As filed with the Securities and Exchange Commission on September 13, 1996
Registration No. 33-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. / /
OPPENHEIMER INTEGRITY FUNDS
(Exact Name of Registrant as Specified in Charter)
3410 South Galena Street, Denver, Colorado 80231-5099
(Address of Principal Executive Offices)
212-323-0200
(Registrant's Telephone Number)
Andrew J. Donohue, Esq.
Executive Vice President & General Counsel
OppenheimerFunds, Inc.
Two World Trade Center, New York, New York 10048-0203
(212) 323-0256
(Name and Address of Agent for Service)
As soon as practicable after the Registration Statement becomes effective.
(Approximate Date of Proposed Public Offering)
<PAGE>
It is proposed that this filing will become effective on October 18, 1996,
pursuant to Rule 488.
No filing fee is due because the Registrant has previously registered an
indefinite number of shares under Rule 24f-2; a Rule 24f-2 notice for the
year ended December 31, 1995 was filed on February 28, 1996.
Pursuant to Rule 429, this Registration Statement relates to shares
previously registered by the Registrant on Form N-1A (Reg. No. 2-76547;
811-3420).
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement contains the following pages and documents:
Front Cover
Contents Page
Cross-Reference Sheet
Part A
Proxy Statement for Jefferson-Pilot Investment Grade Bond Fund, Inc.
and
Prospectus for Oppenheimer Bond Fund
Part B
Statement of Additional Information
Part C
Other Information
Signatures
Exhibits
<PAGE>
FORM N-14
OPPENHEIMER INTEGRITY FUNDS
Cross Reference Sheet
Part A of
Form N-14
Item No. Proxy Statement and Prospectus Heading and/or Title of Document
- --------- ---------------------------------------------------------------
1 (a) Cross Reference Sheet
(b) Front Cover Page
(c) *
2 (a) *
(b) Table of Contents
3 (a) Comparative Fee Tables
(b) Synopsis
(c) Principal Risk Factors
4 (a)Synopsis; Approval or Disapproval of the Reorganization;
Comparison between Bond Fund and JP Fund; Miscellaneous
(b)Approval of the Reorganization - Capitalization Table
5 (a) Registrant's Prospectus; Comparison Between Bond Fund and JP
Fund
(b) *
(c) *
(d) *
(e) Miscellaneous
(f) Miscellaneous
6 (a) Prospectus of Jefferson-Pilot Investment Grade Bond Fund, Inc.;
Annual Report of Jefferson-Pilot Investment Grade Bond Fund, Inc.,;
Comparison Between Bond Fund and JP Fund
(b) Miscellaneous
(c) *
(d) *
7 (a) Synopsis; Information Concerning the Meeting
(b) *
(c) Synopsis; Information Concerning the Meeting
8 (a) Proxy Statement
(b) *
9 *
Part B of
Form N-14
Item No. Statement of Additional Information Heading
- --------- -------------------------------------------
10 Cover Page
11 Table of Contents
12 (a) Registrant's Statement of Additional Information
(b) *
(c) *
13 (a)Statement of Additional Information about Jefferson-Pilot
Investment Grade Bond Fund, Inc.
(b) *
(c) *
14 Registrant's Statement of Additional Information; Statement of
Additional Information about Jefferson-Pilot Investment Grade
Bond Fund, Inc.; Annual Report of Jefferson-Pilot Investment
Grade Bond Fund at 12/31/95; Semi-Annual Report of Jefferson-
Pilot Investment Grade Bond Fund, Inc. at 6/30/96; Registrant's
Annual Report at 12/31/95; Registrant's Semi-Annual Report at
6/30/96
Part C of
Form N-14
Item No. Other Information Heading
- --------- -------------------------
15 Indemnification
16 Exhibits
17 Undertakings
_______________
* Not Applicable or negative answer
<PAGE>
PRELIMINARY COPY
JEFFERSON-PILOT INVESTMENT GRADE BOND FUND, INC.
100 North Greene Street, Greensboro, North Carolina 27420
1-800-458-4498
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held December 3, 1996
To the Shareholders of Jefferson-Pilot Investment Grade Bond Fund, Inc.:
Notice is hereby given that a Special Meeting of the Shareholders of
Jefferson-Pilot Investment Grade Bond Fund, Inc. ("JP Fund"), an open-end,
management investment company, will be held at the Jefferson-Pilot
Building (4th Floor, Room B-2), 100 North Greene Street, Greensboro, North
Carolina 27420 at 10:00 A.M., local time, on December 3, 1996, and any
adjournments thereof (the "Meeting"), for the following purposes:
1. To consider and vote upon the approval or disapproval of the
Agreement and Plan of Reorganization dated as of _________, 1996 (the
"Reorganization Agreement") by and among JP Fund, Jefferson-Pilot
Corporation, Oppenheimer Integrity Funds on behalf of its series,
Oppenheimer Bond Fund ("Oppenheimer Fund"), and OppenheimerFunds,
Inc., and the transactions contemplated thereby (the
"Reorganization"), including (i) the transfer of substantially all
the assets of JP Fund to Oppenheimer Fund in exchange for Class A
shares of Oppenheimer Fund, (ii) the distribution of such shares of
Oppenheimer Fund to shareholders of JP Fund in liquidation of JP
Fund, and (iii) the cancellation of the outstanding shares of JP Fund
("Proposal 1");
2. To elect to the Board of Directors five (5) directors to hold office
until the earlier of (i) the dissolution of JP Fund or (ii) the next
annual meeting of shareholders of JP Fund called for the purpose of
electing directors, or until their successors are elected and
qualified ("Proposal 2");
3. To ratify or reject the selection of McGladrey & Pullen LLP as JP
Fund's independent auditors for the current fiscal year ("Proposal
3"); and
4. To act upon such other matters as may properly come before the
Meeting.
The Proposals are more fully described in the accompanying Proxy Statement
and Prospectus and a copy of the Reorganization Agreement is attached as
Exhibit A thereto. JP Fund shareholders of record at the close of
business on October 10, 1996 are entitled to notice of, and to vote at,
the Meeting. Please read the Proxy Statement and Prospectus carefully
before telling us, through your proxy or in person, how you wish your
shares to be voted. The Board of Directors of JP Fund recommends a vote
in favor of each Proposal and to elect each of the nominees as Director.
WE URGE YOU TO SIGN, DATE AND MAIL THE ENCLOSED PROXY PROMPTLY.
By Order of the Board of Directors,
J. Gregory Poole, Secretary
October __, 1996
Shareholders who do not expect to attend the Meeting are requested to
indicate voting instructions on the enclosed proxy and to date, sign and
return it in the accompanying postage-paid envelope. To avoid unnecessary
duplicate mailings, we ask your cooperation in promptly mailing your proxy
no matter how large or small your holdings may be.
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE PROPOSED REORGANIZATION
1. What is the Reorganization?
The proposed Reorganization provides for the transfer of substantially all
the assets of Jefferson-Pilot Investment Grade Bond Fund, Inc. ("JP Fund")
to Oppenheimer Bond Fund ("Oppenheimer Fund"), the issuance of Class A
shares of Oppenheimer Fund to JP Fund for distribution to its shareholders
and the cancellation of the outstanding shares of JP Fund. The number of
Class A shares of Oppenheimer Fund that will be received by shareholders
of JP Fund will be determined on the basis of the relative net asset
values of Oppenheimer Fund and JP Fund. Although the number of shares of
Oppenheimer Fund issued to a shareholder of JP Fund may be greater or
fewer than the number of JP Fund shares that he or she holds, the value
of the shares of Oppenheimer Fund issued in the Reorganization will be
equal to the value of his or her JP Fund shares.
The Reorganization has been proposed in connection with a proposed
acquisition by OppenheimerFunds, Inc. ("OFI") of the assets of JP
Investment Management Company ("JPM"), the investment adviser to JP Fund.
OFI is discussed in greater detail below.
Shareholders are directed to read the accompanying Proxy Statement and
Prospectus for further information about the Reorganization and related
matters. Additional information about Oppenheimer Fund is set forth in
its accompanying Prospectus.
2. What are the reasons for the Reorganization?
Jefferson-Pilot Corporation ("JPC"), in the course of a review of its
business, concluded that it should invest its capital resources in its
core insurance business and communications operations rather than
investing in the expansion of mutual fund assets being managed by JPM (or
another investment management subsidiary). Because managing mutual fund
investment portfolios in an efficient and profitable manner can only be
achieved by managing aggregate assets significantly in excess of the
amount of assets currently being managed by JPM, JPC has decided to sell
the assets of JPM and thereby leave the business of managing mutual fund
investment portfolios. This decision requires that alternative
arrangements be made for the management of the assets of the four mutual
funds (including JP Fund) managed by JPM. The Reorganization would result
in OFI taking over management of the investment portfolio of JP Fund when
JPM is sold.
3. What benefits to shareholders may result from this Reorganization?
The Board of Directors of JP Fund has determined that, among other things,
the Reorganization would afford the shareholders of JP Fund: 1) the
capabilities and resources of OFI and its affiliates in the area of fixed
income investment management, distribution, shareholder services and
marketing, and 2) the ability to exchange their Oppenheimer Fund shares
for shares of a wider variety of funds and portfolios within the
OppenheimerFunds family.
4. Who is paying the expenses of the Reorganization?
All expenses of the Reorganization will be paid by the respective
investment advisers to JP Fund and Oppenheimer Fund and not JP Fund or
Oppenheimer Fund.
5. Who is OppenheimerFunds, Inc.?
OFI and its subsidiaries are engaged principally in the business of
managing, distributing and servicing registered investment companies. OFI
has operated as an investment adviser since 1959. OFI is indirectly
controlled by Massachusetts Mutual Life Insurance Company. As of June 30,
1996, OFI and a subsidiary had assets of more than $50 billion under
management in more than 60 mutual funds.
6. Do the Oppenheimer funds have a sales charge?
Yes, the Oppenheimer funds impose a sales charge, other than their money
market funds (with one exception). However, there will be no commission
or sales load of any kind charged in connection with the Class A shares
issued in this Reorganization. Purchases of Class A shares of Oppenheimer
Fund in addition to those received in exchange for JP Fund shares in the
Reorganization will, nonetheless, be assessed any applicable sales charge.
See the accompanying documents for further details.
7. May I exchange between other Oppenheimer funds without a sales charge
or exchange fee?
Yes. As a shareholder of Oppenheimer Fund after this Reorganization, you
will be able to exchange your Class A shares for Class A shares of other
Oppenheimer funds without payment of any sales charges or exchange fees.
Exchange privileges may be modified or discontinued at any time.
8. Where can I get prospectuses and other information on the Oppenheimer
funds?
Call OppenheimerFunds Distributor, Inc. at 1-(800) 255-2755. They will
be pleased to supply you with prospectuses and other documentation with
respect to the Oppenheimer funds.
9. After the Reorganization, whom do I contact about my new Oppenheimer
Fund account or to initiate a transaction in that account?
Once the Reorganization is approved and effected, you will become a
shareholder of Oppenheimer Fund. For information about your new
Oppenheimer Fund account or to initiate a transaction in that account, you
may continue to contact your registered representative at your
broker/dealer or, in the alternative, OppenheimerFunds Services at 1-(800)
525-7048.
10. Will this Reorganization result in any tax liability to JP Fund,
Oppenheimer Fund or to me as a shareholder?
The Reorganization is structured in a manner that is intended to qualify
for federal income tax purposes as a tax-free reorganization. The
aggregate tax basis of Oppenheimer Fund shares received by you will be the
same as the aggregate tax basis of your JP Fund shares prior to the
Reorganization, and the holding period of the shares of Oppenheimer Fund
received by you will include the period during which you held your JP Fund
shares provided that those JP Fund shares were held as capital assets.
Shareholders of JP Fund should consult their tax advisors regarding the
effect, if any, of the Reorganization in light of their individual
circumstances. Since the foregoing only relates to the federal income tax
consequences of the Reorganization, shareholders of JP Fund should also
consult their tax advisors as to state and local tax consequences, if any,
of the Reorganization.
<PAGE>
PRELIMINARY COPY
JEFFERSON-PILOT INVESTMENT GRADE BOND FUND, INC.
100 North Greene Street, Greensboro, North Carolina 27420
1-800-458-4498
PROXY STATEMENT
OPPENHEIMER BOND FUND
3410 South Galena Street, Denver, Colorado 80231
1-800-525-7048
PROSPECTUS
This Proxy Statement and Prospectus is being furnished to shareholders of
Jefferson-Pilot Investment Grade Bond Fund, Inc. ("JP Fund"), an open-end,
management investment company, in connection with the solicitation by the
Board of Directors of JP Fund (the "Board") of proxies to be used at the
Special Meeting of Shareholders of JP Fund, to be held at the Jefferson-
Pilot Building (4th Floor, Room B-2), 100 North Greene Street, Greensboro,
North Carolina 27420 at 10:00 A.M., local time, on December 3, 1996, and
any adjournments thereof (the "Meeting"). The Board has set October 10,
1996, as the date for the determination of JP Fund shareholders entitled
to notice of, and to vote at, the Meeting (the "Record Date"). It is
expected that this Proxy Statement and Prospectus will be mailed to
shareholders on or about October __, 1996.
At the Meeting, shareholders of JP Fund will be asked to consider and vote
upon the approval or disapproval of the Agreement and Plan of
Reorganization, dated as of ________, 1996 (the "Reorganization
Agreement"), by and among JP Fund, Jefferson-Pilot Corporation ("JPC"),
Oppenheimer Integrity Funds (the "Trust"), on behalf of its series
Oppenheimer Bond Fund ("Oppenheimer Fund"), and OppenheimerFunds, Inc.,
and the transactions contemplated by the Reorganization Agreement (the
"Reorganization"). The Reorganization Agreement provides for the transfer
of substantially all the assets of JP Fund to Oppenheimer Fund in exchange
for Class A shares of Oppenheimer Fund having a value equal to the
aggregate net asset value of the outstanding shares of JP Fund, the
distribution of such Class A shares of Oppenheimer Fund to the
shareholders of JP Fund in liquidation of JP Fund and the cancellation of
the outstanding shares of JP Fund. A copy of the Reorganization Agreement
is attached hereto as Exhibit A and is incorporated by reference herein.
As a result of the proposed Reorganization, each shareholder of JP Fund
will receive that number of Class A shares of Oppenheimer Fund having an
aggregate net asset value equal to the net asset value of such
shareholder's shares of JP Fund. This transaction has been structured in
a manner intended to qualify as a tax-free reorganization for federal
income tax purposes. See "Approval or Disapproval of the Reorganization."
At the Meeting, shareholders of JP Fund will also be asked to elect five
Directors and ratify the selection of independent auditors.
Oppenheimer Fund currently offers Class A, Class B and Class C shares.
Class A shares are usually sold with a sales charge imposed at the time
of purchase (certain purchases aggregating $1.0 million or more ($500,000
as to purchases by OppenheimerFunds prototype 401(k) plans) are not
subject to a sales charge, but may be subject to a contingent deferred
sales charge ("CDSC") if redeemed within 18 months of the date of
purchase). Class B shares are sold without a front-end sales charge but
may be subject to a CDSC if redeemed within six years of the date of
purchase. Class C shares are sold without a front-end sales charge but may
be subject to a CDSC if not held for one year. As a result of the
Reorganization, shareholders of JP Fund will receive Class A shares of
Oppenheimer Fund and no sales charge will be imposed on the Oppenheimer
Fund Class A shares received by JP Fund's shareholders in the
Reorganization. Because JP Fund has only one class of shares outstanding,
Oppenheimer Fund will not issue Class B or Class C shares in the
Reorganization. Accordingly, complete information on Class B and Class C
shares of Oppenheimer Fund is not included in this Proxy Statement and
Prospectus, and no offering of Class B or Class C shares is made hereby.
Oppenheimer Fund, formerly named "Oppenheimer Investment Grade Bond Fund,"
is a mutual fund that seeks a high level of current income by investing
mainly in debt instruments. JP Fund's primary investment objective is
to seek the maximum level of current income as is consistent with prudent
risk; a secondary investment objective is to seek growth of income and
capital. JP Fund proposes to achieve these objectives by investing
primarily in investment grade fixed-income securities. Shareholders of
JP Fund should consider the differences in investment objectives and
policies of Oppenheimer Fund and JP Fund, including Oppenheimer Fund's
investment policy to invest in securities rated lower than investment
grade. See "Investment Objectives and Policies", "Principal Risk Factors"
and "Comparison Between Oppenheimer Fund and JP Fund - Comparison of
Investment Objectives, Policies and Restrictions."
Oppenheimer Fund has filed with the Securities and Exchange Commission
(the "SEC") a Registration Statement on Form N-14 (the "Registration
Statement") relating to the registration of Class A shares of Oppenheimer
Fund to be offered to the shareholders of JP Fund pursuant to the
Reorganization Agreement. This Proxy Statement and Prospectus relating
to the Reorganization also constitutes a Prospectus of Oppenheimer Fund
filed as part of such Registration Statement. Information contained or
incorporated by reference herein relating to Oppenheimer Fund has been
prepared by and is the responsibility of Oppenheimer Fund. Information
contained or incorporated by reference herein relating to JP Fund has been
prepared by and is the responsibility of JP Fund.
This Proxy Statement and Prospectus sets forth concisely information about
Oppenheimer Fund that a prospective investor should know before voting on
the Reorganization. The following documents have been filed with the SEC
and are available without charge upon written request to Jefferson-Pilot
Investor Services, Inc. ("JPIS"), the distributor for JP Fund, at P.O. Box
22086, Greensboro, North Carolina 27420, or by calling 1-800-458-4498 (a
toll-free number): (i) a Prospectus for JP Fund, dated May 1, 1996
(information about JP Fund is incorporated herein by reference to JP
Fund's May 1, 1996 Prospectus); and (ii) a Statement of Additional
Information about JP Fund, dated May 1, 1996 (the "JP Fund Additional
Statement"). The most recent Annual Report and Semi-Annual Report for JP
Fund, dated as of December 31, 1995 and June 30, 1996, respectively, are
also available without charge upon request to JPIS by calling 1-800-458-
4498 (toll-free).
The following documents have been filed with the SEC and are available
without charge upon written request to the transfer and shareholder
servicing agent for Oppenheimer Fund, OppenheimerFunds Services ("OFS"),
at P.O. Box 5270, Denver, Colorado 80217, or by calling 1-800-525-7048 (a
toll free number): (i) a Prospectus for Oppenheimer Fund, dated April 1,
1996, as supplemented April 1, 1996, which is incorporated herein by
reference and a copy of which also accompanies this Proxy Statement and
Prospectus; (ii) a Statement of Additional Information about Oppenheimer
Fund, dated April 1, 1996 (the "Oppenheimer Fund Additional Statement"),
which contains more detailed information about Oppenheimer Fund and its
management, and (iii) a Statement of Additional Information relating to
the Reorganization described in this Proxy Statement and Prospectus (the
"Reorganization Additional Statement"), dated ______, 1996, incorporated
herein by reference and filed as part of the Registration Statement, which
includes, among other things, the Prospectus for JP Fund, the JP Fund
Additional Statement and the Oppenheimer Fund Additional Statement.
Investors are advised to read and retain this Proxy Statement and
Prospectus for future reference.
Shares of Oppenheimer Fund are not deposits or obligations of any bank,
are not guaranteed or endorsed 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 ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Proxy Statement and Prospectus is dated October __, 1996.
<PAGE>
TABLE OF CONTENTS
PROXY STATEMENT AND PROSPECTUS
COMPARATIVE FEE TABLES
SYNOPSIS
Purpose of the Meeting
Parties to the Reorganization
The Reorganization
Vote Required
Tax Consequences of the Reorganization
Dissenters' Rights
Investment Objectives and Policies
Investment Advisory and Distribution Plan Fees
Purchases, Exchanges and Redemptions
PRINCIPAL RISK FACTORS
Investment in Debt Securities
Foreign Securities
Options, Futures and Interest Rate Swaps; Derivatives
APPROVAL OR DISAPPROVAL OF THE REORGANIZATION (Proposal 1)
Background
Acquisition Agreement
Board Approval of the Reorganization
The Reorganization
Tax Aspects of the Reorganization
Dissenters' Rights
Capitalization Table (Unaudited)
COMPARISON BETWEEN OPPENHEIMER FUND AND JP FUND
Comparison of Investment Objectives, Policies and Restrictions
Special Investment Methods
Investment Restrictions
Oppenheimer Fund Performance
Additional Comparative Information
ELECTION OF DIRECTORS (Proposal 2)
Information Concerning the Board
Officers of JP Fund
Other Information
RATIFICATION OR REJECTION OF SELECTION OF INDEPENDENT AUDITORS (Proposal
3)
INFORMATION CONCERNING THE MEETING
The Meeting
Record Date; Vote Required; Share Information
Proxies
Costs of the Solicitation and the Reorganization
SHAREHOLDER PROPOSALS
MISCELLANEOUS
Financial Information
Public Information
OTHER BUSINESS
EXHIBIT A - Agreement and Plan of Reorganization, dated as of ________,
1996, by and among Oppenheimer Integrity Funds, on behalf of
Oppenheimer Bond Fund, Jefferson-Pilot Investment Grade Bond
Fund, Inc., OppenheimerFunds, Inc. and Jefferson-Pilot
Corporation
ENCLOSURE - Prospectus of Oppenheimer Bond Fund, dated April 1, 1996, as
supplemented April 1, 1996
<PAGE>
COMPARATIVE FEE TABLES
Transaction Charges
Shareholders pay certain expenses directly, such as sales charges and
account transaction charges. The schedule of such charges for both JP
Fund and Oppenheimer Fund is noted below.
<TABLE>
<CAPTION>
JP Fund Oppenheimer Fund
Class A Class B Class C
<S> <C> <C> <C> <C>
Maximum Initial Sales Load
Imposed on Purchases (as a %
of offering price) 4.50% 4.75% None None
Maximum Sales Load Imposed on
Reinvested Dividends None None None None
Maximum Deferred Sales
Load(as a % of the lower
of the original purchase
price or redemption
proceeds) None None(1) 5.00%(2) 1.00%(3)
Redemption Fee None None None None
Exchange Fee None None None None
</TABLE>
1. If you invest $1 million or more ($500,000 or more for purchases by
OppenheimerFunds prototype 401(k) plans) in Class A shares, although you
will generally not pay an initial sales charge, you may have to pay a
sales charge of up to 1.0% if you sell your shares within 18 calendar
months from the end of the calendar month during which you purchased those
shares.
2. If you redeem Class B shares within six years of the beginning of the
month in which you purchase them, you may have to pay a contingent
deferred sales charge starting at 5.0% in the first year and declining
thereafter.
3. If you redeem Class C shares within 12 months of the beginning of the
calendar month of buying them, you may have to pay a 1.0% contingent
deferred sales charge.
Expenses of Oppenheimer Fund and JP Fund; Pro Forma Expenses
Each fund pays a variety of expenses directly for management of its
assets, administration, distribution of shares and other services, and
those expenses are reflected in the net asset value per share of each of
Oppenheimer Fund and JP Fund. The following calculations are based on the
expenses of JP Fund and Class A expenses of Oppenheimer Fund for the 12
months ended December 31, 1995 and the six months ended June 30, 1996.
These amounts are shown as a percentage of the average net assets of JP
Fund and of Class A shares of Oppenheimer Fund for those periods (for the
six months ended June 30, 1996, the percentages are annualized). Pro
forma expenses for the combined fund after giving effect to the
Reorganization are not shown as they do not differ from the fees indicated
below for Oppenheimer Fund.
<TABLE>
<CAPTION>
Oppenheimer Fund
JP Fund Class A
12 months ended6 months ended 12 months ended6 months ended
12/31/95 6/30/96 12/31/95 6/30/96
<S> <C> <C> <C> <C>
Management Fees(1) 0.50% 0.50% 0.75% 0.75%
12b-1 Fees ----- ----- 0.25% 0.25%
Other Expenses 0.46% 0.44% 0.38% 0.28%
Total Fund Operating
Expenses(1) 0.96% 0.94% 1.38% 1.28%
</TABLE>
(1) Management fees for Oppenheimer Fund have been restated to reflect the
increased management fee rate which went into effect on July 10, 1995.
Had this management fee not changed, "Management Fees" for the twelve
months ended December 31, 1995 would have been 0.50% of Class A average
annual net assets, and "Total Fund Operating Expenses" would have been
1.13% of Class A average annual net assets. See "Investment Advisory and
Distribution Plan Fees" below.
Examples
To attempt to show these expenses over time, the examples shown below have
been created. Assume that you make a $1,000 investment in either JP Fund
or Oppenheimer Fund and that the annual return is 5% and that the
operating expenses for each fund are the ones shown in the chart above for
the six months ended June 30, 1996 and the 12 months ended December 31,
1995.
Based on the rate of "Total Fund Operating Expenses" shown above for the
six months ended June 30, 1996, 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>
Oppenheimer Fund
Class A Shares $60 $86 $114 $195
JP Fund $54 $74 $ 95 $155
If you did not redeem your investment, it would incur the following expenses by the end of the applicable period:
1 year 3 years 5 years 10 years
Oppenheimer Fund
Class A Shares $60 $86 $114 $195
JP Fund $54 $74 $ 95 $155
</TABLE>
Based on the rate of "Total Fund Operating Expenses" shown above for the
12 months ended December 31, 1995, 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:
1 year 3 years 5 years 10 years
Oppenheimer Fund
Class A Shares $61 $89 $119 $205
JP Fund $54 $74 $ 96 $157
If you did not redeem your investment, it would incur the following
expenses by the end of the applicable period:
1 year 3 years 5 years 10 years
Oppenheimer Fund
Class A Shares $61 $89 $119 $205
JP Fund $54 $74 $96 $157
<PAGE>
SYNOPSIS
The following is a synopsis of certain information contained in or
incorporated by reference in this Proxy Statement and Prospectus and
presents key considerations for shareholders of JP Fund to assist them in
determining whether to approve or disapprove the Reorganization. This
synopsis is only a summary and is qualified in its entirety by the more
detailed information contained in or incorporated by reference in this
Proxy Statement and Prospectus and the Reorganization Agreement which is
Exhibit A hereto. Shareholders should carefully review this Proxy
Statement and Prospectus and the Reorganization Agreement in their
entirety and, in particular, the current Prospectus of Oppenheimer Fund
which accompanies this Proxy Statement and Prospectus and is incorporated
by reference herein.
Purpose of the Meeting
At the Meeting, shareholders of JP Fund will be asked to approve or
disapprove the Reorganization. In addition, shareholders will be
requested to elect five Directors of JP Fund and ratify the selection of
JP Fund's independent auditors.
Parties to the Reorganization
Oppenheimer Fund is a series of the Trust, Oppenheimer Integrity Funds,
a diversified, open-end, management investment company organized in 1982
as a multi-series Massachusetts business trust. Oppenheimer Fund is
located at 3410 South Galena Street, Denver, Colorado 80231.
OppenheimerFunds, Inc. ("OFI") acts as investment adviser to Oppenheimer
Fund. OppenheimerFunds Distributor, Inc. ("OFDI"), a subsidiary of OFI,
acts as the distributor of Oppenheimer Fund's shares. OFI and OFDI are
located at Two World Trade Center, New York, New York 10048-0203.
Additional information about Oppenheimer Fund is set forth below.
JP Fund is a diversified, open-end, management investment company
organized in 1978 as a North Carolina corporation. JP Fund is located at
100 North Greene Street, Greensboro, North Carolina 27420. JP Investment
Management Company ("JPM") acts as investment adviser to JP Fund.
Jefferson-Pilot Investor Services, Inc. ("JPIS") acts as the distributor
of JP Fund's shares. JPM and JPIS are located at P.O. Box 21008 and P.O.
Box 22086, respectively, Greensboro, North Carolina 27420. Additional
information about JP Fund is set forth below.
The Reorganization
The Reorganization Agreement provides for the transfer of substantially
all the assets of JP Fund to Oppenheimer Fund in exchange for the issuance
of Class A shares of Oppenheimer Fund and the assumption by Oppenheimer
Fund of certain liabilities of JP Fund. JP Fund will retain a small Cash
Reserve sufficient to pay any liabilities and expenses of dissolution.
The Reorganization Agreement also provides for the distribution by JP Fund
of these shares of Oppenheimer Fund to JP Fund shareholders in liquidation
of JP Fund. As a result of the Reorganization, each JP Fund shareholder
will receive that number of full and fractional Oppenheimer Fund Class A
shares equal in value to such shareholder's pro rata interest in the net
assets transferred to Oppenheimer Fund as of the Valuation Date (as
hereinafter defined). For further information about the Reorganization
see "Approval or Disapproval of the Reorganization" below.
For the reasons set forth below under "Approval or Disapproval of the
Reorganization - Board Approval of the Reorganization," the Board,
including the Directors who are not "interested persons" of JP Fund (the
"Independent Directors"), as that term is defined in the Investment
Company Act of 1940, as amended (the "1940 Act"), has concluded that the
Reorganization is in the best interests of JP Fund and its shareholders
and that the interests of existing JP Fund shareholders will not be
diluted as a result of the Reorganization, and recommends approval of the
Reorganization by JP Fund shareholders. The Board of Trustees of the
Trust has also approved the Reorganization and determined that the
interests of existing Oppenheimer Fund shareholders will not be diluted
as a result of the Reorganization. If the Reorganization is not approved,
JP Fund will continue in existence and the Board will determine whether
to pursue alternative actions. The section below entitled "Approval or
Disapproval of the Reorganization" sets forth certain information with
respect to the background of the Reorganization, including other
transactions and agreements entered into, or contemplated to be entered
into, by OFI, JPM and certain affiliates of JPM.
Vote Required
Approval of the Reorganization will require the affirmative vote of a
majority of the shares of JP Fund entitled to vote at the Meeting. See
"Information Concerning the Meeting - Record Date; Vote Required; Share
Information."
Tax Consequences of the Reorganization
As a condition to the closing of the Reorganization, JP Fund and
Oppenheimer Fund will have received an opinion to the effect that the
Reorganization will qualify as a tax-free reorganization for federal
income tax purposes. As a result of such tax-free reorganization, no gain
or loss would be recognized by JP Fund, Oppenheimer Fund, or the
shareholders of either fund for federal income tax purposes. For further
information about the tax consequences of the Reorganization, see
"Approval or Disapproval of the Reorganization - Tax Aspects of the
Reorganization" below.
Dissenters' Rights
Dissenters' rights of appraisal are generally not available to
shareholders of JP Fund with respect to the Reorganization. See,
"Approval or Disapproval of the Reorganization - Dissenters' Rights."
<PAGE>
Investment Objectives and Policies
Oppenheimer Fund's investment objective is a fundamental policy, and JP
Fund's investment objectives and policies are also fundamental policies.
Fundamental policies are those that cannot be changed without the approval
of shareholders of that fund. Oppenheimer Fund's investment policies
described below are not fundamental unless this Proxy Statement and
Prospectus indicates a particular policy is fundamental.
As its investment objective, Oppenheimer Fund seeks a high level of
current income by investing mainly in debt instruments. Under normal
market conditions, Oppenheimer Fund invests at least 65% of its total
assets in investment grade debt securities, U.S. Government securities,
and money market instruments and may invest up to 35% of its total assets
in debt securities rated less than investment grade, or if unrated, judged
by OFI to be of comparable quality to such lower-rated debt securities.
Investment grade debt securities are those rated in one of the four
highest categories by Standard & Poor's Corporation ("S&P"), Moody's
Investors Service, Inc. ("Moody's"), or another nationally-recognized
rating organization. Such categories are, from highest to lowest ratings,
AAA, AA, A and BBB as to S&P and Aaa, Aa, A and Baa as to Moody's. See
"Comparison Between Oppenheimer Fund and JP Fund" for a discussion of
certain of these ratings. Securities rated lower than investment grade
(often called "junk bonds") are considered speculative. Although such
lower-rated debt securities generally offer the potential for higher
income than investment grade debt securities, their value may be subject
to greater market fluctuations, they may be more difficult to sell and
they may be subject to a greater risk of default because of the issuer's
low creditworthiness. Prior to July 10, 1995, Oppenheimer Fund was named
"Oppenheimer Investment Grade Bond Fund" and its investments were limited
to investment grade bonds, U.S. Government securities and money market
instruments. Oppenheimer Fund's current investment policies are described
herein under "Comparison Between Oppenheimer Fund and JP Fund" and in more
detail in Oppenheimer Fund's current Prospectus, which accompanies this
Proxy Statement and Prospectus, and the Oppenheimer Fund Additional
Statement.
OFI anticipates that Oppenheimer Fund will generally invest at least 75%
of its total assets in: (i) U.S. corporate bonds rated "A" or better and
(ii) U.S. government and agency bonds. OFI further anticipates that
Oppenheimer Fund would invest an additional 15% of its total assets in
lower-rated non-investment grade domestic corporate bonds and 10% of its
total assets in lower-rated non-investment grade foreign bonds. These
anticipated investment targets, including the allocation between domestic
and foreign lower-rated debt securities, are not fundamental policies, are
subject to fluctuation and may be changed by OFI without further notice
to shareholders or amended prospectus disclosure.
JP Fund's primary investment objective is to seek the maximum level of
current income as is consistent with prudent risk. A secondary investment
objective is to seek growth of income and capital. JP Fund proposes to
achieve these objectives by investing primarily in fixed income securities
rated A or better by S&P or Moody's. JP Fund will also purchase dividend
paying common stocks. Fixed-income securities include debt securities and
preferred stocks, some of which may have a call on common stock by means
of conversion privilege or attached warrants. When the incremental yield
available on corporate securities is small compared to that available on
U.S. Treasury securities, JP Fund may invest substantially in U.S.
Treasury securities. JP Fund may also hold cash or invest in short-term
securities and may purchase, subject to limitations, U.S. Government
obligations with a simultaneous agreement by the seller to repurchase the
securities at the original price plus accrued interest.
Oppenheimer Fund's and JP Fund's investments may also include securities
of foreign governments and companies (limited, in the case of JP Fund, to
securities issued by Canadian companies), mortgage-backed securities,
collateralized mortgage-backed obligations (CMOs), asset-backed
securities, zero coupon securities, preferred stock and municipal
securities. Oppenheimer Fund and JP Fund may also enter into repurchase
agreements subject to certain limitations. Oppenheimer Fund may also
write covered call options and use certain derivative investments,
including options and futures, to enhance income and may use hedging
instruments to try to manage investment risks.
Shareholders of JP Fund should consider the differences in investment
objectives and policies between JP Fund and Oppenheimer Fund, including
the ability, but not the current investment policy, of Oppenheimer Fund
to invest up to 100% of its assets in securities rated lower than
investment grade. Oppenheimer Fund invests in a wider variety of
securities, some of which have greater investment risks than the types of
securities JP Fund usually holds. Further, as a secondary investment
objective, JP Fund seeks growth of income and capital; Oppenheimer Fund
does not invest with the investment objective of seeking capital
appreciation. See "Principal Risk Factors" and "Comparison Between
Oppenheimer Fund and JP Fund - Comparison of Investment Objectives,
Policies and Restrictions."
Investment Advisory and Distribution Plan Fees
Oppenheimer Fund and JP Fund each obtain investment management services
from their respective investment advisers pursuant to the terms of their
respective investment advisory agreements. Each agreement provides that
a management fee is payable to the investment adviser monthly.
Oppenheimer Fund pays a management fee to OFI computed on its net asset
value as of the close of business each day, which fee declines on
additional assets as Oppenheimer Fund increases its asset base, at the
annual rate of 0.75% of the first $200 million of net assets, 0.72% of the
next $200 million, 0.69% of the next $200 million, 0.66% of the next $200
million, 0.60% of the next $200 million and 0.50% of net assets over $1
billion. The management fee payable by JP Fund to JPM is at an annual rate
of 1/2 of 1% of JP Fund's average daily net asset value. JPM is
reimbursed by JP Fund for performing certain shareholder accounting
services. JPM has contractually agreed that if in any fiscal year the
total of JP Fund's ordinary business expenses (with specified exceptions)
exceeds 1% of JP Fund's average daily net asset value, JPM will pay the
excess by reducing its management fee by a corresponding amount. OFI has
voluntarily undertaken that the total expenses of Oppenheimer Fund in any
fiscal year (with specified exceptions) will not exceed (and OFI
undertakes to reduce Oppenheimer Fund's management fee in the amount by
which such expenses exceed) the most stringent state regulatory limit on
fund expenses. OFI's undertaking to Oppenheimer Fund is revocable and may
be changed or eliminated at any time. Neither fund's management fees were
reduced during the past fiscal year.
Oppenheimer Fund has adopted a shareholder Service Plan under Rule 12b-1
of the 1940 Act for Class A shares to reimburse OFDI for a portion of its
costs incurred in connection with the personal service and maintenance of
accounts that hold Class A shares. Reimbursement is made quarterly at an
annual rate that may not exceed 0.25% of the average annual net assets of
Class A shares of Oppenheimer Fund. OFDI 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
Board of Trustees authorizes such reimbursements, which it has not yet
done) for its other expenditures under the Service Plan. Services to be
provided include, among others, answering customer inquiries about
Oppenheimer Fund, assisting in establishing and maintaining accounts in
Oppenheimer Fund, making Oppenheimer Fund's investment plans available and
providing other services at the request of Oppenheimer Fund or OFDI. A
description of Oppenheimer Fund's distribution and service plans for Class
B and Class C shares is set forth in Oppenheimer Fund's Prospectus. JP
Fund has not adopted a plan pursuant to Rule 12b-1 under the 1940 Act.
Purchases, Exchanges and Redemptions
Purchases. Purchases of shares of Oppenheimer Fund and JP Fund may be
made directly through OFDI and JPIS, respectively, or through any dealer,
broker or financial institution that has a sales agreement with the
respective distributor. Subsequent to an initial purchase, additional
purchases of JP Fund shares may be made directly from Investors Fiduciary
Trust Company, JP Fund's stock transfer and dividend paying agent. A
shareholder of Oppenheimer Fund may purchase shares automatically from an
account at a domestic bank or other financial institution under the
"OppenheimerFunds AccountLink" service. Class A shares of Oppenheimer
Fund and shares of JP Fund generally are sold subject to an initial sales
charge. The maximum sales charge rate is 0.25% higher (as a percent of the
offering price) for Oppenheimer Fund Class A shares than for JP Fund
shares. Oppenheimer Fund Class B and Class C shares generally are sold
without a front-end sales charge but may be subject to a contingent
deferred sales charge ("CDSC") upon redemption. See "Comparative Fee
Tables -- Transaction Charges" above for a complete description of such
sales charges.
Class A shares of Oppenheimer Fund and shares of JP Fund may be purchased
at reduced sales charges, or may be purchased at net asset value, as
described in that fund's Prospectus. Class A shares of Oppenheimer Fund
to be issued under the Reorganization Agreement will be issued by
Oppenheimer Fund at net asset value without a sales charge. The sales
charge on Class A shares of Oppenheimer Fund will only affect shareholders
of JP Fund to the extent that they desire to make additional purchases of
Class A shares of Oppenheimer Fund in addition to the shares which they
will receive as a result of the Reorganization. Future dividends and
capital gain distributions of either fund, if any, may be reinvested
without sales charge.
Exchanges. Shareholders of Oppenheimer Fund may exchange their shares at
net asset value for shares of the same class issued by other mutual funds
within the Oppenheimer funds family (over 60 other portfolios), subject
to certain conditions. Oppenheimer Fund offers an automatic exchange plan
providing for systematic exchanges from Oppenheimer Fund of a specified
amount for shares of the same class of other funds within the Oppenheimer
funds family. In contrast, holders of JP Fund shares may only exchange
such shares for shares issued by Jefferson-Pilot Capital Appreciation
Fund, Inc. ("JP Appreciation Fund").
Redemptions. Class A shares of Oppenheimer Fund and shares of JP Fund may
be redeemed without charge at their respective net asset values per share
calculated after the redemption order is received and accepted; however,
Class A shares of Oppenheimer Fund that were exempt from the front-end
sales charge upon purchase in amounts of more than $1 million (more than
$500,000 for purchases by OppenheimerFunds prototype 401(k) plans) may be
subject to a CDSC of up to 1.0% upon redemption within 18 months from the
end of the calendar month during which such shares were purchased. Such
CDSC will be waived for shares issued pursuant to the Reorganization. See
"Comparative Fee Tables -- Transaction Charges" above.
Shareholders of Oppenheimer Fund may reinvest redemption proceeds of Class
A shares on which an initial sales charge was paid, or the redemption
proceeds of Class A or Class B shares on which a CDSC was paid, without
imposition of a sales charge, within six months of a redemption at net
asset value in Class A shares of Oppenheimer Fund or any of numerous
mutual funds within the Oppenheimer funds family. Shareholders of JP Fund
may reinvest all or part of the redemption proceeds of shares of JP Fund
in shares of JP Fund or JP Appreciation Fund within 30 days after the date
of the redemption without the imposition of a sales charge. Former JP Fund
shareholders are permitted to exercise this reinvestment privilege once
each calendar year.
Shareholders of both funds may redeem their shares by written request or
by telephone request in certain stated amounts, and shareholders of
Oppenheimer Fund may arrange to have share redemption proceeds transmitted
to a pre-designated account at a U.S. bank or other financial institution
that is an automated clearing house ("ACH") member. Checkwriting
privileges on Class A shares of Oppenheimer Fund are also available.
Oppenheimer Fund may redeem accounts valued at less than $1,000 if the
account has fallen below such stated amount for reasons other than market
value fluctuations. For JP Fund, the corresponding minimum is $250 once
the account has been open at least 12 months. The funds offer automatic
withdrawal plans providing for systematic withdrawals of a specified
amount from the fund account.
PRINCIPAL RISK FACTORS
In evaluating whether to approve the Reorganization and invest in
Oppenheimer Fund, JP Fund shareholders should carefully consider the
following summary of risk factors, relating to both Oppenheimer Fund and
JP Fund, in addition to the other information set forth in this Proxy
Statement and Prospectus. Additional information on risk factors for each
fund is set forth in the respective Prospectus of each fund and in
addition for Oppenheimer Fund, the Oppenheimer Fund Additional Statement.
As a general matter, Oppenheimer Fund and JP Fund are intended for
investors seeking high current income. There is no assurance that either
Oppenheimer Fund or JP Fund will achieve its investment objective and
investment in the funds is subject to investment risks, including the
possible loss of the principal invested. As described below, Oppenheimer
Fund generally invests a certain percentage of its assets in high-yield,
lower-rated securities. Although JP Fund may invest in such securities
to a limited extent, it currently holds only investment grade fixed-income
securities. In addition, Oppenheimer Fund invests in a wider variety of
securities, some of which entail somewhat higher risks, and Oppenheimer
Fund engages in hedging transactions and purchases derivative securities.
These investments are discussed below. Accordingly, investors should
consider the additional risk potential of an investment in Oppenheimer
Fund.
Investment in Debt Securities
Each fund pursues its investment objective(s) through investments
primarily in debt securities. Debt securities are subject to interest
rate risk and credit risk. Certain types of debt securities are also
subject to additional investment risks which relate to the specific type
of security. These risks are discussed below. These risks can cause the
value of the debt securities held by a fund to change which means that the
value of a fund's shares will go up or down, and when shares are sold, an
investor may receive more or less than the investor paid for them.
Interest rate risk relates to fluctuations in market 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 for shorter-term debt securities.
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 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.
Oppenheimer Fund is currently permitted to invest up to 35% of its total
assets in debt securities rated lower than investment grade or, if
unrated, judged by OFI to be of comparable quality to such lower-rated
debt securities (often called "junk bonds"). However, OFI anticipates
that Oppenheimer Fund will generally invest no more than 25% of its total
assets in non-investment grade debt securities. Such lower-rated debt
securities are speculative and involve greater risk than investment grade
debt securities. They may be less liquid than higher-rated securities.
If Oppenheimer Fund were forced to sell a lower-grade debt security during
a period of rapidly declining prices, it might experience significant
losses especially if a substantial number of other holders decide to sell
similar securities at the same time. A decline in the high-yield bond
market is likely during an economic downturn. An economic downturn or an
increase in interest rates could severely disrupt the market for high-
yield securities and adversely affect the value of outstanding securities
and the ability of issuers to repay principal and interest. Other risks
may involve the default of the issuer or price changes in the issuer's
securities due to change in the issuer's financial strength or economic
conditions. Although JP Fund may invest in non-investment grade debt
securities to a limited extent, it currently only holds fixed-income
securities rated investment grade.
Oppenheimer Fund and JP Fund may invest in mortgage-backed securities,
including collateralized mortgage-backed obligations ("CMOs"), that are
subject to prepayment risks. Mortgage-backed securities provide monthly
payments which are, in effect, a "pass-through" of the monthly interest
and principal payments (including any prepayments) made by the individual
borrowers on the pooled mortgage loans. The effective maturity of a
mortgage-backed security may be shortened by unscheduled or early payment
of principal and interest on the underlying mortgages. This may result
in greater price and yield volatility than traditional fixed-income
securities that have a fixed maturity and interest rate. The principal
that is returned may be invested in instruments having a higher or lower
yield than the prepaid instruments depending on then-current market
conditions. Such securities therefore may be less effective as a means
of "locking in" attractive long-term interest rates and may have less
potential for appreciation during periods of declining interest rates than
conventional bonds with comparable stated maturities. If a fund buys
mortgage-backed securities at a premium, prepayments of principal and
foreclosures of mortgages may result in some loss of the fund's principal
investment to the extent of the premium paid. The value of mortgage-backed
securities may also be affected by changes in the market's perception of
the creditworthiness of the entity issuing or guaranteeing them or by
changes in government regulations and tax policies. CMOs may be issued
in a variety of classes or series ("tranches"). The principal value of
certain CMO tranches may be more volatile and less liquid than other types
of mortgage-related securities, because of the possibility that the
principal value of the CMOs may be prepaid earlier than the maturity of
the CMOs as a result of prepayments of the underlying mortgage loans by
the borrowers.
Oppenheimer Fund may also invest in CMOs that are "stripped." Stripped
mortgage-backed securities usually have two classes. The classes receive
different proportions of the interest and principal distributions on the
pool of mortgage assets that act as collateral for the security. In
certain cases, one class will receive all of the interest payments (and
is known as an "I/O"), while the other class will receive all of the
principal payments (and is known as a "P/O"). The yield to maturity on
the class that receives only interest is extremely sensitive to the rate
of payment of the principal on the underlying mortgages. Principal
prepayments increase that sensitivity. Stripped securities that pay
"interest only" are therefore subject to greater price volatility when
interest rates change, and they have the additional risk that if the
underlying mortgages are prepaid, Oppenheimer Fund will lose the
anticipated cash flow from the interest on the prepaid mortgages. That
risk is increased when general interest rates fall, and in times of
rapidly falling interest rates, the fund might receive back less than its
investment in such I/Os. The value of "principal only" securities
generally increases as interest rates decline and prepayment rates rise.
The price of these securities is typically more volatile than that of
coupon-bearing bonds of the same maturity. Stripped securities are
generally purchased and sold by institutional investors through investment
banking firms. At present, established trading markets have not yet
developed for these securities. Therefore, some stripped securities may
be deemed "illiquid". If a fund holds illiquid stripped securities, the
amount it can hold will be subject to the fund's investment policy
limiting investment in illiquid securities. Although JP Fund may invest
in I/Os and P/Os, it has not done so to date and JPM has no intention of
having JP Fund invest in I/Os or P/Os in the foreseeable future.
Oppenheimer Fund and JP 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 Oppenheimer 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
the credit enhancement 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.
Foreign Securities
Oppenheimer Fund may invest in debt securities of foreign governments and
foreign companies, subject to the expectation that generally at least 75%
of its total assets will be invested in U.S. corporate bonds rated "A" or
better and U.S. government and agency bonds. JP Fund may not invest in
foreign securities other than securities issued by Canadian companies.
In summary, foreign securities markets may be less liquid and more
volatile than the markets in the U.S. Risks of foreign securities
investing may include foreign withholding taxation, currency blockage,
currency exchange costs, difficulty in obtaining and enforcing judgments
against foreign issuers, relatively greater brokerage and custodial costs,
risk of expropriation or nationalization of assets, less publicly
available information, and differences between domestic and foreign legal,
auditing, brokerage and economic standards. In addition, there are risks
of changes in foreign currency values. A change in value of a foreign
currency against the U.S. dollar will result in a change in the U.S.
dollar value of a fund's securities denominated in a foreign currency.
The currency rate change will also affect its income available for
distribution. Both funds' investment income and proceeds from foreign
securities may be received in foreign currencies and the funds are
required to absorb the cost of currency fluctuations. If a fund suffers
a loss 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, and the shareholders will have
received a return of capital. Many of the foreign debt securities
Oppenheimer Fund may invest in, such as emerging market debt, have
speculative characteristics and involve more risk than other foreign
securities, including extended settlement periods for securities
transactions, increased illiquidity and increased volatility.
Options, Futures and Interest Rate Swaps; Derivatives
Oppenheimer Fund may purchase and sell certain kinds of futures contracts
and options on such contracts for hedging purposes. Oppenheimer Fund may
also purchase and sell put and call options, options on broadly-based
stock or bond indices and foreign currency and forward contracts and may
enter into interest rate swap agreements. The foregoing instruments,
referred to as "hedging instruments," may be considered derivative
investments. Oppenheimer Fund may also invest in certain derivative
investments to seek to enhance income. Hedging instruments and derivative
investments and their special risks are described below in "Comparison
Between Oppenheimer Fund and JP Fund."
APPROVAL OR DISAPPROVAL OF THE REORGANIZATION
(Proposal 1)
Background
JPC, in the course of a review of its business, concluded that it should
concentrate on its core insurance business and communications operations
and not continue, through its existing subsidiaries, in the business of
managing mutual fund investment portfolios. JPC is a publicly-held
holding company that is the parent of JPM and JPIS. In addition to JP
Fund and JP Appreciation Fund, JPM manages two mutual funds (the
"Insurance Funds") that sell their shares exclusively to certain separate
accounts of Jefferson-Pilot Life Insurance Company ("JPLIC") that support
variable annuity contracts. In aggregate, these four mutual funds had net
assets at June 30, 1996 of approximately $172 million. Managing mutual
fund investment portfolios in an efficient and profitable manner requires
significant assets per fund and in the aggregate. Usually several billion
dollars in aggregate net assets is necessary to cover normal operating
costs and provide resources for capital investment in new products and
services. With regard to retail mutual funds (such as JP Fund and JP
Appreciation Fund), financing certain classes of shares and providing
sales support to dealers are additional expenses that can only be
supported from a relatively large asset base. Consequently, it has become
increasingly difficult for a relatively small mutual fund operation such
as that managed by JPM and JPIS to compete. JPC evaluated the capital
investment that would be required of it or its subsidiaries to achieve
such an asset base and determined that: (1) the best investment of its
resources would not be in expanding the mutual fund assets under JPM's
management, and (2) if, through JPM (or another subsidiary), it could not
be extremely competitive in the business of managing mutual fund
investment portfolios, it should sell the assets of JPM and facilitate
making other arrangements for the management of the assets of the four
mutual funds (including JP Fund) managed by JPM. Sometime after these
determinations by JPC were made, representatives of JPC and JPM met with
OFI to discuss OFI acquiring JPM's mutual fund-related assets.
Representatives of OFI and JPM held meetings beginning in December 1995.
Following the negotiation of the terms of an acquisition agreement and
related agreements, an acquisition agreement (the "Acquisition Agreement")
was executed by OFI, JPC, JPM and JPLIC on _______________, 1996.
The Reorganization described in this Proxy Statement and Prospectus is one
aspect of the overall Acquisition (as hereinafter defined) contemplated
by the Acquisition Agreement described below. The consummation of the
Reorganization is one condition, among others, to the closing of the
Acquisition. Likewise, the consummation of the Acquisition is one
condition, among others, to the closing of the Reorganization.
Accordingly, unless the parties otherwise agree, the Reorganization may
not be effected, despite shareholder approval, if the Acquisition does not
close. In such case, JP Fund will continue in existence and the Board
will take such further action as it, in its discretion, deems necessary
or advisable. The description of the Acquisition Agreement set forth
below is a summary only.
Acquisition Agreement
The Acquisition Agreement contemplates the sale to OFI of all the assets
of JPM (the "Purchased Assets") and the assumption by OFI of certain
liabilities of JPM and JPC relating to the Purchased Assets ("Assumed
Liabilities") (the foregoing sale and assumption constitute the
"Acquisition"). The Acquisition Agreement contemplates that each of the
four mutual funds advised by JPM (including JP Fund) (each, a "Reorganized
Fund") will be reorganized with a mutual fund currently advised by OFI.
A condition to the obligation of the parties to close under the
Acquisition Agreement (the "Acquisition Closing") is the approval of the
reorganizations of the Reorganized Funds (including the Reorganization
described in this Proxy Statement and Prospectus) by their respective
shareholders and the approval of the reorganizations of the Insurance
Funds by applicable state insurance regulatory authorities. The
Acquisition Agreement sets forth certain other conditions to each party's
obligation to close.
JPM, JPC and JPLIC have agreed pursuant to an Agreement Not to Compete not
to, among other things, sell or offer to sell shares of or other security
interests in investment companies or investment oriented insurance
policies to persons who were shareholders of JP Fund or JP Appreciation
Fund or owned variable annuity contracts issued by JPLIC invested in the
Insurance Funds, in each case, immediately prior to the reorganization of
such fund for a period to end on the fourth anniversary of the Acquisition
Closing. Further, JPM, JPC and JPLIC may not act as an investment adviser
to funds established, formed, sold, sponsored or distributed by them and
their affiliates with certain exceptions. OFI, on the one hand, and JPM,
JPC and JPLIC, on the other, have agreed to indemnify the other for
certain liabilities.
Board Approval of the Reorganization
At its meeting on August 26, 1996, the Board, including the Independent
Directors, unanimously approved the Reorganization and the Reorganization
Agreement, determined that the Reorganization is in the best interests of
JP Fund and its shareholders and resolved to recommend that JP Fund
shareholders vote for approval of the Reorganization. The Board further
determined that the Reorganization would not result in dilution of JP
Fund's shareholders' interests.
In evaluating the Reorganization, the Board requested and reviewed, with
the assistance of independent legal counsel, materials furnished by OFI
and JPM. These materials included financial statements as well as other
written information regarding OFI and its personnel, operations and
financial condition. The Board also reviewed the same type of information
about JPM. Consideration was given to comparative information concerning
other mutual funds with similar investment objectives to JP Fund and
Oppenheimer Fund. The Board also considered information with respect to
the relative historical performance of JP Fund, Oppenheimer Fund and other
mutual funds having similar investment objectives. The Board also
reviewed and discussed the terms and provisions of the investment advisory
agreement pursuant to which OFI provides investment management services
to Oppenheimer Fund and compared and contrasted them to the existing
management arrangements for JP Fund as well as the management arrangements
of other similar mutual funds, particularly with respect to the allocation
of various types of expenses, levels of fees and resulting expense ratios.
In reaching its determination, the Board gave careful consideration to the
following factors, among others: (1) because JPC intends to sell JPM or
otherwise leave the business of managing mutual fund investment
portfolios, new arrangements for the management of JP Fund's assets were
necessary; (2) the Reorganization would afford the shareholders of JP Fund
the capabilities and resources of OFI and its affiliates in the area of
investment management, distribution, shareholder servicing and marketing;
(3) the ability of the shareholders of JP Fund to exchange their
Oppenheimer Fund shares for a wider variety of portfolios within the
Oppenheimer funds family with differing investment objectives than are
currently available to shareholders of JP Fund; (4) the terms and
conditions of the Reorganization, including that (a) there would be no
sales charge imposed in effecting the Reorganization, (b) the
Reorganization is intended to qualify as a tax-free exchange, and (c) all
expenses of the Reorganization would be paid by OFI and JPM and not by
Oppenheimer Fund or JP Fund; and (5) the similarities and differences of
the investment objectives, policies and methods of JP Fund and Oppenheimer
Fund. The Board also considered that the annual operating expenses for
Oppenheimer Fund are higher, as a percentage of net assets, and would be
higher on a pro forma basis after giving effect to the Reorganization,
than the operating expenses of JP Fund due to the fact that Oppenheimer
Fund is subject to a higher management fee rate than JP Fund and
Oppenheimer Fund Class A shares pay a service fee to OFDI. For operating
expenses and other expense information relating to Oppenheimer Fund and
JP Fund, see "Comparative Fee Tables - Expenses of Oppenheimer Fund and
JP Fund; Pro Forma Expenses."
The Board was also advised regarding the provisions of Section 15(f) of
the 1940 Act as they relate to the Acquisition. Section 15(f) of the 1940
Act provides, in effect, that an investment adviser of a registered
investment company, or an affiliated person of such adviser, may receive
any amount or benefit in connection with the sale of the adviser's
business provided that two conditions are satisfied. First, an "unfair
burden" must not be imposed on the investment company for which the
investment adviser acts in such capacity as a result of the sale, or any
express or implied terms, conditions or understandings applicable thereto.
The term "unfair burden" as defined in the 1940 Act, includes any
arrangement during the two-year period after the transaction whereby the
investment adviser (or predecessor or successor advisers), or any
interested person of such adviser, receives or is entitled to receive any
compensation, directly or indirectly, from any person in connection with
the purchase or sale of securities or other property to, from or on behalf
of the investment company (other than ordinary fees for bona fide
principal underwriting services), or from the investment company or its
securities holders (other than fees for bona fide investment advisory and
other services).
Management of the Reorganized Funds (including JP Fund) and management of
the mutual funds managed by OFI into which the Reorganized Funds will be
reorganized (including Oppenheimer Fund) are aware of no circumstances
arising from the Acquisition or preparatory transactions to the
Acquisition that might result in the imposition of an "unfair burden" on
the Reorganized Funds (including JP Fund) or the mutual funds managed by
OFI into which the Reorganized Funds will be reorganized (including
Oppenheimer Fund). Moreover, the Acquisition Agreement provides that OFI,
JPM and JPC will conduct their businesses (and use their reasonable
efforts to cause their respective affiliates to conduct their businesses)
so as to assure, insofar as is in their control, that no "unfair burden"
will be imposed on the Reorganized Fund (including JP Fund) or any mutual
fund managed by OFI into which a Reorganized Fund would be reorganized
(including Oppenheimer Fund) as a result of the transactions contemplated
by the Acquisition Agreement.
The second condition of Section 15(f) is that during the three-year period
immediately following a transaction to which Section 15(f) is applicable,
at least 75% of the subject investment company's board of directors must
not be "interested persons" (as defined in the 1940 Act) of the investment
company's investment adviser or predecessor adviser. The current
composition of the Board of Trustees of each mutual fund managed by OFI
into which a Reorganized Fund would be organized (including Oppenheimer
Fund) is in compliance with such condition.
After consideration of the above factors, and such other factors and
information as the directors deemed relevant, the Board, including the
Independent Directors, unanimously approved the Reorganization and the
Reorganization Agreement and voted to recommend its approval to the
shareholders of JP Fund.
The Trust's Board of Trustees, on behalf of Oppenheimer Fund, including
the trustees who are not "interested persons" of Oppenheimer Fund,
unanimously approved the Reorganization and the Reorganization Agreement
and determined that the Reorganization is in the best interests of
Oppenheimer Fund and its shareholders. The Board of Trustees further
determined that the Reorganization would not result in dilution of the
Oppenheimer Fund shareholders' interests. The Board of Trustees
considered, among other things, that an increase in Oppenheimer Fund's
asset base as a result of the Reorganization could benefit Oppenheimer
Fund shareholders due to the economies of scale available to a larger
fund. Over time, these economies of scale may result in slightly lower
costs per account for each Oppenheimer Fund shareholder through lower
operating expenses and transfer agency expenses.
The Reorganization
The following summary of the Reorganization Agreement is qualified in its
entirety by reference to the Reorganization Agreement (a copy of which is
set forth in full as Exhibit A to this Proxy Statement and Prospectus).
The Reorganization Agreement contemplates a reorganization under which (1)
substantially all of the assets of JP Fund would be transferred to
Oppenheimer Fund in exchange for Class A shares of Oppenheimer Fund having
a value equal to the value of the JP Fund assets transferred, (2) these
Class A shares would be distributed among shareholders of JP Fund in
liquidation of JP Fund and (3) the outstanding shares of JP Fund would be
cancelled. Prior to the Closing Date (as hereinafter defined), JP Fund
will endeavor to discharge all of its liabilities and obligations when and
as due prior to such date. Oppenheimer Fund will not assume any
liabilities or obligations of JP Fund except for portfolio securities
purchased which have not settled in the ordinary course of business. In
this regard, JP Fund will retain a cash reserve (the "Cash Reserve") in
an amount which is deemed sufficient in the discretion of the Board for
the payment of (a) JP Fund's expenses of liquidation (if any) and (b) JP
Fund's liabilities, other than those assumed by Oppenheimer Fund. The
Cash Reserve will be accounted for as a liability of JP Fund in
determining its net asset value. The number of full and fractional Class
A shares of Oppenheimer Fund to be issued to JP Fund will be determined
on the basis of Oppenheimer Fund's and JP Fund's relative net asset values
per share, computed as of the close of business of The New York Stock
Exchange Inc. on the business day preceding the Closing Date (the
"Valuation Date"). The Closing Date for the Reorganization will be the
date of the closing of the Acquisition under the Acquisition Agreement or
such other date as may be mutually agreed upon in writing.
The valuation procedures set forth in Oppenheimer Fund's Prospectus and
the Oppenheimer Fund Additional Statement will be utilized to determine
the value of JP Fund's assets to be transferred to Oppenheimer Fund
pursuant to the Reorganization, the value of Oppenheimer Fund's assets and
the net asset value of shares of Oppenheimer Fund. Such values will be
computed by JPM and OFI, respectively, as of the Valuation Date in a
manner consistent with OFI's regular practice in pricing Oppenheimer Fund.
The Reorganization Agreement provides for coordination between the funds
as to their respective portfolios so that, on and after the Closing Date,
Oppenheimer Fund will be in compliance with all of its investment policies
and restrictions. JP Fund will recognize capital gain or loss on any
sales made pursuant to this condition. If JP Fund realizes net gain from
the sale of securities, such gain, to the extent not offset by capital
loss carry-forwards, will be distributed to shareholders prior to the
Closing Date and will be taxable to shareholders as long-term capital gain
or, if the assets disposed of had not been held for more than one year,
as ordinary income.
Contemporaneously with the closing, JP Fund will be liquidated (except for
the Cash Reserve) and JP Fund will distribute or cause to be distributed
pro rata to JP Fund shareholders of record on the Valuation Date the full
and fractional Class A shares of Oppenheimer Fund received by JP Fund.
Upon such liquidation, all issued and outstanding shares of the JP Fund
will be cancelled on JP Fund's books and JP Fund shareholders will have
no further rights as shareholders of JP Fund. To assist JP Fund in the
distribution of Oppenheimer Fund shares, Oppenheimer Fund will, in
accordance with a shareholder list supplied by JP Fund, cause Oppenheimer
Fund's transfer agent to credit and confirm an appropriate number of Class
A shares of Oppenheimer Fund to each shareholder of JP Fund. Certificates
for shares of Oppenheimer Fund will be issued upon written request of a
former shareholder of JP Fund but only for whole shares with fractional
shares credited to the name of the shareholder on the books of Oppenheimer
Fund. Former shareholders of JP Fund who wish certificates representing
their shares of Oppenheimer Fund must, after receipt of their
confirmations, make a written request to OppenheimerFunds Services, P.O.
Box 5270, Denver, Colorado 80217. Shareholders of JP Fund holding
certificates representing their shares will not be required to surrender
their certificates to anyone in connection with the Reorganization. After
the Reorganization, however, it will be necessary for such shareholders
to surrender such certificates in order to redeem, transfer, pledge or
exchange any shares of Oppenheimer Fund, or to obtain a certificate for
Oppenheimer Fund shares to replace a certificate(s) for former JP Fund
shares. After the closing of the Reorganization, JP Fund will not conduct
any business except in connection with the winding up of its affairs.
Under the Reorganization Agreement, within one year after the Closing
Date, JP Fund shall either (i) transfer any remaining amount of the Cash
Reserve to Oppenheimer Fund, if such remaining amount (as reduced by the
estimated cost of distributing it to shareholders) is not material (as
defined below), or (ii) distribute such remaining amount to the
shareholders of JP Fund who were such on the Valuation Date. Such
remaining amount shall be deemed to be material if the amount to be
distributed, after deducting the estimated expenses of the distribution,
equals or exceeds one cent per share of JP Fund outstanding on the
Valuation Date. After this transfer or distribution, and after all final
reports and tax returns have been filed and the winding up of JP Fund's
affairs has been completed, JP Fund will be dissolved as a corporation
under North Carolina law.
The consummation of the Reorganization is subject to the conditions set
forth in the Reorganization Agreement, including, without limitation,
approval of the Reorganization by JP Fund's shareholders. Notwithstanding
approval of JP Fund's shareholders, the Reorganization may be terminated
at any time prior to the Closing Date (1) by mutual written consent of JP
Fund, and the Trust, on behalf of Oppenheimer Fund, (2) by JP Fund or the
Trust, on behalf of Oppenheimer Fund, if the Closing shall not have
occurred on or before December 31, 1996, (3) by JP Fund or the Trust, on
behalf of Oppenheimer Fund, if the other party shall fail to perform in
any material respect its agreements contained in the Reorganization
Agreement required to be performed on or prior to the Closing Date, the
other party materially breaches any representation, warranty, or covenant
contained in the Reorganization Agreement, the JP Fund shareholders fail
to approve the Reorganization Agreement, or if a condition in the
Reorganization Agreement expressed to be precedent to the obligations of
the terminating party has not been met and it reasonably appears that it
will not or cannot be met prior to the Closing Date, or (4) if a
suspension in the redemption of shares shall continue for 60 days beyond
the Valuation Date. The Reorganization Agreement will automatically
terminate prior to the Closing if the Acquisition Agreement is terminated
or the Acquisition is not consummated. Termination of the Reorganization
Agreement pursuant to (1), (2) or (4) above, or an automatic termination
as described in the preceding sentence, will terminate all obligations of
the parties thereto and there will be no liability for damages. In such
case JP Fund and Oppenheimer Fund will be reimbursed for its expenses
incurred with respect to the Reorganization by JPM and OFI, respectively.
In the event of a termination pursuant to (3) above, all obligations of
Oppenheimer Fund and JP Fund under the Reorganization Agreement will be
terminated without liability for damages except that the party in breach
(other than a breach due to JP Fund shareholders not approving the
Reorganization) of the Reorganization Agreement will, upon demand,
reimburse (such reimbursement to be made by such party's investment
adviser) the non-breaching party for all expenses and reasonable out-of-
pocket fees (if any) incurred in connection with the transactions
contemplated by the Reorganization Agreement.
Pursuant to the Reorganization Agreement, JPC has agreed to indemnify and
hold harmless JP Fund, Oppenheimer Fund, their investment advisers and
their respective trustees, officers and shareholders against claims
resulting from certain actions or a failure to act by JP Fund and OFI has
agreed to indemnify and hold harmless JP Fund and its investment adviser
and their respective directors, officers and shareholders against claims
resulting from certain actions or a failure to act by Oppenheimer Fund.
In addition, JPC has separately agreed with JP Fund and the Independent
Directors that, if indemnification from the assets of JP Fund or liability
insurance is not available to the Independent Directors after the Closing
Date, JPC will indemnify and hold the Independent Directors harmless to
the same extent as provided under the JP Fund's Articles of Incorporation.
Approval of the Reorganization will require the vote specified below in
"Information Concerning the Meeting - Record Date; Vote Required; Share
Information." If the Reorganization is not approved by the shareholders
of JP Fund, the Board will consider other possible courses of action.
Tax Aspects of the Reorganization
At or prior to the Closing Date, JP Fund will declare a dividend in an
amount large enough so that it will have declared a dividend of all of its
investment company taxable income and net capital gain, if any, for the
taxable period ending on the Closing Date (determined without regard to
any deduction for dividends paid). Such dividends will be included in the
taxable income of JP Fund's shareholders as ordinary income and long-term
capital gain, respectively.
The exchange of the assets of JP Fund for Class A shares of Oppenheimer
Fund and the assumption by Oppenheimer Fund of certain liabilities of JP
Fund is intended to qualify for federal income tax purposes as a
reorganization under Section 368(a)(1) of the Internal Revenue Code of
1986, as amended (the "Code"). JP Fund has represented to Sutherland,
Asbill & Brennan, tax counsel to JP Fund, that there is no plan or
intention by any JP Fund shareholder who owns 5% or more of JP Fund's
outstanding shares and, to JP Fund's best knowledge, there is no plan or
intention on the part of the remaining JP Fund shareholders, to redeem,
sell, exchange or otherwise dispose of a number of Oppenheimer Fund shares
received in the transaction that would reduce JP Fund shareholders'
ownership of Oppenheimer Fund Class A shares to a number of shares having
a value, as of the Closing Date, of less than 50% of the value of all the
formerly outstanding JP Fund shares as of the same date. JP Fund has also
represented that Oppenheimer Fund will acquire at least 90% of the fair
market value of the net assets and at least 70% of the fair market value
of the gross assets held by JP Fund immediately prior to the
Reorganization. JP Fund and Oppenheimer Fund have each further
represented to Sutherland, Asbill & Brennan the fact that, as of the
Closing Date, JP Fund and Oppenheimer Fund will qualify as regulated
investment companies or will meet the diversification test of Section
368(a)(2)(F)(ii) of the Code. As of the Record Date, JPLIC owned _____
shares of JP Fund, representing ___% of the outstanding shares of JP Fund
as of such date. JPLIC has informed OFI and Oppenheimer Fund that it
intends to redeem all Class A Oppenheimer Fund shares received pursuant
to the Reorganization soon after the Reorganization.
As a condition to the closing of the Reorganization, Oppenheimer Fund and
JP Fund will receive the opinion of Sutherland, Asbill & Brennan to the
effect that, based on the Reorganization Agreement, information given by
JPC, the above representations and other representations as such firm
shall reasonably request, existing provisions of the Code, Treasury
Regulations issued thereunder, current Revenue Rulings, Revenue Procedures
and court decisions, for federal income tax purposes:
(a) The reorganization contemplated by the Reorganization Agreement
will constitute a "reorganization" within the meaning of Section
368(a)(1)(C) of the Code and JP Fund and Oppenheimer Fund will each
be a "party to the reorganization" within the meaning of Section
368(b) of the Code.
(b) No gain or loss will be recognized by Oppenheimer Fund upon the
receipt of the assets transferred to it by JP Fund in exchange for
Class A shares of Oppenheimer Fund and the assumption by Oppenheimer
Fund of certain identified liabilities of JP Fund. (Section 1032)
(c) No gain or loss will be recognized by JP Fund upon the transfer
of its assets to Oppenheimer Fund in exchange solely for Class A
shares of Oppenheimer Fund and the assumption by Oppenheimer Fund of
certain identified liabilities of JP Fund (if any) and the subsequent
distribution by JP Fund of such Class A shares to the shareholders
of JP Fund. (Section 361)
(d) No gain or loss will be recognized by JP Fund shareholders upon
the exchange of the JP Fund shares solely for the Class A shares of
Oppenheimer Fund. (Section 354)
(e) The basis of the Class A shares of Oppenheimer Fund to be
received by each JP Fund shareholder pursuant to the reorganization
will be the same as the adjusted basis of that shareholder's JP Fund
shares surrendered in exchange therefor. (Section 358)
(f) The holding period of Class A shares of Oppenheimer Fund to be
received by each JP Fund shareholder will include the shareholder's
holding period for the JP Fund shares surrendered in exchange
therefor, provided such JP Fund shares were held as capital assets
on the Closing Date. (Section 1223)
(g) Oppenheimer Fund's basis for the assets transferred to it by JP
Fund will be the same as JP Fund's tax basis for the assets
immediately prior to the reorganization. (Section 362(b))
(h) Oppenheimer Fund's holding period for the transferred assets will
include JP Fund's holding period therefor. (Section 1223)
(i) Oppenheimer Fund will succeed to and take into account the items
of JP Fund described in Section 381(c) of the Code, including the
earnings and profits, or deficit therein, of JP Fund as of the
Closing Date, subject to the conditions and limitations specified in
Sections 381, 382, 383 and 384 of the Code.
Shareholders of JP Fund should consult their tax advisers regarding the
effect, if any, of the Reorganization in light of their individual
circumstances. Since the foregoing discussion only relates to the federal
income tax consequences of the Reorganization, shareholders of JP Fund
should also consult their tax advisers as to state and local tax
consequences, if any, of the Reorganization.
Dissenters' Rights
Under the North Carolina Business Corporation Act (the "NCBCA"), the state
statute governing JP Fund, shareholders of a company acquired in a
reorganization who do not vote to approve the reorganization could have,
under certain circumstances, "appraisal rights" (where they may elect to
have the "fair value" of their shares as of the day prior to such
reorganization, determined in accordance with the NCBCA, judicially
appraised and paid to them). The Division of Investment Management of the
SEC has taken the position that Rule 22c-1 under the 1940 Act preempts
certain appraisal provisions in state statutes that conflict with the
Rule. Rule 22c-1 provides that no open-end investment company, such as
JP Fund, may redeem its shares other than at net asset value computed
after receipt of a tender of such security for redemption. Accordingly,
dissenters' rights of appraisal are amended for shareholders of JP Fund
with respect to the Reorganization insofar as shareholders may only
receive the "fair value" of their JP Fund shares or Oppenheimer Fund Class
A shares, as the case may be, as of the date that they tender such shares
for redemption.
Capitalization Table (Unaudited)
The table below sets forth the capitalization of Oppenheimer Fund and JP
Fund and indicates the pro forma combined capitalization as of June 30,
1996 as if the Reorganization had occurred on that date.
<TABLE>
<CAPTION> Net Asset
Shares Value
Oppenheimer Fund Net Assets Outstanding Per Share
<S> <C> <C> <C>
Class A Shares $185,953,610 17,713,731 $10.50
Class B Shares* 37,353,716 3,559,164 10.50
Class C Shares* 3,286,053 312,817 10.50
JP Fund $ 20,306,866 2,191,978 $ 9.26
Pro Forma Combined
Fund**
Class A Shares $206,260,476 19,647,718 $10.50
Class B Shares* 37,353,716 3,559,164 10.50
Class C Shares* 3,286,053 312,817 10.50
</TABLE>
- ------------------
* No Oppenheimer Fund Class B or Class C shares are being issued in the
Reorganization because JP Fund does not have Class B or Class C shares.
**Reflects issuance of 1,933,987 Class A shares of Oppenheimer Fund in a
tax-free exchange for the net assets of JP Fund, aggregating $20,306,866
for shares of JP Fund.
The pro forma ratio of expenses to average annual net assets of the
combined funds at June 30, 1996 would have been 1.28% with respect to
Class A shares.
COMPARISON BETWEEN OPPENHEIMER FUND AND JP FUND
Comparative information about Oppenheimer Fund and JP Fund is presented
below. More complete information about Oppenheimer Fund and JP Fund is
set forth in their respective Prospectuses (which, as to Oppenheimer Fund,
accompanies this Proxy Statement and Prospectus and is incorporated herein
by reference) and Statements of Additional Information. To obtain copies
of either Prospectus, see "Miscellaneous - Public Information."
Comparison of Investment Objectives, Policies and Restrictions
As its investment objective, Oppenheimer Fund seeks a high level of
current income by investing mainly in debt instruments. JP Fund's primary
investment objective is to seek the maximum level of current income as is
consistent with prudent risk. A secondary investment objective of JP Fund
is to seek growth of income and capital. In seeking their investment
objectives, which are fundamental policies, Oppenheimer Fund and JP Fund
employ the investment policies as described in detail below.
Oppenheimer Fund. Under normal market conditions, Oppenheimer Fund
invests at least 65% of its total assets in a diversified portfolio of
investment grade debt securities. These include: (i) debt securities
rated BBB or above by S&P, Baa or above by Moody's or an equivalent rating
category of another nationally-recognized rating organization or, if
unrated, which are of comparable quality as determined by OFI; (ii)
securities issued or guaranteed as to principal and interest by the U.S.
Government, its agencies or instrumentalities or obligations secured by
such securities ("U.S. Government Securities"); and (iii) high-quality,
short-term money market instruments.
Currently, Oppenheimer Fund may invest up to 35% of its total assets in
debt securities rated lower than investment grade or, if unrated, judged
by OFI to be of comparable quality to such lower-rated securities
(collectively, "lower-rated securities"). Lower-rated securities (often
called "junk bonds") are considered speculative and involve greater risk
than investment grade debt securities. Lower-rated securities include
securities rated BB, B, CCC, CC, C and D by S&P or Ba, B, Caa, Ca and C
by Moody's. Bonds rated BB, B, CCC and CC by S&P are regarded, on
balance, as predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal in accordance with the terms
of the obligation. Bonds on which no interest is paid are rated C by S&P.
Bonds rated D by S&P are in default and payment of interest and/or
repayment of principal is in arrears. Bonds rated Ba or B by Moody's are
judged to have speculative elements; their future is not well-assured.
Bonds rated Caa by Moody's are of poor standing and may be in default;
bonds rated Ca are speculative in a high degree and are often in default;
bonds rated C are regarded as having extremely poor prospects of attaining
any real investment standing.
OFI anticipates that Oppenheimer Fund will generally invest at least 75%
of its total assets in: (i) U.S. corporate bonds rated "A" or better and
(ii) U.S. government and agency bonds. OFI further anticipates that
Oppenheimer Fund will invest an additional 15% of its total assets in non-
investment grade domestic corporate bonds and 10% of total assets in non-
investment grade foreign bonds. These anticipated investment targets,
including the allocation between domestic and foreign lower-rated debt
securities, are not fundamental investment policies, and they are subject
to fluctuation and may be changed by OFI without further notice to
shareholders or amended prospectus disclosure. When investing Oppenheimer
Fund's assets, OFI considers many factors, including current developments
and trends in both the economy and the financial markets. Under normal
market conditions, Oppenheimer Fund's target duration will be
approximately five. Duration is a measure of the anticipated rise or
decline in value for a 1% change in interest rates. For example, a
duration of two in a portfolio indicates that for every 1% rise in general
interest rates, the portfolio's value would be expected to fall 2%, and
vice versa.
Oppenheimer Fund may invest in debt securities issued or guaranteed by
foreign companies and debt securities of foreign governments or their
agencies. However, if Oppenheimer Fund's assets are held abroad, the
countries in which they are held and the sub-custodians holding then must
be approved by the Trust's Board of Trustees when required to do so under
applicable regulations.
Oppenheimer Fund may also invest in U.S. Government Securities (including
mortgage-related U.S. Government Securities that are issued or guaranteed
by federal agencies or government-sponsored entities but are not supported
by the full faith and credit of the U.S. Government), mortgage-backed
securities, whether issued by the U.S. government or private issuers,
CMOs, stripped CMOs and asset-backed securities, all of which are
discussed above. See "Principal Risk Factors." In addition to the
foregoing, Oppenheimer Fund may invest in zero coupon securities, illiquid
securities and short-term debt instruments and may enter into short sales
against-the-box. With respect to the percentage of assets that may be
invested in particular industries or in the securities of one or more
issuers, Oppenheimer Fund is subject to certain concentration and
diversification requirements as set forth in "Investment Restrictions" (1)
and (4) below.
JP Fund. JP Fund proposes to achieve its investment objectives by
investing primarily in fixed income securities rated A or better by S&P
or Moody's. JP Fund will also purchase dividend paying common stocks.
Fixed income securities will include debt securities and preferred stocks,
some of which may have a call on common stock by means of conversion
privilege or attached warrants. When the incremental yield available on
corporate securities is small compared to that available on U.S. Treasury
securities, JP Fund may invest substantially in U.S. Treasury securities.
JP Fund may also hold cash or invest in short-term securities and may
purchase U.S. Government obligations with a simultaneous agreement by the
seller to repurchase the securities at the original price plus accrued
interest; provided that not more than 10% of JP Fund's net assets may be
invested in such repurchase agreements that mature in more than seven
days. Although JP Fund may invest to a limited extent in lower-grade
securities, its fixed-income investments that are rated are currently all
investment grade. JP may invest in other securities including foreign
securities (provided they are issued by Canadian companies) and mortgage-
backed securities. The percentage of assets invested in different types
of securities will vary from time to time depending upon the judgment of
JPM as to general market and economic conditions, fiscal and monetary
policy and trends in interest rates and yields. JP Fund's investments
(other than cash and U.S. Government securities) are diversified among the
securities issued by different companies and governments to the extent
that no more than 5% of its total assets may be invested in securities
issued by any one issuer. In addition, JPM generally selects investments
for JP Fund from among many different industries and may invest up to 25%
of JP Fund's assets in a single industry.
Special Investment Methods
Oppenheimer Fund and JP Fund may use certain special investment methods
as summarized below.
Loans. JP Fund is prohibited from making loans except to the extent of
investing in repurchase agreements or purchasing a portion of an issue of
a debt security distributed to the public. Oppenheimer Fund may not make
loans. It may, however, invest in debt obligations consistent with its
investment objective and policies and may enter into repurchase
agreements. Oppenheimer Fund may also lend its portfolio securities, but
has no present intention of doing so.
Repurchase Agreements and Illiquid Securities. Both Oppenheimer Fund and
JP Fund may enter into repurchase agreements. Repurchase agreements must
be fully collateralized. However, if the vendor fails to pay the resale
price on the delivery date, the funds may experience costs or delays in
disposing of the collateral and may experience losses to the extent that
the proceeds from the sale of the collateral is less than the repurchase
price.
There is no limit on the amount of either fund's net assets that may be
invested subject to repurchase agreements of seven days or less because
these investments are liquid and may be disposed of promptly. Neither
fund will purchase illiquid or restricted securities (which are subject
to legal or contractual restrictions on resale) that will cause more than
10% of its net assets to be invested in such securities. As to
Oppenheimer Fund, this percentage limit may increase to 15% with respect
to all illiquid or restricted securities if certain state laws are changed
or Oppenheimer Fund's shares are no longer sold in those states.
Repurchase agreements with maturities longer than seven days are
considered illiquid. JP Fund has no present intention of acquiring
restricted securities.
For Oppenheimer Fund, certain restricted securities, eligible for resale
to qualified institutional purchasers, are not subject to the foregoing
limitation. However, investing in such restricted securities could have
the effect of increasing the level of fund illiquidity to the extent that
qualified institutional buyers become, for a time, uninterested in
purchasing these securities.
Hedging. Oppenheimer Fund may purchase and sell: futures contracts that
relate to foreign currencies, financial indices and interest rates;
certain put and call options; and options on futures, broadly-based stock
indices, bond indices and foreign currency. Oppenheimer Fund may also
enter into interest rate swap agreements. These are all referred to as
"hedging instruments." Oppenheimer Fund does not use hedging instruments
for speculative purposes. Up to 50% of Oppenheimer Fund's total assets
may be subject to covered calls. Oppenheimer Fund will not write puts if
more than 50% of its net assets would have to be segregated to cover put
obligations. Oppenheimer Fund may only purchase a call or put if, after
such purchase, the value of all call and put options held by Oppenheimer
Fund would not exceed 5% of Oppenheimer Fund's total assets. Other limits
on the use of hedging instruments are described in Oppenheimer Fund's
Prospectus and the Oppenheimer Fund Additional Statement. JP Fund does
not invest in hedging instruments.
Hedging instruments may be used to manage Oppenheimer Fund's 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; to try to manage its
exposure to changing interest rates; to hedge the Fund's portfolio against
price fluctuations; and 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. Oppenheimer Fund's foreign
currency options are used to try to protect against declines in the
dollar value of foreign securities Oppenheimer Fund owns, or to protect
against an increase in the dollar cost of buying foreign securities.
Oppenheimer Fund may write covered call options to provide income for
liquidity purposes, defensive reasons, or to raise cash to distribute to
shareholders.
The use of hedging instruments requires special skills and knowledge of
investment techniques that are different than those required for normal
portfolio management. If Oppenheimer Fund uses a hedging instrument at
the wrong time or judges market conditions incorrectly, hedging strategies
may reduce the Fund's return. Oppenheimer 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 options, futures and forward
contracts are subject to special tax rules that may affect the amount,
timing and character of Oppenheimer Fund's distributions to its
shareholders. There are also special risks in particular hedging
strategies. If a covered call written by Oppenheimer Fund is exercised
on an investment that has increased in value, Oppenheimer Fund will be
required to sell the investment at the call price and will not be able to
realize any profit if the investment has increased in value above the call
price. Interest rate swaps are subject to credit risks (if the other
party fails to meet its obligations) and also to interest rate risks.
Oppenheimer Fund could be obligated to pay more under its swap agreements
than it receives under them, as a result of interest rate changes.
Derivative Investments. Oppenheimer Fund can invest in a number of
different kinds of "derivative investments." Some types of derivatives
are hedging instruments and may be used for hedging purposes, as described
above. Oppenheimer Fund may invest in others because they offer the
potential for increased income. In general, a "derivative investment" is
a specially-designed security or contract the performance of which is
linked to the performance of another investment or security, such as an
option contract, futures contract, index, currency or commodity. In the
broadest sense, derivative investments include the hedging instruments,
mortgage-backed and asset-backed securities and CMOs in which both of the
funds may invest. Other types of derivatives in which Oppenheimer Fund
may invest include index-linked or commodity-linked notes, debt
exchangeable for common stock, equity-linked debt securities and currency-
indexed securities. JP Fund does not have a policy with regard to
investments in such other types of derivatives investments such as hedging
instruments. Nonetheless, JP Fund has never invested in such derivative
investments and JPM has no intention of having JP Fund invest in such
investments.
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 investment 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 Oppenheimer Fund will realize less income than expected from its
investments, or that it can lose part or all of the value of its
investments, which will affect its share price.
When-Issued and Delayed Delivery Transactions. JP Fund and Oppenheimer
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 either fund if the value of the
security changes prior to the settlement date. Although JP Fund may
purchase securities on a "when-issued" basis and may purchase or sell such
securities on a "delayed delivery" basis, it has not done so to date and
JPM has no intention of having JP Fund do so in the foreseeable future.
Investment Restrictions
Both Oppenheimer Fund and JP Fund have certain investment restrictions
that, together with their respective investment objectives, are
fundamental policies changeable only by shareholder approval. The
investment restrictions of Oppenheimer Fund and JP Fund are set forth
below.
Oppenheimer Fund cannot: (1) make short sales except for sales "against
the box"; (2) borrow money or enter into reverse repurchase agreements,
except that Oppenheimer 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 Oppenheimer Fund's total assets
taken at current market value; Oppenheimer 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 Oppenheimer 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 (for
utilities, gas, electric, water and telephone each will be considered as
a separate industry); (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 Oppenheimer Fund's total assets would be invested in the
securities of that issuer, or (b) Oppenheimer Fund would own more than 10%
of that issuer's voting securities; (5) act as an underwriter, except to
the extent that, in connection with the disposition of portfolio
securities, Oppenheimer Fund may be deemed an underwriter under applicable
laws; (6) 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 Oppenheimer 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); (7) make loans other than by investing in obligations in which
Oppenheimer Fund may invest consistent with its investment objective and
policies and other than repurchase agreements and loans of portfolio
securities; (8) 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
Oppenheimer 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; (9) 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 (10) make loans to an officer, trustee or employee of the
Trust or to any officer, director or employee of MassMutual, or to
MassMutual.
In accordance with certain non-fundamental policies and guidelines
changeable without shareholder approval, Oppenheimer Fund may not:
(a)invest for the purpose of exercising control over, or management of,
any company; (b) 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 Oppenheimer Fund's assets to be invested in such
companies; and (c) 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 a part of a plan of
merger, consolidation, reorganization or acquisition.
JP Fund cannot: (1) issue senior securities; (2) purchase securities on
margin or sell short, except it may obtain such short-term credits as are
necessary for the clearance of transactions; (3) write, purchase or sell
puts, calls or combinations thereof; (4) borrow money except that, as a
temporary measure for extraordinary or emergency purposes and not for
investment purposes, JP Fund may borrow up to 5% of the value of its total
assets; (5) act as an underwriter of securities of other issuers, except
JP Fund may invest up to 10% of the value of its net assets (at time of
investment) in portfolio securities which JP Fund might not be free to
sell to the public without registration of such securities under the
Securities Act of 1933; (6) purchase or sell real estate or interests in
real estate, nor interests in real estate investment trusts or real estate
limited partnerships (however, JP Fund may purchase interests in real
estate investment trusts whose securities are registered under the
Securities Act of 1933 and are readily marketable); (7) engage in the
purchase and sale of commodities or commodity contracts; (8) make loans,
except to the extent that either of the following is deemed to constitute
a loan: (a) purchase of a portion of an issue of a debt security
distributed to the public; or (b) investment in "repurchase agreements";
(9) purchase the securities (except U.S. Government securities) of any one
issuer if immediately after and as a result of such purchase (a) the value
of the holdings of JP Fund in the securities of such issuer exceeds 5% of
the value of JP Fund's total assets, or (b) JP Fund owns more than 10% of
the outstanding voting securities of any one class of securities of such
issuer; (10) purchase the securities of open-end investment companies
(except JP Fund may purchase the securities of other investment companies
provided that (a) immediately after such purchase JP Fund and companies
controlled by JP Fund, or other investment companies having the same
investment adviser as JP Fund, do not own more than 10% of the investment
company whose securities are being purchased; (b) JP Fund cannot invest
more than 10% of its total assets in the securities of other investment
companies; and (c) such purchases are made in the open market where no
commission or profit to a sponsor or dealer results other than the
customary broker's commission; notwithstanding the foregoing, restrictions
10(a), 10(b) and 10(c) do not apply in connection with a merger,
consolidation, or plan of reorganization; (11) mortgage, pledge,
hypothecate, or in any manner transfer, as security of indebtedness, any
securities owned or held by JP Fund; (12) participate on a joint or joint
and several basis in any trading account in securities or effect a short
sale of any security, except in connection with an underwriting in which
it is a participant in the circumstances specified in "5" above; and (13)
purchase or retain the securities of any issuer if those officers and
directors of JP Fund, its adviser or underwriter owning individually more
than 0.5% of the securities of such issuer together own more than 5% of
the securities of such issuer. As non-fundamental policies changeable
without shareholder approval, JP Fund cannot: (a) invest in companies for
the purpose of exercising control or management; (b) invest in foreign
securities other than securities issued by Canadian companies; and (c)
invest in interests of oil, gas or other mineral exploration or
development programs (including oil, gas or mineral leases).
Oppenheimer Fund Performance
Oppenheimer Fund does not maintain a fixed dividend rate and there can be
no assurance as to the payment of any dividends or the realization of any
capital gains.
During Oppenheimer Fund's fiscal year ended December 31, 1995, declines
in interest rates lead to a strong rally in Treasury securities, which
contributed to positive overall performance. In the third and fourth
quarters of 1995, Oppenheimer Fund reduced its allocation to Treasury
securities, in order to realize profits and to emphasize investments in
different categories of U.S. Government and corporate bonds. During that
period, Oppenheimer Fund added to its holdings in the corporate bond
sector, favoring companies in industries expected to experience earnings
growth, such as cable, communications, broadcasting and media firms.
Oppenheimer Fund also allocated assets to non-agency mortgage-backed
securities, which have a higher degree of issuer default and therefore pay
higher yields than Government agency mortgage obligations. Issues of
utilities and cyclical industries such as mining and metals companies were
underweighted in Oppenheimer Fund's portfolio. Oppenheimer Fund's
investment performance will vary over time depending on market conditions,
the composition of the portfolio, expenses and which class of shares an
investor owns. Past performance should not be considered a prediction of
future performance. Prior to July 10, 1995, Oppenheimer Fund's
investments were limited to investment grade bonds, U.S. Government
Securities and money market instruments. Such investment policies were
changed pursuant to shareholder approval on July 10, 1995.
Included in the prospectus for Oppenheimer Fund, a copy of which
accompanies this Proxy Statement and Prospectus and is incorporated herein
by reference, in the section entitled "Performance of Oppenheimer Fund"
is a performance graph which depicts the performance of a hypothetical
investment of $10,000 in Class A, Class B and Class C shares of
Oppenheimer Fund held until December 31, 1995; in the case of Class A
shares, since April 15, 1988; in the case of Class B shares, from the
inception of the class on May 1, 1993 and in the case of Class C Shares,
from inception of the class on July 11, 1995 with all dividends and
capital gains distributions reinvested on the reinvestment date. The
average annual total return of shares of Oppenheimer Fund are compared
with the performance of 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. The Lehman Brothers Corporate Bond
Index includes a factor for the reinvestment of interest, but does not
consider the effect of expenses, capital gains or transaction costs, and
none of the data shows the effect of taxes.
Information on JP Fund performance is set forth in JP Fund's current
Prospectus and in its Annual Report as of December 31, 1995, which may be
obtained without charge as set forth in "Miscellaneous - Public
Information." Such information is incorporated herein by reference.
Additional Comparative Information
General. For a discussion of the organization and operation of
Oppenheimer Fund, including brokerage practices, see "Investment Objective
and Policies" and "How the Fund is Managed" in Oppenheimer Fund's current
Prospectus and "Brokerage Policies of the Fund" in the Oppenheimer Fund
Additional Statement. For a discussion of the organization and operation
of JP Fund, including brokerage practices, see "Investment Objectives and
Policies," "Portfolio Managers" and "Who Manages The Funds" in JP Fund's
current Prospectus and "Brokerage" in the JP Fund Additional Statement.
Financial Information. For certain financial information about
Oppenheimer Fund and JP Fund, see as to Oppenheimer Fund "Financial
Highlights" and "Performance of the Fund" in Oppenheimer Fund's current
Prospectus and as to JP Fund "Condensed Financial Information" and
"Performance" in JP Fund's current Prospectus.
Management of Oppenheimer Fund and JP Fund. For information about the
management of Oppenheimer Fund and JP Fund, including their respective
Boards of Trustees or Directors, investment adviser, portfolio managers
and distributor, see, as to Oppenheimer Fund, "Expenses" and "How the Fund
is Managed" in the Oppenheimer Fund current Prospectus and "How the Fund
is Managed," "Trustees and Officers of the Fund" and "The Manager and Its
Affiliates" in the Oppenheimer Fund Additional Statement, and, as to JP
Fund, "Portfolio Managers" and "Who Manages the Funds" in JP Fund's
current Prospectus and "The Investment Adviser," "The Fund's Distributor"
and "The Fund's Directors and Officers" in the JP Fund Additional
Statement.
Description of Shares of Oppenheimer Fund and JP Fund. Oppenheimer Fund
is a series of the Trust, Oppenheimer Integrity Funds, a Massachusetts
business trust. Oppenheimer Fund and its shareholders are governed
principally by its Declaration of Trust, its ByLaws and other governing
documents. Each share of Oppenheimer Fund represents an interest in
Oppenheimer Fund proportionately equal to the interest of each other share
of the same class and entitles the holder to one vote per share (and a
fractional vote for a fractional share) on matters submitted to a vote at
shareholder meetings. Shares of Oppenheimer Fund and of the Trust's other
series vote together in the aggregate on certain matters at shareholder
meetings, such as the election of Trustees and ratification of appointment
of auditors. 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. Shareholders of the Trust have the right, under
certain circumstances, to remove a Trustee and will be assisted in
communicating with other shareholders for such purpose.
Oppenheimer Fund is authorized to issue an unlimited number of shares of
beneficial interest. Shares are freely transferable and shares do not
have cumulative voting rights or preemptive or subscription rights.
Oppenheimer Fund is governed by a Board of Trustees that has the power,
without shareholder approval, to establish and designate one or more
series and to divide unissued shares into two or more classes. The Board
of Trustees has established three classes of shares for Oppenheimer Fund,
Class A, Class B and Class C. Each class invests in the same investment
portfolio. Each class has its own dividends and distributions, and pays
certain expenses which may be different for the different classes. Under
certain circumstances, a shareholder of Oppenheimer Fund may be held
personally liable as a partner for the obligations of Oppenheimer Fund,
and under the Trust's Declaration of Trust, such a shareholder is entitled
to indemnification rights by Oppenheimer Fund; the risk of a shareholder
incurring any such loss is limited to the remote circumstances in which
Oppenheimer Fund is unable to meet its obligations. For further
information about the shares of Oppenheimer Fund, see "How the Fund is
Managed" in the Oppenheimer Fund current Prospectus and Oppenheimer Fund
Additional Statement.
JP Fund is a North Carolina corporation with 100,000,000 shares of common
stock, par value $1.00 per share, authorized, which shares are divided
initially into two classes, consisting of 50,000,000 shares of Class A and
50,000,000 shares of Class B. JP Fund and its shareholders are governed
by its Articles of Incorporation and ByLaws, and by the NCBCA. The shares
of common stock issued and outstanding on the date Class B shares are
first issued will be reclassified as Class A; no Class B shares have been
issued as of the date hereof. Each share entitles the holder to
participate equally in dividends and distributions declared by JP Fund and
in its remaining net assets on liquidation after satisfaction of
outstanding liabilities. JP Fund shares are fully paid and nonassessable
when issued; have no preemptive or conversion rights; are transferable
without restriction; and are redeemable at net asset value. On matters
submitted for a shareholder vote, each shareholder is entitled to one vote
for each share owned. Fractional shares have proportionately the same
rights as do full shares.
Oppenheimer Fund is not required to hold, and does not plan to hold,
regular annual meetings of shareholders. In contrast, JP Fund is required
to hold an annual meeting of shareholders each year or in lieu thereof,
a special meeting of shareholders.
Dividends, Distributions and Taxes. Oppenheimer Fund declares dividends
from net investment income on each regular business day, distributes
dividends monthly and distributes net long-term and short-term capital
gains annually. JP Fund's policy is to pay dividends from net investment
income quarterly in February, May, August, and November. Each December
each fund makes a distribution of the capital gains, if any, realized
during the 12-month period ended the preceding October 31. For a
discussion of the policies of Oppenheimer Fund and JP Fund with respect
to dividends and distributions, and a discussion of the tax consequences
of an investment in Oppenheimer Fund and JP Fund, see as to Oppenheimer
Fund "Dividends, Capital Gains and Taxes" in the Oppenheimer Fund current
Prospectus and as to JP Fund "Dividends, Distribution and Taxes" in the
JP Fund current Prospectus.
Purchases, Redemptions and Exchanges of Shares. Information on purchases,
exchanges, and redemptions of shares of Oppenheimer Fund and JP Fund is
provided under "Synopsis -- Purchases, Exchanges and Redemptions" in this
Proxy Statement and Prospectus. For an additional discussion of how shares
of Oppenheimer Fund and JP Fund may be purchased, redeemed and exchanged,
see, as to Oppenheimer Fund, "How to Buy Shares," "How to Sell Shares,"
"Exchanges of Shares," "Special Investor Services," "Service Plan for
Class A Shares," and "Distribution and Service Plans for Class B and Class
C Shares" in Oppenheimer Fund's current Prospectus and the Oppenheimer
Fund Additional Statement and the Oppenheimer Fund Additional Statement
and, as to JP Fund, "How to Purchase Shares," "Shareholder Services" and
"How to Redeem Shares" in JP Fund's current Prospectus.
Shareholder Inquiries. For a description of how shareholder inquiries
should be made, see, as to Oppenheimer Fund, "How the Fund is Managed" in
the Oppenheimer Fund current Prospectus and, as to JP Fund, "Additional
Information" in the JP Fund current Prospectus.
The Board of Directors recommends that shareholders approve the
Reorganization Agreement.
ELECTION OF DIRECTORS
(Proposal 2)
The Board of Directors of JP Fund recommends that shareholders elect the
following nominees to serve as the 5 directors of the full Board of
directors of JP Fund: John C. Ingram, J. Lee Lloyd, Richard W. McEnally,
William E. Moran and E.J. Yelton. Each of the nominees is presently a
director of JP Fund and has been previously elected by shareholders of JP
Fund. If elected, the directors will serve until the earlier of the
consummation of the dissolution of JP Fund or the next shareholder meeting
called for the purpose of electing directors, or until the election and
qualification of their successors. If the enclosed Proxy is duly executed
and received in time for the Meeting, and if no contrary specification is
made as provided therein, it will be voted in favor of the election as
directors of the foregoing nominees. If any nominee should be unwilling
or unable to serve, which is not now anticipated, the Proxy may be voted
with discretionary authority for a substitute or substitutes as shall be
designated by the Board of Directors. Certain information concerning the
directors and executive officers of JP Fund is set forth below.
Information Concerning the Board
JP Fund's current Board of Directors consists of 5 directors, all of whom
are elected at annual meetings. The Board of Directors does not have a
standing audit, nominating or compensation committee. The following list
of JP Fund's directors and executive officers, all of whom are also
directors and/or officers of Jefferson-Pilot Capital Appreciation Fund,
Inc., JP Investment Grade Bond Fund, Inc., and JP Capital Appreciation
Fund, Inc. (collectively with JP Fund, the "Jefferson-Pilot Funds"),
includes information as to their principal occupations during the past
five years and their principal affiliations.
<TABLE>
<CAPTION>
Name and Other Position/Office Principal Occupation(s) Officer or
Information with JP Fund During the Past 5 Years Director Since
<S> <C> <C> <C>
John C. Ingram* Director Senior Vice President, 1989
3802 Woodcote Dr. JPLIC since November 1988.
Greensboro, N.C.
Age-52
J. Lee Lloyd Director Managing Director, Lloyd & Company1994
16 Irving Park Lane since April 1991.
Greensboro, NC 27455
Age-36
Richard W. McEnally Director Professor of Investment Banking,1984
401 Brookside Drive University of North Carolina at
Chapel Hill, NC at Chapel Hill.
Age-54
William E. Moran Director Senior Vice President, Connors1983
5206 Barnfield Road Investor Service, Inc.
Greensboro, NC since January 1995; prior thereto, Chancellor
Age-64 University of North Carolina at
Greensboro.
W. Hardee Mills, Jr.Vice President Vice President of JPLIC 1987
5 St. Francis Court since February 1994; prior
Greensboro, NC 27408 thereto, Second Vice President,
Age-46 JPLIC.
J. Gregory Poole Secretary Assistant Secretary of JPC and1994
1805 Gate Post Drive Associate Counsel and Assistant
Greensboro, NC 27455 Secretary of JPLIC since February
Age-32 1994; prior thereto, various
positions at JPC and JPLIC.
E.J. Yelton* Director, Senior Vice President - Investments1994
3204 St. Regis Road President, of JPC and Executive Vice President
Greensboro, NC 27408Treasurer - Investments of JPLIC since October
Age-57 1993; prior thereto, President and
CEO, ING North America
Investment Centre/Member of
ING Group (investment banking firm).
</TABLE>
* Messrs. Ingram and Yelton are directors that are "interested persons"
(as that term is defined in the 1940 Act) of JP Fund due to the following
positions with JPM and JPC: Mr. Ingram -Senior Vice President, Treasurer
and Director of JPM, and Mr. Yelton - President and Director, JPM and
Senior Vice President - Investments, JPC.
The nominees for directors are beneficial owners of the following
shares in JPC, the parent of JP Fund's investment adviser: Yelton, _____;
Ingram, ______; Moran, ____; Lloyd, ____; and McEnally, ____. During the
period January 1, 1995 to December 31, 1995, the Directors of JP Fund
purchased and/or sold shares of JPM, JPC and subsidiaries of JPC as
follows: (identify only if securities purchased/sold exceed 1% of
outstanding shares of entity)
Officers of JP Fund
The following officers of JP Fund also serve as officers and/or directors
of JPM and JPIS: E.J. Yelton, President and Treasurer of JP Fund, is
President and a Director of JPM and a Director of JPIS; W. Hardee Mills,
Jr., Vice President of JP Fund, is Vice President of JPM and J. Gregory
Poole, Secretary of JP Fund, is Secretary of JPIS and JPM. Messrs.
Yelton, Poole and Mills hold positions with the other Jefferson-Pilot
Funds similar to the positions held with JP Fund. The other Jefferson-
Pilot Funds have the same investment adviser as JP Fund.
The following table provides information regarding the compensation each
nominee for director was paid by JP Fund and the other Jefferson-Pilot
Funds for the year ended December 31, 1995.
<TABLE>
<CAPTION>
COMPENSATION TABLE
(1) (2) (3) (4) (5)
Name of Aggregate Pension or RetirementEstimated AnnualTotal Compensation
Person, CompensationBenefits Accrued asBenefits upon From
Position from JP FundPart of JP Fund ExpensesRetirement______Jefferson-Pilot Funds in Complex
<S> <C> <C> <C> <C>
John C. Ingram $0 $0 $0 $0
Director
J. Lee Lloyd 1,220 0 0 4,880
Director
Richard W. McEnally 1,220 0 0 4,880
Director
William E. Moran 1,220 0 0 4,880
Director
E.J. Yelton 0 0 0 0
Director,
President,
Treasurer
</TABLE>
Other Information
The Board of Directors met five items during the fiscal year ended
December 31, 1995 and all of the Directors were present for at least 75%
of those meetings. During the year ended December 31, 1995, directors who
are not employed by JP Fund or its affiliates received a $100 director's
fee for each meeting attended, amounting to an aggregate of $500. In
addition, each of the Independent Directors receives a fee of $720 per
year payable in equal monthly installments.
As of the Record Date, JP Fund's directors and officers owned JP Fund
shares in the amounts indicated: John C. Ingram,______ shares; J. Lee
Lloyd, None; Richard W. McEnally, _____ shares; William E. Moran,
______shares; E.J. Yelton, ______shares; W. Hardee Mills, Jr., None; J.
Gregory Poole, _______shares; and all directors and officers as a
group,_____shares.
The percentage of shares beneficially owned by each such individual, and
all directors and officers as a group, did not exceed 1% of JP Fund's
outstanding shares.
JP Fund's investment adviser and accounting agent is JPM, P.O. Box 21008,
Greensboro, North Carolina 27420, a North Carolina corporation organized
on January 13, 1970. JPM is a wholly-owned subsidiary of JPC, an
insurance holding company. JPM serves the other Jefferson-Pilot Funds in
these capacities as well. JPIS, a North Carolina corporation, with
offices at the same location as JPM, serves as JP Fund's distributor.
Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City, MO
64105-1716 (phone: 1-800-292-6701), serves as JP Fund's transfer agent and
dividend paying agent.
RATIFICATION OR REJECTION OF SELECTION OF INDEPENDENT AUDITORS
(Proposal 3)
The Board of Directors of JP Fund recommends that the shareholders ratify
the selection of McGladrey & Pullen LLP ("McGladrey & Pullen"), Certified
Public Accountants, to continue to serve as the independent auditors of
JP Fund for the fiscal ending December 31, 1996. That firm or its
predecessor has served as JP Fund's independent auditors from the time of
JP Fund's incorporation on January 24, 1978. JP Fund has been advised by
McGladrey & Pullen that neither the said firm nor any of its members have
a direct or indirect financial interest in JP Fund. McGladrey & Pullen
also serves as independent auditors for JPM.
INFORMATION CONCERNING THE MEETING
The Meeting
The Meeting will be held at the Jefferson-Pilot Building (4th Floor, Room
B-2), 100 North Greene Street, Greensboro, North Carolina 27420 at 10:00
A.M., local time, on December 3, 1996. At the Meeting, JP Fund
shareholders will be asked to consider and vote upon approval or
disapproval of the Reorganization Agreement, and the transactions
contemplated thereby, including the transfer of substantially all the
assets of JP Fund to Oppenheimer Fund in exchange for Class A shares of
Oppenheimer Fund, the distribution by JP Fund of such shares to its
shareholders in liquidation of JP Fund and the cancellation of the
outstanding shares of JP Fund. At the Meeting, shareholders of JP Fund
will also be asked to elect five directors and ratify or reject the
selection of independent accountants.
Record Date; Vote Required; Share Information
The Board has fixed the close of business on October 10, 1996 as the
Record Date for the determination of shareholders entitled to notice of,
and to vote at, the Meeting. The affirmative vote of a majority of the
JP Fund shares entitled to vote at the Meeting is required for approval
of Proposal 1. The affirmative vote of a majority of JP Fund shares voted
(in person or by proxy) at the Meeting, if a quorum is present at the
Meeting, is required to approve Proposal 3. A plurality of all the votes
cast at the Meeting, if a quorum is present at the Meeting, is sufficient
to elect the nominees for director (Proposal 2). Each shareholder will
be entitled to one vote for each share and a fractional vote for each
fractional share held of record at the close of business on the Record
Date. Only JP Fund shareholders will vote on the Reorganization and the
other Proposals. The vote of shareholders of Oppenheimer Fund is not
being solicited.
At the close of business on the Record Date, there were approximately
_________ shares of JP Fund issued and outstanding. The presence in
person or by proxy of the holders of one-third of JP Fund's shares
constitutes a quorum for the transaction of business at the Meeting. To
the knowledge of JP Fund, as of the Record Date, no person owned of record
or beneficially 5% or more of the outstanding JP Fund shares except for
the following JP Fund shareholders (the numbers shown parenthetically are
the approximate percentage of the outstanding shares of JP Fund): (to be
supplied) As indicated above, JPLIC owned ____% of the issued and
outstanding JP Fund shares as of the Record Date. By virtue of owning
more than 25% of JP Fund shares, JPLIC could be deemed to "control" JP
Fund. JPLIC has informed JP Fund that it intends to vote all of these
shares in favor of each Proposal and for each nominee as Director. JPLIC,
a North Carolina corporation, is a wholly-owned subsidiary of JPC.
As of the close of business on the Record Date, there were approximately
__________ Class A, _________ Class B and _______ Class C shares of
Oppenheimer Fund issued and outstanding. To the knowledge of Oppenheimer
Fund, as of the Record Date, no person owned of record or beneficially 5%
or more of the outstanding shares of the Trust, or 5% or more of the
outstanding Class A, Class B or Class C Oppenheimer Fund shares except as
follows (the numbers shown parenthetically are the approximate percentage
of the outstanding Oppenheimer Fund shares of that class): ((i) MassMutual
and affiliates, 1295 State Street, Springfield, MA 01111, which held
825,144.176 shares (5.5%); (ii) RPSS TR IRA FBO Shirley Einhorn, 10662
S.W. 79th Terrace, Miami, FL 33173, 24,670.768 Class C shares (9.28%),
(iii) Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake Drive East,
Jacksonville, FL 32246, 17,145 Class C shares (6.45%); (iv) Oppenheimer
& Co., Inc., P.O. Box 3484, New York, NY 10008, 16,554.132 Class C shares
(6.2%); (v) Merchants & Farmers Bank 401(k) Plan, Millport, AL 35576,
15,711.805 Class C shares (5.9%); and (vi) David B. Landers PC PSP, 3364
East Slauson Avenue, Vernon, CA 90058, 13,534.984 Class C shares (5.09%).)
As of the Record Date, the officers and Trustees of the Trust,
beneficially owned as a group less than 1% of the outstanding shares of
each class of Oppenheimer Fund.
In the event a quorum does not exist on the date originally scheduled for
the Meeting, or, subject to approval of the Board, for other reasons, one
or more adjournments of the Meeting may be sought by the Board. Any
adjournment would require a vote in favor of the adjournment by the
holders of a majority of the shares cast at the Meeting (or any
adjournment thereof) in person or by proxy. The persons named as proxies
will vote all shares represented by proxies which they are required to
vote in favor of any Proposal, in favor of an adjournment, and will vote
all shares which they are required to vote against any Proposal, against
an adjournment. In the event that a quorum is present at the Meeting but
the shareholders do not approve the Reorganization, the Reorganization
will be deemed to have not been approved and the Board will consider what
further action, if any, to take.
If a Proxy that is properly executed and returned accompanied by
instructions to withhold authority to vote represents a broker "non-vote"
(that is, a Proxy from a broker or nominee indicating that such person has
not received instructions from the beneficial owner or other person
entitled to vote shares on a particular matter with respect to which the
broker or nominee does not have discretionary power), the shares
represented thereby will be considered to be present at the Meeting for
purposes of determining the existence of a quorum for the transaction of
business and be deemed not cast with respect to such proposal. A properly
executed and returned Proxy marked with an abstention will be considered
present at the Meeting for proposes of determining the existence of a
quorum for the transaction of business. However, abstentions and broker
"non-votes" do not constitute a vote "for" or "against" the matter.
Nevertheless, as to Proposal 1, abstentions and broker non-votes have the
same effect as a vote against the matter and as to Proposal 3, they have
the effect of reducing the number of votes necessary to approve a matter.
Proxies
The enclosed form of proxy, if properly executed and returned, will be
voted (or counted as an abstention or withheld from voting) in accordance
with the choices specified thereon, and will be included in determining
whether there is quorum to conduct the Meeting. If a shareholder executes
and returns a proxy but fails to indicate how the votes should be cast,
the proxy will be voted in favor of the Proposals, and for the election
of each nominee as Director. The proxy is revocable (a) upon receipt by
JP Fund of written notice of revocation at any time before the proxy is
exercised, (b) upon return to the shareholder, at his or her request, of
the proxy or (c) submission of a revised proxy.
Costs of the Solicitation and the Reorganization
All expenses of this solicitation, including the cost of printing and
mailing this Proxy Statement and Prospectus, will be borne by OFI and JPM.
Similarly, any costs associated with documents included in that mailing,
such as existing prospectuses or annual reports, will be borne by OFI and
JPM. In addition to the solicitation of proxies by mail, proxies may be
solicited by officers and employees of JPM or JPM affiliates, personally
or by telephone or telecopy. JPM may retain a proxy solicitor to assist
in the solicitation of proxies primarily by contacting shareholders by
telephone and telecopy for a fee that may approximate $10,000, plus
reasonable out-of-pocket expenses. The cost of such proxy solicitor will
be borne by JPM.
Brokerage houses, banks and other fiduciaries may be requested to forward
soliciting material to the beneficial owners of shares of JP Fund and to
obtain authorization for the execution of proxies. For those services,
if any, they will be reimbursed by JPIS for their reasonable out-of-pocket
expenses.
In addition to the proxy solicitation expenses (as described above), OFI
and JPM will bear the cost of the tax opinion, as well as any other
expenses associated with the Reorganization, including legal and
accounting expenses.
MISCELLANEOUS
Financial Information
The Reorganization will be accounted for by Oppenheimer Fund in its
financial statements similar to a pooling without restatement. Further
financial information as to JP Fund is contained in JP Fund's current
Prospectus, which is available without charge upon written request to JPIS
at P.O. Box 22086, Greensboro, North Carolina 27420, and in its audited
financial statements as of December 31, 1995, which are included in the
JP Fund Additional Statement. Financial information for Oppenheimer Fund
is contained in its current Prospectus accompanying this Proxy Statement
and Prospectus and incorporated herein, and in its audited financial
statements as of December 31, 1995, which are included in the Oppenheimer
Fund Additional Statement.
Public Information
Additional information about Oppenheimer Fund and JP Fund is available,
as applicable, in the following documents: (1) Oppenheimer Fund's
Prospectus dated April 1, 1996, supplemented April 1, 1996, accompanying
this Proxy Statement and Prospectus and incorporated by reference herein,
(2) JP Fund's Prospectus dated May 1, 1996, which may be obtained without
charge by writing to JPIS at the address indicated above; (3) Oppenheimer
Fund's Annual Report as of December 31, 1995 and Semi-Annual Report as of
June 30, 1996, which may be obtained without charge by writing to OFS at
the address on the cover of this Proxy Statement and Prospectus; and (4)
JP Fund's Annual Report as of December 31, 1995 and Semi-Annual Report as
of June 30, 1996, which may be obtained without charge by writing to JPIS
at the address indicated above. All of the foregoing documents may be
obtained by calling the toll-free number for Oppenheimer Fund and JP Fund,
as applicable, on the cover of this Proxy Statement and Prospectus.
Additional information about the following matters is contained in the
Reorganization Additional Statement, which is incorporated herein by
reference and includes Oppenheimer Fund's Additional Statement, JP Fund's
Prospectus dated May 1, 1996, the JP Fund Additional Statement and the
Annual Reports and Semi-Annual Reports described in the preceding
paragraph: the organization and operation of Oppenheimer Fund and JP Fund;
more information on investment policies, practices and risks; information
about the Board of Trustees of the Trust and the Board of Directors of JP
Fund, and their responsibilities; a further description of the services
provided by Oppenheimer Fund's and JP Fund's respective investment
adviser, distributor, and transfer and shareholder servicing agent;
dividend policies; tax matters; an explanation of the method of
determining the offering price of the shares of Oppenheimer Fund and JP
Fund; purchase, redemption and exchange programs; and distribution
arrangements. The Reorganization Additional Statement may be obtained by
calling 1-800-525-7048 (a toll free number).
Oppenheimer Fund and JP Fund are subject to the informational requirements
of the Securities Exchange Act of 1934, as amended, and in accordance
therewith, file reports and other information with the SEC. Proxy
material, reports and other information about Oppenheimer Fund and JP Fund
which are of public record can be inspected and copied at public reference
facilities maintained by the SEC in Washington, D.C. and certain of its
regional offices, and copies of such materials can be obtained at
prescribed rates from the Public Reference Branch, Office of Consumer
Affairs and Information Services, SEC, Washington, D.C. 20549.
SHAREHOLDER PROPOSALS
Any shareholder who wishes to present a proposal for action at the next
annual meeting of shareholders of JP Fund (if one is held) and who wishes
to have it set forth in a proxy statement and identified in the form of
proxy prepared by JP Fund must notify JP Fund in such a manner so that
such notice is received by JP Fund by ___________, and in such form as is
required under the rules and regulations promulgated by the SEC.
OTHER BUSINESS
Management of JP Fund knows of no business other than the matters
specified above which will be presented at the Meeting. Since matters not
known at the time of the solicitation may come before the Meeting, the
proxy as solicited confers discretionary authority with respect to such
matters as properly come before the Meeting, and it is the intention of
the persons named as attorneys-in-fact in the proxy to vote this proxy in
accordance with their judgment on such matters if no voting instructions
are provided.
By Order of the Board of Directors
J. Gregory Poole, Secretary
October __, 1996
<PAGE>
EXHIBIT A
FORM OF
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") dated as of
________________, 1996 by and between Jefferson-Pilot Investment Grade
Bond Fund, Inc. ("JP Fund"), a North Carolina corporation, Oppenheimer
Integrity Funds (the "Oppenheimer Trust"), a Massachusetts business trust,
on behalf of its series Oppenheimer Bond Fund ("Oppenheimer Fund"), and
(solely for purposes of Section 21 of this Agreement) Jefferson-Pilot
Corporation ("JPC"), a North Carolina corporation, and OppenheimerFunds,
Inc. ("OFI"), a Colorado corporation.
W I T N E S S E T H:
WHEREAS, JP Fund and Oppenheimer Fund are each open-end investment
companies of the management type; and
WHEREAS, JP Fund and Oppenheimer Fund desire to provide for the
reorganization pursuant to Section 368(a)(1) of the Internal Revenue Code
of 1986, as amended (the "Code"), of JP Fund through the acquisition by
Oppenheimer Fund of substantially all of the assets of JP Fund in exchange
solely for voting shares of beneficial interest ("shares") of Class A of
Oppenheimer Fund and the assumption by Oppenheimer Fund of certain
liabilities of JP Fund, which Class A shares of Oppenheimer Fund are
thereafter to be distributed by JP Fund pro rata to its shareholders in
complete liquidation of JP Fund and complete cancellation of its shares;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties hereto agree as follows:
1. JP Fund and Oppenheimer Fund hereby adopt this Agreement and
Plan of Reorganization (the "Agreement") pursuant to Section 368(a)(1) of
the Code as follows: The reorganization will be comprised of the
acquisition by Oppenheimer Fund of substantially all of the assets of JP
Fund in exchange for the issuance of Class A shares of Oppenheimer Fund
to JP Fund and the assumption by Oppenheimer Fund of certain liabilities
of JP Fund, followed by the distribution by JP Fund of such Class A shares
of Oppenheimer Fund to the shareholders of JP Fund in exchange for their
shares of JP Fund, all upon and subject to the terms hereinafter set
forth.
2. On the Closing Date (as hereinafter defined) (i) JP Fund shall
transfer and deliver (or cause to be so transferred and delivered) to
Oppenheimer Fund, free and clear of all liens, encumbrances, restrictions
and claims (other than Assumed Liabilities (as hereinafter defined)), the
assets of JP Fund including but not limited to portfolio securities, cash
(excluding the Cash Reserve as defined below), cash equivalents and
receivables as the same shall exist on that date (the "Assets") and (ii)
Oppenheimer Fund shall deliver to JP Fund (in accordance with Section 5
hereof) in exchange therefor, the Class A shares of Oppenheimer Fund to
be issued hereunder. The Assets shall exclude a cash reserve (the "Cash
Reserve") which shall be retained by JP Fund for the payment by it in
respect of the Liabilities (as hereinafter defined) of JP Fund, if any,
and which Cash Reserve shall not exceed the amount contemplated by Section
10E. The aggregate number of Class A shares of Oppenheimer Fund to be
delivered by Oppenheimer Fund at the Closing (as hereinafter defined)
shall be such number as shall have, as of the Valuation Date, an aggregate
net asset value equal to the value of the Assets so transferred and
delivered. Such Oppenheimer Fund Class A shares shall be issued without
the imposition of any sales charge or load and holders of such Class A
shares shall be entitled to all exchange privileges afforded to holders
of other Class A shares of Oppenheimer Fund pursuant to the terms set
forth in its current Prospectus and Statement of Additional Information.
Oppenheimer Fund agrees that, if the reorganization becomes effective,
Oppenheimer Fund will treat each shareholder of JP Fund who received any
of Oppenheimer Fund's shares as a result of the reorganization as having
made the minimum initial purchase of shares of Oppenheimer Fund received
by such shareholder for the purpose of making additional investments in
shares of Oppenheimer Fund, regardless of the value of the shares of
Oppenheimer Fund received. Promptly following the execution of the
Agreement, JP Fund shall provide Oppenheimer Fund with a list of the
Assets including, as to portfolio securities, a description thereof, units
held and their value, as of the most reasonably practicable date.
3. The net asset value of Class A shares of Oppenheimer Fund and
the value of the Assets shall in each case be determined as of the close
of business of The New York Stock Exchange on the business day immediately
preceding the Closing Date (the "Valuation Date"). The foregoing
valuations shall be prepared using the procedures set forth in Oppenheimer
Fund's then current prospectus and statement of additional information and
shall be computed in accordance with the regular practice and pricing
services utilized by OppenheimerFunds, Inc. in pricing the Oppenheimer
Fund. In accordance with the foregoing, Oppenheimer Fund and JP Fund
shall each respectively prepare a report setting forth, as of the
Valuation Date, its respective total net assets, the number of its shares
outstanding, the net asset value of Oppenheimer Fund Class A shares or the
net asset value of JP Fund shares, respectively, and as to each of its
portfolio securities, the cusip or ticket number, description thereof,
units held and value determined as aforesaid (the "Valuation Report").
A Valuation Report shall be delivered by each of Oppenheimer Fund and JP
Fund to the other on the Closing Date.
JP Fund shall declare and pay, immediately prior to the
Valuation Date, a dividend or dividends which, together with all previous
such dividends, shall have the effect of distributing to JP Fund's
shareholders all of JP Fund's investment company taxable income for
taxable years ending on or prior to the Closing Date (computed without
regard to any dividends paid) and all of its net capital gain, if any,
realized in taxable years ending on or prior to the Closing Date (after
reduction for any capital loss carry-forward).
4. The closing of the transactions contemplated herein (the
"Closing") shall be at the office of OppenheimerFunds, Inc., Two World
Trade Center, Suite 3400, New York, New York 10048, at the date and time
of the closing of the acquisition contemplated by that certain Acquisition
Agreement (the "Acquisition Agreement") dated (the date of the Agreement)
by and among OppenheimerFunds, Inc., JP Investment Management Company,
Jefferson-Pilot Life Insurance Company and Jefferson-Pilot Corporation (or
such other date, time and place as JP Fund and Oppenheimer Fund may
otherwise designate) (the "Closing Date").
In the event that on the Valuation Date either party has,
pursuant to the Investment Company Act of 1940, as amended (the "1940
Act"), or any rule, regulation or order thereunder, suspended the
redemption of its shares or postponed payment therefor, the Closing Date
shall be postponed until the first business day after the date when JP
Fund and Oppenheimer Fund have ceased such suspension or postponement;
provided, however, that if such suspension shall continue for a period of
60 days beyond the Valuation Date, then the other party to the Agreement
shall be permitted to terminate the Agreement as set forth in Section 20.
5. Class A shares of Oppenheimer Fund representing the number of
Class A shares of Oppenheimer Fund being delivered against the Assets,
registered in the name of JP Fund, shall be transferred to JP Fund on the
Closing Date. In connection with the Closing, JP Fund shall distribute
on a pro rata basis to the shareholders of JP Fund on the Valuation Date
the Class A shares of Oppenheimer Fund received by JP Fund on the Closing
Date in exchange for the Assets in complete liquidation of JP Fund; for
the purpose of the distribution by JP Fund of Class A shares of
Oppenheimer Fund to its shareholders, Oppenheimer Fund will promptly cause
its transfer agent to: (a) credit an appropriate number of Class A shares
of Oppenheimer Fund on the books of Oppenheimer Fund to each shareholder
of JP Fund in accordance with a list (the "Shareholder List") of JP Fund
shareholders received from JP Fund; and (b) confirm an appropriate number
of Class A shares of Oppenheimer Fund to each shareholder of JP Fund;
certificates for Class A shares of Oppenheimer Fund will be issued upon
written request of a former shareholder of JP Fund and surrender of the
JP Fund certificates but only for whole shares, with fractional shares
credited to the name of the shareholder on the books of Oppenheimer Fund.
JP Fund covenants and agrees to cause the cancellation of all of its
outstanding shares upon the Closing.
The Shareholder List shall be certified by the Secretary of JP Fund
and by an authorized signatory of Investors Fiduciary Trust Company, JP
Fund's transfer agent, and shall indicate, as of the Valuation Date, the
name, address and taxpayer identification number of each shareholder of
JP Fund, indicating his or her share balance. JP Fund agrees to supply
the Shareholder List to Oppenheimer Fund not later than the Closing Date
in such form (including computer diskette) as Oppenheimer Fund shall
request. JP Fund further agrees to deliver to Oppenheimer Fund or its
designee (i) on or before the Closing Date all such other information and
documents available to JP Fund relating to such shareholders as may be
necessary for Oppenheimer Fund and its designee to perform all necessary
shareholder accounting, communication and related services subsequent to
the Closing and (ii) as soon as practicable after the Closing all original
documentation (including Internal Revenue Service forms, certificates and
correspondence) relating to the taxpayer identification numbers of JP Fund
shareholders on the Shareholder List and their liability for or exemption
from backup withholding. Shareholders of JP Fund holding certificates
representing their shares shall not be required to surrender their
certificates to anyone in connection with the reorganization. After the
Closing Date, however, it will be necessary for such shareholders to
surrender their certificates in order to redeem, transfer, exchange or
pledge the shares of Oppenheimer Fund which they received.
The share transfer books of JP Fund will be permanently closed
as of the Valuation Date and only redemption requests received in proper
form on or prior to the Valuation Date shall be fulfilled by JP Fund;
redemption requests received by JP Fund after that date shall be treated
as requests for the redemption of the shares of Oppenheimer Fund that
shall have been distributed to the shareholder in question as set forth
in this Section 5.
6. Within one year after the Closing Date, JP Fund shall (a) either
pay or make provision for payment of all of its Liabilities (other than
Assumed Liabilities) and (b) either (i) transfer any remaining amount of
the Cash Reserve to Oppenheimer Fund, if such remaining amount (as reduced
by the estimated cost of distributing it to shareholders) is not material
(as defined below) or (ii) distribute such remaining amount to the
shareholders of JP Fund on the Valuation Date. Such remaining amount
shall be deemed to be material if the amount to be distributed, after
deduction of the estimated expenses of the distribution, equals or exceeds
one cent per share of JP Fund outstanding on the Valuation Date.
7. Prior to the Closing Date, there shall be coordination between
JP Fund and Oppenheimer Fund as to their respective portfolios so that,
after the Closing, Oppenheimer Fund will not hold assets inconsistent with
its investment objectives and will be in compliance with all of its
investment policies and restrictions.
8. Portfolio securities or written evidence acceptable to
Oppenheimer Fund of record ownership thereof by The Depository Trust
Company or through the Federal Reserve Book Entry System or any other
depository approved by JP Fund pursuant to Rule 17f-4 and Rule 17f-5 under
the 1940 Act shall be endorsed and delivered, or transferred by
appropriate transfer or assignment documents, by JP Fund on the Closing
Date to Oppenheimer Fund, or at its direction, to Oppenheimer Fund's
custodian bank, in proper form for transfer in such condition as to
constitute good delivery thereof in accordance with the custom of brokers
and shall be accompanied by all necessary state transfer stamps, if any.
The cash of JP Fund shall be delivered on the Closing Date to Oppenheimer
Fund by bank wire or inter-bank transfer of immediately available funds
to Oppenheimer Fund's custodian bank payable to the order of Oppenheimer
Fund for the account of Oppenheimer Fund.
If, at the Closing Date, JP Fund is unable to make delivery
under this Section 8 to Oppenheimer Fund of any of its portfolio
securities or cash for the reason that any of such securities purchased
by JP Fund, or the cash proceeds of a sale of portfolio securities, prior
to the Closing Date have not yet been delivered in the ordinary course of
business to it or JP Fund's custodian, then the delivery requirements of
this Section 8 with respect to said undelivered securities or cash will
be waived and JP Fund will deliver to Oppenheimer Fund by or on the
Closing Date and with respect to said undelivered securities or cash
executed copies of an agreement or agreements of assignment as to such
securities or cash proceeds in a form reasonably satisfactory to
Oppenheimer Fund, together with such other documents, including a due bill
or due bills and brokers' confirmation slips as may reasonably be required
by Oppenheimer Fund.
9. Oppenheimer Fund shall not assume and shall not otherwise be
responsible for any liabilities (except the obligations, if any, to pay
the purchase price of portfolio securities purchased by JP Fund which have
not settled in the ordinary course of business ("Assumed Liabilities")),
taxes, obligations, expenses, contracts, claims, commitments, agreements
and arrangements relating to (i) the Assets or (ii) JP Fund, its
predecessors, affiliates, directors, officers, employees and agents, in
each case whether fixed, contingent, accrued or otherwise ("Liabilities").
JP Fund expressly agrees to remain liable for and discharge all its
Liabilities whether incurred prior to or subsequent to the Closing Date.
With respect to any expenses applicable to, or incurred by JP Fund and
Oppenheimer Fund hereto in connection with entering into and carrying out
the provisions of the Agreement ("Expenses"), including legal, accounting
and registration fees and Blue Sky expenses and expenses of the proxy
solicitation, including the cost of printing and mailing the Proxy
Statement and Prospectus (as hereinafter defined) and related proxy
materials, it is hereby agreed that except as otherwise provided in
Section 20 of the Agreement, the respective investment adviser for
Oppenheimer Fund and JP Fund shall reimburse the Fund for which it acts
as investment adviser for such Fund's Expenses and, as to the rights and
obligations of said investment advisers inter se, the terms of the
Acquisition Agreement shall govern. It is understood and acknowledged
that in no event shall JP Fund or Oppenheimer Fund be liable for the
payment of any Expenses.
10. As soon as practicable after it fulfills its obligations set
forth in Section 6 hereof, JP Fund shall file Articles of Dissolution with
the North Carolina Secretary of State (the "Department") and shall file
an application for an order of the Securities and Exchange Commission
("SEC") pursuant to Section 8(f) of the 1940 Act, declaring that it has
ceased to be an investment company, and shall take, in accordance with
North Carolina law and the 1940 Act, all such other actions as may be
necessary or appropriate to effect a complete liquidation and dissolution
of JP Fund and to deregister JP Fund under the 1940 Act.
11. Any reporting, filing or other obligation of JP Fund under the
federal securities laws and state laws shall remain the responsibility of
JP Fund until it is deregistered under the 1940 Act or liquidated and
dissolved, respectively.
12. The obligations of Oppenheimer Fund hereunder shall be subject
to the following conditions:
A. The shareholders of JP Fund shall have approved the
Agreement and the transactions contemplated herein; such shareholder
approval shall have been by the affirmative vote of a majority of the
outstanding voting shares of JP Fund in conformity with the provisions of
the North Carolina Business Corporation Act ("NCBCA") at a meeting for
which proxies have been solicited by the Proxy Statement and Prospectus
(as hereinafter defined); and JP Fund shall have furnished to Oppenheimer
Fund copies of resolutions with respect to each of the foregoing and
copies of resolutions of the Board of Directors of JP Fund with respect
to approvals of the Agreement and the transactions contemplated herein,
in each case certified by the Secretary or an Assistant Secretary of JP
Fund.
B. Oppenheimer Fund shall have received an opinion of counsel
to JP Fund dated the Closing Date, to the effect that: (i) JP Fund is a
corporation duly incorporated, validly existing and in good standing under
the laws of the State of North Carolina with full powers to carry on its
business as described by its charter and then being conducted and to enter
into and perform the Agreement (North Carolina counsel may be relied upon
in delivering such opinion); (ii) all action necessary to make the
Agreement, according to its terms, valid, binding and enforceable on JP
Fund and to authorize effectively the transactions contemplated by the
Agreement have been taken by JP Fund; (iii) the Agreement has been duly
authorized, executed and delivered by JP Fund and, assuming due
authorization, execution and delivery of the Agreement by Oppenheimer
Trust, constitutes a valid and binding obligation of JP Fund, enforceable
against JP Fund in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium
and similar laws affecting creditors rights and remedies generally and
subject, as to enforceability, to general principles of equity (regardless
of whether enforcement is sought in a proceeding at law or in equity (the
"Bankruptcy Exception")); and (iv) the execution and delivery of the
Agreement does not, and the consummation of the transactions contemplated
by the Agreement will not, conflict with, or result in any violation of,
or constitute a default (with or without notice or lapse of time, or both)
under (a) the Certificate of Incorporation or By-Laws of JP Fund, (b) any
loan, credit agreement, note, bond, mortgage, indenture, lease or contract
applicable to JP Fund, its assets and properties (other than any such
conflicts, violations or defaults that individually or in the aggregate
would not have a material adverse effect on JP Fund or prevent
consummation of the transactions contemplated hereby), or (c) any
judgment, order or decree to which JP Fund is subject or any state or
federal law or regulation applicable to JP Fund or its assets and
properties.
C. The representations and warranties of JP Fund contained
herein shall be true and correct at and as of the Closing Date (with all
representations and warranties that were made as of the date of the
Agreement or as of another date being made again as of the Closing Date)
and JP Fund shall have performed, in all material respects, each of the
covenants required to be performed by JP Fund at or prior to Closing, and
Oppenheimer Fund shall have been furnished with a certificate of the
President, or a Vice President, or the Secretary or the Assistant
Secretary or the Treasurer of JP Fund, dated the Closing Date, to that
effect.
D. On the Closing Date, JP Fund shall have furnished to
Oppenheimer Fund a certificate of the Treasurer or Assistant Treasurer of
JP Fund as to the amount of the capital loss carry-over, if any, and net
unrealized appreciation or depreciation, if any, with respect to JP Fund
as of the Closing Date.
E. The Cash Reserve shall not exceed 1% of the value of the
net assets, nor 10% in value of the gross assets, of JP Fund at the close
of business on the Valuation Date.
F. A Registration Statement on Form N-14 (the "N-14
Registration Statement") filed by Oppenheimer Trust under the Securities
Act of 1933, as amended (the "1933 Act"), containing a preliminary form
of the proxy statement and prospectus required under the 1940 Act to
request the approval of shareholders of JP Fund of the reorganization
contemplated in the Agreement, shall have become effective under the 1933
Act not later than _________________, 1996.
G. On the Closing Date, Oppenheimer Fund shall have received
a letter of a senior executive officer of JP Investment Management Company
(JP Fund's investment adviser) in form acceptable to Oppenheimer Fund,
stating that between the date of the Agreement and the Closing Date there
has been no material adverse change in the Assets, the operations or the
financial condition of JP Fund (it being understood that a decrease in the
size of JP Fund due to a diminution in the value of its portfolio and/or
redemption of its shares shall not be considered a material adverse
change) and that nothing has come to his or her attention which would
indicate that as of the Closing Date there were any Liabilities of JP Fund
not fully covered by the Cash Reserve or expected not to be so covered or
pending or threatened claims, actions, suits, proceedings or
investigations with respect to or affecting JP Fund, or any director,
officer, employee or agent of JP Fund.
H. Oppenheimer Fund shall have received an opinion, dated the
Closing Date, of Sutherland, Asbill & Brennan, to the same effect as the
opinion contemplated by Section i of the Agreement.
I. Except as otherwise provided in the last paragraph of
Section 8, Oppenheimer Fund shall have received at the Closing all of the
Assets to be conveyed hereunder, free and clear of all liens,
encumbrances, security interests, restrictions and limitations whatsoever
except the Assumed Liabilities.
J. At or prior to the Closing Date, JP Fund shall have
delivered to Oppenheimer Fund two copies of a list setting forth the
securities, cash and receivables then owned by JP Fund and the respective
federal income tax bases thereof.
13. The obligations of JP Fund hereunder shall be subject to the
following conditions:
A. Oppenheimer Fund shall have furnished to JP Fund copies of
resolutions of the Board of Trustees of Oppenheimer Trust with respect to
approvals of the Agreement and the transactions contemplated herein
certified by the Secretary or an Assistant Secretary of Oppenheimer Trust.
B. JP Fund's shareholders shall have approved the Agreement
and the transactions contemplated hereby, by an affirmative vote of a
majority of the outstanding voting shares of JP Fund.
C. JP Fund shall have received an opinion of counsel to
Oppenheimer Fund dated the Closing Date, to the effect that (i)
Oppenheimer Fund is a series of Oppenheimer Trust, a business trust duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Massachusetts with full powers to carry on its business
as then being conducted and to enter into and perform the Agreement
(Massachusetts counsel may be relied upon in delivering such opinion);
(ii) all action necessary to make the Agreement, according to its terms,
valid, binding and enforceable upon Oppenheimer Trust and to authorize
effectively the transactions contemplated by the Agreement have been taken
by Oppenheimer Trust; (iii) the shares of Oppenheimer Fund to be issued
hereunder are duly authorized and when issued as provided for herein will
be validly issued, fully-paid and non-assessable, except as otherwise set
forth on Schedule 13C hereto with respect to potential liability of
shareholders of a Massachusetts business trust (Massachusetts counsel may
be relied upon in delivering such opinion); (iv) the Agreement has been
duly authorized, executed and delivered by Oppenheimer Trust on behalf of
Oppenheimer Fund and, assuming due authorization, execution and delivery
of the Agreement by JP Fund, constitutes a valid and binding obligation
of Oppenheimer Trust, enforceable against Oppenheimer Trust in accordance
with its terms, subject to the Bankruptcy Exception and (v) the execution
and delivery of the Agreement does not, and consummation of the
transactions contemplated by the Agreement will not, conflict with, or
result in any violation of, or constitute a default (with or without
notice or lapse of time, or both) under: (a) the Declaration of Trust or
By-Laws of Oppenheimer Trust, (b) any loan, credit agreement, note, bond,
mortgage, indenture, lease, or contract applicable to Oppenheimer Fund,
its assets and properties (other than any such conflicts, violations or
defaults that individually or in the aggregate would not have a material
adverse effect on Oppenheimer Fund or prevent consummation of the
transactions contemplated hereby), or (c) any judgment, order of decree
to which Oppenheimer Fund is subject or any state or federal law or
regulation applicable to Oppenheimer Fund or its assets and properties.
D. The representations and warranties of Oppenheimer Trust on
behalf of Oppenheimer Fund contained herein shall be true and correct at
and as of the Closing Date (with all representations and warranties that
were made as of the date of the Agreement or as of another date being made
again as of the Closing Date), and Oppenheimer Trust shall have performed,
in all material respects, each of the covenants required to be performed
by Oppenheimer Trust at or prior to Closing, and JP Fund shall have been
furnished with a certificate of the President, a Vice President or the
Secretary or an Assistant Secretary or the Treasurer of Oppenheimer Trust
to that effect dated the Closing Date.
E. JP Fund shall have received an opinion of Sutherland,
Asbill & Brennan to the effect that the Federal tax consequences of the
transaction, if carried out in the manner outlined in the Agreement and
in accordance with (i) JP Fund's representation that there is no plan or
intention by any JP Fund shareholder who owns 5% or more of JP Fund's
outstanding shares, and, to JP Fund's best knowledge, there is no plan or
intention on the part of the remaining JP Fund shareholders, to redeem,
sell, exchange or otherwise dispose of a number of Oppenheimer Fund shares
received in the transaction that would reduce JP Fund shareholders'
ownership of Oppenheimer Fund shares to a number of shares having a value,
as of the Closing Date, of less than 50% of the value of all of the
formerly outstanding JP Fund shares as of the same date, (ii) the
representation that Oppenheimer Fund will acquire at least 90% of the fair
market value of the net assets and at least 70% of the fair market value
of the gross assets held by JP Fund immediately prior to the
reorganization, (iii) the representation by each of JP Fund and
Oppenheimer Fund that, as of the Closing Date, JP Fund and Oppenheimer
Fund will qualify as regulated investment companies and will meet the
diversification test of Section 368(a)(2)(F)(ii) of the Code, and (iv)
such other representations as shall be made by each of JP Fund and
Oppenheimer Fund to Sutherland, Asbill & Brennan and accompany or be set
forth in the opinion, will generally be as follows:
(a) The reorganization contemplated by the Agreement will constitute
a "reorganization" within the meaning of Section 368(a)(1)(C) of the
Code and JP Fund and Oppenheimer Fund will each be a "party to the
reorganization" within the meaning of Section 368(b) of the Code.
(b) No gain or loss will be recognized by Oppenheimer Fund upon the
receipt of the assets transferred to it by JP Fund in exchange for
Class A shares of Oppenheimer Fund and the assumption by Oppenheimer
Fund of certain identified liabilities of JP Fund. (Section 1032)
(c) No gain or loss will be recognized by JP Fund upon the transfer
of its assets to Oppenheimer Fund in exchange solely for Class A
shares of Oppenheimer Fund and the assumption by Oppenheimer Fund of
certain identified liabilities of JP Fund (if any) and the subsequent
distribution by JP Fund of such Class A shares to the shareholders
of JP Fund. (Section 361)
(d) No gain or loss will be recognized by JP Fund shareholders upon
the exchange of the JP Fund shares solely for the Class A shares of
Oppenheimer Fund. (Section 354)
(e) The basis of the Class A shares of Oppenheimer Fund received by
each JP Fund shareholder pursuant to the reorganization will be the
same as the adjusted basis of that shareholder's JP Fund shares
surrendered in exchange therefor. (Section 358)
(f) The holding period of Class A shares of Oppenheimer Fund to be
received by each JP Fund shareholder will include the shareholder's
holding period for the JP Fund shares surrendered in exchange
therefor, provided such JP Fund shares were held as capital assets
on the Closing Date. (Section 1223)
(g) Oppenheimer Fund's basis for the assets transferred to it by JP
Fund will be the same as JP Fund's tax basis for the assets
immediately prior to the reorganization. (Section 362(b))
(h) Oppenheimer Fund's holding period for the transferred assets will
include JP Fund's holding period therefor. (Section 1223)
(i) Oppenheimer Fund will succeed to and take into account the items
of JP Fund described in Section 381(c) of the Code, including the
earnings and profits, or deficit in earnings and profits, of JP Fund
as of the date of the transaction, subject to the conditions and
limitations specified in Sections 381, 382, 383 and 384 of the Code.
Notwithstanding anything herein to the contrary, neither Oppenheimer Fund
nor JP Fund may waive the material conditions set forth in this Section
13E although the actual wording of such opinion may differ to the extent
agreed to by Oppenheimer Fund and JP Fund.
F. The Cash Reserve shall not exceed 1% of the value of the
net assets, nor 10% in value of the gross assets, of JP Fund at the close
of business on the Valuation Date.
G. The N-14 Registration Statement shall have become effective
under the 1933 Act not later than ______________________, 1996.
H. JP Fund shall acknowledge receipt of the shares of
Oppenheimer Fund.
I. On the Closing Date, JP Fund shall have received a letter
of a senior officer of OFI in form acceptable to it, stating that between
the date of the Agreement and the Closing Date there has been no material
adverse change in the operations or financial condition of Oppenheimer
Fund (it being understood that a decrease in the size of Oppenheimer Fund
due to a diminution in the value of its portfolio and/or redemption of its
shares shall not be considered a material adverse change) and that nothing
has come to his or her attention that would indicate that as of the
Closing Date there were any pending or threatened litigation or claims
with respect to Oppenheimer Fund.
14. JP Fund hereby represents and warrants that:
A. The financial statements of JP Fund as at December 31, 1995
(audited) and June 30, 1996 (unaudited) heretofore furnished to
Oppenheimer Fund, present fairly the financial position, results of
operations, and changes in net assets of JP Fund as of such dates, in
conformity with generally accepted accounting principles applied on a
basis consistent with the preceding year and six-month period; and that
from December 31, 1995 through the date hereof there has not been any
material adverse change in the Assets, the operations or financial
condition of JP Fund, it being agreed that a decrease in the size of JP
Fund due to a diminution in the value of its portfolio and/or redemption
of its shares shall not be considered a material adverse change.
B. JP Fund has good and valid title to the Assets, subject to
no liens, security interests or other encumbrances, and contingent upon
approval of the Agreement and the transactions contemplated hereby by JP
Fund's shareholders, JP Fund has authority to transfer the Assets to be
conveyed hereunder free and clear of all liens, encumbrances, security
interests, restrictions and limitations whatsoever (excluding the Assumed
Liabilities).
C. The Prospectus of JP Fund dated May 1, 1996, as amended and
supplemented on __________, 1996, and Statement of Additional Information
of JP Fund dated May 1, 1996, contained in JP Fund's Registration
Statement under the 1933 Act, as amended, are true, correct and complete,
conform to the requirements of the 1933 Act and the 1940 Act and do not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading. The Registration Statement of JP Fund,
as amended, was, as of the date of the filing of the last Post-Effective
Amendment, true, correct and complete, conformed to the requirements of
the 1933 Act and the 1940 Act, did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading and
was, as of its filing, and continues to be, in full force and effect.
D. There is no material Liability of JP Fund in existence
except as set forth in the financial statements of JP Fund as at December
31, 1995 and June 30, 1996 and as of such dates there were no Liabilities
of JP Fund (contingent or otherwise) not disclosed therein that would be
required in conformity with generally accepted accounting principles to
be disclosed therein. No such material Liability of JP Fund has arisen
since December 31, 1995 and June 30, 1996 except as set forth on Exhibit
14D hereto. There are no claims, actions, suits, proceedings or
investigations pending or, to the knowledge of JP Fund, threatened by,
against or involving JP Fund or any director, officer, employee, or agent
of JP Fund. JP Fund knows of no facts that might form the basis for the
institution of such proceedings and is not a party to or subject to the
provisions of any order, decree or judgment of any court or governmental
body that materially and adversely affects, or is likely to materially and
adversely affect, its business or its ability to consummate the
transactions herein contemplated.
E. There are no contracts, agreements or commitments in
existence, whether written or oral, to which JP Fund (or a predecessor)
is a party or has succeeded to a party by assumption or assignment or in
which it has a beneficial interest other than the Agreement and those
entered into by JP Fund in the ordinary conduct of its business and JP
Fund has delivered or made available to Oppenheimer Fund, as to each such
contract, agreement or other commitment, a true and complete copy or
description thereof and as to any oral contract, agreement or other
commitment, a true and complete description thereof.
F. JP Fund is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of North
Carolina, with the requisite corporate power and authority to enter into
and perform the Agreement and, subject to approval of its shareholders,
to consummate the transactions contemplated hereby; all corporate action
necessary to make the Agreement, according to its terms, valid, binding
and enforceable on JP Fund and to authorize the transactions contemplated
by the Agreement, including without limitation necessary approvals of the
Board of Directors of JP Fund, have been taken by JP Fund subject to
approval of the Agreement by the shareholders of JP Fund; the Agreement
has been duly executed and delivered by JP Fund and constitutes a valid
and binding obligation of JP Fund, enforceable against JP Fund in
accordance with its terms, subject to the approval of its shareholders and
the Bankruptcy Exception; and the execution and delivery of the Agreement
does not, and the consummation of the transactions contemplated by the
Agreement will not, conflict with, or result in any violation of, or
constitute a default (with or without notice or lapse of time, or both)
under (a) the Certificate of Incorporation or By-Laws of JP Fund, or (b)
any loan, credit agreement, note, bond, mortgage, indenture, lease or
contract applicable to JP Fund, its assets and properties (other than any
such conflicts, violations or defaults that individually or in the
aggregate would not have a material adverse effect on JP Fund or prevent
consummation of the transactions contemplated hereby), or (c) any
judgment, order or decree to which JP Fund is subject or any state or
federal law or regulation applicable to JP Fund or its assets and
properties.
G. All Federal and other tax returns and reports of JP Fund
required by law to be filed have been filed, and all Federal and other
taxes shown due on said returns and reports have been paid or provision
shall have been made for the payment thereof and to the best of the
knowledge of JP Fund no such return is currently under audit and no
assessment has been asserted with respect to such returns and to the
extent such tax returns with respect to the taxable year of JP Fund ended
December 31, 1995 have not been filed, such returns will be filed when
required and the amount of tax shown as due thereon shall be paid when
due. There are no claims, levies, liabilities or amounts due for
corporate, excise, income or other federal, state or local taxes
outstanding or threatened against JP Fund (other than those reflected in
its most recent audited financial statements) and to the best of JP Fund's
knowledge there are no facts that might form the basis for such claims,
levies, liabilities or amounts due.
H. JP Fund has elected to be treated as a regulated investment
company and, for each fiscal year of its operations, JP Fund has met the
requirements of Subchapter M of the Code for qualification and treatment
as a regulated investment company and JP Fund intends to meet such
requirements with respect to its current taxable year.
I. All issued and outstanding shares of common stock of JP
Fund, par value $1.00 per share, are, and at the Closing Date will be,
duly authorized and validly issued and outstanding, fully paid and non-
assessable with no personal liability attaching to the ownership thereof.
All such shares will, at the time of Closing, be held by the persons or
entities and in the amounts set forth on the Shareholder List submitted
to Oppenheimer Fund pursuant to Section 5. There are no outstanding
rights, options, warrants, conversion rights, preemptive rights or
agreements with respect to shares of JP Fund. Set forth on Exhibit 14I
hereto are the names, addresses and share ownership amounts of each
shareholder of JP Fund that beneficially (as that term is defined pursuant
to Section 13(d) of the Securities Exchange Act of 1934, as amended, and
the rules thereunder) owns 1% or more of JP Fund's outstanding shares.
J. The copies of the Certificate of Incorporation and By-laws
of JP Fund, and all amendments thereto, previously delivered to
Oppenheimer Fund are true, complete and correct.
K. There is no plan or intention by any JP Fund shareholder
who owns 5% or more of JP Fund's outstanding shares, and, to JP Fund's
best knowledge, there is no plan or intention on the part of the remaining
JP Fund shareholders, to redeem, sell, exchange or otherwise dispose of
a number of Oppenheimer Fund shares received in the transaction that would
reduce JP Fund shareholders' ownership of Oppenheimer Fund shares to a
number of shares having a value, as of the Closing Date, of less than 50%
of the value of all of the formerly outstanding JP Fund shares as of the
same date. With respect to the foregoing representation, attached hereto
as Exhibit 14K are true and complete copies of representation letters
signed by each such 5% or greater shareholder.
L. There are no unresolved or outstanding shareholder claims
or complaints related to JP Fund other than as disclosed by JP Fund in
writing to Oppenheimer Fund and which are determined by Oppenheimer Fund
to not be material with respect to the Agreement and the transactions
contemplated herein.
M. Except as previously disclosed to Oppenheimer Fund in
writing, and except as have been corrected as required by applicable law,
there have been no miscalculations of the net asset value of JP Fund
during the twelve-month period preceding the Closing Date and all such
calculations have been done in accordance with the applicable provisions
of the 1940 Act.
N. All of the issued and outstanding shares of JP Fund have
been offered and sold in compliance with applicable registration
requirements of the 1933 Act and state securities laws, are registered
under the 1933 Act, the 1940 Act and in all jurisdictions in which they
are required to be registered under state securities laws and other laws,
and said registrations, including any periodic reports or supplemental
filings, are complete, current and have been continuously effective, all
fees required to be paid have been paid, and JP Fund is not subject to any
stop order and is fully qualified to sell its shares in each state in
which its shares have been registered.
O. JP Fund has maintained or has caused to be maintained on
its behalf all books and accounts as required of a registered investment
company in compliance with the requirements of Section 31 of the 1940 Act
and the Rules thereunder.
P. No violation of applicable federal, state and local
statute, law or regulation, exists that individually, or in the aggregate,
would have a material adverse effect on the business or operations of JP
Fund.
Q. JP Fund is in compliance with its investment objectives,
policies and restrictions as described in its current Prospectus and
Statement of Additional Information.
R. JP Fund is duly registered under the 1940 Act and such
registration has not been revoked or rescinded and is in full force and
effect.
S. Except for the shareholder approvals specified in Section
12F, no consent, approval, governmental filing, authorization or permit
from any person or entity is necessary for the execution and delivery of
the Agreement and the consummation of the transactions contemplated by the
Agreement.
15. Oppenheimer Trust on behalf of Oppenheimer Fund hereby
represents and warrants that:
A. The financial statements of Oppenheimer Fund as at December
31, 1995 (audited) and June 30, 1996 (unaudited) heretofore furnished to
JP Fund, present fairly the financial position, results of operations, and
changes in net assets of Oppenheimer Fund, as of such dates, in conformity
with generally accepted accounting principles applied on a basis
consistent with the preceding year and six-month period; and that from
December 31, 1995 through the date hereof there has not been any material
adverse changes in the business or financial condition of Oppenheimer
Fund, it being understood that a decrease in the size of Oppenheimer Fund
due to a diminution in the value of its portfolio and/or redemption of its
shares shall not be considered a material or adverse change.
B. The Prospectus of Oppenheimer Fund, dated April 1, 1996,
as amended and supplemented, and the Statement of Additional Information
of Oppenheimer Fund, dated April 1, 1996, contained in Oppenheimer Trust's
Registration Statement under the 1933 Act, are true, correct and complete,
conform to the requirements of the 1933 Act and the 1940 Act and do not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading. The Registration Statement of
Oppenheimer Trust, as amended, was, as of the date of the filing of the
last Post-Effective Amendment, true, correct and complete, conformed to
the requirements of the 1933 Act and the 1940 Act and did not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading.
C. Oppenheimer Fund is a series of Oppenheimer Trust, a
Massachusetts business trust duly organized, validly existing and in good
standing under the laws of the Commonwealth of Massachusetts with the
requisite power and authority granted to business trusts to enter into and
perform the Agreement and consummate the transactions contemplated hereby;
all necessary action necessary to make the Agreement, according to its
terms, valid, binding and enforceable on Oppenheimer Trust on behalf of
Oppenheimer Fund and to authorize the transactions contemplated by the
Agreement, including without limitation necessary approvals of the Board
of Trustees of Oppenheimer Trust, have been taken by Oppenheimer Trust;
the Agreement has been duly executed and delivered by Oppenheimer Trust
on behalf of Oppenheimer Fund and constitutes a valid and binding
obligation of Oppenheimer Fund, enforceable against Oppenheimer Trust in
accordance with its terms, subject to the Bankruptcy Exception; and the
execution and delivery of the Agreement does not, and the consummation of
the transactions contemplated by the Agreement will not, conflict with,
or result in any violation of, or constitute a default (with or without
notice or lapse of time, or both) under (a) the Declaration of Trust or
By-Laws of Oppenheimer Trust, or (b) any loan, credit agreement, note,
bond, mortgage, indenture, lease or contract applicable to Oppenheimer
Fund, its assets and properties (other than any such conflicts, violations
or defaults that individually or in the aggregate would not have a
material adverse effect on Oppenheimer Fund or prevent consummation of the
transactions contemplated hereby), or (c) any judgment, order or decree
to which Oppenheimer Fund is subject or any state or federal law or
regulation applicable to Oppenheimer Fund or its assets and properties.
D. All Federal and other tax returns and reports of
Oppenheimer Fund required by law to be filed have been filed, and all
Federal and other taxes shown due on said returns and reports have been
paid or provision shall have been made for the payment thereof and to the
best of the knowledge of Oppenheimer Fund no such return is currently
under audit and no assessment has been asserted with respect to such
returns and to the extent such tax returns with respect to the taxable
year of Oppenheimer Fund ended December 31, 1995 have not been filed, such
returns will be filed when required and the amount of tax shown as due
thereon shall be paid when due.
E. Oppenheimer Fund has elected to be treated as a regulated
investment company and, for each fiscal year of its operations,
Oppenheimer Fund has met the requirements of Subchapter M of the Code for
qualification and treatment as a regulated investment company and
Oppenheimer Fund intends to meet such requirements with respect to its
current taxable year.
F. Oppenheimer Fund (i) at the time of the reorganization will
have no plan or intention to dispose of any of the assets transferred by
JP Fund, other than in the ordinary course of business, and (ii) has no
plan or intention to redeem or reacquire any of the shares issued by it
in the reorganization other than pursuant to valid requests of
shareholders.
G. After consummation of the transactions contemplated by the
Agreement and for a period of one year thereafter, Oppenheimer Fund
intends to operate its business in a substantially unchanged manner
subject to such changes as may be required in the ordinary course of its
business or as may be approved by the Board of Trustees of Oppenheimer
Trust.
H. The copies of the Declaration of Trust and By-Laws of
Oppenheimer Trust, and any amendments thereto, previously delivered to JP
Fund by Oppenheimer Fund are true, complete and correct.
I. The Class A shares of Oppenheimer Fund which it issues to
JP Fund pursuant to the Agreement will be duly authorized, validly issued,
fully-paid and non-assessable, except as otherwise set forth in Schedule
13C hereto with respect to potential liability of shareholders of a
Massachusetts business trust, will conform to the description thereof
contained in Oppenheimer Trust's Registration Statement and will be duly
registered under the 1933 Act and in the states where registration is
required.
J. All of the issued and outstanding shares of Oppenheimer
Fund have been offered and sold in compliance in all material respects
with applicable registration requirements of the 1933 Act and state
securities laws, are registered in all jurisdictions in which they are
required to be registered under state securities laws and other laws and
such registrations, including any periodic reports or supplemental
filings, are complete and current, all fees required to be paid have been
paid, and Oppenheimer Fund is not subject to any stop order and is fully
qualified to sell its shares in each state in which its shares have been
registered.
K. Oppenheimer Trust is duly registered under the 1940 Act and
such registration has not been revoked or rescinded and is in full force
and effect.
16. (a) Each party hereby represents to the other that no broker
or finder has been employed by it with respect to the Agreement or the
transactions contemplated hereby.
(b) Oppenheimer Trust on behalf of Oppenheimer Fund represents
and warrants that the information concerning it in the Proxy Statement and
Prospectus will not as of the date of the Proxy Statement and Prospectus
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements concerning it therein in light of the circumstances in which
they are made not misleading. Oppenheimer Trust on behalf of Oppenheimer
Fund represents and warrants that its financial statements in the N-14
Registration Statement (described below) fairly present the information
shown in accordance with generally accepted accounting principles applied
on a basis consistent with previous periods.
(c) JP Fund represents and warrants that the information
concerning it in the Proxy Statement and Prospectus will not as of the
date of the Proxy Statement and Prospectus contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements concerning it therein in light
of the circumstances in which they are made not misleading. JP Fund
represents and warrants that its financial statements in the N-14
Registration Statement fairly present the information shown in accordance
with generally accepted accounting principles applied on a basis
consistent with previous periods.
17. Oppenheimer Trust on behalf of Oppenheimer Fund agrees that it
will prepare and file the N-14 Registration Statement which shall contain
a preliminary form of Proxy Statement and Prospectus contemplated by Rule
145 under the 1933 Act. JP Fund shall be responsible for preparation of
the notice of meeting, Proxy Statement and Prospectus and form of proxy
to be sent to JP Fund shareholders. The final form of such Proxy
Statement and Prospectus is referred to in the Agreement as the "Proxy
Statement and Prospectus." Each party agrees that it will use its best
efforts to have the N-14 Registration Statement declared effective and to
supply such information concerning itself for inclusion in the Proxy
Statement and Prospectus as may be necessary or desirable in this
connection. JP Fund covenants and agrees to deregister, or cause to have
deregistered, the shares of JP Fund under the 1940 Act as soon as
practicable.
18. (a) JP Fund covenants and agrees to afford to Oppenheimer Fund,
its counsel, accountants and other representatives reasonable access,
during normal business hours throughout the period prior to the Closing
Date, to the books, records, employees and representatives of JP Fund.
(b) JP Fund covenants and agrees that during the period from
the date hereof until the Closing Date its investment objectives,
investment policies and investment restrictions, as disclosed in its most
current Prospectus dated May 1, 1996, as amended and supplemented on
__________, 1996, and Statement of Additional Information, dated May 1,
1996, will not be changed in any manner whatsoever except pursuant to a
statutory amendment or regulatory requirement during such time and upon
prior notice to Oppenheimer Fund.
(c) JP Fund covenants that during the period from the date
hereof until the Closing Date, except as approved in writing by
Oppenheimer Fund or expressly provided for in the Agreement, JP Fund (i)
will not conduct its business other than in the ordinary course
substantially in the manner heretofore conducted and consistent with JP
Fund's investment objectives, policies and restrictions as set forth in
its most current Prospectus dated May 1, 1996, as amended and supplemented
on _____________, 1996, and Statement of Additional Information, dated May
1, 1996, (ii) will not permit or allow any of the Assets to be subjected
to any encumbrance, (iii) will not enter into any material transaction or
otherwise incur any material Liability other than in the normal course of
business consistent with past practice, (iv) will not declare, set aside
or pay any dividend or make any other distribution except for payment of
its dividends in ordinary course consistent with past practice and except
for the final dividend and distribution to be made pursuant to Section 3
of the Agreement, and (v) will not agree, whether in writing or otherwise,
to do any of the foregoing. Notwithstanding the foregoing, JP Fund
covenants that (x) between the date of the Agreement and the Closing Date,
promptly following any transaction involving an acquisition or disposition
by JP Fund of portfolio securities, JP Fund shall provide to Oppenheimer
Fund a written report detailing such transaction and (y) upon the written
request of Oppenheimer Fund, to promptly sell one or more portfolio
securities acquired by JP Fund between the date of the Agreement and the
Closing Date and (z) to transfer to Oppenheimer Fund on the Closing Date
only those Assets the acquisition of which will permit Oppenheimer Fund
to be in compliance with all of its investment policies and restrictions.
(d) JP Fund covenants and agrees to comply with all applicable
laws, rules and regulations.
(e) JP Fund covenants and agrees to maintain in the ordinary
course of business consistent with past practice its books and records
through to the date of its dissolution and liquidation and to prepare and
file all documents, reports and instruments and take such action,
including, without limitation, under the federal securities laws and state
laws, that is required or appropriate to be filed or taken by it prior to,
and/or in connection with, its dissolution and liquidation.
19. (a) Oppenheimer Fund covenants that during the period from the
date hereof until the Closing Date it will conduct its business in the
ordinary course, it being understood that such ordinary course of business
will include customary dividends and other distributions and such changes,
if any, that have been approved by trustees of Oppenheimer Fund of which
JP Fund has been advised.
(b) Oppenheimer Fund covenants and agrees to comply with all
applicable laws, rules and regulations.
20. The Agreement may be terminated and the transactions
contemplated hereby may be abandoned at any time prior to the Closing (i)
by the mutual written consent of Oppenheimer Trust on behalf of
Oppenheimer Fund and JP Fund, (ii) by either Oppenheimer Trust on behalf
of Oppenheimer Fund or JP Fund, by notice in writing to the other, if the
Closing shall not have occurred on or before December 31, 1996, (iii) by
either Oppenheimer Trust on behalf of Oppenheimer Fund or JP Fund, by
notice in writing to the other, if (A) the other party shall fail to
perform in any material respect its agreements contained herein required
to be performed on or prior to the Closing Date, (B) the other party
materially breaches or shall have breached any of its representations,
warranties or covenants contained herein, (C) the JP Fund shareholders
fail to approve the Agreement or (D) any other condition herein expressed
to be precedent to the obligations of the terminating party has not been
met (other than through the failure of the terminating party to comply
with its obligations under the Agreement) and it reasonably appears that
it will not or cannot be met or (iv) pursuant to Section 4 of the
Agreement. Termination of the Agreement pursuant to (i), (ii) or (iv)
shall terminate all obligations of the parties hereunder and there shall
be no liability for damages on the part of Oppenheimer Fund, JP Fund or
their respective trustees, directors or officers to any other party or its
trustees, directors, or officers and it is understood and agreed that each
party shall be reimbursed for its Expenses pursuant to Section 9 of the
Agreement. Termination of the Agreement pursuant to (iii) shall terminate
all obligations of Oppenheimer Fund and JP Fund hereunder and there shall
be no liability for damages on the part of Oppenheimer Fund, Oppenheimer
Trust or JP Fund or their respective trustees, directors or officers to
any other party or its trustees, directors or officers, except that the
party in breach of the Agreement shall, upon demand, reimburse the non-
breaching party for all Expenses, including reasonable out-of-pocket
expenses and fees incurred in connection with the transactions
contemplated by the Agreement, and the provisions of Section 9 as to
Expenses shall be of no force or effect. For the purposes of the
foregoing sentence, the non-fulfillment of the condition requiring
approval of JP Fund shareholders set forth in Sections 10A and 11B shall
not be deemed a breach entitling a party to reimbursement of fees and
expenses.
The Agreement shall automatically terminate prior to the Closing in
the event the Acquisition Agreement is terminated or the acquisition
contemplated by the Acquisition Agreement is not consummated, and in such
event all obligations of Oppenheimer Fund and JP Fund shall terminate and
there shall be no liability on the part of Oppenheimer Fund, Oppenheimer
Trust or JP Fund or their respective trustees, directors or officers to
the other or its respective trustees, directors or officers, it being
understood and agreed that each party shall be reimbursed for its Expenses
pursuant to Section 9 of the Agreement.
21. (a) JPC shall indemnify and hold harmless JP Fund, Oppenheimer
Trust, Oppenheimer Fund, their investment advisers and their respective
trustees, officers and shareholders, against any and all claims to the
extent such claims are based upon, arise out of or relate to (i) any
untruthful or inaccurate representation made by JP Fund in the Agreement
or any breach by JP Fund of any warranty or any failure by JP Fund to
perform or comply with any of its obligations, covenants, conditions or
agreements set forth in the Agreement or (ii) the failure of JP Fund to
comply with applicable legal requirements, including, without limitation,
registration under the 1933 Act and the 1940 Act and state securities
laws. Notwithstanding the foregoing, JPC shall not be obligated to so
indemnify any officer or director of JP Fund if such claims result from
such person's willful misfeasance, bad faith or gross negligence.
(b) OFI shall indemnify and hold harmless JP Fund and its
investment adviser and their respective trustees, officers and
shareholders, against any and all claims to the extent such claims are
based upon, arise out of or relate to any untruthful or inaccurate
representation made by Oppenheimer Trust in the Agreement or any breach
by Oppenheimer Trust of any warranty or any failure by Oppenheimer Trust
to perform or comply with any of its obligations, covenants, conditions
or agreements set forth in the Agreement. Notwithstanding the foregoing,
OFI shall not be obligated to so indemnify any officer or director of JP
Fund or its investment adviser if such claims result from such person's
willful misfeasance, bad faith or gross negligence.
(c) As used in this section, the word "claim" means any and all
liabilities, obligations, losses, damages, deficiencies, demands, claims,
penalties, assessments, judgments, actions, proceedings and suits of
whatever kind and nature and all costs and expenses (including, without
limitation, reasonable attorneys' fees).
22. The Agreement may be executed in several counterparts, each of
which shall be deemed an original, but all taken together shall constitute
one Agreement. The rights and obligations of each party pursuant to the
Agreement shall not be assignable.
23. All prior or contemporaneous agreements and representations are
merged into the Agreement, which constitutes the entire contract between
the parties hereto. No amendment or modification hereof shall be of any
force and effect unless in writing and signed by the parties and no party
shall be deemed to have waived any provision herein for its benefit unless
it executes a written acknowledgement of such waiver.
24. JP Fund understands that the obligations of Oppenheimer Trust
under the Agreement are not binding upon any Trustee or shareholder of
Oppenheimer Trust and OppenheImer Fund personally, but bind only
Oppenheimer Trust, Oppenheimer Fund and Oppenheimer Fund's property. JP
Fund represents that it has notice of the provisions of the Declaration
of Trust of Oppenheimer Trust disclaiming shareholder and Trustee
liability for acts or obligations of Oppenheimer Trust.
25. Neither of the parties shall make any press release of the
transactions contemplated by the Agreement, or any discussion in
connection therewith, without the prior written consent of the other
party, which consent shall not be unreasonably withheld. The preceding
sentence shall not apply to any disclosures required to be made by
applicable laws, as determined by counsel; however, the applicable party
shall consult with the other party concerning the timing and content of
such disclosure before making it.
26. The representations, warranties and covenants set forth in the
Agreement shall survive the closing.
<PAGE>
27. The Agreement shall be governed by and construed in accordance
with the laws of the State of New York without regard to the conflicts of
laws principles of such State.
IN WITNESS WHEREOF, each of the parties has caused the Agreement to
be executed and attested by its officers thereunto duly authorized on the
date first set forth above.
Attest: JEFFERSON-PILOT CAPITAL APPRECIATION
FUND, INC.
__________________________ By: _____________________________
Attest: OPPENHEIMER INTEGRITY FUNDS,
ON BEHALF OF OPPENHEIMER BOND FUND
__________________________ By: _____________________________
Attest: For purposes of Section 21 only:
JEFFERSON-PILOT CORPORATION
___________________________ By: ______________________________
Attest: For purposes of Section 21 only:
OPPENHEIMERFUNDS, INC.
____________________________ By: __________________________
<PAGE>
Preliminary Copy
JEFFERSON-PILOT INVESTMENT GRADE BOND FUND, INC.
PROXY FOR SPECIAL SHAREHOLDERS MEETING
TO BE HELD DECEMBER 3, 1996
The undersigned shareholder of Jefferson-Pilot Investment Grade Bond Fund,
Inc. ("JP Fund"), does hereby appoint Richard W. McEnally and E.J. Yelton,
and each of them, as attorneys-in-fact and proxies of the undersigned,
with full power of substitution, to attend the Special Meeting of
Shareholders of JP Fund to be held on December 3, 1996, at the Jefferson-
Pilot Building (4th Floor, Room B-2), 100 North Greene Street, Greensboro,
North Carolina 27420 at 10:00 A.M., local time, and at all adjournments
thereof, and to vote the shares held in the name of the undersigned on the
record date for said meeting on the Proposals specified on the reverse
side. Said attorneys-in-fact shall vote in accordance with their best
judgment as to any other matter.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS, WHO RECOMMENDS A VOTE
FOR THE PROPOSALS ON THE REVERSE SIDE AND THE ELECTION OF EACH NOMINEE AS
DIRECTOR. THE SHARES REPRESENTED HEREBY WILL BE VOTED AS INDICATED ON THE
REVERSE SIDE OR FOR EACH PROPOSAL AND THE ELECTION OF EACH NOMINEE AS
DIRECTOR IF NO CHOICE IS INDICATED.
Please mark your proxy, date and sign it on the reverse side and return
it promptly in the accompanying envelope, which requires no postage if
mailed in the United States.
Proposal 1:
To consider and vote upon the approval or disapproval of the Agreement and
Plan of Reorganization dated as of _________, 1996 (the "Reorganization
Agreement") by and among JP Fund, Jefferson-Pilot Corporation, Oppenheimer
Integrity Funds, on behalf of its series, Oppenheimer Bond Fund
("Oppenheimer Fund"), and OppenheimerFunds, Inc., and the transactions
contemplated thereby, including (i) the transfer of substantially all the
assets of JP Fund to Oppenheimer Fund in exchange for Class A shares of
Oppenheimer Fund, (ii) the distribution of such shares of Oppenheimer Fund
to shareholders of JP Fund in liquidation of JP Fund, and (iii) the
cancellation of the outstanding shares of JP Fund.
FOR____ AGAINST____ ABSTAIN____
Proposal 2:
To elect to the Board of Directors the following five (5) directors to
hold office until the earlier of (i) the dissolution of JP Fund or (ii)
the next annual meeting of shareholders of JP Fund called for the purpose
of electing directors, or until their successors are elected and
qualified.
A) E.J. Yelton D) William Edward Moran
B) John C. Ingram E) J. Lee Lloyd
C) Richard Wolcott McEnally
_______For all nominees listed ____WITHHOLD AUTHORITY
except as marked to the contrary at to vote for all nominees
left. Instruction: To withhold listed at left.
authority to vote for any individual
nominee, line out that nominee's name
at left.
Proposal 3:
To ratify or reject the selection of McGladrey & Pullen LLP as JP Fund's
independent auditors for the current fiscal year.
FOR____ AGAINST____ ABSTAIN____
Dated:________________________, 1996
(Month) (Day)
______________________________
Signature(s)
______________________________
Signature(s)
Please read both sides of this ballot.
NOTE: PLEASE SIGN EXACTLY AS YOUR NAME(S) APPEAR HEREON. When signing
as custodian, attorney, executor, administrator, trustee, etc., please
give your full title as such. All joint owners should sign this proxy.
If the account is registered in the name of a corporation, partnership or
other entity, a duly authorized individual must sign on its behalf and
give his or her title.
<PAGE>
OPPENHEIMER INTEGRITY FUNDS
3410 SOUTH GALENA STREET, DENVER, COLORADO 80231-5099
1-800-525-7048
<PAGE>
OPPENHEIMER
Bond Fund
Prospectus dated April 1, 1996.
Oppenheimer Bond Fund (the "Fund"), formerly named "Oppenheimer Investment
Grade Bond Fund," is a mutual fund with the investment objective of
seeking a high level of current income by investing mainly in debt
instruments. The Fund will, under normal market conditions, invest at
least 65% of its total assets in a diversified portfolio of investment
grade debt securities. You should carefully review the risks associated
with an investment in the Fund. Please refer to "Investment Objectives
and Polices" beginning on page ____.
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 April 1, 1996, Statement of Additional Information. For a
free copy, call OppenheimerFunds Services, the Fund's Transfer Agent, at
1-800-525-7048, or write to the Transfer Agent at the address on the back
cover. The Statement of Additional Information has been filed with the
Securities and Exchange Commission and is incorporated into this
Prospectus by reference (which means that it is legally part of this
Prospectus).
(OppenheimerFunds logo)
Shares of the Fund are not deposits or obligations of any bank, are not
guaranteed by any bank, and are not insured by the F.D.I.C. or any other
agency, and involve investment risks, including the possible loss of the
principal amount invested.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
Contents
ABOUT THE FUND
Expenses
A Brief Overview of the Fund
Financial Highlights
Investment Objective and Policies
How the Fund is Managed
Performance of the Fund
ABOUT YOUR ACCOUNT
How to Buy Shares
Class A Shares
Class B Shares
Class C Shares
Special Investor Services
AccountLink
Automatic Withdrawal and Exchange Plans
Reinvestment Privilege
Retirement Plans
How to Sell Shares
By Mail
By Telephone
By Checkwriting
How to Exchange Shares
Shareholder Account Rules and Policies
Dividends, Capital Gains and Taxes
Appendix A
A-1 Special Sales Charge Arrangements for Shareholders of the
Fund Who Were Shareholders of the Former Quest for Value Funds
Appendix B
B-1 Special Sales Charge Arrangements for Fund Shareholders Who Were
Shareholders of the Former Connecticut Mutual Investment
Accounts, Inc.
<PAGE>
A B O U T T H E F U N D
Expenses
The Fund pays a variety of expenses directly for management of its assets,
administration, distribution of its shares and other services, and those
expenses are subtracted from the Fund's assets to calculate the Fund's net
asset value per share. All shareholders therefore pay those expenses
indirectly. Shareholders pay other expenses directly, such as sales
charges and shareholder transaction charges. The following tables are
provided to help you understand your direct expenses of investing in the
Fund and your share of the Fund's business operating expenses that you
will bear indirectly. The numbers below are based on the Fund's expenses
during its last fiscal year ended December 31, 1995.
- 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 Class B Class C
Shares Shares Shares
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge 4.75% None None
on Purchases (as a %
of offering price)
- ------------------------------------------------------------------------
Sales Charge on
Reinvested Dividends None None None
- ------------------------------------------------------------------------
Deferred Sales Charge None(1) 5% in the first 1% if shares are
(as a % of the lower of year, declining redeemed within
the original purchase to 1% in the 12 months of
price or redemption sixth year and purchase(2)
proceeds) eliminated
thereafter(2)
- -----------------------------------------------------------------------
Exchange Fee None None None
</TABLE>
1. If you invest $1 million or more ($500,000 or more for purchases by
OppenheimerFunds prototype 401(k) plans) in Class A shares you may have
to pay a sales charge of up to 1% if you sell your shares within 18
calendar months from the end of the calendar month in which you purchased
those shares. See "How to Buy Shares - Buying Class A Shares," below.
2. See "How to Buy Shares - Buying Class B Shares," below and "How to Buy
Shares - Buying Class C 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, OppenheimerFunds,
Inc. (which is referred to in this Prospectus as the "Manager"). The
rates of the Manager's fees are set forth in "How the Fund is Managed,"
below. The Fund has other regular expenses for services, such as transfer
agent fees, custodial fees paid to the bank that holds its portfolio
securities, audit fees and legal expenses. Those expenses are detailed
in the Fund's financial statements in the Statement of Additional
Information.
Annual Fund Operating Expenses as a Percentage of Average Net Assets
<TABLE>
<CAPTION>
Class A Class B Class C
Shares Shares Shares(1)
<S> <C> <C> <C>
Management Fees 0.75% 0.75% 0.75%
(Restated)
- ----------------------------------------------------------------------
12b-1 Distribution Plan Fees 0.25% 1.00% 1.00%
- ----------------------------------------------------------------------
Other Expenses 0.38% 0.40% 0.40%
- ----------------------------------------------------------------------
Total Fund 1.38% 2.15% 2.15%
Operating Expenses
</TABLE>
1. Total Annual Fund Operating expenses for Class C shares are estimates
based on amounts that would have been payable assuming Class C shares were
outstanding for the full year.
The numbers in the table above are based on the Fund's expenses in
its last fiscal year ended December 31, 1995. These amounts are shown as
a percentage of the average net assets of each class of the Fund's shares
for that year. The management fees have been restated to reflect the
Fund's new management fees set forth in the new investment advisory
agreement dated July 10, 1995 with OppenheimerFunds, Inc. The restated
management fee rate is as if the new investment advisory agreement had
been in effect during the entire fiscal year ended December 31, 1995. Had
the management fee rate not changed, the actual management fee would have
been 0.50% for Class A and Class B shares, respectively, and total fund
operating expenses would have been 1.07% for Class A and 1.82% for Class
B, respectively.
The 12b-1 Distribution Plan Fees for Class A shares are service fees
(the maximum fee is 0.25% of average annual net assets of that class), and
for Class B and Class C shares, are the service 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%. These Plans are discussed in greater detail
in "How to Buy Shares." Class C shares were not publicly offered before
July 11, 1995. Therefore, the "Annual Fund Operating Expenses" as to
Class C shares are estimates based on expenses for the period from the
inception date until December 31, 1995.
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.
- Examples. To try to show the effect of these expenses on an
investment over time, we have created the hypothetical examples shown
below. Assume that you make a $1,000 investment in each class of shares
of the Fund, and that the Fund's annual return is 5%, and that its
operating expenses for each class are the ones shown in the chart above
as restated. If you were to redeem your shares at the end of each period
shown below, your investment would incur the following expenses by the end
of 1, 3, 5 and 10 years:
1 year 3 years 5 years 10 years*
- ----------------------------------------------------------------------
Class A Shares $61 $89 $119 $205
- ----------------------------------------------------------------------
Class B Shares $72 $97 $135 $211
- ----------------------------------------------------------------------
Class C Shares $32 $67 $115 $248
If you did not redeem your investment, it would incur the following
expenses:
Class A Shares $61 $89 $119 $205
- ----------------------------------------------------------------------
Class B Shares $22 $67 $115 $211
- ----------------------------------------------------------------------
Class C Shares $22 $67 $115 $248
*The Class B expenses in years 7 through 10 are based on Class A
expenses shown above, because the Fund automatically converts your Class
B shares into Class A shares after 6 years. Because of the effect of the
asset-based sales charge and the contingent deferred sales charge on Class
B and Class C shares, long-term Class B and Class C shareholders could pay
the economic equivalent of an amount greater than the maximum front-end
sales charge allowed under applicable regulations. For Class B
shareholders, the automatic conversion of Class B shares to Class A shares
is designed to minimize the likelihood that this will occur. Please refer
to "How to Buy Shares - Class B Shares" for more information.
These examples show the effect of expenses on an investment, but are
not meant to state or predict actual or expected costs or investment
returns of the Fund, all of which will be more or less than those shown.
A Brief Overview of the Fund
Some of the important facts about the Fund are summarized below, with
references to the section of this Prospectus where more complete
information can be found. You should carefully read the entire Prospectus
before making a decision about investing in the Fund. Keep the Prospectus
for reference after you invest, particularly for information about your
account, such as how to sell or exchange shares.
- What Is The Fund's Investment Objective? The Fund seeks to achieve
a high level of current income by investing mainly in debt instruments.
- What Does The Fund Invest In? Under normal market conditions, the
Fund invests at least 65% of its total assets in a diversified portfolio
of investment grade fixed-income securities. These include (i)
investment-grade debt securities rated BBB or above by Standard and Poor's
Corporation or Baa or above by Moody's Investors Service, Inc. or, if
unrated, are of comparable quality as determined by the Fund's Manager;
(ii) securities issued or guaranteed as to principal and interest by the
U.S. Government, its agencies or instrumentalities or obligations secured
by such securities ("U.S. Government Securities"); and (iii) high-quality,
short-term money market instruments.
The Fund may invest up to 35% of its total assets in non-investment
grade debt instruments. Although non-investment grade securities
generally offer the potential for higher income than investment grade
securities, they may be subject to greater market fluctuations and a
greater risk of default because of the issuer's low creditworthiness. The
Fund may also write covered calls and use certain types of securities
called "derivative investments" and hedging instruments to try to manage
investment risks. These investments are more fully explained in
"Investment Objective and Policies" starting on page ___.
- Who Manages The Fund? The Fund's investment adviser (the
"Manager") is OppenheimerFunds, Inc., (which changed its name from
Oppenheimer Management Corporation effective January 5, 1996). The
Manager (including a subsidiary) manages investment company portfolios
currently having over $50 billion in assets. The Manager is paid a
management fee by the Fund, based on its net assets. The Fund's portfolio
managers, who are primarily responsible for the selection of the Fund's
securities, are David P. Negri and David A. Rosenberg. The 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 its fees.
- How Risky is the Fund? All investments carry risks to some degree.
The Fund's investments in fixed-income securities are subject to changes
in their value and their yield from a number of factors, including changes
in the general bond market and changes in interest rates. Non-investment
grade securities may have speculative characteristics and be subject to
a greater risk of default than investment grade securities. These changes
affect the value of the Fund's investments and its share prices for each
class of its shares. In the OppenheimerFunds spectrum the Fund is
generally considered a moderately risky income fund, more aggressive than
money market funds but less aggressive than high yield funds. While the
Manager tries to reduce risks by diversifying investments, by carefully
researching securities before they are purchased for the portfolio, and
in some cases by using hedging techniques, there is no guarantee of
success in achieving the Fund's objective and your shares may be worth
more or less than their original cost when you redeem them. Please refer
to "Investment Objectives and Policies" starting on page ___ for a more
complete discussion of the Fund's investment risks.
- How Can I Buy Shares? You can buy shares through your dealer or
financial institution, or you can purchase shares directly through the
Distributor by completing an Application or by using an Automatic
Investment Plan under AccountLink. Please refer to "How to Buy Shares"
starting on page ___ for more details.
- Will I Pay A Sales Charge To Buy Shares? The Fund has three
classes of shares. All classes have the same investment portfolio but
different expenses. Class A shares are offered with a front-end sales
charge, starting at 4.75%, which are reduced for larger purchases. Class
B and Class C shares are offered without a front-end sales charge, but may
be subject to a contingent deferred sales charge if redeemed within 6
years or 12 months of purchase, respectively. There is also an annual
asset-based sales charge on Class B and Class C shares. Please review
"How to Buy Shares" starting on page ____ for more details, including a
discussion about factors you and your financial advisor should consider
in determining which class may be appropriate for you.
- How Can I Sell My Shares? Shares can be redeemed by mail or by
telephone call to the Transfer Agent on any business day, or through your
dealer or by using Checkwriting. Please refer to "How to Sell Shares"
starting on page ___. The Fund also offers exchange privileges to other
Oppenheimer funds, described in "How to Exchange Shares" on page ___.
- How Has The Fund Performed? The Fund measures its performance by
quoting its yield, average annual total return and cumulative total
return, which measure historical performance. Those yields and total
returns can be compared to the returns (over similar periods) of other
funds. Prior to July 10, 1995, the Fund's investments were limited to
investment grade bonds, U.S. Government Securities, and money market
instruments. 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 pages ____.
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 for the 1991
through 1995 fiscal years 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, 1995 is included in the
Statement of Additional Information. Class C shares were publicly offered
only during a portion of that period, commencing July 11, 1995. 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
-----------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
1995 1994 1993 1992 1991(4)
<S> <C> <C> <C> <C> <C>
================================================================
=====================================================
PER SHARE OPERATING DATA:
Net asset value, beginning of period $10.01 $11.12 $10.74 $10.80 $9.86
- ---------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .69 .65 .69 .75 .82
Net realized and unrealized gain (loss) .96 (1.08) .40 (.05) .90
- ---------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment
operations 1.65 (.43) 1.09 .70 1.72
- ---------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.68) (.65) (.71) (.76) (.78)
Dividends in excess of net investment
income -- (.03) -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Total dividends and distributions
to shareholders (.68) (.68) (.71) (.76) (.78)
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.98 $10.01 $11.12 $10.74 $10.80
================================================================
TOTAL RETURN, AT NET ASSET VALUE (5) 16.94% (3.87)% 10.30% 6.77% 18.28%
================================================================
=====================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $169,059 $96,640 $110,759 $106,290 $90,623
- ---------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $116,940 $102,168 $111,702 $98,672 $86,471
- ---------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 6.47% 6.25% 6.20% 7.00% 8.02%
Expenses, before voluntary reimbursement
by the Manager 1.27% 1.06% 1.06% 1.10% 1.23%
Expenses, net of voluntary reimbursement
by the Manager 1.26% N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (7) 175.4% 70.3% 110.1% 116.4% 97.1%
<FN>
1. For the period from July 11, 1995 (inception of offering) to December 31,
1995.
2. For the period from May 1, 1993 (inception of offering) to December 31,
1993.
3. 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.
4. On March 28, 1991, OppenheimerFunds, Inc. became the investment advisor to
the Fund.
</FN>
</TABLE>
<PAGE>
Investment Objective and Policies
Objective. The Fund seeks a high level of current income by investing
mainly in debt instruments.
Investment Policies and Strategies.
Under normal market conditions, the Fund invests at least 65% of its total
assets in investment grade debt securities, U.S. Government Securities,
and money market instruments. Investment-grade debt securities are those
rated in one of the four highest categories by Standard & Poor's
Corporation ("Standard & Poor's"), Moody's Investors Service, Inc.
("Moody's"), Fitch Investors Service, Inc. or other nationally-recognized
rating organization. A description of these rating categories is included
as an Appendix to the Fund's Statement of Additional Information. Debt
securities (often referred to as "fixed-income securities") are used by
issuers to borrow money from investors. The issuer promises to pay the
investor interest at a fixed or variable rate, and to pay back the amount
it borrowed (the "principal") at maturity. Some debt securities, such as
zero coupon bonds (discussed below) do not pay current interest. The Fund
may invest up to 35% of its total assets in debt securities rated less
than investment grade or, if unrated, judged by the Manager to be of
comparable quality to such lower-rated securities (collectively,
"lower-grade securities"). Lower-grade securities include securities
rated BB, B, CCC, CC and D by Standard & Poor's or Ba, B, Caa, Ca and C
by Moody's. Lower-grade securities (often called "junk bonds") are
considered speculative and involve greater risk. They may be less liquid
than higher-rated securities. If the Fund were forced to sell a lower-
grade debt security during a period of rapidly-declining prices, it might
experience significant losses especially if a substantial number of other
holders decide to sell at the same time. Other risks may involve the
default of the issuer or price changes in the issuer's securities due to
changes in the issuer's financial strength or economic conditions. The
Fund is not obligated to dispose of securities when issuers are in default
or if the rating of the security is reduced. These risks are discussed
in more detail in the Statement of Additional Information.
The Manager anticipates that the Fund would generally invest at least
75% of its total assets in: (i) U.S. corporate bonds rated "A" or better
and (ii) U.S. government and agency bonds. The Manager further
anticipates that the Fund would invest an additional 15% of its total
assets in non-investment grade domestic corporate bonds and 10% of its
total assets in non-investment grade foreign bonds. These anticipated
investment targets, including the allocation between domestic and foreign
lower-grade debt securities, are subject to fluctuation and may be changed
by the Manager without further notice to shareholders or amended
prospectus disclosure. Under normal market conditions, the Fund's target
duration will be approximately five. Duration is a measure of the
anticipated rise or decline in value for a 1% change in interest rates.
For example, a duration of 2 in a portfolio indicates that for every 1%
rise in general interest rates, the portfolio's value would be expected
to fall 2%, and vice versa.
When investing the Fund's assets, the Manager considers many factors,
including current developments and trends in both the economy and the
financial markets. The Fund may try to hedge against losses in the value
of its portfolio of securities by using hedging strategies described
below. The Manager may employ special investment techniques, also
described below. Additional information about the securities the Fund may
invest in, the hedging strategies the Fund may employ and the special
investment techniques may be found under the same headings in the
Statement of Additional Information.
- Interest Rate Risks. In addition to credit risks, described
below, debt securities are subject to changes in their value due to
changes in prevailing interest rates. When prevailing interest rates
fall, the values of already-issued debt securities generally rise. When
interest rates rise, the values of already-issued debt securities
generally decline. The magnitude of these fluctuations will often be
greater for longer-term debt securities than shorter-term debt securities.
Changes in the value of securities held by the Fund mean that the Fund's
share prices can go up or down when interest rates change, because of the
effect of the change on the value of the Fund's portfolio of debt
securities.
- Credit Risks. Debt securities are also subject to credit risks.
Credit risk relates to the ability of the issuer of a debt security to
make interest or principal payments on the security as they become due.
Generally, higher-yielding, lower-rated bonds (which the Fund may hold)
are subject to greater credit risk than higher-rated bonds. Securities
issued or guaranteed by the U.S. Government are subject to little, if any,
credit risk. While the Manager may rely to some extent on credit ratings
by nationally recognized rating agencies, such as Standard & Poor's or
Moody's, in evaluating the credit risk of securities selected for the
Fund's portfolio, it may also use its own research and analysis. However,
many factors affect an issuer's ability to make timely payments, and there
can be no assurance that the credit risks of a particular security will
not change over time.
- Can the Fund's Investment Objective and Policies Change? The Fund
has an investment objective, which is described above, as well as
investment policies it follows to try to achieve its objective.
Additionally, the Fund uses certain investment techniques and strategies
in carrying out those investment policies. The Fund's investment policies
and techniques are not "fundamental" unless this Prospectus or the
Statement of Additional Information says that a particular policy is
"fundamental." The Fund's investment objective is a fundamental policy.
Fundamental policies are those that cannot be changed without the
approval of a "majority" of the Fund's outstanding voting shares. The term
"majority" is defined in the Investment Company Act to be a particular
percentage of outstanding voting shares (and this term is explained in the
Statement of Additional Information). The Fund's Board of Trustees may
change non-fundamental policies without shareholder approval, although
significant changes will be described in amendments to this Prospectus.
- U.S. Government Securities. Certain U.S. Government Securities,
including U.S. Treasury bills, notes and bonds, and mortgage participation
certificates guaranteed by Government National Mortgage Association
("Ginnie Mae") are supported by the full faith and credit of the U.S.
government, which in general terms means that the U.S. Treasury stands
behind the obligation to pay principal and interest. Ginnie Mae
certificates are one type of mortgage-related U.S. Government Security the
Fund invests in. Other mortgage-related U.S. Government Securities the
Fund invests in that are issued or guaranteed by federal agencies or
government-sponsored entities are not supported by the full faith and
credit of the U.S. government. Those securities include obligations
supported by the right of the issuer to borrow from the U.S. Treasury,
such as obligations of Federal Home Loan Mortgage Corporation ("Freddie
Mac"), obligations supported only by the credit of the instrumentality,
such as Federal National Mortgage Association ("Fannie Mae") and
obligations supported by the discretionary authority of the U.S.
Government to repurchase certain obligations of U.S. Government agencies
or instrumentalities such as the Federal Land Banks and the Federal Home
Loan Banks. Other U.S. Government Securities the Fund invests in are
collateralized mortgage obligations ("CMOs").
The value of U.S. Government Securities will fluctuate depending on
prevailing interest rates. Because the yields on U.S. Government
Securities are generally lower than on corporate debt securities, when the
Fund holds U.S. Government Securities it may attempt to increase the
income it can earn from them by writing covered call options against them,
when market conditions are appropriate. Writing covered calls is
explained below, under "Other Investment Techniques and Strategies."
- Short-Term Debt Securities. The high quality, short-term money
market instruments in which the Fund may invest include U.S. Treasury and
agency obligations; commercial paper (short-term, unsecured, negotiable
promissory notes of a domestic or foreign company); short-term obligations
of corporate issuers; bank participation certificates; and certificates
of deposit and bankers' acceptances (time drafts drawn on commercial banks
usually in connection with international transactions) of banks and
savings and loan associations.
- Mortgage-Backed Securities and CMOs. Certain mortgage-backed
securities, whether issued by the U.S. government or by private issuers,
"pass-through" to investors the interest and principal payments generated
by a pool of mortgages assembled for sale by government agencies. Pass-
through mortgage-backed securities entail the risk that principal may be
repaid at any time because of prepayments on the underlying mortgages.
That may result in greater price and yield volatility than traditional
fixed-income securities that have a fixed maturity and interest rate.
The Fund may also invest in collateralized mortgage-backed
obligations (referred to as "CMOs"), which generally are obligations fully
collateralized by a portfolio of mortgages or mortgage-related securities.
Payment of the interest and principal generated by the pool of mortgages
is passed through to the holders as the payments are received. CMOs are
issued with a variety of classes or series which have different
maturities. Certain CMOs may be more volatile and less liquid than other
types of mortgage-related securities, because of the possibility of the
prepayment of principal due to prepayments on the underlying mortgage
loans.
The Fund may also invest in CMOs that are "stripped." That means
that the security is divided into two parts, one of which receives some
or all of the principal payments (and is known as a "P/O") and the other
which receives some or all of the interest (and is known as an "I/O").
P/Os and I/Os are generally referred to as "derivative investments,"
discussed further below.
The yield to maturity on the class that receives only interest is
extremely sensitive to the rate of payment of the principal on the
underlying mortgages. Principal prepayments increase that sensitivity.
Stripped securities that pay "interest only" are therefore subject to
greater price volatility when interest rates change, and they have the
additional risk that if the underlying mortgages are prepaid, the Fund
will lose the anticipated cash flow from the interest on the prepaid
mortgages. That risk is increased when general interest rates fall, and
in times of rapidly falling interest rates, the Fund might receive back
less than its investment.
The value of "principal only" securities generally increases as
interest rates decline and prepayment rates rise. The price of these
securities is typically more volatile than that of coupon-bearing bonds
of the same maturity.
Private-issuer stripped securities are generally purchased and sold
by institutional investors through investment banking firms. At present,
established trading markets have not yet developed for these securities.
Therefore, most private-issuer stripped securities may be deemed
"illiquid." If the Fund holds illiquid stripped securities, the amount
it can hold will be subject to the Fund's investment policy limiting
investments in illiquid securities to 10% of the Fund's net assets.
The Fund may also enter into "forward roll" transactions with
mortgage-backed securities. The Fund sells mortgage-backed securities it
holds to banks or other buyers and simultaneously agrees to repurchase a
similar security from that party at a later date at an agreed-upon price.
Forward rolls are considered to be a borrowing. The Fund is required to
segregate liquid assets with its custodian bank in an amount equal to its
obligation under the forward roll. The main risk of this investment
strategy is risk of default by the counterparty.
- Asset-Backed Securities. The Fund may invest in "asset-backed"
securities. These represent interests in pools of consumer loans and
other trade receivables, similar to mortgage-backed securities. They are
issued by trusts and "special purpose corporations." They are backed by
a pool of assets, such as credit card or auto loan receivables, which are
the obligations of a number of different parties. The income from the
underlying pool is passed through to holders, such as the Fund. These
securities may be supported by a credit enhancement, such as a letter of
credit, a guarantee or a preference right. However, the extent of the
credit enhancement may be different for different securities and generally
applies to only a fraction of the security's value. These securities
present special risks. For example, in the case of credit card
receivables, the issuer of the security may have no security interest in
the related collateral.
- Zero Coupon Securities. These securities, which may be issued by
the U.S. government, its agencies or instrumentalities or by private
issuers, are purchased at a substantial discount from their face value.
They are subject to greater fluctuations in market value as interest rates
change than debt securities that pay interest periodically. Interest
accrues on zero coupon bonds even though cash is not actually received.
- - Other Debt Securities. The Fund may invest in preferred stocks.
Preferred stock, unlike common stock, generally offers a stated dividend
rate payable from the corporation's earnings. Such preferred stock
dividends may be cumulative or non-cumulative, fixed, participating, or
auction rate. If interest rates rise, a fixed dividend on preferred
stocks may be less attractive, causing the price of preferred stocks to
decline. The rights to payment of preferred stocks are generally
subordinate to rights associated with a corporation's debt securities.
- 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. If the Fund's assets are held
abroad, the countries in which they are held and the sub-custodians
holding them will be approved by the Trust's Board of Trustees if required
to do so by applicable regulations.
Foreign securities have special risks. There are certain risks of
holding foreign securities. The first is the risk of changes in foreign
currency values. Because the Fund may purchase securities denominated in
foreign currencies, a change in the value of a foreign currency against
the U.S. dollar will result in a change in the U.S. dollar value of the
Fund's securities denominated in that currency. The currency rate change
will also affect its income available for distribution. Although the
Fund's investment income from foreign securities may be received in
foreign currencies, the Fund will be required to distribute its income in
U.S. dollars. Therefore, the Fund will absorb the cost of currency
fluctuations. If the Fund suffers losses on foreign currencies after it
has distributed its income during the year, the Fund may find that it has
distributed more income than was available from actual investment income.
That could result in a return of capital to shareholders.
There are other risks of foreign investing. For example, foreign
issuers are not required to use generally-accepted accounting principles.
If foreign securities are not registered for sale in the U.S. under U.S.
securities laws, the issuer does not have to comply with the disclosure
requirements of our laws, which are generally more stringent than foreign
laws. The values of foreign securities investments will be affected by
other factors, including exchange control regulations or currency blockage
and possible expropriation or nationalization of assets. There may also
be changes in governmental administration or economic or monetary policy
in the U.S. or abroad that can affect foreign investing. In addition, it
is generally more difficult to obtain court judgments outside the United
States if the Fund has to sue a foreign broker or issuer. Additional
costs may be incurred because foreign broker commissions are generally
higher than U.S. rates, and there are additional custodial costs
associated with holding securities abroad.
- Portfolio Turnover. A change in the securities held by the Fund
is known as "portfolio turnover." While it is a policy of the Fund
generally not to engage in trading for short-term gains, portfolio changes
will be made without regard to the length of time a security has been held
or whether a sale would result in a profit or loss, if in the Manager's
judgment, such transactions are advisable in light of the circumstances
of a particular company or within a particular industry or in light of
market, economic or financial conditions. High portfolio turnover may
affect the ability of the Fund to qualify as a "regulated investment
company" under the Internal Revenue Code for tax deductions for dividends
and capital gains distributions the Fund pays to shareholders. Portfolio
turnover affects brokerage costs, dealer markups and other transaction
costs, and results in the Fund's realization of capital gains or losses
for tax purposes. See "Financial Highlights" above, "Dividends, Capital
Gains and Taxes" below and "Brokerage Policies of the Fund" in the
Statement of Additional Information.
Other Investment Techniques and Strategies. The Fund may also use the
investment techniques and strategies described below. These techniques
involve certain risks. The Statement of Additional Information contains
more information about these practices, including limitations on their use
that are designed to reduce some of the risks.
- Hedging. The Fund may purchase and sell certain kinds of futures
contracts, put and call options, forward contracts, and options on
futures, broadly-based stock or bond indices and foreign currency, or
enter into interest rate swap agreements. These are all referred to as
"hedging instruments." The Fund does not use hedging instruments for
speculative purposes, and has limits on the use of them, described below.
The Fund may buy and sell options, futures and forward contracts for
a number of purposes. It may do so to try to manage its exposure to the
possibility that the prices of its portfolio securities may decline, or
to establish a position in the securities market as a temporary substitute
for purchasing individual securities. It may do so to try to manage its
exposure to changing interest rates. Some of these strategies, such as
selling futures, buying puts and writing covered calls, hedge the Fund's
portfolio against price fluctuations.
Other hedging strategies, such as buying futures and call options and
writing puts, tend to increase the Fund's exposure to the securities
market. Forward 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, defensive reasons, or
to raise cash to distribute to shareholders.
-Futures. The Fund may buy and sell futures contracts that relate
to (1) foreign currencies (these are Forward Contracts), (2) financial
indices, such as U.S. or foreign government securities indices, corporate
debt securities indices or equity securities indices (these are referred
to as Financial Futures), and (3) interest rates (these are referred to
as Interest Rate Futures). These types of Futures are described in
"Hedging" in the Statement of Additional Information.
- Put and Call Options. The Fund may buy and sell certain kinds of
put options (puts) and call options (calls).
The Fund may buy calls on securities, indices, foreign currencies,
or Futures, or to terminate its obligation on a call the Fund previously
wrote. The Fund may write (that is, sell) call options on securities,
indices, foreign currencies or Futures, but only if they are "covered."
That means the Fund must own the security subject to the call while the
call is outstanding or segregate appropriate liquid assets. Calls on
Futures must be covered by securities or other liquid assets the Fund owns
and segregated to enable it to satisfy its obligations if the call is
exercised. When the Fund writes a call, it receives cash (called a
premium). The call gives the buyer the ability to buy the investment on
which the call was written from the Fund at the call price during the
period in which the call may be exercised. If the value of the investment
does not rise above the call price, it is likely that the call will lapse
without being exercised, while the Fund keeps the cash premium (and the
investment). Up to 50% of the Fund's total assets may be subject to
calls.
The Fund may purchase put options. Buying a put on an investment
gives the Fund the right to sell the investment at a set price to a seller
of a put on that investment. The Fund may buy puts that relate to
securities, indices, Futures, or foreign currencies. The Fund may buy a
put on a security whether or not the Fund owns the particular security in
its portfolio. The Fund may sell a put on securities, indices, Futures,
or foreign currencies, but only if the puts are covered by segregated
liquid assets. The Fund will not write puts if more than 50% of the
Fund's net assets would have to be segregated to cover put obligations.
A call or put may be purchased only if, after the purchase, the value
of all call and put options held by the Fund will not exceed 5% of the
Fund's total assets. The Fund may buy and sell put and call options that
are traded on U.S. or foreign securities or commodity exchanges or are
traded in the over-the-counter markets. In the case of foreign currency
options, they may be quoted by major recognized dealers in those options.
Options traded in the over-the-counter market may be "illiquid," and
therefore may be subject to the Fund's restrictions on illiquid
investments.
-Forward Contracts. Forward Contracts are foreign currency exchange
contracts. They are used to buy or sell foreign currency for future
delivery at a fixed price. The Fund uses them to try to "lock in" the
U.S. dollar price of a security denominated in a foreign currency that the
Fund has purchased or sold, or to protect against possible losses from
changes in the relative value of the U.S. dollar and a foreign currency.
The Fund may also use "cross hedging," where the Fund hedges against
changes in currencies other than the currency in which a security it holds
is denominated.
-Interest Rate Swaps. In an interest rate swap, the Fund and another
party exchange their right to receive, or their obligation to pay,
interest on a security. For example, they may swap a right to receive
floating rate interest payments for fixed rate payments. The Fund enters
into swaps only on securities it owns. The Fund may not enter into swaps
with respect to more than 25% of its total assets. The Fund will
segregate liquid assets (such as cash or U.S. Government securities) to
cover any amounts it could owe under swaps that exceed the amounts it is
entitled to receive, and it will adjust that amount daily, as needed.
-Hedging instruments can be volatile investments and may involve
special risks. The use of hedging instruments requires special skills and
knowledge of investment techniques that are different from what is
required for normal portfolio management. If the Manager uses a hedging
instrument at the wrong time or judges market conditions incorrectly,
hedging strategies may reduce the Fund's return. The Fund could also
experience losses if the prices of its futures and options positions were
not correlated with its other investments or if it could not close out a
position because of an illiquid market for the future or option.
Options trading involves the payment of premiums and has special tax
effects on the Fund. There are also special risks in particular hedging
strategies. For example, if a covered call written by the Fund is
exercised on an investment that has increased in value, the Fund will be
required to sell the investment at the call price and will not be able to
realize any profit if the investment has increased in value above the call
price. In writing puts, there is a risk that the Fund may be required to
buy the underlying security at a disadvantageous price. The use of
Forward Contracts may reduce the gain that would otherwise result from a
change in the relationship between the U.S. dollar and a foreign currency.
Interest rate swaps are subject to the risk that the other party will fail
to meet its obligations (or that the underlying issuer will fail to pay
on time), as well as interest rate risks. The Fund could be obligated to
pay more under its swap agreements than it receives under them, as a
result of interest rate changes. These risks are described in greater
detail in the Statement of Additional Information.
- Short Sales "Against-the-Box". The Fund may not sell securities
short except in collateralized transactions referred to as short sales
"against-the-box". The Fund may not enter into these transactions if more
than 15% of the Fund's net assets will be held as collateral for such
short sales at any one time.
- Non-Concentration. The Fund shall not invest 25% or more of its
total assets in any industry; however, for the purposes of this
restriction, obligations of the U.S. government, its agencies or
instrumentalities are not considered to be part of any single industry.
- When-Issued and Delayed Delivery Transactions. The Fund may
purchase securities on a "when-issued" basis and may purchase or sell such
securities on a "delayed delivery" basis. These terms refer to securities
that have been created and for which a market exists, but which are not
available for immediate delivery or are to be delivered at a later date.
There may be a risk of loss to the Fund if the value of the security
changes prior to the settlement date.
- Repurchase Agreements. The Fund may enter into repurchase
agreements. In a repurchase transaction, the Fund buys a security and
simultaneously sells it to the vendor for delivery at a future date.
Repurchase agreements must be fully collateralized. However, if the
vendor fails to pay the resale price on the delivery date, the Fund may
incur costs in disposing of the collateral and may experience losses if
there is any delay in its ability to do so. The Fund will not enter into
a repurchase agreement that will cause more than 10% of the Fund's net
assets to be subject to repurchase agreements maturing in more than seven
days. There is no limit on the amount of the Fund's net assets that may
be subject to repurchase agreements of seven days or less. See the
Statement of Additional Information for more details.
- Illiquid and Restricted Securities. Under the policies established
by the Fund's Board of Trustees, the Manager determines the liquidity of
certain of the Fund's investments. Investments may be illiquid because of
the absence of an active trading market, making it difficult to value them
or dispose of them promptly at an acceptable price. A restricted security
is one that has a contractual restriction on its resale or which cannot
be sold publicly until it is registered under the Securities Act of 1933.
The Fund will not invest more than 10% of its net assets in illiquid or
restricted securities. The Fund's percentage limitation on these
investments does not apply to certain restricted securities that are
eligible for resale to qualified institutional purchasers.
- Loans of Portfolio Securities. The Fund may lend its portfolio
securities to brokers, dealers and other financial institutions. The Fund
must receive collateral for a loan. These loans are limited to not more
than 25% of the value of the Fund's total assets and are subject to other
conditions described in the Statement of Additional Information. The Fund
presently does not intend to lend its portfolio securities, but if it
does, the value of securities loaned is not expected to exceed 5% of the
value of the Fund's total assets in the coming year.
- Derivative Investments. In general, a "derivative investment" is
a specially designed investment whose performance is linked to the
performance of another investment or security, such as an option, future,
index, currency or commodity. The Fund may not purchase or sell physical
commodities; however, the Fund may purchase and sell foreign currency and
engage in hedging transactions. This shall not prevent the Fund from
buying or selling options and futures contracts or from investing in
securities or other instruments backed by physical commodities.
Derivative investments used by the Fund are used in some cases for
hedging purposes and in other cases to seek income. In the broadest
sense, exchange-traded options and futures contracts (discussed in
"Hedging," above) may be considered "derivative investments."
The Fund may invest in different types of derivatives. "Index-
linked" or "commodity-linked" notes are debt securities of companies that
call for interest payments and/or payment on the maturity of the note in
different terms than the typical note where the borrower agrees to pay a
fixed sum on the maturity of the note. Principal and/or interest payments
on an index-linked note depend on the performance of one or more market
indices, such as the S & P 500 Index or a weighted index of commodity
futures, such as crude oil, gasoline and natural gas. The Fund may invest
in "debt exchangeable for common stock" of an issuer or "equity-linked"
debt securities of an issuer. At maturity, the principal amount of the
debt security is exchanged for common stock of the issuer or is payable
in an amount based on the issuer's common stock price at the time of
maturity. In either case there is a risk that the amount payable at
maturity will be less than the expected principal amount of the debt.
The Fund may also invest in currency-indexed securities. Typically,
these are short-term or intermediate-term debt securities having a value
at maturity, and/or an interest rate, determined by reference to one or
more foreign currencies. The currency-indexed securities purchased by the
Fund may make payments based on a formula. The payment of principal or
periodic interest may be calculated as a multiple of the movement of one
currency against another currency, or against an index. These investments
may entail increased risk to principal and increased price volatility.
There are special risks in investing in derivative investments. The
company issuing the instrument may fail to pay the amount due on the
maturity of the instrument. Also, the underlying investment or security
might not perform the way the Manager expected it to perform. Markets,
underlying securities and indices may move in a direction not anticipated
by the Manager. Performance of derivative investments may also be
influenced by interest rate and stock market changes in the U.S. and
abroad. All of this can mean that the Fund will realize less principal
or income from the investment than expected. Certain derivative
investments held by the Fund may be illiquid. Please refer to "Illiquid
and Restricted Securities."
Other Investment Restrictions. The Fund has other investment restrictions
which are fundamental policies. Under these fundamental policies, the
Fund cannot do any of the following:
- make short sales except for sales "against the box";
- 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);
- 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
- 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 (1) more than 5% of the Fund's total
assets would be invested in the securities of that issuer, or (2) 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 will not normally hold
annual meetings of its shareholders, it may hold shareholder meetings from
time to time on important matters, and shareholders have the right to call
a meeting to remove a Trustee or to take other action described in the
Trust's Declaration of Trust.
The Board of Trustees has the power, without shareholder approval,
to divide unissued shares of the Fund into two or more classes. The Board
has done so, and the Fund currently has three classes of shares, Class A,
Class B and Class C. All 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 on matters
submitted to the vote of shareholders. Shares of each class may have
separate voting rights on matters in which interests of one class are
different from interests of another class, and shares of a particular
class vote as a class on matters that affect that class alone. Shares are
freely transferrable.
The Manager and Its Affiliates. The Fund is managed by the Manager,
OppenheimerFunds, Inc. which is responsible for selecting the Fund's
investments and handles its day-to-day business. The Manager carries out
its duties, subject to the policies established by the Board of Trustees,
under an Investment Advisory Agreement which states the Manager's
responsibilities. The Agreement sets forth the fees paid by the Fund to
the Manager and describes the expenses that the Fund is responsible to pay
to conduct its business. Prior to July 10, 1995, the Manager had
contracted with Massachusetts Mutual Life Insurance Company ("MassMutual")
to act as the Fund's Sub-Adviser. The Sub-Adviser was responsible for
choosing the Fund's investments. The Manager, not the Fund, paid the Sub-
Adviser. Effective July 10, 1995, the Sub-Advisory Agreement between the
Manager and MassMutual terminated and the Manager is responsible for
selecting the Fund's investments as well as for its day to day business,
pursuant to an investment advisory agreement dated July 10, 1995.
The Manager has operated as an investment adviser since 1959. The
Manager (including a subsidiary) currently manages investment companies,
including other Oppenheimer funds, with assets in excess of $50 billion
as of March 1, 1996, and with more than 2.8 million shareholder accounts.
The Manager is owned by Oppenheimer Acquisition Corp., a holding company
that is owned in part by senior officers of the Manager and controlled by
Massachusetts Mutual Life Insurance Company (the "Manager").
- Portfolio Managers. The Portfolio Managers of the Fund are David
P. Negri and David A. Rosenberg. They have been the individuals
principally responsible for the day-to-day management of the Fund's
portfolio since July 10, 1995. Mr. Negri and Mr. Rosenberg is each a Vice
President of the Manager. They each serve as officers and portfolio
managers of other Oppenheimer funds.
- Fees and Expenses. Under a new investment advisory agreement dated
July 10, 1995 with the Manager, the Fund pays the Manager the following
annual fees, which decline on additional assets as the Fund grows: 0.75%
of the first $200 million of the Fund's average annual net assets, 0.72%
of the next $200 million, 0.69% of the next $200 million, 0.66% of the
next $200 million, 0.60% of the next $200 million, and 0.50% of net assets
in excess of $1 billion. The Fund's management fee for its last fiscal
year, restated to reflect the management fee set forth in the new
investment advisory agreement, was 0.75% of average annual net assets for
both its Class A, Class B and Class C shares, as set forth in the "Annual
Fund Operating Expenses" chart on page _____.
The Fund pays expenses related to its daily operations, such as
custodian fees, Trustees' fees, transfer agency fees, legal and auditing
costs. Those expenses are paid out of the Fund's assets and are not paid
directly by shareholders. However, those expenses reduce the net asset
value of shares, and therefore are indirectly borne by shareholders
through their investment. More information about the Investment Advisory
Agreement and the other expenses paid by the Fund is contained in the
Statement of Additional Information.
There is also information about the Fund's brokerage policies and
practices in "Brokerage Policies of the Fund" in the Statement of
Additional Information. That section discusses how brokers and dealers
are selected for the Fund's portfolio transactions. Because the Fund
purchases most of its portfolio securities directly from the sellers and
not through brokers, it incurs relatively little expense for brokerage.
When deciding which brokers to use, the Manager is permitted by the
advisory agreement to consider whether brokers have sold shares of the
Fund or any other funds for which the Manager or its affiliates serve as
investment adviser.
- The Distributor. The Fund's shares are sold through dealers and
brokers that have a sales agreement with OppenheimerFunds Distributor,
Inc., a subsidiary of the Manager that is the Fund's Distributor. The
Distributor also distributes the shares of the other Oppenheimer funds
managed by the Manager and is sub-distributor for funds managed by a
subsidiary of the Manager.
- The Transfer Agent. The Fund's transfer agent is OppenheimerFunds
Services, a division of the Manager, which acts as the shareholder
servicing agent for the Fund and the other Oppenheimer funds on an "at-
cost" basis. Shareholders should direct inquiries about their accounts to
the Transfer Agent at the address and toll-free number shown below in this
Prospectus and on the back cover.
Performance of the Fund
Explanation of Performance Terminology. The Fund uses the terms
"cumulative total return," "average annual total return" and "yield" to
illustrate its performance. The performance of each class of shares is
shown separately, because the performance of each class of shares will
usually be different, as a result of the different kinds of expenses each
class bears. This performance information may be useful to help you see
how well your investment has done and to compare it to other funds or
market indices, as we have done below.
It is important to understand that the Fund's total return and yield
represent past performance and should not be considered to be predictions
of future returns or performance. This performance data is described
below, but more detailed information about how total returns and yields
are calculated is contained in the Statement of Additional Information,
which also contains information about other ways to measure and compare
the Fund's performance. The Fund's investment performance will vary over
time, depending on market conditions, the composition of the portfolio,
expenses and which class of shares you purchase.
- Total Returns. There are different types of total returns used to
measure the Fund's performance. Total return is the change in value of
a hypothetical investment in the Fund over a given period, assuming that
all dividends and capital gains distributions are reinvested in additional
shares. The cumulative total return measures the change in value over the
entire period (for example, ten years). An average annual total return
shows the average rate of return for each year in a period that would
produce the cumulative total return over the entire period. However,
average annual total returns do not show the Fund's actual year-by-year
performance.
When total returns are quoted for Class A shares, they normally
include the payment of the maximum initial sales charge. When total
returns are shown for Class B and Class C shares, they include the
applicable contingent deferred sales charge. Total returns may also be
quoted "at net asset value," without including the initial sales charge
or CDSC, and those returns would be reduced if sales charges were
deducted.
- Yield. Each class of shares calculates its yield by dividing the
annualized net investment income per share on the portfolio during a 30-
day period by the maximum offering price on the last day of the period.
The yield of each class will differ because of the different expenses of
each class of shares. The yield data represents a hypothetical investment
return on the portfolio, and does not measure an investment return based
on dividends actually paid to shareholders. To show that return, a
dividend yield may be calculated. Dividend yield is calculated by
dividing the dividends of a class derived from net investment income
during a stated period by the maximum offering price on the last day of
the period. Yields and dividend yields for Class A shares reflect the
deduction of the maximum initial sales charge, but may also be shown based
on the Fund's net asset value per share. Yields for Class B and Class C
shares do not reflect the deduction of the contingent deferred sales
charge.
How Has the Fund Performed? Below is a discussion by the Manager of the
Fund's performance during its last fiscal year ended December 31, 1995,
followed by a graphical comparison of the Fund's performance to an
appropriate broad-based market index.
- Management's Discussion of Performance. During the Fund's fiscal
year ended December 31, 1995, declines in interest rates lead to a strong
rally in Treasury securities, which contributed to the Fund's positive
overall performance. In the third and fourth quarters of 1995, the Fund
reduced its allocation of Treasury securities, in order to realize profits
and to emphasize investments in different categories of U.S. Government
and corporate bonds. During that period, the Fund added to its holdings
in the corporate bond sector, favoring companies in industries expected
to experience earnings growth, such as cable, communications, broadcasting
and media firms. The Fund also allocated assets to non-agency mortgage-
backed securities, which have a higher degree of issuer default and
therefore pay higher yields than Government agency mortgage obligations.
Bonds issued by utilities and cyclical industries such as mining and
metals companies were underweighted in the Fund's portfolio.
- Comparing the Fund's Performance to the Market. The chart below
shows the performance of a hypothetical $10,000 investment in Class A,
Class B and Class C shares of the Fund held until December 31, 1995; in
the case of Class A shares, from the inception of the class on April 15,
1988, in the case of Class B shares, from the inception of the class on
May 1, 1993 and in the case of Class C shares, from inception of the class
on July 11, 1995.
The performance of each class of the Fund's shares is compared to the
performance of the Lehman Brothers Corporate Bond Index, a broad-based,
unmanaged index of publicly-issued nonconvertible investment grade
corporate debt of U.S. issuers, widely recognized as a measure of the U.S.
fixed-rate corporate bond market. Prior to July 10, 1995, the Fund's
investments were limited to investment grade bonds, U.S. Government
Securities, and money market instruments. The Lehman Brothers Corporate
Bond Index includes a factor for the reinvestment of interest, but does
not reflect expenses or taxes. Index performance reflects the
reinvestment of dividends but does not consider the effect of capital
gains or transaction costs, and none of the data below shows the effect
of taxes. Also, the Fund's performance reflects the effect of Fund
business and operating expenses. While index comparisons may be useful
to provide a benchmark for the Fund's performance, it must be noted that
the Fund's investments are not limited to the securities in any one index.
Moreover, the index performance data does not reflect any assessment of
the risk of the investments included in the index.
Class A Shares
Comparison of Change in Value of $10,000 Hypothetical Investments in:
Oppenheimer Bond Fund (Class A) and Lehman Brothers Corporate Bond Index
(graph)
Average Annual Total Return of Class A Shares of the Fund at 12/31/951
1 Year 5 Years Life
- ---------------------------------------------------------------------
11.38% 8.33% 8.05%
Class B Shares
Comparison of Change in Value of $10,000 Hypothetical Investments in:
Oppenheimer Bond Fund (Class B) and Lehman Brothers Corporate Bond Index
(graph)
Average Annual Total Return of Class B Shares of the Fund at 12/31/952
1 Year Life
- --------------------------------------------------------------------
11.06% 4.40%
Class C Shares
Comparison of Change in Value of $10,000 Hypothetical Investments in:
Oppenheimer Bond Fund (Class C) and Lehman Brothers Corporate Bond Index
(graph)
Average Annual Total Return of Class C Shares of the Fund at 12/31/953
1 Year Life
- --------------------------------------------------------------------
2.76%
1The inception date of the Fund (Class A shares) was 4/15/88. The average
annual total returns and the ending account value in the graph reflect
reinvestment of all dividends and capital gains distributions and are
shown net of the applicable 4.75% maximum initial sales charge.
2Class B shares of the Fund were first publicly offered on 5/1/93. The
average annual total returns reflect reinvestment of all dividends and
capital gains distributions, and are shown net of the applicable 5% and
4% contingent deferred sales charges, respectively, for the 1-year period
and life-of-the-class. The ending account value in the graph is net of
the applicable 4% contingent deferred sales charge.
Past performance is not predictive of future performance.
Graphs are not drawn to same scale.
3Class C shares of the Fund were first publicly offered on 7/11/95. The
cumulative total return for Class C shares reflects the reinvestment of
all dividends and capital gains distributions and is shown net of the
applicable 1% contingent deferred sales charge.
A B O U T Y O U R A C C O U N T
How to Buy Shares
Classes of Shares. The Fund offers investors three different classes of
shares. The different classes of shares represent investments in the same
portfolio of securities but are subject to different expenses and will
likely have different share prices.
- Class A Shares. If you buy Class A shares, you pay an initial
sales charge on investments up to $1 million (up to $500,000 for purchases
by OppenheimerFunds prototype 401(k) plans). If you purchase Class A
shares as part of an investment of $1 million ($500,000 or more for
OppenheimerFunds prototype 401(k) plans) in shares of one or more
Oppenheimer funds, you will not pay an initial sales charge but if you
sell any of those shares within 18 months of buying them, you may pay a
contingent deferred sales charge. The amount of that sales charge will
vary depending on the amount you invested. These sales charges are
described in "Buying Class A Shares" below.
- Class B Shares. If you buy Class B shares, you pay no sales charge
at the time of purchase, but if you sell your shares within six years of
buying them, you will normally pay a contingent deferred sales charge that
varies depending on how long you own your shares. These sales charges are
described in "Buying Class B Shares" below.
- Class C Shares. If you buy Class C shares, you pay no sales charge
at the time of purchase, but if you sell your shares within 12 months of
buying them, you will normally pay a contingent deferred sales charge of
1%. These sales charges are described in "Buying Class C Shares," below.
Which Class of Shares Should You Choose? Once you decide that the Fund
is an appropriate investment for you, the decision as to which class of
shares is better suited to your needs depends on a number of factors which
you should discuss with your financial advisor. The Fund's operating
costs that apply to a class of shares and the effect of the different
types of sales charges on your investment will vary your investment
results over time. The most important factors are how much you plan to
invest and how long you plan to hold your investment. If your goals and
objectives change over time and you plan to purchase additional shares,
you should re-evaluate those factors to see if you should consider another
class of shares.
In the following discussion, to help provide you and your financial
advisor with a framework in which to choose a class, we have made some
assumptions using a hypothetical investment in the Fund. We used the
sales charge rates that apply to each class, and considered the effect of
the annual asset-based sales charges on Class B and Class C expenses
(which, like all expenses, will affect your investment return). For the
sake of comparison, we have assumed that there is a 10% rate of
appreciation in the investment each year. Of course, the actual
performance of your investment cannot be predicted and will vary, based
on the Fund's actual investment returns, and the operating expenses borne
by each class of shares, and which class of shares you invest in.
The factors discussed below are not intended to be investment advice
or recommendations, because each investor's financial considerations are
different. The discussion below of the factors to consider in purchasing
a particular class of shares assume that you will purchase only one class
of shares, and not a combination of shares of different classes.
- - How Long Do You Expect to Hold Your Investment? While future
financial needs cannot be predicted with certainty, knowing how long you
expect to hold your investment will assist you in selecting the
appropriate class of shares. Because of the effect of class-based
expenses, your choice will also depend on how much you plan to invest.
For example, the reduced sales charges available for larger purchases of
Class A shares may, over time, 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 class-based expenses on Class B or Class C
shares for which no initial sales charge is paid.
- Investing for the Short-Term. If you have a short-term investment
horizon (that is, you plan to hold your shares for not more than six
years), you should probably consider purchasing Class A or Class C shares
rather than Class B shares, because of the effect of the Class B
contingent deferred sales charge if you redeem in less than 7 years, as
well as the effect of the Class B asset-based sales charge on the
investment return for that class in the short term. Class C shares might
be the appropriate choice (especially for investments of less than
$100,000), because there is no initial sales charge on Class C shares, and
the contingent deferred sales charge does not apply to shares you sell
after holding them one year.
However, if you plan to invest more than $100,000 for the shorter
term, then the more you invest and the more your investment horizon
increases toward six years, Class C shares might not be as advantageous
as Class A shares. That is because the annual asset-based sales charge
on Class C shares will have a greater impact on your account over the
longer term than the reduced front-end sales charge available for larger
purchases of Class A shares. For example, Class A shares might be more
advantageous than Class C (as well as Class B) shares for investments of
more than $100,000 expected to be held for 5 or 6 years (or more). For
investments over $250,000 expected to be held 4 to 6 years (or more),
Class A shares may become more advantageous than Class C (and Class B)
shares. If investing $500,000 or more, Class A shares may be more
advantageous as your investment horizon approaches 3 years or more.
And for most investors who invest $1 million or more, in most cases
Class A shares will be the most advantageous choice, no matter how long
you intend to hold your shares. For that reason, the Distributor normally
will not accept purchase orders of $500,000 or $1 million or more of Class
B or Class C shares, respectively, from a single investor.
- Investing for the Longer Term. If you are investing for the
longer term, for example, for retirement, and do not expect to need access
to your money for seven years or more, Class B shares may be an
appropriate consideration, if you plan to invest less than $100,000. If
you plan to invest more than $100,000 over the long term, Class A shares
will likely be more advantageous than Class B shares or Class C shares,
as discussed above, because of the effect of the expected lower expenses
for Class A shares and the reduced initial sales charges available for
larger investments in Class A shares under the Fund's Right of
Accumulation.
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 assumed annual performance return stated above, and
therefore 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 or advisable for
Class B or Class C shareholders, you should carefully review how you plan
to use your investment account before deciding which class of shares is
better for you. For example, share certificates are not available for
Class B or Class C shares and if you are considering using your shares as
collateral for a loan, that may be a factor to consider. Also,
checkwriting privileges are not available for Class B or Class C shares
or Class A shares, subject to a contingent deferred sales charge.
Additionally, the dividends payable to Class B and Class C shareholders
will be reduced by the additional expenses borne by those classes, such
as the asset-based sales charges described below and in the Statement of
Additional Information.
- How Does It Affect Payments to My Broker? A salesperson, such as
a broker, or any other person who is entitled to receive compensation for
selling Fund shares may receive different compensation for selling one
class than for selling another class. It is important that investors
understand that the purpose of the Class B and Class C contingent deferred
sales charges and asset-based sales charge for Class B and Class C shares
is the same as the purpose of the front-end sales charge on sales of Class
A shares: to compensate the Distributor for commissions it pays to dealers
and financial institutions for selling shares.
How Much Must You Invest? You can open a Fund account with a minimum
initial investment of $1,000 and make additional investments at any time
with as little as $25. There are reduced minimum investments under
special investment plans:
With Asset Builder Plans, Automatic Exchange Plans, 403(b)(7)
custodial plans and military allotment plans, you can make initial and
subsequent investments for as little as $25; and subsequent purchases of
at least $25 can be made by telephone through AccountLink.
Under pension, profit-sharing or 401(k) 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 Oppenheimer funds (a list of
them appears in the Statement of Additional Information, or you can ask
your dealer or call the Transfer Agent), or by reinvesting distributions
from unit investment trusts that have made arrangements with the
Distributor.
- How Are Shares Purchased? You can buy shares several ways --
through any dealer, broker or financial institution that has a sales
agreement with the Distributor, or directly through the Distributor, or
automatically from your bank account through an Asset Builder Plan under
the OppenheimerFunds AccountLink service. When you buy shares, be sure to
specify Class A, Class B or Class C shares. If you do not choose, your
investment will be made in Class A shares.
- Buying Shares Through Your Dealer. Your dealer will place your
order with the Distributor on your behalf.
- Buying Shares Through the Distributor. Complete an
OppenheimerFunds New Account Application and return it with a check
payable to "OppenheimerFunds 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 to transmit
dividends and distributions.
Shares are purchased for your account on AccountLink on the regular
business day the Distributor is instructed by you to initiate the ACH
transfer to buy shares. You can provide those instructions automatically,
under an Asset Builder Plan, described below, or by telephone instructions
using OppenheimerFunds PhoneLink, also described below. You should
request AccountLink privileges on the application or dealer settlement
instructions used to establish your account. Please refer to
"AccountLink," below for more details.
- Asset Builder Plans. You may purchase shares of the Fund (and up
to four other Oppenheimer funds) automatically each month from your
account at a bank or other financial institution under an Asset Builder
Plan with AccountLink. Details are on the Application and in the Statement
of Additional Information.
- At What Price Are Shares Sold? Shares are sold at the public
offering price based on the net asset value (and any initial sales charge
that applies) that is next determined after the Distributor receives the
purchase order in Denver, Colorado. In most cases, to enable you to
receive that day's offering price, the Distributor must receive your order
by the time of day The New York Stock Exchange closes, which is normally
4:00 P.M., New York time, but may be earlier on some days (all references
to time in this Prospectus mean "New York time"). The net asset value of
each class of shares is determined as of that time on each day The New
York Stock Exchange is open (which is a "regular business day").
If you buy shares through a dealer, the dealer must receive your
order by the close of The New York Stock Exchange on a regular business
day and transmit it to the Distributor so that it is received before the
Distributor's close of business that day, which is normally 5:00 P.M. The
Distributor in its sole discretion may reject any purchase order for the
Fund's shares.
Special Sales Charge Arrangements for Certain Persons. Appendix A and
Appendix B to this Prospectus sets forth conditions for the waiver of, or
exemption from, sales charges or the special sales charge rates that apply
to purchases of shares of the Fund (including purchases by exchange) by
a person who was a shareholder of one of the Former Quest for Value Funds
(as defined in Appendix A) or by a person who was a shareholder of one of
the former Connecticut Mutual Investment Accounts, Inc. funds (as defined
in Appendix B).
Buying 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 to invest
for your account. The sales charge varies depending on the amount of your
purchase. A portion of the sales charge may be retained by the
Distributor and allocated to your dealer as a commission. The current
sales charge rates and commissions paid to dealers and brokers are as
follows:
<TABLE>
<CAPTION>
Front-End Front-End
Sales Charge Sales Charge Commission
as a as a as
Percentage Percentage Percentage
of Offering of Amount of Offering
Amount of Purchase Price Invested Price
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 4.75% 4.98% 4.00%
- ----------------------------------------------------------------------
$50,000 or more but 4.50% 4.71% 3.75%
less than $100,000
- ----------------------------------------------------------------------
$100,000 or more but 3.50% 3.63% 2.75%
less than $250,000
- ----------------------------------------------------------------------
$250,000 or more but 2.50% 2.56% 2.00%
less than $500,000
- ----------------------------------------------------------------------
$500,000 or more but 2.00% 2.04% 1.60%
less than $1 million
</TABLE>
The Distributor reserves the right to reallow the entire commission
to dealers. If that occurs, the dealer may be considered an "underwriter"
under Federal securities laws.
- Class A Contingent Deferred Sales Charge. There is no initial
sales charge on purchases of Class A shares of any one or more of the
Oppenheimer funds in the following cases:
- purchases aggregating $1 million or more, or
- purchases by an OppenheimerFunds prototype 401(k) plan that: (1)
buys shares costing $500,000 or more or (2) has, at the time of purchase,
100 or more eligible participants, or (3) certifies that it projects to
have annual plan purchases of $200,000 or more.
Shares of any of the Oppenheimer funds that offers only one class of
shares that has no designation are considered "Class A shares" for this
purpose. The Distributor pays dealers of record commissions on those
purchases in an amount equal to the sum of 1.0% of the first $2.5 million,
plus 0.50% of the next $2.5 million, plus 0.25% of purchases over $5
million. That commission will be paid only on the amount of those
purchases in excess of $1 million ($500,000 for purchases by
OppenheimerFunds 401(k) prototype plans) that were not previously subject
to a front-end sales charge and dealer commissions.
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
either (1) the aggregate net asset value of the redeemed shares (not
including shares purchased by reinvestment of dividends or capital gain
distributions) or (2) the original cost of the shares, whichever is less.
However, the Class A contingent deferred sales charge will not exceed the
aggregate commissions the Distributor paid to your dealer on all Class A
shares of all Oppenheimer funds 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 Oppenheimer funds
(other than money market funds) under OppenheimerFunds-sponsored 403(b)(7)
custodial plans exceed $5 million per year (calculated per quarter), will
receive monthly one-half of the Distributor's retained commissions on
those sales, and if those sales exceed $10 million per year, those dealers
will receive the Distributor's entire retained commission on those sales.
Reduced Sales Charges for Class A Share Purchases. You may be eligible
to buy Class A shares at reduced sales charge rates in one or more of the
following ways:
- Right of Accumulation. To qualify for the lower sales charge rates
that apply to larger purchases of Class A shares, you and your spouse can
add together Class A and Class B shares you purchase for your individual
accounts, or jointly for trust or custodial accounts on behalf of your
children who are minors. A fiduciary can count all shares purchased for
a trust, estate or other fiduciary account (including one or more employee
benefit plans of the same employer) that has multiple accounts.
Additionally, you can add together current purchases of Class A and
Class B shares of the Fund and other Oppenheimer funds to reduce the sales
charge rate that applies to current purchases of Class A shares. You can
also count Class A and Class B shares of Oppenheimer funds you previously
purchased subject to an initial or contingent deferred sales charge to
reduce the sales charge rate for current purchases of Class A shares,
provided that you still hold your investment in one of the Oppenheimer
funds. 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 Oppenheimer funds are listed in "Reduced Sales Charges" in the
Statement of Additional Information, or a list can be obtained from the
Distributor. 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, if you purchase Class
A shares or Class A shares and Class B shares of the Fund and other
Oppenheimer funds during a 13-month period, you can reduce the sales
charge rate that applies to your purchase of Class A shares. The total
amount of your intended purchases of both Class A and Class B shares will
determine the reduced sales charge rate for Class A shares purchased
during that period. This can include purchases made up to 90 days before
the date of the Letter. More information is contained in the Application
and in "Reduced Sales Charges" in the Statement of Additional Information.
- Waivers of Class A Sales Charges. The Class A sales charges are
not imposed in the circumstances described below. There is an explanation
of this policy in "Reduced Sales Charges" in the Statement of Additional
Information.
Waivers of Initial and Contingent Deferred Sales Charges for Certain
Purchasers. Class A shares purchased by the following investors are not
subject to any Class A sales charges:
- the Manager or its affiliates;
- 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;
- registered management investment companies, or separate accounts
of insurance companies having an agreement with the Manager or the
Distributor for that purpose;
- 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;
- 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);
- dealers, brokers or registered investment advisers that have
entered into an agreement with the Distributor (1) providing specifically
for the use of shares of the Fund in particular investment products made
available to their clients (those clients may be charged a transaction fee
by their dealer, broker or adviser for the purchase or sale of Fund
shares) or (2) to sell shares to defined contribution employee retirement
plans for which the dealer, broker or investment adviser provides
administrative services;
- directors, trustees, officers or full-time employees of OpCap
Advisors or its affiliates, their relatives or any trust, pension, profit
sharing or other benefit plan which beneficially owns shares for those
persons;
- accounts for which Oppenheimer Capital is the investment adviser
(the Distributor must be advised of this arrangement) and persons who are
directors or trustees of the company or trust which is the beneficial
owner of such accounts;
- any unit investment trust that has entered into an appropriate
agreement with the Distributor;
- a TRAC-2000 401(k) plan (sponsored by the former Quest for Value
Advisors) whose Class B or Class C shares of a Former Quest for Value Fund
were exchanged for Class A shares of that Fund due to the termination of
the Class B and C TRAC-2000 program on November 24, 1995; or
- qualified retirement plans that had agreed with the former Quest
for Value Advisors to purchase shares of any of the Former Quest for Value
Funds at net asset value, with such shares to be held through DCXchange,
a sub-transfer agency mutual fund clearinghouse, provided that such
arrangements are consummated and share purchases commence by December 31,
1996.
Waivers of Initial and Contingent Deferred Sales Charges in Certain
Transactions. Class A shares issued or purchased in the following
transactions are not subject to Class A sales charges:
- shares issued in plans of reorganization, such as mergers, asset
acquisitions and exchange offers, to which the Fund is a party;
- shares purchased by the reinvestment of loan repayments by a
participant in a retirement plan for which the Manager or its affiliates
acts as sponsor;
- shares 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;
- shares purchased and paid for with the proceeds of shares redeemed
in the prior 12 months from a mutual fund (other than a fund managed by
the Manager or any of its subsidiaries) on which an initial sales charge
or contingent deferred sales charge was paid (this waiver also applies to
shares purchased by exchange of shares of Oppenheimer Money Market Fund,
Inc. that were purchased and paid for in this manner); this waiver must
be requested when the purchase order is placed for your shares of the
Fund, and the Distributor may require evidence of your qualification for
this waiver; or
- shares purchased with the proceeds of maturing principal of units
of any Qualified Unit Investment Liquid Trust Series.
There is a further discussion of this policy in "Reduced Sales Charges"
in the Statement of Additional Information.
Waivers of the Class A Contingent Deferred Sales Charge for Certain
Redemptions. The Class A contingent deferred sales charge does not apply
to purchases of Class A shares at net asset value without sales charge as
described in the two sections above. It is also waived if shares that
would otherwise be subject to the contingent deferred sales charge are
redeemed in the following cases:
- for retirement distribution or loans to participants or
beneficiaries from qualified retirement plans, deferred compensation plans
or other employee benefit plans, including OppenheimerFunds prototype
401(k) plans (these are all referred to as "Retirement Plans"); or
- to return excess contributions made to Retirement Plans; or
- to make Automatic Withdrawal Plan payments that are limited
annually to no more than 12% of the original value; or
- involuntary redemptions of shares by operation of law or
involuntary redemptions of small accounts (see "Shareholder Account Rules
and Policies," below); or
- if, at the time a purchase order is placed for Class A shares that
would otherwise be subject to the Class A contingent deferred sales
charge, the dealer agrees in writing to accept the dealer's portion of the
commission payable on the sale in installments of 1/18th of the commission
per month (and no further commission will be payable if the shares are
redeemed within 18 months of purchase); or
- for distributions from OppenheimerFunds prototype 401(k) plans for
any of the following cases or purposes: (1) following the death or
disability (as defined in the Internal Revenue Code) of the participant
or beneficiary (the death or disability must occur after the participant's
account was established); (2) hardship withdrawals, as defined in the
plan; (3) under a Qualified Domestic Relations Order, as defined in the
Internal Revenue Code; (4) to meet the minimum distribution requirements
of the Internal Revenue Code; (5) to establish "substantially equal
periodic payments" as described in Section 72(t) of the Internal Revenue
Code, or (6) separation from service.
- Service Plan for Class A Shares. The Fund has adopted a Service
Plan for Class A shares to reimburse the Distributor for a portion of its
costs incurred in connection with the personal service and maintenance of
accounts that hold Class A shares. Reimbursement is made quarterly at an
annual rate that may not exceed 0.25% of the average annual net assets of
Class A shares of the Fund. The Distributor uses all of those fees to
compensate dealers, brokers, banks and other financial institutions
quarterly for providing personal service and maintenance of accounts of
their customers that hold Class A shares and to reimburse itself (if the
Board of Trustees authorizes such reimbursements, which it has not yet
done) for its other expenditures under the Plan.
Services to be provided include, among others, answering customer
inquiries about the Fund, assisting in establishing and maintaining
accounts in the Fund, making the Fund's investment plans available and
providing other services at the request of the Fund or the Distributor.
Payments are made by the Distributor quarterly at an annual rate not to
exceed 0.25% of the average annual net assets of Class A shares held in
accounts of the dealer or its customers. The payments under the Plan
increase the annual expenses of Class A shares. For more details, please
refer to "Distribution and Service Plans" in the Statement of Additional
Information.
Buying 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. The Class B contingent
deferred sales charge is paid to the Distributor to reimburse its expenses
of providing distribution-related services to the Fund in connection with
the sale of Class B shares.
To determine whether the contingent deferred sales charge applies to
a redemption, the Fund redeems shares in the following order: (1) shares
acquired by reinvestment of dividends and capital gains distributions, (2)
shares held for over 6 years, and (3) shares held the longest during the
6-year period.
The amount of the contingent deferred sales charge will depend on the
number of years since you invested and the dollar amount being redeemed,
according to the following schedule:
Contingent Deferred Sales Charge
Beginning of Month in which On Redemptions in That Year
Purchase Order Was Accepted (As % of Amount Subject to Charge)
- ----------------------------------------------------------------------
0 - 1 5.0%
1 - 2 4.0%
2 - 3 3.0%
3 - 4 3.0%
4 - 5 2.0%
5 - 6 1.0%
6 and following None
In the table, a "year" is a 12-month period. All purchases are
considered to have been made on the first regular business day of the
month in which the purchase was made.
- 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, Class B and
Class C Shares" in the Statement of Additional Information.
Buying Class C Shares. Class C shares are sold at net asset value per
share without an initial sales charge. However, if Class C shares are
redeemed within 12 months of their purchase, a contingent deferred sales
charge of 1.0% will be deducted from the redemption proceeds. That sales
charge will not apply to shares purchased by the reinvestment of dividends
or capital gains distributions. The charge will be assessed on the lesser
of the net asset value of the shares at the time of redemption or the
original purchase price. The contingent deferred sales charge is not
imposed on the amount of your account value represented by the increase
in net asset value over the initial purchase price. The Class C contingent
deferred sales charge is paid to the Distributor to reimburse its expenses
of providing distribution-related services to the Fund in connection with
the sale of Class C shares.
To determine whether the contingent deferred sales charge applies to
a redemption, the Fund redeems shares in the following order: (1) shares
acquired by reinvestment of dividends and capital gains distributions, (2)
shares held for over 12 months, and (3) shares held the longest during the
12-month period.
- Distribution and Service Plans for Class B and Class C Shares.
The Fund has adopted Distribution and Service Plans for Class B and Class
C shares to compensate the Distributor for its services and costs in
distributing Class B and Class C shares and servicing accounts. Under the
Plans, 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 and on Class C shares. This payment is made at a fixed rate that is
not related to the Distributor's expenses. The Distributor also receives
from the Fund a service fee of 0.25% per year. If either 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
distributing shares before the Plan was terminated.
Under each Plan, both fees are computed on the average of the net
asset value of shares in the respective class, determined as of the close
of each regular business day during the period. The asset-based sales
charge allows investors to buy Class B or Class C shares without a front-
end sales charge while allowing the Distributor to compensate dealers that
sell those shares. The asset-based sales charge and service fees increase
Class B and Class C expenses by up to 1.00% of the net assets per year of
the respective class.
The Distributor uses the service fees to compensate dealers for
providing personal services for accounts that hold Class B or Class C
shares. Those services are similar to those provided under the Class A
Service Plan, described above. The Distributor pays the 0.25% service
fees to dealers in advance for the first year after Class B or Class C
shares have been sold by the dealer and retains the service fee paid by
the Fund in that year. After the shares have been held for a year, the
Distributor pays the service fees to dealers on a quarterly basis.
The Distributor currently pays sales commissions of 3.75% of the purchase
price of Class B shares to dealers from its own resources at the time of
sale. Including the advance of the service fee, the total amount paid by
the Distributor to the dealer at the time of sale of Class B shares is
4.00% of the purchase price. The Distributor currently pays sales
commissions of 0.75% of the purchase price of Class C shares to dealers
from its own resources at the time of sale. Including the advance of the
service fee, the total amount paid by the Distributor to the dealer at the
time of sale of Class C shares is 1.00% of the purchase price.
The Fund pays the asset-based sales charge to the Distributor to
compensate it for its services rendered in connection with the
distribution of Class B and Class C shares. Those services include paying
sales commissions, advancing service fee payments, and paying or financing
the costs of distributing and selling Class B and Class C shares. The
Distributor retains the asset-based sales charges paid by the Fund for
Class B shares. For Class C shares, the Distributor retains the asset-
based sales charge paid by the Fund during the first year Class C shares
are outstanding, and after the first year the Distributor plans to pay the
asset-based sales charge as an ongoing commission to the dealer on Class
C shares that have been outstanding for a year or more.
The Distributor's actual expenses in selling Class B and Class C
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 and Class C shares. Therefore,
those expenses may be carried over and paid in future years. At December
31, 1995, the end of the Class B Plan year, the Distributor had incurred
unreimbursed expenses under the Plan of $1,004,267 (equal to 2.56% of the
Fund's net assets represented by Class B shares on that date), which have
been carried over into the present Plan year. At December 31, 1995, the
end of the Class C plan year, the Distributor had incurred unreimbursed
expenses under the plan of $21,412 (equal to .54% of the Fund's net assets
represented by Class C shares on that date), which have been carried over
into the present plan year.
- Waivers of Class B and Class C Sales Charges. The Class B and
Class C contingent deferred sales charges will not be applied to shares
purchased in certain types of transactions nor will it apply to Class B
and Class C shares redeemed in certain circumstances as described below.
The reasons for this policy are in "Reduced Sales Charges" in the
Statement of Additional Information.
Waivers for Redemptions of Shares in Certain Cases. The Class B and
Class C contingent deferred sales charge will be waived for redemptions
of shares in the following cases:
- 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;
- redemptions from accounts other than Retirement Plans following the
death or disability of the last surviving 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),
- to make returns of excess contributions to Retirement Plans,
- to make distributions from retirement plans that qualify as
"substantially equal periodic payments" under Section 72(t) of the
Internal Revenue Code, provided the distributions do not exceed 10% of the
account value annually, measured from the date the Transfer Agent receives
the request,
- for distributions from OppenheimerFunds prototype 401(k) plans (1)
for hardship withdrawals; (2) under a Qualified Domestic Relations Order,
as defined in the Internal Revenue Code; (3) to meet minimum distribution
requirements as defined in the Internal Revenue Code; (4) to make
"substantially equal periodic payments" as described in Section 72(t) of
the Internal Revenue Code; or (5) for separation from service.
Waivers for Shares Sold or Issued in Certain Transactions. The
contingent deferred sales charge is also waived on Class B and Class C
shares in the following cases:
- shares sold to the Manager or its affiliates;
- 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;
- shares issued in plans of reorganization to which the Fund is a
party; or
- 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.
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 by sending 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 Oppenheimer funds 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
Oppenheimer funds account on a regular basis:
- Automatic Withdrawal Plans. If your Fund account is $5,000 or more,
you can establish an Automatic Withdrawal Plan to receive payments of at
least $50 on a monthly, quarterly, semi-annual or annual basis. Automatic
Withdrawal Plans are not advisable for Class B and Class C shares subject
to a contingent deferred sales charge ("CDSC") unless waivers of the CDSC
apply. 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 Oppenheimer funds on a monthly, quarterly, semi-annual
or annual basis under an Automatic Exchange Plan. The minimum purchase
for each Oppenheimer funds 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 Class A or
Class B shares of the Fund, you have up to 6 months to reinvest all or
part of the redemption proceeds in Class A shares of the Fund or other
Oppenheimer funds without paying a sales charge. This privilege applies
to Class A shares that you purchased subject to an initial sales charge
and to Class A or Class B shares on which you paid a contingent deferred
sales charge when you redeemed them. This privilege does not apply to
Class C shares. 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 SAR/SEP-IRAs
- Pension and Profit-Sharing Plans for self-employed persons and
other employers
- 401(k) prototype retirement plans for business
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 by selling
(redeeming) some or all of your shares on any regular business day. 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 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:
OppenheimerFunds Services
P.O. Box 5270, Denver, Colorado 80217
Send Courier or Express Mail requests to:
OppenheimerFunds 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 transferred 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 statement. This service is not available within 30 days of
changing the address on an account.
- Telephone Redemptions Through AccountLink. There are no dollar
limits on telephone redemption proceeds sent to a bank account designated
when you establish AccountLink. Normally the ACH transfer 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 transferred.
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. If you previously signed a signature card to establish
checkwriting in one of the other Oppenheimer funds, you may call 1-800-
525-7048 to request check writing for an account in this Fund that has the
same registration as that other fund account.
- Checks can be written to the order of whomever you wish, but may
not be cashed at the Fund's bank or custodian.
- Checkwriting privileges are not available for accounts holding
Class B or Class C shares, or Class A shares that are subject to a
contingent deferred sales charge.
- Checks must be written for at least $100.
- Checks cannot be paid if they are written for more than your
account value. Remember: your shares fluctuate in value and you should
not write a check close to the total account value.
- You may not write a check that would require the Fund to redeem
shares that were purchased by check or Asset Builder Plan payments within
the prior 10 days.
- Don't use your checks if you changed your Fund account number.
Selling Shares Through Your Dealer. The Distributor has made arrangements
to repurchase Fund shares from dealers and brokers on behalf of their
customers. Brokers or dealers may charge for that service. Please call
your dealer for more information about this procedure. 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 Oppenheimer
funds 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 Oppenheimer funds. For example, you can exchange
Class A shares of this Fund only for Class A shares of another fund. At
present Oppenheimer Money Market Fund, Inc. offers only one class of
shares, which are considered to be Class A shares for this purpose. 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 Oppenheimer funds currently available for
exchanges in the Statement of Additional Information or obtain their names
by calling a service representative at 1-800-525-7048. That list can
change from time to time.
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 up
to seven days 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 day the Exchange is open by
dividing the value of the Fund's net assets attributable to a class by the
number of shares of that class that are outstanding. The Fund's Board of
Trustees has established procedures to value the Fund's securities to
determine net asset value. In general, securities values are based on
market value. There are special procedures for valuing illiquid and
restricted securities and obligations for which market values cannot be
readily obtained. These procedures are described more completely in the
Statement of Additional Information.
- The offering of shares may be suspended during any period in which
the determination of net asset value is suspended, and the offering may
be suspended by the Board of Trustees at any time the Board believes it
is in the Fund's best interest to do so.
- Telephone Transaction Privileges for purchases, redemptions or
exchanges may be modified, suspended or terminated by the Fund at any
time. If an account has more than one owner, the Fund and the Transfer
Agent may rely on the instructions of any one owner. Telephone privileges
apply to each owner of the account and the dealer representative of record
for the account unless and until the Transfer Agent receives cancellation
instructions from an owner of the account.
- The Transfer Agent will record any telephone calls to verify data
concerning transactions and has adopted other procedures to confirm that
telephone instructions are genuine, by requiring callers to provide tax
identification numbers and other account data or by using PINs, and by
confirming such transactions in writing. If the Transfer Agent does not
use reasonable procedures it may be liable for losses due to unauthorized
transactions, but otherwise neither it nor the Fund will be liable for
losses or expenses arising out of telephone instructions reasonably
believed to be genuine. If you are unable to reach the Transfer Agent
during periods of unusual market activity, you may not be able to complete
a telephone transaction and should consider placing your order by mail.
- Redemption or transfer requests will not be honored until the
Transfer Agent receives all required documents in proper form. From time
to time, the Transfer Agent in its discretion may waive certain of the
requirements for redemptions stated in this Prospectus.
- Dealers that can perform account transactions for their clients by
participating in NETWORKING through the National Securities Clearing
Corporation are responsible for obtaining their clients' permission to
perform those transactions and are responsible to their clients who are
shareholders of the Fund if the dealer performs any transaction
erroneously or improperly.
- The redemption price for shares will vary from day to day because
the value of the securities in the Fund's portfolio fluctuates, and the
redemption price, which is the net asset value per share, will normally
be different for Class A, Class B and Class C shares. Therefore, the
redemption value of your shares may be more or less than their original
cost.
- Payment for redeemed shares is made ordinarily in cash and
forwarded by check or through AccountLink (as elected by the shareholder
under the redemption procedures described above) within 7 days after the
Transfer Agent receives redemption instructions in proper form, except
under unusual circumstances determined by the Securities and Exchange
Commission delaying or suspending such payments. 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 charge when redeeming certain Class
A, Class B or Class C shares.
- To avoid sending duplicate copies of materials to households, the
Fund will mail only one copy of each annual and semi-annual report to
shareholders having the same last name 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.
- Transfer Agent and Shareholder Servicing Agent. The transfer
agent and shareholder servicing agent is OppenheimerFunds Services.
Unified Management Corporation (1-800-346-4601) is the shareholder
servicing agent for former shareholders of the AMA Family of Funds and
clients of AMA Investment Advisers, L.P. who owned shares of the Former
Quest for Value Quality Income Fund when it merged into the Fund on
November 24, 1995.
Dividends, Capital Gains and Taxes
Dividends. The Fund declares dividends separately for Class A, Class B and
Class C shares from net investment income on each regular business day and
pays those dividends to shareholders monthly. Normally, dividends are paid
on the last business day of every month, but the Board of Trustees can
change that date. Distributions may be made monthly from any net short-
term capital gains the Fund realizes in selling securities. It is
expected that distributions paid with respect to Class A shares will
generally be higher than for Class B or Class C shares because expenses
allocable to Class B and Class C shares will generally be higher.
From time to time, the Fund may adopt the practice, to the extent
consistent with the amount of the Fund's net investment income and other
distributable income, of attempting to pay dividends on Class A shares at
a constant level, although the amount of such dividends may be subject to
change from time to time depending on market conditions, the composition
of the Fund's portfolio and expenses borne by the Fund or borne separately
by that Class. A practice of attempting to pay dividends on Class A
shares at a constant level would require the Manager, consistent with the
Fund's investment objective and investment restrictions, to monitor the
Fund's portfolio and select higher yielding securities when deemed
appropriate to maintain necessary net investment income levels. If the
Fund, from time to time, seeks to pay dividends on Class A shares at a
target level, the Fund anticipates it would pay dividends at the targeted
dividend level from net investment income and other distributable income
without any impact on the Fund's Class A net asset value per share. The
Board of Trustees could change the Fund's targeted dividend level at any
time, without prior notice to shareholders. The Fund would not otherwise
have a fixed dividend rate. Regardless, there can be no assurance as to
the payment of any dividends or the realization of any capital gains.
Capital Gains. The Fund may make distributions annually in December out
of any net short-term or long-term capital gains, and the Fund may make
supplemental distributions of dividends and capital gains following the
end of its fiscal year. Long-term capital gains will be separately
identified in the tax information the Fund sends you after the end of the
year. Short-term capital gains are treated as dividends for tax purposes.
There can be no assurance that the Fund will pay any capital gains
distributions in a particular year.
Distribution Options. When you open your account, specify on your
application how you want to receive your distributions. For
OppenheimerFunds retirement accounts, all distributions are reinvested.
For other accounts, you have four options:
- Reinvest All Distributions in the Fund. You can elect to reinvest
all dividends and long-term capital gains distributions in additional
shares of the Fund.
- Reinvest Long-Term Capital Gains Only. You can elect to reinvest
long-term capital gains in the Fund while receiving dividends by check or
sent to your bank account on AccountLink.
- Receive All Distributions in Cash. You can elect to receive a check
for all dividends and long-term capital gains distributions or have them
sent to your bank on AccountLink.
- Reinvest Your Distributions in Another Oppenheimer Fund Account.
You can reinvest all distributions in another Oppenheimer funds 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 BOND FUND
Graphic material included in Prospectus of Oppenheimer Bond Fund:
"Comparison of Total Return of Oppenheimer Bond Fund and The Lehman
Brothers Corporate Bond Index - Change in Value of a $10,000 Hypothetical
Investment"
Linear graphs will be included in the Prospectus of Oppenheimer Bond
Fund (the "Fund") depicting the initial account value and subsequent
account value of a hypothetical $10,000 in the Fund. In the case of the
Fund's Class A shares, that graph will cover each of the Fund's fiscal
years since the inception of the class on April 15, 1988 through December
31, 1995, 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, 1995
and in the case of Class C shares the graph will cover the period from
inception on July 11, 1995 through December 31, 1995. The graphs will
compare such values with the same investments over the same time periods
with The Lehman Brothers Corporate Bond Index. Set forth below are the
relevant data points that will appear on the linear graphs. Additional
information with respect to the foregoing, including a description of The
Lehman Brothers Corporate Bond Index, is set forth in the Prospectus under
"Performance of the Fund -- Comparing the Fund's Performance to the
Market"
<TABLE>
<CAPTION> Lehman Brothers
Fiscal Year Oppenheimer Corporate
(Period) Ended Bond Fund A Bond Index
<S> <C> <C>
04/15/88 $9,525 $10,000
12/31/88 $9,952 $10,368
12/31/89 $11,077 $11,885
12/31/90 $11,602 $12,759
12/31/91 $13,723 $15,170
12/31/92 $14,653 $16,392
12/31/93 $16,163 $18,310
12/31/94 $15,538 $17,530
12/31/95 $18,169 $21,429
Lehman Brothers
Fiscal Year Oppenheimer Corporate
(Period) Ended Bond Fund B(1) Bond Index
05/01/93 $10,000 $10,000
12/31/93 $10,391 $10,503
12/31/94 $ 9,920 $10,056
12/31/95 $11,216 $12,292
Lehman Brothers
Fiscal Year Oppenheimer Corporate
(Period) Ended Bond Fund C(2) Bond Index
07/11/95 $10,000 $10,000
12/31/95 $10,276 $11,348
</TABLE>
- ----------------------
(1) Class B shares of the Fund were first publicly offered on May 1,
1993.
(2) Class C shares of the Fund were first publicly offered on July 11,
1995.
<PAGE>
APPENDIX A
Special Sales Charge Arrangements for Shareholders of the Fund
Who Were Shareholders of the Former Quest for Value Funds
The initial and contingent deferred sales charge rates and waivers
for Class A, Class B and Class C shares of the Fund described elsewhere
in this Prospectus are modified as described below for those shareholders
of (i) Quest for Value Fund, Inc., Quest for Value Growth and Income Fund,
Quest for Value Opportunity Fund, Quest for Value Small Capitalization
Fund and Quest for Value Global Equity Fund, Inc. on November 24, 1995,
when OppenheimerFunds, Inc. became the investment adviser to those funds,
and (ii) Quest for Value U.S. Government Income Fund, Quest for Value
Investment Quality Income Fund, Quest for Value Global Income Fund, Quest
for Value New York Tax-Exempt Fund, Quest for Value National Tax-Exempt
Fund and Quest for Value California Tax-Exempt Fund when those funds
merged into various Oppenheimer funds on November 24, 1995. The funds
listed above are referred to in this Prospectus as the "Former Quest for
Value Funds." The waivers of initial and contingent deferred sales
charges described in this Appendix apply to shares of the Fund (i)
acquired by such shareholder pursuant to an exchange of shares of one of
the Oppenheimer funds that was one of the Former Quest for Value Funds or
(ii) received by such shareholder pursuant to the merger of any of the
Former Quest for Value Funds into an Oppenheimer fund on November 24,
1995.
Class A Sales Charges
- - Reduced Class A Initial Sales Charge Rates for Certain Former Quest
Shareholders
- - Purchases by Groups, Associations and Certain Qualified Retirement
Plans. The following table sets forth the initial sales charge rates for
Class A shares purchased by a "Qualified Retirement Plan" through a single
broker, dealer or financial institution, or by members of "Associations"
formed for any purpose other than the purchase of securities if that
Qualified Retirement Plan or that Association purchased shares of any of
the Former Quest for Value Funds or received a proposal to purchase such
shares from OCC Distributors prior to November 24, 1995. For this purpose
only, a "Qualified Retirement Plan" includes any 401(k) plan, 403(b) plan,
and SEP/IRA or IRA plan for employees of a single employer.
<TABLE>
<CAPTION>
Front-End Front-End
Sales Sales Commission
Charge Charge as
as a as a Percentage
Number of PercentagePercentage of
Eligible Employees of Offeringof Amount Offering
or Members Price Invested Price
<S> <C> <C> <C>
9 or fewer 2.50% 2.56% 2.00%
At least 10 but not
more than 49 2.00% 2.04% 1.60%
</TABLE>
For purchases by Qualified Retirement plans and Associations having
50 or more eligible employees or members, there is no initial sales charge
on purchases of Class A shares, but those shares are subject to the Class
A contingent deferred sales charge described on pages ___ to ___ of this
Prospectus.
Purchases made under this arrangement qualify for the lower of the
sales charge rate in the table based on the number of eligible employees
in a Qualified Retirement Plan or members of an Association or the sales
charge rate that applies under the Rights of Accumulation described above
in the Prospectus. In addition, purchases by 401(k) plans that are
Qualified Retirement Plans qualify for the waiver of the Class A initial
sales charge if they qualified to purchase shares of any of the Former
Quest For Value Funds by virtue of projected contributions or investments
of $1 million or more each year. Individuals who qualify under this
arrangement for reduced sales charge rates as members of Associations, or
as eligible employees in Qualified Retirement Plans also may purchase
shares for their individual or custodial accounts at these reduced sales
charge rates, upon request to the Fund's Distributor.
- - Special Class A Contingent Deferred Sales Charge Rates
Class A shares of the Fund issued in the reorganization on November 24,
1995 for shares of Quest For Value Investment Quality Income Fund that
were subject to a contingent deferred sales charge, will be subject to a
contingent deferred sales charge at the following rates: if they are
redeemed within 18 months of the end of the calendar month in which they
were purchased, at a rate equal to 1.0% if the redemption occurs within
12 months of their initial purchase and at a rate of 0.50 of 1.0% if the
redemption occurs in the subsequent six months. This contingent deferred
sales charge rate also applies to shares of the Fund purchased by exchange
of shares of other Oppenheimer funds that were acquired as a result of the
merger of Former Quest for Value Funds into those Oppenheimer funds, and
which shares were subject to a Class A contingent deferred sales charge
prior to November 24, 1995. Class A shares of any of the Former Quest for
Value Funds purchased without an initial sales charge on or before
November 22, 1995 will continue to be subject to the applicable contingent
deferred sales charge in effect as of that date as set forth in the then-
current prospectus for such fund.
- - Waiver of Class A Sales Charges for Certain Shareholders
Class A shares of the Fund purchased by the following investors are not
subject to any Class A initial or contingent deferred sales charges:
- Shareholders of the Fund who were shareholders of the AMA Family
of Funds on February 28, 1991 and who acquired shares of any of the Former
Quest for Value Funds by merger of a portfolio of the AMA Family of Funds.
- Shareholders of the Fund who acquired shares of any Former Quest
for Value Fund by merger of any of the portfolios of the Unified Funds.
- - Waiver of Class A Contingent Deferred Sales Charge in Certain
Transactions
The Class A contingent deferred sales charge will not apply to redemptions
of Class A shares of the Fund purchased by the following investors who
were shareholders of any Former Quest for Value Fund:
- Investors who purchased Class A shares from a dealer that is or was
not permitted to receive a sales load or redemption fee imposed on a
shareholder with whom that dealer has a fiduciary relationship under the
Employee Retirement Income Security Act of 1974 and regulations adopted
under that law.
- Participants in Qualified Retirement Plans that purchased shares
of any of the Former Quest For Value Funds pursuant to a special
"strategic alliance" with the distributor of those funds. The Fund's
Distributor will pay a commission to the dealer for purchases of Fund
shares as described above in "Class A Contingent Deferred Sales Charge."
Class A, Class B and Class C Contingent Deferred Sales Charge Waivers
- - Waivers for Redemptions of Shares Purchased Prior to March 6, 1995
In the following cases, the contingent deferred sales charge will be
waived for redemptions of Class A, B or C shares of the Fund acquired by
merger of a Former Quest for Value Fund into the Fund or by exchange from
an Oppenheimer fund that was a Former Quest for Value Fund or into which
such fund merged, if those shares were purchased prior to March 6, 1995:
in connection with (i) distributions to participants or beneficiaries of
plans qualified under Section 401(a) of the Internal Revenue Code or from
custodial accounts under Section 403(b)(7) of the Code, Individual
Retirement Accounts, deferred compensation plans under Section 457 of the
Code, and other employee benefit plans, and returns of excess
contributions made to each type of plan, (ii) withdrawals under an
automatic withdrawal plan holding only either Class B or C shares if the
annual withdrawal does not exceed 10% of the initial value of the account,
and (iii) liquidation of a shareholder's account if the aggregate net
asset value of shares held in the account is less than the required
minimum value of such accounts.
- - Waivers for Redemptions of Shares Purchased on or After March 6, 1995
but Prior to November 24, 1995.
In the following cases, the contingent deferred sales charge will be
waived for redemptions of Class A, B or C shares of the Fund acquired by
merger of a Former Quest for Value Fund into the Fund or by exchange from
an Oppenheimer fund that was a Former Quest For Value Fund or into which
such fund merged, if those shares were purchased on or after March 6,
1995, but prior to November 24, 1995: (1) distributions to participants
or beneficiaries from Individual Retirement Accounts under Section 408(a)
of the Internal Revenue Code or retirement plans under Section 401(a),
401(k), 403(b) and 457 of the Code, if those distributions are made either
(a) to an individual participant as a result of separation from service
or (b) following the death or disability (as defined in the Code) of the
participant or beneficiary; (2) returns of excess contributions to such
retirement plans; (3) redemptions other than from retirement plans
following the death or disability of the shareholder(s) (as evidenced by
a determination of total disability by the U.S. Social Security
Administration); (4) withdrawals under an automatic withdrawal plan (but
only for Class B or C shares) where the annual withdrawals do not exceed
10% of the initial value of the account; and (5) liquidation of a
shareholder's account if the aggregate net asset value of shares held in
the account is less than the required minimum account value. A
shareholder's account will be credited with the amount of any contingent
deferred sales charge paid on the redemption of any Class A, B or C shares
of the Fund described in this section if within 90 days after that
redemption, the proceeds are invested in the same Class of shares in this
Fund or another Oppenheimer fund.
Special Dealer Arrangements
Dealers who sold Class B shares of a Former Quest for Value Fund to Quest
for Value prototype 401(k) plans that were maintained on the TRAC-2000
recordkeeping system and that were transferred to an OppenheimerFunds
prototype 401(k) plan shall be eligible for an additional one-time payment
by the Distributor of 1% of the value of the plan assets transferred, but
that payment may not exceed $5,000 as to any one plan.
Dealers who sold Class C shares of a Former Quest for Value Fund to Quest
for Value prototype 401(k) plans that were maintained on the TRAC-2000
recordkeeping system and (i) the shares held by those plans were exchanged
for Class A shares, or (ii) the plan assets were transferred to an
OppenheimerFunds prototype 401(k) plan, shall be eligible for an
additional one-time payment by the Distributor of 1% of the value of the
plan assets transferred, but that payment may not exceed $5,000.
<PAGE>
APPENDIX B
Special Sale Charge Arrangements for Fund Shareholders of the Fund Who
Were Shareholders of the Former Connecticut Mutual Investment Accounts,
Inc.
The initial and contingent sales charge rates and waivers for Class
A and Class B shares described elsewhere in this Prospectus are modified
as described below for those shareholders of the Fund who were
shareholders of Connecticut Mutual Investment Accounts, Inc. on March 17,
1996 ("former CMIA shareholders").
- - Prior Class A CDSC and Class A Sales Charge Waivers
- Class A Contingent Deferred Sales Charge. Certain former CMIA
shareholders are entitled to continue to make additional purchases of
Class A shares of the Fund at net asset value without the Class A initial
sales charge, but subject to the Class A contingent deferred sales charge
that was in effect prior to March 18, 1996 (the "prior Class A CDSC").
Under the prior Class A CDSC, if any of those shares are redeemed within
one year of purchase, they will be assessed a 1% contingent deferred sales
charge on an amount equal to the current market value or the original
purchase price of the shares sold, whichever is smaller (in such
redemptions, any shares not subject to the prior Class A CDSC will be
redeemed first).
Those former CMIA shareholders who are eligible for the prior Class
A CDSC are: (1) persons whose purchases of Class A shares of the former
CMIA funds were $500,000 prior to March 18, 1996, as a result of direct
purchases or purchases pursuant to the CMIA funds' policies on Combined
Purchases or Rights of Accumulation, who still hold those shares in any
of the Oppenheimer funds, and (2) persons whose intended purchases under
a Statement of Intention entered into prior to March 18, 1996, with the
CMIA funds' former general distributor to purchase shares valued at
$500,000 or more over a 13-month period entitled those persons to purchase
shares at net asset value without being subject to the Class A initial
sales charge.
Class A shares of the former CMIA funds that were purchased at net
asset value prior to March 18, 1996, remain subject to the prior Class A
CDSC. If any additional Class A shares are purchased by those
shareholders at net asset value pursuant to this arrangement they will be
subject to the prior Class A CDSC.
- Class A Sales Charge Waivers. Additional Class A shares of the
Fund may be purchased without a sales charge by a person who was in one
or more of the categories described below and acquired Class A shares of
the CMIA funds prior to March 18, 1996 and still holds Class A shares of
any Oppenheimer funds: (1) any purchaser, provided the total initial
amount invested in the former CMIA funds totaled $500,000 or more,
including investments made pursuant to the Combined Purchases, Statement
of Intention and Rights of Accumulation features available at the time of
the initial purchase and such investment is still held in one or more of
the Oppenheimer funds; (2) any participant in a qualified plan, provided
that the total initial amount invested by the plan in any one or more of
the former CMIA funds totaled $500,000 or more; (3) Directors of the
former CMIA funds and members of their immediate families; (4) employee
benefit plans sponsored by Connecticut Mutual Financial Services, L.L.C.
("CMFS"), the CMIA funds' prior distributor, and its affiliated companies;
(5) one or more members of a group of a least 1,000 persons (and persons
who are retirees from such group) engaged in a common business,
profession, civic or charitable endeavor or other activity, and the
spouses and minor dependent children of such persons, pursuant to a
marketing program between CMFS and such group; (6) any holder of a
variable annuity contract issued in New York State by Connecticut Mutual
Life Insurance Company through the Panorama Separate Account which was
beyond the applicable surrender charge period and which was used to fund
a qualified plan, if that holder exchanges the variable annuity contract
for Class A shares of the Fund; and (7) an institution acting as a
fiduciary on behalf of an individual or individuals, if such institution
was directly compensated by the individual(s) for recommending the
purchase of the shares of the CMIA funds, provided the institution had an
agreement with CMFS. Purchases of Class A shares made pursuant to (1) and
(2) above may be subject to the applicable Class A CDSC.
- - Class A and Class B Contingent Deferred Sales Charge Waivers
In addition to the waivers set forth above under the caption "How to
Buy Shares," the contingent deferred sales charge will be waived for
redemptions of Class A and Class B shares of the Fund and acquired through
the reorganization of the Connecticut Mutual Income Account Series of CMIA
with the Fund and the shares of that series were acquired prior to March
18, 1996, (ii) were acquired by exchange from another CMIA fund and the
shares of that fund were purchased prior to March 18, 1996 and (iii) were
exchanged or redeemed in the following cases:
(1) by the estate of the deceased shareholder; (2) upon the
disability of the shareholder, as defined in Section 72(m)(7) of the
Internal Revenue Code of 1986, as amended (Code); (3) for retirement
distributions (or loans) to participants or beneficiaries from retirement
plans qualified under Sections 401(a) or 403(b)(7) of the Code, or from
IRAs, deferred compensation plans created under Section 457 of the Code,
or other employee benefit plans; (4) in whole or in part, in connection
with shares sold by any state, county, or city, or any instrumentality,
department, authority, or agency thereof, that is prohibited by applicable
investment laws from paying a sales charge or commission in connection
with the purchase of shares of any registered investment management
company; (5) in connection with the former CMIA fund's right to
involuntarily redeem or liquidate a Fund; (6) in connection with automatic
redemptions of Class A shares and Class B shares in certain retirement
plan accounts pursuant to an Automatic Withdrawal Plan but limited to no
more than 12% of the original value annually; and (7) as involuntary
redemptions of shares by operation of law, or under procedures set forth
in the former CMIA fund's Articles of Incorporation, or as adopted by the
Board of Directors of the former CMIA funds.
<PAGE>
Oppenheimer Bond Fund
3410 South Galena Street
Denver, Colorado 80231
1-800-525-7048
Investment Adviser
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048-0203
Distributor
OppenheimerFunds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer and Shareholder Servicing Agent
OppenheimerFunds 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
555 Seventeenth Street
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, OppenheimerFunds, Inc.,
OppenheimerFunds Distributor, Inc., or any affiliate thereof. This
Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any of the securities offered hereby in any state to any
person to whom it is unlawful to make such offer in such state.
PR0285.001.0496 *Printed on recycled paper
<PAGE>
OPPENHEIMER INTEGRITY FUNDS
3410 SOUTH GALENA STREET, DENVER, COLORADO 80231-5099
1-800-525-7048
PART B
STATEMENT OF ADDITIONAL INFORMATION
________, 1996
___________________________________
This Statement of Additional Information of Oppenheimer Bond Fund
consists of this cover page and the following documents:
1. Statement of Additional Information of Oppenheimer Bond Fund dated
April 1, 1996, filed herewith and incorporated herein by reference.
2. Oppenheimer Bond Fund's Annual Report as of December 31, 1995, filed
herewith and incorporated herein by reference.
3. Oppenheimer Bond Fund's Semi-Annual Report as of June 30, 1996, filed
herewith and incorporated herein by reference.
4. Prospectus of Jefferson Pilot Family of Funds dated May 1, 1996, filed
herewith and incorporated herein by reference.
5. Statement of Additional Information of Jefferson-Pilot Investment Grade
Oppenheimer Fund, Inc., filed herewith and incorporated herein by
reference.
6. Jefferson Pilot Family of Funds Annual Report as of December 31, 1995,
filed herewith and incorporated herein by reference.
7. Jefferson Pilot Family of Funds Semi-Annual Report as of June 30, 1996,
filed herewith and incorporated herein by reference.
This Statement of Additional Information (the "Statement of
Additional Information") is not a Prospectus. This Statement of
Additional Information should be read in conjunction with the Proxy
Statement and Prospectus, which may be obtained by written request to
OppenheimerFunds Services ("OFS"), P.O. Box 5270, Denver, Colorado 80217,
or by calling OFS at the toll-free number shown above.
OPPENHEIMER BOND FUND
3410 South Galena Street, Denver, Colorado 80231
1-800-525-7048
Statement of Additional Information dated April 1, 1996.
This Statement of Additional Information of Oppenheimer Bond Fund is
not a Prospectus. This document contains additional information about the
Fund and supplements information in the Prospectus dated April 1, 1996.
It should be read together with the Prospectus which may be obtained by
writing to the Fund's Transfer Agent, OppenheimerFunds 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 2
Investment Policies and Strategies 2
Other Investment Techniques and Strategies 8
Other Investment Restrictions 20
How the Fund is Managed 21
Organization and History 21
Trustees and Officers of the Fund 22
The Manager and Its Affiliates 26
Brokerage Policies of the Fund 29
Performance of the Fund 30
Distribution and Service Plans 35
About Your Account
How to Buy Shares 37
How to Sell Shares 44
How to Exchange Shares 48
Dividends, Capital Gains and Taxes 50
Additional Information About the Fund 51
Financial Information About the Fund
Independent Auditors' Report 52
Financial Statements 53
Appendix A: Description of Securities Ratings A-1
Appendix B: Industry Classification B-1
<PAGE>
ABOUT THE FUND
Investment Objective And Policies
Investment Policies and Strategies. The investment objectives and
policies of the Fund are discussed in the Prospectus. Set forth below is
supplemental information about those policies, and the types of securities
in which the Fund invests as well as the strategies the Fund may use to
try to achieve its objective. Certain capitalized terms used in this
Statement of Additional Information are defined in the Prospectus.
- Debt Securities. All debt securities are subject to two types of
risk: credit risk and interest rate risk (these are in addition to other
investment risks that may affect a particular security).
-- Credit Risk. Credit risk relates to the ability of the issuer to
meet interest or principal payments or both as they become due.
Generally, higher yielding bonds are subject to credit risk to a greater
extent than higher quality bonds.
-- Interest Rate Risk. Interest rate risk refers to the fluctuations
in value of fixed-income securities resulting solely from the inverse
relationship between price and yield of outstanding fixed-income
securities. An increase in interest rates will generally reduce the
market value of fixed-income investments, and a decline in interest rates
will tend to increase their value. In addition, debt securities with
longer maturities, which tend to produce higher yields, are subject to
potentially greater capital appreciation and depreciation than obligations
with shorter maturities. Fluctuations in the market value of fixed-income
securities subsequent to their acquisition will not affect the interest
payable on those securities, and thus the cash income from such
securities, but will be reflected in the valuations of those securities
used to compute the Fund's net asset values.
-- Commercial Paper. The Fund's commercial paper investments, in
addition to those described in the Prospectus, include the following:
Variable Amount Master Demand Notes. Master demand notes are
corporate obligations which permit the investment of fluctuating amounts
by the Fund at varying rates of interest pursuant to direct arrangements
between the Fund, as lender, and the borrower. They permit daily changes
in the amounts borrowed. The Fund has the right to increase the amount
under the note at any time up to the full amount provided by the note
agreement, or to decrease the amount, and the borrower may prepay up to
the full amount of the note without penalty. These notes may or may not
be backed by bank letters of credit. Because these notes are direct
lending arrangements between the lender and borrower, it is not generally
contemplated that they will be traded. There is no secondary market for
these notes, although they are redeemable (and thus immediately repayable
by the borrower) at principal amount, plus accrued interest, at any time.
Accordingly, the Fund's right to redeem such notes is dependent upon the
ability of the borrower to pay principal and interest on demand. The Fund
has no limitations on the type of issuer from whom these notes will be
purchased; however, in connection with such purchases and on an ongoing
basis, the Manager will consider the earning power, cash flow and other
liquidity ratios of the issuer, and its ability to pay principal and
interest on demand, including a situation in which all holders of such
notes made demand simultaneously. Investments in master demand notes are
subject to the limitation on investments by the Fund in illiquid
securities, described in the Prospectus.
Floating Rate/Variable Rate Notes. Some of the notes the Fund may
purchase may have variable or floating interest rates. Variable rates are
adjustable at stated periodic intervals; floating rates are automatically
adjusted according to a specified market rate for such investments, such
as the percentage of the prime rate of a bank, or the 91-day U.S. Treasury
Bill rate. Such obligations may be secured by bank letters of credit or
other credit support arrangements.
-- Participation Interests. The Fund may invest in participation
interests, subject to the limitation, described in "Illiquid and
Restricted Securities" in the Prospectus on investments by the Fund in
illiquid investments. Participation interests provide the Fund an
undivided interest in a loan made by the issuing financial institution in
the proportion that the Fund's participation interest bears to the total
principal amount of the loan. No more than 5% of the Fund's net assets
can be invested in participation interests of the same borrowers. The
issuing financial institution may have no obligation to the Fund other
than to pay the Fund the proportionate amount of the principal and
interest payments it receives. Participation interests are primarily
dependent upon the creditworthiness of the borrowing corporation, which
is obligated to make payments of principal and interest on the loan, and
there is a risk that such borrowers may have difficulty making payments.
In the event the borrower fails to pay scheduled interest or principal
payments, the Fund could experience a reduction in its income and might
experience a decline in the value of that participation interest and in
the net asset value of its shares. In the event of a failure by the
financial institution to perform its obligation in connection with the
participation agreement, the Fund might incur certain costs and delays in
realizing payment or may suffer a loss of principal and/or interest.
-- Bank Obligations and Instruments Secured Thereby. The bank
obligations the Fund may invest in include time deposits, certificates of
deposit, and bankers' acceptances if they are: (i) obligations of a
domestic bank with total assets of at least $1 billion or (ii) obligations
of a foreign bank with total assets of at least U.S. $1 billion. The Fund
may also invest in instruments secured by such obligations (e.g., debt
which is guaranteed by the bank). For purposes of this section, the term
"bank" includes commercial banks, savings banks, and savings and loan
associations which may or may not be members of the Federal Deposit
Insurance Corporation.
Time deposits are non-negotiable deposits in a bank for a specified
period of time at a stated interest rate, whether or not subject to
withdrawal penalties. However, time deposits, other than those maturing
in seven days or less, that are subject to withdrawal penalties are
subject to the limitation on investments by the Fund in illiquid
investments, set forth in the Prospectus under "Illiquid and Restricted
Securities."
Banker's acceptances are marketable short-term credit instruments
used to finance the import, export, transfer or storage of goods. They
are deemed "accepted" when a bank guarantees their payment at maturity.
- Securities of Foreign Governments and Companies. As stated in the
Prospectus, the Fund may invest in debt obligations (which may be
dominated in U.S. dollars or non-U.S. currencies) issued or guaranteed by
foreign corporations, certain supranational entities (described below) and
foreign governments or their agencies or instrumentalities.
The percentage of the Fund's assets that will be allocated to foreign
securities will vary from time to time depending on, among other things,
the relative yields of foreign and U.S. securities, the economies of
foreign countries, the condition of such countries' financial markets, the
interest rate climate of such countries and the relationship of such
countries' currency to the U.S. dollar. The Manager will consider an
issuer's affiliation, if any, with a foreign government as one of the
factors in determining whether to purchase any particular foreign
security. These factors are judged on the basis of fundamental economic
criteria (e.g., relative inflation levels and trends, growth rate
forecasts, balance of payments status, and economic policies) as well as
technical and political data. The Fund's portfolio of foreign securities
may include those of a number of foreign countries or, depending upon
market conditions, those of a single country.
Investments in foreign securities offer potential benefits not
available from investments solely in securities of domestic issuers, by
offering the opportunity to invest in foreign issuers that appear to offer
growth potential, or in foreign countries with economic policies or
business cycles different from those of the U.S., or to reduce
fluctuations in portfolio value by taking advantage of foreign bond or
other markets that do not move in a manner parallel to U.S. markets. From
time to time, U.S. government policies have discouraged certain
investments abroad by U.S. investors, through taxation or other
restrictions, and it is possible that such restrictions could be
reimposed.
Securities of foreign issuers that are represented by American
depository receipts, or that are listed on a U.S. securities exchange, or
are traded in the U.S. over-the-counter market are not considered "foreign
securities," because they are not subject to many of the special
considerations and risks (discussed below) that apply to foreign
securities traded and held abroad. If the Fund's securities are held
abroad, the countries in which such securities may be held and the sub-
custodians holding must be approved by the Fund's Board of Trustees if
required under applicable SEC rules.
The obligations of foreign governmental entities may or may not be
supported by the full faith and credit of a foreign government.
Obligations of "supranational entities" include those of international
organizations designated or supported by governmental entities to promote
economic reconstruction or development and of international banking
institutions and related government agencies. Examples include the
International Bank for Reconstruction and Development (the "World Bank"),
the European Coal and Steel Community, the Asian Development Bank and the
Inter-American Development Bank. The governmental members, or
"stockholders," of these entities usually make initial capital
contributions to the supranational entity and in many cases are committed
to make additional capital contributions if the supranational entity is
unable to repay its borrowings. Each supranational entity's lending
activities are limited to a percentage of its total capital (including
"callable capital" contributed by members at the entity's call), reserves
and net income. There is no assurance that foreign governments will be
able or willing to honor their commitments.
Investing in foreign securities involves considerations and possible
risks not typically associated with investing in securities in the U.S.
The values of foreign securities will be affected by changes in currency
rates or exchange control regulations or currency blockage, application
of foreign tax laws, including withholding taxes, changes in governmental
administration or economic or monetary policy (in the U.S. or abroad) or
changed circumstances in dealings between nations. There may be a lack
of public information about foreign issuers. Foreign countries may not
have financial reporting, accounting and auditing standards comparable to
those that apply to U.S. issuers. Costs will be incurred in connection
with conversions between various currencies. Foreign brokerage
commissions are generally higher than commissions in the U.S., and foreign
securities markets may be less liquid, more volatile and less subject to
governmental regulation than in the U.S. They may have increased delays
in settling portfolio transactions. Investments in foreign countries
could be affected by other factors not generally thought to be present in
the U.S., including expropriation or nationalization, confiscatory
taxation and potential difficulties in enforcing contractual obligations,
and could be subject to extended settlement periods.
Because the Fund may purchase securities denominated in foreign
currencies, a change in the value of any such currency against the U.S.
dollar will result in a change in the U.S. dollar value of the Fund's
assets and its income available for distribution. In addition, although
a portion of the Fund's investment income may be received or realized in
foreign currencies, the Fund will be required to compute and distribute
its income in U.S. dollars, and absorb the cost of currency fluctuations.
The Fund may engage in foreign currency exchange transactions for hedging
purposes to protect against changes in future exchange rates. See "Other
Investment Techniques and Strategies - Hedging," below.
The values of foreign investments and the investment income derived
from them may also be affected unfavorably by changes in currency exchange
control regulations. Although the Fund will invest only in securities
denominated in foreign currencies that at the time of investment do not
have significant government-imposed restrictions on conversion into U.S.
dollars, there can be no assurance against subsequent imposition of
currency controls. In addition, the values of foreign securities will
fluctuate in response to a variety of factors, including changes in U.S.
and foreign interest rates.
- U.S. Government Securities. U.S. Government Securities are debt
obligations issued or guaranteed by the U.S. Government or one of its
agencies or instrumentalities, and include "zero coupon" Treasury
securities and mortgage-backed securities and CMOs.
-- Mortgage-Backed Securities. These securities represent
participation interests in pools of residential mortgage loans which are
guaranteed by agencies or instrumentalities of the U.S. Government. Such
securities differ from conventional debt securities which generally
provide for periodic payment of interest in fixed or determinable amounts
(usually semi-annually) with principal payments at maturity or specified
call dates. Some mortgage-backed securities in which the Fund may invest
may be backed by the full faith and credit of the U.S. Treasury (e.g.,
direct pass-through certificates of Government National Mortgage
Association); some are supported by the right of the issuer to borrow from
the U.S. Government (e.g., obligations of Federal Home Loan Mortgage
Corporation); and some are backed by only the credit of the issuer itself.
Those guarantees do not extend to the value of or yield of the mortgage-
backed securities themselves or to the net asset value of the Fund's
shares. Any of these government agencies may also issue collateralized
mortgage-backed obligations ("CMOs"), discussed below.
The yield on mortgage-backed securities is based on the average
expected life of the underlying pool of mortgage loans. The actual life
of any particular pool will be shortened by any unscheduled or early
payments of principal and interest. Principal prepayments generally
result from the sale of the underlying property or the refinancing or
foreclosure of underlying mortgages. The occurrence of prepayments is
affected by a wide range of economic, demographic and social factors and,
accordingly, it is not possible to predict accurately the average life of
a particular pool. Yield on such pools is usually computed by using the
historical record of prepayments for that pool, or, in the case of newly-
issued mortgages, the prepayment history of similar pools. The actual
prepayment experience of a pool of mortgage loans may cause the yield
realized by the Fund to differ from the yield calculated on the basis of
the expected average life of the pool.
Prepayments tend to increase during periods of falling interest
rates, while during periods of rising interest rates prepayments will most
likely decline. When prevailing interest rates rise, the value of a pass-
through security may decrease as do the values of other debt securities,
but, when prevailing interest rates decline, the value of a pass-through
security is not likely to rise to the extent that the value of other debt
securities rise, because of the prepayment feature of pass-through
securities. The Fund's reinvestment of scheduled principal payments and
unscheduled prepayments it receives may occur at times when available
investments offer higher or lower rates than the original investment, thus
affecting the yield of the Fund. Monthly interest payments received by
the Fund have a compounding effect which may increase the yield to the
Fund more than debt obligations that pay interest semi-annually. Because
of those factors, mortgage-backed securities may be less effective than
Treasury bonds of similar maturity at maintaining yields during periods
of declining interest rates. The Fund may purchase mortgage-backed
securities at par, at a premium or at a discount. Accelerated prepayments
adversely affect yields for pass-through securities purchased at a premium
(i.e., at a price in excess of their principal amount) and may involve
additional risk of loss of principal because the premium may not have been
fully amortized at the time the obligation is repaid. The opposite is
true for pass-through securities purchased at a discount.
The Fund may invest in "stripped" mortgage backed securities, in
which the principal and interest portions of the security are separated
and sold. Stripped mortgage-backed securities usually have at least two
classes each of which receives different proportions of interest and
principal distributions on the underlying pool of mortgage assets. One
common variety of stripped mortgage-backed security has one class that
receives some of the interest and most of the principal, while the other
class receives most of the interest and remainder of the principal. In
some cases, one class will receive all of the interest (the
"interest-only" or "IO" class), while the other class will receive all of
the principal (the "principal-only" or "PO" class). Interest only
securities are extremely sensitive to interest rate changes, and
prepayments of principal on the underlying mortgage assets. An increase
in principal payments or prepayments will reduce the income available to
the IO security. In other types of CMOs, the underlying principal
payments may apply to various classes in a particular order, and therefore
the value of certain classes or "tranches" of such securities may be more
volatile than the value of the pool as a whole, and losses may be more
severe than on other classes.
Mortgage-backed securities may be less effective than debt
obligations of similar maturity at maintaining yields during periods of
declining interest rates. As new types of mortgage-related securities are
developed and offered to investors, the Manager will, subject to the
direction of the Board of Trustees and consistent with the Fund's
investment objective and policies, consider making investments in such new
types of mortgage-related securities.
-- GNMA Certificates. Certificates of Government National Mortgage
Association ("GNMA") are mortgage-backed securities of GNMA that evidence
an undivided interest in a pool or pools of mortgages ("GNMA
Certificates"). The GNMA Certificates that the Fund may purchase are of
the "modified pass-through" type, which entitle the holder to receive
timely payment of all interest and principal payments due on the mortgage
pool, net of fees paid to the "issuer" and GNMA, regardless of whether the
mortgagor actually makes the payments when due.
The National Housing Act authorizes GNMA to guarantee the timely
payment of principal and interest on securities backed by a pool of
mortgages insured by the Federal Housing Administration ("FHA") or
guaranteed by the Veterans Administration ("VA"). The GNMA guarantee is
backed by the full faith and credit of the U.S. Government. GNMA is also
empowered to borrow without limitation from the U.S. Treasury if necessary
to make any payments required under its guarantee.
The average life of a GNMA Certificate is likely to be substantially
shorter than the original maturity of the mortgages underlying the
securities. Prepayments of principal by mortgagors and mortgage
foreclosures will usually result in the return of the greater part of
principal investment long before the maturity of the mortgages in the
pool. Foreclosures impose no risk to principal investment because of the
GNMA guarantee, except to the extent that the Fund has purchased the
certificates at a premium in the secondary market.
-- FNMA Securities. The Federal National Mortgage Association
("FNMA") was established to create a secondary market in mortgages insured
by the FHA. FNMA issues guaranteed mortgage pass-through certificates
("FNMA Certificates"). FNMA Certificates resemble GNMA Certificates in
that each FNMA Certificate represents a pro rata share of all interest and
principal payments made and owed on the underlying pool. FNMA guarantees
timely payment of interest and principal on FNMA Certificates. The FNMA
guarantee is not backed by the full faith and credit of the U.S.
Government.
-- FHLMC Securities. The Federal Home Loan Mortgage Corporation
("FHLMC") was created to promote development of a nationwide secondary
market for conventional residential mortgages. FHLMC issues two types of
mortgage pass-through certificates ("FHLMC Certificates"): mortgage
participation certificates ("PCs") and guaranteed mortgage certificates
("GMCs"). PCs resemble GNMA Certificates in that each PC represents a pro
rata share of all interest and principal payments made and owed on the
underlying pool. FHLMC guarantees timely monthly payment of interest on
PCs and the ultimate payment of principal. The FHLMC guarantee is not
backed by the full faith and credit of the U.S. Government.
GMCs also represent a pro rata interest in a pool of mortgages.
However, these instruments pay interest semi-annually and return principal
once a year in guaranteed minimum payments. The expected average life of
these securities is approximately ten years. The FHLMC guarantee is not
backed by the full faith and credit of the U.S. Government.
-- Collateralized Mortgage-Backed Obligations ("CMOs"). CMOs are
fully-collateralized bonds that are the general obligations of the issuer
thereof, either the U.S. Government, a U.S. government instrumentality,
or a private issuer, which may be a domestic or foreign corporation. Such
bonds generally are secured by an assignment to a trustee (under the
indenture pursuant to which the bonds are issued) of collateral consisting
of a pool of mortgages. Payments with respect to the underlying mortgages
generally are made to the trustee under the indenture. Payments of
principal and interest on the underlying mortgages are not passed through
to the holders of the CMOs as such (i.e., the character of payments of
principal and interest is not passed through, and therefore payments to
holders of CMOs attributable to interest paid and principal repaid on the
underlying mortgages do not necessarily constitute income and return of
capital, respectively, to such holders), but such payments are dedicated
to payment of interest on and repayment of principal of the CMOs. CMOs
often are issued in two or more classes with different characteristics
such as varying maturities and stated rates of interest. Because interest
and principal payments on the underlying mortgages are not passed through
to holders of CMOs, CMOs of varying maturities may be secured by the same
pool of mortgages, the payments on which are used to pay interest on each
class and to retire successive maturities in sequence. Unlike other
mortgage-backed securities (discussed above), CMOs are designed to be
retired as the underlying mortgages are repaid. In the event of
prepayment on such mortgages, the class of CMO first to mature generally
will be paid down. Therefore, although in most cases the issuer of CMOs
will not supply additional collateral in the event of such prepayment,
there will be sufficient collateral to secure CMOs that remain
outstanding.
-- Asset-Backed Securities. The value of an asset-backed security
is affected by changes in the market's perception of the asset backing the
security, the creditworthiness of the servicing agent for the loan pool,
the originator of the loans, or the financial institution providing any
credit enhancement, and is also affected if any credit enhancement has
been exhausted. The risks of investing in asset-backed securities are
ultimately dependent upon payment of consumer loans by the individual
borrowers. As a purchaser of an asset-backed security, the Fund would
generally have no recourse to the entity that originated the loans in the
event of default by a borrower. The underlying loans are subject to
prepayments, which shorten the weighted average life of asset-backed
securities and may lower their return, in the same manner as described
above for the prepayments of a pool of mortgage loans underlying mortgage-
backed securities.
Other Investment Techniques And Strategies
- Hedging with Options and Futures Contracts. The Fund may employ
one or more types of Hedging Instruments for the purposes described in the
Prospectus. When hedging to attempt to protect against declines in the
market value of the Fund's portfolio, to permit the Fund to retain
unrealized gains in the value of portfolio securities which have
appreciated, or to facilitate selling securities for investment reasons,
the Fund may: (i) sell Futures, (ii) purchase puts on such Futures or
securities, or (iii) write calls on securities held by it or on Futures.
When hedging to attempt to protect against the possibility that portfolio
securities are not fully included in a rise in value of the debt
securities market, the Fund may: (i) purchase Futures, or (ii) purchase
calls on such Futures or on securities. Covered calls and puts may also
be written on debt securities to attempt to increase the Fund's income.
When hedging to protect against declines in the dollar value of a foreign
currency-denominated security, the Fund may: (a) purchase puts on that
foreign currency and on foreign currency Futures, (b) write calls on that
currency or on such Futures, or (c) enter into Forward Contracts at a
lower rate than the spot ("cash") rate.
The Fund's strategy of hedging with Futures and options on Futures
will be incidental to the Fund's activities in the underlying cash market.
Additional Information about the Hedging Instruments the Fund may use is
provided below. At present, the Fund does not intend to enter into
Futures, Forward Contracts and options on Futures if, after any such
purchase, the sum of margin deposits on Futures and premiums paid on
Futures options exceeds 5% of the value of the Fund's total assets. In
the future, the Fund may employ Hedging Instruments and strategies that
are not presently contemplated but which may be developed, to the extent
such investment methods are consistent with the Fund's investment
objective, legally permissible and adequately disclosed.
-- Writing Call Options. The Fund may write (i.e. sell) call options
("calls") on debt securities that are traded on U.S. and foreign
securities exchanges and over-the-counter markets, to enhance income
through the receipt of premiums from expired calls and any net profits
from closing purchase transactions. After any such sale up to 50% of the
Fund's total assets may be subject to calls. All such calls written by
the Fund must be "covered" while the call is outstanding (i.e. the Fund
must own the securities subject to the call or other securities acceptable
for applicable escrow requirements). Calls on Futures (discussed below)
must be covered by deliverable securities or by liquid assets segregated
to satisfy the Futures contract. When the Fund writes a call on a
security it receives a premium and agrees to sell the callable investment
to a purchaser of a corresponding call on the same security during the
call period (usually not more than 9 months) at a fixed exercise price
(which may differ from the market price of the underlying security),
regardless of market price changes during the call period. The Fund has
retained the risk of loss should the price of the underlying security
decline during the call period, which may be offset to some extent by the
premium.
To terminate its obligation on a call it has written, the Fund may
purchase a corresponding call in a "closing purchase transaction." A
profit or loss will be realized, depending upon whether the net of the
amount of the option transaction costs and the premium received on the
call written was more or less than the price of the call subsequently
purchased. A profit may also be realized if the call lapses unexercised,
because the Fund retains the underlying investment and the premium
received. Any such profits are considered short-term capital gains for
Federal income tax purposes, and when distributed by the Fund are taxable
as ordinary income. If the Fund could not effect a closing purchase
transaction due to lack of a market, it would have to hold the callable
investments until the call lapsed or was exercised.
The Fund may also write calls on Futures without owning a futures
contract or a deliverable bond, provided that at the time the call is
written, the Fund covers the call by segregating in escrow an equivalent
dollar amount of liquid assets. The Fund will segregate additional liquid
assets if the value of the escrowed assets drops below 100% of the current
value of the Future. In no circumstances would an exercise notice require
the Fund to deliver a futures contract; it would simply put the Fund in
a short futures position, which is permitted by the Fund's hedging
policies.
-- Writing Put Options. The Fund may write put options on debt
securities or Futures but only if such puts are covered by segregated
liquid assets. The Fund will not write puts if, as a result, more than
50% of the Fund's net assets would be required to be segregated to cover
such put obligations. In writing puts, there is the risk that the Fund
may be required to buy the underlying security at a disadvantageous price.
A put option on securities gives the purchaser the right to sell, and the
writer the obligation to buy, the underlying investment at the exercise
price during the option period. Writing a put covered by segregated
liquid assets equal to the exercise price of the put has the same economic
effect to the Fund as writing a covered call. The premium the Fund
receives from writing a put option represents a profit, as long as the
price of the underlying investment remains above the exercise price.
However, the Fund has also assumed the obligation during the option period
to buy the underlying investment from the buyer of the put at the exercise
price, even though the value of the investment may fall below the exercise
price. If the put lapses unexercised, the Fund (as the writer of the put)
realizes a gain in the amount of the premium. If the put is exercised,
the Fund must fulfill its obligation to purchase the underlying investment
at the exercise price, which will usually exceed the market value of the
investment at that time. In that case, the Fund may incur a loss, equal
to the sum of the current market value of the underlying investment and
the premium received minus the sum of the exercise price and any
transaction costs incurred.
When writing put options on securities, to secure its obligation to
pay for the underlying security, the Fund will deposit in escrow liquid
assets with a value equal to or greater than the exercise price of the put
option. The Fund therefore forgoes the opportunity of investing the
segregated assets or writing calls against those assets. As long as the
obligation of the Fund as the put writer continues, it may be assigned an
exercise notice by the broker-dealer through whom such option was sold,
requiring the Fund to take delivery of the underlying security against
payment of the exercise price. The Fund has no control over when it may
be required to purchase the underlying security, since it may be assigned
an exercise notice at any time prior to the termination of its obligation
as the writer of the put. This obligation terminates upon expiration of
the put, or such earlier time at which the Fund effects a closing purchase
transaction by purchasing a put of the same series as that previously
sold. Once the Fund has been assigned an exercise notice, it is
thereafter not allowed to effect a closing purchase transaction.
The Fund may effect a closing purchase transaction to realize a
profit on an outstanding put option it has written or to prevent an
underlying security from being put. Furthermore, effecting such a closing
purchase transaction will permit the Fund to write another put option to
the extent that the exercise price thereof is secured by the deposited
assets, or to utilize the proceeds from the sale of such assets for other
investments by the Fund. The Fund will realize a profit or loss from a
closing purchase transaction if the cost of the transaction is less or
more than the premium received from writing the option. As above for
writing covered calls, any and all such profits described herein from
writing puts are considered short-term gains for Federal tax purposes, and
when distributed by the Fund, are taxable as ordinary income.
The Trustees have adopted a non-fundamental policy that the Fund may
only purchase call options and put options with a value of up to 5% of its
net assets.
-- Purchasing Puts and Calls. The Fund may purchase calls in order
to protect against the possibility that the Fund's portfolio will not
fully participate in an anticipated rise in value of the long-term debt
securities market. When the Fund purchases a call, it pays a premium
(other than in a closing purchase transaction) and, except as to calls on
bond indices, has the right to buy the underlying investment from a seller
of a corresponding call on the same investment during the call period at
a fixed exercise price. In purchasing a call, the Fund benefits only if
the call is sold at a profit or if, during the call period, the market
price of the underlying investment is above the sum of the call price,
transaction costs, and the premium paid, and the call is exercised. If
the call is not exercised or sold (whether or not at a profit), it will
become worthless at its expiration date and the Fund will lose its premium
payment and the right to purchase the underlying investment.
When the Fund purchases a put, it pays a premium and has the right
to sell the underlying investment to a seller of a corresponding put on
the same investment during the put period at a fixed exercise price.
Buying a put on an investment the Fund owns (a "protective put") enables
the Fund to attempt to protect itself during the put period against a
decline in the value of the underlying investment below the exercise price
by selling the underlying investment at the exercise price to a seller of
a corresponding put. If the market price of the underlying investment is
equal to or above the exercise price and as a result the put is not
exercised or resold, the put will become worthless at its expiration and
the Fund will lose the premium payment and the right to sell the
underlying investment. However, the put may be sold prior to expiration
(whether or not at a profit).
Purchasing either a put on Interest Rate Futures or on debt
securities it does not own permits the Fund either to resell the put or
to buy the underlying investment and sell it at the exercise price. The
resale price of the put will vary inversely with the price of the
underlying investment. If the market price of the underlying investment
is above the exercise price, and as a result the put is not exercised, the
put will become worthless on the expiration date. In the event of a
decline in price of the underlying investment, the Fund could exercise or
sell the put at a profit to attempt to offset some or all of its loss on
its portfolio securities. When the Fund purchases a put on an Interest
rate Future or debt security not held by it, the put protects the Fund to
the extent that the prices of the underlying Future or debt securities
move in a similar pattern of the debt securities in the Fund's portfolio.
The Fund's option activities may affect its portfolio turnover rate
and brokerage commissions. The exercise of calls written by the Fund may
cause the Fund to sell related portfolio securities, thus increasing its
turnover rate. The exercise by the Fund of puts on securities will cause
the sale of underlying investments, increasing portfolio turnover.
Although the decision whether to exercise a put it holds is within the
Fund's control, holding a put might cause the Fund to sell the related
investments for reasons that would not exist in the absence of the put.
The Fund will pay a brokerage commission each time it buys or sells a
call, put or an underlying investment in connection with the exercise of
a put or call. Those commissions may be higher than the commissions for
direct purchases or sales of the underlying investments.
Premiums paid for options are small in relation to the market value
of the underlying investments and, consequently, put and call options
offer large amounts of leverage. The leverage offered by trading in
options could result in the Fund's net asset value being more sensitive
to changes in the value of the underlying investments.
-- Options on Foreign Currencies. The Fund intends to write and
purchase calls on foreign currencies. The Fund may purchase and write
puts and calls on foreign currencies that are traded on a securities or
commodities exchange or quoted by major recognized dealers in such
options, for the purpose of protecting against declines in the dollar
value of foreign securities and against increases in the dollar cost of
foreign securities to be acquired. If a rise is anticipated in the dollar
value of a foreign currency in which securities to be acquired are
denominated, the increased cost of such securities may be partially offset
by purchasing calls or writing puts on that foreign currency. If a
decline in the dollar value of a foreign currency is anticipated, the
decline in value of portfolio securities denominated in that currency may
be partially offset by writing calls or purchasing puts on that foreign
currency. However, in the event of currency rate fluctuations adverse to
the Fund's position, it would lose the premium it paid and transactions
costs.
A call written on a foreign currency by the Fund is covered if the
Fund owns the underlying foreign currency covered by the call or has an
absolute and immediate right to acquire that foreign currency without
additional cash consideration (or for additional cash consideration held
in a segregated account by its custodian) upon conversion or exchange of
other foreign currency held in its portfolio. A call may be written by
the Fund on a foreign currency to provide a hedge against a decline due
to an expected adverse change in the exchange rate in the U.S. dollar
value of a security which the Fund owns or has the right to acquire and
which is denominated in the currency underlying the option. This is a
cross-hedging strategy. In such circumstances, the Fund collateralizes
the option by maintaining in a segregated account with the Fund's
custodian, cash or U.S. Government Securities in an amount not less than
the value of the underlying foreign currency in U.S. dollars marked-to-
market daily.
-- Futures. The Fund may buy and sell Futures. No price is paid or
received upon the purchase or sale of an Interest Rate Future or a foreign
currency exchange contract ("Forward Contract"), discussed below. An
Interest Rate Future obligates the seller to deliver and the purchaser to
take a specific type of debt security at a specific future date for a
fixed price. That obligation may be satisfied by actual delivery of the
debt security or by entering into an offsetting contract. A securities
index assigns relative values to the securities included in that index and
is used as a basis for trading long-term Financial Futures contracts.
Financial Futures reflect the price movements of securities included in
the index. They differ from Interest Rate Futures in that settlement is
made in cash rather than by delivery of the underlying investment.
Upon entering into a Futures transaction, the Fund will be required
to deposit an initial margin payment in cash or U.S. Treasury bills with
the futures commission merchant (the "futures broker"). The initial
margin will be deposited with the Fund's Custodian in an account
registered in the futures broker's name; however the futures broker can
gain access to that account only under specified conditions. As the
Future is marked to market to reflect changes in its market value,
subsequent margin payments, called variation margin, will be made to or
by the futures broker on a daily basis.
At any time prior to the expiration of the Future, if the Fund elects
to close out its position by taking an opposite position, a final
determination of variation margin is made, additional cash is required to
be paid by or released to the Fund, and any loss or gain is realized for
tax purposes. Although Interest Rate Futures by their terms call for
settlement by delivery or acquisition of debt securities, in most cases
the obligation is fulfilled by entering into an offsetting position. All
futures transactions are effected through a clearinghouse associated with
the exchange on which the contracts are traded.
-- Forward Contracts. The Fund may enter into foreign currency
exchange contracts ("Forward Contracts"), which obligate the seller to
deliver and the purchaser to take a specific amount of foreign currency
at a specific future date for a fixed price. A Forward Contract involves
bilateral obligations of one party to purchase, and another party to sell,
a specific currency at a future date (which may be any fixed number of
days from the date of the contract agreed upon by the parties), at a price
set at the time the contract is entered into. These contracts are traded
in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. The Fund may enter
into a Forward Contract in order to "lock in" the U.S. dollar price of a
security denominated in a foreign currency which it has purchased or sold
but which has not yet settled, or to protect against a possible loss
resulting from an adverse change in the relationship between the U.S.
dollar and a foreign currency. There is a risk that use of Forward
Contracts may reduce the gain that would otherwise result from a change
in the relationship between the U.S. dollar and a foreign currency.
Forward contracts include standardized foreign currency futures contracts
which are traded on exchanges and are subject to procedures and
regulations applicable to other Futures. The Fund may also enter into a
forward contract to sell a foreign currency denominated in a currency
other than that in which the underlying security is denominated. This is
done in the expectation that there is a greater correlation between the
foreign currency of the forward contract and the foreign currency of the
underlying investment than between the U.S. dollar and the foreign
currency of the underlying investment. This technique is referred to as
"cross hedging." The success of cross hedging is dependent on many
factors, including the ability of the Manager to correctly identify and
monitor the correlation between foreign currencies and the U.S. dollar.
To the extent that the correlation is not identical, the Fund may
experience losses or gains on both the underlying security and the cross
currency hedge.
The Fund may use Forward Contracts to protect against uncertainty in
the level of future exchange rates. The use of Forward Contracts does not
eliminate fluctuations in the prices of the underlying securities the Fund
owns or intends to acquire, but it does fix a rate of exchange in advance.
In addition, although Forward Contracts limit the risk of loss due to a
decline in the value of the hedged currencies, at the same time they limit
any potential gain that might result should the value of the currencies
increase.
There is no limitation as to the percentage of the Fund's assets that
may be committed to foreign currency exchange contracts. The Fund does
not enter into such forward contracts or maintain a net exposure in such
contracts to the extent that the Fund would be obligated to deliver an
amount of foreign currency in excess of the value of the Fund's assets
denominated in that currency, or enter into a "cross hedge," unless it is
denominated in a currency or currencies that the Manager believes will
have price movements that tend to correlate closely with the currency in
which the investment being hedged is denominated. See "Tax Aspects of
Covered Calls and Hedging Instruments" below for a discussion of the tax
treatment of foreign currency exchange contracts.
The Fund may enter into Forward Contracts with respect to specific
transactions. For example, when the Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency, or when
the Fund anticipates receipt of dividend payments in a foreign currency,
the Fund may desire to "lock-in" the U.S. dollar price of the security or
the U.S. dollar equivalent of such payment by entering into a Forward
Contract, for a fixed amount of U.S. dollars per unit of foreign currency,
for the purchase or sale of the amount of foreign currency involved in the
underlying transaction ("transaction hedge"). The Fund will thereby be
able to protect itself against a possible loss resulting from an adverse
change in the relationship between the currency exchange rates during the
period between the date on which the security is purchased or sold, or on
which the payment is declared, and the date on which such payments are
made or received.
The Fund may also use Forward Contracts to lock in the U.S. dollar
value of portfolio positions ("position hedge"). In a position hedge, for
example, when the Fund believes that foreign currency may suffer a
substantial decline against the U.S. dollar, it may enter into a forward
sale contract to sell an amount of that foreign currency approximating the
value of some or all of the Fund's portfolio securities denominated in
such foreign currency, or when the Fund believes that the U.S. dollar may
suffer a substantial decline against a foreign currency, it may enter into
a forward purchase contract to buy that foreign currency for a fixed
dollar amount. In this situation the Fund may, in the alternative, enter
into a forward contract to sell a different foreign currency for a fixed
U.S. dollar amount where the Fund believes that the U.S. dollar value of
the currency to be sold pursuant to the forward contract will fall
whenever there is a decline in the U.S. dollar value of the currency in
which portfolio securities of the Fund are denominated ("cross hedge").
The Fund will identify to the Custodian cash or U.S. Government
securities or other liquid high-quality debt securities having a value
equal to the aggregate net amount of the Fund's exposure under forward
contracts entered into with respect to position hedges and cross hedges.
If the value of such securities 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, 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
when hedging by selling Futures to attempt to protect against decline in
value of the Fund's portfolio securities (due to an increase in interest
rates) that the prices of such Futures will correlate imperfectly with the
behavior of the cash (i.e., market value) prices of the Fund's securities.
The ordinary spreads between prices in the cash and futures markets are
subject to distortions due to differences in the natures of those markets.
First, all participants in the futures markets are subject to margin
deposit and maintenance requirements. Rather than meeting additional
margin deposit requirements, investors may close out futures contracts
through offsetting transactions which could distort the normal
relationship between the cash and futures markets. Second, the liquidity
of the futures markets depend on participants entering into offsetting
transactions rather than making or taking delivery. To the extent
participants decide to make or take delivery, liquidity in the futures
markets could be reduced, thus producing distortion. Third, from the
point of view of speculators, the deposit requirements in the futures
markets are less onerous than margin requirements in the securities
markets. Therefore, increased participation by speculators in the futures
markets may cause temporary price distortions.
- Repurchase Agreements. In a repurchase transaction, the Fund
acquires a security from, and simultaneously resells it to, an approved
vendor (a U.S. commercial bank, the U.S. branch of a foreign bank or a
broker-dealer which has been designated a primary dealer in government
securities, which must meet the credit requirements set by the Trust's
Board of Trustees from time to time), for delivery on an agreed upon
future date. The resale price exceeds the purchase price by an amount
that reflects an agreed-upon interest rate effective for the period during
which the repurchase agreement is in effect. The majority of these
transactions run from day to day, and delivery pursuant to resale
typically will occur within one to five days of the purchase. Repurchase
agreements are considered "loans" under the Investment Company Act,
collateralized by the underlying security. The Fund's repurchase
agreements require that at all times while the repurchase agreement is in
effect, the collateral's value must equal or exceed the repurchase price
to fully collateralize the repayment obligation. Additionally, the
Manager will impose creditworthiness requirements to confirm that the
vendor is financially sound and will continuously monitor the collateral's
value.
- Illiquid and Restricted Securities. To enable the Fund to sell
restricted securities not registered under the Securities Act of 1933, the
Fund may have to cause those securities to be registered. The expenses
of registration of restricted securities may be negotiated by the Fund
with the issuer at the time such securities are purchased by the Fund, if
such registration is required before such securities may be sold publicly.
When registration must be arranged because the Fund wishes to sell the
security, a considerable period may elapse between the time the decision
is made to sell the securities and the time the Fund would be permitted
to sell them. The Fund would bear the risks of any downward price
fluctuation during that period. The Fund may also acquire, through
private placements, securities having contractual restrictions on their
resale, which might limit the Fund's ability to dispose of such securities
and might lower the amount realizable upon the sale of such securities.
The Fund has percentage limitations that apply to purchases of
restricted securities, as stated in the Prospectus. Those percentage
restrictions do not limit purchases of restricted securities that are
eligible for sale to qualified institutional purchasers pursuant to Rule
144A under the Securities Act of 1933, provided that those securities have
been determined to be liquid by the Board of Trustees of the Fund or by
the Manager under Board-approved guidelines. Those guidelines take into
account the trading activity for such securities and the availability of
reliable pricing information, among other factors. If there is a lack of
trading interest in a particular Rule 144A security, the Fund's holding
of that security may be deemed to be illiquid.
- Loans of Portfolio Securities. The Fund may lend its portfolio
securities subject to the restrictions stated in the Prospectus. Under
applicable regulatory requirements (which are subject to change), the loan
collateral on each business day must at least equal the value of the
loaned securities and must consist of cash, bank letters of credit or
securities of the U.S. Government (or its agencies or instrumentalities).
To be acceptable as collateral, letters of credit must obligate a bank to
pay amounts demanded by the Fund if the demand meets the terms of the
letter. Such terms and the issuing bank must be satisfactory to the Fund.
When it lends securities, the Fund receives amounts equal to the dividends
or interest on loaned securities and also receives one or more of (a)
negotiated loan fees, (b) interest on securities used as collateral, and
(c) interest on short-term debt securities purchased with such loan
collateral. Either type of interest may be shared with the borrower. The
Fund may also pay reasonable finder's, custodian and administrative fees.
In connection with securities lending, the Fund might experience risks of
delay in receiving additional collateral, or risks of delay in recovery
of securities, or loss of rights in the collateral should the borrower
fail financially. The terms of the Fund's loans must meet applicable
tests under the Internal Revenue Code and must permit the Fund to
reacquire loaned securities on five days' notice or in time to vote on any
important matter.
- When-Issued and Delayed Delivery Transactions. The Fund may
purchase securities on a "when-issued" basis, and may purchase or sell
such securities on a "delayed delivery" basis. Although the Fund will
enter into such transactions for the purpose of acquiring securities for
its portfolio or for delivery pursuant to options contracts it has entered
into, the Fund may dispose of a commitment prior to settlement. "When-
issued" or "delayed delivery" refers to securities whose terms and
indenture are available and for which a market exists, but which are not
available for immediate delivery. When such transactions are negotiated,
the price (which is generally expressed in yield terms) is fixed at the
time the commitment is made, but delivery and payment for the securities
take place at a later date. The Fund does not intend to make such
purchases for speculative purposes. The commitment to purchase a security
for which payment will be made on a future date may be deemed a separate
security and involve a risk of loss if the value of the security declines
prior to the settlement date. During the period between commitment by the
Fund and settlement (generally within two months but not to exceed 120
days), no payment is made for the securities purchased by the purchaser,
and no interest accrues to the purchaser from the transaction. Such
securities are subject to market fluctuation; the value at delivery may
be less than the purchase price. The Fund will maintain a segregated
account with its Custodian, consisting of cash, U.S. Government securities
or other high grade debt obligations at least equal to the value of
purchase commitments until payment is made.
The Fund will engage in when-issued transactions in order to secure
what is considered to be an advantageous price and yield at the time of
entering into the obligation. When the Fund engages in when-issued or
delayed delivery transactions, it relies on the buyer or seller, as the
case may be, to consummate the transaction. Failure of the buyer or
seller to do so may result in the Fund losing the opportunity to obtain
a price and yield considered to be advantageous. At the time the Fund
makes a commitment to purchase or sell a security on a when-issued or
forward commitment basis, it records the transaction and reflects the
value of the security purchased, or if a sale, the proceeds to be
received, in determining its net asset value. If the Fund chooses to (i)
dispose of the right to acquire a when-issued security prior to its
acquisition or (ii) dispose of its right to deliver or receive against a
forward commitment, it may incur a gain or loss.
To the extent the Fund engages in when-issued and delayed delivery
transactions, it will do so for the purpose of acquiring or selling
securities consistent with its investment objective and policies and not
for the purposes of investment leverage. The Fund enters into such
transactions only with the intention of actually receiving or delivering
the securities, although (as noted above), when-issued securities and
forward commitments may be sold prior to settlement date. In addition,
changes in interest rates before settlement in a direction other than that
expected by the Manager will affect the value of such securities and may
cause a loss to the Fund.
When-issued transactions and forward commitments allow the Fund a
technique to use against anticipated changes in interest rates and prices.
For instance, in periods of rising interest rates and falling prices, the
Fund might sell securities in its portfolio on a forward commitment basis
to attempt to limit its exposure to anticipated falling prices. In
periods of falling interest rates and rising prices, the Fund might sell
portfolio securities and purchase the same or similar securities on a
when-issued or forward commitment basis, thereby obtaining the benefit of
currently higher cash yields.
Other Investment Restrictions
The Fund's most significant investment restrictions are set forth in
the Prospectus. There are additional investment restrictions that the
Fund must follow that are also fundamental policies. Fundamental policies
and the Fund's investment objective, cannot be changed without the vote
of a "majority" of the Fund's outstanding voting securities. Under the
Investment Company Act, such a "majority" vote is defined as the vote of
the holders of the lesser of (i) 67% or more of the shares present or
represented by proxy at a shareholder meeting, if the holders of more than
50% of the outstanding shares are present, or (ii) more than 50% of the
outstanding shares.
Under these additional restrictions, the Trust may not, on behalf of
the Fund:
-- 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;
-- 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);
-- 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;
-- 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;
-- 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 one-half
of 1% of the securities of such issuer; and
-- 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. Each share of the Fund represents an interest in the
Fund proportionately equal to the interest of each other share of the same
class and entitles the holder to one vote per share (and a fractional vote
for a fractional share) on matters submitted to their vote at
shareholders' meetings. Shareholders of the Fund and of the Trust's other
series vote together in the aggregate on certain matters at shareholders'
meetings, such as the election of Trustees and ratification of appointment
of auditors for the Trust. Shareholders of a particular series or class
vote separately on proposals which affect that series or class, and
shareholders of a series or class which is not affected by that matter are
not entitled to vote on the proposal. For example, only shareholders of
a series, such as the Fund, vote exclusively on any material amendment to
the investment advisory agreement with respect to the series. Only
shareholders of a class of a series vote on certain amendments to the
Distribution and/or Service Plans if the amendments affect that class.
The Trustees are authorized to create new series and classes of
series. The Trustees may reclassify unissued shares of the Trust or its
series or classes into additional series or classes of shares. The
Trustees may also divide or combine the shares of a class into a greater
or lesser number of shares without thereby changing the proportionate
beneficial interest of a shareholder in the Fund. Shares do not have
cumulative voting rights or preemptive or subscription rights. Shares may
be voted in person or by proxy.
As a Massachusetts business trust, the Trust is not required to hold,
and does not plan to hold, regular annual meetings of shareholders. The
Trust will hold meetings when required to do so by the Investment Company
Act or other applicable law, or when a shareholder meeting is called by
the Trustees or upon proper request of the shareholders. Shareholders
have the right, upon the declaration in writing or vote of two-thirds of
the outstanding shares of the Trust, to remove a Trustee. The Trustees
will call a meeting of shareholders to vote on the removal of a Trustee
upon the written request of the record holders of at least 10% of its
outstanding shares. In addition, if the Trustees receive a request from
at least 10 shareholders (who have been shareholders for at least six
months) holding shares of the Trust valued at $25,000 or more or holding
at least 1% of the Trust's outstanding shares, whichever is less, stating
that they wish to communicate with other shareholders to request a meeting
to remove a Trustee, the Trustees will then either make the Trust's
shareholder list available to the applicants or mail their communication
to all other shareholders at the applicant's expense, or the Trustees may
take such other action as set forth under Section 16(c) of the Investment
Company Act.
The Trust's Declaration of Trust contains an express disclaimer of
shareholder or Trustee liability for the Trust's obligations, and provides
for indemnification and reimbursement of expenses out of its property for
any shareholder held personally liable for its obligations. The
Declaration of Trust also provides that the Fund shall, upon request,
assume the defense of any claim made against any shareholder for any act
or obligation of the Fund and satisfy any judgment thereon. Thus, while
Massachusetts law permits a shareholder of a business trust (such as the
Trust) to be held personally liable as a "partner" under certain
circumstances, the risk of a Trust shareholder incurring financial loss
on account of shareholder liability is limited to the relatively remote
circumstances in which the Fund would be unable to meet its obligations
described above. Any person doing business with the Trust, and any
shareholder of the Trust, agrees under the Trust's Declaration of Trust
to look solely to the assets of the Trust for satisfaction of any claim
or demand which may arise out of any dealings with the Trust, and the
Trustees shall have no personal liability to any such person, to the
extent permitted by law.
Trustees And Officers of the Fund. The Trust's Trustees and officers and
their principal occupations and business affiliations during the past five
years are listed below. Each Trustee is also a trustee, director or
managing general partner of the Trust, Oppenheimer Total Return Fund,
Inc., Oppenheimer Equity Income Fund, Oppenheimer High Yield Fund,
Oppenheimer International Bond Fund, Oppenheimer Cash Reserves,
Oppenheimer Tax-Exempt Fund, Oppenheimer Limited-Term Government Fund, The
New York Tax-Exempt Income Fund, Inc., Oppenheimer Champion Income Fund,
Oppenheimer Main Street Funds, Inc., Oppenheimer Strategic Income Fund,
Oppenheimer Strategic Income & Growth 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 Oppenheimer
funds") except for Mr. Fossel and Ms. Macaskill who are Trustees,
Directors or Managing General Partners of all Denver-based Oppenheimer
funds except Oppenheimer Integrity Funds and Oppenheimer Strategic Income
Fund. Ms. Macaskill is President and Mr. Swain is Chairman of each of the
Denver-based Oppenheimer funds. As of March 6, 1996, the Trustees and
officers of the Fund as a group owned of record or beneficially less than
1% of each class of the Fund's outstanding shares, and less than 1% of the
outstanding shares of the Trust. The foregoing does not include shares
held of record by an employee benefit plan for employees of the Manager
(for which two of the officers listed below Ms. Macaskill and Mr. Donohue,
are trustees) other than the shares beneficially owned under that plan by
the officers of the Fund listed below.
Robert G. Avis, Trustee; Age: 64
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: 81
197 Desert Lakes Drive, Palm Springs, California 92264
Management Consultant.
Charles Conrad, Jr., Trustee; Age: 65
19411 Merion Circle, Huntington Beach, California 92648
Vice President of McDonnell Douglas Space Systems, Co.; formerly
associated with the National Aeronautics and Space Administration.
Raymond J. Kalinowski, Trustee; Age: 66
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: 74
2552 East Alameda, Denver, Colorado 80209
Formerly the Managing Partner of Deloitte, Haskins & Sells (an accounting
firm).
Robert M. Kirchner, Trustee; Age: 74
7500 E. Arapahoe Road, Englewood, Colorado 80112
President of The Kirchner Company (management consultants).
Bridget A. Macaskill, President; Age: 47
President, Chief Executive Officer and a Director of the Manager; Chairman
and a Director of SSI, President and a Director of OAC and HarbourView;
and a Director of Oppenheimer Partnership Holdings, Inc., a holding
company subsidiary of the Manager; formerly an Executive Vice President
of the Manager.
Ned M. Steel, Trustee; Age: 80
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: 62
3410 South Galena Street, Denver, Colorado 80231
Vice Chairman of the Manager; formerly 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 and Secretary; Age: 45
Two World Trade Center, New York, New York 10048-0203
Executive Vice President and General Counsel of the Manager and
OppenheimerFunds Distributor, Inc. (the "Distributor"); President and a
director of Centennial; an officer of other Oppenheimer funds; formerly
Senior Vice President and Associate General Counsel of the Manager and the
Distributor; formerly a Partner in, Kraft & McManimon (a law firm); an
officer of First Investors Corporation (a broker-dealer) and First
Investors Management Company, Inc. (broker-dealer and investment adviser);
and a director and an officer of First Investors Family of Funds and First
Investors Life Insurance Company.
George C. Bowen, Vice President, Assistant Secretary and Treasurer; Age:
59
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
Oppenheimer funds.
David P. Negri, Vice President and Portfolio Manager; Age: 41
Two World Trade Center, New York, New York 10048-0203
Vice President of the Manager; an officer of other Oppenheimer funds.
David Rosenberg, Vice President and Portfolio Manager; Age 37
Two World Trade Center, New York, New York 10048-0203
Vice President of the Manager; an officer of other Oppenheimer funds;
formerly Vice President and Senior Portfolio Manager for Delaware
Investment Advisors.
Robert G. Zack, Assistant Secretary; Age: 47
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 Oppenheimer
funds.
Robert J. Bishop, Assistant Treasurer; Age: 37
3410 South Galena Street, Denver, Colorado 80231
Assistant Vice President of the Manager/Mutual Fund Accounting; an officer
of other Oppenheimer funds; formerly a Fund Controller of the Manager,
prior to which he was an Accountant for Yale & Seffinger, P.C., an
accounting firm, and previously an Accountant and Commissions Supervisor
for Stuart James Company Inc., a broker-dealer.
Scott Farrar, Assistant Treasurer; Age: 30
3410 South Galena Street, Denver, Colorado 80231
Assistant Vice President of the Manager/Mutual Fund Accounting; an officer
of other
Oppenheimer funds; 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 (Mr. Swain, who is both an officer and Trustee) receives
no salary or fee from the Fund. The Trustees of the Fund (excluding Mr.
Swain) received the total amounts shown below (i) from the Fund, during
its fiscal year ended December 31, 1995, and (ii) from all of the Denver-
based Oppenheimer funds (including the Fund) listed in the first paragraph
of this section, for services in the positions shown and from Oppenheimer
Strategic Investment Grade Bond Fund and Oppenheimer Short-Term Income
Fund, which ceased operation following the acquisition of their assets by
certain other Oppenheimer funds):
<TABLE>
<CAPTION>
Total Compensation
Aggregate From All
Compensation Denver-based
Name and Position from Fund OppenheimerFunds1
<S> <S> <C>
Robert G. Avis $105 $53,000
Trustee
William A. Baker $144 $73,255
Audit and Review Committee
Chairman and Trustee
Charles Conrad, Jr. $127 $64,309
Audit and Review Committee
Member and Trustee
C. Howard Kast $128 $65,000
Trustee
Raymond J. Kalinowski $128 $65,000
Trustee
Robert M. Kirchner $135 $68,292
Audit and Review Committee
Member and Trustee
Ned M. Steel $105 $53,000
Trustee
<FN>
_____________
1For the 1995 calendar year.
</TABLE>
- Major Shareholders. As of March 6, 1996, the only entities that
owned of record or were known by the Fund to own beneficially 5% or more
of any class of the Fund's outstanding shares was (i) MML Reinsurance
(Bermuda) LTD, c/o Investment Services, 1295 State Street, Springfield,
MA 01111-0001, which owned 825,144.176 Class A shares (approximately 5.47%
of the Fund's Class A shares then outstanding); (ii) RPSS TR IRA FBO
Shirely Einhorn, 10662 SW 79th Terrace, Miami, FL 33173-2912, who owned
24,607.768 Class C shares (approximately 9.28% of the Fund's Class C
shares then outstanding); (iii) Oppenheimer & Co., Inc., P.O. Box 3484,
Church Street Station, New York, NY 10008-8484 who owned 16,554.132 Class
C shares (approximately 6.23% of the Fund's Class C shares then
outstanding); (iv) David B. Landers, PC PSP, 3364 E. Slauson Avenue,
Vernon, CA 90058-3915, who owned 13,534.984 (approximately 5.09% of the
Fund's Class C shares then outstanding); (v) Merrill Lynch Fenner & Smith,
4800 Deer Lake Drive E FL3, Jacksonville, FL 32246-6484 who owned 17,145
Class C shares (approximately 6.45% of the Fund's Class C shares then
outstanding); (vi) Merchants & Farmers Bank, 401(k) Plan, P.O. Box 189,
Millport, AL 355-0189, who owned 15,711.805 Class C shares (approximately
5.91% of the Fund's Class C shares then outstanding).
The Manager and Its Affiliates. The Manager is wholly-owned by
Oppenheimer Acquisition Corp. ("OAC"), a holding company controlled by
Massachusetts Mutual Life Insurance Company ("MassMutual"). OAC is also
owned in part by certain of the Manager's directors and officers, some of
whom also serve as officers of the Trust, and one of whom (Mr. James C.
Swain) serve as Trustees of the Trust.
The Manager, and the Fund have a Code of Ethics. It is designed to
detect and prevent improper personal trading by certain employees,
including portfolio managers, that would compete with or take advantage
of the Fund's portfolio transactions. Compliance with the Code of Ethics
is carefully monitored and strictly enforced.
- The Investment Advisory Agreement. Under the investment advisory
agreement dated July 10, 1995 between the Trust on behalf of the Fund and
the Manager, the Fund pays a management fee to the Manager at the annual
rate of: .75% of the first $200 million of average annual net assets; .72%
of the next $200 million; .69% of the next $200 million; .66% of the next
$200 million; .60% of the next $200 million; and .50% of average annual
net assets in excess of $1 billion. Under the prior investment advisory
agreement between the Trust on behalf of the Fund and the Manager, the
Fund paid a management fee to the Manager at the annual rate of: .50% of
the first $100 million of average annual net assets; .45% of the next $200
million; .40% of the next $200 million; and .35% of average annual net
assets in excess of $500 million. The investment advisory agreement, dated
July 10, 1995, between the Trust on behalf of the Fund and the Manager
requires the Manager, at its expense, to provide the Fund with adequate
office space, facilities and equipment, and to provide and supervise the
activities of all administrative and clerical personnel required to
provide effective corporate administration for the Fund, including the
compilation and maintenance of records with respect to its operations, the
preparation and filing of specified reports, and composition of proxy
materials and registration statements for continuous public sale of shares
of the Fund.
Expenses not expressly assumed by the Manager under the advisory
agreement or by the Distributor under the General Distributors Agreement
are paid by the Fund. The advisory agreement lists examples of expenses
paid by the Fund, the major categories of which relate to interest, taxes,
brokerage commissions, fees to certain Trustees, legal and audit expenses,
custodian and transfer agent expenses, share issuance costs, certain
printing and registration costs and non-recurring expenses, including
litigation costs.
The advisory agreement provides that in the absence of willful
misfeasance, bad faith or gross negligence in the performance of its
duties or reckless disregard for its obligations and duties under the
advisory agreement, the Manager is not liable for any loss resulting from
a good faith error or omission on its part with respect to any of its
duties thereunder. The advisory agreement permits the Manager to act as
investment adviser for any other person, firm or corporation and to use
the name "Oppenheimer" in connection with other investment companies for
which it may act as investment adviser or general distributor. If the
Manager shall no longer act as investment adviser to the Fund, the right
of the Fund to use the name "Oppenheimer" as part of its name may be
withdrawn. The advisory agreement is subject to annual approval by the
Board of Trustees, who may terminate the advisory agreement on sixty days'
notice approved by a majority of the Trustees.
The advisory agreement contains no expense limitation. However,
independently of the advisory agreement, the Manager has undertaken that
the total expenses of the Fund in any fiscal year (including the
management fee, but excluding taxes, interest, brokerage fees,
distribution plan payments, and extraordinary expenses, such as litigation
costs) shall not exceed (and the Manager undertakes to reduce the Fund's
management fee in the amount by which such expenses shall exceed) the most
stringent applicable state "blue sky" expense limitation requirement for
qualification of sale of the Fund's shares. At present, that limitation
is imposed by California and limits expenses (with specified exclusions)
to 2.5% of the first $30 million of the Fund's average annual net assets,
2.0% of the next $70 million of average net assets and 1.5% of average net
assets in excess of $100 million. The Manager reserves the right to
change or eliminate this expense limitation at any time. The payment of
the management fee at the end of any month will be reduced so that at no
time will there be any accrued but unpaid liability under the above
expense limitation.
Prior to July 10, 1995, MassMutual served as investment sub-adviser
(the "Sub-Adviser") to the Fund pursuant to a sub-advisory agreement
between the Manager and MassMutual dated March 28, 1991. Under the sub-
advisory agreement, MassMutual was responsible for managing the Fund's
portfolio of securities and making investment decisions with respect to
the Fund's investments, subject to the Fund's investment objective,
policies and restrictions. The Sub-Adviser's fee was paid by the Manager.
The sub-advisory agreement was subject to the same renewal, termination
and standard of care provisions as the investment advisory agreement. On
July 10, 1995, the Fund's shareholders approved a new investment advisory
agreement with the Manager, at the fee rate set forth in the Prospectus,
under which the Manager performs the investment decision-making functions
previously performed by the Sub-Adviser. The sub-advisory agreement
terminated effective July 10, 1995 after shareholders approved the
investment advisory agreement with the Manager.
For the fiscal years ended December 31, 1993, 1994 and for the period
from January 1, 1995 through July 9, 1995, the advisory fees paid to the
Manager were $555,430, $522,205 and $820,507, respectively, of which
$380,790, $362,287 and $201,877, respectively, was paid by the Manager to
the Sub-Adviser.
- The Distributor. Under the General Distributor's Agreement between
the Trust and the Distributor, the Distributor acts as the Fund's
principal underwriter in the continuous public offering of the Fund's
Class A, Class B and Class C shares, but is not obligated to sell a
specific number of shares. Expenses normally attributable to sales (other
than those paid under the Class A, Class B and Class C Distribution and
Service Plans), including advertising and the cost of printing and mailing
prospectuses (other than those furnished to existing shareholders), are
borne by the Distributor. During the Fund's fiscal years ended December
31, 1993, 1994 and 1995, the aggregate amount of sales charges on sales
of the Fund's Class A shares was $269,639, $143,088 and $166,065,
respectively, of which the Distributor and on an affiliate, MassMutual
Investor Services, Inc. ("MMLISI") retained in the aggregate $163,271,
$67,090 and $59,442 in those respective years. For the fiscal year ended
December 31, 1995, the Distributor advanced $134,235 to broker-dealers on
the sales of the Funds' Class B shares, $14,745 of which went to MMLISI.
In addition, the Distributor collected $33,311 from contingent deferred
sales charges assessed on Class B shares. During the Fund's fiscal period
July 11, 1995 through December 31, 1995, the contingent deferred sales
charges collected on the Fund's Class C shares totalled $29. For
additional information about distribution of the Fund's shares, payment
made by the Fund to the Distributor, and expenses connected with such
activities, refer to "Distribution and Service Plans," below.
- - The Transfer Agent. OppenheimerFunds Services, an operating division
of the Manager which is the Fund's transfer agent, is responsible for
maintaining the Fund's shareholder registry and shareholder accounting
records, and for shareholder servicing and administrative functions.
Brokerage Policies Of The Fund
Brokerage Provisions of the Investment Advisory Agreements. One of the
duties of the Manager under the advisory agreement is to arrange the
portfolio transactions of the Fund. In doing so, the Manager is
authorized by the advisory agreement to employ broker-dealers ("brokers"),
including "affiliated" brokers, as that term is defined in the Investment
Company Act, as may, in its best judgment based on all relevant factors,
implement the policy of the Fund to obtain, at reasonable expense, the
"best execution" (prompt and reliable execution at the most favorable
price obtainable) of such transactions. The Manager need not seek
competitive commission bidding or base its selection on "posted" rates,
but is expected to be aware of the current rates of eligible brokers and
to minimize the commissions paid to the extent consistent with the
provisions of the advisory agreement and the interests and policies of the
Fund as established by the Trust's Board of Trustees. Purchases of
securities from underwriters include a commission or concession paid by
the issuer to the underwriter, and purchases from dealers include a spread
between the bid and asked price.
Under the advisory agreement, the Manager is authorized to select
brokers and dealers which provide brokerage and/or research services for
the Fund and/or the other accounts over which it or its affiliates have
investment discretion. The commissions paid to such brokers may be higher
than another qualified broker would have charged, if a good faith
determination is made by the Manager that the commission is fair and
reasonable in relation to the services provided. Most purchases made by
the Fund are principal transactions at net prices, and the Fund incurs
little or no brokerage costs. During the fiscal year ended December 31,
1993 and 1994, no brokerage commissions were paid by the Fund. During the
fiscal year ended December 31, 1995, $3,742 in brokerage commissions were
paid by the Fund for research services.
Description of Brokerage Practices Followed by the Manager. Subject to
the provisions of the advisory agreement and the procedures and rules
described above, allocations of brokerage are generally made by the
Manager's portfolio traders upon recommendations from the Manager's
portfolio managers. In certain instances portfolio managers may directly
place trades and allocate brokerage, also subject to the provisions of the
advisory agreement and the procedures and rules described above. In
either case, brokerage is allocated under the supervision of the Manager's
executive officers. Transactions in securities other than those for which
an exchange is the primary market are generally done with principals or
market makers. Brokerage commissions are paid primarily for effecting
transactions in listed securities or for certain fixed-income agency
trades in the secondary market, and are otherwise paid only if it appears
likely that a better price or execution can be obtained. When the Fund
engages in an option transaction, ordinarily the same broker will be used
for the purchase or sale of the option and any transaction in the
securities to which the option relates. When possible, concurrent orders
to purchase or sell the same security by more than one of the accounts
managed by the Manager or its affiliates are combined. The transactions
effected pursuant to such combined orders are averaged as to price and
allocated in accordance with the purchase or sale orders actually placed
for each account.
Most purchases of money market instruments and debt obligations are
principal transactions at net prices. Instead of using a broker for those
transactions, the Fund normally deals directly with the selling or
purchasing principal or market maker unless it determines that a better
price or execution can be obtained by using a broker. Purchases of these
securities from underwriters include a commission or concession paid by
the issuer to the underwriter. Most purchases from dealers include a
spread between the bid and asked prices. The Fund seeks to obtain prompt
execution of these orders at the most favorable net price.
The research services provided by a particular broker may be useful
only to one or more of the advisory accounts of the Manager and its
affiliates, and investment research received for the commissions of those
other accounts may be useful both to the Fund and one or more of such
other accounts. Such research, which may be supplied by a third party at
the instance of a broker, includes information and analyses on particular
companies and industries as well as market or economic trends and
portfolio strategy, receipt of market quotations for portfolio
evaluations, information systems, computer hardware and similar products
and services. If a research service also assists the Manager in a non-
research capacity (such as bookkeeping or other administrative functions),
then only the percentage or component that provides assistance to the
Manager in the investment decision-making process may be paid in
commission dollars. The Board of Trustees has permitted the Manager to
use concessions on fixed-price offerings to obtain research, in the same
manner as is permitted for agency transactions. The Board has also
permitted the Manager to use stated commissions on secondary fixed-income
agency trades to obtain research where the broker has represented to
Manager that (i) the trade is not from or for the broker's own inventory,
(ii) the trade was executed by the broker on an agency basis at the stated
commission, and (iii) the trade is not a riskless principal transaction.
The research services provided by brokers broadens the scope and
supplement the research activities of the Manager, by making available
additional views for consideration and comparisons, and by enabling the
Manager to obtain market information for the valuation of securities held
in the Fund's portfolio or being considered for purchase. The Board of
Trustees, including the "independent" Trustees of the Fund (those Trustees
of the Fund who are not "interested persons" as defined in the Investment
Company Act, and who have no direct or indirect financial interest in the
operation of the advisory agreement or the Distribution Plans described
below) annually reviews information furnished by the Manager as to the
commissions paid to brokers furnishing such services so that the Board may
ascertain whether the amount of such commissions was reasonably related
to the value or benefit of such services.
Performance of the Fund
Yield and Total Return Information. As described in the Prospectus, from
time to time the "standardized yield," "dividend yield," "average annual
total return", "total return," "cumulative total return," "total return
at net asset value" and "cumulative total return at net asset value" of
an investment in a class of shares of the Fund may be advertised. An
explanation of how yields and total returns are calculated for each class
and the components of those calculations is set forth below.
The Fund's advertisement of its performance data must, under
applicable rules of the Securities and Exchange Commission, include the
average annual total returns for each class of shares of the Fund for the
1, 5 and 10-year periods (or the life of the class, if less) ending as of
the most recently ended calendar quarter prior to the publication of the
advertisement. This enables an investor to compare the Fund's performance
to the performance of other funds for the same periods. However, a number
of factors should be considered before using such information as a basis
for comparison with other investments. An investment in the Fund is not
insured; its returns and share prices are not guaranteed and normally will
fluctuate on a daily basis. When redeemed, an investor's shares may be
worth more or less than their original cost. Returns for any given past
period are not a prediction or representation by the Fund of future
returns on its shares. The returns of Class A, Class B and Class C shares
of the Fund are affected by portfolio quality, the type of investments the
Fund holds and its operating expenses allocated to a particular class.
- Standardized Yields.
-- Yield. The Fund's "yield" (referred to as "standardized yield")
for a given 30-day period for a class of shares is calculated using the
following formula set forth in rules adopted by the Securities and
Exchange Commission that apply to all funds (other than money market
funds) that quote yields:
a-b 6
Standardized Yield = 2 [ (----- + 1 ) - 1 ]
cd
The symbols above represent the following factors:
a = dividends and interest earned during the 30-day period.
b = expenses accrued for the period (net of any expense
reimbursements).
c = the average daily number of shares of that class
outstanding during the 30-day period that were entitled to
receive dividends.
d = the maximum offering price per share of that class on the
last day of the period, adjusted for undistributed net
investment income.
The standardized yield of a class of shares for a 30-day period may
differ from its yield for any other period. The SEC formula assumes that
the standardized yield for a 30-day period occurs at a constant rate for
a six-month period and is annualized at the end of the six-month period.
This standardized yield is not based on actual distributions paid by the
Fund to shareholders in the 30-day period, but is a hypothetical yield
based upon the net investment income from the Fund's portfolio investments
calculated for that period. The standardized yield may differ from the
"dividend yield" of that class, described below. Additionally, because
each class of shares is subject to different expenses, it is likely that
the standardized yields of the Fund's classes of shares will differ. For
the 30-day period ended December 31, 1995, the standardized yields for the
Fund's Class A, Class B and Class C shares were 6.14%, 5.69% and 5.70%,
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
- ---------------------- / number of days (accrual period) * 365
Max. Offering Price of
the Class (last day of
period)
The maximum offering price for Class A shares includes the maximum
front-end sales charge. For Class B and Class C shares, the maximum
offering price is the net asset value per share, without considering the
effect of contingent deferred sales charges.
From time to time similar yield or distribution return calculations
may also be made using the Class A net asset value (instead of its maximum
offering price) at the end of the period. The dividend yields on Class A
shares for distribution made on December 29, 1995 covering the 31-day
period ended December 31, 1995, were 6.69% and 7.03% 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, 1995, was
6.27% when calculated at net asset value. The dividend yield on Class C
shares for the 30-day period ended December 31, 1995 was 6.30% when
calculated at net asset value.
- Total Return Information.
-- Average Annual Total Returns. The "average annual total return"
of each class is an average annual compounded rate of return for each year
in a specified number of years. It is the rate of return based on the
change in value of a hypothetical initial investment of $1,000 ("P" in the
formula below) held for a number of years ("n") to achieve an Ending
Redeemable Value ("ERV") of that investment, according to the following
formula:
(ERV) 1/n
____ - Average Annual Total Retrun
( P )
-- Cumulative Total Returns. The cumulative "total return"
calculation measures the change in value of a hypothetical investment of
$1,000 over an entire period of years. Its calculation uses some of the
same factors as average annual total return, but it does not average the
rate of return on an annual basis. Cumulative total return is determined
as follows:
ERV - P
____________ = Total Return
P
In calculating total returns for Class A shares, the current maximum
sales charge of 4.75% (as a percentage of the offering price) is deducted
from the initial investment ("P") (unless the return is shown at net asset
value, as described below). For Class B shares, the payment of the
applicable contingent deferred sales charge (of 5.0% for the first year,
4.0% for the second year, 3.0% for the third and fourth years, 2.0% for
the fifth year, 1.0% in the sixth year and none thereafter), is applied,
as described in the Prospectus. For Class C shares, the payment of the
1% contingent deferred sales charge for shares redeemed within 12 months
of purchase is applied, as described in the Prospectus. Total returns
also assume that all dividends and capital gains distributions during the
period are reinvested to buy additional shares at net asset value per
share, and that the investment is redeemed at the end of the period. The
"average annual total returns" on an investment in Class A shares for the
one year period ended December 31, 1995 and for the period from April 15,
1988 (the date the Fund became an open-end Fund) to December 31, 1995,
were 11.38% and 8.05%, respectively. The cumulative "total return" on
Class A shares for the latter period was 81.69%. 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 4.40% and 12.16%,
respectively. For the period from July 11, 1995 through December 31, 1995
the average annual total return and the cumulative total return on an
investment in Class C shares of the Fund were 5.94% and 2.76%,
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, Class B and
Class C shares. Each is based on the difference in net asset value per
share at the beginning and the end of the period for a hypothetical
investment in that class of shares (without considering front-end or
contingent sales charges) and takes into consideration the reinvestment
of dividends and capital gains distributions. The cumulative total
returns at net asset value on the Fund's Class A shares for the fiscal
year ended December 31, 1993, and for the period from April 15, 1988 to
December 31, 1995 were 16.94% and 90.75%, respectively. The cumulative
total return at net asset value on the Fund's Class B shares for the
fiscal year-ended December 31, 1995 and for the period from May 1, 1993
through December 31, 1995 were 16.06% and 15.13%, respectively. For the
period from July 11, 1995 through December 31, 1995 the cumulative total
return on an investment in Class C shares of the Fund was 3.76%.
Total return information may be useful to investors in reviewing the
performance of the Fund's Class A, Class B and Class C shares. However,
when comparing total return of an investment in Class A, Class B or Class
C shares of the Fund, a number of factors should be considered before
using such information as a basis for comparison with other investments.
Other Performance Comparisons. From time to time the Fund may publish the
ranking of its Class A, Class B or Class C shares by Lipper Analytical
Services, Inc. ("Lipper"), a widely-recognized independent mutual fund
monitoring service. Lipper monitors the performance of regulated
investment companies, including the Fund, and ranks their performance for
various periods based on categories relating to investment objectives.
For periods ending December 31, 1995, the performance of the Fund's
classes has been ranked against (i) all other funds, excluding money
market funds, and (ii) all other general bond funds. The Lipper
performance rankings are based on total return that includes the
reinvestment of capital gains distributions and income dividends but does
not take sales charges or taxes into consideration.
For periods ending December 31, 1995 the Fund's performance may also
be compared to the performance of the Lipper General Bond Fund Index,
which is a net asset value weighted index of general bond funds compiled
by Lipper. It is calculated with adjustments for income dividends and
capital gains distributions as of the ex-dividend date.
From time to time, the Fund may include in its advertisements and
sales literature performance information about the Fund cited in other
newspapers and periodicals, such as The New York Times, which may include
performance quotations from other sources, including Lipper.
From time to time the Fund may publish the ranking of the performance
of its Class A, Class B or Class C shares by Morningstar, Inc., an
independent mutual fund monitoring service that ranks mutual funds,
including the Fund, monthly, in broad investment categories (equity,
taxable bond, municipal bond and hybrid), based on risk-adjusted
investment return. Investment return measures a fund's or Class's three,
five and ten-year average annual total returns (when available). Risk and
return are combined to produce star rankings reflecting performance
relative to the average fund in a fund's category. Five stars is the
"highest" ranking (top 10%), four stars is "above average" (next 22.5%),
three stars is "average" (next 35%), two stars is "below average" (next
22.5%) and one star is "lowest" (bottom 10%). The current ranking is a
weighted average of the 3, 5 and 10 year rankings (if available).
Morningstar ranks the Class A, Class B and Class C shares of the Fund in
relation to other taxable bond funds. Rankings are subject to change.
The total return on an investment in the Fund's Class A, Class B or
Class C shares may be compared with the performance for the same period
of one or more of the following indices: the Consumer Price Index, the
Salomon Brothers World Government Bond Fund Index, the Salomon Brothers
High Grade Corporate Bond Index, the Lehman Brothers Government/Corporate
Bond Index, the Lehman Brothers Aggregate Bond Index, and the J.P. Morgan
Government Bond Index. The Consumer Price Index is generally considered
to be a measure of inflation. The Salomon Brothers World Government Bond
Index generally represents the performance of government debt securities
of various markets throughout the world, including the United States. The
Salomon Brothers High Grade Corporate Bond Index generally represents the
performance of high grade long-term corporate bonds, and the Lehman
Brothers Government/Corporate Bond Index generally represents the
performance of intermediate and long-term government and investment grade
corporate debt securities. The Lehman Brothers Aggregate Bond Index
generally represents the performance of the general fixed-rate investment
grade debt market. The J.P. Morgan Government Bond Index generally
represents the performance of government bonds issued by various countries
including the United States. Each index includes a factor for the
reinvestment of interest but does not reflect expenses or taxes. The
performance of the Fund's Class A, Class B or Class C shares may also be
compared in publications to (i) the performance of various market indices
or to other investments for which reliable performance data is available,
and (ii) to averages, performance rankings or other benchmarks prepared
by recognized mutual fund statistical services.
Investors may also wish to compare the Fund's Class A, Class B or
Class C shares return to the returns on fixed income investments available
from banks and thrift institutions, such as certificates of deposit,
ordinary interest-paying checking and savings accounts, and other forms
of fixed or variable time deposits, and various other instruments such as
Treasury bills. However, the Fund's returns and share price are not
guaranteed by the FDIC or any other agency and will fluctuate daily, while
bank depository obligations may be insured by the FDIC and may provide
fixed rates of return, and Treasury bills are guaranteed as to principal
and interest by the U.S. government.
From time to time, the Fund's Manager may publish rankings or ratings
of the Manager (or Transfer Agent) or the investor services provided by
them to shareholders of the OppenheimerFunds, other than performance
rankings of the OppenheimerFunds themselves. Those ratings or rankings
of shareholder/investor services by third parties may compare the
OppenheimerFunds' services to those of other mutual fund families selected
by the rating or ranking services and may be based upon the opinions of
the rating or ranking service itself, based on its research or judgment,
or based upon surveys of investors, brokers, shareholders or others.
Distribution and Service Plans
The Fund has adopted a Service Plan for Class A shares, and
Distribution and Service Plans for Class B and Class C shares under Rule
12b-1 of the Investment Company Act, pursuant to which the Fund will make
payments to the Distributor 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,
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 C shares, that vote was cast by the Manager as the sole initial
holder of Class C shares of the Fund).
In addition, under the Plans, the Manager and the Distributor, in
their sole discretion, from time to time may use their own resources
(which, in the case of the Manager, may include profits from the advisory
fee it receives from the Fund) to make payments to brokers, dealers or
other financial institutions (each is referred to as a "Recipient" under
the Plans) for distribution and administrative services they perform. The
Distributor and the Manager may, in their sole discretion, increase or
decrease the amount of payments they make from their own resources to
Recipients.
Unless terminated as described below, each Plan continues in effect
from year to year but only as long as its continuance is specifically
approved at least annually by the Fund's Board of Trustees and its
Independent Trustees by a vote cast in person at a meeting called for the
purpose of voting on such continuance. Either Plan may be terminated at
any time by the vote of a majority of the Independent Trustees or by the
vote of the holders of a "majority" (as defined in the Investment Company
Act) of the outstanding shares of that class. None of the Plans may be
amended to increase materially the amount of payments to be made unless
such amendment is approved by shareholders of the class affected by the
amendment. In addition, because Class B shares of the Fund automatically
convert into Class A shares after six years, the Fund is required to
obtain the approval of Class B as well as Class A shareholders for a
proposed amendment to the Class A Plan that would materially increase the
amount to be paid by Class A shareholders under the Class A Plan. Such
approval must be by a "majority" of the Class A and Class B shares (as
defined in the Investment Company Act), voting separately by class. All
material amendments must be approved by the Independent Trustees.
While the Plans are in effect, the Treasurer of the Trust shall
provide separate written reports to the Trust's Board of Trustees at least
quarterly stating generally the amounts of all payments made pursuant to
each Plan and the purpose for which the payments were made. The Class B
and Class C reports also include a description of the services rendered
in connection with the distribution of Class B and Class C shares. The
Class A reports include the identity of each Recipient that received any
such payment. 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, 1995, payments under the Class
A Plan totaled $287,716, all of which was paid by the Distributor to
Recipients, including $142,856 paid to MMLISI.
Any unreimbursed expenses incurred by the Distributor with respect
to Class A shares for any fiscal year may not be recovered in subsequent
fiscal years. Payments received by the Distributor under the Plan for
Class A shares will not be used to pay any interest expense, carrying
charges, or other financial costs, or allocation of overhead by the
Distributor.
The Class B and Class C Plans allows the service fee payments to be
paid by the Distributor to Recipients in advance for the first year Class
B and Class C shares are outstanding, and thereafter on a quarterly basis,
as described in the Prospectus. The services rendered by Recipients in
connection with personal services and the maintenance of Class B and Class
C shareholder accounts may include but shall not be limited to, the
following: answering routine inquiries from the Recipient's customers
concerning the Fund, assisting in the establishment and maintenance of
accounts or sub-accounts in the Fund and processing share redemption
transactions, making the Fund's investment plans and dividend payment
options available, and providing such other information and services in
connection with the rendering of personal services and/or the maintenance
of accounts, as the Distributor or the Fund may reasonably request. The
advance payment is based on the net asset value of the Class B and Class
C shares sold. An exchange of shares does not entitle the Recipient to
an advance service fee payment. In the event Class B or Class C shares
are redeemed during the first year that the shares are outstanding, the
Recipient will be obligated to repay a pro rata portion of the advance
payment for those shares to the Distributor. Service fee payments made
under the Class B Plan during the fiscal year ended December 31, 1995
totalled $127,308, of which $2,033 OFDI paid to an affiliate, and $106,790
was retained by the Distributor. Service fee payments made under the Class
C Plan during the period from July 11, 1995 through December 31, 1995
totalled $4,560, of which $1,848 was retained by the Distributor.
Although the Class B and Class C Plans permit the Distributor to
retain both the asset-based sales charge and the service fee on Class B
shares, or to pay Recipients the service fee on a quarterly basis without
payment in advance, the Distributor intends to pay the service fee to
Recipients in the manner described above. A minimum holding period may
be established from time to time under the Class B or Class C Plan by the
Board. Initially, the Board has set no minimum holding period. All
payments under the Class B and Class C Plans are subject to the
limitations imposed by the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. on payments of asset-based sales
charges and service fees. The Distributor anticipates that it will take
a number of years for it to recoup (from the Fund's payments to the
Distributor under the Class B Plan and recoveries of the contingent
deferred sales charge collected on redeemed Class B shares) the Class B
sales commissions paid to authorized brokers or dealers.
Asset-based sales charge payments are designed to permit an investor
to purchase shares of the Fund without paying a front-end sales load and
at the same time permit the Distributor to compensate Recipients in
connection with the sale of Class B and Class C shares of the Fund. The
Distributor retains the asset-based sales charge on Class B shares. As
to Class C shares, the Distributor retains the asset-based sales charge
during the first year shares are outstanding, and pays the asset-based
sales charge as an ongoing commission to the dealer on Class C shares
outstanding for a year or more. Under the Class B and Class C Plans, the
asset-based sales charge is paid to compensate the Distributor for its
services, described below, to the Fund.
The Class B and Class C Plans provide for the Distributor to be
compensated at a flat rate, whether the Distributor's distribution
expenses are more or less than the amounts paid by the Fund during that
period. Such payments are made in recognition that the Distributor (i)
pays sales commissions to authorized brokers and dealers at the time of
sale and pays service fees as described in the Prospectus, (ii) may
finance such commissions and/or the advance of the service fee payment to
Recipients under those Plans, or may provide such financing from its own
resources or from an affiliate, (iii) employs personnel to support
distribution of shares, and (iv) may bear the costs of sales literature,
advertising and prospectuses (other than those furnished to current
shareholders) and state "blue sky" registration fees and certain other
distribution expenses.
Other distribution assistance rendered by the Distributor and
Recipients under the Class B and Class C Plans may include, but shall not
be limited to, the following: distributing sales literature and
prospectuses other than those furnished to current Class B or Class C
shareholders, and providing such other information and services in
connection with the distribution of Class B or Class C shares as the
Distributor or the Fund may reasonably request. The Class B and Class C
Plans further provide that such other distribution assistance may include
distribution assistance and administrative support services rendered in
connection with Class B or Class C shares acquired (i) by purchase, (ii)
in exchange for shares of another investment company for which the
Distributor serves as distributor or sub-distributor, or (iii) pursuant
to a plan of reorganization to which the Fund is a party.
About Your Account
How To Buy Shares
Alternative Sales Arrangements - Class A, Class B and Class C Shares. The
availability of three classes of shares permits an investor to choose the
method of purchasing shares that is more beneficial to the investor
depending on the amount of the purchase, the length of time the investor
expects to hold shares and other relevant circumstances. Investors should
understand that the purpose and function of the deferred sales charge and
asset-based sales charge with respect to Class B and Class C shares are
the same as those of the initial sales charge with respect to Class A
shares. Any salesperson or other person entitled to receive compensation
for selling Fund shares may receive different compensation with respect
to one class of shares than the other. The Distributor normally will not
accept (i) any order for $500,000 or more of Class B shares or (ii) any
order for $1 million or more of Class C shares, on behalf of a single
investor (not including dealer "street name" or omnibus accounts) because
generally it will be more advantageous for that investor to purchase Class
A shares of the Fund instead.
The three classes of shares each represent an interest in the same
portfolio investments of the Fund. However, each class has different
shareholder privileges and features. The net income attributable to Class
B and Class C shares and the dividends payable on Class B and Class C
shares will be reduced by additional expenses borne solely by that class,
including the asset-based sales charge to which Class B and Class C shares
are subject.
The conversion of Class B shares to Class A shares after six years
is subject to the continuing availability of a private letter ruling from
the Internal Revenue Service, or an opinion of counsel or tax adviser, to
the effect that the conversion of Class B shares does not constitute a
taxable event for the holder under Federal income tax law. If such a
revenue ruling or opinion is no longer available, the automatic conversion
feature may be suspended, in which event no further conversions of Class
B shares would occur while such suspension remained in effect. Although
Class B shares could then be exchanged for Class A shares on the basis of
relative net asset value of the two classes, without the imposition of a
sales charge or fee, such exchange could constitute a taxable event for
the holder, and absent such exchange, Class B shares might continue to be
subject to the asset-based sales charge for longer than six years.
The methodology for calculating the net asset value, dividends and
distributions of the Fund's Class A, Class B and Class C shares recognizes
two types of expenses. General expenses that do not pertain specifically
to any class are allocated pro rata to the shares of each class, based on
the percentage of the net assets of such class to the Fund's total assets,
and then equally to each outstanding share within a given class. Such
general expenses include (i) management fees, (ii) legal, bookkeeping and
audit fees, (iii) printing and mailing costs of shareholder reports,
Prospectuses, Statements of Additional Information and other materials for
current shareholders, (iv) fees to unaffiliated Trustees, (v) custodian
expenses, (vi) share issuance costs, (vii) organization and start-up
costs, (viii) interest, taxes and brokerage commissions, and (ix) non-
recurring expenses, such as litigation costs. Other expenses that are
directly attributable to a class are allocated equally to each outstanding
share within that class. Such expenses include (i) Distribution and
Service Plan fees, (ii) incremental transfer and shareholder servicing
agent fees and expenses, (iii) registration fees and (iv) shareholder
meeting expenses, to the extent that such expenses pertain to a specific
class rather than to the Fund as a whole.
Determination of Net Asset Value Per Share. The net asset values per
share of Class A and Class B and Class C shares of the Fund are determined
as of the close of business of The New York Stock Exchange on each day
that the Exchange is open, by dividing the Fund's net assets attributable
to a class by the number of shares of that class that are outstanding.
The Exchange normally closes at 4:00 P.M., New York time, but may close
earlier on some days (for example, in case of weather emergencies or on
days falling before a holiday). The Exchange's most recent annual
announcement (which is subject to change) states that it will close on New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. It may also close on other
days. Trading in debt securities and foreign securities may occur at
times when the New York Stock Exchange is closed, including weekends and
holidays, or after the close of the Exchange on a regular business day.
The Fund may invest a substantial portion of its assets in foreign
securities primarily listed on foreign exchanges or in foreign over-the-
counter markets that may trade on Saturdays or customary U.S. business
holidays on which the Exchange is closed. Because the Fund's net asset
value will not be calculated on those days, the Fund's net asset value per
share may be significantly affected on such days when shareholders may not
purchase or redeem shares.
The Fund's Board of Trustees has established procedures for the
valuation of the Fund's securities, generally as follows: (i) equity
securities traded on a U.S. securities exchange or on NASDAQ for which
last sale information is regularly reported are valued at the last
reported sale price on their primary exchange or NASDAQ that day (or, in
the absence of sales that day, at values based on the last sales prices
of the preceding trading day, or closing bid and asked prices); (ii)
securities actively traded on a foreign securities exchange are valued at
the last sales price available to the pricing service approved by the
Fund's Board of Trustees or to the Manager as reported by the principal
exchange on which the security is traded; (iii) unlisted foreign
securities or listed foreign securities not actively traded are valued at
the last sale price, or at the mean between "bid" and "asked" prices
determined by a pricing service approved by the Board of Trustees or by
the Manager; (iv) long-term debt securities having a remaining maturity
in excess of 60 days are valued at the mean between the "bid" and "asked"
prices determined by a portfolio pricing service approved by the Fund's
Board of Trustees or obtained from active market makers in the security
on the basis of reasonable inquiry; (v) debt instruments having a maturity
of more than one year when issued, and non-money market type instruments
having a maturity of one year or less when issued, which have a remaining
maturity of 60 days or less are valued at the mean between the "bid" and
"asked" prices determined by a pricing service approved by the Fund's
Board of Trustees or obtained from active market makers in the security
on the basis of reasonable inquiry; (vi) money market-type debt securities
having a maturity of less than one year when issued that having a
remaining maturity of 60 days or less are valued at cost, adjusted for
amortization of premiums and accretion of discounts; and (vii) securities
(including restricted securities) not having readily-available market
quotations are valued at fair value under the Board's procedures.
Trading in securities on European and Asian exchanges and over-the-
counter markets is normally completed before the close of The New York
Stock Exchange. Events affecting the values of foreign securities traded
in foreign markets that occur between the time their prices are determined
and the close of the Exchange will not be reflected in the Fund's
calculation of net asset value unless the Board of Trustees or the
Manager, under procedures established by the Board of Trustees, determines
that the particular event would materially affect the Fund's net asset
value, in which case an adjustment would be made, if necessary. Foreign
securities priced in a foreign currency as well as foreign currency have
their value converted to U.S. dollars at the closing price in the London
foreign exchange market as provided by a reliable bank, dealer or pricing
service.
In the case of U.S. Government Securities, mortgage-backed
securities, foreign government securities and corporate bonds, when last
sale information is not generally available, such pricing procedures may
include "matrix" comparisons to the prices for comparable instruments on
the basis of quality, yield, maturity, and other special factors involved.
The Trust's Board of Trustees has authorized the Manager to employ a
pricing service to price U.S. Government Securities, mortgage-backed
securities, foreign government securities and corporate bonds. The
Trustees will monitor the accuracy of such pricing services by comparing
prices used for portfolio evaluation to actual sales prices of selected
securities.
Puts, calls and Futures held by the Fund are valued at the last sales
price on the principal exchange on which they are traded, or on NASDAQ as
applicable, as determined by a pricing service approved by the Board of
Trustees or by the Manager, or, if there are no sales that day, in
accordance with (i), above. Forward currency contracts are valued at the
closing price in the London foreign exchange market as provided by a
reliable bank, dealer or pricing service. When the Fund writes an option,
an amount equal to the premium received by the Fund is included in the
Fund's Statement of Assets and Liabilities as an asset, and an equivalent
deferred credit is included in the liability section. The deferred credit
is adjusted ("marked-to-market") to reflect the current market value of
the option. In determining the Fund's gain on investments, if a call
written by the Fund is exercised, the proceeds are increased by the
premium received. If a call or put written by the Fund expires, the Fund
has a gain in the amount of the premium; if the Fund enters into a closing
purchase transaction, it will have a gain or loss depending on whether the
premium was more or less than the cost of the closing transaction. If the
Fund exercises a put it holds, the amount the Fund receives on its sale
of the underlying investment is reduced by the amount of premium paid by
the Fund.
AccountLink. When shares are purchased through AccountLink, each purchase
must be at least $25.00. Shares will be purchased on the regular business
day the Distributor is instructed to initiate the Automated Clearing House
transfer to buy shares. Dividends will begin to accrue on shares
purchased by the proceeds of ACH transfers on the business day the Fund
receives Federal Funds for the purchase through the ACH system before the
close of The New York Stock Exchange. The Exchange normally closes at
4:00 P.M., but may close earlier on certain days. If Federal Funds are
received 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 Oppenheimer Funds. The Oppenheimer funds 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 Fund
Oppenheimer Insured Tax-Exempt Fund
Oppenheimer Main Street California Tax-Exempt Fund
Oppenheimer Florida Tax-Exempt Fund
Oppenheimer Pennsylvania Tax-Exempt Fund
Oppenheimer New Jersey Tax-Exempt Fund
Oppenheimer Fund
Oppenheimer Discovery Fund
Oppenheimer Target Fund
Oppenheimer Growth Fund
Oppenheimer Equity Income Fund
Oppenheimer Value Stock Fund
Oppenheimer Asset Allocation Fund
Oppenheimer Total Return Fund, Inc.
Oppenheimer Main Street Income & Growth Fund
<PAGE>
Oppenheimer High Yield Fund
Oppenheimer Champion Income Fund
Oppenheimer Bond Fund
Oppenheimer U.S. Government Trust
Oppenheimer Limited-Term Government 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 Short-Term Income Fund
Oppenheimer Strategic Income & Growth Fund
Oppenheimer International Bond Fund
Oppenheimer Enterprise Fund
Oppenheimer Quest Global Value Fund, Inc.
Oppenheimer Quest Value Fund, Inc.
Oppenheimer Quest Opportunity Value Fund,Inc.
Oppenheimer Quest Growth & Income Value Fund
Oppenheimer Quest Officers Value Fund
Oppenheimer Quest Small Cap Value Fund
the following "Money Market Funds":
Oppenheimer Money Market Fund, Inc.
Oppenheimer Cash Reserves
Centennial Money Market Trust
Centennial Tax Exempt Trust
Centennial Government Trust
Centennial New York Tax Exempt Trust
Centennial California Tax Exempt Trust
Centennial America Fund, L.P.
Daily Cash Accumulation Fund, Inc.
There is an initial sales charge on the purchase of Class A shares
of each of the OppenheimerFunds except Money Market Funds (under certain
circumstances described herein, redemption proceeds of Money Market Fund
shares may be subject to a contingent deferred sales charge).
- Letters of Intent. A Letter of Intent (referred to as a "Letter")
is an investor's statement in writing to the Distributor of the intention
to purchase Class A shares or Class A and Class B shares of the Fund (and
other Oppenheimer funds) during a 13-month period (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 of shares
which, when added to the investor's holdings of shares of those funds,
will equal or exceed the amount specified in the Letter. Purchases made
by reinvestment of dividends or distributions of capital gains and
purchases made at net asset value without sales charge do not count toward
satisfying the amount of the Letter. A Letter enables an investor to
count the Class A and Class B shares purchased under the Letter to obtain
the reduced sales charge rate on purchases of Class A shares of the Fund
(and other Oppenheimer funds) that applies under the Right of Accumulation
to current purchases of Class A shares. Each purchase of Class A shares
under the Letter will be made at the public offering price (including the
sales charge) that applies to a single lump-sum purchase of shares in the
amount intended to be purchased under the Letter.
In submitting a Letter, the investor makes no commitment to purchase
shares, but if the investor's purchases of shares within the Letter of
Intent period, when added to the value (at offering price) of the
investor's holdings of shares on the last day of that period, do not equal
or exceed the intended purchase amount, the investor agrees to pay the
additional amount of sales charge applicable to such purchases, as set
forth in "Terms of Escrow," below (as those terms may be amended from time
to time). The investor agrees that shares equal in value to 5% of the
intended purchase amount will be held in escrow by the Transfer Agent
subject to the Terms of Escrow. Also, the investor agrees to be bound by
the terms of the Prospectus, this Statement of Additional Information and
the Application used for such Letter of Intent, and if such terms are
amended, as they may be from time to time by the Fund, that those
amendments will apply automatically to existing Letters of Intent.
For purchases of shares of the Fund and other Oppenheimer funds by
Oppenheimer funds prototype 401(k) plans under a Letter of Intent, the
Transfer Agent will not hold shares in escrow. If the intended purchase
amount under the Letter entered into by an OppenheimerFunds prototype
401(k) plan is not purchased by the plan by the end of the Letter of
Intent period, there will be no adjustment of commissions paid to the
broker-dealer or financial institution of record for accounts held in the
name of that plan.
If the total eligible purchases made during the Letter of Intent
period do not equal or exceed the intended purchase amount, the
commissions previously paid to the dealer of record for the account and
the amount of sales charge retained by the Distributor will be adjusted
to the rates applicable to actual purchases. If total eligible purchases
during the Letter of Intent period exceed the intended purchase amount and
exceed the amount needed to qualify for the next sales charge rate
reduction set forth in the applicable prospectus, the sales charges paid
will be adjusted to the lower rate, but only if and when the dealer
returns to the Distributor the excess of the amount of commissions allowed
or paid to the dealer over the amount of commissions that apply to the
actual amount of purchases. The excess commissions returned to the
Distributor will be used to purchase additional shares for the investor's
account at the net asset value per share in effect on the date of such
purchase, promptly after the Distributor's receipt thereof.
In determining the total amount of purchases made under a Letter,
shares redeemed by the investor prior to the termination of the Letter of
Intent period will be deducted. It is the responsibility of the dealer
of record and/or the investor to advise the Distributor about the Letter
in placing any purchase orders for the investor during the Letter of
Intent period. All of such purchases must be made through the
Distributor.
-- Terms of Escrow that Apply to Letters of Intent.
1. Out of the initial purchase (or subsequent purchases if
necessary) made pursuant to a Letter, shares of the Fund equal in value
to 5% of the intended purchase amount be held in escrow by the Transfer
Agent. For example, if the intended purchase amount specified under the
Letter is $50,000, the escrow shall be shares valued in the amount of
$2,500 (computed at the public offering price adjusted for a $50,000
purchase). Any dividends and capital gains distributions on the escrowed
shares will be credited to the investor's account.
2. If the intended purchase amount specified under the Letter is
completed within the thirteen-month Letter of Intent period, the escrowed
shares will be promptly released to the investor.
3. If, at the end of the thirteen-month Letter of Intent period the
total purchases pursuant to the Letter are less than the intended purchase
amount specified in the Letter, the investor must remit to the Distributor
an amount equal to the difference between the dollar amount of sales
charges actually paid and the amount of sales charges which would have
been paid if the total amount purchased had been made at a single time.
Such sales charge adjustment will apply to any shares redeemed prior to
the completion of the Letter. If such difference in sales charges is not
paid within twenty days after a request from the Distributor or the
dealer, the Distributor will, within sixty days of the expiration of the
Letter, redeem the number of escrowed shares necessary to realize such
difference in sales charges. Full and fractional shares remaining after
such redemption will be released from escrow. If a request is received
to redeem escrowed shares prior to the payment of such additional sales
charge, the sales charge will be withheld from the redemption proceeds.
4. By signing the Letter, the investor irrevocably constitutes and
appoints the Transfer Agent as attorney-in-fact to surrender for
redemption any or all escrowed shares.
5. The shares eligible for purchase under the Letter (or the holding
of which may be counted toward completion of a Letter) include (a) Class
A shares sold with a front-end sales charge or subject to a Class A
contingent deferred sales charge, (b) Class B shares acquired subject to
a contingent deferred sales charge, and (c) Class A or B shares acquired
in exchange for either (i) Class A shares of one of the other Oppenheimer
funds that were acquired subject to a Class A initial or contingent
deferred sales charge or (ii) Class B shares of one of the other
Oppenheimer funds that were acquired subject to a contingent deferred
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 "Shareholder Account Rules and Policies," 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
Oppenheimer funds or a contingent deferred sales charge may apply to
shares purchased by Asset Builder payments. An application should be
obtained from the Distributor, completed and returned, and a prospectus
of the selected fund(s) should be obtained from the Distributor or your
financial advisor before initiating Asset Builder payments. The amount
of the Asset Builder investment may be changed or the automatic
investments may be terminated at any time by writing to the Transfer
Agent. A reasonable period (approximately 15 days) is required after the
Transfer Agent's receipt of such instructions to implement them. The Fund
reserves the right to amend, suspend, or discontinue offering such plans
at any time without prior notice.
Cancellation of Purchase Orders. Cancellation of purchase orders for the
Fund's shares (for example, when a purchase check is returned to the Fund
unpaid) causes a loss to be incurred when the net asset value of the
Fund's shares on the cancellation date is less than on the purchase date.
That loss is equal to the amount of the decline in the net asset value per
share multiplied by the number of shares in the purchase order. The
investor is responsible for that loss. If the investor fails to
compensate the Fund for the loss, the Distributor will do so. The Fund
may reimburse the Distributor for that amount by redeeming shares from any
account registered in that investor's name, or the Fund or the Distributor
may seek other redress.
Checkwriting. When a check is presented to the Bank for clearance, the
Bank will ask the Fund to redeem a sufficient number of full and
fractional shares in the shareholder's account to cover the amount of the
check. This enables the shareholder to continue receiving dividends on
those shares until the check is presented to the Fund. Checks may not be
presented for payment at the offices of the Bank or the Fund's Custodian.
This limitation does not affect the use of checks for the payment of bills
or to obtain cash at other banks. The Fund reserves the right to amend,
suspend or discontinue offering checkwriting privileges at any time
without prior notice.
How to Sell Shares
Information on how to sell shares of the Fund is stated in the
Prospectus. The information below supplements the terms and conditions for
redemptions set forth in the Prospectus.
- Payments "In Kind". The Prospectus states that payment for shares
tendered for redemption is ordinarily made in cash. However, the Board
of Trustees of the Trust may determine that it would be detrimental to the
best interests of the remaining shareholders of the Fund to make payment
of a redemption order wholly or partly in cash. In that case, the Fund
may pay the redemption proceeds in whole or in part by a distribution "in
kind" of securities from the portfolio of the Fund, in lieu of cash, in
conformity with applicable rules of the Securities and Exchange
Commission. The Fund has elected to be governed by Rule 18f-1 under the
Investment Company Act, pursuant to which the Fund is obligated to redeem
shares solely in cash up to the lesser of $250,000 or 1% of the net assets
of the Fund during any 90-day period for any one shareholder. If shares
are redeemed in kind, the redeeming shareholder might incur brokerage or
other costs in selling the securities for cash. The method of valuing
securities used to make redemptions in kind will be the same as the method
the Fund uses to value its portfolio securities described above under
"Determination of Net Asset Value Per Share" and that valuation will be
made as of the time the redemption price is determined.
- Involuntary Redemptions. The Trust's Board of Trustees has the
right to cause the involuntary redemption of the shares held in any
account if the aggregate net asset value of those shares is less than
$1,000 or such lesser amount as the Board may fix. The Board of Trustees
will not cause the involuntary redemption of shares in an account if the
aggregate net asset value of the shares has fallen below the stated
minimum solely as a result of market fluctuations. Should the Board elect
to exercise this right, it may also fix, in accordance with the Investment
Company Act, the requirements for any notice to be given to the
shareholders in question (not less than 30 days), or the Board may set
requirements for granting permission to the shareholder to increase the
investment, and set other terms and conditions so that the shares would
not be involuntarily redeemed.
Reinvestment Privilege. Within six months of a redemption, a shareholder
may reinvest all or part of the redemption proceeds of (i) Class A shares
that you purchased subject to an initial sales charge, or the Class A
contingent deferred sales charge when you redeemed them or (ii) Class B
shares that were subject to the Class B contingent deferred sales charge
when you redeemed them, without sales charge. This privilege does not
apply to Class C shares. The reinvestment may be made without sales
charge only in Class A shares of the Fund or any of the other
OppenheimerFunds into which shares of the Fund are exchangeable as
described below, at the net asset value next computed after the Transfer
Agent receives the reinvestment order. The shareholder must ask the
Distributor for such privilege at the time of reinvestment. This
privilege is not available for Class C shares. Any capital gain that was
realized when the shares were redeemed is taxable, and reinvestment will
not alter any capital gains tax payable on that gain. If there has been
a capital loss on the redemption, some or all of the loss may not be tax
deductible, depending on the timing and amount of the reinvestment.
Under the Internal Revenue Code, if the redemption proceeds of Fund shares
on which a sales charge was paid are reinvested in shares of the Fund or
another of the OppenheimerFunds within 90 days of payment of the sales
charge, the shareholder's basis in the shares of the Fund that were
redeemed may not include the amount of the sales charge paid. That would
reduce the loss or increase the gain recognized from the redemption.
However, in that case the sales charge would be added to the basis of the
shares acquired by the reinvestment of the redemption proceeds. The Fund
may amend, suspend or cease offering this reinvestment privilege at any
time as to shares redeemed after the date of such amendment, suspension
or cessation.
Transfers of Shares. Shares are not subject to the payment of a
contingent deferred sales charge of either class at the time of transfer
to the name of another person or entity (whether the transfer occurs by
absolute assignment, gift or bequest, not involving, directly or
indirectly, a public sale). The transferred shares will remain subject
to the contingent deferred sales charge, calculated as if the transferee
shareholder had acquired the transferred shares in the same manner and at
the same time as the transferring shareholder. If less than all shares
held in an account are transferred, and some but not all shares in the
account would be subject to a contingent deferred sales charge if redeemed
at the time of transfer, the priorities described in the Prospectus under
"How to Buy Shares" for the imposition of the Class A, Class B or Class
C contingent deferred sales charge will be followed in determining the
order in which shares are transferred.
Distributions From Retirement Plans. Requests for distributions from
OppenheimerFunds-sponsored IRAs, 403(b)(7) custodial plans, 401(k) 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 maintaining a plan account
in their own name) in OppenheimerFunds-sponsored prototype pension,
profit-sharing or 401(k) plans may not directly redeem or exchange shares
held for their account under those plans. 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.). Ordinarily, for accounts redeemed
by a broker-dealer under this procedure, payment will be made within three
business days after the shares have been redeemed upon the Distributor's
receipt of the required documents in proper form, with the signature(s)
of the registered owners guaranteed on the redemption document as
described in the Prospectus.
Automatic Withdrawal and Exchange Plans. Investors owning shares of the
Fund valued at $5,000 or more can authorize the Transfer Agent to redeem
shares (minimum $50) automatically on a monthly, quarterly, semi-annual
or annual basis under an Automatic Withdrawal Plan. Shares will be
redeemed three business days prior to the date requested by the
shareholder for receipt of the payment. Automatic withdrawals of up to
$1,500 per month may be requested by telephone if payments are to be made
by check payable to all shareholders of record and sent to the address of
record for the account (and if the address has not been changed within the
prior 30 days). Required minimum distributions from OppenheimerFunds-
sponsored retirement plans may not be arranged on this basis. Payments
are normally made by check, but shareholders having AccountLink privileges
(see "How To Buy Shares") may arrange to have Automatic Withdrawal Plan
payments transferred to the bank account designated on the
OppenheimerFunds New Account Application or signature-guaranteed
instructions. The Fund cannot guarantee receipt of a payment on the date
requested and reserves the right to amend, suspend or discontinue offering
such plans at any time without prior notice. Because of the sales charge
assessed on Class A share purchases, shareholders should not make regular
additional Class A share purchases while participating in an Automatic
Withdrawal Plan. Class B and Class C shareholders should not establish
withdrawal plans that would require the redemption of shares purchased
subject to a contingent deferred sales charge and held less than 6 years
or 12 months, respectively, because of the imposition of the Class B or
Class C contingent deferred sales charge on such withdrawals (except where
the Class B or Class C contingent deferred sales charge is waived as
described in the Prospectus under "Waivers of Class B Sales Charges" and
"Waivers of Class C Sales Charges").
By requesting an Automatic Withdrawal or Exchange Plan, the
shareholder agrees to the terms and conditions applicable to such plans,
as stated below and in the provisions of the OppenheimerFunds Application
relating to such Plans, as well as the Prospectus. These provisions may
be amended from time to time by the Fund and/or the Distributor. When
adopted, such amendments will automatically apply to existing Plans.
- Automatic Exchange Plans. Shareholders can authorize the Transfer
Agent (on the OppenheimerFunds Application or signature-guaranteed
instructions) to exchange a pre-determined amount of shares of the Fund
for shares (of the same class) of other OppenheimerFunds automatically on
a monthly, quarterly, semi-annual or annual basis under an Automatic
Exchange Plan. The minimum amount that may be exchanged to each other
fund account is $25. Exchanges made under these plans are subject to the
restrictions that apply to exchanges as set forth in "How to Exchange
Shares" in the Prospectus and below in this Statement of Additional
Information.
- Automatic Withdrawal Plans. Fund shares will be redeemed as
necessary to meet withdrawal payments. Shares acquired without a sales
charge will be redeemed first and thereafter shares acquired with
reinvested dividends and capital gains distributions will be redeemed
next, followed by shares acquired with a sales charge, to the extent
necessary to make withdrawal payments. Depending upon the amount
withdrawn, the investor's principal may be depleted. Payments made under
withdrawal plans should not be considered as a yield or income on your
investment.
The Transfer Agent will administer the investor's Automatic
Withdrawal Plan (the "Plan") as agent for the investor (the "Planholder")
who executed the Plan authorization and application submitted to the
Transfer Agent. The Transfer Agent and the Fund shall incur no liability
to the Planholder for any action taken or omitted by the Transfer Agent
in good faith to administer the Plan. Certificates will not be issued for
shares of the Fund purchased for and held under the Plan, but the Transfer
Agent will credit all such shares to the account of the Planholder on the
records of the Fund. Any share certificates held by a Planholder may be
surrendered unendorsed to the Transfer Agent with the Plan application so
that the shares represented by the certificate may be held under the Plan.
For accounts subject to Automatic Withdrawal Plans, distributions of
capital gains must be reinvested in shares of the Fund, which will be done
at net asset value without a sales charge. Dividends on shares held in
the account may be paid in cash or reinvested.
Redemptions of shares needed to make withdrawal payments will be made
at the net asset value per share determined on the redemption date.
Checks or AccountLink payments of the proceeds of Plan withdrawals will
normally be transmitted three business days prior to the date selected for
receipt of the payment (the receipt of payment on the date selected cannot
be guaranteed), according to the choice specified in writing by the
Planholder.
The amount and the interval of disbursement payments and the address
to which checks are to be mailed or AccountLink payments are to be sent
may be changed at any time by the Planholder by writing to the Transfer
Agent. The Planholder should allow at least two weeks' time in mailing
such notification for the requested change to be put in effect. The
Planholder may, at any time, instruct the Transfer Agent by written notice
(in proper form in accordance with the requirements of the then-current
Prospectus of the Fund) to redeem all, or any part of, the shares held
under the Plan. In that case, the Transfer Agent will redeem the number
of shares requested at the net asset value per share in effect in
accordance with the Fund's usual redemption procedures and will mail a
check for the proceeds to the Planholder.
The Plan may be terminated at any time by the Planholder by writing
to the Transfer Agent. A Plan may also be terminated at any time by the
Transfer Agent upon receiving directions to that effect from the Fund.
The Transfer Agent will also terminate a Plan upon receipt of evidence
satisfactory to it of the death or legal incapacity of the Planholder.
Upon termination of a Plan by the Transfer Agent or the Fund, shares that
have not been redeemed from the account will be held in uncertificated
form in the name of the Planholder, and the account will continue as a
dividend-reinvestment, uncertificated account unless and until proper
instructions are received from the Planholder or his or her executor or
guardian, or other authorized person.
To use shares held under the Plan as collateral for a debt, the
Planholder may request issuance of a portion of the shares in certificated
form. Upon written request from the Planholder, the Transfer Agent will
determine the number of shares for which a certificate may be issued
without causing the withdrawal checks to stop because of exhaustion of
uncertificated shares needed to continue payments. However, should such
uncertificated shares become exhausted, Plan withdrawals will terminate.
If the Transfer Agent ceases to act as transfer agent for the Fund,
the Planholder will be deemed to have appointed any successor transfer
agent to act as agent in administering the Plan.
How to Exchange Shares
As stated in the Prospectus, shares of a particular class of
Oppenheimer funds having more than one class of shares may be exchanged
only for shares of the same class of other Oppenheimer funds. Shares of
the Oppenheimer funds that have a single class without a class designation
are deemed "Class A" shares for this purpose. All of the Oppenheimer
funds offer Class A shares, but certain other Oppenheimer funds do not
presently offer either both of Class B or Class C shares. A list showing
which funds offer which class can be obtained by calling the Distributor
at 1-800-525-7048.
Class A shares of Oppenheimer funds 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
Oppenheimer funds 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). However,
shares of Oppenheimer Money Market Fund, Inc. purchased with the
redemption proceeds of shares of other mutual funds (other than funds
managed by the Manager or its subsidiaries) redeemed within the 12 months
prior to that purchase may subsequently be exchanged for shares of other
Oppenheimer funds without being subject to an initial or contingent
deferred sales charge, whichever is applicable. To qualify for that
privilege, the investor or the investor's dealer must notify the
Distributor of eligibility for this privilege at the time the shares of
Oppenheimer Money Market Fund, Inc. are purchased, and, if requested, must
supply proof of entitlement to this privilege.
Shares of this Fund acquired by reinvestment of dividends or
distributions from any other of the OppenheimerFunds or from any unit
investment trust for which reinvestment arrangements have been made with
the Distributor may be exchanged at net asset value for shares of any of
the OppenheimerFunds. No contingent deferred sales charge is imposed on
exchanges of shares of either class purchased subject to a contingent
deferred sales charge. However, when Class A shares acquired by exchange
of Class A shares of other OppenheimerFunds purchased subject to a Class
A contingent deferred sales charge are redeemed within 18 months of the
end of the calendar month of the initial purchase of the exchanged Class
A shares, the Class A contingent deferred sales charge is imposed on the
redeemed shares (see "Class A Contingent Deferred Sales Charge" in the
Prospectus). The Class B contingent deferred sales charge is imposed on
Class B shares acquired by exchange if they are redeemed within 6 years
of the initial purchase of the exchanged Class B shares. The Class C
contingent deferred sales charge is imposed on Class C shares acquired by
exchange if they are redeemed within 12 months of the initial purchase of
the exchanged Class C shares.
When Class A, Class B or Class C shares are redeemed to effect an
exchange, the priorities described in "How To Buy Shares" in the
Prospectus for the imposition of the Class A, Class B or Class C
contingent deferred sales charge will be followed in determining the order
in which the shares are exchanged. Shareholders should take into account
the effect of any exchange on the applicability and rate of any contingent
deferred sales charge that might be imposed in the subsequent redemption
of remaining shares. Shareholders owning shares of more than one class
must specify whether they intend to exchange Class A, Class B or Class C
shares.
The Fund reserves the right to reject telephone or written exchange
requests submitted in bulk by anyone on behalf of 10 or more accounts. The
Fund may accept requests for exchanges of up to 50 accounts per day from
representatives of authorized dealers that qualify for this privilege. In
connection with any exchange request, the number of shares exchanged may
be less than the number requested if the exchange or the number requested
would include shares subject to a restriction cited in the Prospectus or
this Statement of Additional Information or would include shares covered
by a share certificate that is not tendered with the request. In those
cases, only the shares available for exchange without restriction will be
exchanged.
When exchanging shares by telephone, a shareholder must either have
an existing account in, or obtain, open an account in, and acknowledge
receipt of a prospectus for, the fund to which the exchange is to be made.
For full or partial exchanges of an account made by telephone, any special
account features such as Asset Builder Plans, Automatic Withdrawal Plans
and retirement plan contributions will be switched to the new account
unless the Transfer Agent is instructed otherwise. If all telephone lines
are busy (which might occur, for example, during periods of substantial
market fluctuations), shareholders might not be able to request exchanges
by telephone and would have to submit written exchange requests.
Shares to be exchanged are redeemed on the regular business day the
Transfer Agent receives an exchange request in proper form (the
"Redemption Date"). Normally, shares of the fund to be acquired are
purchased on the Redemption Date, but such purchases may be delayed by
either fund up to five business days if it determines that it would be
disadvantaged by an immediate transfer of the redemption proceeds. The
Fund reserves the right, in its discretion, to refuse any exchange request
that may disadvantage it (for example, if the receipt of multiple exchange
request from a dealer might require the disposition of portfolio
securities at a time or at a price that might be disadvantageous to the
Fund).
The different OppenheimerFunds available for exchange have different
investment objectives, policies and risks, and a shareholder should assure
that the Fund selected is appropriate for his or her investment and should
be aware of the tax consequences of an exchange. For federal tax
purposes, an exchange transaction is treated as a redemption of shares of
one fund and a purchase of shares of another. "Reinvestment Privilege,"
above, discusses some of the tax consequences of reinvestment of
redemption proceeds in such cases. The Fund, the Distributor, and the
Transfer Agent are unable to provide investment, tax or legal advice to
a shareholder in connection with an exchange request or any other
investment transaction.
Dividends, Capital Gains and Taxes
Dividends and Distributions. Dividends will be payable on shares held of
record at the time of the previous determination of net asset value, or
as otherwise described in "How to Buy Shares." Daily dividends on newly
purchased shares will not be declared or paid until such time as Federal
Funds (funds credited to a member bank's account at the Federal Reserve
Bank) are available from the purchase payment for such shares. Normally,
purchase checks received from investors are converted to Federal Funds on
the next business day. Dividends will be declared on shares repurchased
by a dealer or broker for four business days following the trade date
(i.e., to and including the day prior to settlement of the repurchase).
If all shares in an account are redeemed, all dividends accrued on shares
of the same class in the account will be paid together with the redemption
proceeds.
Dividends, distributions and the proceeds of the redemption of Fund
shares represented by checks returned to the Transfer Agent by the Postal
Service as undeliverable will be invested in shares of Oppenheimer Money
Market Fund, Inc., as promptly as possible after the return of such checks
to the Transfer Agent, in order to enable the investor to earn a return
on otherwise idle funds.
Tax Status of the Fund's Dividends and Distributions. The Federal tax
treatment of the Fund's dividends and capital gains distributions is
explained in the Prospectus under the caption "Dividends, Capital Gains
and Taxes." Special provisions of the Internal Revenue Code govern the
eligibility of the Fund's dividends for the dividends-received deduction
for corporate shareholders. Long-term capital gains distributions are not
eligible for the deduction. In addition, the amount of dividends paid by
the Fund which may qualify for the deduction is limited to the aggregate
amount of qualifying dividends which the Fund derives from its portfolio
investments that the Fund has held for a minimum period, usually 46 days.
A corporate shareholder will not be eligible for the deduction on
dividends paid on shares held for 45 days or less. To the extent the
Fund's dividends are derived from its gross income from option premiums,
interest income or short-term gains from the sale of securities, or
dividends from foreign corporations, its dividends will not qualify for
the deduction. It is expected that for the most part the Fund's dividends
will not qualify, because of the nature of the investments held by the
Fund in its portfolio.
The amount of a class's distributions may vary from time to time
depending on market conditions, the composition of the Fund's portfolio,
and expenses borne by the Fund or borne separately by a class, as
described in "Alternative Sales Arrangements -- Class A, Class B and Class
C," above. Dividends are calculated in the same manner, at the same time
and on the same day for shares of each class. However, dividends on Class
B and Class C shares are expected to be lower as a result of the asset-
based sales charge on Class B and Class C shares, and Class B and Class
C dividends will also differ in amount as a consequence of any difference
in net asset value between Class A, Class B and Class C shares.
Under the Internal Revenue Code, by December 31 each year the Fund
must distribute 98% of its taxable investment income earned from January
1 through December 31 of that year and 98% of its capital gains realized
in the period from November 1 of the prior year through October 31 of the
current year, or else the Fund must pay an excise tax on the amounts not
distributed. While it is presently anticipated that the Fund will meet
those requirements, the Trust'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. 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.
INDEPENDENT AUDITORS' REPORT
================================================================
The Board of Trustees and Shareholders of Oppenheimer Bond Fund:
We have audited the accompanying statement of assets and liabilities, including
the statement of investments, of Oppenheimer Bond Fund (formerly Oppenheimer
Investment Grade Bond Fund) as of December 31, 1995, the related statement of
operations for the year then ended, the statements of changes in net assets for
the years ended December 31, 1995 and 1994, and the financial highlights for the
period January 1, 1991 to December 31, 1995. 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, 1985 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, 1995 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 Bond
Fund at December 31, 1995, 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.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Denver, Colorado
January 22, 1996
____________________________________
<TABLE>
<CAPTION>
STATEMENT OF INVESTMENTS December 31, 1995 Face MARKET VALUE
AMOUNT(1) SEE NOTE 1
<S> <C> <C> <C>
================================================================
CERTIFICATES OF DEPOSIT - 0.1%
- ------------------------------------------------------------------------------------------------------------------------------------
Citibank CD, 13%, 5/6/96(2)CLP $ 49,956,445 $ 122,853
-----------------------------------------------------------------------------------------------------------------------------
Indonesia (Republic of) Bank Negara CD, Zero Coupon,
15.914%, 6/17/96(2)(3)IDR 500,000,000 201,253
-------------
Total Certificates of Deposit (Cost $337,372) 324,106
================================================================
================================================================
====
ASSET-BACKED SECURITIES - 2.2%
- ------------------------------------------------------------------------------------------------------------------------------------
AUTO LOAN - 2.2%
-----------------------------------------------------------------------------------------------------------------------------
Daimler-Benz Vehicle Trust, Series 1994-A, Cl. A, 5.95%,
12/15/00 440,645 441,373
-----------------------------------------------------------------------------------------------------------------------------
Ford Credit Grantor Trust, Series 1994-B, Cl. A, 7.30%,
10/15/99 959,109 977,390
-----------------------------------------------------------------------------------------------------------------------------
General Motors Acceptance Corp., Grantor Trust, Series
1992-E, Cl. A, 4.75%, 8/15/97 192,999 192,154
-----------------------------------------------------------------------------------------------------------------------------
Nissan Auto Receivables Grantor Trust, Series 1994-A,
Cl. A, 6.45%, 9/15/99 1,289,223 1,300,091
-----------------------------------------------------------------------------------------------------------------------------
World Omni Automobile Lease Securitization Trust,
Series 1994-A, Cl. A, 6.45%, 9/25/00 1,705,242 1,716,958
-------------
Total Asset-Backed Securities (Cost $4,581,131) 4,627,966
================================================================
================================================================
====
MORTGAGE-BACKED OBLIGATIONS - 29.6%
- ------------------------------------------------------------------------------------------------------------------------------------
GOVERNMENT AGENCY - 22.7%
- ------------------------------------------------------------------------------------------------------------------------------------
FHLMC/FNMA/SPONSORED - 12.7%
----------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.:
Certificates of Participation, 9%, 3/1/17 684,842 727,563
Certificates of Participation, Series 17-039, 13.50%,
11/1/10 75,372 89,209
Certificates of Participation, Series 17-094, 12.50%,
4/1/14 40,781 47,205
Collateralized Mtg. Obligation Gtd. Multiclass Certificates
of Participation, Series 1322, Cl. G, 7.50%, 2/15/07 2,000,000 2,088,740
Collateralized Mtg. Obligations, Series 1548, Cl. C, 7%,
4/15/21 4,000,000 4,022,480
Multiclass Gtd. Mtg. Participation Certificates, Series
1460, Cl. H, 7%, 5/15/07 1,500,000 1,554,375
----------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn.:
11%, 7/1/16 6,832,876 7,751,045
Gtd. Mtg. Pass-Through Certificates, 8%, 8/1/17 884,543 920,624
Gtd. Real Estate Mtg. Investment Conduit Pass-Through
Certificates, Series 1993-175, Cl. PL, 5%, 10/25/02 2,000,000 1,980,000
Gtd. Real Estate Mtg. Investment Conduit Pass-Through
Certificates, Series 1993-191, Cl. PD, 5.40%, 3/25/04 1,500,000 1,486,395
Interest-Only Stripped Mtg.-Backed Security, Trust 240, Cl.
2, 12.095%, 9/1/23(4) 23,117,327 6,330,174
-------------
26,997,810
- ------------------------------------------------------------------------------------------------------------------------------------
GNMA/GUARANTEED - 10.0%
----------------------------------------------------------------------------------------------------------------------------
Government National Mortgage Assn.:
6%, 1/15/26(5) 5,000,000 5,053,125
6%, 7/20/25 1,984,195 2,005,278
7%, 1/15/26(5) 5,000,000 5,059,400
10%, 11/15/09 328,943 361,015
10.50%, 12/15/17-7/15/19 418,560 468,527
12%, 1/15/99-5/15/14 66,291 70,409
12.75%, 6/15/15 43,595 50,461
8%, 6/15/05-7/15/25 7,202,212 7,527,961
9%, 2/15/09-6/15/09 567,867 608,463
-------------
21,204,639
</TABLE>
6 Oppenheimer Bond Fund
<PAGE>
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
PRIVATE - 6.9%
- ------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL - 3.4%
----------------------------------------------------------------------------------------------------------------------------
CMC Securities Corp. I, Collateralized Mtg. Obligation,
Series 1993-D, Cl. D-3, 10%, 7/25/23(6) $ 711,456 $ 765,482
----------------------------------------------------------------------------------------------------------------------------
DLJ Mortgage Acceptance Corp., Sub. Collateralized Mtg.
Obligations, Series X-Q13B, Cl. 3B1, 8.75%, 11/25/24 1,442,350 1,449,112
----------------------------------------------------------------------------------------------------------------------------
FDIC Trust, Gtd. Real Estate Mtg. Investment Conduit
Pass-Through Certificates, Series 1994-C1, Cl. 2-D,
8.70%, 9/25/25(6) 1,000,000 1,078,125
----------------------------------------------------------------------------------------------------------------------------
FDIC Trust, Gtd. Real Estate Mtg. Investment Conduit
Pass-Through Certificates, Series 1994-C1, Cl. 2-E,
8.70%, 9/25/25(6) 1,000,000 1,069,687
----------------------------------------------------------------------------------------------------------------------------
Resolution Trust Corp., Commercial Mtg. Pass-Through
Certificates, Series 1991-M6, Cl. B4, 7.477%, 6/25/21(7) 75,761 75,738
----------------------------------------------------------------------------------------------------------------------------
Resolution Trust Corp., Commercial Mtg. Pass-Through
Certificates, Series 1992-CHF, Cl. E, 8.25%, 12/25/20 2,004,994 1,967,401
----------------------------------------------------------------------------------------------------------------------------
Resolution Trust Corp., Commercial Mtg. Pass-Through
Certificates, Series 1993-C1, Cl. B, 8.75%, 5/25/24 700,000 729,312
-------------
7,134,857
- ------------------------------------------------------------------------------------------------------------------------------------
MULTI-FAMILY - 2.2%
----------------------------------------------------------------------------------------------------------------------------
Resolution Trust Corp., Commercial Mtg. Pass-Through
Certificates, Series 1991-M5, Cl. A, 9%, 3/25/17 733,176 776,251
----------------------------------------------------------------------------------------------------------------------------
Resolution Trust Corp., Commercial Mtg. Pass-Through
Certificates, Series 1994-C1, Cl. C, 8%, 6/25/26 1,500,000 1,603,594
----------------------------------------------------------------------------------------------------------------------------
Resolution Trust Corp., Commercial Mtg. Pass-Through
Certificates, Series 1995-C1, Cl. D, 6.90%, 2/25/27 2,500,000 2,387,500
-------------
4,767,345
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER - 0.9%
----------------------------------------------------------------------------------------------------------------------------
JHM Mtg. Acceptance Corp., 8.96% Collateralized Mtg.
Obligation Bonds, Series E, Cl. 5, 4/1/19 1,790,105 1,913,175
- ------------------------------------------------------------------------------------------------------------------------------------
RESIDENTIAL - 0.4%
----------------------------------------------------------------------------------------------------------------------------
Residential Funding Corp., Mtg. Pass-Through
Certificates, Series 1993-S10, Cl. A9, 8.50%, 2/25/23 774,963 800,150
-------------
Total Mortgage-Backed Obligations (Cost $62,473,955) 62,817,976
================================================================
================================================================
====
U.S. GOVERNMENT OBLIGATIONS - 20.4%
- ------------------------------------------------------------------------------------------------------------------------------------
TREASURY - 20.4%
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds:
11.625%, 11/15/02 5,000,000 6,743,750
8.75%, 5/15/20 6,750,000 9,036,562
8.75%, 8/15/20 3,050,000 4,092,719
8.875%, 8/15/17 13,500,000 18,090,000
----------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Nts.:
8.75%, 8/15/00 550,000 625,109
8.875%, 11/15/97 4,335,000 4,615,418
-------------
Total U.S. Government Obligations (Cost $40,331,251) 43,203,558
</TABLE>
7 Oppenheimer Bond Fund
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF INVESTMENTS (Continued)
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
<S> <C> <C> <C>
================================================================
================================================================
====
FOREIGN GOVERNMENT OBLIGATIONS - 0.8%
- ------------------------------------------------------------------------------------------------------------------------------------
International Bank for Reconstruction and Development
Bonds, 12.50%, 7/25/97NZD $ 800,000 $ 556,998
----------------------------------------------------------------------------------------------------------------------------
New Zealand (Republic of) Bonds, 10%, 7/15/97NZD 390,000 262,030
----------------------------------------------------------------------------------------------------------------------------
Norwegian Government Bonds, 5.75%, 11/30/04NOK 540,000 81,686
----------------------------------------------------------------------------------------------------------------------------
Queensland Treasury Corp. Gtd. Nts., 8%, 8/14/01AUD 1,045,000 778,537
-------------
Total Foreign Government Obligations (Cost $1,565,840) 1,679,251
================================================================
================================================================
====
CORPORATE BONDS AND NOTES - 50.6%
- ------------------------------------------------------------------------------------------------------------------------------------
BASIC INDUSTRY - 4.3%
- ------------------------------------------------------------------------------------------------------------------------------------
CHEMICALS - 0.8%
----------------------------------------------------------------------------------------------------------------------------
Quantum Chemical Corp., 10.375% First Mtg. Nts., 6/1/03 900,000 1,024,144
----------------------------------------------------------------------------------------------------------------------------
Rohm & Haas Co., 9.50% Debs., 4/1/21 500,000 602,239
-------------
1,626,383
- ------------------------------------------------------------------------------------------------------------------------------------
METALS/MINING - 1.8%
----------------------------------------------------------------------------------------------------------------------------
AMAX, Inc., 9.875% Nts., 6/13/01 1,000,000 1,138,882
----------------------------------------------------------------------------------------------------------------------------
Newmont Mining Corp., 8.625% Nts., 4/1/02 1,000,000 1,107,358
----------------------------------------------------------------------------------------------------------------------------
Teck Corp., 8.70% Debs., 5/1/02 1,500,000 1,663,795
-------------
3,910,035
- ------------------------------------------------------------------------------------------------------------------------------------
PAPER - 1.7%
----------------------------------------------------------------------------------------------------------------------------
Crown Paper Co., 11% Sr. Sub. Nts., 9/1/05 750,000 660,000
----------------------------------------------------------------------------------------------------------------------------
Georgia-Pacific Corp., 9.95% Debs., 6/15/02 1,500,000 1,784,147
----------------------------------------------------------------------------------------------------------------------------
Repap Wisconsin, Inc., 9.25% First Priority Sr. Sec. Nts.,
2/1/02 500,000 477,500
----------------------------------------------------------------------------------------------------------------------------
Scotia Pacific Holding Co., 7.95% Timber Collateralized
Nts., 7/20/15 454,847 462,280
----------------------------------------------------------------------------------------------------------------------------
Union Camp Corp., 10% Debs., 5/1/19 100,000 116,911
-------------
3,500,838
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER RELATED - 6.2%
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER PRODUCTS - 0.7%
----------------------------------------------------------------------------------------------------------------------------
Tag-Heuer International SA, 12% Sr. Sub. Nts., 12/15/05(6) 550,000 552,063
----------------------------------------------------------------------------------------------------------------------------
Toro Co. (The), 11% Debs., 8/1/17 1,000,000 1,067,115
-------------
1,619,178
- ------------------------------------------------------------------------------------------------------------------------------------
FOOD/BEVERAGES/TOBACCO - 1.8%
----------------------------------------------------------------------------------------------------------------------------
American Brands, Inc., 7.875% Debs., 1/15/23 2,000,000 2,253,562
----------------------------------------------------------------------------------------------------------------------------
ConAgra, Inc., 7.40% Sub. Nts., 9/15/04 250,000 264,433
----------------------------------------------------------------------------------------------------------------------------
Dr. Pepper/Seven-Up Cos., Inc., 0%/11.50% Sr. Sub.
Disc. Nts., 11/1/02(8) 500,000 471,250
----------------------------------------------------------------------------------------------------------------------------
Pulsar Internacional SA de CV, 11.80% Nts., 9/19/96(9) 750,000 755,625
-------------
3,744,870
- ------------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE - 2.5%
----------------------------------------------------------------------------------------------------------------------------
Grace (W.R.) & Co., 7.25% Medium-Term Nts., 7/15/97 2,000,000 2,040,198
----------------------------------------------------------------------------------------------------------------------------
HEALTHSOUTH Corp., 9.50% Sr. Sub. Nts., 4/1/01 500,000 536,250
----------------------------------------------------------------------------------------------------------------------------
Imcera Group, Inc., 6% Nts., 10/15/03 500,000 494,950
----------------------------------------------------------------------------------------------------------------------------
R.P. Scherer Corp., 6.75% Sr. Nts., 2/1/04 500,000 475,812
----------------------------------------------------------------------------------------------------------------------------
Service Corp. International, 7% Sr. Nts., 6/1/15 1,000,000 1,073,020
----------------------------------------------------------------------------------------------------------------------------
Total Renal Care, Inc., 0%/12% Sr. Sub. Disc. Nts.,
8/15/04(8) 649,000 626,285
-------------
5,246,515
</TABLE>
8 Oppenheimer Bond Fund
<PAGE>
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
HOTEL/GAMING - 0.6%
----------------------------------------------------------------------------------------------------------------------------
Grand Casinos, Inc., 10.125% Gtd. First Mtg. Nts., 12/1/03 $ 750,000 $ 785,625
----------------------------------------------------------------------------------------------------------------------------
HMC Acquisition Properties, Inc., 9% Sr. Nts., 12/15/07(6) 500,000 502,500
-------------
1,288,125
- ------------------------------------------------------------------------------------------------------------------------------------
RESTAURANTS - 0.4%
----------------------------------------------------------------------------------------------------------------------------
Foodmaker, Inc., 9.25% Sr. Nts., 3/1/99 835,000 803,688
- ------------------------------------------------------------------------------------------------------------------------------------
TEXTILE/APPAREL - 0.2%
----------------------------------------------------------------------------------------------------------------------------
Fruit of the Loom, Inc., 7% Debs., 3/15/11 500,000 505,204
- ------------------------------------------------------------------------------------------------------------------------------------
ENERGY - 4.4%
- ------------------------------------------------------------------------------------------------------------------------------------
Coastal Corp., 11.75% Sr. Debs., 6/15/06 500,000 531,653
----------------------------------------------------------------------------------------------------------------------------
Enron Corp., 8.10% Nts., 12/15/96 1,500,000 1,536,089
----------------------------------------------------------------------------------------------------------------------------
McDermott, Inc., 9.375% Nts., 3/15/02 100,000 113,618
----------------------------------------------------------------------------------------------------------------------------
Occidental Petroleum Corp., 11.125% Sr. Debs., 6/1/19 3,000,000 3,584,202
----------------------------------------------------------------------------------------------------------------------------
Southwest Gas Corp., 9.75% Debs., Series F, 6/15/02 275,000 321,762
----------------------------------------------------------------------------------------------------------------------------
Tenneco, Inc., 10% Debs., 3/15/08 100,000 124,414
----------------------------------------------------------------------------------------------------------------------------
Tenneco, Inc., 7.875% Nts., 10/1/02 250,000 272,987
----------------------------------------------------------------------------------------------------------------------------
TransCanada PipeLines Ltd., 9.875% Debs., 1/1/21 1,500,000 2,061,675
----------------------------------------------------------------------------------------------------------------------------
United Meridian Corp., 10.375% Gtd. Sr. Sub. Nts.,
10/15/05 500,000 531,250
----------------------------------------------------------------------------------------------------------------------------
Vintage Petroleum, Inc., 9% Sr. Sub. Nts., 12/15/05 150,000 151,875
-------------
9,229,525
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES - 12.6%
- ------------------------------------------------------------------------------------------------------------------------------------
BANKS & THRIFTS - 1.7%
----------------------------------------------------------------------------------------------------------------------------
Banco Ganadero SA, Zero Coupon Sr. Unsub. Unsec.
Nts., 9.931%, 6/15/96(3)(6) 250,000 239,520
----------------------------------------------------------------------------------------------------------------------------
BankAmerica Corp., 7.50% Sr. Nts., 3/15/97 200,000 204,724
----------------------------------------------------------------------------------------------------------------------------
Chemical New York Corp., 9.75% Sub. Capital Nts.,
6/15/99 300,000 337,112
----------------------------------------------------------------------------------------------------------------------------
First Chicago Corp., 9% Sub. Nts., 6/15/99 100,000 110,118
----------------------------------------------------------------------------------------------------------------------------
First Chicago NBD Bancorp, 7.25% Sub. Debs., 8/15/04 250,000 267,041
----------------------------------------------------------------------------------------------------------------------------
National Westminster Bank PLC, 9.375% Gtd. Capital
Nts., 11/15/03 70,000 83,913
----------------------------------------------------------------------------------------------------------------------------
Royal Bank of Scotland Group (The) PLC, 10.125% Sub.
Gtd. Capital Nts., 3/1/04 500,000 621,195
----------------------------------------------------------------------------------------------------------------------------
Westpac Banking Corp., 9.125% Sub. Debs., 8/15/01 1,500,000 1,711,150
-------------
3,574,773
</TABLE>
9 Oppenheimer Bond Fund
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF INVESTMENTS (Continued)
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL - 7.3%
----------------------------------------------------------------------------------------------------------------------------
American Car Line Co., 8.25% Equipment Trust
Certificates, Series 1993-A, 4/15/08 $ 246,000 $ 258,608
----------------------------------------------------------------------------------------------------------------------------
Beneficial Corp., 12.875% Debs., 8/1/13 20,000 24,313
----------------------------------------------------------------------------------------------------------------------------
BHP Finance (USA) Ltd., 8.50% Gtd. Debs., 12/1/12 1,500,000 1,780,785
----------------------------------------------------------------------------------------------------------------------------
Enterprise Rent-A-Car USA Finance Co., 7.875% Nts.,
3/15/98(6) 1,500,000 1,554,709
----------------------------------------------------------------------------------------------------------------------------
Ford Motor Credit Co., 9.90% Medium-Term Nts., 11/6/97 2,000,000 2,080,364
----------------------------------------------------------------------------------------------------------------------------
GPA Holland BV, 9.75% Medium-Term Nts., Series B,
6/10/96(6) 500,000 500,000
----------------------------------------------------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc., 8.375% Nts., 2/15/99 300,000 318,942
----------------------------------------------------------------------------------------------------------------------------
Leucadia National Corp., 7.75% Sr. Nts., 8/15/13 2,000,000 2,082,104
----------------------------------------------------------------------------------------------------------------------------
Midland American Capital Corp., 12.75% Gtd. Nts.,
11/15/03 205,000 241,118
----------------------------------------------------------------------------------------------------------------------------
NationsBank Corp., 10.20% Sub. Nts., 7/15/15 1,300,000 1,759,866
----------------------------------------------------------------------------------------------------------------------------
PaineWebber Group, Inc., 7% Sr. Nts., 3/1/00 160,000 163,909
----------------------------------------------------------------------------------------------------------------------------
Penske Truck Leasing Co. LP, 7.75% Sr. Nts., 5/15/99 1,500,000 1,583,350
----------------------------------------------------------------------------------------------------------------------------
Ryder System, Inc., 8.75% Debs., Series J, 3/15/17 1,600,000 1,703,704
----------------------------------------------------------------------------------------------------------------------------
Source One Mortgage Services Corp., 9% Debs., 6/1/12 1,250,000 1,485,481
-------------
15,537,253
- ------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 3.6%
----------------------------------------------------------------------------------------------------------------------------
Aetna Life & Casualty Co., 8% Debs., 1/15/17 1,000,000 1,060,133
----------------------------------------------------------------------------------------------------------------------------
Capital Holding Corp., 8.75% Debs., 1/15/17 1,200,000 1,272,654
----------------------------------------------------------------------------------------------------------------------------
CNA Financial Corp., 7.25% Debs., 11/15/23 2,000,000 1,990,074
----------------------------------------------------------------------------------------------------------------------------
Torchmark Corp., 7.875% Nts., 5/15/23 3,000,000 3,243,750
-------------
7,566,611
- ------------------------------------------------------------------------------------------------------------------------------------
HOUSING RELATED - 0.5%
- ------------------------------------------------------------------------------------------------------------------------------------
HOMEBUILDERS/REAL ESTATE - 0.5%
----------------------------------------------------------------------------------------------------------------------------
Saul (B.F.) Real Estate Investment Trust, 11.625% Sr.
Sec. Nts., Series B, 4/1/02 1,125,000 1,153,125
- ------------------------------------------------------------------------------------------------------------------------------------
MANUFACTURING - 7.3%
- ------------------------------------------------------------------------------------------------------------------------------------
AEROSPACE/ELECTRONICS/COMPUTERS - 3.2%
----------------------------------------------------------------------------------------------------------------------------
Boeing Co., 7.50% Debs., 8/15/42 2,000,000 2,320,236
----------------------------------------------------------------------------------------------------------------------------
General Electric Capital Corp., 8.75% Debs., 5/21/07 1,000,000 1,216,910
----------------------------------------------------------------------------------------------------------------------------
McDonnell Douglas Corp., 9.25% Nts., 4/1/02 1,500,000 1,738,060
----------------------------------------------------------------------------------------------------------------------------
Rolls-Royce Capital, Inc., 7.125% Gtd. Unsec. Unsub.
Nts., 7/29/03 1,000,000 1,046,250
----------------------------------------------------------------------------------------------------------------------------
Tracor, Inc., 10.875% Sr. Sub. Nts., 8/15/01 500,000 516,250
-------------
6,837,706
- ------------------------------------------------------------------------------------------------------------------------------------
AUTOMOTIVE - 2.1%
----------------------------------------------------------------------------------------------------------------------------
Chrysler Corp., 10.40% Nts., 8/1/99 1,000,000 1,069,464
----------------------------------------------------------------------------------------------------------------------------
Chrysler Corp., 10.95% Debs., 8/1/17 200,000 224,527
----------------------------------------------------------------------------------------------------------------------------
Foamex LP/Foamex Capital Corp., 11.25% Sr. Nts.,
10/1/02 500,000 482,500
----------------------------------------------------------------------------------------------------------------------------
Ford Motor Co., 8.875% Debs., 11/15/22 2,000,000 2,312,126
----------------------------------------------------------------------------------------------------------------------------
General Motors Acceptance Corp., 5.50% Nts., 12/15/01 100,000 96,549
----------------------------------------------------------------------------------------------------------------------------
General Motors Acceptance Corp., 7.75% Nts., 4/15/97 300,000 305,708
-------------
4,490,874
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL GOODS - 2.0%
----------------------------------------------------------------------------------------------------------------------------
Caterpillar, Inc., 9.75% Debs., 6/1/19 1,750,000 2,035,827
----------------------------------------------------------------------------------------------------------------------------
Thomas & Betts Corp., 8.25% Sr. Nts., 1/15/04 1,000,000 1,125,063
----------------------------------------------------------------------------------------------------------------------------
Westinghouse Electric Corp., 8.375% Nts., 6/15/02 1,000,000 1,022,800
-------------
4,183,690
</TABLE>
10 Oppenheimer Bond Fund
<PAGE>
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
MEDIA - 4.9%
- ------------------------------------------------------------------------------------------------------------------------------------
BROADCASTING - 0.6%
----------------------------------------------------------------------------------------------------------------------------
Paxson Communications Corp., 11.625% Sr. Sub. Nts.,
10/1/02(6) $ 750,000 $ 757,500
----------------------------------------------------------------------------------------------------------------------------
United International Holdings, Inc., Zero Coupon Sr. Sec.
Disc. Nts., 12.982%, 11/15/99(3) 750,000 468,750
-------------
1,226,250
- ------------------------------------------------------------------------------------------------------------------------------------
CABLE TELEVISION - 1.9%
----------------------------------------------------------------------------------------------------------------------------
Rogers Cablesystems Ltd., 10% Sr. Sec. Second Priority
Debs., 12/1/07 1,000,000 1,067,500
----------------------------------------------------------------------------------------------------------------------------
Tele-Communications, Inc., 5.28% Medium-Term Nts.,
8/20/96 1,000,000 996,207
----------------------------------------------------------------------------------------------------------------------------
TeleWest PLC, 0%/11% Sr. Disc. Debs., 10/1/07(8) 1,280,000 776,000
----------------------------------------------------------------------------------------------------------------------------
TKR Cable I, Inc., 10.50% Sr. Debs., 10/30/07 1,000,000 1,176,779
-------------
4,016,486
- ------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED MEDIA - 1.7%
----------------------------------------------------------------------------------------------------------------------------
Time Warner, Inc., 9.15% Debs., 2/1/23 3,100,000 3,534,961
- ------------------------------------------------------------------------------------------------------------------------------------
PUBLISHING/PRINTING - 0.7%
----------------------------------------------------------------------------------------------------------------------------
Valassis Communications, Inc., 9.55% Sr. Nts., 12/1/03 1,500,000 1,543,258
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER - 0.3%
- ------------------------------------------------------------------------------------------------------------------------------------
CONGLOMERATES - 0.3%
----------------------------------------------------------------------------------------------------------------------------
Textron, Inc., 9.55% Medium-Term Nts., 3/19/01 500,000 579,296
- ------------------------------------------------------------------------------------------------------------------------------------
RETAIL - 1.2%
- ------------------------------------------------------------------------------------------------------------------------------------
DEPARTMENT STORES - 0.2%
----------------------------------------------------------------------------------------------------------------------------
Sears Canada Inc., 11.70% Debs., 7/10/00CAD 500,000 426,186
- ------------------------------------------------------------------------------------------------------------------------------------
DRUG STORES - 0.2%
----------------------------------------------------------------------------------------------------------------------------
Hook-SupeRx, Inc., 10.125% Sr. Nts., 6/1/02 400,000 438,128
- ------------------------------------------------------------------------------------------------------------------------------------
SPECIALTY RETAILING - 0.4%
----------------------------------------------------------------------------------------------------------------------------
May Department Stores Cos., 10.625% Debs., 11/1/10 405,000 564,550
----------------------------------------------------------------------------------------------------------------------------
May Department Stores Cos., 9.875% Debs., 6/1/17 250,000 265,491
-------------
830,041
- ------------------------------------------------------------------------------------------------------------------------------------
SUPERMARKETS - 0.4%
----------------------------------------------------------------------------------------------------------------------------
Grand Union Co., 12% Sr. Nts., 9/1/04 500,000 435,000
----------------------------------------------------------------------------------------------------------------------------
Penn Traffic Co., 10.25% Sr. Nts., 2/15/02 500,000 478,750
-------------
913,750
- ------------------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION - 2.0%
- ------------------------------------------------------------------------------------------------------------------------------------
AIR TRANSPORTATION - 1.3%
----------------------------------------------------------------------------------------------------------------------------
American Airlines, Inc., 9.73% Pass-Through Certificates,
Series 1991-C2, 9/29/14 1,000,000 1,118,750
----------------------------------------------------------------------------------------------------------------------------
Atlas Air, Inc., 12.25% Pass-Through Certificates, 12/1/02 1,000,000 1,025,000
----------------------------------------------------------------------------------------------------------------------------
Delta Air Lines, Inc., 10.375% Debs., 2/1/11 550,000 707,854
-------------
2,851,604
- ------------------------------------------------------------------------------------------------------------------------------------
RAILROADS - 0.7%
----------------------------------------------------------------------------------------------------------------------------
Canadian Pacific Ltd., 9.45% Debs., 8/1/21 1,000,000 1,304,000
----------------------------------------------------------------------------------------------------------------------------
Union Pacific Corp., 9.65% Medium-Term Nts., 4/17/00 100,000 113,888
-------------
1,417,888
- ------------------------------------------------------------------------------------------------------------------------------------
UTILITIES - 6.9%
- ------------------------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES - 1.0%
----------------------------------------------------------------------------------------------------------------------------
Commonwealth Edison Co., 6.50% Nts., 7/15/97 225,000 226,315
----------------------------------------------------------------------------------------------------------------------------
Public Service Co. of Colorado, 8.75% First Mtg. Bonds,
3/1/22 250,000 284,110
----------------------------------------------------------------------------------------------------------------------------
Tenaga Nasional Berhad, 7.875% Nts., 6/15/04(6) 1,000,000 1,106,039
----------------------------------------------------------------------------------------------------------------------------
Union Gas Ltd., 13% Debs., 6/30/03CAD 572,000 474,450
-------------
2,090,914
</TABLE>
11 Oppenheimer Bond Fund
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF INVESTMENTS (Continued)
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS - 5.9%
----------------------------------------------------------------------------------------------------------------------------
A+ Network, Inc., 11.875% Sr. Sub. Nts., 11/1/05 $ 1,000,000 $ 1,012,500
----------------------------------------------------------------------------------------------------------------------------
Cellular Communications International, Inc., Zero Coupon
Sr. Disc. Nts., 11.44%, 8/15/00(3) 500,000 301,250
----------------------------------------------------------------------------------------------------------------------------
GST Telecommunications, Inc., Units (each unit consists
of eight 0%/13.875% sr. disc. nts., 12/15/05 and one
0%/13.875% cv. sr. sub. disc. nt., 12/15/05)(6)(8)(10) 900,000 470,000
----------------------------------------------------------------------------------------------------------------------------
Horizon Cellular Telephone LP/Horizon Finance Corp.,
0%/11.375% Sr. Sub. Disc. Nts., 10/1/00(8) 1,250,000 1,068,750
----------------------------------------------------------------------------------------------------------------------------
IntelCom Group (USA), Inc., 0%/13.50% Sr. Disc. Nts.,
9/15/05(6)(8) 600,000 346,500
----------------------------------------------------------------------------------------------------------------------------
New York Telephone Co., 9.375% Debs., 7/15/31 2,500,000 2,976,547
----------------------------------------------------------------------------------------------------------------------------
Nextel Communications, Inc., 0%/11.50% Sr. Disc. Nts.,
9/1/03(8) 1,000,000 618,750
----------------------------------------------------------------------------------------------------------------------------
Pacific Bell, 8.50% Debs., 8/15/31 2,000,000 2,234,214
----------------------------------------------------------------------------------------------------------------------------
PriCellular Wireless Corp., 0%/14% Sr. Sub. Disc. Nts.,
11/15/01(8) 1,000,000 880,000
----------------------------------------------------------------------------------------------------------------------------
Southern New England Telephone Co., 8.70% Medium-
Term Nts., 8/15/31 2,000,000 2,203,806
----------------------------------------------------------------------------------------------------------------------------
USA Mobile Communications, Inc. II, 9.50% Sr. Nts.,
2/1/04 500,000 497,500
-------------
12,609,817
-------------
Total Corporate Bonds and Notes (Cost $100,700,984) 107,296,972
UNITS
================================================================
================================================================
====
RIGHTS, WARRANTS AND CERTIFICATES - 0.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Cellular Communications International, Inc. Wts.,
Exp. 8/03 500 11,250
----------------------------------------------------------------------------------------------------------------------------
IntelCom Group, Inc. Wts., Exp. 9/05(6) 1,980 7,920
-------------
Total Rights, Warrants and Certificates (Cost $0) 19,170
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $209,990,533) 103.7% 219,968,999
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES IN EXCESS OF OTHER ASSETS (3.7) (7,751,705)
--------------- -------------
NET ASSETS 100.0% $212,217,294
===============
=============
<FN>
1. Face amount is reported in U.S. Dollars, except for those denoted
in the following currencies:
AUD - Australian Dollar IDR - Indonesian Rupiah
CAD - Canadian Dollar NOK - Norwegian Krone
CLP - Chilean Peso NZD - New Zealand Dollar
2. Indexed instrument for which the principal amount and/or interest due
at maturity is affected by the relative value of a foreign currency.
3. For zero coupon bonds, the interest rate shown is the effective
yield on the date of purchase.
4. Interest-Only Strips represent the right to receive the monthly
interest payments on an underlying pool of mortgage loans. These
securities typically decline in price as interest rates decline. Most
other fixed-income securities increase in price when interest rates
decline. The principal amount of the underlying pool represents the
notional amount on which current interest is calculated. The price of
these securities is typically more sensitive to changes in prepayment
rates than traditional mortgage-backed securities (for example, GNMA
pass-throughs). Interest rates disclosed represent current yields based
upon the current cost basis and estimated timing and amount of future
cash flows.
5. When-issued security to be delivered and settled after December 31,
1995.
6. Represents a security sold under Rule 144A, which is exempt from
registration under the Securities Act of 1933, as amended. This security
has been determined to be liquid under guidelines established by the
Board of Trustees. These securities amount to $8,950,045 or 4.22% of the
Fund's net assets, at December 31, 1995.
7. Represents the current interest rate for a variable rate security.
8. Denotes a step bond: a zero coupon bond that converts to a fixed
rate of interest at a designated future date.
9. Identifies issues considered to be illiquid - See Note 6 of Notes
to Financial Statements.
10. Units may be comprised of several components, such as debt and equity
and/or warrants to purchase equity at some point in the future. For units
which represent debt securities, face amount disclosed represents total
underlying principal.
See accompanying Notes to Financial Statements.
</FN>
</TABLE>
12 Oppenheimer Bond Fund
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES December 31, 1995
<S> <C> <C>
================================================================
==================================================================
ASSETS Investments, at value (cost $209,990,533) - see accompanying statement $219,968,999
--------------------------------------------------------------------------------------------------------
Receivables:
Interest and principal paydowns 3,449,576
Shares of beneficial interest sold 502,558
Receivable from OppenheimerFunds, Inc. 20,522
--------------------------------------------------------------------------------------------------------
Other 25,430
------------
Total assets 223,967,085
================================================================
==================================================================
LIABILITIES Bank overdraft 306,908
--------------------------------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased 10,088,020
Dividends 610,049
Shares of beneficial interest redeemed 545,312
Distribution and service plan fees 110,630
Transfer and shareholder servicing agent fees 9,767
Other 79,105
-------------
Total liabilities 11,749,791
================================================================
==================================================================
NET ASSETS $212,217,294
-------------
-------------
================================================================
==================================================================
COMPOSITION OF Paid-in capital $206,251,590
NET ASSETS --------------------------------------------------------------------------------------------------------
Undistributed net investment income 116,937
--------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and
foreign currency transactions (4,129,345)
--------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments and translation of
assets and liabilities denominated in foreign currencies 9,978,112
-------------
Net assets $212,217,294
-------------
-------------
================================================================
==================================================================
NET ASSET VALUE Class A Shares:
PER SHARE Net asset value and redemption price per share (based on net assets
of $169,059,333 and 15,399,839 shares of beneficial interest outstanding) $10.98
Maximum offering price per share (net asset value plus sales charge
of 4.75% of offering price) $11.53
--------------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price and offering price per share (based on
net assets of $39,187,315 and 3,570,470 shares of beneficial interest outstanding) $10.98
--------------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price and offering price per share (based on
net assets of $3,970,646 and 361,451 shares of beneficial interest outstanding) $10.99
See accompanying Notes to Financial Statements.
</TABLE>
13 Oppenheimer Bond Fund
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS For the Year Ended December 31, 1995
<S> <C> <C>
================================================================
==================================================================
INVESTMENT INCOME Interest (net of foreign withholding taxes of $13,483) $10,089,605
================================================================
==================================================================
EXPENSES Management fees - Note 4 820,507
--------------------------------------------------------------------------------------------------------
Distribution and service plan fees - Note 4:
Class A 287,716
Class B 127,308
Class C 4,560
--------------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees - Note 4 247,878
--------------------------------------------------------------------------------------------------------
Shareholder reports 147,863
--------------------------------------------------------------------------------------------------------
Legal and auditing fees 38,082
--------------------------------------------------------------------------------------------------------
Registration and filing fees:
Class A 22,344
Class B 10,705
Class C 1,358
--------------------------------------------------------------------------------------------------------
Custodian fees and expenses 32,880
--------------------------------------------------------------------------------------------------------
Trustees' fees and expenses 872
--------------------------------------------------------------------------------------------------------
Other 21,787
------------
Total expenses 1,763,860
------------
Less reimbursement of expenses by OppenheimerFunds, Inc. - Note 4 (20,522)
------------
Net expenses 1,743,338
================================================================
==================================================================
NET INVESTMENT INCOME 8,346,267
================================================================
==================================================================
REALIZED AND Net realized gain (loss) on:
UNREALIZED GAIN (LOSS) Investments 566,180
Closing of futures contracts - Note 8 (931,937)
Foreign currency transactions 64,980
------------
Net realized loss (300,777)
--------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on:
Investments 12,202,101
Translation of assets and liabilities denominated in foreign currencies (136,201)
------------
Net change 12,065,900
------------
Net realized and unrealized gain 11,765,123
================================================================
==================================================================
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $20,111,390
------------
------------
See accompanying Notes to Financial Statements.
</TABLE>
14 Oppenheimer Bond Fund
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31,
1995 1994
<S> <C> <C> <C>
================================================================
==================================================================
OPERATIONS Net investment income $ 8,346,267 $ 6,537,608
--------------------------------------------------------------------------------------------------------
Net realized loss (300,777) (2,274,518)
--------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation 12,065,900 (8,559,673)
----------------------------------
Net increase (decrease) in net assets resulting
from operations 20,111,390 (4,296,583)
================================================================
==================================================================
DIVIDENDS AND Dividends from net investment income:
DISTRIBUTIONS Class A (7,564,945) (6,381,575)
TO SHAREHOLDERS Class B (751,223) (156,032)
Class C (29,746) --
--------------------------------------------------------------------------------------------------------
Dividends in excess of net investment income:
Class A -- (298,880)
Class B -- (7,308)
================================================================
==================================================================
BENEFICIAL INTEREST Net increase (decrease) in net assets resulting from
TRANSACTIONS beneficial interest transactions - Note 2:
Class A 61,827,603 (3,255,547)
Class B 34,622,947 1,918,288
Class C 3,910,520 --
================================================================
==================================================================
NET ASSETS Total increase (decrease) 112,126,546 (12,477,637)
--------------------------------------------------------------------------------------------------------
Beginning of period 100,090,748 112,568,385
----------------------------------
End of period [including undistributed (overdistributed)
net investment income of $116,937 and
$(204,894), respectively] $212,217,294 $100,090,748
----------------------------------
----------------------------------
See accompanying Notes to Financial Statements.
</TABLE>
15 Oppenheimer Bond Fund
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- ---------------------------------------------------------------------------------------------------------------------
CLASS A
-----------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
1995 1994 1993 1992 1991(4)
<S> <C> <C> <C> <C> <C>
================================================================
=====================================================
PER SHARE OPERATING DATA:
Net asset value, beginning of period $10.01 $11.12 $10.74 $10.80 $9.86
- ---------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .69 .65 .69 .75 .82
Net realized and unrealized gain (loss) .96 (1.08) .40 (.05) .90
- ---------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment
operations 1.65 (.43) 1.09 .70 1.72
- ---------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.68) (.65) (.71) (.76) (.78)
Dividends in excess of net investment
income -- (.03) -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Total dividends and distributions
to shareholders (.68) (.68) (.71) (.76) (.78)
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.98 $10.01 $11.12 $10.74 $10.80
================================================================
=======
================================================================
=====================================================
TOTAL RETURN, AT NET ASSET VALUE (5) 16.94% (3.87)% 10.30% 6.77% 18.28%
================================================================
=====================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $169,059 $96,640 $110,759 $106,290 $90,623
- ---------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $116,940 $102,168 $111,702 $98,672 $86,471
- ---------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 6.47% 6.25% 6.20% 7.00% 8.02%
Expenses, before voluntary reimbursement
by the Manager 1.27% 1.06% 1.06% 1.10% 1.23%
Expenses, net of voluntary reimbursement
by the Manager 1.26% N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (7) 175.4% 70.3% 110.1% 116.4% 97.1%
<FN>
1. For the period from July 11, 1995 (inception of offering) to December 31,
1995.
2. For the period from May 1, 1993 (inception of offering) to December 31,
1993.
3. 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.
4. On March 28, 1991, OppenheimerFunds, Inc. became the investment advisor to
the Fund.
</FN>
</TABLE>
See accompanying Notes to Financial Statements.
16 Oppenheimer Bond Fund
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS A
--------------------------------------------------------------------------------------
ELEVEN
MONTHS
ENDED
DEC. 31, YEAR ENDED JANUARY 31,
1990 1989 1988(3) 1988(3) 1987(3) 1986(3)
<S> <C> <C> <C> <C> <C> <C>
================================================================
================================================================
====
PER SHARE OPERATING DATA:
Net asset value, beginning of period $10.29 $10.12 $10.55 $11.30 $11.16 $10.91
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .88 .92 .93 1.09 1.16 1.22
Net realized and unrealized gain (loss) (.43) .19 (.36) (.55) .22 .35
- ------------------------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment
operations .45 1.11 .57 .54 1.38 1.57
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.88) (.94) (1.00) (1.29) (1.24) (1.32)
Dividends in excess of net investment
income -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions
to shareholders (.88) (.94) (1.00) (1.29) (1.24) (1.32)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.86 $10.29 $10.12 $10.55 $11.30 $11.16
================================================================
========================
================================================================
================================================================
====
TOTAL RETURN, AT NET ASSET VALUE (5) 4.74% 11.31% 4.48% N/A N/A N/A
================================================================
================================================================
====
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $87,021 $96,380 $102,293 $118,568 $125,513 $121,979
- ------------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $90,065 $100,891 $111,264 $118,724 $123,045 $118,253
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 8.85% 8.85% 8.75% 10.28% 10.45% 11.26%
Expenses, before voluntary reimbursement
by the Manager 1.26% 1.14% 1.05% 0.98% 0.93% 0.97%
Expenses, net of voluntary reimbursement
1.24% N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (7) 80.4% 41.3% 45.0% 19.5% 59.8% 36.5%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- ---------------------------------------------------------------------------------------------------------
CLASS B CLASS C
------------------------------------ -------------
PERIOD ENDED
YEAR ENDED DECEMBER 31, DECEMBER 31,
1995 1994 1993(2) 1995(1)
<S> <C> <C> <C> <C>
================================================================
=========================================
PER SHARE OPERATING DATA:
Net asset value, beginning of period $10.01 $11.11 $11.10 $10.89
- ---------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .63 .58 .40 .28
Net realized and unrealized gain (loss) .94 (1.08) .03 .10
- ---------------------------------------------------------------------------------------------------------
Total income (loss) from investment
operations 1.57 (.50) .43 .38
- ---------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.60) (.57) (.42) (.28)
Dividends in excess of net investment
income -- (.03) -- --
- ---------------------------------------------------------------------------------------------------------
Total dividends and distributions
to shareholders (.60) (.60) (.42) (.28)
- ---------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.98 $10.01 $11.11 $10.99
=============================================================
================================================================
=========================================
TOTAL RETURN, AT NET ASSET VALUE (5) 16.06% (4.53)% 3.91% 3.76%
================================================================
=========================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $39,187 $3,451 $1,809 $3,971
- ---------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $12,823 $2,747 $922 $979
- ---------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 5.84% 5.53% 4.80%(6) 6.32%(6)
Expenses, before voluntary reimbursement
by the Manager 2.12% 1.78% 1.90%(6) 2.25%(6)
Expenses, net of voluntary reimbursement
by the Manager 2.08% N/A N/A 1.96%(6)
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover rate (7) 175.4% 70.3% 110.1% 175.4%
<FN>
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. Total returns are not annualized for
periods of less than one full year.
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 period
ended December 31, 1995 were $233,752,932 and $211,825,884, respectively.
</FN>
</TABLE>
17 Oppenheimer Bond Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================
================
1. SIGNIFICANT ACCOUNTING POLICIES
Oppenheimer Bond Fund (the Fund), formerly named Oppenheimer Investment Grade
Bond 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 objective is to seek a high level
of current income by investing mainly in debt instruments. The Fund's investment
advisor is OppenheimerFunds, Inc. (the Manager). The Fund offers Class A , Class
B and Class C shares. Class A shares are sold with a front-end sales charge.
Class B and Class C shares may be subject to a contingent deferred sales charge.
All three classes of shares have identical rights to earnings, assets and voting
privileges, except that each class has its own distribution and/or service plan,
expenses directly attributable to a particular class and exclusive voting rights
with respect to matters affecting a single class. Class B shares will
automatically convert to Class A shares six years after the date of purchase.
The following is a summary of significant accounting policies consistently
followed by the Fund.
- --------------------------------------------------------------------------------
INVESTMENT VALUATION. Portfolio securities are valued at the close of the New
York Stock Exchange on each trading day. Listed and unlisted securities for
which such information is regularly reported are valued at the last sale price
of the day or, in the absence of sales, at values based on the closing bid or
asked price or the last sale price on the prior trading day. Long-term and
short-term "non-money market" debt securities are valued by a portfolio pricing
service approved by the Board of Trustees. Such securities which cannot be
valued by the approved portfolio pricing service are valued using
dealer-supplied valuations provided the Manager is satisfied that the firm
rendering the quotes is reliable and that the quotes reflect current market
value, or are valued under consistently applied procedures established by the
Board of Trustees to determine fair value in good faith. Short-term "money
market type" debt securities having a remaining maturity of 60 days or less are
valued at cost (or last determined market value) adjusted for amortization to
maturity of any premium or discount.
- --------------------------------------------------------------------------------
SECURITIES PURCHASED ON A WHEN-ISSUED BASIS. Delivery and payment for securities
that have been purchased by the Fund on a forward commitment or when-issued
basis can take place a month or more after the transaction date. During this
period, such securities do not earn interest, are subject to market fluctuation
and may increase or decrease in value prior to their delivery. The Fund
maintains, in a segregated account with its custodian, assets with a market
value equal to the amount of its purchase commitments. The purchase of
securities on a when-issued or forward commitment basis may increase the
volatility of the Fund's net asset value to the extent the Fund makes such
purchases while remaining substantially fully invested. As of December 31, 1995,
the Fund had entered into outstanding when-issued or forward commitments of
$10,088,020.
In connection with its ability to purchase securities on a when-issued or
forward commitment basis, the Fund may enter into mortgage "dollar-rolls" in
which the Fund sells securities for delivery in the current month and
simultaneously contracts with the same counterparty to repurchase similar (same
type coupon and maturity) but not identical securities on a specified future
date. The Fund records each dollar-roll as a sale and a new purchase
transaction.
- --------------------------------------------------------------------------------
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 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 or excise tax provision is required. At December 31, 1995, the
Fund had available for federal income tax purposes an unused capital loss
carryover of approximately $6,446,000, which expires between 1997 and 2003.
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS. The Fund intends to declare dividends separately
for Class A, Class B and Class C 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.
18 Oppenheimer Bond Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
================================================================
================
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY TRANSLATION. The accounting records of the Fund are maintained
in U.S. dollars. Prices of securities denominated in foreign currencies are
translated into U.S. dollars at the closing rates of exchange. Amounts related
to the purchase and sale of securities and investment income are translated at
the rates of exchange prevailing on the respective dates of such transactions.
The effect of changes in foreign currency exchange rates on investments is
separately identified from the fluctuations arising from changes in market
values of securities held and reported with all other foreign currency gains and
losses in the Fund's Statement of Operations.
- --------------------------------------------------------------------------------
CLASSIFICATION OF DISTRIBUTIONS TO SHAREHOLDERS. Net investment income (loss)
and net realized gain (loss) may differ for financial statement and tax purposes
primarily because of paydown gains and losses and the recognition of certain
foreign currency gains (losses) as ordinary income (loss) for tax purposes. The
character of the distributions made during the year from net investment income
or net realized gains may differ from their ultimate characterization for
federal income tax purposes. Also, due to timing of dividend distributions, the
fiscal year in which amounts are distributed may differ from the year that the
income or realized gain (loss) was recorded by the Fund.
During the year ended December 31, 1995, 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, during the year ended December 31, 1995,
amounts have been reclassified to reflect a decrease in paid-in capital of
$363,225, an increase in undistributed net investment income of $321,478, and a
decrease in accumulated net realized loss on investments of $41,747.
- --------------------------------------------------------------------------------
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.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates.
19 Oppenheimer Bond Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
================================================================
================
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:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995(1) YEAR ENDED DECEMBER 31, 1994
------------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------
Class A:
Sold 3,592,604 $ 37,958,201 1,071,379 $ 11,256,317
Dividends reinvested 401,453 4,283,086 323,100 3,353,309
Issued in connection with
the acquisition of:
Oppenheimer Strategic Investment
Grade Bond Fund - Note 7 2,101,654 22,529,733 -- --
Quest Investment Quality Income
Fund - Note 7 3,900,357 42,201,864 -- --
Redeemed (4,249,502) (45,145,281) (1,704,508) (17,865,173)
------------- ------------- ------------- -------------
Net increase (decrease) 5,746,566 $ 61,827,603 (310,029) $ (3,255,547)
============= =============
============= =============
---------------------------------------------------------------------------------------------------------
Class B:
Sold 1,038,290 $ 11,014,073 293,817 $ 3,089,618
Dividends reinvested 45,815 494,471 11,974 123,504
Issued in connection with
the acquisition of:
Oppenheimer Strategic Investment
Grade Bond Fund - Note 7 1,474,533 15,806,991 -- --
Quest Investment Quality Income
Fund - Note 7 1,236,995 13,384,283 -- --
Redeemed (569,823) (6,076,871) (123,969) (1,294,834)
------------- ------------- ------------- -------------
Net increase 3,225,810 $ 34,622,947 181,822 $ 1,918,288
============= =============
============= ============
---------------------------------------------------------------------------------------------------------
Class C:
Sold 47,725 $ 516,952 -- $ --
Dividends reinvested 1,625 17,809 -- --
Issued in connection with
the acquisition of
Quest Investment Quality
Income Fund - Note 7 362,821 3,929,348 -- --
Redeemed (50,720) (553,589) -- --
------------- ------------- ------------- ------------
Net increase 361,451 $ 3,910,520 -- $ --
============= =============
============= ============
</TABLE>
1. For the year ended December 31, 1995 for Class A
and Class B shares and for the period from July 11,
1995 (inception of offering) to December 31, 1995 for
Class C shares.
================================================================
================
3. UNREALIZED GAINS AND LOSSES ON INVESTMENTS
At December 31, 1995, net unrealized appreciation on investments of $9,978,466
was composed of gross appreciation of $11,552,223, and gross depreciation of
$1,573,757.
================================================================
================
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. At a meeting held on July 10, 1995,
shareholders of Oppenheimer Bond Fund approved a new investment advisory
agreement. Subsequent to July 10, management fees are as follows: .75% of the
first $200 million of the Fund's average annual net assets, .72% of the next
$200 million, .69% of the next $200 million, .66% of the next $200 million, .60%
of the next $200 million, and .50% of aggregate net assets over $1 billion.
Prior to July 10, 1995, management fees were as follows: .50% on the first $100
million of average annual 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 state regulatory limit on Fund expenses.
The Manager has agreed to reimburse the Fund for SEC fees incurred in connection
with the acquisition of Quest Investment Quality Income Fund.
For the year ended December 31, 1995, commissions (sales charges paid by
investors) on sales of Class A shares totaled $166,065, of which $59,442 was
retained by OppenheimerFunds Distributor, Inc. (OFDI), a subsidiary of the
Manager, as general distributor, and by an affiliated broker/dealer. Sales
charges advanced to broker/dealers by OFDI on sales of the Fund's Class B and
Class C shares totaled $167,546 and $5,007, of which $14,745 was paid to an
affiliated broker/dealer. During the year ended December 31, 1995, OFDI received
contingent deferred sales charges of $33,311 upon redemption of Class B shares
as reimbursement for sales commissions advanced by OFDI at the time of sale of
such shares.
20 Oppenheimer Bond Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
================================================================
================
4. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES (CONTINUED)
OppenheimerFunds Services (OFS), a division of the Manager, is the transfer and
shareholder servicing agent for the Fund, and for other registered investment
companies. OFS'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 compensate 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 and Class C shares are subject to an asset-based sales charge
of .75% of net assets annually, to compensate 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 or Class C 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 or Class C
shares sold prior to termination or discontinuance of the plan. At December 31,
1995, OFDI had incurred unreimbursed expenses of $1,004,267 for Class B and
$21,412 for Class C. During the year ended December 31, 1995, OFDI paid $142,856
and $2,033, respectively, to an affiliated broker/dealer as compensation for
Class A and Class B personal service and maintenance expenses, and retained
$106,790 and $1,848, respectively, as compensation for Class B and Class C sales
commissions and service fee advances, as well as financing costs.
================================================================
================
5. DEFERRED TRUSTEE COMPENSATION
A former trustee elected to defer receipt of fees earned. These deferred fees
earned interest at a rate determined by the current Board of Trustees at the
beginning of each calendar year, compounded each quarter-end. From January 1,
1995 through May 10, 1995, the Fund was incurring interest at a rate of 7.89%
per annum. The final payment was made on May 10, 1995.
================================================================
================
6. ILLIQUID AND RESTRICTED SECURITIES
At December 31, 1995, investments in securities included issues that are
illiquid or restricted. The securities are often purchased in private placement
transactions, are not registered under the Securities Act of 1933, may have
contractual restrictions on resale, and are valued under methods approved by the
Board of Trustees as reflecting fair value. The Fund intends to invest no more
than 10% of its net assets (determined at the time of purchase) in illiquid or
restricted securities. The aggregate value of these securities subject to this
limitation at December 31, 1995 was $755,625 which represents .36% of the Fund's
net assets. Information concerning these securities is as follows:
<TABLE>
<CAPTION>
VALUATION PER
COST UNIT AS OF
SECURITY ACQUISITION DATE PER UNIT DECEMBER 31, 1995
<S> <C> <C> <C>
---------------------------------------------------------------------------------------------------------
Pulsar Internacional SA de CV, 11.80%
Nts., 9/19/96 9/14/95 $100.00 $100.75
</TABLE>
Pursuant to guidelines adopted by the Board of
Trustees, certain unregistered securities are
determined to be liquid and are not included within
the 10% limitation specified above.
21 Oppenheimer Bond Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
================================================================
================
7. ACQUISITION OF STRATEGIC INVESTMENT GRADE AND QUEST INVESTMENT QUALITY
INCOME FUND
On September 22, 1995, the Fund acquired all the net assets of Oppenheimer
Strategic Investment Grade Bond Fund, pursuant to an Agreement and Plan of
Reorganization approved by the Oppenheimer Strategic Investment Grade Bond Fund
shareholders on September 20, 1995. The Fund issued 2,101,654 and 1,474,533
shares of beneficial interest for Class A and Class B, respectively, valued at
$22,529,733 and $15,806,991 in exchange for the net assets, resulting in
combined Class A net assets of $125,283,258 and Class B net assets of
$24,206,043 on September 22, 1995. The net assets acquired included net
unrealized appreciation of $772,151. The exchange qualifies as a tax-free
reorganization for federal income tax purposes.
On November 24, 1995, the Fund acquired all the net assets of Quest Investment
Quality Income Fund, pursuant to an Agreement and Plan of Reorganization
approved by the Quest Investment Quality Income Fund shareholders on November
16, 1995. The Fund issued 3,900,357, 1,236,995 and 362,821 shares of beneficial
interest for Class A, Class B and Class C, respectively, valued at $42,201,864,
$13,384,283 and $3,929,348 in exchange for the net assets, resulting in combined
Class A net assets of $168,776,907, Class B net assets of $38,281,909 and Class
C net assets of $4,265,500 on November 24, 1995. The net assets acquired
included net unrealized appreciation of $2,983,610. The exchange qualifies as a
tax-free reorganization for federal income tax purposes.
================================================================
================
8. FUTURES CONTRACTS
The Fund may buy and sell futures contracts in order to gain exposure to or
protect against changes in interest rates. The Fund may also buy or write put or
call options on these futures contracts.
The Fund generally sells futures contracts to hedge against increases in
interest rates and the resulting negative effect on the value of fixed rate
portfolio securities. The Fund may also purchase futures contracts to gain
exposure to changes in interest rates as it may be more efficient or cost
effective than actually buying fixed income securities. The Fund will segregate
assets to cover its commitments under futures contracts.
Upon entering into a futures contract, the Fund is required to deposit either
cash or securities in an amount (initial margin) equal to a certain percentage
of the contract value. Subsequent payments (variation margin) are made or
received by the Fund each day. The variation margin payments are equal to the
daily changes in the contract value and are recorded as unrealized gains and
losses. The Fund recognizes a realized gain or loss when the contract is closed
or expires.
Risks of entering into futures contracts (and related options) include the
possibility that there may be an illiquid market and that a change in the value
of the contract or option may not correlate with changes in the value of the
underlying securities.
<PAGE>
Appendix A: Description of Securities Ratings
Description of Standard & Poor's Corporation ("Standard & Poor's") and
Moody's Investors Service, Inc. ("Moody's") commercial paper, note and
bond ratings:
Commercial Paper Ratings
Standard & Poor's commercial paper ratings are graded into four
categories, ranging from "A" for the highest quality obligations to "D"
for the lowest. The "A-l" and "A-2" categories are described as follows:
"A" - Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are further
refined with the designations 1, 2, and 3 to indicate the relative degree
of safety.
"A-l" - This designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues
determined to possess overwhelming safety characteristics will be noted
with a plus (+) sign designation.
"A-2" - Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high as for
issues designated "A-l."
Moody's employs three designations, all judged to be investment grade, to
indicate the relative repayment ability of rated issuers. The two highest
designations are as follows:
Issuers (or supporting institutions) rated Prime-1 (or P-1) have a
superior ability for repayment of senior short-term debt obligations.
Prime-1 repayment ability will normally be evidenced by many of the
following characteristics:
- Leading market positions in well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structure with moderate reliance on
debt and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
- Well-established access to a range of financial markets and
assured sources of alternate liquidity.
Issuers (or supporting institutions) rated Prime-2 (or P-2) have a strong
ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to
a lesser degree. Earnings trends and coverage ratios, while sound, may be
more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
Standard & Poor's ratings for Municipal Notes due in three years or less
are:
SP-1: Very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming
safety characteristics will be given a plus (+)
designation.
SP-2: Satisfactory capacity to pay principal and interest.
Bond Ratings
Standard & Poor's describes its ratings for corporate bonds as follows:
AAA: Debt rated "AAA" has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely
strong.
AA: Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differ from the higher rated issues only in a small
degree.
A: Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
BBB: Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this category than for
bonds rated "A."
BB, B, CCC, CC:
Bonds rated "BB," "B," "CCC" and "CC" are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with the terms of the
obligation. "BB" indicates the lowest degree of speculation and "CC"
the highest degree. While such bonds will likely have some quality
and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
C, D:
Bonds on which no interest is being paid are rated "C." Bonds rated
"D" are in default and payment of interest and/or repayment of
principal is in arrears.
The ratings from AA to CCC may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
Moody's describes its corporate bond ratings as follows:
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in
Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes
and may be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba: Bonds rated "Ba" are judged to have speculative elements; their
future cannot be considered well-assured. Often the protection of
interest and principal payments may be very moderate and not well
safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B: Bonds rated "B" generally lack characteristics of desirable
investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of
time may be small.
Caa: Bonds rated "Caa" are of poor standing and may be in default or there
may be present elements of danger with respect to principal or
interest.
Ca: Bonds rated "Ca" represent obligations which are speculative in a
high degree and are often in default or have other marked
shortcomings.
C: Bonds rated "C" can be regarded as having extremely poor prospects
of ever attaining any real investment standing.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the
higher end of its generic rating category; the modifier 2 indicates a mid-
range ranking; and the modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.
<PAGE>
Appendix B: Corporate 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
<PAGE>
Food
Gas Utilities
Gold
Health Care/Drugs
Health Care/Supplies & Services
Homebuilders/Real Estate
Hotel/Gaming
Industrial Services
Insurance
Leasing & Factoring
Leisure
Manufacturing
Metals/Mining
Nondurable Household Goods
Oil - Integrated
Paper
Publishing/Printing
Railroads
Restaurants
Savings & Loans
Shipping
Special Purpose Financial
Specialty Retailing
Steel
Supermarkets
Telecommunications - Technology
Telephone - Utility
Textile/Apparel
Tobacco
Toys
Trucking
<PAGE>
Investment Adviser
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048-0203
Distributor
OppenheimerFunds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer and Shareholder Servicing Agent
OppenheimerFunds 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
555 Seventeenth Street
Denver, Colorado 80202
Legal Counsel
Myer, Swanson, Adams & Wolf, P.C.
1600 Broadway
Denver, Colorado 80202-4918
<PAGE>
OPPENHEIMER BOND FUND
Annual Report December 31, 1995
[photo]
[logo] OppenheimerFunds-r-
<PAGE>
YIELD
STANDARDIZED YIELD
For the 30 Days Ended 12/31/95 (3)
Class A
6.14%
Class B
5.69%
Class C
5.70%
This Fund is for people who want solid INCOME.
HOW YOUR FUND IS MANAGED
Oppenheimer Bond Fund's portfolio is made up primarily of corporate bonds and
government securities.
Of these investments, corporate bonds often offer higher yields, but can come in
all different levels of quality. That's why your Fund's manager is careful to
allocate assets to seek high yields with less risk, thereby offering the
potential for high current income.
PERFORMANCE
Total return at net asset value for the 12 months ended 12/31/95
was 16.94% for Class A shares and 16.06% for Class B shares. (1)
Your Fund's average annual total returns at maximum offering price for Class A
shares for the 1- and 5- year periods ended 12/31/95 and since inception of the
Class on 4/15/88 were 11.38%, 8.33% and 8.05%, respectively. For Class B shares,
average annual total returns for the 1-year period ended 12/31/95 and since
inception of the Class on 5/1/93 were 11.06% and 4.40%, respectively. (2)
OUTLOOK
"Our outlook is good. We expect a continuation of the current soft landing
scenario -- a period of slow but steady growth with low inflation, which should
be a good environment for both stocks and bonds. In this type of a market, we
expect to see low interest rate volatility."
David Rosenberg and David Negri
Portfolio Managers
December 31, 1995
Total returns include change in share price and reinvestment of dividends and
capital gains distributions. Past performance does not guarantee future results.
Investment return and principal value of an investment in the Fund will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than the original cost. For more complete information, please review the
prospectus carefully before you invest.
1. Based on the change in net asset value per share for the period shown,
without deducting any sales changes. Such performance would have been lower if
sales charges were taken into account.
2. Class A returns show results of hypothetical investments on 12/31/94,
12/31/90 and 4/15/88 (since inception), after deducting the current maximum
initial sales charge of 4.75%. The Fund's maximum sales charge rate for Class A
shares was lower during a portion of some of the periods shown, and actual
investment results will be different as a result of the change. Class B returns
show results of hypothetical investments on 12/31/94 and 5/1/93 (inception of
class), and the deduction of the applicable contingent deferred sales charge of
5% (1-year) and 3% (since inception). Class C cumulative total return since
inception (7/11/95) was 2.76%. An explanation of the different performance
calculations is in the Fund's prospectus.
3. Standardized yield is net investment income calculated on a yield-to-maturity
basis for the 30-day period ended 12/31/95, divided by the maximum offering
price at the end of the period, compounded semiannually and then annualized.
Falling net asset values will tend to artificially raise yields.
2 Oppenheimer Bond Fund
<PAGE>
[photo]
James C. Swain
Chairman
Oppenheimer Bond Fund
[photo]
Bridget A. Macaskill
President
Oppenheimer Bond Fund
Dear OppenheimerFunds Shareholder,
The bond market amply rewarded patient investors in 1995.
One year ago, many fixed-income investors had negative returns, as a surging
economy pushed interest rates higher and bond prices lower. But a vigilant
Federal Reserve Board helped slow the economy down by early 1995, lowering the
fear of inflation. And by the summer, after a quarter in which GDP growth was
just 1.3%, the Fed began to lower short-term interest rates.
In the Fall, a balanced federal budget was on the front burner in Washington,
suggesting to foreign investors that the U.S. was finally addressing its debt
burden, which helped stabilize the U.S. dollar, making U.S. fixed-income
investments more attractive to international investors.
Throughout 1995, inflation and economic growth came in at less than 3%. As a
result, the yield on the benchmark 30-year U.S. Treasury bond fell to 6% from
nearly 8% the year before. And patient investors saw the value of their higher
paying bonds appreciate substantially. In 1995, while the stock market was up
35%, bonds rose as much as 20%, depending on the type of security.
Overall, the best performing sector of the bond market was the 30-year U.S.
Treasury bond. This is because when interest rates are falling, bonds with the
longest maturities appreciate the most in price. Another excellent performing
sector in 1995 was high quality corporate bonds. Although a slowing economy
often raises credit worries about Corporate America, the continuation of strong
corporate profits offset these concerns.
After having such a good year, where does the bond market go from here? Unlike
stocks, which have infinite upside potential, bonds have a constraint. For
bonds to do well, interest rates must remain steady or continue to fall. And
when interest rates are low already, there is only so far they can decline. But
if low inflation can be maintained and if a budget accord is reached, a positive
environment can continue to exist.
We believe that the general long-term trend for the U.S. economy is slow growth
and low inflation. Moving into 1996, we're looking for even slower growth than
we saw in 1995, which should be an excellent environment for bond investors.
Your portfolio manager discusses the outlook for your Fund in light of these
broad issues on the following pages.
Thank you for your confidence in OppenheimerFunds, and we look forward to
helping you reach your investment goals in the future.
/s/ James C. Swain
James C. Swain
/s/ Bridget A. Macaskill
Bridget A. Macaskill
January 22, 1996
3 Oppenheimer Bond Fund
<PAGE>
Q + A
[photo][photo]
Q What helped overall performance?
An interview with your Fund's managers.
HOW HAS THE FUND PERFORMED OVER THE PERIOD?
The Fund's total return has been very good. The combination of declining
interest rates and low inflation led to an exceptionally strong rally in the
bond market over the past year, which we've benefited from along with other bond
funds. Additionally, our new strategic investment approach during an already
strong market has also helped the overall performance of the Fund.
WHAT INVESTMENTS MADE A POSITIVE CONTRIBUTION TO PERFORMANCE?
This year's declines in interest rates led to a very strong rally in Treasuries.
So, especially in the first half, the Fund's holdings there paid off. Since
July, however, we've reduced our Treasury allocation to slowly rework our assets
toward our new diversification strategy of emphasizing investments in different
categories of U.S. government and corporate bonds. This new strategy allows us
to pursue good income-producing investments while being diversified to help
reduce risk.
Over the course of the year, the Fund's performance was also helped by our
corporate bond holdings, many of which reacted favorably to the successes of
their underlying companies.
WERE THERE ANY INVESTMENTS THAT DIDN'T PERFORM AS WELL AS EXPECTED?
The mortgage-backed sector, an area which we still believe has great long-term
potential, performed relatively poorly over the period. This was primarily due
to investors' fears that lower rates would mean an increase in mortgage
prepayments.
WHAT AREAS ARE YOU CURRENTLY TARGETING?
Our strategy over recent months has been to invest primarily in the U.S. to get
a broad base
[photo]
4 Oppenheimer Bond Fund
<PAGE>
FACING PAGE
Top left: David Negri, Portfolio Manager, with Mark Frank,
Member of Fixed Income Investments Team
Top right: David Rosenberg, Portfolio Manager
Bottom left: Len Darling, Executive VP, Director of Fixed Income
Investments
THIS PAGE
Top: David Negri and Mark Frank
Bottom: David Rosenberg with Leslie Falconio and Gina Palmieri,
Members of Fixed Income Investment Team
[photo]
A Our new strategic investment approach.
of the U.S. market. Thus, we've broadened our investment categories to include
new assets that can help us target the best opportunities in the market. Our aim
is to achieve the following goals -- to provide higher yield and higher total
return potential, to have more flexibility so we can take advantage of a broad
range of investment opportunities, and to decrease volatility by increasing
diversification across asset classes.
One of the areas we've added to is the corporate sector. With an expectation for
continued slower growth in the economy, we're underweighting utilities and
cyclicals such as mining and metals companies. We are currently in favor of
companies that can expect to experience earnings growth in excess of the growth
rate of the economy -- such as cable, telecommunications, broadcasting, and
media firms.
We've also added an allocation to non-agency mortgage-backed securities, which
are mortgage loans underwritten by banks rather than by the government.
Non-agency mortgages, though having a higher risk of issuer default, have an
advantage in that they tend to offer higher yields than government agency
mortgages. Because prepayment risk decreases when interest rates increase,
investors often favor mortgage-backed securities over other types of bonds in
increasing rate environments. Thus, adding to mortgage holdings helps to lower
interest rate risk and the overall volatility of the portfolio.
WHAT IS YOUR OUTLOOK FOR THE FUND?
Our outlook is good. We expect a continuation of the current soft landing
scenario -- a period of slow but steady economic growth with low inflation,
which should be a good environment for both stocks and bonds. In this type of a
market, we expect to see low interest rate volatility.
In terms of the Treasury market, where we've seen the best performance over the
past year, we believe most of the gains have already been experienced. With
expectations for limited further appreciation in Treasuries, our new
diversification strategy has come at a good time. As the coming year unfolds, we
expect our reconfigured portfolio to perform well in terms of both yield and
return.//
[photo]
5 Oppenheimer Bond Fund
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS December 31, 1995
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
<S> <C> <C> <C>
================================================================
================================================================
====
CERTIFICATES OF DEPOSIT - 0.1%
- ------------------------------------------------------------------------------------------------------------------------------------
Citibank CD, 13%, 5/6/96(2)CLP $ 49,956,445 $ 122,853
-----------------------------------------------------------------------------------------------------------------------------
Indonesia (Republic of) Bank Negara CD, Zero Coupon,
15.914%, 6/17/96(2)(3)IDR 500,000,000 201,253
-------------
Total Certificates of Deposit (Cost $337,372) 324,106
================================================================
================================================================
====
ASSET-BACKED SECURITIES - 2.2%
- ------------------------------------------------------------------------------------------------------------------------------------
AUTO LOAN - 2.2%
-----------------------------------------------------------------------------------------------------------------------------
Daimler-Benz Vehicle Trust, Series 1994-A, Cl. A, 5.95%,
12/15/00 440,645 441,373
-----------------------------------------------------------------------------------------------------------------------------
Ford Credit Grantor Trust, Series 1994-B, Cl. A, 7.30%,
10/15/99 959,109 977,390
-----------------------------------------------------------------------------------------------------------------------------
General Motors Acceptance Corp., Grantor Trust, Series
1992-E, Cl. A, 4.75%, 8/15/97 192,999 192,154
-----------------------------------------------------------------------------------------------------------------------------
Nissan Auto Receivables Grantor Trust, Series 1994-A,
Cl. A, 6.45%, 9/15/99 1,289,223 1,300,091
-----------------------------------------------------------------------------------------------------------------------------
World Omni Automobile Lease Securitization Trust,
Series 1994-A, Cl. A, 6.45%, 9/25/00 1,705,242 1,716,958
-------------
Total Asset-Backed Securities (Cost $4,581,131) 4,627,966
================================================================
================================================================
====
MORTGAGE-BACKED OBLIGATIONS - 29.6%
- ------------------------------------------------------------------------------------------------------------------------------------
GOVERNMENT AGENCY - 22.7%
- ------------------------------------------------------------------------------------------------------------------------------------
FHLMC/FNMA/SPONSORED - 12.7%
----------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.:
Certificates of Participation, 9%, 3/1/17 684,842 727,563
Certificates of Participation, Series 17-039, 13.50%,
11/1/10 75,372 89,209
Certificates of Participation, Series 17-094, 12.50%,
4/1/14 40,781 47,205
Collateralized Mtg. Obligation Gtd. Multiclass Certificates
of Participation, Series 1322, Cl. G, 7.50%, 2/15/07 2,000,000 2,088,740
Collateralized Mtg. Obligations, Series 1548, Cl. C, 7%,
4/15/21 4,000,000 4,022,480
Multiclass Gtd. Mtg. Participation Certificates, Series
1460, Cl. H, 7%, 5/15/07 1,500,000 1,554,375
----------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn.:
11%, 7/1/16 6,832,876 7,751,045
Gtd. Mtg. Pass-Through Certificates, 8%, 8/1/17 884,543 920,624
Gtd. Real Estate Mtg. Investment Conduit Pass-Through
Certificates, Series 1993-175, Cl. PL, 5%, 10/25/02 2,000,000 1,980,000
Gtd. Real Estate Mtg. Investment Conduit Pass-Through
Certificates, Series 1993-191, Cl. PD, 5.40%, 3/25/04 1,500,000 1,486,395
Interest-Only Stripped Mtg.-Backed Security, Trust 240, Cl.
2, 12.095%, 9/1/23(4) 23,117,327 6,330,174
-------------
26,997,810
- ------------------------------------------------------------------------------------------------------------------------------------
GNMA/GUARANTEED - 10.0%
----------------------------------------------------------------------------------------------------------------------------
Government National Mortgage Assn.:
6%, 1/15/26(5) 5,000,000 5,053,125
6%, 7/20/25 1,984,195 2,005,278
7%, 1/15/26(5) 5,000,000 5,059,400
10%, 11/15/09 328,943 361,015
10.50%, 12/15/17-7/15/19 418,560 468,527
12%, 1/15/99-5/15/14 66,291 70,409
12.75%, 6/15/15 43,595 50,461
8%, 6/15/05-7/15/25 7,202,212 7,527,961
9%, 2/15/09-6/15/09 567,867 608,463
-------------
21,204,639
</TABLE>
6 Oppenheimer Bond Fund
<PAGE>
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
PRIVATE - 6.9%
- ------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL - 3.4%
----------------------------------------------------------------------------------------------------------------------------
CMC Securities Corp. I, Collateralized Mtg. Obligation,
Series 1993-D, Cl. D-3, 10%, 7/25/23(6) $ 711,456 $ 765,482
----------------------------------------------------------------------------------------------------------------------------
DLJ Mortgage Acceptance Corp., Sub. Collateralized Mtg.
Obligations, Series X-Q13B, Cl. 3B1, 8.75%, 11/25/24 1,442,350 1,449,112
----------------------------------------------------------------------------------------------------------------------------
FDIC Trust, Gtd. Real Estate Mtg. Investment Conduit
Pass-Through Certificates, Series 1994-C1, Cl. 2-D,
8.70%, 9/25/25(6) 1,000,000 1,078,125
----------------------------------------------------------------------------------------------------------------------------
FDIC Trust, Gtd. Real Estate Mtg. Investment Conduit
Pass-Through Certificates, Series 1994-C1, Cl. 2-E,
8.70%, 9/25/25(6) 1,000,000 1,069,687
----------------------------------------------------------------------------------------------------------------------------
Resolution Trust Corp., Commercial Mtg. Pass-Through
Certificates, Series 1991-M6, Cl. B4, 7.477%, 6/25/21(7) 75,761 75,738
----------------------------------------------------------------------------------------------------------------------------
Resolution Trust Corp., Commercial Mtg. Pass-Through
Certificates, Series 1992-CHF, Cl. E, 8.25%, 12/25/20 2,004,994 1,967,401
----------------------------------------------------------------------------------------------------------------------------
Resolution Trust Corp., Commercial Mtg. Pass-Through
Certificates, Series 1993-C1, Cl. B, 8.75%, 5/25/24 700,000 729,312
-------------
7,134,857
- ------------------------------------------------------------------------------------------------------------------------------------
MULTI-FAMILY - 2.2%
----------------------------------------------------------------------------------------------------------------------------
Resolution Trust Corp., Commercial Mtg. Pass-Through
Certificates, Series 1991-M5, Cl. A, 9%, 3/25/17 733,176 776,251
----------------------------------------------------------------------------------------------------------------------------
Resolution Trust Corp., Commercial Mtg. Pass-Through
Certificates, Series 1994-C1, Cl. C, 8%, 6/25/26 1,500,000 1,603,594
----------------------------------------------------------------------------------------------------------------------------
Resolution Trust Corp., Commercial Mtg. Pass-Through
Certificates, Series 1995-C1, Cl. D, 6.90%, 2/25/27 2,500,000 2,387,500
-------------
4,767,345
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER - 0.9%
----------------------------------------------------------------------------------------------------------------------------
JHM Mtg. Acceptance Corp., 8.96% Collateralized Mtg.
Obligation Bonds, Series E, Cl. 5, 4/1/19 1,790,105 1,913,175
- ------------------------------------------------------------------------------------------------------------------------------------
RESIDENTIAL - 0.4%
----------------------------------------------------------------------------------------------------------------------------
Residential Funding Corp., Mtg. Pass-Through
Certificates, Series 1993-S10, Cl. A9, 8.50%, 2/25/23 774,963 800,150
-------------
Total Mortgage-Backed Obligations (Cost $62,473,955) 62,817,976
================================================================
================================================================
====
U.S. GOVERNMENT OBLIGATIONS - 20.4%
- ------------------------------------------------------------------------------------------------------------------------------------
TREASURY - 20.4%
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds:
11.625%, 11/15/02 5,000,000 6,743,750
8.75%, 5/15/20 6,750,000 9,036,562
8.75%, 8/15/20 3,050,000 4,092,719
8.875%, 8/15/17 13,500,000 18,090,000
----------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Nts.:
8.75%, 8/15/00 550,000 625,109
8.875%, 11/15/97 4,335,000 4,615,418
-------------
Total U.S. Government Obligations (Cost $40,331,251) 43,203,558
</TABLE>
7 Oppenheimer Bond Fund
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF INVESTMENTS (Continued)
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
<S> <C> <C> <C>
================================================================
================================================================
====
FOREIGN GOVERNMENT OBLIGATIONS - 0.8%
- ------------------------------------------------------------------------------------------------------------------------------------
International Bank for Reconstruction and Development
Bonds, 12.50%, 7/25/97NZD $ 800,000 $ 556,998
----------------------------------------------------------------------------------------------------------------------------
New Zealand (Republic of) Bonds, 10%, 7/15/97NZD 390,000 262,030
----------------------------------------------------------------------------------------------------------------------------
Norwegian Government Bonds, 5.75%, 11/30/04NOK 540,000 81,686
----------------------------------------------------------------------------------------------------------------------------
Queensland Treasury Corp. Gtd. Nts., 8%, 8/14/01AUD 1,045,000 778,537
-------------
Total Foreign Government Obligations (Cost $1,565,840) 1,679,251
================================================================
================================================================
====
CORPORATE BONDS AND NOTES - 50.6%
- ------------------------------------------------------------------------------------------------------------------------------------
BASIC INDUSTRY - 4.3%
- ------------------------------------------------------------------------------------------------------------------------------------
CHEMICALS - 0.8%
----------------------------------------------------------------------------------------------------------------------------
Quantum Chemical Corp., 10.375% First Mtg. Nts., 6/1/03 900,000 1,024,144
----------------------------------------------------------------------------------------------------------------------------
Rohm & Haas Co., 9.50% Debs., 4/1/21 500,000 602,239
-------------
1,626,383
- ------------------------------------------------------------------------------------------------------------------------------------
METALS/MINING - 1.8%
----------------------------------------------------------------------------------------------------------------------------
AMAX, Inc., 9.875% Nts., 6/13/01 1,000,000 1,138,882
----------------------------------------------------------------------------------------------------------------------------
Newmont Mining Corp., 8.625% Nts., 4/1/02 1,000,000 1,107,358
----------------------------------------------------------------------------------------------------------------------------
Teck Corp., 8.70% Debs., 5/1/02 1,500,000 1,663,795
-------------
3,910,035
- ------------------------------------------------------------------------------------------------------------------------------------
PAPER - 1.7%
----------------------------------------------------------------------------------------------------------------------------
Crown Paper Co., 11% Sr. Sub. Nts., 9/1/05 750,000 660,000
----------------------------------------------------------------------------------------------------------------------------
Georgia-Pacific Corp., 9.95% Debs., 6/15/02 1,500,000 1,784,147
----------------------------------------------------------------------------------------------------------------------------
Repap Wisconsin, Inc., 9.25% First Priority Sr. Sec. Nts.,
2/1/02 500,000 477,500
----------------------------------------------------------------------------------------------------------------------------
Scotia Pacific Holding Co., 7.95% Timber Collateralized
Nts., 7/20/15 454,847 462,280
----------------------------------------------------------------------------------------------------------------------------
Union Camp Corp., 10% Debs., 5/1/19 100,000 116,911
-------------
3,500,838
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER RELATED - 6.2%
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER PRODUCTS - 0.7%
----------------------------------------------------------------------------------------------------------------------------
Tag-Heuer International SA, 12% Sr. Sub. Nts., 12/15/05(6) 550,000 552,063
----------------------------------------------------------------------------------------------------------------------------
Toro Co. (The), 11% Debs., 8/1/17 1,000,000 1,067,115
-------------
1,619,178
- ------------------------------------------------------------------------------------------------------------------------------------
FOOD/BEVERAGES/TOBACCO - 1.8%
----------------------------------------------------------------------------------------------------------------------------
American Brands, Inc., 7.875% Debs., 1/15/23 2,000,000 2,253,562
----------------------------------------------------------------------------------------------------------------------------
ConAgra, Inc., 7.40% Sub. Nts., 9/15/04 250,000 264,433
----------------------------------------------------------------------------------------------------------------------------
Dr. Pepper/Seven-Up Cos., Inc., 0%/11.50% Sr. Sub.
Disc. Nts., 11/1/02(8) 500,000 471,250
----------------------------------------------------------------------------------------------------------------------------
Pulsar Internacional SA de CV, 11.80% Nts., 9/19/96(9) 750,000 755,625
-------------
3,744,870
- ------------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE - 2.5%
----------------------------------------------------------------------------------------------------------------------------
Grace (W.R.) & Co., 7.25% Medium-Term Nts., 7/15/97 2,000,000 2,040,198
----------------------------------------------------------------------------------------------------------------------------
HEALTHSOUTH Corp., 9.50% Sr. Sub. Nts., 4/1/01 500,000 536,250
----------------------------------------------------------------------------------------------------------------------------
Imcera Group, Inc., 6% Nts., 10/15/03 500,000 494,950
----------------------------------------------------------------------------------------------------------------------------
R.P. Scherer Corp., 6.75% Sr. Nts., 2/1/04 500,000 475,812
----------------------------------------------------------------------------------------------------------------------------
Service Corp. International, 7% Sr. Nts., 6/1/15 1,000,000 1,073,020
----------------------------------------------------------------------------------------------------------------------------
Total Renal Care, Inc., 0%/12% Sr. Sub. Disc. Nts.,
8/15/04(8) 649,000 626,285
-------------
5,246,515
</TABLE>
8 Oppenheimer Bond Fund
<PAGE>
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
HOTEL/GAMING - 0.6%
----------------------------------------------------------------------------------------------------------------------------
Grand Casinos, Inc., 10.125% Gtd. First Mtg. Nts., 12/1/03 $ 750,000 $ 785,625
----------------------------------------------------------------------------------------------------------------------------
HMC Acquisition Properties, Inc., 9% Sr. Nts., 12/15/07(6) 500,000 502,500
-------------
1,288,125
- ------------------------------------------------------------------------------------------------------------------------------------
RESTAURANTS - 0.4%
----------------------------------------------------------------------------------------------------------------------------
Foodmaker, Inc., 9.25% Sr. Nts., 3/1/99 835,000 803,688
- ------------------------------------------------------------------------------------------------------------------------------------
TEXTILE/APPAREL - 0.2%
----------------------------------------------------------------------------------------------------------------------------
Fruit of the Loom, Inc., 7% Debs., 3/15/11 500,000 505,204
- ------------------------------------------------------------------------------------------------------------------------------------
ENERGY - 4.4%
- ------------------------------------------------------------------------------------------------------------------------------------
Coastal Corp., 11.75% Sr. Debs., 6/15/06 500,000 531,653
----------------------------------------------------------------------------------------------------------------------------
Enron Corp., 8.10% Nts., 12/15/96 1,500,000 1,536,089
----------------------------------------------------------------------------------------------------------------------------
McDermott, Inc., 9.375% Nts., 3/15/02 100,000 113,618
----------------------------------------------------------------------------------------------------------------------------
Occidental Petroleum Corp., 11.125% Sr. Debs., 6/1/19 3,000,000 3,584,202
----------------------------------------------------------------------------------------------------------------------------
Southwest Gas Corp., 9.75% Debs., Series F, 6/15/02 275,000 321,762
----------------------------------------------------------------------------------------------------------------------------
Tenneco, Inc., 10% Debs., 3/15/08 100,000 124,414
----------------------------------------------------------------------------------------------------------------------------
Tenneco, Inc., 7.875% Nts., 10/1/02 250,000 272,987
----------------------------------------------------------------------------------------------------------------------------
TransCanada PipeLines Ltd., 9.875% Debs., 1/1/21 1,500,000 2,061,675
----------------------------------------------------------------------------------------------------------------------------
United Meridian Corp., 10.375% Gtd. Sr. Sub. Nts.,
10/15/05 500,000 531,250
----------------------------------------------------------------------------------------------------------------------------
Vintage Petroleum, Inc., 9% Sr. Sub. Nts., 12/15/05 150,000 151,875
-------------
9,229,525
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES - 12.6%
- ------------------------------------------------------------------------------------------------------------------------------------
BANKS & THRIFTS - 1.7%
----------------------------------------------------------------------------------------------------------------------------
Banco Ganadero SA, Zero Coupon Sr. Unsub. Unsec.
Nts., 9.931%, 6/15/96(3)(6) 250,000 239,520
----------------------------------------------------------------------------------------------------------------------------
BankAmerica Corp., 7.50% Sr. Nts., 3/15/97 200,000 204,724
----------------------------------------------------------------------------------------------------------------------------
Chemical New York Corp., 9.75% Sub. Capital Nts.,
6/15/99 300,000 337,112
----------------------------------------------------------------------------------------------------------------------------
First Chicago Corp., 9% Sub. Nts., 6/15/99 100,000 110,118
----------------------------------------------------------------------------------------------------------------------------
First Chicago NBD Bancorp, 7.25% Sub. Debs., 8/15/04 250,000 267,041
----------------------------------------------------------------------------------------------------------------------------
National Westminster Bank PLC, 9.375% Gtd. Capital
Nts., 11/15/03 70,000 83,913
----------------------------------------------------------------------------------------------------------------------------
Royal Bank of Scotland Group (The) PLC, 10.125% Sub.
Gtd. Capital Nts., 3/1/04 500,000 621,195
----------------------------------------------------------------------------------------------------------------------------
Westpac Banking Corp., 9.125% Sub. Debs., 8/15/01 1,500,000 1,711,150
-------------
3,574,773
</TABLE>
9 Oppenheimer Bond Fund
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF INVESTMENTS (Continued)
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL - 7.3%
----------------------------------------------------------------------------------------------------------------------------
American Car Line Co., 8.25% Equipment Trust
Certificates, Series 1993-A, 4/15/08 $ 246,000 $ 258,608
----------------------------------------------------------------------------------------------------------------------------
Beneficial Corp., 12.875% Debs., 8/1/13 20,000 24,313
----------------------------------------------------------------------------------------------------------------------------
BHP Finance (USA) Ltd., 8.50% Gtd. Debs., 12/1/12 1,500,000 1,780,785
----------------------------------------------------------------------------------------------------------------------------
Enterprise Rent-A-Car USA Finance Co., 7.875% Nts.,
3/15/98(6) 1,500,000 1,554,709
----------------------------------------------------------------------------------------------------------------------------
Ford Motor Credit Co., 9.90% Medium-Term Nts., 11/6/97 2,000,000 2,080,364
----------------------------------------------------------------------------------------------------------------------------
GPA Holland BV, 9.75% Medium-Term Nts., Series B,
6/10/96(6) 500,000 500,000
----------------------------------------------------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc., 8.375% Nts., 2/15/99 300,000 318,942
----------------------------------------------------------------------------------------------------------------------------
Leucadia National Corp., 7.75% Sr. Nts., 8/15/13 2,000,000 2,082,104
----------------------------------------------------------------------------------------------------------------------------
Midland American Capital Corp., 12.75% Gtd. Nts.,
11/15/03 205,000 241,118
----------------------------------------------------------------------------------------------------------------------------
NationsBank Corp., 10.20% Sub. Nts., 7/15/15 1,300,000 1,759,866
----------------------------------------------------------------------------------------------------------------------------
PaineWebber Group, Inc., 7% Sr. Nts., 3/1/00 160,000 163,909
----------------------------------------------------------------------------------------------------------------------------
Penske Truck Leasing Co. LP, 7.75% Sr. Nts., 5/15/99 1,500,000 1,583,350
----------------------------------------------------------------------------------------------------------------------------
Ryder System, Inc., 8.75% Debs., Series J, 3/15/17 1,600,000 1,703,704
----------------------------------------------------------------------------------------------------------------------------
Source One Mortgage Services Corp., 9% Debs., 6/1/12 1,250,000 1,485,481
-------------
15,537,253
- ------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 3.6%
----------------------------------------------------------------------------------------------------------------------------
Aetna Life & Casualty Co., 8% Debs., 1/15/17 1,000,000 1,060,133
----------------------------------------------------------------------------------------------------------------------------
Capital Holding Corp., 8.75% Debs., 1/15/17 1,200,000 1,272,654
----------------------------------------------------------------------------------------------------------------------------
CNA Financial Corp., 7.25% Debs., 11/15/23 2,000,000 1,990,074
----------------------------------------------------------------------------------------------------------------------------
Torchmark Corp., 7.875% Nts., 5/15/23 3,000,000 3,243,750
-------------
7,566,611
- ------------------------------------------------------------------------------------------------------------------------------------
HOUSING RELATED - 0.5%
- ------------------------------------------------------------------------------------------------------------------------------------
HOMEBUILDERS/REAL ESTATE - 0.5%
----------------------------------------------------------------------------------------------------------------------------
Saul (B.F.) Real Estate Investment Trust, 11.625% Sr.
Sec. Nts., Series B, 4/1/02 1,125,000 1,153,125
- ------------------------------------------------------------------------------------------------------------------------------------
MANUFACTURING - 7.3%
- ------------------------------------------------------------------------------------------------------------------------------------
AEROSPACE/ELECTRONICS/COMPUTERS - 3.2%
----------------------------------------------------------------------------------------------------------------------------
Boeing Co., 7.50% Debs., 8/15/42 2,000,000 2,320,236
----------------------------------------------------------------------------------------------------------------------------
General Electric Capital Corp., 8.75% Debs., 5/21/07 1,000,000 1,216,910
----------------------------------------------------------------------------------------------------------------------------
McDonnell Douglas Corp., 9.25% Nts., 4/1/02 1,500,000 1,738,060
----------------------------------------------------------------------------------------------------------------------------
Rolls-Royce Capital, Inc., 7.125% Gtd. Unsec. Unsub.
Nts., 7/29/03 1,000,000 1,046,250
----------------------------------------------------------------------------------------------------------------------------
Tracor, Inc., 10.875% Sr. Sub. Nts., 8/15/01 500,000 516,250
-------------
6,837,706
- ------------------------------------------------------------------------------------------------------------------------------------
AUTOMOTIVE - 2.1%
----------------------------------------------------------------------------------------------------------------------------
Chrysler Corp., 10.40% Nts., 8/1/99 1,000,000 1,069,464
----------------------------------------------------------------------------------------------------------------------------
Chrysler Corp., 10.95% Debs., 8/1/17 200,000 224,527
----------------------------------------------------------------------------------------------------------------------------
Foamex LP/Foamex Capital Corp., 11.25% Sr. Nts.,
10/1/02 500,000 482,500
----------------------------------------------------------------------------------------------------------------------------
Ford Motor Co., 8.875% Debs., 11/15/22 2,000,000 2,312,126
----------------------------------------------------------------------------------------------------------------------------
General Motors Acceptance Corp., 5.50% Nts., 12/15/01 100,000 96,549
----------------------------------------------------------------------------------------------------------------------------
General Motors Acceptance Corp., 7.75% Nts., 4/15/97 300,000 305,708
-------------
4,490,874
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL GOODS - 2.0%
----------------------------------------------------------------------------------------------------------------------------
Caterpillar, Inc., 9.75% Debs., 6/1/19 1,750,000 2,035,827
----------------------------------------------------------------------------------------------------------------------------
Thomas & Betts Corp., 8.25% Sr. Nts., 1/15/04 1,000,000 1,125,063
----------------------------------------------------------------------------------------------------------------------------
Westinghouse Electric Corp., 8.375% Nts., 6/15/02 1,000,000 1,022,800
-------------
4,183,690
</TABLE>
10 Oppenheimer Bond Fund
<PAGE>
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
MEDIA - 4.9%
- ------------------------------------------------------------------------------------------------------------------------------------
BROADCASTING - 0.6%
----------------------------------------------------------------------------------------------------------------------------
Paxson Communications Corp., 11.625% Sr. Sub. Nts.,
10/1/02(6) $ 750,000 $ 757,500
----------------------------------------------------------------------------------------------------------------------------
United International Holdings, Inc., Zero Coupon Sr. Sec.
Disc. Nts., 12.982%, 11/15/99(3) 750,000 468,750
-------------
1,226,250
- ------------------------------------------------------------------------------------------------------------------------------------
CABLE TELEVISION - 1.9%
----------------------------------------------------------------------------------------------------------------------------
Rogers Cablesystems Ltd., 10% Sr. Sec. Second Priority
Debs., 12/1/07 1,000,000 1,067,500
----------------------------------------------------------------------------------------------------------------------------
Tele-Communications, Inc., 5.28% Medium-Term Nts.,
8/20/96 1,000,000 996,207
----------------------------------------------------------------------------------------------------------------------------
TeleWest PLC, 0%/11% Sr. Disc. Debs., 10/1/07(8) 1,280,000 776,000
----------------------------------------------------------------------------------------------------------------------------
TKR Cable I, Inc., 10.50% Sr. Debs., 10/30/07 1,000,000 1,176,779
-------------
4,016,486
- ------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED MEDIA - 1.7%
----------------------------------------------------------------------------------------------------------------------------
Time Warner, Inc., 9.15% Debs., 2/1/23 3,100,000 3,534,961
- ------------------------------------------------------------------------------------------------------------------------------------
PUBLISHING/PRINTING - 0.7%
----------------------------------------------------------------------------------------------------------------------------
Valassis Communications, Inc., 9.55% Sr. Nts., 12/1/03 1,500,000 1,543,258
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER - 0.3%
- ------------------------------------------------------------------------------------------------------------------------------------
CONGLOMERATES - 0.3%
----------------------------------------------------------------------------------------------------------------------------
Textron, Inc., 9.55% Medium-Term Nts., 3/19/01 500,000 579,296
- ------------------------------------------------------------------------------------------------------------------------------------
RETAIL - 1.2%
- ------------------------------------------------------------------------------------------------------------------------------------
DEPARTMENT STORES - 0.2%
----------------------------------------------------------------------------------------------------------------------------
Sears Canada Inc., 11.70% Debs., 7/10/00CAD 500,000 426,186
- ------------------------------------------------------------------------------------------------------------------------------------
DRUG STORES - 0.2%
----------------------------------------------------------------------------------------------------------------------------
Hook-SupeRx, Inc., 10.125% Sr. Nts., 6/1/02 400,000 438,128
- ------------------------------------------------------------------------------------------------------------------------------------
SPECIALTY RETAILING - 0.4%
----------------------------------------------------------------------------------------------------------------------------
May Department Stores Cos., 10.625% Debs., 11/1/10 405,000 564,550
----------------------------------------------------------------------------------------------------------------------------
May Department Stores Cos., 9.875% Debs., 6/1/17 250,000 265,491
-------------
830,041
- ------------------------------------------------------------------------------------------------------------------------------------
SUPERMARKETS - 0.4%
----------------------------------------------------------------------------------------------------------------------------
Grand Union Co., 12% Sr. Nts., 9/1/04 500,000 435,000
----------------------------------------------------------------------------------------------------------------------------
Penn Traffic Co., 10.25% Sr. Nts., 2/15/02 500,000 478,750
-------------
913,750
- ------------------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION - 2.0%
- ------------------------------------------------------------------------------------------------------------------------------------
AIR TRANSPORTATION - 1.3%
----------------------------------------------------------------------------------------------------------------------------
American Airlines, Inc., 9.73% Pass-Through Certificates,
Series 1991-C2, 9/29/14 1,000,000 1,118,750
----------------------------------------------------------------------------------------------------------------------------
Atlas Air, Inc., 12.25% Pass-Through Certificates, 12/1/02 1,000,000 1,025,000
----------------------------------------------------------------------------------------------------------------------------
Delta Air Lines, Inc., 10.375% Debs., 2/1/11 550,000 707,854
-------------
2,851,604
- ------------------------------------------------------------------------------------------------------------------------------------
RAILROADS - 0.7%
----------------------------------------------------------------------------------------------------------------------------
Canadian Pacific Ltd., 9.45% Debs., 8/1/21 1,000,000 1,304,000
----------------------------------------------------------------------------------------------------------------------------
Union Pacific Corp., 9.65% Medium-Term Nts., 4/17/00 100,000 113,888
-------------
1,417,888
- ------------------------------------------------------------------------------------------------------------------------------------
UTILITIES - 6.9%
- ------------------------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES - 1.0%
----------------------------------------------------------------------------------------------------------------------------
Commonwealth Edison Co., 6.50% Nts., 7/15/97 225,000 226,315
----------------------------------------------------------------------------------------------------------------------------
Public Service Co. of Colorado, 8.75% First Mtg. Bonds,
3/1/22 250,000 284,110
----------------------------------------------------------------------------------------------------------------------------
Tenaga Nasional Berhad, 7.875% Nts., 6/15/04(6) 1,000,000 1,106,039
----------------------------------------------------------------------------------------------------------------------------
Union Gas Ltd., 13% Debs., 6/30/03CAD 572,000 474,450
-------------
2,090,914
</TABLE>
11 Oppenheimer Bond Fund
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF INVESTMENTS (Continued)
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS - 5.9%
----------------------------------------------------------------------------------------------------------------------------
A+ Network, Inc., 11.875% Sr. Sub. Nts., 11/1/05 $ 1,000,000 $ 1,012,500
----------------------------------------------------------------------------------------------------------------------------
Cellular Communications International, Inc., Zero Coupon
Sr. Disc. Nts., 11.44%, 8/15/00(3) 500,000 301,250
----------------------------------------------------------------------------------------------------------------------------
GST Telecommunications, Inc., Units (each unit consists
of eight 0%/13.875% sr. disc. nts., 12/15/05 and one
0%/13.875% cv. sr. sub. disc. nt., 12/15/05)(6)(8)(10) 900,000 470,000
----------------------------------------------------------------------------------------------------------------------------
Horizon Cellular Telephone LP/Horizon Finance Corp.,
0%/11.375% Sr. Sub. Disc. Nts., 10/1/00(8) 1,250,000 1,068,750
----------------------------------------------------------------------------------------------------------------------------
IntelCom Group (USA), Inc., 0%/13.50% Sr. Disc. Nts.,
9/15/05(6)(8) 600,000 346,500
----------------------------------------------------------------------------------------------------------------------------
New York Telephone Co., 9.375% Debs., 7/15/31 2,500,000 2,976,547
----------------------------------------------------------------------------------------------------------------------------
Nextel Communications, Inc., 0%/11.50% Sr. Disc. Nts.,
9/1/03(8) 1,000,000 618,750
----------------------------------------------------------------------------------------------------------------------------
Pacific Bell, 8.50% Debs., 8/15/31 2,000,000 2,234,214
----------------------------------------------------------------------------------------------------------------------------
PriCellular Wireless Corp., 0%/14% Sr. Sub. Disc. Nts.,
11/15/01(8) 1,000,000 880,000
----------------------------------------------------------------------------------------------------------------------------
Southern New England Telephone Co., 8.70% Medium-
Term Nts., 8/15/31 2,000,000 2,203,806
----------------------------------------------------------------------------------------------------------------------------
USA Mobile Communications, Inc. II, 9.50% Sr. Nts.,
2/1/04 500,000 497,500
-------------
12,609,817
-------------
Total Corporate Bonds and Notes (Cost $100,700,984) 107,296,972
UNITS
================================================================
================================================================
====
RIGHTS, WARRANTS AND CERTIFICATES - 0.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Cellular Communications International, Inc. Wts.,
Exp. 8/03 500 11,250
----------------------------------------------------------------------------------------------------------------------------
IntelCom Group, Inc. Wts., Exp. 9/05(6) 1,980 7,920
-------------
Total Rights, Warrants and Certificates (Cost $0) 19,170
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $209,990,533) 103.7% 219,968,999
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES IN EXCESS OF OTHER ASSETS (3.7) (7,751,705)
--------------- -------------
NET ASSETS 100.0% $212,217,294
===============
=============
<FN>
1. Face amount is reported in U.S. Dollars, except for those denoted
in the following currencies:
AUD - Australian Dollar IDR - Indonesian Rupiah
CAD - Canadian Dollar NOK - Norwegian Krone
CLP - Chilean Peso NZD - New Zealand Dollar
2. Indexed instrument for which the principal amount and/or interest due
at maturity is affected by the relative value of a foreign currency.
3. For zero coupon bonds, the interest rate shown is the effective
yield on the date of purchase.
4. Interest-Only Strips represent the right to receive the monthly
interest payments on an underlying pool of mortgage loans. These
securities typically decline in price as interest rates decline. Most
other fixed-income securities increase in price when interest rates
decline. The principal amount of the underlying pool represents the
notional amount on which current interest is calculated. The price of
these securities is typically more sensitive to changes in prepayment
rates than traditional mortgage-backed securities (for example, GNMA
pass-throughs). Interest rates disclosed represent current yields based
upon the current cost basis and estimated timing and amount of future
cash flows.
5. When-issued security to be delivered and settled after December 31,
1995.
6. Represents a security sold under Rule 144A, which is exempt from
registration under the Securities Act of 1933, as amended. This security
has been determined to be liquid under guidelines established by the
Board of Trustees. These securities amount to $8,950,045 or 4.22% of the
Fund's net assets, at December 31, 1995.
7. Represents the current interest rate for a variable rate security.
8. Denotes a step bond: a zero coupon bond that converts to a fixed
rate of interest at a designated future date.
9. Identifies issues considered to be illiquid - See Note 6 of Notes
to Financial Statements.
10. Units may be comprised of several components, such as debt and equity
and/or warrants to purchase equity at some point in the future. For units
which represent debt securities, face amount disclosed represents total
underlying principal.
See accompanying Notes to Financial Statements.
</FN>
</TABLE>
12 Oppenheimer Bond Fund
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES December 31, 1995
<S> <C> <C>
================================================================
==================================================================
ASSETS Investments, at value (cost $209,990,533) - see accompanying statement $219,968,999
--------------------------------------------------------------------------------------------------------
Receivables:
Interest and principal paydowns 3,449,576
Shares of beneficial interest sold 502,558
Receivable from OppenheimerFunds, Inc. 20,522
--------------------------------------------------------------------------------------------------------
Other 25,430
------------
Total assets 223,967,085
================================================================
==================================================================
LIABILITIES Bank overdraft 306,908
--------------------------------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased 10,088,020
Dividends 610,049
Shares of beneficial interest redeemed 545,312
Distribution and service plan fees 110,630
Transfer and shareholder servicing agent fees 9,767
Other 79,105
-------------
Total liabilities 11,749,791
================================================================
==================================================================
NET ASSETS $212,217,294
-------------
-------------
================================================================
==================================================================
COMPOSITION OF Paid-in capital $206,251,590
NET ASSETS --------------------------------------------------------------------------------------------------------
Undistributed net investment income 116,937
--------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and
foreign currency transactions (4,129,345)
--------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments and translation of
assets and liabilities denominated in foreign currencies 9,978,112
-------------
Net assets $212,217,294
-------------
-------------
================================================================
==================================================================
NET ASSET VALUE Class A Shares:
PER SHARE Net asset value and redemption price per share (based on net assets
of $169,059,333 and 15,399,839 shares of beneficial interest outstanding) $10.98
Maximum offering price per share (net asset value plus sales charge
of 4.75% of offering price) $11.53
--------------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price and offering price per share (based on
net assets of $39,187,315 and 3,570,470 shares of beneficial interest outstanding) $10.98
--------------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price and offering price per share (based on
net assets of $3,970,646 and 361,451 shares of beneficial interest outstanding) $10.99
See accompanying Notes to Financial Statements.
</TABLE>
13 Oppenheimer Bond Fund
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS For the Year Ended December 31, 1995
<S> <C> <C>
================================================================
==================================================================
INVESTMENT INCOME Interest (net of foreign withholding taxes of $13,483) $10,089,605
================================================================
==================================================================
EXPENSES Management fees - Note 4 820,507
--------------------------------------------------------------------------------------------------------
Distribution and service plan fees - Note 4:
Class A 287,716
Class B 127,308
Class C 4,560
--------------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees - Note 4 247,878
--------------------------------------------------------------------------------------------------------
Shareholder reports 147,863
--------------------------------------------------------------------------------------------------------
Legal and auditing fees 38,082
--------------------------------------------------------------------------------------------------------
Registration and filing fees:
Class A 22,344
Class B 10,705
Class C 1,358
--------------------------------------------------------------------------------------------------------
Custodian fees and expenses 32,880
--------------------------------------------------------------------------------------------------------
Trustees' fees and expenses 872
--------------------------------------------------------------------------------------------------------
Other 21,787
------------
Total expenses 1,763,860
------------
Less reimbursement of expenses by OppenheimerFunds, Inc. - Note 4 (20,522)
------------
Net expenses 1,743,338
================================================================
==================================================================
NET INVESTMENT INCOME 8,346,267
================================================================
==================================================================
REALIZED AND Net realized gain (loss) on:
UNREALIZED GAIN (LOSS) Investments 566,180
Closing of futures contracts - Note 8 (931,937)
Foreign currency transactions 64,980
------------
Net realized loss (300,777)
--------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on:
Investments 12,202,101
Translation of assets and liabilities denominated in foreign currencies (136,201)
------------
Net change 12,065,900
------------
Net realized and unrealized gain 11,765,123
================================================================
==================================================================
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $20,111,390
------------
------------
See accompanying Notes to Financial Statements.
</TABLE>
14 Oppenheimer Bond Fund
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31,
1995 1994
<S> <C> <C> <C>
================================================================
==================================================================
OPERATIONS Net investment income $ 8,346,267 $ 6,537,608
--------------------------------------------------------------------------------------------------------
Net realized loss (300,777) (2,274,518)
--------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation 12,065,900 (8,559,673)
----------------------------------
Net increase (decrease) in net assets resulting
from operations 20,111,390 (4,296,583)
================================================================
==================================================================
DIVIDENDS AND Dividends from net investment income:
DISTRIBUTIONS Class A (7,564,945) (6,381,575)
TO SHAREHOLDERS Class B (751,223) (156,032)
Class C (29,746) --
--------------------------------------------------------------------------------------------------------
Dividends in excess of net investment income:
Class A -- (298,880)
Class B -- (7,308)
================================================================
==================================================================
BENEFICIAL INTEREST Net increase (decrease) in net assets resulting from
TRANSACTIONS beneficial interest transactions - Note 2:
Class A 61,827,603 (3,255,547)
Class B 34,622,947 1,918,288
Class C 3,910,520 --
================================================================
==================================================================
NET ASSETS Total increase (decrease) 112,126,546 (12,477,637)
--------------------------------------------------------------------------------------------------------
Beginning of period 100,090,748 112,568,385
----------------------------------
End of period [including undistributed (overdistributed)
net investment income of $116,937 and
$(204,894), respectively] $212,217,294 $100,090,748
----------------------------------
----------------------------------
See accompanying Notes to Financial Statements.
</TABLE>
15 Oppenheimer Bond Fund
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- ---------------------------------------------------------------------------------------------------------------------
CLASS A
-----------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
1995 1994 1993 1992 1991(4)
<S> <C> <C> <C> <C> <C>
================================================================
=====================================================
PER SHARE OPERATING DATA:
Net asset value, beginning of period $10.01 $11.12 $10.74 $10.80 $9.86
- ---------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .69 .65 .69 .75 .82
Net realized and unrealized gain (loss) .96 (1.08) .40 (.05) .90
- ---------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment
operations 1.65 (.43) 1.09 .70 1.72
- ---------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.68) (.65) (.71) (.76) (.78)
Dividends in excess of net investment
income -- (.03) -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Total dividends and distributions
to shareholders (.68) (.68) (.71) (.76) (.78)
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.98 $10.01 $11.12 $10.74 $10.80
================================================================
=======
================================================================
=====================================================
TOTAL RETURN, AT NET ASSET VALUE (5) 16.94% (3.87)% 10.30% 6.77% 18.28%
================================================================
=====================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $169,059 $96,640 $110,759 $106,290 $90,623
- ---------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $116,940 $102,168 $111,702 $98,672 $86,471
- ---------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 6.47% 6.25% 6.20% 7.00% 8.02%
Expenses, before voluntary reimbursement
by the Manager 1.27% 1.06% 1.06% 1.10% 1.23%
Expenses, net of voluntary reimbursement
by the Manager 1.26% N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (7) 175.4% 70.3% 110.1% 116.4% 97.1%
<FN>
1. For the period from July 11, 1995 (inception of offering) to December 31,
1995.
2. For the period from May 1, 1993 (inception of offering) to December 31,
1993.
3. 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.
4. On March 28, 1991, OppenheimerFunds, Inc. became the investment advisor to
the Fund.
</FN>
</TABLE>
See accompanying Notes to Financial Statements.
16 Oppenheimer Bond Fund
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS A
--------------------------------------------------------------------------------------
ELEVEN
MONTHS
ENDED
DEC. 31, YEAR ENDED JANUARY 31,
1990 1989 1988(3) 1988(3) 1987(3) 1986(3)
<S> <C> <C> <C> <C> <C> <C>
================================================================
================================================================
====
PER SHARE OPERATING DATA:
Net asset value, beginning of period $10.29 $10.12 $10.55 $11.30 $11.16 $10.91
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .88 .92 .93 1.09 1.16 1.22
Net realized and unrealized gain (loss) (.43) .19 (.36) (.55) .22 .35
- ------------------------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment
operations .45 1.11 .57 .54 1.38 1.57
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.88) (.94) (1.00) (1.29) (1.24) (1.32)
Dividends in excess of net investment
income -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions
to shareholders (.88) (.94) (1.00) (1.29) (1.24) (1.32)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.86 $10.29 $10.12 $10.55 $11.30 $11.16
================================================================
========================
================================================================
================================================================
====
TOTAL RETURN, AT NET ASSET VALUE (5) 4.74% 11.31% 4.48% N/A N/A N/A
================================================================
================================================================
====
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $87,021 $96,380 $102,293 $118,568 $125,513 $121,979
- ------------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $90,065 $100,891 $111,264 $118,724 $123,045 $118,253
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 8.85% 8.85% 8.75% 10.28% 10.45% 11.26%
Expenses, before voluntary reimbursement
by the Manager 1.26% 1.14% 1.05% 0.98% 0.93% 0.97%
Expenses, net of voluntary reimbursement
1.24% N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (7) 80.4% 41.3% 45.0% 19.5% 59.8% 36.5%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- ---------------------------------------------------------------------------------------------------------
CLASS B CLASS C
------------------------------------ -------------
PERIOD ENDED
YEAR ENDED DECEMBER 31, DECEMBER 31,
1995 1994 1993(2) 1995(1)
<S> <C> <C> <C> <C>
================================================================
=========================================
PER SHARE OPERATING DATA:
Net asset value, beginning of period $10.01 $11.11 $11.10 $10.89
- ---------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .63 .58 .40 .28
Net realized and unrealized gain (loss) .94 (1.08) .03 .10
- ---------------------------------------------------------------------------------------------------------
Total income (loss) from investment
operations 1.57 (.50) .43 .38
- ---------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.60) (.57) (.42) (.28)
Dividends in excess of net investment
income -- (.03) -- --
- ---------------------------------------------------------------------------------------------------------
Total dividends and distributions
to shareholders (.60) (.60) (.42) (.28)
- ---------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.98 $10.01 $11.11 $10.99
=============================================================
================================================================
=========================================
TOTAL RETURN, AT NET ASSET VALUE (5) 16.06% (4.53)% 3.91% 3.76%
================================================================
=========================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $39,187 $3,451 $1,809 $3,971
- ---------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $12,823 $2,747 $922 $979
- ---------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 5.84% 5.53% 4.80%(6) 6.32%(6)
Expenses, before voluntary reimbursement
by the Manager 2.12% 1.78% 1.90%(6) 2.25%(6)
Expenses, net of voluntary reimbursement
by the Manager 2.08% N/A N/A 1.96%(6)
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover rate (7) 175.4% 70.3% 110.1% 175.4%
<FN>
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. Total returns are not annualized for
periods of less than one full year.
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 period
ended December 31, 1995 were $233,752,932 and $211,825,884, respectively.
</FN>
</TABLE>
17 Oppenheimer Bond Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS
================================================================
================
1. SIGNIFICANT ACCOUNTING POLICIES
Oppenheimer Bond Fund (the Fund), formerly named Oppenheimer Investment Grade
Bond 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 objective is to seek a high level
of current income by investing mainly in debt instruments. The Fund's investment
advisor is OppenheimerFunds, Inc. (the Manager). The Fund offers Class A , Class
B and Class C shares. Class A shares are sold with a front-end sales charge.
Class B and Class C shares may be subject to a contingent deferred sales charge.
All three classes of shares have identical rights to earnings, assets and voting
privileges, except that each class has its own distribution and/or service plan,
expenses directly attributable to a particular class and exclusive voting rights
with respect to matters affecting a single class. Class B shares will
automatically convert to Class A shares six years after the date of purchase.
The following is a summary of significant accounting policies consistently
followed by the Fund.
- --------------------------------------------------------------------------------
INVESTMENT VALUATION. Portfolio securities are valued at the close of the New
York Stock Exchange on each trading day. Listed and unlisted securities for
which such information is regularly reported are valued at the last sale price
of the day or, in the absence of sales, at values based on the closing bid or
asked price or the last sale price on the prior trading day. Long-term and
short-term "non-money market" debt securities are valued by a portfolio pricing
service approved by the Board of Trustees. Such securities which cannot be
valued by the approved portfolio pricing service are valued using
dealer-supplied valuations provided the Manager is satisfied that the firm
rendering the quotes is reliable and that the quotes reflect current market
value, or are valued under consistently applied procedures established by the
Board of Trustees to determine fair value in good faith. Short-term "money
market type" debt securities having a remaining maturity of 60 days or less are
valued at cost (or last determined market value) adjusted for amortization to
maturity of any premium or discount.
- --------------------------------------------------------------------------------
SECURITIES PURCHASED ON A WHEN-ISSUED BASIS. Delivery and payment for securities
that have been purchased by the Fund on a forward commitment or when-issued
basis can take place a month or more after the transaction date. During this
period, such securities do not earn interest, are subject to market fluctuation
and may increase or decrease in value prior to their delivery. The Fund
maintains, in a segregated account with its custodian, assets with a market
value equal to the amount of its purchase commitments. The purchase of
securities on a when-issued or forward commitment basis may increase the
volatility of the Fund's net asset value to the extent the Fund makes such
purchases while remaining substantially fully invested. As of December 31, 1995,
the Fund had entered into outstanding when-issued or forward commitments of
$10,088,020.
In connection with its ability to purchase securities on a when-issued or
forward commitment basis, the Fund may enter into mortgage "dollar-rolls" in
which the Fund sells securities for delivery in the current month and
simultaneously contracts with the same counterparty to repurchase similar (same
type coupon and maturity) but not identical securities on a specified future
date. The Fund records each dollar-roll as a sale and a new purchase
transaction.
- --------------------------------------------------------------------------------
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 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 or excise tax provision is required. At December 31, 1995, the
Fund had available for federal income tax purposes an unused capital loss
carryover of approximately $6,446,000, which expires between 1997 and 2003.
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS. The Fund intends to declare dividends separately
for Class A, Class B and Class C 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.
18 Oppenheimer Bond Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
================================================================
================
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY TRANSLATION. The accounting records of the Fund are maintained
in U.S. dollars. Prices of securities denominated in foreign currencies are
translated into U.S. dollars at the closing rates of exchange. Amounts related
to the purchase and sale of securities and investment income are translated at
the rates of exchange prevailing on the respective dates of such transactions.
The effect of changes in foreign currency exchange rates on investments is
separately identified from the fluctuations arising from changes in market
values of securities held and reported with all other foreign currency gains and
losses in the Fund's Statement of Operations.
- --------------------------------------------------------------------------------
CLASSIFICATION OF DISTRIBUTIONS TO SHAREHOLDERS. Net investment income (loss)
and net realized gain (loss) may differ for financial statement and tax purposes
primarily because of paydown gains and losses and the recognition of certain
foreign currency gains (losses) as ordinary income (loss) for tax purposes. The
character of the distributions made during the year from net investment income
or net realized gains may differ from their ultimate characterization for
federal income tax purposes. Also, due to timing of dividend distributions, the
fiscal year in which amounts are distributed may differ from the year that the
income or realized gain (loss) was recorded by the Fund.
During the year ended December 31, 1995, 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, during the year ended December 31, 1995,
amounts have been reclassified to reflect a decrease in paid-in capital of
$363,225, an increase in undistributed net investment income of $321,478, and a
decrease in accumulated net realized loss on investments of $41,747.
- --------------------------------------------------------------------------------
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.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates.
19 Oppenheimer Bond Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
================================================================
================
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:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995(1) YEAR ENDED DECEMBER 31, 1994
------------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------
Class A:
Sold 3,592,604 $ 37,958,201 1,071,379 $ 11,256,317
Dividends reinvested 401,453 4,283,086 323,100 3,353,309
Issued in connection with
the acquisition of:
Oppenheimer Strategic Investment
Grade Bond Fund - Note 7 2,101,654 22,529,733 -- --
Quest Investment Quality Income
Fund - Note 7 3,900,357 42,201,864 -- --
Redeemed (4,249,502) (45,145,281) (1,704,508) (17,865,173)
------------- ------------- ------------- -------------
Net increase (decrease) 5,746,566 $ 61,827,603 (310,029) $ (3,255,547)
============= =============
============= =============
---------------------------------------------------------------------------------------------------------
Class B:
Sold 1,038,290 $ 11,014,073 293,817 $ 3,089,618
Dividends reinvested 45,815 494,471 11,974 123,504
Issued in connection with
the acquisition of:
Oppenheimer Strategic Investment
Grade Bond Fund - Note 7 1,474,533 15,806,991 -- --
Quest Investment Quality Income
Fund - Note 7 1,236,995 13,384,283 -- --
Redeemed (569,823) (6,076,871) (123,969) (1,294,834)
------------- ------------- ------------- -------------
Net increase 3,225,810 $ 34,622,947 181,822 $ 1,918,288
============= =============
============= ============
---------------------------------------------------------------------------------------------------------
Class C:
Sold 47,725 $ 516,952 -- $ --
Dividends reinvested 1,625 17,809 -- --
Issued in connection with
the acquisition of
Quest Investment Quality
Income Fund - Note 7 362,821 3,929,348 -- --
Redeemed (50,720) (553,589) -- --
------------- ------------- ------------- ------------
Net increase 361,451 $ 3,910,520 -- $ --
============= =============
============= ============
</TABLE>
1. For the year ended December 31, 1995 for Class A
and Class B shares and for the period from July 11,
1995 (inception of offering) to December 31, 1995 for
Class C shares.
================================================================
================
3. UNREALIZED GAINS AND LOSSES ON INVESTMENTS
At December 31, 1995, net unrealized appreciation on investments of $9,978,466
was composed of gross appreciation of $11,552,223, and gross depreciation of
$1,573,757.
================================================================
================
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. At a meeting held on July 10, 1995,
shareholders of Oppenheimer Bond Fund approved a new investment advisory
agreement. Subsequent to July 10, management fees are as follows: .75% of the
first $200 million of the Fund's average annual net assets, .72% of the next
$200 million, .69% of the next $200 million, .66% of the next $200 million, .60%
of the next $200 million, and .50% of aggregate net assets over $1 billion.
Prior to July 10, 1995, management fees were as follows: .50% on the first $100
million of average annual 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 state regulatory limit on Fund expenses.
The Manager has agreed to reimburse the Fund for SEC fees incurred in connection
with the acquisition of Quest Investment Quality Income Fund.
For the year ended December 31, 1995, commissions (sales charges paid by
investors) on sales of Class A shares totaled $166,065, of which $59,442 was
retained by OppenheimerFunds Distributor, Inc. (OFDI), a subsidiary of the
Manager, as general distributor, and by an affiliated broker/dealer. Sales
charges advanced to broker/dealers by OFDI on sales of the Fund's Class B and
Class C shares totaled $167,546 and $5,007, of which $14,745 was paid to an
affiliated broker/dealer. During the year ended December 31, 1995, OFDI received
contingent deferred sales charges of $33,311 upon redemption of Class B shares
as reimbursement for sales commissions advanced by OFDI at the time of sale of
such shares.
20 Oppenheimer Bond Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
================================================================
================
4. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES (CONTINUED)
OppenheimerFunds Services (OFS), a division of the Manager, is the transfer and
shareholder servicing agent for the Fund, and for other registered investment
companies. OFS'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 compensate 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 and Class C shares are subject to an asset-based sales charge
of .75% of net assets annually, to compensate 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 or Class C 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 or Class C
shares sold prior to termination or discontinuance of the plan. At December 31,
1995, OFDI had incurred unreimbursed expenses of $1,004,267 for Class B and
$21,412 for Class C. During the year ended December 31, 1995, OFDI paid $142,856
and $2,033, respectively, to an affiliated broker/dealer as compensation for
Class A and Class B personal service and maintenance expenses, and retained
$106,790 and $1,848, respectively, as compensation for Class B and Class C sales
commissions and service fee advances, as well as financing costs.
================================================================
================
5. DEFERRED TRUSTEE COMPENSATION
A former trustee elected to defer receipt of fees earned. These deferred fees
earned interest at a rate determined by the current Board of Trustees at the
beginning of each calendar year, compounded each quarter-end. From January 1,
1995 through May 10, 1995, the Fund was incurring interest at a rate of 7.89%
per annum. The final payment was made on May 10, 1995.
================================================================
================
6. ILLIQUID AND RESTRICTED SECURITIES
At December 31, 1995, investments in securities included issues that are
illiquid or restricted. The securities are often purchased in private placement
transactions, are not registered under the Securities Act of 1933, may have
contractual restrictions on resale, and are valued under methods approved by the
Board of Trustees as reflecting fair value. The Fund intends to invest no more
than 10% of its net assets (determined at the time of purchase) in illiquid or
restricted securities. The aggregate value of these securities subject to this
limitation at December 31, 1995 was $755,625 which represents .36% of the Fund's
net assets. Information concerning these securities is as follows:
<TABLE>
<CAPTION>
VALUATION PER
COST UNIT AS OF
SECURITY ACQUISITION DATE PER UNIT DECEMBER 31, 1995
<S> <C> <C> <C>
---------------------------------------------------------------------------------------------------------
Pulsar Internacional SA de CV, 11.80%
Nts., 9/19/96 9/14/95 $100.00 $100.75
</TABLE>
Pursuant to guidelines adopted by the Board of
Trustees, certain unregistered securities are
determined to be liquid and are not included within
the 10% limitation specified above.
21 Oppenheimer Bond Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
================================================================
================
7. ACQUISITION OF STRATEGIC INVESTMENT GRADE AND QUEST INVESTMENT QUALITY
INCOME FUND
On September 22, 1995, the Fund acquired all the net assets of Oppenheimer
Strategic Investment Grade Bond Fund, pursuant to an Agreement and Plan of
Reorganization approved by the Oppenheimer Strategic Investment Grade Bond Fund
shareholders on September 20, 1995. The Fund issued 2,101,654 and 1,474,533
shares of beneficial interest for Class A and Class B, respectively, valued at
$22,529,733 and $15,806,991 in exchange for the net assets, resulting in
combined Class A net assets of $125,283,258 and Class B net assets of
$24,206,043 on September 22, 1995. The net assets acquired included net
unrealized appreciation of $772,151. The exchange qualifies as a tax-free
reorganization for federal income tax purposes.
On November 24, 1995, the Fund acquired all the net assets of Quest Investment
Quality Income Fund, pursuant to an Agreement and Plan of Reorganization
approved by the Quest Investment Quality Income Fund shareholders on November
16, 1995. The Fund issued 3,900,357, 1,236,995 and 362,821 shares of beneficial
interest for Class A, Class B and Class C, respectively, valued at $42,201,864,
$13,384,283 and $3,929,348 in exchange for the net assets, resulting in combined
Class A net assets of $168,776,907, Class B net assets of $38,281,909 and Class
C net assets of $4,265,500 on November 24, 1995. The net assets acquired
included net unrealized appreciation of $2,983,610. The exchange qualifies as a
tax-free reorganization for federal income tax purposes.
================================================================
================
8. FUTURES CONTRACTS
The Fund may buy and sell futures contracts in order to gain exposure to or
protect against changes in interest rates. The Fund may also buy or write put or
call options on these futures contracts.
The Fund generally sells futures contracts to hedge against increases in
interest rates and the resulting negative effect on the value of fixed rate
portfolio securities. The Fund may also purchase futures contracts to gain
exposure to changes in interest rates as it may be more efficient or cost
effective than actually buying fixed income securities. The Fund will segregate
assets to cover its commitments under futures contracts.
Upon entering into a futures contract, the Fund is required to deposit either
cash or securities in an amount (initial margin) equal to a certain percentage
of the contract value. Subsequent payments (variation margin) are made or
received by the Fund each day. The variation margin payments are equal to the
daily changes in the contract value and are recorded as unrealized gains and
losses. The Fund recognizes a realized gain or loss when the contract is closed
or expires.
Risks of entering into futures contracts (and related options) include the
possibility that there may be an illiquid market and that a change in the value
of the contract or option may not correlate with changes in the value of the
underlying securities.
22 Oppenheimer Bond Fund
<PAGE>
INDEPENDENT AUDITORS' REPORT
================================================================
================
The Board of Trustees and Shareholders of Oppenheimer Bond Fund:
We have audited the accompanying statement of assets and liabilities, including
the statement of investments, of Oppenheimer Bond Fund (formerly Oppenheimer
Investment Grade Bond Fund) as of December 31, 1995, the related statement of
operations for the year then ended, the statements of changes in net assets for
the years ended December 31, 1995 and 1994, and the financial highlights for the
period January 1, 1991 to December 31, 1995. 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, 1985 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, 1995 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 Bond
Fund at December 31, 1995, 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.
/s/ Deloitte & Touche
DELOITTE & TOUCHE LLP
Denver, Colorado
January 22, 1996
23 Oppenheimer Bond Fund
<PAGE>
FEDERAL INCOME TAX INFORMATION (Unaudited)
================================================================
================
In early 1996, shareholders will receive information regarding all dividends and
distributions paid to them by the Fund during calendar year 1995. Regulations of
the U.S. Treasury Department require the Fund to report this information to the
Internal Revenue Service.
None of the dividends paid by the Fund during the fiscal year ended December 31,
1995 are eligible for the corporate dividend- received deduction.
The foregoing information is presented to assist shareholders in reporting
distributions received from the Fund to the Internal Revenue Service. Because of
the complexity of the federal regulations which may affect your individual tax
return and the many variations in the state and local tax regulations, we
recommend that you consult your tax advisor for specific guidance.
24 Oppenheimer Bond Fund
<PAGE>
SHAREHOLDER MEETING (Unaudited)
================================================================
================
On July 10, 1995, a special shareholder meeting was held at which the proposed
changes in the Fund's investment policies were approved (Proposal No. 1), the
new advisory agreement with the Manager was approved (Proposal No. 2), and the
Fund's amended Class B 12b-1 Distribution and Service Plan was approved by Class
B shareholders (Proposal No. 3), as described in the Fund's proxy statement for
that meeting. The following is a report of the votes cast:
<TABLE>
<CAPTION>
WITHHELD/ BROKER
PROPOSAL FOR AGAINST ABSTAIN NON-VOTES TOTAL
<S> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------------------------
Proposal No. 1 4,962,101.683 449,195.254 185,962.536 1,135,744 5,597,259.473
Proposal No. 2 4,892,601.396 492,950.944 211,707.133 1,135,744 5,597,259.473
Proposal No. 3 286,217.802 29,365.485 7,912.259 61,076 323,495.546
</TABLE>
25 Oppenheimer Bond Fund
<PAGE>
OPPENHEIMER BOND FUND
A SERIES OF OPPENHEIMER INTEGRITY FUNDS
================================================================
================
OFFICERS AND TRUSTEES
James C. Swain, Chairman and Chief Executive Officer
Robert G. Avis, Trustee
William A. Baker, Trustee
Charles Conrad, Jr., Trustee
Raymond J. Kalinowski, Trustee
C. Howard Kast, Trustee
Robert M. Kirchner, Trustee
Bridget A. Macaskill, President
Ned M. Steel, Trustee
Andrew J. Donohue, Vice President
David P. Negri, Vice President
David Rosenberg, Vice President
George C. Bowen, Vice President, Secretary and Treasurer
Robert J. Bishop, Assistant Treasurer
Scott Farrar, Assistant Treasurer
Robert G. Zack, Assistant Secretary
================================================================
================
INVESTMENT ADVISOR
OppenheimerFunds, Inc.
================================================================
================
DISTRIBUTOR
OppenheimerFunds Distributor, Inc.
================================================================
================
TRANSFER AND SHAREHOLDER SERVICING AGENT
OppenheimerFunds Services
================================================================
================
CUSTODIAN OF PORTFOLIO SECURITIES
The Bank of New York
================================================================
================
INDEPENDENT AUDITORS
Deloitte & Touche LLP
================================================================
================
LEGAL COUNSEL
Myer, Swanson, Adams & Wolf, P.C.
This is a copy of a report to shareholders of Oppenheimer Bond Fund. This report
must be preceded by a Prospectus of Oppenheimer Bond Fund. For material
information concerning the Fund, see the Prospectus.
Shares of Oppenheimer funds are not deposits or obligations of any bank, are not
guaranteed by any bank, and are not insured by the FDIC or any other agency, and
involve investment risks, including possible loss of the principal amount
invested.
26 Oppenheimer Bond Fund
<PAGE>
- -----------------------
OPPENHEIMERFUNDS FAMILY
- -----------------------
================================================================
================
OppenheimerFunds offers over 35 funds designed to fit virtually
every investment goal. Whether you're investing for retirement,
your children's education or tax-free income, we have the funds
to help you seek your objective.
When you invest with OppenheimerFunds, you can feel comfor-
table knowing that you are investing with a respected financial
institution with over 35 years of experience in helping people
just like you reach their financial goals. And you're investing
with a leader in global, growth stock and flexible fixed-income
investments--with over 2.8 million shareholder accounts and more
than $41 billion under Oppenheimer's management and that of our
affiliates.
At OppenheimerFunds, we don't charge a fee to exchange
shares. And you can exchange shares easily by mail or by tele-
phone.(1) For more information on Oppenheimer funds, please con-
tact your financial advisor or call us at 1-800-525-7048 for a
prospectus. You may also write us at the address shown on the
back cover. As always, please read the prospectus carefully
before you invest.
================================================================
================
STOCK FUNDS Global Emerging Growth Fund Growth Fund
Enterprise Fund Global Fund
Discovery Fund Quest Global Value Fund
Quest Small Cap Value Fund Oppenheimer Fund
Gold & Special Minerals Fund Value Stock Fund
Target Fund Quest Value Fund
================================================================
================
STOCK & BOND Main Street Income & Growth Fund Global Growth & Income Fund
FUNDS Quest Opportunity Value Fund Equity Income Fund
Total Return Fund Asset Allocation Fund
Quest Growth & Income Value Fund Strategic Income & Growth Fund
================================================================
================
BOND FUNDS International Bond Fund Bond Fund
High Yield Fund U.S. Government Trust
Strategic Income Fund Limited-Term Government Fund
Champion Income Fund
================================================================
================
TAX-EXEMPT California Tax-Exempt Fund(2) Pennsylvania Tax-Exempt Fund(2)
FUNDS Florida Tax-Exempt Fund(2) Tax-Free Bond Fund
New Jersey Tax-Exempt Fund(2) Insured Tax-Exempt Fund
New York Tax-Exempt Fund(2) Intermediate Tax-Exempt Fund
================================================================
================
MONEY MARKET Money Market Fund Cash Reserves
FUNDS
1. Exchange privileges are subject to change or termination.
Shares may be exchanged only for shares of the same class of
eligible funds.
2. Available only to investors in certain states.
Oppenheimer funds are distributed by OppenheimerFunds
Distributor, Inc., Two World Trade Center, New York, NY
10048-0203.
-c-Copyright 1996 OppenheimerFunds, Inc. All rights reserved.
27 Oppenheimer Bond Fund
<PAGE>
INFORMATION
GENERAL INFORMATION
Monday-Friday 8:30 a.m.-8 p.m. ET
Saturday 10 a.m.-2 p.m. ET
- --------------
1-800-525-7048
- --------------
TELEPHONE TRANSACTIONS
Monday-Friday 8:30 a.m.-8 p.m. ET
- --------------
1-800-852-8457
- --------------
PHONELINK
24 hours a day, automated
information and transactions
- --------------
1-800-533-3310
- --------------
TELECOMMUNICATIONS DEVICE
FOR THE DEAF (TDD)
Monday-Friday 8:30 a.m.-8 p.m. ET
- --------------
1-800-843-4461
- --------------
OPPENHEIMERFUNDS
INFORMATION HOTLINE
24 hours a day, timely and insightful
messages on the economy and
issues that affect your investments
- --------------
1-800-835-3104
- --------------
RA0285.001.1295 February 28, 1996
- ------------------------------------------------------------------------------
"HOW MAY I HELP YOU?" [PHOTO]
Jennifer Leonard, Customer Service Representative
OppenheimerFunds Services
As an Oppenheimer funds shareholder, you have some special privileges. Whether
it's automatic investment plans, informative newsletters and hotlines, or ready
account access, you can benefit from services designed to make investing simple.
And when you need help, our Customer Service Representatives are only a
toll-free phone call away. They can provide information about your account and
handle administrative requests. You can reach them at our General Information
number.
When you want to make a transaction, you can do it easily by calling our
toll-free Telephone Transactions number. And, by enrolling in AccountLink, a
convenient service that "links" your Oppenheimer funds accounts and your bank
checking or savings account, you can use the Telephone Transactions number to
make investments.
For added convenience, you can get automated information with
OppenheimerFunds PhoneLink service, available 24 hours a day, 7 days a week.
PhoneLink gives you access to a variety of fund, account, and market
information. Of course, you can always speak with a Customer Service
Representative during the General Information hours shown at the left.
You can count on us whenever you need assistance. That's why the
International Customer Service Association, an independent, nonprofit
organization made up of over 3,200 customer service management professionals
from around the country, honored the Oppenheimer fund's transfer agent,
OppenheimerFunds Services, with their Award of Excellence in 1993.
So call us today--we're here to help.
- ------------------------------------------------------------------------------
[LOGO] OPPENHEIMERFUNDS-R- --------------
OppenheimerFunds Distributor, Inc. Bulk Rate
P.O. Box 5270 U.S. Postage
Denver, CO 80217-5270 PAID
Permit No. 314
Farmingdale, NY
--------------
Oppenheimer Bond Fund
Semiannual Report June 30, 1996
[Picture of Pool Party]
"To help pay
for extras,
I count on the
money
I get from my
investments."
[Oppenheimer Logo]
<PAGE>
Yield
Standardized Yields
For the 30 Days Ended 6/30/96:(3)
Class A
6.57%
Class B
6.15%
Class C
6.15%
This Fund is for people who want solid income
and feel most comfortable getting it from an investment
that emphasizes quality securities.
How your Fund is Managed
Oppenheimer Bond Fund's portfolio seeks high income by investing primarily in
corporate bonds and government securities. The portfolio managers may invest in
different types of corporate and government securities to seek to reduce
exposure to market volatility. The Fund will, under normal market conditions,
invest at least 65% of its total assets in a diversified portfolio of
investment-grade securities, which may help reduce credit risk.
Performance
Total return, without considering sales charges, for the six months ended
6/30/96 for Class A, B and C shares were (0.83)%, (1.21)% and (1.28)%,
respectively.(1)
Your Fund's average annual total returns at maximum offering price for
Class A shares for the 1- and 5-year periods ended 6/30/96 and since inception
of the Class on 4/15/88 were (0.95)%, 7.07% and 7.44%, respectively. For Class B
shares, average annual total returns for the 1-year period ended 6/30/96 and
since inception of the Class on 5/1/93 were (1.65)% and 3.60%, respectively. For
Class C shares, cumulative total return since inception on 7/11/95 was 1.46%.(2)
Outlook
"Because of its strategic positioning, we think the Fund will continue to do
well. Currently, we expect that economic growth in the U.S. will continue,
though it may not necessarily accelerate. With this economic outlook, we will
continue to position the portfolio around income opportunities and avoid taking
on unnecessary interest rate risk."
David Rosenberg and David Negri
Portfolio Managers
June 30, 1996
Total returns include change in share price and reinvestment of dividends and
capital gains distributions. Past performance does not guarantee future results.
Investment return and principal value of an investment in the Fund will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than the original cost. For more complete information, please review the
prospectus carefully before you invest.
1. Based on the change in net asset value per share for the period shown,
without deducting any sales charges. Such performance would have been lower if
sales charges were taken into account.
2. Class A returns show results of hypothetical investments on 6/30/95, 6/30/91
and 4/15/88 (since inception), after deducting the current maximum initial sales
charge of 4.75%. The Fund's maximum sales charge rate for Class A shares was
lower during a portion of some of the periods shown, and actual investment
results will be different as a result of the change. Class B returns show
results of hypothetical investments on 6/30/95 and 5/1/93 (inception of class),
and after the deduction of the applicable contingent deferred sales charge of 5%
(1-year) and 3% (since inception). Class C return is cumulative and shows
results of a hypothetical investment on 7/11/95 after the deduction of the
applicable 1% contingent deferred sales charge. An explanation of the different
performance calculations is in the Fund's prospectus.
3. Standardized yield is net investment income calculated on a yield-to-maturity
basis for the 30-day period ended 6/30/96, divided by the maximum offering price
at the end of the period, compounded semiannually and then annualized. Falling
net asset values will tend to artificially raise yields.
2 Oppenheimer Bond Fund
<PAGE>
[Picture of James C. Swain]
[Caption] James C. Swain
Chairman
Oppenheimer
Bond Fund
[Picture of Bridget A. Macaskill]
[Caption] Bridget A. Macaskill
President
Oppenheimer
Bond Fund
Dear Shareholder,
Because of rising interest rates, the bond market has been volatile during the
first half of 1996. But we believe inflation fears have been somewhat overblown
and for this reason the future remains bright for bonds.
Let's review the immediate past. During the first half of the year,
interest rates rose sharply, as investors became concerned about renewed
inflation. Why was inflation a worry? First, economic growth appeared to
accelerate, catching many by surprise. Second, gasoline and food prices
increased sharply. As a result, the yield on the benchmark 30-year U.S. Treasury
bond moved from 6% in January to 7% by mid-year.
Even though an increase of one percentage point may seem modest, to bond
market investors it means a significant reduction in the value of their bonds.
And the longer the bond's maturity, the larger its decline in value. As the
Fund's investment advisor, it's our job to seek to minimize and possibly avoid
the decline in bond values in a rising interest rate environment. We accomplish
this by monitoring interest rates and strategically allocating the Fund's assets
in favorable investments.
Our current outlook is that interest rates will ease by the end of the
year. There are two primary reasons for our forecast. First, the economy appears
to be growing less rapidly than it did in the second half of 1995. Retail sales,
for example, have slowed from their faster first-quarter clip. And, a slower
growing economy also suggests lower inflation and interest rates. Second,
because there is no shortage of crude oil, the rise in gasoline prices appears
to be temporary. Indeed, excluding energy and food prices, inflation is
virtually nonexistent.
With the yield on the 30-year Treasuries over 7%, bonds offer significant
value--providing investors with substantial income. Typically, the yield on a
bond is compared to the current inflation rate, which is currently about 3%.
This "spread" of approximately 4 percentage points between bond yields and
inflation is considered very generous, historically.
In addition to receiving higher income, the value of bonds would appreciate
if interest rates were to fall as we expect. The reason: if you're getting 7%
and other investors have to settle with 6.5% or 6%, then your bond is more
valuable in the marketplace. It's the mirror image of what happened during
the first half of 1996.
Recently, the stock market volatility has captured the attention of
investors and given bonds an even more attractive place in the portfolios of
many investors, particularly those who are nearing retirement. Given the current
circumstances, diversifying into other asset classes, rather than relying solely
on equities, may make more sense now than ever before.
Your portfolio managers discuss the outlook for your Fund in light of
these broad issues on the following pages. Thank you for your confidence in
OppenheimerFunds. We look forward to helping you reach your investment goals in
the future.
/s/ James C. Swain /s/ Bridget A. Macaskill
James C. Swain Bridget A. Macaskill
July 22, 1996
3 Oppenheimer Bond Fund
<PAGE>
[Pictures of David Negri, Portfolio Manager, with Mark Frank, Member of Fixed
Income Investment Team (top left) and of David Rosenberg, Portfolio Manager (top
right)]
Q+A
An interview with your Fund's managers.
Q What
is your
outlook
for the Fund?
How has the Fund performed over the past six months?
The Fund's performance was very strong compared to other domestic bond funds.
During a six month period when many fixed-income investments lost a lot of
ground due to rising interest rates, our performance was among the best of funds
that focus primarily on domestic bonds.(1)
What investments made a positive contribution to performance?
The single biggest factor responsible for the Fund's performance over the period
was keeping the average maturity of the bonds in our portfolio shorter than many
of our competitors. Because shorter average maturities tend to be less sensitive
to interest rate changes, as rates began to rise and bond prices started to
decline, the portfolio was somewhat insulated. This defensive positioning not
only helped our performance overall, but also contributed to the Fund's relative
outperformance.
Beyond our advantageous positioning in short average maturities, the
diversified structure of the portfolio helped the risk-adjusted performance. The
Fund's overweight in high yield corporate bonds--currently about 18% of the
Fund--was also a significant factor driving performance. Over the last six
months high yield bonds--aided by the increase in economic growth- outperformed
all other categories of bonds. As rates began to decline, our holdings in high
yield bonds helped to offset the declines from other bond sector holdings.
The final factor in our strong relative performance was our decision to
overweight mortgage-backed securities, relative to Treasuries in the U.S.
Government sector. In general, mortgages
[Picture of Len Darling]
1. Source: Lipper Analytical Services 6/30/96. This comparison does not take
sales charges into account.
4 Oppenheimer Bond Fund
<PAGE>
[Captions)
Facing page
Top left: David Negri, Portfolio
Manager, with Mark Frank, Member
of Fixed Income Investments Team
Top right: David Rosenberg,
Portfolio Manager
Bottom: Len Darling, Executive VP,
Director of Fixed Income
Investments
This page
Top: David Negri and Mark Frank
Bottom: David Rosenberg with
Leslie Falconio and Gina Palmieri,
Members of Fixed Income
Investments Team
[Picture of David Negri and Mark Frank]
A The Fund
will continue
to do well
because of
its strategic
positioning.
perform well when interest rates rise because the chance of early prepayment
through homeowner refinancing activity diminishes. Over the past six months,
mortgages also paid higher income than Treasuries, thus benefiting the Fund.(2)
Did any investments negatively impact the portfolio?
Not really. The bonds in our portfolio reacted to changes in the fixed-income
market as we expected. The Fund's short average maturity and high degree of
current income helped to offset the negative price performance of the general
bond market.
What areas are you currently targeting?
We think the economy is relatively healthy, which suggests that many high-yield
corporate bonds are worth the increased credit risk. So, we plan to maintain our
allocation in that high growth potential sector of the market.(3) Our focus
continues to be on companies we expect will grow faster than the economy.
Recently, many of the companies that fit this profile have been in the
telecommunications, media and cable businesses.
In investment-grade bonds, we're focusing on financial services firms,
where we expect ongoing consolidations to improve balance sheets and
profitability. We're also concentrating on oil- and gas-related businesses,
where technology is improving profits.
Finally, we continue to favor mortgage-related securities over Treasuries.
In particular, we like private label mortgages, which represent loans
underwritten by banks rather than the federal government and thus tend to offer
higher yields than U.S. government-backed securities. Private label mortgages
are an attractive investment because they are benefiting from the improvement in
the U.S. commercial real estate market.
What is your outlook for the Fund?
Because of its strategic positioning, we think the Fund will continue to do
well. Currently, we expect that economic growth in the U.S. will continue,
though it may not necessarily accelerate. With this economic outlook, we will
continue to position the portfolio around income opportunities and avoid taking
on unnecessary interest rate risk. [solid box]
[Picture of David Rosenberg with Leslie Falconio and Gina Palmieri]
2. The Fund's portfolio is subject to change.
3. Investors in high yield bonds are subject to a greater risk that the issuer
will default in its principal or interest payments.
5 Oppenheimer Bond Fund
<PAGE>
Financials
Contents
Statement of Investments 7
Statement of Assets and Liabilities 15
Statement of Operations 16
Statements of Changes in Net Assets 17
Financial Highlights 18
Notes to Financial Statements 19
6 Oppenheimer Bond Fund
<PAGE>
Statement of Investments June 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
Face Market Value
Amount(1) See Note 1
<S> <C> <C> <C>
================================================================
===================================================================
Mortgage-Backed Obligations--34.1%
- ----------------------------------------------------------------------------------------------------------------------------------
Government Agency--26.6%
- ----------------------------------------------------------------------------------------------------------------------------------
FHLMC/FNMA/Sponsored--20.2% Federal Home Loan Mortgage Corp.:
Certificates of Participation, 9%, 3/1/17 $ 598,020 $ 628,316
Certificates of Participation, Series 17-039, 13.50%, 11/1/10 67,157 79,370
Certificates of Participation, Series 17-094, 12.50%, 4/1/14 35,879 41,587
Collateralized Mtg. Obligations, Series 1548, Cl. C, 7%, 4/15/21 4,000,000 3,787,480
Gtd. Multiclass Mtg. Participation Certificates,
Series 1460, Cl. H, 7%, 5/15/07 1,500,000 1,497,180
----------------------------------------------------------------------------------------------------
Federal National Mortgage Assn.:
11%, 7/1/16 6,130,048 6,810,101
7%, 1/1/09 388,681 385,358
7%, 11/1/25 4,855,001 4,672,162
7%, 2/1/09 381,802 378,538
7.50%, 2/1/08 308,288 310,811
7.50%, 3/1/08 466,924 470,744
8%, 7/1/26(2) 10,000,000 10,075,000
Gtd. Mtg. Pass-Through Certificates, 8%, 8/1/17 743,801 763,892
----------------------------------------------------------------------------------------------------
Gtd. Real Estate Mtg. Investment Conduit Pass-Through Certificates:
Series 1991-170, Cl. E, 8%, 12/25/06 2,500,000 2,604,675
Series 1992-169, Cl. L, 7%, 9/25/22 5,965,000 5,506,411
Interest-Only Stripped Mtg.-Backed Security, Trust 240,
Cl. 2, 10.955%--14.895%, 9/1/23(3) 22,206,099 7,647,225
-----------
45,658,850
- ----------------------------------------------------------------------------------------------------------------------------------
GNMA/Guaranteed--6.4% Government National Mortgage Assn.:
6%, 7/15/26(2) 4,000,000 3,967,500
6%, 7/20/25 1,913,494 1,897,948
7%, 7/15/09--5/15/26 5,423,673 5,216,025
8%, 6/15/05--10/15/06 1,995,209 2,051,731
9%, 2/15/09--6/15/09 540,322 573,966
10%, 11/15/09 300,733 330,819
10.50%, 12/15/17--5/15/21 353,122 389,844
12%, 1/15/99 73,389 42,544
12.75%, 6/15/15 4,114 4,839
13%, 12/15/14 40,455 47,573
-----------
14,522,789
- ----------------------------------------------------------------------------------------------------------------------------------
Private--7.5%
- ----------------------------------------------------------------------------------------------------------------------------------
Commercial--5.0% CMC Securities Corp. I, Collateralized Mtg. Obligation,
Series 1993-D, Cl. D-3, 10%, 7/25/23(4) 678,860 708,985
----------------------------------------------------------------------------------------------------
DLJ Mortgage Acceptance Corp., Sub. Collateralized Mtg.
Obligations, Series X-Q13B, Cl. 3B1, 8.75%, 11/25/24 1,711,948 1,645,075
----------------------------------------------------------------------------------------------------
FDIC Trust, Gtd. Real Estate Mtg. Investment Conduit
Pass-Through Certificates, Series 1994-C1:
Cl. 2-D, 8.70%, 9/25/25(4) 1,000,000 1,033,125
Cl. 2-E, 8.70%, 9/25/25(4) 1,000,000 1,024,687
----------------------------------------------------------------------------------------------------
Morgan Stanley Capital I, Inc., Commercial Mtg.
Pass-Through Certificates, Series 1996-C1:
Cl. D-1, 7.51%, 2/15/06(4)(5) 1,000,000 951,250
Cl. E, 7.51%, 2/1/28(4)(5) 1,100,000 860,063
----------------------------------------------------------------------------------------------------
Resolution Trust Corp., Commercial Mtg. Pass-Through Certificates:
Series 1993-C1, Cl. B, 8.75%, 5/25/24 700,000 718,375
7 Oppenheimer Bond Fund
<PAGE>
Statement of Investments (Unaudited) (Continued)
Face Market Value
Amount(1) See Note 1
================================================================
===================================================================
Commercial Series 1994-C1, Cl. C, 8%, 6/25/26 $1,500,000 $ 1,505,625
(continued) Series 1995-C1, Cl. D, 6.90%, 2/25/27 2,500,000 2,271,094
----------------------------------------------------------------------------------------------------
Salomon Brothers Mortgage Securities VII, Series 1996-C1,
Cl. E, 9.18%, 1/20/06 700,000 597,625
----------
11,315,904
- ----------------------------------------------------------------------------------------------------------------------------------
Manufactured Housing--0.1% Green Tree Financial Corp., Series 1994-6. Cl. A3, 7.70%, 1/15/20 250,000 254,295
- ----------------------------------------------------------------------------------------------------------------------------------
Multi-Family--0.3% Resolution Trust Corp., Commercial Mtg. Pass-Through Certificates:
Series 1991-M5, Cl. A, 9%, 3/25/17 668,456 687,675
Series 1991-M6, Cl. B4, 7.145%, 6/25/21(5) 76,002 73,247
----------
760,922
- ----------------------------------------------------------------------------------------------------------------------------------
Other--0.9% GE Capital Mortgage Services, Inc., Series 1994-14,
Cl. A1, 6.50%, 4/25/24 118,225 117,671
----------------------------------------------------------------------------------------------------
JHM Mtg. Acceptance Corp., 8.96% Collateralized Mtg.
Obligation Bonds, Series E, Cl. 5, 4/1/19 1,690,483 1,744,359
----------------------------------------------------------------------------------------------------
Salomon Brothers Mortgage Securities VI:
Interest-Only Stripped Mtg.-Backed Security,
Series 1987-3, Cl. B, 2.101%, 10/23/17(3) 148,684 38,379
Principal-Only Stripped Mtg.-Backed Security,
Series 1987-3, Cl. A, Zero Coupon, 8.903%, 10/23/17(6) 216,798 143,900
----------
2,044,309
- ----------------------------------------------------------------------------------------------------------------------------------
Residential--1.2% Mortgage Capital Funding, Inc., Multifamily Mortgage
Pass-Through Certificates, Series 1996-MC1,
Cl. G, 7.15%, 6/15/06(2)(4) 2,250,000 1,681,875
----------------------------------------------------------------------------------------------------
Residential Funding Corp., Mtg. Pass-Through Certificates,
Series 1993-S10, Cl. A9, 8.50%, 2/25/23 692,214 701,296
----------------------------------------------------------------------------------------------------
Ryland Mortgage Securities Corp. III, Sub. Bonds, Series 1992-A,
Cl. 1A, 7.17%, 3/29/30(5) 397,597 394,989
----------
2,778,160
----------
Total Mortgage-Backed Obligations (Cost $77,441,849) 77,335,229
================================================================
==================================================================
U.S. Government Obligations--16.5%
- ----------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds:
11.625%, 11/15/02 2,600,000 3,274,375
11.625%, 11/15/04 5,500,000 7,215,313
8.75%, 5/15/20 5,000,000 5,976,559
8.875%, 8/15/17 7,500,000 9,002,339
----------------------------------------------------------------------------------------------------
U.S. Treasury Nts.:
6.75%, 6/30/99 3,350,000 3,390,826
7.375%, 2/15/98 3,400,000 3,461,625
7.75%, 1/31/00 1,800,000 1,877,061
7.75%, 12/31/99 2,950,000 3,075,375
Total U.S. Government Obligations (Cost $38,563,844) 37,273,473
----------
================================================================
==================================================================
Foreign Government Obligations--0.5%
- ----------------------------------------------------------------------------------------------------------------------------------
Colombia (Republic of) Nts.,
Empresa Colombiana de Petroleos, 7.25%, 7/8/98 250,000 249,375
----------------------------------------------------------------------------------------------------
International Bank for Reconstruction & Development Bonds,
12.50%, 7/25/97 NZD 800,000 563,843
----------------------------------------------------------------------------------------------------
New Zealand (Republic of) Bonds, 10%, 7/15/97 NZD 390,000 268,397
----------
Total Foreign Government Obligations (Cost $1,015,978) 1,081,615
8 Oppenheimer Bond Fund
<PAGE>
Face Market Value
Amount(1) See Note 1
================================================================
==================================================================
Loan Participation--0.3%
- ----------------------------------------------------------------------------------------------------------------------------------
Pulsar Internacional SA de CV, 11.80% Nts.,
9/19/96 (Cost $750,000)(7) $ 750,000 $ 753,750
================================================================
==================================================================
Corporate Bonds and Notes--53.5%
- ----------------------------------------------------------------------------------------------------------------------------------
Basic Industry--3.8%
- ----------------------------------------------------------------------------------------------------------------------------------
Chemicals--1.4% Burmah Castrol PLC, 7% Gtd. Medium-Term Nts., 12/15/97 500,000 505,745
----------------------------------------------------------------------------------------------------
FMC Corp., 8.75% Sr. Nts., 4/1/99 250,000 261,305
----------------------------------------------------------------------------------------------------
Lyondell Petrochemical Co., 8.25% Nts., 3/15/97 400,000 405,442
----------------------------------------------------------------------------------------------------
NL Industries, Inc., 0%/13% Sr. Sec. Disc. Nts., 10/15/05(8) 500,000 392,500
----------------------------------------------------------------------------------------------------
Quantum Chemical Corp., 10.375% First Mtg. Nts., 6/1/03 900,000 988,248
----------------------------------------------------------------------------------------------------
Rohm & Haas Co., 9.50% Debs., 4/1/21 500,000 560,307
----------
3,113,547
- ----------------------------------------------------------------------------------------------------------------------------------
Metals/Mining--1.7% AMAX, Inc., 9.875% Nts., 6/13/01 1,000,000 1,082,838
- ----------------------------------------------------------------------------------------------------------------------------------
Newmont Mining Corp., 8.625% Nts., 4/1/02 1,000,000 1,050,217
----------------------------------------------------------------------------------------------------
Teck Corp., 8.70% Debs., 5/1/02 1,500,000 1,603,402
-----------
3,736,457
- ----------------------------------------------------------------------------------------------------------------------------------
Paper--0.7%
- ----------------------------------------------------------------------------------------------------------------------------------
Celulosa Arauco y Constitucion SA, 7.25% Debs., 6/11/98 350,000 352,625
----------------------------------------------------------------------------------------------------
Georgia-Pacific Corp., 9.85% Credit Sensitive Nts., 6/15/97 300,000 309,956
----------------------------------------------------------------------------------------------------
Repap Wisconsin, Inc., 9.25% First Priority Sr. Sec. Nts., 2/1/02 500,000 473,750
----------------------------------------------------------------------------------------------------
Scotia Pacific Holding Co., 7.95% Timber Collateralized Nts., 7/20/15 443,818 436,660
----------
1,572,991
- ----------------------------------------------------------------------------------------------------------------------------------
Consumer Related--6.2%
- ----------------------------------------------------------------------------------------------------------------------------------
Consumer Products--0.7% TAG Heuer International SA, 12% Sr. Sub. Nts., 12/15/05(4) 550,000 576,125
----------------------------------------------------------------------------------------------------
Toro Co. (The), 11% Debs., 8/1/17 1,000,000 1,064,321
----------
1,640,446
- ----------------------------------------------------------------------------------------------------------------------------------
Food/Beverages/Tobacco--0.7% B.A.T. Capital Corp., 6.66% Medium-Term Nts., 3/22/00(4) 250,000 247,175
----------------------------------------------------------------------------------------------------
ConAgra, Inc.:
7.40% Sub. Nts., 9/15/04 250,000 246,580
9.75% Sr. Nts., 11/1/97 500,000 520,772
----------------------------------------------------------------------------------------------------
Nabisco, Inc., 8% Nts., 1/15/00 325,000 336,484
----------------------------------------------------------------------------------------------------
Philip Morris Cos., Inc., 8.75% Debs., 12/1/96 300,000 303,453
----------
1,654,464
- ----------------------------------------------------------------------------------------------------------------------------------
Healthcare--2.3% Grace (W.R.) & Co., 7.25% Medium-Term Nts., 7/15/97 2,000,000 2,014,772
----------------------------------------------------------------------------------------------------
HEALTHSOUTH Corp., 9.50% Sr. Sub. Nts., 4/1/01 500,000 518,125
----------------------------------------------------------------------------------------------------
Imcera Group, Inc., 6% Nts., 10/15/03 500,000 467,978
----------------------------------------------------------------------------------------------------
R.P. Scherer Corp., 6.75% Sr. Nts., 2/1/04 500,000 478,125
----------------------------------------------------------------------------------------------------
Service Corp. International, 7% Sr. Nts., 6/1/15 1,000,000 1,005,662
----------------------------------------------------------------------------------------------------
Total Renal Care, Inc., 0%/12% Sr. Sub. Disc. Nts., 8/15/04(8) 649,000 636,020
----------
5,120,682
9 Oppenheimer Bond Fund
<PAGE>
Statement of Investments (Unaudited) (Continued)
Face Market Value
Amount(1) See Note 1
================================================================
===================================================================
Hotel/Gaming--1.0%
Grand Casinos, Inc., 10.125% Gtd. First Mtg. Nts., 12/1/03 $ 750,000 $ 776,250
-----------------------------------------------------------------------------------------------------
HMC Acquisition Properties, Inc., 9% Sr. Nts., 12/15/07 800,000 738,000
-----------------------------------------------------------------------------------------------------
Trump Atlantic City Associates/Trump Atlantic City Funding, Inc.,
11.25% First Mtg. Nts., 5/1/06 750,000 757,500
----------
2,271,750
- -----------------------------------------------------------------------------------------------------------------------------------
Restaurants--1.0% Foodmaker, Inc.,
9.25% Sr. Nts., 3/1/99 1,000,000 987,500
9.75% Sr. Sub. Nts., 6/1/02 1,250,000 1,206,250
----------
2,193,750
- -----------------------------------------------------------------------------------------------------------------------------------
Textile/Apparel--0.5% Clark-Schwebel, Inc., 10.50% Sr. Nts., 4/15/06(4) 650,000 666,250
-----------------------------------------------------------------------------------------------------
Fruit of the Loom, Inc., 7% Debs., 3/15/11 500,000 449,138
----------
1,115,388
- -----------------------------------------------------------------------------------------------------------------------------------
Energy--4.2%
- -----------------------------------------------------------------------------------------------------------------------------------
Coastal Corp., 8.75% Sr. Nts., 5/15/99 325,000 341,797
-----------------------------------------------------------------------------------------------------
Enron Corp., 8.10% Nts., 12/15/96 1,500,000 1,514,541
-----------------------------------------------------------------------------------------------------
McDermott, Inc., 9.375% Nts., 3/15/02 100,000 106,512
-----------------------------------------------------------------------------------------------------
Mesa Operating Co., 10.625% Gtd. Sr. Sub. Nts., 7/1/06(2) 1,240,000 1,259,375
-----------------------------------------------------------------------------------------------------
Occidental Petroleum Corp., 11.125% Sr. Debs., 6/1/19 2,000,000 2,305,866
-----------------------------------------------------------------------------------------------------
Petroleum Heat & Power Co., Inc., 9.375% Sub. Debs., 2/1/06 750,000 708,750
-----------------------------------------------------------------------------------------------------
Phillips Petroleum Co., 7.53% Pass-Through Certificates,
Series 1994--A1, 9/27/98 388,735 393,517
-----------------------------------------------------------------------------------------------------
Southwest Gas Corp., 9.75% Debs., Series F, 6/15/02 275,000 302,310
-----------------------------------------------------------------------------------------------------
TransCanada PipeLines Ltd., 9.875% Debs., 1/1/21 1,500,000 1,841,400
-----------------------------------------------------------------------------------------------------
Transcontinental Gas Pipeline Corp., 9% Debs., 11/15/96 150,000 151,703
-----------------------------------------------------------------------------------------------------
United Meridian Corp., 10.375% Sr. Sub. Nts., 10/15/05 500,000 514,375
----------
9,440,146
- -----------------------------------------------------------------------------------------------------------------------------------
Financial Services--13.2%
- -----------------------------------------------------------------------------------------------------------------------------------
Banks & Thrifts--2.6% BankAmerica Corp., 7.50% Sr. Nts., 3/15/97 200,000 202,120
-----------------------------------------------------------------------------------------------------
Banque Nationale de Paris, 9.875% Debs., 5/25/98 205,000 215,260
-----------------------------------------------------------------------------------------------------
Chase Manhattan Corp. (New), 6.625% Sr. Nts., 1/15/98 25,000 25,105
-----------------------------------------------------------------------------------------------------
First Fidelity Bancorporation, 8.50% Sub. Capital Nts., 4/1/98 325,000 335,665
-----------------------------------------------------------------------------------------------------
First Nationwide (Parent) Holdings, Inc., 12.50% Sr. Nts., 4/15/03 900,000 942,750
-----------------------------------------------------------------------------------------------------
First Nationwide Holdings, Inc., 9.125% Sr. Sub. Nts., 1/15/03 1,000,000 965,000
-----------------------------------------------------------------------------------------------------
First Union Corp., 6.75% Sr. Nts., 1/15/98 325,000 327,183
-----------------------------------------------------------------------------------------------------
Mellon Financial Bank Corp., 6.50% Gtd. Sr. Nts., 12/1/97 325,000 326,098
-----------------------------------------------------------------------------------------------------
National Westminster Bank PLC, 9.375% Gtd. Capital Nts., 11/15/03 70,000 78,951
-----------------------------------------------------------------------------------------------------
Royal Bank of Scotland Group (The) PLC,
10.125% Sub. Gtd. Capital Nts., 3/1/04 500,000 578,500
-----------------------------------------------------------------------------------------------------
Security Pacific Corp., 7.75% Nts., 12/1/96 325,000 327,549
-----------------------------------------------------------------------------------------------------
Westpac Banking Corp., 9.125% Sub. Debs., 8/15/01 1,500,000 1,637,121
----------
5,961,302
10 Oppenheimer Bond Fund
<PAGE>
Face Market Value
Amount(1) See Note 1
================================================================
===================================================================
Diversified Financial--8.3% American Car Line Co., 8.25% Equipment Trust Certificates,
Series 1993-A, 4/15/08 $ 228,000 $ 230,763
-----------------------------------------------------------------------------------------------------
American General Finance Corp., 8.50% Sr. Nts., 8/15/98 300,000 312,419
-----------------------------------------------------------------------------------------------------
Associates Corp. of North America, 7.40% Medium-Term Nts., 7/7/99 300,000 306,809
-----------------------------------------------------------------------------------------------------
AVCO Financial Services Asia Ltd., 5.875% Sr. Nts., 10/15/97 500,000 498,162
-----------------------------------------------------------------------------------------------------
Beneficial Corp., 12.875% Debs., 8/1/13 20,000 23,258
----------------------------------------------------------------------------------------------------
BHP Finance (USA) Ltd., 8.50% Gtd. Debs., 12/1/12 1,500,000 1,640,089
-----------------------------------------------------------------------------------------------------
Countrywide Funding Corp., 6.57% Gtd. Medium-Term Nts.,
Series A, 8/4/97 300,000 301,281
-----------------------------------------------------------------------------------------------------
Enterprise Rent-A-Car USA Finance Co., 7.875% Nts., 3/15/98(4) 1,500,000 1,535,151
-----------------------------------------------------------------------------------------------------
Ford Motor Credit Co., 9.90% Medium-Term Nts., 11/6/97 2,000,000 2,041,786
-----------------------------------------------------------------------------------------------------
General Motors Acceptance Corp., 5.65% Medium-Term Nts., 12/15/97 500,000 495,788
-----------------------------------------------------------------------------------------------------
Golden West Financial Corp., 8.625% Sub. Nts., 8/30/98 325,000 338,110
-----------------------------------------------------------------------------------------------------
Grand Metropolitan PLC, 8.125% Gtd. Nts., 8/15/96 325,000 325,938
-----------------------------------------------------------------------------------------------------
Household Finance Corp. Ltd., 6% Gtd. Sr. Nts., 6/30/98 250,000 247,286
-----------------------------------------------------------------------------------------------------
Household International, BV, 6% Gtd. Sr. Nts., 3/15/99 250,000 245,352
-----------------------------------------------------------------------------------------------------
Leucadia National Corp., 7.75% Sr. Nts., 8/15/13 2,000,000 1,838,786
-----------------------------------------------------------------------------------------------------
Midland American Capital Corp., 12.75% Gtd. Nts., 11/15/03 205,000 231,069
-----------------------------------------------------------------------------------------------------
NationsBank Corp., 10.20% Sub. Nts., 7/15/15 1,300,000 1,609,695
-----------------------------------------------------------------------------------------------------
Norwest Financial, Inc., 6.50% Sr. Nts., 11/15/97 325,000 326,285
-----------------------------------------------------------------------------------------------------
Penske Truck Leasing Co. LP, 7.75% Sr. Nts., 5/15/99 1,825,000 1,882,801
-----------------------------------------------------------------------------------------------------
Ryder System, Inc., 8.75% Debs., Series J, 3/15/17 1,600,000 1,656,952
-----------------------------------------------------------------------------------------------------
Source One Mortgage Services Corp., 9% Debs., 6/1/12 1,250,000 1,301,391
-----------------------------------------------------------------------------------------------------
SunAmerica, Inc., 9% Sr. Nts., 1/15/99 370,000 388,468
----------------------------------------------------------------------------------------------------
TransAmerican Financial Corp., 7.42% Medium-Term Nts., 2/9/98 500,000 508,075
-----------------------------------------------------------------------------------------------------
U.S. Leasing International, 7% Nts., 11/1/97 500,000 504,757
-----------
18,790,471
- -----------------------------------------------------------------------------------------------------------------------------------
Insurance--2.3% Aetna Life & Casualty Co., 8% Debs., 1/15/17 1,000,000 962,063
-----------------------------------------------------------------------------------------------------
Capital Holding Corp., 8.75% Debs., 1/15/17 1,200,000 1,259,160
-----------------------------------------------------------------------------------------------------
Torchmark Corp., 7.875% Nts., 5/15/23 3,000,000 2,906,418
-----------
5,127,641
- -----------------------------------------------------------------------------------------------------------------------------------
Housing Related--0.5%
- -----------------------------------------------------------------------------------------------------------------------------------
Homebuilders/ Saul (B.F.) Real Estate Investment Trust,
Real Estate--0.5% 11.625% Sr. Sec. Nts., Series B, 4/1/02 1,125,000 1,158,750
- -----------------------------------------------------------------------------------------------------------------------------------
Manufacturing--6.3%
- -----------------------------------------------------------------------------------------------------------------------------------
Aerospace/Electronics/ Boeing Co., 7.50% Debs., 8/15/42 2,000,000 1,966,750
Computers--3.2% -----------------------------------------------------------------------------------------------------
British Aerospace PLC, 8% Debs., 5/27/97 300,000 304,125
-----------------------------------------------------------------------------------------------------
Communications & Power Industries, Inc., 12% Sr. Sub. Nts., 8/1/05 500,000 531,250
-----------------------------------------------------------------------------------------------------
General Electric Capital Corp., 8.75% Debs., 5/21/07 1,000,000 1,112,245
-----------------------------------------------------------------------------------------------------
McDonnell Douglas Corp., 9.25% Nts., 4/1/02 1,500,000 1,654,162
-----------------------------------------------------------------------------------------------------
Rolls-Royce Capital, Inc., 7.125% Gtd. Nts., 7/29/03 1,000,000 980,625
-----------------------------------------------------------------------------------------------------
Tracor, Inc., 10.875% Sr. Sub. Nts., 8/15/01 500,000 535,000
-----------------------------------------------------------------------------------------------------
Xerox Corp., 9.20% Debs., 7/15/99 270,000 270,000
-----------
7,354,157
11 Oppenheimer Bond Fund
<PAGE>
Statement of Investments (Unaudited) (Continued)
Face Market Value
Amount(1) See Note 1
================================================================
===================================================================
Automotive--1.2% Chrysler Corp., 10.95% Debs., 8/1/17 $ 200,000 $ 219,230
-----------------------------------------------------------------------------------------------------
Ford Motor Co., 6.27% Pass-Through Certificates, 1/2/00 283,890 283,891
-----------------------------------------------------------------------------------------------------
Ford Motor Co., 8.875% Debs., 11/15/22 2,000,000 2,123,896
-----------
2,627,017
- -----------------------------------------------------------------------------------------------------------------------------------
Capital Goods--1.9% Caterpillar, Inc., 9.75% Debs., 6/1/19 1,750,000 1,911,189
-----------------------------------------------------------------------------------------------------
Tenneco, Inc., 10% Debs., 8/1/98 375,000 399,502
-----------------------------------------------------------------------------------------------------
Thomas & Betts Corp., 8.25% Sr. Nts., 1/15/04 1,000,000 1,040,472
-----------------------------------------------------------------------------------------------------
Westinghouse Electric Corp., 8.375% Nts., 6/15/02 1,000,000 991,877
-----------
4,343,040
- -----------------------------------------------------------------------------------------------------------------------------------
Media--5.1%
- -----------------------------------------------------------------------------------------------------------------------------------
Broadcasting--2.1% American Radio Systems Corp., 9% Sr. Sub. Nts., 2/1/06 700,000 665,000
-----------------------------------------------------------------------------------------------------
Argyle Television, Inc., 9.75% Sr. Sub. Nts., 11/1/05 750,000 706,875
-----------------------------------------------------------------------------------------------------
Paxson Communications Corp., 11.625% Sr. Sub. Nts., 10/1/02 750,000 783,750
-----------------------------------------------------------------------------------------------------
Sinclair Broadcast Group, Inc., 10% Sr. Sub. Nts., 9/30/05 500,000 487,500
-----------------------------------------------------------------------------------------------------
Tele-Communications, Inc., 5.28% Medium-Term Nts., 8/20/96 1,315,000 1,314,148
-----------------------------------------------------------------------------------------------------
Young Broadcasting, Inc., 9% Sr. Sub. Nts., 1/15/06 1,000,000 895,000
-----------
4,852,273
- -----------------------------------------------------------------------------------------------------------------------------------
Cable Television--1.8% EchoStar Communications Corp., 0%/12.875% Sr. Disc. Nts., 6/1/04(8) 1,000,000 730,000
-----------------------------------------------------------------------------------------------------
International CableTel, Inc., 0%/11.50% Sr. Deferred Coupon Nts.,
Series A, 2/1/06(8) 1,000,000 565,000
-----------------------------------------------------------------------------------------------------
Rogers Cablesystems Ltd., 10% Sr. Sec. Second Priority Debs., 12/1/07 1,000,000 977,500
-----------------------------------------------------------------------------------------------------
TKR Cable I, Inc., 10.50% Sr. Debs., 10/30/07 1,000,000 1,113,348
-----------------------------------------------------------------------------------------------------
United International Holdings, Inc., Zero Coupon Sr. Sec. Disc. Nts.,
12.434%, 11/15/99(9) 1,000,000 660,000
-----------
4,045,848
- -----------------------------------------------------------------------------------------------------------------------------------
Diversified Media--1.0% Heritage Media Corp., 8.75% Sr. Sub. Nts., 2/15/06 500,000 467,500
-----------------------------------------------------------------------------------------------------
Panamsat LP/Panamsat Capital Corp.,
0%/11.375% Sr. Sub. Disc. Nts., 8/1/03(8) 1,500,000 1,312,500
-----------------------------------------------------------------------------------------------------
Time Warner, Inc., 7.45% Nts., 2/1/98 500,000 503,104
-----------
2,283,104
- -----------------------------------------------------------------------------------------------------------------------------------
Entertainment/Film--0.1% Blockbuster Entertainment Group, 6.625% Sr. Nts., 2/15/98 250,000 249,860
- -----------------------------------------------------------------------------------------------------------------------------------
Publishing/Printing--0.1% Reed Publishing (USA), Inc., 7.24% Gtd. Medium-Term Nts., 2/10/97 250,000 251,820
- -----------------------------------------------------------------------------------------------------------------------------------
Retail--2.0%
- -----------------------------------------------------------------------------------------------------------------------------------
Auto Parts Distribution--0.1% First Brands Corp., 9.125% Sr. Sub. Nts., 4/1/99 265,000 267,650
- -----------------------------------------------------------------------------------------------------------------------------------
Department Stores--0.2% Sears Canada, Inc., 11.70% Debs., 7/10/00 CAD 500,000 416,906
- -----------------------------------------------------------------------------------------------------------------------------------
Drug Stores--0.3% Hook-SupeRx, Inc., 10.125% Sr. Nts., 6/1/02 400,000 427,513
-----------------------------------------------------------------------------------------------------
Sears Roebuck & Co., 8.39% Medium-Term Nts., 3/23/99 300,000 313,218
-----------
740,731
- -----------------------------------------------------------------------------------------------------------------------------------
Specialty Retailing--0.3% May Department Stores Cos.:
10.625% Debs., 11/1/10 405,000 509,040
9.875% Debs., 6/1/17 250,000 264,163
-----------
773,203
12 Oppenheimer Bond Fund
<PAGE>
Face Market Value
Amount(1) See Note 1
================================================================
===================================================================
Supermarkets--1.1% Grand Union Co., 12% Sr. Nts., 9/1/04 $ 1,150,000 $ 1,079,562
-----------------------------------------------------------------------------------------------------
Kroger Co., 8.50% Sr. Sec. Debs., 6/15/03 1,000,000 1,010,000
-----------------------------------------------------------------------------------------------------
Penn Traffic Co., 10.25% Sr. Nts., 2/15/02 500,000 457,500
-----------
2,547,062
- -----------------------------------------------------------------------------------------------------------------------------------
Transportation--1.6%
- -----------------------------------------------------------------------------------------------------------------------------------
Air Transportation--0.7% Atlas Air, Inc., 12.25% Pass-Through Certificates, 12/1/02 1,000,000 1,092,500
-----------------------------------------------------------------------------------------------------
Southwest Airlines Co., 9.25% Debs., 2/15/98 500,000 521,325
-----------
1,613,825
- -----------------------------------------------------------------------------------------------------------------------------------
Railroads--0.9% Canadian Pacific Ltd., 9.45% Debs., 8/1/21 1,000,000 1,147,400
-----------------------------------------------------------------------------------------------------
Transtar Holdings LP/Transtar Capital Corp.,
0%/13.375% Sr. Disc. Nts., Series B, 12/15/03(8) 1,100,000 759,000
-----------------------------------------------------------------------------------------------------
Union Pacific Corp., 9.65% Medium-Term Nts., 4/17/00 100,000 108,878
-----------
2,015,278
- -----------------------------------------------------------------------------------------------------------------------------------
Utilities--10.6%
- -----------------------------------------------------------------------------------------------------------------------------------
Electric Utilities--3.4% Arkla, Inc., 9.875% Nts., 4/15/97 505,000 518,646
-----------------------------------------------------------------------------------------------------
Centragas Natural Gas Transmission System,
10.65% Sec. Sr. Bonds, 12/1/10(4) 2,413,170 2,491,599
-----------------------------------------------------------------------------------------------------
Commonwealth Edison Co., 6.50% Nts., 7/15/97 225,000 224,473
-----------------------------------------------------------------------------------------------------
Consumers Power Co., 8.75% Mtg. Nts., 2/15/98 250,000 256,967
-----------------------------------------------------------------------------------------------------
El Paso Electric Co., 9.40% First Mtg. Bonds, Series E, 5/1/11 1,000,000 997,500
-----------------------------------------------------------------------------------------------------
First PV Funding Corp., 10.15% Lease Obligation Bonds,
Series 1986B, 1/15/16 500,000 526,250
-----------------------------------------------------------------------------------------------------
Florida Gas Transmission Environmental Corp., 7.75% Sr. Nts., 11/1/97(4) 500,000 508,469
-----------------------------------------------------------------------------------------------------
MidAmerican Energy Co., 6.25% Mtg. Nts., 2/1/98 500,000 499,178
-----------------------------------------------------------------------------------------------------
Public Service Co. of Colorado, 8.75% First Mtg. Bonds, 3/1/22 250,000 264,166
-----------------------------------------------------------------------------------------------------
Tenaga Nasional Berhad, 7.875% Nts., 6/15/04(4) 1,000,000 1,040,875
-----------------------------------------------------------------------------------------------------
Union Gas Ltd., 13% Debs., 6/30/03 CAD 572,000 464,094
-----------
7,792,217
- -----------------------------------------------------------------------------------------------------------------------------------
Telecommunications--7.2% A+ Network, Inc., 11.875% Sr. Sub. Nts., 11/1/05 1,000,000 1,040,000
-----------------------------------------------------------------------------------------------------
Allbritton Communications Co., 11.50% Sr. Sub. Debs., 8/15/04 875,000 894,687
-----------------------------------------------------------------------------------------------------
American Communications Services, Inc.:
0%/12.75% Sr. Disc. Nts., 4/1/06(8) 500,000 262,500
0%/13% Sr. Disc. Nts., 11/1/05(8) 300,000 168,000
-----------------------------------------------------------------------------------------------------
Cellular Communications International, Inc.,
Zero Coupon Sr. Disc. Nts., 11.401%, 8/15/00(9) 1,700,000 1,062,500
-----------------------------------------------------------------------------------------------------
GST Telecommunications, Inc., 0%/13.875% Cv. Sr. Sub. Disc. Nts.,
12/15/05(4)(8) 100,000 99,125
-----------------------------------------------------------------------------------------------------
GST USA, Inc., 0%/13.875% Bonds, 12/15/05(8) 800,000 464,000
-----------------------------------------------------------------------------------------------------
GTE Corp., 8.85% Debs., 3/1/98 300,000 311,343
-----------------------------------------------------------------------------------------------------
Horizon Cellular Telephone LP/Horizon Finance Corp.,
0%/11.375% Sr. Sub. Disc. Nts., 10/1/00(8) 1,250,000 1,178,125
-----------------------------------------------------------------------------------------------------
IntelCom Group (USA), Inc.:
0%/12.50% Gtd. Sr. Disc. Nts., 5/1/06(4)(8) 735,000 402,413
0%/13.50% Sr. Disc. Nts., 9/15/05(8) 600,000 361,500
-----------------------------------------------------------------------------------------------------
MFS Communications Co., Inc.:
0%/8.875% Sr. Disc. Nts., 1/15/06(8) 2,000,000 1,215,000
0%/9.375% Sr. Disc. Nts., 1/15/04(8) 350,000 266,000
13 Oppenheimer Bond Fund
<PAGE>
Statement of Investments (Unaudited) (Continued)
Face Market Value
Amount(1) See Note 1
================================================================
===================================================================
Telecommunications New York Telephone Co., 9.375% Debs., 7/15/31 $ 2,500,000 $ 2,767,632
(continued) -----------------------------------------------------------------------------------------------------
Pacific Bell, 8.50% Debs., 8/15/31 2,000,000 2,080,144
-----------------------------------------------------------------------------------------------------
PriCellular Wireless Corp., 0%/14% Sr. Sub. Disc. Nts., 11/15/01(8) 1,200,000 1,092,000
-----------------------------------------------------------------------------------------------------
Southern New England Telephone Co., 8.70% Medium-Term Nts., 8/15/31 2,000,000 2,053,304
-----------------------------------------------------------------------------------------------------
Teleport Communications Group, Inc., 0%/11.125% Sr. Disc. Nts.,
7/1/07(2)(8) 50,000 29,125
-----------------------------------------------------------------------------------------------------
USA Mobile Communications, Inc. II, 9.50% Sr. Nts., 2/1/04 500,000 465,000
-----------
16,212,398
-----------
Total Corporate Bonds and Notes (Cost $120,558,893) 121,284,174
Shares
================================================================
===================================================================
Preferred Stock--0.2%
- -----------------------------------------------------------------------------------------------------------------------------------
BankAmerica Corp., 8.375%, Series K (Cost $528,975) 20,300 517,650
Units
================================================================
===================================================================
Rights, Warrants and Certificates--0.1%
- -----------------------------------------------------------------------------------------------------------------------------------
American Communications Services, Inc. Wts., Exp. 11/05(4) 300 30,000
-----------------------------------------------------------------------------------------------------
Cellular Communications International, Inc. Wts., Exp. 8/03 500 7,500
-----------------------------------------------------------------------------------------------------
IntelCom Group, Inc. Wts., Exp. 9/05(4) 1,980 38,115
-----------
Total Rights, Warrants and Certificates (Cost $0) 75,615
Face
Amount(1)
================================================================
===================================================================
Repurchase Agreement--0.9%
- -----------------------------------------------------------------------------------------------------------------------------------
Repurchase agreement with First Chicago Capital Markets,
5.45%, dated 6/28/96, to be repurchased at $2,100,954 on 7/1/96,
collateralized by U.S. Treasury Bonds, 6.25%--11.25%, 2/15/07--8/15/23,
with a value of $1,407,827, and U.S. Treasury Nts., 4.75%--7.875%,
9/30/97--2/15/05 with a value of $734,685 (Cost $2,100,000) $2,100,000 2,100,000
- -----------------------------------------------------------------------------------------------------------------------------------
Total Investments, at Value (Cost $240,959,539) 106.1% 240,421,506
- -----------------------------------------------------------------------------------------------------------------------------------
Liabilities in Excess of Other Assets (6.1) (13,828,127)
----------- ------------
Net Assets 100.0% $226,593,379
=========== ============
</TABLE>
1. Face amount is reported in U.S. Dollars, except for those denoted in the
following currencies: CAD--Canadian Dollar NZD--New Zealand Dollar
2. When-issued security to be delivered and settled after June 30, 1996.
3. Interest-Only Strips represent the right to receive the monthly interest
payments on an underlying pool of mortgage loans. These securities typically
decline in price as interest rates decline. Most other fixed-income securities
increase in price when interest rates decline. The principal amount of the
underlying pool represents the notional amount on which current interest is
calculated. The price of these securities is typically more sensitive to changes
in prepayment rates than traditional mortgage-backed securities (for example,
GNMA pass-throughs). Interest rates disclosed represent current yields based
upon the current cost basis and estimated timing and amount of future cash
flows.
4. Represents a security sold under Rule 144A, which is exempt from registration
under the Securities Act of 1933, as amended. This security has been determined
to be liquid under guidelines established by the Board of Trustees. These
securities amount to $13,895,282 or 6.13% of the Fund's net assets, at June 30,
1996.
5. Represents the current interest rate for a variable rate security.
6. Principal-Only Strips represent the right to receive the monthly principal
payments on an underlying pool of mortgage loans. The value of these securities
generally increases as interest rates decline and prepayment rates rise. The
price of these securities is typically more volatile than that of coupon-bearing
bonds of the same maturity. Interest rates disclosed represent current yields
based upon the current cost basis and estimated timing of future cash flows.
7. Identifies issues considered to be illiquid--See Note 6 of Notes to Financial
Statements.
8. Denotes a step bond: a zero coupon bond that converts to a fixed rate of
interest at a designated future date.
9. For zero coupon bonds, the interest rate shown is the effective yield on the
date of purchase. See accompanying Notes to Financial Statements.
14 Oppenheimer Bond Fund
<PAGE>
<TABLE>
<CAPTION>
Statement of Assets and Liabilities June 30, 1996 (Unaudited)
================================================================
===================================================================
<S> <C> <C>
Assets Investments, at value (cost $240,959,539)--see accompanying statement $240,421,506
-----------------------------------------------------------------------------------------------------
Cash 20,059
-----------------------------------------------------------------------------------------------------
Receivables:
Interest, dividends and principal paydowns 3,837,248
Investments sold 838,361
Shares of beneficial interest sold 251,740
-----------------------------------------------------------------------------------------------------
Other 9,406
-----------
Total assets 245,378,320
- -----------------------------------------------------------------------------------------------------------------------------------
Liabilities Payables and other liabilities:
Investments purchased (including $16,942,816 purchased on a when-issued basis)--Note 1 17,497,816
Dividends 657,200
Shares of beneficial interest redeemed 407,337
Distribution and service plan fees 136,269
Daily variation on futures contracts--Note 5 46,406
Transfer and shareholder servicing agent fees 10,909
Other 29,004
-----------
Total liabilities 18,784,941
================================================================
===================================================================
Net Assets $226,593,379
============
================================================================
===================================================================
Composition of Paid-in capital $230,498,809
Net Assets -----------------------------------------------------------------------------------------------------
Undistributed net investment income 116,937
-----------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign currency transactions (3,372,204)
-----------------------------------------------------------------------------------------------------
Net unrealized depreciation on investments and translation of assets and
liabilities denominated in foreign currencies (650,163)
-----------
Net assets $226,593,379
================================================================
===================================================================
Net Asset Value Class A Shares:
Per Share Net asset value and redemption price per share (based on net assets of
$185,953,610 and 17,713,731 shares of beneficial interest outstanding) $10.50
Maximum offering price per share (net asset value plus sales charge of
4.75% of offering price) $11.02
-----------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price and offering price per share (based on net assets of
$37,353,716 and 3,559,164 shares of beneficial interest outstanding) $10.50
-----------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price and offering price per share (based on net assets of
$3,286,053 and 312,817 shares of beneficial interest outstanding) $10.50
See accompanying Notes to Financial Statements.
15 Oppenheimer Bond Fund
<PAGE>
Statement of Operations For the Six Months Ended June 30, 1996 (Unaudited)
================================================================
===================================================================
Investment Income Interest (net of foreign withholding taxes of $1,379) $ 9,065,473
-----------------------------------------------------------------------------------------------------
Dividends 21,251
-----------
Total income 9,086,724
================================================================
===================================================================
Expenses Management fees--Note 4 792,003
-----------------------------------------------------------------------------------------------------
Distribution and service plan fees--Note 4:
Class A 210,922
Class B 190,591
Class C 15,113
-----------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 4 167,434
-----------------------------------------------------------------------------------------------------
Shareholder reports 78,844
-----------------------------------------------------------------------------------------------------
Custodian fees and expenses 28,634
-----------------------------------------------------------------------------------------------------
Legal and auditing fees 8,377
-----------------------------------------------------------------------------------------------------
Insurance expenses 3,724
-----------------------------------------------------------------------------------------------------
Trustees' fees and expenses 3,146
-----------------------------------------------------------------------------------------------------
Other 10,066
-----------
Total expenses 1,508,854
================================================================
===================================================================
Net Investment Income 7,577,870
================================================================
===================================================================
Realized and Net realized gain (loss) on:
Unrealized Gain (Loss) Investments 713,084
Closing of futures contracts 69,829
Foreign currency transactions (25,772)
-----------
Net realized gain 757,141
-----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on:
Investments (10,067,208)
Translation of assets and liabilities denominated in foreign currencies 72,109
-----------
Net change (9,995,099)
-----------
Net realized and unrealized loss (9,237,958)
================================================================
===================================================================
Net Decrease in Net Assets Resulting From Operations $(1,660,088)
===========
</TABLE>
See accompanying Notes to Financial Statements.
16 Oppenheimer Bond Fund
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1996 December 31
(Unaudited) 1995
================================================================
===================================================================
<S> <C> <C> <C>
Operations Net investment income $ 7,577,870 $ 8,346,267
-----------------------------------------------------------------------------------------------------
Net realized gain (loss) 757,141 (300,777)
-----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation (9,995,099) 12,065,900
----------- -----------
Net increase (decrease) in net assets resulting from operations (1,660,088) 20,111,390
================================================================
===================================================================
Dividends and Distributions Dividends from net investment income:
To Shareholders Class A (6,232,922) (7,564,945)
Class B (1,245,326) (751,223)
Class C (99,622) (29,746)
================================================================
===================================================================
Beneficial Interest Net increase (decrease) in net assets resulting from beneficial
Transactions interest transactions--Note 2:
Class A 24,280,014 61,827,603
Class B (105,240) 34,622,947
Class C (560,731) 3,910,520
================================================================
===================================================================
Net Assets Total increase 14,376,085 112,126,546
-----------------------------------------------------------------------------------------------------
Beginning of period 212,217,294 100,090,748
------------ ------------
End of period (including undistributed net investment
income of $116,937 and $116,937, respectively) $226,593,379 $212,217,294
============ ============
See accompanying Notes to Financial Statements.
</TABLE>
17 Oppenheimer Bond Fund
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Class A
----------------------------------------------------------------------------------
Six
Months
Ended
June 30,
1996 Year Ended December 31,
(Unaudited) 1995 1994 1993 1992 1991(3)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Data:
Net asset value, beginning of period $10.98 $10.01 $11.12 $10.74 $10.80 $ 9.86
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .40 .69 .65 .69 .75 .82
Net realized and unrealized gain (loss) (.49) .96 (1.08) .40 (.05) .90
-------- -------- ------- -------- -------- -------
Total income (loss) from
investment operations (.09) 1.65 (.43) 1.09 .70 1.72
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.39) (.68) (.65) (.71) (.76) (.78)
Dividends in excess of net
investment income -- -- (.03) -- -- --
-------- -------- ------- -------- -------- -------
Total dividends and distributions
to shareholders (.39) (.68) (.68) (.71) (.76) (.78)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.50 $10.98 $10.01 $11.12 $10.74 $10.80
======== ======== ======== ======== ========
=======
================================================================
===================================================================
Total Return, at Net Asset Value(4) (0.83)% 16.94% (3.87)% 10.30% 6.77% 18.28%
================================================================
===================================================================
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) $185,954 $169,059 $ 96,640 $110,759 $106,290 $90,623
- ------------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $171,653 $116,940 $102,168 $111,702 $ 98,672 $86,471
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 7.30%(5) 6.47% 6.25% 6.20% 7.00% 8.02%
Expenses, before voluntary
reimbursement by the Manager 1.28%(5) 1.27% 1.06% 1.06% 1.10% 1.23%
Expenses, net of voluntary
reimbursement by the Manager N/A 1.26% N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 79.2% 175.4% 70.3% 110.1% 116.4% 97.1%
</TABLE>
(re-stub table)
<PAGE>
<TABLE>
<CAPTION>
Class B Class C
------------------------------------------------ -----------------------------
Six Six
Months Months
Ended Ended Period
June 30, June 30, Ended
1996 Year Ended December 31, 1996 Dec. 31,
(Unaudited) 1995 1994 1993(2) (Unaudited) 1995(1)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Data:
Net asset value, beginning of period $10.98 $10.01 $11.11 $11.10 $10.99 $10.89
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .37 .63 .58 .40 .36 .28
Net realized and unrealized gain (loss) (.50) .94 (1.08) .03 (.50) .10
------- ------- ------ ------ ------ ------
Total income (loss) from
investment operations (.13) 1.57 (.50) .43 (.14) .38
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.35) (.60) (.57) (.42) (.35) (.28)
Dividends in excess of net
investment income -- -- (.03) -- -- --
------- ------- ------ ------ ------ ------
Total dividends and distributions
to shareholders (.35) (.60) (.60) (.42) (.35) (.28)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.50 $10.98 $10.01 $11.11 $10.50 $10.99
======= ======= ====== ==== ======
====
================================================================
===================================================================
Total Return, at Net Asset Value(4) (1.21)% 16.06% (4.53)% 3.91% (1.28)% 3.76%
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) $37,354 $39,187 $3,451 $1,809 $3,286 $3,971
- -----------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $38,304 $12,823 $2,747 $922 $3,024 $979
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 6.53%(5) 5.84% 5.53% 4.80%(5) 6.59%(5) 6.32%(5)
Expenses, before voluntary
reimbursement by the Manager 2.04%(5) 2.12% 1.78% 1.90%(5) 2.04%(5) 2.25%(5)
Expenses, net of voluntary
reimbursement by the Manager N/A 2.08% N/A N/A N/A 1.96%(5)
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 79.2% 175.4% 70.3% 110.1% 79.2% 175.4%
</TABLE>
(end re-stub table)
1. For the period from July 11, 1995 (inception of offering) to December 31,
1995.
2. For the period from May 1, 1993 (inception of offering) to December 31,
1993.
3. On March 28, 1991, OppenheimerFunds, Inc. 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 (or inception of offering), with all
dividends and distributions reinvested in additional shares on the reinvestment
date, and redemption at the net asset value calculated on the last business day
of the fiscal period. Sales charges are not reflected in the total returns.
Total returns are not annualized for periods of less than one full year.
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 period ended June 30, 1996 were $175,519,460 and
$176,129,113, respectively. See accompanying Notes to Financial Statements.
18 Oppenheimer Bond Fund
<PAGE>
Notes to Financial Statements (Unaudited)
================================================================
================
1. Significant
Accounting Policies
Oppenheimer 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 objective
is to seek a high level of current income by investing mainly in debt
instruments. The Fund's investment advisor is OppenheimerFunds, Inc. (the
Manager). The Fund offers Class A, Class B and Class C shares. Class A shares
are sold with a front-end sales charge. Class B and Class C shares may be
subject to a contingent deferred sales charge. All three classes of shares have
identical rights to earnings, assets and voting privileges, except that each
class has its own distribution and/or service plan, expenses directly
attributable to a particular class and exclusive voting rights with respect to
matters affecting a single class. Class B shares will automatically convert to
Class A shares six years after the date of purchase. The following is a summary
of significant accounting policies consistently followed by the Fund.
- --------------------------------------------------------------------------------
Investment Valuation. Portfolio securities are valued at the close of the New
York Stock Exchange on each trading day. Listed and unlisted securities for
which such information is regularly reported are valued at the last sale price
of the day or, in the absence of sales, at values based on the closing bid or
asked price or the last sale price on the prior trading day. Long-term and
short-term ``non-money market'' debt securities are valued by a portfolio
pricing service approved by the Board of Trustees. Such securities which cannot
be valued by the approved portfolio pricing service are valued using
dealer-supplied valuations provided the Manager is satisfied that the firm
rendering the quotes is reliable and that the quotes reflect current market
value, or are valued under consistently applied procedures established by the
Board of Trustees to determine fair value in good faith. Short-term ``money
market type'' debt securities having a remaining maturity of 60 days or less are
valued at cost (or last determined market value) adjusted for amortization to
maturity of any premium or discount.
- --------------------------------------------------------------------------------
Securities Purchased on a When-Issued Basis. Delivery and payment for securities
that have been purchased by the Fund on a forward commitment or when-issued
basis can take place a month or more after the transaction date. During this
period, such securities do not earn interest, are subject to market fluctuation
and may increase or decrease in value prior to their delivery. The Fund
maintains, in a segregated account with its custodian, assets with a market
value equal to the amount of its purchase commitments. The purchase of
securities on a when-issued or forward commitment basis may increase the
volatility of the Fund's net asset value to the extent the Fund makes such
purchases while remaining substantially fully invested. As of June 30, 1996, the
Fund had entered into outstanding when-issued or forward commitments of
$16,942,816.
In connection with its ability to purchase securities on a
when-issued or forward commitment basis, the Fund may enter into mortgage
"dollar-rolls" in which the Fund sells securities for delivery in the current
month and simultaneously contracts with the same counterparty to repurchase
similar (same type coupon and maturity) but not identical securities on a
specified future date. The Fund records each dollar-roll as a sale and a new
purchase transaction.
- --------------------------------------------------------------------------------
Repurchase Agreements. The Fund requires the custodian to take possession, to
have legally segregated in the Federal Reserve Book Entry System or to have
segregated within the custodian's vault, all securities held as collateral for
repurchase agreements. The market value of the underlying securities is required
to be at least 102% of the resale price at the time of purchase. If the seller
of the agreement defaults and the value of the collateral declines, or if the
seller enters an insolvency proceeding, realization of the value of the
collateral by the Fund may be delayed or limited.
- --------------------------------------------------------------------------------
Allocation of Income, Expenses, and Gains and Losses. Income, expenses (other
than those attributable to a specific class) and gains and losses are allocated
daily to each class of shares based upon the relative proportion of net assets
represented by such class. Operating expenses directly attributable to a
specific class are charged against the operations of that class.
- --------------------------------------------------------------------------------
Federal 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 or excise tax provision is required.
- --------------------------------------------------------------------------------
Distributions to Shareholders. The Fund intends to declare dividends separately
for Class A, Class B and Class C 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.
- --------------------------------------------------------------------------------
Foreign Currency Translation. The accounting records of the Fund are maintained
in U.S. dollars. Prices of securities denominated in foreign currencies are
translated into U.S. dollars at the closing rates of exchange.
Amounts related to the purchase and sale of securities and investment
income are translated at the rates of exchange prevailing on the respective
dates of such transactions.
19 Oppenheimer Bond Fund
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
================================================================
================
1. Significant
Accounting Policies
(continued)
The effect of changes in foreign currency exchange rates on
investments is separately identified from the fluctuations arising from changes
in market values of securities held and reported with all other foreign currency
gains and losses in the Fund's Statement of Operations.
- --------------------------------------------------------------------------------
Classification of Distributions to Shareholders. Net investment income (loss)
and net realized gain (loss) may differ for financial statement and tax purposes
primarily because of paydown gains and losses and the recognition of certain
foreign currency gains (losses) as ordinary income (loss) for tax purposes. The
character of the distributions made during the year from net investment income
or net realized gains may differ from their ultimate characterization for
federal income tax purposes. Also, due to timing of dividend distributions, the
fiscal year in which amounts are distributed may differ from the year that the
income or realized gain (loss) was recorded by the Fund.
- --------------------------------------------------------------------------------
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.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
================================================================
================
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:
<TABLE>
<CAPTION>
Six Months Ended June 30, 1996 Year Ended December 31, 1995(1)
------------------------------- -------------------------------
Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A:
Sold 997,446 $10,649,050 3,592,604 $37,958,201
Dividends reinvested 381,025 4,052,825 401,453 4,283,086
Issued in connection with the acquisition of:
Oppenheimer Strategic Investment Grade
Bond Fund--Note 7 -- -- 2,101,654 22,529,733
Quest Investment Quality Income Fund--Note 7 -- -- 3,900,357 42,201,864
Connecticut Mutual Income Account--Note 7 3,020,216 31,863,280
Redeemed (2,084,795) (22,285,141) (4,249,502) (45,145,281)
--------- ----------- ---------- ------------
Net increase 2,313,892 $24,280,014 5,746,566 $61,827,603
========= =========== ==========
============
- -----------------------------------------------------------------------------------------------------------------------------------
Class B:
Sold 574,079 $ 6,136,963 1,038,290 $11,014,073
Dividends reinvested 81,035 862,539 45,815 494,471
Issued in connection with the acquisition of:
Oppenheimer Strategic Investment Grade
Bond Fund--Note 7 -- -- 1,474,533 15,806,991
Quest Investment Quality Income Fund--Note 7 -- -- 1,236,995 13,384,283
Connecticut Mutual Income Account--Note 7 8,156 86,045 -- --
Redeemed (674,576) (7,190,787) (569,823) (6,076,871)
--------- ----------- ---------- -----------
Net increase (decrease) (11,306) $ (105,240) 3,225,810 $34,622,947
========= =========== ==========
============
- ------------------------------------------------------------------------------------------------------------------------------------
Class C:
Sold 136,804 $ 1,474,891 47,725 $516,952
Dividends reinvested 7,678 81,695 1,625 17,809
Issued in connection with the acquisition of:
Quest Investment Quality Income Fund--Note 7 -- -- 362,821 3,929,348
Redeemed (193,116) (2,117,317) (50,720) (553,589)
--------- ----------- ---------- -----------
Net increase (decrease) (48,634) $ (560,731) 361,451 $ 3,910,520
========= =========== ==========
===========
</TABLE>
1. For the year ended December 31, 1995 for Class A and Class B shares and for
the period from July 11, 1995 (inception of offering) to December 31, 1995 for
Class C shares.
20 Oppenheimer Bond Fund
<PAGE>
================================================================
================
3. Unrealized Gains and
Losses on Investments
At June 30, 1996, net unrealized depreciation of investments of $538,033 was
composed of gross appreciation of $4,342,060, and gross depreciation of
$4,880,093.
================================================================
================
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 a fee of 0.75% of the first
$200 million of the Fund's average annual net assets, 0.72% of the next $200
million, 0.69% of the next $200 million, 0.66% of the next $200 million, 0.60%
of the next $200 million, and 0.50% of aggregate net assets over $1 billion. The
Manager has agreed to reimburse the Fund if aggregate expenses (with specified
exceptions) exceed the most stringent applicable regulatory limit on Fund
expenses.
For the six months ended June 30, 1996, commissions (sales charges
paid by investors) on sales of Class A shares totaled $171,715, of which $66,376
was retained by OppenheimerFunds Distributor, Inc. (OFDI), a subsidiary of the
Manager, as general distributor, and by an affiliated broker/dealer. Sales
charges advanced to broker/dealers by OFDI on sales of the Fund's Class B and
Class C shares totaled $178,187 and $13,095, of which $11,039 was paid to an
affiliated broker/dealer for Class B shares. During the six months ended June
30, 1996, OFDI received contingent deferred sales charges of $57,931 upon
redemption of Class B shares as reimbursement for sales commissions advanced by
OFDI at the time of sale of such shares.
OppenheimerFunds Services (OFS), a division of the Manager, is the
transfer and shareholder servicing agent for the Fund, and for other registered
investment companies. OFS's total costs of providing such services are allocated
ratably to these companies.
The Fund has adopted a Service Plan for Class A shares to reimburse
OFDI for a portion of its costs incurred in connection with the personal service
and maintenance of accounts that hold Class A shares. Reimbursement is made
quarterly at an annual rate that may not exceed 0.25% of the average annual net
assets of Class A shares of the Fund. OFDI uses the service fee to reimburse
brokers, dealers, banks and other financial institutions quarterly for providing
personal service and maintenance of accounts of their customers that hold Class
A shares. During the six months ended June 30, 1996, OFDI paid $82,225 to an
affiliated broker/dealer as reimbursement for Class A personal service and
maintenance expenses.
The Fund has adopted compensation type Distribution and Service Plans
for Class B and Class C shares to compensate OFDI for its services and costs in
distributing Class B and Class C shares and servicing accounts. Under the Plans,
the Fund pays OFDI an annual asset-based sales charge of 0.75% per year on Class
B shares that are outstanding for 6 years or less and on Class C shares, as
compensation for sales commissions paid from its own resources at the time of
sale and associated financing costs. If the Plans are terminated by the Fund,
the Board of Trustees may allow the Fund to continue payments of the asset-based
sales charge to OFDI for certain expenses it incurred before the Plans were
terminated. OFDI also receives a service fee of 0.25% per year as compensation
for costs incurred in connection with the personal service and maintenance of
accounts that hold shares of the Fund, including amounts paid to brokers,
dealers, banks and other financial institutions. Both fees are computed on the
average annual net assets of Class B and Class C shares, determined as of the
close of each regular business day. During the six months ended June 30, 1996,
OFDI paid $2,847 to an affiliated broker/dealer as compensation for Class B
personal service and maintenance expenses and retained $157,177 and $15,133,
respectively, as compensation for Class B and Class C sales commissions and
service fee advances, as well as financing costs. At June 30, 1996, OFDI had
incurred unreimbursed expenses of $1,171,082 for Class B and $41,410 for Class
C.
================================================================
================
5. Futures Contracts
The Fund may buy and sell interest rate futures contracts in order to gain
exposure to or protect against changes in interest rates. The Fund may also buy
or write put or call options on these futures contracts.
The Fund generally sells futures contracts to hedge against increases
in interest rates and the resulting negative effect on the value of fixed rate
portfolio securities. The Fund may also purchase futures contracts to gain
exposure to changes in interest rates as it may be more efficient or cost
effective than actually buying fixed income securities.
Upon entering into a futures contract, the Fund is required to deposit
either cash or securities in an amount (initial margin) equal to a certain
percentage of the contract value. Subsequent payments (variation margin) are
made or received by the Fund each day. The variation margin payments are equal
to the daily changes in the contract value and are recorded as unrealized gains
and losses. The Fund recognizes a realized gain or loss when the contract is
closed or expires.
21 Oppenheimer Bond Fund
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
================================================================
================
5. Futures Contracts
(continued)
Securities held in collateralized accounts to cover initial margin requirements
on open futures contracts are noted in the Statement of Investments. The
Statement of Assets and Liabilities reflects a receivable or payable for the
daily mark to market for variation margin.
Risks of entering into futures contracts (and related options) include
the possibility that there may be an illiquid market and that a change in the
value of the contract or option may not correlate with changes in the value of
the underlying securities.
At June 30, 1996, the Fund had outstanding futures contracts to sell debt
securities as follows:
Expiration Number of Valuation as of Unrealized
Contracts to Sell Date Futures Contracts June 30, 1996 Depreciation
- --------------------------------------------------------------------------------
U.S. Treasury Nts. 9/96 90 $9,517,500 $112,500
================================================================
================
6. Illiquid and Restricted
Securities
At June 30, 1996, investments in securities included issues that are illiquid or
restricted. The securities are often purchased in private placement
transactions, are not registered under the Securities Act of 1933, may have
contractual restrictions on resale, and are valued under methods approved by the
Board of Trustees as reflecting fair value. A security may also be considered
illiquid if its valuation has not changed for a certain period of time. The Fund
intends to invest no more than 10% of its net assets (determined at the time of
purchase and reviewed from time to time) in illiquid or restricted securities.
The aggregate value of these securities subject to this limitation at June 30,
1996 was $753,750 which represents 0.33% of the Fund's net assets. Information
concerning these securities is as follows:
<TABLE>
<CAPTION>
Valuation
Per Unit as of
Security Acquisition Date Cost Per Unit June 30, 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pulsar International SA de CV, 11.80% Nts., 9/19/96 9/14/95 $100.00 $100.50
</TABLE>
Pursuant to guidelines adopted by the Board of Trustees, certain unregistered
securities are determined to be liquid and are not included within the 10%
limitation specified above.
================================================================
================
7. Acquisition of Oppenheimer
Strategic Investment
Grade Bond Fund, Quest
Investment Quality Income
Fund and Connecticut
Mutual Income Account
On September 22, 1995, the Fund acquired all the net assets of Oppenheimer
Strategic Investment Grade Bond Fund, pursuant to an Agreement and Plan of
Reorganization approved by the Oppenheimer Strategic Investment Grade Bond Fund
shareholders on September 20, 1995. The Fund issued 2,101,654 and 1,474,533
shares of beneficial interest for Class A and Class B, respectively, valued at
$22,529,733 and $15,806,991 in exchange for the net assets, resulting in
combined Class A net assets of $125,283,258 and Class B net assets of
$24,206,043 on September 22, 1995. The net assets acquired included net
unrealized appreciation of $772,151. The exchange qualifies as a tax-free
reorganization for federal income tax purposes.
On November 24, 1995, the Fund acquired all the net assets of Quest
Investment Quality Income Fund, pursuant to an Agreement and Plan of
Reorganization approved by the Quest Investment Quality Income Fund sharehold
ers on November 16, 1995. The Fund issued 3,900,357, 1,236,995 and 362,821
shares of beneficial interest for Class A, Class B and Class C, respectively,
valued at $42,201,864, $13,384,283 and $3,929,348 in exchange for the net
assets, resulting in combined Class A net assets of $168,776,907, Class B net
assets of $38,281,909 and Class C net assets of $4,265,500 on November 24, 1995.
The net assets acquired included net unrealized appreciation of $2,983,610. The
exchange qualifies as a tax-free reorganization for federal income tax purposes.
On April 26, 1996, the Fund acquired all the net assets of Connecticut
Mutual Income Account, pursuant to an agreement and plan of reorganization
approved by the Connecticut Mutual Income Account shareholders on March 18,
1996. The Fund issued 3,020,216 and 8,156 shares of beneficial interest for
Class A and Class B, respectively, valued at $31,863,280 and $86,045, in
exchange for the net assets, resulting in combined Class A net assets of
$189,629,984 and Class B net assets of $6,106,676 on April 26, 1996. The net
assets acquired included net unrealized depreciation of $633,176. The exchange
qualifies as a tax-free reorganization for federal income tax purposes.
22 Oppenheimer Bond Fund
<PAGE>
Oppenheimer Bond Fund
A Series of Oppenheimer Integrity Funds
================================================================
===============
Officers and Trustees James C. Swain, Chairman and Chief Executive Officer
Bridget A. Macaskill, President
Robert G. Avis, Trustee
William A. Baker, Trustee
Charles Conrad, Jr., Trustee
Raymond J. Kalinowski, Trustee
C. Howard Kast, Trustee
Robert M. Kirchner, Trustee
Ned M. Steel, Trustee
George C. Bowen, Vice President,
Treasurer and Assistant Secretary
Andrew J. Donohue, Vice President and Secretary
David P. Negri, Vice President
David Rosenberg, Vice President
Robert J. Bishop, Assistant Treasurer
Scott T. Farrar, Assistant Treasurer
Robert G. Zack, Assistant Secretary
================================================================
===============
Investment Advisor OppenheimerFunds, Inc.
================================================================
===============
Distributor OppenheimerFunds Distributor, Inc.
================================================================
===============
Transfer and Shareholder
Servicing Agent OppenheimerFunds Services
================================================================
===============
Custodian of
Portfolio Securities The Bank of New York
================================================================
===============
Independent Auditors Deloitte & Touche LLP
================================================================
===============
Legal Counsel Myer, Swanson, Adams & Wolf, P.C.
The financial statements included herein have been taken from the records of the
Fund without examination by the independent auditors. This is a copy of a report
to shareholders of Oppenheimer Bond Fund. This report must be preceded by a
Prospectus of Oppenheimer Bond Fund. For material information concerning the
Fund, see the Prospectus. Shares of Oppenheimer funds are not deposits or
obligations of any bank, are not guaranteed by any bank, and are not insured by
the FDIC or any other agency, and involve investment risks, including possible
loss of the principal amount invested.
23 Oppenheimer Bond Fund
<PAGE>
[BACK COVER]
Information
General Information
Monday-Friday 8:30 a.m.-9 p.m. ET
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1-800-835-3104
RS0285.001.0696 August 31, 1996
[Picture of Jennifer Leonard]
[Caption] Jennifer Leonard, Customer Service Representative
OppenheimerFunds Services
"How may I help you?"
As an Oppenheimer fund shareholder, you have some special privileges. Whether
it's automatic investment plans, informative newsletters and hotlines, or ready
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And when you need help, our Customer Service Representatives are only a
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When you want to make a transaction, you can do it easily by calling
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convenient service that "links" your Oppenheimer funds accounts and your bank
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For added convenience, you can get automated information with
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PhoneLink gives you access to a variety of fund, account, and market
information. Of course, you can always speak with a Customer Service
Representative during the General Information hours shown at the left.
You can count on us whenever you need assistance. That's why the
International Customer Service Association, an independent, nonprofit
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from around the country, honored the Oppenheimer funds' transfer agent,
OppenheimerFunds Services, with their Award of Excellence in 1993.
So call us today--we're here to help.
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OppenheimerFunds Distributor, Inc.
P.O. Box 5270
Denver, CO 80217-5270
- ---------------------------------------------
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Farmingdale, NY
- ---------------------------------------------
<PAGE>
JEFFERSON-PILOT
FAMILY OF FUNDS
_____________________________________
PROSPECTUS
______________________________________
May 1, 1996
Jefferson-Pilot Capital Appreciation Fund
Jefferson-Pilot Investment Grade Bond Fund
Jefferson-Pilot Capital Appreciation Fund, Inc. has as its primary objective
long term capital appreciation. A secondary objective is current income
through the receipt of interest or dividends.
Jefferson-Pilot Investment Grade Bond Fund, Inc. has as its primary objective
the maximum level of current income as is consistent with prudent risk. A
secondary objective is growth of income and capital.
This Prospectus sets forth concisely information about the above mentioned
companies that a prospective investor ought to know before investing.
Investors are advised to read and retain this Prospectus for future reference.
A Statement of Additional Information dated May 1, 1996 for each of the
above mentioned companies on file with the Securities and Exchange Commission
is, in its entirety, incorporated by reference in and made a part of this
Prospectus and is available without charge upon request to Jefferson-Pilot
Investor Services, Inc., PO Box 22086, Greensboro, NC 27420.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<PAGE>
Table of Contents
Shareholder Transaction Expenses . . . . . . . . . . . . . . . . . . . . .3
Condensed Financial Information. . . . . . . . . . . . . . . . . . . . . .4
Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
General Description. . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Investment Objectives and Policies . . . . . . . . . . . . . . . . . . . .7
Portfolio Managers . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
How To Purchase Shares . . . . . . . . . . . . . . . . . . . . . . . . . 9
Shareholder Services . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Who Manages The Funds. . . . . . . . . . . . . . . . . . . . . . . . . . 12
Dividends, Distributions and Taxes . . . . . . . . . . . . . . . . . . . 13
How To Redeem Shares . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . 15
<PAGE>
Jefferson-Pilot Capital Appreciation Fund, Inc.
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases 4.50%
(as a percentage of the Offering Price)
Maximum Sales Load Imposed on Reinvested .0%
Dividends (as a percentage of Offering Price)
Exchange Fee None
Annual Fund Operating Expenses
(as percentage of average net assets)
Management Fees .50%
Other Expenses .37%
Total Fund Operating Expenses .87%
Example
You would pay the following expenses 1 year 3 years 5 years 10 years
on a $1,000 investment assuming (1) a 5%
annual return and (2) redemption at the
end of each time period:
$33 $72 $91 $147
Jefferson-Pilot Investment Grade Bond Fund, Inc.
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases 4.50%
(as a percentage of the Offering Price)
Maximum Sales Load Imposed on Reinvested .0%
Dividends (as a percentage of Offering Price)
Exchange Fee None
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees .50%
Other Expenses .46%
Total Fund Operating Expenses .96%
<PAGE>
Example
1 year 3 years 5 years 10 years
You would pay the following expenses
on a $1,000 investment assuming (1) a
5% annual return and (2) redemption
at the end of each time period: $54 $74 $96 $158
The purpose of the preceding tables is to assist the prospective investor with
a more detailed understanding of the various cost and expenses that will be
charged, directly or indirectly, against the investment to be made in the Funds.
These costs and expenses are more fully described in Sections entitled "How to
Purchase Shares", "Shareholder Services" and "Who Manages The Funds" found
elsewhere in this Prospectus. THE EXPENSES SET FORTH IN THE TABLE ABOVE SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE COST, AND ACTUAL EXPENSES
MAY BE GREATER OR LESSER THAN THOSE SHOWN ABOVE.
Condensed Financial Information
The following selected per share data and ratios of Jefferson-Pilot Capital
Appeciation Fund, Inc. and Jefferson-Pilot Investment Grade Bond Fund, Inc.
(the "Funds") have been audited by McGladrey & Pullen, LLP, Independent
Certified Public Accountants, as set forth in their opinion appearing in the
Statement of Additional Information for each of the Funds.
Jefferson-Pilot Investment Grade Bond Fund, Inc.
<TABLE>
<CAPTION>
Year Ended December 31
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<C>
Per share operating performance (for a
share outstanding throughout the year)
Net asset value, beginning of year $8.70 $9.89 $9.57 $9.65 $ 9.23 $ 9.48 $ 9.21 $ 9.32 $ 9.96 $ 9.34
Income from investment operations
Net investment income .60 0.62 0.64 0.66 0.76 0.82 0.83 0.82 0.83 0.84
Net realized and unrealized gain (loss)
on investments .96 (1.21) 0.32 (0.06) 0.44 (0.25) 0.28 (0.11) (0.63) 0.63
Total from investment operations 1.56 ( .59) .96 0.60 1.20 0.57 1.11 0.71 0.20 1.47
Less distributions
Dividends from net investment income (0.60) (0.60) (0.64) (0.68) ( 0.78) (0.82) (0.84) (0.82) (0.84) (0.85)
Distributions from net realized gains - - - - - - - - - -
Total distributions (0.60) (0.60) (0.64) (0.68) ( 0.78) (0.82) (0.84) (0.82) (0.84) (0.85)
Net asset value, end of year $9.66 $8.70 $9.89 $9.57 $ 9.65 $ 9.23 $ 9.48 $ 9.21 $ 9.32 $ 9.96
Total return (without deduction of
sales load) 18.39% (5.97)% 10.24% 6.53% 13.76% 6.54% 12.60% 7.94% 2.31% 16.49%
Ratios/supplemental data:
Net assets, end of year (000 omitted) $22,290 $21,032 $23,632 $21,359 $19,313 $18,083 $18,209 $17,665 $17,850 $19,602
Ratios to average net assets:
Expenses 0.96% 0.85% 0.86% 0.93% 0.93% 0.91% 0.85% 0.85% 0.82% 0.91%
Net investment income 6.40% 8.32% 6.46% 6.99% 8.18% 8.96% 8.90% 8.87% 8.77% 8.63%
Portfolio turnover rate 33.91% 41.01% 21.34% 25.53% 23.65% - 7.60% 6.45% 6.34% 6.05%
</TABLE>
<PAGE>
Jefferson-Pilot Capital Appreciation Fund, Inc.
<TABLE>
<CAPTION>
Year Ended December 31
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<C>
Per share operating performance
(for a share outstanding throughout
the year)
Net asset value, beginning of year $ 12.56 $ 17.05 $ 17.44 $ 18.02 $ 14.09 $ 14.81 $ 12.31 $ 11.79 $ 13.62 $ 15.94
Income from investment operations
Net investment income 0.25 0.29 0.23 0.23 0.32 0.36 0.39 0.30 0.33 0.42
Net realized and unrealized gain
(loss) on investments 4.03 (1.12) 1.04 0.75 4.13 (0.57) 3.38 0.55 (0.26) 1.53
Total from investment operations 4.28 (0.83) 1.27 0.98 4.45 (0.21) 3.77 0.85 0.07 1.95
Less distributions
Dividends from net investment income (0.24) (0.28) (0.22) (0.27) (0.33) (0.35) (0.40) (0.30) (0.36) (0.50)
Distributions from net realized gains (0.64) (3.38) (1.44) (1.29) (0.19) (0.16) (0.87) (0.03) (1.54) (3.77)
Total distributions (0.88) (3.66) (1.66) (1.56) (0.52) (0.51) (1.27) (0.33) (1.90) (4.27)
Net asset value, end of year $ 15.96 $ 12.56 $ 17.05 $ 17.44 $ 18.02 $ 14.00 $ 14.81 $ 12.31 $ 11.79 $ 13.62
Total return (without deduction
of sales load) 34.47% (4.63) 7.68% 5.60% 32.22% (1.42%) 31.28% 7.29% 0.88% 13.80%
Ratios/supplemental data:
Net assets, end of year (000 omitted) $37,831 $32,383 $38,045 $34,898 $33,836 $25,840 $26,705 $23,649 $23,147 $23,625
Ratios to average net assets:
Expenses 0.87% 0.83% 0.84% 0.87% 0.87% 0.88% 0.89% 0.88% 0.79% 0.89%
Net investment income 1.66% 1.74% 1.30% 1.30% 1.98% 2.52% 2.75% 2.51% 2.16% 2.70%
Portfolio turnover rate 65.27% 143.81% 26.89% 53.38% 36.70% 30.55% 59.88% 73.63% 79.56% 63.99%
</TABLE>
<PAGE>
Performance
Capital Appreciation Fund
[Line Chart showing Comparison of Change in Value of $10,000
Investment In The Capital Appreciation Fund and S&P 500 for
the ten year period 1985 through 1995]
For the 12-month period ended December 31, 1995, Jefferson-Pilot Capital
Appreciation Fund had an annual total return of 34.47% (35.34% before expenses)
versus a total return for the S&P 500 of 37.53%. The Capital Appreciation Fund
continues to purchase stocks of those companies considered industry leaders,
that are attractively valued in relation to their earnings growth rate.
Convertible bonds and preferred stocks are purchased when appropriate. The
fund will pursue a future strategy of being fully invested and seeking superior
performance through stock selection with a neutral economic sector tilt relative
to the S&P 500.
Investment Grade Bond Fund
[Line Chart showing Comparison of Change in Value of
$10,000 Investment in Investment Grade Bond Fund and
Lehman Brothers Government/Corporate Index for the
ten year period 1985 through 1995.]
During the 12-month period December 31, 1995, the Bond Funds performance was
generally less than the Lehman Government/Corporate Index before expenses. After
adjusting performance for expenses, the Bond Funds total return of 18.39%
compared to the Index's total return of 19.24%. During 1995, the Bond Funds
performance was hampered by a duration position that was generally longer than
the duration of Lehman Government/Corporate Index. In response to last year's
underperformance, the Bond Fund reduced the duration of the portfolio to more
closely correspond to that of the Index. From a credit standpoint, the Bond
Fund employs a conservative strategy designed to maximize performance with the
context of investing primarily in A - rated or higher corporate and government
securities. All of the Fund's holdings at December 31, 1995 were rated
"investment grade" Moody's Investor Service, Inc. and Standard & Poor's
Corporation.
<PAGE>
General Description
Jefferson-Pilot Capital Appreciation Fund, Inc., formerly JP Growth Fund, Inc.
("Capital Appreciation") and Jefferson-Pilot Investment Grade Bond Fund, Inc.,
formerly JP Income Fund, Inc. ("Bond Fund") are corporations organized under
the laws of North Carolina on January 13, 1970 and January 24, 1978,
respectively. Each is registered under the Investment Company Act of 1940 as
an open-end diversified investment company.
Investment Objectives and Policies.
Capital Appreciation Fund The Capital Appreciation Fund's primary investment
objective is long-term capital appreciation. Current income through the
receipt of interest or dividends from investments is only a secondary
objective. The Capital Appreciation Fund proposes to achieve these objectives
by investing substantially all its assets in common stocks of companies
recognized as leaders in their respective industries with proven and capable
management and that are providing significant products and services to their
customers. The Capital Appreciation Fund's investments will be made
predominantly in securities listed on registered securities exchanges, but it
may purchase securities traded in the over-the-counter market. Investments
may be made in other equity securities, including rights, warrants, preferred
stock and those debt securities convertible into or carrying rights, warrants,
or options to purchase common stock or to participate in earnings. Not more
than five percent of the Fund's net assets may be invested in warrants (valued
at the lower of cost or market value) and not more than two percent of its net
assets may be invested in warrants not listed on the New York Stock Exchange.
The Capital Appreciation Fund may also hold cash or invest in short-term
securities and may purchase U. S. government obligations with a simultaneous
agreement by the seller to repurchase the securities at the original price
plus accrued interest; provided that not more than 10% of the Capital
Appreciation Fund's net assets may be invested in such repurchase agreements
that mature in more than seven days. Repurchase agreements involve certain
risks in the event of a default by the other party.
The percentage of assets invested in different types of securities will vary
from time to time depending upon the judgment of the management as to general
market and economic conditions, fiscal and monetary policy and trends in
interest rates and yields.
The Capital Appreciation Fund's investments (other than cash and U. S.
Government securities) are diversified among the securities issued by
different companies and governments to the extent that no more than 5% of its
total assets may be invested in securities issued by any one issuer. In
addition, management generally selects investments for the Fund from among
many different industries and may invest up to 25% of the Fund's assets in a
single industry. The investment restrictions (page 1, Statement of Additional
Information) include: limitations on borrowing money; no more than 10% of
assets may be invested in securities with a limited trading market; and no
more than 5% of assets may be invested in companies having a record of less
than three years of continuous operation. These restrictions, and the
investment objectives and policies described above, as well as most of the
additional restrictions described in the Statement of Additional Information,
cannot be changed without the approval of a majority of the Fund's outstanding
voting stock. While the Capital Appreciation Fund invests for long term growth
of capital and does not intend to place emphasis upon short-term trading
profits, it will sell securities held short term to take advantage of special
opportunities which might arise. Accordingly, the Capital Appreciation Fund
has historically had a portfolio turnover rate of less than 100%. The Capital
Appreciation Fund's portfolio turnover rates are shown in its respective table
under the caption "Condensed Financial Information".
<PAGE>
Generally, the Capital Appreciation Fund's expenses will increase in relative
proportion to an increase in its portfolio turnover rate and may result in
taxes on realized capital gains to be borne by the Fund or its shareholders.
See "Dividends, Distributions, and Taxes" in this prospectus and "Brokerage"
on page B-4 of the Statement of Additional Information of each Fund.
The Capital Appreciation Fund's investments are subject to market fluctuations
and risks inherent in all securities. There is no assurance that the Fund's
stated objectives will be realized.
Bond Fund The Bond Fund's primary investment objective is the maximum level
of current income as is consistent with prudent risk. A secondary objective
is growth of income and capital. The Bond Fund proposes to achieve these
objectives by investing primarily in fixed income securities rated A or
better by Standard & Poor's Corporation ("S&P") or Moody's Investors Service,
Inc. ("Moody's"). The Bond Fund will also purchase dividend paying common
stocks. Fixed income securities will include debt securities and preferred
stocks, some of which may have a call on common stock by means of conversion
privilege or attached warrants. When the incremental investment yield
available on corporate securities is small compared to that available on U. S.
Treasury securities, the Bond Fund may invest substantially in U. S. Treasury
securities. The Bond Fund may also hold cash or invest in short-term securities
and may purchase U. S. Government obligations with a simultaneous agreement by
the seller to repurchase the securities at the original price plus accrued
interest; provided that not more than 10% of the Fund's net assets may be
invested in such repurchase agreements that mature in more than seven days.
Repurchase agreements involve certain risks in the event of a default by the
other party.
The percentage of assets invested in different types of securities will vary
from time to time depending upon the judgment of the management as to general
market and economic conditions, fiscal and monetary policy and trends in
interest rates and yields.
The Bond Fund's investments (other than cash and U. S. Government securities)
are diversified among the securities issued by different companies and
governments to the extent that no more than 5% of its total assets may be
invested in securities issued by any one issuer. In addition, management
generally selects investments for the Bond Fund from among many different
industries and may invest up to 25% of the Bond Fund's assets in a single
industry. The investment restrictions (page 1, Statement of Additional
Information) include: limitations on borrowing money; no more than 10% of
assets may be invested in securities with a limited trading market; and no
more than 5% of assets may be invested in companies having a record of less
than three years of continuous operation. These restrictions, and the
investment objectives and policies described above, as well as most of the
additional restrictions described in the Statement of Additional Information,
cannot be changed without the approval of the majority of the Fund's
outstanding stock. While the Bond Fund does not intend to place emphasis upon
short-term trading profits, it will sell securities held short term to take
advantage of special opportunities which might arise. Accordingly, the Bond
Fund has historically had a portfolio turnover rate of less than 50%. The
Bond Fund's portfolio turnover rates are shown in its respective table under
the caption "Condensed Financial Information".
The Bond Fund's investments are subject to market fluctuations and risks
inherent in all securities. There is no assurance that the Bond Fund's stated
objectives will be realized.
<PAGE>
Portfolio Managers
The following individuals are the portfolio managers for the Funds:
Capital Appreciation Fund. Gregory D. Walker, Equity Portfolio Manager and
Second Vice President of Jefferson-Pilot Life Insurance Company. Mr. Walker
has worked in the Jefferson-Pilot Life Insurance Company's Securities
Department for the past 2 years as an Equity Analyst and Portfolio Manager.
Prior to his employment with Jefferson-Pilot, Mr. Walker was an Equity
Portfolio Manager and Analyst at North Carolina Trust Company of Greensboro,
North Carolina.
Bond Fund. H. Lusby Brown, Portfolio Manager, Second Vice President -
Securities, Jefferson-Pilot Life Insurance Company. Mr. Brown has spent
the last ten years in Jefferson- Pilot's Securities Department focusing on
the public equity and public and private fixed income markets. He was named
portfolio manager of Jefferson-Pilot Investment Grade Bond Fund in July of
1994. Prior to joining Jefferson-Pilot, Mr. Brown earned his graduate business
degree from the University of North Carolina at Chapel Hill.
How To Purchase Shares
Shares are offered continuously for sale by the Fund's distributor,
Jefferson-Pilot Investor Services, Inc. ("Investor Services"), P.O. Box 22086,
Greensboro, North Carolina 27420, and are also available through authorized
investment dealers. Except under regular investment plans and under certain
qualified retirement plans and other similarly administered plans, the minimum
initial investment is $300 and subsequent investments must be at least $25.
Such additional investments may be made directly to the Fund's stock transfer
and dividend paying agent, Investors Fiduciary Trust Company ("IFTC"), 127 West
10th Street, Kansas City, MO 64105-1716.
Volume Discount. The size of investment shown in the table on the top of page
10 applies to the total amount being invested by any person in shares in
either Fund alone or both Funds jointly. A person eligible for a volume
discount includes an individual, his spouse, and their children under the age
of 21; a trustee or other fiduciary purchasing shares for a single fiduciary
account, including employee benefit plans; and an organized group of persons,
provided the organization has been in existence for at least six months and
has some purpose other than the purchase of redeemable securities of a
registered investment company at a discount, and provided that its purchases
are made through a central administration by means which result in economy of
sales effort or expense. IFTC must be given notice of the account number of
any account to be included for the purpose of determining volume discounts.
Shares are offered at the net asset value per share plus a sales commission,
as hereinafter described. The offering price so determined becomes effective
at the New York Stock Exchange closing time. Orders received prior to that
time are confirmed at the offering price effective at that time, provided the
order is received by Investor Services or IFTC prior to their close of
business. The net asset value per share is calculated as hereinafter
described. The sales charge, expressed as a percentage of the public offering
price and as a percentage of the new amount invested, is described in the
following table. The table also discloses the commission allowed other
broker-dealers as a percentage of the offering price.
<PAGE>
Amount of Purchase Sales Charge as % As % of the Sales Charge Allowed
of the Amount Offering Price to Dealer As % of
Invested Offering Price
Less than $50,000 4.71% 4.50% 4.50%
$50,000 but less
than $100,000 4.17% 4.00% 4.00%
$100,000 but less
than $250,000 3.09% 3.00% 3.00%
$250,000 but less than
$500,000 2.04% 2.00% 2.00%
$500,000 or more 1.01% 1.00% 1.00%
Cumulative Purchase Discount. The size of investment shown in the above table
may also be determined by combining the amount being invested plus the current
offering price of all shares of either Fund or of both Funds which have been
previously purchased and are still owned by the purchaser. IFTC must be given
notice of each purchase that is eligible for the cumulative purchase discount.
Statement of Intention. A Statement of Intention gives the investor an
opportunity to obtain a reduced sales charge by aggregating his investments
over a 13-month period to determine the sales charge as outlined in the
preceding table. The size of the investment as shown in the table includes
purchases of shares of either Fund or both Funds previously purchased and still
owned. Each investment made during the period receives the reduced sales
commission applicable to the total amount of the investment goal. If the goal
is not achieved within the period, the investor must pay the difference between
the commissions applicable to the purchases made and the commissions previously
paid. An investor is not required to purchase shares designated in a Statement
of Intention.
Special Sales. See page B-5 of the Statement of Additional Information of each
Fund for information relating to sales without a sales commission to current or
retired directors and officers of that Fund; current or retired employees of
Jefferson-Pilot Corporation and its affiliates; certain related persons or
family members of the above persons; bona fide full time employees or sales
representatives of that Fund; and to tax qualified employee benefit plans
covering employees of that Fund, its investment adviser or distributor.
Shares are also offered at net asset value to investors where the amounts
invested represent redemption proceeds from investment companies whose shares
are distributed by some entity other than Investor Services provided (a) such
redemption has occurred no more than 15 days prior to the purchase of shares
of the particular Fund, and (b) the investor paid an initial sales charge or
was subject to a deferred sales charge on the redeemed shares. Shares are
offered at net asset value to such persons because of the anticipated economies
in sales efforts and sales related expenses. Each Fund reserves the right to
terminate or amend the terms of its offering of its shares at net asset value
to such persons at any time.
How To Determine Net Asset Value. Net asset value per share is computed as of
the close of each day on which the New York Stock Exchange is open (4:00 p.m.
New York time) and on any other day in which there is a sufficient degree of
trading in the Fund's portfolio securities to materially affect net asset
value. Net asset value is determined by dividing the value of the Fund's
securities, plus any cash and other assets (including dividends accrued but
not collected) less all liabilities (including accrued expenses), by the number
of shares outstanding.
<PAGE>
A security listed or traded on an exchange is valued at its last sale price
on that exchange where it is principally traded or, if there were no sales on
that exchange, the last quoted sale on other exchanges or on the National
Association of Securities Dealers Automated Quotation System ("NASDAQ").
Lacking any sales the security is valued at the mean of the last bid and ask
prices reported on the exchange where the security is principally traded. All
other securities for which over-the-counter market quotations are readily
available are valued at their last sale price on NASDAQ or at the mean of the
last bid and ask prices as of the close of trading. Fixed income securities
are valued by using market quotations, or independent pricing services which
use prices provided by market makers or estimates of market values obtained
from yield data relating to similar classes of instruments or securities.
Certain short-term debt securities are valued at amortized cost. Other
securities, including restricted securities, and other assets are valued at
fair value as determined in good faith and under authority by the Board of
Directors.
Shareholder Services
Automatic Investment Plan. If a shareholder's bank agrees to participate, the
shareholder may authorize the Fund's shareholder service agent to charge a bank
account on a regular basis or to draw monthly checks to invest predetermined
amounts in the Funds. Purchases are made at the offering price on the date the
shareholder service agent charges the bank account or deposits the
preauthorized check. A shareholder wishing to invest in such manner should so
indicate on the application form and execute any other necessary authorization
forms. The minimum monthly investment is $25.00.
Open Accounts. An open account will be created for each investor so that
additional investments may be made at any time without completing a new
application. Full and fractional Fund shares purchases will be credited to
the investor's account. Share certificates will be issued by the Funds only
upon specific request and then only for full shares. Whenever there is a
transaction in his account, the investor will receive a written statement
concerning the current status of the account, including the number of Fund
shares then owned.
Systematic Withdrawal Plan. An investor with shares of either Fund having a
net asset value of at least $10,000 may participate in a systematic withdrawal
plan of that Fund. Under this plan, the investor chooses to have payments made
on a monthly or quarterly basis to himself or another designated person. The
minimum payment that may be designated (whether monthly or quarterly) is $50.
All dividends and capital gains distributions are automatically reinvested in
additional shares of that Fund at net asset value as of the record date
without a sales charge. Under this plan, sufficient shares of the Fund are
redeemed to provide the amount of the periodic withdrawal payment. If
periodic withdrawals continuously exceed reinvested dividends and capital
gains distributions, the investor's original investment will be
correspondingly reduced and ultimately exhausted.
Withdrawals made concurrently with purchase of additional shares ordinarily
will be disadvantageous to the investor because of the duplication of sales
charges. Any taxable gain or loss will be recognized by the investor upon
redemption of shares.
<PAGE>
Exchange Privilege. Shareholders residing in those states in which shares
of both Funds are registered, may exchange their shares of either Fund for
shares of the other at their respective net asset values per share without
any sales or exchange charge. Shares exchanged must have a current value of
at least $500. Exchanges will be effected by redemption of shares of the
Fund held and purchase of shares of the other Fund, which for federal income
tax purposes is a taxable transaction. Exchange instructions must be given
to IFTC by telephoning 1-800-292-6701. Exchanges may be made by telephone only
if share certificates have not been issued and if the shareholder elects such
option on the initial application, in which event the signature(s) on the
application must be guaranteed as described in the section captioned "How To
Redeem Shares."
Shareholders wishing to exercise an exchange privilege should so notify IFTC,
which will send a prospectus for the Fund to be purchased and instructions.
Such an exchange is not a tax-free exchange.
Investing By Telephone. Shareholders who have elected such option in the
application and who have completed any other necessary authorization forms
may, by telephoning IFTC at 1-800- 292-6701, purchase shares of either Fund
from a bank account designated in the authorization form. The shareholder's
bank must be a participant in the Automated Clearing House system. The bank,
upon receiving a shareholder's telephone request for a purchase, will instruct
the shareholder's designated bank to withdraw from the shareholder's account
at that bank the amount to be transferred to purchase shares. The investment
will normally be credited to the shareholder's Fund account the day following
the day of the telephone request.
Tax Qualified Retirement Plans. Shares of either Fund may be purchased by all
types of retirement plans receiving favorable federal income tax treatment,
including Individual Retirement Accounts (IRA) (for individuals and their
non-employed spouses who desire to make limited tax deductible contributions
to a tax deferred retirement program); Simplified Employee Pension (SEP-IRA)
Plans; 403(b) Plans (arrangements for employees of public school systems,
universities and certain other non-profit organizations); and other corporate
pension and profit sharing plans. For additional information on these plans,
see page B-5 of the Statement of Additional Information of each Fund or
contact Investor Services. Investors should consult with their tax advisor
before establishing any of the tax deferred retirement plans described above.
Who Manages The Funds
The Board of Directors of each Fund is responsible for the overall supervision
of the conduct of the Fund's business. Each Fund's investment adviser is JP
Investment Management Company ("JP Management"), P.O. Box 21008, Greensboro,
North Carolina 27420, a North Carolina corporation organized on January 13,
1970. JP Management is a wholly-owned subsidiary of Jefferson-Pilot
Corporation, an insurance holding company. JP Management has served as an
investment adviser to the Capital Appreciation Fund, since its inception in
1970; to the Bond Fund, since its inception in 1978; and to JP Capital
Appreciation Fund, Inc., and JP Investment Grade Bond Fund, Inc. since the
inception of those companies in 1982.
<PAGE>
In addition to providing investment advice, JP Management or persons
employed by or associated with JP Management are, subject to the authority of
the Board of Directors, responsible for the overall management of the Funds'
business affairs. As compensation for its services, JP Management receives
from each Fund a fee at an annual rate of one-half of 1% of the Fund's
average net asset value. The fee is Payable monthly, on the basis of
the Fund's average net asset value during the monthly period computed in
the manner used in determining the public offering price of Fund shares.
The ratio of the management fee to average net assets for the year
ended December 31, 1995 was 0.5%. For the same period, the
Capital Appreciation Fund's total operating expenses were
.87% of average net assets and the Bond Fund's total operating
expenses were .96% of average net assets.
Under a Service Agreement between each Fund, JP Management, Jefferson-Pilot
Life Insurance Company and Jefferson-Pilot Investments, Inc. ("Companies"),
the Companies have agreed to furnish such personnel, services and facilities
as may be reasonably needed by JP Management in connection with its performance
under the Investment Advisory Agreement, and JP Management has agreed to
reimburse the Companies for their expenses in this regard.
Under accounting agreements, JP Management also serves as the Fund's accounting
agent. Each of the Funds has agreed to reimburse JP Management for its
expenses incurred in serving as such agent, provided such expenses do not exceed
the amount for which the Funds could have obtained such services from some third
party.
Dividends, Distributions and Taxes
The Capital Appreciation Fund's policy is to pay dividends from net investment
income semi-annually in February and August. The Bond Fund's policy is to pay
dividends from net investment income quarterly in February, May, August and
November. In addition, if the Capital Appreciation or Bond Fund has not paid
out 98% of its net investment income by the end of the calendar year, its
policy is to pay a dividend near the end of the calendar year which will, when
added to the dividends previously paid in the year, equal or exceed 98% of its
net investment income for the year. Each December the Capital Appreciation and
Bond Funds make a distribution of the capital gains, if any, each realized
during the 12-month period ended the preceding October 31. Unless the investor
requests that payments be made in cash, dividends and distributions will be
reinvested in additional Fund shares at net asset value as of the record date.
The investor may, if he also owns shares of both Funds, request that all such
dividends and/or distributions be used to purchase additional shares in
either Fund at net asset value as of the record date.
Each Fund qualified in 1995 and plans to qualify in 1996 for the special tax
treatment afforded a "regulated investment company" under Subchapter M of the
Internal Revenue Code (the"Code"). In any fiscal year in which a Fund so
qualifies and distributes at least 90% of its taxable net income, the Fund (but
not shareholders) will be relieved of federal income tax on the income
distributed. Dividends (i.e., distributions of any net investment income and
any net realized short-term capital gains) are taxable to shareholders as
ordinary income, whether received in cash or additional shares. Distributions
of long-term capital gains (i.e., the excess of any net long-term capital gains
over net short-term capital losses), if any, are taxable as long-term capital
gains whether received in cash or shares without regard to how long a
shareholder has held his shares. Gain or loss realized on a redemption by a
shareholder will be treated as a capital gain or loss unless the shares are
not capital assets in the shareholder's hands. Shareholders will be notified
by each January 31 of the amounts of dividends and distributions for the
preceding year, including the amounts (if any) which have been designated as
long-term capital gains distributions. The Funds may be required by the Code
to withhold at a rate of 31% upon payment of redemptions to shareholders, and
from taxable dividends and capital gain distributions (if any), if provisions
of the law relating to the furnishing of taxpayer identification numbers and
reporting of dividends are not complied with by shareholders.
<PAGE>
The foregoing is a general summary of the applicable provisions of the Code
and Treasury Regulations presently in effect. Dividends and distributions
also may be subject to state or local taxes. Investors should consult their
tax advisors for specific information.
How To Redeem Shares
Shareholders may redeem shares at the per share net asset value next determined
after receipt of certificates endorsed by all parties (or trustees) in whose
name the certificates are issued, and in proper form for transfer, at the
office of IFTC. The certificates must be endorsed by the parties exactly as
the certificates are registered and the signature(s) must be guaranteed by a
bank or trust company or a member firm of a national securities exchange. If no
certificates have been issued to the shareholder, redemption may be accomplished
by signed written request, guaranteed as above, directed to the IFTC; provided,
however, that a shareholder to whom no certificate(s) have been issued may
redeem up to as much as $500 in shares in any one calendar year without the
signature being guaranteed. The signature need not be guaranteed where shares
of one Fund are exchanged for shares of the other Fund. A redemption request
should identify the account by number and should be signed by all parties (or
trustees) in whose name the account is registered in the exact manner in which
the account is registered. It is suggested that all redemption requests by
mail be sent certified with return receipt requested.
Shares may be redeemed by telephoning IFTC at 1-800-292-6701, provided the
shareholder elects such option on the initial application, in which event the
signature(s) on the application must be guaranteed as described above.
Payment will be by check mailed the next day to the bank account designated by
the shareholder in the application. The bank account can be changed only by the
shareholder submitting a written request with the signature guaranteed. Unless
the redemption is a total redemption, a shareholder may not effect a redemption
by telephone for an amount per Fund of less than $500 or greater than $10,000.
Redemption by telephone is not available on accounts where share certificates
are outstanding. During periods of unusual market changes and shareholder
activity, you may experience delays in contacting IFTC by telephone, in which
case you may wish to submit a written redemption request, as described above.
The telephone redemption privilege may be modified or terminated without
notice.
A check for payment for shares redeemed will be issued as early as possible,
but not later than seven days after IFTC's receipt of the certificates or the
written redemption request. However, IFTC will not disburse payment for shares
purchased by check (including payment by certified or casher's check) for up to
fifteen calendar days following the investment date. Redemption of shares may
be suspended or payment postponed at times (a) when the New York Stock Exchange
is closed other than weekends and holiday, (b) when trading on said Exchange
is restricted, (c) when an emergency exists as a result of which disposal by
the Fund of securities owned by it is not reasonably practicable or it is not
reasonably practicable for the Fund fairly to determine the value of its net
assets, or during any other period when the Securities and Exchange Commission,
by order, so permits; provided that applicable rules and regulations of the
Securities and Exchange Commission shall govern as to whether the conditions
prescribed in (b) or (c) exist.
Neither Fund nor Investor Services makes a charge for redemption. Other
broker-dealers may charge for handling redemption transactions but such charge
can be avoided by requesting redemption by the Funds directly or through the
Investor Services.
<PAGE>
The shareholder may, within thirty days of a redemption of shares of either
Fund, reinvest the proceeds in shares of that Fund or the other Fund at net
asset value without a sales charge. This privilege is permitted only once to
each shareholder per year.
Due to the high cost of maintaining accounts, each Fund reserves the right to
redeem any account which has been in existence for at least one year and which
has a balance of less than $250. A shareholder will be notified in writing of
either Fund's intention to redeem and given 60 days to make additional share
purchases before the redemption is processed.
Additional Information
Each Fund has authorized capital stock of 10,000,000 shares of $1.00 par value.
Each share entitles the holder to participate equally in dividends and
distributions declared by the Fund and in its remaining net assets on
liquidation after satisfaction of outstanding liabilities. Fund shares are
fully paid and nonassessable when issued; have no preemptive or conversion
rights; are transferable without restriction; and are redeemable at net asset
value.
On matters submitted for a shareholder vote, each shareholder is entitled to
one vote for each share owned. Fractional shares have proportionally the same
rights as do full shares.
As of April 12, 1996, Jefferson-Pilot Life Insurance Company owned
beneficially 400,000 shares or 16.81% of the Capital Appreciation Fund's
outstanding shares and 730,821 shares or 32.29% of the Bond Fund's outstanding
shares. That Company, like JP Management, is a wholly-owned subsidiary of
Jefferson-Pilot Corporation, Greensboro, North Carolina, which is deemed to
control the Funds.
Shareholder inquires should be directed to Investors Fiduciary Trust Company,
127 West 10th Street, Kansas City, MO 64105-1716, (Phone: 1-800-292-6701)
In the opinion of the staff of the Securities and Exchange Commission, the use
of this combined prospectus may make each Fund liable for any misstatement or
omission in this prospectus regardless of the Fund to which it pertains.
<PAGE>
Jefferson-Pilot Investment Grade Bond Fund, Inc.
100 North Greene Street
Greensboro, North Carolina 27401
Telephone 1-800-458-4498
_______________________________________________________________________
Statement of Additional Information
May 1, 1996
_______________________________________________________________________
Page
Table of Investment Objectives and Policies . . . .B-1
Contents Investment Restrictions. . . . . . . . . .B-1
The Investment Adviser . . . . . . . . . .B-3
Brokerage. . . . . . . . . . . . . . . . .B-4
Purchase and Redemption of Shares. . . . .B-5
The Fund's Distributor . . . . . . . . . .B-6
The Fund's Directors and Officers .B-6
General Information. . . . . . . . . . . .B-7
Financial Statements . . . . . . . . . . .B-9
________________________________________________________________________
This Statement of Additional Information is not a prospectus but
supplements and should be read in conjunction with the current Prospectus
dated May 1, 1996 of Jefferson-Pilot Investment Grade Bond Fund, Inc.
("Fund"). A copy of the Prospectus may be obtained by contacting the
Fund at the address or telephone number shown on the cover page.
Investment Objectives and Policies
The Fund's investment objectives and how it hopes to achieve those
objectives are described on page one of the Prospectus. There can be no
assurance that these objectives will be achieved. The objectives may not
be changed without the approval of a majority of the Fund's shareholders.
A majority means: the lesser of (i) a majority of the Fund's outstanding
voting securities, or (ii) 67 percent of the shares present at a shareholders'
meeting at which more than 50 percent of the outstanding shares are
present or represented by proxy.
Investment Restrictions
In addition to, or amplification of, the investment restrictions set forth in
the Prospectus, the Fund may not:
1. Issue senior securities.
2. Purchase securities on margin or sell short, except it may obtain
such short-term credits as are necessary for the clearance of
transactions.
3. Write, purchase or sell puts, calls or combinations thereof.
4. Borrow money except that, as a temporary measure for extraordinary
or emergency purposes and not for investment purposes, the Fund
may borrow up to 5% of the value of its total assets.
5. Act as an underwriter of securities of other issuers, except the
Fund may invest up to 10% of the value of its net assets (at
time of investment) in portfolio securities which the Fund might
not be free to sell to the public without registration of such
securities under the Securities Act of 1933.
<PAGE>
It may be difficult for the Fund to sell restricted securities at prices
representing their fair market value except pursuant to an effective
registration statement under the Securities Act of 1933. If registration
of restricted securities is necessary, a considerable period of time may
elapse between the decision to sell and the effective date of the
registration statement. During that time the price of securities to be
sold may be affected by adverse market conditions.
In purchasing restricted securities, the Fund will endeavor to have the
issuer agree to register the securities on request and pay the
registration expenses. The Fund may be obliged, however, to bear all
or part of these expenses. The Fund's Board of Directors will value
restricted securities in good faith in determining the net asset value of
Fund shares. The valuations will be made on an individual basis in
light of the particular circumstances affecting each restricted security,
including market value (if any), the period of time the restrictions are
in force, and other relevant factors. The Fund has not for the past 12
months owned any restricted securities and has no present intention
of acquiring such securities.
6. Purchase or sell real estate or interest in real estate, nor interests
in real estate investment trusts or real estate limited partnerships (however,
the Fund may purchase interests in real estate investment trusts whose
securities are registered under the Securities Act of 1933 and are readily
marketable).
7. Engage in the purchase and sale of commodities or commodity contracts.
8. Make loans, except to the extent that either of the following is
deemed to constitute a loan: (a) purchase of a portion of an issue
of a debt security distributed to the public; or (b) investments in
"repurchase agreements".
9. Purchase the securities (except U.S. Government securities) of any
one issuer if immediately after and as a result of such purchase (a) the
value of the holdings of the Fund in the securities of such issuer exceeds
5% of the value of the Fund's total assets, or (b) the Fund owns more than
10% of the outstanding voting securities of any one class of securities of
such issuer.
10. Purchase the securities of open-end investment companies. The Fund
may purchase the securities of other investment companies provided that
(a) immediately after such purchase the Fund and companies controlled by
the Fund, or other investment companies having the same investment
adviser as the Fund, do not own more than 10% of the investment
company whose securities are being purchased; (b) the Fund cannot invest
more than 10% of its total assets in the securities or other investment
companies; and (c) such purchases are made in the open market where no
commission or profit to a sponsor or dealer results other than the
customary broker's commission. The restrictions of the preceding
sentence do not apply in connection with a merger, consolidation, or plan
of reorganization.
11. Mortgage, pledge, hypothecate, or in any manner transfer, as security
of indebtedness, any securities owned or held by the Fund.
<PAGE>
12. Participate on a joint or joint and several basis in any trading account
in securities or effect a short sale of anysecurity, except in connection with
an underwriting in which it is a participant in the circumstances specified
in Paragraph 5.
13. Purchase or retain the securities of any issuer if those officers and
directors of the Fund, its adviser or underwriter owning individually
more than 0.5% of the securities of such issuer together own more than
5% of the securities of such issuer.
14. Invest in companies for the purpose of exercising control or management.
15. Invest in foreign securities other than securities issued by Canadian
companies.
16. Invest in interests of oil, gas, or other mineral exploration or
development programs (including oil, gas, or mineral leases).
The investment restrictions in Paragraph 1 through 13 above and on page
one of the Prospectus are fundamental policies and may not be changed
without the approval of a majority of the Fund's shareholders. The
policies mentioned in Paragraphs 14-16 above are not fundamental and
may be changed without shareholder approval.
While the Fund will not purchase illiquid, including restricted, securities
if such purchase would cause its then total investment in such securities
to exceed 10% of the value of its net assets, the Fund could through the
decrease in values of its other securities, for example, at sometime own
illiquid, including restricted, securities having a value in excess of 10% of
the value of its net assets. In that event, the Fund will promptly take such
action as its Board of Directors deems appropriate to assure the continued
liquidity of the Fund.
The Investment Adviser
The Fund's investment adviser, JP Investment Management Company ("JP
Management"), like Investor Services, is a wholly-owned subsidiary of
Jefferson-Pilot Corporation, an insurance holding company. E. J. Yelton,
John C. Ingram, W. Hardee Mills and J. Gregory Poole are officers and/or
directors of the Fund and of JP Management. Their positions with the
Fund and/or JP Management are (with the Fund position shown first)
President, Treasurer and Director/President and Director; Director/Senior
Vice President, Treasurer and Director; Vice President/Vice President; and
Secretary/Secretary; respectively.
JP Management's services are provided under an Investment Advisory
Agreement with the Fund dated March 6, 1978. Under the terms of the
agreement, JP Management provides personnel, including executive
officers for the Fund, and compensates the Fund's directors who are
affiliated with JP Management or its affiliated companies. JP
Management also furnishes, or causes to be furnished, at is own expense
office space, facilities and necessary executive and other personnel for
conducting the Fund's affairs and pays all expenses incurred by it or the
Fund in connection with the administration of the investment affairs of the
Fund.
<PAGE>
The Fund pays all other corporate expenses incurred in its operations
except that Investor Services bears the expenses relating to the continuous
public offering of the Fund's shares. Among others, the Fund pays its
taxes (if any), brokerage commissions on portfolio transactions, expenses
relating to the issue, transfer, redemption and pricing of shares,
disbursement of dividends and other distributions, custodian fees, auditing
and legal expenses, compensation of unaffiliated directors, and expenses
in connection with meetings of director and shareholders.
As compensation for its services, JP Management receives from the Fund
a fee at an annual rate of one-half of 1% of the Fund's average daily net asset
value during the monthly period computed in the manner used in
determining the public offering price of Fund shares (see "How to
Determine Net Asset Value" in the prospectus).
If, in any fiscal year, the total of the Fund's ordinary business
expenses (including the investment advisory fee but excluding taxes,
portfolio brokerage commissions and interest ) exceeds 1% of the Fund's
average daily net asset value, JP Management pays the excess. The
payment of the investment advisory fee at the end of any month is reduced
or postponed so that at the end of any month there is not any accrued but
unpaid liability under this expense limitation. The Fund's ordinary
business expenses did not, during fiscal years 1993, 1994, or 1995 exceed
1% of its average daily net asset value.
The amount of JP Management's advisory fee for fiscal year 1993 was
$112,684, for fiscal year 1994 was $111,640, and for fiscal year 1995 was
$109,982.
Under a Service Agreement between the Fund, JP Management, Jefferson-
Pilot Life Insurance Company and Jefferson-Pilot Investments, Inc.
("Companies"), which agreement is dated January 25, 1984, the
Companies have agreed to furnish such personnel, services and facilities
as may be reasonably needed by JP Management in connection with its
performance under the Investment Advisory Agreement, and JP
Management has agreed to compensate the Companies for their services
in this regard. Because of the arrangements under the Service Agreement,
the Companies might be deemed to be investment advisers of the Fund,
and the Service Agreement an investment advisory contract, for purposes
of the Investment Company Act of 1940. However, the Companies have
been advised by counsel that they are not by reason of such arrangements
investment advisers under that Act.
For the years ended December 31, 1993, 1994, and 1995 the
aggregate amount paid by JP Management to the Companies under this
Service Agreement and similar service agreements between JP
Management, the Companies and other mutual funds managed by JP
Management was $352,095, $444,313, and $347,048, respectively.
The Investment Advisory Agreement and the Service Agreement may,
independently of each other, continue in force from year to year if the
continuance of each such agreement is approved at least annually by the
Fund's Board of Directors', including the specific approval with respect to
the continuance of each such agreement of a majority of the Directors who
are not parties to the particular agreement or interested persons (as that
term is defined in the Investment Company Act of 1940) of any such
party, cast in person at a meeting called for the purpose of voting on the
approval of the particular agreement.
<PAGE>
The Investment Advisory Agreement and the Service Agreement may be
terminated at any time without the payment of any penalty on 60 days'
notice to the other parties either by a vote of the Fund's Board of Directors
or by a vote of the majority of the Fund's shareholders. The Investment
advisory Agreement and the Service Agreement will automatically
terminate in the event of their assignment.
The Investment Advisory Agreement may be terminated by JP
Management on 90 days' written notice to the Fund. The Service
Agreement may be terminated on 90 days' written notice to the Fund and
the other parties by JP Management or any of the Companies.
The Fund's name has been adopted with the permission of Jefferson-
Pilot Corporation and its continued use is subject to the right of Jefferson-
Pilot Corporation to withdraw this permission at any time. If the
permission is withdrawn, but JP Management proposes to continue as the
Fund's investment adviser, the Investment Advisory Agreement will be
submitted to Fund shareholders for approval.
Brokerage
Transactions on stock exchanges and other agency transactions involve the
payment by the Fund of negotiated brokerage commissions. Such
commissions vary among different brokers. Also, a particular broker may
charge different commissions according to such factors as the difficulty
and size of the transaction. There is generally no stated commission in the
case of securities traded in the over-the-counter markets, or for fixed
income securities (which currently includes most of the Fund's portfolio
transactions), but the price paid by the Fund usually includes an
undisclosed dealer commission or mark-up. In underwritten offerings, the
price paid by the Fund includes a disclosed, fixed commission or discount
retained by the underwriter or dealer.
JP Management, which places all orders for the purchase and sale of
securities of the Fund, has no formula for the allocation of brokerage
business in the purchase and sale of securities for the fund. Purchase and
sale orders are placed with the primary objective of obtaining the best
execution. Subject to the foregoing, orders are placed with broker-dealer
firms giving consideration to the quality, quantity and nature of the firms'
professional services which include execution, clearance procedures, and
statistical data and research information to the Fund and JP Management.
In pursuing this objective, JP Management may purchase securities in the
over-the-counter market, utilizing the services of principal market makers
unless better execution can be obtained elsewhere, and may purchase
securities listed on an exchange from non-exchange members in
transactions off the exchange. Although any statistical, research or other
information and services provided by broker-dealers may be useful to JP
Management, its dollar value is indeterminable and its availability does
not serve to materially reduce JP Management's normal research activities
or expenses. Any such information, which includes such matters as
general economic and security market reviews, industry and company
reviews, evaluations of securities and recommendations as to the purchase
and sale of securities, must still be analyzed and reviewed by JP
Management's personnel. JP Management may, in recognition of the
value of brokerage or research services provided by the broker, pay such
broker a brokerage commission in excess of that which another broker
<PAGE>
might have charged for effecting the same transaction. JP Management
will not, however, effect a transaction at such higher commission unless
it determines in good faith that the amount of the higher commission is
reasonable in relation to the value to the Fund of the brokerage and
research services being provided. Statistical research or other information
or services received by JP Management from broker-dealers may be used
by JP Management in servicing various of its clients (including the Fund),
although not all these services are necessarily useful and of value in
servicing the Fund. The total amount of brokerage commissions on
purchase and sale transactions in fiscal year 1993 was zero, in fiscal year
1994 was zero, and in fiscal year 1995 was zero.
Purchase and Redemption of Shares
Reference is made to the information in the Prospectus under "How to
Purchase Shares" and "How to Redeem Shares" which describes the
manner in which the net asset value of the shares of the Fund is computed
as of the close of trading on each day the New York Stock Exchange is
open for trading, and on any other day in which there is a sufficient degree
of trading in the Fund's portfolio securities to materially affect net asset
value, and how the offering price is determined based on such net asset
value plus a sales commission, and the manner of placing orders for the
purchase of shares, including special purchase plans and methods. It also
sets forth specific directions for the redemption of shares at net asset value
and describes, and tells the procedure to be followed in exercising, the
investment privilege. The Fund's shares are not valued on New Year's
Day, President's Day, Good Friday, Memorial Day, July 4, Labor Day,
Thanksgiving Day or Christmas Day, as the New York Stock Exchange
closes on those days.
Individual Retirement Accounts ("IRA's") are available for individuals
whether or not they are active participants in any other tax qualified
employer plan. Investors Fiduciary Trust Company, 127 W. 10th Street,
Kansas City, MO 64105, has agreed to act as trustee for IRA's which
invest in the Fund for a fee of $12.00 a year and utilize a model form
available from Investor Services. An employer who has established a
person or profit-sharing plan for employees may purchase Fund shares for
such a program. Forms and additional information for those individuals
and institutions wishing to purchase shares of the Fund in conjunction
with a tax-deferred retirement plan are available through Investor Services
to be used as a guide for the investor's own tax advisor.
Fund shares may be sold at net asset value to employee benefit plans
qualified under Section 401 of the Internal Revenue Code covering
employees of the Fund, Jefferson-Pilot Corporation or affiliates thereof.
In addition, Fund shares may be sold at net asset value to (a) current or
retired directors and officers of the Fund; current or retired employees of
Jefferson-Pilot Corporation or affiliates thereof; spouses, minor children
and grandchildren of the above persons; and parents of employees and
parents of spouses of employees of Jefferson-Pilot Corporation or
affiliates thereof; (b) broker/dealers which have entered into a sales
agreement with Investor Services, and to their bona fide full-time
employees, spouses of such employees and sales representatives who have
acted as such for not less than 180 days; and (c) to any trust, pension,
profit-sharing or other benefit plan (whether or not such plans are
qualified under Section 401 of the Internal Revenue Code) established for
<PAGE>
such persons, provided written assurance is given that the purchase is
made for investment purposes and that the Fund shares will not be resold
except through redemption or repurchase by or on behalf of the Fund.
Such persons will be given notice that they are eligible to purchase the
Fund's shares at net asset value, but they will not otherwise be solicited to
purchase shares of the Fund. Investor Services incurs very few, if any,
expenses in selling shares to such persons.
The Fund's Distributor
Jefferson-Pilot Investor Services, Inc. ("Investor Services"), formerly
Jefferson-Pilot Equity Sales, Inc., is the principal distributor of the Fund's
shares and acts as agent of the Fund in the sale of its shares. Investor
Services may make sales agreements with dealers to sell Fund shares. In
the fiscal year ended December 31, 1993, sales of Fund shares resulted in
gross commissions of $62,925, in fiscal year 1994 the amount was
$28,612, and in fiscal year 1995 the amount was $8,656. All of these
commissions were retained by Investor Services. Investor Services did
not receive, directly or indirectly, any other compensation from the Fund
during these years.
<PAGE>
The Fund's Directors and Officers
The following list of the Fund's directors and executive officers, all of
whom are also directors and/or officers of Jefferson-Pilot Capital
Appreciation Fund, Inc., JP Capital Appreciation Fund, Inc., and JP
Investment Grade Bond, Inc., includes information as to their principal
occupations during the past five years and their principal affiliations.
Name, Address & Position Principal Occupations During
with Fund Past 5 Years
E. J. Yelton* Senior Vice President - Investments,
Director, President & Treasurer Jefferson-Pilot Corporation and
100 North Greene Street Executive Vice President - Investments,
Greensboro, North Carolina Jefferson-Pilot Life Insurance Company
since October 1993; prior thereto,
President and CEO, ING North America
Investment Centre/Member of ING Group;
Director, Jefferson-Pilot Investor
Services; President and Director,
JP Management
John C. Ingram* Senior Vice President, Jefferson-Pilot
Director Life Insurance Company since November
100 North Greene Street 1988 and prior thereto, Vice President;
Greensboro, North Carolina Senior Vice President, Treasurer
and Director, JP Management
Richard Wolcott McEnally Professor of Investment Banking,
Director University of North Carolina at
401 Brookside Drive Chapel Hill
Chapel Hill, North Carolina
William Edward Moran Senior Vice President, Connors Investor
Director Services, Inc. since January 1995;
5206 Barnfield Road prior thereto, Chancellor, University
Greensboro, North Carolin of North Carolina at Greensboro
J. Lee Lloyd Managing Director, Lloyd & Company
Director since April 1991; prior thereto,
16 Irving Park Lane Vice President, Goldman, Sachs & Co.
Greensboro, North Carolin
J. Gregory Poole Assistant Secretary, Jefferson-Pilot
Secretary Corporation, since January 1994;
100 North Greene Street Associate Counsel and Assistant
Greensboro, North Carolina Secretary, Jefferson-Pilot Life
Insurance Company, since February 1994;
Attorney and Assistant Secretary,
January 1994; and prior thereto, Attorney
*Messrs. Yelton and Ingram are interested persons (as that term is
defined in the Investment Company Act of 1940, as amended) of the
Fund.
<PAGE>
The following officers of the Fund also serve as officers and/or
directors of JP Management and Investor Services: E. J. Yelton, President
and Treasurer of the Fund, is President and a Director of JP Management
and a Director of Investor Services; W. Hardee Mills, Jr., Vice President
of the Fund, is Vice President of JP Management; and J. Gregory Poole,
Secretary of the Fund, is Secretary of Investor Services and JP
Management. Each director of the Fund also serves as director of 3 other
funds in the Jefferson-Pilot Investment Management Fund Complex.
Messrs. Yelton, Poole and Mills hold positions with the other companies
in the Jefferson-Pilot Investment Management Fund Complex similar to
the positions held with the Fund. The other companies within the Fund
Complex have the same investment adviser as does the Fund.
The following table provides information regarding the compensation
each director was paid by the Fund and the Fund Complex for the year
ended December 31, 1995.
COMPENSATION TABLE
Pension or Total
Retirement Estimate Compensation
Aggregate Benefits Accrued Annual from funds &
Compensation as part of Benefit upon 3 other fund
Name of Person, from Fund Fund Expenses Retirement in Complex
Position
John C. Ingram
Director $ 0 $ 0 $ 0 $ 0
J. Lee Lloyd
Director 1,220 0 0 4,880
Richard W. McEnally
Director 1,220 0 0 4,880
William E. Moran
Director 1,220 0 0 4,880
E. J. Yelton
Director, President
Treasurer 0 0 0 0
The Board of Directors met five times during the year.
During the year ended December 31, 1995, directors not employed by
the Fund or its affiliates received a $100 director's fee for each meeting
attended, amounting to an aggregate of $500. In addition, each of the
non-affiliated directors receives a fee of $720 per year, payable in equal
monthly installments.
<PAGE>
General Information
The ownership of the Fund's outstanding securities by Jefferson-Pilot Life
Insurance Company, a North Carolina corporation with its principal office
at 100 North Greene Street, Greensboro, North Carolina 27401, is
disclosed under "Additional Information" in the Prospectus. That
company is a wholly-owned subsidiary of Jefferson-Pilot Corporation, a
publicly held North Carolina corporation with its principal office at 100
North Greene Street, Greensboro, North Carolina 27401. The Fund's
officers and directors together own less than 1% of its securities.
Investors Fiduciary Trust Co., 127 W. 10th Street, 12th Floor, Kansas
City, MO 64105, acting as custodian, has the custody of all the Fund's
securities and cash. That company attends to the collection of principal
and income, and payment for and collection of proceeds of securities
bought and sold by the Fund.
The Fund's independent accountants are McGladrey & Pullen, 555 Fifth
Avenue, 8th Floor, New York, New York 10017-2416, who audit and
report on the Fund's annual financial statements, review certain regulatory
reports, prepare the Fund's income tax returns, and perform other
professional accounting, auditing, tax and advisory services when engaged
to do so by the Fund. The selection of independent accountants will be
submitted annually to the Fund's shareholders for approval. Shareholders
will receive annual audited financial statements and quarterly unaudited
financial statements.
<PAGE>
Statement of Assets and Liabilities
December 31, 1995
Assets
Investment in securities at value (cost $19,542,302) $ 21,721,644
Cash 254,766
Receivables:
Interest 360,833
Capital shares sold 3,401
Total Assets $ 22,340,644
Liabilities
Payables:
Capital shares redeemed $ 1,585
Accrued expenses 49,130
Total Liabilities 50,715
Net Assets
Net Assets, equivalent to $9.66 per share on
2,307,624 shares of capital stock outstanding (Note 2) $ 22,289,929
Computation of public offering price:
Net asset value per share $ 9.66
Offering price per share (100/95.5 x $9.66)
(reduced on sales of $25,000 or more) $ 10.12
See Notes to Financial Statements.
<PAGE>
Statement of Operations
Year Ended December 31, 1995
Investment Income:
Interest $ 1,604,710
Expenses:
Investment Adviser's fee (Note 3) 109,982
Custodian and Transfer Agent fees 48,836
Directors' fees 3,660
Professional fees 24,300
Shareholder accounting services (Note 3) 10,250
Printing and mailing 7,200
Other 6,228
Total expenses 210,456
Less expenses offset (Note 5) ( 12,830)
Net expenses 197,626
Investment income _ net $ 1,407,084
Realized and Unrealized Gain
(Loss) on Investments:
Net realized loss on investments ( 45,405)
Unrealized appreciation of investments for the year 2,333,056
Net gain on investments 2,287,651
Net increase in net assets from operations $ 3,694,735
See Notes to Financial Statements.
<PAGE>
Statements of Changes in Net Assets
Years Ended December 31, 1995 and 1994
1995 1994
Increase (Decrease) in Net Assets from:
Operations:
Investment income _ net $ 1,407,084 $ 1,479,005
Net realized loss on investments ( 45,405) ( 774,526)
Unrealized appreciation (depreciation)
for the year 2,333,056 (2,124,538)
Net increase (decrease) in net assets
from operations 3,694,735 (1,420,059)
Dividends paid to shareholders from
investment income _ net (1,403,096) (1,443,508)
Capital share transactions (Note 2) (1,033,355) 263,565
Total increase (decrease) 1,258,284 (2,600,002)
Net Assets
Beginning of year 21,031,645 23,631,647
End of year (including undistributed net
investment income of $39,486 and
$35,497, respectively) $22,289,929 $21,031,645
See Notes to Financial Statements.
<PAGE>
Statement of Investments
December 31, 1995
Face
Ratings* Amount Issue Value
Bonds _ 99.08%
U.S. Government _ 43.80%
$ 750,000 U.S. Treasury Notes
51/8% due 11/30/98 $ 747,540
750,000 U.S. Treasury Notes
63/8% due 8/15/02 786,443
1,000,000 U.S. Treasury Notes
61/2% due 4/30/99 1,036,560
1,000,000 U.S. Treasury Notes
67/8% due 3/31/00 1,056,410
850,000 U.S. Treasury Notes
71/2% due 1/31/96 851,462
750,000 U.S. Treasury Notes
8% due 10/15/96 765,465
500,000 U.S. Treasury Bonds
87/8% due 8/15/17 669,685
750,000 U.S. Treasury Notes
93/8% due 4/15/96 758,558
1,000,000 U.S. Treasury Bonds
103/8% due 11/15/09 1,319,370
1,000,000 U.S. Treasury Bonds
123/4% due 11/15/10 1,523,120
Mortgage-Backed Securities _ 13.47%
1,000,000 Federal Home Loan Mortgage Corporation
6% due 3/15/09 945,000
2,000,000 Federal Home Loan Mortgage Corporation
7% due 9/15/23 1,981,240
Industrials _ 27.09%
Finance _ 10.77%
A1 1,000,000 Ford Motor Credit Company
63/4% Notes due 8/15/08 1,026,890
A1 750,000 Merrill Lynch & Company, Inc.
67/8% Notes due 3/01/03 780,907
A1 500,000 SunTrust Banks, Inc.
87/8% Notes due 2/01/98 532,075
<PAGE>
Foods _ 3.63%
Aa2 750,000 Archer-Daniels-Midland Company
71/8% Debs. due 3/01/13 788,580
Machinery _ Industrial/Specialty _ 2.57%
A2 500,000 Johnson Controls, Inc.
7.70% Debs. due 3/01/15 558,625
Natural Gas _ 1.63%
Baa2 350,000 Tennessee Gas Pipeline Company
91/4% Notes due 5/15/96 354,126
Pollution Control _ 2.43%
Baa2 500,000 Laidlaw, Inc.
7.70% Debs. due 8/15/02 528,225
Railroads _ 3.49%
Baa2 750,000 Kansas City Southern Industries, Inc.
65/8% Senior Notes due 3/01/05 757,627
Tobacco _ 2.57%
A2 500,000 Philip Morris Companies, Inc.
81/4% Senior Notes due 10/15/03 557,400
Utilities _ 14.72%
Utilities _ Electric _ 3.30%
A2 113,000 Carolina Power & Light Company
81/8% 1st Mtge. due 11/01/03 115,582
A1 500,000 South Carolina Electric & Gas Company
9% 1st & Ref. due 7/15/06 601,705
Utilities _ Gas _ 7.73%
Aa3 500,000 Laclede Gas Company
81/2% 1st Mtge. due 11/15/04 571,065
A2 500,000 National Fuel Gas Company
73/4% Debs. due 2/01/04 542,855
Baa1 500,000 Texas Gas Transmission
85/8% Notes due 4/01/04 565,270
Utilities _ Telephone _ 3.69%
A3 750,000 United Telephone Company of
Pennsylvania 73/8% 1st Mtge.
Ser. Y due 12/01/02 799,958
Total Bonds (Cost _ $19,342,401+) 21,521,743
Short-Term Securities _ .92%
A1 200,000 Ford Motor Credit Company, 1/03/96 199,901
Total Short-Term Securities
(Cost _ $199,901+) 199,901
Total Investments _ 100%
(Cost _ $19,542,302+) $21,721,644
* Bonds are rated by Moody's Investors Service, Inc. and
Commercial Paper is rated by Standard & Poor's Corporation.
+ Aggregate cost for Federal income tax purposes is the same.
See Notes to Financial Statements.
<PAGE>
Notes to Financial Statements
Note 1. Significant Accounting Policies
Jefferson-Pilot Investment Grade Bond Fund, Inc., is an open-end management
investment company registered under the Investment Company Act of 1940. The
Fund's primary investment objective is to seek the maximum level of current
income as is consistent with prudent risk. The Fund attempts to achieve this
objective by investing primarily in high-rated fixed income securities and
dividend paying common stocks, however, other types of securities may be
purchased depending upon the judgement of management. The following is a
summary of significant accounting policies followed in the preparation of its
financial statements:
Valuation of Securities _ Fixed income securities are valued by using market
quotations or independent pricing services which utilize prices provided by
market makers or estimates based on yield data related to similar securities;
short-term securities are stated at amortized cost which approximates value.
Federal Income Taxes _ It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to "regulated investment companies" and
to distribute all of its taxable income to its shareholders. Therefore, no
provision for Federal income tax is required.
Use of Estimates _ The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increases and decreases in net assets
from operations during the reporting period. Actual results could differ from
those estimates.
General _ Securities transactions are accounted for on the trade date.
Distributions to shareholders are recorded on the ex-dividend date. Interest
income is accrued as earned.
Note 2. Capital Stock
At December 31, 1995, 10,000,000 shares of capital stock ($1.00 par value) were
authorized and capital paid-in amounted to $20,960,868. Transactions in capital
stock were as follows:
Year Ended Year Ended
December 31, 1995 December 31, 1994
Shares Amount Shares Amount
Sold 36,972 $ 344,257 150,431 $ 1,421,796
Issued on reinvestment
of dividends 94,251 879,674 101,556 909,213
Redeemed (241,492) ( 2,257,286) (224,210) ( 2,067,444)
Net increase (decrease) (110,269) ($ 1,033,355) 27,777 $ 263,565
<PAGE>
Note 3. Investment Advisory Fee and other Transactions with Affiliates
JP Investment Management Company received investment advisory fees of $109,982
during the year ended December 31, 1995. This fee is computed at the annual
rate of 0.5% of the Fund's average daily net asset value. If the Fund's
expenses, excluding interest and taxes, exceed 1% of the average daily net
asset value, the Investment Adviser will pay the excess. No such reimbursement
was required during the year.
Expenses include $10,250 of fees paid to JP Investment Management Company for
shareholder accounting services.
Jefferson-Pilot Investor Services, Inc. received sales commissions of $8,656
in its capacity as Principal Distributor for the Fund.
Note 4. Investment Transactions
Purchases and sales of investment securities, excluding short-term securities,
were $7,023,037 and $7,551,805, respectively.
Realized gains and losses are reported on an identified cost basis. Accumulated
undistributed net realized loss at December 31, 1995 was $889,767. This loss
may be carried forward to offset future capital gains with $69,836 expiring in
2001, $44,589 expiring in 2002, and $775,342 expiring in 2003.
At December 31, 1995, the aggregate gross unrealized appreciation and
depreciation of portfolio securities was as follows:
Unrealized appreciation $2,180,005
Unrealized depreciation ( 663)
Net unrealized appreciation $2,179,342
Note 5. Expense Offset Arrangement
The Fund has an arrangement with its custodian and transfer agent whereby
credits earned on cash balances maintained at the custodian are used to offset
custody and transfer agent charges. These credits amounted to $12,830 for the
year ended December 31, 1995.
<PAGE>
Note 6. Selected Financial Information
Years Ended December 31,
1995 1994 1993 1992 1991
Per share operating performance
(for a share outstanding
throughout the year)
Net asset value,
beginning of year $ 8.70 $ 9.89 $ 9.57 $ 9.65 $ 9.23
Income from investment operations
Net investment income .60 .62 .64 .66 .76
Net realized and unrealized
gain (loss) on investments .96 (1.21) .32 (.06) .44
Total from investment
operations 1.56 (.59) .96 .60 1.20
Less dividends from net
investment income (.60) (.60) (.64) (.68) (.78)
Net asset value, end of year $ 9.66 $ 8.70 $ 9.89 $ 9.57 $ 9.65
Total return (without
deduction of sales load) 18.39% (5.97)% 10.24% 6.53% 13.76%
Ratios/supplemental data:
Net assets, end of year
(000 omitted) $22,290 $21,032 $23,632 $21,359 $19,313
Ratios to average net assets:
Expenses .96% .85% .86% .93% .93%
Net investment income 6.40 8.32 6.46 6.99 8.18
Portfolio turnover rate 33.91 41.01 21.34 25.53 23.65
<PAGE>
Independent Auditor's Report
To the Board of Directors and Shareholders
Jefferson-Pilot Investment Grade Bond Fund, Inc.
We have audited the accompanying statement of assets and liabilities and the
statement of investments of Jefferson-Pilot Investment Grade Bond Fund, Inc. as
of December 31, 1995, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the selected financial information for each of the five
years in the period then ended. These financial statements and selected
financial information are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
selected financial information based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and selected
financial information 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 as of December 31, 1995, by correspondence with the custodian. 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, the financial statements and selected financial information
referred to above present fairly, in all material respects, the financial
position of Jefferson-Pilot Investment Grade Bond Fund, Inc. as of
December 31, 1995, the results of its operations, the changes in its net
assets, and the selected financial information for the periods indicated,
in conformity with generally accepted accounting principles.
/s/ McGladrey & Pullen, LLP
New York, New York
January 11, 1996
<PAGE>
JEFFERSON-PILOT CAPITAL APPRECIATION FUND, INC.
A MUTUAL FUND SEEKING GROWTH OF CAPITAL
This report and accompanying financial statements are submitted for information
of the Fund shareholders and are not to be considered as an offer or
solicitation of offers to buy or sell any shares of the Fund. Such offering is
made only if preceded or accompanied by an effective prospectus.
<TABLE>
<CAPTION>
<S> <C>
FUND DIRECTORS AND OFFICERS DISTRIBUTOR
E. J. YELTON, PH.D., DIRECTOR, PRESIDENT, Jefferson-Pilot Investor Services, Inc.
AND TREASURER 100 North Greene Street
Greensboro, North Carolina 27401
JOHN C. INGRAM, CFA, DIRECTOR
J. LEE LLOYD, DIRECTOR INVESTMENT ADVISER
JP Investment Management Company
RICHARD W. MCENALLY, CFA, DIRECTOR 100 North Greene Street
Greensboro, North Carolina 27401
WILLIAM E. MORAN, DIRECTOR
W. HARDEE MILLS, CFA, VICE PRESIDENT CUSTODIAN AND TRANSFER AGENT
Investors Fiduciary Trust Company
J. GREGORY POOLE, SECRETARY 127 West Tenth Street
Kansas City, Missouri 64105
GREGORY D. WALKER, CFA,
PORTFOLIO MANAGER
CERTIFIED PUBLIC ACCOUNTANTS
McGladrey & Pullen, LLP
555 Fifth Avenue
New York, New York 10017
JEFFERSON-PILOT CAPITAL
APPRECIATION FUND, INC.
100 North Greene Street
P.O. Box 21008
Greensboro, North Carolina 27420
</TABLE>
<PAGE>
INVESTMENT RESULTS
TOTAL RETURN -- 1995 -- DIVIDEND REINVESTMENT PLAN:
Net Asset Value December 31, 1995 $15.96
Investment Income Dividend Paid:
February 10, 1995 $ .011
August 11, 1995 $ .120
December 19, 1995 $ .110
Capital Gains Paid:
February 10, 1995 $ .061
December 19, 1995 $ .580
December 31, 1995 Adjusted Value per Share Assuming
All Dividends Reinvested in Fund Shares $16.89
Net Asset Value December 31, 1994 $12.56
Percent Change During Twelve Months Ended
December 31, 1995:
Jefferson-Pilot Capital Appreciation Fund --
Assuming All Dividends Reinvested in Fund Shares 34.47%
Reinvestment Prices Assuming Dividends were reinvested
in New Fund Shares on the Record Date:
$12.64 per share as of January 30, 1995
$15.20 per share as of July 28, 1995
$15.58 per share as of December 15, 1995
2
<PAGE>
TO SHAREHOLDERS
INVESTMENT ACTIVITY
On December 31, 1995, the net asset value of your Fund was $15.96. Dividends
totaling $.241 from net investment income and $.641 from net capital gains have
been paid year to date. On a total return basis, for 1995, the Jefferson-Pilot
Capital Appreciation Fund increased 34.47% while the S&P 500 increased 37.53%.
The Fund's annual returns for one, three, five and ten-year periods ending
December 31, 1995 are as follows:*
1 Year -- 34.47%
3 Years -- 11.35
5 Years -- 14.03
10 Years -- 11.88
In 1995, your fund outperformed 75% of the Growth and Income mutual funds
tracked by Lipper Analytical Services.
Signs of economic weakness were evident as 1996 ushered in a new year. As
recently as August of last year, upward earnings estimate revisions by stock
analysts outpaced downward revisions by an astounding six to one margin. By
mid-January 1996, earnings estimate revisions have reversed and downward
revisions now outnumber upward revisions by a two to one margin.
With the slowing of profit growth, we have witnessed a concurrent fall in the
breadth of the market. That is, while the stock market is posting new highs,
this performance is driven by fewer and fewer stocks. In fact, calculations by
the Wall Street firm, Smith Barney, reveal that the entire advance of the S&P
500 from September 30, 1995 to December 18 (the date of the study) was
attributable to only 18 of the 500 stocks. In other words, fewer than 5% of the
stocks in the S&P 500 provided 100% of the appreciation.
As referred to in our previous update, we believe that profits will continue to
surprise on the downside as economic growth slows. This is not to say that we
believe that the stock market will provide negative returns for the year. As
inflation continues to remain restrained, the Federal Reserve will have more
leeway to lower interest rates. Lower rates can support higher stock valuations.
We believe that the low volatility of the markets we have experienced in the
recent past will reverse. The Dow Jones Industrial Average's (DJIA) biggest
correction in 1995 was 3.3%, occurring in mid-July. In an average year the DJIA
corrects -9.3%. With the declining market breadth, we expect a more volatile
year as investors attempt to separate the winners from the losers.
1996 stock market performance is unlikely to match that of 1995. In fact, 1995,
as measured by the S&P 500, was the fifth best year in market history. We do see
a positive return for the stock market this year; however, we believe it will be
driven by a relatively few number of stocks. These stocks will likely be of high
quality, stable growth companies. These are the stocks which typically
outperform when the profit cycle has peaked and economic growth begins to slow.
If the Fed lowers interest rates, we can expect the economically sensitive
companies to benefit but with a lag. The positive benefit that cyclical
companies will receive from lower interest rates is not likely to be experienced
this year even if the Fed aggressively lowers rates early.
3
<PAGE>
Portfolio Diversification
SECTOR % OF TOTAL NET ASSETS
Credit Cyclicals 0.00
Financial 15.98
Consumer Services 7.20
Consumer Staples 16.65
Consumer Cyclicals 7.79
Capital Goods--Technology 12.00
Capital Goods 4.20
Energy 11.39
Basic Industries 4.69
Transportation 1.42
Utilities 15.77
Conglomerates 1.00
Cash 1.91
Your continued support and interest in the Jefferson-Pilot Capital Appreciation
Fund are appreciated, and we welcome any questions.
Jefferson-Pilot Capital Appreciation Fund, Inc.
/s/ E. J. Yelton
President
January 29, 1996
*These results do not include the sales charge. If the maximum sales charge of
4.50% of the initial investment is included and with all subsequent
distributions of the Fund reinvested, the average annual total rate of return
of the Fund for the one, three, five, and ten-year periods ended December 31,
1995, were +26.73%, +9.66%, +13.02%, and +11.31% respectively. These results
represent past performance and are not necessarily an indication of future
results.
4
<PAGE>
ABOUT YOUR FUND
As a shareowner of Jefferson-Pilot Capital Appreciation Fund, you have several
valuable benefits and privileges:
- - You may be able to acquire additional shares at a reduced sales charge through
either the Combined Purchases, Accumulated Purchases, or Statement of Intention
provisions of the Fund. (See those sections of your prospectus that describe
these provisions.)
- - You may exchange shares owned at any time for an equal value of shares of
Jefferson-Pilot Investment Grade Bond Fund, subject to certain minimum amounts,
without charge.
- - You may reinvest all income and capital gains distributions in additional Fund
shares at the Fund's net asset value (without a sales charge).
- - Provided you own shares or currently purchase shares having a net asset of at
least $10,000, you may elect to have monthly or quarterly payments made to you
under a Systematic Withdrawal Plan.
Additionally, the Fund provides a printed confirmation of each transaction,
quarterly reports, and other account information, making ownership of Fund
shares easy and convenient.
The cost of purchasing and owning shares is reasonable. The services provided
plus professional management plus diversification of investments would otherwise
be prohibitively expensive for most investors.
We hope that this information will encourage you to increase the level of your
future investments in Jefferson-Pilot Capital Appreciation Fund--or you may
wish to add a Jefferson-Pilot Investment Grade Bond Fund account.
5
<PAGE>
JEFFERSON-PILOT CAPITAL APPRECIATION FUND, INC.
TEN LARGEST HOLDINGS
December 31, 1995
COMPANY MARKET VALUE PERCENT OF FUND
Monsanto Company $1,212,750 3.2
Frontier Corporation 960,000 2.5
General Electric Company 936,000 2.5
Atlantic Richfield Company 930,300 2.5
Countrywide Credit Industries, Inc. 913,500 2.4
Schering-Plough Corporation 832,200 2.2
Capital Cities/ABC, Inc. 814,275 2.2
Royal Dutch Petroleum Company 804,413 2.1
Citicorp 786,825 2.1
Equifax, Inc. 773,775 2.0
----------- ------
$8,964,038 23.7
6
<PAGE>
JEFFERSON-PILOT CAPITAL APPRECIATION FUND, INC.
STATEMENT OF INVESTMENTS
December 31, 1995
NUMBER OF SHARES
COMMON STOCKS--96.80% OR PRINCIPAL AMOUNT VALUE
Aerospace/Defense--2.05%
Lockheed-Martin Corporation 5,700 $ 450,300
Loral Corporation 9,200 325,450
Auto & Trucks--.22%
Honda Motor Company, Ltd. 2,000 84,000
Banks--4.41%
Bank of New York Company, Inc. 11,000 536,250
Chase Manhattan Corporation 5,700 345,562
Citicorp 11,700 786,825
Biotechnology--1.85%
Amgen, Inc. 11,800 699,150*
Broadcasting--2.53%
Capital Cities/ABC, Inc. 6,600 814,275
US West Media Group, Inc. 7,600 144,400*
Chemicals--Major--4.36%
Dow Chemical Company 6,200 436,325
Monsanto Company 9,900 1,212,750
1,212,750
Computer Software--1.67%
Informix Corporation 7,000 210,000*
Silicon Graphics Computer System 8,200 225,500*
Sybase, Inc. 5,500 196,625*
Conglomerates--1.00%
AlliedSignal, Inc. 8,000 380,000
Drugs--6.41%
Lilly (Eli) & Company 5,708 321,075
Merck & Company, Inc. 5,400 355,050
Mylan Laboratories, Inc. 17,550 412,425
Pharmacia-Upjohn, Inc. 13,000 503,750
Schering-Plough Corporation 15,200 832,200
Electric Equipment--Major--3.67%
General Electric Company 13,000 936,000
Kuhlman Corporation 36,000 450,000
Electronics--Instrument--2.78%
General Instrument Corporation 8,300 194,012*
3Com Corporation 10,000 466,250*
Varian Associates, Inc. 8,200 391,550
7
<PAGE>
Electronics--Semi--1.99%
LSI Logic Corporation 7,200 235,800*
Texas Instruments, Inc. 10,000 517,500
Entertainment--.94%
Disney, (Walt) & Company 6,000 354,000
Financial Services--.61%
Money Store, Inc. 15,000 232,500
Foods--1.99%
Sara Lee Corporation 23,600 752,250
Footwear--1.33%
Nike, Inc. 7,200 501,300
Hospital--Management--3.73%
Columbia/HCA Healthcare Corporation 9,900 502,425
Medaphis Corporation 14,000 518,000*
Vencor, Inc. 12,000 390,000*
Hospital--Supplies--3.01%
Baxter International, Inc. 5,700 238,687
Guidant Corporation 5,046 213,194
Johnson & Johnson 8,000 685,000
Information Processing--2.05%
Equifax, Inc. 36,200 773,775
Insurance--Multi-Line--4.61%
Aflac, Inc. 9,000 390,375
Allstate Corporation 12,300 505,838
American General Corporation 6,500 226,687
CIGNA Corporation 6,000 619,500
Insurance--Property & Casualty--.96%
Prudential Reinsurance Holdings, Inc. 15,500 362,313
Machinery--Agricultural--.54%
Varity Corporation 5,500 204,188*
Merchandising--Department--1.92%
Dayton Hudson Corporation 3,800 285,000
Federated Department Stores, Inc. 16,000 440,000*
Merchandising--Drugs--.71%
Eckerd Corporation 6,000 267,750*
Merchandising--Special--2.54%
Borders Group, Inc. 26,500 490,250*
Circuit City Stores, Inc. 17,000 469,625
Miscellaneous Consumer Cyclical--.44%
Kelly Services, Inc. 6,000 166,500
8
<PAGE>
Miscellaneous Financial--5.39%
Countrywide Credit Industries, Inc. 42,000 913,500
Dean Witter, Discover & Company 6,300 296,100
Federal Home Loan Mortgage Corporation 4,600 384,100
First USA, Inc. 10,000 443,750
Natural Gas--Diversified--.74%
Questar Corporation 8,300 278,050
Oils--Integrated Domestic--5.70%
Amoco Corporation 9,300 668,438
Atlantic Richfield Company 8,400 930,300
Enron Oil & Gas Company 10,500 257,250
Phillips Petroleum Company 8,800 300,300
Oils--Integrated International--4.17%
Mobil Corporation 6,900 772,800
Royal Dutch Petroleum Company 5,700 804,413
Oil Services--.78%
Oceaneering International, Inc. 23,000 296,125*
Paper & Forest Products--.34%
Sonoco Products Company 4,830 126,787
Railroads--.92%
CSX Corporation 7,600 346,750
Telecommunications--1.46%
DSC Communications Corporation 15,000 553,125*
Textile--Apparel--1.35%
Intimate Brands, Inc. 15,000 225,000
Ross Stores, Inc. 15,000 286,875
Tobacco--1.34%
Philip Morris Companies, Inc. 5,600 506,800
Transportation--Miscellaneous--.51%
Federal Express Corporation 2,600 192,075*
Utilities--Communications--7.56%
Bell Atlantic Corporation 3,700 247,438
BellSouth Corporation 7,400 321,900
Century Telephone Enterprises, Inc. 8,400 266,700
Frontier Corporation 32,000 960,000
SBC Communications, Inc. 3,600 207,000
Sprint Corporation 14,600 582,175
US West Communications Group, Inc. 7,600 271,700
9
<PAGE>
Utilities--Electric--8.22%
American Electric Power Company, Inc. 6,600 267,300
CMS Energy Corporation 9,800 292,775
Carolina Power & Light Company 4,100 141,450
CINergy Corporation 13,700 419,562
Consolidated Edison Company of New York, Inc. 5,900 188,800
Dominion Resources, Inc. 4,600 189,750
Entergy Corporation 12,000 351,000
FPL Group, Inc. 8,200 380,275
Illinova Corporation 9,600 288,000
Northeast Utilities 8,650 210,844
PECO Energy Company 4,900 147,612
Public Service Enterprise Group, Inc. 7,500 229,687
----------
Total Common Stocks (Cost--$28,253,464+) 36,598,687
----------
Preferred Stocks--1.35%
Tobacco--1.35%
RJR Nabisco Holdings, Inc. Pfd C 80,000 510,000
---------
Total Preferred Stocks (Cost--$494,800+) 510,000
---------
Short-Term Securities--1.85%
Ford Motor Credit Company, 1/03/96 $ 700,000 699,655
---------
Total Short-Term Securities (Cost--$699,655+) 699,655
---------
Total Investments (Cost--$29,447,919+) $37,808,342
-----------
-----------
*Non-income producing.
+Aggregate cost for Federal income tax purposes is the same.
See Notes to Financial Statements.
10
<PAGE>
JEFFERSON-PILOT CAPITAL APPRECIATION FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
ASSETS
Investment in securities at value (cost $29,447,919) $ 37,808,342
Cash 364,199
Receivables:
Capital shares sold 1,970
Dividends 56,055
------------
Total Assets 38, 230,566
------------
LIABILITIES
Payables:
Capital shares redeemed 66,990
Securities purchased 258,090
Accrued expenses 74,406
------------
Total Liabilities 399,486
------------
NET ASSETS
Net Assets, equivalent to $15.96 per share on
2,370,053 shares of capital stock outstanding (Note 2) $ 37,831,080
------------
------------
Computation of public offering price:
Net asset value per share $ 15.96
--------
--------
Offering price per share (100/95.5 x $15.96)
(reduced on sales of $25,000 or more) $ 16.71
--------
--------
See Notes to Financial Statements.
11
<PAGE>
JEFFERSON-PILOT CAPITAL APPRECIATION FUND, INC.
STATEMENT OF OPERATIONS
Year Ended December 31, 1995
Investment Income:
Interest $ 53,147
Dividends 828,748
-----------
Total income 881,895
-----------
Expenses:
Investment Adviser's fee (Note 3) 177,665
Custodian and Transfer Agent fees 67,583
Directors' fees 3,660
Professional fees 25,511
Shareholder accounting services (Note 3) 21,600
Printing and mailing 13,200
Other 1,297
-----------
Total expenses 310,516
Less expenses offset (Note 5) ( 18,240)
-----------
Net expenses 292,276
-----------
Investment income - net 589,619
-----------
Realized and Unrealized Gain on Investments:
Net realized gain on investments 2,251,129
Unrealized appreciation of investments for the year 7,655,872
Net gain on investments 9,907,001
-----------
Net increase in net assets from operations $10,496,620
-----------
-----------
See Notes to Financial Statements.
12
<PAGE>
JEFFERSON-PILOT CAPITAL APPRECIATION FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
Years Ended December 31, 1995 and 1994
1995 1994
Increase (Decrease) in Net Assets from:
Operations:
Investment income--net $ 589,619 $ 622,612
Net realized gain on investments 2,251,129 7,132,162
Unrealized appreciation (depreciation)
for the year 7,655,872 ( 9,494,642)
----------- -----------
Net increase (decrease) in net assets
from operations 10,496,620 ( 1,739,868)
Dividends paid to shareholders from:
Investment income -- net ( 568,392) ( 596,160)
Net realized gain on investments ( 1,486,668) ( 7,155,326)
Capital share transactions (Note 2) ( 2,993,629) 3,828,530
----------- -----------
Total increase (decrease) 5,447,931 ( 5,662,824)
Net Assets
Beginning of year 32,383,149 38,045,973
----------- -----------
End of year (including undistributed net
investment income of $48,707 and
$27,480, respectively) $37,831,080 $32,383,149
----------- -----------
----------- -----------
See Notes to Financial Statements.
13
<PAGE>
JEFFERSON-PILOT CAPITAL APPRECIATION FUND, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES:
Jefferson-Pilot Capital Appreciation Fund, Inc., is an open-end management
investment company registered under the Investment Company Act of 1940. The
Fund's primary investment objective is long-term capital appreciation. The Fund
seeks to achieve this objective by investing substantially all of its assets in
common stocks of companies recognized as leaders in their respective industries,
however, other types of securities may be purchased depending upon the judgement
of management. The following is a summary of significant accounting policies
followed in the preparation of its financial statements:
VALUATION OF SECURITIES--Investments are stated at value based on the closing
prices reported on national securities exchanges on the last business day of the
year, or for over-the-counter securities, at the last bid price, except that
short-term securities are stated at amortized cost which approximates value.
FEDERAL INCOME TAXES--It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to "regulated investment companies" and
to distribute all of its taxable income to its shareholders. Therefore, no
provision for Federal income tax is required.
USE OF ESTIMATES -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increases and decreases in net assets
from operations during the reporting period. Actual results could differ from
those estimates.
GENERAL -- Securities transactions are accounted for on the trade date. Dividend
income and distributions to shareholders are recorded on the ex-dividend date.
Interest income is accrued as earned.
NOTE 2. CAPITAL STOCK: At December 31, 1995, 10,000,000 shares of capital stock
($1.00 par value) were authorized and capital paid-in amounted to $28,499,042.
Transactions in capital stock were as follows:
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994
---------------------- ---------------------
Shares Amount Shares Amount
------ ------ ------ ------
Sold 153,009 $ 2,164,646 178,334 $ 2,952,364
Issued on reinvestment
of dividends 109,424 1,662,936 489,064 6,160,598
Redeemed (469,652) ( 6,821,211) (322,174) ( 5,284,432)
------- ----------- ------- -----------
Net increase (decrease) (207,219) ($ 2,993,629) 345,224 $ 3,828,530
------- ----------- ------- -----------
------- ----------- ------- -----------
14
<PAGE>
NOTE 3. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
JP Investment Management Company received investment advisory fees of $177,665
during the year ended December 31, 1995. This fee is computed at the annual rate
of 0.5% of the Fund's average daily net asset value. If the Fund's expenses,
excluding interest and taxes, exceed 1% of the average daily net asset value,
the Investment Adviser will pay the excess. No such reimbursement was required
during the year.
Expenses include $21,600 of fees paid to JP Investment Management Company for
shareholder accounting services.
Jefferson-Pilot Investor Services, Inc. received sales commissions of $66,827 in
its capacity as Principal Distributor for the Fund.
NOTE 4. INVESTMENT TRANSACTIONS: Purchases and sales of investment securities,
excluding short-term securities, were $22,431,918 and $27,025,361, respectively.
Realized gains and losses are reported on an identified cost basis. Accumulated
undistributed net realized gain at December 31, 1995 was $922,908.
At December 31, 1995, the aggregate gross unrealized appreciation and
depreciation of portfolio securities was as follows:
Unrealized appreciation $8,565,109
Unrealized depreciation ( 204,686)
----------
Net unrealized appreciation $8,360,423
----------
----------
NOTE 5. EXPENSE OFFSET ARRANGEMENT:
The Fund has an arrangement with its custodian and transfer agent whereby
credits earned on cash balances maintained at the custodian are used to offset
custody and transfer agent charges. These credits amounted to $18,240 for the
year ended December 31, 1995.
15
<PAGE>
NOTE 6. SELECTED FINANCIAL INFORMATION:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value,
beginning of year $12.56 $17.05 $17.44 $18.02 $14.09
----- ----- ----- ----- -----
Income from investment
operations:
Net investment income .25 .29 .23 .23 .32
Net realized and unrealized
gain (loss) on investments 4.03 ( 1.12) 1.04 .75 4.13
----- ----- ----- ----- -----
Total from investment
operations 4.28 ( .83) 1.27 .98 4.45
----- ----- ----- ----- -----
Less distributions:
Dividends from net
investment income ( .24) ( .28) ( .22) ( .27) ( .33)
Distributions from net
realized gains ( .64) ( 3.38) ( 1.44) ( 1.29) ( .19)
----- ----- ----- ----- -----
Total distributions ( .88) ( 3.66) ( 1.66) ( 1.56) ( .52)
----- ----- ----- ----- -----
Net asset value,
end of year $15.96 $12.56 $17.05 $17.44 $18.02
----- ----- ----- ----- -----
----- ----- ----- ----- -----
TOTAL RETURN (WITHOUT DEDUCTION OF SALES LOAD) 34.47% ( 4.63)% 7.68% 5.60% 32.22%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000 omitted) $37,831 $32,383 $38,045 $34,898 $33,836
Ratios to average net assets:
Expenses .87% .83% .84% .87% .87%
Net investment income 1.66 1.74 1.30 1.34 1.98
Portfolio turnover rate 65.27 143.81 26.89 53.38 36.70
</TABLE>
16
<PAGE>
JEFFERSON-PILOT CAPITAL APPRECIATION FUND, INC.
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders
Jefferson-Pilot Capital Appreciation Fund, Inc.
We have audited the accompanying statement of assets and liabilities and the
statement of investments of Jefferson-Pilot Capital Appreciation Fund, Inc. as
of December 31, 1995, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the selected financial information for each of the five
years in the period then ended. These financial statements and selected
financial information are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
selected financial information based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and selected
financial information 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 as of December 31, 1995, by correspondence with the custodian and brokers.
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, the financial statements and selected financial information
referred to above present fairly, in all material respects, the financial
position of Jefferson-Pilot Capital Appreciation Fund, Inc. as of December 31,
1995, the results of its operations, the changes in its net assets, and the
selected financial information for the periods indicated, in conformity with
generally accepted accounting principles.
McGladrey & Pullen, LLP
/s/ McGladrey & Pullen, LLP
New York, New York
January 11, 1996
17
<PAGE>
18
<PAGE>
JEFFERSON-PILOT INVESTMENT GRADE BOND FUND, INC.
A MUTUAL FUND SEEKING MAXIMUM INCOME
This report and accompanying financial statements are submitted for information
of the Fund shareholders and are not to be considered as an offer or
solicitation of offers to buy or sell any shares of the Fund. Such offering is
made only if preceded or accompanied by an effective prospectus.
<TABLE>
<CAPTION>
<S> <C>
FUND DIRECTORS AND OFFICERS DISTRIBUTOR
E. J. YELTON, Ph.D., DIRECTOR, PRESIDENT, Jefferson-Pilot Investor Services, Inc.
AND TREASURER 100 North Greene Street
Greensboro, North Carolina 27401
JOHN C. INGRAM, CFA, DIRECTOR
J. LEE LLOYD, DIRECTOR INVESTMENT ADVISER
JP Investment Management Company
RICHARD W. McENALLY, CFA, DIRECTOR 100 North Greene Street
Greensboro, North Carolina 27401
WILLIAM E. MORAN, DIRECTOR
W. HARDEE MILLS, CFA, VICE PRESIDENT CUSTODIAN AND TRANSFER AGENT
Investors Fiduciary Trust Company
J. GREGORY POOLE, SECRETARY 127 West Tenth Street
Kansas City, Missouri 64105
H. LUSBY BROWN, CFA, PORTFOLIO MANAGER
CERTIFIED PUBLIC ACCOUNTANTS
McGladrey & Pullen, LLP
555 Fifth Avenue
New York, New York 10017
JEFFERSON-PILOT INVESTMENT
GRADE BOND FUND, INC.
100 North Greene Street
P.O. Box 21008
Greensboro, North Carolina 27420
</TABLE>
19
<PAGE>
INVESTMENT RESULTS
TOTAL RETURN - 1995 - DIVIDEND REINVESTMENT PLAN:
Net Asset Value December 31, 1995 $ 9.66
Investment Income Dividends Paid:
February 10, 1995 $ .011
May 12, 1995 $ .150
August 11, 1995 $ .160
November 10, 1995 $ .150
December 19, 1995 $ .130
December 31, 1995 Adjusted Value per Share Assuming
All Dividends Reinvested in Fund Shares $10.30
Net Asset Value December 31, 1994 $ 8.70
Percent Change During Twelve Months Ended
December 31, 1995:
Jefferson-Pilot Investment Grade Bond Fund, Inc.
Assuming All Dividends Reinvested in Fund Shares 18.39%
Reinvestment Prices Assuming Dividends were reinvested
in New Fund Shares on the Record Date:
$8.83 per share as of January 30, 1995
$9.08 per share as of April 28, 1995
$9.29 per share as of July 28, 1995
$9.51 per share as of October 27, 1995
$9.55 per share as of December 15, 1995
20
<PAGE>
TO SHAREHOLDERS
INVESTMENT ACTIVITY
On December 31, 1995, the net asset value of your Fund was $9.66. The Fund paid
dividends of $.601 per share from interest income during 1995. The Fund's annual
returns for one, three, five, and ten-year periods ending December 31, 1995 are
as follows:*
Year-to-Date
1 Year -- 18.39%
3 Years -- 7.06%
5 Years -- 8.26%
10 Years -- 8.65%
In 1995, the bond market recovered from one of its worst years in history to
record one of its best years in history. The rally actually began in late 1994
and picked up steam early in 1995, as the Federal Reserve dropped the target for
Federal Funds to 5.75%. A developing picture of mediocre economic growth and low
inflation kept the rally going throughout the summer as the market began to
forecast slower growth in 1996. The bond market rally was led by expectations
that the Fed would continue to ease and, as a result, the yield curve steepened
with the two-year Note rallying over 250 BP while the 30-year Bond only rallied
about 190 BP.
Long-term corporate bonds had the best overall returns in 1995, due to
tightening credit spreads caused by heavy demand for higher yielding assets and
light supply. Mortgage-backed securities generally underperformed the market
during the year as falling interest rates sparked prepayment fears, limiting any
increase in prices for these bonds.
The outlook for the bond market in 1996 is currently clouded by the actions of
the Congress and the White House regarding the Federal budget. The market is
discounting a favorable outcome in budget deliberations which could translate
into lower federal borrowing and fiscal drag from reduced government spending.
The market is also discounting a continuation of Federal Reserve easing in 1996
warranted by slow growth and low inflation. While the prospects for these
scenarios seem very good, the market is at risk to be disappointed. The
risk/reward profile for the bond market clearly favors shorter maturities and a
slightly more defensive stance at this time.
On December 31, 1995, the Fund's assets were invested 86.87% in medium and
long-term bonds.
21
<PAGE>
PORTFOLIO DIVERSIFICATION:
SECTOR % OF TOTAL NET ASSETS
U.S Government 42.68
Industrials 15.90
Financials 10.50
Electric Utilities 3.22
Telephone Utilities 3.59
Gas Utilities 7.53
Cash Equivalents 3.45
Mortgage-Backed Securities 13.13
Your continued support and interest in the Jefferson-Pilot Investment Grade Bond
Fund are appreciated, and we welcome any questions.
Jefferson-Pilot Investment Grade Bond Fund, Inc.
/s/ E. J. Yelton
President
January 29, 1996
*These results do not include the sales charge. If the maximum sales charge of
4.50% of the initial investment is included, the rates of return of the Fund for
the one, three, five, and ten-year periods ended December 31, 1995, were
+13.03%, +5.43%, +7.27%, and +8.15%, respectively. These results represent past
performance and are not necessarily an indication of future results.
22
<PAGE>
ABOUT YOUR FUND
As a shareowner of Jefferson-Pilot Investment Grade Bond Fund, you have several
valuable benefits and privileges:
- - You may be able to acquire additional shares at a reduced sales charge through
either the Combined Purchases, Accumulated Purchases, or Statement of Intention
provisions of the Fund. (See those sections of your prospectus that describe
these provisions.)
- - You may exchange shares owned at any time for an equal value of shares of
Jefferson-Pilot Capital Appreciation Fund, subject to certain minimum amounts,
without charge.
- - You may reinvest all income and capital gains distributions in additional Fund
shares at the Fund's net asset value (without a sales charge).
- - Provided you own shares or currently purchase shares having a net asset of at
least $10,000, you may elect to have monthly or quarterly payments made to you
under a Systematic Withdrawal Plan.
Additionally, the Fund provides a printed confirmation of each transaction,
quarterly reports, and other account information, making ownership of Fund
shares easy and convenient.
The cost of purchasing and owning shares is reasonable. The services provided
plus professional management plus diversification of investments would otherwise
be prohibitively expensive for most investors.
We hope that this information will encourage you to increase the level of your
future investments in Jefferson-Pilot Investment Grade Bond Fund -- or you may
wish to add a Jefferson-Pilot Capital Appreciation Fund account.
23
<PAGE>
JEFFERSON-PILOT INVESTMENT GRADE BOND FUND, INC.
STATEMENT OF INVESTMENTS
December 31, 1995
FACE
RATINGS* AMOUNT ISSUE VALUE
BONDS - 99.08%
U.S. GOVERNMENT - 43.80%
$ 750,000 U.S. Treasury Notes
5 1/8% due 11/30/98 $ 747,540
750,000 U.S. Treasury Notes
6 3/8% due 8/15/02 786,443
1,000,000 U.S. Treasury Notes
6 1/2% due 4/30/99 1,036,560
1,000,000 U.S. Treasury Notes
6 7/8% due 3/31/00 1,056,410
850,000 U.S. Treasury Notes
7 1/2% due 1/31/96 851,462
750,000 U.S. Treasury Notes
8% due 10/15/96 765,465
500,000 U.S. Treasury Bonds
8 7/8% due 8/15/17 669,685
750,000 U.S. Treasury Notes
9 3/8% due 4/15/96 758,558
1,000,000 U.S. Treasury Bonds
10 3/8% due 11/15/09 1,319,370
1,000,000 U.S. Treasury Bonds
12 3/4% due 11/15/10 1,523,120
MORTGAGE-BACKED SECURITIES - 13.47%
1,000,000 Federal Home Loan Mortgage
Corporation
6% due 3/15/09 945,000
2,000,000 Federal Home Loan Mortgage
Corporation
7% due 9/15/23 1,981,240
INDUSTRIALS - 27.09%
FINANCE - 10.77%
A1 1,000,000 Ford Motor Credit Company
6 3/4% Notes due 8/15/08 1,026,890
24
<PAGE>
A1 750,000 Merrill Lynch & Company, Inc.
6 7/8% Notes due 3/01/03 780,907
A1 500,000 SunTrust Banks, Inc.
8 7/8% Notes due 2/01/98 532,075
FOODS - 3.63%
Aa2 750,000 Archer-Daniels-Midland Company
7 1/8% Debs. due 3/01/13 788,580
MACHINERY -
INDUSTRIAL/SPECIALTY - 2.57%
A2 500,000 Johnson Controls, Inc.
7.70% Debs. due 3/01/15 558,625
NATURAL GAS - 1.63%
Baa2 350,000 Tennessee Gas Pipeline Company
9 1/4% Notes due 5/15/96 354,126
POLLUTION CONTROL - 2.43%
Baa2 500,000 Laidlaw, Inc.
7.70% Debs. due 8/15/02 528,225
RAILROADS - 3.49%
Baa2 750,000 Kansas City Southern
Industries, Inc.
6 5/8% Senior Notes due 3/01/05 757,627
TOBACCO - 2.57%
A2 500,000 Philip Morris Companies, Inc.
8 1/4% Senior Notes due 10/15/03 557,400
UTILITIES - 14.72%
UTILITIES - ELECTRIC - 3.30%
A2 113,000 Carolina Power & Light Company
8 1/8% 1st Mtge. due 11/01/03 115,582
A1 500,000 South Carolina Electric &
Gas Company
9% 1st & Ref. due 7/15/06 601,705
UTILITIES - GAS - 7.73%
Aa3 500,000 Laclede Gas Company
8 1/2% 1st Mtge. due 11/15/04 571,065
A2 500,000 National Fuel Gas Company
7 3/4% Debs. due 2/01/04 542,855
Baa1 500,000 Texas Gas Transmission
8 5/8% Notes due 4/01/04 565,270
25
<PAGE>
UTILITIES - TELEPHONE - 3.69%
A3 750,000 United Telephone Company of
Pennsylvania
7 3/8% 1st Mtge. Ser. Y
due 12/01/02 799,958
----------
Total Bonds
(Cost - $19,342,401+) 21,521,743
----------
SHORT-TERM SECURITIES - .92%
A1 200,000 Ford Motor Credit
Company, 1/03/96 199,901
----------
Total Short-Term Securities
(Cost - $199,901+) 199,901
----------
Total Investments - 100%
(Cost - $19,542,302+) $21,721,644
----------
----------
*Bonds are rated by Moody's Investors Service, Inc. and
Commercial Paper is rated by Standard & Poor's Corporation.
+Aggregate cost for Federal income tax purposes is the same.
See Notes to Financial Statements.
26
<PAGE>
JEFFERSON-PILOT INVESTMENT GRADE BOND FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
ASSETS
Investment in securities at value
(cost $19,542,302) $ 21,721,644
Cash 254,766
Receivables:
Interest 360,833
Capital shares sold 3,401
------------
Total Assets 22,340,644
------------
LIABILITIES
Payables:
Capital shares redeemed 1,585
Accrued expenses 49,130
------------
Total Liabilities 50,715
------------
NET ASSETS
Net Assets, equivalent to $9.66 per
share on 2,307,624 shares of capital
stock outstanding (Note 2) $ 22,289,929
------------
------------
Computation of public offering price:
Net asset value per share $ 9.66
--------
--------
Offering price per share (100/95.5 x $9.66)
(reduced on sales of $25,000 or more) $ 10.12
--------
--------
See Notes to Financial Statements.
27
<PAGE>
JEFFERSON-PILOT INVESTMENT GRADE BOND FUND, INC.
STATEMENT OF OPERATIONS
Year Ended December 31, 1995
Investment Income:
Interest $ 1,604,710
-----------
Expenses:
Investment Adviser's fee (Note 3) 109,982
Custodian and Transfer Agent fees 48,836
Directors' fees 3,660
Professional fees 24,300
Shareholder accounting services (Note 3) 10,250
Printing and mailing 7,200
Other 6,228
-----------
Total expenses 210,456
Less expenses offset (Note 5) ( 12,830)
-----------
Net expenses 197,626
-----------
Investment income - net 1,407,084
-----------
Realized and Unrealized Gain
(Loss) on Investments:
Net realized loss on investments ( 45,405)
Unrealized appreciation of investments for the year 2,333,056
-----------
Net gain on investments 2,287,651
-----------
Net increase in net assets from operations $ 3,694,735
-----------
-----------
See Notes to Financial Statements.
28
<PAGE>
JEFFERSON-PILOT INVESTMENT GRADE BOND FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
Years Ended December 31, 1995 and 1994
1995 1994
Increase (Decrease) in Net Assets from:
Operations:
Investment income - net $ 1,407,084 $ 1,479,005
Net realized loss on investments ( 45,405) ( 774,526)
Unrealized appreciation (depreciation)
for the year 2,333,056 ( 2,124,538)
----------- -----------
Net increase (decrease) in net assets
from operations 3,694,735 ( 1,420,059)
Dividends paid to shareholders from
investment income - net ( 1,403,096) ( 1,443,508)
Capital share transactions (Note 2) ( 1,033,355) 263,565
----------- -----------
Total increase (decrease) 1,258,284 ( 2,600,002)
Net Assets
Beginning of year 21,031,645 23,631,647
----------- -----------
End of year (including undistributed net
investment income of $39,486 and
$35,497, respectively) $22,289,929 $21,031,645
----------- -----------
----------- -----------
See Notes to Financial Statements.
29
<PAGE>
JEFFERSON-PILOT INVESTMENT GRADE BOND FUND, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES:
Jefferson-Pilot Investment Grade Bond Fund, Inc., is an open-end management
investment company registered under the Investment Company Act of 1940. The
Fund's primary investment objective is to seek the maximum level of current
income as is consistent with prudent risk. The Fund attempts to achieve this
objective by investing primarily in high-rated fixed income securities and
dividend paying common stocks, however, other types of securities may be
purchased depending upon the judgement of management. The following is a summary
of significant accounting policies followed in the preparation of its financial
statements:
VALUATION OF SECURITIES - Fixed income securities are valued by using market
quotations or independent pricing services which utilize prices provided by
market makers or estimates based on yield data related to similar securities;
short-term securities are stated at amortized cost which approximates value.
FEDERAL INCOME TAXES - It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to "regulated investment companies" and
to distribute all of its taxable income to its shareholders. Therefore, no
provision for Federal income tax is required.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increases and decreases in net assets
from operations during the reporting period. Actual results could differ from
those estimates.
GENERAL - Securities transactions are accounted for on the trade date.
Distributions to shareholders are recorded on the ex-dividend date. Interest
income is accrued as earned.
NOTE 2. CAPITAL STOCK:
At December 31, 1995, 10,000,000 shares of capital stock ($1.00 par value) were
authorized and capital paid-in amounted to $20,960,868. Transactions in capital
stock were as follows:
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994
SHARES AMOUNT SHARES AMOUNT
Sold 36,972 $ 344,257 150,431 $ 1,421,796
Issued on reinvestment
of dividends 94,251 879,674 101,556 909,213
Redeemed (241,492) ( 2,257,286) (224,210) ( 2,067,444)
------- ----------- ------- -----------
Net increase
(decrease) (110,269) ($ 1,033,355) 27,777 $ 263,565
------- ----------- ------- -----------
------- ----------- ------- -----------
30
<PAGE>
NOTE 3. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
JP Investment Management Company received investment advisory fees of $109,982
during the year ended December 31, 1995. This fee is computed at the annual rate
of 0.5% of the Fund's average daily net asset value. If the Fund's expenses,
excluding interest and taxes, exceed 1% of the average daily net asset value,
the Investment Adviser will pay the excess. No such reimbursement was required
during the year.
Expenses include $10,250 of fees paid to JP Investment Management Company for
shareholder accounting services.
Jefferson-Pilot Investor Services, Inc. received sales commissions of $8,656 in
its capacity as Principal Distributor for the Fund.
NOTE 4. INVESTMENT TRANSACTIONS:
Purchases and sales of investment securities, excluding short-term securities,
were $7,023,037 and $7,551,805, respectively.
Realized gains and losses are reported on an identified cost basis. Accumulated
undistributed net realized loss at December 31, 1995 was $889,767. This loss may
be carried forward to offset future capital gains with $69,836 expiring in 2001,
$44,589 expiring in 2002, and $775,342 expiring in 2003.
At December 31, 1995, the aggregate gross unrealized appreciation and
depreciation of portfolio securities was as follows:
Unrealized appreciation $2,180,005
Unrealized depreciation ( 663)
----------
Net unrealized appreciation $2,179,342
----------
----------
NOTE 5. EXPENSE OFFSET ARRANGEMENT:
The Fund has an arrangement with its custodian and transfer agent whereby
credits earned on cash balances maintained at the custodian are used to offset
custody and transfer agent charges. These credits amounted to $12,830 for the
year ended December 31, 1995.
31
<PAGE>
NOTE 6. SELECTED FINANCIAL INFORMATION:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value,
beginning of year $ 8.70 $ 9.89 $ 9.57 $ 9.65 $ 9.23
------ ------ ------ ------ ------
Income from investment operations:
Net investment income .60 .62 .64 .66 .76
Net realized and unrealized
gain (loss) on investments .96 ( 1.21) .32 ( .06) .44
------ ------ ------ ------ ------
Total from investment
operations 1.56 ( .59) .96 .60 1.20
------ ------ ------ ------ ------
Less dividends from net
investment income ( .60) ( .60) ( .64) ( .68) ( .78)
------ ------ ------ ------ ------
Net asset value, end of year $ 9.66 $ 8.70 $ 9.89 $ 9.57 $ 9.65
------ ------ ------ ------ ------
------ ------ ------ ------ ------
TOTAL RETURN (WITHOUT DEDUCTION OF SALES LOAD) 18.39% ( 5.97)% 10.24% 6.53% 13.76%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000 omitted) $22,290 $21,032 $23,632 $21,359 $19,313
Ratios to average net assets:
Expenses .96% .85% .86% .93% .93%
Net investment income 6.40 8.32 6.46 6.99 8.18
Portfolio turnover rate 33.91 41.01 21.34 25.53 23.65
</TABLE>
32
<PAGE>
JEFFERSON-PILOT INVESTMENT GRADE BOND FUND, INC.
CHANGES IN INVESTMENT POSITIONS
For the Period October 1, 1995 to December 31, 1995
ADDITIONS ELIMINATIONS
None None
33
<PAGE>
JEFFERSON-PILOT INVESTMENT GRADE BOND FUND, INC.
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders
Jefferson-Pilot Investment Grade Bond Fund, Inc.
We have audited the accompanying statement of assets and liabilities and the
statement of investments of Jefferson-Pilot Investment Grade Bond Fund, Inc. as
of December 31, 1995, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the selected financial information for each of the five
years in the period then ended. These financial statements and selected
financial information are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
selected financial information based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and selected
financial information 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 as of December 31, 1995, by correspondence with the custodian. 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, the financial statements and selected financial
information referred to above present fairly, in all material respects, the
financial position of Jefferson-Pilot Investment Grade Bond Fund, Inc. as of
December 31,1995, the results of its operations, the changes in its net assets,
and the selected financial information for the periods indicated, in conformity
with generally accepted accounting principles.
McGladrey & Pullen, LLP
/s/McGladrey & Pullen, LLP
New York, New York
January 11, 1996
34
<PAGE>
35
<PAGE>
[LOGO]
FAMILY
OF FUNDS
--------------------------------
Jefferson-Pilot
Capital Appreciation Fund
Investment Grade Bond Fund
--------------------------------
Annual Report
December 31, 1995
THIS REPORT AND ACCOMPANYING
FINANCIAL STATEMENTS ARE SUBMITTED
FOR INFORMATION OF THE FUND
SHAREHOLDERS AND ARE NOT TO BE
CONSIDERED AS AN OFFER OR
SOLICITATION OF OFFERS TO BUY OR
SELL ANY SHARES OF THE FUND. SUCH
OFFERING IS MADE ONLY IF PRECEDED
OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS.
<PAGE>
JEFFERSON-PILOT CAPITAL APPRECIATION FUND, INC.
A MUTUAL FUND SEEKING GROWTH OF CAPITAL
This report and accompanying financial statements are submitted for information
of the Fund shareholders and are not to be considered as an offer or
solicitation of offers to buy or sell any shares of the Fund. Such offering is
made only if preceded or accompanied by an effective prospectus.
FUND DIRECTORS AND OFFICERS DISTRIBUTOR
E. J. YELTON, Ph.D., DIRECTOR, Jefferson-Pilot Investor Services, Inc.
PRESIDENT, AND TREASURER 100 North Greene Street
Greensboro, North Carolina 27401
JOHN C. INGRAM, CFA, DIRECTOR
J. LEE LLOYD, DIRECTOR INVESTMENT ADVISER
JP Investment Management Company
RICHARD W. McENALLY, CFA, DIRECTOR 100 North Greene Street
Greensboro, North Carolina 27401
WILLIAM E. MORAN, DIRECTOR
CUSTODIAN AND TRANSFER AGENT
W. HARDEE MILLS, CFA, Investors Fiduciary Trust Company
VICE PRESIDENT 127 West Tenth Street
Kansas City, Missouri 64105
J. GREGORY POOLE, SECRETARY
GREGORY D. WALKER, CFA,
PORTFOLIO MANAGER
JEFFERSON-PILOT CAPITAL
APPRECIATION FUND, INC.
100 North Greene Street
P.O. Box 21008
Greensboro, North Carolina 27420
<PAGE>
INVESTMENT RESULTS
TOTAL RETURN -- 1996 -- DIVIDEND REINVESTMENT PLAN:
Net Asset Value June 30, 1996 $17.27
Investment Income Dividend Paid:
February 9, 1996 $ .021
Capital Gains Paid:
February 9, 1996 $ .395
June 30, 1996 Adjusted Value per Share Assuming
All Dividends Reinvested in Fund Shares $17.72
Net Asset Value December 31, 1995 $15.96
Percent Change During Six Months Ended
June 30, 1996:
Jefferson-Pilot Capital Appreciation Fund --
Assuming All Dividends Reinvested in Fund Shares 11.03%
Reinvestment Price Assuming Dividend was reinvested
in New Fund Shares on the Record Date:
$15.90 per share as of January 30, 1996
2
<PAGE>
TO SHAREHOLDERS
INVESTMENT ACTIVITY
On June 30, 1996, the net asset value of your Fund was $17.27. Dividends
totaling $.021 per share from net investment income and $.395 per share from net
capital gains have been paid year to date.
On a total return basis for the first half of the year, the Jefferson-Pilot
Capital Appreciation Fund increased 11.03% while the S&P 500 increased 10.10%.
Through June 30, 1996, Jefferson-Pilot Capital Appreciation Fund's historical
compound annual rate of total return is shown below for the following holding
periods:*
1 Years -- 27.22%
3 Years -- 14.50%
5 Years -- 13.66%
10 Years -- 11.06%
The second quarter saw the S&P 500 reach a new all-time high on May 24 after
inflation and interest rate fears began to moderate. The S&P 500 returned 4.5%
for the quarter marking the sixth consecutive quarter of positive performance.
Stocks of smaller companies and stocks of cyclical companies, having benefited
from the perception of a stronger than expected economy, began to lag toward the
end of the second quarter as concerns over corporate profits began to arise
again. This concern began anew after anecdotal signs of an economy which was
stronger than expected began to stimulate fears of a Federal Reserve interest
rate hike. Since the S&P 500's peak in May, investors have begun a flight to
quality. Defensive growth names have since outperformed the market due to their
tendency to provide superior relative earnings if the Federal Reserve indeed
places the brakes on economic growth with higher interest rates.
Your Fund has outperformed both the median Lipper Growth and Income manager as
well as the S&P 500 year to date. The Fund is in the top 20% of all Growth and
Income funds for the trailing twelve months according to Lipper Analytical
Services. This outperformance continues as of this writing with the market
exhibiting continued weakness.
The current market correction should be viewed as a positive event. Veteran
investors consider corrections as a healthy means of removing speculative
excesses from the marketplace. Witness the NASDAQ composite, comprised mainly of
smaller companies, often technology stocks, which has fallen 15% from its April
high. Fortunately, lower stock prices based on investor skittishness and fear,
present the seasoned long-term investor with buying opportunities.
We do not question that it is becoming late in this bull market. The liquidity
provided by the Federal Reserve, as well as that provided by other central
banks, has been the critical catalyst for this aging worldwide bull market. This
accommodative posture by the Federal Reserve may be coming to an end. In his
recent testimony before Congress, Federal Reserve Chairman Greenspan appeared to
hint that the war against inflation may be just beginning.
We do not base our management strategy on a forecast of the economy or interest
rates. We continue to believe that the stocks of companies with superior
earnings growth relative to their peers and which are trading at attractive
valuations are the companies we wish to own in the portfolio. Irrespective of
the overall market direction we believe that this strategy, over time, will
result in superior relative performance.
3
<PAGE>
PORTFOLIO DIVERSIFICATION
SECTOR % OF TOTAL NET ASSETS
CREDIT CYCLICALS 0.00
FINANCIAL 18.47
CONSUMER GROWTH STAPLES 3.30
CONSUMER STAPLES 15.52
CONSUMER CYCLICALS 4.80
CAPITAL GOODS -- TECHNOLOGY 11.84
CAPITAL GOODS 4.39
ENERGY 10.15
BASIC INDUSTRIES 3.67
TRANSPORTATION 1.43
UTILITIES 14.63
CONGLOMERATES 1.13
CASH 10.67
Your continued support and interest in the Jefferson-Pilot Capital Appreciation
Fund are appreciated, and we welcome any questions.
Jefferson-Pilot Capital Appreciation Fund, Inc.
/s/ E.J. YELTON
President
July 29, 1996
* These results do not include the sales charge. If the maximum sales charge
of 4.50% of the initial investment is included and with all subsequent
distributions of the Fund reinvested, the average annual total rate of
return of the Fund for the one, three, five, and ten-year periods ended
June 30, 1996, were +21.51%, +12.77%, +12.66% and +10.48%, respectively.
These results represent past performance and are not necessarily an
indication of future results.
4
<PAGE>
ABOUT YOUR FUND
As a shareowner of Jefferson-Pilot Investment Grade Bond Fund, you have several
valuable benefits and privileges:
- - You may be able to acquire additional shares at a reduced sales charge through
either the Combined Purchases, Accumulated Purchases, or Statement of Intention
provisions of the Fund. (See those sections of your prospectus that describe
these provisions.)
- - You may exchange shares owned at any time for an equal value of shares of
Jefferson-Pilot Investment Grade Bond Fund, subject to certain minimum amounts,
without charge.
- - You may reinvest all income and capital gains distributions in additional Fund
shares at the Fund's net asset value (without a sales charge).
- - Provided you own shares or currently purchase shares having a net asset of at
least $10,000, you may elect to have monthly or quarterly payments made to you
under a Systematic Withdrawal Plan.
Additionally, the Fund provides a printed confirmation of each transaction,
quarterly reports, and other account information, making ownership of Fund
shares easy and convenient.
The cost of purchasing and owning shares is reasonable. The services provided
plus professional management plus diversification of investments would otherwise
be prohibitively expensive for most investors.
We hope that this information will encourage you to increase the level of your
future invesments in Jefferson-Pilot Capital Appreciation Fund -- or you may
wish to add a Jefferson-Pilot Investment Grade Bond Fund account.
5
<PAGE>
JEFFERSON-PILOT CAPITAL APPRECIATION FUND, INC.
TEN LARGEST HOLDINGS
June 30, 1996
COMPANY MARKET VALUE PERCENT OF FUND
General Electric Company $1,124,500 2.8
Countrywide Credit Industries, Inc. 1,039,500 2.6
Tellabs, Inc. 1,034,625 2.5
Atlantic Richfield Company 995,400 2.5
Frontier Corporation 980,000 2.4
Citicorp 966,713 2.4
Monsanto Company 958,750 2.4
Schering -- Plough Corporation 953,800 2.3
Royal Dutch Petroleum Company 876,375 2.2
Borders Group, Inc. 854,625 2.1
----------- -----
$9,784,288 24.2
6
<PAGE>
JEFFERSON-PILOT CAPITAL APPRECIATION FUND, INC.
STATEMENT OF INVESTMENTS
June 30, 1996 (Unaudited)
NUMBER OF SHARES MARKET
COMMON STOCKS -- 88.33% OR PRINCIPAL AMOUNT VALUE
Aerospace/Defense -- 1.19%
Lockheed-Martin Corporation 5,700 $ 478,800
Banks -- 6.54%
Bank of New York Company, Inc. 11,000 563,750
Chase Manhattan Corporation 5,928 418,665
Citicorp 11,700 966,713
Mellon Bank Corporation 12,000 684,000
Broadcasting -- .34%
US West Media Group, Inc. 7,600 138,700*
Chemicals -- Major -- 3.36%
Imperial Chemical Industries, Inc. 8,000 393,000
Monsanto Company 29,500 958,750
Computer Systems -- 3.18%
SunGard Data Systems, Inc. 12,000 480,000*
Xerox Corporation 15,000 802,500
Conglomerates -- 1.13%
AlliedSignal, Inc. 8,000 457,000
Drugs -- 5.59%
Lilly (Eli) & Company 5,708 371,020
Merck & Company, Inc. 5,400 348,975
Pharmacia & Upjohn, Inc. 13,000 576,875
Schering-Plough Corporation 15,200 953,800
Electric Equipment -- Major -- 2.79%
General Electric Company 13,000 1,124,500
Electronics -- Instrument -- 1.05%
Varian Associates, Inc. 8,200 424,350
Electronics -- Semi -- .37%
Atmel Corporation 5,000 150,625*
Foods -- 1.90%
Sara Lee Corporation 23,600 764,050
Hospital -- Management -- 2.98%
Columbia/HCA Healthcare Corporation 9,900 528,412
Vencor, Inc. 22,000 671,000*
7
<PAGE>
Hospital -- Supplies -- 4.08%
Baxter International, Inc. 5,700 269,325
Guidant Corporation 5,046 248,516
Johnson & Johnson 16,000 792,000
St. Jude Medical, Inc. 10,000 332,500*
Insurance -- Multi-Line -- 5.92%
AFLAC, Inc. 13,500 403,312
Aetna Life & Casualty Company 10,000 715,000
Allstate Corporation 12,300 561,188
CIGNA Corporation 6,000 707,250
Insurance -- Property & Casualty -- 1.19%
Everest Reinsurance Holdings, Inc. 15,500 401,062
IPC Holdings, Inc. 4,000 80,500
Merchandising -- Department -- 2.27%
Consolidated Stores Corporation 10,000 367,500*
Federated Department Stores, Inc. 16,000 546,000
Merchandising -- Drugs -- 1.32%
Eckerd Corporation 12,000 271,500*
Thrifty Payless Holdings, Inc. 15,000 258,750*
Merchandising -- Special -- 2.12%
Borders Group, Inc. 26,500 854,625*
Miscellaneous Consumer Cyclical -- .44%
Kelly Services, Inc. 6,000 175,500
Miscellaneous Financial -- 4.92%
Countrywide Credit Industries, Inc. 42,000 1,039,500
Federal Home Loan Mortgage Corporation 4,600 393,300
First USA, Inc. 10,000 550,000
Natural Gas -- Diversified -- .70%
Questar Corporation 8,300 282,200
Oils -- Integrated Domestic -- 5.41%
Amerada Hess Corporation 9,500 509,438
Amoco Corporation 9,300 673,087
Atlantic Richfield Company 8,400 995,400
Oils -- Integrated International -- 4.09%
Mobil Corporation 6,900 773,663
Royal Dutch Petroleum Company 5,700 876,375
Paper & Forest Products -- .34%
Sonoco Products Company 4,830 137,051
8
<PAGE>
Pollution Control -- 1.63%
WMX Technologies, Inc. 20,000 655,000
Railroads -- .91%
CSX Corporation 7,600 366,700
Telecommunications -- 5.88%
DSC Communications Corporation 15,000 450,000*
Loral Space & Communications, Ltd. 9,200 125,350*
Lucent Technologies, Inc. 17,000 643,875*
Tellabs, Inc. 15,500 1,034,625*
360 Communications Company 4,866 116,784*
Tobacco -- 1.45%
Philip Morris Companies, Inc. 5,600 582,400
Transportation -- Miscellaneous -- .53%
Federal Express Corporation 2,600 213,200*
Utilities -- Communications -- 7.02%
Bell Atlantic Corporation 3,700 235,875
BellSouth Corporation 7,400 313,575
Century Telephone Enterprises, Inc. 8,400 267,750
Frontier Corporation 32,000 980,000
SBC Communications, Inc. 3,600 177,300
Sprint Corporation 14,600 613,200
US West Communications Group, Inc. 7,600 242,250
Utilities -- Electric -- 7.39%
American Electric Power Company, Inc. 6,600 281,325
CMS Energy Corporation 9,800 302,575
Carolina Power & Light Company 4,100 155,800
CINergy Corporation 13,700 438,400
Consolidated Edison Company of NY, Inc. 5,900 172,575
Dominion Resources, Inc. 4,600 184,000
Entergy Corporation 12,000 340,500
FPL Group, Inc. 8,200 377,200
Illinova Corporation 9,600 276,000
Northeast Utilities 8,650 115,694
PECO Energy Company 4,900 127,400
Public Service Enterprise Group, Inc. 7,500 205,312
Utilities -- Water -- .30%
American Water Works Company, Inc. 3,000 120,750
-----------
Total Common Stocks (Cost -- $26,768,816+) 35,585,442
-----------
9
<PAGE>
<TABLE>
<S> <C> <C>
PREFERRED STOCKS -- 1.51%
Telecommunications -- .22%
TCI Communications, Inc., $2.125 Cum Pfd. Ser. A 2,000 88,250
Tobacco -- 1.29%
RJR Nabisco Holdings, Inc. Pfd C 80,000 520,000
------------
Total Preferred Stocks (Cost -- $594,800+) 608,250
------------
SHORT-TERM SECURITIES -- 10.16%
American Express Credit Corporation, 7/10/96 $1,000,000 998,517
Cargill, Inc., 7/03/96 400,000 399,823
Chevron Oil Finance Company, 7/02/96 1,000,000 999,710
Ford Motor Credit Company, 7/08/96 700,000 699,165
General Electric Capital Corporation, 7/16/96 1,000,000 997,613
------------
Total Short-Term Securities (Cost -- $4,094,828+) 4,094,828
------------
Total Investments (Cost -- $31,458,444+) $40,288,520
------------
------------
</TABLE>
* Non-income producing.
+ Aggregate cost for Federal income tax purposes is the same.
See Notes to Financial Statements.
10
<PAGE>
JEFFERSON-PILOT CAPITAL APPRECIATION FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996 (Unaudited)
ASSETS
Investment in securities at value (cost $31,458,444) $ 40,288,520
Cash 373,991
Receivables:
Capital shares sold 5,000
Dividends 35,094
------------
Total Assets 40,702,605
------------
LIABILITIES
Payables:
Capital shares sold 17,136
Securities purchased 113,798
Accrued expenses 54,041
------------
Total Liabilities 184,975
------------
NET ASSETS
Net Assets, equivalent to $17.27 per share on
2,346,524 shares of capital stock outstanding (Note 2) $ 40,517,630
------------
------------
Computation of public offering price:
Net asset value per share $ 17.27
----------
----------
Offering price per share (100/95.5 x $17.27)
(reduced on sales of $25,000 or more) $ 18.08
----------
----------
See Notes to Financial Statements.
11
<PAGE>
JEFFERSON-PILOT CAPITAL APPRECIATION FUND, INC.
STATEMENT OF OPERATIONS
Six Months Ended June 30, 1996 (Unaudited)
Investment Income:
Interest $ 75,007
Dividends 422,863
-----------
Total income 497,870
-----------
Expenses:
Investment Adviser's fee (Note 3) 96,826
Custodian and Transfer Agent fees 34,397
Directors' fees 2,490
Professional fees 12,900
Shareholder accounting services (Note 3) 10,740
Printing and mailing 6,510
Other 2,662
-----------
Total expenses 166,525
Less expenses offset (Note 5) ( 7,731)
-----------
Net expenses 158,794
-----------
Investment income -- net 339,076
-----------
Realized and Unrealized Gain on Investments:
Net realized gain on investments 3,246,231
Unrealized appreciation of investments for the period 469,653
-----------
Net gain on investments 3,715,884
-----------
Net increase in net assets from operations $ 4,054,960
-----------
-----------
See Notes to Financial Statements.
12
<PAGE>
JEFFERSON-PILOT CAPITAL APPRECIATION FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
Six Months Ended June 30, 1996 (Unaudited) and Year Ended December 31, 1995
SIX MONTHS Year Ended
ENDED JUNE 30, December 31,
1996 1995
Increase (Decrease) in Net Assets from: -------------- -------------
Operations:
Investment income -- net $ 339,076 $ 589,619
Net realized gain on investments 3,246,231 2,251,129
Unrealized appreciation
for the period 469,653 7,655,872
----------- -----------
Net increase in net assets
from operations 4,054,960 10,496,620
Dividends paid to shareholders from:
Investment income -- net ( 49,141) ( 568,392)
Net realized gain on investments ( 924,527) ( 1,486,668)
Capital share transactions (Note 2) ( 394,742) ( 2,993,629)
----------- -----------
Total increase 2,686,550 5,447,931
Net Assets
Beginning of period 37,831,080 32,383,149
----------- -----------
End of period (including undistributed net
investment income of $338,642 and
$48,707, respectively) $40,517,630 $37,831,080
----------- -----------
----------- -----------
See Notes to Financial Statements.
13
<PAGE>
JEFFERSON-PILOT CAPITAL APPRECIATION FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES:
Jefferson-Pilot Capital Appreciation Fund, Inc. is an open-end management
investment company registered under the Investment Company Act of 1940. The
Fund's primary investment objective is long-term capital appreciation. The Fund
seeks to achieve this objective by investing substantially all of its assets in
common stocks of companies recognized as leaders in their respective industries,
however, other types of securities may be purchased depending upon the judgment
of management. The following is a summary of significant accounting policies
followed in the preparation of its financial statements:
VALUATION OF SECURITIES -- Investments are stated at value based on the closing
prices reported on national securities exchanges on the last business day of the
period, or for over-the-counter securities, at the last bid price, except that
short-term securities are stated at amortized cost which approximates value.
FEDERAL INCOME TAXES -- It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to "regulated investment companies" and
to distribute all of its taxable income to its shareholders. Therefore, no
provision for Federal income tax is required.
USE OF ESTIMATES -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increases and decreases in net assets
from operations during the reporting period. Actual results could differ from
those estimates.
GENERAL -- Securities transactions are accounted for on the trade date. Dividend
income and distributions to shareholders are recorded on the ex-dividend date.
Interest income is accrued as earned.
NOTE 2. CAPITAL STOCK:
At June 30, 1996, 10,000,000 shares of capital stock ($1.00 par value) were
authorized and capital paid-in amounted to $28,104,300. Transactions in capital
stock were as follows:
SIX MONTHS ENDED Year Ended
JUNE 30, 1996 December 31, 1995
---------------- -----------------
SHARES AMOUNT Shares Amount
-------- ----------- -------- -----------
Sold 63,398 $1,043,722 153,009 $2,164,646
Issued on reinvestment
of dividends 49,540 787,686 109,424 1,662,936
Redeemed (136,467) ( 2,226,150) (469,652) ( 6,821,211)
-------- ----------- -------- -----------
Net decrease ( 23,529) ($ 394,742) (207,219) ($2,993,629)
-------- ----------- -------- -----------
-------- ----------- -------- -----------
14
<PAGE>
NOTE 3. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
JP Investment Management Company received investment advisory fees of $96,826
during the six months ended June 30, 1996. This fee is computed at the annual
rate of 0.5% of the Fund's average daily net asset value. If the Fund's
expenses, excluding interest and taxes, exceed 1% of the average daily net asset
value, the Investment Adviser will pay the excess. No such reimbursement was
required during the period.
Expenses include $10,740 of fees paid to JP Investment Management Company for
shareholder accounting services.
Jefferson-Pilot Investor Services, Inc. received sales commissions of $25,487 in
its capacity as Principal Distributor for the Fund.
NOTE 4. INVESTMENT TRANSACTIONS:
Purchases and sales of investment securities, excluding short-term securities,
were $8,904,709 and $13,414,650, respectively.
Realized gains and losses are reported on an identified cost basis. Accumulated
undistributed net realized gain at June 30, 1996 was $3,244,612.
At June 30, 1996, the aggregate gross unrealized appreciation and depreciation
of portfolio securities was as follows:
Unrealized appreciation $9,209,014
Unrealized depreciation ( 378,938)
----------
Net unrealized appreciation $8,830,076
----------
----------
NOTE 5. EXPENSE OFFSET ARRANGEMENT:
The Fund has an arrangement with its custodian and transfer agent whereby
credits earned on cash balances maintained at the custodian are used to offset
custody and transfer agent charges. These credits amounted to $7,731 for the
period ended June 30, 1996.
15
<PAGE>
NOTE 6. SELECTED FINANCIAL INFORMATION:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
------ ------- ------- ------- ------- -------
1996 1995 1994 1993 1992 1991
------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period $15.96 $12.56 $17.05 $17.44 $18.02 $14.09
------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment income .15 .25 .29 23 23 .32
Net realized and unrealized gain (loss)
on investments 1.58 4.03 ( 1.12) 1.04 .75 4.13
------ ------ ------ ------ ------ ------
Total from investment operations 1.73 4.28 ( .83) 1.27 .98 4.45
------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net investment income ( .02) ( .24) ( .28) ( .22) ( .27) ( .33)
Distributions from net realized gains ( .40) ( .64) ( 3.38) ( 1.44) ( 1.29) ( .19)
------ ------ ------ ------ ------ ------
Total distributions ( .42) ( .88) ( 3.66) ( 1.66) ( 1.56) ( .52)
------ ------ ------ ------ ------ ------
Net asset value, end of period $17.27 $15.96 $12.56 $17.05 $17.44 $18.02
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
TOTAL RETURN (WITHOUT DEDUCTION
OF SALES LOAD) 11.03% 34.47% ( 4.63%) 7.68% 5.60% 32.22%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $40,518 $37,831 $32,383 $38,045 $34,898 $33,836
Ratios to average net assets:
Expenses .86%+^ .87%^ .83% .84% .87% .87%
Net investment income 1.75+ 1.66 1.74 1.30 1.34 1.98
Portfolio turnover rate 24.99 65.27 143.81 26.89 53.38 36.70
</TABLE>
+ Annualized.
^ Pursuant to new regulations, ratio includes expenses paid by expense offset
arrangements.
16
<PAGE>
JEFFERSON-PILOT INVESTMENT GRADE BOND FUND, INC.
A MUTUAL FUND SEEKING MAXIMUM INCOME
This report and accompanying financial statements are submitted for information
of the Fund shareholders and are not to be considered as an offer or
solicitation of offers to buy or sell any shares of the Fund. Such offering is
made only if preceded or accompanied by an effective prospectus.
FUND DIRECTORS AND OFFICERS DISTRIBUTOR
E. J. YELTON, Ph.D., DIRECTOR Jefferson-Pilot Investor Services,Inc.
PRESIDENT,AND TREASURER 100 North Greene Street
Greensboro, North Carolina 27401
JOHN C. INGRAM, CFA, DIRECTOR
INVESTMENT ADVISER
J. LEE LLOYD, DIRECTOR JP Investment Management Company
100 North Greene Street
RICHARD W. McENALLY, CFA, DIRECTOR Greensboro, North Carolina 27401
WILLIAM E. MORAN, DIRECTOR CUSTODIAN AND TRANSFER AGENT
Investors Fiduciary Trust Company
W. HARDEE MILLS, CFA, VICE 127 West Tenth Street
PRESIDENT Kansas City, Missouri 64105
J. GREGORY POOLE, SECRETARY
H. LUSBY BROWN, CFA,
PORTFOLIO MANAGER
JEFFERSON-PILOT INVESTMENT
GRADE BOND FUND, INC.
100 North Greene Street
P.O. Box 21008
Greensboro, North Carolina, 27420
17
<PAGE>
INVESTMENT RESULTS
TOTAL RETURN -- 1996 -- DIVIDEND REINVESTMENT PLAN:
Net Asset Value June 30, 1996 $ 9.26
Investment Income Dividend Paid:
February 9, 1996 $ .018
May 10, 1996 $ .150
June 30, 1996 Adjusted Value per Share Assuming
All Dividends Reinvested in Fund Shares $ 9.43
Net Asset Value December 31, 1995 $ 9.66
Percent Change During Six Months Ended
June 30, 1996:
Jefferson-Pilot Investment Grade Bond Fund, Inc.
Assuming All Dividends Reinvested in Fund Shares ( 2.38)%
Reinvestment Prices Assuming Dividends were reinvested
in New Fund Shares on the Record Date:
$9.67 per share as of January 30, 1996
$9.24 per share as of April 26, 1996
18
<PAGE>
TO SHAREHOLDERS
INVESTMENT ACTIVITY
On June 30, 1996, the net asset value of your Fund was $9.26. The Fund paid
dividends of $.168 per share from interest income during the first half of 1996.
The Fund's year-to-date returns and annual returns for one, three, five, and
ten-year periods ending June 30, 1996 are as follows:*
Year-to-Date (2.38%)
1 Year -- 3.46%
3 Years -- 3.70%
5 Years -- 6.87%
10 Years -- 7.29%
The bond market experienced these negative returns due to fears that the economy
was growing too rapidly causing the Federal Reserve to resort to a tightening of
monetary policy to prevent inflation. Since the beginning of the year, yields
have increased approximately 100 basis points in intermediate and long maturity
bonds, thus reducing bond prices.
The actions of the bond market in 1996 stem from expectations derived from
strong growth in payroll employment. This eliminated any expectations that the
Fed would cut short-term rates, causing the yield curve to steepen for longer
maturities. Corporate bonds outperformed Treasuries during the past six months
due to narrowing credit spreads caused by improved credit quality in most
sectors. Mortgage-backed securities also outperformed Treasuries as prepayment
assumptions declined with the rise in interest rates.
So far, the damage to the bond market has been inflicted solely on expectations.
Our view that inflation is unlikely to be a serious threat to bond yields has
proven to be accurate so far, as the CPI is still less than 3% on a year-over-
year basis. We believe that real yields on bonds are attractive at current
levels. If the Fed acts to raise short-term rates to choke off the prospects for
any future inflation, then bonds could become even more attractive. Despite the
attractiveness of real long-term rates, the bond market remains at risk until
the economy exhibits signs of a slowdown. We will continue to maintain a
somewhat neutral interest rate risk profile based on our short-term expectations
of bond market volatility; however, we maintain that in the long run bonds
should provide good relative returns.
19
<PAGE>
PORTFOLIO DIVERSIFICATION:
SECTOR % OF TOTAL NET ASSETS
U. S. Government 43.00
Mortgage-Backed Securities 13.45
Industrials 14.74
Financials 10.81
Electric Utilities 2.73
Telephone Utilities 3.70
Gas Utilities 7.74
Cash Equivalents 3.83
Your continued support and interest in the Jefferson-Pilot Investment Grade Bond
Fund are appreciated, and we welcome any questions.
Jefferson-Pilot Investment Grade Bond Fund, Inc.
/s/ E.J. Yelton
President
July 29, 1996
* These results do not include the sales charge. If the maximum sales charge of
4.50% of the initial investment is included, the rates of return of the Fund
for the one, three, five, and ten-year periods ended June 30, 1996, were
-1.16%, +2.14%, +5.90%, and +6.79%, respectively. These results represent past
performance and are not necessarily an indication of future results.
20
<PAGE>
ABOUT YOUR FUND
As a shareowner of Jefferson-Pilot Capital Appreciation Fund, you have several
valuable benefits and privileges:
- - You may be able to acquire additional shares at a reduced sales charge through
either the Combined Purchases, Accumulated Purchases, or Statement of Intention
provisions of the Fund. (See those sections of your prospectus that describe
these provisions.)
- - You may exchange shares owned at any time for an equal value of shares of
Jefferson-Pilot Capital Appreciation, subject to certain minimum amounts,
without charge.
- - You may reinvest all income and capital gains distributions in additional Fund
shares at the Fund's net asset value (without a sales charge).
- - Provided you own shares or currently purchase shares having a net asset of at
least $10,000, you may elect to have monthly or quarterly payments made to you
under a Systematic Withdrawal Plan.
Additionally, the Fund provides a printed confirmation of each transaction,
quarterly reports, and other account information, making ownership of Fund
shares easy and convenient.
The cost of purchasing and owning shares is reasonable. The services provided
plus professional management plus diversification of investments would otherwise
be prohibitively expensive for most investors.
We hope that this information will encourage you to increase the level of your
future investments in Jefferson-Pilot Investment Grade Bond Fund -- or you may
wish to add a Jefferson-Pilot Capital Appreciation Fund account.
21
<PAGE>
JEFFERSON-PILOT INVESTMENT GRADE BOND FUND, INC.
STATEMENT OF INVESTMENTS
June 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
FACE
RATINGS* AMOUNT ISSUE VALUE
BONDS -- 98.74%
U.S. GOVERNMENT -- 44.14%
<S> <C> <S> <C>
$ 750,000 U.S. Treasury Notes
5 1/8% due 11/30/98 $ 731,835
750,000 U.S. Treasury Notes
5 7/8% due 4/30/98 747,068
750,000 U.S. Treasury Notes
6 3/8% due 8/15/02 744,022
1,000,000 U.S. Treasury Notes
6 1/2% due 4/30/99 1,005,310
1,000,000 U.S. Treasury Notes
6 7/8% due 3/31/00 1,014,530
500,000 U.S. Treasury Bonds
7 1/8% due 2/15/23 505,390
750,000 U.S. Treasury Notes
8% due 10/15/96 755,393
500,000 U.S. Treasury Bonds
8 7/8% due 8/15/17 600,310
1,000,000 U.S. Treasury Bonds
10 3/8% due 11/15/09 1,222,970
1,000,000 U.S. Treasury Bonds
12 3/4% due 11/15/10 1,404,220
MORTGAGE-BACKED SECURITIES -- 13.82%
1,000,000 Federal Home Loan Mortgage Corporation
6% due 3/15/09 897,500
2,000,000 Federal Home Loan Mortgage Corporation
7% due 9/15/23 1,835,000
22
<PAGE>
INDUSTRIALS -- 26.23%
FINANCE -- 11.10%
A1 1,000,000 Ford Motor Credit Company
6 3/4% Notes due 8/15/08 938,000
A1 750,000 Merrill Lynch & Company, Inc.
6 7/8% Notes due 3/01/03 739,185
A1 500,000 SunTrust Banks, Inc.
8 7/8% Notes due 2/01/98 518,155
FOODS -- 3.68%
Aa2 750,000 Archer-Daniels-Midland Company
7 1/8% Debs. due 3/01/13 727,822
MACHINERY -- INDUSTRIAL/SPECIALTY -- 2.64%
A2 500,000 Johnson Controls, Inc.
7.70% Debs. due 3/01/15 523,435
POLLUTION CONTROL -- 2.57%
Baa2 500,000 Laidlaw, Inc.
7.70% Debs. due 8/15/02 508,850
RAILROADS -- 3.57%
Baa2 750,000 Kansas City Southern Industries, Inc.
6 5/8% Senior Notes due 3/01/05 705,660
TOBACCO -- 2.67%
A2 500,000 Philip Morris Companies, Inc.
8 1/4% Senior Notes due 10/15/03 527,680
UTILITIES -- 14.55%
UTILITIES -- ELECTRIC -- 2.80%
A1 500,000 South Carolina Electric & Gas Company
9% 1st & Ref. due 7/15/06 553,475
UTILITIES -- GAS -- 7.95%
Aa3 500,000 Laclede Gas Company
8 1/2% 1st Mtge. due 11/15/04 529,945
A2 500,000 National Fuel Gas Company
7 3/4% Debs. due 2/01/04 506,500
Baa1 500,000 Texas Gas Transmission
8 5/8% Notes due 4/01/04 535,160
23
<PAGE>
UTILITIES -- TELEPHONE -- 3.80%
A3 750,000 United Telephone Company of Pennsylvania
7 3/8% 1st Mtge. Ser. Y due 12/01/02 752,168
----------
Total Bonds (Cost -- $18,533,958+) 19,529,583
----------
SHORT-TERM SECURITIES -- 1.26%
A1 250,000 General Electric Capital Corporation, 7/02/96 249,925
----------
Total Short-Term Securities
(Cost -- $249,925+) 249,925
----------
Total Investments
(Cost -- $18,783,883+) $19,779,508
----------
----------
</TABLE>
* Bonds are rated by Moody's Investors Service, Inc. and Commercial Paper is
rated by Standard & Poor's Corporation.
+ Aggregate cost for Federal income tax purposes is the same.
See Notes to Financial Statements.
24
<PAGE>
JEFFERSON-PILOT INVESTMENT GRADE BOND FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996 (Unaudited)
ASSETS
Investment in securities at value (cost $18,783,883) $ 19,779,508
Cash 228,262
Receivables:
Interest 333,464
Capital shares sold 239
------------
Total Assets 20,341,473
------------
LIABILITIES
Payables:
Accrued expenses 34,607
------------
Total Liabilities 34,607
------------
NET ASSETS
Net Assets, equivalent to $9.26 per share on
2,191,978 shares of capital stock outstanding (Note 2) $ 20,306,866
------------
------------
Computation of public offering price:
Net asset value per share $ 9.26
---------
---------
Offering price per share (100/95.5 x $9.26)
(reduced on sales of $25,000 or more) $ 9.70
---------
---------
See Notes to Financial Statements.
25
<PAGE>
JEFFERSON-PILOT INVESTMENT GRADE BOND FUND, INC.
STATEMENT OF OPERATIONS
Six Months Ended June 30, 1996 (Unaudited)
Investment Income:
Interest $ 756,559
-----------
Expenses:
Investment Adviser's fee (Note 3) 52,920
Custodian and Transfer Agent fees 23,278
Directors' fees 2,640
Professional fees 10,650
Shareholder accounting services (Note 3) 5,280
Other 4,318
-----------
Total expenses 99,086
Less expenses offset (Note 5) ( 5,947)
-----------
Net expenses 93,139
-----------
Investment income -- net 663,420
-----------
Realized and Unrealized Loss on Investments:
Net realized loss on investments ( 945)
Unrealized depreciation of investments for the period ( 1,183,717)
-----------
Net loss on investments ( 1,184,662)
-----------
Net decrease in net assets from operations ($ 521,242)
-----------
-----------
See Notes to Financial Statements.
26
<PAGE>
JEFFERSON-PILOT INVESTMENT GRADE BOND FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
Six Months Ended June 30, 1996 (Unaudited) and Year Ended December 31, 1995
SIX MONTHS Year Ended
ENDED JUNE 30, December 31,
1996 1995
-------------- ------------
Increase (Decrease) in Net Assets from:
Operations:
Investment income -- net $ 663,420 $ 1,407,084
Net realized loss on investments ( 945) ( 45,405)
Unrealized appreciation (depreciation)
for the period ( 1,183,717) 2,333,056
----------- ----------
Net increase (decrease) in net
assets from operations ( 521,242) 3,694,735
Dividends paid to shareholders from
investment income -- net ( 380,911) ( 1,403,096)
Capital share transactions (Note 2) ( 1,080,910) ( 1,033,355)
----------- ----------
Total increase (decrease) ( 1,983,063) 1,258,284
Net Assets
Beginning of period 22,289,929 21,031,645
----------- -----------
End of period (including undistributed net
investment income of $321,995 and
$39,486, respectively) $20,306,866 $22,289,929
----------- -----------
----------- -----------
See Notes to Financial Statements.
27
<PAGE>
JEFFERSON-PILOT INVESTMENT GRADE BOND FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES:
Jefferson-Pilot Investment Grade Bond Fund, Inc. is an open-end management
investment company registered under the Investment Company Act of 1940. The
Fund's primary investment objective is to seek the maximum level of current
income as is consistent with prudent risk. The Fund attempts to achieve this
objective by investing primarily in high-rated fixed income securities and
dividend paying common stocks, however other types of securities may be
purchased depending upon the judgment of management. The following is a summary
of significant accounting policies followed in the preparation of its financial
statements:
VALUATION OF SECURITIES -- Fixed income securities are valued by using market
quotations or independent pricing services which utilize prices provided by
market makers or estimates based on yield data related to similar securities;
short-term securities are stated at amortized cost which approximates value.
FEDERAL INCOME TAXES -- It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to "regulated investment companies" and
to distribute all of its taxable income to its shareholders. Therefore, no
provision for Federal income tax is required.
USE OF ESTIMATES -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increases and decreases in net assets
from operations during the reporting period. Actual results could differ from
those estimates.
GENERAL -- Securities transactions are accounted for on the trade date.
Distributions to shareholders are recorded on the ex-dividend date. Interest
income is accrued as earned.
NOTE 2. CAPITAL STOCK:
At June 30, 1996, 10,000,000 shares of capital stock ($1.00 par value) were
authorized and capital paid-in amounted to $19,879,958. Transactions in capital
stock were as follows:
SIX MONTHS ENDED Year Ended
JUNE 30, 1996 December 31, 1995
--------------------- ------------------
SHARES AMOUNT Shares Amount
------- --------- -------- ----------
Sold 25,134 $ 236,712 36,972 $ 344,257
Issued on reinvestment
of dividends 25,530 237,039 94,251 879,674
Redeemed (166,310) ( 1,554,661) (241,492) ( 2,257,286)
-------- ---------- -------- ----------
Net decrease (115,646) ($1,080,910) (110,269) ($1,033,355)
-------- ---------- -------- ----------
-------- ---------- -------- ----------
28
<PAGE>
NOTE 3. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
JP Investment Management Company received investment advisory fees of $52,920
during the six months ended June 30, 1996. This fee is computed at the annual
rate of 0.5% of the Fund's average daily net asset value. If the Fund's
expenses, excluding interest and taxes, exceed 1% of the average daily net asset
value, the Investment Adviser will pay the excess. No such reimbursement was
required during the period.
Expenses include $5,280 of fees paid to JP Investment Management Company for
shareholder accounting services.
Jefferson-Pilot Investor Services, Inc. received sales commissions of $6,893 in
its capacity as Principal Distributor for the Fund.
NOTE 4. INVESTMENT TRANSACTIONS:
Purchases and sales of investment securities, excluding short-term securities,
were $1,251,797 and $2,067,286, respectively.
Realized gains and losses are reported on an identified cost basis. Accumulated
undistributed net realized loss at June 30, 1996 was $890,712. This loss may be
carried forward to offset future realized gains.
At June 30, 1996, the aggregate gross unrealized appreciation and depreciation
of portfolio securities was as follows:
Unrealized appreciation $1,109,800
Unrealized depreciation ( 114,175)
---------
Net unrealized appreciation $ 995,625
---------
---------
NOTE 5. EXPENSE OFFSET ARRANGEMENT:
The Fund has an arrangement with its custodian and transfer agent whereby
credits earned on cash balances maintained at the custodian are used to offset
custody and transfer agent charges. These credits amounted to $5,947 for the
period ended June 30, 1996.
29
<PAGE>
NOTE 6. SELECTED FINANCIAL INFORMATION:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------
1996 1995 1994 1993 1992 1991
--------- --------- --------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period $ 9.66 $ 8.70 $ 9.89 $ 9.57 $ 9.65 $ 9.23
--------- --------- --------- ---------- ---------- --------
Income from investment operations:
Net investment income .30 .60 .62 .64 .66 .76
Net realized and unrealized gain (loss)
on investments ( .53) .96 ( 1.21) .32 ( .06) .44
--------- --------- --------- ---------- ---------- --------
Total from investment operations ( .23) 1.56 ( .59) .96 .60 1.20
--------- --------- --------- ---------- ---------- --------
Less distributions:
Dividends from net investment income ( .17) ( .60) ( .60) ( .64) ( .68) ( .78)
Distributions from net realized gains -- -- -- -- -- --
--------- --------- --------- ---------- ---------- --------
Total distributions ( .17) ( .60) ( .60) ( .64) ( .68) ( .78)
--------- --------- --------- ---------- ---------- --------
Net asset value, end of period $ 9.26 $ 9.66 $ 8.70 $ 9.89 $ 9.57 $ 9.65
--------- --------- --------- ---------- ---------- --------
--------- --------- --------- ---------- ---------- --------
TOTAL RETURN (WITHOUT DEDUCTION
OF SALES LOAD) ( 2.38%) 18.39% ( 5.97%) 10.24% 6.53% 13.76%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000 omitted) $20,307 $22,290 $21,032 $23,632 $21,359 $19,313
Ratios to average net assets:
Expenses .94%+^ .96%^ .85% .86% .93% .93%
Net investment income 6.27+ 6.40 8.32 6.46 6.99 8.18
Portfolio turnover rate 6.27 33.91 41.01 21.34 25.53 23.65
</TABLE>
+Annualized.
Pursuant to new regulations, ratio includes expenses paid by expense offset
arrangements.
30
<PAGE>
JEFFERSON-PILOT INVESTMENT GRADE BOND FUND, INC.
CHANGES IN INVESTMENT POSITIONS
For the Period April 1, 1996 to June 30, 1996
ADDITIONS ELIMINATIONS
U.S. Treasury Tennessee Gas Pipeline Company
5 7/8% Notes due 4/30/98 9 1/4% due 5/15/96
U.S. Treasury U.S. Treasury
7 1/8% Bonds due 2/15/23 9 3/8% Notes due 4/15/96
31
<PAGE>
JEFFERSON PILOT
FAMILY OF FUNDS
- --------------------------
JEFFERSON-PILOT
CAPITAL APPRECIATION FUND
INVESTMENT GRADE BOND FUND
- --------------------------
SEMI-ANNUAL REPORT
JUNE 30, 1996
THIS REPORT AND ACCOMPANYING FINANCIAL STATEMENTS ARE SUBMITTED FOR INFORMATION
OF THE FUND SHAREHOLDERS AND ARE NOT TO BE CONSIDERED AS AN OFFER OR
SOLICITATION OF OFFERS TO BUY OR SELL ANY SHARES OF THE FUND. SUCH OFFERING IS
MADE ONLY IF PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS.
ITEM #JPI607041
OPPENHEIMER INTEGRITY FUNDS
FORM N-14
PART C
OTHER INFORMATION
Item 15. Indemnification
Reference is made to Article IV of Registrant's Declaration of Trust
filed as Exhibit 24(b)(1) to Registrant's Registration Statement and
incorporated herein by reference.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers and
controlling persons of Registrant pursuant to the foregoing provisions or
otherwise, Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by Registrant of expenses incurred or
paid by a trustee, officer or controlling person of Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person, Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed
in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
Item 16. Exhibits
(1) Amended and Restated Declaration of Trust dated June 26, 1995:
Filed with Registrant's Post-Effective Amendment No. 25, 7/10/95, and
incorporated herein by reference.
(2) Registrant's By-Laws dated 6/25/91: Filed with Registrant's
Post-Effective Amendment No. 16, 5/1/92, and refiled pursuant to Item 102
of Regulation S-T with Registrant's Post-Effective Amendment No. 23,
4/28/95, and incorporated herein by reference.
(3) Not applicable.
(4) Agreement and Plan of Reorganization: See Exhibit A to Part
A of this Registration Statement.
(5) (i) Specimen Class A Share Certificate for Oppenheimer Bond
Fund: Filed with Registrant's Post-Effective Amendment No. 28, 10/2/95,
and incorporated herein by reference.
(ii) Specimen Class B Share Certificate for Oppenheimer Bond
Fund: Filed with Registrant's Post-Effective Amendment No. 28, 10/2/95,
and incorporated herein by reference.
(iii) Specimen Class C Share Certificate for Oppenheimer Bond
Fund: Filed with Registrant's Post-Effective Amendment No. 28, 10/2/95,
and incorporated herein by reference.
(6) Investment Advisory Agreement dated 7/10/95 for Oppenheimer
Bond Fund: Filed as Exhibit 5(i) of Registrant's Post-Effective Amendment
No. 25, 7/10/95, and incorporated herein by reference.
(7) (i) General Distributor's Agreement dated 10/13/92: Filed
with Registrant's Post-Effective Amendment No. 17, 2/26/93, and refiled
pursuant to Item 102 of Regulation S-T with Registrant's Post-Effective
Amendment No. 23, 4/28/95, and incorporated herein by reference.
(ii) Form of Oppenheimer Funds Distributor, Inc. Dealer
Agreement: Filed with Post-Effective Amendment No. 14 to the Registration
Statement of Oppenheimer Main Street Funds, Inc. (Reg. No. 33-17850),
9/30/94, and incorporated herein by reference.
(iii) Form of Oppenheimer Funds Distributor, Inc. Broker
Agreement: Filed with Post-Effective Amendment No. 14 to the Registration
Statement of Oppenheimer Main Street Funds, Inc. (Reg. No. 33-17850),
9/30/94, and incorporated herein by reference.
(iv) Form of Oppenheimer Funds Distributor, Inc. Agency
Agreement: Filed with Post-Effective Amendment No. 14 to the Registration
Statement of Oppenheimer Main Street Funds, Inc. (Reg. No. 33-17850),
9/30/94, and incorporated herein by reference.
(v) Broker Agreement between Oppenheimer Funds Distributor,
Inc. and Newbridge Securities, Inc. dated 10/1/86: Filed with Post-
Effective Amendment No. 25 to the Registration Statement of Oppenheimer
Growth Fund (Reg. No. 2-45272), 11/1/86, and refiled with Post-Effective
Amendment No. 45 to the Registration Statement of Oppenheimer Growth Fund
(Reg. No. 2-45272), 8/22/94, pursuant to Item 102 of Regulation S-T, and
incorporated herein by reference.
(8) Not applicable.
(9) Custody Agreement dated 11/12/92, between the Registrant and
The Bank of New York: Filed with Registrant's Post-Effective Amendment No.
17, 2/26/93, and refiled with Post-Effective Amendment No. 23, 4/28/95
pursuant to Item 102 of Regulation S-T, and incorporated herein by
reference.
(10) (i) Service Plan and Agreement under Rule 12b-1 of the
Investment Company Act of 1940 for Class A shares of Oppenheimer
Investment Grade Bond Fund dated 6/22/93: Filed with Registrant's Post-
Effective Amendment No. 19, 3/1/94, and incorporated herein by reference.
(ii) Distribution and Service Plan and Agreement under Rule
12b-1 of the Investment Company Act of 1940 for Class B shares of
Oppenheimer Investment Grade Bond Fund dated 7/10/95: Filed with
Registrant's Post-Effective Amendment No. 25, 7/10/95, and incorporated
herein by reference.
(iii) Distribution and Service Plan and Agreement under Rule
12b-1 of the Investment Company Act of 1940 for Class C shares of
Oppenheimer Bond Fund dated 7/10/95: Filed with Registrant's Post-
Effective Amendment No. 25, 7/10/95, and incorporated herein by reference.
(11) Opinion and Consent of Counsel : Filed with Amendment No. 2 on
Form S-4 to the Registration Statement of Registrant's predecessor,
12/19/72, and incorporated herein by reference.
(12) Tax Opinion Relating to the Reorganization: Draft Opinion
filed herewith.
(13) Not applicable.
(14) (i) Consent of Deloitte & Touche LLP: Filed herewith.
(ii) Consent of McGladrey & Pullen LLP: Filed herewith.
(15) Not applicable.
(16) Powers of Attorney and Certified Board Resolution: Power of
Attorney for Sam Freedman filed herewith; Powers of Attorney for all other
Trustees and Certified Board Resolution Previously filed with Registrant's
Post-Effective Amendment No. 19, 3/1/94, and incorporated herein by
reference.
(17) (i) Declaration of Registrant under Rule 24f-2: Filed
herewith.
(ii) Financial Data Schedules: Filed herewith
Item 17. Undertakings
(1) Not applicable.
(2) Not applicable.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, this Registration Statement has
been signed on behalf of the registrant, in the City of Denver and State
of Colorado on the 11th day of September, 1996.
OPPENHEIMER INTEGRITY FUNDS
By: /s/ Bridget A. Macaskill
----------------------------------
Bridget A. Macaskill, President
As required by the Securities Act of 1933, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated:
<TABLE>
<CAPTION>
Signatures Title Date
<S> <C> <C>
/s/ James C. Swain* Chairman of the
- ------------------ Board of Trustees September 11, 1996
James C. Swain
/s/ George C. Bowen* Chief Financial
- ------------------- and Accounting September 11, 1996
George C. Bowen Officer and
Treasurer
President
(Principal Executive
/s/ Bridget A. Macaskill* Officer)
- ----------------------- and Trustee September 11, 1996
Bridget A. Macaskill
/s/ Robert G. Avis* Trustee September 11, 1996
- ------------------
Robert G. Avis
/s/ William A. Baker* Trustee September 11, 1996
- --------------------
William A. Baker
/s/ Charles Conrad, Jr.* Trustee September 11, 1996
- -----------------------
Charles Conrad, Jr.
/s/ Sam Freedman* Trustee September 11, 1996
- -----------------------
Sam Freedman
/s/ Raymond J. Kalinowski* Trustee September 11, 1996
- -------------------------
Raymond J. Kalinowski
/s/ C. Howard Kast* Trustee September 11, 1996
- ------------------
C. Howard Kast
/s/ Robert M. Kirchner* Trustee September 11, 1996
- ----------------------
Robert M. Kirchner
/s/ Ned M. Steel* Trustee September 11, 1996
- ----------------
Ned M. Steel
*By: /s/ Robert G. Zack
- --------------------------------
Robert G. Zack, Attorney-in-Fact
</TABLE>
<PAGE>
OPPENHEIMER INTEGRITY FUNDS
EXHIBIT INDEX
Exhibit Description
- ------- -----------
16(12) Tax Opinion Relating to the Reorganization
16(14)(i) Independent Auditors' Consent
16(14)(ii) Independent Auditors' Consent
16(16) Power of Attorney for Sam Freedman
16(17)(i) Declaration of Registrant under Rule 24f-2
16(17)(ii) Financial Data Schedules
[Letterhead of Sutherland Asbill & Brennan]
AS a condition to the closing of the Reorganization, Oppenheimer Fund
and JP Fund will receive the opinion of Sutherland, Asbill & Brennan to
the effect that, based on the Reorganization Agreement, information
given by Jefferson-Pilot Corporation, certain representations and
other representations as such firm shall reasonably request, existing
provisions of the Code, Treasury Regulations issued thereunder, current
Revenue Rulings, Revenue Procedures and court decisions, for Federal
income tax purposes:
(a) The reorganization contemplated by the Reorganization
Agreement will constitute a "reorganization" within the meaning of
Section 368(a)(1)(C) of the Code and JP Fund and Oppenheimer Fund
will each be a "party to the reorganization" within the meaning of
Section 368(b) of the Code.
(b) No gain or loss will be recognized by Oppenheimer Fund upon
the receipt of the assets transferred to it by JP Fund in exchange
for Class A shares of Oppenheimer Fund and the assumption by
Oppenheimer Fund of certain identified liabilities of JP Fund.
(Section 1032)
(c) No gain or loss will be recognized by JP Fund upon the
transfer of its assets to Oppenheimer Fund in exchange solely for
Class A shares of Oppenheimer Fund and the assumption by
Oppenheimer Fund of certain identified liabilities of JP Fund (if
any) and the subsequent distribution by JP Fund of such Class A
shares to the shareholders of JP Fund. (Section 361)
(d) No gain or loss will be recognized by JP Fund shareholders
upon the exchange of the JP Fund shares solely for the Class A
shares of Oppenheimer Fund. (Section 354)
(e) The basis of the Class A shares of Oppenheimer Fund received
by each JP Fund shareholder pursuant to the reorganization will be
the same as the adjusted basis of that shareholder's JP Fund
shares surrendered in exchange therefor. (Section 358)
(f) The holding period of Class A shares of Oppenheimer Fund to be
received by each JP Fund shareholder will include the
shareholder's holding period for the JP Fund shares surrendered in
exchange therefor, provided such JP Fund shares were held as
capital assets on the Closing Date. (Section 1223)
(g) Oppenheimer Fund's basis for the assets transferred to it by
JP Fund will be the same as JP Fund's tax basis for the assets
immediately prior to the reorganization. (Section 362(b))
(h) Oppenheimer Fund's holding period for the transferred assets
will include JP Fund's holding period therefor. (Section 1223)
(i) Oppenheimer Fund will succeed to and take into account the
items of JP Fund described in Section 381(c) of the Code,
including the earnings and profits, or deficit in earnings and
profits, of JP Fund as of the date of the transaction, subject to
the conditions and limitations specified in Sections 381, 382, 383
and 384 of the Code.
[Letterhead of McGladrey & Pullen, LLP]
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use of our report dated January 11, 1996
on financial statements of Jefferson-Pilot Investment Grade Bond Fund,
Inc. referred to therein in this Registration Statement on Form N-14.
We also consent to the reference to our firm in the Proxy
Statement under the caption "Ratification or Rejection of Selection of
Independent Auditors", in the Jefferson-Pilot Investment Grade Bond
Fund, Inc. Prospectus and Statement of Additional Information under the
captions "Condensed Financial Information", and "General Information",
respectively.
/s/ McGladrey & Pullen, LLP
New York, New York
September 6, 1996
MERGE/285CON.MP
INDEPENDENT AUDITORS' CONSENT
We consent to use in this Registration Statement of Oppenheimer Integrity
Funds on Form N-14 of our report dated January 22, 1996 appearing in the
December 31, 1995 Annual Report of Oppenheimer Bond Fund (a series of
Oppenheimer Integrity Funds), included as part of the Statement of
Additional Information, which is part of such Registration Statement.
/s/Deloitte & Touche LLP
- -------------------------
DELOITTE & TOUCHE LLP
Denver, Colorado
September 12, 1996
MERGE/285JEFF.CON
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned
constitutes and appoints Andrew J. Donohue or Robert G. Zack, and each
of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his capacity
as a trustee of OPPENHEIMER INTEGRITY FUNDS, a Massachusetts business
trust (the "Fund"), to sign on his behalf any and all Registration
Statements (including any post-effective amendments to Registration
Statements) under the Securities Act of 1933, the Investment Company
Act of 1940 and any amendments and supplements thereto, and other
documents in connection thereunder, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-
fact and agents, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully as to all intents and purposes as
she might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, and each of them, may lawfully
do or cause to be done by virtue hereof.
Dated this 27th day of June, 1996.
/s/ Sam Freedman
Sam Freedman
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 24F-2
Annual Notice of Securities Sold
Pursuant to Rule 24f-2
1. Name and address of issuer:
Oppenheimer Integrity Funds
3410 South Galena Street
Denver, Colorado 80231
2. Name of each series or class of funds for which this notice is
filed:
Oppenheimer Bond Fund, Class A
3. Investment Company Act File Number: 811-3420
Securities Act File Number: 2-76547
4. Last day of fiscal year for which this notice is filed:
12/31/95
5. Check box if this notice is being filed more than 180 days
after the close of the issuer's fiscal year for purposes of
reporting securities sold after the close of the fiscal year
but before termination of the issuer's 24f-2 declaration:
/
/
6. Date of termination of issuer's declaration under rule 24f-
2(a)(1), if applicable (see instruction a.6):
7. Number and amount of securities of the same class or series
which had been registered under the Securities Act of 1933
other than pursuant to rule 24f-2 in a prior fiscal year, but
which remained unsold at the beginning of the fiscal year:
221,891 $2,420,831
8. Number and amount of securities registered during the fiscal
year other than pursuant to rule 24f-2:
660,131 $7,089,807
9. Number and aggregate sale price of securities sold during the
fiscal year:
9,594,615 $102,855,863
10. Number and aggregate sale price of securities sold during the
fiscal year in reliance upon registration pursuant to rule
24f-2:
8,712,593 $93,366,143
11. Number and aggregate sale price of securities issued during
the fiscal year in connection with dividend reinvestment
plans, if applicable (see Instruction B.7):
401,453 $4,283,086
12. Calculation of registration fee:
(i) Aggregate sale price of securities sold
during the fiscal year in reliance on
rule 24f-2 (from Item 10): $93,366,143
------------
(ii) Aggregate price of shares issued in
connection with dividend reinvestment
plans (from Item 11, if applicable): +$4,283,086
------------
(iii) Aggregate price of shares redeemed or
repurchased during the fiscal year
(if applicable): -$45,145,281
------------
(iv) Aggregate price of shares redeemed or
repurchased and previously applied as
a reduction to filing fees pursuant to
rule 24e-2 (if applicable): + -0-
------------
(v) Net aggregate price of securities sold
and issued during the fiscal year in
reliance on rule 24f-2 (line (i), plus
line (ii), less line (iii), plus line
(iv)) (if applicable): $52,503,948
------------
(vi) Multiplier prescribed by Section 6(b)
of the Securities Act of 1933 or other
applicable law or regulation (see
Instruction C.6): x 1/2900
------------
(vii) Fee due (line (i) or line (v) multiplied
by line (vi)): $18,105
------------
Instruction: Issuers should complete line (ii), (iii), (iv), and
(v) only if the form is being filed within 60 days
after the close of the issuer's fiscal year. See
Instructions C.3.
13. Check box if fees are being remitted to the Commission's
lockbox depository as described in section 3a of the
Commission's Rule of Informal and Other Procedures (17 CFR
202.3a).
/X/
Date of mailing or wire transfer of filing fees to the
Commission's lockbox depository:
February 26, 1996; Fed Wire #4240
SIGNATURES
This report has been signed below by the following persons on
behalf of the issuer and in the capacities and on the dates
indicated.
Oppenheimer Integrity Funds
for the account of
Oppenheimer Bond Fund
By: /s/ Andrew J. Donohue
------------------------------------
Andrew J. Donohue, Vice President
Date: 2/27/96
cc: Allan Adams, Esq.
Robert Bishop
Gloria LaFond
sec\285a.24f
<PAGE>
MYER, SWANSON, ADAMS & WOLF, P.C.
Attorneys At Law
Rendle Myer The Colorado State Bank Building Of
Counsel
Allan B. Adams 1600 Broadway - Suite 1850 Robert
Swanson
Robert K. Swanson Denver, Colorado 80202-4918 ------
Thomas J. Wolf* Telephone (303) 866-9800 Fred E.
Neef
*Board Certified Facsimile (303) 866-9818
(1910-1986)
Civil Trial Advocate
By the National
Board of Trial Advocacy
February 22, 1996
Oppenheimer Integrity Funds
3410 South Galena Street
Denver, Colorado 80231
Gentlemen:
In connection with the public offering of the no par value Class A,
Class B and Class C shares of each of the Oppenheimer Bond Fund
(formerly named Oppenheimer Investment Grade Bond Fund) series and
the Oppenheimer Value Stock Fund series of Oppenheimer Integrity
Funds, a business trust organized under the laws of the
Commonwealth of Massachusetts (the "Trust"), as counsel for the
Trust, we have examined such records and documents and have made
such further investigation and examination as we deem necessary for
the purpose of this opinion.
As of the end of its fiscal year, the Trust was composed of two
separate series, the Oppenheimer Value Stock Fund and the
Oppenheimer Bond Fund.
We are advised that during the period ending December 31, 1995, the
following shares of Class A, Class B and Class C shares of
beneficial interest in each series of the Trust were sold in
reliance on the registration of an indefinite number of shares
pursuant to Rule 24f-2 of the Investment Company Act of 1940:
Oppenheimer Bond Fund
Class A shares: 8,712,593
Class B shares: 3,749,818
Class C shares: 410,546
Oppenheimer Value Stock Fund
Class A shares: 1,744,607
Class B shares: 982,843
Class C Shares: 7,236
It is our opinion that the said shares of beneficial interest in
said series sold by the Trust in reliance on Rule 24f-2 of the
Investment Company Act of 1940 are legally issued and, subject to
the matters mentioned in the next paragraph, fully paid and
nonassessable by the Trust.
Under Massachusetts law, shareholders of the Trust may, under
certain circumstances, be held personally liable as partners for
the obligations of the Trust. The Declaration of Trust does,
however, contain an express disclaimer of shareholder liability for
acts or obligations of the Trust and requires that notice of such
disclaimer be given in each agreement, obligation, or instrument
entered into or executed by the Trust or the Trustees. The
Declaration of Trust provides for indemnification out of the trust
property of any shareholder held personally liable for the
obligations of the Trust. The Declaration of Trust also provides
that the Trust shall, upon request, assume the defense of any claim
made against any shareholder for any act or obligation of the Trust
and satisfy any judgment thereon.
Sincerely,
/s/ Allan B. Adams
Allan B. Adams
of MYER, SWANSON, ADAMS & WOLF, P.C.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 410546
<NUMBER-OF-SHARES-REDEEMED> 50720
<SHARES-REINVESTED> 1625
<NET-CHANGE-IN-ASSETS> 112126546
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (3870315)
<OVERDISTRIB-NII-PRIOR> 204894
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 820507
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1763860
<AVERAGE-NET-ASSETS> 979000
<PER-SHARE-NAV-BEGIN> 10.89
<PER-SHARE-NII> .28
<PER-SHARE-GAIN-APPREC> .10
<PER-SHARE-DIVIDEND> .28
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.99
<EXPENSE-RATIO> 1.96
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 701265
<NAME> OPPENHEIMER BOND FUND-A
<SERIES>
<NUMBER> 5
<NAME> OPPENHEIMER INTEGRITY FUNDS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 240,959,539
<INVESTMENTS-AT-VALUE> 240,421,506
<RECEIVABLES> 4,927,349
<ASSETS-OTHER> 9,406
<OTHER-ITEMS-ASSETS> 20,059
<TOTAL-ASSETS> 245,378,320
<PAYABLE-FOR-SECURITIES> 17,497,816
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,287,125
<TOTAL-LIABILITIES> 18,784,941
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 230,498,809
<SHARES-COMMON-STOCK> 17,713,731
<SHARES-COMMON-PRIOR> 15,399,839
<ACCUMULATED-NII-CURRENT> 116,937
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3,372,204
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (650,163)
<NET-ASSETS> 185,953,610
<DIVIDEND-INCOME> 21,251
<INTEREST-INCOME> 9,065,473
<OTHER-INCOME> 0
<EXPENSES-NET> 1,508,854
<NET-INVESTMENT-INCOME> 7,577,870
<REALIZED-GAINS-CURRENT> 757,141
<APPREC-INCREASE-CURRENT> (9,995,099)
<NET-CHANGE-FROM-OPS> (1,660,088)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 6,232,922
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,017,662
<NUMBER-OF-SHARES-REDEEMED> 2,084,795
<SHARES-REINVESTED> 381,025
<NET-CHANGE-IN-ASSETS> 14,376,085
<ACCUMULATED-NII-PRIOR> 116,937
<ACCUMULATED-GAINS-PRIOR> (4,129,345)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 792,003
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,508,854
<AVERAGE-NET-ASSETS> 171,653,000
<PER-SHARE-NAV-BEGIN> 10.98
<PER-SHARE-NII> 0.40
<PER-SHARE-GAIN-APPREC> (0.49)
<PER-SHARE-DIVIDEND> 0.39
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.50
<EXPENSE-RATIO> 1.28
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 701265
<NAME> OPPENHEIMER BOND FUND-B
<SERIES>
<NUMBER> 5
<NAME> OPPENHEIMER INTEGRITY FUNDS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 240,959,539
<INVESTMENTS-AT-VALUE> 240,421,506
<RECEIVABLES> 4,927,349
<ASSETS-OTHER> 9,406
<OTHER-ITEMS-ASSETS> 20,059
<TOTAL-ASSETS> 245,378,320
<PAYABLE-FOR-SECURITIES> 17,497,816
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,287,125
<TOTAL-LIABILITIES> 18,784,941
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 230,498,809
<SHARES-COMMON-STOCK> 3,559,164
<SHARES-COMMON-PRIOR> 3,570,470
<ACCUMULATED-NII-CURRENT> 116,937
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3,372,204
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (650,163)
<NET-ASSETS> 37,353,716
<DIVIDEND-INCOME> 21,251
<INTEREST-INCOME> 9,065,473
<OTHER-INCOME> 0
<EXPENSES-NET> 1,508,854
<NET-INVESTMENT-INCOME> 7,577,870
<REALIZED-GAINS-CURRENT> 757,141
<APPREC-INCREASE-CURRENT> (9,995,099)
<NET-CHANGE-FROM-OPS> (1,660,088)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,245,326
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 582,235
<NUMBER-OF-SHARES-REDEEMED> 674,576
<SHARES-REINVESTED> 81,035
<NET-CHANGE-IN-ASSETS> 14,376,085
<ACCUMULATED-NII-PRIOR> 116,937
<ACCUMULATED-GAINS-PRIOR> (4,129,345)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 792,003
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,508,854
<AVERAGE-NET-ASSETS> 38,304,000
<PER-SHARE-NAV-BEGIN> 10.98
<PER-SHARE-NII> 0.37
<PER-SHARE-GAIN-APPREC> (0.50)
<PER-SHARE-DIVIDEND> 0.35
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.50
<EXPENSE-RATIO> 2.04
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 701265
<NAME> OPPENHEIMER BOND FUND-C
<SERIES>
<NUMBER> 5
<NAME> OPPENHEIMER INTEGRITY FUNDS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 240,959,539
<INVESTMENTS-AT-VALUE> 240,421,506
<RECEIVABLES> 4,927,349
<ASSETS-OTHER> 9,406
<OTHER-ITEMS-ASSETS> 20,059
<TOTAL-ASSETS> 245,378,320
<PAYABLE-FOR-SECURITIES> 17,497,816
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,287,125
<TOTAL-LIABILITIES> 18,784,941
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 230,498,809
<SHARES-COMMON-STOCK> 312,817
<SHARES-COMMON-PRIOR> 361,451
<ACCUMULATED-NII-CURRENT> 116,937
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3,372,204
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (650,163)
<NET-ASSETS> 3,286,053
<DIVIDEND-INCOME> 21,251
<INTEREST-INCOME> 9,065,473
<OTHER-INCOME> 0
<EXPENSES-NET> 1,508,854
<NET-INVESTMENT-INCOME> 7,577,870
<REALIZED-GAINS-CURRENT> 757,141
<APPREC-INCREASE-CURRENT> (9,995,099)
<NET-CHANGE-FROM-OPS> (1,660,088)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 99,622
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 136,804
<NUMBER-OF-SHARES-REDEEMED> 193,116
<SHARES-REINVESTED> 7,678
<NET-CHANGE-IN-ASSETS> 14,376,085
<ACCUMULATED-NII-PRIOR> 116,937
<ACCUMULATED-GAINS-PRIOR> (4,129,345)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 792,003
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,508,854
<AVERAGE-NET-ASSETS> 3,024,000
<PER-SHARE-NAV-BEGIN> 10.99
<PER-SHARE-NII> 0.36
<PER-SHARE-GAIN-APPREC> (0.50)
<PER-SHARE-DIVIDEND> 0.35
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.50
<EXPENSE-RATIO> 2.04
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE ANNUAL REPORT OF THE JEFFERSON-PILOT INVESTMENT GRADE BOND FUND,
INC. DATED AS OF DECEMBER 31, 1995 AND FROM FORM N-SAR FOR THE PERIOD
ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 19,542,302
<INVESTMENTS-AT-VALUE> 21,721,644
<RECEIVABLES> 364,234
<ASSETS-OTHER> 254,766
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 22,340,644
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 50,715
<TOTAL-LIABILITIES> 50,715
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 20,960,868
<SHARES-COMMON-STOCK> 2,307,624
<SHARES-COMMON-PRIOR> 2,417,893
<ACCUMULATED-NII-CURRENT> 39,486
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,179,342
<NET-ASSETS> 22,289,929
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,604,710
<OTHER-INCOME> 0
<EXPENSES-NET> 197,626
<NET-INVESTMENT-INCOME> 1,407,084
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 2,333,056
<NET-CHANGE-FROM-OPS> 3,694,735
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,403,096
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 36,972
<NUMBER-OF-SHARES-REDEEMED> 241,492
<SHARES-REINVESTED> 94,251
<NET-CHANGE-IN-ASSETS> 1,258,284
<ACCUMULATED-NII-PRIOR> 35,498
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 109,982
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 21,958,756
<PER-SHARE-NAV-BEGIN> 8.70
<PER-SHARE-NII> .60
<PER-SHARE-GAIN-APPREC> .96
<PER-SHARE-DIVIDEND> .60
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.66
<EXPENSE-RATIO> .96
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE SEMI-ANNUAL REPORT OF THE JEFFERSON-PILOT INVESTMENT GRADE BOND
FUND, INC. DATED AS OF JUNE 30, 1996 AND FROM FORM N-SAR FOR THE PERIOD
ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 18,783,883
<INVESTMENTS-AT-VALUE> 19,779,508
<RECEIVABLES> 333,703
<ASSETS-OTHER> 228,262
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 20,341,473
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 34,607
<TOTAL-LIABILITIES> 34,607
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 19,879,958
<SHARES-COMMON-STOCK> 2,191,978
<SHARES-COMMON-PRIOR> 2,307,624
<ACCUMULATED-NII-CURRENT> 321,995
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 995,625
<NET-ASSETS> 20,306,866
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 756,559
<OTHER-INCOME> 0
<EXPENSES-NET> 93,139
<NET-INVESTMENT-INCOME> 663,420
<REALIZED-GAINS-CURRENT> (945)
<APPREC-INCREASE-CURRENT> (1,183,717)
<NET-CHANGE-FROM-OPS> (521,242)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 380,911
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 25,134
<NUMBER-OF-SHARES-REDEEMED> 166,310
<SHARES-REINVESTED> 25,530
<NET-CHANGE-IN-ASSETS> (1,983,063)
<ACCUMULATED-NII-PRIOR> 39,486
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 52,920
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 21,284,511
<PER-SHARE-NAV-BEGIN> 9.66
<PER-SHARE-NII> .30
<PER-SHARE-GAIN-APPREC> (.53)
<PER-SHARE-DIVIDEND> .17
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.26
<EXPENSE-RATIO> .94
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
