., 7.50% Cv. Sub. Debs., 9/15/03 4,250,000
3,410,625
- ------
72,094,350
- ------
Media--2.4% Ackerley Communications, Inc., 10.75% Sr. Sec. Nts.,
Series A,
10/1/03
8,700,000 8,656,500
- ------
Lamar Advertising Co., 11% Sr. Sec. Nts., 5/15/03 7,550,000
7,474,500
- ------
News America Holdings, Inc., 10.125% Gtd. Sr. Debs., 10/15/12
2,000,000
2,110,438
- ------
SCI Television, Inc.:
7.50% Fst. Sec. Loan Nts., 6/30/98 3,951,443 3,892,171
11% Sr. Sec. Nts., Series 1, 6/30/05 4,095,986 4,198,386
- ------
Turner Broadcasting System, Inc., 12% Sr. Sub. Debs., 10/15/01
450,000 475,875
- ------
26,807,870
<PAGE>
Oppenheimer High Yield Fund
- ------
Face Market Value
Amount See Note 1
- ------
Real Estate Development--1.4% Hees International Corp., 10% Sr. Nts.,
8/23/99 $6,300,000(1) $4,161,132
- ------
Olympia & York First Canadian Place Ltd., 11% Debs., Series 3, 11/4/49(2)
4,875,000(1) 2,227,482
- ------
Trizec Corp. Ltd.:
6.125% Debs., 10/21/93(2) 4,000,000(1) 2,630,924
10% Debs., 10/1/96(2) 7,850,000(1) 5,227,519
10.25% Sr. Debs., 6/22/99(2) 2,500,000(1) 1,615,051
- ------
15,862,108
- ------
Retail--5.1% Brylane LP/Brylane Capital Corp., 10% Sr. Sub. Nts.,
Series B,
9/1/03
10,250,000 10,147,500
- ------
Cole National Group, Inc., 11.25% Sr. Nts., 10/1/01
11,450,000 11,621,750
- ------
Eye Care Centers of America, Inc., 12% Sr. Nts., 10/1/03
7,700,000 7,584,500
- ------
Finlay Fine Jewelry Corp., 10.625% Sr. Nts., 5/1/03 6,270,000
6,285,675
- ------
International Semi-Tech Microelectronics, Inc., 0%/11.50%
Sr. Sec. Disc. Nts., 8/15/03(3) 12,000,000 6,060,000
- ------
Pay 'N Pak Stores, Inc., 13.50% Sr. Sub. Debs., 6/1/98(2)
7,700,000 77,000
- ------
R.H. Macy & Co., Inc., 14.50% Sr. Sub. Debs., 10/15/98(2)
6,670,000 4,168,750
- ------
Speciality Retailers, Inc., 10% Sr. Nts., Series B, 8/15/00
6,500,000 6,451,250
- ------
Waban, Inc., 11% Sr. Sub. Nts., 5/15/04 4,000,000 4,010,000
- ------
Zale Delaware, Inc., 11% Gtd. 2nd Priority Sr. Sec. Nts., 6/1/00
2,000,000 2,010,000
- ------
58,416,425
- ------
Consumer Non-Cylicals--10.7%
- ------
Food--2.7% ARA Group, Inc. (The):
12% Sub. Debs., 4/15/00 3,200,000 3,444,000
12.50% Sub. Debs., 7/15/01 8,800,000 9,284,000
- ------
Heileman Acquisition Corp., 9.625% Sr. Sub. Nts., 1/31/04
7,150,000 6,381,375
- ------
Kash 'N Karry Food Stores, Inc., 14% Sub. Debs., 2/1/01
2,400,000 876,000
- ------
Royal Crown Corp., 9.75% Sr. Sec. Nts., 8/1/00 10,750,000
10,266,250
- ------
30,251,625
- ------
Food and Drug Distribution--6.1%
Alco Health Distribution Corp., 11.25% Sr. Debs., 7/15/05(6)
6,343,000 6,297,413
- ------
Di Giorgio Corp., 12% Sr. Nts., 2/15/03 12,500,000 12,875,000
- ------
Duane Reade, 12% Sr. Nts., Series B, 9/15/02 3,250,000 3,380,000
- ------
Grand Union Co., 11.25% Sr. Nts., 7/15/00 11,950,000 11,800,625
- ------
Purity Supreme, Inc., 11.75% Sr. Sec. Nts., Series B, 8/1/99
9,800,000 9,604,000
- ------
Revco D.S., Inc., 9.125% Sr. Nts., 1/15/00 13,800,000 13,869,000
- ------
Thrifty Payless, Inc., 11.75% Sr. Nts., 4/15/03 11,600,000
11,832,000
- ------
69,658,038
- ------
Healthcare--1.9% American Medical International, Inc., 11.375% Sr.
Sub.
Nts., 2/1/95
900,000 922,662
- ------
Healthtrust, Inc.-The Hospital Co., 10.75% Sub. Nts., 5/1/02
8,575,000 8,810,813
- ------
Multicare Cos., Inc. (The), 12.50% Sr. Sub. Nts., 7/1/02
6,790,000 7,452,025
- ------
Quorum Health Group, Inc., 11.875% Sr. Sub. Nts., 12/15/02
4,250,000 4,653,750
- ------
21,839,250
- ------
Energy--9.2%
- ------
Bridge Oil (USA), Inc., 9.50% Sr. Nts., 8/15/00 11,500,000
11,097,500
<PAGE>
Oppenheimer High Yield Fund
- ------
Statement of Investments (Continued)
Face Market Value
Amount See Note 1
- ------
Energy (continued)
Ferrellgas LP/Ferrellgas Finance Corp., 10% Sr. Nts., 8/1/01
$5,700,000 $5,728,500
- ------
HS Resources, Inc., 9.875% Sr. Sub. Nts., 12/1/03 3,250,000
3,055,000
- ------
Maxus Energy Corp.:
9.875% Nts., 10/15/02 2,200,000 2,117,500
8.50% Debs., 4/1/08 5,000,000 4,350,000
11.50% Debs., 11/15/15 7,700,000 7,834,750
- ------
Mesa Capital Corp.:
0%/12.75% Disc. Nts., 6/30/96(3) 1,000 890
0%/12.75% Sec. Disc. Nts., 6/30/98(3) 11,766,000 10,707,060
- ------
Nuevo Energy Co., 12.50% Sr. Sub. Nts., 6/15/02 5,000,000
5,325,000
- ------
OPI International, Inc., 12.875% Gtd. Sr. Nts., 7/15/02
11,765,000 13,706,225
- ------
Presidio Oil Co.:
11.50% Sr. Sec. Nts., Series B, 9/15/00 6,162,000 6,162,000
14.125% Sr. Sub. Gas Indexed Nts., 7/15/02(4) 7,000,000 7,000,000
- ------
Sante Fe Energy Resources, Inc., 11% Sr. Sub. Debs., 5/15/04 8,080,000
8,241,600
- ------
Transco Energy Co., 9.375% Nts., 8/15/01 7,000,000 6,890,960
- ------
Wainoco Oil Corp., 12% Sr. Nts., 8/1/02 11,775,000 12,128,250
- ------
104,345,235
- ------
Financial--2.2%
- ------
Acme Holdings, Inc., 11.75% Sr. Nts., 6/1/00 1,100,000 709,500
- ------
Card Establishment Services, Inc., 10% Sr. Sub. Nts., Series B, 10/1/03
8,475,000 8,093,625
- ------
ECM Fund, L.P.I., 14% Sub. Nts., 6/10/02(5) 3,601,924 3,962,116
- ------
Lomas Financial Corp., 9% Cv. Sr. Nts., 10/31/03 8,802,000
7,195,635
- ------
Tribasa Toll Road Trust, 10.50% Nts., Series 1993-A, 12/1/11(5)
6,000,000 5,415,000
- ------
25,375,876
- ------
Industrial--5.6%
- ------
Containers--1.5% Owens-Illinois, Inc.:
10.50% Sr. Sub. Nts., 6/15/02 1,300,000 1,326,000
10% Sr. Sub. Nts., 8/1/02 6,700,000 6,708,375
11% Sr. Debs., 12/1/03 3,305,000 3,511,563
Trans Ocean Container Corp., 12.25% Sr. Sub. Nts., 7/1/04
5,500,000 5,527,500
- ------
17,073,438
- ------
General Industrial--2.1% American Standard, Inc.:
9.875% Sr. Sub. Nts., 6/1/01 2,200,000 2,128,500
0%/10.50% Sr. Sub. Disc. Debs., 6/1/05(3) 7,150,000 4,433,000
- ------
EnviroSource, Inc., 9.75% Sr. Nts., 6/15/03 9,800,000 8,918,000
- ------
Imo Industries, Inc., 12.25% Sr. Sub. Debs., 8/15/97 5,125,000
5,035,313
- ------
Mosler, Inc., 11% Sr. Nts., Series A, 4/15/03 4,550,000 3,071,250
- ------
23,586,063
- ------
Transportation--2.0% Sea Containers Ltd.:
9.50% Sr. Nts., 7/1/03 4,000,000 3,685,000
12.50% Sr. Sub. Debs., Series A, 12/1/04 1,250,000 1,309,375
12.50% Sr. Sub. Debs., Series B, 12/1/04 3,050,000 3,255,875
<PAGE>
Oppenheimer High Yield Fund
- ------
Face Market Value
Amount See Note 1
- ------
Transportation (continued) Tiphook Financial Corp.:
7.125% Gtd. Nts., 5/1/98 $500,000 $375,000
8% Gtd. Nts., 3/15/00 2,499,000 1,824,270
10.75% Sr. Nts., 11/1/02 3,899,000 3,060,715
- ------
Transportacion Maritima Mexicana SA:
8.50% Nts., 10/15/00 2,000,000 1,755,000
9.25% Nts., 5/15/03 2,000,000 1,750,000
- ------
Transtar Holdings LP/Transtar Capital Corp., 0%/13.375% Sr.
Disc. Nts., Series B, 12/15/03(3) 10,965,000 6,003,338
- ------
23,018,573
- ------
Technology--8.2%
- ------
Aerospace/Defense--1.1% GPA Delaware, Inc., 8.75% Gtd. Nts., 12/15/98
4,700,000 3,783,500
- ------
GPA Holland BV:
8.50% Med.-Term Nts., 2/10/97(5) 2,000,000 1,760,000
8.94% Med.-Term Nts., 2/16/99 7,300,000 5,839,582
- ------
GPA Investment BV, 6.40% Nts., 11/19/98 2,000,000 1,480,000
- ------
12,863,082
- ------
Cable Television--3.2% Cablevision Systems Corp.:
14% Sr. Sub. Reset Debs., 11/15/03 5,000,000 5,087,500
10.75% Sr. Sub. Debs., 4/1/04 7,800,000 7,936,500
- ------
Echostar Communications Corp., Units 14,200,000 7,561,500
- ------
Helicon Group LP/Helicon Capital Corp., 9% Sr. Sec. Nts., 11/1/03(4)
8,500,000 7,777,500
- ------
International CableTel, Inc., 0%/10.875% Sr. Def. Cpn. Nts., 10/15/03(3)
4,000,000 2,400,000
- ------
TKR Cable I, Inc., 10.50% Sr. Debs., 10/30/07 5,000,000 5,450,000
- ------
36,213,000
- ------
Communications--2.4% Centennial Cellular Corp., 8.875% Sr. Nts.,
11/1/01
5,000,000 4,625,000
- ------
Horizon Cellular Telephone LP/Horizon Finance Corp.,
0%/11.375% Sr. Sub. Disc. Nts., 10/1/00(3) 10,456,000 7,162,360
- ------
Panamsat LP/Panamsat Capital Corp.:
9.75% Sr. Sec. Nts., 8/1/00 2,500,000 2,487,500
0%/11.375% Sr. Sub. Disc. Nts., 8/1/03(3) 14,600,000 9,417,000
- ------
Rogers Communications, Inc., 10.875% Sr. Debs., 4/15/04
4,200,000 4,347,000
- ------
28,038,860
- ------
Technology--1.5% Bell & Howell Holdings Co., 0%/10.75% Sr. Disc.
Debs.,
Series B, 3/1/05 (3)
23,200,000 12,644,000
- ------
Berg Electronics Holdings Corp., 11.375%, Sr. Sub. Debs., 5/1/03
2,900,000 3,016,000
- ------
Businessland, Inc., 5.50% Sub. Debs., 3/1/07 3,850,000 1,106,875
- ------
16,766,875
- ------
Utilities--1.4% California Energy Co., 0%/10.25% Sr. Disc. Nts.,
1/15/04(3)
12,955,000 9,445,606
- ------
EUA Power Corp.:
17.50% Sec. Debs., Series C, 11/15/92(2) 1,107,000 127,305
17.50% Mtg. Nts., Series B, 5/15/93(2) 2,960,000 784,400
- ------
Subic Power Corp., 9.50% Sr. Sec. Nts., Series A, 12/28/08(5)
6,000,000 5,610,000
- ------
15,967,311
- ------
Total Corporate Bonds and Notes (Cost $885,722,010) 866,484,255
<PAGE>
Oppenheimer High Yield Fund
- ------
Statement of Investments (Continued)
Face Market Value
Amount See Note 1
- ------
Indexed Instruments--1.2%
- ------
Citibank, 17.30% CD, 7/29/94(7) 1,219,800,000(1) $2,918,276
- ------
Goldman Sachs Group, LP, 4.40% Standard & Poor's 500
Index-Linked Nts., 8/17/94(5) 1,250,000 1,687,500
- ------
Lehman Brothers Holdings, Inc., Standard & Poor's 500 Index-Linked Nts.:
3.7875%, 7/5/94(5) 1,000,000 1,103,800
3.7875%, 7/5/94(5) 2,000,000 2,047,980
4.50%, 8/16/94(5) 1,250,000 1,687,500
- ------
Salomon, Inc., 4.65625% Standard & Poor's 500 Index-Linked Nts.,
8/15/94(5)
2,500,000 3,225,000
- ------
Total Indexed Instruments (Cost $14,100,225) 12,670,056
Units
- ------
Rights, Warrants and Certificates--0.4%
- ------
ALC Communications Corp. Wts., Exp. 12/95 275,000 2,750
- ------
Ames Department Stores, Inc.:
Excess Cash Flow Payment Ctfs., Series AG-7A 326,800 3,268
Litigation Trust Units 1,045,990 10,460
- ------
Becker Gaming, Inc. Wts., Exp. 11/00(5) 125,000 312,500
- ------
Capital Gaming International, Inc. Wts., Exp. 2/99(5) 5,625 2,812
- ------
Casino America, Inc. Wts., Exp. 11/96 13,052 3,263
- ------
Digicon, Inc. Wts., Exp. 7/96 4,972 932
- ------
Gaylord Container Corp. Wts., Exp. 7/96 763,878 2,912,285
- ------
Hollywood Casino Corp. Wts., Exp. 4/98 9,524 950,019
- ------
Interco, Inc. Wts., Series 1, Exp. 8/99 19,474 80,330
- ------
Protection One, Inc. Wts., Exp. 11/03 182,000 584,220
- ------
Purity Supreme, Inc. Wts., Exp. 8/97(5) 22,525 450
- ------
Southland Corp. Wts., Exp. 3/96 5,800 24,650
- ------
Terex Corp. Rts., Exp. 7/96(5) 534 801
- ------
UGI Corp. Wts., Exp. 3/98 63,583 222,540
- ------
Total Rights, Warrants and Certificates (Cost $3,698,708) 5,111,280
Shares
- ------
Preferred Stocks--1.1%
- ------
Algoma Finance Corp., 5.50% Exch., Series A 65,820 1,000,496
- ------
Dell Computer Corp., $7.00 Cv., Series A(2)(5) 17,500 1,995,000
- ------
Finlay Enterprises, Inc., Cl. A(2) 6,400 80,000
- ------
K-III Communications Corp., $11.625 Exch., Series B(6) 12,650
1,252,362
- ------
Navistar International Corp., $6.00 Cv., Series G 8,200 414,100
- ------
Trizec Ltd., Sr. Cl. B, Series 3(2) 205,000 81,612
- ------
Unisys Corp., $3.75 Cv., Series A 233,400 8,023,125
- ------
Total Preferred Stocks (Cost $13,025,262) 12,846,695
- ------
Common Stocks--1.3%
- ------
Digicon, Inc.(2) 14,790 17,563
- ------
ECM Fund L.P.I.(5) 1,350 1,350,000
- ------
Hillsborough Holdings Corp.(2)(5) 34,280 343
- ------
Leaseway Transportation Corp.(2) 117,635 1,146,941
<PAGE>
Oppenheimer High Yield Fund
- ------
Market Value
Shares See Note 1
- ------
Common Stocks (continued) Marriott International, Inc.
10,678 $284,302
- ------
Petrolane, Inc., Cl. B(10) 457,515 4,918,286
- ------
Pope, Evans & Robbins, Inc.(2)(10) 1,688,400 52,762
- ------
Resorts International, Inc.(2) 282,691 265,023
- ------
New World Communications Group, Inc., Cl. A(2) 40,292 493,577
- ------
Triangle Wire & Cable, Inc.(2)(5) 370,500 3,705,000
- ------
Zale Corp.(2) 243,419 2,251,626
- ------
Total Common Stocks (Cost $15,774,383) 14,485,423
- ------
Total Investments, at Value (Cost $1,165,928,761) 100.2%
$1,139,764,060
- ------
Liabilities in Excess of Other Assets (0.2) (2,808,849)
- ------ ------
Net Assets 100.0% $1,136,955,211
- ------ ------
- ------ ------
1. Face amount is reported in foreign currency.
2. Non-income producing security.
3. Represents a zero coupon bond that converts to a fixed rate of interest
at a designated future date.
4. Represents the current interest rate for a variable rate security.
5. Restricted security--See Note 5 of Notes to Financial Statements.
6. Interest or dividend is paid in kind.
7. Indexed instrument for which the principal amount due at maturity is
affected by the relative value of a foreign security.
8. Securities with an aggregate market value of $3,422,504 are segregated
to collateralize outstanding forward foreign currency exchange contracts.
See Note 6 of Notes to Financial Statements.
9. Interest-Only Strips represent the right to receive the monthly
interest payment on an underlying pool of mortgage loans. These securities
are subject to the risk of accelerated principal paydowns as interest
rates decline. The principal amount represents the notional amount on
which current interest is calculated.
10. Affiliated company. Represents ownership of at least 5% of the voting
securities of the issuer and is or was an affiliate, as defined in the
Investment Company Act of 1940, at or during the year ended June 30, 1994.
The aggregate fair value of all securities of affiliated companies as of
June 30, 1994 amounted to $330,125. Transactions during the period in
which the issuer was an affiliate are as follows:
Balance June 30, 1993 Gross Additions Gross Redemptions
Balance June
30, 1994
- ------ ------ ------ ------
Interest
Stocks Shares/Face Cost Shares/Face Cost Shares/Face
Cost Shares/Face Cost Income
- ------
Pope, Evans & Robbins, Inc. 1,688,400 $1,114,384 -- --
--
- -- 1,688,400 $1,114,384 --
- ------
Petrolane, Inc. Cl. B* -- -- 480,690 $4,806,900
23,175
$231,750 457,515 4,575,150 $73,202
Bonds and Notes
- ------
Pope, Evans & Robbins, Inc.
7% Sr. Nts., 5/15/98, 5,743,583 4,046,595 420,037 402,499
--
-- 6,163,620 4,449,094 19,104(6)
- ------ ------ ------ ------ ------
$5,160,979 $5,209,399 $231,750 $10,138,628 $92,306
- ------ ------ ------ ------ ------
- ------ ------ ------ ------ ------
*Not an affiliate as of June 30, 1994.
- ------
Statement of Assets and Liabilities June 30, 1994
- ------
Assets Investments, at value (cost $1,165,928,761)--see accompanying
statement $1,139,764,060
- ------
Receivables:
Interest and dividends 25,602,517
Investments sold 11,573,888
Shares of beneficial interest sold 5,326,260
- ------
Other 74,068
- ------
Total assets 1,182,340,793
- ------
Liabilities Bank overdraft 123,338
Unrealized depreciation on forward foreign currency exchange
contracts--Note 6
176,595
Payables and other liabilities:
Investments purchased 34,104,187
Shares of beneficial interest redeemed 5,874,855
Dividends 4,206,331
Distribution and service plan fees--Note 4 381,786
Other 518,490
- ------
Total liabilities 45,385,582
- ------
Net Assets $1,136,955,211
- ------
- ------
- ------
Composition of
Net Assets
Paid-in capital $1,331,076,714
- ------
Distributions in excess of net investment income (3,538,462)
- ------
Accumulated net realized loss from investment and foreign currency
transactions
(164,324,438)
- ------
Net unrealized depreciation on investments and translation of assets and
liabilities
denominated in foreign currencies (26,258,603)
- ------
Net assets $1,136,955,211
- ------
- ------
- ------
Net Asset Value
Per Share
Class A Shares:
Net asset value and redemption price per share (based on net assets of
$1,049,446,111
and 77,002,162 shares of beneficial interest outstanding) $13.63
Maximum offering price per share (net asset value plus sales charge of
4.75% of offering price) $14.31
- ------
Class B Shares:
Net asset value, redemption price and offering price per share (based on
net assets of $87,509,100 and 6,449,125 shares of beneficial interest
outstanding)
$13.57
<PAGE>
Statement of Operations For the Year Ended June 30, 1994
- ------
Investment Income Interest:
Unaffiliated companies $124,688,286
Affiliated companies 19,104
Dividends:
Unaffiliated companies 3,740,574
Affiliated companies 73,202
- ------
Total income 128,521,166
- ------
Expenses Management fees--Note 4 7,655,008
- ------
Distribution and service plan fees:
Class A--Note 4 1,441,211
Class B--Note 4 522,438
- ------
Transfer and shareholder servicing agent fees--Note 4 1,076,619
- ------
Shareholder reports 396,342
- ------
Custodian fees and expenses 281,078
- ------
Legal and auditing fees 65,028
- ------
Registration and filing fees:
Class A 25,400
Class B 20,659
- ------
Trustees' fees and expenses 41,245
- ------
Other 145,592
- ------
Total expenses 11,670,620
- ------
Net Investment Income 116,850,546
- ------
Realized and Unrealized
Gain (Loss) on Investments
And Foreign Currency
Transactions
Net realized gain (loss) from:
Investments 15,850,405
Foreign currency transactions (1,181,231)
- ------
Net realized gain 14,669,174
- ------
Net change in unrealized appreciation or depreciation on:
Investments (59,850,683)
Translation of assets and liabilities denominated in foreign currencies
109,560
- ------
Net change (59,741,123)
- ------
Net realized and unrealized loss on investments and foreign currency
transactions (45,071,949)
- ------
Net Increase in Net Assets Resulting From Operations $71,778,597
- ------
- ------
Oppenheimer High Yield Fund
- ------
Statements of Changes in Net Assets
Year Ended June 30,
1994 1993
- ------
Operations Net investment income $116,850,546 $113,492,302
- ------
Net realized gain on investments and foreign currency transactions
14,669,174 21,219,657
- ------
Net change in unrealized appreciation or depreciation on investments
and translation of assets and liabilities denominated in foreign
currencies
(59,741,123) 8,066,722
- ------ ------
Net increase in net assets resulting from operations 71,778,597
142,778,681
- ------
Equalization Net change (96,177) 2,351,565
- ------
Dividends and Distributions To Shareholders
Dividends from net investment income:
Class A ($1.407 and $1.56 per share, respectively) (109,900,662)
(111,069,977)
- ------
Class B ($1.295 and $.247 per share, respectively) (4,671,944)
(80,250)
- ------
Beneficial Interest Transactions
Net increase (decrease) in net assets resulting from Class A beneficial
interest transactions--Note 2 (30,446,407) 182,608,161
- ------
Net increase in net assets resulting from Class B beneficial interest
transactions--Note 2 80,742,052 10,399,783
- ------ ------
- ------
Net Assets Total increase 7,405,459 226,987,963
- ------
Beginning of year 1,129,549,752 902,561,789
- ------ ------
End of year (including undistributed (overdistributed) net investment
income of $(3,538,462) and $12,282,453, respectively) $1,136,955,211
$1,129,549,752
- ------ ------
- ------ ------
Financial Highlights
Class A Class B
- ------ ------
Year Year Year
Ended Ended
Ended
June 30, June 30, June 30,
1994 1993 1992 1991 1990 1989 1988 1987
1986 1985 1994 1993(1)
- ------
Per Share Operating Data:
Net asset value, beginning of period $14.16 $13.76 $13.08
$13.60
$15.42 $16.00 $17.09 $17.54 $17.15 $16.70
$14.12
$13.87
- ------
Income (loss) from investment
operations:
Net investment income 1.42 1.60 1.79 1.91 1.89
2.02
2.06 2.18 2.28 2.41 1.35 .23
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions (.54) .36 .68 (.51) (1.79)
(.68)
(1.03) (.47) .47 .44 (.60) .27
- ------ ------ ------ ------ ------ ------ ------
- ------ ------ ------ ------ ------
Total income from investment
operations .88 1.96 2.47 1.40 .10 1.34 1.03
1.71
2.75 2.85 .75 .50
- ------
Dividends from net investment income (1.41) (1.56) (1.79)
(1.92)
(1.92) (1.92) (2.12) (2.16) (2.36) (2.40)
(1.30)
(.25)
- ------
Net asset value, end of period $13.63 $14.16 $13.76 $13.08
$13.60 $15.42 $16.00 $17.09 $17.54 $17.15 $13.57
$14.12
- ------ ------ ------ ------ ------ ------ ------
- ------ ------ ------ ------ ------
- ------ ------ ------ ------ ------ ------ ------
- ------ ------ ------ ------ ------
- ------
Total Return, at Net Asset Value(2) 6.27% 15.31% 20.06%
11.90%
.85% 8.97% 6.75% 10.63% 17.26% 18.20% 5.31%
3.54%
- ------
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) $1,049,446 $1,119,056 $902,562 $657,182
$650,989 $860,588 $857,767 $760,934 $627,256 $474,972
$87,509 $10,493
- ------
Average net assets (in thousands) $1,111,103 $978,671 $768,339
$601,758 $734,703 $863,178 $791,471 $691,968 $527,731
$426,557 $51,816 $4,405
- ------
Number of shares outstanding
at end of period (in thousands) 77,002 79,047 65,581
50,258
47,870 55,810 53,617 44,531 35,767 27,690 6,449
743
- ------
Ratios to average net assets:
Net investment income 10.10% 11.59% 13.15% 14.94%
13.00%
12.88% 12.72% 12.79% 13.24% 14.13% 8.98% 10.84%(3)
Expenses .96% .97% .92% .96% .93% .88% .89%
.88%
.89% .93% 1.88% 2.28%(3)
- ------
Portfolio turnover rate(4) 96.7% 87.2% 64.0% 90.4%
63.2%
57.0% 41.1% 46.2% 90.5% 113.0% 96.7% 87.2%
1. For the period from May 3, 1993 (inception of offering) to June 30,
1993.
2. Assumes a hypothetical initial investment on the business day before
the first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption
at the net asset value calculated on the last business day of the fiscal
period. Sales charges are not reflected in the total returns.
3. Annualized.
4. The lesser of purchases or sales of portfolio securities for a year,
divided by the monthly average of the market value of portfolio securities
owned during the year. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation. Purchases and sales of investment securities (excluding
short-term securities) for the year ended June 30, 1994 were
$1,072,458,797 and $1,129,551,081, respectively.
Notes to Financial Statements
1. Significant Accounting Policies
Oppenheimer High Yield Fund (the Fund) is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company. The Fund's investment advisor is Oppenheimer
Management Corporation (the Manager). The Fund offers both Class A and
Class B shares. Class A shares are sold with a front-end sales charge.
Class B shares may be subject to a contingent deferred sales charge. Both
classes of shares have identical rights to earnings, assets and voting
privileges, except that each class has its own distribution and/or service
plan, expenses directly attributable to a particular class and exclusive
voting rights with respect to matters affecting a single class. Class B
shares will automatically convert to Class A shares six years after the
date of purchase. The following is a summary of significant accounting
policies consistently followed by the Fund.
Investment Valuation. Portfolio securities are valued at 4:00 p.m. (New
York time) on each trading day. Listed and unlisted securities for which
such information is regularly reported are valued at the last sale price
of the day or, in the absence of sales, at values based on the closing bid
or asked price or the last sale price on the prior trading day. Long-term
debt securities are valued by a portfolio pricing service approved by the
Board of Trustees. Long-term debt securities which cannot be valued by the
approved portfolio pricing service are valued by averaging the mean
between the bid and asked prices obtained from two active market makers
in such securities. Short-term debt securities having a remaining maturity
of 60 days or less are valued at cost (or last determined market value)
adjusted for amortization to maturity of any premium or discount.
Securities for which market quotes are not readily available are valued
under procedures established by the Board of Trustees to determine fair
value in good faith. Forward foreign currency exchange contracts
are valued at the forward rate on a daily basis.
Security Credit Risk. The Fund invests in high yield securities, which may
be subject to a greater degree of credit risk, greater market fluctuations
and risk of loss of income and principal, and may be more sensitive to
economic conditions than lower yielding, higher rated fixed income
securities. The Fund may acquire securities in default, and is not
obligated to dispose of securities whose issuers subsequently default. At
June 30, 1994, securities with an aggregate market value of $22,793,456,
representing 1.93% of the Fund's total assets, were in default.
Foreign Currency Translation. The accounting records of the Fund are
maintained in U.S. dollars. Prices of securities denominated in foreign
currencies are translated into U.S. dollars at the closing rates of
exchange. Amounts related to the purchase and sale of securities and
investment income are translated at the rates of exchange prevailing on
the respective dates of such transactions.
The Fund generally enters into forward currency exchange contracts as
a hedge, upon the purchase or sale of a security denominated in a foreign
currency. In addition, the Fund may enter into such contracts as a hedge
against changes in foreign currency exchange rates on portfolio positions.
A forward exchange contract is a commitment to purchase or sell a foreign
currency at a future date, at a negotiated rate.
Risks may arise from the potential inability of the counterparty to
meet the terms of the contract and from unanticipated movements in the
value of a foreign currency relative to the U.S. dollar. The effect of
changes in foreign currency exchange rates on investments is separately
identified from the fluctuations arising from changes in market values of
securities held and reported with all other foreign currency gains and
losses in the Fund's results of operations.
Repurchase Agreements. The Fund requires the custodian to take possession,
to have legally segregated in the Federal Reserve Book Entry System or to
have segregated within the custodian's vault, all securities held as
collateral for repurchase agreements. If the seller of the agreement
defaults and the value of the collateral declines, or if the seller enters
an insolvency proceeding, realization of the value of the collateral by
the Fund may be delayed or limited.
Allocation of Income, Expenses and Gains and Losses. Income, expenses
(other than those attributable to a specific class) and gains and losses
are allocated daily to each class of shares based upon the relative
proportion of net assets represented by such class. Operating expenses
directly attributable to a specific class are charged against the
operations of that class.
Federal Income Taxes. The Fund intends to continue to comply with
provisions of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income, including any net
realized gain on investments not offset by loss carryovers, to
shareholders. Therefore, no federal income tax provision is required. At
June 30, 1994, the Fund had available for federal income tax purposes an
unused capital loss carryover of approximately $152,818,000, $422,000 of
which will expire in 1997, $14,942,000 in 1998, $74,080,000 in 1999,
$42,206,000 in 2000 and $21,168,000 in 2001.
Equalization. Prior to September 30, 1993, the Fund followed the
accounting practice of equalization, by which a portion of the proceeds
from sales and costs of redemptions of Fund shares equivalent on a per
share basis to the amount of undistributed net investment income were
credited or charged to undistributed income. The cumulative effect of the
change in accounting practice resulted in a reclassification of
$12,664,697 from undistributed net investment income to paid-in capital.
Distributions to Shareholders. The Fund intends to declare dividends
separately for Class A and Class B shares from net investment income each
day the New York Stock Exchange is open for business and pay such
dividends monthly. Distributions from net realized gains on investments,
if any, will be declared at least once each year.
Change in Accounting for Distributions to Shareholders. Effective July 1,
1993, the Fund adopted Statement of Position 93-2: Determination,
Disclosure, and Financial Statement Presentation of Income, Capital Gain,
and Return of Capital Distributions by Investment Companies. As a result,
the Fund changed the classification of distributions to shareholders to
better disclose the differences between financial statement amounts and
distributions determined in accordance with income tax regulations.
Accordingly, subsequent to June 30, 1993, amounts have been reclassified
to reflect a decrease in paid-in capital of $24,451, a decrease in
undistributed net investment income of $4,157,384, and a
decrease in undistributed capital loss on investments of $4,181,835.
During the year ended June 30, 1994, in accordance with Statement of
Position 93-2, undistributed income was decreased by $1,180,597 and
undistributed capital loss was decreased by $1,180,597.
Other. Investment transactions are accounted for on the date the
investments are purchased or sold (trade date) and dividend income is
recorded on the ex-dividend date. Discount on securities purchased is
amortized over the life of the respective securities, in accordance with
federal income tax requirements. Realized gains and losses on investments
and unrealized appreciation and depreciation are determined on an
identified cost basis, which is the same basis used for federal income tax
purposes. Dividends in kind are recognized as income on the ex-dividend
date, at the current market value of the underlying security.
Interest on payment-in-kind debt instruments is accrued as income at the
coupon rate and a market adjustment is made on the ex-date.
- ------
2. Shares of Beneficial Interest
The Fund has authorized an unlimited number of no par value shares of
beneficial interest of each class. Transactions in shares of beneficial
interest were as follows:
Year Ended June 30, 1994 Year Ended June 30, 1993(1)
- ------ ------
Shares Amount Shares Amount
- ------
Class A:
Sold 23,301,265 $328,422,185 26,776,418
$362,823,963
Dividends reinvested 4,259,599 60,060,363 4,419,112
59,368,501
Redeemed (29,606,189) (418,928,955) (17,728,777)
(239,584,303)
------ ------ ------
- ------
Net increase (decrease) (2,045,325) $(30,446,407) 13,466,753
$182,608,161
------ ------ ------
- ------
Class B:
Sold 7,150,795 $100,862,645 742,214
$10,390,635
Dividends reinvested 146,613 2,058,843 2,550
35,404
Redeemed (1,591,185) (22,179,436) (1,862)
(26,256)
------ ------ ------
- ------
Net increase 5,706,223 $80,742,052 742,902
$10,399,783
------ ------ ------
- ------
------ ------ ------
- ------
1. For the year ended June 30, 1993 for Class A shares and for the period
from May 3, 1993 (inception of offering) to June 30, 1993 for Class B
shares.
Notes to Financial Statements (Continued)
- ------
3. Unrealized Gains And Losses on Investments
At June 30, 1994, net unrealized depreciation on investments of
$26,164,701 was composed of gross appreciation of $24,499,145, and gross
depreciation of $50,663,846.
- ------
4. Management Fees And Other Transactions With Affiliates
Management fees paid to the Manager were in accordance with the investment
advisory agreement with the Fund which provides for an annual fee of .75%
on the first $200 million of net assets with a reduction of .03% on each
$200 million thereafter to $800 million, .60% on the next $200 million and
.50% on net assets in excess of $1 billion. The Manager has agreed to
reimburse the Fund if aggregate expenses (with specified exceptions)
exceed the most stringent applicable regulatory limit on Fund expenses.
For the year ended June 30, 1994, commissions (sales charges paid by
investors) on sales of Class A shares totaled $4,185,629, of which
$1,023,367 was retained by Oppenheimer Funds Distributor, Inc. (OFDI), a
subsidiary of the Manager, as general distributor, and by an affiliated
broker/dealer. During the year ended June 30, 1994, OFDI received
contingent deferred sales charges of $113,664 upon redemption of Class B
shares, as reimbursement for sales commissions advanced by OFDI at the
time of sale of such shares. Oppenheimer Shareholder Services (OSS), a
division of the Manager, is the transfer and shareholder servicing agent
for the Fund, and for other registered investment companies. OSS's total
costs of providing such services are allocated ratably to these companies.
Under separate approved plans, each class may expend up to .25% of its
net assets annually to reimburse OFDI for costs incurred in connection
with the personal service and maintenance of accounts that hold shares of
the Fund, (prior to June 20, 1994, Class A reimbursements were made with
respect to shares sold subsequent to April 1, 1991), including amounts
paid to brokers, dealers, banks and other institutions. In addition, Class
B shares are subject to an asset-based sales charge of .75% of net assets
annually, to reimburse OFDI for sales commissions paid from its own
resources at the time of sale and associated financing costs. In the event
of termination or discontinuance of the Class B plan, the Board of
Trustees may allow the Fund to continue payment of the asset-based sales
charge to OFDI for distribution expenses incurred on Class B shares sold
prior to termination or discontinuance of the plan. During the year
ended June 30, 1994, OFDI paid $29,748 to an affiliated broker/dealer as
reimbursement for Class A personal service and maintenance expenses and
retained $521,628 as reimbursement for Class B sales commissions and
service fee advances, as well as financing costs.
- ------
5. Restricted Securities
The Fund owns securities purchased in private placement transactions,
without registration under the Securities Act of 1933 (the Act). The
securities are valued under methods approved by the Board of Trustees as
reflecting fair value. The Fund intends to invest no more than 10% of its
net assets (determined at the time of purchase) in restricted and illiquid
securities, excluding securities eligible for resale pursuant to Rule 144A
of the Act that are determined to be liquid by the Board of Trustees or
by the Manager under Board-approved guidelines. Restricted and illiquid
securities amount to $43,531,876, or 3.82% of the Fund's net assets at
June 30, 1994.
<PAGE>
Oppenheimer High Yield Fund
- --
- ------
5. Restricted Securities (continued)
Valuation Per Unit as of June 30,
Security Acquisition Date Cost Per Unit 1994
- ------
Arizona Charlie's, Inc., 12%
Fst. Mtg. Nts., Series A, 11/15/00 11/18/93 $100.00 $100.50
- ------
Becker Gaming, Inc. Wts., Exp. 11/00 11/15/93 $2.00 $2.50
- ------
Capital Gaming International, Inc.:
Units 1/10/94 $113.34 $102.50
Wts., Exp. 2/99 2/4/94--2/18/94 $-- $.50
- ------
Capitol Queen & Casino, Inc., 12%
Fst. Mtg. Nts., Series A, 11/15/00 11/18/93 $87.50 $86.00
- ------
Dell Computer Corp., $7.00 Cv.,
Series A Preferred Stock(1) 1/27/94--2/2/94 $103.43 $114.00
- ------
ECM Fund L.P.I.:
Common Stock 4/14/92 $1,000.00 $1,000.00
14% Sub. Nts., 6/10/02 4/14/92 $100.00 $110.00
- ------
Foamex LP/JPS Automotive Corp., Units(1) 6/21/94 $51.39 $52.00
- ------
Goldman Sachs Group LP, 4.40% Standard & Poor's
500 Index-Linked Nts., 8/17/94 6/30/94 $135.00 $135.00
- ------
GPA Holland BV, 8.50% Med.-Term Nts., 2/10/97(1) 6/30/93 $69.50
$88.00
- ------
Hillsborough Holdings Corp. Common Stock 1/7/88 $5.00 $.01
- ------
Interco, Inc., 9% Sec. Nts., Series B, 6/1/04 10/14/92 $91.50
$95.50
- ------
Lehman Brothers Holdings, Inc.,
Standard & Poor's Index-Linked Nts.:
3.7875%, 7/5/94 3/30/94 $138.00 $110.38
3.7875%, 7/5/94 3/31/94 $142.00 $102.40
4.50%, 8/16/94 6/30/94 $135.00 $135.00
- ------
Maritime Group Ltd., Units(1) 2/16/94--4/25/94 $99.98 $96.28
- ------
Morocco (Kingdom of) Loan Participation
Agreement, Tranche A, 4.50%, 1/1/09 2/28/94--4/20/94 $71.27
$69.96
- ------
OSI Specialties Holding Co., Units(1) 4/12/94--6/28/94 $57.66
$60.50
- ------
Purity Supreme, Inc. Wts., Exp. 8/97 7/29/92 $-- $.02
- ------
Salomon, Inc., 4.65625% Standard & Poor's 500
Index-Linked Nts., 8/15/94 6/27/94 $139.40 $129.00
- ------
Subic Power Corp., 9.50% Sr. Sec. Nts.,
Series A, 12/28/08(1) 12/20/93 $99.93 $93.50
- ------
Terex Corp. Rts., Exp. 7/96(1) 4/5/94 $1.52 $1.50
- ------
Treasure Bay Gaming & Resorts, Inc.:
Units(1) 11/10/93--1/25/94 $101.06 $96.50
12.25% Fst Mtg. Nts. 11/15/00(1) 4/22/94 $92.00 $90.50
- ------
Triangle Wire & Cable, Inc. Common Stock 5/2/94 $9.50 $10.00
- ------
Tribasa Toll Road Trust, 10.50% Nts.,
Series 1993-A, 12/1/11(1) 11/8/93 $100.00 $90.25
1. Transferable under Rule 144A of the Act.
<PAGE>
Oppenheimer High Yield Fund
- ------
Notes to Financial Statements (Continued)
- ------
6. Forward Foreign Currency Exchange Contracts
At June 30, 1994, the Fund had outstanding forward exchange currency
contracts to purchase and sell foreign currencies as follows:
Unrealized
Expiration Valuation as of Appreciation
Date Contract Amount June 30, 1994 (Depreciation)
- ------
Contracts to Purchase:
German Deutsche Mark 7/22/94 $5,876,067 $5,909,648 $33,581
German Deutsche Mark 7/20/94 2,849,353 2,914,369 65,016
- ------
$8,725,420 $8,824,017 $98,597
- ------ ------ ------
- ------ ------ ------
Contracts to Sell:
German Deutsche Mark 7/13/94 $1,837,190 $1,935,777
(98,587)
- ------
Italian Lira 7/22/94 80,585 80,751 (166)
- ------
Spanish Peseta 7/20/94 2,849,353 2,929,253 (79,900)
- ------
Spanish Peseta 7/22/94 5,795,482 5,892,021 (96,539)
- ------ ------ ------
$10,562,610 $10,837,802 $(275,192)
- ------ ------ ------
- ------ ------ ------
<PAGE>
Investment Adviser
Oppenheimer Management Corporation
Two World Trade Center
New York, New York 10048
Distributor
Oppenheimer Funds Distributor, Inc.
Two World Trade Center
New York, New York 10048
Transfer and Shareholder Servicing Agent
Oppenheimer Shareholder Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian of Portfolio Securities
The Bank of New York
One Wall Street
New York, NY 10015
Independent Auditors
Deloitte & Touche LLP 1
1560 Broadway
Denver, Colorado 80202
Legal Counsel
Myer, Swanson & Adams, P.C.
1600 Broadway
Denver, CO 80202
