Preliminary Copy
Registration No. 2-76547
File No. 811-3420
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. / /
OPPENHEIMER INTEGRITY FUNDS
(Exact Name of Registrant as Specified in Charter)
3410 South Galena Street, Denver, Colorado 80231
(Address of Principal Executive Offices)
212-323-0200
(Registrant's Telephone Number)
Andrew J. Donohue, Esq.
Executive Vice President & General Counsel
Oppenheimer Management Corporation
Two World Trade Center, New York, New York 10048-0203
(212) 323-0256
(Name and Address of Agent for Service)
As soon as practicable after the Registration Statement becomes effective.
(Approximate Date of Proposed Public Offering)
It is proposed that this filing will become effective on August 21, 1995,
pursuant to Rule 488.
No filing fee is due because the Registrant has previously registered an
indefinite number of shares under Rule 24f-2; a Rule 24f-2 notice for the
year ended December 31, 1994 was filed on February 28, 1995.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement contains the following pages and documents:
Front Cover
Contents Page
Cross-Reference Sheet
Part A
Proxy Statement for Oppenheimer Strategic Investment Grade Bond Fund
and
Prospectus for Oppenheimer Bond Fund
Part B
Statement of Additional Information
Part C
Other Information
Signatures
Exhibits
<PAGE>
FORM N-14
OPPENHEIMER INTEGRITY FUNDS
Cross Reference Sheet
Part A of
Form N-14
Item No. Proxy Statement and Prospectus Heading and/or Title of Document
- -------- ----------------------------------------------------------------
1 (a) Cross Reference Sheet
(b) Front Cover Page
(c) *
2 (a) *
(b) Table of Contents
3 (a) Comparative Fee Table
(b) Synopsis
(c) Principal Risk Factors
4 (a) Synopsis; Approval of the Reorganization; Comparison between the
Fund and Strategic Income Fund; Method of Carrying Out the
Reorganization; Miscellaneous Information
(b) Approval of the Reorganization - Capitalization Table
(Unaudited)
5 (a) Registrant's Prospectus; Additional Information
(b) *
(c) *
(d) *
(e) Comparison between Strategic Investment Grade Bond Fund and Bond
Fund
(f) Comparison between Strategic Investment Grade Bond Fund and Bond
Fund
6 (a) Prospectus of Oppenheimer Strategic Investment Grade Bond Fund;
Front Cover Page
(b) Comparison between Strategic Investment Grade Bond Fund and Bond
Fund
(c) *
(d) *
7 (a) Introduction; Synopsis
(b) *
(c) Introduction; Approval of the Reorganization
8 (a) Proxy Statement
(b) *
9 *
Part B of
Form N-14
Item No. Statement of Additional Information Heading
- --------- -------------------------------------------
10 Cover Page
11 Table of Contents
12 (a) Oppenheimer Bond Fund's Statement of Additional Information
(b) *
13 (a) Oppenheimer Strategic Investment Grade Bond Fund's Statement of
Additional Information
(b) *
14 Registrant's Statement of Additional Information; Statement of
Additional Information about Oppenheimer Strategic Investment
Grade Bond Fund; Annual Report of Oppenheimer Strategic
Investment Grade Bond Fund at 9/30/94; unaudited financial
statements of Oppenheimer Strategic Investment Grade Bond Fund
at 3/31/95; Oppenheimer Bond Fund Annual Report at 12/31/94
Pro Forma financials
Part C of
Form N-14
Item No. Other Information Heading
- --------- -------------------------
15 Indemnification
16 Exhibits
17 Undertakings
_______________
* Not Applicable or negative answer
<PAGE>
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the registrant / X /
Filed by a party other than the registrant / /
Check the appropriate box:
/ X / Preliminary proxy statement
/ / Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
Oppenheimer Integrity Funds
- ------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
Oppenheimer Strategic Investment Grade Bond Fund
- ------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
/ / $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1) or 14a-
6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
/ / Fee Computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- ------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- ------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:(1)
- ------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- ------------------------------------------------------------------
/ / Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing
by registration statement number, or the form or schedule and the
date of its filing.
- ------------------------------------------------------------------
(1) Amount previously paid:
- ------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- ------------------------------------------------------------------
(3) Filing Party:
- ------------------------------------------------------------------
(4) Date Filed:
- -----------------------
(1) Set forth the amount on which the filing fee is calculated and state
how it was determined.
<PAGE>
August 1995
Dear Oppenheimer Strategic Investment Grade Bond Fund Shareholder:
Several weeks ago, I sent a letter to let you know about some positive
changes being proposed for your Fund. A shareholder meeting has been
scheduled in September and all shareholders of record on July 14 are being
asked to vote either in person or by proxy. You will find a notice of the
meeting, a ballot card, a proxy statement detailing the proposal and a
postage-paid return envelope enclosed for your use.
What is being proposed?
In April, your Board of Trustees, which represents your interests in
the management of the Fund, recommended approval of the merger of
Strategic Investment Grade Bond Fund into another Oppenheimer fund,
Oppenheimer Bond Fund.
Why does the Board of Trustees recommend this change?
The consolidation of Strategic Investment Grade Bond Fund into Bond
Fund makes sense because both funds share a similar objective -- high
current income. So while the investment objective will continue to be
substantially the same, the investment adviser believes Bond Fund offers
more flexibility in responding to changing market and economic conditions.
In addition, by merging into a larger fund, shareholders of Strategic
Investment Grade Bond Fund may benefit from a lower expense ratio as
administrative costs are spread among a larger number of shareholders.
Shareholders should also benefit from the larger asset size of Bond Fund
because the portfolio managers can generally invest larger amounts of
money more efficiently, thereby lowering the cost to your fund.
The Board of Trustees believes that the shareholders of Strategic
Investment Grade Bond Fund will benefit by reorganizing into Bond Fund,
and recommends that you vote for this change.
How do you vote?
No matter how large or small your investment, your vote is important,
so please review the proxy statement carefully. To cast your vote, simply
mark, sign and date the enclosed proxy ballot and return it in the
postage-paid envelope today. Remember, it can be expensive for the Fund -
- - and ultimately for you as a shareholder -- to remail ballots if not
enough responses are received to conduct the meeting.
If you have any questions about the proposal, please feel free to
contact your financial adviser, or call us at 1-800-525-7048.
As always, we appreciate your confidence in OppenheimerFunds and look
forward to serving you for many years to come.
Sincerely,
[JSF signature]
<PAGE>
Preliminary Copy - For the Information of the Securities and Exchange
Commission Only
OPPENHEIMER STRATEGIC INVESTMENT GRADE BOND FUND
3410 South Galena Street, Denver, Colorado 80231
1-800-525-7048
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 20, 1995
To the Shareholders of Oppenheimer Strategic Investment Grade Bond Fund:
Notice is hereby given that a Special Meeting of the Shareholders of
Oppenheimer Strategic Investment Grade Bond Fund ("Strategic Investment
Grade Bond Fund"), a registered management investment company, will be
held at 3410 South Galena Street, Denver, Colorado 80231, at 10:00 A.M.,
Denver time, on September 20, 1995, or any adjournments thereof (the
"Meeting"), for the following purposes:
1. To approve or disapprove an Agreement and Plan of Reorganization
between Strategic Investment Grade Bond Fund and Oppenheimer Bond Fund
("Bond Fund"), and the transactions contemplated thereby, including the
transfer of substantially all the assets of Strategic Investment Grade
Bond Fund, in exchange for Class A and Class B shares of Bond Fund, the
distribution of such shares to the Class A and Class B shareholders of
Strategic Investment Grade Bond Fund in complete liquidation of Strategic
Investment Grade Bond Fund, the de-registration of Strategic Investment
Grade Bond Fund as an investment company under the Investment Company Act
of 1940, as amended, and the cancellation of the outstanding shares of
Strategic Investment Grade Bond Fund (the "Proposal").
2. To act upon such other matters as may properly come before the
Meeting.
Shareholders of record at the close of business on July 14, 1995 are
entitled to notice of, and to vote at, the Meeting. The Proposal is more
fully discussed in the Proxy Statement and Prospectus. Please read it
carefully before telling us, through your proxy or in person, how you wish
your shares to be voted. Strategic Investment Grade Bond Fund's Board of
Trustees recommends a vote in favor of the Proposal. WE URGE YOU TO SIGN,
DATE AND MAIL THE ENCLOSED PROXY PROMPTLY.
By Order of the Board of Trustees,
George C. Bowen, Secretary
August 21, 1995
_______________________________________________________________________
Shareholders who do not expect to attend the Meeting are requested to
indicate voting instructions on the enclosed proxy and to date, sign and
return it in the accompanying postage-paid envelope. To avoid unnecessary
duplicate mailings, we ask your cooperation in promptly mailing your proxy
no matter how large or small your holdings may be.
285<PAGE>
Preliminary Copy - For the Information of the Securities and Exchange
Commission Only
OPPENHEIMER BOND FUND
3410 South Galena Street, Denver, Colorado 80231
1-800-525-7048
PROXY STATEMENT AND PROSPECTUS
This Proxy Statement of Strategic Investment Grade Bond Fund relating to
the Reorganization Agreement and the transactions contemplated thereby
(the "Reorganization") also constitutes a Prospectus of Bond Fund included
in a Registration Statement on Form N-14 filed by Bond Fund with the
securities and Exchange Commission (the "SEC"). Such Registration
Statement relates to the registration of shares of Bond Fund to be offered
to the shareholders of Strategic Investment Grade Bond Fund pursuant to
the Reorganization Agreement. Strategic Investment Grade Bond Fund is
located at 3410 South Galena Street, Denver, Colorado 80231 (telephone 1-
800-525-7048).
This Proxy Statement and Prospectus sets forth concisely information about
Bond Fund that shareholders of Strategic Investment Grade Bond Fund should
know before voting on the Reorganization. A copy of the Prospectus for
Bond Fund, dated July 10, 1995, supplemented July 14, 1995 and is
enclosed, and is incorporated herein by reference. The following
documents have been filed with the SEC and are available without charge
upon written request to Oppenheimer Shareholder Services ("OSS"), the
transfer and shareholder servicing agent for Bond Fund and Strategic
Investment Grade Bond Fund, at P.O. Box 5270, Denver, Colorado 80217, or
by calling the toll-free number shown above: (i) a Prospectus for
Strategic Investment Grade Bond Fund, dated February 1, 1995, supplemented
July 14, 1995; (ii) a Statement of Additional Information about Strategic
Investment Grade Bond Fund, dated February 1, 1995, supplemented July 14,
1995; and (iii) a Statement of Additional Information about Bond Fund,
dated July 10, 1995 (the "Bond Fund Additional Statement"). The Bond Fund
Additional Statement, which is incorporated herein by reference, contains
more detailed information about Bond Fund and its management. A Statement
of Additional Information relating to the Reorganization, dated August 21,
1995, has been filed with the SEC as part of the Bond Fund Registration
Statement on Form N-14 and is incorporated by reference herein, and is
available by written request to OSS at the same address immediately above
or by calling the toll-free number shown above.
Investors are advised to read and retain this Proxy Statement and
Prospectus for future reference.
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 ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Proxy Statement and Prospectus is dated August 21, 1995.
TABLE OF CONTENTS
PROXY STATEMENT AND PROSPECTUS
Page
Introduction
General
Record Date; Vote Required; Share Information
Proxies
Costs of the Solicitation and the Reorganization
Comparative Fee Table
Synopsis
Parties to the Reorganization
Shares to be Issued
The Reorganization
Reasons for the Reorganization
Tax Consequences of the Reorganization
Investment Objectives and Policies
Investment Advisory and Distribution and Service Plan Fees
Purchases, Exchanges and Redemptions
Principal Risk Factors
Approval of the Reorganization (The Proposal)
Reasons for the Reorganization
The Reorganization
Tax Aspects of the Reorganization
Capitalization Table (Unaudited)
Comparison Between Strategic Investment Grade Bond Fund and Bond Fund
Investment Objectives and Policies
Permitted Investments by Strategic Investment Grade Bond Fund and
Bond Fund
Investment Restrictions
Portfolio Turnover
Description of Brokerage Practices
Expense Ratios and Performance
Shareholder Services
Rights of Shareholders
Management and Distribution Arrangements
Purchase of Additional Shares
Method of Carrying Out the Reorganization
Miscellaneous
Additional Information
Financial Information
Public Information
Other Business
Annex A - Agreement and Plan of Reorganization, by and between
Oppenheimer Strategic Investment Grade Bond Fund and
Oppenheimer Bond Fund A-1
<PAGE>
Preliminary Copy - For the Information of the Securities and Exchange
Commission Only
OPPENHEIMER STRATEGIC INVESTMENT GRADE BOND FUND
3410 South Galena Street, Denver, Colorado 80231
1-800-525-7048
PROXY STATEMENT AND PROSPECTUS
Special Meeting of Shareholders
to be held September 20, 1995
INTRODUCTION
General
This Proxy Statement and Prospectus is being furnished to the shareholders
of Oppenheimer Strategic Investment Grade Bond Fund ("Strategic Investment
Grade Bond Fund"), a registered management investment company, in
connection with the solicitation by the Board of Trustees (the "Board")
of proxies to be used at the Special Meeting of Shareholders of Strategic
Investment Grade Bond Fund to be held at 3410 South Galena Street, Denver,
Colorado 80231, at 10:00 A.M., Denver time, on September 20, 1995, or any
adjournments thereof (the "Meeting"). It is expected that the mailing of
this Proxy Statement and Prospectus will commence on or about August 15,
1995.
At the Meeting, shareholders of Strategic Investment Grade Bond Fund will
be asked to approve an Agreement and Plan of Reorganization (the
"Reorganization Agreement") between Strategic Investment Grade Bond Fund
and Oppenheimer Bond Fund ("Bond Fund"), and the transactions contemplated
thereby (the "Reorganization"), including the transfer of substantially
all the assets of Strategic Investment Grade Bond Fund, in exchange for
Class A and Class B shares of Bond Fund, the distribution of such shares
to the shareholders of Strategic Investment Grade Bond Fund in complete
liquidation of Strategic Investment Grade Bond Fund, the de-registration
of Strategic Investment Grade Bond Fund as an investment company, under
the Investment Company Act of 1940, as amended (the "Investment Company
Act"), and the cancellation of the outstanding shares of Strategic
Investment Grade Bond Fund. Bond Fund currently offers Class A shares
with a sales charge imposed at the time of purchase and Class B and Class
C shares without an initial sales charge. There is no initial sales
charge on purchases of Class B or Class C shares, however a contingent
deferred sales charge may be imposed, depending on when the shares are
sold. The Class A and Class B shares issued pursuant to the
Reorganization will be issued at net asset value without a sales charge
and without the imposition of the contingent deferred sales charge.
Additional information with respect to these changes by Bond Fund is set
forth herein, in the Prospectus of Bond Fund accompanying this Proxy
Statement and Prospectus and in the Bond Fund Additional Statement which
is incorporated herein by reference.
Record Date; Vote Required; Share Information
The Board has fixed the close of business on July 14, 1995 as the record
date (the "Record Date") for the determination of shareholders entitled
to notice of, and to vote at, the Meeting. An affirmative vote of the
holders of a majority of the outstanding voting securities of all of the
Class A and Class B shares in the aggregate of Strategic Investment Grade
Bond Fund is required to approve the Reorganization. That level of vote
is defined in the Investment Company Act of 1940 as the vote of the
holders of the lesser of: (i) 67% or more of the voting securities present
or represented by proxy at the shareholders meeting, if the holders of
more than 50% of the outstanding voting securities are present or
represented by proxy, or (ii) more than 50% of the outstanding voting
securities. Each shareholder will be entitled to one vote for each share
and a fractional vote for each fractional share held of record at the
close of business on the Record Date. Only shareholders of Strategic
Investment Grade Bond Fund will vote on the Reorganization. The vote of
shareholders of Bond Fund is not being solicited.
At the close of business on the Record Date, there were approximately
8,007,873.184 shares of Strategic Investment Grade Bond Fund issued and
outstanding, consisting of 4,746,684.138 shares of Class A shares and
3,261,189.046 Class B shares. At the close of business on the Record
Date, there were 11,686,850.128 shares of Bond Fund issued and
outstanding, consisting of 10,976,686.128 shares of Class A shares and
710,164.480 Class B shares. The presence in person or by proxy of the
holders of a majority of the shares constitutes a quorum for the
transaction of business at the Meeting. To the knowledge of Strategic
Investment Grade Bond Fund, as of the Record Date, no person owned of
record or beneficially owned 5% or more of its outstanding shares. As of
the Record Date, to the knowledge of Bond Fund, no person owned of record
or beneficially owned 5% or more of its outstanding shares except for MML
Reinsurance (Bermuda) Ltd., c/o Investment Services, 1295 State Street,
Springfield, MA 0111-0001, which owned of record 789,794.139 Class A
shares of Bond Fund as of such date (7.20% of the outstanding Class A
shares of Bond Fund which represented 6.75% of the outstanding shares of
Bond Fund) and Smith Barney, Inc., 388 Greenwich Street, New York, NY
10013, which of record owned 102,753.693 shares of Class B shares of Bond
Fund (14.47% of the outstanding Class B shares of Bond Fund as of such
date which represented less than 5% of the outstanding shares of Bond
Fund). In addition, as of the record date, the Trustees and officers of
Strategic Investment Grade Bond Fund and Bond Fund owned less than 1% of
the outstanding shares of either Strategic Investment Grade Bond Fund or
Bond Fund, respectively.
Proxies
The enclosed form of proxy, if properly executed and returned, will be
voted (or counted as an abstention or withheld from voting) in accordance
with the choices specified thereon, and will be included in determining
whether there is quorum to conduct the Meeting. The proxy will be voted
in favor of the Proposal unless a choice is indicated to vote against or
to abstain from voting on the Proposal.
Shares owned of record by broker-dealers for the benefit of their
customers ("street account shares") will be voted by the broker-dealer
based on instructions received from its customers. If no instructions are
received, the broker-dealer may (if permitted under applicable stock
exchange rules), as record holder, vote such shares on the Proposal in the
same proportion as that broker-dealer votes street account shares for
which voting instructions were received in time to be voted. If a
shareholder executes and returns a proxy but fails to indicate how the
votes should be cast, the proxy will be voted in favor of the Proposal.
The proxy may be revoked at any time prior to the voting thereof by: (i)
writing to the Secretary of Strategic Investment Grade Bond Fund at 3410
South Galena Street, Denver, Colorado 80231; (ii) attending the Meeting
and voting in person; or (iii) signing and returning a new proxy (if
returned and received in time to be voted).
Costs of the Solicitation and the Reorganization
All expenses of this solicitation, including the cost of printing and
mailing this Proxy Statement and Prospectus, will be borne by Strategic
Investment Grade Bond Fund. Any documents such as existing prospectuses
or annual reports that are included in that mailing will be a cost of the
fund issuing the document. In addition to the solicitation of proxies by
mail, proxies may be solicited by officers of Strategic Investment Grade
Bond Fund or officers and employees of OSS, personally or by telephone or
telegraph; any expenses so incurred will be borne by OSS. Proxies may
also be solicited by a proxy solicitation firm hired at Strategic
Investment Grade Bond Fund's expense for such purpose. Brokerage houses,
banks and other fiduciaries may be requested to forward soliciting
material to the beneficial owners of shares of Strategic Investment Grade
Bond Fund and to obtain authorization for the execution of proxies. For
those services, if any, they will be reimbursed by Strategic Investment
Grade Bond Fund for their reasonable out-of-pocket expenses.
With respect to the Reorganization, Strategic Investment Grade Bond Fund
and Bond Fund will bear the cost of their respective tax opinions. Any
other out-of-pocket expenses of Strategic Investment Grade Bond Fund and
Bond Fund associated with the Reorganization, including legal, accounting
and transfer agent expenses, will be borne by Strategic Investment Grade
Bond Fund and Bond Fund, respectively, in the amounts so incurred by each.
COMPARATIVE FEE TABLE
Strategic Investment Grade Bond Fund and Bond Fund each pay a variety of
expenses for management of their assets, administration, distribution of
their shares and other services, and those expenses are reflected in net
asset value per share. Shareholders pay other expenses directly, such as
sales charges. The following table is provided to help you compare the
direct expenses of investing in each class of Strategic Investment Grade
Bond Fund with the direct expenses of investing in each class of Bond
Fund.
<TABLE>
<CAPTION>
Strategic Investment
Grade Bond Fund Bond Fund
Class A Class B Class A Class B Class C
Shares Shares Shares Shares Shares
<S> <C> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Charge on 4.75% None 4.75% None None
Purchases (as a % of
offering price)
Sales Charge on None None None None None
Reinvested Dividends
Deferred Sales None(1) 5% in the None(1) 5% in the 1% if
Charge (as a % first year, first year, shares are
of the lower declining declining redeemed
of the original to 1% in the to 1% in the within 12
purchase price sixth year and sixth year and months of
or redemption eliminated eliminated purchase
proceeds) thereafter thereafter
Exchange Fee None None None None None
Pro Forma Surviving Oppenheimer Bond Fund
Class A Class B Class C
Shares Shares Shares
Shareholder Transaction Expenses
Maximum Sales Charge on 4.75% None None
Purchases (as a %
of offering price)
Sales Charge on None None None
Reinvested Dividends
Deferred Sales Charge None(1) 5% in the 1% if
(as a % of the lower first year, shares are
of the original declining redeemed
purchase price to 1% in the within 12
or redemption sixth year and months of
proceeds eliminated purchase
thereafter
Exchange Fee None None None
</TABLE>
(1) If you invest more than $1 million in Class A shares, you may have to
pay a sales charge of up to 1% if you sell your shares within 18 calendar
months from the end of the calendar month during which you purchased those
shares.
The following tables are projections of the operating expenses of Class
A and Class B of Strategic Investment Grade Bond Fund based on expenses
for the six month period (annualized) ended March 31, 1995 (unaudited).
Class C shares were not publicly offered during the six month period ended
March 31, 1995 and therefore these amounts are estimates based on Class
B shares. Class C shares will not be issued as part of the
Reorganizations and the information with respect to these shares for
informational purposes only. The pro forma information is an estimate of
the business expenses of the surviving Bond Fund after giving effect to
the reorganization. The management fees with respect to the pro forma
information have been restated to reflect the Bond Funds new investment
advisory agreement dated July 10, 1995 with Oppenheimer Management
Corporation. As of that date management fee rates were increased. Had
these rates been in effect as of March 31, 1995, the total operating
expenses of Bond Fund (which was formerly named Oppenheimer Investment
Grade Bond Fund) would have been higher. However, the increased
management fee rates are identical to those of Strategic Investment Grade
Bond Fund. All amounts shown are a percentage of net assets of each class
of each of the funds for that year.
<TABLE>
<CAPTION>
Strategic Investment
Grade Bond Fund Bond Fund Pro Forma Surviving Bond Fund
Class A Class B Class A Class B Class C Class A Class B Class C
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees .75% .75% .50% .50% .50% .75% .75% .75%
12b-1 Distribution and
Service Plan Fees .24% 1.00% .24% 1.00% 1.00% .24% 1.00% 1.00%
Other Expenses .44% .43% .30% .30% .30% .28% .28% .28%
Total Fund Operating
Expenses 1.43% 2.18% 1.04% 1.80% 1.80% 1.27% 2.03% 2.03%
</TABLE>
The 12b-1 fees for Class A shares of Strategic Investment Grade Bond Fund
and Bond Fund are service plan fees. The Service Plan Fees is a maximum
of 0.25% of average annual net assets of Class A shares of each fund. The
12b-1 fees for Class B shares and Class C shares of Bond Fund are
Distribution and Service Plan fees which include a service fee of 0.25%
and an asset-based sales charge of 0.75%.
Examples
To try and show the effect of the expenses in an investment over time, the
hypotheticals shown below have been created. Assume that you make a
$1,000 investment in Class A and Class B shares of Strategic Investment
Grade Bond Fund, or Class A or Class B shares of Bond Fund, or Class A or
Class B of the pro forma surviving Bond Fund (Class C shares are shown for
information purposes only since such shares are not a part of the merger
and will not be issued to shareholders of Strategic Investment Grade Bond
Fund) and that the annual return is 5% and that the operating expenses for
each fund are the ones shown in the chart above. If you were to redeem
your shares at the end of each period shown below, your investment would
incur the following expenses by the end of each period shown.
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Oppenheimer Strategic
Investment Grade Bond Fund
Class A Shares $61 $91 $122 $211
Class B Shares $72 $98 $137 $215*
Oppenheimer Bond Fund
Class A Shares $58 $79 $102 $169
Class B Shares $68 $87 $117 $173
Class C Shares $28 $57 $97 $212*
Pro Forma Surviving
Oppenheimer Bond Fund
Class A Shares $60 $86 $114 $194
Class B Shares $71 $94 $129 $198*
Class C Shares $31 $64 $109 $236**
If you did not redeem your investment, it would incur the following
expenses:
1 year 3 years 5 years 10 years
Oppenheimer Strategic
Investment Grade Bond Fund
Class A Shares $61 $91 $122 $211
Class B Shares $22 $68 $117 $215*
Oppenheimer Bond Fund
Class A Shares $58 $79 $102 $169
Class B Shares $18 $57 $97 $173*
Class C Shares $18 $57 $97 $212**
Pro Forma Surviving
Oppenheimer Bond Fund
Class A Shares $60 $86 $114 $194
Class B Shares $21 $64 $109 $198*
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 each of the funds automatically converts
your Class B shares into Class A shares after 6 years. Long term Class
B shareholders could pay the economic equivalent of more than the maximum
front-end sales charge allowed under applicable regulations, because of
the effect of the asset-based sales charge and contingent deferred sales
charge. The automatic conversion of Class B shares to Class A Shares is
designed to minimize the likelihood that this will occur. Because of the
asset-based sales charge imposed and the contingent deferred sales charge
on Class C shares, long-term Class C shareholders could pay the economic
equivalent of an amount greater than the maximum front-end sales charge
allowed under applicable regulatory requirements.
The 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.
SYNOPSIS
The following is a synopsis of certain information contained in or
incorporated by reference in this Proxy Statement and Prospectus and
presents key considerations for shareholders of Strategic Investment Grade
Bond Fund to assist them in determining whether to approve the
Reorganization. This synopsis is only a summary and is qualified in its
entirety by the more detailed information contained in or incorporated by
reference in this Proxy Statement and Prospectus and by the Reorganization
Agreement, a copy of which is attached as an Annex hereto. Shareholders
should carefully review this Proxy Statement and Prospectus and the
Reorganization Agreement in their entirety and, in particular, the current
Prospectus of Bond Fund which accompanies this Proxy Statement and
Prospectus and is incorporated by reference herein.
Parties to the Reorganization
Strategic Investment Grade Bond Fund is a diversified, open-end management
investment company organized in 1991 as a Massachusetts business trust.
Oppenheimer Integrity Funds (the "Trust") is an investment company
organized in 1982 as a multi-series Massachusetts business trust and Bond
Fund is a series of that Trust. Strategic Investment Grade Bond Fund and
Bond Fund are each located at 3410 South Galena Street, Denver, Colorado
80231. The members of the Board of Trustees of Strategic Investment Grade
Bond Fund and of the Board of Trustees of the Trust are the same.
Oppenheimer Management Corporation (the "Manager") whose address is Two
World Trade Center, New York, New York 10048-0203, acts as investment
adviser to Strategic Investment Grade Bond Fund and Bond Fund
(collectively referred to herein as the "funds"). Additional information
about the parties is set forth below.
Shares to be Issued. All shareholders of Strategic Investment Grade Bond
Fund who own Class A shares will receive Class A shares of Bond Fund in
exchange for their Class A shares of Strategic Investment Grade Bond Fund.
Shareholders of Strategic Investment Grade Bond Fund who own Class B
shares will receive Class B shares of Bond Fund in exchange for their
Class B shares of Strategic Investment Grade Bond Fund. All classes of
shares vote together in the aggregate as to certain matters, however
shares of a particular class vote together on matters that affect that
class alone. The Class A and Class B shares of Strategic Investment Grade
Bond Fund, and Class A and Class B shares of Bond Fund to be issued in the
reorganization are substantially similar.
The Reorganization
The Reorganization Agreement provides for the transfer of substantially
all the assets of Strategic Investment Grade Bond Fund to Bond Fund in
exchange for Class A and Class B shares of Bond Fund. Presently Strategic
Investment Grade Bond Fund has two classes of shares which are Class A and
Class B shares. The net asset value of Bond Fund Class A and Class B
shares issued in the exchange will equal the value of the assets of
Strategic Investment Grade Bond Fund received by Bond Fund. Following the
Closing of the Reorganization presently scheduled for September 22, 1995,
Strategic Investment Grade Bond Fund will distribute the Class A and Class
B shares of Bond Fund received by Strategic Investment Grade Bond Fund on
the Closing Date to holders of Class A and Class B shares of Strategic
Investment Grade Bond Fund, respectively, which are issued shares and
outstanding as of the Valuation Date (as hereinafter defined). As a
result of the Reorganization, each Class A or Class B Strategic Investment
Grade Bond Fund shareholder will receive that number of full and
fractional Bond Fund Class A or Class B shares equal in value to such
shareholder's pro rata interest in the assets transferred to Bond Fund as
of the Valuation Date. The Board of Oppenheimer Integrity Funds, on
behalf of Strategic Investment Grade Bond Fund, has determined that the
interests of existing Strategic Investment Grade Bond Fund shareholders
will not be diluted as a result of the Reorganization. For the reasons
set forth below under "The Reorganization - Reasons for the
Reorganization," the Board, including the trustees who are not "interested
persons" of the Trust (the "Independent Trustees'), as that term is
defined in the Investment Company Act, has concluded that the
Reorganization is in the best interests of Strategic Investment Grade Bond
Fund and its shareholders and recommends approval of the Reorganization
by Strategic Investment Grade Bond Fund shareholders. If the
Reorganization is not approved, Strategic Investment Grade Bond Fund will
continue in existence and the Board will determine whether to pursue
alternative actions.
Reasons for the Reorganization
The Manager proposed to the Board a reorganization into Bond Fund
(formerly Oppenheimer Investment Grade Bond Fund) so that shareholders of
Strategic Investment Grade Bond Fund may be shareholders of a larger fund,
which after such reorganization allows shareholders to experience a
reduction in expenses. When the Board considered the reorganization, the
investment advisory fee rate of Bond Fund was lower than that of Strategic
Investment Grade Bond Fund. However, the Board of Oppenheimer Integrity
Funds, on behalf of Bond Fund had approved a proposal, approved by
shareholders of Bond Fund to increase the investment advisory fee which
would make it identical to the investment advisory fee of Strategic
Investment Grade Bond Fund. The Board considered pro form information
which indicated the expense ratio of a combined fund (after the increase
in investment advisory fee) would be lower than that of Strategic
Investment Grade Bond Fund. The ratio of expenses for Strategic
Investment Grade Bond Fund for the fiscal year ended September 30, 1994
was 1.33% (after reimbursement for Class A shares). Before reimbursement
the ratio of expenses for Strategic Investment Grade Bond Fund for the
fiscal year ended September 30, 1994 was 1.38%. The ratio of expenses for
Strategic Investment Grade Bond Fund for the fiscal year ended September
30, 1994 for Class B shares was 2.12% (after reimbursement) and 2.16%
(before reimbursement).
For the fiscal year ended December 31, 1994 the ratio of expenses for Bond
Fund was 1.06% for Class A shares and 1.78% for Class B shares. The pro
forma fees for Class A shares of the combined fund at December 31, 1994
(assuming the new management fee was in effect at such time) would have
been 1.31% for Class A shares and 2.03% for Class B shares. In addition
to the above the Board also considered information with respect to the
historical performance of Strategic Investment Grade and Bond Fund. The
Board analyzed that as of the date of the meeting the average annual
returns at net asset value was better for Class A shares of Bond Fund than
Class A shares of Strategic Investment Grade Bond Fund. As of July 10,
1995, the investment policies of Bond Fund changed. Previously, Bond
Fund's investments were substantially limited to investment grade bonds,
U.S. government securities and money market instruments. The Manager
expects that the approved changes permitting Bond Fund to seek a high
level of current income by investing mainly in debt instruments and
permitting it, as a non-fundamental policy to expand its permissible
investments to include up to 35% of its total assets in non-investment
grade debt securities will improve the investment performance of Bond
Fund. Although past performance is not predictive of future results,
shareholders of Oppenheimer Bond Fund would have an opportunity to become
shareholders of a fund with a better performance history.
The Board also considered that the Reorganization would be a tax free
reorganization, and would be no sales charge imposed in effecting the
Reorganization. The Board concluded that the Reorganization would not
result in dilution to shareholders of Strategic Investment Grade Bond Fund
and it would not result in dilution to shareholders of Bond Fund.
Tax Consequences of the Reorganization
In the opinion of Deloitte & Touche LLP, tax adviser to Strategic
Investment Grade Bond Fund, the Reorganization will qualify as a tax-free
reorganization for Federal income tax purposes. As a result, no gain or
loss will be recognized by, or the shareholders of either fund for Federal
income tax purposes as a result of the Reorganization. For further
information about the tax consequences of the Reorganization, see
"Approval of the Reorganization - Tax Aspects" below.
Investment Objectives and Policies
Strategic Investment Grade Bond Fund
Strategic Investment Grade Bond Fund's investment objective is to seek a
high level of current income, consistent with the stability of principal,
as is available from a portfolio of investment grade debt securities. In
seeking its investment objective, Strategic Investment Grade Bond Fund
intends to invest principally in the following three sectors: (i) U.S.
government securities; (ii) foreign fixed-income securities; and (iii)
investment grade corporate bonds and debentures. Although under normal
market conditions Strategic Investment Grade Bond Fund intends to invest
in each of these three sectors, from time to time the Manager may adjust
the amounts the Fund invests in each sector depending upon, among other
things, the Manager's evaluation of economic and market conditions.
Distributable income will fluctuate as Strategic Investment Grade Bond
Fund shifts its assets among the three sectors.
Under normal circumstances, the assets of Strategic Investment Grade Bond
Fund will principally be invested in each of the three respective sectors
described above, and at least 65% of Strategic Investment Grade Bond
Fund's total assets (the "65% Policy") will be invested in U.S. government
securities and domestic and foreign bonds and debentures rated at least
investment grade. Strategic Investment Grade Bond Fund may from time to
time invest up to 35% of its total assets including securities rated below
investment grade. Lower-rated securities (often called "junk bonds") are
considered speculative and involve greater volatility of price and risk
of principal and income default than securities in the higher-rated
categories.
Bond Fund
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 Bond 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 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.
Bond Fund may also write covered calls and use certain types of securities
called "derivatives" and hedging instruments to try to manage investment
risks.
Investment Advisory and Distribution and Service Plan Fees
The terms and conditions of each investment advisory agreement are
substantially the same. Both funds obtain investment management services
from the Manager. Prior to July 10, 1995, the Manager had contracted with
Massachusetts Mutual Life Insurance Company ("MassMutual") to act as the
Fund's Sub-Adviser. Effective July 10, 1995, the Sub-Advisory agreement
between the Manager and MassMutual terminated, and the Manager is
responsible for selecting Bond Funds investments as well as its day to day
business pursuant to an investment advisory agreement dated July 10, 1995.
The management fee is payable monthly and computed on the net asset value
of each fund as of the close of business each day. Both funds pay the
same management fee rate of 0.75% of the first $200 million of aggregate
net assets, 0.72% of the next $200 million, 0.69% of the next $200
million, 0.66% of the next $200 million, 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.
Strategic Investment Grade Bond Fund and Bond Fund have both adopted
Service Plans for their respective Class A shares. Both Service Plans
provide for reimbursement to the Distributor for a portion of its costs
incurred in connection with the personal service and maintenance of
accounts that hold Class A shares. Under each plan, reimbursement is made
at an annual rate that may not exceed 0.25% of the average annual net
assets of Class A of each of the funds.
Strategic Investment Grade Bond Fund and Bond Fund have adopted a
Distribution and Service Plans (the "Plans") for Class B shares under
which each fund pays the Distributor for its services in connection with
and costs in distributing Class B shares and servicing accounts. Under
each Plan, the funds pay the Distributor an asset-based sales charge of
0.75% per annum of Class B shares outstanding for six years or less, and
also pays the Distributor a service fee of 0.25% per annum, each of which
is computed on the average annual net assets of Class B shares determined
as of the close of each regular business day of each fund. The Plan for
Strategic Investment Grade Bond Fund makes payments to reimburse the
Distributor for its distribution expenses. The Plan for Bond Fund is a
compensation plan under which Bond Fund pays the Distributor for certain
distribution services but Bond Fund payments are not tied to reimbursing
the Distributor for its expenses. Under Bond Fund's compensation plan,
the payments Bond Fund makes may over time be greater than the payments
to be made by Strategic Investment Grade Bond Fund.
Purchases, Exchanges and Redemptions
Both Strategic Investment Grade Bond Fund and Bond Fund are part of the
OppenheimerFunds complex of mutual funds. The procedures for purchases,
exchanges and redemptions of shares of the funds are substantially the
same. Shares of either fund may be exchanged only for Class A or Class
B shares of certain of other OppenheimerFunds offering such shares.
Both Strategic Investment Grade Bond Fund and Bond Fund have an initial
sales charge of 4.75% on Class A shares. Investors who purchase more than
$1 million in Class A shares may have to pay a sales charge of up to 1%
if shares are sold within 18 calendar months from the end of the calendar
month during which shares are purchased. Each of the funds has a
contingent deferred sales charge imposed on the proceeds of Class B shares
redeemed within six years of buying them. The contingent deferred sales
charge ("CDSC") varies depending on how long you hold your shares. Class
A and Class B shares of Bond Fund received in the Reorganization will be
issued at net asset value, without a sales charge and no CDSC will be
imposed as a result of the Reorganization. Services available to
shareholders of both funds include purchase and redemption of shares
through OppenheimerFunds AccountLink and PhoneLink (an automated telephone
system), telephone redemptions, and exchanges by telephone to other
OppenheimerFunds which offer Class A and Class B shares, and reinvestment
privileges. Please see "Shareholder Services," and you should refer to
Strategic Investment Grade Bond Fund's prospectus and Bond Fund's
prospectus included with this document for further information.
PRINCIPAL RISK FACTORS
In evaluating whether to approve the Reorganization and invest in Bond
Fund, shareholders should carefully consider the following risk factors,
the information set forth in this Proxy Statement and Prospectus and the
more complete description of risk factors set forth in the documents
incorporated by reference herein, including the Prospectuses of the funds
and their respective Statements of Additional Information.
Strategic Investment Grade Bond Fund
Strategic Investment Grade Bond Fund in seeking its investment objectives
as described above, in lends to invest principally in the following three
sectors: (i) U.S. government securities; (ii) foreign fixed-income
securities; and (iii) investment grade corporate bonds and debentures.
There are 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 are risks of
changes in foreign currency values. Because Strategic Investment Grade
Bond Fund may purchase securities denominated in foreign currencies, a
change in value of a foreign currency against the U.S. dollar will result
in a change in the U.S. dollar value of Strategic Investment Grade Bond
Fund securities denominated in that currency. The currency rate change
will also affect its income available for distribution. Although the
Strategic Investment Grade Bond Fund investment income from foreign
securities may be received in foreign currencies, Strategic Investment
Grade Bond Fund will be required to absorb the cost of currency
fluctuations. If Strategic Investment Grade Bond Fund suffers a loss on
foreign currencies after it has distributed its income during the year,
Strategic Investment Grade Bond Fund may find that it has distributed more
income than was available from actual investment income. 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.
If Strategic Investment Grade Bond Fund's assets are held abroad, the
countries in which they are held and the sub-custodians holding them must
be approved by Strategic Investment Grade Bond Fund's Board of Trustees.
No more than 25% of Strategic Investment Grade Bond Fund's total assets,
at the time of purchase, will be invested in government securities of any
one foreign country or in debt securities issued by companies organized
under the laws of the foreign country. More information about the risks
and potential rewards of investing in foreign securities is contained in
Strategic Investment Grade Bond Fund's Statement of Additional
Information.
Strategic Investment Grade Bond Fund may from time to time invest up to
35% of its total assets (including securities downgraded below investment
grade subsequent to purchase) in other investments, such as non-investment
grade domestic and foreign bonds and debentures, notes, preferred stocks,
dividend-paying common stocks, participation interests, zero coupon
securities, asset-backed securities, sinking fund and callable bonds,
municipal securities, as well as short-term debt obligations issued by
foreign governments or domestic or foreign corporations denominated in
U.S. dollars or selected foreign currencies (including, among others,
participation interests, commercial paper and bank obligations, discussed
below). Strategic Investment Grade Bond Fund may invest in such
securities if, in the Manager's judgment, Strategic Investment Grade Bond
Fund has the opportunity of seeking a high level of current income without
undue risk to principal. Lower-rated securities (often called "junk
bonds") are considered speculative and involve greater volatility of price
and risk of principal and income default than securities in the
higher-rated categories. They may be less liquid than higher-rated
securities. If Strategic Investment Grade Bond Fund were forced to sell
a lower-rated debt security during a period of rapidly-declining prices,
it might experience significant losses especially if a substantial number
of other holders decide to sell at the same time.
Debt securities have both interest rate and credit risks. 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 Strategic Investment Grade Bond Fund mean that
Strategic Investment Grade Bond Fund's share prices can go up or down when
interest rates change, because of the effect of the change on the value
of Strategic Investment Grade Bond Fund's portfolio of debt securities.
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 Strategic Investment Grade Bond 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.
Bond Fund
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
domestic and foreign instruments. Bond Fund may (as a matter of non-
fundamental policy) invest up to 35% of its total assets in non-investment
grade debt instruments. These lower rated securities (often called "junk
bonds" are considered speculative and involve greater risks. They have
the same risks as those lower rated securities which may be purchase by
Strategic Investment Grade Bond Fund.
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 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 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.
While both funds may invest in foreign fixed-income securities, Bond Fund
is not restricted in the amount of assets it may invest in foreign
countries, nor is it restricted with respect to which countries it can
invest in. Investments in securities of foreign governments and companies
present the same risks as those discussed with respect to Strategic
Investment Grade Bond Fund. Debt securities present the same credit and
interest risks as those discussed with respect to Strategic Investment
Grade Bond Fund.
Although both funds may invest up to 35% of their total assets in non-
investment grade bonds ("junk bonds"), Oppenheimer Bond Fund has the
ability, without shareholder approval, to increase the percentage of its
assets invested in junk bonds. However, such a change may only be made
with the approval of the Board of Oppenheimer Integrity Funds, on behalf
of Bond Fund, which has no plans for such a change.
APPROVAL OF THE REORGANIZATION
(The Proposal)
Reasons for the Reorganization
At a meeting of the Board of Trustees (the "Board") held April 19, 1995,
the Trustees reviewed and discussed materials relevant to the proposed
Reorganization. The Board, including the Independent Trustees unanimously
approved and recommend to shareholders of Strategic Investment Grade that
they approve the Reorganization. Strategic Investment Grade is organized
as a Massachusetts business trust. Both funds offer Class A and Class B
shares and the terms and conditions of their offer, sale, redemption and
exchange, distribution arrangements, expenses borne separately by each
class and other related matters are essentially the same. The Board
considered that this will facilitate an exchange. In the reorganization,
Class A and Class B shareholders of Strategic Investment Grade Bond Fund
will receive Class A and Class B shares, respectively, of Bond Fund
(formerly Oppenheimer Investment Grade Bond Fund).
In considering the proposed merger, the Board reviewed information which
demonstrated that Strategic Investment Grade Bond Fund is a significantly
smaller fund with $38,670.437 assets as of March 31, 1995. In comparison,
Bond Fund had $115,885,874 assets as of March 31, 1995. It is not
anticipated that Strategic Investment Grade Bond Fund will increase
substantially in size in the near future. After the reorganization, the
shareholders of Strategic Investment Grade Bond Fund will be shareholders
of a larger fund and will incur lower operating, transfer agency and other
expenses. Thus economics of scale will benefit shareholders of Strategic
Investment Grade Bond Fund. Among several factors the Board focused on
the investment objectives of the two funds. Strategic Investment Grade
seeks a high level of current income, consistent with stability of
principal, as is available from a portfolio of investment grade debt
securities. Bond Fund, at the time of the meeting, had the investment
objective of seeking to achieve a high level of current income consistent
with prudent investment risk and the stability of capital primarily
through investment. The current investment objective, which was proposed
at the time of the meeting, and was subsequently approved by shareholders
at a meeting held on July 10, 1995, is to seek a high level of current
income by investing mainly in debt instruments. This is also consistent
with the objective of Strategic Investment Grade Bond Fund. Both funds
may invest up to 35% of their total assets in securities rated below
investment grade. The Board took the proposed changes, including the
change in Bond Fund's investment objective and policies into consideration
and determined that the objectives were substantially similar and that the
Board's proposed investment policy, which was approved by shareholders
would be essentially the same.
The Board, in reviewing financial information, considered the investment
advisory fee of both funds. At the time of the April meeting the
management fees paid by Bond Fund, were lower than Strategic Investment
Grade Bond Fund. On July 10, 1995, Bond Fund's shareholders approved an
increase in the investment advisory fee rate (also known as the
"management fee rate"). The management fee rates of both funds which
declines as each fund grows and is as follows: 0.75% of the first $200
million of aggregate assets; 0.72% of the next $200 million, 0.69% of the
next $200 million, and 0.50% of net assets in excess of $1 billion. The
higher investment advisory fee rates were not in effect for this time
period. Had they been in effect, Bond Fund's ratio of expenses for the
period ended December 31, 1994 would have been higher. However, the
higher investment advisory rates are identical to Strategic Investment
Grade Bond Fund's investment advisory rates. If the two funds were
combined shareholders of the Strategic Investment Grade Bond Fund would
continue to have a management fee of 0.75% but they would be much closer
to the $200 million breakpoint. The Board considered pro form information
which indicated the expense ratio of a combined fund would still be
slighter lower than that of Strategic Investment Grade Fund. The ratio
of expenses for Strategic Investment Grade for the fiscal year ended
September 30, 1994 was 1.38% for Class A shares (before reimbursement).
The ratio of expenses for Strategic Investment Grade Bond Fund for the
fiscal year ended September 30, 1994 was 1.33% for Class A shares (after
reimbursement). Up until November 24, 1993, the Manager had undertaken
to assume Strategic Investment Grade Bond Fund's expenses (other than
extraordinary non-recurring expenses) to enable Strategic Investment Grade
Bond Fund to pay a dividend of $.378 per share per annum, with the
limitation that the dividend could not exceed Strategic Investment Grade
Bond Fund's annual gross earnings per share per annum. For the fiscal
year ended December 31, 1994 the ratio of expenses for Bond Fund for Class
A shares was 1.06% and 1.78% for Class B shares. The investment policies
of Bond Fund were changed by shareholder approval. Prior to such change
Bond Fund's investments were limited to investment grade bonds, U.S.
government securities and money market securities. The Manager expects
that the approved changes which expands its permissible investments will
improve Bond Fund's investment performance. The pro forma fees for Class
A shares of the combined fund at December 31, 1994 (after an increase, in
Bond Fund's investment advisory fee) would have been 1.31%. In addition
to the above, the Board also considered information with respect to the
historical performance of Strategic Investment Grade and Bond Fund. The
Board analyzed that as of the date of the meeting the average annual
returns at net asset value was better for Class A of Bond Fund than Class
A shares of Strategic Investment Grade Bond Fund. Although past
performance is not predictive of future results, shareholders of
Oppenheimer Bond Fund would have an opportunity to become shareholders of
a fund with a better performance history.
The Board also considered that the Reorganization would be a tax free
reorganization, and would be no sales charge imposed in effecting the
Reorganization. The Board concluded that the Reorganization would not
result in dilution to shareholders of Strategic Investment Grade Bond Fund
and it would not result in dilution to shareholders of Bond Fund.
The Reorganization
The Reorganization Agreement (a copy of which is set forth in full as
Annex A to this Proxy Statement and Prospectus) contemplates a
reorganization under which (i) all of the assets of Strategic Investment
Grade Bond Fund (other than the cash reserve described below (the "Cash
Reserve")) will be transferred to Bond Fund in exchange for Class A and
Class B shares of Bond Fund, (ii) these shares will be distributed among
the shareholders of Strategic Investment Grade Bond Fund in complete
liquidation of Strategic Investment Grade Bond Fund, (iii) the outstanding
shares of Strategic Investment Grade Bond Fund will be cancelled. Bond
Fund will not assume any of Strategic Investment Grade Bond Fund's
liabilities except for portfolio securities purchased which have not
settled and outstanding shareholder redemption and dividend checks.
The result of effectuating the Reorganization would be that: (i) Bond Fund
will add to its gross assets all of the assets (net of any liability for
portfolio securities purchased but not settled and outstanding shareholder
redemption and dividend checks) of Strategic Investment Grade Bond Fund
other than its Cash Reserve; and (ii) the shareholders of Strategic
Investment Grade Bond Fund as of the close of business on the Closing Date
will become shareholders of either Class A or Class B shares of Bond Fund.
The effect of the Reorganization will be that shareholders of Strategic
Investment Grade Bond Fund who vote their Class A and Class B shares in
favor of the Reorganization will be electing to redeem their shares of
Strategic Investment Grade Bond Fund (at net asset value on the Valuation
Date referred to below under "Method of Carrying Out the Reorganization
Plan," calculated after subtracting the Cash Reserve) and reinvest the
proceeds in Class A or Class B shares of Bond Fund at net asset value
without sales charge and without recognition of taxable gain or loss for
Federal income tax purposes (see "Tax Aspects of the Reorganization"
below). The Cash Reserve is that amount retained by Strategic Investment
Grade Bond Fund which is sufficient in the discretion of the Board for the
payment of: (a) Strategic Investment Grade Bond Fund's expenses of
liquidation, and (b) its liabilities, other than those assumed by Bond
Fund. Strategic Investment Grade Bond Fund and Bond Fund will bear all
of their respective expenses associated with the Reorganization, as set
forth under "Costs of the Solicitation and the Reorganization" above.
Management estimates that such expenses associated with the Reorganization
to be borne by Strategic Investment Grade Bond Fund will not exceed
$30,000. Liabilities as of the date of the transfer of assets will
consist primarily of accrued but unpaid normal operating expenses of
Strategic Investment Grade Bond Fund, excluding the cost of any portfolio
securities purchased but not yet settled and outstanding shareholder
redemption and dividend checks. See "Method of Carrying Out the
Reorganization Plan" below.
The Reorganization Agreement provides for coordination between the funds
as to their respective portfolios so that, after the closing, Bond Fund
will be in compliance with all of its investment policies and
restrictions. Strategic Investment Grade Bond Fund will recognize capital
gain or loss on any sales made pursuant to this paragraph. As noted in
"Tax Aspects of the Reorganization" below, if Strategic Investment Grade
Bond Fund realizes net gain from the sale of securities in 1995, such
gain, to the extent not offset by capital loss carry forward, will be
distributed to shareholders prior to the Closing Date and will be taxable
to shareholders as capital gain.
Tax Aspects of the Reorganization
Immediately prior to the Valuation Date referred to in the Reorganization
Agreement, Strategic Investment Grade Bond Fund will pay a dividend or
dividends which, together with all previous such dividends, will have the
effect of distributing to Strategic Investment Grade Bond Fund's
shareholders all of Strategic Investment Grade Bond Fund's investment
company taxable income for taxable years ending on or prior to the Closing
Date (computed without regard to any deduction for dividends paid) and all
of its net capital gain, if any, realized in taxable years ending on or
prior to the Closing Date (after reduction for any available capital loss
carry-forward). Such dividends will be included in the taxable income of
Strategic Investment Grade Bond Fund's shareholders as ordinary income and
capital gain, respectively.
The exchange of the assets of Strategic Investment Grade Bond Fund for
Class A and Class B shares of Bond Fund and the assumption by Bond Fund
of certain liabilities of Strategic Investment Grade Bond Fund is intended
to qualify for Federal income tax purposes as a tax-free reorganization
under Section 368(a)(1) of the Internal Revenue Code of 1986, as amended
(the "Code"). Strategic Investment Grade Bond Fund has represented to
Deloitte & Touche LLP, tax adviser to Strategic Investment Grade Bond
Fund, that there is no plan or intention by any Fund shareholder who owns
5% or more of Strategic Investment Grade Bond Fund's outstanding shares,
and, to Strategic Investment Grade Bond Fund's best knowledge, there is
no plan or intention on the part of the remaining Fund shareholders, to
redeem, sell, exchange or otherwise dispose of a number of Bond Fund Class
A or Class B shares received in the transaction that would reduce
Strategic Investment Grade Bond Fund shareholders' ownership of Bond Fund
shares to a number of shares having a value, as of the Closing Date, of
less than 50% of the value of all the formerly outstanding Fund shares as
of the same date. Oppenheimer Bond Fund and Strategic Investment Grade
Bond Fund have represented to Deloitte & Touche LLP, that, as of the
Closing Date, it will qualify as a regulated investment company or will
meet the diversification test of Section 368(a)(2)(F)(ii) of the Code.
As a condition to the closing of the Reorganization, Bond Fund and
Strategic Investment Grade Bond Fund will receive the opinion of Deloitte
& Touche LLP to the effect that, based on the Reorganization Agreement,
the above representations, existing provisions of the Code, Treasury
Regulations issued thereunder, current Revenue Rulings, Revenue Procedures
and court decisions, for Federal income tax purposes:
1. The transactions contemplated by the Reorganization Agreement will
qualify as a tax-free "reorganization" within the meaning of Section
368(a)(1) of the Code.
2. Strategic Investment Grade Bond Fund and Bond Fund will each qualify
as "a party to a reorganization" within the meaning of Section
368(b)(2) of the Code.
3. No gain or loss will be recognized by the shareholders of Strategic
Investment Grade Bond Fund upon the distribution of Class A or Class
B shares of beneficial interest in Bond Fund to the shareholders of
Strategic Investment Grade Bond Fund pursuant to Section 354 of the
Code.
4. Under Section 361(a) of the Code no gain or loss will be recognized
by Strategic Investment Grade Bond Fund by reason of the transfer of
its assets solely in exchange for Class A or Class B shares of Bond
Fund.
5. Under Section 1032 of the Code no gain or loss will be recognized by
Bond Fund by reason of the transfer of Strategic Investment Grade Bond
Fund's assets solely in exchange for Class A or Class B shares of Bond
Fund.
6. The shareholders of Strategic Investment Grade Bond Fund will have the
same tax basis and holding period for the shares of beneficial
interest in Bond Fund that they receive as they had for Strategic
Investment Grade Bond Fund stock that they previously held, pursuant
to Sections 358(a) and 1223(1) of the Code, respectively.
7. The securities transferred by Strategic Investment Grade Bond Fund to
Bond Fund will have the same tax basis and holding period in the hands
of Bond Fund as they had for Strategic Investment Grade Bond Fund,
pursuant to Sections 362(b) and 1223(1) of the Code, respectively.
Shareholders of Strategic Investment Grade Bond Fund should consult their
tax advisors regarding the effect, if any, of the Reorganization in light
of their individual circumstances. Since the foregoing discussion only
relates to the Federal income tax consequences of the Reorganization,
shareholders of Strategic Investment Grade Bond Fund should also consult
their tax advisers as to state and local tax consequences, if any, of the
Reorganization.
Capitalization Table (Unaudited)
The table below sets forth the capitalization of Strategic Investment
Grade Bond Fund and Bond Fund and indicates the pro forma combined
capitalization as of March 31, 1995 as if the Reorganization had occurred
on that date.
<TABLE>
<CAPTION>
March 31, 1995
Net Asset
Shares Value
Net Assets Outstanding Per Share
<S> <C> <C> <C>
Oppenheimer Strategic
Investment Grade Bond
Class A $ 23,190,699 4,906,735 $ 4.73
Class B $ 15,479,738 3,278,697 $ 4.72
Oppenheimer Bond Fund
Class A $109,961,008 10,644,112 $10.33
Class B $ 5,924,866 573,516 $10.33
Class C
Oppenheimer Bond Fund
(Pro Forma Surviving Fund)
Class A $133,151,707 12,889,097 $10.33
Class B $ 21,404,604 2,072,039 $10.33
</TABLE>
Reflects issuance of 2,244,985 of Class A shares and 1,498,523 of Class
B shares of Bond Fund in a tax-free exchange for the net assets of
Strategic Investment Grade Bond Fund, aggregating $38,670,437.
The pro forma ratio of expenses to average annual net assets of the Class
A shares at March 31, 1995 would have been 1.27%. The pro forma ratio of
expenses to average net assets of Class B shares at March 31, 1995 would
have been 2.03%. The pro forma ratio of expenses to average net assets
of Class C shares at March 31, 1995 would have been 2.03%.
COMPARISON BETWEEN
STRATEGIC INVESTMENT GRADE BOND FUND
AND BOND FUND
Information about Strategic Investment Grade Bond Fund and Bond Fund is
presented below. Additional information about Bond Fund is set forth in
its Prospectus, accompanying this Proxy Statement and Prospectus, and
additional information about both funds is set forth in documents that may
be obtained upon request of the transfer agent and upon review at the
offices of the SEC. See "Miscellaneous - Public Information."
Investment Objectives and Policies
Summary
Under normal market conditions, Bond Fund invests at least 65% of its
total assets in a diversified portfolio of investment grade fixed-income
securities. The Fund may invest up to 35% of its total assets in non-
investment grade debt instruments. Bond Fund may also lend its portfolio
securities, enter into repurchase agreements, purchase illiquid and
restricted securities, purchase and make short sales against-the-box,
borrow for leverage, buy participation interests, and purchase certain
derivatives. It may also purchase and sell certain kinds of futures
contracts, and options on futures, securities indices and securities, or
enter into interest rate swap agreements.
Strategic Investment Grade Bond Fund seeks a high level of current income,
consistent with stability of principal, as is available from a portfolio
of investment grade debt securities. It intends to invest its assets
principally in the following three sectors (1) U.S. government securities,
(ii) foreign fixed-income securities, and (iii) investment grade corporate
bonds and debenture. Under normal circumstances, at least 65% of its
total assets will be invested in U.S. government securities and domestic
and foreign bonds and debentures rated at least investment grade. It may
invest up to 35% of its total assets in certain of the investments,
including securities rated below investment grade, such as non-investment
grade domestic and foreign bonds and debentures, notes, preferred stocks,
dividends-paying common stocks, participation interests, zero coupon
securities, asset backed securities, sinking fund and callable bonds and
municipal securities, as well as short-term debt obligations issued by
foreign governments or domestic corporations denominated in U.S. dollars
or selected foreign currencies (including, among others participation
interests, commercial paper and bank obligations discussed below.)
Strategic Investment Grade Bond Fund may also invest in money market
securities, lend its portfolio securities, enter into repurchase
agreement, purchase illiquid and restricted securities, purchase and make
short sales against the box, borrow for leveraging, buy participation
interests and preferred stock and purchase certain derivatives. It may
also purchase and sell certain kinds of futures contracts, and options on
futures, securities indices and securities, or enter into interest rate
swap agreements. These are all referred to as hedging instruments. Both
of the funds invest in fixed income securities which are subject to
interest rate risks and credit risks.
All debt securities, including U.S. Government Securities are subject to
changes in value due to changes in prevailing interest rates, when
prevailing interest rates fail, the value of outstanding debt securities
generally rise. Conversely, when interest rates rise, the values of
outstanding debt securities generally decline. The magnitude of these
fluctuations will be greater when the average maturity of the portfolio
securities is larger. Debt securities are also subject to credit risks.
Credit risks relate 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 each fund may hold are
subject to greater credit risks than higher-rated bonds. Securities
issued or guaranteed by the U.S. Government are subject to little, if any
credit risk.
These risks mean that each of the funds may not achieve the expected
income from lower-grade securities. Each fund's net asset value per share
may be affected by declines in the value of these securities. There are
also certain risks associated with investments in foreign securities,
including those related to changes in foreign currency rates, that are not
present in domestic stocks.
The securities in which Bond Fund and Strategic Investment Grade Bond Fond
invest are summarized below. Both funds invest in substantially the same
type of securities. Although both funds may invest up to 35% of their
total assets in non-investment grade debt securities, Bond Fund has the
ability, without shareholder approval to change (increase or decrease) the
percentage of its assets invested in non-investment grade debt (often
called "junk bonds"). However, it may only do so with approval of the
Board of Oppenheimer Integrity Funds, which has no plans to make such a
change. For more information on all of these securities, please refer to
each fund's prospectus and statement of additional information.
Bond Fund
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
domestic and foreign instruments. Bond Fund may also invest up to 35% of
its total assets in non-investment grade debt instruments.
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 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 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.
Bond Fund may invest in debt securities issued or guaranteed by foreign
companies and debt securities of foreign governments or their agencies.
These securities may include debt obligations such as government bonds,
debentures issued by companies, as well as notes. Bond Fund may also
invest in 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") which are
supported by the full faith and credit of the U.S. government.
Bond Fund may also invest in mortgage-related U.S. Government securities
that are issued or guaranteed by federal agencies or government-sponsored
entities but are not supported by the full faith and credit of U.S.
Government. The Bond Fund may also invest in mortgage-backed securities,
whether issued by the U.S. government or private issuer, as well as CMOs.
It may also invest in asset backed securities.
Strategic Investment Grade Bond Fund
Under normal circumstances, the assets of Strategic Investment Grade Bond
Fund will principally be invested in each of the three respective sectors
described above, and at least 65% of the Fund's total assets (the "65%
Policy") will be invested in U.S. government securities and domestic and
foreign bonds and debentures rated at least investment grade. Investment
grade debt securities are rated at least "Baa" by Moody's Investors
Service, Inc. ("Moody's") or at least "BBB" by Standard & Poor's
Corporation ("Standard & Poor's") or, if unrated, are determined by the
Manager as offering risks comparable to securities meeting those rating
requirements.
Strategic Investment Grade Bond Fund may from time to time invest up to
35% of its total assets (including securities downgraded below investment
grade subsequent to purchase) in other investments, such as non-investment
grade domestic and foreign bonds and debentures, notes, preferred stocks,
dividend-paying common stocks, participation interests, zero coupon
securities, asset-backed securities, sinking fund and callable bonds, as
well as short-term debt obligations issued by foreign dollars or selected
foreign currencies (including, among others, participation interests,
commercial paper and bank obligations.
Permitted Investments by Both Strategic Investment Grade Bond Fund and
Bond Fund
U.S. Government Securities
Both of the funds may invest in debt obligations issued or guaranteed by
the U.S. Government or its agencies or instrumentalities ("U.S. Government
Securities"). Both of the funds may invest in obligations supported by
the full faith and credit of the U.S. Government such as mortgage-backed
securities guaranteed by the Government National Mortgage Association
("Ginnie Maes") or they may invest in other securities, issued or
guaranteed by federal agencies or government-sponsored enterprises that
are not supported by the full faith and credit of the United States, and
securities of agencies and instrumentalities that are supported by the
discretionary authority of the U.S. Government to purchase such securities
which include: Federal Land Banks, Farmers Home Administration, Central
Bank for Cooperatives, and Federal Intermediate Credit Banks and Freddie
Mac.
Both of the funds may invest in mortgaged-backed securities, including
collateralized mortgage-backed obligations ("CMOs"), of fully-modified
pass-through type, such as GNMA certificates, which are guaranteed as to
timely payment of principal and interest by the full faith and credit of
the United States Government or which are issued or guaranteed by agencies
of the U.S. Government, such as Federal Home Loan Mortgage Corporation
("Freddie Mac") or the Federal National Mortgage Association ("Fannie
Mae").
Both funds have the ability to invest in mortgage-backed securities,
including CMO's that may be issued by private issuers, such as commercial
banks, savings and loan institutions and private mortgage insurance
companies and other secondary market issuers. There can be no assurance
that private issuers will be able to meet their obligations. The
effective maturity of a mortgage-backed security may be shortened by
unscheduled or early payment of principal and interest on the underlying
mortgages, which may affect the effective yield of such securities. The
principal that is returned may be invested in instruments having a higher
or lower yield than the prepaid instruments, depending on then-current
market conditions. Such securities therefore may be less effective as a
means of "locking in" attractive long-term interest rates and may have
less potential for appreciation during periods of declining interest rates
than conventional bonds with comparable stated maturities. Mortgage-
backed securities purchased at a premium, prepayments of principal and
foreclosures of mortgages may result in some loss of the principal
investment to the extent of the premium paid.
Payment of the interest and principal generated by the pool of mortgages
is passed through to the holders as the payments are received by the
issuer of the CMO. CMOs may be issued in a variety of classes or series
("tranches") that have different maturities. The principal value of
certain CMO tranches may be more volatile than other types of mortgage-
related securities, because of the possibility that the principal value
of the CMO may be prepaid earlier than the maturity of the CMO as a result
of prepayments of the underlying mortgage loans by the borrowers.
Both funds may invest in "stripped" mortgage-backed securities or CMOs or
other securities issued by agencies or instrumentalities of the U.S.
Government. Stripped mortgage-backed securities usually have two classes.
The classes receive different proportions of the interest and principal
distributions on the pool of mortgage assets that act as collateral for
the security. In certain cases, one class will receive all of the
interest payments (and is known as an "I/O"), while the other class will
receive all of the principal value on maturity (and is known as a "P/O").
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, a Fund will
lose the anticipated cash flow from the interest on the prepaid mortgages.
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.
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,
some stripped securities may be deemed "illiquid."
Zero Coupon Securities
Both funds may invest in zero coupon securities issued by the U.S.
Treasury. In general, zero coupon U.S. Treasury securities include (1)
U.S. Treasury notes or bonds that have been "stripped" of their interest
coupons, (2) U.S. Treasury bills issued without interest coupons, or (3)
certificates representing an interest in stripped securities. A zero
coupon Treasury security pays no current interest and trades at a deep
discount from its face value. It will be subject to greater market
fluctuations from changes in interest rates than interest-paying
securities. Either fund accrues interest on zero coupon securities
without receiving the actual cash. As a result of holding these
securities, either fund could possibly be forced to sell portfolio
securities to pay cash dividends or meet redemptions.
Both may also invest in zero coupon securities issued by corporations or
private issuers. These zero coupon securities are: (i) notes or
debentures that do not pay current interest and are issued at substantial
discounts from par value, or (ii) notes or debentures that pay no current
interest until a stated date one or more years into the future, after
which the issuer is obligated to pay interest until maturity, usually at
a higher rate than if interest were payable from the date of issuance.
Such zero coupon securities are subject to certain risks, in addition to
the risks identified above for zero coupon securities issued by the U.S.
Treasury, such as the risk of the issuer's failure to pay interest and
repay principal in accordance with the terms of the obligation.
When-Issued and Delayed Delivery Transactions
The funds may purchase securities on a "when-issued" basis and may
purchase or sell securities on a "delayed delivery" basis. These terms
refer to securities that have been created and for which a market exists,
but which are not available for immediate delivery. There may be a risk
of loss to either fund if the value of the security declines prior to the
settlement date.
Repurchase Agreements
Each of the funds may enter into repurchase agreements. Neither of the
funds will enter into repurchase agreements that will cause more than 10%
of their net assets to be subject to repurchase agreements having a
maturity beyond seven days. However, if the vendor fails to pay the
resale price on the delivery date, the funds may experience costs in
disposing of the collateral and losses if there is any delay in doing so.
Foreign Securities
Both funds 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 each fund receives. Strategic Investment Grade Bond Fund will have
no more than 25% of its total assets invested in government securities of
any one foreign country or in debt securities issued by companies
organized under the laws of any one foreign country. Bond Fund has no
such restriction. Neither fund has a restriction with respect to the
amount it may invest in foreign securities. However, the Manager
anticipates, with respect to Bond Fund, that 10% of its total assets would
be invested in non-investment grade foreign bonds.
Foreign securities have special risks. For example, the values of foreign
securities investments may be affected by changes in foreign currency
rates, exchange control regulations, expropriation or nationalization of
a company's assets, foreign taxes, delays in settlement of transactions,
changes in governmental economic or monetary policy in the U.S. or abroad,
or other political and economic factors.
Hedging
Both funds may use hedging investments. As described below, each of the
funds may purchase and sell certain kinds of futures contracts, put and
call options, forward contracts, and options on futures, securities
indices and securities, or enter into interest rate swap agreements.
These are all referred to as "hedging instruments." The funds do not use
hedging instruments for speculative purposes, and has limits on the use
of them, described below. The hedging instruments each fund may use are
described below and in greater detail in the Statement of Additional
Information for each fund.
The funds 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 a fund's
portfolio against price fluctuations.
Other hedging strategies, such as buying futures and call options, tend
to increase a fund's exposure to the securities market. Forward contracts
are used to try to manage foreign currency risks on each of the funds
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 each
of the funds for liquidity purposes or to raise cash to distribute to
shareholders. The hedging investments which the funds may use are
summarized below and you should refer to each fund's prospectus and
statement of additional information for a more complete discussion of
these investments and their risks. Neither fund uses hedging investments
for speculative purposes.
Both funds may buy and sell futures contracts and options thereon that
relate to financial futures such as bond indexes; buy and sell foreign
currencies and forward contracts and options thereon; purchase put options
on futures whether or not the fund owns the future; and may also use
"cross hedging."
The funds may buy and sell futures contracts and options thereon that
relate (1) to broadly-based bond indices ("Bond Index Futures") and (2)
interest rated ("Interest Rate Futures"). The fund may purchase calls on
(1) debt securities, (2) futures, (3) broadly-based bond indices and (4)
foreign currencies, or to terminate its obligation on a call that a fund
previously wrote. The fund may write covered call options on debt
securities to raise cash for income to distribute to shareholders for
defensive reasons. The funds may purchase and write put options on (1)
securities they own, (2) interest rate futures, (3) Bond index futures and
(4) foreign currencies.
Both funds may buy and sell puts and calls only if certain conditions are
met: (1) calls each fund sells must be listed on a securities exchange,
or traded in the over-the-counter market; (2) calls each fund buys must
be listed on a securities or commodities exchange, quoted on the Automated
Quotation System of the National Association of Securities Dealers, Inc.
(NASDAQ) or traded in the over-the-counter market; (3) in the case of puts
and calls on foreign currency, they must be traded on a securities or
commodities exchange, or quoted by recognized dealers in those options;
(4) each call the funds write must be "covered" while it is outstanding:
that means the funds must own the investment on which the call was written
or it must own other securities that are acceptable for the escrow
arrangements required for calls; (5) puts each of the funds buy and sell
must be listed on a securities or commodities exchange, quoted on NASDAQ
or traded in the over-the-counter market and any put sold must be covered
by segregated liquid assets with not more than 50% of a fund's assets
subject to puts; (6) each of the funds may write calls on Futures
contracts it owns, but these calls must be covered by securities or other
liquid assets that fund owns and segregated to enable it to satisfy its
obligations if the call is exercised; and (7) a call or put option may not
be purchased if the value of all of the funds put and call options would
exceed 5% of that fund's total assets.
Both of the funds may enter into interest rate swaps. The funds enter
into swaps only on securities they own. The funds may not enter into
swaps with respect to more than 25% of their total respective assets.
Also, the funds will segregate liquid assets (such as cash or U.S.
Government securities or other appropriate high grade debt obligations)
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.
Interest rate swaps are subject to credit risks (if the other party fails
to meet its obligations) and also to interest rate risks. A fund could
be obligated to pay more under its swap agreements than it receives under
them, as a result of interest rate changes.
Hedging instruments can be volatile investments and may involve special
risks. The use of hedging instruments requires special skills and
knowledge of investment techniques that are different than what is
required for normal portfolio management. If the Manager uses a hedging
instrument at the wrong time or judges market conditions incorrectly,
hedging strategies may reduce a fund's return. A 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 and they are addressed in each fund's prospectus and statement
of additional information.
Loan of Portfolio Securities
Both funds may lend their portfolio securities to brokers, dealers and
other financial institutions. These loans are limited to 25% of each
funds respective net assets and are subject to the conditions in each
funds Statements of Additional Information. Neither fund presently
intends to lend its portfolio securities, but if they do the value of the
securities based is not expected to exceed 5% of each funds total assets.
Illiquid and Restricted Securities
Both of the funds may invest in illiquid and restricted securities.
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 funds will not invest
more than 10% of their net assets in illiquid or restricted securities
(that limit may increase to 15% if certain state laws are changed or if
the fund's shares are no longer sold in those states). The funds
percentage limitation on these investments does not apply to certain
restricted securities that are eligible for resale to qualified
institutional purchasers.
Derivative Investments
Strategic Investment Grade Bond Fund and Bond Fund can invest in a number
of different kinds of "derivative investments." Each fund may use some
types of derivatives for hedging purposes, and may invest in others
because they offer the potential for increased income. 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
funds may not purchase or sell physical commodities; however, the funds
may purchase and sell foreign currency in hedging transactions. This
shall not prevent the funds from buying or selling options and futures
contracts or from investing in securities or other instruments backed by
physical commodities. In the broadest sense, derivative investments
include exchange-traded options and futures contracts (please refer to
"Hedging," above).
One risk of investing in derivative investments is that the company
issuing the instrument might not pay the amount due on the maturity of the
instrument. There is also the risk that the underlying investment or
security might not perform the way the Manager expected it to perform.
The performance of derivative investments may also be influenced by
interest rate changes in the U.S. and abroad. All of these risks can mean
that the fund will realize less income than expected from its investments,
or that it can lose part of the value of its investments, which will
affect the fund's share price. Certain derivative investments held by a
fund may trade in the over-the-counter markets and may be illiquid.
The funds 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 make fixed
interest payments and/or 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 principal amount of
the debt.
The funds 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.
Borrowing for Leverage
Strategic Investment Grade Bond Fund may borrow money from banks to buy
securities. It will borrow only if it can do so without putting up assets
as security for a loan. This investment technique may subject the
Strategic Investment Grade Bond Fund to greater risks and costs that funds
that do not borrow. These risks may include the possible reduction of
income and the possibility that Strategic Investment Grade Bond Fund net
asset value per share will fluctuate more than funds that don't borrow
since Strategic Investment Grade Bond Fund pays interest on borrowing and
interest expense affects the fund's share price and yield. Borrowing is
subject to the limitations under the Investment Company Act of 1940. Bond
Fund's fundamental investment policy on borrowing is different and is set
forth under "Investment Restrictions" on page __ of this Prospectus.
Although both funds are authorized to borrow money, neither fund has any
present plans to borrow money.
Participation Interests
Both funds may acquire participation interests in loans that are made to
U.S. or foreign companies (the "borrower"). They may be interests in, or
assignments of, the loan and are acquired from banks or brokers that have
made the loan or are members of the lending syndicate. No more than 5%
of each fund's net assets can be invested in participation interest of the
same issuer. See "Illiquid and Restricted Securities."
Asset-Backed Securities. Both funds may invest in asset-backed
securities. Asset-backed securities are fractional 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.
Preferred Stocks
The funds may invest in common and preferred stocks issued by domestic or
foreign corporations.
Municipal Securities
The funds may invest in municipal bonds, municipal notes, tax-exempt
commercial paper, certificates of participation and other debt obligations
issued by or on behalf of the states and the District of Columbia, their
political subdivisions, or any commonwealth, territory or possession of
the United States or their respective agencies, instrumentalities or
authorities.
Money Market Instruments
Bond Fund may invest in high quality, short-term money market securities
which 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
acceptance (time drafts drawn on commercial banks usually in connection
with international transactions) of banks and savings and loans
association. Strategic Investment Grade Bond Fund has a substantially
similar policy with respect to money market instruments.
Investment Restrictions
Strategic Investment Grade Bond Fund and Bond Fund have certain investment
restrictions that, together with their investment objectives, are
fundamental policies, changeable only by shareholder approval. Set forth
below is a summary of these investment restrictions which are different
for each fund. Other investment restrictions for each fund are
substantially the same.
Under these fundamental policies, the fund named cannot do the following:
(1) with respect to Bond Fund it will not borrow money or enter into
reverse repurchase agreements, except that it 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 its total assets taken
at current market value; it 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 its assets
(for purposes of this restriction, entering into portfolio lending
agreements shall not be deemed to constitute borrowing money); (2) with
respect to Strategic Investment Grade Bond Fund it will not buy securities
of an issuer which, together with any predecessor, has been in operation
for less than three years, if as a result, the aggregate of such
investments would exceed 5% of the value of its total assets, Bond Fund
has the same policy, but not fundamental; (3) with respect to the Bond
Fund it will not 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 Bond
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, with respect to
Bond Fund make loans to an officer, trustee or employee of the Trust or
to any officer, director or employee of MassMutual or to MassMutual; (4)
with respect to Strategic Investment Grade Bond Fund it will not buy or
sell commodities or commodity contracts, including futures contracts,
however, it may buy and sell any of the Hedging Instruments which it may
use as approved by the Board, whether or not such Hedging Instrument is
considered to be a commodity or commodity contract, Bond Fund has no
fundamental policy in this regard; (5) with respect to Strategic
Investment Grade Bond Fund it may not buy securities on margin, except
that Strategic Investment Grade Bond Fund may make margin deposits in
connection with any of the Hedging Instruments which it may use; Bond Fund
has no fundamental policy in this regard. In connection with
qualifications of its shares in certain states, Strategic Investment Grade
Bond Fund has undertaken that it will not (a) invest in real estate
limited partnerships or (b) invest more than 10% of its total assets in
other investment companies as defined in the Investment Company Act,
except in connection with a merger, consolidation, reorganization or
acquisition of assets.
Portfolio Turnover
Holding a portfolio security for any particular length of time is not
generally a consideration in investment decisions. As a result of each
fund's investment policies and market factors, their portfolio securities
are actively traded to try to benefit from short-term yield differences
among debt securities. As a result, portfolio turnover of each of the
funds may be higher than other mutual funds. This strategy may involve
greater transaction costs from brokerage commissions and dealer mark-ups.
Neither fund however, incurs significant brokerage costs for U.S.
Government Securities. Additionally, high portfolio turnover may result
in increased short-term capital gains and affect the ability of each of
the funds to qualify for tax deductions for payments made to shareholders
as a "regulated investment company" under the Internal Revenue Code.
Strategic Investment Grade Bond Fund and Bond Fund each qualified in their
last fiscal year and intend to do so in the coming year, although they
reserve the right not to qualify.
For the fiscal year ended September 30, 1994, and December 31, 1994 the
portfolio turnover rate for Strategic Investment Grade Bond Fund and Bond
Fund was 68.6% and 70.3%, respectively. For the six months ended March
31, 1995 (unaudited), the portfolio turnover rate for Strategic Investment
Grade Bond Fund and Bond Fund was 42.6% and 13.9%, respectively.
Description of Brokerage Practices
The brokerage practices of the two funds are substantially similar and are
conducted in accordance with the terms and conditions of each fund's
investment advisory agreement and other brokerage policies of the Manager.
Purchases of U.S. Government Securities, money market instruments and debt
obligations by both funds are normally principal transactions at net
prices and each fund incurs little or no brokerage costs for these
transactions. Principal transactions include purchases of securities from
underwriters, which include a commission or concession paid by the issuer
to the underwriter, and purchases from dealers which include a spread
between the bid and asked price.
When brokers are used, the Manager is permitted to select qualified
brokers to obtain best execution. Brokerage is allocated among brokers
under the supervision of the Manager's executive officers and the Manager
is permitted to consider brokers which have sold shares of the funds and
other OppenheimerFunds in selecting brokers for fund transactions.
Commissions paid to such brokers may be higher than commissions charged
by other qualified brokers. The Manager is also permitted to allocate
brokerage commissions from fund transactions to brokers to obtain research
services to assist the Manager in the investment-making decision process.
Please refer to the Statement of Additional Information for each fund for
further information on each fund's brokerage practices.
Expense Ratios and Performance
The ratio of expenses to average net assets for Strategic Investment Grade
Bond Fund for the fiscal year ended September 30, 1994 was 1.33% for
Class A shares and 2.12% for Class B shares (after reimbursement). The
ratio of expenses with respect to Class A shares was 1.38% and 2.16% for
Class B shares (before reimbursement). The ratio of expenses to average
net assets for Bond Fund for the fiscal year ended December 31, 1994, for
its Class A and Class B shares was 1.06% and 1.78%, respectively. For the
six months ended March 31, 1995 (unaudited) (annualized) the ratio of
expenses to average net assets for Strategic Investment Grade Bond Fund
for its Class A and Class B shares was 1.43% and 2.18%, respectively. For
the six months ended March 31, 1995 (unaudited) (annualized), the ratio
of expenses to average net assets for Bond Fund was 1.04% for its Class
A shares and 1.80% for its Class B shares. Further details are set forth
under "Fund Expenses" and "Financial Highlights" in Strategic Investment
Grade Bond Fund's Prospectus dated February 1, 1995, supplemented July 14,
1995, and in Strategic Investment Grade Bond Fund's Annual Report as of
September 30, 1994 and financial statements (unaudited) as of March 31,
1995, and Bond Fund's Annual Report as of December 31, 1994, which are
included in the Statement of Additional Information.
The standardized yield for Strategic Investment Grade Bond Fund for the
30 day period ended March 31, 1995 was 6.95% for Class A shares and 6.55%
for Class B shares. The average annual total return on an investment in
Class A shares of Strategic Investment Grade Bond Fund for the one year
period ended March 31, 1995 and from the period April 22, 1992
(commencement of operations) through March 31, 1995 was <1.61%> and 3.71%,
respectively. The average annual return at net asset value on an
investment in Class A shares of Strategic Investment Grade Bond Fund for
the one year period ended March 31, 1995 and from the period April 22,
1992 (commencement of operations) through March 31 1995 was 3.30% and
5.44%, respectively. The average annual total return on an investment in
Class B shares of Strategic Investment Grade Bond Fund for the one year
period ended March 31, 1995 and from the period November 30, 1992
(inception of the class) through March 31, 1995 was <2.47%> and 3.26%.
The average annual return at net asset value on an investment in Class B
shares of Strategic Investment Grade Bond Fund for the one year period
ended March 31, 1995 and from the period November 30, 1992 (inception of
the class) through March 31 1995 was 2.35% and 4.43%, respectively.
The standardized yield for Bond Fund for the 30 day period ended March 31,
1995 was 6.12% for Class A shares and 5.60% for Class B shares. The
"average annual total return" on an investment in Bond Fund's Class A
shares for the one year period ended March 31, 1995 was <.76%> and for the
five years ended March 31, 1995 was 7.31%. The average annual return on
an investment in Class A shares for the period April 15, 1988 (the date
it became an open-end fund) to March 31, 1995 was 7.28%. The average
annual return at net asset value for the one year period ended March 31,
1995, for the five year period ended March 31, 1995 and for the period
from April 15, 1988 to March 31, 1995, was 4.19%, 8.36% and 8.03%,
respectively. The average annual return on an investment in Class B
shares for the one year period ended March 31, 1995 and from the period
May 1, 1993 (the date it became an open-end fund) to March 31, 1995 was
<1.35%> and .11%, respectively.
The average annual return at net asset value on Bond Fund Class B shares
for the one year ended March 31, 1995 and for the period May 1, 1993
through March 31, 1995 was 3.52% and 2.03%, respectively. The increase
of the management fee rate for Bond Fund was not in effect during the time
periods noted above. If the new higher fee rate had been in effect, the
standard yield and average annual returns would have been lower. However,
the higher fee rate would have been identical to that of Strategic
Investment Grade Bond Fund. Please refer to the Statement of Additional
Information which is incorporated by reference for further information
concerning the investment performance of the funds. More information on
performance of each fund as compared to the market, may be found in the
section "Comparing the Fund's Performance To the Market" in the respective
prospectus of each fund.
Shareholder Services
The policies of Strategic Investment Grade Bond Fund and Bond Fund with
respect to minimum initial investments and subsequent investments by its
shareholders are substantially the same. Both Strategic Investment Grade
Bond Fund and Bond Fund offer the following privileges: (i) Right of
Accumulation, (ii) Letter of Intent, (iii) reinvestment of dividends and
distributions at net asset value, (iv) net asset value purchases by
certain individuals and entities, (v) Asset Builder (automatic investment)
Plans, (vi) Automatic Withdrawal and Exchange Plans for shareholders who
own shares of the fund valued at $5,000 or more, (vii) reinvestment of net
redemption proceeds at net asset value within six months of a redemption,
(viii) AccountLink and PhoneLink arrangements, (ix) exchanges of shares
for shares of the same class of certain other funds at net asset value,
and (x) telephone redemption and exchange privileges.
Shareholders may purchase shares through OppenheimerFunds AccountLink,
which links a shareholder account to an account at a bank or financial
institution and enables shareholders to send money electronically between
those accounts to perform a number of types of account transactions. This
includes the purchase of shares through the automated telephone system
(PhoneLink). Exchanges can also be made by telephone, or automatically
through PhoneLink. After AccountLink privileges have been established
with a bank account, shares may be purchased by telephone up to $100,000.
Shares of either Fund may be exchanged for shares of certain
OppenheimerFunds at net asset value per share, however, shares of a
particular class may be exchanged only for shares of the same class in
other OppenheimerFunds. At present, not all of the OppenheimerFunds offer
the same class of shares. Shareholders of the funds may redeem their
shares by written request or by telephone request in an amount up to
$50,000 in any seven-day period. Shareholders may arrange to have share
redemption proceeds wired to a pre-designated account at a U.S. bank or
other financial institution that is an ACH member, through ("AccountLink
redemption"). There is no dollar limit on telephone redemption proceeds
sent to a bank account when an AccountLink has been established.
Shareholders may also redeem shares automatically by telephone by using
PhoneLink. Shareholders may also have the Transfer Agent send redemption
proceeds of $2,500 or more by Federal Funds wire to a designated
commercial bank, which is a member of the Federal Reserve wire system.
Shareholders of the funds have up to six months to reinvest redemption
proceeds of their Class A shares in Class A shares of the funds or other
OppenheimerFunds without paying a sales charge. Strategic Investment
Grade Bond Fund and Bond Fund may redeem accounts valued at less than $200
if the account has fallen below such stated amount for reasons other than
market value fluctuations. Both funds offer Automatic Withdrawal and
Automatic Exchange Plans under certain conditions.
Rights of Shareholders
Class A shares of Strategic Investment Grade Bond Fund and Class A shares
of Bond Fund are each sold at an initial sales charge of 4.75% on
purchases of less than $50,000. The reduced front-end sales loads on
larger purchases are the same for each fund. If Class A shares of either
fund are purchased as part of an investment of at least $1 million in
shares of one or more OppenheimerFunds, there is no initial sales charge,
but if shares are sold within 18 months after the purchase, there may be
imposed a contingent deferred sales charge ("CDSC") which will vary,
depending on the amount invested. Class B shares of Strategic Investment
Grade Bond Fund, and Class B shares of Bond Fund are sold at net asset
value per share, without an initial sales charge. However, if Class B
shares are sold within five years of purchase, there is a CDSC, depending
on how long the shares are owned. Both of the funds have the same CDSC
with respect to their Class B shares. The shares of each such fund,
including shareholders of each class, entitle the holder to one vote per
share on the election of trustees and all other matters submitted to
shareholders of the fund. Class A and Class B shares of Strategic
Investment Grade Bond Fund and the Class A and Class B shares of Bond Fund
which Strategic Investment Grade Bond Fund shareholders will receive in
the Reorganization participate equally in the fund's dividends and
distributions and in the fund's net assets upon liquidation, after taking
into account the different expenses paid by each class. Distributions and
dividends for each class will be different and Class B dividends and
distributions will be lower than Class A dividends. Class A and Class B
shares of Strategic Investment Grade Bond Fund and, Class A and Class B
shares of Bond Fund, when issued, are fully paid and non-assessable. It
is not contemplated that Strategic Investment Grade Bond Fund or Bond Fund
will hold regular annual meetings of shareholders. Under the Investment
Company Act, shareholders of Strategic Investment Grade Bond Fund do not
have rights of appraisal as a result of the transactions contemplated by
the Reorganization Agreement. However, they have the right at any time
prior to the consummation of such transaction to redeem their shares at
net asset value. Shareholders of both of the funds have the right, under
certain circumstances, to remove a Trustee and will be assisted in
communicating with other shareholders for such purpose.
Strategic Investment Grade Bond Fund was organized in 1991 as a
Massachusetts business trust. Bond Fund is one of two series of
Oppenheimer Integrity Funds (the "Trust"). The Trust was organized in
1982 as a multi-series Massachusetts business trust under the name
MassMutual Liquid Assets Trust and changed its name to MassMutual
Integrity Funds on April 15, 1988. Bond Fund was organized from a closed-
end investment company into a series of the Trust on April 15, 1988. On
March 29, 1991, the Trust changes its name from MassMutual Investment
Grade Bond Fund to Oppenheimer Integrity Funds and Bond Fund changed its
name from MassMutual Investment Grade Bond Fund to Oppenheimer Investment
Grade Bond Fund. On July 10, 1995 the fund changed its name to
Oppenheimer Bond Fund. Bond Fund, as a series of the Trust issues its own
shares, has its own investment portfolio and its own assets and
liabilities. Both Strategic Investment Grade Bond Fund and the Trust are
open-end, diversified management investment companies, with an unlimited
number of authorized shares of beneficial interest. Strategic Investment
Grade Bond Fund is governed by a Board of Trustees (referred to as the
"Board" with respect to Strategic Investment Grade Bond Fund and the
"Board of Oppenheimer Integrity Funds" with respect to Bond Fund). The
Board of Oppenheimer Integrity Funds has established three classes of
shares with respect to Bond Fund, Class A, Class B and Class C. With
respect to Strategic Investment Grade Bond Fund, the Board has established
two classes of shares, Class A and Class B. With respect to Strategic
Investment Grade Bond Fund and Bond Fund, each class has its own dividends
and distributions and pays certain expenses which will 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 proportionately. Shares of a particular class vote together on
matters that affect that class. Most Amendments to the Declaration of
Trust require the approval of a "majority" (as defined in the Investment
Company Act) of a fund's shareholders. Under certain circumstances,
shareholders of the funds may be held personally liable as partners for
the funds' obligations, and under each Declaration of Trust such a
shareholder is entitled to indemnification rights by the funds; the risk
of a shareholder incurring any such loss is limited to the remote
circumstances in which the fund is unable to meet its obligations.
Management and Distribution Arrangements
The Manager, located at Two World Trade Center, New York, New York
10048-0203, acts as the investment adviser for Strategic Investment Grade
Bond Fund and also acts as the investment adviser to Bond Fund. Prior to
July 10, 1995, the manager had contracted with Massachusetts Mutual Life
Insurance Company ("MassMutual") to act as Bond Fund's Sub-Adviser.
Effective July 10, 1995, the Sub-Advisory Agreement between the manager
and MassMutual terminated and the Manager is responsible for selecting
Bond Fund's investments as well as for its day to day business, pursuant
to an investment advisory dated July 10, 1995.
The terms and conditions of the investment advisory agreement for each
fund are substantially the same. The monthly management fee payable to
the Manager by each fund is set forth under "Synopsis - Investment
Advisory Distribution and Service Plan Fees." The 12b-1 Distribution and
Service Plan fees paid by Strategic Investment Grade Bond Fund with
respect to Class A and Class B shares and paid by Bond Fund with respect
to its Class A and Class B shares of Bond Fund are set forth above under
"Synopsis - Investment Advisory and Service Plan Fees."
Pursuant to each investment advisory agreement, the Manager supervises the
investment operations of the funds and the composition of their portfolios
and furnishes advice and recommendations with respect to investments,
investment policies and the purchase and sale of securities. Both
investment advisory agreements require the Manager to provide Strategic
Investment Grade Bond Fund and Bond 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
administration for the funds, 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 each fund.
The management fees paid by Strategic Investment Grade Bond Fund for the
six months ended March 31, 1995 was $144,908 (unaudited). For the fiscal
year ended September 30, 1994 the management fees paid by Strategic
Investment Grade Bond Fund was $319,025. For the fiscal year ended
December 31, 1994, the management fee paid by Bond Fund to the Manager was
$522,205, of which $360,287 was paid by the Manager to the Sub-Advisor.
For the six months ended March 31, 1995 (unaudited), the fees paid by Bond
Fund were $259,096, of which $180,072 were retained by the Sub-Advisor.
The new higher management fee rate approved by Bond Fund shareholders was
not in effect during these time periods. Had they been in effect, the
management fees paid by Bond Fund to the Manager would have been higher.
However, independently of the advisory agreement with Strategic Investment
Grade Bond Fund, the Manager has undertaken that the total expenses of
Strategic Investment Grade Bond Fund in any fiscal year (including the
management fee but exclusive of taxes, interest, brokerage commissions,
distribution plan payments and any extraordinary non-recurring expenses,
including litigation) shall not exceed the most stringent state
regulatory limitation on fund expenses applicable to the funds. The
Manager has made the same undertaking with respect to Bond Fund. At
present, that limitation is imposed by California and limits expenses
(with specified exclusions) to 2.5% of the first $30 million of average
annual net assets, 2% of the next $70 million and 1.5% of average annual
net assets in excess of $100 million. Until November 24, 1993, the
Manager had also undertaken to assume Strategic Investment Grade Bond
Fund's expenses (other than extraordinary non-recurring expenses) to
enable Strategic Investment Grade Bond Fund to pay a dividend of $.378 per
share per annum, with the limitation that the dividend could not exceed
Strategic Investment Grade Bond Fund's annual gross earnings per share.
Strategic Investment Grade Bond fund yield and total return were higher
during that period than they otherwise would have been. The undertaking
terminated November 24, 1995. Any assumption of either fund's expenses,
would lower Strategic Investment Grade Bond Fund's or Bond Fund's overall
expense ratio and increase its total return during each period in which
expenses are limited. The Manager reserves the right to change or
eliminate the expense limitations at any time and there can be no
assurance as to the duration of the expense limitation by either fund.
It is not expected that Investment Grade Bond Fund will maintain a fixed
dividend rate for either Class A and Class B shares and there can be no
assurance as to the payment of any dividends or the realization of any
capital gains by either fund.
The Manager is controlled by OAC, a holding company owned in part by
senior management of the Manager and ultimately controlled by
Massachusetts Mutual Life Insurance Company, a mutual life insurance
company that also advises pension plans and investment companies. The
Manager has operated as an investment company adviser since 1959. The
Manager and its affiliates currently advise investment companies with
combined net assets aggregating over $32 billion as of March 31, 1995,
with more than ___ million shareholder accounts. Oppenheimer Shareholder
Services, a division of the Manager, acts as transfer and shareholder
servicing agent on an at-cost basis for Strategic Investment Grade Bond
Fund and Bond Fund and for certain other open-end funds managed by the
Manager and its affiliates.
The Distributor, under a General Distributor's Agreement for each of the
funds, acts as the principal underwriter in the continuous public offering
of Strategic Investment Grade Bond Fund's Class A and Class B shares, and
Bond Fund's Class A, Class B and Class C shares. During Strategic
Investment Grade Bond Fund's fiscal year ended September 30, 1994, the
aggregate sales charges on sales of Strategic Investment Grade Bond Fund's
Class A shares was $25,282, respectively, of which the Distributor and an
affiliated broker-dealer retained in the aggregate $10,165. During
Strategic Investment Grade Bond Fund's fiscal year ended September 30,
1994, the contingent deferred sales charges collected on Strategic
Investment Grade Bond Fund's Class B shares totalled $21,115. For the
fiscal year ended September 30, 1994, the aggregate amount of sales
charges on sales of Bond Fund's Class A shares was $143,088, of which
$67,090 was retained by the Distributor and an affiliated broker-dealer.
Contingent deferred sales charges collected by the Distributor on the
redemption of Class B shares and for the fiscal year ended December 31,
1994 totaled $8,916.
Purchase of Additional Shares
Class A shares of Strategic Investment Grade Bond Fund and Class A shares
of Bond Fund may be sold with an initial sales charge of 4.75% for
purchases of less than $50,000. The sales charge of 4.75% is reduced for
purchases of either fund's Class A shares of $50,000 or more. If shares
of Class A of either fund are redeemed within 18 months of the end of the
calendar month of their purchase, a contingent sales charge may be
deducted from the redemption proceeds of Class B shares of Strategic
Investment Grade Bond Fund and Bond Fund are sold at net asset value
without an initial sales charge, however, if Class B shares of either fund
are redeemed within six years of the end of the calendar month of their
purchase, a contingent deferred sales charge may be deducted.
The contingent deferred sales charge on Class A shares of Bond Fund and
Class B shares will only affect shareholders of Strategic Investment Grade
Bond Fund to the extent that they desire to make additional purchases of
shares of Bond Fund in addition to the shares which they will receive as
a result of the Reorganization. The Class A and Class B shares to be
issued under the Reorganization Agreement will be issued by Bond Fund at
net asset value without a sales charge. Future dividends and capital gain
distributions of Bond Fund, if any, may be reinvested without sales
charge. Any Strategic Investment Grade Bond Fund shareholder who is
entitled to a reduced sales charge on additional purchases by reason of
a Letter of Intent or Rights of Accumulation based upon holdings of shares
of Strategic Investment Grade Bond Fund will continue to be entitled to
a reduced sales charge on any future purchase of shares of Bond Fund.
METHOD OF CARRYING OUT THE REORGANIZATION
The consummation of the transactions contemplated by the Reorganization
Agreement is contingent upon the approval of the Reorganization by the
shareholders of Strategic Investment Grade Bond Fund and the receipt of
the opinions and certificates set forth in Sections 10 and 11 of the
Reorganization Agreement and the occurrence of the events described in
those Sections. Under the Reorganization Agreement, all the assets of
Strategic Investment Grade Bond Fund, excluding the Cash Reserve, will be
delivered to Bond Fund in exchange for Class A and Class B shares of Bond
Fund. The Cash Reserve to be retained by Strategic Investment Grade Bond
Fund will be sufficient in the discretion of the Board for the payment of
Strategic Investment Grade Bond Fund's liabilities, and Strategic
Investment Grade Bond Fund's expenses of liquidation.
Assuming the shareholders of Strategic Investment Grade Bond Fund approve
the Reorganization, the actual exchange of assets is expected to take
place on September 22, 1995, or as soon thereafter as is practicable (the
"Closing Date") on the basis of net asset values as of the close of
business on the business day preceding the Closing Date (the "Valuation
Date"). Under the Reorganization Agreement, all redemptions of shares of
Strategic Investment Grade Bond Fund shall be permanently suspended on the
Valuation Date; only redemption requests received in proper form on or
prior to the close of business on that date shall be fulfilled by it;
redemption requests received by Strategic Investment Grade Bond Fund after
that date will be treated as requests for redemptions of Class A or Class
B shares of Bond Fund to be distributed to the shareholders requesting
redemption. The exchange of assets for shares will be done on the basis
of the per share net asset value of the Class A and Class B shares of Bond
Fund, and the value of the assets of Strategic Investment Grade Bond Fund
to be transferred as of the close of business on the Valuation Date, in
the manner used by Bond Fund in the valuation of assets. Bond Fund is not
assuming any of the liabilities of Strategic Investment Grade Bond Fund,
except for portfolio securities purchased which have not settled and
outstanding shareholder redemption and dividend checks.
The net asset value of the shares transferred by Bond Fund to Strategic
Investment Grade Bond Fund will be the same as the value of the assets of
the portfolio received by Bond Fund. For example, if, on the Valuation
Date, Strategic Investment Grade Bond Fund were to have securities with
a market value of $95,000 and cash in the amount of $10,000 (of which
$5,000 was to be retained by it as the Cash Reserve), the value of the
assets which would be transferred to Bond Fund would be $100,000. If the
net asset value per share of Bond Fund were $10 per share at the close of
business on the Valuation Date, the number of shares to be issued would
be 10,000 ($100,000 divided by $10). These 10,000 shares of Bond Fund would be
distributed to the former shareholders of Strategic Investment Grade Bond
Fund. This example is given for illustration purposes only and does not
bear any relationship to the dollar amounts or shares expected to be
involved in the Reorganization.
After the Closing Date, Strategic Investment Grade Bond Fund will
distribute on a pro rata basis to its shareholders of record on the
Valuation Date the Class A and Class B shares of Bond Fund received by
Strategic Investment Grade Bond Fund at the closing, in liquidation of the
outstanding shares of Strategic Investment Grade Bond Fund, and the
outstanding shares of Strategic Investment Grade Bond Fund will be
cancelled. To assist Strategic Investment Grade Bond Fund in this
distribution, Bond Fund will, in accordance with a shareholder list
supplied by Strategic Investment Grade Bond Fund, cause its transfer agent
to credit and confirm an appropriate number of shares of Bond Fund to each
shareholder of Strategic Investment Grade Bond Fund. Certificates for
Class A and Class B shares of Bond Fund will be issued upon written
request of a former shareholder of Strategic Investment Grade Bond Fund
but only for whole shares with fractional shares credited to the name of
the shareholder on the books of Bond Fund. Former shareholders of
Strategic Investment Grade Bond Fund who wish certificates representing
their shares of Bond Fund must, after receipt of their confirmations, make
a written request to OSS, P.O. Box 5270, Denver, Colorado 80217.
Shareholders of Strategic Investment Grade Bond Fund holding certificates
representing their shares will not be required to surrender their
certificates to anyone in connection with the Reorganization. After the
Reorganization, however, it will be necessary for such shareholders to
surrender such certificates in order to redeem, transfer, pledge or
exchange any shares of Bond Fund.
Under the Reorganization Agreement, within one year after the Closing
Date, Strategic Investment Grade Bond Fund shall: (a) either pay or make
provision for all of its debts and taxes; and (b) either (i) transfer any
remaining amount of the Cash Reserve to Bond Fund, if such remaining
amount is not material (as defined below) or (ii) distribute such
remaining amount to the shareholders of Strategic Investment Grade Bond
Fund who were such on the Valuation Date. Such remaining amount shall be
deemed to be material if the amount to be distributed, after deducting the
estimated expenses of the distribution, equals or exceeds one cent per
share of the number of Fund shares outstanding on the Valuation Date.
Within one year after the Closing Date, Strategic Investment Grade Bond
Fund will complete its liquidation.
Under the Reorganization Agreement, either Strategic Investment Grade Bond
Fund or Bond Fund may abandon and terminate the Reorganization Agreement
without liability if the other party breaches any material provision of
the Reorganization Agreement or, if prior to the closing, any legal,
administrative or other proceeding shall be instituted or threatened (i)
seeking to restrain or otherwise prohibit the transactions contemplated
by the Reorganization Agreement and/or (ii) asserting a material liability
of either party, which proceeding or liability has not been terminated or
the threat thereto removed prior to the Closing Date.
In the event that the Reorganization Agreement is not consummated for any
reason, the Board will consider and may submit to the shareholders other
alternatives.
MISCELLANEOUS
Additional Information
Financial Information
The Reorganization will be accounted for by the surviving fund in its
financial statements similar to a pooling. Further financial information
as to Strategic Investment Grade Bond Fund is contained in its current
Prospectus, which is available without charge from Oppenheimer Shareholder
Services, the Transfer Agent, P.O. Box 5270, Denver, Colorado 80217, and
is incorporated herein, and in its Annual Report as of September 30, 1994,
and unaudited financial statements as of March 31, 1995, which are
included in the Additional Statement. Financial information for Bond Fund
is contained in its current Prospectus accompanying this Proxy Statement
and Prospectus and incorporated herein, and in its Annual Report as of
December 31, 1994, which are included in the Additional Statement.
Public Information
Additional information about Strategic Investment Grade Bond Fund and Bond
Fund is available, as applicable, in the following documents which are
incorporated herein by reference: (i) Bond Fund's Prospectus dated July
10, 1995, supplemented July 14, 1995, accompanying this Proxy Statement
and Prospectus and incorporated herein; (ii) Strategic Investment Grade
Bond Fund's Prospectus dated February 1, 1995, supplemented July 14, 1995,
which may be obtained without charge by writing to OSS, P.O. Box 5270,
Denver, Colorado 80217; (iii) Bond Fund's Annual Report as of December 31,
1994, which may be obtained without charge by writing to OSS at the
address indicated above; and (iv) Strategic Investment Grade Bond Fund's
Annual Report as of September 30, 1994 and unaudited Semi-Annual Report
as of March 31, 1995, which may be obtained without charge by writing to
OSS at the address indicated above. All of the foregoing documents may
be obtained by calling the toll-free number on the cover of this Proxy
Statement and Prospectus.
Additional information about the following matters is contained in the
Statement of Additional Information, which incorporates by reference the
Bond Fund Statement of Additional Information dated July 10, 1995,
supplemented July 14, 1995, and Strategic Investment Grade Bond Fund's
Prospectus dated February 1, 1995, supplemented July 14, 1995, and
Statement of Additional Information dated February 1, 1995, supplemented
July 14, 1995; the organization and operation of Bond Fund and Strategic
Investment Grade Bond Fund; more information on investment policies,
practices and risks; information about Strategic Investment Grade Bond
Fund's and Bond Fund's Boards of Trustees and their responsibilities; a
further description of the services provided by Bond Fund's and Strategic
Investment Grade Bond Fund's investment adviser, distributor, and transfer
and shareholder servicing agent; dividend policies; tax matters; an
explanation of the method of determining the offering price of the shares
and/or contingent deferred sales charges, as applicable of Class A, B and
C shares of Bond Fund and Class A and Class B shares of Strategic
Investment Grade Bond Fund; purchase, redemption and exchange programs;
the different expenses paid by each class of shares; and distribution
arrangements.
Strategic Investment Grade Bond Fund and Bond Fund are subject to the
informational requirements of the Securities Exchange Act of 1934, as
amended, and in accordance therewith, file reports and other information
with the SEC. Proxy material, reports and other information about
Strategic Investment Grade Bond Fund and Bond Fund which are of public
record can be inspected and copied at public reference facilities
maintained by the SEC in Washington, D.C. and certain of its regional
offices, and copies of such materials can be obtained at prescribed rates
from the Public Reference Branch, Office of Consumer Affairs and
Information Services, SEC, Washington, D.C. 20549.
OTHER BUSINESS
Management of Strategic Investment Grade Bond Fund knows of no business
other than the matters specified above which will be presented at the
Meeting. Since matters not known at the time of the solicitation may come
before the Meeting, the proxy as solicited confers discretionary authority
with respect to such matters as properly come before the Meeting,
including any adjournment or adjournments thereof, and it is the intention
of the persons named as attorneys-in-fact in the proxy to vote this proxy
in accordance with their judgment on such matters.
By Order of the Board of Trustees
George C. Bowen, Secretary
August 21, 1995 285
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") dated as of
________________, 1995 by and between Oppenheimer Strategic Investment
Grade Bond Fund (the "Fund"), a Massachusetts business trust, and
Oppenheimer Bond Fund ("Bond Fund"), a Massachusetts business trust.
W I T N E S S E T H:
WHEREAS, the parties are each open-end investment companies of the
management type; and
WHEREAS, the parties hereto desire to provide for the reorganization
pursuant to Section 368(a)(1) of the Internal Revenue Code of 1986, as
amended (the "Code"), of Strategic Investment Grade Bond Fund through the
acquisition by Bond Fund of substantially all of the assets of Strategic
Investment Grade Bond Fund in exchange for the voting shares of beneficial
interest ("shares") of Class A and Class B shares of Bond Fund and the
assumption by Bond Fund of certain liabilities of Strategic Investment
Grade Bond Fund, which Class A and Class B shares of Bond Fund are
thereafter to be distributed by Strategic Investment Grade Bond Fund pro
rata to its shareholders in complete liquidation of Strategic Investment
Grade Bond Fund and complete cancellation of its shares;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties hereto agree as follows:
1. The parties hereto hereby adopt a Plan of Reorganization pursuant
to Section 368(a)(1) of the Code as follows: The reorganization will be
comprised of the acquisition by Bond Fund of substantially all of the
properties and assets of Strategic Investment Grade Bond Fund in exchange
for Class A and Class B shares of Bond Fund and the assumption by Bond
Fund of certain liabilities of Strategic Investment Grade Bond Fund,
followed by the distribution of such Class A and Class B shares of Bond
Fund shares to the Class A and Class B shareholders of Strategic
Investment Grade Bond Fund in exchange for their Class A and Class B
shares of Strategic Investment Grade Bond Fund, all upon and subject to
the terms of the Agreement hereinafter set forth.
The share transfer books of Strategic Investment Grade Bond Fund will
be permanently closed at the close of business on the Valuation Date (as
hereinafter defined) and only redemption requests received in proper form
on or prior to the close of business on the Valuation Date shall be
fulfilled by Strategic Investment Grade Bond Fund; redemption requests
received by Strategic Investment Grade Bond Fund after that date shall be
treated as requests for the redemption of the shares of Bond Fund to be
distributed to the shareholder in question as provided in Section 5.
2. On the Closing Date (as hereinafter defined), all of the assets
of Strategic Investment Grade Bond Fund on that date, excluding a cash
reserve (the "Cash Reserve") to be retained by Strategic Investment Grade
Bond Fund sufficient in its discretion for the payment of the expenses of
Strategic Investment Grade Bond Fund's dissolution and its liabilities,
but not in excess of the amount contemplated by Section 10E, shall be
delivered as provided in Section 8 to Bond Fund, in exchange for and
against delivery to Strategic Investment Grade Bond Fund on the Closing
Date of a number of Class A and Class B shares of Bond Fund, having an
aggregate net asset value equal to the value of the assets of Strategic
Investment Grade Bond Fund so transferred and delivered.
3. The net asset value of Class A and Class B shares of Bond Fund
and the value of the assets of Strategic Investment Grade Bond Fund to be
transferred shall in each case be determined as of the close of business
of the New York Stock Exchange on the Valuation Date. The computation of
the net asset value of the Class A and Class B shares of Bond Fund and the
Class A and Class B shares of Strategic Investment Grade Bond Fund shall
be done in the manner used by Bond Fund and Strategic Investment Grade
Bond Fund, respectively, in the computation of such net asset value per
share as set forth in their respective prospectuses. The methods used
by Bond Fund in such computation shall be applied to the valuation of the
assets of Strategic Investment Grade Bond Fund to be transferred to Bond
Fund.
Strategic Investment Grade Bond Fund shall declare and pay,
immediately prior to the Valuation Date, a dividend or dividends which,
together with all previous such dividends, shall have the effect of
distributing to Strategic Investment Grade Bond Fund's shareholders all
of Strategic Investment Grade Bond Fund's investment company taxable
income for taxable years ending on or prior to the Closing Date (computed
without regard to any dividends paid) and all of its net capital gain, if
any, realized in taxable years ending on or prior to the Closing Date
(after reduction for any capital loss carry-forward).
4. The closing (the "Closing") shall be at the office of Oppenheimer
Management Corporation (the "Agent"), Two World Trade Center, Suite 3400,
New York, New York 10048, at 4:00 P.M. New York time on September 22,
1995, or at such other time or place as the parties may designate or as
provided below (the "Closing Date"). The business day preceding the
Closing Date is herein referred to as the "Valuation Date."
In the event that on the Valuation Date either party has, pursuant
to the Investment Company Act of 1940, as amended (the "Act"), or any
rule, regulation or order thereunder, suspended the redemption of its
shares or postponed payment therefor, the Closing Date shall be postponed
until the first business day after the date when both parties have ceased
such suspension or postponement; provided, however, that if such
suspension shall continue for a period of 60 days beyond the Valuation
Date, then the other party to the Agreement shall be permitted to
terminate the Agreement without liability to either party for such
termination.
5. As soon as practicable after the closing, Strategic Investment
Grade Bond Fund shall distribute on a pro rata basis to the shareholders
of Strategic Investment Grade Bond Fund on the Valuation Date the Class
A and Class B shares of Bond Fund received by Strategic Investment Grade
Bond Fund on the Closing Date in exchange for the assets of Strategic
Investment Grade Bond Fund in complete liquidation of Strategic Investment
Grade Bond Fund; for the purpose of the distribution by Strategic
Investment Grade Bond Fund of Class A and Class B shares of Bond Fund to
its shareholders, Bond Fund will promptly cause its transfer agent to: (a)
credit an appropriate number of Class A and Class B shares of Bond Fund
on the books of Bond Fund to each Class A and Class B shareholder,
respectively of Strategic Investment Grade Bond Fund in accordance with
a list (the "Shareholder List") of its shareholders received from
Strategic Investment Grade Bond Fund; and (b) confirm an appropriate
number of Class A and Class B shares of Bond Fund to each shareholder of
Strategic Investment Grade Bond Fund; certificates for Class A and Class
B shares of Bond Fund will be issued upon written request of a former
shareholder of Strategic Investment Grade Bond Fund but only for whole
shares with fractional shares credited to the name of the shareholder on
the books of Bond Fund.
The Shareholder List shall indicate, as of the close of business on
the Valuation Date, the name and address of each shareholder of Strategic
Investment Grade Bond Fund, indicating his or her share balance.
Strategic Investment Grade Bond Fund agrees to supply the Shareholder List
to Bond Fund not later than the Closing Date. Shareholders of Strategic
Investment Grade Bond Fund holding certificates representing their shares
shall not be required to surrender their certificates to anyone in
connection with the reorganization. After the Closing Date, however, it
will be necessary for such shareholders to surrender their certificates
in order to redeem, transfer or pledge the shares of Bond Fund which they
received.
6. Within one year after the Closing Date, Strategic Investment
Grade Bond Fund shall (a) either pay or make provision for payment of all
of its liabilities and taxes, and (b) either (i) transfer any remaining
amount of the Cash Reserve to Bond Fund, if such remaining amount (as
reduced by the estimated cost of distributing it to shareholders) is not
material (as defined below) or (ii) distribute such remaining amount to
the shareholders of Strategic Investment Grade Bond Fund on the Valuation
Date. Such remaining amount shall be deemed to be material if the amount
to be distributed, after deduction of the estimated expenses of the
distribution, equals or exceeds one cent per share of Strategic Investment
Grade Bond Fund outstanding on the Valuation Date.
7. Prior to the Closing Date, there shall be coordination between
the parties as to their respective portfolios so that, after the closing,
Bond Fund will be in compliance with all of its investment policies and
restrictions. At the Closing, Strategic Investment Grade Bond Fund shall
deliver to Bond Fund two copies of a list setting forth the securities
then owned by Strategic Investment Grade Bond Fund. Promptly after the
Closing, Strategic Investment Grade Bond Fund shall provide Bond Fund a
list setting forth the respective federal income tax bases thereof.
8. Portfolio securities or written evidence acceptable to Bond Fund
of record ownership thereof by The Depository Trust Company or through the
Federal Reserve Book Entry System or any other depository approved by
Strategic Investment Grade Bond Fund pursuant to Rule 17f-4 and Rule 17f-5
under the Act shall be endorsed and delivered, or transferred by
appropriate transfer or assignment documents, by Strategic Investment
Grade Bond Fund on the Closing Date to Bond Fund, or at its direction, to
its custodian bank, in proper form for transfer in such condition as to
constitute good delivery thereof in accordance with the custom of brokers
and shall be accompanied by all necessary state transfer stamps, if any.
The cash delivered shall be in the form of certified or bank cashiers'
checks or by bank wire or intra-bank transfer payable to the order of Bond
Fund for the account of Bond Fund. Shares of Bond Fund representing the
number of shares of Bond Fund being delivered against the assets of
Strategic Investment Grade Bond Fund, registered in the name of Strategic
Investment Grade Bond Fund, shall be transferred to Strategic Investment
Grade Bond Fund on the Closing Date. Such shares shall thereupon be
assigned by Strategic Investment Grade Bond Fund to its shareholders so
that the shares of Bond Fund may be distributed as provided in Section 5.
If, at the Closing Date, Strategic Investment Grade Bond Fund is
unable to make delivery under this Section 8 to Bond Fund of any of its
portfolio securities or cash for the reason that any of such securities
purchased by Strategic Investment Grade Bond Fund, or the cash proceeds
of a sale of portfolio securities, prior to the Closing Date have not yet
been delivered to it or Strategic Investment Grade Bond Fund's custodian,
then the delivery requirements of this Section 8 with respect to said
undelivered securities or cash will be waived and Strategic Investment
Grade Bond Fund will deliver to Bond Fund by or on the Closing Date and
with respect to said undelivered securities or cash executed copies of an
agreement or agreements of assignment in a form reasonably satisfactory
to Bond Fund, together with such other documents, including a due bill or
due bills and brokers' confirmation slips as may reasonably be required
by Bond Fund.
9. Bond Fund shall not assume the liabilities (except for portfolio
securities purchased which have not settled and for shareholder redemption
and dividend checks outstanding) of Strategic Investment Grade Bond Fund,
but Strategic Investment Grade Bond Fund will, nevertheless, use its best
efforts to discharge all known liabilities, so far as may be possible,
prior to the Closing Date. The cost of printing and mailing the proxies
and proxy statements will be borne by Strategic Investment Grade Bond
Fund. Strategic Investment Grade Bond Fund and Bond Fund will bear the
cost of their respective tax opinion. Any documents such as existing
prospectuses or annual reports that are included in that mailing will be
a cost of the fund issuing the document. Any other out-of-pocket expenses
of Bond Fund and Strategic Investment Grade Bond Fund associated with this
reorganization, including legal, accounting and transfer agent expenses,
will be borne by Strategic Investment Grade Bond Fund and Bond Fund,
respectively, in the amounts so incurred by each.
10. The obligations of Bond Fund hereunder shall be subject to the
following conditions:
A. The Board of Trustees of the Trust shall have authorized the
execution of the Agreement, and the shareholders of Strategic Investment
Grade Bond Fund shall have approved the Agreement and the transactions
contemplated thereby, and Strategic Investment Grade Bond Fund shall have
furnished to Bond Fund copies of resolutions to that effect certified by
the Secretary or an Assistant Secretary of Strategic Investment Grade Bond
Fund; such shareholder approval shall have been by the affirmative vote
of "a majority of the outstanding voting securities" (as defined in the
Act) of Strategic Investment Grade Bond Fund at a meeting for which
proxies have been solicited by the Proxy Statement and Prospectus (as
hereinafter defined).
B. Bond Fund shall have received an opinion dated the Closing Date
of counsel to Strategic Investment Grade Bond Fund, to the effect that (i)
Strategic Investment Grade Bond Fund is a business trust duly organized,
validly existing and in good standing under the laws of the Commonwealth
of Massachusetts with full powers to carry on its business as then being
conducted and to enter into and perform the Agreement; and (ii) that all
action necessary to make the Agreement, according to its terms, valid,
binding and enforceable on Strategic Investment Grade Bond Fund and to
authorize effectively the transactions contemplated by the Agreement have
been taken by Strategic Investment Grade Bond Fund.
C. The representations and warranties of Strategic Investment Grade
Bond Fund contained herein shall be true and correct at and as of the
Closing Date, and Bond Fund shall have been furnished with a certificate
of the President, or a Vice President, or the Secretary or the Assistant
Secretary or the Treasurer of Strategic Investment Grade Bond Fund, dated
the Closing Date, to that effect.
D. On the Closing Date, Strategic Investment Grade Bond Fund shall
have furnished to Bond Fund a certificate of the Treasurer or Assistant
Treasurer of Strategic Investment Grade Bond Fund as to the amount of the
capital loss carry-over and net unrealized appreciation or depreciation,
if any, with respect to Strategic Investment Grade Bond Fund as of the
Closing Date.
E. The Cash Reserve shall not exceed 10% of the value of the net
assets, nor 30% in value of the gross assets, of Strategic Investment
Grade Bond Fund at the close of business on the Valuation Date.
F. A Registration Statement on Form N-14 filed by Strategic Funds
Trust under the Securities Act of 1933, as amended (the "1933 Act"),
containing a preliminary form of the Proxy Statement and Prospectus, shall
have become effective under the 1933 Act not later than August 30, 1995.
G. On the Closing Date, Bond Fund shall have received a letter of
Andrew J. Donohue or other senior executive officer of Oppenheimer
Management Corporation acceptable to Bond Fund, stating that nothing has
come to his or her attention which in his or her judgment would indicate
that as of the Closing Date there were any material actual or contingent
liabilities of Strategic Investment Grade Bond Fund arising out of
litigation brought against Strategic Investment Grade Bond Fund or claims
asserted against it, or pending or to the best of his or her knowledge
threatened claims or litigation not reflected in or apparent from the most
recent audited financial statements and footnotes thereto of Strategic
Investment Grade Bond Fund delivered to Bond Fund. Such letter may also
include such additional statements relating to the scope of the review
conducted by such person and his or her responsibilities and liabilities
as are not unreasonable under the circumstances.
H. Bond Fund shall have received an opinion, dated the Closing Date,
of Deloitte & Touche LLP, to the same effect as the opinion contemplated
by Section 11.E. of the Agreement.
I. Bond Fund shall have received at the closing all of the assets
of Strategic Investment Grade Bond Fund to be conveyed hereunder, which
assets shall be free and clear of all liens, encumbrances, security
interests, restrictions and limitations whatsoever.
11. The obligations of Strategic Investment Grade Bond Fund
hereunder shall be subject to the following conditions:
A. The Board of Trustees of Bond Fund shall have authorized the
execution of the Agreement, and the transactions contemplated thereby, and
Bond Fund shall have furnished to Strategic Investment Grade Bond Fund
copies of resolutions to that effect certified by the Secretary or an
Assistant Secretary of Bond Fund.
B. Strategic Investment Grade Bond Fund's shareholders shall have
approved the Agreement and the transactions contemplated hereby, by an
affirmative vote of "a majority of the outstanding voting securities" (as
defined in the Act) of Strategic Investment Grade Bond Fund, and Strategic
Investment Grade Bond Fund shall have furnished Bond Fund copies of
resolutions to that effect certified by the Secretary or an Assistant
Secretary of Strategic Investment Grade Bond Fund.
C. Strategic Investment Grade Bond Fund shall have received an
opinion dated the Closing Date of counsel to Bond Fund, to the effect that
(i) Bond Fund is a business trust duly organized, validly existing and in
good standing under the laws of the Commonwealth of Massachusetts with
full powers to carry on its business as then being conducted and to enter
into and perform the Agreement; (ii) all action necessary to make the
Agreement, according to its terms, valid, binding and enforceable upon
Bond Fund and to authorize effectively the transactions contemplated by
the Agreement have been taken by Bond Fund, and (iii) the shares of Bond
Fund to be issued hereunder are duly authorized and when issued will be
validly issued, fully-paid and non-assessable, except as set forth in Bond
Fund's then current Prospectus and Statement of Additional Information.
D. The representations and warranties of Bond Fund contained herein
shall be true and correct at and as of the Closing Date, and Strategic
Investment Grade Bond Fund shall have been furnished with a certificate
of the President, a Vice President or the Secretary or an Assistant
Secretary or the Treasurer of Bond Fund to that effect dated the Closing
Date.
E. Strategic Investment Grade Bond Fund shall have received an
opinion of Deloitte & Touche LLP to the effect that the Federal tax
consequences of the transaction, if carried out in the manner outlined in
this Plan of Reorganization and in accordance with (i) Strategic
Investment Grade Bond Fund's representation that there is no plan or
intention by any Fund shareholder who owns 5% or more of Strategic
Investment Grade Bond Fund's outstanding shares, and, to Strategic
Investment Grade Bond Fund's best knowledge, there is no plan or intention
on the part of the remaining Fund shareholders, to redeem, sell, exchange
or otherwise dispose of a number of Bond Fund shares received in the
transaction that would reduce Strategic Investment Grade Bond Fund
shareholders' ownership of Bond Fund shares to a number of shares having
a value, as of the Closing Date, of less than 50% of the value of all of
the formerly outstanding Fund shares as of the same date, and (ii) the
representation by each of Strategic Investment Grade Bond Fund and Bond
Fund that, as of the Closing Date, Strategic Investment Grade Bond Fund
and Bond Fund will qualify as regulated investment companies or will meet
the diversification test of Section 368(a)(2)(F)(ii) of the Code, will be
as follows:
1. The transactions contemplated by the Agreement will qualify as
a tax-free "reorganization" within the meaning of Section 368(a)(1) of the
Code, and under the regulations promulgated thereunder.
2. Strategic Investment Grade Bond Fund and Bond Fund will each
qualify as a "party to a reorganization" within the meaning of Section
368(b)(2) of the Code.
3. No gain or loss will be recognized by the shareholders of
Strategic Investment Grade Bond Fund upon the distribution of shares of
beneficial interest in Bond Fund to the shareholders of Strategic
Investment Grade Bond Fund pursuant to Section 354 of the Code.
4. Under Section 361(a) of the Code no gain or loss will be
recognized by Strategic Investment Grade Bond Fund by reason of the
transfer of substantially all its assets in exchange for shares of Bond
Fund.
5. Under Section 1032 of the Code no gain or loss will be recognized
by Bond Fund by reason of the transfer of substantially all Strategic
Investment Grade Bond Fund's assets in exchange for Class A and Class B
shares of Bond Fund and Bond Fund's assumption of certain liabilities of
Strategic Investment Grade Bond Fund.
6. The shareholders of Strategic Investment Grade Bond Fund will
have the same tax basis and holding period for the Class A or Class B
shares of beneficial interest in Bond Fund that they receive as they had
for Strategic Investment Grade Bond Fund shares that they previously held,
pursuant to Section 358(a) and 1223(1), respectively, of the Code.
7. The securities transferred by Strategic Investment Grade Bond
Fund to Bond Fund will have the same tax basis and holding period in the
hands of Bond Fund as they had for Strategic Investment Grade Bond Fund,
pursuant to Section 362(b) and 1223(1), respectively, of the Code.
F. The Cash Reserve shall not exceed 10% of the value of the net
assets, nor 30% in value of the gross assets, of Strategic Investment
Grade Bond Fund at the close of business on the Valuation Date.
G. A Registration Statement on Form N-14 filed by Oppenheimer Bond
Fund under the 1933 Act, containing a preliminary form of the Proxy
Statement and Prospectus, shall have become effective under the 1933 Act
not later than August ___, 1995.
H. On the Closing Date, Strategic Investment Grade Bond Fund shall
have received a letter of Andrew J. Donohue or other senior executive
officer of Oppenheimer Management Corporation acceptable to Strategic
Investment Grade Bond Fund, stating that nothing has come to his or her
attention which in his or her judgment would indicate that as of the
Closing Date there were any material actual or contingent liabilities of
Bond Fund arising out of litigation brought against Bond Fund or claims
asserted against it, or pending or, to the best of his or her knowledge,
threatened claims or litigation not reflected in or apparent by the most
recent audited financial statements and footnotes thereto of Bond Fund
delivered to Strategic Investment Grade Bond Fund. Such letter may also
include such additional statements relating to the scope of the review
conducted by such person and his or her responsibilities and liabilities
as are not unreasonable under the circumstances.
I. Strategic Investment Grade Bond Fund shall acknowledge receipt
of the shares of Bond Fund.
12. Strategic Investment Grade Bond Fund hereby represents and
warrants that:
A. The financial statements of Strategic Investment Grade Bond Fund
as at September 30, 1994 (audited) and March 31, 1995 (unaudited)
heretofore furnished to Bond Fund, present fairly the financial position,
results of operations, and changes in net assets of Strategic Investment
Grade Bond Fund as of that date, in conformity with generally accepted
accounting principles applied on a basis consistent with the preceding
year; and that from September 30, 1994 through the date hereof there have
not been, and through the Closing Date there will not be, any material
adverse change in the business or financial condition of Strategic
Investment Grade Bond Fund, it being agreed that a decrease in the size
of Strategic Investment Grade Bond Fund due to a diminution in the value
of its portfolio and/or redemption of its shares shall not be considered
a material adverse change;
B. Contingent upon approval of the Agreement and the transactions
contemplated thereby by Strategic Investment Grade Bond Fund's
shareholders, Strategic Investment Grade Bond Fund has authority to
transfer all of the assets of Strategic Investment Grade Bond Fund to be
conveyed hereunder free and clear of all liens, encumbrances, security
interests, restrictions and limitations whatsoever;
C. The Prospectus, as amended and supplemented, contained in
Strategic Investment Grade Bond Fund's Registration Statement under the
1933 Act, as amended, is true, correct and complete, conforms to the
requirements of the 1933 Act and does not contain any untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading. The
Registration Statement, as amended, was, as of the date of the filing of
the last Post-Effective Amendment, true, correct and complete, conformed
to the requirements of the 1933 Act and did not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading;
D. There is no material contingent liability of Strategic Investment
Grade Bond Fund and no material claim and no material legal,
administrative or other proceedings pending or, to the knowledge of
Strategic Investment Grade Bond Fund, threatened against Strategic
Investment Grade Bond Fund, not reflected in such Prospectus;
E. There are no material contracts outstanding to which Strategic
Investment Grade Bond Fund is a party other than those ordinary in the
conduct of its business;
F. Strategic Investment Grade Bond Fund is a business trust duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Massachusetts; and has all necessary and material Federal
and state authorizations to own all of its assets and to carry on its
business as now being conducted; and Strategic Investment Grade Bond Fund
is duly registered under the Act and such registration has not been
rescinded or revoked and is in full force and effect;
G. All Federal and other tax returns and reports of Strategic
Investment Grade Bond Fund required by law to be filed have been filed,
and all Federal and other taxes shown due on said returns and reports have
been paid or provision shall have been made for the payment thereof and
to the best of the knowledge of Strategic Investment Grade Bond Fund no
such return is currently under audit and no assessment has been asserted
with respect to such returns and to the extent such tax returns with
respect to the taxable year of Strategic Investment Grade Bond Fund ended
September 30, 1994 have not been filed, such returns will be filed when
required and the amount of tax shown as due thereon shall be paid when
due; and
H. Strategic Investment Grade Bond Fund has elected to be treated
as a regulated investment company and, for each fiscal year of its
operations, Strategic Investment Grade Bond Fund has met the requirements
of Subchapter M of the Code for qualification and treatment as a regulated
investment company and Strategic Investment Grade Bond Fund intends to
meet such requirements with respect to its current taxable year.
13. Bond Fund hereby represents and warrants that:
A. The financial statements of Bond Fund as at December 30, 1994
(audited) heretofore furnished to Strategic Investment Grade Bond Fund,
present fairly the financial position, results of operations, and changes
in net assets of Bond Fund, as of that date, in conformity with generally
accepted accounting principles applied on a basis consistent with the
preceding year; and that from December 30, 1994 through the date hereof
there have not been, and through the Closing Date there will not be, any
material adverse changes in the business or financial condition of Bond
Fund, it being understood that a decrease in the size of Bond Fund due to
a diminution in the value of its portfolio and/or redemption of its shares
shall not be considered a material or adverse change;
B. The Prospectus, as amended and supplemented, contained in
Oppenheimer Integrity Funds Registration Statement under the 1933 Act, is
true, correct and complete, conforms to the requirements of the 1933 Act
and does not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading. The Registration Statement, as
amended, was, as of the date of the filing of the last Post-Effective
Amendment, true, correct and complete, conformed to the requirements of
the 1933 Act and did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading;
C. There is no material contingent liability of Bond Fund and no
material claim and no material legal, administrative or other proceedings
pending or, to the knowledge of Bond Fund, threatened against Bond Fund,
not reflected in such Prospectus;
D. There are no material contracts outstanding to which Bond Fund
is a party other than those ordinary in the conduct of its business;
E. Bond Fund is a business trust duly organized, validly existing
and in good standing under the laws of the Commonwealth of Massachusetts;
has all necessary and material Federal and state authorizations to own all
its properties and assets and to carry on its business as now being
conducted; the shares of Bond Fund which it issues to Strategic Investment
Grade Bond Fund pursuant to the Agreement will be duly authorized, validly
issued, fully-paid and non-assessable, except as otherwise set forth in
Bond Fund's Registration Statement; and will conform to the description
thereof contained in Bond Fund's Registration Statement, will be duly
registered under the 1933 Act and in the states where registration is
required; and Bond Fund is duly registered under the Act and such
registration has not been revoked or rescinded and is in full force and
effect;
F. All Federal and other tax returns and reports of Bond Fund
required by law to be filed have been filed, and all Federal and other
taxes shown due on said returns and reports have been paid or provision
shall have been made for the payment thereof and to the best of the
knowledge of Bond Fund no such return is currently under audit and no
assessment has been asserted with respect to such returns and to the
extent such tax returns with respect to the taxable year of Bond Fund
ended December 31, 1994 have not been filed, such returns will be filed
when required and the amount of tax shown as due thereon shall be paid
when due;
G. Bond Fund has elected to be treated as a regulated investment
company and, for each fiscal year of its operations, Bond Fund has met the
requirements of Subchapter M of the Code for qualification and treatment
as a regulated investment company and Bond Fund intends to meet such
requirements with respect to its current taxable year;
H. Bond Fund has no plan or intention (i) to dispose of any of the
assets transferred by Strategic Investment Grade Bond Fund, other than in
the ordinary course of business, or (ii) to redeem or reacquire any of the
shares issued by it in the reorganization other than pursuant to valid
requests of shareholders; and
I. After consummation of the transactions contemplated by the
Agreement, Bond Fund intends to operate its business in a substantially
unchanged manner.
14. Each party hereby represents to the other that no broker or
finder has been employed by it with respect to the Agreement or the
transactions contemplated hereby. Each party also represents and warrants
to the other that the information concerning it in the Proxy Statement and
Prospectus will not as of its date contain any untrue statement of a
material fact or omit to state a fact necessary to make the statements
concerning it therein not misleading and that the financial statements
concerning it will present the information shown fairly in accordance with
generally accepted accounting principles applied on a basis consistent
with the preceding year. Each party also represents and warrants to the
other that the Agreement is valid, binding and enforceable in accordance
with its terms and that the execution, delivery and performance of the
Agreement will not result in any violation of, or be in conflict with, any
provision of any charter, by-laws, contract, agreement, judgment, decree
or order to which it is subject or to which it is a party. Bond Fund
hereby represents to and covenants with Strategic Investment Grade Bond
Fund that, if the reorganization becomes effective, Bond Fund will treat
each shareholder of Strategic Investment Grade Bond Fund who received any
of Bond Fund's shares as a result of the reorganization as having made the
minimum initial purchase of shares of Bond Fund received by such
shareholder for the purpose of making additional investments in shares of
Bond Fund, regardless of the value of the shares of Bond Fund received.
15. Bond Fund agrees that it will prepare and file a Registration
Statement on Form N-14 under the 1933 Act which shall contain a
preliminary form of proxy statement and prospectus contemplated by Rule
145 under the 1933 Act. The final form of such proxy statement and
prospectus is referred to in the Agreement as the "Proxy Statement and
Prospectus." Each party agrees that it will use its best efforts to have
such Registration Statement declared effective and to supply such
information concerning itself for inclusion in the Proxy Statement and
Prospectus as may be necessary or desirable in this connection. Bond Fund
covenants and agrees to deregister as an investment company under the
Investment Company Act of 1940, as amended, as soon as practicable and,
thereafter, to cause the cancellation of its outstanding shares.
16. The obligations of the parties under the Agreement shall be
subject to the right of either party to abandon and terminate the
Agreement without liability if the other party breaches any material
provision of the Agreement or if any material legal, administrative or
other proceeding shall be instituted or threatened between the date of the
Agreement and the Closing Date (i) seeking to restrain or otherwise
prohibit the transactions contemplated hereby and/or (ii) asserting a
material liability of either party, which proceeding has not been
terminated or the threat thereof removed prior to the Closing Date.
17. The Agreement may be executed in several counterparts, each of
which shall be deemed an original, but all taken together shall constitute
one Agreement. The rights and obligations of each party pursuant to the
Agreement shall not be assignable.
18. All prior or contemporaneous agreements and representations are
merged into the Agreement, which constitutes the entire contract between
the parties hereto. No amendment or modification hereof shall be of any
force and effect unless in writing and signed by the parties and no party
shall be deemed to have waived any provision herein for its benefit unless
it executes a written acknowledgement of such waiver.
19. Strategic Investment Grade Bond Fund understands that the
obligations of Bond Fund under the Agreement are not binding upon any
Trustee or shareholder of Bond Fund personally, but bind only Bond Fund
and Bond Fund's property. Strategic Investment Grade Bond Fund represents
that it has notice of the provisions of the Declaration of Trust of Bond
Fund disclaiming shareholder and Trustee liability for acts or obligations
of Bond Fund.
20. Bond Fund understands that the obligations of Strategic
Investment Grade Bond Fund under the Agreement are not binding upon any
Trustee or shareholder of Strategic Investment Grade Bond Fund personally,
but bind only Strategic Investment Grade Bond Fund and Strategic
Investment Grade Bond Fund's property. Bond Fund represents that it has
notice of the provisions of the Declaration of Trust of Strategic
Investment Grade Bond Fund disclaiming shareholder and Trustee liability
for acts or obligations of Strategic Investment Grade Bond Fund.
IN WITNESS WHEREOF, each of the parties has caused the Agreement to
be executed and attested by its officers thereunto duly authorized on the
date first set forth above.
Attest: OPPENHEIMER STRATEGIC INVESTMENT
GRADE BOND FUND
__________________________ By:_______________________________
Robert G. Zack George C. Bowen
Assistant Secretary Vice President
Attest: OPPENHEIMER INTEGRITY FUNDS
On behalf of OPPENHEIMER BOND FUND
__________________________ By:_______________________________
Robert G. Zack Andrew J. Donohue
Assistant Secretary Vice President
<PAGE>
Preliminary Copy - For the Information of the Securities and Exchange
Commission Only
Oppenheimer Strategic Investment Proxy for Shareholders Meeting To
Grade Bond Fund - Class A Shares Be Held September 20, 1995
Your shareholder Your prompt response can save your
vote is important! Fund the expense of another mailing.
Please mark your proxy on the reverse
side, date and sign it, and return it
promptly in the accompanying envelope,
which requires no postage if mailed in
the United States.
Please detach at perforation before
mailing.
OPPENHEIMER STRATEGIC INVESTMENT GRADE BOND FUND
PROXY FOR SPECIAL SHAREHOLDERS MEETING
TO BE HELD SEPTEMBER 20, 1995
The undersigned shareholder of Oppenheimer Strategic Investment Grade Bond
Fund (the "Fund"), does hereby appoint George C. Bowen, Rendle Myer,
Robert Bishop and Scott Farrar, and each of them, as attorneys-in-fact and
proxies of the undersigned, with full power of substitution, to attend the
Special Meeting of the Fund to be held on September 20, 1995, at 3410
South Galena Street, Denver, Colorado at 10:00 A.M., Denver time, and at
all adjournments thereof, and to vote the shares held in the name of the
undersigned on the record date for said meeting on the Proposal specified
on the reverse side. Said attorneys-in-fact shall vote in accordance with
their best judgment as to any other matter.
PROXY SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES, WHO RECOMMENDS A VOTE
FOR THE PROPOSAL ON THE REVERSE SIDE. THE SHARES REPRESENTED HEREBY WILL
BE VOTED AS INDICATED ON THE REVERSE SIDE OR FOR IF NO CHOICE IS
INDICATED.
Please mark your proxy, date and sign it on the reverse side and return
it promptly in the accompanying envelope, which requires no postage if
mailed in the United States.
The Proposal:
To approve an Agreement and Plan of Reorganization between the Fund
and Oppenheimer Bond Fund ("Bond Fund"), and the transactions
contemplated thereby, including the transfer of substantially all the
assets of the Fund, in exchange for Class A and Class B shares of
Bond Fund. The distribution of such shares to the Class A and Class
B shareholders of the Fund in complete liquidation of the Fund, the
de-registration of the Fund as an investment company under the
Investment Company Act of 1940, as amended, and the cancellation of
the outstanding shares of the Fund (the "Proposal").
FOR____ AGAINST____ ABSTAIN____
Dated: ___________________________, 1995
(Month) (Day)
___________________________________
Signature(s)
___________________________________
Signature(s)
Please read both sides of this ballot.
NOTE: PLEASE SIGN EXACTLY AS YOUR NAME(S) APPEAR HEREON. When signing
as custodian, attorney, executor, administrator, trustee, etc., please
give your full title as such. All joint owners should sign this proxy.
If the account is registered in the name of a corporation, partnership or
other entity, a duly authorized individual must sign on its behalf and
give his or her title.
<PAGE>
Preliminary Copy - For the Information of the Securities and Exchange
Commission Only
Oppenheimer Strategic Investment Proxy for Shareholders Meeting To
Grade Bond Fund - Class B Shares Be Held September 20, 1995
Your shareholder Your prompt response can save your
vote is important! Fund the expense of another mailing.
Please mark your proxy on the reverse
side, date and sign it, and return it
promptly in the accompanying envelope,
which requires no postage if mailed in
the United States.
Please detach at perforation before
mailing.
OPPENHEIMER STRATEGIC INVESTMENT GRADE BOND FUND
PROXY FOR SPECIAL SHAREHOLDERS MEETING
TO BE HELD SEPTEMBER 20, 1995
The undersigned shareholder of Oppenheimer Strategic Investment Grade Bond
Fund (the "Fund"), does hereby appoint George C. Bowen, Rendle Myer,
Robert Bishop and Scott Farrar, and each of them, as attorneys-in-fact and
proxies of the undersigned, with full power of substitution, to attend the
Special Meeting of the Fund to be held on September 20, 1995, at 3410
South Galena Street, Denver, Colorado at 10:00 A.M., Denver time, and at
all adjournments thereof, and to vote the shares held in the name of the
undersigned on the record date for said meeting on the Proposal specified
on the reverse side. Said attorneys-in-fact shall vote in accordance with
their best judgment as to any other matter.
PROXY SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES, WHO RECOMMENDS A VOTE
FOR THE PROPOSAL ON THE REVERSE SIDE. THE SHARES REPRESENTED HEREBY WILL
BE VOTED AS INDICATED ON THE REVERSE SIDE OR FOR IF NO CHOICE IS
INDICATED.
Please mark your proxy, date and sign it on the reverse side and return
it promptly in the accompanying envelope, which requires no postage if
mailed in the United States.
The Proposal:
To approve an Agreement and Plan of Reorganization between the Fund
and Oppenheimer Bond Fund ("Bond Fund"), and the transactions
contemplated thereby, including the transfer of substantially all the
assets of the Fund, in exchange for Class A and Class B shares of
Bond Fund. The distribution of such shares to the Class A and Class
B shareholders of the Fund in complete liquidation of the Fund, the
de-registration of the Fund as an investment company under the
Investment Company Act of 1940, as amended, and the cancellation of
the outstanding shares of the Fund (the "Proposal").
FOR____ AGAINST____ ABSTAIN____
Dated: ___________________________, 1995
(Month) (Day)
___________________________________
Signature(s)
___________________________________
Signature(s)
Please read both sides of this ballot.
NOTE: PLEASE SIGN EXACTLY AS YOUR NAME(S) APPEAR HEREON. When signing
as custodian, attorney, executor, administrator, trustee, etc., please
give your full title as such. All joint owners should sign this proxy.
If the account is registered in the name of a corporation, partnership or
other entity, a duly authorized individual must sign on its behalf and
give his or her title.
<PAGE>
OPPENHEIMER INTEGRITY FUNDS
3410 South Galena Street, Denver, Colorado 80231
1-800-525-7048
PART B
STATEMENT OF ADDITIONAL INFORMATION
August 21, 1995
___________________________________
This Statement of Additional Information of Oppenheimer Bond Fund
consists of this cover page and the following documents:
1. Prospectus of Oppenheimer Bond Fund dated July 10, 1995, supplemented
July 14, 1995, filed herewith and is incorporated herein by reference.
2. Statement of Additional Information of Oppenheimer Bond Fund dated
July 10, 1995, filed herewith and is incorporated herein by reference.
3. Prospectus of Oppenheimer Strategic Investment Grade Bond Fund dated
February 1, 1995, supplemented July 14, 1995, filed herewith and is
incorporated herein by reference.
4. Statement of Additional Information of Oppenheimer Strategic
Investment Grade Bond Fund dated February 1, 1995, supplemented July 14,
1995, filed herewith and is incorporated herein by reference.
5. Oppenheimer Investment Grade Bond Fund's Annual Report as of December
31, 1994, filed herewith and is incorporated herein by reference.
6. Oppenheimer Strategic Investment Grade Bond Fund's Annual Report as
of September 30, 1994, filed herewith and is incorporated herein by
reference.
7. Oppenheimer Strategic Investment Grade Bond Fund's Semi-Annual Report
(unaudited) as of March 31, 1995, filed herewith and is incorporated
herein by reference.
8. Pro Forma Financials
This Statement of Additional Information is not a Prospectus. This
Statement of Additional Information should be read in conjunction with the
Proxy Statement and Prospectus, which may be obtained by written request
to Oppenheimer Shareholder Services ("OSS"), P.O. Box 5270, Denver,
Colorado 80217, or by calling OSS at the toll-free number shown above.
<PAGE>
OPPENHEIMER BOND FUND
Supplement dated July 14, 1995 to the
Prospectus dated July 10, 1995
The following changes are made to the Prospectus:
1. Footnote 1 under the "Shareholder Transaction Expenses" chart in
"Expenses" on page 3 is changed to read as follows:
1. If you invest more than $1 million (more than $500,000 for
purchases by OppenheimerFunds prototype 401(k) plans) in Class A
shares, you may have to pay a sales charge of up to 1% if you sell
your shares within 18 calendar months from the end of the calendar
month in which you purchased those shares. See "How to Buy Shares -
- Class A Shares," below.
2. In "How to Buy Shares," the section entitled "Class A Shares" on page
25 under "Classes of Shares" is changed to read as follows:
If you buy Class A shares, you may pay an initial sales charge
on investments up to $1 million (up to $500,000 for purchases by
OppenheimerFunds prototype 401(k) plans). If you purchase Class A
shares as part of an investment of at least $1 million ($500,000
for OppenheimerFunds prototype 401(k) plans) in shares of one or
more OppenheimerFunds, you will not pay an initial sales charge,
but if you sell any of those shares within 18 months of buying
them, you may pay a contingent deferred sales charge. The amount
of that sales charge will vary depending on the amount you
invested. Sales charge rates are described in "Class A Shares"
below.
3. In "How to Buy Shares," the section entitled "Which Class of Shares
Should You Choose?" on page 25 is changed by adding a new final sentence
to the third paragraph of that section as follows:
The discussion below of the factors to consider in purchasing
a particular class of shares assumes that you will purchase only
one class of shares and not a combination of shares of different
classes.
4. In "How to Buy Shares," the first and second paragraphs of the section
"Class A Contingent Deferred Sales Charge" on page 29 is amended in its
entirety to read as follows:
There is no initial sales charge on purchases of Class A shares
of any one or more of the OppenheimerFunds in the following cases:
- purchases aggregating $1 million or more, or
- purchases by an OppenheimerFunds prototype 401(k) plan
that: (1) buys shares costing $500,000 or more or (2) has,
at the time of purchase, 100 or more eligible participants,
or (3) certifies that it projects to have annual plan
purchases of $200,000 or more.
Shares of any of the OppenheimerFunds that offers only one
class of shares that has no designation are considered "Class A
shares" for this purpose. The Distributor pays dealers of record
commissions on those 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 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 by OppenheimerFunds 401(k)
prototype plans) that were not previously subject to a front-end
sales charge and dealer commission.
5. In "Reduced Sales Charges for Class A Purchases" on page 30, the first
sentence of the section "Right of Accumulation" is changed to read as
follows:
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 Class B shares you purchase for your individual
accounts, or jointly, or for trust or custodial accounts on behalf
of your children who are minors.
The first two sentences of the second paragraph of that section are
revised to read as follows:
Additionally, you can add together current purchases of Class A and
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 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 that investment in one of the OppenheimerFunds.
6. The first sentence of the section entitled "Letter of Intent" on page
30 is revised to read as follows:
Under a Letter of Intent, if you purchase Class A shares or Class
A shares and Class B shares of the Fund and other OppenheimerFunds
during a 13-month period, you can reduce the sales charge rate that
applies to your purchases of Class A shares. The total amount of
your intended purchases of both Class A and Class B shares will
determine the reduced sales charge rate for the Class A shares
purchased during that period.
7. In the section entitled "Waivers of Class A Sales Charges" on page 31,
the following changes are made:
The first sentence of the first paragraph is replaced by a new
introductory paragraph set forth below and the list of circumstances
describing the sales charge waivers follows a new initial sentence:
- Waivers of Class A Sales Charges. The Class A sales charges
are not imposed in the circumstances described below. There is an
explanation of this policy in "Reduced Sales Charges" in the
Statement of Additional Information.
Waivers of Initial and Contingent Deferred Sales Charges for
Certain Purchasers. Class A shares purchased by the following
investors are not subject to any Class A sales charges:
The introductory phrase preceding the list of sales charge waivers in
the second paragraph and subsection (d) of that paragraph are replaced by
the following:
Waivers of Initial and Contingent Deferred Sales Charges in
Certain Transactions. Class A shares issued or purchased in the
following transactions are not subject to Class A sales charges:
... (d) shares purchased and paid for with the proceeds of shares
redeemed in the prior 12 months from a mutual fund (other than a
fund managed by the Manager or any of its subsidiaries) on which
an initial sales charge or contingent deferred sales charge was
paid (this waiver also applies to shares purchased by exchange of
shares of Oppenheimer Money Market Fund, Inc. that were purchased
and paid for in this manner); 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 this
waiver.
The third paragraph of that section is revised to read as follows:
Waivers of the Class A Contingent Deferred Sales Charge. The
Class A contingent deferred sales charge does not apply to
purchases of Class A shares at net asset value without sales charge
as described in the two sections above. It is also waived if shares
that would otherwise be subject to the contingent deferred sales
charge are redeemed in the following cases:
- for retirement distributions or loans to participants or
beneficiaries from qualified retirement plans, deferred
compensation plans or other employee benefit plans, including
OppenheimerFunds prototype 401(k) plans (these are all referred to
as "Retirement Plans"); or
- to return excess contributions made to Retirement Plans; or
- to make Automatic Withdrawal Plan payments that are limited
annually to no more than 12% of the original account value; or
- involuntary redemptions of shares by operation of law or
involuntary redemptions of small accounts (see "Shareholder Account
Rules and Policies," below); or
- if, at the time a purchase order is placed for Class A shares
that would otherwise be subject to the Class A contingent deferred
sales charge, the dealer agrees to accept the dealer's portion of
the commission payable on the sale in installments of 1/18th of the
commission per month (and no further commission will be payable if
the shares are redeemed within 18 months of purchase); or
- for distributions from OppenheimerFunds prototype 401(k)
plans for any of the following cases or purposes: (1) following the
death or disability (as defined in the Internal Revenue Code) of
the participant or beneficiary (the death or disability must occur
after the participant's account was established); (2) hardship
withdrawals, as defined in the plan; (3) under a Qualified Domestic
Relations Order, as defined in the Internal Revenue Code; (4) to
meet the minimum distribution requirements of the Internal Revenue
Code; (5) to establish "substantially equal periodic payments" as
described in Section 72(t) of the Internal Revenue Code, or (6)
separation from service.
8. The first paragraph of the section entitled "Waivers of Class B Sales
Charge" on page 33 is amended by replacing the introductory phrase of
that paragraph with the sentences below and replacing item (5) of that
paragraph as follows:
- Waivers of Class B Sales Charge. The Class B contingent
deferred sales charge will not be applied to shares purchased in
certain types of transactions nor will it apply to Class B shares
redeemed in certain circumstances as described below. The reasons
for this policy are in "Reduced Sales Charges" in the Statement of
Additional Information.
Waivers for Redemptions of Shares in Certain Cases. The Class
B contingent deferred sales charge will be waived for redemptions
of shares in the following cases:
... (5) for distributions from OppenheimerFunds prototype 401(k)
plans (1) for hardship withdrawals; (2) under a Qualified Domestic
Relations Order, as defined in the Internal Revenue Code; (3) to
meet minimum distribution requirements as defined in the Internal
Revenue Code; (4) to make "substantially equal periodic payments"
as described in Section 72(t) of the Internal Revenue Code; or (5)
for separation from service.
9. The section titled "Waivers of Class C Sales Charge" on page 35 is
replaced with the following:
The Class C contingent deferred sales charge will be waived if
the shareholder requests it for any of the redemptions or
circumstances described above under "Waivers of Class B Sales
Charge."
10. In the section entitled "Reinvestment Privilege" on page 37, the
first two sentences are revised to read as follows:
If you redeem some or all of your Class A or B shares of the Fund,
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 a sales charge. This privilege applies to Class A
shares that your purchased subject to an initial sales charge and
to Class A or B shares on which you paid a contingent deferred
sales charge when you redeemed them. It does not apply to Class C
shares.
11. In the section entitled "Retirement Plans" on page 38, the final
item in the list of plans offered by the Distributor is replaced with the
following:
- 401(k) prototype retirement plans for businesses
12. The following is added after the paragraph title "Zero Coupon
Securities" on page 13:
Other Debt Securities. The Fund may invest in preferred stocks.
Preferred stock, unlike common stock, generally offers a stated dividend
rate payable from the corporations's earnings. Such preferred stock
dividends may be cumulative or non-cumulative, fixed, participating, or
auction rate. If interest rates rise, a fixed divident on preferred
stocks may be less attractive, causing the price of preferred stocks to
decline. The rights to payment of preferred stocks are generally
subordinate to rights associated with a corporation's debt securities.
The Fund may also invest in municipal securities, which are debt
obligations issued by states, territories and possessions of the United
States and the District of Columbia and their political subdivisions,
agencies and instrumentalities or multi-state agencies or authorities, the
interest from which is, in the opinion of bond counsel to the issuer,
exempt from Federal income tax. Interest from certain municipal
securities may be subject to Federal alternative minimum tax.
July 14, 1995 PS0285.002
<PAGE>
O P P E N H E I M E R
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 securities. You should carefully review the risks associated with
an investment in the Fund. Please refer to "Investment Objectives and
Polices" 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
ABOUT THE FUND
Expenses
A Brief Overview of the Fund
Financial Highlights
Investment Objective and Policies
How the Fund is Managed
Performance of the Fund
ABOUT YOUR ACCOUNT
How to Buy Shares
Class A Shares
Class B Shares
Class C Shares
Special Investor Services
AccountLink
Automatic Withdrawal and Exchange Plans
Reinvestment Privilege
Retirement Plans
How to Sell Shares
By Mail
By Telephone
By Checkwriting
How to Exchange Shares
Shareholder Account Rules and Policies
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 4.75% None None
Charge on Purchases
(as a % of offering price)
- ----------------------------------------------------------------------
Sales Charge on
Reinvested Dividends None None None
- ----------------------------------------------------------------------
Deferred Sales Charge None(1) 5% in the 1% if
(as a % of the lower of the first year, shares are
original purchase price or declining to redeemed
redemption proceeds) 1% in the within 12
sixth year and sixth year and months of
eliminated purchase(2)
thereafter(2)
- ----------------------------------------------------------------------
Exchange Fee None None None
<FN>
1. If you invest more than $1 million in Class A shares, you may have to pay a sales charge of up to 1% if you sell your shares
within 18 calendar months from the end of the calendar month during which you purchased those shares. See "How to Buy
Shares - Class A Shares," below.
2. See "How to Buy Shares," below, for more information on the contingent deferred sales charges.
</TABLE>
-- 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 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 (Restated) 0.75% 0.75% 0.75%
- ----------------------------------------------------------------------
12b-1 Distribution 0.25%(1) 1.00%(2) 1.00%(2)
Plan Fees
(includes Shareholder
Service Plan Fees)
- ----------------------------------------------------------------------
Other Expenses 0.31% 0.28% 0.30%
- ----------------------------------------------------------------------
Total Fund 1.31% 2.03% 2.05%
Operating Expenses
<FN>
1. Service Plan fees only
2. Includes Service Plan fees and asset-based sales charge
</TABLE>
-- 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 Annual Fund Operating
Expenses chart above. If you were to redeem your shares at the end of
each period shown below, your investment would incur the following
expenses by the end of 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 $ $ $ $
If you did not redeem your investment, it would incur the following expenses:
Class A Shares $60 $87 $116 $198
- ----------------------------------------------------------------------
Class B Shares $21 $64 $109 $200
- ----------------------------------------------------------------------
Class C Shares $ $ $ $
</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 domestic and foreign 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.
-- 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 18 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 24 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 ___ 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 ___. The Fund also offers exchange privileges to other
OppenheimerFunds, described in "How to Exchange Shares" on page __.
-- 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. 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. 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 ___. Please remember that past
performance does not guarantee future results.
<PAGE>
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.
<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 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 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, 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, 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 own other securities acceptable for applicable escrow
requirements). 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, 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 or Futures, 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 net 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
Fund's Declaration of Trust.
The Board of Trustees has the power, without shareholder approval,
to divide unissued shares of the Fund into two or more classes. The Board
has done so, and the Fund currently has 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, 1991.
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. Messrs. Negri and 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.
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, 1994.
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. This Prospectus and Statement
of Additional Information reflect the investment policy changes approved
by the Fund's shareholders at a meeting held July 10, 1995. The Fund will
continue to use the Lehman Brothers Corporate Bond Index as an appropriate
broad-based index against which to compare its performance. 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.
Comparison of Change in Value
of $10,000 Hypothetical Investment in
Oppenheimer Investment Grade Bond Fund Class A and Class B Shares
and the Lehman Brothers Corporate Bond Index
[Graphs]
Past Performance is not predictive of future performance.
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). If you purchase Class A
shares as part of an investment of at least $1 million 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.
-- 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 the shorter
term, 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) will have a greater economic impact on your
account during that period than the reduced initial sales charge 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 million 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, or other features (such as Automatic Withdrawal Plans)
might not be advisable (because of the effect of contingent deferred sales
charge) in non-retirement accounts for 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. Also, because not all
OppenheimerFunds currently offer Class B or Class C shares, and because
exchanges are permitted only to the same class of shares in other
OppenheimerFunds, you should consider how important the exchange privilege
is likely to be for you. 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.
-- 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 Sales Front-End Sales
Charge As a Charge As A
Percentage of Percentage of Commission as
Offering Amount Percentage of
Amount of Purchase Price Invested Offering 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).
However, the Distributor pays dealers of record commissions on such
purchases in an amount equal to the sum of 1.0% of the first $2.5 million,
plus 0.50% of the next $2.5 million, plus 0.25% of share purchases over
$5 million. That commission will be paid only on the amount of those
purchases in excess of $1 million that were not previously subject to a
front-end sales charge and dealer commission.
If you redeem any of those shares within 18 months of the end of the
calendar month of their purchase, a contingent deferred sales charge
(called the "Class A contingent deferred sales charge") will be deducted
from the redemption proceeds. That sales charge will be equal to 1.0% of
the aggregate net asset value of either (1) the redeemed shares (not
including shares purchased by reinvestment of dividends or capital gain
distributions) or (2) the original cost of the shares, whichever is less.
However, the Class A contingent deferred sales charge will not exceed the
aggregate 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 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
shares of the Fund and other OppenheimerFunds. You can also include Class
A shares of OppenheimerFunds you previously purchased subject to a sales
charge, provided that you still hold your investment in one of the
OppenheimerFunds. The value of those shares will be based on the greater
of the amount you paid for the shares or their current value (at offering
price). The OppenheimerFunds are listed in "Reduced Sales Charges" in the
Statement of Additional Information, or a list can be obtained from the
Transfer Agent. The reduced sales charge will apply only to current
purchases and must be requested when you buy your shares.
-- Letter of Intent. Under a Letter of Intent, you may purchase
Class A shares of the Fund and other OppenheimerFunds during a 13-month
period at the reduced sales charge rate that applies to the total amount
of the intended purchases. 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; (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 or (b) purchased by the
reinvestment of loan repayments by a participant in a retirement plan for
which the Manager or its affiliates acts as sponsor, (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 ("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, and (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).
-- 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, and (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).
The contingent deferred sales charge is also waived on Class B shares
in the following cases: (i) shares sold to the Manager or its affiliates;
(ii) shares sold to registered management investment companies or separate
accounts of insurance companies having an agreement with the Manager or
the Distributor for that purpose; (iii) shares issued in plans of
reorganization to which the Fund is a party; and (iv) shares redeemed in
involuntary redemptions as described below. Further details about this
policy are contained in "Reduced Sales Charges" in the Statement of
Additional Information.
-- Automatic Conversion of Class B Shares. 72 months after you
purchase Class B shares, those shares will automatically convert to Class
A shares. This conversion feature relieves Class B shareholders of the
asset-based sales charge that applies to Class B shares under the Class
B Distribution and Service Plan, described below. The conversion is based
on the relative net asset value of the two classes, and no sales load or
other charge is imposed. When Class B shares convert, any other Class B
shares that were acquired by the reinvestment of dividends and
distributions on the converted shares will also convert to Class A shares.
The conversion feature is subject to the continued availability of a tax
ruling described in "Alternative Sales Arrangements - Class A and Class
B Shares" in the Statement of Additional Information.
-- Distribution and Service Plan for Class B Shares. The Fund has
adopted a "compensation type" Distribution and Service Plan for Class B
shares to compensate the Distributor for its services and costs in
distributing Class B shares and servicing accounts. Under the Plan, the
Fund pays the Distributor an annual "asset-based sales charge" of 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 and (4) distributions from IRAs
(including SEP-IRAs and SAR/SEP accounts) before the participant is age
59 1/2, and distributions from 403(b)(7) custodial plans or pension or
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; and (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
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 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 and Class B shares. Therefore, the redemption
value of your shares may be more or less than their original cost.
-- Payment for redeemed shares is made ordinarily in cash and
forwarded by check or through AccountLink (as elected by the shareholder
under the redemption procedures described above) within 7 days after the
Transfer Agent receives redemption instructions in proper form, except
under unusual circumstances determined by the Securities and Exchange
Commission delaying or suspending such payments. Effective June 7, 1995,
for accounts registered in the name of a broker-dealer, payment will be
forwarded within 3 business days. 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 and Class B shares.
-- To avoid sending duplicate copies of materials to households, the
Fund will mail only one copy of each annual and semi-annual report 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 net asset value per share. The Board of
Trustees would 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. With or without a target dividend level, 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
Lehman Brothers
Fiscal Year Oppenheimer Corporate
(Period) Ended Bond Fund B(1) Bond Index
05/01/93 $10,000 $10,000
12/31/93 $10,391 $10,503
12/31/94 $9,559 $10,056
<FN>
- ----------------------
(1) Class B shares of the Fund were first publicly offered on May 1, 1993.
</TABLE>
<PAGE>
Oppenheimer Investment Grade Bond Fund
3410 South Galena Street, Denver, Colorado 80231
Telephone: 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.
Contents
Page
About the Fund
Investment Objective and Policies
Investment Policies and Strategies
Other Investment Techniques and Strategies
Other Investment Restrictions
How the Fund is Managed
Organization and History
Trustees and Officers of the Fund
The Manager and Its Affiliates
Brokerage Policies of the Fund
Performance of the Fund
Distribution and Service Plans
About Your Account
How to Buy Shares
How to Sell Shares
How to Exchange Shares
Dividends, Capital Gains and Taxes
Additional Information About the Fund
Financial Information About the Fund
Independent Auditors' Report
Financial Statements
Appendix A: Description of Securities Ratings A-1
Appendix B: Industry Classification B-1
<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. 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 issuing bank. 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 that are subject to
withdrawal penalties, other than those maturing in seven days or less, 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 100% 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
write covered call options or write covered put options with respect to
not more than 5% of the value of its net assets. Similarly, 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. Under the Rule, the Fund also
must use short Futures and Futures options positions solely for "bona fide
hedging purposes" within the meaning and intent of the applicable
provisions of the Commodity Exchange Act.
Transactions in options by the Fund are subject to limitations
established by each of the exchanges governing the maximum number of
options which may be written or held by a single investor or group of
investors acting in concert, regardless of whether the options were
written or purchased on the same or different exchanges or are held in one
or more accounts or through one or more exchanges or brokers. Thus, the
number of options which the Fund may write or hold may be affected by
options written or held by other entities, including other investment
companies having the same or an affiliated investment adviser. Position
limits also apply to Futures. 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
in using short 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. Additionally, the Manager 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
Cash Reserves, Oppenheimer Tax-Exempt Bond 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 the 1% of each class
of the Funds outstanding shares. 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.
[FN]
- ----------------------
*A Trustee who is an "interested person" of the Fund as defined in the
Investment Company Act.
-- Remuneration of Trustees. The officers of the Fund are
affiliated with the Manager. They and the Trustees of the Fund who are
affiliated with the Manager (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 22 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
Raymond J. Kalinowski $600.00 $53,000.00
Trustee
C. Howard Kast $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
<FN>
_____________
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. 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. The investment advisory
agreement, dated June 28, 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 agreements contain no expense limitation. However,
independently of the advisory agreements, 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.
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 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, 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 and the Manager. 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 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. 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 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 and Class B shares of the
Fund are affected by portfolio quality, the type of investments the Fund
holds and its operating expenses allocated to 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 10, 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 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. 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.
-- Total Returns at Net Asset Value. From time to time the Fund may
also quote an "average annual total return at net asset value" or a
cumulative "total return at net asset value" for Class A or Class B
shares. Each is based on the difference in net asset value per share at
the beginning and the end of the period for a hypothetical investment in
that class of shares (without considering front-end or contingent 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 or Class B shares. However, when
comparing total return of an investment in Class A or Class B 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.
The performance of the Fund's classes is 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.
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 and Class B 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
reimburse the Distributor quarterly for all or a portion of its costs
incurred in connection with the distribution and/or servicing of the
shares of that class, as described in the Prospectus. Each Plan has been
approved by a vote of (i) the Board of Trustees of the Fund, including a
majority of the Independent Trustees, cast in person at a meeting called
for the purpose of voting on that Plan, and (ii) the holders of a
"majority" (as defined in the Investment Company Act) of the shares of
each class. (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 B 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 on the amount of all payments made pursuant to each Plan, the
purpose for which each payment was made and the identity of each Recipient
that received any payment. Each report shall also include the
distribution costs for that quarter. 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 or Class C Plan and recoveries of the
contingent deferred sales charge collected on redeemed Class B or Class
C shares) the sales commissions paid to authorized brokers or dealers.
Asset-based sales charge payments are designed to permit an investor
to purchase shares of the Fund without 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. The Distributor's actual
distribution expenses for any given year may exceed the aggregate of
payments received pursuant to the Class B or Class C Plan and from
contingent deferred sales charges.
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 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 stock 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 Time Fund
Oppenheimer Target Fund
Oppenheimer Growth Fund
Oppenheimer Equity Income Fund
Oppenheimer Value Stock Fund
Oppenheimer Asset Allocation Fund
Oppenheimer Total Return Fund, Inc.
Oppenheimer Main Street Income & Growth Fund
Oppenheimer High Yield Fund
Oppenheimer Champion High Yield Fund
Oppenheimer Investment Grade Bond Fund
Oppenheimer U.S. Government Trust
Oppenheimer Limited-Term Government Fund
Oppenheimer Mortgage Income Fund
Oppenheimer Global Fund
Oppenheimer Global Emerging Growth Fund
Oppenheimer Global 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
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 shares of the Fund
(and other eligible OppenheimerFunds) sold with a front-end sales charge
during the 13-month period from the investor's first purchase pursuant to
the Letter (the "Letter of Intent period"), which may, at the investor's
request, include purchases made up to 90 days prior to the date of the
Letter. The Letter states the investor's intention to make the aggregate
amount of purchases (excluding any purchases made by 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 obtain the reduced sales charge rate
(as set forth in the Prospectus) applicable to purchases of shares in that
amount (the "intended purchase amount"). Each purchase under the Letter
will be made at the public offering price applicable to a single lump-sum
purchase of shares in the intended purchase amount, as described in the
Prospectus.
In submitting a Letter, the investor makes no commitment to purchase
shares, but if the investor's purchases of shares within the Letter of
Intent period, when added to the value (at offering price) of the
investor's holdings of shares on the last day of that period, do not equal
or exceed the intended purchase amount, the investor agrees to pay the
additional amount of sales charge applicable to such purchases, as set
forth in "Terms of Escrow," below (as those terms may be amended from time
to time). The investor agrees that shares equal in value to 5% of the
intended purchase amount will be held in escrow by the Transfer Agent
subject to the Terms of Escrow. Also, the investor agrees to be bound by
the terms of the Prospectus, this Statement of Additional Information and
the Application used for such Letter of Intent, and if such terms are
amended, as they may be from time to time by the Fund, that those
amendments will apply automatically to existing Letters of Intent.
If the total eligible purchases made during the Letter of Intent
period do not equal or exceed the intended purchase amount, the
commissions previously paid to the dealer of record for the account and
the amount of sales charge retained by the Distributor will be adjusted
to the rates applicable to actual purchases. If total eligible purchases
during the Letter of Intent period exceed the intended purchase amount and
exceed the amount needed to qualify for the next sales charge rate
reduction set forth in the applicable prospectus, the sales charges paid
will be adjusted to the lower rate, but only if and when the dealer
returns to the Distributor the excess of the amount of commissions allowed
or paid to the dealer over the amount of commissions that apply to the
actual amount of purchases. The excess commissions returned to the
Distributor will be used to purchase additional shares for the investor's
account at the net asset value per share in effect on the date of such
purchase, promptly after the Distributor's receipt thereof.
In determining the total amount of purchases made under a Letter,
shares redeemed by the investor prior to the termination of the Letter of
Intent period will be deducted. It is the responsibility of the dealer
of record and/or the investor to advise the Distributor about the Letter
in placing any purchase orders for the investor during the Letter of
Intent period. All of such purchases must be made through the
Distributor.
-- Terms of Escrow that Apply to Letters of Intent.
1. Out of the initial purchase (or subsequent purchases if
necessary) made pursuant to a Letter, shares of the Fund equal in value
to 5% of the intended purchase amount 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 the Letter) do not include
any shares sold without a front-end sales charge or shares subject to a
Class A contingent deferred sales charge unless (for the purpose of
determining completion of the obligation to purchase shares under the
Letter) the shares were acquired in exchange for shares of one of the
OppenheimerFunds whose shares were acquired by payment of a sales charge.
6. Shares held in escrow hereunder will automatically be exchanged
for shares of another fund to which an exchange is requested, as described
in the section of the Prospectus entitled "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
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. 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)
Oppenheimer Growth Fund
Oppenheimer Equity Income Fund
Oppenheimer Global Fund
Oppenheimer Discovery 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 and B shares are available only
by exchange)
Oppenheimer Strategic Diversified Income Fund
Oppenheimer Limited-Term Government Fund
Class A shares of OppenheimerFunds may be exchanged at net asset
value for shares of any Money Market Fund. Shares of any Money Market
Fund purchased without a sales charge may be exchanged for shares of
OppenheimerFunds offered with a sales charge upon payment of the sales
charge (or, if applicable, may be used to purchase shares of
OppenheimerFunds subject to a contingent deferred sales charge).
Shares of this Fund acquired by reinvestment of dividends or
distributions from any other of the OppenheimerFunds or from any unit
investment trust for which reinvestment arrangements have been made with
the Distributor may be exchanged at net asset value for shares of any of
the OppenheimerFunds. No contingent deferred sales charge is imposed on
exchanges of shares of either class purchased subject to a contingent
deferred sales charge. However, when Class A shares acquired by exchange
of Class A shares of other OppenheimerFunds purchased subject to a Class
A contingent deferred sales charge are redeemed within 18 months of the
end of the calendar month of the initial purchase of the exchanged Class
A shares, the Class A contingent deferred sales charge is imposed on the
redeemed shares (see "Class A Contingent Deferred Sales Charge" in the
Prospectus). The Class B contingent deferred sales charge is imposed on
Class B shares acquired by exchange if they are redeemed within 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 multiple classes 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>
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 four highest 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
<PAGE>
OPPENHEIMER STRATEGIC INVESTMENT GRADE BOND FUND
Supplement dated July 14, 1995
to the Prospectus dated February 1, 1995
The following changes are made to the Prospectus:
1. The last line of the "Shareholder Transaction Expenses" chart in
"Expenses" on page 3 is amended by deleting the references to the $5.00
Exchange Fee and inserting "None" under the headings Class A Shares and
Class B Shares.
2. Footnote 1 under the "Shareholder Transaction Expenses" chart in
"Expenses" on page 3 is changed to read as follows:
1. If you invest more than $1 million (more than $500,000 for
purchases by OppenheimerFunds prototype 401(k) plans) in Class
A shares, you may have to pay a sales charge of up to 1% if you
sell your shares within 18 calendar months from the end of the
calendar month in which you purchased those shares. See "How to
Buy Shares -- Class A Shares," below.
3. Footnote 2 under the "Shareholder Transaction Expenses" chart in
"Expenses" on page 3 is deleted.
4. The following paragraphs are added at the end of "How the Fund is
Managed" on page 17:
The Board of Trustees of Oppenheimer Strategic Investment Grade
Bond Fund (referred to as "Strategic Investment Grade Bond Fund"
or the "Fund") has determined that it is in the best interest
of the Fund's shareholders that the Fund reorganize with and
into Oppenheimer Bond Fund ("Bond Fund"). The Board unanimously
approved the terms of an agreement and plan of reorganization
to be entered into between these funds (the "reorganization
plan") and the transactions contemplated (the transactions are
referred to as the "reorganization"). The Board further
determined that the reorganization should be submitted to the
Fund's shareholders for approval, and recommended that
shareholders approve the reorganization.
Pursuant to the reorganization plan, (i) substantially all of
the assets of the Fund would be exchanged for Class A and Class
B shares of Bond Fund, (ii) these shares of Bond Fund would be
distributed to the shareholders of the Fund, (iii) Strategic
Investment Grade Bond Fund would be liquidated, and (iv) the
outstanding shares of Strategic Investment Grade Bond Fund would
be cancelled. It is expected that the reorganization will be
tax-free, pursuant to Section 368(a)(1) of the Internal Revenue
Code of 1986, as amended, and the Fund will request an opinion
of tax counsel to that effect.
A meeting of the shareholders of Strategic Investment Grade Bond
Fund is expected to be held on or about September 20, 1995 to
vote on the reorganization. Approval of the reorganization
requires the affirmative vote of a majority of the outstanding
shares of the Fund (the term "majority" is defined in the
Investment Company Act as a special majority. It is also
explained in the Statement of Additional Information). There
is no assurance that Strategic Investment Grade Bond Fund's
shareholders will approve the reorganization. Details about the
proposed reorganization will be contained in a proxy statement
and other soliciting materials sent to Strategic Investment
Grade Bond Fund's shareholders of record on July 14, 1995.
Persons who become shareholders of the Fund after the record
date for the shareholder meeting will not be entitled to vote
on the reorganization.
5. In "How to Buy Shares," the section entitled "Class A Shares" under
"Classes of Shares" on page 19 is changed to read as follows:
If you buy Class A shares, you may pay an initial sales charge
on investments up to $1 million (up to $500,000 for purchases
by OppenheimerFunds prototype 401(k) plans). If you purchase
Class A shares as part of an investment of at least $1 million
($500,000 for OppenheimerFunds prototype 401(k) plans) in shares
of one or more OppenheimerFunds, you will not pay an initial
sales charge, but if you sell any of those shares within 18
months of buying them, you may pay a contingent deferred sales
charge. The amount of that sales charge will vary depending on
the amount you invested. Sales charge rates are described in
"Class A Shares" below.
6. In "How to Buy Shares," the section entitled "Which Class of Shares
Should You Choose?" on page 19 is changed by adding a new final sentence
to the second paragraph of that section as follows:
The discussion below of the factors to consider in purchasing
a particular class of shares assumes that you will purchase only
one class of shares and not a combination of shares of different
classes.
7. In "How to Buy Shares," the first paragraph of the section "Class A
Contingent Deferred Sales Charge" on page 21 is amended in its entirety
to read as follows:
There is no initial sales charge on purchases of Class A shares
of any one or more of the OppenheimerFunds in the following
cases:
- purchases aggregating $1 million or more, or
- purchases by an OppenheimerFunds prototype 401(k) plan
that: (1) buys shares costing $500,000 or more or (2)
has, at the time of purchase, 100 or more eligible
participants, or (3) certifies that it projects to have
annual plan purchases of $200,000 or more.
Shares of any of the OppenheimerFunds that offers only one
class of shares that has no designation are considered "Class
A shares" for this purpose. The Distributor pays dealers of
record commissions on those 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 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 by
OppenheimerFunds 401(k) prototype plans) that were not
previously subject to a front-end sales charge and dealer
commission.
8. In "Reduced Sales Charges for Class A Purchases" on page 22 the first
sentence of the section "Right of Accumulation" is changed to read as
follows:
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 Class B shares you purchase for your
individual accounts, or jointly, or for trust or custodial
accounts on behalf of your children who are minors.
The first two sentences of the second paragraph of that section are
revised to read as follows:
Additionally, you can add together current purchases of Class
A and 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 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 that investment in one of the
OppenheimerFunds.
9. The first sentence of the section entitled "Letter of Intent" is
revised to read as follows:
Under a Letter of Intent, if you purchase Class A shares or
Class A shares and Class B shares of the Fund and other
OppenheimerFunds during a 13-month period, you can reduce the
sales charge rate that applies to your purchases of Class A
shares. The total amount of your intended purchases of both
Class A and Class B shares will determine the reduced sales
charge rate for the Class A shares purchased during that period.
10. In the section entitled "Waivers of Class A Sales Charges" on pages
22 and 23 the following changes are made:
The first sentence of the first paragraph is replaced by a new
introductory paragraph set forth below and the list of circumstances
describing the sales charge waivers follows a new initial sentence:
- Waivers of Class A Sales Charges. The Class A sales charges
are not imposed in the circumstances described below. There is
an explanation of this policy in "Reduced Sales Charges" in the
Statement of Additional Information.
Waivers of Initial and Contingent Deferred Sales Charges for
Certain Purchasers. Class A shares purchased by the following
investors are not subject to any Class A sales charges:
The introductory phrase preceding the list of sales charge waivers in the
second paragraph is replaced by the following and a new subsection (d) is
added to that same paragraph following subsection (c):
Waivers of Initial and Contingent Deferred Sales Charges in
Certain Transactions. Class A shares issued or purchased in the
following transactions are not subject to Class A sales charges:
. . .
(d) shares purchased and paid for with the proceeds of shares
redeemed in the prior 12 months from a mutual fund (other than
a fund managed by the Manager or any of its subsidiaries) on
which an initial sales charge or contingent deferred sales
charge was paid (this waiver also applies to shares purchased
by exchange of shares of Oppenheimer Money Market Fund, Inc.
that were purchased and paid for in this manner); 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 this waiver.
The third paragraph of that section is revised to read as follows:
Waivers of the Class A Contingent Deferred Sales Charge. The
Class A contingent deferred sales charge does not apply to
purchases of Class A shares at net asset value without sales
charge as described in the two sections above. It is also waived
if shares that would otherwise be subject to the contingent
deferred sales charge are redeemed in the following cases:
- for retirement distributions or loans to participants or
beneficiaries from qualified retirement plans, deferred
compensation plans or other employee benefit plans, including
OppenheimerFunds prototype 401(k) plans (these are all referred
to as "Retirement Plans"); or
- to return excess contributions made to Retirement Plans; or
- to make Automatic Withdrawal Plan payments that are limited
annually to no more than 12% of the original account value; or
- involuntary redemptions of shares by operation of law or
involuntary redemptions of small accounts (see "Shareholder
Account Rules and Policies," below); or
- if, at the time a purchase order is placed for Class A
shares that would otherwise be subject to the Class A contingent
deferred sales charge, the dealer agrees to accept the dealer's
portion of the commission payable on the sale in installments
of 1/18th of the commission per month (and no further commission
will be payable if the shares are redeemed within 18 months of
purchase); or
- for distributions from OppenheimerFunds prototype 401(k)
plans for any of the following cases or purposes: (1) following
the death or disability (as defined in the Internal Revenue
Code) of the participant or beneficiary (the death or disability
must occur after the participant's account was established); (2)
hardship withdrawals, as defined in the plan; (3) under a
Qualified Domestic Relations Order, as defined in the Internal
Revenue Code; (4) to meet the minimum distribution requirements
of the Internal Revenue Code; (5) to establish "substantially
equal periodic payments" as described in Section 72(t) of the
Internal Revenue Code, or (6) separation from service.
11. The first paragraph of the section entitled "Waivers of Class B Sales
Charge" on page 24 is amended by replacing the introductory phrase of
that paragraph with the sentences below and adding a new subsection (5)
at the end of that paragraph as follows:
- Waivers of Class B Sales Charge. The Class B contingent
deferred sales charge will not be applied to shares purchased
in certain types of transactions nor will it apply to Class B
shares redeemed in certain circumstances as described below. The
reasons for this policy are in "Reduced Sales Charges" in the
Statement of Additional Information.
Waivers for Redemptions of Shares in Certain Cases. The Class
B contingent deferred sales charge will be waived for
redemptions of shares in the following cases:
. . . .
(5) for distributions from OppenheimerFunds prototype 401(k)
plans (a) for hardship withdrawals; (b) under a Qualified
Domestic Relations Order, as defined in the Internal Revenue
Code; (c) to meet minimum distribution requirements as defined
in the Internal Revenue Code; (d) to make "substantially equal
periodic payments" as described in Section 72(t) of the Internal
Revenue Code; or (e) for separation from service.
12. In the section entitled "Reinvestment Privilege" on page 26, the
first three sentences are revised to read as follows:
If you redeem some or all of your Class A or B shares of the
Fund, 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 a sales charge. This privilege
applies to Class A shares that your purchased subject to an
initial sales charge and to Class A or B shares on which you
paid a contingent deferred sales charge when you redeemed them.
13. In the section entitled "Retirement Plans" on page 26, the following
is added to the list of plans offered by the Distributor:
- 401(k) prototype retirement plans for businesses
14. The first paragraph of the section entitled "How to Exchange Shares"
on page 28 is amended by deleting the second and third sentences.
July 14, 1995 PS0245.001
<PAGE>
OPPENHEIMER STRATEGIC
INVESTMENT GRADE BOND FUND
Prospectus dated February 1, 1995
Oppenheimer Strategic Investment Grade Bond Fund (the "Fund") is a
mutual fund which seeks a high level of current income, consistent with
stability of principal, as is available from a portfolio of investment
grade debt securities. The Fund intends to invest its assets principally
in the following three sectors: (i) U.S. government securities, (ii)
foreign fixed-income securities, and (iii) investment grade corporate
bonds and debentures. Under normal circumstances, at least 65% of the
Fund's total assets will be invested in U.S. government securities and
domestic and foreign bonds and debentures rated at least investment grade.
The Fund may invest up to 35% of its total assets in certain other
investments, including securities rated below investment grade. The
securities the Fund invests in are described more completely in
"Investment Objective and Policies." That section of the Prospectus also
explains some of the risks of those investments.
The Fund offers two classes of shares: (1) Class A shares, which are
sold at a public offering price that includes a front-end sales charge,
and (2) Class B shares, which are sold without a front-end sales charge,
although you may pay a sales charge when you redeem your shares, depending
on how long you hold them. Class B shares are also subject to an annual
"asset-based sales charge." Each class of shares bears different
expenses. In deciding which class of shares to buy, you should consider
how much you plan to purchase, how long you plan to keep your shares, and
other factors discussed in "How to Buy Shares" starting on page __.
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 February 1, 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).
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
ABOUT THE FUND
Expenses
A Brief Overview of the Fund
Financial Highlights
Objective and Policies
How the Fund is Managed
Performance of the Fund
ABOUT YOUR ACCOUNT
How to Buy Shares
Class A Shares
Class B Shares
Special Investor Services
AccountLink
Automatic Withdrawal and Exchange Plans
Reinvestment Privilege
Retirement Plans
How to Sell Shares
By Mail
By Telephone
Checkwriting
How to Exchange Shares
Shareholder Account Rules and Policies
Dividends, Capital Gains and Taxes
<PAGE>
ABOUT THE FUND
Expenses
The Fund pays a variety of expenses directly for management of its
assets, administration, distribution of its shares and other services, and
those expenses are 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 account 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 September 30, 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 __ through __, for an explanation of how and when these charges
apply.
<TABLE>
<CAPTION>
Class A Shares Class B Shares
<S> <C> <C>
Maximum Sales Charge on Purchases
(as a % of offering price) 4.75% None
Sales Charge on Reinvested Dividends None None
Deferred Sales Charge
(as a % of the lower of the original
purchase price or redemption proceeds None(1) 5% in the first year,
declining to 1% in the
sixth year and eliminated
thereafter
Exchange Fee $5.00(2) $5.00(2)
<FN>
________________________
(1) If you invest more than $1 million in Class A shares, you may have to pay a sales charge of up to 1% if you sell your shares
within 18 calendar months from the end of the calendar month during which you purchased those shares. See "How to Buy
Shares - Class A Shares," below.
(2) The fee is waived for automated exchanges, described in "How to Exchange Shares."
</TABLE>
- 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. Those
expenses are detailed in the Fund's Financial Statements in the Statement
of Additional Information.
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 expenses have been restated
in the chart to reflect the termination, effective November 24, 1993, of
a voluntary expense assumption by the Manager. Such restatement shows
what the Fund's management fees and operating expenses would have been in
the Fund's fiscal year ended September 30, 1994 had the expense assumption
undertaking not been in effect during a portion of that year. Considering
the effect of the voluntary expense undertaking by the Manager during the
period ended November 24, 1993, the management fee during the fiscal year
ended September 30, 1994 for Class A shares and Class B shares would have
been 0.70% and 0.71%, respectively, of average net assets and "Total Fund
Operating Expenses" would have been 1.33% for Class A shares and 2.12% for
Class B shares. The 12b-1 Distribution Plan Fees for Class A shares are
Service Plan Fees (which are a maximum of 0.25% of average annual net
assets of that class), and for Class B shares are the Distribution and
Service Plan Fee (a maximum of 0.25% for the service fee, and an asset-
based sales charge of 0.75%). These plans are described in greater detail
in "How to Buy Shares."
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 Shares Class B Shares
<S> <C> <C>
Management Fees (Restated) .75% .75%
12b-1 Distribution Plan Fees .24% 1.00%
Other Expenses .39% .41%
Total Fund Operating Expenses
(Restated) 1.38% 2.16%
</TABLE>
- Examples. To try to show the effect of these expenses on an
investment over time, we have created the hypothetical examples shown
below. Assume that you make a $1,000 investment in each class of shares
of the Fund, and the Fund's annual return is 5%, and that its operating
expenses for each class are the ones shown in the Annual Fund Operating
Expenses chart above. If you were to redeem your shares at the end of
each period shown below, your investment would incur the following
expenses by the end of 1, 3, 5 and 10 years:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years*
<S> <C> <C> <C> <C>
Class A Shares $61 $89 $119 $205
Class B Shares $72 $98 $136 $211
If you did not redeem your investment, it would incur the following expenses:
Class A Shares $61 $89 $119 $205
Class B Shares $22 $68 $116 $211
</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
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.
<PAGE>
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. 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's investment
objective is to seek a high level of current income, consistent with
stability of principal, as is available from a portfolio of investment
grade debt securities.
- What Does the Fund Invest In? The Fund intends to invest its assets
principally in the following three sectors: U.S. government securities,
foreign fixed-income securities, and investment grade corporate bonds and
debentures. Under normal circumstances, at least 65% of the Fund's total
assets will be invested in U.S. government securities and domestic and
foreign bonds and debentures that are rated investment grade. The Fund
may invest up to 35% of its total assets in certain other investments,
including securities rated below investment grade. The Fund may also use
hedging instruments and some derivative investments to try to manage
investment risks or for income. These investments are more fully
explained in "Investment Objective and Policies," starting on page _.
- Who Manages the Fund? The Fund's investment adviser is Oppenheimer
Management Corporation, which (including a subsidiary) advises investment
company portfolios having over $29 billion in assets. The Fund's
portfolio managers, who are primarily responsible for the selection of the
Fund's securities, are Arthur P. Steinmetz and David P. Negri. The
Manager is paid an advisory fee by the Fund, based on its assets. The
Fund's Board of Trustees, elected by shareholders, oversees the investment
adviser and the portfolio managers. Please refer to "How the Fund is
Managed" starting on page __ for more information about the Manager and
its fees.
- How Risky is the Fund? Although the Fund seeks a high level of
current income consistent with stability of principal, certain of the
Fund's investments and investment practices could be considered
speculative and carry investment risks. For example, fixed-income
securities are subject to interest rate risks and credit risks which can
negatively impact the value of the security and the Fund's net asset value
per share. The Fund's portfolio may consist of debt securities rated
below investment grade in an amount up to 35% of its total assets. Such
lower-rated securities are considered speculative and involve greater
volatility of price and risk of principal and income default than
securities in the higher-rated categories. Further, there are certain
risks associated with investments in foreign securities, including those
related to changes in foreign currency rates, that are not present in
domestic securities. In its operations, the Fund may utilize leverage
(borrowing to purchase securities) and short-term trading. These
techniques may be considered to be speculative investment methods and
subject an investment in the Fund to relatively greater risks and costs
that may not be present in a mutual fund that does not utilize such
techniques. 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 objectives and your
shares may be worth more or less than their original cost when you redeem
them. Please refer to "Investment Objective and Policies" starting on
page __ for a more complete discussion.
- 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"
on page __ for more details.
- Will I Pay a Sales Charge to Buy Shares? The Fund has two classes
of shares. Class A shares are offered with a front-end sales charge,
starting at 4.75%, and reduced for larger purchases. Class B shares are
offered without a front-end sales charge, but may be subject to a
contingent deferred sales charge (starting at 5% and declining as shares
are held longer) if redeemed within 6 years of purchase. There is also
an annual asset-based sales charge on Class B shares. Please review "How
to Buy Shares" starting on page __ for more details, including a
discussion about 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. Please refer to "How to Sell Shares" on page __.
- 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. Such yields and returns can
be compared to the yields and returns (over similar periods) of other
funds. Of course, other funds may have different objectives, investments,
and levels of risk. The Fund's performance can also be compared to a
broad-based market index, which we have done on page __. Please remember
that past performance does not guarantee future results.
<PAGE>
Financial Highlights
The table on this page presents selected financial information about
the Fund, including per share data and expense ratios and other data based
on the Fund's average net assets. This information has been audited by
Deloitte & Touche LLP, the Fund's independent auditors, whose report on
the Fund's financial statements for the fiscal year ended September 30,
1994 is included in the Statement of Additional Information.
<PAGE>
Investment Objective and Policies
Objective. The Fund's investment objective is to seek a high level of
current income, consistent with the stability of principal, as is
available from a portfolio of investment grade debt securities.
Investment Policies and Strategies. In seeking its investment objective,
the Fund intends to invest principally in the following three sectors:
(i) U.S. government securities; (ii) foreign fixed-income securities; and
(iii) investment grade corporate bonds and debentures. Although under
normal market conditions the Fund intends to invest tin each of these
three sectors, from time to time the Manager may adjust the amounts the
Fund invests in each sector depending upon, among other things, the
Manager's evaluation of economic and market conditions. Distributable
income will fluctuate as the Fund shifts its assets among the three
sectors.
Under normal circumstances, the assets of the Fund will principally be
invested in each of the three respective sectors described above, and at
least 65% of the Fund's total assets (the "65% Policy") will be invested
in U.S. government securities and domestic and foreign bonds and
debentures rated at least investment grade. Investment grade debt
securities are rated at least "Baa" by Moody's Investors Service, Inc.
("Moody's") or at least "BBB" by Standard & Poor's Corporation ("Standard
& Poor's") or, if unrated, are determined by the Manager as offering risks
comparable to securities meeting those rating requirements. The Manager
will not rely solely on the ratings assigned by rating services and may
invest, without limitation, in unrated securities which are, as determined
by the Manager, comparable to those rated securities in which the Fund may
invest.
The Fund may from time to time invest up to 35% of its total assets
(including securities downgraded below investment grade subsequent to
purchase) in other investments, such as non-investment grade domestic and
foreign bonds and debentures, notes, preferred stocks, dividend-paying
common stocks, participation interests, zero coupon securities, asset-
backed securities, sinking fund and callable bonds and municipal
securities, as well as short-term debt obligations issued by foreign
governments or domestic or foreign corporations denominated in U.S.
dollars or selected foreign currencies (including, among others,
participation interests, commercial paper and bank obligations, discussed
below). The Fund may invest in such securities if, in the Manager's
judgment, the Fund has the opportunity of seeking a high level of current
income without undue risk to principal.
Although the Fund is not obligated to dispose of securities that fall
below the above-stated investment grade ratings subsequent to purchase,
no more than 35% of the Fund's total assets will be invested in bonds
which have been downgraded below investment grade nor in other investments
listed in the immediately preceding paragraph. Lower-rated securities are
considered speculative and involve greater volatility of price and risk
of principal and income default than securities in the higher-rated
categories. They may be less liquid than higher-rated securities. If the
Fund were forced to sell a lower-rated debt security during a period of
rapidly-declining prices, it might experience significant losses
especially if a substantial number of other holders decide to sell at the
same time. 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 Appendix to this Prospectus
describes the rating categories and explains the degree to which bonds in
the lowest permitted rating categories have or may develop speculative
characteristics.
In seeking its investment objective, the Fund's emphasis on securities
with short, intermediate or longer-term maturities will change over time
in response to changing market conditions. The Fund anticipates that it
will move to securities of longer maturity as interest rates decline and
to securities of shorter maturity as interest rates rise. The Fund may
try to hedge against losses in the value of its portfolio securities by
using hedging strategies and derivative investments described below. The
Fund's portfolio manager may employ special investment techniques in
selecting securities for the Fund. These are also described below.
Additional information may be found about them under the same headings in
the Statement of Additional Information. There can be no assurance that
the Fund will achieve its investment objective.
- Interest Rate Risks. In addition to credit risks, described below,
debt securities are subject to changes in value due to changes in
prevailing interest rates. When prevailing interest rates fall, the
values of outstanding debt securities generally rise. Conversely, when
interest rates rise, the values of outstanding debt securities generally
decline. The magnitude of these fluctuations will be greater when the
average maturity of the portfolio securities is longer.
- Credit Risks. Debt securities are also subject to credit risks.
Credit risk relates to the ability of the issuer of a debt security to
make interest or principal payments on the security as they become due.
Generally, higher-yielding, lower-rated bonds (which 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, 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.
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. 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).
- Domestic Fixed-Income Securities The Fund may invest in
fixed-income securities and dividend paying common stocks denominated in
U.S. dollars, or in non-U.S. currencies and issued by domestic
corporations in any industry (e.g., industrial, financial or utility).
There is no restriction as to the size of the issuer, although most will
have total assets in excess of $100 million. These investments may include
bonds, debentures (i.e., unsecured bonds) and notes (including variable
and floating rate instruments), preferred stocks, participation interests,
zero coupon securities, asset-backed securities and sinking fund and
callable bonds. If a bond held by the Fund is selling at a premium (or
discount) and the issuer exercises the call or makes a mandatory sinking
fund payment, the Fund would realize a loss (or gain) in market value; the
income from the reinvestment of the proceeds would be determined by
current market conditions. The Fund is also permitted to invest a portion
of its assets in municipal securities. The U.S. government securities in
which the Fund may invest are separately described below.
Preferred Stocks. Preferred stock, unlike common stock, generally
offers a stated dividend rate payable from the corporation's earnings.
Such preferred stock dividends may be cumulative or non-cumulative, fixed,
participating, or auction rate. If interest rates rise, a fixed dividend
on preferred stocks may be less attractive, causing the price of preferred
stocks to decline. Preferred stock may have mandatory sinking fund
provisions, as well as call/redemption provisions prior to maturity, a
negative feature when interest rates decline. The rights to payment of
preferred stocks are generally subordinate to rights associated with a
corporation's debt securities.
Participation Interests. The Fund may acquire participation interests
in loans that are made to U.S. or foreign companies (the "borrower").
They may be interests in, or assignments of, the loan and are acquired
from banks or brokers that have made the loan or are members of the
lending syndicate. No more than 5% of the Fund's net assets can be
invested in participation interests of the same issuer. The Manager has
set certain creditworthiness standards for issuers of loan participations,
and monitors their creditworthiness. The value of loan participation
interests depends primarily upon the creditworthiness of the borrower, and
its ability to pay interest and principal. Borrowers may have difficulty
making payments. If a borrower fails to make scheduled interest or
principal payments, the Fund could experience a decline in the net asset
value of its shares. Some borrowers may have senior securities rated as
low as "C" by Moody's or "D" by Standard & Poor's, but may be deemed
acceptable credit risks. Participation interests are subject to the
Fund's limitations on investments in illiquid securities. See "Illiquid
and Restricted Securities".
Zero Coupon Securities. The Fund may invest in zero coupon securities
issued by private issuers. Zero coupon U.S. Treasury securities in which
the Fund may invest are described below. Zero coupon securities issued
by private issuers are (i) notes or debentures which do not pay current
interest and are issued at substantial discounts from par value, or (ii)
notes or debentures that pay no current interest until a stated date one
or more years into the future, after which the issuer is obligated to pay
interest until maturity, usually at a higher rate than if interest were
payable from the date of issuance. Such zero coupon securities, in
addition to the risks identified below under "U.S. Government Securities
- - Zero Coupon Securities," are subject to the risk of the issuer's
failure to pay interest and repay principal in accordance with the terms
of the obligation.
Asset-Backed Securities. The Fund may invest in securities that
represent undivided fractional interests in pools of consumer loans,
similar in structure to the mortgage-backed securities in which the Fund
may invest, described below. Payments of principal and interest are
passed through to holders of asset-backed securities and are typically
supported by some form of credit enhancement, such as a letter of credit,
surety bond, or limited guarantee by another entity or having a priority
to certain of the borrower's other securities. The degree of credit
enhancement varies, and generally applies, until exhausted, to only a
fraction of the asset- backed security's par value. If the credit
enhancement of an asset-backed security held by the Fund has been
exhausted, and if any required payments of principal and interest are not
made with respect to the underlying loans, the Fund may then experience
losses or delays in receiving payment. Further details are set forth in
the Statement of Additional Information under "Investment Objective and
Policies - Domestic Securities - Asset-Backed Securities."
Municipal Securities. The Fund may invest in municipal bonds
(municipal securities that have a maturity when issued of one year or
more), municipal notes (including tax anticipation notes, bond
anticipation notes, revenue anticipation notes, construction loan notes
and other loans) (municipal notes are municipal securities that have a
maturity when issued of less than one year), tax-exempt commercial paper,
certificates of participation and other debt obligations issued by or on
behalf of the states and the District of Columbia, their political
subdivisions, or any commonwealth, territory or possession of the United
States, or their respective agencies, instrumentalities or authorities.
From time to time the Fund may purchase private activity municipal
securities. The Fund may invest in municipal securities that are "general
obligations" (secured by the issuer's pledge of its full faith, credit and
taxing power for the payment of principal and interest) and "revenue
obligations" (payable only from the revenues derived from a particular
facility or class of facilities, or specific excise tax or other revenue
source).
- U.S. Government Securities. The Fund may invest in debt obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities ("U.S. Government Securities"). Although U.S. Government
Securities are considered among the most creditworthy of fixed-income
investments, their yields are generally lower than the yields available
from corporate debt securities, and the values of U.S. Government
Securities (and of most fixed-income securities generally) will vary
inversely to changes in prevailing domestic interest rates. To compensate
for the lower yields available on U.S. Government Securities, the Fund
will attempt to augment these yields by writing covered call options
against them. See "Other Investment Techniques and Strategies - Hedging"
below.
Certain U.S. Government Securities, including U.S. Treasury notes and
bonds, and securities guaranteed by the Government National Mortgage
Association ("Ginnie Maes"), are supported by the full faith and credit
of the United States. Certain other U.S. Government Securities, issued or
guaranteed by Federal agencies or government- sponsored enterprises, are
not supported by the full faith and credit of the United States. These
latter securities may include obligations supported by the right of the
issuer to borrow from the U.S. Treasury (which is not under a legal
obligation to make such loans), such as obligations of the Federal Home
Loan Mortgage Corporation ("Freddie Macs"), and obligations supported by
the credit of the instrumentality, such as Federal National Mortgage
Association bonds ("Fannie Maes"). U.S. Government Securities in which the
Fund may invest include, among others, zero coupon U.S. Treasury
securities, mortgage-backed securities and money market instruments.
Zero Coupon Securities. The Fund may invest in zero coupon securities
issued by the U.S. Treasury. In general, zero coupon U.S. Treasury
securities include (1) U.S. Treasury notes or bonds which have been
"stripped" of their unmatured interest coupons, (2) U.S. Treasury bills
issued without interest coupons, or (3) certificates representing an
interest in stripped securities. A zero coupon security pays no interest
and trades at a deep discount from its face value. It will be subject to
greater market fluctuations from changes in interest rates than interest
paying securities. The Fund accrues taxable income from zero coupon
securities issued by either the U.S. Treasury or corporations without
receiving cash. As a result of holding these securities, the Fund could
possibly be forced to sell portfolio securities in order to pay a dividend
depending, among other things, upon the proportion of shareholders who
elect to receive dividends in cash rather than reinvesting dividends in
additional shares of the Fund. The Fund might also sell portfolio
securities to maintain portfolio liquidity. In either case, cash
distributed or held by the Fund and not reinvested in Fund shares will
hinder the Fund in seeking a high level of current income.
Mortgage-Backed Securities and CMOs. The Fund's investments may
include securities which represent participation interests in pools of
residential mortgage loans, including collateralized mortgage-backed
obligations ("CMOs"), which may be issued or guaranteed by (i) agencies
or instrumentalities of the U.S. Government (e.g., Ginnie Maes, Freddie
Macs and Fannie Maes) or (ii) private issuers. Such securities differ
from conventional debt securities which provide for periodic payment of
interest in fixed amounts (usually semi-annually) with principal payments
at maturity or specified call dates. Mortgage-backed securities provide
monthly payments which are, in effect, a "pass-through" of the monthly
interest and principal payments (including any prepayments) made by the
individual borrowers on the pooled mortgage loans. The Fund's
reinvestment of scheduled principal payments and unscheduled prepayments
it receives may occur at lower rates than the original investment, thus
reducing the yield of the Fund. Mortgage-backed securities may be less
effective than debt obligations of similar maturity at maintaining yields
during periods of declining interest rates.
CMOs in which the Fund may invest are securities issued by a U.S.
Government instrumentality that are collateralized by a portfolio of
mortgages or mortgage-backed securities. The Fund may also invest in CMOs
that are "stripped"; that is, the security is divided into two parts, one
of which receives some or all of the principal payments and the other
which receives some or all of the interest. 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 have the additional risk that if the underlying
mortgages are prepaid, which is more likely to happen if interest rates
fall, the Fund will lose the anticipated cash flow from the interest on
the mortgages that were prepaid.
The Fund may also enter into "forward roll" transactions under which
it sells the mortgage- backed securities in which it may invest to banks
or other permitted entities 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 by the Fund (see "Other
Investment Techniques and Strategies - Special Risks - Borrowing for
Leverage"). The Fund would be required to place liquid assets (e.g.,
cash, U.S. Government securities or other high-grade debt securities) in
a segregated account with its Custodian in an amount equal to its
obligation under the roll; that amount is subject to the limitation on
borrowing described below. The principal risk of forward rolls is the
risk of default by the counterparty. As new types of mortgage-related
securities are developed and offered to investors, the Manager will,
subject to the direction of the Board and consistent with the Fund's
investment objective and policies, consider making investments in such new
types of mortgage-related securities.
- Foreign Fixed-Income Securities. The Fund may invest in debt
obligations (which may be denominated in U.S. dollars or in non-U.S.
currencies) issued or guaranteed by foreign corporations, certain
supranational entities (such as the World Bank) and foreign governments
(including political subdivisions having taxing authority) or their
agencies or instrumentalities, and debt obligations issued by U.S.
corporations denominated in non-U.S. currencies. These investments may
include (i) U.S. dollar denominated debt obligations known as "Brady
Bonds", which are issued for the exchange of existing commercial bank
loans to foreign entities for new obligations that are generally
collateralized by zero coupon Treasury securities having the same
maturity, (ii) debt obligations such as bonds (including sinking fund and
callable bonds), (iii) debentures and notes (including variable and
floating rate instruments), and (iv) preferred stocks and zero coupon
securities. Further details on these securities and similar types of
instruments are set forth under "Domestic Fixed-Income Securities," above
and "Investment Objective and Policies" in the Statement of Additional
Information.
The percentage of the Fund's assets that will be allocated to such
foreign securities will vary 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, sovereign credit risk and the
relationship of such countries' currency to the U.S. dollar. 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.
Subsequent foreign currency losses may result in the Fund having
previously distributed more income in a particular period than was
available from investment income, which could result in a return of
capital to shareholders.
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. However, no more than 25% of the Fund's total
assets, at the time of purchase, will be invested in government securities
of any one foreign country or in debt securities issued by companies
organized under the laws of any one foreign country. The Fund has no
other restriction on the amount of its assets that may be invested in
foreign securities and may purchase securities issued in any country,
developed or underdeveloped. Investments in securities of issuers in
non-industrialized countries generally involve more risk and may be
considered highly speculative.
Foreign securities have special risks. For example, foreign issuers
are not subject to the same accounting and disclosure requirements that
U.S. companies are subject to. The value of foreign investments may be
affected by changes in foreign currency rates, exchange control
regulations, expropriation or nationalization of a company's assets,
foreign taxes, delays in settlement of transactions, changes in
governmental economic or monetary policy in the U.S. or abroad, or other
political and economic factors. If the Fund's assets are held abroad, the
countries in which they are held and the sub-custodians holding them must
be approved by the Fund's Board of Trustees. More information about the
risks and potential rewards of investing in foreign securities is
contained in the Statement of Additional Information.
- Portfolio Turnover. A change in the securities held by the Fund is
known as "portfolio turnover." Because the Fund will actively use trading
to benefit from short-term yield disparities among different issues of
fixed-income securities or otherwise to increase its income, the Fund may
be subject to a greater degree of portfolio turnover than might be
expected from investment companies which invest substantially all of their
assets on a long-term basis.
Portfolio turnover affects a fund's ability 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.
The Fund qualified in its last fiscal year and intends to do so in the
coming year, although it reserves the right not to qualify. As most
purchases made by the Fund are principal transactions, the Fund incurs
little or no brokerage costs.
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.
- Special Risks - Borrowing for Leverage. The Fund may borrow money
from banks to buy securities. The Fund will borrow only if it can do so
without putting up assets as security for a loan. This is a speculative
investment method known as "leverage." This investing technique may
subject the Fund to greater risks and costs than Funds that do not borrow.
These risks may include the possible reduction of income and the
possibility that the Fund's net asset value per share will fluctuate more
than funds that don't borrow since the Fund pays interest on borrowings
and interest expense affects the Fund's share price and yield. Borrowing
for leverage is subject to limits under the Investment Company Act
described in more detail in "Borrowing for Leverage" in the Statement of
Additional Information.
- 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.
There is no limit on the amount of the Fund's net assets that may be
subject to repurchase agreements of seven days or less. Repurchase
agreements must be fully collateralized. However, if the vendor 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 causes more than 10% of its net assets to be subject to
repurchase agreements having a maturity beyond seven days.
- Loans of Portfolio Securities. To attempt to increase its income,
the Fund may lend its portfolio securities (other than in repurchase
transactions) to brokers, dealers and other financial institutions. These
loans are limited to not more than 25% of the Fund's net 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 its total assets.
- Illiquid and Restricted Securities. Under the policies and
procedures established by the Fund's Board of Trustees, the Manager
determines the liquidity of certain of the Fund's investments.
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.
- "When-Issued" and Delayed Delivery Transactions. The Fund may
purchase securities on a "when-issued" basis and may purchase or sell
securities on a "delayed delivery" basis. These terms refer to securities
that have been created and for which a market exists, but which are not
available for immediate delivery. There may be a risk of loss to the Fund
if the value of the security declines prior to the settlement date. The
Fund does not intend to make such purchases for speculative purposes.
- Short Sales "Against-the-Box." In a short sale, the seller does not
own the security that is sold, but normally borrows the security to
fulfill its delivery obligation. The seller later buys the security to
repay the loan, in the expectation that the price of the security will be
lower when the purchase is made, resulting in a gain. The Fund may not
sell securities short except in collateralized transactions referred to
as short sales "against-the-box," where the Fund owns an equivalent amount
of the securities sold short. This technique is primarily used for tax
purposes. No more than 15% of the Fund's net assets will be held as
collateral for such short sales at any one time.
- Hedging. As described below, the Fund may purchase and sell certain
kinds of futures contracts, put and call options, forward contracts, and
options on futures, securities indices and securities, 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 hedging
instruments the Fund may use are described below and in greater detail in
"Other Investment Techniques and Strategies" in the Statement of
Additional Information.
The Fund may 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, tend
to increase the Fund's exposure to the securities market. Forward
contracts 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 or to raise cash to distribute to
shareholders.
Futures. The Fund may buy and sell futures contracts that relate to (1)
securities indices (these are referred to as Financial Futures) and (2)
interest rates (these are referred to as Interest Rate Futures). These
types of Futures are described in "Hedging With Options and Futures
Contracts" 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 only on debt or equity securities, security
indices, foreign currencies, Interest Rate Futures and Financial Futures
or to terminate its obligation on a call the Fund previously wrote. The
Fund may write (that is, sell) covered call options. 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).
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 can buy and sell only those puts that
relate to (1) debt or equity securities, (2) securities indices or (3)
Interest Rate Futures or Financial Futures.
The Fund may buy and sell puts and calls only if certain conditions are
met: (1) calls the Fund sells must be listed on a securities exchange, or
traded in the over-the-counter market; (2) calls the Fund buys must be
listed on a securities or commodities exchange, quoted on the Automated
Quotation System of the National Association of Securities Dealers, Inc.
(NASDAQ) or traded in the over-the-counter market; (3) in the case of puts
and calls on foreign currency, they must be traded on a securities or
commodities exchange, or quoted by recognized dealers in those options;
(4) each call the Fund writes must be "covered" while it is outstanding:
that means the Fund must own the investment on which the call was written
or it must own other securities that are acceptable for the escrow
arrangements required for calls; (5) puts the Fund buys and sells must be
listed on a securities or commodities exchange, quoted on NASDAQ or traded
in the over-the-counter market and any put sold must be covered by
segregated liquid assets with not more than 50% of the Fund's assets
subject to puts; (6) the Fund may write calls on Futures contracts it
owns, but these calls must be covered by securities or other liquid assets
the Fund owns and segregated to enable it to satisfy its obligations if
the call is exercised; and (7) a call or put option may not be purchased
if the value of all of the Fund's put and call options would exceed 5% of
the Fund's total assets.
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 bought or sold, or to protect against possible losses from
changes in the relative values of the U.S. dollar and foreign currencies.
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 payments for fixed rate payments. The Fund will not use interest
rate swaps for leverage. Swap transactions will be entered into only as
to security positions held by the Fund. The Fund may not enter into swap
transactions with respect to more than 25% of its total assets. Also, 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 than what is
required for normal portfolio management. If the Manager uses a hedging
instrument at the wrong time or judges market conditions incorrectly,
hedging strategies may reduce the Fund's return. The Fund could also
experience losses if the prices of its Futures and options positions were
not correlated with its other investments or if it could not close out a
position because of an illiquid market for the future or option.
Options trading involves the payment of premiums and has special tax
effects on the Fund. There are also special risks in particular hedging
strategies. For example, 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. 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 credit risks
(if the other party fails to meet its obligations) and also to 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.
- Derivative Investments. The Fund can invest in a number of
different kinds of "derivative investments." The Fund may use some types
of derivatives for hedging purposes, and may invest in others because they
offer the potential for increased income and principal value. In general,
a "derivative investment" is a specially-designed investment whose
performance is linked to the performance of another investment or
security, such as an option, future, index or currency. In the broadest
sense, derivative investments include exchange-traded options and futures
contracts (please refer to "Hedging" above).
One risk of investing in derivative investments is the at the company
issuing the instrument might not pay the amount due on maturity of the
instrument. There is also the risk that the underlying investment or
security might not perform the way the Manager expected it to perform.
The performance of derivative investments may also be influenced by
interest rate changes in the U.S. and abroad. All of these risks mean
that the Fund will realize less than expected from its investments, or
that it can lose part of the value of its investments, which will affect
the Fund's share price. Certain derivative investments held by the Fund
may trade in the over-the-counter market and may be illiquid. If that is
the case, the Fund's investment in them will be limited, as discussed in
"Illiquid and Restricted Securities," above.
Another type of derivative the Fund may invest in is an "index-linked"
note. On the maturity of this type of debt security, payment is made
based on the performance of an underlying index, rather than based on a
set principal amount for a typical note. Another derivative investment
the Fund may invest in is a currency-indexed security. These are
typically, short-term or intermediate-term debt securities. Their value
at maturity or the interest rates at which they pay income are determined
by the change in value of the U.S. dollar against one or more foreign
currencies or an index. In some cases, these securities may pay an amount
at maturity based on a multiple of the amount of the relative currency
movements. This variety of index security offers the potential for
greater income but at a greater risk of loss.
Other derivative investments the Fund may invest in include "debt
exchangeable for common stock" of an issuer or "equity-linked debt
securities" of an issuer. At maturity, the debt security is exchanged for
common stock of the issuer or is payable in an amount based on the price
of the issuer's common stock at the time of maturity. In either case
there is a risk that the amount payable at maturity will be less than the
principal amount of the debt (because the price of the issuer's common
stock is not as high as was expected).
- Temporary Defensive Investments. In times of unstable economic or
market conditions, when the Manager determines it appropriate to do so,
the Fund may invest all or a portion of its assets in defensive
securities. Securities selected for defensive purposes usually will
include U.S. dollar-denominated debt obligations issued by the U.S. or
foreign governments and domestic or foreign corporations or banks maturing
in one year or less ("money market securities"), such as: (1) U.S.
Government Securities; (2) Certificates of deposit, bankers' acceptances,
time deposits, and letters of credit if they are payable in the United
States or London, England, and are issued or guaranteed by a domestic or
foreign bank having total assets in excess of $1 billion; (3) commercial
paper rated at least "A-3" by Standard & Poor's or at least "Prime-3" by
Moody's or, if not rated, issued by a corporation having an existing debt
security rated at least "BBB" or "Baa" by Standard & Poor's or Moody's,
respectively; (4) debt obligations (including master demand notes and
obligations other than commercial paper) issued by domestic corporations
and rated at least "BBB" or "Baa" by Standard & Poor's or Moody's,
respectively, or unrated securities which are of comparable quality in the
opinion of the Manager; (5) money market obligations of the type listed
above, but not satisfying the standards set forth therein, if they are (a)
subject to repurchase agreements or (b) guaranteed as to principal and
interest by a domestic or foreign bank having total assets in excess of
$1 billion, by a corporation whose commercial paper may be purchased by
the Fund, or by a foreign government having an existing debt security
rated at least "BBB" or "Baa"; and (6) other short-term investments of a
type which the Board determines presents minimal credit risks and which
are of "high quality" as determined by any major rating service or, in the
case of an instrument that is not rated, of comparable quality as
determined by the Board.
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) purchase securities issued or
guaranteed by any one issuer (except the U.S. Government or its agencies
or instrumentalities), if, with respect to 75% of its total assets, more
than 5% of the Fund's total assets would be invested in securities of that
issuer or the Fund would then own more than 10% of that issuer's voting
securities; (2) concentrate investments to the extent that 25% or more of
the value of its total assets is invested in securities of issuers in the
same industry (excluding the U.S. Government, its agencies and
instrumentalities); for purposes of this limitation, utilities will be
divided according to their services; for example, gas, gas transmission,
electric and telephone each will be considered a separate industry; (3)
make loans, except by purchasing debt obligations in accordance with its
investment objectives and policies, or by entering into repurchase
agreements, or as described in "Loans of Portfolio Securities"; (4) buy
securities of an issuer which, together with any predecessor, has been in
operation for less than three years, if as a result, the aggregate of such
investments would exceed 5% of the value of the Fund's total assets; or
(5) make short sales of securities or maintain a short position, unless
at all times when a short position is open it owns an equal amount of such
securities or by virtue of ownership of other securities has the right,
without payment of any further consideration, to obtain an equal amount
of securities sold short ("short sales against-the-box").
All of the percentage restrictions described above and elsewhere in
this Prospectus other than those described under "Special Risks -
Borrowing for Leverage," are applicable only at the time of investment 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. The Fund was organized in 1991 as a
Massachusetts business trust. The Fund is an open-end, diversified
management investment company, with an unlimited number of authorized
shares of beneficial interest.
The Fund is governed by a Board of Trustees, which is responsible under
Massachusetts law for protecting the interests of shareholders. The
Trustees meet periodically throughout the year to oversee the Fund's
activities, review its performance, and review the actions of the Manager.
"Trustees and Officers of the Fund" in the Statement of Additional
Information names the Trustees and provides more information about them
and the officers of the Fund. Although the Fund is not required by law
to hold annual meetings, it may hold shareholder meetings from time to
time on important matters, and shareholders have the right to call a
meeting to remove a Trustee or to take other action described in the
Fund's Declaration of Trust.
The Board of Trustees has the power, without shareholder approval, to
divide unissued shares of the Fund into two or more classes. The Board
has done so, and the Fund currently has two classes of shares, Class A and
Class B. Each class has its own dividends and distributions and pays
certain expenses which may be different for the different classes. Each
class may have a different net asset value. Each share has one vote at
shareholder meetings, with fractional shares voting proportionally. Only
shares of a particular class vote together on matters that affect that
class alone. Shares are freely transferrable.
The Manager and Its Affiliates. The Fund is managed by the Manager,
Oppenheimer Management Corporation, which is responsible for selecting the
Fund's investments and handles its day-to-day business. The Manager
carries out its duties, subject to the policies established by the Board
of Trustees, under an Investment Advisory Agreement which states the
Manager's responsibilities. 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.
The Manager has operated as an investment adviser since 1959. The
Manager and its affiliates currently manage investment companies,
including other OppenheimerFunds, with assets of more than $29 billion as
of December 30, 1994, and with more than 1.8 million shareholder accounts.
The Manager is owned by Oppenheimer Acquisition Corp., a holding company
that is owned in part by senior officers of the Manager and controlled by
Massachusetts Mutual Life Insurance Company, a mutual life insurance
company.
- Portfolio Managers. Arthur P. Steinmetz and David P. Negri serve
as Portfolio Managers and Vice Presidents of the Fund and have been
principally responsible for the day-to-day management of the Fund's
portfolio since its inception. During the past five years, Mr. Steinmetz
has served as Senior Vice President of the Manager, Mr. Negri has served
as a Vice President of the Manager and each has served as an officer of
other mutual funds managed by the Manager (with the Fund, the
OppenheimerFunds).
- Fees and Expenses. Under the Investment Advisory Agreement, the Fund
pays the Manager the following annual fees, which decline on additional
assets as the Fund grows: 0.75% of the first $200 million of aggregate
net assets, 0.72% of the next $200 million, 0.69% of the next $200
million, 0.66% of the next $200 million, 0.60% of the next $200 million,
and 0.50% of net assets in excess of $1 billion. The Fund's management
fee (excluding the voluntary expense assumption in effect for a portion
of the last fiscal year) for its last fiscal year was 0.75% of average
annual net assets for both its Class A and Class B shares, which may be
higher than the rate paid by some other mutual funds.
The Fund pays expenses related to its daily operations, such as
custodian fees, Trustees' fees, transfer agency fees, legal and auditing
costs. Those expenses are paid out of the Fund's assets and are not paid
directly by shareholders. However, those expenses reduce the net asset
value of shares, and therefore are indirectly borne by shareholders
through their investment. More information about the investment advisory
agreement and the other expenses paid by the Fund is contained in the
Statement of Additional Information.
There is also information about the Fund's brokerage policies and
practices in "Brokerage Policies of the Fund" in the Statement of
Additional Information. That section discusses how brokers and dealers
are selected for the Fund's portfolio transactions. When deciding which
brokers to use, the Manager is permitted by the investment advisory
agreement to consider whether brokers have sold shares of the Fund or any
other funds for which the Manager serves as investment adviser.
- The Distributor. The Fund's shares are sold through dealers and
brokers that have a sales agreement with Oppenheimer Funds Distributor,
Inc., a subsidiary of the Manager that acts as the Fund's Distributor.
The Distributor also distributes the shares of other 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 "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 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 returns and yields
represent past performance and should not be considered to be predictions
of future returns or performance. This performance data is described
below, but more detailed information about how total returns and yields
are calculated is contained in the Statement of Additional Information,
which also contains information about other ways to measure and compare
the Fund's performance. The Fund's investment performance will vary,
depending on market conditions, the composition of the portfolio, expenses
and which class of shares you purchase.
- Total Returns. There are different types of total returns used to
measure the Fund's performance. Total return is the change in value of
a hypothetical investment in the Fund over a given period, assuming that
all dividends and capital gains distributions are reinvested in additional
shares. The cumulative total return measures the change in value over the
entire period (for example, ten years). An average annual total return
shows the average rate of return for each year in a period that would
produce the cumulative total return over the entire period. However,
average annual total returns do not show the Fund's actual year-by-year
performance.
When total returns are quoted for Class A shares, they reflect the
payment of the current maximum initial sales charge. When total returns
are shown for Class B shares, they reflect the effect of the contingent
deferred sales charge that applies to the period for which total return
is shown. Total returns may also be quoted "at net asset value," without
considering the effect of the sales charge, and those returns would be
reduced if sales charges were deducted.
- Yield. Each Class of shares calculates its yield by dividing the
annualized net investment income per share on the portfolio during a
30-day period by the maximum offering price on the last day of the period.
The yield of each Class will differ because of the different expenses of
each Class of shares. The yield data represents a hypothetical investment
return on the portfolio, and does not measure an investment return based
on dividends actually paid to shareholders. To show that return, a
dividend yield may be calculated. Dividend yield is calculated by
dividing the dividends of a Class derived from net investment income
during a stated period by the maximum offering price on the last day of
the period. Yields and dividend yields for Class A shares reflect the
deduction of the maximum initial sales charge, but may also be shown based
on the Fund's net asset value per share. Yields for Class B shares do not
reflect the deduction of the contingent deferred sales charge.
How Has the Fund Performed? Below is a discussion by the Manager of the
Fund's performance during its last fiscal year ended September 30, 1994,
followed by a graphical comparison of the Fund's performance to an
appropriate broad-based market index.
- Management's Discussion of Performance. During the Fund's past
fiscal year, as the United States economy strengthened and domestic
interest rates rose, the Manager sought to reduce the Fund's overall
exposure to Treasury securities, which tend to lag investment grade
corporate bonds in the mid-to-late stages of economic expansion. The
Manager also adjusted the Fund's holdings within the investment grade
corporate bond sector by de-emphasizing investments in companies whose
earnings are sensitive to interest rate changes, such as consumer durable
and financial services companies, and instead focused on larger industrial
companies. With respect to the foreign markets, as interest rates rose
offshore and the U.S. dollar weakened against major currencies, the
Manager increased the Fund's holdings of foreign government bonds, and
focused more attention on bonds issued by large European industrial
companies believed to be positioned to benefit from economic growth.
- 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 September 30, 1994. In the case of Class
A shares, performance is measured since the commencement of operations on
April 22, 1992, and in the case of Class B shares, from the inception of
the Class on November 30, 1992. In both cases, all dividends and capital
gains distributions were reinvested in additional shares. The graph
reflects the deduction of the 4.75% current maximum initial sales charge
on Class A shares and the maximum 5% contingent deferred sales charge on
Class B shares.
The Fund's performance is compared to the performance of The Lehman
Brothers Aggregate Bond Index, a broad-based index of U.S. Government
Treasury and agency issues and investment grade corporate bond issues and
fixed-rate mortgage-backed securities backed by mortgage pools issued by
certain U.S. Government agencies. That index is widely regarded as a
measure of the performance of the general bond market. 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. Moreover, index performance data does not reflect
any assessment of the risk of the investment included in the index. The
Fund's performance reflects the effect of Fund business and operating
expenses.
Oppenheimer Strategic Investment Grade Bond
Comparison of Change in Value
of a $10,000 Hypothetical Investment to the
The Lehman Aggregate Bond Index
(Graph)
Past performance is not predictive of future performance.
Oppenheimer Strategic Investment Grade Bond
<TABLE>
<CAPTION>
Average Annual Total Returns Cumulative Total Return
of the Fund at 9/30/94 of the Fund at 9/30/94
<S> <C> <C> <C> <C> <C>
A Shares 1-Year Life: B Shares 1-Year Life:
-6.43% 2.83% -7.03% 1.77%
</TABLE>
ABOUT YOUR ACCOUNT
How to Buy Shares
Classes of Shares. The Fund offers investors two different classes of
shares. The different classes of shares represent investments in the same
portfolio of securities but are subject to different expenses and will
likely have different share prices.
- Class A Shares. If you buy Class A shares, you pay an initial sales
charge (on investments up to $1 million). If you purchase Class A shares
as part of an investment of at least $1 million in shares of one or more
OppenheimerFunds, you will not pay an initial sales charge but if you sell
any of those shares within 18 months after your purchase, you may pay a
contingent deferred sales charge, which will vary depending on the amount
you invested. Sales charges are described below.
- Class B Shares. If you buy Class B shares, you pay no sales charge
at the time of purchase, but if you sell your shares within six years, you
will normally pay a contingent deferred sales charge that varies depending
on how long you own your shares. It is described below.
Which Class of Shares Should You Choose? Once you decide that the Fund
is an appropriate investment for you, the decision as to which class of
shares is better 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 currently offer Class B 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 Class A and B, considering the effect of
the annual asset-based sales charge on Class B expenses (which, like all
expenses, will affect your investment return). For the sake of
comparison, we have assumed that there is a 10% rate of appreciation in
the 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 you invest in. The factors discussed below are
not intended to be investment advice or recommendations, because each
investor's financial considerations are different.
- How Long Do You Expect to Hold Your Investment? The Fund is
designed for long-term 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. Because of the effect of class-
based expenses, your choice will also depend on how much you invest.
- How Much Do You Plan to Invest? If you plan to invest a substantial
amount over the long term, the reduced sales charges available for larger
purchases of Class A shares may offset the effect of paying an initial
sales charge on your investment (which reduces the amount of your
investment dollars used to buy shares for your account), compared to the
effect over time of higher expenses on Class B, for which no initial sales
charge is paid. Additionally, dividends payable to Class B shareholders
will be reduced by the additional expenses borne solely by Class B, such
as the asset-based sales charge described below.
In general, if you plan to invest less than $100,000, Class B shares
may be more advantageous than Class A shares, using the assumptions in our
hypothetical example. However, if you plan to invest more than $100,000
(not only in the Fund, but possibly in other OppenheimerFunds as well),
then Class A shares generally will be more advantageous than Class B,
because of the effect of the reduction of initial sales charges on larger
purchases of Class A shares (described in "Reduced Sales Charges for Class
A Share Purchases," below). That is also the case because the annual
asset-based sales charge on Class B shares will have a greater impact on
larger investments than the initial sales charge on Class A shares because
of the reductions of initial sales charge available for larger purchases.
And for 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 $1 million or more of Class B shares
from a single investor.
Of course, these examples are based on approximations of the effect of
current sales charges and expenses on a hypothetical investment over time,
using the assumptions stated above. Therefore, these examples should not
be relied on as rigid guidelines.
- Are There Differences in Account Features That Matter To You? Because
some features (such as Checkwriting) may not be available to Class B
shareholders, or other features (such as Automatic Withdrawal Plans) may
not be advisable (because of the effect of the contingent deferred sales
charge) in non-retirement accounts for Class B shareholders, you should
carefully review how you plan to use your investment account before
deciding which class of shares to buy. Also, because not all of the
OppenheimerFunds currently offer Class B shares, and because exchanges are
permitted only to the same class of shares in another of the
OppenheimerFunds, you should consider how important the exchange privilege
is likely to be for you.
- 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 or
servicing one class of shares than another class. It is important that
investors understand that the purpose of the Class B contingent deferred
sales charge is the same as the purpose of the front-end sales charge on
Class A shares: to compensate the Distributor for commissions it pays to
dealers and financial institutions for sales of shares.
How Much Must You Invest? You can open a Fund account with a minimum
initial investment of $1,000 and make additional investments at any time
with as little as $25. There are reduced minimum investments under
special investment plans:
With Asset Builder Plans, Automatic Exchange Plans, 403(b)(7) custodial
plans and military allotment plans, you can make initial and subsequent
investments of as little as $25; and subsequent purchases of at least $25
can be made by telephone through AccountLink.
Under pension and profit-sharing plans and Individual Retirement
Accounts (IRAs), you can make an initial investment of as little as $250
(if your IRA is established under an Asset Builder Plan, the $25 minimum
applies), and subsequent investments may be as little as $25.
There is no minimum investment requirement if you are buying shares by
reinvesting dividends from the Fund or other OppenheimerFunds (a list of
them appears in the Statement of Additional Information, or you can ask
your dealer or call the Transfer Agent), or by reinvesting distributions
from unit investment trusts that have made arrangements with the
Distributor.
- How Are Shares Purchased? You can buy shares several ways -- through
any dealer, broker or financial institution that has a sales agreement
with the Distributor, or directly through the Distributor, or
automatically through an Asset Builder Plan under the OppenheimerFunds
AccountLink service. When you buy shares, be sure to specify Class A or
Class B shares. If you do not choose, your investment will be made in
Class A shares.
- Buying Shares Through Your Dealer. Your dealer will place your order
with the Distributor on your behalf.
- Buying Shares Through the Distributor. Complete an OppenheimerFunds
New Account Application and return it with a check payable to "Oppenheimer
Funds Distributor, Inc." Mail it to P.O. Box 5270, Denver, Colorado 80217.
If you don't list a dealer on the application, the Distributor will act
as your agent in buying the shares.
- Buying Shares Through OppenheimerFunds AccountLink. You can use
AccountLink to link your Fund account with an account at a U.S. bank or
other financial institution that is an Automated Clearing House (ACH)
member, to transmit funds electronically to purchase shares, to send
redemption proceeds, and to transmit dividends and distributions.
Shares are purchased for your account on 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 public offering
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 that time on each day The New York Stock
Exchange is open (which is a "regular business day").
If you buy shares through a dealer, the dealer must receive your order
by 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, where purchases are not subject to an initial
sales charge, the offering price may be net asset value. In some cases,
reduced sales charges may be available, as described below. Out of the
amount you invest, the Fund receives the net asset value to invest for
your account. The sales charge varies depending on the amount of your
purchase. A portion of the sales charge may be retained by the
Distributor and allocated to your dealer as a 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 as Commission
as Approximate 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 less than
$100,000 4.50% 4.71% 3.75%
- -----------------------------------------------------------------------------------------------------------------------
$100,000 or more
but less than
$250,000 3.50% 3.63% 2.75%
- -----------------------------------------------------------------------------------------------------------------------
$250,000 or more
but less than
$500,000 2.50% 2.56% 2.00%
- -----------------------------------------------------------------------------------------------------------------------
$500,000 or more
but less than
$1 million 2.00% 2.04% 1.60%
</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. However, the Distributor pays dealers of
record commissions on such purchases in an amount equal to the sum of 1.0%
of the first $2.5 million, plus 0.50% of the next $2.5 million, plus 0.25%
of share purchases over $5 million. That commission may be paid only on
the amount of those purchases in excess of $1 million that were not
previously subject to a front-end sales charge and dealer commission.
If you redeem any of those shares within 18 months of the end of the
calendar month of their purchase, a contingent deferred sales charge
(called the "Class A contingent deferred sales charge") may be deducted
from the redemption proceeds. That sales charge will be equal to 1.0% of
the aggregate net asset value of either (1) the redeemed shares (not
including shares purchased by reinvestment of dividends or capital gain
distributions) or (2) the original cost of the shares, whichever is less.
However, the Class A contingent deferred sales charge will not exceed the
aggregate commissions the Distributor paid to your dealer on all Class A
shares of all OppenheimerFunds you purchased subject to the Class A
contingent deferred sales charge.
In determining whether a contingent deferred sales charge is payable,
the Fund will first redeem shares that are not subject to the sales
charge, including shares purchased by reinvestment of dividends and
capital gains, and then will redeem other shares in the order that you
purchased them. The Class A contingent deferred sales charge is waived
in certain cases described in "Waivers of Class A Sales Charges" below.
No Class A contingent deferred sales charge is charged on exchanges of
shares under the Fund's Exchange Privilege (described below). However,
if the shares acquired by exchange are redeemed within 18 months of the
end of the calendar month of the purchase of the exchanged shares, the
sales charge will apply.
- Special Arrangements With Dealers. The Distributor may advance up to
13 months' commissions to dealers that have established special
arrangements with the Distributor for Asset Builder Plans for their
clients. Dealers whose sales of Class A shares of OppenheimerFunds (other
than money market funds) under OppenheimerFunds-sponsored 403(b)(7)
custodial plans exceed $5 million per year (calculated per quarter), will
receive monthly one-half of the Distributor's retained commissions on
those sales, and if those sales exceed $10 million per year, those dealers
will receive the Distributor's entire retained commission on those sales.
Reduced Sales Charges for Class A Share Purchases. You may be eligible
to buy Class A shares at reduced sales charge rates in one or more of the
following ways:
- Right of Accumulation. 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 shares you purchase for your individual accounts, or
jointly, 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 shares
of the Fund and other OppenheimerFunds. You can also include Class A
shares of OppenheimerFunds you previously purchased subject to a sales
charge, provided that you still hold your investment in one of the
OppenheimerFunds. The value of those shares will be based on the greater
of the amount you paid for the shares or their current value (at offering
price). The OppenheimerFunds are listed in "Reduced Sales Charges" in the
Statement of Additional Information, or a list can be obtained from the
Transfer Agent. The reduced sales charge will apply only to current
purchases and must be requested when you buy your shares.
- Letter of Intent. Under a Letter of Intent, you may purchase Class
A shares of the Fund and other OppenheimerFunds during a 13-month period
at the reduced sales charge rate that applies to the aggregate amount of
the intended purchases, including purchases made up to 90 days before the
date of the Letter. More information is contained in the Application and
in "Reduced Sales Charges" in the Statement of Additional Information.
- Waivers of Class A Sales Charges. No sales charge is imposed on
sales of Class A shares to the following investors: (1) the Manager or its
affiliates; (2) present or former officers, directors, trustees and
employees (and their "immediate families" as defined in "Reduced Sales
Charges" in the Statement of Additional Information) of the Fund, the
Manager and its affiliates, and retirement plans established by them for
their employees; (3) registered management investment companies, or
separate accounts of insurance companies having an agreement with the
Manager or the Distributor for that purpose; (4) dealers or brokers that
have a sales agreement with the Distributor, if they purchase shares for
their own accounts or for retirement plans for their employees; (5)
employees and registered representatives (and their spouses) of dealers
or brokers described above or financial institutions that have entered
into sales arrangements with such dealers or brokers (and are identified
to the Distributor) or with the Distributor; the purchaser must certify
to the Distributor at the time of purchase that the purchase is for the
purchaser's own account (or for the benefit of such employee's spouse or
minor children); (6) dealers, brokers or registered investment advisers
that have entered into an agreement with the Distributor providing
specifically for the use of shares of the Fund in particular investment
products made available to their clients; and (7) dealers, brokers or
registered investment advisers that have entered into an agreement with
the Distributor to sell shares of 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, or (b) purchased by the
reinvestment of loan repayments by a participant in a retirement plan for
which the Manager or its affiliates acts as sponsor, or (c) purchased by
the reinvestment of dividends or other distributions reinvested from the
Fund or other OppenheimerFunds (other than Oppenheimer Cash Reserves) or
unit investment trusts for which reinvestment arrangements have been made
with the Distributor. There is a further discussion of this policy in
"Reduced Sales Charges" in the Statement of Additional Information.
The contingent deferred sales charge does not apply to purchases of
Class A shares at net asset value described above and is also waived if
shares are redeemed in the following cases: (1) retirement distributions
or loans to participants or beneficiaries from qualified retirement plans,
deferred compensation plans or other employee benefit plans ("Retirement
Plans"), (2) returns of excess contributions made to Retirement Plans, (3)
Automatic Withdrawal Plan payments that are limited to no more than 12%
of the original account value annually, (4) involuntary redemptions of
shares by operation of law or under the procedures set forth in the Fund's
Declaration of Trust or adopted by the Board of Trustees, and (5) if, at
the time an order is placed for Class A shares that would otherwise be
subject to the Class A contingent deferred sales charge, the dealer agrees
to accept the dealer's portion of the commission payable on the sale in
installments of 1/18th of the commission per month (with no further
commission payable if the shares are redeemed within 18 months of
purchase).
- Service Plan for Class A Shares. The Fund has adopted a Service
Plan for Class A shares to reimburse the Distributor for a portion of its
costs incurred in connection with the personal service and maintenance of
accounts that hold Class A shares. Reimbursement is made quarterly at an
annual rate that may not exceed 0.25% of the average annual net assets of
Class A shares of the Fund. The Distributor uses all of those fees to
compensate dealers, brokers, banks and other financial institutions
quarterly for providing personal service and maintenance of accounts of
their customers that hold Class A shares and to reimburse itself (if the
Fund's Board of Trustees authorizes such reimbursements, which it has not
yet done) for its other expenditures under the Plan.
Services to be provided include, among others, answering customer
inquiries about the Fund, assisting in establishing and maintaining
accounts in the Fund, making the Fund's investment plans available and
providing other services at the request of the Fund or the Distributor.
Payments are made by the Distributor quarterly at an annual rate not to
exceed 0.25% of the average annual net assets of Class A shares held in
accounts of the dealer or its customers. The Class A Plan has the effect
of increasing annual expenses of Class A shares of the Fund by up to 0.25%
of the class's average annual net assets from what its expenses would
otherwise be. 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
Years Since Beginning of Month In on Redemptions in that Year
Which 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) 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; and (4) distributions from IRAs
(including SEP-IRAs and SAR/SEP accounts) before the participant is age
591/2, and distributions from 403(b)(7) custodial plans or pension or
profit sharing plans before the participant is age 591/2 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 B shares
in the following cases: (i) shares sold to the Manager or its affiliates;
(ii) shares sold to registered management investment companies or separate
accounts of insurance companies having an agreement with the Manager or
the Distributor for that purpose; (iii) shares issued in plans of
reorganization to which the Fund is a party; and (iv) shares redeemed in
involuntary redemptions as described below. Further details about this
policy are contained in "Reduced Sales Charges" in the Statement of
Additional Information.
- Automatic Conversion of Class B Shares. 72 months after you
purchase Class B shares, those shares will automatically convert to Class
A shares. This conversion feature relieves Class B shareholders of the
asset-based sales charge that applies to Class B shares under the Class
B Distribution Plan, described below. The conversion is based on the
relative net asset value of the two classes, and no sales load or other
charge is imposed. When Class B shares convert, any other Class B shares
that were acquired by the reinvestment of dividends and distributions on
the converted shares will also convert to Class A shares. The conversion
feature is subject to the continued availability of a tax ruling described
in "Alternative Sales Arrangements - Class A and Class B Shares" in the
Statement of Additional Information.
- Distribution and Service Plan for Class B Shares. The Fund has
adopted a Distribution and Service Plan for Class B shares to compensate
the Distributor for its services and costs in distributing Class B shares
and servicing accounts. Under the Plan, the Fund pays the Distributor an
annual "asset-based sales charge" of 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 assets of Class B shares, determined as of the close of each
regular business day. The asset-based sales charge allows investors to buy
Class B shares without a front-end sales charge while allowing the
Distributor to compensate dealers that sell Class B shares.
The Distributor uses the service fee to compensate dealers for
providing personal 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 up to 1.00% of average net assets per year.
The Distributor pays the 0.25% service fee to dealers in advance for
the first year after Class B shares have been sold by the dealer. After
the shares have been held for a year, the Distributor pays the fee on a
quarterly basis. The Distributor pays sales commissions of 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 to recoup the sales
commissions it pays, the advances of service fee payments it makes,
financing costs and other expenses.
The Distributor's actual expenses in selling Class B shares may be more
than the payments it receives from contingent deferred sales charges
collected on redeemed shares and from the Fund under the Distribution and
Service Plan for Class B shares. Therefore, those expenses may be carried
over and paid in future years. At September 30, 1994, the end of the Plan
year, the Distributor had incurred unreimbursed expenses under the Plan
of $696,002 (equal to 4.7% of the Fund's net assets represented by Class
B shares on that date), which have been carried over into the present Plan
year. If the Plan is terminated by the Fund, the Board of Trustees may
allow the Fund to continue payments of the asset-based sales charge to the
Distributor for expenses it incurred before the Plan was terminated.
Special Investor Services
AccountLink. OppenheimerFunds AccountLink links your Fund account to your
account at your bank or other financial institution to enable you to send
money electronically between those accounts to perform a number of types
of account transactions. 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 must be requested on the Application you use to
buy shares, or on your dealer's settlement instructions if you buy your
shares through your dealer. After your account is established, you can
request AccountLink privileges on signature-guaranteed instructions to the
Transfer Agent. AccountLink privileges will apply to each shareholder
listed in the registration on your account as well as to your dealer
representative of record unless and until the Transfer Agent receives
written instructions terminating or changing those privileges. After you
establish AccountLink for your account, any change of bank account
information must be made by signature-guaranteed instructions to the
Transfer Agent signed by all shareholders who own the account.
- Using AccountLink to Buy Shares. Purchases may be made by telephone
only after your account has been established. To purchase shares in
amounts up to $250,000 through a telephone representative, call the
Distributor at 1-800-852-8457. The purchase payment will be debited from
your bank account.
- PhoneLink. PhoneLink is the OppenheimerFunds automated telephone
system that enables shareholders to perform a number of account
transactions automatically using a touch-tone phone. PhoneLink may be used
on already-established Fund accounts after you obtain a Personal
Identification Number (PIN), by calling the special PhoneLink number: 1-
800-533-3310.
- Purchasing Shares. You may purchase shares in amounts up to $100,000
by phone, by calling 1-800-533-3310. You must have established
AccountLink privileges to link your bank account with the Fund, to pay for
these purchases.
- Exchanging Shares. With the OppenheimerFunds Exchange Privilege,
described below, you can exchange shares automatically by phone from your
Fund account to another OppenheimerFunds account you have already
established by calling the special PhoneLink number. Please refer to "How
to Exchange Shares," below, for details.
- Selling Shares. You can redeem shares by telephone automatically by
calling the PhoneLink number and the Fund will send the proceeds directly
to your AccountLink bank account. Please refer to "How to Sell Shares,"
below, for details.
Automatic Withdrawal and Exchange Plans. The Fund has several plans that
enable you to sell shares automatically or exchange them to another
OppenheimerFunds account on a regular basis:
- Automatic Withdrawal Plans. If your Fund account is 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 a
sales charge. This privilege applies to Fund shares that you purchased
with an initial sales charge. It also applies to shares 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
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 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 statement)
- The dollar amount or number of shares to be redeemed
- Any special payment instructions
- Any share certificates for the shares you are selling, and
- Any special requirements or documents requested by the Transfer
Agent to assure proper authorization of the person asking to sell shares.
Use the following address for requests by mail:Send courier or Express
Mail requests to:
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. You may not redeem
shares held in an OppenheimerFunds retirement plan or under a share
certificate by telephone.
- To redeem shares through a service representative, call 1-800-852-
8457
- To redeem shares automatically on PhoneLink, call 1-800-533-3310
Whichever method you use, you may have a check sent to the address on
the account 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, 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 statement. 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 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.
The Fund will charge a $10 fee for any check that is not paid because
(1) the owners of the account told the Fund not to pay the check, or (2)
the check was for more than the account balance, or (3) the check did not
have the proper signatures, or (4) the check was written for less than
$100.
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. A $5 service fee will be deducted from the fund
account you are exchanging into to help defray administrative costs. That
charge is waived for automated exchanges made by brokers on Fund/SERV and
for automated exchanges between already established accounts on PhoneLink
described below. To exchange shares, you must meet several conditions:
- Shares of the fund selected for exchange must be available for sale
in your state of residence
- The prospectuses of this Fund and the fund whose shares you want to
buy must offer the exchange privilege
- You must hold the shares you buy when you establish your account for
at least 7 days before you can exchange them; after the account is open
7 days, you can exchange shares every regular business day
- You must meet the minimum purchase requirements for the fund you
purchase by exchange
- Before exchanging into a fund, you should obtain and read its
prospectus
Shares of a particular class may be exchanged only for shares of the
same class in the other OppenheimerFunds. For example, you can exchange
Class A shares of this Fund only for Class A shares of another fund. At
present, not all of the OppenheimerFunds offer the same classes of shares.
If a fund has only one class of shares that does not have a class
designation, they are "Class A" shares for exchange purposes. Certain
OppenheimerFunds offer Class A shares and Class B 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 name(s) and address. Shares held under certificates may not be
exchanged by telephone.
You can find a list of OppenheimerFunds currently available for
exchanges in the Statement of Additional Information or by calling a
service representative at 1-800-525-7048. Exchanges of shares involve a
redemption of the shares of the fund you own and a purchase of shares of
the other fund.
There are certain exchange policies you should be aware of:
- Shares are normally redeemed from one fund and purchased from the
other fund in the exchange transaction on the same regular business day
on which the Transfer Agent receives an exchange request by 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 portfolio
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 and Class B shares. Therefore, the redemption
value of your shares may be more or less than their original cost.
- Payment for redeemed shares is made ordinarily in cash and forwarded
by check or through AccountLink (as elected by the shareholder under the
redemption procedures described above) within 7 days after the Transfer
Agent receives redemption instructions in proper form, except under
unusual circumstances determined by the Securities and Exchange Commission
delaying or suspending such payments. The Transfer Agent may delay
forwarding a check or processing a payment via AccountLink for recently
purchased shares, but only until the purchase payment has cleared. That
delay may be as much as 10 days from the date the shares were purchased.
That delay may be avoided if you purchase shares by certified check or
arrange with your bank to provide telephone or written assurance to the
Transfer Agent that your purchase payment has cleared.
- Involuntary redemptions of small accounts may be made by the Fund if
the account value has fallen below $200 for reasons other than the fact
that the market value of shares has dropped, and in some cases involuntary
redemptions may be made to repay the Distributor for losses from the
cancellation of share purchase orders.
- Under unusual circumstances, shares of the Fund may be redeemed "in
kind," which means that the redemption proceeds will be paid with
securities from the Fund's portfolio. Please refer to "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 dividends.
- The Fund does not charge a redemption fee, but if your dealer or
broker handles your redemption, they may charge a fee. That fee can be
avoided by redeeming your Fund shares directly through the Transfer Agent.
Under the circumstances described in "How To Buy Shares," you may be
subject to a contingent deferred sales charge when redeeming certain Class
A and Class B shares.
- To avoid sending duplicate copies of materials to households, the
Fund will mail only one copy of each annual and semi-annual report to
shareholders having the same last name and address on the Fund's records.
However, each shareholder may call the Transfer Agent at 1-800-525-7048
to ask that copies of those materials be sent personally to that
shareholder.
Dividends, Capital Gains and Taxes
Dividends. The Fund declares dividends separately for Class A and Class
B shares from net investment income and pays such dividends to
shareholders monthly on the fourth Wednesday of each month, but the Board
of Trustees can change that date. It is expected that distributions paid
with respect to Class A shares will generally be higher than for Class B
shares because expenses allocable to Class B shares will generally be
higher.
From September 30, 1993 through November 24, 1993, the Manager had
undertaken to assume the Fund's expenses (other than extraordinary non-
recurring expenses) to enable the Fund to pay a dividend of $.3738 per
share, per annum, with the limitation that the dividend could not exceed
the Fund's annual gross earnings per share. As a result of this
undertaking, the net asset value of the Fund's Class A shares were higher
during such period than they otherwise would have been. This undertaking
terminated as of November 24, 1993 and as of such date there is no fixed
dividend rate. Further, 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 held 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: Description of Ratings
Description of Moody's Investors Service, Inc.
Bond Ratings
Aaa: Bonds which are rated "Aaa" are judged to be the best quality and
to carry the smallest degree of investment risk. Interest payments are
protected by a large or by an exceptionally stable margin and principal
is secure. While the various protective elements are likely to change, the
changes that can be expected are most unlikely to impair the fundamentally
strong position of such issues.
Aa: Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group, they comprise what are generally
known as "high-grade" bonds. They are rated lower than the best bonds
because margins of protection may not be as large as with "Aaa" securities
or fluctuation of protective elements may be of greater amplitude or there
may be other elements present which make the long-term risks appear
somewhat larger than those of "Aaa" securities.
A: Bonds which are rated "A" possess many favorable investment
attributes and are to be considered as upper-medium grade obligations.
Factors giving security to principal and interest are considered adequate
but elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa: Bonds which are rated "Baa" are considered medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and have speculative
characteristics as well.
Ba: Bonds which are rated "Ba" are judged to have speculative
elements; their future cannot be considered well-assured. Often the
protection of interest and principal payments may be very moderate and not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B: Bonds which are rated "B" generally lack characteristics of
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Caa: Bonds which are rated "Caa" are of poor standing and may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca: Bonds which are rated "Ca" represent obligations which are
speculative in a high degree and are often in default or have other marked
shortcomings.
C: Bonds which are rated "C" can be regarded as having extremely poor
prospects of ever retaining any real investment standing.
Description of Standard & Poor's Bond Ratings
AAA: "AAA" is the highest rating assigned to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
AA: Bonds rated "AA" also qualify as high quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority
of instances they differ from "AAA" issues only in small degree.
A: Bonds rated "A" have a strong capacity to pay principal and
interest, although they are somewhat more susceptible to adverse effects
of change in circumstances and economic conditions.
BBB: The bond investments in which the Fund will principally invest
will be in the lower-rated categories, described below. Bonds rated "BBB"
are regarded as having an adequate capacity to pay principal and interest.
Whereas they normally exhibit protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to pay principal and interest for bonds in this category than for
bonds in the "A" category.
BB, B, CCC, CC: Bonds rated "BB," "B," "CCC" and "CC" are regarded, on
balance, as predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal in accordance with the terms
of the obligation. "BB" indicates the lowest degree of speculation and
"CC" the highest degree. While such bonds will likely have some quality
and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
C, D: Bonds on which no interest is being paid are rated "C." Bonds
rated "D" are in default and payment of interest and/or repayment of
principal is in arrears.
<PAGE>
APPENDIX TO PROSPECTUS OF
OPPENHEIMER STRATEGIC INVESTMENT
GRADE BOND FUND
Graphic material included in Prospectus of Oppenheimer Strategic
Investment Grade Bond Fund: "Comparison of Total Return of Oppenheimer
Strategic Investment Grade Bond Fund with The Lehman Aggregate Bond Index
- - Change in Value of a $10,000 Hypothetical Investment"
A linear graph will be included in the Prospectus of Oppenheimer Strategic
Investment Grade Bond Fund (the "Fund") depicting the initial account
value and subsequent account value of a hypothetical $10,000 investment
in (i) Class A shares of the Fund during each of the Fund's fiscal years
since the commencement of the Fund's operations (April 22, 1992) and (ii)
Class B shares of the Fund during each of the Fund's fiscal years since
the public offering on November 30, 1992 in each case comparing such
values with the same investments over the same time periods with The
Lehman Aggregate Bond Index. Set forth below are the relevant data points
that will appear on the linear graph. Additional information with respect
to the foregoing, including a description of The Lehman Aggregate Bond
Index, is set forth in the Prospectus under "Fund Performance Information
- - Management's Discussion of Performance."
<TABLE>
<CAPTION>
Oppenheimer Strategic
Fiscal Year Investment Grade Bond Fund Lehman Aggregate
(Period) Ended Class A Shares Bond Index
<S> <C> <C>
04/22/92 * $ 9,525 $10,000
09/30/92 $10,147(1) $10,773
09/30/93 $10,881 $11,847
09/30/94 $10,710 $11,466
Oppenheimer Strategic
Fiscal Year Investment Grade Bond Fund Lehman Aggregate
(Period) Ended Class B Shares Bond Index
11/30/92 $10,000 $10,000
09/30/93 $10,961(2) $11,141
09/30/94 $10,330 $10,782
<FN>
______________________________
* The Fund commenced operations on April 27, 1992.
(1) From commencement of operations (4/22/92) to 9/30/92.
(2) From commencement of first public offering of Class B shares (11/30/92) to 9/30/93.
</TABLE>
<PAGE>
Oppenheimer Strategic Investment Grade 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 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., 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.
PR0285001.0295 (1/95)* Printed on recycled paper
<PAGE>
OPPENHEIMER STRATEGIC INVESTMENT GRADE BOND FUND
Supplement dated July 14, 1995
to the Statement of Additional Information dated February 1, 1995
The following changes are made to the Statement of Additional:
1. The first, third and fourth sentences of the first paragraph of the
section entitled "Letters of Intent" on page 38 are replaced in their
entirety with the following:
- Letters of Intent. A Letter of Intent ("Letter") is the
investor's statement of intention to purchase Class A shares
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.
. . .
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.
2. Item 5 of the section entitled "Terms of Escrow That Apply to
Letters of Intent" on page 39 is replaced in its entirety with the
following:
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
deferred sales charge or (b) Class B shares of one of the other
OppenheimerFunds.
3. The listing of OppenheimerFunds that offer Class B shares in the
section entitled "How to Exchange Shares" on page 44 is amended by adding
the following OppenheimerFunds to that listing:
Oppenheimer Equity Income Fund
Oppenheimer International Bond Fund
Oppenheimer U.S. Government Trust
(continued)
4. The paragraph following the listing of OppenheimerFunds that offer
Class B shares on page 44 is amended by adding a new third sentence as
follows:
However, 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, Inc. may be exchanged for shares
of other OppenheimerFunds at net asset value without paying a
sales charge.
July 14, 1995 SAI0245.795
<PAGE>
Oppenheimer Strategic Investment Grade Bond Fund
3410 South Galena Street, Denver, Colorado 80231
1-800-525-7048
Statement of Additional Information dated February 1, 1995
This Statement of Additional Information is not a Prospectus. This
document contains additional information about the Fund and supplements
information in the Prospectus dated February 1, 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.
Contents
Page
About the Fund 2
Investment Objectives 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 25
Brokerage Policies of the Fund 26
Performance of the Fund 28
Distribution and Service Plans 32
About Your Account 34
How To Buy Shares 34
How To Sell Shares 40
How To Exchange Shares 44
Dividends, Capital Gains and Taxes 45
Additional Information About the Fund 47
Financial Information About the Fund 48
Independent Auditors' Report 48
Financial Statements 49
Appendix A: Industry Classifications A-1
<PAGE>
ABOUT THE FUND
Investment Objective and Policies
Investment Policies and Strategies. The investment objective and policies
of the Fund are described in the Prospectus. Set forth below is
supplemental information about those policies and the types of securities
in which the Fund invests, as well as the strategies the Fund may use to
try to achieve its objective. Capitalized terms used in this Statement
of Additional Information have the same meaning as those terms have in the
Prospectus.
In selecting securities for the Fund's portfolio, the Fund's
investment manager, Oppenheimer Management Corporation (the "Manager"),
evaluates the investment merits of fixed-income securities primarily
through the exercise of its own investment analysis. This may include,
among other things, consideration of the financial strength of the issuer,
including its historic and current financial condition, the trading
activity in its securities, present and anticipated cash flow, estimated
current value of assets in relation to historical cost, the issuer's
experience and managerial expertise, responsiveness to changes in interest
rates and business conditions, debt maturity schedules, current and future
borrowing requirements, and any change in the financial condition of the
issuer and the issuer's continuing ability to meet its future obligations.
The Manager also may consider anticipated changes in business conditions,
levels of interest rates of bonds as contrasted with levels of cash
dividends, industry and regional prospects, the availability of new
investment opportunities and the general economic, legislative and
monetary outlook for specific industries, the nation and the world.
- Investment Risks of Fixed-Income Securities. All fixed-income
securities are subject to two types of risks: credit risk and interest
rate risk. Credit risk relates to the ability of the issuer to meet
interest or principal payments on a security as they become due.
Generally, higher yielding lower-grade bonds are subject to credit risk
to a greater extent than lower yielding, investment grade bonds. 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 prevailing interest
rates will generally reduce the market value of already-issued 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 changes
in their prices from changes in interest rates than obligations with
shorter maturities. Fluctuations in the market value of fixed-income
securities after the Fund buys them will not affect the interest payable
on those securities, nor the cash income from such securities. However,
those price fluctuations will be reflected in the valuations of these
securities and therefore the Fund's net asset values.
The Fund may from time to time invest up to 35% of its total assets
(the "35% Policy") in non-investment grade securities and other
investments as described in the Prospectus, including short-term debt
obligations issued by foreign governments or domestic or foreign
corporations denominated in U.S. dollars or selected foreign currencies
(including, among others, participation interests, commercial paper and
bank obligations). Included within this 35% Policy are investment grade
securities purchased by the Fund which have been subsequently downgraded.
Obligations rated as low as "C" by Moody's or "D" by Standard & Poor's
indicate that the obligations are speculative in a high degree and may be
in default. Risks of lower rated, high yield securities may include: (i)
limited liquidity and secondary market support, (ii) substantial market
price volatility resulting from changes in prevailing interest rates,
(iii) subordination to the prior claims of banks and other senior lenders,
(iv) the operation of mandatory sinking fund or call/redemption provisions
during periods of declining interest rates whereby the Fund may be able
to reinvest premature redemption proceeds only in lower yielding portfolio
securities, (v) the possibility that earnings of the issuer may be
insufficient to meet its debt service, and (vi) the issuer's low
creditworthiness and potential for insolvency during periods of rising
interest rates and economic downturn. As a result of the limited
liquidity of high yield securities, at times their prices have experienced
significant and rapid declines when a substantial number of holders
decided to sell simultaneously. A decline is also likely in the high
yield bond market during a general economic downturn. An economic
downturn or an increase in interest rates could severely disrupt the
market for high yield bonds and adversely affect the value of outstanding
bonds and the ability of the issuers to repay principal and interest. In
addition, there have been several Congressional attempts to limit the use
of tax and other advantages of high yield bonds which, if enacted, could
adversely affect the value of these securities and the Fund's net asset
value. For example, federally-insured savings and loan associations have
been required to divest their investments in high yield bonds.
- - Domestic Fixed-Income Securities. Further information about the
Fund's investments in domestic debt obligations is provided below.
Preferred Stocks. Dividends on some preferred stock may be
"cumulative" requiring all or a portion of prior unpaid dividends to be
paid. Preferred stock also generally has a preference over common stock
on the distribution of a corporation's assets in the event of liquidation
of the corporation, and may be "participating," which means that it may
be entitled to a dividend exceeding the stated dividend in certain cases.
The rights of preferred stocks on distribution of a corporation's assets
in the event of a liquidation are generally subordinate to rights
associated with a corporation's debt securities.
Participation Interests. The Fund may invest in participation
interests, subject to its limitation on investments in illiquid
securities, set forth in the Prospectus. These 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. 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 borrower for payment of interest and principal,
and 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.
Asset-Backed Securities. The value of asset-backed securities 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 is
exhausted. The risks of investing in asset-backed securities are
ultimately dependent upon payment of the underlying consumer loans by the
individuals, and the Fund would generally have no recourse to the entity
that originated the loans in the event of default by a borrower. The
underlying loans are subject to prepayments which shorten the weighted
average life of asset-backed securities and may lower their return, in the
same manner as described in the Prospectus and in "Mortgage-Backed
Securities and CMOs" below for prepayments of a pool of mortgage loans
underlying mortgage-backed securities.
- 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, mortgage-backed securities and money market instruments.
Mortgage-Backed Securities. These securities represent participation
interests in pools of residential mortgage loans which may or may not be
guaranteed by agencies or instrumentalities of the U.S. Government. Such
securities differ from conventional debt securities which 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 of the 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 the Government National
Mortgage Association (the "GNMA")); some are supported by the right of the
issuer to borrow from the U.S. Government (e.g., obligations of Federal
Home Loan Banks); and some are backed by only the credit of the issuer
itself. Any such guarantees do not extend to the value of or yield of the
mortgage-backed securities themselves or to the net asset value of the
Fund's shares. Any of these government agencies may issue collateralized
mortgage-backed obligations ("CMO's"), 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 other debt securities, but, when prevailing
interest rates decline, the value of a pass-through security is not likely
to rise on a comparable basis with other debt securities because of the
prepayment feature of pass-through securities. The Fund's reinvestment
of scheduled principal payments and unscheduled prepayments it receives
may occur at 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. Due to
those factors, mortgage-backed securities may be less effective than
Treasury bonds of similar maturity at maintaining yields during periods
of declining interest rates. Accelerated prepayments adversely affect
yields for pass-through securities purchased at a premium (i.e., at a
price in excess of principal amount) and may involve additional risk of
loss of principal because the premium may not have been fully amortized
at the time the obligation is repaid. The opposite is true for pass-
through securities purchased at a discount. The Fund may purchase
mortgage-backed securities at par, at a premium or at a discount.
GNMA Certificates. Certificates of the Government National Mortgage
Association ("GNMA Certificates") are mortgage-backed securities which
evidence an undivided interest in a pool or pools of mortgages. The GNMA
Certificates that the Fund may purchase are of the "modified pass-through"
type, which entitle the holder to receive timely payment of all interest
and principal payments due on the mortgage pool, net of fees paid to the
"issuer" and GNMA, regardless of whether the mortgagor actually makes the
payments.
The National Housing Act authorizes GNMA to guarantee the timely
payment of principal and interest on securities backed by a pool of
mortgages insured by the Federal Housing Administration ("FHA") or
guaranteed by the Veterans Administration ("VA"). The GNMA guarantee is
backed by the full faith and credit of the U.S. Government. GNMA is also
empowered to borrow without limitation from the U.S. Treasury if necessary
to make any payments required under its guarantee.
The average life of a GNMA Certificate is likely to be substantially
shorter than the original maturity of the mortgages underlying the
securities. Prepayments of principal by mortgagors and mortgage
foreclosures will usually result in the return of the greater part of
principal investment long before the maturity of the mortgages in the
pool. Foreclosures impose no risk to principal investment because of the
GNMA guarantee, except to the extent that the Fund has purchased the
certificates at a premium in the secondary market.
FNMA Securities. The Federal National Mortgage Association ("FNMA")
was established to create a secondary market in mortgages insured by the
FHA. FNMA issues guaranteed mortgage pass-through certificates ("FNMA
Certificates"). FNMA Certificates resemble GNMA Certificates in that each
FNMA Certificate represents a pro rata share of all interest and principal
payments made and owed on the underlying pool. FNMA guarantees timely
payment of interest and principal on FNMA Certificates. The FNMA
guarantee is not backed by the full faith and credit of the U.S.
Government.
FHLMC Securities. The Federal Home Loan Mortgage Corporation
("FHLMC") was created to promote development of a nationwide secondary
market for conventional residential mortgages. FHLMC issues two types of
mortgage pass-through securities ("FHLMC Certificates"): 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. FHMLC guarantees timely monthly payment of interest on
PCs and the ultimate payment of principal.
GMCs also represent a pro rata interest in a pool of mortgages.
However, these instruments pay interest semi-annually and return principal
once a year in guaranteed minimum payments. The expected average life of
these securities is approximately ten years. The FHLMC guarantee is not
backed by the full faith and credit of the U.S. Government.
Collateralized Mortgage-Backed Obligations ("CMOs"). CMOs are fully-
collateralized bonds which are the general obligations of the issuer
thereof, either the U.S. Government, a U.S. Government instrumentality,
or a private issuer. 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.
Mortgage-Backed Security Rolls. The Fund may enter into "forward
roll" transactions with respect to mortgage-backed securities issued by
GNMA, FNMA or FHLMC. In a forward roll transaction, which is considered
to be a borrowing by the Fund, the Fund will sell a mortgage-backed
security to a bank or other permitted entity and simultaneously agree to
repurchase a similar security from the institution at a later date at an
agreed upon price. The mortgage securities that are repurchased will bear
the same interest rate as those sold, but generally will be collateralized
by different pools of mortgages with different prepayment histories than
those sold. Risks of mortgage-backed security rolls include: (i) the risk
of prepayment prior to maturity, (ii) the possibility that the Fund may
not be entitled to receive interest and principal payments on the
securities sold and that the proceeds of the sale may have to be invested
in money market instruments (typically repurchase agreements) maturing not
later than the expiration of the roll, and (iii) the risk that the market
value of the securities sold by the Fund may decline below the price at
which the Fund is obligated to purchase the securities. Upon entering
into a mortgage-backed security roll, the Fund will be required to place
cash, U.S. Government securities or other high-grade debt securities in
a segregated account with its Custodian in an amount equal to its
obligation under the roll.
- - Foreign Fixed-Income Securities. "Foreign securities" include equity
and debt securities of companies organized under the laws of countries
other than the United States and debt securities of foreign governments
that are traded on foreign securities exchanges or in the foreign over-
the-counter markets. Securities of foreign issuers that are represented
by American Depository Receipts or that are listed on a U.S. securities
exchange or traded in the U.S. over-the-counter markets are not considered
"foreign securities" for the purpose of the Fund's investment allocations,
because they are not subject to many of the special considerations and
risks, discussed below, that apply to foreign securities traded and held
abroad.
The Fund may invest in U.S. dollar-denominated foreign debt
obligations known as "Brady Bonds," which are issued for the exchange of
existing commercial bank loans to foreign entities for new obligations
that are generally collateralized by zero coupon U.S. Treasury securities
having the same maturity. Because the Fund may purchase securities
denominated in foreign currencies, a change in the value of such foreign
currency against the U.S. dollar will result in a change in the amount of
income the Fund has available for distribution. Because a portion of the
Fund's investment income may be received in foreign currencies, the Fund
will be required to compute its income in U.S. dollars for distribution
to shareholders, and therefore the Fund will absorb the cost of currency
fluctuations. After the Fund has distributed income, subsequent foreign
currency losses may result in the Fund's having distributed more income
in a particular fiscal period than was available from investment income,
which could result in a return of capital to shareholders.
Investing in foreign securities offers potential benefits not
available from investing solely in securities of domestic issuers,
including the opportunity to invest in foreign issuers that appear to
offer growth potential, or in foreign countries with economic policies or
business cycles different from those of the U.S., or to reduce
fluctuations in portfolio value by taking advantage of foreign stock
markets that do not move in a manner parallel to U.S. markets. If the
Fund's portfolio securities are held abroad, the countries in which they
may be held and the sub-custodians holding them must be approved by the
Fund's Board of Trustees under applicable rules of the Securities and
Exchange Commission.
- Risks of Foreign Investing. Investments in foreign securities
present special additional risks and considerations not typically
associated with investments in domestic securities: reduction of income
by foreign taxes; fluctuation in value of foreign portfolio investments
due to changes in currency rates and control regulations (e.g., currency
blockage); transaction charges for currency exchange; lack of public
information about foreign issuers; lack of uniform accounting, auditing
and financial reporting standards comparable to those applicable to
domestic issuers; less volume on foreign exchanges than on U.S. exchanges;
greater volatility and less liquidity on foreign markets than in the U.S.;
less regulation of foreign issuers, stock exchanges and brokers than in
the U.S.; greater difficulties in commencing lawsuits; higher brokerage
commission rates than in the U.S.; increased risks of delays in settlement
of portfolio transactions or loss of certificates for portfolio
securities; possibilities in some countries of expropriation, confiscatory
taxation, political, financial or social instability or adverse diplomatic
developments; and unfavorable differences between the U.S. economy and
foreign economies. In the past, U.S. Government policies have
discouraged certain investments abroad by U.S. investors, through
taxation or other restrictions, and it is possible that such restrictions
could be re-imposed.
- - Money Market Securities. The money market securities in which the Fund
may invest include:
(a) Bank Obligations and Instruments Secured Thereby. 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) U.S. dollar-denominated 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 bank 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. 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, such deposits which are subject
to withdrawal penalties, other than those maturing in seven days or less,
are subject to the limitation on the Fund's investment in illiquid
investments set forth in the Prospectus under "Illiquid and Restricted
Securities."
Bankers Acceptances. 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.
(b) Commercial Paper. The Fund's commercial paper investments include:
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 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 purchase 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 the Fund's investment 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.
Other Investment Techniques and Strategies.
- Borrowing for Leverage. From time to time, the Fund may increase
its ownership of securities by borrowing from banks on a unsecured basis
and investing the borrowed funds, subject to the restrictions stated in
the Prospectus. Any such borrowing will be made only from banks and,
pursuant to the requirements of the Investment Company Act of 1940 (the
"Investment Company Act"), will be made only to the extent that the value
of the Fund's assets, less its liabilities other than borrowings, is equal
to at least 300% of all borrowings including the proposed borrowing and
amounts covering the Fund's obligations under "forward roll" transactions.
If the value of the Fund's assets, when computed in that manner, should
fail to meet the 300% asset coverage requirement, the Fund is required
within three days to reduce its bank debt to the extent necessary to meet
such requirement. To do so, the Fund may have to sell a portion of its
investments at a time when independent investment judgment would not
dictate such sale. Interest on money borrowed is an expense the Fund
would not otherwise incur, so that during a period of substantial
borrowing, its expenses may increase more than funds that do not borrow.
- Repurchase Agreements. The Fund may acquire securities subject to
repurchase agreements for liquidity purposes to meet anticipated
redemptions, or pending the investment of the proceeds from sales of Fund
shares, or pending the settlement of purchases of portfolio securities.
In a repurchase transaction, the Fund acquires a security from, and
simultaneously resells it to, an approved vendor. An "approved vendor"
is a U.S. commercial bank or the U.S. branch of a foreign bank or a
broker-dealer that has been designated a primary dealer in government
securities, that must meet credit requirements set by the Fund's Board of
Trustees from time to time. The resale price exceeds the purchase price
by an amount that reflects an agreed-upon interest rate effective for the
period during which the repurchase agreement is in effect. The majority
of these transactions run from day to day, and delivery pursuant to the
resale typically will occur within one to five days of the purchase.
Repurchase agreements are considered "loans" under the Investment Company
Act, collateralized by the underlying security. The Fund's repurchase
agreements require that at all times while the repurchase agreement is in
effect, the value of the collateral must equal or exceed the repurchase
price to fully collateralize the repayment obligation. Additionally, the
Manager will impose creditworthiness requirements to confirm that the
vendor is financially sound and will continuously monitor the collateral's
value.
- 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 market value of
the loaned securities and must consist of cash, bank letters of credit,
U.S. Government securities, or other cash equivalents in which the Fund
is permitted to invest. To be acceptable as collateral, letters of credit
must obligate a bank to pay amounts demanded by the Fund if the demand
meets the terms of the letter. Such terms and the issuing bank must be
satisfactory to the Fund. When it lends securities, the Fund receives
amounts equal to the interest paid or the dividends declared on the loaned
securities and also receives one or more of (a) negotiated loan fees, (b)
interest on securities used as collateral, and (c) interest on short-term
debt securities purchased with such loan collateral. Either type of
interest may be shared with the borrower. The Fund may also pay
reasonable finder's, custodian, and administrative fees. The terms of the
Fund's loans must meet applicable tests un the Internal Revenue Code and
must permit the Fund to reacquire loaned securities on five days' notice
or on time to vote on any important matter.
- Restricted and Illiquid Securities. To enable the Fund to sell
restricted securities not registered under the Securities Act of 1933, the
Fund may have to cause those securities to be registered. The expenses
of registration of restricted securities may be negotiated by the Fund
with the issuer at the time such securities are purchased by the Fund,
if such registration is required before such securities may be sold
publicly. When registration must be arranged because the Fund wishes to
sell the security, a considerable period may elapse between the time the
decision is made to sell the securities and the time the Fund would be
permitted to sell them. The Fund would bear the risks of any downward
price fluctuation during that period. The Fund may also acquire, through
private placements, securities having contractual restrictions on their
resale, which might limit the Fund's ability to dispose of such securities
and might lower the amount realizable upon the sale of such securities.
The Fund has percentage limitations that apply to purchases of
restricted securities, as stated in the Prospectus. Those percentage
restrictions do not limit purchases of restricted securities that are
eligible for sale to qualified institutional purchasers pursuant to Rule
144A under the Securities Act of 1933, provided that those securities have
been determined to be liquid by the Board of Trustees of the Fund or by
the Manager under Board-approved guidelines. Those guidelines take into
account the trading activity for such securities and the availability of
reliable pricing information, among other factors. If there is a lack of
trading interest in a particular Rule 144A security, the Fund's holding
of that security may be deemed to be illiquid.
- 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.
- Hedging. The Fund may use hedging instruments for the purposes
described in the Prospectus. When hedging to attempt to protect against
declines in the market value of the Fund's portfolio, or 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) buy puts on such Futures,
securities, or securities indices or (iii) write covered calls on
securities held by it or on Futures. When hedging to protect against
declines in the dollar value of a foreign currency - dominated security,
the Fund may: (i) buy puts on that foreign currency, (ii) write calls on
that currency or (iii) enter into Forward Contract at a higher or lower
rate that the spot ("cash") rate.
The Fund's strategy of hedging with Futures and options on Futures
will be incidental to the Fund's investment activities in the underlying
cash market. 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, and are legally permissible and disclosed in the
Prospectus. Additional information about the hedging instruments the Fund
may use is provided below.
- Writing and Purchasing Calls and Puts. As described in the
Prospectus, the Fund may write covered calls. When the Fund writes a call
on an investment, it receives a premium and agrees to sell the callable
investment to a purchaser of a corresponding call during the call period
(usually not more than 9 months) at a fixed exercise price (which may
differ from the market price of the underlying investment) regardless of
market price changes during the call period. To terminate its obligation
on a call it has written, the Fund may purchase a corresponding call in
a "closing purchase transaction." A profit or loss will be realized,
depending upon whether the net of the amount of option transaction costs
and the premium received on the call the Fund has written is more or less
than the price of the call the Fund subsequently purchased. A profit may
also be realized if the call lapses unexercised, because the Fund retains
the underlying investment and the premium received. Those profits are
considered short-term capital gains for Federal income tax purposes, as
are premiums on lapsed calls, and when distributed by the Fund are taxable
as ordinary income. Call writing affects the Fund's turnover rate and the
brokerage commissions it pays. Commissions, normally higher than on
general securities transactions, are payable on writing or purchasing a
call.
The Fund may also write calls on Futures without owning a futures
contract or deliverable securities, provided that at the time the call is
written, the Fund covers the call by segregating in escrow an equivalent
dollar value of deliverable securities or 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 requires 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.
The Fund may purchase calls to protect against the possibility that
the Fund's portfolio will not participate in an anticipated rise in the
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
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 call on an index, it pays a premium, but settlement is
in cash rather than by delivery of the underlying investment to the Fund.
When the Fund purchases a put, it pays a premium and, except as to
puts on stock indices, 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).
Buying a put on an investment it does not own, either a put on an
index or a put on a Future not held by the Fund, permits the Fund either
to resell the put or 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. When the
Fund purchases a put on an index, or on a Future not held by it, the put
protects the Fund to the extent that the index moves in a similar pattern
to the securities held. In the case of a put on an index or Future,
settlement is in cash rather than by delivery by the Fund of the
underlying investment.
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.
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 expires unexercised, the Fund (as
the writer of the put) realizes a gain in the amount of the premium less
transaction costs. 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 sale
price 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 or on foreign currencies, to
secure its obligation to pay for the underlying security, the Fund will
deposit in escrow liquid assets with a value equal to or greater than the
exercise price of the underlying securities. The Fund therefore forgoes
the opportunity of investing the segregated assets or writing calls
against those assets. As long as the 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 stated 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.
- Financial Futures and Interest Rate Futures. The Fund may buy and
sell futures contracts relating to a securities index ("Financial
Futures"). Financial futures are contracts based on the future value of
the basket of securities that comprise the underlying index. The
contracts obligate the seller to deliver, and the purchaser to take, cash
to settle the futures transaction or to enter into an offsetting contract.
No physical delivery of the securities underlying the index is made on
settling the futures obligation. No monetary amount is paid or received
by the Fund on the purchase or sale of a Financial Future.
The Fund may also buy Futures relating to debt securities ("Interest
Rate Futures"). An Interest Rate Future obligates the seller to deliver
and the purchaser to take a specific type of debt security at a specific
future date for a fixed price to settle the futures transaction, or to
enter into an offsetting contract. As with Financial Futures, no monetary
amount is paid or received by the Fund on the purchase of an Interest Rate
Future.
Upon entering into a Futures transaction, the Fund will be required
to deposit an initial margin payment, in cash or U.S. Treasury bills, with
the futures commission merchant (the "futures broker"). Initial margin
payments 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 certain specified conditions. As
the Future is marked to market (that is, its value on the Fund's books is
changed) to reflect changes in its market value, subsequent margin
payments, called variation margin, will be paid to or by the futures
broker on a daily basis.
At any time prior to the expiration of the Future, the Fund may elect
to close out its position by taking an opposite position, at which time
a final determination of variation margin is made and additional cash is
required to be paid by or released to the Fund. Any gain or loss is then
realized by the Fund on the Future for tax purposes. Although Financial
Futures by their terms call for settlement by the delivery of cash, and
Interest Rate Futures call for the delivery of a specific debt security,
in most cases the settlement obligation is fulfilled without such delivery
by entering into an offsetting transaction. All Futures transactions are
effected through a clearing house associated with the exchange on which
the contracts are traded.
- Options on Foreign Currency. 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 over-the-counter markets or are quoted by major
recognized dealers in such options. It does so to protect against
declines in the dollar value of foreign securities and against increases
in the dollar cost of foreign securities to be acquired. If the Manager
anticipates a rise in the dollar value of a foreign currency in which
securities to be acquired are denominated, the increased cost of 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.
- 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. To attempt to limit its exposure to loss
under Forward Contracts in a particular foreign currency, the Fund limits
its use of these contracts to the amount of its assets denominated in that
currency or denominated in a closely-correlated 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 having a value equal to the aggregate amount of the Fund's
commitments under forward contracts to cover its short positions. The Fund
will not enter into such Forward Contracts or maintain a net exposure to
such contracts where the consummation of the contracts would obligate the
Fund to deliver an amount of foreign currency in excess of the value of
the Fund's portfolio securities or other assets denominated in that
currency. The Fund, however, in order to avoid excess transactions and
transaction costs, may maintain a net exposure to Forward Contracts in
excess of the value of the Fund's portfolio securities or other assets
denominated in that currency provided the excess amount is "covered" by
liquid, high-grade debt securities, denominated in any currency, at least
equal at all times to the amount of such excess. 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 the master agreement shall be regarded
as parts of an integral agreement. If on any date amounts are payable in
the same currency in respect of one or more swap transactions, the net
amount payable on that date in that currency shall be paid. In addition,
the master netting agreement may provide that if one party defaults
generally or on one swap, the counterparty may terminate the swaps with
that party. Under such agreements, if there is a default resulting in a
loss to one part, the measure of that part'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." The Fund will not invest more
than 25% of its assets in interest rate swap transactions.
An option position may be closed out only on a market that provides
secondary trading for option of the same series, and there is no assurance
that a liquid secondary market will exist for a particular option. If the
Fund could not effect a closing purchase transaction due to the lack of
a market, it would have to hold the callable investment until the call
lapsed or was exercised.
- 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 that are traded on exchanges, or as to other acceptable
escrow securities, so that no margin will be required from the Fund for
such option transactions. OCC will release the securities covering a call
on the expiration of the call or when the Fund enters into a closing
purchase transaction. An option position may be closed out only on a
market that provides secondary trading for option of the same series, and
there is no assurance that a liquid secondary market will exist for a
particular option. If the Fund could not effect a closing purchase
transaction due to the lack of a market, it would have to hold the
callable investment until the call lapsed or was exercised.
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 Fund will also treat as illiquid any
OTC option held by it. The 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 thereon as established by the Commodities Futures
Trading Commission ("CFTC"). In particular, the Fund is excluded from
registration as a "commodity pool operator" if it 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 option 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 option exchanges governing the maximum number of options
that 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 different exchanges or through one or more
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 adviser as the Fund (or an adviser
that is an affiliate of the Fund's adviser). The exchanges also impose
position limits on Futures transactions. An exchange may order the
liquidation of positions found to be in violation of those limits and may
impose certain other sanctions.
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, 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 Futures, held for less than three months, whether
or not they were purchased on the exercise of a call held by the Fund;
(ii) purchasing calls or puts which expire in less than three months;
(iii) effecting closing transactions with respect to calls or puts 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 marked-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(s) making up a straddle is allowed only to the extent such loss
exceeds any unrecognized gain in the offsetting positions making up the
straddle. Disallowed loss is generally allowed at the point where there
is no unrecognized gain in the offsetting positions making up the
straddle, or the offsetting position is disposed of.
Under the Internal Revenue Code, gains or losses attributable to
fluctuations in exchange rates which occur between the time the Fund
accrues interest or other receivables or accrues expenses or other
liabilities denominated in a foreign currency and the time the Fund
actually collects such receivables or pays such liabilities generally are
treated as ordinary income or ordinary loss. Similarly, on disposition
of debt securities denominated in a foreign currency and on disposition
of foreign currency forward contracts, gains or losses attributable to
fluctuations in the value of a foreign currency between the date of
acquisition of the security or contract and the date of disposition also
are treated as an ordinary gain or loss. Currency gains and losses are
offset against market gains and losses before determining a net "section
988" gain or loss under the Internal Revenue Code, which may increase or
decrease the amount of the Fund's investment company income available for
distribution to its shareholders.
- Risks of Hedging With Options and Futures. An option position may
be closed out only on a market that provides secondary trading for options
of the same series, and there is no assurance that a liquid secondary
market will exist for any particular option. In addition to the risks
associated with hedging that are discussed in the Prospectus and above,
there is a risk in using short hedging by selling Futures to attempt to
protect against declines in the value of the Fund's portfolio securities
(due to an increase in interest rates). The risk is 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 depends
on participants entering into offsetting transactions rather than making
or taking delivery. To the extent participants decide to make or take
delivery, liquidity in the futures markets could be reduced, thus
producing distortion. Third, from the point of view of speculators, the
deposit requirements in the futures markets are less onerous than margin
requirements in the securities markets. Therefore, increased
participation by speculators in the futures markets may cause temporary
price distortions.
The risk of imperfect correlation increases as the composition of the
Fund's portfolio diverges from the securities included in the applicable
index. To compensate for the imperfect correlation of movements in the
price of the portfolio securities being hedged and movements in the price
of the hedging instruments, the Fund may use hedging instruments in a
greater dollar amount than the dollar amount of portfolio securities being
hedged if the historical volatility of the prices of the portfolio
securities being hedged is more than the historical volatility of the
applicable index. It is also possible that if the Fund has used hedging
instruments in a short hedge, the market may advance and the value of
equity securities held in the Fund's portfolio may decline. If that
occurred, the Fund would lose money on the hedging instruments and also
experience a decline in value in its portfolio securities. However, while
this could occur for a very brief period or to a very small degree, over
time the value of a diversified portfolio of equity securities will tend
to move in the same direction as the indices upon which the hedging
instruments are based.
If the Fund uses hedging instruments to establish a position in the
equities markets as a temporary substitute for the purchase of individual
equity securities (long hedging) by buying Futures and/or calls on such
Futures or on debt securities, it is possible that the market may decline.
If the Fund then concludes not to invest in such securities at that time
because of concerns as to a possible further market decline or for other
reasons, the Fund will realize a loss on the hedging instruments that is
not offset by a reduction in the price of the debt securities purchased.
Other Investment Restrictions
The Fund's 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 shares. 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 shareholders 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 Fund cannot: (1) buy or sell
real estate, or commodities or commodity contracts including futures
contracts; however, the Fund may invest in debt securities secured by real
estate or interests therein or issued by companies, including real estate
investment trusts, which invest in real estate or interests therein, and
the Fund may buy and sell any of the Hedging Instruments which it may use
as approved by the Board, whether or not such Hedging Instrument is
considered to be a commodity or commodity contract; (2) buy securities on
margin, except that the Fund may make margin deposits in connection with
any of the Hedging Instruments which it may use; (3) underwrite securities
issued by other persons except to the extent that, in connection with the
disposition of its portfolio investments, it may be deemed to be an
underwriter for purposes of the Securities Act of 1933; (4) buy and retain
securities of any issuer if those officers, Trustees or Directors of the
Fund or the Manager who beneficially own more than .5% of the securities
of such issuer together own more than 5% of the securities of such issuer;
(5) invest in oil, gas, or other mineral exploration or development
programs; or (6) buy the securities of any company for the purpose of
exercising management control, except in connection with a merger,
consolidation, reorganization or acquisition of assets.
In connection with the qualification of its shares in certain states,
the Fund has undertaken that in addition to the above, it will not: (1)
invest in real estate limited partnerships or (2) invest more than 10% of
its total assets in other investment companies as defined in the
Investment Company Act, except in connection with a merger, consolidation,
reorganization or acquisition of assets. In the event that the Fund's
shares cease to be qualified under such laws or if such undertaking(s)
otherwise cease to be operative, the Fund would not be subject to such
restrictions.
For purposes of the Fund's policy not to concentrate described under
investment restriction number 2 of the Prospectus, the Fund has adopted
the industry classifications set forth in Appendix A to this Statement of
Additional Information.
How the Fund Is Managed
Organization and History. As a Massachusetts business trust, the Fund is
not required to hold, and does not plan to hold, regular annual meetings
of shareholders. The Fund will hold meetings when required to do so by the
Investment Company Act or other applicable law, or when a shareholder
meeting is called by the Trustees or upon proper request of the
shareholders. Shareholders have the right, upon the declaration in
writing or vote of two-thirds of the outstanding shares of the Fund, to
remove a Trustee. The Trustees will call a meeting of shareholders to
vote on the removal of a Trustee upon the written request of the record
holders of 10% of its outstanding shares. In addition, if the Trustees
receive a request from at least 10 shareholders (who have been
shareholders for at least six months) holding shares of the Fund valued
at $25,000 or more or holding at least 1% of the Fund's outstanding
shares, whichever is less, stating that they wish to communicate with
other shareholders to request a meeting to remove a Trustee, the Trustees
will then either make the Fund's shareholder list available to the
applicants or mail their communication to all other shareholders at the
applicants' expense, or the Trustees may take such other action as set
forth under Section 16(c) of the Investment Company Act.
The Fund's Declaration of Trust contains an express disclaimer of
shareholder or Trustee liability for the Fund's obligations, and provides
for indemnification and reimbursement of expenses out of its property for
any shareholder held personally liable for its obligations. The
Declaration of Trust also provides that the Fund shall, upon request,
assume the defense of any claim made against any shareholder for any act
or obligation of the Fund and satisfy any judgment thereon. Thus, while
Massachusetts law permits a shareholder of a business trust (such as the
Fund) to be held personally liable as a "partner" under certain
circumstances, the risk of a Fund shareholder incurring financial loss on
account of shareholder liability is limited to the relatively remote
circumstances in which the Fund would be unable to meet its obligations
described above. Any person doing business with the Trust, and any
shareholder of the Trust, agrees under the Trust's Declaration of Trust
to look solely to the assets of the Trust for satisfaction of any claim
or demand which may arise out of any dealings with the Trust, and the
Trustees shall have no personal liability to any such person, to the
extent permitted by law.
Trustees And Officers of the Fund. The Fund's Trustees and officers and
their principal occupations and business affiliations during the past five
years are listed below. All of the Trustees are also trustees, directors
or managing general partners of Oppenheimer Total Return Fund, Inc.,
Oppenheimer Equity Income Fund, Oppenheimer High Yield Fund, Oppenheimer
Integrity Funds, Oppenheimer Cash Reserves, Oppenheimer Tax-Exempt Bond
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 Short-Term Income
Fund and Oppenheimer Variable Account Funds; as well as the following
"Centennial 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, (all of the foregoing funds
are collectively referred to as the "Denver-based OppenheimerFunds"). Mr.
Fossel is President and Mr. Swain is Chairman of the Denver-based
OppenheimerFunds. As of January 18, 1995, the Trustees and officers of
the Fund as a group owned of record or beneficially less than 1% of each
class of 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 plan two of the officers listed above, Messrs. Fossel and Donohue,
are trustees) other than the shares beneficially owned under that plan by
the officers of the Fund.
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.
__________________
*A Trustee who is an "interested person" of the Fund as defined in the
Investment Company Act.
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 52.*
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; 79.
3416 S. Race Street, Englewood, Colorado 80110
Chartered Property and Casualty Underwriter; Director of Visiting Nurse
Corporation; 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 and a Director 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; Partner in, Kraft &
McManimon (a law firm); an officer of First Investors Corporation (a
broker-dealer) and First Investors Management Company, Inc. (broker-dealer
and investment adviser) and a director and an officer of the First
Investors Family of Funds and First Investors Life Insurance Company.
__________________
*A Trustee who is an "interested person" of the Fund as defined in the
Investment Company Act.
George C. Bowen, Vice President, Secretary and Treasurer; Age 57.
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.
Arthur P. Steinmetz, Vice President and Portfolio Manager; Age 36.
Two World Trade Center, New York, New York 10048
Senior Vice President of the Manager; an officer of other
OppenheimerFunds.
David P. Negri, Vice President and Portfolio Manager; Age 40.
Two World Trade Center, New York, New York 10048
Vice President of the Manager; an officer of other OppenheimerFunds.
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 35.
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 of the Manager,
prior to which he was an
Accountant for Resolution Trust Corporation 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 all 22 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 From All
Name Position Denver-based OppenheimerFunds1
<S> <C> <C>
Robert G. Avis Trustee $53,000.00
William A. Baker Study and Audit Committee $73,257.01
Chairman and Trustee
Charles Conrad, Jr. Study and Audit Committee $68,293.67
Member and Trustee
Raymond J. Kalinowski Trustee $53,000.00
C. Howard Kast Trustee $53,000.00
Robert M. Kirchner Study and Audit Committee $68,293.67
Member and Trustee
Ned M. Steel Trustee $53,000.00
<FN>
______________________
1 For the 1994 calendar year.
</TABLE>
- Major Shareholders. As of January 18, 1995, no person owned of
record or was known by the Fund to own beneficially 5% or more of the
shares of the Fund as a whole or either class of the Fund's outstanding
shares.
The Manager and Its Affiliates. The Manager is wholly-owned by
Oppenheimer Acquisition Corp. ("OAC"), a holding company controlled by
Massachusetts Mutual Life Insurance Company. OAC is also owned in part
by certain of the Manager's directors and officers, some of whom also
serve as officers of the Fund, and two of whom (Mr. Fossel and Mr. Swain)
serve as Trustees of the Fund.
- The Investment Advisory Agreement. The investment advisory
agreement between the Manager and the Fund requires the Manager, at its
expense, to provide the Fund with adequate office space, facilities and
equipment, and to provide and supervise the activities of all
administrative and clerical personnel required to provide effective
corporate administration for the Fund, including the compilation and
maintenance of records with respect to its operations, the preparation and
filing of specified reports, and composition of proxy materials and
registration statements for continuous public sale of shares of the Fund.
Expenses not expressly assumed by the Manager under the advisory
agreement or by the Distributor under the General Distributor's Agreement
are paid by the Fund. The advisory agreement lists examples of expenses
paid by the Fund, the major categories of which relate to interest, taxes,
brokerage commissions, fees to certain Trustees, legal and audit expenses,
custodian and transfer agent expenses, share issuance costs, certain
printing and registration costs and non-recurring expenses, including
litigation costs. For the fiscal period from April 22, 1992 (commencement
of operations) to September 30, 1992 and for the fiscal year ended
September 30, 1993, and September 30, 1994, management fees payable by the
Fund to the Manager would have been $15,887, $227,907, and $319,025,
respectively, absent the Manager's assumption of Fund expenses, as
discussed below, in the amount of $36,153, $106,134, and $19,540,
respectively, which reduced the management fee and the Fund's "Other
Expenses" identified above by the amount of the expense assumption.
The advisory agreement contains no expense limitation. However,
independently of the agreement, the Manager has undertaken that the total
expenses of the Fund in any fiscal year (including the management fee but
excluding taxes, interest, brokerage commissions, distribution plan
payments and any extraordinary non-recurring expenses, including
litigation) 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 state regulatory limitation on fund expenses applicable
to the Fund unless a waiver is obtained. At present, that limitation is
imposed by California and limits expenses (with specified exclusions) to
2.5% of the first $30 million of average annual net assets, 2% of the next
$70 million of average net assets and 1.5% of average net assets in excess
of $100 million. The payment of the management fee at the end of any
month will be reduced so that there will not be any accrued but unpaid
liability under such assumption limitation. The Manager reserves the
right to terminate or amend such expense assumption undertaking at any
time. Any assumption of the Fund's expenses under this undertaking would
lower the Fund's overall expense ratio and increase its total return
during any period in which expenses are limited. Until November 24, 1993,
the Manager had also undertaken to assume the Fund's expenses (other than
extraordinary non-recurring expenses) to enable the Fund to pay a dividend
of $.3738 per share per annum, with the limitation that the dividend could
not exceed the Fund's annual gross earnings per share. That undertaking
terminated November 24, 1993. Pursuant to this undertaking the Manager
reimbursed the Fund $19,540 during such period. As a result of that
expense assumption, the Fund's yield and total return were higher during
that period than they otherwise would have been.
The advisory agreement provides that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations and duties under the Agreement, the Manager is not liable for
any loss sustained by reason of good faith errors or omissions in
connection with any matters to which the Agreement relates. The Agreement
permits the Manager to act as investment adviser for any other person,
firm or corporation and to use the name "Oppenheimer" in connection with
other investment companies for which it may act as investment adviser or
general distributor. If the Manager or one of its affiliates shall no
longer act as investment adviser to the Fund, the right of the Fund to use
the name "Oppenheimer" as part of its name may be withdrawn.
- The Distributor. Under its General Distributor's Agreement with the
Fund, the Distributor acts as the Fund's principal underwriter in the
continuous public offering of the Fund's Class A and Class B shares but
is not obligated to sell a specific number of shares. Expenses normally
attributable to sales (excluding payments under the Distribution and
Service Plans but including advertising and the cost of printing and
mailing prospectuses, other than those furnished to existing
shareholders), are borne by the Distributor. During the period from April
22, 1992 (commencement of operations) through September 30, 1992 and for
the fiscal years ended September 30, 1993 and 1994, the aggregate sales
charges on sales of the Fund's Class A shares were $435,397, $811,099 and
$212,013 respectively, of which the Distributor and an affiliated broker-
dealer retained in the aggregate $76,427, $236,748, and $77,763 in those
respective years. During the Fund's fiscal year ended September 30, 1994,
the contingent deferred sales charges collected on the Fund's Class B
shares totalled $40,567, all of which the Distributor retained. For
additional information about distribution of the Fund's shares and the
expenses connected with such activities, please refer to "Distribution and
Service Plans," below.
- The Transfer Agent. Oppenheimer Shareholder Services, the Fund's
Transfer Agent, is responsible for maintaining the Fund's shareholder
registry and shareholder accounting records, and for shareholder servicing
and administrative functions.
Brokerage Policies of the Fund
Brokerage Provisions of the Investment Advisory Agreement. One of the
duties of the Manager under the advisory agreement is to arrange the
portfolio transactions for the Fund. The advisory agreement contains
provisions relating to the employment of broker-dealers ("brokers") to
effect the Fund's portfolio transactions. In doing so, the Manager is
authorized by the advisory agreement to employ broker-dealers, including
"affiliated" brokers, as that term is defined in the Investment Company
Act, as may, in its best judgment based on all relevant factors, implement
the policy of the Fund to obtain, at reasonable expense, the "best
execution" (prompt and reliable execution at the most favorable price
obtainable) of such transactions. The Manager need not seek competitive
commission bidding or base its selection on "posted" ratios, but is
expected to minimize the commissions paid to the extent consistent with
the interest and policies of the Fund as established by its Board of
Trustees. 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.
Most purchases of money market instruments and debt obligations are
principal transactions at net prices, and the Fund incurs little or no
brokerage costs. For those transactions, instead of using a broker the
Fund normally deals directly with the selling or purchasing principal or
market maker unless it is determined that a better price or execution can
be obtained using a broker. Purchases of these securities from
underwriters include a commission or concession paid by the issuer to the
underwriter, and purchases from dealers include a spread between the bid
and asked price. The Fund seeks to obtain prompt execution of such orders
at the most favorable net price.
Under the advisory agreement, the Manager is authorized to select
brokers that provide brokerage and/or research services for the Fund
and/or the other accounts over which the Manager or its affiliates have
investment discretion. The commissions paid to such brokers may be higher
than another qualified broker would have charged if a good faith
determination is made by the Manager that the commission is fair and
reasonable in relation to the services provided. Subject to the foregoing
considerations, the Manager may also consider sales of shares of the Fund
and other investment companies managed by the Manager or its affiliates
as a factor in the selection of brokers for the Fund's portfolio
transactions.
Description of Brokerage Practices Followed by the Manager. Subject to
the provisions of the advisory agreement, and the procedures and rules
described above, allocations of brokerage are generally made by the
Manager's portfolio traders based 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.
Regardless, brokerage is allocated under the supervision of the Manager's
executive officers. As most purchases made by the Fund are principal
transactions at net prices, the Fund incurs little or no brokerage costs.
Transactions in securities other than those for which an exchange is the
primary market are generally done with principals or market makers. When
the Fund engages in an option transaction, ordinarily the same broker will
be used for the purchase or sale of the option and any transaction in the
securities to which the option relates. When possible, concurrent orders
to purchase or sell the same security by more than one of the accounts
managed by the Manager or its affiliates are combined. The transactions
effected pursuant to such combined orders are averaged as to price and
allocated in accordance with the purchase or sale orders actually placed
for each account.
The research services provided by a particular broker may be useful
only to one or more of the advisory accounts of the Manager and its
affiliates, and investment research received for the commissions of those
other accounts may be useful both to the Fund and one or more of such
other accounts. Such research, which may be supplied by a third party at
the instance of a broker, includes information and analyses on particular
companies and industries as well as market or economic trends and
portfolio strategy, receipt of market quotations for portfolio
evaluations, information systems, computer hardware and similar products
and services. If a research service also assists the Manager in a non-
research capacity (such as bookkeeping or other administrative functions),
then only the percentage or component that provides assistance to the
Manager in the investment decision-making process may be paid in
commission dollars. The Board has permitted the Manager to use
concessions on fixed price offerings to obtain research, in the same
manner as permitted for agency transactions.
The research services provided by brokers broaden 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," "cumulative total return" and "total return at net asset
value" of an investment in a class of shares of the Fund may be
advertised. An explanation of how these total returns are calculated for
each class and the components of those calculations is set forth below.
The Fund's advertisements of its performance data must, under
applicable rules of the Securities and Exchange Commission, include the
average annual total returns for each class of shares of the Fund for the
1, 5, and 10-year periods (or the life of the class, if less) ending as
of the most recently-ended calendar quarter prior to the publication of
the advertisement. This enables an investor to compare the Fund's
performance to the performance of other funds for the same periods.
However, a number of factors should be considered before using such
information as a basis for comparison with other investments. An
investment in the Fund is not insured; its returns and share prices are
not guaranteed and normally will fluctuate on a daily basis. When
redeemed, an investor's shares may be worth more or less than their
original cost. Returns for any given past period are not a prediction or
representation by the Fund of future returns. The returns of Class A and
Class B shares of the Fund are affected by portfolio quality, the type of
investments the Fund holds and its operating expenses allocated to the
particular class.
- Standardized Yields
- Yield. The Fund's "yield" (referred to as "standardized yield") for
a given 30-day period for a class of shares is calculated using the
following formula set forth in rules adopted by the Securities and
Exchange Commission that apply to all funds that quote yields:
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 September 30, 1994, the standardized yields for
the Fund's Class A and Class B shares were 6.64% and 6.35%, respectively.
- Dividend Yield and Distribution Return. From time to time the Fund
may quote a "dividend yield" or a "distribution return" for each class.
Dividend yield is based on the Class A or Class B share dividends derived
from net investment income during a stated period. Distribution return
includes dividends derived from net investment income and from realized
capital gains declared during a stated period. Under those calculations,
the dividends and/or distributions for that class declared during a stated
period of one year or less (for example, 30 days) are added together, and
the sum is divided by the maximum offering price per share of that class
on the last day of the period. When the result is annualized for a period
of less than one year, the "dividend yield" is calculated as follows:
Dividend Yield of the Class =
Dividends of the Class
- ----------------------------------------------------
Max Offering Price of the Class (last day of period)
Divided by number of days (accrual period) x 365
The maximum offering price for Class A shares includes the maximum
front-end sales charge. For Class B shares, the maximum offering price
is the net asset value per share, without considering the effect of
contingent deferred sales charges.
From time to time similar yield or distribution return calculations
may also be made using the Class A net asset value (instead of its
respective maximum offering price) at the end of the period. The dividend
yields on Class A shares for the 30-day period ended September 30, 1994,
were 6.50% and 6.82% 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 September 30, 1994, was 6.20% when calculated at net
asset value.
- - Total Return Information
- Average Annual Total Returns. The "average annual total return"
of each class is an average annual compounded rate of return for each year
in a specified number of years. It is the rate of return based on the
change in value of a hypothetical initial investment of $1,000 ("P" in the
formula below) held for a number of years ("n") to achieve an Ending
Redeemable Value ("ERV") of that investment, according to the following
formula:
( ERV ) 1/n
(-----) -1 = Average Annual Total Return
( P )
- Cumulative Total Returns. The cumulative "total return"
calculation measures the change in value of a hypothetical investment of
$1,000 over an entire period of years. Its calculation uses some of the
same factors as average annual total return, but it does not average the
rate of return on an annual basis. Cumulative total return is determined
as follows:
ERV - P
- ------- = Total Return
P
In calculating total returns for Class A shares, the current maximum
sales charge of 4.75% (as a percentage of the offering price) is deducted
from the initial investment ("P") (unless the return is shown at net asset
value, as described below). For Class B shares, the payment of the
applicable contingent deferred sales charge (5.0% for the first year, 4.0%
for the second year, 3.0% for the third and fourth years, 2.0% in the
fifth year, 1.0% in the sixth year and none thereafter) is applied to the
investment result for the time period shown (unless the total return is
shown at net asset value, as described below). Total returns also assume
that all dividends and capital gains distributions during the period are
reinvested to buy additional shares at net asset value per share, and that
the investment is redeemed at the end of the period. The "average annual
total returns" on an investment in Class A shares of the Fund for the one
year period ended September 30, 1994 and for the period from April 22,
1992 (commencement of operations) through September 30, 1994 were (6.43)%,
and 2.83%, respectively. The "average annual total return" on an
investment in Class B shares of the Fund for the fiscal year ended
September 30, 1994 and the period from November 30, 1992 (inception of the
class) through September 30, 1994 was (7.03)% and 1.77% respectively. The
cumulative "total return" on Class A shares for the period from April 22,
1992 (commencement of operations) through September 30, 1994 was 7.06%.
The cumulative total return on Class B shares for the period from November
30, 1992 through September 30, 1994 was 3.26%.
- Total Returns at Net Asset Value. From time to time the Fund may
also quote an average annual total return at net asset value or a
cumulative total return at net asset value for Class A or Class B shares.
Each is based on the difference in net asset value per share at the
beginning and the end of the period for a hypothetical investment in that
class of shares (without considering front-end or contingent deferred
sales charges) and takes into consideration the reinvestment of dividends
and capital gains distributions. The cumulative total return at net asset
value of the Fund's Class A shares for the fiscal year ended September 30,
1994 and for the period from April 22, 1992 to September 30, 1994 were
(1.76)% and 12.40% respectively. The cumulative total returns at net
asset value for Class B shares for the fiscal year ended September 30,
1994 and for the period from November 30, 1992 through September 30, 1994
were (2.45)% and 7.07%, respectively.
Other Performance Comparisons. From time to time the Fund may publish the
ranking of its Class A or Class B shares by Lipper Analytical Services,
Inc. ("Lipper"), a widely-recognized independent service. Lipper monitors
the performance of regulated investment companies, including the Fund, and
ranks their performance for various periods based on categories relating
to investment objectives. The performance of the Fund is ranked against
(i) all other funds (excluding money market funds) and (ii) all other-
fixed income funds. The Lipper performance rankings are based on total
returns that include the reinvestment of capital gain distributions and
income dividends but do not take sales charges or taxes into
consideration.
From time to time the Fund may publish the ranking of the performance
of its Class A or Class B shares by Morningstar, Inc., an independent
mutual fund monitoring service that ranks mutual funds, including the
Fund, monthly in broad investment categories (equity, taxable bond,
municipal bond and hybrid) based on risk-adjusted investment return.
Investment return measures a fund's three, five and ten-year average
annual total returns (when available) in excess of 90-day U.S. Treasury
bill returns after considering sales charges and expenses. Risk reflects
fund performance below 90-day U.S. Treasury bill monthly returns. Risk
and return are combined to produce star rankings reflecting performance
relative to the average fund in a fund's category. Five stars is the
"highest" ranking (top 10%), four stars is "above average" (next 22.5%),
three stars is "average" (next 35%), two stars is "below average" (next
22.5%) and one star is "lowest" (bottom 10%). Morningstar ranks the Class
A and Class B shares of the Fund in relation to other fixed-income bond
funds. Rankings are subject to change.
The total return on an investment in the Fund's Class A or Class B
shares may be compared with performance for the same period of the Lehman
Brothers Aggregate Bond Index, as described in the Prospectus. The Index
includes a factor for the reinvestment of interest but does not reflect
expenses or taxes on the reinvestment of capital gains.
Yield and total return information may be useful to investors in
reviewing the Fund's performance. 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 yield
and total return are not guaranteed and normally will fluctuate on a daily
basis. Yield and total return for any given past period are not an
indication or representation by the Fund of future yields or rates of
return on its shares. The yield and total return of Class A and Class B
shares of the Fund are affected by portfolio quality, portfolio maturity,
type of investments held and operating expenses. When comparing yield,
total return and investment risk of Class A or Class B shares of the Fund
with those of other investment instruments, investors should understand
that certain other investment alternatives such as money market
instruments, certificates of deposit ("CD's"), U.S. Government securities
or bank accounts provide yields that are fixed or that may vary above a
stated minimum, and may be insured or guaranteed.
Distribution and Service Plans
The Fund has adopted a Service Plan for Class A shares and a
Distribution and Service Plan for Class B shares under Rule 12b-1 of the
Investment Company Act pursuant to which the Fund will reimburse the
Distributor quarterly for all or a portion of its costs incurred in
connection with the distribution and/or servicing of the shares of that
class, as described in the Prospectus. Each Plan has been approved by a
vote of (i) the Board of Trustees of the Fund, including a majority of the
Independent Trustees, cast in person at a meeting called for the purpose
of voting on that Plan, and (ii) the holders of a "majority" (as defined
in the Investment Company Act) of the shares of each class.
In addition, under the Plans the Manager and the Distributor, in
their sole discretion, from time to time may use their own resources
(which, in the case of the Manager, may include profits from the advisory
fee it receives from the Fund) to make payments to brokers, dealers or
other financial institutions (each is referred to as a "Recipient" under
the Plans) for distribution and administrative services they perform. The
Distributor and the Manager may, in their sole discretion, increase or
decrease the amount of payments they make from their own resources to
Recipients.
Unless terminated as described below, each Plan continues in effect
from year to year but only as long as its continuance is specifically
approved at least annually by the Fund's Board of Trustees and its
Independent Trustees by a vote cast in person at a meeting called for the
purpose of voting on such continuance. Either Plan may be terminated at
any time by the vote of a majority of the Independent Trustees or by the
vote of the holders of a "majority" (as defined in the Investment Company
Act) of the outstanding shares of that class. Neither Plan may be amended
to increase materially the amount of payments to be made unless such
amendment is approved by shareholders of the class affected by the
amendment. 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 SEC 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 Fund shall
provide separate written reports to the Fund's Board of Trustees at least
quarterly on the amount of all payments made pursuant to each Plan, the
purpose for which each payment was made and the identity of each Recipient
that received any payment. The report for the Class B Plan shall also
include the distribution costs for that quarter, and such costs for
previous fiscal periods that have been carried forward, as explained in
the Prospectus and below. Those reports, including the allocations on
which they are based, will be subject to the review and approval of the
Independent Trustees in the exercise of their fiduciary duty. Each Plan
further provides that while it is in effect, the selection and nomination
of those Trustees of the Fund who are not "interested persons" of the Fund
is committed to the discretion of the Independent Trustees. This does not
prevent the involvement of others in such selection and nomination if the
final decision on selection or nomination is approved by a majority of the
Independent Trustees.
Under the Plans, no payment will be made to any Recipient in any
quarter if the aggregate net asset value of all Fund shares held by the
Recipient for itself and its customers, did not exceed a minimum amount,
if any, that may be determined from time to time by a majority of the
Fund's Independent Trustees. Initially, the Board of Trustees has set the
fees at the maximum rate and set no requirement for a minimum amount of
the assets.
For the fiscal year ended September 30, 1994, payments under the
Class A Plan totalled $67,190, all of which was paid by the Distributor
to Recipients, including $11,485 paid to MML Investor Services, Inc., an
affiliate of the Distributor. Any unreimbursed expenses incurred by the
Distributor with respect to Class A shares for any fiscal year may not be
recovered in subsequent years. Payments received by the Distributor under
the Plan for Class A shares will not be used to pay any interest expense,
carrying charge, or other financial costs, or allocation of overhead by
the Distributor.
The Class B Plan allows the service fee payment to be paid by the
Distributor to Recipients in advance for the first year Class B shares are
outstanding, and thereafter on a quarterly basis, as described in the
Prospectus. Service fee payments by the Distributor to Recipients will
be made (i) in advance for the first year Class B shares are outstanding,
following the purchase of shares, in an amount equal to 0.25% of the net
asset value of the shares purchased by the Recipient or its customers and
(ii) thereafter, on a quarterly basis, computed as of the close of
business each day at an annual rate of 0.25% of the average daily net
asset value of Class B shares held in accounts of the Recipient or its
customers. An exchange of shares does not entitle the Recipient to an
advance service fee payment. In the event Class B shares are redeemed
during the first year that the shares are outstanding, the Recipient will
be obligated to repay a pro rata portion of the advance payment for those
shares to the Distributor. Payments made under the Class B Plan during the
fiscal year ended September 30, 1994 totalled $142,407, of which $132,607
was retained by the Distributor.
Although the Class B Plan permits the Distributor to retain both the
asset-based sales charges and the service fee on Class B shares, or to pay
Recipients the service fee on a quarterly basis, without payment in
advance, the Distributor intends to pay the service fee to Recipients in
the manner described above. A minimum holding period may be established
from time to time under the Class B Plan by the Board. Initially, the
Board has set no minimum holding period. All payments under the Class B
Plan are subject to the limitations imposed by the Rules of Fair Practice
of the National Association of Securities Dealers, Inc. on payments of
asset-based sales charges and service fees. The Distributor anticipates
that it will take a number of years for it to recoup (from the Fund's
payments to the Distributor under the Class B Plan and recoveries of the
contingent deferred sales charge) the sales commissions paid to authorized
brokers or dealers.
Asset-based sales charge payments are designed to permit an investor
to purchase shares of the Fund without the assessment of a front-end sales
load and at the same time permit the Distributor to compensate brokers and
dealers in connection with the sale of Class B shares of the Fund. The
Distributor's actual distribution expenses for any given year may exceed
the aggregate of payments received pursuant to the Class B Plan and from
contingent deferred sales charges, and such expenses will be carried
forward and paid in future years. The Fund will be charged only for
interest expenses, carrying charges or other financial costs that are
directly related to the carry-forward of actual distribution expenses.
For example, if the Distributor incurred distribution expenses of $4
million in a given fiscal year, of which $2,000,000 was recovered in the
form of contingent deferred sales charges paid by investors and $1,600,000
was reimbursed in the form of payments made by the Fund to the Distributor
under the Class B Plan, the balance of $400,000 (plus interest) would be
subject to recovery in future fiscal years from such sources.
The Class B Plan allows for the carry-forward of distribution
expenses, to be recovered from asset-based sales charges in subsequent
fiscal periods, as described in the Prospectus. The asset-based sales
charge paid to the Distributor by the Fund under the Class B Plan is
intended to allow the Distributor to recoup the cost of sales commissions
paid to authorized brokers and dealers at the time of sale, plus financing
costs, as described in the Prospectus. Such payments may also be used to
pay for the following expenses in connection with the distribution of
Class B shares: (i) financing the advance of the service fee payment to
Recipients under the Class B Plan, (ii) compensation and expenses of
personnel employed by the Distributor to support distribution of Class B
shares, and (iii) costs of sales literature, advertising and prospectuses
(other than those furnished to current shareholders) and state "blue sky"
registration fees.
ABOUT YOUR ACCOUNT
How To Buy Shares
Alternative Sales Arrangements - Class A and Class B Shares. The
availability of two classes of shares permits an investor to choose the
method of purchasing shares that is more beneficial to the investor
depending on the amount of the purchase, the length of time the investor
expects to hold shares and other relevant circumstances. Investors should
understand that the purpose and function of the deferred sales charge and
asset-based sales charge with respect to Class B shares are the same as
those of the initial sales charge with respect to Class A shares. Any
salesperson or other person entitled to receive compensation for selling
Fund shares may receive different compensation with respect to one class
of shares than the other. The Distributor will not accept any order for
$1 million or more of Class B shares on behalf of a single investor (not
including dealer "street name" or omnibus accounts) because generally it
will be more advantageous for that investor to purchase Class A shares of
the Fund instead.
The two classes of shares each represent an interest in the same
portfolio investments of the Fund. However, each class has different
shareholder privileges and features. The net income attributable to Class
B shares and the dividends payable on Class B shares will be reduced by
incremental expenses borne solely by that class, including the asset-based
sales charge to which Class B shares are subject.
The conversion of Class B shares to Class A shares after six years
is subject to the continuing availability of a private letter ruling from
the Internal Revenue Service, or an opinion of counsel or tax adviser, to
the effect that the conversion of B shares does not constitute a taxable
event for the holder under Federal income tax law. If such a revenue
ruling or opinion is no longer available, the automatic conversion feature
may be suspended, in which event no further conversions of Class B shares
would occur while such suspension remained in effect. Although Class B
shares could then be exchanged for Class A shares on the basis of relative
net asset value of the two classes, without the imposition of a sales
charge or fee, such exchange could constitute a taxable event for the
holder, and absent such exchange, Class B shares might continue to be
subject to the asset-based sales charge for longer than six years.
The methodology for calculating the net asset value, dividends and
distributions of the Fund's Class A and Class B shares recognizes two
types of expenses. General expenses that do not pertain specifically to
either class are allocated pro rata to the shares of each class, based on
the percentage of the net assets of such class to the Fund's total assets,
and then equally to each outstanding share within a given class. Such
general expenses include (i) management fees, (ii) legal, bookkeeping and
audit fees, (iii) printing and mailing costs of shareholder reports,
Prospectuses, Statements of Additional Information and other materials for
current shareholders, (iv) fees to Independent Trustees, (v) custodian
expenses, (vi) share issuance costs, (vii) organization and start-up
costs, (viii) interest, taxes and brokerage commissions, and (ix) non-
recurring expenses, such as litigation costs. Other expenses that are
directly attributable to a class are allocated equally to each outstanding
share within that class. Such expenses include (i) Distribution Plan
fees, (ii) incremental transfer and shareholder servicing agent fees and
expenses, (iii) registration fees and (iv) shareholder meeting expenses,
to the extent that such expenses pertain to a specific class rather than
to the Fund as a whole.
Determination of Net Asset Values Per Share. The net asset values per
share of Class A and Class B shares of the Fund are determined as of the
close of business of The New York Stock Exchange ("NYSE") on each day that
the NYSE 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 NYSE
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 NYSE's most recent annual announcement (which is
subject to change) states that it will close on New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. It may also close on other days. The
Fund may invest a substantial portion of its assets in foreign securities
primarily listed on foreign exchanges which may trade on Saturdays or
customary U.S. business holidays on which the NYSE is closed. Because the
Fund's net asset value will not be calculated on those days, the Fund's
net asset values per share may be significantly affected on such days when
shareholders may not purchase or redeem shares.
The Fund's Board of Trustees has established procedures for the
valuation of the Fund's securities, generally as follows: (i) equity
securities traded on a securities exchange or on NASDAQ for which last
sale information is regularly reported are valued at the last reported
sale price on their primary exchange or NASDAQ that day (or, in the
absence of sales that day, at values based on the last sales prices of the
preceding trading day, or closing bid and asked prices); (ii) securities
traded on NASDAQ and other unlisted equity securities for which last sale
prices are not regularly reported but for which over-the-counter market
quotations are readily available are valued at the highest closing bid
price at the time of valuation, or, if no closing bid price is reported,
on the basis of a closing bid price obtained from a dealer who maintains
an active market in that security; (iii) unlisted debt securities having
a maturity in excess of 60 days are valued at the mean between the bid and
asked prices determined by a portfolio pricing service approved by the
Board or obtained from active market makers on the basis of reasonable
inquiry; (iv) short-term debt securities having a remaining maturity of
60 days or less are valued at cost, adjusted for amortization of premiums
and accretion of discounts; (v) securities (including restricted
securities) not having readily-available market quotations are valued at
fair value under the Board's procedures; and (vi) securities traded on
foreign exchanges or in foreign over-the-counter markets are valued as
determined by a portfolio pricing service approved by the Board, based
upon last sales prices reported on a principal exchange, or, if none, at
the mean between closing bid and asked prices and reflect prevailing rates
of exchange taken from the closing price on the London foreign exchange
market that day.
Trading in securities on European and Asian exchanges and over-the-
counter markets is normally completed before the close of the NYSE.
Events affecting the values of foreign securities traded in stock and bond
markets that occur between the time their prices are determined and the
close of the NYSE will not be reflected in the Fund's calculation of net
asset value unless the Board of Trustees or the Manager, under procedures
established by the Board of Trustees, determines that the particular event
would materially affect the Fund's net asset value, in which case an
adjustment would be made. Foreign currency will be valued as close to the
time fixed for the valuation date as is reasonably practicable. The
values of securities denominated in foreign currency will be converted to
U.S. dollars at the prevailing rates of exchange at the time of valuation.
Foreign exchanges on which the Fund's foreign securities are primarily
listed may trade on Saturdays or other customary U.S. business holidays
on which the NYSE is closed. Because the Fund's offering price and net
asset value will not be calculated on those days, if foreign securities
held by the Fund are traded on those days, the Fund's net asset value per
share may be affected on such days when shareholders will not have the
ability to purchase or redeem shares.
In the case of U.S. Government Securities, mortgage-backed
securities, foreign 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 Board has authorized the Manager to employ a pricing service to price
U.S. Government Securities, mortgage-backed securities, foreign 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, or, if there are no sales that day, in accordance with (i),
above. Forward currency contracts are valued at the closing price on the
London foreign exchange market. When the Fund writes an option, an amount
equal to the premium received by the Fund is included in the Fund's
Statement of Assets and Liabilities as an asset, and an equivalent
deferred credit is included in the liability section. The deferred credit
is "marked-to-market" to reflect the current market value of the option.
In determining the Fund's gain on investments, if a call written by the
Fund is exercised, the proceeds are increased by the premium received.
If a call or put written by the Fund expires, the Fund has a gain in the
amount of the premium; if the Fund enters into a closing purchase
transaction, it will have a gain or loss depending on whether the premium
was more or less than the cost of the closing transaction. If the Fund
exercises a put it holds, the amount the Fund receives on its sale of the
underlying investment is reduced by the amount of premium paid by the
Fund.
AccountLink. When shares are purchased through AccountLink, each purchase
must be at least $25.00. Shares will be purchased on the regular business
day the Distributor is instructed to initiate the Automated Clearing House
transfer to buy the shares. Dividends will begin to accrue on 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 NYSE. The NYSE 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 NYSE, 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
reduction in expenses realized by the Distributor, dealers and brokers
making such sales. No sales charge is imposed in certain other
circumstances described in the Prospectus because the Distributor incurs
little or no selling expenses. The term "immediate family" refers to
one's spouse, children, grandchildren, grandparents, parents, parents-in-
law, brothers and sisters, sons- and daughters-in-law, a sibling's spouse
and a spouse's siblings.
- The OppenheimerFunds. The OppenheimerFunds are those mutual funds
for which the Distributor acts as the distributor or the sub-distributor
and include the following:
Oppenheimer Tax-Free Bond Fund
Oppenheimer New York Tax-Exempt Fund
Oppenheimer California Tax-Exempt Fund
Oppenheimer Intermediate Tax-Exempt Bond Fund
Oppenheimer Insured Tax-Exempt Bond Fund
Oppenheimer Main Street California Tax-Exempt Fund
Oppenheimer Florida Tax-Exempt Fund
Oppenheimer Pennsylvania Tax-Exempt Fund
Oppenheimer New Jersey Tax-Exempt Fund
Oppenheimer Fund
Oppenheimer Discovery Fund
Oppenheimer Time Fund
Oppenheimer Target Fund
Oppenheimer Growth Fund
Oppenheimer Equity Income Fund
Oppenheimer Value Stock Fund
Oppenheimer Asset Allocation Fund
Oppenheimer Total Return Fund, Inc.
Oppenheimer Main Street Income & Growth Fund
Oppenheimer High Yield Fund
Oppenheimer Champion High Yield Fund
Oppenheimer Investment Grade Bond Fund
Oppenheimer U.S. Government Trust
Oppenheimer Limited-Term Government Fund
Oppenheimer Mortgage Income Fund
Oppenheimer Global Fund
Oppenheimer Global Emerging Growth Fund
Oppenheimer Global Growth & Income Fund
Oppenheimer Gold & Special Minerals Fund
Oppenheimer Strategic Income Fund
Oppenheimer Strategic Investment Grade Bond Fund
Oppenheimer Strategic Short-Term Income Fund
Oppenheimer Strategic Income & Growth Fund
Oppenheimer Strategic Diversified Income Fund
and the following "Money Market Funds":
Oppenheimer Money Market Fund, Inc.
Oppenheimer Cash Reserves
Centennial Money Market Trust
Centennial Tax Exempt Trust
Centennial Government Trust
Centennial New York Tax Exempt Trust
Centennial California Tax Exempt Trust
Centennial America Fund, L.P.
Daily Cash Accumulation Fund, Inc.
There is an initial sales charge on the purchase of Class A shares of
each of the OppenheimerFunds except Money Market Funds (under certain
circumstances described herein, redemption proceeds of Money Market Fund
shares may be subject to a contingent deferred sales charge).
- Letters of Intent. A Letter of Intent ("Letter") is the investor's
statement of intention to purchase Class A shares of the Fund (and other
eligible OppenheimerFunds) sold with a front-end sales charge during the
13-month period from the investor's first purchase pursuant to the Letter
(the "Letter of Intent period"), which may, at the investor's request,
include purchases made up to 90 days prior to the date of the Letter. The
Letter states the investor's intention to make the aggregate amount of
purchases (excluding any purchases made by reinvestments of dividends or
distributions or purchases made at net asset value without sales charge),
which together with the investor's holdings of such funds (calculated at
their respective public offering prices calculated on the date of the
Letter) will equal or exceed the amount specified in the Letter. This
enables the investor to obtain the reduced sales charge rate (as set forth
in the Prospectus) applicable to purchases of shares in that amount (the
"intended purchase amount"). Each purchase under the Letter will be made
at the public offering price applicable to a single lump-sum purchase of
shares in the intended purchase amount, as described in the Prospectus.
In submitting a Letter, the investor makes no commitment to purchase
shares, but if the investor's purchases of shares within the Letter of
Intent period, when added to the value (at offering price) of the
investor's holdings of shares on the last day of that period, do not equal
or exceed the intended purchase amount, the investor agrees to pay the
additional amount of sales charge applicable to such purchases, as set
forth in "Terms of Escrow," below (as those terms may be amended from time
to time). The investor agrees that shares equal in value to 5% of the
intended purchase amount will be held in escrow by the Transfer Agent
subject to the Terms of Escrow. Also, the investor agrees to be bound by
the terms of the Prospectus, this Statement of Additional Information and
the Application used for such Letter of Intent, and if such terms are
amended, as they may be from time to time by the Fund, that those
amendments will apply automatically to existing Letters of Intent.
If the total eligible purchases made during the Letter of Intent period
do not equal or exceed the intended purchase amount, the commissions
previously paid to the dealer of record for the account and the amount of
sales charge retained by the Distributor will be adjusted to the rates
applicable to actual purchases. If total eligible purchases during the
Letter of Intent period exceed the intended purchase amount and exceed the
amount needed to qualify for the next sales charge rate reduction set
forth in the applicable prospectus, the sales charges paid will be
adjusted to the lower rate, but only if and when the dealer returns to the
Distributor the excess of the amount of commissions allowed or paid to the
dealer over the amount of commissions that apply to the actual amount of
purchases. The excess commissions returned to the Distributor will be
used to purchase additional shares for the investor's account at the net
asset value per share in effect on the date of such purchase, promptly
after the Distributor's receipt thereof.
In determining the total amount of purchases made under a Letter,
shares redeemed by the investor prior to the termination of the Letter of
Intent period will be deducted. It is the responsibility of the dealer
of record and/or the investor to advise the Distributor about the Letter
in placing any purchase orders for the investor during the Letter of
Intent period. All of such purchases must be made through the
Distributor.
- Terms of Escrow That Apply to Letters of Intent.
1. Out of the initial purchase (or subsequent purchases if necessary)
made pursuant to a Letter, shares of the Fund equal in value to 5% of the
intended purchase amount specified in the Letter shall be held in escrow
by the Transfer Agent. For example, if the intended purchase amount is
$50,000, the escrow shall be shares valued in the amount of $2,500
(computed at the public offering price adjusted for a $50,000 purchase).
Any dividends and capital gains distributions on the escrowed shares will
be credited to the investor's account.
2. If the intended purchase amount specified under the Letter is
completed within the thirteen-month Letter of Intent period, the escrowed
shares will be promptly released to the investor.
3. If, at the end of the thirteen-month Letter of Intent period the
total purchases pursuant to the Letter are less than the intended purchase
amount specified in the Letter, the investor must remit to the Distributor
an amount equal to the difference between the dollar amount of sales
charges actually paid and the amount of sales charges which would have
been paid if the total amount purchased had been made at a single time.
Such sales charge adjustment will apply to any shares redeemed prior to
the completion of the Letter. If such difference in sales charges is not
paid within twenty days after a request from the Distributor or the
dealer, the Distributor will, within sixty days of the expiration of the
Letter, redeem the number of escrowed shares necessary to realize such
difference in sales charges. Full and fractional shares remaining after
such redemption will be released from escrow. If a request is received
to redeem escrowed shares prior to the payment of such additional sales
charge, the sales charge will be withheld from the redemption proceeds.
4. By signing the Letter, the investor irrevocably constitutes and
appoints the Transfer Agent as attorney-in-fact to surrender for
redemption any or all escrowed shares.
5. The shares eligible for purchase under the Letter (or the holding
of which may be counted toward completion of the Letter) do not include
any shares sold without a front-end sales charge or without being subject
to a Class A contingent deferred sales charge unless (for the purpose of
determining completion of the obligation to purchase shares under the
Letter) the shares were acquired in exchange for shares of one of the
OppenheimerFunds whose shares were acquired by payment of a sales charge.
6. Shares held in escrow hereunder will automatically be exchanged for
shares of another fund to which an exchange is requested, as described in
the section of the Prospectus entitled "Exchange Privilege," and the
escrow will be transferred to that other fund.
Asset Builder Plans. To establish an Asset Builder Plan from a bank
account, a check (minimum $25) for the initial purchase must accompany the
application. Shares purchased by Asset Builder Plan payments from bank
accounts are subject to the redemption restrictions for recent purchases
described in "How To Sell Shares," in the Prospectus. Asset Builder Plans
also enable shareholders of Oppenheimer Cash Reserves to use those
accounts for monthly automatic purchases of shares of up to four other
OppenheimerFunds.
There is a front-end sales charge on the purchase of certain
OppenheimerFunds, or a contingent deferred sales charge may apply to
shares purchased by Asset Builder payments. An application should be
obtained from the Distributor, completed and returned, and a prospectus
of the selected fund(s) should be obtained from the Distributor or your
financial advisor before initiating Asset Builder payments. The amount
of the Asset Builder investment may be changed or the automatic
investments may be terminated at any time by writing to the Transfer
Agent. A reasonable period (approximately 15 days) is required after the
Transfer Agent's receipt of such instructions to implement them. The Fund
reserves the right to amend, suspend, or discontinue offering such plans
at any time without prior notice.
Cancellation of Purchase Orders. Cancellation of purchase orders for the
Fund's shares (for example, when a purchase check is returned to the Fund
unpaid) causes a loss to be incurred when the net asset value of the
Fund's shares on the cancellation date is less than on the purchase date.
That loss is equal to the amount of the decline in the net asset value per
share multiplied by the number of shares in the purchase order. The
investor is responsible for that loss. If the investor fails to
compensate the Fund for the loss, the Distributor will do so. The Fund
may reimburse the Distributor for that amount by redeeming shares from any
account registered in that investor's name, or the Fund or the Distributor
may seek other redress.
Check Writing. 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.
- Involuntary Redemptions. The Fund's Board of Trustees has the right
to cause the involuntary redemption of the shares held in any account if
the aggregate net asset value of those shares is less than $200 or such
lesser amount as the Board may fix. The Board of Trustees will not cause
the involuntary redemption of shares in an account if the aggregate net
asset value of the shares has fallen below the stated minimum solely as
a result of market fluctuations. Should the Board elect to exercise this
right, it may also fix, in accordance with the Investment Company Act, the
requirements for any notice to be given to the shareholders in question
(not less than 30 days), or the Board may set requirements for granting
permission to the Shareholder to increase the investment, and set other
terms and conditions so that the shares would not be involuntarily
redeemed.
- Payments "In Kind". The Prospectus states that payment for shares
tendered for redemption is ordinarily made in cash. However, the Board
of Trustees of the Fund may determine that it would be detrimental to the
best interests of the remaining shareholders of the Fund to make payment
of a redemption order wholly or partly in cash. In that case the Fund may
pay the redemption proceeds in whole or in part by a distribution "in
kind" of securities from the portfolio of the Fund, in lieu of cash, in
conformity with applicable rules of the Securities and Exchange
Commission. The Fund has elected to be governed by Rule 18f-1 under the
Investment Company Act, pursuant to which the Fund is obligated to redeem
shares solely in cash up to the lesser of $250,000 or 1% of the net assets
of the Fund during any 90-day period for any one shareholder. If shares
are redeemed in kind, the redeeming shareholder might incur brokerage or
other costs in selling the securities for cash. The method of valuing
securities used to make redemptions in kind will be the same as the method
the Fund uses to value its portfolio securities described above under the
"Determination of Net Asset Values Per Share" and that valuation will be
made as of the time the redemption price is determined.
Reinvestment Privilege. Within six months of a redemption, a shareholder
may reinvest all or part of the redemption proceeds of (i) Class A shares,
or (ii) Class B shares that were subject to the Class B contingent
deferred sales charge when redeemed. The reinvestment may be made without
sales charge only in Class A shares of the Fund or any of the other
OppenheimerFunds into which shares of the Fund are exchangeable as
described below, at the net asset value next computed after the Transfer
Agent receives the reinvestment order. The shareholder must ask the
Distributor for that privilege at the time of reinvestment. Any capital
gain that was realized when the shares were redeemed is taxable, and
reinvestment will not alter any capital gains tax payable on that gain.
If there has been a capital loss on the redemption, some or all of the
loss may not be tax deductible, depending on the timing and amount of the
reinvestment. Under the Internal Revenue Code, if the redemption proceeds
of Fund shares on which a sales charge was paid are reinvested in shares
of the Fund or another of the OppenheimerFunds within 90 days of payment
of the sales charge, the shareholder's basis in the shares of the Fund
that were redeemed may not include the amount of the sales charge paid.
That would reduce the loss or increase the gain recognized from the
redemption. However, in that case the sales charge would be added to the
basis of the shares acquired by the reinvestment of the redemption
proceeds. The Fund may amend, suspend or cease offering this reinvestment
privilege at any time as to shares redeemed after the date of such
amendment, suspension or cessation.
Transfers of Shares. Shares are not subject to the payment of a
contingent deferred sales charge of either class at the time of transfer
to the name of another person or entity (whether the transfer occurs by
absolute assignment, gift or bequest, not involving, directly or
indirectly, a public sale). The transferred shares will remain subject
to the contingent deferred sales charge, calculated as if the transferee
shareholder had acquired the transferred shares in the same manner and at
the same time as the transferring shareholder. If less than all shares
held in an account are transferred, and some but not all shares in the
account would be subject to a contingent deferred sales charge if redeemed
at the time of transfer, the priorities described in the Prospectus under
"How to Buy Shares" for the imposition of the Class B contingent deferred
sales charge will be followed in determining the order in which shares are
transferred.
Distributions From Retirement Plans. Requests for distributions from
OppenheimerFunds-sponsored IRAs, 403(b)(7) custodial plans, or pension or
profit-sharing plans should be addressed to "Trustee, OppenheimerFunds
Retirement Plans," c/o the Transfer Agent at its address listed in "How
To Sell Shares" in the Prospectus or on the back cover of this Statement
of Additional Information. The request must: (i) state the reason for the
distribution; (ii) state the owner's awareness of tax penalties if the
distribution is premature; and (iii) conform to the requirements of the
plan and the Fund's other redemption requirements. Participants (other
than self-employed persons) in OppenheimerFunds-sponsored pension or
profit-sharing plans may not directly request redemption of their
accounts. The employer or plan administrator must sign the request.
Distributions from pension and profit sharing plans are subject to special
requirements under the Internal Revenue Code and certain documents
(available from the Transfer Agent) must be completed before the
distribution may be made. Distributions from retirement plans are subject
to withholding requirements under the Internal Revenue Code, and IRS Form
W-4P (available from the Transfer Agent) must be submitted to the Transfer
Agent with the distribution request, or the distribution may be delayed.
Unless the shareholder has provided the Transfer Agent with a certified
tax identification number, the Internal Revenue Code requires that tax be
withheld from any distribution even if the shareholder elects not to have
tax withheld. The Fund, the Manager, the Distributor, the Trustee and the
Transfer Agent assume no responsibility to determine whether a
distribution satisfies the conditions of applicable tax laws and will not
be responsible for any tax penalties assessed in connection with a
distribution.
Special Arrangements for Repurchase of Shares from Dealers and Brokers.
The Distributor is the Fund's agent to repurchase its shares from
authorized dealers or brokers. The repurchase price 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 NYSE on
a regular business day, it will be processed at the day's net asset value
if the order was received by the dealer or broker from its customer 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 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, because of
the imposition of the Class B contingent deferred sales charge on such
withdrawals (except where the Class B contingent deferred sales charge is
waived as described in the Prospectus under "Class B Contingent Deferred
Sales Charge").
By requesting an Automatic Withdrawal or Exchange Plan, the shareholder
agrees to the terms and conditions applicable to such plans, as stated
below and in the provisions of the OppenheimerFunds Application relating
to such Plans, as well as the Prospectus. These provisions may be amended
from time to time by the Fund and/or the Distributor. When adopted, such
amendments will automatically apply to existing Plans.
- Automatic Exchange Plans. Shareholders can authorize the Transfer
Agent (on the OppenheimerFunds Application or signature-guaranteed
instructions) to exchange a pre-determined amount of shares of the Fund
for shares (of the same class) of other OppenheimerFunds automatically on
a monthly, quarterly, semi-annual or annual basis under an Automatic
Exchange Plan. The minimum amount that may be exchanged to each other
fund account is $25. Exchanges made under these plans are subject to the
restrictions that apply to exchanges as set forth in "How to Exchange
Shares" in the Prospectus and below in this Statement of Additional
Information.
- Automatic Withdrawal Plans. Fund shares will be redeemed as
necessary to meet withdrawal payments. Shares acquired without a sales
charge will be redeemed first and shares acquired with reinvested
dividends and capital gains distributions will be redeemed next, followed
by shares acquired with a sales charge, to the extent necessary to make
withdrawal payments. Depending upon the amount withdrawn, the investor's
principal may be depleted. Payments made under withdrawal plans should
not be considered as a yield or income on your investment.
The Transfer Agent will administer the investor's Automatic Withdrawal
Plan (the "Plan") as agent for the investor (the "Planholder") who
executed the Plan authorization and application submitted to the Transfer
Agent. The Transfer Agent shall incur no liability to the Planholder for
any action taken or omitted by the Transfer Agent in good faith to
administer the Plan. Certificates will not be issued for shares of the
Fund purchased for and held under the Plan, but the Transfer Agent will
credit all such shares to the account of the Planholder on the records of
the Fund. Any share certificates held by a Planholder may be surrendered
unendorsed to the Transfer Agent with the Plan application so that the
shares represented by the certificate may be held under the Plan.
For accounts subject to Automatic Withdrawal Plans, distributions of
capital gains must be reinvested in shares of the Fund, which will be done
at net asset value without a sales charge. Dividends on shares held in
the account may be paid in cash or reinvested.
Redemptions of shares needed to make withdrawal payments will be made
at the net asset value per share determined on the redemption date.
Checks or AccountLink payments of the proceeds of Plan withdrawals will
normally be transmitted three business days prior to the date selected for
receipt of the payment (receipt of payment on the date selected cannot be
guaranteed), according to the choice specified in writing by the
Planholder.
The amount and the interval of disbursement payments and the address
to which checks are to be mailed or AccountLink payments are to be sent
may be changed at any time by the Planholder by writing to the Transfer
Agent. The Planholder should allow at least two weeks' time in mailing
such notification for the requested change to be put in effect. The
Planholder may, at any time, instruct the Transfer Agent by written notice
(in proper form in accordance with the requirements of the then-current
Prospectus of the Fund) to redeem all, or any part of, the shares held
under the Plan. In that case, the Transfer Agent will redeem the number
of shares requested at the net asset value per share in effect in
accordance with the Fund's usual redemption procedures and will mail a
check for the proceeds to the Planholder.
The Plan may be terminated at any time by the Planholder by writing to
the Transfer Agent. A Plan may also be terminated at any time by the
Transfer Agent upon receiving directions to that effect from the Fund.
The Transfer Agent will also terminate a Plan upon receipt of evidence
satisfactory to it of the death or legal incapacity of the Planholder.
Upon termination of a Plan by the Transfer Agent or the Fund, shares that
have not been redeemed from the account will be held in uncertificated
form in the name of the Planholder, and the account will continue as a
dividend-reinvestment, uncertificated account unless and until proper
instructions are received from the Planholder or his or her executor or
guardian, or other authorized person.
To use shares held under the Plan as collateral for a debt, the
Planholder may request issuance of a portion of the shares in certificated
form. Upon written request from the Planholder, the Transfer Agent will
determine the number of shares for which a certificate may be issued
without causing the withdrawal checks to stop because of exhaustion of
uncertificated shares needed to continue payments. However, should such
uncertificated shares become exhausted, Plan withdrawals will terminate.
If the Transfer Agent ceases to act as transfer agent for the Fund, the
Planholder will be deemed to have appointed any successor transfer agent
to act as agent in administering the Plan.
How To Exchange Shares
As stated in the Prospectus, shares of a particular class of
OppenheimerFunds having more than one class of shares may be exchanged
only for shares of the same class of other OppenheimerFunds. Shares of
the OppenheimerFunds that have a single class without a class designation
are deemed "Class A" shares for this purpose. All OppenheimerFunds offer
Class A shares (except for Oppenheimer Strategic Diversified Income Fund),
but only the following other OppenheimerFunds currently offer Class B
shares:
Oppenheimer Main Street Income & Growth Fund
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 Total Return Fund, Inc.
Oppenheimer Investment Grade Bond Fund
Oppenheimer Value Stock Fund
Oppenheimer Limited-Term Government Fund
Oppenheimer High Yield Fund
Oppenheimer Mortgage Income Fund
Oppenheimer Cash Reserves (Class B shares are only available by
exchange)
Oppenheimer Growth Fund
Oppenheimer Global Fund
Oppenheimer Discovery Fund
Class A shares of OppenheimerFunds may be exchanged at net asset value
for shares of any Money Market Fund. Shares of any Money Market Fund
purchased without a sales charge may be exchanged for shares of
OppenheimerFunds offered with a sales charge upon payment of the sales
charge (or, if applicable, may be used to purchase shares of
OppenheimerFunds subject to a contingent deferred sales charge). Shares
of this Fund acquired by reinvestment of dividends or distributions from
any other of the OppenheimerFunds or from any unit investment trust for
which reinvestment arrangements have been made with the Distributor may
be exchanged at net asset value for shares of any of the OppenheimerFunds.
No contingent deferred sales charge is imposed on exchanges of shares of
either class purchased subject to a contingent deferred sales charge.
However, when Class A shares acquired by exchange of Class A shares of
other OppenheimerFunds purchased subject to a Class A contingent deferred
sales charge are redeemed within 18 months of the end of the calendar
month of the initial purchase of the exchanged Class A shares, the Class
A contingent deferred sales charge is imposed on the redeemed shares (see
"Class A Contingent Deferred Sales Charge" in the Prospectus). The Class
B contingent deferred sales charge is imposed on Class B shares acquired
by exchange if they are redeemed within 6 years of the initial purchase
of the exchanged Class B shares.
When Class B shares are redeemed to effect an exchange, the priorities
described in "How To Buy Shares" in the Prospectus for the imposition of
the Class B contingent deferred sales charge will be followed in
determining the order in which the shares are exchanged. Shareholders
should take into account the effect of any exchange on the applicability
and rate of any contingent deferred sales charge that might be imposed in
the subsequent redemption of remaining shares. Shareholders owning shares
of both classes must specify whether they intend to exchange Class A or
Class B shares.
The Fund reserves the right to reject telephone or written exchange
requests submitted in bulk by anyone on behalf of 10 or more accounts. The
Fund may accept requests for exchanges of up to 50 accounts per day from
representatives of authorized dealers that qualify for this privilege. In
connection with any exchange request, the number of shares exchanged may
be less than the number requested if the exchange or the number requested
would include shares subject to a restriction cited in the Prospectus or
this Statement of Additional Information or would include shares covered
by a share certificate that is not tendered with the request. In those
cases, only the shares available for exchange without restriction will be
exchanged.
When exchanging shares by telephone, a shareholder must either have an
existing account in, or obtain and acknowledge receipt of a prospectus of,
the fund to which the exchange is to be made. For full or partial
exchanges of an account made by telephone, any special account features
such as Asset Builder Plans, Automatic Withdrawal Plans and retirement
plan contributions will be switched to the new account unless the Transfer
Agent is instructed otherwise. If all telephone lines are busy (which
might occur, for example, during periods of substantial market
fluctuations), shareholders might not be able to request exchanges by
telephone and would have to submit written exchange requests.
Shares to be exchanged are redeemed on the regular business day the
Transfer Agent receives an exchange request in proper form (the
"Redemption Date"). Normally, shares of the fund to be acquired are
purchased on the Redemption Date, but such purchases may be delayed by
either fund up to five business days if it determines that it would be
disadvantaged by an immediate transfer of the redemption proceeds. The
Fund reserves the right, in its discretion, to refuse any exchange request
that may disadvantage it (for example, if the receipt of multiple exchange
requests from a dealer might require the disposition of portfolio
securities at a time or at a price that might be disadvantageous to the
Fund).
The different OppenheimerFunds available for exchange have different
investment objectives, policies and risks, and a shareholder should assure
that the Fund selected is appropriate for his or her investment and should
be aware of the tax consequences of an exchange. For federal income tax
purposes, an exchange transaction is treated as a redemption of shares of
one fund and a purchase of shares of another. "Reinvestment Privilege,"
above, discusses some of the tax consequences of reinvestment of
redemption proceeds in such cases. The Fund, the Distributor, and the
Transfer Agent are unable to provide investment, tax or legal advice to
a shareholder in connection with an exchange request or any other
investment transaction.
Dividends, Capital Gains and Taxes
Tax Status of the Fund's Dividends and Distributions. The Federal tax
treatment of the Fund's dividends and capital gains distributions is
explained in the Prospectus under the caption "Dividends, Capital Gains
and Taxes." Special provisions of the Internal Revenue Code govern the
eligibility of the Fund's dividends for the 70% dividends-received
deduction for corporate shareholders. Long-term capital gains
distributions are not eligible for the deduction. In addition, the amount
of dividends paid by the Fund which may qualify for the deduction is
limited to the aggregate amount of qualifying dividends that the Fund
derives from its portfolio investments that the Fund has held for a
minimum period, usually 46 days. A corporate shareholder will not be
eligible for the deduction on dividends paid on Fund shares held for 45
days or less. To the extent the Fund's dividends are derived from gross
income from option premiums, interest income or short-term gains from the
sale of securities or dividends from foreign corporations, those dividends
will not qualify for the deduction. None of the dividends paid by the Fund
during the fiscal year ended September 30, 1994 are eligible for the
corporate dividend-received deduction.
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, to enable the investor to earn a return on
otherwise idle funds.
Under the Internal Revenue Code, by December 31 each year, the Fund
must distribute 98% of its taxable investment income earned from January
1 through December 31 of that year and 98% of its capital gains realized
in the period from November 1 of the prior year through October 31 of the
current year, or else the Fund must pay an excise tax on the amounts not
distributed. While it is presently anticipated that the Fund will meet
those requirements, the Fund's Board of Trustees and the Manager might
determine in a particular year that it would be in the best interest of
shareholders for the Fund not to make such distributions at the required
levels and to pay the excise tax on the undistributed amounts. That would
reduce the amount of income or capital gains available for distribution
to shareholders.
The Internal Revenue Code requires that a holder (such as the Fund) of
a zero coupon security accrue a portion of the discount at which the
security was purchased as income each year even though the Fund receives
no interest payment in cash on the security during the year. As an
investment company, the Fund must pay out substantially all of its net
investment income each year. Accordingly, the Fund may be required to pay
out as an income distribution each year an amount which is greater than
the total amount of cash interest the Fund actually received. Such
distributions will be made from the cash assets of the Fund or by
liquidation of portfolio securities, if necessary. If a distribution of
cash necessitates the liquidation of portfolio securities, the Manager
will select which securities to sell. The Fund may realize a gain or loss
from such sales. In the event the Fund realizes net capital gains from
such transactions, its shareholders may receive a larger capital gain
distribution than they would have had in the absence of such transactions.
Dividend Reinvestment in Another Fund. Shareholders of the Fund may elect
to reinvest all dividends and/or capital gains distributions in shares of
the same class of any of the other OppenheimerFunds listed in "Reduced
Sales Charges," above, at net asset value without sales charge. Class B
shareholders should be aware that as of the date of this Statement of
Additional Information, not all of the OppenheimerFunds offer Class B
shares. To elect this option, a shareholder must notify the Transfer
Agent in writing and either have an existing account in the fund selected
for reinvestment or must obtain a prospectus for that fund and an
application from the Distributor to establish an account. The investment
will be made at the net asset value per share in effect at the close of
business on the payable date of the dividend or distribution. Dividends
and/or distributions from 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, collecting income on the
portfolio securities and handling the delivery of such securities to and
from the Fund. The Manager has represented to the Fund that the banking
relationships between the Manager and the Custodian have been and will
continue to be unrelated to and unaffected by the relationship between the
Fund and the Custodian. It will be the practice of the Fund to deal with
the Custodian in a manner uninfluenced by any banking relationship the
Custodian may have with the Manager and its affiliates.
Independent Auditors. The independent auditors of the Fund audit the
Fund's financial statements and perform other related audit services.
They also act as auditors for the Manager and certain other funds advised
by the Manager and its affiliates.
<PAGE>
Appendix
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 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
* For purposes of the Fund's investment policy not to concentrate in
securities of issuers in the same industry, utilities are divided into
"industries" according to their services (e.g. gas utilities, gas
transmission utilities, electric utilities and telephone utilities each
will be considered a separate industry).
<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
<PAGE>
[Logo] OPPENHEIMERFUNDS
OPPENHEIMER STRATEGIC INVESTMENT GRADE BOND FUND
ANNUAL REPORT SEPTEMBER 30, 1994
<PAGE>
FUND FACTS
IN THIS REPORT:
ANSWERS TO TIMELY QUESTIONS YOU SHOULD ASK YOUR FUND'S MANAGERS.
- - HOW DID THE FUND RESPOND TO RISING INTEREST RATES IN THE U.S. AND OVERSEAS?
- - WHAT'S THE OUTLOOK FOR INVESTMENT-GRADE CORPORATE BONDS?
- - WHERE ARE YOU FINDING ATTRACTIVE INVESTMENT OPPORTUNITIES TODAY?
FACTS EVERY SHAREHOLDER SHOULD KNOW ABOUT
OPPENHEIMER STRATEGIC INVESTMENT GRADE BOND FUND
- --------------------------------------------------------------------------------
1 The Fund seeks high current income, consistent with stability of principal
from investment-grade debt securities. Assets are allocated among U.S.
government bonds, foreign fixed income securities, and investment-grade
corporate bonds.
- --------------------------------------------------------------------------------
2 Standardized yield for the 30 days ended September 30, 1994 was 6.64% for
Class A shares and 6.35% for Class B shares.(1)
- --------------------------------------------------------------------------------
3 Total return at net asset value for the 12 months ended September 30, 1994
was -1.76% for Class A shares and -2.45% for Class B shares.(2)
- --------------------------------------------------------------------------------
4 Average annual total returns for Class A shares for the 1-year period ended
September 30, 1994 and since inception of the Fund on April 22, 1992 were
-6.43% and 2.83%, respectively. For Class B shares, average annual total
returns for the 1-year period ended September 30, 1994 and since inception
of the Class on November 30, 1992 were -7.32% and 1.67%, respectively.(3)
- --------------------------------------------------------------------------------
5 "The Fund's flexibility to shift assets strategically among bond-market
sectors is a major plus for shareholders in the current investment
environment. It has allowed us to capitalize on changing opportunities in
the world's bond markets, capturing attractive yields while limiting the
portfolio's exposure to rising interest rates worldwide."
PORTFOLIO MANAGERS DAVID NEGRI AND ART STEINMETZ, SEPTEMBER 30, 1994
(1) Standardized yield is net investment income calculated on a
yield-to-maturity basis for the 30-day period ended 9/30/94, divided by the
maximum offering price at the end of the period, compounded semi-annually and
then annualized. Falling net asset values will tend to artificially raise
yields.
(2) Based on the changes in net asset value per share from 9/30/93 to 9/30/94,
without deducting any sales charges. Such performance would have been lower if
sales charges were taken into account.
(3) Average annual total returns are based on hypothetical investments held
until 9/30/94, after deducting the current maximum initial sales charge of 4.75%
for Class A shares and the contingent deferred sales charge of 5% (1-year) and
4% (since inception) for Class B shares.
The Fund's portfolio is subject to change.
All figures assume reinvestment of dividends and capital gains distributions.
Past performance is not indicative of future results. Investment and principal
value on an investment in the Fund will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than the original cost.
2 Oppenheimer Strategic Investment Grade Bond Fund
<PAGE>
REPORT TO SHAREHOLDERS
Oppenheimer Strategic Investment Grade Bond Fund continued to provide
shareholders with an attractive yield for the 12 months ended September 30,
1994. At that date, the Fund's standardized 30-day yield was 6.64% for Class A
shares and 6.35% for Class B shares.(4)
Your managers' ability to shift assets strategically among three
sectors--U.S. government securities, investment-grade corporate bonds, and
foreign fixed income securities played an important role in the Fund's
performance over the past year. As the Federal Reserve and central banks
worldwide moved aggressively to raise short-term interest rates to fend off
inflation, your managers were able to capture rising yields while limiting the
portfolio's price erosion.
As the economic cycle in the U.S. advanced and interest rates began to
rise, your managers reduced the Fund's overall exposure to Treasury securities,
which tend to lag investment-grade corporate bonds in the mid-to-late stages of
economic expansion. Your managers also adjusted the Fund's holdings within the
investment-grade corporate bond sector. Bonds issued by consumer-durable and
financial services companies, whose earnings are sensitive to interest-rate
changes, were de-emphasized, while more attention was focused on bonds issued by
larger industrial companies.
In addition to increasing positions in the chemicals, mining, metals,
forest products, and telecommunications industries, your managers also
re-established a position in utilities, a sector that offers attractive
investment opportunities.
As interest rates rose offshore and the dollar weakened against major
currencies, your managers emphasized investments in Europe. In addition to
increasing the portfolio's holdings of foreign government bonds, which made up
13% of the portfolio on September 30, your managers focused more attention on
large European industrial companies positioned to benefit from economic growth.
Looking ahead, your managers don't anticipate major changes in the
portfolio's composition in the near term. The Fund's allocations will, of
course, be adjusted should the economic expansion appear to be ending, but all
signs are currently pointing to continued gradual growth--and your Fund is
well-positioned to provide attractive returns.
We appreciate the confidence you have placed in Oppenheimer Strategic
Investment Grade Bond Fund, and we look forward to continuing to help you reach
your investment goals.
James C. Swain
Chairman
Oppenheimer Strategic Investment Grade Bond Fund
October 21, 1994
Jon S. Fossel
President
Oppenheimer Strategic Investment Grade Bond Fund
October 21, 1994
(4) See footnote 1, page 2.
3 Oppenheimer Strategic Investment Grade Bond Fund
<PAGE>
------------------------------------------------------------
------------------------------------------------------------
STATEMENT OF INVESTMENTS September 30, 1994
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT SEE NOTE 1
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
GOVERNMENT OBLIGATIONS--36.5%
- -------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM--1.5%
- -------------------------------------------------------------------------------------------------------------------------------
Bonos de la Tesoreria la Federacion:
0%, 12/8/94 $ 125,000 $ 123,404
0%, 1/12/95 500,000 490,089
-----------
613,493
- -------------------------------------------------------------------------------------------------------------------------------
LONG-TERM--35.0%
- -------------------------------------------------------------------------------------------------------------------------------
Czechoslovakia National Bank Bonds, 7%, 4/6/96(2) 1,000,000 997,500
-------------------------------------------------------------------------------------------------
Denmark (Kingdom Of) Bonds, 9%, 11/15/98 4,500,000(1) 745,895
-------------------------------------------------------------------------------------------------
Empresa Columbiana de Petroleos Nts., 7.25%, 7/8/98(2) 750,000 718,613
-------------------------------------------------------------------------------------------------
First Australia National Mortgage Acceptance
Corp. Ltd. Bonds, Series 22, 11.40% 12/15/01 283,680(1) 213,477
-------------------------------------------------------------------------------------------------
Indonesia (Republic of) CD, Bank Negara, 0%, 4/24/95 2,000,000,000(1) 843,111
-------------------------------------------------------------------------------------------------
Italy (Republic of) Treasury Bonds:
12%, 9/1/97 300,000,000(1) 195,077
Buoni Poliennali del Tes:
12%, 1/1/96 15,000,000(1) 9,736
12%, 5/1/97 500,000,000(1) 324,840
12.50%, 6/16/97 250,000,000(1) 164,119
12.50%, 3/19/98 50,000,000(1) 33,077
12%, 1/17/99 50,000,000(1) 32,381
-------------------------------------------------------------------------------------------------
New Zealand (Government of), 10%, 7/15/97 390,000(1) 240,946
-------------------------------------------------------------------------------------------------
South Australia Government Finance Authority
Bonds, 10%, 1/15/03 250,000(1) 177,500
-------------------------------------------------------------------------------------------------
Spain (Kingdom of) Bonds, 11.45%, 8/30/98 122,500,000(1) 964,660
-------------------------------------------------------------------------------------------------
Treasury Corp. of Victoria Gtd. Bonds:
12%, 10/22/98 250,000(1) 198,688
8.25%, 10/15/03 620,000(1) 394,827
-------------------------------------------------------------------------------------------------
United Kingdom Treasury Nts., 12.25%, 3/26/99 391,000(1) 693,105
-------------------------------------------------------------------------------------------------
U.S. Treasury Bonds, 7.125%, 2/15/23(5) 1,000,000 909,062
-------------------------------------------------------------------------------------------------
U.S. Treasury Nts.:
4.625%, 8/15/95 900,000 890,438
4.375%, 8/15/96 3,000,000 2,888,436
5.125%, 2/28/98 1,000,000 943,437
8.875%, 11/15/19 1,130,000 1,190,738
-------------------------------------------------------------------------------------------------
Western Australia Treasury Corp. Gtd. Bonds, 12.50%, 4/1/98 225,000 180,759
-----------
13,950,422
-------------------------------------------------------------------------------------------------
Total Government Obligations (Cost $15,147,238) $14,563,915
4 Oppenheimer Strategic Investment Grade Bond Fund
<PAGE>
<CAPTION>
FACE MARKET VALUE
AMOUNT SEE NOTE 1
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
MORTGAGE/ASSET-BACKED OBLIGATIONS--29.0%
- -------------------------------------------------------------------------------------------------------------------------------
CMC Security Corp. I, 10% Collateralized Mtg. Obligation,
Series 1993-D, Cl. D-3, 7/25/23(2) $ 768,431 $ 806,637
-------------------------------------------------------------------------------------------------
FDIC Trust, 1994-C1, Class 2-D, 8.70%, 9/25/25(2) 1,000,000 959,531
-------------------------------------------------------------------------------------------------
FDIC Trust, 1994-C1, Class 2-E, 8.70%, 09/25/25(2) 1,000,000 924,844
-------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., 7%, Series 1548, Cl. C, 4/15/21 4,000,000 3,501,240
-------------------------------------------------------------------------------------------------
Federal National Mortgage Assn. Interest-Only Stripped Mtg.-
Backed Security, Trust 240, Class 2, 7%, 9/25/23(4) 2,731,263 1,032,759
-------------------------------------------------------------------------------------------------
First Boston Corp. Mtg. Securities, 7.06%, Series 1993-AFC-1,
10/25/02 741,071 682,944
-------------------------------------------------------------------------------------------------
Government National Mortgage Assn.:
10.50%, 12/15/17 324,386 353,789
10.50%, 7/15/19 253,438 276,534
10.50%, 5/15/21 71,268 77,794
-------------------------------------------------------------------------------------------------
Residential Funding Corp. Mtg. Pass-Through Certificates,
Series 1993-S10, Cl. A9, 8.50%, 2/25/23 905,079 896,708
-------------------------------------------------------------------------------------------------
Resolution Trust Corp., Commercial Mtg. Pass-Through
Certificates:
9%, Series 1991-M5, Cl. A, 3/25/17 746,768 750,269
8.75% Series 1993-C1, Cl. B, 5/25/24 700,000 693,000
10.638%, Series 1992-16, Cl. B3, 5/25/24(3) 600,000 607,875
-------------------------------------------------------------------------------------------------
Total Mortgage/Asset-Backed Obligations (Cost $12,130,633) 11,563,924
- -------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS AND NOTES--0.5%
- -------------------------------------------------------------------------------------------------------------------------------
New York State Environmental Facilities Corp. State Service
Contract Taxable Revenue Bonds, Series B, 8.15%, 3/15/02 200,000 199,878
-------------------------------------------------------------------------------------------------
Total Municipal Bonds and Notes (Cost $197,611) 199,878
- -------------------------------------------------------------------------------------------------------------------------------
LONG-TERM CORPORATE BONDS AND NOTES--30.6%
- -------------------------------------------------------------------------------------------------------------------------------
BASIC MATERIALS--4.6%
- -------------------------------------------------------------------------------------------------------------------------------
CHEMICALS--2.4% Hook-Superx, Inc., 10.125%, 6/1/02 400,000 418,000
-------------------------------------------------------------------------------------------------
Quantum Chemical Corp., 10.375% Fst. Mtg. Nts., 6/1/03 500,000 554,828
-----------
972,828
- -------------------------------------------------------------------------------------------------------------------------------
PAPER AND FOREST R.P. Scherer International Corp., 6.75% Sr. Nts., 2/1/04 500,000 445,000
PRODUCTS--2.2% -------------------------------------------------------------------------------------------------
Scotia Pacific Holding Co., 7.95% Timber Collateralized Nts.,
7/20/15 472,481 434,915
-----------
879,915
- -------------------------------------------------------------------------------------------------------------------------------
CONSUMER CYCLICALS--2.9%
- -------------------------------------------------------------------------------------------------------------------------------
AUTOMOTIVE--0.6%
- -------------------------------------------------------------------------------------------------------------------------------
Chrysler Corp., 10.95% Nts., 8/1/17 200,000 222,175
- -------------------------------------------------------------------------------------------------------------------------------
CONSUMER GOODS AND Fruit of the Loom, Inc., 7% Debs., 3/15/11 500,000 415,000
SERVICES--1.0%
- -------------------------------------------------------------------------------------------------------------------------------
ENTERTAINMENT--0.3% Circus Circus Enterprises, Inc., 6.75% Nts., 7/15/03 150,000 131,604
- -------------------------------------------------------------------------------------------------------------------------------
RETAIL--1.0% Sears Canada, Inc., 11.70% Debs., 7/10/00 500,000(1) 403,513
- -------------------------------------------------------------------------------------------------------------------------------
CONSUMER NON-CYCLICALS--3.3%
- -------------------------------------------------------------------------------------------------------------------------------
FOOD--3.3% ConAgra, Inc., 7.40% Sub. Nts., 9/15/04 250,000 232,922
-------------------------------------------------------------------------------------------------
RJR Nabisco, Inc., 10.50% Sr. Nts., 4/15/98 1,000,000 1,058,428
-----------
1,291,350
5 Oppenheimer Strategic Investment Grade Bond Fund
<PAGE>
------------------------------------------------------------
------------------------------------------------------------
STATEMENT OF INVESTMENTS (Continued)
<CAPTION>
FACE MARKET VALUE
AMOUNT SEE NOTE 1
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ENERGY--2.2% McDermott, Inc., 9.375% Nts., 3/15/02 $ 100,000 $ 103,757
-------------------------------------------------------------------------------------------------
Mitchell Energy & Development Corp., 9.25% Sr. Nts., 1/15/02 400,000 415,619
-------------------------------------------------------------------------------------------------
Tenneco, Inc.:
7.875% Nts., 10/1/02 250,000 244,622
10% Debs., 3/15/08 100,000 110,090
-----------
874,088
- -------------------------------------------------------------------------------------------------------------------------------
FINANCIAL--7.7% American Car Line Co., 8.25% Equipment Trust Ctfs.,
Series 1993-A, 4/15/08 270,000 261,900
-------------------------------------------------------------------------------------------------
BankAmerica Corp., 7.50% Sr. Nts., 3/15/97 200,000 201,612
-------------------------------------------------------------------------------------------------
Chemical New York Corp., 9.75% Sub. Cap. Nts., 6/15/99 300,000 322,226
-------------------------------------------------------------------------------------------------
First Chicago, 9% Sub. Cap. Nts., 6/15/99 100,000 104,402
-------------------------------------------------------------------------------------------------
General Motors Acceptance Corp.:
8% Nts., 10/1/96 100,000 101,332
7.75% Nts., 4/15/97 300,000 300,328
5.50% Nts., 12/15/01 100,000 85,232
-------------------------------------------------------------------------------------------------
Heller Financial, Inc., 7.75% Nts., 5/15/97 300,000 303,421
-------------------------------------------------------------------------------------------------
International Bank for Reconstruction and Development Bonds,
12.50%, 7/25/97 800,000(1) 520,608
-------------------------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc., 8.375% Nts., 2/15/99 300,000 303,039
-------------------------------------------------------------------------------------------------
NBD Bancorp, Inc., 7.25% Sub. Debs., 8/15/04 250,000 233,662
-------------------------------------------------------------------------------------------------
PaineWebber Group, Inc.:
7% Nts., 3/1/00 160,000 149,590
7.75% Sub. Nts., 9/1/02 200,000 187,020
-----------
3,074,372
- -------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL--0.3%
- -------------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--0.3% Union Pacific Corp., 9.65% Medium-Term Nts., 4/17/00 100,000
107,371
- -------------------------------------------------------------------------------------------------------------------------------
TECHNOLOGY--5.6%
- -------------------------------------------------------------------------------------------------------------------------------
AEROSPACE/DEFENSE--0.5% AMR Corp., 10% Nts., 4/15/21 200,000 195,822
- -------------------------------------------------------------------------------------------------------------------------------
CABLE TELEVISION--5.1% TKR Cable I, Inc., 10.50% Sr. Debs., 10/30/07 1,300,000
1,412,125
-------------------------------------------------------------------------------------------------
Time Warner, Inc./Time Warner Entertainment LP, 8.375% Nts.,
3/15/23 700,000 613,676
-----------
2,025,801
- -------------------------------------------------------------------------------------------------------------------------------
UTILITIES--4.0% Coastal Corp., 11.75% Sr. Debs., 6/15/06 500,000 548,750
-------------------------------------------------------------------------------------------------
Commonwealth Edison Co.:
6.50% Nts., 7/15/97 225,000 217,551
6.40% Nts., 10/15/05 75,000 60,573
-------------------------------------------------------------------------------------------------
Consumers Power Co., 6.375% Nts., 9/15/03 110,000 94,720
-------------------------------------------------------------------------------------------------
Long Island Lighting Co., 7% Nts., 3/1/04 200,000 160,242
-------------------------------------------------------------------------------------------------
Public Service Company of Colorado, 8.75% Fst. Mtg. Bonds,
3/1/22 250,000 243,826
-------------------------------------------------------------------------------------------------
Southwest Gas Corp., 9.75% Debs., Series F, 6/15/02 275,000 288,996
-----------
1,614,658
-------------------------------------------------------------------------------------------------
Total Long-Term Corporate Bonds and Notes (Cost $12,983,493) $12,208,497
</TABLE>
6 Oppenheimer Strategic Investment Grade Bond Fund
<PAGE>
<TABLE>
<CAPTION>
FACE MARKET VALUE
DATE/PRICE AMOUNT SEE NOTE 1
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
PUT OPTIONS PURCHASED --0.0% European OTC Deutsche Mark/U.S. Dollar Put Nov.2/1.60 DEM
$2,579,158(1) $5,319
-------------------------------------------------------------------------------------------------
European OTC Deutsche Mark/U.S. Dollar Put Nov.4/1.60 DEM 1,289,579(1) 2,909
-------------------------------------------------------------------------------------------------
European OTC Deutsche Mark/U.S. Dollar Put Nov.8/1.60 DEM 1,289,579(1) 3,388
-------------------------------------------------------------------------------------------------
Total Put Options Purchased (Cost $56,204) 11,616
- -------------------------------------------------------------------------------------------------------------------------------
STRUCTURED INSTRUMENTS--3.4% Citibank, 10.50%--16% CD, 3/17/95--8/17/95 167,876,833(1)
856,102
-------------------------------------------------------------------------------------------------
Goldman Sachs International Limited, 5.10%, 2/28/95 80,000 77,808
-------------------------------------------------------------------------------------------------
Swiss Bank Corporation Investment Banking, Inc.,
10% CD Sterling Rate Linked Nts., 7/3/95 410,000 404,424
-------------------------------------------------------------------------------------------------
Total Structured Instruments (Cost $1,340,894) 1,338,334
-------------------------------------------------------------------------------------------------
Total Investments, at Value (Cost $41,856,073) 100.0% 39,886,164
-------------------------------------------------------------------------------------------------
Other Assets Net of Liabilities 0.0% 8,902
-------------------------------------------------------------------------------------------------
Net Assets 100.00% $39,895,066
------ -----------
------ -----------
<FN>
1. Face amount is reported in foreign currency.
2. Restricted security--See Note 6 of Notes to Financial Statements.
3. Represents the current interest rate for a variable rate security.
4. Interest-Only Strips represent the right to receive the monthly interest
payments on an underlying pool of mortgage loans. These
securities typically decline in price as interest rates decline. Most other
fixed-income securities increase in price when interest
rates decline. The principal amount of the underlying pool represents the
notional amount on which current interest is calculated.
The price of these securities is typically more sensitive to changes in
prepayment rates than traditional mortgage backed securities
(for example, GNMA pass-throughs).
</TABLE>
5. Securities with an aggregate market value of $139,996 are held in escrow to
cover outstanding call options as follows:
<TABLE>
<CAPTION>
FACE EXPIRATION EXERCISE PREMIUM MARKET
VALUE
SUBJECT TO CALL DATE PRICE RECEIVED SEE NOTE
1
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
European OTC Deutsche Mark/U.S. Dollar 1,125,584 11/2/94 1.50 DEM $ 5,229 $ 2,968
European OTC Deutsche Mark/U.S. Dollar 505,697 11/2/94 1.60 DEM 13,188 16,854
European OTC Deutsche Mark/U.S. Dollar 582,792 11/4/94 1.50 DEM 2,709 1,662
European OTC Deutsche Mark/U.S. Dollar 252,848 11/4/94 1.60 DEM 6,644 8,351
European OTC Deutsche Mark/U.S. Dollar 562,792 11/8/94 1.54 DEM 6,715 6,919
European OTC Deutsche Mark/U.S. Dollar 252,848 11/8/94 1.60 DEM 6,876 8,651
------- -------
$41,361 $45,405
</TABLE>
See accompanying Notes to Financial Statements.
7 Oppenheimer Strategic Investment Grade Bond Fund
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES September 30, 1994
- -------------------------------------------------------------------------------------------------------------------------------
ASSETS Investments, at value (cost $41,856,073)--see accompanying statement $39,886,164
-------------------------------------------------------------------------------------------------
Receivables:
Interest 763,532
Shares of beneficial interest sold 76,063
Investments sold 20,920
-------------------------------------------------------------------------------------------------
Deferred organization costs 5,700
-------------------------------------------------------------------------------------------------
Other 7,625
-----------
Total assets 40,760,004
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
LIABILITIES Bank overdraft 353,543
-------------------------------------------------------------------------------------------------
Options written, at value (premium received $41,361) see accompanying statement--Note 4 45,405
-------------------------------------------------------------------------------------------------
Payables and other liabilities:
Shares of beneficial interest redeemed 242,246
Investments purchased 63,418
Distribution and service plan fees--Note 5 24,782
Dividends 59,937
Other 75,607
-----------
Total liabilities 864,938
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $39,895,066
-----------
-----------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
COMPOSITION OF Paid-in capital $42,589,149
NET ASSETS -------------------------------------------------------------------------------------------------
Overdistributed net investment income (360,167)
-------------------------------------------------------------------------------------------------
Accumulated net realized loss from investment, written option
and foreign currency transactions (360,871)
-------------------------------------------------------------------------------------------------
Net unrealized depreciation on investments, options written and translation of assets
and liabilities denominated in foreign currencies (1,973,045)
-----------
Net assets $39,895,066
-----------
-----------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE Class A Shares:
PER SHARE Net asset value and redemption price per share (based on net assets of $24,955,906
and 5,296,079 shares of beneficial interest outstanding) $4.71
Maximum offering price per share (net asset value plus sales charge of 4.75% of
offering price) $4.94
-------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price and offering price per share (based on net assets
of $14,939,160 and 3,173,620 shares of beneficial interest outstanding) $4.71
</TABLE>
See accompanying Notes to Financial Statements.
8 Oppenheimer Strategic Investment Grade Bond Fund
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS For the Year Ended September 30, 1994
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME Interest (net of withholding taxes of $15,989) $ 3,458,069
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
EXPENSES Management fees--Note 5 319,025
-------------------------------------------------------------------------------------------------
Distribution and service plan fees:
Class A--Note 5 67,190
Class B--Note 5 142,407
-------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 5 82,169
-------------------------------------------------------------------------------------------------
Shareholder reports 34,016
-------------------------------------------------------------------------------------------------
Custodian fees and expenses 23,204
-------------------------------------------------------------------------------------------------
Legal and auditing fees 11,880
-------------------------------------------------------------------------------------------------
Trustees' fees and expenses 381
-------------------------------------------------------------------------------------------------
Other 17,899
---------
Total expenses 698,171
-------------------------------------------------------------------------------------------------
Less reimbursement from Oppenheimer Management Corporation--Note 5 (19,540)
-------------------------------------------------------------------------------------------------
Net expenses 678,631
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 2,779,438
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED Net realized loss from:
GAIN (LOSS) ON INVESTMENTS, Investments and options written (689,604)
OPTIONS WRITTEN AND Expiration and closing of option contracts written--Note 4 (10,859)
FOREIGN CURRENCY Foreign currency transactions (215,015)
TRANSACTIONS
-----------
Net realized loss (915,478)
-----------
Net change in unrealized appreciation or depreciation on:
Investments and options written (3,112,420)
Translation of assets and liabilities denominated in foreign currencies 383,409
-------------------------------------------------------------------------------------------------
Net change (2,729,011)
-------------------------------------------------------------------------------------------------
Net realized and unrealized loss on investments, options written
and foreign currency transactions (3,644,489)
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS
$(865,051)
-------------
-------------
</TABLE>
See accompanying Notes to Financial Statements.
9 Oppenheimer Strategic Investment Grade Bond Fund
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED SEPTEMBER 30,
1994 1993
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATIONS Net investment income $2,779,438 $2,142,329
-------------------------------------------------------------------------------------------------
Net realized loss on investments, options written and foreign
currency transactions (915,478) (368,788)
-------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on investments,
options written and translation of assets and liabilities denominated
in foreign currencies (2,729,011) 659,287
-------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations (865,051) 2,432,828
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
DIVIDENDS AND Dividends from net investment income:
DISTRIBUTIONS Class A ($.240 and $.372 per share, respectively) (1,253,403) (1,890,652)
TO SHAREHOLDERS Class B ($.205 and $.270 per share, respectively) (750,521) (278,604)
-------------------------------------------------------------------------------------------------
Dividends in excess of net investment income:
Class A ($.010 per share) (27,359) --
Class B ($.010 per share) (16,382) --
-------------------------------------------------------------------------------------------------
Distributions from net realized gain on investments, options written
and foreign currency transactions:
Class A ($.003 per share) -- (13,770)
Class B ($.003 per share) -- (654)
-------------------------------------------------------------------------------------------------
Distributions in excess of net realized gain on investments, options
written and foreign currency transactions:
Class A ($.016 per share) (83,250) --
Class B ($.016 per share) (49,849) --
-------------------------------------------------------------------------------------------------
Tax return of capital:
Class A ($.079 per share) (420,265) --
Class B ($.079 per share) (251,649) --
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
BENEFICIAL INTEREST Net increase (decrease) in net assets resulting from
TRANSACTIONS Class A beneficial interest transactions--Note 2 (3,401,990) 14,546,029
-------------------------------------------------------------------------------------------------
Net increase in net assets resulting from Class B
beneficial interest transactions--Note 2 5,432,516 10,687,971
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSETS Total increase (decrease) (1,687,203) 25,483,148
-------------------------------------------------------------------------------------------------
Beginning of year 41,582,269 16,099,121
----------- -----------
End of year (including overdistributed
net investment income of $360,167 in 1994) $39,895,066 $41,582,269
----------- -----------
----------- -----------
</TABLE>
See accompanying Notes to Financial Statements.
10 Oppenheimer Strategic Investment Grade Bond Fund
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
CLASS A CLASS B
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPT. 30,
1994 1993 1992(2) 1994 1993(1)
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $5.14 $5.16 $5.00 $5.14 $4.95
-------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .34 .36 .14 .34 .27
Net realized and unrealized gain (loss)
on investments, options written and foreign
currency transactions (.43) (.01) .19 (.46) .19
------------------------------------------------------------------------------------------------
Total income (loss) from investment
operations (.09) .35 .33 (.12) .46
------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.24) (.37) (.14) (.21) (.27)
Dividends in excess of net investment income (.01) -- -- (.01) --
Distributions from net realized gain on
investments, options written and foreign
currency transactions -- -- (.03) -- --
------------------------------------------------------------------------------------------------
Distributions in excess of net realized
gain on investments, options written
and foreign currency transactions (.01) -- -- (.01) --
Tax return of capital (.08) -- -- (.08) --
Total dividends and distributions
to shareholders (.34) (.37) (.17) (.31) (.27)
-------------------------------------------------------------------------------------------------
Net asset value, end of period $4.71 $5.14 $5.16 $4.71 $5.14
----- ----- ----- ----- ------
----- ----- ----- ----- ------
TOTAL RETURN, AT NET ASSET VALUE (3) (1.76)% 7.24% 6.67% (2.45)%
9.54%
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $24,956 $30,783 $16,099 $14,939 $10,800
--------------------------------------------------------------------------------------------------
Average net assets (in thousands) $28,294 $25,972 $4,939 $14,232 $5,310
--------------------------------------------------------------------------------------------------
Number of shares outstanding at end
of period (in thousands) 5,296 5,989 3,117 3,174 2,103
--------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 6.80% 7.18% 7.28%(4) 6.01% 6.28%(4)
Expenses, before voluntary reimbursement
by the Manager 1.38% 1.46% 2.00%(4) 2.16% 2.20%(4)
Expenses, net of voluntary reimbursement
by the Manager 1.33% 1.12% .29%(4) 2.12% 1.84%(4)
--------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 68.6% 90.3% 30.6% 68.6% 90.3%
<FN>
1. For the period from November 30, 1992 (inception of offering) to September 30, 1993.
2. For the period from April 22, 1992 (commencement of operations) to September 30, 1992.
3. 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.
4. Annualized.
5. 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 September 30, 1994 were $33,753,825 and $26,698,460, respectively.
</TABLE>
See accompanying Notes to Financial Statements.
11 Oppenheimer Strategic Investment Grade Bond Fund
<PAGE>
---------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1. SIGNIFICANT Oppenheimer Strategic Investment Grade Bond Fund (the
ACCOUNTING POLICIES Fund) is registered under the Investment Company Act of
1940, as amended, as a diversified, open-end management
investment company. The Fund's investment advisor is
Oppenheimer Management Corporation (the Manager). The
Fund offers both Class A and Class B shares. Class A
shares are sold with a front-end sales charge. Class B
shares may be subject to a contingent deferred sales
charge. Both classes of shares have identical rights to
earnings, assets and voting privileges, except that
each class has its own distribution and/or service
plan, expenses directly attributable to a particular
class and exclusive voting rights with respect to
matters affecting a single class. Class B shares will
automatically convert to Class A shares six years after
the date of purchase. The following is a summary of
significant accounting policies consistently followed
by the Fund.
-------------------------------------------------------
INVESTMENT VALUATION. Portfolio securities are valued
at 4:00 p.m. (New York time) on each trading day.
Listed and unlisted securities for which such
information is regularly reported are valued at the
last sale price of the day or, in the absence of sales,
at values based on the closing bid or asked price or
the last sale price on the prior trading day. Long-term
debt securities are valued by a portfolio pricing
service approved by the Board of Trustees. Long-term
debt securities which cannot be valued by the approved
portfolio pricing service are valued by averaging the
mean between the bid and asked prices obtained from two
active market makers in such securities. Short-term
debt securities having a remaining maturity of 60 days
or less are valued at cost (or last determined market
value) adjusted for amortization to maturity of any
premium or discount. Securities for which market quotes
are not readily available are valued under procedures
established by the Board of Trustees to determine fair
value in good faith. An option is valued based upon the
last sales 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.
Forward foreign currency contracts are valued at the
forward rate on a daily basis.
-------------------------------------------------------
FOREIGN CURRENCY TRANSLATION. The accounting records
of the Fund are maintained in U.S. dollars. Prices of
securities denominated in foreign currencies are
translated into U.S. dollars at the closing rates of
exchange. Amounts related to the purchase and sale of
securities and investment income are translated at the
rates of exchange prevailing on the respective dates of
such transactions.
The Fund generally enters into forward foreign currency
exchange contracts as a hedge, upon the purchase or
sale of a security denominated in a foreign currency.
In addition, the Fund may enter into such contracts as
a hedge against changes in foreign currency exchange
rates on portfolio positions. A forward exchange
contract is a commitment to purchase or sell a foreign
currency at a future date, at a negotiated rate. Risks
may arise from the potential inability of the
counterparty to meet the terms of the contract and from
unanticipated movements in the value of a foreign
currency relative to the U.S. dollar.
The effect of changes in foreign currency exchange
rates on investments is separately identified from the
fluctuations arising from changes in market values of
securities held and reported with all other foreign
currency gains and losses in the fund's results of
operations.
-------------------------------------------------------
REPURCHASE AGREEMENTS. The Fund requires the custodian
to take possession, to have legally segregated in the
Federal Reserve Book Entry System or to have segregated
within the custodian's vault, all securities held as
collateral for repurchase agreements. If the seller of
the agreement defaults and the value of the collateral
declines, or if the seller enters an insolvency
proceeding, realization of the value of the collateral
by the Fund may be delayed or limited.
-------------------------------------------------------
OPTIONS WRITTEN. The Fund may write covered call and
put options. When an option is written, the Fund
receives a premium and becomes obligated to sell the
underlying security at a fixed price, upon exercise of
the option. In writing an option, the Fund bears the
market risk of an unfavorable change in the price of
the security underlying the written option. Exercise of
an option written by the Fund could result in the Fund
selling or purchasing a security at a price different
from the current market value. All securities covering
call options written are held in escrow by the
custodian bank and the Fund maintains liquid assets
sufficient to cover written put options in the event of
exercise by the holder.
-------------------------------------------------------
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.
12 Oppenheimer Strategic Investment Grade Bond Fund
<PAGE>
1. SIGNIFICANT FEDERAL INCOME TAXES. The Fund intends to continue to
ACCOUNTING POLICIES comply with provisions of the Internal Revenue Code
(CONTINUED) 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 September 30,
1994, the Fund had available for federal income tax
purposes an unused capital loss carryover of
approximately $24,000 expiring in 2002.
-------------------------------------------------------
ORGANIZATION COSTS. The Manager advanced $15,264 for
organization and start-up costs of the Fund. Such
expenses are being amortized over a five-year period
from the date operations commenced. In the event that
all or part of the Manager's initial investment in
shares of the Fund is withdrawn during the amortization
period, the redemption proceeds will be reduced to
reimburse the Fund for any unamortized expenses, in the
same ratio as the number of shares redeemed bears to
the number of initial shares outstanding at the time of
such redemption.
-------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS. The Fund intends to
declare dividends separately for Class A and Class B
shares from net investment income each day the New York
Stock Exchange is open for business and pay such
dividends monthly. Distributions from net realized
gains on investments, if any, will be declared at least
once each year.
-------------------------------------------------------
CHANGE IN ACCOUNTING FOR DISTRIBUTIONS TO SHAREHOLDERS.
Effective October 1, 1993, the Fund adopted Statement
of Position 93-2: Determination, Disclosure, and
Financial Statement Presentation of Income, Capital
Gain, and Return of Capital Distributions by Investment
Companies. As a result, the Fund changed the
classification of distributions to shareholders to
better disclose the differences between financial
statement amounts and distributions determined in
accordance with income tax regulations. Accordingly,
subsequent to September 30, 1993, amounts have been
reclassified to reflect a decrease in undistributed net
investment income of $510,955, and a decrease in
undistributed capital loss on investments of $510,955.
During the year ended September 30, 1994, in accordance
with Statement of Position 93-2, paid-in capital was
decreased by $671,914, undistributed net investment
income was increased by $86,885 and undistributed
capital loss was decreased by $585,029.
-------------------------------------------------------
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 options
written 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 The Fund has authorized an unlimited number of no par
BENEFICIAL INTEREST value shares of beneficial interest of each class.
Transactions in shares of beneficial interest were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1994 PERIOD ENDED SEPTEMBER
30, 1993(1)
------------------------------ -----------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A:
Sold 1,541,101 $7,739,640 5,266,098 $27,442,371
Dividends and distributions reinvested 284,805 1,388,625 248,836 1,263,984
Redeemed (2,518,406) (12,530,255) (2,643,764) (14,160,326)
---------- ------------ ---------- -----------
Net decrease (692,500) $(3,401,990) 2,871,170 $14,546,029
---------- ------------ ---------- -----------
---------- ------------ ---------- -----------
-------------------------------------------------------------------------------------------------------------------
Class B:
Sold 1,732,642 $8,472,995 2,252,666 $11,452,295
Dividends and distributions reinvested 74,300 587,645 33,869 173,117
Redeemed (736,073) (3,628,124) (183,784) (937,441)
---------- ------------ ---------- -----------
Net increase 1,070,869 $5,432,516 2,102,751 $10,687,971
---------- ------------ ---------- -----------
---------- ------------ ---------- -----------
<FN>
1. For the year ended September 30, 1993 for Class A shares and for the period
from November 30, 1992 (inception of offering) to September 30, 1993 for Class B
shares.
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
3. Unrealized Gains and At September 30, 1994, net unrealized depreciation
Losses on Investments on investments and options written of $1,973,953
was composed of gross appreciation of $295,626,
and gross depreciation of $2,269,579.
13 Oppenheimer Strategic Investment Grade Bond Fund
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
- -------------------------------------------------------------------------------
4. OPTION ACTIVITY Option activity for the year ended September 30, 1994
was as follows:
<TABLE>
<CAPTION>
CALL OPTIONS PUT OPTIONS
------------ -----------
NUMBER AMOUNT NUMBER AMOUNT
OF OPTIONS OF PREMIUMS OF OPTIONS OF PREMIUMS
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Options outstanding at September 30, 1993 100 $14,219 -- $--
------------------------------------------------------------------------------------------------------------------------
Options written 3,262,561 41,361 860 3,359
------------------------------------------------------------------------------------------------------------------------
Options expired prior to exercise (100) (14,219) (860) (3,359)
------------------------------------------------------------------------------------------------------------------------
Options exercised -- -- -- --
------------------------------------------------------------------------------------------------------------------------
Options outstanding at September 30, 1994 3,262,561 $41,361 -- $--
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
5. MANAGEMENT FEES Management fees paid to the Manager were in accordance
AND OTHER TRANSACTIONS with the investment advisory agreement with the Fund
WITH AFFILIATES which provides for an annual fee of .75% on the first
$200 million of net assets with a reduction of .03% on
each $200 million thereafter to $800 million, .60% on
the next $200 million and .50% on net assets in excess
of $1 billion. The Manager has agreed to reimburse the
Fund if aggregate expenses (with specified exceptions)
exceed the most stringent applicable regulatory limit
on Fund expenses. A voluntary undertaking to reimburse
Fund expenses to the level needed to maintain a stable
dividend was terminated November 24, 1993.
For the year ended September 30, 1994, commissions
(sales charges paid by investors) on sales of Class A
shares totaled $212,013, of which $77,763 was retained
by Oppenheimer Funds Distributor, Inc. (OFDI), a
subsidiary of the Manager, as general distributor, and
by an affiliated broker/dealer. During the period ended
September 30, 1994, OFDI received contingent deferred
sales charges of $40,567 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 financial 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 September 30, 1994,
OFDI paid $11,485 and $1,220, respectively, to an
affiliated broker/dealer as reimbursement for Class A
and Class B personal service and maintenance expense
and retained $132,607 as reimbursement for Class B
sales commissions and service fee advances, as well as
financing costs.
14 Oppenheimer Strategic Investment Grade Bond Fund
<PAGE>
- -------------------------------------------------------------------------------
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. Restricted and illiquid
securities, excluding securities eligible for
resale pursuant to Rule 144A of the Act amount to
$1,884,375 or 4.72% of the Fund's net assets, at
September 30, 1994. Illiquid and/or restricted
securities, including those restricted securities
that are transferable under Rule 144A of the Act
are listed below.
<TABLE>
<CAPTION>
VALUATION
PER UNIT AS OF
SECURITY ACQUISITION DATE COST PER UNIT SEPTEMBER 30, 1994
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CMC Security Corp. I, 10% Collateralized
Mtg. Obligation, Series 1993-D, Cl. D-3, 7/25/23(1) 5/17/93 $108.27 $104.97
-------------------------------------------------------------------------------------------------------------------
Czechoslovakia National Bank Bonds, 7%, 4/6/96(1) 3/11/93-5/17/93 $100.05 $99.75
-------------------------------------------------------------------------------------------------------------------
Empresa Columbiana de Petroleos Nts., 7.25%, 7/8/98(1) 6/24/93 $99.63 $95.82
-------------------------------------------------------------------------------------------------------------------
FDIC Trust, 1994--C1, Class 2-D, 8.70%, 9/25/25 8/10/94 $98.00 $95.95
-------------------------------------------------------------------------------------------------------------------
FDIC Trust, 1994--C1, Class 2-E, 8.70%, 9/25/25 8/10/94 $94.88 $92.48
<FN>
1. Transferable under Rule 144A of the Act.
</TABLE>
15 Oppenheimer Strategic Investment Grade Bond Fund
<PAGE>
-----------------------------------------
Independent Auditors' Report
-----------------------------------------
The Board of Trustees and Shareholders of Oppenheimer Strategic
Investment Grade Bond Fund:
We have audited the accompanying statement of assets and
liabilities, including the statement of investments, of
Oppenheimer Strategic Investment Grade Bond Fund as of September
30, 1994, the related statement of operations for the year then
ended, the statements of changes in net assets for the years
ended September 30, 1994 and 1993 and the financial highlights
for the period April 22, 1992 (commencement of operations) to
September 30, 1994. These financial statements and financial
highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we plan
and perform the audit to obtain reasonable assurance about
whether the financial statements and financial highlights are
free of material misstatement. An audit also includes examining,
on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation
of securities owned at September 30, 1994 by correspondence with
the custodian and brokers; where replies were not received from
brokers, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial
highlights present fairly, in all material respects, the
financial position of Oppenheimer Strategic Investment Grade Bond
Fund at September 30, 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
October 21, 1994
16 Oppenheimer Strategic Investment Grade Bond Fund
<PAGE>
-------------------------------------------
FEDERAL INCOME TAX INFORMATION (Unaudited)
In early 1995, shareholders will receive information
regarding all dividends and distributions paid to them by
the Fund during calendar year 1994. Regulations of the U.S.
Treasury Department require the Fund to report this
information to the Internal Revenue Service.
None of the dividends paid by the Fund during the fiscal
year ended September 30, 1994 are eligible for the corporate
dividend-received deduction.
The foregoing information is presented to assist
shareholders in reporting distributions received from the
Fund to the Internal Revenue Service. Because of the
complexity of the federal regulations which may affect your
individual tax return and the many variations in state and
local tax regulations, we recommend that you consult your
tax advisor for specific guidance.
17 Oppenheimer Strategic Investment Grade Bond Fund
<PAGE>
-----------------------------------------------
-----------------------------------------------
OPPENHEIMER STRATEGIC INVESTMENT GRADE BOND FUND
- -------------------------------------------------------------------------------
OFFICERS AND TRUSTEES James C. Swain, Chairman and Chief Executive Officer
Robert G. Avis, Trustee
William A. Baker, Trustee
Charles Conrad, Jr., Trustee
Jon S. Fossel, Trustee and President
Raymond J. Kalinowski, Trustee
C. Howard Kast, Trustee
Robert M. Kirchner, Trustee
Ned M. Steel, Trustee
Andrew J. Donohue, Vice President
David P. Negri, Vice President
Arthur P. Steinmetz, Vice President
George C. Bowen, Vice President, Secretary and
Treasurer
Robert J. Bishop, Assistant Treasurer
Scott Farrar, Assistant Treasurer
Robert G. Zack, Assistant Secretary
- -------------------------------------------------------------------------------
INVESTMENT ADVISOR Oppenheimer Management Corporation
- -------------------------------------------------------------------------------
DISTRIBUTOR Oppenheimer Funds Distributor, Inc.
- -------------------------------------------------------------------------------
TRANSFER AND SHAREHOLDER Oppenheimer Shareholder Services
SERVICING AGENT
- -------------------------------------------------------------------------------
CUSTODIAN OF The Bank of New York
PORTFOLIO SECURITIES
- -------------------------------------------------------------------------------
INDEPENDENT AUDITORS Deloitte & Touche LLP
- -------------------------------------------------------------------------------
LEGAL COUNSEL Myer, Swanson & Adams, P.C.
This is a copy of a report to shareholders of
Oppenheimer Strategic Investment Grade Bond Fund. This
report must be preceded or accompanied by a Prospectus
of Oppenheimer Strategic Investment Grade Bond Fund.
For material information concerning the Fund, see the
Prospectus.
18 Oppenheimer Strategic Investment Grade Bond Fund
<PAGE>
- ------------------------------------------------------------------------------
OPPENHEIMERFUNDS FAMILY
OppenheimerFunds offers over 35 funds designed to fit virtually every investment
goal. Whether you're investing for retirement, your children's education or
tax-free income, we have the funds to help you seek your objective.
When you invest with OppenheimerFunds, you can feel comfortable knowing that you
are investing with a respected financial institution with over 30 years of
experience in helping people just like you reach their financial goals. And
you're investing with a leader in global, growth stock and flexible fixed-income
investments--with over 1.8 million shareholder accounts and more than $26
billion under Oppenheimer's management and that of our affiliates.
As an OppenheimerFunds shareholder, you can easily exchange shares of eligible
funds of the same class by mail or by telephone for a small administrative
fee.(1) For more information on OppenheimerFunds, please contact your financial
advisor or call us at 1-800-525-7048 for a prospectus. You may also write us at
the address shown on the back cover. As always, please read the prospectus
carefully before you invest.
- -------------------------------------------------------------------------------
Stock Funds Discovery Fund Global Fund
Global Emerging Growth Fund(2) Oppenheimer Fund
Time Fund Value Stock Fund
Target Fund Gold & Special Minerals Fund
Growth Fund(3)
- -------------------------------------------------------------------------------
Stock & Bond Funds
Main Street Income & Growth Fund
Total Return Fund
Global Growth & Income Fund
Equity Income Fund
Asset Allocation Fund
- -------------------------------------------------------------------------------
Bond Funds
High Yield Fund
Champion High Yield Fund
Strategic Income & Growth Fund
Strategic Income Fund
Strategic Diversified Income Fund
Strategic Investment Grade Bond Fund
Strategic Short-Term Income Fund
Investment Grade Bond Fund
Mortgage Income Fund
U.S. Government Trust
Limited-Term Government
- -------------------------------------------------------------------------------
Tax-Exempt Funds
New York Tax-Exempt Fund(4)
California Tax-Exempt Fund(4)
Pennsylvania Tax-Exempt Fund(4)
Florida Tax-Exempt Fund(4)
New Jersey Tax-Exempt Fund(4)
Tax-Free Bond Fund
Insured Tax-Exempt Bond Fund
Intermediate Tax-Exempt Bond Fund
- -------------------------------------------------------------------------------
Money Market Funds Money Market Fund Cash Reserves
1. The fee is waived for PhoneLink exchanges between existing accounts. Exchange
privileges are subject to change or termination.
2. Formerly Oppenheimer Global Bio-Tech Fund and Oppenheimer Global Environment
Fund.
3. Formerly Special Fund.
4. Available only to residents of those states.
OppenheimerFunds are distributed by Oppenheimer Funds Distributor, Inc., Two
World Trade Center, New York, NY 10048-0203.
(C) Copyright 1994 Oppenheimer Management Corporation. All rights reserved.
19 Oppenheimer Strategic Investment Grade Bond Fund
<PAGE>
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<PAGE>
Oppenheimer Strategic Investment Grade Bond Fund
Semiannual Report March 31, 1995
- --------------------------------------------------------------------------------
"We want
our money to
photo work hard,
but we're
concerned
about risk."
[Logo] OppenheimerFunds
<PAGE>
Yield
- ---------------------------------
Standardized Yield
- ---------------------------------
For the 30 Days Ended 3/31/95:(1)
Class A
- ---------------------------------
6.95%
- ---------------------------------
Class B
- ---------------------------------
6.55%
- ---------------------------------
This Fund is for people who want high income from
an investment that's
strategically designed to lower risk.
- --------------------------------------------------------------------------------
How Your Fund Is Managed
- --------------------------------------------------------------------------------
Oppenheimer Strategic Investment Grade Bond Fund seeks high current income by
strategically allocating its assets among three sectors: U.S. government issues,
foreign fixed income securities and investment grade corporate bonds. Strategic
investing gives the Fund's managers the flexibility to shift assets among three
fixed income sectors to capitalize on worldwide investment opportunities. At the
same time, allocating the Fund's assets among three distinct fixed income
sectors provides the diversification necessary to lower risk.
- --------------------------------------------------------------------------------
Performance
- --------------------------------------------------------------------------------
Total returns at net asset value for the 6 months ended 3/31/95 for Class A and
B shares were 3.93% and 3.31%, respectively.(2)
Your Fund's average annual total returns at maximum offering price for
Class A shares for the 1-year period ended 3/31/95 and since inception of the
Class on 4/22/92 were -1.61% and 3.71%, respectively.
For Class B shares, average annual total returns for the 1-year period
ended 3/31/95 and since inception of the Class on 11/30/92 were -2.47% and
3.26%, respectively.(3)
- --------------------------------------------------------------------------------
Outlook
- --------------------------------------------------------------------------------
"The outlook for the bond market is more positive today than it has been in some
time, both in terms of income and potential total returns. The Fund's ability to
shift assets strategically among bond market sectors worldwide remains a major
advantage for shareholders in the current environment. It has allowed us to seek
high yields, while seeking to keep portfolio risks under careful control."
David Negri and Art Steinmetz, Portfolio Managers
March 31, 1995
All figures assume reinvestment of dividends and capital gains distributions.
Past performance is not indicative of future results. Investment and principal
value on an investment in the Fund will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than the original cost.
1. Standardized yield is net investment income calculated on a yield-to-maturity
basis for the 30-day period ended 3/31/95, divided by the maximum offering price
at the end of the period, compounded semiannually and then annualized. Falling
net asset values will tend to artificially raise yields.
2. Based on the change in net asset value per share from 9/30/94 to 3/31/95,
without deducting any sales charges. Such performance would have been lower if
sales charges were taken into account.
3. Class A returns show results of hypothetical investments on 4/1/94 and
4/22/92 (inception of class), after deducting the current maximum initial sales
charge of 4.75%. Class B returns show results of hypothetical investments on
4/1/94 and 11/30/92 (inception of class), and the deduction of the applicable
contingent deferred sales charge of 5% (1-year) and 4% (since inception). An
explanation of the different total returns is in the Fund's prospectus.
2 Oppenheimer Strategic Investment Grade Bond Fund
<PAGE>
[PHOTOGRAPH]
James C. Swain
Chairman
Oppenheimer Strategic Investment Grade
Bond Fund
[PHOTOGRAPH]
Jon S. Fossel
President
Oppenheimer Strategic Investment Grade
Bond Fund
Dear OppenheimerFunds Shareholder,
1994 was marked by one of the greatest tests the bond markets faced in more than
six decades. As the U.S. Federal Reserve undertook the most aggressive moves in
its history to raise interest rates, bond prices and bond mutual funds declined
across the board. Changing interest rates are a fact of life and they affect the
short-term performance of all bond markets. That is why we believe the best
measure of any fixed income mutual fund is its performance over the long term.
And we believe the long-term outlook for the bond markets is very positive.
To see how greatly the U.S. bond market has improved since last fall, we
need look no further than the market's reaction to the Fed's most recent
short-term rate increase in February. While the markets had already anticipated
this move, unlike previous rate increases, long-term interest rates continued to
decline and bonds rallied further. Although the Fed could raise rates again, we
believe that this positive environment will prove more than momentary as a
result of several factors.
First, concerns about the effects of inflation on bond prices are fading
fast. By most indicators, economic growth is slowing to a pace that can be
sustained without reigniting inflation or causing a recession. Second, at
current prices, intermediate and long-term bonds are producing some of the best
inflation-adjusted returns in years. With the actual inflation rate running just
over 3 percent today, many fixed income investors are clearly being rewarded.
Attracted by the strong, real returns intermediate and long-term bonds offer,
investors are returning to bonds in a significant way. This rising demand is
providing solid support for bond prices. Third, as the Fed concludes its
tightening efforts--and recent reports suggest that point is near--long-term
interest rates will likely stay within their current range, and could decline
further. Of course, rates could rise later this year if future reports indicate
that the economy isn't slowing as quickly as it seems to be today; however, we
believe that over the longer term, the downward trend of rates will continue.
Two uncertainties affecting the fixed income markets are foreign investors'
attitudes toward U.S. debt and the weakness of the U.S. dollar abroad relative
to other major currencies. But investors' attitudes overseas and the dollar's
decline, in our view, should prove temporary. Both have been driven by the
government's moves to support the Mexican peso, a widening trade deficit, and
Congress's apparent inability to limit the Federal budget deficit.
We believe the trade deficit will narrow with increasing U.S. exports as
European economies come out of recession and emerging world markets stabilize.
Additionally, the need to support the peso has begun to decline as Mexico's
tough domestic economic policy has gained credibility. Finally, we are confident
that Congress will be able to get the budget deficit issue dealt with because
Americans are demanding it.
Of course, no one can predict the future with perfect clarity. The bond
markets are always subject to fluctuations and, as we saw in 1994, the shifts
can sometimes be sharp. Overall, however, we believe the outlook for the bond
markets today appears positive.
Your portfolio manager discusses the outlook for your Fund on the following
pages. We appreciate your trust, and we'll continue to do our best to help you
meet your long-term investment objectives.
/s/ James C. Swain /s/ Jon S. Fossel
James C. Swain Jon S. Fossel
April 24, 1995
3 Oppenheimer Strategic Investment Grade Bond Fund
<PAGE>
David Negri and Art Steinmetz
Portfolio Managers
Q+A
An interview with your Fund's managers.
Last year was a difficult period for bond investors. Have changes in interest
rates and the economy affected your allocations?
While where we allocate the Fund's assets among fixed income sectors is critical
to producing good returns, how we allocate assets within each sector is just as
important to meeting the Fund's objectives. For example, last year, when
interest rates were rising and the economy was gaining strength, our strategy
was to avoid interest-rate risk by shortening Treasury maturities.
That strategy worked well for us, but today, as the economic expansion and
interest rates approach what we believe will be their peak, we're reversing that
strategy. With interest rates poised to fall and the economy slowing, we're
extending Treasury maturities.
There are signs of political and economic uncertainty in some established
markets in Europe. How have these developments affected your approach?
We've taken several steps to adjust our European holdings. For example, we've
redirected our assets in Spain and Italy, which are running large deficits, to
the United Kingdom. Bonds in these countries are beginning to benefit from
strengthening economies, which are pushing up yields, as well as from the
weakness of the U.S. dollar.(1)
Has the recent weakness of the dollar affected the Fund?
It has to some extent. The dollar's decline was driven largely by the U.S.
government's attempt to support Mexico by buying peso-denominated securities. As
our government pumped U.S. dollars into the system, and as the supply of dollars
rose, their value fell. But as investors sought stability, other markets and
currencies, notably Germany and the mark, benefitted--thus, currency declines
affecting one sector of the Fund were largely offset by currency gains in
Europe.
These developments demonstrate the benefit of investing in a
geographically diverse portfolio. While foreign investments are subject to
adverse market changes as a result of currency fluctuations, each sector of the
bond market is affected differently by economic events, and setbacks in one area
often are offset by higher performance in others. The dollar's recent weakness
is a good example of that dynamic.
What's your outlook for the Fund?
The Fund's flexibility and diversification should continue to help us manage
risk and seek solid returns. And now that the prospects for the bond markets in
general are positive, we believe that the Fund is positioned for good
performance in 1995. / /
(1) The Fund's portfolio is subject to change.
4 Oppenheimer Strategic Investment Grade Bond Fund
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
Statement of Investments March 31, 1995 (Unaudited)
----------------------------------------------------------------------------------------------------------
Face Market Value
Amount(1) See Note 1
<S> <C> <C>
==========================================================
==========================================================
===============
Certificates of Deposit -- 4.3%
- -----------------------------------------------------------------------------------------------------------------------------------
Citibank CD:
10.50%, 7/14/95 (2) ARA $ 450,000 $ 450,111
16%, 5/3/95 (2) CLP 43,000,000 106,554
16%, 8/17/95 (2) CLP 83,003,140 205,682
----------------------------------------------------------------------------------------------------------
Indonesia (Republic of) CD, Bank Negara, Zero Coupon, 4/24/95 IDR 2,000,000,000
884,495
------------
Total Certificates of Deposit (Cost $1,700,121) 1,646,842
==========================================================
==========================================================
===============
Mortgage-Backed Obligations -- 26.4%
- -----------------------------------------------------------------------------------------------------------------------------------
Government Agency -- 13.4%
- -----------------------------------------------------------------------------------------------------------------------------------
FHLMC/FNMA/ Federal Home Loan Mortgage Corp., Collateralized Mtg
Sponsored -- 11.9% Obligations, Series 1548, Cl. C, 7%, 4/15/21 4,000,000 3,637,640
----------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Interest-Only Stripped
Mtg.-Backed Security, Trust 240, Cl. 2, 7%, 9/25/23 (3) 2,673,358 968,257
------------
4,605,897
- -----------------------------------------------------------------------------------------------------------------------------------
GNMA/ Government National Mortgage Assn.:
Guaranteed -- 1.5% 10.50%, 12/15/17-5/15/21 512,414 565,387
- -----------------------------------------------------------------------------------------------------------------------------------
Private -- 13.0%
- -----------------------------------------------------------------------------------------------------------------------------------
Commercial -- 8.8% CMC Security Corp. I, Collateralized Mtg
Obligation, Series 1993-D, Cl. D-3, 10%, 7/25/23 (4) 736,140 774,779
----------------------------------------------------------------------------------------------------------
FDIC Trust, Gtd. Real Estate Mtg. Investment Conduit
Pass-Through Certificates, Series 1994-C1:
Cl. 2-D, 8.70%, 9/25/25 (5) 1,000,000 980,938
Cl. 2-E, 8.70%, 9/25/25 (5) 1,000,000 946,563
----------------------------------------------------------------------------------------------------------
Resolution Trust Corp., Commercial Mtg.
Pass-Through Certificates, Series 1993-C1, Cl. B, 8.75%, 5/25/24 700,000 699,344
------------
3,401,624
- -----------------------------------------------------------------------------------------------------------------------------------
Multi-Family -- 1.9% Resolution Trust Corp., Commercial Mtg. Pass-Through Certificates:
Series 1991-M5, Cl. A, 9%, 3/25/17 645,065 657,563
Series 1991-M6, Cl. B4, 6.450%, 6/25/21 (6) 89,052 85,907
------------
743,470
- -----------------------------------------------------------------------------------------------------------------------------------
Residential -- 2.3% Residential Funding Corp., Mtg. Pass-Through Certificates,
Series 1993-S10, Cl. A9, 8.50%, 2/25/23 879,004 876,701
------------
Total Mortgage-Backed Obligations (Cost $10,494,915) 10,193,079
==========================================================
==========================================================
===============
U.S. Government Obligations -- 29.3%
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds:
11.625%, 11/15/02 5,000,000 6,287,500
8.75%, 8/15/00 2,700,000 2,896,592
----------------------------------------------------------------------------------------------------------
U.S. Treasury Nts.:
5.125%, 2/28/98 1,000,000 952,812
8.875%, 11/15/97 1,130,000 1,182,968
------------
Total U.S. Government Obligations (Cost $11,217,967) 11,319,872
</TABLE>
5 Oppenheimer Strategic Investment Grade Bond Fund
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
Statement of Investments (Unaudited)(Continued)
----------------------------------------------------------------------------------------------------------
Face Market Value
Amount(1) See Note 1
<S> <C> <C>
==========================================================
==========================================================
===============
Foreign Government Corporacion Andina de Fomento Sr. Unsec. Debs., 7.25%, 4/30/98 $ 100,000 $
92,500
Obligations -- 11.0% ----------------------------------------------------------------------------------------------------------
First Australia National Mortgage Acceptance Corp. Ltd. Bonds,
Series 22, 11.40%, 12/15/01 AUD 254,160 196,678
----------------------------------------------------------------------------------------------------------
International Bank for Reconstruction and Development Bonds,
12.50%, 7/25/97 NZD 800,000 568,308
----------------------------------------------------------------------------------------------------------
New South Wales Treasury Corp. Gtd. Exch. Bonds, 12%, 12/1/01 AUD 240,000
193,268
----------------------------------------------------------------------------------------------------------
New Zealand (Republic of) Bonds:
10%, 7/15/97 NZD 390,000 263,609
8%, 11/15/95 NZD 750,000 487,148
----------------------------------------------------------------------------------------------------------
Queensland Treasury Corp. Gtd. Nts., 8%, 8/14/01 AUD 1,045,000 695,412
----------------------------------------------------------------------------------------------------------
Spain (Kingdom of) Gtd. Bonds, Bonos y Obligacion del Estado,
10.25%, 11/30/98 ESP 66,000,000 497,881
----------------------------------------------------------------------------------------------------------
United Kingdom Treasury Nts.:
12.25%, 3/26/99 GBP 391,000 717,861
13%, 7/14/00 GBP 276,000 532,996
------------
Total Foreign Government Obligations (Cost $4,146,559) 4,245,661
==========================================================
==========================================================
===============
Municipal Bonds and New York State Environmental Facilities Corp. State Service Contract
Notes -- 0.5% Taxable Revenue Bonds, Series B, 8.15%, 3/15/02 (Cost $197,771) 200,000
197,187
==========================================================
==========================================================
===============
Corporate Bonds and Notes -- 27.4%
- -----------------------------------------------------------------------------------------------------------------------------------
Basic Industry -- 2.5%
- -----------------------------------------------------------------------------------------------------------------------------------
Chemical -- 1.4% Quantum Chemical Corp., 10.375% Fst. Mtg. Nts., 6/1/03 500,000
552,686
- -----------------------------------------------------------------------------------------------------------------------------------
Paper -- 1.1% Scotia Pacific Holding Co., 7.95% Timber Collateralized Nts , 7/20/15 461,786 437,292
- -----------------------------------------------------------------------------------------------------------------------------------
Consumer Related -- 4.3%
- -----------------------------------------------------------------------------------------------------------------------------------
Food/Beverages ConAgra, Inc., 7.40% Sub. Nts., 9/15/04 250,000 241,592
/Tobacco -- 1.7% ----------------------------------------------------------------------------------------------------------
Dr. Pepper/Seven-Up Cos., Inc., 0%/11.50% Sr. Sub. Disc. Nts., 11/1/02(7) 500,000 435,000
-----------
676,592
- -----------------------------------------------------------------------------------------------------------------------------------
Healthcare -- 1.1% R.P. Scherer International Corp., 6.75% Sr. Nts., 2/1/04 500,000 442,500
- -----------------------------------------------------------------------------------------------------------------------------------
Hotel/Gaming -- 0.4% Circus Circus Enterprises, Inc., 6.75% Nts., 7/15/03 150,000 135,619
- -----------------------------------------------------------------------------------------------------------------------------------
Textile/Apparel -- 1.1% Fruit of the Loom, Inc., 7% Debs., 3/15/11 500,000 437,551
- -----------------------------------------------------------------------------------------------------------------------------------
Energy -- 4.5%
- -----------------------------------------------------------------------------------------------------------------------------------
Coastal Corp., 11.75% Sr. Debs., 6/15/06 500,000 540,571
----------------------------------------------------------------------------------------------------------
McDermott, Inc., 9.375% Nts., 3/15/02 100,000 106,561
----------------------------------------------------------------------------------------------------------
Mitchell Energy & Development Corp., 9.25% Sr. Nts., 1/15/02 400,000 423,724
----------------------------------------------------------------------------------------------------------
Southwest Gas Corp., 9.75% Debs., Series F, 6/15/02 275,000 296,511
----------------------------------------------------------------------------------------------------------
Tenneco, Inc.:
10% Debs., 3/15/08 100,000 113,491
7.875% Nts., 10/1/02 250,000 249,517
------------
1,730,375
- -----------------------------------------------------------------------------------------------------------------------------------
Financial Services -- 5.6%
- -----------------------------------------------------------------------------------------------------------------------------------
Banks and Thrifts--2.2% BankAmerica Corp., 7.50% Sr. Nts., 3/15/97 200,000 200,505
----------------------------------------------------------------------------------------------------------
Chemical New York Corp., 9.75% Sub. Cap. Nts., 6/15/99 300,000 321,094
----------------------------------------------------------------------------------------------------------
First Chicago Corp., 9% Sub. Nts., 6/15/99 100,000 104,741
----------------------------------------------------------------------------------------------------------
NBD Bancorp, Inc., 7.25% Sub. Debs., 8/15/04 250,000 238,731
------------
865,071
</TABLE>
6 Oppenheimer Strategic Investment Grade Bond Fund
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
Statement of Investments (Unaudited) (Continued)
----------------------------------------------------------------------------------------------------------
Face Market Value
Amount(1) See Note 1
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Diversified American Car Line Co., 8.25% Equipment Trust Certificates,
Financial -- 3.4% Series 1993-A, 4/15/08 $ 270,000 $ 262,620
----------------------------------------------------------------------------------------------------------
General Motors Acceptance Corp., 8% Nts., 10/1/96 100,000 100,981
----------------------------------------------------------------------------------------------------------
Heller Financial, Inc., 7.75% Nts., 5/15/97 300,000 302,464
----------------------------------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc., 8.375% Nts., 2/15/99 300,000 299,264
----------------------------------------------------------------------------------------------------------
PaineWebber Group, Inc.:
7% Nts., 3/1/00 160,000 150,324
7.75% Sub. Nts., 9/1/02 200,000 188,079
------------
1,303,732
- -----------------------------------------------------------------------------------------------------------------------------------
Manufacturing -- 1.6%
- -----------------------------------------------------------------------------------------------------------------------------------
Automotive -- 1.6% Chrysler Corp., 10.95% Debs., 8/1/17 200,000 222,037
----------------------------------------------------------------------------------------------------------
General Motors Acceptance Corp.:
5.50% Nts., 12/15/01 100,000 87,519
7.75% Nts., 4/15/97 300,000 299,384
------------
608,940
- -----------------------------------------------------------------------------------------------------------------------------------
Media -- 3.9%
- -----------------------------------------------------------------------------------------------------------------------------------
Cable Time Warner, Inc., 9.15% Debs., 2/1/23 100,000 95,211
Television -- 3.9% ----------------------------------------------------------------------------------------------------------
Time Warner, Inc./Time Warner Entertainment LP, 8.375% Sr. Debs., 3/15/23 400,000
359,905
----------------------------------------------------------------------------------------------------------
TKR Cable I, Inc., 10.50% Sr. Debs., 10/30/07 1,000,000 1,065,000
------------
1,520,116
- -----------------------------------------------------------------------------------------------------------------------------------
Retail -- 2.1%
- -----------------------------------------------------------------------------------------------------------------------------------
Department Sears Canada, Inc., 11.70% Debs., 7/10/00 CAD 500,000 391,196
Stores -- 1.0%
- -----------------------------------------------------------------------------------------------------------------------------------
Drug Stores -- 1.1% Hook-Superx Inc., 10.125% Sr. Nts., 6/1/02 400,000 421,000
- -----------------------------------------------------------------------------------------------------------------------------------
Transportation -- 0.8%
- -----------------------------------------------------------------------------------------------------------------------------------
Air AMR Corp., 10% Nts., 4/15/21 200,000 205,680
Transportation -- 0.5%
- -----------------------------------------------------------------------------------------------------------------------------------
Railroads -- 0.3% Union Pacific Corp., 9.65% Medium-Term Nts., 4/17/00 100,000 108,308
- -----------------------------------------------------------------------------------------------------------------------------------
Utilities -- 2.1%
- -----------------------------------------------------------------------------------------------------------------------------------
Electric Commonwealth Edison Co.:
Utilities -- 2.1% 6.40% Nts., 10/15/05 75,000 62,910
6.50% Nts., 7/15/97 225,000 218,817
----------------------------------------------------------------------------------------------------------
Consumers Power Co., 6.375% Nts., 9/15/03 110,000 97,694
----------------------------------------------------------------------------------------------------------
Long Island Lighting Co., 7% Nts., 3/1/04 200,000 166,615
----------------------------------------------------------------------------------------------------------
Public Service Company of Colorado, 8.75% Fst. Mtg. Bonds, 3/1/22 250,000 253,389
------------
799,425
------------
Total Corporate Bonds and Notes (Cost $11,206,004) $ 10,636,083
</TABLE>
7 Oppenheimer Strategic Investment Grade Bond Fund
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
Statement of Investments (Unaudited) (Continued)
----------------------------------------------------------------------------------------------------------
Face Market Value
Amount(1) See Note 1
<S> <C> <C>
==========================================================
==========================================================
===============
Structured Instruments -- 1.0%
- -----------------------------------------------------------------------------------------------------------------------------------
Swiss Bank Corp. Investment Banking, Inc., 10% CD Sterling Rate Linked
Nts., 7/3/95 (Cost $410,000)(2) $ 410,000 $ 403,440
==========================================================
==========================================================
===============
Total Investments, at Value (Cost $39,373,337) 99.9% $ 38,642,164
- -----------------------------------------------------------------------------------------------------------------------------------
Other Assets Net of Liabilities 0.1 28,273
------------- ------------
Net Assets 100.00% $ 38,670,437
=============
============
1. Face amount is reported in local currency. Foreign currency abbreviations are as follows:
ARA -- Argentine Austral ESP -- Spanish Peseta
AUD -- Australian Dollar GBP -- British Pound Sterling
CAD -- Canadian Dollar IDR -- Indonesian Rupiah
CLP -- Chilean Peso NZD -- New Zealand Dollar
DEM -- German Deutsche Mark USD -- U.S. Dollar
2. Indexed instrument for which the principal amount and/or interest due at maturity is affected by the
relative value of a foreign currency.
3. Interest-Only Strips represent the right to receive the monthly interest payments on an underlying pool
of mortgage loans. These securities typically decline in price as interest rates decline. Most other
fixed-income securities increase in price when interest rates decline. The principal amount of the
underlying pool represents the notional amount on which current interest is calculated. The price of these
securities is typically more sensitive to changes in prepayment rates than traditional mortgage-backed
securities (for example, GNMA pass-throughs).
4. Represents a security sold under Rule 144A, which is exempt from registration under the Securities Act
of 1933, as amended. This security has been determined to be liquid under guidelines established by the
Board of Trustees. These securities amount to $774,779 or 2% of the Fund's net assets, at March 31, 1995.
5. Identifies issues considered to be illiquid--See Note 7 of Notes to Financial Statements.
6. Represents the current interest rate for a variable rate security.
7. Represents a zero coupon bond that converts to a fixed rate of interest at a designated future date.
8. A sufficient amount of securities is segregated to collateralize outstanding forward foreign currency
exchange contracts. See Note 5 of Notes to Financial Statements.
9. A sufficient amount of liquid assets has been designated to cover outstanding call and put options, as
follows:
</TABLE>
<TABLE>
<CAPTION>
Face Subject Expiration Exercise Premium Market Value
to Call/Put Date Price Received See Note 1
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Call Option on Australian
Dollar 368 AUD 4/20/95 0.74 USD/AUD $ 637 $1,089
Call Option on New South
Wales Treasury
Corp. Gtd. Exch. Bonds,
12%, 12/1/01 50 AUD 4/28/95 109.06 AUD 339 440
Call Option on Spanish
Peseta/Deutsche Mark 16,000 ESP 5/4/95 89.00 ESP/DEM 892 526
Put Option on
Deutsche Mark 150,000 DEM 6/6/95 1.46 DEM/USD 1,062 750
------ ------
$2,930 $2,805
====== ======
</TABLE>
See accompanying Notes to Financial Statements.
8 Oppenheimer Strategic Investment Grade Bond Fund
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities March 31, 1995 (Unaudited)
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
==========================================================
==========================================================
================
Assets Investments, at value (cost $39,373,337)--see accompanying statement $ 38,642,164
-----------------------------------------------------------------------------------------------------------
Receivables:
Interest 790,651
Shares of beneficial interest sold 44,378
-----------------------------------------------------------------------------------------------------------
Other 8,745
------------
Total assets 39,485,938
==========================================================
==========================================================
================
Liabilities Bank overdraft 504,780
-----------------------------------------------------------------------------------------------------------
Options written, at value (premiums received $2,930) -- see accompanying statement -- Note 4 2,805
-----------------------------------------------------------------------------------------------------------
Unrealized depreciation on forward foreign currency exchange contracts -- Note 5 627
-----------------------------------------------------------------------------------------------------------
Payables and other liabilities:
Shares of beneficial interest redeemed 119,306
Dividends 81,395
Distribution and service plan fees -- Note 6 23,349
Transfer and shareholder servicing agent fees -- Note 6 4,571
Trustees' fees 3,421
Other 75,247
------------
Total liabilities 815,501
==========================================================
==========================================================
================
Net Assets $ 38,670,437
============
==========================================================
==========================================================
================
Composition of Paid-in capital 41,261,601
Net Assets -----------------------------------------------------------------------------------------------------------
Overdistributed net investment income (301,654)
-----------------------------------------------------------------------------------------------------------
Accumulated net realized loss from investment and written option transactions (1,560,198)
-----------------------------------------------------------------------------------------------------------
Net unrealized depreciation on investments and translation of assets and
liabilities denominated in foreign currencies (729,312)
------------
Net assets $ 38,670,437
============
==========================================================
==========================================================
================
Net Asset Value Class A Shares:
Per Share Net asset value and redemption price per share (based on net assets of $23,190,699 and
4,906,735 shares of beneficial interest outstanding) $4.73
Maximum offering price per share (net asset value plus sales charge of 4.75% of offering $4.97
price)
-----------------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price and offering price per share (based on net assets
of $15,479,738 and 3,278,697 shares of beneficial interest outstanding) $4.72
</TABLE>
See accompanying Notes to Financial Statements.
9 Oppenheimer Strategic Investment Grade Bond Fund
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
Statement of Operations For the Six Months Ended March 31, 1995 (Unaudited)
-----------------------------------------------------------------------------------------------------------
==========================================================
==========================================================
================
<S> <C> <C>
Investment Income Interest (net of foreign withholding taxes of $3,709) $1,663,843
==========================================================
==========================================================
================
Expenses Management fees -- Note 6 144,908
-----------------------------------------------------------------------------------------------------------
Distribution and service plan fees:
Class A -- Note 6 28,682
Class B -- Note 6 74,856
-----------------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees -- Note 6 24,800
-----------------------------------------------------------------------------------------------------------
Shareholder reports 24,303
-----------------------------------------------------------------------------------------------------------
Custodian fees and expenses 16,757
-----------------------------------------------------------------------------------------------------------
Legal and auditing fees 9,866
-----------------------------------------------------------------------------------------------------------
Trustees' fees and expenses 5,559
-----------------------------------------------------------------------------------------------------------
Registration and filing fees -- Class B 408
-----------------------------------------------------------------------------------------------------------
Other 2,319
----------
Total expenses 332,458
==========================================================
==========================================================
================
Net Investment Income 1,331,385
==========================================================
==========================================================
================
Realized and Unrealized Net realized loss on:
Gain (Loss) on Investments (939,617)
Investments, Options Expiration of option contracts written -- Note 4 (62,173)
Written and Foreign Foreign currency transactions (197,537)
Currency Transactions ----------
Net realized loss (1,199,327)
-----------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on:
Investments and options written 1,316,562
Translation of assets and liabilities denominated in foreign currencies (72,829)
----------
Net change 1,243,733
----------
Net realized and unrealized gain on investments, options written
and foreign currency transactions 44,406
==========================================================
==========================================================
================
Net Increase in Net Assets Resulting From Operations $1,375,791
==========
</TABLE>
See accompanying Notes to Financial Statements.
10 Oppenheimer Strategic Investment Grade Bond Fund
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets
-----------------------------------------------------------------------------------------------------------
Six Months Ended Year Ended
March 31, 1995 Sept. 30, 1994
(Unaudited)
==========================================================
==========================================================
================
<S> <C> <C> <C>
Operations Net investment income $ 1,331,385 $ 2,779,438
-----------------------------------------------------------------------------------------------------------
Net realized loss on investments, options written and foreign
currency transactions (1,199,327) (915,478)
-----------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or
depreciation on investments and translation of
assets and liabilities denominated in foreign
currencies 1,243,733 (2,729,011)
----------- -----------
Net increase (decrease) in net assets resulting from operations 1,375,791 (865,051)
==========================================================
==========================================================
================
Dividends and Dividends from net investment income:
Distributions Class A ($.160 and $.240 per share, respectively) (815,734) (1,253,403)
To Shareholders Class B ($.142 and $.205 per share, respectively) (457,138) (750,521)
-----------------------------------------------------------------------------------------------------------
Dividends in excess of net investment income:
Class A ($.01 per share) -- (27,359)
Class B ($.01 per share) -- (16,382)
-----------------------------------------------------------------------------------------------------------
Distributions in excess of gain on investments,
options written and foreign currency
transactions:
Class A ($.016 per share) -- (83,250)
Class B ($.016 per share) -- (49,849)
-----------------------------------------------------------------------------------------------------------
Tax return of capital:
Class A ($.079 per share) -- (420,265)
Class B ($.079 per share) -- (251,649)
==========================================================
==========================================================
================
Beneficial Net decrease in net assets resulting from Class A
Interest beneficial interest transactions--Note 2 (1,816,295) (3,401,990)
Transactions -----------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from Class B
beneficial interest transactions--Note 2
488,747 5,432,516
==========================================================
==========================================================
================
Net Assets Total decrease (1,224,629) (1,687,203)
-----------------------------------------------------------------------------------------------------------
Beginning of period 39,895,066 41,582,269
----------- -----------
End of period (including overdistributed net investment income
of $301,654 and $360,167, respectively) $38,670,437 $39,895,066
===========
===========
</TABLE>
See accompanying Notes to Financial Statements.
11 Oppenheimer Strategic Investment Grade Bond Fund
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
Financial Highlights
-----------------------------------------------------------------------------------------------------------
Class A Class B
-----------------------------------------------------------------------------------------
Six Months Ended Six Months Ended Year Ended
March 31, 1995 Year Ended September 30, March 31, 1995 September 30,
(Unaudited) 1994 1993 1992(2) (Unaudited) 1994 1993(1)
==========================================================
================================
<S> <C> <C> <C> <C> <C> <C>
<C>
Per Share Operating Data:
Net asset value, beginning
of period $ 4.71 $ 5.14 $ 5.16 $ 5.00 $ 4.71 $ 5.14 $ 4.95
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .16 .34 .36 .14 .14 .34 .27
Net realized and unrealized
gain (loss) on investments,
options written and foreign
currency transactions .01 (.43) (.01) .19 .01 (.46) .19
------- ------- ------- ------- ------- ------- -------
Total income (loss) from
investment operations .17 (.09) .35 .33 .15 (.12) .46
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions
to shareholders:
Dividends from net
investment income (.15) (.24) (.37) (.14) (.14) (.21) (.27)
Dividends in excess of net
investment income -- (.01) -- -- -- (.01) --
Distributions from net realized
gain on investments, options
written and foreign currency
transactions -- -- -- (.03) -- -- --
Distributions in excess of net
realized gain on investments,
options written and foreign
currency transactions -- (.01) -- -- -- (.01) --
Tax return of capital -- (.08) -- -- -- (.08) --
------- ------- ------- ------- ------- ------- -------
Total dividends and
distributions to shareholders (.15) (.34) (.37) (.17) (.14) (.31) (.27)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 4.73 $ 4.71 $ 5.14 $ 5.16 $ 4.72 $ 4.71 $ 5.14
======= ======= ======= ======= =======
======= =======
==========================================================
==========================================================
================
Total Return, at
Net Asset Value(3) 3.93% (1.76)% 7.24% 6.67% 3.31% (2.45)% 9.54%
==========================================================
==========================================================
================
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) $23,191 $24,956 $30,783 $16,099 $15,480 $14,939 $10,800
- ------------------------------------------------------------------------------------------------------------------------------------
Average net assets
(in thousands) $23,726 $28,294 $25,972 $4,939 $15,018 $14,232 $5,310
- ------------------------------------------------------------------------------------------------------------------------------------
Number of shares outstanding
at end of period
(in thousands) 4,907 5,296 5,989 3,117 3,279 3,174 2,103
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 7.18%(4) 6.80% 7.18% 7.28%(4) 6.44%(4) 6.01%
6.28%(4)
Expenses, before voluntary
reimbursement by the Manager 1.43%(4) 1.38% 1.46% 2.00%(4) 2.18%(4) 2.16%
2.20%(4)
Expenses, net of voluntary
reimbursement by the Manager N/A 1.33% 1.12% .29%(4) N/A 2.12%
1.84%(4)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 42.6% 68.6% 90.3% 30.6% 42.6% 68.6% 90.3%
</TABLE>
1. For the period from November 30, 1992 (inception of offering) to September
30, 1993.
2. For the period from April 22, 1992 (commencement of operations) to September
30, 1992.
3. 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. Total returns are not annualized for
periods of less than one full year.
4. Annualized.
5. 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 six
months ended March 31, 1995 were $15,559,339 and $14,921,706, respectively.
See accompanying Notes to Financial Statements.
12 Oppenheimer Strategic Investment Grade Bond Fund
<PAGE>
<TABLE>
--------------------------------------------------------------------------------------------------------
Notes to Financial Statements (Unaudited)
--------------------------------------------------------------------------------------------------------
==========================================================
==========================================================
================
<S> <C>
1. Significant Oppenheimer Strategic Investment Grade Bond Fund (the Fund) is registered under the Investment
Company
Accounting Policies Act of 1940, as amended, as a diversified, open-end management investment company. The Fund's
investment
advisor is Oppenheimer Management Corporation (the Manager). The Fund offers both Class A and Class
B
shares. Class A shares are sold with a front-end sales charge. Class B shares may be subject to a
contingent deferred sales charge. Both classes of shares have identical rights to earnings, assets and
voting privileges, except that each class has its own distribution and/or service plan, expenses directly
attributable to a particular class and exclusive voting rights with respect to matters affecting a single
class. Class B shares will automatically convert to Class A shares six years after the date of purchase.
The following is a summary of significant accounting policies consistently followed by the Fund.
--------------------------------------------------------------------------------------------------------
Investment Valuation. Portfolio securities are valued at the close of the New York Stock Exchange on each
trading day. Listed and unlisted securities for which such information is regularly reported are valued
at the last sale price of the day or, in the absence of sales, at values based on the closing bid or
asked price or the last sale price on the prior trading day. Long-term and short-term "non-money market"
debt securities are valued by a portfolio pricing service approved by the Board of Trustees. Such
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 "money market
type" 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
contracts are valued based on the closing prices of the forward currency contract rates in the London
foreign exchange markets on a daily basis as provided by a reliable bank or dealer. 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 price 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.
--------------------------------------------------------------------------------------------------------
Foreign Currency Translation. The accounting records of the Fund are maintained in U.S. dollars. Prices
of securities denominated in foreign currencies are translated into U.S. dollars at the closing rates of
exchange. Amounts related to the purchase and sale of securities and investment income are translated at
the rates of exchange prevailing on the respective dates of such transactions. The effect of changes in
foreign currency exchange rates on investments is separately identified from the fluctuations arising
from changes in market values of securities held and reported with all other foreign currency gains and
losses in the funds results of operations.
--------------------------------------------------------------------------------------------------------
Repurchase Agreements. The Fund requires the custodian to take possession, to have legally segregated
in
the Federal Reserve Book Entry System or to have segregated within the custodian's vault, all securities
held as collateral for repurchase agreements. The market value of the underlying securities is required
to be at least 102% of the resale price at the time of purchase. If the seller of the agreement defaults
and the value of the collateral declines, or if the seller enters an insolvency proceeding, realization
of the value of the collateral by the Fund may be delayed or limited.
--------------------------------------------------------------------------------------------------------
Allocation of Income, Expenses and Gains and Losses. Income, expenses (other than those attributable to
a
specific class) and gains and losses are allocated daily to each class of shares based upon the relative
proportion of net assets represented by such class. Operating expenses directly attributable to a
specific class are charged against the operations of that class.
</TABLE>
13 Oppenheimer Strategic Investment Grade Bond Fund
<PAGE>
<TABLE>
--------------------------------------------------------------------------------------------------------
Notes to Financial Statements (Unaudited) (Continued)
--------------------------------------------------------------------------------------------------------
==========================================================
==========================================================
================
<S> <C>
1. Significant Federal Taxes. The Fund intends to continue to comply with provisions of the Internal Revenue Code
Accounting Policies applicable to regulated investment companies and to distribute all of its taxable income, including
(continued) any net realized gain on investments not offset by loss carryovers, to shareholders. Therefore, no
federal income or excise tax provision is required.
--------------------------------------------------------------------------------------------------------
Organization Costs. The Manager advanced $15,264 for organization and start-up costs of the Fund. Such
expenses are being amortized over a five-year period from the date operations commenced. In the event
that all or part of the Manager's initial investment in shares of the Fund is withdrawn during the
amortization period, the redemption proceeds will be reduced to reimburse the Fund for any unamortized
expenses, in the same ratio as the number of shares redeemed bears to the number of initial shares
outstanding at the time of such redemption.
--------------------------------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------------------------------
Classification of Distributions to Shareholders. Net investment income (loss) and net realized gain
(loss) may differ for financial statement and tax purposes primarily because of premium amortization,
paydown gains and losses and the recognition of certain foreign currency gains (losses) as ordinary
income (loss) for tax purposes. 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 October 1, 1993, the Fund adopted Statement of Position 93-2: Determination, Disclosure, and
Financial Statement Presentation of Income, Capital Gain, and Return of Capital Distributions by
Investment Companies. As a result, the Fund changed the classification of distributions to shareholders
to better disclose the differences between financial statement amounts and distributions determined in
accordance with income tax regulations.
--------------------------------------------------------------------------------------------------------
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 options
written 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 The Fund has authorized an unlimited number of no par value shares of beneficial interest of each class.
Beneficial Interest Transactions in shares of beneficial interest were as follows:
<CAPTION>
Six Months Ended Year Ended
March 31, 1995 September 30, 1994
------------------------ ----------------------------
Shares Amount Shares Amount
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A:
Sold 216,930 $ 1,010,227 1,541,101 $ 7,739,640
Dividends and distributions reinvested 113,935 529,812 284,805 1,388,625
Redeemed (720,209) (3,356,334) (2,518,406) (12,530,255)
-------- ----------- ---------- ------------
Net decrease (389,344) $(1,816,295) (692,500) $ (3,401,990)
======== =========== ==========
============
-------------------------------------------------------------------------------------------------------
Class B:
Sold 261,377 $ 1,214,760 1,732,642 $ 8,472,995
Dividends and distributions reinvested 61,471 285,714 74,300 587,645
Redeemed (217,771) (1,011,727) (736,073) (3,628,124)
-------- ----------- ---------- ------------
Net increase 105,077 $ 488,747 1,070,869 $ 5,432,516
======== =========== ==========
============
</TABLE>
14 Oppenheimer Strategic Investment Grade Bond Fund
<PAGE>
<TABLE>
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
==========================================================
==========================================================
================
3. Unrealized Gains and At March 31, 1995, net unrealized depreciation on investments of $731,048 was composed
of gross
Losses on Investments appreciation of $595,457, and gross depreciation of $1,326,505.
==========================================================
==========================================================
================
4. Option Activity The Fund may buy and sell put and call options, or write covered call options on portfolio securities
in
order to produce incremental earnings or protect against changes in the value of portfolio securities.
The Fund generally purchases put options or writes covered call options to hedge against
adverse movements in the value of portfolio holdings. When an option is written, the Fund receives a
premium and becomes obligated to sell or purchase the underlying security at a fixed price, upon exercise
of the option.
Options are valued daily based upon the last sale price on the principal exchange on which the
option is traded and unrealized appreciation or depreciation is recorded. The Fund will realize a gain or
loss upon the expiration or closing of the option transaction. When an option is exercised, the proceeds
on sales for a written call option, the purchase cost for a written put option, or the cost of the
security for a purchased put or call option is by the amount of premium received or paid.
In this report, securities designated to cover outstanding call options are noted in the
Statement of Investments. Shares subject to call, expiration date, exercise price, premium received and
market value are detailed in a footnote to the Statement of Investments. Options written are reported as
a liability in the Statement of Assets and Liabilities. Gains and losses are reported in the Statement of
Operations.
The risk in writing a call option is that the Fund gives up the opportunity for profit if the
market price of the security increases and the option is exercised. The risk in writing a put option is
that the Fund may incur a loss if the market price of the security decreases and the option is exercised.
The risk in buying an option is that the Fund pays a premium whether or not the option is exercised. The
Fund also has the additional risk of not being able to enter into a closing transaction if a liquid
secondary market does not exist.
Written option activity for the six months ended March 31, 1995 was as follows:
<CAPTION>
Call Options Put Options
------------------------ -------------------------
Number Amount Number Amount
of Options of Premiums of Options of Premiums
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Options outstanding at September 30, 1994 3,262,561 $41,361 -- $ --
--------------------------------------------------------------------------------------------------------
Options written 1,007 3,874 102,740 1,062
--------------------------------------------------------------------------------------------------------
Options canceled in closing transactions (3,263,128) (43,367) -- --
--------------------------------------------------------------------------------------------------------
Options outstanding at March 31, 1995 440 $ 1,868 102,740 $ 1,062
========= ======= ========
=======
==========================================================
==========================================================
================
5. Forward Contracts A forward foreign currency exchange contract (forward contract) is a commitment to purchase or
sell a
foreign currency at a future date, at a negotiated rate.
The Fund uses forward contracts to seek to manage foreign currency risks. They may also be used
to tactically shift portfolio currency risk. The Fund generally enters into forward contracts as a hedge
upon the purchase or sale of a security denominated in a foreign currency. In addition, the Fund may
enter into such contracts as a hedge against changes in foreign currency exchange rates on portfolio
positions.
Forward contracts are valued based on the closing prices of the forward currency contract rates
in the London foreign exchange markets on a daily basis as provided by a reliable bank or dealer. The
Fund will realize a gain or loss upon the closing or settlement of the forward transaction.
</TABLE>
15 Oppenheimer Strategic Investment Grade Bond Fund
<PAGE>
<TABLE>
-------------------------------------------------------------------------------------------------------
Notes to Financial Statements (Unaudited) (Continued)
-------------------------------------------------------------------------------------------------------
==========================================================
==========================================================
================
5. Forward Contracts In this report, securities held in segregated accounts to cover net exposure on outstanding forward
(continued) contracts are noted in the Statement of Investments where applicable. Gains and losses on
outstanding contracts (unrealized appreciation or depreciation on forward contracts) are reported
in the Statement of Assets and Liabilities. Realized gains and losses are reported with all other
foreign currency gains and losses in the Fund's Statement of Operations.
Risks include the potential inability of the counterparty to meet the terms of the contract and
unanticipated movements in the value of a foreign currency relative to the U.S. dollar.
At March 31, 1995, the Fund had outstanding forward contracts to purchase and sell foreign
currencies as follows:
<CAPTION>
Contract Valuation Unrealized
Expiration Amount as of Appreciation
Contracts to Purchase Date (000s) March 31, 1995 (Depreciation)
--------------------- ----------------- ----------- -------------- --------------
<S> <C> <C> <C> <C>
Deutsche Mark 4/10/95-5/16/95 606 $ 442,964 $10,942
New Zealand Dollar 5/4/95 206 135,028 156
---------- -------
$577,992 $11,098
========== =======
Contracts to Sell
---------------------------------------------------------------------------------------------------------
Australian Dollar 5/4/95 184 $ 135,067 $ (195)
Spanish Peseta 4/10/95-5/16/95 56,000 443,552 (11,530)
---------- --------
$ 578,619 $(11,725)
========== ========
</TABLE>
<TABLE>
==========================================================
==========================================================
================
<S> <C>
6. Management Fees Management fees paid to the Manager were in accordance with the investment advisory agreement
with
And Other the Fund which provides for an annual fee of .75% on the first $200 million of net assets with a
Transactions With reduction of .03% on each $200 million thereafter to $800 million, .60% on the next $200
Affiliates million and .50% on net assets in excess of $1 billion. The Manager has agreed to reimburse the
Fund if aggregate expenses (with specified exceptions) exceed the most stringent state regulatory
limit on Fund expenses.
For the six months ended March 31, 1995, commissions (sales charges paid by investors) on sales
of Class A shares totaled $25,282, of which $10,165 was retained by Oppenheimer Funds Distributor, Inc.
(OFDI), a subsidiary of the Manager, as general distributor, and by an affiliated broker/dealer. Sales
charges advanced to broker/dealers by OFDI on sales of the Fund's Class B shares totaled $38,451, of
which $19,488 was paid to an affiliated broker/dealer. During the six months ended March 31, 1995, OFDI
received contingent deferred sales charges of $21,115 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 financial
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 six months ended March 31, 1995, OFDI paid $5,099 and $1,924, respectively, to an affiliated
broker/dealer as reimbursement for Class A and Class B personal service and maintenance expenses and
retained $61,344 as reimbursement for Class B sales commissions and service fee advances, as well as
financing costs.
</TABLE>
16 Oppenheimer Strategic Investment Grade Bond Fund
<PAGE>
<TABLE>
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
==========================================================
==========================================================
================
<S> <C>
7. Illiquid Securities At March 31, 1995, investments in securities included issues that are illiquid or restricted.
The securities are often purchased in private placement transactions, are not registered under the
Securities Act of 1933, may have contractual restrictions on resale, and 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 illiquid or restricted securities. The
aggregate value of these securities subject to this limitation at March 31, 1995 was $1,927,500 which
represents 4.98% of the Fund's net assets. Information concerning these securities is as follows:
</TABLE>
<TABLE>
<CAPTION>
Valuation
Cost Per Per Unit as of
Security Acquisition Date Unit March 31, 1995
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FDIC Trust, Gtd. Real Estate Mtg. Investment Conduit
Pass-Through Certificates, Series 1994--C1, Cl. 2-D,
8.70%, 9/25/25 8/10/94 $98.00 $98.09
---------------------------------------------------------------------------------------------------------
FDIC Trust, Gtd. Real Estate Mtg. Investment Conduit
Pass-Through Certificates, Series 1994-C1, Cl. 2-E,
8.70%, 9/25/25 8/10/94 $94.87 $94.66
Pursuant to guidelines adopted by the Board of Trustees, certain unregistered securities are
determined to be liquid and are not included within the 10% limitation specified above.
</TABLE>
17 Oppenheimer Strategic Investment Grade Bond Fund
<PAGE>
<TABLE>
----------------------------------------------------------------------------------------------------------
Oppenheimer Strategic Investment Grade Bond Fund
----------------------------------------------------------------------------------------------------------
==========================================================
==========================================================
================
<S> <C>
Officers and Trustees James C. Swain, Chairman and Chief Executive Officer
Robert G. Avis, Trustee
William A. Baker, Trustee
Charles Conrad, Jr., Trustee
Jon S. Fossel, Trustee and President
Raymond J. Kalinowski, Trustee
C. Howard Kast, Trustee
Robert M. Kirchner, Trustee
Ned M. Steel, Trustee
Andrew J. Donohue, Vice President
David P. Negri, Vice President
Arthur P.Steinmetz, Vice President
George C. Bowen, Vice President, Secretary and Treasurer
Robert J. Bishop, Assistant Treasurer
Scott Farrar, Assistant Treasurer
Robert G. Zack, Assistant Secretary
==========================================================
==========================================================
================
Investment Advisor Oppenheimer Management Corporation
==========================================================
==========================================================
================
Distributor Oppenheimer Funds Distributor, Inc.
==========================================================
==========================================================
================
Transfer and Shareholder Oppenheimer Shareholder Services
Servicing Agent
==========================================================
==========================================================
================
Custodian of The Bank of New York
Portfolio Securities
==========================================================
==========================================================
================
Independent Auditors Deloitte & Touche LLP
==========================================================
==========================================================
================
Legal Counsel Myer, Swanson, Adams & Wolf, P.C.
The financial statements included herein have been taken from the records of the Fund without examination
by the independent auditors.
This is a copy of a report to shareholders of Oppenheimer Strategic Investment Grade Bond Fund. This
report must be preceded or accompanied by a Prospectus of Oppenheimer Strategic Investment Grade Bond
Fund. For material information concerning the Fund, see the Prospectus.
</TABLE>
18 Oppenheimer Strategic Investment Grade Bond Fund
<PAGE>
<TABLE>
-----------------------------------------------------------------------------------------------------
OppenheimerFunds Family
-----------------------------------------------------------------------------------------------------
==========================================================
==========================================================
================
<S> <C> <C>
OppenheimerFunds offers over 35 funds designed to fit virtually every investment goal. Whether
you're investing for retirement, your children's education or tax-free income, we have the funds to
help you seek your objective.
When you invest with OppenheimerFunds, you can feel comfortable knowing that you are investing
with a respected financial institution with over 30 years of experience in helping people just like
you reach their financial goals. And you're investing with a leader in global, growth stock and
flexible fixed income investments--with over 2.4 million shareholder accounts and more than $30
billion under Oppenheimer's management and that of our affiliates.
At OppenheimerFunds, we don't charge a fee to exchange shares of eligible funds of the same
class. And you can exchange shares easily by mail or by telephone.1 For more information on
OppenheimerFunds, please contact your financial advisor or call us at 1-800-525-7048 for a
prospectus. You may also write us at the address shown on the back cover. As always, please read the
prospectus carefully before you invest.
==========================================================
==========================================================
================
Stock Funds Discovery Fund Global Fund
Global Emerging Growth Fund(2) Oppenheimer Fund
Time Fund Value Stock Fund
Target Fund Gold & Special Minerals Fund
Growth Fund(3)
==========================================================
==========================================================
================
Stock & Bond Funds Main Street Income & Growth Fund Equity Income Fund
Total Return Fund Asset Allocation Fund
Global Growth & Income Fund
==========================================================
==========================================================
================
Bond Funds High Yield Fund Strategic Short-Term Income Fund
Champion High Yield Fund Investment Grade Bond Fund
Strategic Income & Growth Fund Mortgage Income Fund
Strategic Income Fund U.S. Government Trust
Strategic Diversified Income Fund Limited-Term Government Fund
Strategic Investment Grade Bond Fund
==========================================================
==========================================================
================
Tax-Exempt Funds New York Tax-Exempt Fund(4) New Jersey Tax-Exempt Fund(4)
California Tax-Exempt Fund(4) Tax-Free Bond Fund
Pennsylvania Tax-Exempt Fund(4) Insured Tax-Exempt Bond Fund
Florida Tax-Exempt Fund(4) Intermediate Tax-Exempt Bond Fund
==========================================================
==========================================================
================
Money Market Funds Money Market Fund Cash Reserves
1. Exchange privileges are subject to change or termination.
2. Formerly Oppenheimer Global Bio-Tech Fund.
3. Formerly Special Fund.
4. Available only to residents of certain states.
OppenheimerFunds are distributed by Oppenheimer Funds Distributor, Inc., Two World Trade Center,
New York, NY10048-0203.
(C) Copyright 1995 Oppenheimer Management Corporation. All rights reserved.
19 Oppenheimer Strategic Investment Grade Bond Fund
</TABLE>
<PAGE>
Information
General Information
Monday-Friday 8:30 a.m.-8 p.m. ET
Saturday 10 a.m.-2 p.m. ET
- -------------------------------------
1-800-525-7048
- -------------------------------------
Telephone Transactions
Monday-Friday 8:30 a.m.-8 p.m. ET
- -------------------------------------
1-800-852-8457
- -------------------------------------
PhoneLink
24 hours a day, automated
information and transactions
- -------------------------------------
1-800-533-3310
- -------------------------------------
Telecommunications Device
for the Deaf (TDD)
Monday-Friday 8:30 a.m.-8 p.m. ET
- -------------------------------------
1-800-843-4461
- -------------------------------------
OppenheimerFunds
Information Hotline
24 hours a day, timely and insightful
messages on the economy and
issues that affect your investments
- -------------------------------------
1-800-835-3104
- -------------------------------------
RS0245.001.0595 May 31, 1995
[PHOTOGRAPH]
Jennifer Leonard, Customer Service Representative
Oppenheimer Shareholder Services
"How may I help you?"
As an OppenheimerFunds shareholder, you have some special privileges. Whether
it's automatic investment plans, informative newsletters and hotlines, or ready
account access, you can benefit from services designed to make investing simple.
And when you need help, our Customer Service Representatives are only a
toll-free phone call away. They can provide information about your account and
handle administrative requests. You can reach them at our General Information
number.
When you want to make a transaction, you can do it easily by calling our
toll-free Telephone Transactions number. And, by enrolling in AccountLink, a
convenient service that "links" your OppenheimerFunds accounts and your bank
checking or savings account, you can use the Telephone Transactions number to
make investments.
For added convenience, you can get automated information with
OppenheimerFunds PhoneLink service, available 24 hours a day, 7 days a week.
PhoneLink gives you access to a variety of fund, account, and market
information. Of course, you can always speak with a Customer Service
Representative during the General Information hours shown at the left.
You can count on us whenever you need assistance. That's why the
International Customer Service Association, an independent, nonprofit
organization made up of over 3,200 customer service management professionals
from around the country, honored the OppenheimerFunds' transfer agent,
Oppenheimer Shareholder Services, with their Award of Excellence in 1993.
So call us today--we're here to help.
- --------------------------------------------------------------------------------
[LOGO] Oppenheimer Funds(R) ---------------
Oppenheimer Funds Distributor, Inc. Bulk Rate
P.O. Box 5270 U.S. Postage
Denver, CO 80217-5270 PAID
Permit No. 469
Denver, Co.
<PAGE>
Oppenheimer Investment Grade Bond Fund
Annual Report December 31, 1994
[photo depicting woman and girl shopping]
"To help pay
for extras,
I count on
the money
I get from
my investments."
[logo] OppenheimerFunds
<PAGE>
This Fund is for people who want solid income and feel most comfortable getting
it from quality investments.
How Your Fund Is Managed
Oppenheimer Investment Grade Bond Fund's portfolio is made up of investment
grade corporate bonds, U.S. government securities, and high-quality money market
instruments.
Of these three types of investments, corporate bonds often offer the
highest yields, but can come in all different levels of quality. That's why your
Fund allocates assets to investment grade corporate bonds only--so it can seek
high yields with less risk. And investing in U.S. government securities and
high-quality money market instruments helps to further provide income with
relative stability.
Yield
Standardized Yield
For the 30 Days Ended 12/31/94:(1)
Class A
6.76%
Class B
6.34%
Performance
Total return at net asset value for the 12 months ended 12/31/94 was -3.87% for
Class A shares and -4.53% for Class B shares.(2)
The financial markets had a difficult year and, like many mutual funds,
your Fund felt the effects. While difficult years are hard to accept, they're
an inevitable part of investing. That's why keeping a long-term perspective is
crucial to getting the most from your investment and helping you through
short-term market fluctuations.
Your Fund's average annual total returns at maximum offering price for
Class A shares for the 1- and 5-year periods ended 12/31/94 and since inception
of the Class on 4/15/88 were -8.43%, 5.97% and 6.79%, respectively. For Class B
shares, average annual total returns for the 1-year period ended 12/31/94 and
since inception of the Class on 5/1/93 were -9.03% and -2.67%, respectively.(3)
Outlook
"The past year was a challenging one for the bond market, but our
outlook as we enter 1995 is very constructive. The Federal Reserve's efforts to
fend off inflation, while temporarily disconcerting, have had their desired
effect. Inflation remains under control, and with our ability to invest across
the investment-grade spectrum--in corporate, asset-backed, mortgage-backed and
U.S. government bonds--the Fund is positioned to deliver attractive real,
inflation-adjusted returns."
Mary Wilson, Portfolio Manager
Massachusetts Mutual Life Insurance Co.,
The Fund's Sub-Advisor
December 31, 1994
1. Standardized yield is net investment income calculated on a yield-to-maturity
basis for the 30-day period ended 12/31/94, divided by the maximum offering
price at the end of the period, compounded semi-annually and then annualized.
Falling net asset values will tend to artificially raise yields.
2. Based on the change in net asset value per share from 12/31/93 to 12/31/94,
without deducting any sales charges. Such performance would have been lower if
sales charges were taken into account.
3. Average annual total returns are based on a hypothetical investment held
until 12/31/94, after deducting the current maximum initial sales charge of
4.75% for Class A shares and the contingent deferred sales charge of 5% (1 year)
and 4% (since inception) for Class B shares. The Fund's maximum sales charge
rate for Class A shares was lower during a portion of some of the periods shown,
and actual investment results will be different as a result of the change. Class
A and Class B shares were first publicly offered on 4/15/88 and 5/1/93,
respectively.
All figures assume reinvestment of dividends and capital gains distributions.
Past performance is not indicative of future results. Investment and principal
value on an investment in the Fund will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than the original cost.
2 Oppenheimer Investment Grade Bond Fund
<PAGE>
Dear OppenheimerFunds Shareholder,
The past year was marked by one of the greatest tests the bond markets faced in
more than six decades. As the U.S. Federal Reserve undertook one of the most
aggressive series of moves to raise interest rates in its history, bond prices
declined across the board, leaving many investors to wonder what the future
holds for interest rates and the fixed income markets.
Changing interest rates and fluctuating bond prices are facts of life
affecting all bond markets, and it's a bond market basic principle that when
interest rates rise, bond prices generally decline. That is why we believe the
best measure for any fixed income investment is its performance over the long
term. And we believe the long-term outlook for the bond markets is excellent.
We expect the Fed's attempt to preempt possible inflation, while
temporarily disconcerting, to have its desired effect in 1995. The economy
should start to slow, and although short-term rates may move up modestly from
their present levels, long-term interest rates should stabilize in their current
range. Long-term rates may even begin to decline as overblown concerns about
inflation abate.
Those concerns are, in fact, already fading. While the prices of some
commodities have risen over the past year and U.S. manufacturing capacity
utilization and employment rose to their highest levels in years, in today's
globally competitive environment, price increases are difficult to pass on to
either consumers or businesses. The inflation rate--as measured by the Consumer
Price Index--continues to run at less than 3% a year, and there's nothing on the
horizon to suggest to us that it will increase substantially anytime soon. As a
result, bonds today offer some of the highest real, inflation-adjusted returns
we have seen in years.
At the same time, the changing political landscape reflected in results
of the mid-term election bode well for the bond market over time. In addition to
limiting the expectation that Congress will pass potentially inflationary
government spending proposals, the realignment in Washington has raised the
possibility of tax relief in the form of an expanded deduction for individual
retirement savings or possibly a reduction in the capital gains tax rate. What
specific action, if any, Congress will take on these proposals remains to be
seen. But any action to reduce the federal deficit, cut spending, and reduce
taxes should be good news for the investment markets overall. Together, these
factors suggest to us that 1995 will be a rewarding time for bond market
investors.
We expect that as short-term rates rise and inflation holds at its
current level, short-term investments should provide more attractive real,
inflation-adjusted yields. Longer-term bonds in all sectors--corporate,
municipal, and U.S. government--may also provide very attractive total return
opportunities. Along with strong yields, longer-term bonds offer the prospect of
modest price appreciation during 1995 as well.
Your portfolio manager discusses your Fund's outlook on the following
pages. We appreciate your confidence in OppenheimerFunds and we look forward to
helping you continue to reach your investment goals.
James C. Swain
Chairman
Oppenheimer
Investment Grade
Bond Fund
Jon S. Fossel
President
Oppenheimer
Investment Grade
Bond Fund
James C. Swain Jon S. Fossel
January 23, 1995
3 Oppenheimer Investment Grade Bond Fund
<PAGE>
Q + A
An interview with the Fund's managers.
The Fund delivered an attractive yield over the last 12 months, but its
performance was off for the year on a total return basis. What factors affected
the Fund's results?
One factor stands out: the Federal Reserve's aggressive moves to raise
short-term interest rates to control inflation. Rising interest rates took a
toll on all bonds and bond funds, and the bonds on which this Fund
concentrated--those in the intermediate-maturity sector--were particularly
affected.
How did you respond to rising interest rates?
We made a number of adjustments. As the corporate yield advantage over Treasury
securities narrowed during the year, we reduced our corporate holdings somewhat,
selling bonds that had performed well, including Marriott and Comdisco, and
reinvesting the proceeds in asset-backed issues from issuers like Ford and
Daimler-Benz. These issues, which are secured by short-term and medium-term
receivables, combine very attractive yields with high credit quality. We also
modestly increased our holdings of mortgage-backed bonds.(1)
What made mortgage-backed securities so attractive in the past six months?
As interest rates rose, the major risk in the mortgage market--that of
pre-payments and refinancing by mortgage- holders--was reduced significantly.
With interest rates at their current levels, the mortgage-backed market is much
more stable and predictable than it was a year ago, while offering attractive
yields. Of course, to keep potential price fluctuations to a minimum, we
continue to invest in well-seasoned, well-structured mortgage-backed securities.
How about Treasuries? Have you made any adjustments to that portion of the
portfolio in the past six months?
We have. Given the outlook for rising interest rates, we reduced the Fund's
relative exposure to Treasuries, which tend to lag investment-grade corporate
bonds in the mid-to-late stages of economic expansion. We also modestly reduced
our Treasury durations--a technical measure of a bond portfolio's sensitivity to
interest rate changes. At year end, our portfolio's duration was about half a
year shorter than that of the Lehman Brothers Corporate/Government Bond Index.
All in all, it sounds like you've positioned the portfolio somewhat
conservatively.
That's true. In addition to the adjustments we've made in our
bond holdings, we've also increased our position in short-term money market
securities somewhat, in an effort to "keep our powder dry" until the bond market
stabilizes.
What's your outlook for the Fund? Do you expect the markets to stabilize any
time soon?
We do; in fact, we're seeing signs of it today. Investors are
beginning to recognize that there are no signs of runaway inflation or
double-digit interest rates on the horizon. They're also recognizing that bonds
offer some of the most attractive real, inflation-adjusted returns available in
years. As a result, money is beginning to come back to the bond market,
providing solid sup-port for bond prices.
Mary Wilson
Portfolio Manager
1. The Fund's portfolio is subject to change.
4 Oppenheimer Investment Grade Bond Fund
<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%
<FN>
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.
</FN>
</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>
15 Oppenheimer Investment Grade Bond Fund
<PAGE>
<TABLE>
<S> <C>
-----------------------------------------------------------------------------------------------------
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
</TABLE>
16 Oppenheimer Investment Grade Bond Fund
<PAGE>
<TABLE>
<S> <C>
-----------------------------------------------------------------------------------------------------
Federal Income Tax Information (Unaudited)
-----------------------------------------------------------------------------------------------------
==========================================================
==========================================================
===============
In early 1995, shareholders will receive information regarding all dividends and distributions paid
to them by the Fund during calendar year 1994. Regulations of the U.S. Treasury Department require
the Fund to report this information to the Internal Revenue Service.
None of the dividends paid by the Fund during the fiscal year ended December 31, 1994 are
eligible for the corporate dividend-received deduction.
The foregoing information is presented to assist shareholders in reporting distributions
received from the Fund to the Internal Revenue Service. Because of the complexity of the federal
regulations which may affect your individual tax return and the many variations in state and local
tax regulations, we recommend that you consult your tax advisor for specific guidance.
</TABLE>
17 Oppenheimer Investment Grade Bond Fund
<PAGE>
<TABLE>
<S> <C>
-----------------------------------------------------------------------------------------------------
Oppenheimer Investment Grade Bond Fund
-----------------------------------------------------------------------------------------------------
A Series of Oppenheimer Integrity Funds
==========================================================
==========================================================
===============
Officers and Trustees James C. Swain, Chairman and Chief Executive Officer
Robert G. Avis, Trustee
William A. Baker, Trustee
Charles Conrad, Jr., Trustee
Jon S. Fossel, Trustee and President
Raymond J. Kalinowski, Trustee
C. Howard Kast, Trustee
Robert M. Kirchner, Trustee
Ned M. Steel, Trustee
Andrew J. Donohue, Vice President
Mary E. Wilson, Vice President
George C. Bowen, Vice President, Secretary and Treasurer
Robert J. Bishop, Assistant Treasurer
Scott Farrar, Assistant Treasurer
Robert G. Zack, Assistant Secretary
==========================================================
==========================================================
===============
Investment Advisor Oppenheimer Management Corporation
==========================================================
==========================================================
===============
Sub-Advisor Massachusetts Mutual Life Insurance Company
==========================================================
==========================================================
===============
Distributor Oppenheimer Funds Distributor, Inc.
==========================================================
==========================================================
===============
Transfer and Shareholder
Servicing Agent Oppenheimer Shareholder Services
==========================================================
==========================================================
===============
Custodian of
Portfolio Securities The Bank of New York
==========================================================
==========================================================
===============
Independent Auditors Deloitte & Touche LLP
==========================================================
==========================================================
===============
Legal Counsel Myer, Swanson, Adams & Wolf, P.C.
This is a copy of a report to shareholders of Oppenheimer Investment Grade Bond Fund. This report
must be preceded by a Prospectus of Oppenheimer Investment Grade Bond Fund. For material
information
concerning the Fund, see the Prospectus.
</TABLE>
18 Oppenheimer Investment Grade Bond Fund
<PAGE>
OppenheimerFunds Family
OppenheimerFunds offers over 35 funds designed to
fit virtually every investment goal. Whether you're
investing for retirement, your children's education or
tax-free income, we have the funds to help you seek your
objective.
When you invest with OppenheimerFunds, you can
feel comfortable knowing that you are investing with a
respected financial institution with over 30 years of
experience in helping people just like you reach their
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investments--with over 1.8 million shareholder accounts
and more than $29 billion under Oppenheimer's management
and that of our affiliates.
As an OppenheimerFunds shareholder, you can easily
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For more information on OppenheimerFunds, please contact
your financial advisor or call us at 1-800-525-7048 for
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1. The fee is waived for PhoneLink exchanges between
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2. Formerly Oppenheimer Global Bio-Tech Fund and
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3. Formerly Special Fund.
4. Available only to residents of those states.
OppenheimerFunds are distributed by Oppenheimer Funds
Distributor, Inc., Two World Trade Center, New York,
NY10048-0203.
(C)Copyright 1995 Oppenheimer
Management Corporation. All rights reserved.
19 Oppenheimer Investment Grade Bond Fund
<PAGE>
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As an OppenheimerFunds shareholder, some special privileges are available to
you. Whether it's automatic investment plans, informative newsletters and
hotlines, or ready account access, you can benefit from services designed to
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And when you need help, our Customer Service Representatives are only a
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handle administrative requests. You can reach them at our General Information
number.
When you want to make a transaction, you can do it easily by calling
our toll-free Telephone Transactions number. And, by enrolling in AccountLink, a
convenient service that "links" your OppenheimerFunds accounts and your bank
checking or savings account, you can use the Telephone Transactions number to
make investments.
For added convenience, you can get automated information with
OppenheimerFunds PhoneLink service, available 24 hours a day, 7 days a week.
PhoneLink gives you access to a variety of fund, account, and market
information. It also gives you the ability to make transactions using your
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Representative during business hours.
You can count on us whenever you need assistance. That's why the
International Customer Service Association, an independent, non-profit
organization made up of over 3,200 customer service management professionals
from around the country, honored the OppenheimerFunds' transfer agent,
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So call us today--we're here to help.
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<PAGE>
PRO FORMA COMBINING STATEMENT OF ASSETS AND LIABILITIES
March 31, 1995 (Unaudited) Oppenheimer Bond Fund (formerly
Oppenheimer Investment Grade Bond Fund) and Oppenheimer
Strategic Investment Grade Bond Fund
<TABLE>
<CAPTION>
Oppenheimer
Strategic
Oppenheimer Investment Grade Combined
Bond Fund Bond Fund(1) Fund
<S> <C> <C> <C>
Assets
Investments, at value* $132,066,406 $38,642,164 $170,708,570
Cash 66,105 -- 66,105
Receivables:
Interest and principal paydowns 1,640,795 790,651 2,431,446
Shares of beneficial interest sold 134,067 44,378 178,445
Other 43,181 8,745 51,926
Total assets 133,950,554 39,485,938 173,436,492
Liabilities
Bank overdraft -- 504,780 504,780
Options written, at value (premiums received $2,930) -- 2,805 2,805
Unrealized depreciation on forward foreign currency
exchange contract -- 627 627
Payables and other liabilities:
Investments purchased 17,177,852 -- 17,177,852
Dividends 482,240 81,395 563,635
Shares of beneficial interest redeemed 305,734 119,306 425,040
Distribution and service plan fees 66,701 23,349 90,050
Other 32,153 83,239 115,392
Total liabilities 18,064,680 815,501 18,880,181
Net Assets $115,885,874 $38,670,437 $154,556,311
Net Asset Value and Redemption Price Per Share
Class A Shares:
Net asset value and redemption price per share
(based on net assets of $109,961,008, $23,190,699,
and $133,151,707 and 10,644,112, 4,906,735,
and 12,889,097 shares of beneficial interest outstanding
for Oppenheimer Bond Fund, Oppenheimer Strategic
Investment Grade Bond Fund, respectively). $10.33 $ 4.73 $10.33
Class B Shares:
Net asset value and redemption price per share (based
on net assets of $5,924,866 and 15,479,738 and $21,404,604
and 573,516, 3,278,697, and 2,072,039 shares of beneficial
interest outstanding for Oppenheimer Bond Fund,
Oppenheimer Strategic Investment Grade Bond Fund,
respectively) $10.33 $ 4.72 $10.33
*Cost $134,077,304 $39,373,337 $173,450,641
<FN>
________________________
(1) Oppenheimer Strategic Investment Grade Bond Fund Class A shares will be
exchanged for Oppenheimer Bond Fund Class A shares.
Oppenheimer Strategic Investment Grade Bond Fund Class B shares will be
exchanged for Oppenheimer Bond Fund Class B shares.
</TABLE>
<PAGE>
PRO FORMA COMBINING STATEMENT OF OPERATIONS For The Six Months Ending
March 31, 1995 (Unaudited) Oppenheimer Bond Fund (formerly Oppenheimer
Investment Grade Bond Fund) and Oppenheimer Strategic Investment Grade
Bond Fund
<TABLE>
<CAPTION>
Oppenheimer
Strategic Combined
Oppenheimer Investment Grade Pro Forma Oppenheimer
Bond Fund Bond Fund(1) Adjustments Bond Fund
<S> <C> <C> <C> <C>
Investment Income:
Interest (net of foreign withholding
taxes of $3,709) $ 3,998,343 $1,663,843 $5,662,186
Expenses:
Management fees 259,096 144,908 131,450(1) 535,454
Distribution and service plan fees:
Class A 122,036 28,682 150,718
Class B 19,026 74,856 93,882
Transfer agency 76,886 24,800 (6,000)(2) 95,686
Shareholder reports 47,460 24,303 (5,000)(2) 66,763
Legal and audit 8,784 9,866 (5,000)(2) 13,650
Trustees' fees 9,432 5,559 (5,000)(2) 9,991
Custodian fees 6,240 16,757 (6,000)(2) 16,997
Registration and filing fees:
Class A 381 -- 381
Class B 482 408 890
Other 3,679 2,319 5,998
Total expenses 553,502 332,458 104,450 990,410
Net Investment Income 3,444,841 1,331,385 (104,450) 4,671,776
Realized and Unrealized Gain (Loss) on
Investments:
Net realized gain (loss) on:
Investments (893,472) (939,617) (1,833,089)
Expiration of option contracts written (62,173) (62,173)
Foreign currency transactions (197,537) (197,537)
Net realized loss (893,472) (1,199,327) (2,092,799)
Net change in unrealized appreciation or
depreciation on:
Investment and options written 2,801,622 1,316,562 4,118,184
Translation of assets and liabilities
denominated in foreign currencies (72,829) (72,829)
Net change 2,801,622 1,243,733 4,045,355
Net change in unrealized gain on
investments, options written and
foreign currency transactions 1,908,150 44,406 1,952,556
Net Increase (Decrease) in Net Assets
Resulting from Operations $ 5,352,991 $ 1,375,791 $(104,450) $ 6,624,332
<FN>
___________________________
(1) Calculated in accordance with the proposed investment advisory
agreement of Oppenheimer Bond Fund (.75% on the first $200 million of
net assets with a reduction of .03% on each $200 million thereafter to
$800 million, .60% on the next $200 million and .50% on net assets in
excess of $1 billion). This assumes that the management fee structure
had been in place for the entire period.
(2) Estimated fee for similar size Funds. Adjustments reflect expected
savings when the two Funds combine.
</TABLE>
<PAGE>
Pro Forma Combining Statement of Investments March 31, 1995 (Unaudited)
Oppenheimer Investment Grade Bond Fund and Oppenheimer Strategic
Investment Grade Bond Fund
<TABLE>
<CAPTION>
Face Amount (1) Market Value
Investment Strategic Pro Forma Investment Strategic Pro Forma
Grade Inv. Grade Combined Grade Inv. Grade Combined
<S> <C> <C> <C> <C> <C> <C>
Short-Term Notes-- 14.4%
Countrywide Funding
Corp., 6.20%,
4/11/95 $2,500,000 $ 0 $ 2,500,000 $ 2,495,694 $ 0 $ 2,495,694
Consolidated
Natural Gas Co.,
6.05%, 4/7/95 1,285,000 0 1,285,000 1,283,704 0 1,283,704
ConAgra, Inc.,
6.10%, 4/6/95 2,345,000 0 2,345,000 2,343,013 0 2,343,013
Ford Motor Credit
Corp.:
5.82%, 4/5/95 235,000 0 235,000 235,000 0 235,000
5.93%, 4/5/95 860,000 0 860,000 860,000 0 860,000
ITT Financial
Corp., 6%, 4/6/95 135,000 0 135,000 135,000 0 135,000
Oklahoma Gas &
Electric Co.,
5.97%, 4/3/95 2,500,000 0 2,500,000 2,499,170 0 2,499,170
Pennsylvania Power
& Light Co.,
6.03%, 4/4/95 2,270,000 0 2,270,000 2,268,859 0 2,268,859
Puget Sound Power &
Light Co., 6.13%,
4/20/95 1,995,000 0 1,995,000 1,988,546 0 1,988,546
Rite Aid Corp.,
6.15%, 4/24/95 2,500,000 0 2,500,000 2,490,177 0 2,490,178
TJX Cos., Inc.,
6.15%, 4/10/95 2,500,000 0 2,500,000 2,496,156 0 2,496,156
Union Carbide
Corp., 6.25%,
4/7/95 1,210,000 0 1,210,000 1,208,740 0 1,208,740
VF Corp., 6.30%,
4/13/95 2,000,000 0 2,000,000 1,995,800 0 1,995,800
Total Short-Term Notes
(Cost $22,299,860) 22,299,860 0 22,299,860
Certificates of Deposit--1.1%
Citibank CD:
10.50%, 7/14/95 (2) ARA 0 450,000 450,000 0 450,111 450,111
16%, 5/3/95 (2) CLP 0 43,000,000 43,000,000 0 106,554 106,554
16%, 8/17/95 (2) CLP 0 83,003,140 83,003,140 0 205,682 205,682
Indonesia (Republic
of) CD, Bank Negara, Zero
Coupon, 4/24/95 IDR 0 2,000,000,000 2,000,000,000 0 884,495 884,495
Total Certificates of
Deposit (Cost $1,700,121) 0 1,646,842 1,646,842
<PAGE>
Asset-Backed Securities--4.2%
Auto Loan--4.2%
Daimler-Benz Vehicle Trust,
Series 1994-A, Cl. A, 5.95%,
12/15/00 710,457 0 710,457 704,639 0 704,639
Ford Credit Grantor
Trust, Series
1994-B, Cl. A,
7.30%, 10/15/99 1,337,280 0 1,337,280 1,343,873 0 1,343,873
General Motors Acceptance Corp.,
Grantor Trust, Series 1992-E,
Cl. A, 4.75%, 8/15/97 381,837 0 381,837 377,332 0 377,332
Nissan Auto Receivables
Grantor Trust, Series 1994-A,
Cl. A, 6.45%, 9/15/99 2,002,106 0 2,002,106 1,990,435 0 1,990,435
Select Auto Receivable Trust,
Series 1991-2 Asset Backed
Certificates, Cl.
A, 7.65%, 7/15/96 145,471 0 145,471 145,322 0 145,322
World Omni Automobile Lease
Securitization Trust, Series
1994-A, Cl. A,
6.45%, 9/25/00 2,000,000 0 2,000,000 1,991,980 0 1,991,980
Total Asset-Backed Securities
(Cost $6,566,429) 6,553,581 0 6,553,581
Mortgage-Backed Obligations--16.5%
Government Agency--11.9%
FHLMC/FNMA/Sponsored--8.9%
Federal Home Loan Mortgage Corp.:
Certificates of Participation,
9%, 3/1/17 747,658 0 747,658 766,133 0 766,133
Certificates of Participation,
Series 17-039,
13.50%, 11/1/10 90,026 0 90,026 101,666 0 101,666
<PAGE>
Certificates of Participation,
Series 17-094,
12.50%, 4/1/14 49,789 0 49,789 55,736 0 55,736
Collateralized Mortgage
Obligation Gtd.
Multiclass Certificates of
Participation,
7.50%, 2/15/07 2,000,000 0 2,000,000 1,973,280 0 1,973,280
Collateralized Mtg. Obligations,
Series 1548, Cl.
C, 7%, 4/15/21 0 4,000,000 4,000,000 0 3,637,640 3,637,640
Multiclass Mortgage Participation
Certificates, Series 1460, Cl.
1460-H, 7%, 5/15/07 1,500,000 0 1,500,000 1,433,355 0 1,433,355
Federal National Mortgage Assn.:
Gtd. Mtg. Pass-Through
Certificates, 8%,
8/1/17 1,050,415 0 1,050,415 1,056,004 0 1,056,004
Gtd. Real Estate Mtg. Investment
Conduit Pass-Through
Certificates,
Series 1993-175,
Cl. PL, 5%, 10/25/02 2,000,000 0 2,000,000 1,913,860 0 1,913,860
Gtd. Real Estate
Mtg. Investment
Conduit Pass-Through
Certificates,
Series 1993-191,
Cl. PD, 5.40%,
4/25/04 1,500,000 0 1,500,000 1,414,155 0 1,414,155
Interest-Only
Collateralized Mortgage
Obligation Gtd.
Real Estate Mortgage
Investment Conduit Pass-Through
Certificates, Trust 1992 G-57,
Cl. SA, 36.10%,
10/25/22 (10) 552,331 0 552,331 437,723 0 437,723
<PAGE>
Interest-Only
Stripped Mtg.-Backed Security,
Trust 240, Cl. 2,
7%, 9/25/23 (3) 0 2,673,358 2,673,358 0 968,257 968,257
9,151,912 4,605,897 13,757,809
GNMA/Guaranteed--3.0%
Government National
Mortgage Assn.:
10%, 11/15/09 560,698 0 560,698 600,110 0 600,110
12%, 1/15/99 78,140 0 78,140 83,590 0 83,590
12%, 5/15/14 2,174 0 2,174 2,445 0 2,445
12.75%, 6/15/15 44,008 0 44,008 49,684 0 49,684
8%, 10/15/05 238,626 0 238,626 240,856 0 240,856
8%, 10/15/06 371,461 0 371,461 374,793 0 374,793
8%, 6/15/05 344,502 0 344,502 347,721 0 347,721
8%, 7/15/05 636,119 0 636,119 642,062 0 642,062
8%, 7/15/06 364,791 0 364,791 368,063 0 368,063
8%, 8/15/05 271,443 0 271,443 273,979 0 273,979
8%, 9/15/05 449,991 0 449,991 454,195 0 454,195
9%, 2/15/09 255,297 0 255,297 265,457 0 265,457
9%, 3/15/09 187,582 0 187,582 195,047 0 195,047
9%, 5/15/09 27,913 0 27,913 29,024 0 29,024
9%, 6/15/09 158,065 0 158,065 164,355 0 164,355
10.50%, 12/15/17-
5/15/21 0 512,414 512,414 0 565,387 565,387
4,091,381 565,387 4,656,768
Private--4.6%
Commercial--2.2%
CMC Security Corp.
I, Collateralized
Mtg. Obligation,
Series 1993-D,
Cl. D-3, 10%,
7/25/23 (4) 0 736,140 736,140 0 774,779 774,779
FDIC Trust, Gtd.
Real Estate Mtg.
Investment
Conduit Pass-
Through
Certificates,
Series 1994-C1:
Cl. 2-D, 8.70%,
9/25/25 (5) 0 1,000,000 1,000,000 0 980,938 980,938
Cl. 2-E, 8.70%,
9/25/25 (5) 0 1,000,000 1,000,000 0 946,563 946,563
Resolution Trust
Corp., Commercial
Mtg. Pass-Through
Certificates,
Series 1993-C1,
Cl. B, 8.75%,
5/25/24 0 700,000 700,000 0 699,344 699,344
0 3,401,624 3,401,624
<PAGE>
Multi-Family--0.5%
Resolution Trust Corp., Commercial
Mtg. Pass-Through Certificates:
Series 1991-M5, Cl.
A, 9%, 3/25/17 0 645,065 645,065 0 657,563 657,563
Series 1991-M6, Cl.
B4, 6.45%, 6/25/21 (6) 0 89,052 89,052 0 85,907 85,907
0 743,470 743,470
Other--1.3%
JHM Acceptance
Corp., 8.96%
Collateralized
Mortgage
Obligation Bonds,
Series E, Cl.
E-6, 4/1/19 1,973,721 0 1,973,721 2,050,914 0 2,050,914
Residential--0.6%
Residential Funding
Corp., Mtg. Pass-
Through
Certificates,
Series 1993-S10,
Cl. A9, 8.50%,
2/25/23 0 879,004 879,004 0 876,701 876,701
Total Mortgage-Backed
Obligations (Cost
$15,781,838,
$10,494,915,
Combined
$26,276,753) 15,294,207 10,193,079 25,487,286
U.S. Government Obligations--39.8%
Agency--2.5%
Government Agency/Full Faith--2.5%
Allentown,
Pennsylvania,
U.S. Government
Gtd. Nts., Series
A, 8.74%, 8/1/01 65,000 0 65,000 68,294 0 68,294
Babylon, New York,
U.S. Government
Gtd. Nts., Series
A, 5.93%, 8/1/99 115,000 0 115,000 108,329 0 108,329
Bakersfield, California, U.S.
Government Gtd.
Nts., Series A,
5.93%, 8/1/99 255,000 0 255,000 240,208 0 240,208
<PAGE>
Boston, Massachusetts,
U.S. Government
Gtd. Nts., Series
A, 5.93%, 8/1/99 795,000 0 795,000 748,885 0 748,885
Buena Vista Township, New
Jersey, U.S.
Government Gtd.
Nts., Series A,
5.93%, 8/1/99 270,000 0 270,000 254,338 0 254,338
Buffalo, New York,
U.S. Government
Gtd. Nts., Series
A, 5.93%, 8/1/99 400,000 0 400,000 376,798 0 376,798
Detroit, Michigan,
U.S. Government
Gtd. Nts., Series
A, 5.93%, 8/1/99 405,000 0 405,000 381,508 0 381,508
Fajardo, Puerto
Rico, U.S.
Government Gtd.
Nts., Series A,
8.74%, 8/1/01 300,000 0 300,000 315,202 0 315,202
New Haven,
Connecticut, U.S.
Government Gtd.
Nts., Series A,
8.74%, 8/1/01 400,000 0 400,000 420,269 0 420,269
Roanoke, Virginia,
U.S. Government
Gtd. Nts., Series
A, 5.93%, 8/1/99 220,000 0 220,000 207,239 0 207,239
Sacramento County,
California
Redevelopment
Agency U.S.
Government Gtd.
Nts., Series 94A,
5.93%, 8/1/99 240,000 0 240,000 226,079 0 226,079
Tacoma, Washington,
U.S. Government
Gtd. Nts., Series
94A, 5.93%, 8/1/99 165,000 0 165,000 155,429 0 155,429
Trenton, New
Jersey, U.S.
Government Gtd.
Nts., Series A,
5.93%, 8/1/99 135,000 0 135,000 127,169 0 127,169
Tujillo Alto,
Puerto Rico, U.S.
Government Gtd.
Nts., Series A,
8.74%, 8/1/01 235,000 0 235,000 246,908 0 246,907
3,876,654 0 3,876,654
Treasury--37.3%
U.S. Treasury Bonds:
<PAGE>
11.125%, 8/15/03 1,000,000 0 1,000,000 1,240,937 0 1,240,937
7.125%, 2/15/23 3,600,000 0 3,600,000 3,443,623 0 3,443,623
7.25%, 8/15/22 3,650,000 0 3,650,000 3,541,638 0 3,541,638
7.875%, 2/15/21 900,000 0 900,000 930,093 0 930,093
8%, 11/15/21 2,000,000 0 2,000,000 2,103,124 0 2,103,124
8.875%, 8/15/17 1,000,000 0 1,000,000 1,138,750 0 1,138,750
11.625%, 11/15/02 0 5,000,000 5,000,000 0 6,287,500 6,287,500
8.75%, 8/15/00 0 2,700,000 2,700,000 0 2,896,592 2,896,592
U.S. Treasury Nts.:
6.375%, 8/15/02 750,000 0 750,000 715,546 0 715,546
7%, 4/15/99 12,200,000 0 12,200,000 12,203,805 0 12,203,805
7.875%, 11/15/04 17,000,000 0 17,000,000 17,743,750 0 17,743,750
8.50%, 7/15/97 3,150,000 0 3,150,000 3,260,250 0 3,260,250
5.125%, 2/28/98 0 1,000,000 1,000,000 0 952,812 952,812
8.875%, 11/15/97 0 1,130,000 1,130,000 0 1,182,968 1,182,968
46,321,516 11,319,872 57,641,388
Total U.S. Government
Obligations (Cost
$51,244,384, $11,217,967,
Combined $62,462,351) 50,198,170 11,319,872 61,518,042
Foreign Government Obligations--2.7%
Corporacion Andina
de Fomento Sr.
Unsec. Debs.,
7.25%, 4/30/98 0 100,000 100,000 0 92,500 92,500
First Australia National Mortgage
Acceptance Corp.
Ltd. Bonds,
Series 22,
11.40%, 12/15/01 AUD 0 254,160 254,160 0 196,678 196,678
International Bank for
Reconstruction
and Development
Bonds, 12.50%,
7/25/97 NZD 0 800,000 800,000 0 568,308 568,308
New South Wales Treasury Corp.
Gtd. Exch. Bonds,
12%, 12/1/01 AUD 0 240,000 240,000 0 193,268 193,268
New Zealand (Republic of)
Bonds:
10%, 7/15/97 NZD 0 390,000 390,000 0 263,609 263,609
8%, 11/15/95 NZD 0 750,000 750,000 0 487,148 487,148
Queensland Treasury
Corp. Gtd. Nts.,
8%, 8/14/01 AUD 0 1,045,000 1,045,000 0 695,412 695,412
<PAGE>
Spain (Kingdom of)
Gtd. Bonds, Bonos
y Obligacion del
Estado, 10.25%,
11/30/98 ESP 0 66,000,000 66,000,000 0 497,881 497,881
United Kingdom Treasury Nts.:
12.25%, 3/26/99 GBP 0 391,000 391,000 0 717,861 717,861
13%, 7/14/00 GBP 0 276,000 276,000 0 532,996 532,996
Total Foreign Government
Obligations (Cost
$4,146,559) 0 4,245,661 4,245,661
Municipal Bonds and Notes--0.1%
New York State Environmental
Facilities Corp. State Service
Contract Taxable Revenue Bonds,
Series B, 8.15%,
3/15/02 (Cost $197,771) 0 200,000 200,000 0 197,187 197,187
Corporate Bonds and Notes--31.4%
Basic Industry--3.2%
Chemicals--0.4%
Quantum Chemical Corp., 10.375%
Fst. Mtg. Nts., 6/1/03 0 500,000 500,000 0 552,686 552,686
Metals/Mining--1.4%
AMAX, Inc., 9.875%
Nts., 6/13/01 1,000,000 0 1,000,000 1,072,263 0 1,072,263
Newmont Mining Corp., 8.625%
Nts., 4/1/02 1,000,000 0 1,000,000 1,020,309 0 1,020,309
2,092,572 0 2,092,572
Paper--1.4%
Georgia-Pacific Corp., 9.95%
Debs., 6/15/02 1,500,000 0 1,500,000 1,657,444 0 1,657,444
Scotia Pacific Holding Co.,
7.95% Timber
Collateralized
Nts., 7/20/15 0 461,786 461,786 0 437,292 437,292
1,657,444 437,292 2,094,736
Consumer Related--4.6%
Consumer Products--0.7%
<PAGE>
Toro Co. (The), 11%
Debs., 8/1/17 1,000,000 0 1,000,000 1,071,068 0 1,071,068
Food/Beverages/
Tobacco--0.4%
ConAgra, Inc.,
7.40% Sub. Nts.,
9/15/04 0 250,000 250,000 0 241,592 241,592
Dr. Pepper/Seven-Up
Cos., Inc., 0%/
11.50% Sr. Sub.
Disc. Nts., 11/1/02 L 0 500,000 500,000 0 435,000 435,000
0 676,592 676,592
Healthcare--2.5%
Baxter International,
Inc., 9.25% Nts.,
9/15/96 1,000,000 0 1,000,000 1,030,727 0 1,030,727
Grace (W.R.) & Co.,
7.25% Medium-Term
Nts., 7/15/97 2,000,000 0 2,000,000 1,986,766 0 1,986,766
Imcera Group, Inc.,
6% Nts., 10/15/03 500,000 0 500,000 442,894 0 442,894
R.P. Scherer
International
Corp., 6.75% Sr.
Nts., 2/1/04 0 500,000 500,000 0 442,500 442,500
3,460,387 442,500 3,902,887
Hotel/Gaming--0.1%
Circus Circus
Enterprises,
Inc., 6.75% Nts.,
7/15/03 0 150,000 150,000 0 135,619 135,619
Restaurants--0.6%
Wendy's
International,
Inc., 12.125%
Debs., 4/1/95 1,000,000 0 1,000,000 1,000,000 0 1,000,000
Textile/Apparel--0.3%
Fruit of the Loom,
Inc., 7% Debs.,
3/15/11 0 500,000 500,000 0 437,551 437,551
Energy--4.1%
Coastal Corp.,
11.75% Sr. Debs.,
6/15/06 0 500,000 500,000 0 540,571 540,571
Enron Corp., 8.10%
Nts., 12/15/96 1,500,000 0 1,500,000 1,520,925 0 1,520,925
McDermott, Inc.,
9.375% Nts.,
3/15/02 0 100,000 100,000 0 106,561 106,561
Mitchell Energy &
Development
Corp., 9.25% Sr.
Nts., 1/15/02 0 400,000 400,000 0 423,724 423,724
<PAGE>
Southwest Gas
Corp., 9.75%
Debs., Series F,
6/15/02 0 275,000 275,000 0 296,511 296,511
Tenneco, Inc.:
10% Debs., 3/15/08 0 100,000 100,000 0 113,491 113,491
7.875% Nts.,
10/1/02 0 250,000 250,000 0 249,517 249,517
Union Oil Co. of
California:
8.75% Nts., 8/15/01 1,500,000 0 1,500,000 1,567,276 0 1,567,276
9.625% Gtd. Debs.,
5/15/95 1,500,000 0 1,500,000 1,504,843 0 1,504,843
4,593,044 1,730,375 6,323,419
Financial
Services--6.1%
Banks and Thrifts--
0.6%
BankAmerica Corp.,
7.50% Sr. Nts.,
3/15/97 0 200,000 200,000 0 200,505 200,505
Chemical New York
Corp., 9.75% Sub.
Cap. Nts., 6/15/99 0 300,000 300,000 0 321,094 321,094
First Chicago
Corp., 9% Sub.
Nts., 6/15/99 0 100,000 100,000 0 104,741 104,741
NBD Bancorp, Inc.,
7.25% Sub. Debs.,
8/15/04 0 250,000 250,000 0 238,731 238,731
0 865,071 865,071
Diversified
Financial--5.5%
American Car Line
Co., 8.25%
Equipment Trust
Certificates,
Series 1993-A,
4/15/08 0 270,000 270,000 0 262,620 262,620
ERAC USA Finance
Co., 7.875% Nts.,
3/15/98 1,500,000 0 1,500,000 1,501,695 0 1,501,695
General Motors
Acceptance Corp.,
8% Nts., 10/1/96 0 100,000 100,000 0 100,981 100,981
Goldman Sachs
Group, LP, 6.20%
Nts., 2/15/01 1,500,000 0 1,500,000 1,361,250 0 1,361,250
Heller Financial,
Inc., 7.75% Nts.,
5/15/97 0 300,000 300,000 0 302,464 302,464
Lehman Brothers
Holdings, Inc.,
8.375% Nts.,
2/15/99 0 300,000 300,000 0 299,264 299,264
<PAGE>
Leucadia National
Corp., 7.75% Sr.
Nts., 8/15/13 2,000,000 0 2,000,000 1,805,128 0 1,805,128
PaineWebber Group,
Inc.:
7% Nts., 3/1/00 0 160,000 160,000 0 150,324 150,324
7.75% Sub. Nts.,
9/1/02 0 200,000 200,000 0 188,079 188,079
8.875% Sr. Nts.,
3/15/05 1,000,000 0 1,000,000 996,250 0 996,250
Penske Truck
Leasing Co.,
L.P., 7.75% Sr.
Nts., 5/15/99 1,500,000 0 1,500,000 1,492,378 0 1,492,378
7,156,701 1,303,732 8,460,433
Industrial--0.7%
General
Industrial-- 0.7%
Thomas & Betts
Corp., 8.25% Sr.
Nts., 1/15/04 1,000,000 0 1,000,000 1,012,781 0 1,012,781
Manufacturing--5.0%
Aerospace/
Electronics/
Computers--2.6%
McDonnell Douglas
Corp., 9.25%
Nts., 4/1/02 1,500,000 0 1,500,000 1,603,818 0 1,603,818
Rolls-Royce
Capital, Inc.,
7.125% Gtd.
Unsec. Unsub.
Nts., 7/29/03 2,500,000 0 2,500,000 2,365,625 0 2,365,625
3,969,443 0 3,969,443
Automotive--2.4%
Chrysler Corp.,
10.95% Debs.,
8/1/17 1,000,000 200,000 1,200,000 1,066,280 222,037 1,288,317
Ford Motor Credit
Co., 9.90%
Medium-Term Nts.,
11/6/97 2,000,000 0 2,000,000 2,074,818 0 2,074,818
General Motors
Acceptance Corp.:
5.50% Nts.,
12/15/01 0 100,000 100,000 0 87,519 87,519
7.75% Nts., 4/15/97 0 300,000 300,000 0 299,384 299,384
3,141,098 608,940 3,750,038
Media--2.6%
Cable Television--
1.0%
Time Warner, Inc.,
9.15% Debs., 2/1/23 0 100,000 100,000 0 95,211 95,211
Time Warner, Inc./
Time Warner
Entertainment LP,
8.375% Sr. Debs.,
3/15/23 0 400,000 400,000 0 359,905 359,905
<PAGE>
TKR Cable I, Inc.,
10.50% Sr. Debs.,
10/30/07 0 1,000,000 1,000,000 0 1,065,000 1,065,000
0 1,520,116 1,520,116
Diversified Media--
0.6%
News America
Holdings, Inc.,
7.50% Gtd. Sr.
Nts., 3/1/00 1,000,000 0 1,000,000 972,640 0 972,640
Publishing/Printing--
1.0%
Valassis
Communications,
Inc., 9.55% Sr.
Nts., 12/1/03 1,500,000 0 1,500,000 1,562,182 0 1,562,182
Other--1.3%
Conglomerates--0.3%
Textron, Inc.,
9.55% Medium-Term
Nts., 3/19/01 500,000 0 500,000 543,200 0 543,200
Services--1.0%
Teck Corp., 8.70%
Debs., 5/1/02 1,500,000 0 1,500,000 1,531,445 0 1,531,445
Retail--0.5%
Department Stores--
0.2%
Sears Canada, Inc.,
11.70% Debs.,
7/10/00 CAD 0 500,000 500,000 0 391,196 391,196
Drug Stores--0.3%
Hook-Superx Inc.,
10.125% Sr. Nts.,
6/1/02 0 400,000 400,000 0 421,000 421,000
Transportation--2.1%
Air Transportation--
2.0%
AMR Corp.:
9% Debs., 8/1/12 1,500,000 0 1,500,000 1,424,560 0 1,424,560
10% Nts., 4/15/21 0 200,000 200,000 0 205,680 205,680
United Air Lines,
Inc., 10.11%
Equipment Trust
Certificates,
Series 91B,
2/19/06 1,430,581 0 1,430,581 1,520,917 0 1,520,917
2,945,477 205,680 3,151,157
Railroads--0.1%
Union Pacific
Corp., 9.65%
Medium-Term Nts.,
4/17/00 0 100,000 100,000 0 108,308 108,308
Utilities--1.2%
Electric
Utilities-- 1.2%
Commonwealth Edison
Co.:
<PAGE>
6.40% Nts.,
10/15/05 0 75,000 75,000 0 62,910 62,910
6.50% Nts., 7/15/97 0 225,000 225,000 0 218,817 218,817
Consumers Power
Co., 6.375% Nts.,
9/15/03 0 110,000 110,000 0 97,694 97,694
Long Island
Lighting Co., 7%
Nts., 3/1/04 0 200,000 200,000 0 166,615 166,615
Public Service
Company of
Colorado, 8.75%
Fst. Mtg. Bonds,
3/1/22 0 250,000 250,000 0 253,389 253,389
Tenaga Nasional
Berhad, 7.875%
Nts., 6/15/04 (4) 1,000,000 0 1,000,000 994,994 0 994,994
994,994 799,425 1,794,419
Total Corporate Bonds and Notes
(Cost $38,184,793,
$11,206,004,
Combined
$49,390,797) 37,704,476 10,636,083 48,340,559
Common Stocks--0.0% Shares
Foodbrands America,
Inc. (Cost $0) 2,113 0 2,113 16,112 0 16,112
Face
Amount(1)
Structured
Instruments--0.3%
Swiss Bank Corp.
Investment
Banking, Inc.,
10% CD Sterling
Rate Linked Nts.,
7/3/95 (Cost
$410,000) (2) 0 410,000 410,000 0 403,440 403,440
Total Investments,
at Value (Cost
$134,077,304,
$39,373,337,
Combined
$173,450,641) 114.0% 99.9% 110.5% 132,066,406 38,642,164 170,708,570
Liabilities in
Excess of Other
Assets/Other
Assets Net of
Liabilities (14.0) 0.1 (10.5) (16,180,532) 28,273 (16,152,259)
Net Assets 100.0% 100.0% 100.0% $115,885,874 $38,670,437 $154,556,311
</TABLE>
1. Face amount is reported in local currency. Foreign currency abbreviations
are as follows:
ARA-- Argentine Austral ESP--Spanish Peseta
AUD--Australian Dollar GBP--British Pound Sterling
CAD--Canadian Dollar IDR--Indonesian Rupiah
CLP--Chilean Peso NZD--New Zealand Dollar
DEM--German Deutsche Mark USD--U.S. Dollar
2. Indexed instrument for which the principal amount and/or interest due at
maturity is affected by the relative value of a foreign currency.
3. Interest-Only Strips represent the right to receive the monthly interest
payments on an underlying pool of mortgage loans. These securities typically
decline in price as interest rates decline. Most other fixed-income securities
increase in price when interest rates decline. The principal amount of the
underlying pool represents the notional amount on which current interest is
calculated. The price of these securities is typically more sensitive to changes
in prepayment rates than traditional mortgage-backed securities (for example,
GNMA pass-throughs).
4. Represents a security sold under Rule 144A, which is exempt from registration
under the Securities Act of 1933, as amended. This security has been determined
to be liquid under guidelines established by the Board of Trustees. These
securities amount to $1,769,773 or 1.1% of combined net assets, at March 31,
1995.
5. Identifies issues considered to be illiquid.
6. Represents the current interest rate for a variable rate security.
7. Represents a zero coupon bond that converts to a fixed rate of interest at a
designated future date.
8. A sufficient amount of securities are segregated to collateralize outstanding
forward foreign currency exchange contracts.
9. A sufficient amount of liquid assets have been designated to cover
outstanding call and put options, as follows:
<TABLE>
<CAPTION>
Face Subject Expiration Exercise Premium Market Value
to Call/Put Date Price Received See Note 1
<S> <C> <C> <C> <C> <C> <C>
Call Option on Australian Dollar 368 AUD 4/20/95 0.74 USD/AUD $ 637 $1,089
Call Option on New South Wales Treasury Corp.
Gtd. Exch. Bonds, 12%, 12/1/01 50 AUD 4/28/95 109.056 AUD 339 440
Call Option on Spanish Peseta/Deutsche Mark 16,000 ESP 5/4/95 89.00 ESP/DEM 892 526
Put Option on Deutsche Mark 150,000 DEM 6/6/95 1.46 DEM/USD 1,062 750
$2,930 $2,805
</TABLE>
10. 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.
<PAGE>
OPPENHEIMER INTEGRITY FUNDS
FORM N-14
PART C
OTHER INFORMATION
Item 15. Indemnification
Reference is made to Article IV of Registrant's Declaration of Trust
filed as Exhibit 24(b)(1) to Registrant's Registration Statement and
incorporated herein by reference.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers and
controlling persons of Registrant pursuant to the foregoing provisions or
otherwise, Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by Registrant of expenses incurred or
paid by a trustee, officer or controlling person of Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person, Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed
in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
Item 16. Exhibits
(1) Amended and Restated Declaration of Trust dated April 30, 1993:
Filed with Registrant's Post-Effective Amendment No. 18, 4/30/93, and
refiled with Registrant's Post-Effective Amendment No. 23, 4/28/95,
pursuant to Item 102 of Regulation S-T, and incorporated herein by
reference.
(2) Registrant's By-Laws dated 6/25/91: Filed with Registrant's
Post-Effective Amendment No. 16, 5/1/92, and refiled pursuant to Item 102
of Regulation S-T with Registrant's Post-Effective Amendment No. 23,
4/28/95, and incorporated herein by reference.
(3) Not applicable.
(4) Agreement and Plan of Reorganization: See Annex A to Part A
of this Registration Statement.
(5) (i) Specimen Class A Share Certificate for Oppenheimer
Investment Grade Bond Fund: Filed with Registrant's Post-Effective
Amendment No. 20, 4/29/94, and incorporated herein by reference.
(ii) Specimen Class B Share Certificate for Oppenheimer
Investment Grade Bond Fund: Filed with Registrant's Post-Effective
Amendment No. 20, 4/29/94, and incorporated herein by reference.
(6) Investment Advisory Agreement dated 3/28/91 for Oppenheimer
Investment Grade Bond Fund: Filed as Exhibit 5(i) of Registrant's Post-
Effective Amendment No. 15, 3/29/91, and refiled pursuant to Item 102 of
Regulation S-T as Exhibit 5(i) of Registrant's Post-Effective Amendment
No. 23, 4/28/95, and incorporated herein by reference.
(7) (i) General Distributor's Agreement dated 10/13/92: Filed
with Registrant's Post-Effective Amendment No. 17, 2/26/93, and refiled
pursuant to Item 102 of Regulation S-T with Registrant's Post-Effective
Amendment No. 23, 4/28/95, and incorporated herein by reference.
(ii) Form of Oppenheimer Funds Distributor, Inc. Dealer
Agreement: Filed with Post-Effective Amendment No. 14 to the Registration
Statement of Oppenheimer Main Street Funds, Inc. (Reg. No. 33-17850),
9/30/94, and incorporated herein by reference.
(iii) Form of Oppenheimer Funds Distributor, Inc. Broker
Agreement: Filed with Post-Effective Amendment No. 14 to the Registration
Statement of Oppenheimer Main Street Funds, Inc. (Reg. No. 33-17850),
9/30/94, and incorporated herein by reference.
(iv) Form of Oppenheimer Funds Distributor, Inc. Agency
Agreement: Filed with Post-Effective Amendment No. 14 to the Registration
Statement of Oppenheimer Main Street Funds, Inc. (Reg. No. 33-17850),
9/30/94, and incorporated herein by reference.
(v) Broker Agreement between Oppenheimer Funds Distributor,
Inc. and Newbridge Securities, Inc. dated 10/1/86: Filed with Post-
Effective Amendment No. 25 to the Registration Statement of Oppenheimer
Growth Fund (Reg. No. 2-45272), 11/1/86, and refiled with Post-Effective
Amendment No. 45 to the Registration Statement of Oppenheimer Growth Fund
(Reg. No. 2-45272), 8/22/94, pursuant to Item 102 of Regulation S-T, and
incorporated herein by reference.
(8) Retirement Plan for Non-Interested Trustees or Directors
(adopted by Registrant - 6/7/90): Previously filed with Post-Effective
Amendment No. 97 of Oppenheimer Fund (Reg. No. 2-14586), 8/30/90, refiled
with Post-Effective Amendment No. 45 of Oppenheimer Growth Fund (Reg. No.
2-45272), 8/22/94, pursuant to Item 102 of Regulation S-T, and
incorporated herein by reference.
(9) Custody Agreement dated 11/12/92, between the Registrant and
The Bank of New York: Filed with Registrant's Post-Effective Amendment No.
17, 2/26/93, and refiled with Post-Effective Amendment No. 23, 4/28/95
pursuant to Item 102 of Regulation S-T, and incorporated herein by
reference.
(10) (i) Service Plan and Agreement under Rule 12b-1 of the
Investment Company Act of 1940 for Class A shares of Oppenheimer
Investment Grade Bond Fund dated 6/22/93: Filed with Registrant's Post-
Effective Amendment No. 19, 3/1/94, and incorporated herein by reference.
(ii) Distribution and Service Plan and Agreement under Rule
12b-1 of the Investment Company Act of 1940 for Class B shares of
Oppenheimer Investment Grade Bond Fund dated 7/10/95: Filed with
Registrant's Post-Effective Amendment No. 25, 7/10/95, and incorporated
herein by reference.
(iii) Distribution and Service Plan and Agreement under Rule
12b-1 of the Investment Company Act of 1940 for Class C shares of
Oppenheimer Investment Grade Bond Fund dated 7/10/95: Filed with
Registrant's Post-Effective Amendment No. 25, 7/10/95, and incorporated
herein by reference.
(11) Opinion and Consent of Counsel dated 2/11/91: Incorporated
herein by reference to Registrant's Rule 24f-2 Notice filed on 2/19/91.
(12) Tax Opinion Relating to the Reorganization: Draft Opinion
filed herewith.
(13) Not applicable.
(14) Consent of Deloitte & Touche LLP: Filed herewith.
(15) Not applicable.
(16) Not applicable
(17) Declaration of Registrant under Rule 24f-2: Filed herewith.
(18) Powers of Attorney and Certified Board Resolution: Filed with
Registrant's Post-Effective Amendment No. 19, 3/1/94, and
incorporated herein by reference.Powers of Attorney (including
certified Board Resolutions): Filed with Registrant's Post-
Effective Amendment No. 15, 12/3/93, and incorporated herein
by reference.
Item 17. Undertakings
(1) Not applicable.
(2) Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and/or the
Investment Company Act of 1940, the Registrant has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Denver and State of Colorado on
the 20th day of July, 1995.
OPPENHEIMER BOND FUND
By: /s/ James C. Swain
----------------------------------
James C. Swain, Chairman
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in
the capacities on the dates indicated:
Signatures Title Date
/s/ James C. Swain Chairman of the
- ------------------ Board of Trustees July 20, 1995
James C. Swain
/s/ Jon S. Fossel Chief Executive
- -------------------- Officer and July 20, 1995
Jon S. Fossel Trustee
/s/ George C. Bowen Chief Financial
- ------------------- and Accounting July 20, 1995
George C. Bowen Officer
/s/ Robert G. Avis Trustee July 20, 1995
- ------------------
Robert G. Avis
/s/ William A. Baker Trustee July 20, 1995
- --------------------
William A. Baker
/s/ Charles Conrad, Jr. Trustee July 20, 1995
- -----------------------
Charles Conrad, Jr.
/s/ Raymond J. Kalinowski Trustee July 20, 1995
- -------------------------
Raymond J. Kalinowski
/s/ C. Howard Kast Trustee July 20, 1995
- ------------------
C. Howard Kast
/s/ Robert M. Kirchner Trustee July 20, 1995
- ----------------------
Robert M. Kirchner
/s/ Ned M. Steel Trustee July 20, 1995
- ----------------
Ned M. Steel
<PAGE>
OPPENHEIMER INTEGRITY FUNDS
EXHIBIT INDEX
Exhibit Description
- ------- -----------
16(12) Tax Opinion in Draft Form
16(14) Independent Auditors' Consent
16(17) Declaration of the Registrant under Rule 24f-2
Independents Auditors' Consent
We consent to the incorporation by reference in this Registration
Statement No. 2-76547 on Form N-14 of Oppenheimer Integrity Funds of our
report dated October 21, 1994, appearing in the Annual Report of
Oppenheimer Strategic Investment Grade Bond Fund for the year ended
September 30, 1994 and our report dated January 23, 1995, appearing in the
Annual Report of Oppenheimer Investment Grade Bond Fund for the year ended
December 31, 1994 and to the references to us under the headings "Tax
Consequences of the Reorganization" and "Tax Aspects of the
Reorganization" appearing in the Prospectus, which is part of this
Registration Statement.
/s/ Deloitte & Touche LLP
- -------------------------
DELOITTE & TOUCHE, LLP
Denver, Colorado
July 19, 1995
merge\285con
DRAFT
[Letterhead of Deloitte & Touche LLP]
______________, 1995
Oppenheimer Bond Fund
Two World Trade Center 34th floor
New York, New York 10048-0203
Oppenheimer Strategic Investment Grade Bond Fund
Two World Trade Center 34th floor
New York, New York 10048-0203
Dear Sirs:
We have reviewed the Agreement and Plan of Reorganization between
Oppenheimer Strategic Investment Grade Bond Fund (the "Fund") and
Oppenheimer Bond Fund ("Bond Fund") which is attached as Annex A to the
Proxy Statement and Prospectus of the Fund included as part of Oppenheimer
Integrity Fund's Registration Statement on Form N-14 filed under the
Securities Act of 1933, as amended, on behalf of Oppenheimer Bond Fund
with the Securities and Exchange Commission on July 20, 1995 (the
"Agreement"), concerning the acquisition by Bond Fund of substantially all
of the assets of the Fund solely for voting Class A and Class B shares of
beneficial interest in Bond Fund, followed by the distribution of Bond
Fund Class A and Class B shares to the shareholders of the Fund in
complete liquidation of the Fund.
In connection with the rendering of this opinion, we have reviewed the
Agreement, the most recent audited financial statements and related
documents and other materials as we deemed relevant to the rendering of
this opinion. Based upon all of the foregoing and the representations
made by the Fund and Bond Fund, attached hereto, in our opinion, the
federal tax consequences of the transaction will be as follows:
1. The transactions contemplated by the Agreement will qualify as a tax-
free "reorganization" within the meaning of Section 368(a)(1) of the
Internal Revenue Code of 1986, as amended (the "Code").
2. The Fund and Bond Fund will each qualify as a "party to a
reorganization" within the meaning of Section 368(b)(2) of the Code.
3. No gain or loss will be recognized by the shareholders of the Fund
upon the distribution of Class A and Class B shares of beneficial
interest in Bond Fund to the shareholders of the Fund, pursuant to
Section 354 of the Code.
4. Under Section 361(a) of the Code no gain or loss will be recognized
by the Fund by reason of the transfer of its assets solely in
exchange for Class A and Class B shares of Bond Fund.
5. Under Section 1032 of the Code no gain or loss will be recognized by
Bond Fund by reason of the transfer of the Fund's assets solely in
exchange for Class A and Class B shares of Bond Fund.
6. The stockholders of the Fund will have the same tax basis and holding
period for the Class A and Class B shares of beneficial interest in
Bond Fund that they receive as they had for the stock of the Fund
that they previously held, pursuant to Sections 358(a) and 1223(1),
respectively, of the Code.
7. The securities transferred by the Fund to Bond Fund will have the
same tax basis and holding period in the hands of Bond Fund as they
had for the Fund, pursuant to Sections 362(b) and 1223(1),
respectively, of the Code.
Very truly yours
DELOITTE & TOUCHE LLP
MERGE\285OPIN
February 28, 1995
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549
Attn.: Mr. Frank Donaty, Jr.
Mrs. Patricia P. Williams
Re: Oppenheimer Integrity Funds/Reg. No. 2-76547, File No. 811-3420
To the Securities and Exchange Commission:
Enclosed for your information and files is a copy of an electronic
("EDGAR") filing made pursuant to Rule 24f-2 of the Investment Company Act
of 1940 (the "1940 Act") on February 27, 1995 on behalf of Oppenheimer
Investment Grade Bond Fund and Oppenheimer Value Stock Fund, the two
series of Oppenheimer Integrity Funds (the "Fund"), accompanied by an
opinion of counsel for the registration of additional shares of each such
series. The filing fees of $619 and $1,917, respectively, calculated at
the rate of 1/29 of 1% of the value of the Fund's shares sold in excess
of the shares redeemed for the fiscal year ended December 31, 1994, were
wired to the SEC's account at Mellon Bank on February 21, 1995 (Fed Wire
Nos. 2733 and 2735) and referenced this filing. The Fund has previously
registered an indefinite number of shares pursuant to Rule 24f-2.
The purpose of the Notice is to make definite the registration of
shares in reliance on Rule 24f-2 as follows:
<TABLE>
<CAPTION>
Oppenheimer Investment Grade Bond Fund Oppenheimer Value Stock Fund
<S> <C>
Class A: 1,071,379 Class A: 1,880,960
Class B: 293,817 Class B: 499,617
</TABLE>
Very truly yours,
Katherine P. Feld
Vice President
& Associate Counsel
(212) 323-0252
KPF/gl
Enclosures
cc: Allan B. Adams, Esq.
Lynn Coluccy
Gloria LaFond
SEC/285325.24F
<PAGE>
Rule 24f-2 Notice for Oppenheimer Integrity Funds
for the account of Oppenheimer Investment Grade Bond Fund
3410 South Galena Street, Denver, Colorado 80231
(Registration No. 2-76547, File No. 811-3240)
NOTICE IS HEREBY GIVEN that Oppenheimer Integrity Funds for the account
of Oppenheimer Investment Grade Bond Fund having previously filed by post-
effective amendment to its registration statement a declaration that an
indefinite number of its shares of beneficial interest were being
registered pursuant to Rule 24f-2 of the Investment Company Act of 1940,
now elects to continue such indefinite registration.
(i) This Notice is being filed for the fiscal year ended December 31,
1994.
(ii) Shares registered other than pursuant to this Rule that remained
unsold at the beginning of the above fiscal year were as follows:
Class A: 0 Class B: 0
(iii) Shares registered other than pursuant to this Rule during the above
fiscal year were as follows:
Class A: 221,891 Class B: 0
(iv) The number of shares sold during the above fiscal year were as
follows: (1)
Class A: 1,071,379 Class B: 293,817
(v) Shares sold during the above fiscal year in reliance upon
registration pursuant to this Rule were as follows:
Class A: 1,071,379 Class B: 293,817
Pursuant to the requirements of the Investment Company Act of 1940, the
undersigned registrant has caused this notice to be signed on its behalf
this 22nd day of February, 1995.
Oppenheimer Integrity Funds
for the account of
Oppenheimer Investment Grade Bond Fund
By /s/ Robert G. Zack
-----------------------------------
Robert G. Zack, Assistant Secretary
__________________
(1) The calculation of the aggregate sales price is made pursuant to Rule
24f-2 of the Investment Company Act of 1940. Based upon an actual
aggregate sales price and redemption price for the respective class during
the previous fiscal year as shown below, the total filing fee (calculated
at the rate of 1/29 of 1%) is as given below. Class A shares to be re-
registered pursuant to Rule 24e-2 total 633,129.
<TABLE>
<CAPTION>
Difference
Value of Between Value
Value of Shares Sold & Value Filing
Shares Sold Redeemed Redeemed Fee
<S> <C> <C> <C> <C>
Class A $11,399,405 ($17,865,173) ($6,465,768) $-0-
Class B $ 3,089,618 ($ 1,294,834) $1,794,784 $619
Total $619
</TABLE>
SEC/285325.24F
<PAGE>
Rule 24f-2 Notice for Oppenheimer Integrity Funds
for the account of Oppenheimer Value Stock Fund
3410 South Galena Street, Denver, Colorado 80231
(Registration No. 2-76547, File No. 811-3420)
NOTICE IS HEREBY GIVEN that Oppenheimer Integrity Funds for the account
of Oppenheimer Value Stock Fund having previously filed by post-effective
amendment to its registration statement a declaration that an indefinite
number of its shares of beneficial interest were being registered pursuant
to Rule 24f-2 of the Investment Company Act of 1940, now elects to
continue such indefinite registration.
(i) This Notice is being filed for the fiscal year ended December 31,
1994.
(ii) Shares registered other than pursuant to this Rule that remained
unsold at the beginning of the above fiscal year were as follows:
Class A: 0 Class B: 0
(iii) Shares registered other than pursuant to this Rule during the above
fiscal year were as follows:
Class A: 0 Class B: 0
(iv) The number of shares sold during the above fiscal year were as
follows: (1)
Class A: 1,880,960 Class B: 499,617
(v) Shares sold during the above fiscal year in reliance upon
registration pursuant to this Rule were as follows:
Class A: 1,880,960 Class B: 499,617
Pursuant to the requirements of the Investment Company Act of 1940, the
undersigned registrant has caused this notice to be signed on its behalf
this 22nd day of February, 1995.
Oppenheimer Integrity Funds
for the account of
Oppenheimer Value Stock Fund
By /s/ Robert G. Zack
-----------------------------------
Robert G. Zack, Assistant Secretary
__________________
(1) The calculation of the aggregate sales price is made pursuant to Rule
24f-2 of the Investment Company Act of 1940. Based upon an actual
aggregate sales price and redemption price for the respective class during
the previous fiscal year as shown below, the total filing fee (calculated
at the rate of 1/29 of 1%) is as given below. Class A shares redeemed in
excess of shares sold to be re-registered total 43,398.
<TABLE>
<CAPTION>
Difference
Value of Between Value
Value of Shares Sold & Value Filing
Shares Sold Redeemed Redeemed Fee
<S> <C> <C> <C> <C>
Class A $27,564,846 ($27,939,743) ($ 374,897) $ -0-
Class B $ 7,201,783 ($ 1,642,398) $ 5,559,385 $ 1,917
Total $ 1,917
</TABLE>
SEC/285325.24F
<PAGE>
MYER, SWANSON, ADAMS & WOLF, P.C.
Attorneys At Law
The Colorado State Bank Building
1600 Broadway - Suite 1850
Denver, Colorado 80202-4918
Telephone (303) 866-9800
Facsimile (303) 866-9818
February 22, 1995
Oppenheimer Integrity Funds
3410 South Galena Street
Denver, Colorado 80231
Gentlemen:
In connection with the public offering of the no par value Class A and
Class B shares of the Oppenheimer Investment Grade Bond Fund series of
Oppenheimer Integrity Funds, a business trust organized under the laws of
the Commonwealth of Massachusetts (the "Trust"), as counsel for the Trust,
we have examined such records and documents and have made such further
investigation and examination as we deem necessary for the purpose of this
opinion.
As of the end of its fiscal year, the Trust was composed of two separate
series, the Oppenheimer Value Stock Fund and the Oppenheimer Investment
Grade Bond Fund. This opinion is rendered in connection with only the
Class A and Class B shares of the Oppenheimer Investment Grade Bond Fund
series.
We are advised that during the period ending December 31, 1994, the
following shares of Class A and Class B shares of beneficial interest in
the Oppenheimer Investment Grade Bond Fund series of the Trust were sold
in reliance on the registration of an indefinite number of shares pursuant
to Rule 24f-2 of the Investment Company Act of 1940:
Oppenheimer Investment Grade Bond Fund
Class A shares: 1,071,379
Class B shares: 293,817
It is our opinion that the said shares of beneficial interest in said
series sold by the Trust in reliance on Rule 24f-2 of the Investment
Company Act of 1940 are legally issued and, subject to the matters
mentioned in the next paragraph, fully paid and nonassessable by the
Trust.
Under Massachusetts law, shareholders of the Trust may, under certain
circumstances, be held personally liable as partners for the obligations
of the Trust. The Declaration of Trust does, however, contain an express
disclaimer of shareholder liability for acts or obligations of the Trust
and requires that notice of such disclaimer be given in each agreement,
obligation, or instrument entered into or executed by the Trust or the
Trustees. The Declaration of Trust provides for indemnification out of
the trust property of any shareholder held personally liable for the
obligations of the Trust. The Declaration of Trust also provides that the
Trust shall, upon request, assume the defense of any claim made against
any shareholder for any act or obligation of the Trust and satisfy any
judgment thereon.
Sincerely,
/s/ Allan B. Adams
Allan B. Adams
of MYER, SWANSON, ADAMS & WOLF, P.C.
<PAGE>
MYER, SWANSON, ADAMS & WOLF, P.C.
Attorneys At Law
The Colorado State Bank Building
1600 Broadway - Suite 1850
Denver, Colorado 80202-4918
Telephone (303) 866-9800
Facsimile (303) 866-9818
February 22, 1995
Oppenheimer Integrity Funds
3410 South Galena Street
Denver, Colorado 80231
Gentlemen:
In connection with the public offering of the no par value Class A and
Class B shares of the Oppenheimer Value Stock Fund series of Oppenheimer
Integrity Funds, a business trust organized under the laws of the
Commonwealth of Massachusetts (the "Trust"), as counsel for the Trust, we
have examined such records and documents and have made such further
investigation and examination as we deem necessary for the purpose of this
opinion.
As of the end of its fiscal year, the Trust was composed of two separate
series, the Oppenheimer Value Stock Fund and the Oppenheimer Investment
Grade Bond Fund. This opinion is rendered in connection with only the
Class A and Class B shares of the Oppenheimer Value Stock Fund series.
We are advised that during the period ending December 31, 1994, the
following shares of Class A and Class B shares of beneficial interest in
the Oppenheimer Value Stock Fund series of the Trust were sold in reliance
on the registration of an indefinite number of shares pursuant to Rule
24f-2 of the Investment Company Act of 1940:
Oppenheimer Value Stock Fund
Class A shares: 1,880,960
Class B shares: 499,617
It is our opinion that the said shares of beneficial interest in said
series sold by the Trust in reliance on Rule 24f-2 of the Investment
Company Act of 1940 are legally issued and, subject to the matters
mentioned in the next paragraph, fully paid and nonassessable by the
Trust.
Under Massachusetts law, shareholders of the Trust may, under certain
circumstances, be held personally liable as partners for the obligations
of the Trust. The Declaration of Trust does, however, contain an express
disclaimer of shareholder liability for acts or obligations of the Trust
and requires that notice of such disclaimer be given in each agreement,
obligation, or instrument entered into or executed by the Trust or the
Trustees. The Declaration of Trust provides for indemnification out of
the trust property of any shareholder held personally liable for the
obligations of the Trust. The Declaration of Trust also provides that the
Trust shall, upon request, assume the defense of any claim made against
any shareholder for any act or obligation of the Trust and satisfy any
judgment thereon.
Sincerely,
/s/ Allan B. Adams
Allan B. Adams
of MYER, SWANSON, ADAMS & WOLF, P.C.
SEC\285325.24F
