OPPENHEIMER
Bond Fund
Prospectus dated April 30, 1997.
Oppenheimer Bond 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 Objective and Polices" for more information about the
types of securities in which the Fund invests and refer to
Investment Risks for a discussion of the risks of investing in
the Fund.
This Prospectus explains concisely what you should know before
investing in the Fund. Please read this Prospectus carefully and
keep it for future reference. You can find more detailed
information about the Fund in the April 30, 1997, 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, 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 NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<PAGE>
Contents
ABOUT THE FUND
3 Expenses
5 A Brief Overview of the Fund
7 Financial Highlights
11 Investment Objective and Policies
12 Investment Risks
15 Investment Techniques and Strategies
21 How the Fund is Managed
24 Performance of the Fund
ABOUT YOUR ACCOUNT
28 How to Buy Shares
Class A Shares
Class B Shares
Class C Shares
41 Special Investor Services
AccountLink
Automatic Withdrawal and Exchange Plans
Reinvestment Privilege
Retirement Plans
43 How to Sell Shares
By Mail
By Telephone
By Checkwriting
46 How to Exchange Shares
47 Shareholder Account Rules and Policies
49 Dividends, Capital Gains and Taxes
A-1 Appendix A: Description of Securities Ratings
B-1 Appendix B: Special Sales Charge Arrangements for
Shareholders of the Fund Who Were Shareholders of the
Former Quest for Value Funds
C-1 Appendix C: Special Sales Charge Arrangements for
Shareholders of the Fund Who Where 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 account
transaction charges. The following tables are provided to help you
understand your direct expenses of investing in the Fund and your
share of the Fund's business operating expenses that you will bear
indirectly. The numbers below are based on the Fund's expenses
during its last fiscal year ended December 31, 1996.
Shareholder Transaction Expenses are charges you pay when
you buy or sell shares of the Fund. Please refer to "About Your
Account," starting on page 28 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)
- ------------------------------------------------------------------------
Maximum Deferred Sales None(1) 5% in the first 1% if shares are
Charge(as a % of the year, declining redeemed within
lower of the original to 1% in the 12 months of
offering price or sixth year and purchase(2)
redemption proceeds) eliminated
thereafter(2)
- ------------------------------------------------------------------------
Maximum Sales Charge on
Reinvested Dividends None None None
- ------------------------------------------------------------------------
Exchange Fee None None None
</TABLE>
1. If you invest $1 million or more ($500,000 or more for purchases
by Retirement Plans as defined in Class A Contingent Deferred
Sales Charge on page 32) in Class A shares you may have to pay a
sales charge of up to 1% if you sell your shares within 12 calendar
months (18 months for share purchased prior to May 1, 1997)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," and "How to
Buy Shares - Buying Class C Shares" below for more information on
the contingent deferred sales charges.
Annual Fund Operating Expenses are paid out of the Fund's
assets and represent the Fund's expenses in operating its business.
For example, the Fund pays management fees to its investment
adviser, 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):
Class A Class B Class C
Shares Shares Shares
- -------------------------------------------------------------------
Management Fees 0.75% 0.75% 0.75%
- -------------------------------------------------------------------
12b-1 Distribution Plan Fees 0.25% 1.00% 1.00%
- -------------------------------------------------------------------
Other Expenses 0.30% 0.30% 0.30%
- -------------------------------------------------------------------
Total Fund 1.30% 2.05% 2.05%
Operating Expenses
The numbers in the table above are based on the Fund's
expenses in its last fiscal year ended December 31, 1996. These
amounts are shown as a percentage of the average net assets of each
class of the Fund's shares for that year. The 12b-1 Distribution
Plan Fees for Class A shares are service 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." 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 Annual Fund Operating Expense table above. If you
were to redeem your shares at the end of each period shown below,
your investment would incur the following expenses by the end of 1,
3, 5 and 10 years:
1 year 3 years 5 years 10 years*
- -------------------------------------------------------------------
Class A Shares $70 $96 $125 $205
- -------------------------------------------------------------------
Class B Shares $71 $94 $130 $201
- -------------------------------------------------------------------
Class C Shares $31 $64 $110 $238
If you did not redeem your investment, it would incur the following
expenses:
1 year 3 years 5 years 10 years*
- -------------------------------------------------------------------
Class A Shares $70 $96 $125 $205
- -------------------------------------------------------------------
Class B Shares $21 $64 $110 $201
- -------------------------------------------------------------------
Class C Shares $21 $64 $110 $238
* In the first example, expenses include the Class A initial sales
charge and the applicable Class B or Class C contingent deferred
sales charge. In the second example, Class A expenses include the
initial sales charge but Class B and Class C expenses do not
include contingent deferred sales charges. 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 - Buying 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 may 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
issued by foreign or domestic issuers. 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 another nationally recognized statistical rating
organization, 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 issued by foreign or domestic
issuers.. 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 11.
Who Manages The Fund? The Fund's investment adviser (the
"Manager") is OppenheimerFunds, Inc. Prior to January 5, 1996 the
Manager was known as Oppenheimer Management Corporation. The
Manager (including subsidiaries) manages investment company
portfolios currently having over $60 billion in assets at March 31,
1997. 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 21 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 Objective and Policies" starting on page 12 and
Investment Risks starting on page 12 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 28 for more details.
Will I Pay a Sales Charge to Buy Shares? The Fund offers
the individual investor 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%, and 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 28 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 43. The Fund also offers exchange
privileges to other Oppenheimer funds, described in "How to
Exchange Shares" on page 46.
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 26 and 27. 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 1996 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, 1996 is included in the Statement of Additional
Information. The information in the table for the fiscal periods
prior to 1991 was audited by the Fund's previous independent
auditors.
<PAGE>
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------
YEAR ENDED DECEMBER 31,
1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------
<S> <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
- --------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .78 .69 .65 .69 .75
Net realized and unrealized gain (loss) (.28) .96 (1.08) .40 (.05)
- --------------------------------------------------------------------------------------------------------------
Total income (loss) from investment
operations .50 1.65 (.43) 1.09 .70
- --------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.75) (.68) (.65) (.71) (.76)
Dividends in excess of net investment
income -- -- (.03) -- --
Tax return of capital (.03) -- -- -- --
- --------------------------------------------------------------------------------------------------------------
Total dividends and distributions
to shareholders (.78) (.68) (.68) (.71) (.76)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.70 $ 10.98 $ 10.01 $ 11.12 $ 10.74
---------------------------------------------------------------
---------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(3) 4.87% 16.94% (3.87)% 10.30% 6.77%
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $193,515 $169,059 $ 96,640 $110,759 $106,290
- --------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $178,130 $116,940 $102,168 $111,702 $ 98,672
- --------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 7.35% 6.47% 6.25% 6.20% 7.00%
Expenses, before voluntary reimbursement
by the Manager 1.30% 1.27% 1.06% 1.06% 1.10%
Expenses, net of voluntary reimbursement
by the Manager N/A 1.26% N/A N/A N/A
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(4) 53.7% 175.4% 70.3% 110.1% 116.4%
<CAPTION>
CLASS A
-----------------------------------------------------
ELEVEN
MONTHS
ENDED
DECEMBER 31,
1991(2) 1990 1989 1988(1)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $ 9.86 $ 10.29 $ 10.12 $ 10.55
- ----------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .82 .88 .92 .93
Net realized and unrealized gain (loss) .90 (.43) .19 (.36)
- ----------------------------------------------------------------------------------------------------
Total income (loss) from investment
operations 1.72 .45 1.11 .57
- ----------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.78) (.88) (.94) (1.00)
Dividends in excess of net investment
income -- -- -- --
Tax return of capital -- -- -- --
- ----------------------------------------------------------------------------------------------------
Total dividends and distributions
to shareholders (.78) (.88) (.94) (1.00)
- ----------------------------------------------------------------------------------------------------
Net asset value, end of period $ 10.80 $ 9.86 $ 10.29 $ 10.12
-----------------------------------------------------
-----------------------------------------------------
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(3) 18.28% 4.74% 11.31% 4.48%
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $ 90,623 $ 87,021 $ 96,380 $102,293
- ----------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 86,471 $ 90,065 $100,891 $111,264
- ----------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 8.02% 8.85% 8.85% 8.75%
Expenses, before voluntary reimbursement
by the Manager 1.23% 1.26% 1.14% 1.05%
Expenses, net of voluntary reimbursement
by the Manager N/A 1.24% N/A N/A
- ----------------------------------------------------------------------------------------------------
Portfolio turnover rate(4) 97.1% 80.4% 41.3% 45.0%
<CAPTION>
CLASS A
------------------------
YEAR ENDED JANUARY 31,
1988(1) 1987(1)
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
PER SHARE OPERATING DATA:
Net asset value, beginning of period $ 11.30 $ 11.16
- ---------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 1.09 1.16
Net realized and unrealized gain (loss) (.55) .22
- ---------------------------------------------------------------------------
Total income (loss) from investment
operations .54 1.38
- ---------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (1.29) (1.24)
Dividends in excess of net investment
income -- --
Tax return of capital -- --
- ---------------------------------------------------------------------------
Total dividends and distributions
to shareholders (1.29) (1.24)
- ---------------------------------------------------------------------------
Net asset value, end of period $ 10.55 $ 11.30
----------------------------
----------------------------
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(3) N/A N/A
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $118,568 $125,513
- ---------------------------------------------------------------------------
Average net assets (in thousands) $118,724 $123,045
- ---------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 10.28% 10.45%
Expenses, before voluntary reimbursement
by the Manager 0.98% 0.93%
Expenses, net of voluntary reimbursement
by the Manager N/A N/A
- ---------------------------------------------------------------------------
Portfolio turnover rate(4) 19.5% 59.8%
1. 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.
2. On March 28, 1991, OppenheimerFunds, Inc. became the investment adviser
to the Fund.
3. 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.
4. 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, 1996 were $122,495,689 and
$142,134,930, respectively. For the year ended December 31, 1995, purchases
and sales of investment securities included mortgage "dollar-rolls."
5. For the period from July 11, 1995 (inception of offering) to December 31,
1995.
6. For the period from May 1, 1993 (inception of offering) to December 31,
1993.
7. Annualized.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CLASS B CLASS C
------------------------------------------------
- -------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED
DECEMBER 31,
1996 1995 1994 1993(6) 1996
1995(5)
- ----------------------------------------------------------------------------------------------------------------
- ------------
- ----------------------------------------------------------------------------------------------------------------
- ------------
PER SHARE OPERATING DATA:
<S> <C> <C> <C> <C> <C> <C>
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 .70 .63 .58 .40 .70
.28
Net realized and unrealized gain (loss) (.29) .94 (1.08) .03 (.29)
.10
- ----------------------------------------------------------------------------------------------------------------
- ------------
Total income (loss) from investment
operations .41 1.57 (.50) .43 .41
.38
- ----------------------------------------------------------------------------------------------------------------
- ------------
Dividends and distributions to shareholders:
Dividends from net investment income (.67) (.60) (.57) (.42) (.67)
(.28)
Dividends in excess of net investment
income -- -- (.03) -- --
--
Tax return of capital (.03) -- -- -- (.03)
--
- ----------------------------------------------------------------------------------------------------------------
- ------------
Total dividends and distributions
to shareholders (.70) (.60) (.60) (.42) (.70)
(.28)
- ----------------------------------------------------------------------------------------------------------------
- ------------
Net asset value, end of period $ 10.69 $ 10.98 $ 10.01 $ 11.11 $ 10.70 $
10.99
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
- ------------
- ----------------------------------------------------------------------------------------------------------------
- ------------
TOTAL RETURN, AT NET ASSET VALUE(3) 3.99% 16.06% (4.53)% 3.91% 4.00%
3.76%
- ----------------------------------------------------------------------------------------------------------------
- ------------
- ----------------------------------------------------------------------------------------------------------------
- ------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $ 38,826 $ 39,187 $ 3,451 $ 1,809 $ 4,322 $
3,971
- ----------------------------------------------------------------------------------------------------------------
- ------------
Average net assets (in thousands) $ 38,068 $ 12,823 $ 2,747 $ 922 $ 3,404 $
979
- ----------------------------------------------------------------------------------------------------------------
- ------------
Ratios to average net assets:
Net investment income 6.59% 5.84% 5.53% 4.80%(7) 6.60%
6.32%(7)
Expenses, before voluntary reimbursement
by the Manager 2.05% 2.12% 1.78% 1.90%(7) 2.05%
2.25%(7)
Expenses, net of voluntary reimbursement
by the Manager N/A 2.08% N/A N/A N/A
1.96%(7)
- ----------------------------------------------------------------------------------------------------------------
- ------------
Portfolio turnover rate(4) 53.7% 175.4% 70.3% 110.1% 53.7%
175.4%
</TABLE>
3. 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.
4. 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, 1996 were $122,495,689 and
$142,134,930, respectively. For the year ended December 31, 1995, purchases
and sales of investment securities included mortgage "dollar-rolls."
5. For the period from July 11, 1995 (inception of offering) to December 31,
1995.
6. For the period from May 1, 1993 (inception of offering) to December 31,
1993.
7. Annualized.
<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 Appendix A to this Prospectus. 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 which are explained below.
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.
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.
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.
Investment Risks
All investments carry risks to some degree, whether they are risks
that market prices of the investment will fluctuate (this is known
as market risk ) or that the underlying issuer will experience
financial difficulties and may default on its obligation under a
fixed-income investment to pay interest and repay principal (this
is referred to as credit risk ). These general investment risks,
and the special risks of certain types of investments that the Fund
may hold are described below. They affect the value of the Fund s
investments, its investment performance, and the prices of its
shares. These risks collectively form the risk profile of the
Fund.
Because of the types of companies the Fund invests in and the
investment techniques the Fund uses, some of which may be
speculative, the Fund is designed for those investors who are
investing for the long-term and who are willing to accept greater
risks of loss of their capital in the hope of achieving higher
income. There is no assurance that the Fund will achieve its
objective, and when you redeem your shares, they may be worth more
or less than what you paid for them.
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.
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.
Special Risks of Lower Grade Securities. High yield, lower-
grade securities, whether rated or unrated, often have speculative
characteristics. Lower-grade securities, often referred to as
junk bonds, have special risks that make them riskier investments
than investment grade securities. They may be subject to greater
market fluctuations and risk of loss of income and principal than
lower yielding, investment-grade securities. There may be less of
a market for them and therefore they may be harder to sell at an
acceptable price. There is a relatively greater possibility that
the issuer s earnings may be insufficient to make the payments of
interest due on the bonds. The issuer s low creditworthiness may
increase the potential for its insolvency.
These risks mean that the Fund may not achieve the expected
income from lower-grade securities, and that the Fund s net asset
value per share may be affected by declines in value of these
securities. The Fund is not obligated to dispose of securities
when issuers are in default or if the rating of the security is
reduced. For foreign lower-grade securities, these risks are in
addition to the risks described in Foreign Securities.
Convertible securities may be less subject to some of these risks
than other debt securities, to the extent they can be converted
into stock, which may be more liquid and less affected by these
other risk factors.
As of the close of the fund's fiscal year ended December 31,
1996, the Fund's portfolio included debt securities rated by
various nationally-recognized rating organizations as well as
unrated securities and securities assigned a rating by the Manager
with the approval of the Fund's Board. Securities rated by a rating
organization represented the following percentages of the Fund's
total assets (securities rated by any rating organization are
included in the equivalent Standard & Poor's rating category): AAA:
2.93%; AA: 4.23%; A: 18.33%; BBB: 14.20%; BB: 4.85%; B:10.50%;
CCC: 1.41% and CC: 0.19%. Unrated securities represented 2.09% of
the Fund's total assets. Securities that were not rated by a rating
organization but which were deemed by the Fund's Board to be
equivalent to securities rated in categories equivalent to S&P
ratings represented the following percentages of the Fund's assets:
AAA: 0.07%; AA: .026%; A: 0.34%; BB: 0.31%; B: 1.26% and C: 0.22%.
Appendix A to this Prospectus describes the rating categories. The
allocation of the Fund's investments in the different rating
categories will vary over time.
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.
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 on which the derivative is based, and the deriviate
itself, 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."
Investment Techniques and Strategies
The Fund may 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.
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.
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." 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 of any type
including equity and debt securities of any grade 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.
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 Board may increase that
limit to 15%). The Fund's percentage limitation on these
investments does not apply to certain restricted securities that
are eligible for resale to qualified institutional purchasers. The
Manager monitors holdings of illiquid securities on an ongoing
basis and at times the Fund may be required to sell some holdings
to maintain adequate liquidity.
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.
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:
The Fund cannot make short sales except for sales "against
the box";
The Fund cannot 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); and
The Fund cannot 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.
Unless the prospectus or the Statement of Additional
Information states that a percentage restriction applies on an
ongoing basis, it applies only at the time that Fund makes an
investment and the Fund need not sell securities to meet the
percentage limits if the value of the investment increases in
proportion to the size of the Fund. Other investment restrictions
are listed in Investment Restrictions 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. The Trust
is an open-end, diversified management investment company, with an
unlimited number of authorized shares of beneficial interest. The
Fund is one of two series of the Trust. Each of the two series of
the Trust is a mutual fund that issues its own shares, has its own
investment portfolio, and its own assets and liabilities.
The Trust is governed by a Board of Trustees, which is
responsible under Massachusetts law for protecting the interests of
shareholders. The Trustees meet periodically throughout the year
to oversee the Fund's activities, review its performance, and
review the actions of the Manager. "Trustees and Officers of the
Fund" in the Statement of Additional Information names the Trustees
and provides more information about them and the officers of the
Fund. Although the Fund 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 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. Please refer to How
the Fund is Managed in the Statement of Additional Information.
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 subsidiaries) currently manages investment
companies, including other Oppenheimer funds, with assets of more
than $60 billion as of March 31, 1997, and with more than 3 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 are both Vice Presidents of the Manager. They each serve
as officers and portfolio managers of other Oppenheimer funds.
Fees and Expenses. Under an 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 was 0.75% of
average annual net assets for 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, certain 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 the Fund s 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, brokers and other financial institutions that have a sales
agreement with OppenheimerFunds Distributor, Inc., a subsidiary of
the Manager that acts as 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 on an "at-cost" basis.
It also acts as shareholder servicing agent for other Oppenheimer
funds. Shareholders should direct inquiries about their accounts
to the Transfer Agent at the address and toll-free number shown
below under How to Sell Shares 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, normally the
current maximum initial sales charge has been deducted. When total
returns are shown for Class B or Class C shares, normally the
contingent deferred sales charge that applies to the period for
which total return is shown has been deducted. However, total
returns may also be quoted "at net asset value," without
considering the effect of the sales charge or CDSC, and those
returns would be less 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, 1996, 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, 1996, the general rise in interest
rates drove down prices of outstanding fixed income securities,
which had a negative effect on the Fund s performance. Because of
the Fund s strategic positioning in the second half of the Fund s
fiscal year end, the Fund was able to show a positive cumulative
total return for the year for all classes of shares (without
considering the effect of sales charges). The Fund s performance
was positively affected primarily by the following two factors.
First, during the second half of the year, the Fund focussed on
both investment grade and higher-yielding corporate bonds which
allowed the Fund to seek higher income. Secondly, the Funds s
performance was positively affected by its diversification of
investments. Specifically, the Fund s benefited from its
investments in mortgage-backed securities. Those investments
helped balance out the performance of Treasury securities caused by
the general rise in interest rates. The Fund s portfolio holdings,
allocations and strategies are subject to change.
Comparing the Fund's Performance to the Market. The graph
below show the performance of a hypothetical $10,000 investment in
Class A, Class B and Class C shares of the Fund held at December
31, 1996; 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, performance is measured from the 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
12/31/961
1 Year 5 Years Life
- -------------------------------------------------------------------
- -0.12% 5.75% 7.68%
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
12/31/962
1 Year Life
- -------------------------------------------------------------------
- -0.88% 4.33%
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
12/31/963
1 Year Life
- -------------------------------------------------------------------
3.03% 5.31%
Total returns and the ending account value in the graph reflect
reinvestment of all dividends and capital gains distributions
(1) The inception date of the Fund (Class A shares) was 4/15/88.
The average annual total returns are shown net of the applicable
4.75% maximum initial sales charge.
(2) Class 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.
(3) Class C shares of the Fund were first publicly offered on
7/11/95. The average annual total return reflect the reinvestment
of all dividends and capital gains distributions and the one year
return is shown net of the applicable 1% contingent deferred sales
charge.
Past performance is not predictive of future performance.
Graphs are not drawn to same scale.
A B O U T Y O U R A C C O U N T
How to Buy Shares
Classes of Shares. The Fund offers investors three different
classes of shares. The different classes of shares represent
investments in the same portfolio of securities but are subject to
different expenses and will likely have different share prices.
Class A Shares. 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 Retirement Plans defined in Class A
Contingent Deferred Sales Charge on page 32). If you purchase
Class A shares as part of an investment of at least $1 million
($500,000 for Retirement 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 12 months of buying them (18
months if the shares were purchased prior to May 1, 1997), you may
pay a contingent deferred sales charge. The amount of that sales
charge will vary depending on the amount you invested, sales charge
rates are described in "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 sales charge varies depending on how
long you own your shares, as 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%, as discussed 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 Class A, Class
B and Class C shares, and considered the effect of the annual
asset-based sales charge 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 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 assumes 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 shares of Class B or Class
C 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 amounts 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.
For investors who invest $1 million or more, in most cases
Class A shares will be the most advantageous choice, no matter how
long you intend to hold your shares. For that reason, the
Distributor normally will not accept purchase orders of $500,000 or
more of Class B shares or $1 million or more of 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, you should analyze your options
carefully.
Are There Differences in Account Features That Matter to
You? Because some account features may not be available to 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 of shares 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 charges 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. The Distributor may pay
additional periodic compensation from its own resources to
securities dealers or financial institutions based upon the value
of shares of the Fund owned by the dealer or financial institution
for its own account or for its customers.
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, 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.
The Distributor may appoint certain servicing agents as the
Distributor s agent to accept purchase and redemption orders.
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 Federal Funds Wire: Shares may be
purchased by Federal Funds wire. The minimum investment is $2,500.
You must first call the Distributor s Wire Department at 1-800-525-
7041 to notify the Distributor of the wire, and receive further
instructions.
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 have the Transfer Agent send redemption
proceeds or to transmit dividends and distributions to your bank
account.
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 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 or its designated agent 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 B
and Appendix C 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 or the former CMIA funds
(as defined in each Appendix).
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 commission. The current sales charge
rates and commissions paid to dealers and brokers are as follows:
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
- -------------------------------------------------------------------
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
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 by a retirement plan qualified under section
401(a) if the retirement plan has total plan assets of $500,000;
Purchases aggregating $1 million or more;
Purchase by a retirement plan qualified under section
401(a) or 401(k) of the Internal Revenue Code, by a non-qualified
deferred compensation plan (not including Section 457 plans),
employee benefit plan, group retirement plan (see How to Buy
Shares - Retirement Plans in the Statement of Additional
Information for further details), an employee s 403(b)(7) custodial
plan account, SEP IRA, SARSEP, or SIMPLE plan (all of these plans
are collectively referred to as Retirement Plans ); 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; or
Purchases by an OppenheimerFunds rollover IRA if the
purchases are made (1) through a broker, dealer, bank or registered
investment adviser that has made special arrangements with the
distributor for these purchases, or (2) by a direct rollover of a
distribution from a qualified retirement plan if the administrator
of that plan has made special arrangements with the distributor for
those purchases.
The Distributor pays dealers of record commissions on those
purchases in an amount equal to (i) 1.0% for non-Retirement Plan
accounts, and (ii) for Retirement Plan accounts, 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 calculated on a calendar year basis.
That commission will be paid only on those purchases that were not
previously subject to a front-end sales charge and dealer
commission. No sales commission will be paid to the dealer, broker
or financial institution on sales of Class A shares purchased with
the redemption proceeds of shares of a mutual fund offered as an
investment option in a retirement Plan in which Oppenheimer funds
are also offered as investment options under a special arrangement
with the Distributor if the purchase occurs more than 30 days after
the addition of the Oppenheimer funds as an investment option to
the Retirement Plan.
If you redeem any of those shares purchased prior to May 1,
1997, 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. A Class A contingent deferred sales charge may
be deducted from the redemption proceeds of any of those shares
purchased on or after May 1, 1997 that are redeemed within 12
months of the end of the calendar month of their purchase. That
sales charge will be equal to 1.0% of the lesser(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 offering price (which is the
original net asset value) of the redeemed shares. 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.
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, or 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
Distributor will add the value, at current offering price, of the
shares you previously purchased and currently own to the value of
current purchases to determine the sales charge rate that applies.
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 purchases of Class A
shares. The total amount of your intended purchases of both Class
A and Class B shares will determine the reduced sales charge rate
for 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
and minor children) 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 advisors that have
entered into an agreement with the Distributor providing
specifically for the use of shares of the Fund in particular
investment products or employee benefit plans made available to
their clients (those clients may be charged a transaction fee by
their dealer, broker or advisor for the purchase or sale of Fund
shares);
(1) investment advisors and financial planners who charge
an advisory, consulting or other fee for their services and buy
shares for their own accounts or the accounts of their clients, (2)
Retirement Plans and deferred compensation plans and trusts used to
fund those Plans (including, for example, plans qualified or
created under section 401(a), 403(b) or 457 of the Internal Revenue
Code), and rabbi trusts that buy shares for their own accounts,
in each case if those purchases are made through a broker or agent
or other financial intermediary that has made special arrangements
with the Distributor for those purchases; and (3) clients of such
investment advisors or financial planners who buy shares for their
own accounts may also purchase shares without sales charge but only
if their accounts are linked to a master account of their
investment advisor or financial planner on the books and records of
the broker, agent or financial intermediary with which the
Distributor has made such special arrangements (each of these
investors may be charged a fee by the broker, agent or financial
intermediary for purchasing shares);
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
advisor (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 Oppenheimer funds
(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 past 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.
Waivers of the Class A Contingent Deferred Sales Charge for
Certain Redemptions. The Class A contingent deferred sales charge
is also waived if shares that would otherwise be subject to the
contingent deferred sales charge are redeemed in the following
cases:
to make Automatic Withdrawal Plan payments that are limited
annually to no more than 12% of the original account value;
involuntary redemptions of shares by operation of law or
involuntary redemptions of small accounts (see Shareholder Account
Rules and Policies, below);
if, at the time of purchase of shares (prior to May 1,
1997) the dealer agrees in writing to accept the dealer s portion
of the sales commission 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);
if, at the time of purchase of shares (on or after May 1,
1997) the dealer agrees in writing to accept the dealer s portion
of the sales commission in installments of 1/12th of the commission
per month (and no further commission will be payable if the shares
are redeemed within 12 months of purchase);
for distributions from a TRAC-2000 401(k) plan sponsored by
the Distributor due to the termination of the TRAC-2000 program;
for distributions from Retirement Plans, deferred
compensation plans or other employee benefit plans for any of the
following 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) to return excess
contributions; (3) to return contributions made due to a mistake of
fact; (4) hardship withdrawals, as defined in the plan; (5) under
a Qualified Domestic Relations Order, as defined in the Internal
Revenue Code; (6) to meet the minimum distribution requirements of
the Internal Revenue Code; (7) to establish substantially equal
periodic payments as described in Section 72(t) of the Internal
Revenue Code; (8) for retirement distributions or loans to
participants or beneficiaries; (9) separation from service; (10)
participant-directed redemptions to purchase shares of a mutual
fund (other than a fund managed by the Manager or its subsidiary)
offered as an investment options in a Retirement Plan in which
Oppenheimer funds are also offered as investment options under a
special arrangement with the Distributor; or (11) plan termination
or in-service distributions, if the redemption proceeds are
rolled over directly to an OppenheimerFunds IRA;
for distributions from Retirement Plans with 500 or more
eligible participants, except distributions due to termination of
all of the Oppenheimer funds as an investment option for the Plan;
or
for distributions from certain 401(k) plan programs
sponsored by broker-dealers that have entered into a special
agreement with the Distributor allowing this waiver.
Service Plan for Class A Shares. The Fund has adopted a
Service Plan for Class A shares to reimburse the Distributor for a
portion of its costs incurred in connection with the personal
service and maintenance of accounts that hold Class A shares.
Reimbursement is made quarterly at an annual rate that may not
exceed 0.25% of the average annual net assets of Class A shares of
the Fund. The Distributor uses all of those fees to compensate
dealers, brokers, banks and other financial institutions quarterly
for providing personal service and maintenance of accounts of their
customers that hold Class A shares and to reimburse itself (if the
Fund s Board of Trustees authorizes such reimbursements, which it
has not yet done) for its other expenditures under the Plan.
Services to be provided include, among others, answering
customer inquiries about the Fund, assisting in establishing and
maintaining accounts in the Fund, making the Fund's investment
plans available and providing other services at the request of the
Fund or the Distributor. Payments are made by the Distributor
quarterly at an annual rate not to exceed 0.25% of the average
annual net assets of Class A shares held in accounts of the service
providers or their 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
contingent deferred sales charge will be based on the lesser of the
net asset value of the redeemed shares at the time of redemption or
the original offering price (which is the original net asset
value). 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 contingent
deferred sales charge is not imposed in the circumstances described
in Waivers of Class B and Class C Sales charges, below.
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:
Years Since 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 contingent deferred sales charge will be based
on the lesser of the net asset value of the redeemed shares at the
time of redemption or the original offering purchase price (which
is the original net asset value). 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 compensate the Distributor for 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. The Distributor also receives from the Fund a service fee
of 0.25% per year under each plan. 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. If a dealer has a special agreement with the Distributor,
the Distributor will pay the Class B service fee and the asset-
based sales charge to the dealer quarterly in lieu of paying the
sales commission and service fee advance at the time of purchase.
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. If a dealer
has a special agreement with the Distributor, the Distributor will
pay the Class C service fee and the asset-based sales charge to the
dealer quarterly in lieu of paying the sales commission and service
fee advance at the time of purchase.
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, 1996, the end of the Class B Plan
year, the Distributor had incurred unreimbursed expenses in
connection with the sale of Class B shares of $964,739(equal to
2.48% of the Fund's net assets represented by Class B shares on
that date). At December 31, 1996, the end of the Class C plan
year, the Distributor had incurred unreimbursed expenses in
connection with the sale of Class C shares of $47,483(equal to
1.10% of the Fund's net assets represented by Class C shares on
that date).
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 in Certain Cases. The Class B and
Class C contingent deferred sales charge will be waived for
redemptions of shares in the following cases:
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 (the
death or disability must have) occurred after the account was
established;
redemptions from accounts other than Retirement Plans
following the death or disability of the last surviving
shareholder, including a trustee of a grantor trust or revocable
living trust for which the trustee is also the sole beneficiary
(the death or disability must have occurred after the account was
established and for disability; you must provide evidence of a
determination of disability by the Social Security Administration);
returns of excess contributions to Retirement Plans;
distributions from retirement plans that qualify as
"substantially equal periodic payments" under Section 72(t) of the
Internal Revenue Code that do not exceed 10% of the account value
annually, measured from the date the Transfer Agent receives the
request;
distributions from OppenheimerFunds prototype 401(k)plans
and from certain Massachusetts Mutual Life Insurance Company
prototype 401(k) plans for (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; (5) for separation from service; or (6) for
loans to participants or beneficiaries; or
distributions from 401(k) plans sponsored by broker-
dealers that have entered into a special agreement with the
Distributor allowing this waiver.
Waivers for Shares Sold or Issued in Certain Transactions. The
contingent deferred sales charge is also waived on Class B and
Class C shares sold or issued 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; or
shares issued in plans of reorganization to which the Fund
is a party.
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 call the Transfer Agent for more
information.
AccountLink privileges should be requested 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.
Shareholder Transactions by Fax. Beginning May 30, 1997, requests
for some account transactions may be sent to the Transfer Agent by
fax (telecopier). Please call 1-800-525-7048 for more information
about which transactions are included. Transaction requests
submitted by fax are subject to the same rules and restrictions as
written and telephone requests described in this Prospectus.
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 Statement
of Additional Information for more details.
Automatic Exchange Plans. You can authorize the Transfer
Agent to exchange an amount you establish in advance automatically
for shares of the same class 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
Pension and Profit-Sharing Plans for self-employed persons
and other employers
401(k) prototype retirement plans for businesses
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
The redemption check is not payable to all shareholders
listed on the account statement
The redemption check is not sent to the address of record
on your account 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 request must be
received by the Transfer Agent or its 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 checkwriting 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 of the Fund 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
one 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 the Transfer Agent 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.
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 the same class of
shares of another Oppenheimer fund 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 advisor 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, 1996, 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, 1996 and in the
case of Class C shares the graph will cover the period from
inception on July 11, 1995 through December 31, 1996. 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"
Lehman Brothers
Fiscal Year Oppenheimer Corporate
(Period) Ended Bond Fund A Bond Index
04/15/88 $9,525 $10,000
12/31/88 $9,952 $10,458
12/31/89 $11,077 $11,931
12/31/90 $11,602 $12,773
12/31/91 $13,723 $15,137
12/31/92 $14,653 $16,452
12/31/93 $16,163 $18,452
12/31/94 $15,538 $17,727
12/31/95 $18,169 $21,670
12/31/96 $19,053 $22,382
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 $10,596
12/31/94 $ 9,920 $10,179
12/31/95 $11,513 $12,443
12/31/96 $11,683 $12,852
Lehman Brothers
Fiscal Year Oppenheimer Corporate
(Period) Ended Bond Fund C(2) Bond Index
07/11/95 $10,000 $10,000
12/31/95 $10,376 $10,742
12/31/96 $10,792 $11,095
- ----------------------
(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
Description of Securities Ratings
Moody s Investors Service, Inc. Bond Ratings
Aaa: Bonds which are rated Aaa are judged to be the best quality
and to carry the smallest degree of investment risk. Interest
payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective
elements are likely to change, the changes that can be expected are
most unlikely to impair the fundamentally strong position of such
issues.
Aa: Bonds which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group, they comprise what
are generally known as high-grade bonds. They are rated lower
than the best bonds because margins of protection may not be as
large as with Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than
those of Aaa securities.
A: Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium grade
obligations. Factors giving security to principal and interest are
considered adequate but elements may be present which suggest a
susceptibility to impairment sometime in the future.
The investments in which the Fund will principally invest will be
in the lower-rated categories described below.
Baa: Bonds which are rated Baa are considered medium grade
obligations, i. e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate
for the present but certain protective elements may be lacking or
may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and have
speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered well-assured. Often
the protection of interest and principal payments may be very
moderate and not well safeguarded during both good and bad times
over the future. Uncertainty of position characterizes bonds in
this class.
B: Bonds which are rated B generally lack characteristics of
desirable investment. Assurance of interest and principal payments
or of maintenance of other terms of the contract over any long
period of time may be small.
Caa: Bonds which are rated Caa are of poor standing and may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca: Bonds which are rated Ca represent obligations which are
speculative in a high degree and are often in default or have other
marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds
and can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Standard & Poor s Bond Ratings
AAA: AAA is the highest rating assigned to a debt obligation and
indicates an extremely strong capacity to pay principal and
interest.
AA: Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the
majority of instances they differ from AAA issues only in small
degree.
A: Bonds rated A have a strong capacity to pay principal and
interest, although they are somewhat more susceptible to adverse
effects of change in circumstances and economic conditions. The
investments in which the Fund will principally invest will be in
the lower-rated categories, described below.
BBB: Bonds rated BBB are regarded as having an adequate capacity
to pay principal and interest. Whereas they normally exhibit
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
principal and interest for bonds in this category than for bonds in
the A category.
BB, B CCC, CC: Bonds rated BB, B, CCC and CC are regarded,
on balance, as predominantly speculative with respect to the
issuer s capacity to pay interest and repay principal in accordance
with the terms of the obligation. BB indicates the lowest degree
of speculation and CC the highest degree. While such bonds will
likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to
adverse conditions.
C: Bonds on which no interest is being paid are rated C .
D: Bonds rated D are in payment default and payment of interest
and/or repayment of principal is in arrears.
Fitch Investors Service, Inc.
Investment Grade Bond Ratings
AAA Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to
pay interest and repay principal, which is unlikely to be affected
by reasonably foreseeable events.
AA Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated "AAA."
Because bonds rated in the "AAA" and "AA" categories are not
significantly vulnerable to foreseeable future developments, short-
term debt of these issuers is generally rated "F-1+."
A Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal
is considered to be strong, but may be more vulnerable to adverse
changes in economic conditions and circumstances than bonds with
higher ratings.
BBB Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in
economic conditions and circumstances, however, are more likely to
have adverse impact on these bonds, and therefore impair timely
payment. The likelihood that the ratings of these bonds will fall
below investment grade is higher than for bonds with higher
ratings.
Speculative Grade Bond Ratings
BB Bonds are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can
be identified which could assist the obligor in satisfying its debt
service requirements.
B Bonds are considered highly speculative. While bonds in this
class are currently meeting debt service requirements, the
probability of continued timely payment of principal and interest
reflect the obligor's limited margin of safety and the need for
reasonable business and economic activity through out the life of
the issue.
CCC Bonds have certain identifiable characteristics which, if not
remedied, may lead to default. The ability to meet obligations
requires an advantageous business and economic environment.
CC Bonds are minimally protected. Default in payment of interest
and/or principal seems probable over time.
C Bonds are in imminent default in payment of interest or
principal.
DDD, DD and D Bonds are in default on interest and/or principal
payments. Such bonds are extremely speculative and should be
valued on the basis of their ultimate recovery value in liquidation
or reorganization of the obligor. "DDD" represents the highest
potential for recovery on these bonds, and "D" represents the
lowest potential for recovery.
Plus (+) Minus (-) Plus and minus signs are used with a rating
symbol to indicate the relative position of a credit within the
rating category. Plus and minus signs, however, are not used in
the "AAA," "DDD," "DD," or "D" categories.
Duff & Phelps' Ratings
Long-Term Debt and Preferred Stock
AAA Highest credit quality. The risk factors are negligible, being
only slightly more than for risk-free US Treasury debt.
AA+, AA & AA- High credit quality protection factors are strong.
Risk is modest but may vary slightly from time to time because of
economic conditions.
A+, A & A- Protection factors are average but adequate. However,
risk factors are more variable and greater in periods of economic
stress.
BBB+, BBB & BBB- Below average protection factors but still
considered sufficient for prudent investment. Considerable
variability in risk during economic cycles.
BB+, BB & BB- Below investment grade but deemed to meet
obligations when due. Present or prospective financial protection
factors fluctuate according to industry conditions or company
fortunes. Overall quality may move up or down frequently within
the category.
B+, B & B- Below investment grade and possessing risk that
obligations will not be met when due. Financial protection factors
will fluctuate widely according to economic cycles, industry
conditions and/or company fortunes. Potential exists for frequent
changes in the rating within this category or into a higher of
lower rating grade.
CCC Well below investment grade securities. Considerable
uncertainty exists as to timely payment of principal interest or
preferred dividends. Protection factors are narrow and risk can be
substantial with unfavorable economic industry conditions, and/or
with unfavorable company developments.
DD Defaulted debt obligations issuer failed to meet scheduled
principal and/or interest payments.
DP Preferred stock with dividend arrearages.
<PAGE>
APPENDIX B
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 advisor 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 a as a Percentage
Number of Percentage Percentage of
Eligible Employees of Offering of 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 32 to 34 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 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 were subject to a Class A contingent deferred sales charge
prior to November 2, 1995, 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. 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 C
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
6803 South Tucson Way
Englewood, Colorado 80112
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.
PR0285.001.0497 *Printed on recycled paper
OPPENHEIMER BOND FUND
6803 South Tucson Way, Englewood, Colorado 80112
1-800-525-7048
Statement of Additional Information dated April 30, 1997.
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 30, 1997. 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. . . . . . 11
Other Investment Restrictions . . . . . . . . . . . . 28
How the Fund is Managed. . . . . . . . . . . . . . . . . 30
Organization and History . . . . . . . . . . . . . . . . 30
Trustees and Officers of the Fund. . . . . . . . . . . . 32
The Manager and Its Affiliates . . . . . . . . . . . . . 36
Brokerage Policies of the Fund . . . . . . . . . . . . . 39
Performance of the Fund. . . . . . . . . . . . . . . . . 42
Distribution and Service Plans . . . . . . . . . . . . . .
48 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
About Your Account
How to Buy Shares. . . . . . . . . . . . . . . . . . . . 51
How to Sell Shares . . . . . . . . . . . . . . . . . . . 62
How to Exchange Shares . . . . . . . . . . . . . . . . . 68
Dividends, Capital Gains and Taxes . . . . . . . . . . . 71
Additional Information About the Fund. . . . . . . . . . 73
Financial Information About the Fund
Independent Auditors' Report . . . . . . . . . . . . . . 74
Financial Statements . . . . . . . . . . . . . . . . . . 75
Appendix A: Corporate Industry Classification. . . . . .A-1
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 only listed on a U.S. securities
exchange, or are only 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, liquid securities of any type including
equity and debt securities of any grade 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 liquid securities of
any type including equity and debt securities of any grade 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 unless subject to
a buy-back agreement with the executing broker. 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, liquid securities of any type including equity and debt
securities of any grade 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 liquid securities of any
type including equity and debt securities of any grade 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 do any of the following:
The Fund may not 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;
The Fund may not 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);
The Fund may not 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;
The Fund may not pledge, mortgage or hypothecate its assets,
except that, to secure permitted borrowings, it may pledge
securities having a market value at the time of the pledge not
exceeding 15% of the cost of 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;
The Fund may not 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
The Fund may not 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 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. On July 10, 1995, the Fund changed its
name to Oppenheimer 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 entitle the holder to one vote per share (and a
fractional vote for a fractional share) on matters submitted to
their vote at shareholders' meetings. Shareholders of the Fund and
of the Trust's other series vote together in the aggregate on
certain matters at shareholders' meetings, such as the election of
Trustees and ratification of appointment of auditors for the Trust.
Shareholders of a particular series or class vote separately on
proposals which affect that series or class, and shareholders of a
series or class which is not affected by that matter are not
entitled to vote on the proposal. For example, only shareholders
of a series, such as the Fund, vote exclusively on any material
amendment to the investment advisory agreement with respect to the
series. Only shareholders of a class of a series vote on certain
amendments to the Distribution and/or Service Plans if the
amendments affect only 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 Fund's Trustees and officers and their principal
occupations and business affiliations during the past five years
are set forth below. All of the Trustees are also Trustees,
Directors or Managing General Partners of Centennial America Fund,
L.P., Centennial California Tax Exempt Trust, Centennial Government
Trust, Centennial Money Market Trust, Centennial New York Tax
Exempt Trust, Centennial Tax Exempt Trust, Daily Cash Accumulation
Fund, Inc., Oppenheimer Cash Reserves, Oppenheimer Equity Income
Fund, Oppenheimer Integrity Funds, Oppenheimer International Bond
Fund, Oppenheimer High Yield Fund, Oppenheimer Limited-Term
Government Fund, Oppenheimer Main Street Funds, Inc., Oppenheimer
Strategic Income Fund, Oppenheimer Strategic Income & Growth Fund,
Oppenheimer Municipal Fund, Oppenheimer Total Return Fund,
Inc.,Oppenheimer Real Asset Fund, Oppenheimer Variable Account
Funds, Panorama Series Fund, Inc. and The New York Tax-Exempt
Income Fund, Inc., (the "Denver-based Oppenheimer funds"), except
for Mr. Fossel and Ms. Macaskill who are not Trustees or Directors
Oppenheimer Integrity Funds, Oppenheimer Strategic Income Fund,
Oppenheimer Variable Account Funds and Panorama Series Fund, Inc.
Mr. Fossel also is not a trustee of Centennial New York Tax Exempt
Trust and he is not a Managing General Partner of Centennial
America Fund, L.P. Ms. Macaskill is President and Mr. Swain is
Chairman of the Denver-based Oppenheimer funds. Messrs. Bishop,
Bowen, Donohue, Farrar and Zack hold similar positions as officers
of all such funds. As of April 2, 1997, the Trustees and officers
of the Fund as a group owned less than 1% of the Fund's outstanding
Class A shares, none of the Fund's outstanding Class B shares and
none of the Fund's outstanding Class C shares. The foregoing
statement does not reflect ownership of shares held of record by an
employee benefit plan for employees of the Manager (for which plan
one of the Trustees and officers listed below, Mr. Donohue, is a
trustee), other than the shares beneficially owned under that plan
by the officers of the Fund listed below.
Robert G. Avis, Trustee; Age: 65
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: 82
197 Desert Lakes Drive, Palm Springs, California 92264
Management Consultant.
Charles Conrad, Jr., Trustee; Age: 66
1501 Quail Street, Newport Beach, CA 92660
Chairman and CEO of Universal Space Lines, Inc. (a space services
management company); formerly Vice President of McDonnell Douglas
Space Systems Co. and associated with the National Aeronautics and
Space Administration.
Sam Freedman, Trustee; Age: 56
4975 Lakeshore Drive, Littleton, Colorado 80123
Formerly Chairman and Chief Executive Officer of OppenheimerFunds
Services, Chairman, Chief Executive Officer and a director of SSI,
Chairman, Chief Executive and Officer and director of SFSI, Vice
President and director of OAC and a director of OppenheimerFunds,
Inc.
Raymond J. Kalinowski, Trustee; Age: 67
44 Portland Drive, St. Louis, Missouri 63131
Director of Wave Technologies International, Inc. a computer
products training company; 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: 75
2552 East Alameda, Denver, Colorado 80209
Formerly the Managing Partner of Deloitte, Haskins & Sells (an
accounting firm).
Robert M. Kirchner, Trustee; Age: 75
7500 E. Arapahoe Road, Englewood, Colorado 80112
President of The Kirchner Company (management consultants).
Ned M. Steel, Trustee; Age: 81
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, Chief Executive Officer and Trustee;
Age: 63
6803 South Tucson Way, Englewood, Colorado 80112
Vice Chairman of the Manager; formerly President and director of
Centennial Asset Management Corporation, an investment adviser
subsidiary of the Manager ("Centennial") and Chairman of the Board
of SSI.
Bridget A. Macaskill, President; Age: 48
President, Chief Executive Officer and a Director of the Manager
and HarbourView Asset Management Corporation ("HarbourView"), a
subsidiary of the Manager; Chairman and a director of SSI and
Shareholder Financial Services, Inc.; President and a director of
OAC and Oppenheimer Partnership Holdings, Inc., a holding company
subsidiary of the Manager; a director of Oppenheimer Real Asset
Management, Inc.; formerly an Executive Vice President of the
Manager.
Andrew J. Donohue, Vice President and Secretary; Age: 46
Executive Vice President, General Counsel and a Director of the
Manager, the Distributor, HarbourView, SSI, SFSI, Oppenheimer
Partnership Holdings, Inc. and MultiSource Services, Inc. (a
broker-dealer); President and a director of Centennial;
President and a director of Oppenheimer Real Asset Management,
Inc.; General Counsel of OAC; an officer of other Oppenheimer
funds.
George C. Bowen, Vice President, Assistant Secretary and Treasurer;
Age: 60
6803 Tucson Way, Englewood, Colorado 80112
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; President, Treasurer and a director of Centennial
Capital Corporation; Senior Vice President, Treasurer and
Secretary of SSI; Vice President, Treasurer and Secretary of SFSI;
Treasurer of OAC; Treasurer of Oppenheimer Partnership Holdings,
Inc.; Vice President and Treasurer of Oppenheimer Real Asset
Management, Inc.; Chief Executive Officer, Treasurer and a
director of MultiSource Services, Inc. (a broker-dealer); an
officer of other Oppenheimer funds.
David P. Negri, Vice President and Portfolio Manager; Age: 42
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 38
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: 48
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: 38
6803 South Tucson Way, Englewood, Colorado 80112
Vice President of the Manager/Mutual Fund Accounting; an officer of
other Oppenheimer funds; formerly a Fund Controller of the Manager.
Scott Farrar, Assistant Treasurer; Age: 31
6803 South Tucson Way, Englewood, Colorado 80112
Vice President of the Manager/Mutual Fund Accounting; an officer of
other Oppenheimer funds.
Remuneration of Trustees. The officers of the Fund and certain
Trustees of the Fund (Mr. Swain) who is affiliated with the Manager
receives no salary or fee from the Fund. Mr. Fossel did not
receive any salary or fees from the Fund prior to January 1, 1997.
The remaining Trustees of the Fund received the compensation shown
below. Mr. Freedman became a Trustee June 27, 1996 and received no
compensation from the Fund before that date. The compensation from
the Fund was paid during fiscal year ended December 31, 1996. The
compensation from all of the other Denver-based Oppenheimer funds
includes the Fund and is compensation received as a director,
trustee, managing general partner or member of a committee of the
Board of those funds during the calendar year 1996. Compensation
is paid for services in the positions listed beneath their names:
Total Compensation
Aggregate From All
Compensation Denver-based
Name and Position from Fund OppenheimerFunds1
Robert G. Avis $727 $58,003
Trustee
William A. Baker $1,000 $79,715
Audit and Review Committee
Chairman and Trustee
Charles Conrad, Jr. $937 $74,717
Audit and Review Committee
Member and Trustee
C. Howard Kast $930 $74,173
Risk Management
Oversight Committee Member
and Trustee
Raymond J. Kalinowski $930 $74,173
Oversight Committee Member
and Trustee
Robert M. Kirchner $937 $74,717
Audit and Review Committee
Member and Trustee
Ned M. Steel $728 $58,003
Trustee
Sam Freedman $370 $29,502
Trustee
_____________
1For the 1996 calendar year.
Major Shareholders. As of March 21, 1997, 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)Merrill Lynch Fenner & Smith, 4800 Deer Lake Drive E FL3,
Jacksonville, FL 32246-6484 who owned 245,242.000 Class B shares
(approximately 6.65% of the Fund's Class B shares then outstanding)
(ii) RPSS TR IRA FBO Shirley Einhorn, 10662 SW 79th Terrace, Miami,
FL 33173-2912, who owned 25,361.197 Class C shares (approximately
5.85% of the Fund's Class C shares then outstanding); and (iii)
Merrill Lynch Fenner & Smith, 4800 Deer Lake Drive E FL3,
Jacksonville, FL 32246-6484 who owned 63,598.000 Class C shares
(approximately 13.77% 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 Investment Advisory Agreement contains no expense
limitation. However, because of state regulations limiting fund
expenses that previously applied, the Manager had voluntarily
undertaken that the Fund s total expenses in any fiscal year
(including the investment advisory fee but exclusive of taxes,
interest, brokerage commissions, distribution plan payments and any
extraordinary non-recurring expenses, including litigation) would
not exceed the most stringent state regulatory limitation
applicable to the Fund. Due to changes in federal securities laws,
such state regulations no longer apply and the Manager s
undertaking is therefore inapplicable and has been withdrawn.
During the Fund s last fiscal year, the Fund s expenses did not
exceed the most stringent state regulatory limit and the voluntary
undertaking was not invoked.
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, 1994, 1995 and 1996,
the advisory fees paid to the Manager were $522,205, $820,507 and
$1,640,483, respectively, of which $362,287 and $201,877,
respectively, were paid by the Manager to the Sub-Adviser for the
fiscal years ended December 31, 1994 and December 31, 1995.
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,
1994, 1995 and 1996, the aggregate amount of sales charges on sales
of the Fund's Class A shares was $143,088, $166,065 and $299,893,
respectively, of which the Distributor and on an affiliate,
MassMutual Investor Services, Inc. ("MMLISI") retained in the
aggregate $67,090, $59,442 and $117,612 in those respective
years. For the fiscal year ended December 31, 1996, the
Distributor paid $308,922 to broker-dealers on the sales of the
Funds' Class B shares, $18,267 of which went to MMLISI. In
addition, the Distributor collected $125,164 from contingent
deferred sales charges assessed on Class B shares. For the fiscal
year ended December 31, 1996, the Distributor paid $24,281 to
broker-dealers on the sales of the Funds' Class C shares. In
addition, the Distributor collected $12,706 from contingent
deferred sales charges assessed on Class C shares. 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, 1994, no
brokerage commissions were paid by the Fund. Of that amount, during
the fiscal year ended December 31, 1995 and 1996, $3,742 and
$13,094, respectively 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.
During the fiscal year ended December 31, 1996, total
brokerage commissions paid by the Fund (not including spreads or
concessions on principal transactions on a net trade basis) was
$____________. Of that amount, during the same period, no
brokerage commissions were paid to dealers for research services
(including special research, statistical information and
execution).
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, 1996,
the standardized yields for the Fund's Class A, Class B and Class
C shares were 6.61%, 6.19% and 6.19%, respectively.
Dividend Yield and Distribution Return. From time to time
the Fund may quote a "dividend yield" or a "distribution return"
for each class. Dividend yield is based on the dividends paid on
shares of a class from net investment income during a stated
period. Distribution return includes dividends derived from net
investment income and from realized capital gains declared during
a stated period. Under those calculations, the dividends and/or
distributions for that class declared during a stated period of one
year or less (for example, 30 days) are added together, and the sum
is divided by the maximum offering price per share of that class)
on the last day of the period. When the result is annualized for
a period of less than one year, the "dividend yield" is calculated
as follows:
Dividend Yield of the Class =
Dividends of the Class
-----------------------------------------------------
Max. Offering Price of the Class (last day of period)
divided by Number of days (accrual period) x 365
The maximum offering price for Class A shares includes the
maximum front-end sales charge. For Class B 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, 1996 covering the 31-day period ended December 31,
1996, were 7.16% and 7.51% 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, 1996, was
6.76% when calculated at net asset value. The dividend yield on
Class C shares for the 30-day period ended December 31, 1996 was
6.76% 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:
1/n
(ERV)
(---) -1 = Average Annual Total Return
( P )
Cumulative Total Returns. The cumulative "total return"
calculation measures the change in value of a hypothetical
investment of $1,000 over an entire period of years. Its
calculation uses some of the same factors as average annual total
return, but it does not average the rate of return on an annual
basis. Cumulative total return is determined as follows:
1/n
(ERV)
(---) -1 = Average Annual 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 and five
year periods ended December 31, 1996 were -0.12% and 5.75%,
respectively. The cumulative "total return" on Class A shares for
the fiscal period from April 15, 1988 (inception of the class) to
December 31, 1996 was 90.53%. The "average annual total returns"
on an investment in Class B shares for the one year period ended
December 31, 1996 and for the fiscal period from May 1, 1993
(inception of the class), through December 31, 1996 were -0.88%
and 16.83%, respectively. The "average annual total returns" on an
investment in Class C shares for the fiscal period from July 11,
1995 (inception of the class) through December 31, 1996 was 7.91%.
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 deferred 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, 1996, and for the period from April 15, 1988 to
December 31, 1996 were 4.87% and 100.03%, respectively. The
cumulative total return at net asset value on the Fund's Class B
shares for the fiscal year-ended December 31, 1996 and for the
period from May 1, 1993 through December 31, 1996 were 3.99% and
19.72%, respectively. The cumulative total return at net asset
value on the Fund's Class C shares for the fiscal year-ended
December 31, 1996 and for the period from July 11, 1995 through
December 31, 1996 the cumulative total return on an investment in
Class C shares of the Fund were 4.00% and 7.91%, respectively.
Total return information may be useful to investors in
reviewing the performance of the Fund's Class A, Class B and Class
C shares. However, when comparing total return of an investment in
Class A, Class B or Class C shares of the Fund, a number of factors
should be considered before using such information as a basis for
comparison with other investments.
Other Performance Comparisons. From time to time the Fund may
publish the ranking of its Class A, Class B or Class C shares by
Lipper Analytical Services, Inc. ("Lipper"), a widely-recognized
independent mutual fund monitoring service. Lipper monitors the
performance of regulated investment companies, including the Fund,
and ranks their performance for various periods based on categories
relating to investment objectives. The performance of the Fund's
classes is ranked against (i) all other funds, excluding money
market funds, and (ii) all other general bond funds. The Lipper
performance rankings are based on total return that includes the
reinvestment of capital gains distributions and income dividends
but does not take sales charges or taxes into consideration.
For periods ending December 31, 1996 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
Morningstar 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 Fund may also compare its performance to that of other
funds in its Morningstar Category. In addition to its star
ranking, Morningstar also categorizes and compares a fund's 3-year
performance based on Morningstar's classification of the fund's
investments and investment style, rather than how a fund defines
its investment objective. Morningstar's four broad categories
(domestic equity, international equity, municipal bond and taxable
bond) are each further subdivided into categories based on types of
investments and investment styles. Those comparisons by
Morningstar are based on the same risk and return measurements as
its star rankings but do not consider the effect of sales charges.
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, 1996, payments under
the Class A Plan totaled $439,791, all of which was paid by the
Distributor to Recipients, including $176,747 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, 1996 totaled $380,746, of which $5,806 OFDI
paid to an affiliate, and $309,560 was retained by the Distributor.
Service fee payments made under the Class C Plan during fiscal year
ended the December 31, 1996 totaled $34,043, of which $20,276 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 Conduct
Rules 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, Class B and Class C shares of the Fund are
determined as of the close of business of The New York Stock
Exchange (the "Exchange") on each day that the Exchange is open, by
dividing the value of the Fund's net assets attributable to that
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 holiday schedule (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 may
occur in debt securities and in foreign securities when the
Exchange is closed, including weekends and holidays, or after the
close of the Exchange on a regular business day. The Fund may
invest a substantial portion of its assets in foreign securities
primarily listed on foreign exchanges or in foreign over-the-
counter markets that may trade on Saturdays or customary U.S.
business holidays on which the Exchange is closed. Because the
Fund's net asset value will not be calculated on those days, the
Fund's net asset value per share may be significantly affected on
such days when shareholders may not purchase or redeem shares.
The Trust's Board of Trustees has established procedures for
the valuation of the Trust'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 sale prices of the preceding trading day or closing bid
prices that day); (ii) securities traded on a foreign securities
exchange are valued generally at the last sales price available to
the pricing service approved by the Trust's Board of Trustees or to
the Manager as reported by the principal exchange on which the
security is traded; at its last trading session on or immediately
preceding the valuation date, or at the mean between "bid" and
"asked" prices obtained from the principal exchange or two active
market makers in the security on the basis of reasonable inquiry;
(iii) long-term debt securities having a remaining maturity in
excess of 60 days are valued at the mean between the "bid" and
"ask" prices determined by a portfolio pricing service approved by
the Trust's Board of Trustees or obtained by the Manager from two
active market makers in the security on the basis of reasonable
inquiry; (iv) debt instruments having a maturity of more than 397
days 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 "ask" prices determined by a pricing service approved by
the Trust's Board of Trustees or obtained by the Manager from two
active market makers in the security on the basis of reasonable
inquiry; (v) money market debt securities that had a maturity of no
more than 397 days when issued that have a remaining maturity of 60
days or less are valued at cost, adjusted for amortization of
premiums and accretion of discounts; and (vi) securities (including
restricted securities) not having readily-available market
quotations are valued at fair value under the Board's procedures.
If the Manager is unable to locate two market makers willing to
give quotes (see (ii), (iii) and (iv) above), the security may be
priced at the mean between the bid and ask prices provided by
a single active market maker (which in certain cases may be the
bid price if no ask price is available).
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 securities markets that occur between
the time their prices are determined and the close of the Exchange
will not be reflected in the Fund's calculation of net asset value
unless the Board of Trustees, the Manager, and/or the Sub-Adviser,
under procedures established by the Board of Trustees, determines
that the particular event is likely to effect a material change in
the value of such security. foreign currency, including forward
contracts, will be valued at the closing price in the London
foreign exchange market that day as provided by a reliable bank,
dealer or pricing service. The values of securities denominated in
foreign currency will be converted to U.S. dollars in the London
foreign exchange market closing price that day, 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 Manager and/or the Sub-
Advisor may use pricing services approved by the Board of Trustees
to price U.S. Government Securities or mortgage-backed securities
for which the last sale information is not generally available.
The Manager and /or Sub-Advisor will monitor the accuracy of such
pricing services which may include comparing prices used for
portfolio evaluation to actual sales prices of selected securities.
Calls, puts and Futures held by the Fund are valued at the
last 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. If
there were no sales that day, value shall be the last sale price on
the preceding trading day if it is within the spread of the closing
bid and asked prices on the principal exchange or on NASDAQ on the
valuation date, or, if not, value shall be the closing bid price on
the principal exchange or on NASDAQ on the valuation date. If the
put, call or future is not traded on an exchange or on NASDAQ, it
shall be valued at the mean between bid and asked prices obtained
by the Manager from two active market makers (which in certain
cases may be the bid price if no asked price is available).
AccountLink. When shares are purchased through AccountLink, each
purchase must be at least $25.00. Shares will be purchased on the
regular business day the Distributor is instructed to initiate the
Automated Clearing House transfer to buy shares. Dividends will
begin to accrue on shares purchased by the proceeds of ACH
transfers on the business day the Fund receives Federal Funds for
the purchase through the ACH system before the close of The New
York Stock Exchange. The Exchange normally closes at 4:00 P.M.,
but may close earlier on certain days. If Federal Funds are
received on a business day after the close of the Exchange, the
shares will be purchased and dividends will begin to accrue on the
next regular business day. The proceeds of ACH transfers are
normally received by the Fund 3 days after the transfers are
initiated. The Distributor and the Fund are not responsible for
any delays in purchasing shares resulting from delays in ACH
transmissions.
Reduced Sales Charges. As discussed in the Prospectus, a reduced
sales charge rate may be obtained for Class A shares under Right of
Accumulation and Letters of Intent because of the economies of
sales efforts and expenses realized by the Distributor, dealers and
brokers making such sales. No sales charge is imposed in certain
circumstances described in the Prospectus because the Distributor
or dealer or broker incurs little or no selling expenses. The term
"immediate family" refers to one's spouse, children, grandchildren,
grandparents, aunts, uncles, nieces and nephews, 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 Municipal Bond Fund
Oppenheimer New York Municipal Fund
Oppenheimer California Municipal Fund
Oppenheimer Intermediate Municipal Fund
Oppenheimer Insured Municipal Fund
Oppenheimer Main Street California Municipal Fund
Oppenheimer Florida Municipal Fund
Oppenheimer Pennsylvania Municipal Fund
Oppenheimer New Jersey Municipal Fund
Oppenheimer Fund
Oppenheimer Discovery Fund
Oppenheimer Target Fund
Oppenheimer Growth Fund
Oppenheimer Equity Income Fund
Oppenheimer Value Stock Fund
Oppenheimer Multiple Strategies 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 Developing Markets Fund
Oppenheimer Real Asset Fund
Oppenheimer Strategic Income Fund
Oppenheimer Strategic Short-Term Income Fund
Oppenheimer Strategic Income & Growth Fund
Oppenheimer International Bond Fund
Oppenheimer International Growth 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
Oppenheimer Quest Capital Value Fund, Inc.
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.
Oppenheimer World Bond Fund
Oppenheimer Bond Fund for Growth
Rochester Fund Municipals
Limited Term New York Municipal Fund*
Oppenheimer Disciplined Value Fund
Oppenheimer Disciplined Allocation Fund
Oppenheimer Life Span Balanced Fund
Oppenheimer Life Span Growth Fund
Oppenheimer Life Span Income Fund
* Shares of the Fund are not presently exchangeable for shares of
Limited Term New York Municipal Fund prior to May 1, 1997.
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 OppenheimerFunds 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 up to 5% of the intended purchase amount specified in the
letter shall be held in escrow by the Transfer Agent. For example,
if the intended purchase amount 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 of other Oppenheimer funds acquired subject to a contingent
deferred sales charge, and (c) Class A shares or Class 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 Oppenheimer funds. If you make payments from your bank
account to purchase shares of the Fund, your bank account will be
automatically debited normally four to five business days prior to
the investment dates selected in the Account Application. Neither
the Distributor, the Transfer Agent nor the Fund shall be
responsible or any delays in purchasing shares resulting from
delays in ACH transmission.
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.
By choosing the Checkwriting privilege, whether you do so by
signing the Account Application or by completing a Checkwriting
card, the individuals signing (1) represent that they are either
the registered owner(s) of the shares of the Fund, or are an
officer, general partner, trustee or other fiduciary or agent, as
applicable, duly authorized to act on behalf of such registered
owner(s); (2) authorize the Fund, its Transfer Agent and any bank
through which the Fund s drafts ( checks ) are payable (the Bank ),
to pay all checks drawn on the Fund account of such person(s) and
to effect a redemption of sufficient shares in that account to
cover payment of such checks; (3) specifically acknowledge(s) that
if you choose to permit a single signature on checks drawn against
joint accounts, or accounts for corporations, partnerships, trusts
or other entities, the signature of any one signatory on a check
will be sufficient to authorize payment of that check and
redemption from an account even if that account is registered in
the names of more than one person or even if more than one
authorized signature appears on the Checkwriting card on the
Application, as applicable; and (4) understand(s) that the
Checkwriting privilege may be terminated or amended at any time by
the Fund and/or the Bank and neither shall incur any liability for
such amendment or termination or for effecting redemptions to pay
checks reasonably believed to be genuine, or for returning or not
paying checks which have not been accepted for any reason.
Retirement Plans. In describing certain types of employee benefit
plans that may purchase Class A shares without being subject to the
Class A contingent deferred sales charge, the term employee
benefit plan means any plan or arrangement, whether or not
qualified under the Internal Revenue Code, including, medical
savings accounts, payroll deduction plans or similar plans in which
Class A shares are purchased by a fiduciary or other person for the
account of participants who are employees of a single employer or
of affiliated employers, if the Fund account is registered in the
name of the fiduciary or other person for the benefit of
participants in the plan.
The term group retirement plan means any qualified or non-
qualified retirement plan (including 457 plan, SEPs, SARSEPs,
403(b) plans, and SIMPLE plans) for employees of a corporation or
a sole proprietorship, members and employees of a partnership or
association or other organized group of persons (the members of
which may include other groups), if the group has made special
arrangements with the Distributor and all members of the group
participating in the plan purchase Class A shares of the Fund
through a single investment dealer, broker or other financial
institution designated by the group.
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 Oppenheimer funds 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 Oppenheimer
funds 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 any 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 on behalf of their
customers. The shareholder should contact the broker or dealer to
arrange their type of redemption. 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 redemption 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. Shares are normally redeemed
pursuant to an Automatic Withdrawal Plan three business days before
the date you select in the Account Application. If a contingent
deferred sales charge applies to the redemption, the amount of the
check or payment will be reduced accordingly. 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 because of the imposition of
the 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 ad
Class C Contingent Deferred Sales Charge").
By requesting an Automatic Withdrawal or Exchange Plan, the
shareholder agrees to the terms and conditions applicable to such
plans, as stated below 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
Oppenheimer funds 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.
All Oppenheimer funds offer Class A, Class B and Class C
shares except Oppenheimer Money Market Fund, Inc. 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., and Daily Cash
Accumulation Fund, Inc., which only offer Class A shares and
Oppenheimer Main Street California Municipal Fund, which only
offers Class A and Class B shares (Class B and Class C shares of
Oppenheimer Cash reserves are generally available only by exchange
from the same class of shares of other Oppenheimer Funds or through
OppenheimerFunds sponsored 401(k) plans). A current list showing
which funds offer which class can be obtained by calling the
Distributor at 1-800-525-7048.
For accounts established on or before March 8, 1996 holding
Class M shares of Oppenheimer Bond Fund for Growth, Class M shares
can be exchanged only for Class A shares of other Oppenheimer
funds. Exchanges to Class M shares of Oppenheimer Bond Fund for
Growth are permitted for Class A shares of Oppenheimer Money Market
Fund, Inc. or Oppenheimer Cash Reserves that were acquired by
exchange from Class M shares. Otherwise no exchanges of any class
of any Oppenheimer fund into Class M shares are permitted.
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 Oppenheimer funds 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 more
than one account. 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 Oppenheimer funds available for exchange have
different investment objectives, policies and risks, and a
shareholder should assure that the Fund selected is appropriate for
his or her investment and should be aware of the tax consequences
of an exchange. For federal income tax purposes, an exchange
transaction is treated as a redemption of shares of one fund and a
purchase of shares of another. "Reinvestment Privilege," above,
discusses some of the tax consequences of reinvestment of
redemption proceeds in such cases. The Fund, the Distributor, and
the Transfer Agent are unable to provide investment, tax or legal
advice to a shareholder in connection with an exchange request or
any other investment transaction.
Dividends, Capital Gains and Taxes
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
Oppenheimer funds 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.
<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 as of
December 31, 1996, the related statement of operations for the year then
ended, the statements of changes in net assets for the years ended
December 31, 1996 and 1995, and the financial highlights for the period
January 1, 1992 to December 31, 1996. These financial statements and
financial highlights are the responsibility of the Fund's management.
Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement.
An audit 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, 1996 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, 1996, 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, 1997
STATEMENT OF INVESTMENTS December 31, 1996
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
================================================================================================================================
<S> <C> <C>
MORTGAGE-BACKED OBLIGATIONS--37.8%
- --------------------------------------------------------------------------------------------------------------------------------
GOVERNMENT AGENCY--26.0%
- --------------------------------------------------------------------------------------------------------------------------------
FHLMC/FNMA/SPONSORED--20.5%
Federal Home Loan Mortgage Corp.:
Certificates of Participation, 9%, 3/1/17 $ 548,115 $ 583,469
Certificates of Participation, Series 17-039, 13.50%, 11/1/10 55,673 65,754
Certificates of Participation, Series 17-094, 12.50%, 4/1/14 32,178 37,477
Collateralized Mtg. Obligations, Gtd. Multiclass Mtg.
Participation Certificates, Series 1343, Cl. LA, 8%, 8/15/22 1,600,000 1,651,488
Collateralized Mtg. Obligations, Gtd. Multiclass Mtg.
Participation Certificates, Series 1712, Cl. B, 6%, 3/15/09 1,000,000 928,430
Collateralized Mtg. Obligations, Gtd. Multiclass Mtg.
Participation Certificates, Series 1714, Cl. M, 7%, 8/15/23 1,000,000 949,370
Gtd. Multiclass Mtg. Participation Certificates,
Series 1460, Cl. H, 7%, 5/15/07 1,500,000 1,515,000
Interest-Only Stripped Mtg.-Backed Security,
Trust 177, Cl. B, 15.817%--17.495%, 7/15/26(2) 24,454,952 8,536,307
GNMA, Series 56, Cl. H, 9%, 7/20/24 2,493,000 2,654,266
-------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn.:
11%, 7/1/16 5,291,965 6,052,685
7%, 1/15/12(3) 10,000,000 9,987,500
7%, 1/1/09--11/1/25 5,424,409 5,328,681
7.50%, 2/1/08--3/1/08 745,610 758,502
Collateralized Mtg. Obligations, Gtd. Real Estate Mtg.
Investment Conduit Pass-Through Certificates,
Series 1992-34, Cl. G, 8%, 3/25/22 540,000 557,042
Gtd. Mtg. Pass-Through Certificates, 8%, 8/1/17 668,880 693,027
Gtd. Real Estate Mtg. Investment Conduit Pass-Through Certificates,
Trust 1991-170, Cl. E, 8%, 12/25/06 2,500,000 2,606,250
Gtd. Real Estate Mtg. Investment Conduit Pass-Through Certificates,
Trust 1992-169, Cl. L, 7%, 9/25/22 5,965,000 5,651,838
------------
48,557,086
- --------------------------------------------------------------------------------------------------------------------------------
GNMA/GUARANTEED--5.5%
Government National Mortgage Assn.:
10%, 11/15/09 287,824 318,673
10.50%, 12/15/17--5/15/21 315,340 352,969
11%, 10/20/19 1,216,705 1,386,655
12%, 1/15/99--5/14/14 29,365 31,379
12.75%, 6/15/15 4,036 4,777
13%, 12/15/14 40,193 47,906
7%, 7/15/09--5/15/26 7,213,287 7,148,974
8%, 6/15/05--10/15/06 1,808,388 1,875,308
9%, 2/15/09--6/15/09 502,915 537,873
Collateralized Mtg. Obligations, Gtd. Real Estate Mtg.
Investment Conduit Pass-Through Certificates,
Series 1994-5, Cl. PQ, 7.493%, 7/16/24 1,200,000 1,208,244
------------
12,912,758
- --------------------------------------------------------------------------------------------------------------------------------
PRIVATE--11.8%
- --------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL--8.6%
Asset Securitization Corp.:
Commercial Mtg. Pass-Through Certificates,
Series 1996-MD6, Cl. A-5, 6.958%, 11/13/26(4) 2,000,000 2,002,500
Series 1996-D3, Cl. A5, 8.165%, 10/13/26(4)(5) 800,000 828,750
</TABLE>
7 Oppenheimer Bond Fund
<PAGE> 8
STATEMENT OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMERCIAL
(CONTINUED)
CMC Securities Corp. I, Collateralized Mtg. Obligation,
Series 1993-D, Cl. D-3, 10%, 7/25/23(5) $ 643,201 $ 676,166
-------------------------------------------------------------------------------------------------------------------------
Commercial Mortgage Acceptance Corp.,
Interest-Only Stripped Mtg.-Backed Security,
Series 1996-C1, Cl. X-2, 8.649%, 12/25/20(2)(5) 18,624,900 646,051
-------------------------------------------------------------------------------------------------------------------------
FDIC Trust, Gtd. Real Estate Mtg. Investment Conduit
Pass-Through Certificates, Series 1994-C1:
Cl. 2-D, 8.70%, 9/25/25(5) 1,000,000 1,053,438
Cl. 2-E, 8.70%, 9/25/25(5) 1,000,000 1,049,063
-------------------------------------------------------------------------------------------------------------------------
Morgan Stanley Capital I, Inc., Commercial Mtg.
Pass-Through Certificates, Series 1996-C1:
Cl. D-1, 7.51%, 2/15/28(4)(5) 1,000,000 983,125
Cl. E, 7.51%, 2/15/28(4)(6) 1,100,000 893,750
-------------------------------------------------------------------------------------------------------------------------
NationsCommercial Corp., NB Commercial Mtg.
Pass-Through Certificates, Series-DMC, Cl. B, 8.562%, 8/12/11(5) 3,000,000 3,055,781
-------------------------------------------------------------------------------------------------------------------------
Potomac Gurnee Financial Corp., Commercial Mtg.
Pass-Through Certificates, Cl. D, 7.683%, 12/21/26 1,500,000 1,500,469
-------------------------------------------------------------------------------------------------------------------------
Resolution Trust Corp., Commercial Mtg. Pass-Through Certificates:
Series 1993-C1, Cl. B, 8.75%, 5/25/24 700,000 712,141
Series 1994-C1, Cl. C, 8%, 6/25/26 1,500,000 1,542,422
Series 1995-C1, Cl. D, 6.90%, 2/25/27 2,500,000 2,356,055
-------------------------------------------------------------------------------------------------------------------------
Salomon Brothers Mortgage Securities VII,
Series 1996-C1, Cl. E, 9.18%, 1/20/06 700,000 633,500
-------------------------------------------------------------------------------------------------------------------------
Structured Asset Securities Corp., Multiclass
Pass-Through Certificates, Series 1996-C3, Cl. D, 8.02%, 6/1/30(5) 2,500,000 2,459,375
------------
20,392,586
- --------------------------------------------------------------------------------------------------------------------------------
MANUFACTURED HOUSING--0.1%
Green Tree Financial Corp., Series 1994-6, Cl. A3, 7.70%, 1/15/20 250,000 253,905
- --------------------------------------------------------------------------------------------------------------------------------
MULTI-FAMILY--1.1%
Mortgage Capital Funding, Inc., Multifamily Mtg. Pass-Through Certificates,
Series 1996-MC1, Cl. G, 7.15%, 6/15/06(5) 2,250,000 1,823,906
-------------------------------------------------------------------------------------------------------------------------
Resolution Trust Corp., Commercial Mtg. Pass-Through Certificates:
Series 1991-M5, Cl. A, 9%, 3/25/17 589,996 607,973
Series 1991-M6, Cl. B4, 7.012%, 6/25/21(4) 63,535 62,612
------------
2,494,491
- --------------------------------------------------------------------------------------------------------------------------------
OTHER--1.1%
GE Capital Mortgage Services, Inc., Series 1994-14, Cl. A1, 6.50%, 4/25/24 99,059 98,749
-------------------------------------------------------------------------------------------------------------------------
JHM Mtg. Acceptance Corp., Collateralized Mtg.
Obligation Bonds, Series E, Cl. 5, 8.96%, 4/1/19 1,633,748 1,718,491
-------------------------------------------------------------------------------------------------------------------------
Nomura Asset Securities Corp.,
Series 1994-MD1, Cl. B2, 8.421%, 3/15/18(4)(6) 600,000 526,406
-------------------------------------------------------------------------------------------------------------------------
Salomon Brothers Mortgage Securities VI:
Interest-Only Stripped Mtg.-Backed Security,
Series 1987-3, Cl. B, 2.101%, 10/23/17(2) 132,052 42,752
Principal-Only Stripped Mtg.-Backed Security,
Series 1987-3, Cl. A, Zero Coupon, 8.903%, 10/23/17(7) 195,114 136,153
-----------
2,522,551
</TABLE>
8 Oppenheimer Bond Fund
<PAGE> 9
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
RESIDENTIAL--0.9%
Residential Funding Corp., Mtg. Pass-Through Certificates,
Series 1993-S10, Cl. A9, 8.50%, 2/25/23 $638,879 $ 658,244
-------------------------------------------------------------------------------------------------------------------------
Ryland Mortgage Securities Corp. III, Sub. Bonds,
Series 1992-A, Cl. 1A, 8.285%, 3/29/30(4) 378,157 378,040
-------------------------------------------------------------------------------------------------------------------------
Salomon Brothers Mortgage Securities VII,
Series 1996-B, Cl. 1, 7.136%, 4/25/26 1,988,219 1,190,447
------------
2,226,731
------------
Total Mortgage-Backed Obligations (Cost $88,548,291) 89,360,108
================================================================================================================================
U.S. GOVERNMENT OBLIGATIONS--10.4%
- --------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds:
10.375%, 11/15/09 1,000,000 1,235,938
11.625%, 11/15/04 4,375,000 5,773,635
12.75%, 11/15/10 1,000,000 1,415,938
8.75%, 5/15/20 4,273,000 5,257,127
8.875%, 8/15/17(8) 7,500,000 9,260,160
STRIPS, Zero Coupon, 6.855%, 8/15/22(9) 7,400,000 1,304,775
-------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Nts., 5.875%, 4/30/98 500,000 499,688
------------
Total U.S. Government Obligations (Cost $24,545,165) 24,747,261
================================================================================================================================
FOREIGN GOVERNMENT OBLIGATIONS--0.4%
- --------------------------------------------------------------------------------------------------------------------------------
International Bank for Reconstruction & Development Bonds,
12.50%, 7/25/97 NZD 800,000 579,713
New Zealand (Government of) Bonds, 10%, 7/15/97 NZD 390,000 279,152
-----------
Total Foreign Government Obligations (Cost $770,253) 858,865
================================================================================================================================
CORPORATE BONDS AND NOTES--52.1%
- --------------------------------------------------------------------------------------------------------------------------------
BASIC INDUSTRY--4.1%
- --------------------------------------------------------------------------------------------------------------------------------
CHEMICALS--1.0%
Burmah Castrol plc, 7% Gtd. Medium-Term Nts., 12/15/97 500,000 505,375
-------------------------------------------------------------------------------------------------------------------------
FMC Corp., 8.75% Sr. Nts., 4/1/99 250,000 261,030
-------------------------------------------------------------------------------------------------------------------------
Quantum Chemical Corp., 10.375% First Mtg. Nts., 6/1/03 900,000 978,153
-------------------------------------------------------------------------------------------------------------------------
Rohm & Haas Co., 9.50% Debs., 4/1/21 500,000 566,905
------------
2,311,463
- --------------------------------------------------------------------------------------------------------------------------------
METALS/MINING--2.1%
AMAX, Inc., 9.875% Nts., 6/13/01 1,000,000 1,115,907
-------------------------------------------------------------------------------------------------------------------------
Newmont Mining Corp., 8.625% Nts., 4/1/02 1,000,000 1,077,813
-------------------------------------------------------------------------------------------------------------------------
Royal Oak Mines, Inc., 11% Sr. Sub. Nts., 8/15/06 1,000,000 1,020,000
-------------------------------------------------------------------------------------------------------------------------
Teck Corp., 8.70% Debs., 5/1/02 1,500,000 1,617,838
------------
4,831,558
- --------------------------------------------------------------------------------------------------------------------------------
PAPER--0.7%
Georgia-Pacific Corp., 9.85% Credit Sensitive Nts., 6/15/97 300,000 305,263
-------------------------------------------------------------------------------------------------------------------------
Repap New Brunswick, Inc., 10.625% Second Priority Sr. Sec. Nts., 4/15/05 450,000 472,500
-------------------------------------------------------------------------------------------------------------------------
Repap Wisconsin, Inc., 9.25% First Priority Sr. Sec. Nts., 2/1/02 500,000 508,750
-------------------------------------------------------------------------------------------------------------------------
Scotia Pacific Holding Co., 7.95% Timber Collateralized Nts., 7/20/15 436,532 437,939
------------
1,724,452
- --------------------------------------------------------------------------------------------------------------------------------
STEEL--0.3%
AK Steel Corp., 9.125% Sr. Nts., 12/15/06(6) 650,000 667,875
</TABLE>
9 Oppenheimer Bond Fund
<PAGE> 10
STATEMENT OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CONSUMER RELATED--4.3%
- --------------------------------------------------------------------------------------------------------------------------------
CONSUMER PRODUCTS--0.6%
TAG Heuer International SA, 12% Sr. Sub. Nts., 12/15/05 $ 370,000 $ 427,350
-------------------------------------------------------------------------------------------------------------------------
Toro Co. (The), 11% Debs., 8/1/17 1,000,000 1,063,995
------------
1,491,345
- --------------------------------------------------------------------------------------------------------------------------------
FOOD/BEVERAGES/TOBACCO--0.4%
B.A.T. Capital Corp., 6.66% Medium-Term Nts., 3/22/00(6) 250,000 249,665
-------------------------------------------------------------------------------------------------------------------------
ConAgra, Inc.:
7.40% Sub. Nts., 9/15/04 250,000 254,148
9.75% Sr. Nts., 11/1/97 500,000 515,370
------------
1,019,183
- --------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE--1.3%
Grace (W.R.) & Co., 7.25% Medium-Term Nts., 7/15/97 2,000,000 2,015,042
-------------------------------------------------------------------------------------------------------------------------
HEALTHSOUTH Corp., 9.50% Sr. Sub. Nts., 4/1/01 500,000 532,500
-------------------------------------------------------------------------------------------------------------------------
Imcera Group, Inc., 6% Nts., 10/15/03 500,000 477,108
------------
3,024,650
- --------------------------------------------------------------------------------------------------------------------------------
HOTEL/GAMING--0.6%
HMC Acquisition Properties, Inc., 9% Sr. Nts., Series B, 12/15/07 800,000 816,000
-------------------------------------------------------------------------------------------------------------------------
Majestic Star Casino LLC (The), 12.75% Sr. Sec. Nts., 5/15/03 195,000 210,600
-------------------------------------------------------------------------------------------------------------------------
Mohegan Tribal Gaming Authority, 13.50% Sr. Sec. Nts., Series B, 11/15/02 210,000 278,250
-------------------------------------------------------------------------------------------------------------------------
Trump Atlantic City Associates/Trump Atlantic City Funding, Inc.,
11.25% First Mtg. Nts., 5/1/06 95,000 94,525
------------
1,399,375
- --------------------------------------------------------------------------------------------------------------------------------
RESTAURANTS--0.8%
Ameriking, Inc., 10.75% Sr. Nts., 12/1/06 160,000 166,400
-------------------------------------------------------------------------------------------------------------------------
Foodmaker, Inc.:
9.25% Sr. Nts., 3/1/99 1,000,000 1,020,000
9.75% Sr. Sub. Nts., 6/1/02 750,000 766,875
------------
1,953,275
- --------------------------------------------------------------------------------------------------------------------------------
TEXTILE/APPAREL--0.6%
Clark-Schwebel, Inc., 10.50% Sr. Nts., 4/15/06 650,000 695,500
-------------------------------------------------------------------------------------------------------------------------
Fruit of the Loom, Inc., 7% Debs., 3/15/11 500,000 465,622
-------------------------------------------------------------------------------------------------------------------------
William Carter Co., 10.375% Sr. Sub. Nts., 12/1/06(6) 200,000 208,000
------------
1,369,122
- --------------------------------------------------------------------------------------------------------------------------------
ENERGY--5.1%
- --------------------------------------------------------------------------------------------------------------------------------
Coastal Corp., 8.75% Sr. Nts., 5/15/99 325,000 340,842
-------------------------------------------------------------------------------------------------------------------------
Eastern Energy Ltd., 6.75% Nts., 12/1/06(5) 2,000,000 1,950,000
-------------------------------------------------------------------------------------------------------------------------
J. Ray McDermott SA, 9.375% Sr. Sub. Bonds, 7/15/06 850,000 894,625
-------------------------------------------------------------------------------------------------------------------------
Mariner Energy, Inc., 10.50% Sr. Sub. Nts., 8/1/06(6) 500,000 532,500
-------------------------------------------------------------------------------------------------------------------------
McDermott, Inc., 9.375% Nts., 3/15/02 100,000 105,351
-------------------------------------------------------------------------------------------------------------------------
Mesa Operating Co.:
0%/11.625% Gtd. Sr. Sub. Disc. Nts., 7/1/06(10) 400,000 278,000
10.625% Gtd. Sr. Sub. Nts., 7/1/06 740,000 804,750
-------------------------------------------------------------------------------------------------------------------------
NorAm Energy Corp., 9.875% Nts., 4/15/97 505,000 510,554
-------------------------------------------------------------------------------------------------------------------------
Occidental Petroleum Corp., 11.125% Sr. Debs., 6/1/19 2,000,000 2,307,678
-------------------------------------------------------------------------------------------------------------------------
Petroleum Heat & Power Co., Inc., 9.375% Sub. Debs., 2/1/06 750,000 731,250
-------------------------------------------------------------------------------------------------------------------------
Phillips Petroleum Co., 7.53% Pass-Through Certificates,
Series 1994-A1, 9/27/98 366,634 370,844
</TABLE>
10 Oppenheimer Bond Fund
<PAGE> 11
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ENERGY
(CONTINUED)
Southwest Gas Corp., 9.75% Debs., Series F, 6/15/02 $ 275,000 $ 306,354
-------------------------------------------------------------------------------------------------------------------------
TransCanada PipeLines Ltd., 9.875% Debs., 1/1/21 1,500,000 1,881,630
-------------------------------------------------------------------------------------------------------------------------
TransTexas Gas Corp., 11.50% Sr. Sec. Gtd. Nts., 6/15/02 1,000,000 1,086,250
------------
12,100,628
- --------------------------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES--11.9%
- --------------------------------------------------------------------------------------------------------------------------------
BANKS & THRIFTS--2.0%
BankAmerica Institute, 8.07% Gtd. Bonds, Series A, 12/31/26(5) 1,000,000 1,012,300
-------------------------------------------------------------------------------------------------------------------------
Banque Nationale de Paris, 9.875% Debs., 5/25/98 205,000 213,341
-------------------------------------------------------------------------------------------------------------------------
Chase Manhattan Corp. (New), 6.625% Sr. Nts., 1/15/98 25,000 25,152
-------------------------------------------------------------------------------------------------------------------------
Citicorp Capital Trust I, 7.933% Gtd. Bonds, 2/15/27 1,000,000 1,013,100
-------------------------------------------------------------------------------------------------------------------------
First Fidelity Bancorporation, 8.50% Sub. Capital Nts., 4/1/98 325,000 333,440
-------------------------------------------------------------------------------------------------------------------------
First Nationwide Escrow Corp., 10.625% Sr. Sub. Nts., 10/1/03(6) 500,000 542,500
-------------------------------------------------------------------------------------------------------------------------
First Nationwide Holdings, Inc., 9.125% Sr. Sub. Nts., 1/15/03 500,000 507,500
-------------------------------------------------------------------------------------------------------------------------
National Westminster Bank plc, 9.375% Gtd. Capital Nts., 11/15/03 70,000 79,666
-------------------------------------------------------------------------------------------------------------------------
Royal Bank of Scotland Group (The) plc,
10.125% Sub. Gtd. Capital Nts., 3/1/04 500,000 583,602
-------------------------------------------------------------------------------------------------------------------------
Suntrust Banks, Inc., 8.875% Debs., 2/1/98 500,000 514,460
------------
4,825,061
- --------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL--7.6%
American Car Line Co., 8.25% Equipment Trust Certificates,
Series 1993-A, 4/15/08 228,000 233,292
-------------------------------------------------------------------------------------------------------------------------
American General Finance Corp., 8.50% Sr. Nts., 8/15/98 300,000 311,086
-------------------------------------------------------------------------------------------------------------------------
Associates Corp. of North America, 7.40% Medium-Term Nts., 7/7/99 300,000 308,011
-------------------------------------------------------------------------------------------------------------------------
Beneficial Corp., 12.875% Debs., 8/1/13 20,000 22,845
-------------------------------------------------------------------------------------------------------------------------
BHP Finance (USA) Ltd., 8.50% Gtd. Debs., 12/1/12 1,500,000 1,684,246
-------------------------------------------------------------------------------------------------------------------------
Enterprise Rent-A-Car USA Finance Co., 7.875% Nts., 3/15/98(6) 1,500,000 1,529,736
-------------------------------------------------------------------------------------------------------------------------
Ford Motor Credit Co.:
6.75% Nts., 8/15/08 1,000,000 967,526
9.90% Medium-Term Nts., 11/6/97 2,000,000 2,000,674
-------------------------------------------------------------------------------------------------------------------------
Golden West Financial Corp., 8.625% Sub. Nts., 8/30/98 325,000 337,189
-------------------------------------------------------------------------------------------------------------------------
Household Finance Corp. Ltd., 6% Gtd. Sr. Nts., 6/30/98 250,000 248,845
-------------------------------------------------------------------------------------------------------------------------
Leucadia National Corp., 7.75% Sr. Nts., 8/15/13 2,000,000 1,909,082
-------------------------------------------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc., 6.875% Nts., 3/1/03 750,000 750,541
-------------------------------------------------------------------------------------------------------------------------
Midland American Capital Corp., 12.75% Gtd. Nts., 11/15/03 205,000 226,785
-------------------------------------------------------------------------------------------------------------------------
NationsBank Corp., 10.20% Sub. Nts., 7/15/15 1,300,000 1,659,139
-------------------------------------------------------------------------------------------------------------------------
Penske Truck Leasing Co. LP, 7.75% Sr. Nts., 5/15/99 1,825,000 1,886,533
-------------------------------------------------------------------------------------------------------------------------
Ryder System, Inc., 8.75% Debs., Series J, 3/15/17 1,600,000 1,644,114
-------------------------------------------------------------------------------------------------------------------------
Source One Mortgage Services Corp., 9% Debs., 6/1/12 1,250,000 1,318,355
-------------------------------------------------------------------------------------------------------------------------
TransAmerica Finance Corp., 7.42% Medium-Term Nts., 2/9/98 500,000 507,617
-------------------------------------------------------------------------------------------------------------------------
U.S. Leasing International, 7% Nts., 11/1/97 500,000 504,421
------------
18,050,037
- --------------------------------------------------------------------------------------------------------------------------------
INSURANCE--2.3%
Aetna Services, Inc., 8% Debs., 1/15/17 1,000,000 1,013,727
-------------------------------------------------------------------------------------------------------------------------
Capital Holding Corp., 8.75% Debs., 1/15/17 1,200,000 1,251,593
-------------------------------------------------------------------------------------------------------------------------
Torchmark Corp., 7.875% Nts., 5/15/23 3,000,000 3,014,277
-------------------------------------------------------------------------------------------------------------------------
Veritas Holdings, Inc., 9.625% Sr. Nts., 12/15/03(6) 200,000 203,000
-----------
5,482,597
</TABLE>
11 Oppenheimer Bond Fund
<PAGE> 12
STATEMENT OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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 $ 1,215,000
- ---------------------------------------------------------------------------------------------------------------------------------
MANUFACTURING--5.2%
- ---------------------------------------------------------------------------------------------------------------------------------
AEROSPACE/ELECTRONICS/
COMPUTERS--2.5%
Boeing Co., 7.50% Debs., 8/15/42 2,000,000 2,052,482
--------------------------------------------------------------------------------------------------------------------------
British Aerospace plc, 8% Debs., 5/27/97 300,000 302,437
--------------------------------------------------------------------------------------------------------------------------
Communications & Power Industries, Inc., 12% Sr. Sub. Nts., Series B, 8/1/05 500,000 558,750
--------------------------------------------------------------------------------------------------------------------------
General Electric Capital Corp., 8.75% Debs., 5/21/07(8) 1,000,000 1,135,125
--------------------------------------------------------------------------------------------------------------------------
Rolls-Royce Capital, Inc., 7.125% Gtd. Nts., 7/29/03 1,000,000 1,015,000
--------------------------------------------------------------------------------------------------------------------------
Tracor, Inc., 10.875% Sr. Sub. Nts., 8/15/01 500,000 533,750
--------------------------------------------------------------------------------------------------------------------------
Unisys Corp., 11.75% Sr. Nts., 10/15/04 300,000 321,375
-------------
5,918,919
- ---------------------------------------------------------------------------------------------------------------------------------
AUTOMOTIVE--1.0%
Chrysler Corp., 10.95% Debs., 8/1/17 200,000 215,352
--------------------------------------------------------------------------------------------------------------------------
Ford Motor Co., 8.875% Debs., 11/15/22 2,000,000 2,188,164
-------------
2,403,516
- ---------------------------------------------------------------------------------------------------------------------------------
CAPITAL GOODS--1.7%
Caterpillar, Inc., 9.75% Debs., 6/1/19 1,750,000 1,914,521
--------------------------------------------------------------------------------------------------------------------------
Thomas & Betts Corp., 8.25% Sr. Nts., 1/15/04 1,000,000 1,070,573
--------------------------------------------------------------------------------------------------------------------------
Westinghouse Electric Corp., 8.375% Nts., 6/15/02 1,000,000 1,029,141
-------------
4,014,235
- ---------------------------------------------------------------------------------------------------------------------------------
MEDIA--3.8%
- ---------------------------------------------------------------------------------------------------------------------------------
BROADCASTING--1.3%
American Radio Systems Corp., 9% Sr. Sub. Nts., 2/1/06 700,000 693,000
--------------------------------------------------------------------------------------------------------------------------
Argyle Television, Inc., 9.75% Sr. Sub. Nts., 11/1/05 750,000 761,250
--------------------------------------------------------------------------------------------------------------------------
Paxson Communications Corp., 11.625% Sr. Sub. Nts., 10/1/02 750,000 787,500
--------------------------------------------------------------------------------------------------------------------------
Sinclair Broadcast Group, Inc., 10% Sr. Sub. Nts., 9/30/05 200,000 204,750
--------------------------------------------------------------------------------------------------------------------------
Young Broadcasting, Inc., 9% Sr. Sub. Nts., Series B, 1/15/06 500,000 488,750
-------------
2,935,250
- ---------------------------------------------------------------------------------------------------------------------------------
CABLE TELEVISION--1.5%
Bell Cablemedia plc, 0%/11.875% Sr. Disc. Nts., 9/15/05(10) 700,000 568,750
--------------------------------------------------------------------------------------------------------------------------
Diamond Cable Communications plc, 0%/11.75% Sr. Disc. Nts., 12/15/05(10) 550,000 393,938
--------------------------------------------------------------------------------------------------------------------------
EchoStar Communications Corp., 0%/12.875% Sr. Disc. Nts., 6/1/04(10) 200,000 166,500
--------------------------------------------------------------------------------------------------------------------------
International CableTel, Inc., 0%/11.50% Sr. Deferred Coupon Nts.,
Series B, 2/1/06(10) 500,000 342,500
--------------------------------------------------------------------------------------------------------------------------
TeleWest plc, 0%/11% Sr. Disc. Debs., 10/1/07(10) 1,400,000 980,000
--------------------------------------------------------------------------------------------------------------------------
TKR Cable I, Inc., 10.50% Sr. Debs., 10/30/07 1,000,000 1,082,025
------------
3,533,713
- ---------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED MEDIA--0.8%
Heritage Media Corp., 8.75% Sr. Sub. Nts., 2/15/06 500,000 482,500
--------------------------------------------------------------------------------------------------------------------------
Panamsat LP/Panamsat Capital Corp.,
0%/11.375% Sr. Sub. Disc. Nts., 8/1/03(10) 1,500,000 1,398,750
-------------
1,881,250
- ---------------------------------------------------------------------------------------------------------------------------------
ENTERTAINMENT/FILM--0.1%
Blockbuster Entertainment Corp., 6.625% Sr. Nts., 2/15/98 250,000 250,841
- ---------------------------------------------------------------------------------------------------------------------------------
PUBLISHING/PRINTING--0.1%
Reed Publishing (USA), Inc., 7.24% Gtd. Medium-Term Nts., 2/10/97 250,000 250,360
</TABLE>
12 Oppenheimer Bond Fund
<PAGE> 13
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT (1) SEE NOTE 1
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OTHER--1.1%
- ---------------------------------------------------------------------------------------------------------------------------------
SERVICES--1.1%
Archer Daniels Midland Co., 7.125% Debs., 3/1/13 $ 750,000 $ 747,339
--------------------------------------------------------------------------------------------------------------------------
Iron Mountain, Inc., 10.125% Sr. Sub. Nts., 10/1/06 250,000 266,250
--------------------------------------------------------------------------------------------------------------------------
Johnson Controls, Inc., 7.70% Debs., 3/1/15 500,000 526,784
--------------------------------------------------------------------------------------------------------------------------
Laidlaw, Inc., 7.70% Debs., 8/15/02 500,000 519,856
--------------------------------------------------------------------------------------------------------------------------
Philip Morris Cos., 8.25% Debs., 10/15/03 500,000 531,468
-------------
2,591,697
- ---------------------------------------------------------------------------------------------------------------------------------
RETAIL--1.8%
- ---------------------------------------------------------------------------------------------------------------------------------
DEPARTMENT STORES--0.3%
Sears Canada, Inc., 11.70% Debs., 7/10/00 (CAD) 500,000 431,200
--------------------------------------------------------------------------------------------------------------------------
Sears Roebuck & Co., 8.39% Medium-Term Nts., 3/23/99 300,000 313,408
------------
744,608
- ---------------------------------------------------------------------------------------------------------------------------------
DRUG STORES--0.2%
Hook-SupeRx, Inc., 10.125% Sr. Nts., 6/1/02 400,000 424,853
- ---------------------------------------------------------------------------------------------------------------------------------
MISCELLANEOUS--0.1%
First Brands Corp., 9.125% Sr. Sub. Nts., 4/1/99 265,000 267,140
- ---------------------------------------------------------------------------------------------------------------------------------
SPECIALTY RETAILING--0.3%
May Department Stores Cos.:
10.625% Debs., 11/1/10 405,000 525,110
9.875% Debs., 6/1/17 250,000 264,264
------------
789,374
- ---------------------------------------------------------------------------------------------------------------------------------
SUPERMARKETS--0.9%
Grand Union Co., 12% Sr. Nts., 9/1/04 700,000 745,500
--------------------------------------------------------------------------------------------------------------------------
Kroger Co., 8.50% Sr. Sec. Debs., 6/15/03 1,000,000 1,028,092
--------------------------------------------------------------------------------------------------------------------------
Ralph's Grocery Co., 10.45% Sr. Nts., 6/15/04 300,000 320,250
------------
2,093,842
- ---------------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--1.9%
- ---------------------------------------------------------------------------------------------------------------------------------
AIR TRANSPORTATION--0.7%
Atlas Air, Inc., 12.25% Pass-Through Certificates, 12/1/02 1,000,000 1,115,000
--------------------------------------------------------------------------------------------------------------------------
Southwest Airlines Co., 9.25% Debs., 2/15/98 500,000 516,566
------------
1,631,566
- ---------------------------------------------------------------------------------------------------------------------------------
RAILROADS--1.2%
Canadian Pacific Ltd., 9.45% Debs., 8/1/21 1,000,000 1,196,680
--------------------------------------------------------------------------------------------------------------------------
Kansas City Southern Industries, Inc., 6.625% Nts., 3/1/05 750,000 729,815
--------------------------------------------------------------------------------------------------------------------------
Transtar Holdings LP/Transtar Capital Corp.,
0%/13.375% Sr. Disc. Nts., Series B, 12/15/03(10) 1,100,000 885,500
--------------------------------------------------------------------------------------------------------------------------
Union Pacific Corp., 9.65% Medium-Term Nts., 4/17/00 100,000 109,196
-------------
2,921,191
- ---------------------------------------------------------------------------------------------------------------------------------
UTILITIES--12.4%
- ---------------------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES--4.1%
CalEnergy, Inc., 9.50% Sr. Nts., 9/15/06(6) 650,000 674,375
--------------------------------------------------------------------------------------------------------------------------
California Energy, Inc., 0%/10.25% Sr. Disc. Nts., 1/15/04(10) 750,000 796,875
--------------------------------------------------------------------------------------------------------------------------
Centragas Natural Gas Transmission System, 10.65% Sr. Sec. Bonds, 12/1/10(6) 2,413,170 2,714,817
--------------------------------------------------------------------------------------------------------------------------
Consumers Power Co., 8.75% Mtg. Nts., 2/15/98 250,000 255,839
--------------------------------------------------------------------------------------------------------------------------
First PV Funding Corp., 10.15% Lease Obligation Bonds, Series 1986B, 1/15/16 200,000 213,250
--------------------------------------------------------------------------------------------------------------------------
Florida Gas Transmission Environmental Corp., 7.75% Sr. Nts., 11/1/97(6) 500,000 506,813
--------------------------------------------------------------------------------------------------------------------------
Laclede Gas Co., 8.50% First Mtg. Bonds, 11/15/04 500,000 544,416
--------------------------------------------------------------------------------------------------------------------------
MidAmerican Energy Co., 6.25% Mtg. Nts., 2/1/98 500,000 501,426
</TABLE>
13 Oppenheimer Bond Fund
<PAGE> 14
STATEMENT OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ELECTRIC UTILITIES
(CONTINUED)
National Fuel Gas Co., 7.75% Debs., 2/1/04 $ 500,000 $ 520,030
--------------------------------------------------------------------------------------------------------------------------
Public Service Co. of Colorado, 8.75% First Mtg. Bonds, 3/1/22 250,000 270,247
--------------------------------------------------------------------------------------------------------------------------
South Carolina Electric & Gas Co., 9% Mtg. Bonds, 7/15/06 500,000 564,941
--------------------------------------------------------------------------------------------------------------------------
Tenaga Nasional Berhad, 7.875% Nts., 6/15/04(6) 1,000,000 1,057,727
--------------------------------------------------------------------------------------------------------------------------
Texas Gas Transmission Corp., 8.625% Nts., 4/1/04 500,000 546,702
--------------------------------------------------------------------------------------------------------------------------
Union Gas Ltd., 13% Debs., 6/30/03 (CAD) 518,000 419,274
-------------
9,586,732
- ---------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS--8.3%
Allbritton Communications Co., 11.50% Sr. Sub. Debs., 8/15/04 675,000 715,500
--------------------------------------------------------------------------------------------------------------------------
American Communications Services, Inc.:
0%/12.75% Sr. Disc. Nts., 4/1/06(10) 500,000 278,750
0%/13% Sr. Disc. Nts., 11/1/05(10) 300,000 178,500
--------------------------------------------------------------------------------------------------------------------------
Brooks Fiber Properties, Inc., 0%/11.875% Sr. Disc. Nts., 11/1/06(6)(10) 1,200,000 771,000
--------------------------------------------------------------------------------------------------------------------------
Cellular Communications International, Inc.,
Zero Coupon Sr. Disc. Nts., 11.23%, 8/15/00(9) 2,150,000 1,499,625
--------------------------------------------------------------------------------------------------------------------------
Colt Telecom Group plc, Units (each unit consists of $1,000
principal amount of 0%/12% sr. disc. nts., 12/15/06 and one warrant
to purchase 7.8 ordinary shares)(10)(11) 300,000 181,500
--------------------------------------------------------------------------------------------------------------------------
GST Telecommunications, Inc., 0%/13.875% Cv. Sr. Sub. Disc. Nts.,
12/15/05(6)(10) 100,000 65,000
--------------------------------------------------------------------------------------------------------------------------
GST USA, Inc., 0%/13.875% Bonds, 12/15/05(10) 800,000 492,000
--------------------------------------------------------------------------------------------------------------------------
GTE Corp., 8.85% Debs., 3/1/98 300,000 309,069
--------------------------------------------------------------------------------------------------------------------------
IntelCom Group (USA), Inc.:
0%/12.50% Gtd. Sr. Disc. Nts., 5/1/06(10) 120,000 78,900
0%/13.50% Sr. Disc. Nts., 9/15/05(10) 475,000 339,625
--------------------------------------------------------------------------------------------------------------------------
Metrocall, Inc., 10.375% Sr. Sub. Nts., 10/1/07 150,000 128,250
--------------------------------------------------------------------------------------------------------------------------
MFS Communications Co., Inc.:
0%/8.875% Sr. Disc. Nts., 1/15/06(10) 500,000 370,625
0%/9.375% Sr. Disc. Nts., 1/15/04(10) 350,000 306,250
--------------------------------------------------------------------------------------------------------------------------
New York Telephone Co., 9.375% Debs., 7/15/31 2,500,000 2,830,775
--------------------------------------------------------------------------------------------------------------------------
Omnipoint Corp., 11.625% Sr. Nts., 8/15/06 1,150,000 1,201,750
--------------------------------------------------------------------------------------------------------------------------
ORBCOMM Global LP/ORBCOMM Capital Corp., 14% Sr. Nts., 8/15/04(6) 740,000 752,950
--------------------------------------------------------------------------------------------------------------------------
Pacific Bell, 8.50% Debs., 8/15/31 1,000,000 1,063,869
--------------------------------------------------------------------------------------------------------------------------
PriCellular Wireless Corp.:
0%/12.25% Sr. Sub. Disc. Nts., 10/1/03(10) 200,000 172,000
0%/14% Sr. Sub. Disc. Nts., 11/15/01(10) 1,050,000 1,026,375
10.75% Sr. Nts., 11/1/04(6) 125,000 130,313
--------------------------------------------------------------------------------------------------------------------------
Real Time Data, Inc., Units (each unit consists of $1,000 principal
amount of 0%/13.50% sub. disc. nts., 8/15/06 and one warrant
to purchase six ordinary shares)(5)(10)(11) 1,000,000 550,000
--------------------------------------------------------------------------------------------------------------------------
Southern New England Telephone Co., 8.70% Medium-Term Nts., 8/15/31 2,000,000 2,135,714
--------------------------------------------------------------------------------------------------------------------------
Sprint Spectrum LP/Sprint Spectrum Finance Corp.,
0%/12.50% Sr. Disc. Nts., 8/15/06(10) 200,000 135,500
--------------------------------------------------------------------------------------------------------------------------
Teleport Communications Group, Inc.:
0%/11.125% Sr. Disc. Nts., 7/1/07(10) 750,000 517,500
9.875% Sr. Nts., 7/1/06 700,000 752,500
--------------------------------------------------------------------------------------------------------------------------
United Telephone Co. (Pennsylvania), 7.375% First Mtg. Nts., Series Y, 12/1/02 750,000 767,709
</TABLE>
14 Oppenheimer Bond Fund
<PAGE> 15
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TELECOMMUNICATIONS
(CONTINUED)
USA Mobile Communications, Inc. II, 9.50% Sr. Nts., 2/1/04 $ 500,000 $ 477,500
-------------------------------------------------------------------------------------------------------------------------
Western Wireless Corp.:
10.50% Sr. Sub. Nts., 2/1/07(6) 250,000 262,188
10.50% Sr. Sub. Nts., 6/1/06 1,000,000 1,051,250
------------
19,542,487
-----------
Total Corporate Bonds and Notes (Cost $119,269,285) 123,247,195
<CAPTION>
SHARES
================================================================================================================================
<S> <C> <C>
COMMON STOCKS--0.0%
- --------------------------------------------------------------------------------------------------------------------------------
MFS Communications Co., Inc. (Cost $3,595)(12) 73 3,978
================================================================================================================================
PREFERRED STOCKS--1.6%
- --------------------------------------------------------------------------------------------------------------------------------
Allstate Financing I, 7.95% Gtd. Quarterly Income Preferred Securities, Series A 80,000 2,000,000
-------------------------------------------------------------------------------------------------------------------------
BankAmerica Corp., 8.375%, Series K 20,300 512,575
-------------------------------------------------------------------------------------------------------------------------
CRIIMI MAE, Inc., 10.875% Cum. Cv. Preferred Stock, Series B 23,000 667,000
-------------------------------------------------------------------------------------------------------------------------
Fresenius Medical Care Trust, 9% Preferred Securities 605,000 617,100
------------
Total Preferred Stocks (Cost $3,710,275) 3,796,675
================================================================================================================================
OTHER SECURITIES--0.2%
- --------------------------------------------------------------------------------------------------------------------------------
MFS Communications Co., Inc., 8% Cv. Depositary Shares
each Representing 1/100 Share of Dividend Enhanced
Convertible Stock (Cost $348,310) 5,000 456,250
<CAPTION>
UNITS
================================================================================================================================
<S> <C> <C>
RIGHTS, WARRANTS AND CERTIFICATES--0.0%
- --------------------------------------------------------------------------------------------------------------------------------
American Communications Services, Inc. Wts., Exp. 11/05 300 27,000
-------------------------------------------------------------------------------------------------------------------------
Cellular Communications International, Inc. Wts., Exp. 8/03(5) 500 10,000
-------------------------------------------------------------------------------------------------------------------------
IntelCom Group, Inc. Wts., Exp. 9/05 1,980 17,820
-----------
Total Rights, Warrants and Certificates (Cost $0) 54,820
</TABLE>
15 Oppenheimer Bond Fund
<PAGE> 16
STATEMENT OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
STRIKE MARKET VALUE
DATE PRICE CONTRACTS SEE NOTE 1
===============================================================================================================================
<S> <C> <C> <C> <C>
CALL OPTIONS PURCHASED--0.0%
- -------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Nts. 10-yr Futures
Call Opt. (Cost $28,750) 2/97 $110 20 $ 13,437
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $237,223,924) 102.5% 242,538,589
- -------------------------------------------------------------------------------------------------------------------------------
LIABILITIES IN EXCESS OF OTHER ASSETS (2.5) (5,876,801)
------------- ------------
NET ASSETS 100.0% $236,661,788
============= ============
</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. 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.
3. When-issued security to be delivered and settled after December 31,
1996.
4. Represents the current interest rate for a variable rate security.
5. Identifies issues considered to be illiquid--See Note 7 of Notes to
Financial Statements.
6. Represents securities sold under Rule 144A, which are exempt from
registration under the Securities Act of 1933, as amended. These
securities have been determined to be liquid under guidelines
established by the Board of Trustees. These securities amount to
$12,288,615 or 5.19% of the Fund's net assets, at December 31, 1996.
7. 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.
8. Securities with an aggregate market value of $1,431,844 are held in
collateralized accounts to cover initial margin requirements on open
futures sales contracts. See Note 5 of Notes to Financial Statements.
9. For zero coupon bonds, the interest rate shown is the effective yield
on the date of purchase.
10. Denotes a step bond: a zero coupon bond that converts to a fixed
rate of interest at a designated future date.
11. 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.
12. Non-income producing security.
See accompanying Notes to Financial Statements.
16 Oppenheimer Bond Fund
<PAGE> 17
STATEMENT OF ASSETS AND LIABILITIES December 31, 1996
<TABLE>
================================================================================================================================
<S> <C>
ASSETS
Investments, at value (cost $237,223,924)--see accompanying statement $242,538,589
-------------------------------------------------------------------------------------------------------------------------
Cash 1,407,908
-------------------------------------------------------------------------------------------------------------------------
Receivables:
Interest and principal paydowns 3,464,975
Shares of beneficial interest sold 969,510
-------------------------------------------------------------------------------------------------------------------------
Other 12,849
------------
Total assets 248,393,831
================================================================================================================================
LIABILITIES
Payables and other liabilities:
Investments purchased on a when-issued basis--Note 1 10,082,292
Dividends 687,837
Shares of beneficial interest redeemed 647,168
Distribution and service plan fees 143,057
Daily variation on futures contracts--Note 5 30,245
Other 141,444
------------
Total liabilities 11,732,043
================================================================================================================================
NET ASSETS $236,661,788
============
================================================================================================================================
COMPOSITION OF
NET ASSETS
Paid-in capital $235,499,946
-------------------------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign currency transactions (4,146,188)
-------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments and translation of assets and
liabilities denominated in foreign currencies 5,308,030
------------
Net assets $236,661,788
============
================================================================================================================================
NET ASSET VALUE
PER SHARE
Class A Shares:
Net asset value and redemption price per share (based on net assets of
$193,514,612 and 18,089,841 shares of beneficial interest outstanding) $10.70
Maximum offering price per share (net asset value plus sales charge of 4.75% of offering price) $11.23
-------------------------------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price and offering price per share (based on net assets of
$38,825,664 and 3,630,498 shares of beneficial interest outstanding) $10.69
-------------------------------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price and offering price per share (based on net assets of
$4,321,512 and 403,745 shares of beneficial interest outstanding) $10.70
</TABLE>
See accompanying Notes to Financial Statements.
17 Oppenheimer Bond Fund
<PAGE> 18
STATEMENT OF OPERATIONS For the Year Ended December 31, 1996
<TABLE>
================================================================================================================================
<S> <C>
INVESTMENT INCOME
Interest (net of foreign withholding taxes of $2,455) $18,905,698
-------------------------------------------------------------------------------------------------------------------------
Dividends 99,649
------------
Total income 19,005,347
================================================================================================================================
EXPENSES
Management fees--Note 4 1,640,483
-------------------------------------------------------------------------------------------------------------------------
Distribution and service plan fees--Note 4:
Class A 439,791
Class B 380,746
Class C 34,043
-------------------------------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 4 376,140
-------------------------------------------------------------------------------------------------------------------------
Shareholder reports 185,565
-------------------------------------------------------------------------------------------------------------------------
Custodian fees and expenses 43,311
-------------------------------------------------------------------------------------------------------------------------
Legal and auditing fees 21,393
-------------------------------------------------------------------------------------------------------------------------
Registration and filing fees:
Class A 14,020
Class B 1,133
Class C 1,343
-------------------------------------------------------------------------------------------------------------------------
Trustees' fees and expenses 6,559
-------------------------------------------------------------------------------------------------------------------------
Other 29,822
------------
Total expenses 3,174,349
================================================================================================================================
NET INVESTMENT INCOME 15,830,998
================================================================================================================================
REALIZED AND
UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investments 880,924
Closing of futures contracts--Note 5 (740,870)
Closing of options written--Note 6 198,775
Foreign currency transactions (25,620)
-----------
Net realized gain 313,209
-------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on:
Investments (5,422,386)
Translation of assets and liabilities denominated in foreign currencies 96,970
-----------
Net change (5,325,416)
-----------
Net realized and unrealized loss (5,012,207)
================================================================================================================================
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $10,818,791
===========
</TABLE>
See accompanying Notes to Financial Statements.
18 Oppenheimer Bond Fund
<PAGE> 19
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995
================================================================================================================================
<S> <C> <C>
OPERATIONS
Net investment income $ 15,830,998 $ 8,346,267
-------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) 313,209 (300,777)
-------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation (5,325,416) 12,065,900
------------- -------------
Net increase in net assets resulting from operations 10,818,791 20,111,390
================================================================================================================================
DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS
Dividends from net investment income:
Class A (12,577,460) (7,564,945)
Class B (2,405,982) (751,223)
Class C (214,115) (29,746)
-------------------------------------------------------------------------------------------------------------------------
Tax return of capital distribution:
Class A (517,955) --
Class B (103,919) --
Class C (11,567) --
================================================================================================================================
BENEFICIAL INTEREST
TRANSACTIONS
Net increase in net assets resulting from beneficial
interest transactions--Note 2:
Class A 28,392,776 61,827,603
Class B 659,280 34,622,947
Class C 404,645 3,910,520
================================================================================================================================
NET ASSETS
Total increase 24,444,494 112,126,546
-------------------------------------------------------------------------------------------------------------------------
Beginning of period 212,217,294 100,090,748
------------- -------------
End of period (including undistributed net investment
income of $116,937 in 1995) $236,661,788 $212,217,294
============= =============
</TABLE>
See accompanying Notes to Financial Statements.
19 Oppenheimer Bond Fund
<PAGE> 20
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
1996 1995 1994 1993 1992
==================================================================================================================
<S> <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
- ------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .78 .69 .65 .69 .75
Net realized and unrealized
gain (loss) (.28) .96 (1.08) .40 (.05)
-------- -------- -------- -------- --------
Total income (loss) from
investment operations .50 1.65 (.43) 1.09 .70
- ------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment
income (.75) (.68) (.65) (.71) (.76)
Dividends in excess of net
investment income -- -- (.03) -- --
Tax return of capital (.03) -- -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions
to shareholders (.78) (.68) (.68) (.71) (.76)
- ------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.70 $10.98 $10.01 $11.12 $10.74
======== ======== ======== ======== ========
==================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(3) 4.87% 16.94% (3.87)% 10.30% 6.77%
==================================================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $193,515 $169,059 $ 96,640 $110,759 $106,290
- ------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $178,130 $116,940 $102,168 $111,702 $98,672
- ------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 7.35% 6.47% 6.25% 6.20% 7.00%
Expenses, before voluntary
reimbursement by the Manager 1.30% 1.27% 1.06% 1.06% 1.10%
Expenses, net of voluntary
reimbursement by the Manager N/A 1.26% N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 53.7% 175.4% 70.3% 110.1% 116.4%
</TABLE>
<TABLE>
<CAPTION>
CLASS B CLASS C
----------------------------------------------- ----------------------
YEAR ENDED
YEAR ENDED DECEMBER 31, DECEMBER 31,
1996 1995 1994 1993(2) 1996 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 .70 .63 .58 .40 .70 .28
Net realized and unrealized
gain (loss) (.29) .94 (1.08) .03 (.29) .10
-------- -------- -------- -------- -------- --------
Total income (loss) from
investment operations .41 1.57 (.50) .43 .41 .38
- --------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment
income (.67) (.60) (.57) (.42) (.67) (.28)
Dividends in excess of net
investment income -- -- (.03) -- -- --
Tax return of capital (.03) -- -- -- (.03) --
-------- -------- -------- -------- -------- --------
Total dividends and distributions
to shareholders (.70) (.60) (.60) (.42) (.70) (.28)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.69 $10.98 $10.01 $11.11 $10.70 $10.99
======== ======== ======== ======== ======== ========
==========================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(3) 3.99% 16.06% (4.53)% 3.91% 4.00% 3.76%
==========================================================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $38,826 $39,187 $3,451 $1,809 $4,322 $3,971
- --------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $38,068 $12,823 $2,747 $ 922 $3,404 $ 979
- --------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 6.59% 5.84% 5.53% 4.80%(4) 6.60% 6.32%(4)
Expenses, before voluntary
reimbursement by the Manager 2.05% 2.12% 1.78% 1.90%(4) 2.05% 2.25%(4)
Expenses, net of voluntary
reimbursement by the Manager N/A 2.08% N/A N/A N/A 1.96%(4)
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 53.7% 175.4% 70.3% 110.1% 53.7% 175.4%
</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. 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.
4. Annualized.
5. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at the
time of acquisition of one year or less are excluded from the calculation.
Purchases and sales of investment securities (excluding short-term securities)
for the period ended December 31, 1996 were $122,495,689 and $142,134,930,
respectively. For the year ended December 31, 1995, purchases and sales of
investment securities included mortgage "dollar-rolls."
See accompanying Notes to Financial Statements.
20 Oppenheimer Bond Fund
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS
===============================================================================
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 adviser 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 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. Forward foreign currency contracts are valued
based on the closing prices of the forward currency contract rates in the
London foreign exchange markets on a daily basis as provided by a
reliable bank or dealer. Options are valued based upon the last sale
price on the principal exchange on which the option is traded or, in the
absence of any transactions that day, the value is based upon the last
sale price on the prior trading date if it is within the spread between
the closing bid and asked prices. If the last sale price is outside the
spread, the closing bid is used.
------------------------------------------------------------------------
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, 1996, the Fund had
entered into outstanding when-issued or forward commitments of
$10,082,292.
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.
21 Oppenheimer Bond Fund
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS (Continued)
===============================================================================
1. SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED)
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, 1996, the Fund had available for federal income tax
purposes an unused capital loss carryover of approximately $11,491,000,
which expires between 1997 and 2004.
------------------------------------------------------------------------
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.
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.
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, 1996, the Fund adjusted the
classification of distributions to shareholders to reflect the
differences between financial statement amounts and distributions
determined in accordance with income tax regulations. Accordingly,
during the year ended December 31, 1996, amounts have been reclassified
to reflect an increase in paid-in capital of $446,989, a decrease in
undistributed net investment income of $116,937, and an increase in
accumulated net realized loss on investments of $330,052.
------------------------------------------------------------------------
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 revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
22 Oppenheimer Bond Fund
<PAGE> 23
================================================================================
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, 1996 YEAR ENDED DECEMBER 31, 1995(1)
---------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A:
Sold 1,955,093 $ 20,810,615 3,592,604 $ 37,958,201
Dividends reinvested 815,100 8,651,382 401,453 4,283,086
Issued in connection with the acquisition of:
Oppenheimer Strategic Investment Grade
Bond Fund--Note 8 -- -- 2,101,654 22,529,733
Quest Investment Quality Income
Fund--Note 8 -- -- 3,900,357 42,201,864
Connecticut Mutual Income Account--Note 8 3,020,216 31,863,280 -- --
Jefferson Pilot Investment Grade
Bond Fund--Note 8 1,801,334 19,273,967 -- --
Redeemed (4,901,741) (52,206,468) (4,249,502) (45,145,281)
------------- ------------- ------------- -------------
Net increase 2,690,002 $ 28,392,776 5,746,566 $ 61,827,603
============= ============= ============= =============
----------------------------------------------------------------------------------------------------------------------------
Class B:
Sold 946,117 $ 10,072,138 1,038,290 $ 11,014,073
Dividends reinvested 163,467 1,735,740 45,815 494,471
Issued in connection with the acquisition of:
Oppenheimer Strategic Investment Grade
Bond Fund--Note 8 -- -- 1,474,533 15,806,991
Quest Investment Quality Income
Fund--Note 8 -- -- 1,236,995 13,384,283
Connecticut Mutual Income Account--Note 8 8,156 86,045 -- --
Redeemed (1,057,712) (11,234,643) (569,823) (6,076,871)
------------- ------------- ------------- -------------
Net increase 60,028 $ 659,280 3,225,810 $ 34,622,947
============= ============= ============= =============
----------------------------------------------------------------------------------------------------------------------------
Class C:
Sold 279,925 $ 2,989,461 47,725 $ 516,952
Dividends reinvested 17,112 181,810 1,625 17,809
Issued in connection with the acquisition of:
Quest Investment Quality Income
Fund--Note 8 -- -- 362,821 3,929,348
Redeemed (254,743) (2,766,626) (50,720) (553,589)
------------- ------------- ------------- -------------
Net increase 42,294 $ 404,645 361,451 $ 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.
23 Oppenheimer Bond Fund
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS (Continued)
===============================================================================
3. UNREALIZED GAINS AND
LOSSES ON INVESTMENTS
At December 31, 1996, net unrealized appreciation on investments of
$5,314,665 was composed of gross appreciation of $7,867,829, and gross
depreciation of $2,553,164.
===============================================================================
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 state regulatory limit on Fund expenses.
For the year ended December 31, 1996, commissions (sales
charges paid by investors) on sales of Class A shares totaled $299,893,
of which $117,612 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 $308,922
and $24,281, of which $18,267 was paid to an affiliated broker/dealer
for Class B. During the year ended December 31, 1996, OFDI received
contingent deferred sales charges of $125,164 and $1,276, respectively,
upon redemption of Class B and Class C 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 year ended December 31, 1996, OFDI paid $176,747 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 and Class C shares, as
compensation for sales commissions paid from its own resources at the
time of sale and associated financing costs. 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 year ended
December 31, 1996, OFDI paid $5,806 to an affiliated broker/dealer as
compensation for Class B personal service and maintenance expenses and
retained $309,560 and $20,276, respectively, as compensation for Class B
and Class C sales commissions and service fee advances, as well as
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. At December 31, 1996, OFDI had incurred unreimbursed
expenses of $964,739 for Class B and $47,483 for Class C.
24 Oppenheimer Bond Fund
<PAGE> 25
===============================================================================
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.
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 December 31, 1996, the Fund had outstanding futures contracts to
purchase and sell debt securities as follows:
<TABLE>
<CAPTION>
UNREALIZED
EXPIRATION NUMBER OF VALUATION AS OF APPRECIATION
CONTRACTS TO PURCHASE DATE FUTURES CONTRACTS DEC. 31, 1996 (DEPRECIATION)
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Nts. 3/97 40 $4,263,750 $(20,000)
U.S. Treasury Nts. 3/97 40 4,365,000 (23,750)
--------
(43,750)
--------
CONTRACTS TO SELL
------------------------------------------------------------------------------------------------------------------
U.S. Treasury Nts. 3/97 40 $4,263,750 $ 36,875
--------
$ (6,875)
========
</TABLE>
25 Oppenheimer Bond Fund
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS (Continued)
===============================================================================
6. OPTION ACTIVITY
The Fund may buy and sell put and call options, or write put and covered
call options on portfolio securities in order to produce incremental
earnings or protect against changes in the value of portfolio
securities.
The Fund generally purchases put options or writes covered call
options to hedge against adverse movements in the value of portfolio
holdings. When an option is written, the Fund receives a premium and
becomes obligated to sell or purchase the underlying securities at a
fixed price, upon exercise of the option.
Options are valued daily based upon the last sale price on the
principal exchange on which the option is traded and unrealized
appreciation or depreciation is recorded. The Fund will realize a gain
or loss upon the expiration or closing of the option transaction. When
an option is exercised, the proceeds on sales for a written call option,
the purchase cost for a written put option, or the cost of the security
for a purchased put or call option is adjusted by the amount of premium
received or paid.
Securities designated to cover outstanding call options are
noted in the Statement of Investments where applicable. Shares subject
to call, expiration date, exercise price, premium received and market
value are detailed in a footnote to the Statement of Investments.
Options written are reported as a liability in the Statement of Assets
and Liabilities. Gains and losses are reported in the Statement of
Operations.
The risk in writing a call option is that the Fund gives up the
opportunity for profit if the market price of the security increases and
the option is exercised. The risk in writing a put option is that the
Fund may incur a loss if the market price of the security decreases and
the option is exercised. The risk in buying an option is that the Fund
pays a premium whether or not the option is exercised. The Fund also has
the additional risk of not being able to enter into a closing
transaction if a liquid secondary market does not exist.
Written option activity for the year ended December 31, 1996 was as
follows:
<TABLE>
<CAPTION>
PUT OPTIONS
----------------------------
NUMBER OF AMOUNT OF
OPTIONS PREMIUMS
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Options outstanding at December 31, 1995 -- $ --
------------------------------------------------------------------------------------------------------------------------
Options written 208 279,500
------------------------------------------------------------------------------------------------------------------------
Options closed or expired (208) (279,500)
------------------------------------------------------------------------------------------------------------------------
Options outstanding at December 31, 1996 -- $ --
======= ==========
</TABLE>
26 Oppenheimer Bond Fund
<PAGE> 27
===============================================================================
7. ILLIQUID AND RESTRICTED
SECURITIES
At December 31, 1996, investments in securities included issues that are
illiquid or restricted. Restricted 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 be considered illiquid if it lacks a
readily-available market or 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. Certain restricted
securities, eligible for resale to qualified institutional investors,
are not subject to that limit. The aggregate value of illiquid or
restricted securities subject to this limitation at December 31, 1996
was $16,097,955 which represents 6.80% of the Fund's net assets.
===============================================================================
8. ACQUISITION OF OPPENHEIMER
STRATEGIC INVESTMENT
GRADE BOND FUND, QUEST
INVESTMENT QUALITY INCOME
FUND, CONNECTICUT
MUTUAL INCOME ACCOUNT
AND JEFFERSON-PILOT
INVESTMENT GRADE BOND
FUND, INC.
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.
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 $633,177. The exchange qualifies as a
tax-free reorganization for federal income tax purposes.
On December 20, 1996, the Fund acquired all the net assets of
Jefferson-Pilot Investment Grade Bond Fund, Inc. pursuant to an
agreement and plan of reorganization approved by the Jefferson Pilot
Investment Grade Bond Fund shareholders on December 3, 1996. The Fund
issued 1,801,334 shares of beneficial interest for Class A, valued at
$19,273,967, in exchange for the net assets, resulting in combined Class
A net assets of $202,088,473 on December 20, 1996. The net assets
acquired included net unrealized appreciation of $1,288,511. The
exchange qualifies as a tax-free reorganization for federal income tax
purposes.
27 Oppenheimer Bond Fund
<PAGE> 28
<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
O P P E N H E I M E R
Value Stock Fund
Prospectus dated April 30, 1997
Oppenheimer Value Stock Fund is a mutual fund with the investment
objective of seeking long-term growth of capital and income
primarily through investments in stocks of well established
companies. You should carefully review the risks associated with
an investment in the Fund. Please refer to "Investment Objective
and Policies" for more information about the types of securities
the Fund invests in and refer to Investment Risks for a
discussion of the risks of investing in the Fund.
This Prospectus explains concisely what you should know before
investing in the Fund. Please read this Prospectus carefully and
keep it for future reference. You can find more detailed
information about the Fund in the April 30, 1997, 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, 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 NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<PAGE>
Contents
ABOUT THE FUND
3 Expenses
5 A Brief Overview of the Fund
7 Financial Highlights
11 Investment Objective and Policies
12 Investment Risks
14 Investment Techniques and Strategies
17 How the Fund is Managed
20 Performance of the Fund
ABOUT YOUR ACCOUNT
24 How to Buy Shares
Class A Shares
Class B Shares
Class C Shares
37 Special Investor Services
AccountLink
Automatic Withdrawal and Exchange Plans
Reinvestment Privilege
Retirement Plans
39 How to Sell Shares
By Mail
By Telephone
41 How to Exchange Shares
42 Shareholder Account Rules and Policies
44 Dividends, Capital Gains and Taxes
A-1 Appendix A: Special Sales Charge Arrangements for Certain
Persons
<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 account
transaction charges. The following tables are provided to help you
understand your direct expenses of investing in the Fund and your
share of the Fund's business operating expenses that you will bear
indirectly. The numbers below are based on the Fund's expenses
during its last fiscal year ended December 31, 1996.
Shareholder Transaction Expenses are charges you pay when
you buy or sell shares of the Fund. Please refer to "About Your
Account," from pages 24 through 40 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 5.75% None None
on Purchases (as a %
of offering price)
- --------------------------------------------------------------------------
Maximum Deferred Sales None(1) 5% in the first 1% if shares are
Charge(as a % of the year, declining redeemed within
lower of the original to 1% in the 12 months of
offering price or sixth year and purchase(2)
redemption proceeds) eliminated
thereafter(2)
- --------------------------------------------------------------------------
Maximum Sales Charge on None None None
Reinvested Dividends
- --------------------------------------------------------------------------
Exchange Fee None None None
</TABLE>
1. If you invest $1 million or more ($500,000 or more for purchases
by Retirement Plans as defined in Class A Contingent Deferred
Sales Charge on page ) in Class A shares, you may have to pay
a sales charge of up to 1% if you sell your shares within 12
calendar months (18 months for share purchased prior to May 1,
1997) from the end of the calendar month during 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" and "How to Buy
Shares - Buying Class C Shares" below for more information on the
contingent deferred sales charges.
Annual Fund Operating Expenses are paid out of the Fund's
assets and represent the Fund's expenses in operating its business.
For example, the Fund pays management fees to its investment
adviser, 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):
Class A Class B Class C
Shares Shares Shares
- -------------------------------------------------------------------
Management Fees 0.74% 0.74% 0.74%
- -------------------------------------------------------------------
12b-1 0.24% 1.00% 1.00%
Plan Fees
- -------------------------------------------------------------------
Other Expenses 0.22% 0.23% 0.28%
- -------------------------------------------------------------------
Total Fund 1.20% 1.97% 2.02%
Operating Expenses
The numbers in the table above are based on the Fund's
expenses in its last fiscal year ended December 31, 1996. These
amounts are shown as a percentage of the average net assets of each
class of the Fund's shares for that year. The 12b-1 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 fee (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 described in greater detail in
"How to Buy Shares."
The actual expenses for each class of shares in future years
may be more or less than the numbers in the table, 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 Annual Fund Operating Expenses table above. If you
were to redeem your shares at the end of each period shown below,
your investment would incur the following expenses by the end of 1,
3, 5 and 10 years:
1 year 3 years 5 years 10 years*
- -------------------------------------------------------------------
- -
Class A Shares $69 $93 $120 $195
- -------------------------------------------------------------------
- -
Class B Shares $70 $92 $126 $191
- -------------------------------------------------------------------
- -
Class C Shares $31 $63 $109 $235
If you did not redeem your investment, it would incur the following
expenses:
1 year 3 years 5 years 10 years*
- -------------------------------------------------------------------
- -
Class A Shares $69 $93 $120 $195
- -------------------------------------------------------------------
- -
Class B Shares $20 $62 $106 $191
- -------------------------------------------------------------------
- -
Class C Shares $21 $63 $109 $235
* In the first example, expenses include the Class A initial sales
charge and the applicable Class B or Class C contingent deferred
sales charge. In the second example, Class A expenses include the
initial sales charge but Class B and Class C expenses do not
include contingent deferred sales charges. The Class B expenses in
years 7 through 10 are based on the Class A expenses shown above,
because the Fund automatically converts Class B shares into Class
A shares after 6 years. Because 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 more 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 - Buying 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 may 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
long-term growth of capital and income primarily through
investments in stocks of well established companies.
What Does The Fund Invest In? Under normal market
conditions the Fund primarily invests in a diversified portfolio of
(i) common stocks or preferred stocks that pay cash dividends, (ii)
securities convertible into common stocks, and (iii) other equity
securities issued by companies with a market capitalization of at
least $500 million or with a history of at least five years of
operations as a public company, and which are listed on a national
securities exchange or traded in the over-the-counter markets. The
Fund will invest primarily in cash dividend-paying stocks. The
Fund may also invest in foreign securities and write covered calls
and use certain derivative investments and hedging instruments to
try to manage investment risks. These investments are more fully
explained in "Investment Objective and Policies" starting on page
11.
Who Manages the Fund? The Fund's investment adviser (the
"Manager") is OppenheimerFunds, Inc. Prior to January 5, 1996 the
Manager was known as Oppenheimer Management Corporation. The
Manager (including subsidiaries) manages investment company
portfolios currently having over $60 billion in assets at March 31,
1997. The Manager handles the day-to-day business of the Fund.
The Fund has a sub-adviser, David L. Babson & Co., (the "Sub-
Adviser") which is also responsible for choosing the Fund's
investments. The Manager is paid a management fee by the Fund, and
the Manager, not the Fund, pays the Sub-Adviser. The Fund s
portfolio manager, is James W. MacAllen, who is employed by the
Sub-Adviser and is primarily responsible for the selection of the
Fund's securities. The Fund's Board of Trustees, elected by
shareholders, oversees the Manager. Please refer to "How the Fund
is Managed," starting on page 17 for more information about the
Manager and the Sub-Adviser and their fees.
How Risky is the Fund? All investments carry risks to some
degree. The Fund's investments in stocks are subject to changes in
their value from a number of factors such as changes in general
stock market movements or changes in value of a particular stock
because of an event affecting the issuer. These changes affect the
value of the Fund's investments and its price per share. In the
OppenheimerFunds spectrum, the Fund is generally more conservative
than aggressive growth funds, but more aggressive growth and income
funds. While the Sub-Adviser tries to reduce risks by diversifying
investments, by carefully researching securities before they are
purchased for the portfolio, and in some cases by using hedging
techniques, there is no guarantee of success in achieving the
Fund's objective and your shares may be worth more or less than
their original cost when you redeem them. Please refer to
"Investment Objective and Policies" and Investment Risks starting
on page 12 for a more complete discussion of the Fund's investment
risks.
How Can I Buy Shares? You can buy shares through your
dealer or financial institution, or you can purchase shares
directly through the Distributor by completing an Application or by
using an Automatic Investment Plan under AccountLink. Please refer
to "How to Buy Shares" starting on page 24 for more details.
Will I Pay a Sales Charge to Buy Shares? The Fund offers
the individual investor three classes of shares. All have the same
investment portfolio but different expenses. Class A shares are
offered with a front-end sales charge, starting at 5.75%, and
reduced for larger purchases. Class B 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 24 for more details, including
a discussion about factors you and your financial advisor should
consider in determining which class may be appropriate for you.
How Can I Sell My Shares? Shares can be redeemed by mail or
by telephone call to the Transfer Agent on any business day, or
through your dealer. Please refer to "How to Sell Shares" starting
on page 39. The Fund also offers exchange privileges to other
Oppenheimer funds, described in "How to Exchange Shares" on page
41.
How Has the Fund Performed? The Fund measures its
performance by quoting its average annual total return and
cumulative total return, which measure historical performance.
Those total returns can be compared to the returns (over similar
periods) of other funds. Of course, other funds may have different
objectives, investments, and levels of risk. The Fund's
performance can also be compared to broad market indices, which we
have done on pages 22 and 23. Please remember that past
performance does not guarantee future results.
Financial Highlights
The table on the following pages presents selected financial
information about the Fund, including per share data and expense
ratios and other data based on the Fund's average net assets. This
information has been audited by Deloitte & Touche LLP, the Fund's
independent auditors, whose report on the Fund's financial
statements for the fiscal year ended December 31, 1996 is included
in the Statement of Additional Information. The information in the
table for the fiscal periods prior to 1991 was audited by the
Fund's previous independent auditors.
<PAGE>
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------
YEAR ENDED DECEMBER 31,
1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $17.84 $14.16 $14.41 $14.19 $13.57
- ----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .34 .32 .31 .29 .32
Net realized and unrealized gain (loss) 3.11 3.90 .16 .98 .97
- ----------------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment
operations 3.45 4.22 .47 1.27 1.29
- ----------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.35) (.30) (.31) (.29) (.32)
Dividends in excess of net investment
income -- -- (.01) -- --
Distributions from net realized gain (.61) (.24) (.40) (.76) (.35)
- ----------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions
to shareholders (.96) (.54) (.72) (1.05) (.67)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $20.33 $17.84 $14.16 $14.41 $14.19
------------------------------------------------------------------
------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(2) 19.39% 30.04% 3.28% 8.97% 9.61%
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $148,129 $136,270 $92,728 $90,470 $59,376
- ----------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $144,498 $115,137 $90,158 $80,229 $53,485
- ----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 1.73% 1.98% 2.16% 1.97% 2.34%
Expenses, before voluntary reimbursement 1.20% 1.28% 1.27% 1.24% 1.19%
Expenses, net of voluntary reimbursement N/A N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(3) 14.5% 11.8% 16.3% 24.3% 12.3%
Average brokerage commission rate(4) $0.0573 $0.0597 -- -- --
</TABLE>
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------
1991(1) 1990 1989 1988 1987
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $11.39 $12.08 $10.47 $9.51 $9.98
- ----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .33 .37 .40 .33 .34
Net realized and unrealized gain (loss) 2.49 (.57) 1.87 1.15 (.22)
- ----------------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment
operations 2.82 (.20) 2.27 1.48 .12
- ----------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.33) (.39) (.41) (.33) (.41)
Dividends in excess of net investment
income -- -- -- -- --
Distributions from net realized gain (.31) (.10) (.25) (.19) (.18)
- ----------------------------------------------------------------------------------------------------------------------------
Total dividends and distributions
to shareholders (.64) (.49) (.66) (.52) (.59)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $13.57 $11.39 $12.08 $10.47 $9.51
---------------------------------------------------------------
---------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(2) 25.23% (1.53)% 21.93% 15.61% 1.10%
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $49,381 $40,153 $37,713 $27,434 $19,377
- ----------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $45,581 $39,104 $33,742 $24,658 $22,322
- ----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 2.59% 3.22% 3.51% 3.45% 3.15%
Expenses, before voluntary reimbursement 1.31% 1.36% 1.40% 1.21% 0.70%
Expenses, net of voluntary reimbursement 1.26% 1.30% 1.30% 1.19% N/A
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(3) 14.5% 13.5% 14.9% 13.1% 10.8%
Average brokerage commission rate(4) -- -- -- -- --
</TABLE>
1. On March 28, 1991, OppenheimerFunds, Inc. became the investment adviser to
the Fund.
2. 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.
3. 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, 1996 were
$28,498,803 and $23,590,977, respectively.
4. Total brokerage commissions paid on applicable purchases and sales of
portfolio securities for the period, divided by the total number of related
shares purchased and sold.
<PAGE>
<TABLE>
<CAPTION>
CLASS B
---------------------------------------------------------
YEAR ENDED DECEMBER 31,
1996 1995 1994 1993(2)
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $17.73 $14.09 $14.35 $14.60
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .19 .21 .17 .17
Net realized and unrealized gain 3.09 3.86 .19 .51
- ----------------------------------------------------------------------------------------------------------------------
Total income from investment
operations 3.28 4.07 .36 .68
- ----------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.21) (.19) (.21) (.17)
Dividends in excess of net investment
income -- -- (.01) --
Distributions from net realized gain (.61) (.24) (.40) (.76)
- ----------------------------------------------------------------------------------------------------------------------
Total dividends and distributions
to shareholders (.82) (.43) (.62) (.93)
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $20.19 $17.73 $14.09 $14.35
---------------------------------------------------------
---------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(2) 18.50% 29.03% 2.50% 4.63%
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $40,142 $26,647 $10,893 $5,158
- ----------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $33,258 $18,857 $7,834 $2,527
- ----------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 0.96% 1.19% 1.45% 0.97% (7)
Expenses, before voluntary reimbursement 1.97% 2.07% 2.01% 2.14% (7)
Expenses, net of voluntary reimbursement N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(3) 14.5% 11.8% 16.3% 24.3%
Average brokerage commission rate(4) $0.0573 $0.0597 -- --
</TABLE>
<TABLE>
<CAPTION>
CLASS C
------------------------
YEAR ENDED DECEMBER 31,
1996 1995(5)
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $17.81 $17.12
- --------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .22 .02
Net realized and unrealized gain 3.05 .97
- --------------------------------------------------------------------------------------
Total income from investment
operations 3.27 .99
- --------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.23) (.06)
Dividends in excess of net investment
income -- --
Distributions from net realized gain (.61) (.24)
- --------------------------------------------------------------------------------------
Total dividends and distributions
to shareholders (.84) (.30)
- --------------------------------------------------------------------------------------
Net asset value, end of period $20.24 $17.81
------------------------
------------------------
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(2) 18.39% 5.89%
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $1,856 $130
- --------------------------------------------------------------------------------------
Average net assets (in thousands) $904 $57
- --------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 0.92% 0.56%(7)
Expenses, before voluntary reimbursement 2.02% 2.37%(7)
Expenses, net of voluntary reimbursement N/A N/A
- --------------------------------------------------------------------------------------
Portfolio turnover rate(3) 14.5% 11.8%
Average brokerage commission rate(4) $0.0573 $0.0597
</TABLE>
2. 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.
3. 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, 1996 were
$28,498,803 and $23,590,977, respectively.
4. Total brokerage commissions paid on applicable purchases and sales of
portfolio securities for the period, divided by the total number of related
shares purchased and sold.
5. For the period from October 2, 1995 (inception of offering) to December
31, 1995.
6. For the period from May 1, 1993 (inception of offering) to December
31, 1993.
7. Annualized.
Investment Objective and Policies
Objective. The Fund seeks long-term growth of capital and income
primarily through investments in stocks of well established
companies.
Investment Policies and Strategies. In seeking its investment
objective the Fund will invest, under normal market conditions,
primarily in a diversified portfolio of (i) common stocks or
preferred stocks that pay cash dividends, (ii) securities
convertible into common stocks, and (iii) other equity securities
issued by companies with a market capitalization of at least $500
million or with a history of at least five years of operations as
a public company, and which are listed on a national securities
exchange or traded in the over-the-counter markets. The Fund will
invest primarily in cash dividend-paying stocks. The Fund may
invest in foreign securities. To provide liquidity or for
temporary defensive purposes, the Fund may invest all or any
portion of its assets in high-quality, short-term money market
instruments.
The Sub-Adviser will seek to invest the Fund s assets in the
securities of companies which, in its opinion, are of high quality,
offer above-average dividend growth potential and are attractively
valued in the marketplace. This would include stocks selling below
their historical price/earnings ranges relative to the Standard &
Poor's 500 Stock Index or below their historical price/book value
ranges. The Sub-Adviser will give strong consideration to
securities of companies whose current prices do not adequately
reflect, in its opinion, the ongoing business value of the
enterprise.
The Fund may try to hedge against losses in the value of its
portfolio securities by using hedging strategies described below.
The Sub-Adviser may employ special investment techniques, also
described below. Additional information about the securities the
Fund may invest in, the hedging strategies the Fund may employ and
the special investment techniques may be found under the same
headings in the Statement of Additional Information.
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.
Portfolio Turnover. A change in the securities held by the
Fund is known as "portfolio turnover." While it is a policy of the
Fund generally not to engage in trading for short-term gains,
portfolio changes will be made without regard to the length of time
a security has been held
or whether a sale would result in a profit or loss, if in the Sub-
Adviser's judgment, such transactions are advisable in light of the
circumstances of a particular company or within a particular
industry or in light of market, economic or financial conditions.
High portfolio turnover may affect the ability of the Fund to
qualify as a "regulated investment company" under the Internal
Revenue Code for tax deductions for dividends and capital gains
distributions the Fund pays to shareholders. Portfolio turnover
affects brokerage costs, dealer markups and other transaction
costs, and results in the Fund's realization of capital gains or
losses for tax purposes. See "Financial Highlights" above,
"Dividends, Capital Gains and Taxes" below and "Brokerage Policies
of the Fund" in the Statement of Additional Information.
Investment Risks.
All investments carry risks to some degree, whether they are risks
that market prices of the investment will fluctuate (this is known
as market risk ) or that the underlying issuer will experience
financial difficulties and may default on its obligation under a
fixed-income investment to pay interest and repay principal (this
is referred to as credit risk ). These general investment risks,
and the special risks of certain types of investments that the Fund
may hold are described below. They affect the value of the Fund s
investments, its investment performance, and the prices of its
shares. These risks collectively form the risk profile of the
Fund.
Because of the types of companies the Fund invests in and the
investment techniques the Fund uses, some of which may be
speculative, the Fund is designed for those investors who are
investing for the long-term and who are willing to accept greater
risks of loss of their capital in the hope of achieving capital
appreciation. Investing for capital appreciation entails the risk
of loss of all or part of your principal. There is no assurance
that the Fund will achieve its objective, and when you redeem your
shares, they may be worth more or less than what you paid for them.
Stock Investment Risks. Because the Fund usually invests a
substantial portion (and from time to time may invest all) of its
assets in stocks, the value of the Fund's portfolio will be
affected by changes in the stock markets. This market risk will
affect the Fund's net asset values per share, which will fluctuate
as the values of the Fund's portfolio securities change. Not all
stock prices change uniformly or at the same time, and other
factors can affect a particular stock's price (for example, poor
earnings reports by an issuer, loss of major customers, major
litigation against an issuer, or changes in government regulations
affecting an industry). Not all of these factors can be predicted.
Changes in the overall market conditions and prices can occur at
any time.
As discussed below, the Fund attempts to limit market risks by
diversifying its investments, that is, by not holding a substantial
amount of the stock of any one company. Also, the Fund does not
concentrate its investment in any one industry or group of
industries
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 U.S. 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.
There are special risks in investing in derivative
investments. The Fund may invest in a number of different kinds of
derivative investments. In general, a derivative investment is
a specially designed investment whose performance is linked to the
performance of another investment or security. The company issuing
the instrument may fail to pay the amount due on the maturity of
the instrument. Also, the underlying investment or security on
which the derivative is based, and the derivative itself, may not
perform the way the Manager expected it to perform. The
performance of derivative investments may also be influenced by
interest rate changes in the U.S. and abroad. All of this can mean
that the Fund may realize less principal or income from the
investment than expected. Certain derivative investments held by
the Fund may trade in the over-the counter market and may be
illiquid. Please refer to "Illiquid and Restricted Securities" for
an explanation.
Hedging instruments can be volatile investments and may
involve special risks. The use of hedging instruments requires
special skills and knowledge of investment techniques that are
different than what is required for normal portfolio management.
If the Sub-Adviser uses a hedging instrument at the wrong time or
judges market conditions incorrectly, hedging strategies may reduce
the Fund's return. The Fund could also experience losses if the
prices of its futures and options positions were not correlated
with its other investments or if it could not close out a position
because of an illiquid market for the future or option.
Options trading involves the payment of premiums and has
special tax effects on the Fund. There are also special risks in
particular hedging strategies. If a covered call written by the
Fund is exercised on a security that has increased in value, the
Fund will be required to sell the security at the call price and
will not be able to realize any profit if the security has
increased in value above the call price. The use of forward
contracts may reduce the gain that would otherwise result from a
change in the relationship between the U.S. dollar and a foreign
currency. To limit its exposure in foreign currency exchange
contracts, the Fund limits its exposure to the amount of its assets
denominated in the foreign currency. Risks of hedging instruments
are described in greater detail in the Statement of Additional
Information.
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.
Illiquid and Restricted Securities. Under the policies and
procedures established by the Fund's Board of Trustees, the Manager
determines the liquidity of certain of the Fund's investments.
Investments may be illiquid because of the absence of an active
trading market, making it difficult to value them or dispose of
them promptly at an acceptable price. A restricted security is one
that has a contractual restriction on its resale or which cannot be
sold publicly until it is registered under the Securities Act of
1933. The Fund will not invest more than 10% of its net assets in
illiquid or restricted securities (the Board may increase that
limit to 15%). Certain restricted securities, eligible for resale
to qualified institutional purchasers, are not subject to that
limit. The Manager monitors holdings of illiquid securities on an
ongoing basis and at times the Fund may be required to sell some
holdings to maintain adequate liquidity.
Loans of Portfolio Securities. To raise cash for liquidity
purposes, the Fund may lend its portfolio securities to brokers,
dealers and other financial institutions. The Fund will receive
collateral for a loan. These loans are limited to not more than
25% of the value of the Fund's net assets and are subject to the
conditions described in the Statement of Additional Information.
The Fund presently does not intend to engage in loans of securities
that will exceed 5% of the value of the Fund's total assets in the
coming year.
Repurchase Agreements. The Fund may enter into repurchase
agreements. In a repurchase transaction, the Fund buys a security
and simultaneously sells it to the vendor for delivery at a future
date. Repurchase agreements must be fully collateralized.
However, if the vendor of the securities under a repurchase
agreement fails to pay the resale price on the delivery date, the
Fund may incur costs in disposing of the collateral and may
experience losses if there is any delay in its ability to do so.
The Fund will not enter into a repurchase agreement that will cause
more than 10% of its net assets to be subject to repurchase
agreements having a maturity beyond seven days because such
repurchase agreements may be illiquid. There is no limit on the
amount of the Fund's net assets that may be subject to repurchase
agreements of seven days or less.
When-Issued and Delayed Delivery Transactions. The Fund may
purchase securities on a "when-issued" basis and may purchase or
sell such securities on a "delayed delivery" basis. These terms
refer to securities that have been created and for which a market
exists, but which are not available for immediate delivery or 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.
Securities of Foreign Governments and Companies. The Fund
may invest in debt and equity securities issued or guaranteed by
foreign companies, and debt securities of foreign governments or
their agencies. Foreign debt securities may include government
bonds, and debentures and notes issued by foreign companies. Some
of these debt securities may have variable interest rates or
"floating" interest rates that change as prevailing levels of
interest rates change. Those changes will affect the income the
Fund receives. The Fund is not restricted in the amount of its
assets it may invest in foreign countries or in which countries.
These securities are described in more detail in the Statement of
Additional Information.
Derivative Investments. In general, a "derivative
investment" is a specially designed investment. Its performance is
linked to the performance of another investment or security, such
as an option, future, index, currency or commodity. The Fund can
invest in a number of different kinds of "derivative investments."
They are used in some cases for hedging purposes and in other cases
to enhance total return. In the broadest sense, exchange-traded
options and futures contracts (discussed in "Hedging," below) may
be considered "derivative investments."
Hedging. The Fund may purchase and sell certain kinds of
futures contracts, put and call options, forward contracts, and
options on futures and broadly-based securities indices. These are
all referred to as "hedging instruments." The Fund does not use
hedging instruments for speculative purposes, and has limits on the
use of them, described below. The hedging instruments the Fund may
use are described below and in greater detail in "Other Investment
Techniques and Strategies" in the Statement of Additional
Information.
The Fund may buy and sell options, futures and forward
contracts for a number of purposes. It may do so to try to manage
its exposure to the possibility that the prices of its portfolio
securities may decline, or to establish a position in the
securities market as a temporary substitute for purchasing
individual securities. Some of these strategies, such as selling
futures, buying puts and writing covered calls, hedge the Fund's
portfolio against price fluctuations.
Other hedging strategies, such as buying futures and call
options, tend to increase the Fund's exposure to the securities
market. Forward contracts are used to try to manage foreign
currency risks on the Fund's foreign investments. Foreign currency
options are used to try to protect against declines in the dollar
value of foreign securities the Fund owns, or to protect against an
increase in the dollar cost of buying foreign securities. Writing
covered call options may also provide income to the Fund for
liquidity purposes or defensive reasons.
Futures. The Fund may buy and sell futures contracts that
relate to broadly-based securities indices (these are referred to
as Stock Index Futures) or debt securities (these are referred to
as "Interest Rate Futures").
Put and Call Options. The Fund may buy and sell certain
kinds of put options (puts) and call options (calls).
The Fund may purchase calls on Stock Index Futures, Interest
Rate Futures, broadly-based securities indices and foreign
currencies, or to terminate its obligation on a call the Fund
previously wrote. The Fund may write (that is, sell) covered call
options. When the Fund writes a call, it receives cash (called a
premium). The call gives the buyer the ability to buy the
investment on which the call was written from the Fund at the call
price during the period in which the call may be exercised. If the
value of the investment does not rise above the call price, it is
likely that the call will lapse without being exercised, while the
Fund keeps the cash premium (and the investment).
The Fund may purchase put options. Buying a put on an
investment gives the Fund the right to sell the investment at a set
price to a seller of a put on that investment. The Fund can
purchase those puts that relate to (1) securities the Fund owns,
(2) Stock Index Futures or Interest Rate Futures (whether or not
the Fund owns that particular Future in its portfolio), (3)
broadly-based securities indices, or (4) foreign currencies.
The Fund may write puts on securities, broadly-based
securities indices, foreign currencies, Stock Index Futures or
Interest Rate Futures. Writing puts requires the segregation of
liquid assets to cover the put. The Fund will not write a put if
it would require more than 50% of its net assets to be segregated
to cover put obligations.
The Fund may buy and sell calls if certain conditions are met.
Calls the Fund buys or sells must be listed on a domestic or
foreign securities or commodities exchange or quoted on the
Automated Quotation System ( NASDAQ ) of the Nasdaq Stock Market,
Inc. Each call the Fund writes must be "covered" while it is
outstanding. That means the Fund owns the investment on which the
call is written. After the Fund writes a call, not more than 25%
of the Fund's total assets may be subject to calls. In the case of
puts and calls on foreign currency, they must be traded on a
securities or commodities exchange, or quoted by recognized dealers
in these options. The Fund may also write calls on Futures
contracts it owns, but those calls must be covered by securities or
other liquid assets of any type including equity and debt
securities of any grade which the Fund owns and segregates to
enable it to satisfy its obligations if the call is exercised. A
call or put option may not be purchased if the value of all of the
Fund's put and call options would exceed 5% of the Fund's total
assets.
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:
The Fund cannot make short sales except for sales "against
the box";
The Fund cannot 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);
The Fund cannot concentrate its investments in any
particular industry except that it may invest up to 25% of the
value of its total assets in the securities of issuers of any one
industry (of the utility companies, gas, electric, water and
telephone will each be considered as a separate industry); and
The Fund cannot 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 such issuer, or (2) the Fund would own more than 10%
of that issuer's voting securities.
Unless the prospectus or the Statement of Additional
Information states that a percentage restriction applies on an
ongoing basis, it applies only at the time that Fund makes an
investment and the Fund need not sell securities to meet the
percentage limits if the value of the investment increases in
proportion to the size of the Fund. Other investment restrictions
are listed in Investment Restrictions 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 Oppenheimer Value Stock Fund (the "Fund") is a
series of that Trust. The Trust is an open-end, diversified
management investment company, with an unlimited number of
authorized shares of beneficial interest. The Fund is one of two
series of the Trust. Each of the two series of the Trust is a
mutual fund that issues its own shares, has its own investment
portfolio, and its own assets and liabilities.
The Trust is governed by a Board of Trustees, which is
responsible under Massachusetts law for protecting the interests of
shareholders. The Trustees meet periodically throughout the year
to oversee the Fund's activities, review its performance, and
review the actions of the Manager. "Trustees and Officers of the
Fund" in the Statement of Additional Information names the Trustees
and provides more information about them and the officers of the
Fund. Although the Fund 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 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. Please refer to
How the Fund is Managed in the Statement of Additional
Information for more information on voting of shares.
The Manager and Its Affiliates. Since March 28, 1991, the Fund has
been managed by the Manager, which handles its day-to-day business.
The Manager carries out its duties, subject to the policies
established by the Board of Trustees, under an investment advisory
agreement which states the Manager s responsibilities. 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. David L. Babson & Co., Inc., (the Sub-
Adviser ), acts as the Fund s sub-adviser. The Sub-Adviser is
responsible for choosing the Fund s investments and its duties and
responsibilities are set forth in its contract with the Manager.
The Manager, not the Fund, pays the Sub-Adviser. The Sub-Adviser
began managing equity assets in 1968. It became a wholly-owned
indirect subsidiary of Massachusetts Mutual Life Insurance Company
( MassMutual ) in June 1995. It advises other mutual funds and
institutional clients. On January 1, 1997, the Fund s previous
sub-advisor, Concert Capital Management, Inc. merged into the Sub-
Advisor which assumed its contract with the Manager.
The Manager has operated as an investment adviser since 1959.
The Manager (including subsidiaries) currently manages investment
companies, including other Oppenheimer funds, with assets of more
than $60 billion as of March 31, 1997, held in more than 3 million
shareholder accounts. The Manager is owned by Oppenheimer
Acquisition Corp., a holding company that is owned in part by
senior officers of the Manager and controlled by MassMutual.
The Board of Trustees of the Fund has determined that it is in
the best interest of the Fund's shareholders that the Fund
reorganize with and into Oppenheimer Disciplined Value Fund. The
Board unanimously approved the terms of an agreement and plan of
reorganization to be entered into between these funds (the
"reorganization plan") and the transactions contemplated (the
transactions are referred to as the "reorganization"). The Board
further determined that the reorganization should be submitted to
the Fund's shareholders for approval, and recommended that
shareholders approve the reorganization.
Pursuant to the reorganization plan, (i) substantially all of
the assets of the Fund would be exchanged for shares of Oppenheimer
Disciplined Value Fund, (ii) these shares of Oppenheimer
Disciplined Value Fund would be distributed to the shareholders of
the Fund, (iii) Oppenheimer Value Stock Fund would be liquidated,
and (iv) the outstanding shares of Oppenheimer Value Stock Fund
would be canceled. It is expected that the reorganization will be
tax-free, pursuant to Section 368(a)(1) of the Internal Revenue
Code of 1986, as amended, and the Fund will request an opinion of
tax counsel to that effect.
A meeting of the shareholders of Oppenheimer Value Stock Fund
is scheduled for July 21, 1997 to vote on the reorganization.
Approval of the reorganization requires the affirmative vote of a
majority of the outstanding shares of the Fund (the term "majority"
is defined in the Investment Company Act as a special majority. It
is also explained in the Statement of Additional Information).
There is no assurance that Oppenheimer Value Stock Fund's
shareholders will approve the reorganization. Details about the
proposed reorganization will be contained in a proxy statement and
other soliciting materials which will be mailed on or about May 23,
1997 to Oppenheimer Value Stock Fund's shareholders of record on
May 2, 1997. Persons who became shareholders of the Fund after the
record date for the shareholder meeting will not be entitled to
vote on the reorganization.
Portfolio Manager. The Portfolio Manager of the Fund is
James W. MacAllen, a Managing Director of the Sub-Adviser. He is
responsible for the day-to-day management of the Fund's portfolio
since May 1, 1996. Mr. MacAllen is also a Senior Vice President of
the Sub-Adviser. Mr MacAllen has been associated with the Sub-
Adviser since January 1, 1996 prior to which he associated with
Hagler, Mastrovita & Hewitt. Mr. MacAllen was also President and
Chief Executive Officer of Wilmington Capital Management and Senior
Vice President and head of the Securities Division of MassMutual.
Fees and Expenses. Under the Investment Advisory Agreement,
the Fund pays the Manager the following annual fees, which decline
on additional assets as the Fund grows: 0.75% of the first $100
million of the Fund's average annual net assets, 0.72% of the next
$200 million, 0.69% of the next $200 million of net assets, and
0.66% of average annual net assets in excess of $500 million. The
Fund's management fee for its last fiscal year was 0.74% of average
annual net assets for its Class A, Class B and Class C shares.
Under the Sub-Advisory Agreement, the Manager pays the Sub-
Adviser the following annual fees, which decline on additional
assets as the Fund grows: 0.40% of the first $50 million of the
Fund's average annual net assets and 0.20% of net assets in excess
of $50 million.
The Fund pays expenses related to its daily operations, such
as custodian fees, certain 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 the Fund s shares, and
therefore are indirectly borne by shareholders through their
investment. More information about the Investment Advisory
Agreement and the other expenses paid by the Fund is contained in
the Statement of Additional Information.
There is also information about the Fund's brokerage policies
and practices in "Brokerage Policies of the Fund" in the Statement
of Additional Information. That section discusses how brokers and
dealers are selected for the Fund's portfolio transactions. The
Fund usually uses brokers when buying portfolio securities. When
deciding which brokers to use, the Sub-Adviser is permitted by the
sub-advisory agreement to consider whether brokers have sold shares
of the Fund or any other funds for which the Manager or the Sub-
Adviser or their affiliates serve as investment adviser.
The Distributor. The Fund's shares are sold through
dealers, brokers and other financial institutions that have a sales
agreement with OppenheimerFunds Distributor, Inc., a subsidiary of
the Manager that acts as 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 on an "at-cost" basis.
It also acts as the shareholder servicing agent for other
Oppenheimer funds. Shareholders should direct inquiries about
their accounts to the Transfer Agent at the address and toll-free
number shown below under How to Sell Shares in this Prospectus and
on the back cover.
Performance of the Fund
Explanation of Performance Terminology. The Fund uses the terms
"cumulative total return" and "average annual total return" to
illustrate its performance. The performance of each class of
shares is shown separately, because the performance of each class
of shares will usually be different, as a result of the different
kinds of expenses each class bears. This performance information
may be useful to help you see how well your investment has done and
to compare it to other funds or market indices, as we have done
below.
It is important to understand that the Fund's total returns
represent past performance and should not be considered to be
predictions of future returns or performance. This performance data
is described below, but more detailed information about how total
returns are calculated is contained in the Statement of Additional
Information, which also contains information about other ways to
measure and compare the Fund's performance. The Fund's investment
performance will vary over time, depending on market conditions,
the composition of the portfolio, expenses and which class of
shares you purchase.
Total Returns. There are different types of "total returns"
used to measure the Fund's performance. Total return is the change
in value of a hypothetical investment in the Fund over a given
period, assuming that all dividends and capital gains distributions
are reinvested in additional shares. The cumulative total return
measures the change in value over the entire period (for example,
ten years). An average annual total return shows the average rate
of return for each year in a period that would produce the
cumulative total return over the entire period. However, average
annual total returns do not show the Fund's actual year-by-year
performance.
When total returns are quoted for Class A shares, normally the
current maximum initial sales charge has been deducted. When total
returns are shown for Class B or Class C shares, normally the
contingent deferred sales charge that applies to the period for
which total return is shown has been deducted. However, total
returns may also be quoted "at net asset value", without
considering the effect of the sales charge, and those returns would
be less if the sales charges were deducted.
How Has the Fund Performed? Below is a discussion by the Manager
of the Fund's performance during its last fiscal year ended
December 31, 1996, 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, 1996, the general rise in interest
rates drove down prices of outstanding fixed income securities,
which had a negative effect on the Fund s performance. Because of
the Fund s strategic positioning in the second half of the Fund s
fiscal year end, the Fund was able to show a positive cumulative
total return for the year for all classes of shares (without
considering the effect of sales charges). The Fund s performance
was positively affected primarily by the following two factors.
First, during the second half of the year, the Fund focussed on
both investment grade and higher-yielding corporate bonds which
allowed the Fund to seek higher income. Secondly, the Funds s
performance was positively affected by its diversification of
investments. Specifically, the Fund s benefited from its
investments in mortgage-backed securities. Those investments
helped balance out the performance of Treasury securities caused by
the general rise in interest rates. The Fund s portfolio holdings,
allocations and strategies are subject to change.
Comparing the Fund's Performance to the Market. The graphs
below show the performance of a hypothetical $10,000 investment in
Class A, Class B and Class C shares of the Fund held at December
31, 1996; in the case of Class A shares, from the inception of the
class on December 26, 1986, 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, performance is measured from the inception of the class on
October 2, 1995.
The performance of each class of the Fund's shares is compared
to the performance of the S&P 500 Index, an unmanaged index of 500
widely-held common stocks traded on the New York and American Stock
Exchanges and the over-the-counter market. It is widely recognized
as a general measure of stock market performance. It includes a
factor for the reinvestment of dividends but does not reflect
expenses or taxes. Index performance reflects reinvestment of
dividends but does not consider the effect of capital gains or
transaction costs, and none of the data below shows the effect of
taxes. Also, the Fund's performance reflects the effect of Fund
business and operating expenses. While index comparisons may be
useful to provide a benchmark for the Fund's performance, it must
be noted that the Fund's investments are not limited to the
securities in any one index. Moreover, the index performance data
does not reflect any assessment of the risk of the investments
included in the index.
Class A Shares
Comparison of Change in Value of $10,000 Hypothetical Investments
in:
Oppenheimer Value Stock Fund (Class A) and S&P 500 Index
[Graph]
Average Annual Total Return of Class A Shares of the Fund at
12/31/951
1 Year 5 Years 10 Years
- -------------------------------------------------------------------
12.53% 12.54% 12.24%
Class B Shares
Comparison of Change in Value of $10,000 Hypothetical Investments
in:
Oppenheimer Value Stock Fund (Class B) and S&P 500 Index
[Graph]
Average Annual Total Return of Class B Shares of the Fund at
12/31/962
1 Year Life
- -------------------------------------------------------------------
13.50% 13.87%
Class C Shares
Comparison of Change in Value of $10,000 Hypothetical Investments
in:
Oppenheimer Value Stock Fund (Class C) and S&P 500 Index
[Graph]
Average Annual Total Return of Class C Shares of the Fund at
12/31/963
1 Year Life
- -------------------------------------------------------------------
17.39% 19.88%
1The inception data of the Fund (Class A shares) was 12/22/86. 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 5.75% 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 3% 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 3%
contingent deferred sales charge.
3Class C shares of the fund were first publicly offered on 10/2/95.
The average annual total returns reflect reinvestment of all
dividends and capital gains distributions and the one year return
is shown net of the applicable 1% contingent deferred sales charge.
Past Performance is not predictive of future performance.
Graphs are not drawn to same scale.
A B O U T Y O U R A C C O U N T
How to Buy Shares
Classes of Shares. The Fund offers investors three different
classes of shares. The different classes of shares represent
investments in the same portfolio of securities but are subject to
different expenses and will likely have different share prices.
Class A Shares. If you buy Class A shares, you may pay an
initial sales charge on investments up to $1 million (up to
$500,000 for purchases by Retirement Plans defined in Class A
Contingent Deferred Sales Charges on page ). If you purchase
Class A shares as part of an investment of at least $1 million or
more ($500,000 for Retirement 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 12 months of buying them (18
months if the shares were purchased prior to May 1, 1997), you may
pay a contingent deferred sales charge. The amount of that sales
charge will vary depending on the amount you invested. Sales
charge rates are described in "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 sales charge varies depending on how
long you own your shares as 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% as 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 Class A, Class
B and Class C shares, and considered the effect of the annual
asset-based sales charge 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 your investment each year. Of course, the actual
performance of your investment cannot be predicted and will vary,
based on the Fund's actual investment returns, and the operating
expenses borne by each class of shares, and which class of shares
you invest in. The factors discussed below are not intended to be
investment advice 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
assumes 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 shares of Class B or Class
C 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 amounts 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 might be more advantageous than Class C (as well
as Class B) 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). If investing
$500,000 or more, Class A may be more advantageous as your
investment horizon approaches 3 years or more.
For investors who invest $1 million or more, in most cases
Class A shares will be the most advantageous choice, no matter how
long you intend to hold your shares. For that reason, the
Distributor normally will not accept purchase orders of $500,000 or
more of Class B shares or $1 million or more Class C shares from a
single investor.
Investing for the Longer Term. If you are investing for the
longer-term, for example, for retirement, and do not expect to need
access to your money for 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, you should analyze your options
carefully.
Are There Differences in Account Features That Matter to
You? Because some account features may not be available to 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. 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 of shares than for selling
another class. It is important that investors understand that the
purpose of the Class B and Class C contingent deferred sales charge
and asset-based sales charge 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. The Distributor may pay
additional periodic compensation from its own resources to
securities dealers or financial institutions based upon the value
of shares of the Fund owned by the dealer or financial institution
for its own account or for its customers.
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, 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.
The Distributor may appoint certain servicing agents as the
Distributor s agent to accept purchase and redemption orders. 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 Federal Funds Wire: Shares may be
purchased by Federal Funds wire. The minimum investment is $2,500.
You must first call the Distributor s Wire Department at 1-800-525-
7041 to notify the Distributor of the wire, and receive further
instructions.
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 have the Transfer Agent send redemption
proceeds or to transmit dividends and distributions to your bank
account.
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 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 or
its designated agent 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
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 that Appendix).
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 Percentage as Percentage as Percentage
of Offering of Amount of Offering
Amount of Purchase Price Invested Price
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Less than $25,000 5.75% 6.10% 4.75%
- ----------------------------------------------------------------------
$25,000 or more but 5.50% 5.82% 4.75%
less than $50,000
- ----------------------------------------------------------------------
$50,000 or more but 4.75% 4.99% 4.00%
less than $100,000
- ----------------------------------------------------------------------
$100,000 or more but 3.75% 3.90% 3.00%
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 reallot 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:
Purchase aggregating $1 million or more;
Purchase by a retirement plan qualified under section 401(a)
if the retirement plan has total plan assets of $500,000 or more;
Purchases by a retirement plan qualified under section
401(a) or 401(k) of the Internal Revenue Code, by a non-qualified
deferred compensation plan (not including Section 457 plans),
employee benefit plan, group retirement plan (see How to Buy
Shares - Retirement Plans in the Statement of Additional
Information for further details), an employee s 403(b)(7) custodial
plan account, SEP IRA, SARSEP, or SIMPLE plan (all of these plans
are collectively referred to as Retirement Plans ); 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; or
Purchases by an OppenheimerFunds Rollover IRA if the
purchases are made (1) through a broker, dealer, bank or registered
investment adviser that has made special arrangements with the
distributor for these purchases, or (2) by a direct rollover of a
distribution from a qualified retirement plan if the administrator
of that plan has made special arrangements with the distributor for
those purchases.
The Distributor pays dealers of record commissions on those
purchases in an amount equal to (i) 1.0% for non-Retirement Plan
accounts, and (ii) for Retirement Plan accounts, 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 calculated on a calendar year basis.
That commission will be paid only on those purchases that were not
previously subject to a front-end sales charge and dealer
commission. No sales commission will be paid to the dealer, broker
or financial institution on sales of Class A shares purchased with
the redemption proceeds of shares of a mutual fund offered as an
investment option in a Retirement Plan in which Oppenheimer funds
are also offered as investment options under a special arrangement
with the Distributor if the purchase occurs more than 30 days after
the addition of the Oppenheimer funds as an investment option to
the Retirement Plan.
If you redeem any of those shares purchased prior to May 1,
1997, 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. A Class A contingent deferred sales charge may
be deducted from the redemption proceeds of any of those shares
purchased on or after May 1, 1997 that are redeemed within 12
months of the end of the calendar month of their purchase. That
sales charge will be equal to 1.0% of the lesser of: (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 offering price (which is the
original net asset value) of the redeemed shares. 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.
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, or 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
Distributor will add the value, at current offering price, of the
shares you previously purchased and currently own to the value of
current purchases to determine the sales charge rate that applies.
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 purchases of Class A
shares. The total amount of your intended purchases of both Class
A and Class B shares will determine the reduced sales charge rate
for the Class A shares purchased during that period. 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
and minor children) 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 advisors that have
entered into an agreement with the Distributor providing
specifically for the use of shares of the Fund in particular
investment products or employee benefit plans made available to
their clients (those clients may be charged a transaction fee by
their dealer, broker, financial intermediary or advisor for the
purchase or sales of Fund shares);
(1) investment advisors and financial planners who charge an
advisory, consulting or other fee for their services and buy shares
for their own accounts or the accounts of their clients, (2)
Retirement Plans and deferred compensation plans and trusts used to
fund those Plans (including, for example, plans qualified or
created under sections 401(a), 403(b) or 457 of the Internal
Revenue Code), and rabbi trusts that buy shares for their own
accounts, in each case if those purchases are made through a broker
or agent or other financial intermediary that has made special
arrangements with the Distributor for those purchases; and (3)
clients of such investment advisors or financial planners who buy
shares for their own accounts may also purchase shares without
sales charge but only if their accounts are linked to a master
account of their investment advisor or financial planner on the
books and records of the broker, agent or financial intermediary
with which the Distributor has made such special arrangements (each
of these investors may be charged a fee by the broker, agent or
financial intermediary for purchasing shares);
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
advisor (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 Oppenheimer funds
(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 past 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.
Waivers of the Class A Contingent Deferred Sales Charge for
Certain Redemptions. The Class A contingent deferred sales charge
is also waived if shares that would otherwise be subject to the
contingent deferred sales charge are redeemed in the following
cases:
to make Automatic Withdrawal Plan payments that are limited
annually to no more than 12% of the original account value;
for involuntary redemptions of shares by operation of law or
involuntary redemptions of small accounts (see Shareholder Account
Rules and Policies, below);
if, at the time of purchase of shares (prior to May 1,
1997) the dealer agrees in writing to accept the dealer s portion
of the sales commission 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);
if, at the time of purchase of shares (on or after May 1,
1997) the dealer agrees in writing to accept the dealer s portion
of the sales commission in installments of 1/12th of the commission
per month (and no further commission will be payable if the shares
are redeemed within 12 months of purchase);
for distributions from a TRAC-2000 401(k) plan sponsored by
the Distributor due to the termination of the TRAC-2000 program;
for distributions from Retirement Plans, deferred
compensation plans or other employee benefit plans for any of the
following purposes: (1) following the death or disability (as
deferred in the Internal Revenue Code) of the participant or
beneficiary (the death or disability must occur after the
participant s account was established); (2) to return excess
contributions; (3) to return contributions made due to a mistake of
fact; (4) hardship withdrawals, as defined in the plan; (5) under
a Qualified Domestic Relations Order, as defined in the Internal
Revenue Code; (6) to meet the minimum distribution requirements of
the Internal Revenue Code; (7) to establish substantially equal
periodic payments as described in Section 72(t) of the Internal
Revenue Code; (8) for retirement distributions or loans to
participants or beneficiaries; (9) separation from service; (10)
participant-directed redemptions to purchase shares of a mutual
fund (other than a fund managed by the Manager or its subsidiary)
offered as an investment option in a Retirement Plan in which
Oppenheimer funds are also offered as investment options under a
special arrangement with the Distributor; or (11) plan termination
or in-service distributions, if the redemption proceeds are
rolled over directly to an OppenheimerFunds IRA;
for distributions from Retirement Plans with 500 or more
eligible participants, except distributions due to termination of
all of the Oppenheimer funds as an investment option for the Plan;
or
for distributions from certain 401(k) plan programs
sponsored by broker-dealers that have entered into a special
agreement with the Distributor allowing this waiver.
Service Plan for Class A Shares. The Fund has adopted a
Service Plan for Class A shares to reimburse the Distributor for a
portion of its costs incurred in connection with the personal
service and maintenance of accounts that hold Class A shares.
Reimbursement is made quarterly at an annual rate that may not
exceed 0.25% of the average annual net assets of Class A shares of
the Fund. The Distributor uses all of those fees to compensate
dealers, brokers, banks and other financial institutions quarterly
for providing personal service and maintenance of accounts of their
customers that hold Class A shares and to reimburse itself (if the
Fund's Board of Trustees authorizes such reimbursements, which it
has not yet done) for its other expenditures under the Plan.
Services to be provided include, among others, answering
customer inquiries about the Fund, assisting in establishing and
maintaining accounts in the Fund, making the Fund's investment
plans available and providing other services at the request of the
Fund or the Distributor. Payments are made by the Distributor
quarterly at an annual rate not to exceed 0.25% of the average
annual net assets of Class A shares held in accounts of the dealer
or its customers. The payments under the Plan increase the annual
expenses of Class A shares. For more details, please refer to
"Distribution and Service Plans" in the Statement of Additional
Information.
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
contingent deferred sales charge will be based on the lesser of the
net asset value of the redeemed shares at the time of redemption or
the original offering price (which is the original net asset
value). 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 contingent
deferred sales charge is not imposed in the circumstances described
in Waivers of Class B and Class C Sales Charges, below.
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:
Years Since 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 contingent deferred sales charge will be based
on the lesser of the net asset value of the redeemed shares at the
time of redemption or the original offering 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 compensate the Distributor for 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. The purpose of the Class B plan is to
reimburse the Distributor for its services and costs in
distributing Class B shares and servicing accounts and the purpose
of the Class C plan is to compensate the Distributor for its
services and costs in distributing and 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. The
Distributor also receives a service fee of 0.25% per year under
each plan. 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 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
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 Fund pays the asset-based sales charge to the
Distributor for its services rendered in distributing Class B
shares. The Distributor retains the asset-based sales charge to
recoup the sales commissions it pays, the advances of service fee
payments it makes, and its financing costs of distributing and
selling Class B shares. If a dealer has a special agreement with
the Distributor, the Distributor will pay the Class B service fee
and the asset-based sales charge to the dealer quarterly in lieu of
paying the sales commission and service fee advance at the time of
purchase.
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. Those payments, retained by the Distributor during the
first year Class C shares are outstanding, are at a fixed rate that
is not related to the Distributor's expenses. The Distributor
plans to pay the asset-based sales charge as an ongoing commission
to the dealer on Class C shares that have been outstanding for a
year or more. If a dealer has a special agreement with the
Distributor, the Distributor will pay the Class C service fee and
the asset-based sales charge to the dealer quarterly in lieu of
paying the sales commission and service fee advance at the time of
purchase.
The Distributor's actual expenses in selling Class B shares
may be more than the payments it receives from contingent deferred
sales charges collected on redeemed shares and from the Fund under
the Distribution and Service Plan for Class B shares. Therefore,
those expenses may be carried over and paid in future years. At
December 31, 1996, the end of the Class B Plan year, the
Distributor had incurred unreimbursed expenses in connection with
the sale of Class B shares of $11,881,867 (equal to 3.49% of the
Fund's net assets represented by Class B 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 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 (the
death or disability must have occurred after the account was
established);
redemptions from accounts other than Retirement Plans
following the death or disability of the last surviving
shareholder, including a trustee of a grantor trust or revocable
living trust for which the trustee is also the sole beneficiary
(the death or disability must have occurred after the account was
established and for disability you must provide evidence of a
determination of disability by the Social Security Administration);
returns of excess contributions to Retirement Plans;
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;
distributions from OppenheimerFunds prototype 401(k)plans
and from certain Massachusetts Mutual Life Insurance Company
prototype 401(k) plans for (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; (5) for separation from service; or (6) for
loans to participants or beneficiaries; or
distributions from 401(k) plans sponsored by broker-
dealers that have entered into a special agreement with the
Distributor allowing this waiver.
Waivers for Shares Sold or Issued in Certain Transactions.
The contingent deferred sales charge is also waived on Class
B and Class C shares sold or issued 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; and
shares issued in plans of reorganization to which the Fund
is a party.
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 call the Transfer Agent for more
information.
AccountLink privileges should be requested 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.
Shareholder Transactions by Fax. Beginning May 30, 1997, requests
for some account transactions may be sent to the Transfer Agent by
fax (telecopier). Please call 1-800-525-7048 for more information
about which transactions are included. Transaction requests
submitted by fax are subject to the same rules and restrictions as
written and telephone requests described in this Prospectus.
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 Statement
of Additional Information for more details.
Automatic Exchange Plans. You can authorize the Transfer
Agent to exchange an amount you establish in advance automatically
for shares of the same class 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
fund 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
Pension and Profit-Sharing Plans for self-employed persons
and other employers
401(k) prototype retirement plans for businesses
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.
You can sell your shares by written directions to the Transfer
Agent or by telephone. You can also set up Automatic Withdrawal
Plans to redeem shares on a regular basis, as described above. If
you have questions about any of these procedures, and especially if
you are redeeming shares in a special situation, such as due to the
death of the owner, or from a retirement plan, please call the
Transfer Agent first, at 1-800-525-7048, for assistance.
Retirement Accounts. To sell shares in an OppenheimerFunds
retirement account in your name, call the Transfer Agent for a
distribution request form. There are special income tax
withholding requirements for distributions from retirement plans
and you must submit a withholding form with your request to avoid
delay. If your retirement plan account is held for you by your
employer, you must arrange for the distribution request to be sent
by the plan administrator or trustee. There are additional details
in the Statement of Additional Information.
Certain Requests Require a Signature Guarantee. To protect
you and the Fund from fraud, certain redemption requests must be in
writing and must include a signature guarantee in the following
situations (there may be other situations also requiring a
signature guarantee):
You wish to redeem more than $50,000 worth of shares and
receive a check
The redemption check is not payable to all shareholders
listed on the account statement
The redemption check is not sent to the address of record on
your account 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 Send courier or Express
Mail
requests by mail to: requests to:
OppenheimerFunds Services OppenheimerFunds Services
P.O. Box 5270 10200 E. Girard Avenue,
Denver, Colorado 80217 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 request must be
received by the Transfer Agent or its 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.
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 of the Fund 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 name(s) 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
one 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 7 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 the Transfer Agent 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 and 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.
Dividends, Capital Gains and Taxes
Dividends. The Fund declares dividends separately for Class A,
Class B and Class C shares from net investment income and pays such
dividends to shareholders quarterly. It is expected that
distributions paid with respect to Class A shares will generally be
higher than for Class B or Class C shares because expenses
allocable to Class B and Class C shares will generally be higher.
Capital Gains. The Fund may make distributions annually in
December out of any net short-term or long-term capital gains, and
the Fund may make supplemental distributions of dividends and
capital gains following the end of its fiscal year. Long-term
capital gains will be separately identified in the tax information
the Fund sends you after the end of the year. Short-term capital
gains are treated as dividends for tax purposes. There can be no
assurance that the Fund will pay any capital gains distributions in
a particular year.
Distribution Options. When you open your account, specify on your
application how you want to receive your distributions. For
OppenheimerFunds retirement accounts, all distributions are
reinvested. For other accounts, you have four options:
Reinvest All Distributions in the Fund. You can elect to
reinvest all dividends and long-term capital gains distributions in
additional shares of the Fund.
Reinvest Long-Term Capital Gains Only. You can elect to
reinvest long-term capital gains in the Fund while receiving
dividends by check or sent to your bank account on AccountLink.
Receive All Distributions in Cash. You can elect to receive
a check for all dividends and long-term capital gains distributions
or have them sent to your bank on AccountLink.
Reinvest Your Distributions in the Same Class of Shares of
Another Oppenheimer Fund Account. You can reinvest all
distributions in another Oppenheimer fund 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 advisor about the effect of an
investment in the Fund on your particular tax situation.
<PAGE>
APPENDIX TO PROSPECTUS OF
OPPENHEIMER VALUE STOCK FUND
Graphic material included in Prospectus of Oppenheimer Value
Stock Fund: "Comparison of Total Return of Oppenheimer Value Stock
Fund with the S&P 500 Index - Change in Value of a $10,000
Hypothetical Investment"
Linear graphs will be included in the Prospectus of
Oppenheimer Value Stock Fund (the "Fund") depicting the initial
account value and subsequent account value of a hypothetical
$10,000 investment in each class of shares of the Fund. In the
case of Class A shares, that graph will cover each of the Fund's
fiscal years from the inception of the class (December 31, 1986)
through December 31, 1996, in the case of Class B shares the graph
will cover the periods from inception of the class (May 1, 1993)
through December 31, 1996, and in the case of Class C shares the
graph will cover the period from inception of the class (October 2,
1995) through December 31, 1996. The graphs will compare such
values with the same investments over the same time periods with
the S&P 500 Index. Set forth below are the relevant data points
that will appear on the linear graph. Additional information with
respect to the foregoing, including a description of the S&P Index,
is set forth in the Prospectus under "Performance of the Fund --
Comparing the Fund's Performance to Market"
Oppenheimer
Fiscal Year Value Stock
(Period) Ended Fund A S&P 500 Index
12/31/86 $9,425 $10,000
12/31/87 $9,528 $10,525
12/31/88 $11,016 $12,268
2/31/89 $13,430 $16,149
12/31/90 $13,225 $15,647
12/31/91 $16,562 $20,404
12/31/92 $18,153 $21,956
12/31/93 $19,781 $24,164
12/31/94 $20,431 $24,482
12/31/95 $26,576 $33,671
12/31/96 $31,719 $41,397
Oppenheimer
Fiscal Year Value Stock
(Period) Ended Fund B(1) S&P 500 Index
05/1/93 $10,000 $10,000
12/31/93 $10,464 $10,807
12/31/94 $10,725 $10,949
12/31/95 $13,839 $15,058
12/31/96 $16,099 $18,513
Oppenheimer
Fiscal Year Value Stock
(Period) Ended Fund C(2) S&P 500 Index
10/02/05 $10,000 $10,000
12/31/95 $10,589 $10,600
12/31/95 $12,536 $13,034
- -------------------
(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
October 2, 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 advisor 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 Percentage Percentage of
Eligible Employees of Offering of 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 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 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. 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>
Oppenheimer Value Stock Fund
6803 South Tucson Way
Englewood, Colorado 80112
Telephone: 1-800-525-7048
Investment Adviser
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048-0203
Sub-Adviser
David L. Babson & Co., Inc.
One Memorial Drive
Cambridge, MA 02142
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., David L. Babson & Co., 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.
PR0325.001.4___ *Printed on recycled paper
OPPENHEIMER VALUE STOCK FUND
6803 South Tucson Way, Englewood, Colorado 80112
1-800-525-7048
Statement of Additional Information dated April 30, 1997.
This Statement of Additional Information of Oppenheimer Value
Stock Fund is not a Prospectus. This document contains additional
information about the Fund and supplements information in the
Prospectus dated April 30, 1997. 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 . . . . . . . .6
Other Investment Restrictions. . . . . . . . . . . . . . 21
How the Fund is Managed. . . . . . . . . . . . . . . . . 23
Organization and History . . . . . . . . . . . . . . . . .
24 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trustees and Officers of the Fund. . . . . . . . . . . . .
25 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Manager and Its Affiliates . . . . . . . . . . . . . 30
Brokerage Policies of the Fund . . . . . . . . . . . . . 33
Performance of the Fund. . . . . . . . . . . . . . . . . 36
Distribution and Service Plans . . . . . . . . . . . . . 40
About Your Account
How to Buy Shares. . . . . . . . . . . . . . . . . . . . 44
How to Sell Shares . . . . . . . . . . . . . . . . . . . 54
How to Exchange Shares . . . . . . . . . . . . . . . . . 60
Dividends, Capital Gains and Taxes . . . . . . . . . . . 62
Additional Information About the Fund. . . . . . . . . . 64
Financial Information About the Fund
Independent Auditors' Report . . . . . . . . . . . . . . 65
Financial Statements . . . . . . . . . . . . . . . . . . 66
Appendix A: Corporate Industry Classifications . . . . .A-1
<PAGE>
ABOUT THE FUND
Investment Objective and Policies
Investment Policies and Strategies. The investment objective and
policies of the Fund are discussed in the Prospectus. Set forth
below is supplemental information about those policies and the
types of securities in which the Fund invests, as well as the
strategies the Fund may use to try to achieve its objective.
Certain capitalized terms used in this Statement of Additional
Information have the same meaning as those terms have in the
Prospectus.
Equity Securities
Preferred Stocks. Preferred stocks, unlike common stocks,
offer a stated dividend rate payable from the corporation's
earnings. Such preferred stock dividends may be cumulative or non-
cumulative, participating, or auction rate. If interest rates
rise, the fixed dividend on preferred stocks may be less
attractive, causing the price of preferred stocks to decline.
Preferred stock may have mandatory sinking fund provisions, as well
as call/redemption provisions prior to maturity. Those can be a
negative feature when interest rates decline. Dividends on some
preferred stock may be "cumulative," requiring all or a portion of
prior unpaid dividends to be paid. Preferred stock also generally
has a preference over common stock on the distribution of a
corporation's assets in the event of liquidation of the
corporation, and may be "participating," which means that it may be
entitled to a dividend exceeding the stated dividend in certain
cases. The rights of preferred stocks on distribution of a
corporation's assets in the event of a liquidation are generally
subordinate to the rights associated with a corporation's debt
securities.
Convertible Securities. While convertible securities are a
form of debt security, in many cases their conversion feature
(allowing conversion into equity securities) causes them to be
regarded more as "equity equivalents." As a result, the rating
assigned to the security has less impact on the Manager's
investment decision with respect to convertible securities than in
the case of non-convertible debt securities. To determine whether
convertible securities should be regarded as "equity equivalents,"
the Manager examines the following factors: (1) whether, at the
option of the investor, the convertible security can be exchanged
for a fixed number of shares of common stock of the issuer, (2)
whether the issuer of the convertible securities has restated its
earnings per share of common stock on a fully diluted basis
(considering the effect of converting the convertible securities),
and (3) the extent to which the convertible security may be a
defensive "equity substitute," providing the ability to participate
in any appreciation in the price of the issuer's common stock.
Debt Securities
U.S. Government Securities. The U.S. government obligations
in which the Fund may invest in for defensive reasons include U.S.
Treasury bills, notes and bonds which are direct obligations of the
U.S. government and debt obligations issued, assumed, guaranteed or
sponsored by agencies or instrumentalities established under the
authority of an Act of Congress, or obligations secured by such
securities.
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 a 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.
Short-Term Money Market Securities. The high-quality,
short-term money market instruments the Fund may invest in to
provide liquidity or for temporary defensive purposes include U.S.
government obligations; commercial paper which at the date of the
investment is rated A-1 or A-2 by Standard & Poor's Corporation
("Standard & Poor's") or P-1 or P-2 by Moody's Investors Service,
Inc. ("Moody's") or, if unrated, is issued by companies having an
outstanding debt issue currently rated at least A by Standard &
Poor's or Moody's; short-term obligations of corporate issuers
which at the date of investment are rated AAA or AA by Standard &
Poor's or Aaa or Aa by Moody's; bank participation certificates,
provided that at the date of investment each of the underlying
loans is made to an issuer of securities rated at least A-2, AA or
SP-2 by Standard & Poor's or P-2 or Aa by Moody's, and also
provided that the underlying loans have a remaining maturity of one
year or less; and certificates of deposit and bankers' acceptances
of banks and savings and loan associations. The Fund may also
purchase short-term money market instruments which ratings are
substantially similar to the Moody's and Standard & Poor's ratings
and are from another NRSRO.
Warrants. The Fund may invest up to 5% of the value of its
assets in warrants in an effort to build a position in the
underlying common stocks and, of such 5%, no more than 2% may be
invested in warrants that are not listed on the New York Stock
Exchange or the American Stock Exchange. A warrant typically gives
the holder the right to purchase underlying stock at a specified
price for a designated period of time. Warrants may be a
relatively volatile investment. The holder of a warrant takes the
risk that the market price of the underlying stock may never equal
or exceed the exercise price of the warrant. A warrant will expire
without value if it is not exercised or sold during its exercise
period.
Securities of Foreign Governments and Companies. As stated in
the Prospectus, the Fund may invest in equity or debt securities
(which may be dominated in U.S. dollars or non-U.S. currencies)
issued or guaranteed by foreign corporations, certain supranational
entities (described below) and foreign governments or their
agencies or instrumentalities, and in securities issued by U.S.
corporations denominated in non-U.S. currencies. All of these
securities are considered to be "Foreign Securities."
The percentage of the Fund's assets that will be allocated to
foreign securities will vary from time to time depending on, among
other things, the relative yields of foreign and U.S. securities,
the economies of foreign countries, the condition of such
countries' financial markets, the interest rate climate of such
countries and the relationship of such countries' currency to the
U.S. dollar. The Sub-Adviser will consider an issuer's
affiliation, if any, with a foreign government as one of the
factors in determining whether to purchase any particular foreign
security. These factors are judged on the basis of fundamental
economic criteria (e.g., relative inflation levels and trends,
growth rate forecasts, balance of payments status, and economic
policies) as well as technical and political data. The Fund's
portfolio of foreign securities may include those of a number of
foreign countries or, depending upon market conditions, those of a
single country.
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 (known as "ADRs"), 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 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.
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)
purchase Futures or (ii) purchase calls on such Futures or
securities. Normally, the Fund would then purchase the equity
securities and terminate the hedging position. When hedging to
protect against declines in the dollar value of a foreign currency-
denominated security, the Fund may: (a) purchase puts on that
foreign currency or on foreign currency Futures, (b) write calls on
that currency or on such Futures, or (c) enter into Forward
Contracts at a lower rate than the spot ("cash") rate.
The Fund's strategy of hedging with Futures and options on
Futures will be incidental to the Fund's activities in the
underlying cash market. At present, the Fund does not intend to
enter into Futures, Forward Contracts and options on Futures if,
after any such purchase, the sum of margin deposits on Futures and
premiums paid on Futures options exceeds 5% of the value of the
Fund's total assets. In the future, the Fund may employ Hedging
Instruments and strategies that are not presently contemplated but
which may be developed, to the extent such investment methods are
consistent with the Fund's investment objective, legally
permissible and adequately disclosed. Additional Information about
the Hedging Instruments the Fund may use is provided below.
Writing Call Options. The Fund may write (that is, sell)
call options ("calls"). All calls written by the Fund must be
"covered" while the call is outstanding (that means, the Fund must
own the securities subject to the call or other securities
acceptable for applicable escrow requirements). Calls on Futures
(discussed below) must be covered by deliverable securities or by
liquid assets segregated to satisfy the Futures contract.
When the Fund writes a call on an investment it receives a
premium and agrees to sell the callable investment to a purchaser
of a corresponding call during the call period (usually not more
than 9 months) at a fixed exercise price (which may differ from the
market price of the underlying investment), regardless of market
price changes during the call period. The Fund has retained the
risk of loss should the price of the underlying security decline
during the call period, which may be offset to some extent by the
premium.
To terminate its obligation on a call it has written, the Fund
may purchase a corresponding call in a "closing purchase
transaction." A profit or loss will be realized, depending upon
whether the net of the amount of the option transaction costs and
the premium received on the call the Fund has written is more or
less than the price of the call the Fund has subsequently
purchased. A profit may also be realized if the call lapses
unexercised, because the Fund retains the underlying investment and
the premium received. Those profits are considered short-term
capital gains for Federal income tax purposes, and when distributed
by the Fund are taxable as ordinary income. If the Fund could not
effect a closing purchase transaction due to lack of a market, it
would have to hold the callable investments until the call lapsed
or was exercised.
The Fund may also write calls on Futures without owning a
futures contract or deliverable securities, provided that at the
time the call is written, the Fund covers the call by segregating
in escrow an equivalent dollar amount of deliverable securities or
liquid assets. The Fund will segregate additional liquid assets if
the value of the escrowed assets drops below 100% of the current
value of the Future. In no circumstances would an exercise notice
require the Fund to deliver a futures contract; it would simply put
the Fund in a short futures position, which is permitted by the
Fund's hedging policies.
Writing Put Options. A put option on an investment gives
the purchaser the right to sell, and the writer the obligation to
buy, the underlying investment at the exercise price during the
option period. Writing a put covered by segregated liquid assets
equal to the exercise price of the put has the same economic effect
to the Fund as writing a covered call. The premium the Fund
receives from writing a put option represents a profit, as long as
the price of the underlying investment remains above the exercise
price. However, the Fund has also assumed the obligation during
the option period to buy the underlying investment from the buyer
of the put at the exercise price, even though the value of the
investment may fall below the exercise price. If the put expires
unexercised, the Fund (as the writer of the put) realizes a gain in
the amount of the premium less transaction costs. If the put is
exercised, the Fund must fulfill its obligation to purchase the
underlying investment at the exercise price, which will usually
exceed the market value of the investment at that time. In that
case, the Fund may incur a loss, equal to the sum of the sale price
of the underlying investment and the premium received minus the sum
of the exercise price and any transaction costs incurred.
When writing put options on securities or on foreign
currencies, to secure its obligation to pay for the underlying
security, the Fund will deposit in escrow liquid assets with a
value equal to or greater than the exercise price of the underlying
securities. The Fund therefore foregoes 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.
Purchasing Calls and Puts. The Fund may purchase calls to
protect against the possibility that the Fund's portfolio will not
fully participate in an anticipated rise in the securities market.
When the Fund purchases a call (other than in a closing purchase
transaction), it pays a premium and, except as to calls on stock
indices, has the right to buy the underlying investment from a
seller of a corresponding call on the same investment during the
call period at a fixed exercise price. When the Fund purchases a
call on an index, it pays a premium, but settlement is in cash
rather than by delivery of the underlying investment to the Fund.
In purchasing a call, the Fund benefits only if the call is sold at
a profit or if, during the call period, the market price of the
underlying investment is above the sum of the call price plus the
transaction costs and the premium paid and the call is exercised.
If the call is not exercised or sold (whether or not at a profit),
it will become worthless at its expiration date and the Fund will
lose its premium payment and the right to purchase the underlying
investment.
The Fund may purchase put options ("puts") which relate to
securities, foreign currencies or Futures. When the Fund purchases
a put, it pays a premium and, except as to puts on stock indices,
has the right to sell the underlying investment to a seller of a
corresponding put on the same investment during the put period at
a fixed exercise price. Buying a put on an investment the Fund
owns enables the Fund to protect itself during the put period
against a decline in the value of the underlying investment below
the exercise price by selling the underlying investment at the
exercise price to a seller of a corresponding put. If the market
price of the underlying investment is equal to or above the
exercise price and as a result the put is not exercised or resold,
the put will become worthless at its expiration date, and the Fund
will lose its premium payment and the right to sell the underlying
investment. The put may, however, be sold prior to expiration
(whether or not at a profit.)
Buying a put on an investment it does not own, either a put on
an index or a put on a Stock Index Future not held by the Fund,
permits the Fund either to resell the put or buy the underlying
investment and sell it at the exercise price. The resale price of
the put will vary inversely with the price of the underlying
investment. If the market price of the underlying investment is
above the exercise price and as a result the put is not exercised,
the put will become worthless on its expiration date. In the event
of a decline in the stock market, the Fund could exercise or sell
the put at a profit to attempt to offset some or all of its loss on
its portfolio securities. When the Fund purchases a put on an
index, or on a Future not held by it, the put protects the Fund to
the extent that the index moves in a similar pattern to the
securities held. In the case of a put on an index or Future,
settlement is in cash rather than by delivery by the Fund of the
underlying investment.
Puts and calls on broadly-based stock indices or Stock Index
Futures are similar to puts and calls on securities or futures
contracts except that all settlements are in cash and gain or loss
depends on changes in the index in question (and thus on price
movements in the stock market generally) rather than on price
movements in individual securities or futures contracts. When the
Fund buys a call on an index or Future, it pays a premium. During
the call period, upon exercise of a call by the Fund, a seller of
a corresponding call on the same investment will pay the Fund an
amount of cash to settle the call if the closing level of the index
or Future upon which the call is based is greater than the exercise
price of the call. That cash payment is equal to the difference
between the closing price of the index and the exercise price of
the call times a specified multiple (the "multiplier") which
determines the total dollar value for each point of difference.
When the Fund buys a put on an index or Future, it pays a premium
and has the right during the put period to require a seller of a
corresponding put, upon the Fund's exercise of its put, to deliver
to the Fund an amount of cash to settle the put if the closing
level of the index or Future upon which the put is based is less
than the exercise price of the put. That cash payment is determined
by the multiplier, in the same manner as described above as to
calls.
Stock Index Futures and Interest Rate Futures. The Fund may
buy and sell futures contracts relating either to broadly-based
stock indices ("Stock Index Futures") or to debt securities
("Interest Rate Futures"). A Stock Index Future obligates the
seller to deliver (and the purchaser to take) cash to settle the
futures transaction, or to enter into an offsetting contract. No
physical delivery of the underlying stocks in the index is made.
Generally, contracts are closed out with offsetting transactions
prior to the expiration date of the contract. An Interest Rate
Future obligates the seller to deliver and the purchaser to take a
specific type of debt security or cash to settle the futures
transaction, or to enter into an offsetting contract. 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 certain
specified conditions. As the Future is marked to market (that is,
the value on the Fund's books is changed to reflect changes in its
market value) subsequent margin payments, called variation margin,
will be paid to or by the futures broker on a daily basis.
At any time prior to expiration of the Future, the Fund may
elect to close out its position by taking an opposite position, at
which time a final determination of variation margin is made and
additional cash is required to be paid by or released to the Fund.
Any gain or loss is then realized. Although Stock Index Futures
and Interest Rate Futures by their terms call for settlement by the
delivery of cash and of debt securities, respectively, in most
cases the obligation is fulfilled without such delivery by entering
into an offsetting transaction. All futures transactions are
effected through a clearinghouse associated with the exchange on
which the contracts are traded.
Options on Foreign Currencies. The Fund intends to write
and purchase calls and puts on foreign currencies. 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. Normally
this will be effected by the sale of a security denominated in the
relevant currency at a price higher or lower than the original
acquisition price of the security. This will result in a loss or
gain in addition to that resulting from the currency option
position. The Fund will not engage in writing options on foreign
currencies unless the Fund has sufficient liquid assets denominated
in the same currency as the option or in a currency that, in the
judgment of the Manager, will experience substantially similar
movements against the U.S. dollar as the option currency.
Forward Contracts. The Fund may enter into foreign currency
exchange contracts ("Forward Contracts"), which obligate the seller
to deliver and the purchaser to take a specific amount of foreign
currency at a specific future date for a fixed price. A Forward
Contract involves bilateral obligations of one party to purchase,
and another party to sell, a specific currency at a future date
(which may be any fixed number of days from the date of the
contract agreed upon by the parties), at a price set at the time
the contract is entered into. These contracts are traded in the
interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. The Fund may
enter into a Forward Contract in order to "lock in" the U.S. dollar
price of a security denominated in a foreign currency which it has
purchased or sold but which has not yet settled, or to protect
against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and a foreign currency.
There is a risk that use of Forward Contracts may reduce the
gain that would otherwise result from a change in the relationship
between the U.S. dollar and a foreign currency. To attempt to
limit its exposure to loss under Forward Contracts in a particular
foreign currency, the Fund limits its use of these contracts to the
amount of its net assets denominated in that currency or
denominated in a closely-correlated foreign currency. Forward
contracts include standardized foreign currency futures contracts
which are traded on exchanges and are subject to procedures and
regulations applicable to other Futures. The Fund may also enter
into a forward contract to sell a foreign currency denominated in
a currency other than that in which the underlying security is
denominated. This is done in the expectation that there is a
greater correlation between the foreign currency of the forward
contract and the foreign currency of the underlying investment than
between the U.S. dollar and the foreign currency of the underlying
investment. This technique is referred to as "cross hedging." The
success of cross hedging is dependent on many factors, including
the ability of the Manager to correctly identify and monitor the
correlation between foreign currencies and the U.S. dollar. To the
extent that the correlation is not identical, the Fund may
experience losses or gains on both the underlying security and the
cross currency hedge.
The Fund may use Forward Contracts to protect against
uncertainty in the level of future exchange rates. The use of
Forward Contracts does not eliminate fluctuations in the prices of
the underlying securities the Fund owns or intends to acquire, but
it does fix a rate of exchange in advance. In addition, although
Forward Contracts limit the risk of loss due to a decline in the
value of the hedged currencies, at the same time they limit any
potential gain that might result should the value of the currencies
increase.
There is no limitation as to the percentage of the Fund's
assets that may be committed to foreign currency exchange
contracts. The Fund does not enter into such forward contracts or
maintain a net exposure in such contracts to the extent that the
Fund would be obligated to deliver an amount of foreign currency in
excess of the value of the Fund's assets denominated in that
currency, or enter into a "cross hedge," unless it is denominated
in a currency or currencies that the Manager believes will have
price movements that tend to correlate closely with the currency in
which the investment being hedged is denominated. See "Tax Aspects
of Covered Calls and Hedging Instruments" below for a discussion of
the tax treatment of foreign currency exchange contracts.
The Fund may enter into Forward Contracts with respect to
specific transactions. For example, when the Fund enters into a
contract for the purchase or sale of a security denominated in a
foreign currency, or when the Fund anticipates receipt of dividend
payments in a foreign currency, the Fund may desire to "lock-in"
the U.S. dollar price of the security or the U.S. dollar equivalent
of such payment by entering into a Forward Contract, for a fixed
amount of U.S. dollars per unit of foreign currency, for the
purchase or sale of the amount of foreign currency involved in the
underlying transaction ("transaction hedge"). The Fund will
thereby be able to protect itself against a possible loss resulting
from an adverse change in the relationship between the currency
exchange rates during the period between the date on which the
security is purchased or sold, or on which the payment is declared,
and the date on which such payments are made or received.
The Fund may also use Forward Contracts to lock in the U.S.
dollar value of portfolio positions ("position hedge"). In a
position hedge, for example, when the Fund believes that foreign
currency may suffer a substantial decline against the U.S. dollar,
it may enter into a forward sale contract to sell an amount of that
foreign currency approximating the value of some or all of the
Fund's portfolio securities denominated in such foreign currency,
or when the Fund believes that the U.S. dollar may suffer a
substantial decline against a foreign currency, it may enter into
a forward purchase contract to buy that foreign currency for a
fixed dollar amount. In this situation the Fund may, in the
alternative, enter into a forward contract to sell a different
foreign currency for a fixed U.S. dollar amount (or for a fixed
amount of another currency closely correlated with the U.S. dollar)
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 not enter into such Forward Contracts or
maintain a net exposure to such contracts where the consummation of
the contracts would obligate the Fund to deliver an amount of
foreign currency in excess of the value of the Fund's portfolio
securities or other assets denominated in that currency or another
currency that is also the subject of the hedge. The Fund, however,
in order to avoid excess transactions and transaction costs, may
maintain a net exposure to Forward Contracts in excess of the value
of the Fund's portfolio securities denominated in these currencies
provided the excess amount is "covered" by liquid, high grade debt
securities, denominated in either that foreign currency or U.S.
dollars, at least equal at all times to the amount of such excess.
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. Contracts are not traded on an
exchange and therefore, the Fund must evaluate the credit and
performance risk of each particular counterparty under a Forward
Contract.
Although the Fund values its assets daily in terms of U.S.
dollars, it does not intend to convert its holdings of foreign
currencies into U.S. dollars on a daily basis. The Fund may
convert foreign currency from time to time, and investors should be
aware of the costs of currency conversion. Foreign exchange
dealers do not charge a fee for conversion, but they do seek to
realize a profit based on the difference between the prices at
which they buy and sell various currencies. Thus, a dealer may
offer to sell a foreign currency to the Fund at one rate, while
offering a lesser rate of exchange should the Fund desire to resell
that currency to the dealer.
Additional Information about Hedging Instruments and Their
Use. The Fund's Custodian, or a securities depository acting for
the Custodian, will act as the Fund's escrow agent, through the
facilities of the Options Clearing Corporation ("OCC"), as to the
securities 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.
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 unless subject to
a buy-back agreement with the executing broker. 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.
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.
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 Commodities Futures Trading Commission ("CFTC"). In particular
the Fund is excluded from registration with the CFTC as a
"commodity pool operator" if the Fund complies with the
requirements of Rule 4.5 adopted by the CFTC. The Rule does not
limit the percentage of the Fund's assets that may be used for
Futures margin and related options premiums for a bona fide hedging
position. However, under the Rule the Fund must limit its
aggregate initial futures margin and related option premiums to no
more than 5% of the Fund's net assets for hedging strategies that
are not considered bona fide hedging strategies under the Rule.
Under the Rule, the Fund also must use short Futures and Futures
options positions solely for "bona fide hedging purposes" within
the meaning and intent of the applicable provisions of the
Commodity Exchange Act.
Transactions in options by the Fund are subject to limitations
established by each of the option exchanges governing the maximum
number of options that may be written or held by a single investor
or group of investors acting in concert, regardless of whether the
options were written or purchased on the same or different
exchanges or are held in one or more accounts or through one or
more exchanges or brokers. Thus, the number of options which the
Fund may write or hold may be affected by options written or held
by other entities, including other investment companies having the
same advisor as the Fund, or an advisor that is an affiliate of the
Fund's advisor. Position limits also apply to Futures. An
exchange may order the liquidation of positions found to be in
violation of those limits and may impose certain other sanctions.
Due to requirements under the Investment Company Act, when the
Fund purchases a Future, the Fund will maintain, in a segregated
account or accounts with its custodian bank, cash or readily-
marketable, short-term (maturing in one year or less) debt
instruments in an amount equal to the market value of the
securities underlying such Future, less the margin deposit
applicable to it.
Tax Aspects of Covered Calls and Hedging Instruments. The
Fund intends to qualify as a "regulated investment company" under
the Internal Revenue Code (although it reserves the right not to
qualify). That qualification enables the Fund to "pass through"
its income and realized capital gains to shareholders without
having to pay tax on them. This avoids a "double tax" on that
income and capital gains, since shareholders normally will be taxed
on the dividends and capital gains they receive from the Fund
(unless the Fund's shares are held in a retirement account or the
shareholder is otherwise exempt from tax). One of the tests for
the Fund's qualification as a regulated investment company is that
less than 30% of its gross income must be derived from gains
realized on the sale of securities held for less than three months.
To comply with this 30% cap, the Fund will limit the extent to
which it engages in the following activities, but will not be
precluded from them: (i) selling investments, including Stock Index
Futures, held for less than three months, whether or not they were
purchased on the exercise of a call held by the Fund; (ii)
purchasing options which expire in less than three months; (iii)
effecting closing transactions with respect to calls or puts
written or purchased less than three months previously; (iv)
exercising puts or calls held by the Fund for less than three
months; or (v) writing calls on investments held less than three
months.
Certain foreign currency exchange contracts ("Forward
Contracts") in which the Fund may invest are treated as "section
1256 contracts." Gains or losses relating to section 1256
contracts generally are characterized under the Internal Revenue
Code as 60% long-term and 40% short-term capital gains or losses.
However, foreign currency gains or losses arising from certain
section 1256 contracts (including Forward Contracts) generally are
treated as ordinary income or loss. In addition, section 1256
contracts held by the Fund at the end of each taxable year are
"marked-to market" with the result that unrealized gains or losses
are treated as though they were realized. These contracts also may
be marked-to-market for purposes of the excise tax applicable to
investment company distributions and for other purposes under rules
prescribed pursuant to the Internal Revenue Code. An election can
be made by the Fund to exempt these transactions from this mark-to-
market treatment.
Certain Forward Contracts entered into by the Fund may result
in "straddles" for Federal income tax purposes. The straddle rules
may affect the character and timing of gains (or losses) recognized
by the Fund on straddle positions. Generally, a loss sustained on
the disposition of a position making up a straddle is allowed only
to the extent such loss exceeds any unrecognized gain in the
offsetting positions making up the straddle. Disallowed loss is
generally allowed at the point where there is no unrecognized gain
in the offsetting positions making up the straddle, or the
offsetting position is disposed of.
Under the Internal Revenue Code, gains or losses attributable
to fluctuations in exchange rates that occur between the time the
Fund accrues interest or other receivables or accrues expenses or
other liabilities denominated in a foreign currency and the time
the Fund actually collects such receivables or pays such
liabilities generally are treated as ordinary income or ordinary
loss. Similarly, on disposition of equity securities denominated
in a foreign currency and on disposition of foreign currency
forward contracts, gains or losses attributable to fluctuations in
the value of a foreign currency between the date of acquisition of
the security or contract and the date of disposition also are
treated as ordinary gain or loss. Currency gains and losses are
offset against market gains and losses before determining a net
"Section 988" gain or loss under the Internal Revenue Code, which
may increase or decrease the amount of the Fund's investment
company income available for distribution to its shareholders.
Risks or Hedging with Futures and Options. An option
position may be closed out only on a market that provides secondary
trading for options of the same series, and there is no assurance
that a liquid secondary market will exist for any particular
option. In addition to the risks associated with hedging that are
discussed in the Prospectus and above, there is a risk in using
short hedging by selling Futures to attempt to protect against
declines in the value of the Fund's portfolio securities (due to an
increase in interest rates) that the prices of such Futures will
correlate imperfectly with the behavior of the cash (i.e., market
value) prices of the Fund's securities. The ordinary spreads
between prices in the cash and futures markets are subject to
distortions due to differences in the natures of those markets.
First, all participants in the futures markets are subject to
margin deposit and maintenance requirements. Rather than meeting
additional margin deposit requirements, investors may close out
futures contracts through offsetting transactions which could
distort the normal relationship between the cash and futures
markets. Second, the liquidity of the futures markets depends on
participants entering into offsetting transactions rather than
making or taking delivery. To the extent participants decide to
make or take delivery, liquidity in the futures markets could be
reduced, thus producing distortion. Third, from the point of view
of speculators, the deposit requirements in the futures markets are
less onerous than margin requirements in the securities markets.
Therefore, increased participation by speculators in the futures
markets may cause temporary price distortions.
The risk of imperfect correlation increases as the composition
of the Fund's portfolio diverges from the securities included in
the applicable index. To compensate for the imperfect correlation
of movements in the price of the portfolio securities being hedged
and movements in the price of the hedging instruments, the Fund may
use hedging instruments in a greater dollar amount than the dollar
amount of portfolio securities being hedged if the historical
volatility of the prices of such portfolio securities being hedged
is more than the historical volatility of the applicable index. It
is also possible that if the Fund has used hedging instruments in
a short hedge, the market may advance and the value of the
securities held in the Fund's portfolio may decline. If that
occurred, the Fund would lose money on the hedging instruments and
also experience a decline in value in its portfolio securities.
However, while this could occur for a very brief period or to a
very small degree, over time the value of a diversified portfolio
of securities will tend to move in the same direction as the
indices upon which the hedging instruments are based.
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. 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.
Repurchase Agreements. In a repurchase transaction, the
Fund acquires a security from, and simultaneously resells it to, an
approved vendor (a U.S. commercial bank, the U.S. branch of a
foreign bank or a broker-dealer which has been designated a primary
dealer in government securities, which must meet the credit
requirements set by the Trust's Board of Trustees from time to
time), for delivery on an agreed upon future date. The resale
price exceeds the purchase price by an amount that reflects an
agreed-upon interest rate effective for the period during which the
repurchase agreement is in effect. The majority of these
transactions run from day to day, and delivery pursuant to resale
typically will occur within one to five days of the purchase.
Repurchase agreements are considered "loans" under the Investment
Company Act, collateralized by the underlying security. The Fund's
repurchase agreements require that at all times while the
repurchase agreement is in effect, the collateral's value must
equal or exceed the repurchase price to fully collateralize the
repayment obligation. Additionally, the Sub-Adviser will impose
creditworthiness requirements to confirm that the vendor is
financially sound. Additionally, the Sub-Adviser will continuously
monitor the collateral's value.
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. Such securities may bear interest at
a lower rate than longer-term securities. 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 not more than 120 days from the date the offer is
accepted), 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 identify to its custodian liquid assets 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 generally 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 generally enters into such transactions with
the intention of actually receiving or delivering the securities,
although (as noted above), when-issued securities and forward
commitments may be sold prior to settlement date. In addition,
changes in interest rates before settlement in a direction other
than that expected by the Sub-Adviser will affect the value of such
securities and may cause a loss to the Fund.
When-issued transactions and forward commitments allow the
Fund a technique to use against anticipated changes in interest
rates and prices. For instance, in periods of rising interest
rates and falling prices, the Fund might sell securities in its
portfolio on a forward commitment basis to attempt to limit its
exposure to anticipated falling prices. In periods of falling
interest rates and rising prices, the Fund might sell portfolio
securities and purchase the same or similar securities on a when-
issued or forward commitment basis, thereby obtaining the benefit
of currently higher cash yields.
Short Sales Against-the-Box. In a short sale, while the
short position is open, the Fund must own an equal amount of the
securities sold short, or by virtue of ownership of other
securities have the right, without payment of further
consideration, to obtain an equal amount of the securities sold
short. Short sales against-the-box may be made to defer, for
Federal income tax purposes, recognition of gain or loss on the
sale of securities "in-the-box" until the short position is closed
out. They may also be used to protect a gain on the security "in-
the-box" when the Fund does not want to sell it and recognize a
capital gain.
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 do any of the following:
The Fund may not 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;
The Fund may not 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);
The Fund may not 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;
The Fund may not pledge, mortgage or hypothecate its assets,
except that, to secure permitted borrowings, it may pledge
securities having a market value at the time of the pledge not
exceeding 15% of the cost of 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;
The Fund may not 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
The Fund may not 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 do
any of the following:
The Fund may not invest for the purpose of exercising
control over, or management of, any company;
The Fund may not 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;
The Fund may not 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;
The Fund may not invest more than 5% of its net assets in
warrants;
The Fund may not invest more than 2% of its net assets in
warrants not listed on the New York Stock Exchange or the American
Stock Exchange; and
The Fund may not invest in real estate limited partnerships.
For purposes of the Fund's policy not to concentrate
investments as described in the investment restrictions in the
Prospectus, the Fund has adopted the industry classifications set
forth in Appendix A to this Statement of Additional Information.
This policy is not a fundamental policy.
How the Fund is Managed
Organization and History. Oppenheimer Value Stock Fund (referred
to as the "Fund") is one of two series of Oppenheimer Integrity
Funds (the "Trust"). This Statement of Additional Information may
be used with the Fund's Prospectus only to offer shares of the
Fund. The Trust was established in 1982 as MassMutual Liquid
Assets Trust and changed its name to MassMutual Integrity Funds on
April 15, 1988. The Fund was established as a separate
Massachusetts business trust known as MassMutual Equity Investors
Trust in 1986, and was reorganized as a series of the Trust on
April 15, 1988. On March 29, 1991, the Trust changed its name from
MassMutual Integrity Funds to Oppenheimer Integrity Funds and the
Fund changed its name from MassMutual Value Stock Fund to
Oppenheimer Value Stock Fund.
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 entitle the holder to one vote per share (and a
fractional vote for a fractional share) on matters submitted to
their vote at shareholders' meetings. Shareholders of the Fund and
of the Trust's other series vote together in the aggregate on
certain matters at shareholders' meetings, such as the election of
Trustees and ratification of appointment of auditors for the Trust.
Shareholders of a particular series or class vote separately on
proposals which affect that series or class, and shareholders of a
series or class which is not affected by that matter are not
entitled to vote on the proposal. For example, only shareholders
of a series, such as the Fund, vote exclusively on any material
amendment to the investment advisory agreement with respect to the
series. Only shareholders of a class of a series vote on certain
amendments to the Distribution and/or Service Plans if the
amendments affect only 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 and 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 Fund's Trustees and officers and their principal
occupations and business affiliations during the past five years
are set forth below. All of the Trustees are also Trustees,
Directors or Managing General Partners of Centennial America Fund,
L.P., Centennial California Tax Exempt Trust, Centennial Government
Trust, Centennial Money Market Trust, Centennial New York Tax
Exempt Trust, Centennial Tax Exempt Trust, Daily Cash Accumulation
Fund, Inc., Oppenheimer Cash Reserves, Oppenheimer Equity Income
Fund, Oppenheimer Integrity Funds, Oppenheimer International Bond
Fund, Oppenheimer High Yield Fund, Oppenheimer Limited-Term
Government Fund, Oppenheimer Main Street Funds, Inc., Oppenheimer
Strategic Income Fund, Oppenheimer Strategic Income & Growth Fund,
Oppenheimer Municipal Fund, Oppenheimer Total Return Fund, Inc.,
Oppenheimer Real Asset Fund, Oppenheimer Variable Account Funds,
Panorama Series Fund, Inc. and The New York Tax-Exempt Income Fund,
Inc., (the "Denver-based Oppenheimer funds"), except for Mr. Fossel
and Ms. Macaskill who are not Trustees or Directors Oppenheimer
Integrity Funds, Oppenheimer Strategic Income Fund, Oppenheimer
Variable Account Funds and Panorama Series Fund, Inc. Mr. Fossel
also is not a trustee of Centennial New York Tax Exempt Trust and
he is not a Managing General Partner of Centennial America Fund,
L.P. Ms. Macaskill is President and Mr. Swain is Chairman of the
Denver-based Oppenheimer funds. Messrs. Bishop, Bowen, Donohue,
Farrar and Zack hold similar positions as officers of all such
funds. As of April 2, 1997, the Trustees and officers of the Fund
as a group owned less than 1% of the Fund's outstanding Class A
shares, none of the Fund's outstanding Class B shares and none of
the Fund's outstanding Class C shares. The foregoing statement
does not reflect ownership of shares held of record by an employee
benefit plan for employees of the Manager (for which plan one of
the Trustees and officers listed below, Mr. Donohue, is a trustee),
other than the shares beneficially owned under that plan by the
officers of the Fund listed below.
Robert G. Avis, Trustee; Age: 65
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: 82
197 Desert Lakes Drive, Palm Springs, California 92264
Management Consultant.
Charles Conrad, Jr., Trustee; Age 66
1501 Quail Street, Newport Beach, CA 92660
Chairman and CEO of Universal Space Lines, Inc. (a space services
management company); formerly Vice President of McDonnell Douglas
Space Systems Co. and associated with the National Aeronautics and
Space Administration.
Sam Freedman, Trustee; Age 56
4975 Lakeshore Drive, Littleton, Colorado 80123
Formerly Chairman and Chief Executive Officer of OppenheimerFunds
Services, Chairman, Chief Executive Officer and a director of SSI,
Chairman, Chief Executive Officer and director of SFSI, Vice
President and director of OAC and a director of OppenheimerFunds,
Inc.
Raymond J. Kalinowski, Trustee; Age: 67
44 Portland Drive, St. Louis, Missouri 63131
Director of Wave Technologies International, Inc.(a computer
products training company): 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: 75
2552 East Alameda, Denver, Colorado 80209
Formerly the Managing Partner of Deloitte, Haskins & Sells (an
accounting firm).
Robert M. Kirchner, Trustee; Age: 75
7500 E. Arapahoe Road, Englewood, Colorado 80112
President of The Kirchner Company (management consultants).
Ned M. Steel, Trustee; Age: 81
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 Chief Executive Officer and Trustee; Age:
63
6803 South Tucson Way, Englewood, Colorado 80112
Vice Chairman of the Manager; formerly President and director of
Centennial Asset Management Corporation, an investment adviser
subsidiary of the Manager ("Centennial") and Chairman of the Board
of SSI.
Bridget A. Macaskill, President; Age 48*
President, Chief Executive Officer and a Director of the Manager
and HarbourView Asset Management Corporation ("HarbourView"), a
subsidiary of the Manager; Chairman and a director of SSI and
Shareholder Financial Services, Inc.; President and a director of
OAC and Oppenheimer Partnership Holdings, Inc., a holding company
subsidiary of the Manager; a director of Oppenheimer Real Asset
Management, Inc.; formerly an Executive Vice President of the
Manager.
Andrew J. Donohue, Vice President and Secretary; Age 46
Executive Vice President, General Counsel and a Director of the
Manager, the Distributor, HarbourView, SSI, SFSI, Oppenheimer
Partnership Holdings, Inc. and MultiSource Services, Inc. (a
broker-dealer); President and a director of Centennial;
President and a director of Oppenheimer Real Asset Management,
Inc.; General Counsel of OAC; an officer of other Oppenheimer
funds.
George C. Bowen, Vice President, Treasurer, and Assistant
Secretary; Age 60
6803 Tucson Way, Englewood, Colorado 80112
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; President, Treasurer and a director of Centennial
Capital Corporation; Senior Vice President, Treasurer and
Secretary of SSI; Vice President, Treasurer and Secretary of SFSI;
Treasurer of OAC; Treasurer of Oppenheimer Partnership Holdings,
Inc.; Vice President and Treasurer of Oppenheimer Real Asset
Management, Inc.; Chief Executive Officer, Treasurer and a
director of MultiSource Services, Inc. (a broker-dealer); an
officer of other Oppenheimer funds.
James W. MacAllen, Portfolio Manager; Age: 53
Senior Vice President of David L. Babson and Company ("Babson");
formerly associated with Hagler, Mastrovita & Hewitt; President and
Chief Investment Officer of Wilmington Capital Management; and
Senior Vice President and head of the Securities Investment
Division of MassMutual.
Robert G. Zack, Assistant Secretary; Age: 48
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 38
6803 Tucson Way, Englewood, Colorado 80112
Vice President of the Manager/Mutual Fund Accounting; an officer of
other Oppenheimer funds; formerly a Fund Controller for the
Manager.
Scott T. Farrar, Assistant Treasurer; Age 31
6803 Tucson Way, Englewood, Colorado 80112
Vice President of the Manager/Mutual Fund Accounting; an officer of
other Oppenheimer funds; formerly a Fund Controller for the
Manager.
Remuneration of Trustees. The officers of the Fund and one
of the Trustees of the Fund (Mr. Swain) who is affiliated with the
Manager receives no salary or fee from the Fund. The remaining
Trustees of the Fund received the compensation shown below. Mr.
Freedman became a Trustee June 27, 1996 and received no
compensation from the Fund before that date. The compensation from
the Fund was paid during fiscal year ended December 31, 1996. The
compensation from all of the other Denver-based Oppenheimer funds
includes the Fund and is compensation received as a director,
trustee, managing general partner or member of a committee of the
Board of those funds during the calendar year 1996. Compensation
is paid for services in the positions listed beneath their names:
Total Compensation
Aggregate From All
Compensation Denver-based
Name and Position from Fund Oppenheimer funds1
Robert G. Avis, $725 $58,003
Trustee
William A. Baker, $996 $79,715
Audit and Review
Committee Chairman
and Trustee
Charles Conrad, Jr,. $934 $74,717
Audit and Review
Committee Member
and Trustee
Sam Freedman, $369 $29,502
Trustee
Raymond J. Kalinowski,$927 $74,173
Trustee
C. Howard Kast, $927 $74,173
Trustee
Robert M. Kirchner, $934 $74,717
Audit and Review
Committee Member
and Trustee
Ned M. Steel, $725 $58,003
Trustee
________________
1For the 1996 calendar year.
Major Shareholders. As of March 21, 1997, 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 were (i) MML
Securities Corporation, 1414 Main Street, Springfield, MA 01144,
which owned 1,691,756.931 Class A shares (approximately 22.79% of
the Fund's Class A shares then outstanding) (ii) MassMutual Life
Insurance Company, c/o Investment Services Dept., 1295 State
Street, Springfield, MA 01111-0001, which owned 587,681.298 Class
A shares (approximately 7.91% of the Fund's Class A shares then
outstanding);(ii)Merrill Lynch Fenner & Smith for the Sole Benefit
of its Customers, 4800 Deer Lake Drive E FL3, Jacksonville, FL
32246-6484, which owned 109,049.000 Class B shares (approximately
5.17% of the Fund's Class B shares then outstanding); (iv)Merrill
Lynch Fenner & Smith for the Sole Benefit of its Customers, 4800
Deer Lake Drive E FL3, Jacksonville, FL 32246-6484, which owned
21,292.000 Class C shares (approximately 19.28% of the Fund's Class
C shares then outstanding); and (v) PaineWebber for the Benefit of
Kentucky Land Title Agency, Inc. Profit Sharing Plan, 2362
Grandview Drive, Fort Mitchell, KY 41017-1633 who owned 5,814.056
Class C shares (approximately 5.27% 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. OAC is also owned
in part by certain of the Manager's directors and officers, some of
whom also serve as officers of the Fund, and one of whom (Mr. James
C. Swain) serves as Trustees of the Fund.
The Manager and the Fund have a Code of Ethic, as does the
Sub-Adviser. The Codes are 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 Codes of Ethics is
carefully monitored and strictly enforced.
The Investment Advisory Agreement. The Investment Advisory
Agreement, dated as of March 28, 1991, between the Trust on behalf
of the Fund and the Manager requires the Manager, at its expense,
to provide the Fund with adequate office space, facilities and
equipment and to provide and supervise the activities of all
administrative and clerical personnel required to provide effective
corporate administration for the Fund, including the compilation
and maintenance of records with respect to its operations, the
preparation and filing of specified reports, and composition of
proxy materials and registration statements for continuous public
sale of shares of the Fund.
Expenses not expressly assumed by the Manager under the
advisory agreement or by the Distributor under the General
Distributor's Agreement are paid by the Fund. The advisory
agreement lists examples of expenses paid by the Fund, the major
categories of which relate to interest, taxes, brokerage
commissions, fees to certain Trustees, legal and audit expenses,
custodian and transfer agent expenses, share issuance costs,
certain printing and registration costs and non-recurring expenses,
including litigation costs.
The Investment Advisory Agreement provides that in the absence
of willful misfeasance, bad faith or gross negligence in the
performance of its duties or reckless disregard for its obligations
and duties under the advisory agreement, the Manager is not liable
for any loss resulting from a good faith error or omission on its
part with respect to any of its duties thereunder. The advisory
agreement permits the Manager to act as investment adviser for any
other person, firm or corporation and to use the name "Oppenheimer"
in connection with other investment companies for which it may act
as investment advisor or general distributor. If the Manager shall
no longer act as investment adviser to the Fund, the right of the
Fund to use the name "Oppenheimer" as part of its name may be
withdrawn. 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.
Prior to April 23, 1993, MassMutual served as the Fund's
investment sub-adviser under a prior sub-advisory agreement (the
"Prior Sub-Advisory Agreement"). The Manager paid MassMutual a
sub-advisory fee under the Prior Sub-Advisory Agreement at the
following annual rates: 0.40% of the Fund's first $100 million of
average annual net assets, 0.30% of the next $200 million, 0.25% of
the next $200 million and 0.20% of average annual net assets in
excess of $500 million.
On April 23, 1993, the Fund's shareholders approved a new sub-
advisory agreement (the "sub-advisory agreement") with the Sub-
Adviser. The sub-advisory fees paid under the sub-advisory
agreement are stated in the Prospectus. In connection with
approval of the sub-advisory agreement by the Trust's Board of
Trustees and shareholders, MassMutual also represented that there
will be no substantive change in the sub-advisory relationship
other than the restructuring of investment advisory duties between
MassMutual and the Sub-Adviser pursuant to MassMutual's internal
reorganization of its investment advisory services for equity
assets. MassMutual also agreed to guarantee the performance of the
Sub-Adviser under the sub-advisory agreement. That guarantee
provides that it will terminate as to the Sub-Adviser's performance
and the discharge of its responsibilities after such termination if
for three consecutive 12 month fiscal year ends the Sub-Adviser has
total stockholders equity of at least $200,000 according to its
annual audited financial statements delivered to the Fund. The
Sub-Adviser met the foregoing requirement as of the end of its
December 31, 1996 fiscal year end.
Under the sub-advisory agreement, the Sub-Adviser is
responsible for managing the Fund's portfolio of securities and
making investment decisions with respect to the Fund's investments
subject to the Fund's investment policies established by the Board
of Trustees of the Trust, and in accordance with the Fund's
investment objective, policies and restrictions, set forth in the
Prospectus and this Additional Statement. The sub-advisory
agreement has the same provisions as to renewal, termination and
the standard of care as the investment advisory agreement, and both
advisory agreements are subject to annual approval by the Trustees,
who may terminate either advisory agreement on sixty days' notice
approved by a majority of the Trustees.
The advisory agreements contain no expense limitation.
However, independently of the advisory and sub-advisory agreements,
the Manager has undertaken that the total expenses of the Fund in
any fiscal year (including the management fee, but excluding taxes,
interest, brokerage fees, distribution plan payments, and
extraordinary expenses, such as litigation costs) shall not exceed
(and the Manager undertakes to reduce the Fund's management fee in
the amount by which such expenses shall exceed) the most stringent
applicable state "blue sky" expense limitation requirement for
qualification of sale of the Fund's shares. At present, that
limitation is imposed by California and limits expenses (with
specified exclusions) to 2.5% of the first $30 million of the
Fund's average annual net assets, 2.0% of the next $70 million of
average net assets and 1.5% of average net assets in excess of $100
million. The Manager reserves the right to change or eliminate
this expense limitation at any time.
The payment of the management fee at the end of any month will
be reduced so that at no time will there be any accrued but unpaid
liability under the above expense limitation.
For the fiscal years ended December 31, 1994, 1995 and 1996
the advisory fees paid to the Manager were $738,121, $993,692 and
$ 1,315,835, respectively, of which $295,983, $364,728 and $452,194
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
Service Plan and the 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, 1994, 1995 and 1996, the aggregate amount of sales
charges on sales of the Fund's Class A shares was $204,620,
$318,952 and $345,153, respectively, of which the Distributor and
Massachusetts Mutual Life Investors Services, Inc. ("MMLISI")
retained in the aggregate $135,102, $193,431 and $192,834 in those
respective years. For the year ending December 31, 1996, the
Distributor paid $401,158 to broker-dealers on the sales of the
Funds' Class B shares, $67,248 of which went to MMLISI. In
addition, the Distributor collected $49,374 from contingent
deferred sales charges assessed on Class B shares. During the
Fund's fiscal year ended December 31, 1996, the Distributor paid
$15,057 to broker-dealers on the sales of the Funds' Class C
shares, $1,741 of which went to MMLISI. For additional information
about distributing 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, 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 Sub-Advisory Agreement. One of the
duties of the Sub-Adviser under the sub-advisory agreement is to
arrange the portfolio transactions of the Fund. In doing so, the
Sub-Adviser is authorized by the sub-advisory agreement to employ
broker-dealers ("brokers"), including "affiliated" brokers, as that
term is defined in the Investment Company Act, as may, in its best
judgment based on all relevant factors, implement the policy of
the Fund to obtain, at reasonable expense, the "best execution"
(prompt and reliable execution at the most favorable price
obtainable) of such transactions. The 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 by the issuer to the
underwriter, and purchases from dealers include a spread between
the bid and asked price.
Under the sub-advisory agreement, the Sub-Adviser is
authorized to select brokers which provide brokerage and/or
research services for the Fund and/or the other accounts over which
it or its affiliates have investment discretion. The commissions
paid to such brokers may be higher than another qualified broker
would have charged, if a good faith determination is made by the
Sub-Adviser that the commission is fair and reasonable in relation
to the services provided.
Description of Brokerage Practices Followed by the Manager and Sub-
Adviser. Subject to the provisions of the sub-advisory agreement,
the procedures and rules described above, allocations of brokerage
are generally made by the Sub-Adviser's portfolio traders based
upon recommendations by the Sub-Adviser's portfolio manager. In
certain instances portfolio managers may directly place trades and
allocate brokerage, also subject to the provisions of the sub-
advisory agreement and the procedures and rules described above.
In either case, brokerage is allocated under the supervision of the
Manager's executive officers and the Sub-Adviser. Transactions in
securities other than those for which an exchange is the primary
market are generally done with principals or market makers.
Brokerage commissions are paid primarily for effecting transactions
in listed securities or for certain fixed-income agency
transactions in the secondary market and otherwise only if it
appears likely that a better price or execution can be obtained.
When the Fund engages in an option transaction, ordinarily the same
broker will be used for the purchase or sale of the option and any
transactions in the securities to which the option relates. Option
commissions may be relatively higher than those which would apply
to direct purchases and sales of portfolio securities.
Most purchases of money market instruments and debt
obligations are principal transactions at net prices. Instead of
using a broker for those transactions, the Fund normally deals
directly with the selling or purchasing principal or market maker
unless the Sub-Adviser determines that a better price or execution
can be obtained by using a broker. Purchases of these securities
from underwriters include a commission or concession paid by the
issuer to the underwriter. Purchases from dealers include a spread
between the bid and asked prices. The Fund seeks to obtain prompt
execution of these orders at the most favorable net price.
The research services provided by a particular broker may be
useful only to one or more of the advisory accounts of the Sub-
Adviser and its affiliates, and investment research received for
the commissions of those other accounts may be useful both to the
Fund and one or more of such other accounts. Such research, which
may be supplied by a third party at the instance of a broker,
includes information and analyses on particular companies and
industries as well as market or economic trends and portfolio
strategy, receipt of market quotations for portfolio evaluations,
information systems, computer hardware and similar products and
services. If a research service also assists the Sub-Adviser in a
non-research capacity (such as bookkeeping or other administrative
functions), then only the percentage or component that provides
assistance to the Sub-Adviser in the investment decision-making
process may be paid for in commission dollars. The Board of
Trustees has permitted the Manager and Sub-Adviser to use
concessions on fixed price offerings to obtain research in the same
manner as is permitted in agency transactions. The Board has also
permitted the Manager and Sub-Adviser to use stated commissions on
secondary fixed-income agency trades to obtain research where the
broker has represented to Manager and Sub-Adviser 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 as the stated
commission, and (iii) the trade is not a riskless principal
transaction.
The research services provided by brokers broaden the scope
and supplement the research activities of the Sub-Adviser by making
available additional views for consideration and comparisons, and
enabling the Sub-Adviser to obtain market information for the
valuation of securities held in the Fund's portfolio or being
considered for purchase. The Board, including the independent
Trustees of the Trust (those Trustees of the Trust who are not
"interested persons," as defined in the Investment Company Act, and
who have no direct or indirect financial interest in the operation
of the Distribution Plans described below) or in any agreements
relating to those Plans, annually reviews information furnished by
the Sub-Adviser as to the commissions paid to brokers furnishing
such services so that the Board may ascertain whether the amount of
such commissions was reasonably related to the value or benefit of
such services.
Pursuant to the sub-advisory agreement, the Sub-Adviser is
authorized, in arranging the purchase and sale of the Fund's
portfolio securities, to employ or deal with such members of the
securities exchanges, brokers or dealers as may in the its best
judgement implement the policy of the Fund to obtain, at reasonable
expense, the "best execution" (that is, prompt and reliable
execution at the most favorable security price obtainable) of the
Fund's portfolio transactions. The Sub-Adviser shall select
broker-dealers to effect the Fund's portfolio transactions on the
basis of its estimate of their ability to obtain best execution of
particular and related portfolio transactions. The abilities of a
broker-dealer to obtain best execution of particular portfolio
transaction(s) will be judged by the Sub-Adviser on the basis of
all relevant factors and considerations.
Securities held by the Fund may also be held by Sub-Adviser in
its investment accounts and by other investment companies for which
it acts as investment adviser. If the same security is purchased
or sold for the Fund and such investment accounts or companies at
or about the same time, such purchases or sales normally will be
combined, to the extent practicable, and will be allocated as
nearly as practicable on a pro rata basis in proportion to the
amounts to be purchased and sold. The main factors to be
considered will be the investment objectives of the respective
portfolios, the relative size of portfolio holdings of the same or
comparable security, availability of cash for investment by the
various portfolios and the size of their respective investment
commitments. It is believed that the ability of the Fund to
participate in larger volume transactions will, in most cases,
produce better execution for the Fund. In some cases, however,
this procedure could have a detrimental effect on the price and
amount of a security available to the Fund or the price at which a
security may be sold. It is the opinion of the Trust's management
that such execution advantage and the desirability of retaining the
Sub-Adviser in that capacity outweigh the disadvantages, if any,
which might result from this procedure.
Paul Hallingby, Jr. is a director of MassMutual and a General
Partner of Bear Stearns & Co., Inc. ("Bear Stearns"). For its
fiscal years ended December 31, 1994, 1995 and 1996, the Fund paid
brokerage fees to Bear Stearns of $3,546, $4,254 and $6,096,
respectively. For the fiscal year ended December 31, 1996, the
Fund placed 15.64% of its transactions involving payment of
commissions with Bear Stearns, for which it was paid 8.40% of the
Fund's aggregate brokerage fees for that period.
During the fiscal years ended December 31, 1994, 1995 and
1996, total brokerage commissions paid by the Fund (not including
spreads or concessions on principal transactions on a net trade
basis) were $18,630, $62,009 and $72,570, respectively. Of that
amount, during the fiscal year ended December 31, 1996, no
brokerage commissions were paid to dealers for research services
(including special research, statistical information and
execution).
Performance of the Fund
Total Return Information. As described in the Prospectus, from
time to time the "average annual total return", "total return,"
"cumulative total return," "total return at net asset value" and
"cumulative total return at net asset value" of an investment in a
class of the Fund may be advertised. An explanation of how total
returns are calculated for each class and the components of those
calculations is set forth below.
The Fund's advertisement of its performance data must, under
applicable rules of the Securities and Exchange Commission, include
the average annual total returns for each advertised class of
shares of the Fund for the 1, 5 and 10-year periods (or the life of
the class, if less) ending as of the most recently ended calendar
quarter prior to the publication of the advertisement. This
enables an investor to compare the Fund's performance to the
performance of other funds for the same periods. However, a number
of factors should be considered before using such information as a
basis for comparison with other investments. An investment in the
Fund is not insured; its total returns and share prices are not
guaranteed and normally will fluctuate on a daily basis. When
redeemed, an investor's shares may be worth more or less than their
original cost. Total returns for any given past period are not a
prediction or representation by the Fund of future rates of return
on its shares. The total returns of Class A, 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.
Average Annual Total Returns. The "average annual total
return" of each class is an average annual compounded rate of
return for each year in a specified number of years. It is the
rate of return based on the change in value of a hypothetical
initial investment of $1,000 ("P" in the formula below) held for a
number of years ("n") to achieve an Ending Redeemable Value ("ERV")
of that investment, according to the following formula:
1/n
(ERV)
(---) -1 = Average Annual Total Return
( P )
Cumulative Total Returns. The "cumulative total return"
calculation measures the change in value of a hypothetical
investment of $1,000 over an entire period of years. Its
calculation uses some of the same factors as average annual total
return, but it does not average the rate of return on an annual
basis. Cumulative total return is determined as follows:
ERV - P
------- = Total Return
P
In calculating total returns for Class A shares, the current
maximum sales charge of 5.75% (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 1.0% contingent
deferred sales charge is applied to the investment result for the
one-year period (or less). Total returns also assume that all
dividends and capital gains distributions during the period are
reinvested to buy additional shares at net asset value per share,
and that the investment is redeemed at the end of the period. The
"average annual total returns" on an investment in Class A shares
of the Fund for the one and five-year periods ended December 31,
1996 and for the period from December 22, 1986 (the date the Fund
became an open-end Fund) to December 31, 1996, were 12.53%, 12.54%
and 12.00%, respectively. The cumulative "total return" on Class
A shares for the latter period was 211.58%. The average annual
total return for the one year period ended December 31, 1996 and
the cumulative total return for the fiscal period from May 1, 1993,
through December 31, 1996 on an investment in Class B shares of the
Fund were 13.87% and 60.99%, respectively. The cumulative total
return for the fiscal period from October 2, 1995 through December
31, 1996, was 25.37%.
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 or 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 deferred sales
charges) and takes into consideration the reinvestment of dividends
and capital gains distributions. The cumulative "total return at
net asset value" on the Fund's Class A shares for the fiscal year
ended December 31, 1996, and for the period from December 22, 1986
to December 31, 1996 were 12.67% and 230.59%, respectively. The
cumulative total return at net asset value on the Fund's Class B
shares for the fiscal year ended December 31, 1996, and for the
fiscal period from May 1, 1993 through December 31, 1996 were
14.44% and 63.99%, respectively. The cumulative total return at
net asset value on the Fund's Class C shares for the fiscal year
ended December 31, 1996, and for the fiscal period from October 2,
1995 through December 31, 1996 were 19.88% and 25.37%,
respectively.
Total return information may be useful to investors in
reviewing the performance of the Fund's Class A, Class B or Class
C shares. However, when comparing total return of an investment in
Class A, Class B or Class C shares of the Fund, with the return on
other investment alternatives, investors should understand that the
Fund is an equity fund seeking long-term growth of capital and
income and its return may fluctuate more than that on certificates
of deposit, savings accounts, U.S. Treasury bills and other fixed-
income investments that may be insured or guaranteed.
Other Performance Comparisons. From time to time the Fund may
publish the ranking of its Class A, Class B or Class C shares by
Lipper Analytical Services, Inc. ("Lipper"), a widely-recognized
independent mutual fund monitoring service. Lipper monitors the
performance of regulated investment companies, including the Fund,
and ranks their performance for various periods based on categories
relating to investment objectives. The performance of the Fund's
classes is ranked against (i) all other funds, excluding money
market funds, and (ii) all other equity funds. The Lipper
performance rankings are based on total return that includes the
reinvestment of capital gains distributions and income dividends
but does not take sales charges or taxes into consideration.
From time to time the Fund may publish the star ranking of the
performance of its Class A, Class B and Class C shares by
Morningstar, Inc., an independent mutual fund monitoring service.
Morningstar ranks mutual funds in broad investment categories:
domestic stock funds, international stock funds, taxable bond funds
and municipal bond funds, based on risk-adjusted total investment
returns. The Fund is ranked among international stock funds.
Investment return measures a fund's or class' one, three, five and
ten-year average annual total returns (depending on the inception
of the fund or class) in excess of 90-day U.S. Treasury bill
returns after considering the fund's sales charges and expenses.
Risk measures a fund's or class' performance below 90-day U.S.
Treasury bill returns. Risk and investment return are combined to
produce star rankings reflecting performance relative to the
average fund in the 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
star ranking is the fund's or class' 3-year ranking or its combined
3- and 5-year ranking (weighted 60%/40%, respectively, or its
combined 3-, 5- and 10-year ranking (weighted 40%, 30% and 30%,
respectively), depending on the inception of the fund or class.
Rankings are subject to change monthly.
The Fund may also compare its performance to that of other
funds in its Morningstar Category. In addition to its star
ranking, Morningstar also categorizes and compares a fund's 3-year
performance based on Morningstar's classification of the fund's
investments and investment style, rather than how a fund defines
its investment objective. Morningstar's four broad categories
(domestic equity, international equity, municipal bond and taxable
bond) are each further subdivided into categories based on types of
investments and investment styles. Those comparisons by
Morningstar are based on the same risk and return measurements as
its star rankings but do not consider the effect of sales charges.
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.
The performance of the Fund's Class A, Class B or Class C
shares may also be compared in publications to averages,
performance rankings or other benchmarks prepared by recognized
mutual fund statistical services. The total return on an investment
in the Fund's Class A, Class B or Class C shares may be compared
with performance for the same period of one or more of the
following indices: the Standard & Poor's 500 Index ("S & P 500") or
the Dow-Jones Industrial Average ("Dow"), which are widely-
recognized indices of U.S. stock market performance. Such indices
consist of unmanaged groups of common stocks. Each index includes
a factor for the reinvestment of dividends 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.
Distribution and Service Plans
The Fund has adopted a Service Plan for its Class A shares and
Distribution and Service Plans for its 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 servicing and/or distribution of the shares of each class, as
described in the Prospectus. Each Plan has been approved by the
vote of (i) the Board of Trustees of the Fund, including a majority
of the Independent Trustees, as required by the Rule, 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 Class C shares, that required shareholder vote was cast by the
Manager as the sole shareholder of Class C shares at that time.
The Class A and Class B Plans are "reimbursement-type" Plans,
which means that they provide for the reimbursement of the
distributor's actual expenses incurred in connection with the
service/and or distribution of the Fund's shares of those classes.
The Class C Plan is a "compensation-type" plan, which means that it
provides for the compensation of the distributor for the service
and distribution of the Fund's shares of that class.
Each plan provides for the payment of a Service Fee which the
Distributor may pay to brokers, dealers and other persons or
entities ("Recipients") for providing personal services and account
maintenance services to accounts and shareholders that hold shares
of the Fund. The Service Fee is described more fully below under
Class A Plan. The Class B and Class C Plans also provide for the
payment of an asset-based sales charge of up to 0.75% of the
average annual net assets of Class B and Class C shares,
respectively. Asset-based sales charge payments are designed to
permit an investor to purchase Class B or Class C shares of the
Fund without the payment of a front-end sales load and at the same
time permit the Distributor to compensate Recipients in connection
with the sale of those shares. The asset-based sales charges are
described more fully below under Class B Plan and Class C Plan.
Under each Plan, the Manager and the Distributor, in their
sole discretion, may from time to time use their own resources, at
no cost to the Fund, to make payments to Recipients for
distribution and administrative services they perform. In the case
of the Manager, those payments may be made from profits from the
advisory fee it receives from the Fund. The Distributor and the
Manager may in their sole discretion increase or decrease the
amount of these payments. Under each Plan, the Fund's Board of
Trustees may change the amount paid to a Recipient, but may not
permit payment of an amount in excess of the maximum payment set
forth above. The Board may establish minimum assets levels to be
held by a Recipient, and may also establish a minimum holding
period for Recipients in each case to entitle a Recipient to
receive any payments under a Plan. The Board of Trustees has
established the payment level at the maximum provided for in each
Plan and has not set any minimum holding periods or minimum asset
levels.
All payments under the Class B and Class C Plans are subject
to the limitations imposed by the Conduct Rules of the National
Association of Securities Dealers, Inc. on payments of asset-based
sales charges and Service Fees.
While the plans are in effect, the Treasurer of the Fund must
provide separate written reports to the Fund's Board of Trustees at
least quarterly describing the amount of payments made pursuant to
each Plan and the purposes for which the payments were made. The
Class B report also must include the Distributor's distribution
costs for the quarter, and such costs for previous quarters that
have been carried forward. The Class A and Class B reports also
must include the identity of each Recipient that received any
payment. These reports are subject to the review and approval of
the Independent Trustees.
A Plan may be terminated at any time by the vote of a majority
of the Independent Trustees or by a vote of the holders of a
"majority" (as defined by the Investment Company Act) of the
outstanding voting securities of that Class. No amendment to a
Plan which increases materially the amount to be paid under the
Plan may be made unless the amendment is approved by the
shareholders of the class affected by the amendment. All material
amendments must be approved by the Board of Trustees. Unless
terminated earlier, each Plan continues in effect from year to year
but only so 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. For the fiscal year ended
December 31, 1996, payments under the Plan for Class A shares
totaled $350,768, all of which was paid by the Distributor to
Recipients including $216,769 that was paid to an affiliate of the
Distributor. Payments made under the Class B Plan during the
fiscal year ended December 31, 1996 totaled $332,226, of which
$277,247 was retained by the Distributor and $11,278 paid to an
affiliate of with the Distributor. For the fiscal period of
October 2, 1995 through December 31, 1996, payments under the Class
C Plan totaled $9,020, of which $8,196 was retained by the
Distributor.
Class A Plan
The Class A Plan provides for the payment of a Service Fee,
not to exceed 0.25% of the average annual net assets of the class,
for personal services and the maintenance of accounts holding Class
A shares.
Class B Plan
The Class B Plan provides for the payment of a Service Fee of
up to 0.25% of the annual net assets of that class. This Service
Fee is virtually identical to the Service Fee described in Class A
Plan above. The Class B Plan allows the Service Fee payments made
by the Distributor to be paid to Recipients in advance for the
first year such shares are outstanding, and thereafter on a
quarterly basis based on the average daily net asset value of
shares held in accounts at Recipients or by their customers, as
described in the Prospectus. Although the Class B Plan does not
require the Distributor to make these advance payments, the
Distributor presently intends to pay the Service Fee to Recipients
in this manner. An exchange of shares does not entitle a Recipient
to an advance Service Fee payment. If shares are redeemed during
the first year they are outstanding, the Recipient is obligated to
repay to the Distributor a pro rata portion of the advance payment
for those shares.
The Class B Plan also provides for the payment of an asset-
based sales charge of up to 0.75% of the annual net assets of the
Class B shares. The asset-based sales charge paid to the
Distributor under the Class B Plan is intended to allow the
Distributor to recoup the cost of sales commission paid to
authorized Recipients at the time of sale, plus financing costs.
The Class B Plan provides that the Distributor may use the
asset-based sales charge to recover its distribution expenses in
connection with the distribution of Class B shares which include
sales commissions and Service Fees paid to Recipients, financing
costs with respect to distribution payments, compensation and
expenses of personnel employed by the Distributor to support
distribution of Class B shares, and the costs of sales literature,
advertising and prospectuses (other than those furnished to current
shareholders) and state "blue sky" expenses.
The Distributor's actual Class B distribution expenses for any
given year may exceed the aggregate of payments received under the
Class B Plan and from recoveries of contingent deferred sales
charges. The Distributor anticipates that it will take a number of
years for it to recoup its Class B distribution expenses. The
Class B Plan allows such expenses to be carried forward and paid in
future years. The Class B shares will be charged only for interest
expenses, carrying charges or other financing costs that are
directly related to the carry forward of actual distribution
expenses.
Class C Plan
The Class C Plan provides for the payment of a Service Fee of
up to 0.25% of the annual net assets of each class. This Service
Fee is virtually identical to the Service Fee described in Class A
Plan above. The Class C Plan allows the Service Fee payments made
by the Distributor to be paid to Recipients in advance for the
first year such shares are outstanding, and thereafter on a
quarterly basis based on the average daily net asset value of
shares held in accounts at Recipients or by their customers, as
described in the Prospectus. Although the Class C Plan does not
require the Distributor to make these advance payments, the
Distributor presently intends to pay the Service Fee to Recipients
in this manner. An exchange of shares does not entitle a Recipient
to an advance Service Fee payment. If shares are redeemed during
the first year they are outstanding, the Recipient is obligated to
repay to the Distributor a pro rata portion of the advance payment
for those shares.
The Class C Plan also provides for the payment of an asset-
based sales charge of 0.75% of the annual net assets of the Class
B shares. The Class C Plan provides for the Distributor to be
compensated at a flat rate, whether the Distributor's distribution
expenses are more or less that the amount paid by the Fund.
The Distributor's services to the Class C shareholders of the
Fund include paying sales commissions and Service Fee payments to
Recipients, providing personnel to support distribution of shares,
and bearing other costs of distribution including the costs of
sales literature, advertising and prospectuses (other than those
furnished to current shareholders) and state "blue sky" expenses.
The Class C asset-based sales charge paid during the first
year is retained by the Distributor and thereafter paid to the
Recipient as an ongoing commission on Class C shares that have been
outstanding for a year or more.
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 another. 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 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, Class B and Class C shares of the Fund are
determined as of the close of business of The New York Stock
Exchange (the "Exchange") on each day that the Exchange is open, by
dividing the value of the Fund's net assets attributable to that
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 holiday schedule (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 may
occur in debt securities and in foreign securities when the
Exchange is closed, including weekends and holidays, or after the
close of the Exchange on a regular business day. The Fund may
invest a substantial portion of its assets in foreign securities
primarily listed on foreign exchanges or in foreign over-the-
counter markets that may trade on Saturdays or customary U.S.
business holidays on which the Exchange is closed. Because the
Fund's net asset value will not be calculated on those days, the
Fund's net asset value per share may be significantly affected on
such days when shareholders may not purchase or redeem shares.
The Trust's Board of Trustees has established procedures for
the valuation of the Trust'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 sale prices of the preceding trading day or closing bid
prices that day); (ii) securities traded on a foreign securities
exchange are valued generally at the last sales price available to
the pricing service approved by the Trust's Board of Trustees or to
the Manager as reported by the principal exchange on which the
security is traded; at its last trading session on or immediately
preceding the valuation date, or at the mean between "bid" and
"ask" prices obtained from the principal exchange or two active
market makers in the security on the basis of reasonable inquiry;
(iii) long-term debt securities having a remaining maturity in
excess of 60 days are valued at the mean between the "bid" and
"ask" prices determined by a portfolio pricing service approved by
the Trust's Board of Trustees or obtained by the Manager from two
active market makers in the security on the basis of reasonable
inquiry; (iv) debt instruments having a maturity of more than 397
days 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 "ask" prices determined by a pricing service approved by
the Trust's Board of Trustees or obtained by the Manager from two
active market makers in the security on the basis of reasonable
inquiry; (v) money market debt securities that had a maturity of no
more than 397 days when issued that have a remaining maturity of 60
days or less are valued at cost, adjusted for amortization of
premiums and accretion of discounts; and (vi) securities (including
restricted securities) not having readily-available market
quotations are valued at fair value under the Board's procedures.
If the Manager is unable to locate two market makers willing to
give quotes (see (ii), (iii) and (iv) above), the security may be
priced at the mean between the bid and ask prices provided by
a single active market maker (which in certain cases may be the
bid price if no ask price is available).
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 securities markets that occur between
the time their prices are determined and the close of the Exchange
will not be reflected in the Fund's calculation of net asset value
unless the Board of Trustees, the Manager, and/or the Sub-Adviser,
under procedures established by the Board of Trustees, determines
that the particular event is likely to effect a material change in
the value of such security. Foreign currency, including forward
contracts, will be valued at the closing price in the London
foreign exchange market that day as provided by a reliable bank,
dealer or pricing service. The values of securities denominated in
foreign currency will be converted to U.S. dollars in the London
foreign exchange market closing price that day, 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 Manager and/or the Sub-
Advisor may use pricing services approved by the Board of Trustees
to price U.S. Government Securities or mortgage-backed securities
for which last sale information is generally not available. The
Manager and /or Sub-Advisor will monitor the accuracy of such
pricing services which may include comparing prices used for
portfolio evaluation to actual sales prices of selected securities.
Calls, puts and Futures held by the Fund are valued at the
last 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. If
there were no sales that day, the value shall be the last sale
price on the preceding trading day if it is within the spread of
the closing bid and asked prices on the principal exchange or on
NASDAQ on the valuation date, or, if not, value shall be the
closing bid price on the principal exchange or on NASDAQ on the
valuation date. If the put, call or future is not traded on an
exchange or on NASDAQ, it shall be valued at the mean between bid
and asked prices obtained by the Manager from two active market
makers (which in certain cases may be the bid price if no asked
price is available).
AccountLink. When shares are purchased through AccountLink, each
purchase must be at least $25.00. Shares will be purchased on the
regular business day the Distributor is instructed to initiate the
Automated Clearing House transfer to buy shares. Dividends will
begin to accrue on shares purchased by the proceeds of ACH
transfers on the business day the Fund receives Federal Funds for
the purchase through the ACH system before the close of The New
York Stock Exchange. The Exchange normally closes at 4:00 P.M.,
but may close earlier on certain days. If Federal Funds are
received on a business day after the close of the Exchange, the
shares will be purchased and dividends will begin to accrue on the
next regular business day. The proceeds of ACH transfers are
normally received by the Fund 3 days after the transfers are
initiated. The Distributor and the Fund are not responsible for
any delays in purchasing shares resulting from delays in ACH
transmissions.
Reduced Sales Charges. As discussed in the Prospectus, a reduced
sales charge rate may be obtained for Class A shares under Right of
Accumulation and Letters of Intent because of the economies of
sales efforts and expenses realized by the Distributor, dealers and
brokers making such sales. No sales charge is imposed in certain
circumstances described in the Prospectus because the Distributor
or dealer or broker incurs little or no selling expenses. The term
"immediate family" refers to one's spouse, children, grandchildren,
grandparents, aunts, uncles, nieces and nephews, 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 Municipal Bond Fund
Oppenheimer New York Municipal Fund
Oppenheimer California Municipal Fund
Oppenheimer Intermediate Municipal Fund
Oppenheimer Insured Municipal Fund
Oppenheimer Main Street California Municipal Fund
Oppenheimer Florida Municipal Fund
Oppenheimer Pennsylvania Municipal Fund
Oppenheimer New Jersey Municipal Fund
Oppenheimer Fund
Oppenheimer Discovery Fund
Oppenheimer Target Fund
Oppenheimer Growth Fund
Oppenheimer Equity Income Fund
Oppenheimer Value Stock Fund
Oppenheimer Multiple Strategies 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 Developing Markets Fund
Oppenheimer Real Asset Fund
Oppenheimer Strategic Income Fund
Oppenheimer Strategic Short-Term Income Fund
Oppenheimer Strategic Income & Growth Fund
Oppenheimer International Bond Fund
Oppenheimer International Growth 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
Oppenheimer Quest Capital Value Fund, Inc.
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.
Oppenheimer World Bond Fund
Oppenheimer Bond Fund for Growth
Rochester Fund Municipals
Limited Term New York Municipal Fund*
Oppenheimer Disciplined Value Fund
Oppenheimer Disciplined Allocation Fund
Oppenheimer Life Span Balanced Fund
Oppenheimer Life Span Growth Fund
Oppenheimer Life Span Income Fund
* Shares of the Fund are not presently exchangeable for shares of
Limited Term New York Municipal Fund prior to May 1, 1997.
<PAGE>
There is an initial sales charge on the purchase of Class A
shares of each of the Oppenheimer funds 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 OppenheimerFunds 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 up to 5% of the intended purchase amount specified in the
Letter shall be held in escrow by the Transfer Agent. For example,
if the intended purchase amount is $50,000, the escrow shall be
shares valued in the amount of $2,500 (computed at the public
offering price adjusted for a $50,000 purchase). Any dividends and
capital gains distributions on the escrowed shares will be credited
to the investor's account.
2. If the intended purchase amount specified under the Letter
is completed within the thirteen-month Letter of Intent period, the
escrowed shares will be promptly released to the investor.
3. If, at the end of the thirteen-month Letter of Intent
period the total purchases pursuant to the Letter are less than the
intended purchase amount specified in the Letter, the investor must
remit to the Distributor an amount equal to the difference between
the dollar amount of sales charges actually paid and the amount of
sales charges which would have been paid if the total amount
purchased had been made at a single time. Such sales charge
adjustment will apply to any shares redeemed prior to the
completion of the Letter. If such difference in sales charges is
not paid within twenty days after a request from the Distributor or
the dealer, the Distributor will, within sixty days of the
expiration of the Letter, redeem the number of escrowed shares
necessary to realize such difference in sales charges. Full and
fractional shares remaining after such redemption will be released
from escrow. If a request is received to redeem escrowed shares
prior to the payment of such additional sales charge, the sales
charge will be withheld from the redemption proceeds.
4. By signing the Letter, the investor irrevocably constitutes
and appoints the Transfer Agent as attorney-in-fact to surrender
for redemption any or all escrowed shares.
5. The shares eligible for purchase under the Letter (or the
holding of which may be counted toward completion of 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 of other Oppenheimer funds acquired subject to a contingent
deferred sales charge, and (c) Class A shares or Class 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
"Exchange Privilege," and the escrow will be transferred to that
other fund.
Asset Builder Plans. To establish an Asset Builder Plan from a
bank account, a check (minimum $25) for the initial purchase must
accompany the application. Shares purchased by Asset Builder Plan
payments from bank accounts are subject to the redemption
restrictions for recent purchases described in "How to Sell Shares"
in the Prospectus. Asset Builder Plans also enable shareholders of
Oppenheimer Cash Reserves to use those accounts for monthly
automatic purchases of shares of up to four other Oppenheimer
funds. If you make payments from your bank account to purchase
shares of the Fund, your bank account will be automatically debited
normally four to five business days prior to the investment dates
selected in the Account Application. Neither the Distributor, the
Transfer Agent nor the Fund shall be responsible for any delays in
purchasing shares resulting from delays in ACH transmission.
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. Shares are normally redeemed
pursuant to an Automatic Withdrawal Plan three business days before
the date you select in the Account Application. If a contingent
deferred sales charge applies to the redemption, the amount of the
check or payment will be reduced accordingly.
Retirement Plans. In describing certain types of employee
benefit plans that may purchase Class A shares without being
subject to the Class A contingent deferred sales charge, the term
"employee benefit plan" means any plan or arrangement, whether or
not "qualified" under the Internal Revenue Code, including, medical
savings accounts, payroll deduction plans or similar plans in which
Class A shares are purchased by a fiduciary or other person for the
account of participants who are employees of a single employer or
of affiliated employers, if the Fund account is registered in the
name of the fiduciary or other person for the benefit of
participants in the plan.
The term "group retirement plan" means any qualified or non-
qualified retirement plan (including 457 plans, SEPs, SARSEPs,
403(b) plans, and SIMPLE plans) for employees of a corporation or
a sole proprietorship, members and employees of a partnership or
association or other organized group of persons (the members of
which may include other groups), if the group has made special
arrangements with the Distributor and all members of the group
participating in the plan purchase Class A shares of the Fund
through a single investment dealer, broker or other financial
institution designated by the group.
How to Sell Shares
Information on how to sell shares of the Fund is stated in the
Prospectus. The information below supplements the terms and
conditions for redemptions set forth in the Prospectus.
Involuntary Redemptions. The Trust's Board of Trustees has
the right to cause the involuntary redemption of the shares held in
any account if the aggregate net asset value of these shares is
less than $1,000 or such lesser amount as the Board may fix. The
Board of Trustees will not cause the involuntary redemption of
shares in an account if the aggregate net asset value of the shares
has fallen below the stated minimum solely as a result of market
fluctuations. Should the Board elect to exercise this right, it
may also fix, in accordance with the Investment Company Act, the
requirements for any notice to be given to the shareholders in
question (not less than 30 days), or the Board may set requirements
for the shareholder to increase the investment, and set other terms
and conditions so that the shares would not be involuntarily
redeemed.
Payments "In Kind". The Prospectus states that payment for
shares tendered for redemption is ordinarily made in cash.
However, the Board of Trustees of the Trust may determine that it
would be detrimental to the best interests of the remaining
shareholders of the Fund to make payment of a redemption order
wholly or partly in cash. In that case the Fund may pay the
redemption proceeds in whole or in part by a distribution "in kind"
of securities from the portfolio of the Fund, in lieu of cash, in
conformity with applicable rules of the Securities and Exchange
Commission. The Fund has elected to be governed by Rule 18f-1 under
the Investment Company Act, pursuant to which the Fund is obligated
to redeem shares solely in cash up to the lesser of $250,000 or 1%
of the net assets of the Fund during any 90-day period for any one
shareholder. If shares are redeemed in kind, the redeeming
shareholder might incur brokerage or other costs in selling the
securities for cash. The method of valuing securities used to make
redemptions in kind will be the same as the method the Fund uses to
value its portfolio securities described above under "Determination
of Net Asset Value Per Share" and that valuation will be made as of
the time the redemption price is determined.
Reinvestment Privilege. Within six months of a redemption, a
shareholder may reinvest all or part of the redemption proceeds of
(i) Class A shares 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 Oppenheimer funds into which
shares of the Fund are exchangeable as described below, at the net
asset value next computed after the Transfer Agent receives the
reinvestment order. The shareholder must ask the Distributor for
such privilege at the time of reinvestment. Any capital gain that
was realized when the shares were redeemed is taxable, and
reinvestment will not alter any capital gains tax payable on that
gain. If there has been a capital loss on the redemption, some or
all of the loss may not be tax deductible, depending on the timing
and amount of the reinvestment. Under the Internal Revenue Code,
if the redemption proceeds of Fund shares on which a sales charge
was paid are reinvested in shares of the Fund or another of the
Oppenheimer funds 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 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 on behalf of their
customers. The shareholder should contact the broker or dealer to
arrange this type of redemption. 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 the required redemption 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. Shares are normally
redeemed pursuant to an Automatic Withdrawal Plan three business
days before the date you select in the Account Application. If a
contingent deferred sales charge applies to the redemption, the
amount of the check or payment will be reduced accordingly. 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 because of the imposition of
the contingent deferred sales charge on such withdrawals (except
where the contingent deferred sales charge is waived as described
in the Prospectus under "Waivers of Class B Sales and Class C
Contingent Deferred Sales Charge").
By requesting an Automatic Withdrawal or Exchange Plan, the
shareholder agrees to the terms and conditions applicable to such
plans, as stated below, 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
Oppenheimer funds automatically on a monthly, quarterly, semi-
annual or annual basis under an Automatic Exchange Plan. The
minimum amount that may be exchanged to each other fund account is
$25. Exchanges made under these plans are subject to the
restrictions that apply to exchanges as set forth in "How to
Exchange Shares" in the Prospectus and below in this Statement of
Additional Information.
Automatic Withdrawal Plans. Fund shares will be redeemed as
necessary to meet withdrawal payments. Shares acquired without a
sales charge will be redeemed first and thereafter shares acquired
with reinvested dividends and capital gains distributions will be
redeemed next, followed by shares acquired with a sales charge, to
the extent necessary to make withdrawal payments. Depending upon
the amount withdrawn, the investor's principal may be depleted.
Payments made under withdrawal plans should not be considered as a
yield or income on your investment.
The Transfer Agent will administer the investor's Automatic
Withdrawal Plan (the "Plan") as agent for the investor (the
"Planholder") who executed the Plan authorization and application
submitted to the Transfer Agent. The Transfer Agent and the Fund
shall incur no liability to the Planholder for any action taken or
omitted by the Transfer Agent in good faith to administer the Plan.
Certificates will not be issued for shares of the Fund purchased
for and held under the Plan, but the Transfer Agent will credit all
such shares to the account of the Planholder on the records of the
Fund. Any share certificates held by a Planholder may be
surrendered unendorsed to the Transfer Agent with the Plan
application so that the shares represented by the certificate may
be held under the Plan.
For accounts subject to Automatic Withdrawal Plans,
distributions of capital gains must be reinvested in shares of the
Fund, which will be done at net asset value without a sales charge.
Dividends on shares held in the account may be paid in cash or
reinvested.
Redemptions of shares needed to make withdrawal payments will
be made at the net asset value per share determined on the
redemption date. Checks or AccountLink payments of the proceeds of
Plan withdrawals will normally be transmitted three business days
prior to the date selected for receipt of the payment (the receipt
of payment on the date selected cannot be guaranteed), according to
the choice specified in writing by the Planholder.
The amount and the interval of disbursement payments and the
address to which checks are to be mailed or AccountLink payments
are to be sent may be changed at any time by the Planholder by
writing to the Transfer Agent. The Planholder should allow at
least two weeks' time in mailing such notification for the
requested change to be put in effect. The Planholder may, at any
time, instruct the Transfer Agent by written notice (in proper form
in accordance with the requirements of the then-current Prospectus
of the Fund) to redeem all, or any part of, the shares held under
the Plan. In that case, the Transfer Agent will redeem the number
of shares requested at the net asset value per share in effect in
accordance with the Fund's usual redemption procedures and will
mail a check for the proceeds to the Planholder.
The Plan may be terminated at any time by the Planholder by
writing to the Transfer Agent. A Plan may also be terminated at
any time by the Transfer Agent upon receiving directions to that
effect from the Fund. The Transfer Agent will also terminate a
Plan upon receipt of evidence satisfactory to it of the death or
legal incapacity of the Planholder. Upon termination of a Plan by
the Transfer Agent or the Fund, shares that have not been redeemed
from the account will be held in uncertificated form in the name of
the Planholder, and the account will continue as a dividend-
reinvestment, uncertificated account unless and until proper
instructions are received from the Planholder or his or her
executor or guardian, or other authorized person.
To use shares held under the Plan as collateral for a debt,
the Planholder may request issuance of a portion of the shares in
certificated form. Upon written request from the Planholder, the
Transfer Agent will determine the number of shares for which a
certificate may be issued without causing the withdrawal checks to
stop because of exhaustion of uncertificated shares needed to
continue payments. However, should such uncertificated shares
become exhausted, Plan withdrawals will terminate.
If the Transfer Agent ceases to act as transfer agent for the
Fund, the Planholder will be deemed to have appointed any successor
transfer agent to act as agent in administering the Plan.
How to Exchange Shares
As stated in the Prospectus, shares of a particular class of
OppenheimerFunds having more than one class of shares may be
exchanged only for shares of the same class of other Oppenheimer
funds. Shares of 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 or
both of Class B or Class C shares.
All Oppenheimer funds offer Class A Class B and Class C shares
except Oppenheimer Money Market Fund, Inc., 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., and Daily Cash
Accumulation Fund, Inc., which only offer Class A shares and
Oppenheimer Main Street California Municipal Fund, which only
offers Class A and Class B shares (Class B and Class C shares of
Oppenheimer Cash reserves are generally available only by exchange
from the same class of shares of other Oppenheimer funds or through
OppenheimerFunds sponsored 401(k) plans). A current list showing
which funds offer which class can be obtained by calling the
Distributor at 1-800-525-7048.
For accounts established on or before March 8, 1996 holding
Class M shares of Oppenheimer Bond Fund for Growth, Class M shares
can be exchanged only for Class A shares of other Oppenheimer
funds. Exchanges to Class M shares of Oppenheimer Bond Fund for
Growth are permitted from Class A shares of Oppenheimer Money
Market Fund, Inc. or Oppenheimer Cash Reserves that were acquired
by exchange from Class M shares. Otherwise no exchanges of any
class of any Oppenheimer fund into Class M shares are permitted.
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 OppenheimerFunds offered with a sales charge upon
payment of the sales charge (or, if applicable, may be used to
purchase shares of Oppenheimer funds subject to a contingent
deferred sales charge). Shares of this Fund acquired by
reinvestment of dividends or distributions from any other of the
Oppenheimer funds 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
Oppenheimer funds. 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. No
contingent deferred sales charge is imposed on exchanges of shares
of any class purchased subject to a contingent deferred sales
charge. However, when Class A shares acquired by exchange of Class
A shares of other Oppenheimer funds 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 more
than one account. 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 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 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 Oppenheimer funds available for exchange have
different investment objectives, policies and risks, and a
shareholder should assure that the Fund selected is appropriate for
his or her investment and should be aware of the tax consequences
of an exchange. For federal income tax purposes, an exchange
transaction is treated as a redemption of shares of one fund and a
purchase of shares of another. "Reinvestment Privilege," above,
discusses some of the tax consequences of reinvestment of
redemption proceeds in such cases. The Fund, the Distributor, and
the Transfer Agent are unable to provide investment, tax or legal
advice to a shareholder in connection with an exchange request or
any other investment transaction.
Dividends, Capital Gains And Taxes
Dividends and Distributions. Dividends, distributions and the
proceeds of the redemption of Fund shares represented by checks
returned to the Transfer Agent by the Postal Service as
undeliverable will be invested in shares of Oppenheimer Money
Market Fund, Inc., as promptly as possible after the return of such
checks to the Transfer Agent, to enable the investor to earn a
return on otherwise idle funds.
Tax Status of the Fund's Dividends and Distributions. The Federal
tax treatment of the Fund's dividends and capital gains
distributions is explained in the Prospectus under the caption
"Dividends, Capital Gains and Taxes." Special provisions of the
Internal Revenue Code govern the eligibility of the Fund's
dividends for the dividends-received deduction for corporate
shareholders. Long-term capital gains distributions are not
eligible for the deduction. In addition, the amount of dividends
paid by the Fund which may qualify for the deduction is limited to
the aggregate amount of qualifying dividends which the Fund derives
from its portfolio investments that the Fund has held for a minimum
period, usually 46 days. A corporate shareholder will not be
eligible for the deduction on dividends paid on shares held for 45
days or less. To the extent the Fund's dividends are derived from
its gross income from option premiums, interest income or short-
term gains from the sale of securities, or dividends from foreign
corporations, its dividends will not qualify for the deduction. It
is expected that for the most part the Fund's dividends will not
qualify, because of the nature of the investments held by the Fund
in its portfolio.
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 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
Oppenheimer funds (except Oppenheimer Cash Reserves) 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 must have an existing account
in the fund selected for reinvestment or must obtain a prospectus
for that fund and an application from the Distributor to establish
an account. The investment will be made at the net asset value per
share in effect at the close of business on the payable date of the
dividend or distribution. Dividends and/or distributions from
certain of the Oppenheimer funds may be invested in shares of this
Fund on the same basis.
Additional Information About The Fund
The Custodian. The Bank of New York is the Custodian of the Fund's
assets. The Custodian's responsibilities include safeguarding and
controlling the Fund's portfolio securities and handling the
delivery of such securities to and from the Fund. The Manager has
represented to the Fund that the banking relationships between the
Manager and the Custodian have been and will continue to be
unrelated to and unaffected by the relationship between the Fund
and the Custodian. It will be the practice of the Fund to deal
with the Custodian in a manner uninfluenced by any banking
relationship the Custodian may have with the Manager and its
affiliates. The Fund's cash balances with the Custodian in excess
of $100,000 are not protected by Federal deposit insurance. Those
uninsured balances at times may be substantial.
Independent Auditors. The independent auditors of the Fund audit
the Fund's financial statements and perform other related audit
services. They also act as auditors for the Manager and certain
other funds advised by the Manager and its affiliates.
<PAGE>
INDEPENDENT AUDITORS' REPORT
================================================================================
The Board of Trustees and Shareholders of Oppenheimer Value Stock
Fund:
We have audited the accompanying statement of assets and liabilities,
including the statement of investments, of Oppenheimer Value Stock
Fund as of December 31, 1996, the related statement of operations for
the year then ended, the statements of changes in net assets for the
years ended December 31, 1996 and 1995 and the financial highlights
for the period January 1, 1992 to December 31, 1996. These financial
statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on
these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. An audit 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, 1996 by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing
procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and
financial highlights present fairly, in all material respects, the
financial position of Oppenheimer Value Stock Fund at December 31,
1996, 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, 1997
5 Oppenheimer Value Stock Fund
<PAGE> 6
STATEMENT OF INVESTMENTS December 31, 1996
<TABLE>
<CAPTION>
MARKET VALUE
SHARES SEE NOTE 1
===================================================================================================================================
<S> <C> <C>
COMMON STOCKS--94.7%
- ------------------------------------------------------------------------------------------------------------------------------------
BASIC MATERIALS--7.7%
- ------------------------------------------------------------------------------------------------------------------------------------
CHEMICALS--4.1%
Du Pont (E.I.) De Nemours & Co. 21,500 $ 2,029,062
------------------------------------------------------------------------------------------------------------------------------
Lubrizol Corp. (The) 40,400 1,252,400
-----------------------------------------------------------------------------------------------------------------------------
Nalco Chemical Co. 52,500 1,896,562
-----------------------------------------------------------------------------------------------------------------------------
Rohm & Haas Co. 31,000 2,530,375
------------
7,708,399
- ------------------------------------------------------------------------------------------------------------------------------------
PAPER--3.6%
Temple-Inland, Inc. 40,000 2,165,000
-----------------------------------------------------------------------------------------------------------------------------
Westvaco Corp. 64,500 1,854,375
-----------------------------------------------------------------------------------------------------------------------------
Weyerhaeuser Co. 58,800 2,785,650
------------
6,805,025
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER CYCLICALS--11.2%
- ------------------------------------------------------------------------------------------------------------------------------------
AUTOS & HOUSING--5.6%
Ford Motor Co. 73,100 2,330,062
-----------------------------------------------------------------------------------------------------------------------------
Genuine Parts Co. 55,000 2,447,500
-----------------------------------------------------------------------------------------------------------------------------
Goodyear Tire & Rubber Co. 73,000 3,750,375
-----------------------------------------------------------------------------------------------------------------------------
Stanley Works (The) 80,000 2,160,000
------------
10,687,937
- ------------------------------------------------------------------------------------------------------------------------------------
LEISURE & ENTERTAINMENT--1.3%
Eastman Kodak Co. 31,800 2,551,950
- ------------------------------------------------------------------------------------------------------------------------------------
MEDIA--1.4%
McGraw-Hill, Inc. 57,000 2,629,125
- -----------------------------------------------------------------------------------------------------------------------------------
RETAIL: GENERAL--2.9%
May Department Stores Cos. 46,500 2,173,875
-----------------------------------------------------------------------------------------------------------------------------
Sears Roebuck & Co. 31,000 1,429,875
-----------------------------------------------------------------------------------------------------------------------------
VF Corp. 27,500 1,856,250
------------
5,460,000
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER NON-CYCLICALS--19.8%
- ------------------------------------------------------------------------------------------------------------------------------------
BEVERAGES--1.8%
Brown-Forman Corp., Cl. B 40,900 1,871,175
-----------------------------------------------------------------------------------------------------------------------------
PepsiCo, Inc. 54,000 1,579,500
------------
3,450,675
- ------------------------------------------------------------------------------------------------------------------------------------
FOOD--5.5%
Albertson's, Inc. 76,000 2,707,500
-----------------------------------------------------------------------------------------------------------------------------
American Stores Co. 20,500 837,937
-----------------------------------------------------------------------------------------------------------------------------
ConAgra, Inc. 40,000 1,990,000
-----------------------------------------------------------------------------------------------------------------------------
CPC International, Inc. 37,000 2,867,500
-----------------------------------------------------------------------------------------------------------------------------
Pioneer Hi-Bred International, Inc. 29,500 2,065,000
------------
10,467,937
- ------------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE/DRUGS--7.0%
Bristol-Myers Squibb Co. 57,500 6,253,125
-----------------------------------------------------------------------------------------------------------------------------
Cytogen Corp.(1) 79 434
----------------------------------------------------------------------------------------------------------------------------
Pfizer, Inc. 22,500 1,864,687
-----------------------------------------------------------------------------------------------------------------------------
Pharmacia & Upjohn, Inc. 58,000 2,298,250
-----------------------------------------------------------------------------------------------------------------------------
Schering-Plough Corp. 45,500 2,946,125
------------
13,362,621
</TABLE>
6 Oppenheimer Value Stock Fund
<PAGE> 7
<TABLE>
<CAPTION>
MARKET VALUE
SHARES SEE NOTE 1
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
HEALTHCARE/SUPPLIES &
SERVICES--1.4%
Becton, Dickinson & Co. 62,000 $ 2,689,250
- ------------------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD GOODS--1.3%
Kimberly-Clark Corp. 25,500 2,428,875
- ------------------------------------------------------------------------------------------------------------------------------------
TOBACCO--2.8%
American Brands, Inc. 59,000 2,927,875
-----------------------------------------------------------------------------------------------------------------------------
UST, Inc. 75,000 2,428,125
------------
5,356,000
- ------------------------------------------------------------------------------------------------------------------------------------
ENERGY--10.0%
- ------------------------------------------------------------------------------------------------------------------------------------
ENERGY SERVICES &
PRODUCERS--1.1%
Kerr-McGee Corp. 28,500 2,052,000
- -----------------------------------------------------------------------------------------------------------------------------------
OIL-INTEGRATED--8.9%
Amoco Corp. 49,500 3,984,750
-----------------------------------------------------------------------------------------------------------------------------
Atlantic Richfield Co. 13,700 1,815,250
-----------------------------------------------------------------------------------------------------------------------------
Chevron Corp. 45,000 2,925,000
-----------------------------------------------------------------------------------------------------------------------------
Mobil Corp. 23,500 2,872,875
-----------------------------------------------------------------------------------------------------------------------------
Occidental Petroleum Corp. 80,500 1,881,687
-----------------------------------------------------------------------------------------------------------------------------
Union Pacific Resources Group, Inc. 55,500 1,623,375
-----------------------------------------------------------------------------------------------------------------------------
Unocal Corp. 44,100 1,791,563
------------
16,894,500
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL--15.3%
- ------------------------------------------------------------------------------------------------------------------------------------
BANKS--6.0%
Bank of New York Co., Inc. (The) 110,000 3,712,500
-----------------------------------------------------------------------------------------------------------------------------
Comerica, Inc. 26,000 1,361,750
-----------------------------------------------------------------------------------------------------------------------------
CoreStates Financial Corp. 52,000 2,697,500
-----------------------------------------------------------------------------------------------------------------------------
Norwest Corp. 36,500 1,587,750
-----------------------------------------------------------------------------------------------------------------------------
Wachovia Corp. 36,240 2,047,560
------------
11,407,060
- ------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL--1.5%
American Express Co. 50,000 2,825,000
- -----------------------------------------------------------------------------------------------------------------------------------
INSURANCE--7.8%
Allstate Corp. 23,748 1,374,416
-----------------------------------------------------------------------------------------------------------------------------
Jefferson-Pilot Corp. 26,325 1,490,653
-----------------------------------------------------------------------------------------------------------------------------
Marsh & McLennan Cos., Inc. 35,000 3,640,000
-----------------------------------------------------------------------------------------------------------------------------
MBIA, Inc. 33,500 3,391,875
-----------------------------------------------------------------------------------------------------------------------------
Safeco Corp. 99,500 3,924,031
-----------------------------------------------------------------------------------------------------------------------------
Unitrin, Inc. 17,400 970,050
------------
14,791,025
- ------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL--15.2%
- ------------------------------------------------------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT--8.4%
AMP, Inc. 100,300 3,849,013
-----------------------------------------------------------------------------------------------------------------------------
General Electric Co. 51,500 5,092,063
-----------------------------------------------------------------------------------------------------------------------------
Grainger (W.W.), Inc. 32,000 2,568,000
-----------------------------------------------------------------------------------------------------------------------------
Honeywell, Inc. 28,000 1,841,000
-----------------------------------------------------------------------------------------------------------------------------
Hubbell, Inc., Cl. B 61,994 2,681,241
------------
16,031,317
- ------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL SERVICES--0.8%
Donnelley (R.R.) & Sons Co. 48,000 1,506,000
</TABLE>
7 Oppenheimer Value Stock Fund
<PAGE> 8
STATEMENT OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
MARKET VALUE
SHARES SEE NOTE 1
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MANUFACTURING--4.6%
Dover Corp. 41,500 $ 2,085,375
General Signal Corp. 5,500 235,125
-----------------------------------------------------------------------------------------------------------------------------
Harsco Corp. 23,000 1,575,500
-----------------------------------------------------------------------------------------------------------------------------
Minnesota Mining & Manufacturing Co. 43,500 3,605,063
-----------------------------------------------------------------------------------------------------------------------------
Parker-Hannifin Corp. 30,400 1,178,000
------------
8,679,063
- ------------------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--1.4%
Norfolk Southern Corp. 31,000 2,712,500
- ------------------------------------------------------------------------------------------------------------------------------------
TECHNOLOGY--11.0%
- ------------------------------------------------------------------------------------------------------------------------------------
AEROSPACE/DEFENSE--1.8%
Boeing Co. 16,500 1,755,188
-----------------------------------------------------------------------------------------------------------------------------
Raytheon Co. 700 33,687
-----------------------------------------------------------------------------------------------------------------------------
TRW, Inc. 32,000 1,584,000
------------
3,372,875
- ------------------------------------------------------------------------------------------------------------------------------------
COMPUTER HARDWARE--4.9%
International Business Machines Corp. 22,500 3,397,500
-----------------------------------------------------------------------------------------------------------------------------
Pitney Bowes, Inc. 54,500 2,970,250
-----------------------------------------------------------------------------------------------------------------------------
Xerox Corp. 57,000 2,999,625
------------
9,367,375
- ------------------------------------------------------------------------------------------------------------------------------------
ELECTRONICS--2.1%
Hewlett-Packard Co. 80,000 4,020,000
- ------------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS-
TECHNOLOGY--2.2%
AT&T Corp. 52,500 2,283,750
-----------------------------------------------------------------------------------------------------------------------------
Frontier Corp. 85,400 1,932,175
------------
4,215,925
- ------------------------------------------------------------------------------------------------------------------------------------
UTILITIES--4.5%
- ------------------------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES--1.7%
NIPSCO Industries, Inc. 25,500 1,010,438
-----------------------------------------------------------------------------------------------------------------------------
SCANA Corp. 48,500 1,297,375
-----------------------------------------------------------------------------------------------------------------------------
Teco Energy, Inc. 36,600 882,975
------------
3,190,788
- ------------------------------------------------------------------------------------------------------------------------------------
TELEPHONE UTILITIES--2.8%
Ameritech Corp. 28,000 1,697,500
-----------------------------------------------------------------------------------------------------------------------------
GTE Corp. 46,000 2,093,000
-----------------------------------------------------------------------------------------------------------------------------
Southern New England Telecommunications Corp. 42,000 1,632,750
------------
5,423,250
------------
Total Common Stocks (Cost $114,380,928) 180,086,472
<CAPTION>
FACE
AMOUNT
====================================================================================================================================
<S> <C> <C>
REPURCHASE AGREEMENT--4.4%
- ------------------------------------------------------------------------------------------------------------------------------------
Repurchase agreement with Goldman, Sachs & Co., 6.52%, dated 12/31/96,
to be repurchased at $8,303,006 on 1/2/97, collateralized by U.S. Treasury Nts.,
5.50%--7.50%, 7/15/99--8/15/05, with a value of $8,490,302 (Cost $8,300,000) $8,300,000 8,300,000
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $122,680,928) 99.1% 188,386,472
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS NET OF LIABILITIES 0.9 1,740,662
------------- -------------
NET ASSETS 100.0% $190,127,134
============= =============
</TABLE>
1. Non-income producing security.
See accompanying Notes to Financial Statements.
8 Oppenheimer Value Stock Fund
<PAGE> 9
STATEMENT OF ASSETS AND LIABILITIES December 31, 1996
<TABLE>
====================================================================================================================================
<S> <C>
ASSETS
Investments, at value (cost $122,680,928)--see accompanying statement $188,386,472
------------------------------------------------------------------------------------------------------------------------------
Cash 317,473
------------------------------------------------------------------------------------------------------------------------------
Receivables:
Investments sold 2,379,534
Shares of beneficial interest sold 639,204
Interest and dividends 409,199
------------------------------------------------------------------------------------------------------------------------------
Other 7,941
------------
Total assets 192,139,823
====================================================================================================================================
LIABILITIES
Payables and other liabilities:
Dividends 1,360,756
Shares of beneficial interest redeemed 359,460
Distribution and service plan fees 118,631
Shareholder reports 59,139
Investments purchased 33,730
Transfer and shareholder servicing agent fees 9,163
Trustees' fees 1,067
Other 70,743
------------
Total liabilities 2,012,689
====================================================================================================================================
NET ASSETS $190,127,134
============
====================================================================================================================================
COMPOSITION OF
NET ASSETS
Paid-in capital $122,783,317
------------------------------------------------------------------------------------------------------------------------------
Undistributed net investment income 23,659
------------------------------------------------------------------------------------------------------------------------------
Accumulated net realized gain on investment transactions 1,614,614
------------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments--Note 3 65,705,544
------------
Net assets $190,127,134
============
====================================================================================================================================
NET ASSET VALUE
PER SHARE
Class A Shares:
Net asset value and redemption price per share (based on net assets
of $148,128,771 and 7,286,952 shares of beneficial interest outstanding) $20.33
Maximum offering price per share (net asset value plus sales charge
of 5.75% of offering price) $21.57
------------------------------------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price and offering price per share (based on
net assets of $40,142,493 and 1,988,443 shares of beneficial interest outstanding) $20.19
------------------------------------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price and offering price per share (based on
net assets of $1,855,870 and 91,685 shares of beneficial interest outstanding) $20.24
See accompanying Notes to Financial Statements.
</TABLE>
9 Oppenheimer Value Stock Fund
<PAGE> 10
STATEMENT OF OPERATIONS For the Year Ended December 31, 1996
<TABLE>
====================================================================================================================================
<S> <C>
INVESTMENT INCOME
Dividends $ 4,410,082
------------------------------------------------------------------------------------------------------------------------------
Interest 818,192
------------
Total income 5,228,274
====================================================================================================================================
EXPENSES
Management fees--Note 4 1,315,853
------------------------------------------------------------------------------------------------------------------------------
Distribution and service plan fees--Note 4:
Class A 350,768
Class B 332,226
Class C 9,020
------------------------------------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 4 238,593
------------------------------------------------------------------------------------------------------------------------------
Shareholder reports 69,568
------------------------------------------------------------------------------------------------------------------------------
Legal and auditing fees 13,775
------------------------------------------------------------------------------------------------------------------------------
Custodian fees and expenses 10,407
------------------------------------------------------------------------------------------------------------------------------
Trustees' fees and expenses 6,536
------------------------------------------------------------------------------------------------------------------------------
Registration and filing fees:
Class B 2,267
Class C 465
------------------------------------------------------------------------------------------------------------------------------
Other 55,776
------------
Total expenses 2,405,254
====================================================================================================================================
NET INVESTMENT INCOME 2,823,020
====================================================================================================================================
REALIZED AND UNREALIZED
GAIN
Net realized gain on investments 7,161,305
------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on investments 21,456,991
------------
Net realized and unrealized gain 28,618,296
====================================================================================================================================
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $31,441,316
===========
</TABLE>
See accompanying Notes to Financial Statements.
10 Oppenheimer Value Stock Fund
<PAGE> 11
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995
===========================================================================================================================
<S> <C> <C>
OPERATIONS
Net investment income $ 2,823,020 $ 2,504,015
---------------------------------------------------------------------------------------------------------------------
Net realized gain 7,161,305 2,126,048
---------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation 21,456,991 29,893,727
------------- -------------
Net increase in net assets resulting from operations 31,441,316 34,523,790
===========================================================================================================================
DIVIDENDS AND
DISTRIBUTIONS TO
SHAREHOLDERS
Dividends from net investment income:
Class A (2,534,251) (2,195,920)
Class B (366,547) (239,821)
Class C (13,143) (429)
---------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain:
Class A (4,334,550) (1,793,905)
Class B (1,169,914) (351,137)
Class C (53,029) (1,561)
===========================================================================================================================
BENEFICIAL INTEREST
TRANSACTIONS
Net increase (decrease) in net assets resulting from
beneficial interest transactions--Note 2:
Class A (6,902,321) 17,673,851
Class B 9,380,312 11,681,792
Class C 1,632,938 129,003
===========================================================================================================================
NET ASSETS
Total increase 27,080,811 59,425,663
---------------------------------------------------------------------------------------------------------------------
Beginning of period 163,046,323 103,620,660
------------- -------------
End of period [including undistributed (overdistributed) net
investment income of $23,659 and $(16,697), respectively] $190,127,134 $163,046,323
------------- -------------
</TABLE>
See accompanying Notes to Financial Statements.
11 Oppenheimer Value Stock Fund
<PAGE> 12
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
----------------------------------------
YEAR ENDED DECEMBER 31,
1996 1995 1994
=============================================================================================
<S> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $17.84 $14.16 $14.41
- ----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .34 .32 .31
Net realized and unrealized gain 3.11 3.90 .16
------ ------ ------
Total income (loss) from investment operations 3.45 4.22 .47
- ----------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.35) (.30) (.31)
Dividends in excess of net investment income -- -- (.01)
Distributions from net realized gain (.61) (.24) (.40)
------ ------ ------
Total dividends and distributions to shareholders (.96) (.54) (.72)
- ----------------------------------------------------------------------------------------------
Net asset value, end of period $20.33 $17.84 $14.16
------ ------ ------
==============================================================================================
TOTAL RETURN, AT NET ASSET VALUE(3) 19.39% 30.04% 3.28%
==============================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $148,129 $136,270 $92,728
- ----------------------------------------------------------------------------------------------
Average net assets (in thousands) $144,498 $115,137 $90,158
- ----------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 1.73% 1.98% 2.16%
Expenses, before voluntary reimbursement 1.20% 1.28% 1.27%
Expenses, net of voluntary reimbursement N/A N/A N/A
- ----------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 14.5% 11.8% 16.3%
Average brokerage commission rate(6) $0.0573 $0.0597 --
</TABLE>
1. For the period from October 2, 1995 (inception of offering) to December 31,
1995.
2. For the period from May 1, 1993 (inception of offering) to December 31,
1993.
3. 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.
12 Oppenheimer Value Stock Fund
<PAGE> 13
<TABLE>
<CAPTION>
CLASS B CLASS C
- --------------------------- -------------------------------------------------------------- --------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1993 1992 1996 1995 1994 1993(2) 1996 1995(1)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$14.19 $13.57 $17.73 $14.09 $14.35 $14.60 $17.81 $17.12
- -------------------------------------------------------------------------------------------------------------------------------
.29 .32 .19 .21 .17 .17 .22 .02
.98 .97 3.09 3.86 .19 .51 3.05 .97
- ------ ------- ------- ------- ------- ------- ------ ------
1.27 1.29 3.28 4.07 .36 .68 3.27 .99
- -------------------------------------------------------------------------------------------------------------------------------
(.29) (.32) (.21) (.19) (.21) (.17) (.23) (.06)
-- -- -- -- (.01) --- --- ---
(.76) (.35) (.61) (.24) (.40) (.76) (.61) (.24)
- ------ ------- ------- ------- ------- ------- ------ ------
(1.05) (.67) (.82) (.43) (.62) (.93) (.84) (.30)
- ------------------------------------------------------------------------------------------------------------------------------
$14.41 $14.19 $20.19 $17.73 $14.09 $14.35 $20.24 $17.81
======= ======= ======= ======= ======= ======= ======= =======
==============================================================================================================================
8.97% 9.61% 18.50% 29.03% 2.50% 4.63% 18.39% 5.89%
==============================================================================================================================
$90,470 $59,376 $40,142 $26,647 $10,893 $5,158 $1,856 $130
- ------------------------------------------------------------------------------------------------------------------------------
$80,229 $53,485 $33,258 $18,857 $7,834 $2,527 $904 $ 57
- ------------------------------------------------------------------------------------------------------------------------------
1.97% 2.34% 0.96% 1.19% 1.45% 0.97%(4) 0.92% 0.56%(4)
1.24% 1.19% 1.97% 2.07% 2.01% 2.14%(4) 2.02% 2.37%(4)
N/A N/A N/A N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------
24.3% 12.3% 14.5% 11.8% 16.3% 24.3% 14.5% 11.8%
-- -- $0.0573 $0.0597 -- -- $0.0573 $0.0597
</TABLE>
4. Annualized.
5. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at the
time of acquisition of one year or less are excluded from the calculation.
Purchases and sales of investment securities (excluding short-term securities)
for the period ended December 31, 1996 were $28,498,803 and $23,590,977,
respectively.
6. Total brokerage commissions paid on purchases and sales of portfolio
securities for the period, divided by the total number of related shares
purchased and sold.
See accompanying Notes to Financial Statements.
13 Oppenheimer Value Stock Fund
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS
================================================================================
1. SIGNIFICANT
ACCOUNTING POLICIES
Oppenheimer Value Stock 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
long-term growth of capital and income primarily through investments
in stocks of well established companies. The Fund's investment
adviser 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 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.
----------------------------------------------------------------------
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. Dividends and distributions to
shareholders are recorded on the ex-dividend date.
----------------------------------------------------------------------
CLASSIFICATION OF DISTRIBUTIONS TO SHAREHOLDERS. Net investment
income (loss) and net realized gain (loss) may differ for financial
statement and tax purposes. The character of the distributions made
during the year from net investment income or net realized gains may
differ from their ultimate characterization for federal income tax
purposes. Also, due to timing of dividend distributions, the fiscal
year in which amounts are distributed may differ from the year that
the income or realized gain (loss) was recorded by the Fund.
During the year ended December 31, 1996, the Fund
adjusted the classification of distributions to shareholders to
reflect the differences between financial statement amounts and
distributions determined in accordance with income tax regulations.
Accordingly, during the year ended December 31, 1996, amounts have
been reclassified to reflect a decrease in paid-in capital of
$131,277. Overdistributed net investment income was decreased by the
same amount.
14 Oppenheimer Value Stock Fund
<PAGE> 15
================================================================================
1. SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED)
OTHER. Investment transactions are accounted for on the date the
investments are purchased or sold (trade date) and dividend income is
recorded on the ex-dividend date. Realized gains and losses on
investments and unrealized appreciation and depreciation are
determined on an identified cost basis, which is the same basis used
for federal income tax purposes.
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>
YEAR ENDED DECEMBER 31, 1996 YEAR ENDED DECEMBER 31, 1995(1)
--------------------------------- --------------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A:
Sold 1,459,943 $ 28,270,600 1,806,348 $ 29,186,663
Dividends and distributions reinvested 250,205 5,056,348 228,838 3,907,434
Redeemed (2,062,372) (40,229,269) (944,270) (15,420,246)
------------- ------------- ------------- -------------
Net increase (decrease) (352,224) $(6,902,321) 1,090,916 $17,673,851
============= ============= ============= =============
----------------------------------------------------------------------------------------------------------------
Class B:
Sold 730,295 $13,930,290 982,843 $15,746,572
Dividends and distributions reinvested 71,393 1,445,827 32,137 551,627
Redeemed (315,951) (5,995,805) (285,236) (4,616,407)
------------- ------------- ------------- -------------
Net increase 485,737 $9,380,312 729,744 $11,681,792
============= ============= ============= =============
------------------------------------------------------------------------------------------------------------------
Class C:
Sold 93,935 $1,815,265 7,236 $128,066
Dividends and distributions reinvested 3,157 64,356 112 1,972
Redeemed (12,697) (246,683) (58) (1,035)
------------- ------------- ------------- -------------
Net increase 84,395 $1,632,938 7,290 $129,003
============= ============= ============= =============
</TABLE>
1. For the year ended December 31, 1995 for Class A and Class B
shares and for the period from October 2, 1995 to December 31, 1995
for Class C shares.
================================================================================
3. UNREALIZED GAINS AND
LOSSES ON INVESTMENTS
At December 31, 1996, net unrealized appreciation on investments of
$65,705,544 was composed of gross appreciation of $65,833,030, and
gross depreciation of $127,486.
================================================================================
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% on the first $100 million of average annual net assets with
a reduction of 0.03% on each $200 million thereafter, to 0.66% on net
assets in excess of $500 million. The Manager has agreed to reimburse
the Fund if aggregate expenses (with specified exceptions) exceed the
most stringent applicable regulatory limit on Fund expenses.
For the year ended December 31, 1996, commissions
(sales charges paid by investors) on sales of Class A shares totaled
$345,153, of which $192,834 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 $401,158 and $15,057, of which $67,248 and
$1,741, respectively, was paid to an affiliated broker/dealer. During
the year ended December 31, 1996, OFDI received contingent deferred
sales charges of $49,374 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.
15 Oppenheimer Value Stock Fund
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS (Continued)
================================================================================
4. MANAGEMENT FEES AND
OTHER TRANSACTIONS
WITH AFFILIATES
(CONTINUED)
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 year ended December 31, 1996, OFDI
paid $216,769 to an affiliated broker/dealer as reimbursement for
Class A personal service and maintenance expenses.
The Fund has adopted a reimbursement type
Distribution and Service Plan for Class B shares to reimburse OFDI
for its services and costs in distributing Class B shares and
servicing accounts. Under the Plan, the Fund pays OFDI an annual
asset-based sales charge of 0.75% per year on Class B shares. OFDI
also receives a service fee of 0.25% per year to reimburse dealers
for providing personal services for accounts that hold Class B
shares. Both fees are computed on the average annual net assets of
Class B shares, determined as of the close of each regular business
day. During the year ended December 31, 1996, OFDI paid $11,278 to an
affiliated broker/dealer as reimbursement for Class B personal
service and maintenance expenses and retained $277,247 as
reimbursement for Class B sales commissions and service fee advances,
as well as financing costs. If the Plan is terminated by the Fund,
the Board of Trustees may allow the Fund to continue payments of the
asset-based sales charge to OFDI for certain expenses it incurred
before the Plan was terminated. As of December 31, 1996, OFDI had
incurred unreimbursed expenses of $881,627 for Class B.
The Fund has adopted a compensation type Distribution
and Service Plan for Class C shares to compensate OFDI for its
services and costs in distributing Class C shares and servicing
accounts. Under the Plan, the Fund pays OFDI an annual asset-based
sales charge of 0.75% per year on Class C shares. OFDI also receives
a service fee of 0.25% per year to compensate dealers for providing
personal services for accounts that hold Class C shares. Both fees
are computed on the average annual net assets of Class C shares,
determined as of the close of each regular business day. During the
year ended December 31, 1996, OFDI retained $8,196 as compensation
for Class C sales commissions and service fee advances, as well as
financing costs. If the Plan is terminated by the Fund, the Board of
Trustees may allow the Fund to continue payments of the asset-based
sales charge to OFDI for certain expenses it incurred before the Plan
was terminated. As of December 31, 1996, OFDI had incurred
unreimbursed expenses of $34,962 for Class C.
16 Oppenheimer Value Stock Fund
<PAGE> 17
<PAGE>
Appendix A: 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>
<PAGE>
Investment Adviser
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048-0203
Sub-Adviser
David L. Babson & Co., Inc.
One Memorial Drive
Cambridge, MA 02142
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>
