O P P E N H E I M E R
Investment Grade Bond Fund
Prospectus dated May 1, 1995.
Oppenheimer Investment Grade Bond Fund (the "Fund") is a mutual fund
with 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 in a diversified
portfolio of investment grade fixed-income 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 May 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).
(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
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
Appendix: Description of Securities Ratings
<PAGE>
ABOUT THE FUND
Expenses
The Fund pays a variety of expenses directly for management of its
assets, administration, distribution of its shares and other services,
and those expenses are 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 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 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.
</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 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
shares, the 12b-1 Distribution Plan Fees are the Distribution and
Service Plan Fees (the maximum service fee is 0.25% of average annual
net assets of the class) and the asset-based sales charge of 0.75%.
The actual expenses for each class of shares in future years may be
more or less 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. These Plans are discussed in greater detail in
"How to Buy Shares."
<TABLE>
<CAPTION>
Class A Shares Class B Shares
<S> <C> <C>
Management Fees 0.50% 0.50%
12b-1 Distribution Plan Fees 0.25%(1) 1.00%(2)
(includes Shareholder Service Plan Fees)
Other Expenses 0.31% 0.28%
Total Fund Operating Expenses 1.06% 1.78%
<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 $58 $80 $103 $171
Class B Shares $68 $86 $116 $173
If you did not redeem your investment, it would incur the following expenses:
Class A Shares $58 $80 $103 $171
Class B Shares $18 $56 $96 $173
<FN>
* 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.
</TABLE>
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 consistent with prudent
investment risk and the stability of capital primarily through
investment in a diversified portfolio of investment grade fixed-income
securities.
- What Does The Fund Invest In? The Fund primarily invests 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 Sub-Adviser; (ii) U.S. Government Securities; and (iii)
high-quality, short-term money market instruments. 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 Manager handles the day-to-day business of
the Fund. The Fund also has a Sub-Adviser, Massachusetts Mutual Life
Insurance Company (the "Sub-Adviser") who is responsible for choosing
the Fund's investments. The Fund has a portfolio manager, Mary E.
Wilson, who is employed by the Sub-Adviser which is primarily
responsible for the selection of the Fund's securities. The Manager is
paid a management fee by the Fund, and the Manager, not the Fund, pays
the Sub-Adviser. 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 Sub-Adviser 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. 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 conservative income fund,
more aggressive than money market funds but less aggressive than high
yield or stock 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 and 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 two
classes of shares. Both classes have the same investment portfolio but
different expenses. 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 24 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 35. The Fund also offers exchange privileges
to other OppenheimerFunds, described in "How to Exchange Shares" on
page 37.
- 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. 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 23.
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. The information in the table for
the fiscal periods prior to 1991 was audited by the Fund's previous
independent auditors.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
Financial Highlights
-----------------------------------------------------------------------------------
Class A
-----------------------------------------------------------------------------------
Eleven
Months
Ended
Year Ended December 31, Dec. 31,
1994 1993 1992 1991(3) 1990 1989 1988(2)
==========================================================
==========================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Data:
Net asset value, beginning
of period $11.12 $10.74 $10.80 $ 9.86 $10.29 $10.12 $10.55
- -------------------------------------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income .65 .69 .75 .82 .88(4) .92 .93
Net realized and
unrealized gain (loss)
on investments (1.08) .40 (.05) .90 (.43) .19 (.36)
------- ------- ------- ------- ------ ------- -------
Total income (loss) from
investment operations (.43) 1.09 .70 1.72 .45 1.11 .57
- -------------------------------------------------------------------------------------------------------------------
Dividends to shareholders:
Dividends from net
investment income (.65) (.71) (.76) (.78) (.88) (.94) (1.00)
Dividends in excess of net
investment income (.03) -- -- -- -- -- --
------- ------- ------- ------- ------ ------- -------
Total dividends to
shareholders (.68) (.71) (.76) (.78) (.88) (.94) (1.00)
- -------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $ 10.01 $ 11.12 $ 10.74 $ 10.80 $ 9.86 $ 10.29 $ 10.12
======= ======= ======= ======= ======
======= =======
==========================================================
==========================================================
Total Return, at Net
Asset Value(5) (3.87)% 10.30% 6.77% 18.28% 4.74% 11.31% 4.48%
==========================================================
==========================================================
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) $96,640 $110,759 $106,290 $90,623 $87,021 $96,380 $102,293
- -------------------------------------------------------------------------------------------------------------------
Average net assets
(in thousands) $102,168 $111,702 $ 98,672 $86,471 $ 90,065 $100,891 $111,264
- -------------------------------------------------------------------------------------------------------------------
Number of shares
outstanding at end of
period (in thousands) 9,653 9,963 9,899 8,390 8,829 9,369 10,108
- -------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 6.25% 6.20% 7.00% 8.02% 8.85% 8.85% 8.75%
Expenses 1.06% 1.06% 1.10% 1.23% 1.24%(4) 1.14% 1.05%
- -------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(7) 70.3% 110.1% 116.4% 97.1% 80.4% 41.3% 45.0%
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------
Financial Highlights (continued)
------------------------------------------------------------------------
Class A (continued) Class B
-------------------------------------------------------------- --------
Year Period
Ended Ended
Year Ended January 31, Dec. 31, Dec. 31,
1988(2) 1987(2) 1986(2) 1985(2) 1994 1993(1)
==========================================================
=============================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Data:
Net asset value, beginning
of period $ 11.30 $ 11.16 $ 10.91 $ 11.00 $ 11.11 $ 11.10
- -------------------------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income 1.09 1.16 1.22 1.27 .58 .40
Net realized and
unrealized gain (loss)
on investments (.55) .22 .35 (.04) (1.08) .03
------- ------- ------- ------- ------- -------
Total income (loss) from
investment operations .54 1.38 1.57 1.23 (.50) .43
- -------------------------------------------------------------------------------------------------------
Dividends to shareholders:
Dividends from net
investment income (1.29) (1.24) (1.32) (1.32) (.57) (.42)
Dividends in excess of net
investment income -- -- -- -- (.03) --
------- ------- ------- ------- ------- -------
Total dividends to
shareholders (1.29) (1.24) (1.32) (1.32) (.60) (.42)
- -------------------------------------------------------------------------------------------------------
Net asset value,
end of period $ 10.55 $ 11.30 $ 11.16 $ 10.91 $ 10.01 $ 11.11
======= ======= ======= ======= =======
=======
==========================================================
=============================================
Total Return, at Net
Asset Value(5) N/A N/A N/A N/A (4.53)% 3.91%
==========================================================
=============================================
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) $118,568 $125,513 $121,979 $117,293 $3,451 $1,809
- -------------------------------------------------------------------------------------------------------
Average net assets
(in thousands) $118,724 $123,045 $118,253 $111,235 $2,747 $ 922
- -------------------------------------------------------------------------------------------------------
Number of shares
outstanding at end of
period (in thousands) 11,234 11,103 10,930 10,751 345 163
- -------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 10.28% 10.45% 11.26% 12.21% 5.53% 4.80%(6)
Expenses .98% .93% .97% 1.01% 1.78% 1.90%(6)
- -------------------------------------------------------------------------------------------------------
Portfolio turnover rate(7) 19.5% 59.8% 36.5% 76.7% 70.3% 110.1%
<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.
</FN>
</TABLE>
<PAGE>
Investment Objective and Policies
Objective. The Fund seeks to achieve a high level of current income
consistent with prudent investment risk and the stability of capital
primarily though investment in a diversified portfolio of investment
grade fixed-income securities.
Investment Policies and Strategies. In seeking its investment
objective, the Fund invests in (i) investment grade debt securities
rated in one of the four highest rating categories by Standard & Poor's
Corporation ("S&P") or Moody's Investors Service, Inc. ("Moody's") or,
if unrated, are of comparable quality as determined by the Fund's Sub-
Adviser, Massachusetts Mutual Life Insurance Company; (ii) U.S.
Government Securities; and (iii) high quality, short-term money market
instruments. Under normal market conditions, it is anticipated that
the dollar-weighted average life of the Fund's portfolio will be
between five and ten years. The dollar-weighted average portfolio
maturity of the Fund as of December 31, 1994, was 9 years.
While the Fund will generally purchase only investment grade debt
securities, the Fund is permitted to hold lower-rated securities
(securities rated "Ba" or lower by Moody's or "BB" or lower by S&P)
until investment considerations indicate that their sale is appropriate
or until maturity. Lower-rated securities are considered speculative
and involve greater risk. They may be less liquid than higher-rated
securities. If the Fund were forced to sell a lower-rated debt
security during a period of rapidly-declining prices, it might
experience significant losses especially if a substantial number of
other holders decide to sell at the same time. 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.
When investing the Fund's assets, the Sub-Adviser 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 Fund's Sub-Adviser 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.
- 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 Sub-Adviser'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.
- 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 Sub-Adviser may rely
to some extent on credit ratings by nationally recognized rating
agencies, such as S&P 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.
- 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.
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."
- Mortgage-Backed U.S. Government Securities and CMOs. Certain
mortgage-backed U.S. Government securities "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 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.
- 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.
- 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.
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 and broadly-based securities indices, 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 defensive reasons
or to raise cash to distribute to shareholders.
Futures. The Fund may buy and sell futures contracts that relate
to (1) broadly-based bond indices (these are referred to as Bond Index
Futures), and (2) interest rates (these are referred to as Interest
Rate Futures). All of these futures are described in "Hedging" in the
Statement of Additional Information. The Fund does not use futures and
options on futures for speculative purposes.
Put and Call Options. The Fund may buy and sell certain kinds of
put options (puts) and call options (calls).
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 the Fund previously wrote. The Fund
may write (that is, sell) covered call options on debt securities to
raise cash for income to distribute to shareholders or for defensive
reasons. 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). There is no limit on the amount of the
Fund's total assets that may be subject to covered 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 can purchase those puts
that relate to (1)securities that the Fund owns, (2) Interest Rate
Futures, (3) Bond Index Futures or (4) foreign currencies.
The Fund may write puts on securities, broadly-based stock or bond
indices, foreign currencies or Bond Index Futures. Writing puts
requires the segregation of liquid assets to cover the put.
The Fund may buy and sell calls if certain conditions are met.
Calls the Fund buys or sells must be listed on a domestic or foreign
securities or commodities exchange or quoted on the Automated Quotation
System of the National Association of Securities Dealers, Inc. Each
call the Fund writes must be "covered" while it is outstanding; that
means the Fund must own the securities on which the call is written or
it must own other securities that are acceptable for the escrow
arrangements required for calls. After the Fund writes a call, not
more than 25% of the Fund's total assets may be subject to calls. 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 these options. The Fund may also write calls on Futures Contracts
it owns, but those calls 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. 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 "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 losses from changes
in the relative values 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 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. 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 Sub-Adviser 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. If a covered call written by the Fund is exercised
on a security that has increased in value, the Fund will be required to
sell the security at the call price and will not be able to realize any
profit if the security has increased in value above the call price.
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. To limit its exposure in foreign currency exchange
contracts, the Fund limits its exposure to the amount of its assets
denominated in the 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.
- 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.
- 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 15% 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.
- 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.
- 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 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 Sub-Adviser
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 the Fund may trade in the over-the-
counter markets 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 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 two classes of shares,
Class A and Class B. Both classes invest 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.
The Manager has entered into a contract with Massachusetts Mutual Life
Insurance Company to act as the Fund's Sub-Adviser. The Sub-Adviser is
responsible for choosing the Fund's investments and its duties and
responsibilities are set forth in the contract with the Manager. The
Manager, not the Fund, pays the Sub-Adviser.
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 "Sub-Adviser").
- Portfolio Manager. The Portfolio Manager of the Fund (who is
also a Vice President of the Fund) is Mary E. Wilson, a Vice President
and Managing Director of the Sub-Adviser. She has been responsible for
the day-to-day management of the Fund's portfolio since March, 1991.
Ms. Wilson also serves as Senior Vice President of MML Series
Investment Fund and Vice President of Mass Mutual Participation
Investors and MassMutual Corporate Investors. 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,
the Fund pays the Manager the following annual fees, which decline on
additional assets as the Fund grows: 0.50% of the first $100 million of
the Fund's average annual net assets, 0.45% of the next $200 million,
0.40% of the next $200 million, and 0.35% of net assets in excess of
$500 million. The Fund's management fee for its last fiscal year was
0.50% of average annual net assets for both its Class A and Class B
shares.
Under the Sub-Advisory Agreement, the Manager pays the Sub-Adviser
the following annual fees, which decline on additional assets as the
Fund grows: 0.35% of the first $100 million of the
Fund's average annual net assets; 0.25% of the next $200 million, 0.20%
of the next $200 million; and 0.15% of net assets in excess of $500
million.
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 Sub-Adviser is
permitted by the sub-advisory agreement to consider whether brokers
have sold shares of the Fund or any other funds for which the Manager
or the Sub-Adviser or their 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 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 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
Manger 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.
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. It 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 Shares
and the Lehman Brothers Corporate Bond Index
(Graphs)
Past Performance is not predictive of future performance.
ABOUT YOUR ACCOUNT
How to Buy Shares
Classes of Shares. The Fund offers investors two different classes of
shares. The different classes of shares represent investments in the
same portfolio of securities but are subject to different expenses and
will likely have different share prices.
- Class A Shares. When you buy Class A shares, you pay an
initial sales charge (on investments up to $1 million). If you purchase
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".
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.
- 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.
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 $500,000 or more, in most cases Class
A shares will be the most advantageous choice, no matter how long you
intend to hold your shares. For that reason, the Distributor normally
will not accept purchase orders of $500,000 or more of Class B shares
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 account features may not be available to Class B
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 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 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 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 contingent
deferred sales charge and asset-based sales charge for Class B shares
is the same as the purpose of the front-end sales charge on sales of
Class A shares: 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 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. 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 Charge Commission as
As a Percentage of: Percentage of
Amount of Purchase Offering Price Amount Invested Offering 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%
<FN>
__________________
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.
</TABLE>
- 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 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 and Service Plan, described below. The
conversion is based on the relative net asset value of the two classes,
and no sales load or other charge is imposed. When Class B shares
convert, any other Class B shares that were acquired by the
reinvestment of dividends and distributions on the converted shares
will also convert to Class A shares. The conversion feature is subject
to the continued availability of a tax ruling described in "Alternative
Sales Arrangements - Class A and Class B Shares" in the Statement of
Additional Information.
- Distribution and Service Plan for Class B Shares. The Fund has
adopted a Distribution and Service Plan for Class B shares to
compensate the Distributor for its services and costs in distributing
Class B shares and servicing accounts. Under the Plan, the Fund pays
the Distributor an annual "asset-based sales charge" of 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 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
(and the first year's service fee) to recoup the sales commissions it
pays, the advances of service fee payments it makes, and its financing
costs.
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 December 31,
1994, the end of the Plan year, the Distributor had incurred
unreimbursed expenses under the Plan of $184,525 (equal to 5.35% of the
Fund's net assets represented by Class B shares on that date), which
have been carried over into the present Plan year. If the Plan is
terminated by the Fund, the Board of Trustees may allow the Fund to
continue payments of the asset-based sales charge to the Distributor
for certain expenses it incurred before the Plan was terminated.
Special Investor Services
AccountLink. OppenheimerFunds AccountLink links your Fund account to
your account at your bank or other financial institution to enable you
to send money electronically between those accounts to perform a number
of types of account transactions. 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 and
Class B 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 shares because
expenses allocable to Class B shares will generally be higher.
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
Description of Securities Ratings
Description of Standard & Poor's Corporation ("Standard & Poor's") and
Moody's Investors Service, Inc. ("Moody's") bond ratings:
Standard & Poor's describes its four highest ratings for corporate debt
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 it normally exhibits 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 debt in
this category than in higher rated categories.
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 four highest 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.
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 TO PROSPECTUS OF
OPPENHEIMER INVESTMENT GRADE BOND FUND
Graphic material included in Prospectus of Oppenheimer Investment
Grade Bond Fund: "Comparison of Total Return of Oppenheimer Investment
Grade 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
Investment Grade 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>
Oppenheimer Lehman Brothers
Fiscal Year Investment Grade 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
Oppenheimer Lehman Brothers
Fiscal Year Investment Grade 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
Sub-Adviser
Massachusetts Mutual Life Insurance Company
1295 State Street
Springfield, Massachusetts 01111
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 INVESTMENT GRADE BOND FUND
3410 South Galena Street, Denver, Colorado 80231
1-800-525-7048
Statement of Additional Information dated May 1, 1995.
This Statement of Additional Information of Oppenheimer Investment
Grade Bond Fund is not a Prospectus. This document contains additional
information about the Fund and supplements information in the
Prospectus dated May 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
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
Appendix A: Description of Securities Ratings A-1
Appendix B: Industry Classification B-1
Independent Auditors' Report
Financial Statements
<PAGE>
ABOUT THE FUND
Investment Objective And Policies
Investment Policies and Strategies. The investment objective and
policies of the Fund are discussed in the Prospectus. Set forth below
is supplemental information about those policies and the types of
securities in which the Fund invests, as well as the strategies the
Fund may use to try to achieve its objective. Certain capitalized
terms used in this Statement of Additional Information have the same
meaning as those terms have in the Prospectus.
- Investment Risks. All fixed-income securities are subject to
two types of risks: credit risk and interest rate risk. Credit risk
relates to the ability of the issuer to meet interest or principal
payments or both as they become due. Generally, higher yielding bonds
are subject to credit risk to a greater extent than higher quality
bonds. Interest rate risk refers to the fluctuations in 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 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
these securities used to compute the Fund's net asset values.
- 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) which, at
the time of purchase, are rated in the two highest rating categories
for commercial paper by S&P or Moody's or, if unrated, is issued by
companies having an outstanding debt issue currently rated at least A
by S&P or Moody's; short-term obligations of corporate issuers which
are rated in the two highest rating categories for corporate debt
securities by S&P or Moody's at the date of investment; bank
participation certificates provided that at the date of investment each
of the underlying loans is made to an issuer of securities rated at
least A-2, AA or SP-2 by S&P or P-2 or Aa by Moody's and also provided
the underlying loans have a remaining maturity of one year or less, 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.
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 Sub-
Adviser 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) purchase commodities or commodity contracts except futures
contracts, including but not limited to contracts for the future
delivery of securities and futures contracts based on securities
indexes;
(4) 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;
(5) 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;
(6) 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
(7) 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
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 April 3, 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).
* A Trustee who is an interested person of the Fund as defined in the
Investment Company Act.
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.
Mary E. Wilson, Vice President and Portfolio Manager; Age: 41
Vice President and Managing Director of the Sub-Advisor; Senior Vice
President of MML Series Investment Fund; and Vice President of
MassMutual Participation Investors and MassMutual Corporate Investors.
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.
* A Trustee who is an interested person of the Fund as defined in the
Investment Company Act.
Scott Farrar, Assistant Treasurer; Age: 29
3410 South Galena Street, Denver, Colorado 80231
Assistant Vice President of the Manager/Mutual Fund Accounting; an
officer of other
OppenheimerFunds; previously a Fund Controller for the Manager, prior
to which he was an International Mutual Fund Supervisor for Brown
Brothers Harriman & Co., a bank, and previously
a Senior Fund Accountant for State Street Bank & Trust Company.
- Remuneration of Trustees. The officers of the Fund are affiliated
with the Manager. They and the Trustees of the Fund who are affiliated
with the Manager (Messrs. Fossel and Swain, who are both officers and
Trustees) receive no salary or fee from the Fund. The Trustees of the
Fund (excluding Messrs. Fossel and Swain) received the total amounts
shown below from the Fund, during its fiscal year ended December 31,
1994, and from all 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>
______________________
1 For the 1994 calendar year.
</TABLE>
- Major Shareholders. As of April 3, 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 777,936.187 Class A shares (7.31%) of the
Fund, 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 (17.91%) of the Fund, and
which represented less than 5% of the outstanding shares 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, the Sub-Advisor, 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 as of March 28, 1991, 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.
MassMutual serves as investment sub-adviser to the Fund
pursuant to a sub-advisory agreement between MassMutual and OMC dated
as of March 28, 1991. Under the sub-advisory agreement, MassMutual is
responsible for managing the Fund's portfolio of securities and making
investment decisions with respect to the Fund's investments, subject to
the Fund's investment policies established by the Board of Trustees of
the Trust, and in accordance with the Fund's investment objective,
policies and restrictions, set forth in the Prospectus and in this
Statement of Additional Information. The Sub-Adviser's fee is paid by
the Manager. The sub-advisory agreement has the same provisions as to
renewal, termination and the standard of care as the investment
advisory agreement, and both advisory agreements are subject to annual
approval by the Trustees, who may terminate either advisory agreement
on sixty days' notice approved by a majority of the Trustees.
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 and Class B shares, but is not obligated to sell a
specific number of shares. Expenses normally attributable to sales
(other than those paid under the Class A and Class B Distribution and
Service Plan), including advertising and the cost of printing and
mailing prospectuses (other than those furnished to existing
shareholders), are borne by the Distributor. During the Fund's fiscal
years ended 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.
- - 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 and Sub-Advisory
Agreements. One of the duties of the Sub-Adviser under the sub-advisory
agreement is to arrange the portfolio transactions of the Fund. In
doing so, the Sub-Adviser is authorized by the sub-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 Sub-Adviser 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
sub-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 sub-advisory agreement, the Sub-Adviser 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 Sub-Adviser 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
Sub-Advisors portfolio traders upon recommendations from the Sub-
Advisors 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 Sub-Adviser.
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 transactions in the securities
to which the option relates. Option commissions may be relatively
higher than those which would apply to direct purchases and sales of
portfolio securities. The Sub-Adviser shall select broker-dealers to
effect the Fund's portfolio transactions on the basis of its estimate
of their ability to obtain best execution of particular and related
portfolio transactions. The abilities of a broker-dealer to obtain
best execution of particular portfolio transaction(s) will be judged by
the Sub-Adviser on the basis of all relevant factors and
considerations.
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 Sub-Adviser
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 Sub-Adviser in a non-research capacity (such as bookkeeping
or other administrative functions), then only the percentage or
component that provides assistance to the Sub-Adviser in the investment
decision-making process may be paid for 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 broaden the scope and
supplement the research activities of the Sub-Adviser by making
available additional views for consideration and comparisons, and
enabling the Sub-Adviser to obtain market information for the valuation
of securities held in the Fund's portfolio or being considered for
purchase. The Board, including the independent Trustees of the Trust
(those Trustees of the Trust 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 agreements
or Distribution Plans described below), annually reviews information
furnished by the Sub-Adviser 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.
Securities held by the Fund may also be held by Sub-Adviser in
its investment accounts and by other investment companies for which it
acts as investment adviser. If the same security is purchased or sold
for the Fund and such investment accounts or companies at or about the
same time, such purchases or sales normally will be combined, to the
extent practicable, and will be allocated as nearly as practicable on a
pro rata basis in proportion to the amounts to be purchased and sold.
The main factors to be considered will be the investment objectives of
the respective portfolios, the relative size of portfolio holdings of
the same or comparable security, availability of cash for investment by
the various portfolios and the size of their respective investment
commitments. It is believed that the ability of the Fund to
participate in larger volume transactions will, in most cases, produce
better execution for the Fund. In some cases, however, this procedure
could have a detrimental effect on the price and amount of a security
available to the Fund or the price at which a security may be sold. It
is the opinion of the Trust's management that such execution advantage
and the desirability of retaining the Sub-Adviser in that capacity
outweigh the disadvantages, if any, which might result from this
procedure.
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
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.
- 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:
( 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 (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 or Class B 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 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 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 or
Class B 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 or Class
B return to the returns on fixed income investments available from
banks and thrift institutions, such as certificates of deposit,
ordinary interest-paying checking and savings accounts, and other forms
of fixed or variable time deposits, and various other instruments such
as Treasury bills. However, the Fund's returns and share price are not
guaranteed by the FDIC or any other agency and will fluctuate daily,
while bank depository obligations may be insured by the FDIC and may
provide fixed rates of return, and Treasury bills are guaranteed as to
principal and interest by the U.S. government.
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 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.
(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. 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. The report for the Class B
Plan shall also include the Distributor's 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 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 Plan for Class B shares 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.
Service fee payments of the asset based sales charge 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 Plan permits 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 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 $500,000 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 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 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 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 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 Trust'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 sale
prices of the preceding trading day or closing bid and asked prices);
(ii) NASDAQ and other unlisted equity securities for which last sales
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) securities
(including restricted securities) not having readily available market
quotations are valued at fair value under the Board's procedures; (iv)
unlisted debt securities having a remaining maturity in excess of 60
days are valued at the mean between the asked and bid prices determined
by a portfolio pricing service approved by the Trust's Board of
Trustees or obtained from an active market maker on the basis of
reasonable inquiry; (v) 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; 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 on last sales prices reported on a
principal exchange or 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. Foreign currency will be
valued as close to the time fixed for the valuation date as is
reasonably practicable. The value of securities denominated in foreign
currency will be converted to U.S. dollars at the prevailing rates of
exchange at the time of valuation.
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 bond 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, the
Manager, and/or the Sub-Adviser, 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 currency will be
valued as close to the time fixed for the valuation date as is
reasonably practicable. The values of investments denominated in
foreign currency will be converted to U.S. dollars at the prevailing
rates of exchange at the time of valuation.
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 and/or the Sub-Adviser 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.
Calls, puts and Futures held by the Fund are valued at the last
sale prices on the principal exchange on which they are traded, or on
NASDAQ, as applicable, 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 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 spose
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
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.
- 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.
- 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.
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 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 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 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 "Waivers of Class B
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), 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
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, 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 and
Class B," 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 shares are expected to be lower as a result of the
asset-based sales charge on Class B shares, and Class B dividends will
also differ in amount as a consequence of any difference in net asset
value between Class A and Class B 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 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, bond and
municipal securities 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.
S&P'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 debt
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 it normally exhibits 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 debt in
this category than in higher rated categories.
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 four highest 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.
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
<TABLE>
<S> <C>
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Independent Auditors' Report
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===============
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>
<PAGE>
<TABLE>
<CAPTION>
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Statement of Investments December 31, 1994
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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>
<PAGE>
Investment Adviser
Oppenheimer Management Corporation
Two World Trade Center
New York, New York 10048-0203
Sub-Adviser
Massachusetts Mutual Life Insurance Company
1295 State Street
Springfield, Massachusetts 01111
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>
O P P E N H E I M E R
Value Stock Fund
Prospectus dated May 1, 1995
Oppenheimer Value Stock Fund (the "Fund") is a mutual fund with the
investment objective of seeking long-term growth of capital and income
primarily through investments in stocks of well established companies.
You should carefully review the risks associated with an investment in
the Fund.
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 May 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).
(OppenheimerFunds logo)
Shares of the Fund are not deposits or obligations of any bank, nor are
they guaranteed by any bank 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
Special Investor Services
AccountLink
Automatic Withdrawal and Exchange Plans
Reinvestment Privilege
Retirement Plans
How to Sell Shares
By Mail
By Telephone
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 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 __ 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) 5.75% 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 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. See "How to Buy Shares - Class A Shares,"
below.
- 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 and 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 12b-1 Distribution
Plan Fees for Class A shares are Service Plan Fees (the fee is 0.25% of
average annual net assets of that class), and for Class B shares, the
12b-1 Distribution Plan Fees are the Distribution and Service Plan Fee
(the service fee is 0.25% of average annual net assets of that class)
and the asset-based sales charge of 0.75%. The actual expenses for
each class of shares in future years may be more or less, depending on
a number of factors, including the actual amount of the assets
represented by each class of shares. These Plans are discussed in
greater detail in "How to Buy Shares."
<TABLE>
<CAPTION>
Class A Shares Class B Shares
<S> <C> <C>
Management Fees 0.75% 0.75%
12b-1 Distribution and/or Plan Fees 0.25%(1) 1.00%(2)
Other Expenses 0.27% 0.26%
Total Fund Operating Expenses 1.27% 2.01%
<FN>
___________
(1) Service Plan fees only
(2) Includes Service Plan fee and asset-based sales charge.
</TABLE>
- Examples. To try to show the effect of the 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 $70 $95 $123 $202
Class B Shares $70 $93 $128 $197
If you did not redeem your investment, it would incur the following expenses:
Class A Shares $70 $95 $123 $202
Class B Shares $20 $63 $108 $197
<FN>
* 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.
</TABLE>
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 long-
term growth of capital and income primarily through investments in
stocks of well established companies.
- What Does The Fund Invest In? Under normal market conditions
the Fund primarily invests in a diversified portfolio of (i) common
stocks that pay cash dividends, (ii) securities convertible into common
stocks, and (iii) other equity securities issued by companies with a
market capitalization of at least $500 million or with a history of at
least five years of operations as a public company, and which are
listed on a national securities exchange or traded in the over-the-
counter markets. The Fund will invest primarily in cash dividend-
paying stocks. The Fund may also write covered calls and use certain
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 ___.
- 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 Manager handles the day-to-day business of
the Fund. The Fund also has a sub-adviser, Concert Capital Management,
Inc. (the "Sub-Adviser") who is responsible for choosing the Fund's
investments. The Fund has a portfolio manager, David B. Salerno, who
is employed by the Sub-Adviser and is primarily responsible for the
selection of the Fund's securities. The Manager is paid a management
fee by the Fund, and the Manager, not the Fund, pays the Sub-Adviser.
The Fund's Board of Trustees, elected by shareholders, oversees the
Manager. Please refer to "How the Fund is Managed," starting on page
___ for more information about the Manager and the Sub-Adviser and
their fees.
- How Risky Is The Fund? All investments carry risks to some
degree. The Fund's investments in stocks are subject to changes in
their value from a number of factors such as changes in general stock
market movements or changes in value of a particular stock because of
an event affecting the issuer. These changes affect the value of the
Fund's investments and its price per share. In the OppenheimerFunds
spectrum, the Fund is generally more conservative than aggressive
growth funds, but more aggressive than money market or growth and
income funds. While the Sub-Adviser 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 ___ 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 and Automatic
Investment Plan under AccountLink. Please refer to "How to Buy Shares"
starting on page ___ for more details.
- Will I Pay A Sales Charge To Buy Shares? The Fund has two
classes of shares. Both have the same investment portfolio but
different expenses. Class A shares are offered with a front-end sales
charge, starting at 5.75%, 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 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. 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 average annual total return and cumulative total return,
which measure historical performance. Those total returns can be
compared to the 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 broad
market indices, which we have done on page ___. Please remember that
past performance does not guarantee future results.
Financial Highlights
The table on the following pages presents selected financial
information about the Fund, including per share data and expense ratios
and other data based on the Fund's average net assets. This
information has been audited by Deloitte & Touche LLP, the Fund's
independent auditors, whose report on the Fund's financial statements
for the fiscal year ended December 31, 1994 is included in the
Statement of Additional Information. The information in the table for
the fiscal periods prior to 1991 was audited by the Fund's previous
independent auditors.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
Financial Highlights
--------------------------------------------------------------------------------------------------
Class A Class B
------------------------------------------------------------------------------- ----------------
Year Ended Year Ended
December 31, December 31,
1994 1993 1992 1991(3) 1990 1989 1988 1987 1986(2) 1994 1993(1)
==========================================================
==========================================================
============
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<C> <C>
Per Share Operating Data:
Net asset value,
beginning of period $ 14.41 $ 14.19 $ 13.57 $ 11.39 $ 12.08 $ 10.47 $ 9.51 $ 9.98 $ 10.16 $ 14.35 $
14.60
Income from investment
operations:
Net investment income .31 .29 .32 .33 .37 .40 .33 .34 .01 .17 .17
Net realized and unrealized
gain (loss) on investments .16 .98 .97 2.49 (.57) 1.87 1.15 (.22) (.19) .19 .51
------- ------- ------- ------- ------- ------- ------- ------ ------- ------- -------
Total income (loss) from
investment operations .47 1.27 1.29 2.82 (.20) 2.27 1.48 .12 (.18) .36 .68
- --------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to
shareholders:
Dividends from net
investment income (.31) (.29) (.32) (.33) (.39) (.41) (.33) (.41) -- (.21) (.17)
Dividends in excess of net
investment income (.01) -- -- -- -- -- -- -- -- (.01) --
Distributions from net realized
gain on investments (.40) (.76) (.35) (.31) (.10) (.25) (.19) (.18) -- (.40) (.76)
------- ------- ------- ------- ------- ------- ------- ------ ------- ------- -------
Total dividends and
distributions to shareholders (.72) (1.05) (.67) (.64) (.49) (.66) (.52) (.59) -- (.62) (.93)
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $ 14.16 $ 14.41 $ 14.19 $ 13.57 $ 11.39 $ 12.08 $ 10.47 $ 9.51 $ 9.98 $ 14.09 $
14.35
======= ======= ======= ======= ======= =======
======= ====== ======= ======= =======
==========================================================
==========================================================
============
Total Return, at Net Asset
Value(4) 3.28% 8.97% 9.61% 25.23% (1.53)% 21.93% 15.61% 1.10% (1.77)% 2.50%
4.63%
==========================================================
==========================================================
============
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) $92,728 $90,470 $59,376 $49,381 $40,153 $37,713 $27,434 $19,377 $20,162 $10,893
$5,158
- --------------------------------------------------------------------------------------------------------------------------------
Average net assets
(in thousands) $90,158 $80,229 $53,485 $45,581 $39,104 $33,742 $24,658 $22,322 $ --(2) $7,834
$2,527
- --------------------------------------------------------------------------------------------------------------------------------
Number of shares outstanding at
end of period (in thousands) 6,548 6,280 4,184 3,639 3,526 3,122 2,620 2,039 2,021 773 359
- --------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 2.16% 1.97% 2.34% 2.59% 3.22% 3.51% 3.45% 3.15% --(2)
1.45% .97%(5)
Expenses, before voluntary
reimbursement 1.27% 1.24% 1.19% 1.31% 1.36% 1.40% 1.21% .70% --(2) 2.01%
2.14%(5)
Expenses, net of voluntary
reimbursement N/A N/A N/A 1.26% 1.30% 1.30% 1.19% N/A --(2) N/A
N/A
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 16.3% 24.3% 12.3% 14.5% 13.5% 14.9% 13.1% 10.8% --(2) 16.3%
24.3%
<FN>
1. For the period from May 1, 1993 (inception of offering) to December 31, 1993.
2. For the period from December 22, 1986 to December 31, 1986. Ratios during this development
period would not be indicative of representative results.
3. On March 28, 1991, Oppenheimer Management Corporation became the investment advisor to the
Fund.
4. 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.
5. Annualized.
6. 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 $20,227,936 and $14,410,677,
respectively.
</FN>
</TABLE>
<PAGE>
Investment Objective and Policies
Objective. The Fund seeks long-term growth of capital and income
primarily through investments in stocks of well established companies.
Investment Policies and Strategies. In seeking its investment
objective the Fund will invest, under normal market conditions, in a
diversified portfolio of (i) common stocks that pay cash dividends,
(ii) securities convertible into common stocks, and (iii) other equity
securities issued by companies with a market capitalization of at least
$500 million or with a history of at least five years of operations as
a public company, and which are listed on a national securities
exchange or traded in the over-the-counter markets. The Fund will
invest primarily in cash dividend-paying stocks. To provide liquidity
or for temporary defensive purposes, the Fund may invest all or any
portion of its assets in high-quality, short-term money market
instruments.
Concert Capital Management, Inc. (the "Sub-Adviser") will seek to
invest in the securities of companies which, in its opinion, are of
high quality, offer above-average dividend growth potential and are
attractively valued in the marketplace. This would include stocks
selling below their historical price/earnings ranges relative to the
Standard & Poor's 500 Stock Index or below their historical price/book
value ranges. The Sub-Adviser will give strong consideration to
securities of companies whose current prices do not adequately reflect,
in its opinion, the ongoing business value of the enterprise.
The Fund may try to hedge against losses in the value of its
portfolio securities by using hedging strategies described below. The
Sub-Adviser 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.
- Investment Risks. Because of the types of companies the Fund
invests in and the investment techniques the Fund uses, some of which
may be speculative, the Fund is designed for those investors who are
investing for the long-term and who are willing to accept greater risks
of loss of their capital in the hope of achieving capital appreciation.
Investing for capital appreciation entails the risk of loss of all or
part of your principal. There is no assurance that the Fund will
achieve its objective, and when you redeem your shares, they may be
worth more or less than what you paid for them.
Because the Fund can invest a substantial portion (or all) of its
assets in stocks, the value of the Fund's portfolio will be effected by
changes in the stock markets. This market risk will affect the Fund's
net asset values per share, which will fluctuate as the values of the
Fund's portfolio securities change. Not all sock prices change
uniformly or at the same time, and other factors can affect a
particular stock's price (for example, poor earnings reports by an
issuer, loss of major customers, major litigation against an issuer,
changes in government regulations affecting an industry). Not all of
these factors can be predicted. Changes in the overall market prices
can occur at any time.
As discussed below, the Fund attempts to limit market risks by
diversifying its investments, that is, by not holding a substantial
amount of the stock of any one company. Also, the Fund does not
concentrate its investment in any one industry or group of industries
- 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 Sub-Adviser'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.
- 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.
- Securities of Foreign Governments and Companies. The Fund may
invest in debt and equity 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
Fund'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.
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 and broadly-based securities indices. 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. 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 defensive reasons.
Futures. The Fund may buy and sell futures contracts that relate to
broadly-based securities indices (these are referred to as Stock Index
Futures).
Put and Call Options. The Fund may buy and sell certain kinds of
put options (puts) and call options (calls).
The Fund may purchase calls only on Stock Index Futures, broadly-
based securities indices and foreign currencies, 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). There is no limit on
the amount of the Fund's total assets that may be subject to covered
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 can purchase those puts
that relate to (1) securities the Fund owns, (2) Stock Index Futures
(whether or not the Fund owns that particular Stock Index Future in its
portfolio), (3) broadly-based Stock indices, or (4) foreign
currencies.
The Fund may write puts on securities, broadly-based stock indices,
foreign currencies or Stock Index Futures. Writing puts requires the
segregation of liquid assets to cover the put. The Fund will not write
a put if it would require more than 50% of its net assets to be
segregated to cover the put obligation.
The Fund may buy and sell calls if certain conditions are met.
Calls the Fund buys or sells must be listed on a domestic or foreign
securities or commodities exchange or quoted on the Automated Quotation
System of the National Association of Securities Dealers, Inc. Each
call the Fund writes must be "covered" while it is outstanding; that
means the Fund must own the securities on which the call is written or
it must own other securities that are acceptable for the escrow
arrangements required for calls. After the Fund writes a call, not
more than 25% of the Fund's total assets may be subject to calls. 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 these options. The Fund may also write calls on Futures Contracts
it owns, but those calls 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. 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.
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 Sub-Adviser 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. If a covered call written by the Fund is exercised on a
security that has increased in value, the Fund will be required to sell
the security at the call price and will not be able to realize any
profit if the security has increased in value above the call price.
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. To limit its exposure in foreign currency exchange
contracts, the Fund limits its exposure to the amount of its assets
denominated in the 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.
- 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). Certain restricted securities, eligible for resale to
qualified institutional purchasers, are not subject to that limit.
- Loans of Portfolio Securities. To raise cash for liquidity
purposes, the Fund may lend its portfolio securities to brokers,
dealers and other financial institutions. The Fund will 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 the conditions
described in the Statement of Additional Information. The Fund
presently does not intend to engage in loans of securities that will
exceed 5% of the value of the Fund's total assets in the coming year.
- 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 of the securities under a repurchase agreement fails to pay the
resale price on the delivery date, the Fund may incur costs in
disposing of the collateral and may experience losses if there is any
delay in its ability to do so. The Fund will not enter into a
repurchase agreement that will cause more than 15% of its net assets to
be subject to repurchase agreements having a maturity beyond seven
days. There is no limit on the amount of the Fund's net assets that
may be subject to repurchase agreements of seven days or less.
- 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 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.
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 of
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 such 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 in 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 is a fund that
issues its own shares, has its own investment portfolio, and its own
assets and liabilities.
The Trust 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 shareholder meetings, it may hold
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 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. Both classes invest 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.
The Manager has entered into a contract with Concert Capital
Management, Inc. ("Concert Capital"), an indirect wholly-owned
subsidiary of Massachusetts Mutual Life Insurance Company
("MassMutual"), to act as the Fund's Sub-Adviser. The Sub-Adviser is
responsible for choosing the Fund's investments and its duties and
responsibilities are set forth in the contract with the Manager. The
Manager, not the Fund, pays the Sub-Adviser.
The Manager has operated as an investment adviser since 1959. The
Manager (including an affiliate) 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 MassMutual. The Sub-Adviser was created
by MassMutual in 1982 and is provided business services by it. The
Sub-Adviser and MassMutual advise investment companies and
institutional clients.
The Manager, the Sub-Adviser 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 by the
Manager.
- Portfolio Manager. The Portfolio Manager of the Fund (who is
also a Vice President of the Fund) is David B. Salerno, a Managing
Director of the Sub-Adviser. He has been responsible for the day-to-
day management of the Fund's portfolio since its inception in 1982.
Mr. Salerno also serves as a Senior Vice President of MML Series
Investment Fund. 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, the
Fund pays the Manager the following annual fees, which decline on
additional assets as the Fund grows: 0.75% of the first $100 million of
the Fund's average annual net assets, 0.72% of the next $200 million,
0.69% of the next $200 million, and 0.66% of net assets in excess of
$500 million. The Fund's management fee for its last fiscal year was
0.75% of average annual net assets for both its Class A shares and
0.75% for Class B shares.
Under the Sub-Advisory Agreement, the Manager pays the Sub-Adviser
the following annual fees, which decline on additional assets as the
Fund grows: 0.40% of the first $50 million of the Fund's average annual
net assets and 0.20% of net assets in excess of $50 million.
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. The Fund usually
uses brokers when buying portfolio securities. When deciding which
brokers to use, the Sub-Adviser is permitted by the sub-advisory
agreement to consider whether brokers have sold shares of the Fund or
any other funds for which the Manager or the Sub-Adviser or their
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" and "average annual total return" 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 returns
represent past performance and should not be considered to be
predictions of future returns or performance. This performance data is
described below, but more detailed information about how total returns
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, normally they
include the payment of the maximum initial 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. When total returns are shown for Class B shares, they include
the applicable contingent deferred sales charge. Total Returns may also
be quoted "at net asset value", without including the contingent
deferred sales charge, and those returns would be reduced if the sales
charges were deducted.
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. During the first half of
the Funds's fiscal year ended December 31, 1994, the Fund's performance
was effected by the rise in short-term interest rates. As interest
rates rose and the markets grew more volatile the value of the Fund's
assets held in high-quality value stocks increased. During the second
half of the Fund's fiscal year, the market moved away from value stocks
and toward growth issues. In response to this movement, the Manager
increased the Fund's exposure to consumer related stocks and healthcare
stocks which the Manager viewed as having a better value and a
potential for long-term growth.
- Comparing the Fund's Performance to the Market. The charts below
show the performance of a hypothetical $10,000 investment in each class
of shares of the Fund held at December 31, 1994; in the case of Class A
shares, from the inception of the class on December 26, 1986, and in
the case of Class B shares, from the inception of the class on May 1,
1993.
The performance of each class of the Fund's shares is compared to
the performance of the S&P 500 Index, an unmanaged index of 500 widely-
held common stocks traded on the New York and American Stock Exchanges
and the over-the-counter market. It is widely recognized as a general
measure of stock market performance. It includes a factor for the
reinvestment of dividends but does not reflect expenses or taxes.
Index performance reflects 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 Value Stock Fund Class A Shares
and the S&P 500 Index
(Graphs)
Past Performance is not predictive of future performance.
ABOUT YOUR ACCOUNT
How to Buy Shares
Classes of Shares. The Fund offers investors two different classes of
shares. The different classes of shares represent investments in the
same portfolio of securities but are subject to different expenses and
will likely have different share prices.
- Class A Shares. When you buy Class A shares, you pay an
initial sales charge (on investments up to $1 million). If you purchase
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 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".
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.
- 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 shares,
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 shares, 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 shares, 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 $500,000 or more, in most cases Class
A shares will be the most advantageous choice, no matter how long you
intend to hold your shares. For that reason, the Distributor normally
will not accept purchase orders of $500,000 or more of Class B shares
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 account features may not be available to Class B
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 shareholders, you
should carefully review how you plan to use your investment account
before deciding which class of shares to buy. For example, not all
other OppenheimerFunds offer Class B shares limiting exchangability
the Fund. Share certificates are not available for Class B shares and
if you are considering using your shares as collateral, that may be a
factor. Also, because not all OppenheimerFunds currently offer Class B
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.
- 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 contingent
deferred sales charge and asset-based sales charge for Class B shares
is the same as the purpose of the front-end sales charge on sales of
Class A shares: 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 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. 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, to 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 Account Link 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 at 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 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 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 a portion 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 Sales Charge Commission as
As a Percentage of: Percentage of
Amount of Purchase Offering Price Amount Invested Offering Price
_________________________________________________________________________________
<S> <C> <C> <C>
Less than $25,000 5.75% 6.10% 4.75%
$25,000 or more but
less than $50,000 5.50% 5.82% 4.75%
$50,000 or more but
less than $100,00 4.75% 4.99% 4.00%
$100,000 or more but
less than $250,000 3.75% 3.90% 3.00%
$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 (shares of any
OppenheimerFunds that offers only one class of shares that has no class
designation are considered "Class A" shares for this purpose). 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 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 and Service Plan, described below. The
conversion is based on the relative net asset value of the two classes,
and no sales load or other charge is imposed. When Class B shares
convert, any other Class B shares that were acquired by the
reinvestment of dividends and distributions on the converted shares
will also convert to Class A shares. The conversion feature is subject
to the continued availability of a tax ruling described in "Alternative
Sales Arrangements - Class A and Class B Shares" in the Statement of
Additional Information.
- Distribution and Service Plan for Class B Shares. The Fund
has adopted a Distribution and Service Plan for Class B shares to
compensate the Distributor for its services and costs in distributing
Class B shares and servicing accounts. Under the Plan, the Fund pays
the Distributor an annual "asset-based sales charge" of 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 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
(and the first year's service fee) to recoup the sales commissions it
pays, the advances of service fee payments it makes, and its financing
costs.
The Distributor's actual expenses in selling Class B shares may
be more than 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 December 31,
1994, the end of the Plan year, the Distributor had incurred
unreimbursed expenses under the Plan of $391,541 (equal to 3.6% of the
Fund's net assets represented by Class B shares on that date), which
have been carried over into the present Plan year. If the Plan is
terminated by the Fund, the Board of Trustees may allow the Fund to
continue payments of the asset-based sales charge to the Distributor
for certain expenses it incurred before the Plan was terminated.
Special Investor Services
AccountLink. OppenheimerFunds AccountLink links your Fund account to
your account at your bank or other financial institution to enable you
to send money electronically between those accounts to perform a number
of types of account transactions. 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 redemption of Class A shares or to redemption 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 (and redemptions, transfers and
exchanges). 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 may be
required to 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 from 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.
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 name(s) 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, which is
normally 4:00 P.M. but may be earlier on some days, 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 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 quarterly. 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.
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 TO PROSPECTUS OF
OPPENHEIMER VALUE STOCK FUND
Graphic material included in Prospectus of Oppenheimer Value Stock
Fund: "Comparison of Total Return of Oppenheimer Value Stock Fund with
the S&P 500 Index - Change in Value of a $10,000 Hypothetical
Investment"
Linear graphs will be included in the Prospectus of Oppenheimer
Value Stock Fund (the "Fund") depicting the initial account value and
subsequent account value of a hypothetical $10,000 investment in each
class of shares of the Fund. In the case of Class A shares, that graph
will cover each of the Fund's fiscal years from the inception of the
class (December 31, 1986) through December 31, 1994, and in the case of
Class B shares the graph will cover the periods from inception of the
class (May 1, 1993) through December 31, 1994. The graphs will
compare such values with the same investments over the same time
periods with the S&P 500 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 S&P
Index, is set forth in the Prospectus under "Performance of the Fund --
Comparing the Fund's Performance to Market"
<TABLE>
<CAPTION>
Oppenheimer
Fiscal Year Value Stock
(Period) Ended Fund A S&P 500 Index
<S> <C> <C>
12/22/86 $9,452 $10,000
12/31/86 $9,258 $9,9366
12/31/87 $9,360 $10,458
12/31/88 $10,820 $12,189
12/31/89 $13,193 $16,045
12/31/90 $12,991 $15,546
12/31/91 $16,268 $20,272
12/31/92 $17,831 $21,815
12/31/93 $19,430 $24,009
12/31/94 $20,068 $24,324
Oppenheimer
Fiscal Year Value Stock
(Period) Ended Fund B(1) S&P 500 Index
05/1/93 $10,000 $10,000
12/31/93 $10,463 $10,525
12/31/94 $10,339 $10,663
<FN>
- ----------------------
(1) Class B shares of the Fund were first publicly offered on May 1, 1993.
</TABLE>
<PAGE>
Oppenheimer Value Stock 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
Sub-Adviser
Concert Capital Management, Inc.
125 High Street
Boston, Massachusetts 02110
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., Concert Capital Management, 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.
PR03265.001.0595 *Printed on recycled paper
<PAGE>
OPPENHEIMER VALUE STOCK FUND
3410 South Galena Street, Denver, Colorado 80231
1-800-525-7048
Statement of Additional Information dated May 1, 1995.
This Statement of Additional Information of Oppenheimer Value
Stock Fund is not a Prospectus. This document contains additional
information about the Fund and supplements information in the
Prospectus dated May 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
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
Independent Auditors' Report
Financial Statements
Appendix A: Industry Classifications
<PAGE>
ABOUT THE FUND
Investment Objective and Policies
Investment Policies and Strategies. The investment objective and
policies of the Fund are discussed in the Prospectus. Set forth below
is supplemental information about those policies and the types of
securities in which the Fund invests, as well as the strategies the
Fund may use to try to achieve its objective. Certain capitalized
terms used in this Statement of Additional Information have the same
meaning as those terms have in the Prospectus.
The U.S. government obligations in which the Fund may invest in
for defensive reasons include U.S. Treasury bills, notes and bonds
which are direct obligations of the U.S. government and debt
obligations issued, assumed, guaranteed or sponsored by agencies or
instrumentalities established under the authority of an Act of
Congress, or obligations secured by such securities.
The Fund may invest up to 5% of the value of its assets in
warrants in an effort to build a position in the underlying common
stocks and, of such 5%, no more than 2% may be invested in warrants
that are not listed on the New York Stock Exchange or the American
Stock Exchange. A warrant typically gives the holder the right to
purchase underlying stock at a specified price for a designated period
of time. Warrants may be a relatively volatile investment. The holder
of a warrant takes the risk that the market price of the underlying
stock may never equal or exceed the exercise price of the warrant. A
warrant will expire without value if it is not exercised or sold during
its exercise period.
- Short-Term Money Market Securities. The high-quality, short-
term money market instruments the Fund may invest in to provide
liquidity or for temporary defensive purposes include U.S. government
obligations; commercial paper which at the date of the investment is
rated A-1 or A-2 by Standard & Poor's Corporation ("Standard & Poor's")
or P-1 or P-2 by Moody's Investors Service, Inc. ("Moody's") or, if
unrated, is issued by companies having an outstanding debt issue
currently rated at least A by Standard & Poor's or Moody's; short-term
obligations of corporate issuers which at the date of investment are
rated AAA or AA by Standard & Poor's or Aaa or Aa by Moody's; bank
participation certificates, provided that at the date of investment
each of the underlying loans is made to an issuer of securities rated
at least A-2, AA or SP-2 by Standard & Poor's or P-2 or Aa by Moody's,
and also provided that the underlying loans have a remaining maturity
of one year or less; and certificates of deposit and bankers'
acceptances of banks and savings and loan associations. The Fund may
also purchase short-term money market instruments which ratings are
substantially similar to the Moody's and Standard & Poor's ratings and
are from another NRSRO.
Securities of Foreign Governments and Companies. As stated in the
Prospectus, the Fund may invest in equity securities (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 Sub-
Adviser 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.
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 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.
- Convertible Securities. While convertible securities are a
form of debt security in many cases, their conversion feature (allowing
conversion into equity securities) causes them to be regarded more as
"equity equivalents" so that the rating assigned to the security has
less impact on the investment decision than in the case of non-
convertible fixed income securities. To determine whether convertible
securities should be regarded as "equity equivalents," the Sub-Adviser
examines the following factors: (1) whether, at the option of the
investor, the convertible security can be exchanged for a fixed number
of shares of common stock of the issuer, (2) whether the issuer of the
convertible securities has restated its earnings per share of common
stock on a fully diluted basis (considering the effect of conversion of
the convertible securities), and (3) the extent to which the
convertible security may be a defensive "equity substitute," providing
the ability to participate in any appreciation in the price of common
stock.
Other Investment Techniques and Strategies
- Hedging. As described in the Prospectus, the Fund may employ
one or more types of Hedging Instruments. Hedging Instruments may be
used to attempt to: (i) protect against possible declines in the market
value of the Fund's portfolio resulting from downward trends in the
securities markets, (ii) protect unrealized gains in the value of the
Fund's securities which have appreciated, (iii) facilitate selling
securities for investment reasons, (iv) establish a position in the
securities markets as a temporary substitute for purchasing particular
equity securities, or (v) reduce the risk of adverse currency
fluctuations.
The Fund may use 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. To do so, the Fund may: (i) purchase Futures or (ii)
purchase calls on such Futures or securities. Normally, the Fund would
then purchase the equity securities and terminate the hedging position.
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 or 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. 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. Additional
Information about the Hedging Instruments the Fund may use is provided
below
- Writing Call Options. The Fund may write (that is, sell) call
options ("calls"). All calls written by the Fund must be "covered"
while the call is outstanding (that means, 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 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. 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 the Fund has written is more or less than the price of the call
the Fund has 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, 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 deliverable securities, provided that at the time the call
is written, the Fund covers the call by segregating in escrow an
equivalent dollar amount 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 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.
- Purchasing Calls and Puts. The Fund may purchase calls to
protect against the possibility that the Fund's portfolio will not
fully participate in an anticipated rise in the securities market.
When the Fund purchases a call (other than in a closing purchase
transaction), it pays a premium and, except as to calls on stock
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. 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. 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 plus the 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.
The Fund may purchase put options ("puts") which relate to
securities, foreign currencies or Futures. 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 enables the Fund to
protect itself during the put period against a decline in the value of
the underlying investment below the exercise price by selling the
underlying investment at the exercise price to a seller of a
corresponding put. If the market price of the underlying investment is
equal to or above the exercise price and as a result the put is not
exercised or resold, the put will become worthless at its expiration
date, and the Fund will lose its premium payment and the right to sell
the underlying investment. The put may, however, be sold prior to
expiration (whether or not at a profit.)
Buying a put on an investment it does not own, either a put on an
index or a put on a Stock Index 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 its
expiration date. In the event of a decline in the stock market, 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 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.
Puts and calls on broadly-based stock indices or Stock Index
Futures are similar to puts and calls on securities or futures
contracts except that all settlements are in cash and gain or loss
depends on changes in the index in question (and thus on price
movements in the stock market generally) rather than on price movements
in individual securities or futures contracts. When the Fund buys a
call on an index or Future, it pays a premium. During the call period,
upon exercise of a call by the Fund, a seller of a corresponding call
on the same investment will pay the Fund an amount of cash to settle
the call if the closing level of the index or Future upon which the
call is based is greater than the exercise price of the call. That cash
payment is equal to the difference between the closing price of the
index and the exercise price of the call times a specified multiple
(the "multiplier") which determines the total dollar value for each
point of difference. When the Fund buys a put on an index or Future,
it pays a premium and has the right during the put period to require a
seller of a corresponding put, upon the Fund's exercise of its put, to
deliver to the Fund an amount of cash to settle the put if the closing
level of the index or Future upon which the put is based is less than
the exercise price of the put. That cash payment is determined by the
multiplier, in the same manner as described above as to calls.
- Stock Index Futures. The Fund may buy and sell Stock Index
Futures. This is a type of financial future for which the index used
as the basis for trading is a broadly-based stock index (including
stocks that are not limited to issuers in a particular industry or
group of industries). A stock index assigns relative values to the
stocks included in the index and fluctuates with the changes in the
market value of these stocks. Stock indices cannot be purchased or
sold directly. 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 futures obligations.
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 Funds'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 (that is, as the value on the Fund's
books is changed) 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, 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 loss or
gain is then realized for tax purposes. Although Stock Index Futures
by their terms call for cash settlement or delivery of cash, in most
cases the obligation is fulfilled by entering into an offsetting
position. Al futures transactions are effected through a clearinghouse
associated with the exchange on which to 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. 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 net 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. 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 commitments with respect to such contracts. 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.
- 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 from
the Fund 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 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 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 advisor as the Fund, or an
advisor that is an affiliate of the Fund's advisor. 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 Stock 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 equity 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.
If the Fund uses Hedging Instruments to establish a position in
the securities markets as a temporary substitute for the purchase of
individual securities (long hedging) by buying Futures and/or calls on
such Futures or on securities, it is possible that the market may
decline; if the Fund then concludes not to invest in such securities at
that time because of concerns as to possible further market decline or
for other reasons, the Fund will realize a loss on the Hedging
Instruments that is not offset by a reduction in the price of the
securities purchased.
- 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 Sub-Adviser will impose creditworthiness requirements
to confirm that the vendor is financially sound. Additionally, the
Sub-Adviser 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 value of the loaned securities and must consist of
cash, bank letters of credit or securities of the U.S. Government (or
its agencies or instrumentalities). To be acceptable as collateral,
letters of credit must obligate a bank to pay amounts demanded by the
Fund if the demand meets the terms of the letter. Such terms and the
issuing bank must be satisfactory to the Fund. When it lends
securities, the Fund receives amounts equal to the dividends or
interest on loaned securities and also receives one or more of (a)
negotiated loan fees, (b) interest on securities used as collateral,
and (c) interest on short-term debt securities purchased with such loan
collateral. Either type of interest may be shared with the borrower.
The Fund may also pay reasonable finder's, custodian and administrative
fees. The terms of the Fund's loans must meet applicable tests under
the Internal Revenue Code and must permit the Fund to reacquire loaned
securities on five days' notice or in time to vote on any important
matter.
- 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.
- 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 Sub-Adviser 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.
- Short Sales Against-the-Box. In a short sale, while the short
position is open, the Fund must own an equal amount of the securities
sold short, or by virtue of ownership of other securities have the
right, without payment of further consideration, to obtain an equal
amount of the securities sold short. Short sales against-the-box may
be made to defer, for Federal income tax purposes, recognition of gain
or loss on the sale of securities "in the box" until the short position
is closed out.
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) purchase commodities or commodity contracts except futures
contracts, including but not limited to contracts for the future
delivery of securities and futures contracts based on securities
indexes;
(4) 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;
(5) 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;
(6) 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
(7) 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 A 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 established as a
separate Massachusetts business trust known as MassMutual Equity
Investors Trust in 1986, and was reorganized as 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 Value Stock Fund to Oppenheimer Value
Stock 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
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 April 3, 1995, the Trustees and
officers of the Fund as a group owned of record or beneficially less
than 1% of each class of the Fund's outstanding shares. 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 listed below,
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).
M. Kirchner, Trustee; Age: 73
7500 E. Arapahoe Road, Englewood, Colorado 80112
President of The Kirchner Company (management consultants).
__________________
*A Trustee who is an "interested person" of the Fund as defined in the
Investment Company Act.
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 B. Salerno, Vice President and Portfolio Manager; Age: 52
100 Northfield Drive, Windsor, Connecticut 06095
Managing Director of the Sub-Adviser; Senior Vice President of MML
Series Investment Fund.
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.
__________________
*A Trustee who is an "interested person" of the Fund as defined in the
Investment Company Act.
Scott Farrar, Assistant Treasurer; Age: 29
3410 South Galena Street, Denver, Colorado 80231
Assistant Vice President of the Manager/Mutual Fund Accounting; an
officer of other OppenheimerFunds; previously a Fund Controller for the
Manager, prior to which he was an International Mutual Fund Supervisor
for Brown Brothers Harriman & Co., a bank, and previously
a Senior Fund Accountant for State Street Bank & Trust Company.
- Remuneration of Trustees. The officers of the Fund are affiliated
with the Manager. They and the Trustees of the Fund who are affiliated
with the Manager (Messrs. Fossel and Swain, who are both officers and
Trustees) receive no salary or fee from the Fund. The Trustees of the
Fund (excluding Messrs. Fossel and Swain) received the total amounts
shown below from the Fund, during its fiscal year ended December 31,
1994, and from all 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 $213 $53,000.00
Trustee
William A. Baker $295 $73,257.01
Audit and Review
Committee Chairman
and Trustee
Charles Conrad, Jr. $274 $68,293.67
Audit and Review
Committee Member
and Trustee
Raymond J. Kalinowski $213 $53,000.00
Trustee
C. Howard Kast $213 $53,000.00
Trustee
Robert M. Kirchner $274 $68,293.67
Audit and Review
Committee Member
and Trustee
Ned M. Steel $213 $53,000.00
Trustee
<FN>
______________________
1 For the 1994 calendar year.
</TABLE>
Major Shareholders. As of April 3, 1995, the only entities 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 Securities Corp.,
1350 Main Street, Springfield, Massachusetts 01103-1627, which owned
2,206,826.537 Class A shares (31.61%) of the Fund, and which
represented less than 5% of the Trust; and MassMutual Life Insurance
Company, c/o Investment Securities Dept., 1295 State Street,
Springfield, Massachusetts 01111-0001, which owned 543,808.995 Class A
shares (7.78%) of the Fund, and which represented less than 5% 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 Fund, and two of whom (Mr. Jon S. Fossel and
Mr. James C. Swain) serve as Trustees of the Fund.
The Manager, the Sub-Adviser 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 as of March 28, 1991, 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
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.
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 advisor 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.
Prior to April 23, 1993, MassMutual served as the Fund's
investment sub-adviser under a prior sub-advisory agreement (the "Prior
Sub-Advisory Agreement"). The Manager paid MassMutual a sub-advisory
fee under the Prior Sub-Advisory Agreement at the following annual
rates: 0.40% of the Fund's first $100 million of average annual net
assets, 0.30% of the next $200 million, 0.25% of the next $200 million
and 0.20% of average annual net assets in excess of $500 million. From
January 1, 1993 through April 23, 1993, MassMutual temporarily
delegated to the Sub-Adviser its duties to manage the investment and
reinvestment of the Fund's assets under the Prior Sub-Advisory
Agreement (but not its other duties). MassMutual also transferred the
senior investment personnel responsible for advising the Fund to the
Sub-Adviser. The delegation of duties to the Sub-Adviser was subject
to MassMutual's supervision and control and subject to MassMutual's
right to terminate the delegation at any time.
On April 23, 1993, the Fund's shareholders approved a new sub-
advisory agreement (the "sub-advisory agreement") with the Sub-Adviser,
thereby terminating the delegation of duties under the Prior Sub-
Advisory Agreement. The sub-advisory fees paid under the sub-advisory
agreement are stated in the Prospectus. In connection with approval of
the sub-advisory agreement by the Trust's Board of Trustees and
shareholders, MassMutual has represented that there will be no
substantive change in the sub-advisory relationship other than the
restructuring of investment advisory duties between MassMutual and the
Sub-Adviser pursuant to MassMutual's internal reorganization of its
investment advisory services for equity assets. MassMutual has agreed
to guarantee the performance of the Sub-Adviser under the sub-advisory
agreement. That guarantee may be amended or terminated by a written
instrument signed by MassMutual, the Manager and the Fund, and shall
terminate if for three consecutive 12 month fiscal year ends the Sub-
Adviser has total stockholders equity of at least $200,000 according to
its annual audited financial statements delivered to the Fund.
Attaining such level of stockholders equity shall not preclude the
Trust's Board of Trustees from considering the financial condition of
the Sub-Adviser or any other matters in determining at any time whether
to terminate, approve or renew the sub-advisory agreement.
Under the sub-advisory agreement, the Sub-Adviser is
responsible for managing the Fund's portfolio of securities and making
investment decisions with respect to the Fund's investments subject to
the Fund's investment policies established by the Board of Trustees of
the Trust, and in accordance with the Fund's investment objective,
policies and restrictions, set forth in the Prospectus and this
Additional Statement. The sub-advisory agreement has the same
provisions as to renewal, termination and the standard of care as the
investment advisory agreement, and both advisory agreements are subject
to annual approval by the Trustees, who may terminate either advisory
agreement on sixty days' notice approved by a majority of the Trustees.
The advisory agreements contain no expense limitation.
However, independently of the advisory and sub-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 $401,148, $614,932 and
$738,121, respectively, of which $215,035, $264,792 and $295,983,
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 and Class B shares, but is not obligated to sell a
specific number of shares. Expenses normally attributable to sales
(other than those paid under the Class A Service Plan and the Class B
Distribution and Service Plan), including advertising and the cost of
printing and mailing prospectuses (other than those furnished to
existing shareholders), are borne by the Distributor. During the
Fund's fiscal years ended December 31, 1992, 1993 and 1994, the
aggregate amount of sales charges on sales of the Fund's Class A shares
was $171,597, $296,555 and $204,620, respectively, of which the
Distributor and Massachusetts Mutual Life Investors Services, Inc.
retained in the aggregate $162,902, $232,226 and $135,102 in those
respective years. For the year ending December 31, 1994, the
Distributor advanced $186,017 to broker-dealers on the sales of the
Funds' Class B shares, $35,292 of which went to MMLISI. In addition,
the Distributor collected $10,493 from contingent deferred sales
charges assessed on Class B shares.
- 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 and Sub-Advisory
Agreements. One of the duties of the Sub-Adviser under the sub-advisory
agreement is to arrange the portfolio transactions of the Fund. In
doing so, the Sub-Adviser is authorized by the sub-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.
Under the sub-advisory agreement, the Sub-Adviser 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 Sub-Adviser that the commission is
fair and reasonable in relation to the services provided.
Description of Brokerage Practices Followed by the Manager. Subject to
the provisions of the advisory agreement, the procedures and rules
described above, allocations of brokerage are generally made by the
Sub-Adviser's portfolio traders based upon recommendations by the Sub-
Adviser's portfolio manager. 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 Sub-Adviser.
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 otherwise 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 transactions in the securities to which
the option relates. Option commissions may be relatively higher than
those which would apply to direct purchases and sales of portfolio
securities.
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 Sub-Adviser
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 Sub-Adviser in a non-research capacity (such as bookkeeping
or other administrative functions), then only the percentage or
component that provides assistance to the Sub-Adviser in the investment
decision-making process may be paid for 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
in agency transactions.
The research services provided by brokers broaden the scope and
supplement the research activities of the Sub-Adviser by making
available additional views for consideration and comparisons, and
enabling the Sub-Adviser to obtain market information for the valuation
of securities held in the Fund's portfolio or being considered for
purchase. The Board, including the independent Trustees of the Trust
(those Trustees of the Trust 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
agreements, or Distribution Plans described below) or in any agreements
relating to those Plans, annually reviews information furnished by the
Sub-Adviser 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.
Pursuant to the sub-advisory agreement, the Sub-Adviser is
authorized, in arranging the purchase and sale of the Fund's portfolio
securities, to employ or deal with such members of the securities
exchanges, brokers or dealers as may in the its best judgement
implement the policy of the Fund to obtain, at reasonable expense, the
"best execution" (i.e., prompt and reliable execution at the most
favorable security price obtainable) of the Fund's portfolio
transactions. The Sub-Adviser shall select broker-dealers to effect
the Fund's portfolio transactions on the basis of its estimate of their
ability to obtain best execution of particular and related portfolio
transactions. The abilities of
a broker-dealer to obtain best execution of particular portfolio
transaction(s) will be judged by the Sub-Adviser on the basis of all
relevant factors and considerations.
Securities held by the Fund may also be held by Sub-Adviser in
its investment accounts and by other investment companies for which it
acts as investment adviser. If the same security is purchased or sold
for the Fund and such investment accounts or companies at or about the
same time, such purchases or sales normally will be combined, to the
extent practicable, and will be allocated as nearly as practicable on a
pro rata basis in proportion to the amounts to be purchased and sold.
The main factors to be considered will be the investment objectives of
the respective portfolios, the relative size of portfolio holdings of
the same or comparable security, availability of cash for investment by
the various portfolios and the size of their respective investment
commitments. It is believed that the ability of the Fund to
participate in larger volume transactions will, in most cases, produce
better execution for the Fund. In some cases, however, this procedure
could have a detrimental effect on the price and amount of a security
available to the Fund or the price at which a security may be sold. It
is the opinion of the Trust's management that such execution advantage
and the desirability of retaining the Sub-Adviser in that capacity
outweigh the disadvantages, if any, which might result from this
procedure.
Paul Hallingby, Jr. is a director of MassMutual and a General
Partner of Bear Stearns & Co., Inc. ("Bear Stearns"). For its fiscal
years ended December 31, 1992, 1993 and 1994, the Fund paid brokerage
fees to Bear Stearns of $1,110, $4,239 and $3,546, respectively. For
the fiscal year ended December 31, 1994, the Fund placed 7.14% of its
transactions involving payment of commissions with Bear Stearns, for
which it was paid 7.06% of the Fund's aggregate brokerage fees for that
period.
During the fiscal years ended December 31, 1992, 1993 and 1994,
total brokerage commissions paid by the Fund (not including spreads or
concessions on principal transactions on a net trade basis) were
$20,543, $51,707 and $18,630, respectively. During the fiscal year
ended December 31, 1994, $0 was paid to dealers as brokerage
commissions in return for research services (including special
research, statistical information and execution); the aggregate dollar
amount of those transactions was $0. The transactions giving rise to
those commissions were allocated in accordance with the internal
allocation procedures described above.
Performance of the Fund
Total Return Information. As described in the Prospectus, from time
to time the "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 the Fund may
be advertised. An explanation of how 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 total 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. Total returns for any given past period are not a
prediction or representation by the Fund of future rates of return on
its shares. The total 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.
- 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 (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 of the Fund for the one and five-year periods ended December 31,
1994 and for the period from December 22, 1986 (the date the Fund
became an open-end Fund) to December 31, 1994, were -2.66%, 7.47% and
9.07%, respectively. The cumulative "total return" on Class A shares
for the latter period was 100.86%. For the fiscal period from May 1,
1993, through December 31, 1994, the average annual total returns and
the cumulative total returns on an investment in Class B shares of the
Fund were -2.41% and 2.02%, 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 deferred sales charges) and takes into consideration the
reinvestment of dividends and capital gains distributions. The
cumulative "total return at net asset value" on the Fund's Class A
shares for the fiscal year ended December 31, 1993, and for the period
from December 22, 1986 to December 31, 1994 were 3.28% and 112.92%,
respectively. The cumulative total return at net asset value on the
Fund's Class B shares for the fiscal year ended December 31, 1993, and
for the fiscal period from May 1, 1993 through December 31, 1994 were
2.50% and 7.25%.
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 or Class B 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
equity 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.
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 various mutual
funds, including the Fund, based on risk-adjusted investment return.
Investment return measures a fund'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%). Morningstar ranks the Fund in relation
to other equity funds. The current ranking is a weighted average of
the 3, 5 and 10-year rankings (if available). 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
one or more of the following indices: the Standard & Poor's 500 Index
("S & P 500") or the Dow-Jones Industrial Average ("Dow"), which are
widely-recognized indices of U.S. stock market performance. Such
indices consist of unmanaged groups of common stocks. Each index
includes a factor for the reinvestment of interest but does not reflect
expenses or taxes.
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.
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. 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. The report for the Class B
Plan shall also include the Distributor's 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 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 $221,818, all of which was paid by the Distributor
to Recipients, including $154,383 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 Plan for Class B shares 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
December 31, 1994 totalled $78,251, all paid by the Distributor to
Recipients, including $1,554 paid to MMLISI.
Although the Class B Plan permits 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 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.
In the event the Class B Plan is terminated, the Distributor is
entitled to continue to receive the asset-based sales charge of 0.75%
per annum on Class B shares sold prior to termination until the
Distributor has recovered its Class B distribution expenses incurred
prior to termination from such payments and from the Class B CDSC.
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 $500,000 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 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 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 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 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 Trust'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 sale
prices of the preceding trading day or closing bid and asked prices);
(ii) NASDAQ and other unlisted equity securities for which last sales
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) securities
(including restricted securities) not having readily available market
quotations are valued at fair value under the Board's procedures; (iv)
unlisted debt securities having a remaining maturity in excess of 60
days are valued at the mean between the asked and bid prices determined
by a portfolio pricing service approved by the Trust's Board of
Trustees or obtained from an active market maker on the basis of
reasonable inquiry; (v) 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; 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 on last sales prices reported on a
principal exchange or 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. Foreign currency will be
valued as close to the time fixed for the valuation date as is
reasonably practicable. The value of securities denominated in foreign
currency will be converted to U.S. dollars at the prevailing rates of
exchange at the time of valuation.
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, the
Manager, and/or the Sub-Adviser, 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 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.
In the case of U.S. Government Securities, mortgage-backed
securities, foreign fixed-income 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 and/or the Sub-Adviser 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.
Calls, puts and Futures held by the Fund are valued at the last
sale prices on the principal exchange on which they are traded, or on
NASDAQ, as applicable, 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 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
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
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 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 Eligible Funds.
There is a front-end sales charge on the purchase of certain
OppenheimerFunds or a contingent deferred sales charge may apply to
shares purchased by Asset Builder payments. An application should be
obtained from the Distributor, completed and returned, and a prospectus
of the selected fund(s) should be obtained from the Distributor or your
financial advisor before initiating Asset Builder payments. The amount
of the Asset Builder investment may be changed or the automatic
investments may be terminated at any time by writing to the Transfer
Agent. A reasonable period (approximately 15 days) is required after
the Transfer Agent's receipt of such instructions to implement them.
The Fund reserves the right to amend, suspend, or discontinue offering
such plans at any time without prior notice.
Cancellation of Purchase Orders. Cancellation of purchase orders for
the Fund's shares (for example, when a purchase check is returned to
the Fund unpaid) causes a loss to be incurred when the net asset value
of the Fund's shares on the cancellation date is less than on the
purchase date. That loss is equal to the amount of the decline in the
net asset value per share multiplied by the number of shares in the
purchase order. The investor is responsible for that loss. If the
investor fails to compensate the Fund for the loss, the Distributor
will do so. The Fund may reimburse the Distributor for that amount by
redeeming shares from any account registered in that investor's name,
or the Fund or the Distributor may seek other redress.
How to Sell Shares
Information on how to sell shares of the Fund is stated in the
Prospectus. The information below supplements the terms and conditions
for redemptions set forth in the Prospectus.
- 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 these 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.
- 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.
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 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 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 exchanges or 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 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 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 "Waivers of Class B
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), 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 Investment Grade Bond 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
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 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, or 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 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, 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.
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.
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 Trust's Board and 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 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 the 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: 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>
<TABLE>
<S> <C>
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Independent Auditors' Report
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===============
The Board of Trustees and Shareholders of Oppenheimer Value Stock Fund:
We have audited the accompanying statement of assets and liabilities, including the statement of
investments, of Oppenheimer Value Stock 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
December 22, 1986 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 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 Value Stock 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>
<PAGE>
<TABLE>
<CAPTION>
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Statement of Investments December 31, 1994
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Face Market Value
Amount See Note 1
==========================================================
==========================================================
===============
<S> <C> <C> <C>
Short-Term Notes--9.1%
- -----------------------------------------------------------------------------------------------------------------------------------
Consumer Non-Cyclicals--3.3%
- -----------------------------------------------------------------------------------------------------------------------------------
Food Wholesalers--3.3% Pioneer Hi-Bred International, Inc., 5.97%, 1/10/95 $1,880,000 $
1,877,194
-----------------------------------------------------------------------------------------------------
Tyson Foods, Inc., 6.10%, 1/4/95 1,515,000 1,514,230
------------
3,391,424
- -----------------------------------------------------------------------------------------------------------------------------------
Financial--2.9%
- -----------------------------------------------------------------------------------------------------------------------------------
Financial Services: Countrywide Funding Corp., 6.30%, 1/6/95 2,000,000
1,998,250
-----------------------------------------------------------------------------------------------------
Miscellaneous--2.9% General Motors Acceptance Corp., 6.05%, 1/9/95 165,000
164,778
-----------------------------------------------------------------------------------------------------
ITT Financial Corp., 5.53%, 1/3/95 710,000 710,000
-----------------------------------------------------------------------------------------------------
PS Colorado Credit Corp., 5.95%, 1/25/95 170,000 169,326
------------
3,042,354
- -----------------------------------------------------------------------------------------------------------------------------------
Utilities--2.9%
- -----------------------------------------------------------------------------------------------------------------------------------
Electric Companies--1.8% Texas Electric Services Co., 6.20%, 1/5/95 1,920,000
1,918,677
- -----------------------------------------------------------------------------------------------------------------------------------
Telephone--1.1% GTE Norwest, Inc., 5.88%, 1/13/95 1,115,000
1,112,815
------------
Total Short-Term Notes (Cost $9,465,270) 9,465,270
Shares
==========================================================
==========================================================
===============
Common Stocks--91.2%
- -----------------------------------------------------------------------------------------------------------------------------------
Basic Materials--10.0%
- -----------------------------------------------------------------------------------------------------------------------------------
Aluminum--0.9% Reynolds Metals Co. 19,000 931,000
- -----------------------------------------------------------------------------------------------------------------------------------
Chemicals--2.9% Du Pont (E.I.) De Nemours & Co. 20,500 1,153,125
-----------------------------------------------------------------------------------------------------
Eastman Chemical Co. 37,000 1,868,500
------------
3,021,625
- -----------------------------------------------------------------------------------------------------------------------------------
Chemicals: Specialty--2.0% Lubrizol Corp. (The) 33,000 1,117,875
-----------------------------------------------------------------------------------------------------
Nalco Chemical Co. 27,200 911,200
------------
2,029,075
- -----------------------------------------------------------------------------------------------------------------------------------
Metal: Miscellaneous--0.7% Phelps Dodge Corp. 11,500 711,563
- -----------------------------------------------------------------------------------------------------------------------------------
Paper and Forest Westvaco Corp. 30,500 1,197,125
-----------------------------------------------------------------------------------------------------
Products--3.5% Weyerhaeuser Co. 49,000 1,837,500
-----------------------------------------------------------------------------------------------------
Willamette Industries, Inc. 13,300 631,750
------------
3,666,375
- -----------------------------------------------------------------------------------------------------------------------------------
Consumer Cyclicals--13.8%
- -----------------------------------------------------------------------------------------------------------------------------------
Auto Parts: After Market--3.2% Genuine Parts Co. 50,500 1,818,000
-----------------------------------------------------------------------------------------------------
Goodyear Tire & Rubber Co. 43,800 1,472,775
------------
3,290,775
</TABLE>
5 Oppenheimer Value Stock Fund
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
Statement of Investments (Continued)
-----------------------------------------------------------------------------------------------------
Market Value
Shares See Note 1
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Automobiles--1.6% Ford Motor Co. 57,500 $ 1,610,000
- -----------------------------------------------------------------------------------------------------------------------------------
Hardware and Tools--1.1% Stanley Works (The) 32,000 1,144,000
- -----------------------------------------------------------------------------------------------------------------------------------
Leisure Time--1.0% Eastman Kodak Co. 22,500 1,074,375
- -----------------------------------------------------------------------------------------------------------------------------------
Publishing--3.1% Dun & Bradstreet Corp. (The) 33,500 1,842,500
-----------------------------------------------------------------------------------------------------
McGraw-Hill, Inc. 21,000 1,404,375
------------
3,246,875
- -----------------------------------------------------------------------------------------------------------------------------------
Retail Stores: May Department Stores Co. 45,500 1,535,625
Department Stores--1.5%
- -----------------------------------------------------------------------------------------------------------------------------------
Retail Stores: General Kmart Corp. 30,500 396,500
-----------------------------------------------------------------------------------------------------
Merchandise Chains--1.2% Penney (J.C.) Co., Inc. 19,000 847,875
------------
1,244,375
- -----------------------------------------------------------------------------------------------------------------------------------
Textiles: Apparel V.F. Corp. 23,500 1,142,687
Manufacturers--1.1%
- -----------------------------------------------------------------------------------------------------------------------------------
Consumer Non-Cyclicals--14.7%
- -----------------------------------------------------------------------------------------------------------------------------------
Beverages: Alcoholic--1.2% Brown-Forman Corp., Cl. B 40,500
1,235,250
- -----------------------------------------------------------------------------------------------------------------------------------
Beverages: Soft Drinks--1.0% PepsiCo, Inc. 28,000 1,015,000
- -----------------------------------------------------------------------------------------------------------------------------------
Drugs--3.7% Pfizer, Inc. 35,000 2,703,750
-----------------------------------------------------------------------------------------------------
Schering-Plough 15,000 1,110,000
------------
3,813,750
- -----------------------------------------------------------------------------------------------------------------------------------
Food Processing--3.7% Archer-Daniels-Midland Co. 51,690 1,066,105
-----------------------------------------------------------------------------------------------------
CPC International, Inc. 31,500 1,677,375
-----------------------------------------------------------------------------------------------------
Pioneer Hi-Bred International, Inc. 33,000 1,138,500
------------
3,881,980
- -----------------------------------------------------------------------------------------------------------------------------------
Healthcare: Diversified--2.5% Bristol-Myers Squibb Co. 44,000 2,546,500
- -----------------------------------------------------------------------------------------------------------------------------------
Household Products--1.2% Clorox Co. (The) 20,500 1,206,938
- -----------------------------------------------------------------------------------------------------------------------------------
Medical Products--1.4% Becton, Dickinson & Co. 31,000 1,488,000
- -----------------------------------------------------------------------------------------------------------------------------------
Energy--8.6%
- -----------------------------------------------------------------------------------------------------------------------------------
Oil: Exploration and Kerr-McGee Corp. 21,000 966,000
Production--0.9%
- -----------------------------------------------------------------------------------------------------------------------------------
Oil:Integrated Domestic--0.9% Atlantic Richfield Co. 9,000 915,750
- -----------------------------------------------------------------------------------------------------------------------------------
Oil: Integrated Amoco Corp. 37,300 2,205,363
International--6.8% -----------------------------------------------------------------------------------------------------
Chevron Corp. 48,500 2,164,313
-----------------------------------------------------------------------------------------------------
Mobil Corp. 20,000 1,685,000
-----------------------------------------------------------------------------------------------------
Royal Dutch Petroleum Co. 9,000 967,500
------------
7,022,176
</TABLE>
6 Oppenheimer Value Stock Fund
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------
Market Value
Shares See Note 1
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Industrial--15.6%
- -----------------------------------------------------------------------------------------------------------------------------------
Commercial Services--1.2% Donnelley (R.R.) & Sons Co. 43,500 $
1,283,250
- -----------------------------------------------------------------------------------------------------------------------------------
Electrical Equipment--7.9% AMP, Inc. 37,400 2,720,850
-----------------------------------------------------------------------------------------------------
General Electric Co. 53,500 2,728,500
-----------------------------------------------------------------------------------------------------
Grainger (W. W.), Inc. 24,000 1,386,000
-----------------------------------------------------------------------------------------------------
Honeywell, Inc. 2,700 85,050
-----------------------------------------------------------------------------------------------------
Hubbell, Inc., Cl. B 23,521 1,252,493
------------
8,172,893
- -----------------------------------------------------------------------------------------------------------------------------------
Manufacturing: Dover Corp. 20,000 1,032,500
-----------------------------------------------------------------------------------------------------
Diversified Industrials--4.1% General Signal Corp. 33,600 1,071,000
-----------------------------------------------------------------------------------------------------
Harsco Corp. 20,500 837,938
-----------------------------------------------------------------------------------------------------
Parker-Hannifin Corp. 29,000 1,319,500
------------
4,260,938
- -----------------------------------------------------------------------------------------------------------------------------------
Railroads--1.3% Norfolk Southern Corp. 23,000 1,394,375
- -----------------------------------------------------------------------------------------------------------------------------------
Truckers--1.1% Roadway Services, Inc. 20,000 1,135,000
- -----------------------------------------------------------------------------------------------------------------------------------
Financial--11.4%
- -----------------------------------------------------------------------------------------------------------------------------------
Financial Services: American Express Co. 55,000 1,622,500
Miscellaneous--1.6%
- -----------------------------------------------------------------------------------------------------------------------------------
Insurance: Life--1.0% Jefferson-Pilot Corp. 19,850 1,029,718
- -----------------------------------------------------------------------------------------------------------------------------------
Insurance: Multi-Line--1.0% Unitrin, Inc. 24,500 1,053,500
- -----------------------------------------------------------------------------------------------------------------------------------
Insurance: Property SAFECO Corp. 39,500 2,054,000
And Casualty--2.0%
- -----------------------------------------------------------------------------------------------------------------------------------
Major Banks: Regional--4.2% Comerica, Inc. 52,500 1,279,688
-----------------------------------------------------------------------------------------------------
CoreStates Financial Corp. 50,000 1,300,000
-----------------------------------------------------------------------------------------------------
Norwest Corp. 38,000 888,250
-----------------------------------------------------------------------------------------------------
Wachovia Corp. 27,040 872,040
------------
4,339,978
- -----------------------------------------------------------------------------------------------------------------------------------
Money Center Banks--1.6% Bank of New York, Inc. 55,500 1,609,500
- -----------------------------------------------------------------------------------------------------------------------------------
Technology--12.6%
- -----------------------------------------------------------------------------------------------------------------------------------
Aerospace/Defense--3.3% Boeing Co. (The) 24,000 1,122,000
-----------------------------------------------------------------------------------------------------
Lockheed Corp. 14,500 1,053,063
-----------------------------------------------------------------------------------------------------
Rockwell International Corp. 15,500 554,125
-----------------------------------------------------------------------------------------------------
TRW, Inc. 10,500 693,000
------------
3,422,188
- -----------------------------------------------------------------------------------------------------------------------------------
Computer Systems--0.9% International Business Machines Corp. 12,500
918,750
- -----------------------------------------------------------------------------------------------------------------------------------
Electronics: Hewlett-Packard Co. 26,300 2,626,713
Instrumentation--2.5%
- -----------------------------------------------------------------------------------------------------------------------------------
Office Equipment and Minnesota Mining & Manufacturing Co. 45,000
2,401,875
-----------------------------------------------------------------------------------------------------
Supplies--5.0% Pitney Bowes, Inc. 47,500 1,508,125
-----------------------------------------------------------------------------------------------------
Xerox Corp. 13,000 1,287,000
------------
5,197,000
</TABLE>
7 Oppenheimer Value Stock Fund
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
Statement of Investments (Continued)
-----------------------------------------------------------------------------------------------------
Market Value
Shares See Note 1
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Telecommunications--0.9% Rochester Telephone Corp. 42,200 $ 891,474
- -----------------------------------------------------------------------------------------------------------------------------------
Utilities--4.5%
- -----------------------------------------------------------------------------------------------------------------------------------
Electric Companies--2.2% Niagara Mohawk Power Corp. 56,500
805,125
-----------------------------------------------------------------------------------------------------
NIPSCO Industries, Inc. 21,500 639,625
-----------------------------------------------------------------------------------------------------
Scana Corp. 20,000 842,500
------------
2,287,250
- -----------------------------------------------------------------------------------------------------------------------------------
Natural Gas--0.7% Consolidated Natural Gas Co. 21,000 745,500
- -----------------------------------------------------------------------------------------------------------------------------------
Telephone--1.6% Ameritech Corp. 23,000 928,625
-----------------------------------------------------------------------------------------------------
Southern New England Telecommunications Corp. 23,000 738,875
------------
1,667,500
------------
Total Common Stocks (Cost $80,096,895) 94,451,721
- -----------------------------------------------------------------------------------------------------------------------------------
Total Investments, at Value (Cost $89,562,165) 100.3% 103,916,991
- -----------------------------------------------------------------------------------------------------------------------------------
Liabilities in Excess of Other Assets (0.3) (296,331)
----- ------------
Net Assets 100.0% $103,620,660
=====
============
</TABLE>
See accompanying Notes to Financial Statements.
8 Oppenheimer Value Stock Fund
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities December 31, 1994
-----------------------------------------------------------------------------------------------------
==========================================================
==========================================================
===============
<S> <C>
Assets Investments, at value (cost $89,562,165)--see accompanying statement
$103,916,991
-----------------------------------------------------------------------------------------------------
Cash 4,715
-----------------------------------------------------------------------------------------------------
Receivables:
Interest and dividends 286,290
Shares of beneficial interest sold 184,483
-----------------------------------------------------------------------------------------------------
Other 20,975
------------
Total assets 104,413,454
==========================================================
==========================================================
===============
Liabilities Payables and other liabilities:
Shares of beneficial interest redeemed 322,571
Investments purchased 309,126
Distribution and service plan fees--Note 4 63,552
Dividends 18,262
Deferred trustee fees--Note 5 4,539
Other 74,744
------------
Total liabilities 792,794
==========================================================
==========================================================
===============
Net Assets $103,620,660
============
==========================================================
==========================================================
===============
Composition of Paid-in capital $ 89,314,351
Net Assets -----------------------------------------------------------------------------------------------------
Undistributed (overdistributed) net investment income (79,874)
-----------------------------------------------------------------------------------------------------
Accumulated net realized gain (loss) from investment transactions 31,357
-----------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on investments--Note 3 14,354,826
------------
Net assets $103,620,660
============
==========================================================
==========================================================
===============
Per Share Class A Shares:
Net Asset Value Net asset value and redemption price per share (based on net assets
of $92,727,561 and 6,548,260 shares of beneficial interest outstanding) $14.16
Maximum offering price per share (net asset value plus sales charge
of 5.75% of offering price) $15.02
-----------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price and offering price per share (based on
net assets of $10,893,099 and 772,962 shares of beneficial interest outstanding) $14.09
</TABLE>
See accompanying Notes to Financial Statements.
9 Oppenheimer Value Stock Fund
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
Statement of Operations For the Year Ended December 31, 1994
-----------------------------------------------------------------------------------------------------
==========================================================
==========================================================
===============
<S> <C>
Investment Income Dividends $ 2,930,464
-----------------------------------------------------------------------------------------------------
Interest 429,125
------------
Total income 3,359,589
==========================================================
==========================================================
===============
Expenses Management fees--Note 4 738,121
-----------------------------------------------------------------------------------------------------
Distribution and service plan fees:
Class A--Note 4 221,818
Class B--Note 4 78,251
-----------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 4 109,435
-----------------------------------------------------------------------------------------------------
Shareholder reports 78,305
-----------------------------------------------------------------------------------------------------
Custodian fees and expenses 24,265
-----------------------------------------------------------------------------------------------------
Legal and auditing fees 18,674
-----------------------------------------------------------------------------------------------------
Trustees' fees and expenses 1,695
-----------------------------------------------------------------------------------------------------
Registration and filing fees--Class B 2,175
-----------------------------------------------------------------------------------------------------
Other 30,856
------------
Total expenses 1,303,595
==========================================================
==========================================================
===============
Net Investment Income (Loss) 2,055,994
==========================================================
==========================================================
===============
Realized and Unrealized Net realized gain (loss) on investments 2,820,946
Gain (Loss) on Investments
-----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on investments (1,764,415)
------------
Net realized and unrealized gain (loss) on investments 1,056,531
==========================================================
==========================================================
===============
Net Increase (Decrease) in Net Assets Resulting From Operations $ 3,112,525
============
</TABLE>
See accompanying Notes to Financial Statements.
10 Oppenheimer Value Stock Fund
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets
-----------------------------------------------------------------------------------------------------
Year Ended December 31,
1994 1993
==========================================================
==========================================================
===============
<S> <C> <C>
Operations Net investment income (loss) $ 2,055,994 $ 1,598,257
-----------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments 2,820,946 4,772,844
-----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on investments (1,764,415) (52,118)
------------- -------------
Net increase (decrease) in net assets resulting from operations 3,112,525 6,318,983
==========================================================
==========================================================
===============
Dividends and Dividends from net investment income:
Distributions to Class A ($.31 and $.288 per share, respectively) (1,921,684) (1,573,023)
Shareholders Class B ($.209 and $.166 per share, respectively) (130,461) (33,142)
-----------------------------------------------------------------------------------------------------
Dividends in excess of net investment income:
Class A ($.01 per share) (74,310) --
Class B ($.01 per share) (5,047) --
-----------------------------------------------------------------------------------------------------
Distributions from net realized gain on investments:
Class A ($.395 and $.76 per share, respectively) (2,490,365) (4,515,011)
Class B ($.395 and $.76 per share, respectively) (290,318) (258,413)
==========================================================
==========================================================
===============
Beneficial Interest Net increase (decrease) in net assets resulting from Class A
Transactions beneficial interest transactions--Note 2 3,834,762 30,973,434
-----------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from Class B
beneficial interest transactions--Note 2 5,957,338 5,339,170
==========================================================
==========================================================
===============
Net Assets Total increase (decrease) 7,992,440 36,251,998
-----------------------------------------------------------------------------------------------------
Beginning of period 95,628,220 59,376,222
------------- -------------
End of period [including undistributed (overdistributed) net
investment income of $(79,874) and $225, respectively] $ 103,620,660 $ 95,628,220
=============
=============
</TABLE>
See accompanying Notes to Financial Statements.
11 Oppenheimer Value Stock Fund
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
Financial Highlights
--------------------------------------------------------------------------------------------------
Class A Class B
------------------------------------------------------------------------------- ----------------
Year Ended Year Ended
December 31, December 31,
1994 1993 1992 1991(3) 1990 1989 1988 1987 1986(2) 1994 1993(1)
==========================================================
==========================================================
============
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<C> <C>
Per Share Operating Data:
Net asset value,
beginning of period $ 14.41 $ 14.19 $ 13.57 $ 11.39 $ 12.08 $ 10.47 $ 9.51 $ 9.98 $ 10.16 $ 14.35 $
14.60
Income from investment
operations:
Net investment income .31 .29 .32 .33 .37 .40 .33 .34 .01 .17 .17
Net realized and unrealized
gain (loss) on investments .16 .98 .97 2.49 (.57) 1.87 1.15 (.22) (.19) .19 .51
------- ------- ------- ------- ------- ------- ------- ------ ------- ------- -------
Total income (loss) from
investment operations .47 1.27 1.29 2.82 (.20) 2.27 1.48 .12 (.18) .36 .68
- --------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to
shareholders:
Dividends from net
investment income (.31) (.29) (.32) (.33) (.39) (.41) (.33) (.41) -- (.21) (.17)
Dividends in excess of net
investment income (.01) -- -- -- -- -- -- -- -- (.01) --
Distributions from net realized
gain on investments (.40) (.76) (.35) (.31) (.10) (.25) (.19) (.18) -- (.40) (.76)
------- ------- ------- ------- ------- ------- ------- ------ ------- ------- -------
Total dividends and
distributions to shareholders (.72) (1.05) (.67) (.64) (.49) (.66) (.52) (.59) -- (.62) (.93)
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $ 14.16 $ 14.41 $ 14.19 $ 13.57 $ 11.39 $ 12.08 $ 10.47 $ 9.51 $ 9.98 $ 14.09 $
14.35
======= ======= ======= ======= ======= =======
======= ====== ======= ======= =======
==========================================================
==========================================================
============
Total Return, at Net Asset
Value(4) 3.28% 8.97% 9.61% 25.23% (1.53)% 21.93% 15.61% 1.10% (1.77)% 2.50%
4.63%
==========================================================
==========================================================
============
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) $92,728 $90,470 $59,376 $49,381 $40,153 $37,713 $27,434 $19,377 $20,162 $10,893
$5,158
- --------------------------------------------------------------------------------------------------------------------------------
Average net assets
(in thousands) $90,158 $80,229 $53,485 $45,581 $39,104 $33,742 $24,658 $22,322 $ --(2) $7,834
$2,527
- --------------------------------------------------------------------------------------------------------------------------------
Number of shares outstanding at
end of period (in thousands) 6,548 6,280 4,184 3,639 3,526 3,122 2,620 2,039 2,021 773 359
- --------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 2.16% 1.97% 2.34% 2.59% 3.22% 3.51% 3.45% 3.15% --(2)
1.45% .97%(5)
Expenses, before voluntary
reimbursement 1.27% 1.24% 1.19% 1.31% 1.36% 1.40% 1.21% .70% --(2) 2.01%
2.14%(5)
Expenses, net of voluntary
reimbursement N/A N/A N/A 1.26% 1.30% 1.30% 1.19% N/A --(2) N/A
N/A
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 16.3% 24.3% 12.3% 14.5% 13.5% 14.9% 13.1% 10.8% --(2) 16.3%
24.3%
<FN>
1. For the period from May 1, 1993 (inception of offering) to December 31, 1993.
2. For the period from December 22, 1986 to December 31, 1986. Ratios during this development
period would not be indicative of representative results.
3. On March 28, 1991, Oppenheimer Management Corporation became the investment advisor to the
Fund.
4. 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.
5. Annualized.
6. 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 $20,227,936 and $14,410,677,
respectively.
</FN>
</TABLE>
See accompanying Notes to Financial Statements.
12 Oppenheimer Value Stock Fund
<PAGE>
<TABLE>
<S> <C>
-----------------------------------------------------------------------------------------------------
Notes to Financial Statements
-----------------------------------------------------------------------------------------------------
==========================================================
==========================================================
===============
1. Significant Oppenheimer Value Stock Fund (the Fund) is a separate fund of Oppenheimer Integrity Funds, a
Accounting Policies 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. 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. 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.
-----------------------------------------------------------------------------------------------------
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.
-----------------------------------------------------------------------------------------------------
Distributions to Shareholders. Dividends and distributions to shareholders are recorded on the
ex-dividend date.
-----------------------------------------------------------------------------------------------------
Change in Accounting Classification of Distributions to Shareholders. Net investment income (loss)
and net realized gain (loss) may differ for financial statement and 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 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 $42,792, a decrease in undistributed net investment income of $430,
and an increase in accumulated net realized gain on investments of $43,222. During the year ended
December 31, 1994, in accordance with Statement of Position 93-2, undistributed net investment
income
was decreased by $4,161, accumulated net realized gain on investments was decreased by $8,906,
and
paid-in capital was increased by $13,067.
-----------------------------------------------------------------------------------------------------
Other. Investment transactions are accounted for on the date the investments are purchased or sold
(trade date) and dividend income is recorded on the ex-dividend date. 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.
</TABLE>
13 Oppenheimer Value Stock Fund
<PAGE>
<TABLE>
<S> <C>
-----------------------------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
-----------------------------------------------------------------------------------------------------
==========================================================
==========================================================
===============
2. Shares of The Fund has authorized an unlimited number of no par value shares of beneficial interest.
Beneficial Interest Transactions in shares of beneficial interest were as follows:
<CAPTION>
Year Ended Year Ended
December 31, 1994 December 31, 1993(1)
-------------------------- --------------------------
Shares Amount Shares Amount
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A:
Sold 1,880,960 $ 27,360,226 2,167,501 $ 19,481,793
Issued in connection with the acquisition
of Oppenheimer Blue Chip Fund--Note 6 -- -- 1,356,899 20,149,959
Dividends and distributions reinvested 311,720 4,414,279 379,876 5,528,826
Redeemed (1,924,358) (27,939,743) (1,808,202) (14,187,144)
------------ ------------ ------------ ------------
Net increase 268,322 $ 3,834,762 2,096,074 $ 30,973,434
============ ============
============ ============
-----------------------------------------------------------------------------------------------------
Class B:
Sold 499,617 $ 7,201,783 357,108 $ 5,313,077
Dividends and distributions reinvested 28,292 397,953 18,763 270,609
Redeemed (114,417) (1,642,398) (16,401) (244,516)
------------ ------------ ------------ ------------
Net increase 413,492 $ 5,957,338 359,470 $ 5,339,170
============ ============
============ ============
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 At December 31, 1994, net unrealized appreciation on investments of $14,354,826 was
composed of gross
Losses on Investments appreciation of $16,299,468, and gross depreciation of $1,944,642.
==========================================================
==========================================================
===============
4. Management Fees and Management fees paid to the Manager were in accordance with the investment advisory
agreement with
Other Transactions the Fund which provides for an annual fee of .75% on the first $100 million of net assets with a
With Affiliates reduction of .03% on each $200 million thereafter, to .66% 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 $204,620, of which $135,102 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 December 31, 1994, OFDI received contingent deferred sales charges of
$10,493
upon redemption of Class B 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 holds 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 December 31, 1994, OFDI paid $154,383 and $1,554,
respectively, to
an affiliated broker/dealer as reimbursement for Class A and Class B personal service and
maintenance
expenses and retained $73,215 as reimbursement for Class B sales commissions and service fee
advances, as well as financing costs.
</TABLE>
14 Oppenheimer Value Stock Fund
<PAGE>
<TABLE>
<S> <C>
-----------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------
==========================================================
==========================================================
===============
5. Deferred Trustee A former trustee elected to defer receipt of fees earned. These deferred fees earn interest at a
rate
Compensation 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. Acquisition of On March 26, 1993, the Fund acquired all of the net assets of Oppenheimer Blue Chip Fund
(Blue Chip),
Oppenheimer Blue pursuant to an Agreement and Plan of Reorganization approved by the Blue Chip shareholders
on
Chip Fund January 28, 1993. The Fund issued 1,356,899 shares of beneficial interest, valued at
$20,149,959, in
exchange for the net assets, resulting in combined net assets of $83,976,756 on March 26, 1993.
The
net assets acquired included net unrealized appreciation of $2,523,063. The exchange was tax-free.
</TABLE>
Investment Adviser
Oppenheimer Management Corporation
Two World Trade Center
New York, New York 10048-0203
Sub-Adviser
Concert Capital Management, Inc.
125 High Street
Boston, Massachusetts 02110
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
