<PAGE>
OPPENHEIMER
Bond Fund
Prospectus dated July 10, 1995.
Oppenheimer Bond Fund (the "Fund"), formerly named "Oppenheimer Investment
Grade Bond Fund," is a mutual fund with the investment objective of
seeking a high level of current income by investing mainly in debt
instruments. The Fund will, under normal market conditions, invest at
least 65% of its total assets in a diversified portfolio of investment
grade debt securities. You should carefully review the risks associated
with an investment in the Fund. Please refer to "Investment Objectives
and Polices" beginning on page 10.
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 July 10, 1995, 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).
(OppenheimerFunds logo)
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 the
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.
<PAGE>
Contents
3 ABOUT THE FUND
5 Expenses
7 A Brief Overview of the Fund
10 Financial Highlights
19 Investment Objective and Policies
21 How the Fund is Managed
25 Performance of the Fund
25 ABOUT YOUR ACCOUNT
25 How to Buy Shares
29 Class A Shares
32 Class B Shares
35 Class C Shares
36 Special Investor Services
36 AccountLink
37 Automatic Withdrawal and Exchange Plans
37 Reinvestment Privilege
38 Retirement Plans
38 How to Sell Shares
39 By Mail
39 By Telephone
40 By Checkwriting
40 How to Exchange Shares
42 Shareholder Account Rules and Policies
43 Dividends, Capital Gains and Taxes
<PAGE>
A B O U T T H E F U N D
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 subtracted from the Fund's assets to calculate the Fund's net
asset value per share. All shareholders therefore pay those expenses
indirectly. Shareholders pay other expenses directly, such as sales
charges and shareholder transaction 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 business operating expenses that you
will bear indirectly. The numbers below are based on the Fund's expenses
during its last fiscal year ended December 31, 1994.
-- Shareholder Transaction Expenses are charges you pay when you buy
or sell shares of the Fund. Please refer to "About Your Account," from
pages 24 through 37 for an explanation of how and when these charges
apply.
<TABLE>
<CAPTION>
Class A Class B Class C
Shares Shares Shares
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge 4.75% None None
on Purchases (as a %
of offering price)
- ------------------------------------------------------------------------
Sales Charge on
Reinvested Dividends None None None
- ------------------------------------------------------------------------
Deferred Sales Charge None(1) 5% in the first 1% if shares are
(as a % of the lower of year, declining redeemed within
the original purchase to 1% in the 12 months of
price or redemption sixth year and purchase(2)
proceeds) eliminated
thereafter(2)
- ------------------------------------------------------------------------
Exchange Fee None None None
</TABLE>
1. If you invest more than $1 million in Class A shares (more than
$500,000 for purchases under the OppenheimerFunds - prototype 401(k)
plans) 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 - Class A
Shares," below.
2. See "How to Buy Shares," below, for more information on the contingent
deferred sales charges.
-- 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 (which is referred to in this Prospectus as the
"Manager"). The rates of the Manager's fees are set forth in "How the
Fund is Managed," below. The Fund has 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 expenses.
The numbers in the chart below 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 management fees have been
restated to reflect the Fund's new investment advisory agreement dated
July 10, 1995 with Oppenheimer Management Corporation. The restated
management fee rate is as if the new investment advisory agreement had
been in effect during the entire fiscal year ended December 31, 1994. Had
the management fee rate not changed, the actual management fee would have
been 0.50% for Class A and Class B shares, and total operating expenses
would have been 1.06% for Class A and 1.78% for Class B, respectively.
The 12b-1 Distribution Plan Fees for Class A shares are Service Plan
Fees (the maximum is 0.25% of average annual net assets of that class),
and for Class B and Class C shares, the 12b-1 Distribution Plan Fees are
the Distribution and Service Plan Fees (the service fee is 0.25% of
average annual net assets of the class) and the asset-based sales charge
of 0.75%. These Plans are discussed in greater detail in "How to Buy
Shares." Class C shares were not publicly offered during the fiscal year
ended December 31, 1994. The "Annual Fund Operating Expenses" as to Class
C shares are estimates based on amounts that would have been payable in
that period assuming that Class C shares were outstanding during such
fiscal year.
The actual expenses for each class of shares in future years may be
more or less than the numbers in the chart, depending on a number of
factors, including the actual value of the Fund's assets represented by
each class of shares.
<TABLE>
<CAPTION>
Class A Class B Class C
Shares Shares Shares
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Management Fees 0.75% 0.75% 0.75%
(Restated)
- ----------------------------------------------------------------------
12b-1 Distribution Plan Fees 0.25%(1) 1.00%(2) 1.00%(2)
(includes Shareholder
Service Plan Fees)
- ----------------------------------------------------------------------
Other Expenses 0.31% 0.28% 0.28%
- ----------------------------------------------------------------------
Total Fund 1.31% 2.03% 2.03%
Operating Expenses
</TABLE>
1. Service Plan fees only
2. Includes Service Plan fees 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, the Fund's annual return is 5%, and that its operating
expenses for each class are the ones shown in the chart above as restated.
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 1, 3, 5
and 10 years:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years*
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $60 $87 $116 $198
- ----------------------------------------------------------------------
Class B Shares $71 $94 $129 $200
- ----------------------------------------------------------------------
Class C Shares $31 $64 $109 $236
</TABLE>
If you did not redeem your investment, it would incur the following
expenses:
<TABLE>
<S> <C> <C> <C> <C>
Class A Shares $60 $87 $116 $198
- ----------------------------------------------------------------------
Class B Shares $21 $64 $109 $200
- ----------------------------------------------------------------------
Class C Shares $21 $64 $109 $236
</TABLE>
*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 and Class
C 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 of Class B shares to Class A shares 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.
A Brief Overview Of The Fund
Some of the important facts about the Fund are summarized below, with
references to the section of this Prospectus where more complete
information can be found. You should carefully read the entire Prospectus
before making a decision about investing in the Fund. Keep the Prospectus
for reference after you invest, particularly for information about your
account, such as how to sell or exchange shares.
-- What Is The Fund's Investment Objective? The Fund seeks to
achieve a high level of current income by investing mainly in debt
instruments.
-- What Does The Fund Invest In? Under normal market conditions, the
Fund invests at least 65% of its total assets in a diversified portfolio
of investment grade fixed-income securities. These include (i)
investment-grade debt securities rated BBB or above by Standard and Poor's
Corporation or Baa or above by Moody's Investors Service, Inc. or, if
unrated, are of comparable quality as determined by the Fund's Manager;
(ii) securities issued or guaranteed as to principal and interest by the
U.S. Government, its agencies or instrumentalities or obligations secured
by such securities ("U.S. Government Securities"); and (iii) high-quality,
short-term money market instruments.
The Fund may invest up to 35% of its total assets in non-investment
grade debt instruments. Although non-investment grade securities
generally offer the potential for higher income than investment grade
securities, they may be subject to greater market fluctuations and a
greater risk of default because of the issuer's low creditworthiness. The
Fund may also write covered calls and use certain types of securities
called "derivative investments" and hedging instruments to try to manage
investment risks. These investments are more fully explained in
"Investment Objective and Policies" starting on page 10.
Prior to July 10, 1995, the Fund's investments were limited to
investment grade bonds, U.S. Government Securities, and money market
instruments. The Fund's shareholders approved changes in the Fund's
investment policies at a meeting held July 10, 1995. These changes are
reflected in this Prospectus and Statement of Additional Information.
-- Who Manages The Fund? The Fund's investment adviser (the
"Manager") is Oppenheimer Management Corporation, which (including a
subsidiary) manages investment company portfolios currently having over
$30 billion in assets. The Fund's portfolio managers, who are primarily
responsible for the selection of the Fund's securities, are David P. Negri
and David A. Rosenberg. The Manager is paid a management fee by the Fund,
based on its net assets. The Fund's Board of Trustees, elected by
shareholders, oversees the Manager. Please refer to "How the Fund is
Managed," starting on page 19 for more information about the Manager and
the Manager and their fees.
-- How Risky Is The Fund? All investments carry risks to some
degree. The Fund's investments in fixed-income securities are subject to
changes in their value and their yield from a number of factors, including
changes in the general bond market and changes in interest rates. Non-
investment grade securities may have speculative characteristics and be
subject to a greater risk of default than investment grade securities.
These changes affect the value of the Fund's investments and its share
prices for each class of its shares. In the OppenheimerFunds spectrum the
Fund is generally considered a moderately risky income fund, more
aggressive than money market funds but less aggressive than high yield
funds. While the Manager tries to reduce risks by diversifying
investments, by carefully researching securities before they are purchased
for the portfolio, and in some cases by using hedging techniques, there
is no guarantee of success in achieving the Fund's objective and your
shares may be worth more or less than their original cost when you redeem
them. Please refer to "Investment Objectives and Policies" starting on
page 10 for a more complete discussion of the Fund's investment risks.
-- How Can I Buy Shares? You can buy shares through your dealer or
financial institution, or you can purchase shares directly through the
Distributor by completing an Application or by using an Automatic
Investment Plan under AccountLink. Please refer to "How to Buy Shares"
starting on page 25 for more details.
-- Will I Pay A Sales Charge To Buy Shares? The Fund has three
classes of shares. All classes have the same investment portfolio but
different expenses. Class A shares are offered with a front-end sales
charge, starting at 4.75%, which are reduced for larger purchases. Class
B and Class C shares are offered without a front-end sales charge, but may
be subject to a contingent deferred sales charge if redeemed within 6
years or 12 months of purchase, respectively. There is also an annual
asset-based sales charge on Class B and Class C shares. Please review
"How to Buy Shares" starting on page 25 for more details, including a
discussion about factors you and your financial advisor should consider
in determining which class may be appropriate for you.
-- How Can I Sell My Shares? Shares can be redeemed by mail or by
telephone call to the Transfer Agent on any business day, or through your
dealer or by using Checkwriting. Please refer to "How to Sell Shares"
starting on page 38. The Fund also offers exchange privileges to other
OppenheimerFunds, described in "How to Exchange Shares" on page 40.
-- How Has The Fund Performed? The Fund measures its performance by
quoting its yield, average annual total return and cumulative total
return, which measure historical performance. Those yields and total
returns can be compared to the returns (over similar periods) of other
funds. Prior to July 10, 1995, the Fund's investments were limited to
investment grade bonds, U.S. Government Securities, and money market
instruments. Of course, other funds may have different objectives,
investments, and levels of risk. The Fund's performance can also be
compared to broad market indices, which we have done on page 24. Please
remember that past performance does not guarantee future results.
Financial Highlights
The table on the following pages 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 December 31,
1994 is included in the Statement of Additional Information. Class C
shares were not offered prior to July 11, 1995. Accordingly, no
information on Class C shares is reflected in the table below or in the
Fund's other financial statements. The information in the table for the
fiscal periods prior to 1991 was audited by the Fund's previous
independent auditors.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
Financial Highlights
-----------------------------------------------------------------------------------
Class A
-----------------------------------------------------------------------------------
Eleven
Months
Ended
Year Ended December 31, Dec. 31,
1994 1993 1992 1991(3) 1990 1989 1988(2)
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Data:
Net asset value, beginning
of period $11.12 $10.74 $10.80 $ 9.86 $10.29 $10.12 $10.55
- -------------------------------------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .65 .69 .75 .82 .88(4) .92 .93
Net realized and
unrealized gain (loss)
on investments (1.08) .40 (.05) .90 (.43) .19 (.36)
------- ------- ------- ------- ------ ------- -------
Total income (loss) from
investment operations (.43) 1.09 .70 1.72 .45 1.11 .57
- -------------------------------------------------------------------------------------------------------------------
Dividends to shareholders:
Dividends from net
investment income (.65) (.71) (.76) (.78) (.88) (.94) (1.00)
Dividends in excess of net
investment income (.03) -- -- -- -- -- --
------- ------- ------- ------- ------ ------- -------
Total dividends to
shareholders (.68) (.71) (.76) (.78) (.88) (.94) (1.00)
- -------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $ 10.01 $ 11.12 $ 10.74 $ 10.80 $ 9.86 $ 10.29 $ 10.12
Total Return, at Net
Asset Value(5) (3.87)% 10.30% 6.77% 18.28% 4.74% 11.31% 4.48%
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) $96,640 $110,759 $106,290 $90,623 $87,021 $96,380 $102,293
- -------------------------------------------------------------------------------------------------------------------
Average net assets
(in thousands) $102,168 $111,702 $ 98,672 $86,471 $ 90,065 $100,891 $111,264
- -------------------------------------------------------------------------------------------------------------------
Number of shares
outstanding at end of
period (in thousands) 9,653 9,963 9,899 8,390 8,829 9,369 10,108
- -------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 6.25% 6.20% 7.00% 8.02% 8.85% 8.85% 8.75%
Expenses 1.06% 1.06% 1.10% 1.23% 1.24%(4) 1.14% 1.05%
- -------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(7) 70.3% 110.1% 116.4% 97.1% 80.4% 41.3% 45.0%
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------
Financial Highlights (continued)
------------------------------------------------------------------------
Class A (continued) Class B
-------------------------------------------------------------- --------
Year Period
Ended Ended
Year Ended January 31, Dec. 31, Dec. 31,
1988(2) 1987(2) 1986(2) 1985(2) 1994 1993(1)
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Data:
Net asset value, beginning
of period $ 11.30 $ 11.16 $ 10.91 $ 11.00 $ 11.11 $ 11.10
- -------------------------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income 1.09 1.16 1.22 1.27 .58 .40
Net realized and
unrealized gain (loss)
on investments (.55) .22 .35 (.04) (1.08) .03
------- ------- ------- ------- ------- -------
Total income (loss) from
investment operations .54 1.38 1.57 1.23 (.50) .43
- -------------------------------------------------------------------------------------------------------
Dividends to shareholders:
Dividends from net
investment income (1.29) (1.24) (1.32) (1.32) (.57) (.42)
Dividends in excess of net
investment income -- -- -- -- (.03) --
------- ------- ------- ------- ------- -------
Total dividends to
shareholders (1.29) (1.24) (1.32) (1.32) (.60) (.42)
- -------------------------------------------------------------------------------------------------------
Net asset value,
end of period $ 10.55 $ 11.30 $ 11.16 $ 10.91 $ 10.01 $ 11.11
Total Return, at Net
Asset Value(5) N/A N/A N/A N/A (4.53)% 3.91%
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) $118,568 $125,513 $121,979 $117,293 $3,451 $1,809
- -------------------------------------------------------------------------------------------------------
Average net assets
(in thousands) $118,724 $123,045 $118,253 $111,235 $2,747 $ 922
- -------------------------------------------------------------------------------------------------------
Number of shares
outstanding at end of
period (in thousands) 11,234 11,103 10,930 10,751 345 163
- -------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 10.28% 10.45% 11.26% 12.21% 5.53% 4.80%(6)
Expenses .98% .93% .97% 1.01% 1.78% 1.90%(6)
- -------------------------------------------------------------------------------------------------------
Portfolio turnover rate(7) 19.5% 59.8% 36.5% 76.7% 70.3% 110.1%
</TABLE>
<TABLE>
<S> <C>
1. For the period from May 1, 1993 (inception of offering) to December 31, 1993.
2. Operating results prior to April 15, 1988 were achieved by the Fund's predecessor corporation as a
closed-end fund under different investment objectives and policies. Such results are thus not
necessarily representative of operating results the Fund may achieve under its current investment
objectives and policies.
3. On March 28, 1991, Oppenheimer Management Corporation became the investment advisor to
the Fund.
4. Net investment income would have been $.87 absent the voluntary expense limitation, resulting in
an expense ratio of 1.26%.
5. 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.
6. Annualized.
7. The lesser of purchases or sales of portfolio securities for a period, divided by the monthly
average of the market value of portfolio securities owned during the period. 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 December 31, 1994 were $67,852,873 and $67,362,839, respectively.
</TABLE>
<PAGE>
Investment Objective and Policies
Objective. The Fund seeks a high level of current income by investing
mainly in debt instruments.
Investment Policies and Strategies.
Under normal market conditions, the Fund invests at least 65% of its total
assets in investment grade debt securities, U.S. Government Securities,
and money market instruments. Investment-grade debt securities are those
rated in one of the four highest categories by Standard & Poor's
Corporation, Moody's Investors Service, Inc., Fitch Investors Service,
Inc. or other nationally-recognized rating organization. A description
of these rating categories is included as an Appendix to the Fund's
Statement of Additional Information. Debt securities (often referred to
as "fixed-income securities") are used by issuers to borrow money from
investors. The issuer promises to pay the investor interest at a fixed
or variable rate, and to pay back the amount it borrowed (the "principal")
at maturity. Some debt securities, such as zero coupon bonds (discussed
below) do not pay current interest. The Fund may invest up to 35% of its
total assets in debt securities rated less than investment grade or, if
unrated, judged by the Manager to be of comparable quality to such lower-
rated securities (collectively, "lower-grade securities"). Lower-grade
securities (often called "junk bonds") 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-grade 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. 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.
The Manager anticipates that the Fund would generally invest at least
75% of its total assets in: (i) U.S. corporate bonds rated "A" or better
and (ii) U.S. government and agency bonds. The Manager further
anticipates that the Fund would invest an additional 15% of its total
assets in non-investment grade domestic corporate bonds and 10% of its
total assets in non-investment grade foreign bonds. These anticipated
investment targets, including the allocation between domestic and foreign
lower-grade debt securities, are subject to fluctuation and may be changed
by the Manager without further notice to shareholders or amended
prospectus disclosure. Under normal market conditions, the Fund's target
duration will be approximately five. Duration is a measure of the
anticipated rise or decline in value for a 1% change in interest rates.
For example, a duration of 2 in a portfolio indicates that for every 1%
rise in general interest rates, the portfolio's value would be expected
to fall 2%, and vice versa.
When investing the Fund's assets, the Manager considers many factors,
including current developments and trends in both the economy and the
financial markets. The Fund may try to hedge against losses in the value
of its portfolio of securities by using hedging strategies described
below. The Manager may employ special investment techniques, also
described below. Additional information about the securities the Fund may
invest in, the hedging strategies the Fund may employ and the special
investment techniques may be found under the same headings in the
Statement of Additional Information.
-- Interest Rate Risks. In addition to credit risks, described
below, debt securities are subject to changes in their value due to
changes in prevailing interest rates. When prevailing interest rates
fall, the values of already-issued debt securities generally rise. When
interest rates rise, the values of already-issued debt securities
generally decline. The magnitude of these fluctuations will often be
greater for longer-term debt securities than shorter-term debt securities.
Changes in the value of securities held by the Fund mean that the Fund's
share prices can go up or down when interest rates change, because of the
effect of the change on the value of the Fund's portfolio of debt
securities.
-- 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 the Fund may hold)
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. 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 investment policies. The Fund's investment policies
and techniques are not "fundamental" unless this Prospectus or the
Statement of Additional Information says that a particular policy is
"fundamental." The Fund's investment objective is a fundamental policy.
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 Board of Trustees may
change non-fundamental policies without shareholder approval, although
significant changes will be described in amendments to this Prospectus.
-- U.S. Government Securities. Certain U.S. Government Securities,
including U.S. Treasury bills, notes and bonds, and mortgage participation
certificates guaranteed by Government National Mortgage Association
("Ginnie Mae") are supported 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 principal and interest. Ginnie Mae
certificates are one type of mortgage-related U.S. Government Security the
Fund invests in. Other mortgage-related U.S. Government Securities the
Fund invests in that are issued or guaranteed by federal agencies or
government-sponsored entities are not supported by the full faith and
credit of the U.S. government. Those securities include obligations
supported by the right of the issuer to borrow from the U.S. Treasury,
such as obligations of Federal Home Loan Mortgage Corporation ("Freddie
Mac"), obligations supported only by the credit of the instrumentality,
such as Federal National Mortgage Association ("Fannie Mae") and
obligations supported by the discretionary authority of the U.S.
Government to repurchase certain obligations of U.S. Government agencies
or instrumentalities such as the Federal Land Banks and the Federal Home
Loan Banks. Other U.S. Government Securities the Fund invests in are
collateralized mortgage obligations ("CMOs").
The value of U.S. Government Securities will fluctuate depending on
prevailing interest rates. Because the yields on U.S. Government
Securities are generally lower than on corporate debt securities, when the
Fund holds U.S. Government Securities it may attempt to increase the
income it can earn from them by writing covered call options against them,
when market conditions are appropriate. Writing covered calls is
explained below, under "Other Investment Techniques and Strategies."
-- Short-Term Debt Securities. The high quality, short-term money
market instruments in which the Fund may invest include U.S. Treasury and
agency obligations; commercial paper (short-term, unsecured, negotiable
promissory notes of a domestic or foreign company); short-term obligations
of corporate issuers; bank participation certificates; and certificates
of deposit and bankers' acceptances (time drafts drawn on commercial banks
usually in connection with international transactions) of banks and
savings and loan associations.
-- Mortgage-Backed Securities and CMOs. Certain mortgage-backed
securities, whether issued by the U.S. government or by private issuers,
"pass-through" to investors the interest and principal payments generated
by a pool of mortgages assembled for sale by government agencies. Pass-
through mortgage-backed securities entail the risk that principal may be
repaid at any time because of prepayments on the underlying mortgages.
That may result in greater price and yield volatility than traditional
fixed-income securities that have a fixed maturity and interest rate.
The Fund may also invest in collateralized mortgage-backed
obligations (referred to as "CMOs"), which generally are obligations fully
collateralized by a portfolio of mortgages or mortgage-related securities.
Payment of the interest and principal generated by the pool of mortgages
is passed through to the holders as the payments are received. CMOs are
issued with a variety of classes or series which have different
maturities. Certain CMOs may be more volatile and less liquid than other
types of mortgage-related securities, because of the possibility of the
prepayment of principal due to prepayments on the underlying mortgage
loans.
The Fund may also invest in CMOs that are "stripped." That means
that the security is divided into two parts, one of which receives some
or all of the principal payments (and is known as a "P/O") and the other
which receives some or all of the interest (and is known as an "I/O").
P/Os and I/Os are generally referred to as "derivative investments,"
discussed further below.
The yield to maturity on the class that receives only interest is
extremely sensitive to the rate of payment of the principal on the
underlying mortgages. Principal prepayments increase that sensitivity.
Stripped securities that pay "interest only" are therefore subject to
greater price volatility when interest rates change, and they have the
additional risk that if the underlying mortgages are prepaid, the Fund
will lose the anticipated cash flow from the interest on the prepaid
mortgages. That risk is increased when general interest rates fall, and
in times of rapidly falling interest rates, the Fund might receive back
less than its investment.
The value of "principal only" securities generally increases as
interest rates decline and prepayment rates rise. The price of these
securities is typically more volatile than that of coupon-bearing bonds
of the same maturity.
Private-issuer stripped securities are generally purchased and sold
by institutional investors through investment banking firms. At present,
established trading markets have not yet developed for these securities.
Therefore, most private-issuer stripped securities may be deemed
"illiquid." If the Fund holds illiquid stripped securities, the amount
it can hold will be subject to the Fund's investment policy limiting
investments in illiquid securities to 10% of the Fund's net assets.
The Fund may also enter into "forward roll" transactions with
mortgage-backed securities. The Fund sells mortgage-backed securities it
holds to banks or other buyers and simultaneously agrees to repurchase a
similar security from that party at a later date at an agreed-upon price.
Forward rolls are considered to be a borrowing. The Fund is required to
place liquid assets in a segregated account with its custodian bank in an
amount equal to its obligation under the forward roll. The main risk of
this investment strategy is risk of default by the counterparty.
-- Asset-Backed Securities. The Fund may invest in "asset-backed"
securities. These represent interests in pools of consumer loans and
other trade receivables, similar to mortgage-backed securities. They are
issued by trusts and "special purpose corporations." They are backed by
a pool of assets, such as credit card or auto loan receivables, which are
the obligations of a number of different parties. The income from the
underlying pool is passed through to holders, such as the Fund. These
securities may be supported by a credit enhancement, such as a letter of
credit, a guarantee or a preference right. However, the extent of the
credit enhancement may be different for different securities and generally
applies to only a fraction of the security's value. These securities
present special risks. For example, in the case of credit card
receivables, the issuer of the security may have no security interest in
the related collateral.
-- Zero Coupon Securities. These securities, which may be issued by
the U.S. government, its agencies or instrumentalities or by private
issuers, are purchased at a substantial discount from their face value.
They are subject to greater fluctuations in market value as interest rates
change than debt securities that pay interest periodically. Interest
accrues on zero coupon bonds even though cash is not actually received.
-- Securities of Foreign Governments and Companies. The Fund may
invest in debt securities issued or guaranteed by foreign companies, and
debt securities of foreign governments or their agencies. These foreign
securities may include debt obligations such as government bonds,
debentures issued by companies, as well as notes. Some of these debt
securities may have variable interest rates or "floating" interest rates
that change in different market conditions. Those changes will affect the
income the Fund receives. These securities are described in more detail
in the Statement of Additional Information.
The Fund is not restricted in the amount of its assets it may invest
in foreign countries or in which countries. However, if the Fund's assets
are held abroad, the countries in which they are held and the sub-
custodians holding them must in most cases be approved by the Trust's
Board of Trustees.
Foreign securities have special risks. There are certain risks of
holding foreign securities. The first is the risk of changes in foreign
currency values. Because the Fund may purchase securities denominated in
foreign currencies, a change in the value of a foreign currency against
the U.S. dollar will result in a change in the U.S. dollar value of the
Fund's securities denominated in that currency. The currency rate change
will also affect its income available for distribution. Although the
Fund's investment income from foreign securities may be received in
foreign currencies, the Fund will be required to distribute its income in
U.S. dollars. Therefore, the Fund will absorb the cost of currency
fluctuations. If the Fund suffers losses on foreign currencies after it
has distributed its income during the year, the Fund may find that it has
distributed more income than was available from actual investment income.
That could result in a return of capital to shareholders.
There are other risks of foreign investing. For example, foreign
issuers are not required to use generally-accepted accounting principles.
If foreign securities are not registered for sale in the U.S. under U.S.
securities laws, the issuer does not have to comply with the disclosure
requirements of our laws, which are generally more stringent than foreign
laws. The values of foreign securities investments will be affected by
other factors, including exchange control regulations or currency blockage
and possible expropriation or nationalization of assets. There may also
be changes in governmental administration or economic or monetary policy
in the U.S. or abroad that can affect foreign investing. In addition, it
is generally more difficult to obtain court judgments outside the United
States if the Fund has to sue a foreign broker or issuer. Additional
costs may be incurred because foreign broker commissions are generally
higher than U.S. rates, and there are additional custodial costs
associated with holding securities abroad.
-- Portfolio Turnover. A change in the securities held by the Fund
is known as "portfolio turnover." While it is a policy of the Fund
generally not to engage in trading for short-term gains, portfolio changes
will be made without regard to the length of time a security has been held
or whether a sale would result in a profit or loss, if in the Manager's
judgment, such transactions are advisable in light of the circumstances
of a particular company or within a particular industry or in light of
market, economic or financial conditions. High portfolio turnover may
affect the ability of the Fund to qualify as a "regulated investment
company" under the Internal Revenue Code for tax deductions for dividends
and capital gains distributions the Fund pays to shareholders. Portfolio
turnover affects brokerage costs, dealer markups and other transaction
costs, and results in the Fund's realization of capital gains or losses
for tax purposes. See "Financial Highlights" above, "Dividends, Capital
Gains and Taxes" below and "Brokerage Policies of the Fund" in the
Statement of Additional Information.
Other Investment Techniques and Strategies. The Fund may also use the
investment techniques and strategies described below. These techniques
involve certain risks. The Statement of Additional Information contains
more information about these practices, including limitations on their use
that are designed to reduce some of the risks.
-- Hedging. The Fund may purchase and sell certain kinds of futures
contracts, put and call options, forward contracts, and options on
futures, broadly-based stock or bond indices and foreign currency, or
enter into interest rate swap agreements. These are all referred to as
"hedging instruments." The Fund does not use hedging instruments for
speculative purposes, and has limits on the use of them, described below.
The Fund may buy and sell options, futures and forward contracts for
a number of purposes. It may do so to try to manage its exposure to the
possibility that the prices of its portfolio securities may decline, or
to establish a position in the securities market as a temporary substitute
for purchasing individual securities. It may do so to try to manage its
exposure to changing interest rates. 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 call options and
writing puts, tend to increase the Fund's exposure to the securities
market. Forward contacts are used to try to manage foreign currency risks
on the Fund's foreign investments. Foreign currency options are used to
try to protect against declines in the dollar value of foreign securities
the Fund owns, or to protect against an increase in the dollar cost of
buying foreign securities. Writing covered call options may also provide
income to the Fund for liquidity purposes, defensive reasons, or to raise
cash to distribute to shareholders.
--Futures. The Fund may buy and sell futures contracts that relate
to (1) foreign currencies (these are Forward Contracts), (2) financial
indices, such as U.S. or foreign government securities indices, corporate
debt securities indices or equity securities indices (these are referred
to as Financial Futures), and (3) interest rates (these are referred to
as Interest Rate Futures). These types of Futures are described in
"Hedging" in the Statement of Additional Information.
--Put and Call Options. The Fund may buy and sell certain kinds of
put options (puts) and call options (calls).
The Fund may buy calls on securities, indices, foreign currencies,
or Futures, or to terminate its obligation on a call the Fund previously
wrote. The Fund may write (that is, sell) call options on securities,
indices, foreign currencies or Futures, but only if they are "covered."
That means the Fund must own the security subject to the call while the
call is outstanding or segregate appropriate liquid assets. Calls on
Futures must be covered by securities or other liquid assets the Fund owns
and segregates to enable it to satisfy its obligations if the call is
exercised. When the Fund writes a call, it receives cash (called a
premium). The call gives the buyer the ability to buy the investment on
which the call was written from the Fund at the call price during the
period in which the call may be exercised. If the value of the investment
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
investment). Up to 50% of the Fund's total assets may be subject to
calls.
The Fund may purchase put options. Buying a put on an investment
gives the Fund the right to sell the investment at a set price to a seller
of a put on that investment. The Fund may buy puts that relate to
securities, indices, Futures, or foreign currencies. The Fund may buy a
put on security whether or not the Fund owns the particular security in
its portfolio. The Fund may sell a put on securities, indices, Futures,
or foreign currencies, but only if the puts are covered by segregated
liquid assets. The Fund will not write puts if more than 50% of the
Fund's net assets would have to be segregated to cover put obligations.
A call or put may be purchased only if, after the purchase, the value
of all call and put options held by the Fund will not exceed 5% of the
Fund's total assets. The Fund may buy and sell put and call options that
are traded on U.S. or foreign securities or commodity exchanges or are
traded in the over-the-counter markets. In the case of foreign currency
options, they may be quoted by major recognized dealers in those options.
Options traded in the over-the-counter market may be "illiquid," and
therefore may be subject to the Fund's restrictions on illiquid
investments.
--Forward Contracts. Forward Contracts are foreign currency exchange
contracts. They are used to buy or sell foreign currency for future
delivery at a fixed price. The Fund uses them to try to "lock in" the
U.S. dollar price of a security denominated in a foreign currency that the
Fund has purchased or sold, or to protect against possible losses from
changes in the relative value of the U.S. dollar and a foreign currency.
The Fund may also use "cross hedging," where the Fund hedges against
changes in currencies other than the currency in which a security it holds
is denominated.
--Interest Rate Swaps. In an interest rate swap, the Fund and
another party exchange their right to receive, or their obligation to pay,
interest on a security. For example, they may swap a right to receive
floating rate interest payments for fixed rate payments. The Fund enters
into swaps only on securities it owns. The Fund may not enter into swaps
with respect to more than 25% of its total assets. The Fund will
segregate liquid assets (such as cash or U.S. Government securities) to
cover any amounts it could owe under swaps that exceed the amounts it is
entitled to receive, and it will adjust that amount daily, as needed.
--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 from 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, if a covered call written by the Fund is
exercised on an investment that has increased in value, the Fund will be
required to sell the investment at the call price and will not be able to
realize any profit if the investment has increased in value above the call
price. In writing puts, there is a risk that the Fund may be required to
buy the underlying security at a disadvantageous price. The use of
Forward Contracts may reduce the gain that would otherwise result from a
change in the relationship between the U.S. dollar and a foreign currency.
Interest rate swaps are subject to the risk that the other party will fail
to meet its obligations (or that the underlying issuer will fail to pay
on time), as well as interest rate risks. The Fund could be obligated to
pay more under its swap agreements than it receives under them, as a
result of interest rate changes. These risks are described in greater
detail in the Statement of Additional Information.
-- Short Sales "Against-the-Box". The Fund may not sell securities
short except in collateralized transactions referred to as short sales
"against-the-box. No more than 15% of the Fund's net assets will be held
as collateral for such short sales at any one time.
-- Non-Concentration. The Fund shall not invest 25% or more of its
total assets in any industry; however, for the purposes of this
restriction, obligations of the U.S. government, its agencies or
instrumentalities are not considered to be part of any single industry.
-- 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. These terms refer to securities
that have been created and for which a market exists, but which are not
available for immediate delivery or are to be delivered at a later date.
There may be a risk of loss to the Fund if the value of the security
changes prior to the settlement date.
-- Repurchase Agreements. The Fund may enter into repurchase
agreements. In a repurchase transaction, the Fund buys a security and
simultaneously sells it to the vendor for delivery at a future date.
Repurchase agreements must be fully collateralized. However, if the
vendor fails to pay the resale price on the delivery date, the Fund may
incur costs in disposing of the collateral and may experience losses if
there is any delay in its ability to do so. The Fund will not enter into
a repurchase agreement that will cause more than 10% of the Fund's net
assets to be subject to repurchase agreements maturing in more than seven
days. 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. See the
Statement of Additional Information for more details.
-- 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 will not invest more than 10% of its net assets in illiquid or
restricted securities (that limit may increase to 15% if certain state
laws are changed or the Fund's shares are no longer sold in those states).
The Fund's percentage limitation on these investments does not apply to
certain restricted securities that are eligible for resale to qualified
institutional purchasers.
-- Loans of Portfolio Securities. The Fund may lend its portfolio
securities to brokers, dealers and other financial institutions. The Fund
must receive collateral for a loan. These loans are limited to not more
than 25% of the value of the Fund's total assets and are subject to other
conditions described in the Statement of Additional Information. The Fund
presently does not intend to lend its portfolio securities, but if it
does, the value of securities loaned is not expected to exceed 5% of the
value of the Fund's total assets in the coming year.
-- 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. The Fund may not purchase or sell physical
commodities; however, the Fund may purchase and sell foreign currency in
hedging transactions. This shall not prevent the Fund from buying or
selling options and futures contracts or from investing in securities or
other instruments backed by physical commodities.
Derivative investments used by the Fund are used in some cases for
hedging purposes and in other cases to seek income. In the broadest
sense, exchange-traded options and futures contracts (discussed in
"Hedging," above) may be considered "derivative investments."
The Fund may invest in different types of derivatives. "Index-
linked" or "commodity-linked" notes are debt securities of companies that
call for interest payments and/or 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. Principal and/or interest payments
on an index-linked note depend on the performance of one or more market
indices, such as the S & P 500 Index or a weighted index of commodity
futures, such as crude oil, gasoline and natural gas. The Fund may invest
in "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 expected principal amount of the debt.
The Fund may also invest in currency-indexed securities. Typically,
these are short-term or intermediate-term debt securities having a value
at maturity, and/or an interest rate, determined by reference to one or
more foreign currencies. The currency-indexed securities purchased by the
Fund may make payments based on a formula. The payment of principal or
periodic interest may be calculated as a multiple of the movement of one
currency against another currency, or against an index. These investments
may entail increased risk to principal and increased price volatility.
There are special risks in investing in derivative investments. The
company issuing the instrument may fail to pay the amount due on the
maturity of the instrument. Also, the underlying investment or security
might not perform the way the Manager expected it to perform. Markets,
underlying securities and indices may move in a direction not anticipated
by the Manager. Performance of derivative investments may also be
influenced by interest rate and stock market changes in the U.S. and
abroad. All of this can mean that the Fund will realize less principal
or income from the investment than expected. Certain derivative
investments held by the Fund may be illiquid. Please refer to "Illiquid
and Restricted Securities."
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) make short sales except for sales
"against the box"; (2) borrow money or enter into reverse repurchase
agreements, except that the Fund may borrow money from banks and enter
into reverse repurchase agreements as a temporary measure for
extraordinary or emergency purposes (but not for the purpose of making
investments), provided that the aggregate amount of all such borrowings
and commitments under such agreements does not, at the time of borrowing
or of entering into such an agreement, exceed 10% of the Fund's total
assets taken at current market value; the Fund will not purchase
additional portfolio securities at any time that the aggregate amount of
its borrowings and its commitments under reverse repurchase agreements
exceeds 5% of the Fund's net assets (for purposes of this restriction,
entering into portfolio lending agreements shall not be deemed to
constitute borrowing money); (3) concentrate its investments in any
particular industry except that it may invest up to 25% of the value of
its total assets in the securities of issuers in any one industry (of the
utility companies, gas, electric, water and telephone will each be
considered as a separate industry); and (4) buy securities issued or
guaranteed by any one issuer (except the U.S. Government or any of its
agencies or instrumentalities) if with respect to 75% of its total assets
(a) more than 5% of the Fund's total assets would be invested in the
securities of that issuer, or (b) the Fund would own more than 10% of that
issuer's voting securities.
All of the percentage restrictions described above and elsewhere in
this Prospectus and the Statement of Additional Information apply only at
the time the Fund purchases a security, and the Fund need not dispose of
a security merely because the size of the Fund's assets has 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. Oppenheimer Integrity Funds (the "Trust") was
organized in 1982 as a multi-series Massachusetts business trust and the
Fund is a series of that Trust. That Trust is an open-end, diversified
management investment company, with an unlimited number of authorized
shares of beneficial interest. The Fund is one of two series of the Trust.
Each of the two series of the Trust issues its own shares, has its own
investment portfolio, and its own assets and liabilities.
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
Trust'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 three classes of shares, Class A,
Class B and Class C. Each class invests in the same investment portfolio.
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. Since March 28, 1991, the Fund has been
managed by the Manager, which 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. The Agreement sets forth the
fees paid by the Fund to the Manager and describes the expenses that the
Fund is responsible to pay to conduct its business. Prior to July 10,
1995, the Manager had contracted with Massachusetts Mutual Life Insurance
Company ("MassMutual") to act as the Fund's Sub-Adviser. The Sub-Adviser
was responsible for choosing the Fund's investments. The Manager, not the
Fund, paid the Sub-Adviser. Effective July 10, 1995, the Sub-Advisory
Agreement between the Manager and MassMutual terminated and the Manager
is responsible for selecting the Fund's investments as well as for its day
to day business, pursuant to an investment advisory agreement dated
July 10, 1995.
The Manager has operated as an investment adviser since 1959. The
Manager (including a subsidiary) currently manages investment companies,
including other OppenheimerFunds, with assets of more than $30 billion as
of March 31, 1995, and with more than 2.4 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 (the "Manager").
-- Portfolio Manager. David P. Negri and David A. Rosenberg are Vice
Presidents and Portfolio Managers of the Fund. Since July 10, 1995, they
have been the individuals principally responsible for the day-to-day
management of the Fund's portfolio. Mr. Negri and Mr. Rosenberg is each
a Vice President of the Manager. They each serve as officers and
portfolio managers of other OppenheimerFunds. For more information about
the Fund's other officers and Trustees, see "Trustees and Officers of the
Fund" in the Statement of Additional Information.
-- Fees and Expenses. Under the investment advisory agreement dated
July 10, 1995 with the Manager, 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 the Fund's average annual net assets, 0.72%
of the next $200 million, 0.69% of the next $200 million, 0.66% of the
next $200 million, 0.60% of the next $200 million, and 0.50% of net assets
in excess of $1 billion. The Fund's management fee for its last fiscal
year, restated to reflect the new investment advisory agreement, was 0.75%
of average annual net assets for both its Class A and Class B shares, as
set forth in the "Annual Fund Operating Expenses" chart on page 4. Class
C shares were not publicly offered prior to July 11, 1995.
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. Because the Fund
purchases most of its portfolio securities directly from the sellers and
not through brokers, it incurs relatively little expense for brokerage.
When deciding which brokers to use, the Manager is permitted by the
advisory agreement to consider whether brokers have sold shares of the
Fund or any other funds for which the Manager or its affiliates serve 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 Fund's 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 accounts 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 the terms
"cumulative total return," "average annual total return" and "yield" to
illustrate its performance. The performance of each class of shares is
shown 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 total return and yield
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 over
time, 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 normally
include the payment of the maximum initial sales charge. When total
returns are shown for Class B and Class C shares, they include the
applicable contingent deferred sales charge. Total returns may also be
quoted "at net asset value," without including the sales charge, and those
returns would be reduced if sales charges were deducted.
-- 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 and Class C
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 December 31, 1994,
followed by a graphical comparison of the Fund's performance to an
appropriate broad-based market index.
-- Management's Discussion of Performance. In 1994, the Federal
Reserve aggressively moved to raise short term interest rates in an effort
to control inflation. As interest rates rose, the bond market declined.
In response to the rising interest rates in the U.S., the Manager reduced
the Fund's exposure to long-term U.S. Government Treasury securities whose
performance tends to lag investment-grade corporate bonds in the mid-to-
late stages of economic expansion. The Manager moved to position the
Fund's assets somewhat more conservatively by increasing its holdings in
asset-backed issues and mortgage-backed bonds which generally are more
stable and predictable in periods of rising interest rates and which the
Manager viewed as offering high credit quality and attractive yields.
While waiting for the bond market to stabilize, the Manager increased the
Fund's holdings in short-term money market securities.
-- 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 December 31, 1994; in the case of Class
A shares, from the inception of the class on April 15, 1988, and in the
case of Class B shares, from the inception of the class on May 1, 1993.
Class C shares were not offered during the fiscal year ended December 31,
1994, and thus no performance information about Class C shares is given.
The performance of each class of the Fund's shares is compared to the
performance of the Lehman Brothers Corporate Bond Index, a broad-based,
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. Prior to July 10, 1995, the Fund's
investments were limited to investment grade bonds, U.S. Government
Securities, and money market instruments. The Lehman Brothers Corporate
Bond Index includes a factor for the reinvestment of interest, but does
not reflect expenses or taxes. 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 performance data does not reflect any assessment of
the risk of the investments included in the index.
Class A Shares
Comparison of Change in Value of $10,000 Hypothetical Investments in:
Oppenheimer Investment Grade Bond Fund (Class A) and Lehman Brothers
Corporate Bond Index
[graph]
Average Annual Total Return of Class A Shares of the Fund at 12/31/941
1 Year 5 Years Life
- ---------------------------------------------------------------------
- -8.43% 5.97% 6.79%
Class B Shares
Comparison of Change in Value of $10,000 Hypothetical Investments in:
Oppenheimer Investment Grade Bond Fund (Class B) and Lehman Brothers
Corporate Bond Index
[graph]
Average Annual Total Return of Class B Shares of the Fund at 12/31/942
1 Year Life
- --------------------------------------------------------------------
- -9.03% -2.67%
1The inception date of the Fund (Class A shares) was 4/15/88. The average
annual total returns and the ending account value in the graph reflect
reinvestment of all dividends and capital gains distributions and are
shown net of the applicable 4.75% maximum initial sales charge.
2Class B shares of the Fund were first publicly offered on 5/1/93. The
average annual total returns reflect reinvestment of all dividends and
capital gains distributions are shown net of the applicable 5% and 4%
contingent deferred sales charges, respectively, for the 1-year period and
life-of-the-class. The ending account value in the graph is net of the
applicable 4% contingent deferred sales charge.
Past performance is not predictive of future performance.
Graphs are not drawn to same scale.
A B O U T Y O U R A C C O U N T
How to Buy Shares
Classes of Shares. The Fund offers investors three 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. However, for purchase under
the OppenheimerFunds - prototype 401(k) plans, you pay an initial sales
charge on investments up to $500,000. If you purchase Class A shares as
part of an investment of at least $1 million ($500,000 for purchases under
the OppenheimerFunds - prototype 401(k) plans) in Class A 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. Sales charges are described below in "Class A
Shares".
-- Class B Shares. When you buy Class B shares, you pay no sales
charge at the time of purchase, but if you sell your shares within six
years, you will normally pay a contingent deferred sales charge that
varies depending on how long you own your shares. It is described below
in "Class B Shares".
-- Class C Shares. When you buy Class C shares, you pay no sales
charge at the time of purchase, but if you sell your shares within 12
months of buying them, you will normally pay a contingent deferred sales
charge of 1%. Please refer to "Class C Shares," below.
Which Class of Shares Should You Choose? Once you decide that the Fund
is an appropriate investment for you, deciding which class of shares is
best suited to your needs depends on a number of factors which you should
discuss with your financial advisor. The Fund's operating costs that
apply to a class of shares and the effect of the different types of sales
charges on your investment will vary your investment results over time.
The most important factors are how much you plan to invest, how long you
plan to hold your investment, and whether you anticipate exchanging your
shares for shares of other OppenheimerFunds (not all of which offer
Class B or Class C shares). If your goals and objectives change over time
and you plan to purchase additional shares, you should re-evaluate those
factors to see if you should consider another class of shares.
In the following discussion, to help provide you and your financial
advisor with a framework in which to choose a class, we have made some
assumptions using a hypothetical investment in the Fund. We used the
sales charge rates that apply to each class, and considered the effect of
the asset-based sales charges on Class B and Class C expenses (which will
affect your investment return). For the sake of comparison, we have
assumed that there is a 10% rate of appreciation in your investment each
year. Of course, the actual performance of your investment cannot be
predicted and will vary, based on the Fund's actual investment returns,
and the operating expenses borne by each class of shares, and which class
of shares you invest in.
The factors discussed below are not intended to be investment advice,
guidelines or recommendations, because each investor's financial
considerations are different. The assumptions we have made in assessing
the factors to consider in purchasing a particular class of shares assume
that you will purchase only one class of shares, and not a combination of
shares of different classes.
-- How Long Do You Expect To Hold Your Investment? While future
financial needs cannot be predicted with certainty, knowing how long you
expect to hold your investment will assist you in selecting the
appropriate class of shares. The effect of the sales charge over time,
using our assumptions, will generally depend on the amount invested. The
effect of class-based expenses will also depend on how much you invest.
Investing for the Short Term. If you have a short term investment
horizon (that is, you plan to hold your shares less than six years), you
should probably consider purchasing Class C shares rather than Class A or
Class B shares. This is because there is no initial sales charge on Class
C shares, and the contingent deferred sales charge does not apply to
amounts you sell after holding them one year.
However, if you plan to invest more than $250,000 for a period of
less than six years, Class C shares might not be as advantageous as Class
A shares. This is because the annual asset-based sales charge on Class
C shares (and the contingent deferred sales charge that applies if you
redeem Class C shares within one year of purchase) might have a greater
economic impact on your account during that period than the reduced
initial Class A sales charge rate available for larger purchases of Class
A shares.
And for most Class B investors who invest $500,000 or more, and for
most Class C investors who invest $1 million or more, in most cases Class
A shares will be the most advantageous choice, no matter how long you
intend to hold your shares. For that reason, the Distributor normally
will not accept purchase orders of $500,000 or more of Class B shares or
purchase orders of $1 million or more of Class C shares from a single
investor.
Investing for the Longer Term. If you are investing for the longer
term, for example, for retirement, and do not expect to need access to
your money for six years or more, Class A shares will likely be more
advantageous than Class B or Class C shares. This is because of the
effect of expected lower expenses for Class A shares and the reduced
initial sales charges available for larger investments in Class A shares
under the Fund's Right of Accumulation. Class B shares may be appropriate
for smaller investments held for the longer term because there is no
initial sales charge on Class B shares, and Class B shares held six years
following their purchase convert into Class A shares.
Of course all of these examples are based on approximations of the
effect of current sales charges and expenses on a hypothetical investment
over time, using the assumed annual performance return stated above, and
you should analyze your options carefully.
-- Are There Differences in Account Features That Matter to You?
Because some account features may not be available to Class B and Class
C shareholders, you should carefully review how you plan to use your
investment account before deciding which class of shares to buy. For
example, share certificates are not available for Class B or Class C
shares and if you are considering using your shares as collateral for a
loan, that may be a factor to consider. Additionally, the dividends
payable to Class B and Class C shareholders will be reduced by the
additional expenses borne solely by the respective class, such as the
asset-based sales charge, as described below and in the Statement of
Additional Information.
-- How Does It Affect Payments To My Broker? A salesperson, such as
a broker, or any other person who is entitled to receive compensation for
selling Fund shares may receive different compensation for selling one
class than another class. It is important that investors understand that
the purpose of the Class B and Class C contingent deferred sales charge
and asset-based sales charge for Class B and Class C shares is the same
as the purpose of the front-end sales charge on sales of Class A shares:
to compensate the Distributor for commissions it pays to dealers and
financial institutions for selling 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; 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, Class B or Class C 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. However, we
recommend that you discuss your investment first with a financial advisor,
to be sure it is appropriate for you.
-- 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. You can then transmit funds electronically to purchase shares,
or to have the Transfer Agent send redemption proceeds, or transmit
dividends and distributions to your bank account.
Shares are purchased for your account by AccountLink 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 should
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 price based
on the net asset value (and any initial sales charge that applies) 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 the time of day The New
York Stock Exchange closes, which is normally 4:00 P.M., New York time,
but may be earlier on some days (all references to time in this Prospectus
mean "New York time."). The net asset value of each class of shares is
determined as of the close of The New York Stock Exchange on each day the
Exchange is open (which is a "regular business day").
If you buy shares through a dealer, the dealer must receive your
order by the close of The New York Stock Exchange 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, purchases are not subject to an initial sales
charge, and the offering price will be the 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 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 a
portion allocated to your dealer as commission. The current sales charge
rates and commissions paid to dealers and brokers are as follows:
<TABLE>
<CAPTION>
Front-End Front-End
Sales Charge Sales Charge Commission
as a as a as
Percentage Percentage Percentage
of Offering of Amount of Offering
Amount of Purchase Price Invested Price
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 4.75% 4.98% 4.00%
- ----------------------------------------------------------------------
$50,000 or more but 4.50% 4.71% 3.75%
less than $100,000
- ----------------------------------------------------------------------
$100,000 or more but 3.50% 3.63% 2.75%
less than $250,000
- ----------------------------------------------------------------------
$250,000 or more but 2.50% 2.56% 2.00%
less than $500,000
- ----------------------------------------------------------------------
$500,000 or more but 2.00% 2.04% 1.60%
less than $1 million
</TABLE>
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 (shares of the Fund and
other OppenheimerFunds that offer only one class of shares that has no
class designation are considered "Class A shares" for this purpose). Class
A shares purchased in connection with the OppenheimerFunds-prototype
401(k) plans will not be subject to an initial sales charge if: (i) the
plan purchases shares of one or more Oppenheimer funds in an amount
aggregating $500,000 or more, (ii) the plan has, at the time of purchase,
100 or more employees eligible to participate in the plan, or (iii) the
plan certifies that it will have projected annual contributions to the
plan of $200,000 or more.
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 ($500,000 for purchases under the
OppenheimerFunds - prototype 401(k) plans) 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 amount of the 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
contingent deferred 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. To qualify for the lower sales charge
rates that apply to larger purchases of Class A shares, you and your
spouse can add together Class A and, effective on or about August 1, 1995,
Class B shares you purchase for your own accounts, for your joint
accounts, or on behalf of your children who are minors, under trust or
custodial accounts. A fiduciary can count all 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 add together current purchases of Class A and,
effective on or about August 1, 1995, Class B shares of the Fund and other
OppenheimerFunds to reduce the sales charge rate that applies to current
purchases of Class A shares. You can also count Class A and, effective
August 1, 1995, Class B shares of OppenheimerFunds you previously
purchased subject to an initial or contingent deferred sales charge to
reduce the sales charge rate for current purchases of Class A shares,
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, and effective on or about August 1, 1995, Class B shares of the
Fund and other OppenheimerFunds during a 13-month period, and the reduced
Class A sales charge rate that applies will be the Class A sales charge
rate that applies to the total amount of the intended purchases will be
the sales charge rate for Class A shares purchased during that period.
This can include 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; or (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
administration 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, (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, (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, or (d) purchased and paid for with the proceeds of shares
redeemed in the prior 12 months from a mutual fund on which an initial
sales charge or contingent deferred sales charge was paid (other than a
fund managed by the Manager or any of its affiliates); this waiver must
be requested when the purchase order is placed for your shares of the Fund
and the Distributor may require evidence of your qualification for the
waiver. 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 is also waived if shares
are redeemed in the following cases: (1) for retirement distributions or
loans to participants or beneficiaries from qualified retirement plans,
deferred compensation plans or other employee benefit plans including the
OppenheimerFunds - prototype 401(k) plans ("Retirement Plans"), (2) to
return excess contributions made to Retirement Plans, (3) to make
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, (5) Class A
shares that would otherwise be subject to the Class A contingent deferred
sales charge are redeemed, but at the time the purchase order for your
shares was placed, the dealer agreed to accept the dealer's portion of the
commission payable on the sale in installments of 1/18th of the commission
per month (and that no further commission would be payable if the shares
were redeemed within 18 months of purchase), or (6) in connection with the
OppenheimerFunds-prototype 401(k) plans: (i) following the death or
disability (as defined in the Internal Revenue Code) of the participant
or beneficiary (the death or disability must have occurred after the
account was established); (ii) hardship withdrawals; (iii) distributions
pursuant to a Qualified Domestic Relations Order, as defined in the Code;
(iv) minimum distributions as required by section 401(a)(9) of the Code;
(v) substantially equal periodic payments as described in Section 72(t)
of the Code, and (vi) separation from service.
-- 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 asset
value 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 asset value 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:
<TABLE>
<CAPTION>
Contingent Deferred Sales Charge
Beginning of Month in which On Redemptions in That Year
Purchase Order Was Accepted (As % of Amount Subject to Charge)
- ----------------------------------------------------------------------
<S> <C>
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
</TABLE>
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) to make 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 which occurred after the
account was opened; (2) redemptions from accounts other than Retirement
Plans following the death or disability of the shareholder (the disability
must have occurred after the account was established and you must provide
evidence of a determination of disability by the Social Security
Administration), (3) to make returns of excess contributions to Retirement
Plans, (4) to make 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 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 life and last survivor expectancy) of the
participant and the participant's designated beneficiary (and the
distributions must comply with 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), or (5) in connection with the OppenheimerFunds-prototype 401(k)
plans: (i) hardship withdrawals; (ii) distributions pursuant to a
Qualified Domestic Relations Order, as defined in the Code; (iii) minimum
distributions as required by section 401(a)(9) of the Code; (iv)
substantially equal periodic payments as described in Section 72(t) of the
Code, and (v) separation from service.
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; or (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 "compensation type" Distribution and Service Plan for Class B
shares to compensate the Distributor for its services in distributing
Class B shares and servicing accounts. Under the Plan, the Fund pays the
Distributor an annual "asset-based sales charge" of 0.75% 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 asset value 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 services 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 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 3.75% of the
purchase price to dealers from its own resources at the time of sale. The
Distributor retains the asset-based sales charge (and the first year's
service fee).
If the Plan is terminated by the Fund, the Board of Trustees may
allow the Fund to continue payments of the service fee and/or the asset-
based sales charge to the Distributor.
Class C Shares. Class C shares are sold at net asset value per share
without an initial sales charge. However, if Class C shares are redeemed
within 12 months of their purchase, a contingent deferred sales charge of
1.0% 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 C 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 C 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 12 months, and (3) shares held the longest during the
12-month period.
-- Waivers of Class C Sales Charge. The Class C 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 of the
shareholder (the disability must have occurred after the account was
established and you must provide evidence of a determination of disability
by the Social Security Administration), (3) returns of excess
contributions to Retirement Plans or (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
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 life and last
survivor expectancy) of the participant and the participant's designated
beneficiary (and the distributions must comply with 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 C 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; or (iv) shares redeemed in
involuntary redemptions as described above. Further details about this
policy are contained in "Reduced Sales Charges" in the Statement of
Additional Information.
-- Distribution and Service Plan for Class C Shares. The Fund has
adopted a "compensation type" Distribution and Service Plan for Class C
shares to compensate the Distributor for its services in distributing
Class C shares and servicing accounts. Under the Plan, the Fund pays the
Distributor an annual "asset-based sales charge" of 0.75% per year on
Class C shares. The Distributor also receives a service fee of 0.25% per
year. Both fees are computed on the average annual net assets of Class
C shares, determined as of the close of each regular business day. The
asset-based sales charge allows investors to buy Class C shares without
a front-end sales charge while allowing the Distributor to compensate
dealers that sell Class C shares.
The Distributor uses the service fee to compensate dealers for
providing personal services for accounts that hold Class C 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 C expenses by 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 C 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 during the first year
shares are outstanding. The Distributor plans to pay the asset-based sales
charge as an ongoing commission to the dealer on Class C shares that have
been outstanding for a year or more.
If the Plan is terminated by the Fund, the Board of Trustees may
allow the Fund to continue payments of the service fee and/or the asset-
based sales charge to the Distributor.
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. These include 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 should 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 worth $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
automatically to exchange an amount you establish in advance 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 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 only to redemptions of Class A
shares or to redemptions of Class B shares of the Fund that you purchased
by reinvesting dividends or distributions 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
other employers
-- 401(k) Plan for 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
-- A redemption check is not payable to all shareholders listed on
the account statement
-- A redemption 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 on behalf of a corporation, partnership or other business, or
as a fiduciary, 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 account statement)
-- The dollar amount or number of shares to be redeemed
-- Any special payment instructions
-- Any share certificates for the shares you are selling
-- The signatures of all registered owners exactly as the account is
registered, 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 the close of The New York Stock Exchange that day, which is
normally 4:00 P.M., but may be earlier on some days. Shares held in an
OppenheimerFunds retirement plan or under a share certificate may not be
redeemed 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 statement, or, if you have linked your Fund account to your
bank account on AccountLink, you may have the proceeds wired to that bank
account.
-- Telephone Redemptions Paid by Check. Up to $50,000 may be
redeemed by telephone, once in any 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 or Class C 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 10 days.
-- Don't use your checks if you changed your Fund account number.
Selling Shares Through Your Dealer. The Distributor has made arrangements
to repurchase Fund shares from dealers and brokers on behalf of their
customers. Brokers or dealers may charge for that service. Please refer
to "Special Arrangements For Repurchase of Shares From Dealers And
Brokers" in the Statement of Additional Information for more details.
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. 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. Certain
OppenheimerFunds offer Class A, Class B and/or Class C shares, and a list
can be obtained by calling the Distributor at 1-800-525-7048. In some
cases, sales charges may be imposed on exchange transactions. 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 names and address. Shares held under certificates may not
be exchanged by telephone.
You can find a list of eligible OppenheimerFunds currently available
for exchanges in the Statement of Additional Information or obtain their
names by calling a service representative 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 that is in proper
form by the close of The New York Stock Exchange that day, which is
normally 4:00 P.M., but may be earlier on some days. However, 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.
Shareholder Account Rules and Policies
-- Net Asset Value Per Share is determined for each class of shares
as of the close of The New York Stock Exchange on each regular business
day 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 neither it nor the Fund will 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 or improperly.
-- 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, Class B and Class C 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. Payment will be
forwarded within 3 business days for accounts registered in the name of
a broker-dealer. 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 10 days from the date the shares were purchased. That delay may be
avoided if you purchase shares by certified check or arrange to have your
bank 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 $1,000 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 "How to Sell Shares"
in 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 Employer Identification Number when you sign your application,
or if you violate Internal Revenue Service regulations on tax reporting
of income.
-- 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, Class B or Class C shares.
-- To avoid sending duplicate copies of materials to households, the
Fund will mail only one copy of each annual and semi-annual report to
shareholders having the same last name 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, Class B and
Class C shares from net investment income on each regular business day and
pays those dividends to shareholders monthly. Normally, dividends are paid
on the last business day of every month, but the Board of Trustees can
change that date. Distributions may be made monthly from any net short-
term capital gains the Fund realizes in selling securities. It is
expected that distributions paid with respect to Class A shares will
generally be higher than for Class B or Class C shares because expenses
allocable to Class B and Class C shares will generally be higher.
From time to time, Fund may adopt 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 may be 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. A practice of attempting to pay dividends on Class A
shares at a constant level would require the Manager, consistent with the
Fund's investment objective and investment restrictions, to monitor the
Fund's portfolio and select higher yielding securities when deemed
appropriate to maintain necessary net investment income levels. If the
Fund, from time to time, seeks to pay dividends on Class A shares at a
target level, the Fund anticipates it would pay dividends at the targeted
dividend level from net investment income and other distributable income
without any impact on the Fund's Class A net asset value per share. The
Board of Trustees could change the Fund's targeted dividend level at any
time, without prior notice to shareholders. The Fund would not otherwise
have a fixed dividend rate. Regardless, 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 assurance 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. It does not matter how long you hold your
shares. 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. A non-
taxable return of capital may reduce your tax basis in your Fund shares.
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 TO PROSPECTUS OF
OPPENHEIMER INVESTMENT GRADE BOND FUND
Graphic material included in Prospectus of Oppenheimer Bond Fund:
"Comparison of Total Return of Oppenheimer Bond Fund and The Lehman
Brothers Corporate Bond Index - Change in Value of a $10,000 Hypothetical
Investment"
Linear graphs will be included in the Prospectus of Oppenheimer Bond
Fund (the "Fund") depicting the initial account value and subsequent
account value of a hypothetical $10,000 in the Fund. In the case of the
Fund's Class A shares, that graph will cover each of the Fund's fiscal
years since the inception of the class on April 15, 1988 through December
31, 1995 and in the case of Class B shares the graph will cover the period
from the inception of the class on May 1, 1993 through December 31, 1994.
The graphs will compare such values with the same investments over the
same time periods with The Lehman Brothers Corporate Bond Index. Set
forth below are the relevant data points that will appear on the linear
graphs. Additional information with respect to the foregoing, including
a description of The Lehman Brothers Corporate Bond Index, is set forth
in the Prospectus under "Performance of the Fund -- Comparing the Fund's
Performance to the Market"
<TABLE>
<CAPTION>
Lehman Brothers
Fiscal Year Oppenheimer Corporate
(Period) Ended Bond Fund A Bond Index
<S> <C> <C>
04/15/88 $9,525 $10,000
12/31/88 $9,952 $10,368
12/31/89 $11,077 $11,885
12/31/90 $11,602 $12,759
12/31/91 $13,723 $15,170
12/31/92 $14,653 $16,392
12/31/93 $16,163 $18,310
12/31/94 $15,538 $17,530
</TABLE>
<TABLE>
<CAPTION>
Lehman Brothers
Fiscal Year Oppenheimer Corporate
(Period) Ended Bond Fund B(1) Bond Index
<S> <C> <C>
05/01/93 $10,000 $10,000
12/31/93 $10,391 $10,503
12/31/94 $9,559 $10,056
</TABLE>
- ----------------------
(1) Class B shares of the Fund were first publicly offered on May 1, 1993.
<PAGE>
Oppenheimer Bond 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 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 & Wolf, 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 Statement of Additional Information,
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., Massachusetts Mutual
Life Insurance Company, 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 offer in such state.
PR0285.001.0595 *Printed on recycled paper
<PAGE>
OPPENHEIMER BOND FUND
3410 South Galena Street, Denver, Colorado 80231
1-800-525-7048
Statement of Additional Information dated July 10, 1995.
This Statement of Additional Information of Oppenheimer Bond Fund is
not a Prospectus. This document contains additional information about the
Fund and supplements information in the Prospectus dated July 10, 1995.
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.
<TABLE>
<CAPTION>
Contents
Page
About the Fund
<S> <C>
Investment Objective and Policies. . . . . . . . . . . . . .2
Investment Policies and Strategies. . . . . . . . . . . .2
Other Investment Techniques and Strategies. . . . . . . .8
Other Investment Restrictions . . . . . . . . . . . . . .20
How the Fund is Managed. . . . . . . . . . . . . . . . . . .21
Organization and History . . . . . . . . . . . . . . . . . .21
Trustees and Officers of the Fund. . . . . . . . . . . . . .22
The Manager and Its Affiliates . . . . . . . . . . . . . . .26
Brokerage Policies of the Fund . . . . . . . . . . . . . . .28
Performance of the Fund. . . . . . . . . . . . . . . . . . .30
Distribution and Service Plans . . . . . . . . . . . . . . .34
About Your Account
How to Buy Shares. . . . . . . . . . . . . . . . . . . . . .37
How to Sell Shares . . . . . . . . . . . . . . . . . . . . .43
How to Exchange Shares . . . . . . . . . . . . . . . . . . .47
Dividends, Capital Gains and Taxes . . . . . . . . . . . . .50
Additional Information About the Fund. . . . . . . . . . . .51
Financial Information About the Fund
Independent Auditors' Report . . . . . . . . . . . . . . . .52
Financial Statements . . . . . . . . . . . . . . . . . . . .53
Appendix A: Description of Securities Ratings. . . . . . . .A-1
Appendix B: Industry Classification. . . . . . . . . . . . .B-1
</TABLE>
<PAGE>
ABOUT THE FUND
Investment Objective And Policies
Investment Policies and Strategies. The investment objectives and
policies of the Fund are discussed 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. Certain capitalized terms used in this
Statement of Additional Information are defined in the Prospectus.
-- Debt Securities. All debt securities are subject to two types of
risk: credit risk and interest rate risk (these are in addition to other
investment risks that may affect a particular security).
-- Credit 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. Interest rate risk refers to the fluctuations
in value of fixed-income securities resulting solely from the inverse
relationship between price and yield of outstanding fixed-income
securities. An increase in interest rates will generally 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 the interest
payable on those securities, and thus the cash income from such
securities, but will be reflected in the valuations of those securities
used to compute the Fund's net asset values.
-- Commercial Paper. The Fund's commercial paper investments, in
addition to those described in the Prospectus, include the following:
Variable Amount Master Demand Notes. Master demand notes are
corporate obligations which permit the investment of fluctuating amounts
by the Fund at varying rates of interest pursuant to direct arrangements
between the Fund, as lender, and the borrower. They permit daily changes
in the amounts borrowed. The Fund has the right to increase the amount
under the note at any time up to the full amount provided by the note
agreement, or to decrease the amount, and the borrower may prepay up to
the full amount of the note without penalty. These notes may or may not
be backed by bank letters of credit. Because these notes are direct
lending arrangements between the lender and borrower, it is not generally
contemplated that they will be traded. There is no secondary market for
these notes, although they are redeemable (and thus immediately repayable
by the borrower) at principal amount, plus accrued interest, at any time.
Accordingly, the Fund's right to redeem such notes is dependent upon the
ability of the borrower to pay principal and interest on demand. The Fund
has no limitations on the type of issuer from whom these notes will be
purchased; however, in connection with such purchases and on an ongoing
basis, the Manager will consider the earning power, cash flow and other
liquidity ratios of the issuer, and its ability to pay principal and
interest on demand, including a situation in which all holders of such
notes made demand simultaneously. Investments in master demand notes are
subject to the limitation on investments by the Fund in illiquid
securities, described in the Prospectus.
Floating Rate/Variable Rate Notes. Some of the notes the Fund may
purchase may have variable or floating interest rates. Variable rates are
adjustable at stated periodic intervals; floating rates are automatically
adjusted according to a specified market rate for such investments, such
as the percentage of the prime rate of a bank, or the 91-day U.S. Treasury
Bill rate. Such obligations may be secured by bank letters of credit or
other credit support arrangements.
-- Participation Interests. The Fund may invest in participation
interests, subject to the limitation, described in "Illiquid and
Restricted Securities" in the Prospectus on investments by the Fund in
illiquid investments. Participation interests provide the Fund an
undivided interest in a loan made by the issuing financial institution 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 borrowers. The
issuing financial institution may have no obligation to the Fund other
than to pay the Fund the proportionate amount of the principal and
interest payments it receives. Participation interests are primarily
dependent upon the creditworthiness of the borrowing corporation, which
is obligated to make payments of principal and interest on the loan, and
there is a risk that such borrowers may have difficulty making payments.
In the event the borrower fails to pay scheduled interest or principal
payments, the Fund could experience a reduction in its income and might
experience a decline in the value of that participation interest and in
the net asset value of its shares. In the event of a failure by the
financial institution 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.
-- Bank Obligations and Instruments Secured Thereby. The bank
obligations the Fund may invest in include time deposits, certificates of
deposit, and bankers' acceptances if they are: (i) obligations of a
domestic bank with total assets of at least $1 billion or (ii) obligations
of a foreign bank with total assets of at least U.S. $1 billion. The Fund
may also invest in instruments secured by such obligations (e.g., debt
which is guaranteed by the bank). For purposes of this section, the term
"bank" includes commercial banks, savings banks, and savings and loan
associations which may or may not be members of the Federal Deposit
Insurance Corporation.
Time deposits are non-negotiable deposits in a bank for a specified
period of time at a stated interest rate, whether or not subject to
withdrawal penalties. However, time deposits, other than those maturing
in seven days or less, that are subject to withdrawal penalties are
subject to the limitation on investments by the Fund in illiquid
investments, set forth in the Prospectus under "Illiquid and Restricted
Securities."
Banker's acceptances are marketable short-term credit instruments
used to finance the import, export, transfer or storage of goods. They
are deemed "accepted" when a bank guarantees their payment at maturity.
-- Securities of Foreign Governments and Companies. As stated in the
Prospectus, the Fund may invest in debt obligations (which may be
dominated in U.S. dollars or non-U.S. currencies) issued or guaranteed by
foreign corporations, certain supranational entities (described below) and
foreign governments or their agencies or instrumentalities.
The percentage of the Fund's assets that will be allocated to foreign
securities will vary from time to time depending on, among other things,
the relative yields of foreign and U.S. securities, the economies of
foreign countries, the condition of such countries' financial markets, the
interest rate climate of such countries and the relationship of such
countries' currency to the U.S. dollar. The Manager will consider an
issuer's affiliation, if any, with a foreign government as one of the
factors in determining whether to purchase any particular foreign
security. These factors are judged on the basis of fundamental economic
criteria (e.g., relative inflation levels and trends, growth rate
forecasts, balance of payments status, and economic policies) as well as
technical and political data. The Fund's portfolio of foreign securities
may include those of a number of foreign countries or, depending upon
market conditions, those of a single country.
Investments in foreign securities offer potential benefits not
available from investments solely in securities of domestic issuers, by
offering 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 bond or
other markets that do not move in a manner parallel to U.S. markets. From
time to time, 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
reimposed.
Securities of foreign issuers that are represented by American
depository receipts, or that are listed on a U.S. securities exchange, or
are traded in the U.S. over-the-counter market are not considered "foreign
securities," because they are not subject to many of the special
considerations and risks (discussed below) that apply to foreign
securities traded and held abroad. If the Fund's securities are held
abroad, the countries in which such securities may be held and the sub-
custodians holding must be, in most cases, approved by the Fund's Board
of Trustees under applicable SEC rules.
The obligations of foreign governmental entities may or may not be
supported by the full faith and credit of a foreign government.
Obligations of "supranational entities" include those of international
organizations designated or supported by governmental entities to promote
economic reconstruction or development and of international banking
institutions and related government agencies. Examples include the
International Bank for Reconstruction and Development (the "World Bank"),
the European Coal and Steel Community, the Asian Development Bank and the
Inter-American Development Bank. The governmental members, or
"stockholders," of these entities usually make initial capital
contributions to the supranational entity and in many cases are committed
to make additional capital contributions if the supranational entity is
unable to repay its borrowings. Each supranational entity's lending
activities are limited to a percentage of its total capital (including
"callable capital" contributed by members at the entity's call), reserves
and net income. There is no assurance that foreign governments will be
able or willing to honor their commitments.
Investing in foreign securities involves considerations and possible
risks not typically associated with investing in securities in the U.S.
The values of foreign securities will be affected by changes in currency
rates or exchange control regulations or currency blockage, application
of foreign tax laws, including withholding taxes, changes in governmental
administration or economic or monetary policy (in the U.S. or abroad) or
changed circumstances in dealings between nations. There may be a lack
of public information about foreign issuers. Foreign countries may not
have financial reporting, accounting and auditing standards comparable to
those that apply to U.S. issuers. Costs will be incurred in connection
with conversions between various currencies. Foreign brokerage
commissions are generally higher than commissions in the U.S., and foreign
securities markets may be less liquid, more volatile and less subject to
governmental regulation than in the U.S. They may have increased delays
in settling portfolio transactions. Investments in foreign countries
could be affected by other factors not generally thought to be present in
the U.S., including expropriation or nationalization, confiscatory
taxation and potential difficulties in enforcing contractual obligations,
and could be subject to extended settlement periods.
Because the Fund may purchase securities denominated in foreign
currencies, a change in the value of any such currency against the U.S.
dollar will result in a change in the U.S. dollar value of the Fund's
assets and its income available for distribution. In addition, although
a portion of the Fund's investment income may be received or realized in
foreign currencies, the Fund will be required to compute and distribute
its income in U.S. dollars, and absorb the cost of currency fluctuations.
The Fund may engage in foreign currency exchange transactions for hedging
purposes to protect against changes in future exchange rates. See "Other
Investment Techniques and Strategies - Hedging," below.
The values of foreign investments and the investment income derived
from them may also be affected unfavorably by changes in currency exchange
control regulations. Although the Fund will invest only in securities
denominated in foreign currencies that at the time of investment do not
have significant government-imposed restrictions on conversion into U.S.
dollars, there can be no assurance against subsequent imposition of
currency controls. In addition, the values of foreign securities will
fluctuate in response to a variety of factors, including changes in U.S.
and foreign interest rates.
-- U.S. Government Securities. U.S. Government Securities are debt
obligations issued or guaranteed by the U.S. Government or one of its
agencies or instrumentalities, and include "zero coupon" Treasury
securities and mortgage-backed securities and CMOs.
-- Mortgage-Backed Securities. These securities represent
participation interests in pools of residential mortgage loans which are
guaranteed by agencies or instrumentalities of the U.S. Government. Such
securities differ from conventional debt securities which generally
provide for periodic payment of interest in fixed or determinable amounts
(usually semi-annually) with principal payments at maturity or specified
call dates. Some mortgage-backed securities in which the Fund may invest
may be backed by the full faith and credit of the U.S. Treasury (e.g.,
direct pass-through certificates of Government National Mortgage
Association); some are supported by the right of the issuer to borrow from
the U.S. Government (e.g., obligations of Federal Home Loan Mortgage
Corporation); and some are backed by only the credit of the issuer itself.
Those 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. Any of these government agencies may also issue collateralized
mortgage-backed obligations ("CMOs"), discussed below.
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 the values of other debt securities,
but, when prevailing interest rates decline, the value of a pass-through
security is not likely to rise to the extent that the value of other debt
securities rise, 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 times when available
investments offer higher or lower 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 the
Fund 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. The Fund may purchase mortgage-backed
securities at par, at a premium or at a discount. Accelerated prepayments
adversely affect yields for pass-through securities purchased at a premium
(i.e., at a price in excess of their 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 invest in "stripped" mortgage backed securities, in
which the principal and interest portions of the security are separated
and sold. Stripped mortgage-backed securities usually have at least two
classes each of which receives different proportions of interest and
principal distributions on the underlying pool of mortgage assets. One
common variety of stripped mortgage-backed security has one class that
receives some of the interest and most of the principal, while the other
class receives most of the interest and remainder of the principal. In
some cases, one class will receive all of the interest (the
"interest-only" or "IO" class), while the other class will receive all of
the principal (the "principal-only" or "PO" class). Interest only
securities are extremely sensitive to interest rate changes, and
prepayments of principal on the underlying mortgage assets. An increase
in principal payments or prepayments will reduce the income available to
the IO security. In other types of CMOs, the underlying principal
payments may apply to various classes in a particular order, and therefore
the value of certain classes or "tranches" of such securities may be more
volatile than the value of the pool as a whole, and losses may be more
severe than on other classes.
Mortgage-backed securities may be less effective than debt
obligations of similar maturity at maintaining yields during periods of
declining interest rates. As new types of mortgage-related securities are
developed and offered to investors, the Manager will, subject to the
direction of the Board of Trustees and consistent with the Fund's
investment objective and policies, consider making investments in such new
types of mortgage-related securities.
-- GNMA Certificates. Certificates of Government National Mortgage
Association ("GNMA") are mortgage-backed securities of GNMA that evidence
an undivided interest in a pool or pools of mortgages ("GNMA
Certificates"). 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 when due.
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 certificates ("FHLMC Certificates"): 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. The FHLMC guarantee is not
backed by the full faith and credit of the U.S. Government.
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.
-- Collateralized Mortgage-Backed Obligations ("CMOs"). CMOs are
fully-collateralized bonds that are the general obligations of the issuer
thereof, either the U.S. Government, a U.S. government instrumentality,
or a private issuer, which may be a domestic or foreign corporation. Such
bonds generally are secured by an assignment to a trustee (under the
indenture pursuant to which the bonds are issued) of collateral consisting
of a pool of mortgages. Payments with respect to the underlying mortgages
generally are made to the trustee under the indenture. Payments of
principal and interest on the underlying mortgages are not passed through
to the holders of the CMOs as such (i.e., the character of payments of
principal and interest is not passed through, and therefore payments to
holders of CMOs attributable to interest paid and principal repaid on the
underlying mortgages do not necessarily constitute income and return of
capital, respectively, to such holders), but such payments are dedicated
to payment of interest on and repayment of principal of the CMOs. CMOs
often are issued in two or more classes with different characteristics
such as varying maturities and stated rates of interest. Because interest
and principal payments on the underlying mortgages are not passed through
to holders of CMOs, CMOs of varying maturities may be secured by the same
pool of mortgages, the payments on which are used to pay interest on each
class and to retire successive maturities in sequence. Unlike other
mortgage-backed securities (discussed above), CMOs are designed to be
retired as the underlying mortgages are repaid. In the event of
prepayment on such mortgages, the class of CMO first to mature generally
will be paid down. Therefore, although in most cases the issuer of CMOs
will not supply additional collateral in the event of such prepayment,
there will be sufficient collateral to secure CMOs that remain
outstanding.
-- Asset-Backed Securities. The value of an asset-backed security
is affected by changes in the market's perception of the asset backing the
security, the creditworthiness of the servicing agent for the loan pool,
the originator of the loans, or the financial institution providing any
credit enhancement, and is also affected if any credit enhancement has
been exhausted. The risks of investing in asset-backed securities are
ultimately dependent upon payment of consumer loans by the individual
borrowers. As a purchaser of an asset-backed security, the Fund would
generally have no recourse to the entity that originated the loans in the
event of default by a borrower. The underlying loans are subject to
prepayments, which shorten the weighted average life of asset-backed
securities and may lower their return, in the same manner as described
above for the prepayments of a pool of mortgage loans underlying mortgage-
backed securities.
Other Investment Techniques And Strategies
-- Hedging with Options and Futures Contracts. The Fund may employ
one or more types of 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 Futures, (ii) purchase puts on such Futures or
securities, or (iii) write calls on securities held by it or on Futures.
When hedging to attempt to protect against the possibility that portfolio
securities are not fully included in a rise in value of the debt
securities market, the Fund may: (i) purchase Futures, or (ii) purchase
calls on such Futures or on securities. Covered calls and puts may also
be written on debt securities to attempt to increase the Fund's income.
When hedging to protect against declines in the dollar value of a foreign
currency-denominated security, the Fund may: (a) purchase puts on that
foreign currency and on foreign currency Futures, (b) write calls on that
currency or on such Futures, or (c) enter into Forward Contracts at a
lower rate than the spot ("cash") rate.
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. At present, the Fund does not intend to enter into
Futures, Forward Contracts and options on Futures if, after any such
purchase, the sum of margin deposits on Futures and premiums paid on
Futures options exceeds 5% of the value of the Fund's total assets. In
the future, the Fund may employ Hedging Instruments and strategies that
are not presently contemplated but which may be developed, to the extent
such investment methods are consistent with the Fund's investment
objective, legally permissible and adequately disclosed.
-- Writing Call Options. The Fund may write (i.e. sell) call options
("calls") on debt securities that are traded on U.S. and foreign
securities exchanges and over-the-counter markets, to enhance income
through the receipt of premiums from expired calls and any net profits
from closing purchase transactions. After any such sale up to 50% of the
Fund's total assets may be subject to calls. All such calls written by
the Fund must be "covered" while the call is outstanding (i.e. the Fund
must own the securities subject to the call or other securities acceptable
for applicable escrow requirements). Calls on Futures (discussed below)
must be covered by deliverable securities or by liquid assets segregated
to satisfy the Futures contract. When the Fund writes a call on a
security it receives a premium and agrees to sell the callable investment
to a purchaser of a corresponding call on the same security 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 security),
regardless of market price changes during the call period. The Fund has
retained the risk of loss should the price of the underlying security
decline during the call period, which may be offset to some extent by the
premium.
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 the option transaction costs and the premium received on the
call written was more or less than the price of the call subsequently
purchased. A profit may also be realized if the call lapses unexercised,
because the Fund retains the underlying investment and the premium
received. Any such profits are considered short-term capital gains for
Federal income tax purposes, and when distributed by the Fund are taxable
as ordinary income. If the Fund could not effect a closing purchase
transaction due to lack of a market, it would have to hold the callable
investments until the call lapsed or was exercised.
The Fund may also write calls on Futures without owning a futures
contract or a deliverable bond, provided that at the time the call is
written, the Fund covers the call by segregating in escrow an equivalent
dollar amount 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 require
the Fund to deliver a futures contract; it would simply put the Fund in
a short futures position, which is permitted by the Fund's hedging
policies.
-- Writing Put Options. The Fund may write put options on debt
securities or Futures but only if such puts are covered by segregated
liquid assets. The Fund will not write puts if, as a result, more than
50% of the Fund's net assets would be required to be segregated to cover
such put obligations. In writing puts, there is the risk that the Fund
may be required to buy the underlying security at a disadvantageous price.
A put option on securities gives the purchaser the right to sell, and the
writer the obligation to buy, the underlying investment at the exercise
price during the option period. 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 represents a profit, as long as the
price of the underlying investment remains above the exercise price.
However, the Fund has also assumed the obligation during the option period
to buy the underlying investment from the buyer of the put at the exercise
price, even though the value of the investment may fall below the exercise
price. If the put lapses unexercised, the Fund (as the writer of the put)
realizes a gain in the amount of the premium. If the put is exercised,
the Fund must fulfill its obligation to purchase the underlying investment
at the exercise price, which will usually exceed the market value of the
investment at that time. In that case, the Fund may incur a loss, equal
to the sum of the current market value of the underlying investment and
the premium received minus the sum of the exercise price and any
transaction costs incurred.
When writing put options on securities, to secure its obligation to
pay for the underlying security, the Fund will deposit in escrow liquid
assets with a value equal to or greater than the exercise price of the put
option. The Fund therefore forgoes the opportunity of investing the
segregated assets or writing calls against those assets. As long as the
obligation of the Fund as 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 above for
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 by the Fund, are taxable as ordinary income.
The Trustees have adopted a non-fundamental policy that the Fund may
only purchase call options and put options with a value of up to 5% of its
net assets.
-- Purchasing Puts and Calls. The Fund may purchase calls in order
to protect against the possibility that the Fund's portfolio will not
fully participate in an anticipated rise in value of the long-term debt
securities market. When the Fund purchases a call, it pays a premium
(other than in a closing purchase transaction) and, except as to calls on
bond indices, has the right to buy the underlying investment from a seller
of a corresponding call on the same investment during the call period at
a fixed exercise price. In purchasing a call, 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,
transaction costs, and the premium paid, 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 lose its premium
payment and the right to purchase the underlying investment.
When the Fund purchases a put, it pays a premium and has the right
to sell the underlying investment to a seller of a corresponding put on
the same investment during the put period at a fixed exercise price.
Buying a put on an investment the Fund owns (a "protective put") enables
the Fund to attempt to protect itself during the put period against a
decline in the value of the underlying investment below the exercise price
by selling the underlying investment at the exercise price to a seller of
a corresponding put. If the market price of the underlying investment is
equal to or above the exercise price and as a result the put is not
exercised or resold, the put will become worthless at its expiration and
the Fund will lose the premium payment and the right to sell the
underlying investment. However, the put may be sold prior to expiration
(whether or not at a profit).
Purchasing either a put on Interest Rate Futures or on debt
securities it does not own permits the Fund either to resell the put or
to buy the underlying investment and sell it at the exercise price. The
resale price of the put will vary inversely with the price of the
underlying investment. If the market price of the underlying investment
is above the exercise price, and as a result the put is not exercised, the
put will become worthless on the expiration date. In the event of a
decline in price of the underlying investment, the Fund could exercise or
sell the put at a profit to attempt to offset some or all of its loss on
its portfolio securities. When the Fund purchases a put on an Interest
rate Future or debt security not held by it, the put protects the Fund to
the extent that the prices of the underlying Future or debt securities
move in a similar pattern of the debt securities in the Fund's portfolio.
The Fund's option activities may affect its portfolio turnover rate
and brokerage commissions. The exercise of calls written by the Fund may
cause the Fund to sell related portfolio securities, thus increasing its
turnover rate. The exercise by the Fund of puts on securities will cause
the sale of underlying investments, increasing portfolio turnover.
Although the decision whether to exercise a put it holds is within the
Fund's control, holding a put might cause the Fund to sell the related
investments for reasons that would not exist in the absence of the put.
The Fund will pay a brokerage commission each time it buys or sells a
call, put or an underlying investment in connection with the exercise of
a put or call. Those commissions may be higher than the commissions for
direct purchases or sales of the underlying investments.
Premiums paid for options are small in relation to the market value
of the underlying investments and, consequently, put and call options
offer large amounts of leverage. The leverage offered by trading in
options could result in the Fund's net asset value being more sensitive
to changes in the value of the underlying investments.
-- Options on Foreign Currencies. The Fund intends to write and
purchase calls on foreign currencies. 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. If a rise is anticipated in the dollar
value of a foreign currency in which securities to be acquired are
denominated, the increased cost of such securities may be partially offset
by purchasing calls or writing puts on that foreign currency. If a
decline in the dollar value of a foreign currency is anticipated, the
decline in value of portfolio securities denominated in that currency may
be partially offset by writing calls or purchasing puts on that foreign
currency. However, in the event of currency rate fluctuations adverse to
the Fund's position, it would lose the premium it paid and transactions
costs.
A call written on a foreign currency by the Fund is covered if the
Fund owns the underlying foreign currency covered by the call or has an
absolute and immediate right to acquire that foreign currency without
additional cash consideration (or for additional cash consideration held
in a segregated account by its custodian) upon conversion or exchange of
other foreign currency held in its portfolio. A call may be written by
the Fund on a foreign currency to provide a hedge against a decline due
to an expected adverse change in the exchange rate in the U.S. dollar
value of a security which the Fund owns or has the right to acquire and
which is denominated in the currency underlying the option. This is a
cross-hedging strategy. In such circumstances, the Fund collateralizes
the option by maintaining in a segregated account with the Fund's
custodian, cash or U.S. Government Securities in an amount not less than
the value of the underlying foreign currency in U.S. dollars marked-to-
market daily.
-- Futures. The Fund may buy and sell Futures. No price is paid or
received upon the purchase or sale of an Interest Rate Future or a foreign
currency exchange contract ("Forward Contract"), discussed below. 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.
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 made to or
by the futures broker on a daily basis.
At any time prior to the 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 for
tax purposes. 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.
-- Forward Contracts. The Fund may enter into foreign currency
exchange contracts ("Forward Contracts"), which obligate the seller to
deliver and the purchaser to take a specific amount of foreign currency
at a specific future date for a fixed price. 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 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 the gain that would otherwise result from a change
in the relationship between the U.S. dollar and a foreign currency.
Forward contracts include standardized foreign currency futures contracts
which are traded on exchanges and are subject to procedures and
regulations applicable to other Futures. The Fund may also enter into a
forward contract to sell a foreign currency denominated in a currency
other than that in which the underlying security is denominated. This is
done in the expectation that there is a greater correlation between the
foreign currency of the forward contract and the foreign currency of the
underlying investment than between the U.S. dollar and the foreign
currency of the underlying investment. This technique is referred to as
"cross hedging." The success of cross hedging is dependent on many
factors, including the ability of the Manager to correctly identify and
monitor the correlation between foreign currencies and the U.S. dollar.
To the extent that the correlation is not identical, the Fund may
experience losses or gains on both the underlying security and the cross
currency hedge.
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.
There is no limitation as to the percentage of the Fund's assets that
may be committed to foreign currency exchange contracts. The Fund does
not enter into such forward contracts or maintain a net exposure in such
contracts to the extent that the Fund would be obligated to deliver an
amount of foreign currency in excess of the value of the Fund's assets
denominated in that currency, or enter into a "cross hedge," unless it is
denominated in a currency or currencies that the Manager believes will
have price movements that tend to correlate closely with the currency in
which the investment being hedged is denominated. See "Tax Aspects of
Covered Calls and Hedging Instruments" below for a discussion of the tax
treatment of foreign currency exchange contracts.
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 or U.S. Government securities
or other liquid high-quality debt securities in a separate account of the
Fund with the Custodian having a value equal to the aggregate amount of
the Fund's commitments under forward contracts entered into with respect
to position hedges and cross hedges. If the value of the securities
placed in the 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 obligations 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.
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.
-- 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 that 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".
-- Additional Information About Hedging Instruments and Their Use.
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 traded on exchanges or as to other acceptable escrow
securities, so that no margin will be required for such transactions. OCC
will release the securities on the expiration of the option or upon the
Fund's entering into a closing transaction. An option position may be
closed out only on a market which provides secondary trading for options
of the same series, and there is no assurance that a liquid secondary
market will exist for any particular option.
The Fund's option activities may affect its turnover rate and
brokerage commissions. The exercise by the Fund of puts on securities
will cause the sale of related investments, increasing portfolio turnover.
Although such exercise is within the Fund's control, holding a put might
cause the Fund to sell the related investments for reasons which would not
exist in the absence of the put. The Fund will pay a brokerage commission
each time it buys a put or call, sells a call, or buys or sells an
underlying investment in connection with the exercise of a put or call.
Such commissions may be higher than those which would apply to direct
purchases or sales of such underlying investments. Premiums paid for
options are small in relation to the market value of the related
investments, and consequently, put and call options offer large amounts
of leverage. The leverage offered by trading in options could result in
the Fund's net asset value being more sensitive to changes in the value
of the underlying investments.
When the Fund writes an over-the-counter ("OTC") option, it will
enter into an arrangement with a primary U.S. Government securities
dealer, which would establish a formula price at which the Fund would have
the absolute right to repurchase that OTC option. That formula price
would generally be based on a multiple of the premium received for the
option, plus the amount by which the option is exercisable below the
market price of the underlying security (that is, the extent to which the
option is "in-the-money"). When the Fund writes an OTC option, it will
treat as illiquid (for purposes of the limit on its assets that may be
invested in illiquid securities, stated in the Prospectus) the mark-to-
market value of any OTC option held by it. The Securities and Exchange
Commission ("SEC") is evaluating whether OTC options should be considered
liquid securities, and the procedure described above could be affected by
the outcome of that evaluation.
-- 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 exempted from
registration with the CFTC as a "commodity pool operator" if the Fund
complies with the requirements of Rule 4.5 adopted by the CFTC. The Rule
does not limit the percentage of the Fund's assets that may be used for
Futures margin and related options premiums for a bona fide hedging
position. However, under the Rule the Fund must limit its aggregate
initial futures margin and related option premiums to no more than 5% of
the Fund's net assets for hedging strategies that are not considered bona
fide hedging strategies under the Rule.
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. 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 under 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 the securities underlying such Future, less
the margin deposit applicable to it.
-- Tax Aspects of Covered Calls and Hedging Instruments. The Fund
intends to qualify as a "regulated investment company" under the Internal
Revenue Code (although it reserves the right not to qualify). That
qualification enables the Fund to "pass through" its income and realized
capital gains to shareholders without having to pay tax on them. This
avoids a "double tax" on that income and capital gains, since shareholders
normally will be taxed on the dividends and capital gains they receive
from the Fund (unless the Fund's shares are held in a retirement account
or the shareholder is otherwise exempt from tax). One of the tests for
the Fund's qualification as a regulated investment company 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. To comply with this
30% cap, 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 Bond Index 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 options which expire in less than three
months; (iii) effecting closing transactions with respect to calls or puts
written or purchased less than three months previously; (iv) exercising
puts or calls held by the Fund for less than three months; or (v) writing
calls on investments held less than three months.
Certain foreign currency exchange contracts ("Forward Contracts") in
which the Fund may invest are treated 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 Forward Contracts)
generally are treated as ordinary income or loss. In addition, section
1256 contracts held by the Fund at the end of each taxable year are
"marked-to market" 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 mark-to-market treatment.
Certain 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
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 of.
Under the Internal Revenue Code, gains or losses attributable to
fluctuations in exchange rates that occur between the time the Fund
accrues interest or other receivables or accrues expenses or other
liabilities denominated in a foreign currency and the time the Fund
actually collects such receivables or pays such liabilities 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.
-- Possible Risk Factors in Hedging. In addition to the risks with
respect to options discussed in the Prospectus and above, there is a risk
when hedging by selling Futures to attempt to protect against decline in
value of the Fund's portfolio securities (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 out 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.
-- Repurchase Agreements. In a repurchase transaction, the Fund
acquires a security from, and simultaneously resells it to, an approved
vendor (a U.S. commercial bank, 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 the credit requirements set by the Trust's
Board of Trustees from time to time), for delivery on an agreed upon
future date. The resale price exceeds the purchase price by an amount
that reflects an agreed-upon interest rate effective for the period during
which the repurchase agreement is in effect. The majority of these
transactions run from day to day, and delivery pursuant to 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 collateral's value 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.
-- Illiquid and Restricted 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.
-- 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.
In connection with securities lending, the Fund might experience risks of
delay in receiving additional collateral, or risks of delay in recovery
of securities, or loss of rights in the collateral should the borrower
fail financially. 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. The Fund does not intend to make such
purchases for speculative purposes. The commitment to purchase a security
for which payment will be made on a future date may be deemed a separate
security and involve a risk of loss if the value of the security declines
prior to the settlement 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 of the buyer or
seller to do so may result in the Fund losing the opportunity to obtain
a price and yield considered to be advantageous. 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. 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.
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 before settlement in a direction other than that
expected by the Manager 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.
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 (i) 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 (ii) more than 50% of the
outstanding shares.
Under these additional restrictions, the Trust may not, on behalf of
the Fund:
(1) act as an underwriter, except to the extent that, in connection
with the disposition of portfolio securities, the Fund may be deemed
an underwriter under applicable laws;
(2) invest in oil, gas or other mineral leases, rights, royalty
contracts or exploration or development programs, real estate or real
estate mortgage loans (this restriction does not prevent the Fund
from purchasing securities secured or issued by companies investing
or dealing in real estate and by companies that are not principally
engaged in the business of buying and selling such leases, rights,
contracts or programs);
(3) make loans other than by investing in obligations in which the
Fund may invest consistent with its investment objective and policies
and other than repurchase agreements and loans of portfolio
securities;
(4) pledge, mortgage or hypothecate its assets, except that, to
secure permitted borrowings, it may pledge securities having a market
value at the time of the pledge not exceeding 15% of the cost of the
Fund's total assets and except in connection with permitted
transactions in options, futures contracts and options on futures
contracts, and except for reverse repurchase agreements and
securities lending;
(5) purchase or retain securities of any issuer if, to the knowledge
of the Trust, more than 5% of such issuer's securities are
beneficially owned by officers and trustees of the Trust or officers
and directors of Massachusetts Mutual Life Insurance Company
("MassMutual") who individually beneficially own more than 1/2 of 1%
of the securities of such issuer; and
(6) make loans to an officer, trustee or employee of the Trust or to
any officer, director or employee of MassMutual, or to MassMutual.
In addition to the investment restrictions described above and those
contained in the Prospectus, the Trustees of the Trust have voluntarily
adopted certain policies and restrictions which are observed in the
conduct of the affairs of the Fund. These represent intentions of the
Trustees based upon current circumstances. They differ from fundamental
investment policies in that the following additional investment
restrictions may be changed or amended by action of the Trustees without
requiring prior notice to or approval of shareholders. In accordance with
such nonfundamental policies and guidelines, the Fund may not: (1) invest
for the purpose of exercising control over, or management of, any company;
(2) purchase any security of a company which (including any predecessor,
controlling person, general partner and guarantor) has a record of less
than three years of continuous operations or relevant business experience
, if such purchase would cause more than 5% of the current value of the
Fund's assets to be invested in such companies; and (3) invest in
securities of other investment companies, except by purchase in the open
market where no commission or profit to a sponsor or dealer results from
such purchase other than the customary broker's commission, except when
such purchase is part of a plan of merger, consolidation, reorganization
or acquisition.
For purposes of the Fund's policy not to concentrate investments as
described in the investment restrictions in the Prospectus, the Fund has
adopted the industry classifications set forth in Appendix B to this
Statement of Additional Information. This policy is not a fundamental
policy.
How the Fund is Managed
Organization and History. The Fund is one of two series of Oppenheimer
Integrity Funds (the "Trust"). This Statement of Additional Information
may be used with the Fund's Prospectus only to offer shares of the Fund.
The Trust was established in 1982 as MassMutual Liquid Assets Trust and
changed its name to MassMutual Integrity Funds on April 15, 1988. The
Fund was reorganized from a closed-end investment company known as
MassMutual Income Investors, Inc. into a series of the Trust on April 15,
1988. On March 29, 1991, the Trust changed its name from MassMutual
Integrity Funds to Oppenheimer Integrity Funds and the Fund changed its
name from MassMutual Investment Grade Bond Fund to Oppenheimer Investment
Grade Bond Fund. Shares of the Fund represent an interest in the Fund
proportionately equal to the interest of each other share of the same
class and entitle the holder to one vote per share (and a fractional vote
for a fractional share) on matters submitted to their vote at
shareholders' meetings. Shareholders of the Fund and of the Trust's other
series vote together in the aggregate on certain matters at shareholders'
meetings, such as the election of Trustees and ratification of appointment
of auditors for the Trust. Shareholders of a particular series or class
vote separately on proposals which affect that series or class, and
shareholders of a series or class which is not affected by that matter are
not entitled to vote on the proposal. For example, only shareholders of
a series, such as the Fund, vote exclusively on any material amendment to
the investment advisory agreement with respect to the series. Only
shareholders of a class of a series vote on certain amendments to the
Distribution and/or Service Plans if the amendments affect that class.
The Trustees are authorized to create new series and classes of
series. The Trustees may reclassify unissued shares of the Trust or its
series or classes into additional series or classes of shares. The
Trustees may also divide or combine the shares of a class into a greater
or lesser number of shares without thereby changing the proportionate
beneficial interest of a shareholder in the Fund. Shares do not have
cumulative voting rights or preemptive or subscription rights. Shares may
be voted in person or by proxy.
As a Massachusetts business trust, the Trust is not required to hold,
and does not plan to hold, regular annual meetings of shareholders. The
Trust 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 Trust, 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 at least 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 Trust valued at $25,000 or more or holding
at least 1% of the Trust'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 Trust's
shareholder list available to the applicants or mail their communication
to all other shareholders at the applicant's expense, or the Trustees may
take such other action as set forth under Section 16(c) of the Investment
Company Act.
The Trust's Declaration of Trust contains an express disclaimer of
shareholder or Trustee liability for the Trust'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
Trust) to be held personally liable as a "partner" under certain
circumstances, the risk of a Trust 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 Trust's Trustees and officers and
their principal occupations and business affiliations during the past five
years are listed below. Each Trustee is also a trustee, director or
managing general partner of Oppenheimer Total Return Fund, Inc.,
Oppenheimer Equity Income Fund, Oppenheimer High Yield Fund, Oppenheimer
International Bond Fund, Oppenheimer Cash Reserves, Oppenheimer Tax-Exempt
Fund, Oppenheimer Limited-Term Government Fund, The New York Tax-Exempt
Income Fund, Inc., Oppenheimer Champion High Yield Fund, Oppenheimer Main
Street Funds, Inc., Oppenheimer Strategic Funds Trust, Oppenheimer
Strategic Income & Growth Fund, Oppenheimer Strategic Investment Grade
Bond Fund, Oppenheimer Strategic Short-Term Income Fund, Oppenheimer
Variable Account Funds, Daily Cash Accumulation Fund, Inc., Centennial
America Fund, L.P., Centennial Money Market Trust, Centennial Government
Trust, Centennial New York Tax Exempt Trust, Centennial Tax Exempt Trust
and Centennial California Tax Exempt Trust, (collectively, the "Denver-
based OppenheimerFunds"). Mr. Fossel is President and Mr. Swain is
Chairman of each of the Denver-based OppenheimerFunds. As of July 10,
1995, the Trustees and officers of the Fund as a group owned of record or
beneficially less than 1% of each class of the Fund's outstanding shares,
and less than 1% of the outstanding shares of the Fund. The foregoing
does not include shares held of record by an employee benefit plan for
employees of the Manager (for which one of the officers, Mr. Donohue, is
a trustee) other than the shares beneficially owned under that plan by the
officers of the Fund listed below.
Robert G. Avis, Trustee; Age: 63
One North Jefferson Ave., St. Louis, Missouri 63103
Vice Chairman of A.G. Edwards & Sons, Inc. (a broker-dealer) and A.G.
Edwards, Inc. (its parent holding company); Chairman of A.G.E. Asset
Management and A.G. Edwards Trust Company (its affiliated investment
adviser and trust company, respectively).
William A. Baker, Trustee; Age: 80
197 Desert Lakes Drive, Palm Springs, California 92264
Management Consultant.
Charles Conrad, Jr., Trustee; Age: 64
19411 Merion Circle, Huntington Beach, California 92648
Vice President of McDonnell Douglas Space Systems, Co.; formerly
associated with the National Aeronautics and Space Administration.
Jon S. Fossel, President and Trustee*; Age: 53
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 ("HarbourView"), a subsidiary of the Manager; 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; Age: 65
44 Portland Drive, St. Louis, Missouri 63131
Director of Wave Technologies International, Inc.: 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; Age: 73
2552 East Alameda, Denver, Colorado 80209
Formerly the Managing Partner of Deloitte, Haskins & Sells (an accounting
firm).
Robert M. Kirchner, Trustee; Age: 73
7500 E. Arapahoe Road, Englewood, Colorado 80112
President of The Kirchner Company (management consultants).
Ned M. Steel, Trustee; Age: 79
3416 South Race Street, Englewood, Colorado 80110
Chartered Property and Casualty Underwriter; director of Visiting Nurse
Corporation of Colorado; formerly Senior Vice President and a director of
Van Gilder Insurance Corp. (insurance brokers).
James C. Swain, Chairman and Trustee; Age: 61
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.
Andrew J. Donohue, Vice President; Age: 44
Two World Trade Center, New York, New York 10048-0203
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; formerly a Partner in,
Kraft & McManimon (a law firm) prior to which he was an officer of First
Investors Corporation (a broker-dealer) and First Investors Management
Company, Inc. (broker-dealer and investment adviser); and a director and
an officer of First Investors Family of Funds and First Investors Life
Insurance Company.
George C. Bowen, Vice President, Secretary and Treasurer; Age: 58
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; formerly Senior Vice President/Comptroller and Secretary
of OAMC.
David P. Negri, Vice President and Portfolio Manager; Age: 40
Two World Trade Center, New York, New York 10048-0203
Vice President of the Manager; an officer of other OppenheimerFunds.
David Rosenberg, Vice President and Portfolio Manager; Age 36
Two World Trade Center, New York, New York 10048-0203
Vice President of the Manager; an officer of other OppenheimerFunds;
formerly an officer and portfolio manager for Delaware Investment Advisors
and for one of its mutual funds.
Robert G. Zack, Assistant Secretary; Age: 46
Two World Trade Center, New York, New York 10048-0203
Senior Vice President and Associate General Counsel of the Manager,
Assistant Secretary of SSI and SFSI; an officer of other OppenheimerFunds.
Robert J. Bishop, Assistant Treasurer; Age: 36
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 of 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; Age: 29
3410 South Galena Street, Denver, Colorado 80231
Assistant Vice President of the Manager/Mutual Fund Accounting; an officer
of other
OppenheimerFunds; previously 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.
-- 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 (Messrs. Fossel and Swain, who are both officers and
Trustees) receive no salary or fee from the Fund. The Trustees of the
Fund (excluding Messrs. Fossel and Swain) received the total amounts shown
below from the Fund, during its fiscal year ended December 31, 1994, and
from all of the Denver-based OppenheimerFunds (including the Fund) listed
in the first paragraph of this section, for services in the positions
shown:
<TABLE>
<CAPTION>
Total Compensation
Aggregate From All
Compensation Denver-based
Name and Position from Fund OppenheimerFunds1
<S> <C> <C>
Robert G. Avis $600.00 $53,000.00
Trustee
William A. Baker $829.00 $73,257.01
Audit and Review Committee
Chairman and Trustee
Charles Conrad, Jr. $774.00 $68,293.67
Audit and Review Committee
Member and Trustee
_____________
1For the 1994 calendar year.
</TABLE>
<TABLE>
<CAPTION>
Total Compensation
Aggregate From All
Compensation Denver-based
Name and Position from Fund OppenheimerFunds1
<S> <S> <S>
C. Howard Kast $600.00 $53,000.00
Trustee
Raymond J. Kalinowski $600.00 $53,000.00
Trustee
Robert M. Kirchner $774.00 $68,293.67
Audit and Review Committee
Member and Trustee
Ned M. Steel $600.00 $53,000.00
Trustee
_____________
1For the 1994 calendar year.
</TABLE>
-- Major Shareholders. As of July 10, 1995, the only entity that
owned of record or was known by the Fund to own beneficially 5% or more
of any class of the Fund's outstanding shares was MML Reinsurance
(Bermuda) Ltd., c/o Investment Services 1295 State Street, Springfield,
MA 01111-0001, which owned 789,794.139 Class A shares (approximately 7.20%
of the Fund's Class A shares and 6.76% of the Fund's outstanding shares),
and which represented less than 5% of the outstanding shares of the Trust,
and Smith Barney, Inc., 388 Greenwich Street, New York, NY 10013, which
owned 102,753.693 Class B shares (approximately 14.47%) of the Fund's
Class B shares, and which represented less than 5% of the outstanding
shares of the Fund and of the Trust.
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 ("MassMutual"). OAC is also
owned in part by certain of the Manager's directors and officers, some of
whom also serve as officers of the Trust, and two of whom (Mr. Jon S.
Fossel and Mr. James C. Swain) serve as Trustees of the Trust.
The Manager, and the Fund have a Code of Ethics. It is designed to
detect and prevent improper personal trading by certain employees,
including portfolio managers, that would compete with or take advantage
of the Fund's portfolio transactions. Compliance with the Code of Ethics
is carefully monitored and strictly enforced.
-- The Investment Advisory Agreement. Under the investment advisory
agreement dated July 10, 1995 between the Trust on behalf of the Fund and
the Manager, the Fund pays a management fee to the Manager at the annual
rate of: .75% of the first $200 million of average annual net assets; .72%
of the next $200 million; .69% of the next $200 million; .66% of the next
$200 million; .60% of the next $200 million; and .50% of average annual
net assets in excess of $1 billion. Under the prior investment advisory
agreement between the Trust on behalf of the Fund and the Manager, the
Fund paid a management fee to the Manager at the annual rate of: .50% of
the first $100 million of average annual net assets; .45% of the next $200
million; .40% of the next $200 million; and .35% of average annual net
assets in excess of $500 million. The investment advisory agreement, dated
July 10, 1995, between the Trust on behalf of the Fund and the Manager
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.
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 advisory agreement is subject to annual approval by the
Board of Trustees, who may terminate the advisory agreement on sixty days'
notice approved by a majority of the Trustees.
The advisory agreement contains no expense limitation. 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 fees,
distribution plan payments, and extraordinary expenses, such as litigation
costs) shall not exceed (and the Manager undertakes to reduce the Fund's
management fee in the amount by which such expenses shall exceed) the most
stringent applicable state "blue sky" expense limitation requirement for
qualification of sale of the Fund's shares. At present, that limitation
is imposed by California and limits expenses (with specified exclusions)
to 2.5% of the first $30 million of the Fund's average annual net assets,
2.0% of the next $70 million of average net assets and 1.5% of average net
assets in excess of $100 million. The Manager reserves the right to
change or eliminate this expense limitation at any time. The payment of
the management fee at the end of any month will be reduced so that at no
time will there be any accrued but unpaid liability under the above
expense limitation.
Prior to July 10, 1995, MassMutual served as investment sub-adviser
(the "Sub-Adviser") to the Fund pursuant to a sub-advisory agreement
between the Manager and MassMutual dated March 28, 1991. Under the sub-
advisory agreement, MassMutual was responsible for managing the Fund's
portfolio of securities and making investment decisions with respect to
the Fund's investments, subject to the Fund's investment objective,
policies and restrictions. The Sub-Adviser's fee was paid by the Manager.
The sub-advisory agreement was subject to the same renewal, termination
and standard of care provisions as the investment advisory agreement. On
July 10, 1995, the Fund's shareholders approved a new investment advisory
agreement with the Manager, at the fee rate set forth in the Prospectus,
under which the Manager performs the investment decision-making functions
previously performed by the Sub-Adviser. The sub-advisory agreement
terminated effective July 10, 1995.
For the fiscal years ended December 31, 1992, 1993 and 1994, the
advisory fees paid to the Manager were $491,642, $555,430 and $522,205,
respectively, of which $342,743, $380,790 and $362,287, respectively, was
paid by the Manager to the Sub-Adviser.
-- The Distributor. Under the General Distributor's Agreement
between the Trust and the Distributor, the Distributor acts as the Fund's
principal underwriter in the continuous public offering of the Fund's
Class A, Class B and Class C shares, but is not obligated to sell a
specific number of shares. Expenses normally attributable to sales (other
than those paid under the Class A, Class B and Class C Distribution and
Service Plans), 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 December
31, 1992, 1993 and 1994, the aggregate amount of sales charges on sales
of the Fund's Class A shares was $337,554, $269,639 and $143,088,
respectively, of which the Distributor and on an affiliate, MassMutual
Investor Services, Inc. ("MMLISI") retained in the aggregate $213,717,
$163,271 and $67,090 in those respective years. For the fiscal year ended
December 31, 1994, the Distributor advanced $91,551 to broker-dealers on
the sales of the Funds' Class B shares, $8,449 of which went to MMLISI.
In addition, the Distributor collected $8,916 from contingent deferred
sales charges assessed on Class B shares. Class C shares were not
publicly offered prior to July 10, 1995.
- -- The Transfer Agent. Oppenheimer Shareholder Services, an operating
division of the Manager which is 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 Agreements. One of the
duties of the Manager under the advisory agreement is to arrange the
portfolio transactions of the Fund. In doing so, the Manager is
authorized by the advisory agreement to employ broker-dealers ("brokers"),
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 or base its selection on "posted" rates,
but is expected to be aware of the current rates of eligible brokers and
to minimize the commissions paid to the extent consistent with the
provisions of the advisory agreement and the interests and policies of the
Fund as established by the Trust's Board of Trustees. Purchases of
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.
Under the advisory agreement, the Manager is authorized to select
brokers which provide brokerage and/or research services for the Fund
and/or the other accounts over which it 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. Most purchases made by the Fund are
principal transactions at net prices, and the Fund incurs little or no
brokerage costs. During the fiscal year ended December 31, 1992, 1993 and
1994, no brokerage commissions were paid by the Fund.
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 generally made by the
Manager's portfolio traders upon recommendations from the Manager's
portfolio managers. In certain instances portfolio managers may directly
place trades and allocate brokerage, also subject to the provisions of the
advisory agreement and the procedures and rules described above. In
either case, brokerage is allocated under the supervision of the Manager's
executive officers. Transactions in securities other than those for which
an exchange is the primary market are generally done with principals or
market makers. Brokerage commissions are paid primarily for effecting
transactions in listed securities or for certain fixed-income agency
trades in the secondary market, and are otherwise paid only if it appears
likely that a better price or execution can be obtained. 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.
Most purchases of money market instruments and debt obligations are
principal transactions at net prices. Instead of using a broker for those
transactions, the Fund normally deals directly with the selling or
purchasing principal or market maker unless it determines that a better
price or execution can be obtained by using a broker. Purchases of these
securities from underwriters include a commission or concession paid by
the issuer to the underwriter. Most purchases from dealers include a
spread between the bid and asked prices. The Fund seeks to obtain prompt
execution of these orders at the most favorable net price.
The 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 Board of Trustees has permitted the Manager to
use concessions on fixed-price offerings to obtain research, in the same
manner as is permitted for agency transactions. The Board has also
permitted the Manager to use stated commissions on secondary fixed-income
agency trades to obtain research where the broker has represented to
Manager that (i) the trade is not from or for the broker's own inventory,
(ii) the trade was executed by the broker on an agency basis at the stated
commission, and (iii) the trade is not a riskless principal transaction.
The 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.
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", "total return," "cumulative total return," "total return
at net asset value" and "cumulative total return at net asset value" of
an investment in a class of shares of the Fund may be advertised. An
explanation of how yields and total returns are calculated for each class
and the components of those calculations is set forth below.
The Fund's advertisement 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 on its shares. The returns of Class A, Class B and Class C shares
of the Fund are affected by portfolio quality, the type of investments the
Fund holds and its operating expenses allocated to a 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 (other than money market
funds) that quote yields:
(a-b) 6
Standardized Yield = 2 ((--- + 1) - 1)
(cd)
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 December 31, 1994, the standardized yields for the
Fund's Class A and Class B shares were 6.76% and 6.34%, respectively.
Class C shares were not publicly offered prior to July 11, 1995.
-- 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 dividends paid on shares of a class
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 and Class C 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 distribution made on December 30, 1994
covering the 31-day period ended December 31, 1994, were 10.85% and 11.40%
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 December 31, 1994, was 10.63% when calculated at net asset value.
That distribution included amounts distributed by the Fund for both Class
A and Class B shares to avoid paying excise tax on undistributed income
at year-end as described in "Dividends, Capital Gains, and Taxes," below.
Therefore, these dividend yields are significantly higher than the divided
yields for prior months.
-- 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:
1/n
(ERV)
(---) -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, the payment of the
applicable 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% for
the fifth year, 1.0% in the sixth year and none thereafter), is applied,
as described in the Prospectus. For Class C shares, the payment of the
1% contingent deferred sales charge for shares redeemed within 12 months
of purchase 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 for the
one year period ended December 31, 1994 and for the period from April 15,
1988 (the date the Fund became an open-end Fund) to December 31, 1994,
were -8.43% and 6.79%, respectively. The cumulative "total return" on
Class A shares for the latter period was 55.38%. For the fiscal period
from May 1, 1993 (inception of the class), through December 31, 1994, the
average annual total return and the cumulative total return on an
investment in Class B shares of the Fund were -2.67% and -4.41%,
respectively. Class C shares were and publicly offered prior to July 11,
1995.
-- 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, Class B and
Class C shares. Each is based on the difference in net asset value per
share at the beginning and the end of the period for a hypothetical
investment in that class of shares (without considering front-end or
contingent sales charges) and takes into consideration the reinvestment
of dividends and capital gains distributions. The cumulative total
returns at net asset value on the Fund's Class A shares for the fiscal
year ended December 31, 1993, and for the period from April 15, 1988 to
December 31, 1994 were -3.87 and 63.13%, respectively. The cumulative
total return at net asset value on the Fund's Class B shares for the
fiscal year-ended December 31, 1994 and for the period from May 1, 1993
through December 31, 1994 well -4.53% and -0.80%, respectively.
Total return information may be useful to investors in reviewing the
performance of the Fund's Class A, Class B and Class C shares. However,
when comparing total return of an investment in Class A, Class B or Class
C shares of the Fund, a number of factors should be considered before
using such information as a basis for comparison with other investments.
Other Performance Comparisons. From time to time the Fund may publish the
ranking of its Class A, Class B or Class C shares by Lipper Analytical
Services, Inc. ("Lipper"), a widely-recognized independent mutual fund
monitoring service. Lipper monitors the performance of regulated
investment companies, including the Fund, and ranks their performance for
various periods based on categories relating to investment objectives.
For periods ending December 31, 1994, the performance of the Fund's
classes has been ranked against (i) all other funds, excluding money
market funds, and (ii) all other general bond funds. The Lipper
performance rankings are based on total return that includes the
reinvestment of capital gains distributions and income dividends but does
not take sales charges or taxes into consideration.
For periods ending December 31, 1994 the Fund's performance may also
be compared to the performance of the Lipper General Bond Fund Index,
which is a net asset value weighted index of general bond funds compiled
by Lipper. It is calculated with adjustments for income dividends and
capital gains distributions as of the ex-dividend date.
From time to time, the Fund may include in its advertisements and
sales literature performance information about the Fund cited in other
newspapers and periodicals, such as The New York Times, which may include
performance quotations from other sources, including Lipper.
From time to time the Fund may publish the ranking of the performance
of its Class A, Class B or Class C 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 or Class's three,
five and ten-year average annual total returns (when available). 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%). The current ranking is a
weighted average of the 3, 5 and 10 year rankings (if available).
Morningstar ranks the Class A, Class B and Class C shares of the Fund in
relation to other taxable bond funds. Rankings are subject to change.
The total return on an investment in the Fund's Class A, Class B or
Class C shares may be compared with the performance for the same period
of one or more of the following indices: the Consumer Price Index, the
Salomon Brothers World Government Bond Fund Index, the Salomon Brothers
High Grade Corporate Bond Index, the Lehman Brothers Government/Corporate
Bond Index, the Lehman Brothers Aggregate Bond Index, and the J.P. Morgan
Government Bond Index. The Consumer Price Index is generally considered
to be a measure of inflation. The Salomon Brothers World Government Bond
Index generally represents the performance of government debt securities
of various markets throughout the world, including the United States. The
Salomon Brothers High Grade Corporate Bond Index generally represents the
performance of high grade long-term corporate bonds, and the Lehman
Brothers Government/Corporate Bond Index generally represents the
performance of intermediate and long-term government and investment grade
corporate debt securities. The Lehman Brothers Aggregate Bond Index
generally represents the performance of the general fixed-rate investment
grade debt market. The J.P. Morgan Government Bond Index generally
represents the performance of government bonds issued by various countries
including the United States. 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, Class B or
Class C shares 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.
From time to time, the Fund's Manager may publish rankings or ratings
of the Manager (or Transfer Agent) or the investor services provided by
them to shareholders of the OppenheimerFunds, other than performance
rankings of the OppenheimerFunds themselves. Those ratings or rankings
of shareholder/investor services by third parties may compare the
OppenheimerFunds' services to those of other mutual fund families selected
by the rating or ranking services and may be based upon the opinions of
the rating or ranking service itself, based on its research or judgment,
or based upon surveys of investors, brokers, shareholders or others.
Distribution and Service Plans
The Fund has adopted a Service Plan for Class A shares, and
Distribution and Service Plans for Class B and Class C shares under Rule
12b-1 of the Investment Company Act, pursuant to which the Fund will make
payments to the Distributor quarterly 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. (For the Distribution and Service Plan
for the Class B shares, that vote was cast by the Manager as the sole
initial holder of Class C shares of the Fund).
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. In addition, because Class B shares of the Fund automatically
convert into Class A shares after six years, the Fund is required by an
exemptive order issued by the Securities and Exchange Commission to obtain
the approval of Class B as well as Class A shareholders for a proposed
amendment to the Class A Plan that would materially increase the amount
to be paid by Class A shareholders under the Class A Plan. Such approval
must be by a "majority" of the Class A and Class B shares (as defined in
the Investment Company Act), voting separately by class. All material
amendments must be approved by the Independent Trustees.
While the Plans are in effect, the Treasurer of the Trust shall
provide separate written reports to the Trust's Board of Trustees at least
quarterly stating generally the amounts of all payments made pursuant to
each Plan and the purpose for which each payment was made. 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 Trust who are not
"interested persons" of the Trust 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
fees at the maximum rate and set no minimum amount.
For the fiscal year ended December 31, 1994, payments under the Class
A Plan totaled $247,136, all of which was paid by the Distributor to
Recipients, including $154,100 paid to MMLISI.
Any unreimbursed expenses incurred by the Distributor with respect
to Class A shares for any fiscal year may not be recovered in subsequent
fiscal years. Payments received by the Distributor under the Plan for
Class A shares will not be used to pay any interest expense, carrying
charges, or other financial costs, or allocation of overhead by the
Distributor.
The Class B and Class C Plans allows the service fee payments to be
paid by the Distributor to Recipients in advance for the first year Class
B and Class C shares are outstanding, and thereafter on a quarterly basis,
as described in the Prospectus. The services rendered by Recipients in
connection with personal services and the maintenance of Class B
shareholder accounts may include but shall not be limited to, the
following: answering routine inquiries from the Recipient's customers
concerning the Fund, assisting in the establishment and maintenance of
accounts or sub-accounts in the Fund and processing share redemption
transactions, making the Fund's investment plans and dividend payment
options available, and providing such other information and services in
connection with the rendering of personal services and/or the maintenance
of accounts, as the Distributor or the Fund may reasonably request. The
advance payment is based on the net asset value of the Class B and Class
C shares sold. An exchange of shares does not entitle the Recipient to
an advance service fee payment. In the event Class B or Class C 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. Service fee payments made
under the Class B Plan during the fiscal year ended December 31, 1994
totalled $26,383, all of which was paid by the Distributor to Recipients,
including MMLISI.
Although the Class B and Class C Plans permit the Distributor to
retain both the asset-based sales charge 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 or Class C Plan by the
Board. Initially, the Board has set no minimum holding period. All
payments under the Class B and Class C Plans 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 collected on redeemed Class B shares) the Class B
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 paying a front-end sales load and
at the same time permit the Distributor to compensate Recipients in
connection with the sale of Class B and Class C shares of the Fund. The
Distributor retains the asset-based sales charge on Class B shares. As
to Class C shares, the Distributor retains the asset-based sales charge
during the first year shares are outstanding, and pays the asset-based
sales charge as an ongoing commission to the dealer on Class C shares
outstanding for a year or more. Under the Class B and Class C Plans, the
asset-based sales charge is paid to compensate the Distributor for its
services, described below, to the Fund.
Under the Class B and Class C Plans, the distribution assistance and
administrative support services rendered by the Distributor in connection
with the distribution of Class B and Class C shares may include: (i)
paying service fees and sales commissions to any broker, dealer, bank or
other person or entity that sells and services the Fund's Class B or Class
C shares, (ii) paying compensation to and expenses of personnel of the
Distributor who support distribution of Class B or Class C shares by
Recipients, (iii) obtaining financing or providing such financing from its
own resources, or from an affiliate, for interest and other borrowing
costs of the Distributor's unreimbursed expenses incurred in rendering
distribution assistance for Class B or Class C shares, and (iv) paying
certain other distribution expenses.
Other distribution assistance rendered by the Distributor and
Recipients under the Class B and Class C Plans may include, but shall not
be limited to, the following: distributing sales literature and
prospectuses other than those furnished to current Class B or Class C
shareholders, and providing such other information and services in
connection with the distribution of Class B or Class C shares as the
Distributor or the Fund may reasonably request. The Class B and Class C
Plans further provide that such other distribution assistance may include
distribution assistance and administrative support services rendered in
connection with Class B or Class C shares acquired (i) by purchase, (ii)
in exchange for shares of another investment company for which the
Distributor serves as distributor or sub-distributor, or (iii) pursuant
to a plan of reorganization to which the Fund is a party.
About Your Account
How To Buy Shares
Alternative Sales Arrangements - Class A, Class B and Class C Shares. The
availability of three 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 and Class C 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 normally will not
accept (i) any order for $500,000 or more of Class B shares or (ii) any
order for $1 million or more of Class C 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 three 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 and Class C shares and the dividends payable on Class B and Class C
shares will be reduced by incremental expenses borne solely by that class,
including the asset-based sales charge to which Class B and Class C 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 Class 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, Class B and Class C shares recognizes
two types of expenses. General expenses that do not pertain specifically
to any 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 unaffiliated 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 and
Service 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 Value Per Share. The net asset values per
share of Class A and Class B and Class C shares of the Fund are determined
as of the close of business of The New York Stock Exchange on each day
that the Exchange is open, by dividing the Fund's net assets attributable
to a class by the number of shares of that class that are outstanding.
The Exchange normally closes at 4:00 P.M., New York time, but may close
earlier on some days (for example, in case of weather emergencies or on
days falling before a holiday). The Exchange's most recent annual
announcement (which is subject to change) states that it will close on New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. It may also close on other
days. Trading in debt securities and foreign securities at times when the
New York Stock Exchange is closed, including weekends and holidays, or
after the close of the Exchange on a regular business day. The Fund may
invest a substantial portion of its assets in foreign securities primarily
listed on foreign exchanges or in foreign over-the-counter markets that
may trade on Saturdays or customary U.S. business holidays on which the
Exchange is closed. Because the Fund's net asset value will not be
calculated on those days, the Fund's net asset value 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 U.S. 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 actively traded on a foreign securities exchange are valued at
the last sales price available to the pricing service approved by the
Fund's Board of Trustees or to the Manager as reported by the principal
exchange on which the security is traded; (iii) unlisted foreign
securities or listed foreign securities not actively traded are valued at
the last sale price, or at the mean between "bid" and "asked" prices
determined by a pricing service approved by the Board of Trustees or by
the Manager; (iv) long-term debt securities having a remaining 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 Fund's
Board of Trustees or obtained from active market makers in the security
on the basis of reasonable inquiry; (v) debt instruments having a maturity
of more than one year when issued, and non-money market type instruments
having a maturity of one year or less when issued, which have a remaining
maturity of 60 days or less are valued at the mean between the "bid" and
"asked" prices determined by a pricing service approved by the Fund's
Board of Trustees or obtained from active market makers in the security
on the basis of reasonable inquiry; (vi) money market-type debt securities
having a maturity of less than one year when issued that having a
remaining maturity of 60 days or less are valued at cost, adjusted for
amortization of premiums and accretion of discounts; and (vii) securities
(including restricted securities) not having readily-available market
quotations are valued at fair value under the Board's procedures.
Trading in securities on European and Asian exchanges and over-the-
counter markets is normally completed before the close of The New York
Stock Exchange. Events affecting the values of foreign securities traded
in foreign markets that occur between the time their prices are determined
and the close of the Exchange 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, if necessary. Foreign
securities priced in a foreign currency as well as foreign currency have
their value converted to U.S. dollars at the closing price in the London
foreign exchange market as provided by a reliable bank, dealer or pricing
service.
In the case of U.S. Government Securities, mortgage-backed
securities, foreign government securities and corporate bonds, when last
sale information is not generally available, such pricing procedures may
include "matrix" comparisons to the prices for comparable instruments on
the basis of quality, yield, maturity, and other special factors involved.
The Trust's Board of Trustees has authorized the Manager to employ a
pricing service to price U.S. Government Securities, mortgage-backed
securities, foreign government securities and corporate bonds. The
Trustees will monitor the accuracy of such pricing services by comparing
prices used for portfolio evaluation to actual sales prices of selected
securities.
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, as determined by a pricing service approved by the Board of
Trustees or by the Manager, or, if there are no sales that day, in
accordance with (i), above. Forward currency contracts are valued at the
closing price in the London foreign exchange market as provided by a
reliable bank, dealer or pricing service. 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 adjusted ("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 shares. Dividends will begin to accrue on shares
purchased by the proceeds of ACH transfers on the business day the Fund
receives Federal Funds for the purchase through the ACH system before the
close of The New York Stock Exchange. The Exchange normally closes at
4:00 P.M., but may close earlier on certain days. If Federal Funds are
received on a business day after the close of the Exchange, the shares
will be purchased and dividends will begin to accrue on the next regular
business day. The proceeds of ACH transfers are normally received by the
Fund 3 days after the transfers are initiated. The Distributor and the
Fund are not responsible for any delays in purchasing shares resulting
from delays in ACH transmissions.
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
expenses realized by the Distributor, dealers and brokers making such
sales. No sales charge is imposed in certain circumstances described in
the Prospectus because the Distributor or dealer or broker incurs little
or no selling expenses. The term "immediate family" refers to one's
spouse, children, grandchildren, grandparents, parents, parents-in-law,
sons- and daughters-in-law, siblings, 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 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 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 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
Oppenheimer International Bond Fund
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.
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 and Class B shares
(or shares of either Class) of the Fund (and other eligible
OppenheimerFunds) 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
reinvestment 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 count the shares
to be purchased under the Letter of Intent to obtain the reduced sales
charge rate (as set forth in the Prospectus) that applies under the Right
of Accumulation to current purchases of Class A shares. Each purchase of
Class A shares under the Letter will be made at the public offering price
(including the sales charge) that applies to a single lump-sum purchase
of shares in the amount intended to be purchased under the Letter.
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 be held in escrow by the Transfer
Agent. For example, if the intended purchase amount specified under the
Letter 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 a Letter) include Class A
shares sold with a front-end sales charge or subject to a Class A
contingent deferred sales charge, Class B shares, and Class A or B shares
acquired in exchange for either (a) Class A shares of one of the other
OppenheimerFunds that were acquired subject to a Class A initial or
contingent sales charge or (b) Class B shares of one of the other
OppenheimerFunds.
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 "How to Exchange Shares," 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.
Checkwriting. When a check is presented to the Bank for clearance, the
Bank will ask the Fund to redeem a sufficient number of full and
fractional shares in the shareholder's account to cover the amount of the
check. This enables the shareholder to continue receiving dividends on
those shares until the check is presented to the Fund. Checks may not be
presented for payment at the offices of the Bank or the Fund's Custodian.
This limitation does not affect the use of checks for the payment of bills
or to obtain cash at other banks. The Fund reserves the right to amend,
suspend or discontinue offering checkwriting privileges at any time
without prior notice.
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 Trust 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 its portfolio securities described above under
"Determination of Net Asset Value Per Share" and that valuation will be
made as of the time the redemption price is determined.
-- Involuntary Redemptions. The Trust'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
$1,000 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 Class A shares or
of Class B shares of the Fund that you purchased by reinvesting dividends
or distributions or on which you paid a contingent deferred sales charge
when you redeemed them. 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 such
privilege at the time of reinvestment. This privilege is not available
for Class C shares. 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 or Class C
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 redemptions or exchanges 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 per share will be the
net asset value next computed after the Distributor receives the order
placed by the dealer or broker, except that if the Distributor receives
a repurchase order from a dealer or broker after the close of The New York
Stock Exchange on a regular business day, it will be processed at that
day's net asset value if the order was received by the dealer or broker
from its customers prior to the time the Exchange closes (normally, that
is 4:00 P.M., but may be earlier on some days) and the order was
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 and Class C shareholders should not establish
withdrawal plans that would require the redemption of shares purchased
subject to a contingent deferred sales charge and held less than 6 years
or 12 months, respectively, because of the imposition of the Class B or
Class C contingent deferred sales charge on such withdrawals (except where
the Class B or Class C contingent deferred sales charge is waived as
described in the Prospectus under "Waivers of Class B Sales Charges" and
"Waivers of Class C Sales Charges").
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 thereafter 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 and the Fund 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 (the 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 OppenheimerFunds offer
Class A shares (except for Oppenheimer Strategic Diversified Income Fund,
which offers only Class C shares), but only the following other
OppenheimerFunds currently offer Class B shares:
Oppenheimer Strategic Income Fund
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 New Jersey 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 Value Stock Fund
Oppenheimer Limited-Term Government Fund
Oppenheimer High Yield Fund
Oppenheimer Mortgage Income Fund
Oppenheimer Cash Reserves (Class B shares are available only by
exchange or
by direct purchase by participants in the OppenheimerFunds
proprietary 401(k) plan)
Oppenheimer Growth Fund
Oppenheimer Equity Income Fund
Oppenheimer Global Fund
Oppenheimer Discovery Fund
Oppenheimer International Bond Fund
The following Oppenheimer Funds offer Class C shares:
Oppenheimer Fund
Oppenheimer Global Growth & Income Fund
Oppenheimer Asset Allocation Fund
Oppenheimer Champion High Yield Fund
Oppenheimer U.S. Government Trust
Oppenheimer Intermediate Tax-Exempt Bond Fund
Oppenheimer Main Street Income & Growth Fund
Oppenheimer Cash Reserves (Class C shares are available only by
exchange or by
direct purchase by participants in the OppenheimerFunds
proprietary 401(k) plan)
Oppenheimer Strategic Diversified Income Fund
Oppenheimer Limited-Term Government Fund
Oppenheimer International Bond 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). Effective
on or about August 1, 1995, if the Distributor receives, at the time of
purchase, notice that shares of Oppenheimer Money Market Fund, Inc. are
being purchased with the redemption proceeds of shares of other mutual
funds (other than other money market funds) that are not part of the
OppenheimerFunds family, those shares of Oppenheimer Money Market Fund may
be exchanged for shares of other OppenheimerFunds at net asset value
without paying a 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 6 years
of the initial purchase of the exchanged Class B shares. The Class C
contingent deferred sales charge is imposed on Class C shares acquired by
exchange if they are redeemed within 12 months of the initial purchase of
the exchanged Class C shares.
When Class B or Class C shares are redeemed to effect an exchange,
the priorities described in "How To Buy Shares" in the Prospectus for the
imposition of the Class B or Class C 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 more than one class must specify whether they intend to
exchange Class A, Class B or Class C 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, open an account in, and acknowledge
receipt of a prospectus for, 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
request 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 tax
purposes, an exchange transaction is treated as a redemption of shares of
one fund and a purchase of shares of another. "Reinvestment Privilege,"
above, discusses some of the tax consequences of reinvestment of
redemption proceeds in such cases. The Fund, the Distributor, and the
Transfer Agent are unable to provide investment, tax or legal advice to
a shareholder in connection with an exchange request or any other
investment transaction.
Dividends, Capital Gains and Taxes
Dividends and Distributions. Dividends will be payable on shares held of
record at the time of the previous determination of net asset value, or
as otherwise described in "How to Buy Shares." Daily dividends on newly
purchased shares will not be declared or paid until such time as Federal
Funds (funds credited to a member bank's account at the Federal Reserve
Bank) are available from the purchase payment for such shares. Normally,
purchase checks received from investors are converted to Federal Funds on
the next business day. Dividends will be declared on shares repurchased
by a dealer or broker for four business days following the trade date
(i.e., to and including the day prior to settlement of the repurchase).
If all shares in an account are redeemed, all dividends accrued on shares
of the same class in the account will be paid together with the redemption
proceeds.
Dividends, distributions and the proceeds of the redemption of Fund
shares represented by checks returned to the Transfer Agent by the Postal
Service as undeliverable will be invested in shares of Oppenheimer Money
Market Fund, Inc., as promptly as possible after the return of such checks
to the Transfer Agent, in order to enable the investor to earn a return
on otherwise idle funds.
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 which 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 shares held for 45 days or less. To the extent the
Fund's dividends are derived from its gross income from option premiums,
interest income or short-term gains from the sale of securities, or
dividends from foreign corporations, its dividends will not qualify for
the deduction. It is expected that for the most part the Fund's dividends
will not qualify, because of the nature of the investments held by the
Fund in its portfolio.
The amount of a class's distributions may vary from time to time
depending on market conditions, the composition of the Fund's portfolio,
and expenses borne by the Fund or borne separately by a class, as
described in "Alternative Sales Arrangements -- Class A, Class B and Class
C," above. Dividends are calculated in the same manner, at the same time
and on the same day for shares of each class. However, dividends on Class
B and Class C shares are expected to be lower as a result of the asset-
based sales charge on Class B and Class C shares, and Class B and Class
C dividends will also differ in amount as a consequence of any difference
in net asset value between Class A, Class B and Class C shares.
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 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. As of the
date of this Statement of Additional Information, not all of the
OppenheimerFunds offer Class B or Class C 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 shares of
other 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 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. The Fund's cash balances with the Custodian in excess of
$100,000 are not protected by Federal deposit insurance. Those uninsured
balances at times may be substantial.
Independent Auditors. 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 certain other funds advised
by the Manager and its affiliates.
<PAGE>
Independent Auditors' Report
The Board of Trustees and Shareholders of Oppenheimer Investment Grade
Bond Fund:
We have audited the accompanying statement of assets and liabilities,
including the statement of investments, of Oppenheimer Investment Grade
Bond Fund as of December 31, 1994, the related statement of operations for
the year then ended, the statements of changes in net assets for the years
ended December 31, 1994 and 1993 and the financial highlights for the
period January 1, 1991 to December 31, 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. The financial highlights
(except for total return) for the period February 1, 1984 to December 31,
1990 were audited by other auditors whose report dated February 4, 1991,
expressed an unqualified opinion on those financial highlights.
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 December 31, 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
Investment Grade Bond Fund at December 31, 1994, the results of its
operations, the changes in its net assets, and the financial highlights
for the respective stated periods, in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Denver, Colorado
January 23, 1995
<PAGE>
<TABLE>
<CAPTION>
Statement of Investments December 31, 1994
Face Market Value
Amount See Note 1
<S> <C> <C> <C>
Short-Term Notes--14.9%
- -----------------------------------------------------------------------------------------------------------------------------------
Consumer Non-Cyclicals--2.4%
- -----------------------------------------------------------------------------------------------------------------------------------
Food Wholesalers--2.4% Tyson Foods, Inc., 6.10%, 1/4/95 $2,410,000 $ 2,408,775
- -----------------------------------------------------------------------------------------------------------------------------------
Energy--2.5%
- -----------------------------------------------------------------------------------------------------------------------------------
Oil: Integrated
Domestic--2.5% Burlington Resources, Inc., 6.30%, 1/17/95 2,500,000 2,493,000
- -----------------------------------------------------------------------------------------------------------------------------------
Financial--3.2%
- -----------------------------------------------------------------------------------------------------------------------------------
Diversified Finance--0.7% Ford Motor Credit Co., 5.80%, 1/9/95 555,000 555,000
------------------------------------------------------------------------------------------------------
General Motors Acceptance Corp., 6.05%, 1/9/95 120,000 119,839
------------
674,839
- -----------------------------------------------------------------------------------------------------------------------------------
Financial Services:
Miscellaneous--2.5% Countrywide Funding Corp., 6.30%, 1/6/95 2,500,000 2,497,812
- -----------------------------------------------------------------------------------------------------------------------------------
Utilities--6.8%
- -----------------------------------------------------------------------------------------------------------------------------------
Electric Companies--4.5% Indiana & Michigan Power Co., 6.05%, 1/3/95 2,040,000
2,039,314
------------------------------------------------------------------------------------------------------
Texas Electric Services Co., 6.20%, 1/5/95 2,500,000 2,498,278
------------
4,537,592
- -----------------------------------------------------------------------------------------------------------------------------------
Telephone--2.3% GTE Norwest, Inc., 5.88%, 1/13/95 2,340,000 2,335,414
------------
Total Short-Term Notes (Cost $14,947,432) 14,947,432
==========================================================
==========================================================
===============
Asset-Backed Securities--7.1%
- -----------------------------------------------------------------------------------------------------------------------------------
Auto Loan--7.1% Daimler-Benz Vehicle Trust, Series 1994-A, Cl. A, 5.95%, 12/15/00 827,697
814,537
------------------------------------------------------------------------------------------------------
Ford Credit Grantor Trust, Series 1994-B, Cl. A, 7.30%, 10/15/99 1,458,742 1,447,933
------------------------------------------------------------------------------------------------------
General Motors Acceptance Corp., Grantor Trust, Series 1992-E,
Cl. A, 4.75%, 8/15/97 454,750 445,615
------------------------------------------------------------------------------------------------------
Nissan Auto Receivables Grantor Trust, Series 1994-A,
Cl. A, 6.45%, 9/15/99 2,241,045 2,202,567
------------------------------------------------------------------------------------------------------
Select Auto Receivable Trust, Series 1991-2 Asset-Backed Certificates,
Cl. A, 7.65%, 7/15/96 194,180 193,881
------------------------------------------------------------------------------------------------------
World Omni Automobile Lease Securitization Trust, Series 1994-A,
Cl. A, 6.45%, 9/25/00 2,000,000 1,967,360
------------
Total Asset-Backed Securities (Cost $7,163,638) 7,071,893
==========================================================
==========================================================
===============
Mortgage-Backed Obligations--13.3%
- -----------------------------------------------------------------------------------------------------------------------------------
Government Agency--11.3%
- -----------------------------------------------------------------------------------------------------------------------------------
FHLMC/FNMA/Sponsored--7.1% Federal Home Loan Mortgage Corp., Certificates of Participation,
9%, 3/1/17 770,177 772,234
------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Certificates of Participation,
Series 17-039, 13.50%, 11/1/10 91,657 101,813
------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Certificates of Participation,
Series 17-094, 12.50%, 4/1/14 50,645 55,629
------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Collateralized Mortgage Obligation
Gtd. Multiclass Certificates of Participation, 7.50%, 2/15/07 2,000,000 1,898,120
------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Multiclass Mortgage Participation
Certificates, Series 1460, Cl. 1460-H, 7%, 5/15/07 1,500,000 1,374,090
------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Gtd. Mtg. Pass-Through
Certificates, 8%, 8/1/17 1,116,105 1,097,712
------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Gtd. Real Estate Mtg. Investment Conduit
Pass-Through Certificates, Series 1993-191, Cl. PD, 5.40%, 4/25/04 1,500,000 1,365,300
</TABLE>
5 Oppenheimer Investment Grade Bond Fund
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
Statement of Investments (Continued)
------------------------------------------------------------------------------------------------------
Face Market Value
Amount See Note 1
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FHLMC/FNMA/Sponsored
(continued) Federal National Mortgage Assn., Interest-Only Collateralized Mortgage
Obligation Gtd. Real Estate Mortgage Investment Conduit Pass-Through
Certificates, Trust 1992 G-57, Cl. SA, 44.60%, 10/25/22(1) $ 568,843 $ 443,698
------------
7,108,596
- -----------------------------------------------------------------------------------------------------------------------------------
GNMA/Guaranteed:--4.2% Government National Mortgage Assn.:
10%, 11/15/09 595,139 622,481
12%, 1/15/99 24,402 25,944
12%, 1/15/99 66,980 71,210
12%, 5/15/14 2,184 2,423
12.75%, 6/15/15 44,137 49,704
15%, 2/15/12 26,167 30,505
8%, 10/15/05 243,215 239,689
8%, 10/15/06 377,529 371,447
8%, 6/15/05 125,505 123,686
8%, 6/15/05 97,196 95,787
8%, 6/15/05 132,000 130,087
8%, 7/15/05 222,830 219,600
8%, 7/15/05 326,463 321,730
8%, 7/15/05 109,149 107,567
8%, 7/15/06 167,313 164,618
8%, 7/15/06 216,029 212,549
8%, 8/15/05 135,305 133,344
8%, 8/15/05 146,311 144,190
8%, 9/15/05 309,653 305,163
8%, 9/15/05 158,612 156,312
9%, 2/15/09 22,973 23,335
9%, 2/15/09 234,544 238,238
9%, 3/15/09 167,088 169,720
9%, 3/15/09 25,494 25,896
9%, 5/15/09 28,368 28,815
9%, 6/15/09 159,386 161,897
------------
4,175,937
- -----------------------------------------------------------------------------------------------------------------------------------
Other--2.0% JHM Acceptance Corp., 8.96% Collateralized Mortgage Obligation Bonds,
Series E, Cl. E-6, 4/1/19 2,000,000 2,008,900
------------
Total Mortgage-Backed Obligations (Cost $14,177,957) 13,293,433
==========================================================
==========================================================
===============
U.S. Government Obligations--43.8%
- -----------------------------------------------------------------------------------------------------------------------------------
Agency--3.8%
- -----------------------------------------------------------------------------------------------------------------------------------
Government Agency/
Full Faith--3.8% Allentown, Pennsylvania, U.S. Government Gtd. Nts.,
Series A, 8.74%, 8/1/01 65,000 66,092
------------------------------------------------------------------------------------------------------
Babylon, New York, U.S. Government Gtd. Nts.,
Series A, 5.93%, 8/1/99 115,000 104,767
------------------------------------------------------------------------------------------------------
Bakersfield, California, U.S. Government Gtd. Nts.,
Series A, 5.93%, 8/1/99 255,000 232,311
------------------------------------------------------------------------------------------------------
Boston, Massachusetts, U.S. Government Gtd. Nts.,
Series A, 5.93%, 8/1/99 795,000 724,262
------------------------------------------------------------------------------------------------------
Buena Vista Township, New Jersey, U.S. Government Gtd. Nts.,
Series A, 5.93%, 8/1/99 270,000 245,976
</TABLE>
6 Oppenheimer Investment Grade Bond Fund
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------
Face Market Value
Amount See Note 1
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Government Agency/
Full Faith (continued) Buffalo, New York, U.S. Government Gtd. Nts.,
Series A, 5.93%, 8/1/99 $ 400,000 $ 364,409
------------------------------------------------------------------------------------------------------
Detroit, Michigan, U.S. Government Gtd. Nts.,
Series A, 5.93%, 8/1/99 405,000 368,964
------------------------------------------------------------------------------------------------------
Fajardo, Puerto Rico, U.S. Government Gtd. Nts.,
Series A, 8.74%, 8/1/01 300,000 305,042
------------------------------------------------------------------------------------------------------
New Haven, Connecticut, U.S. Government Gtd. Nts.,
Series A, 8.74%, 8/1/01 400,000 406,722
------------------------------------------------------------------------------------------------------
Roanoke, Virginia, U.S. Government Gtd. Nts.,
Series A, 5.93%, 8/1/99 220,000 200,425
------------------------------------------------------------------------------------------------------
Sacramento County, California Redevelopment Agency U.S. Government
Gtd. Nts., Series 94A, 5.93%, 8/1/99 240,000 218,390
------------------------------------------------------------------------------------------------------
Tacoma, Washington, U.S. Government Gtd. Nts.,
Series 94A, 5.93%, 8/1/99 165,000 150,319
------------------------------------------------------------------------------------------------------
Trenton, New Jersey, U.S. Government Gtd. Nts.,
Series A, 5.93%, 8/1/99 135,000 122,988
------------------------------------------------------------------------------------------------------
Tujillo Alto, Puerto Rico, U.S. Government Gtd. Nts.,
Series A, 8.74%, 8/1/01 235,000 238,949
------------
3,749,616
- -----------------------------------------------------------------------------------------------------------------------------------
Treasury--40.0% U.S. Treasury Bonds:
7.125%, 2/15/23 4,000,000 3,638,748
7.25%, 8/15/22 4,900,000 4,521,778
7.875%, 2/15/21 900,000 888,188
8%, 11/15/21 2,000,000 2,006,874
------------------------------------------------------------------------------------------------------
U.S. Treasury Notes:
6.375%, 8/15/02 2,750,000 2,519,687
7%, 4/15/99 10,700,000 10,372,312
7.25%, 8/15/04 10,000,000 9,600,000
8.50%, 7/15/97 6,400,000 6,504,000
------------
40,051,587
------------
Total U.S. Government Obligations (Cost $47,152,705) 43,801,203
==========================================================
==========================================================
===============
Foreign Government
Obligations--0.9% Iceland (Republic of) Nts., 6.125%, 2/1/04 (Cost $989,168) 1,000,000 857,030
==========================================================
==========================================================
===============
Corporate Bonds and Notes--29.0%
- -----------------------------------------------------------------------------------------------------------------------------------
Basic Materials--5.5%
- -----------------------------------------------------------------------------------------------------------------------------------
Chemicals--0.4% Imcera Group, Inc., 6% Nts., 10/15/03 500,000 424,747
- -----------------------------------------------------------------------------------------------------------------------------------
Metals--3.5% AMAX, Inc., 9.875% Nts., 6/13/01 1,000,000 1,041,957
------------------------------------------------------------------------------------------------------
Newmont Mining Corp., 8.625% Nts., 4/1/02 1,000,000 985,022
------------------------------------------------------------------------------------------------------
Teck Corp., 8.70% Debs., 5/1/02 1,500,000 1,479,052
------------
3,506,031
- -----------------------------------------------------------------------------------------------------------------------------------
Paper and Forest
Products--1.6% Georgia-Pacific Corp., 9.95% Debs., 6/15/02 1,500,000 1,600,647
- -----------------------------------------------------------------------------------------------------------------------------------
Consumer Cyclicals--3.0%
- -----------------------------------------------------------------------------------------------------------------------------------
Automotive--1.1% Chrysler Corp., 10.40% Nts., 8/1/99 1,000,000 1,048,078
- -----------------------------------------------------------------------------------------------------------------------------------
Consumer Goods and
Services--1.0% Toro Co. (The), 11% Debs., 8/1/17 1,000,000 1,041,250
- -----------------------------------------------------------------------------------------------------------------------------------
Media--0.9% News America Holdings, Inc., 7.50% Gtd. Sr. Nts., 3/1/00 1,000,000 945,495
- -----------------------------------------------------------------------------------------------------------------------------------
Consumer Non-Cyclicals--2.0%
- -----------------------------------------------------------------------------------------------------------------------------------
Food--1.0% Wendy's International, Inc., 12.125% Debs., 4/1/95 1,000,000 1,010,211
- -----------------------------------------------------------------------------------------------------------------------------------
Healthcare--1.0% Baxter International, Inc., 9.25% Nts., 9/15/96 1,000,000 1,018,178
</TABLE>
7 Oppenheimer Investment Grade Bond Fund
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
Statement of Investments (Continued)
------------------------------------------------------------------------------------------------------
Face Market Value
Amount See Note 1
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Energy--4.5% Enron Corp., 8.10% Nts., 12/15/96 $1,500,000 $ 1,499,236
------------------------------------------------------------------------------------------------------
Union Oil Co. of California, 8.75% Nts., 8/15/01 1,500,000 1,517,873
------------------------------------------------------------------------------------------------------
Union Oil Co. of California, 9.625% Gtd. Debs., 5/15/95 1,500,000 1,513,434
------------
4,530,543
- -----------------------------------------------------------------------------------------------------------------------------------
Financial--5.9% Ford Motor Credit Co., 9.90% Med.-Term Nts., 11/6/97 2,000,000
2,057,252
------------------------------------------------------------------------------------------------------
Goldman Sachs Group, LP, 6.20% Nts., 2/15/01 1,500,000 1,312,969
------------------------------------------------------------------------------------------------------
Leucadia National Corp., 7.75% Sr. Nts., 8/15/13 2,000,000 1,757,329
------------------------------------------------------------------------------------------------------
PaineWebber Group, Inc., 6.50% Nts., 11/1/05 1,000,000 794,856
------------
5,922,406
- -----------------------------------------------------------------------------------------------------------------------------------
Industrial--3.8%
- -----------------------------------------------------------------------------------------------------------------------------------
General Industrial--1.0% Thomas & Betts Corp., 8.25% Sr. Nts., 1/15/04 1,000,000 976,858
- -----------------------------------------------------------------------------------------------------------------------------------
Transportation--2.8% AMR Corp., 9% Debs., 8/1/12 1,500,000 1,353,010
------------------------------------------------------------------------------------------------------
United Air Lines, Inc., 10.11% Equipment Trust Certificates,
Series 91B, 2/19/06 1,449,687 1,409,815
------------
2,762,825
- -----------------------------------------------------------------------------------------------------------------------------------
Technology--3.3%
- -----------------------------------------------------------------------------------------------------------------------------------
Aerospace/Defense--3.3% McDonnell Douglas Corp., 9.25% Nts., 4/1/02 2,750,000
2,812,540
------------------------------------------------------------------------------------------------------
Textron, Inc., 9.55% Med.-Term Nts., 3/19/01 500,000 525,255
------------
3,337,795
- -----------------------------------------------------------------------------------------------------------------------------------
Utilities--1.0% Tenaga Nasional Berhad, 7.875% Nts., 6/15/04(2) 1,000,000 951,846
------------
Total Corporate Bonds and Notes (Cost $30,473,758) 29,076,910
Shares
==========================================================
==========================================================
===============
Common Stocks--0.0%
- -----------------------------------------------------------------------------------------------------------------------------------
Consumer Non-Cyclicals--0.0%
- -----------------------------------------------------------------------------------------------------------------------------------
Food Processing--0.0% Doskocil Cos., Inc. (Cost $0) 1,761 13,208
- -----------------------------------------------------------------------------------------------------------------------------------
Total Investments, at Value (Cost $114,904,658) 109.0% 109,061,109
- -----------------------------------------------------------------------------------------------------------------------------------
Liabilities in Excess of Other Assets (9.0) (8,970,361)
---------- ------------
Net Assets 100.0% $100,090,748
==========
============
<FN>
1. Interest rate resets monthly, inversely related to LIBOR. Interest-Only Strips represent the right
to receive the monthly interest payments 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.
2. Restricted security--See Note 6 of Notes to Financial Statements.
See accompanying Notes to Financial Statements.
</FN>
</TABLE>
8 Oppenheimer Investment Grade Bond Fund
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities December 31, 1994
------------------------------------------------------------------------------------------------------
==========================================================
==========================================================
===============
<S> <C> <C>
Assets Investments, at value (cost $114,904,658)--see accompanying statement $109,061,109
------------------------------------------------------------------------------------------------------
Receivables:
Interest and principal paydowns 1,694,107
Shares of beneficial interest sold 202,489
------------------------------------------------------------------------------------------------------
Other 55,797
------------
Total assets 111,013,502
==========================================================
==========================================================
===============
Liabilities Bank overdraft 57,356
------------------------------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased 9,823,047
Dividends 646,989
Shares of beneficial interest redeemed 258,588
Distribution and service plan fees--Note 4 65,541
Deferred trustee fees--Note 5 18,086
Other 53,147
------------
Total liabilities 10,922,754
==========================================================
==========================================================
===============
Net Assets $100,090,748
============
==========================================================
==========================================================
===============
Composition of
Net Assets Paid-in capital $110,009,506
------------------------------------------------------------------------------------------------------
Undistributed (overdistributed) net investment income (204,894)
------------------------------------------------------------------------------------------------------
Accumulated net realized gain (loss) from investment transactions (3,870,315
------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on investments--Note 3 (5,843,549)
-------------
Net assets $100,090,748
=============
==========================================================
==========================================================
===============
Net Asset Value
Per Share Class A Shares:
Net asset value and redemption price per share (based on net assets of
$96,639,607 and 9,653,273 shares of beneficial interest outstanding) $10.01
Maximum offering price per share (net asset value plus sales charge of 4.75% of
offering price) $10.51
------------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price and offering price per share (based on net
assets of $3,451,141 and 344,660 shares of beneficial interest outstanding) $10.01
</TABLE>
See accompanying Notes to Financial Statements.
9 Oppenheimer Investment Grade Bond Fund
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
Statement of Operations For the Year Ended December 31, 1994
------------------------------------------------------------------------------------------------------
==========================================================
==========================================================
===============
<S> <C> <C>
Investment Income Interest $ 7,667,379
==========================================================
==========================================================
===============
Expenses Management fees--Note 4 522,205
------------------------------------------------------------------------------------------------------
Distribution and service plan fees:
Class A--Note 4 247,136
Class B--Note 4 26,383
------------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 4 184,806
------------------------------------------------------------------------------------------------------
Shareholder reports 80,889
------------------------------------------------------------------------------------------------------
Legal and auditing fees 13,761
------------------------------------------------------------------------------------------------------
Trustees' fees and expenses 12,864
------------------------------------------------------------------------------------------------------
Custodian fees and expenses 12,743
------------------------------------------------------------------------------------------------------
Registration and filing fees:
Class A 162
Class B 603
------------------------------------------------------------------------------------------------------
Other 28,219
-----------
Total expenses 1,129,771
==========================================================
==========================================================
===============
Net Investment Income (Loss) 6,537,608
==========================================================
==========================================================
===============
Realized and Unrealized Gain
(Loss) on Investments Net realized gain (loss) on investments (2,274,518)
------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on investments (8,559,673)
-----------
Net realized and unrealized gain (loss) on investments (10,834,191)
==========================================================
==========================================================
===============
Net Increase (Decrease) in Net Assets Resulting From Operations $(4,296,583)
===========
</TABLE>
See accompanying Notes to Financial Statements.
10 Oppenheimer Investment Grade Bond Fund
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets
------------------------------------------------------------------------------------------------------
Year Ended December 31,
1994 1993
==========================================================
==========================================================
===============
<S> <C> <C> <C>
Operations Net investment income (loss) $6,537,608 $ 6,955,080
------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (2,274,518) 3,772,429
------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on investments (8,559,673) 22,233
------------ ------------
Net increase (decrease) in net assets resulting from operations (4,296,583) 10,749,742
==========================================================
==========================================================
===============
Dividends and Distributions
To Shareholders Dividends from net investment income:
Class A ($.6539 and $.707 per share, respectively) (6,381,575) (7,067,709)
Class B ($.5754 and $.42 per share, respectively) (156,032) (33,652)
------------------------------------------------------------------------------------------------------
Dividends in excess of net investment income:
Class A ($.0306 per share) (298,880) --
Class B ($.027 per share) (7,308) --
==========================================================
==========================================================
===============
Beneficial Interest
Transactions Net increase (decrease) in net assets resulting from
Class A beneficial interest transactions--Note 2 (3,255,547) 802,199
------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
Class B beneficial interest transactions--Note 2 1,918,288 1,828,205
==========================================================
==========================================================
===============
Net Assets Total increase (decrease) (12,477,637) 6,278,785
------------------------------------------------------------------------------------------------------
Beginning of period 112,568,385 106,289,600
------------ ------------
End of period (including overdistributed net investment
income of $204,894 and $56,074, respectively) $100,090,748 $112,568,385
============
============
</TABLE>
See accompanying Notes to Financial Statements.
11 Oppenheimer Investment Grade Bond Fund
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
Financial Highlights
-----------------------------------------------------------------------------------
Class A
-----------------------------------------------------------------------------------
Eleven
Months
Ended
Year Ended December 31, Dec. 31,
1994 1993 1992 1991(3) 1990 1989 1988(2)
==========================================================
==========================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Data:
Net asset value, beginning
of period $11.12 $10.74 $10.80 $ 9.86 $10.29 $10.12 $10.55
- -------------------------------------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .65 .69 .75 .82 .88(4) .92 .93
Net realized and
unrealized gain (loss)
on investments (1.08) .40 (.05) .90 (.43) .19 (.36)
------- ------- ------- ------- ------ ------- -------
Total income (loss) from
investment operations (.43) 1.09 .70 1.72 .45 1.11 .57
- -------------------------------------------------------------------------------------------------------------------
Dividends to shareholders:
Dividends from net
investment income (.65) (.71) (.76) (.78) (.88) (.94) (1.00)
Dividends in excess of net
investment income (.03) -- -- -- -- -- --
------- ------- ------- ------- ------ ------- -------
Total dividends to
shareholders (.68) (.71) (.76) (.78) (.88) (.94) (1.00)
- -------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $ 10.01 $ 11.12 $ 10.74 $ 10.80 $ 9.86 $ 10.29 $ 10.12
======= ======= ======= ======= ======
======= =======
==========================================================
==========================================================
Total Return, at Net
Asset Value(5) (3.87)% 10.30% 6.77% 18.28% 4.74% 11.31% 4.48%
==========================================================
==========================================================
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) $96,640 $110,759 $106,290 $90,623 $87,021 $96,380 $102,293
- -------------------------------------------------------------------------------------------------------------------
Average net assets
(in thousands) $102,168 $111,702 $ 98,672 $86,471 $ 90,065 $100,891 $111,264
- -------------------------------------------------------------------------------------------------------------------
Number of shares
outstanding at end of
period (in thousands) 9,653 9,963 9,899 8,390 8,829 9,369 10,108
- -------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 6.25% 6.20% 7.00% 8.02% 8.85% 8.85% 8.75%
Expenses 1.06% 1.06% 1.10% 1.23% 1.24%(4) 1.14% 1.05%
- -------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(7) 70.3% 110.1% 116.4% 97.1% 80.4% 41.3% 45.0%
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------
Financial Highlights (continued)
------------------------------------------------------------------------
Class A (continued) Class B
-------------------------------------------------------------- --------
Year Period
Ended Ended
Year Ended January 31, Dec. 31, Dec. 31,
1988(2) 1987(2) 1986(2) 1985(2) 1994 1993(1)
==========================================================
=============================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Data:
Net asset value, beginning
of period $ 11.30 $ 11.16 $ 10.91 $ 11.00 $ 11.11 $ 11.10
- -------------------------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income 1.09 1.16 1.22 1.27 .58 .40
Net realized and
unrealized gain (loss)
on investments (.55) .22 .35 (.04) (1.08) .03
------- ------- ------- ------- ------- -------
Total income (loss) from
investment operations .54 1.38 1.57 1.23 (.50) .43
- -------------------------------------------------------------------------------------------------------
Dividends to shareholders:
Dividends from net
investment income (1.29) (1.24) (1.32) (1.32) (.57) (.42)
Dividends in excess of net
investment income -- -- -- -- (.03) --
------- ------- ------- ------- ------- -------
Total dividends to
shareholders (1.29) (1.24) (1.32) (1.32) (.60) (.42)
- -------------------------------------------------------------------------------------------------------
Net asset value,
end of period $ 10.55 $ 11.30 $ 11.16 $ 10.91 $ 10.01 $ 11.11
======= ======= ======= ======= =======
=======
==========================================================
=============================================
Total Return, at Net
Asset Value(5) N/A N/A N/A N/A (4.53)% 3.91%
==========================================================
=============================================
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) $118,568 $125,513 $121,979 $117,293 $3,451 $1,809
- -------------------------------------------------------------------------------------------------------
Average net assets
(in thousands) $118,724 $123,045 $118,253 $111,235 $2,747 $ 922
- -------------------------------------------------------------------------------------------------------
Number of shares
outstanding at end of
period (in thousands) 11,234 11,103 10,930 10,751 345 163
- -------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 10.28% 10.45% 11.26% 12.21% 5.53% 4.80%(6)
Expenses .98% .93% .97% 1.01% 1.78% 1.90%(6)
- -------------------------------------------------------------------------------------------------------
Portfolio turnover rate(7) 19.5% 59.8% 36.5% 76.7% 70.3% 110.1%
</TABLE>
<TABLE>
<S> <C>
1. For the period from May 1, 1993 (inception of offering) to December 31, 1993.
2. Operating results prior to April 15, 1988 were achieved by the Fund's predecessor corporation as a
closed-end fund under different investment objectives and policies. Such results are thus not
necessarily representative of operating results the Fund may achieve under its current investment
objectives and policies.
3. On March 28, 1991, Oppenheimer Management Corporation became the investment advisor to the
Fund.
4. Net investment income would have been $.87 absent the voluntary expense limitation, resulting in
an expense ratio of 1.26%.
5. 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.
6. Annualized.
7. The lesser of purchases or sales of portfolio securities for a period, divided by the monthly
average of the market value of portfolio securities owned during the period. 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 December 31, 1994 were $67,852,873 and $67,362,839, respectively.
See accompanying Notes to Financial Statements.
</TABLE>
12 Oppenheimer Investment Grade Bond Fund
<PAGE>
<TABLE>
<S> <C>
-----------------------------------------------------------------------------------------------------
Notes to Financial Statements
-----------------------------------------------------------------------------------------------------
==========================================================
==========================================================
===============
1. Significant
Accounting Policies Oppenheimer Investment Grade Bond Fund (the Fund) is a separate fund of Oppenheimer Integrity
Funds, a diversified, open-end management investment company registered under the Investment
Company Act of 1940, as amended. 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. 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 using dealer-supplied valuations provided the Manager is satisfied that the firm rendering
the quotes is reliable and that the quotes reflect current market value, or under consistently
applied procedures established by the Board of Trustees to determine fair value in good faith.
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. Forward
foreign currency contracts are valued at the closing price on the London foreign exchange market on
a daily basis. Options are valued based upon the last sale price on the principal exchange on which
the
option is traded or, in the absence of any transactions that day, the value is based upon the last
sale on the prior trading date if it is within the spread between the closing bid and asked prices.
If the last sale price is outside the spread, the closing bid or asked price closest to the last
reported sale price is used.
-----------------------------------------------------------------------------------------------------
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 December 31, 1994, the Fund had available
for federal income tax purposes an unused capital loss carryover of approximately $3,738,000,
$442,000 of which will expire in 1997, $958,000 in 1998 and $2,338,000 in 2002.
-----------------------------------------------------------------------------------------------------
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. Net investment income (loss) and net realized
gain (loss) may differ for financial statement and tax purposes primarily because of paydown gains
and losses. The character of the distributions made during the year from net investment income or net
realized gains may differ from their ultimate characterization for federal income tax purposes. Also,
due to timing of dividend distributions, the fiscal year in which amounts are distributed may differ
from the year that the income or realized gain (loss) was recorded by the Fund. Effective January 1,
1994, 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 December 31, 1993, amounts have been reclassified
to reflect a decrease in paid-in capital of $29,803, an increase in undistributed net investment
income of $42,134, and an increase in undistributed capital loss on investments of $12,331. During
the year ended December 31, 1994, in accordance with Statement of Position 93-2, undistributed net
investment income was increased by $115,233 and undistributed capital loss on investments was
increased by the same amount.
</TABLE>
13 Oppenheimer Investment Grade Bond Fund
<PAGE>
<TABLE>
<S> <C>
-----------------------------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
-----------------------------------------------------------------------------------------------------
==========================================================
==========================================================
===============
1. Significant
Accounting Policies
(continued) Other. Investment transactions are accounted for on the date the investments are purchased or sold
(trade 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.
==========================================================
==========================================================
===============
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:
<CAPTION>
Year Ended December 31, 1994 Year Ended December 31, 1993(1)
---------------------------- ---------------------------------
Shares Amount Shares Amount
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A:
Sold 1,071,379 $ 11,256,317 2,953,788 $ 33,325,053
Dividends reinvested 323,100 3,353,309 259,953 2,897,712
Redeemed (1,704,508) (17,865,173) (3,149,098) (35,420,566)
--------- ------------ --------- ------------
Net increase (decrease) (310,029) $ (3,255,547) 64,643 $ 802,199
========= ============ =========
============
-----------------------------------------------------------------------------------------------------
Class B:
Sold 293,817 $ 3,089,618 195,606 $ 2,198,191
Dividends reinvested 11,974 123,504 2,293 25,726
Redeemed (123,969) (1,294,834) (35,061) (395,712)
--------- ------------ --------- ------------
Net increase 181,822 $ 1,918,288 162,838 $ 1,828,205
========= ============ =========
============
1. For the year ended December 31, 1993 for Class A shares and for the period from May 1, 1993
(inception of offering) to December 31, 1993 for Class B shares.
==========================================================
==========================================================
===============
<S> <C>
3. Unrealized Gains and
Losses on Investments At December 31, 1994, net unrealized depreciation on investments of $5,843,549 was composed
of gross
appreciation of $404,576, and gross depreciation of $6,248,125.
==========================================================
==========================================================
===============
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 .50% on the first $100 million of net assets with a
reduction of .05% on each $200 million thereafter, to .35% on net assets in excess of $500 million.
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 December 31, 1994, commissions (sales charges paid by investors) on sales of
Class A shares totaled $143,088, of which $67,090 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 December 31, 1994, OFDI received contingent deferred sales charges of $8,916
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, 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 December 31, 1994, OFDI paid $154,100 to an affiliated
broker/dealer as reimbursement for Class A personal service and maintenance expenses and retained
$27,341 as reimbursement for Class B sales commissions and service fee advances, as well as financing
costs.
</TABLE>
14 Oppenheimer Investment Grade Bond Fund
<PAGE>
<TABLE>
==========================================================
==========================================================
===============
<S> <C>
5. Deferred Trustee
Compensation A former trustee elected to defer receipt of fees earned. These deferred fees earn interest at a rate
determined by the current Board of Trustees at the beginning of each calendar year, compounded each
quarter-end. As of December 31, 1994, the Fund was incurring interest at a rate of 5.22% per annum.
Deferred fees are payable in annual installments, with accrued interest, each April 1 through 1995.
==========================================================
==========================================================
===============
6. 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.
Valuation Per Unit
Security Acquisition Date Cost Per Unit of December 31, 1994
-----------------------------------------------------------------------------------------------------
Tenaga Nasional Berhad 7.875% Nts., 6/15/04(1) 9/27/94 $96.79 $95.18
1. Transferable under Rule 144A of the Act.
</TABLE>
<PAGE>
Appendix A: Description of Securities Ratings
Description of Standard & Poor's Corporation ("Standard & Poor's") and
Moody's Investors Service, Inc. ("Moody's") commercial paper, note and
bond ratings:
Commercial Paper Ratings
Standard & Poor's commercial paper ratings are graded into four
categories, ranging from "A" for the highest quality obligations to "D"
for the lowest. The "A-l" and "A-2" categories are described as follows:
"A" - Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are further
refined with the designations 1, 2, and 3 to indicate the relative degree
of safety.
"A-l" - This designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues
determined to possess overwhelming safety characteristics will be noted
with a plus (+) sign designation.
"A-2" - Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high as for
issues designated "A-l."
Moody's employs three designations, all judged to be investment grade, to
indicate the relative repayment ability of rated issuers. The two highest
designations are as follows:
Issuers (or supporting institutions) rated Prime-1 (or P-1) have a
superior ability for repayment of senior short-term debt obligations.
Prime-1 repayment ability will normally be evidenced by many of the
following characteristics:
- Leading market positions in well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structure with moderate reliance on
debt and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
- Well-established access to a range of financial markets and
assured sources of alternate liquidity.
Issuers (or supporting institutions) rated Prime-2 (or P-2) have a strong
ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to
a lesser degree. Earnings trends and coverage ratios, while sound, may be
more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
Standard & Poor's ratings for Municipal Notes due in three years or less
are:
SP-1: Very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming
safety characteristics will be given a plus (+)
designation.
SP-2: Satisfactory capacity to pay principal and interest.
Bond Ratings
Standard & Poor's describes its ratings for corporate bonds as follows:
AAA: Debt rated "AAA" has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely
strong.
AA: Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differ from the higher rated issues only in a small
degree.
A: Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
BBB: Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this category than for
bonds rated "A."
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.
The ratings from AA to CCC may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
Moody's describes its corporate bond ratings as follows:
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally
referred to as "gilt edge." 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, such
changes as can be visualized 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 in
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 in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes
and may be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa: Bonds which are rated Baa are considered as 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 in fact have
speculative characteristics as well.
Ba: Bonds rated "Ba" are judged to have speculative elements; their
future cannot be considered well-assured. Often the protection of
interest and principal payments may be very moderate and not well
safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B: Bonds rated "B" generally lack characteristics of desirable
investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of
time may be small.
Caa: Bonds rated "Caa" are of poor standing and may be in default or there
may be present elements of danger with respect to principal or
interest.
Ca: Bonds rated "Ca" represent obligations which are speculative in a
high degree and are often in default or have other marked
shortcomings.
C: Bonds rated "C" can be regarded as having extremely poor prospects
of ever attaining any real investment standing.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the
higher end of its generic rating category; the modifier 2 indicates a mid-
range ranking; and the modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.
<PAGE>
Appendix B: Industry Classifications
Aerospace/Defense
Air Transportation
Auto Parts Distribution
Automotive
Bank Holding Companies
Banks
Beverages
Broadcasting
Broker-Dealers
Building Materials
Cable Television
Chemicals
Commercial Finance
Computer Hardware
Computer Software
Conglomerates
Consumer Finance
Containers
Convenience Stores
Department Stores
Diversified Financial
Diversified Media
Drug Stores
Drug Wholesalers
Durable Household Goods
Education
Electric Utilities
Electrical Equipment
Electronics
Energy Services & Producers
Entertainment/Film
Environmental
Food
Gas Transmission
Gas Utilities
Gold
Health Care/Drugs
Health Care/Supplies & Services
Homebuilders/Real Estate
Hotel/Gaming
Industrial Services
Insurance
Leasing & Factoring
Leisure
Manufacturing
Metals/Mining
Nondurable Household Goods
Oil - Integrated
Paper
Publishing/Printing
Railroads
Restaurants
Savings & Loans
Shipping
Special Purpose Financial
Specialty Retailing
Steel
Supermarkets
Telecommunications - Technology
Telephone - Utility
Textile/Apparel
Tobacco
Toys
Trucking
<PAGE>
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 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 & Wolf, P.C.
1600 Broadway
Denver, Colorado 80202-4918
