SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the registrant / x /
Filed by a party other than the registrant / /
Check the appropriate box:
/ X / Preliminary proxy statement
/ / Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule
14a-12
Oppenheimer U.S. Government Trust
- ------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
Connecticut Mutual Government Securities Account,
a series of Connecticut Mutual Investment Accounts, Inc.
- ------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
/ / $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1) or
14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange
Act Rule 14a-6(i)(3).
/ / Fee Computed on table below per Exchange Act Rules 14a-
6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
- ------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- ------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11:(1)
- ------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- ------------------------------------------------------------------
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for
which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the
form or schedule and the date of its filing.
(1) Amount previously paid:
- ------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- ------------------------------------------------------------------
(3) Filing Party:
- ------------------------------------------------------------------
(4) Date Filed:
- -----------------------
(1) Set forth the amount on which the filing fee is calculated and
state how it was determined.
<PAGE>
As filed with the Securities and Exchange Commission on February
15, 1996
Registration No. 33-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. / /
OPPENHEIMER U.S. GOVERNMENT TRUST
(Exact Name of Registrant as Specified in Charter)
Two World Trade Center, New York, New York 10048-0203
(Address of Principal Executive Offices)
212-323-0200
(Registrant's Telephone Number)
Andrew J. Donohue, Esq.
Executive Vice President & General Counsel
OppenheimerFunds, Inc.
Two World Trade Center, New York, New York 10048-0203
(212) 323-0256
(Name and Address of Agent for Service)
As soon as practicable after the Registration Statement becomes
effective.
(Approximate Date of Proposed Public Offering)
It is proposed that this filing will become effective on March 18,
1996, pursuant to Rule 488.
No filing fee is due because the Registrant has previously
registered an indefinite number of shares under Rule 24f-2; a Rule
24f-2 notice for the year ended June 30, 1995 was filed on August
28, 1995.
Pursuant to Rule 429, this Registration Statement relates to shares
previously registered by the Registrant on Form N-1A (Reg. No. 2-
76645; 811-3430).
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement contains the following pages and
documents:
Front Cover
Contents Page
Cross-Reference Sheet
Part A
Proxy Statement for Connecticut Mutual Government
Securities Account, a series of Oppenheimer Series
Fund, Inc. (formerly named Connecticut Mutual
Investment Accounts, Inc.)
and
Prospectus for Oppenheimer U.S. Government Trust
Part B
Statement of Additional Information
Part C
Other Information
Signatures
Exhibits
<PAGE>
<PAGE>
FORM N-14
OPPENHEIMER U.S. GOVERNMENT TRUST
Cross Reference Sheet
Part A of
Form N-14 Proxy Statement and Prospectus Heading and/or Title
Item No. of Document
- --------- ---------------------------------------------------
1 (a) Cross Reference Sheet
(b) Front Cover Page
(c) *
2 (a) *
(b) Table of Contents
3 (a) Comparative Fee Tables
(b) Synopsis
(c) Principal Risk Factors
4 (a) Synopsis; Approval of the Reorganization; Comparison
between USGT and the Fund; Miscellaneous
(b) Approval of the Reorganization - Capitalization Table
5 (a) Registrant's Prospectus; Comparison Between USGT and the
Fund
(b) *
(c) *
(d) *
(e) Miscellaneous
(f) Miscellaneous
6 (a) Prospectus of Connecticut Mutual Government Securities
Account; Annual Report of Connecticut Mutual Government
Securities Account; Comparison Between USGT and the Fund
(b) Miscellaneous
(c) *
(d) *
7 (a) Synopsis; Information Concerning the Meeting
(b) *
(c) Synopsis; Information Concerning the Meeting
8 (a) Proxy Statement
(b) *
9 *
Part B of
Form N-14
Item No. Statement of Additional Information Heading
- --------- -------------------------------------------
10 Cover Page
11 Table of Contents
12 (a) Registrant's Statement of Additional Information
(b) *
(c) *
13 (a) Statement of Additional Information about Connecticut
Mutual Government Securities Account
(b) *
(c) *
14 Registrant's Statement of Additional Information;
Statement of Additional Information about Connecticut
Mutual Government Securities Account; Annual Report of
Connecticut Mutual Government Securities Account at
12/31/95; Registrant's Annual Report at 6/30/95; Semi-
Annual Report of Registrant at 12/31/95
Part C of
Form N-14
Item No. Other Information Heading
- --------- -------------------------
15 Indemnification
16 Exhibits
17 Undertakings
- -------------------
* Not Applicable or negative answer
<PAGE>
Preliminary Copy
OPPENHEIMER SERIES FUND, INC.
CONNECTICUT MUTUAL GOVERNMENT SECURITIES ACCOUNT
Two Word Trade Center
New York, New York 10048-0203
1-800-525-7048
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held April 24, 1996
To the Shareholders:
Notice is hereby given that a Special Meeting of the Shareholders
of Connecticut Mutual Government Securities Account ("Government
Fund" or the "Fund"), a series of Oppenheimer Series Fund, Inc.
(the "Company") (formerly named Connecticut Mutual Investment
Accounts, Inc.), an open-end, management investment company, will
be held at OppenheimerFunds, Inc., 3410 South Galena Street,
Denver, Colorado 80231 at 10:00 A.M. Denver time, on April 24,
1996, and any adjournments thereof (the "Meeting"), for the
following purposes:
1. To consider and vote upon approval of the Agreement and Plan of
Reorganization dated as of March 1, 1996 (the "Reorganization
Agreement") by and between Government Fund and Oppenheimer U.S.
Government Trust ("USGT"), and the transactions contemplated
thereby (the "Reorganization"), including (i) the transfer of
substantially all the assets of Government Fund to USGT in
exchange solely for Class A and Class B shares of USGT, (ii)
the distribution of such shares of USGT to shareholders of
Government Fund in liquidation of Government Fund, and (iii)
the cancellation of the outstanding shares of the Fund (the
"Proposal"); and
2. To act upon such other matters as may properly come before the
Meeting.
The Reorganization is more fully described in the accompanying
Proxy Statement and Prospectus and a copy of the Reorganization
Agreement is attached as Exhibit A thereto. Government Fund's
Class A and Class B shareholders of record at the close of business
on March 18, 1996 are entitled to notice of, and to vote at, the
Meeting. Please read the Proxy Statement and Prospectus carefully
before telling us, through your proxy or in person, how you wish
your shares to be voted. The Board of Directors of the Company
recommends a vote in favor of the Reorganization. WE URGE YOU TO
SIGN, DATE AND MAIL THE ENCLOSED PROXY PROMPTLY.
By Order of the Board of Directors,
Andrew J. Donohue, Secretary
March 18, 1996
Shareholders who do not expect to attend the Meeting are requested
to indicate voting instructions on the enclosed proxy and to date,
sign and return it in the accompanying postage-paid envelope. To
avoid unnecessary duplicate mailings, we ask your cooperation in
promptly mailing your proxy no matter how large or small your
holdings may be.
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE PROPOSED REORGANIZATION
1. What is the Reorganization?
The proposed Reorganization provides for the transfer of
substantially all the assets of Connecticut Mutual Government
Securities Account ("Government Fund" or the "Fund") to
Oppenheimer U.S. Government Trust ("USGT"), the issuance of shares
of USGT to shareholders of Government Fund for distribution to its
shareholders and the cancellation of the outstanding shares of
Government Fund. The number of shares of USGT that will be
received by shareholders of Government Fund will be determined on
the basis of the relative net asset values of USGT and Government
Fund. Although the number of shares of USGT received by a
shareholder of Government Fund may be more or less than the
shareholder's holdings of Government Fund shares, the value of the
shares of USGT issued in the Reorganization will be equal to the
value of the shares previously held in Government Fund.
2. What are the reasons for the Reorganization?
On February 14, 1996, at a meeting of Government Fund's
shareholders, the Fund's shareholders voted to approve the
appointment of OppenheimerFunds, Inc. ("OFI") as the Fund's
investment adviser. In the proxy statement dated December 18, 1995
and the supplement dated January 19, 1996 (the "1995 Proxy
Statement") relating to that meeting, OFI represented that after
the approval of OFI as the Fund's investment adviser, it would ask
the Fund's shareholders to vote on the merger of the Fund into a
comparable Oppenheimer mutual fund.
3. What benefits to shareholders may result from this
transaction?
The Directors of Government Fund believe that combining these two
funds may benefit shareholders of Government Fund by allowing the
Fund to capitalize on expected economies of scale in investment
research, operations and other important areas.
4. Who is paying the expenses of the Reorganization?
All expenses of the Reorganization will be paid by Massachusetts
Mutual Life Insurance Company (which is the indirect parent of G.R.
Phelps & Co., Inc., the administrator and previous investment
manager of the Fund, and of OFI, the Fund's new investment
manager).
5. Who is OppenheimerFunds, Inc.?
OppenheimerFunds, Inc. ("OFI") and its subsidiaries are engaged
principally in the business of managing, distributing and servicing
registered investment companies. OFI is indirectly controlled by
Massachusetts Mutual Life Insurance Company ("MassMutual") which
controls G.R. Phelps as a result of the merger of MassMutual and
Connecticut Mutual Life Insurance Company on March 1, 1996, as
described in the 1995 Proxy Statement. As of January 31, 1996,
OppenheimerFunds, Inc. and a subsidiary had assets of more than $45
billion under management in more than 40 mutual funds.
6. Do the Oppenheimer funds have a sales charge?
Yes, the Oppenheimer funds impose a sales charge, other than their
money market funds (certain of which have an asset-based sales
charge on certain classes of shares). However, there will be no
commission or sales load of any kind charged in connection with
this Reorganization.
7. May I exchange between other Oppenheimer funds without a sales
charge or exchange fee?
Yes. As a shareholder of an Oppenheimer fund, you will be able to
make exchanges into any of the other Oppenheimer funds without
payment of any sales charges or exchange fees. Exchange privileges
may be modified or discontinued at any time.
8. Where can I get prospectuses and other information on the
Oppenheimer funds?
Call OppenheimerFunds Distributor, Inc. at 1-800-255-2755. They
will be pleased to supply you with all the information, including
prospectuses, which you will need to make an investment decision.
9. Whom do I contact about my account or to initiate a
transaction in my account?
For information about your account or to initiate a transaction in
your account, you may continue to contact your registered
representative at your broker/dealer or, in the alternative,
OppenheimerFunds Services at 1-800-525-7048.
10. Will this Reorganization result in any tax liability to
Government Fund, USGT or to me as a shareholder?
The Reorganization is intended to qualify for Federal income tax
purposes as a tax-free reorganization. The aggregate tax basis of
USGT shares received by you will be the same as the aggregate tax
basis of your Government Fund shares prior to the Reorganization
and the holding period of the shares of USGT to be received by you
will include the period during which Government Fund shares
surrendered in exchange therefore were held, provided that those
Government Fund shares were held as capital assets.
<PAGE>
<PAGE>
Preliminary Copy
OPPENHEIMER SERIES FUND, INC.
CONNECTICUT MUTUAL GOVERNMENT SECURITIES ACCOUNT
Two World Trade Center, New York, New York 10048-0203
1-800-525-7048
PROXY STATEMENT
---------------
OPPENHEIMER U.S. GOVERNMENT TRUST
3410 South Galena Street, Denver, Colorado 80231
1-800-525-7048
PROSPECTUS
This Proxy Statement and Prospectus is being furnished to
shareholders of Connecticut Mutual Government Securities Account
("Government Fund" or the "Fund"), a series of Oppenheimer Series
Fund, Inc. (the "Company"), an open-end, management investment
company, in connection with the solicitation by the Board of
Directors of the Company (the "Board") of proxies to be used at the
Special Meeting of Shareholders of Government Fund to be held at
OppenheimerFunds, Inc., 3410 South Galena Street, Denver, Colorado
80231, at 10:00 A.M. Denver time, on April 24, 1996, and any
adjournments thereof (the "Meeting"). It is expected that this
Proxy Statement and Prospectus will be mailed to shareholders on or
about March 22, 1996.
At the Meeting, shareholders of the Fund will be asked to consider
and vote upon approval of the Agreement and Plan of Reorganization,
dated as of March 1, 1996 (the "Reorganization Agreement"), by and
between Government Fund and Oppenheimer U.S. Government Trust
("USGT"), and the transactions contemplated by the Reorganization
Agreement (the "Reorganization"). The Reorganization Agreement
provides for the transfer of substantially all the assets of
Government Fund to USGT in exchange solely for Class A and Class B
shares of USGT, the distribution of such shares of USGT to the
respective Class A and Class B shareholders of Government Fund in
liquidation of Government Fund and the cancellation of the
outstanding shares of Government Fund. A copy of the
Reorganization Agreement is attached hereto as Exhibit A and is
incorporated by reference herein. As a result of the proposed
Reorganization, each Class A and Class B shareholder of Government
Fund will receive that number of Class A and Class B shares,
respectively, of USGT having an aggregate net asset value equal to
the net asset value of such shareholder's shares of Government Fund
of that class. This transaction is being structured as a tax-free
reorganization. See "Approval of the Reorganization."
USGT currently offers Class A, Class B and Class C shares. Class
A shares are sold with a sales charge imposed at the time of
purchase. Certain purchases aggregating $1.0 million or more
($500,000 as to purchases by OppenheimerFunds prototype 401(k)
plans) are not subject to a sales charge, but may be subject to a
contingent deferred sales charge ("CDSC") if redeemed within 18
months of the date of purchase. Class B shares are sold without a
front-end sales charge but may be subject to a CDSC if redeemed
within six years of the date of purchase. Class C shares are sold
without a front-end sales charge, but may be subject to a CDSC if
redeemed within one year of purchase.
As a result of the transaction, holders of Government Fund Class A
shares will receive Class A shares of USGT and no sales charge will
be imposed on the Class A shares received by the Fund's Class A
shareholders. Holders of Government Fund Class B shares will
receive Class B shares of USGT.
Any CDSC which is applicable to a shareholder's investment will
continue to apply. In calculating the applicable CDSC payable upon
the subsequent redemption of either Class A or Class B shares of
USGT, the period during which a Government Fund shareholder held
shares of the Fund will be counted. Because Government Fund has no
Class C shares outstanding, USGT will not issue Class C shares in
the Reorganization. Accordingly, complete information on Class C
shares of USGT is not included in this Proxy Statement and
Prospectus, and no offering of Class C shares is made hereby.
USGT is a mutual fund with the investment objective of seeking high
current income, preservation of capital and maintenance of
liquidity primarily through investments in debt instruments issued
or guaranteed by the U.S. Government or its agencies or
instrumentalities. Government Fund seeks a high level of current
income with a high degree of safety of principal. Government Fund
invests primarily in debt instruments issued or guaranteed by the
U.S. Government or its agencies or instrumentalities. Although the
investment objectives of USGT and Government Fund are similar,
shareholders of Government Fund should consider the differences in
investment policies of USGT and the Fund, including Government
Fund's ability to invest a greater percentage of its assets in
investment grade debt securities of private issuers. See
"Comparison Between USGT and Government Fund - Comparison of
Investment Objectives, Policies and Restrictions."
USGT has filed with the Securities and Exchange Commission (the
"SEC") a Registration Statement on Form N-14 (the "Registration
Statement") relating to the registration of shares of USGT to be
offered to the respective Class A and Class B shareholders of
Government Fund pursuant to the Reorganization Agreement. This
Proxy Statement and Prospectus relating to the Reorganization also
constitutes a Prospectus of USGT filed as part of such Registration
Statement. Information contained or incorporated by reference
herein relating to USGT has been prepared by and is the
responsibility of USGT. Information contained or incorporated by
reference herein relating to Government Fund has been prepared by
and is the responsibility of Government Fund.
This Proxy Statement and Prospectus sets forth concisely
information about USGT that a prospective investor should know
before voting on the Reorganization. The following documents have
been filed with the SEC and are available without charge upon
written request to the transfer and shareholder servicing agent for
USGT and Government Fund, OppenheimerFunds Services ("OFS"), at
P.O. Box 5270, Denver, Colorado 80217, or by calling 1-800-525-7048
(a toll-free number): (i) a Prospectus for Government Fund, dated
October 1, 1995, as supplemented March 1, 1996 (information about
Government Fund is incorporated herein from Government Fund's
Prospectus); (ii) a Statement of Additional Information about
Government Fund, dated October 1, 1995, as supplemented March 1,
1996; (iii) a Prospectus for USGT, dated November 1, 1995, as
supplemented January 1, 1996 and January 5, 1996; (iv) a Statement
of Additional Information about USGT dated November 1, 1995, which
contains more detailed information about USGT and its management,
and (v) a Statement of Additional Information relating to the
Reorganization described in this Proxy Statement and Prospectus
(the "Additional Statement"), dated March 18, 1996 and filed as
part of the Registration Statement, which Additional Statement
includes, among other things, the Government Fund Prospectus, the
Government Fund Statement of Additional Information and the USGT
Statement of Additional Information.
Investors are advised to read and retain this Proxy Statement and
Prospectus for future reference.
Shares of USGT or Government Fund are not deposits or obligations
of any bank, are not guaranteed by any bank, and are not insured by
the F.D.I.C. or any other agency, and involve investment risks,
including the possible loss of the principal amount invested.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED ON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
This Proxy Statement and Prospectus is dated March 18, 1996.
<PAGE>
<PAGE>
TABLE OF CONTENTS
PROXY STATEMENT AND PROSPECTUS
COMPARATIVE FEE TABLES
SYNOPSIS
Parties to the Reorganization
The Reorganization
Tax Consequences of the Reorganization
Investment Objectives and Policies
Investment Advisory and Distribution Plan Fees
Purchases, Exchanges and Redemptions
PRINCIPAL RISK FACTORS
THE PROPOSAL - APPROVAL OF THE REORGANIZATION
Background
Board Approval of the Reorganization
Regulatory Approval of the Reorganization
The Reorganization
Tax Aspects of the Reorganization
Capitalization Table (Unaudited)
COMPARISON BETWEEN USGT AND GOVERNMENT FUND
Comparison of Investment Objectives, Policies and Restrictions
Special Investment Methods
Investment Restrictions
Additional Comparative Information
Performance of USGT and the Fund
INFORMATION CONCERNING THE MEETING
The Meeting
Record Date; Vote Required; Share Information
Proxies
Costs of the Solicitation and the Reorganization
MISCELLANEOUS
Financial Information
Public Information
OTHER BUSINESS
EXHIBIT A - Agreement and Plan of Reorganization, dated as of
March 1, 1996, by and between Oppenheimer U.S.
Government Trust and Oppenheimer Series Fund, Inc. on
behalf of Connecticut Mutual Government Securities
Account
<PAGE>
COMPARATIVE FEE TABLES
Shareholders pay certain expenses directly, such as sales charges
and account transaction charges. The schedule of such charges for
both USGT and Government Fund is as noted below.
<TABLE>
<CAPTION>
Government
Securities Account USGT
Transaction Charges Class A Class B Class A Class B Class C
<S> <C> <C> <C> <C> <C>
Maximum Initial Sales
Charge on Purchases (as
a % of offering price) 4.00% None 4.75% None None
Maximum Deferred Sales
Charge (as a % of the
lower of the original
purchase price or the
redemption proceeds) None(1) 5.00%(2) None(1) 5.00%(2) 1.00%(3)
Sales Charge on
Reinvested Dividends None None None None None
Redemption Fee None None None None None
Exchange Fee None(4) None(4) None None None
</TABLE>
(1) For Government Fund, certain purchases of Class A shares of
$500,000 or more are not subject to front-end sales charges, but a
contingent deferred sales charge ("CDSC") is imposed on the
proceeds of such shares equal to 1% if the shares are redeemed
within 12 months after the calendar month of purchase. For USGT,
a CDSC of up to 1% is imposed on purchases of Class A shares of
more than $1 million (more than $500,000 for purchases by
OppenheimerFunds prototype 401(k) plans) if the shares are redeemed
within 18 months.
(2) The contingent deferred sales charge ("CDSC") schedules are
5%/5%/4%/4%/2%/1% for Government Fund and 5%/4%/3%/3%/2%/1% for
USGT, and eliminated thereafter. After eight years, Class B
Government Fund shares automatically convert to Class A shares.
After six years, Class B USGT shares automatically convert to Class
A shares.
(3) A CDSC of 1% may be imposed upon a redemption of USGT Class C
shares made within 12 months of purchase.
(4) Exchanges of Government Fund shares in excess of 12 exchanges
in a 12-month period are subject to an exchange fee of 0.75% of the
net asset value of the shares redeemed.
Expenses of USGT and Government Fund; Pro Forma Expenses
USGT and Government Fund each pay a variety of expenses directly
for management of their assets, administration, distribution of
their shares and other services, and those expenses are reflected
in the net asset value per share of each of USGT and Government
Fund. The following calculations are based on the annualized
expenses of USGT for the six months ended 12/31/95 and the expenses
of Government Fund for the 12 months ended December 31, 1995. The
inception dates for Class C shares of USGT and Class B shares of
Government Fund were July 21, 1995 and October 1, 1995,
respectively. Total fund operating expenses of Class C shares of
USGT and Class B shares of Government Fund are based on estimated
expenses that would have been incurred during the fiscal year ended
12/31/95 had such respective shares been outstanding during that
entire period. These amounts are shown as a percentage of the
average net assets of each class of shares of Government Fund and
of USGT for those periods. The pro forma fees reflect what the fee
schedules would have been at 12/31/95 if the Reorganization had
occurred 12 months prior to that date.
For the 12 months ended December 31, 1995:
<TABLE>
<CAPTION>
Pro Forma
Government Fund USGT Combined Fund
Class A Class B Class A(1) Class B(1) Class A Class B
<S> <C> <C> <C> <C> <C> <C>
Management Fee 0.625% 0.625% 0.61% 0.61% 0.59% 0.59%
12b-1 Fee 0.25%(2) 1.00% 0.24% 1.00% 0.24%(2) 1.00%
Other Expenses 0.355% 0.355% 0.25% 0.26% 0.25% 0.25%
Total Fund
Operating
Expenses 1.23% 1.98% 1.10% 1.87% 1.08% 1.84%
</TABLE>
(1) Annualized.
(2) 12b-1 fees and other expenses for Government Fund have been
restated to reflect the fees that would have been paid in the
absence of a temporary agreement by Connecticut Mutual Financial
Services, L.L.C. ("CMFS"), formerly the distributor of Government
Fund shares, not to impose such fees and to assume such expenses
during the fiscal year ended December 31, 1995. That expense
limitation has been terminated.
Examples
To attempt to show the effect of these expenses on an investment
over time, the examples shown below have been created. Assume that
you make a $1,000 investment in either Government Fund or USGT or
the new combined fund and that the annual return is 5% and that the
operating expenses for each fund are the ones shown in the table
above for the 12 months ended 12/31/95. 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*
Government Fund
Class A $52 $77 $105 $183
Class B $70 $102 $127 $211
Oppenheimer U.S.
Government Trust
Class A $58 $81 $105 $175
Class B $69 $89 $121 $180
Pro Forma
Combined Fund
Class A $58 $80 $104 $173
Class B $69 $88 $120 $178
If you did not redeem your investment, it would incur the following
expenses:
1 year 3 years 5 years 10 years*
Government Fund
Class A $52 $77 $105 $183
Class B $20 $62 $107 $211
Oppenheimer U.S.
Government Trust
Class A $58 $81 $105 $175
Class B $19 $59 $101 $180
Pro Forma
Combined Fund
Class A $58 $80 $104 $173
Class B $19 $58 $100 $178
* The Class B expenses in years seven through ten for USGT and the
Pro Forma Combined Fund, and the Class B expenses in years nine and
ten for Government Fund, are based on the Class A expenses shown
above, because USGT and Government Fund automatically convert Class
B shares into Class A shares after six years and eight years,
respectively. Long-term Class B shareholders could pay the
economic equivalent of more than the maximum front-end sales charge
allowed under applicable regulations, because of the effect of the
asset-based sales charge and contingent deferred sales charge. For
Class B shareholders of both funds, the automatic conversion of
Class B shares to Class A shares is designed to minimize the
likelihood that this will occur.
SYNOPSIS
The following is a synopsis of certain information contained in or
incorporated by reference in this Proxy Statement and Prospectus
and presents key considerations for shareholders of the Fund to
assist them in determining whether to approve the Reorganization.
This synopsis is only a summary and is qualified in its entirety by
the more detailed information contained in or incorporated by
reference in this Proxy Statement and Prospectus and the Exhibit
hereto. Shareholders should carefully review this Proxy Statement
and Prospectus and the Exhibit hereto in their entirety and, in
particular, the current Prospectus of USGT which accompanies this
Proxy Statement and Prospectus and is incorporated by reference
herein.
Parties to the Reorganization
USGT is a diversified, open-end, management investment company
organized in 1982 as a Massachusetts business trust. USGT is
located at Two World Trade Center, New York, New York 10048-0203.
OppenheimerFunds, Inc. ("OFI") acts as investment adviser to USGT.
OppenheimerFunds Distributor, Inc. ("OFDI"), a subsidiary of OFI,
acts as the distributor of USGT's shares. Additional information
about USGT is set forth below.
Government Fund is a diversified portfolio (or "series") of
Oppenheimer Series Fund, Inc. (the "Company"), an open-end,
management investment company organized as a multi-series Maryland
corporation on December 9, 1981 that changed its name from
Connecticut Mutual Investment Accounts, Inc. on March 18, 1996.
The following changes took effect March 1, 1996: Government Fund's
address changed to Two World Trade Center, New York, NY 10048-0203
and OFI become the Fund's investment adviser. On March 18, 1996,
OFS became Government Fund's transfer agent and shareholder
servicing agent and OFDI became the distributor of Government
Fund's shares. Additional information about Government Fund is set
forth below.
The Reorganization
The Reorganization Agreement provides for the transfer of
substantially all the assets of Government Fund to USGT in exchange
for the issuance of Class A and Class B shares of USGT to the
respective Class A and Class B shareholders of Government Fund, in
liquidation of Government Fund. The Reorganization Agreement also
provides for the distribution by the Fund of these shares of USGT
to the Fund shareholders in complete liquidation of the Fund. As
a result of the Reorganization, each Government Fund shareholder
will receive that number of full and fractional USGT shares equal
in value to such shareholder's pro rata interest in the net assets
transferred to USGT as of the Valuation Date (as hereinafter
defined). Holders of Class A and Class B shares of Government Fund
will receive Class A and Class B shares, respectively, of USGT.
For further information about the Reorganization see "Approval of
the Reorganization" below.
For the reasons set forth below under "The Proposal - Approval of
the Reorganization - Reasons for the Reorganization," the Board,
including the Directors who are not "interested persons" of the
Company (the "Independent Directors"), as that term is defined in
the Investment Company Act of 1940, as amended (the "1940 Act"),
has concluded that the Reorganization is in the best interests of
Government Fund and its shareholders and that the interests of
existing Government Fund shareholders will not be diluted as a
result of the Reorganization, and recommends approval of the
Reorganization by Government Fund shareholders. The Board of
Trustees of USGT has also approved the Reorganization and
determined that the interests of existing USGT shareholders will
not be diluted as a result of the Reorganization. If the
Reorganization is not approved, Government Fund will continue in
existence and the Board will determine whether to pursue
alternative actions. "The Proposal - Approval of the
Reorganization" sets forth certain information with respect to the
background of the Reorganization, including other transactions and
agreements entered into, or contemplated to be entered into, by
OFI, G.R. Phelps and their respective affiliates.
Approval of the Reorganization will require the affirmative vote of
the holders of a majority of Government Fund's Class A and Class B
shares outstanding and entitled to vote, voting together as a
series.
Tax Consequences of the Reorganization
As a condition to the closing of the Reorganization, Government
Fund and USGT will have received an opinion to the effect that the
Reorganization will qualify as a tax-free reorganization for
Federal income tax purposes. As a result of such tax-free
reorganization, no gain or loss would be recognized by Government
Fund, USGT, or the shareholders of either fund for Federal income
tax purposes, except to the extent the shareholders of Government
Fund may realize taxable income or gain if a distribution is made
to them of any portion of the "Cash Reserve," as defined below.
For further information about the tax consequences of the
Reorganization, see "The Proposal - Approval of the Reorganization
- -Tax Aspects of the Reorganization" below.
Investment Objectives and Policies
The investment objectives of Government Fund and USGT are similar.
USGT seeks high current income, preservation of capital and
maintenance of liquidity primarily through investments in debt
instruments issued or guaranteed by the U.S. Government or its
agencies or instrumentalities ("U.S. Government Securities").
Government Fund seeks a high level of current income with a high
degree of safety of principal by investing primarily in U.S.
Government Securities.
U.S. Government Securities include: (1) U.S. Treasury Bills
(maturities of one year or less when issued), U.S. Treasury Notes
(maturities of between two and ten years when issued), and U.S.
Treasury Bonds (generally maturities of greater than 10 years when
issued), all of which are backed by the full faith and credit of
the United States, and (2) obligations issued or guaranteed by U.S.
Government agencies or instrumentalities, some of which are backed
by the full faith and credit of the U.S. Treasury such as direct
pass-through certificates of the Government National Mortgage
Association ("Ginnie Mae" or "GNMA"); some of which are supported
by the right of the issuer to borrow from the U.S. Government, such
as obligations of the Federal National Mortgage Association
("Fannie Mae" or "FNMA") or Federal Home Loan Banks; and some of
which are backed only by the credit of the issuer itself, such as
obligations of the Federal Home Loan Mortgage Corporation ("Freddie
Mac") or Student Loan Marketing Association.
As a matter of fundamental policy, USGT will invest, under normal
market conditions, at least 80% of its total assets in U.S.
Government Securities. As a matter of non-fundamental policy, USGT
may invest up to 20% of its total assets in investment grade debt
securities of private issuers. Investment grade debt securities are
those rated within the four highest rating categories of Moody's
Investor Service, Inc., Standard and Poor's Corporation or such
other nationally recognized rating agency, or, if unrated, judged
by OFI to be of comparable quality to debt securities rated within
such grades.
Government Fund will, under normal market conditions, invest at
least 65% of its total assets in U.S. Government Securities.
Government Fund may invest up to 35% of its total assets in
investment grade debt securities of private issuers.
Both Government Fund and USGT may invest in collateralized mortgage
obligations ("CMOs") issued by private issuers, or issued or
guaranteed by the U.S. Government, its agencies or
instrumentalities. The Fund's investments in private-issuer CMOs
are limited to those rated within the two highest rating categories
by a nationally recognized rating agency. Both the Fund and USGT
may also invest in stripped interest-only or principal-only
mortgage-backed securities.
Government Fund may invest up to 5% of its total assets in inverse-
floating rate instruments. USGT may hold a de minimis position in
such instruments. Government Fund may invest up to 20% of its
total assets in mortgage dollar rolls. USGT may also enter into
mortgage dollar rolls.
To hedge against interest rate changes or for non-hedging purposes,
Government Fund may buy and sell various futures, and may buy and
sell call and put options on any of such futures. USGT may write
covered call options on securities held by it to seek income. For
hedging purposes, USGT may buy and sell various futures, options on
such futures, and options on securities. Both Government Fund and
USGT may enter into interest rate swaps for hedging purposes.
Government Fund may also use interest rate swaps to seek to
increase income.
Both Government Fund and USGT may lend their portfolio securities,
enter into repurchase agreements, and invest in illiquid
securities.
Although the respective investment objectives of the funds are
similar, shareholders of Government Fund should consider certain
differences in investment policies. See "Comparison Between USGT
and Government Fund - Comparison of Investment Objectives, Policies
and Restrictions."
Investment Advisory and Distribution Plan Fees
The funds obtain investment management services from OFI pursuant
to the terms of their respective investment advisory agreements.
Each fund's management fee is payable to OFI monthly and is
computed on the net asset value of the respective fund as of the
close of business each day.
USGT pays a monthly management fee which declines on additional
assets as USGT increases its asset base, at the annual rate of
0.65% of the first $200 million of aggregate net assets, 0.60% of
the next $100 million, 0.57% of the next $100 million, 0.55% of the
next $400 million and 0.50% of aggregate net assets over $800
million. Government Fund pays a monthly management fee at an
annual rate of 0.625% of the first $300 million of net assets,
0.500% of the next $100 million and 0.450% of net assets over $400
million.
Both USGT and Government Fund have adopted service plans for their
Class A shares, and service and distribution plans for their Class
B shares, pursuant to Rule 12b-1 under the 1940 Act. Pursuant to
the plans, Class A and Class B shares of USGT and the Fund are
authorized to pay OFDI in connection with the distribution of
shares and the servicing of shareholder accounts that hold the
fund's shares. The Class A 12b-1 plans provide for reimbursement
of expenses of OFDI. The Class B 12b-1 plans provide for payments
at a fixed rate to compensate OFDI. The current maximum annual fee
payable by shares of USGT and the Fund pursuant to their 12b-1
plans is (i) as to Class A shares, 0.25% (as a service fee) and
(ii) as to Class B shares, 1.00% (consisting of a 0.25% service fee
and a 0.75% "asset-based sales charge").
Class B shares of USGT automatically convert to Class A shares of
USGT six years after purchase. Class B shares of Government Fund
automatically convert to Class A shares of Government Fund eight
years after purchase. Accordingly, Class B shareholders of the
Fund may pay the asset-based sales charge on their shares for a
longer period than USGT Class B shareholders.
Purchases, Exchanges and Redemptions
Purchases. Purchases of shares of USGT and the Fund may be made
directly through the distributor for USGT or the Fund,
respectively, or through any dealer, broker or financial
institution that has a sales agreement with the distributor for
such fund. In addition, a shareholder of USGT may purchase shares
automatically from an account at a domestic bank or other financial
institution under the "OppenheimerFunds AccountLink" service.
Class A shares of both USGT and the Fund generally are sold subject
to an initial sales charge. The maximum initial sales charge rate
is 0.75% higher for USGT Class A shares than for Government Fund
Class A shares. Class B shares of both funds generally are sold
without a front-end sales charge but may be subject to a CDSC upon
redemption. See "Comparative Fee Tables -- Transaction Charges"
above for a complete description of such sales charges.
Class A shares of each fund may be purchased at reduced sales
charges, and the Class B CDSC of each fund may be waived in certain
circumstances, as described in that fund's Prospectus. USGT has
agreed that each shareholder holding Government Fund shares as of
the reorganization date who is presently eligible (i) to purchase
Class A shares of Government Fund at net asset value or (ii) for a
waiver from the CDSC applicable to either Class A or Class B shares
of Government Fund, in accordance with Government Fund's current
prospectus, will retain these privileges with respect to USGT
shares, commencing as of the date USGT's prospectus is
appropriately revised. These privileges apply only to accounts
holding USGT shares received in the Reorganization, and terminate
once all shares held in such an account are redeemed or exchanged.
The Class A USGT shares to be issued under the Reorganization
Agreement will be issued by USGT at net asset value without a sales
charge. The sales charge on Class A shares of USGT will only
affect shareholders of Government Fund to the extent that they
desire to make additional purchases of Class A shares of USGT in
addition to the shares which they will receive as a result of the
Reorganization. Future dividends and capital gain distributions of
USGT, if any, may be reinvested without sales charge. The Class B
shares of USGT to be issued under the Reorganization Agreement will
be issued at net asset value and, along with Class A shares of USGT
to be issued under the Reorganization Agreement, will be deemed
aged to the same level as the shareholder's existing Government
Fund Class A and Class B shares, for purposes of imposing the CDSC
of that class at redemption and for converting Class B to Class A
shares.
Exchanges. Shareholders of USGT may exchange their shares at net
asset value for shares of the same class of mutual funds within the
Oppenheimer funds family (46 other portfolios), subject to certain
conditions. Shares of Government Fund may only be exchanged for
shares of the same class of another series of the Company (7 other
portfolios). USGT offers an automatic exchange plan providing for
systematic exchanges from USGT of a specified amount for shares of
the same class of other funds within the Oppenheimer funds family.
Exchanges of Government Fund shares in excess of 12 in a 12-month
period are subject to an exchange fee of 0.75% of net assets of the
exchanged shares.
Redemptions. Class A shares of the funds may be redeemed without
charge at their respective net asset values per share calculated
after the redemption order is received and accepted. However,
certain large investments in Class A shares that were exempt from
the front-end sales charge upon purchase may be subject to a CDSC
upon redemption. See "Comparative Fee Tables -- Transaction
Charges" above. Class B shares of the funds may be redeemed at
their net asset value per share, subject to a maximum CDSC of 5.0%
for redemptions occurring within six years of purchase. However,
the Class B CDSC is 1% lower for USGT shares during the second,
third and fourth year after purchase.
Shareholders of USGT may reinvest redemption proceeds of Class A
shares on which an initial sales charge was paid, or Class A or
Class B shares on which a CDSC was paid, within six months of a
redemption at net asset value in Class A shares of USGT or any of
numerous mutual funds within the Oppenheimer funds family.
Shareholders of Government Fund may reinvest all or part of the
redemption proceeds of Class A shares in Class A shares of
Government Fund within 60 days after the date of the redemption
without the imposition of a sales charge. Shareholders of both
funds may redeem their shares by written request or by telephone
request in certain stated amounts, or they may arrange to have
share redemption proceeds wired, for a fee, to a pre-designated
account at a U.S. bank or other financial institution that is an
automated clearing house ("ACH") member. Checkwriting privileges
on Class A shares of USGT are also available. USGT may redeem
accounts valued at less than $200 if the account has fallen below
such stated amount for reasons other than market value
fluctuations. For Government Fund, the corresponding minimum is
100 shares once the account has been open at least 24 months. The
funds offer automatic withdrawal plans providing for systematic
withdrawals of a specified amount from the fund account.
PRINCIPAL RISK FACTORS
In evaluating whether to approve the Reorganization and invest in
USGT, shareholders should carefully consider the following summary
of risk factors, relating to both USGT and Government Fund, in
addition to the other information set forth in this Proxy Statement
and Prospectus. A more complete description of risk factors for
each fund is set forth in the Prospectuses of the funds and their
respective Statements of Additional Information.
As a general matter, USGT and Government Fund are intended for
investors seeking high current income and not for investors seeking
capital appreciation. There is no assurance that either USGT or
Government Fund will achieve its investment objective and
investment in the funds is subject to investment risks, including
the possible loss of the principal invested. As described below,
each fund generally invests a certain percentage of its assets in
non-U.S. government investment-grade debt securities.
Investment in Debt Securities
The funds both seek their investment objective through investments
primarily in debt instruments issued or guaranteed by the United
States Government, its agencies or instrumentalities.
Interest Rate Risk. Debt securities are subject to interest rate
risk. Interest rate risk relates to fluctuations in market value
due to changes in prevailing interest rates. When prevailing
interest rates fall, the values of already-issued debt securities
generally rise. When interest rates rise, the values of already-
issued debt securities generally decline. The magnitude of these
fluctuations will often be greater for longer-term debt securities
than shorter-term debt securities. Changes in the value of
securities held by a 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 Risk. Credit risk relates to the ability of the issuer of
a debt security to make interest or principal payments on the
security as they become due. Generally, higher-yielding, lower-
rated bonds are subject to greater credit risk than higher-rated
bonds. Securities issued or guaranteed by the U.S. government are
subject to little, if any, credit risk. USGT is permitted to
invest up to 20% of its total assets in non-U.S. Government
investment-grade debt securities or, if unrated, judged by OFI to
be of comparable quality to debt securities rated within such
grades. Government Fund may invest up to 35% of its total assets
in non-U.S. Government investment-grade debt securities.
Mortgage-Backed Securities; CMOs; Derivatives. The funds may
invest in mortgage-backed "pass-through" securities. Mortgage-
backed securities are subject to prepayment risks. The effective
maturity of a mortgage-backed security may be shortened by
unscheduled or early payment of principal and interest on the
underlying mortgages. This may result in greater price and yield
volatility than traditional fixed-income securities that have a
fixed maturity and interest rate. The principal that is returned
may be invested in instruments having a higher or lower yield than
the prepaid instruments depending on then-current market
conditions. Such securities therefore may be less effective as a
means of "locking in" attractive long-term interest rates and may
have less potential for appreciation during periods of declining
interest rates than conventional bonds with comparable stated
maturities.
If the funds buy mortgage-backed securities at a premium,
prepayments of principal and foreclosures of mortgages may result
in some loss of the fund's principal investment to the extent of
the premium paid. The value of mortgage-backed securities may also
be affected by changes in the market's perception of the
creditworthiness of the entity issuing or guaranteeing them or by
changes in government regulations and tax policies.
The funds may invest in collateralized mortgage obligations
("CMOs") issued by either the U.S. Government, its agencies or
instrumentalities, or by private issuers. Government Fund's
investments in private-issuer CMOs will be limited to those rated
within the two highest rating categories by a nationally recognized
rating agency. CMOs may be issued in a variety of classes or
series ("tranches"). The principal value of certain CMO tranches
may be more volatile and less liquid than other types of mortgage-
related securities, because of the possibility that the principal
value of the CMOs may be prepaid earlier than the maturity of the
CMOs as a result of prepayments of the underlying mortgage loans by
the borrowers.
Government Fund may invest up to 5% of its total assets in inverse
floating rate instruments. USGT may hold a de minimis position in
such securities. Yields on inverse floaters move in the opposite
direction as short-term interest rates change. Prices of inverse
floaters may be more volatile than prices of comparable fixed-rate
securities.
USGT and Government Fund may also invest in "stripped" mortgage-
backed securities, a type of derivative investment. Derivatives
are investments that provide for payments based on or "derived
from" the performance of an underlying asset or index. Derivatives
may be, but are not necessarily, more risky than conventional
stocks, bonds and money market instruments. Stripped mortgage-
backed securities usually have two classes. The classes receive
different proportions of the interest and principal distributions
on the pool of mortgage assets that act as collateral for the
security. In certain cases, one class will receive all of the
interest payments (and is known as an "I/O"), while the other class
will receive all of the principal payments (and is known as a
"P/O").
The yield to maturity on an I/O 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 in such I/Os. The
value of P/O securities generally decreases as interest rates rise
and prepayment rates fall. The price of these securities is
typically more volatile than that of coupon-bearing bonds of the
same maturity.
Repurchase Agreements
The funds may enter into repurchase agreements of seven days or
less without limit and may cause up to 10% of their respective net
assets to be subject to repurchase agreements having a maturity
beyond seven days. Repurchase agreements must be fully
collateralized. However, if the vendor fails to pay the resale
price on the delivery date, the funds may experience costs or
delays in disposing of the collateral and may experience losses to
the extent that the proceeds from the sale of the collateral is
less than the repurchase price.
Options, Futures and Interest Rate Swaps
To hedge against interest rate changes or for non-hedging purposes,
Government Fund may buy and sell various futures, and may buy and
sell call and put options on any of such futures. USGT may write
covered call options on securities held by it to seek income. For
hedging purposes, USGT may buy and sell various futures, options on
such futures, and options on securities. Both the Fund and USGT
may enter into interest rate swaps for hedging purposes. The Fund
may also use interest rate swaps to seek to increase income.
The risk of writing covered call options includes the inability to
participate in the appreciation of the underlying security above
the exercise price. Hedging with options and futures may reduce
the fund's total return if used at the wrong time or if market
conditions are not judged correctly. Government Fund or USGT 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 option or future.
THE PROPOSAL - APPROVAL OF THE REORGANIZATION
Background
On March 1, 1996, the indirect parent company of G.R. Phelps,
Connecticut Mutual Life Insurance Company ("Connecticut Mutual"),
merged with and into Massachusetts Mutual Life Insurance Company
("MassMutual"). On that date, Connecticut Mutual ceased to exist
and MassMutual became the surviving company. Immediately
subsequent to the merger, MassMutual became the nation's fifth
largest life insurance company.
MassMutual is the ultimate parent company of OppenheimerFunds, Inc.
("OFI"), which is engaged (directly and through subsidiaries) in
the business of managing, distributing and servicing registered
investment companies. As of January 31, 1996, OFI (including a
subsidiary) had more $45 billion in assets under management, the
majority of which is represented by the Oppenheimer funds.
Board Approval of the Reorganization
At its meeting on November 17, 1995, the Company's Board, including
the Independent Directors, unanimously approved the Reorganization
and the Reorganization Agreement, determined that the
Reorganization is in the best interests of Government Fund and its
shareholders and resolved to recommend that Government Fund
shareholders vote for approval of the Reorganization. The Board
further determined that the Reorganization would not result in
dilution of Government Fund's shareholders' interests.
The Company's Board of Directors, on behalf of Government Fund,
believes that the proposed Reorganization will be advantageous to
the shareholders of Government Fund in several respects. The Board
considered the following matters, among others, in approving the
Proposal.
First, the Board believes that it is not advantageous to operate
and market Government Fund separately from USGT because their
investment objectives and policies are substantially similar. By
being offered simultaneously, each fund hinders the other fund's
potential for asset growth. For a complete description of USGT's
investment objectives and policies, see USGT's Prospectus included
with this Proxy Statement.
Second, the Board considered that shareholders may be better served
by a fund offering greater diversification. To the extent that the
funds' assets are combined into a single portfolio and a larger
asset base is created as a result of the Reorganization, greater
diversification of USGT's investment portfolio can be achieved than
is currently possible in either fund, especially Government Fund.
Greater diversification is expected to be beneficial to
shareholders of both funds because it may reduce the negative
effect which the adverse performance of any one security may have
on the performance of the entire portfolio.
Third, the Board considered the fact that USGT is subject to a
higher management fee rate than Government Fund. The Board
believes that the assets of USGT attributable to Government Fund
will receive the benefit of OFI's capabilities and resources in
investment management and that the payment by the assets of
Government Fund of a higher management fee rate for these services
and resources is reasonable and in the best interests of Government
Fund's shareholders.
Fourth, the Board believes that the USGT shares received in the
Reorganization will provide existing Government Fund shareholders
with substantially the same investment advantages that they
currently enjoy. The Board also considered the performance history
of each fund.
Fifth, a combined fund offers economies of scale that may have a
positive effect on the expenses currently borne by Government Fund,
and hence, indirectly, its shareholders. Both funds incur
substantial costs for accounting, legal, transfer agency services,
insurance, and custodial and administrative services. The Board
expects that the Reorganization may result over time in a decrease
in the expenses currently borne indirectly by Government Fund's
shareholders. See expense information in "Comparative Fee Tables."
The Board considered the fact that, from the perspective of USGT,
the Reorganization presents an excellent opportunity to acquire
assets without the obligation to pay commissions or other similar
costs that are normally associated with the purchase of securities.
This opportunity provides an economic benefit to USGT and its
shareholders.
The Board also considered the fact that OFI and OFDI will receive
certain benefits from the Reorganization. The consolidated
portfolio management effort might result in time savings for OFI
and the preparation of fewer prospectuses, reports and regulatory
filings. The Board, however, believes that this consideration will
not amount to a significant economic benefit.
USGT's Board of Trustees, including the trustees who are not
"interested persons" of USGT, unanimously approved the
Reorganization and the Reorganization Agreement and determined that
the Reorganization is in the best interests of USGT and its
shareholders. The Board further determined that the Reorganization
would not result in dilution of the USGT shareholders' interests.
The USGT Board considered, among other things, that an increase in
USGT's asset base as a result of the Reorganization could benefit
USGT shareholders due to the economies of scale available to a
larger fund. These economies of scale should result in slightly
lower costs per account for each USGT shareholder through lower
operating expenses and transfer agency expenses.
Regulatory Approval of the Reorganization
The Funds and OFI have applied to the Securities and Exchange
Commission ("SEC") for an order of the SEC exempting the
Reorganization from the provisions of Section 17 of the Investment
Company Act of 1940. Because MassMutual owns more than 5% of the
shares of Government Fund, the reorganization does not qualify to
use the exemptive provisions of the 1940 Act without an order of
the SEC. If the SEC does not grant the exemptive relief requested,
the Reorganization will not proceed and the Company's Board of
Directors will determine what action, if any, will be taken on
behalf of Government Fund.
The Reorganization
The following summary of the Reorganization Agreement is qualified
in its entirety by reference to the Reorganization Agreement (a
copy of which is set forth in full as Exhibit A to this Proxy
Statement and Prospectus). The Reorganization Agreement
contemplates a reorganization under which (i) substantially all of
the assets of Government Fund would be transferred to USGT in
exchange for Class A and Class B shares of USGT, (ii) these Class
A and Class B shares would be distributed to the respective Class
A and Class B shareholders of Government Fund in liquidation of the
Fund and (iii) the outstanding shares of Government Fund would be
cancelled. Prior to the Closing Date (as hereinafter defined),
Government Fund will endeavor to discharge all of its liabilities
and obligations when and as due prior to such date. USGT will not
assume any liabilities or obligations of Government Fund except for
portfolio securities purchased which have not settled and any
Government Fund liability for outstanding shareholder redemptions
and dividend checks. In this regard, Government Fund will retain
a cash reserve (the "Cash Reserve") in an amount which is deemed
sufficient in the discretion of the Board for the payment of (a)
the Fund's expenses of liquidation (if any) and (b) the Fund's
liabilities, other than those assumed by USGT. The Cash Reserve
will be accounted for as a liability of Government Fund prior to
the determination of its net asset value. The number of full and
fractional Class A and Class B shares of USGT to be issued to
Government Fund will be determined on the basis of USGT's and the
Fund's relative net asset values per Class A and Class B shares,
respectively, computed as of the close of business of The New York
Stock Exchange, Inc. on the business day preceding the Closing Date
(the "Valuation Date"). The Closing Date for the Reorganization
will be the date of the closing of the Acquisition under the
Acquisition Agreement (or such other day and time as may be
mutually agreed upon in writing).
OFI will utilize the valuation procedures set forth in the
Prospectus and Statement of Additional Information of USGT to
determine the value of the Fund's assets to be transferred to USGT
pursuant to the Reorganization, the value of USGT's assets and the
net asset value of each class of shares of USGT. Such values will
be computed by OFI as of the Valuation Date in a manner consistent
with its regular practice in pricing USGT.
The Reorganization Agreement provides for coordination between the
funds as to their respective portfolios so that, on and after the
Closing Date, USGT will be in compliance with all of its investment
policies and restrictions. Government Fund will recognize capital
gain or loss on any sales made pursuant to this condition. As
noted in "Tax Aspects of the Reorganization" below, if Government
Fund realizes net gain from the sale of securities, such gain, to
the extent not offset by capital loss carry-forwards, will be
distributed to shareholders prior to the Closing Date and will be
taxable to shareholders as long-term capital gain or, if the assets
disposed of had not been held for more than one year, as ordinary
income.
Contemporaneously with the closing, Government Fund will be
liquidated (except for the Cash Reserve) and Government Fund will
distribute or cause to be distributed pro rata to Government Fund
shareholders of record as of the close of business on the Valuation
Date the full and fractional USGT shares of each class received by
Government Fund. Upon such liquidation, all issued and outstanding
shares of Government Fund will be cancelled on Government Fund's
books and Government Fund shareholders will have no further rights
as shareholders of Government Fund. To assist Government Fund in
the distribution of USGT shares, USGT will, in accordance with a
shareholder list supplied by Government Fund, cause USGT's transfer
agent to credit and confirm an appropriate number of shares of USGT
to each shareholder of Government Fund.
Certificates for shares of USGT will be issued upon written request
of a former shareholder of Government Fund but only for whole
shares with fractional shares credited to the name of the
shareholder on the books of USGT. Former shareholders of
Government Fund who wish certificates representing their shares of
USGT must, after receipt of their confirmations, make a written
request to OppenheimerFunds Services, P.O. Box 5270, Denver,
Colorado 80217. Shareholders of Government Fund holding
certificates representing their shares will not be required to
surrender their certificates to anyone in connection with the
Reorganization. After the Reorganization, however, it will be
necessary for such shareholders to surrender such certificates in
order to redeem, transfer, pledge or exchange any shares of USGT.
After the closing of the Reorganization, Government Fund will not
conduct any business except in connection with the winding up of
its affairs. Under the Reorganization Agreement, within one year
after the Closing Date, Government Fund shall: either (i) transfer
any remaining amount of the Cash Reserve to USGT, if such remaining
amount (as reduced by the estimated cost of distributing it to
shareholders) is not material (as defined below) or (ii) distribute
such remaining amount to the shareholders of Government Fund who
were such on the Valuation Date. After this transfer or
distribution, Government Fund's existence will be terminated. Such
remaining amount shall be deemed to be material if the amount to be
distributed, after deducting the estimated expenses of the
distribution, equals or exceeds one cent per share of the number of
Government Fund shares outstanding on the Valuation Date.
The consummation of the Reorganization is subject to the conditions
set forth in the Reorganization Agreement, including, without
limitation, approval of the Reorganization by Government Fund's
shareholders. Notwithstanding approval of Government Fund's
shareholders, the Reorganization may be terminated at any time at
or prior to the Closing Date (i) by mutual written consent of the
Company, on behalf of Government Fund, and USGT, (ii) by the
Company, on behalf Government Fund or USGT, if the Registration
Statement containing this Proxy Statement and Prospectus shall not
have been declared effective by the Securities and Exchange
Commission by December 31, 1996, or (iii) by the Company, on behalf
of Government Fund, or USGT upon a material breach by the other of
any representation, warranty, covenant or agreement contained
therein to be performed on or prior to the Closing Date, if a
condition therein expressed to be precedent to the obligations of
the terminating party has not been met and it reasonably appears
that it will not or cannot be met prior to the Closing Date or the
Acquisition is not consummated.
Termination of the Reorganization Agreement will terminate all
obligations of the parties thereto (other than a confidentiality
obligation of USGT with respect to information relating to the Fund
and the obligation of USGT to return certain books and records to
the Fund) without liability except, in the event of a termination
pursuant to (iii) above, any party in breach (other than a breach
due to the Fund's shareholders not approving the Reorganization) of
the Reorganization Agreement will, upon demand, reimburse the non-
breaching party for all reasonable out-of-pocket fees and expenses,
if any, incurred in connection with the transactions contemplated
by the Reorganization Agreement.
Approval of the Reorganization will require the vote specified
below in "Information Concerning the Meeting - Record Date; Vote
Required; Share Information." If the Reorganization is not
approved by the shareholders of the Fund, the Directors of the
Company will consider other possible courses of action.
Tax Aspects of the Reorganization
At or prior to the Closing Date, Government Fund will declare a
dividend in an amount large enough so that it will have declared a
dividend of all of its investment company taxable income and net
capital gain, if any, for the taxable period ending on the Closing
Date (determined without regard to any deduction for dividends
paid). Such dividends will be included in the taxable income of
the Fund's shareholders as ordinary income and long-term capital
gain, respectively.
The exchange of the assets of Government Fund for Class A and Class
B shares of USGT and the assumption by USGT of certain liabilities
of the Fund is intended to qualify for Federal income tax purposes
as a reorganization under Section 368(a)(1) of the Internal Revenue
Code of 1986, as amended (the "Code"). The Fund has represented to
Arthur Andersen LLP, tax adviser to the Fund, that there is no plan
or intention by any Fund shareholder who owns 5% or more of the
Fund's outstanding shares, and, to the Fund's best knowledge, there
is no plan or intention on the part of the remaining Fund
shareholders, to redeem, sell, exchange or otherwise dispose of a
number of USGT shares received in the transaction that would reduce
the Fund shareholders' ownership of USGT Class A and Class B shares
to a number of shares having a value, as of the Closing Date, of
less than 50% of the value of all the formerly outstanding Fund
shares as of the same date. The Fund and USGT have each further
represented to Arthur Andersen LLP the fact that, as of the Closing
Date, the Fund and USGT will qualify as regulated investment
companies or will meet the diversification test of Section
368(a)(2)(F)(ii) of the Code.
As a condition to the closing of the Reorganization, USGT and the
Fund will receive the opinion of Arthus Andersen LLP to the effect
that, based on the Reorganization Agreement, the above
representations and other representations as such firm shall
reasonably request, existing provisions of the Code, Treasury
Regulations issued thereunder, current Revenue Rulings, Revenue
Procedures and court decisions, for Federal income tax purposes:
1. The transfer of substantially all of Government Fund's
assets in exchange for Class A and Class B shares of USGT and
the assumption by USGT of certain identified liabilities of
the Fund followed by the distribution by the Fund of Class A
and Class B shares of USGT to the Fund shareholders in
exchange for their Fund shares will constitute a
"reorganization" within the meaning of Section 368(a)(1) of
the Code and the Fund and USGT will each be a "party to a
reorganization" within the meaning of Section 368(b) of the
Code.
2. Pursuant to Section 1032 of the Code, no gain or loss will
be recognized by USGT upon the receipt of the assets of the
Fund solely in exchange for Class A and Class B shares of USGT
and the assumption by USGT of the identified liabilities of
the Fund.
3. Pursuant to Section 361(a) of the Code, no gain or loss
will be recognized by the Fund upon the transfer of the assets
of the Fund to USGT in exchange for Class A and Class B shares
of USGT and the assumption by USGT of certain identified
liabilities of the Fund or upon the distribution of Class A
and Class B shares of USGT to the Fund shareholders in
exchange for the Fund shares.
4. Pursuant to Section 354(a) of the Code, no gain or loss
will be recognized by the Fund shareholders upon the exchange
of the Fund shares for the Class A and Class B shares of USGT.
5. Pursuant to Section 358 of the Code, the aggregate tax
basis for Class A and Class B shares of USGT received by each
Fund shareholder pursuant to the reorganization will be the
same as the aggregate tax basis of the Fund shares held by
each such Fund shareholder immediately prior to the
reorganization.
6. Pursuant to Section 1223 of the Code, the holding period
of Class A and Class B shares of USGT to be received by each
Fund shareholder will include the period during which the Fund
shares surrendered in exchange therefor were held (provided
such Fund shares were held as capital assets on the date of
the reorganization).
7. Pursuant to Section 362(b) of the Code, the tax basis of
the assets of the Fund acquired by USGT will be the same as
the tax basis of such assets of the Fund immediately prior to
the Reorganization.
8. Pursuant to Section 1223 of the Code, the holding period
of the assets of the Fund in the hands of USGT will include
the period during which those assets were held by the Fund.
9. USGT will succeed to and take into account the items of
the Fund described in Section 381(c) of the Code, including
the earnings and profits, or deficit in earnings and profits,
of the Fund as of the date of the transactions. USGT will
take these items into account subject to the conditions and
limitations specified in Sections 381, 382, 383 and 384 of the
Code and applicable regulations thereunder.
However, in the event that any of the remaining cash reserve of
Government Fund is distributed to the Government Fund's
shareholders, gain will be realized by each of Government Fund's
shareholders and recognized under Section 356(a)(1) of the Code to
the extent of the cash received.
Shareholders of the Fund should consult their tax advisors
regarding the effect, if any, of the Reorganization in light of
their individual circumstances. Since the foregoing discussion
only relates to the Federal income tax consequences of the
Reorganization, shareholders of the Fund should also consult their
tax advisers as to state and local tax consequences, if any, of the
Reorganization.
Capitalization Table (Unaudited)
The table below sets forth the capitalization of USGT and
Government Fund and indicates the pro forma combined capitalization
as of December 31, 1995 as if the Reorganization had occurred on
that date.
Net
Asset
Net Shares Value
Assets Outstanding Per Share
(in thousands)
USGT*
Class A Shares $523,795 54,196,215 $9.66
Class B Shares $ 28,809 2,465,857 $9.66
Class C Shares $ 17,678 1,831,190 $9.65
Government Fund
Class A Shares $49,829 4,644,816 $10.73
Class B Shares $ 74 6,904 $10.77
Pro Forma Combined
Fund**
Class A Shares $573,624 59,354,497 $9.66
Class B Shares $ 23,883 2,473,558 $9.66
Class C Shares $ 17,678 1,831,190 $9.65
- ------------------
*No USGT Class C shares are being issued in the Reorganization
because there are no outstanding Government Fund Class C shares.
Accordingly, information with respect to Class C shares of USGT is
not reflected in the table above.
**Reflects issuance of 5,158,282 Class A shares and 7,701 Class B
shares of USGT in a tax-free exchange for the net assets of the
Fund, aggregating $573,624,000 and $23,883,000 for Class A and
Class B shares, respectively, of the Fund.
The pro forma ratio of expenses to average annual net assets of the
combined funds at December 31, 1995 would have been 1.08% with
respect to Class A shares and 1.84% with respect to Class B shares.
COMPARISON BETWEEN USGT AND GOVERNMENT FUND
Comparative information about USGT and the Fund is presented below.
More complete information about USGT and the Fund is set forth in
their respective Prospectuses (which, as to USGT, accompanies this
Proxy Statement and Prospectus and is incorporated herein by
reference) and Statements of Additional Information. To obtain
copies of a fund's prospectus, see "Miscellaneous - Public
Information."
Comparison of Investment Objectives, Policies and Restrictions
As its investment objective, USGT seeks high current income,
preservation of capital and maintenance of liquidity primarily
through investments in debt instruments issued or guaranteed by the
U.S. Government or its agencies or instrumentalities ("U.S.
Government Securities"). As its investment objective, Government
Fund seeks a high level of current income with a high degree of
safety of principal by investing primarily in U.S. Government
Securities.
Under normal market conditions, USGT invests at least 80% of its
total assets in U.S. Government Securities. These include: (1)
U.S. Treasury Bills, U.S. Treasury Notes, and U.S. Treasury Bonds
(see "Synopsis - Investment Objectives and Policies"),(2)
obligations issued or guaranteed by U.S. Government agencies or
instrumentalities (see "Synopsis - Investment Objectives and
Policies"), and (3) mortgage-backed securities including (a)
collateralized mortgage-backed securities ("CMOs") and (b)
"stripped" mortgage backed securities.
USGT may invest up to 20% of its total assets in non-U.S.
Government debt securities which, as a matter of non-fundamental
policy, will be limited to debt securities rated within the four
highest rating categories of Moody's Investor Service, Inc.,
Standard and Poor's Corporation, or such other nationally
recognized rating agency or, if unrated, judged by OFI to be of
comparable quality to debt securities rated within such grades.
USGT may, subject to the foregoing, invest in private issuer CMOs
and "stripped" mortgage-backed securities.
Under normal market conditions, Government Fund invests at least
65% of its total assets in U.S. Government Securities. The
remainder of its assets (up to 35%) may be invested in non-U.S.
Government investment grade debt obligations. Both Government Fund
and USGT may invest in private-issuer CMO's and "stripped"
mortgage-backed securities. Government Fund's investments in
private-issuer CMOs are limited to those rated within the two
highest rating categories by a nationally recognized rating agency.
Government Fund may invest up to 5% of its total assets in inverse
floating rate instruments. USGT may hold a de minimis position in
such instruments.
Government Fund may invest up to 20% of its total assets in
mortgage dollar rolls. In these transactions, it sells mortgage-
backed securities for delivery in the current month and
simultaneously contracts to purchase similar securities on a
specified future date. All mortgage dollar rolls entered into by
Government Fund will be "covered" whereby there is an offsetting
cash or cash equivalent security position maturing on or before the
settlement date of the dollar roll. USGT may enter into "covered"
or "uncovered" mortgage dollar rolls. If uncovered, USGT is
required to identify liquid assets to its custodian bank in an
amount equal to its purchase payment obligation under the dollar
roll.
Special Investment Methods
USGT and Government Fund may use the special investment methods
summarized below.
Loans of Portfolio Securities. Both USGT and Government Fund may
lend their portfolio securities to brokers, dealers and other
financial institutions, subject to certain conditions. The funds
must receive collateral for the loans. USGT presently does not
intend that the value of securities loaned will exceed 5% of the
value of the total assets of USGT in the coming year. The value of
securities loaned by Government Fund may not exceed 33-1/3% of the
value of the Fund's total assets.
Repurchase Agreements. Both USGT and the Fund may enter into
repurchase agreements. There is no limit on the amount of either
fund's net assets that may be subject to repurchase agreements of
seven days or less. Neither fund will 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.
Hedging. To hedge against interest rate changes or for non-hedging
purposes, Government Fund may buy and sell various futures, and may
buy and write call and put options on any of such futures. The Fund
may also enter into closing purchase and sale transactions with
respect to any of such contracts and options. Futures contracts
may be based on various securities, such as U.S. Government
Securities, on securities indices, or on other financial indices.
The aggregate initial margin and premiums required to establish
positions in futures contracts and options on futures may not
exceed 5% of the Fund's total assets.
USGT may write covered call options on securities held by it to
seek income. For hedging purposes, USGT may buy and sell various
futures, options on such futures, and options on securities.
Futures contracts which USGT may buy and sell relate to interest
rates. USGT may hedge with options and futures to seek to manage
its exposure to changing interest rates. USGT may also hedge with
options and futures 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 markets as a
temporary substitute for purchasing individual securities. USGT
may not purchase a call or put option if the value of all put and
call options held by USGT would exceed 5% of USGT's total assets.
The aggregate initial margin and premiums required to establish
positions in futures contracts and options on futures may not
exceed 5% of the Fund's total assets.
Both Government Fund and USGT may enter into interest rate swaps
for hedging purposes. The Fund may also use interest rate swaps to
seek to increase income. Both funds would typically use interest
rate swaps to adjust the effective duration of their portfolio.
Duration is a measure of a fund's sensitivity to interest rate
changes, and is a measure of volatility. Each fund will identify
liquid assets to its custodian bank in an amount equal to the
excess of its entitlements under interest rate swaps over its
obligations. USGT will not enter into interest rate swaps with
respect to more than 25% of its total assets.
Derivative Investments. In general, a "derivative investment" is
an investment whose performance is linked to the performance of
another investment or security, such as an option, future or index.
In the broadest sense, derivative investments include the hedging
instruments in which USGT and the Fund may invest. Other types of
derivatives in which USGT and the Fund may invest include
"stripped" interest-only mortgage-backed securities and "stripped"
principal-only mortgage-backed securities. Derivatives may be, but
are not necessarily, more risky than conventional securities, such
as stocks, bonds and money market instruments.
A risk of derivatives is that the underlying investment or security
might not perform the way the investment adviser expected it to
perform. Another risk is that the company issuing the derivative
investment might not pay amounts due on the investment. The
performance of derivative investments may also be influenced by
interest rate changes in the U.S. and abroad. All of these risks
can mean that a fund will realize less income than expected from
its investments, or that it can lose part or all of the value of
its investments, which will affect its share price. Certain
derivative instruments may trade in the over-the-counter markets
and may be illiquid.
Investment Restrictions
Both USGT and Government Fund have certain investment restrictions
that, together with their respective investment objectives, are
fundamental policies changeable only by shareholder approval. The
investment restrictions of USGT and the Fund are substantially the
same except as set forth below:
The Fund may not, as a matter of fundamental policy, purchase
equity securities (e.g., common stocks, preferred stocks), voting
stocks or local or state government securities (e.g., municipal
bonds, state bonds).
Additional Comparative Information
General
For a discussion of the organization and operation of USGT,
including brokerage practices, see "Investment Objective and
Policies" and "How the Fund is Managed" in USGT's current
Prospectus and "Brokerage Policies of the Fund" in USGT's
Additional Statement. For a discussion of the organization and
operation of the Fund, including brokerage practices, see
"Investment Objectives and Policies," "Management" and "The
Company" in the Fund's current prospectus and "Portfolio
Transactions and Brokerage" in the Fund's current Statement of
Additional Information.
Financial Information
For certain financial information about USGT and the Fund, see (as
to USGT) "Financial Highlights" and "Performance of the Fund" in
USGT's current Prospectus and (as to the Fund) "Summary of Investor
Expenses" and "Financial Highlights" in the Fund's current
Prospectus.
Management of USGT and the Fund
For information about the management of USGT and the Fund,
including their respective Boards of Trustees or Directors,
investment advisers, portfolio managers and distributors, see (as
to USGT) "Expenses" and "How the Fund is Managed" in USGT's current
Prospectus and (as to the Fund) "Management" in the Fund's current
Prospectus.
Description of Shares of USGT and the Fund
USGT is a Massachusetts business trust with each share of USGT
representing an interest in USGT proportionately equal to the
interest of each other share of the same class and entitles the
holder to one vote per share (and a fractional vote for a
fractional share) on matters submitted to a vote at shareholder
meetings. Shares of USGT vote together in the aggregate on certain
matters at shareholder meetings, such as the election of Trustees
and ratification of appointment of auditors. Shareholders of a
particular class vote separately on proposals which affect that
class, and shareholders of a class which are not affected by that
matter are not entitled to vote on the proposal. USGT is not
required to hold, and does not plan to hold, regular annual
meetings of shareholders. Shareholders of USGT have the right,
under certain circumstances, to remove a Trustee and will be
assisted in communicating with other shareholders for such purpose.
USGT is authorized to issue an unlimited number of shares of
beneficial interest. Shares are freely transferrable and shares do
not have cumulative voting rights or preemptive or subscription
rights. USGT is governed by a Board of Trustees that has the
power, without shareholder approval, to establish and designate one
or more series and to divide unissued shares into two or more
classes. The Board of Trustees has established three classes of
shares for USGT, Class A, Class B and Class C. Each class invests
in the same investment portfolio. Each class has its own dividends
and distributions, and pays certain expenses which may be different
for the different classes. Under certain circumstances, a
shareholder of USGT may be held personally liable as a partner for
the obligations of USGT, and under the Declaration of Trust, such
a shareholder is entitled to indemnification rights by USGT; the
risk of a shareholder incurring any such loss is limited to the
remote circumstances in which USGT is unable to meet its
obligations.
The Company is a Maryland corporation with 3 billion shares of
common stock, par value $0.0001 per share, authorized. The Board
is authorized to classify and reclassify the common stock into
additional series and the series into one or more classes. The
shares of each class represent an interest in the same portfolio of
investments as the series and have equal rights as to voting,
redemption, dividends and liquidation. On matters affecting only
one series, only the shareholders of that series are entitled to
vote. On matters relating to all of the series but affecting the
series differently, separate votes by each series are required. On
matters relating to a single class of shares of a series, only the
shareholders of that class are entitled to vote. Shareholders
holding more than 50% of the shares of the Company can elect all of
the Company's directors. Each share is entitled to one vote within
each series.
For further information about the shares of USGT and the Fund,
including voting rights, restrictions on disposition and potential
liability associated with their ownership, see (as to USGT) "How
the Fund is Managed" in USGT's current Prospectus and USGT
Additional Statement, and (as to the Fund) "The Company" in the
Fund's current Prospectus.
Dividends, Distributions and Taxes
USGT declares dividends separately for Class A, Class B and Class
C shares from net investment income on each regular business day
and distribute dividends monthly. The Fund declares dividends
separately for Class A and Class B shares from net investment
income monthly and distributes dividends monthly. Both funds
declare and distribute net short-term and net long-term capital
gains, if any, annually. For a discussion of the policies of USGT
and the Fund with respect to dividends and distributions, and a
discussion of the tax consequences of an investment in USGT and the
Fund, see "Dividends, Capital Gains and Taxes" in the current
Prospectuses of both USGT and the Fund.
Purchases, Redemptions and Exchanges of Shares
For a discussion of how shares of USGT and the Fund may be
purchased, redeemed and exchanged, see (as to USGT) "How to Buy
Shares," "How to Sell Shares," "Exchanges of Shares," "Special
Investor Services," "Service Plan for Class A Shares," and
"Distribution and Service Plan for Class B Shares" in USGT's
current Prospectus; and see (as to the Fund) "How to Buy Shares,"
"How to Sell Shares," "How to Exchange Shares," "Investor Services"
and "Transaction Details" in the Fund's current Prospectus.
Shareholder Inquiries
For a description of how shareholder inquiries should be made, see
(as to USGT) "How the Fund is Managed" in USGT's current
Prospectus, and (as to the Fund) "Your Shareholder Manual" and
"Investor Services" in the Fund's current Prospectus.
Performance of USGT and the Fund
USGT does not maintain a fixed dividend rate and there can be no
assurance as to the payment of any dividends or realization of any
capital gains.
Included on page 20 of the prospectus for USGT, a copy of which
accompanies this Proxy Statement and Prospectus, in the section
entitled "Performance of the Fund," is a performance graph which
depicts the performance of a hypothetical investment of $10,000 in
Class A and Class C shares of USGT held until fiscal year-end June
30, 1995; in the case of Class A shares, since August 15, 1985 and
in the case of Class C shares, from the inception of the Class on
December 1, 1993, with all dividends and capital gains
distributions reinvested on the reinvestment date. The graph
reflects the deduction of the 4.75% maximum initial sales charge on
Class A shares and the applicable CDSC on Class C shares. The
graph compares the average annual total return of Class A and Class
C shares of USGT with the performance of Lehman Brothers Corporate
Bond Index, an unmanaged index including all U.S. Treasury issues,
publicly issued debt of U.S. Government agencies and quasi-public
corporations and U.S. Government guaranteed corporate debt, which
is widely regarded as a measure of the performance of the U.S.
Government bond market. Index performance reflects the reinvestment
of dividends but does not consider the effect of capital gains or
transaction costs, and none of the data shows the effect of taxes.
Class B shares of USGT were not offered prior to June 30, 1995 and
thus no performance information is shown for USGT's Class B shares
at fiscal year-end June 30, 1995.
Information on the Fund's performance is set forth in the Fund's
Annual Report as of December 31, 1995, which is incorporated herein
by reference and may be obtained without charge as set forth in
"Miscellaneous - Public Information."
INFORMATION CONCERNING THE MEETING
The Meeting
The Meeting and any adjournments thereof will be held at
OppenheimerFunds, Inc., 3410 South Galena Street, Denver, Colorado
80231, at 10:00 A.M., Denver time, on April 24, 1996 . At the
Meeting, shareholders of the Fund will be asked to consider and
vote upon approval of the Reorganization Agreement, and the
transactions contemplated thereby, including the transfer of
substantially all the assets of the Fund to USGT in exchange for
the issuance of Class A and Class B shares of USGT, the
distribution by the Fund of such shares to the shareholders of the
Fund in liquidation of the Fund and the cancellation of the
outstanding shares of the Fund.
Record Date; Vote Required; Share Information
The Board has fixed the close of business on March 18, 1996 as the
record date (the "Record Date") for the determination of
shareholders entitled to notice of, and to vote at, the Meeting.
The affirmative vote of the holders of a majority of Government
Fund's Class A and Class B shares outstanding and entitled to vote,
voting together as a series, is required for approval of the
Proposal. Each shareholder will be entitled to one vote for each
share and a fractional vote for each fractional share held of
record at the close of business on the Record Date. Only
shareholders of the Fund will vote on the Reorganization. The vote
of shareholders of USGT is not being solicited to approve the
Reorganization Agreement.
At the close of business on the Record Date, there were
approximately _____________ Class A and ___________ Class B shares
of the Fund issued and outstanding. The presence in person or by
proxy of the holders of a majority of Government Fund's shares
constitutes a quorum for the transaction of business at the
Meeting. To the knowledge of the Fund, as of the Record Date, no
person owned of record or beneficially 5% or more of the Fund's
outstanding Class A or Class B shares or 5% or more of the Fund's
outstanding shares, except for Massachusetts Mutual Life Insurance
Company, 1295 State Street, Springfield, MA 01111, which owned of
record ____________ Class A shares and ___________ Class B shares
as of March 18, 1996, which represented ____% of the Fund's then
outstanding shares. MassMutual acquired its shares as a
consequence of its merger with Connecticut Mutual, described above
under "The Proposal - Approval of the Reorganization - Background."
The Company has been advised that MassMutual intends to vote its
shares in favor of the Proposal.
As of the close of business on the Record Date, there were
approximately _____________ Class A and _______________ Class B
shares of USGT issued and outstanding. To the knowledge of USGT,
as of the Record Date, no person owned of record or beneficially 5%
or more of USGT's outstanding Class A, Class B or Class C shares,
or 5% or more of USGT's outstanding shares.
As of the Record Date, the officers and Trustees of USGT, and the
officers and Directors of the Company, beneficially owned as a
group less than 1% of the outstanding shares of each class of USGT
and Government Fund, respectively, and of USGT and Government Fund,
respectively.
In the event a quorum does not exist on the date originally
scheduled for the Meeting, or, subject to approval of the Board,
for other reasons, one or more adjournments of the Meeting may be
sought by the Board. Any adjournment would require a vote in favor
of the adjournment by the holders of a majority of the shares
present at the Meeting (or any adjournment thereof) in person or by
proxy. The persons named as proxies will vote all shares
represented by proxies which they are required to vote in favor of
the Proposal, in favor of an adjournment, and will vote all shares
which they are required to vote against the Proposal, against an
adjournment. In the event that a quorum is present at the Meeting
but shareholders do not approve the Reorganization, the
Reorganization will be deemed to have not been approved and the
Board will consider what further action, if any, to take.
Shares of common stock of the Company represented in person or by
proxy (including shares which abstain or do not vote with respect
to the Proposal presented for shareholder approval) will be counted
for purposes of determining whether a quorum is present at the
Meeting. If a broker or nominee holding shares in "street name"
indicates on the proxy that it does not have discretionary
authority to vote on the Proposal, those shares will not be
considered as present and entitled to vote on the Proposal and are
not considered to be votes cast. A "broker non-vote" has the same
effect as a vote against the Proposal.
Proxies
The enclosed form of proxy, if properly executed and returned, will
be voted (or counted as an abstention or withheld from voting) in
accordance with the choices specified thereon, and will be included
in determining whether there is quorum to conduct the Meeting. If
a shareholder executes and returns a proxy but fails to indicate
how the votes should be cast, the proxy will be voted in favor of
the Proposal.
The proxy may be revoked at any time prior to the voting thereof
by: (i) writing to the Secretary of the Company at
OppenheimerFunds, Inc., Two World Trade Center, New York, New York
10048-0203; (ii) attending the Meeting and voting in person; or
(iii) signing and returning a new proxy (if returned and received
in time to be voted).
Costs of the Solicitation and the Reorganization
All expenses of this solicitation, including the cost of printing
and mailing this Proxy Statement and Prospectus, will be borne by
MassMutual. Any documents such as existing prospectuses or annual
reports that are included in that mailing will be a cost of the
fund issuing the document. In addition to the solicitation of
proxies by mail, proxies may be solicited by officers and employees
of OFI or OFI's affiliates, personally or by telephone or
telegraph. In addition, the Company has retained D.F. King & Co.,
Inc., 77 Water Street, New York, New York 10005 to assist in the
solicitation of proxies primarily by contacting shareholders by
telephone and telegram. The cost of such proxy solicitor will be
borne by MassMutual. D.F. King & Co., Inc. may call shareholders
to ask if they would be willing to have their votes recorded by
telephone. The telephone voting procedure is designed to
authenticate shareholders' identities, to allow shareholders to
authorize the voting of their shares in accordance with their
instructions and to confirm that their instructions have been
recorded properly. If these procedures were subject to a
successful legal challenge, such votes would not be counted at the
Meeting. The Company has not sought to obtain an opinion of
counsel on this matter and is unaware of any such challenge at this
time.
A shareholder would be called on a recorded line at the telephone
number the Company has in its records for the account and could be
asked the shareholder's Social Security number or other identifying
information. The shareholder would then be given an opportunity to
authorize proxies to vote his or her shares at the Meeting in
accordance with the shareholder's instructions. To ensure that the
shareholder's instructions have been recorded correctly, the
shareholder will also receive a confirmation of the voting
instructions in the mail. A special telephone number will be
available in case the voting information contained in the
confirmation is incorrect. If the shareholder decides after voting
by telephone to provide a written proxy or attend the Meeting, the
shareholder can revoke the proxy at that time and provide a written
proxy or vote the shares at the Meeting.
Brokerage houses, banks and other fiduciaries may be requested to
forward soliciting material to the beneficial owners of shares of
the Fund and to obtain authorization for the execution of proxies.
For those services, if any, they will be reimbursed by MassMutual
for their reasonable out-of-pocket expenses.
In addition to the proxy solicitation expenses (as described
above), MassMutual will bear the cost of the tax opinion, as well
as any other expenses associated with the Reorganization, including
legal and accounting expenses.
MISCELLANEOUS
Financial Information
The Reorganization will be accounted for by USGT in its financial
statements similar to a pooling without restatement. Further
financial information as to Government Fund is contained in its
current Prospectus, which is available without charge upon written
request to OppenheimerFunds Services at P.O. Box 5270, Denver,
Colorado 80217 or by calling 1-800-525-7048, and is incorporated
herein, and in its audited financial statements as of December 31,
1995, which are included in the Additional Statement. Financial
information for USGT is contained in its current Prospectus
accompanying this Proxy Statement and Prospectus and incorporated
herein, and in its audited financial statements as of June 30, 1995
and unaudited financial statements as of December 31, 1995, which
are included in the Additional Statement.
Public Information
Additional information about USGT and the Fund is available, as
applicable, in the following documents which may be obtained
without charge by writing to OFS at P.O. Box 5270, Denver, Colorado
80217 or by calling 1-800-525-7048: (i) USGT's Prospectus dated
November 1, 1995, supplemented January 1, 1996 and January 5, 1996,
accompanying this Proxy Statement and Prospectus; (ii) Government
Fund's Prospectus dated October 1, 1995, supplemented March 1,
1996; (iii) USGT's Annual Report as of June 30, 1995 and Semi-
Annual Report (unaudited) as of December 31, 1995; and (iv)
Government Fund's Annual Report as of December 31, 1995.
Additional information about the following matters is contained in
the Additional Statement, which is incorporated herein by reference
and includes USGT's Statement of Additional Information dated
November 1, 1995; Government Fund's Prospectus dated October 1,
1995, supplemented March 1, 1996; Government Fund's Statement of
Additional Information dated October 1, 1995, supplemented March 1,
1996; and the Annual and Semi-Annual Reports described in the
preceding paragraph: the organization and operation of USGT and
Government Fund; more information on investment policies, practices
and risks; information about USGT's and Government Fund's
respective Boards of Trustees or Directors and officers and their
responsibilities; a further description of the services provided by
USGT's and Government Fund's investment adviser, distributor, and
transfer and shareholder servicing agent; dividend policies; tax
matters; an explanation of the method of determining the offering
price of the shares of USGT and Government Fund; purchase,
redemption and exchange programs; and distribution arrangements.
USGT and Government Fund are subject to the informational
requirements of the Securities Exchange Act of 1934, as amended,
and in accordance therewith, file reports and other information
with the SEC. Proxy material, reports and other information about
USGT and the Fund which are of public record can be inspected and
copied at public reference facilities maintained by the SEC in
Washington, D.C. and certain of its regional offices, and copies
of such materials can be obtained at prescribed rates from the
Public Reference Branch, Office of Consumer Affairs and Information
Services, SEC, Washington, D.C. 20549.
OTHER BUSINESS
Management of the Fund knows of no business other than the matters
specified above which will be presented at the Meeting. Since
matters not known at the time of the solicitation may come before
the Meeting, the proxy as solicited confers discretionary authority
with respect to such matters as properly come before the Meeting,
including any adjournment or adjournments thereof, and it is the
intention of the persons named as attorneys-in-fact in the proxy to
vote this proxy in accordance with their judgment on such matters
if no voting instructions are provided.
By Order of the Board of Directors
Andrew J. Donohue, Secretary
March 18, 1996
<PAGE>
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") dated
as of March 1, 1996 by and between Oppenheimer Series Fund, Inc.,
a Maryland corporation (the "Company") on behalf of Connecticut
Mutual Government Securities Account, a series of the Company
("Government Fund") and Oppenheimer U.S. Government Trust ("USGT"),
a Massachusetts business trust.
W I T N E S S E T H:
WHEREAS, the parties are each open-end investment companies of
the management type; and
WHEREAS, the parties hereto desire to provide for the
reorganization pursuant to Section 368(a)(1) of the Internal
Revenue Code of 1986, as amended (the "Code"), of Government Fund
through the acquisition by USGT of substantially all of the assets
of Government Fund in exchange solely for voting shares of
beneficial interest ("shares") of Class A and Class B shares of
USGT and the assumption by USGT of certain liabilities of
Government Fund, which Class A and Class B shares of USGT are
thereafter to be distributed by Government Fund pro rata to its
shareholders in complete liquidation of Government Fund and
complete cancellation of its shares;
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties hereto agree as follows:
1. The parties hereto hereby adopt this Agreement and Plan
of Reorganization (the "Agreement") pursuant to Section 368(a)(1)
of the Code as follows: The reorganization will be comprised of
the acquisition by USGT of substantially all of the properties and
assets of Government Fund in exchange for the issuance of Class A
and Class B shares of USGT to Government Fund and the assumption by
USGT of certain liabilities of Government Fund, followed by the
distribution by Government Fund of such Class A and Class B shares
of USGT shares to the Class A and Class B shareholders of
Government Fund in exchange for their Class A and Class B shares of
Government Fund, all upon and subject to the terms of the Agreement
hereinafter set forth.
The share transfer books of Government Fund will be
permanently closed at the close of business on the Valuation Date
(as hereinafter defined) and only redemption requests received in
proper form on or prior to the close of business on the Valuation
Date shall be fulfilled by Government Fund; redemption requests
received by Government Fund after that date shall be treated as
requests for the redemption of the shares of USGT that shall have
been distributed to the shareholder in question as provided in
Section 5.
2. On the Closing Date (as hereinafter defined), all of the
assets of Government Fund on that date, excluding a cash reserve
(the "Cash Reserve") to be retained by Government Fund sufficient
in its discretion for the payment of the expenses of Government
Fund's dissolution and its liabilities, but not in excess of the
amount contemplated by Section 10E of the Agreement, shall be
delivered as provided in Section 8 of the Agreement to USGT, in
exchange for and against delivery to Government Fund on the Closing
Date of a number of Class A and Class B shares of USGT, having an
aggregate net asset value equal to the value of the assets of
Government Fund so transferred and delivered.
3. The net asset value of Class A and Class B shares of USGT
and the value of the assets of Government Fund to be transferred
shall in each case be determined as of the close of business of The
New York Stock Exchange on the Valuation Date. The computation of
the net asset value of the Class A and Class B shares of USGT and
the Class A and Class B shares of Government Fund shall be done in
the manner used by USGT and Government Fund, respectively, in the
computation of such net asset value per share as set forth in their
respective prospectuses. The methods used by USGT in such
computation shall be applied to the valuation of the assets of
Government Fund to be transferred to USGT.
Government Fund shall declare and pay, immediately prior
to the Valuation Date, a dividend or dividends which, together with
all previous such dividends, shall have the effect of distributing
to Government Fund's shareholders all of Government Fund's
investment company taxable income for taxable years ending on or
prior to the Closing Date (computed without regard to any dividends
paid) and all of its net capital gain, if any, realized in taxable
years ending on or prior to the Closing Date (after reduction for
any capital loss carry-forward).
4. The closing of the transactions contemplated herein (the
"Closing") shall be at the office of OppenheimerFunds, Inc. (the
"Agent"), Two World Trade Center, Suite 3400, New York, New York
10048, at 4:00 P.M. New York time on April 26, 1996, or at such
other time or place as the parties may designate or as provided
below (the "Closing Date"). The business day preceding the Closing
Date is herein referred to as the "Valuation Date."
In the event that on the Valuation Date either party has,
pursuant to the Investment Company Act of 1940, as amended (the
"Act"), or any rule, regulation or order thereunder, suspended the
redemption of its shares or postponed payment therefor, the Closing
Date shall be postponed until the first business day after the date
when both parties have ceased such suspension or postponement;
provided, however, that if such suspension shall continue for a
period of 60 days beyond the Valuation Date, then the other party
to the Agreement shall be permitted to terminate the Agreement
without liability to either party for such termination.
5. As soon as practicable after the Closing, Government Fund
shall distribute on a pro rata basis to the shareholders of
Government Fund on the Valuation Date the Class A and Class B
shares of USGT received by Government Fund on the Closing Date in
exchange for the assets of Government Fund in complete liquidation
of Government Fund; for the purpose of the distribution by
Government Fund of Class A and Class B shares of USGT to its
shareholders, USGT will promptly cause its transfer agent to: (a)
credit an appropriate number of Class A and Class B shares of USGT
on the books of USGT to each Class A and Class B shareholder,
respectively of Government Fund in accordance with a list (the
"Shareholder List") of its shareholders received from Government
Fund; and (b) confirm an appropriate number of Class A and Class B
shares of USGT to each shareholder of Government Fund; certificates
for Class A and Class B shares of USGT will be issued upon written
request of a former shareholder of Government Fund but only for
whole shares, with fractional shares credited to the name of the
shareholder on the books of USGT.
The Shareholder List shall indicate, as of the close of
business on the Valuation Date, the name and address of each
shareholder of Government Fund, indicating his or her share
balance. Government Fund agrees to supply the Shareholder List to
USGT not later than the Closing Date. Shareholders of Government
Fund holding certificates representing their shares shall not be
required to surrender their certificates to anyone in connection
with the reorganization. After the Closing Date, however, it will
be necessary for such shareholders to surrender their certificates
in order to redeem, transfer or pledge the shares of USGT which
they received.
6. Within one year after the Closing Date, Government Fund
shall (a) either pay or make provision for payment of all of its
liabilities and taxes, and (b) either (i) transfer any remaining
amount of the Cash Reserve to USGT, if such remaining amount (as
reduced by the estimated cost of distributing it to shareholders)
is not material (as defined below) or (ii) distribute such
remaining amount to the shareholders of Government Fund on the
Valuation Date. Such remaining amount shall be deemed to be
material if the amount to be distributed, after deduction of the
estimated expenses of the distribution, equals or exceeds one cent
per share of Government Fund outstanding on the Valuation Date.
7. Prior to the Closing Date, there shall be coordination
between the parties as to their respective portfolios so that,
after the closing, USGT will be in compliance with all of its
investment policies and restrictions. At the Closing, Government
Fund shall deliver to USGT two copies of a list setting forth the
securities, cash and receivables then owned by Government Fund.
Promptly after the Closing, Government Fund shall provide USGT a
list setting forth the respective federal income tax bases thereof.
8. Portfolio securities or written evidence acceptable to
USGT of record ownership thereof by The Depository Trust Company or
through the Federal Reserve Book Entry System or any other
depository approved by Government Fund pursuant to Rule 17f-4 and
Rule 17f-5 under the Act shall be endorsed and delivered, or
transferred by appropriate transfer or assignment documents, by
Government Fund on the Closing Date to USGT, or at its direction,
to its custodian bank, in proper form for transfer in such
condition as to constitute good delivery thereof in accordance with
the custom of brokers and shall be accompanied by all necessary
state transfer stamps, if any. The cash holding of Government Fund
shall be delivered to USGT in the form of certified or bank
cashiers' checks or by bank wire or intra-bank transfer to USGT's
custodian bank payable to the order of USGT for the account of
USGT.
Shares of USGT representing the number of shares of USGT
being delivered against the assets of Government Fund, registered
in the name of Government Fund, shall be transferred to Government
Fund on the Closing Date. Such shares shall thereupon be assigned
by Government Fund to its shareholders so that the shares of USGT
may be distributed as provided in Section 5.
If, at the Closing Date, Government Fund is unable to
make delivery under this Section 8 to USGT of any of its portfolio
securities or cash for the reason that any of such securities
purchased by Government Fund, or the cash proceeds of a sale of
portfolio securities, prior to the Closing Date have not yet been
delivered to it or Government Fund's custodian, then the delivery
requirements of this Section 8 with respect to said undelivered
securities or cash will be waived and Government Fund will deliver
to USGT by or on the Closing Date and with respect to said
undelivered securities or cash executed copies of an agreement or
agreements of assignment as to such securities or cash proceeds in
a form reasonably satisfactory to USGT, together with such other
documents, including a due bill or due bills and brokers'
confirmation slips as may reasonably be required by USGT.
9. USGT shall not assume the liabilities (except for (a)
portfolio securities purchased which have not settled and (b)
shareholder redemption and dividend checks outstanding) of
Government Fund, but Government Fund will, nevertheless, use its
best efforts to discharge all known liabilities, so far as may be
possible, prior to the Closing Date. Each party represents to the
other that Massachusetts Mutual Life Insurance Company has agreed
to assume liability for and pay all expenses associated with the
reorganization, including legal and accounting expenses, the cost
of required tax opinions, and the cost of printing and mailing the
proxies and proxy statements in connection with the solicitation of
the approval by the shareholders of Government Fund of this
reorganization. However, any documents such as existing
prospectuses or annual reports that are included in that proxy
mailing will be a cost of the fund issuing the document. Other
than the cost of such documents, neither party will bear any
expenses associated with the reorganization.
10. The obligations of USGT hereunder shall be subject to the
following conditions:
A. The Board of Directors of the Company on behalf of
Government Fund shall have authorized the execution of the
Agreement, and the shareholders of Government Fund shall have
approved the Agreement and the transactions contemplated thereby,
and Government Fund shall have furnished to USGT copies of
resolutions to that effect certified by the Secretary or an
Assistant Secretary of the Company; such shareholder approval shall
have been by the affirmative vote of a majority of the outstanding
voting securities of Government Fund at a meeting for which proxies
have been solicited by the Proxy Statement and Prospectus (as
hereinafter defined).
B. USGT shall have received an opinion dated the
Closing Date of Piper & Marbury LLP, counsel to the Company, to the
effect that (i) the Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws
of the State of Maryland with full powers to conduct its business
as described by its charter and as currently being conducted; (ii)
the execution and delivery of the Agreement and the consummation of
the transactions contemplated therein will not result in any
violation of the provisions of the charter or by-laws of the
Company; and (iii) the Agreement has been duly authorized and
executed by the Company and the Agreement constitutes a legal,
valid and binding obligation of the Company, enforceable against
the Company in accordance with its terms, subject to the effects of
bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratoriums and other similar laws relating to or affecting
creditor rights generally, general equitable principles (whether
considered in a proceeding in equity or at law) and an implied
covenant of good faith and fair dealing.
C. The representations and warranties of the Company on
behalf of Government Fund contained herein shall be true and
correct at and as of the Closing Date, and USGT shall have been
furnished with a certificate of the President, or a Vice President,
or the Secretary or the Assistant Secretary or the Treasurer of the
Company, dated the Closing Date, to that effect.
D. On the Closing Date, Government Fund shall have
furnished to USGT a certificate of the Treasurer or Assistant
Treasurer of the Company as to the amount of the capital loss
carry-over , if any, and net unrealized appreciation or
depreciation, if any, with respect to Government Fund as of the
Closing Date.
E. The Cash Reserve shall not exceed 1% of the value of
the net assets, nor 10% in value of the gross assets, of Government
Fund at the close of business on the Valuation Date.
F. A Registration Statement on Form N-14 filed by
Oppenheimer Integrity Funds under the Securities Act of 1933, as
amended (the "1933 Act"), containing a preliminary form of the
Proxy Statement and Prospectus required under the Act to request
the approval of the shareholders of Government Fund of the
reorganization contemplated in the Agreement (the "Proxy Statement
and Prospectus"), shall have become effective under the 1933 Act
not later than December 31, 1996.
G. On the Closing Date, USGT shall have received a
letter of David E. Sams, Jr. or other senior executive officer of
G.R. Phelps & Co. Inc. (Government Fund's administrator and former
investment manager) acceptable to USGT, stating that nothing has
come to his or her attention which in his or her judgment would
indicate that as of the Closing Date there were any material actual
or contingent liabilities of Government Fund arising out of
litigation brought against Government Fund or claims asserted
against it, or pending or to the best of his or her knowledge
threatened claims or litigation not reflected in or apparent from
the most recent audited financial statements and footnotes thereto
of Government Fund delivered to USGT. Such letter may also include
such additional statements relating to the scope of the review
conducted by such person and his or her responsibilities and
liabilities as are not unreasonable under the circumstances.
H. USGT shall have received an opinion, dated the
Closing Date, of Arthur Andersen LLP, to the same effect as the
opinion contemplated by Section 11.E. of the Agreement.
I. USGT shall have received at the closing all of the
assets of Government Fund to be conveyed hereunder, which assets
shall be free and clear of all liens, encumbrances, security
interests, restrictions and limitations whatsoever.
J. Each Fund shall have received from the Securities
and Exchange Commission such order or orders as counsel to such
Fund deem reasonably necessary or desirable under the 1933 Act and
the Act in connection with the transactions contemplated hereby,
and that all such orders shall be in full force and effect.
11. The obligations of Government Fund hereunder shall be
subject to the following conditions:
A. The Board of Trustees of the Trust on behalf of USGT
shall have authorized the execution of the Agreement, and the
transactions contemplated thereby, and USGT shall have furnished to
Government Fund copies of resolutions to that effect certified by
the Secretary or an Assistant Secretary of Oppenheimer Integrity
Funds.
B. Government Fund's shareholders shall have approved
the Agreement and the transactions contemplated hereby, by an
affirmative vote of the holders of a majority of Government Fund's
Class A and Class B shares outstanding and entitled to vote, voting
together as a series; and Government Fund shall have furnished USGT
copies of resolutions to that effect certified by the Secretary or
an Assistant Secretary of Government Fund.
C. Government Fund shall have received an opinion dated
the Closing Date of Myer, Swanson, Adams & Wolf, P.C., counsel to
USGT, to the effect that (i) the Trust is a business trust duly
organized, validly existing and in good standing under the laws of
the Commonwealth of Massachusetts with full powers to carry on its
business as described by its Declaration of Trust and to the best
knowledge of such counsel, then being conducted and to enter into
and perform the Agreement; (ii) all action necessary to make the
Agreement, according to its terms, valid, binding and enforceable
upon the Trust in accordance with its terms, subject to the effects
of bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratoriums and other similar laws relating to or affecting
creditor rights generally, general equitable principles (whether
considered in a proceeding in equity or at law) and an implied
covenant of good faith and fair dealing, and to authorize
effectively the transactions contemplated by the Agreement, have
been taken by the Trust on behalf of USGT, and (iii) the shares of
USGT to be issued hereunder are duly authorized and when issued
will be validly issued, fully-paid and non-assessable, except as
set forth in USGT's then current Prospectus and Statement of
Additional Information.
D. The representations and warranties of the Trust on
behalf of USGT contained herein shall be true and correct at and as
of the Closing Date, and Government Fund shall have been furnished
with a certificate of the President, a Vice President or the
Secretary or an Assistant Secretary or the Treasurer of the Trust
to that effect dated the Closing Date.
E. Government Fund shall have received an opinion of
Arthur Andersen LLP to the effect that the Federal tax consequences
of the transaction, if carried out in the manner outlined in this
Agreement and Plan of Reorganization and in accordance with (i)
Government Fund's representation that there is no plan or intention
by any Fund shareholder who owns 5% or more of Government Fund's
outstanding shares, and, to Government Fund's best knowledge, there
is no plan or intention on the part of the remaining Fund
shareholders, to redeem, sell, exchange or otherwise dispose of a
number of USGT shares received in the transaction that would reduce
Government Fund shareholders' ownership of USGT shares to a number
of shares having a value, as of the Closing Date, of less than 50%
of the value of all of the formerly outstanding Fund shares as of
the same date, and (ii) the representation by each of Government
Fund and USGT that, as of the Closing Date, Government Fund and
USGT will qualify as regulated investment companies or will meet
the diversification test of Section 368(a)(2)(F)(ii) of the Code
and (iii) the other representations by each of Government Fund and
USGT made to Arthur Andersen LLP, and set forth in the opinion,
will generally be as follows:
1. The transfer of substantially all of Government
Fund's assets in exchange for Class A and Class B shares of USGT
and the assumption by USGT of certain identified liabilities of
Government Fund followed by the distribution by Government Fund of
Class A and Class B shares of USGT to Government Fund shareholders
in exchange for their Government Fund shares will constitute a
"reorganization" within the meaning of Section 368(a)(1) of the
Code and Government Fund and USGT will each be a "party to a
reorganization" within the meaning of Section 368(b) of the Code.
2. Pursuant to Section 1032 of the Code, no gain
or loss will be recognized by USGT upon the receipt of the assets
of Government Fund solely in exchange for Class A and Class B
shares of USGT and the assumption by USGT of certain identified
liabilities of Government Fund.
3. Pursuant to Sections 361(a) and 361(c) of the
Code, no gain or loss will be recognized by Government Fund upon
the transfer of the assets of Government Fund to USGT in exchange
for Class A and Class B shares of USGT and the assumption by USGT
of certain identified liabilities of Government Fund or upon the
distribution of Class A and Class B shares of USGT to Government
Fund shareholders in exchange for Government Fund shares.
4. Pursuant to Section 354(a) of the Code, no gain
or loss will be recognized by Government Fund shareholders upon the
exchange of Government Fund shares for the Class A and Class B
shares of USGT. However, Government Fund shareholders may
recognize taxable income or gain to the extent they receive any
portion of the Cash Reserve, as defined in the Agreement.
5. Pursuant to Section 358 of the Code, the
aggregate tax basis for Class A and Class B shares of USGT received
by each Government Fund shareholder pursuant to the Reorganization
will be the same as the aggregate tax basis of Government Fund
shares held by each such Government Fund shareholder immediately
prior to the Reorganization.
6. Pursuant to Section 1223 of the Code, the
holding period of Class A and Class B shares of USGT to be received
by each Government Fund shareholder will include the period during
which Government Fund shares surrendered in exchange therefor were
held (provided such Government Fund shares were held as capital
assets on the date of the Reorganization.
7. Pursuant to Section 362(b) of the Code, the tax
basis of the assets of Government Fund acquired by USGT will be the
same as the tax basis of such assets of Government Fund immediately
prior to the Reorganization.
8. Pursuant to Section 1223 of the Code, the
holding period of the assets of Government Fund in the hands of
USGT will include the period during which those assets were held by
Government Fund.
9. USGT will succeed to and take into account the
items of Government Fund described in Section 381(c) of the Code,
including the earnings and profits, or deficit in earnings and
profits, of Government Fund as of the date of the transactions.
USGT will take these items into account subject to the conditions
and limitations specified in Sections 381, 382, 383 and 384 of the
Code and applicable regulations thereunder.
F. The Cash Reserve shall not exceed 1% of the value of
the net assets, nor 10% in value of the gross assets, of Government
Fund at the close of business on the Valuation Date.
G. A Registration Statement on Form N-14 filed by
Oppenheimer Integrity Funds under the 1933 Act, containing a
preliminary form of the Proxy Statement and Prospectus required
under the Act to request the approval of the shareholders of
Government Fund of the reorganization contemplated in the Agreement
shall have become effective under the 1933 Act not later than
December 31, 1996.
H. On the Closing Date, Government Fund shall have
received a letter of Andrew J. Donohue or other senior executive
officer of OppenheimerFunds, Inc. acceptable to Government Fund,
stating that nothing has come to his or her attention which in his
or her judgment would indicate that as of the Closing Date there
were any material actual or contingent liabilities of USGT arising
out of litigation brought against USGT or claims asserted against
it, or pending or, to the best of his or her knowledge, threatened
claims or litigation not reflected in or apparent by the most
recent audited financial statements and footnotes thereto of USGT
delivered to Government Fund. Such letter may also include such
additional statements relating to the scope of the review conducted
by such person and his or her responsibilities and liabilities as
are not unreasonable under the circumstances.
I. Government Fund shall acknowledge receipt of the
shares of USGT.
J. Each Fund shall have received from the Securities
and Exchange Commission such order or orders as counsel to such
Fund deem reasonably necessary or desirable under the 1933 Act and
the Act in connection with the transactions contemplated hereby,
and that all such orders shall be in full force and effect.
12. The Company on behalf of Government Fund hereby
represents and warrants that:
A. The financial statements of Government Fund as at
December 31, 1995 (audited) heretofore furnished to USGT, present
fairly the financial position, results of operations, and changes
in net assets of Government Fund as of that date, in conformity
with generally accepted accounting principles applied on a basis
consistent with the preceding year; and that from December 31, 1995
through the date hereof there have not been, and through the
Closing Date there will not be, any material adverse change in the
business or financial condition of Government Fund, it being agreed
that a decrease in the size of Government Fund due to a diminution
in the value of its portfolio and/or redemption of its shares shall
not be considered a material adverse change;
B. Contingent upon approval of the Agreement and the
transactions contemplated thereby by Government Fund's
shareholders, Government Fund has authority to transfer all of the
assets of Government Fund to be conveyed hereunder free and clear
of all liens, encumbrances, security interests, restrictions and
limitations whatsoever;
C. The Prospectus, as amended and supplemented,
contained in the Company's Registration Statement under the 1933
Act, as amended, is true, correct and complete, conforms to the
requirements of the 1933 Act and does not contain any untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading. The Registration Statement, as amended,
was, as of the date of the filing of the last Post-Effective
Amendment, true, correct and complete, conformed to the
requirements of the 1933 Act and did not contain any untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading;
D. There is no material contingent liability of
Government Fund and no material claim and no material legal,
administrative or other proceedings pending or, to the knowledge of
Government Fund, threatened against Government Fund, not reflected
in such Prospectus;
E. There are no material contracts outstanding to which
Government Fund is a party other than those ordinary in the conduct
of its business;
F. Government Fund is a series of Oppenheimer Series
Fund, Inc., a corporation duly organized, validly existing and in
good standing under the laws of the State of Maryland; and has all
necessary and material Federal and state authorizations to own all
of its assets and to carry on its business as now being conducted;
and Government Fund is duly registered under the Act and such
registration has not been rescinded or revoked and is in full force
and effect;
G. All Federal and other tax returns and reports of
Government Fund required by law to be filed have been filed, and
all Federal and other taxes shown due on said returns and reports
have been paid or provision shall have been made for the payment
thereof and to the best of the knowledge of Government Fund no such
return is currently under audit and no assessment has been asserted
with respect to such returns and to the extent such tax returns
with respect to the taxable year of Government Fund ended December
31, 1995 have not been filed, such returns will be filed when
required and the amount of tax shown as due thereon shall be paid
when due; and
H. Government Fund has elected to be treated as a
regulated investment company and, for each fiscal year of its
operations, Government Fund has met the requirements of Subchapter
M of the Code for qualification and treatment as a regulated
investment company and Government Fund intends to meet such
requirements with respect to its current taxable year.
13. The Trust on behalf of USGT hereby represents and
warrants that:
A. The financial statements of USGT as at December 31,
1995 (audited) heretofore furnished to Government Fund, present
fairly the financial position, results of operations, and changes
in net assets of USGT, as of that date, in conformity with
generally accepted accounting principles applied on a basis
consistent with the preceding year; and that from December 31, 1995
through the date hereof there have not been, and through the
Closing Date there will not be, any material adverse changes in the
business or financial condition of USGT, it being understood that
a decrease in the size of USGT due to a diminution in the value of
its portfolio and/or redemption of its shares shall not be
considered a material or adverse change;
B. The Prospectus, as amended and supplemented,
contained in the Trust's Registration Statement under the 1933 Act,
is true, correct and complete, conforms to the requirements of the
1933 Act and does not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading. The
Registration Statement, as amended, was, as of the date of the
filing of the last Post-Effective Amendment, true, correct and
complete, conformed to the requirements of the 1933 Act and did not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make
the statements therein not misleading;
C. There is no material contingent liability of USGT
and no material claim and no material legal, administrative or
other proceedings pending or, to the knowledge of USGT, threatened
against USGT, not reflected in such Prospectus;
D. There are no material contracts outstanding to which
USGT is a party other than those ordinary in the conduct of its
business;
E. USGT is a series of Oppenheimer Integrity Funds, a
business trust duly organized, validly existing and in good
standing under the laws of the Commonwealth of Massachusetts; has
all necessary and material Federal and state authorizations to own
all its properties and assets and to carry on its business as now
being conducted; the shares of USGT which it issues to Government
Fund pursuant to the Agreement will be duly authorized, validly
issued, fully-paid and non-assessable, except as otherwise set
forth in the Trust's Registration Statement; and will conform to
the description thereof contained in the Trust's Registration
Statement, will be duly registered under the 1933 Act and in the
states where registration is required; and USGT is duly registered
under the Act and such registration has not been revoked or
rescinded and is in full force and effect;
F. All Federal and other tax returns and reports of
USGT required by law to be filed have been filed, and all Federal
and other taxes shown due on said returns and reports have been
paid or provision shall have been made for the payment thereof and
to the best of the knowledge of USGT no such return is currently
under audit and no assessment has been asserted with respect to
such returns and to the extent such tax returns with respect to the
taxable year of USGT ended December 31, 1995 have not been filed,
such returns will be filed when required and the amount of tax
shown as due thereon shall be paid when due;
G. USGT has elected to be treated as a regulated
investment company and, for each fiscal year of its operations,
USGT has met the requirements of Subchapter M of the Code for
qualification and treatment as a regulated investment company and
USGT intends to meet such requirements with respect to its current
taxable year;
H. USGT has no plan or intention (i) to dispose of any
of the assets transferred by Government Fund, other than in the
ordinary course of business, or (ii) to redeem or reacquire any of
the shares issued by it in the reorganization other than pursuant
to valid requests of shareholders; and
I. After consummation of the transactions contemplated
by the Agreement, USGT intends to operate its business in a
substantially unchanged manner.
14. Each party hereby represents to the other that no broker
or finder has been employed by it with respect to the Agreement or
the transactions contemplated hereby. Each party also represents
and warrants to the other that the information concerning it in the
Proxy Statement and Prospectus will not as of its date contain any
untrue statement of a material fact or omit to state a fact
necessary to make the statements concerning it therein not
misleading and that the financial statements concerning it will
present the information shown fairly in accordance with generally
accepted accounting principles applied on a basis consistent with
the preceding year. Each party also represents and warrants to the
other that the Agreement is valid, binding and enforceable in
accordance with its terms and that the execution, delivery and
performance of the Agreement will not result in any violation of,
or be in conflict with, any provision of any charter, by-laws,
contract, agreement, judgment, decree or order to which it is
subject or to which it is a party. USGT hereby represents to and
covenants with Government Fund that, if the reorganization becomes
effective, USGT will treat each shareholder of Government Fund who
received any of USGT's shares as a result of the reorganization as
having made the minimum initial purchase of shares of USGT received
by such shareholder for the purpose of making additional
investments in shares of USGT, regardless of the value of the
shares of USGT received. USGT represents to Government Fund that
each shareholder of Government Fund who received shares of USGT as
a result of the reorganization and was subject to a Class B
contingent deferred sales charge waiver, as described in the proxy
statement of Government Fund dated December 18, 1995, relating to
the approval of OppenheimerFunds, Inc. as Government Fund's
investment adviser, will remain eligible for such waiver as
described therein, upon the supplementing of the Prospectus of USGT
with respect thereto.
15. USGT agrees that it will prepare and file a Registration
Statement on Form N-14 under the 1933 Act which shall contain a
preliminary form of proxy statement and prospectus contemplated by
Rule 145 under the 1933 Act. The final form of such proxy
statement and prospectus is referred to in the Agreement as the
"Proxy Statement and Prospectus." Each party agrees that it will
use its best efforts to have such Registration Statement declared
effective and to supply such information concerning itself for
inclusion in the Proxy Statement and Prospectus as may be necessary
or desirable in this connection.
16. The obligations of the parties under the Agreement shall
be subject to the right of either party to abandon and terminate
the Agreement without liability if the other party breaches any
material provision of the Agreement or if any material legal,
administrative or other proceeding shall be instituted or
threatened between the date of the Agreement and the Closing Date
(i) seeking to restrain or otherwise prohibit the transactions
contemplated hereby and/or (ii) asserting a material liability of
either party, which proceeding has not been terminated or the
threat thereof removed prior to the Closing Date. In the event of
termination, damages will be limited to reimbursement by the party
breaching any material provision of the Agreement of the reasonable
out-of-pocket fees and expenses (if any) incurred by the other
party in connection with the transactions contemplated by the
Agreement.
17. The Agreement may be executed in several counterparts,
each of which shall be deemed an original, but all taken together
shall constitute one Agreement. The rights and obligations of each
party pursuant to the Agreement shall not be assignable.
18. All prior or contemporaneous agreements and
representations are merged into the Agreement, which constitutes
the entire contract between the parties hereto. No amendment or
modification hereof shall be of any force and effect unless in
writing and signed by the parties and no party shall be deemed to
have waived any provision herein for its benefit unless it executes
a written acknowledgement of such waiver.
19. Government Fund understands that the obligations of USGT
and the Trust under the Agreement are not binding upon any Trustee
or shareholder of USGT or the Trust personally, but bind only USGT
and USGT's property. Government Fund represents that it has notice
of the provisions of the Declaration of Trust of the Trust
disclaiming shareholder and Trustee liability for acts or
obligations of USGT or the Trust.
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused the
Agreement to be executed and attested by its officers thereunto
duly authorized on the date first set forth above.
Attest: OPPENHEIMER SERIES FUND, INC.
On Behalf of
CONNECTICUT MUTUAL GOVERNMENT
SECURITIES ACCOUNT
- ------------------------ By: -----------------------------
Name & Title: -------------------
Attest: OPPENHEIMER U.S. GOVERNMENT TRUST
- ------------------------ By: -----------------------------
Name & Title: -------------------
<PAGE>
<PAGE>
Preliminary Copy
OPPENHEIMER SERIES FUND, INC.
CONNECTICUT MUTUAL GOVERNMENT SECURITIES ACCOUNT
PROXY FOR SPECIAL SHAREHOLDERS MEETING
TO BE HELD APRIL 24, 1996
The undersigned shareholder of Connecticut Mutual Government
Securities Account (the "Fund"), a series of Oppenheimer Series
Fund, Inc. (the "Company"), does hereby appoint Andrew J. Donohue,
George Bowen and Robert Bishop, and each of them, as attorneys-in-
fact and proxies of the undersigned, with full power of
substitution, to attend the Special Meeting of Shareholders of the
Fund to be held on April 24, 1996, at OppenheimerFunds, Inc., 3410
South Galena Street, Denver, Colorado 80231 at 10:00 A.M., Denver
time, and at all adjournments thereof, and to vote the shares held
in the name of the undersigned on the record date for said meeting
on the Proposal specified on the reverse side. Said attorneys-in-
fact shall vote in accordance with their best judgment as to any
other matter.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS, WHO RECOMMENDS
A VOTE FOR THE PROPOSAL ON THE REVERSE SIDE. THE SHARES
REPRESENTED HEREBY WILL BE VOTED AS INDICATED ON THE REVERSE SIDE
OR FOR IF NO CHOICE IS INDICATED.
Please mark your proxy, date and sign it on the reverse side and
return it promptly in the accompanying envelope, which requires no
postage if mailed in the United States.
The Proposal:
To approve an Agreement and Plan of Reorganization dated as of
_____________, 1996 by and between Oppenheimer U.S. Government
Trust and the Company, on behalf of the Fund, and the
transactions contemplated thereby, including the transfer of
substantially all the assets of the Fund to Oppenheimer U.S.
Government Trust in exchange solely for Class A and Class B
shares of Oppenheimer U.S. Government Trust , the distribution
by the Fund of such shares to the Fund's shareholders in
liquidation of the Fund and the cancellation of the
outstanding shares of the Fund.
FOR____ AGAINST____ ABSTAIN____
Dated:________________________, 1996
(Month) (Day)
______________________________
Signature(s)
______________________________
Signature(s)
Please read both sides of this ballot.
NOTE: PLEASE SIGN EXACTLY AS YOUR NAME(S) APPEAR HEREON. When
signing as custodian, attorney, executor, administrator, trustee,
etc., please give your full title as such. All joint owners should
sign this proxy. If the account is registered in the name of a
corporation, partnership or other entity, a duly authorized
individual must sign on its behalf and give his or her title.
<PAGE>
OPPENHEIMER U.S. GOVERNMENT TRUST
TWO WORLD TRADE CENTER, NEW YORK, NEW YORK, 10048-0203
1-800-525-7048
PART B
STATEMENT OF ADDITIONAL INFORMATION
March 18, 1996
___________________________________
This Statement of Additional Information of Oppenheimer U.S.
Government Trust consists of this cover page and the following
documents:
1. Statement of Additional Information of Oppenheimer U.S.
Government Trust dated November 1, 1995.
2. Oppenheimer U.S. Government Trust's Annual Report as of June
30, 1995 and its Semi-Annual Report (unaudited) as of December 31,
1995.
3. Prospectus of Connecticut Mutual Government Securities Account
dated October 1, 1995.
4. Statement of Additional Information of Connecticut Mutual
Government Securities Account dated October 1, 1995.
5. Connecticut Mutual Government Securities Account's Annual
Report as of December 31, 1995.
This Statement of Additional Information (the "Additional
Statement") is not a Prospectus. This Additional Statement should
be read in conjunction with the Proxy Statement and Prospectus,
which may be obtained by written request to OppenheimerFunds
Services ("OFS"), P.O. Box 5270, Denver, Colorado 80217, or by
calling OFS at the toll-free number shown above.
<PAGE>
Oppenheimer U.S. Government Trust
Two World Trade Center, New York, New York 10048-0203
1-800-525-7048
Statement of Additional Information dated November 1, 1995
This Statement of Additional Information of Oppenheimer U.S.
Government Trust is not a Prospectus. This document contains
additional information about the Fund and supplements information in
the Prospectus dated November 1, 1995. It should be read together with
the Prospectus, which may be obtained by writing to the Fund's Transfer
Agent, Oppenheimer Shareholder Services, at P.O. Box 5270, Denver,
Colorado 80217 or by calling the Transfer Agent at the toll-free number
shown above.
<TABLE>
<CAPTION>
Contents
Page
About the Fund
<S> <C>
Investment Objective and Policies . . . . . . . . . . . . . . 2
Investment Policies and Strategies. . . . . . . . . . . . . . 2
Other Investment Techniques and Strategies . . . . . . . . 2
Other Investment Restrictions. . . . . . . . . . . . . . . 9
How the Fund is Managed . . . . . . . . . . . . . . . . . . . 10
Organization and History . . . . . . . . . . . . . . . . . 10
Trustees and Officers of the Fund. . . . . . . . . . . . . 11
The Manager and Its Affiliates . . . . . . . . . . . . . . 16
Brokerage Policies of the Fund. . . . . . . . . . . . . . . . 17
Performance of the Fund . . . . . . . . . . . . . . . . . . . 19
Distribution and Service Plans. . . . . . . . . . . . . . . . 23
About Your Account
How To Buy Shares . . . . . . . . . . . . . . . . . . . . . . 25
How To Sell Shares. . . . . . . . . . . . . . . . . . . . . . 31
How To Exchange Shares. . . . . . . . . . . . . . . . . . . . 35
Dividends, Capital Gains and Taxes. . . . . . . . . . . . . . 37
Additional Information About the Fund . . . . . . . . . . . . 38
Financial Information About the Fund
Independent Auditors' Report. . . . . . . . . . . . . . . . . 39
Financial Statements. . . . . . . . . . . . . . . . . . . . . 40
Appendix A: Description of Securities Ratings . . . . . . . . A-1
Appendix B: Industry Classifications. . . . . . . . . . . . . B-1
</TABLE>
<PAGE>
ABOUT THE FUND
Investment Objective and Policies
Investment Policies and Strategies. The investment objective and
policies of the Fund are described in the Prospectus. Set forth below
is supplemental information about those policies and the types of
securities in which the Fund may invest, 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.
-- U.S. Government Securities. The obligations of U.S. Government
agencies or instrumentalities in which the Fund may invest may or may
not be guaranteed or supported by the "full faith and credit" of the
United States. Some are backed by the right of the issuer to borrow
from the U.S. Treasury; others, by discretionary authority of the U.S.
Government to purchase the agencies' obligations; while others are
supported only by the credit of the instrumentality. All U.S. Treasury
obligations are backed by the full faith and credit of the United
States. If the securities are not backed by the full faith and credit
of the United States, the owner of the securities must look principally
to the agency issuing the obligation for repayment and may not be able
to assert a claim against the United States in the event that the
agency or instrumentality does not meet its commitment. Under normal
market conditions, the Fund will invest at least 80% of its total
assets in "full faith and credit" U.S. Government Securities and in
U.S. Government Securities of such agencies and instrumentalities only
when the Fund's investment manager, Oppenheimer Management Corporation
(the "Manager") is satisfied that the credit risk with respect to such
instrumentality is minimal.
General changes in prevailing interest rates will affect the
values of the Fund's portfolio securities. The value will vary
inversely to changes in such rates. For example, if such rates go up
after a security is purchased, the value of the security will generally
decline. A decrease in interest rates may affect the maturity and
yield of mortgage-backed securities by increasing unscheduled
prepayments of the underlying mortgages. With its objective of seeking
interest income while conserving capital, the Fund may purchase or sell
securities without regard to the length of time the security has been
held, to take advantage of short-term differentials in yields. While
short-term trading increases the portfolio turnover, the execution cost
for U.S. Government Securities is substantially less than for
equivalent dollar values of equity securities (see "Brokerage
Provisions of the Investment Advisory Agreement," below).
Other Investment Techniques and Strategies
-- Repurchase Agreements. The Fund may acquire securities that
are subject to repurchase agreements. In a repurchase transaction, the
Fund purchases a U.S. Government security from, and simultaneously
resells it to, an approved vendor for delivery on an agreed-upon future
date. An "approved vendor" is 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 audit
requirements met by the Fund's Board of Trustees from time to time.
The resale price exceeds the purchase price by an amount that reflects
an agreed-upon interest rate effective for the period during which the
repurchase agreement is in effect. The majority of these transactions
run from day to day, and delivery pursuant to the resale typically will
occur within one to five days of the purchase. Repurchase agreements
are considered "loans" under the Investment Company Act of 1940 (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.
-- 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 must, on each business day, at least equal the market
value of the loaned securities and must consist of cash, bank letters
of credit or U.S. Government Securities, or other cash equivalents in
which the Fund is permitted to invest. To be acceptable as collateral,
letters of credit must obligate a bank to pay amounts demanded by the
Fund if the demand meets the terms of the letter. The terms of the
letter and the issuing bank must be satisfactory to the Fund. In a
portfolio securities lending transaction, the Fund receives from the
borrower an amount equal to the interest paid or the dividends declared
on the loaned securities during the term of the loan as well as one or
more of (a) negotiated loan fees, (b) interest on securities used as
collateral, or (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 and will not lend its portfolio securities to any
officer, trustee, employee or affiliate of the Fund or its Manager.
The terms of the Fund's loans must meet certain tests under the
Internal Revenue Code and permit the Fund to reacquire loaned
securities on five business days' notice or in time to vote on any
important matter.
-- Mortgage-Backed Security Rolls. The Fund may enter into
"forward roll" transactions with respect to mortgage-backed securities
in which it can invest. In a forward roll transaction, which is
considered to be a borrowing by the Fund, the Fund will sell a mortgage
security to selected banks or other entities and simultaneously agree
to repurchase a similar security (same type, coupon and maturity) from
the institution at a specified later date at an agreed upon price. The
mortgage securities that are repurchased will bear the same interest
rate as those sold, but generally will be collateralized by different
pools of mortgages with different prepayment histories than those sold.
Risks of mortgage-backed security rolls include: (i) the risk of
prepayment prior to maturity, (ii) the possibility that the Fund may
not be entitled to receive interest and principal payments on the
securities sold and that the proceeds of the sale may have to be
invested in money market instruments (typically repurchase agreements)
maturing not later than the expiration of the roll, and (iii) the
possibility that the market value of the securities sold by the Fund
may decline below the price at which the Fund is obligated to purchase
the securities. The Fund will enter into only "covered" rolls. Upon
entering into a mortgage-backed security roll, the Fund will be
required to place cash, U.S. Government Securities or other high-grade
debt securities in a segregated account with its Custodian in an amount
equal to its obligation under the roll.
-- Hedging. As described in the Prospectus, the Fund may employ
one or more types of Hedging Instruments to manage its exposure to
changing interest rates and securities prices. 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. Puts and covered
calls may also be written on U.S. Government Securities to attempt to
increase the Fund's income. For hedging purposes, the Fund may use
Interest Rate Futures and call and put options on debt securities and
Interest Rate Futures (all of the foregoing are referred to as "Hedging
Instruments"). Hedging Instruments may be used to attempt to do the
following: (i) protect against possible declines in the market value of
the Fund's portfolio resulting from downward trends in the debt
securities markets (generally due to a rise in interest rates), (ii)
protect unrealized gains in the value of the Fund's debt securities
which have appreciated, (iii) facilitate selling debt securities for
investment reasons, (iv) establish a position in the debt securities
markets as a temporary substitute for purchasing particular debt
securities, or (v) reduce the risk of adverse currency fluctuations. A
call or put may be purchased only if, after such purchase, the value of
all call and put options held by the Fund would not exceed 5% of the
Fund's total assets. The Fund will not use Futures and options on
Futures for speculation. The Hedging Instruments the Fund may use are
described below.
The Fund may use hedging to attempt to protect against declines in
the market value of the Fund's portfolio, to permit the Fund to retain
unrealized gains in the value of portfolio securities which have
appreciated, or to facilitate selling securities for investment
reasons. To do so, the Fund may: (i) sell Interest Rate Futures, (ii)
buy puts on such Futures or U.S. Government Securities, or (iii) write
covered 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 U.S. Government Securities. Covered calls and puts
may also be written on debt securities to attempt to increase the
Fund's income.
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 and
options on Futures if, after any such purchase or sale, the sum of
margin deposits on Futures and premiums paid on Futures options exceeds
5% of the value of the Fund's total assets. The Fund may, in the
future, employ Hedging Instruments and strategies that are not
presently contemplated to the extent such investment methods are
consistent with the Fund's investment objective, are legally
permissible, and are adequately disclosed.
-- Writing Covered Calls. The Fund may write (i.e. sell) call
options ("calls") on U.S. Government Securities to enhance income
through the receipt of premiums from expired calls and any net profits
from closing purchase transactions, subject to the limitations stated
in the Prospectus. 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 expires
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 U.S.
Government securities or Interest Rate 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 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 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 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 on U.S.
Government Securities or on Interest Rate Futures, 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. The value of U.S. Government Securities underlying
calls purchased by the Fund will not exceed the value of the portion of
the Fund's portfolio invested in cash or cash equivalents (i.e.
securities with maturities of less than one year). When the Fund
purchases a call (other than in a closing purchase transaction), it
pays a premium and, except as to calls on indices or Futures, 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 a Future, 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
exercise 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.
The Fund may purchase put options ("puts") which relate to U.S.
Government Securities (whether or not it holds such securities in its
portfolio) or Futures. When the Fund purchases a put, it pays a
premium and, except as to puts on 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 such 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 Interest Rate Futures or U.S. Government
Securities 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 bond 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 Interest Rate Futures or
U.S. Government Securities not held by it, the put protects the Fund to
the extent that the prices of the underlying Future or U.S. Government
Security move in a similar pattern to the prices of the U.S. Government
Securities in the Fund's portfolio.
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 may 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.
-- Interest Rate Futures. The Fund may buy and sell Interest Rate
Futures. No price is paid or received upon the purchase or sale of an
Interest Rate Future. 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.
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 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 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 transaction.
All futures transactions are effected through a clearinghouse
associated with the exchange on which the contracts are traded.
-- 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 may engage in interest rate
swaps only with respect to securities it holds, and not in excess of
25% of its total assets.
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 covering a call on
the expiration of the calls or upon the Fund entering into a closing
purchase 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"). For any OTC option the Fund
writes, it will treat as illiquid (for purposes of the limit on its
assets that may be invested in illiquid securities, stated in the
Prospectus) the mark-to-market value of any OTC option held by it. The
Securities and Exchange Commission ("SEC") is evaluating whether OTC
options should be considered liquid securities, and the procedure
described above could be affected by the outcome of that evaluation.
-- Regulatory Aspects of Hedging Instruments. The Fund is
required to operate within certain guidelines and restrictions with
respect to its use of futures and options thereon as established by the
Commodities Futures Trading Commission ("CFTC"). In particular, the
Fund is excluded from registration as a "commodity pool operator" if it
complies with the requirements of Rule 4.5 adopted by the CFTC. Under
these restrictions, the Fund will not, as to any positions, whether
long, short or a combination thereof, enter into Futures and options
thereon for which the aggregate initial margins and premiums exceed 5%
of the fair market value of its net assets, with certain exclusions as
defined in the CFTC Rule. Under the restrictions, the Fund also must,
as to its short positions, use Futures and options thereon solely for
bona fide hedging purposes within the meaning and intent of the
applicable provisions of the CEA.
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 different exchanges or
through one or more brokers. Thus, the number of options which the
Fund may write or hold may be affected by options written or held by
other entities, including other investment companies having the same 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, 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. That qualification enables the Fund to "pass
through" its income and realized capital gains to shareholders without
the Fund having to pay tax on them. This avoids a "double tax" on that
income and capital gains, since shareholders will be taxed on the
dividends and capital gains they receive from the Fund. One of the
tests for the Fund's qualification is that less than 30% of its gross
income (irrespective of losses) must be derived from gains realized on
the sale of securities held for less than three months. To comply with
that 30% cap, the Fund will limit the extent to which it engages in the
following activities, but will not be precluded from them: (i) selling
investments, including Futures, held for less than three months,
whether or not they were purchased on the exercise of a call held by
the Fund; (ii) purchasing calls or puts which expire in less than three
months; (iii) effecting closing transactions with respect to calls or
puts written or purchased less than three months previously; (iv)
exercising puts or calls held by the Fund for less than three months;
or (v) writing calls on investments held for less than three months.
-- Risks Of Hedging With Options and Futures. In addition to the
risks with respect to hedging discussed in the Prospectus and above,
there is a risk in using short hedging by selling Futures to attempt to
protect against decline in value of the Fund's portfolio securities
(due to an increase in interest rates) that the prices of such Futures
will correlate imperfectly with the behavior of the cash (i.e., market
value) prices of the Fund's securities. The ordinary spreads between
prices in the cash and futures markets are subject to distortions due
to differences in the natures of those markets. First, all
participants in the futures markets are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close out futures contracts through
offsetting transactions which could distort the normal relationship
between the cash and futures markets. Second, the liquidity of the
futures markets 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.
If the Fund uses Hedging Instruments to establish a position in
the U.S. Government Securities markets as a temporary substitute for
the purchase of individual U.S. Government Securities (long hedging) by
buying Interest Rate Futures and/or calls on such Futures or on U.S.
Government Securities, it is possible that the market may decline; if
the Fund then concludes not to invest in such securities at that time
because of concerns as to possible further market decline or for other
reasons, the Fund will realize a loss on the Hedging Instruments that
is not offset by a reduction in the price of the U.S. Government
Securities purchased.
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 (1) 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 (2)
more than 50% of the outstanding shares.
Under these additional restrictions, the Fund cannot:
(1) invest in interests in oil, gas, or other mineral exploration
or development programs;
(2) invest in real estate;
(3) purchase securities on margin or make short sales of
securities; however, the Fund may make margin deposits in connection
with any of the Hedging Instruments which it may use as permitted by
any of its other fundamental policies;
(4) underwrite securities of other companies; or
(5) invest in securities of other investment companies, except as
they may be acquired as part of a merger, consolidation or acquisition
of assets.
The Fund will not concentrate investments to the extent of 25% of
its assets in any industry; there is no limit on obligations issued by
the U.S. Government or its agencies or instrumentalities. For purposes
of that policy, the Fund has adopted the industry classifications set
forth in Appendix B to this Statement of Additional Information. This
is not a fundamental policy.
The percentage restrictions described above and in the Prospectus
are applicable only at the time of investment and require no action by
the Fund as a result of subsequent changes in value of the investments
or the size of the Fund.
How the Fund is Managed
Organization and History. The Fund was organized in 1982 as a
Massachusetts business trust. Effective August 16, 1985, the Fund
changed its investment objective and became a long-term government
securities fund. Prior to August 16, 1985, the Fund operated as a
money market fund with a fixed net asset value per share.
As a Massachusetts business trust, the Fund is not required to
hold, and does not plan to hold, regular annual meetings of
shareholders. The Fund will hold meetings when required to do so by the
Investment Company Act or other applicable law, or when a shareholder
meeting is called by the Trustees or upon proper request of the
shareholders. Shareholders have the right, upon the declaration in
writing or vote of two-thirds of the outstanding shares of the Fund, to
remove a Trustee. The Trustees will call a meeting of shareholders to
vote on the removal of a Trustee upon the written request of the record
holders of 10% of its outstanding shares. In addition, if the Trustees
receive a request from at least 10 shareholders (who have been
shareholders for at least six months) holding shares of the Fund valued
at $25,000 or more or holding at least 1% of the Fund's outstanding
shares, whichever is less, stating that they wish to communicate with
other shareholders to request a meeting to remove a Trustee, the
Trustees will then either make the Fund's shareholder list available to
the applicants or mail their communication to all other shareholders at
the applicants' expense, or the Trustees may take such other action as
set forth under Section 16(c) of the Investment Company Act.
The Fund's Declaration of Trust contains an express disclaimer of
shareholder or Trustee liability for the Fund's obligations, and
provides for indemnification and reimbursement of expenses out of its
property for any shareholder held personally liable for its
obligations. The Declaration of Trust also provides that the Fund
shall, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of the Fund and satisfy any
judgment thereon. Thus, while Massachusetts law permits a shareholder
of a business trust (such as the Fund) to be held personally liable as
a "partner" under certain circumstances, the risk of a Fund shareholder
incurring financial loss on account of shareholder liability is
limited to the relatively remote circumstances in which the Fund would
be unable to meet its obligations described above. Any person doing
business with the Trust, and any shareholder of the Trust, agrees under
the Trust's Declaration of Trust to look solely to the assets of the
Trust for satisfaction of any claim or demand which may arise out of
any dealings with the Trust, and the Trustees shall have no personal
liability to any such person, to the extent permitted by law.
Trustees And Officers of the Fund. The Fund's Trustees and officers
and their principal occupations and business affiliations during the
past five years are listed below. The address of each Trustee and
officer is Two World Trade Center, New York, New York 10048-0203,
unless another address is listed below. All of the Trustees are also
trustees of Oppenheimer Fund, Oppenheimer Global Fund, Oppenheimer
Growth Fund, Oppenheimer Target Fund, Oppenheimer Discovery Fund,
Oppenheimer Global Growth & Income Fund, Oppenheimer Global Emerging
Growth Fund, Oppenheimer Tax-Free Bond Fund, Oppenheimer New York Tax-
Exempt Fund, Oppenheimer California Tax-Exempt Fund, Oppenheimer Multi-
State Tax-Exempt Trust, Oppenheimer Asset Allocation Fund, Oppenheimer
Multi-Sector Income Trust and Oppenheimer Multi-Government Trust (the
"New York-based Oppenheimer funds"). Messrs. Spiro, Bishop, Bowen,
Donohue, Farrar and Zack respectively hold the same offices with the
other New York-based Oppenheimer funds as with the Fund. As of October
6, 1995, the officers and Trustees of the Fund as a group owned of
record or beneficially less than 1% of the outstanding shares of each
class of the Fund. The statement does not include ownership of shares
held of record by an employee benefit plan for employees of the Manager
(one of the Trustees listed below Ms. Macaskill and one of the
officers, Mr. Donohue, are trustees of that plan), other than the
shares beneficially owned under that plan by the officers of the Fund
listed below.
Leon Levy, Chairman of the Board of Trustees; Age: 70
31 West 52nd Street, New York, New York 10019
General Partner of Odyssey Partners, L.P. (investment partnership)
and Chairman of Avatar Holdings, Inc. (real estate development).
Leo Cherne, Trustee; Age: 83
122 East 42nd Street, New York, New York 10168
Chairman Emeritus of the International Rescue Committee
(philanthropic organization); formerly Executive Director of The
Research Institute of America.
Robert G. Galli, Trustee*; Age: 62
Vice Chairman of the Manager and Vice President and Counsel of
Oppenheimer Acquisition Corp., the Manager's parent holding
company; formerly he held the following positions: a director of
the Manager and Oppenheimer Funds Distributor, Inc. (the
"Distributor"), Vice President and a director of HarbourView Asset
Management Corporation ("HarbourView") and Centennial Asset
Management Corporation ("Centennial"), investment advisory
subsidiaries of the Manager, a director of Shareholder Financial
Services, Inc. ("SFSI") and Shareholder Services, Inc. ("SSI"),
transfer agent subsidiaries of the Manager, an officer of other
Oppenheimer funds and Executive Vice President and General Counsel
of the Manager and the Distributor.
Benjamin Lipstein, Trustee; Age: 73
591 Breezy Hill Road, Hillsdale, New York 12529
Professor Emeritus of Marketing, Stern Graduate School of Business
Administration, New York University; Director of Sussex
Publications, Inc. (publishers of Psychology Today and Mother
Earth News); and Director of Spy Magazine, L.P.
Bridget A. Macaskill, Trustee*; Age: 47
President, Chief Executive Officer and a Director of the Manager;
Chairman and a Director of SSI, Vice President and a Director of
OAC; a Director of HarbourView and Oppenheimer Partnership
Holdings, Inc., a holding company subsidiary of the Manager;
formerly an Executive Vice President of the Manager.
Elizabeth B. Moynihan, Trustee; Age: 66
801 Pennsylvania Avenue, N.W., Washington, DC 20004
Author and architectural historian; a trustee of the Freer Gallery
of Art (Smithsonian Institution), the Institute of Fine Arts (New
York University), and the National Building Museum; a member of
the Trustees Council, Preservation League of New York State; a
member of the Indo-U.S. Sub-Commission on Education and Culture.
Kenneth A. Randall, Trustee; Age: 68
6 Whittaker's Mill, Williamsburg, Virginia 23185
A director of Dominion Resources, Inc. (electric utility holding
company), Dominion Energy, Inc. (electric power and oil and gas
producer), Enron-Dominion Cogen Corp. (cogeneration company),
Kemper Corporation (insurance and financial services company) and
Fidelity Life Association (mutual life insurance company);
formerly Chairman of the Board of ICL, Inc. (information systems)
and President and Chief Executive Officer of The Conference Board,
Inc. (international economic and business research).
Edward V. Regan, Trustee; Age: 65
40 Park Avenue, New York, New York 10016
Chairman of Municipal Assistance Corporation for the City of New
York; President of Jerome Levy Economics Institute; a member of
the U.S. Competitiveness Policy Council; a director of GranCare,
Inc. (healthcare provider); formerly New York State Comptroller
and trustee of the New York State and Local Retirement Fund.
Russell S. Reynolds, Jr., Trustee; Age: 64
200 Park Avenue, New York, New York 10166
Founder Chairman of Russell Reynolds Associates, Inc. (executive
recruiting); Chairman of Directors Publication, Inc. (consulting
and publishing); a trustee of Mystic Seaport Museum, International
House, Greenwich Hospital and the Greenwich Historical Society.
Sidney M. Robbins, Trustee; Age: 83
50 Overlook Road, Ossining, New York 10562
Chase Manhattan Professor Emeritus of Financial Institutions,
Graduate School of Business, Columbia University; Visiting
Professor of Finance, University of Hawaii; a director of The
Korea Fund, Inc. (closed-end investment company); a member of the
Board of Advisors, Olympus Private Placement Fund, L.P.; Professor
Emeritus of Finance, Adelphi University.
David Rosenberg, Vice President and Portfolio Manager; Age: 37
Vice President of the Manager; an officer of other Oppenheimer
funds; formerly an Officer and Portfolio Manager for Delaware
Investment Advisers and for one of its mutual funds.
Donald W. Spiro, President and Trustee*; Age: 69
Chairman Emeritus and a director of the Manager; formerly Chairman
of the Manager and the Distributor.
Pauline Trigere, Trustee; Age: 82
498 Seventh Avenue, New York, New York 10018
Chairman and Chief Executive Officer of Trigere, Inc. (design and
sale of women's fashions).
Clayton K. Yeutter, Trustee; Age: 64
1325 Merrie Ridge Road, McLean, Virginia 22101
Of Counsel to Hogan & Hartson (a law firm); a director of B.A.T.
Industries, Ltd. (tobacco and financial services), Caterpillar,
Inc. (machinery), ConAgra, Inc. (food and agricultural products),
Farmers Insurance Company (insurance), FMC Corp. (chemicals and
machinery), Lindsay Manufacturing Co. (irrigation equipment),
Texas Instruments, Inc. (electronics) and The Vigoro Corporation
(fertilizer manufacturer); formerly (in descending chronological
order) Counsellor to the President (Bush) for Domestic Policy,
Chairman of the Republican National Committee, Secretary of the
U.S. Department of Agriculture, and U.S. Trade Representative.
Andrew J. Donohue, Secretary; Age: 45
Executive Vice President and General Counsel of the Manager and
the Distributor; an officer of other Oppenheimer funds; formerly
Senior Vice President and Associate General Counsel of the Manager
and the Distributor, prior to which he was a partner in Kraft &
McManimon (a law firm), an officer of First Investors Corporation
(a broker-dealer) and First Investors Management Company, Inc.
(broker-dealer and investment adviser), and a director and an
officer of First Investors Family of Funds and First Investors
Life Insurance Company.
George C. Bowen, Treasurer; Age: 59
3410 South Galena Street, Denver, Colorado 80231
Senior Vice President and Treasurer of the Manager; Vice President
and Treasurer of the Distributor and HarbourView; Senior Vice
President, Treasurer, Assistant Secretary and a director of
Centennial; Vice President, Treasurer and Secretary of SSI and
SFSI; an officer of other Oppenheimer funds.
Robert G. Zack, Assistant Secretary; Age: 47
Senior Vice President and Associate General Counsel of the
Manager; Assistant Secretary of SSI and SFSI; an officer of other
Oppenheimer funds.
Robert Bishop, Assistant Treasurer; Age: 36
3410 South Galena Street, Denver, Colorado 80231
Assistant Vice President of the Manager/Mutual Fund Accounting; an
officer of other Oppenheimer funds; previously a Fund Controller
for the Manager, prior to which he was an Accountant for Yale &
Seffinger, P.C., an accounting firm; and previously an Accountant
and Commissions Supervisor for Stuart James Company Inc., a
broker-dealer.
Scott Farrar, Assistant Treasurer; Age: 30
3410 South Galena Street, Denver, Colorado 80231
Assistant Vice President of the Manager/Mutual Fund Accounting; an
officer of other Oppenheimer funds; previously a Fund Controller
for the Manager, prior to which he was an International Mutual
Fund Supervisor for Brown Brothers Harriman & Co., a bank, and
previously a Senior Fund Accountant for State Street Bank & Trust
Company.
[FN]
- -------------
A Trustee who is an "interested person" of the Fund as defined in the
Investment Company Act.
-- Remuneration of Trustees. The officers of the Fund are
affiliated with the Manager; they and the Trustees of the Fund who are
affiliated with the Manager (Ms. Macaskill, Messrs. Galli and Spiro;
Mr. Spiro who is also an officer of the Fund) receive no salary or fee
from the Fund. The Trustees of the Fund (including Mr. Delaney, a
former Trustee, but excluding Ms. Macaskill and Messrs. Galli and
Spiro) received the total amounts shown below (i) from the Fund, during
its fiscal year ended June 30, 1995, and (ii) from all 17 of the New
York-based Oppenheimer funds (including the Fund) listed in the first
paragraph of this section (and from Oppenheimer Global Environment
Fund, Oppenheimer Time Fund and Oppenheimer Mortgage Income Fund
Oppenheimer, which ceased operation following the acquisition of their
assets by certain other funds), for services in the positions shown:
<TABLE>
<CAPTION>
Retirement Total
Benefits Compensation
Aggregate Accrued as From All
Compensation Part of New York-based
Name and Position from Fund Fund Expenses Oppenheimer funds1
<S> <C> <C> <C>
Leon Levy $5,785 $3,730 $141,000.00
Chairman and
Trustee
Leo Cherne $2,823 $1,821 $ 68,800.00
Audit Committee
Member and
Trustee
Edmund T. Delaney $3,537 $2,281 $ 86,200.00
Study Committee
Member and Trustee2
Benjamin Lipstein $3,537 $2,281 $ 86,200.00
Study Committee
Member and Trustee
Elizabeth B. Moynihan$2,486 $1,604 $ 60,625.00
Study Committee
Member3 and Trustee
Kenneth A. Randall $3,217 $2,075 $ 78,400.00
Audit Committee
Member and Trustee
Edward V. Regan $2,307 $1,488 $ 56,275.00
Audit Committee
Member and Trustee
Russell S. Reynolds, Jr.$2,140 $1,380 $ 52,100.00
Trustee
Sidney M. Robbins $5,008 $3,230 $122,100.00
Study Committee
Chairman, Audit
Committee Vice-Chairman
and Trustee
Pauline Trigere $2,140 $1,380 $ 52,100.00
Trustee
Clayton K. Yeutter $2,140 $1,380 $ 52,100.00
Trustee
</TABLE>
______________________
1For the 1994 calendar year.
2Board and committee member positions held during a portion of the
period shown.
3Committee position held during a portion of the period shown.
The Fund has adopted a retirement plan that provides for payment
to a retired Trustee of up to 80% of the average compensation paid
during that Trustee's five years of service in which the highest
compensation was received. A Trustee must serve in that capacity for
any of the New York-based Oppenheimer funds for at least 15 years to be
eligible for the maximum payment. Because each Trustee's retirement
benefits will depend on the amount of the Trustee's future compensation
and length of service, the amount of those benefits cannot be
determined at this time, nor can it be estimated the number of years of
credited service that will be used to determine these benefits. No
payments have been made by the Fund under the plan as of June 30, 1995.
-- Major Shareholders. As of October 6, 1995, the only persons
who owned of record or was known by the Fund to own beneficially 5% or
more of the Fund's outstanding shares were Merrill Lynch Pierce Fenner
& Smith, Inc., 97C22, 4800 Deer Lake Drive East, Jacksonville, Florida
32246-6484, who owned 218,208.000 Class C shares of the Fund
(representing approximately 16.75% 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 two of whom (Messrs. Galli and
Spiro) also serve as Trustees of the Fund.
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 by the Manager.
-- The Investment Advisory Agreement. The investment advisory
agreement between the Manager and the Fund requires the Manager, at its
expense, to provide the Fund with adequate office space, facilities and
equipment, and to provide and supervise the activities of all
administrative and clerical personnel required to provide effective
corporate administration for the Fund, including the compilation and
maintenance of records with respect to its operations, the preparation
and filing of specified reports, and composition of proxy materials and
registration statements for continuous public sale of shares of the
Fund. Prior to the adoption of the current investment advisory
agreement, the Manager voluntarily reduced the management fee to the
current rates, described in the Prospectus.
Expenses not expressly assumed by the Manager under the advisory
agreement or by the Distributor under the General Distributor's
Agreement are paid by the Fund. The advisory agreement lists examples
of expenses paid by the Fund, the major categories of which relate to
interest, taxes, brokerage commissions, fees to certain Trustees, legal
and audit expenses, custodian and transfer agent expenses, share
issuance costs, certain printing and registration costs and non-
recurring expenses, including litigation costs. For the Fund's fiscal
years ended June 30, 1993, 1994 and 1995, the management fees paid by
the Fund to the Manager were $2,911,199, $2,515,934 and $1,980,189,
respectively.
The advisory agreement contains no provision limiting the Fund's
expenses. However, independently of the advisory agreement, the
Manager has voluntarily undertaken that the total expenses of the Fund
in any fiscal year (including the management fee but excluding taxes,
interest, brokerage commissions, distribution assistance payments and
extraordinary expenses such as litigation costs) shall not exceed the
most stringent expense limitation imposed under state law applicable to
the Fund. Pursuant to the undertaking, the Manager's fee will be
reduced at the end of a month so that there will not be any accrued but
unpaid liability under this undertaking. Currently, the most stringent
state expense limitation is imposed by California, and limits the
Fund's expenses (with specified exclusions) to 2.5% of the first $30
million of average annual net assets, 2% of the next $70 million of
average annual net assets, and 1.5% of average annual net assets in
excess of $100 million. The Manager reserves the right to terminate or
amend the undertaking at any time. Any assumption of the Fund's
expenses under this limitation would lower the Fund's overall expense
ratio and increase its total return during any period in which expenses
are limited.
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 by
reason of any investment, or the purchase, sale or retention of any
security, or for any act or omission in performing the services
required by the Agreement. 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 its other
investment activities. 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 corporate name may be withdrawn.
-- The Distributor. Under its Distribution Agreement with the
Fund, 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 Distribution and Service Plans, but including advertising and the
cost of printing and mailing prospectuses, other than those furnished
to existing shareholders), are borne by the Distributor. During the
Fund's fiscal years ended June 30, 1993, 1994 and 1995, the aggregate
sales charges on sales of the Fund's Class A shares were $1,823,585,
$876,525 and $582,157, respectively, of which the Distributor and an
affiliated broker-dealer retained in the aggregate $594,110, $282,424
and $169,246 in those respective years. There were no contingent
deferred sales charges collected by the Distributor on the redemption
of Class B shares for the fiscal year ended June 30, 1995, because
Class B shares were not publicly offered during that fiscal year.
During the Fund's fiscal year ended June 30, 1995, sales charges
advanced to broker/dealers by the Distributor on sales of the Fund's
Class B shares totalled $76,562, of which $4,633 was paid to an
affiliated broker/dealer. During the Fund's fiscal period from
December 1, 1993 through June 30, 1994, and the fiscal year ended June
30, 1995, the contingent deferred sales charges collected on Class C
shares were $3,250 and $9,578, respectively, all of which the
Distributor retained. For additional information about distribution of
the Fund's shares and the expenses connected with such activities,
please refer to "Distribution and Service Plans," below.
-- The Transfer Agent. Oppenheimer Shareholder Services, the
Fund's Transfer Agent, is responsible for maintaining the Fund's
shareholder registry and shareholder accounting records, and for
shareholder servicing and administrative functions.
Brokerage Policies of the Fund
Brokerage Provisions of the Investment Advisory Agreement. One of the
duties of the Manager under the advisory agreement is to arrange the
portfolio transactions for the Fund. The advisory agreement contains
provisions relating to the employment of broker-dealers ("brokers") to
effect the Fund's portfolio transactions. In doing so, the Manager is
authorized by the advisory agreement to employ such broker-dealers,
including "affiliated" brokers, as that term is defined in the
Investment Company Act, as may, in its best judgment based on all
relevant factors, implement the policy of the Fund to obtain, at
reasonable expense, the "best execution" (prompt and reliable execution
at the most favorable price obtainable) of such transactions. The
Manager need not seek competitive commission bidding but is expected to
minimize the commissions paid to the extent consistent with the
interest and policies of the Fund as established by its Board of
Trustees.
Under the advisory agreement, the Manager is authorized to select
brokers that provide brokerage and/or research services for the Fund
and/or the other accounts over which the Manager or its affiliates have
investment discretion. The commissions paid to such brokers may be
higher than another qualified broker would have charged if a good faith
determination is made by the Manager and the commission is fair and
reasonable in relation to the services provided. Subject to the
foregoing considerations, the Manager may also consider sales of shares
of the Fund and other investment companies managed by the Manager or
its affiliates as a factor in the selection of brokers for the Fund's
portfolio transactions.
Description of Brokerage Practices Followed by the Manager. Most
purchases made by the Fund are principal transactions at net prices,
and the Fund incurs little or no brokerage costs. Subject to the
provisions of the advisory agreement, the procedures and rules
described above, allocations of brokerage are generally made by the
Manager's portfolio traders based upon recommendations from the
Manager's portfolio managers. In certain instances, portfolio managers
of 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 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
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 and its affiliates
are combined. The transactions effected pursuant to such combined
orders are averaged as to price and allocated in accordance with the
purchase or sale orders actually placed for each account.
The research services provided by a particular broker may be
useful only to one or more of the advisory accounts of the Manager and
its affiliates, and investment research received for the commissions of
those other accounts may be useful both to the Fund and one or more of
such other accounts. Such research, which may be supplied by a third
party at the instance of a broker, includes information and analyses on
particular companies and industries as well as market or economic
trends and portfolio strategy, receipt of market quotations for
portfolio evaluations, information systems, computer hardware and
similar products and services. If a research service also assists the
Manager in a non-research capacity (such as bookkeeping or other
administrative functions), then only the percentage or component that
provides assistance to the Manager in the investment decision-making
process may be paid in commission dollars. The Board 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 trades to obtain research where
the broker has represented to the Manager that (i) the trade is not
from the broker's own inventory, (ii) the trade was executed by the
broker on an agency basis at the stated commission, and (iii) the trade
is not a riskless principal transaction.
The research services provided by brokers broadens the scope and
supplement the research activities of the Manager, by making available
additional views for consideration and comparisons, and by enabling the
Manager to obtain market information for the valuation of securities
held in the Fund's portfolio or being considered for purchase. The
Board of Trustees, including the "independent" Trustees of the Fund
(those Trustees of the Fund who are not "interested persons" as defined
in the Investment Company Act, and who have no direct or indirect
financial interest in the operation of the advisory agreement or the
Distribution Plans described below) annually reviews information
furnished by the Manager as to the commissions paid to brokers
furnishing such services so that the Board may ascertain whether the
amount of such commissions was reasonably related to the value or
benefit of such services.
Performance of the Fund
Yield and Total Return Information. From time to time the
"standardized yield," "dividend yield," "average annual total return,"
"cumulative total return," "average annual total return at net asset
value" and "total return at net asset value" of an investment in a
class of shares of the Fund may be advertised. An explanation of how
these yields and total returns are calculated for each class and the
components of those calculations is set forth below. No total return
and yield calculations are presented below for Class B shares because
no shares of that class were publicly offered during the fiscal year
ended June 30, 1995.
The Fund's advertisement of its performance 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) 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 yields, 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. Yields and total returns for any given past
period are not a prediction or representation by the Fund of future
yields or rates of return on its shares. The yields and 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.
-- Standardized Yields
-- Yield. The Fund's "yield" (referred to as "standardized
yield") for a given 30-day period for a class of shares is calculated
using the following formula set forth in rules adopted by the
Securities and Exchange Commission that apply to all funds that quote
yields:
(a-b) 6
Standardized Yield = 2 ((--- + 1) - 1)
( cd)
The symbols above represent the following factors:
a = dividends and interest earned during the 30-day period.
b = expenses accrued for the period (net of any expense
reimbursements).
c = the average daily number of shares of that class outstanding
during the 30-day period that were entitled to receive
dividends.
d = the maximum offering price per share of that class on the
last day of the period, using the current maximum sales
charge rate 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 June
30, 1995, the standardized yields for the Fund's Class A and Class C
shares were 6.17% and 5.59%, respectively. No standardized yields are
presented for Class B shares because no shares of that class were
publicly issued during the fiscal year ended June 30, 1995.
-- Dividend Yield and Distribution Return. From time to time the
Fund may quote a "dividend yield" or a "distribution return" for each
class. Dividend yield is based on the dividends paid on shares of a
class from dividends derived from net investment income during a stated
period. Distribution return includes dividends derived from net
investment income and from realized capital gains declared during a
stated period. Under those calculations, the dividends and/or
distributions for that class declared during a stated period of one
year or less (for example, 30 days) are added together, and the sum is
divided by the maximum offering price per share of that class) on the
last day of the period. When the result is annualized for a period of
less than one year, the "dividend yield" is calculated as follows:
Dividend Yield of the Class =
Dividends of the Class
-----------------------------------------------------
Max. Offering Price of the Class (last day of period)
divided by Number of days (accrual period) x 365
The maximum offering price for Class A shares includes the maximum
front-end sales charge. For Class B or Class C shares, the maximum
offering price is the net asset value per share, without considering
the effect of contingent deferred sales charges.
From time to time similar yield or distribution return
calculations may also be made using the Class A net asset value
(instead of its respective maximum offering price) at the end of the
period. The dividend yields on Class A shares for the 30-day period
ended June 30, 1995, were 6.64% and 6.97% when calculated at maximum
offering price and at net asset value, respectively. The dividend
yield on Class C shares for the 30-day period ended June 30, 1995, was
6.10% 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:
ERV - P
------- = Total Return
P
In calculating total returns for Class A shares, the current
maximum sales charge of 4.75% (as a percentage of the offering price)
is deducted from the initial investment ("P") (unless the return is
shown at net asset value, as described below). For Class B shares, the
payment of the current contingent deferred sales charge (5.0% for the
first year, 4.0% for the second year, 3.0% for the third and fourth
years, 2.0% in the fifth year, 1.0% in the sixth year and none
thereafter) is applied to the investment result for the time period
shown (unless the total return is shown at net asset value, as
described below). For Class C shares, the 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 June 30,
1995 and for the period from August 16, 1985 to June 30, 1995, were
5.94%, 7.27% and 8.00%, respectively. The cumulative "total return" on
Class A shares for the period from August 16, 1985 to June 30, 1995 was
113.76%. During a portion of the periods for which total returns are
shown for Class A shares, the Fund's maximum initial sales charge rate
was higher; as a result, performance returns on actual investments
during those periods may be lower than the results shown. The "average
annual total return" on an investment in Class C shares of the fund for
the one year period ended June 30, 1995 was 9.31%, and from its
inception on December 1, 1993 through June 30, 1995 was 4.22%. The
cumulative total return on Class C shares for the period from December
1, 1993 (the commencement of the offering of the shares) through June
30, 1995 was 6.75%.
-- 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 of the Fund's Class
A shares for the period from August 16, 1985 to June 30, 1995 was
124.41%. The cumulative total return at net asset value of the Fund's
Class C shares for the period from December 1, 1993 to June 30, 1995
was 6.75%. The average annual total returns at net asset value for the
one and five year periods ended June 30, 1995 and for the period from
August 16, 1985 to June 30, 1995, for Class A shares were 11.22%, 8.31%
and 8.53%, respectively. The average annual total returns at net asset
value for the one year period ended June 30, 1995 and the period from
December 1, 1993 to June 30, 1995 were 10.31% and 4.22%, 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 or
Class C shares of the Fund with that of other alternatives, investors
should understand that as the Fund invests in high yield securities,
its shares are subject to greater market risks than shares of funds
having other investment objectives and that the Fund is designed for
investors who are willing to accept greater risk of loss in the hopes
of realizing greater gains.
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 are
ranked against (i) all other funds (excluding money market funds), (ii)
all other U.S. Government funds and (iii) all other U.S. Government
funds in a specific size category. The Lipper performance rankings are
based on total returns that include the reinvestment of capital gains
distributions and income dividends but does not take sales charges or
taxes into consideration.
From time to time the Fund may publish the ranking of the
performance of its Class A, Class B or Class C shares by Morningstar,
Inc., an independent mutual fund monitoring service that ranks mutual
funds, including the Fund, monthly in broad investment categories
(equity, taxable bond, municipal bond and hybrid) based on risk-
adjusted investment return. Investment return measures a fund's three,
five and ten-year average annual total returns (when available) in
excess of 90-day U.S. Treasury bill returns after considering sales
charges and expenses. Risk reflects fund performance below 90-day U.S.
Treasury bill monthly returns. Risk and return are combined to produce
star rankings reflecting performance relative to the average fund in a
fund's category. Five stars is the "highest" ranking (top 10%), four
stars is "above average" (next 22.5%), three stars is "average" next
35%), two stars is "below average" (next 22.5%) and one star is
"lowest" (bottom 10%). Morningstar ranks the Fund's Class A, Class B
and Class C shares of the Fund in relation to other U.S. Government
funds. Rankings are subject to change.
The total return on an investment made in Class A, Class B or
Class C shares of the Fund may also be compared with the performance
for the same period of the Lehman Brothers U.S. Government Bond Index,
an unmanaged index including all U.S. Treasury issues, publicly- issued
debt of U.S. Government agencies and quasi-public corporations and U.S.
Government-guaranteed corporate debt, and is widely regarded as a
measure of the performance of the U.S. Government bond market. The
foregoing bond index includes a factor for the reinvestment of interest
but does not reflect expenses or taxes. Other indices may be used from
time to time. The performance of the Fund's Class A, Class B and Class
C shares may also be compared in publications to (i) performance of
various market indices or 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.
From time to time the Fund may also include in its advertisements
and sales literature performance information about the Fund or rankings
of the Fund's performance cited in newspapers or periodicals, such as
The New York Times which may include quotations of performance from
other sources, such as Lipper or Morningstar.
From time to time, the Fund's Manager may publish rankings or
ratings of the Manager (or the Transfer Agent), by independent third-
parties, on the investor services provided by them to shareholders of
the Oppenheimer funds, other than the performance rankings of the
Oppenheimer funds 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, using its own
research or judgment, or based upon surveys of investors, brokers,
shareholders or others.
When comparing yield, total return and investment risk of an
investment in Class A, Class B or Class C shares of the Fund with other
investments, investors should understand that certain other investments
have different risk characteristics than an investment in shares of the
Fund. For example, certificates of deposit may have fixed rates of
return and may be insured as to principal and interest by the FDIC,
while the Fund's returns will fluctuate and its share values and
returns are not guaranteed. U.S. Treasury securities are guaranteed as
to principal and interest by the full faith and credit of the U.S.
government.
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 of the
Fund under Rule 12b-1 of the Investment Company Act, pursuant to which
the Fund makes 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 of the Fund, including a majority of the Independent
Trustees, cast in person at a meeting called for the purpose of voting
on that Plan, and (ii) the holders of a "majority" (as defined in the
Investment Company Act) of the shares of each class. For the
Distribution and Service Plan for the Class B shares (the "Class B
Plan") and Class C shares (the "Class C Plan"), such votes were cast by
the Manager as the sole initial holder of Class B and 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, at no cost to the Fund. The Distributor and the
Manager may, in their sole discretion, increase or decrease the amount
of payments they make to Recipients from their own resources.
Unless terminated as described below, each Plan continues in
effect from year to year but only as long as such continuance is
specifically approved at least annually by the Fund's Board of Trustees
including its Independent Trustees by a vote cast in person at a
meeting called for the purpose of voting on such continuance. Each
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. No Plan may be amended to increase materially the amount
of payments to be made unless such amendment is approved by
shareholders of the class affected by the amendment. In addition,
because Class B shares of the Fund automatically convert into Class A
shares after six years, the Fund is required 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 Board and the Independent Trustees.
While the Plans are in effect, the Treasurer of the Fund shall
provide separate written reports to the Fund's Board of Trustees at
least quarterly for its review, detailing the amount of all payments
made pursuant to each Plan, the purpose for which the payment was made
and the identity of each Recipient that received any such payment and
the purpose of the payments. The report for the Class B and Class C
Plans shall also include the Distributor's distribution costs for that
quarter, and such costs for previous fiscal periods that have been
carried forward ("excess distribution expenses"). The Board may
consider whether to permit the Distributor to recover the excess
distribution expenses plus financing costs from future payments of the
asset-based sales charge or service following termination of the Plan.
Each Plan further provides that while it is in effect, the selection
and nomination of those Trustees of the Fund who are not "interested
persons" of the Fund is committed to the discretion of the Independent
Trustees. This does not prevent the involvement of others in such
selection and nomination if the final decision on any such 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 fee at the maximum rate and set no minimum amount.
Any unreimbursed expenses incurred by the Distributor with respect
to Class A shares for any fiscal year may not be recovered in
subsequent years. Payments received by the Distributor under the Class
A Plan will not be used to pay any interest expense, carrying charges,
or other financial costs, or allocation of overhead by the Distributor.
For the fiscal year ended June 30, 1995, payments under the Class
A Plan totalled $737,801, all of which was paid by the Distributor to
Recipients, including $53,292 paid to an affiliate of the Distributor.
Payments made under the Class C Plan during that fiscal period totalled
$65,084, of which the Distributor paid $2,782 to an affiliated broker-
dealer and retained $58,050 as reimbursement for Class C sales
commissions and service fee advances, as well as financing costs. No
payments have been made under the Class B Plan during that period, as
no Class B shares were outstanding.
The Class B and Class C Plans allow the service fee payment to be
paid by the Distributor to Recipients in advance for the first year
such shares are outstanding, and thereafter on a quarterly basis, as
described in the Prospectus. The advance payment is based on the net
assets of the shares sold. An exchange of shares does not entitle the
Recipient to an advance payment of the service fee. In the event
shares are redeemed during the first year such shares are outstanding,
the Recipient will be obligated to repay a pro rata portion of the
advance of the service fee payment to the Distributor.
Although the Class B and the Class C Plans permit the Distributor
to retain both the asset-based sales charges and the service fee, or to
pay Recipients the service fee on a quarterly basis, without payment in
advance, the Distributor presently 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 and the Class C Plan
by the Board. Initially, the Board has set no minimum holding period.
All payments under the Class B and the Class C Plan are subject to the
limitations imposed by the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. on payments of asset-based
sales charges and service fees.
Asset-based sales charge payments are designed to permit an
investor to purchase shares of the Fund without the assessment of a
front-end sales load and at the same time permit the Distributor to
compensate brokers and dealers in connection with the sale of Class B
and Class C shares of 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, 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.
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 will not accept (i) any order for $500,000 or
more of Class B or (ii) any order for $1 million or more of Class C
shares on behalf of a single investor (not including dealer "street
name" or omnibus accounts) because generally it will be more
advantageous for that investor to purchase Class A shares of the Fund
instead.
The three classes of shares each represent an interest in the same
portfolio investments of the Fund. However, each class has different
shareholder privileges and features. The net income attributable to
Class B and Class C shares and the dividends payable on Class B and
Class C shares will be reduced by incremental expenses borne solely by
that class, including the asset-based sales charge to which Class B and
Class C shares are subject.
The conversion of Class B shares to Class A shares after six years
is subject to the continuing availability of a private letter ruling
from the Internal Revenue Service, or an opinion of counsel or tax
adviser, to the effect that the conversion of Class B shares does not
constitute a taxable event for the holder under Federal income tax law.
If such a revenue ruling or opinion is no longer available, the
automatic conversion feature may be suspended, in which event no
further conversions of Class B shares would occur while such suspension
remained in effect. Although Class B shares could then be exchanged
for Class A shares on the basis of relative net asset value of the two
classes, without the imposition of a sales charge or fee, such exchange
could constitute a taxable event for the holder, and absent such
exchange, Class B shares might continue to be subject to the asset-
based sales charge for longer than six years.
The methodology for calculating the net asset value, dividends and
distributions of the Fund's Class A, Class B and Class C shares
recognizes two types of expenses. General expenses that do not pertain
specifically to any class are allocated pro rata to the shares of each
class, based on the percentage of the net assets of such class to the
Fund's total assets, and then equally to each outstanding share within
a given class. Such general expenses include (i) management fees, (ii)
legal, bookkeeping and audit fees, (iii) printing and mailing costs of
shareholder reports, Prospectuses, Statements of Additional Information
and other materials for current shareholders, (iv) fees to unaffiliated
Trustees, (v) custodian expenses, (vi) share issuance costs, (vii)
organization and start-up costs, (viii) interest, taxes and brokerage
commissions, and (ix) non-recurring expenses, such as litigation costs.
Other expenses that are directly attributable to a class are allocated
equally to each outstanding share within that class. Such expenses
include (i) Distribution and/or 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 Values 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 on each day
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
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 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 U.S. Government
Securities at times when the Exchange is closed (including weekends and
holidays or after 4:00 P.M., on a regular business day). Because the
net asset values of the Fund will not be calculated at such times, if
securities held in the Fund's portfolio are traded at such times, the
net asset values per share of Class A, Class B and Class C shares of
the Fund may be significantly affected on such days when shareholders
do not have the ability to purchase or redeem shares.
The Fund's Board of Trustees has established procedures for the
valuation of the Fund's securities, generally, as follows: (i) equity
securities traded on a securities exchange or on NASDAQ for which last
sale information is regularly reported are valued at the last reported
sale price on their primary exchange or NASDAQ that day (or, in the
absence of sales that day, at values based on the last sales prices of
the preceding trading day or closing bid and asked prices); (ii)
securities actively traded on a foreign securities exchange are valued
at the last sales price available to the pricing service approved by
the Fund's Board of Trustees or to the Manager as reported by the
principal exchange on which the security is traded; (iii) unlisted
foreign securities or listed foreign securities not actively traded are
valued as in (i) above, if available, or at the mean between "bid" and
"asked" prices obtained from active market makers in the security on
the basis of reasonable inquiry; (iv) long-term debt securities having
a remaining maturity in excess of 60 days are valued at the mean
between the "bid" and "asked" prices determined by a portfolio pricing
service approved by the Fund's Board of Trustees or obtained from
active market makers in the security on the basis of reasonable
inquiry; (v) debt instruments having a maturity of more than one year
when issued, and non-money market type instruments having a maturity of
one year or less when issued, which have a remaining maturity of 60
days or less are valued at the mean between "bid" and "asked" prices
determined by a pricing service approved by the Fund's Board of
Trustees or obtained from active market makers in the security on the
basis of reasonable inquiry; (vi) money market-type debt securities
having a maturity of less than one year when issued that having a
remaining maturity of 60 days or less are valued at cost, adjusted for
amortization of premiums and accretion of discounts; and (vii)
securities (including restricted securities) not having readily-
available market quotations are valued at fair value under the Board's
procedures.
In the case of U.S. Government Securities and mortgage-backed
securities, where 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 Fund's Board of Trustees has
authorized the Manager to employ a pricing service to price U.S.
Government Securities for which last sale information is not generally
available. The Trustees will monitor the accuracy of such pricing
services by comparing prices used for portfolio evaluation to actual
sales prices of selected securities.
Puts, calls and Futures held by the Fund are valued at the last
sales prices on the principal exchanges on which they are traded or on
NASDAQ, as applicable, or, if there are no sales that day, in
accordance with (i) above. When the Fund writes an option, an amount
equal to the premium received by the Fund is included in the Fund's
Statement of Assets and Liabilities as an asset and an equivalent
deferred credit is included in the liability section. The deferred
credit is "marked-to-market" to reflect the current market value of the
option. In determining the Fund's gain on investments, if a call
written by the Fund is exercised, the proceeds are increased by the
premium received. If a call or put written by the Fund expires, the
Fund has a gain in the amount of the premium; if the Fund enters into a
closing purchase transaction, it will have a gain or loss depending on
whether the premium was more or less than the cost of the closing
transaction. If the Fund exercises a put it holds, the amount the Fund
receives on its sale of the underlying investment is reduced by the
amount of premium paid by the Fund.
AccountLink. When shares are purchased through AccountLink, each
purchase must be at least $25.00. Shares will be purchased on the
regular business day the Distributor is instructed to initiate the
Automated Clearing House transfer to buy 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 the 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 three days after the
transfers are initiated. The Distributor and the Fund are not
responsible for any delays in purchasing shares resulting from delays
in ACH transmissions.
Reduced Sales Charges. As discussed in the Prospectus, a reduced sales
charge rate may be obtained for Class A shares under Right of
Accumulation and Letters of Intent because of the economies of sales
efforts and reduction in expenses realized by the Distributor, dealers
and brokers making such sales. No sales charge is imposed in certain
other circumstances described in the Prospectus because the Distributor
or dealer or broker incurs little or no selling expenses. The term
"immediate family" refers to one's spouse, children, grandchildren,
parents, grandparents, parents-in-law, sons- and daughters-in-law,
siblings, and a sibling's spouse and a spouse's siblings.
-- The Oppenheimer funds. The Oppenheimer funds are those mutual
funds for which the Distributor acts as the distributor or the sub-
distributor and include the following:
Oppenheimer Tax-Free Bond Fund
Oppenheimer New York Tax-Exempt Fund
Oppenheimer California Tax-Exempt Fund
Oppenheimer Intermediate Tax-Exempt Fund
Oppenheimer Insured Tax-Exempt Fund
Oppenheimer International Bond Fund
Oppenheimer Main Street California Tax-Exempt Fund
Oppenheimer Florida Tax-Exempt Fund
Oppenheimer Pennsylvania Tax-Exempt Fund
Oppenheimer New Jersey Tax-Exempt Fund
Oppenheimer Fund
Oppenheimer Discovery Fund
Oppenheimer Target Fund
Oppenheimer Growth Fund
Oppenheimer Equity Income Fund
Oppenheimer High Yield Fund
Oppenheimer Champion Income Fund
Oppenheimer Bond Fund
Oppenheimer U.S. Government Trust
Oppenheimer Limited-Term Government Fund
Oppenheimer Global Fund
Oppenheimer Global Emerging Growth Fund
Oppenheimer Global Growth & Income Fund
Oppenheimer Gold & Special Minerals Fund
Oppenheimer Strategic Income Fund
Oppenheimer Strategic Income & Growth Fund
Oppenheimer Value Stock Fund
Oppenheimer Asset Allocation Fund
Oppenheimer Total Return Fund, Inc.
Oppenheimer Main Street Income & Growth Fund
and the following "Money Market Funds":
Oppenheimer Money Market Fund, Inc.
Oppenheimer Cash Reserves
Centennial Money Market Trust
Centennial Tax Exempt Trust
Centennial Government Trust
Centennial New York Tax Exempt Trust
Centennial California Tax Exempt Trust
Centennial America Fund, L.P.
Daily Cash Accumulation Fund, Inc.
There is an initial sales charge on the purchase of Class A shares
of each of the 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 of the Fund (and Class A and
Class B shares of other Oppenheimer funds) during a 13-month period
(the "Letter of Intend 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 total 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 "How to Exchange
Shares," and the escrow will be transferred to that other fund.
Asset Builder Plans. To establish an Asset Builder Plan from a bank
account, a check (minimum $25) for the initial purchase must accompany
the application. Shares purchased by Asset Builder Plan payments from
bank accounts are subject to the redemption restrictions for recent
purchases described in "How To Sell Shares," in the Prospectus. Asset
Builder Plans also enable shareholders of Oppenheimer Cash Reserves to
use those accounts for monthly automatic purchases of shares of up to
four other Oppenheimer funds.
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.
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.
Check Writing. When a check is presented to the Bank for clearance,
the Bank will ask the Fund to redeem a sufficient number of full and
fractional shares in the shareholder's account to cover the amount of
the check. This enables the shareholder to continue receiving
dividends on those shares until the check is presented to the Fund.
Checks may not be presented for payment at the offices of the Bank or
the Fund's Custodian. This limitation does not affect the use of
checks for the payment of bills or to obtain cash at other banks. The
Fund reserves the right to amend, suspend or discontinue offering
checkwriting privileges at any time without prior notice.
-- Selling Shares by Wire. The wire of redemption proceeds may be
delayed if the Fund's custodian bank is not open for business on a day
when the Fund would normally authorize the wire to be made, which is
usually the Fund's next regular business day following the redemption.
In those circumstances, the wire will not be transmitted until the next
bank business day on which the Fund is open for business. No dividends
will be paid on the proceeds of redeemed shares awaiting transfer by
wire.
-- Payments "In Kind". The Prospectus states that payment for
shares tendered for redemption is ordinarily made in cash. However, the
Board of Trustees of the Fund determines 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 it portfolio securities described above under "Determination of
Net Asset Values Per Share" and that valuation will be made as of the
time the redemption price is determined.
-- Involuntary Redemptions. The Fund's Board of Trustees has the
right to cause the involuntary redemption of the shares held in any
account if the aggregate net asset value of those shares is less than
$200 or such lesser amount as the Board may fix. The Board of Trustees
will not cause the involuntary redemption of shares in an account if
the aggregate net asset value of the shares has fallen below the stated
minimum solely as a result of market fluctuations. Should the Board
elect to exercise this right, it may also fix, in accordance with the
Investment Company Act, the requirements for any notice to be given to
the shareholders in question (not less than 30 days), or the Board may
set requirements for granting permission to the Shareholder to increase
the investment, and set other terms and conditions so that the shares
would not be involuntarily redeemed.
Reinvestment Privilege. Within six months of a redemption, a
shareholder may reinvest all or part of the redemption proceeds of (i)
Class A shares, or (ii) Class B shares or (iii) Class C shares that
were subject to the Class B contingent deferred sales charge when
redeemed. The reinvestment may be made without sales charge only in
Class A shares of the Fund or any of the other Oppenheimer funds into
which shares of the Fund are exchangeable as described in "How to
Exchange Shares" below, at the net asset value next computed after the
Transfer Agent receives the reinvestment order. The shareholder must
ask the Distributor for that privilege at the time of reinvestment.
Any capital gain that was realized when the shares were redeemed is
taxable, and reinvestment will not alter any capital gains tax payable
on that gain. If there has been a capital loss on the redemption, some
or all of the loss may not be tax deductible, depending on the timing
and amount of the reinvestment. Under the Internal Revenue Code, if
the redemption proceeds of Fund shares on which a sales charge was paid
are reinvested in shares of the Fund or another of the 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 either class at the time of
transfer to the name of another person or entity (whether the transfer
occurs by absolute assignment, gift or bequest, not involving, directly
or indirectly, a public sale). The transferred shares will remain
subject to the contingent deferred sales charge, calculated as if the
transferee shareholder had acquired the transferred shares in the same
manner and at the same time as the transferring shareholder. If less
than all shares held in an account are transferred, and some but not
all shares in the account would be subject to a contingent deferred
sales charge if redeemed at the time of transfer, the priorities
described in the Prospectus under "How to Buy Shares" for the
imposition of the Class B and Class C contingent deferred sales charge
will be followed in determining the order in which shares are
transferred.
Distributions From Retirement Plans. Requests for distributions from
OppenheimerFunds-sponsored IRAs, 403(b)(7) custodial plans, 401(k)
plans or pension or profit-sharing plans should be addressed to
"Trustee, OppenheimerFunds Retirement Plans," c/o the Transfer Agent at
its address listed in "How To Sell Shares" in the Prospectus or on the
back cover of this Statement of Additional Information. The request
must: (i) state the reason for the distribution; (ii) state the owner's
awareness of tax penalties if the distribution is premature; and (iii)
conform to the requirements of the plan and the Fund's other redemption
requirements. Participants (other than self-employed persons
maintaining a plan account in their own name) in OppenheimerFunds-
sponsored prototype pension, profit-sharing or 401(k) plans may not
directly redeem or exchange shares held for their account under those
plans. The employer or plan administrator must sign the request.
Distributions from pension and profit sharing plans are subject to
special requirements under the Internal Revenue Code and certain
documents (available from the Transfer Agent) must be completed before
the distribution may be made. Distributions from retirement plans are
subject to withholding requirements under the Internal Revenue Code,
and IRS Form W-4P (available from the Transfer Agent) must be submitted
to the Transfer Agent with the distribution request, or the
distribution may be delayed. Unless the shareholder has provided the
Transfer Agent with a certified tax identification number, the Internal
Revenue Code requires that tax be withheld from any distribution even
if the shareholder elects not to have tax withheld. The Fund, the
Manager, the Distributor, the Trustee and the Transfer Agent assume no
responsibility to determine whether a distribution satisfies the
conditions of applicable tax laws and will not be responsible for any
tax penalties assessed in connection with a distribution.
Special Arrangements for Repurchase of Shares from Dealers and Brokers.
The Distributor is the Fund's agent to repurchase its shares from
authorized dealers or brokers. The repurchase price per share will be
the net asset value next computed after the Distributor receives the
order placed by the dealer or broker, except that if the Distributor
receives a repurchase order from a dealer or broker after the close of
The New York Stock Exchange on a regular business day, it will be
processed at that day's net asset value if the order was received by
the dealer or broker from its customer prior to the time the Exchange
closes (normally, that is 4:00 P.M., but may be earlier on some days)
and the order was transmitted to and received by the Distributor prior
to its close of business that day (normally 5:00 P.M.). 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. 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 Class B and Class C contingent
deferred sales charge on such withdrawals (except where the Class B and
Class C contingent deferred sales charge is waived as described in the
Prospectus under "Class B Contingent Deferred Sales Charge" or in
"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 and in the provisions of the OppenheimerFunds
Application relating to such Plans, as well as the Prospectus. These
provisions may be amended from time to time by the Fund and/or the
Distributor. When adopted, such amendments will automatically apply to
existing Plans.
-- Automatic Exchange Plans. Shareholders can authorize the
Transfer Agent (on the OppenheimerFunds Application or signature-
guaranteed instructions) to exchange a pre-determined amount of shares
of the Fund for shares (of the same class) of other 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 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 (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 OppenheimerFunds. 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, B and C shares except Oppenheimer Money Market
Fund, Inc., 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 Tax Exempt 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).
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).
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.
No contingent deferred sales charge is imposed on exchanges of
shares of either class purchased 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. The Class C contingent deferred sales charge is
imposed on Class C shares acquired by exchange if they are redeemed
within 12 months of the initial purchase of the exchanged Class C
shares.
When Class B or Class C shares are redeemed to effect an exchange,
the priorities described in "How To Buy Shares" in the Prospectus for
the imposition of the Class B and Class C contingent deferred sales
charge will be followed in determining the order in which the shares
are exchanged. Shareholders should take into account the effect of any
exchange on the applicability and rate of any contingent deferred sales
charge that might be imposed in the subsequent redemption of remaining
shares. Shareholders owning shares of more than one class must specify
whether they intend to exchange Class A, Class B or Class C shares.
The Fund reserves the right to reject telephone or written
exchange requests submitted in bulk by anyone on behalf of 10 or more
accounts. The Fund may accept requests for exchanges of up to 50
accounts per day from representatives of authorized dealers that
qualify for this privilege. In connection with any exchange request,
the number of shares exchanged may be less than the number requested if
the exchange or the number requested would include shares subject to a
restriction cited in the Prospectus or this Statement of Additional
Information or would include shares covered by a share certificate that
is not tendered with the request. In those cases, only the shares
available for exchange without restriction will be exchanged.
When exchanging shares by telephone, a shareholder must either
have an existing account in, or obtain acknowledge receipt of a
prospectus of, the fund to which the exchange is to be made. For full
or partial exchanges of an account made by telephone, any special
account features such as Asset Builder Plans, Automatic Withdrawal
Plans and retirement plan contributions will be switched to the new
account unless the Transfer Agent is instructed otherwise. If all
telephone lines are busy (which might occur, for example, during
periods of substantial market fluctuations), shareholders might not be
able to request exchanges by telephone and would have to submit written
exchange requests.
Shares to be exchanged are redeemed on the regular business day
the Transfer Agent receives an exchange request in proper form (the
"Redemption Date"). Normally, shares of the fund to be acquired are
purchased on the Redemption Date, but such purchases may be delayed by
either fund up to five business days if it determines that it would be
disadvantaged by an immediate transfer of the redemption proceeds. The
Fund reserves the right, in its discretion, to refuse any exchange
request that may disadvantage it (for example, if the receipt of
multiple exchange requests from a dealer might require the disposition
of portfolio securities at a time or at a price that might be
disadvantageous to the Fund).
The different 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." However, 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. If all shares in
an account are redeemed, all dividends accrued on shares in the account
will be paid together with the redemption proceeds. Dividends will be
declared on shares repurchased by a dealer or broker for three business
days following the trade date (i.e., to and including the day prior to
settlement of the repurchase).
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.
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 shares," 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 than dividends on Class A shares as a result of the asset-
based sales charges on Class B and Class C shares, and will also differ
in amount as a consequence of any difference in net asset value between
the classes.
If prior distributions must be re-characterized at the end of the
fiscal year as a result of the effect of the Fund's investment
policies, shareholders may have a non-taxable return of capital, which
will be identified in notices to shareholders. There is no fixed
dividend rate and there can be no assurance as to the payment of any
dividends or the realization of any capital gains.
If the Fund qualifies as a "regulated investment company" under
the Internal Revenue Code, it will not be liable for Federal income
taxes on amounts paid by it as dividends and distributions. The Fund
qualified as a regulated investment company in its last fiscal year and
intends to qualify in future years, but reserves the right not to
qualify. The Internal Revenue Code contains a number of complex tests
to determine whether the Fund will qualify, and the Fund might not meet
those tests in a particular year. For example, if the Fund derives 30%
or more of its gross income from the sale of securities held less than
three months, it may fail to qualify (see "Tax Aspects of Covered Calls
and Hedging Instruments," above). If it does not qualify, the Fund will
be treated for tax purposes as an ordinary corporation and will receive
no tax deduction for payments of dividends and distributions made to
shareholders.
Under the Internal Revenue Code, by December 31 each year the Fund
must distribute 98% of its taxable investment income earned from
January 1 through December 31 of that year and 98% of its capital gains
realized in the period from November 1 of the prior year through
October 31 of the current year, or else the Fund must pay an excise tax
on the amounts not distributed. While it is presently anticipated that
the Fund will meet those requirements, the Fund's Board and the Manager
might determine in a particular year that it would be in the best
interest of shareholders for the Fund not to make such distributions at
the required levels and to pay the excise tax on the undistributed
amounts. That would reduce the amount of income or capital gains
available for distribution to shareholders.
Dividend Reinvestment in Another Fund. Shareholders of the Fund may
elect to reinvest all dividends and/or capital gains distributions in
shares of the same class of any of the other Oppenheimer funds listed
in "Reduced Sales Charges" above, at net asset value without sales
charge. To elect this option, the 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 Transfer Agent to establish an account. The
investment will be made at 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. Citibank, N.A. is the Custodian of the Fund's assets.
The Custodian's responsibilities include safeguarding and controlling
the Fund's portfolio securities, collecting income on the portfolio
securities and handling the delivery of such securities to and from the
Fund. The Manager has represented to the Fund that its 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 certain other funds advised by the
Manager and its affiliates.
<PAGE>
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
The Board of Trustees and Shareholders of Oppenheimer
U.S. Government Trust:
We have audited the accompanying statements of
investments and assets and liabilities of Oppenheimer
U.S. Government Trust as of June 30, 1995, and the
related statement of operations for the year then
ended, the statements of changes in net assets for each
of the years in the two-year period then ended and the
financial highlights for each of the years in the
ten-year period then ended. 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 as of June
30, 1995, by correspondence with the custodian and
brokers; and where confirmations 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, the financial statements and
financial highlights referred to above present fairly,
in all material respects, the financial position of
Oppenheimer U.S. Government Trust as of June 30, 1995,
the results of its operations for the year then ended,
the changes in its net assets for each of the years in
the two-year period then ended, and the financial
highlights for each of the years in the ten-year period
then ended, in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
---------------------------
KPMG PEAT MARWICK LLP
Denver, Colorado
July 27, 1995
<PAGE>
STATEMENT OF INVESTMENTS JUNE 30, 1995
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT SEE NOTE 1
- ------------------------------------------------------------------------------------------------------------------------------
MORTGAGE-BACKED OBLIGATIONS--108.8%
- ------------------------------------------------------------------------------------------------------------------------------
GOVERNMENT AGENCY--106.2%
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FHLMC/FNMA/ Federal Home Loan Mortgage Corp.:
SPONSORED--62.0% Collateralized Mtg. Obligations, Gtd. Multiclass Mtg. Participation
Certificates, 10%, 6/15/20 $ 5,511,000 $ 6,203,456
Collateralized Mtg. Obligations, Gtd. Multiclass Mtg. Participation
Certificates, 14%, 1/1/11 596,715 686,059
Collateralized Mtg. Obligations, Gtd. Multiclass Mtg. Participation
Certificates, 6.65%, 4/15/21 10,750,000 10,544,996
Collateralized Mtg. Obligations, Gtd. Multiclass Mtg. Participation
Certificates, 6.80%, 3/15/16 15,000,000 15,083,400
Collateralized Mtg. Obligations, Gtd. Multiclass Mtg. Participation
Certificates, 8.50%, 10/15/19 2,476,908 2,526,843
Collateralized Mtg. Obligations, Gtd. Multiclass Mtg. Participation
Certificates, 9%, 7/15/21 2,815,075 2,887,676
Gtd. Multiclass Mtg. Participation Certificates, 11.50%, 6/1/20 1,966,543 2,250,463
Gtd. Multiclass Mtg. Participation Certificates, 13%, 8/1/15 3,000,000 3,537,188
Multiclass Gtd. Mtg. Participation Certificates, Series 1455, 7.50%, 12/15/22 5,000,000 5,068,750
-------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn.: 7%, 7/15/25(1) 20,000,000 19,681,259
Collateralized Mtg. Obligations, Gtd. Real Estate Mtg. Investment Conduit
Pass-Through Certificates, 10.50%, 11/25/20 10,000,000 11,497,800
Collateralized Mtg. Obligations, Gtd. Real Estate Mtg. Investment Conduit
Pass-Through Certificates, 13%, 11/1/12 233,504 266,974
Collateralized Mtg. Obligations, Gtd. Real Estate Mtg. Investment Conduit
Pass-Through Certificates, 7%, 12/25/21 29,617,000 28,827,704
Collateralized Mtg. Obligations, Gtd. Real Estate Mtg. Investment Conduit
Pass-Through Certificates, 8%, 12/1/22 3,361,862 3,440,008
Collateralized Mtg. Obligations, Gtd. Real Estate Mtg. Investment Conduit
Pass-Through Certificates, 8%, 3/25/01 11,567,293 11,602,690
Collateralized Mtg. Obligations, Gtd. Real Estate Mtg. Investment Conduit
Pass-Through Certificates, 8.75%, 11/25/05 4,000,000 4,280,400
Collateralized Mtg. Obligations, Gtd. Real Estate Mtg. Investment Conduit
Pass-Through Certificates, 8.75%, 12/25/20 18,500,000 19,648,665
Collateralized Mtg. Obligations, Gtd. Real Estate Mtg. Investment Conduit
Pass-Through Certificates, 9%, 7/1/21 1,764,448 1,847,950
Gtd. Mtg. Pass-Through Certificates, 12%, 4/1/19 2,000,000 2,305,000
Gtd. Real Estate Mtg. Investment Conduit Pass-Through Certificates, 8%, 7/25/19 18,000,000
18,725,938
Gtd. Real Estate Mtg. Investment Conduit Pass-Through Certificates,
Trust 1992-112, 4%, 12/25/20 3,000,000 2,537,991
Gtd. Real Estate Mtg. Investment Conduit Pass-Through Certificates,
Trust 1993-87, Inverse Floater, 4.933%, 6/25/23 (coupon inversely
indexed to 1-month US LIBOR, multiplied by 1.857)(2) 2,199,998 1,426,905
Interest-Only Stripped Mtg.-Backed Security, Trust 222, 8.19-10.03%, 6/25/23(3) 47,590,613
14,701,038
Interest-Only Stripped Mtg.-Backed Security, Trust 240, 7.84-8.74%, 9/25/23(3) 32,938,214 10,416,711
Principal-Only Stripped Mtg.-Backed Security, Series 1993-253,
Zero Coupon, 10.01% 11/25/23(4) 1,000,028 663,535
------------
200,659,399
</TABLE>
6 Oppenheimer U.S. Government Trust
<PAGE>
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT SEE NOTE 1
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
GNMA/GUARANTEED--44.2% Government National Mortgage Assn.:
10%, 6/15/16--8/15/17 $ 2,823,084 $ 3,090,242
10.50%, 11/15/16--5/15/21 11,078,973 12,300,278
11%, 7/20/20 221,995 245,120
6.50%, 8/15/25(1) 63,000,000 63,826,875
7.50%, 3/15/23 41,194,649 41,511,228
8%, 4/15/22--8/15/24 21,381,336 21,933,532
------------
142,907,275
- -----------------------------------------------------------------------------------------------------------------------------
PRIVATE--2.6%
- -----------------------------------------------------------------------------------------------------------------------------
MULTI-FAMILY--2.6% Resolution Trust Corp., Commercial Mtg. Pass-Through Certificates,
Series 1991-M5, Cl. A, 9%, 3/25/17 5,001,065 5,233,928
---------------------------------------------------------------------------------------------
Resolution Trust Corp., Commercial Mtg. Pass-Through Certificates,
Series 1995-C1, Cl. D, 6.90%, 2/25/27 3,600,000 3,328,875
------------
8,562,803
------------
Total Mortgage-Backed Obligations (Cost $345,269,392) 352,129,477
- -----------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--16.8%
- -----------------------------------------------------------------------------------------------------------------------------
TREASURY--16.8% U.S. Treasury Bonds, 7.625%, 11/15/22 12,000,000
13,402,500
---------------------------------------------------------------------------------------------
U.S. Treasury Bonds, 8.125%, 8/15/19 15,643,000 18,253,426
---------------------------------------------------------------------------------------------
U.S. Treasury Bonds, 8.875%, 8/15/17 3,000,000 3,748,125
---------------------------------------------------------------------------------------------
U.S. Treasury Bonds, 11.625%, 11/15/04 3,500,000 4,813,592
---------------------------------------------------------------------------------------------
U.S. Treasury Nts., 8%, 10/15/96 13,610,000 13,980,014
------------
Total U.S. Government Obligations (Cost $51,984,471) 54,197,657
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $397,253,863) 125.6%
406,327,134
- -----------------------------------------------------------------------------------------------------------------------------
LIABILITIES IN EXCESS OF OTHER ASSETS (25.6) (82,701,609)
------------ ------------
NET ASSETS 100.0% $323,625,525
------------ ------------
------------ ------------
<FN>
1. When-issued security to be delivered and settled after June 30, 1995.
2. Represents the current interest rate for a variable rate bond. Variable
rate bonds known as "inverse floaters" pay interest at a rate that varies
inversely with short-term interest rates. As interest rates rise, inverse
floaters produce less current income. Their price may be more volatile than
the price of a comparable fixed-rate security. Inverse floaters amount to
$1,426,905 or 0.4% of the Fund's net assets, at June 30, 1995.
3. Interest-Only Strips represent the right to receive the monthly interest
payments on an underlying pool of mortgage loans. These securities
typically decline in price as interest rates decline. Most other
fixed-income securities increase in price when interest rates decline. The
principal amount of the underlying pool represents the notional amount on
which current interest is calculated. The price of these securities is
typically more sensitive to changes in prepayment rates than traditional
mortgage-backed securities (for example, GNMA pass-throughs). Interest
rates represent effective yield as of June 30, 1995.
4. 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 represent effective yield as of June 30, 1995.
</TABLE>
See accompanying Notes to Financial Statements.
7 Oppenheimer U.S. Government Trust
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1995
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS Investments, at value (cost $397,253,863)--see accompanying statement $406,327,134
-----------------------------------------------------------------------------------------------------------
Receivables:
Investments sold 346,867
Interest and principal paydowns 3,403,235
Shares of beneficial interest sold 178,525
-----------------------------------------------------------------------------------------------------------
Other 26,571
------------
Total assets 410,282,332
- -----------------------------------------------------------------------------------------------------------------------------
LIABILITIES Bank overdraft 511,740
-----------------------------------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased on a when-issued basis 84,306,946
Shares of beneficial interest redeemed 985,255
Dividends 480,932
Distribution and service plan fees--Note 4 192,504
Transfer and shareholder servicing agent fees--Note 4 23,977
Trustees' fees 120,007
Other 35,446
------------
Total liabilities 86,656,807
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS $323,625,525
------------
------------
- -----------------------------------------------------------------------------------------------------------------------------
COMPOSITION OF Paid-in capital $333,516,056
NET ASSETS -----------------------------------------------------------------------------------------------------------
Undistributed net investment income 87,075
-----------------------------------------------------------------------------------------------------------
Accumulated net realized loss from investment and written option transactions (19,050,877)
-----------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments--Note 3 9,073,271
------------
Net assets $323,625,525
------------
------------
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE Class A Shares:
PER SHARE Net asset value and redemption price per share (based on net assets
of $312,606,704 and 32,870,814 shares of beneficial interest outstanding) $9.51
Maximum offering price per share (net asset value plus sales charge
of 4.75% of offering price) $9.98
-----------------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price and offering price per share (based on net assets
of $11,018,821 and 1,159,733 shares of beneficial interest outstanding) $9.50
</TABLE>
See accompanying Notes to Financial Statements.
8 Oppenheimer U.S. Government Trust
<PAGE>
STATEMENT OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME Interest $26,384,907
- -----------------------------------------------------------------------------------------------------------------------------
EXPENSES Management fees--Note 4 1,980,189
----------------------------------------------------------------------------------------------------
Distribution and service plan fees:
Class A--Note 4 737,801
Class C--Note 4 65,084
----------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 4 347,882
----------------------------------------------------------------------------------------------------
Shareholder reports 144,824
----------------------------------------------------------------------------------------------------
Legal and auditing fees 53,814
----------------------------------------------------------------------------------------------------
Custodian fees and expenses 47,249
----------------------------------------------------------------------------------------------------
Trustees' fees and expenses 40,121
----------------------------------------------------------------------------------------------------
Registration and filing fees:
Class A 1,587
Class C 2,309
----------------------------------------------------------------------------------------------------
Other 58,846
-----------
Total expenses 3,479,706
- -----------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 22,905,201
- -----------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED Net realized gain on:
GAIN ON INVESTMENTS Investments 1,903,530
Closing and expiration of option contracts written--Note 5 276,563
-----------
Net realized gain 2,180,093
----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on investments 8,115,444
-----------
Net realized and unrealized gain on investments and options written 10,295,537
- -----------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
$33,200,738
-----------
</TABLE>
See accompanying Notes to Financial Statements.
9 Oppenheimer U.S. Government Trust
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS Net investment income $ 22,905,201 $ 23,618,222
-----------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and options written 2,180,093 (11,210,170)
-----------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on investments 8,115,444 (15,469,786)
------------ ------------
Net increase (decrease) in net assets resulting from operations 33,200,738 (3,061,734)
- -----------------------------------------------------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income:
TO SHAREHOLDERS Class A ($.676 and $.634 per share, respectively) (22,498,787)
(21,966,741)
Class C ($.599 and $.329 per share, respectively) (416,947) (76,280)
- -----------------------------------------------------------------------------------------------------------------------------
Dividends in excess of net investment income:
Class A ($.012 per share) -- (418,629)
-----------------------------------------------------------------------------------------------
Tax return of capital distribution:
Class A ($.034 per share) -- (1,145,537)
- -----------------------------------------------------------------------------------------------------------------------------
BENEFICIAL INTEREST Net decrease in net assets resulting from Class A
TRANSACTIONS beneficial interest transactions--Note 2 (7,455,681) (44,398,318)
-----------------------------------------------------------------------------------------------
Net increase in net assets resulting from Class C
beneficial interest transactions--Note 2 6,508,757 4,438,932
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS Total increase (decrease) 9,338,080 (66,628,307)
-----------------------------------------------------------------------------------------------
Beginning of period 314,287,445 380,915,752
------------ ------------
End of period (including undistributed net investment
income of $86,547 and $149,269, respectively) $323,625,525 $314,287,445
------------ ------------
------------ ------------
</TABLE>
See accompanying Notes to Financial Statements.
10 Oppenheimer U.S. Government Trust
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------------------------------------
YEAR ENDED JUNE 30,
1995 1994 1993 1992 1991 1990 1989 1988 1987
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
<C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $9.20 $9.95 $9.73 $9.25 $9.24 $9.54 $9.59 $9.77 $10.17
- --------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .68 .67 .68 .69 .83 .90 .91 .90 .84
Net realized and unrealized gain (loss)
on investments and options written .31 (.74) .22 .48 .02 (.32) (.05) (.18) (.33)
----- ----- ----- ----- ----- ----- ----- ----- ------
Total income (loss) from investment
operations .99 (.07) .90 1.17 .85 .58 .86 .72 .51
- --------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions
to shareholders:
Dividends from net investment income (.68) (.64) (.68) (.69) (.84) (.88) (.91) (.90) (.85)
Dividends in excess of net
investment income -- (.01) -- -- -- -- -- -- --
Distributions from net realized gain
on investments and options written -- -- -- -- -- -- -- -- (.06)
Tax return of capital distribuiton -- (.03) -- -- -- -- -- -- --
----- ----- ----- ----- ----- ----- ----- ----- ------
Total dividends and distributions
to shareholders (.68) (.68) (.68) (.69) (.84) (.88) (.91) (.90) (.91)
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.51 $9.20 $9.95 $9.73 $9.25 $9.24 $9.54 $9.59 $9.77
----- ----- ----- ----- ----- ----- ----- ----- ------
----- ----- ----- ----- ----- ----- ----- ----- ------
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(3) 11.22% (1.17)% 9.55% 13.05% 9.53% 6.34%
9.51% 7.78% 5.54%
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $312,607 $310,027 $380,916 $395,863 $342,220 $264,728 $232,593 $203,857
$216,306
- --------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $307,306 $355,698 $401,789 $376,532 $299,144 $253,085 $210,060 $197,834
$207,557
- --------------------------------------------------------------------------------------------------------------------------------
Number of shares outstanding at
end of period (in thousands) 32,871 33,685 38,279 40,697 36,987 28,650 24,393 21,252
22,146
- --------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 7.32% 6.61% 6.90% 7.23% 8.93% 9.60% 9.65% 9.36%
8.73%
Expenses 1.09% 1.14% 1.17% 1.17% 1.19% 1.16% 1.19% 1.13%
.99%
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 303.5% 139.5% 96.8% 207.8% 133.9% 125.5% 76.9% 141.3%
263.0%
<FN>
1. For the period from December 1, 1993 (inception of offering) to June 30,
1994.
2. For the period from August 16, 1985 to June 30, 1986.
3. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption at
the net asset value calculated on the last business day of the fiscal
period. Sales charges are not reflected in the total returns. Total returns
are not annualized for periods of less than one full year.
4. Annualized.
5. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation. Purchases and sales of investment securities (excluding
short-term securities) for the period ended June 30, 1995 were
$1,035,761,462 and $1,044,224,644, respectively.
</TABLE>
See accompanying Notes to Financial Statements.
11 Oppenheimer U.S. Government Trust
<PAGE>
<TABLE>
<CAPTION>
CLASS A CLASS C
-------- -------------------
YEAR ENDED JUNE 30,
1986(2) 1995 1994(1)
- ----------------------------------------------------- -------------------
<S> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $10.00 $9.19 $9.83
- ----------------------------------------------------- ------------------
Income (loss) from investment operations:
Net investment income 94 61 .33
Net realized and unrealized gain (loss)
on investments and options written .38 .30 (.64)
------ ----- -----
Total income (loss) from investment
operations 1.32 .91 (.31)
- ----------------------------------------------------- ------------------
Dividends and distributions
to shareholders:
Dividends from net investment income (.93) (.60) (.33)
Dividends in excess of net
investment income -- -- --
Distributions from net realized gain
on investments and options written (.22) -- --
Tax return of capital distribuiton -- -- --
------ ----- -----
Total dividends and distributions
to shareholders (1.15) (.60) (.33)
- ------------------------------------------------------ ------------------
Net asset value, end of period $10.17 $9.50 $9.19
------ ----- -----
------ ----- -----
- ----------------------------------------------------- ------------------
TOTAL RETURN, AT NET ASSET VALUE(3) 14.95% 10.31% (3.12)%
- ----------------------------------------------------- ------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $160,389 $11,019 $4,261
- ---------------------------------------------------- --------------------
Average net assets (in thousands) $98,004 $6,503 $2,173
- ---------------------------------------------------- --------------------
Number of shares outstanding at
end of period (in thousands) 15,767 1,160 464
- ---------------------------------------------------- --------------------
Ratios to average net assets:
Net investment income 9.77%(4) 6.44% 5.97%(4)
Expenses .56%(4) 1.89% 1.96%(4)
- ----------------------------------------------------- --------------------
Portfolio turnover rate(5) 366.9% 303.5% 139.5%
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SIGNIFICANT Oppenheimer U.S. Government Trust (the Fund) is
ACCOUNTING POLICIES registered under the Investment Company Act of 1940, as
amended, as a diversified, open-end management
investment company. The Fund's investment advisor is
Oppenheimer Management Corporation (the Manager). The
Fund offers both Class A and Class C shares. Class A
shares are sold with a front-end sales charge. Class C
shares may be subject to a contingent deferred sales
charge. Both classes of shares have identical rights to
earnings, assets and voting privileges, except that
each class has its own distribution and/or service
plan, expenses directly attributable to a particular
class and exclusive voting rights with respect to
matters affecting a single class. The following is a
summary of significant accounting policies consistently
followed by the Fund.
-------------------------------------------------------
INVESTMENT VALUATION. Portfolio securities are valued
at the close of the New York Stock Exchange on each
trading day. Listed and unlisted securities for which
such information is regularly reported are valued at
the last sale price of the day or, in the absence of
sales, at values based on the closing bid or asked
price or the last sale price on the prior trading day.
Long-term and short-term ``non-money market'' debt
securities are valued by a portfolio pricing service
approved by the Board of Trustees. Such securities
which cannot be valued by the approved portfolio
pricing service are valued using dealer-supplied
valuations provided the Manager is satisfied that the
firm rendering the quotes is reliable and that the
quotes reflect current market value, or under
consistently applied procedures established by the
Board of Trustees to determine fair value in good
faith. Short-term "money market type" debt securities
having a remaining maturity of 60 days or less are
valued at cost (or last determined market value)
adjusted for amortization to maturity of any premium or
discount. Options are valued based upon the last sale
price on the principal exchange on which the option is
traded or, in the absence of any transactions that day,
the value is based upon the last sale price on the
prior trading date if it is within the spread between
the closing bid and asked prices. If the last sale
price is outside the spread, the closing bid or asked
price closest to the last reported sale price is used.
-------------------------------------------------------
SECURITIES PURCHASED ON A WHEN-ISSUED BASIS. Delivery
and payment for securities that have been purchased by
the Fund on a forward commitment or when-issued basis
can take place a month or more after the transaction
date. During this period, such securities do not earn
interest, are subject to market fluctuation and may
increase or decrease in value prior to their delivery.
The Fund maintains, in a segregated account with its
custodian, assets with a market value equal to the
amount of its purchase commitments. The purchase of
securities on a when-issued or forward commitment basis
may increase the volatility of the Fund's net asset
value to the extent the Fund makes such purchases while
remaining substantially fully invested. As of June 30,
1995, the Fund had entered into outstanding when-issued
or forward commitments of $84,306,946.
In connection with its ability to purchase
securities on a when-issued or forward commitment
basis, the Fund may enter into mortgage "dollar-rolls"
in which the Fund sells securities for delivery in the
current month and simultaneously contracts with the
same counterparty to repurchase similar (same type,
coupon and maturity) but not identical securities on a
specified future date. The Fund records each
dollar-roll as a sale and a new purchase transaction.
-------------------------------------------------------
ALLOCATION OF INCOME, EXPENSES AND GAINS AND LOSSES.
Income, expenses (other than those attributable to a
specific class) and gains and losses are allocated
daily to each class of shares based upon the relative
proportion of net assets represented by such class.
Operating expenses directly attributable to a specific
class are charged against the operations of that class.
-------------------------------------------------------
FEDERAL TAXES. The Fund intends to continue to comply
with provisions of the Internal Revenue Code applicable
to regulated investment companies and to distribute all
of its taxable income, including any net realized gain
on investments not offset by loss carryovers, to
shareholders. Therefore, no federal income or excise
tax provision is required. At June 30, 1995, the Fund
had available for federal income tax purposes an unused
capital loss carryover of approximately $19,188,000,
$137,000 of which will expire in 1997, $3,193,000 in
1998, $7,358,000 in 1999, $1,187,000 in 2002 and
$7,313,000 in 2003.
-------------------------------------------------------
TRUSTEES' FEES AND EXPENSES. The Fund has adopted a
nonfunded retirement plan for the Fund's independent
trustees. Benefits are based on years of service and
fees paid to each trustee during the years of service.
During the year ended June 30, 1995, the Fund's
projected benefit obligations were reduced by $12,061,
and a payment of $2,026 was made to a retired Trustee,
resulting in an accumulated liability of $107,913 at
June 30, 1995.
12 Oppenheimer U.S. Government Trust
<PAGE>
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING DISTRIBUTIONS TO SHAREHOLDERS. The Fund intends
POLICIES (CONTINUED) intends to declare dividends separately for Class A
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.
-----------------------------------------------------
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. 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 June 30, 1995, the Fund
changed the classification of distributions to
shareholders to better disclose the differences
between financial statement amounts and distributions
determined in accordance with income tax regulations.
Accordingly, during the year ended June 30, 1995,
amounts have been reclassified to reflect a decrease
in accumulated net realized loss on investments of
$66,251, a decrease in undistributed net investment
income of $51,661, and a decrease in paid-in capital
of $14,590.
-----------------------------------------------------
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 average life of the respective securities.
Realized gains and losses on investments and
unrealized appreciation and depreciation are
determined on an identified cost basis, which is the
same basis used for federal income tax purposes.
- --------------------------------------------------------------------------------
2. SHARES OF The Fund has authorized an unlimited number of no par
BENEFICIAL INTEREST value shares of beneficial interest of each class.
Transactions in shares of beneficial interest were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1995
YEAR ENDED JUNE 30, 1994(1)
- -------------------------------------------------------------------
SHARES AMOUNT
SHARES AMOUNT
- ------------------------------------------------------------------------------
- --------------
<S> <C> <C>
<C> <C>
Class A:
Sold 7,076,177
$65,369,039 6,237,904 $ 60,979,282
Dividends reinvested 1,868,269
17,288,287 1,913,674 18,566,281
Redeemed (9,758,134)
(90,113,007) (12,746,027) (123,943,881)
----------
- ----------- ----------- -------------
Net decrease (813,688)
$(7,455,681) (4,594,449) $ (44,398,318)
----------
- ----------- ----------- -------------
----------
- ----------- ----------- -------------
- ------------------------------------------------------------------------------
- -----------------
Class C:
Sold 1,086,358
$10,120,239 531,550 $ 5,070,299
Dividends reinvested 35,316
327,690 5,284 49,363
Redeemed (425,453)
(3,939,172) (73,322) (680,730)
----------
- ----------- ----------- -------------
Net increase 696,221
$6,508,757 463,512 $ 4,438,932
----------
- ----------- ----------- -------------
----------
- ----------- ----------- -------------
</TABLE>
1. For the year ended June 30, 1994 for Class A shares
and for the period from December 1, 1993 to June 30,
1994 for Class C shares.
- -------------------------------------------------------------------------------
3. UNREALIZED GAINS AND At June 30, 1995, net unrealized appreciation on
LOSSES ON INVESTMENTS investments of $9,073,271 was composed of gross
appreciation of $12,850,496, and gross depreciation of
$3,777,225.
- --------------------------------------------------------------------------------
4. MANAGEMENT FEES AND Management fees paid to the Manager were in accordance
OTHER TRANSACTIONS with the investment advisory agreement with the Fund
WITH AFFILIATES which provides for a fee of .65% of the first $200
million of average annual net assets of the Fund, .60%
of the next $100 million, .57% of the next $100
million, .55% of the next $400 million and .50% of net
assets in excess of $800 million. The Manager
voluntarily reduced the management fees to the current
levels. Prior to January 3, 1995, management fees were
as follows: .75% of the first $200 million of average
annual net assets, .70% of the next $200 million, .65%
of the next $400 million and .60% of net assets in
excess of $800 million. The Manager has agreed to
reimburse the Fund if aggregate expenses (with
specified exceptions) exceed the most stringent state
regulatory limit on Fund expenses.
13 Oppenheimer U.S. Government Trust
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
4. MANAGEMENT FEES AND For the year ended June 30, 1995, commissions (sales
OTHER TRANSACTIONS charges paid by investors) on sales of Class A shares
WITH AFFILIATES totaled $582,157, of which $169,246 was retained by
(CONTINUED) Oppenheimer Funds Distributor, Inc. (OFDI), a
subsidiary of the Manager, as general distributor, and
by an affiliated broker/dealer. Sales charges advanced
to broker/dealers by OFDI on sales of the Fund's Class
B shares totaled $76,562, of which $4,633 was paid to
an affiliated broker/dealer. During the period ended
June 30, 1995, OFDI received contingent deferred sales
charges of $9,578 upon redemption of Class C shares.
Oppenheimer Shareholder Services (OSS), a
division of the Manager, is the transfer and
shareholder servicing agent for the Fund, and for other
registered investment companies. OSS's total costs of
providing such services are allocated ratably to these
companies.
Under separate approved plans, each class may
expend up to 25% of its net assets annually to
reimburse OFDI for costs incurred in connection with
the personal service and maintenance of accounts that
hold shares of the Fund, including amounts paid to
brokers, dealers, banks and other financial
institutions. In addition, Class C shares are subject
to an asset-based sales charge of .75% of net assets
annually, to reimburse OFDI for sales commissions paid
from its own resources at the time of sale and
associated financing costs. In the event of termination
or discontinuance of the Class C plan, the Board of
Trustees may allow the Fund to continue payment of the
asset-based sales charge to OFDI for distribution
expenses incurred on Class C shares sold prior to
termination or discontinuance of the plan. During the
year ended June 30, 1995, OFDI paid $53,292 and $2,782
to an affiliated broker/dealer as reimbursement for
Class A and Class C personal service and maintenance
expenses, respectively, and retained $58,050 as
reimbursement for Class C sales commissions and service
fee advances, as well as financing costs.
- --------------------------------------------------------------------------------
5. OPTION ACTIVITY The Fund may buy and sell put and call options, or
write covered put and call options on portfolio
securities in order to produce incremental earnings or
protect against changes in the value of portfolio
securities.
The Fund generally purchases put options or
writes covered call options to hedge against adverse
movements in the value of portfolio holdings. When an
option is written, the Fund receives a premium and
becomes obligated to sell or purchase the underlying
security at a fixed price, upon exercise of the option.
Options are valued daily based upon the last
sale price on the principal exchange on which the
option is traded and unrealized appreciation or
depreciation is recorded. The Fund will realize a gain
or loss upon the expiration or closing of the option
transaction. When an option is exercised, the proceeds
on sales for a written call option, the purchase cost
for a written put option, or the cost of the security
for a purchased put or call option is adjusted by the
amount of premium received or paid.
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 June 30,
1995 was as follows:
<TABLE>
<CAPTION>
CALL OPTIONS
PUT OPTIONS
- ----------------------------- -----------------------------
NUMBER
AMOUNT OF NUMBER
AMOUNT OF
OF OPTIONS
PREMIUMS OF OPTIONS
PREMIUMS
- ------------------------------------------------------------------------------
- --------------------------
<S> <C>
<C> <C> <C>
Options outstanding at June 30, 1994 30,000
$290,625 80,000 $248,438
- ------------------------------------------------------------------------------
- --------------------------
Options closed (30,000)
(290,625) (80,000) (248,438)
-------
-------- ------- --------
Options outstanding at June 30, 1995 --
$ -- -- $ --
-------
-------- ------- --------
-------
-------- ------- --------
</TABLE>
14 Oppenheimer U.S. Government Trust
<PAGE>
- --------------------------------------------------------------------------------
6. ACQUISITION OF On July 27, 1995, the Fund acquired all of the net
OPPENHEIMER assets of Oppenheimer Mortgage Income Fund, pursuant
MORTGAGE to an Agreement and Plan of Reorganization approved by
INCOME FUND the Oppenheimer Mortgage Income Fund shareholders on
July 12, 1995. The Fund issued 8,262,838 and 683,099
shares of beneficial interest for Class A and Class B,
respectively, valued at $77,918,563 and $6,434,794 in
exchange for the net assets, resulting in combined
Class A net assets of $385,440,401 and Class B net
assets of $6,806,465 on July 27, 1995. The exchange
qualifies as a tax-free reorganization for federal
income tax purposes.
- --------------------------------------------------------------------------------
7. 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.
Risks of entering into futures contracts (and
related options) include the possibility that there may
be an illiquid market and that a change in the value of
the contract or option may not correlate with changes
in the value of the underlying securities.
<PAGE>
Appendix A
Description of Securities Ratings
Description of Standard & Poor's Corporation ("Standard & Poor's") and
Moody's Investors Service, Inc. ("Moody's") bond ratings:
Standard & Poor's describes its four highest ratings for corporate debt
as follows:
AAA: Debt rated "AAA" has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely
strong.
AA: Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differ from the higher rated issues only in a small
degree.
A: Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
debt in higher rated categories.
BBB: Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal.
Whereas it normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
The ratings from AA to CCC may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
Moody's describes its four highest corporate bond ratings as follows:
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in
Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes
and may be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate
but elements may be present which suggest a susceptibility to
impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate
for the present but certain protective elements may be lacking or
may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact
have speculative characteristics as well.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the
higher end of its generic rating category; the modifier 2 indicates a mid-
range ranking; and the modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.
<PAGE>
Appendix B
Industry Classifications
Aerospace/Defense
Air Transportation
Auto Parts Distribution
Automotive
Bank Holding Companies
Banks
Beverages
Broadcasting
Broker-Dealers
Building Materials
Cable Television
Chemicals
Commercial Finance
Computer Hardware
Computer Software
Conglomerates
Consumer Finance
Containers
Convenience Stores
Department Stores
Diversified Financial
Diversified Media
Drug Stores
Drug Wholesalers
Durable Household Goods
Education
Electric Utilities*
Electrical Equipment
Electronics
Energy Services & Producers
Entertainment/Film
Environmental
Food
Gas Utilities*
Gold
Health Care/Drugs
Health Care/Supplies & Services
Homebuilders/Real Estate
Hotel/Gaming
Industrial Services
Insurance
Leasing & Factoring
Leisure
Manufacturing
Metals/Mining
Nondurable Household Goods
Oil - Integrated
Paper
Publishing/Printing
Railroads
Restaurants
Savings & Loans
Shipping
Special Purpose Financial
Specialty Retailing
Steel
Supermarkets
Telecommunications - Technology
Telephone - Utility*
Textile/Apparel
Tobacco
Toys
Trucking
___________________
* For purposes of the Fund's investment policy not to concentrate in
securities of issuers in the same industry, utilities are divided into
"industries" according to their services (e.g., gas utilities, gas
transmission utilities, electric utilities and telephone utilities are
each considered a separate industry)
<PAGE>
Investment Adviser
Oppenheimer Management Corporation
Two World Trade Center
New York, New York 10048-0203
Distributor
Oppenheimer Funds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer and Shareholder Servicing Agent
Oppenheimer Shareholder Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian of Portfolio Securities
Citibank, N.A.
399 Park Avenue
New York, New York 10043
Independent Auditors
KPMG Peat Marwick LLP
707 Seventeenth Street
Denver, Colorado 80202
Legal Counsel
Gordon Altman Butowsky Weitzen Shalov & Wein
114 West 47th Street
New York, New York 10036
<PAGE>
OPPENHEIMER U.S. GOVERNMENT TRUST
Annual Report June 30, 1995
[PHOTO OF MAN]
"We need
monthly
INCOME,
and we
need to feel
COMFORTABLE
about how
our money
is invested."
[OPPENHEIMER FUNDS LOGO]
<PAGE>
YIELD
STANDARDIZED YIELD(3)
For the 30 Days Ended 6/30/95:
Class A
6.17%
Class C
5.59%
This Fund is for people who want monthly INCOME and feel SECURE with a fund
investing primarily in bonds backed by the U.S. government, its agencies and
instrumentalities.
HOW YOUR FUND IS MANAGED
Oppenheimer U.S. Government Trust seeks high current income and safety of
principal by investing primarily in a portfolio of fixed income securities
issued or guaranteed by the U.S. government, its agencies and instrumentalities.
While an investment in the Fund is neither insured nor guaranteed and its shares
fluctuate in value, the fact that most of the securities in the Fund's portfolio
are government-backed means investors enjoy superior credit safety and assurance
of timely payment to the Fund of principal and interest on those securities.
In addition, the Fund is also designed to provide higher income than more
conservative fixed income investments.
PERFORMANCE
Total return at net asset value for the 12 months ended 6/30/95 was 11.22% for
Class A shares and 10.31% for Class C shares.(1)
Your Fund's average annual total returns at maximum offering price for Class A
shares for the 1- and 5-year periods ended 6/30/95 and since inception of the
Class on 8/16/85 were 5.94%, 7.27% and 8.00%, respectively. For Class C shares,
average annual total returns for the 1-year period ended 6/30/95 and since
inception of the Class on 12/1/93 were 9.31% and 4.22%, respectively.(2)
OUTLOOK
"Our policy now is to remain defensive, but to carefully watch technical
factors--such as changing relationships between bond yields and maturities--so
we can take advantage of what we believe are the best relative values in the
market."
David Rosenberg, Portfolio Manager
June 30, 1995
All figures assume reinvestment of dividends and capital gains distributions.
Past performance is not indicative of future results investment and principal
value on an investment in the Fund will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than the original cost.
1. Based on the change in net asset value per share for the period shown,
without deducting any sales charges. Such performance would have been lower if
sales charges were taken into account.
2. Class A returns show results of hypothetical investments on 6/30/94, 6/30/90
and 8/16/85 (inception of class), after deducting the current maximum initial
sales charge of 4.75%. Class C returns show results of hypothetical investments
on 6/30/94 and 12/1/93 (inception of class), with the 1% contingent deferred
sales charge deducted for the 1-year result. The Fund's maximum sales charge
rate for Class A shares was higher during a portion of some of the periods
shown, and actual investment results will be different as a result of the
change. An explanation of the different performance calculations is in the
Fund's prospectus.
3. Standardized yield is net investment income calculated on a yield-to-maturity
basis for the 30-day period ended 6/30/95, divided by the maximum offering price
at the end of the period, compounded semiannually and then annualized. Falling
net asset values will tend to artificially raise yields.
2 Oppenheimer U.S. Government Trust
<PAGE>
[PHOTO OF DONALD W. SPIRO]
Donald W. Spiro
President
Oppenheimer
U.S. Government Trust
[PHOTO OF JON S. FOSSEL]
Jon S. Fossel
Chairman and CEO
Oppenheimer
Management
Corporation
DEAR OPPENHEIMERFUNDS SHAREHOLDER,
In contrast to last year, the first half of 1995 has been exceptionally good for
the bond market. Almost all types of bonds have participated in the upswing
and, in many cases, have more than made up for last year's declines in the first
half alone--rewarding investors who were patient through the market's short-term
difficulties. The strength of the current market adds to evidence showing,
once again, that profitable investing calls for a long-term perspective.
The single most important factor behind the bond rally was a change in the
Federal Reserve's monetary policy. Between February 1994 and February 1995, the
Fed raised rates aggressively to preempt possible rising inflation by slowing
the economy to a more moderate growth rate--thus prolonging the current cycle of
economic growth. As evidence began to mount that indicated the economy was
indeed slowing, the Fed stopped raising rates. Indications now are that the
desired slowdown, or "soft landing" you may have read about, has been achieved.
This has allowed rates to decline considerably, which in turn pushed bond prices
up dramatically.
While a near perfect landing is unlikely, our expectation going forward is
that with the current fundamentals in place, we will continue to experience
moderate, sustainable growth with relatively low inflation.
We believe the Fed will not feel pressure to tighten monetary policy in the
near term. Still, until the full extent of the economic slowdown is known, some
questions remain. Signs of economic pickup later this year could motivate the
Fed to raise rates again to combat potential inflation. The more likely
scenario, however, is that the Fed might actually lower rates during the second
half if the economy slows too much.
In light of the uncertainties in the market, your Fund's managers remain
cautious with an eye toward opportunity, so we're positioning investments
somewhat defensively at this time. The bond markets have performed very well
and we don't want to give back the gains the Fund has made. Thus, your Fund's
managers continue to focus on the income potential of bonds, because this area
has contributed most significantly and predictably to performance over time.
Oppenheimer Management's fixed income investment team will continue to
monitor the economy and market conditions going forward to keep ahead of
significant events. We believe a conservative stance and an income orientation
in addition to this year's strong capital appreciation justify a positive
outlook for fixed income investments across the board.
Your portfolio manager discusses the outlook for your Fund on the following
pages. Thank you for your confidence in OppenheimerFunds, and we look forward
to helping you continue to reach your investment goals in the future.
/s/ Donald W. Spiro /s/ Jon S. Fossel
Donald W. Spiro Jon S. Fossel
July 24, 1995
3 Oppenheimer U.S. Government Trust
<PAGE>
Q + A
[PHOTO OF MAN]
[PHOTO OF MAN]
Q What contributed to the Fund's superior PERFORMANCE?
An interview with your Fund's manager.
THE BOND MARKET HAS REBOUNDED STRONGLY IN THE FIRST HALF OF 1995
FOLLOWING A
DIFFICULT PERIOD LAST YEAR. WHAT IMPACT HAS THIS HAD ON YOUR
MANAGEMENT OF
U.S. GOVERNMENT TRUST?
Over the period, the Fund met its objectives of providing attractive income with
relatively low risk extremely well. And while we're very happy to report that
the Fund is up 11% for the period, as a defensive investment, it was just as
important to us to continue meeting our goals of providing competitive income
with relatively low price volatility as it was to try to take advantage of the
full extent of the rally.
[PHOTO OF TWO MEN]
LONGER-TERM, THE FUND IS RATED ABOVE MOST OF ITS PEERS. WHAT HAS
CONTRIBUTED TO
U.S. GOVERNMENT TRUST'S SUPERIOR PERFORMANCE?
Our government funds are designed to offer good downside protection and
attractive income on the upside. And over the long run, we've been very
successful. During last year's difficult market, for example, we lost only 1%.
Compared to competitive funds, our consistent, conservative approach has placed
us in the top half of government funds measured by Lipper Analytical Services
for the 3-, 5- and 10-year periods ended June 30, 1995.(1)
YOUR AVERAGE DURATION, OR SENSITIVITY TO INTEREST RATE CHANGES, IS
RELATIVELY
LOW. WHY?
Shareholders typically invest in government funds like this one because they're
looking for a defensive investment. We feel that we can meet expectations for
income and stability without taking on additional interest rate risk or
stretching for the highest yields. Although investments with high duration
appreciated the most during the bond market's recent rally, they are
(1) Source: Lipper Analytical Services. The Lipper total return average for the
3-, 5- and 10-year periods were for 96, 79 and 23 general U.S. government funds.
The average is shown for comparative purposes only Oppenheimer U.S. Government
Trust is characterized by Lipper as a general U.S. government fund. Lipper
performance does not take sales charges into consideration.
4 Oppenheimer U.S. Government Trust
<PAGE>
FACING PAGE
Top left: David Rosenberg
Portfolio Manager
Top right: Art Steinmetz, Senior
VP Fixed Income Investments
Portfolio Management Team
Bottom left: Len Darling, Executive
VP Director of Fixed Income Invest-
ments, consults with Jon Fossel
THIS PAGE:
Right: David Rosenberg with
Gina Palmeri, Mortgage Analyst
Below: Eva Zeff, Assistant VP
Fixed Income Investments
Portfolio Management Team
A Our CONSISTENT conservative approach.
also more exposed to risk should interest rates reverse.
WHAT CHANGES HAVE YOU MADE TO THE PORTFOLIO?
We've added a position in adjustable rate mortgages to the portfolio, believing
that they offer prospects for increasing short-term yields with low risk.
In addition, we're employing a barbell strategy with Treasuries--we're
holding a combination of very short and very long Treasuries to get intermediate
exposure on average, but also to take advantage of the flattening of the yield
curve.
Finally, we've reduced our fixed-rate mortgage-backed securities and, with
a level of uncertainty in interest rates, we feel that prepayment risk in this
market has increased.(1)
[PHOTO OF WOMAN]
WHAT IS YOUR OUTLOOK FOR THE GOVERNMENT BOND MARKET AND HOW WILL
YOU POSITION
THE FUND IN LIGHT OF YOUR VIEWS?
We believe the market is currently priced as though the Fed will lower rates in
the near future. We feel that with the rally having come as far as it has, it's
now prudent to be conservative. Any increase in business activity could push
inflation higher, so we don't want to be overextended.
Our policy now is to remain defensive, but to carefully watch technical
factors--such as changing relationships between bond yields and maturities--so
we can take advantage of what we believe are the best relative values in the
market.
[PHOTO OF MAN]
(1) The Fund's portfolio is subject to change.
5 Oppenheimer U.S. Government Trust
<PAGE>
STATEMENT OF INVESTMENTS JUNE 30, 1995
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT SEE NOTE 1
- ------------------------------------------------------------------------------
- ----------------------------------------
- --------
MORTGAGE-BACKED OBLIGATIONS--108.8%
- ------------------------------------------------------------------------------
- ----------------------------------------
- --------
GOVERNMENT AGENCY--106.2%
- ------------------------------------------------------------------------------
- ----------------------------------------
- --------
<S>
<C> <C>
FHLMC/FNMA/ Federal Home Loan Mortgage Corp.:
SPONSORED--62.0% Collateralized Mtg. Obligations, Gtd. Multiclass Mtg.
Participation
Certificates, 10%, 6/15/20
$ 5,511,000 $ 6,203,456
Collateralized Mtg. Obligations, Gtd. Multiclass Mtg.
Participation
Certificates, 14%, 1/1/11
596,715 686,059
Collateralized Mtg. Obligations, Gtd. Multiclass Mtg.
Participation
Certificates, 6.65%, 4/15/21
10,750,000 10,544,996
Collateralized Mtg. Obligations, Gtd. Multiclass Mtg.
Participation
Certificates, 6.80%, 3/15/16
15,000,000 15,083,400
Collateralized Mtg. Obligations, Gtd. Multiclass Mtg.
Participation
Certificates, 8.50%, 10/15/19
2,476,908 2,526,843
Collateralized Mtg. Obligations, Gtd. Multiclass Mtg.
Participation
Certificates, 9%, 7/15/21
2,815,075 2,887,676
Gtd. Multiclass Mtg. Participation Certificates, 11.50%, 6/1/20
1,966,543
2,250,463
Gtd. Multiclass Mtg. Participation Certificates, 13%, 8/1/15
3,000,000
3,537,188
Multiclass Gtd. Mtg. Participation Certificates, Series 1455,
7.50%, 12/15/22
5,000,000 5,068,750
- ------------------------------------------------------------------------------
- -------------------------------
Federal National Mortgage Assn.: 7%, 7/15/25(1)
20,000,000
19,681,259
Collateralized Mtg. Obligations, Gtd. Real Estate Mtg.
Investment Conduit
Pass-Through Certificates, 10.50%, 11/25/20
10,000,000
11,497,800
Collateralized Mtg. Obligations, Gtd. Real Estate Mtg.
Investment Conduit
Pass-Through Certificates, 13%, 11/1/12
233,504
266,974
Collateralized Mtg. Obligations, Gtd. Real Estate Mtg.
Investment Conduit
Pass-Through Certificates, 7%, 12/25/21
29,617,000
28,827,704
Collateralized Mtg. Obligations, Gtd. Real Estate Mtg.
Investment Conduit
Pass-Through Certificates, 8%, 12/1/22
3,361,862
3,440,008
Collateralized Mtg. Obligations, Gtd. Real Estate Mtg.
Investment Conduit
Pass-Through Certificates, 8%, 3/25/01
11,567,293
11,602,690
Collateralized Mtg. Obligations, Gtd. Real Estate Mtg.
Investment Conduit
Pass-Through Certificates, 8.75%, 11/25/05
4,000,000
4,280,400
Collateralized Mtg. Obligations, Gtd. Real Estate Mtg.
Investment Conduit
Pass-Through Certificates, 8.75%, 12/25/20
18,500,000
19,648,665
Collateralized Mtg. Obligations, Gtd. Real Estate Mtg.
Investment Conduit
Pass-Through Certificates, 9%, 7/1/21
1,764,448
1,847,950
Gtd. Mtg. Pass-Through Certificates, 12%, 4/1/19
2,000,000
2,305,000
Gtd. Real Estate Mtg. Investment Conduit Pass-Through
Certificates, 8%, 7/25/19
18,000,000 18,725,938
Gtd. Real Estate Mtg. Investment Conduit Pass-Through
Certificates,
Trust 1992-112, 4%, 12/25/20
3,000,000 2,537,991
Gtd. Real Estate Mtg. Investment Conduit Pass-Through
Certificates,
Trust 1993-87, Inverse Floater, 4.933%, 6/25/23 (coupon
inversely
indexed to 1-month US LIBOR, multiplied by 1.857)(2)
2,199,998
1,426,905
Interest-Only Stripped Mtg.-Backed Security, Trust 222,
8.19-10.03%, 6/25/23(3)
47,590,613 14,701,038
Interest-Only Stripped Mtg.-Backed Security, Trust 240,
7.84-8.74%, 9/25/23(3)
32,938,214 10,416,711
Principal-Only Stripped Mtg.-Backed Security, Series 1993-253,
Zero Coupon, 10.01% 11/25/23(4)
1,000,028
663,535
------------
200,659,399
</TABLE>
6 Oppenheimer U.S. Government Trust
<PAGE>
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT SEE NOTE 1
- ------------------------------------------------------------------------------
- ----------------------------------------
- --------
<S>
<C> <C>
GNMA/GUARANTEED--44.2% Government National Mortgage Assn.:
10%, 6/15/16--8/15/17
$ 2,823,084 $ 3,090,242
10.50%, 11/15/16--5/15/21
11,078,973 12,300,278
11%, 7/20/20
221,995 245,120
6.50%, 8/15/25(1)
63,000,000 63,826,875
7.50%, 3/15/23
41,194,649 41,511,228
8%, 4/15/22--8/15/24
21,381,336 21,933,532
------------
142,907,275
- ------------------------------------------------------------------------------
- ----------------------------------------
- -------
PRIVATE--2.6%
- ------------------------------------------------------------------------------
- ----------------------------------------
- -------
MULTI-FAMILY--2.6% Resolution Trust Corp., Commercial Mtg.
Pass-Through
Certificates,
Series 1991-M5, Cl. A, 9%, 3/25/17
5,001,065
5,233,928
- ------------------------------------------------------------------------------
- ---------------
Resolution Trust Corp., Commercial Mtg.
Pass-Through Certificates,
Series 1995-C1, Cl. D, 6.90%, 2/25/27
3,600,000
3,328,875
------------
8,562,803
------------
Total Mortgage-Backed Obligations (Cost
$345,269,392)
352,129,477
- ------------------------------------------------------------------------------
- ----------------------------------------
- -------
U.S. GOVERNMENT OBLIGATIONS--16.8%
- ------------------------------------------------------------------------------
- ----------------------------------------
- -------
TREASURY--16.8% U.S. Treasury Bonds, 7.625%, 11/15/22
12,000,000 13,402,500
- ------------------------------------------------------------------------------
- ---------------
U.S. Treasury Bonds, 8.125%, 8/15/19
15,643,000
18,253,426
- ------------------------------------------------------------------------------
- ---------------
U.S. Treasury Bonds, 8.875%, 8/15/17
3,000,000
3,748,125
- ------------------------------------------------------------------------------
- ---------------
U.S. Treasury Bonds, 11.625%, 11/15/04
3,500,000
4,813,592
- ------------------------------------------------------------------------------
- ---------------
U.S. Treasury Nts., 8%, 10/15/96
13,610,000
13,980,014
------------
Total U.S. Government Obligations (Cost
$51,984,471)
54,197,657
- ------------------------------------------------------------------------------
- ----------------------------------------
- -------
TOTAL INVESTMENTS, AT VALUE (COST $397,253,863)
125.6% 406,327,134
- ------------------------------------------------------------------------------
- ----------------------------------------
- -------
LIABILITIES IN EXCESS OF OTHER ASSETS
(25.6)
(82,701,609)
------------ ------------
NET ASSETS
100.0% $323,625,525
------------ ------------
------------ ------------
<FN>
1. When-issued security to be delivered and settled after June 30, 1995.
2. Represents the current interest rate for a variable rate bond. Variable
rate bonds known as "inverse floaters" pay interest at a rate that varies
inversely with short-term interest rates. As interest rates rise, inverse
floaters produce less current income. Their price may be more volatile than
the price of a comparable fixed-rate security. Inverse floaters amount to
$1,426,905 or 0.4% of the Fund's net assets, at June 30, 1995.
3. Interest-Only Strips represent the right to receive the monthly interest
payments on an underlying pool of mortgage loans. These securities
typically decline in price as interest rates decline. Most other
fixed-income securities increase in price when interest rates decline. The
principal amount of the underlying pool represents the notional amount on
which current interest is calculated. The price of these securities is
typically more sensitive to changes in prepayment rates than traditional
mortgage-backed securities (for example, GNMA pass-throughs). Interest
rates represent effective yield as of June 30, 1995.
4. 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 represent effective yield as of June 30, 1995.
</TABLE>
See accompanying Notes to Financial Statements.
7 Oppenheimer U.S. Government Trust
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1995
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
- ----------------------------------------
- -------
<S>
<C>
ASSETS Investments, at value (cost $397,253,863)--see accompanying
statement
$406,327,134
- ------------------------------------------------------------------------------
- -----------------------------
Receivables:
Investments sold
346,867
Interest and principal paydowns
3,403,235
Shares of beneficial interest sold
178,525
- ------------------------------------------------------------------------------
- -----------------------------
Other
26,571
------------
Total assets
410,282,332
- ------------------------------------------------------------------------------
- ----------------------------------------
- -------
LIABILITIES Bank overdraft
511,740
- ------------------------------------------------------------------------------
- -----------------------------
Payables and other liabilities:
Investments purchased on a when-issued basis
84,306,946
Shares of beneficial interest redeemed
985,255
Dividends
480,932
Distribution and service plan fees--Note 4
192,504
Transfer and shareholder servicing agent fees--Note 4
23,977
Trustees' fees
120,007
Other
35,446
------------
Total liabilities
86,656,807
- ------------------------------------------------------------------------------
- ----------------------------------------
- -------
NET ASSETS
$323,625,525
------------
------------
- ------------------------------------------------------------------------------
- ----------------------------------------
- -------
COMPOSITION OF Paid-in capital
$333,516,056
NET ASSETS
- ------------------------------------------------------------------------------
- -----------------------------
Undistributed net investment income
87,075
- ------------------------------------------------------------------------------
- -----------------------------
Accumulated net realized loss from investment and written
option transactions
(19,050,877)
- ------------------------------------------------------------------------------
- -----------------------------
Net unrealized appreciation on investments--Note 3
9,073,271
------------
Net assets
$323,625,525
------------
------------
- ------------------------------------------------------------------------------
- ----------------------------------------
- -------
NET ASSET VALUE Class A Shares:
PER SHARE Net asset value and redemption price per share (based on net
assets
of $312,606,704 and 32,870,814 shares of beneficial interest
outstanding)
$9.51
Maximum offering price per share (net asset value plus sales
charge
of 4.75% of offering price)
$9.98
- ------------------------------------------------------------------------------
- -----------------------------
Class C Shares:
Net asset value, redemption price and offering price per share
(based on net assets
of $11,018,821 and 1,159,733 shares of beneficial interest
outstanding)
$9.50
</TABLE>
See accompanying Notes to Financial Statements.
8 Oppenheimer U.S. Government Trust
<PAGE>
STATEMENT OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
- ----------------------------------------
- -------
<S>
<C>
INVESTMENT INCOME Interest
$26,384,907
- ------------------------------------------------------------------------------
- ----------------------------------------
- -------
EXPENSES Management fees--Note 4
1,980,189
- ------------------------------------------------------------------------------
- ----------------------
Distribution and service plan fees:
Class A--Note 4
737,801
Class C--Note 4
65,084
- ------------------------------------------------------------------------------
- ----------------------
Transfer and shareholder servicing agent fees--Note 4
347,882
- ------------------------------------------------------------------------------
- ----------------------
Shareholder reports
144,824
- ------------------------------------------------------------------------------
- ----------------------
Legal and auditing fees
53,814
- ------------------------------------------------------------------------------
- ----------------------
Custodian fees and expenses
47,249
- ------------------------------------------------------------------------------
- ----------------------
Trustees' fees and expenses
40,121
- ------------------------------------------------------------------------------
- ----------------------
Registration and filing fees:
Class A
1,587
Class C
2,309
- ------------------------------------------------------------------------------
- ----------------------
Other
58,846
-----------
Total expenses
3,479,706
- ------------------------------------------------------------------------------
- ----------------------------------------
- -------
NET INVESTMENT INCOME
22,905,201
- ------------------------------------------------------------------------------
- ----------------------------------------
- -------
REALIZED AND UNREALIZED Net realized gain on:
GAIN ON INVESTMENTS Investments
1,903,530
Closing and expiration of option contracts written--Note
5
276,563
-----------
Net realized gain
2,180,093
- ------------------------------------------------------------------------------
- ----------------------
Net change in unrealized appreciation or depreciation
on investments
8,115,444
-----------
Net realized and unrealized gain on investments and options written
10,295,537
- ------------------------------------------------------------------------------
- ----------------------------------------
- -------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
$33,200,738
-----------
</TABLE>
See accompanying Notes to Financial Statements.
9 Oppenheimer U.S. Government Trust
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1995 1994
- ------------------------------------------------------------------------------
- ----------------------------------------
- -------
<S>
<C> <C>
OPERATIONS Net investment income
$ 22,905,201 $
23,618,222
- ------------------------------------------------------------------------------
- -----------------
Net realized gain (loss) on investments and options
written 2,180,093
(11,210,170)
- ------------------------------------------------------------------------------
- -----------------
Net change in unrealized appreciation or
depreciation on investments 8,115,444
(15,469,786)
------------ ------------
Net increase (decrease) in net assets resulting
from operations 33,200,738
(3,061,734)
- ------------------------------------------------------------------------------
- ----------------------------------------
- -------
DIVIDENDS AND DISTRIBUTIONS Dividends from net investment income:
TO SHAREHOLDERS Class A ($.676 and $.634 per share, respectively)
(22,498,787) (21,966,741)
Class C ($.599 and $.329 per share, respectively)
(416,947)
(76,280)
- ------------------------------------------------------------------------------
- ----------------------------------------
- -------
Dividends in excess of net investment income:
Class A ($.012 per share)
-- (418,629)
- ------------------------------------------------------------------------------
- -----------------
Tax return of capital distribution:
Class A ($.034 per share)
-- (1,145,537)
- ------------------------------------------------------------------------------
- ----------------------------------------
- -------
BENEFICIAL INTEREST Net decrease in net assets resulting from Class A
TRANSACTIONS beneficial interest transactions--Note 2
(7,455,681)
(44,398,318)
- ------------------------------------------------------------------------------
- -----------------
Net increase in net assets resulting from Class C
beneficial interest transactions--Note 2
6,508,757 4,438,932
- ------------------------------------------------------------------------------
- ----------------------------------------
- -------
NET ASSETS Total increase (decrease)
9,338,080
(66,628,307)
- ------------------------------------------------------------------------------
- -----------------
Beginning of period
314,287,445 380,915,752
------------ ------------
End of period (including undistributed net
investment
income of $86,547 and $149,269, respectively)
$323,625,525
$314,287,445
------------ ------------
------------ ------------
</TABLE>
See accompanying Notes to Financial Statements.
10 Oppenheimer U.S. Government Trust
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
- ------------------------------------------------------------------------------
- --------
YEAR ENDED JUNE 30,
1995 1994 1993 1992
1991 1990 1989 1988 1987
- ------------------------------------------------------------------------------
- ----------------------------------------
- ----------
<S> <C> <C> <C> <C>
<C> <C> <C> <C>
<C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $9.20 $9.95 $9.73 $9.25
$9.24 $9.54 $9.59
$9.77 $10.17
- ------------------------------------------------------------------------------
- ----------------------------------------
- ----------
Income (loss) from investment operations:
Net investment income .68 .67 .68 .69
.83 .90 .91 .90
.84
Net realized and unrealized gain (loss)
on investments and options written .31 (.74) .22 .48
.02 (.32) (.05) (.18)
(.33)
----- ----- ----- -----
----- ----- ----- ----- ------
Total income (loss) from investment
operations .99 (.07) .90 1.17
.85 .58 .86 .72 .51
- ------------------------------------------------------------------------------
- ----------------------------------------
- ----------
Dividends and distributions
to shareholders:
Dividends from net investment income (.68) (.64) (.68) (.69)
(.84) (.88) (.91)
(.90) (.85)
Dividends in excess of net
investment income -- (.01) -- --
-- -- -- -- --
Distributions from net realized gain
on investments and options written -- -- -- --
-- -- -- -- (.06)
Tax return of capital distribuiton -- (.03) -- --
-- -- -- -- --
----- ----- ----- -----
----- ----- ----- ----- ------
Total dividends and distributions
to shareholders (.68) (.68) (.68) (.69)
(.84) (.88) (.91) (.90) (.91)
- ------------------------------------------------------------------------------
- ----------------------------------------
- ----------
Net asset value, end of period $9.51 $9.20 $9.95 $9.73
$9.25 $9.24 $9.54
$9.59 $9.77
----- ----- ----- -----
----- ----- ----- ----- ------
----- ----- ----- -----
----- ----- ----- ----- ------
- ------------------------------------------------------------------------------
- ----------------------------------------
- ----------
TOTAL RETURN, AT NET ASSET VALUE(3) 11.22% (1.17)% 9.55% 13.05%
9.53%
6.34% 9.51% 7.78% 5.54%
- ------------------------------------------------------------------------------
- ----------------------------------------
- ----------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $312,607 $310,027 $380,916 $395,863
$342,220 $264,728
$232,593 $203,857 $216,306
- ------------------------------------------------------------------------------
- ----------------------------------------
- ----------
Average net assets (in thousands) $307,306 $355,698 $401,789 $376,532
$299,144 $253,085
$210,060 $197,834 $207,557
- ------------------------------------------------------------------------------
- ----------------------------------------
- ----------
Number of shares outstanding at
end of period (in thousands) 32,871 33,685 38,279 40,697
36,987 28,650 24,393
21,252 22,146
- ------------------------------------------------------------------------------
- ----------------------------------------
- ----------
Ratios to average net assets:
Net investment income 7.32% 6.61% 6.90% 7.23%
8.93% 9.60% 9.65%
9.36% 8.73%
Expenses 1.09% 1.14% 1.17% 1.17%
1.19% 1.16% 1.19%
1.13% .99%
- ------------------------------------------------------------------------------
- ----------------------------------------
- ----------
Portfolio turnover rate(5) 303.5% 139.5% 96.8% 207.8%
133.9% 125.5%
76.9% 141.3% 263.0%
<FN>
1. For the period from December 1, 1993 (inception of offering) to June 30,
1994.
2. For the period from August 16, 1985 to June 30, 1986.
3. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption at
the net asset value calculated on the last business day of the fiscal
period. Sales charges are not reflected in the total returns. Total returns
are not annualized for periods of less than one full year.
4. Annualized.
5. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation. Purchases and sales of investment securities (excluding
short-term securities) for the period ended June 30, 1995 were
$1,035,761,462 and $1,044,224,644, respectively.
</TABLE>
See accompanying Notes to Financial Statements.
11 Oppenheimer U.S. Government Trust
<PAGE>
<TABLE>
<CAPTION>
CLASS A CLASS C
-------- -------------------
YEAR ENDED JUNE 30,
1986(2) 1995 1994(1)
- ----------------------------------------------------- -------------------
<S> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $10.00 $9.19 $9.83
- ----------------------------------------------------- ------------------
Income (loss) from investment operations:
Net investment income 94 61 .33
Net realized and unrealized gain (loss)
on investments and options written .38 .30 (.64)
------ ----- -----
Total income (loss) from investment
operations 1.32 .91 (.31)
- ----------------------------------------------------- ------------------
Dividends and distributions
to shareholders:
Dividends from net investment income (.93) (.60) (.33)
Dividends in excess of net
investment income -- -- --
Distributions from net realized gain
on investments and options written (.22) -- --
Tax return of capital distribuiton -- -- --
------ ----- -----
Total dividends and distributions
to shareholders (1.15) (.60) (.33)
- ------------------------------------------------------ ------------------
Net asset value, end of period $10.17 $9.50 $9.19
------ ----- -----
------ ----- -----
- ----------------------------------------------------- ------------------
TOTAL RETURN, AT NET ASSET VALUE(3) 14.95% 10.31% (3.12)%
- ----------------------------------------------------- ------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $160,389 $11,019 $4,261
- ---------------------------------------------------- --------------------
Average net assets (in thousands) $98,004 $6,503 $2,173
- ---------------------------------------------------- --------------------
Number of shares outstanding at
end of period (in thousands) 15,767 1,160 464
- ---------------------------------------------------- --------------------
Ratios to average net assets:
Net investment income 9.77%(4) 6.44%
5.97%(4)
Expenses .56%(4) 1.89%
1.96%(4)
- ----------------------------------------------------- --------------------
Portfolio turnover rate(5) 366.9% 303.5% 139.5%
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SIGNIFICANT Oppenheimer U.S. Government Trust (the Fund) is
ACCOUNTING POLICIES registered under the Investment Company Act of 1940, as
amended, as a diversified, open-end management
investment company. The Fund's investment advisor is
Oppenheimer Management Corporation (the Manager). The
Fund offers both Class A and Class C shares. Class A
shares are sold with a front-end sales charge. Class C
shares may be subject to a contingent deferred sales
charge. Both classes of shares have identical rights to
earnings, assets and voting privileges, except that
each class has its own distribution and/or service
plan, expenses directly attributable to a particular
class and exclusive voting rights with respect to
matters affecting a single class. The following is a
summary of significant accounting policies consistently
followed by the Fund.
-------------------------------------------------------
INVESTMENT VALUATION. Portfolio securities are valued
at the close of the New York Stock Exchange on each
trading day. Listed and unlisted securities for which
such information is regularly reported are valued at
the last sale price of the day or, in the absence of
sales, at values based on the closing bid or asked
price or the last sale price on the prior trading day.
Long-term and short-term ``non-money market'' debt
securities are valued by a portfolio pricing service
approved by the Board of Trustees. Such securities
which cannot be valued by the approved portfolio
pricing service are valued using dealer-supplied
valuations provided the Manager is satisfied that the
firm rendering the quotes is reliable and that the
quotes reflect current market value, or under
consistently applied procedures established by the
Board of Trustees to determine fair value in good
faith. Short-term "money market type" debt securities
having a remaining maturity of 60 days or less are
valued at cost (or last determined market value)
adjusted for amortization to maturity of any premium or
discount. Options are valued based upon the last sale
price on the principal exchange on which the option is
traded or, in the absence of any transactions that day,
the value is based upon the last sale price on the
prior trading date if it is within the spread between
the closing bid and asked prices. If the last sale
price is outside the spread, the closing bid or asked
price closest to the last reported sale price is used.
-------------------------------------------------------
SECURITIES PURCHASED ON A WHEN-ISSUED BASIS. Delivery
and payment for securities that have been purchased by
the Fund on a forward commitment or when-issued basis
can take place a month or more after the transaction
date. During this period, such securities do not earn
interest, are subject to market fluctuation and may
increase or decrease in value prior to their delivery.
The Fund maintains, in a segregated account with its
custodian, assets with a market value equal to the
amount of its purchase commitments. The purchase of
securities on a when-issued or forward commitment basis
may increase the volatility of the Fund's net asset
value to the extent the Fund makes such purchases while
remaining substantially fully invested. As of June 30,
1995, the Fund had entered into outstanding when-issued
or forward commitments of $84,306,946.
In connection with its ability to purchase
securities on a when-issued or forward commitment
basis, the Fund may enter into mortgage "dollar-rolls"
in which the Fund sells securities for delivery in the
current month and simultaneously contracts with the
same counterparty to repurchase similar (same type,
coupon and maturity) but not identical securities on a
specified future date. The Fund records each
dollar-roll as a sale and a new purchase transaction.
-------------------------------------------------------
ALLOCATION OF INCOME, EXPENSES AND GAINS AND LOSSES.
Income, expenses (other than those attributable to a
specific class) and gains and losses are allocated
daily to each class of shares based upon the relative
proportion of net assets represented by such class.
Operating expenses directly attributable to a specific
class are charged against the operations of that class.
-------------------------------------------------------
FEDERAL TAXES. The Fund intends to continue to comply
with provisions of the Internal Revenue Code applicable
to regulated investment companies and to distribute all
of its taxable income, including any net realized gain
on investments not offset by loss carryovers, to
shareholders. Therefore, no federal income or excise
tax provision is required. At June 30, 1995, the Fund
had available for federal income tax purposes an unused
capital loss carryover of approximately $19,188,000,
$137,000 of which will expire in 1997, $3,193,000 in
1998, $7,358,000 in 1999, $1,187,000 in 2002 and
$7,313,000 in 2003.
-------------------------------------------------------
TRUSTEES' FEES AND EXPENSES. The Fund has adopted a
nonfunded retirement plan for the Fund's independent
trustees. Benefits are based on years of service and
fees paid to each trustee during the years of service.
During the year ended June 30, 1995, the Fund's
projected benefit obligations were reduced by $12,061,
and a payment of $2,026 was made to a retired Trustee,
resulting in an accumulated liability of $107,913 at
June 30, 1995.
12 Oppenheimer U.S. Government Trust
<PAGE>
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING DISTRIBUTIONS TO SHAREHOLDERS. The Fund intends
POLICIES (CONTINUED) intends to declare dividends separately for Class A
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.
-----------------------------------------------------
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. 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 June 30, 1995, the Fund
changed the classification of distributions to
shareholders to better disclose the differences
between financial statement amounts and distributions
determined in accordance with income tax regulations.
Accordingly, during the year ended June 30, 1995,
amounts have been reclassified to reflect a decrease
in accumulated net realized loss on investments of
$66,251, a decrease in undistributed net investment
income of $51,661, and a decrease in paid-in capital
of $14,590.
-----------------------------------------------------
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 average life of the respective securities.
Realized gains and losses on investments and
unrealized appreciation and depreciation are
determined on an identified cost basis, which is the
same basis used for federal income tax purposes.
- --------------------------------------------------------------------------------
2. SHARES OF The Fund has authorized an unlimited number of no par
BENEFICIAL INTEREST value shares of beneficial interest of each class.
Transactions in shares of beneficial interest were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1995
YEAR ENDED JUNE 30,
1994(1)
- -------------------------------------------------------------------
SHARES AMOUNT
SHARES AMOUNT
- ------------------------------------------------------------------------------
- --------------
<S> <C> <C>
<C> <C>
Class A:
Sold 7,076,177
$65,369,039 6,237,904 $ 60,979,282
Dividends reinvested 1,868,269
17,288,287 1,913,674 18,566,281
Redeemed (9,758,134)
(90,113,007) (12,746,027)
(123,943,881)
----------
- ----------- ----------- -------------
Net decrease (813,688)
$(7,455,681) (4,594,449) $ (44,398,318)
----------
- ----------- ----------- -------------
----------
- ----------- ----------- -------------
- ------------------------------------------------------------------------------
- -----------------
Class C:
Sold 1,086,358
$10,120,239 531,550 $ 5,070,299
Dividends reinvested 35,316
327,690 5,284 49,363
Redeemed (425,453)
(3,939,172) (73,322) (680,730)
----------
- ----------- ----------- -------------
Net increase 696,221
$6,508,757 463,512 $ 4,438,932
----------
- ----------- ----------- -------------
----------
- ----------- ----------- -------------
</TABLE>
1. For the year ended June 30, 1994 for Class A shares
and for the period from December 1, 1993 to June 30,
1994 for Class C shares.
- -------------------------------------------------------------------------------
3. UNREALIZED GAINS AND At June 30, 1995, net unrealized appreciation on
LOSSES ON INVESTMENTS investments of $9,073,271 was composed of gross
appreciation of $12,850,496, and gross depreciation of
$3,777,225.
- --------------------------------------------------------------------------------
4. MANAGEMENT FEES AND Management fees paid to the Manager were in accordance
OTHER TRANSACTIONS with the investment advisory agreement with the Fund
WITH AFFILIATES which provides for a fee of .65% of the first $200
million of average annual net assets of the Fund, .60%
of the next $100 million, .57% of the next $100
million, .55% of the next $400 million and .50% of net
assets in excess of $800 million. The Manager
voluntarily reduced the management fees to the current
levels. Prior to January 3, 1995, management fees were
as follows: .75% of the first $200 million of average
annual net assets, .70% of the next $200 million, .65%
of the next $400 million and .60% of net assets in
excess of $800 million. The Manager has agreed to
reimburse the Fund if aggregate expenses (with
specified exceptions) exceed the most stringent state
regulatory limit on Fund expenses.
13 Oppenheimer U.S. Government Trust
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
4. MANAGEMENT FEES AND For the year ended June 30, 1995, commissions (sales
OTHER TRANSACTIONS charges paid by investors) on sales of Class A shares
WITH AFFILIATES totaled $582,157, of which $169,246 was retained by
(CONTINUED) Oppenheimer Funds Distributor, Inc. (OFDI), a
subsidiary of the Manager, as general distributor, and
by an affiliated broker/dealer. Sales charges advanced
to broker/dealers by OFDI on sales of the Fund's Class
B shares totaled $76,562, of which $4,633 was paid to
an affiliated broker/dealer. During the period ended
June 30, 1995, OFDI received contingent deferred sales
charges of $9,578 upon redemption of Class C shares.
Oppenheimer Shareholder Services (OSS), a
division of the Manager, is the transfer and
shareholder servicing agent for the Fund, and for other
registered investment companies. OSS's total costs of
providing such services are allocated ratably to these
companies.
Under separate approved plans, each class may
expend up to 25% of its net assets annually to
reimburse OFDI for costs incurred in connection with
the personal service and maintenance of accounts that
hold shares of the Fund, including amounts paid to
brokers, dealers, banks and other financial
institutions. In addition, Class C shares are subject
to an asset-based sales charge of .75% of net assets
annually, to reimburse OFDI for sales commissions paid
from its own resources at the time of sale and
associated financing costs. In the event of termination
or discontinuance of the Class C plan, the Board of
Trustees may allow the Fund to continue payment of the
asset-based sales charge to OFDI for distribution
expenses incurred on Class C shares sold prior to
termination or discontinuance of the plan. During the
year ended June 30, 1995, OFDI paid $53,292 and $2,782
to an affiliated broker/dealer as reimbursement for
Class A and Class C personal service and maintenance
expenses, respectively, and retained $58,050 as
reimbursement for Class C sales commissions and service
fee advances, as well as financing costs.
- --------------------------------------------------------------------------------
5. OPTION ACTIVITY The Fund may buy and sell put and call options, or
write covered put and call options on portfolio
securities in order to produce incremental earnings or
protect against changes in the value of portfolio
securities.
The Fund generally purchases put options or
writes covered call options to hedge against adverse
movements in the value of portfolio holdings. When an
option is written, the Fund receives a premium and
becomes obligated to sell or purchase the underlying
security at a fixed price, upon exercise of the option.
Options are valued daily based upon the last
sale price on the principal exchange on which the
option is traded and unrealized appreciation or
depreciation is recorded. The Fund will realize a gain
or loss upon the expiration or closing of the option
transaction. When an option is exercised, the proceeds
on sales for a written call option, the purchase cost
for a written put option, or the cost of the security
for a purchased put or call option is adjusted by the
amount of premium received or paid.
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 June 30,
1995 was as follows:
<TABLE>
<CAPTION>
CALL OPTIONS
PUT OPTIONS
- ----------------------------- -----------------------------
NUMBER
AMOUNT OF NUMBER
AMOUNT OF
OF OPTIONS
PREMIUMS OF OPTIONS
PREMIUMS
- ------------------------------------------------------------------------------
- --------------------------
<S> <C>
<C> <C> <C>
Options outstanding at June 30, 1994 30,000
$290,625 80,000
$248,438
- ------------------------------------------------------------------------------
- --------------------------
Options closed (30,000)
(290,625) (80,000)
(248,438)
-------
-------- ------- --------
Options outstanding at June 30, 1995 --
$ -- -- $ --
-------
-------- ------- --------
-------
-------- ------- --------
</TABLE>
14 Oppenheimer U.S. Government Trust
<PAGE>
- --------------------------------------------------------------------------------
6. ACQUISITION OF On July 27, 1995, the Fund acquired all of the net
OPPENHEIMER assets of Oppenheimer Mortgage Income Fund, pursuant
MORTGAGE to an Agreement and Plan of Reorganization approved by
INCOME FUND the Oppenheimer Mortgage Income Fund shareholders on
July 12, 1995. The Fund issued 8,262,838 and 683,099
shares of beneficial interest for Class A and Class B,
respectively, valued at $77,918,563 and $6,434,794 in
exchange for the net assets, resulting in combined
Class A net assets of $385,440,401 and Class B net
assets of $6,806,465 on July 27, 1995. The exchange
qualifies as a tax-free reorganization for federal
income tax purposes.
- --------------------------------------------------------------------------------
7. 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.
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.
15 Oppenheimer U.S. Government Trust
<PAGE>
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
The Board of Trustees and Shareholders of Oppenheimer
U.S. Government Trust:
We have audited the accompanying statements of
investments and assets and liabilities of Oppenheimer
U.S. Government Trust as of June 30, 1995, and the
related statement of operations for the year then
ended, the statements of changes in net assets for each
of the years in the two-year period then ended and the
financial highlights for each of the years in the
ten-year period then ended. 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 as of June
30, 1995, by correspondence with the custodian and
brokers; and where confirmations 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, the financial statements and
financial highlights referred to above present fairly,
in all material respects, the financial position of
Oppenheimer U.S. Government Trust as of June 30, 1995,
the results of its operations for the year then ended,
the changes in its net assets for each of the years in
the two-year period then ended, and the financial
highlights for each of the years in the ten-year period
then ended, in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick
KPMG PEAT MARWICK LLP
Denver, Colorado
July 27, 1995
16 Oppenheimer U.S. Government Trust
<PAGE>
FEDERAL INCOME TAX INFORMATION (UNAUDITED)
- --------------------------------------------------------------------------------
In early 1996, shareholders will receive information
regarding all dividends and distributions paid to them
by the Fund during calendar year 1995. Regulations of
the U.S. Treasury Department require the Fund to report
this information to the Internal Revenue Service.
None of the dividends paid by the Fund during
the fiscal year ended June 30, 1995 are eligible for
the corporate dividend-received deduction.
The foregoing information is presented to
assist shareholders in reporting distributions received
from the Fund to the Internal Revenue Service. Because
of the complexity of the federal regulations which may
affect your individual tax return and the many
variations in state and local tax regulations, we
recommend that you consult your tax advisor for
specific guidance.
SHAREHOLDER MEETING (UNAUDITED)
- --------------------------------------------------------------------------------
On May 25, 1995, a special shareholder meeting was held
at which the twelve Trustees identified below were
elected, the selection of KPMG Peat Marwick LLP as the
independent certified public accountants and auditors
of the Trust for the fiscal year beginning July 1, 1994
was ratified (Proposal No. 1), the proposed changes in
the Fund's investment policies were approved (Proposal
No. 2), the proposed investment advisory agreement was
approved (Proposal No. 3), as described in the Trust's
proxy statement for that meeting. That meeting was
adjourned until May 31, 1995, with respect to a
proposal voted on only by Class C shareholders, at
which time the Fund's amended Class C 12b-1
Distribution and Service Plan was approved by Class C
shareholders (Proposal No. 4), as described in the
Trust's proxy statement for that meeting. The following
is a report of the votes cast:
<TABLE>
<CAPTION>
NOMINEE FOR
AGAINST TOTAL
- ------------------------------------------------------------------------------
- -------
<S> <C> <C>
<C>
Leon Levy 16,973,280.862
614,808.471 17,588,089.333
Leo Cherne 16,908,564.560
679,524.773 17,588,089.333
Robert G. Galli 17,010,437.287
577,652.046 17,588,089.333
Benjamin Lipstein 16,957,423.234
630,666.099 17,588,089.333
Elizabeth B. Moynihan 16,978,536.882
609,552.451 17,588,089.333
Kenneth A. Randall 17,003,838.944
584,250.389 17,588,089.333
Edward V. Regan 17,035,109.467
552,979.866 17,588,089.333
Russell S. Reynolds, Jr. 17,021,001.092
567,088.241 17,588,089.333
Sidney M. Robbins 16,939,642.358
648,446.975 17,588,089.333
Donald W. Spiro 16,982,499.151
605,590.182 17,588,089.333
Pauline Trigere 16,918,168.305
669,921.028 17,588,089.333
Clayton K. Yeutter 16,978,956.887
609,132.446 17,588,089.333
</TABLE>
<TABLE>
<CAPTION>
WITHHELD/ BROKER
PROPOSAL FOR AGAINST ABSTAIN
NON-VOTES
TOTAL
- ------------------------------------------------------------------------------
- -------
<S> <C> <C> <C>
<C> <C>
Proposal No. 1 16,815,630.021 119,338.528
653,120.783 304.776
17,588,089.333
Proposal No. 2 15,376,316.829 1,264,888.201
946,884.302 304.776
17,588,089.333
Proposal No. 3 16,377,849.880 232,204.595
978,034.857 304.776
17,588,089.333
Proposal No. 4 409,139.482 9,643.677
16,334.983 3.399 435,118.142
</TABLE>
17 Oppenheimer U.S. Government Trust
<PAGE>
OPPENHEIMER U.S. GOVERNMENT TRUST
- --------------------------------------------------------------------------------
OFFICERS AND TRUSTEES Leon Levy, Chairman of the Board of Trustees
Leo Cherne, Trustee
Robert G. Galli, Trustee
Benjamin Lipstein, Trustee
Elizabeth B. Moynihan, Trustee
Kenneth A. Randall, Trustee
Edward V. Regan, Trustee
Russell S. Reynolds, Jr., Trustee
Sidney M. Robbins, Trustee
Donald W. Spiro, Trustee and President
Pauline Trigere, Trustee
Clayton K. Yeutter, Trustee
David Rosenberg, Vice President
George C. Bowen, Treasurer
Robert J. Bishop, Assistant Treasurer
Scott Farrar, Assistant Treasurer
Andrew J. Donohue, Secretary
Robert G. Zack, Assistant Secretary
- --------------------------------------------------------------------------------
INVESTMENT ADVISOR Oppenheimer Management Corporation
- --------------------------------------------------------------------------------
DISTRIBUTOR Oppenheimer Funds Distributor, Inc.
- --------------------------------------------------------------------------------
TRANSFER AND SHAREHOLDER Oppenheimer Shareholder Services
SERVICING AGENT
- --------------------------------------------------------------------------------
CUSTODIAN OF Citibank, N.A.
PORTFOLIO SECURITIES
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS KPMG Peat Marwick LLP
- --------------------------------------------------------------------------------
LEGAL COUNSEL Gordon Altman Butowsky Weitzen Shalov & Wein
This is a copy of a report to shareholders of
Oppenheimer U.S. Government Trust. This report must be
preceded or accompanied by a Prospectus of Oppenheimer
U.S. Government Trust. For material information
concerning the Fund, see the Prospectus.
Shares of Oppenheimer funds are not deposits or
obligations of any bank, are not guaranteed by any
bank, and are not insured by the FDIC or any other
agency, and involve investment risks, including
possible loss of the principal amount invested.
18 Oppenheimer U.S. Government Trust
<PAGE>
OPPENHEIMERFUNDS FAMILY
- --------------------------------------------------------------------------------
OppenheimerFunds offers over 30 funds designed to fit
virtually every investment goal. Whether you're
investing for retirement, your children's education or
tax-free income, we have the funds to help you seek
your objective.
When you invest with OppenheimerFunds, you can
feel comfortable knowing that you are investing with a
respected financial institution with over 30 years of
experience in helping people just like you reach their
financial goals. And you're investing with a leader in
global, growth stock and flexible fixed income
investments--with over 2.6 million shareholder accounts
and more than $35 billion under Oppenheimer's
management and that of our affiliates.
At OppenheimerFunds, we don't charge a fee to
exchange shares of eligible funds of the same class.
And you can exchange shares easily by mail or by
telephone.(1) For more information on
OppenheimerFunds, please contact your financial advisor
or call us at 1-800-525-7048 for a prospectus. You may
also write us at the address shown on the back cover.
As always, please read the prospectus carefully before
you invest.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
- ---------------------------------
<S> <C> <C>
STOCK FUNDS Discovery Fund Global Fund
Global Emerging Growth Fund(2) Oppenheimer
Fund
Target Fund Value Stock
Fund
Growth Fund(3) Gold &
Special Minerals Fund
- ------------------------------------------------------------------------------
- ---------------------------------
STOCK & BOND Main Street Income & Growth Fund Equity
Income Fund
FUNDS Total Return Fund Asset
Allocation Fund
Global Growth & Income Fund
- ------------------------------------------------------------------------------
- ---------------------------------
BOND FUNDS High Yield Fund Strategic
Short-Term Income Fund
Champion High Yield Fund
International Bond Fund
Strategic Income & Growth Fund Bond
Fund(4)
Strategic Income Fund U.S.
Government Trust
Strategic Investment Grade Bond
Limited-Term Government Fund
Fund
- ------------------------------------------------------------------------------
- ---------------------------------
TAX-EXEMPT New York Tax-Exempt Fund(5) New Jersey
Tax-Exempt
Fund(5)
FUNDS California Tax-Exempt Fund(5) Tax-Free
Bond Fund
Pennsylvania Tax-Exempt Fund(5) Insured
Tax-Exempt Bond Fund
Florida Tax-Exempt Fund(5)
Intermediate Tax-Exempt Bond
Fund
- ------------------------------------------------------------------------------
- ---------------------------------
MONEY-MARKET Money Market Fund Cash
Reserves
FUNDS
<FN>
1. Exchange privileges are subject to change or termination.
2. Formerly Global Bio-Tech Fund.
3. Formerly Special Fund.
4. Formerly Investment Grade Bond Fund.
5. Available only to residents of certain states.
OppenheimerFunds are distributed by Oppenheimer Funds Distributor, Inc.,
Two World Trade Center, New York, NY 10048-0203.
-C- Copyright 1995 Oppenheimer Management Corporation. All rights reserved.
</TABLE>
19 Oppenheimer U.S. Government Trust
<PAGE>
INFORMATION
GENERAL INFORMATION
Monday-Friday 8:30 a.m.-8 p.m. ET
Saturday 10 a.m.-2 p.m. ET
1-800-525-7048
TELEPHONE TRANSACTIONS
Monday-Friday 8:30 a.m.-8 p.m. ET
1-800-852-8457
PHONELINK
24 hours a day, automated
information and transactions
1-800-533-3310
TELECOMMUNICATIONS DEVICE
FOR THE DEAF (TDD)
Monday-Friday 8:30 a.m.-8 p.m. ET
1-800-843-4461
OPPENHEIMERFUNDS
INFORMATION HOTLINE
24 hours a day, timely and insightful
messages on the economy and
issues that affect your investments
1-800-835-3104
"HOW MAY I HELP YOU?"
As an OppenheimerFunds shareholder, you have some special privileges. Whether
it's automatic investment plans, informative newsletters and hotlines, or ready
account access, you can benefit from services designed to make investing simple.
And when you need help, our Customer Service Representatives are only a
toll-free phone call away. They can provide information about your account and
handle administrative requests. You can reach them at our General Information
number.
When you want to make a transaction, you can do it easily by calling our
toll-free Telephone Transactions number. And, by enrolling in AccountLink, a
convenient service that "links" your OppenheimerFunds accounts and your bank
checking or savings account, you can use the Telephone Transactions number to
make investments.
For added convenience, you can get automated information with
OppenheimerFunds PhoneLink service, available 24 hours a day, 7 days a week.
PhoneLink gives you access to a variety of fund, account, and market
information. Of course, you can always speak with a Customer Service
Representative during the General Information hours shown at the left.
You can count on us whenever you need assistance. That's why the
International Customer Service Association, an independent, nonprofit
organization made up of over 3,200 customer service management professionals
from around the country, honored the OppenheimerFunds' transfer agent,
Oppenheimer Shareholder Services, with their Award of Excellence in 1993.
So call us today--we're here to help.
[PHOTO]
Jennifer Leonard, Customer Service Representative
Oppenheimer Shareholder Services
- --------------------------------------------------------------------------------
-------------------
[OPPENHEIMER FUNDS LOGO] Bulk Rate
Oppenheimer Funds Distributor, Inc. U.S. Postage
P.O. Box 5270 PAID
Denver, CO 80217-5270 Permit No. 469
Denver, CO
<PAGE>
OPPENHEIMER U.S. GOVERNMENT TRUST
Semiannual Report December 31, 1995
[photo]
"We need monthly INCOME, and we need to feel COMFORTABLE about
how our money is invested."
[logo] OppenheimerFunds-r-
<PAGE>
NEWS
"ROSENBERG HAS SHOWN HIMSELF SKILLED AT MAINTAINING THE FUND'S
BALANCE."
- -- Morningstar Mutual Funds
October 13, 1995
STANDARDIZED YIELD (3)
For the 30 Days Ended 12/31/95:
Class A
5.97%
Class B
5.46%
Class C
5.49%
This Fund is for people who want monthly INCOME and want to feel SECURE with a
fund investing primarily in bonds backed by the U.S. government, its agencies
and instrumentalities.
HOW YOUR FUND IS MANAGED
Oppenheimer U.S. Government Trust seeks high current income and safety of
principal by investing primarily in a portfolio of fixed-income securities
issued or guaranteed by the U.S. government, its agencies, and instrumental-
ities.
While an investment in the Fund is neither insured nor guaranteed, and its
shares fluctuate in value, the fact that most of the securities in the Fund's
portfolio are government-backed means investors enjoy superior credit safety and
assurance of timely payment to the Fund of principal and interest on those
securities.
In addition, the Fund is also designed to provide higher income than more
conservative fixed-income investments.
PERFORMANCE
Total return at net asset value for the 6 months ended 12/31/95 was 5.22% for
Class A shares and 4.82% for Class C shares. (1)
Your Fund's average annual total returns at maximum offering price for Class A
shares for the 1-, 5- and 10- year periods ended 12/31/95 were 9.48%, 7.16% and
7.64%, respectively. For Class C shares, average annual total returns for the
1-year period ended 12/31/95 and since inception of the Class on 12/1/93 were
13.02% and 5.55%, respectively. (2)
OUTLOOK
"Our outlook is positive. Our strategy is to remain fairly cautious and
conservative, positioning the Fund to provide income, relative stability, and a
good degree of protection on the downside."
David Rosenberg, Portfolio Manager
December 31, 1995
Total returns include change in share price and reinvestment of dividends and
capital gains distributions. Past performance does not guarantee future
results. Investment return and principal value of an investment in the Fund
will fluctuate so that an investor's shares, when redeemed, may be worth more or
less than the original cost. For more complete information, please review the
prospectus carefully before you invest.
1. Based on the change in net asset value per share for the period shown,
without deducting any sales charges. Such performance would have been lower if
sales charges were taken into account.
2. Class A returns show results of hypothetical investments on 12/31/94,
12/31/90 and 12/31/85, after deducting the current maximum initial sales charge
of 4.75%. Class A shares were first publicly offered on 8/16/85. Class C
returns show results of hypothetical investments on 12/31/94 and 12/1/93
(inception of class), with the 1% contingent deferred sales charge deducted for
the 1-year result. The Fund's maximum sales charge rate for Class A shares was
higher during a portion of some of the periods shown, and actual investment
results will be different as a result of the change. Class B cumulative total
return since inception (7/21/95) was 0.63%. An explanation of the different
performance calculations is in the Fund's prospectus.
3. Standardized yield is net investment income calculated on a yield-to-matur-
ity basis for the 30-day period ended 12/31/95, divided by the maximum offering
price at the end of the period, compounded semiannually and then annualized.
Falling net asset values will tend to artificially raise yields.
2 Oppenheimer U.S. Government Trust
<PAGE>
[photo]
Bridget A. Macaskill
President
Oppenheimer U.S. Government Trust
Dear OppenheimerFunds Shareholder,
The bond market amply rewarded patient investors in 1995.
One year ago, many fixed-income investors had negative returns, as a surging
economy pushed interest rates higher and bond prices lower. But a vigilant
Federal Reserve Board helped slow the economy down by early 1995, lowering the
fear of inflation. And by the summer, after a quarter in which GDP growth was
just 1.3%, the Fed began to lower short-term interest rates.
In the Fall, a balanced federal budget was on the front burner in Washington,
suggesting to foreign investors that the U.S. was finally addressing its rising
debt burden, which helped stabilize the U.S. dollar, making U.S. fixed-income
investments more attractive to international investors.
Throughout 1995, inflation and economic growth came in at less than 3%. As a
result, the yield on the benchmark 30-year U.S. Treasury bond fell to 6% from
nearly 8% the year before. And patient investors saw the value of their higher
paying bonds appreciate substantially. In 1995, while the stock market was up
35%, bonds rose as much as 20%, depending on the type of security.
Overall, the best performing sector of the bond market was the 30-year U.S.
Treasury bond. This is because when interest rates are falling, bonds with the
longest maturities appreciate the most in price. Another excellent performing
sector in 1995 was that of high quality corporate bonds. Although a slowing
economy often raises credit worries about Corporate America, the continuation of
strong corporate profits offset these concerns.
After having such a good year, where does the bond market go from here? Unlike
stocks, which have infinite upside potential, bonds have a constraint. For
bonds to do well, interest rates must remain steady or continue to fall. And
when interest rates are low already, there is only so far they can decline. But
if inflation can be maintained, and if a budget accord is reached, a positive
environment can continue to exist.
We believe that the general long-term trend for the U.S. economy is slow growth
and low inflation. Moving into 1996, we're looking for even slower growth than
we saw in 1995, which should be an excellent environment for bond investors.
Your portfolio manager discusses the outlook for your Fund in light of these
broad issues on the following pages.
Thank you for your confidence in OppenheimerFunds, and we look forward to
helping you reach your investment goals in the future.
/s/ Bridget A. Macaskill
Bridget A. Macaskill
January 22, 1996
3 Oppenheimer U.S. Government Trust
<PAGE>
Q + A
Q How did the Fund perform?
[photo][photo]
An interview with your Fund's managers.
HOW HAS THE FUND PERFORMED OVER THE PAST SIX MONTHS?
Our returns were good for the period and in line with our expectations, though
we didn't experience the dramatic performance that some more aggressive bond
funds did. This Fund was designed to give investors a conservative vehicle for
income with a strong emphasis on protecting principal in down markets. We
believe over the long term this approach will help performance in general and in
relation to our more aggressive competitors.
WHAT FACTORS POSITIVELY INFLUENCED YOUR PERFORMANCE?
Over the period, we were able to achieve our goals of providing income with
relatively low risk, even though this wasn't the best environment for our style
of investing, which places emphasis on mortgage-backed securities as well as
Treasuries. Our holdings in U.S. Treasuries performed well over the period due
to declining interest rates. In addition, we were able to raise our yield
somewhat and to further diversify the portfolio through the addition of
non-agency mortgage-backed securities which are backed by mortgage loans under-
written by banks rather than the government.
WHICH INVESTMENTS DIDN'T PERFORM AS WELL AS EXPECTED?
In general, mortgage-backed securities have suffered in terms of relative price
performance over the period due to investors' concerns about prepayment risk --
a situation that always arises during periods of interest rate declines. During
the past six months, we reduced our holdings in the adjustable rate mortgage
(ARM) market and replaced them with better-performing fixed-rate issues. Long
term, however, we believe the mortgage sector has a lot to offer in terms of
yield and value.
[photo]
4 Oppenheimer U.S. Government Trust
<PAGE>
FACING PAGE
Top left: David Rosenberg, Portfolio Manager
Top right: Donna Compert, Member of Fixed Income Investments Team
Bottom left: Len Darling, Executive VP, Director of Fixed Income
Investments
THIS PAGE
Top: Michael Maciolek, Member of Fixed Income Investments Team
Bottom: David Rosenberg with Leslie Falconio and Gina Palmieri,
Members of Fixed Income Investments Team
[photo]
A Our returns were GOOD and in line with our expectations.
At this time, we continue to add to our mortgage holdings where we see securi-
ties available at reasonable prices.
WHAT AREAS OF THE MARKET ARE YOU CURRENTLY TARGETING?
In Treasuries, we continue to employ a barbell strategy, meaning that we are
investing in both short- and long-term bonds. This strategy is based on our
expectation that long-term interest rates will decline further than short-term
rates, so we want to be exposed to both areas to balance potential changes in
price and income from the securities the Fund owns.
We also plan to continue adding to non-agency mortgages in the coming months,
not only because they offer income and diversification, but also due to the fact
that they're one of the few types of fixed-income securities that can benefit
from increases in inflation. Because non-agency mortgages have an indirect
relationship with the other types of securities in the Fund, this helps us in
our effort to be prepared for any changes in the economy.
WHAT IS YOUR OUTLOOK FOR THE FUND?
Our outlook is positive. We expect the U.S. economy to continue to grow at a
slower pace with inflation continuing to be only modest. As a result, we expect
that rates will remain at or near their current trading range. And although we
believe the fundamentals for bonds going forward are strong, we expect that the
majority of the rally has already become apparent in their current pricing.
That being our position, our strategy is to remain fairly cautious and conserva-
tive, positioning the Fund to provide income, relative stability, and a good
degree of protection on the downside.//
[photo]
5 Oppenheimer U.S. Government Trust
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
- ----------------------------------------
- ------
STATEMENT OF INVESTMENTS December 31, 1995 (Unaudited)
FACE MARKET VALUE
AMOUNT SEE NOTE 1
<S> <C>
<C> <C>
=====================================================================
===============================================================
MORTGAGE-BACKED OBLIGATIONS - 84.9%
- ------------------------------------------------------------------------------
- ----------------------------------------
- --------------
GOVERNMENT AGENCY - 73.3%
- ------------------------------------------------------------------------------
- ----------------------------------------
- --------------
FHLMC/FNMA/SPONSORED - 39.8%
- ------------------------------------------------------------------------------
- ----------------------------------------
- ------
Federal Home Loan Mortgage Corp.:
Collateralized Mtg. Obligations, Gtd. Multiclass Mtg.
Participation Certificates:
9.50%, 12/1/02-11/1/03
$ 596,341 $ 624,294
10%, 6/15/20
3,011,000 3,525,670
14%, 1/1/11
578,346 684,433
6.65%, 4/15/21
10,750,000 10,743,227
8.50%, 10/15/19
1,941,813 1,980,029
9%, 7/15/21
2,319,689 2,376,939
Collateralized Mtg. Obligations, Series 1548, Cl. C, 7%,
4/15/21
3,000,000 3,016,860
Gtd. Multiclass Mtg. Participation Certificates:
11.50%, 6/1/20
1,702,671 1,954,348
13%, 8/1/15
2,722,541 3,269,602
Gtd. Multiclass Mtg. Participation Certificates, Series
1455, Cl. J, 7.50%, 12/15/22
5,000,000
5,398,400
- ------------------------------------------------------------------------------
- ----------------------------------------
- ------
Federal National Mortgage Assn.:
11%, 7/1/16
1,926,313 2,185,162
11.50%, 11/1/15
1,487,641 1,694,974
7%, 1/15/26(1)
20,000,000 20,162,400
7%, 8/1/25
28,087,418 28,315,488
7.50%, 8/1/25
4,962,260 5,084,729
Collateralized Mtg. Obligations, Series 1992-103, Cl. JB,
10.50%, 11/25/20
10,000,000 11,909,300
Collateralized Mtg. Obligations, Gtd. Real Estate Mtg.
Investment Conduit Pass-Through Certificates:
13%, 11/1/12
227,263 266,252
7%, 12/25/21
29,617,000 30,172,319
8%, 3/25/01-12/1/22
9,516,729 9,654,512
8.75%, 11/25/05-12/25/20
30,000,000
32,405,560
Gtd. Mtg. Pass-Through Certificates, 12%, 4/1/19
1,780,280
2,089,604
Gtd. Real Estate Mtg. Investment Conduit Pass-Through
Certificates, 8%, 7/25/19
18,000,000 19,125,000
Gtd. Real Estate Mtg. Investment Conduit Pass-Through
Certificates, Trust 1992-112, Cl. ED, 4%, 12/25/20
3,000,000
2,657,790
Gtd. Real Estate Mtg. Investment Conduit Pass-Through
Certificates, Trust 1993-87, Cl. S, Inverse Floater, 5.397%,
6/25/23 (coupon inversely indexed to 1-month US LIBOR,
multiplied by 1.857)(2)
2,199,998 1,691,593
Interest-Only Stripped Mtg.-Backed Security, Trust 222, Cl.
2, 11.552%-14.739%, 6/1/23(3)
86,304,427
23,241,514
Principal-Only Stripped Mtg.-Backed Security, Series 1993-
243, Cl. E, Zero Coupon, 2.99%, 11/25/23(4)
1,016,691
557,274
-------------
224,787,273
- ------------------------------------------------------------------------------
- ----------------------------------------
- --------------
GNMA/GUARANTEED - 33.5%
- ------------------------------------------------------------------------------
- ----------------------------------------
- ------
Government National Mortgage Assn.:
6%, 1/15/26(1)
28,000,000 28,297,500
7%, 1/15/26(1)
15,000,000 15,178,200
7%, 2/15/22-11/15/23
19,545,559
19,798,648
7.50%, 1/15/26(1)
42,750,000 43,979,062
7.50%, 2/15/22-5/15/24
23,465,238
24,169,066
8%, 4/15/02-5/15/25
34,599,226 36,062,283
8.50%, 6/15/01-8/15/01
156,514 164,364
9.50%, 7/15/18-1/15/20
1,776,513 1,917,396
</TABLE>
6 Oppenheimer U.S. Government Trust
<PAGE>
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT SEE NOTE 1
<S> <C>
<C> <C>
- ------------------------------------------------------------------------------
- ----------------------------------------
- --------------
GNMA/GUARANTEED
(CONTINUED)
10%, 6/15/16-5/15/19
$ 3,475,078 $
3,842,626
10.50%, 1/15/98-5/15/21
11,121,752
12,399,537
11%, 7/20/20
125,888 141,269
- ------------------------------------------------------------------------------
- ----------------------------------------
- ------
U.S. Department of Veterans Affairs, Interest-Only Gtd.
Real Estate Mtg. Investment Conduit Pass-Through
Certificates, Vendee Mtg. Trust, Series 1995-2B, Cl. 2-IO,
24.40%, 6/1/25(3)
137,802,861 3,638,857
-------------
189,588,808
- ------------------------------------------------------------------------------
- ----------------------------------------
- --------------
PRIVATE - 11.6%
- ------------------------------------------------------------------------------
- ----------------------------------------
- --------------
COMMERCIAL - 5.5%
- ------------------------------------------------------------------------------
- ----------------------------------------
- ------
FDIC Trust, Gtd. Real Estate Mtg. Investment Conduit
Pass-Through Certificates, Series 1994-C1, Cl. 2-G,
8.70%, 9/25/25(5)
3,000,000 3,128,437
- ------------------------------------------------------------------------------
- ----------------------------------------
- ------
Merrill Lynch Mortgage Investors, Inc., Mtg. Pass-Through
Certificates, Series 1995-C2, Cl. C, 7.70%, 6/15/21(6)
2,981,010
3,075,099
- ------------------------------------------------------------------------------
- ----------------------------------------
- ------
Morgan Stanley Capital, 7.95% Collateralized Mtg.
Obligations, Cl. C, 8/15/27(5)
5,014,988
5,366,037
- ------------------------------------------------------------------------------
- ----------------------------------------
- ------
Resolution Trust Corp., Commercial Mtg. Pass-Through
Certificates:
Series 1992-C5, Cl. C, 8.85%, 5/25/22
7,601,257
7,962,317
Series 1992-CHF, Cl. E, 8.25%, 12/25/20
8,381,304
8,224,155
Series 1993-C1, Cl. D, 9.45%, 5/25/24
1,183,001
1,258,048
- ------------------------------------------------------------------------------
- ----------------------------------------
- ------
SE Commercial Mortgage Pass-Through Certificates,
Series 93-01, Cl. A1, 6.65%, 11/28/13
2,368,624
2,355,301
-------------
31,369,394
- ------------------------------------------------------------------------------
- ----------------------------------------
- --------------
MULTI-FAMILY - 5.4%
- ------------------------------------------------------------------------------
- ----------------------------------------
- ------
Countrywide Funding Corp., Series 1993-12, Cl. B1,
6.625%, 2/25/24
3,000,000 2,827,500
- ------------------------------------------------------------------------------
- ----------------------------------------
- ------
CS First Boston Mortgage Securities Corp., Mtg. Pass-
Through Interest-Only Certificates, Series 94-M1, Cl. A-X,
.52%, 2/15/02(3)(5)
125,768,000 97,045
- ------------------------------------------------------------------------------
- ----------------------------------------
- ------
Resolution Trust Corp., Commercial Mtg. Pass-Through
Certificates:
Series 1991-M5, Cl. A, 9%, 3/25/17
7,599,698
8,046,180
Series 1992-M4, Cl. B, 7.20%, 9/25/21
1,392,952
1,397,306
Series 1994-C1, Cl. C, 8%, 6/25/26
7,075,000
7,563,617
Series 1994-C2, Cl. D, 8%, 4/25/25
2,926,208
2,996,620
Series 1995-C1, Cl. D, 6.90%, 2/25/27
7,677,000
7,331,535
-------------
30,259,803
- ------------------------------------------------------------------------------
- ----------------------------------------
- --------------
RESIDENTIAL - 0.7%
- ------------------------------------------------------------------------------
- ----------------------------------------
- ------
Prudential Home Mortgage Securities Corp., Sub. Fixed
Rate Mtg. Securities, Real Estate Mtg. Investment Conduit
Pass-Through Certificates, Series 1995-A, Cl. B2,
8.684%, 3/28/25(5)(6)
1,492,574 1,534,086
- ------------------------------------------------------------------------------
- ----------------------------------------
- ------
Residential Funding Corp., Mtg. Pass-Through
Certificates, Series 1993-S10, Cl. A9, 8.50%, 2/25/23
2,555,976
2,639,046
-------------
4,173,132
-------------
Total Mortgage-Backed Obligations (Cost $467,899,148)
480,178,410
</TABLE>
7 Oppenheimer U.S. Government Trust
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
- ----------------------------------------
- ------
STATEMENT OF INVESTMENTS (Unaudited)
FACE MARKET VALUE
AMOUNT SEE NOTE 1
<S> <C> <C>
<C> <C> <C>
=====================================================================
===============================================================
U.S. GOVERNMENT OBLIGATIONS - 31.4%
- ------------------------------------------------------------------------------
- ----------------------------------------
- --------------
TREASURY - 31.4%
- ------------------------------------------------------------------------------
- ----------------------------------------
- --------------
U.S. Treasury Bonds:
8.875%, 8/15/17
$ 2,000,000 $ 2,680,000
STRIPS, Zero Coupon, 6.108%, 11/15/05(7)
15,000,000
8,597,834
STRIPS, Zero Coupon, 6.118%, 2/15/06(7)
20,000,000
11,269,137
- ------------------------------------------------------------------------------
- ----------------------------------------
- ------
U.S. Treasury Nts.:
7.625%, 5/31/96
4,000,000 4,040,000
7.875%, 11/15/04
61,500,000 71,243,869
8%, 5/15/01(8)
63,500,000 71,120,000
8.75%, 8/15/00
7,300,000 8,296,902
-------------
Total U.S. Government Obligations (Cost $175,090,043)
177,247,742
DATE
STRIKE CONTRACTS
=====================================================================
===============================================================
PUT OPTIONS PURCHASED - 0.0%
- ------------------------------------------------------------------------------
- ----------------------------------------
- --------------
Government National Mortgage Assn., 7%, 12/15/22, Put
Opt. (Cost $206,250) Mar. 96
$100.31 30,000
112,500
- ------------------------------------------------------------------------------
- ----------------------------------------
- --------------
TOTAL INVESTMENTS, AT VALUE (COST $643,195,441)
116.3% 657,538,652
- ------------------------------------------------------------------------------
- ----------------------------------------
- --------------
LIABILITIES IN EXCESS OF OTHER ASSETS
(16.3)
(92,256,631)
----------- -------------
NET ASSETS
100.0% $565,282,021
=========== =============
<FN>
1. When-issued security to be delivered and settled after December 31,
1995.
2. Represents the current interest rate for a variable rate bond.
Variable rate bonds known as "inverse floaters" pay interest at a rate
that varies inversely with short-term interest rates. As interest rates
rise, inverse floaters produce less current income. Their price may be
more volatile than the price of a comparable fixed-rate security. Inverse
floaters amount to $1,691,593 or 0.30% of the Fund's net assets at
December 31, 1995.
3. Interest-Only Strips represent the right to receive the monthly
interest payments on an underlying pool of mortgage loans. These
securities typically decline in price as interest rates decline. Most
other fixed-income securities increase in price when interest rates
decline. The principal amount of the underlying pool represents the
notional amount on which current interest is calculated. The price of
these securities is typically more sensitive to changes in prepayment
rates than traditional mortgage-backed securities (for example, GNMA
pass-throughs). Interest rates disclosed represent current yields based
upon the current cost basis and estimated timing and amount of future
cash flows.
4. 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.
5. Represents a security sold under Rule 144A, which is exempt from
registration under the Securities Act of 1933, as amended. This security
has been determined to be liquid under guidelines established by the
Board of Trustees. These securities amount to $10,125,605 or 1.79% of the
Fund's net assets, at December 31, 1995.
6. Represents the current interest rate for a variable rate security.
7. For zero coupon bonds, the interest rate shown is the effective yield
on the date of purchase.
</FN>
</TABLE>
<TABLE>
<CAPTION>
8. A sufficient amount of liquid assets has been designated to cover
outstanding written put options, as follows:
FACE
SUBJECT EXPIRATION
EXERCISE PREMIUM
MARKET VALUE
TO CALL DATE
PRICE RECEIVED SEE NOTE
1
<S> <C> <C> <C>
<C> <C>
- ------------------------------------------------------------------------------
- -----------------------------------------
U.S. Treasury Nts., 5.875%, 11/15/05 1,000,000 3/96
$100.78 $206,025
$125,625
</TABLE>
See accompanying Notes to Financial Statements.
8 Oppenheimer U.S. Government Trust
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES December 31,
1995(Unaudited)
<S> <C>
<C>
=====================================================================
===============================================================
ASSETS Investments, at value (cost $643,195,441) - see
accompanying statement
$657,538,652
- ------------------------------------------------------------------------------
- ---------------------------
Receivables:
Investments sold
13,517,535
Interest and principal paydowns
5,087,748
Shares of beneficial interest sold
1,755,057
- ------------------------------------------------------------------------------
- ---------------------------
Other
36,711
-------------
Total assets
677,935,703
=====================================================================
===============================================================
LIABILITIES Bank overdraft
250,959
- ------------------------------------------------------------------------------
- ---------------------------
Options written, at value (premiums received $206,025)
- -
see accompanying statement - Note 5
125,625
- ------------------------------------------------------------------------------
- ---------------------------
Payables and other liabilities:
Investments purchased on a when-issued basis
107,315,823
Shares of beneficial interest redeemed
3,722,071
Dividends
709,670
Distribution and service plan fees
293,440
Trustees' fees
156,856
Shareholder reports
31,536
Transfer and shareholder servicing agent fees
11,396
Other
36,306
-------------
Total liabilities
112,653,682
=====================================================================
===============================================================
NET ASSETS
$565,282,021
-------------
-------------
=====================================================================
===============================================================
COMPOSITION OF Paid-in capital
$565,638,168
NET ASSETS
- ------------------------------------------------------------------------------
- ---------------------------
Undistributed net investment income
42,547
- ------------------------------------------------------------------------------
- ---------------------------
Accumulated net realized loss on investment
transactions
(14,822,305)
- ------------------------------------------------------------------------------
- ---------------------------
Net unrealized appreciation on investments
14,423,611
-------------
Net assets
$565,282,021
-------------
-------------
=====================================================================
===============================================================
NET ASSET VALUE Class A Shares:
PER SHARE Net asset value and redemption price per share (based
on
net assets of $523,794,745 and 54,196,215 shares of
beneficial interest outstanding)
$9.66
Maximum offering price per share (net asset value plus
sales charge
of 4.75% of offering price)
$10.14
- ------------------------------------------------------------------------------
- ---------------------------
Class B Shares:
Net asset value, redemption price and offering price
per share (based on
net assets of $23,809,175 and 2,465,857 shares of
beneficial interest outstanding)
$9.66
- ------------------------------------------------------------------------------
- ---------------------------
Class C Shares:
Net asset value, redemption price and offering price
per share (based on
net assets of $17,678,101 and 1,831,190 shares of
beneficial interest outstanding)
$9.65
</TABLE>
See accompanying Notes to Financial Statements.
9 Oppenheimer U.S. Government Trust
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS For the Six Months Ended
December 31,
1995(Unaudited)
<S> <C>
<C>
=====================================================================
===============================================================
INVESTMENT INCOME Interest
$17,931,579
=====================================================================
===============================================================
EXPENSES Management fees - Note 4
1,336,594
- ------------------------------------------------------------------------------
- ---------------------------
Distribution and service plan fees - Note 4:
Class A
496,043
Class B
52,410
Class C
66,307
- ------------------------------------------------------------------------------
- ---------------------------
Transfer and shareholder servicing agent fees - Note
4
268,597
- ------------------------------------------------------------------------------
- ---------------------------
Shareholder reports
119,476
- ------------------------------------------------------------------------------
- ---------------------------
Trustees' fees and expenses
46,116
- ------------------------------------------------------------------------------
- ---------------------------
Custodian fees and expenses
38,446
- ------------------------------------------------------------------------------
- ---------------------------
Legal and auditing fees
30,740
- ------------------------------------------------------------------------------
- ---------------------------
Insurance expenses
11,998
- ------------------------------------------------------------------------------
- ---------------------------
Registration and filing fees:
Class A
35,369
Class B
7,956
Class C
1,970
- ------------------------------------------------------------------------------
- ---------------------------
Other
33,537
------------
Total expenses
2,545,559
------------
Less assumption of expenses by OppenheimerFunds, Inc.
- - Note 4
(38,982)
------------
Net expenses
2,506,577
=====================================================================
===============================================================
NET INVESTMENT INCOME
15,425,002
=====================================================================
===============================================================
REALIZED AND Net realized gain (loss) on:
UNREALIZED GAIN Investments
5,271,879
Closing of futures contracts - Note 7
(952,976)
Closing of options written - Note 5
(90,859)
------------
Net realized gain
4,228,044
- ------------------------------------------------------------------------------
- ----------------------------
Net change in unrealized appreciation or depreciation
on investments
5,039,536
------------
Net realized and unrealized gain
9,267,580
=====================================================================
===============================================================
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
$24,692,582
------------
------------
</TABLE>
See accompanying Notes to Financial Statements.
10 Oppenheimer U.S. Government Trust
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED YEAR
ENDED
DECEMBER 31, 1995 JUNE 30,
(UNAUDITED) 1995
<S> <C>
<C> <C>
=====================================================================
===============================================================
OPERATIONS Net investment income
$15,425,002
$22,905,201
- ------------------------------------------------------------------------------
- ---------------------------
Net realized gain
4,228,044 2,180,093
---------------------------------
Net change in unrealized appreciation or depreciation
5,039,536
8,115,444
---------------------------------
Net increase in net assets resulting
from operations
24,692,582 33,200,738
=====================================================================
===============================================================
DIVIDENDS AND Dividends from net investment income:
DISTRIBUTIONS Class A
(14,721,535)
(22,498,787)
TO SHAREHOLDERS Class B
(329,380)
--
Class C
(418,087) (416,947)
=====================================================================
===============================================================
BENEFICIAL INTEREST Net increase (decrease) in net assets resulting from
TRANSACTIONS beneficial interest transactions - Note 2:
Class A
202,612,081 (7,455,681)
Class B
23,420,648 --
Class C
6,400,187 6,508,757
- ------------------------------------------------------------------------------
- ----------------------------------------
- --------------
NET ASSETS Total increase
241,656,496
9,338,080
- ------------------------------------------------------------------------------
- ---------------------------
Beginning of period
323,625,525
314,287,445
---------------------------------
End of period (including undistributed
net investment income of $42,547 and
$87,075, respectively)
$565,282,021
$323,625,525
---------------------------------
---------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
11 Oppenheimer U.S. Government Trust
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------
- ------
CLASS A
- ------------------------------------------------------------------------------
- ------
SIX MONTHS
ENDED
DECEMBER 31, YEAR ENDED JUNE
30,
1995(UNAUDITED) 1995
1994 1993 1992
1991
<S> <C> <C>
<C> <C> <C> <C>
=====================================================================
===============================================================
PER SHARE OPERATING DATA:
Net asset value, beginning of period $9.51 $9.20
$9.95 $9.73 $9.25
$9.24
- ------------------------------------------------------------------------------
- ----------------------------------------
- --------------
Income (loss) from investment operations:
Net investment income .34 .68
.67 .68 .69 .83
Net realized and unrealized gain (loss) .15 .31
(.74) .22 .48
.02
- ------------------------------------------------------------------------------
- ----------------------------------------
- --------------
Total income (loss) from investment
operations .49 .99
(.07) .90 1.17 .85
- ------------------------------------------------------------------------------
- ----------------------------------------
- --------------
Dividends and distributions to shareholders:
Dividends from net investment income (.34) (.68)
(.64) (.68) (.69)
(.84)
Dividends in excess of net investment
income -- --
(.01) -- -- --
Tax return of capital distribution -- --
(.03) -- -- --
- ------------------------------------------------------------------------------
- ----------------------------------------
- --------------
Total dividends and distributions
to shareholders (.34) (.68)
(.68) (.68) (.69) (.84)
- ------------------------------------------------------------------------------
- ----------------------------------------
- --------------
Net asset value, end of period $9.66 $9.51
$9.20 $9.95 $9.73
$9.25
=====================================================================
================
=====================================================================
===============================================================
TOTAL RETURN, AT NET ASSET VALUE(3) 5.22% 11.22%
(1.17)%
9.55% 13.05% 9.53%
=====================================================================
===============================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $523,795 $312,607
$310,027 $380,916
$395,863 $342,220
- ------------------------------------------------------------------------------
- ----------------------------------------
- --------------
Average net assets (in thousands) $411,013 $307,306
$355,698 $401,789
$376,532 $299,144
- ------------------------------------------------------------------------------
- ----------------------------------------
- --------------
Ratios to average net assets:
Net investment income 7.11%(4) 7.32%
6.61% 6.90% 7.23%
8.93%
Expenses, before voluntary reimbursement
by the Manager 1.12%(4) 1.09%
1.14% 1.17% 1.17%
1.19%
Expenses, net of voluntary reimbursement
by the Manager 1.10%(4) N/A
N/A N/A N/A
N/A
- ------------------------------------------------------------------------------
- ----------------------------------------
- --------------
Portfolio turnover rate(5) 156.8% 303.5%
139.5% 96.8% 207.8%
133.9%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
- -----------------------------------------------------------------------
CLASS B CLASS
C
- -----------------------------------------------------------------------
SIX
MONTHS
PERIOD ENDED ENDED
DECEMBER 31,
DECEMBER 31, YEAR ENDED JUNE
30,
1995 (UNAUDITED)(2) 1995
(UNAUDITED) 1995
1994(1)
<S> <C> <C>
<C> <C>
=====================================================================
===================================================
PER SHARE OPERATING DATA:
Net asset value, beginning of period $9.42
$9.50 $9.19 $9.83
- ------------------------------------------------------------------------------
- ------------------------------------------
Income (loss) from investment operations:
Net investment income .26
.30 .61 .33
Net realized and unrealized gain (loss) .24
.15 .30 (.64)
- ------------------------------------------------------------------------------
- ------------------------------------------
Total income (loss) from investment
operations .50
.45 .91 (.31)
- ------------------------------------------------------------------------------
- ------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.26)
(.30) (.60) (.33)
Dividends in excess of net investment
income --
- -- -- --
Tax return of capital distribution --
- -- -- --
- ------------------------------------------------------------------------------
- ------------------------------------------
Total dividends and distributions
to shareholders (.26)
(.30) (.60) (.33)
- ------------------------------------------------------------------------------
- ------------------------------------------
Net asset value, end of period $9.66
$9.65 $9.50 $9.19
=====================================================================
====
=====================================================================
===================================================
TOTAL RETURN, AT NET ASSET VALUE(3) 5.63%
4.82% 10.31%
(3.12)%
=====================================================================
===================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $23,809
$17,678 $11,019
$4,261
- ------------------------------------------------------------------------------
- ------------------------------------------
Average net assets (in thousands) $11,783
$13,183 $6,503 $2,173
- ------------------------------------------------------------------------------
- ------------------------------------------
Ratios to average net assets:
Net investment income 6.18%(4)
6.29%(4) 6.44%
5.97%(4)
Expenses, before voluntary reimbursement
by the Manager 1.99%(4)
1.89%(4) 1.89% 1.96%(4)
Expenses, net of voluntary reimbursement
by the Manager 1.93%(4)
1.88%(4) N/A N/A
- ------------------------------------------------------------------------------
- ------------------------------------------
Portfolio turnover rate(5) 156.8%
156.8% 303.5% 139.5%
<FN>
1. For the period from December 1, 1993 (inception of offering) to June 30,
1994.
2. For the period from July 21, 1995 (inception of offering) to December 31,
1995.
3. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period, with all dividends and distributions reinvested
in additional shares on the reinvestment date, and redemption at the net asset
value calculated on the last business day of the fiscal period. Sales charges
are not reflected in the total returns. Total returns are not annualized for
periods of less than one full year.
4. Annualized.
5. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities owned
during the period. Securities with a maturity or expiration date at the time of
acquisition of one year or less are excluded from the calculation. Purchases and
sales of investment securities (excluding short-term securities) for the period
ended December 31, 1995 were $858,066,577 and $767,726,304, respectively.
See accompanying Notes to Financial Statements.
</FN>
</TABLE>
12 Oppenheimer U.S. Government Trust
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
=====================================================================
===========
1. SIGNIFICANT ACCOUNTING POLICIES
Oppenheimer U.S. Government Trust (the Fund) is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company. The Fund's investment objective is to seek high current
income, preservation of capital and maintenance of liquidity primarily through
investments in debt instruments issued or guaranteed by the U.S. Government or
its agencies or instrumentalities. The Fund's investment advisor is
OppenheimerFunds, Inc. (the Manager). The Fund offers Class A, Class B and Class
C shares. Class A shares are sold with a front-end sales charge. Class B and C
shares may be subject to a contingent deferred sales charge. All 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. The following is a summary of significant
accounting policies consistently followed by the Fund.
- --------------------------------------------------------------------------------
INVESTMENT VALUATION. Portfolio securities are valued at the close of the New
York Stock Exchange on each trading day. Listed and unlisted securities for
which such information is regularly reported are valued at the last sale price
of the day or, in the absence of sales, at values based on the closing bid or
asked price or the last sale price on the prior trading day. Long-term and
short-term "non-money market" debt securities are valued by a portfolio pricing
service approved by the Board of Trustees. Such securities which cannot be
valued by the approved portfolio pricing service are valued using
dealer-supplied valuations provided the Manager is satisfied that the firm
rendering the quotes is reliable and that the quotes reflect current market
value, or are valued under consistently applied procedures established by the
Board of Trustees to determine fair value in good faith. Short-term "money
market type" debt securities having a remaining maturity of 60 days or less are
valued at cost (or last determined market value) adjusted for amortization to
maturity of any premium or discount. Options are valued based upon the last sale
price on the principal exchange on which the option is traded or, in the absence
of any transactions that day, the value is based upon the last sale price on the
prior trading date if it is within the spread between the closing bid and asked
prices. If the last sale price is outside the spread, the closing bid or asked
price closest to the last reported sale price is used.
- --------------------------------------------------------------------------------
SECURITIES PURCHASED ON A WHEN-ISSUED BASIS. Delivery and payment for securities
that have been purchased by the Fund on a forward commitment or when-issued
basis can take place a month or more after the transaction date. During this
period, such securities do not earn interest, are subject to market fluctuation
and may increase or decrease in value prior to their delivery. The Fund
maintains, in a segregated account with its custodian, assets with a market
value equal to the amount of its purchase commitments. The purchase of
securities on a when-issued or forward commitment basis may increase the
volatility of the Fund's net asset value to the extent the Fund makes such
purchases while remaining substantially fully invested. As of December 31, 1995,
the Fund had entered into outstanding when-issued or forward commitments of
$107,315,823.
In connection with its ability to purchase securities on a when-issued or
forward commitment basis, the Fund may enter into mortgage "dollar-rolls" in
which the Fund sells securities for delivery in the current month and
simultaneously contracts with the same counterparty to repurchase similar (same
type, coupon and maturity) but not identical securities on a specified future
date. The Fund records each dollar-roll as a sale and a new purchase
transaction.
- --------------------------------------------------------------------------------
ALLOCATION OF INCOME, EXPENSES, AND GAINS AND LOSSES. Income, expenses (other
than those attributable to a specific class) and gains and losses are allocated
daily to each class of shares based upon the relative proportion of net assets
represented by such class. Operating expenses directly attributable to a
specific class are charged against the operations of that class.
- --------------------------------------------------------------------------------
FEDERAL TAXES. The Fund intends to continue to comply with provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income, including any net realized gain on
investments not offset by loss carryovers, to shareholders. Therefore, no
federal income or excise tax provision is required.
- --------------------------------------------------------------------------------
TRUSTEES' FEES AND EXPENSES. The Fund has adopted a nonfunded retirement plan
for the Fund's independent trustees. Benefits are based on years of service and
fees paid to each trustee during the years of service. During the six months
ended December 31, 1995, a provision of $19,575 was made for the Fund's
projected benefit obligations, resulting in an accumulated liability of $127,488
at December 31, 1995.
13 Oppenheimer U.S. Government Trust
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)(Continued)
=====================================================================
===========
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.
- --------------------------------------------------------------------------------
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. The character of the
distributions made during the year from net investment income or net realized
gains may differ from their ultimate characterization for federal income tax
purposes. Also, due to timing of dividend distributions, the fiscal year in
which amounts are distributed may differ from the year that the income or
realized gain (loss) was recorded by the Fund.
- --------------------------------------------------------------------------------
OTHER. Investment transactions are accounted for on the date the investments are
purchased or sold (trade date). Discount on securities purchased is amortized
over the average life of the respective securities. Realized gains and losses on
investments and unrealized appreciation and depreciation are determined on an
identified cost basis, which is the same basis used for federal income tax
purposes.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates.
=====================================================================
===========
2. SHARES OF BENEFICIAL INTEREST
The Fund has authorized an unlimited number of no par value shares of beneficial
interest of each class. Transactions in shares of beneficial interest were as
follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
DECEMBER 31, 1995(1) YEAR ENDED
JUNE 30, 1995
- -------------------------- ------------------------
SHARES
AMOUNT SHARES
AMOUNT
<S> <C>
<C> <C> <C>
- ------------------------------------------------------------------------------
- ---------------------------
Class A:
Sold 6,444,591
$ 61,459,140 7,076,177
$65,369,039
Dividends reinvested 1,203,565
11,492,217 1,868,269
17,288,287
Issued in connection with the
acquisition of:
Oppenheimer Mortgage
Income Fund - Note 6 8,262,838
77,918,563 --
--
Quest for Value U.S. Government
Income Fund - Note 6 10,598,976
101,114,231 --
--
Redeemed (5,184,569)
(49,372,070) (9,758,134)
(90,113,007)
-----------
- ------------- ----------- ------------
Net increase (decrease) 21,325,401
$202,612,081 (813,688)
$(7,455,681)
===========
============= ===========
============
Class B:
Sold 970,590
$ 9,246,092 -- --
Dividends reinvested 21,506
206,034 -- --
Issued in connection with the
acquisition of:
Oppenheimer Mortgage
Income Fund - Note 6 683,099
6,434,794 --
- --
Quest for Value U.S. Government
Income Fund - Note 6 967,755
9,222,705 --
- --
Redeemed (177,093)
(1,688,977) -- --
----------
- ------------- ----------- ------------
Net increase 2,465,857
$ 23,420,648 -- --
==========
============= ===========
============
Class C:
Sold 749,763
$ 7,134,565 1,086,358
$10,120,239
Dividends reinvested 35,464
338,242 35,316
327,690
Issued in connection with the
acquisition of Quest for
Value U.S. Government
Income Fund - Note 6 284,411
2,710,439 --
- --
Redeemed (398,181)
(3,783,059) (425,453)
(3,939,172)
----------
- ------------- ----------- ------------
Net increase 671,457
$ 6,400,187 696,221 $
6,508,757
==========
============= ===========
============
</TABLE>
1. For the six months ended December 31, 1995 for
Class A and Class C shares and for the period from
July 21, 1995 (inception of offering) to December 31,
1995 for Class B shares.
14 Oppenheimer U.S. Government Trust
<PAGE>
=====================================================================
===========
3. UNREALIZED GAINS AND LOSSES ON INVESTMENTS
At December 31, 1995, net unrealized appreciation on investments of $14,423,611
was composed of gross appreciation of $20,213,082, and gross depreciation of
$5,789,471.
=====================================================================
===========
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 .65% of the first
$200 million of average annual net assets of the Fund, .60% of the next $100
million, .57% of the next $100 million, .55% of the next $400 million and .50%
of net assets in excess of $800 million. The Manager has agreed to reimburse the
Fund if aggregate expenses (with specified exceptions) exceed the most stringent
state regulatory limit on Fund expenses.
The Manager has agreed to reimburse the Fund for SEC fees incurred in connection
with the acquisition of Quest for Value U.S. Government Income Fund.
For the six months ended December 31, 1995, commissions (sales charges paid by
investors) on sales of Class A shares totaled $384,430, of which $114,369 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 $239,663 and $49,398, of which $9,192 and $6,498,
respectively, was paid to an affiliated broker/dealer. During the six months
ended December 31, 1995, OFDI received contingent deferred sales charges of
$33,148 and $4,515, 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.
Under separate approved plans, each class may expend up to .25% of its net
assets annually to compensate OFDI for costs incurred in connection with the
personal service and maintenance of accounts that hold shares of the Fund,
including amounts paid to brokers, dealers, banks and other institutions. In
addition, Class B and Class C shares are subject to an asset-based sales charge
of .75% of net assets annually, to compensate OFDI for sales commissions paid
from its own resources at the time of sale and associated financing costs. In
the event of termination or discontinuance of the Class B or Class C plan, the
Board of Trustees may allow the Fund to continue payment of the asset-based
sales charge to OFDI for distribution expenses incurred on Class B or Class C
shares sold prior to termination or discontinuance of the plan. At December 31,
1995, OFDI had incurred unreimbursed expenses of $529,319 for Class B and
$210,967 for Class C. During the six months ended December 31, 1995, OFDI paid
$32,019, $249 and $4,785, respectively, to an affiliated broker/dealer as
compensation for Class A, Class B and Class C personal service and maintenance
expenses, and retained $46,217 and $45,920, respectively, as compensation for
Class B and Class C sales commissions and service fee advances, as well as
financing costs.
=====================================================================
===========
5. OPTION ACTIVITY
The Fund may buy and sell put and call options, or write covered put and call
options on portfolio securities in order to produce incremental earnings or
protect against changes in the value of portfolio securities.
The Fund generally purchases put options or writes covered call options to hedge
against adverse movements in the value of portfolio holdings. When an option is
written, the Fund receives a premium and becomes obligated to sell or purchase
the underlying security at a fixed price, upon exercise of the option.
Options are valued daily based upon the last sale price on the principal
exchange on which the option is traded and unrealized appreciation or
depreciation is recorded. The Fund will realize a gain or loss upon the
expiration or closing of the option transaction. When an option is exercised,
the proceeds on sales for a written call option, the purchase cost for a written
put option, or the cost of the security for a purchased put or call option is
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.
15 Oppenheimer U.S. Government Trust
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)(Continued)
=====================================================================
===========
5. OPTION ACTIVITY (CONTINUED)
The risk in writing a call option is that the Fund gives up the opportunity for
profit if the market price of the security increases and the option is
exercised. The risk in writing a put option is that the Fund may incur a loss if
the market price of the security decreases and the option is exercised. The risk
in buying an option is that the Fund pays a premium whether or not the option is
exercised. The Fund also has the additional risk of not being able to enter into
a closing transaction if a liquid secondary market does not exist.
Written option activity for the six months ended December 31, 1995 was as
follows:
<TABLE>
<CAPTION>
PUT OPTIONS
- --------------------------
NUMBER OF
AMOUNT OF
OPTIONS
PREMIUMS
<S> <C>
<C>
- ----------------------------------------------------------------
Options outstanding at
June 30, 1995 --
--
Options written 38,080
$279,931
Options closed (22,000)
(73,906)
--------
---------
Options outstanding at
December 31, 1995 16,080
$206,025
========
=========
</TABLE>
=====================================================================
===========
6. ACQUISITION OF OPPENHEIMER MORTGAGE INCOME FUND AND QUEST FOR
VALUE U.S.
GOVERNMENT INCOME FUND
On July 28, 1995, the Fund acquired all of the net assets of Oppenheimer
Mortgage Income Fund, pursuant to an Agreement and Plan of Reorganization
approved by the Oppenheimer Mortgage Income Fund shareholders on July 12, 1995.
The Fund issued 8,262,838 and 683,099 shares of Class A and Class B beneficial
interest, respectively, valued at $77,918,563 and $6,434,794 in exchange for the
net assets, resulting in combined Class A net assets of $385,440,401 and Class
B
net assets of $6,806,465 on July 28, 1995. The net assets acquired included net
unrealized appreciation of $844,310. The exchange qualifies as a tax-free
reorganization for federal income tax purposes.
On November 24, 1995, the Fund acquired all of the net assets of Quest For Value
U.S. Government Income Fund, pursuant to an Agreement and Plan of Reorganization
approved by the Quest For Value U.S. Government Income Fund shareholders on
November 16, 1995. The Fund issued 10,598,976, 967,755, and 284,411 shares of
Class A, Class B, and Class C beneficial interest, respectively, valued at
$101,114,231, $9,222,705 and $2,710,439 in exchange for the net assets,
resulting in combined Class A net assets of $518,859,988, Class B net assets of
$21,270,443, and Class C net assets of $16,422,311 on November 24, 1995. The net
assets acquired included net unrealized depreciation of $533,506. The exchange
qualifies as a tax-free reorganization for federal income tax purposes.
=====================================================================
===========
7. 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.
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.
16 Oppenheimer U.S. Government Trust
<PAGE>
OPPENHEIMER U.S. GOVERNMENT TRUST
=====================================================================
===========
OFFICERS AND TRUSTEES
Leon Levy, Chairman of the Board of Trustees
Robert G. Galli, Trustee
Benjamin Lipstein, Trustee
Bridget A. Macaskill, Trustee and President
Elizabeth B. Moynihan, Trustee
Kenneth A. Randall, Trustee
Edward V. Regan, Trustee
Russell S. Reynolds, Jr., Trustee
Sidney M. Robbins, Trustee
Donald W. Spiro, Trustee
Pauline Trigere, Trustee
Clayton K. Yeutter, Trustee
David Rosenberg, Vice President
George C. Bowen, Treasurer
Robert J. Bishop, Assistant Treasurer
Scott Farrar, Assistant Treasurer
Andrew J. Donohue, Secretary
Robert G. Zack, Assistant Secretary
=====================================================================
===========
INVESTMENT ADVISOR
OppenheimerFunds, Inc.
=====================================================================
===========
DISTRIBUTOR
OppenheimerFunds Distributors, Inc.
=====================================================================
===========
TRANSFER AND SHAREHOLDER SERVICING AGENT
OppenheimerFunds Services
=====================================================================
===========
CUSTODIAN OF PORTFOLIO SECURITIES
Citibank, N.A.
=====================================================================
===========
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
=====================================================================
===========
LEGAL COUNSEL
Gordon Altman Butowsky Weitzen Shalov & Wein
The financial statements included herein have been taken from the records of the
Fund without examination by the independent auditors.
This is a copy of a report to shareholders of Oppenheimer U.S. Government Trust.
This report must be preceded or accompanied by a Prospectus of Oppenheimer U.S.
Government Trust. For material information concerning the Fund, see the
Prospectus.
Shares of Oppenheimer funds are not deposits or obligations of any bank, are not
guaranteed by any bank, and are not insured by the FDIC or any other agency, and
involve investment risks, including possible loss of the principal amount
invested.
17 Oppenheimer U.S. Government Trust
<PAGE>
- -----------------------
OPPENHEIMERFUNDS FAMILY
- -----------------------
=====================================================================
===========
OppenheimerFunds offers over 35 funds designed to fit virtually
every investment goal. Whether you're investing for retirement,
your children's education or tax-free income, we have the funds
to help you seek your objective.
When you invest with OppenheimerFunds, you can feel comfor-
table knowing that you are investing with a respected financial
institution with over 35 years of experience in helping people
just like you reach their financial goals. And you're investing
with a leader in global, growth stock and flexible fixed-income
investments--with over 2.8 million shareholder accounts and more
than $41 billion under Oppenheimer's management and that of our
affiliates.
At OppenheimerFunds, we don't charge a fee to exchange
shares. And you can exchange shares easily by mail or by tele-
phone.(1) For more information on Oppenheimer funds, please con-
tact your financial advisor or call us at 1-800-525-7048 for a
prospectus. You may also write us at the address shown on the
back cover. As always, please read the prospectus carefully
before you invest.
=====================================================================
===========
STOCK FUNDS Global Emerging Growth Fund Growth Fund
Enterprise Fund Global Fund
Discovery Fund Quest Global Value Fund
Quest Small Cap Value Fund Oppenheimer Fund
Gold & Special Minerals Fund Value Stock Fund
Target Fund Quest Value Fund
=====================================================================
===========
STOCK & BOND Main Street Income & Growth Fund Global Growth & Income Fund
FUNDS Quest Opportunity Value Fund Equity Income Fund
Total Return Fund Asset Allocation Fund
Quest Growth & Income Value Fund Strategic Income & Growth Fund
=====================================================================
===========
BOND FUNDS International Bond Fund Bond Fund
High Yield Fund U.S. Government Trust
Strategic Income Fund Limited-Term Government Fund
Champion Income Fund
=====================================================================
===========
TAX-EXEMPT California Tax-Exempt Fund(2) Pennsylvania Tax-Exempt Fund(2)
FUNDS Florida Tax-Exempt Fund(2) Tax-Free Bond Fund
New Jersey Tax-Exempt Fund(2) Insured Tax-Exempt Fund
New York Tax-Exempt Fund(2) Intermediate Tax-Exempt Fund
=====================================================================
===========
MONEY MARKET Money Market Fund Cash Reserves
FUNDS
1. Exchange privileges are subject to change or termination.
Shares may be exchanged only for shares of the same class of
eligible funds.
2. Available only to investors in certain states.
Oppenheimer funds are distributed by OppenheimerFunds
Distributor, Inc., Two World Trade Center, New York, NY
10048-0203.
-c-Copyright 1996 OppenheimerFunds, Inc. All rights reserved.
18 Oppenheimer U.S. Government Trust
<PAGE>
INFORMATION
GENERAL INFORMATION
Monday-Friday 8:30 a.m.-8 p.m. ET
Saturday 10 a.m.-2 p.m. ET
- --------------
1-800-525-7048
- --------------
TELEPHONE TRANSACTIONS
Monday-Friday 8:30 a.m.-8 p.m. ET
- --------------
1-800-852-8457
- --------------
PHONELINK
24 hours a day, automated
information and transactions
- --------------
1-800-533-3310
- --------------
TELECOMMUNICATIONS DEVICE
FOR THE DEAF (TDD)
Monday-Friday 8:30 a.m.-8 p.m. ET
- --------------
1-800-843-4461
- --------------
OPPENHEIMERFUNDS
INFORMATION HOTLINE
24 hours a day, timely and insightful
messages on the economy and
issues that affect your investments
- --------------
1-800-835-3104
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RS0220.001.1295 February 28, 1996
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"HOW MAY I HELP YOU?" [PHOTO]
Jennifer Leonard, Customer Service Representative
OppenheimerFunds Services
As an Oppenheimer funds shareholder, you have some special privileges. Whether
it's automatic investment plans, informative newsletters and hotlines, or ready
account access, you can benefit from services designed to make investing simple.
And when you need help, our Customer Service Representatives are only a
toll-free phone call away. They can provide information about your account and
handle administrative requests. You can reach them at our General Information
number.
When you want to make a transaction, you can do it easily by calling our
toll-free Telephone Transactions number. And, by enrolling in AccountLink, a
convenient service that "links" your Oppenheimer funds accounts and your bank
checking or savings account, you can use the Telephone Transactions number to
make investments.
For added convenience, you can get automated information with
OppenheimerFunds PhoneLink service, available 24 hours a day, 7 days a week.
PhoneLink gives you access to a variety of fund, account, and market
information. Of course, you can always speak with a Customer Service
Representative during the General Information hours shown at the left.
You can count on us whenever you need assistance. That's why the
International Customer Service Association, an independent, nonprofit
organization made up of over 3,200 customer service management professionals
from around the country, honored the Oppenheimer fund's transfer agent,
OppenheimerFunds Services, with their Award of Excellence in 1993.
So call us today--we're here to help.
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[LOGO] OPPENHEIMERFUNDS-R- --------------
OppenheimerFunds Distributor, Inc. Bulk Rate
P.O. Box 5270 U.S. Postage
Denver, CO 80217-5270 PAID
Permit No. 314
Farmingdale, NY
--------------
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
140 GARDEN STREET - HARTFORD, CONNECTICUT 06154 - 1-800-322-CMIA
PROSPECTUS -- OCTOBER 1, 1995
- --------------------------------------------------------------------------------
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC. (COMPANY) is a management
investment company offering a broad range of investment alternatives through
thirteen distinct mutual funds, including the following funds (Accounts):
CONNECTICUT MUTUAL LIQUID ACCOUNT (LIQUID ACCOUNT) is a money market fund
offering a single class of shares. The Account seeks high current income
consistent with preservation of capital and maintenance of liquidity by
investing in money market instruments.
AN INVESTMENT IN THE LIQUID ACCOUNT IS NEITHER INSURED NOR GUARANTEED
BY THE
U.S. GOVERNMENT. THE LIQUID ACCOUNT SEEKS TO MAINTAIN A STABLE PRICE
PER SHARE
OF $1.00, BUT THERE CAN BE NO ASSURANCE THAT IT WILL BE ABLE TO DO SO.
CLASS A AND CLASS B SHARES
CONNECTICUT MUTUAL INCOME ACCOUNT (INCOME ACCOUNT) is a short-term bond
fund.
The Account seeks high current income consistent with prudent investment risk
and preservation of capital by investing primarily in fixed income debt
securities having maturities or effective maturities of five years or less.
CONNECTICUT MUTUAL GOVERNMENT SECURITIES ACCOUNT (GOVERNMENT
SECURITIES ACCOUNT)
is a government securities fund. The Account seeks a high level of current
income with a high degree of safety of principal by investing primarily in
securities issued or guaranteed as to principal and interest by the U.S.
Government
and its agencies and in obligations that are fully collateralized or otherwise
fully backed by U.S. Government securities.
CONNECTICUT MUTUAL TOTAL RETURN ACCOUNT (TOTAL RETURN ACCOUNT) is
a balanced
fund. The Account seeks to maximize total investment return (achieved from both
capital appreciation and income) principally by allocating its assets among
stocks, corporate bonds, U.S. Government securities and money market
instruments.
CONNECTICUT MUTUAL GROWTH ACCOUNT (GROWTH ACCOUNT) is a growth fund. The
Account
seeks long term growth of capital by investing primarily in common stocks with
low price-earnings ratios and better than anticipated earnings. Realization of
current income is a secondary consideration.
Please read this prospectus before investing and keep it on file for future
reference. The Prospectus contains important information, including how the
Accounts invest and the services available to shareholders. A Statement of
Additional Information (SAI), dated October 1, 1995, has been filed with the
Securities and Exchange Commission and is incorporated herein by reference (and
is legally considered a part of this prospectus). The SAI is available free upon
request by calling 1-800-322-CMIA.
FOR A PROSPECTUS AND INFORMATION ABOUT OTHER MUTUAL FUNDS OFFERED
BY THE COMPANY
CALL 1-800-234-5606.
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SHARES OF THE ACCOUNTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR
ENDORSED BY, ANY BANK OR OTHER DEPOSITORY INSTITUTION, AND ARE NOT
FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD
OR ANY OTHER GOVERNMENT AGENCY. SHARES OF THE ACCOUNTS INVOLVE
INVESTMENT RISKS,
INCLUDING FLUCTUATIONS IN VALUE AND THE POSSIBLE LOSS OF SOME OR ALL
OF THE
PRINCIPAL INVESTMENT.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospectus Page 1
<PAGE>
Connecticut Mutual Investment Accounts, Inc.
TABLE OF CONTENTS
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PAGE
----
Prospectus Summary...................................................... 3
Your Investment..................................................... 4
Alternative Purchase Plan........................................... 6
Your Shareholder Manual............................................. 7
Summary of Investor Expenses........................................ 9
Financial Highlights.................................................... 11
Investment Objectives and Policies...................................... 12
Your Account............................................................ 16
How to Buy Shares................................................... 16
How to Sell Shares.................................................. 19
How to Exchange Shares.............................................. 20
Investor Services................................................... 21
Transaction Details................................................. 23
Management.............................................................. 25
The Manager......................................................... 25
Breakdown of Expenses............................................... 26
Dividends, Capital Gains and Taxes...................................... 28
The Company............................................................. 30
Performance......................................................... 31
Risk Factors, Securities and Investment Techniques...................... 32
Appendix A: Description of Securities Ratings........................... A-1
Appendix B: Credit Quality Distribution................................. B-1
Prospectus Page 2
<PAGE>
Connecticut Mutual Investment Accounts, Inc.
PROSPECTUS SUMMARY
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CONNECTICUT MUTUAL LIQUID ACCOUNT
CONNECTICUT MUTUAL INCOME ACCOUNT
CONNECTICUT MUTUAL GOVERNMENT SECURITIES ACCOUNT
CONNECTICUT MUTUAL TOTAL RETURN ACCOUNT
CONNECTICUT MUTUAL GROWTH ACCOUNT
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE
DETAILED
INFORMATION APPEARING IN THE BODY OF THIS PROSPECTUS. CROSS-REFERENCES
IN THIS
SUMMARY REFER TO HEADINGS IN THE BODY OF THE PROSPECTUS.
<TABLE>
<S> <C>
INVESTMENT OBJECTIVES Liquid Account is a money market fund
and seeks high
current income consistent with
preservation of capital and
maintenance of liquidity. Income Account is
a short-term
bond fund and seeks high current
income consistent with prudent
investment risk and
preservation of capital. Government
Securities Account is a government
securities
fund and seeks a high level of current
income with a high degree of safety
of
principal and interest. Total Return
Account is a balanced fund seeking
to maximize
total investment return. Growth
Account is a growth fund and seeks long-
term growth
of capital.
INVESTMENT MANAGER G.R. Phelps & Co., Inc. (G.R. Phelps),
an indirect
subsidiary of Connecticut Mutual
Life Insurance Company (Connecticut
Mutual), with over $2.7 billion in
assets under
management.
DISTRIBUTOR Connecticut Mutual Financial Services,
L.L.C. (CMFS), an
indirect subsidiary of
Connecticut Mutual.
ALTERNATIVE PURCHASE PLAN: Each Account, except the Liquid
Account, offers
Class A and Class B shares, each with
different expense levels and a public
offering price that reflects different
sales
charges. The Liquid Account offers a
single class of shares.
/ / CLASS A SHARES Offered at net asset value plus any
applicable sales charge
(maximum is 5.00% of
public offering price) and subject to
Rule 12b-1 fees at the rate of up to
0.25% of
the average daily net assets of the
Class A shares.
/ / CLASS B SHARES Offered at net asset value (a maximum
deferred sales charge
of 5% of the lesser of
the shares' net asset value or the
original purchase price is imposed on
certain
redemptions made within six years of
date of purchase) and subject to
Rule 12b-1 fees
at the rate of up to 1.00% of the
average daily net assets of the Class B
shares.
/ / LIQUID ACCOUNT SHARES Offered at net asset value and subject
to Rule 12b-1
fees at the rate of up to 0.10%
of the average daily net assets of the
shares.
SHARES AVAILABLE THROUGH Many brokerage firms nationwide, or
directly
through the Accounts' distributor, CMFS.
EXCHANGE PRIVILEGES Shares of one Account (other than
Liquid Account) may
be exchanged for shares of the
corresponding class of other Accounts
in the Company without a sales
charge.
Exchanges of shares of Liquid Account
for shares of any other Account
will be subject
to the sales charge applicable to such
other Account.
</TABLE>
Prospectus Page 3
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
<TABLE>
<S> <C>
DIVIDENDS AND Dividends will be paid semi-annually
for Growth Account and
Total Return Account and
OTHER DISTRIBUTIONS monthly for Government Securities
Account and Income
Account from available net
investment income. Dividends from net
investment income of Liquid
Account are
declared daily and paid monthly. All
realized net capital gains, if any, will
be
distributed at least annually.
DIVIDEND REINVESTMENT Distributions may be reinvested in
Account shares of
the same class or in a
corresponding class of the other
Accounts (except Liquid Account) in the
Company
automatically without a sales charge.
See "Investor Services" for a
discussion of
Liquid Account dividend reinvestment
privileges.
FIRST PURCHASE $1000 minimum ($250 for IRAs and
reduced amounts for
retirement plans). Automatic
Investment Plans may be established
without regard to a minimum initial
investment.
SUBSEQUENT PURCHASES $50 minimum.
OTHER FEATURES:
/ /CLASS A SHARES AND Statement of Intention; Quantity
Discounts; Rights of
Accumulation; Reinstatement
LIQUID ACCOUNT SHARES Privilege; Systematic Withdrawal Plan;
Automatic
Investment Plan; Dollar Cost
Averaging Program; Automatic Dividend
Diversification; Check Writing
(Liquid Account
only).
/ / CLASS B SHARES Automatic Investment Plan; Dollar Cost
Averaging Program;
Automatic Dividend
Diversification; Systematic Withdrawal
Plan.
</TABLE>
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YOUR INVESTMENT
THE ACCOUNTS. Each Account is a diversified series of the Company, a registered
open-end management investment company. Each Account's shares are available
through broker/dealers that have entered into agreements to sell shares with the
Accounts' distributor, CMFS. Shares also may be acquired directly through CMFS
or through exchanges of shares of the other accounts in the Company. Shares of
the Liquid Account may be acquired through the exchange of either Class A or
Class B shares of the other Accounts in the Company. See "Your Shareholder
Manual," "How to Buy Shares" and "How to Exchange Shares." Shares may be
redeemed either through broker/ dealers or National Financial Data Services
(Transfer Agent). See "Your Shareholder Manual" and "How to Sell Shares."
INVESTMENT MANAGER. G.R. Phelps is the investment manager (Manager) and
administrator for each of the Accounts. G.R. Phelps provides investment
management and/or administrative services to all of the accounts in the Company
as well as other mutual funds and institutional clients. G.R. Phelps is an
indirect subsidiary of Connecticut Mutual and has been a registered investment
adviser since 1976. Connecticut Mutual is the sixth oldest life insurance
company in the United States, and the oldest life insurance company in
Connecticut.
INVESTMENT OBJECTIVES, TECHNIQUES AND RISK FACTORS. Each Account has a
different
investment objective and policies and is subject to certain risks. See
"Investment Objectives and Policies" and "Risk Factors, Securities and
Investment Techniques."
The LIQUID ACCOUNT seeks as high a level of current income as is consistent with
preservation of capital and maintenance of liquidity by investing exclusively in
money market instruments. These are high quality, short-term U.S. dollar
denominated securities and include U.S. Government obligations, commercial
paper, certificates of deposit, bankers' acceptances, bank deposits and other
corporate debt securities. The Account seeks to maintain a constant net asset
value of $1 per share by investing in securities having an actual or effective
maturity of 365 days or less and maintaining a dollar weighted average portfolio
maturity of 90 days or less. There can be no assurance that the Account will
maintain a stable net asset value per share.
Prospectus Page 4
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
The INCOME ACCOUNT seeks high current income consistent with prudent investment
risk and preservation of capital. The Account invests primarily in corporate
debt securities with remaining maturities of five years or less or mortgage debt
securities with prepayment features which, in the judgment of the Manager, will
result in payment of interest and principal such that the effective maturity of
the securities is five years or less. The Account anticipates maintaining an
average dollar weighted portfolio maturity of generally between two and three
years. The Account invests at least 75% of its total assets in U.S. Government
and U.S. Government-related securities, dollar-denominated foreign government
and corporate securities and short-term investments, all of which are rated at
least investment grade or, if unrated, judged to be of equivalent quality by the
Manager. The Account may invest up to 25% of its assets in lower quality debt
securities (commonly referred to as junk bonds) and preferred stocks. Consistent
with these policies the Account may invest up to 5% of its assets in
non-dollar-denominated securities of foreign issuers.
The GOVERNMENT SECURITIES ACCOUNT seeks a high level of current income with a
high degree of safety of principal. The Account invests primarily in U.S.
Government securities and U.S. Government-related securities, including
collateralized mortgage obligations. The remainder of its assets may be invested
in other investment grade debt obligations and private issuers. The Account may
enter into mortgage dollar roll transactions to enhance its yield.
The TOTAL RETURN ACCOUNT seeks to maximize total investment return principally
by allocating its assets among stocks, bonds and money market instruments. The
Account's debt securities are expected to have a portfolio maturity of 6 to 12
years. The Account may invest up to 25% of its total assets in the aggregate in
debt securities and preferred stocks rated below investment grade (commonly
called junk bonds) and unrated securities determined by the manager to be of
comparable credit quality. Consistent with these policies the Account may invest
to a limited extent in securities of foreign issuers.
The GROWTH ACCOUNT seeks long term growth of capital by investing primarily in
common stocks with low price earning ratios and better than anticipated
earnings. Realization of current income is a
secondary consideration. In selecting investments for the Growth Account, the
Manager uses a quantitative investment discipline in combination with
fundamental securities analysis. The Account may invest the remainder of its
assets in corporate and U.S. Government debt obligations including convertible
bonds rated below investment grade but not rated below B.
RISK FACTORS. There is no assurance that any Account will achieve its investment
objective. Each Account's net asset value (except, generally, Liquid Account's
net asset value) will change reflecting fluctuations in the market value of its
portfolio positions. Any Account's portfolio of fixed income securities will
generally fluctuate inversely with changes in interest rates. Investments by the
Income Account, Total Return Account and Growth Account in lower rated
securities involve greater risk of default and price volatility than higher
rated obligations. Also, investments by the Income Account, Total Return Account
and Growth Account in foreign securities involve risks not normally associated
with U.S. securities relating to political and economic developments and
differences in the regulations to which U.S. and foreign issuers are subject.
Foreign denominated foreign securities also involve risk of adverse changes in
foreign currency exchange rates. An Account's participation in currency
transactions, options and futures transactions and investment in certain
derivative instruments also involve special risks and transaction costs. See
"Risk Factors, Securities and Investment Techniques."
EXPENSES. Each Account pays G.R. Phelps an investment advisory fee based on the
average daily net assets of the Account, as described under "Management -- The
Manager." As the Accounts' distributor, CMFS collects the sales charges imposed
on purchases of Class A shares, and
reallows all or a portion of such charges to broker/dealers that have made such
sales. In addition, CMFS collects any contingent deferred sales charges (CDSC)
that may be imposed on certain redemptions of Class A shares, on redemptions of
Class B shares and on redemptions of shares of the Liquid Account that were
acquired in an exchange from Class B shares of each other Account in the
Company. CMFS also pays broker/ dealers upon their sales of Class B shares and
pays broker/dealers and other financial institutions ongoing commission payments
for servicing shareholder accounts. See "Your Account -- How to Buy Shares."
Prospectus Page 5
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
Pursuant to separate distribution plans for the Liquid Account's shares and for
each of the other Account's Class A shares and Class B shares adopted in
accordance with Rule 12b-1 under the Investment Company Act of 1940, as amended
(1940 Act), each Account may pay CMFS a fee at an annual rate that is a certain
percentage of the average daily net assets of the Liquid Account's shares or the
other Account's Class A shares or Class B shares (as appropriate) as
reimbursement for its expenditures incurred in distributing and servicing the
Liquid Account's shares or the other Account's Class A shares or Class B shares,
respectively.
Each Account pays all expenses not required to be assumed by G.R. Phelps or
other agents. From time to time, G.R. Phelps may agree not to impose all or a
portion of its advisory fee and/or undertake to pay or reimburse an Account for
all or a portion of its expenses not otherwise required to be borne or
reimbursed by G.R. Phelps. See "Management -- Breakdown of Expenses."
- --------------------------------------------------------------------------------
ALTERNATIVE_ PURCHASE_ PLAN
Each Account except the Liquid Account offers investors two classes of shares.
The Liquid Account offers a single class of shares. The primary distinction
between the two classes of shares lies in their sales charge structures and
ongoing expenses. See "Summary of Investor Expenses." Each class bears the
separate expenses of its Rule 12b-1 plan and its transfer agency fees and
expenses. Each class has a separate exchange privilege. See "Your Account -- How
to Exchange Shares" and "The Company." Class A and Class B shares of an Account
represent interests in the same portfolio of investments of that Account and
have the same rights, except as noted. Each class has exclusive voting rights
with respect to its Rule 12b-1 plan. Dividends and other distributions paid by
each Account with respect to its Class A and Class B shares are calculated in
the same manner and at the same time. The per share dividends on Class B shares
of an Account will be lower than those on Class A shares of that Account as a
result of the higher Rule 12b-1 fees applicable with respect to Class B shares.
CLASS A SHARES. An investor who purchases Class A shares pays a sales charge at
the time of purchase. As a result, Class A shares are not subject to any charges
when they are redeemed except as described in "How To Buy Shares -- Contingent
Deferred Sales Charge -- Class A Shares." Certain purchases of Class A shares
qualify for reduced sales charges. See "How To Buy Shares -- Reducing or
Eliminating Your Sales Charge -- Class A Shares." Class A shares currently bear
a Rule 12b-1 fee at an annual rate of up to 0.25% of the Fund's average net
assets attributable to Class A shares.
CLASS B SHARES. Class B shares are sold without an initial sales charge, but are
subject to a CDSC of up to 5.00% if redeemed within six years. Class B shares
also bear a higher Rule 12b-1 fee than Class A shares, currently at an annual
rate of up to 1.00% of the Fund's average net assets attributable to Class B
shares. Class B shares will automatically convert into Class A shares, based on
relative net asset value, eight years after purchase. See "How To Buy Shares --
Purchasing Class B Shares."
CHOOSING AN ALTERNATIVE. Over time, the cumulative expense of the 1.00% annual
Rule 12b-1 fees of the Class B shares will approximate or exceed the expense of
the applicable 5.00% maximum initial sales charge plus the 0.25% Rule 12b-1 fees
of the Class A shares. If you expect to maintain your investment in an Account
over the long-term but do not qualify for a reduced sales charge, you might
elect to purchase Class A shares. Class B investors, however, enjoy the benefit
of permitting all their dollars to work from the time the investments are made.
Any positive investment return on this additional invested amount would
partially or wholly offset the higher annual expenses borne by Class B shares.
Because the timing and amount of the Account's future returns cannot be
predicted, however, there can be no assurance that such a positive return will
be achieved. Class B shareholders pay a CDSC if they are redeemed during the
first six years after purchase, unless a sales charge waiver applies. If you
expect to redeem Class B shares during this period, you
Prospectus Page 6
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
should consider the cost of the applicable CDSC in addition to the annual Class
B Rule 12b-1 fees.
MAXIMUM INVESTMENTS. Class B share purchases over $500,000 will be treated as
purchases of Class A shares or declined.
REDUCED SALES CHARGES. Class A share purchases over $500,000 and Class A share
purchases made under an Account's reduced sales charge plans may be made at a
lower initial sales charge. See "How to Buy Shares" for a complete list of
reduced sales charges applicable to Class A purchases.
WAIVERS OF SALES CHARGES. The entire initial sales charge on Class A shares of
an Account may be waived for certain eligible purchasers and these purchasers'
entire purchase price would be immediately invested in an Account. The CDSC may
be waived upon redemption of certain Class B shares. If you are eligible for
complete waivers of the initial sales charge you should purchase Class A shares.
See "How to Buy Shares" for a complete list of initial sales charge waivers
applicable to Class A purchases and CDSC waivers applicable to Class B
purchases. A 1.00% CDSC is imposed on certain redemptions of Class A shares on
which no initial sales charge was assessed.
The CDSC on the Class B shares and the initial sales charge on the Class A
shares are both intended to compensate CMFS and selling broker/ dealers for
their distribution services. Broker/ dealers may receive different levels of
compensation for selling a particular class of shares of an Account.
See "Your Account" for a more complete description of the sales charges, Rule
12b-1 fees and investor services applicable to shares of the Accounts.
- --------------------------------------------------------------------------------
YOUR SHAREHOLDER MANUAL
<TABLE>
<CAPTION>
INITIAL
SUBSEQUENT
MINIMUM INVESTMENTS INVESTMENT*
INVESTMENT
<S> <C> <C>
- ------------------------------------------------------------------------------
- ------
/ /Automatic Investment Plans $ 0 $50
/ /IRAs and other tax qualified plans; deferred
compensation plans $ 250 $50
/ / All other purchases $1,000 $50
</TABLE>
* Minimums may be waived for certain automated payroll deduction plans.
<TABLE>
<CAPTION>
BUYING SHARES TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
<S> <C> <C>
----------------------------------------------------------------------------
BY MAIL / /Complete and sign the / /Make your check payable
application. to "CMIA." Indicate your
Make your check payable to account number on your
"CMIA." check and mail to the
Mail to CMIA, P.O. Box address printed on your
419694 account statement.
Kansas City, MO 64179-0938.
/ /Exchange by mail: call
1-800-322-CMIA (select
option "2") for
instructions.
----------------------------------------------------------------------------
BY WIRE / /Call 1-800-322-CMIA by / /Call 1-800-322-CMIA by
12:00 noon Eastern Time on 12:00 noon Eastern Time on
the day of investment to the day of investment to
set up your account and arrange a wire
arrange a wire transaction.
transaction.
/ /Wire by 4:00 p.m. Eastern / /Wire by 4:00 p.m. Eastern
Time to: Time to:
State Street Bank and Trust State Street Bank and Trust
Company Company
Bank Routing # 011000028 Bank Routing # 011000028
NFDS Account # 99042129 NFDS Account # 99042129
Specify Account name, class Specify Account name, class
of shares and include your of shares and include your
name and account number. name and account number.
</TABLE>
Prospectus Page 7
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
<TABLE>
<CAPTION>
BUYING SHARES TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
----------------------------------------------------------------------------
<S> <C> <C>
BY PHONE / /Exchange from another / /Exchange from another
1-800-322-CMIA account in the same class account in the same class
(select option (or from the Liquid (or from the Liquid
"2") Account) with the same Account) with the same
registration, including registration, including
name, address and name, address and
taxpayer ID number. taxpayer ID number.
----------------------------------------------------------------------------
AUTOMATICALLY / /You may not open an / /Establish an Automatic
account automatically, but Investment Plan or Dollar
you may complete and sign Cost Averaging Investment
an application; make your Program. Sign up for
check payable to CMIA; these services when
and mail to the address opening your account by
indicated on the completing Section 9 on
application. the enclosed application,
or call 1-800-322-CMIA
for information about
adding these services to
your account or complete
an Automatic Investment
Plan application.
----------------------------------------------------------------------------
SELLING SHARES ACCOUNT TYPE SPECIAL REQUIREMENTS
----------------------------------------------------------------------------
BY MAIL / /Individual, Joint Tenant, / /The letter of instruction
Sole Proprietorship, UGMA, must be signed by all
UTMA persons required to sign
for transactions, exactly
as their names appear on
the account.
Each redemption
request is limited / /Retirement Account / /The account owner should
to $50,000 unless complete a retirement
you have provided distribution form. Call
a signature 1-800-322-CMIA to request
one.
guarantee. / /Trust / /The trustee must sign the
letter indicating capacity
as trustee. If the
trustee's name is not in
the account registration,
provide a copy of the
trust document certified
within the last 60 days.
/ /Business or Organization / /At least one person
authorized by corporate
resolution to act on the
account must sign the
letter. Include a
corporate resolution with
corporate seal or a
signature guarantee.
/ /Executor, Administrator, / /Call 1-800-322-CMIA for
Conservator, Guardian instructions.
----------------------------------------------------------------------------
BY PHONE / /All account types except / /Minimum request: $500,
1-800-322-CMIA retirement unless closing an account.
Limited to $50,000 per
day.
(select option / / All account types / /You may exchange to the
"2") same class of other Accounts
(or to the Liquid Account
shares) if both accounts
are registered with the
same name(s), address and
taxpayer ID number.
----------------------------------------------------------------------------
BY WIRE / /All account types except / /Minimum wire: $1,000.
retirement
/ /Each redemption request
is limited to $50,000 unless
you have provided a
signature guarantee.
/ /A voided check and your
signature, which must be
signature guaranteed,
must accompany a wire
redemption request unless
you elected Telephone
Redemption on the initial
application.
/ /Your wire redemption
request must be received
before 4:00 p.m. Eastern
time for money to be
wired on the next
business day.
</TABLE>
Prospectus Page 8
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
SUMMARY OF INVESTOR EXPENSES
The following table lists Shareholder Transaction Expenses and estimated Annual
Operating Expenses for the current fiscal year related to an investment in
shares of the Liquid Account and Class A and Class B shares of each of the other
Accounts. Annual Operating Expenses are based on expenses for shares of the
Liquid Account and Class A shares incurred in the fiscal year ended December 31,
1994. Annual operating expenses of Class B shares are based on estimated
expenses that would have been incurred during the previous fiscal year had Class
B shares been outstanding.
<TABLE>
<CAPTION>
GOVERNMENT
SECURITIES TOTAL RETURN
GROWTH
INCOME ACCOUNT
ACCOUNT ACCOUNT
ACCOUNT
-----------------
- ---------------- ---------------- -------
LIQUID CLASS CLASS
CLASS CLASS CLASS
CLASS CLASS
ACCOUNT A B
A B A B A
------ ------- -------
- ------- ------ ------- ------ -------
<S> <C> <C> <C>
<C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)............ None 4.00% None
4.00% None 5.00%
None 5.00%
Deferred Sales Load (as a percentage of original
purchase price or redemption proceeds, as
applicable).................................... None(1) None(2) 5.00%
None(2) 5.00% None(2) 5.00%
None(2)
Exchange Fee(3).................................. None None None
None None None None
None
ANNUAL OPERATING EXPENSES OF EACH ACCOUNT
(as a percentage of average net assets)
Management Fees.................................. .50% .625% .625%
.625% .625% .625%
.625% .625%
12b-1 Fees (net of expense limits, if any)....... .00(4) .00(5) 1.00
.00(5) 1.00 .25(5) 1.00
.25(5)
Other Expenses (net of expense limits, if any)... .43 .00(6) .00(6)
.285 .285 .335 .335
.395
---- ----- ------
- ----- ----- ----- ----- -----
TOTAL ANNUAL OPERATING EXPENSES OF EACH
ACCOUNT........................................ .93% .625% 1.625%
.91% 1.91% 1.21%
1.96% 1.27%
---- ----- ------
- ----- ----- ----- ----- -----
---- ----- -----
- ----- ----- ----- ----- -----
<CAPTION>
CLASS
B
------
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)............ None
Deferred Sales Load (as a percentage of original
purchase price or redemption proceeds, as
applicable).................................... 5.00%
Exchange Fee(3).................................. None
ANNUAL OPERATING EXPENSES OF EACH ACCOUNT
(as a percentage of average net assets)
Management Fees.................................. .625%
12b-1 Fees (net of expense limits, if any)....... 1.00
Other Expenses (net of expense limits, if any)... .395
-----
TOTAL ANNUAL OPERATING EXPENSES OF EACH
ACCOUNT........................................ 2.02%
-----
-----
</TABLE>
- ---------
(1)
Shares of the Liquid Account acquired by exchange from Class A or Class B
shares of any other Account which are subject to a CDSC will be subject to a
CDSC if redeemed. The CDSC will be at a rate equal to the CDSC rate on the
original shares when exchanged. See "How To Sell Shares."
(2)
Purchases of $500,000 or more are not subject to an initial sales charge but
may be subject to a contingent deferred sales charge of 1% if the shares are
redeemed within 12 months after the calendar month of purchase. See "How to
Buy Shares -- Contingent Deferred Sales Charge -- Class A Shares."
(3)
All exchanges in excess of 12 exchanges in a 12-month period are subject to an
exchange fee of .75% of the net asset value of the shares redeemed. See
"Exchange Restrictions."
(4)
During the fiscal year ended December 31, 1994, the Account's distributor
agreed not to impose any reimbursement to which it would otherwise have been
entitled pursuant to Liquid Account's Rule 12b-1 distribution plan. Absent
such an agreement, the Liquid Account would have incurred distribution
expenses pursuant to its Rule 12b-1 Plan of .10% of the average daily net
assets of the Account and Total Annual Operating Expenses would have been
1.03% of such assets. The Liquid Account may pay, in 1995, a portion of the
maximum amount payable annually under the Rule 12b-1 plan, which is .10% of
the average daily net assets of the Account.
(5)
Each Account (other than Liquid Account) adopted a Class A Rule 12b-1 plan,
effective January 1, 1995, pursuant to which each such Account may pay CMFS up
to .25% annually of such Account's Class A related average net assets in
reimbursement for distribution and shareholder services. CMFS has temporarily
agreed not to impose any fees to which it would otherwise be entitled under
the Class A Rule 12b-1 plans for Income Account and Government Securities
Account for the current fiscal year. In the absence of such agreements by
CMFS, the Class A Rule 12b-1 fees of each such Account would have been .25% of
the average daily net assets of the Account attributable to its Class A shares
and the total annual operating expenses of Class A shares of Income Account
and Government Securities Account would have been .875% and 1.16%,
respectively. The Rule 12b-1 fees with respect to Class A shares for Total
Return Account and Growth Account have been restated to reflect the imposition
of the full .25% Class A Rule 12b-1 fee for each such Account as of May 1,
1995.
(6)
Until December 31, 1995, CMFS has temporarily agreed to limit the other
expenses (not including Rule 12b-1 fees and other class-specific expenses)
related to the Income Account. In the absence of such an agreement, the
estimated expenses related to Class A shares and Class B shares would be .315%
and .315%, respectively, and estimated Total Annual Operating Expenses of the
Account related to Class A shares and Class B shares for the current fiscal
year would be .94% and 1.94%, respectively.
EXAMPLE: Assuming that an Account's (other than the Liquid Account's) annual
return is 5% and that its operating expenses are exactly as described above,
if you closed your account after the number of years indicated below, for
every $1,000 invested, your investment would bear the following amounts in
total expenses:
<TABLE>
<CAPTION>
GOVERNMENT TOTAL
INCOME
SECURITIES RETURN GROWTH
ACCOUNT
ACCOUNT ACCOUNT ACCOUNT
-------
- ---------- ------- -------
<S> <C> <C>
<C> <C>
CLASS A SHARES
After 1 year................................................ $ 46
$ 49 $ 62 $ 62
After 3 years............................................... 71
73 86 88
After 5 years............................................... 98
99 113 116
After 10 years.............................................. 174
173 189 195
</TABLE>
Prospectus Page 9
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
<TABLE>
<CAPTION>
GOVERNMENT TOTAL
INCOME
SECURITIES RETURN GROWTH
ACCOUNT
ACCOUNT ACCOUNT ACCOUNT
-------
- ---------- ------- -------
CLASS B SHARES
<S> <C> <C>
<C> <C>
ASSUMING COMPLETE REDEMPTION AT END OF PERIOD
After 1 year................................................ $ 67
$ 69 $ 70 $ 71
After 3 years............................................... 98
100 102 103
After 5 years............................................... 122
123 126 129
After 10 years.............................................. 204
204 209 216
ASSUMING NO REDEMPTION
After 1 year................................................ $ 17
$ 69 $ 20 $ 21
After 3 years............................................... 58
100 62 63
After 5 years............................................... 102
123 106 109
After 10 years.............................................. 204
204 209 216
</TABLE>
With respect to the Liquid Account, your investment, based on the same
assumptions as set forth in the paragraph above, would bear the following
amounts in total expenses:
<TABLE>
<S> <C> <C>
After 1 year................................................ $ 9
After 3 years............................................... 30
After 5 years............................................... 51
After 10 years.............................................. 114
</TABLE>
The purpose of the above table and Example is to summarize the aggregate
expenses of Class A and Class B shares of each Account and the shares of the
Liquid Account and to assist investors in understanding the various costs and
expenses that investors in an Account will bear directly or indirectly. See
"Breakdown of Expenses." THESE EXAMPLES ILLUSTRATE THE EFFECT OF EXPENSES,
AND
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES;
ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
Shareholders should be aware that the Accounts' payment of distribution fees may
result in long-term shareholders indirectly paying more than the economic
equivalent of the maximum front-end sales charge permitted by the National
Association of Securities Dealers, Inc. (NASD).
Prospectus Page 10
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following information for the period ended December 31, 1994 has been
derived from audited financial statements together with the auditors' report for
the year ended December 31, 1994 which is included in the Statement of
Additional Information and incorporated herein by reference. The information for
the six months ended June 30, 1995 is unaudited. Additional information about
the performance of Class A shares of each Account and the Liquid Account shares
is contained in the Company's 1994 Annual Report to Shareholders which may be
obtained without charge by calling or writing the Company at the telephone
number or address on the cover page of this Prospectus. No financial highlights
exist for Class B shares.
Selected data for a Class A share and, with respect to the Liquid Account, a
Liquid Account share, of capital stock outstanding throughout the period:
<TABLE>
<CAPTION>
NET
REALIZED DISTRIBUTIONS NET NET
& FROM ASSET ASSET
UNREALIZED NET VALUE VALUE
DIVIDENDS GAIN REALIZED AT AT
NET FROM NET (LOSS) GAIN BEGINNING END
YEARS ENDED INVESTMENT INVESTMENT ON ON OF OF
DECEMBER 31 INCOME INCOME INVESTMENTS INVESTMENTS PERIOD PERIOD
- --------------- ------ -------- ------ ------ ----- -----
<S> <C> <C> <C> <C> <C> <C>
LIQUID ACCOUNT
1985 $.0729 $(.0729) $- $- $1.00 $1.00
1986 .0588 (.0588) - - 1.00 1.00
1987 .0581 (.0581) - - 1.00 1.00
1988 .0664 (.0664) - - 1.00 1.00
1989 .0822 (.0822) - - 1.00 1.00
1990 .0731 (.0731) - - 1.00 1.00
1991 .0522 (.0522) - - 1.00 1.00
1992 .0287 (.0287) - - 1.00 1.00
1993 .0227 (.0227) - - 1.00 1.00
1994 .0334 (.0334) - - 1.00 1.00
6/30/95 .0256 (.0256) - - 1.00 1.00
(unaudited)
GOVERNMENT SECURITIES ACCOUNT
1985(a) .24 (.21) .70 - 10.00 10.73
1986 .92 (.92) .28 (.11) 10.73 10.90
1987 .84 (.84) (.52) (.21) 10.90 10.17
1988 .84 (.85) (.05) (.05) 10.17 10.06
1989 .84 (.84) .52 - 10.06 10.58
1990 .84 (.84) .10 - 10.58 10.68
1991 .85 (.85) .68 - 10.68 11.36
1992 .77 (.77) (.12) (.05) 11.36 11.19
1993 .70 (.70) .36 (.64) 11.19 10.91
1994 .69 (.69) (1.14) (.01) 10.91 9.76
6/30/95 .37 (.36) .67 - 9.76 10.44
(unaudited)
INCOME ACCOUNT
1985(a) .24 (.23) .54 - 10.00 10.55
1986 .83 (.83) .57 (.08) 10.55 11.04
1987 .76 (.76) (.56) (.51) 11.04 9.97
1988 .84 (.85) (.19) - 9.97 9.77
1989 .88 (.88) .02 - 9.77 9.79
1990 .94 (.94) (.35) - 9.79 9.44
1991 .81 (.81) .47 - 9.44 9.91
1992 .79 (.79) (.16) - 9.91 9.75
1993 .65 (.65) .11 - 9.75 9.86
1994 .68 (.68) (.72) - 9.86 9.14
6/30/95 .33 (.33) .30 - 9.14 9.44
(unaudited)
TOTAL RETURN ACCOUNT
1985(a) .13 (.12) .90 - 10.00 10.91
1986 .31 (.30) .99 (.04) 10.91 11.87
1987 .38 (.38) .13 (1.09) 11.87 10.91
1988 .53 (.53) .60 - 10.91 11.51
1989 .76 (.76) 1.81 (.63) 11.51 12.69
1990 .66 (.66) (.68) (.07) 12.69 11.94
1991 .54 (.54) 2.79 (.71) 11.94 14.02
1992 .50 (.50) .86 (1.07) 14.02 13.81
1993 .48 (.48) 1.70 (.97) 13.81 14.54
1994 .55 (.55) (.86) (.24) 14.54 13.44
6/30/95 .31 (.30) 1.44 - 13.44 14.89
(unaudited)
<CAPTION>
RATIO OF
RATIO OF NET NET
OPERATING INVESTMENT ASSETS
EXPENSES INCOME AT END
TO TO OF
AVERAGE AVERAGE PERIOD ANNUAL
YEARS ENDED NET NET PORTFOLIO (IN TOTAL
DECEMBER 31 ASSETS ASSETS TURNOVER THOUSANDS) RETURN(C)
- --------------- -------- -------- --------- -------- -----
<S> <C> <C> <C> <C> <C>
LIQUID ACCOUNT
1985 1.00% 7.30% n/a $65,098 7.50%
1986 1.00 5.88 n/a 74,111 6.03
1987 1.00 5.81 n/a 68,908 5.97
1988 1.04 6.64 n/a 73,921 6.82
1989 1.06 8.22 n/a 87,264 8.53
1990 1.06 7.31 n/a 84,387 7.53
1991 1.01 5.22 n/a 69,932 5.31
1992 1.02 2.87 n/a 67,549 2.89
1993 .95 2.27 n/a 76,620 2.30
1994 .93 3.34 n/a 63,946 3.40
6/30/95 .94(b) 5.16(b) n/a 63,864 2.58
(unaudited)
GOVERNMENT SECU
1985(a) 1.50(b) 8.00(b) 468.56%(b) 12,890 9.40
1986 1.27 8.92 111.68 22,947 11.66
1987 1.24 8.12 207.67 24,703 3.33
1988 1.16 8.27 175.50 35,910 7.99
1989 1.19 8.14 68.14 41,561 14.10
1990 1.16 8.07 44.19 47,524 9.44
1991 1.07 7.83 27.50 55,332 15.03
1992 1.01 6.92 131.79 67,612 6.07
1993 .93 6.03 224.02 77,596 9.56
1994 .91 6.71 156.90 60,162 (4.18)
6/30/95 .94(b) 7.17(b) 55.89(b) 51,528 10.83
(unaudited)
INCOME ACCOUNT
1985(a) 1.50(b) 8.20(b) 242.68(b) 11,048 7.80
1986 1.29 7.69 164.13 14,620 13.54
1987 1.27 7.32 231.39 15,367 2.03
1988 1.24 8.43 150.04 16,789 6.70
1989 1.27 8.93 52.95 18,705 9.56
1990 1.24 9.78 90.20 19,809 6.33
1991 1.12 8.44 50.44 22,839 14.22
1992 .63 8.09 109.47 38,675 6.60
1993 .63 6.56 145.94 48,636 7.97
1994 .63 7.16 62.88 46,547 (0.42)
6/30/95 .63(b) 7.13 37.88(b) 46,109 6.97
(unaudited)
TOTAL RETURN AC
1985(a) 1.50(b) 4.46(b) 49.82(b) 12,083 10.34
1986 1.26 3.22 143.32 35,382 11.88
1987 1.08 3.15 197.79 44,770 3.92
1988 1.11 4.61 223.62 54,253 10.40
1989 1.20 5.90 149.22 65,071 22.61
1990 1.24 5.31 115.45 66,382 (0.21)
1991 1.20 4.02 122.40 86,455 28.21
1992 1.11 3.61 177.85 109,701 9.90
1993 1.02 3.40 155.16 171,205 15.89
1994 .96 3.80 115.01 177,904 (2.11)
6/30/95 1.20(b) 4.39(b) 53.78(b) 202,718 13.04
(unaudited)
</TABLE>
Prospectus Page 11
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
<TABLE>
<CAPTION>
NET
REALIZED DISTRIBUTIONS NET NET
& FROM ASSET ASSET
UNREALIZED NET VALUE VALUE
DIVIDENDS GAIN REALIZED AT AT
NET FROM NET (LOSS) GAIN BEGINNING END
YEARS ENDED INVESTMENT INVESTMENT ON ON OF OF
DECEMBER 31 INCOME INCOME INVESTMENTS INVESTMENTS PERIOD PERIOD
- --------------- ------ -------- ------ ------ ----- -----
GROWTH ACCOUNT
<S> <C> <C> <C> <C> <C> <C>
1985(a) .11 (.11) .94 - 10.00 10.94
1986 .24 (.24) 1.11 (.08) 10.94 11.97
1987 .22 (.22) (.12) (2.05) 11.97 9.80
1988 .20 (.20) 1.20 - 9.80 11.00
1989 .51 (.51) 3.30 (1.25) 11.00 13.05
1990 .34 (.34) (1.36) (.07) 13.05 11.62
1991 .25 (.25) 4.00 (1.22) 11.62 14.40
1992 .26 (.26) 1.44 (1.64) 14.40 14.20
1993 .30 (.30) 2.64 (1.70) 14.20 15.14
1994 .22 (.22) (.32) (.62) 15.14 14.20
6/30/95 .14 (.13) 2.42 - 14.20 16.63
(unaudited)
<CAPTION>
RATIO OF
RATIO OF NET NET
OPERATING INVESTMENT ASSETS
EXPENSES INCOME AT END
TO TO OF
AVERAGE AVERAGE PERIOD ANNUAL
YEARS ENDED NET NET PORTFOLIO (IN TOTAL
DECEMBER 31 ASSETS ASSETS TURNOVER THOUSANDS) RETURN(C)
- --------------- -------- -------- --------- -------- -----
GROWTH ACCOUNT
<S> <C> <C> <C> <C> <C>
1985(a) 1.50(b) 3.81(b) 57.58(b) 11,514 10.50
1986 1.31 2.21 163.15 19,469 12.25
1987 1.17 1.71 214.32 19,638 (0.29)
1988 1.23 1.95 246.14 26,285 14.32
1989 1.18 3.90 169.75 37,323 34.86
1990 1.19 2.73 143.95 35,202 (7.98)
1991 1.19 1.74 148.30 40,716 36.91
1992 1.12 1.74 141.69 45,600 11.99
1993 1.05 1.95 99.67 64,495 20.91
1994 1.02 1.50 98.46 78,390 (0.65)
6/30/95 1.26(b) 1.88(b) 75.85(b) 97,691 18.03
(unaudited)
</TABLE>
(a) For the period from September 16, 1985 (inception) to December 31, 1985.
(b) Annualized.
(c) Annual total returns do not include the effect of sales charges.
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVES
AND POLICIES
- --------------------------------------------------------------------------------
The Company offers a broad range of investment alternatives through a variety of
mutual funds, five of which are offered by means of this Prospectus (Accounts).
Each Account has its own investment objective and policies which are designed to
meet specific investment goals and can be changed without shareholder approval.
There can be no guarantee, however, that the Accounts will meet their investment
goals.
The Accounts are presented here in order of ascending risk. Generally, investors
seeking higher returns must assume greater risk determined according to
volatility of net asset value. Each Account invests in securities of different
issuers and industry classifications in an attempt to spread and reduce the
risks inherent in all investing.
The Manager of each Account is G.R. Phelps & Co. (G.R. Phelps), an indirect
subsidiary of Connecticut Mutual Life Insurance Company (Connecticut Mutual).
LIQUID ACCOUNT -- A MONEY MARKET FUND
The Liquid Account seeks as high a level of current income as is consistent with
preservation of capital and maintenance of liquidity by investing in money
market instruments. Money market instruments are high quality, short-term
securities that present minimal credit risk. They consist of obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities,
commercial paper of U.S. and non-U.S. issuers and certificates of deposit,
banker's acceptances, bank deposits of U.S. and non-U.S. banks (including
Eurodollar and Yankee dollar deposits) and short-term corporate debt securities.
These instruments are denominated in U.S. dollars and may carry fixed or
variable interest rates. These instruments are described further under the
caption "Risk Factors, Securities and Investment Techniques."
The Account seeks to maintain a constant net asset value of $1.00 per share by
investing in securities having an actual or effective maturity of 365 days or
less and maintaining a dollar-weighted average portfolio maturity of 90 days or
less. There can be no assurance, however, that the Account will be able to
maintain a stable price per share of $1.00.
The Account may purchase only money market instruments that are within the two
highest rating categories of the major rating agencies (E.G., Moody's Investors
Service, Inc. (Moody's) or Standard and Poor's Ratings Group (S&P)). The Account
will not invest more than 5% of its total assets in securities that, although of
high quality, have not been rated in the highest short-term rating category or,
if unrated, have not been judged by the Manager to be of equivalent quality.
Prospectus Page 12
<PAGE>
Connecticut Mutual Investment Accounts, Inc.
Within this 5% limitation, the Account will not invest more than 1% of its total
assets, or $1 million, whichever is greater, in securities (other than U.S.
Government securities) of any single issuer.
The Account intends to hold its investments until maturity, but may sell them
prior to maturity for a number of reasons, including: to shorten or lengthen the
average maturity of the Account's portfolio; to increase yield; to maintain the
quality of the portfolio; or to maintain a stable share value.
Securities in which the Liquid Account invests will generally not yield as high
a level of current income as lower quality and longer term securities. Such
lower quality and longer term securities, however, may have less liquidity and
greater credit and interest rate risk. AN INVESTMENT IN THE LIQUID ACCOUNT IS
NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT.
INCOME ACCOUNT -- A SHORT-TERM BOND FUND
The Income Account seeks high current income consistent with prudent investment
risk and preservation of capital. The Account seeks to achieve its objective by
investing primarily in corporate debt securities with remaining maturities of
five years or less or mortgage debt securities with prepayment features which in
the judgment of the Manager will result in the payment of interest and principal
such that the effective maturity is five years or less. The Account anticipates
maintaining an average dollar-weighted portfolio maturity of generally between
two and three years. By restricting the maturities of the Account's investments,
the potential for dramatic changes in the value of the Account's investments
should be reduced, and the value of the Account's shares should remain more
stable than that of a longer-term bond fund. Investors should be mindful,
however, that the value of the Account's shares fluctuates based on changes in
interest rates and in the credit quality of the issuers represented in its
portfolio.
The Account invests at least 75% of its total assets in: U.S. Government and
U.S. Government-related securities (as defined below in "Government Securities
Account"), dollar-denominated foreign government and corporate securities and
short-term investments. These investments must be rated at least investment
grade by a major rating agency at the time of purchase, or, if unrated, be
judged by the Manager to be of comparable credit quality, except that the
Account's investments in short-term investments must be rated, or judged to be
the equivalent of, "Prime." Some of these investments in the lowest investment
grade category may have speculative characteristics and changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case with higher grade
securities. The Income Account will not dispose of a debt security merely
because of a downward change in the credit rating of that security assigned by
a
major credit agency.
The Account may invest the remainder of its total assets (up to 25% under normal
circumstances) in debt securities and preferred stocks rated below investment
grade and unrated debt securities determined by the Manager to be of comparable
credit quality. The lower rated securities (commonly called junk bonds) in which
the Account may invest may include obligations that are in default. Unrated debt
securities will not exceed 10% of the Account's total assets. Debt securities
having low credit quality involve greater price volatility and risk of loss of
principal and income than higher quality securities. To the extent the Account
invests in lower quality debt securities, its net asset value may be subject to
greater fluctuation. For a description of these and other risks associated with
lower quality debt securities, see "Risk Factors, Securities and Investment
Techniques -- Debt Securities." Refer to Appendix A for a description of certain
rating categories. In addition, Appendix B provides a summary of ratings
assigned to debt holdings (not including money market instruments) of the
Account. These percentages are historical and do not necessarily indicate the
current or future debt holdings of the Account.
The Account may invest up to 20% of its total assets in mortgage dollar rolls.
The Account may also invest up to 5% of its total assets in inverse floating
rate instruments. See "Risk Factors, Securities and Investment Techniques --
Inverse Floating Rate Instruments and -- Mortgage Dollar Rolls." Consistent with
the foregoing policies, the Account may invest up to 5% of its total assets in
non-dollar denominated securities of foreign issuers, including issuers in
developing countries. These investments are subject to special risks. See "Risk
Factors, Securities and Investment Techniques -- Foreign Securities."
Prospectus Page 13
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
GOVERNMENT SECURITIES ACCOUNT -- A GOVERNMENT
SECURITIES FUND
The Government Securities Account seeks a high level of current income with a
high degree of safety of principal by investing primarily (at least 65% of its
total assets under normal market conditions) in U.S. Government securities and
U.S. Government-related securities.
U.S. Government securities are high quality instruments issued, or guaranteed as
to principal and interest, by the U.S. Treasury or by an agency or
instrumentality of the U.S. Government. These may include bills, notes and bonds
of the U.S. Treasury, mortgage participation certificates guaranteed by the
Government National Mortgage Association (GNMA Certificates), or obligations of
the Federal Home Loan Mortgage Corporation or the Federal National Mortgage
Association. U.S. Government-related securities are obligations that are fully
collateralized or otherwise secured by U.S. Government securities. U.S.
Government securities and U.S. Government-related securities may include pools
of consumer loans or mortgages, such as collateralized mortgage obligations
(CMOs). The Account's investments in privately issued CMOs will be limited to
those rated within the two highest rating categories by a nationally recognized
rating agency. CMOs are derivative securities; for a discussion of derivative
securities, see "Risk Factors, Securities and Investment Techniques --
Derivative Investments." The U.S. Government and U.S. Government-related
securities in which the Account will invest may have fixed or floating rates of
interest.
U.S. Government and U.S. Government-related securities do not generally involve
the credit risks associated with corporate debt securities. As a result, the
Account's yield is generally lower than the yield of most general purpose
fixed-income funds, which assume certain credit risks in exchange for higher
potential yield. Like corporate debt securities, however, the value of U.S.
Government and U.S. Government-related securities, and thus the Account's net
asset value, generally fluctuates inversely with changes in interest rates. The
Manager may seek to take advantage of market developments and yield disparities
by shortening average maturity in anticipation of rising interest rates and by
lengthening average maturity in anticipation of declining interest rates. The
Account may also invest up to 20% of its total assets in mortgage dollar rolls.
The Account may invest up to 5% of its total assets in inverse floating rate
instruments. Additional characteristics and risks associated with the securities
in which the Account invests and the investment techniques it uses are described
under "Risk Factors, Securities and Investment Techniques -- U.S. Government
Securities, -- U.S. Government Related Securities and -- Mortgage Dollar Rolls."
Under normal circumstances, the Fund may invest the remainder of its assets (up
to 35%) in investment grade debt obligations of private issuers.
Although the Government Securities Account invests primarily in U.S. Government
and U.S. Government related securities which generally have less credit risk
than other securities, AN INVESTMENT IN THE GOVERNMENT SECURITIES ACCOUNT IS
NOT
INSURED OR GUARANTEED.
TOTAL RETURN ACCOUNT -- A BALANCED FUND
The Total Return Account seeks to maximize total investment return (including
both capital appreciation and income) principally by allocating its assets among
stocks, bonds (including corporate debt securities, U.S. Government and U.S.
Government-related securities) and money market instruments according to
changing market conditions. This allocation process utilizes quantitative asset
allocation tools, which measure the relationship among these three asset
categories, in combination with the judgment of the Manager concerning current
market dynamics. Allocating assets among different types of investments allows
the Account to take advantage of opportunities wherever they occur, but also
subjects the Account to the risks of a given investment type. Stock values
fluctuate in response to the activities of individual companies and general
market and economic conditions. The value of bonds and short-term instruments
fluctuates based on changes in the credit quality of the individual issuer and
changes in interest rates. The Account's debt securities are expected to have a
portfolio maturity of six to twelve years. Consistent with the foregoing, at
least 25% of the Account's total assets will be invested in fixed income senior
securities.
The Account may invest up to 25% of its total assets in the aggregate in debt
securities and preferred stocks rated below investment grade and unrated debt
securities determined by the Manager to be of comparable credit quality. These
lower quality securities (commonly called junk bonds) in which the Account may
invest may include obligations that are in default. Unrated
Prospectus Page 14
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
debt securities will not exceed 10% of the Account's total assets. Debt
securities having low credit quality involve greater price volatility and risk
of loss of principal and income. For a description of these and other risks
associated with lower quality debt securities, see "Risk Factors, Securities and
Investment Techniques -- Debt Securities." Refer to Appendix A of this
Prospectus for a description of certain ratings categories. In addition,
Appendix B provides a summary of ratings assigned to debt holdings (not
including money market instruments) of the Account. These percentages are
historical and do not necessarily indicate the current or future debt holdings
of the Account.
The Account may invest up to 20% of its total assets in mortgage dollar rolls.
The Account may also invest up to 5% of its total assets in inverse floating
rate instruments which are a type of derivative security. See "Risk Factors,
Securities and Investment Techniques -- Inverse Floating Rate Instruments --
Mortgage Dollar Rolls and -- Derivative Investments." Consistent with the
foregoing policies, the Account may invest to a limited degree in securities of
foreign issuers. See "Risk Factors, Securities and Investment Techniques --
Foreign Securities."
GROWTH ACCOUNT -- A GROWTH FUND
The Growth Account seeks long term growth of capital by investing primarily in
common stocks with low price-earnings ratios and better-than-anticipated
earnings. A portion of the Account's investments may be held in cash, in
short-term instruments and investment grade corporate and U.S. Government debt
securities. Realization of current income is a secondary consideration.
The Manager chooses investments for the Growth Account using a quantitative
investment discipline in combination with fundamental securities analysis. A low
price-earnings ratio (below the price-earnings ratio of the S&P 500 Index) often
accompanies a stock which is out-of-favor in the market. Stocks with low
price-earnings ratios have performed better than the market averages in most
years of recent decades. When an out-of-favor company demonstrates better
earnings than what most analysts were expecting, referred to as a favorable
earnings surprise, an upward revaluation of both earnings expectations and the
price-earnings multiple often results, generally causing the company's stock
price to outperform the market averages.
As stocks with low price-earnings ratios and favorable earnings surprises are
identified, the Manager uses fundamental securities analysis to select
individual stocks for the Growth Account. When the price-earnings ratio of a
stock held by the Growth Account moves significantly above the multiple of the
overall stock market, or the company reports a meaningful earnings
disappointment, the stock will normally be sold. The stock selection methodology
used in managing the Growth Account's portfolio may result in a high portfolio
turnover rate in certain market conditions. High portfolio turnover (greater
than 100%) may in turn result in higher transaction fees and brokerage
commissions and may result in realized capital gains.
Historically, common stocks have shown greater long-term growth potential than
other types of securities. However, stock values fluctuate in response to the
activities of individual companies and general market and economic conditions.
For a further discussion of common stocks, see "Risk Factors, Securities and
Investment Techniques."
The Account may invest the remainder of its assets (up to 10% under normal
circumstances) in corporate and U.S. Government debt obligations, including
convertible bonds which may be rated as low as B by Moody's or S&P. Debt
securities having low credit quality involve greater price volatility and risk
of loss of principal and income. For a description of these and other risks
associated with lower quality debt securities, see "Risk Factors, Securities and
Investment Techniques -- Debt Securities." Refer to Appendix A for a description
of the various ratings categories.
Consistent with the foregoing policies, the Account may invest to a limited
degree in securities of foreign issuers, including issuers in developing
countries. These investments are subject to special risks. See "Risk Factors,
Securities and Investment Techniques -- Foreign Securities."
INVESTMENT RESTRICTIONS. Each Account is subject to certain fundamental
investment restrictions that are enumerated in detail in the SAI and may not be
changed without shareholder approval. Each Accounts' investment objective and
certain other policies are non-fundamental and may be changed by the Company's
Board of Directors without shareholder approval. An Account's shareholders will
be given 30 days' advance written notice of a change to an Account's investment
objective.
Prospectus Page 15
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
YOUR ACCOUNT
- --------------------------------------------------------------------------------
HOW TO BUY SHARES
YOU MAY PURCHASE SHARES OF AN ACCOUNT AT THE PUBLIC OFFERING PRICE
through any
securities broker-dealer having a sales agreement with CMFS or directly from
CMFS, the Accounts' distributor. Certain minimum investment requirements may
apply as set forth above in Your Shareholder Manual. All share purchase orders
that fail to specify a class (except Liquid Account) will be invested in Class
A
shares.
IF YOU ARE NEW TO CONNECTICUT MUTUAL, complete and sign an account application
and mail it along with your check. All orders to purchase shares are subject to
acceptance or rejection by the Company or CMFS. You may also open your account
by wire as described in Your Shareholder Manual. If there is no application
accompanying this prospectus, call 1-800-234-5606.
IF YOU ARE INVESTING THROUGH A TAX-SHELTERED RETIREMENT PLAN, such as an
IRA,
for the first time, you will need a special application. Retirement investing
also involves its own investment procedures. Call 1-800-234-5606 for more
information and a retirement application.
PURCHASING CLASS A SHARES AND SHARES OF THE
__LIQUID ACCOUNT
Class A shares of each Account are sold at the share price next calculated after
receipt of your purchase order, plus a sales charge as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME
ACCOUNT AND
GOVERNMENT
SECURITIES
GROWTH
ACCOUNT AND ACCOUNT
TOTAL
RETURN ACCOUNT ------------
- -------------------------------------------
SALES
SALES
CHARGES DEALER CHARGES
AS % OF
REALLOWANCE AS % OF
- -------------------------- AS A % ------------
NET AMOUNT
OFFERING OF OFFERING NET
AMOUNT
INVESTED
PRICE PRICE INVESTED
------------
- ------------ --------------- ------------
<S> <C> <C>
<C> <C>
Less than $50,000............................................ 5.26%
5.00% 4.50% 4.17%
$50,000 but less than $75,000................................ 4.71%
4.50% 4.00% 4.17%
$75,000 but less than $100,000............................... 4.44%
4.25% 3.75% 4.17%
$100,000 but less than $250,000.............................. 3.36%
3.25% 3.00% 3.36%
$250,000 but less than $500,000.............................. 2.83%
2.75% 2.50% 2.83%
$500,000 or more............................................. 0%
0% 0%
<CAPTION>
DEALER
REALLOWANCE
AS A %
OFFERING
OF OFFERING
PRICE
PRICE
------------
- ---------------
<S> <C> <C>
Less than $50,000............................................ 4.00%
3.50%
$50,000 but less than $75,000................................ 4.00%
3.50%
$75,000 but less than $100,000............................... 4.00%
3.50%
$100,000 but less than $250,000.............................. 3.25%
3.00%
$250,000 but less than $500,000.............................. 2.75%
2.50%
$500,000 or more............................................. 0%
</TABLE>
- --------------------------------------------------------------------------------
No sales charge is imposed on purchases of Class A shares of an Account paid
from automatic reinvestment of dividends and capital gain distributions made by
that Account. The sales charge on Class A shares may be reduced and/or
eliminated in certain cases as further described under "Reducing or Eliminating
Your Sales Charge -- Class A Shares."
The entire sales charge on Class A shares for CMFS retail sales is payable to
CMFS and is used for sales and other distribution expenses. Upon notice to
broker-dealers with whom it has sales agreements, CMFS may pay an amount up to
the full applicable sales charge. CMFS may from time to time, at its own
expense, provide promotional incentives including cash compensation in excess of
the applicable sales charge to certain broker-dealers whose representatives have
sold or are expected to sell significant amounts of shares of one or more of the
Accounts. Broker-dealers to whom substantially the entire sales charge is paid
may be deemed to be underwriters as that term is defined under the Securities
Act of 1933.
Shares of the Liquid Account are sold at the share price next calculated after
receipt of your purchase order. There is no sales charge for direct purchases of
Liquid Account shares, but such shares may be subject to a distribution fee. See
"Management -- Distribution Plans."
Prospectus Page 16
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
CONTINGENT DEFERRED SALES CHARGE --
__CLASS A SHARES
Purchases of $500,000 or more of Class A shares are sold without an initial
sales charge, but a CDSC of 1% may be imposed if you sell (or redeem) your
shares within one year of purchase. The 1% charge will be assessed on an amount
equal to the current market value or the original purchase price of the Class A
shares sold, whichever is smaller. In determining whether a CDSC will be
charged, it will be assumed that those Class A shares in your account which are
not subject to a CDSC will be sold first. The CDSC may be waived on certain
redemptions of Class A shares subject to such charge as described below under
the caption "Purchasing Class B Shares -- Waiver of the CDSC."
CMFS may, in its discretion, pay a commission which may be up to the full amount
of the sales charge to its representatives or other broker-dealers who initiate
and are responsible for such purchases. Concessions will be paid for sales in
excess of $500,000 as follows:
<TABLE>
<CAPTION>
AMOUNT OF TRANSACTION DEALER
AT OFFERING PRICE CONCESSIONS CONCESSION
- ---------------------------------- ----------- -----------
<S> <C> <C>
$500,000 up to $2,000,000......... 1.00% .90%
$2,000,000 to $3,000,000.......... .80% .75%
$3,000,000 to $5,000,000.......... .20% .15%
Over $5,000,000................... .08% .075%
</TABLE>
REDUCING OR ELIMINATING YOUR SALES CHARGE --
__CLASS A SHARES
REDUCING YOUR SALES CHARGE. There are various methods by which you may qualify
for a reduced sales charge on your investments in Class A shares.
You may qualify for a reduced sales charge on your investments in Class A shares
through COMBINED PURCHASES, STATEMENT OF INTENTION and RIGHTS OF
ACCUMULATION.
COMBINED PURCHASES. You may aggregate purchases of Class A shares of the
Accounts, shares of the Liquid Account and Class A shares of other accounts in
the Company with the purchases of the other persons listed below to achieve
discounts in the applicable sales charges. The sales charge applicable to a
current purchase of Class A shares of each Account by a person listed below is
determined by adding the value of Class A shares to be purchased to the
aggregate value (at current offering price) of Class A shares of any of the
other Accounts in the Company and shares of the Liquid Account previously
purchased and then owned, provided that CMFS is notified by you or your
broker-dealer each time a purchase is made which would qualify. For example, if
you are investing $75,000 in the Growth Account and your spouse owns Class A
shares of other Accounts in the Company with a value of $75,000, you would pay
a
sales charge of 3.25% of the offering price of the new investment.
Qualifying investments include those by you, your spouse and your children under
the age of 21, if all parties are purchasing Class A shares for their own
account(s), which may include tax qualified plans, such as an IRA or single
participant Keogh-type plan, or by a company solely controlled by such
individuals as defined in the 1940 Act. Reduced sales charges also apply to
purchases by a trustee or other fiduciary if the investment is for a single
trust, estate or single fiduciary account, including pension, profit-sharing or
other employee benefit trust created pursuant to a plan qualified under the
Code. Reduced sales charges apply to combined purchases by or for qualified
employee benefit plans of a single corporation, or of corporations affiliated
with each other in accordance with the 1940 Act.
STATEMENT OF INTENTION (SOI). You may combine the current value of all Class A
shares held in one or more Accounts and shares of the Liquid Account with the
investment amounts intended over the next 13-month period to qualify for a
reduced sales charge. The SOI may be backdated 90 days. The terms of the SOI are
set forth in more detail in the Accounts' SAI. You must identify on the
Application all Accounts whose values are to be combined. If the intended
investment is not made within the 13-month period, you must remit the additional
sales charges, or sufficient Class A shares or shares of the Liquid Account will
be redeemed from your account to cover the sales charge.
RIGHTS OF ACCUMULATION. The sales charge for new purchases of Class A shares of
an Account will be determined by aggregating the net asset value of all the
Accounts owned by the shareholder at the time of the new purchase. The rules
listed under Combined Purchases may apply. You must identify on the Application
all accounts to be linked for Rights of Accumulation.
ELIMINATING YOUR SALES CHARGE. There are various methods by which you may
eliminate sales charges on your investments in Class A shares.
Prospectus Page 17
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
Class A shares of an Account may be purchased without a sales charge by: (1) any
purchaser, provided the total initial amount invested in any Account or Accounts
totals $500,000 or more, including investments made pursuant to the Combined
Purchases, Statement of Intention and Rights of Accumulation features described
in this prospectus; (2) any participant in a qualified plan, provided that the
total initial amount invested by the plan in any Account or Accounts totals
$500,000 or more; (3) Directors of the Company and members of their immediate
families; (4) NASD registered representatives whose employer consents to such
purchases, and by the spouses and immediate family members of such
representatives; (5) employee benefit plans sponsored by CMFS and its affiliated
companies; (6) one or more members of a group of at 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; (7) any holder of a variable annuity contract
issued in New York State by Connecticut Mutual through the Panorama Separate
Account which is beyond the applicable surrender charge period and which is used
to fund a qualified plan, who exchanges the variable annuity contract for Class
A shares of the Company; and (8) an institution acting as a fiduciary on behalf
of an individual or individuals, where such institution is directly compensated
by the individual(s) for recommending the purchase of the shares of the Company,
provided the institution has an agreement with CMFS. Purchases of Class A shares
made pursuant to (1) and (2) above may be subject to a CDSC.
REINSTATEMENT PRIVILEGE. A shareholder, who has made a partial or complete
redemption of Class A shares from an Account, may reinvest all or part of the
redemption proceeds in Class A shares of the same Account without imposition of
a sales charge with respect to the amount invested, provided such reinvestment
is effected within 60 days after the date of the redemption. National Financial
Data Services (NFDS) must receive from the shareholder both a written request
for reinvestment and a check. The reinvestment will be made at the next
calculated net asset value after receipt. Redemptions are taxable transactions,
and special tax rules may apply if a reinvestment occurs. Each shareholder
should consult his/her own tax adviser as to the tax consequences of any
redemption and/or reinvestment.
PURCHASING CLASS B SHARES
The public offering price of the Class B shares of each Account is the next
determined net asset value per share. No initial sales charge is imposed. A
CDSC, however, is imposed on certain redemptions of Class B shares. Since the
Class B shares are sold without an initial sales charge, the Account receives
the full amount of the investor's purchase payment. Orders for Class B shares
for $500,000 or more will be treated as orders for Class A shares or declined.
The amount of any applicable CDSC will be calculated by multiplying the lesser
of the original purchase price or the net asset value of such shares at the time
of redemption by the applicable percentage shown in the table below.
Accordingly, no CDSC is imposed on increases in net asset value above the
original purchase price.
<TABLE>
<CAPTION>
REDEMPTION DURING CDSC
- --------------------------------------------- ------
<S> <C>
1st Year Since Purchase...................... 5%
2nd Year Since Purchase...................... 5%
3rd Year Since Purchase...................... 4%
4th Year Since Purchase...................... 4%
5th Year Since Purchase...................... 2%
6th Year Since Purchase...................... 1%
Thereafter................................... 0%
</TABLE>
In determining whether a CDSC is applicable to a redemption, the calculation
will be made in a manner that results in the lowest possible rate. It will be
assumed that the redemption is made first of amounts representing shares
acquired pursuant to the reinvestment of dividends and distributions; then of
amounts representing the cost of shares purchased seven years or more prior to
the redemption; and finally of amounts representing the cost of shares held for
the longest period of time within the applicable six-year period. Class B shares
of an Account that are redeemed will not be subject to a CDSC to the extent that
the value of such shares represents: (1) reinvestment of dividends or capital
gain distributions or (2) shares redeemed more than six years after their
purchase. Redemptions of most other Class B shares will be subject to a CDSC.
See "Waivers of the CDSC."
Proceeds from the CDSC are paid to CMFS and are used in whole or part to defray
CMFS' expenses related to providing distribution-related
Prospectus Page 18
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
services to the Accounts in connection with the sale of Class B shares,
including the payment of compensation to broker-dealers.
Class B shares will automatically convert into Class A shares on the first day
of the month that is eight years after the purchase date, except as noted below.
Class B shares acquired by exchange from Class B shares of another Account in
the Company will convert into Class A shares based on the date of the initial
purchase and the applicable CDSC. Class B shares acquired through reinvestment
of distributions will convert into Class A shares based on the date of the
initial purchase to which such shares relate. For this purpose, Class B shares
acquired through reinvestment of distributions will be attributed to particular
purchases of Class B shares in accordance with such procedures as the Directors
may determine from time to time. The conversion of Class B shares to Class A
shares is subject to the continuing availability of a ruling from the Internal
Revenue Service, which the Company has obtained, or an opinion of counsel that
such conversions will not constitute taxable events for federal tax purposes.
There can be no assurance that such ruling or opinion will continue to be in
effect at the time any particular conversion would occur. The conversion of
Class B shares to Class A shares will not occur if such ruling is no longer in
effect and such an opinion is not available and, therefore, Class B shares would
continue to be subject to higher expenses than Class A shares for an
indeterminate period.
WAIVER OF THE CDSC. Except as otherwise noted, the CDSC is waived in the case of
redemptions of Class A shares subject to a CDSC, Class B shares or Liquid
Account shares subject to a CDSC made: (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) as tax-free returns of excess contributions to
such retirement or employee benefit plans; (5) in whole or in part, in
connection with shares sold to 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; (6) in connection with the redemption of shares of the Company due to
a
combination with another investment company by virtue of a merger, acquisition
or similar reorganization transaction; (7) in connection with the Company's
right to involuntarily redeem or liquidate an Account; (8) in connection with
automatic redemptions of Liquid Account shares, Class A shares and Class B
shares in certain retirement plan accounts pursuant to a Systematic Withdrawal
Plan but limited to no more than 12% of the original value annually; and (9) as
involuntary redemptions of shares by operation of law, or under procedures set
forth in the Company's Articles of Incorporation, or as adopted by the Board of
Directors of the Company.
- --------------------------------------------------------------------------------
HOW TO SELL SHARES
You can arrange to take money out of your account(s) at any time by selling
(redeeming) some or all of your shares. Your shares will be sold at the next
share price calculated after your order is received in good form. Share price is
normally calculated at 4:00 p.m. Eastern Time. If you own both Class A and Class
B shares in an Account, the Class A shares will be redeemed first unless you
specify otherwise.
IF YOU SELL SHARES OF THE LIQUID ACCOUNT which were acquired by an exchange from
Class B shares or Class A shares subject to a CDSC of any of the other Accounts
in the Company, such shares of the Liquid Account when redeemed are subject to
the CDSC rate of the original shares purchased minus a credit for the Rule 12b-1
fees, if any, paid while in the Liquid Account. See "How to Exchange Shares".
TO SELL SHARES IN A NON-RETIREMENT ACCOUNT, you may use any of the methods
described below.
TO SELL SHARES IN A RETIREMENT ACCOUNT, your request must be made in writing,
except for exchanges to other Accounts, which can be requested by phone or in
writing. Call 1-800-322-CMIA for a retirement distribution form.
Prospectus Page 19
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
IF YOU ARE SELLING SOME BUT NOT ALL OF YOUR SHARES, leave at least 100 shares in
the account to keep it open.
TO SELL SHARES BY WIRE, you must sign up for this service in advance by
completing the appropriate sections in the Application.
TO INITIATE A TELEPHONE REDEMPTION, call 1-800-322-CMIA (select option "2"). You
must have your Account name, account number and the taxpayer identification
number of the account available. Telephone redemptions are limited to $50,000
per day unless prior authorization has been obtained through a signature
guaranteed letter of authorization. If you do not wish to have telephone
transaction privileges on your account, you must complete the appropriate
section on the Application.
CERTAIN REQUESTS MUST INCLUDE A SIGNATURE GUARANTEE. Signature guarantees
are
designed to protect you and the Company from fraud. Your request to sell shares
must be made in writing and include a signature guarantee if any of the
following situations apply:
/ / You request in writing to redeem more than $50,000 worth of shares,
/ / Your account registration has changed within the last 30 days,
/ / The check is being mailed to a different address than the one on our account
(record address),
/ / The check is being made payable to someone other than the account owner, or
/ / The redemption proceeds are being transferred to an account with a different
registration.
You should be able to obtain a signature guarantee from a bank, broker, dealer,
credit union (if authorized under state law), securities exchange or
association, clearing agency or savings association. The Company reserves the
right to waive the requirement of a signature guarantee in certain limited
circumstances. A NOTARY PUBLIC CANNOT PROVIDE A SIGNATURE GUARANTEE.
SELLING SHARES IN WRITING BY MAIL
Write a "letter of instruction" with:
/ / Your name,
/ / The Account's name,
/ / Your account number,
/ / The class of shares to be redeemed,
/ / The dollar amount or number of shares to be redeemed, and any other
applicable requirements listed above in Your Shareholder Manual.
/ / Mail the letter of instruction to NFDS, the Company's transfer agent, at:
Connecticut Mutual Investment Accounts, Inc.
P.O. Box 419694
Kansas City, Missouri 64179-0948
/ / Unless otherwise instructed, the Company will send a check to the address of
record.
CHECK WRITING (LIQUID ACCOUNT ONLY)
Shareholders may redeem shares of the Liquid Account by check. See "Investor
Services -- Check Writing" below.
REDEMPTIONS OF CERTAIN SHAREHOLDER ACCOUNTS
In order to reduce the expense of maintaining numerous small accounts, the
Company reserves the right to involuntarily close any shareholder's account
(other than an IRA) that has been open at least 24 months and has fewer than 100
shares if, within 30 day's after notification by the Company, the affected
shareholder does not increase the size of his account to the required level. In
addition, the Board of Directors may cause the Company to redeem at their net
asset value shares held by a shareholder in any Account if the shareholder has
failed to supply a correct, certified social security or other taxpayer
identification number required to be obtained by the Company.
- --------------------------------------------------------------------------------
HOW TO EXCHANGE SHARES
YOU MAY EXCHANGE YOUR SHARES of an Account for shares of the same class of any
other Account in the Company or for shares of the Liquid Account. To obtain a
current prospectus for other Accounts, please call 1-800-322-CMIA (select option
"3"). You should consider the differences in investment objectives and expenses
of an Account as described in its prospectus before making an exchange.
Exchanges are taxable transactions and may be subject to special tax rules about
which you should consult your own tax adviser. All exchanges are subject to the
following exchange restrictions:
/ / The Account you are exchanging into must be registered for sale in your
state.
Prospectus Page 20
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
/ / You may exchange only between Accounts that are registered in the same name,
address and taxpayer identification number.
/ / You may only exchange for shares of the same class of another Account or for
shares of the Liquid Account (see below).
/ / The minimum amount you may exchange from one Account into another is $500 or
the total value of the Account if less than $500.
/ / IF YOU WISH TO MAKE MORE THAN 12 EXCHANGES IN A 12-MONTH PERIOD, AN
EXCHANGE
FEE OF .75% OF THE NET ASSET VALUE OF THE SHARES REDEEMED WILL BE
CHARGED.
EXCHANGES MADE PURSUANT TO THE DCA PROGRAM (SEE "INVESTOR
SERVICES") ARE NOT
SUBJECT TO THIS FEE.
/ / Exchanges of shares of the Liquid Account for shares of any other Account
which carry a front-end sales charge are subject to the sales charge
applicable to such other Account. Shares of the Liquid Account acquired by
exchange of shares of another Account on which a front-end sales charge was
previously paid or which are subject to a CDSC are exchanged at net asset
value. However, shares of the Liquid Account acquired through an exchange of
shares which are subject to a CDSC will continue to be subject to a CDSC
upon redemption. The rate of this charge will be the rate in effect for the
original shares at the time of exchange without counting the time such
shares were held as Liquid Account shares minus a credit for the Rule 12b-1
fees, if any, paid while in the Liquid Account.
/ / In addition to exchanges into and out of the Liquid Account, you may
exchange your shares of other Accounts for shares of the same class of any
other Account without the imposition of a sales charge. With respect to
Class B shares, if you exchange such shares for Class B shares of another
Account, the CDSC will be calculated based on the date on which you acquired
the original Class B shares.
/ / An Account reserves the right to refuse exchange purchases by any person or
group if, in the Manager's judgment, an Account would be unable to invest
the money effectively in accordance with its investment objective and
policies, or would otherwise potentially be adversely affected.
/ / Your exchanges may be restricted or refused if an Account receives or
anticipates simultaneous orders affecting significant portions of the
Account's assets. In particular, a pattern of exchanges that coincides with
a "market timing" strategy may be disruptive to the Account.
/ / Although an Account will attempt to give you prior notice whenever it is
reasonably able to do so, it may impose these restrictions at any time. Each
Account reserves the right to terminate or modify the exchange privilege in
the future.
- --------------------------------------------------------------------------------
INVESTOR SERVICES
CONNECTICUT MUTUAL PROVIDES A VARIETY OF SERVICES TO HELP YOU MANAGE
YOUR
ACCOUNT.
24-HOUR SERVICE
Call 1-800-322-CMIA (select option "1") for the following automated services.
After normal business hours, please leave a message and someone will return your
call during normal business hours.
/ / Account balance
/ / Last distribution
/ / Prices
/ / Account distributions
/ / Service representative
/ / Duplicate statement
/ / Order checks (Liquid Account only)
/ / Change PIN (Personal Identification Number)
/ / Duplicate tax forms
INFORMATION SERVICES
TELEPHONE REPRESENTATIVES are available during normal business hours to provide
the information and services you need.
STATEMENTS AND REPORTS sent to you include the following: Confirmation
statements (after every transaction, except reinvestments, automatic investments
and automatic payroll investments, that affects your account balance or your
account registration),
/ / Quarterly consolidated account statements which summarize all account
activity year-to-date, and
/ / Financial reports (every six months).
Prospectus Page 21
<PAGE>
Connecticut Mutual Investment Accounts, Inc.
Call 1-800-322-CMIA (select option "2") if you need additional copies of
financial reports or historical account information.
INVESTOR SERVICES
One easy way to pursue your financial goals is to invest money regularly. The
Company offers convenient services that let you transfer money into your
account, or between accounts, automatically. While regular investment plans do
not guarantee a profit and will not protect you against loss in a declining
market, they can be an excellent way to invest for retirement, a home,
educational expenses and other long-term financial goals. Certain restrictions
apply. Call 1-800-322-CMIA for more information.
AUTOMATIC INVESTMENT PLAN lets you make regular monthly investments through an
automatic withdrawal from your bank account ($50 minimum per Account) and you
can enroll when you establish your account. Forms are available to initiate this
program on existing accounts from your registered representative, or by calling
1-800-322-CMIA.
DOLLAR COST AVERAGING (DCA) INVESTMENT PROGRAMS let you set up monthly
exchanges
in amounts of $100 or more from one Account to the same class of shares of any
other Account or of the Liquid Account. Sales charges may apply. Use of the DCA
PROGRAM permits the purchase of shares of an Account on a scheduled basis which
disregards fluctuations in net asset value. All shareholders accounts involved
in a DCA Program must have like registrations.
AUTOMATIC DIVIDEND DIVERSIFICATION (ADD) lets you automatically reinvest
dividends and capital gain distributions paid by one Account into shares of the
same class of another Account or of the Liquid Account. The number of shares
reinvested will be determined using the price in effect for the receiving
Account on the dividend payment date for the Account whose dividend is to be
invested. Sales charges may apply to dividends from the Liquid Account investing
into Class A shares of another Account. All shareholder accounts involved in an
ADD program must have like registrations.
EXCHANGE PRIVILEGE. You may exchange your shares of an Account for shares of the
same class of any other Account in the Company or of the Liquid Account. You may
exchange your shares of the Liquid Account for shares of any other Account in
the Company. To obtain a current prospectus for any Accounts in the Company,
please call 1-800-322-CMIA (select option "3"). You should consider the
differences in investment objectives and expenses of an Account as described in
its prospectus before making an exchange.
Exchanges are taxable transactions and may be subject to special tax rules about
which you should consult your own tax adviser. For complete policies and
restrictions governing exchanges, including circumstances under which a
shareholder's exchange privilege may be suspended or revoked, see "How to
Exchange Shares."
SYSTEMATIC WITHDRAWAL PLANS let you set up monthly, quarterly, semi-annual or
annual redemptions of Class A shares and Liquid Account shares not subject to a
CDSC from any account with a value of $10,000 or more. You may direct the
Company to make regular payments in fixed dollar amounts of $50 or more, or in
an amount equal to the value of a fixed number of shares. Payments can be
directed to the shareholder or to someone other than the registered owner(s) of
the account. If this privilege is requested when the account is established, no
signature guarantee is needed. If this privilege is added to an existing account
and payments are directed to someone other than the registered owner(s) of the
account, a signature guarantee is required on the SYSTEMATIC WITHDRAWAL PLAN
application. The Company reserves the right to institute a charge for this
service. Systematic Withdrawal Plans for Class B shares of an Account and for
Liquid Account shares subject to a CDSC are permitted only for payments of
required distributions from retirement plan accounts for a shareholder who has
attained age 70 1/2. The CDSC will be waived with respect to such redemptions
but only if such redemptions are limited to no more than 12% of the original
value of the account.
MAINTAINING A SYSTEMATIC WITHDRAWAL PLAN AT THE SAME TIME REGULAR
ADDITIONAL
INVESTMENTS ARE BEING MADE INTO ANY ACCOUNT EXCEPT THE LIQUID
ACCOUNT, IS NOT
RECOMMENDED BECAUSE A SALES CHARGE WILL BE IMPOSED ON THE NEW
SHARES AT THE SAME
TIME SHARES ARE BEING REDEEMED TO MAKE THE PERIODIC PAYMENTS UNDER
THE
SYSTEMATIC WITHDRAWAL PLAN.
The Company may amend or terminate the Systematic Withdrawal Plan on 30 days'
prior written notice to any participating shareholders. Minimums may be waived
for the Liquid Account
Prospectus Page 22
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
if used for payment of premiums due on any of the Connecticut Mutual affiliated
companies.
CHECK WRITING (LIQUID ACCOUNT ONLY). Shareholders may redeem shares of the
Liquid Account, for which certificates have not been issued, by writing checks
in an amount of $200 or more. The check is presented to NFDS for payment through
normal banking channels. These checks may be used in the same manner as any
other checks payable through NFDS (except that they may not be certified) and
are payable upon review. This check redemption service is not, however, the
equivalent of a checking account in the shareholder's name. All checks drawn by
Liquid Account shareholders electing this option are drawn on a single account
carried by NFDS in the Liquid Account's name. A shareholder's interest in the
Account is not covered by insurance provided by the Federal Deposit Insurance
Corporation or any other government agency.
There is no charge to the shareholder for redemptions by use of checks.
Shareholders electing this option are subject to the procedures, rules and
regulations established by NFDS with respect to clearance and collection of
checks. NFDS will not honor checks which are in amounts exceeding the value of
the shares in the shareholder's account at the time the check is presented for
payment and will not honor checks drawn against uncollected funds. Since the
value of a shareholder's account changes daily, the total value of the account
may not be determined in advance. Therefore, shareholders should not attempt to
close their accounts by check. Any CDSC payable with respect to any Liquid
Account shares redeemed by check will be debited from the shareholder's account.
This service may be terminated at any time by the Company or by NFDS upon notice
to shareholders.
- --------------------------------------------------------------------------------
TRANSACTION DETAILS
THE COMPANY IS OPEN FOR BUSINESS each day that the New York Stock Exchange
(NYSE) is open. The Company normally calculates an Account's net asset value as
of the close of regular trading on the NYSE, normally 4:00 p.m. Eastern Time.
AN ACCOUNT'S NET ASSET VALUE (NAV) PER SHARE is the value of a single share. The
NAV of a class of an Account is computed by adding the value of its investments,
cash, and other assets, subtracting the liabilities attributable to the class,
and then dividing the result by the number of shares of the class outstanding.
The NAV of the Liquid Account is calculated in the same manner without regard to
classes.
The assets of each Account (except the Liquid Account) are valued primarily on
the basis of market quotations. If quotations are not readily available, assets
are valued by a method that the Board of Directors believes accurately reflects
fair value. The assets of Liquid Account are valued at their amortized cost
pursuant to procedures established by the Board of Directors. Foreign securities
are valued on the basis of quotations from the primary market in which they are
traded, and are translated from the local currency into U.S. dollars using
current exchange rates.
Generally, trading in foreign securities is substantially completed each day at
various times prior to the close of regular trading on the NYSE. The values of
such securities used in computing the net asset value of an Account's shares are
determined as of such times. Foreign currency exchange rates are also generally
determined prior to the close of regular trading on the NYSE. Occasionally,
events which affect the values of such securities and such exchange rates may
occur between the times at which they are determined and the close of regular
trading on the NYSE and will, therefore, not be reflected in the computation of
an Account's net asset value. If events materially affecting the value of such
securities occur during such period, then these securities are valued at their
fair value using a method determined in good faith by the Board of Directors.
WHEN YOU SIGN YOUR ACCOUNT APPLICATION, you will be asked to certify that your
Social Security or other taxpayer identification number is correct and that you
are not subject to 31% backup withholding for failing to report interest or
dividends to the IRS. If you are subject to backup withholding, the IRS can
require the Company to withhold 31% of your taxable distributions and, except
for Liquid
Prospectus Page 23
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
Account if a constant NAV is maintained, the proceeds of redemptions (including
exchanges).
YOU MAY INITIATE MANY TRANSACTIONS BY TELEPHONE. Telephone representatives
will
request personalized security codes or other information and will also record
calls. If reasonable procedures such as those described in the Prospectus are
not followed, the Company may be liable for any loss due to unauthorized or
fraudulent telephone instructions. In all other cases, neither the Company nor
CMFS will be liable for acting upon telephone instructions made in accordance
with the telephone transaction procedures described in this Prospectus. You
should verify the accuracy of your confirmation statements immediately after you
receive them. IF YOU DO NOT WANT THE ABILITY TO REDEEM AND EXCHANGE BY
TELEPHONE, CALL 1-800-322-CMIA FOR INSTRUCTIONS. See the Account Application.
IF YOU ARE UNABLE TO REACH THE COMPANY BY PHONE (for example, during periods
of
unusual market activity), consider placing your order by mail or overnight mail.
EACH ACCOUNT RESERVES THE RIGHT TO SUSPEND THE OFFERING OF SHARES for
a period
of time. Each Account also reserves the right to reject any specific purchase
order, including certain purchases by exchange. See "How to Exchange Shares."
Purchase orders may be refused if, in the Manager's opinion, they are of a size
that would disrupt management of an Account.
WHEN YOU PLACE AN ORDER TO BUY SHARES, your order will be processed at the next
offering price calculated after your order is received and accepted. Note the
following:
/ / All of your purchases must be made in U.S. dollars and checks must be drawn
on U.S. banks. You may not purchase shares with a third party check.
/ / If you buy shares by check, and then redeem those shares by a method other
than by exchange to another Account in the CMIA Family of Accounts, mailing
the payment of the proceeds may be delayed for up to fifteen calendar days
to ensure that your check has cleared.
/ / If your check does not clear, your purchase will be cancelled and you could
be liable for any losses or fees the Account or its transfer agent has
incurred.
TO AVOID THE COLLECTION PERIOD associated with checks, consider buying shares by
bank wire, U.S. Postal money order, U.S. Treasury check, Federal Reserve check,
or direct deposit instead.
WHEN YOU PLACE AN ORDER TO SELL SHARES, your shares will be sold at the next NAV
calculated after your request is received and accepted. Note the following:
/ / Normally, redemption proceeds will be mailed to you on the next business
day, but under unusual circumstances, it may take up to seven days to pay
you.
/ / As mentioned above, an Account may hold payment on redemptions until it is
reasonably satisfied that investments made by check have been collected,
which can take up to 15 calendar days.
/ / Redemptions may be suspended or payment dates postponed when the NYSE is
closed (other than weekends or holidays), when trading on the NYSE is
restricted, or as permitted by the SEC.
SHARE CERTIFICATES. Shares are credited to your account and certificates are not
issued unless specifically requested. You may request share certificates by
writing to the transfer agent, NFDS, P.O. Box 419694, Kansas City, Missouri,
64179-0948. There is no cost for issuing share certificates. Transfers,
exchanges and redemptions of shares will be more complicated if certificates
have been issued. If your share certificate is lost or misplaced you will be
required to pay a fee and furnish a bond satisfactory to the Company's transfer
agent (usually in the amount of 1.5% of the face value of the lost certificate)
before the shares can be transferred or redeemed, or a replacement certificate
issued.
Prospectus Page 24
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
MANAGEMENT
- --------------------------------------------------------------------------------
THE MANAGER
Each Account is managed by the Manager, which handles its business affairs and
chooses the investments for the Account. The principal business address of the
Manager is 10 State House Square, Hartford, Connecticut. The Manager's mailing
address is 140 Garden Street, Hartford, Connecticut 06154. The Manager also
manages the investments of Connecticut Mutual Financial Services Series Fund I,
Inc., a diversified investment management company offering its series of common
stock as funding vehicles for variable annuity contracts issued by Connecticut
Mutual and CM Life Insurance Company ("CM Life"). Connecticut Mutual is the
parent company for the Manager and CM Life.
The persons primarily responsible for the day-to-day management of each Account
are listed below.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR BECAME
ACCOUNT PORTFOLIO MANAGER PORTFOLIO MANAGER BUSINESS
EXPERIENCE (LAST 5 YEARS)
- -------------- --------------------------------- -----------------
- -------------------------------------------------
<S> <C> <C> <C>
Liquid Account John W. Powell, Jr. 1994 Portfolio
Manager, Money Market --
G.R. Phelps
(1994-present); Portfolio Manager, Fixed Income
-- CML
(1993-present); Investment Officer, Fixed
Income --
CML (1990-1993)
Income Account Stephen F. Libera, C.F.A. 1985 Vice
President and Senior Portfolio
Manager,
Fixed
Income -- G.R. Phelps, (1989-Present)
William H. Jefferis 1993 Portfolio
Manager, Fixed Income -- CML
(1993-present); Investment Officer, Fixed Income
-- CML
(1990-1993)
Government Stephen F. Libera, C.F.A. 1985 Vice
President and Senior Portfolio
Manager,
Securities Fixed
Income -- G.R. Phelps (1989-Present)
Account
William H. Jefferis 1993 Portfolio
Manager, Fixed Income -- CML
(1993-present); Investment Officer, Fixed Income
-- CML
(1990-1993)
Total Return Michael C. Strathearn, C.F.A. 1988 Portfolio
Manager, Equities -- CML
(1988-Present)
Account
Peter M. Antos, C.F.A. 1989 Vice
President and Senior Portfolio
Manager,
Equities
- -- G.R. Phelps (1989-Present)
Stephen F. Libera, C.F.A. 1985 Vice
President and Senior Portfolio
Manager,
Fixed
Income -- G.R. Phelps, (1985-Present)
John W. Powell, Jr. 1994 Portfolio
Manager, Money Market -- G.R.
Phelps
(1994-present); Portfolio Manager, Fixed Income
-- CML
(1993-present); Investment Officer, Fixed
Income --
CML (1990-1993)
</TABLE>
Prospectus Page 25
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
<TABLE>
<CAPTION>
YEAR BECAME
ACCOUNT PORTFOLIO MANAGER PORTFOLIO MANAGER BUSINESS
EXPERIENCE (LAST 5 YEARS)
- -------------- --------------------------------- -----------------
- -------------------------------------------------
Growth Account Peter M. Antos, C.F.A. 1989 Vice
President and Senior Portfolio
Manager,
Equities
- -- G.R. Phelps (1989-Present)
<S> <C> <C> <C>
Michael C. Strathearn, C.F.A. 1988 Portfolio
Manager, Equities -- CML
(1988-Present)
Kenneth B. White, C.F.A. 1992 Portfolio
Manager, Equities -- CML
(1992-Present); Senior Investment Officer;
Equities
- -- CML (1987-1992)
</TABLE>
CMFS distributes and markets the Accounts and their services. NFDS performs
transfer agent servicing and dividend disbursing functions for each Account.
- --------------------------------------------------------------------------------
BREAKDOWN OF EXPENSES
Like all mutual funds, each Account pays fees and expenses related to its daily
operations. These Account fees and expenses are neither billed directly to
shareholders nor deducted from individual shareholder accounts but are paid out
of an Account's assets and are reflected in its share price or dividends.
Each Account has entered into an investment advisory agreement with the Manager
pursuant to which the Account pays a management fee to the Manager for managing
its investments and business affairs. The Manager provides administrative
services to each Account, including providing accounting, administrative and
clerical personnel and monitoring the activities of the transfer agent,
custodian and independent auditors of the Accounts. The Accounts also pay other
expenses, which are explained below.
MANAGEMENT FEES
LIQUID ACCOUNT
The Liquid Account pays a monthly fee to the Manager which is based on a stated
percentage of the Liquid Account's average daily net asset value as follows:
<TABLE>
<CAPTION>
NET ASSET VALUE ANNUAL RATE
- -------------------------------- -----------
<S> <C>
First $200,000,000.............. 0.50%
Next $100,000,000............... 0.45%
Amount over $300,000,000........ 0.40%
</TABLE>
For the fiscal year ended December 31, 1994, the Liquid Account paid management
fees equal to 0.50% of its average daily net assets.
GOVERNMENT SECURITIES ACCOUNT, INCOME ACCOUNT,
GROWTH ACCOUNT AND TOTAL RETURN ACCOUNT
Each other Account pays a monthly fee to the Manager which is based on a stated
percentage of the Account's average daily net asset value as follows:
<TABLE>
<CAPTION>
NET ASSET VALUE ANNUAL RATE
- -------------------------------- -----------
<S> <C>
First $300,000,000.............. 0.625%
Next $100,000,000............... 0.500%
Amount over $400,000,000........ 0.450%
</TABLE>
For the fiscal year ended December 31, 1994, each of the Income Account,
Government Securities Account, Total Return Account and Growth Account paid
management fees equal to 0.625% of its average daily net assets.
From time to time, G.R. Phelps may agree not to impose all or a portion of its
advisory fee and/or undertake to pay or reimburse an Account for all or a
portion of its expenses not otherwise required to be borne or reimbursed by G.R.
Phelps. Any such fee reduction or undertaking may be discontinued or modified by
G.R. Phelps at any time. Expense limitation arrangements, which may be
terminated at any time without notice, can decrease an Account's expenses and
increase its performance.
OTHER EXPENSES
Each Account is also responsible for expenses not expressly stated to be payable
by the Manager under the Account's Investment Advisory Agreement. Each Account
pays other expenses, such as legal, audit and custodian fees, proxy solicitation
costs and the compensation of directors who are
Prospectus Page 26
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
not affiliated with Connecticut Mutual. State Street Bank and Trust Company
provides custodian services to each Account.
Each Account contracts with NFDS to perform many transaction and accounting
functions. These services include processing shareholder transactions, valuing
the Account's investments and handling securities loans. For the fiscal year
ended December 31, 1994, the Liquid Account, Income Account, Government
Securities Account, Total Return Account and Growth Account paid NFDS fees (as
a
percentage of their average net assets) equal to 0.29%, 0.15%, 0.16%, 0.24%, and
0.26%, respectively.
DISTRIBUTION PLANS
Each Account has adopted a distribution plan for both Class A shares (Class A
Plan) and Class B shares (Class B Plan) and, with respect to the Liquid Account,
for its shares (Liquid Account Plan) designed to meet the requirements of Rule
12b-1 under the 1940 Act and the sales charge rules of the NASD.
Under the Class A Plan of each Account, each Account may make payments for
personal services and/or the maintenance of shareholder accounts to account
executives of CMFS and other broker-dealer firms with whom CMFS has agreements
in amounts not exceeding 0.25% of the average daily net assets of the Account's
Class A shares for any fiscal year. The Class A Plans for each Account became
effective on January 1, 1995, and no amounts were paid by such Accounts pursuant
to any Class A Plan during fiscal year 1994.
Under the Liquid Account Plan, the Liquid Account reimburses CMFS for its actual
expenses associated with the sale of shares of the Liquid Account. This may
include payments to third parties, such as banks or broker-dealers, that provide
shareholder support services or engage in the sale of shares of the Liquid
Account. However, payments to CMFS from the assets of the Liquid Account cannot
exceed 0.10% of the average daily net assets of the Liquid Account's shares. In
addition, the Liquid Account Plan provides that the Liquid Account will not
reimburse CMFS for expenses incurred in a given year if the Liquid Account's
aggregate expenses for that year exceed 1.0% of the value of its aggregate daily
net assets. CMFS temporarily agreed not to impose any reimbursement to which it
may be entitled pursuant to the Liquid Account Plan during the years ended
December 31, 1993 and 1994. The Liquid Account may pay, in 1995, a portion of
the maximum amount payable annually under the Liquid Account Plan, which is
0.10% of the average daily net assets of the Liquid Account.
Under each Account's Class B Plan, such Account may pay CMFS a service fee at
the annualized rate of up to 0.25% of the average daily net assets of the
Account's Class B shares for its expenditures incurred in servicing and
maintaining shareholder accounts, and may pay CMFS a distribution fee at the
annualized rate of up to 0.75% of the average daily net assets of the Account's
Class B shares for its expenditures incurred in providing services as
distributor. Expenses incurred under the Class B Plan in excess of 1.00%
annually may be carried forward for reimbursement in subsequent years as long as
the Class B Plan continues in effect.
Each of the Class A Plans, Class B Plans and the Liquid Account Plan were
approved, on behalf of the respective Account, by a majority of the Company's
Directors who are not interested persons of the Company and who have no
financial interest in the respective Plan. Neither a Class A Plan, Class B Plan
nor the Liquid Account Plan may be amended to increase materially the annual
percentage limitation of average net assets that may be spent for the services
described in a Class A Plan or Class B Plan or the Liquid Account Plan without
the approval of the shareholders of the affected Account. Any unreimbursed
expenses under a Class A Plan or the Liquid Account Plan are not carried beyond
one year from the date of incurrence.
PORTFOLIO TURNOVER RATES
For the fiscal year ended December 31, 1994, the portfolio turnover rates for
the Income Account, Government Securities Account, Total Return Account and
Growth Account were 62.88%, 156.9%, 115.01% and 98.46%, respectively. High
portfolio turnover rates (above 100%) increase transaction costs and may
increase taxable capital gains. The Manager considers these effects when
evaluating the anticipated benefits of that turnover.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Manager is primarily responsible for placing orders for the portfolio
transactions of each Account. In placing orders, it is the policy of the Manager
to seek to obtain the most favorable net results, taking into account various
factors,
Prospectus Page 27
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
including financial responsibility, quality of execution, price, dealer spread
or commissions, if any, size of the transaction, difficulty of execution, the
provision of research and other services rendered. As a result, while the
Manager seeks reasonably competitive spreads or commissions, the commissions
paid to a broker may be greater than the amount another firm might charge,
provided the Manager determines in good faith that the amount of such commission
is reasonable in relation to the value of the brokerage services and research
information provided by such broker. Such information may be used by the Manager
in managing all of its accounts and not all of such information may be used in
managing the Accounts. In selecting other brokers, each Account may also
consider the sale of its shares effected through such other brokers as a factor
in their selection, provided the Account obtains the best price and execution of
orders.
Money market securities and other fixed income securities in which the Accounts
may invest are traded primarily in the over-the-counter (OTC) market. For
transactions effected in the OTC market, the Accounts intend to deal with the
primary market-makers in the securities involved, unless a more favorable result
is obtainable elsewhere.
Commission rates on foreign exchanges are generally fixed and are generally
higher than negotiated commission rates available in the United States.
MERGER OF PARENT OF G.R. PHELPS
The Boards of Directors of Connecticut Mutual Life Insurance Company (the parent
company to G.R. Phelps) ("CML") and Massachusetts Mutual Life Insurance Company
("MassMutual") have approved a plan of merger pursuant to which CML would merge
with and into MassMutual. The agreement was signed on September 13, 1995. The
merger, if consummated, will result in the Adviser becoming a wholly-owned
subsidiary of MassMutual. The merger is expected to be consummated on or about
December 31, 1995, subject to the approval of certain policy holders and
insureds of CML and MassMutual and applicable regulatory authorities.
Consummation of the merger may result in an assignment, and consequently a
termination, of each existing investment management agreement between the
Adviser and the Fund and any sub-investment management agreement among the
Adviser, Sub-Adviser and the Fund. Fund shareholders on the record date will be
asked to vote on new investment management agreements to become effective at or
about the time the transaction is completed.
- --------------------------------------------------------------------------------
DIVIDENDS, CAPITAL GAINS AND TAXES
- --------------------------------------------------------------------------------
It is the Company's intention to distribute all or substantially all the net
investment income and net realized capital gains, if any, of each Account for
each taxable year. For dividend purposes, net investment income of each Account
will consist of all payments of dividends received or interest accrued by such
Account less the estimated expenses of such Account (including fees payable to
the Manager).
Dividends from net investment income of the Growth Account and Total Return
Account are declared and paid semi-annually. Dividends from net investment
income of the Government Securities Account and Income Account are declared
monthly and paid monthly. Dividends from net investment income of the Liquid
Account are declared and accrued daily and paid monthly. Dividends for the
Liquid Account are not paid on shares until the day following the date on which
the shares are issued.
All realized net short-term capital gains in excess of net long-term capital
losses of an Account, if any, and all realized net long-term capital gains in
excess of net realized short-term capital losses of the Account, if any, are
declared and paid at least annually. Unless shareholders specify otherwise, all
dividends and distributions will be automatically reinvested in additional full
and fractional shares of each Account.
Prospectus Page 28
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
Dividends from each Account's net investment income, certain net foreign
exchange gains and net short-term capital gains are taxable as ordinary income,
and dividends from each Account's net long-term capital gains are taxable as
long-term capital gains. For federal income tax purposes, all dividends are
taxable as described above whether a shareholder takes them in cash or reinvests
them in additional shares of the Account. Certain dividends paid in January may
be treated as if they were received on December 31 of the prior year.
Information as to the federal tax status of dividends and distributions will be
provided annually.
Each Account has elected to be treated, has qualified and intends to continue to
qualify for treatment as a "regulated investment company" under Subchapter M of
the Code, so that it will not pay federal income taxes on income and capital
gains provided such income and capital gains are distributed to shareholders
within the time period prescribed by the Code.
Under the Code, an Account will be subject to a nondeductible 4% excise tax on
a
portion of its undistributed income and capital gains if it fails to meet
certain distribution requirements with respect to each calendar year. Each
Account intends to make distributions in a timely manner and accordingly does
not expect to be subject to the excise tax.
A portion of any dividend income received by an Account from U.S. domestic
corporations and distributed as a dividend to its corporate shareholders may be
eligible for the 70% dividends-received deduction, subject to certain conditions
and limitations under the Code.
An Account may be subject to foreign withholding or other foreign taxes with
respect to income and, in some cases, capital gains from its foreign
investments. In some cases, it is possible that these taxes may be reduced under
applicable income tax treaties.
A state income (and possibly local income and/or intangible property) tax
exemption is generally available to the extent an Account's distributions are
derived from interest on (or, in the case of intangibles taxes, the value of its
assets is attributable to) certain U.S. Government obligations, provided in some
states that certain thresholds for holdings of such obligations and/or reporting
requirements are satisfied. Accordingly, each Account will report annually to
its shareholders the percentage of interest income earned from such securities
during the preceding year. Each shareholder is advised to consult his own tax
adviser regarding the exemption, if any, of such income under applicable state
and local law.
Redemptions (including exchanges and repurchases) of shares are taxable
transactions in which a shareholder may realize a gain or loss. No such gain or
loss would normally arise for transactions in shares of the Liquid Account,
provided that it maintains a stable $1.00 per share net asset value, except to
the extent a loss may result from the imposition of a CDSC. Special tax rules
may apply to the calculation of gains or losses and the deductibility of any
losses in particular circumstances.
Dividends and other distributions and, except for the Liquid Account if it
maintains a constant NAV, the proceeds of redemptions or repurchases of Account
shares paid to individuals and other non-exempt payees will be subject to a 31%
backup withholding of federal income tax if the Account is not provided with the
shareholder's correct taxpayer identification number and certification that the
number is correct and the shareholder is not subject to backup withholding or
the Account receives notice from the Internal Revenue Service (the "IRS") or a
broker that such withholding applies. Please refer to the Account Application
for additional information.
The description above relates only to U.S. federal income tax consequences for
shareholders who are U.S. persons, I.E., U.S. citizens or residents or U.S.
corporations, partnerships, trust or estates, and who are subject to U.S.
federal income tax. Shareholders should consult their own tax advisors regarding
state, local and other applicable tax laws.
Prospectus Page 29
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
THE COMPANY
- --------------------------------------------------------------------------------
Each Account is a mutual fund: an entity that pools shareholders' money and
invests it toward specified goals. In technical terms, each Account is a
separate diversified portfolio or "series" of the Company, an open-end
management investment company which was organized as a corporation under the
laws of Maryland on December 9, 1981.
The Company has authorized 3 billion shares of Common Stock, par value $0.001
per share and may create and classify the Common Stock into separate mutual
funds (or investment series or portfolios of shares) without further approval of
the Company's shareholders. As of the date of this prospectus, the Company has
established the five Accounts described in this Prospectus; the following five
municipal bond funds: CMIA National Municipals Account, CMIA California
Municipals Account, CMIA Massachusetts Municipals Account, CMIA New York
Municipals Account and CMIA Ohio Municipals Account (the "Municipals Accounts");
and the following three "LifeSpan" funds: CMIA LifeSpan Capital Appreciation
Account, CMIA LifeSpan Balanced Account and CMIA Life Span Diversified Income
Account (the "LifeSpan Accounts"). The Municipal Accounts and LifeSpan Accounts
are offered by means of separate prospectuses. Additional series of the Company
may be added in the future. '
The Board of Directors is authorized, without further shareholder approval, to
classify and reclassify the Accounts into one or more classes. Accordingly, the
Directors have authorized the issuance of two classes of shares of each of the
Accounts (except for the Liquid Account), designated as Class A shares and Class
B shares. The shares of each class represent an interest in the same portfolio
of investments of the Accounts and have equal rights as to voting, redemption,
dividends and liquidation. However, each class bears different distribution and
transfer agency fees and expenses and each class has exclusive voting rights
with respect to its respective Rule 12b-1 distribution plan.
As of August 31, 1995, Connecticut Mutual and its affiliates owned 29% of the
shares of the Company, including 33% of the shares of the Liquid Account, 15% of
the shares of the Government Securities Account, 31% of the shares of the Income
Account, 31% of the shares of the Growth Account, and 0% of the shares of the
Total Return Account.
The Company is governed by a Board of Directors which is responsible for
protecting your interests as a shareholder. The directors are experienced
executives who meet at least quarterly to oversee the activities of each
Account, review contractual arrangements with companies that provide services to
the Accounts and review each Account's performance. The majority of the
directors are not otherwise affiliated with Connecticut Mutual. The SAI contains
the names and general background of each director and executive officer of the
Company.
The Company does not hold annual meetings of shareholders. The Company may hold
shareholder meetings, however, to elect or remove directors, change the
fundamental policies of an Account, approve the management contract of an
Account or for other purposes. On matters affecting only one series, only the
shareholders of that series are entitled to vote. On matters relating to all of
the series but affecting the series differently, separate votes by each series
are required. On matters relating to a single class of shares of a series, only
the shareholders of that class are entitled to vote. Shareholders holding more
than 50% of the Company can elect all of the Company's directors if they so
choose. Each share is entitled to one vote within each series.
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CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
PERFORMANCE
From time to time the Company may advertise yields and total returns for the
Accounts. In addition, the Company may advertise the effective yield of the
Liquid Account. These figures will be based on historical performance and are
not intended to indicate future performance.
The yield of the Liquid Account refers to the annualized net income generated by
an investment in that Account over a specified seven-day period. The yield is
"annualized" by assuming that the income generated for that seven-day period is
generated each seven-day period over a 52-week period, and is shown as a
percentage of that investment. The effective yield is calculated similarly, but,
when annualized, the income earned by an investment in that Account is assumed
to be reinvested. The effective yield will be slightly higher than the yield
because of the compounding effect of this assumed reinvestment.
Performance data for the classes of the other Accounts may be calculated
pursuant to a standardized formula or in non-standardized manners. The
standardized yield of these other Accounts refer to the annualized net income
generated by an investment in a class of that Account over a specified 30-day
period. The yield is calculated by assuming that the income generated by the
investment during the 30-day period is generated each 30-day period over a
12-month period, and is shown as a percentage of the investment.
The standardized total return of a class of an Account refers to return
quotations assuming an investment has been held in the Account for various
periods of time including, but not limited to, one year, five years and ten
years (or any such shorter period from the Account's or the class's inception).
The total return quotations will represent the average annual compounded rates
of return that would equate an initial investment of $1,000 to the redemption
value of that investment as of the last day of each of the periods for which
total return quotations are provided. Accordingly, the total return quotations
will reflect not only income but also changes in principal value (that is,
changes in the net asset value per share of the class), whereas the yield
figures will only reflect income.
The standardized yield and total return quotations for the Class A shares of
Accounts will reflect the maximum sales charge imposed on purchases of Class A
shares of the Account. For Class B shares of an Account, these calculations
reflect the deduction of any applicable CDSC.
In addition, the Company may from time to time also disclose yield or total
return in non-standard formats, and cumulative total return for the classes of
the Accounts. The non-standard average annual total return and cumulative total
return may be based on net asset value per share of a class, rather than a
$1,000 investment. These non-standard return figures would not reflect the
initial sales charge on Class A shares or the CDSC on Class B shares, which, if
reflected, would lower the performance figures. In addition, non-standardized
yields figures may be advertised that also would not reflect the applicable
sales charge. The Company may from time to time also disclose yield, standard
total returns, and non-standard total returns for the classes of the Accounts
based on or covering periods of time other than those indicated above.
Non-standard performance data will only be disclosed if the standard performance
is also disclosed. For additional information regarding the calculation of
performance data, please refer to the SAI.
Also from time to time, in advertisements or in reports to shareholders, the
Company may compare the performance of the classes of the Accounts to that of
other mutual funds with similar investment objectives, and to other relevant
indices published by recognized mutual fund statistical rating services or
publications of general interest, such as FORBES or MONEY. The SAI contains a
list of publications which may contain comparative studies which the Company may
use in advertisements or shareholder materials. For example, the Company may
compare an Account's Class A or Class B performance to that of other mutual
funds with a similar investment objective as compiled by Lipper Analytical
Services, Inc. In addition, the Company may compare the performance to that of
recognized stock market indicators, including, but not limited to, the S&P 500
Stock Index (which is a group of unmanaged securities widely regarded by
investors as representative of
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Connecticut Mutual Investment Accounts, Inc.
the stock market in general), and the Dow Jones Industrial Average (which is a
price-weighted average of 30 large, well-known industrial stocks that are
generally the leaders in their industry). Performance comparisons should not be
considered representative of the future performance of an Account. The effects
of compounding may also be discussed.
Performance data may also be calculated for shorter or longer base periods. The
Company may use various base periods as may be deemed necessary to provide
investors with the most informative yield or total return information, depending
on the then-current market conditions. Performance will vary from time to time,
and historical results will not be representative of future performance.
Performance information may not provide a basis for comparison with other
investments or other investment companies using a different method of
calculating performance. Current yield is not fixed and varies with changes in
investment income and net asset value per share. The yield of Class A or Class
B
shares of an Account or the shares of the Liquid Account will be affected if it
experiences a net inflow of new money which is invested at interest rates
different from those being earned on its then-current investments. An investor's
principal in an Account and an Account's return are not guaranteed and will
fluctuate according to market conditions.
The investment results of an Account's Class A and Class B shares and of the
Liquid Account shares will vary from time to time depending on market
conditions, the composition of the Account's portfolio and operating expenses.
For further information about the calculation methods and uses of an Account's
Class A and Class B shares and of the Liquid Account's shares investment
results, see the SAI.
- --------------------------------------------------------------------------------
RISK FACTORS, SECURITIES
AND INVESTMENT TECHNIQUES
- --------------------------------------------------------------------------------
The following discussions contain more detailed information about types of
instruments in which the Accounts may invest and strategies the Manager may
employ in pursuit of the Accounts' investment objectives. A summary of risks and
restrictions associated with these instrument types and investment practices is
included as well. Policies and limitations are considered at the time of
purchase; the sale of instruments is not required in the event of a subsequent
change in circumstances. Some of the restrictions described below are
fundamental and may be changed only with shareholder approval. These
restrictions are set forth in greater detail in the SAI.
The Manager may not buy all of these instruments or use all of these techniques
to the full extent permitted unless it believes that doing so will help an
Account achieve its goals. As a shareholder, you will receive financial reports
every six months detailing holdings of your Account(s) and describing recent
investment activities.
EQUITY SECURITIES (TOTAL RETURN ACCOUNT AND
GROWTH ACCOUNT)
Equity securities include common stocks, preferred stocks, convertible
securities and warrants. Common stocks represent an equity (ownership) interest
in a corporation. This ownership interest often gives an Account the right to
vote on measures affecting the company's organization and operations. Although
common stocks have a history of long-term growth in value, their prices tend to
fluctuate in the short term, particularly those of smaller capitalization
companies. Preferred stocks represent a limited equity interest in a
corporation. Preferred stocks are often entitled only to dividends at a
specified rate, and have a preference over common stock, dividends and on
liquidation of assets. Preferred stocks generally have lesser voting rights than
common stocks. Because their dividends are often fixed, the value of many
preferred stocks fluctuates inversely with changes in interest rates.
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CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
Convertible securities are bonds, preferred stocks and other securities that pay
a fixed rate of interest or dividend and offer the buyer the option of
converting the security into common stock. The value of convertible securities
depends partially on interest rate changes and the credit quality of the issuer.
The value of convertible securities is also sensitive to company, market and
other economic news, and will change based on the price of the underlying common
stock. For this reason, the Manager considers the growth potential of the
underlying stock when selecting an Account's investments. Convertible securities
generally have less potential for gain than common stock, but also less
potential for loss, since their income provides a cushion against the stock's
price declines. However, because the buyer is also exposed to the risk and
reward potential of the underlying stock, convertible securities generally pay
less income than similar non-convertible bonds.
DEBT SECURITIES (ALL ACCOUNTS)
DEBT SECURITIES GENERALLY. Each Account may purchase debt securities consisting
of corporate debt obligations, U.S. Government securities, municipal
obligations, mortgage-backed and asset-backed securities, adjustable rate
securities, stripped securities, custodial receipts for Treasury certificates,
zero coupon bonds, equipment trust certificates, loan participation notes,
structured notes and money market instruments. Bonds and other debt instruments
are used by domestic and foreign issuers to borrow money from investors. The
issuer pays the investor a fixed or variable rate of interest, and must repay
the amount borrowed at maturity. Some debt securities, such as zero coupon
bonds, do not pay current interest, but are purchased at a discount from their
face values. Zero coupon bonds accrue income for tax and accounting purposes and
such income must be distributed to shareholders. Because no cash is received at
the time of such accruals, an Account may be required to liquidate other
securities to satisfy distribution obligations. Debt securities have varying
degrees of quality and varying levels of sensitivity to changes in interest
rates. A decrease in interest rates will generally result in an increase in the
value of an Account's portfolio of debt securities, and, conversely, during
periods of rising interest rates, the value of an Account's portfolio of debt
securities will generally decline. Longer-term bonds are generally more
sensitive to interest rate changes than shorter-term bonds.
LOWER QUALITY AND UNRATED DEBT SECURITIES. Each Account, except Liquid Account
and Government Account, may purchase lower quality and unrated debt securities.
No Account will purchase securities rated below B by Moody's or S&P. Lower
quality debt securities I.E., rated below BBB or Baa, (commonly called high
yield bonds or junk bonds) are often considered to be speculative and involve
greater risk of default or price changes due to changes in the issuer's
creditworthiness. The market prices of these securities may fluctuate more than
higher quality securities and may decline significantly in periods of general
economic difficulty. An economic downturn could also disrupt the high yield bond
market generally and impair the ability of issuers to repay principal and
interest. An increase in interest rates would (as is the case with debt
instruments generally) reduce market values of a portfolio of lower rated fixed
income securities. The market price and liquidity of lower rated fixed income
securities generally responds to short-term corporate and market developments to
a greater extent than do higher rated securities because such developments are
perceived to have a more direct relationship to the ability of an issuer of such
lower rated securities to meet its ongoing debt obligations. The market prices
of zero coupon and payment-in-kind bonds are affected to a greater extent by
interest rate changes, and thereby tend to be more volatile, than securities
which pay interest periodically and in cash. Increasing rate note securities are
typically refinanced by the issuers within a short period of time. Adverse
publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the values and liquidity of high yield obligations,
especially in a thinly traded market.
Reduced volume and liquidity in the high yield, high risk bond market or the
reduced availability of market quotations for such bonds will make it more
difficult to dispose of the bonds and to value accurately an Account's assets.
The reduced availability of reliable, objective pricing data may increase an
Account's reliance on management's judgment in valuing high yield, high risk
bonds.
The Manager does not rely on credit ratings assigned by rating agencies in
assessing investment opportunities in such bonds. Ratings by credit agencies
focus on safety of principal and interest payments and do not evaluate market
risks. In addition, ratings by credit agencies may not be changed by the
agencies in a timely manner to reflect subsequent economic events. By conducting
intensive credit research, carefully selecting individual issues and
diversifying portfolio holdings by
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CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
industry sector and issuer, the Manager believes that the default risk of lower
rated securities can be reduced. Emphasis on credit risk management involves the
Manager's own internal analysis to determine the debt service capability,
financial flexibility and liquidity of an issuer, as well as the fundamental
trends and outlook for the issuer and its industry. The Manager's rating helps
it determine the attractiveness of specific issues relative to the valuation by
the market place of similarly rated credits. The Manager may retain securities
whose ratings fall below B after purchase until the Manager determines that
disposing of such securities is in the best interests of the respective Account.
DERIVATIVE INSTRUMENTS. Each of the Accounts may invest in derivative
instruments which are securities or contracts that provide for payments based on
or "derived" from the performance of an underlying asset, index or other
economic benchmark. Transactions in derivative instruments can be, but are not
necessarily, riskier than investments in conventional stocks, bonds and money
market instruments. The use of derivative instruments for non-hedging purposes
or to generate additional income may be considered a speculative investment
practice. A derivative instrument is more accurately viewed as a way of
reallocating risk among different parties or substituting one type of risk for
another. Transactions in derivative instruments often enable an Account to take
investment positions that more precisely reflect the portfolio manager's
expectations concerning the future performance of the various investments
available to the Account. Derivative instruments can be a legitimate and often
cost-effective method of accomplishing the same investment goals as could be
achieved through other authorized investments in conventional securities.
Derivative securities include collateralized mortgage obligations, stripped
mortgage backed securities, asset backed securities, structured notes and
floating interest rate securities. Derivative contracts include futures
contracts, forward contracts, forward commitment and when-issued securities
transactions, forward foreign currency exchange contracts and interest rate
swaps. The principal risks associated with derivative instruments are:
/ / Market risk: The instrument will decline in value or that an alternative
investment would have appreciated more, but this is no different from the
risk of investing in conventional securities.
/ / Leverage and associated price volatility: Leverage causes increased
volatility in the price and magnifies the impact of adverse market changes,
but this risk may be consistent with a fund's investment objective in order
to achieve an average portfolio volatility that is within the expected range
for that type of fund. The SEC has taken the position that the risk of
leverage is not an appropriate risk for a money market fund.
/ / Credit risk: The issuer of the instrument may default on its obligation to
pay interest and principal, but derivatives based on U.S. Government agency
mortgage securities may actually present less credit risk than some
conventional corporate debt securities.
/ / Liquidity and valuation risk: Many derivative instruments are traded in
institutional markets rather than on an exchange. Nevertheless, many
derivative instruments are actively traded and can be priced with as much
accuracy as conventional securities. Derivative instruments that are custom
designed to meet the specialized investment needs of a relatively narrow
group of institutional investors such as the Accounts are not readily
marketable and are subject to an Account's restrictions on illiquid
investments.
/ / Correlation risk: There may be imperfect correlation between the price of
the derivative and the underlying asset; for example, there may be price
disparities between the trading markets for the derivative contract and the
underlying asset.
FOREIGN SECURITIES (ALL ACCOUNTS EXCEPT THE LIQUID ACCOUNT AND THE
GOVERNMENT
SECURITIES ACCOUNT)
Each Account (except the Liquid Account and Government Securities Account) may
purchase, as appropriate to its investment objective and policies, equity and
debt securities issued by foreign issuers, denominated in foreign currency and
traded primarily on foreign markets. (For this purpose Eurodollar and Yankee
dollar fixed income securities are not considered "foreign securities.")
Investments in foreign equity and debt securities involve risks different from
those encountered when investing in securities of domestic issuers. Such risks
include: the adverse impact of trade balances and imbalances and related
economic policies; currency exchange rate fluctuations; adverse foreign exchange
control policies; nationalization, expropriation or confiscatory taxation;
income tax withholding at the source; limitations
Prospectus Page 34
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CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
on the removal of funds or other assets; political or social instability;
difficulty in obtaining and enforcing judgments abroad; restrictions on foreign
investments in other jurisdictions; price volatility; problems arising from the
diverse structure and illiquidity of securities markets in various countries and
regions; and other specific local, political and economic considerations. See
the SAI for additional discussion of the risks of investing in foreign markets.
The value of foreign securities may be adversely affected by fluctuations in the
relative rates of exchange between the currencies of difference nations and by
exchange control regulations. The investment performance of an Account may be
significantly affected, either positively or negatively, by currency exchange
rates because the U.S. dollar value of securities denominated in a foreign
currency will increase or decrease in response to changes in the value of
foreign currencies in relation to the U.S. dollar.
Also, there may be higher transaction costs in foreign securities and less
government regulation of foreign stock exchanges, brokers, and issuers than is
present in the United States. Equity securities and debt instruments acquired in
foreign markets will not, as a rule, be subject to registration under the
Securities Act of 1933 or be under the jurisdiction of the SEC.
Most foreign securities of an Account are held outside the United States by
local foreign subcustodians that satisfy certain eligibility requirements.
However, foreign subcustodian arrangements are significantly more expensive than
domestic custody arrangements. In addition, foreign custody and settlement of
securities transactions is subject to local law and custom that is not,
generally, as well established or as reliable as U.S. regulation and custom
applicable to custody and settlements of securities transactions and,
accordingly, there is generally perceived to be a greater risk of loss in
connection with securities custody and securities transactions in many foreign
countries. Finally, there may be less publicly available information about
foreign issuers, and such issuers may not be subject to the same accounting and
auditing standards as publicly held domestic issuers.
The Accounts, other than Liquid Account and Government Securities Account, may
invest in companies located in emerging countries. Compared to the United States
and other developed countries, developing countries may have relatively unstable
governments, economies based on only a few industries, and securities markets
that are less liquid and trade a small number of securities. Prices on these
exchanges tend to be volatile and, in the past, securities in these countries
have offered greater potential for gain (as well as loss) than securities of
companies located in developed countries. See the SAI for additional discussion
of the risks of investing in securities of issuers in emerging countries.
RESTRICTIONS: No Account may invest more than 10% of its total assets in foreign
securities, except the following securities, in which such Accounts may invest
up to 25% of their total assets: foreign equity and debt securities (i) issued,
assumed or guaranteed by foreign governments or their political subdivisions or
instrumentalities, (ii) assumed or guaranteed by domestic issuers, including
Eurodollar securities, and (iii) issued, assumed or guaranteed by foreign
issuers having a class of securities listed for trading on the NYSE.
FOREIGN CURRENCY TRANSACTIONS. Each Account (other than the Liquid Account and
the Government Securities Account) may enter into foreign currency transactions
in order to protect the U.S. dollar value of the Account's foreign currency-
denominated portfolio securities against the U.S. dollar effects of adverse
changes in foreign currency exchange rates (Base Currency Hedging). Normally, an
Account will not engage in cross-hedging (I.E., dealing in foreign exchange
between currencies of the different countries in which it has invested for the
purpose of hedging against possible variations in the foreign exchange rate
between those countries). Both Base Currency Hedging and cross-hedging may be
accomplished through direct purchases or sales of currency, purchases of options
or futures contracts with respect to currency, and contractual agreements to
purchase or sell a specified currency at a specified future date (up to one
year) at a price set at the time of contract.
Such contractual commitments may be forward contracts entered into directly with
another party or exchange-traded futures contracts. An Account may also purchase
and sell options on futures contracts, forward contracts, or futures contracts
which are denominated in a particular currency to hedge the risk of fluctuations
in the value of another currency. An Account's dealings in foreign
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CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
exchange will be limited to hedging involving either specific transactions or
portfolio positions. Transaction hedging is the purchase or sale of currency
with respect to specific receivables or payables of the Account accruing in
connection with the purchase or sale of its portfolio securities. Position
hedging is the purchase or sale of currency with respect to portfolio security
positions denominated or quoted in a foreign currency. No Account will speculate
in foreign exchange.
If an Account enters into a forward foreign currency exchange contract to buy
foreign currency, the Account will be required to place and maintain in a
segregated account with the Account's custodian for the duration of the contract
an amount of cash or liquid, high grade debt securities equal to the Account's
obligations under the contract.
U.S. GOVERNMENT SECURITIES (ALL ACCOUNTS)
Each Account may purchase U.S. Government securities. Government Securities
include: (1) U.S. Treasury obligations, which differ only in their interest
rates, maturities and times of issuance, U.S. Treasury bills (maturity of one
year or less), U.S. Treasury notes (maturities of one to 10 years), and U.S.
Treasury bonds (generally maturities of greater than 10 years), all of which are
backed by the full faith and credit of the United States, and (2) obligations
issued or guaranteed by U.S. Government agencies or instrumentalities, some of
which are backed by the full faith and credit of the U.S. Treasury, such as
direct pass-through certificates of the Government National Mortgage Association
(GNMA); some of which are supported by the right of the issuer to borrow from
the U.S. Government, such as obligations of Federal Home Loan Banks; and some of
which are backed only by the credit of the issuer itself, such as obligations of
the Student Loan Marketing Association.
A large percentage of the assets of the Government Securities Account have at
times been invested in GNMA certificates of the modified pass-through type. GNMA
certificates are debt securities issued by a mortgage banker or other mortgagee,
and represent an interest in a pool of mortgages insured by the Federal Housing
Administration or the Farmers Home Administration, or guaranteed by the Veterans
Administration. GNMA guarantees the timely payment of monthly installments of
principal and interest on modified pass-through certificates at the time such
payments are due, whether or not such amounts are collected by the issuer of
these certificates on the underlying mortgages.
Mortgages included in single-family residential mortgage pools backing an issue
of GNMA certificates have a maximum maturity of 30 years. Scheduled payments of
principal and interest are made to the registered holders of GNMA certificates
(such as the Account) each month. Unscheduled prepayments of mortgages included
in these pools occur as a result of the prepayment or refinancing of such
mortgages by homeowners, or as a result of the foreclosure of such mortgages.
Such prepayments are passed through to the registered holders of GNMA
certificates with the regular monthly payments of principal and interest, which
has the effect of reducing future payments on such certificates. That portion of
monthly payments received by an Account which represents interest and discount
will be included in an Account's net income. Principal payments on GNMA
certificates will be reinvested by an Account. Prepayments and scheduled
payments of principal on GNMA certificates will be reinvested at prevailing
interest rates, which may be less than the rate of interest payable on the GNMA
certificates on which such prepayment and payments are made.
U.S. GOVERNMENT-RELATED SECURITIES
(GOVERNMENT SECURITIES ACCOUNT, INCOME ACCOUNT
AND TOTAL RETURN ACCOUNT)
Government-related Securities include collateralized mortgage obligations
(CMOs). CMOs are debt obligations issued by U.S. government agencies, or by
financial institutions and other mortgage lenders, and collateralized by
mortgage pass-through securities, such as GNMA, Federal National Mortgage
Association and Federal Home Loan Mortgage Corporation certificates. Payments of
principal and interest on the underlying collateral and any reinvestment income
thereon provide the funds to pay debt service obligations to the CMOs. CMOs are
issued in a number of classes or series, each with its own maturity and interest
rate. While the classes or series are often retired in sequence as the
underlying mortgages are repaid, payments of principal and interest on the
underlying mortgages may be allocated among the different series or classes in
innumerable ways. As with any mortgage-related security, principal prepayment on
the collateral may cause the CMOs to be retired substantially earlier than the
stated
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CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
maturities or final distribution dates. Prepayment may thus shorten the stated
maturity of the obligation and can result in the loss of premium if any has been
paid. Certain of these securities may have variable or floating interest rates
and others may be stripped (securities which provide only the principal or only
the interest feature of the underlying security). Stripped mortgage backed
securities are derivative multiple-class mortgage-backed securities. Stripped
mortgage backed securities are usually structured with two classes that receive
different proportions of interest and principal distributions on a pool of
mortgage assets. A typical stripped mortgage backed security will have one class
receiving some of the interest and most of the principal, while the other class
will receive most of the interest and the remaining principal. In the most
extreme case, one class will receive all of the interest (the "interest only"
class) while the other class will receive all of the principal (the "principal
only" class). The yields and market risk of interest only and principal only
stripped mortgage backed securities, respectively, may be more volatile than
those of other fixed-income securities. The staff of the SEC considers privately
issued stripped mortgage backed securities to be illiquid.
ASSET-BACKED SECURITIES (INCOME ACCOUNT,
GOVERNMENT ACCOUNT AND TOTAL RETURN ACCOUNT)
The Income Account, Government Account and Total Return Account may invest in
asset-backed securities, which represent participations in, or are secured by
and payable from, pools of assets such as motor vehicle installment sale
contracts, installment loan contracts, leases of various types of real and
personal property, receivables from revolving credit (credit card) agreements
and other categories of receivables. Asset-backed securities may also be
collateralized by a portfolio of U.S. Government securities, but are not direct
obligations of the U.S. Government, its agencies or instrumentalities. Such
asset pools are securitized through the use of privately-formed trusts or
special purpose corporations. Payments or distributions of principal and
interest on asset-backed securities may be guaranteed up to certain amounts and
for a certain time period by a letter of credit or a pool insurance policy
issued by a financial institution unaffiliated with the trust or corporation, or
other credit enhancements may be present; however privately issued obligations
collateralized by a portfolio of privately issued asset-backed securities do not
involve any government-related guarantee or insurance. In addition to the risks
similar to those associated with mortgage-backed securities (see "-- U.S.
Government Securities," above), asset-backed securities present further risks
that are not presented by the mortgage-backed securities because asset-backed
securities generally do not have the benefit of a security interest in
collateral that is comparable to mortgage assets.
STRUCTURED NOTES (INCOME ACCOUNT, GOVERNMENT ACCOUNT AND TOTAL
RETURN ACCOUNT)
The Income Account, Government Account and Total Return Account may invest in
structured notes. The distinguishing feature of a structured note is that the
amount of interest and/or principal payable on the notes is based on the
performance of a benchmark asset or market other than fixed-income securities or
interest rates. Examples of these benchmarks include stock prices, currency
exchange rates and physical commodity prices. Investing in a structured note
allows an Account to gain exposure to the benchmark market while fixing the
maximum loss that the Account may experience in the event that market does not
perform as expected. Depending on the terms of the note, the Account may forego
all or part of the interest and principal that would be payable on a comparable
conventional note; the Account's loss cannot exceed this foregone interest
and/or principal. An investment in structured notes involves risks similar to
those associated with a direct investment in the benchmark asset.
INVERSE FLOATING RATE INSTRUMENTS (INCOME ACCOUNT, GOVERNMENT
ACCOUNT AND TOTAL
RETURN ACCOUNT)
The Income Account, Government Account and Total Return Account may invest in
inverse floating rate debt instruments ("inverse floaters"), including leveraged
inverse floaters and inverse floating rate mortgage-backed securities, such as
inverse floating rate "interest only" stripped mortgage-backed securities. The
interest rate on inverse floaters resets in the opposite direction from the
market rate of interest to which the inverse floater is indexed. An inverse
floater may be considered to be leveraged to the extent that its interest rate
varies by a magnitude that exceeds the magnitude of the change in the index rate
of interest. The higher degree of leverage inherent in inverse floaters is
associated with greater volatility in their market values.
MORTGAGE DOLLAR ROLLS (INCOME ACCOUNT, GOVERNMENT ACCOUNT AND
TOTAL RETURN
ACCOUNT)
The Income Account, Government Account and Total Return Account may each invest
up to 20%
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CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
of their respective assets in mortgage dollar rolls in which the Government
Account sells mortgage-backed securities for delivery in the current month and
simultaneously contracts to repurchase substantially similar (same type, coupon
and maturity) securities on a specified future date. During the roll period, the
Account foregoes principal and interest paid on the mortgage-backed securities.
The Account is compensated by the difference between the current sales price and
the lower forward price for the future purchase (often referred to as the
"drop") as well as by the interest earned on the cash proceeds of the initial
sale. A "covered roll" is a specific type of dollar roll for which there is an
offsetting cash position or a cash equivalent security position which matures on
or before the forward settlement date of the dollar roll transaction. All rolls
entered into by the Account will be covered rolls. Covered rolls are not treated
as a borrowing or other senior security and will be excluded from the
calculation of the Account's borrowings and other senior securities. The Manager
is also permitted to purchase mortgage-backed securities and to sell such
securities without regard to the length of time held in separate transactions
that do not constitute dollar rolls. For financial reporting and tax purposes,
the Accounts treat mortgage rolls as two separate transactions: one involving
the purchase of securities and a separate transaction involving a sale. The
Accounts do not currently intend to enter into mortgage dollar transactions that
are accounted for as a financing.
LENDING OF PORTFOLIO SECURITIES (ALL ACCOUNTS) Subject to its investment
policies and restrictions, each Account may also seek to increase its income by
lending portfolio securities. Such loans may be made to qualified institutions,
such as certain broker-dealers, and are required to be secured continuously by
collateral in cash, cash equivalents, or U.S. Government securities maintained
on a current basis at an amount at least equal to the market value of the
securities loaned. The value of the securities loaned will not exceed 33 1/3% of
the value of the total assets of the Account. An Account may experience a loss
or delay in the recovery of its securities if the borrowing institution breaches
its agreement with the Account.
FORWARD COMMITMENTS (ALL ACCOUNTS EXCEPT THE LIQUID ACCOUNT)
Securities may be purchased by all Accounts (other than the Liquid Account) on
a
"when-issued" or on a "forward commitment" basis, which means it may take 60
days or more before the securities are delivered to an Account. Securities
purchased on a "when-issued" or "forward commitment" basis involve a risk that
the value of the security to be purchased may decline prior to the settlement
date. Also, if the dealer through which the trade is made fails to consummate
the transaction, the Account may lose an advantageous yield or price.
COVERED CALL OPTIONS (ALL ACCOUNTS EXCEPT THE
LIQUID ACCOUNT)
Each Account (other than the Liquid Account) may write covered call options on
securities, securities indices and foreign currencies, in each case as a hedge
against decreases in prices of existing portfolio securities or increases in
prices of anticipated portfolio securities. A call option on a security gives
the holder (purchaser) the right to buy, and obligates the writer (seller) to
sell (if the option is exercised), in return for a premium paid, the underlying
security at a specified exercise price during the option period. A call option
on a currency operates in a similar manner, except that delivery is made of the
specified currency. A call option on an index is also similar except that the
value of the option depends on the weighted value of the group of securities in
the index and settlement of the option is made in the form of cash rather than
the delivery of a security.
Because call options may be used to generate additional income and to attempt to
reduce the effect of any adverse price movement in the securities or currency
subject to the option, they do involve certain risks that are different in some
respects from investment risks associated with similar funds which do not engage
in such activities. The risk of writing covered call options includes the
inability to participate in the appreciation of the underlying securities or
currencies above the exercise price. In addition, the effectiveness of hedging
through the purchase or sale of securities index options, including options on
the S&P 500 Index, will depend upon the extent to which price movements in the
portion of the securities portfolio being hedged correlate with the price
movements in the selected securities index. Perfect correlation may not be
possible because the securities held or to be acquired by an Account may not
exactly match the composition of the securities index on which options are
written. If the forecasts of the Manager regarding movements in securities
prices, interest rates, or currency exchange rates are
Prospectus Page 38
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
incorrect, an Account's investment results may have been better without the
hedge transactions.
INTEREST RATE SWAPS (INCOME ACCOUNT, GOVERNMENT ACCOUNT AND TOTAL
RETURN
ACCOUNT)
The Income Account, Government Account and Total Return Account may enter into
interest rate swaps both for hedging and to seek to increase total return. Each
Account will typically use interest rate swaps to adjust the effective duration
of its portfolio. Interest rate swaps involve the exchange by an Account with
another party of their respective commitments to pay or receive interest, such
as an exchange of fixed rate payments for floating rate payments. Since interest
rate swaps are individually negotiated, an Account expects to achieve an
acceptable degree of correlation between its portfolio investments and its
interest rate swap positions.
An Account will enter into interest rate swaps only on a net basis, which means
that the two payment streams are netted out, with the Account receiving or
paying, as the case may be, only the net amount of the two payments. Interest
rate swaps do not involve the delivery of securities, other underlying assets or
principal. Accordingly, the risk of loss with respect to interest rate swaps is
limited to the net amount of interest payments that an Account is contractually
obligated to make. If the other party to an interest rate swap defaults, an
Account's risk of loss consists of the net amount of interest payments that the
Account is contractually entitled to receive. An Account will maintain in a
segregated account with the Account's custodian cash and liquid high grade debt
securities equal to the net amount, if any, of the excess of the Account's
obligations over its entitlements with respect to swap transactions. To the
extent that the net amount of a swap is held in a segregated account consisting
of cash and high liquid grade debt securities, the Accounts and the Manager
believe that swaps do not constitute senior securities under the Act and,
accordingly, will not treat them as being subject to an Account's borrowing
restriction.
The use of interest rate swaps is a highly specialized activity which involves
investment techniques and risks different from those associated with ordinary
portfolio securities transactions. If the Manager is incorrect in its forecasts
of market values and interest rates, the investment performance of the Accounts
would be less favorable than it would have been if this investment technique
were not used.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS (ALL ACCOUNTS
OTHER THAN
LIQUID ACCOUNT)
To hedge against changes in interest rates, securities prices or currency
exchange rates or for non-hedging purposes, each Account (other than Liquid
Account) may, subject to its investment objectives and policies, purchase and
sell various kinds of futures contracts, and purchase and write call and put
options on any of such futures contracts. An Account may also enter into closing
purchase and sale transactions with respect to any of such contracts and
options. Futures contracts may be based on various securities (such as U.S.
Government securities), securities indices, foreign currencies and other
financial instruments and indices. The Growth Account and Total Return Account
may purchase and sell futures contracts on stock indices and purchase and sell
options on such futures. The Income Account and Total Return Account may
purchase and sell interest rate futures and purchase and sell options on such
futures. In addition, each Account that may invest in securities that are
denominated in foreign currency may purchase and sell futures on currencies and
purchase and sell options on such futures. An Account will engage in futures and
related options transactions only for bona fide hedging purposes as permitted in
regulations of the Commodity Futures Trading Commission. The aggregate initial
margin and premiums required to establish positions in futures contracts and
options on futures may not exceed 5 percent of the market value of the Account's
total assets after taking into account unrealized profits and losses on any such
positions and excluding the amount by which such options were in-the-money at
the time of purchase.
The use of futures contracts entails certain risks, including but not limited to
the following: no assurance that futures contracts transactions can be offset at
favorable prices; possible reduction of the Account's income due to the use of
hedging; possible reduction in value of both the securities hedged and the
hedging instrument; possible lack of liquidity due to daily limits on price
fluctuations; imperfect correlation between the contract and the securities
being hedged; and potential losses in excess of the amount initially invested in
the futures contracts themselves. If the expectations of the Manager regarding
movements in securities prices or interest rates are incorrect, an
Prospectus Page 39
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
Account may have experienced better investment results without hedging. The use
of futures contracts and options on futures contracts requires special skills in
addition to those needed to select portfolio securities. A further discussion of
futures contracts is set forth in the Accounts' SAI.
MONEY MARKET INSTRUMENTS (ALL ACCOUNTS)
All Accounts may in the judgment of the Manager hold cash or invest without
limit in money market instruments. All Accounts (other than the Liquid Account
and Government Securities Account) may invest in banker's acceptances,
certificates of deposit, time deposits and commercial paper denominated in
foreign currency but within the limitations described above under "--Foreign
Securities." These Accounts will purchase only money market instruments
denominated in a foreign currency whose issuers have at least one billion
dollars (U.S.) of assets.
Banker's acceptances are bills of exchange or time drafts drawn on and accepted
by a commercial bank. They are used by corporations to finance the shipment and
storage of goods and to furnish dollar exchanges. Banker's acceptances generally
mature in six months or less. Certificates of deposit are negotiable
interest-bearing instruments with specific maturities. Certificates of deposit
are issued by banks and savings and loan institutions in exchange for the
deposit of funds and normally can be traded in the secondary market, prior to
maturity. Time deposits are nonnegotiable receipts issued by a bank in exchange
for the deposit of funds. Like a certificate of deposit, it earns a specified
rate of interest over a definite period of time. Time deposits cannot be traded
in the secondary market. Commercial paper is the term used to designate
unsecured short-term promissory notes issued by corporations and other entities.
Maturities on commercial paper vary from a few days to nine months.
Each Account may invest in obligations of foreign branches of U.S. banks
(Eurodollars) and U.S. branches of foreign banks (Yankee dollars). These
investments involve risks that are different from investments in securities of
U.S. banks or U.S. branches of U.S. banks, including potential unfavorable
political and economic developments, different tax provisions, seizure of
foreign deposits, currency controls, interest limitations or other governmental
restrictions which might affect payment of principal or interest.
REPURCHASE AGREEMENTS (ALL ACCOUNTS)
Each Account may enter into repurchase agreements. In a repurchase agreement, an
Account buys a security at one price and simultaneously agrees to sell it back
at a higher price. Delays or losses could result if the other party to the
agreement defaults or becomes insolvent.
RESTRICTIONS: An Account will not invest more than 10% of its net assets in
repurchase agreements maturing in more than seven days and securities which are
not readily marketable.
RESTRICTED AND ILLIQUID SECURITIES (ALL ACCOUNTS)
Each Account may invest up to 10% of its net assets in illiquid investments,
which includes repurchase agreements maturing in more than seven days,
restricted securities and securities not readily marketable. Each Account may
also invest in restricted securities eligible for resale to certain
institutional investors pursuant to Rule 144A under the Securities Act of 1933.
WARRANTS (ALL ACCOUNTS EXCEPT THE LIQUID ACCOUNT AND THE
GOVERNMENT SECURITIES
ACCOUNT)
Each Account (except the Liquid Account and the Government Securities Account)
may purchase rights and warrants, which represent rights to purchase the common
stock of companies at designated prices. Each Account will not purchase such
rights and warrants if the Accounts' holding of warrants (valued at the lower of
cost or market) would exceed 5% of the value of the Account's total assets as a
result of the purchase. In addition, each Account will not purchase a warrant or
right which is not listed on the New York or American Stock Exchanges if the
purchase would result in the Account's owning unlisted warrants in an amount
exceeding 2% of its total assets.
Prospectus Page 40
<PAGE>
Connecticut Mutual Investment Accounts, Inc.
APPENDIX A
- --------------------------------------------------------------------------------
DESCRIPTION OF SECURITIES RATINGS
As described in the Prospectus, the debt securities purchased by an Account may
include securities in the lower rating categories (that is, rated below Baa by
Moody's or below BBB by S&P, or unrated).
MOODY'S DESCRIBES ITS LOWER RATINGS FOR CORPORATE BONDS AS FOLLOWS:
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.
Bonds which are rated Ba are judged to have speculative elements; their future
cannot be consi-
dered as well assured. Often the protection of interest and principal payments
may be very moderate and thereby not well safeguarded during both good and bad
times over the future. Uncertainty of position characterizes bonds in this
class.
Bonds which are rated B generally lack characteristics of the 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.
Bonds which are rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Bonds which are rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
Bonds which are rated C are the lowest rated class of bonds and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
S&P DESCRIBES ITS LOWER RATINGS FOR CORPORATE BONDS AS FOLLOWS:
Debt rated BBB is regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
Debt rated BB, B, CCC, or CC is 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 obligations. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
MOODY'S DESCRIBES ITS THREE HIGHEST RATINGS FOR COMMERCIAL PAPER AS
FOLLOWS:
Issuers rated P-1 (Prime-1) (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. P-1 repayment
capacity will normally be evidenced by the following characteristics: (1)
leading market positions in well-established industries; (2) high rates of
return on funds employed; (3) conservative capitalization structures and
moderate reliance on debt and ample asset protection; (4) broad margins in
earnings coverage of fixed financial charges and high internal cash generation;
and (5) well-established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated P-2 (or related supporting institutions) have a strong capacity
for repayment of short-term promissory obligations. This will
Appendix Page A-1
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated P-3 (or supporting institutions) have an acceptable ability for
repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
S&P DESCRIBES ITS THREE HIGHEST RATINGS FOR COMMERCIAL PAPER AS
FOLLOWS:
A-1. This designation indicates that the degree of safety regarding timely
payment is very strong.
A-2. Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for issues
designated A-1.
A-3. Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
Appendix Page A-2
<PAGE>
Connecticut Mutual Investment Accounts, Inc.
APPENDIX B
- --------------------------------------------------------------------------------
CREDIT QUALITY DISTRIBUTION
INCOME ACCOUNT
The average quality distribution of the portfolio of Income Account during the
year ended December 31, 1994 was as follows:
<TABLE>
<CAPTION>
QUALITY DISTRIBUTION % OF
AS ASSIGNED BY SERVICE AVERAGE VALUE PORTFOLIO
- ------------------------------ ------------- ----------
<S> <C> <C>
AAA $ 10,899,567 22.9%
AA 2,601,601 5.5
A 14,889,330 31.3
BBB 13,090,718 27.4
BB 2,061,858 4.3
B 288,235 0.6
Unrated 877,239 1.8
Debt Securities 44,708,548 93.8
Short-Term Securities 2,936,465 6.2
Total Portfolio 47,645,465 100.0
</TABLE>
TOTAL RETURN ACCOUNT
The average quality distribution of the portfolio of Total Return Account during
the year ended December 31, 1994 was as follows:
<TABLE>
<CAPTION>
QUALITY DISTRIBUTION % OF
AS ASSIGNED BY SERVICE AVERAGE VALUE PORTFOLIO
- ----------------------------- --------------- ---------
<S> <C> <C>
AAA $ 48,259,445 25.7%
AA 3,578,850 1.9
A 12,772,383 6.8
BBB 14,352,761 7.6
BB 3,351,301 1.8
B 44,269 0
Unrated 1,418,350 0.8
Debt Securities 83,777,359 44.6
Equity Securities 85,156,418 45.3
Short-Term Securities 18,883,627 10.1
Total Portfolio 187,817,404 100.0
</TABLE>
Appendix Page B-1
<PAGE>
CMIA SHAREHOLDER SERVICES AGENT
National Financial Data Services
P.O. Box 419694
Kansas City, Missouri 64179-0948
1-800-322-CMIA
YOUR REPRESENTATIVE IS:
National Distributor
Connecticut Mutual Financial Services, L.L.C.
A subsidiary of
CONNECTICUT
MUTUAL
The Blue Chip Company
Connecticut Mutual
Life Insurance Company
140 Garden Street
Hartford, CT 06154
800-234-5606
C M I A
STATEMENT OF ADDITIONAL INFORMATION
CLASS A AND CLASS B SHARES
OCTOBER 1, 1995
This Statement of Additional Information (SAI) (Part B of the
Registration Statement) is not a prospectus, but should be read in conjunction
with the Company's Prospectus for the Connecticut Mutual Liquid Account and
the Class A and Class B Shares Prospectus for the other CMIA Accounts and the
Class A and Class B Shares Prospectus for the LifeSpan Accounts, each dated
October 1, 1995 (together, the Prospectuses). Copies of the Prospectuses can
be obtained free of charge by calling or writing the Company at the number or
address noted above.
<PAGE>
TABLE OF CONTENTS
Page
<TABLE>
<CAPTION>
<C> <S> <C> <C>
1. General Information 1
2. Investment Objectives and Policies 1
3. Investment Restrictions 20
4. Management 30
5. Investment Advisory Arrangements 35
6. Account Expenses 39
7. Distribution Arrangements 39
8. Distribution Financing Plans 40
9. Portfolio Transactions and Brokerage 42
10. Determination of Net Asset Value 44
11. Purchase and Redemption of Shares 45
12. Investment Performance 47
13. Taxes .... 54
14. Custodian 58
15. Transfer Agent Services 58
16. Independent Certified Public Accountants 58
17. Other Information 58
18. Financial Statements 59
</TABLE>
____________________
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY
AN EFFECTIVE PROSPECTUS.
GENERAL INFORMATION
Connecticut Mutual Investment Accounts, Inc. (the Company) is an open-
end management investment company consisting of thirteen separate accounts.
This Statement of Additional Information (SAI) relates to the single class of
shares of the Connecticut Mutual Liquid Account (Liquid Account) and to Class
A and Class B shares of seven accounts including: the following four accounts
- -- Connecticut Mutual Government Securities Account (Government Securities
Account), Connecticut Mutual Income Account (Income Account), Connecticut
Mutual Total Return Account (Total Return Account) and Connecticut Mutual
Growth Account (Growth Account) (collectively with Liquid Account, the CMIA
Accounts); and three "life span" accounts -- CMIA LifeSpan Capital
Appreciation Account (Capital Appreciation Account), CMIA LifeSpan Balanced
Account (Balanced Account) and CMIA LifeSpan Diversified Income Account
(Diversified Income Account) (collectively, the LifeSpan Accounts). Each CMIA
Account and each LifeSpan Account is referred to herein individually as an
Account and collectively as the Accounts. Each Account is managed for
investment purposes as if it were a separate fund issuing its own shares.
G.R. Phelps & Co. (G.R. Phelps or the Manager) is the investment manager
for each of the Accounts. In the case of the LifeSpan Accounts, G.R. Phelps
has engaged Scudder, Stevens & Clark, Inc. (Scudder), BEA Associates and
Pilgrim, Baxter & Assoc. Ltd. (Pilgrim) as subadvisers to assist in the
management of the LifeSpan Accounts. Scudder, BEA Associates and Pilgrim are
sometimes referred to herein individually as a "Subadviser" and collectively
as the "Subadvisers."
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of each of the Accounts is set forth in its
respective Prospectus, each dated October 1, 1995 (collectively, the
Prospectuses). A further description of certain of the policies described in
the Prospectuses is set forth below.
FOREIGN SECURITIES AND EMERGING COUNTRIES
(All Accounts except the Liquid Account and the Government Securities Account)
Each Account (other than the Liquid Account and the Government Securities
Account) may invest in securities of foreign issuers. Each Account (other
than the Liquid Account and the Government Securities Account) may also invest
in debt and equity securities of corporate and governmental issuers of
countries with emerging economies or securities markets.
Investing in securities of non-U.S. issuers, and in particular in
emerging countries, may entail greater risks than investing in securities of
issuers in the United States. These risks include (i) less social, political
and economic stability; (ii) the small current size of the markets for many
such securi-ties and the currently low or nonexistent volume of trading, which
result in a lack of liquidity and in greater price volatility; (iii) certain
national policies which may restrict an Account's investment opportunities,
including restrictions on investment in issuers or industries deemed sensitive
to national interests; (iv) foreign taxation; and (v) the absence of developed
structures governing private or foreign investment or allowing for judicial
redress for injury to private property.
Investing in securities of non-U.S. companies may entail additional risks
due to the potential political and economic instability of certain countries
and the risks of expropriation, nationalization, confiscation or the
imposition of restrictions on foreign investment and on repatriation of
capital invested. In the event of such expropriation, nationalization or
other confiscation by any country, an Account could lose its entire investment
in any such country.
In addition, even though opportunities for investment may exist in
foreign countries, and in particular emerging markets, any change in the
leadership or policies of the governments of those countries or in the
leadership or policies of any other government which exercises a significant
influence over those countries, may halt the expansion of or reverse the
liberalization of foreign investment policies now occurring and thereby
eliminate any investment opportunities which may currently exist.
Investors should note that upon the accession to power of authoritarian
regimes, the governments of a number of emerging countries previously
expropriated large quantities of real and personal property similar to the
property which may be represented by the securities purchased by the Accounts.
The claims of property owners against those governments were never finally
settled. There can be no assurance that any property represented by foreign
securities purchased by an Account will not also be expropriated,
nationalized, or otherwise confiscated. If such confiscation were to occur,
an Account could lose a substantial portion of its investments in such
countries. An Account's investments would similarly be adversely affected by
exchange control regulation in any of those countries.
Certain countries in which the Accounts may invest may have vocal
minorities that advocate radical religious or revolutionary philosophies or
support ethnic independence. Any disturbance on the part of such individuals
could carry the potential for wide- spread destruction or confiscation of
property owned by individuals and entities foreign to such country and could
cause the loss of an Account's investment in those countries.
Certain countries prohibit or impose substantial restrictions on
investments in their capital markets, particularly their equity markets, by
foreign entities such as the Accounts. As illustrations, certain countries
require governmental approval prior to investments by foreign persons, or
limit the amount of investment by foreign persons in a particular company, or
limit the invest-ment by foreign persons to only a specific class of
securities of a company that may have less advantageous terms than securities
of the company available for purchase by nationals. Moreover, the national
policies of certain countries may restrict investment opportunities in issuers
or industries deemed sensitive to national interests. In addition, some
countries require govern-mental approval for the repatriation of investment
income, capital or the proceeds of securities sales by foreign investors. An
Account could be adversely affected by delays in, or a refusal to grant, any
required governmental approval for repatriation, as well as by the application
to it of other restrictions on investments.
Foreign companies are subject to accounting, auditing and financial
standards and requirements that differ, in some cases significantly, from
those applicable to U.S. companies. In particular, the assets, liabilities
and profits appearing on the financial statements of such a company may not
reflect its financial position or results of operations in the way they would
be reflected had such financial statements been prepared in accordance with
U.S. generally accepted accounting principles. Most foreign securities held
by the Accounts will not be registered with the Securities and Exchange
Commission (SEC) and such issuers thereof will not be subject to the SEC's
reporting requirements. Thus, there may be less available information
concerning foreign issuers of securities held by the Accounts than is
available concerning U.S. issuers. In instances where the financial
statements of an issuer are not deemed to reflect accurately the financial
situation of the issuer, the Manager or the relevant Subadviser will take
appropriate steps to evaluate the proposed investment, which may include
on-site inspection of the issuer, interviews with its management and
consultations with accountants, bankers and other specialists. There is
substantially less publicly available information about many foreign companies
than there are reports and ratings published about U.S. companies and the U.S.
government. In addition, where public information is available, it may be
less reliable than such information regarding U.S. issuers.
Because the Accounts may invest a portion of their total assets in
securities which are denominated or quoted in foreign currencies, the strength
or weakness of the U.S. dollar against such currencies may account for part of
the Accounts' investment performance. A decline in the value of any
particular currency against the U.S. dollar will cause a decline in the U.S.
dollar value of an Account's holdings of securities denominated in such
currency and, therefore, will cause an overall decline in the Account's net
asset value and any net investment income and capital gains to be distributed
in U.S. dollars to shareholders of the Account.
The rate of exchange between the U.S. dollar and other currencies is
determined by several factors including the supply and demand for particular
currencies, central bank efforts to support particular currencies, the
movement of interest rates, the pace of business activity in certain other
countries and the U.S., and other economic and financial conditions affecting
the world economy.
Although the Accounts value their respective assets daily in terms of
U.S. dollars, the Accounts do not intend to convert their holdings of foreign
currencies into U.S. dollars on a daily basis. However, the Accounts may do
so from time to time, and investors should be aware of the costs of currency
conversion. Although currency dealers do not charge a fee for conversion,
they do realize a profit based on the difference (spread) between the prices
at which they are buying and selling various currencies. Thus, a dealer may
offer to sell a foreign currency to an Account at one rate, while offering a
lesser rate of exchange should the Account desire to sell that currency to the
dealer.
Securities of foreign issuers, and in particular many emerging country
issuers, may be less liquid and their prices more volatile than securities of
comparable U.S. issuers. In addition, foreign securities exchanges and
brokers are generally subject to less governmental supervision and regulation
than in the U.S., and foreign securities exchange transactions are usually
subject to fixed commissions, which are generally higher than negotiated
commissions on U.S. transactions. In addition, foreign securities exchange
transactions may be subject to difficulties associated with the settlement of
such transactions. Delays in settlement could result in temporary periods
when assets of an Account are uninvested and no return is earned thereon. The
inability of an Account to make intended security purchases due to settlement
problems could cause the Account to miss attractive investment opportunities.
Inability to dispose of a portfolio security due to settlement problems could
either result in losses to an Account due to subsequent declines in value of
the portfolio security or, if the Account has entered into a contract to sell
the security could result in possible liability to the purchaser.
The Accounts' investment income or, in some cases, capital gains from
foreign issuers may be subject to foreign withholding or other foreign taxes,
thereby reducing the Accounts' net investment income and/or net realized
capital gains. See "Taxes."
FOREIGN CURRENCY EXCHANGE CONTRACTS
(All Accounts except the Liquid Account and the Government Securities Account)
Each Account (other than the Liquid Account and the Government Securities
Account) may exchange currencies in the normal course of managing its
investments and may incur costs in doing so because a foreign exchange dealer
will charge a fee for conversion. An Account may conduct foreign currency
exchange transactions on a "spot" basis (i.e., for prompt delivery and
settlement) at the prevailing spot rate for purchasing or selling currency in
the foreign currency exchange market. An Account also may enter into forward
currency exchange contracts or other contracts to purchase and sell currencies
for settlement at a future date. A foreign exchange dealer, in that
situation, will expect to realize a profit based on the difference between the
price at which a foreign currency is sold to the Account and the price at
which the dealer will cover the purchase in the foreign currency market.
Foreign exchange transactions are entered into at prices quoted by dealers,
which may include a mark-up over the price that the dealer must pay for the
currency.
A forward currency exchange contract involves an obligation to purchase
or 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 of the contract. These contracts are traded in the interbank
market conducted directly between currency traders (usually large commercial
banks) and their customers. A forward currency exchange contract generally
has no deposit requirement, and no commissions are generally charged at any
stage for trades.
At the maturity of a forward currency exchange contract an Account may
either accept or make delivery of the currency specified in the contract or,
at or prior to maturity, enter into a closing purchase transaction involving
the purchase or sale of an offsetting contract. Closing purchase transactions
with respect to forward currency exchange contracts are usually effected with
the currency trader who is a party to the original forward currency exchange
contract.
The Accounts may enter into forward currency exchange contracts in
several circumstances for hedging and non- hedging purposes. First, when an
Account enters into a contract for the purchase or sale of a security
denominated in a foreign currency, or when an Account anticipates the receipt
in a foreign currency of dividend or interest payments on such a security
which it holds, the Account may desire to "lock in" the U.S. dollar price of
the security or the U.S. dollar equivalent of such dividend or interest
payment, as the case may be. By entering into a forward currency exchange
contract for the purchase or sale, for a fixed amount of dollars, of the
amount of foreign currency involved in the underlying transactions, an Account
will attempt to protect itself against an adverse change in the relationship
between the U.S. dollar and the subject foreign currency during the period
between the date on which the security is purchased or sold, or on which the
dividend or interest payment is declared, and the date on which such payments
are made or received.
Additionally, when management of an Account believes that the currency of
a particular foreign country may suffer a substantial decline against the U.S.
dollar, it may enter into a forward currency exchange contract to sell, for a
fixed amount of dollars, the amount of foreign currency approximating the
value of some or all of the Account's portfolio securities denominated in such
foreign currency. The precise matching of the forward currency exchange
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 those
securities between the date on which the contract is entered into and the date
it matures. Using forward currency exchange contracts to protect the value of
an Account's portfolio securities against a decline in the value of a currency
does not eliminate fluctuations in the underlying prices of the securities.
It simply establishes a rate of exchange which an Account can achieve at some
future point in time. The precise projection of short-term currency market
movements is not possible, and short-term hedging provides a means of fixing
the dollar value of only a portion of an Account's foreign assets.
An Account's custodian will place cash or liquid, high grade debt
securities (High Grade Debt Securities) (i.e., securities rated in one of the
top three ratings categories by Moody's Investors Service, Inc. (Moody's),
Standard & Poor's Ratings Group (Standard & Poor's), or a comparable rating
agency, or, if unrated, deemed by the Manager or relevant Subadviser to be of
comparable credit quality) into a segregated account of the Account in an
amount equal to the value of the Account's total assets committed to the
consummation of forward currency exchange contracts requiring the Account to
purchase foreign currencies or forward currency exchange contracts entered
into for non-hedging purposes. If the value of the securities placed in the
segregated account declines, additional cash or securities will be placed in
the account on a daily basis so that the value of the account will equal the
amount of an Account's commitments with respect to such contracts. The
segregated account will be marked-to-market on a daily basis. Although the
contracts are not presently regulated by the Commodity Futures Trading
Commission (CFTC), the CFTC may in the future assert authority to regulate
these contracts. In such event, the Accounts' ability to utilize forward
currency exchange contracts may be restricted.
The Accounts generally will not enter into a forward currency exchange
contract with a term of greater than one year.
While the Accounts will enter into forward currency exchange contracts to
reduce currency exchange rate risks, transactions in currency contracts
involve certain other risks. Thus, while the Accounts may benefit from
currency transactions, unanticipated changes in currency prices may result in
a poorer overall performance for an Account than if it had not engaged in any
such transactions. Moreover, there may be an imperfect correlation between an
Account's portfolio holdings of securities denominated in a particular
currency and forward currency exchange contracts entered into by the Account.
Such imperfect correlation may cause an Account to sustain losses which will
prevent the Account from achieving a complete hedge or expose the Account to
risk of foreign exchange loss.
COVERED CALL OPTIONS ON SECURITIES, SECURITIES INDICES AND FOREIGN
CURRENCIES
(All Accounts except the Liquid Account)
Each CMIA Account (other than the Liquid Account) may write covered call
options. Each LifeSpan Account may purchase and write covered call options.
Such options may relate to particular U.S. or non-U.S. securities, to various
U.S. or non- U.S. stock indices or to U.S. or non-U.S. currencies. The
Accounts may purchase and write, as the case may be, call options which are
issued by the Options Clearing Corporation (OCC) or which are traded on U.S.
and non-U.S. exchanges. Capital Appreciation Account and Balanced Account
(with respect to the international Component) may purchase options on currency
in the over-the-counter (OTC) markets.
An option on a securities index provides the holder with the right to
receive a cash payment upon exercise of the option if the market value of the
underlying index exceeds the option's exercise price. The amount of this
payment will be equal to the difference between the closing price of the index
at the time of exercise and the exercise price of the option expressed in U.S.
dollars or a foreign currency, times a specified multiple. A call option on a
currency gives its holder the right to purchase an amount (specified in units
of the underlying currency) of the underlying currency at the stated exercise
price at any time prior to the option's expiration.
Capital Appreciation Account and Balanced Account will engage in
over-the-counter (OTC) options only with broker-dealers deemed creditworthy by
the Account's Manager or relevant Subadviser. Closing transactions in certain
options are usually effected directly with the same broker-dealer that
effected the original option transaction. An Account bears the risk that the
broker-dealer may fail to meet its obligations. There is no assurance that an
Account will be able to close an unlisted option position. Furthermore,
unlisted options are not subject to the protections afforded purchasers of
listed options by the OCC, which performs the obligations of its members who
fail to do so in connection with the purchase or sale of options. OTC options
will be deemed illiquid for purposes of an Account's limitation on investments
in illiquid securities, except that with respect to options written with
primary dealers in U.S. Government securities pursuant to an agreement
requiring a closing purchase transaction at a formula price, the amount of
illiquid securities may be calculated with reference to a formula approved by
the staff of the SEC.
An Account will write call options only if they are "covered." In the
case of a call option on a security, the option is "covered" if a portfolio
owns the security underlying the call or has an absolute and immediate right
to acquire that security without additional cash consideration (or, if
additional cash consideration is required, cash or High Grade Debt Securities
in such amount as are held in a segregated account by the Account's custodian)
upon conversion or exchange of other securities held by the portfolio. For a
call option on an index, the option is covered if the Account maintains cash
or cash equivalents equal to the contract value with the Account's custodian.
A call option on a security or an index is also covered if the Account holds a
call on the same security or index as the call written by the Account where
the exercise price of the call held is (i) equal to or less than the exercise
price of the call written, or (ii) greater than the exercise price of the call
written provided the difference is maintained by the Account in cash or cash
equivalents in a segregated account with the Account's custodian. A call
option on currency written by an Account is covered if the Account owns an
equal amount of the underlying currency.
When an Account purchases or writes an option, an amount equal to the net
premium (the premium less the commission paid by the Account) received by the
Account is included in the liability section of the Account's statement of
assets and liabilities as a deferred credit. The amount of this asset or
deferred credit will be marked-to-market on an ongoing basis to reflect the
current value of the option purchased or written. The current value of a
traded option is the last sale price or, in the absence of a sale, the average
of the closing bid and asked prices. If an option purchased by the Account
expires unexercised, the Account realizes a loss equal to the premium paid.
If the Account enters into a closing sale transaction on an option purchased
by it, the Account will realize a gain if the premium received by the Account
on the closing transaction is more than the premium paid to purchase the
option, or a loss if it is less. If an option written by the Account expires
on the stipulated expiration date or if the Account enters into a closing
purchase transaction, it will realize a gain (or loss if the cost of a closing
purchase transaction exceeds the net premium received when the option is sold)
and the deferred credit related to such option will be eliminated. If an
option written by the Account is exercised, the proceeds to the Account from
the exercise will be increased by the net premium originally received, and the
Account will realize a gain or loss.
There are several risks associated with transactions in options on
securities, securities indices and currencies. For example, there are
significant differences between the securities markets, currency markets and
the corresponding options markets that could result in imperfect correlations,
causing a given option transaction not to achieve its objectives. In
addition, a liquid secondary market for particular options, whether traded OTC
or on a U.S. or non-U.S. securities exchange may be absent for reasons which
include the following: there may be insufficient trading interest in certain
options; restrictions may be imposed by an exchange on opening transactions or
closing transactions or both; trading halts, suspensions or other restrictions
may be imposed with respect to particular classes or series of options or
underlying securities; unusual or unforeseen circumstances may interrupt
normal operations on an exchange; the facilities of an exchange or the OCC may
not at all times be adequate to handle current trading volume; or one or more
exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of options (or a particular class or
series of options), in which event the secondary market on that exchange (or
in that class or series of options) would cease to exist, although outstanding
options that had been issued by the OCC as a result of trades on that exchange
would continue to be exercisable in accordance with their terms.
No Account shall write a covered call option if as a result thereof the
assets underlying calls outstanding (including the proposed call option) would
exceed 20% of the value of the assets of the Account.
FUTURES CONTRACTS AND RELATED OPTIONS
(All Accounts except the Liquid Account)
To hedge against changes in interest rates, securities prices or currency
exchange rates or for certain non-hedging purposes, each Account (other than
the Liquid Account) may, subject to its investment objectives and policies,
purchase and sell various kinds of futures contracts, and purchase and write
call and put options on any of such futures contracts. An Account may also
enter into closing purchase and sale transactions with respect to any of such
contracts and options. The futures contracts may be based on various
securities (such as U.S. Government securities), securities indices,
currencies and other financial instruments and indices. The Growth Account
and Total Return Account may purchase and sell futures contracts on stock
indices and sell options on such futures. The Income Account and Total Return
Account may purchase and sell interest rate futures and sell options on such
futures. In addition, each Account that may invest in securities that are
denominated in a foreign currency may purchase and sell futures on currencies
and sell options on such futures. An Account will engage in futures and
related options transactions only for bona fide hedging or other non-hedging
purposes as defined in regulations promulgated by the CFTC. All futures
contracts entered into by the Accounts are traded on U.S. exchanges or boards
of trade that are licensed and regulated by the CFTC or on foreign exchanges
approved by the CFTC.
FUTURES CONTRACTS. A futures contract may generally be described as an
agreement between two parties to buy and sell a particular financial
instrument for an agreed price during a designated month (or to deliver the
final cash settlement price, in the case of a contract relating to an index or
otherwise not calling for physical delivery at the end of trading in the
contract). Futures contracts obligate the long or short holder to take or
make delivery of a specified quantity of a commodity or financial instrument,
such as a security or the cash value of a securities index, during a specified
future period at a specified price.
When interest rates are rising or securities prices are falling, an
account can seek to offset a decline in the value of its current portfolio
securities through the sale of futures contracts. When interest rates are
falling or securities prices are rising, an Account, through the purchase of
futures contracts, can attempt to secure better rates or prices than might
later be available in the market when it effects anticipated purchases.
Positions taken in the futures markets are not normally held to maturity
but are instead liquidated through offsetting transactions which may result in
a profit or a loss. While futures contracts on securities will usually be
liquidated in this manner, the Accounts may instead make, or take, delivery of
the underlying securities whenever it appears economically advantageous to do
so. A clearing corporation associated with the exchange on which futures on
securities are traded guarantees that, if still open, the sale or purchase
will be performed on the settlement date.
HEDGING STRATEGIES. Hedging, by use of futures contracts, seeks to
establish with more certainty the effective price and rate of return on
portfolio securities and securities that an Account proposes to acquire. The
Accounts may, for example, take a "short" position in the futures market by
selling futures contracts in order to hedge against an anticipated rise in
interest rates or a decline in market prices that would adversely affect the
value of an Account's portfolio securities. Such futures contracts may
include contracts for the future delivery of securities held by the Account or
securities with characteristics similar to those of the Account's portfolio
securities. If, in the opinion of the Account's Manager or the relevant
Subadviser, there is a sufficient degree of correlation between price trends
for an Account's portfolio securities and futures contracts based on other
financial instruments, securities indices or other indices, the Account may
also enter into such futures contracts as part of its hedging strategy.
Although under some circumstances prices of securities in an Account's
portfolio may be more or less volatile than prices of such futures contracts,
the Manager or the relevant Subadviser will attempt to estimate the extent of
this volatility difference based on historical patterns and compensate for any
such differential by having the Account enter into a greater or lesser number
of futures contracts or by attempting to achieve only a partial hedge against
price changes affecting an Account's securities portfolio. When hedging of
this character is successful, any depreciation in the value of portfolio
securities will be substantially offset by appreciation in the value of the
futures position. On the other hand, any unanticipated appreciation in the
value of an Account's portfolio securities would be substantially offset by a
decline in the value of the futures position.
On other occasions, the Accounts may take a "long" position by purchasing
futures contracts. This would be done, for example, when an Account
anticipates the subsequent purchase of particular securities when it has the
necessary cash, but expects the prices then available in the applicable market
to be less favorable than prices that are currently available.
OPTIONS ON FUTURES CONTRACTS. The acquisition of put and call options on
futures contracts will give the Accounts the right (but not the obligation)
for a specified price to sell or to purchase, respectively, the underlying
futures contract at any time during the option period. As the purchaser of an
option on a futures contract, an Account obtains the benefit of the futures
position if prices move in a favorable direction but limits its risk of loss
in the event of an unfavorable price movement to the loss of the premium and
transaction costs.
The writing of a call option on a futures contract generates a premium
which may partially offset a decline in the value of an Account's assets. By
writing a call option, an Account becomes obligated, in exchange for the
premium, to sell a futures contract (if the option is exercised), which may
have a value higher than the exercise price. Conversely, the writing of a put
option on a futures contract generates a premium which may partially offset an
increase in the price of securities that an Account intends to purchase.
However, an Account becomes obligated to purchase a futures contract (if the
option is exercised) which may have a value lower than the exercise price.
Thus, the loss incurred by an Account in writing options on futures is
potentially unlimited and may exceed the amount of the premium received. The
Accounts will incur transaction costs in connection with the writing of
options on futures.
The holder or writer of an option on a futures contract may terminate its
position by selling or purchasing an offsetting option on the same series.
There is no guarantee that such closing transactions can be effected. The
Accounts' ability to establish and close out positions on such options will be
subject to the development and maintenance of a liquid market.
The Accounts may use options on futures contracts solely for bona fide
hedging or other non-hedging purposes as described below.
OTHER CONSIDERATIONS. The Accounts will engage in futures and related
options transactions only for bona fide hedging or non- hedging purposes as
permitted by CFTC regulations which permit principals of an investment company
registered under the Investment Company Act of 1940, as amended (the
Investment Company Act), to engage in such transactions without registering as
commodity pool operators. An Account will determine that the price
fluctuations in the futures contracts and options on futures used for hedging
purposes are substantially related to price fluctuations in securities or
instruments held by the Account or securities or instruments which they expect
to purchase. Except as stated below, the Accounts' futures transactions will
be entered into for traditional hedging purposes -- i.e., futures contracts
will be sold to protect against a decline in the price of securities (or the
currency in which they are denominated) that an Account owns or futures
contracts will be purchased to protect an Account against an increase in the
price of securities (or the currency in which they are denominated) that an
Account intends to purchase. As evidence of this hedging intent, each Account
expects that, on 75% or more of the occasions on which it takes a long futures
or option position (involving the purchase of futures contracts), the Account
will have purchased, or will be in the process of purchasing, equivalent
amounts of related securities (or assets denominated in the related currency)
in the cash market at the time when the futures or option position is closed
out. However, in particular cases, when it is economically advantageous for
an Account to do so, a long futures position may be terminated or an option
may expire without the corresponding purchase of securities or other assets.
As an alternative to compliance with the bona fide hedging definition, a
CFTC regulation now permits an Account to elect to comply with a different
test under which the aggregate initial margin and premiums required to
establish non-hedging positions in futures contracts and options on futures
will not exceed 5% of the net asset value of an Account's portfolio, after
taking into account unrealized profits and losses on any such positions and
excluding the amount by which such options were in-the-money at the time of
purchase. An Account will engage in transactions in futures contracts and
related options only to the extent such transactions are consistent with the
requirements of the Internal Revenue Code for maintaining its qualification as
a regulated investment company for federal income tax purposes. See "Taxes."
An Account will be required, in connection with transactions in futures
contracts and the writing of options on futures contracts, to make margin
deposits, which will be held by the Company's custodian for the benefit of the
futures commission merchant through whom the Account engages in such futures
contracts and option transactions. These transactions involve brokerage
costs, require margin deposits and, in the case of futures contracts and
options obligating an Account to purchase securities, require an Account to
segregate cash or High Grade Debt Securities in an account maintained with the
Company's custodian to cover such contracts and options.
While transactions in futures contracts and options on futures may reduce
certain risks, such transactions themselves entail certain other risks. Thus,
unanticipated changes in interest rates or securities prices may result in a
poorer overall performance for an Account than if it had not entered into any
futures contracts or options transactions. The other risks associated with
the use of futures contracts and options thereon are (i) imperfect correlation
between the change in market value of the securities held by an Account and
the prices of the futures and options and (ii) the possible absence of a
liquid secondary market for a futures contract or option and the resulting
inability to close a futures position prior to its maturity date.
In the event of an imperfect correlation between a futures position and
portfolio position which is intended to be protected, the desired protection
may not be obtained and the Account may be exposed to risk of loss. The risk
of imperfect correlation may be minimized by investing in contracts whose
price behavior is expected to resemble that of an Account's underlying
securities. The risk that the Accounts will be unable to close out a futures
position will be minimized by entering into such transactions on a national
exchange with an active and liquid secondary market.
"WHEN-ISSUED" PURCHASES AND FORWARD COMMITMENTS
(All Accounts except the Liquid Account)
Securities may be purchased by all Accounts (other than the Liquid
Account) on a "when-issued" or on a "forward commitment" basis. These
transactions, which involve a commitment by an Account to purchase or sell
particular securities with payment and delivery taking place at a future date,
permit the Account to lock in a price or yield on a security, regardless of
future changes in interest rates. An Account will purchase securities on a
"when-issued" or forward commitment basis only with the intention of
completing the transaction and actually purchasing the securities. If deemed
appropriate by the Manager or relevant Subadviser, however, an Account may
dispose of or renegotiate a commitment after it is entered into, and may sell
securities it has committed to purchase before those securities are delivered
to the Account on the settlement date. In these cases the Account may realize
a gain or loss.
When an Account agrees to purchase securities on a "when--issued" or
forward commitment basis, the Account's custodian will set aside cash or High
Grade Debt Securities equal to the amount of the commitment in a separate
account. Normally, the custodian will set aside portfolio securities to
satisfy a purchase commitment, and in such a case the Account may be required
subsequently to place additional assets in the separate account in order to
ensure that the value of the account remains equal to the amount of the
Account's commitments. The market value of an Account's net assets may
fluctuate to a greater degree when it sets aside portfolio securities to cover
such purchase commitments then when it sets aside cash. Because an Account's
liquidity and ability to manage its portfolio might be affected when it sets
aside cash or portfolio securities to cover such purchase commitments, each
Account expects that its commitments to purchase when-issued securities and
forward commitments will not exceed 33% of the value of its total assets
absent unusual market conditions. When an Account engages in "when-issued"
and forward commitment transactions, it relies on the other party to the
transaction to consummate the trade. Failure of such party to do so may
result in the Account incurring a loss or missing an opportunity to obtain a
price considered to be advantageous.
The market value of the securities underlying a "when-issued" purchase or
a forward commitment to purchase securities, and any subsequent fluctuations
in their market value, are taken into account when determining the market
value of an Account starting on the day the Account agrees to purchase the
securities. The Account does not earn interest or dividends on the securities
it has committed to purchase until the settlement date.
DEBT SECURITIES
(All Accounts)
VARIABLE AND FLOATING RATE INSTRUMENTS. Debt instruments purchased by an
Account may be structured to have variable or floating interest rates. These
instruments may include variable amount master demand notes that permit the
indebtedness to vary in addition to providing for periodic adjustments in the
interest rates. The Manager and the Subadvisers will consider the earning
power, cash flows and other liquidity ratios of the issuers and guarantors of
such instruments and, if the instrument is subject to a demand feature, will
continuously monitor their financial ability to meet payment on demand. If
deemed necessary by the manager or relevant Subadvisers to ensure that a
variable or floating rate instrument is equivalent to the quality standards
applicable to an Account's fixed income investments, the issuer's obligation
to pay the principal of the instrument may be backed by an unconditional bank
letter or line of credit, guarantee or commitment to lend. Any bank providing
such a bank letter, line of credit, guarantee or loan commitment will meet the
Account's investment quality standards relating to investments in bank
obligations. An Account will invest in variable and floating rate instruments
only when the Manager or the relevant Subadviser deems the investment to meet
the investment guidelines applicable to the Account. The Manager or the
relevant Subadviser will also continuously monitor the creditworthiness of
issuers of such instruments to determine whether an Account should continue to
hold the investments.
The absence of an active secondary market for certain variable and
floating rate notes could make it difficult to dispose of the instruments, and
an Account could suffer a loss if the issuer defaults or during periods in
which an Account is not entitled to exercise its demand rights.
Variable and floating rate instruments held by an Account will be subject
to the Account's limitation on investments in illiquid securities when a
reliable trading market for the instruments does not exist and the Account may
not demand payment of the principal amount of such instruments within seven
days.
YIELDS AND RATINGS. The yields on certain obligations, including the
money market instruments in which each Account may invest (such as commercial
paper, bank obligations and corporate debt securities), are dependent on a
variety of factors, including general money market conditions, conditions in
the particular market for the obligation, the financial condition of the
issuer, the size of the offering, the maturity of the obligation and the
ratings of the issue. The ratings of Standard and Poor's, Moody's and other
nationally and internationally recognized rating service organizations
represent their respective opinions as to the quality of the obligations they
undertake to rate. Ratings, however, are general and are not absolute
standards of quality or value. Consequently, obligations with the same
rating, maturity and interest rate may have different market prices. See the
Appendices to the Prospectuses for a description of the ratings provided by
recognized statistical ratings organizations.
Subsequent to its purchase by an Account, a rated security may cease to
be rated or its rating may be reduced below the minimum rating required for
purchase by the Account. The Board of Directors, or the Account's Manager or
relevant Subadviser, pursuant to guidelines established by the Board of
Directors, will consider such an event in determining whether the Account
should continue to hold the security in accordance with the interests of the
Account and applicable regulations of the SEC.
INTEREST RATE SWAPS. The Accounts may enter into interest rate swaps.
Inasmuch as these transactions are entered into for good faith hedging
purposes or are offset by a segregated account, the Accounts, the Manager and
the Subadvisers believe that such obligations do not constitute senior
securities as defined in the Investment Company Act and, accordingly, will not
treat them as being subject to the Accounts' borrowing restrictions.
An Account will not enter into any interest rate swap transaction unless
the unsecured commercial paper, senior debt or the claims-paying ability of
the other party thereto is considered to be investment grade by the Account's
Manager or the relevant Subadviser. If there is a default by the other party
to such a transaction, an Account will have contractual remedies pursuant to
the agreements related to the transaction. The swap market has grown
substantially in recent years with a large number of banks and investment
banking firms acting both as principals and as agents utilizing standardized
swap documentation. As a result, the swap market has become relatively liquid
in comparison with the markets for other similar instruments which are traded
in the interbank market. However, the staff of the SEC takes the position
that swaps, caps and floors are illiquid investments that are subject to the
Accounts' limitation on such investments.
ZERO COUPON AND DEFERRED INTEREST BONDS. The Accounts may invest in zero
coupon bonds and deferred interest bonds. Zero coupon and deferred interest
bonds are debt obligations which are issued at a significant discount from
face value. The original discount approximates the total amount of interest
the bonds will accrue and compound over the period until maturity or the first
interest accrual date at a rate of interest reflecting the market rate of the
security at the time of issuance. While zero coupon bonds do not require the
periodic payment of interest, deferred interest bonds generally provide for a
period of delay before the regular payment of interest begins. Although this
period of delay is different for each deferred interest bond, a typical period
is approximately one-third of the bond's term to maturity. Such investments
benefit the issuer by mitigating its initial need for cash to meet debt
service, but some also provide a higher rate of return to attract investors
who are willing to defer receipt of such cash. The market price of zero
coupon and deferred interest bonds are more volatile than instruments that pay
interest regularly.
HIGH YIELD/HIGH RISK DEBT OBLIGATIONS. Each Account (other than the
Liquid Account and Government Securities Account) may invest in high
yield/high risk, fixed income securities (commonly called junk bonds) rated Ba
or lower by Moody's, BB or lower by Standard & Poor's, or an equivalent
rating, or unrated securities. The CMIA Accounts may invest in debt
securities rated as low as "B" by Moody's or Standard & Poor's. The LifeSpan
Accounts may invest in securities rated as low as "C" by Moody's or "D" by
Standard & Poor's which indicate that the obligations are speculative and may
be in default. Ratings are based largely on the historical financial
condition of the issuer. Consequently, the rating assigned to any particular
security is not necessarily a reflection of the issuer's current financial
condition, which may be better or worse than the rating would indicate.
High yield obligations are subject to risks not generally associated with
an investment in investment grade bonds. The market for high yield
obligations is relatively new and has not been exposed for a long period of
time to the effects of cyclical and sometimes adverse changes in the economy.
The prices of high yield obligations have been less sensitive to interest rate
changes than higher rated investments, but are more sensitive to adverse
economic changes or individual corporate developments. During an economic
downturn or substantial period of rising interest rates, issuers may
experience financial stress that adversely affects their ability to meet
principal and interest payment obligations. If an issuer of a high yield
obligation defaulted on its obligation to pay principal or interest or entered
into bankruptcy proceedings, an Account may incur additional expense to seek
recovery of its investment. In addition, periods of uncertainty and change
can be expected to result in increased volatility of market prices of high
yield, high risk bonds and an Account's net asset value. High yield
obliga-tions may contain redemption or call provisions that, if exercised, may
require the Account to replace the security with a lower yielding security,
resulting in a decreased return for investors. The market for high yield
obligations is likely to be less liquid than the market for higher rated
obligations and the Manager or Subadviser's judgment may play a greater role
in the valuation of high yield obligations. Market conditions may restrict
the availability of high yield obligations and may affect the choice of
securities to be sold when an Account attempts to meet redemption requests.
Each Account is dependent on its Manager's or Subadviser's judgment,
analysis and experience in evaluating the quality of high yield obligations.
In evaluating the credit quality of a particular issue, whether rated or
unrated, the Manager and Subadviser will normally take into consideration,
among other things, the financial resources of the issuer (or, as appropriate,
of the underlying source of funds for debt service), its sensitivity to
economic conditions and trends, any operating history of and the community
support for the facility financed by the issuer, the ability of the issuer's
management and regulatory matters. The Manager and Subadviser will attempt to
reduce the risks of investing in high yield obligations through active
portfolio management, credit analysis and attention to current developments
and trends in the economy and the financial markets.
The Accounts may invest in pay- in- kind (PIK) securities, which pay
interest in either cash or additional securities, at the issuer's option, for
a specified period. PIKs may be more speculative and subject to greater
fluctuations in value than securities which pay interest periodically and in
cash, due to changes in interest rates.
The Accounts' purchase of debt securities that have original issue
discount, including zero coupon, deferred interest and PIK securities, present
special tax issues. See "Taxes."
PREFERRED STOCK
(All Accounts except the Liquid Account and Government Securities Account)
Each of the Accounts (other than the Liquid Account and the Government
Securities Account), subject to its investment objectives, may purchase
preferred stock. Preferred stocks are equity securities, but possess certain
attributes of debt securities and are generally considered fixed income
securities. Holders of preferred stocks normally have the right to receive
dividends at a fixed rate when and as declared by the issuer's board of
directors, but do not participate in other amounts available for distribution
by the issuing corporation. Dividends on the preferred stock may be
cumulative, and all cumulative dividends usually must be paid prior to
dividend payments to common stockholders. Because of this preference,
preferred stocks generally entail less risk than common stocks. Upon
liquidation, preferred stocks are entitled to a specified liquidation
preference, which is generally the same as the par or stated value, and are
senior in right of payment to common stocks. However, preferred stocks are
equity securities in that they do not represent a liability of the issuer and
therefore do not offer as great a degree of protection of capital or assurance
of continued income as investments in corporate debt securities. In addition,
preferred stocks are subordinated in right of payment to all debt obligations
and creditors of the issuer, and convertible preferred stocks may be
subordinated to other preferred stock of the same issuer.
WARRANTS
(All Accounts except the Liquid Account and Government Securities Account)
Each of the Accounts (other than the Liquid Account and the Government
Securities Account) may purchase warrants, which are privileges issued by
corporations enabling the owners to subscribe to and purchase a specified
number of shares of the corporation at a specified price during a specified
period of time. The purchase of warrants involves a risk that an Account
could lose the purchase value of a warrant if the right to subscribe to
additional shares is not exercised prior to the warrant's expiration. Also,
the purchase of warrants involves the risk that the effective price paid for
the warrant added to the subscription price of the related security may exceed
the value of the subscribed security's market price such as when there is no
movement in the level of the underlying security. An Account will not invest
more than 5% of its net assets, taken at market value, in warrants, or more
than 2% of its net assets, taken at market value, in warrants not listed on a
recognized securities exchange. Warrants acquired by an Account in units or
attached to other securities shall not be included in determining compliance
with these percentage limitations.
MORTGAGE-BACKED SECURITIES
(All Accounts)
Each Account may invest in mortgage-backed securities. Mortgage-backed
securities represent direct or indirect participations in or obligations
collateralized by and payable from mortgage loans secured by real property.
Each mortgage pool underlying mortgage-backed securities will consist of
mortgage loans evidenced by promissory notes secured by first mortgages or
first deeds of trust or other similar security instruments creating a first
lien on owner and non-owner occupied one-unit to four-unit residential
properties, multifamily residential properties, agricultural properties,
commercial properties and mixed use properties.
AGENCY MORTGAGE SECURITIES. Each Account may invest in mortgage backed
securities issued or guaranteed by the U.S. Government, foreign governments or
any of their agencies, instrumentalities or sponsored enterprises. Agencies,
instrumentalities or sponsored enterprises of the U.S. Government include but
are not limited to the Government National Mortgage Association (Ginnie Mae),
Federal National Mortgage Association (Fannie Mae) and Federal Home Loan
Mortgage Corporation (Freddie Mac). Ginnie Mae securities are backed by the
full faith and credit of the U.S. Government, which means that the U.S.
Government guarantees that the interest and principal will be paid when due.
Fannie Mae securities and Freddie Mac securities are not backed by the full
faith and credit of the U.S. Government; however, these enterprises have the
ability to obtain financing from the U.S. Treasury. There are several types
of agency mortgage securities currently available, including, but not limited
to, guaranteed mortgage pass-through certificates and multiple class
securities.
PRIVATELY ISSUED MORTGAGE-BACKED SECURITIES. Each Account may also
invest in mortgage-backed securities issued by trusts or other entities formed
or sponsored by private originators of and institutional investors in mortgage
loans and other foreign or domestic non-governmental entities (or representing
custodial arrangements administered by such institutions). These private
originators and institutions include domestic and foreign savings and loan
associations, mortgage bankers, commercial banks, insurance companies,
investment banks and special purpose subsidiaries of the foregoing. Privately
issued mortgage-backed securities are generally backed by pools of
conventional (i.e., non-government guaranteed or insured) mortgage loans.
Since such mortgage-backed securities are not guaranteed by an entity having
the credit standing of Ginnie Mae, Fannie Mae or Freddie Mac, in order to
receive a high quality rating, they normally are structured with one or more
types of "credit enhancement." Such credit enhancements fall generally into
two categories; (1) liquidity protection and (2) protection against losses
resulting after default by a borrower and liquidation of the collateral.
Liquidity protection refers to the providing of cash advances to holders of
mortgage-backed securities when a borrower on an underlying mortgage fails to
make its monthly payment on time. Protection against losses resulting after
default and liquidation is designed to cover losses resulting when, for
example, the proceeds of a foreclosure sale are insufficient to cover the
outstanding amount on the mortgage. Such protection may be provided through
guarantees, insurance policies or letters of credit, though various means of
structuring the transaction or through a combination of such approaches.
MORTGAGE PASS-THROUGH SECURITIES. Each Account may invest in mortgage
pass-through securities, which are fixed or adjustable rate mortgage-backed
securities that provide for monthly payments that are a "pass-through" of the
monthly interest and principal payments (including any prepayments) made by
the individual borrowers on the pooled mortgage loans, net of any fees or
other amounts paid to any guarantor, administrator and/or services of the
underlying mortgage loans.
MULTIPLE CLASS MORTGAGE-BACKED SECURITIES AND COLLATERALIZED
MORTGAGE
OBLIGATIONS. The Government Securities Account, Income Account, Total Return
Account and each of the LifeSpan Accounts may invest in collateralized
mortgage obligations (CMOs), which are multiple class mortgage-backed
securities. CMOs provide an investor with a specified interest in the cash
flow from a pool of underlying mortgages or of other mortgage-backed
securities. CMOs are issued in multiple classes, each with a specified fixed
or adjustable interest rate and a final distribution date. In most cases,
payments of principal are applied to the CMO classes in the order of their
respective stated maturities, so that no principal payments will be made on a
CMO class until all other classes having an earlier stated maturity date are
paid in full. Sometimes, however, CMO classes are "parallel pay" (i.e.,
payments of principal are made to two or more classes concurrently).
STRIPPED MORTGAGE-BACKED SECURITIES. The Government Securities Account
Income Account, Total Return Account and each of the LifeSpan Accounts may
also invest in stripped mortgage-backed securities (SMBS), which are
derivative multiple class mortgage-backed securities. SMBS are usually
structured with two classes that receive different proportions of the interest
and principal distributions from a pool of mortgage loans. If the underlying
mortgage loans experience greater than anticipated prepayments of principal,
an Account may fail to fully recoup its initial investment in these
securities.
A common type of SMBS will have one class receiving all of the interest
from a pool of mortgage loans (IOs), while the other class will receive all of
the principal (POs). The market value of POs generally is unusually volatile
in response to changes in interest rates. The yields on IOs are generally
higher than prevailing market yields on other mortgage-backed securities
because the cash flow patterns of IOs are more volatile and there is a greater
risk that the initial investment will not be fully recouped. Because an
investment in an IO consists entirely of a right to an interest income stream
and prepayments of mortgage loan principal amounts can reduce or eliminate
such income stream, the value of IO's can be severely adversely affected by
significant prepayments of underlying mortgage loans. In accordance with a
requirement imposed by the staff of the SEC, the Manager and the Subadvisers
will consider privately-issued fixed rate IOs and POs to be illiquid
securities for purposes of Accounts' limitation on investments in illiquid
securities. Unless the Manager or the relevant Subadviser, acting pursuant
to guidelines and standards established by the Board of Directors, determines
that a particular government-issued fixed rate IO or PO is liquid, management
will also consider these IOs and POs to be illiquid.
CUSTODIAL RECEIPTS
(All Accounts)
Each of the Accounts may acquire U.S. Government securities and their
unmatured interest coupons that have been separated (stripped) by their
holder, typically a custodian bank or investment brokerage firm. Having
separated the interest coupons from the underlying principal of the U.S.
Government securities, the holder will resell the stripped securities in
custodial receipt programs with a number of different names, including
Treasury Income Growth Receipts (TIGRs) and Certificate of Accrual on Treasury
Securities (CATS). The stripped coupons are sold separately from the
underlying principal, which is usually sold at a deep discount because the
buyer receives only the right to receive a future fixed payment on the
security and does not receive any rights to periodic interest (cash) payments.
The underlying U.S. Treasury bonds and notes themselves are generally held in
book-entry form at a Federal Reserve Bank. Counsel to the underwriters of
these certificates or other evidences of ownership of U.S. Treasury securities
have stated that, in their opinion, purchasers of the stripped securities most
likely will be deemed the beneficial holders of the underlying U.S. government
securities for federal tax and securities purposes. In the case of CATS and
TIGRs, the IRS has reached this conclusion for the purpose of applying the tax
diversification requirements applicable to regulated investment companies such
as the Accounts. CATS and TIGRs are not considered U.S. Government securities
by the Staff of the SEC, however. Further, the IRS' conclusion is contained
only in a general counsel memorandum, which is an internal document of no
precedential value or binding effect, and a private letter ruling, which also
may not be relied upon by the Accounts. The Company is not aware of any
binding legislative, judicial or administrative authority on this issue.
COMMERCIAL PAPER
(All Accounts)
Commercial paper is a short- term, unsecured negotiable promissory note
of a U.S or non- U.S issuer. Each of the Accounts may purchase commercial
paper for temporary defensive purposes as described in the Prospectuses. An
Account may also invest in variable rate master demand notes which typically
are issued by large corporate borrowers providing for variable amounts of
principal indebtedness and periodic adjustments in the interest rate according
to the terms of the instrument. Demand notes are direct lending arrangements
between an Account and an issuer, and are not normally traded in a secondary
market. An Account, however, may demand payment of principal and accrued
interest at any time. In addition, while demand notes generally are not
rated, their issuers must satisfy the same criteria as those set forth above
for issuers of commercial paper. The Manager and the Subadvisers will
consider the earning power, cash flow and other liquidity ratios of issuers of
demand notes and continually will monitor their financial ability to meet
payment on demand.
BANK OBLIGATIONS
(All Accounts)
Certificates of Deposit (CDs) are short- term negotiable obligations of
commercial banks. Time Deposits (TDs) are non- negotiable deposits maintained
in banking institutions for specified periods of time at stated interest
rates. Bankers' acceptances are time drafts drawn on commercial banks by
borrowers usually in connection with international transactions.
U.S. commercial banks organized under federal law are supervised and
examined by the Comptroller of the Currency and are required to be members of
the Federal Reserve System and to be insured by the Federal Deposit Insurance
Corporation (FDIC). U.S. banks organized under state law are supervised and
examined by state banking authorities but are members of the Federal Reserve
System only if they elect to join. Most state banks are insured by the FDIC
(although such insurance may not be of material benefit to an Account,
depending upon the principal amount of CDs of each bank held by the Account)
and are subject to federal examination and to a substantial body of federal
law and regulation. As a result of governmental regulations, U.S. branches of
U.S. banks, among other things, generally are required to maintain specified
levels of reserves, and are subject to other supervision and regulation
designed to promote financial soundness.
U.S. savings and loan associations, the CDs of which may be purchased by
the Accounts, are supervised and subject to examination by the Office of
Thrift Supervision. U.S. savings and loan associations are insured by the
Savings Association Insurance Account which is administered by the FDIC and
backed by the full faith and credit of the U.S. Government.
REPURCHASE AGREEMENTS
(All Accounts)
Each of the Accounts may enter into repurchase agreements as described in
the Prospectuses. For purposes of the Investment Company Act and, generally,
for tax purposes, a repurchase agreement is considered to be a loan from the
Account to the seller of the obligation. For other purposes, it is not clear
whether a court would consider such an obligation as being owned by the
Account or as being collateral for a loan by the Account to the seller. In
the event of the commencement of bankruptcy or insolvency proceedings with
respect to the seller of the obligation before its repurchase, under the
repurchase agreement, the Account may encounter delay and incur costs before
being able to sell the security. Such delays may result in a loss of interest
or decline in price of the obligation. If the court characterizes the
transaction as a loan and the Account has not perfected a security interest in
the obligation, the Account may be treated as an unsecured creditor of the
seller and required to return the obligation to the seller's estate. As an
unsecured creditor, the Account would be at risk of losing some or all of the
principal and income involved in the transaction. As with any unsecured debt
instrument purchased for the Accounts, the Manager and the Subadvisers seek to
minimize the risk of loss from repurchase agreements by analyzing the
creditworthiness of the obligor, in this case, the seller of the obligation.
In addition to the risk of bankruptcy or insolvency proceedings, there is the
risk that the seller may fail to repurchase the security. However, if the
market value of the obligation falls below the repurchase price (including
accrued interest), the seller of the obligation will be required to deliver
additional securities so that the market value of all securities subject to
the repurchase agreement equals or exceeds the repurchase price.
RESTRICTED AND ILLIQUID SECURITIES
Each Account (other than Liquid Account) may invest in restricted
securities eligible for resale to certain institutional investors pursuant to
Rule 144A under the Securities Act of 1933, as amended (the "1933 Act"), and
foreign securities acquired in accordance with Regulation S under the 1933
Act. No Account (except each of the LifeSpan Accounts) will invest more than
10% of its net assets in illiquid investments, which include repurchase
agreements maturing in more than seven days, securities that are not readily
marketable, restricted securities, purchased over-the-counter (OTC) options,
certain assets used to cover written OTC options, and privately issued
stripped mortgage-backed securities. Each of the LifeSpan Accounts will not
invest more than 15% of its net assets in such illiquid investments. If the
Board of Directors determines, based upon a continuing review of the trading
markets for specific Rule 144A securities, that such securities are liquid,
then these securities may be purchased without regard to the Accounts' 10% or
15% limit on illiquid investments, as the case may be. However, each LifeSpan
Account has undertaken to limit investments in restricted securities including
those eligible for resale pursuant to Rule 144A to 15% of total assets. The
Board of Directors may adopt guidelines and delegate to the Manager or
relevant Subadviser the daily function of determining and monitoring the
liquidity of restricted securities. The Board of Directors, however, will
retain sufficient oversight and be ultimately responsible for the
determinations. The Board of Directors will carefully monitor each Account's
investments in these securities, focusing on such important factors, among
others, as valuation, liquidity and availability of information. This
investment practice could have the effect of increasing the level of
illiquidity in the Accounts if qualified institutional buyers become for a
time uninterested in purchasing these restricted securities.
PORTFOLIO TURNOVER
Each Account's particular portfolio securities may be changed without
regard to the holding period of these securities (subject to certain tax
restrictions), when the Manager or respective Subadviser deems that this
action will help achieve the Account's objective given a change in an issuer's
operations or changes in general market conditions. Short-term trading means
the purchase and subsequent sale of a security after it has been held for a
relatively brief period of time. The Accounts do not generally intend to
invest for the purpose of seeking short-term profits. Variations in portfolio
turnover rate from year to year reflect the investment discipline applied to
the particular Account and do not generally reflect trading for short-term
profits.
INVESTMENT RESTRICTIONS
A. FUNDAMENTAL INVESTMENT RESTRICTIONS.
Each Account has adopted the following fundamental investment
restrictions which may not be changed without approval of a majority of the
applicable Account's outstanding voting securities. Under the Investment
Company Act, and as used in the Prospectuses and this SAI, a "majority of the
outstanding voting securities" requires the approval of the lesser of (1) the
holders of 67% or more of the shares of an Account represented at a meeting if
the holders of more than 50% of the outstanding shares of the Account are
present in person or by proxy or (2) the holders of more than 50% of the
outstanding shares of the Account.
The Income, Growth and Total Return Accounts of the Company each may not:
1. Issue senior securities, except as permitted by paragraphs 7, 8, 9
and 11 below. For purposes of this restriction, the issuance of shares of
common stock in multiple classes or series, the purchase or sale of options,
futures contracts and options on futures contracts, forward commitments, and
repurchase agreements entered into in accordance with the Account's investment
policies, and the pledge, mortgage or hypothecation of the Account's assets
are not deemed to be senior securities.
2. (a) Invest more than 5 percent of its total assets (taken at
market value at the time of each investment) in the securities (other than
United States Government or Government agency securities) of any one issuer
(including repurchase agreements with any one bank or dealer) or more than 15
percent of its total assets in the obligations of any one bank; and (b)
purchase more than either (i) 10 percent in principal amount of the
outstanding debt securities of an issuer, or (ii) 10 percent of the
outstanding voting securities of an issuer, except that such restrictions
shall not apply to securities issued or guaranteed by the United States
Government or its agencies, bank money instruments or bank repurchase
agreements.
3. Invest more than 25 percent of the value of its total assets in
the securities of issuers in any single industry, provided that this
limitation shall not apply to the purchase of obligations issued or guaranteed
by the United States Government, its agencies or instrumentalities. For the
purpose of this restriction, each utility that provides a separate service
(e.g., gas, gas transmission, electric or telephone) shall be considered to be
a separate industry. This test shall be applied on a proforma basis using the
market value of all assets immediately prior to making any investment.
4. Alone, or together with any other portfolio or portfolios, make
investments for the purpose of exercising control over, or management of, any
issuer.
5. Purchase securities of other investment companies, except in
connection with a merger, consolidation, acquisition or reorganization, or by
purchase in the open market of securities of closed- end investment companies
where no underwriter or dealer's commission or profit, other than the
customary broker's commission is involved and only if immediately thereafter
not more than 10 percent of such portfolio's total assets, taken at market
value, would be invested in such securities.
6. Purchase or sell interests in oil, gas or other mineral
exploration or development programs, commodities, commodity contracts or real
estate, except that such portfolio may: (1) purchase securities of issuers
which invest or deal an any of the above and (2) invest for hedging purposes
in futures contracts on securities, financial instruments and indices, and
foreign currency, as are approved for trading on a registered exchange.
7. Purchase any securities on margin (except that the Company may
obtain such short- term credits as may be necessary for the clearance of
purchases and sales of portfolio securities) or make short sales of securities
or maintain a short position. The deposit or payment by the Account of
initial or maintenance margin in connection with futures contracts or related
options transactions is not considered the purchase of a security on margin.
8. Make loans, except that the Account (1) may lend portfolio
securities in accordance with the Account's investment policies up to 33 1/3%
of the Account's total assets taken at market value, (2) enter into repurchase
agreements, and (3) purchase all or a portion of an issue of publicly
distributed debt securities, bank loan participation interests, bank
certificates of deposit, bankers' acceptances, debentures or other securities,
whether or not the purchase is made upon the original issuance of the
securities.
9. Borrow amounts in excess of 10 percent of its total assets, taken
at market value at the time of the borrowing, and then only from banks as a
temporary measure for extraordinary or emergency purposes, or make investments
in portfolio securities while such outstanding borrowings exceed 5 percent of
its total assets.
10. Allow its current obligations under reverse repurchase
agreements, together with borrowings, to exceed 1/3 of the value of its total
assets (less all its liabilities other than the obligations under borrowings
and such agreements).
11. Mortgage, pledge, hypothecate or in any manner transfer, as
security for indebtedness, any securities owned or held by such Account except
as may be necessary in connection with borrowings as mentioned in investment
restriction (9) above, and then such mortgaging, pledging or hypothecating may
not exceed 10 percent of such Account's total assets, taken at market value at
the time thereof. In order to comply with certain state statutes, such
Account will not, as a matter of operating policy, mortgage, pledge or
hypothecate its portfolio securities to the extent that at any time the
percentage of the value of pledged securities plus the maximum sales charge
will exceed 10 percent of the value of such Account's shares at the maximum
offering price. The deposit of cash, cash equivalents and liquid debt
securities in a segregated account with the custodian and/or with a broker in
connection with futures contracts or related options transactions and the
purchase of securities on a "when- issued" basis is not deemed to be a pledge.
12. Underwrite securities of other issuers except insofar as the
Company may be deemed an underwriter under the 1933 Act in selling portfolio
securities.
13. Write, purchase or sell puts, calls or combinations thereof,
except that covered call options may be written.
14. Invest in securities of foreign issuers if at the time of
acquisition more than 10 percent of its total assets, taken at market value at
the time of the investment, would be invested in such securities. However, up
to 25 percent of the total assets of such portfolio may be invested in the
aggregate in such securities (i) issued, assumed or guaranteed by foreign
governments, or political subdivisions or instrumentalities thereof, (ii)
assumed or guaranteed by domestic issuers, including Eurodollar securities, or
(iii) issued, assumed or guaranteed by foreign issuers having a class of
securities listed for trading on the New York Stock Exchange.
15. Invest more than 10 percent in the aggregate of the value of its
total assets in repurchase agreements maturing in more than seven days, time
deposits maturing in more than 2 days, portfolio securities which do not have
readily available market quotations and all other illiquid assets.
The Government Securities Account may not:
1. Issue senior securities, except as permitted by para-graphs 3, 4,
5 and 15 below. For purposes of this restriction, the issuance of shares of
common stock in multiple classes or series, the purchase or sale of options,
futures contracts and options on futures contracts, forward commitments, and
repurchase agreements entered into in accordance with the Account's investment
policies, and the pledge, mortgage or hypothecation of the Account's assets
are not deemed to be senior securities.
2. Purchase equity securities (e.g., common stocks, preferred
stocks), voting securities or local or state government securities (e.g.,
municipal bonds, state bonds).
3. Borrow money, except from banks for temporary or emer-gency
purposes, including the meeting of redemption requests which might otherwise
require the untimely disposition of securities, borrow in the aggregate more
than 10 percent of the value of its total assets, or invest in portfolio
securities while outstanding borrowings exceed 5 percent of the value of its
total assets.
4. Pledge, hypothecate, mortgage or otherwise encumber its assets,
except in an amount of not more than 10 percent of the value of its net assets
to secure borrowings for temporary or emergency purposes and except as may be
necessary in connection with securities lending as provided in investment
restriction (10) below. The deposit of cash, cash equivalents and liquid debt
securities in a segregated account with the custodian and/or with a broker in
connection with futures contracts or related options transactions and the
purchase of securities on a "when- issued" basis is not deemed to be a pledge.
5. Sell securities short or purchase securities on margin. The
deposit or payment by the Account of initial or maintenance margin in
connection with futures contracts or related options transactions is not
considered the purchase of a security on margin.
6. Write or purchase put or call options, except that the Account may
engage in covered call option writing.
7. Underwrite the securities of other issuers or purchase restricted
securities.
8. Purchase or sell real estate, real estate investment trust
securities, commodities or commodity contracts, or oil and gas interests,
except that the Account may invest for hedging purposes in futures contracts
on securities, financial instruments, and indices as are approved for trading
on a registered exchange.
9. Make loans, except that the Account (1) may lend portfolio
securities in accordance with the Account's investment policies up to 33 1/3
percent of the Account's total assets taken at market value, (2) enter into
repurchase agreements, and (3) purchase all or a portion of an issue of
publicly distributed debt securities, bank loan participation interests, bank
certificates of deposit, bankers' acceptances, debentures or other securities,
whether or not the purchase is made upon the original issuance of the
securities.
10. Invest more than 15 percent of the value of its total assets in
the obligations of any one bank, or invest more than 5 percent of the value of
its total assets in the commercial paper of any one issuer.
11. Invest more than 25 percent of the value of its total assets in
the securities of issuers in any single industry, provided that this
limitation shall not apply to the purchase of obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities, certificates of
deposit issued by domestic banks and domestic bankers' acceptances (excluding
foreign branches of domestic banks).
12. Invest more than 10 percent in the aggregate of the value of its
total assets in repurchase agreements maturing in more than 7 days, time
deposits maturing in more than 2 days and portfolio securities which do not
have readily available market quotations.
13. Invest in companies for the purpose of exercising control.
14. Invest in securities of other investment companies, except as
they may be acquired as part of a merger, consolidation or acquisition of
assets.
15. Allow its current obligations under reverse repurchase
agreements, together with borrowings, to exceed one- third of the value of its
total assets (less all its liabilities other than the obligations under
borrowings and such agreements).
The Liquid Account may not:
1. Issue senior securities, except as permitted by paragraphs 3, 4, 5
and 15 below. For purposes of this restriction, the issuance of shares of
common stock in multiple classes or series, the purchase or sale of options,
futures contracts and options on futures contracts, forward commitments, and
repurchase agreements entered into in accordance with the Account's investment
policies, and the pledge, mortgage or hypothecation of the Account's assets
are not deemed to be senior securities.
2. Purchase equity securities (e.g., common stocks, preferred
stocks), voting securities or local or state government securities (e.g.,
municipal bonds, state bonds).
3. Borrow money, except from banks for temporary or emer-gency
purposes, including the meeting of redemption requests which might otherwise
require the untimely disposition of securities, borrow in the aggregate more
than 10 percent of the value of its total assets, or invest in portfolio
securities while outstanding borrowings exceed 5 percent of the value of its
total assets.
4. Pledge, hypothecate, mortgage or otherwise encumber its assets,
except in an amount of not more than 10 percent of the value of its net assets
to secure borrowings for temporary or emergency purposes and except as may be
necessary in connection with securities lending as provided in investment
restriction (10) below. The deposit of cash, cash equivalents and liquid debt
securities in a segregated account with the custodian and/or with a broker in
connection with futures contracts or related options transactions and the
purchase of securities on a "when- issued" basis is not deemed to be a pledge.
5. Sell securities short or purchase securities on margin. The
deposit or payment by the Account of initial or maintenance margin in
connection with futures contracts or related options transactions is not
considered the purchase of a security on margin.
6. Write or purchase put or call options.
7. Underwrite the securities of other issuers or purchase restricted
securities.
8. Purchase or sell real estate, real estate investment trust
securities, commodities or commodities contracts, or oil and gas interests.
9. Make loans, except that the Account (1) may lend portfolio
securities in accordance with the Account's investment policies up to 33 1/3
percent of the Account's total assets taken at market value, (2) enter into
repurchase agreements, and (3) purchase all or a portion of an issue of
publicly distributed debt securities, bank loan participation interests, bank
certificates of deposit, bankers' acceptances, debentures or other securities,
whether or not the purchase is made upon the original issuance of the
securities.
10. Invest more than 15 percent of the value of its total assets in
the obligations of any one bank or invest more than 5 percent of the value of
its total assets in the commercial paper of any one issuer.
11. Invest more than 25 percent of the value of its total assets in
the securities of issuers in any single industry, provided that this
limitation shall not apply to the purchase of obligations issued or guaranteed
by the United States Government, its agencies or instrumentalities,
certificates of deposit issued by domestic banks and domestic bankers'
acceptances (excluding foreign branches of domestic banks).
12. Invest more than 10 percent in the aggregate of the value of its
total assets in repurchase agreements maturing in more than 7 days, time
deposits maturing in more than 2 days and portfolio securities which are not
readily marketable.
13. Invest in companies for the purpose of exercising control.
14. Invest in securities of other investment companies, except as
they may be acquired as part of a merger, consolidation or acquisition of
assets.
15. Enter into a reverse repurchase agreement if as a result its
current obligations under such agreement would exceed one- third of the value
of its total assets (less all its liabilities other than the obligations under
such agreements).
16. Invest in any security with a maturity in excess of one year.
For purposes of the fundamental investment restrictions, the term
"borrow" does not include mortgage dollar rolls, reverse repurchase agreements
or lending portfolio securities and the terms "illiquid securities" and
"portfolio securities which do not have readily available market quotations"
shall include restricted securities. However, as non- fundamental policies,
the Company will treat reverse repurchase agreements as borrowings, master
demand notes as illiquid securities and mortgage dollar rolls as sales
transactions and not as a financing.
For purposes of the restriction on investing more than 25% of an
Account's assets in the securities of issuers in any single industry, the
category Financial Services as used in the Financial Statements may include
several different industries such as mortgage- backed securities, brokerage
firms and other financial institutions.
Each of the Income, Growth, Total Return and Liquid Accounts of the
Company may not, as a non-fundamental investment restriction, invest more than
5% of its total assets in securities of any issuer which, together with its
predecessors, has been in operation for less than three years.
Each of the LifeSpan Accounts each may not:
1. Issue senior securities, except as permitted by paragraphs 2, 3, 6
and 7 below. For purposes of this restriction, the issuance of shares of
common stock in multiple classes or series, the purchase or sale of options,
futures contracts and options on futures contracts, forward commitments and
repurchase agreements entered into in accordance with the Account's investment
policies, are not deemed to be senior securities.
2. Purchase any securities on margin (except that the Company may
obtain such short- term credits as may be necessary for the clearance of
purchases and sales of portfolio securities) or make short sales of securities
or maintain a short position. The deposit or payment by the Account of
initial or maintenance margin in connection with futures contracts or related
options trans-actions is not considered the purchase of a security on margin.
3. Borrow money, except for emergency or extraordinary purposes
including (i) from banks for temporary or short-term purposes or for the
clearance of transactions in amounts not to exceed 33 1/3% of the value of the
Account's total assets (including the amount borrowed) taken at market value,
(ii) in connection with the redemption of Account shares or to finance failed
settlements of portfolio trades without immediately liquidating portfolio
securities or other assets; and (iii) in order to fulfill commitments or plans
to purchase additional securities pending the anticipated sale of other
portfolio securities or assets, but only if after each such borrowing there is
asset coverage of at least 300% as defined in the Investment Company Act. For
purposes of this investment restriction, reverse repurchase agreements,
mortgage dollar rolls, short sales, futures contracts, options on futures
contracts, securities or indices and forward commitment transactions shall not
constitute borrowing.
4. Act as an underwriter, except to the extent that in connection
with the disposition of portfolio securities, the Account may be deemed to be
an underwriter for purposes of the 1933 Act.
5. Purchase or sell real estate except that the Account may (i)
acquire or lease office space for its own use, (ii) invest in securities of
issuers that invest in real estate or interests therein, (iii) invest in
securities that are secured by real estate or interests therein, (iv) purchase
and sell mortgage-related securities and (v) hold and sell real estate
acquired by the Account as a result of the ownership of securities.
6. Invest in commodities, except the Account may purchase and sell
options on securities, securities indices and currency, futures contracts on
securities, securities indices and currency and options on such futures,
forward foreign currency exchange contracts, forward commitments, securities
index put or call warrants and repurchase agreements entered into in
accordance with the Account's investment policies.
7. Make loans, except that the Account (1) may lend portfolio
securities in accordance with the Account's investment policies up to 33 1/3%
of the Account's total assets taken at market value, (2) enter into repurchase
agreements, and (3) purchase all or a portion of an issue of publicly
distributed bonds, debentures or other similar obligations.
8. Purchase the securities of issuers conducting their principal
activity in the same industry if, immediately after such purchase, the value
of its investments in such industry would exceed 25% of its total assets taken
at market value at the time of such investment. This limitation does not
apply to investments in obligations of the U.S. Government or any of its
agencies, instrumentalities or authorities.
9. With respect to 75% of total assets, purchase securities of an
issuer (other than the U.S. Government, its agencies, instrumentalities or
authorities), if:
(a) such purchase would cause more than 5% of the Account's total
assets taken at market value to be invested in the securities of such issuer;
or
(b) such purchase would at the time result in more than 10% of the
outstanding voting securities of such issuer being held by the Account.
B. NON-FUNDAMENTAL INVESTMENT RESTRICTIONS.
The following restrictions are designated as non-fundamental and may be
changed by the Board of Directors without the approval of shareholders.
The LifeSpan Accounts each may not:
(1) Pledge, mortgage or hypothecate its assets, except to secure permitted
borrowings and then only if such pledging, mortgaging or hypothecating
does not exceed 33 1/3% of the Account's total assets taken at market
value. Collateral arrangements with respect to margin, option and other
risk management and when-issued and forward commitment transac-tions are
not deemed to be pledges or other encumbrances for purposes of this
restriction.
(2) Participate on a joint or joint-and-several basis in any securities
trading account. The "bunching" of orders for the sale or purchase of
marketable portfolio securities with other accounts under the management
of the Manager or the Subadvisers to save commissions or to average prices
among them is not deemed to result in a joint securities trading account.
(3) Purchase or retain securities of an issuer if one or more of the
Directors or officers of the Company or directors or officers of the
Manager or any Subadviser or any investment management subsidiary of the
Manager or any Subadviser individually owns beneficially more than 0.5%
and together own beneficially more than 5% of the securities of such
issuer.
(4) Purchase a security if, as a result, (i) more than 10% of the
Account's assets would be invested in securities of other investment
companies, (ii) such purchase would result in more than 3% of the total
outstanding voting securities of any one such investment company being
held by the Account or (iii) more than 5% of the Account's assets would be
invested in any one such investment company. The Account will not
purchase the securities of any open-end investment company except when
such purchase is part of a plan of merger, consolidation, reorganization
or purchase of substantially all of the assets of any other investment
company, or purchase the securities of any closed-end investment company
except in the open market where no commission or profit to a sponsor or
dealer results from the purchase, other than customary brokerage fees.
The Account has no current intention of investing in other investment
companies.
(5) Invest more than 15% of total assets in restricted securities,
including securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933.
(6) Invest more than 5% of total assets in securities of any issuer which,
together with its predecessors, has been in operation for less than three
years.
(7) Invest in securities which are illiquid if, as a result, more than 15%
of its net assets would consist of such securities, including repurchase
agreements maturing in more than seven days, securities that are not
readily marketable, certain restricted securities, purchased OTC options,
certain assets used to cover written OTC options, and privately issued
stripped mortgage-backed securities.
(8) Purchase securities while outstanding borrowings exceed 5% of the
Account's total assets.
(9) Invest in real estate limited partnership interests.
(10) Purchase warrants of any issuer, if, as a result of such purchase,
more than 2% of the value of the Account's total assets would be invested
in warrants which are not listed on an exchange or more than 5% of the
value of the total assets of the Account would be invested in warrants
generally, whether or not so listed. For these purposes, warrants are to
be valued at the lesser of cost or market, but warrants acquired by the
Account in units with or attached to debt securities shall be deemed to
be without value.
(11) Purchase interests in oil, gas, or other mineral exploration programs
or mineral leases; however, this policy will not prohibit the acquisition
of securities of companies engaged in the production or transmission of
oil, gas, or other minerals.
(12) Write covered call or put options with respect to more than 25% of
the value of its total assets, invest more than 25% of its total assets
in protective put options or invest more than 5% of its total assets in
puts, calls, spreads or straddles, or any combination thereof, other than
protective put options. The aggregate value of premiums paid on all
options, other than protective put options, held by the Account at any
time will not exceed 20% of the Account's total assets.
(13) Invest for the purpose of exercising control over or management of
any company.
If a percentage restriction on investment or utilization of assets as set
forth above is adhered to at the time an investment is made, a later change in
percentage resulting from changes in the values of an Account's assets will
not be considered a violation of the restriction.
In order to permit the sale of shares of the Accounts in certain states,
the Board of Directors may, in its sole discretion, adopt restrictions on
investment policy more restrictive than those described above. Should the
Board of Directors determine that any such more restrictive policy is no
longer in the best interest of an Account and its shareholders, the Account
may cease offering shares in the state involved and the Board of Directors may
revoke such restrictive policy. Moreover, if the states involved shall no
longer require any such restrictive policy, the Board of Directors may, in its
sole discretion, revoke such policy.
MANAGEMENT
The Company's Board of Directors provides broad supervision over the
affairs of the Company. The officers of the Company are responsible for the
day-to-day operations of the Company. The Directors of the Company and the
officers of the Company are listed below. Except as indicated, each
individual has held the office shown or other offices in the same company for
the last five years. Unless otherwise noted, the business address of each
Director and officer of the Company is 140 Garden Street, Hartford,
Connecticut 06154. Those Directors and officers who are "interested persons"
of the Company, as defined in the Investment Company Act, by virtue of their
affiliation with the Company, are indicated by an asterisk(*).
DIRECTORS AND OFFICERS OF THE COMPANY.
RICHARD H. AYERS, 52, DIRECTOR
Chairman and Chief Executive Officer, The Stanley Works (tool manufacturer).
Address: The Stanley Works, 1000 Stanley Drive, New Britain, Connecticut
06050
DAVID E.A. CARSON, 61, DIRECTOR
President, Chairman and Chief Executive Officer, People's Bank.
Address: People's Bank, 899 Main Street, Bridgeport, Connecticut 06604
RICHARD W. GREENE, 60, DIRECTOR
Executive Vice President and Treasurer, University of Rochester.
Address: University of Rochester, Wilson Boulevard, Rochester, New York 14627
BEVERLY L. HAMILTON, 48, DIRECTOR
President, ARCO Investment Management Company (1991-Present); Deputy
Comptroller, City of New York (1987-1991).
Address: ARCO Investment Management Company, 555 South Flower Street, Los
Angeles, California 90071
DONALD H. POND, JR., 52, DIRECTOR AND PRESIDENT*
Executive Vice President, Connecticut Mutual Life Insurance Company (CML)
(1988-June, 1995).
DAVID E. SAMS, JR., 52, DIRECTOR*
President and Chief Executive Officer, CML (1993-present); President and Chief
Executive Officer, Agency Group, Capital Holdings Corporation (1987-1993).
LINDA M. NAPOLI, 38, TREASURER AND CONTROLLER*
Assistant Vice President, CML (1987-present); Associate Director, CML
(1988-1993).
LOUIS A. LACCAVOLE, 46, GENERAL AUDITOR*
Vice President and General Auditor, CML (1990-Present); Assistant Vice
President and General Auditor, CML (1981-1990).
ANN F. LOMELI, 39, SECRETARY*
Secretary of the Company; Corporate Secretary, CML (1988-present).
All Board members of the Company are board members of, Mr. Pond is a
board member and President of, and Ms. Lomeli is Secretary, Ms. Napoli is
Treasurer and Mr. Laccavole is General Auditor of, Connecticut Mutual
Financial Services Series Fund I, Inc. ("CMFS Fund"), an investment company
for which the Manager acts as investment adviser. Each of the Directors and
principal officers affiliated with the Company who is also an affiliated
person of the Manager or any Subadviser is named above, together with the
capacity in which such person is affiliated with the Company, the Manager or
Subadviser. As of August 31, 1995, the Directors and officers of the Company
owned, in the aggregate, less than 1% of the outstanding securities of the
Company.
COMPENSATION OF OFFICERS AND DIRECTORS. The Accounts pay no salaries or
compensation to any of their officers. The chart below sets forth the fees
paid or expected to be paid by each Account to the Directors and certain other
information:
<TABLE>
<CAPTION>
RICHARD M. DONALD E. RICHARD W. BEVERLY L. DONALD H.
DAVID
E.
AYERS A.CARSON GREENE HAMILTON POND, JR.
SAMS, JR.
<S> <C> <C> <C> <C> <C> <C>
COMPENSATION
RECEIVED FROM
ACCOUNT
Liquid Account* $1,000 $962.50 $1,100 $1,000 $-0-
$-0-
</TABLE>
Government
Securities
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Account* 1,000 962.50 1,100 1,000 -0-
-0-
Income Account* 1,000 962.50 1,100 1,000 -0-
-0-
Total Return
Account* 1,000 962.50 1,100 1,000 -0-
-0-
Growth Account* 1,000 962.50 1,100 1,000 -0-
-0-
Diversified
Income Account** 275 275 275 275 -0-
-0-
Balanced Account** 275 275 275 275 -0-
-0-
Capital
Appreciation
Account** 275 275 275 275 -0-
-0-
PENSION OR RETIREMENT
BENEFITS ACCRUED AS
ACCOUNT EXPENSE*
Liquid Account -0- -0- -0- -0- -0-
-0-
Government
Securities
Account -0- -0- -0- -0- -0-
-0-
Income Account -0- -0- -0- -0- -0-
-0-
Total Return
Account -0- -0- -0- -0- -0-
-0-
Growth Account -0- -0- -0- -0- -0-
-0-
Diversified
Income Account -0- -0- -0- -0- -0-
-0-
Balanced Account -0- -0- -0- -0- -0-
-0-
Capital
Appreciation
Account -0- -0- -0- -0- -0-
-0-
TOTAL COMPENSATION
FROM COMPANY AND
COMPLEX PAID TO
DIRECTORS*** 9,250 9,063 10,250 9,250 -0-
-0-
</TABLE>
____________
* As of most recently completed fiscal year.
** Estimated for current fiscal year.
*** As of the calendar year ended December 31, 1994, there were sixteen
investment companies in the Complex (including the Accounts).
Other Information about the Company. The Company was incorporated in Maryland
on December 9, 1981. The authorized capital stock of the Company consists of
3 billion shares of common stock, par value $0.001 per share (Common Stock).
The shares of common stock are divided into thirteen series accounts:
Government Securities Account (200,000,000 shares); Income Account (200,000,000
shares); Total Return Account (200,000,000 shares); Growth Account (200,000,000
shares); Liquid Account (600,000,000 shares); Capital Appreciation Account
(200,000,000 shares); Balanced Account (200,000,000 shares); Diversified
Income Account (200,000,000 shares); CMIA National Municipals Account
(200,000,000 shares); CMIA California Municipals Account (200,000,000 shares);
CMIA Massachusetts Municipals Account (200,000,000 shares); CMIA New York
Municipals Account 200,000,000 shares); and CMIA Ohio Municipals Account
(200,000,000 shares). The Board of Directors may reclassify authorized shares
to add to one or more of the accounts described above or to add any new
accounts to the Company. The Board of Directors is also authorized, without
further shareholder approval, to classify and reclassify existing and new
accounts into one or more classes. Accordingly, the Directors have authorized
the issuance of two classes of shares of each of the CMIA Accounts, except for
the Liquid Account, and each of the LifeSpan Accounts, designated in each
instance as Class A shares and Class B shares. The Directors have authorized
only one class of shares for the Liquid Account.
As of August 31, 1995, CML and its affiliates owned shares of certain
accounts as follows: Government Securities Account (733,944 shares) (15% of
shares outstanding); Income Account (1,550,411 shares) (31% of shares
outstanding); Total Return Account (211 shares) (0% of shares outstanding);
Growth Account (1,848,510 shares) (31% of shares outstanding); and Liquid
Account (23,540,988 shares) (33% of shares outstanding), Capital Appreciation
Account (2,512,549 shares) (95% of shares outstanding); Balanced Account
(3,359,773 shares) (96% of shares outstanding); Diversified Income (2,033,202
shares) (95% of shares outstanding). CML is incorporated under the laws of the
state of Connecticut. CML and its affiliates are deemed to be controlling
persons of any account of the Company of which they own more than 25% of the
shares outstanding. As such, the exercise by CML and its affiliates of their
voting rights may diminish the voting power of other shareholders.
As of August 31, 1995, no other shareholder of the Company owns of record
or beneficially 5% or more of the shares outstanding of any Account.
As of August 30, 1995, the following persons held an interest in the
following accounts equal to 5% or more of such account's outstanding shares:
SHAREHOLDER PERCENTAGE OWNERSHIP
CMIA NATIONAL MUNICIPAL ACCOUNT
Claud J. Jacobs 9%
Yoakum, TX
Julius and Deanna Staatz 7%
Yoakum, TX
James A. Jones
Bettendorf, IA 12%
CMIA CALIFORNIA MUNICIPAL ACCOUNT
Frank J. Edwards IV
Houston, TX 18%
Archie and Winifred Dingwall
Fresno, CA 22%
Frank E. Blakeley
Fresno, CA 56%
CMIA MASSACHUSETTS MUNICIPAL ACCOUNT
Tom F. and Edna M. Cavanaugh
Carver, MA 35%
CML
Hartford, CT 8%
Martin J. Healey
Lynn, MA 21%
Eugene F. and Jean K. Walsh
Tewksbury, MA 27%
CMIA NEW YORK MUNICIPAL ACCOUNT
Robert W. Lang
Gloversville, NY 5%
Michael Nicoletto
Huntington, NY 6%
Herbert F. Ross
Rochester, NY 7%
Shirley M. Baker
Elma, NY 9%
Arnold and Ellen Ostrower
New York, NY 17%
Salvatore J. Bellavia
Syracuse, NY 29%
CMIA OHIO MUNICIPAL ACCOUNT
Martha L. Lanter
Springfield, OH 5%
Lawrence H. Stookey, Jr.
Sandusky, OH 6%
Hardy & Hardy Co.
Lima, OH 7%
Lawrence A. Walborn
Sylvania, OH 7%
Friddle Trust
Mason, OH 19%
Warren and Mary Copeland
Lima, OH 24%
Any shareholder with an interest in any of the above accounts exceeding
25% of such accounts' outstanding shares is deemed to be a controlling person
of such account. As such, the exercise by a greater than 25% shareholder of
his or her voting rights may diminish the voting power of other shareholders.
The shares of the Accounts are entitled to vote separately to approve
investment advisory agreements or changes in investment restrictions, but
shareholders of all series vote together in the election and selection of
Directors and accountants. Shares of an Account vote together as a class on
matters that affect the Account in substantially the same manner. As to
matters affecting a single class, shares of such class will vote separately.
Shares of the Company do not have cumulative voting rights. The Company does
not intend to hold annual meetings of shareholders unless required to do so by
the Investment Company Act or the Maryland statute under which the Company is
organized. Although Directors are not elected annually by the shareholders,
shareholders have under certain circumstances the right to remove one or more
Directors. Each Account's shares are fully paid and nonassessable when issued
and have no preference, preemptive, conversion or similar rights and are
freely transferable.
The Company's Articles of Incorporation provide that the Directors,
officers and employees of the Company may be indemnified by the Company to the
fullest extent permitted by Maryland law. The Company's Bylaws provide that
the Company shall indemnify each of its Directors, officers and employees
against liabilities and expenses reasonably incurred by them, in connection
with, or resulting from, any claim, action, suit or proceeding, threatened
against or otherwise involving such Director, officer or employee, directly or
indirectly, by reason of being or having been a Director, officer or employee
of the Company. Neither the Articles of Incorporation nor the Bylaws
authorize the Company to indemnify any Director or officer against any
liability to which he or she would otherwise be subject by reason of or for
willful misfeasance, bad faith, gross negligence or reckless disregard of such
person's duties.
INVESTMENT ADVISORY ARRANGEMENTS
The Company, on behalf of each Account, has entered into an investment
advisory agreement with G.R. Phelps & Co. (the Manager). The investment
advisory agreement provides that the Manager, subject to the supervision and
approval of the Company's Board of Directors, is responsible for the actual
management of each Account. The Manager is responsible for the selection of
portfolio investments for each Account (other than the international
Component, the small-cap Component and the high yield/high risk bond Component
for the LifeSpan Accounts). In connection therewith, the Manager provides
investment research and supervision of the investments held by an Account and
conducts a continuous program of investment, evaluation and, if appropriate,
sale and reinvestment of the Account's assets, in accordance with the
investment objectives and policies of the Account. The Manager also furnishes
the Company such statistical information, with respect to the investments
which the Accounts may hold or contemplate purchasing, as the Company may
reasonably request. The Manager will apprise the Company of important
developments materially affecting any of the Accounts and furnish the Company
from time to time with such information as the Manager may believe appropriate
for this purpose. In addition, the Manager agrees to furnish the Board of
Directors such periodic and special reports as the Board may reasonably
request and to provide persons satisfactory to the Board of Directors to serve
as the Company's officers. The Manager will also, without charge, render such
clerical, accounting, administrative and other services as the Manager may
believe appropriate or as the Company may reasonably request.
With respect to the international Component for LifeSpan Capital
Appreciation and Balanced Account, the Manager has entered into subadvisory
investment agreements with Scudder. With respect to the small cap Component
of each LifeSpan Account, the Manager has entered into subadvisory investment
agreements with Pilgrim. With respect to the high yield/high risk bond
Component for each LifeSpan Account, the Manager has entered into subadvisory
investment agreements with BEA Associates. Under the respective subadvisory
investment agreement, the corresponding Subadviser, subject to the review of
the Board of Directors and the over-all supervision of the Manager, is
responsible for managing the investment operations of the corresponding
LifeSpan Account Component and the composition of the Component's portfolio
and furnishing the LifeSpan Account with advice and recommendations with
respect to investments and the purchase and sale of securities for the
respective Component.
As provided by the investment advisory agreement, each Account pays the
Manager an investment management fee, which is accrued daily and paid monthly,
equal on an annual basis to a stated percentage of the respective Account's
average daily net asset value. The Manager, not any Account, pays the
subadvisory fees as described in the Prospectuses. See "The Manager and the
Subadvisers" and "Breakdown of Expenses" in the Prospectuses for additional
description of the management and subadvisory fees and certain other
information concerning each Account's investment advisory agreement and the
subadvisory investment agreements of the LifeSpan Accounts.
No person other than the Manager and the corresponding Subadviser and
their directors and employees regularly furnishes advice to the Accounts with
respect to the desirability of the Accounts investing in, purchasing or
selling securities. The Manager and Subadvisers may from time to time receive
statistical or other similar factual information, and information regarding
general economic factors and trends, from CML and its affiliates.
Under the terms of the investment advisory agreement with the Company on
behalf of each Account, the Manager provides each Account with office space,
supplies and other facilities required for the business of the Account. The
Manager pays the compensation of all officers and employees of the Company and
Directors of the Company affiliated with the Manager, the office expenses of
the Accounts and other expenses incurred by the Manager in connection with the
performance of its duties. All other expenses which are not specifically paid
by the Manager and which are incurred in the operation of the Accounts
including fees of directors who are not "interested persons," as such term is
defined in the Investment Company Act, of the Company or CML and the
continuous public offering of the shares of the Accounts are borne by the
Accounts.
Securities held by any Account may also be held by other portfolios for
which the Manager, the Subadvisers or their respective affiliates provides
investment advice. Because of different investment objectives or other
factors, a particular security may be bought by the Manager or a Subadviser
for one or more clients when one or more clients are selling the same
security. If purchases or sales of securities arise for consideration at or
about the same time for any Account or other funds for which the Manager or a
Subadviser acts as an investment adviser or for their advisory clients,
transactions in such securities will be made, insofar as feasible, for the
respective funds and clients in a manner deemed equitable to all. To the
extent that transactions on behalf of more than one client of the Manager, the
Subadvisers or their respective affiliates during the same period may increase
the demand for securities being purchased or the supply of securities being
sold, there may be an adverse effect on price.
The advisory fees paid by the following Accounts for the last three
fiscal years were:
<TABLE>
<CAPTION>
1992 1993 1994
---------- ---------- ----------
<S> <C> <C> <C>
Liquid Account $ 344,999 $ 357,506 $ 385,774
Government Securities Account $ 392,761 $ 465,806 $ 460,523
Income Account $ 187,813 $ 277,291 $ 304,391
Total Return Account $ 601,883 $ 867,544 $1,173,401
Growth Account $ 264,629 $ 342,082 $ 447,812
---------- ---------- ----------
Total All Accounts $1,792,085 $2,310,229 $2,771,901
========== ========== ==========
<FN>
The LifeSpan Accounts commenced operations in fiscal 1995 and therefore
paid no advisory fees during the periods listed above.
</TABLE>
The investment advisory agreement provides that the Manager will limit the
aggregate ordinary operating expenses (including the advisory fee and 12b-1
fees, but excluding interest, taxes, brokerage fees, commissions and
extraordinary charges such as litigation costs) of the Liquid Account to no
more than 1.0% of the Account's average net assets. The investment advisory
contract provides that the Manager will limit the aggregate ordinary operating
expenses (including the advisory fee, but excluding interest, taxes, brokerage
fees, commissions and extraordinary charges such as litigation costs) of each
of the Government Securities Account, Income Account, Growth Account and Total
Return Account to no more than 1.5% of the average daily net assets of the
respective Account.
The Manager has voluntarily and temporarily agreed to limit the expenses
of each of the Capital Appreciation Account and the Balanced Account to 1.55%
and of the Diversified Income Account to 1.50% of such Account's average daily
net assets.
Pursuant to the investment advisory agreement and, where applicable, each
subadvisory investment agreement, neither the Manager nor any Subadviser is
liable to the Accounts or their shareholders for any error of judgment or
mistake of law or for any loss suffered by the Accounts in connection with the
matters to which their respective agreement relate, except a loss resulting
from willful misfeasance, bad faith or gross negligence on the part of the
Manager or Subadviser in the performance of their duties or from their
reckless disregard of the obligations and duties under the applicable
agreement. Each Subadviser has agreed to indemnify the Manager to the fullest
extent permitted by law against any and all loss, damage, judgment, fines,
amounts paid in settlement and attorneys' fees incurred by the Manager to the
extent resulting in whole or in part from any of the respective Subadviser's
acts or omissions related to the performance of its duties as set forth
specifically in the respective subadvisory investment agreement or otherwise
from the respective Subadviser's willful misfeasance, bad faith or gross
negligence.
The Manager, whose principal business address is at 10 State House
Square, Hartford, Connecticut and whose mailing address is 140 Garden Street,
Hartford, Connecticut 06154, was organized in 1976 and has over $2.7 billion
in assets under management in its capacity as investment adviser to the
Accounts and the other mutual funds in the Connecticut Mutual group of funds
having a combined total of over 30,000 shareholders. The Manager is a wholly
owned subsidiary of DHC, which is in turn a wholly owned subsidiary of CML.
Scudder, 345 Park Avenue, New York, NY 10154, is a Delaware corporation
and has been providing investment counseling services for over 70 years, since
its founding in 1919. Scudder supervises assets for institutional clients,
mutual funds and individuals and had $90 billion in assets under management as
of May 31, 1995. All of the outstanding voting and non-voting securities of
Scudder are held of record by the Managing Directors, Daniel Pierce, Edmond D.
Villani, Stephen R. Beckwith, and Juris Padegs, in their capacity as the
Representatives of the beneficial owners of such securities pursuant to a
Security Holders Agreement, under which such Representatives have the right to
reallocate shares among the beneficial owners from time to time, at net book
value in cash transactions. BEA Associates, Citicorp Center, 153 E. 53rd
Street, 57th Floor, New York, NY 10022, is a partnership between Credit Suisse
Capital Corporation and BEA Associate's employee shareholders. BEA Associates
has been providing domestic and global fixed income and equity investment
management services for institutional clients and mutual funds since 1984 and,
together with its global affiliate, had $25 billion in assets under management
as of May 31, 1995. Pilgrim, 1255 Drummers Lane, Wayne, Pennsylvania 19087,
was established in 1982 to provide specialized equity management for
institutional investors. Pilgrim is a Delaware corporation and a wholly owned
subsidiary of United Asset Management Corporation. As of May 31, 1995,
Pilgrim had over $4 billion in assets under management.
The investment advisory agreement and subadvisory investment agreements
continue in effect from year to year if approved annually by a vote of a
majority of the Directors of the Company who are not interested persons of one
of the parties to the contract, cast in person at a meeting called for the
purpose of voting on such approval, or by either the Directors or the holders
of a majority of the applicable Account's outstanding voting securities. Each
contract automatically terminates upon assign-ment. The investment advisory
agreement may be terminated without penalty on 60 days' notice at the option
of either party to the respective contract or by vote of the holders of a
majority of the outstanding voting securities of the applicable Account. Each
subadvisory investment agreement may be terminated at any time without the
payment of any penalty by the Board of Directors or by vote of a majority of
the outstanding voting securities of the Account upon 60 days' notice to the
Manager and respective Subadviser, by the Manager upon 60 days' written notice
to the Account and the Subadviser and by the Subadvisor upon 90 days' written
notice to the Account and the Manager (with respect to that Account only).
Each subadvisory investment agreement terminates automatically upon the
termination of the corresponding investment advisory agreement.
ACCOUNT EXPENSES
EXPENSES OF THE ACCOUNTS. Each Account pays its own expenses including,
without limitation: (i) expenses of maintaining the Account and continuing
its existence, (ii) registration of the Company under the Investment Company
Act, (iii) auditing, accounting and legal expenses, (iv) taxes and interest,
(v) governmental fees, (vi) expenses of issue, sale, repurchase and redemption
of Account shares, (vii) expenses of registering and qualifying the Account
and its shares under federal and state securities laws and of preparing and
printing prospectuses for such purposes and for distributing the same to
shareholders and investors, and fees and expenses of registering and
maintaining registrations of the Account and of the Account's principal
underwriter, if any, as broker- dealer or agent under state securities laws,
(viii) expenses of reports and notices to share-holders and of meetings of
shareholders and proxy solicitations therefor, (ix) expenses of reports to
governmental officers and commissions, (x) insurance expenses, (xi)
association membership dues, (xii) fees, expenses and disbursements of
custodians for all services to the Account, (xiii) fees, expenses and
disbursements of transfer agents, dividend disbursing agents, shareholder
servicing agents and registrars for all services to the Account, (xiv)
expenses for servicing shareholder accounts, (xv) any direct charges to
shareholders approved by the Directors of the Company, (xvi) compensation and
expenses of Directors of the Company who are not "interested persons" of the
Account, and (xvii) such non- recurring items as may arise, including expenses
incurred in connection with litigation, proceedings and claims and the
obligation of the Company to indemnify its Directors and officers with respect
thereto.
DISTRIBUTION ARRANGEMENTS
Connecticut Mutual Financial Services, L.L.C. ("CMFS") serves as the
principal underwriter for each Account pursuant to an Underwriting Agreement
initially approved by the Board of Directors of the Company. CMFS is a
registered broker/dealer and member of the National Association of Securities
Dealers, Inc. (NASD). Shares of each Account will be continuously offered and
will be sold by registered representa-tives of CMFS and selected broker-
dealers who have executed selling agreements with CMFS. CMFS bears all the
expenses of providing services pursuant to the Underwriting Agreement
including the payment of all sales commissions for sales of the Company shares
and the printing and distribution of prospectuses to non-shareholders as well
as of any advertising or sales literature. The Company bears the expenses of
registering its shares with the SEC and qualifying them with state regulatory
authorities. CMFS has also agreed to assume certain expenses relating to the
operations of the Accounts as necessary to comply with expense limitations
imposed by certain states in which shares of one or more of the Accounts may
be registered and also as otherwise described in the Accounts' Prospectuses.
The Underwriting Agreement continues in effect for successive one-year
periods, provided that each such continuance is specifically approved (i) by
the vote of a majority of the Directors who are not interested persons, as
such term is defined in the Investment Company Act, of the Company
(non-interested Directors) or parties to the Agreement and (ii) either (a) by
the vote of a majority of the outstanding voting securities of each Account or
(b) by the vote of a majority of the Board of Directors.
The compensation paid by the following Accounts to G.R. Phelps, the prior
distributor of the Accounts' shares, for underwriting fees for the last three
fiscal years was:
<TABLE>
<CAPTION>
1992 1993 1994
---------- ---------- ----------
<S> <C> <C> <C>
Liquid Account 0 0 0
Government Securities Account $ 547,446 $ 365,583 $ 189,799
Income Account $ 237,717 $ 203,149 $ 127,640
Total Return Account $1,101,367 $1,790,711 $1,671,181
Growth Account $ 244,985 $ 416,056 $ 513,544
<FN>
Each of the LifeSpan Accounts commenced operations in fiscal 1995 and
therefore paid no underwriting fees during the periods listed above.
</TABLE>
CMFS's principal business address is at Ten State House Square, Hartford,
Connecticut 06103 and its mailing address is at 140 Garden Street, Hartford,
Connecticut 06154. CMFS was organized as a limited liability company in
Connecticut on November 10, 1994, and is a direct subsidiary of CML.
DISTRIBUTION FINANCING PLANS
The Company on behalf of each Account has adopted plans of distribution
designed to meet the requirements of Rule 12b-1 (the Rule) under the
Investment Company Act and the requirements of the revised sales charge rule
of the NASD with respect to the Class A shares (the Class A Plan) and a plan
of distribution with respect to the Class B shares (the Class B Plan) and a
plan of distribution with respect to the Liquid Account (the Liquid Account
Plan and, collectively with the Class A Plan and the Class B Plan, the Plans).
CLASS A PLAN
Pursuant to the Class A Plan, an Account may reimburse CMFS for its
expenditures in financing any activity primarily intended to result in the
sale of Account shares. Certain categories of such expenditures have been
approved by the Board of Directors and are set forth in the Prospectuses. See
"Breakdown of Expenses -- Distribution Plans" in the Prospectuses. The
expenses of an Account pursuant to the Class A Plan are accrued on a fiscal
year basis and may not exceed, with respect to the Class A shares of each
Account, the annual rate of 0.25% of the Account's average annual net assets
attributable to Class A. No Class A Plan was in effect during the most
recently completed fiscal year with respect to the Accounts.
CLASS B PLAN
The Class B Plan for each Account provides that each Account shall pay
CMFS, as the Account's distributor for its Class B shares, a daily
distribution fee equal on an annual basis to 0.75% of the Account's average
daily net assets attributable to Class B shares and will pay CMFS a service
fee equal to 0.25% of the Account's average daily net assets attributable to
Class B shares (which CMFS will in turn pay to securities dealers which enter
into a sales agreement with CMFS at a rate of up to 0.25% of the Account's
average daily net assets attributable to Class B shares owned by investors for
whom that securities dealer is the holder or dealer of record). This service
fee is intended to be in consideration of personal services and/or account
maintenance services rendered by the dealer with respect to Class B shares.
CMFS will advance to dealers the first- year service fee at a rate equal to
0.25% of the amount invested. As compensation for such advance, CMFS may
retain the service fee paid by an Account with respect to such shares for the
first year after purchase. Dealers will become eligible for additional
service fees with respect to such shares commencing in the thirteenth month
following purchase. Dealers may from time to time be required to meet certain
other criteria in order to receive service fees. CMFS or its affiliates are
entitled to retain all service fees payable under the Class B Plan for which
there is no dealer of record or for which qualification standards have not
been met as partial consideration for personal services and/or account
maintenance services performed by CMFS or its affiliates for shareholder
accounts.
The purpose of distribution payments to CMFS under the Class B Plan is to
compensate CMFS for its distribution services to the Account. CMFS pays
commissions to dealers as well as expenses of printing prospectuses and
reports used for sales purposes, expenses with respect to the preparation and
printing of sales literature and other distribution related expenses,
including without limitation, the cost necessary to provide
distribution-related services, or personnel, travel office expenses and
equipment. The Class B Plan also provides that CMFS will receive all CDSC's
attributable to Class B shares. (See "Distribution Plans" in the
Prospectuses.)
LIQUID ACCOUNT PLAN
Under the Liquid Account Plan, the amount of compensation paid by the
Liquid Account for expenses shall not exceed 0.10% of the average daily net
assets of the Account, provided, however, that the Liquid Account will make no
payment with respect to a particular year if the Liquid Account's aggregate
expenses for that year (including payments made to CMFS pursuant to the Liquid
Account Plan, but excluding interest, taxes, brokerage commissions, and
extraordinary expenses) exceed 1.0% of the value of the Liquid Account's
aggregate daily net assets.
GENERAL
In accordance with the terms of the Plans, CMFS provides to each Account,
for review by the Board of Directors, a quarterly written report of the
amounts expended under the respective Plans and the purpose for which such
expenditures were made. In the Board of Directors' quarterly review of the
Plans, they will consider the continued appropriateness and the level of
reimbursement or compensation the Plans provide.
The Plans were adopted by a majority vote of the Board of Directors,
including all of the Directors who are not, and were not at the time they
voted, interested persons of the Company, as defined in the Investment Company
Act (none of whom had or have any direct or indirect financial interest in the
operation of the Plans), cast in person at a meeting called for the purpose of
voting on the Plans. In approving the Plans, the Directors identified and
considered a number of potential benefits which the Plans may provide. The
Board of Directors believes that there is a reasonable likelihood that the
Plans will benefit each Account and its current and future shareholders.
Under their terms, the Plans remain in effect from year to year provided such
continuance is approved annually by vote of the Directors in the manner
described above. The Plans may not be amended to increase materially the
annual percentage limitation of average net assets which may be spent for the
services described therein without approval of the shareholders of the Account
affected thereby, and material amendments of the Plans must also be approved
by the Board of Directors in the manner described above. A Plan may be
terminated at any time, without payment of any penalty, by vote of the
majority of the Directors who are not interested persons of the Company and
have no direct or indirect financial interest in the operations of the Plan,
or by a vote of a "majority of the outstanding voting securities" (as defined
in the Investment Company Act) affected thereby. A Plan will automatically
terminate in the event of its assignment (as defined in the Investment Company
Act).
During the fiscal year ended December 31, 1994, the Liquid Account made
no payments to G.R. Phelps under its Plan as a result of G.R. Phelps's
agreement not to impose such expenses to which it would otherwise be entitled.
During this period, no Class A Plans were in effect for the other Accounts
and no Class B shares were outstanding.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Company has no obligation to deal with any dealer or group of dealers
in the execution of transactions in portfolio securities. Subject to any
policy established by the Board of Directors, the Manager and the Subadvisers
(if applicable) are primarily responsible for the investment decisions of each
Account and the placing of its portfolio transactions. In placing orders, it
is the policy of each Account to obtain the most favorable net results, taking
into account various factors, including price, dealer spread or commission, if
any, size of the transaction and difficulty of execution. While the Manager
and the Subadvisers generally seek reasonably competitive spreads or
commissions, the Accounts will not necessarily be paying the lowest spread or
commission available. The Manager and the Subadvisers may direct brokerage
transactions to broker/dealers who also sell shares of the Company and the
sale of shares of the Company may be taken into account by the Manager and the
Subadvisers when allocating brokerage transactions.
The Manager and the Subadvisers will generally deal directly with the
dealers who make a market in the securities involved (unless better prices and
execution are available elsewhere) if the securities are traded primarily in
the over-the-counter market. Such dealers usually act as principals for their
own account. On occasion, securities may be purchased directly from the
issuer. Bonds and money market securities are generally traded on a net basis
and do not normally involve either brokerage commissions or transfer taxes.
Portfolio securities in the Liquid Account normally are purchased directly
from, or sold directly to, the issuer, an underwriter or market maker for the
securities. There usually will be no brokerage commissions paid by the Liquid
Account for such purchases or sales and, in 1992, 1993 and 1994, no such
commissions were paid. Similarly, no brokerage commissions were paid by the
Government Securities Account or the Income Account during those three years.
Each of the LifeSpan Accounts commenced operations in fiscal 1995, and
accordingly paid no brokerage commissions during the last three years.
Brokerage commissions for the most recent three year period for the
Growth Account and the Total Return Account were as follows:
<TABLE>
<CAPTION>
1992 1993 1994
------------ ------------ ------------
Brokerage Brokerage Brokerage
<S> <C> <C> <C>
Account Commissions Commissions Commissions
- -------------------- ------------ ------------ ------------
Growth Account $ 201,111 $ 187,654 $ 249,665
Total Return Account $ 277,519 $ 297,403 $ 379,734
</TABLE>
While the Manager and the Subadvisers seek to obtain the most favorable
net results in effecting transactions in an Account's portfolio securities,
dealers who provide supplemental investment research to the Manager or a
Subadviser may receive orders for transactions from the Manager or the
relevant Subadviser. Such supplemental research services ordinarily consist
of assessments and analyses of the business or prospects of a company,
industry, or economic sector. If, in the judgment of the Manager or the
corresponding Subadviser, an Account will be benefited by such supplemental
research services, the Manager and the corresponding Subadviser are authorized
to pay spreads or commissions to brokers or dealers furnishing such services
which are in excess of spreads or commissions which another broker or dealer
may charge for the same transaction. Information so received will be in
addition to and not in lieu of the services required to be performed by the
Manager and the corresponding Subadviser under the investment advisory
agreement or the sub-investment advisory agreement. The expenses of the
Manager and the Subadvisers will not necessarily be reduced as a result of the
receipt of such supplemental information. The Manager and the Subadvisers may
use such supplemental research in providing investment advice to portfolios
other than those for which the transactions are made. Similarly, the Accounts
may benefit from such research obtained by the Manager and the Subadvisers for
portfolio transactions for other clients.
Investment decisions for the Accounts will be made independently from
those of any other clients that may be or become managed by the Manager, any
Subadviser or their affiliates. If, however, accounts managed by the Manager
or any Subadviser are simultaneously engaged in the purchase of the same
security, then, pursuant to the authorization of the Company's Board of
Directors, available securities may be allocated to each account and may be
averaged as to price in whatever manner the Manager or the corresponding
Subadviser deems to be fair. In some cases, this system might adversely
affect the price paid by an Account (for example, during periods of rapidly
rising or falling interest rates) or limit the size of the position obtainable
for an Account (for example, in the case of a small issue).
Scudder, or its affiliate, Scudder Investor Services Inc. ("SIS"), shall
arrange for the placing of all orders for the purchase and sale of securities
for the international Component of Capital Appreciation and Balanced Account
with brokers or dealers selected by SIS, provided that neither Scudder nor SIS
shall be responsible for payment of brokerage commissions. In the selection
of such brokers or dealers and the placing of such orders, SIS is directed at
all times to seek for the international Component of Capital Appreciation
Account and Balanced Account the best execution available. Neither Scudder
nor any affiliate of Scudder will act as principal or receive directly or
indirectly any compensation in connection with the purchase or sale of
investment securities by the international Components of Capital Appreciation
Account and Balanced Account, other than compensation provided for in the
Subadvisory Investment Agreements with Scudder, and such brokerage commissions
as are permitted by the Investment Company Act. If and to the extent
authorized to act as broker in the relevant jurisdiction, Scudder or any of
its affiliates may act as broker for the international Components of Capital
Appreciation Account and Balanced Account, in the purchase and sale of
securities. Scudder agrees that all transactions effected through Scudder or
brokers affiliated with Scudder will be effected in compliance with Section
17(e) of the Investment Company Act and written procedures established from
time to time by the Board of Directors of the Company pursuant to Rule 17e- 1
under the Investment Company Act. (SIS does not receive any compensation for
performing this service).
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of each Account is determined by State
Street Bank and Trust Company (State Street) (as dividend paying agent and
custodian for the Accounts) in the manner described under "Your
Account--Transaction Details" in the Accounts' Prospectuses. The Accounts
will be closed for business and will not price their shares on the following
business holi-days: New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Securities held by each Account other than Liquid Account will be valued as
follows: portfolio securities which are traded on stock exchanges are valued
at the last sale price on the principal exchange as of the close of business
on the day the securities are being valued, or, lacking any sales, at the last
bid price. Securities traded in the over-the-counter market and included in
the National Market System are valued at the most recent bid price which may
be based on valuations furnished by a pricing service or from independent
securities dealers. Otherwise, over-the-counter securities are valued at the
mean between the bid and asked prices or yield equivalent as obtained from one
or more dealers that make markets in the securities. Portfolio securities
which are traded both in the over-the-counter market and on an exchange are
valued according to the broadest and most representative market, and it is
expected that for debt securities this ordinarily will be the over-the-counter
market. Securities with remaining maturities of less than 60 days are valued
at amortized cost, which approximates market value. Securities and assets for
which market quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the Board of Directors,
including valuations furnished by a pricing service retained by the Custodian.
The net asset value per share of the Liquid Account is determined by
using the amortized cost method of valuing its portfolio instruments
(including master demand notes). Under the amortized cost method of
valuation, an instrument is valued at cost and the interest payable at
maturity upon the instrument is accrued as income, on a daily basis, over the
remaining life of the instrument. Neither the amount of daily income nor the
net asset value is affected by unrealized appreciation or depreciation of the
portfolio's investments. In periods of declining interest rates, the
indicated daily yield on shares of the portfolio computed using amortized cost
may tend to be higher than a similar computation made using a method of
valuation based upon market prices and estimates. In periods of rising
interest rates, the indicated daily yield on shares of the portfolio computed
using amortized cost may tend to be lower than a similar computation made
using a method of valuation based upon market prices and estimates.
The amortized cost method of valuation permits the Liquid Account to
maintain a stable $1.00 net asset value per share. The Company's Board of
Directors periodically reviews the extent of any deviation from the $1.00 per
share value that would occur if a method of valuation based on market prices
and estimates were used. In the event such a deviation would exceed one-half
of one percent, the Board of Directors will promptly consider any action that
reasonably should be initiated to eliminate or reduce material dilution or
other unfair results to shareholders. Such action may include selling
portfolio securities prior to maturity, not declaring earned income dividends,
valuing portfolio securities on the basis of current market prices, if
available, or, if not available, at fair market value as determined in good
faith by the Board of Directors, and (considered highly unlikely by management
of the Company) redemption of shares in kind (i.e., portfolio securities).
An Account's maximum offering price per Class A share is determined by
adding the maximum sales charge to the net asset value per share. Class B
shares and Liquid Account shares are offered at net asset value without the
imposition of a sales charge.
PURCHASE AND REDEMPTION OF SHARES
For information regarding the purchase of Account shares, see "Your
Account--How to Buy Shares" in the Accounts' Prospectuses.
For a description of how a shareholder may have an Account redeem his/her
shares, or how he/she may sell shares, see "Your Account- - How to Sell
Shares" in the Accounts' Prospectuses.
RIGHTS OF ACCUMULATION. Each Account and each of the other mutual funds
of the Company offer to all qualifying investors Rights of Accumulation under
which investors are permitted to purchase Class A shares of other Accounts of
the Company at the offering price applicable to the total of (a) the dollar
amount then being purchased plus (b) an amount equal to the then current net
asset value of the purchaser's holdings of Class A shares of other Accounts of
the Company. Acceptance of the purchase order is subject to confirmation of
qualification. The rights of accumulation may be amended or terminated at any
time as to subsequent purchases.
STATEMENT OF INTENTION. Any person may qualify for a reduced sales
charge on purchases of Class A shares made within a thirteen-month period
pursuant to a Statement of Intention (SOI). Class A shares acquired through
the reinvestment of distributions do not constitute purchases for purposes of
the SOI. A Class A shareholder may include, as an accumulation credit towards
the completion of such SOI, the value of all Class A shares of all Accounts of
the Company owned by the shareholder. Such value is determined based on the
public offering price on the date of the SOI. During the term of a SOI,
National Financial Data Services ("NFDS"), the Company's transfer agent, will
hold shares in escrow to secure payment of the higher sales charge applicable
for shares actually purchased if the indicated amount on the SOI is not
purchased. Dividends and capital gains will be paid on all escrowed shares
and these shares will be released when the amount indicated on the SOI has
been purchased. An SOI does not obligate the investor to buy or the Company
to sell the indicated amount of the SOI. If a Class A shareholder exceeds the
specified amount of the SOI and reaches an amount which would qualify for a
further quantity discount, a retroactive price adjustment will be made at the
time of the expiration of the SOI. The resulting difference in offering price
will purchase additional Class A shares for the shareholder's account at the
applicable offering price. If the specified amount of the SOI is not
purchased, the shareholder shall remit to NFDS an amount equal to the
difference between the sales charge paid and the sales charge that would have
been paid had the aggregate purchases been made at a single time. If the
Class A shareholder does not within twenty days after a written request by
NFDS pay such difference in sales charge, NFDS will redeem an appropriate
number of escrowed shares in order to realize such difference. Additional
information about the terms of the Statement of Intention are available from
your registered representative or from NFDS at 1- 800- 322- CMIA.
SYSTEMATIC WITHDRAWAL PLAN. The Systematic Withdrawal Plan ("SWP") is
designed to provide a convenient method of receiving fixed payments at regular
intervals from Class A shares and Liquid Account shares not subject to a CDSC
only (except as noted below) of an Account deposited by the applicant under
this SWP. The applicant must deposit or purchase for deposit shares of the
Account having a total value of not less than $10,000. Periodic checks of $50
or more will be sent to the applicant, or any person designated by him,
monthly or quarterly. SWP's for Class B shares of an Account and Liquid
Account shares subject to a CDSC are permitted only for payments of required
distributions from retirement plan accounts for a shareholder who has attained
the age of 70. The CDSC will be waived with respect to such redemptions but
only if such redemptions are limited to no more than 12% of the original value
of the Account.
Any income dividends or capital gains distributions on shares under the
SWP will be credited to the SWP account on the payment date in full and
fractional shares at the net asset value per share in effect on the record
date.
SWP payments are made from the proceeds of the redemption of shares
deposited in a SWP account. Redemptions are potentially taxable transactions
to shareholders. To the extent that such redemptions for periodic withdrawals
exceed dividend income reinvested in the SWP account, such redemptions will
reduce and may ultimately exhaust the number of shares deposited in the SWP
account. In addition, the amounts received by a shareholder cannot be
considered as an actual yield or income on his or her investment because part
of such payments may be a return of his or her capital.
The SWP may be terminated at any time (1) by written notice to the
Account or from the Account to the shareholder; (2) upon receipt by the
Account of appropriate evidence of the shareholder's death; or (3) when all
shares under the SWP have been redeemed. The fees of the Account for
maintaining SWPs are paid by the Account.
Special Redemptions. Although it would not normally do so, each Account
has the right to pay the redemption price of shares of the Account in whole or
in part in portfolio securities as prescribed by the Directors. When the
shareholder sells portfolio securities received in this fashion, he would
incur a brokerage charge. Any such securities would be valued for the
purposes of making such payment at the same value as used in determining net
asset value. The Accounts have elected to be governed by Rule 18f-1 under the
Investment Company Act, pursuant to which each Account is obligated to redeem
shares solely in cash up to the lesser of $250,000 of 1% of the net asset
value of the applicable Account during any 90 day period for any one account.
INVESTMENT PERFORMANCE
Each Account's average annual total return quotations and yield
quotations as they may appear in the Prospectuses, this SAI or in advertising
are calculated by standard methods prescribed by the SEC.
LIQUID ACCOUNT
In accordance with regulations prescribed by the SEC, the Company is
required to compute the Liquid Account's current annualized yield for a
seven-day period in a manner which does not take into consideration any
realized or unrealized gains or losses on its portfolio securities. This
current annualized yield is computed by determining the net change (exclusive
of realized gains and losses on the sale of securities and unrealized
appreciation and depreciation) in the value of a hypothetical account having a
balance of one share of the Liquid Account at the beginning of such seven-day
period, dividing such net change in account value by the value of the account
at the beginning of the period to determine the base period return and
annualizing this quotient on a 365- day basis.
The SEC also permits the Company to disclose the effective yield of the
Liquid Account for the same seven-day period, determined on a compounded
basis. The effective yield is calculated by compounding the unannualized base
period return by adding one to the base period return, raising the sum to a
power equal to 365 divided by 7, and subtracting one from the result.
For the seven day period ending June 30, 1995, the Liquid Account's
annualized yield was 5.11%. For the same period, the effective yield was
5.24%.
The yield on amounts held in the Liquid Account normally will fluctuate
on a daily basis. Therefore, the disclosed yield for any given past period is
not an indication or representation of future yields or rates of return. The
Liquid Account's actual yield is affected by changes in interest rates on
money market securities, average portfolio maturity of the Liquid Account, the
types and quality of portfolio securities held by the Liquid Account, and its
operating expenses.
OTHER ACCOUNTS
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN QUOTATIONS. Average annual
total return quotations for Class A and Class B shares are computed by finding
the average annual compounded rates of return that would cause a hypothetical
investment made on the first day of a designated period to equal the ending
redeemable value of such hypothetical investment on the last day of the
designated period in accordance with the following formula:
<TABLE>
<CAPTION>
P(1+T) n = ERV
<S> <C> <C>
Where: P = a hypothetical initial payment of $1,000, less the
maximum sales load applicable to an Account
T = average annual total return
n = number of years
ERV = ending redeemable value of the hypothetical $1,000
initial payment made at the beginning of the
designated period (or fractional portion thereof)
</TABLE>
The computation above assumes that all dividends and distributions made by an
Account are reinvested at net asset value during the designated period. The
average annual total return quotation is determined to the nearest 1/100 of
1%.
One of the primary methods used to measure perform-ance is "total
return." "Total return" will normally represent the percentage change in
value of a class of an Account, or of a hypothetical investment in a class of
an Account, over any period up to the lifetime of the class. Unless otherwise
indicated, total return calculations will assume the deduction of the maximum
sales charge (5.00% for the Growth Account, the Total Return Account and each
of the LifeSpan Accounts, 4.00% for the Government Securities Account and the
Income Account) and usually assume the reinvest-ment of all dividends and
capital gains distributions and will be expressed as a percentage increase or
decrease from an initial value, for the entire period or for one or more
specified periods within the entire period. Total return calculations that do
not reflect the reduction of sales charges will be higher than those that do
reflect such charges. All non-standardized performance will be advertised
only if the standard performance data for the same period, as well as for the
required periods, is also presented.
Total return percentages for periods longer than one year will usually be
accompanied by total return percentages for each year within the period and/or
by the average annual compounded total return for the period. The income and
capital components of a given return may be separated and portrayed in a
variety of ways in order to illustrate their relative significance.
Performance may also be portrayed in terms of cash or investment values,
without percentages. Past performance cannot guarantee any particular future
result. In determining the average annual total return (calculated as
provided above), recurring fees, if any, that are charged to all shareholder
accounts are taken into consideration. For any account fees that vary with
the size of the account, the account fee used for purposes of the above
computation is assumed to be the fee that would be charged to the mean
account size of a class of the Account.
The charts below set forth certain performance information for the Class
A shares of the Government Securities, Income, Total Return and Growth
Accounts as of June 30, 1995 and Capital Appreciation, Balanced, and
Diversified Income Accounts as of August 31, 1995, adjusted to reflect the
maximum sales charge (5.00% for the Growth, Total Return, Capital
Appreciation, Balanced and Diversified Income Accounts and 4.00% for the
Government Securities Account and the Income Account) and the account fees of
the Class A shares. Total return percentages do not include the effect of the
Rule 12b-1 fees to which the Class A shares of Total Return and Growth
Accounts will be subject in 1995. Past performance of the Class A shares is
no guarantee and is not necessarily indicative of future performance of the
Class A shares. The actual annual returns for Class A shares of an Account
may vary significantly from the past and future performance of Class A shares
of the Account. Investment returns and the value of the Class A shares of the
Accounts will fluctuate in response to market and economic conditions as well
as other factors and shares, when redeemed, may be worth more or less than
their original cost. Total returns are based on capital changes plus
reinvestment of all distributions for the time periods noted in the charts
below. Total return of the Class A shares of the Income Account would have
been lower without the expense limitation effected by the Manager.
Value of a $1,000 Investment in the Class A shares of the Government
Securities Account:
<TABLE>
<CAPTION>
Total Return Total Return
Annualized Annualized
<S> <C> <C> <C>
Investment Investment (including 4% (excluding 4%
Period Date sales charge) sales charge)
Life of Account 9/16/85 9.43% 8.98%
to 6/30/95
5 Years Ended 6/30/90 8.62% 7.73%
6/30/95
1 Year Ended 6/30/94 11.65% 7.18%
6/30/95
Value of a $1,000 Investment in the Class A shares of the Income Account:
</TABLE>
<TABLE>
<CAPTION>
Total Return Total Return
Annualized Annualized
<S> <C> <C> <C>
Investment Investment (excluding 4% (including 4%
Period Date sales charge) sales charge)
Life of Account 9/16/85* 8.26% 7.81%
to 6/30/95
5 Years Ended 6/30/90 7.48% 6.61%
6/30/95
1 Year Ended 6/30/94 8.06% 3.74%
6/30/95
*Date of Inception
Value of a $1,000 Investment in the Class A shares of the Total Return
Account:
</TABLE>
<TABLE>
<CAPTION>
Total Return Total Return
Annualized Annualized
<S> <C> <C> <C>
Investment Investment (excluding 5% (including 5%
Period Date sales charge) sales charge)
Life of Account 9/16/85* 12.37% 11.78%
to 6/30/95
5 Years Ended 6/30/95 11.86% 10.72%
6/30/95
1 Year Ended 6/30/94 15.53% 9.75%
6/30/95
*Date of Inception
Value of a $1,000 Investment in the Class A shares of the Growth Account:
</TABLE>
<TABLE>
<CAPTION>
Total Return Total Return
Annualized Annualized
<S> <C> <C> <C>
Investment Investment (excluding 5% (including 5%
Period Date sales charge) sales charge)
Life of Account 9/16/85* 14.66% 14.06%
to 6/30/95
5 Years Ended 6/30/90 14.06% 12.89%
6/30/95
1 Year Ended 6/30/94 22.43% 16.31%
6/30/95
*Date of Inception
Value of a $1,000 Investment in the Class A shares of the Capital
Appreciation Account:
</TABLE>
<TABLE>
<CAPTION>
Total Return Total Return
Annualized Annualized
<S> <C> <C> <C>
Investment Investment (excluding 5% (including 5%
Period Date sales charge) sales charge)
Life of Account 5/1/95* 9.25% 3.78%
to 8/31/95
Value of a $1,000 Investment in the Class A shares of the Balanced
Account:
</TABLE>
<TABLE>
<CAPTION>
Total Return Total Return
Annualized Annualized
<S> <C> <C> <C>
Investment Investment (excluding 5% (including 5%
Period Date sales charge) sales charge)
Life of Account 5/1/95* 9.25% 3.78%
to 8/31/95
Value of a $1,000 Investment in the Class A shares of the Diversified
Income Account:
</TABLE>
<TABLE>
<CAPTION>
Total Return Total Return
Annualized Annualized
<S> <C> <C> <C>
Investment Investment (excluding 5% (including 5%
Period Date sales charge) sales charge)
Life of Account 5/1/95* 9.25% 3.78%
to 8/31/95
No Class B shares of any of the Accounts were outstanding during the
periods.
</TABLE>
Each Account may also publish its distribution rate and/or its effective
distribution rate. An Account's distribution rate is computed by dividing the
most recent monthly distribution per share annualized, by the current net
asset value per share. An Account's effective distribution rate is computed
by dividing the distribution rate by the ratio used to annualize the most
recent monthly distribution and reinvesting the resulting amount for a full
year on the basis of such ratio. The effective distribution rate will be
higher than the distribution rate because of the compounding effect of the
assumed reinvestment. An Account's yield is calculated using a standardized
formula, the income component of which is computed from the yields to maturity
of all debt obligations held by the Account based on prescribed methods (with
all purchases and sales of securities during such period included in the
income calculation on a settlement date basis), whereas the distribution rate
is based on an Account's last monthly distribution. An Account's monthly
distribution tends to be relatively stable and may be more or less than the
amount of net investment income and short- term capital gain actually earned
by the Account during the month (see "Dividends, Capital Gains and Taxes" in
the Accounts' Prospectuses).
Other data that may be advertised or published about each Account include
the average portfolio quality, the average portfolio maturity and the average
portfolio duration.
STANDARDIZED YIELD QUOTATIONS. The yield of a class is computed by
dividing the class's net investment income per share during a base period of
30 days, or one month, by the maximum offering price per share of the class on
the last day of such base period in accordance with the following formula:
YIELD = 2[ (a-b +1 ) 6 -1]
-----------------------------
cd
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Where: a = net investment income earned during the period
attributable to the subject class
b = net expenses accrued for the period attributable to the
subject class
c = the average daily number of shares of the subject class
outstanding during the period that were entitled to
receive dividends
d = the maximum offering price per share of the subject
class on the last day of the period
</TABLE>
Net investment income will be determined in accordance with rules established
by the SEC. The price per share of Class A shares will include the maximum
sales charge (5.00% for the Growth Account, the Total Return Account and each
of the LifeSpan Accounts and 4.00% for the Government Securities Account and
for the Income Account) imposed on purchases of Class A shares which decreases
with the amount of shares purchased.
GENERAL INFORMATION. The following publications and other newspapers and
business and financial publications, may be cited in each Account's
advertising and in shareholder materials which contain articles describing
investment results or other data relative to one or more of the Accounts.
<TABLE>
<CAPTION>
<S> <C>
Broker World Value Line
Across the Board Financial World
American Banker Advertising Age
Best's Review Barron's
Business Month Business Insurance
Changing Times Business Week
Economist Consumer Reports
Forbes Financial Planning
Inc. Fortune
Insurance Forum Institutional Investor
Insurance Week Insurance Sales
Journal of the American Society Journal of Accountancy
of CLU & ChFC Journal of Commerce
Life Insurance Selling Life Association News
Lipper Analytical Services, Inc. Manager's Magazine
MarketFacts Money
National Underwriter Nation's Business
New Choices (formerly 50 Plus) New York Times
Pension World Pensions & Investments
Rough Notes Round the Table
U.S. Banker Wall Street Journal
Working Woman Morningstar, Inc.
Financial Services Week Wiesenberger Investment
Kiplinger's Personal Finance Service
Registered Representative Medical Economics
U.S. News & World Report Investment Advisor
CDA Tillinghast
Financial Times American Agent and Broker
Insurance Product News Insurance Times
LIMRA's Marketfacts Professional Insurance Agents
Investment Dealers Digest Insurance Review Investor's
Business Daily Insurance Advocate Independent
Agent Professional Agent
California Broker Life Times
Hartford Courant New England Business
Entrepreneur Entrepreneurial Woman
USA Today Business Marketing
Adweek Independent Business
Newsweek Time
Success The Standard
The Boston Globe Crain's
The Washington Post United Press International
Associated Press Bloomberg
Reuter's Business News Features
Business Wire Knight-Ridder
Dow Jones News Service Consumer Digest
</TABLE>
From time to time the Company may publish the sales of shares of one or
more of the Accounts on a gross or net basis and for various periods of time,
and compare such sales with sales similarly reported by other investment
companies.
TAXES
Each Account is treated as a separate entity for accounting and tax
purposes. Each Account has qualified and elected or intends to qualify and
elect to be treated as a "regulated investment company" under Subchapter M of
the Internal Revenue Code of 1986, as amended (the "Code"), and intends to
continue to so qualify in the future. As such and by complying with the
applicable provisions of the Code regarding the sources of its income, the
timing of its distributions, and the diversification of its assets, each
Account will not be subject to federal income tax on taxable income (including
net short-term and long-term capital gains) which is distributed to
shareholders at least annually in accordance with the timing requirements of
the Code.
Each Account will be subject to a 4% non-deductible federal excise tax on
certain amounts not distributed (and not treated as having been distributed)
on a timely basis in accordance with annual minimum distribution requirements.
Each Account intends under normal circumstances to avoid liability for such
tax by satisfying such distribution requirements.
Distributions from an Account's current or accumulated earnings and
profits ("E&P"), as computed for federal income tax purposes, will be taxable
as described in the Accounts' prospectuses whether taken in shares or in cash.
Distributions, if any, in excess of E&P will constitute a return of capital,
which will first reduce an investor's tax basis in an Account's shares and
thereafter (after such basis is reduced to zero) will generally give rise to
capital gains. Shareholders electing to receive distributions in the form of
additional shares will have a cost basis for federal income tax purposes in
each share so received equal to the amount of cash they would have received
had they elected to receive the distributions in cash, divided by the number
of shares received.
If an Account acquires stock in certain non-U.S. corporations that
receive at least 75% of their annual gross income from passive sources (such
as interest, dividends, rents, royalties or capital gain) or hold at least 50%
of their assets in investments producing such passive income ("passive foreign
investment companies"), that Account could be subject to federal income tax
and additional interest charges on "excess distributions" received from such
companies or gain from the sale of stock in such companies, even if all income
or gain actually received by the Account is timely distributed to its
shareholders. The Account would not be able to pass through to its
shareholders any credit or deduction for such a tax. Certain elections may,
if available, ameliorate these adverse tax consequences, but any such election
would require the applicable Account to recognize taxable income or gain
without the concurrent receipt of cash. Any Account that is permitted to
acquire stock in foreign corporations may limit and/or manage its holdings in
passive foreign investment companies to minimize its tax liability or maximize
its return from these investments.
Foreign exchange gains and losses realized by an Account in connection
with certain transactions involving foreign currency-denominated debt
securities, certain foreign currency futures and options, foreign currency
forward contracts, foreign currencies, or payables or receivables denominated
in a foreign currency are subject to Section 988 of the Code, which generally
causes such gains and losses to be treated as ordinary income and losses and
may affect the amount, timing and character of distributions to shareholders.
Any such transactions that are not directly related to an Account's investment
in stock or securities, possibly including speculative currency positions or
currency derivatives not used for hedging purposes, may increase the amount of
gain it is deemed to recognize from the sale of certain investments held for
less than three months, which gain is limited under the Code to less than 30%
of its annual gross income, and could under future Treasury regulations
produce income not among the types of "qualifying income" from which the
Account must derive at least 90% of its annual gross income.
Some Accounts may be subject to withholding and other taxes imposed by
foreign countries with respect to their investments in foreign securities.
Tax conventions between certain countries and the U.S. may reduce or eliminate
such taxes. The Accounts anticipate that they generally will not qualify to
pass such foreign taxes and any associated tax deductions or credits through
to their shareholders, who therefore generally will not report such amounts on
their own tax returns.
At the time of an investor's purchase of shares of an Account (other than
Liquid Account), a portion of the purchase price is often attributable to
realized or unrealized appreciation in the Account's portfolio or
undistributed taxable income of the Account. Consequently, subsequent
distributions from such appreciation or income may be taxable to such investor
even if the net asset value of the investor's shares is, as a result of the
distributions, reduced below the investor's cost for such shares, and the
distributions in reality represent a return of a portion of the purchase
price.
Upon a redemption of shares of an Account, other than Liquid Account,
(including by exercise of the exchange privilege) a shareholder may realize a
taxable gain or loss depending upon his basis in his shares. Such gain or
loss will be treated as capital gain or loss if the shares are capital assets
in the shareholder's hands and will be long-term or short-term, depending upon
the shareholder's tax holding period for the shares. A sales charge paid in
purchasing shares of an Account cannot be taken into account for purposes of
determining gain or loss on the redemption or exchange of such shares within
90 days after their purchase to the extent shares of the Account or another
CMIA Account are subsequently acquired without payment of a sales charge
pursuant to the reinvestment or exchange privilege. Such disregarded load
will result in an increase in the shareholder's tax basis in the shares
subsequently acquired. Also, any loss realized on a redemption or exchange
will be disallowed to the extent the shares disposed of are replaced with
shares of the same Account within a period of 61 days beginning 30 days before
and ending 30 days after the shares are disposed of, such as pursuant to an
election to reinvest dividends or capital gain distributions automatically.
In such a case, the basis of the shares acquired will be adjusted to reflect
the disallowed loss. Any loss realized upon the redemption of shares with a
tax holding period of six months or less will be treated as a long-term
capital loss to the extent of any amounts treated as distributions of
long-term capital gain with respect to such shares.
For Federal income tax purposes, each Account is permitted to carry
forward a net capital loss in any year to offset its own capital gains, if
any, during the eight years following the year of the loss. To the extent
subsequent capital gains are offset by such losses, they would not result in
federal income tax liability to the applicable Account and would not be
distributed as such to shareholders.
For purposes of the dividends received deduction available to
corporations, dividends received by an Account, if any, from U.S. domestic
corporations in respect of the stock of such corporations held by the Account,
for federal income tax purposes, for at least 46 days (91 days in the case of
certain preferred stock) and distributed and designated by the Account may be
treated as qualifying dividends. Corporate shareholders must meet the minimum
holding period requirement stated above (46 or 91 days) with respect to their
shares of the applicable Account in order to qualify for the deduction and, if
they borrow to acquire such shares, may be denied a portion of the dividends
received deduction. The entire qualifying dividend, including the otherwise
deductible amount, will be included in determining the excess (if any) of a
corporate shareholder's adjusted current earnings over its alternative minimum
taxable income, which may increase its alternative minimum tax liability.
Additionally, any corporate shareholder should consult its tax adviser
regarding the possibility that its basis in its shares may be reduced, for
federal income tax purposes, by reason of "extraordinary dividends" received
with respect to the shares, for the purpose of computing its gain or loss on
redemption or other disposition of the shares.
Each Account that invests in certain PIKs, zero coupon securities or
certain deferred interest securities (and, in general, any other securities
with original issue discount or with market discount if the Account elects to
include market discount in income currently) must accrue income on such
investments prior to the receipt of the corresponding cash payments. However,
each Account must distribute, at least annually, all or substantially all of
its net income, including such accrued income, to shareholders to qualify as a
regulated investment company under the Code and avoid federal income and
excise taxes. Therefore, an Account may have to dispose of its portfolio
securities under disadvantageous circumstances to generate cash, or may have
to leverage itself by borrowing the cash, to satisfy distribution
requirements.
Investment in debt obligations that are at risk of or in default presents
special tax issues for any Account that may hold such obligations. Tax rules
are not entirely clear about issues such as when the Account may cease to
accrue interest, original issue discount, or market discount, when and to what
extent deductions may be taken for bad debts or worthless securities, how
payments received on obligations in default should be allocated between
principal and income, and whether exchanges of debt obligations in a workout
context are taxable. These and other issues will be addressed by any Account
that may hold such obligations in order to reduce the risk of distributing
insufficient income to preserve its status as a regulated investment company
and seek to avoid becoming subject to federal income or excise tax.
Different tax treatment, including penalties on certain excess
contributions and deferrals, certain pre-retirement and post-retirement
distributions and certain prohibited transactions, is accorded to shareholder
accounts maintained as qualified retirement plans. Shareholders should
consult their tax advisers for more information.
Limitations imposed by the Code on regulated investment companies like
the Accounts may restrict an Account's ability to enter into futures, options,
and forward transactions.
Certain options, futures and forward foreign currency transactions
undertaken by an Account may cause the Account to recognize gains or losses
from marking to market even though its positions have not been sold or
terminated and affect the character as long-term or short-term (or, in the
case of certain currency forwards, options and futures, as ordinary income or
loss) and timing of some capital gains and losses realized by the Account.
Also, certain of an Account's losses on its transactions involving options,
futures or forward contracts and/or offsetting portfolio positions may be
deferred rather than being taken into account currently in calculating the
Account's taxable income. Certain of the applicable tax rules may be modified
if an Account is eligible and chooses to make one or more of certain tax
elections that may be available. These transactions may therefore affect the
amount, timing and character of an Account's distributions to shareholders.
The Accounts will take into account the special tax rules (including
consideration of available elections) applicable to options, futures or
forward contracts in order to minimize any potential adverse tax consequences.
The federal income tax rules applicable to interest rate swaps, caps and
floors are unclear in certain respects, and an Account may be required to
account for these transactions in a manner that, in certain circumstances, may
limit the degree to which it may utilize these transactions.
The foregoing discussion relates solely to U.S. Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts or estates) subject to tax under such law.
The discussion does not address special tax rules applicable to certain
classes of investors, such as tax-exempt entities, insurance companies, and
financial institutions. Dividends, capital gain distributions, and ownership
of or gains realized on the redemption (including an exchange) of the shares
of an Account may also be subject to state and local taxes. Shareholders
should consult their own tax advisers as to the federal, state or local tax
consequences of ownership of shares of, and receipt of distributions from, the
Accounts in their particular circumstances.
Non-U.S. investors not engaged in a U.S. trade or business with which
their investment in an Account is effectively connected will be subject to
U.S. Federal income tax treatment that is different from that described above.
These investors may be subject to nonresident alien withholding tax at the
rate of 30% (or a lower rate under an applicable tax treaty) on amounts
treated as ordinary dividends from an Account and, unless an effective IRS
Form W-8 or authorized substitute is on file, to 31% backup withholding on
certain other payments from the Account. Non-U.S. investors should consult
their tax advisers regarding such treatment and the application of foreign
taxes to an investment in any Account.
STATE AND LOCAL. Each Account may be subject to state or local taxes in
jurisdictions in which such Account may be deemed to be doing business. In
addition, in those states or localities which have income tax laws, the
treatment of such Account and its shareholders under such laws may differ from
their treatment under federal income tax laws, and investment in such Account
may have different tax consequences for shareholders than would direct
investment in such Account's portfolio securities. Shareholders should
consult their own tax advisers concerning these matters.
CUSTODIAN
Portfolio securities of each Account are held pursuant to a Custodian
Agreement between the Manager and State Street, 225 Franklin Street, Boston,
Massachusetts 02110. Under the Custodian Agreement, State Street performs
custody, portfolio and fund accounting services for the Accounts.
TRANSFER AGENT SERVICES
NFDS, P.O. Box 419694, Kansas City, Missouri 64179-0948, is the transfer
agent for each Account. NFDS is an indirect wholly owned subsidiary of State
Street Bank and Trust Company. From May 1, 1994 to December 31, 1994, each
Account paid NFDS an annual fee as a percentage of average net assets accrued
daily as follows: Liquid Account (0.16%); Government Securities Account
(0.08%); Income Account (0.08%); Total Return Account (0.12%); and Growth
Account (0.13%); plus certain out-of-pocket expenses. For the period from
January 1, 1994 to April 30, 1994, each Account paid to Citadel Service
Company, Inc. (the Accounts' transfer agent prior to May 1, 1994) an annual
fee as a percentage of average net assets accrued daily as follows: Liquid
Account (0.10%); Government Securities Account (0.07%); Income Account
(0.06%); Total Return Account (0.10%); and Growth Account (0.10%); plus
certain out-of-pocket expenses.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Arthur Andersen LLP, has been selected as the independent certified
public accountants of the Company to provide audit services and assistance and
consultation with respect to the preparation of filings with the SEC.
OTHER INFORMATION
CML has granted the Company the right to use the name, "Connecticut
Mutual," and has reserved the right to withdraw its consent to the use of such
name by the Company at any time, or to grant the use of such name to any other
company. CML was founded in 1846 and is one of the nation's largest mutual
life insurance companies with nearly 150 years of experience and assets of
$11.5 billion and $105 billion of life insurance in force. CML has over 1.2
million policyholders and offers a broad range of insurance, retirement and
investment products in all 50 states, Puerto Rico and the District of Columbia
through a network of general agents and more than 3,000 career agents and
brokers.
FINANCIAL STATEMENTS
Each of the CMIA Account's audited financial statements as of December
31, 1994, together with the notes thereto and the report of Arthur Andersen
LLP are attached to this SAI. Each of the CMIA Account's unaudited
semi-annual financial statements as of June 30, 1995, together with the notes
thereto are also attached to this SAI. In addition, unaudited financial
statements as of August 31, 1995, together with the notes thereto for each of
the LifeSpan Accounts are attached to this SAI. Each of the attached
unaudited financial statements reflect all adjustments which are, in the
opinion of management, necessary to a fair statement of the results for the
interim periods presented. All such adjustments are of a normal recurring
nature.
<PAGE>
<TABLE>
<S> <C>
SCHEDULE OF INVESTMENTS CONNECTICUT MUTUAL
INVESTMENT ACCOUNTS, INC.
December 31, 1994
</TABLE>
LIQUID ACCOUNT
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY VALUE
<C> <S> <C>
COMMERCIAL PAPER
(94.2% OF NET ASSETS)
American Express Credit Corp.
$ 900,000 5.80%, due 1/5/95 $ 900,000
1,042,000 5.85%, due 1/6/95 1,042,000
Banc One Corp.
2,240,000 5.97%, due 1/18/95 2,233,685
1,000,000 5.75%, due 2/13/95 993,132
Bell Atlantic Financial Services,
Inc.
2,000,000 5.57%, due 1/10/95 1,997,215
1,000,000 5.98%, due 1/25/95 996,013
Cargill, Inc.
1,050,000 5.45%, due 1/26/95 1,046,026
1,100,000 5.50%, due 2/6/95 1,093,950
Cargill Financial Services Corp.
1,000,000 5.05%, due 2/7/95 994,810
Central & South West Corp.
1,000,000 5.80%, due 1/24/95 996,294
500,000 6.17%, due 2/7/95 496,829
1,200,000 6.10%, due 2/14/95 1,191,053
Cincinnati Bell, Inc.
2,600,000 6.10%, due 1/3/95 2,599,119
Corporate Asset Funding Co., Inc.
1,000,000 5.45%, due 1/26/95 996,215
Corporate Receivables Corp.
580,000 5.47%, due 1/9/95 579,295
Dover Corp.
1,000,000 5.90%, due 1/24/95 996,231
1,500,000 5.85%, due 1/31/95 1,492,688
Ford Motor Credit Co.
1,700,000 5.81%, due 2/16/95 1,700,000
545,000 5.81%, due 2/21/95 545,000
1,200,000 5.83%, due 3/13/95 1,200,000
General Electric Capital Corp.
1,250,000 5.06%, due 2/27/95 1,250,000
647,000 6.03%, due 3/2/95 647,000
General Mills, Inc.
1,840,000 6.02%, due 1/4/95 1,839,077
Golden Peanut Co.
1,200,000 5.62%, due 2/3/95 1,193,818
1,000,000 5.63%, due 2/7/95 994,214
800,000 6.22%, due 3/17/95 789,633
International Lease Finance Corp.
500,000 5.00%, due 1/10/95 499,375
1,000,000 5.40%, due 1/12/95 998,350
1,950,000 5.87%, due 3/21/95 1,924,881
Interstate Power Co.
2,000,000 5.92%, due 1/23/95 1,992,764
McGraw-Hill Inc.
1,840,000 5.63%, due 2/2/95 1,830,792
900,000 5.80%, due 2/17/95 893,185
Merrill Lynch & Co., Inc.
900,000 5.60%, due 2/7/95 894,820
1,000,000 5.77%, due 2/15/95 992,788
$ 1,000,000 5.90%, due 2/28/95 $ 990,494
Michigan Consolidated Gas Co.
1,500,000 5.45%, due 1/13/95 1,497,275
1,000,000 5.48%, due 1/13/95 998,173
Morgan (J.P.) & Co., Inc.
1,000,000 6.20%, due 3/1/95 989,839
National Rural Utilities
Cooperative Finance Corp.
1,095,000 5.65%, due 1/3/95 1,094,656
2,075,000 5.95%, due 1/11/95 2,071,571
Norwest Corp.
1,000,000 5.63%, due 1/17/95 997,498
1,230,000 5.78%, due 2/15/95 1,221,113
PHH Corp.
755,000 6.00%, due 1/5/95 754,497
1,600,000 6.05%, due 1/25/95 1,593,547
Philip Morris Companies Inc.
1,100,000 6.05%, due 1/19/95 1,096,673
U.S. Bancorp
1,000,000 5.42%, due 1/12/95 998,344
1,000,000 5.37%, due 1/17/95 997,613
1,085,000 5.50%, due 1/27/95 1,080,690
U S West Communications, Inc.
1,500,000 5.35%, due 1/11/95 1,497,771
1,500,000 5.55%, due 1/23/95 1,494,913
-----------
TOTAL COMMERCIAL PAPER
(COST $60,204,919) 60,204,919
-----------
U.S. AGENCY SHORT-TERM OBLIGATIONS
(5.8% OF NET ASSETS)
Federal Farm Credit Banks
1,000,000 5.55%, due 2/6/95 994,450
Federal National Mortgage Assn.
750,000 5.73%, due 2/28/95 743,076
Student Loan Marketing Assn.
2,000,000 5.90%, due 5/14/96 2,000,000
-----------
TOTAL U. S. AGENCY SHORT-TERM
OBLIGATIONS (COST $3,737,526) 3,737,526
-----------
TOTAL INVESTMENTS
(COST $63,942,445) $63,942,445
-----------
-----------
</TABLE>
GOVERNMENT SECURITIES ACCOUNT
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY VALUE
<C> <S> <C>
U.S. GOVERNMENT & AGENCY
LONG-TERM OBLIGATIONS
(97.9% OF NET ASSETS)
Federal National Mortgage Assn.
$ 1,388,913 7.00%, 2019 $ 1,333,787
Government National Mortgage Assn.
107,126 11.50%, 1998 116,030
60,135 9.50%, 2001 62,202
53,621 7.25%, 2005 52,507
349,172 7.50%, 2006 338,459
</TABLE>
4 The accompanying notes are an integral part of these financial statements.
<PAGE>
GOVERNMENT SECURITIES ACCOUNT (cont'd)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY VALUE
<C> <S> <C>
$ 211,624 8.00%, 2006 $ 210,221
480,723 7.50%, 2007 464,062
558,997 8.00%, 2007 546,593
193,430 8.25%, 2008 191,938
91,430 9.00%, 2008 93,258
618,933 9.00%, 2009 631,312
10,208 13.50%, 2010 11,816
123,467 13.00%, 2011 141,679
4,378 13.50%, 2011 5,068
66,694 14.00%, 2011 77,865
60,289 15.00%, 2011 71,443
3,798 12.00%, 2012 4,221
109,397 13.50%, 2012 125,857
192,524 15.00%, 2012 228,141
111,335 11.50%, 2013 122,330
45,728 13.00%, 2013 52,472
218,165 13.50%, 2013 252,526
90,819 12.00%, 2014 100,922
300,618 12.50%, 2014 337,068
141,917 13.00%, 2014 162,850
1,421 13.50%, 2014 1,645
583,317 8.50%, 2016 578,418
457,298 6.75%, 2017 454,298
447,698 10.00%, 2019 470,499
105,652 12.50%, 2019 118,463
2,205,499 6.50%, 2023 1,911,197
8,673,606 7.00%, 2023 7,784,561
3,652,606 7.00%, 2024 3,278,214
U.S. Treasury Bonds
2,250,000 11.75%, 2010 2,832,547
11,000,000 9.25%, 2016 12,376,760
U.S. Treasury Notes
2,000,000 9.25%, 1996 2,038,120
6,000,000 9.375%, 1996 6,133,140
4,500,000 8.50%, 1997 4,567,500
3,500,000 8.875%, 1997 3,592,435
6,750,000 9.25%, 1998 7,043,220
-----------
TOTAL U.S. GOVERNMENT & AGENCY
LONG-TERM OBLIGATIONS
(COST $62,872,182) 58,915,644
-----------
REPURCHASE AGREEMENTS*
(.3% OF NET ASSETS)
State Street Bank & Trust Co.
165,000 5.15%, due 1/3/95 (COST $165,000) 165,000
-----------
TOTAL INVESTMENTS
(COST $63,037,182) $59,080,644
-----------
-----------
</TABLE>
INCOME ACCOUNT
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY VALUE
<C> <S> <C>
CORPORATE BONDS
(82.4% OF NET ASSETS)
AEROSPACE (1.6%)
British Aerospace Finance Inc.
$ 500,000 8.00%, 1997 $ 495,312
Coltec Industries Inc.
250,000 9.75%, 2000 246,250
-----------
741,562
-----------
AIRLINES (1.1%)
Southwest Airlines Co.
500,000 9.25%, 1998 510,795
-----------
AUTO & AUTO RELATED (2.9%)
Burmah Castrol Capital, Ltd.
500,000 7.00%, 1997 484,650
Chrysler Corp.
500,000 13.00%, 1997 504,720
Ford Motor Co.
404,047 6.27%, 2000 369,485
-----------
1,358,855
-----------
BANKING (13.3%)
Banco Ganadero S.A.
400,000 9.75%, 1999 388,000
Bank of Boston Corp.
400,000 10.30%, 2000 406,272
BankAmerica Corp.
500,000 6.00%, 1997 474,125
Barnett Banks, Inc.
515,000 8.50%, 1999 512,101
Chemical Banking Corp.
500,000 6.625%, 1998 476,535
First Fidelity Bancorporation
500,000 8.50%, 1998 500,590
First Union Corp.
500,000 6.75%, 1998 476,690
First USA Bank of Delaware
500,000 5.05%, 1995 487,240
250,000 5.35%, 1996 234,484
Home Savings of America
500,000 10.50%, 1997 513,550
Mellon Financial Co.
500,000 6.50%, 1997 478,050
Security Pacific Corp.
500,000 7.75%, 1996 497,290
Shawmut National Corp.
750,000 8.875%, 1996 754,995
-----------
6,199,922
-----------
BROKER/DEALER (1.3%)
Merrill Lynch & Co., Inc.
600,000 8.25%, 1996 599,182
-----------
</TABLE>
*Repurchase agreements are fully collateralized by U.S. Government obligations.
5
<PAGE>
INCOME ACCOUNT (cont'd)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY VALUE
<C> <S> <C>
BUILDING MATERIALS & CONSTRUCTION
(.5%)
Cemex
$ 250,000 8.875%, 1998 $ 239,854
-----------
CHEMICALS (2.6%)
Grace (W.R.) & Co.
500,000 7.40%, 2000 473,650
Lyondell Petrochemical Co.
750,000 8.25%, 1997 742,102
-----------
1,215,752
-----------
CONGLOMERATES (.8%)
Tenneco, Inc.
375,000 10.00%, 1998 391,620
-----------
DRUGS & COSMETICS (.8%)
Roche Holdings Inc.
500,000 2.75%, 2000 384,687
-----------
ELECTRIC UTILITIES (2.6%)
Consumers Power Co.
250,000 8.75%, 1998 250,040
Long Island Lighting Co.
500,000 8.75%, 1996 501,765
Midwest Power Systems Inc.
500,000 6.25%, 1998 471,880
-----------
1,223,685
-----------
ELECTRICAL & ELECTRONIC EQUIPMENT
(1.6%)
Electrolux
500,000 7.75%, 1997 491,250
Westinghouse Electric Corp.
250,000 7.75%, 1996 247,745
-----------
738,995
-----------
FINANCIAL SERVICES (14.6%)
Allied Lyons
500,000 6.50%, 1997 478,750
American General Finance Corp.
500,000 8.50%, 1998 501,500
Aristar, Inc.
500,000 6.25%, 1996 486,075
Avco Financial Services, Inc.
500,000 5.875%, 1997 470,745
Banque Nationale de Paris
205,000 9.875%, 1998 213,700
Chrysler Financial Corp.
500,000 5.08%, 1997 470,280
Countrywide Funding Corp.
500,000 6.57%, 1997 479,960
Discover Credit Corp.
250,000 8.73%, 1996 251,958
Fleet Mortgage Group, Inc.
500,000 6.125%, 1997 474,285
General Motors Acceptance Corp.
1,000,000 5.65%, 1997 925,080
Green Tree Financial Corp.
250,000 7.70%, 2019 243,125
Household Financial Corporation
Ltd.
$ 250,000 6.00%, 1998 $ 232,075
Household International
Netherlands B.V.
250,000 6.00%, 1999 229,015
Nacional Financier
400,000 10.625%, 2001 362,500
Norwest Financial, Inc.
500,000 6.50%, 1997 478,700
Transamerica Finance Group, Inc.
500,000 7.42%, 1998 487,435
-----------
6,785,183
-----------
FOOD & BEVERAGES (3.3%)
ConAgra, Inc.
500,000 9.75%, 1997 514,865
Grand Metropolitan Investment
Corp.
500,000 8.125%, 1996 500,935
Seagram Company Ltd.
500,000 9.75%, 2000 506,945
-----------
1,522,745
-----------
INSURANCE (.8%)
SunAmerica Inc.
370,000 9.00%, 1999 373,522
-----------
LEASING (2.1%)
Penske Truck Leasing Co.
500,000 7.75%, 1999 483,630
U.S. Leasing International Inc.
500,000 7.00%, 1997 482,365
-----------
965,995
-----------
LODGING & RESTAURANTS (.4%)
Host Marriott Hospitality Inc.
206,000 9.125%, 2000 203,168
-----------
MACHINERY & EQUIPMENT (1.0%)
Caterpillar Financial Services
Corp.
500,000 6.85%, 1997 481,610
-----------
MORTGAGE-BACKED SECURITIES (5.6%)
American Southwest Financial Corp.
1,559,244 8.25%, 2016 1,493,459
GE Capital Mortgage Services, Inc.
161,584 6.50%, 2024 154,767
Housing Securities, Inc.
250,000 7.25%, 2012 244,141
Ryland Mortgage Securities Corp.
444,482 8.339%, 2030 423,369
Salomon Brothers, Inc.
296,291 0.00%, 2017 199,810
200,220 12.50%, 2017 79,774
-----------
2,595,320
-----------
OIL & GAS (10.6%)
Arkla, Inc.
505,000 9.875%, 1997 510,050
BP America Inc.
500,000 8.875%, 1997 507,430
</TABLE>
6 The accompanying notes are an integral part of these financial statements.
<PAGE>
INCOME ACCOUNT (cont'd)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY VALUE
<C> <S> <C>
Bridas Corp.
$ 250,000 12.50%, 1999 $ 241,250
Coastal Corp.
500,000 11.125%, 1998 507,500
500,000 8.75%, 1999 494,410
El Paso Natural Gas Co.
250,000 6.90%, 1997 243,333
Empresa Columbia de Petroleos
250,000 7.25%, 1998 230,000
Florida Gas Transmission Co.
500,000 7.75%, 1997 491,585
Petroleos Mexicanos
250,000 8.25%, 1998 233,125
Occidental Petroleum Corp.
500,000 6.43%, 1997 475,735
Phillips Petroleum Co.
500,000 7.53%, 1998 490,652
Transco Energy Co.
350,000 11.25%, 1999 372,312
Transcontinental Gas Pipe Line
Corp.
150,000 9.00%, 1996 151,125
-----------
4,948,507
-----------
PAPER & FOREST PRODUCTS (1.8%)
Celulosa Arauco y Constitucion
S.A.
350,000 7.25%, 1998 332,063
Georgia-Pacific Corp.
500,000 9.85%, 1997 513,880
-----------
845,943
-----------
PRINTING & PUBLISHING (2.1%)
Reed Publishing USA Inc.
500,000 7.20%, 1997 492,740
Time Warner Inc.
500,000 7.45%, 1998 476,565
-----------
969,305
-----------
RETAIL TRADE (2.1%)
Kmart Corp.
500,000 8.61%, 1997 503,795
Sears, Roebuck & Co.
500,000 8.39%, 1999 496,705
-----------
1,000,500
-----------
SAVINGS & LOAN (1.1%)
Golden West Financial Corp.
500,000 8.625%, 1998 502,650
-----------
TELECOMMUNICATIONS (1.3%)
Tele-Communications, Inc.
615,000 5.28%, 1996 587,811
-----------
TELEPHONE UTILITIES (2.2%)
GTE Corp.
500,000 8.85%, 1998 504,790
MCI Communications Corp.
500,000 7.625%, 1996 496,235
-----------
1,001,025
-----------
TOBACCO (2.1%)
B.A.T Capital Corp.
$ 500,000 6.66%, 2000 $ 445,585
Philip Morris Companies Inc.
500,000 8.75%, 1996 505,040
-----------
950,625
-----------
TRANSPORTATION (2.2%)
Federal Express Corp.
500,000 9.75%, 1996 510,100
250,000 6.25%, 1998 233,953
Southern Pacific Transportation
Co.
250,000 10.50%, 1999 253,750
-----------
997,803
-----------
TOTAL CORPORATE BONDS
(COST $40,705,389) 38,336,621
-----------
U.S. GOVERNMENT & AGENCY
LONG-TERM OBLIGATIONS
(10.0% OF NET ASSETS)
Federal Home Loan Mortgage Corp.
202,261 5.50%, 1997 194,487
636,250 5.50%, 1998 611,794
Federal National Mortgage Assn.
926,229 7.50%, 2008 886,568
913,336 7.00%, 2009 855,394
877,461 8.00%, 2009 845,310
250,000 6.00%, 2019 223,592
Government National Mortgage Assn.
54,277 13.00%, 2014 62,283
U.S. Treasury Notes
500,000 5.125%, 1998 454,845
500,000 9.00%, 1998 516,795
-----------
TOTAL U.S. GOVERNMENT & AGENCY
LONG-TERM OBLIGATIONS
(COST $4,848,807) 4,651,068
-----------
FOREIGN GOVERNMENT BONDS
(2.5% OF NET ASSETS)
Fomento Economico Mexicano
250,000 9.50%, 1997 247,188
Province of Ontario
500,000 8.25%, 1996 502,270
United Mexican States
500,000 6.97%, 2000 422,616
-----------
TOTAL FOREIGN GOVERNMENT BONDS
(COST $1,274,203) 1,172,074
-----------
COMMERCIAL PAPER
(3.2% OF NET ASSETS)
Johnson Controls, Inc.
1,500,000 5.80%, due 1/3/95 (COST $1,499,517) 1,499,517
-----------
TOTAL INVESTMENTS
(COST $48,327,916) $45,659,280
-----------
-----------
</TABLE>
7
<PAGE>
TOTAL RETURN ACCOUNT
<TABLE>
<CAPTION>
NUMBER OF MARKET
SHARES SECURITY VALUE
<C> <S> <C>
COMMON STOCKS
(41.6% OF NET ASSETS)
AEROSPACE (3.2%)
31,600 General Dynamics Corp. $ 1,374,600
20,200 General Motors Corp. Class H 704,475
19,400 Lockheed Corp. 1,408,925
34,700 Loral Corp. 1,314,262
6,000 McDonnell Douglas Corp. 852,000
-----------
5,654,262
-----------
APPAREL & TEXTILES (.7%)
30,700 Reebok International Ltd. 1,212,650
-----------
AUTO & AUTO RELATED (.4%)
16,000 Johnson Controls, Inc. 784,000
-----------
BANKING (2.2%)
46,200 Bank of New York Co., Inc. 1,339,800
37,200 Citicorp 1,539,150
7,200 Wells Fargo & Co. 1,044,000
-----------
3,922,950
-----------
CHEMICALS (1.6%)
14,300 FMC Corp. 825,825
21,100 Georgia Gulf Corp. 820,262
31,600 Grace (W.R.) & Co. 1,220,550
-----------
2,866,637
-----------
CONGLOMERATES (1.0%)
23,100 AlliedSignal Inc. 785,400
19,300 Textron, Inc. 972,237
-----------
1,757,637
-----------
DRUGS & COSMETICS (.7%)
18,600 American Home Products Corp. 1,167,150
-----------
ELECTRIC UTILITIES (2.2%)
42,400 American Electric Power Co., Inc. 1,393,900
41,000 FPL Group, Inc. 1,440,125
50,100 Illinova Corp. 1,089,675
-----------
3,923,700
-----------
ELECTRICAL & ELECTRONIC EQUIPMENT
(.6%)
10,100 LSI Logic Corp. 407,787
15,350 Micron Technology Inc. 677,319
-----------
1,085,106
-----------
ENERGY SERVICES (.4%)
19,200 Offshore Pipelines, Inc. 434,400
9,100 Tosco Corp. 265,037
-----------
699,437
-----------
FOOD & BEVERAGES (2.3%)
82,923 Archer Daniels Midland Co. 1,710,277
10,100 IBP, Inc. 305,525
33,200 Ralcorp Holdings, Inc. 738,700
46,800 Seagram Company Ltd. 1,380,600
-----------
4,135,102
-----------
HEALTH SERVICES & HOSPITAL SUPPLIES
(2.4%)
51,900 Baxter International Inc. 1,466,175
36,500 Charter Medical Corp. $ 784,750
31,500 Columbia Healthcare Corp. 1,149,750
25,800 Foundation Health Corp. 799,800
-----------
4,200,475
-----------
INSURANCE (1.9%)
30,700 American General Corp. 867,275
16,800 St. Paul Companies Inc. 751,800
39,700 TIG Holdings, Inc. 744,375
34,000 Travelers, Inc. 1,105,000
-----------
3,468,450
-----------
LEASING (.3%)
28,200 Ryder System, Inc. 620,400
-----------
LEISURE RELATED (.9%)
60,500 Mattel, Inc. 1,520,062
-----------
MACHINERY & EQUIPMENT (1.9%)
26,100 Caterpillar Inc. 1,438,763
34,900 Mark IV Industries, Inc. 689,275
25,900 Parker-Hannifin Corp. 1,178,450
-----------
3,306,488
-----------
MISCELLANEOUS (1.3%)
63,000 Dial Corp. 1,338,750
22,800 Premark International, Inc. 1,020,300
-----------
2,359,050
-----------
OFFICE EQUIPMENT (.8%)
15,200 Xerox Corp. 1,504,800
-----------
OIL & GAS (3.5%)
20,100 Amoco Corp. 1,188,413
25,500 El Paso Natural Gas Co. 777,750
16,300 Mobil Corp. 1,373,275
71,600 Panhandle Eastern Corp. 1,414,100
11,400 Royal Dutch Petroleum Co. 1,225,500
11,200 Ultramar Corp. 285,600
-----------
6,264,638
-----------
PAPER & FOREST PRODUCTS (1.8%)
7,200 Georgia-Pacific Corp. 514,800
21,700 Scott Paper Co. 1,500,013
24,200 Willamette Industries, Inc. 1,149,500
-----------
3,164,313
-----------
RETAIL TRADE (5.1%)
52,900 American Stores Co. 1,421,688
10,200 Dayton Hudson Corp. 721,650
29,800 Dillard Department Stores, Inc. 797,150
27,900 Eckerd Corp. 833,513
43,900 Kroger Co. 1,059,088
60,700 Safeway Inc. 1,934,812
30,600 Sears, Roebuck & Co. 1,407,600
50,900 Waban, Inc. 903,475
-----------
9,078,976
-----------
TECHNOLOGY (3.4%)
44,100 Compaq Computer Corp. 1,741,950
Computer Associates International,
32,000 Inc. 1,552,000
International Business Machines
20,800 Corp. 1,528,800
</TABLE>
8 The accompanying notes are an integral part of these financial statements.
<PAGE>
TOTAL RETURN ACCOUNT (cont'd)
<TABLE>
<CAPTION>
NUMBER OF MARKET
SHARES SECURITY VALUE
<C> <S> <C>
10,500 Stratus Computer, Inc. $ 399,000
21,100 Sun Microsystems, Inc. 749,050
-----------
5,970,800
-----------
TELEPHONE UTILITIES (1.0%)
44,100 Ameritech Corp. 1,780,537
-----------
TOBACCO (1.6%)
44,300 American Brands, Inc. 1,661,250
21,700 Philip Morris Companies Inc. 1,247,750
-----------
2,909,000
-----------
TRANSPORTATION (.4%)
27,500 Yellow Corp. 656,563
-----------
TOTAL COMMON STOCKS
(COST $70,310,068) 74,013,183
-----------
PRINCIPAL CORPORATE BONDS
AMOUNT (24.5% OF NET ASSETS)
AEROSPACE (.4%)
British Aerospace Finance Inc.
$ 500,000 8.00%, 1997 495,313
Coltec Industries, Inc.
250,000 9.75%, 2000 246,250
-----------
741,563
-----------
AUTO & AUTO RELATED (.6%)
Burmah Castrol Capital, Ltd.
500,000 7.00%, 1997 484,650
Chrysler Corp.
500,000 13.00%, 1997 504,720
-----------
989,370
-----------
BANKING (2.9%)
Banco Nacional de Comercio
Exterior, S.N.C.
400,000 7.25%, 2004 284,000
Bank of Boston Corp.
500,000 10.30%, 2000 507,840
BankAmerica Corp.
500,000 6.00%, 1997 474,125
Chemical Banking Corp.
250,000 10.125%, 2000 267,618
First Fidelity Bancorporation
500,000 8.50%, 1998 500,590
First USA Bank of Delaware
500,000 5.05%, 1995 487,240
750,000 5.35%, 1996 703,453
Fleet Financial Group, Inc.
250,000 9.90%, 2001 265,247
Marshall & Ilsley Corp.
500,000 6.95%, 1997 488,100
Mellon Financial Co.
400,000 6.50%, 1997 382,440
Shawmut National Corp.
750,000 8.875%, 1996 754,995
-----------
5,115,648
-----------
BUILDING MATERIALS & CONSTRUCTION
(.1%)
Cemex
$ 200,000 8.875%, 1998 $ 191,883
-----------
CHEMICALS (1.5%)
Grace (W.R.) & Co.
750,000 7.40%, 2000 710,475
Lyondell Petrochemical Co.
1,100,000 8.25%, 1997 1,088,417
Morton International, Inc.
500,000 9.25%, 2020 536,250
PPG Industries, Inc.
250,000 9.00%, 2021 258,485
-----------
2,593,627
-----------
CONGLOMERATES (.5%)
Tenneco Credit Corp.
500,000 9.25%, 1996 507,340
Tenneco, Inc.
375,000 10.00%, 1998 391,620
-----------
898,960
-----------
DRUGS & COSMETICS (.6%)
Procter & Gamble Co.
250,000 9.36%, 2021 269,700
Roche Holdings Inc.
950,000 2.75%, 2000 730,906
-----------
1,000,606
-----------
ELECTRIC UTILITIES (.6%)
Hydro-Quebec
500,000 9.375%, 2030 516,040
Long Island Lighting Co.
500,000 8.75%, 1996 501,765
-----------
1,017,805
-----------
ELECTRICAL & ELECTRONIC EQUIPMENT
(.5%)
Electrolux
500,000 7.75%, 1997 491,250
Westinghouse Electric Corp.
500,000 7.75%, 1996 495,490
-----------
986,740
-----------
FINANCIAL SERVICES (6.3%)
American General Finance Corp.
500,000 7.70%, 1997 491,335
500,000 8.50%, 1998 501,500
Aristar, Inc.
500,000 6.25%, 1996 486,075
250,000 8.125%, 1997 248,308
Associates Corp. of North America
500,000 6.75%, 1999 466,380
Avco Financial Services, Inc.
500,000 5.875%, 1997 470,745
Chrysler Financial Corp.
1,500,000 5.08%, 1997 1,410,840
Countrywide Funding Corp.
250,000 6.57%, 1997 239,980
</TABLE>
9
<PAGE>
TOTAL RETURN ACCOUNT (cont'd)
<TABLE>
PRINCIPAL MARKET
AMOUNT SECURITY VALUE
<S> <C> <C>
$ 500,000 6.085%, 1999 $ 455,300
Discover Credit Corp.
500,000 8.73%, 1996 503,915
Fleet Mortgage Corp.
1,000,000 6.125%, 1997 948,570
250,000 6.50%, 1999 230,150
Ford Motor Credit Co.
500,000 8.00%, 1997 496,930
500,000 6.25%, 1998 471,015
General Motors Acceptance Corp.
1,000,000 5.65%, 1997 925,080
750,000 7.75%, 1997 740,370
Green Tree Financial Corp.
500,000 8.00%, 2020 492,030
Household Financial Corporation
Ltd.
250,000 6.00%, 1998 232,075
Household International
Netherlands B.V.
500,000 6.00%, 1999 458,030
ITT Financial Corp.
250,000 8.75%, 2006 250,250
Norwest Financial, Inc.
500,000 6.50%, 1997 478,700
Transamerica Finance Corp.
250,000 6.80%, 1999 235,415
-----------
11,232,993
-----------
FOOD & BEVERAGES (.8%)
Bass America Inc.
250,000 6.75%, 1999 233,360
ConAgra, Inc.
500,000 9.75%, 1997 514,865
Seagram Company Ltd.
700,000 9.75%, 2000 709,723
-----------
1,457,948
-----------
INSURANCE (.4%)
Skandia Group Insurance Co. Ltd.
300,000 6.00%, 1998 273,000
SunAmerica Inc.
450,000 9.00%, 1999 454,284
-----------
727,284
-----------
LEASING (.9%)
Penske Truck Leasing Co.
750,000 7.75%, 1999 725,445
PHH Corp.
350,000 6.50%, 2000 321,804
U.S. Leasing International Inc.
500,000 7.00%, 1997 482,365
-----------
1,529,614
-----------
MANUFACTURING (.2%)
Black & Decker Corp.
400,000 6.625%, 2000 356,032
-----------
MORTGAGE-BACKED SECURITIES (.7%)
Fleet Mortgage Securities, Inc.
327,524 8.25%, 2023 326,807
Housing Securities, Inc.
$ 400,000 7.25%, 2012 $ 390,625
Sears Mortgage Securities Corp.
9,956 7.645%, 2019 9,906
Transamerica Finance Corp.
500,000 6.75%, 1997 482,360
-----------
1,209,698
-----------
OIL & GAS (3.2%)
Arkla, Inc.
750,000 9.875%, 1997 757,500
BP America, Inc.
500,000 8.875%, 1997 507,430
Bridas Corp.
270,000 12.50%, 1999 260,550
Coastal Corp.
500,000 11.125%, 1998 507,500
500,000 8.125%, 2002 472,850
Norsk Hydro
500,000 8.75%, 2001 498,750
Petroleos Mexicanos
150,000 8.25%, 1998 139,875
Petroliam Nasional Berhad
500,000 6.875%, 2003 448,135
Phillips Petroleum Co.
1,000,000 7.53%, 1998 981,304
TransCanada Pipelines Ltd.
500,000 9.875%, 2021 553,525
Transco Energy Co.
500,000 11.25%, 1999 531,875
-----------
5,659,294
-----------
PAPER & FOREST PRODUCTS (.7%)
Celulosa Arauco y Constitucion
S.A.
500,000 7.25%, 1998 474,375
Georgia-Pacific Corp.
750,000 9.85%, 1997 770,820
-----------
1,245,195
-----------
PRINTING & PUBLISHING (.5%)
Reed Elsevier, Inc.
400,000 6.625%, 2023 312,344
Time Warner Inc.
700,000 7.45%, 1998 667,191
-----------
979,535
-----------
RETAIL TRADE (.2%)
Sears, Roebuck & Co.
300,000 8.39%, 1999 298,023
-----------
SAVINGS & LOAN (.3%)
Golden West Financial Corp.
500,000 10.25%, 1997 518,390
-----------
TELECOMMUNICATIONS (.2%)
Tele-Communications, Inc.
400,000 7.15%, 1998 382,480
-----------
TELEPHONE UTILITIES (.7%)
GTE Corp.
750,000 8.85%, 1998 757,185
</TABLE>
10 The accompanying notes are an integral part of these financial statements.
<PAGE>
TOTAL RETURN ACCOUNT (cont'd)
<TABLE>
PRINCIPAL MARKET
AMOUNT SECURITY VALUE
<C> <S> <C>
MCI Communications Corp.
$ 500,000 7.125%, 2000 $ 476,065
-----------
1,233,250
-----------
TOBACCO (.9%)
B.A.T Capital Corp.
700,000 6.875%, 2003 622,846
Philip Morris Companies Inc.
500,000 8.75%, 1996 505,040
500,000 9.25%, 2000 508,320
-----------
1,636,206
-----------
TRANSPORTATION (.8%)
Federal Express Corp.
750,000 9.75%, 1996 765,150
250,000 6.25%, 1998 233,952
Southern Pacific Transportation
Co.
500,000 10.50%, 1999 507,500
-----------
1,506,602
-----------
TOTAL CORPORATE BONDS
(COST $45,628,309) 43,508,746
-----------
U.S. GOVERNMENT & AGENCY
LONG-TERM OBLIGATIONS
(24.6% OF NET ASSETS)
Federal Home Loan Mortgage Corp.
1,000,000 6.00%, 2007 798,750
Federal National Mortgage Assn.
1,372,522 7.50%, 2008 1,313,750
800,000 6.00%, 2019 715,496
609,333 7.00%, 2022 428,434
Government National Mortgage Assn.
646,322 8.00%, 2017 626,648
221,975 9.00%, 2018 224,510
296,675 9.00%, 2019 299,532
309,068 9.00%, 2021 312,597
691,095 7.50%, 2022 641,205
260,295 9.00%, 2022 262,572
2,604,561 6.50%, 2023 2,257,009
1,397,296 7.50%, 2023 1,296,425
287,340 8.50%, 2023 282,312
3,769,356 6.50%, 2024 3,266,373
6,681,507 7.00%, 2024 5,996,653
U.S. Treasury Bonds
2,450,000 7.50%, 2016 2,325,197
10,750,000 8.75%, 2017 11,571,408
U.S. Treasury Notes
2,500,000 3.875%, 1995 2,481,250
2,550,000 5.125%, 1998 2,319,710
5,000,000 6.375%, 2002 4,578,100
1,000,000 0.00%, 2003 512,290
800,000 5.75%, 2003 695,248
2,600,000 0.00%, 2012 644,618
-----------
TOTAL U.S. GOVERNMENT & AGENCY
LONG-TERM OBLIGATIONS
(COST $45,394,157) 43,850,087
-----------
FOREIGN GOVERNMENT BONDS
(1.5% OF NET ASSETS)
Fomento Economico Mexicano
$ 750,000 9.50%, 1997 $ 741,563
Republic of Columbia
300,000 7.125%, 1998 286,500
400,000 8.75%, 1999 381,500
United Mexican States
250,000 6.97%, 2000 211,308
1,350,000 8.50%, 2002 1,086,750
-----------
TOTAL FOREIGN GOVERNMENT BONDS
(COST $3,030,294) 2,707,621
-----------
COMMERCIAL PAPER
(5.9% OF NET ASSETS)
American Express Credit Corp.
4,306,000 5.80%, due 1/4/95 4,306,000
Johnson Controls, Inc.
6,180,000 5.80%, due 1/3/95 6,178,009
-----------
TOTAL COMMERCIAL PAPER
(COST $10,484,009) 10,484,009
-----------
TOTAL INVESTMENTS
(COST $174,846,837) $174,563,646
-----------
-----------
</TABLE>
GROWTH ACCOUNT
<TABLE>
<CAPTION>
NUMBER OF MARKET
SHARES SECURITY VALUE
<C> <S> <C>
COMMON STOCKS
(88.8% OF NET ASSETS)
AEROSPACE (7.4%)
33,900 General Dynamics Corp. $ 1,474,650
24,400 General Motors Corp. Class H 850,950
16,900 Lockheed Corp. 1,227,362
34,500 Loral Corp. 1,306,688
6,300 McDonnell Douglas Corp. 894,600
-----------
5,754,250
-----------
APPAREL & TEXTILES (1.6%)
32,000 Reebok International Ltd. 1,264,000
-----------
AUTO & AUTO RELATED (.8%)
12,500 Johnson Controls, Inc. 612,500
-----------
BANKING (5.0%)
48,900 Bank of New York Co., Inc. 1,418,100
32,400 Citicorp 1,340,550
7,900 Wells Fargo & Co. 1,145,500
-----------
3,904,150
-----------
CHEMICALS (3.5%)
14,600 FMC Corp. 843,150
19,600 Georgia Gulf Corp. 761,950
28,700 Grace (W.R.) & Co. 1,108,538
-----------
2,713,638
-----------
CONGLOMERATES (2.1%)
20,200 AlliedSignal Inc. 686,800
</TABLE>
11
<PAGE>
GROWTH ACCOUNT (cont'd)
<TABLE>
<CAPTION>
NUMBER OF MARKET
SHARES SECURITY VALUE
<C> <S> <C>
19,300 Textron, Inc. $ 972,237
-----------
1,659,037
-----------
DRUGS & COSMETICS (1.5%)
19,200 American Home Products Corp. 1,204,800
-----------
ELECTRIC UTILITIES (4.8%)
44,200 American Electric Power Co., Inc. 1,453,075
35,600 FPL Group, Inc. 1,250,450
49,400 Illinova Corp. 1,074,450
-----------
3,777,975
-----------
ELECTRICAL & ELECTRONIC EQUIPMENT
(1.4%)
8,400 LSI Logic Corp. 339,150
16,350 Micron Technology Inc. 721,444
-----------
1,060,594
-----------
ENERGY SERVICES (.9%)
17,000 Offshore Pipelines, Inc. 384,625
10,700 Tosco Corp. 311,638
-----------
696,263
-----------
FOOD & BEVERAGES (4.6%)
63,315 Archer Daniels Midland Co. 1,305,872
10,000 IBP, Inc. 302,500
30,100 Ralcorp Holdings, Inc. 669,725
46,000 Seagram Company Ltd. 1,357,000
-----------
3,635,097
-----------
HEALTH SERVICES & HOSPITAL SUPPLIES
(4.9%)
48,400 Baxter International Inc. 1,367,300
34,600 Charter Medical Corp. 743,900
28,500 Columbia Healthcare Corp. 1,040,250
22,800 Foundation Health Corp. 706,800
-----------
3,858,250
-----------
INSURANCE (4.4%)
32,000 American General Corp. 904,000
17,600 St. Paul Companies Inc. 787,600
36,400 TIG Holdings, Inc. 682,500
33,800 Travelers, Inc. 1,098,500
-----------
3,472,600
-----------
LEASING (.8%)
28,700 Ryder System, Inc. 631,400
-----------
LEISURE RELATED (1.5%)
47,475 Mattel, Inc. 1,192,809
-----------
MACHINERY & EQUIPMENT (4.1%)
23,100 Caterpillar Inc. 1,273,388
37,100 Mark IV Industries, Inc. 732,725
27,200 Parker-Hannifin Corp. 1,237,600
-----------
3,243,713
-----------
MISCELLANEOUS (2.7%)
47,600 Dial Corp. 1,011,500
23,700 Premark International, Inc. $ 1,060,575
-----------
2,072,075
-----------
OFFICE EQUIPMENT (1.8%)
14,500 Xerox Corp. 1,435,500
-----------
OIL & GAS (7.4%)
19,600 Amoco Corp. 1,158,850
21,500 El Paso Natural Gas Co. 655,750
16,700 Mobil Corp. 1,406,975
65,300 Panhandle Eastern Corp. 1,289,675
10,600 Royal Dutch Petroleum Co. 1,139,500
5,700 Ultramar Corp. 145,350
-----------
5,796,100
-----------
PAPER & FOREST PRODUCTS (3.9%)
7,400 Georgia-Pacific Corp. 529,100
22,300 Scott Paper Co. 1,541,487
21,400 Willamette Industries, Inc. 1,016,500
-----------
3,087,087
-----------
RETAIL TRADE (9.9%)
38,900 American Stores Co. 1,045,437
10,400 Dayton Hudson Corp. 735,800
25,700 Dillard Department Stores, Inc. 687,475
29,400 Eckerd Corp. 878,325
34,200 Kroger Co. 825,075
39,600 Safeway Inc. 1,262,250
32,100 Sears, Roebuck & Co. 1,476,600
46,800 Waban, Inc. 830,700
-----------
7,741,662
-----------
TECHNOLOGY (7.6%)
41,700 Compaq Computer Corp. 1,647,150
Computer Associates International,
31,600 Inc. 1,532,600
International Business Machines
21,100 Corp. 1,550,850
11,000 Stratus Computer, Inc. 418,000
22,200 Sun Microsystems, Inc. 788,100
-----------
5,936,700
-----------
TELEPHONE UTILITIES (1.7%)
33,000 Ameritech Corp. 1,332,375
-----------
TOBACCO (3.7%)
43,400 American Brands, Inc. 1,627,500
22,200 Philip Morris Companies Inc. 1,276,500
-----------
2,904,000
-----------
TRANSPORTATION (.8%)
25,800 Yellow Corp. 615,975
-----------
TOTAL COMMON STOCKS
(COST $64,780,805) 69,602,550
-----------
</TABLE>
12 The accompanying notes are an integral part of these financial statements.
<PAGE>
GROWTH ACCOUNT (cont'd)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY VALUE
<C> <S> <C>
COMMERCIAL PAPER
(10.8% OF NET ASSETS)
American Express Credit Corp.
$ 1,417,000 5.83%, due 1/3/95 $ 1,417,000
1,370,000 5.80%, due 1/6/95 1,370,000
Cargill, Inc.
1,100,000 5.55%, due 1/3/95 1,099,661
Ford Motor Credit Co.
2,578,000 5.90%, due 1/4/95 2,578,000
GTE Florida, Inc.
$ 2,000,000 5.90%, due 1/5/95 $ 1,998,689
TOTAL COMMERCIAL PAPER
(COST $8,463,350) 8,463,350
-----------
TOTAL INVESTMENTS
(COST $73,244,155) $78,065,900
-----------
-----------
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS December 31, 1994
<TABLE>
<CAPTION>
A C C O U N T S
<S> <C> <C>
<C> <C> <C>
1. Aggregate gross unrealized appreciation
(depreciation) as of December 31, 1994, based
on cost for Federal income tax purposes, was GOVERNMENT
TOTAL
as follows: LIQUID SECURITIES
INCOME RETURN
GROWTH
Aggregate gross unrealized appreciation $ -- $ 208,554
$ 63,871 $ 5,869,711
$ 6,243,951
Aggregate gross unrealized depreciation -- (4,165,092)
(2,732,507) (6,152,902)
(1,422,206)
-------------- --------------
- -------------- -------------- --------------
Net unrealized appreciation (depreciation) $ -- $(3,956,538)
$(2,668,636) $
(283,191) $ 4,821,745
-------------- --------------
- -------------- -------------- --------------
-------------- --------------
- -------------- -------------- --------------
2. The aggregate cost of investments for Federal
income tax purposes was: $63,942,445 $63,037,182
$48,327,916
$174,846,837 $73,244,155
-------------- --------------
- -------------- -------------- --------------
-------------- --------------
- -------------- -------------- --------------
</TABLE>
13
<PAGE>
<TABLE>
STATEMENT OF NET ASSETS CONNECTICUT MUTUAL
INVESTMENT
ACCOUNTS, INC.
December 31, 1994
<CAPTION>
A C C O U N T S
GOVERNMENT
TOTAL
LIQUID SECURITIES
INCOME RETURN
GROWTH
<S> <C> <C>
<C> <C> <C>
ASSETS
Investments:
Bonds, at market value
(Cost $62,872,182, $46,828,399,
$94,052,760) $ -- $ 58,915,644
$ 44,159,763 $ 90,066,454 $
--
Common stocks, at market value
(Cost $70,310,068, $64,780,805) -- --
-- 74,013,183
69,602,550
Short-term securities 63,942,445 165,000
1,499,517 10,484,009
8,463,350
-------------- --------------
- -------------- -------------- --------------
63,942,445 59,080,644
45,659,280 174,563,646
78,065,900
Cash 6,595 606
24,824 23,940 6,409
Investment income receivable 65,908 1,187,262
865,917 1,627,488
138,820
Receivable from securities sold -- --
-- 2,849,794
1,402,989
Receivable from Fund shares sold 30,609 14,864
43,564 178,542
60,677
-------------- --------------
- -------------- -------------- --------------
Total Assets 64,045,557 60,283,376
46,593,585 179,243,410
79,674,795
-------------- --------------
- -------------- -------------- --------------
LIABILITIES
Accrued expenses payable 99,687 121,037
46,621 272,160
127,466
Payable for securities purchased -- --
-- 1,067,243
1,157,491
-------------- --------------
- -------------- -------------- --------------
Total Liabilities 99,687 121,037
46,621 1,339,403
1,284,957
-------------- --------------
- -------------- -------------- --------------
NET ASSETS $ 63,945,870 $ 60,162,339
$ 46,546,964 $177,904,007
$ 78,389,838
-------------- --------------
- -------------- -------------- --------------
-------------- --------------
- -------------- -------------- --------------
OUTSTANDING SHARES 63,945,870 6,163,266
5,094,374
13,232,562 5,520,444
-------------- --------------
- -------------- -------------- --------------
-------------- --------------
- -------------- -------------- --------------
NET ASSET VALUE PER SHARE $1.00 $9.76
$9.14 $13.44
$14.20
-------------- --------------
- -------------- -------------- --------------
-------------- --------------
- -------------- -------------- --------------
</TABLE>
14 The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
STATEMENT OF OPERATIONS CONNECTICUT MUTUAL
INVESTMENT ACCOUNTS, INC.
For the year ended
December 31, 1994
<CAPTION>
A C C O U N T S
GOVERNMENT
TOTAL
LIQUID SECURITIES
INCOME RETURN
GROWTH
<S> <C> <C>
<C> <C> <C>
INVESTMENT INCOME
Income:
Interest $3,291,134 $5,611,282
$3,789,066 $ 6,944,799 $
312,020
Dividends -- --
-- 1,984,611 1,499,227
-------------- --------------
- -------------- -------------- -------------
Total Income 3,291,134 5,611,282
3,789,066 8,929,410
1,811,247
-------------- --------------
- -------------- -------------- -------------
Expenses:
Investment advisory fees 385,774 460,523
304,391 1,173,401
447,812
Transfer agent fees 229,500 119,000
74,500 462,500
187,000
Registration fees 32,955 28,353
27,023 53,194 29,159
Custodian fees 29,900 27,700
29,500 47,200 34,700
Shareholder reports 21,500 15,000
10,200 53,400
23,500
Professional services 6,200 6,200
6,200 6,200 6,200
Directors' fees 4,284 4,284
4,284 4,284 4,284
Other 5,053 8,120
-- 1,306 1,294
Expense reimbursement from investment
adviser -- --
(151,707) -- --
-------------- --------------
- -------------- -------------- -------------
Total Expenses 715,166 669,180
304,391 1,801,485
733,949
-------------- --------------
- -------------- -------------- -------------
NET INVESTMENT INCOME 2,575,968 4,942,102
3,484,675
7,127,925 1,077,298
-------------- --------------
- -------------- -------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investments (987) (2,822,974)
(660,384) 2,872,138
3,074,097
Net unrealized depreciation on investments -- (5,366,869)
(3,054,974)
(14,089,642) (4,619,868)
-------------- --------------
- -------------- -------------- -------------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS (987) (8,189,843)
(3,715,358) (11,217,504) (1,545,771)
-------------- --------------
- -------------- -------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $ 2,574,981 $ (3,247,741)
$ (230,683) $
(4,089,579) $ (468,473)
-------------- --------------
- -------------- -------------- -------------
-------------- --------------
- -------------- -------------- -------------
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS CONNECTICUT MUTUAL
INVESTMENT ACCOUNTS, INC.
For the years ended
December 31, 1994 and 1993
A C C O U N T S
LIQUID
GOVERNMENT SECURITIES
1994
1993 1994 1993
<S> <C> <C>
<C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income $2,575,968 $
1,624,974 $4,942,102
$4,494,963
Net realized gain (loss) on investments (987)
6 (2,822,974)
4,005,208
Net unrealized appreciation (depreciation) --
-- (5,366,869)
(1,899,883)
--------------
- -------------- -------------- -------------
Net increase (decrease) in net assets resulting from
operations 2,574,981
1,624,980 (3,247,741) 6,600,288
--------------
- -------------- -------------- -------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income (2,574,981)
(1,624,974) (4,939,034)
(4,489,918)
Net realized gain from investment transactions --
(6) (56,279)
(4,289,205)
--------------
- -------------- -------------- -------------
(2,574,981)
(1,624,980) (4,995,313) (8,779,123)
--------------
- -------------- -------------- -------------
FROM CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 177,469,640
195,569,442 7,468,147
13,740,760
Net asset value of shares issued to shareholders from
reinvestment of dividends 2,548,202
1,594,210 4,527,905
7,959,413
Cost of shares reacquired (192,692,366)
(188,092,462) (21,186,898)
(9,536,822)
--------------
- -------------- -------------- -------------
Increase (decrease) in net assets derived from capital
share transactions (12,674,524)
9,071,190 (9,190,846)
12,163,351
--------------
- -------------- -------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS (12,674,524)
9,071,190
(17,433,900) 9,984,516
NET ASSETS -- BEGINNING OF PERIOD 76,620,394
67,549,204
77,596,239 67,611,723
--------------
- -------------- -------------- -------------
NET ASSETS -- END OF PERIOD $63,945,870
$76,620,394
$60,162,339 $77,596,239
--------------
- -------------- -------------- -------------
--------------
- -------------- -------------- -------------
Undistributed net investment income included in net assets
at end of period --
-- $31,978 $28,910
-------------- -------------
-------------- -------------
Undistributed net realized gain (loss) on investments
included in net assets at end of period --
-- $(2,853,150) $26,103
-------------- -------------
-------------- -------------
</TABLE>
16 The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
A C C O U N T S
INCOME TOTAL RETURN
GROWTH
1994 1993 1994 1993 1994
1993
<C> <C> <C> <C> <C>
<C>
$ 3,484,675 $ 2,909,983 $ 7,127,925 $ 4,722,043 $ 1,077,298
$ 1,065,223
(660,384) 144,920 2,872,138 9,934,386 3,074,097
6,017,450
(3,054,974) 224,988 (14,089,642) 4,955,279 (4,619,868)
3,036,923
- -------------- -------------- -------------- -------------- --------------
- --------------
(230,683) 3,279,891 (4,089,579) 19,611,708 (468,473)
10,119,596
- -------------- -------------- -------------- -------------- --------------
- --------------
(3,473,505) (2,919,683) (7,098,435) (4,729,047) (1,076,035)
(1,070,312)
-- -- (3,186,699) (10,403,444) (3,254,775)
(6,489,124)
- -------------- -------------- -------------- -------------- --------------
- --------------
(3,473,505) (2,919,683) (10,285,134) (15,132,491) (4,330,810)
(7,559,436)
- -------------- -------------- -------------- -------------- --------------
- --------------
11,501,443 13,802,741 52,357,416 53,648,129 20,893,600
32,723,682
3,019,579 2,554,120 10,101,758 14,889,112 4,286,409
7,458,025
(12,906,272) (6,756,110) (41,385,584) (11,512,779) (6,485,813)
(23,846,490)
- -------------- -------------- -------------- -------------- --------------
- --------------
1,614,750 9,600,751 21,073,590 57,024,462 18,694,196
16,335,217
- -------------- -------------- -------------- -------------- --------------
- --------------
(2,089,438) 9,960,959 6,698,877 61,503,679 13,894,913
18,895,377
48,636,402 38,675,443 171,205,130 109,701,451 64,494,925
45,599,548
- -------------- -------------- -------------- -------------- --------------
- --------------
$ 46,546,964 $ 48,636,402 $177,904,007 $171,205,130 $78,389,838
$ 64,494,925
- -------------- -------------- -------------- -------------- --------------
- --------------
- -------------- -------------- -------------- -------------- --------------
- --------------
$17,359 $6,189 $44,571 $15,081 $1,393
$130
- -------------- -------------- -------------- -------------- --------------
- --------------
- -------------- -------------- -------------- -------------- --------------
- --------------
$(1,698,673) $(1,038,289) $532,694 $847,255 $528,131
$708,809
- -------------- -------------- -------------- -------------- --------------
- --------------
- -------------- -------------- -------------- -------------- --------------
- --------------
</TABLE>
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONNECTICUT MUTUAL INVESTMENT
ACCOUNTS,
INC.
December 31, 1994
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Connecticut Mutual Investment Accounts, Inc. (the Fund), a Maryland
corporation, is registered under the Investment Company Act of 1940, as
amended, as a diversified, open-end management investment company. The Fund is
comprised of five separate Accounts: Liquid, Government Securities, Income,
Total Return and Growth. An interest in the Fund is limited to the assets of
the Account or Accounts in which shares are held by shareholders, and such
shareholders are entitled to a pro rata share of all dividends and
distributions arising from the net investment income and net realized capital
gains on the investments of such Accounts.
The following is a summary of significant accounting policies followed by the
Fund:
(a)VALUATION OF INVESTMENT SECURITIES - Except with respect to securities held
by the Liquid Account, equity and debt securities which are traded on
securities exchanges are valued at the last sales price as of the close of
business on the day the securities are being valued. Lacking any sales,
equity securities are valued at the last bid price and debt securities are
valued at the mean between closing bid and asked prices. Securities traded
in the over-the-counter market and included in the NASDAQ National Market
System are valued using the last sales price when available. Otherwise,
over-the-counter securities are valued at the mean between the bid and
asked prices or yield equivalent as obtained from one or more dealers who
make a market in the securities. Short-term securities are valued on an
amortized cost basis, which approximates market value. Securities for which
market quotations are not readily available are valued at fair value as
determined in accordance with procedures established by the Board of
Directors of the Fund, including the use of valuations furnished by a
private service retained by the custodian.
Securities held by the Liquid Account are valued on an amortized cost
basis. This basis involves valuing a security at cost and thereafter
assuming a constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the market value
of the instrument. The amortized cost method, in the opinion of the Board
of Directors, represents the fair value of the particular security. The
Board monitors the deviation between the Account's net asset value per
share as determined by using available market quotations and its amortized
cost price per share. If the deviation exceeds one half of one percent, the
Board will consider what action, if any, should be initiated to provide
fair valuation. For the year ended December 31, 1994, the deviation was
less than one half of one percent.
(b)FEDERAL INCOME TAXES - The Fund intends to continue to qualify as a
regulated investment company under Subchapter M of the Internal Revenue
Code. Under such provisions, by distributing substantially all of its
taxable income to its shareholders or otherwise complying with requirements
for regulated investment companies, the Fund will not be subject to Federal
income taxes. Accordingly, no provision for Federal income taxes is
required. For Federal tax reporting purposes, each Account is treated as a
separate taxable entity.
(c)GAINS AND LOSSES - Realized gains and losses from sales of investments are
determined on the identified cost basis.
(d)AFFILIATE HOLDINGS - Connecticut Mutual Life Insurance Company and its
affiliates own 31,655,715 shares of the Fund as follows:
<TABLE>
<CAPTION>
LIQUID GOVERNMENT SECURITIES INCOME TOTAL RETURN
GROWTH
<S> <C> <C> <C> <C>
26,109,655 1,826,721 1,894,554 206
1,824,579
</TABLE>
(e)OTHER - Investment transactions are accounted for on the trade date which
is the date the order to buy or sell is executed. Dividend income is
recorded on the ex-dividend date and interest income is accrued on a daily
basis. All expenses are accrued on a daily basis.
2. INVESTMENT ADVISORY FEES
The Fund has an Investment Advisory Agreement with G.R. Phelps & Co., Inc.
(the Investment Adviser), a wholly-owned subsidiary of Connecticut Mutual Life
Insurance Company. The Investment Adviser, subject to review by the Board of
Directors, is responsible for the investment management of each Account and
has the responsibility for making decisions to buy, sell or hold any
particular security. The Investment Adviser is obligated to perform certain
administrative services for the Fund.
As compensation for its services to the Liquid Account, the Investment Adviser
receives monthly compensation at the annual rate of 0.50% of the first $200
million of average daily net assets, 0.45% of the next $100 million of average
daily net assets and 0.40% of the average daily net assets in excess of $300
million of the Account. As compensation for its services to the Government
Securities, Income, Total Return and Growth Accounts, the Investment Adviser
receives monthly compensation at the annual rate of 0.625% of the first $300
million of average daily net assets, 0.50% of the next $100 million of average
daily net assets and 0.45% of the average daily net assets in excess of $400
million of each Account.
18
<PAGE>
The investment advisory fees, which also cover certain administrative and
management services, amounted to $2,771,901 for all Accounts for the year
ended December 31, 1994. For the year ended December 31, 1994, the Investment
Adviser, serving as principal underwriter for sale of shares of the Accounts,
earned $2,502,163 related to sales charges deducted from proceeds for shares
sold.
Expenses incurred in the operation of the Fund are borne by the Fund. However,
the Investment Adviser has agreed that in any year the aggregate expenses
(including the investment advisory fee, but excluding interest, taxes,
brokerage fees, commissions and uncommon charges such as litigation costs)
exceed 1% of the value of the average daily net assets of the Liquid Account
or 1.5% of the value of the average daily net assets in each of the other four
Accounts, it will reimburse the Accounts for such excess.
3. DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income are paid monthly for the Government
Securities and Income Accounts and semi-annually for the Total Return and
Growth Accounts. Dividends from net investment income of the Liquid Account,
which include any net short-term capital gains, are declared and accrued daily
and paid monthly.
4. CAPITAL STOCK
The authorized capital stock of the Fund consists of 3,000,000,000 shares of
common stock, par value $0.10 per share. The shares of stock are divided into
five classes as indicated below. All shares of common stock have equal voting
rights, except that only shares of a particular Account are entitled to vote
on matters pertaining to that Account.
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
FOR
THE YEAR ENDED DECEMBER 31, 1994
GOVERNMENT
TOTAL
LIQUID SECURITIES
INCOME RETURN
GROWTH
<S> <C> <C>
<C> <C> <C>
Shares authorized
(in millions) 800 300
300 300 300
--- ---
--- --- ---
--- ---
--- --- ---
Shares sold 177,469,640 722,134
1,209,211 3,669,999
1,391,034
Shares issued to shareholders from reinvestment
of dividends 2,548,202 445,989
320,316 743,603
298,545
------------- -------------
------------- ------------- ----------
Total issued 180,017,842 1,168,123
1,529,527 4,413,602
1,689,579
Shares reacquired (192,692,366) (2,116,136)
(1,367,697) (2,955,224)
(430,233)
------------- -------------
------------- ------------- ----------
Net increase (decrease) (12,674,524) (948,013)
161,830 1,458,378
1,259,346
------------- -------------
------------- ------------- ----------
------------- -------------
------------- ------------- ----------
</TABLE>
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONT'D)
5. FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the period:
<TABLE>
<CAPTION>
NET REALIZED DISTRIBUTIONS
RATIO OF
RATIO OF NET
DIVIDENDS & UNREALIZED FROM NET NET
ASSET NET ASSET
OPERATING INVESTMENT
YEARS NET FROM NET GAIN (LOSS) REALIZED VALUE
AT VALUE
AT EXPENSES TO INCOME TO
ENDED INVESTMENT INVESTMENT ON GAIN ON
BEGINNING
END AVERAGE AVERAGE
DECEMBER 31 INCOME INCOME INVESTMENTS INVESTMENTS OF
PERIOD OF PERIOD NET ASSETS NET ASSETS
<S> <C> <C> <C> <C> <C>
<C> <C> <C>
- ------------------------------------------------------------------------------
- ----------------------------------------
- ----------
LIQUID ACCOUNT
1985 $.0729 $(.0729) $ -- $ -- $1.00
$1.00 1.00% 7.30%
1986 .0588 (.0588) -- -- 1.00
1.00 1.00 5.88
1987 .0581 (.0581) -- -- 1.00
1.00 1.00 5.81
1988 .0664 (.0664) -- -- 1.00
1.00 1.04 6.64
1989 .0822 (.0822) -- -- 1.00
1.00 1.06 8.22
1990 .0731 (.0731) -- -- 1.00
1.00 1.06 7.31
1991 .0522 (.0522) -- -- 1.00
1.00 1.01 5.22
1992 .0287 (.0287) -- -- 1.00
1.00 1.02 2.87
1993 .0227 (.0227) -- -- 1.00
1.00 .95 2.27
1994 .0334 (.0334) -- -- 1.00
1.00 .93 3.34
GOVERNMENT SECURITIES ACCOUNT
1985(a) .24 (.21) .70 -- 10.00
10.73 1.50(b) 8.00(b)
1986 .92 (.92) .28 (.11) 10.73
10.90 1.27 8.92
1987 .84 (.84) (.52) (.21) 10.90
10.17 1.24 8.12
1988 .84 (.85) (.05) (.05) 10.17
10.06 1.16 8.27
1989 .84 (.84) .52 -- 10.06
10.58 1.19 8.14
1990 .84 (.84) .10 -- 10.58
10.68 1.16 8.07
1991 .85 (.85) .68 -- 10.68
11.36 1.07 7.83
1992 .77 (.77) (.12) (.05) 11.36
11.19 1.01 6.92
1993 .70 (.70) .36 (.64) 11.19
10.91 .93 6.03
1994 .69 (.69) (1.14) (.01) 10.91
9.76 .91 6.71
INCOME ACCOUNT
1985(a) .24 (.23) .54 -- 10.00
10.55 1.50(b) 8.20(b)
1986 .83 (.83) .57 (.08) 10.55
11.04 1.29 7.69
1987 .76 (.76) (.56) (.51) 11.04
9.97 1.27 7.32
1988 .84 (.85) (.19) -- 9.97
9.77 1.24 8.43
1989 .88 (.88) .02 -- 9.77
9.79 1.27 8.93
1990 .94 (.94) (.35) -- 9.79
9.44 1.24 9.78
1991 .81 (.81) .47 -- 9.44
9.91 1.12 8.44
1992 .79 (.79) (.16) -- 9.91
9.75 .63 8.09
1993 .65 (.65) .11 -- 9.75
9.86 .63 6.56
1994 .68 (.68) (.72) -- 9.86
9.14 .63 7.16
TOTAL RETURN ACCOUNT
1985(a) .13 (.12) .90 -- 10.00
10.91 1.50(b) 4.46(b)
1986 .31 (.30) .99 (.04) 10.91
11.87 1.26 3.22
1987 .38 (.38) .13 (1.09) 11.87
10.91 1.08 3.15
1988 .53 (.53) .60 -- 10.91
11.51 1.11 4.61
1989 .76 (.76) 1.81 (.63) 11.51
12.69 1.20 5.90
1990 .66 (.66) (.68) (.07) 12.69
11.94 1.24 5.31
1991 .54 (.54) 2.79 (.71) 11.94
14.02 1.20 4.02
1992 .50 (.50) .86 (1.07) 14.02
13.81 1.11 3.61
1993 .48 (.48) 1.70 (.97) 13.81
14.54 1.02 3.40
1994 .55 (.55) (.86) (.24) 14.54
13.44 .96 3.80
GROWTH ACCOUNT
1985(a) .11 (.11) .94 -- 10.00
10.94 1.50(b) 3.81(b)
1986 .24 (.24) 1.11 (.08) 10.94
11.97 1.31 2.21
1987 .22 (.22) (.12) (2.05) 11.97
9.80 1.17 1.71
1988 .20 (.20) 1.20 -- 9.80
11.00 1.23 1.95
1989 .51 (.51) 3.30 (1.25) 11.00
13.05 1.18 3.90
1990 .34 (.34) (1.36) (.07) 13.05
11.62 1.19 2.73
1991 .25 (.25) 4.00 (1.22) 11.62
14.40 1.19 1.74
1992 .26 (.26) 1.44 (1.64) 14.40
14.20 1.12 1.74
1993 .30 (.30) 2.64 (1.70) 14.20
15.14 1.05 1.95
1994 .22 (.22) (.32) (.62) 15.14
14.20 1.02 1.50
NET ASSETS
YEARS AT END ANNUAL
ENDED PORTFOLIO OF PERIOD TOTAL
DECEMBER 31 TURNOVER (IN THOUSANDS) RETURN(C)
<S> <C> <C> <C>
- -----------------------------------------------------------
LIQUID ACCOUNT
1985 n/a $ 65,098 7.50%
1986 n/a 74,111 6.03
1987 n/a 68,908 5.97
1988 n/a 73,921 6.82
1989 n/a 87,264 8.53
1990 n/a 84,387 7.53
1991 n/a 69,932 5.31
1992 n/a 67,549 2.89
1993 n/a 76,620 2.30
1994 n/a 63,946 3.40
GOVERNMENT SECURITIES ACCOUNT
1985 468.56% 12,890 9.40
1986 111.68 22,947 11.66
1987 207.67 24,703 3.33
1988 175.50 35,910 7.99
1989 68.14 41,561 14.10
1990 44.19 47,524 9.44
1991 27.50 55,332 15.03
1992 131.79 67,612 6.07
1993 224.02 77,596 9.56
1994 156.90 60,162 (4.18)
INCOME ACCOUNT
1985 242.68(b) 11,048 7.80
1986 164.13 14,620 13.54
1987 231.39 15,367 2.03
1988 150.04 16,789 6.70
1989 52.95 18,705 9.56
1990 90.20 19,809 6.33
1991 50.44 22,839 14.22
1992 109.47 38,675 6.60
1993 145.94 48,636 7.97
1994 62.88 46,547 (0.42)
TOTAL RETURN ACCOUNT
1985 49.82(b) 12,083 10.34
1986 143.32 35,382 11.88
1987 197.79 44,770 3.92
1988 223.62 54,253 10.40
1989 149.22 65,071 22.61
1990 115.45 66,382 (0.21)
1991 122.40 86,455 28.21
1992 177.85 109,701 9.90
1993 155.16 171,205 15.89
1994 115.01 177,904 (2.11)
GROWTH ACCOUNT
1985 57.58(b) 11,514 10.50
1986 163.15 19,469 12.25
1987 214.32 19,638 (0.29)
1988 246.14 26,285 14.32
1989 169.75 37,323 34.86
1990 143.95 35,202 (7.98)
1991 148.30 40,716 36.91
1992 141.69 45,600 11.99
1993 99.67 64,495 20.91
1994 98.46 78,390 (0.65)
<FN>
(a) For the period from September 16, 1985 (Inception) to December 31, 1985
(b) Annualized
(c) Annual total returns do not include the effect of sales charges
</TABLE>
20
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Connecticut Mutual Investment Accounts, Inc.:
We have audited the accompanying statement of net assets, including the
schedule of investments, of Connecticut Mutual Investment Accounts, Inc.
(a Maryland corporation comprised of the Liquid, Government Securities,
Income, Total Return and Growth Accounts) as of December 31, 1994, and the
related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended,
and the financial highlights for each of the periods indicated in Note 5
of Notes to Financial Statements. These financial statements and financial
highlights are the responsibility of the Accounts' 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 as of December 31, 1994, by
correspondence with the custodian bank. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position
of each of the respective Accounts comprising Connecticut Mutual
Investment Accounts, Inc. as of December 31, 1994, the results of their
operations for the year then ended, the changes in their net assets for
each of the two years in the period then ended, and the financial
highlights for each of the periods indicated in Note 5 of Notes to
Financial Statements, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
February 15, 1995
<PAGE>
PERFORMANCE -- TOTAL RETURN*
SALES CHARGE ADJUSTED PERFORMANCE As of 6/30/95* -- AFTER EXPENSES
<TABLE>
<CAPTION>
AVERAGE ANNUALIZED
30 DAY
CURRENT YIELD
ACCOUNTS ONE YEAR FIVE YEAR
SINCE INCEPTION
AS OF 6/30/95
<S> <C> <C>
<C> <C>
LIQUID** 4.63% 4.04%
6.50% 5.09%
GOVERNMENT SECURITIES 7.18% 7.73%
8.98%
5.46%
INCOME 3.74% 6.61%
7.81% 6.21%
TOTAL RETURN 9.75% 10.72%
11.78%
GROWTH 16.31% 12.89%
14.06%
</TABLE>
Sales Charge Adjusted Performance assumes the current initial sales charge
reduces portfolio performance and was paid at the beginning of each period
shown. The current maximum initial sales charges are 4.00% for the Government
Securities and Income Accounts and 5.00% for the Total Return and Growth
Accounts. The Liquid Account has no initial sales charge.
ACTUAL PORTFOLIO PERFORMANCE As of 6/30/95* -- AFTER EXPENSES
<TABLE>
<CAPTION>
AVERAGE ANNUALIZED
7-DAY
CURRENT YIELD
ACCOUNTS ONE YEAR FIVE YEAR
SINCE INCEPTION
AS OF 6/30/95
<S> <C> <C>
<C> <C>
LIQUID** 4.63% 4.04%
6.50% 5.11%
GOVERNMENT SECURITIES 11.65% 8.62%
9.43%
INCOME 8.06% 7.48%
8.26%
TOTAL RETURN 15.53% 11.86%
12.37%
GROWTH 22.43% 14.06%
14.66%
</TABLE>
Actual Portfolio Performance assumes the initial sales charge is paid by
a
client in a prior period and is not reflected on this table.
All portfolios became effective September 16, 1985 except for the Liquid Account
which was first offered to the public on March 31, 1982.
*Total Return figures include reinvestment of all dividends and capital gains.
Performance data quoted represents past performance. The investment return and
principal values of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
**There can be no assurance that the Liquid Account will be able to maintain
a
stable net asset value of $1.00 per share. An investment in the Liquid Account
is neither insured nor guaranteed by the U.S. Government.
<PAGE>
SCHEDULE OF INVESTMENTS CONNECTICUT MUTUAL INVESTMENT
ACCOUNTS,
INC.
June 30, 1995 (Unaudited)
LIQUID ACCOUNT
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY VALUE
<C> <S> <C>
COMMERCIAL PAPER
(96.7% OF NET ASSETS)
American Broadcasting Companies,
Inc.
$ 1,500,000 5.62%, due 10/4/95 $ 1,477,754
American Express Credit Corp.
2,033,000 6.10%, due 7/10/95 2,033,000
784,000 5.75%, due 11/30/95 784,000
600,000 5.70%, due 12/15/95 600,000
American Home Products Corp.
1,035,000 5.97%, due 8/4/95 1,029,164
Banc One Corp.
1,000,000 5.92%, due 8/9/95 993,587
Bank of America
1,000,000 5.87%, due 11/10/95 978,477
2,000,000 5.71%, due 12/4/95 1,950,513
Beneficial Corp.
1,000,000 5.94%, due 8/18/95 992,080
Cargill, Inc.
2,000,000 5.67%, due 10/12/95 1,967,555
Corporate Asset Funding Co., Inc.
1,150,000 6.10%, due 8/24/95 1,139,478
Corporate Receivables Corp.
1,500,000 5.80%, due 8/3/95 1,492,025
1,000,000 5.95%, due 8/23/95 991,240
Dayton Hudson Corp.
500,000 5.97%, due 7/17/95 498,673
2,500,000 5.80%, due 8/1/95 2,487,514
Electronic Data Systems Corp.
1,200,000 5.90%, due 9/18/95 1,184,463
Ford Motor Credit Co.
2,000,000 6.07%, due 7/20/95 2,000,000
1,300,000 5.55%, due 1/12/96 1,260,919
General Electric Capital Corp.
1,160,000 5.97%, due 8/2/95 1,153,844
1,000,000 6.17%, due 10/11/95 982,518
General Electric Co.
925,000 5.87%, due 8/22/95 917,157
Golden Peanut Co.
750,000 5.95%, due 8/7/95 745,414
International Lease Finance Corp.
1,000,000 6.00%, due 7/20/95 996,833
1,000,000 5.72%, due 10/16/95 982,999
Interstate Power Co.
370,000 5.97%, due 7/17/95 369,018
640,000 5.93%, due 7/25/95 637,470
McGraw-Hill Inc.
700,000 6.10%, due 7/28/95 696,798
1,300,000 5.94%, due 8/2/95 1,293,136
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY VALUE
<C> <S> <C>
Merrill Lynch & Co., Inc.
$ 750,000 5.93%, due 8/8/95 $ 745,305
725,000 5.95%, due 8/14/95 719,728
860,000 5.95%, due 8/15/95 853,604
900,000 5.91%, due 8/28/95 891,431
Mitsubishi International Corp.
2,800,000 5.90%, due 8/4/95 2,784,398
Monsanto Co.
1,685,000 5.85%, due 8/29/95 1,668,845
Morgan (J.P.) & Company, Inc.
1,700,000 5.84%, due 9/7/95 1,681,247
National Rural Utilities
Cooperative Finance Corp.
425,000 5.93%, due 9/1/95 420,660
1,000,000 5.88%, due 9/6/95 989,057
1,100,000 5.95%, due 9/6/95 1,087,819
700,000 5.90%, due 9/29/95 689,675
Norwest Corp.
1,300,000 6.01%, due 7/24/95 1,295,008
2,000,000 5.73%, due 9/25/95 1,972,623
NYNEX Corp.
2,000,000 5.71%, due 9/5/95 1,979,063
Penney (J.C.) Funding Corp.
1,000,000 5.94%, due 7/20/95 996,865
1,570,000 5.93%, due 7/21/95 1,564,828
PHH Corp.
1,000,000 5.85%, due 7/12/95 998,213
Philip Morris Companies Inc.
1,100,000 5.99%, due 7/31/95 1,094,509
Potomac Electric Power Co.
595,000 5.97%, due 8/7/95 591,349
U.S. Bancorp
900,000 6.04%, due 7/7/95 899,094
U S West Communications, Inc.
1,480,000 6.07%, due 7/5/95 1,479,002
Wal-Mart Stores Inc.
600,000 6.15%, due 7/3/95 599,795
Xerox Corp.
1,200,000 5.90%, due 8/10/95 1,192,133
1,100,000 5.93%, due 8/22/95 1,090,578
850,000 5.94%, due 8/25/95 842,286
------------
TOTAL COMMERCIAL PAPER
(COST $61,762,744) 61,762,744
------------
U.S. AGENCY SHORT-TERM OBLIGATIONS
(3.1% OF NET ASSETS)
Student Loan Marketing Assn.
5.69%, due 5/14/96 (Cost
2,000,000 $2,000,000) 2,000,000
------------
TOTAL INVESTMENTS
(COST $63,762,744) $ 63,762,744
------------
------------
</TABLE>
1 The accompanying notes are an integral part of these financial statements.
<PAGE>
GOVERNMENT SECURITIES ACCOUNT INCOME ACCOUNT
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY VALUE
<C> <S> <C>
U.S. GOVERNMENT & AGENCY
LONG-TERM OBLIGATIONS
(98.5% OF NET ASSETS)
Federal National Mortgage Assn.
$ 1,174,238 7.00%, 2019 $ 1,177,537
Government National Mortgage Assn.
81,101 11.50%, 1998 86,601
45,095 9.50%, 2001 47,251
50,138 7.25%, 2005 51,297
324,599 7.50%, 2006 328,527
200,662 8.00%, 2006 206,766
524,312 8.00%, 2007 541,022
180,541 8.25%, 2008 186,777
84,503 9.00%, 2008 89,548
562,233 9.00%, 2009 596,423
10,111 13.50%, 2010 11,425
98,967 13.00%, 2011 111,894
3,439 13.50%, 2011 3,886
64,994 14.00%, 2011 73,890
43,407 15.00%, 2011 50,135
3,718 12.00%, 2012 4,185
108,607 13.50%, 2012 121,962
168,566 15.00%, 2012 194,694
107,161 11.50%, 2013 120,053
45,032 13.00%, 2013 50,914
203,024 13.50%, 2013 229,417
83,119 12.00%, 2014 93,561
284,277 12.50%, 2014 322,475
139,709 13.00%, 2014 157,958
1,414 13.50%, 2014 1,598
534,679 8.50%, 2016 559,878
445,915 6.50%, 2017 453,023
409,588 10.00%, 2019 446,729
101,689 12.50%, 2019 114,175
2,177,473 6.50%, 2023 2,091,724
1,860,980 7.00%, 2023 1,831,316
952,018 7.00%, 2024 936,843
500,000 8.00%, TBA 511,875
U.S. Treasury Bond
9,650,000 9.25%, 2016 12,373,133
U.S. Treasury Notes
800,000 9.25%, 1996 814,248
5,000,000 9.375%, 1996 5,138,300
500,000 8.50%, 1997 522,185
3,500,000 8.875%, 1997 3,728,585
6,750,000 9.25%, 1998 7,381,733
2,500,000 7.50%, 2001 2,683,600
2,250,000 11.75%, 2001 2,856,442
3,000,000 7.25%, 2004 3,205,770
------------
TOTAL U.S. GOVERNMENT & AGENCY
LONG-TERM OBLIGATIONS
(COST $49,799,117) 50,509,355
------------
REPURCHASE AGREEMENTS*
(.6% OF NET ASSETS)
State Street Bank & Trust Co.
5.50%, due 7/3/95 (Cost
310,000 $310,000) 310,000
------------
TOTAL INVESTMENTS
(COST $50,109,117) $ 50,819,355
------------
------------
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY VALUE
<C> <S> <C>
CORPORATE BONDS
(83.2% OF NET ASSETS)
AEROSPACE (1.7%)
British Aerospace Finance Inc.
$ 500,000 8.00%, 1997 $ 513,750
Coltec Industries Inc.
250,000 9.75%, 2000 258,750
------------
772,500
------------
AIRLINES (1.2%)
Southwest Airlines Co.
500,000 9.25%, 1998 532,270
------------
AUTO & AUTO RELATED (1.9%)
Burmah Castrol Capital, Ltd.
500,000 7.00%, 1997 508,525
Ford Motor Co.
372,474 6.27%, 2000 370,097
------------
878,622
------------
BANKING (12.8%)
Banco Ganadero SA
400,000 9.75%, 1999 399,500
Bank of Boston Corp.
400,000 10.30%, 2000 402,312
Barnett Banks, Inc.
515,000 8.50%, 1999 543,459
Chemical Banking Corp.
500,000 6.625%, 1998 501,985
Citicorp
500,000 9.46%, 1996 513,500
First Fidelity Bancorporation
500,000 8.50%, 1998 524,650
First Union Corp.
500,000 6.75%, 1998 503,420
First USA Bank of Delaware
500,000 5.05%, 1995 497,375
Home Savings of America
500,000 10.50%, 1997 513,910
Mellon Financial Co.
500,000 6.50%, 1997 502,175
Security Pacific Corp.
500,000 7.75%, 1996 510,345
Shawmut National Corp.
500,000 8.875%, 1996 508,650
------------
5,921,281
------------
BROKER/DEALER (1.3%)
Merrill Lynch & Co., Inc.
600,000 8.25%, 1996 619,440
------------
CHEMICALS (2.2%)
FMC Corp.
250,000 8.75%, 1999 266,190
</TABLE>
*Repurchase agreements are fully collateralized by U.S. Government obligations.
2
<PAGE>
INCOME ACCOUNT (cont'd)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY VALUE
<C> <S> <C>
Lyondell Petrochemical Co.
$ 750,000 8.25%, 1997 $ 766,560
------------
1,032,750
------------
COMPUTER BUSINESS EQUIPMENT &
SERVICES (.8%)
Unisys Corp.
350,000 9.75%, 1996 357,875
------------
CONGLOMERATES (.9%)
Tenneco, Inc.
375,000 10.00%, 1998 409,357
------------
ELECTRIC UTILITIES (2.8%)
Consumers Power Co.
250,000 8.75%, 1998 262,042
Long Island Lighting Co.
500,000 8.75%, 1996 508,750
Midwest Power Systems Inc.
500,000 6.25%, 1998 498,210
------------
1,269,002
------------
ELECTRICAL & ELECTRONIC EQUIPMENT
(2.2%)
Electrolux
500,000 7.75%, 1997 511,875
Westinghouse Electric Corp.
500,000 7.75%, 1996 503,065
------------
1,014,940
------------
FINANCIAL SERVICES (15.8%)
Allied Lyons
500,000 6.50%, 1997 501,563
American General Finance Corp.
500,000 8.50%, 1998 529,015
Aristar, Inc.
500,000 6.25%, 1996 499,990
Associates Corp. of North America
500,000 7.40%, 1999 517,540
Avco Financial Services, Inc.
500,000 5.875%, 1997 495,300
Banque Nationale de Paris
205,000 9.875%, 1998 222,683
Beneficial Corp.
500,000 9.125%, 1998 532,105
Chrysler Financial Corp.
500,000 5.08%, 1997 491,280
Countrywide Funding Corp.
500,000 6.57%, 1997 502,010
Discover Credit Corp.
250,000 8.73%, 1996 256,215
Fleet Mortgage Group, Inc.
500,000 6.125%, 1997 497,035
General Motors Acceptance Corp.
500,000 5.65%, 1997 491,320
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY VALUE
<C> <S> <C>
Green Tree Financial Corp.
$ 250,000 7.70%, 2019 $ 258,905
Household Financial Corporation
Ltd.
250,000 6.00%, 1998 246,907
Household International
Netherlands B.V.
250,000 6.00%, 1999 245,913
Norwest Financial, Inc.
500,000 6.50%, 1997 502,450
Transamerica Finance Group, Inc.
500,000 7.42%, 1998 512,275
------------
7,302,506
------------
FOOD & BEVERAGES (4.5%)
ConAgra, Inc.
500,000 9.75%, 1997 533,695
Grand Metropolitan Investment
Corp.
500,000 8.125%, 1996 510,105
Nabisco Brands Inc.
500,000 8.00%, 2000 523,780
Seagram Company Ltd.
500,000 9.75%, 2000 512,335
------------
2,079,915
------------
INSURANCE (.9%)
SunAmerica Inc.
370,000 9.00%, 1999 395,223
------------
LEASING (2.2%)
Penske Truck Leasing Co.
500,000 7.75%, 1999 513,675
U.S. Leasing International Inc.
500,000 7.00%, 1997 507,250
------------
1,020,925
------------
LEISURE & ENTERTAINMENT (.5%)
Blockbuster Entertainment Corp.
250,000 6.625%, 1998 248,398
------------
MACHINERY & EQUIPMENT (1.1%)
Caterpillar Financial Services
Corp.
500,000 6.85%, 1997 505,230
------------
MANUFACTURING (.6%)
First Brands Corp.
265,000 9.125%, 1999 274,164
------------
MORTGAGE-BACKED SECURITIES (5.8%)
American Southwest Financial Corp.
1,624,603 8.25%, 2016 1,627,649
GE Capital Mortgage Services, Inc.
152,509 6.50%, 2024 152,079
Housing Securities, Inc.
227,396 7.25%, 2012 227,112
</TABLE>
3 The accompanying notes are an integral part of these financial statements.
<PAGE>
INCOME ACCOUNT (cont'd)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY VALUE
<C> <S> <C>
Ryland Mortgage Securities Corp.
$ 426,648 8.339%, 2030 $ 423,182
Salomon Brothers, Inc.
263,007 0.00%, 2017 187,637
177,728 12.50%, 2017 43,543
------------
2,661,202
------------
OFFICE EQUIPMENT (.6%)
Xerox Corp.
270,000 9.20%, 1999 277,104
------------
OIL & GAS (8.6%)
Arkla, Inc.
505,000 9.875%, 1997 525,200
BP America Inc.
500,000 8.875%, 1997 529,570
Bridas Corp.
250,000 12.50%, 1999 225,625
Coastal Corp.
500,000 8.75%, 1999 532,955
El Paso Natural Gas Co.
250,000 6.90%, 1997 252,230
Empresa Columbia de Petroleos
250,000 7.25%, 1998 248,125
Florida Gas Transmission Co.
500,000 7.75%, 1997 513,675
Occidental Petroleum Corp.
500,000 6.43%, 1997 499,055
Phillips Petroleum Co.
474,163 7.53%, 1998 483,461
Transcontinental Gas Pipe Line
Corp.
150,000 9.00%, 1996 155,065
------------
3,964,961
------------
PAPER & FOREST PRODUCTS (1.9%)
Celulosa Arauco y Constitucion SA
350,000 7.25%, 1998 350,875
Georgia-Pacific Corp.
500,000 9.85%, 1997 529,880
------------
880,755
------------
PRINTING & PUBLISHING (2.2%)
Reed Publishing USA Inc.
500,000 7.20%, 1997 508,375
Time Warner Inc.
500,000 7.45%, 1998 504,035
------------
1,012,410
------------
RETAIL TRADE (2.7%)
Kmart Corp.
500,000 8.61%, 1997 516,370
Sears, Roebuck & Co.
200,000 9.44%, 1996 204,900
500,000 8.39%, 1999 530,580
------------
1,251,850
------------
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY VALUE
<C> <S> <C>
SAVINGS & LOAN (1.1%)
Golden West Financial Corp.
$ 500,000 8.625%, 1998 $ 528,925
------------
TELECOMMUNICATIONS (1.3%)
Tele-Communications, Inc.
615,000 5.28%, 1996 607,522
------------
TELEPHONE UTILITIES (2.3%)
GTE Corp.
500,000 8.85%, 1998 527,595
MCI Communications Corp.
500,000 7.625%, 1996 508,645
------------
1,036,240
------------
TOBACCO (2.2%)
B.A.T Capital Corp.
500,000 6.66%, 2000 488,900
Philip Morris Companies Inc.
500,000 8.75%, 1996 516,130
------------
1,005,030
------------
TRANSPORTATION (1.1%)
Federal Express Corp.
500,000 9.75%, 1996 513,670
------------
TOTAL CORPORATE BONDS
(COST $39,041,898) 38,374,067
------------
U.S. GOVERNMENT & AGENCY
LONG-TERM OBLIGATIONS
(10.7% OF NET ASSETS)
Federal Home Loan Mortgage Corp.
169,307 5.50%, 1997 166,820
505,197 5.50%, 1998 497,777
Federal National Mortgage Assn.
872,111 7.50%, 2008 886,553
873,484 7.00%, 2009 875,667
816,947 8.00%, 2009 840,173
250,000 6.00%, 2019 242,968
Government National Mortgage Assn.
397,717 7.00%, 2009 399,578
46,223 13.00%, 2014 52,261
U.S. Treasury Note
1,000,000 5.25%, 1998 981,090
------------
TOTAL U.S. GOVERNMENT & AGENCY
LONG-TERM OBLIGATIONS
(COST $4,889,313) 4,942,887
------------
COMMERCIAL PAPER
(4.3% OF NET ASSETS)
Wal-Mart Stores Inc.
6.15%, due 7/3/95 (COST
$1,984,322) 1,984,322
1,985,000
------------
TOTAL INVESTMENTS
(COST $45,915,533) $ 45,301,276
------------
------------
</TABLE>
4
<PAGE>
TOTAL RETURN ACCOUNT
<TABLE>
<CAPTION>
NUMBER OF MARKET
SHARES SECURITY VALUE
<C> <S> <C>
COMMON STOCKS
(38.7% OF NET ASSETS)
AEROSPACE (4.4%)
22,600 General Dynamics Corp. $ 1,002,875
28,100 General Motors Corp. Class H 1,109,950
35,371 Lockheed Martin Corp. 2,232,794
37,600 Loral Corp. 1,945,800
19,000 McDonnell Douglas Corp. 1,458,250
26,900 Rockwell International Corp. 1,230,675
------------
8,980,344
------------
AIRLINES (1.8%)
16,100 AMR Corp. 1,201,462
22,300 Delta Air Lines, Inc. 1,644,625
25,100 Northwest Airlines Corp. 887,912
------------
3,733,999
------------
BANKING (2.1%)
18,600 Bank of New York Co., Inc. 750,975
26,500 Chase Manhattan Corp. 1,245,500
21,300 Morgan (J.P.) & Company, Inc. 1,493,663
4,600 Wells Fargo & Co. 829,150
------------
4,319,288
------------
BUILDING MATERIALS & CONSTRUCTION
(.1%)
11,500 USG Corp. 273,125
------------
CHEMICALS (2.0%)
13,000 FMC Corp. 874,250
28,800 Grace (W.R.) & Co. 1,767,600
15,700 Monsanto Co. 1,414,963
------------
4,056,813
------------
CONGLOMERATES (1.0%)
21,000 AlliedSignal Inc. 934,500
17,600 Textron, Inc. 1,023,000
------------
1,957,500
------------
DRUGS & COSMETICS (.4%)
9,500 American Home Products Corp. 735,062
------------
ELECTRIC UTILITIES (1.8%)
37,300 FPL Group, Inc. 1,440,712
45,600 Illinova Corp. 1,157,100
41,000 Unicom Corp. 1,091,625
------------
3,689,437
------------
ELECTRICAL & ELECTRONIC EQUIPMENT
(.5%)
18,500 Micron Technology Inc. 1,015,188
------------
FOOD & BEVERAGES (.9%)
60,422 Archer Daniels Midland Co. 1,125,360
30,200 Ralcorp Holdings, Inc. 690,825
------------
1,816,185
------------
<CAPTION>
NUMBER OF MARKET
SHARES SECURITY VALUE
<C> <S> <C>
HEALTH SERVICES & HOSPITAL SUPPLIES
(1.5%)
49,100 Baxter International Inc. $ 1,786,013
28,700 Columbia Healthcare Corp. 1,241,275
------------
3,027,288
------------
INSURANCE (3.4%)
26,500 Aetna Life & Casualty Co. 1,666,187
35,100 American General Corp. 1,184,625
18,500 Lincoln National Corp. 809,375
15,300 St. Paul Companies Inc. 753,525
36,100 TIG Holdings, Inc. 830,300
39,200 Travelers Group 1,715,000
------------
6,959,012
------------
LEISURE RELATED (.8%)
19,300 Grand Casinos, Inc. 682,738
37,675 Mattel, Inc. 979,550
------------
1,662,288
------------
MACHINERY & EQUIPMENT (1.3%)
15,700 Caterpillar Inc. 1,008,725
33,390 Mark IV Industries, Inc. 717,885
25,650 Parker-Hannifin Corp. 929,812
------------
2,656,422
------------
MANUFACTURING (.8%)
25,300 Black & Decker Corp. 781,138
18,000 Philips Electronics NV 769,500
------------
1,550,638
------------
METALS & MINING (1.1%)
19,800 IMC Global Inc. 1,071,675
Potash Corporation of Saskatchewan
19,800 Inc. 1,106,325
------------
2,178,000
------------
MISCELLANEOUS (1.5%)
57,300 Dial Corp. 1,418,175
30,500 Premark International, Inc. 1,582,188
------------
3,000,363
------------
OFFICE EQUIPMENT (.6%)
11,200 Xerox Corp. 1,313,200
------------
OIL & GAS (3.4%)
18,300 Amoco Corp. 1,219,238
26,400 Chevron Corp. 1,230,900
14,800 Mobil Corp. 1,420,800
71,200 Panhandle Eastern Corp. 1,735,500
10,400 Royal Dutch Petroleum Co. 1,267,500
------------
6,873,938
------------
PAPER & FOREST PRODUCTS (1.8%)
9,500 Georgia-Pacific Corp. 824,125
31,200 Scott Paper Co. 1,544,400
</TABLE>
5 The accompanying notes are an integral part of these financial statements.
<PAGE>
TOTAL RETURN ACCOUNT (cont'd)
<TABLE>
<CAPTION>
NUMBER OF MARKET
SHARES SECURITY VALUE
<C> <S> <C>
22,000 Willamette Industries, Inc. $ 1,221,000
------------
3,589,525
------------
RETAIL TRADE (2.5%)
45,900 American Stores Co. 1,290,937
18,900 Eckerd Corp. 604,800
49,700 Kroger Co. 1,335,688
30,400 Sears, Roebuck & Co. 1,820,200
------------
5,051,625
------------
TECHNOLOGY (2.0%)
9,800 Applied Materials Inc. 848,925
17,100 Compaq Computer Corp. 775,912
Computer Associates International,
13,200 Inc. 894,300
International Business Machines
15,900 Corp. 1,526,400
------------
4,045,537
------------
TELEPHONE UTILITIES (1.7%)
31,400 Ameritech Corp. 1,381,600
31,000 GTE Corp. 1,057,875
27,200 NYNEX Corp. 1,094,800
------------
3,534,275
------------
TOBACCO (1.3%)
28,800 American Brands, Inc. 1,144,800
18,700 Philip Morris Companies Inc. 1,390,812
------------
2,535,612
------------
TOTAL COMMON STOCKS
(COST $64,331,079) 78,554,664
------------
PRINCIPAL CORPORATE BONDS
AMOUNT (20.8% OF NET ASSETS)
AEROSPACE (.4%)
British Aerospace Finance Inc.
$ 500,000 8.00%, 1997 513,750
Coltec Industries, Inc.
250,000 9.75%, 2000 258,750
------------
772,500
------------
AUTO & AUTO RELATED (.2%)
Burmah Castrol Capital, Ltd.
500,000 7.00%, 1997 508,525
------------
BANKING (2.5%)
Bank of Boston Corp.
500,000 10.30%, 2000 502,890
BankAmerica Corp.
500,000 6.00%, 1997 496,525
Chemical Banking Corp.
250,000 10.125%, 2000 285,820
First Fidelity Bancorporation
500,000 8.50%, 1998 524,650
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY VALUE
<C> <S> <C>
First USA Bank of Delaware
$ 500,000 5.05%, 1995 $ 497,375
750,000 5.35%, 1996 713,550
Fleet Financial Group, Inc.
250,000 9.90%, 2001 285,345
Marshall & Ilsley Corp.
500,000 6.95%, 1997 506,970
Mellon Financial Co.
400,000 6.50%, 1997 401,740
Shawmut National Corp.
750,000 8.875%, 1996 762,975
------------
4,977,840
------------
CHEMICALS (1.3%)
FMC Corp.
500,000 8.75%, 1999 532,380
Lyondell Petrochemical Co.
1,100,000 8.25%, 1997 1,124,288
Morton International, Inc.
500,000 9.25%, 2020 613,510
PPG Industries, Inc.
250,000 9.00%, 2021 296,102
------------
2,566,280
------------
COMPUTER BUSINESS EQUIPMENT &
SERVICES (.4%)
Unisys Corp.
750,000 9.75%, 1996 766,875
------------
CONGLOMERATES (.5%)
Tenneco Credit Corp.
500,000 9.25%, 1996 517,255
Tenneco, Inc.
375,000 10.00%, 1998 409,358
------------
926,613
------------
DRUGS & COSMETICS (.5%)
Procter & Gamble Co.
250,000 9.36%, 2021 304,637
Roche Holdings Inc.
950,000 2.75%, 2000 808,688
------------
1,113,325
------------
ELECTRIC UTILITIES (.7%)
Hydro-Quebec
500,000 9.375%, 2030 595,605
Long Island Lighting Co.
500,000 8.75%, 1996 508,750
Public Service Co. of New
Hampshire
250,000 8.875%, 1996 254,353
------------
1,358,708
------------
</TABLE>
6
<PAGE>
TOTAL RETURN ACCOUNT (cont'd)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY VALUE
<C> <S> <C>
ELECTRICAL & ELECTRONIC EQUIPMENT
(.5%)
Electrolux
$ 500,000 7.75%, 1997 $ 511,875
Westinghouse Electric Corp.
500,000 7.75%, 1996 503,065
------------
1,014,940
------------
FINANCIAL SERVICES (5.3%)
American General Finance Corp.
500,000 7.70%, 1997 514,585
500,000 8.50%, 1998 529,015
Aristar, Inc.
500,000 6.25%, 1996 499,990
250,000 8.125%, 1997 259,777
Associates Corp. of North America
500,000 6.75%, 1999 503,895
Avco Financial Services, Inc.
500,000 5.875%, 1997 495,300
Countrywide Funding Corp.
250,000 6.57%, 1997 251,005
500,000 6.085%, 1999 491,290
Discover Credit Corp.
500,000 8.73%, 1996 512,430
Fleet Mortgage Corp.
1,000,000 6.125%, 1997 994,070
250,000 6.50%, 1999 248,640
Ford Motor Credit Co.
500,000 8.00%, 1997 518,145
500,000 6.25%, 1998 498,710
General Motors Acceptance Corp.
1,000,000 5.65%, 1997 982,640
750,000 7.75%, 1997 766,320
Green Tree Financial Corp.
500,000 8.00%, 2020 521,560
Household Financial Corporation
Ltd.
250,000 6.00%, 1998 246,908
Household International
Netherlands B.V.
500,000 6.00%, 1999 491,825
ITT Financial Corp.
250,000 8.75%, 2006 268,993
Norwest Financial, Inc.
500,000 6.50%, 1997 502,450
Transamerica Finance Corp.
500,000 6.75%, 1997 503,965
250,000 6.80%, 1999 252,465
------------
10,853,978
------------
FOOD & BEVERAGES (1.1%)
Bass America Inc.
250,000 6.75%, 1999 252,217
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY VALUE
<C> <S> <C>
ConAgra, Inc.
$ 500,000 9.75%, 1997 $ 533,695
Nabisco Brands Inc.
500,000 8.00%, 2000 523,780
Seagram Company Ltd.
950,000 9.75%, 2000 973,436
------------
2,283,128
------------
INSURANCE (.2%)
SunAmerica Inc.
450,000 9.00%, 1999 480,677
------------
LEASING (.8%)
Penske Truck Leasing Co.
750,000 7.75%, 1999 770,513
PHH Corp.
350,000 6.50%, 2000 348,709
U.S. Leasing International Inc.
500,000 7.00%, 1997 507,250
------------
1,626,472
------------
LEISURE & ENTERTAINMENT (.2%)
Blockbuster Entertainment Corp.
500,000 6.625%, 1998 496,795
------------
MANUFACTURING (.2%)
Black & Decker Corp.
400,000 6.625%, 2000 394,040
------------
MORTGAGE-BACKED SECURITIES (.3%)
Fleet Mortgage Securities, Inc.
153,076 8.25%, 2023 153,075
Housing Securities, Inc.
363,833 7.25%, 2012 363,379
------------
516,454
------------
OIL & GAS (2.5%)
Arkla, Inc.
750,000 9.875%, 1997 780,000
BP America, Inc.
500,000 8.875%, 1997 529,570
Bridas Corp.
270,000 12.50%, 1999 243,675
Coastal Corp.
500,000 8.125%, 2002 526,220
Norsk Hydro
500,000 8.75%, 2001 549,062
Petroliam Nasional Berhad
500,000 6.875%, 2003 499,920
Phillips Petroleum Co.
948,326 7.53%, 1998 966,922
TransCanada Pipelines Ltd.
500,000 9.875%, 2021 628,375
Transco Energy Co.
250,000 9.625%, 2000 280,565
------------
5,004,309
------------
</TABLE>
7 The accompanying notes are an integral part of these financial statements.
<PAGE>
TOTAL RETURN ACCOUNT (cont'd)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY VALUE
<C> <S> <C>
PAPER & FOREST PRODUCTS (.6%)
Celulosa Arauco y Constitucion SA
$ 500,000 7.25%, 1998 $ 501,250
Georgia-Pacific Corp.
750,000 9.85%, 1997 794,820
------------
1,296,070
------------
PRINTING & PUBLISHING (.5%)
Reed Elsevier, Inc.
400,000 6.625%, 2023 360,388
Time Warner Inc.
700,000 7.45%, 1998 705,649
------------
1,066,037
------------
RETAIL TRADE (.2%)
Sears, Roebuck & Co.
300,000 8.39%, 1999 318,348
------------
SAVINGS & LOAN (.3%)
Golden West Financial Corp.
500,000 10.25%, 1997 531,970
------------
TELECOMMUNICATIONS (.2%)
Tele-Communications, Inc.
400,000 7.15%, 1998 404,412
------------
TELEPHONE UTILITIES (.6%)
GTE Corp.
750,000 8.85%, 1998 791,393
MCI Communications Corp.
500,000 7.125%, 2000 512,780
------------
1,304,173
------------
TOBACCO (.3%)
Philip Morris Companies Inc.
500,000 8.75%, 1996 516,130
------------
TRANSPORTATION (.5%)
Federal Express Corp.
750,000 9.75%, 1996 770,505
250,000 6.25%, 1998 248,115
------------
1,018,620
------------
TOTAL CORPORATE BONDS
(COST $41,824,531) 42,117,219
------------
U.S. GOVERNMENT & AGENCY
LONG-TERM OBLIGATIONS
(14.3% OF NET ASSETS)
Federal Home Loan Mortgage Corp.
1,000,000 6.00%, 2007 927,180
Federal National Mortgage Assn.
1,288,885 7.50%, 2008 1,310,229
800,000 6.00%, 2019 777,496
630,973 7.00%, 2022 547,369
Government National Mortgage Assn.
680,968 7.00%, 2009 684,155
979,208 7.50%, 2009 997,871
606,893 8.00%, 2017 625,203
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY VALUE
<C> <S> <C>
$ 209,596 9.00%, 2018 $ 221,496
294,868 9.00%, 2019 310,726
306,072 9.00%, 2021 323,451
258,677 9.00%, 2022 272,588
2,566,997 6.50%, 2023 2,465,909
285,601 8.50%, 2023 296,488
3,705,272 6.50%, 2024 3,559,358
4,599,878 7.00%, 2024 4,526,556
U.S. Treasury Bonds
650,000 7.50%, 2016 707,688
8,250,000 8.75%, 2017 10,144,943
U.S. Treasury Note
300,000 5.75%, 2003 290,859
------------
TOTAL U.S. GOVERNMENT & AGENCY
LONG-TERM OBLIGATIONS
(COST $27,188,364) 28,989,565
------------
FOREIGN GOVERNMENT BONDS
(.7% OF NET ASSETS)
Fomento Economico Mexicano
450,000 9.50%, 1997 429,750
Republic of Columbia
300,000 7.125%, 1998 294,750
400,000 8.75%, 1999 414,000
United Mexican States
250,000 6.97%, 2000 180,000
------------
TOTAL FOREIGN GOVERNMENT BONDS
(COST $1,387,071) 1,318,500
------------
COMMERCIAL PAPER
(25.2% OF NET ASSETS)
Armstrong World Industries Inc.
4,100,000 5.97%, due 7/18/95 4,088,441
Beneficial Corp.
1,700,000 5.95%, due 7/17/95 1,695,505
Cargill, Inc.
3,630,000 5.92%, due 7/7/95 3,626,418
Corporate Receivables Corp.
2,000,000 6.00%, due 7/19/95 1,994,000
Dayton Hudson Corp.
2,000,000 6.00%, due 7/21/95 1,993,333
Ford Motor Credit Co.
5,065,000 5.97%, due 7/12/95 5,065,000
1,914,000 5.96%, due 7/17/95 1,914,000
GTE Florida, Inc.
4,000,000 6.00%, due 7/20/95 3,987,333
Hewlett Packard Finance Co.
3,000,000 5.95%, due 7/11/95 2,995,042
Merrill Lynch & Co., Inc.
2,880,000 5.98%, due 7/6/95 2,877,608
4,025,000 5.97%, due 7/13/95 4,016,990
PACCAR Financial Corp.
2,380,000 5.95%, due 7/5/95 2,378,427
3,000,000 5.97%, due 7/14/95 2,993,533
</TABLE>
8
<PAGE>
TOTAL RETURN ACCOUNT (cont'd)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY VALUE
<C> <S> <C>
PHH Corp.
$ 1,605,000 5.97%, due 7/6/95 $ 1,603,669
Public Service Electric and Gas
Co.
3,050,000 5.97%, due 7/10/95 3,045,448
U.S. Central Credit Union
2,885,000 5.98%, due 7/5/95 2,883,083
Xerox Corp.
3,895,000 5.96%, due 7/13/95 3,887,262
------------
TOTAL COMMERCIAL PAPER
(COST $51,045,092) 51,045,092
------------
TOTAL INVESTMENTS
(COST $185,776,137) $202,025,040
------------
------------
</TABLE>
GROWTH ACCOUNT
<TABLE>
<CAPTION>
NUMBER OF MARKET
SHARES SECURITY VALUE
<C> <S> <C>
COMMON STOCKS
(90.8% OF NET ASSETS)
AEROSPACE (10.8%)
25,400 General Dynamics Corp. $ 1,127,125
36,000 General Motors Corp. Class H 1,422,000
35,371 Lockheed Martin Corp. 2,232,794
41,700 Loral Corp. 2,157,975
24,500 McDonnell Douglas Corp. 1,880,375
38,400 Rockwell International Corp. 1,756,800
------------
10,577,069
------------
AIRLINES (4.3%)
20,400 AMR Corp. 1,522,350
22,500 Delta Air Lines, Inc. 1,659,375
30,000 Northwest Airlines Corp. 1,061,250
------------
4,242,975
------------
BANKING (5.0%)
18,600 Bank of New York Co., Inc. 750,975
23,800 Chase Manhattan Corp. 1,118,600
27,100 Morgan (J.P.) & Company, Inc. 1,900,388
6,300 Wells Fargo & Co. 1,135,575
------------
4,905,538
------------
BUILDING MATERIALS & CONSTRUCTION
(.4%)
14,800 USG Corp. 351,500
------------
CHEMICALS (4.5%)
14,600 FMC Corp. 981,850
28,700 Grace (W.R.) & Co. 1,761,462
18,800 Monsanto Co. 1,694,350
------------
4,437,662
------------
CONGLOMERATES (2.6%)
24,700 AlliedSignal Inc. 1,099,150
<CAPTION>
NUMBER OF MARKET
SHARES SECURITY VALUE
<C> <S> <C>
24,000 Textron, Inc. $ 1,395,000
------------
2,494,150
------------
DRUGS & COSMETICS (.8%)
9,900 American Home Products Corp. 766,013
------------
ELECTRIC UTILITIES (4.1%)
35,600 FPL Group, Inc. 1,375,050
49,400 Illinova Corp. 1,253,525
52,300 Unicom Corp. 1,392,487
------------
4,021,062
------------
ELECTRICAL & ELECTRONIC EQUIPMENT
(1.2%)
21,000 Micron Technology Inc. 1,152,375
------------
FOOD & BEVERAGES (2.1%)
71,115 Archer Daniels Midland Co. 1,324,517
30,100 Ralcorp Holdings, Inc. 688,538
------------
2,013,055
------------
HEALTH SERVICES & HOSPITAL SUPPLIES
(3.3%)
50,700 Baxter International Inc. 1,844,212
32,700 Columbia Healthcare Corp. 1,414,275
------------
3,258,487
------------
INSURANCE (8.1%)
24,000 Aetna Life & Casualty Co. 1,509,000
51,300 American General Corp. 1,731,375
22,200 Lincoln National Corp. 971,250
22,700 St. Paul Companies Inc. 1,117,975
36,400 TIG Holdings, Inc. 837,200
39,500 Travelers Group 1,728,125
------------
7,894,925
------------
LEISURE RELATED (1.8%)
23,300 Grand Casinos, Inc. 824,238
35,968 Mattel, Inc. 935,168
------------
1,759,406
------------
MACHINERY & EQUIPMENT (3.2%)
17,400 Caterpillar Inc. 1,117,950
38,955 Mark IV Industries, Inc. 837,533
31,100 Parker-Hannifin Corp. 1,127,375
------------
3,082,858
------------
MANUFACTURING (2.0%)
30,000 Black & Decker Corp. 926,250
23,300 Philips Electronics NV 996,075
------------
1,922,325
------------
METALS & MINING (2.7%)
24,400 IMC Global Inc. 1,320,650
Potash Corporation of Saskatchewan
24,100 Inc. 1,346,588
------------
2,667,238
------------
</TABLE>
9 The accompanying notes are an integral part of these financial statements.
<PAGE>
GROWTH ACCOUNT (cont'd)
<TABLE>
<CAPTION>
NUMBER OF MARKET
SHARES SECURITY VALUE
<C> <S> <C>
MISCELLANEOUS (3.1%)
64,900 Dial Corp. $ 1,606,275
27,600 Premark International, Inc. 1,431,750
------------
3,038,025
------------
OFFICE EQUIPMENT (1.5%)
12,700 Xerox Corp. 1,489,075
------------
OIL & GAS (7.9%)
22,400 Amoco Corp. 1,492,400
32,200 Chevron Corp. 1,501,325
16,700 Mobil Corp. 1,603,200
73,100 Panhandle Eastern Corp. 1,781,812
10,600 Royal Dutch Petroleum Co. 1,291,875
------------
7,670,612
------------
PAPER & FOREST PRODUCTS (3.8%)
10,800 Georgia-Pacific Corp. 936,900
28,200 Scott Paper Co. 1,395,900
24,600 Willamette Industries, Inc. 1,365,300
------------
3,698,100
------------
RETAIL TRADE (6.1%)
55,700 American Stores Co. 1,566,562
21,600 Eckerd Corp. 691,200
52,300 Kroger Co. 1,405,563
38,000 Sears, Roebuck & Co. 2,275,250
------------
5,938,575
------------
TECHNOLOGY (4.8%)
11,700 Applied Materials Inc. 1,013,512
22,100 Compaq Computer Corp. 1,002,787
Computer Associates International,
12,100 Inc. 819,775
<CAPTION>
NUMBER OF MARKET
SHARES SECURITY VALUE
<C> <S> <C>
International Business Machines
19,700 Corp. $ 1,891,200
------------
4,727,274
------------
TELEPHONE UTILITIES (4.1%)
33,000 Ameritech Corp. 1,452,000
36,900 GTE Corp. 1,259,213
32,700 NYNEX Corp. 1,316,175
------------
4,027,388
------------
TOBACCO (2.6%)
28,500 American Brands, Inc. 1,132,875
18,800 Philip Morris Companies Inc. 1,398,250
------------
2,531,125
------------
TOTAL COMMON STOCKS
(COST $71,945,181) 88,666,812
------------
PRINCIPAL COMMERCIAL PAPER
AMOUNT (9.6% OF NET ASSETS)
Armstrong World Industries Inc.
$ 2,420,000 6.03%, due 7/11/95 2,415,946
CSW Credit, Inc.
2,200,000 6.00%, due 7/6/95 2,198,167
International Lease Finance Corp.
1,220,000 6.00%, due 7/5/95 1,219,187
Merrill Lynch & Co., Inc.
2,000,000 6.00%, due 7/7/95 1,998,000
U S West Communications, Inc.
1,540,000 5.97%, due 7/10/95 1,537,701
------------
TOTAL COMMERCIAL PAPER
(COST $9,369,001) 9,369,001
------------
TOTAL INVESTMENTS
(COST $81,314,182) $ 98,035,813
------------
------------
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS June 30, 1995 (Unaudited)
<TABLE>
<S> <C> <C>
<C> <C> <C>
A C C O U N T S
1. Aggregate gross unrealized appreciation
(depreciation) as of June 30, 1995, based on
cost for Federal income tax purposes, was as GOVERNMENT
TOTAL
follows: LIQUID SECURITIES
INCOME RETURN
GROWTH
Aggregate gross unrealized appreciation $ -- $ 1,077,858
$ 316,314 $ 16,947,234
$16,779,774
Aggregate gross unrealized depreciation -- (367,620)
(930,571) (698,331)
(58,143)
------------ ------------
------------ ------------- ------------
Net unrealized appreciation (depreciation) $ -- $ 710,238
$ (614,257) $ 16,248,903
$16,721,631
------------ ------------
------------ ------------- ------------
------------ ------------
------------ ------------- ------------
2. The aggregate cost of investments for Federal
income tax purposes was: $63,762,744 $50,109,117
$45,915,533
$185,776,137 $81,314,182
------------ ------------
------------ ------------- ------------
------------ ------------
------------ ------------- ------------
3. Purchases and sales of securities (excluding
short-term securities) for the six months ended
June 30, 1995 are summarized as follows:
Purchases $ -- $15,982,930
$ 8,377,048 $ 42,898,643
$35,140,419
Sales $ -- $27,933,247
$10,605,131 $ 74,114,376
$29,874,172
</TABLE>
10
<PAGE>
STATEMENT OF NET ASSETS CONNECTICUT MUTUAL INVESTMENT
ACCOUNTS,
INC.
June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
A C
C O U N T S
GOVERNMENT
TOTAL
LIQUID SECURITIES
INCOME RETURN
GROWTH
<S> <C> <C> <C>
<C> <C>
ASSETS
Investments:
Bonds, at market value
(Cost $49,799,117, $43,931,211,
$70,399,966) $ -- $50,509,355
$43,316,954 $ 72,425,284 $ --
Common stocks, at market value
(Cost $64,331,079, $71,945,181) -- --
-- 78,554,664 88,666,812
Short-term securities 63,762,744 310,000
1,984,322 51,045,092
9,369,001
------------ ------------
- ------------ ------------- ------------
63,762,744 50,819,355
45,301,276 202,025,040 98,035,813
Cash 2,853 1,393
9,863 8,746 5,339
Investment income receivable 80,093 1,033,935
794,292 1,224,367
214,040
Receivable from securities sold -- --
-- 588,984 636,602
Receivable from Fund shares sold 117,807 28,911
48,828 59,956
50,401
------------ ------------
- ------------ ------------- ------------
Total Assets 63,963,497 51,883,594
46,154,259 203,907,093
98,942,195
------------ ------------
- ------------ ------------- ------------
LIABILITIES
Accrued expenses payable 91,408 113,406
45,371 334,009
167,379
Payable for securities purchased -- 511,720
-- 855,457 1,083,336
Dividends payable 8,306 --
-- -- --
Total Liabilities 99,714 625,126
45,371 1,189,466 1,250,715
------------ ------------
- ------------ ------------- ------------
NET ASSETS $63,863,783 $51,258,468
$46,108,888 $202,717,627
$97,691,480
------------ ------------
- ------------ ------------- ------------
------------ ------------
- ------------ ------------- ------------
OUTSTANDING SHARES 63,863,783 4,907,718
4,882,627 13,611,392
5,874,382
------------ ------------
- ------------ ------------- ------------
------------ ------------
- ------------ ------------- ------------
NET ASSET VALUE PER SHARE $1.00 $10.44
$9.44 $14.89
$16.63
----- ------
----- ------ ------
----- ------
----- ------ ------
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $63,863,783 $53,921,691
$48,871,786
$183,199,804 $78,476,370
Undistributed net investment income -- 72,169
36,057 128,739
67,221
Accumulated undistributed net realized
gain (loss) -- (3,445,630)
(2,184,698) 3,140,181 2,426,258
Net unrealized appreciation
(depreciation) -- 710,238
(614,257) 16,248,903 16,721,631
------------ ------------
- ------------ ------------- ------------
NET ASSETS $63,863,783 $51,258,468
$46,108,888 $202,717,627
$97,691,480
------------ ------------
- ------------ ------------- ------------
------------ ------------
- ------------ ------------- ------------
</TABLE>
11 The accompanying notes are an integral part of these financial statements.
<PAGE>
STATEMENT OF OPERATIONS CONNECTICUT MUTUAL INVESTMENT
ACCOUNTS,
INC.
For the six months ended June 30, 1995
(Unaudited)
<TABLE>
<CAPTION>
A C C
O U N T S
GOVERNMENT
TOTAL
LIQUID SECURITIES
INCOME RETURN
GROWTH
<S> <C> <C> <C>
<C> <C>
INVESTMENT INCOME
Income:
Interest $2,021,301 $2,382,456
$1,807,409 $ 4,146,518 $ 276,503
Dividends -- --
-- 945,743 1,016,400
----------- -----------
- ----------- ------------ ------------
Total Income 2,021,301 2,382,456
1,807,409 5,092,261 1,292,903
----------- -----------
- ----------- ------------ ------------
Expenses:
Investment advisory fees 165,853 183,692
145,711 586,971 271,369
Transfer agent fees 99,800 45,100
30,200 189,400 91,700
Distribution fees -- --
-- 83,049 39,540
Registration fees 16,750 15,250
14,250 21,750 18,250
Custodian fees 14,000 12,475
13,500 22,450 17,900
Shareholder reports 5,000 5,500
4,000 20,000 10,000
Professional services 7,700 6,050
5,500 24,200 11,550
Directors' fees 2,100 1,900
1,710 5,220 2,820
Other 116 5,158
-- 18,954 13,291
Expense reimbursement from investment
adviser -- --
(69,160) -- --
----------- -----------
- ----------- ------------ ------------
Total Expenses 311,319 275,125
145,711 971,994 476,420
----------- -----------
- ----------- ------------ ------------
NET INVESTMENT INCOME 1,709,982 2,107,331
1,661,698 4,120,267
816,483
----------- -----------
- ----------- ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) on investments 2 (592,478)
(486,025) 2,607,488
1,898,129
Net unrealized appreciation on
investments -- 4,666,776
2,054,379 16,532,094 11,899,886
----------- -----------
- ----------- ------------ ------------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS 2 4,074,298
1,568,354 19,139,582
13,798,015
----------- -----------
- ----------- ------------ ------------
NET INCREASE IN NET
ASSETS RESULTING FROM OPERATIONS $1,709,984 $6,181,629
$3,230,052
$23,259,849 $14,614,498
----------- -----------
- ----------- ------------ ------------
----------- -----------
- ----------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements. 12
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS CONNECTICUT MUTUAL INVESTMENT
ACCOUNTS,
INC.
For the six months ended June 30, 1995
(Unaudited)
and the year ended December 31, 1994
<TABLE>
<CAPTION>
<S> <C> <C> <C>
<C>
A C C O U N T S
LIQUID GOVERNMENT
SECURITIES
1995 1994 1995
1994
INCREASE (DECREASE) IN NET
ASSETS
FROM OPERATIONS:
Net investment income $ 1,709,982 $ 2,575,968 $ 2,107,331
$ 4,942,102
Net realized gain (loss)
on investments 2 (987) (592,478)
(2,822,974)
Net unrealized
appreciation
(depreciation) -- -- 4,666,776
(5,366,869)
------------- -------------- -------------
-------------
Net increase (decrease) in
net assets resulting from
operations 1,709,984 2,574,981 6,181,629
(3,247,741)
------------- -------------- -------------
-------------
DIVIDENDS TO SHAREHOLDERS
FROM:
Net investment income (1,709,984) (2,574,981) (2,067,140)
(4,939,034)
Net realized gain from
investment transactions -- -- --
(56,279)
------------- -------------- -------------
-------------
(1,709,984) (2,574,981) (2,067,140)
(4,995,313)
------------- -------------- -------------
-------------
FROM CAPITAL SHARE
TRANSACTIONS:
Net proceeds from sale of
shares 87,303,939 177,469,640 1,630,430
7,468,147
Net asset value of shares
issued to shareholders
from reinvestment of
dividends 1,674,793 2,548,202 1,834,042
4,527,905
Cost of shares reacquired (89,060,819) (192,692,366) (16,482,832)
(21,186,898)
------------- -------------- -------------
-------------
Increase (decrease) in net
assets derived from
capital share
transactions (82,087) (12,674,524) (13,018,360)
(9,190,846)
------------- -------------- -------------
-------------
NET INCREASE (DECREASE) IN
NET ASSETS (82,087) (12,674,524) (8,903,871)
(17,433,900)
NET ASSETS -- BEGINNING OF
PERIOD 63,945,870 76,620,394 60,162,339
77,596,239
------------- -------------- -------------
-------------
NET ASSETS -- END OF PERIOD $ 63,863,783 $ 63,945,870 $ 51,258,468
$ 60,162,339
------------- -------------- -------------
-------------
------------- -------------- -------------
-------------
Undistributed net investment
income included in net
assets at end of period -- -- $72,169
$31,978
-------------
-------------
-------------
-------------
Undistributed net realized
gain (loss) on investments
included in net assets at
end of period -- -- $(3,445,628)
$(2,853,150)
-------------
-------------
-------------
-------------
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
<C> <C> <C>
A C C O U
N T S
INCOME TOTAL
RETURN GROWTH
1995 1994 1995
1994 1995 1994
INCREASE (DECREASE) IN NET
ASSETS
FROM OPERATIONS:
Net investment income $ 1,661,698 $ 3,484,675 $ 4,120,267
$ 7,127,925 $ 816,483
$ 1,077,298
Net realized gain (loss)
on investments (486,025) (660,384) 2,607,488
2,872,138 1,898,129
3,074,097
Net unrealized
appreciation
(depreciation) 2,054,379 (3,054,974) 16,532,094
(14,089,642) 11,899,886
(4,619,868)
------------ ------------- -------------
- ------------- ------------ ------------
Net increase (decrease) in
net assets resulting from
operations 3,230,052 (230,683) 23,259,849
(4,089,579) 14,614,498
(468,473)
------------ ------------- -------------
- ------------- ------------ ------------
DIVIDENDS TO SHAREHOLDERS
FROM:
Net investment income (1,643,000) (3,473,505) (4,036,099)
(7,098,435) (750,655)
(1,076,035)
Net realized gain from
investment transactions -- -- --
(3,186,699) -- (3,254,775)
------------ ------------- -------------
- ------------- ------------ ------------
(1,643,000) (3,473,505) (4,036,099)
(10,285,134) (750,655)
(4,330,810)
------------ ------------- -------------
- ------------- ------------ ------------
FROM CAPITAL SHARE
TRANSACTIONS:
Net proceeds from sale of
shares 3,779,052 11,501,443 14,787,890
52,357,416 9,109,416
20,893,600
Net asset value of shares
issued to shareholders
from reinvestment of
dividends 1,405,785 3,019,579 3,941,409
10,101,758 737,664
4,286,409
Cost of shares reacquired (7,209,965) (12,906,272) (13,139,429)
(41,385,584)
(4,409,281) (6,485,813)
------------ ------------- -------------
- ------------- ------------ ------------
Increase (decrease) in net
assets derived from
capital share
transactions (2,025,128) 1,614,750 5,589,870
21,073,590 5,437,799
18,694,196
------------ ------------- -------------
- ------------- ------------ ------------
NET INCREASE (DECREASE) IN
NET ASSETS (438,076) (2,089,438) 24,813,620
6,698,877 19,301,642
13,894,913
NET ASSETS -- BEGINNING OF
PERIOD 46,546,964 48,636,402 177,904,007
171,205,130 78,389,838
64,494,925
------------ ------------- -------------
- ------------- ------------ ------------
NET ASSETS -- END OF PERIOD $46,108,888 $ 46,546,964 $202,717,627
$177,904,007
$97,691,480 $78,389,838
------------ ------------- -------------
- ------------- ------------ ------------
------------ ------------- -------------
- ------------- ------------ ------------
Undistributed net investment
income included in net
assets at end of period $ 36,057 $ 17,359 $ 128,739
$ 44,571 $ 67,221 $
1,393
------------ ------------- -------------
- ------------- ------------ ------
------------ ------------- -------------
- ------------- ------------ ------
Undistributed net realized
gain (loss) on investments
included in net assets at
end of period $(2,184,698) $ (1,698,673) $ 3,140,182
$ 532,694 $ 2,426,260
$ 528,131
------------ ------------- -------------
- ------------- ------------ ------------
------------ ------------- -------------
- ------------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements. 14
<PAGE>
FINANCIAL HIGHLIGHTS CONNECTICUT MUTUAL INVESTMENT ACCOUNTS,
INC.
June 30, 1995 (Unaudited)
Selected data for a share of capital stock outstanding throughout the period:
<TABLE>
<CAPTION>
NET REALIZED DISTRIBUTIONS
DIVIDENDS & UNREALIZED FROM NET NET ASSET
YEARS NET FROM NET GAIN (LOSS) REALIZED VALUE AT
ENDED INVESTMENT INVESTMENT ON GAIN ON BEGINNING
DECEMBER 31 INCOME INCOME INVESTMENTS INVESTMENTS OF PERIOD
<S> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------
LIQUID ACCOUNT
1986 $.0588 $(.0588) $ -- $ -- $ 1.00
1987 .0581 (.0581) -- -- 1.00
1988 .0664 (.0664) -- -- 1.00
1989 .0822 (.0822) -- -- 1.00
1990 .0731 (.0731) -- -- 1.00
1991 .0522 (.0522) -- -- 1.00
1992 .0287 (.0287) -- -- 1.00
1993 .0227 (.0227) -- -- 1.00
1994 .0334 (.0334) -- -- 1.00
1995 (c) .0256 (.0256) -- -- 1.00
GOVERNMENT SECURITIES ACCOUNT
1986 .92 (.92) .28 (.11) 10.73
1987 .84 (.84) (.52) (.21) 10.90
1988 .84 (.85) (.05) (.05) 10.17
1989 .84 (.84) .52 -- 10.06
1990 .84 (.84) .10 -- 10.58
1991 .85 (.85) .68 -- 10.68
1992 .77 (.77) (.12) (.05) 11.36
1993 .70 (.70) .36 (.64) 11.19
1994 .69 (.69) (1.14) (.01) 10.91
1995 (c) .37 (.36) .67 -- 9.76
INCOME ACCOUNT
1986 .83 (.83) .57 (.08) 10.55
1987 .76 (.76) (.56) (.51) 11.04
1988 .84 (.85) (.19) -- 9.97
1989 .88 (.88) .02 -- 9.77
1990 .94 (.94) (.35) -- 9.79
1991 .81 (.81) .47 -- 9.44
1992 .79 (.79) (.16) -- 9.91
1993 .65 (.65) .11 -- 9.75
1994 .68 (.68) (.72) -- 9.86
1995 (c) .33 (.33) .30 -- 9.14
TOTAL RETURN ACCOUNT
1986 .31 (.30) .99 (.04) 10.91
1987 .38 (.38) .13 (1.09) 11.87
1988 .53 (.53) .60 -- 10.91
1989 .76 (.76) 1.81 (.63) 11.51
1990 .66 (.66) (.68) (.07) 12.69
1991 .54 (.54) 2.79 (.71) 11.94
1992 .50 (.50) .86 (1.07) 14.02
1993 .48 (.48) 1.70 (.97) 13.81
1994 .55 (.55) (.86) (.24) 14.54
1995 (c) .31 (.30) 1.44 -- 13.44
GROWTH ACCOUNT
1986 .24 (.24) 1.11 (.08) 10.94
1987 .22 (.22) (.12) (2.05) 11.97
1988 .20 (.20) 1.20 -- 9.80
1989 .51 (.51) 3.30 (1.25) 11.00
1990 .34 (.34) (1.36) (.07) 13.05
1991 .25 (.25) 4.00 (1.22) 11.62
1992 .26 (.26) 1.44 (1.64) 14.40
1993 .30 (.30) 2.64 (1.70) 14.20
1994 .22 (.22) (.32) (.62) 15.14
1995 (c) .14 (.13) 2.42 -- 14.20
<CAPTION>
RATIO OF RATIO OF NET
NET ASSET OPERATING INVESTMENT NET ASSETS
YEARS VALUE AT EXPENSES TO INCOME TO AT END
ANNUAL
ENDED END AVERAGE AVERAGE PORTFOLIO OF PERIOD
TOTAL
DECEMBER 31 OF PERIOD NET ASSETS NET ASSETS TURNOVER (IN THOUSANDS)
RETURN(B)
<S> <C> <C> <C> <C> <C> <C>
-----------
LIQUID ACCOUNT
1986 $ 1.00 1.00% 5.88% n/a $74,111
6.03%
1987 1.00 1.00 5.81 n/a 68,908
5.97
1988 1.00 1.04 6.64 n/a 73,921
6.82
1989 1.00 1.06 8.22 n/a 87,264
8.53
1990 1.00 1.06 7.31 n/a 84,387
7.53
1991 1.00 1.01 5.22 n/a 69,932
5.31
1992 1.00 1.02 2.87 n/a 67,549
2.89
1993 1.00 .95 2.27 n/a 76,620
2.30
1994 1.00 .93 3.34 n/a 63,946
3.40
1995 (c) 1.00 .94(a) 5.16(a) n/a 63,864
2.58
GOVERNMENT SECURITIES ACCOUNT
1986 10.90 1.27 8.92 111.68% 22,947
11.66
1987 10.17 1.24 8.12 207.67 24,703
3.33
1988 10.06 1.16 8.27 175.50 35,910
7.99
1989 10.58 1.19 8.14 68.14 41,561
14.10
1990 10.68 1.16 8.07 44.19 47,524
9.44
1991 11.36 1.07 7.83 27.50 55,332
15.03
1992 11.19 1.01 6.92 131.79 67,612
6.07
1993 10.91 .93 6.03 224.02 77,596
9.56
1994 9.76 .91 6.71 156.90 60,162
(4.18)
1995 (c) 10.44 .94(a) 7.17(a) 55.89(a) 51,258
10.83
INCOME ACCOUNT
1986 11.04 1.29 7.69 164.13 14,620
13.54
1987 9.97 1.27 7.32 231.39 15,367
2.03
1988 9.77 1.24 8.43 150.04 16,789
6.70
1989 9.79 1.27 8.93 52.95 18,705
9.56
1990 9.44 1.24 9.78 90.20 19,809
6.33
1991 9.91 1.12 8.44 50.44 22,839
14.22
1992 9.75 .63 8.09 109.47 38,675
6.60
1993 9.86 .63 6.56 145.94 48,636
7.97
1994 9.14 .63 7.16 62.88 46,547
(0.42)
1995 (c) 9.44 .63(a) 7.13(a) 37.88(a) 46,109
6.97
TOTAL RETURN ACCOUNT
1986 11.87 1.26 3.22 143.32 35,382
11.88
1987 10.91 1.08 3.15 197.79 44,770
3.92
1988 11.51 1.11 4.61 223.62 54,253
10.40
1989 12.69 1.20 5.90 149.22 65,071
22.61
1990 11.94 1.24 5.31 115.45 66,382
(0.21)
1991 14.02 1.20 4.02 122.40 86,455
28.21
1992 13.81 1.11 3.61 177.85 109,701
9.90
1993 14.54 1.02 3.40 155.16 171,205
15.89
1994 13.44 .96 3.80 115.01 177,904
(2.11)
1995 (c) 14.89 1.20(a) 4.39(a) 53.78(a) 202,718
13.04
GROWTH ACCOUNT
1986 11.97 1.31 2.21 163.15 19,469
12.25
1987 9.80 1.17 1.71 214.32 19,638
(0.29)
1988 11.00 1.23 1.95 246.14 26,285
14.32
1989 13.05 1.18 3.90 169.75 37,323
34.86
1990 11.62 1.19 2.73 143.95 35,202
(7.98)
1991 14.40 1.19 1.74 148.30 40,716
36.91
1992 14.20 1.12 1.74 141.69 45,600
11.99
1993 15.14 1.05 1.95 99.67 64,495
20.91
1994 14.20 1.02 1.50 98.46 78,390
(0.65)
1995 (c) 16.63 1.26(a) 1.88(a) 75.89(a) 97,691
18.03
<FN>
(a) Annualized
(b) Annual total returns do not include the effect of sales charges
(c) For the six months ended June 30, 1995
</TABLE>
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONNECTICUT MUTUAL INVESTMENT
ACCOUNTS,
INC.
June 30, 1995 (Unaudited)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Connecticut Mutual Investment Accounts, Inc. (the Fund), a Maryland
corporation, is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company. The Fund is comprised
of thirteen distinct mutual funds, including the following five Accounts
included in these financial statements: Liquid, Government Securities, Income,
Total Return and Growth. An interest in the Fund is limited to the assets of
the Account or Accounts in which shares are held by shareholders, and such
shareholders are entitled to a pro rata share of all dividends and
distributions arising from the net investment income and net realized capital
gains on the investments of such Accounts.
The following is a summary of significant accounting policies followed by the
Fund:
(a)VALUATION OF INVESTMENT SECURITIES - Except with respect to securities held
by the Liquid Account, equity and debt securities which are traded on
securities exchanges are valued at the last sales price as of the close of
business on the day the securities are being valued. Lacking any sales,
equity securities are valued at the last bid price and debt securities are
valued at the mean between closing bid and asked prices. Securities traded
in the over-the-counter market and included in the NASDAQ National Market
System are valued using the last sales price when available. Otherwise,
over-the-counter securities are valued at the mean between the bid and
asked prices or yield equivalent as obtained from one or more dealers who
make a market in the securities. Short-term securities are valued on an
amortized cost basis, which approximates market value. Securities for which
market quotations are not readily available are valued at fair value as
determined in accordance with procedures established by the Board of
Directors of the Fund, including the use of valuations furnished by a
private service retained by the custodian.
Securities held by the Liquid Account are valued on an amortized cost
basis. This basis involves valuing a security at cost and thereafter
assuming a constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the market value
of the instrument. The amortized cost method, in the opinion of the Board
of Directors, represents the fair value of the particular security. The
Board monitors the deviation between the Account's net asset value per
share as determined by using available market quotations and its amortized
cost price per share. If the deviation exceeds one half of one percent, the
Board will consider what action, if any, should be initiated to provide
fair valuation. Throughout the second quarter of 1995, the deviation was
less than one half of one percent.
(b)FEDERAL INCOME TAXES - The Fund intends to continue to qualify as a
regulated investment company under Subchapter M of the Internal Revenue
Code. Under such provisions, by distributing substantially all of its
taxable income to its shareholders or otherwise complying with requirements
for regulated investment companies, the Fund will not be subject to Federal
income taxes. Accordingly, no provision for Federal income taxes is
required. For Federal tax reporting purposes, each Account is treated as a
separate taxable entity.
(c)GAINS AND LOSSES - Realized gains and losses from sales of investments are
determined on the identified cost basis.
(d)AFFILIATE HOLDINGS - Connecticut Mutual Life Insurance Company and its
affiliates own 29,124,112 shares of the five Accounts of the Fund as
follows:
<TABLE>
<CAPTION>
GOVERNMENT
LIQUID SECURITIES INCOME TOTAL RETURN GROWTH
<S> <C> <C> <C> <C>
25,026,814 725,035 1,533,159 210 1,838,894
</TABLE>
(e)OTHER - Investment transactions are accounted for on the trade date which
is the date the order to buy or sell is executed. Dividend income is
recorded on the ex-dividend date and interest income is accrued on a daily
basis. All expenses are accrued on a daily basis.
2. INVESTMENT ADVISORY FEES AND OTHER AFFILIATE TRANSACTIONS
The Fund has an Investment Advisory Agreement with G.R. Phelps & Co., Inc.
(the Investment Adviser), a wholly-owned subsidiary of Connecticut Mutual Life
Insurance Company. The Investment Adviser, subject to review by the Board of
Directors, is responsible for the investment management of each Account and
has the responsibility for making decisions to buy, sell or hold any
particular security. The Investment Adviser is obligated to perform certain
administrative services for the Fund.
As compensation for its services to the Liquid Account, the Investment Adviser
receives monthly compensation at the annual rate of 0.50% of the first $200
million of average daily net assets, 0.45% of the next $100 million of average
daily net assets and 0.40% of the average daily net assets in excess of $300
million of the Account. As compensation for its services to the Government
Securities, Income, Total Return and Growth Accounts, the Investment Adviser
receives monthly compensation at the annual rate of 0.625% of the first $300
million of average daily net assets, 0.50% of the next $100 million of average
daily net assets and 0.45% of the average daily net assets in excess of $400
million of each Account.
16
<PAGE>
The investment advisory fees, which also cover certain administrative and
management services, amounted to $1,353,596 for all Accounts for the six
months ended June 30, 1995. For the six months ended June 30, 1995, the
Investment Adviser, serving as principal underwriter for sale of shares of the
Accounts, earned $809,906 related to sales charges deducted from proceeds for
shares sold.
Expenses incurred in the operation of the Fund are borne by the Fund. However,
the Investment Adviser has agreed that in any year the aggregate expenses
(including the investment advisory fee, but excluding interest, taxes,
brokerage fees, commissions and uncommon charges such as litigation costs)
exceed 1% of the value of the average daily net assets of the Liquid Account
or 1.5% of the value of the average daily net assets in each of the other four
Accounts, it will reimburse the Accounts for such excess.
Each Account has adopted a distribution plan (Plan) in accordance with the
requirements of Rule 12b-1 of the Investment Company Act of 1940. Under each
Plan, each Account may pay G. R. Phelps & Co., Inc. (the Distributor) a fee,
not exceeding 0.25% of the Account's average daily net assets for any fiscal
year, as reimbursement for its expenditures incurred in distributing and
servicing shares of the Account. Effective May 1, 1995, the Total Return and
Growth Accounts commenced accruing fees daily and paying fees monthly to the
Distributor at an annual rate of 0.25% of each Account's average daily net
assets. For the two months ended June 30, 1995, the Distributor received
$122,589 in fees from these Accounts. The Liquid, Government Securities and
Income Accounts accrued no fees and paid no amounts pursuant to any Plan
during the six months ended June 30, 1995.
3. DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income are declared and paid monthly for the
Government Securities and Income Accounts and semi-annually for the Total
Return and Growth Accounts. Dividends from net investment income of the Liquid
Account, which include any net short-term capital gains, are declared and
accrued daily and paid monthly. All net realized capital gains (excluding the
Liquid Account), if any, are declared and paid at least annually.
4. CAPITAL STOCK
The authorized capital stock of the Fund at June 30, 1995 consisted of
3,000,000,000 shares of common stock, par value $0.001 per share. The shares
of stock are divided among thirteen separate Accounts, five of which are
indicated below. All shares of common stock have equal voting rights, except
that only shares of a particular Account are entitled to vote on matters
pertaining to that Account.
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED JUNE 30, 1995
GOVERNMENT
TOTAL
LIQUID SECURITIES
INCOME RETURN
GROWTH
<S> <C> <C>
<C> <C> <C>
Shares authorized (in millions) 600 200
200 200 200
--- ---
--- --- ---
--- ---
--- --- ---
Shares sold 87,303,939 161,212
406,488 1,034,767 595,765
Shares issued to shareholders from reinvestment
of dividends 1,674,793 181,502
151,184 265,449 44,738
------------ -----------
---------- ------------ ---------
Total issued 88,978,732 342,714
557,672 1,300,216 640,503
Shares reacquired (89,060,819) (1,598,262)
(769,419) (921,386)
(286,565)
------------ -----------
---------- ------------ ---------
Net increase (decrease) (82,087) (1,255,548)
(211,747) 378,830
353,938
------------ -----------
---------- ------------ ---------
------------ -----------
---------- ------------ ---------
</TABLE>
17
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
-------------------------------------------
BOARD OF DIRECTORS AND OFFICERS
DIRECTORS
RICHARD H. AYERS
Chairman and Chief Executive Officer
The Stanley Works
DAVID E. A. CARSON
President, Chairman and
Chief Executive Officer
People's Bank
RICHARD W. GREENE
Executive Vice President and Treasurer
University of Rochester
BEVERLY L. HAMILTON
President
ARCO Investment Management Company
DAVID E. SAMS, JR.
President and Chief Executive Officer
Connecticut Mutual Life Insurance Company
OFFICERS
LINDA M. NAPOLI, Treasurer and Controller
Treasurer, Mutual Funds
Connecticut Mutual Life Insurance Company
LOUIS A. LACCAVOLE, CPA, General Auditor
Vice President and General Auditor
Connecticut Mutual Life Insurance Company
ANN F. LOMELI, Secretary
Corporate Secretary and Counsel
Connecticut Mutual Life Insurance Company
AUDITORS
ARTHUR ANDERSEN LLP
Hartford, CT
This report has been prepared for shareholders of the Account and may be
distributed to prospective investors in the Account when preceded or accompanied
by a current prospectus.
<PAGE>
CONNECTICUT MUTUAL
INVESTMENT ACCOUNTS, INC.
FINANCIAL STATEMENTS
AUGUST 31, 1995
LIFESPAN DIVERSIFIED INCOME ACCOUNT
LIFESPAN BALANCED ACCOUNT
LIFESPAN CAPITAL APPRECIATION ACCOUNT
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
LIFESPAN DIVERSIFIED INCOME ACCOUNT
SCHEDULE OF INVESTMENTS
August 31, 1995 (Unaudited)
<TABLE>
<CAPTION>
Market
Security Shares Cost Value
-------- ------ ---- -----
<S> <C> <C> <C>
COMMON STOCKS(21.6% OF NET ASSETS)
Aerospace(1.4%)
General Dynamics Corp. 2,800 $129,201 $147,350
Lockheed Martin Corp. 1,700 98,156 103,488
Rockwell International Corp. 1,700 74,268 76,075
-------- --------
301,625 326,913
-------- --------
Banking(2.1%)
Ahmanson (H.F.) & Co. 1,200 29,335 28,500
Bank of Boston Corp. 2,600 108,730 114,400
Chase Manhattan Corp. 1,900 87,120 109,250
Morgan (J.P.) & Company, Inc. 1,500 104,395 109,313
Wells Fargo & Co. 600 99,425 111,825
-------- --------
429,005 473,288
-------- --------
Business Equipment & Services(.4%)
New England Business Service, Inc 4,700 85,371 91,650
-------- --------
Chemicals(1.5%)
Goodrich (B.F.) Company 1,500 89,602 89,250
Grace (W.R.) & Co. 1,900 101,831 126,588
Monsanto Co. 1,200 99,756 113,850
-------- --------
291,189 329,688
-------- --------
Conglomerates(.6%)
Hanson PLC 7,400 136,608 126,725
-------- --------
Drugs & Cosmetics(1.0%)
American Home Products Corp. 1,400 107,962 107,800
Bristol-Myers Squibb Co. 1,700 116,766 116,662
-------- --------
224,728 224,462
-------- --------
Electric Utilities(3.1%)
Entergy Corp. 4,600 113,597 110,400
FPL Group, Inc. 3,400 125,722 132,175
Illinova Corp. 3,400 78,795 85,425
Kansas City Power & Light Co. 5,000 115,330 111,875
Unicom Corp. 4,800 126,960 135,000
Western Resources, Inc. 3,900 119,438 117,975
-------- --------
679,842 692,850
-------- --------
Health Services & Hospital Supplies(.8%)
Baxter International Inc. 4,400 151,866 171,600
-------- --------
Insurance(2.2%)
Aetna Life & Casualty Co. 2,200 131,735 150,150
Allstate Corp. 1,668 49,310 56,504
American General Corp. 1,800 59,386 63,450
Hartford Steam Boiler Inspection 2,500 113,247 115,937
& Insurance
St. Paul Companies Inc. 2,000 96,820 108,500
-------- --------
450,498 494,541
-------- --------
Iron & Steel(2.0%)
British Steel PLC 4,100 118,861 114,800
Carpenter Technology Corp. 1,600 96,714 122,000
UNR Industries Inc. 25,000 154,380 196,875
-------- --------
369,955 433,675
-------- --------
Office Equipment(.2%)
Xerox Corp. 400 49,441 48,300
-------- --------
Oil & Gas(2.9%)
Amoco Corp. 1,300 86,736 82,875
Chevron Corp. 2,400 116,352 116,100
Mobil Corp. 1,200 116,813 114,300
Panhandle Eastern Corp. 6,200 149,110 155,000
Royal Dutch Petroleum Co. 600 74,987 71,550
Ultramar Corp. 4,300 114,126 101,587
-------- --------
658,124 641,412
-------- --------
Real Estate(1.4%)
Camden Property Trust 4,800 102,142 105,000
Health & Retirement Property Trust 6,300 95,388 96,862
Meditrust Corp. 3,100 96,289 101,912
-------- --------
293,819 303,774
-------- --------
Retail Trade(.3%)
Sears, Roebuck & Co. 1,800 49,165 58,275
-------- --------
</TABLE>
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
LIFESPAN DIVERSIFIED INCOME ACCOUNT
SCHEDULE OF INVESTMENTS (Cont'd)
August 31, 1995 (Unaudited)
<TABLE>
<CAPTION>
Market
Security Shares Cost Value
-------- ------ ---- -----
<S> <C> <C> <C>
Telephone Utilities(1.7%)
Ameritech Corp. 3,100 $140,077 $158,875
GTE Corp. 2,800 95,721 102,550
NYNEX Corp. 2,500 101,943 112,500
--------- ---------
337,741 373,925
--------- ---------
Total Common Stocks 4,508,977 4,791,078
--------- ---------
CONVERTIBLE PREFERRED STOCKS(1.5% OF NET ASSETS)
Building Materials & Construction(.5%)
Case Corp. 1,200 115,000 115,800
--------- ---------
Computer Business Equipment & Services(.5%)
Storage Technology Corp. 1,600 103,967 99,000
--------- ---------
Energy Services(.5%)
J. Ray McDermott, SA 2,300 142,485 113,850
--------- ---------
Total Preferred Stocks 361,452 328,650
--------- ---------
<CAPTION>
Principal
CORPORATE BONDS(21.3% OF NET ASSETS Amount
---------
<S> <C> <C> <C>
Apparel & Textiles(.2%)
U.S. Leather, Inc.
10.25%, 2003 $50,000 43,858 43,250
--------- ---------
Auto & Auto Related(.2%)
Venture Holdings
9.75%, 2004 50,000 43,503 43,750
--------- ---------
Banking(2.7%)
BankAmerica Corp.
6.00%, 1997 300,000 299,570 298,218
First USA Bank of Delaware
5.35%, 1996 150,000 148,472 142,944
Shawmut National Corp.
8.875%, 1996 150,000 153,152 152,075
--------- ---------
601,194 593,237
--------- ---------
Chemicals(1.6%)
Building Materials Corp. of America
0.00%, 2004 100,000 63,568 62,000
Crain Industries, Inc.
13.50%, 2005 50,000 50,000 50,250
G-I Holdings
0.00%, 1998 50,000 36,216 35,750
Harris Chemical North America, Inc.
0.00%, 2001 50,000 47,781 44,500
LaRoche Industries, Inc.
13.00%, 2004 75,000 77,250 78,750
Sherritt, Inc.
10.50%, 2014 75,000 74,812 76,500
--------- ---------
349,627 347,750
--------- ---------
Computer Business Equipment & Services(.6%)
Unisys Corp.
9.75%, 1996 125,000 128,438 127,188
--------- ---------
Drugs & Cosmetics(1.5%)
Revlon Consumer Products Corp.
9.375%, 2001 50,000 48,348 49,125
Revlon Worldwide Corp.
0.00%, 1998 50,000 35,456 35,375
Roche Holdings Inc.
2.75%, 2000 300,000 258,027 256,313
--------- ---------
341,831 340,813
--------- ---------
Financial Services(1.9%)
Chrysler Financial Corp.
6.65%, 1997 120,000 120,829 120,678
General Motors Acceptance Corp.
5.65%, 1997 300,000 296,180 295,248
--------- ---------
417,009 415,926
--------- ---------
</TABLE>
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
LIFESPAN DIVERSIFIED INCOME ACCOUNT
SCHEDULE OF INVESTMENTS (Cont'd)
August 31, 1995 (Unaudited)
<TABLE>
<CAPTION>
Principal Market
Security Amount Cost Value
-------- --------- ---- ------
<S> <C> <C> <C>
Health Services & Hospital Supplies(.6%)
Genesis Health Venture, Inc.
9.75%, 2005 $75,000 $74,815 $77,437
Integrated Health Services, Inc.
9.625%, 2002 50,000 50,000 51,125
------- -------
124,815 128,562
------- -------
Iron & Steel(.4%)
Geneva Steel Co.
9.50%, 2004 25,000 21,298 18,750
Republic Engineered Steels, Inc.
9.875%, 2001 25,000 23,580 23,250
Wierton Steel Corp.
10.75%, 2005 50,000 49,260 46,500
------- -------
94,138 88,500
------- -------
Leasing(.2%)
GPA Delaware, Inc.
8.75%, 1998 50,000 41,563 44,500
------- -------
Leisure & Entertainment(3.0%)
Adelphia Communications Corp.
12.50%, 2002 25,000 24,879 25,375
Australis Media Ltd.
0.00%, 2003 75,000 39,304 43,125
Bally Park Place Funding
9.25%, 2004 50,000 46,502 47,125
Bell Cablemedia PLC
0.00%, 2004 75,000 50,466 48,563
Comcast Corp.
9.375%, 2005 50,000 49,763 50,375
Greate Bay Property Funding
10.875%, 2004 25,000 21,500 21,750
GNF Corp.
10.625%, 2003 50,000 41,068 43,250
Helicon Group Ltd.
9.00%, 2003 100,000 91,923 92,250
Kloster Cruise Ltd.
13.00%, 2003 25,000 21,694 17,750
New World Communications Corp.
0.00%, 1999 75,000 50,030 49,125
Santa Fe Hotel
11.00%, 2000 50,000 49,278 44,500
Selmer Company, Inc.
11.00%, 2015 50,000 50,000 48,000
Sinclair Broadcast Group, Inc.
10.00%, 2005 50,000 50,000 50,375
Trump Plaza Funding
10.875%, 2001 50,000 43,562 46,000
Trump Taj Mahal
0.00%, 1999 50,000 38,437 42,250
------- -------
668,406 669,813
------- -------
Machinery & Equipment(.2%)
Specialty Equipment Companies, Inc.
11.375%, 2003 50,000 50,489 52,500
------- -------
Manufacturing(1.7%)
American Standard, Inc.
10.50%, 2005 50,000 39,416 38,625
Day International Group, Inc.
11.125%, 2005 50,000 50,000 52,625
Huntsman Corp.
10.625%, 2001 75,000 79,594 79,500
Interlake Corp.
12.125%, 2002 50,000 50,970 49,500
International Wire Group, Inc.
11.75%, 2005 50,000 50,000 50,125
Jordan Industries, Inc.
10.375%, 2003 25,000 23,780 23,187
Plantronics, Inc.
10.00%, 2001 75,000 75,937 75,937
------- -------
369,697 369,499
------- -------
</TABLE>
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
LIFESPAN DIVERSIFIED INCOME ACCOUNT
SCHEDULE OF INVESTMENTS (Cont'd)
August 31, 1995 (Unaudited)
<TABLE>
<CAPTION>
Principal Market
Security Amount Cost Value
-------- --------- ---- ------
<S> <C> <C> <C>
Oil & Gas(.4%)
Maxus Energy Corp.
9.875%, 2002 $50,000 $47,083 $48,375
Mesa Capital CP
0.00%, 1998 50,000 48,920 45,750
------- -------
96,003 94,125
------- -------
Paper & Forest Products(1.7%)
Crown Packaging Holdings Ltd.
0.00%, 2003 100,000 51,386 47,500
Doman Industries Ltd.
8.75%, 2004 50,000 48,000 47,875
Gaylord Container Corp.
0.00%, 2005 50,000 50,605 49,750
Grupo Industrial Durango
12.00%, 2001 25,000 18,875 22,155
Indah Kiat Pulp & Paper Corp.
11.875%, 2002 50,000 51,000 51,000
Malette, Inc.
12.25%, 2004 50,000 54,125 55,500
Stone Container Corp.
9.875%, 2001 100,000 99,879 99,125
------- -------
373,870 372,905
------- -------
Printing & Publishing(.1%)
Marvel III Holdings Inc.
9.125%, 1998 25,000 23,027 22,875
------- -------
Retail Trade(2.0%)
Cole National Corp.
11.25%, 2001 50,000 48,550 49,500
Dairy Mart Convenience Stores, Inc.
10.25%, 2004 50,000 41,775 42,750
Duane Reade Corp.
12.00%, 2002 50,000 45,180 44,125
Farm Fresh, Inc.
12.25%, 2000 50,000 48,680 47,500
Hills Stores Co.
10.25%, 2003 50,000 49,450 46,000
Pathmark Stores, Inc.
0.00%, 2003 100,000 61,379 65,750
Penn Traffic Co.
9.625%, 2005 50,000 47,914 41,125
Ralph's Grocery Co.
11.00%, 2005 50,000 50,000 47,000
Waban, Inc.
11.00%, 2004 50,000 51,712 51,000
------- -------
444,640 434,750
------- -------
Technology(.3%)
Monarch Acquisition
12.50%, 2003 75,000 75,000 76,500
------- -------
Telecommunications(.9%)
Centennial Cellular Corp.
10.125%, 2005 50,000 49,816 49,500
Intermedia Communications of
Florida, Inc.
13.50%, 2005 50,000 50,000 52,375
MFS Communications Company, Inc.
0.00%, 2004 75,000 53,792 55,875
Nextel Communications, Inc.
0.00%, 2004 100,000 55,337 48,500
------- -------
208,945 206,250
------- -------
Telephone Utilities(.2%)
Peoples Telephone Company, Inc.
12.25%, 2002 50,000 50,000 51,000
------- -------
Transportation(.7%)
Federal Express Corp.
6.25%, 1998 150,000 149,593 148,839
------- -------
</TABLE>
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
LIFESPAN DIVERSIFIED INCOME ACCOUNT
SCHEDULE OF INVESTMENTS (Cont'd)
August 31, 1995 (Unaudited)
<TABLE>
<CAPTION>
Principal Market
Security Amount Cost Value
-------- --------- ---- ------
<S> <C> <C> <C>
Wholesale Trade(.2%)
Falcon Holdings PLC
11.00%, 2003 $50,000 $48,553 $46,500
----------- -----------
Total Corporate Bonds 4,744,199 4,719,032
----------- -----------
U.S. GOVERNMENT & AGENCY LONG-TERM OBLIGATIONS(49.8% OF NET ASSETS)
U.S. Treasury Bond
8.125%, 2019 1,320,000 1,414,050 1,526,250
U.S. Treasury Notes
7.375%, 1997 2,950,000 2,995,863 3,037,586
5.125%, 1998 4,500,000 4,333,370 4,413,292
7.75%, 1999 270,000 284,133 286,959
7.25%, 2004 1,670,000 1,701,809 1,772,020
----------- -----------
Total U.S. Government & Agency
Long-Term Obligations 10,729,225 11,036,107
----------- -----------
FOREIGN GOVERNMENT BONDS(1.4% of NET ASSETS)
Province of Ontario
8.25%, 1996 300,000 305,337 303,702
----------- -----------
REPURCHASE AGREEMENTS(3.1% OF NET ASSETS)
State Street Bank & Trust Co.
5.00%, due 9/1/95 688,000 688,000 688,000
----------- -----------
TOTAL INVESTMENTS $21,337,190 $21,866,569
----------- -----------
</TABLE>
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
LIFESPAN BALANCED ACCOUNT
SCHEDULE OF INVESTMENTS
August 31, 1995 (Unaudited)
<TABLE>
<CAPTION>
Market
Security Shares Cost Value
-------- ------ ---- ------
<S> <C> <C> <C>
COMMON STOCKS(41.7% OF NET ASSETS)
Aerospace(2.2%)
General Dynamics Corp. 4,300 $198,415 $226,288
General Motors Corp. Class H 1,500 60,215 59,813
Lockheed Martin Corp. 3,200 184,765 194,800
Loral Corp. 2,200 103,235 120,450
McDonnell Douglas Corp. 1,300 80,959 104,325
Rockwell International Corp. 2,900 126,692 129,775
--------- ---------
754,281 835,451
--------- ---------
Airlines(.6%)
AMR Corp. 1,100 74,676 77,550
Delta Air Lines, Inc. 1,300 85,166 96,688
Northwest Airlines Corp. 1,700 50,400 61,413
--------- ---------
210,242 235,651
--------- ---------
Apparel & Textiles(.6%)
Nautica Enterprises, Inc. 1,900 57,439 60,087
St. John Knits, Inc. 1,000 36,485 44,250
Tommy Hilfiger Corp. 3,500 85,434 117,250
--------- ---------
179,358 221,587
--------- ---------
Auto & Auto Related(.2%)
Discount Auto Parts, Inc. 2,800 74,088 91,350
--------- ---------
Banking(2.1%)
Ahmanson (H.F.) & Co. 2,300 56,226 54,625
Bank of Boston Corp. 3,300 137,892 145,200
Chase Manhattan Corp. 3,400 152,769 195,500
Morgan (J.P.) & Company, Inc. 3,100 215,831 225,913
Wells Fargo & Co. 900 149,138 167,738
--------- ---------
711,856 788,976
--------- ---------
Building Materials & Construction(.2%)
Case Corp. 1,900 64,875 71,725
USG Corp. 2,200 54,398 59,675
--------- ---------
119,273 131,400
--------- ---------
Business Equipment & Services(.5%)
Medic Computer Systems, Inc. 1,700 71,963 74,800
New England Business Service, Inc. 4,700 85,371 91,650
--------- ---------
157,334 166,450
--------- ---------
Chemicals(1.7%)
FMC Corp. 700 43,210 53,900
Goodrich (B.F.) Company 2,400 143,355 142,800
Grace (W.R.) & Co. 3,600 192,942 239,850
Monsanto Co. 2,200 182,886 208,725
--------- ---------
562,393 645,275
--------- ---------
Commercial Services(.7%)
Alternative Resources Corp. 1,300 31,915 38,675
Cambridge Technology Partners, Inc. 2,200 73,691 86,350
Corrections Corporation of America 2,000 70,141 90,000
Sylvan Learning Systems, Inc. 1,600 47,141 45,600
--------- ---------
222,888 260,625
--------- ---------
Computer Business Equipment & Services(3.0%)
Acxiom Corporation 4,000 96,169 107,500
ALANTEC Corp. 1,600 59,300 64,000
Avid Technology, Inc. 1,000 38,109 39,750
Cognex Corp. 2,300 74,613 114,712
Davidson and Associates, Inc. 1,400 66,881 72,100
Epic Design Technology, Inc. 400 17,238 17,250
Global Village Communication 3,600 61,276 56,250
Hyperion Software Corp. 1,700 65,248 79,050
Inso Corp. 500 34,787 31,312
McAfee Associates, Inc. 2,200 68,856 96,525
National Data Corp. 2,400 49,399 61,800
Optical Data Systems, Inc. 1,900 44,200 62,225
Seagate Technology, Inc. 800 39,206 35,400
Sierra Semiconductor Corp. 800 37,828 39,500
Storage Technology Corp. 2,000 54,934 54,750
StorMedia, Inc. 1,100 47,016 45,650
Wonderware Corp. 2,400 85,001 82,800
Zebra Technologies Corp. 1,400 82,279 81,550
--------- ---------
1,022,340 1,142,124
--------- ---------
</TABLE>
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
LIFESPAN BALANCED ACCOUNT
SCHEDULE OF INVESTMENTS
August 31, 1995 (Unaudited)
<TABLE>
<CAPTION>
Market
Security Shares Cost Value
-------- ------ ---- ------
<S> <C> <C> <C>
Conglomerates(.9%)
AlliedSignal Inc. 1,100 $43,261 $48,813
Hanson PLC 7,400 136,608 126,725
Jardine Matheson Holdings Ltd. 3,800 30,419 27,360
Textron, Inc. 1,700 99,168 116,450
--------- ---------
309,456 319,348
--------- ---------
Drugs & Cosmetics(1.0%)
American Home Products Corp. 2,000 154,232 154,000
Bristol-Myers Squibb Co. 1,600 109,898 109,800
Watson Pharmaceuticals, Inc. 2,862 93,319 118,415
--------- ---------
357,449 382,215
--------- ---------
Electrical & Electronic Equipment(2.9%)
Allen Group, Inc. 2,100 67,457 68,513
Cidco, Inc. 1,200 38,607 42,000
Credence Systems Corp. 950 23,267 33,487
GaSonics International 2,200 56,469 76,450
Integrated Silicon Solution, Inc. 1,900 73,974 94,525
Kemet Corp. 1,900 82,519 108,300
Mattson Technology, Inc. 1,100 54,951 56,375
Micron Technology Inc. 1,100 45,879 84,563
Philips Electronics NV 1,400 61,750 63,000
S3, Inc. 2,000 55,741 78,500
Sanmina Corp. 1,400 65,629 63,700
Silicon Valley Group, Inc. 2,000 65,894 86,000
Tyco International Ltd. 1,000 57,218 59,125
Ultratech Stepper, Inc. 3,000 97,807 118,500
Vicor Corp. 1,200 47,842 56,400
--------- ---------
895,004 1,089,438
--------- ---------
Electric Utilities(2.6%)
Entergy Corp. 7,800 192,176 187,200
FPL Group, Inc. 5,400 199,676 209,925
Illinova Corp. 5,200 120,510 130,650
Kansas City Power & Light Co. 5,000 115,330 111,875
Unicom Corp. 7,600 201,507 213,750
Western Resources, Inc. 3,900 119,438 117,975
--------- ---------
948,637 971,375
--------- ---------
Environmental Control(.3%)
United Waste Systems, Inc. 3,100 105,866 120,125
--------- ---------
Food & Beverages(.8%)
Apple South Inc. 2,300 50,663 56,350
Boston Chicken, Inc. 2,900 61,564 69,600
Dole Food Co., Inc. 800 26,959 26,200
Landry's Seafood Restaurants, Inc. 2,700 51,408 47,587
Papa John's International, Inc. 1,600 55,658 64,000
Ralcorp Holdings, Inc. 2,100 48,067 47,513
--------- ---------
294,319 311,250
--------- ---------
Health Services & Hospital Supplies(2.4%)
Baxter International Inc. 7,200 248,508 280,800
Columbia Healthcare Corp. 1,800 76,352 84,600
Community Health Systems, Inc. 2,200 76,111 84,700
Express Scripts, Inc. 1,200 39,366 44,400
Gulf South Medical Supply, Inc. 2,000 44,266 56,500
Idexx Laboritories, Inc. 2,500 71,719 84,687
Omnicare, Inc. 3,000 96,768 99,750
PhyCor, Inc. 1,800 66,282 75,150
Physician Sales & Service, Inc. 1,400 61,084 63,700
TheraTx, Inc. 2,400 35,211 31,800
--------- ---------
815,667 906,087
--------- ---------
Insurance(2.9%)
Aetna Life & Casualty Co. 3,500 205,621 238,875
Allstate Corp. 4,214 126,671 142,749
American General Corp. 2,800 92,378 98,700
Compdent Corp. 1,900 45,009 51,775
Hartford Steam Boiler Inspection
& Insurance 2,400 108,718 111,300
Healthsource, Inc. 1,900 73,124 76,000
St. Paul Companies Inc. 3,200 154,912 173,600
TIG Holdings, Inc. 2,300 52,233 58,937
Travelers Group 2,800 115,920 134,400
--------- ---------
974,586 1,086,336
--------- ---------
</TABLE>
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
LIFESPAN BALANCED ACCOUNT
SCHEDULE OF INVESTMENTS (Cont'd)
August 31, 1995 (Unaudited)
<TABLE>
<CAPTION>
Market
Security Shares Cost Value
-------- ------ ---- ------
<S> <C> <C> <C>
Iron & Steel(1.3%)
British Steel PLC 5,600 $163,105 $156,800
Carpenter Technology Corp. 1,600 96,714 122,000
UNR Industries Inc. 25,000 156,250 196,875
--------- ---------
416,069 475,675
--------- ---------
Leisure & Entertainment(.7%)
Clear Channel Communications, Inc 1,300 73,041 97,012
Mattel, Inc. 1,900 45,258 55,100
Regal Cinemas, Inc. 2,400 67,892 81,600
Station Casinos, Inc. 2,000 33,444 38,750
--------- ---------
219,635 272,462
--------- ---------
Machinery & Equipment(.8%)
AGCO Corp. 1,400 72,856 68,075
Electroglas, Inc. 1,400 77,951 105,700
Mark IV Industries, Inc. 2,200 40,066 48,950
Parker-Hannifin Corp. 1,800 62,635 71,325
--------- ---------
253,508 294,050
--------- ---------
Manufacturing(1.0%)
Black & Decker Corp. 1,700 50,910 55,037
FSI International, Inc. 2,900 65,975 102,225
Helix Technology Corp. 1,400 51,473 71,269
Integrated Process Equipment Corp. 1,700 78,510 61,412
Lydall, Inc. 3,700 71,194 88,337
--------- ---------
318,062 378,280
--------- ---------
Metals & Mining(.4%)
IMC Global Inc. 1,300 66,118 82,225
Potash Corporation of Saskatchewan Inc. 1,400 74,244 79,625
--------- ---------
140,362 161,850
--------- ---------
Miscellaneous(.2%)
Premark International, Inc. 1,700 82,154 89,038
--------- ---------
Office Equipment(.4%)
Xerox Corp. 1,100 135,962 132,825
--------- ---------
Oil & Gas(3.0%)
Amoco Corp. 2,100 140,112 133,875
Chevron Corp. 4,200 203,766 203,175
Mobil Corp. 2,100 204,422 200,025
Panhandle Eastern Corp. 10,500 253,051 262,500
Repsol SA (ADR) 2,000 66,370 63,250
Royal Dutch Petroleum Co. 1,100 137,477 131,175
Ultramar Corp. 4,300 114,126 101,587
YPF Sociedad Anonima (ADR) 1,500 30,165 26,438
--------- ---------
1,149,489 1,122,025
--------- ---------
Paper & Forest Products(.6%)
Georgia-Pacific Corp. 600 47,968 54,000
Scott Paper Co. 1,600 71,570 74,200
Willamette Industries, Inc. 1,200 61,175 82,500
--------- ---------
180,713 210,700
--------- ---------
Printing & Publishing(.2%)
Gartner Group, Inc. 2,300 65,262 65,262
--------- ---------
Real Estate(.8%)
Camden Property Trust 4,800 102,142 105,000
Health & Retirement Property Trust 6,300 95,388 96,862
Meditrust Corp. 3,100 96,289 101,912
--------- ---------
293,819 303,774
--------- ---------
Retail Trade(2.4%)
American Stores Co. 3,100 80,984 91,063
CDW Computer Centers, Inc. 1,500 57,483 81,000
Corporate Express, Inc. 2,900 57,085 67,787
Eckerd Corp. 1,700 51,355 62,263
General Nutrition Companies, Inc. 2,900 86,851 121,075
Gymboree Corp. 1,700 52,386 50,575
Kroger Co. 2,700 68,753 88,088
Micro Warehouse, Inc. 800 37,200 38,200
Sears, Roebuck & Co. 4,700 133,585 152,163
Service Merchandise Co., Inc. 4,600 31,759 32,775
Sunglass Hut International, Inc. 1,700 56,937 72,250
Waban, Inc. 2,500 46,958 47,188
--------- ---------
761,336 904,427
--------- ---------
</TABLE>
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
LIFESPAN BALANCED ACCOUNT
SCHEDULE OF INVESTMENTS (Cont'd)
August 31, 1995 (Unaudited)
<TABLE>
<CAPTION>
Market
Security Shares Cost Value
-------- ------ ---- ------
<S> <C> <C> <C>
Technology(1.1%)
Applied Materials, Inc. 600 $37,375 $62,400
Compaq Computer Corp. 1,800 82,388 85,950
Computer Associates International Inc. 800 51,258 55,600
Electronics for Imaging, Inc. 1,800 97,374 101,700
International Business Machines Corp. 900 84,707 93,037
---------- ----------
353,102 398,687
---------- ----------
Telcommunications(1.0%)
Ascend Communications, Inc. 1,000 42,875 64,500
Aspect Telecommunications Corp. 1,300 53,495 62,075
Coherent Communication System Corp. 1,400 28,704 31,850
Ericsson LM Tel. Co.(ADR) 3,200 54,600 68,400
LCI International, Inc. 2,100 58,057 83,737
Spectrian Corp. 1,100 51,867 50,875
---------- ----------
289,598 361,437
---------- ----------
Telephone Utilities(1.7%)
Ameritech Corp. 5,100 230,449 261,375
GTE Corp. 5,300 181,789 194,112
NYNEX Corp. 4,400 179,419 198,000
---------- ----------
591,657 653,487
---------- ----------
Transportation(.4%)
Fritz Companies, Inc. 1,300 66,229 92,625
Wisconsin Central Transportation 1,000 61,350 59,500
---------- ----------
127,579 152,125
---------- ----------
Wholesale Trade(.1%)
CellStar Corp. 1,700 39,498 54,187
---------- ----------
Total Common Stocks 14,132,842 15,735,354
---------- ----------
FOREIGN COMMON STOCKS(11.5% OF NET ASSETS)
Auto & Auto Related(.5%)
Autoliv AB (Sweden) 1,000 48,006 60,439
Michelin CGDE (France) 1,000 46,204 43,402
Shinmaywa Industries Ltd. (Japan) 3,000 28,532 24,854
Valeo SA (France) 706 42,246 33,706
---------- ----------
164,988 162,401
---------- ----------
Banking(1.0%)
Banco Popular Espanol (Spain) 400 59,340 61,553
Banco Santander SA (Spain) 1,500 58,030 61,354
Bangkok Bank Company Ltd. (Thailand) 4,000 43,062 44,693
Deutsche Bank AG (Germany) 1,000 50,268 46,269
HSBC Holdings PLC (United Kingdom) 2,000 25,239 26,870
Malayan Banking Berhad (Malaysia) 6,000 48,028 49,299
Societe Generale Paris (France) 200 23,355 20,889
Thai Farmers Bank Ltd. (Thailand) 4,500 42,841 43,815
---------- ----------
350,163 354,742
---------- ----------
Building Materials & Construction(.1%)
Compagnie de Saint-Gobain 250 33,060 31,759
PT Indocement Tunggal Prakar (Indonesia) 7,000 28,144 24,862
---------- ----------
61,204 56,621
---------- ----------
Chemicals(.2%)
Akzo Nobel (Netherlands) 200 23,340 23,594
Bayer AG (Germany) 225 55,807 58,186
---------- ----------
79,147 81,780
---------- ----------
Computer Business Equipment & Services(.3%)
Fujitsu Ltd. (Japan) 9,000 96,487 97,576
Getronics NV (Netherlands) 600 27,165 25,722
---------- ----------
123,652 123,298
---------- ----------
Conglomerates(.7%)
Canadian Pacific Ltd. (Canada) 2,000 33,412 33,507
Hanson PLC (United Kingdom) 13,000 47,898 43,784
Hutchison Whampoa Ltd. (Hong Kong) 10,000 44,980 48,185
Mannesmann AG (Germany) 195 56,689 61,550
Renong Berhad (Malaysia) 22,000 41,297 42,501
Viag AG (Germany) 120 47,149 46,201
---------- ----------
271,425 275,728
---------- ----------
</TABLE>
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
LIFESPAN BALANCED ACCOUNT
SCHEDULE OF INVESTMENTS (Cont'd)
August 31, 1995 (Unaudited)
<TABLE>
<CAPTION>
Market
Security Shares Cost Value
-------- ------ ---- ------
<S> <C> <C> <C>
Drugs & Cosmetics(1.3%)
Astra AB (Sweden) 1,800 $52,911 $59,699
Ciba-Geigy AG (Switzerland) 100 70,174 70,788
PT Kalbe Farma (Indonesia) 6,000 28,248 24,752
Sandoz AG (Switzerland) 100 67,763 72,116
Schering AG (Germany) 1,000 68,742 72,913
SmithKline Beecham (United Kingdom) 8,051 64,773 74,849
SmithKline Bch/Bec Units
(United Kingdom) 5,027 38,508 44,024
Zeneca Group PLC (Germany) 4,000 59,254 69,533
------- -------
450,373 488,674
------- -------
Electric Utilities(.3%)
Powergen PLC (United Kingdom) 3,366 26,026 30,588
VEBA AG (Germany) 2,000 77,279 76,511
------- -------
103,305 107,099
------- -------
Electrical & Electronic Equipment(1.7%)
BBC AG Brown Boveri & Cie. (Switzerland) 65 67,607 68,560
Hitachi Ltd. (Japan) 7,000 74,827 76,608
Keyence Corp. (Japan) 400 45,483 51,140
Kyocera Corp. (Japan) 1,000 75,913 88,371
Matsushita Electric Industrial Co.
Ltd. (Japan) 4,000 67,996 62,596
Philips Electronics NV (Netherlands) 2,000 80,364 89,754
Pioneer Electronic Corp. (Japan) 1,000 21,612 19,127
Sony Corp. (Japan) 1,000 48,817 54,618
Sumitomo Electric Industries
Ltd. (Japan) 6,000 79,781 77,938
Toshiba Corp. (Japan) 7,000 50,198 50,547
------- -------
612,598 639,259
------- -------
Financial Services(.4%)
Compagnie Bancaire SA (France) 220 23,395 22,934
International Nederlanden Groep NV 1,000 54,145 55,579
(Netherlands)
Itochu Corporation (Japan) 4,000 28,019 24,875
Nichiei Co. Ltd. (Japan) 1,000 69,474 57,891
------- -------
175,033 161,279
------- -------
Food & Beverages(.3%)
Heineken NV (Netherlands) 550 74,674 77,258
Nestle SA (Switzerland) 50 50,532 50,581
------- -------
125,206 127,839
------- -------
Insurance(.5%)
AEGON NV (Netherlands) 2,000 65,174 67,254
Munich Reinsurance (Germany) 25 51,152 50,426
Skandia Foersaekrings AB (Sweden) 1,300 25,518 26,725
Union des Assurances Federales SA
(France) 400 43,070 40,509
------- -------
184,914 184,914
------- -------
Iron & Steel(.6%)
Hitachi Metals Ltd. (Japan) 2,000 25,920 23,320
Kawasaki Steel (Japan) 6,000 25,374 20,558
Nisshin Steel Co., Ltd. (Japan) 12,000 48,428 48,604
Outokumpu Oy (Finland) 2,425 43,288 45,216
Rio Tinto-Zinc Corp. PLC
(United Kingdom) 4,000 51,448 54,291
Sumitomo Metal Industries (Japan) 7,000 23,998 19,546
------- -------
218,456 211,535
------- -------
Leisure & Entertainment(.3%)
Carlton Communications PLC
(United Kingdom) 3,300 50,416 53,267
Television Broadcasts Ltd. (Hong Kong) 8,000 30,940 29,557
TV Francaise (TF1) (France) 400 39,611 40,588
------- -------
120,967 123,412
------- -------
Machinery & Equipment(.3%)
Mabuchi Motor Co. (Japan) 800 55,738 54,250
NSK Limited (Japan) 3,000 22,759 20,221
SMC Corp. (Japan) 400 23,542 24,261
------- -------
102,039 98,732
------- -------
Metals & Mining(.1%)
Broken Hill Proprietary Co. Ltd.
(Australia) 85 972 1,233
Poseidon Gold Ltd. (Australia) 7,400 15,183 14,409
Western Mining Corp. Holdings Ltd.
(Australia) 2,000 11,491 13,443
------- -------
27,646 29,085
------- -------
Miscellaneous(.1%)
SGS Societe Generale de Surveillance
Holding SA (Switzerland) 30 51,157 53,900
------- -------
Office Equipment(.2%)
Canon Inc. (Japan) 4,000 68,170 72,415
------- -------
</TABLE>
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
LIFESPAN BALANCED ACCOUNT
SCHEDULE OF INVESTMENTS (Cont'd)
August 31, 1995 (Unaudited)
<TABLE>
<CAPTION>
Market
Security Shares Cost Value
-------- ------ ---- ------
<S> <C> <C> <C>
Oil & Gas(1.2%)
Ampolex Ltd. (Australia) 23,000 $64,747 $54,297
British Gas Corp. (United Kingdom) 5,000 23,757 21,535
British Petroleum Co. Ltd.
(United Kingdom) 6,000 44,154 44,979
Compagnie Francaise de Petroleum
Total (France) 1,641 105,302 96,396
Enterprise Oil PLC (United Kingdom) 7,500 50,032 43,070
Hong Kong & China Gas Company Ltd.
(Hong Kong) 13,000 21,066 20,488
Imperial Oil Ltd. (Canada) 1,100 40,429 39,520
Lasmo PLC (United Kingdom) 16,000 44,537 43,955
Saga Petroleum (Norway) 4,000 59,943 50,183
Societe Nationale Elf Aquitaine (France) 554 46,349 40,569
--------- ---------
500,316 454,992
--------- ---------
Paper & Forest Products(.2%)
Metsa-Serla Oy (Finland) 950 41,313 37,462
Mo och Domsjo AB (Sweden) 800 43,544 46,049
--------- ---------
84,857 83,511
--------- ---------
Printing & Publishing(.2%)
De La Rue PLC (United Kingdom) 1,526 22,362 20,641
Elsevier NV (Netherlands) 2,200 25,371 27,826
Wolters-Kluwer NV (Netherlands) 400 33,854 35,269
--------- ---------
81,587 83,736
--------- ---------
Retail Trade(.3%)
Argyll Group PLC 4,000 21,875 21,853
Carrefour Supermarche SA (France) 90 46,489 50,246
LVMH Louis Vuitton Moet-Hennessy (France) 270 53,383 48,587
--------- ---------
121,747 120,686
--------- ---------
Telecommunications(.4%)
Nokia AB (Finland) 1,200 51,834 83,153
Telecom Italia S.p.A (Italy) 19,000 31,390 30,519
Telecom Italia Mobile S.p.A (Italy) 19,000 22,591 28,005
--------- ---------
105,815 141,677
--------- ---------
Telephone Utilities(.2%)
DDI Corporation (Japan) 5 45,506 42,242
Telefonica de Espana (Spain) 2,000 27,735 27,109
--------- ---------
73,241 69,351
--------- ---------
Tobacco(.1%)
PT HM Sampoerna (Indonesia) 4,000 31,685 37,944
--------- ---------
Total Foreign Common Stocks 4,289,691 4,344,610
--------- ---------
CONVERTIBLE PREFERRED STOCKS(.8% OF NET ASSETS)
Building Materials & Construction(.3%)
Case Corp. 1,100 105,350 106,150
--------- ---------
Computer Business Equipment & Services(.2%)
Storage Technology Corp. 1,500 97,506 92,812
--------- ---------
Energy Services(.3%)
J. Ray McDermott, SA 2,300 142,485 113,850
--------- ---------
Total Convertible Preferred Stocks 345,341 312,812
--------- ---------
FOREIGN PREFERRED STOCKS(.8% OF NET ASSETS)
Auto & Auto Related (.1%)
Fiat S.p.A.(Italy) 13,500 35,936 30,450
--------- ---------
Computer Business Equipment & Services(.2%)
SAP AG (Germany) 400 41,598 59,203
--------- ---------
Conglomerates(.1%)
RWE AG (Germany) 185 50,545 50,186
--------- ---------
Electric Utilities (.1%)
CEMIG (Brazil) 2,000,000 40,147 45,273
--------- ---------
Financial Services(.1%)
Banco Bradesco SA (Brazil) 4,600,000 39,949 44,315
--------- ---------
</TABLE>
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
LIFESPAN BALANCED ACCOUNT
SCHEDULE OF INVESTMENTS (Cont'd)
August 31, 1995 (Unaudited)
<TABLE>
<CAPTION>
Market
Security Shares Cost Value
-------- ------ ---- ------
<S> <C> <C> <C>
Telecommunications(.2%)
Telecomunicacoes de Sao Paulo SA
(Brazil) 350,000 $43,574 $57,486
------- -------
Total Foreign Preferred Stocks 251,749 286,913
------- -------
<CAPTION>
Principal
CORPORATE BONDS(16.4% OF NET ASSETS) Amount
---------
<S> <C> <C> <C>
Apparel & Textiles(.2%)
U.S. Leather, Inc.
10.25%, 2003 $100,000 87,715 86,500
------- -------
Auto & Auto Related(.2%)
Venture Holdings
9.75%, 2004 100,000 87,006 87,500
------- -------
Banking(1.1%)
BankAmerica Corp.
6.00%, 1997 200,000 199,713 198,812
First USA Bank of Delaware
5.35%, 1996 100,000 98,981 95,296
Shawmut National Corp.
8.875%, 1996 100,000 102,101 101,383
------- -------
400,795 395,491
------- -------
Chemicals(1.2%)
Building Materials Corp. of America
0.00%, 2004 200,000 127,137 124,000
Crain Industries, Inc.
13.50%, 2005 75,000 75,000 75,375
G-I Holdings
0.00%, 1998 100,000 72,431 71,500
Harris Chemical North America, Inc.
0.00%, 2001 100,000 95,562 89,000
LaRoche Industries, Inc.
13.00%, 2004 100,000 103,000 105,000
------- -------
473,130 464,875
------- -------
Computer Business Equipment & Services(.2%)
Unisys Corp.
9.75%, 1996 75,000 77,063 76,313
------- -------
Drugs & Cosmetics(.8%)
Revlon Consumer Products Corp.
9.375%, 2001 100,000 96,695 98,250
Revlon Worldwide Corp.
0.00%, 1998 50,000 35,456 35,375
Roche Holdings Inc.
2.75%, 2000 200,000 172,018 170,875
------- -------
304,169 304,500
------- -------
Financial Services(.7%)
Chrysler Financial Corp.
6.65%, 1997 80,000 80,553 80,452
General Motors Acceptance Corp.
5.65%, 1997 200,000 197,454 196,832
------- -------
278,007 277,284
------- -------
Health Services & Hospital Supplies(.3%)
Integrated Health Services, Inc.
9.625%, 2002 100,000 100,000 102,250
------- -------
Iron & Steel(.5%)
Geneva Steel Co.
9.50%, 2004 50,000 42,597 37,500
Republic Engineered Steels, Inc.
9.875%, 2001 50,000 47,161 46,500
Wierton Steel Corp.
10.75%, 2005 100,000 98,519 93,000
------- -------
188,277 177,000
------- -------
Leasing(.2%)
GPA Delaware, Inc.
8.75%, 1998 100,000 83,125 89,000
------- -------
</TABLE>
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
LIFESPAN BALANCED ACCOUNT
SCHEDULE OF INVESTMENTS (Cont'd)
August 31, 1995 (Unaudited)
<TABLE>
<CAPTION>
Principal Market
Security Amount Cost Value
-------- --------- ---- ------
<S> <C> <C> <C>
Leisure & Entertainment (3.3%)
Adelphia Communications Corp.
12.50%, 2002 $50,000 $49,757 $50,750
Australis Media Ltd.
0.00%, 2003 150,000 78,608 86,250
Bally Park Place Funding
9.25%, 2004 100,000 93,003 94,250
Bell Cablemedia PLC
0.00%, 2004 150,000 100,932 97,125
Comcast Corp.
9.375%, 2005 100,000 99,525 100,750
Greate Bay Property Funding
10.875%, 2004 50,000 43,140 43,500
GNF Corp.
10.625%, 2003 100,000 82,136 86,500
Helicon Group Ltd.
9.00%, 2003 50,000 45,962 46,125
Kloster Cruise Ltd.
13.00%, 2003 50,000 43,388 35,500
New World Communications Corp.
0.00%, 1999 150,000 100,061 98,250
Santa Fe Hotel
11.00%, 2000 100,000 98,556 89,000
Selmer Company, Inc.
11.00%, 2005 100,000 100,000 96,000
Sinclair Broadcast Group, Inc.
10.00%, 2005 100,000 100,000 100,750
Trump Plaza Funding
10.875%, 2001 100,000 87,537 92,000
Trump Taj Mahal
0.00%, 1999 100,000 76,873 84,500
United International Holdings, Inc.
0.00%, 1999 50,000 30,186 30,250
--------- ---------
1,229,664 1,231,500
--------- ---------
Machinery & Equipment(.3%)
Specialty Equipment Companies, Inc.
11.375%, 2003 100,000 101,000 105,000
--------- ---------
Manufacturing(1.4%)
American Standard, Inc.
0.00%, 2005 100,000 78,839 77,250
Day International Group, Inc.
11.125%, 2005 100,000 100,000 105,250
Huntsman Corp.
10.625%, 2001 100,000 106,125 106,000
Interlake Corp.
12.125%, 2002 100,000 102,000 99,000
International Wire Group, Inc.
11.75%, 2005 100,000 100,000 100,250
Jordan Industries, Inc.
10.375%, 2003 50,000 47,560 46,375
--------- ---------
534,524 534,125
--------- ---------
Oil & Gas(.5%)
Maxus Energy Corp.
9.875%, 2002 100,000 94,166 96,750
Mesa Capital CP
0.00%, 1998 100,000 97,839 91,500
--------- ---------
192,005 188,250
--------- ---------
Paper & Forest Products(1.7%)
Crown Packaging Holdings Ltd.
0.00%, 2003 200,000 102,772 95,000
Doman Industries Ltd.
8.75%, 2004 100,000 96,087 95,750
Gaylord Container Corp.
0.00%, 2005 100,000 101,210 99,500
Grupo Industrial Durango
12.00%, 2001 75,000 59,034 66,465
Indah Kiat Pulp & Paper Corp.
11.875%, 2002 100,000 102,000 102,000
Malette, Inc.
12.25%, 2004 100,000 108,250 111,000
</TABLE>
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
LIFESPAN BALANCED ACCOUNT
SCHEDULE OF INVESTMENTS (Cont'd)
August 31, 1995 (Unaudited)
<TABLE>
<CAPTION>
Principal Market
Security Amount Cost Value
-------- --------- ---- ------
<S> <C> <C> <C>
Stone Container Corp.
9.875%, 2001 $50,000 $49,939 $49,562
--------- ---------
619,292 619,277
--------- ---------
Printing & Publishing(.1%)
Marvel III Holdings Inc.
9.125%, 1998 50,000 46,055 45,750
--------- ---------
Retail Trade(2.2%)
Cole National Corp.
11.25%, 2001 50,000 48,550 49,500
Dairy Mart Convenience Stores, Inc.
10.25%, 2004 100,000 83,550 85,500
Duane Reade Corp.
12.00%, 2002 100,000 90,360 88,250
Farm Fresh, Inc.
12.25%, 2000 100,000 97,360 95,000
Hills Stores Co.
10.25%, 2003 100,000 98,901 92,000
Pathmark Stores, Inc.
0.00%, 2003 200,000 122,783 131,500
Penn Traffic Co.
9.625%, 2005 100,000 95,829 82,250
Ralph's Grocery Co.
11.00%, 2005 100,000 100,000 94,000
Waban, Inc.
11.00%, 2004 100,000 103,500 102,000
--------- ---------
840,833 820,000
--------- ---------
Technology(.1%)
Monarch Acquisition
12.50%, 2003 50,000 50,000 51,000
--------- ---------
Telecommunications(1.1%)
Centennial Cellular Corp.
10.125%, 2005 100,000 99,632 99,000
Intermedia Communications of
Florida, Inc.
13.50%, 2005 100,000 100,000 104,750
MFS Communications Company, Inc.
0.00%, 2004 150,000 107,583 111,750
Nextel Communications, Inc.
0.00%, 2004 200,000 110,713 97,000
--------- ---------
417,928 412,500
--------- ---------
Transportation(.3%)
Federal Express Corp.
6.25%, 1998 100,000 99,728 99,226
--------- ---------
Total Corporate Bonds 6,210,316 6,167,341
--------- ---------
U.S. GOVERNMENT & AGENCY LONG-TERM OBLIGATIONS (20.6% OF NET ASSETS)
U.S. Treasury Bond
8.125%, 2019 920,000 985,550 1,063,750
U.S. Treasury Notes
7.375%, 1997 2,000,000 2,031,094 2,059,380
5.125%, 1998 3,150,000 3,032,828 3,089,649
7.75%, 1999 230,000 242,039 244,446
7.25%, 2004 1,220,000 1,244,513 1,294,530
--------- ---------
Total U.S. Government & Agency
Long-Term Obligation 7,536,024 7,751,755
--------- ---------
FOREIGN GOVERNMENT BONDS(.5% OF NET ASSETS)
Province of Ontario
8.25%, 1996 200,000 203,558 202,468
--------- ---------
</TABLE>
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
LIFESPAN BALANCED ACCOUNT
SCHEDULE OF INVESTMENTS (Cont'd)
August 31, 1995 (Unaudited)
<TABLE>
<CAPTION>
Principal Market
Security Amount Cost Value
-------- --------- ---- ------
<S> <C> <C> <C>
FOREIGN CURRENCY (.1% OF NET ASSETS)
Canadian Dollar $443 $342 $344
Deutsche Mark 6,272 4,490 4,274
Finnish Markka 9,583 2,198 2,184
French Franc 15,122 3,156 2,997
Hong Kong Dollar 15,262 1,973 1,971
Indonesian Rupiah 340,001 150 150
Italian Lira 898,170 565 553
Netherlands Guilder 2,417 1,492 1,470
Norwegian Krone 6,800 1,080 1,060
Pound Sterling 881 1,392 1,367
Spanish Pesta 195,483 1,635 1,559
Swedish Krona 10,923 1,503 1,497
Swiss Franc 2,607 2,255 2,163
Thailand Baht 9,720 388 388
----------- -----------
Total Foreign Currency 22,619 21,977
----------- -----------
REPURCHASE AGREEMENTS(3.6% OF NET ASSETS)
State Street Bank & Trust Co.
5.00%, due 9/1/95 1,372,000 1,372,000 1,372,000
----------- -----------
TIME DEPOSITS(1.3% OF NET ASSETS)
State Street Bank & Trust Co. 484,000 484,000 484,000
3.25%, due 9/1/95
----------- -----------
TOTAL INVESTMENTS $34,848,140 $36,679,230
----------- -----------
</TABLE>
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
LIFESPAN CAPITAL APPRECIATION ACCOUNT
SCHEDULE OF INVESTMENTS
August 31, 1995 (Unaudited)
<TABLE>
<CAPTION>
Market
Security Shares Cost
Value
-------- ------ ----
------
<S> <C> <C>
<C>
COMMON STOCKS(57.2% OF NET ASSETS)
Aerospace(2.9%)
General Dynamics Corp. 4,300 $198,415
$226,288
General Motors Corp. Class H 1,500 60,215
59,812
Lockheed Martin Corp. 3,200 184,765
194,800
Loral Corp. 2,200 103,235
120,450
McDonnell Douglas Corp. 1,300 80,958
104,325
Rockwell International Corp. 2,900 126,692
129,775
--------
--------
754,280
835,450
--------
--------
Airlines(.8%)
AMR Corp. 1,100 74,676
77,550
Delta Air Lines, Inc. 1,300 85,166
96,688
Northwest Airlines Corp. 1,700 50,400
61,412
--------
--------
210,242
235,650
--------
--------
Apparel & Textiles(.8%)
Nautica Enterprises, Inc. 1,900 57,439
60,087
St. John Knits, Inc. 1,100 40,064
48,675
Tommy Hilfiger Corp. 4,100 98,958
137,350
--------
--------
196,461
246,112
--------
--------
Auto & Auto Related (.3%)
Discount Auto Parts, Inc. 2,800 74,088
91,350
--------
--------
Banking(2.7%)
Ahmanson (H.F.) & Co. 2,300 56,226
54,625
Bank of Boston Corp. 3,300 137,892
145,200
Chase Manhattan Corp. 3,400 152,769
195,500
Morgan (J.P.) & Company, Inc. 3,100 215,831
225,913
Wells Fargo & Co. 900 149,138
167,737
--------
--------
711,856
788,975
--------
--------
Building Materials & Construction(.5%)
Case Corp. 1,900 64,875
71,725
USG Corp. 2,200 54,398
59,675
--------
--------
119,273
131,400
--------
--------
Business Equipment & Services(.6%)
Medic Computer Systems, Inc. 2,000 85,426
88,000
New England Business Service, Inc. 4,700 85,371
91,650
--------
--------
170,797
179,650
--------
--------
Chemicals(2.2%)
FMC Corp. 700 43,210
53,900
Goodrich (B.F.) Company 2,400 143,355
142,800
Grace (W.R.) & Co. 3,600 192,942
239,850
Monsanto Co. 2,200 182,886
208,725
--------
--------
562,393
645,275
--------
--------
Commercial Services(1.0%)
Alternative Resources Corp. 1,500 36,715
44,625
Cambridge Technology Partners, Inc. 2,200 73,625
86,350
Corrections Corporation of America 2,500 87,713
112,500
Sylvan Learning Systems, Inc. 1,900 56,002
54,150
--------
--------
254,055
297,625
--------
--------
Computer Business Equipment & Services(4.4%)
Acxiom Corporation 4,900 118,556
131,688
ALANTEC Corp. 1,900 71,188
76,000
Avid Technology, Inc. 1,100 42,710
43,725
Cognex Corp. 2,600 83,400
129,675
Davidson and Associates, Inc. 1,600 76,981
82,400
Epic Design Technology, Inc. 500 21,604
21,562
Global Village Communication 3,600 61,273
56,250
Hyperion Software Corp. 1,700 65,249
79,050
Inso Corp. 600 41,034
37,575
McAfee Associates, Inc. 2,500 78,268
109,687
National Data Corp. 2,800 57,058
72,100
Optical Data Systems, Inc. 1,900 44,200
62,225
Seagate Technology, Inc. 800 39,206
35,400
Sierra Semiconductor 800 37,828
39,500
</TABLE>
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
LIFESPAN CAPITAL APPRECIATION ACCOUNT
SCHEDULE OF INVESTMENTS (Cont'd)
August 31, 1995 (Unaudited)
<TABLE>
<CAPTION>
Market
Security Shares Cost
Value
-------- ------ ----
------
<S> <C> <C>
<C>
Storage Technology Corp. 2,000 $54,934
$54,750
StorMedia, Inc. 1,500 64,432
62,250
Wonderware Corp. 2,700 96,224
93,150
Zebra Technologies Corp. 1,600 94,286
93,200
---------
---------
1,148,431
1,280,187
---------
---------
Conglomerates(1.1%)
AlliedSignal Inc. 1,100 43,261
48,813
Hanson PLC 7,400 136,608
126,725
Jardine Matheson Holdings Ltd. 3,800 30,419
27,360
Textron, Inc. 1,700 99,168
116,450
---------
---------
309,456
319,348
---------
---------
Drugs & Cosmetics(1.4%)
American Home Products Corp. 2,000 154,232
154,000
Bristol-Myers Squibb Co. 1,600 109,898
109,800
Watson Pharmaceuticals, Inc. 3,262 106,210
134,965
---------
---------
370,340
398,765
---------
---------
Electrical & Electronic Equipment(4.2%)
Allen Group, Inc. 2,100 67,457
68,513
Cidco, Inc. 1,500 49,173
52,500
Credence Systems Corp. 950 23,267
33,487
GaSonics International 3,000 75,669
104,250
Integrated Silicon Solution, Inc. 2,300 95,681
114,425
Kemet Corp. 2,000 88,623
114,000
Mattson Technology, Inc. 1,400 70,674
71,750
Micron Technology Inc. 1,100 45,879
84,563
Philips Electronics NV 1,400 61,750
63,000
Photronics, Inc. 500 12,237
17,492
S3, Inc. 2,400 65,441
94,200
Sanmina Corp. 1,500 70,279
68,250
Silicon Valley Group, Inc. 2,300 77,929
98,900
Tyco International Ltd. 1,000 57,218
59,125
Ultratech Stepper, Inc. 3,000 97,807
118,500
Vicor Corp. 1,200 47,842
56,400
---------
---------
1,006,926
1,219,355
---------
---------
Electric Utilities(3.4%)
Entergy Corp. 7,800 192,176
187,200
FPL Group, Inc. 5,400 199,676
209,925
Illinova Corp. 5,200 120,510
130,650
Kansas City Power & Light Co. 5,000 115,330
111,875
Unicom Corp. 7,600 201,507
213,750
Western Resources, Inc. 3,900 119,437
117,975
---------
---------
948,636
971,375
---------
---------
Environmental Control(.5%)
United Waste Systems, Inc. 3,500 119,116
135,625
---------
---------
Financial Services(.1%)
National Auto Credit, Inc. 1,500 17,837
21,750
---------
---------
Food & Beverages(1.3%)
Apple South, Inc. 2,800 61,475
68,600
Boston Chicken, Inc. 3,200 67,564
76,800
Dole Food Co., Inc. 800 26,959
26,200
Doubletree Corp. 2,100 50,900
40,425
Landry's Seafood Restaurants, Inc. 3,300 62,557
58,162
Papa John's International, Inc. 1,600 55,657
64,000
Ralcorp Holdings, Inc. 2,100 48,067
47,513
---------
---------
373,179
381,700
---------
---------
Health Services & Hospital Supplies(3.4%)
Baxter International Inc. 7,200 248,508
280,800
Columbia Healthcare Corp. 1,800 76,352
84,600
Community Health Systems, Inc. 2,500 86,554
96,250
Express Scripts, Inc. 2,000 64,766
74,000
Gulf South Medical Supply, Inc. 2,100 46,416
59,325
Idexx Laboritories, Inc. 2,800 79,444
94,850
</TABLE>
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
LIFESPAN CAPITAL APPRECIATION ACCOUNT
SCHEDULE OF INVESTMENTS (Cont'd)
August 31, 1995 (Unaudited)
<TABLE>
<CAPTION>
Market
Security Shares Cost
Value
-------- ------ ----
------
<S> <C> <C>
<C>
Omnicare, Inc. 3,000 $96,655
$99,750
PhyCor, Inc. 2,000 73,832
83,500
Physician Sales & Service, Inc. 1,400 61,084
63,700
TheraTx, Inc. 2,400 35,199
31,800
---------
---------
868,810
968,575
---------
---------
Insurance(3.8%)
Aetna Life & Casualty Co. 3,500 205,621
238,875
Allstate Corp. 4,214 126,671
142,749
American General Corp. 2,800 92,378
98,700
Compdent Corp. 2,000 47,551
54,500
Hartford Steam Boiler Inspection & Insurance Co. 2,400 108,718
111,300
Healthsource, Inc. 1,900 73,124
76,000
St. Paul Companies Inc. 3,200 154,912
173,600
TIG Holdings, Inc. 2,300 52,233
58,938
Travelers Group 2,800 115,920
134,400
---------
---------
977,128
1,089,062
---------
---------
Iron & Steel(1.6%)
British Steel PLC 5,600 163,105
156,800
Carpenter Technology Corp. 1,600 96,714
122,000
UNR Industries Inc. 25,000 156,250
196,875
---------
---------
416,069
475,675
---------
---------
Leisure & Entertainment(1.0%)
Clear Channel Communications, Inc. 1,500 84,278
111,937
Mattel, Inc. 1,900 45,258
55,100
Regal Cinemas, Inc. 2,400 67,892
81,600
Station Casinos, Inc. 2,000 33,444
38,750
---------
---------
230,872
287,387
---------
---------
Machinery & Equipment(1.1%)
AGCO Corp. 1,400 72,856
68,075
Electroglas, Inc. 1,600 87,002
120,800
Mark IV Industries, Inc. 2,200 40,066
48,950
Parker-Hannifin Corp. 1,800 62,635
71,325
---------
---------
262,559
309,150
---------
---------
Manufacturing(1.4%)
Black & Decker Corp. 1,700 50,910
55,038
FSI International, Inc. 3,300 75,075
116,325
Helix Technology Corp. 1,600 61,580
81,450
Integrated Process Equipment Corp. 1,700 78,510
61,412
Lydall, Inc. 4,400 84,202
105,050
---------
---------
350,277
419,275
---------
---------
Metals & Mining(.6%)
IMC Global Inc. 1,300 66,118
82,225
Potash Corporation of Saskatchewan Inc. 1,400 74,244
79,625
---------
---------
140,362
161,850
---------
---------
Miscellaneous(.3%)
Premark International, Inc. 1,700 82,154
89,038
---------
---------
Office Equipment(.5%)
Xerox Corp. 1,100 135,962
132,825
---------
---------
Oil & Gas(3.9%)
Amoco Corp. 2,100 140,112
133,875
Chevron Corp. 4,200 203,766
203,175
Mobil Corp. 2,100 204,422
200,025
Panhandle Eastern Corp. 10,500 253,051
262,500
Repsol SA (ADR) 2,000 66,370
63,250
Royal Dutch Petroleum Co. 1,100 137,477
131,175
Ultramar Corp. 4,300 114,126
101,588
YPF Sociedad Anonima (ADR) 1,500 30,165
26,438
---------
---------
1,149,489
1,122,026
---------
---------
Paper & Forest Products(.7%)
Georgia-Pacific Corp. 600 47,968
54,000
Scott Paper Co. 1,600 71,570
74,200
Willamette Industries, Inc. 1,200 61,175
82,500
---------
---------
180,713
210,700
---------
---------
</TABLE>
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
LIFESPAN CAPITAL APPRECIATION ACCOUNT
SCHEDULE OF INVESTMENTS (Cont'd)
August 31, 1995 (Unaudited)
<TABLE>
<CAPTION>
Market
Security Shares Cost
Value
-------- ------ ----
------
<S> <C> <C>
<C>
Printing & Publishing(.2%)
Gartner Group, Inc. 2,300 $65,263
$65,263
----------
----------
Real Estate(1.1%)
Camden Property Trust 4,800 102,142
105,000
Health & Retirement Property Trust 6,300 95,388
96,862
Meditrust Corp. 3,100 96,289
101,912
----------
----------
293,819
303,774
----------
----------
Retail Trade(3.4%)
American Stores Co. 3,100 80,984
91,063
CDW Computer Centers, Inc. 1,700 64,991
91,800
Corporate Express, Inc. 3,600 70,231
84,150
Eckerd Corp. 1,700 51,355
62,263
General Nutrition Companies, Inc. 3,000 89,593
125,250
Gymboree Corp. 2,000 62,399
59,500
Kroger Co. 2,700 68,753
88,088
Micro Warehouse, Inc. 1,100 50,203
52,525
Sears, Roebuck & Co. 4,700 133,585
152,162
Service Merchandise Co., Inc. 4,600 31,759
32,775
Sunglass Hut International, Inc. 2,000 65,847
85,000
Waban, Inc. 2,500 46,958
47,188
----------
----------
816,658
971,764
----------
----------
Technology(1.5%)
Applied Materials, Inc. 600 37,375
62,400
Compaq Computer Corp. 1,800 82,388
85,950
Computer Associates International, Inc. 800 51,258
55,600
Electronics for Imaging, Inc. 2,200 119,274
124,300
International Business Machine Corp. 900 84,707
93,037
----------
----------
375,002
421,287
----------
----------
Telcommunications(1.4%)
Ascend Communications, Inc. 1,000 42,875
64,500
Aspect Telecommunications Corp. 1,600 66,446
76,400
Coherent Communications Systems Corp. 1,900 39,837
43,225
Ericsson LM Tel. Co.(Spons. ADR) 3,200 54,600
68,400
LCI International, Inc. 2,100 58,056
83,737
Spectrian Corp. 1,500 70,381
69,375
----------
----------
332,195
405,637
----------
----------
Telephone Utilities(2.3%)
Ameritech Corp. 5,100 230,449
261,375
GTE Corp. 5,300 181,789
194,112
NYNEX Corp. 4,400 179,419
198,000
----------
----------
591,657
653,487
----------
----------
Transportation(.6%)
Fritz Companies, Inc. 1,500 76,903
106,875
Wisconsin Central Transportation 1,200 73,550
71,400
----------
----------
150,453
178,275
----------
----------
Wholesale Trade(.2%)
CellStar Corp. 1,700 39,498
54,187
----------
----------
Total Common Stocks 14,806,306
16,498,829
----------
----------
FOREIGN COMMON STOCKS(15.0% OF NET ASSETS)
Auto & Auto Related(.6%)
Autoliv AB (Sweden) 1,000 48,006
60,439
Michelin CGDE (France) 1,000 46,204
43,402
Shinmaywa Industries Ltd. (Japan) 3,000 28,532
24,854
Valeo SA (France) 706 42,246
33,706
----------
----------
164,988
162,401
----------
----------
Banking(1.2%)
Banco Popular Espanol (Spain) 400 59,340
61,553
Banco Santander SA (Spain) 1,500 58,030
61,354
Bangkok Bank Company Ltd. (Thailand) 4,000 43,062
44,693
Deutsche Bank AG (Germany) 1,000 50,268
46,269
</TABLE>
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
LIFESPAN CAPITAL APPRECIATION ACCOUNT
SCHEDULE OF INVESTMENTS (Cont'd)
August 31, 1995 (Unaudited)
<TABLE>
<CAPTION>
Market
Security Shares Cost
Value
-------- ------ ----
------
<S> <C> <C>
<C>
HSBC Holdings PLC (United Kingdom) 2,000 $25,239
$26,870
Malayan Banking Berhad (Malaysia) 6,000 48,028
49,299
Societe Generale Paris (France) 200 23,355
20,889
Thai Farmers Bank Ltd. (Thailand) 4,500 42,841
43,815
-------
-------
350,163
354,742
-------
-------
Building Materials & Construction(.2%)
Compagnie de Saint Gobain (France) 250 33,060
31,759
PT Indocement Tunggal Prakar (Indonesia) 7,000 28,144
24,862
-------
-------
61,204
56,621
-------
-------
Chemicals(.3%)
Akzo Nobel (Netherlands) 200 23,340
23,594
Bayer AG (Germany) 225 55,807
58,186
-------
-------
79,147
81,780
-------
-------
Computer Business Equipment & Services(.4%)
Fujitsu Ltd. (Japan) 9,000 96,487
97,576
Getronics NV (Netherlands) 600 27,165
25,722
-------
-------
123,652
123,298
-------
-------
Conglomerates(1.0%)
Canadian Pacific Ltd. (Canada) 2,000 33,412
33,507
Hanson PLC (United Kingdom) 13,000 47,898
43,784
Hutchison Whampoa Ltd. (Hong Kong) 10,000 44,980
48,185
Mannesmann AG (Germany) 195 56,689
61,550
Renong Berhad (Malaysia) 22,000 41,297
42,501
Viag AG (Germany) 120 47,149
46,201
-------
-------
271,425
275,728
-------
-------
Drugs & Cosmetics(1.7%)
Astra AB (Sweden) 1,800 52,911
59,699
Ciba-Geigy AG (Switzerland) 100 70,174
70,788
PT Kalbe Farma (Indonesia) 6,000 28,248
24,752
Sandoz AG (Switzerland) 100 67,763
72,116
Schering AG (Germany) 1,000 68,742
72,913
SmithKline Beecham (United Kingdom) 8,051 64,773
74,849
SmithKline Bch/Bec Units (United Kingdom) 5,027 38,508
44,024
Zeneca Group PLC (Germany) 4,000 59,254
69,533
-------
-------
450,373
488,674
-------
-------
Electric Utilities(.4%)
Powergen PLC (United Kingdom) 3,366 26,026
30,588
VEBA AG (Germany) 2,000 77,279
76,511
-------
-------
103,305
107,099
-------
-------
Electrical & Electronic Equipment(2.2%)
BBC AG Brown Boveri & Cie. (Switzerland) 65 67,607
68,560
Hitachi Ltd. (Japan) 7,000 74,827
76,608
Keyence Corp. (Japan) 400 45,483
51,140
Kyocera Corp. (Japan) 1,000 75,913
88,371
Matsushita Electric Industrial Co. Ltd. (Japan) 4,000 67,996
62,596
Philips Electronics NV (Netherlands) 2,000 80,364
89,754
Pioneer Electronic Corp. (Japan) 1,000 21,612
19,127
Sony Corp. (Japan) 1,000 48,817
54,618
Sumitomo Electric Industries Ltd. (Japan) 6,000 79,781
77,938
Toshiba Corp. (Japan) 7,000 50,198
50,547
-------
-------
612,598
639,259
-------
-------
Financial Services(.6%)
Compagnie Bancaire SA (France) 220 23,395
22,934
International Nederlanden Groep NV (Netherlands) 1,000 54,145
55,579
Itochu Corporation (Japan) 4,000 28,019
24,875
Nichiei Co. Ltd. (Japan) 1,000 69,474
57,891
-------
-------
175,033
161,279
-------
-------
Food & Beverages(.4%)
Heineken NV (Netherlands) 550 74,674
77,258
Nestle SA (Switzerland) 50 50,532
50,581
-------
-------
125,206
127,839
-------
-------
Insurance(.6%)
AEGON N.V. (Netherlands) 2,000 65,174
67,254
Munich Reinsurance (Germany) 25 51,152
50,426
Skandia Foersaekrings AB (Sweden) 1,300 25,518
26,725
</TABLE>
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
LIFESPAN CAPITAL APPRECIATION ACCOUNT
SCHEDULE OF INVESTMENTS (Cont'd)
August 31, 1995 (Unaudited)
<TABLE>
<CAPTION>
Market
Security Shares Cost
Value
-------- ------ ----
------
<S> <C> <C>
<C>
Union des Assurances Federales SA (France) 400 $43,070
$40,509
-------
-------
184,914
184,914
-------
-------
Iron &Steel(.7%)
Hitachi Metals Ltd. (Japan) 2,000 25,920
23,320
Kawasaki Steel (Japan) 6,000 25,374
20,558
Nisshin Steel Co. Ltd. (Japan) 12,000 48,428
48,604
Outokumpu Oy (Finland) 2,425 43,288
45,216
Rio Tinto-Zinc Corp. PLC (United Kingdom) 4,000 51,448
54,291
Sumitomo Metal Industries (Japan) 7,000 23,998
19,546
-------
-------
218,456
211,535
-------
-------
Leisure & Entertainment(.4%)
Carlton Communications PLC (United Kingdom) 3,300 50,416
53,267
Television Broadcasts Ltd. (Hong Kong) 8,000 30,940
29,557
TV Francaise (TF1) (France) 400 39,611
40,588
-------
-------
120,967
123,412
-------
-------
Machinery & Equipment(.3%)
Mabuchi Motor Co. (Japan) 800 55,738
54,250
NSK Limited (Japan) 3,000 22,759
20,221
SMC Corp. (Japan) 400 23,542
24,261
-------
-------
102,039
98,732
-------
-------
Metals & Mining(.1%)
Broken Hill Proprietary Co. Ltd. (Australia) 85 972
1,233
Poseidon Gold Ltd. (Australia) 7,400 15,183
14,409
Western Mining Corp. Holdings Ltd. (Australia) 2,000 11,491
13,443
-------
-------
27,646
29,085
-------
-------
Miscellaneous(.2%)
SGS Societe Generale de Surveillance
Holding SA (Switzerland) 30 51,157
53,900
-------
-------
Office Equipment(.3%)
Canon Inc. (Japan) 4,000 68,170
72,415
-------
-------
Oil & Gas(1.6%)
Ampolex Ltd. (Australia) 23,000 64,747
54,297
British Gas Corp. (United Kingdom) 5,000 23,757
21,535
British Petroleum Co. Ltd. (United Kingdom) 6,000 44,154
44,979
Compagnie Francaise de Petroleum Total (France) 1,641 105,302
96,396
Enterprise Oil PLC (United Kingdom) 7,500 50,032
43,070
Hong Kong & China Gas Company Ltd. (Hong Kong) 13,000 21,066
20,488
Imperial Oil Ltd. (Canada) 1,100 40,429
39,520
Lasmo PLC (United Kingdom) 16,000 44,537
43,955
Saga Petroleum (Norway) 4,000 59,943
50,183
Societe Nationale Elf Aquitaine (France) 554 46,349
40,569
-------
-------
500,316
454,992
-------
-------
Paper & Forest Products(.3%)
Metsa-Serla Oy (Finland) 950 41,313
37,462
Mo och Domsjo AB (Sweden) 800 43,544
46,049
-------
-------
84,857
83,511
-------
-------
Printing & Publishing(.3%)
De La Rue PLC (United Kingdom) 1,526 22,362
20,641
Elsevier NV (Netherlands) 2,200 25,371
27,826
Wolters-Kluwer NV (Netherlands) 400 33,854
35,269
-------
-------
81,587
83,736
-------
-------
Retail Trade(.4%)
Argyll Group PLC (United Kingdom) 4,000 21,875
21,853
Carrefour Supermarche SA (France) 90 46,489
50,246
LVMH Louis Vuitton Moet-Hennessy (France) 270 53,383
48,587
-------
-------
121,747
120,686
-------
-------
Telecommunications(.5%)
Nokia AB (Finland) 1,200 51,834
83,153
Telecom Italia S.p.A (Italy) 19,000 31,390
30,519
Telecom Italia Mobile S.p.A (Italy) 19,000 22,591
28,005
-------
-------
105,815
141,677
-------
-------
</TABLE>
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
LIFESPAN CAPITAL APPRECIATION ACCOUNT
SCHEDULE OF INVESTMENTS (Cont'd)
August 31, 1995 (Unaudited)
<TABLE>
<CAPTION>
Market
Security Shares Cost
Value
-------- ------ ----
------
<S> <C> <C>
<C>
Telephone Utilities(.2%)
DDI Corporation(Japan) 5 $45,506
$42,242
Telefonica de Espana (Spain) 2,000 27,735
27,109
---------
---------
73,241
69,351
---------
---------
Tobacco(.1%)
PT HM Sampoerna (Indonesia) 4,000 31,685
37,943
---------
---------
Total Foreign Common Stocks 4,289,691
4,344,609
---------
---------
CONVERTIBLE PREFERRED STOCKS(1.1% OF NET ASSETS)
Building Materials & Construction(.4%)
Case Corp. 1,100 105,350
106,150
---------
---------
Computer Business Equipment & Services(.3%)
Storage Technology Corp. 1,500 97,505
92,812
---------
---------
Energy Services(.4%)
J. Ray McDermott, SA 2,300 142,486
113,851
---------
---------
Total Convertible Preferred Stocks 345,341
312,813
---------
---------
FOREIGN PREFERRED STOCKS(1.0% OF NET ASSETS)
Auto & Auto Related (.1%)
Fiat S.p.A.(Italy) 13,500 35,936
30,449
---------
---------
Computer Business Equipment & Services(.2%)
SAP AG (Germany) 400 41,598
59,203
---------
---------
Conglomerates(.2%)
RWE AG (Germany) 185 50,545
50,186
---------
---------
Electric Utilities (.2%)
CEMIG (Brazil) 2,000,000 40,147
45,273
---------
---------
Financial Services(.1%)
Banco Bradesco SA (Brazil) 4,600,000 39,949
44,315
---------
---------
Telecommunications(.2%)
Telecomunicacoes de Sao Paulo SA (Brazil) 350,000 43,573
57,486
---------
---------
Total Foreign Preferred Stocks 251,748
286,912
---------
---------
<CAPTION>
CORPORATE BONDS(8.9% OF NET ASSETS) Principal
Amount
---------
<S> <C> <C>
<C>
Apparel & Textiles(.1%)
U.S. Leather, Inc.
10.25%, 2003 $50,000 43,858
43,250
---------
---------
Auto & Auto Related(.1%)
Venture Holdings
9.75%, 2004 50,000 43,503
43,750
---------
---------
Chemicals(.7%)
Building Materials Corp. of America
0.00%, 2004 100,000 63,568
$62,000
Crain Industries, Inc.
13.50%, 2005 25,000 25,000
25,125
G-I Holdings
0.00%, 1998 50,000 36,216
35,750
Harris Chemical North America, Inc.
0.00%, 2001 50,000 47,781
44,500
</TABLE>
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
LIFESPAN CAPITAL APPRECIATION ACCOUNT
SCHEDULE OF INVESTMENTS (Cont'd)
August 31, 1995 (Unaudited)
<TABLE>
<CAPTION>
Principal
Market
Security Amount Cost
Value
-------- --------- ----
------
<S> <C> <C>
<C>
LaRoche Industries, Inc.
13.00%, 2004 $25,000 $25,750
$26,250
-------
-------
198,315
193,625
-------
-------
Drugs & Cosmetics(.3%)
Revlon Consumer Products Corp.
9.375%, 2001 50,000 48,348
49,125
Revlon Worldwide Corp.
0.00%, 1998 50,000 35,456
35,375
-------
-------
83,804
84,500
-------
-------
Health Services & Hospital Supplies(.2%)
Integrated Health Services, Inc.
9.625%, 2002 50,000 50,000
51,125
-------
-------
Iron & Steel(.3%)
Geneva Steel Co.
9.50%, 2004 25,000 21,298
18,750
Republic Engineered Steels, Inc.
9.875%, 2001 25,000 23,580
23,250
Wierton Steel Corp.
10.75%, 2005 50,000 49,260
46,500
-------
-------
94,138
88,500
-------
-------
Leasing(.2%)
GPA Delaware, Inc.
8.75%, 1998 50,000 41,563
44,500
-------
-------
Leisure & Entertainment (2.2%)
Adelphia Communications Corp.
12.50%, 2002 25,000 24,879
25,375
Australis Media Ltd.
0.00%, 2003 75,000 39,304
43,125
Bally Park Place Funding
9.25%, 2004 50,000 46,502
47,125
Bell Cablemedia PLC
0.00%, 2004 75,000 50,466
48,563
Comcast Corp.
9.375%, 2005 50,000 49,763
50,375
Greate Bay Property Funding
10.875%, 2004 25,000 21,570
21,750
GNF Corp.
10.625%, 2003 50,000 41,068
43,250
Helicon Group Ltd.
9.00%, 2003 50,000 45,962
46,125
Kloster Cruise Ltd.
13.00%, 2003 25,000 21,694
17,750
New World Communications Corp.
0.00%, 1999 75,000 50,030
49,125
Santa Fe Hotel
11.00%, 2000 50,000 49,278
44,500
Selmer Company, Inc.
11.00%, 2005 50,000 50,000
48,000
Sinclair Broadcast Group, Inc.
10.00%, 2005 50,000 50,000
50,375
Trump Plaza Funding
10.875%, 2001 50,000 43,563
46,000
Trump Taj Mahal
0.00%, 1999 50,000 38,437
42,250
-------
-------
622,516
623,688
-------
-------
Machinery & Equipment(.2%)
Specialty Equipment Companies, Inc.
11.375%, 2003 50,000 50,500
52,500
-------
-------
</TABLE>
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
LIFESPAN CAPITAL APPRECIATION ACCOUNT
SCHEDULE OF INVESTMENTS (Cont'd)
August 31, 1995 (Unaudited)
<TABLE>
<CAPTION>
Principal
Market
Security Amount Cost
Value
-------- --------- ----
------
<S> <C> <C>
<C>
Manufacturing(.9%)
American Standard, Inc.
0.00%, 2005 $50,000 $39,419
$38,625
Day International Group, Inc.
11.125%, 2005 50,000 50,000
52,625
Huntsman Corp.
10.625%, 2001 50,000 53,063
53,000
Interlake Corp.
12.125%, 2002 50,000 51,000
49,500
International Wire Group, Inc.
11.75%, 2005 50,000 50,000
50,125
Jordan Industries, Inc.
10.375%, 2003 25,000 23,780
23,188
-------
-------
267,262
267,063
-------
-------
Oil & Gas(.3%)
Maxus Energy Corp.
9.875%, 2002 50,000 47,083
48,375
Mesa Capital CP
0.00%, 1998 50,000 48,920
45,750
-------
-------
96,003
94,125
-------
-------
Paper & Forest Products(1.3%)
Crown Packaging Holdings Ltd.
0.00%, 2003 100,000 51,386
47,500
Doman Industries Ltd.
8.75%, 2004 50,000 48,044
47,875
Gaylord Container Corp.
0.00%, 2005 50,000 50,605
49,750
Grupo Industrial Durango
12.00%, 2001 75,000 60,907
66,465
Indah Kiat Pulp & Paper Corp.
11.875%, 2002 50,000 51,000
51,000
Malette, Inc.
12.25%, 2004 50,000 54,125
55,500
Stone Container Corp.
9.875%, 2001 50,000 49,935
49,561
-------
-------
366,002
367,651
-------
-------
Printing & Publishing(.1%)
Marvel III Holdings Inc.
9.125%, 1998 25,000 23,027
22,875
-------
-------
Retail Trade(1.3%)
Dairy Mart Convenience Stores, Inc.
10.25%, 2004 50,000 41,775
42,750
Duane Reade Corp.
12.00%, 2002 50,000 45,063
44,125
Farm Fresh, Inc.
12.25%, 2000 50,000 48,680
47,500
Hills Stores Co.
10.25%, 2003 50,000 49,450
46,000
Pathmark Stores, Inc.
0.00%, 2003 100,000 61,391
65,750
Penn Traffic Co.
9.625%, 2005 50,000 47,914
41,125
Ralph's Grocery Co.
11.00%, 2005 50,000 50,000
47,000
Waban, Inc.
11.00%, 2004 50,000 51,750
51,000
-------
-------
396,023
385,250
-------
-------
Telecommunications(.7%)
Centennial Cellular Corp.
10.125%, 2005 50,000 49,816
49,500
Intermedia Communications of Florida, Inc.
13.50%, 2005 50,000 50,000
52,375
MFS Communications Company, Inc.
0.00%, 2004 75,000 53,792
55,875
</TABLE>
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
LIFESPAN CAPITAL APPRECIATION ACCOUNT
SCHEDULE OF INVESTMENTS (Cont'd)
August 31, 1995 (Unaudited)
<TABLE>
<CAPTION>
Principal
Market
Security Amount Cost
Value
-------- --------- ----
------
<S> <C> <C>
<C>
Nextel Communications, Inc.
0.00%, 2004 $100,000 $55,357
$48,500
-----------
-----------
208,965
206,250
-----------
-----------
Total Corporate Bonds 2,585,479
2,568,652
-----------
-----------
U.S. GOVERNMENT & AGENCY LONG-TERM OBLIGATIONS (9.4% OF NET ASSETS)
U.S. Treasury Bond
8.125%, 2019 460,000 492,775
531,875
U.S. Treasury Notes
5.125%, 1998 1,550,000 1,492,106
1,520,457
7.250%, 2004 610,000 622,256
647,265
-----------
-----------
Total U.S. Government & Agency Long-Term Obligations 2,607,137
2,699,597
-----------
-----------
FOREIGN CURRENCY (.1% OF NET ASSETS)
Canadian Dollar 1,897 349
352
Deutsche Mark 6,272 4,489
4,274
Finnish Markka 9,583 2,198
2,184
French Franc 15,122 3,156
2,997
Hong Kong Dollar 15,262 1,972
1,972
Indonesian Rupiah 340,001 150
150
Italian Lira 898,170 565
553
Netherlands Guilder 2,417 1,492
1,470
Norwegian Krone 6,800 1,080
1,059
Pound Sterling 882 1,395
1,369
Spanish Peseta 171,609 1,437
1,368
Swedish Krona 10,923 1,503
1,496
Swiss Franc 2,617 2,264
2,172
Thailand Baht 9,720 388
388
-----------
-----------
Total Foreign Currency 22,438
21,804
-----------
-----------
REPURCHASE AGREEMENTS(4.6% OF NET ASSETS)
State Street Bank & Trust Co.
5.00%, due 9/1/95 1,324,000 1,324,000
1,324,000
-----------
-----------
TIME DEPOSITS(1.8% OF NET ASSETS)
State Street Bank & Trust Co.
3.25%, due 9/1/95 510,000 510,000
510,000
-----------
-----------
TOTAL INVESTMENTS $26,742,140
$28,567,216
-----------
-----------
</TABLE>
<PAGE>
Notes to Schedule of Investments
August 31, 1995 (Unaudited)
1. Aggregate gross unrealized appreciation (depreciation) as of August 31,
1995, based on cost for Federal income tax purposes, was as follows:
<TABLE>
<CAPTION>
Accounts
--------
Diversified
Capital
Income Balanced
Appreciation
- ----------------------------------------------
<S> <C> <C>
<C>
Aggregate gross unrealized appreciation $687,083 2,272,023
$2,211,616
Aggregate gross unrealized depreciation (157,704)
(440,933) (386,540)
----------- -----------
-----------
Net unrealized appreciation $529,379 $1,831,090
$1,825,076
----------- -----------
-----------
2. The aggregate cost of investments for
Federal income tax purposes was: $21,337,190 $34,848,140
$26,742,140
----------- -----------
-----------
3. Purchases and sales of securities
(excluding short-term securities) for
the two months ended August 31, 1995
are summarized as follows:
Purchases $2,299,539 $5,418,825
$4,950,124
Sales $1,234,206 $4,935,528
$4,294,460
</TABLE>
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
STATEMENT OF NET ASSETS
August 31, 1995 (Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------
LIFESPAN
ACCOUNTS
- -------------------------------------------------
DIVERSIFIED
CAPITAL
INCOME
BALANCED APPRECIATION
- -------------------------------------------------
<S> <C> <C>
<C>
ASSETS
Investments:
Bonds, at market value
(Cost $15,778,761, $13,949,898, $5,192,616) $16,058,841
$14,121,564 $5,268,249
Common stocks, at market value
(Cost $4,508,977, $18,422,533, $19,095,997) 4,791,078
20,079,964 20,843,438
Preferred stocks, at market value
(Cost $361,452, $597,090, $597,089) 328,650
599,725 599,725
Foreign currency, at market value
(Cost $22,619, $22,438) --
21,977 21,804
Short-term securities 688,000
1,856,000 1,834,000
- -------------------------------------------------
21,866,569
36,679,230 28,567,216
Cash 57,357
132,449 113,684
Investment income receivable 308,136
308,384 138,817
Receivable from securities sold 38,047
638,065 191,262
Receivable from Fund shares sold --
61,542 125,380
Foreign currency market receivable --
39,255 39,255
Foreign tax receivable --
4,826 4,826
- -------------------------------------------------
Total Assets 22,270,109
37,863,751 29,180,440
- -------------------------------------------------
LIABILITIES
Accrued expenses payable 44,859
65,126 44,241
Payable for securities purchased 69,540
109,538 299,613
- -------------------------------------------------
Total Liabilities 114,399
174,664 343,854
- -------------------------------------------------
NET ASSETS $22,155,710
$37,689,087 $28,836,586
- -------------------------------------------------
- -------------------------------------------------
OUTSTANDING SHARES 2,149,005
3,514,925 2,652,171
- -------------------------------------------------
- -------------------------------------------------
NET ASSET VALUE PER SHARE $10.31
$10.72 $10.87
- -------------------------------------------------
- -------------------------------------------------
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $21,533,496
$35,240,372 $26,617,638
Undistributed net investment income 19,328
220,115 108,720
Accumulated undistributed net realized gain 73,507
358,255 245,897
Net unrealized appreciation 529,379
1,870,345 1,864,331
- -------------------------------------------------
NET ASSETS $22,155,710
$37,689,087 $28,836,586
- -------------------------------------------------
- -------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
STATEMENT OF OPERATIONS
For the period from May 1, 1995 (Inception) to August 31, 1995 (Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------
LIFESPAN
ACCOUNTS
- -------------------------------------------------
DIVERSIFIED
CAPITAL
INCOME
BALANCED APPRECIATION
- -------------------------------------------------
<S> <C> <C>
<C>
INVESTMENT INCOME
Income:
Interest $402,059
$443,074 $212,278
Dividends 75,153
165,387 165,547
- -------------------------------------------------
Total Income 477,212
608,461 377,825
- -------------------------------------------------
Expenses:
Investment advisory fees 52,915
100,551 75,904
Distribution fees 17,638
29,574 22,325
Other 35,277
53,232 40,184
- -------------------------------------------------
Total Expenses 105,830
183,357 138,413
- -------------------------------------------------
NET INVESTMENT INCOME 371,382
425,104 239,412
- -------------------------------------------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Net realized gain on investments 73,507
369,161 256,932
Net realized loss on foreign currency --
(10,906) (11,035)
Net unrealized appreciation on investments 529,379
1,831,090 1,825,076
Net unrealized appreciation on foreign currency --
39,255 39,255
- -------------------------------------------------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS 602,886
2,228,600 2,110,228
- -------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $974,268
$2,653,704
$2,349,640
- -------------------------------------------------
- -------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the period from May 1, 1995 (Inception) to August 31, 1995 (Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------
LIFESPAN
ACCOUNTS
- -------------------------------------------------
DIVERSIFIED
CAPITAL
INCOME
BALANCED APPRECIATION
- -------------------------------------------------
<S> <C> <C>
<C>
INCREASE IN NET ASSETS
FROM OPERATIONS:
Net investment income $371,382
$425,104 $239,412
Net realized gain on investments 73,507
369,161 256,932
Net realized loss on foreign currency --
(10,906) (11,035)
Net unrealized appreciation 529,379
1,870,345 1,864,331
- -------------------------------------------------
Net increase in net assets
resulting from operations 974,268
2,653,704 2,349,640
- -------------------------------------------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income (352,054)
(204,989) (130,692)
Net realized gain from investment transactions --
-- --
- -------------------------------------------------
(352,054)
(204,989) (130,692)
- -------------------------------------------------
FROM CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 21,187,396
35,046,498 26,497,646
Net asset value of shares issued to
shareholders from reinvestment of dividends 346,243
204,989 130,692
Cost of shares reacquired (143)
(11,115) (10,700)
- -------------------------------------------------
Increase in net assets derived from
capital share transactions 21,533,496
35,240,372 26,617,638
- -------------------------------------------------
NET INCREASE IN NET ASSETS 22,155,710
37,689,087 28,836,586
NET ASSETS - BEGINNING OF PERIOD --
-- --
- -------------------------------------------------
NET ASSETS - END OF PERIOD $22,155,710
$37,689,087 $28,836,586
- -------------------------------------------------
- -------------------------------------------------
Undistributed net investment income included in
net assets at end of period $19,328
$220,115 $108,720
- -------------------------------------------------
- -------------------------------------------------
Undistributed net realized gain on investments
included in net assets at end of period $73,507
$369,161 $256,932
- -------------------------------------------------
- -------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
FINANCIAL HIGHLIGHTS
For the period from May 1, 1995 (Inception) to August 31, 1995 (Unaudited)
Selected data for a share of capital stock outstanding throughout the
period:
<TABLE>
<CAPTION>
Net Realized Distributions
Ratio of Ratio of Net
Dividends & Unrealized From Net Net Asset
Net Asset Operating
Investment
Year Net From Net Gain (Loss) Realized Value at
Value at Expenses to
Income to
Ended Investment Investment on Gain on Beginning
End Average
Average
December 31 Income Income Investments Investments of Period
of Period Net
Assets (b) Net Assets (b)
- ------------------------------------------------------------------------------
- ----------------------------------------
- -----------
<S> <C> <C> <C> <C> <C>
<C> <C> <C>
LIFESPAN DIVERSIFIED INCOME ACCOUNT
1995(a) $.18 $(.17) $.30 $ -- $10.00
$10.31 1.50%
5.26%
LIFESPAN BALANCED ACCOUNT
1995(a) $.12 $(.06) $.66 $ -- $10.00
$10.72 1.55%
3.59%
LIFESPAN CAPITAL APPRECIATION ACCOUNT
1995(a) $.09 $(.05) $.83 $ -- $10.00
$10.87 1.55%
2.68%
<CAPTION>
Net
Assets
at End of Annual
Portfolio Period (in Total
Turnover (b) Thousands) Return (c)
- -------------------------------------
<S> <C> <C>
LIFESPAN DIVERSIFIED INCOME ACCOUNT
50.19% $22,156 4.81%
LIFESPAN BALANCED ACCOUNT
81.69% $37,689 7.83%
LIFESPAN CAPITAL APPRECIATION ACCOUNT
64.27% $28,837 9.25%
<FN>
(a) For the period from May 1, 1995 (Inception) to August 31, 1995
(b) Annualized
(c) Annual total returns do not include the effect of sales charges
</TABLE>
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
NOTES TO FINANCIAL STATEMENTS
For the period from May 1, 1995 (Inception) to August 31, 1995 (Unaudited)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Connecticut Mutual Investment Accounts, Inc. (the Fund), a Maryland
corporation, is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company. The Fund is
comprised of thirteen distinct mutual funds, including the following three
LifeSpan Accounts included in these financial statements: Diversified
Income, Balanced and Capital Appreciation. An interest in the Fund is
limited to the assets of the Account or Accounts in which shares are held
by shareholders, and such shareholders are entitled to a pro rata share of
all dividends and distributions arising from the net investment income and
net realized capital gains on the investments of such Accounts.
The following is a summary of significant accounting policies followed by
the Fund:
(a) Valuation of Investment Securities - Equity and debt securities which
are traded on securities exchanges are valued at the last sales price
as of the close of business on the day the securities are being
valued. Lacking any sales, equity securities are valued at the last
bid price and debt securities are valued at the mean between closing
bid and asked prices. Securities traded in the over-the-counter market
and included in the NASDAQ National Market System are valued using the
last sales price when available. Otherwise, over-the-counter
securities are valued at the mean between the bid and asked prices or
yield equivalent as obtained from one or more dealers who make a
market in the securities. Short-term securities are valued on an
amortized cost basis, which approximates market value. Securities for
which market quotations are not readily available are valued at fair
value as determined in accordance with procedures established by the
Board of Directors of the Fund, including the use of valuations
furnished by a private service retained by the custodian.
(b) Foreign Currency Transactions - Foreign currency transactions are
translated to U. S. dollars at the prevailing exchange rate on the
trade date. Since investment transactions are recorded on a trade date
basis, the prevailing exchange rate may differ on actual settlement
date. Similarly, the prevailing exchange rate on ex-dividend or
interest receivable date may vary from the date when dividends or
interest are received. These differences give rise to currency gains
and losses which are included as a component of investment income. For
the four months ended August 31, 1995, the Balanced Account and the
Capital Appreciation Account had net currency gains of $5,445 and
$5,603, respectively.
(c) Federal Income Taxes - The Fund intends to continue to qualify as a
regulated investment company under Subchapter M of the Internal
Revenue Code. Under such provisions, by distributing substantially all
of its taxable income to its shareholders or otherwise complying with
requirements for regulated investment companies, the Fund will not be
subject to Federal income taxes. Accordingly, no provision for Federal
income taxes is required. For Federal tax reporting purposes, each
Account is treated as a separate taxable entity.
(c) Gains and Losses - Realized gains and losses from sales of investments
are determined on the identified cost basis.
(d) Affiliate Holdings - Connecticut Mutual Life Insurance Company owns
7,905,525 shares of the three LifeSpan Accounts of the Fund as
follows:
Diversified Income Balanced Capital Appreciation
2,033,203 3,359,773 2,512,549
(e) Other - Investment transactions are accounted for on the trade date
which is the date the order to buy or sell is executed. Dividend
income is recorded on the ex-dividend date and interest income is
accrued on a daily basis. All expenses are accrued on a daily basis.
<PAGE>
2. INVESTMENT ADVISORY FEES AND OTHER AFFILIATE TRANSACTIONS
The Fund has an Investment Advisory Agreement with G.R. Phelps & Co., Inc.
(the Investment Adviser), a wholly-owned subsidiary of Connecticut Mutual
Life Insurance Company. Subject to review by the Board of Directors of the
Fund, the Investment Adviser is responsible for the investment management
(the buying, holding and selling of securities) for all Accounts and has
engaged three Sub-Advisers to assist in the selection of portfolio
investments for three of the Components of the Accounts. Scudder, Stevens
&
Clark, Inc. is the Sub-Adviser to the International Equity Component, BEA
Associates is the Sub-Adviser to the High Yield Bond Component and Pilgrim
Baxter & Associates is the Sub-Adviser to the Small Cap Component. The
Fund's Board of Directors has approved all Sub-Advisory Agreements. The
Investment Adviser performs certain administrative services for all the
Accounts.
The Diversified Income Account, Balanced Account and Capital Appreciation
Account each pay monthly to the Investment Adviser a fee equal on an annual
basis to 0.75%, 0.85% and 0.85%, respectively, of the respective Accounts'
first $250 million of average daily net assets and 0.65%, 0.75% and 0.75%,
respectively, on such assets over $250 million.
The investment advisory fees, which also cover certain administrative and
management services, amounted to $229,370 for all Accounts for the four
months ended August 31, 1995. As compensation for their services to the
Accounts, the Sub-Advisers received the following fees for the four months
ended August 31, 1995: Scudder, Stevens & Clark, Inc. - $25,965, BEA
Associates - $16,189 and Pilgrim Baxter & Associates - $22,597. For the
four months ended August 31, 1995, the Investment Adviser, serving as
principal underwriter for sale of shares of the Accounts, earned $130,800
related to sales charges deducted from proceeds for shares sold.
On May 1, 1995, each Account adopted a distribution plan (Plan) in
accordance with the requirements of Rule 12b-1 of the Investment Company
Act of 1940. Under each Plan, each Account pays G. R. Phelps & Co., Inc.
(the Distributor) a fee as reimbursement for its expenditures incurred in
distributing and servicing shares of the Account. The Accounts accrue fees
daily and pay fees monthly to the Distributor at an annual rate of 0.25% of
each Account's average daily net assets. For the four months ended August
31, 1995, the Distributor received $69,537 in fees from these Accounts.
3. DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income are declared and paid monthly for the
Diversified Income Account and semi-annually for the Balanced and Capital
Appreciation Accounts. All net realized capital gains, if any, are declared
and paid at least annually.
4. CAPITAL STOCK
The authorized capital stock of the Fund at August 31, 1995 consisted of
3,000,000,000 shares of common stock, par value $0.001 per share. The
shares of stock are divided among thirteen separate Accounts, three of
which are indicated below. All shares of common stock have equal voting
rights, except that only shares of a particular Account are entitled to
vote on matters pertaining to that Account.
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
For the period from May 1, 1995
(Inception)
to August 31, 1995
- --------------------------------------------
Diversified Capital
Income Balanced Appreciation
- --------------------------------------------
<S> <C> <C> <C>
Shares authorized (in millions) 200 200 200
- --------------------------------------------
- --------------------------------------------
Shares sold 2,115,288 3,496,008 2,640,518
Shares issued to shareholders
from reinvestment of dividends 33,731 19,960 12,688
- --------------------------------------------
Total issued 2,149,019 3,515,968 2,653,206
Shares reacquired (14) (1,043) (1,035)
- --------------------------------------------
Net increase 2,149,005 3,514,925 2,652,171
- --------------------------------------------
- --------------------------------------------
</TABLE>
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
---------------------------
1995 ANNUAL REPORT
DEAR CMIA SHAREHOLDER:
The stock and bond markets both turned in impressive performances last
year, making 1995 a banner year for investors. It was a year in which the Dow
Jones Industrial Average exceeded 5200 and the yield on the 30-year Treasury
bond dropped by almost 200 basis points.
What went right for the markets in 1995? Just about everything that
mattered.
We entered the year with a strong economy. The Central Bank, in a
tightening mode, had been increasing interest rates to head off inflation. The
November elections brought victory for the Republicans in Congress, signalling
a
better political time for markets.
As expected, the increasing interest
rates of 1994 and early 1995 put the
brakes on the economy, slowing it
sufficiently to avoid higher inflation,
but not enough to cause a recession. The
Fed began to ease its grip on interest
rates, the dollar gathered strength, and
inflation remained stagnant -- setting a
positive tone for the bond market and
providing a good backdrop for the stock
market.
At the same time, corporate earnings
grew vigorously and the federal government
continued moving toward greater fiscal
responsibility -- contributing to a
superlative year for the stock market.
Because our portfolio managers were
anticipating this type of environment,
Connecticut Mutual Investment Accounts
(CMIA) investors were able to capitalize
on market trends. All of the CMIA funds
performed well in their respective
categories.
The CMIA Liquid Account, as with all
money market funds, responded to lower
inflation and lower interest rates with
modest returns. The CMIA Liquid Fund was
up 5.11 percent for the 12 months ended
December 31, 1995 -- in line with the
category average of 5.37 percent,
according to Lipper Analytical Services,
Inc.
The CMIA Income Account was up 11.72
percent, compared with the category
average increase of 10.84 percent for the
12 months ended December 31, 1995,
according to Lipper. The Fund was
well-positioned for a decreasing interest
rate environment and held maturities that
were a little longer than the average bond
fund.
The CMIA Total Return Account, with
a mix of stocks, bonds and cash, ended the
12 months with a 23.95 percent increase,
according to Lipper. The Fund maintained
its strict asset allocation discipline,
but a slight underweight in stocks
contributed to its underperformance. The
category average was 25.16 percent.
The CMIA Growth Account boasted a
36.40 percent gain in the 12 months ended
December 31, 1995, according to Lipper,
outperforming the category average
increase of 30.79 percent. The Fund's
investment discipline of looking for
stocks with low P/Es and positive earnings
surprise contributed to its impressive
results.
The CMIA Government Securities
Account performed well, turning in a gain
of 17.90 percent and outperforming the
category average of 17.34 percent for the
12 months, according to Lipper. The Fund
continued to de-emphasize mortgage-backed
securities and held bonds with maturities
a little longer than average.
We are certainly pleased with the performance of CMIA throughout 1995, and
we will continue to monitor economic and market conditions to help maintain
CMIA's position as a top-performing mutual fund.
You likely will find that the expertise of our investment professionals is
even more valuable as we grapple with the federal budget battle and anticipate
the Presidential elections in the months ahead.
ECONOMIC FORECAST: FIRST AND SECOND QUARTERS 1996
A look ahead at 1996 shows a continuation of 1995, with low inflation, a
slow economy and continued reductions in interest rates by the Fed. This
scenario --
combined with a strong dollar and decreasing rates overseas --
provides a favorable backdrop for the bond market.
In the bond market, the ingredients for still lower yields
are present, but most of the rally seems to be behind us. With
our inflation forecast of 2 percent, long-term treasury yields
should be about 6 percent.
A strong bond market and low interest rates should fuel
more growth in the stock market. That growth could, however, be
dampened by a lag in corporate earnings. Lackluster corporate
earnings could introduce downward pressures on the market and
create some volatility.
<PAGE>
Our investment managers also are keeping a close eye on
Washington. Although the current battle over the federal budget
signifies another step in the march toward fiscal responsibility,
it could create short-term volatility in the markets. The
presidential election in November bears watching as well.
Overall, the fundamentals are extraordinarily bullish: a
slowing economy, no inflation, improving prospects of a balanced
federal budget and falling short-term interest rates. Until these
dynamics change, we look forward to another strong year in the
financial markets.
SUMMARY
For most investors, the current bull market is a dream come
true. But, anyone who has watched the markets over time knows
that circumstances can change quickly and double-digit returns
can easily dwindle.
Successful investors anticipate those ups and downs and
ride them out -- because they know that, in the long run, the
stock market has provided financial rewards. That why we, too,
stick to a tried and true investment discipline designed to work
in good times and in bad, over time.
On the whole, we are pleased with the results of CMIA for
1995 and we hope you share our enthusiasm and optimism for the
coming year. If you want to know more about CMIA and the options
available to you, talk to your registered representative or call
1-800-234-5606.
David E. Sams, Jr.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CONNECTICUT MUTUAL LIFE INSURANCE COMPANY
THE CMIA ACCOUNTS
LIQUID
The objective of this Account is to achieve as high a level of current income
as possible consistent with safety of principal and maintenance of liquidity
by investing in money market instruments.
GOVERNMENT SECURITIES
The Account seeks to provide a high level of current income with a high degree
of safety of principal by investing in securities issued by, or guaranteed as
to principal and interest by, the U.S. Government, its agencies, or
authorities or instrumentalities and by obligations that are fully
collateralized or otherwise fully backed by U.S. Government Securities.*
INCOME
This objective of this Account is to obtain a high level of current income
consistent with prudent investment risk and preservation of capital, by
investing primarily in fixed-income debt securities that generally mature
within five years of purchase.
TOTAL RETURN
This Account attempts to maximize over time the return achieved from capital
appreciation and income by varying the allocation of the Account's assets
among stocks, corporate bonds, securities issued by the U.S. Government, and
money market instruments of the type acquired respectively by the Growth
Account, the Government Securities Account, the Income Account and the Liquid
Account.
GROWTH
This Account invests in common stock with low price-earnings ratios and better
than anticipated earnings, with the goal of long-term growth of capital.
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE PERFORMANCE.
LIPPER RANKINGS DO NOT TAKE INTO CONSIDERATION THE EFFECT OF SALES CHARGES AND
HAD SALES CHARGES BEEN INCLUDED, THE PERFORMANCE RANKINGS WOULD HAVE BEEN LESS
FAVORABLE.
* THE GOVERNMENT BACKING APPLIES ONLY TO THE TIMELY PAYMENT OF PRINCIPAL AND
INTEREST AND DOES NOT APPLY TO THE SHARES OF THE FUND.
THIS MATERIAL IS INTENDED FOR USE ONLY WHEN ACCOMPANIED OR PRECEDED BY A
PROSPECTUS.
<PAGE>
LIQUID ACCOUNT
The CMIA Liquid Account showed a 5.11 percent increase -- about comparable
with the Lipper category average of 5.37 percent -- for the year ended December
31, 1995.
Money market yields were modest, consistent with low interest rates and low
inflation in 1995. We expect interest rates to remain low and money markets to
continue producing low yields
Over time, however, the CMIA Liquid Account has turned in respectable
results, with a 20.5% return for the five years ended December 31, 1995,
according to Lipper Analytical Services, Inc.
SCHEDULE TO PROSPECTUS OF CMIA LIQUID ACCOUNT
Graphic material included in Prospectus of CMIA Liquid Account: "Comparison
of Total Return of CMIA Liquid Account with the Consumer Price Index -- Change
in Value of $10,000 Hypothetical Investments in CMIA Liquid Account and the
Consumer Price Index."
Linear graphs will be included in the Prospectus of CMIA Liquid Account (the
"Fund") depicting the initial account value and subsequent account value
of a hypothetical $10,000 investment in the Fund. The graph will cover the
period from 12/31/85 through 12/31/95. The graph will compare such
values with hypothetical $10,000 investments over the same time periods
in the Consumer Price 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 Consumer
Price Index, is set forth in the Prospectus under "Performance of the Fund
- -- Comparing the Fund's Performance to the Market."
<TABLE>
<CAPTION>
FISCAL
PERIOD CMIA
ENDED LIQUID FUND CPI
- ----------- ----------- ---------
<S> <C> <C>
12/31/85 10,000 10,000
12/31/86 10,603 10,119
12/31/87 11,236 10,566
12/31/88 12,003 11,032
12/31/89 13,027 11,543
12/31/90 14,008 12,265
12/31/91 14,751 12,630
12/31/92 15,177 13,005
12/31/93 15,525 13,361
12/31/94 16,054 13,708
12/31/95 16,875 14,064
</TABLE>
Comparative performance of $10,000 invested in the CMIA Liquid Account and
the Consumer Price Index. The Consumer Price Index is an unmanaged index and
represents price changes in a broad market basket of consumer goods and is
indicative of the rate of inflation. AN INVESTMENT IN THE LIQUID ACCOUNT IS
NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT AND THERE IS NO ASSURANCE
THAT THE MONEY MARKET INSTRUMENTS WILL BE ABLE TO MAINTAIN A STABLE NET ASSET
VALUE.
Past performance is not predictive of future performance.
- --------------------------------------------------------------------------------
*FOR PERIODS ENDED 12/31/95. THE W/O SC RETURNS DO NOT REFLECT THE EFFECTS
OF SALES CHARGES. THE W/ SC ASSUMES THE CURRENT MAXIMUM INITIAL SALES
CHARGES OF 2.00% FOR THE INCOME ACCOUNT, 4.00% FOR THE GOVERNMENT
SECURITIES ACCOUNT AND 5.00% FOR THE TOTAL RETURN AND GROWTH ACCOUNTS. THE
LIQUID ACCOUNT HAS NO INITIAL SALES CHARGES.
ALL PORTFOLIOS BECAME EFFECTIVE SEPTEMBER 16, 1985 EXCEPT FOR THE LIQUID
ACCOUNT WHICH WAS FIRST OFFERED TO THE PUBLIC ON MARCH 31, 1982.
STANDARD RETURNS ARE NET OF FUND EXPENSES AND INCLUDE REINVESTMENT OF
DIVIDENDS AND CAPITAL GAINS.
1LIPPER RANKINGS DO NOT TAKE INTO CONSIDERATION THE EFFECT OF SALES CHARGES
AND HAD SALES CHARGES BEEN INCLUDED, THE PERFORMANCE RANKINGS MAY HAVE BEEN
LESS FAVORABLE.
GOVERNMENT
SECURITIES
ACCOUNT
The CMIA Government Securities Account outperformed the competition, turning
in a 17.90 percent return for the year ended December 31, 1996, compared with
17.34 percent for the Lipper category average.
We continued to de-emphasize mortgage-backed securities, which tend to
underperform in periods of falling interest rates. We also maintained bonds with
maturities a little longer than average, which paid off well in last year's
falling rate environment.
We will continue with these strategies as we look for interest rates to
remain low and the bond market to remain healthy.
Over the past five years ended December 31, 1995, the CMIA Government
Securities Account has provided a return of 51.67 percent.
SCHEDULE TO PROSPECTUS OF CMIA GOVERNMENT SECURITIES ACCOUNT
Graphic material included in Prospectus of CMIA Government Securities
Account: "Comparison of Total Return of CMIA Government Securities Account
with the Consumer Price Index and the Merrill Lynch Government Master Index
- -- Change in Value of $10,000 Hypothetical Investments in CMIA Government
Securities Account and the Consumer Price Index and the Merrill Lynch
Government Master Index."
Linear graphs will be included in the Prospectus of CMIA Government
Securities Account (the "Fund") depicting the initial account value and
subsequent account value of a hypothetical $10,000 investment in the Fund.
The graph will cover the period from 12/31/85 through 12/31/95. The
graph will compare such values with hypothetical $10,000 investments
over the same time periods in the Consumer Price Index and the Merrill
Lynch Government Master 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 Consumer
Price Index and Merrill Lynch Government Master Index, is set forth in the
Prospectus under "Performance of the Fund -- Comparing the Fund's
Performance to the Market."
<TABLE>
<CAPTION>
CMIA
FISCAL GOVERNMENT MERRILL LYNCH
PERIOD SECURITIES GOVERNMENT
ENDED FUND CPI MASTER INDEX
- ----------- --------- --------- -------------
<S> <C> <C> <C>
12/31/85 10,000 10,000 10,000
12/31/86 10,719 10,119 11,539
12/31/87 11,076 10,566 11,789
12/31/88 11,961 11,032 12,627
12/31/89 13,648 11,543 14,412
12/31/90 14,936 12,265 15,684
12/31/91 17,181 12,630 18,069
12/31/92 18,224 13,005 19,376
12/31/93 19,966 13,361 21,435
12/31/94 19,132 13,708 20,743
12/31/95 22,558 14,064 24,540
</TABLE>
Comparative performance of $10,000 invested in the CMIA Government
Securities Account, the Merrill Lynch Government Master Index and the Consumer
Price Index. The Merrill Lynch Government Master Index represents a broad index
of unmanaged Government bonds not adjusted for expenses. If portfolio expenses
had been applied to the index, its ending value would have been lower. The
Consumer Price Index is an unmanaged index and represents price changes in
a
broad market basket of consumer goods and is indicative of the rate of
inflation.
Past performance is not predictive of future performance.
INCOME ACCOUNT
The CMIA Income Account had another very competitive year, providing a
return of 11.72 percent -- compared with the Lipper category average of 10.84
percent for other investment guide short-term bond funds.
The Fund continued to invest in high quality corporate bonds and was
well-positioned for the declining interest rate environment. In line with our
economic views, we held bonds with slightly longer than average maturities. We
continued our conservative management approach and maintained relatively stable
net asset values.
The CMIA Income account, in fact, was cited by U.S. NEWS & WORLD REPORT on
January 29, 1996 as one of the "best funds for the long haul" -- funds that are
"tops at rewarding investors over time."
Over the past five years ended December 31, 1996, the CMIA Income Account
has rewarded investors handsomely with a 46.26 percent return, according to
Lipper.
As interest rates and inflation remain low, we expect bond funds such as the
CMIA Income Account to continue to perform well.
SCHEDULE TO PROSPECTUS OF CMIA INCOME ACCOUNT
Graphic material included in Prospectus of CMIA Income
Account: "Comparison of Total Return of CMIA Income Account
with the Consumer Price Index and the Salomon Brothers 1-3 Year
Treasury/Government Sponsored/Corporate Index -- Change in Value of $10,000
Hypothetical Investments in CMIA Income
Account and the Consumer Price Index and the Salomon Brothers 1-3 Year
Treasury/Government Sponsored/Corporate Index."
Linear graphs will be included in the Prospectus of CMIA Income Account (the
"Fund") depicting the initial account value and subsequent account value
of a hypothetical $10,000 investment in the Fund. The graph will cover the
period from 12/31/85 through 12/31/95. The graph will compare such
values with hypothetical $10,000 investments over the same time periods
in the Consumer Price Index and the Salomon Brothers 1-3 Year
Treasury/Government Sponsored/Corporate 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 Consumer Price Index and the Salomon Brothers 1-3 Year
Treasury/Government Sponsored/Corporate Index, is set forth in the
Prospectus under "Performance of the Fund -- Comparing the Fund's
Performance to the Market."
<TABLE>
<CAPTION>
SALOMON
BROTHERS
1-3 YEAR
TREASURY/
FISCAL GOVERNMENT
PERIOD CMIA SPONSORED/
ENDED INCOME FUND CPI CORPORATE INDEX
- ----------- ----------- --------- ---------------
<S> <C> <C> <C>
12/31/85 10,000 10,000 10,000
12/31/86 10,900 10,119 11,046
12/31/87 11,121 10,566 11,677
12/31/88 11,886 11,032 12,424
12/31/89 13,001 11,543 13,782
12/31/90 13,824 12,265 15,119
12/31/91 15,789 12,630 16,911
12/31/92 16,831 13,005 18,002
12/31/93 18,173 13,361 19,017
12/31/94 18,097 13,708 19,133
12/31/95 20,227 14,064 21,216
</TABLE>
Comparative performance of $10,000 invested in the CMIA Income Account, the
Salomon Brothers 1-3 Year Treasury/Government Sponsored/Corporate Index and the
Consumer Price Index. The Salomon Brothers Index represents an unmanaged group
of bonds not adjusted for operating expenses. If portfolio operating expenses
had been applied to the index, its ending value would have been lower. The
Consumer Price Index is an unmanaged index and represents price changes in
a
broad market basket of consumer goods and is indicative of the rate of
inflation.
In the fourth quarter of 1987, the Income Account investment objectives
changed from a general bond fund to investing primarily in fixed-income debt
securities that generally mature within five years of purchase.
Past performance is not predictive of future performance.
2
<PAGE>
TOTAL RETURN
ACCOUNT
The CMIA Total Return Account posted a 23.95 percent increase for the year
ended December 31, 1995, performing near the Lipper category average of 25.16
percent.
This Fund holds stocks, bonds and cash -- each managed with the same
investment disciplines used in our CMIA stock, bond and money market accounts.
In addition, we vary the mix of stocks, bonds and cash in line with
a
quantitatively based, value-oriented asset allocation discipline.
Although the return of the Total Return Account was excellent last year, it
was below the category average because of a slight underweight in stocks. We
maintained our stock weighting near 40 percent for most of the year, consistent
with our asset allocation discipline.
The impact of imbalance in the stock/bond weighting was lessened somewhat by
our good stock selection -- producing about average performance.
Over time, the CMIA Total Return Account has provided healthy returns:
Five Years Ten Years
CMIA 98.13% 211.15%
Avg. Balanced Fund 85.12% 196.14%
Comparative performance of $10,000 invested in the CMIA Total Return
Account, the Merrill Lynch Corporate & Government Master Index, the S&P 500 and
the Consumer Price Index. The Merrill Lynch Government Corporate Master Index
represents an unmanaged group of bonds not adjusted for operating expenses. The
S&P 500 represents a broad index of unmanaged securities not adjusted for
expenses. If portfolio expenses had been applied to these indices, their ending
values would have been lower. The Consumer Price Index is an unmanaged index and
represents price changes in a broad market basket of consumer goods and is
indicative of the rate of inflation.
Past performance is not predictive of future performance.
GROWTH ACCOUNT
The CMIA Growth Account had a strong year in 1995, returning 36.40 percent
to investors, according to Lipper Analytical Services Inc. That performance
outshone the average growth fund, which Lipper said returned 30.79 percent.
The Growth Account's stellar performance can be attributed to two factors.
First was our consistent strategy of buying stocks with low price-earnings
ratios and positive earnings surprise. Second was the fund's strong performance
in the fourth quarter -- a quarter in which other stock funds were battered by
the underperformance of technology stocks. Because we adhered to our discipline
and didn't chase after the technology stock fad, we were able to avoid the fall
and come out ahead.
Our discipline calls for us to find stocks that are undervalued and out of
favor but are starting to show earnings momentum. This discipline has worked
well over time as evidenced by the long-term results of the CMIA Growth Fund:
Five Years Ten Years
CMIA 151.12% 298.62%
Avg. Growth Fund 113.44% 251.83%
SOURCE: LIPPER ANALYTICAL SERVICES
The CMIA Growth Fund was cited by U.S. NEWS & WORLD REPORT in its January
29, 1996, issue as one of the "best funds for the long haul."
Comparative performance of $10,000 invested in the CMIA Growth Account, the
S&P 500 and the Consumer Price Index. The S&P 500 represents a broad index of
unmanaged securities not adjusted for expenses. If portfolio expenses had been
applied to the index, its ending value would have been lower. The Consumer Price
Index is an unmanaged index and represents price changes in a broad market
basket of consumer goods and is indicative of the rate of inflation.
Disclaimer:
Past performance is not indicative of future performance.
3
<PAGE>
CONNECTICUT MUTUAL
INVESTMENT ACCOUNTS, INC.
<TABLE>
<S> <C>
F I N A N C I A L
S T A T E M E N T S
- ----------DECEMBER
31,
1995
</TABLE>
Liquid Account
Government Securities Account
Income Account
Total Return Account
Growth Account
<PAGE>
<TABLE>
<S> <C>
PERFORMANCE -- TOTAL RETURN*
</TABLE>
SALES CHARGE ADJUSTED PERFORMANCE AS OF 12/31/95* -- AFTER EXPENSES
<TABLE>
<S> <C> <C> <C>
<C>
AVERAGE
ANNUALIZED
ACCOUNTS ONE YEAR FIVE YEAR
TEN YEAR SINCE INCEPTION
LIQUID** 5.11 % 3.79 %
5.37 % 6.44 %
GOVERNMENT SECURITIES 13.18 % 7.71 %
8.48 % 9.17 %
INCOME 7.29 % 7.03 %
7.30 % 7.87 %
TOTAL RETURN 17.75 % 13.48 %
11.45 % 12.17 %
GROWTH 29.58 % 19.00 %
14.25 % 14.93 %
<CAPTION>
30 DAY
CURRENT YIELD
ACCOUNTS AS OF 12/31/95
LIQUID** 4.72 %
GOVERNMENT SECURITIES 4.89 %
INCOME 5.41 %
TOTAL RETURN
GROWTH
</TABLE>
Sales Charge Adjusted Performance assumes the current initial sales charge
reduces portfolio performance and was paid at the beginning of each period
shown. The current maximum initial sales charges are 4.00% for the Government
Securities and Income Accounts and 5.00% for the Total Return and Growth
Accounts. The Liquid Account has no initial sales charge.
ACTUAL PORTFOLIO PERFORMANCE AS OF 12/31/95* -- AFTER EXPENSES
<TABLE>
<S> <C> <C> <C>
<C>
AVERAGE
ANNUALIZED
ACCOUNTS ONE YEAR FIVE YEAR
TEN YEAR SINCE INCEPTION
LIQUID** 5.11 % 3.79 %
5.37 % 6.44 %
GOVERNMENT SECURITIES 17.90 % 8.59 %
8.92 % 9.61 %
INCOME 11.77 % 7.91 %
7.74 % 8.30 %
TOTAL RETURN 23.95 % 14.65 %
12.02 % 12.73 %
GROWTH 36.40 % 20.23 %
14.84 % 15.50 %
<CAPTION>
7-DAY
CURRENT YIELD
ACCOUNTS AS OF 12/31/95
LIQUID** 4.73 %
GOVERNMENT SECURITIES
INCOME
TOTAL RETURN
GROWTH
</TABLE>
Actual Portflio Performance assumes the initial sales charge is paid by a
client in a prior period and is not reflected on this table.
All portfolios became effective September 16, 1985 except for the Liquid
Account which was first offered to the public on March 31, 1982.
* Total Return figures include reinvestment of all dividends and capital
gains. Performance data quoted represents past performance. The investment
return and principal values of an investment will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their
original cost.
** There can be no assurance that the Liquid Account will be able to maintain
a stable net asset value of $1.00 per share. An investment in the Liquid
Account is neither insured not guaranteed by the U.S. Government.
1
<PAGE>
<TABLE>
<S> <C>
SCHEDULE OF INVESTMENTS CONNECTICUT MUTUAL
INVESTMENT ACCOUNTS, INC.
December 31, 1995
</TABLE>
LIQUID ACCOUNT
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY VALUE
<C> <S> <C>
COMMERCIAL PAPER
(95.9% OF NET ASSETS)
American Express Credit Corp.
$ 1,300,000 5.60%, due 3/5/96 $ 1,300,000
950,000 5.63%, due 3/20/96 950,000
700,000 5.53%, due 3/29/96 700,000
American Home Products Corp.
1,500,000 5.60%, due 3/4/96 1,485,300
Anheuser-Busch Companies, Inc.
1,000,000 5.55%, due 3/6/96 989,979
Banc One Corp.
1,600,000 5.68%, due 1/19/96 1,595,456
Beneficial Corp.
800,000 5.66%, due 1/3/96 799,748
1,500,000 5.50%, due 4/8/96 1,477,542
Cargill, Inc.
1,500,000 5.65%, due 1/16/96 1,496,469
1,000,000 5.55%, due 3/4/96 990,287
Cargill Financial Services Corp.
1,000,000 5.52%, due 6/3/96 976,387
Carolina Telephone & Telegraph Co.
775,000 5.87%, due 1/2/96 774,874
Clorox Company
1,125,000 5.53%, due 3/11/96 1,112,903
Corporate Asset Funding Co., Inc.
1,500,000 5.67%, due 1/24/96 1,494,566
1,100,000 5.625%, due 2/22/96 1,091,062
Corporate Receivables Corp.
725,000 5.68%, due 2/6/96 720,882
1,500,000 5.68%, due 2/7/96 1,491,243
Electronic Data Systems Corp.
1,500,000 5.70%, due 1/4/96 1,499,287
Ford Motor Credit Co.
1,300,000 5.55%, due 1/12/96 1,297,795
1,400,000 5.69%, due 2/5/96 1,400,000
910,000 5.69%, due 2/12/96 910,000
Gateway Fuel Co.
1,500,000 5.63%, due 1/26/96 1,494,135
General Electric Capital Corp.
1,000,000 5.58%, due 2/8/96 994,110
1,000,000 5.65%, due 2/16/96 992,781
1,000,000 5.58%, due 4/4/96 985,430
500,000 5.50%, due 4/15/96 491,979
Golden Peanut Co.
2,130,000 5.62%, due 3/7/96 2,108,054
Heinz (H.J.) Co.
1,000,000 5.80%, due 1/30/96 995,328
2,000,000 5.75%, due 2/2/96 1,989,778
Hewlett-Packard Co.
1,050,000 5.70%, due 1/2/96 1,049,834
1,000,000 5.42%, due 3/19/96 988,257
Household Finance Corp.
1,000,000 5.70%, due 2/9/96 993,825
International Lease Finance Corp.
1,100,000 5.67%, due 1/11/96 1,098,267
2,220,000 5.65%, due 2/26/96 2,200,489
McGraw-Hill Inc.
1,500,000 5.52%, due 3/11/96 1,483,900
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY VALUE
<C> <S> <C>
MCI Communications Corp.
$ 1,000,000 5.53%, due 2/28/96 $ 991,091
Merrill Lynch & Co., Inc.
1,250,000 5.72%, due 1/18/96 1,246,624
1,000,000 5.63%, due 2/21/96 992,024
Monsanto Co.
1,000,000 5.80%, due 1/23/96 996,456
Morgan (J.P.) & Company, Inc.
1,100,000 5.58%, due 3/15/96 1,087,383
1,500,000 5.45%, due 3/18/96 1,482,515
Morgan Guaranty Trust Co.
1,000,000 5.57%, due 3/1/96 990,717
National Rural Utilities
Cooperative Finance Corp.
1,100,000 5.68%, due 1/9/96 1,098,612
Norwest Corp.
1,600,000 5.67%, due 2/23/96 1,586,644
PHH Corporation
1,500,000 5.68%, due 1/8/96 1,498,343
1,000,000 5.65%, due 1/17/96 997,489
1,000,000 5.70%, due 1/29/96 995,567
Penney (J.C.) Funding Corp.
1,500,000 5.60%, due 2/29/96 1,486,233
Republic National Bank of New York
2,000,000 5.57%, due 2/1/96 1,990,407
Swiss Bank Corp.
1,000,000 5.67%, due 3/25/96 999,769
Tampa Electric Co.
1,200,000 5.67%, due 1/29/96 1,194,708
Transamerica Finance Corp.
1,000,000 5.60%, due 1/5/96 999,378
1,400,000 5.65%, due 1/5/96 1,399,121
1,090,000 5.71%, due 1/16/96 1,087,407
U.S. Bancorp
1,000,000 5.55%, due 2/13/96 993,371
2,450,000 5.50%, due 2/22/96 2,430,536
Xerox Corp.
1,500,000 5.70%, due 1/10/96 1,497,862
1,150,000 5.69%, due 1/17/96 1,147,092
1,100,000 5.70%, due 1/22/96 1,096,342
-----------
TOTAL COMMERCIAL PAPER
(COST $72,705,638) 72,705,638
-----------
U.S. AGENCY SHORT-TERM OBLIGATIONS
(4.0% OF NET ASSETS)
Student Loan Marketing Assn.
2,000,000 5.23%, due 5/14/96 2,000,000
U.S. Treasury Note
1,000,000 6.125%, due 7/31/96 1,001,875
-----------
TOTAL U.S. AGENCY SHORT-TERM
OBLIGATIONS (COST $3,001,875) 3,001,875
-----------
TOTAL INVESTMENTS
(COST $75,707,513) $75,707,513
-----------
-----------
</TABLE>
2 The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
GOVERNMENT SECURITIES ACCOUNT INCOME ACCOUNT
</TABLE>
3
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY VALUE
<C> <S> <C>
U.S. GOVERNMENT & AGENCY LONG-TERM
OBLIGATIONS
(97.4% OF NET ASSETS)
Federal National Mortgage Assn.
$ 870,467 7.00%, 2019 $ 876,178
Government National Mortgage Assn.
62,393 11.50%, 1998 65,980
31,954 9.50%, 2001 33,581
46,713 7.25%, 2005 48,844
297,452 7.50%, 2006 310,260
187,668 8.00%, 2006 197,716
450,852 8.00%, 2007 470,293
168,055 8.25%, 2008 177,600
78,352 9.00%, 2008 83,871
501,423 9.00%, 2009 537,000
74,173 13.00%, 2011 88,057
3,408 13.50%, 2011 4,099
52,664 14.00%, 2011 64,316
31,389 15.00%, 2011 38,461
3,466 12.00%, 2012 4,018
107,759 13.50%, 2012 128,856
166,026 15.00%, 2012 203,214
104,227 11.50%, 2013 119,329
44,287 13.00%, 2013 52,482
174,954 13.50%, 2013 210,436
82,420 12.00%, 2014 95,813
280,426 12.50%, 2014 330,306
137,371 13.00%, 2014 163,084
1,406 13.50%, 2014 1,692
422,135 7.375%, 2017 428,995
391,370 10.00%, 2019 430,749
62,082 12.50%, 2019 72,113
2,092,796 6.50%, 2023 2,075,782
1,251,999 7.00%, 2023 1,267,350
U.S. Treasury Bond
8,500,000 9.25%, 2016 11,683,505
U.S. Treasury Notes
3,500,000 8.875%, 1997 3,725,295
6,750,000 9.25%, 1998 7,403,872
2,500,000 6.75%, 1999 2,614,050
1,500,000 9.125%, 1999 1,673,910
2,500,000 7.50%, 2001 2,753,525
4,050,000 11.75%, 2001 5,201,091
4,450,000 7.25%, 2004 4,948,533
-----------
TOTAL U.S. GOVERNMENT & AGENCY
LONG-TERM OBLIGATIONS
(COST $46,462,748) 48,584,256
-----------
REPURCHASE AGREEMENTS*
(.7% OF NET ASSETS)
State Street Bank & Trust Co.
4.75%, due 1/2/96 (COST
377,000 $377,000) 377,000
-----------
TOTAL INVESTMENTS
(COST $46,839,748) $48,961,256
-----------
-----------
</TABLE>
*Repurchase agreements are fully collateralized by U.S. Government
obligations.
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY VALUE
<C> <S> <C>
CORPORATE BONDS
(68.7% OF NET ASSETS)
AEROSPACE (1.7%)
British Aerospace Finance BV
$ 300,000 8.00%, 1997 $ 309,000
Coltec Industries Inc.
250,000 9.75%, 2000 257,500
-----------
566,500
-----------
AIRLINES (1.6%)
Southwest Airlines Co.
500,000 9.25%, 1998 533,600
-----------
AUTO & AUTO RELATED (2.4%)
Burmah Castrol Capital, Ltd.
500,000 7.00%, 1997 513,800
Ford Motor Co.
286,301 6.27%, 2000 289,261
-----------
803,061
-----------
BANKING (8.6%)
Barnett Banks, Inc.
325,000 8.50%, 1999 351,111
Chemical Banking Corp.
325,000 6.625%, 1998 331,269
Citicorp
325,000 9.46%, 1996 328,731
First Fidelity Bancorporation
325,000 8.50%, 1998 342,885
First Union Corp.
325,000 6.75%, 1998 331,103
Home Savings of America
500,000 10.50%, 1997 504,475
Mellon Financial Co.
325,000 6.50%, 1997 330,223
Security Pacific Corp.
325,000 7.75%, 1996 331,097
-----------
2,850,894
-----------
BROKER/DEALER (1.0%)
Merrill Lynch & Co., Inc.
325,000 8.25%, 1996 330,912
-----------
CHEMICALS (2.0%)
FMC Corp.
250,000 8.75%, 1999 269,248
Lyondell Petrochemical Co.
400,000 8.25%, 1997 410,320
-----------
679,568
-----------
CONGLOMERATES (1.2%)
Tenneco, Inc.
375,000 10.00%, 1998 412,237
-----------
ELECTRIC UTILITIES (3.8%)
Consumers Power Co.
250,000 8.75%, 1998 263,335
Long Island Lighting Co.
500,000 8.75%, 1996 506,145
</TABLE>
3
<PAGE>
INCOME ACCOUNT (cont'd)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY VALUE
<C> <S> <C>
Midwest Power Systems Inc.
$ 500,000 6.25%, 1998 $ 505,235
-----------
1,274,715
-----------
ELECTRICAL & ELECTRONIC EQUIPMENT
(1.5%)
Westinghouse Electric Corp.
500,000 7.75%, 1996 502,105
-----------
FINANCIAL SERVICES (13.0%)
American General Finance Corp.
300,000 8.50%, 1998 320,706
Associates Corp. of North America
300,000 7.40%, 1999 316,149
Avco Financial Services, Inc.
500,000 5.875%, 1997 501,975
Banque Nationale de Paris
205,000 9.875%, 1998 224,157
Beneficial Corp.
500,000 9.125%, 1998 534,940
Countrywide Funding Corp.
300,000 6.57%, 1997 304,269
General Motors Acceptance Corp.
500,000 5.65%, 1997 500,675
Green Tree Financial Corp.
250,000 7.70%, 2019 260,232
Household Financial
Corporation Ltd.
250,000 6.00%, 1998 251,853
Household International
Netherlands BV
250,000 6.00%, 1999 251,222
Norwest Financial, Inc.
325,000 6.50%, 1997 330,275
Transamerica Finance Group, Inc.
500,000 7.42%, 1998 517,065
-----------
4,313,518
-----------
FOOD & BEVERAGES (4.6%)
ConAgra, Inc.
500,000 9.75%, 1997 532,925
Grand Metropolitan Investment
Corp.
325,000 8.125%, 1996 329,602
Nabisco Brands Inc.
325,000 8.00%, 2000 345,443
Seagram Company Ltd.
300,000 9.75%, 2000 304,167
-----------
1,512,137
-----------
INSURANCE (1.2%)
SunAmerica Inc.
370,000 9.00%, 1999 399,186
-----------
LEASING (2.6%)
Penske Truck Leasing Co.
325,000 7.75%, 1999 339,417
U.S. Leasing International Inc.
500,000 7.00%, 1997 511,645
-----------
851,062
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY VALUE
<C> <S> <C>
LEISURE & ENTERTAINMENT (.8%)
Blockbuster Entertainment Corp.
$ 250,000 6.625%, 1998 $ 252,798
-----------
MANUFACTURING (.8%)
First Brands Corp.
265,000 9.125%, 1999 273,679
-----------
MORTGAGE-BACKED SECURITIES (2.9%)
GE Capital Mortgage Services, Inc.
135,893 6.50%, 2024 135,596
Housing Securities, Inc.
193,964 7.25%, 2012 196,752
Ryland Mortgage Securities Corp.
413,677 8.339%, 2030 417,167
Salomon Brothers, Inc.
239,258 0.00%, 2017 (principal only) 174,881
161,680 12.50%, 2017 44,664
-----------
969,060
-----------
OFFICE EQUIPMENT (.8%)
Xerox Corp.
270,000 9.20%, 1999 274,450
-----------
OIL & GAS (6.8%)
Arkla, Inc.
505,000 9.875%, 1997 525,513
Coastal Corp.
325,000 8.75%, 1999 350,681
Empresa Columbia de Petroleos
250,000 7.25%, 1998 249,375
Florida Gas Transmission Co.
500,000 7.75%, 1997 516,745
Phillips Petroleum Co.
458,313 7.53%, 1998 470,781
Transcontinental Gas Pipe Line
Corp.
150,000 9.00%, 1996 153,974
-----------
2,267,069
-----------
PAPER & FOREST PRODUCTS (2.0%)
Celulosa Arauco y Constitucion SA
350,000 7.25%, 1998 359,187
Georgia-Pacific Corp.
300,000 9.85%, 1997 316,293
-----------
675,480
-----------
PRINTING & PUBLISHING (2.6%)
Reed Publishing USA Inc.
325,000 7.24%, 1997 330,986
Time Warner Inc.
500,000 7.45%, 1998 513,925
-----------
844,911
-----------
RETAIL TRADE (1.0%)
Sears, Roebuck & Co.
300,000 8.39%, 1999 322,965
-----------
SAVINGS & LOAN (1.1%)
Golden West Financial Corp.
325,000 8.625%, 1998 346,986
-----------
</TABLE>
4 The accompanying notes are an integral part of these financial statements.
<PAGE>
INCOME ACCOUNT (cont'd)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY VALUE
<C> <S> <C>
TELECOMMUNICATIONS (.9%)
Tele-Communications, Inc.
$ 315,000 5.28%, 1996 $ 313,743
-----------
TELEPHONE UTILITIES (1.9%)
GTE Corp.
300,000 8.85%, 1998 319,845
MCI Communications Corp.
300,000 7.625%, 1996 304,779
-----------
624,624
-----------
TOBACCO (1.9%)
B.A.T Capital Corp.
300,000 6.66%, 2000 306,930
Philip Morris Companies Inc.
300,000 8.75%, 1996 308,247
-----------
615,177
-----------
TOTAL CORPORATE BONDS
(COST $22,975,602) 22,810,437
-----------
U.S. GOVERNMENT & AGENCY
LONG-TERM OBLIGATIONS
(25.6% OF NET ASSETS)
Federal Home Loan Mortgage Corp.
130,372 5.50%, 1997 129,241
369,783 5.50%, 1998 366,199
Federal National Mortgage Assn.
813,043 7.50%, 2008 836,158
822,819 7.00%, 2009 837,983
250,000 6.00%, 2019 249,295
Government National Mortgage Assn.
387,056 7.00%, 2009 396,004
45,963 13.00%, 2014 54,566
U.S. Treasury Notes
3,350,000 6.75%, 1999 3,502,827
1,950,000 7.75%, 1999 2,116,062
-----------
TOTAL U.S. GOVERNMENT & AGENCY
LONG-TERM OBLIGATIONS (COST
$8,352,192) 8,488,335
-----------
COMMERCIAL PAPER
(3.8% OF NET ASSETS)
Carolina Telephone & Telegraph Co.
1,250,000 5.87%, due 1/2/96 1,249,796
-----------
TOTAL INVESTMENTS
(COST $32,577,590) $32,548,568
-----------
-----------
</TABLE>
TOTAL RETURN ACCOUNT
<TABLE>
<CAPTION>
NUMBER OF MARKET
SHARES SECURITY VALUE
<C> <S> <C>
COMMON STOCKS
(42.5% OF NET ASSETS)
AEROSPACE (4.2%)
22,600 General Dynamics Corp. $1,336,225
29,671 Lockheed Martin Corp. 2,344,009
80,300 Loral Corp. 2,840,612
19,000 McDonnell Douglas Corp. 1,748,000
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF MARKET
SHARES SECURITY VALUE
<C> <S> <C>
17,600 Rockwell International Corp. $ 930,600
------------
9,199,446
------------
AIRLINES (1.5%)
12,400 AMR Corp. 920,700
15,900 Delta Air Lines, Inc. 1,174,612
25,100 Northwest Airlines Corp. 1,280,100
------------
3,375,412
------------
BANKING (4.0%)
42,800 Bank of Boston Corp. 1,979,500
12,600 Bankers Trust New York Corp. 837,900
32,400 Chase Manhattan Corp. 1,964,250
21,300 Morgan (J.P.) & Company, Inc. 1,709,325
34,100 PNC Bank Corp. 1,099,725
5,400 Wells Fargo & Co. 1,166,400
------------
8,757,100
------------
BUILDING MATERIALS & CONSTRUCTION
(.5%)
33,800 USG Corp. 1,014,000
------------
CHEMICALS (4.0%)
9,600 Cabot Corp. 517,200
16,000 FMC Corp. 1,082,000
15,000 Goodrich (B.F.) Co. 1,021,875
28,800 Grace (W.R.) & Co. 1,702,800
39,600 IMC Global, Inc. 1,618,650
12,000 Monsanto Co. 1,470,000
Potash Corporation of Saskatchewan
19,800 Inc. 1,403,325
------------
8,815,850
------------
CONGLOMERATES (1.5%)
26,000 Textron, Inc. 1,755,000
41,600 Tyco International Ltd. 1,482,000
------------
3,237,000
------------
DRUGS & COSMETICS (.4%)
9,500 American Home Products Corp. 921,500
------------
ELECTRIC UTILITIES (3.0%)
50,700 Entergy Corp. 1,482,975
37,300 FPL Group, Inc. 1,729,787
33,900 Illinova Corp. 1,017,000
10,600 Texas Utilities Co. 435,925
54,300 Unicom Corp. 1,778,325
------------
6,444,012
------------
FOOD & BEVERAGES (.4%)
24,100 Dole Food Company, Inc. 843,500
------------
HEALTH SERVICES & HOSPITAL SUPPLIES
(1.6%)
24,100 Baxter International Inc. 1,009,188
28,700 Columbia Healthcare Corp. 1,456,525
44,300 OrNda HealthCorp. 1,029,975
------------
3,495,688
------------
INSURANCE (4.2%)
26,500 Aetna Life & Casualty Co. 1,835,125
</TABLE>
5
<PAGE>
TOTAL RETURN ACCOUNT (cont'd)
<TABLE>
<CAPTION>
NUMBER OF MARKET
SHARES SECURITY VALUE
<C> <S> <C>
41,381 Allstate Corp. $1,701,794
12,600 CIGNA Corp. 1,300,950
15,300 St. Paul Companies Inc. 851,062
36,100 TIG Holdings, Inc. 1,028,850
39,200 Travelers Group 2,464,700
------------
9,182,481
------------
LEISURE RELATED (.5%)
37,675 Mattel, Inc. 1,158,506
------------
MACHINERY & EQUIPMENT (2.3%)
26,300 AGCO Corp. 1,341,300
38,400 Case Corp. 1,756,800
11,400 Harnischfeger Industries, Inc. 379,050
33,390 Mark IV Industries, Inc. 659,453
25,650 Parker-Hannifin Corp. 878,513
------------
5,015,116
------------
MANUFACTURING (.4%)
25,300 Black & Decker Corp. 891,825
------------
MISCELLANEOUS (.8%)
35,800 Premark International, Inc. 1,812,375
------------
OFFICE EQUIPMENT (.8%)
12,400 Xerox Corp. 1,698,800
------------
OIL & GAS (3.3%)
13,400 Amoco Corp. 963,125
26,400 Chevron Corp. 1,386,000
16,400 Mobil Corp. 1,836,800
71,200 Panhandle Eastern Corp. 1,984,700
8,000 Royal Dutch Petroleum Co. 1,129,000
------------
7,299,625
------------
PAPER & FOREST PRODUCTS (.9%)
24,336 Kimberly-Clark Corp. 2,013,804
------------
REAL ESTATE (.1%)
8,033 Castle & Cooke Inc. 134,558
------------
RETAIL TRADE (2.5%)
25,100 Eckerd Corp. 1,120,088
49,700 Kroger Co. 1,863,750
42,700 Sears, Roebuck & Co. 1,665,300
37,100 Service Merchandise Co., Inc. 185,500
37,000 Waban Inc. 693,750
------------
5,528,388
------------
SAVINGS & LOAN (.5%)
39,000 Ahmanson (H.F.) & Co. 1,033,500
------------
TECHNOLOGY (2.8%)
26,000 Compaq Computer Corp. 1,248,000
21,200 Conner Peripherals, Inc. 445,200
20,900 Seagate Technology Inc. 992,750
30,600 Storage Technology Corp. 730,575
38,600 Stratus Computer, Inc. 1,336,525
28,000 Sun Microsystems, Inc. 1,277,500
------------
6,030,550
------------
TELEPHONE UTILITIES (2.3%)
31,400 Ameritech Corp. 1,852,600
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF MARKET
SHARES SECURITY VALUE
<C> <S> <C>
37,100 GTE Corp. $1,632,400
27,200 NYNEX Corp. 1,468,800
------------
4,953,800
------------
TOTAL COMMON STOCKS
(COST $70,464,960) 92,856,836
------------
PRINCIPAL CORPORATE BONDS
AMOUNT (16.3% OF NET ASSETS)
AEROSPACE (.4%)
British Aerospace Finance BV
$ 500,000 8.00%, 1997 515,000
Coltec Industries, Inc.
250,000 9.75%, 2000 257,500
------------
772,500
------------
AUTO & AUTO RELATED (.2%)
Burmah Castrol Capital, Ltd.
500,000 7.00%, 1997 513,800
------------
BANKING (1.2%)
BankAmerica Corp.
500,000 6.00%, 1997 503,515
Chemical Banking Corp.
250,000 10.125%, 2000 293,310
First Fidelity Bancorporation
500,000 8.50%, 1998 527,515
Fleet Financial Group, Inc.
250,000 9.90%, 2001 292,550
Marshall & Ilsley Corp.
500,000 6.95%, 1997 508,285
Mellon Financial Co.
400,000 6.50%, 1997 406,428
------------
2,531,603
------------
CHEMICALS (1.4%)
FMC Corp.
500,000 8.75%, 1999 538,495
Lyondell Petrochemical Co.
1,100,000 8.25%, 1997 1,128,380
Morton International, Inc.
500,000 9.25%, 2020 653,780
PPG Industries, Inc.
250,000 9.00%, 2021 320,792
Reliance Industries Ltd.
400,000 8.125%, 2005 402,000
------------
3,043,447
------------
CONGLOMERATES (.7%)
Norsk Hydro
500,000 8.75%, 2001 562,500
Tenneco Credit Corp.
500,000 9.25%, 1996 513,235
Tenneco, Inc.
375,000 10.00%, 1998 412,238
------------
1,487,973
------------
DRUGS & COSMETICS (.5%)
Procter & Gamble Co.
250,000 9.36%, 2021 319,375
</TABLE>
6 The accompanying notes are an integral part of these financial statements.
<PAGE>
TOTAL RETURN ACCOUNT (cont'd)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY VALUE
<C> <S> <C>
Roche Holdings Inc.
$ 950,000 2.75%, 2000 $ 845,500
------------
1,164,875
------------
ELECTRIC UTILITIES (.3%)
Long Island Lighting Co.
500,000 8.75%, 1996 506,145
Public Service Co. of New
Hampshire
250,000 8.875%, 1996 252,733
------------
758,878
------------
ELECTRICAL & ELECTRONIC
EQUIPMENT (.5%)
Electrolux
500,000 7.75%, 1997 514,062
Westinghouse Electric Corp.
500,000 7.75%, 1996 502,105
------------
1,016,167
------------
FINANCIAL SERVICES (4.2%)
American General Finance Corp.
500,000 7.70%, 1997 517,670
500,000 8.50%, 1998 534,510
Aristar, Inc.
250,000 8.125%, 1997 260,955
Associates Corp. of North America
500,000 6.75%, 1999 514,915
Countrywide Funding Corp.
250,000 6.57%, 1997 253,557
500,000 6.085%, 1999 503,090
Fleet Mortgage Corp.
1,000,000 6.125%, 1997 1,006,130
250,000 6.50%, 1999 255,380
Ford Motor Credit Co.
500,000 8.00%, 1997 520,760
500,000 6.25%, 1998 507,455
General Motors Acceptance Corp.
1,000,000 5.65%, 1997 1,001,350
750,000 7.75%, 1997 766,673
Green Tree Financial Corp.
500,000 8.00%, 2020 524,375
Household Financial Corporation
Ltd.
250,000 6.00%, 1998 251,853
Household International
Netherlands BV
500,000 6.00%, 1999 502,445
Norwest Financial, Inc.
500,000 6.50%, 1997 508,115
Transamerica Finance Corp.
500,000 6.75%, 1997 508,240
250,000 6.80%, 1999 257,702
------------
9,195,175
------------
FOOD & BEVERAGES (1.0%)
Bass America Inc.
250,000 6.75%, 1999 257,310
ConAgra, Inc.
500,000 9.75%, 1997 532,925
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY VALUE
<C> <S> <C>
Nabisco Brands Inc.
$ 500,000 8.00%, 2000 $ 531,450
Seagram Company Ltd.
950,000 9.75%, 2000 963,195
------------
2,284,880
------------
INSURANCE (.2%)
SunAmerica Inc.
450,000 9.00%, 1999 485,496
------------
LEASING (.8%)
Penske Truck Leasing Co.
750,000 7.75%, 1999 783,270
PHH Corp.
350,000 6.50%, 2000 357,360
U.S. Leasing International Inc.
500,000 7.00%, 1997 511,645
------------
1,652,275
------------
LEISURE & ENTERTAINMENT (.2%)
Blockbuster Entertainment Corp.
500,000 6.625%, 1998 505,595
------------
MANUFACTURING (.2%)
Black & Decker Corp.
400,000 6.625%, 2000 408,032
------------
MORTGAGE-BACKED SECURITIES (.2%)
Fleet Mortgage Securities, Inc.
20,523 8.25%, 2023 20,523
Housing Securities, Inc.
310,342 7.25%, 2012 314,803
------------
335,326
------------
OIL & GAS (2.0%)
Arkla, Inc.
750,000 9.875%, 1997 780,465
BP America, Inc.
500,000 8.875%, 1997 530,165
Coastal Corp.
500,000 8.125%, 2002 546,885
Petroliam Nasional Berhad
500,000 6.875%, 2003 518,635
Phillips Petroleum Co.
916,625 7.53%, 1998 941,561
TransCanada Pipelines Ltd.
500,000 9.875%, 2021 672,620
Transco Energy Co.
250,000 9.625%, 2000 282,693
------------
4,273,024
------------
PAPER & FOREST PRODUCTS (.6%)
Celulosa Arauco y Constitucion SA
500,000 7.25%, 1998 513,125
Georgia-Pacific Corp.
750,000 9.85%, 1997 790,732
------------
1,303,857
------------
</TABLE>
7
<PAGE>
TOTAL RETURN ACCOUNT (cont'd)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY VALUE
<C> <S> <C>
PRINTING & PUBLISHING (.5%)
Reed Elsevier, Inc.
$ 400,000 6.625%, 2023 $ 390,224
Time Warner Inc.
700,000 7.45%, 1998 719,495
------------
1,109,719
------------
RETAIL TRADE (.1%)
Sears, Roebuck & Co.
300,000 8.39%, 1999 322,965
------------
SAVINGS & LOAN (.2%)
Golden West Financial Corp.
500,000 10.25%, 1997 529,240
------------
TELECOMMUNICATIONS (.2%)
Tele-Communications, Inc.
400,000 7.15%, 1998 409,100
------------
TELEPHONE UTILITIES (.6%)
GTE Corp.
750,000 8.85%, 1998 799,612
MCI Communications Corp.
500,000 7.125%, 2000 520,950
------------
1,320,562
------------
TRANSPORTATION (.1%)
Federal Express Corp.
250,000 6.25%, 1998 252,062
------------
TOTAL CORPORATE BONDS
(COST $34,849,067) 35,676,551
------------
U.S. GOVERNMENT & AGENCY
LONG-TERM OBLIGATIONS
(18.3% OF NET ASSETS)
Federal Home Loan Mortgage Corp.
1,000,000 6.00%, 2007 955,930
Federal National Mortgage Assn.
1,207,257 7.50%, 2008 1,241,580
800,000 6.00%, 2019 797,744
653,381 7.00%, 2022 618,262
Government National Mortgage Assn.
645,858 7.00%, 2009 660,791
944,737 7.50%, 2009 976,914
574,570 8.00%, 2017 603,919
2,492,635 6.50%, 2023 2,472,370
3,625,377 6.50%, 2024 3,595,903
1,133,072 7.00%, 2024 1,146,522
U.S. Treasury Bonds
2,150,000 7.50%, 2016 2,520,875
8,250,000 8.75%, 2017 10,910,625
550,000 8.125%, 2019 691,537
U.S. Treasury Notes
3,120,000 6.75%, 1999 3,262,335
250,000 9.125%, 1999 278,985
2,500,000 7.50%, 2001 2,753,525
300,000 5.75%, 2003 303,609
5,620,000 7.25%, 2004 6,249,609
------------
TOTAL U.S. GOVERNMENT & AGENCY
LONG-TERM OBLIGATIONS
(COST $36,540,338) 40,041,035
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY VALUE
<C> <S> <C>
FOREIGN GOVERNMENT BONDS
(.4% OF NET ASSETS)
Fomento Economico Mexicano
$ 450,000 9.50%, 1997 $ 447,188
Republic of Columbia
300,000 7.125%, 1998 300,000
United Mexican States
250,000 6.97%, 2000 205,000
------------
TOTAL FOREIGN GOVERNMENT BONDS
(COST $989,997) 952,188
------------
COMMERCIAL PAPER
(22.7% OF NET ASSETS)
Beneficial Corp.
4,075,000 5.77%, due 1/2/96 4,074,347
Carolina Telephone & Telegraph Co.
1,125,000 5.88%, due 1/5/96 1,124,265
Corporate Receivables Corp.
3,395,000 5.85%, due 1/9/96 3,390,586
Duke Power Co.
4,050,000 5.70%, due 1/5/96 4,047,435
Ford Motor Credit Co.
4,152,000 5.80%, due 1/3/96 4,152,000
General Electric Capital Corp.
3,747,000 5.80%, due 1/10/96 3,747,000
GTE California, Inc.
4,800,000 5.79%, due 1/8/96 4,794,596
Household Finance Corp.
2,015,000 5.77%, due 1/11/96 2,011,770
International Lease Finance Corp.
2,553,000 5.74%, due 1/4/96 2,551,779
Johnson Controls, Inc.
1,250,000 5.90%, due 1/2/96 1,249,795
Oklahoma Gas & Electric Co.
3,300,000 5.75%, due 1/5/96 3,297,892
Pacific Gas & Electric Co.
3,000,000 5.75%, due 1/16/96 2,992,813
PHH Corp.
5,750,000 5.85%, due 1/19/96 5,733,181
U S West Communications, Inc.
4,360,000 5.70%, due 1/4/96 4,357,929
Xerox Corp.
2,150,000 5.70%, due 1/11/96 2,146,596
------------
TOTAL COMMERCIAL PAPER
(COST $49,671,984) 49,671,984
------------
TOTAL INVESTMENTS
(COST $192,516,346) 2$19,198,594
------------
------------
</TABLE>
GROWTH ACCOUNT
<TABLE>
<CAPTION>
NUMBER OF MARKET
SHARES SECURITY VALUE
<C> <S> <C>
COMMON STOCKS
(90.8% OF NET ASSETS)
AEROSPACE (8.9%)
25,400 General Dynamics Corp. $1,501,775
</TABLE>
8 The accompanying notes are an integral part of these financial statements.
<PAGE>
GROWTH ACCOUNT (cont'd)
<TABLE>
<CAPTION>
NUMBER OF MARKET
SHARES SECURITY VALUE
<C> <S> <C>
31,371 Lockheed Martin Corp. $2,478,309
83,400 Loral Corp. 2,950,275
24,500 McDonnell Douglas Corp. 2,254,000
26,900 Rockwell International Corp. 1,422,338
------------
10,606,697
------------
AIRLINES (3.2%)
15,700 AMR Corp. 1,165,725
14,400 Delta Air Lines, Inc. 1,063,800
30,000 Northwest Airlines Corp. 1,530,000
------------
3,759,525
------------
BANKING (9.0%)
48,500 Bank of Boston Corp. 2,243,125
16,800 Bankers Trust New York Corp. 1,117,200
35,200 Chase Manhattan Corp. 2,134,000
30,000 Morgan (J.P.) & Company, Inc. 2,407,500
45,700 PNC Bank Corp. 1,473,825
6,300 Wells Fargo & Co. 1,360,800
------------
10,736,450
------------
BUILDING MATERIALS &
CONSTRUCTION (1.1%)
42,400 USG Corp. 1,272,000
------------
CHEMICALS (9.0%)
12,900 Cabot Corp. 694,988
18,400 FMC Corp. 1,244,300
20,300 Goodrich (B.F.) Co. 1,382,938
28,700 Grace (W.R.) & Co. 1,696,887
54,700 IMC Global, Inc. 2,235,863
13,800 Monsanto Co. 1,690,500
Potash Corporation of Saskatchewan
24,100 Inc. 1,708,087
------------
10,653,563
------------
CONGLOMERATES (3.4%)
31,800 Textron, Inc. 2,146,500
51,800 Tyco International Ltd. 1,845,375
------------
3,991,875
------------
DRUGS & COSMETICS (.8%)
9,900 American Home Products Corp. 960,300
------------
ELECTRIC UTILITIES (6.0%)
62,500 Entergy Corp. 1,828,125
35,600 FPL Group, Inc. 1,650,950
35,000 Illinova Corp. 1,050,000
14,400 Texas Utilities Co. 592,200
62,600 Unicom Corp. 2,050,150
------------
7,171,425
------------
FOOD & BEVERAGES (.9%)
30,400 Dole Food Company, Inc. 1,064,000
------------
HEALTH SERVICES & HOSPITAL
SUPPLIES (3.3%)
23,200 Baxter International Inc. 971,500
32,700 Columbia Healthcare Corp. 1,659,525
57,000 OrNda HealthCorp 1,325,250
------------
3,956,275
------------
INSURANCE (8.6%)
24,000 Aetna Life & Casualty Co. 1,662,000
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF MARKET
SHARES SECURITY VALUE
<C> <S> <C>
46,827 Allstate Corp. $1,925,760
16,100 CIGNA Corp. 1,662,325
26,700 St. Paul Companies Inc. 1,485,187
36,400 TIG Holdings, Inc. 1,037,400
39,500 Travelers Group 2,483,563
------------
10,256,235
------------
LEISURE RELATED (.9%)
35,968 Mattel, Inc. 1,106,016
------------
MACHINERY & EQUIPMENT (5.3%)
32,600 AGCO Corp. 1,662,600
44,000 Case Corp. 2,013,000
15,200 Harnischfeger Industries, Inc. 505,400
38,955 Mark IV Industries, Inc. 769,361
37,400 Parker-Hannifin Corp. 1,280,950
------------
6,231,311
------------
MANUFACTURING (.9%)
30,000 Black & Decker Corp. 1,057,500
------------
MISCELLANEOUS (1.7%)
39,000 Premark International, Inc. 1,974,375
------------
OFFICE EQUIPMENT (1.5%)
12,700 Xerox Corp. 1,739,900
------------
OIL & GAS (7.0%)
16,400 Amoco Corp. 1,178,750
32,200 Chevron Corp. 1,690,500
18,900 Mobil Corp. 2,116,800
73,100 Panhandle Eastern Corp. 2,037,663
9,400 Royal Dutch Petroleum Co. 1,326,575
------------
8,350,288
------------
PAPER & FOREST PRODUCTS (1.5%)
21,996 Kimberly-Clark Corp. 1,820,169
------------
REAL ESTATE (.1%)
10,133 Castle & Cooke Inc. 169,733
------------
RETAIL TRADE (5.4%)
29,200 Eckerd Corp. 1,303,050
52,300 Kroger Co. 1,961,250
53,100 Sears, Roebuck & Co. 2,070,900
46,900 Service Merchandise Co., Inc. 234,500
45,300 Waban Inc. 849,375
------------
6,419,075
------------
SAVINGS & LOAN (.9%)
40,400 Ahmanson (H.F.) & Co. 1,070,600
------------
TECHNOLOGY (6.4%)
31,500 Compaq Computer Corp. 1,512,000
26,500 Conner Peripherals, Inc. 556,500
25,600 Seagate Technology Inc. 1,216,000
47,300 Storage Technology Corp. 1,129,288
44,300 Stratus Computer, Inc. 1,533,887
35,800 Sun Microsystems, Inc. 1,633,375
------------
7,581,050
------------
TELEPHONE UTILITIES (5.0%)
33,000 Ameritech Corp. 1,947,000
</TABLE>
9
<PAGE>
GROWTH ACCOUNT (cont'd)
<TABLE>
<CAPTION>
NUMBER OF MARKET
SHARES SECURITY VALUE
<C> <S> <C>
44,500 GTE Corp. $1,958,000
37,300 NYNEX Corp. 2,014,200
------------
5,919,200
------------
TOTAL COMMON STOCKS
(COST $82,143,516) 107,867,562
------------
PRINCIPAL COMMERCIAL PAPER
AMOUNT (10.9% OF NET ASSETS)
Beneficial Corp.
$ 2,020,000 5.83%, due 1/8/96 2,017,710
Carolina Telephone & Telegraph Co.
2,225,000 5.88%, due 1/5/96 2,223,546
Ford Motor Credit Co.
652,000 5.75%, due 1/3/96 652,000
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT SECURITY VALUE
<C> <S> <C>
General Electric Capital Corp.
$ 2,210,000 5.80%, due 1/3/96 $2,210,000
Gillette Co.
1,855,000 5.80%, due 1/5/96 1,853,805
Household Finance Corp.
2,000,000 5.90%, due 1/4/96 1,999,017
U S West Communications, Inc.
1,970,000 5.70%, due 1/2/96 1,969,688
------------
TOTAL COMMERCIAL PAPER
(COST $12,925,766) 12,925,766
------------
TOTAL INVESTMENTS
(COST $95,069,282) 1$20,793,328
------------
------------
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS December 31, 1995
<TABLE>
<S> <C> <C>
<C> <C> <C>
A
C C O U N T S
1. Aggregate gross unrealized appreciation
(depreciation) as of December 31, 1995,
based on cost for Federal income tax GOVERNMENT
TOTAL
purposes, was as follows: LIQUID SECURITIES
INCOME RETURN GROWTH
Aggregate gross unrealized appreciation $ -- $2,294,937
$ 435,777 $ 27,208,985 $25,984,836
Aggregate gross unrealized depreciation -- (173,429)
(464,799) (526,737) (260,790)
-------------- --------------
- -------------- -------------- --------------
Net unrealized appreciation
(depreciation) $ -- $2,121,508
$ (29,022) $ 26,682,248 $25,724,046
-------------- --------------
- -------------- -------------- --------------
-------------- --------------
- -------------- -------------- --------------
2. The aggregate cost of investments for
Federal income tax purposes was: $75,707,513 $46,839,748
$32,577,590 $192,516,346 $95,069,282
-------------- --------------
- -------------- -------------- --------------
-------------- --------------
- -------------- -------------- --------------
3. Purchases and sales of securities
(excluding short-term securities) for the
year ended December 31, 1995 are
summarized as follows:
Purchases $ -- $27,090,969
$23,653,745 $ 88,015,567 $70,697,765
Sales $ -- $41,107,836
$37,629,462 $115,330,077 $61,274,945
</TABLE>
10 The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<S> <C>
STATEMENT OF NET ASSETS CONNECTICUT MUTUAL
INVESTMENT ACCOUNTS, INC.
December 31, 1995
</TABLE>
<TABLE>
<CAPTION>
A C C O U N T S
GOVERNMENT
TOTAL
LIQUID SECURITIES
INCOME RETURN GROWTH
<S> <C> <C>
<C> <C> <C>
ASSETS
Investments:
Bonds, at market value
(Cost $46,462,748, $31,327,794,
$72,379,402) $ -- $48,584,256
$31,298,772 $76,669,774 $ --
Common stocks, at market value
(Cost $70,464,960, $82,143,516) -- --
-- 92,856,836 107,867,562
Short-term securities 75,707,513 377,000
1,249,796 49,671,984 12,925,766
-------------- --------------
- -------------- -------------- --------------
75,707,513 48,961,256
32,548,568 219,198,594 120,793,328
Cash 12,344 107
13,220 6,632 21,967
Investment income receivable 103,419 1,058,287
654,267 1,390,464 220,695
Receivable from securities sold -- --
-- 104,295 140,291
Receivable from Fund shares sold 112,587 6,461
4,629 67,621 58,292
-------------- --------------
- -------------- -------------- --------------
Total Assets 75,935,863 50,026,111
33,220,684 220,767,606 121,234,573
-------------- --------------
- -------------- -------------- --------------
LIABILITIES
Accrued expenses payable 124,293 123,228
34,323 377,614 199,744
Payable for securities purchased -- --
-- 1,640,712 2,200,297
Dividends payable 3,819 --
-- -- --
-------------- --------------
- -------------- -------------- --------------
Total Liabilities 128,112 123,228
34,323 2,018,326 2,400,041
-------------- --------------
- -------------- -------------- --------------
NET ASSETS $75,807,751 $49,902,883
$33,186,361 2$18,749,280 1$18,834,532
-------------- --------------
- -------------- -------------- --------------
-------------- --------------
- -------------- -------------- --------------
OUTSTANDING SHARES -- CLASS A 75,807,751 4,644,816
3,478,038 14,108,084 6,619,121
-------------- --------------
- -------------- -------------- --------------
-------------- --------------
- -------------- -------------- --------------
OUTSTANDING SHARES -- CLASS B -- 6,904
6,150 41,504 39,640
-------------- --------------
- -------------- -------------- --------------
-------------- --------------
- -------------- -------------- --------------
NET ASSET VALUE PER SHARE -- CLASS A $1.00 $10.73
$9.52 $15.46 $17.84
-------------- --------------
- -------------- -------------- --------------
-------------- --------------
- -------------- -------------- --------------
NET ASSET VALUE PER SHARE -- CLASS B -- $10.77
$9.56 $15.66 $18.08
-------------- --------------
- -------------- -------------- --------------
-------------- --------------
- -------------- -------------- --------------
NET ASSETS CONSIST OF:
Capital (par value and paid-in surplus) $ 75,807,751 $ 51,220,513
$ 35,612,380 $191,347,357 $ 92,323,812
Undistributed net investment income -- 32,873
19,045 68,633 11,438
Accumulated undistributed net realized
gain (loss) -- (3,472,011 )
(2,416,042 ) 651,042 775,236
Net unrealized appreciation (depreciation) -- 2,121,508
(29,022 ) 26,682,248 25,724,046
-------------- --------------
- -------------- -------------- --------------
NET ASSETS $ 75,807,751 $ 49,902,883
$ 33,186,361 $218,749,280 $118,834,532
-------------- --------------
- -------------- -------------- --------------
-------------- --------------
- -------------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of these financial statements. 11
<PAGE>
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS CONNECTICUT MUTUAL
INVESTMENT ACCOUNTS, INC.
For the year ended
December 31, 1995
</TABLE>
<TABLE>
<CAPTION>
A C C O U N T S
GOVERNMENT
TOTAL
LIQUID SECURITIES
INCOME RETURN GROWTH
<S> <C> <C>
<C> <C> <C>
INVESTMENT INCOME
Income:
Interest $4,162,889 $4,326,765
$3,327,978 $8,376,038 $ 598,872
Dividends -- --
-- 1,826,407 2,035,451
--------------- ---------------
- --------------- -------------- --------------
Total Income 4,162,889 4,326,765
3,327,978 10,202,445 2,634,323
--------------- ---------------
- --------------- -------------- --------------
Expenses:
Investment advisory fees 349,609 342,325
274,057 1,251,666 613,378
Transfer agent fees 216,300 84,800
61,100 354,800 181,400
Distribution fees -- Class A -- --
-- 348,698 176,158
Distribution fees -- Class B -- 75
112 917 742
Registration fees 26,942 24,048
23,316 52,101 45,955
Custodian fees 28,900 24,600
26,900 42,800 35,600
Professional services 16,580 20,660
15,180 59,820 37,710
Shareholder reports 13,000 9,400
7,400 34,850 17,800
Directors' fees 4,383 3,829
3,396 10,303 5,859
Other 18,946 25,140
-- 42,120 18,014
Expense reimbursement from investment
adviser -- --
(137,292) -- --
--------------- ---------------
- --------------- -------------- --------------
Total Expenses 674,660 534,877
274,169 2,198,075 1,132,616
--------------- ---------------
- --------------- -------------- --------------
NET INVESTMENT INCOME 3,488,229 3,791,888
3,053,809 8,004,370 1,501,707
--------------- ---------------
- --------------- -------------- --------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) on investments 2 (618,861)
(717,369) 7,754,106 7,939,891
Net unrealized appreciation on investments -- 6,078,046
2,639,614 26,965,439 20,902,301
--------------- ---------------
- --------------- -------------- --------------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS 2 5,459,185
1,922,245 34,719,545 28,842,192
--------------- ---------------
- --------------- -------------- --------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $3,488,231 $9,251,073
$4,976,054 $42,723,915 $30,343,899
--------------- ---------------
- --------------- -------------- --------------
--------------- ---------------
- --------------- -------------- --------------
</TABLE>
12 The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<S> <C>
STATEMENT OF CHANGES IN NET ASSETS CONNECTICUT MUTUAL
INVESTMENT ACCOUNTS, INC.
For the years ended
December 31, 1995 and 1994
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
<C>
A C C O U N T S
LIQUID GOVERNMENT
SECURITIES
1995 1994 1995
1994
INCREASE (DECREASE) IN NET
ASSETS
FROM OPERATIONS:
Net investment income $ 3,488,229 $ 2,575,968 $ 3,791,888
$ 4,942,102
Net realized gain (loss)
on investments 2 (987) (618,861)
(2,822,974)
Net unrealized
appreciation
(depreciation) on
investments -- -- 6,078,046
(5,366,869)
------------- -------------- -------------
-------------
Net increase (decrease) in
net assets resulting from
operations 3,488,231 2,574,981 9,251,073
(3,247,741)
------------- -------------- -------------
-------------
DIVIDENDS TO SHAREHOLDERS
FROM:
Net investment income --
Class A (3,488,229) (2,574,981) (3,790,617)
(4,939,034)
Net investment income --
Class B -- -- (376)
--
Net realized gain on
investments -- Class A (2) -- --
(56,279)
Net realized gain on
investments -- Class B -- -- --
--
------------- -------------- -------------
-------------
(3,488,231) (2,574,981) (3,790,993)
(4,995,313)
------------- -------------- -------------
-------------
FROM CAPITAL SHARE
TRANSACTIONS:
Net proceeds from sale of
shares 184,452,934 177,469,640 3,206,633
7,468,147
Net asset value of shares
issued to shareholders
from reinvestment
of dividends 3,424,659 2,548,202 3,327,217
4,527,905
Cost of shares reacquired (176,015,712) (192,692,366) (22,253,386)
(21,186,898)
------------- -------------- -------------
-------------
Increase in net assets
derived from capital
share transactions 11,861,881 (12,674,524) (15,719,536)
(9,190,846)
------------- -------------- -------------
-------------
NET INCREASE (DECREASE) IN
NET ASSETS 11,861,881 (12,674,524) (10,259,456)
(17,433,900)
NET ASSETS -- BEGINNING OF
PERIOD 63,945,870 76,620,394 60,162,339
77,596,239
------------- -------------- -------------
-------------
NET ASSETS -- END OF PERIOD $ 75,807,751 $ 63,945,870 $ 49,902,883
$ 60,162,339
------------- -------------- -------------
-------------
------------- -------------- -------------
-------------
Undistributed net investment
income included in net
assets at end of
period -- -- $32,873
$31,978
-------------
-------------
-------------
-------------
Undistributed net realized
gain (loss) on investments
included in net assets at
end of period -- -- $(3,472,011)
$(2,853,150)
-------------
-------------
-------------
-------------
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
<C> <C> <C>
A C C O U
N T S
INCOME TOTAL
RETURN GROWTH
1995 1994 1995
1994 1995 1994
INCREASE (DECREASE) IN NET
ASSETS
FROM OPERATIONS:
Net investment income $ 3,053,809 $ 3,484,675 $ 8,004,370
$ 7,127,925 $ 1,501,707 $ 1,077,298
Net realized gain (loss)
on investments (717,369) (660,384) 7,754,106
2,872,138 7,939,891 3,074,097
Net unrealized
appreciation
(depreciation) on
investments 2,639,614 (3,054,974) 26,965,439
(14,089,642) 20,902,301 (4,619,868)
------------ ------------- -------------
- ------------- ------------ ------------
Net increase (decrease) in
net assets resulting from
operations 4,976,054 (230,683) 42,723,915
(4,089,579) 30,343,899 (468,473)
------------ ------------- -------------
- ------------- ------------ ------------
DIVIDENDS TO SHAREHOLDERS
FROM:
Net investment income --
Class A (3,051,490) (3,473,505) (7,977,727)
(7,098,435) (1,491,101) (1,076,035)
Net investment income --
Class B (633) -- (2,581)
-- (561) --
Net realized gain on
investments -- Class A -- -- (7,615,071)
(3,186,699) (7,649,952) (3,254,775)
Net realized gain on
investments -- Class B -- -- (20,687)
-- (42,834) --
------------ ------------- -------------
- ------------- ------------ ------------
(3,052,123) (3,473,505) (15,616,066)
(10,285,134) (9,184,448) (4,330,810)
------------ ------------- -------------
- ------------- ------------ ------------
FROM CAPITAL SHARE
TRANSACTIONS:
Net proceeds from sale of
shares 7,223,431 11,501,443 30,319,938
52,357,416 21,362,895 20,893,600
Net asset value of shares
issued to shareholders
from reinvestment
of dividends 2,567,525 3,019,579 15,328,598
10,101,758 9,082,811 4,286,409
Cost of shares reacquired (25,075,490) (12,906,272) (31,911,112)
(41,385,584) (11,160,463) (6,485,813)
------------ ------------- -------------
- ------------- ------------ ------------
Increase in net assets
derived from capital
share transactions (15,284,534) 1,614,750 13,737,424
21,073,590 19,285,243 18,694,196
------------ ------------- -------------
- ------------- ------------ ------------
NET INCREASE (DECREASE) IN
NET ASSETS (13,360,603) (2,089,438) 40,845,273
6,698,877 40,444,694 13,894,913
NET ASSETS -- BEGINNING OF
PERIOD 46,546,964 48,636,402 177,904,007
171,205,130 78,389,838 64,494,925
------------ ------------- -------------
- ------------- ------------ ------------
NET ASSETS -- END OF PERIOD $33,186,361 $ 46,546,964 $218,749,280
$177,904,007 $118,834,532 $78,389,838
------------ ------------- -------------
- ------------- ------------ ------------
------------ ------------- -------------
- ------------- ------------ ------------
Undistributed net investment
income included in net
assets at end of
period $ 19,045 $ 17,359 $ 68,633
$ 44,571 $ 11,438 $ 1,393
------------ ------------- -------------
- ------------- ------------ ------
------------ ------------- -------------
- ------------- ------------ ------
Undistributed net realized
gain (loss) on investments
included in net assets at
end of period $(2,416,042) $(1,698,673) $651,042
$532,694 $775,236 $528,131
------------ ------------- -------------
- ------------- ------------ ------------
------------ ------------- -------------
- ------------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements. 14
<PAGE>
<TABLE>
<S> <C>
FINANCIAL HIGHLIGHTS CONNECTICUT MUTUAL
INVESTMENT ACCOUNTS, INC.
December 31, 1995
</TABLE>
Selected data for a share of capital stock outstanding throughout the period:
<TABLE>
<CAPTION>
NET REALIZED DISTRIBUTIONS
RATIO OF RATIO OF NET
DIVIDENDS & UNREALIZED FROM NET NET
ASSET NET ASSET OPERATING INVESTMENT
YEARS NET FROM NET GAIN (LOSS) REALIZED VALUE
AT VALUE AT EXPENSES TO INCOME TO
ENDED INVESTMENT INVESTMENT ON GAIN ON
BEGINNING END AVERAGE AVERAGE
DECEMBER 31 INCOME INCOME INVESTMENTS INVESTMENTS OF
PERIOD OF PERIOD NET ASSETS NET ASSETS
<S> <C> <C> <C> <C> <C>
<C> <C> <C>
- ------------------------------------------------------------------------------
- -------------------------------------------------
LIQUID ACCOUNT
1986 $ .0588 $ (.0588) $ -- $ -- $
1.00 $ 1.00 1.00 % 5.88 %
1987 .0581 (.0581) -- --
1.00 1.00 1.00 5.81
1988 .0664 (.0664) -- --
1.00 1.00 1.04 6.64
1989 .0822 (.0822) -- --
1.00 1.00 1.06 8.22
1990 .0731 (.0731) -- --
1.00 1.00 1.06 7.31
1991 .0522 (.0522) -- --
1.00 1.00 1.01 5.22
1992 .0287 (.0287) -- --
1.00 1.00 1.02 2.87
1993 .0227 (.0227) -- --
1.00 1.00 .95 2.27
1994 .0334 (.0334) -- --
1.00 1.00 .93 3.34
1995 .0499 (.0499) -- --
1.00 1.00 .96 4.99
GOVERNMENT SECURITIES ACCOUNT -- CLASS A
1986 .92 (.92) .28 (.11)
10.73 10.90 1.27 8.92
1987 .84 (.84) (.52) (.21)
10.90 10.17 1.24 8.12
1988 .84 (.85) (.05) (.05)
10.17 10.06 1.16 8.27
1989 .84 (.84) .52 --
10.06 10.58 1.19 8.14
1990 .84 (.84) .10 --
10.58 10.68 1.16 8.07
1991 .85 (.85) .68 --
10.68 11.36 1.07 7.83
1992 .77 (.77) (.12) (.05)
11.36 11.19 1.01 6.92
1993 .70 (.70) .36 (.64)
11.19 10.91 .93 6.03
1994 .69 (.69) (1.14) (.01)
10.91 9.76 .91 6.71
1995 .72 (.72) .97 --
9.76 10.73 .98 6.93
INCOME ACCOUNT -- CLASS A
1986 .83 (.83) .57 (.08)
10.55 11.04 1.29 7.69
1987 .76 (.76) (.56) (.51)
11.04 9.97 1.27 7.32
1988 .84 (.85) (.19) --
9.97 9.77 1.24 8.43
1989 .88 (.88) .02 --
9.77 9.79 1.27 8.93
1990 .94 (.94) (.35) --
9.79 9.44 1.24 9.78
1991 .81 (.81) .47 --
9.44 9.91 1.12 8.44
1992 .79 (.79) (.16) --
9.91 9.75 .63 8.09
1993 .65 (.65) .11 --
9.75 9.86 .63 6.56
1994 .68 (.68) (.72) --
9.86 9.14 .63 7.16
1995 .67 (.66) .37 --
9.14 9.52 .63 6.97
TOTAL RETURN ACCOUNT -- CLASS A
1986 .31 (.30) .99 (.04)
10.91 11.87 1.26 3.22
1987 .38 (.38) .13 (1.09)
11.87 10.91 1.08 3.15
1988 .53 (.53) .60 --
10.91 11.51 1.11 4.61
1989 .76 (.76) 1.81 (.63)
11.51 12.69 1.20 5.90
1990 .66 (.66) (.68) (.07)
12.69 11.94 1.24 5.31
1991 .54 (.54) 2.79 (.71)
11.94 14.02 1.20 4.02
1992 .50 (.50) .86 (1.07)
14.02 13.81 1.11 3.61
1993 .48 (.48) 1.70 (.97)
13.81 14.54 1.02 3.40
1994 .55 (.55) (.86) (.24)
14.54 13.44 .96 3.80
1995 .60 (.60) 2.59 (.57)
13.44 15.46 1.17 4.00
GROWTH ACCOUNT -- CLASS A
1986 .24 (.24) 1.11 (.08)
10.94 11.97 1.31 2.21
1987 .22 (.22) (.12) (2.05)
11.97 9.80 1.17 1.71
1988 .20 (.20) 1.20 --
9.80 11.00 1.23 1.95
1989 .51 (.51) 3.30 (1.25)
11.00 13.05 1.18 3.90
1990 .34 (.34) (1.36) (.07)
13.05 11.62 1.19 2.73
1991 .25 (.25) 4.00 (1.22)
11.62 14.40 1.19 1.74
1992 .26 (.26) 1.44 (1.64)
14.40 14.20 1.12 1.74
1993 .30 (.30) 2.64 (1.70)
14.20 15.14 1.05 1.95
1994 .22 (.22) (.32) (.62)
15.14 14.20 1.02 1.50
1995 .25 (.25) 4.88 (1.24)
14.20 17.84 1.22 1.53
<CAPTION>
NET ASSETS
AT END
YEARS OF PERIOD ANNUAL
ENDED PORTFOLIO (IN TOTAL
DECEMBER 31 TURNOVER THOUSANDS) RETURN(A)
<S> <C> <C> <C>
- --------------
1986 n/a $ 74,111 6.03 %
1987 n/a 68,908 5.97
1988 n/a 73,921 6.82
1989 n/a 87,264 8.53
1990 n/a 84,387 7.53
1991 n/a 69,932 5.31
1992 n/a 67,549 2.89
1993 n/a 76,620 2.30
1994 n/a 63,946 3.40
1995 n/a 75,808 5.11
GOVERNMENT SEC
1986 111.68 22,947 11.66
1987 207.67 24,703 3.33
1988 175.50 35,910 7.99
1989 68.14 41,561 14.10
1990 44.19 47,524 9.44
1991 27.50 55,332 15.03
1992 131.79 67,612 6.07
1993 224.02 77,596 9.56
1994 156.90 60,162 (4.18)
1995 50.64 49,829 17.90
INCOME ACCOUNT
1986 164.13 14,620 13.54
1987 231.39 15,367 2.03
1988 150.04 16,789 6.70
1989 52.95 18,705 9.56
1990 90.20 19,809 6.33
1991 50.44 22,839 14.22
1992 109.47 38,675 6.60
1993 145.94 48,636 7.97
1994 62.88 46,547 (0.42)
1995 57.08 33,127 11.77
TOTAL RETURN A
1986 143.32 35,382 11.88
1987 197.79 44,770 3.92
1988 223.62 54,253 10.40
1989 149.22 65,071 22.61
1990 115.45 66,382 (0.21)
1991 122.40 86,455 28.21
1992 177.85 109,701 9.90
1993 155.16 171,205 15.89
1994 115.01 177,904 (2.11)
1995 55.20 218,099 23.95
GROWTH ACCOUNT
1986 163.15 19,469 12.25
1987 214.32 19,638 (0.29)
1988 246.14 26,285 14.32
1989 169.75 37,323 34.86
1990 143.95 35,202 (7.98)
1991 148.30 40,716 36.91
1992 141.69 45,600 11.99
1993 99.67 64,495 20.91
1994 98.46 78,390 (0.65)
1995 69.69 118,118 36.40
</TABLE>
(a) Annual total returns do not include the effect of sales charges
15
<PAGE>
<TABLE>
<S> <C>
FINANCIAL HIGHLIGHTS (CONT'D)
</TABLE>
<TABLE>
<CAPTION>
NET REALIZED DISTRIBUTIONS
RATIO OF RATIO OF NET
DIVIDENDS & UNREALIZED FROM NET NET
ASSET NET ASSET OPERATING INVESTMENT
YEARS NET FROM NET GAIN (LOSS) REALIZED VALUE
AT VALUE AT EXPENSES TO INCOME TO
ENDED INVESTMENT INVESTMENT ON GAIN ON
BEGINNING END AVERAGE AVERAGE
DECEMBER 31 INCOME INCOME INVESTMENTS INVESTMENTS OF
PERIOD OF PERIOD NET ASSETS (A) NET ASSETS (A)
<S> <C> <C> <C> <C> <C>
<C> <C> <C>
- ------------------------------------------------------------------------------
- ----------------------------------------------------
GOVERNMENT SECURITIES ACCOUNT -- CLASS B
1995 (c) $ .12 $ (.12) $ .32 $ -- $
10.45 $ 10.77 1.98 % 1.36 %
INCOME ACCOUNT -- CLASS B
1995 (c) .13 (.13) .10 --
9.46 9.56 1.63 1.43
TOTAL RETURN ACCOUNT -- CLASS B
1995 (c) .07 (.07) .70 (.52)
15.48 15.66 1.92 .73
GROWTH ACCOUNT -- CLASS B
1995 (c) .02 (.02) 1.40 (1.15)
17.83 18.08 1.97 .21
<CAPTION>
NET ASSETS
YEARS AT END ANNUAL
ENDED PORTFOLIO OF PERIOD TOTAL
DECEMBER 31 TURNOVER (IN THOUSANDS) RETURN(B)
<S> <C> <C> <C>
- --------------
1995 50.64 $ 74 4.20 %
INCOME ACCOUNT
1995 57.08 59 2.41
TOTAL RETURN A
1995 55.20 650 4.93
GROWTH ACCOUNT
1995 69.69 717 8.04
</TABLE>
(a) Annualized
(b) Annual total returns do not include the effect of sales charges
(c) For the period from October 1, 1995 (Inception) through December 31, 1995
The accompanying notes are an integral part of these financial statements. 16
<PAGE>
<TABLE>
<S> <C>
NOTES TO FINANCIAL STATEMENTS CONNECTICUT MUTUAL
INVESTMENT ACCOUNTS, INC.
December 31, 1995
</TABLE>
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Connecticut Mutual Investment Accounts, Inc. (the Fund), a Maryland
corporation, is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company. The Fund is comprised
of thirteen distinct mutual funds, including the following five Accounts
included in these financial statements: Liquid, Government Securities, Income,
Total Return and Growth. The Fund offers both Class A and Class B shares.
Class A shares are sold with a front-end sales charge. Class B shares may be
subject to a contingent deferred sales charge. An interest in the Fund is
limited to the assets of the Account or Accounts in which shares are held by
shareholders, and such shareholders are entitled to a pro rata share of all
dividends and distributions arising from the net investment income and net
realized capital gains on the investments of such Accounts.
The following is a summary of significant accounting policies followed by the
Fund:
(a)VALUATION OF INVESTMENT SECURITIES - Except with respect to securities held
by the Liquid Account, equity and debt securities which are traded on
securities exchanges are valued at the last sales price as of the close of
business on the day the securities are being valued. Lacking any sales,
equity securities are valued at the last bid price and debt securities are
valued at the mean between closing bid and asked prices. Securities traded
in the over-the-counter market and included in the NASDAQ National Market
System are valued using the last sales price when available. Otherwise,
over-the-counter securities are valued at the mean between the bid and
asked prices or yield equivalent as obtained from one or more dealers who
make a market in the securities. Short-term securities are valued on an
amortized cost basis, which approximates market value. Securities for which
market quotations are not readily available are valued at fair value as
determined in accordance with procedures established by the Board of
Directors of the Fund, including the use of valuations furnished by a
private service retained by the custodian.
Securities held by the Liquid Account are valued on an amortized cost
basis. This basis involves valuing a security at cost and thereafter
assuming a constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the market value
of the instrument. The amortized cost method, in the opinion of the Board
of Directors, represents the fair value of the particular security. The
Board monitors the deviation between the Account's net asset value per
share as determined by using available market quotations and its amortized
cost price per share. If the deviation exceeds one half of one percent per
share, the Board will consider what action, if any, should be initiated to
provide fair valuation. Throughout 1995, the deviation was less than one
half of one percent.
(b)FEDERAL INCOME TAXES - The Fund intends to continue to qualify as a
regulated investment company under Subchapter M of the Internal Revenue
Code. Under such provisions, by distributing substantially all of its
taxable income to its shareholders or otherwise complying with requirements
for regulated investment companies, the Fund will not be subject to Federal
income taxes. Accordingly, no provision for Federal income taxes is
required. For Federal tax reporting purposes, each Account is treated as a
separate taxable entity.
(c)GAINS AND LOSSES - Realized gains and losses from sales of investments are
determined on the identified cost basis.
(d)AFFILIATE HOLDINGS - Connecticut Mutual Life Insurance Company and its
affiliates own 33,548,333 shares of the five Accounts of the Fund as
follows:
<TABLE>
<CAPTION>
LIQUID GOVERNMENT SECURITIES INCOME
TOTAL RETURN
<S> <C> <C>
<C>
30,904,449 662,517 239
222
<CAPTION>
LIQUID GROWTH
<S> <C>
30,904,449 1,980,906
</TABLE>
(e)OTHER - Investment transactions are accounted for on the trade date which
is the date the order to buy or sell is executed. Dividend income is
recorded on the ex-dividend date and interest income is accrued on a daily
basis. All expenses are accrued on a daily basis.
2. INVESTMENT ADVISORY FEES AND OTHER AFFILIATE TRANSACTIONS
The Fund has an Investment Advisory Agreement with G.R. Phelps & Co., Inc.
(the Investment Adviser), a wholly-owned subsidiary of Connecticut Mutual Life
Insurance Company. The Investment Adviser, subject to review by the Board of
Directors, is responsible for the investment management of each Account and
has the responsibility for making decisions to buy, sell or hold any
particular security. The Investment Adviser is obligated to perform certain
administrative services for the Fund.
17
<PAGE>
As compensation for its services to the Liquid Account, the Investment Adviser
receives monthly compensation at the annual rate of 0.50% of the first $200
million of average daily net assets, 0.45% of the next $100 million of average
daily net assets and 0.40% of the average daily net assets in excess of $300
million of the Account. As compensation for its services to the Government
Securities, Income, Total Return and Growth Accounts, the Investment Adviser
receives monthly compensation at the annual rate of 0.625% of the first $300
million of average daily net assets, 0.50% of the next $100 million of average
daily net assets and 0.45% of the average daily net assets in excess of $400
million of each Account.
The investment advisory fees, which also cover certain administrative and
management services, amounted to $2,831,035 for all Accounts for the year
ended December 31, 1995. For the year ended December 31, 1995, the Investment
Adviser, serving as principal underwriter for sale of shares of the Accounts,
earned $1,642,321 related to sales charges deducted from proceeds for shares
sold.
Expenses incurred in the operation of the Fund are borne by the Fund. However,
the Investment Adviser has agreed that in any year the aggregate expenses
(including the investment advisory fee, but excluding interest, taxes,
brokerage fees, commissions and uncommon charges such as litigation costs)
exceed 1% of the value of the average daily net assets of the Liquid Account
or 1.5% of the value of the average daily net assets in each of the other four
Accounts, it will reimburse the Accounts for such excess.
3. DISTRIBUTION PLANS
Each Account has adopted a distribution plan for both Class A shares (Class A
Plan) and Class B shares (Class B Plan) and, with respect to the Liquid
Account, for its shares (Liquid Account Plan) designed to meet the
requirements of Rule 12b-1 under the Investment Company Act of 1940.
Under the Class A Plan of each Account, each Account may make payments for
personal services and/or the maintenance of shareholder accounts to account
executives of Connecticut Mutual Financial Services, Inc. (CMFS), the
Distributor, and other broker dealer firms with whom CMFS has agreements in
amounts not exceeding 0.25% of the average daily net assets of the Account's
Class A shares for any fiscal year. Effective May 1, 1995, the Total Return
and Growth Accounts commenced accruing fees daily and paying fees monthly to
the Distributor. For the eight months ended December 31, 1995, the Distributor
received $524,856 in fees from these Accounts. The Government Securities and
Income Accounts accrued no fees and paid no amounts pursuant to any Plan
during the year ended December 31, 1995.
Under each Account's Class B Plan, such Account may pay CMFS a service fee at
the annualized rate of up to 0.25% of the average daily net assets of the
Account's Class B shares for its expenditures incurred in servicing and
maintaining shareholder accounts, and may pay CMFS a distribution fee at the
annualized rate of up to 0.75% of the average daily net assets of the
Account's Class B shares for its expenditures incurred in providing services
as distributor. Effective October 1, 1995, the Government Securities, Income,
Total Return and Growth Accounts commenced accruing fees daily and paying fees
monthly to the Distributor. For the three months ended December 31, 1995, the
Distributor received $1,846 in fees from these Accounts.
Under the Liquid Account Plan, the Liquid Account reimburses CMFS for its
actual expenses associated with the sale of shares of the Liquid Account. This
reimbursement may include payments to third parties, such as banks or broker
dealers, that provide shareholder support services or engage in the sale of
shares of the Liquid Account. However, payments to CMFS from the assets of the
Liquid Account cannot exceed 0.10% of the average daily net assets of the
Liquid Account's shares. The Liquid Account accrued no fees and paid no
amounts pursuant to any Plan during the year ended December 31, 1995.
18
<PAGE>
4. DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income are declared and paid monthly for the
Government Securities and Income Accounts and semi-annually for the Total
Return and Growth Accounts. Dividends from net investment income of the Liquid
Account, which include any net short-term capital gains, are declared and
accrued daily and paid monthly. All net realized capital gains, if any, are
declared and paid at least annually.
5. CAPITAL STOCK
The authorized capital stock of the Fund at December 31, 1995 consisted of
3,000,000,000 shares of common stock, par value $0.001 per share. The shares
of stock are divided among thirteen separate Accounts, five of which are
indicated below. All shares of common stock have equal voting rights, except
that only shares of a particular Account are entitled to vote on matters
pertaining to that Account.
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
CLASS A SHARES FOR THE
YEAR ENDED DECEMBER 31, 1995
GOVERNMENT
TOTAL
LIQUID SECURITIES
INCOME RETURN
<S> <C> <C>
<C> <C>
Shares authorized (in millions) 250 200
200 200
Shares sold 184,452,934 304,895
764,273 1,998,083
Shares issued to shareholders from reinvestment
of dividends 3,424,659 324,108
274,100 1,003,774
---------------
- --------------- --------------- ---------------
Total issued 187,877,593 629,003
1,038,373 3,001,857
Shares reacquired (176,015,712)
(2,147,453) (2,654,709) (2,126,335)
---------------
- --------------- --------------- ---------------
Net increase (decrease) 11,861,881
(1,518,450) (1,616,336) 875,522
---------------
- --------------- --------------- ---------------
---------------
- --------------- --------------- ---------------
<CAPTION>
GROWTH
<S> <C>
Shares authorized (in millions) 200
Shares sold 1,242,427
Shares issued to shareholders from reinvestment
of dividends 513,302
---------------
Total issued 1,755,729
Shares reacquired (657,052)
---------------
Net increase (decrease) 1,098,677
---------------
---------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B SHARES FOR THE
PERIOD FROM OCTOBER 1, 1995
(INCEPTION)
TO
DECEMBER 31, 1995
GOVERNMENT
TOTAL
SECURITIES INCOME
RETURN GROWTH
<S> <C> <C>
<C> <C>
Shares authorized (in millions) 50 50
50 50
Shares sold 6,888 6,140
40,033 37,415
Shares issued to shareholders from reinvestment of
dividends 35 10
1,471 2,434
-------------
- ------------- ------------- -------------
Total issued 6,923 6,150
41,504 39,849
Shares reacquired (19) --
-- (209)
-------------
- ------------- ------------- -------------
Net increase 6,904 6,150
41,504 39,640
-------------
- ------------- ------------- -------------
-------------
- ------------- ------------- -------------
</TABLE>
6. SUBSEQUENT EVENT
On January 27, 1996, the policyholders of Connecticut Mutual Life Insurance
Company (CML) approved a merger, subject to regulatory approval, of CML into
the Massachusetts Mutual Life Insurance Company (MML). In connection with this
merger, the shareholders of the Fund are being asked to consider and approve
a
new investment advisory agreement between the Fund and OppenheimerFunds, Inc.,
an indirect subsidiary of MML.
19
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Connecticut Mutual Investment Accounts, Inc.:
We have audited the accompanying statement of net assets, including the
schedule of investments, of Connecticut Mutual Investment Accounts, Inc.
(a Maryland corporation) Liquid, Government Securities, Income, Total
Return, and Growth Accounts as of December 31, 1995, and the related
statements of operations for the year then ended, the statement of changes
in net assets for each of the two years in the period then ended, and the
financial highlights for each of the ten years in the period then ended.
These financial statements and financial highlights are the responsibility
of the Accounts' 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 as of December 31, 1995, by
correspondence with the custodian bank. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position
of each of the respective Accounts comprising Connecticut Mutual
Investment Accounts, Inc. as of December 31, 1995, the results of their
operations for the year then ended, the changes in their net assets for
each of the two years in the period then ended, and the financial
highlights for each of the ten years in the period then ended, in
conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Hartford, Connecticut
February 9, 1996
20
<PAGE>
CONNECTICUT MUTUAL INVESTMENT ACCOUNTS, INC.
--------------------------------------
BOARD OF DIRECTORS AND OFFICERS
DIRECTORS
RICHARD H. AYERS, Director
Chairman and Chief Executive Officer
The Stanley Works
DAVID E. A. CARSON, Director
President, Chairman and
Chief Executive Officer
People's Bank
RICHARD W. GREENE, Director
Executive Vice President and Treasurer
University of Rochester
BEVERLY L. HAMILTON, Director
President
ARCO Investment Management Company
DONALD H. POND, JR., President and Director
Retired Executive Vice President
Connecticut Mutual Life Insurance Company
DAVID E. SAMS, JR., Director
President and Chief Executive Officer
Connecticut Mutual Life Insurance Company
OFFICERS
LOUIS A. LACCAVOLE, CPA, General Auditor
Vice President and General Auditor
Connecticut Mutual Life Insurance Company
ANN F. LOMELI, Secretary
Corporate Secretary and Counsel
Connecticut Mutual Life Insurance Company
LINDA M. NAPOLI, Treasurer and Controller
Treasurer, Mutual Funds
Connecticut Mutual Life Insurance Company
AUDITORS
ARTHUR ANDERSEN LLP
Hartford, CT
This report has been prepared for shareholders of the Account and may be
distributed to prospective investors in the Account when preceded or accompanied
by a current prospectus.
<PAGE>
OPPENHEIMER U.S. GOVERNMENT TRUST
FORM N-14
PART C
OTHER INFORMATION
Item 15. Indemnification
Reference is made to Article IV of Registrant's Declaration of
Trust filed as Exhibit 24(b)(1) to Registrant's Registration
Statement and incorporated herein by reference.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers and
controlling persons of Registrant pursuant to the foregoing
provisions or otherwise, Registrant has been advised that in the
opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by Registrant of expenses incurred or paid
by a trustee, officer or controlling person of Registrant in the
successful defense of any action, suit or proceeding) is asserted
by such trustee, officer or controlling person, Registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933
and will be governed by the final adjudication of such issue.
Item 16. Exhibits
(1) Amended and Restated Declaration of Trust dated June 1,
1992: Filed with Registrant's Post-Effective Amendment No. 20,
10/16/92, and refiled with Registrant's Post-Effective Amendment
No. 24, 8/24/94, pursuant to Item 102 of Regulation S-T, and
incorporated herein by reference.
(2) Registrant's By-Laws as amended through 8/6/87: Filed
with Registrant's Form SE to its Form N-SAR for the fiscal year
ended 6/30/88, and refiled with Registrant's Post-Effective
Amendment No. 23, 4/28/95, pursuant to Item 102 of Regulation S-T,
and incorporated herein by reference.
(3) Not applicable.
(4) Agreement and Plan of Reorganization: See Exhibit A to
Part A of this Registration Statement.
(5) (i) Specimen Class A Share Certificate : Filed with
Registrant's Post-Effective Amendment No. 24, 8/24/94, and
incorporated herein by reference.
(ii) Specimen Class B Share Certificate : Filed with
Registrant's Post-Effective Amendment No. 28, 5/26/95, and
incorporated herein by reference.
(iii) Specimen Class C Share Certificate : Filed with
Registrant's Post-Effective Amendment No. 24, 8/24/94, and
incorporated herein by reference.
(6) Investment Advisory Agreement dated 5/25/95 : Filed with
Registrant's Post-Effective Amendment No. 28, 5/26/95, and
incorporated herein by reference.
(7) (i) General Distributor's Agreement dated 12/10/92:
Filed with Registrant's Post-Effective Amendment No. 21, 8/20/93,
and incorporated herein by reference.
(ii) Form of Oppenheimer Funds Distributor, Inc.
Dealer Agreement: Filed with Post-Effective Amendment No. 14 to the
Registration Statement of Oppenheimer Main Street Funds, Inc. (Reg.
No. 33-17850), 9/30/94, and incorporated herein by reference.
(iii) Form of Oppenheimer Funds Distributor, Inc.
Broker Agreement: Filed with Post-Effective Amendment No. 14 to the
Registration Statement of Oppenheimer Main Street Funds, Inc. (Reg.
No. 33-17850), 9/30/94, and incorporated herein by reference.
(iv) Form of Oppenheimer Funds Distributor, Inc.
Agency Agreement: Filed with Post-Effective Amendment No. 14 to
the Registration Statement of Oppenheimer Main Street Funds, Inc.
(Reg. No. 33-17850), 9/30/94, and incorporated herein by reference.
(v) Broker Agreement between Oppenheimer Funds
Distributor, Inc. and Newbridge Securities, Inc. dated 10/1/86:
Filed with Post-Effective Amendment No. 25 to the Registration
Statement of Oppenheimer Growth Fund (Reg. No. 2-45272), 11/1/86,
and refiled with Post-Effective Amendment No. 45 to the
Registration Statement of Oppenheimer Growth Fund (Reg. No. 2-
45272), 10/21/94, pursuant to Item 102 of Regulation S-T, and
incorporated herein by reference.
(8) Retirement Plan for Non-Interested Trustees or Directors
(adopted by Registrant - 6/7/90): Previously filed with Post-
Effective Amendment No. 97 of Oppenheimer Fund (Reg. No. 2-14586),
8/30/90, refiled with Post-Effective Amendment No. 45 of
Oppenheimer Growth Fund (Reg. No. 2-45272), 10/21/94, pursuant to
Item 102 of Regulation S-T, and incorporated herein by reference.
(9) Custody Agreement dated 11/12/92: Filed with
Registrant's Post-Effective Amendment No. 21, 8/20/93, and
incorporated herein by reference.
(10) Not applicable
(11) Opinion and Consent of Counsel dated 6/24/82: Filed with
Registrant's Post-Effective Amendment No. 5, 8/31/94, and refiled
with Registrant's Post-effective Amendment No. 24, 8/24/94,
pursuant to Item 102 of Regulation S-T, and incorporated herein by
reference.
(12) Tax Opinion Relating to the Reorganization: Draft
Opinion filed herewith.
(13) Not applicable.
(14) (a) Consent of KPMG Peat Marwick LLP: Filed
herewith.
(b) Consent of Arthur Andersen LLP: Filed herewith.
(15) (a) Service Plan and Agreement for Class A shares
under Rule 12b-1 of the Investment Company Act of 1940 dated as of
6/10/93: Filed with Registrant's Post-Effective Amendment No. 24,
8/24/94, and incorporated herein by reference.
(b) Distribution and Service Plan and Agreement for
Class B Shares dated May 30, 1995 under Rule 12b-1 of the
Investment Company Act: Filed with Registrant's Post-Effective
Amendment No. 28, 5/26/95, and incorporated herein by reference.
(c) Distribution and Service Plan and Agreement for
Class C shares dated May 30, 1995 under Rule 12b-1 of the
Investment Company Act: Filed with Registrant's Post-Effective
Amendment No. 28, 5/26/95, and incorporated herein by reference.
(16) Powers of Attorney : Filed herewith (Bridget A.
Macaskill) and previously filed (all other Trustees) with
Registrant's Post-Effective Amendment No. 21, 8/20/93, and
incorporated herein by reference.
(17) Declaration of Registrant under Rule 24f-2: Filed
herewith.
Item 17. Undertakings
(1) Not applicable.
(2) Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and/or
the Investment Company Act of 1940, the Registrant has duly caused
this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York and
State of New York on the 15th day of February, 1996.
OPPENHEIMER U.S. GOVERNMENT TRUST
By: /s/ Bridget A. Macaskill*
---------------------------------
Bridget A. Macaskill, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following
persons in the capacities on the dates indicated:
Signatures Title Date
- ---------- ----- ----
/s/ Leon Levy* Chairman of February 15, 1996
- ------------------------- the Board
Leon Levy of Trustees
/s/ Donald W. Spiro*
- ------------------------- Trustee February 15, 1996
Donald W. Spiro
/s/ George Bowen* Treasurer and February 15, 1996
- ------------------------- Principal
George Bowen Financial and
Accounting
Officer
/s/ Robert G. Galli* Trustee February 15, 1996
- -------------------------
Robert G. Galli
/s/ Benjamin Lipstein* Trustee February 9, 1996
- -------------------------
Benjamin Lipstein
/s/ Bridget A. Macaskill* President February 15, 1996
- ------------------------- and Trustee
Bridget A. Macaskill
/s/ Elizabeth B. Moynihan* Trustee February 15, 1996
- -------------------------
Elizabeth B. Moynihan
/s/ Kenneth A. Randall* Trustee February 15, 1996
- -------------------------
Kenneth A. Randall
/s/ Edward V. Regan* Trustee February 15, 1996
- -------------------------
Edward V. Regan
/s/ Russell S. Reynolds, Jr.* Trustee February 15, 1996
- ---------------------------
Russell S. Reynolds, Jr.
/s/ Sidney M. Robbins* Trustee February 15, 1996
- ---------------------------
Sidney M. Robbins
/s/ Pauline Trigere* Trustee February 15, 1996
- ---------------------------
Pauline Trigere
/s/ Clayton K. Yeutter* Trustee February 15, 1996
- ---------------------------
Clayton K. Yeutter
*By: /s/ Robert G. Zack
- --------------------------------
Robert G. Zack, Attorney-in-Fact
<PAGE>
OPPENHEIMER U.S. GOVERNMENT TRUST
FORM N-14
EXHIBIT INDEX
Exhibit Description
- ------- -----------
16(12) Tax Opinion Relating to the Reorganization
16(14)(a) Consent of KPMG Peat Marwick LLP
16(14)(b) Consent of Arthur Andersen LLP
16(16) Power of Attorney - Bridget A. Macaskill
16(17) Declaration of Registrant under Rule 24f-2
merge\220ct.#2
Exhibit 16(14)(a)
Independent Auditors' Consent
Oppenheimer U.S. Government Trust:
We consent to the incorporation by reference in this Registration
Statement on Form N-14 of our report dated July 27, 1995, appearing
in the Annual Report of Oppenheimer U.S. Government Trust for the
year ended June 30, 1995, which is part of this Registration
Statement.
/s/ KPMG Peat Marwick LLP
- -------------------------
KPMG PEAT MARWICK LLP
Denver, Colorado
February 9, 1996
merge\220ct-pm.con
Exhibit 16(14)(b)
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference in this registration statement on Form
N-14 of our report dated February 9, 1996 included (or incorporated
by reference) in the Annual Report of Connecticut Mutual Investment
Accounts, Inc. Government Securities Account for the year ended
December 31, 1995, which is part of this registration statement,
and to all references to our Firm included in this registration
statement.
/s/ Arthur Andersen LLP
Hartford, Connecticut
February 15, 1996
merge\220ct-aa.con
Exhibit 16(16)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned
constitutes and appoints Andrew J. Donohue or Robert G. Zack, and
each of them, her true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for her and in
her capacity as a trustee of OPPENHEIMER U.S. GOVERNMENT TRUST, a
Massachusetts business trust (the "Fund"), to sign on her behalf
any and all Registration Statements (including any post-effective
amendments to Registration Statements) under the Securities Act of
1933, the Investment Company Act of 1940 and any amendments and
supplements thereto, and other documents in connection thereunder,
and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about
the premises, as fully as to all intents and purposes as she might
or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents, and each of them, may lawfully
do or cause to be done by virtue hereof.
Dated this 5th day of October, 1995.
/s/ Bridget A. Macaskill
- ---------------------------------
Bridget A. Macaskill
merge\220ct.pow
Exhibit 16(12)
DRAFT: Preliminary and Tentative
[Letterhead of Arthur Andersen LLP]
(date)
Oppenheimer U.S. Government Trust
3410 South Galena Street
Denver, CO 80231
Oppenheimer Series Fund, Inc.
2 World Trade Center
New York, NY 10048
Gentlemen:
You have requested our opinion on certain federal income tax
consequences of the Agreement and Plan of Reorganization ("the
Agreement") by and between Oppenheimer U.S. Government Trust
("USGT") and Oppenheimer Series Fund, Inc. ("the Company") on
behalf of Connecticut Mutual Government Securities Account
("Government Fund"), a series of the Company, as more fully
described below. We have not considered any non-income tax, or
state, local or foreign income tax consequences, and, therefore, do
not express an opinion regarding the treatment that would be given
the transaction by the applicable authorities on any non-income tax
or any state, local or foreign tax issue. We also express no
opinion on nontax issues, such as corporate law or securities law
matters. We express no opinion other than that as stated
immediately above, and neither this opinion nor any prior
statements are intended to imply or to be an opinion on any other
matters.
In rendering our opinion, we have relied upon the facts as
described below; the information contained in the Agreement between
USGT and Government Fund dated March 1, 1996; certain
representations in the Arthur Andersen arrangement dated January
26, 1996; the Representation letter dated [______________________];
and the Arthur Andersen technical memorandum dated February 1,
1996. You have represented to us that we have been provided all of
the facts and assumptions necessary for us to form our opinion;
however, we have not independently audited or otherwise verified
any of these facts or assumptions.
Proposed Transactions
USGT and Government Fund have entered into an Agreement dated March
1, 1996, to be effective as of closing, ______, 1996. The
Agreement consists of the acquisition by USGT of substantially all
the assets of Government Fund in exchange for voting shares of USGT
and the assumption by USGT of certain liabilities of Government
Fund, in accordance with the Agreement.
Immediately prior to the valuation of Government Fund's assets,
Government Fund shall declare and pay dividends which, together
with all previous dividends, shall have the effect of distributing
to the Government Fund shareholders of all Government Fund's
investment company taxable income for taxable years ending on or
prior to the closing date and all of Government Fund's net capital
gain realized, if any, in taxable years ending on or prior to the
closing date.
Under the Agreement, Government Fund will retain a cash reserve of
an amount in its discretion, to be used for the payment of expenses
associated with its dissolution and for the payment of certain
Government Fund liabilities not assumed in the transaction. The
reserve shall not exceed 1% of the value of the net assets, nor 10%
in value of the gross assets of Government Fund on the day prior to
the closing. Within one year after closing, Government Fund will
pay all outstanding liabilities and taxes from its cash reserve,
and, either transfer any remaining funds to USGT or to Government
Fund's prior shareholders depending upon materiality of the amount.
As soon as practicable after the closing, Government Fund will
distribute to the shareholders of Government Fund on a pro rata
basis the shares of USGT received.
Each party has been advised by Massachusetts Mutual Life Insurance
Company that it will assume liability for and pay all expenses
associated with the reorganization, including legal and accounting
expenses as well as the costs of the required tax opinions.
A misstatement or omission of any fact or a change or amendment in
any of the facts, assumptions or representations we have relied
upon, may require a modification of all or a part of this opinion.
Premise of Opinion
Our opinion is based on the Internal Revenue Code of 1986, as
amended (the "Code"), the regulations thereunder, reported judicial
decisions, and the current position of the Internal Revenue
Services (the "IRS") in such matters as reflected in published and
private rulings as of the date of this letter, all of which are
subject to change. If there is a change, including a change having
retroactive effect, in the Code, Treasury Regulations, Internal
Revenue Service rulings or releases, or in the prevailing judicial
interpretation of the foregoing, the opinions expressed herein
would necessarily have to be re-evaluated in light of any such
changes. We have no responsibility to update this opinion for
changes in above-listed law and authority occurring after the above
date.
The opinions expressed herein reflect what we regard to be the
material federal income tax effects to USGT, Government Fund and
their respective shareholders of the transaction described herein;
nevertheless, they are opinions only and should not be taken as an
assurance of the ultimate tax treatment.
The opinions expressed herein are not binding on the IRS and there
can be no assurance that the IRS will not take a position contrary
to any of the opinions expressed therein. Should the IRS challenge
the tax treatment of the transaction, we believe that the treatment
set forth in our opinion would prevail.
Our opinion is as of April 26, 1996 and we have no responsibility
to update this opinion for events, transactions, circumstances or
changes in any of the facts, assumptions or representations
occurring after this date.
Our opinions set forth below are subject to the following factual
assumptions being true and correct (including statements relating
to future actions and facts represented to be to the best knowledge
of management, whether or not known). Authorized representatives
of USGT and Government Fund have represented to us by letters of
even date herewith that the following assumptions are true and
correct.
1. There is no plan or intention by any fund shareholder who
owns 5% or more of Government Fund's outstanding shares,
and, to Government Fund's best knowledge, there is no
plan or intention on the part of the remaining fund
shareholders, to redeem, sell exchange or otherwise
dispose of a number of USGT shares received in the
transaction that would reduce Government Fund
shareholders' ownership of USGT shares to a number of
shares having a value, as of the closing date, of less
than 50% of the value of all of the formerly outstanding
fund shares as of the same date.
2. Both USGT and Government Fund will qualify as regulated
investment companies or will meet the diversification
test of Section 368(a)(2)(F)(ii) of the Code.
3. After the consummation of the transactions under the
Agreement, USGT intends to operate its business in a
substantially unchanged manner and to continue the
historic business of Government Fund.
4. USGT has no plan or intention to dispose of any of the
assets transferred by Government Fund, other than in the
ordinary course of business.
5. USGT has no plan or intention to redeem or reacquire any
of the shares issued by it in the reorganization other
than pursuant to valid requests of shareholders.
Federal Income Tax Consequences of the Proposed Merger
Our opinion expressed below is addressed only to those federal
income tax aspects relating to the merger which in our judgment are
material to USGT, Government Fund and their respective
shareholders. On the basis of and subject to the foregoing and in
reliance upon the representation described above, and provided that
any statement of fact represented to be made to the best knowledge
of management of Government Fund or USGT is in fact true and
correct (whether or not known), we are of the opinion that
1. The transfer of substantially all of Government Fund's
assets in exchange for Class A and Class B shares of USGT and
the assumption by USGT of certain identified liabilities of
Government Fund followed by the distribution by Government
Fund of Class A and Class B shares of USGT to Government Fund
shareholders in exchange for their Government Fund shares will
constitute a "reorganization" within the meaning of Section
368(a)(1) of the Code and Government Fund and USGT will each
be a "party to a reorganization" within the meaning of Section
368(b) of the Code.
2. Pursuant to Section 1032 of the Code, no gain or loss
will be recognized by USGT upon the receipt of the assets of
Government Fund solely in exchange for Class A and Class B
shares of USGT and the assumption by USGT of certain
identified liabilities of Government Fund.
3. Pursuant to Section 361(a) of the Code, no gain or loss
will be recognized by Government Fund upon the transfer of the
assets of Government Fund to USGT in exchange for Class A and
Class B shares of USGT and the assumption by USGT of certain
identified liabilities of Government Fund or upon the
distribution of Class A and Class B shares of USGT to
Government Fund shareholders in exchange for Government Fund
shares.
4. Pursuant to Section 354(a) of the Code, no gain or loss
will be recognized by Government Fund shareholders upon the
exchange of Government Fund shares for the Class A and Class
B shares of USGT.
5. Pursuant to Section 358 of the Code, the aggregate tax
basis for Class A and Class B shares of USGT received by each
Government Fund shareholder pursuant to the reorganization
will be the same as the aggregate tax basis of Government Fund
shares held by each such Government Fund shareholder
immediately prior to the reorganization.
6. Pursuant to Section 1223 of the Code, the holding period
of Class A and Class B shares of USGT to be received by each
Government Fund shareholder will include the period during
which Government Fund shares surrendered in exchange therefor
were held (provided such Government Fund shares were held as
capital assets on the date of the reorganization).
7. Pursuant to Section 362(b) of the Code, the tax basis of
the assets of Government Fund acquired by USGT will be the
same as the tax basis of such assets of Government Fund
immediately prior to the Reorganization.
8. Pursuant to Section 1223 of the Code, the holding period
of the assets of Government Fund in the hands of USGT will
include the period during which those assets were held by
Government Fund.
9. USGT will succeed to and take into account the items of
Government Fund described in Section 381(c) of the Code,
including the earnings and profits, or deficit in earnings and
profits, of Government Fund as of the date of the
transactions. USGT will take these items into account subject
to the conditions and limitations specified in Sections 381,
382, 383 and 384 of the Code and applicable regulations
thereunder.
However, in the event that any of the remaining cash reserve of
Government Fund is distributed to the Government Fund's
shareholders, gain will be realized by each of Government Fund's
shareholders and recognized under Section 356(a)(1) of the Code to
the extent of the cash received.
No opinion is expressed about the tax treatment of the transaction
under any other provisions of the Code and regulations or about the
tax treatment of any conditions existing at the time of, or effects
from, the transaction that are not specifically covered by the
above opinion. These opinions are solely for the benefit of USGT,
Government Fund and their respective shareholders and are not
intended to be relied upon by anyone other than those parties
specified. Except to the extent expressly permitted hereby, and
without the prior written consent of this firm, this letter may not
be quoted in whole or in part or otherwise referred to in any
documents or delivered to any other person or entity. Any other
party receiving a copy of this letter may consult and rely upon the
advice of his/her/its own counsel, accountant or other advisor.
ARTHUR ANDERSEN LLP
merge\220ct.tax
Exhibit 16(17)
Registration No. 2-76645
File No. 811-3430
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
PRE-EFFECTIVE AMENDMENT NO. ___ / /
POST-EFFECTIVE AMENDMENT NO. 29 / X /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 / X /
AMENDMENT NO. 27 / X /
OPPENHEIMER U.S. GOVERNMENT TRUST
- -------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
Two World Trade Center, New York, New York 10048-0203
- -------------------------------------------------------------------
(Address of Principal Executive Offices)
(212) 323-0200
- ------------------------------------------------------------------
(Registrant's Telephone Number)
Andrew J. Donohue, Esq.
Oppenheimer Management Corporation
Two World Trade Center New York, New York 10048-0203
- -------------------------------------------------------------------
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check
appropriate box):
/ / Immediately upon filing pursuant to paragraph (b)
/ X / On November 1, 1995, pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/ / On --------, pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a)(2)
/ / On --------, pursuant to paragraph (a)(2) of
Rule 485(b)
- ------------------------------------------------------------------
The Registrant has registered an indefinite number of its shares
under the Securities Act of 1933 pursuant to Rule 24f-2 promulgated
under the Investment Company Act of 1940. A Rule 24f-2 Notice for
the Registrant's fiscal year ended June 30, 1995, was filed on
August 28, 1995.
