OPPENHEIMER GOVERNMENT SECURITIES FUND
3410 South Galena Street, Denver, CO 80231
Telephone: 1-800-525-7048
Oppenheimer Government Securities Fund (the "Fund") is a mutual fund
with the investment objective of seeking high current return and safety
of principal. The Fund seeks to achieve its objective through investments
in obligations issued or guaranteed by the U.S. Government or its agencies
or instrumentalities, including mortgage-backed securities issued by
Government National Mortgage Association ("GNMA"). While payments of
principal and interest on certain U.S. Government securities (including
the GNMA Certificates which the Fund will hold) are guaranteed by the U.S.
Government or its agencies or instrumentalities, neither the principal
value of those securities nor the net asset value of shares of the Fund
is guaranteed, and therefore the Fund's net asset value per share is
subject to fluctuations due to changes in the value of its portfolio
securities.
The Fund offers two classes of shares which may be purchased at a
price equal to their respective net asset value per share, plus a sales
charge. The investor may elect to purchase shares with a sales charge
imposed (i) at the time of purchase (the "Class A shares"), or (ii) on a
contingent deferred basis (the "Class B shares"). Class B shares are also
subject to an asset-based sales charge. The contingent deferred sales
charge will be imposed on most redemptions of Class B shares within six
years of purchase. These alternatives permit an investor to choose the
method of purchasing shares that is more beneficial to that investor
depending on the amount of the purchase, the length of time the investor
expects to hold the shares and other circumstances. See "How to Buy
Shares -Alternative Sales Arrangements" below for further details.
This Prospectus sets forth concisely information about the Fund that
a prospective investor should know before investing. A Statement of
Additional Information about the Fund (the "Additional Statement"), dated
February 1, 1994, has been filed with the Securities and Exchange
Commission (the "SEC") and is available without charge upon written
request to Oppenheimer Shareholder Services (the "Transfer Agent"), P.O.
Box 5270, Denver, Colorado 80217, or by calling the Transfer Agent at the
toll-free number shown above. The Additional Statement (which is
incorporated in its entirety by reference in this Prospectus) contains
more detailed information about the Fund and its management.
Investors are advised to read and retain this Prospectus for future
reference. Shares of the Fund are not deposits or obligations of any
bank, are not guaranteed by any bank, and are not insured by the F.D.I.C.
or any other agency, and involve investment risks, including the possible
loss of principal.
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.
This Prospectus is effective February 1, 1994.
Table of Contents
Page
Fund Expenses
Financial Highlights
The Fund and Its Investment Policies
Special Investment Methods
Investment Restrictions
Management of the Fund
How to Buy Shares
Alternative Sales Arrangements
Class A Shares
Class A Sales Charge Table
Class A Contingent Deferred Sales Charge
Reduced Sales Charges for Class A Purchases
Class A Service Plan
Class B Shares
Class B Contingent Deferred Sales Charge
Class B Conversion Feature
Class B Distribution and Service Plan
Purchase Programs for Class A and Class B Shares
AccountLink
PhoneLink
Asset Builder Plans
How to Redeem Shares
Regular Redemption Procedures
Telephone Redemptions
Check Writing
Distributions from Retirement Plans
Automatic Withdrawal and Exchange Plans
Repurchase
Reinvestment Privilege
General Information on Redemptions
Exchanges of Shares and Retirement Plans
Dividends, Distributions and Taxes
Fund Performance Information
Additional Information
<PAGE>
Fund Expenses
The following table sets forth the fees that an investor in the Fund
might pay and expenses paid by the Fund during its fiscal year ended
September 30, 1993 (as to Class A shares) and its fiscal period ended
September 30, 1993 (as to Class B shares). The public offering of Class
B shares of the Fund commenced on May 3, 1993.
Shareholder Transaction Expenses
Class A Class B
Shares Shares
Maximum Sales Charge on Purchases
(as a percentage of offering price) 4.75% None
Sales Charge on Reinvested Dividends None None
Maximum Contingent Deferred Sales Charge
on Redemptions None(1) 5.0%(2)
Redemption Fee None* None*
Exchange Fee $5.00 $5.00
Annual Fund Operating Expenses
(as a percentage of average net assets) Class A Class B
Shares Shares
Management Fees 0.48% 0.47%
12b-1 (Distribution and/or Service Plan) Fees 0.25% 1.00%
Other Expenses 0.29% 0.40%
Total Fund Operating Expenses 1.02% 1.87%
__________
* There is a $15 transaction fee for redemptions paid by Federal Funds
wire, but not for redemptions paid by check, or by Automated Clearing
House ("ACH") transfer through AccountLink, or for which check writing
privileges are used. See "How to Redeem Shares."
(1) Certain Class A share purchases of $1 million or more are not
subject to front-end sales charges, but a contingent deferred sales charge
(maximum of 1.0%) is imposed on the proceeds of such shares redeemed
within 18 months of the end of the calendar month of their purchase,
subject to certain conditions. See "How to Buy Shares - Class A
Contingent Deferred Sales Charge" below.
(2) A contingent deferred sales charge is imposed on the proceeds of
Class B shares redeemed within six years of their purchase, subject to
certain exceptions. That charge is imposed as a percentage of net asset
value at the time of purchase or redemption, whichever is less, and
declines from 5.0% in the first year that shares are held, to 4.0% in the
second year, 3.0% in the third and fourth years, 2.0% in the fifth year,
1.0% in the sixth year and eliminated thereafter. There is no charge on
Class B shares held for more than six years. See "How to Buy Shares -
Class B Contingent Deferred Sales Charge" below.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that an investor in the Fund will bear directly
(Shareholder Transaction Expenses) or indirectly (Annual Fund Operating
Expenses). The sales charge rate shown for Class A shares is the current
maximum rate applicable to purchases of Class A shares of the Fund.
Investors in Class A shares may be entitled to reduced sales charges based
on the amount purchased or the value of shares already owned and may be
subject to a contingent deferred sales charge in limited circumstances
(see "How to Buy Shares -- Class A Contingent Deferred Sales Charge").
"Other Expenses" includes such expenses as custodial and transfer agent
fees, audit, legal and other business operating expenses, but excludes
extraordinary expenses. For further details, see "Purchase, Redemption
and Pricing of Shares - Dual Class Methodology" and the Fund's financial
statements, both included in the Additional Statement.
The following examples apply the above-stated expenses and the current
maximum sales charge to a hypothetical $1,000 investment in shares of the
Fund over the time periods shown below, assuming a 5% annual rate of
return on the investment. The amounts shown below are the cumulative
costs of such hypothetical $1,000 investment for the periods shown and,
except as indicated in lines 3 and 4, assume that the shares are redeemed
at the end of each stated period.
1 year 3 years 5 years 10 years(1)
1. Class A shares $57 $78 $101 $166
2. Class B shares $69 $89 $121 $176
3. Class A shares,
assuming no redemption $57 $78 $101 $166
4. Class B shares,
assuming no redemption $19 $59 $101 $176
____________________
(1) Class B shares convert to Class A shares under the terms and
conditions described under "How to Buy Shares--Class B Conversion
Feature." Therefore, years 7 through 10 reflect the Class A expenses
shown above. Long-term shareholders of Class B shares could pay the
economic equivalent, through the asset-based sales charge and contingent
deferred sales charge imposed on Class B shares, of more than the maximum
front-end sales charges permitted under applicable regulatory
requirements. The Class B Conversion Feature is intended to minimize the
likelihood that this will occur.
These examples should not be considered a representation of past or
future expenses or performance. Expenses are subject to change and actual
performance and expenses may be less or greater than those illustrated
above.
<PAGE>
Financial Highlights
Selected data for a Class A share and Class B share of the Fund
outstanding throughout each period
The information in the table below for the fiscal years ended
September 30, 1990, 1991, 1992 and 1993, has been audited by Deloitte &
Touche, the Fund's independent auditors. The information in the table
below (except for total return) for the fiscal period ended September 30,
1986 (from the commencement of operations on March 10, 1986) and the
fiscal years ended September 30, 1987, 1988, and 1989, was audited by the
Fund's prior independent auditors. The report of Deloitte & Touche on the
financial statements of the Fund for the fiscal year ended September 30,
1993 (as to Class A shares) and its fiscal period ended September 30, 1993
(as to Class B shares) is included in the Additional Statement. The
public offering of Class B shares of the Fund commenced on May 3, 1993.
<TABLE>
<CAPTION>
Class A Class B
Year Ended Period Ended
September 30, September 30,
1993 1992 1991 1990+++ 1989 1988 1987 1986++ 1993++++
<S> <C> <C> <C> <C> <C> <C> <C> <C>
<C>
Per Share Operating Data:
Net asset value, beginning
of period $ 10.97 $ 10.75 $ 10.18 $ 10.17 $ 10.14 $ 9.72 $ 10.51 $ 10.56 $10.96
Income from investment
operations:
Net investment income .73 .81 .87 .89 .90 .89 .86+ .57+ .23
Net realized and
unrealized gain (loss)
on investments .07 .22 .57 .01 .03 .42 (.74) (.05) .10
Total income from
investment operations .80 1.03 1.44 .90 .93 1.31 .12 .52 .33
Dividends and
distributions to
shareholders:
Dividends from net
investment income (.73) (.81) (.87) (.89) (.90) (.89) (.86) (.57) (.23)
Distributions from net
realized gain on
investments -- -- -- -- -- -- (.05) -- --
Total dividends and
distributions to
shareholders (.73) (.81) (.87) (.89) (.90) (.89) (.91) (.57) (.23)
Net asset value, end of
period $ 11.04 $ 10.97 $ 10.75 $ 10.18 $ 10.17 $ 10.14 $ 9.72 $ 10.51 $11.06
Total Return, at Net Asset
Value** 7.61% 9.88% 14.69% 9.15% 9.65% 13.86% .95% 4.97% 3.02%
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) $178,944 $158,068 $167,974 $213,391 $237,819 $251,794 $287,181 $127,797 $5,077
Average net assets (in
thousands) $161,318 $160,830 $192,404 $218,528 $243,863 $267,557 $242,181 $105,123 $2,561
Number of shares
outstanding at end of
period (in thousands) 16,206 14,416 15,624 20,964 23,395 24,834 29,560 12,162 459
Ratios to average net
assets:
Net investment income 6.70% 7.44% 8.27% 8.77% 8.96% 8.75% 8.22% 7.93%*
4.81%*
Expenses 1.02% .97% .98% .90% .93% .96% .56%+ .08%*+ 1.87%*
Portfolio turnover rate*** 74% 154% 112% 60% 61% 78% 73% 471% 74%
<FN>
* Annualized.
** 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.
*** The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation. Purchases and sales of investment securities (excluding
short-term securities) for the year ended September 30, 1993 were
$129,069,391 and $118,835,073, respectively.
+ Net investment income would have been $.84 and $.52 absent the voluntary
reimbursement or waiver of expenses, resulting in an expense ratio of
1.00% and 1.07% for 1987 and 1986, respectively.
++ For the period from March 10, 1986 (commencement of operations) to
September 30, 1986.
+++ On April 7, 1990, Oppenheimer Management Corporation became the
investment adviser to the Fund.
++++ For the period from May 3, 1993 (inception of offering) to September
30, 1993.
</TABLE>
<PAGE>
The Fund and Its Investment Policies
The Fund is a diversified, open-end, management investment company
organized as a Massachusetts business trust on January 16, 1986. In
seeking its objective of high current return and safety of principal, as
a matter of fundamental policy the Fund may invest only in obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities ("U.S. Government Securities"), and repurchase
agreements on such securities, and may write covered calls and use hedging
instruments approved by its Board of Trustees (the "Board").
U.S. Government Securities include the following:
-U.S. Treasury Obligations. These include Treasury Bills (which have
maturities of one year or less), Treasury Notes (which have maturities of
one to ten years) and Treasury Bonds (which have maturities generally
greater than ten years); U.S. Treasury obligations are backed by the full
faith and credit of the United States; and
-Obligations Issued or Guaranteed by U.S. Government Agencies or
Instrumentalities. These are obligations supported by any of the
following: (a) the full faith and credit of the U.S. Government, such as
GNMA modified pass-through certificates; (b) the right of the issuer to
borrow an amount limited to a specific line of credit from the U.S.
Government, such as bonds issued by Federal National Mortgage Association
("Fannie Mae"); (c) the discretionary authority of the U.S. Government to
purchase the obligations of the agency or instrumentality; or (d) the
credit of the instrumentality, such as obligations of Federal Home Loan
Mortgage Corporation ("Freddie Mac"). Agencies and instrumentalities the
securities of which are supported by the discretionary authority of the
U.S. Government to purchase such securities and which the Fund may
purchase (under (c) above) include: Federal Land Banks, Farmers Home
Administration, Central Bank for Cooperatives, Federal Intermediate Credit
Banks, Freddie Mac and Fannie Mae.
The Fund will invest in GNMA certificates only of the "fully-modified
pass-through" type, which are guaranteed as to timely payment of principal
and interest by the full faith and credit of the United States Government.
GNMA certificates are debt securities that represent an interest in one
or a pool of mortgages that are insured by the Federal Housing
Administration or the Farmers Home Administration, or are guaranteed by
the Veterans Administration. The Fund may also invest in other mortgage-
backed securities that are issued or guaranteed by agencies or
instrumentalities of the U.S. Government, such as Freddie Mac and Fannie
Mae. The effective maturity of a mortgage-backed security may be
shortened by unscheduled or early payment of principal and interest on the
underlying mortgages, which may affect the effective yield of such
securities. The principal that is returned may be invested in instruments
having a higher or lower yield than the prepaid instruments, depending on
then-current market conditions. Such securities therefore may be less
effective as a means of "locking in" attractive long-term interest rates
and may have less potential for appreciation during periods of declining
interest rates than conventional bonds with comparable stated maturities.
If the Fund buys mortgage-backed securities at a premium, prepayments of
principal and foreclosures of mortgages may result in some loss of the
Fund's principal investment to the extent of the premium paid.
As with other bond investments, the value of mortgage-backed securities
will tend to rise when interest rates fall and to fall when interest rates
rise. Their value 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. Because
of these factors, the Fund's share value and yield are not guaranteed and
will fluctuate, and there can be no assurance that the Fund's objective
will be achieved. The magnitude of those fluctuations generally will be
greater when the average maturity of the Fund's portfolio securities is
longer. See "Investment Objective and Policies" in the Additional
Statement for further information on U.S. Government Securities.
Portfolio Turnover
U.S. Government Securities may be purchased or sold without regard to
the length of time they have been held, to attempt to take advantage of
short-term differentials in yields, with the objective of seeking income
while seeking safety of principal. While short-term trading increases
portfolio turnover, the Fund incurs little or no brokerage costs for U.S.
Government Securities. See "Dividends, Distributions and Taxes - Tax
Status of the Fund" in this Prospectus and "Investment Management Services
- - Portfolio Transactions" in the Additional Statement for further details.
Special Investment Methods
The Fund may use the following special investment methods when their
use appears appropriate to the Fund's investment adviser, Oppenheimer
Management Corporation (the "Manager"). Since certain of these investment
methods are speculative, they may subject an investment in the Fund to
relatively greater risks and costs than would be the case with an
investment in a fund that does not use such methods.
Loans of Portfolio Securities
To attempt to increase its income, the Fund may lend its portfolio
securities if the loan is collateralized, in accordance with applicable
regulatory guidelines and if, after any loan, the value of securities
loaned does not exceed 25% of the value of the Fund's total assets. The
Fund presently does not engage in securities lending although it may do
so in the future, but does not presently intend that the value of
securities loaned in the current fiscal year will exceed 5% of the value
of the Fund's total assets. See "Investment Objective and Policies -
Loans of Portfolio Securities" in the Additional Statement for further
information on securities loans.
Covered Call Options and Hedging
The Fund may write (i.e., sell) covered call options to attempt to
increase the Fund's income. For hedging purposes, it may purchase
Interest Rate Futures (defined below), call and put options on U.S.
Government Securities, and call and put options on Interest Rate Futures
and engage in interest rate swap transactions (all of which are referred
to as "Hedging Instruments"). In general, the Fund may use Hedging
Instruments (i) to attempt to protect against possible declines in the
market value of the Fund's portfolio resulting from downward trends in the
U.S. Government Securities markets (generally due to a rise in interest
rates), (ii) to protect the Fund's unrealized gains in the value of its
U.S. Government Securities which have appreciated, (iii) to facilitate
selling U.S. Government Securities for investment reasons, or (iv) to
establish a position in the U.S. Government Securities markets as a
temporary substitute for purchasing particular U.S. Government Securities.
The Fund's strategy of using hedging with Interest Rate Futures and
options on such Futures will be incidental to the Fund's activities in the
underlying cash market. The Fund will not use Hedging Instruments for
speculation. The Hedging Instruments the Fund may use are described below
and in greater detail under "Investment Objective and Policies - Covered
Calls and Hedging" in the Additional Statement. None of these policies
or limitations is a fundamental policy.
-Writing and Purchasing Calls. The Fund may write call options
("calls") traded in the "over-the-counter" market on U.S. Government
Securities on up to 5% of its total assets. Further, the Fund may write
calls on up to 100% of its total assets if the calls are listed on a
domestic securities or commodities exchange or quoted on the Automated
Quotation System of the National Association of Securities Dealers, Inc.
A call on U.S. Government Securities written by the Fund must be "covered"
while the call is outstanding (i.e., the Fund must own the U.S. Government
Securities subject to the call or other securities acceptable for
applicable escrow requirements). A call on Interest Rate Futures written
by the Fund must be covered by deliverable securities or by liquid assets
segregated to satisfy the Futures contract. The Fund may purchase calls
in "closing purchase transactions" to terminate its obligations on calls
it has written, and on U.S. Government Securities and Interest Rate
Futures. The Fund may write calls on Interest Rate 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 would segregate
additional liquid assets if the value of the escrowed assets were to drop
below 100% of the then current value of the Interest Rate Futures.
-Writing and Purchasing Puts. 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 Interest Rate Futures. It may
write puts on U.S. Government Securities covered by segregated liquid
assets. Not more than 50% of the Fund's assets may be subject to puts.
The Fund also may resell puts previously purchased by it. 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's option writing activities will not exceed 100% of its
assets, in the aggregate.
-Interest Rate Futures. The Fund may buy and sell futures contracts
relating to debt securities ("Interest Rate Futures" or "Futures"). An
Interest Rate Future obligates the seller to deliver and the purchaser to
take a specific type of debt security at a specific future date for a
fixed price. That obligation may be satisfied by actual delivery of the
debt security or by entering into an offsetting contract. At present, the
Fund does not intend to enter into Interest Rate Futures contracts and
options on such Futures if, after any such purchase, the sum of margin
deposits on Futures and premiums paid on Futures options would exceed 5%
of the Fund's total assets.
- Interest Rate Swap Transactions. The Fund may enter into interest
rate swaps, pursuant to which the Fund and another party exchange their
respective commitments to pay or receive interest on a security (e.g., an
exchange of floating rate payments for fixed rate payments). The Fund
will not use interest rate swaps for leverage. Swap transactions will be
entered into only as to security positions held by the Fund. See
"Investment Objective and Policies - Covered Calls and Hedging" in the
Additional Statement for further details.
-Risks of Options and Futures Trading. "Investment Objective and
Polices - Covered Calls and Hedging" in the Additional Statement contains
further information about options and Futures, including the payment of
premiums for options trades, and the tax effects, risks and possible
benefits to the Fund from options trading, Interest Rate Futures and the
Fund's other limitations which are not fundamental policies on investment
in such futures and options thereon. There are certain risks in writing
calls. If a call written by the Fund is exercised, the Fund foregoes any
profit from any increase in the market price above the call price of the
underlying investment on which the call was written. In addition, the
Fund could experience capital losses that might cause previously
distributed short-term capital gains to be re-characterized as non-taxable
return of capital to shareholders. In writing puts, there is the risk
that the Fund may be required to buy the underlying security at a
disadvantageous price. The principal risks relating to the use of Futures
are: (a) possible imperfect correlation between the prices of the Futures
and the market value of the U.S. Government Securities in the Fund's
portfolio; (b) possible lack of a liquid secondary market for closing out
a Futures position; (c) the need for additional skills and techniques
beyond those required for normal portfolio management; and (d) losses on
Futures resulting from market movements not anticipated by the Manager.
When-Issued Securities
The Fund may invest in securities on a "when-issued" or "delayed
delivery" basis. In those transactions, the Fund obligates itself to
purchase or sell securities with delivery and payment to occur at a later
date to secure what is considered to be an advantageous price and yield
at the time the obligation is entered into. The price, which is generally
expressed in yield terms, is fixed at the time the commitment to purchase
is made, but delivery and payment for when-issued securities take place
at a later date (normally within 45 days of purchase). During the period
between purchase and settlement, no payment is made by the Fund to the
issuer for the security, and no interest accrues to the Fund from the
investment. Although the Fund is subject to the risk of adverse market
fluctuation during that period, the Manager does not believe that the
Fund's net asset value or income will be significantly adversely affected
by its purchase of securities on a when-issued basis. At the time the
Fund makes the commitment to purchase a security on a when-issued basis,
it will record the transaction and reflect the value of the security in
determining its net asset value. It will also segregate cash, Treasury
securities or other U.S. Government Securities equal in value to the
commitment for the when-issued securities. While when-issued securities
may be sold prior to settlement date, the Fund intends to acquire the
securities upon settlement, unless a prior sale appears desirable for
investment reasons. As a matter of fundamental policy, the Fund will not
enter into when-issued or delayed delivery transactions unless the
acceptance and delivery of the security to the Fund is mandatory, occurs
within 120 days of the trade date, and is settled in cash on the
settlement date.
Repurchase Agreements
The Fund may acquire U.S. Government Securities subject to repurchase
agreements, to generate income while providing liquidity. The Fund's
repurchase agreements will be fully collateralized. If the seller of the
securities fails to pay the agreed-upon resale price on the delivery date,
the Fund's risks may include any costs of disposing of the collateral for
the agreement and losses that might result from any delays in foreclosing
on the collateral. The Fund will not enter into repurchase transactions
that will cause more than 25% of the Fund's net assets to be subject to
repurchase agreements having a maturity of seven days or less. As a
matter of fundamental policy, the Fund will not enter into repurchase
agreements unless ownership and control of the securities subject to the
agreement are transferred to the Fund. The Fund will not enter into a
repurchase agreement that will cause more than 5% of the Fund's net assets
to be subject to repurchase agreements having a maturity beyond seven
days. See "Investment Objective and Policies - Repurchase Agreements" in
the Additional Statement for further details.
Reverse Repurchase Agreements
The Fund may enter into reverse repurchase agreements under which the
Fund sells securities and agrees to repurchase them at an agreed upon time
and at an agreed upon price. The difference between the amount the Fund
receives for the securities and the amount it pays on repurchase is deemed
to be a payment of interest. For further information, see "Investment
Objective and Policies - Reverse Repurchase Agreements" in the Additional
Statement.
Investment Restrictions
The Fund has certain investment restrictions which, together with its
investment objective, are fundamental policies changeable only by the vote
of a "majority" (as defined in the Investment Company Act of 1940, as
amended (the "Investment Company Act")) of the Fund's outstanding voting
securities. Under some of those restrictions, the Fund cannot: (a) Invest
in any security other than U.S. Government Securities, including
repurchase agreements thereon; the Fund may write covered calls and use
hedging instruments approved by the Board; (b) Borrow money, except from
banks for temporary purposes in amounts not in excess of 5% of the value
of its assets; no assets of the Fund may be pledged, mortgaged or
hypothecated other than to secure a borrowing, and then in amounts not
exceeding 7.5% of the Fund's total assets; borrowings may not be made for
leverage, but only for liquidity purposes to satisfy redemption requests
when liquidation of portfolio securities is considered inconvenient or
disadvantageous; however, the Fund may enter into reverse repurchase
agreements and when-issued and delayed delivery transactions as described
herein; such prohibition against pledging, mortgaging or hypothecating
assets does not bar the Fund from escrow arrangements for options trading
or collateral or margin arrangements in connection with hedging
instruments approved by the Board; (c) Enter into a repurchase transaction
that will cause more than 25% of the Fund's total assets to be subject to
such agreements; (d) Make loans, except that the Fund may purchase or hold
debt obligations and enter into repurchase transactions and may lend its
portfolio securities in amounts not exceeding 25% of the total assets of
the Fund if such loans are collateralized by cash or U.S. Government
Securities in amounts equal at all times to at least 100% of the value of
the securities loaned, including accrued interest; (e) Purchase restricted
or illiquid securities (including repurchase agreements of more than seven
days' duration and other securities that are not readily marketable) if
more than 5% of the Fund's total assets would be invested in such
securities; (f) Purchase any securities (other than U.S. Government
Securities) that would cause more than 5% of the Fund's total assets to
be invested in securities of a single issuer, or purchase more than 10%
of the outstanding voting securities of an issuer; or (g) Deviate from its
other fundamental policies described in "The Fund and Its Investment
Policies" and "Special Investment Methods." The percentage restrictions
described above and in the Additional Statement apply 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. A
supplementary list of investment restrictions is contained in "Investment
Restrictions" in the Additional Statement.
Management of the Fund
The Board has overall responsibility for the management of the Fund
under the laws of Massachusetts governing the responsibilities of trustees
of business trusts. Subject to the authority of the Board of Trustees,
the Manager is responsible for the day-to-day management of the Fund's
business, supervises the investment operations of the Fund and the
composition of its portfolio and furnishes the Fund advice and
recommendations with respect to investments, investment policies and the
purchase and sale of securities, pursuant to an investment advisory
agreement (the "Agreement") with the Fund. Subject to the Agreement, the
Manager may 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. Under the
Agreement, the Fund pays a management fee monthly to the Manager computed
on the aggregate net assets of the Fund as of the close of each business
day at the following annual rates: 0.500% of the first $100 million of net
assets; 0.450% of the next $150 million; 0.425% of the next $250 million;
and 0.400% of net assets over $500 million. "Investment Management
Services" in the Additional Statement contains further information about
the Agreement, including a description of expense reimbursement
arrangements, exculpation provisions and brokerage practices of the Fund.
David Rosenberg, a Vice President of the Manager, serves as the
Portfolio Manager and a Vice President of the Fund and has been primarily
responsible for the day-to-day management of the Fund's portfolio since
January, 1994. Prior to that time, Arthur P. Steinmetz, a Senior Vice
President of the Manager, served as the Portfolio Manager and a Vice
President of the Fund and was primarily responsible for the day-to-day
management of the Fund's portfolio since April, 1990. During the past
five years, Mr. Rosenberg previously was an officer and portfolio manager
for Delaware Investment Advisors and for one of its mutual funds. For
more information about the Fund's other officers and Trustees, see
"Trustees and Officers" in the Additional Statement.
The Manager has operated as an investment adviser since April 30, 1959.
The Manager and its affiliates currently advise U.S. investment companies
with assets aggregating over $25 billion as of September 30, 1993, and
having more than 1.8 million shareholder accounts. The Manager is owned
by Oppenheimer Acquisition Corp., a holding company owned in part by
senior management of the Manager, and ultimately controlled by
Massachusetts Mutual Life Insurance Company, a mutual life insurance
company that also advises pension plans and investment companies.
How to Buy Shares
Alternative Sales Arrangements
Two classes of shares of the Fund are offered under the Fund's
"Alternative Sales Arrangements." The investor may elect to purchase
shares with a sales charge imposed (i) at the time of purchase or on a
contingent deferred basis on redemptions of shares purchased in amounts
over $1 million (the "Class A shares"), or (ii) on a contingent deferred
basis (the "Class B shares"). The contingent deferred sales charge will
be imposed on most redemptions of Class B shares within six years of
purchase. The Alternative Sales Arrangements permit 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 the shares and other relevant circumstances. The Fund's
distributor, Oppenheimer Funds Distributor, Inc. (the "Distributor"), will
not knowingly accept any order for $1 million or more of Class B shares
of one or more of the "Eligible Funds" listed in "Right of Accumulation"
below, on behalf of a single investor (not including dealer "street name"
or omnibus accounts) because it generally will be more advantageous for
such investor to purchase Class A shares of such Eligible Fund(s) instead.
Investors should understand that the purpose and function of the deferred
sales charge and asset-based sales charge with respect to Class B shares
are the same as those of the initial sales charge with respect to Class
A shares. Any financial intermediaries or other persons entitled to
receive compensation for selling or servicing Fund shares may receive
different compensation with respect to one class of shares than the other.
The two classes of shares each represent an interest in the same
portfolio of investments of the Fund. However, as described in this
Prospectus, each class has different shareholder privileges and features.
The net income attributable to Class B shares and the dividends payable
on Class B shares will be reduced by incremental expenses borne solely by
that class, including the asset-based sales charge to which Class B shares
are subject. For further information, see "Purchase, Redemption and
Pricing of Shares" in the Additional Statement.
The Fund's shares of either class may be purchased through any dealer
or broker that has a sales agreement with the Distributor, a subsidiary
of the Manager. There are two ways to make an initial investment: either
(1) complete an OppenheimerFunds New Account Application and mail it with
payment to the Distributor at P.O. Box 5270, Denver, Colorado 80217 (if
no dealer or broker is named in the Application, the Distributor will be
listed as the dealer of record) or (2) order the shares through your
dealer or broker. Be certain to specify whether you intend to purchase
Class A shares or Class B shares. If no such instructions are provided,
initial investments will be made in Class A shares and subsequent
investments will be made in the same class as the most recent previous
investment.
The minimum initial investment is $1,000, except as otherwise described
in this Prospectus. Subsequent purchases must be at least $25, and may
be made (1) through authorized dealers or brokers, (2) by forwarding
payment to the Distributor, at the above address, with the names of all
account owners, the account number and the name of the Fund, (3)
automatically through Asset Builder Plans or (4) by telephone using
AccountLink, described below. Under an Asset Builder Plan, Automatic
Exchange Plan, 403(b)(7) custodial plan or military allotment plan,
initial and subsequent investments must be at least $25. The minimum
initial and subsequent purchase requirements are waived on purchases made
by reinvesting dividends from any of the "Eligible Funds" listed in "Right
of Accumulation," below, or by reinvesting distributions from unit
investment trusts for which reinvestment arrangements have been made with
the Distributor. No share certificates will be issued for Class B shares,
and no share certificates will be issued for Class A shares unless
specifically requested in writing by an investor or the dealer or broker.
The net asset value per share of each class is determined as of 4:00
P.M. (all references to time in this Prospectus mean New York time) each
day The New York Stock Exchange is open (a "regular business day") by
dividing the value of the Fund's net assets attributable to that class by
the number of shares of that class outstanding. The Board has established
procedures for valuing the Fund's securities. In general, those
valuations are based on market value, with special provisions for: (i)
securities not having readily-available market quotations; (ii) short-term
debt securities; and (iii) covered calls and Hedging Instruments. Further
details are in "Purchase, Redemption and Pricing of Shares" in the
Additional Statement. The net asset values per share of Class A and Class
B shares are expected to be substantially the same; however, from time to
time the net asset values of each class may differ due to differences in
expenses borne by each class, as described under "Purchase, Redemption and
Pricing of Shares - Dual Class Methodology" in the Additional Statement.
All purchase orders received by the Distributor at its office in
Denver, Colorado prior to 4:00 P.M. on a regular business day are
processed at that day's offering price. However, an order received by the
Distributor from a dealer or broker after the offering price is determined
that day will receive such offering price if the order was received by the
dealer or broker from its customer prior to 4:00 P.M. and was transmitted
to and received by the Distributor prior to its close of business that day
(normally 5:00 P.M.). Purchase orders received on other than a regular
business day will be executed on the next succeeding regular business day.
The Distributor, in its sole discretion, may accept or reject any order
for purchase of the Fund's shares. The sale of shares will be suspended
during any period when the determination of net asset value is suspended
and may be suspended by the Board whenever the Board judges it in the best
interest of the Fund to do so.
Class A Shares
Class A shares are sold at their offering price, which (as that term
is used in this Prospectus and the Additional Statement) is net asset
value plus a front-end sales charge, except that as to certain purchases
described below that are not subject to a front-end sales charge, the
offering price is net asset value. The offering price is determined as
of 4:00 P.M. each regular business day. Class A shares may not be
converted into Class B shares.
The table below shows the regular front-end sales charge rates for
Class A shares for a "single purchaser" (defined below), together with the
dealer discounts paid to authorized dealers and the agency commissions
paid to authorized brokers (collectively, "commissions"):
Front-End
Front-End Sales Charge as
Sales Charge Approximate
as Percentage Percentage Commission as
of Offering of Amount Percentage of
Amount of Purchase Price Invested Offering Price
Less than $50,000 4.75% 4.98% 4.00%
$50,000 or more but
less than $100,000 4.50% 4.71% 3.75%
$100,000 or more but
less than $250,000 3.50% 3.63% 2.75%
$250,000 or more but
less than $500,000 2.50% 2.56% 2.00%
$500,000 or more but
less than $1 million 2.00% 2.04% 1.60%
$1 million or more None* None* None*
_________________________
*See "Class A Contingent Deferred Sales Charge," below.
Under certain circumstances, commissions up to the amount of the entire
sales charge may be paid to dealers or brokers, who then may be deemed to
be "underwriters" as defined in the Securities Act of 1933. Commission
rates may vary among the funds for which the Manager and its affiliates
act as investment advisers.
The Distributor may advance up to 13 months' commissions to dealers
that have entered into special arrangements with the Distributor as to
purchases made by their clients under Oppenheimer Asset Builder Plans.
If a registered representative of a securities dealer sells more than $2.5
million of Class A shares of "Eligible Funds" other than "Money Market
Funds" (as that term is defined below) in a calendar year, the dealer firm
is eligible to send such representative, with a guest, to a three-day
sales conference (generally held in a resort), if one is sponsored and
held by the Distributor; or in lieu of sending such representative that
firm may, at its option, receive the equivalent cash value of such award
as additional commission. The Distributor may, from time to time, enter
into arrangements with specific dealers whereby the Distributor may make
additional payments to that dealer based, in part, on that dealer meeting
certain sales criteria. Such additional payments may be based on sales
for a specific period of time, shares of certain or all of the "Eligible
Funds" held by the dealer and/or its customers, or some combination
thereof.
Dealers whose sales of Class A shares of "Eligible Funds" other than
"Money Market Funds" under OppenheimerFunds-sponsored 403(b)(7) custodial
plans exceed a rate of $5 million per year, calculated per calendar
quarter, will receive monthly one-half of the Distributor's retained
commissions on such sales. Dealers whose sales of such plans exceed a
rate of $10 million per year, calculated per calendar quarter, will
receive the Distributor's entire retained commission on such sales.
-Class A Contingent Deferred Sales Charge. On certain purchases of
Class A shares of any one or more "Eligible Funds" by a "single purchaser"
aggregating $1 million or more, the Distributor will pay authorized
dealers a commission equal to the sum of 1.0% of the first $2.5 million,
0.50% of the next $2.5 million, and 0.25% of share purchases in excess of
$5 million. However, that commission will be paid only on the amount of
those share purchases in excess of $1 million that were not previously
subject to a front-end sales charge and dealer commission (the shares with
respect to which this commission is paid are called "Class A CDSC
Shares"). A contingent deferred sales charge (the "Class A CDSC") will
be deducted from the redemption proceeds of Class A CDSC Shares redeemed
within 18 months of the end of the calendar month of their purchase. The
Class A CDSC will be an amount equal to 1.0% of the lesser of either (1)
the aggregate net asset value of the Class A CDSC Shares (not including
shares purchased by reinvestment of dividends or capital gains) or (2) the
original cost of such shares. However, the total Class A CDSC paid on the
redemptions of those shares will not exceed the aggregate commissions paid
to dealers on all Class A CDSC Shares of all "Eligible Funds" purchased
by that "single purchaser."
The Class A CDSC does not apply to purchases at net asset value
described in "Other Circumstances" below, and will be waived in the case
of redemptions of shares made for: (i) retirement distributions (or loans)
to participants or beneficiaries from retirement plans qualified under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code"), or from Individual Retirement Accounts ("IRAs"),
403(b)(7) custodial plans, deferred compensation plans created under
Section 457 of the Internal Revenue Code or other employee benefit plans
(collectively, "Retirement Plans"); (ii) returns of excess contributions
to such Retirement Plans; (iii) Automatic Withdrawal Plan payments limited
to no more than 12% of the original account value annually; and (iv)
involuntary redemptions of shares by operation of law or under procedures
set forth in the Fund's Agreement and Declaration of Trust (hereinafter
defined as "Declaration of Trust") or as adopted by the Board
(collectively, "Involuntary Redemptions"). See "Transfers" in Purchase,
Redemption and Pricing of Shares" in the Additional Statement for further
details.
Some or all of the proceeds of redeemed shares on which a Class A CDSC
was paid at the time of redemption and which are subsequently reinvested
under the "Reinvestment Privilege" (described below) may be reinvested
within six months of redemption without sales charge at net asset value
on the reinvestment date if the investor notifies the Distributor that the
privilege applies. Additionally, no Class A CDSC is charged on exchanges,
pursuant to the Fund's Exchange Privilege (described below), of shares
purchased subject to a Class A CDSC, except that if the Class A shares
acquired by exchange are redeemed within 18 months of the end of the
calendar month of the initial purchase of the exchanged shares, the Class
A CDSC will apply. In determining whether a Class A CDSC is payable, and
the amount of any such Class A CDSC, shares not subject to a Class A CDSC
are redeemed first, including shares purchased by reinvestment of
dividends and capital gains distributions, and then other shares are
redeemed in the order of purchase.
-Reduced Sales Charges for Class A Purchases. The Class A sales charge
rates in the above table may be reduced as follows:
Right of Accumulation. In calculating the sales charge rate applicable
to current purchases of Class A shares, a "single purchaser" is entitled
to accumulate current purchases with the greater of (1) amounts previously
paid for, or (2) the current value (at offering price) of, Class A shares
of certain other "Eligible Funds" and of the Fund if sold subject to an
initial sales charge and if the investment is still held in one of the
Eligible Funds. The Eligible Funds are those for which the Distributor
or an affiliate acts as the distributor and include the following: (i) the
Fund, Oppenheimer Discovery Fund, Oppenheimer Target Fund, Oppenheimer
Tax-Free Bond Fund, Oppenheimer California Tax-Exempt Fund, Oppenheimer
New York Tax-Exempt Fund, Oppenheimer Pennsylvania Tax-Exempt Fund,
Oppenheimer Florida Tax-Exempt Fund, Oppenheimer Main Street Income &
Growth Fund, Oppenheimer Main Street California Tax-Exempt Fund,
Oppenheimer High Yield Fund, Oppenheimer Champion High Yield Fund,
Oppenheimer Total Return Fund, Inc., Oppenheimer Mortgage Income Fund,
Oppenheimer U.S. Government Trust, Oppenheimer Insured Tax-Exempt Bond
Fund, Oppenheimer Intermediate Tax-Exempt Bond Fund, Oppenheimer Global
Environment Fund, Oppenheimer Global Growth & Income Fund, Oppenheimer
Global Bio-Tech Fund, Oppenheimer Investment Grade Bond Fund, Oppenheimer
Value Stock Fund, Oppenheimer Fund, Oppenheimer Global Fund, Oppenheimer
Time Fund, Oppenheimer Special Fund, Oppenheimer Equity Income Fund,
Oppenheimer Asset Allocation Fund, Oppenheimer Gold & Special Minerals
Fund, Oppenheimer Strategic Income Fund, Oppenheimer Strategic Income &
Growth Fund, Oppenheimer Strategic Investment Grade Bond Fund and
Oppenheimer Strategic Short-Term Income Fund; and (ii) the following
"Money Market Funds": Centennial Tax Exempt Trust, Centennial Money Market
Trust, Centennial America Fund, L.P., Centennial Government Trust,
Centennial California Tax Exempt Trust, Centennial New York Tax Exempt
Trust, Oppenheimer Money Market Fund, Inc., Daily Cash Accumulation Fund,
Inc., Oppenheimer Cash Reserves and Oppenheimer Tax-Exempt Cash Reserves.
There is an initial sales charge on the purchase of Class A shares of each
Eligible Fund except the Money Market Funds (under certain circumstances
described herein, redemption proceeds of Money Market Fund shares may be
subject to a CDSC). The reduced sales charge applies only to current
purchases.
The term "single purchaser" refers to (i) an individual, (ii) an
individual and spouse purchasing shares of the Fund for their own account
or for trust or custodial accounts for their minor children, or (iii) a
fiduciary purchasing for any one trust, estate or fiduciary account,
including employee benefit plans created under Sections 401 or 457 of the
Internal Revenue Code, including related plans of the same employer. To
be entitled to a reduced sales charge under the Right of Accumulation, at
the time of purchase the purchaser must ask the Distributor for such
entitlement and provide the account number(s) for shares of Eligible Funds
owned by the "single purchaser," and the age of any minor children for
whom shares are held.
Letter of Intent. By initially investing at least $1,000 and
submitting a Letter of Intent (the "Letter") to the Distributor, a "single
purchaser" may purchase Class A shares of the Fund and other Eligible
Funds (other than the Money Market Funds) during a 13-month period at the
reduced sales charge rates or at net asset value but subject to the Class
A CDSC, if applicable, applying to the aggregate amount of the intended
purchases stated in the Letter. The Letter may apply to purchases made
up to 90 days before the date of the Letter. The Fund and the Distributor
reserve the right to amend or terminate such program at any time without
prior notice. For further details, including escrow requirements, see
"Letter of Intent" in the Additional Statement.
Group Programs. Reduced sales charges are available to participants
in a group sales program if the administrator of the program has entered
into an agreement with the Distributor providing, among other things, that
all participants' purchases are made by a single group order and payment
for each investment period and that requisite data about such participants
and purchases be provided to the Transfer Agent in acceptable computer
format. The sales charge for such purchases will be at the rate in the
table above that applies to combined current purchases (minimum $25 per
participant per period) of shares of the Fund, Oppenheimer Intermediate
Tax-Exempt Bond Fund and Oppenheimer Insured Tax-Exempt Bond Fund by all
participants in such program based upon the current value (at offering
price) of shares of such funds held by all participants in such program
at the time of purchase. No certificates will be issued for shares held
by program participants and dividends and distributions must be reinvested
in accounts held by such participants. Automatic Withdrawal Plans
(described below) may not be used for such accounts. The Fund and the
Distributor reserve the right to amend, suspend or cease offering such
programs at any time without prior notice.
Other Circumstances. No sales charge is imposed on Class A shares of
the Fund: (i) sold to the Manager or its affiliates, or to present or
former officers, trustees or directors and employees (and their "immediate
families" as defined in "Reduced Sales Charges" in the Additional
Statement) of the Fund, the Manager and its affiliates and to retirement
plans established by them for employees; (ii) issued in plans of
reorganization, such as mergers, asset acquisitions and exchange offers,
to which the Fund is a party; (iii) sold to registered investment
companies or to separate accounts of insurance companies having an
agreement with the Manager or the Distributor; (iv) sold to dealers or
brokers that have a sales agreement with the Distributor, for their own
account or for retirement plans for their employees, or to employees (and
their spouses) of such dealers or brokers, or of financial institutions
that have entered into a sales agreement with such dealer or broker or the
Distributor (and are identified to the Distributor by such dealer or
broker); the purchaser must certify to the Distributor at the time of
purchase that such purchase is for his or her own account (or for the
benefit of such employee's spouse or minor children); (v) sold to dealers,
brokers or registered investment advisers that have entered into an
agreement with the Distributor providing specifically for the use of
shares of the Fund in particular investment products made available to the
clients of the dealer, broker or registered investment adviser; or (vi)
purchased by the reinvestment of (a) loan repayments by a participant in
a retirement plan for which the Manager or its affiliates act as sponsor,
or (b) dividends or other distributions reinvested from the Fund or other
"Eligible Funds" (other than the Cash Reserves Funds) or unit investment
trusts for which reinvestment arrangements have been made with the
Distributor. "Reduced Sales Charges" in the Additional Statement
discusses this policy.
-Class A Service Plan. The Fund has adopted a service plan (the "Class
A Plan") pursuant to Rule 12b-1 of the Investment Company Act under which
the Fund will reimburse the Distributor quarterly for a portion of its
costs incurred in connection with the personal service and maintenance of
accounts that hold Class A shares at an annual rate not to exceed 0.25%
of the average during each calendar quarter of the aggregate net asset
value of Class A shares of the Fund computed as of the close of each
business day. The Distributor will use such fees received from the Fund
in their entirety (i) to compensate dealers, brokers, banks or other
financial institutions (collectively, "Recipients") each quarter for
providing personal service and maintenance of accounts that hold Class A
shares, and (ii) to reimburse itself (to the extent authorized by the
Board) for its other expenditures under the Class A Plan and its direct
costs for personal service and maintenance of accounts. For the fiscal
year ended September 30, 1993, the Board has not presently authorized any
reimbursement to the Distributor under (ii) above.
The services to be provided under the Class A Plan include, but are not
limited to, the following: answering routine inquiries from the
Recipient's customers concerning the Fund, providing such customers with
information on their investment in Class A shares, assisting in the
establishment and maintenance of accounts or sub-accounts in the Fund,
making the Fund's investment plans and dividend payment options available,
and providing such other information and customer liaison services and the
maintenance of accounts as the Distributor or the Fund may reasonably
request. Payments by the Distributor to Recipients will be made quarterly
at an annual rate not to exceed 0.25% of the average during the calendar
quarter of the aggregate net asset value of Class A shares of the Fund,
computed as of the close of each business day, held in accounts of the
Recipient or its customers.
The Class A Plan has the effect of increasing annual expenses for Class
A shares of the Fund by up to 0.25% of the class's average annual net
assets from what its expenses would otherwise be. In addition, the
Manager and the Distributor may, under the Class A Plan, from time to time
from their own resources (which, as to the Manager, may include profits
derived from the advisory fee it receives from the Fund) make payments to
Recipients for distribution and administrative services they perform. For
further details see "Distribution and Service Plans" in the Additional
Statement.
Class B Shares
Class B shares are sold at net asset value per share without the
imposition of a sales charge at the time of purchase.
-Class B Contingent Deferred Sales Charge. A contingent deferred sales
charge (the "Class B CDSC") will be deducted from the redemption proceeds
of Class B shares redeemed within six years of the end of the calendar
month of their purchase (not including shares purchased by reinvestment
of dividends or capital gains). The charge will be assessed on an amount
equal to the lesser of the then net asset value or the original purchase
price of the Class B shares being redeemed. Accordingly, no Class B CDSC
will be imposed on amounts representing increases in net asset value above
the initial purchase price. In determining whether a Class B CDSC applies
to a redemption, Class B shares are redeemed in the following order: (1)
those acquired pursuant to reinvestment of dividends or distributions, (2)
those held for over six years, and (3) those held longest during the six
year period.
Proceeds from the Class B CDSC are paid to the Distributor to reimburse
it for its expenses related to providing distribution-related services to
the Fund in connection with the sale of Class B shares. The combination
of the Class B CDSC and the distribution fee retained by the Distributor
(as described under "Class B Distribution and Service Plan") facilitate
the sale of Class B shares without a sales charge being deducted at the
time of purchase. Any Class B CDSC required to be imposed on Class B
share redemptions will be assessed according to the following schedule:
Contingent Deferred Sales Charge
Year(s) Since End of on Redemptions in That Year
Which Purchase Order (as % of Gross Redemption
Was Accepted Proceeds)
0-1 5.0%
1-2 4.0%
2-3 3.0%
3-4 3.0%
4-5 2.0%
5-6 1.0%
6 or more None
In the table above, a "year" is a period of twelve months. The Class
B CDSC will be waived upon the request of the shareholder in the case of
redemptions for: (1) distributions to participants or beneficiaries from
Retirement Plans, which distributions are made either (a) under an
Automatic Withdrawal Plan (described under "How to Redeem Shares") after
the participant attains age 59-1/2, and which are limited to no more than
10% of the account value annually (determined in the first year, as of the
date the redemption request is received by the Transfer Agent, and in
subsequent years, as of the most recent anniversary of that date) or (b)
following the participant's or beneficiary's (i) "disability" (as defined
in the Internal Revenue Code) that occurs since the account was
established or (ii) death; (2) redemptions other than from Retirement
Plans following the (i) death or (ii) complete disability (as evidenced
by a certificate from the U.S. Social Security Administration), of all
persons individually owning such shares of record and not as fiduciaries
or agents, that occurs since the account was established, and (3) returns
of excess contributions to such Retirement Plans. In addition, no CDSC
is imposed on shares of the Fund (i) sold to the Manager or its
affiliates; (ii) sold to registered investment companies or separate
accounts of insurance companies having an agreement with the Manager or
the Distributor; (iii) issued in plans of reorganization, such as mergers,
asset acquisitions and exchange offers to which the Fund is a party; or
(iv) redeemed in Involuntary Redemptions. See "Transfers" in "Purchase,
Redemption and Pricing of Shares" in the Additional Statement for further
details.
-Class B Conversion Feature. At the end of the month, seventy-two
months after an investor's purchase order for Class B shares is accepted,
such "Matured Class B shares" automatically will convert to Class A
shares, on the basis of the relative net asset value of the two classes,
without the imposition of any sales load or other charge. Each time any
Matured Class B shares convert to Class A shares, any Class B shares
acquired by the reinvestment of dividends or distributions on such Matured
Class B shares that are still held will also convert to Class A shares,
on the same basis. The conversion feature is intended to relieve holders
of Matured Class B shares of the asset-based sales charge under the Class
B Plan (described below) after such shares have been outstanding long
enough that the Distributor may have been compensated for distribution
expenses related to such shares.
The conversion of Matured Class B shares to Class A shares is subject
to the continuing availability of a private letter ruling from the
Internal Revenue Service, or an opinion of counsel or a tax adviser, to
the effect that the conversion of Matured Class B shares does not
constitute a taxable event for the holder under Federal income tax law.
If such a private letter ruling or opinion is no longer available, the
automatic conversion feature may be suspended, in which event no further
conversions of Matured Class B shares would occur while such suspension
remained in effect. Although Matured 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.
-Class B Distribution and Service Plan. The Fund has adopted a plan
of distribution (the "Class B Plan") pursuant to Rule 12b-1 of the
Investment Company Act, under which it will compensate the Distributor for
its services and costs incurred in connection with the distribution and
service of the Fund's Class B shares. Pursuant to the Class B Plan, the
Fund will pay the Distributor an asset-based sales charge of 0.75% per
annum on Class B shares outstanding for six years or less, plus a service
fee of 0.25% per annum, in each case on the average during the month (as
to the asset-based sales charge) and the calendar quarter (as to the
service fee) of the aggregate net asset value of Class B shares of the
Fund computed as of the close of each business day. Asset-based sales
charges and service fees will be paid by the Fund to the Distributor
monthly and quarterly, respectively.
The Distributor will use the service fee payment to compensate
Recipients for providing personal service and the maintenance of
shareholder accounts that hold Class B shares, examples of which are
described under "Class A Service Plan," above. Service fee payments by
the Distributor to Recipients will be made (i) in advance for the first
year Class B shares are outstanding, following the purchase of shares, in
an amount equal to 0.25% of the average during the calendar quarter of the
aggregate net asset value of the Class B shares, computed as of the close
of each business day, purchased by the Recipient or its customers and (ii)
thereafter, on a quarterly basis, at an annual rate of 0.25% of the
average during the calendar quarter of the aggregate net asset value of
the Class B shares, computed as of the close of each business day, held
in accounts of the Recipient or its customers. Other terms and options
under the Class B Plan for payment of the service fee by the Distributor
to Recipients, and other terms and conditions of the Class B Plan are
described under "Distribution and Service Plans" in the Additional
Statement.
The Distributor currently expects to pay sales commissions from its own
resources to authorized dealers or brokers at the time of sale equal to
3.75% of the purchase price of Fund shares sold by such dealer or broker,
and to advance the first year service fee of 0.25%. The asset-based sales
charge and service fee payments by the Fund to the Distributor under the
Class B Plan are intended to allow it to recoup such sales commissions and
service fee advances, as well as financing costs. The Distributor
anticipates that it will take a number of years to recoup the sales
commissions paid to authorized brokers or dealers from the Fund's payments
to the Distributor under the Class B Plan.
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 shares of the Fund. The
Distributor's actual distribution expenses for any given year may exceed
the aggregate of payments received pursuant to the Class B Plan and
contingent deferred sales charges, and such expenses will be carried
forward and paid in future years. The Fund will be charged only for
interest expenses, carrying charges or other financial costs that are
directly related to the carry-forward of actual distribution expenses.
At September 30, 1993, the end of the Class B Plan period, the Distributor
had incurred unreimbursed expenses under the Class B Plan of $212,641
(equal to 4.19% of the Fund's net assets attributable to Class B shares
of the Fund on that date) which have been carried over into the present
Class B Plan year.
The Class B Plan contains a provision that contractually obligates the
Fund to continue payments to the Distributor for certain expenses it
incurred for Class B shares sold prior to termination of the Class B Plan.
If the Class B Plan is terminated, the Distributor is entitled to continue
to receive the asset-based sales charge of 0.75% per annum on Class B
shares sold prior to termination until the Distributor has recovered its
Class B distribution expenses (incurred prior to termination) from such
payments and from the Class B CDSC.
The Fund believes that under current applicable accounting standards,
its obligation under the Class B Plan to pay any asset-based sales charges
in future periods is not required to be recognized as a liability. In the
future, if applicable accounting standards should be deemed to require
that obligation to be recognized as a liability, a decrease in the net
asset value per share of Class B shares could result. Were that to occur,
such decrease would affect all Class B shares regardless of how long the
shares were held. Furthermore, Class B shareholders would continue to
remain subject to the Class B CDSC. The accounting treatment of the
Fund's obligations under the Class B Plan for future payments is discussed
in "Distribution and Service Plans" in the Additional Statement. The
accounting standards now used are currently under review by the American
Institute of Certified Public Accountants and it is possible that those
standards will change and that the Class B Plan would be changed as a
result.
The Class B Plan has the effect of increasing annual expenses of Class
B shares of the Fund by up to 1.00% of the class's average annual net
assets from what its expenses would otherwise be. In addition, the
Manager and the Distributor may, under the Class B Plan, from time to time
from their own resources (which, as to the Manager, may include profits
derived from the advisory fee it receives from the Fund) make payments to
Recipients for distribution and administrative services they perform. For
further details, see "Distribution and Service Plans" in the Additional
Statement.
Purchase Programs for Class A and Class B Shares
-AccountLink. OppenheimerFunds AccountLink is a means to link a
shareholder's Fund account with an account at a U.S. bank or other
financial institution that is an ACH member. AccountLink can be used to
transmit funds by electronic funds transfers for account transactions,
including subsequent share purchases. The minimum investment by
AccountLink is $25. Purchases of up to $250,000 may be made by telephone
using AccountLink (the maximum is $100,000 if the transaction is done by
PhoneLink, described below). To speak to service operators to initiate
such purchases, call the Distributor at 1-800-852-8457. All such calls
will be recorded. To initiate such purchases automatically using
PhoneLink, call 1-800-533-3310. Shares will be purchased on the regular
business day the Distributor is instructed to initiate the ACH transfer
to buy the shares. Dividends will begin to accrue on such shares on the
day the Fund receives Federal Funds for such purchase through the ACH
system before 4:00 P.M., which is normally three days after the ACH
transfer is initiated. If such Federal Funds are received after that
time, dividends will begin to accrue on the next regular business day
after such Federal Funds are received.
AccountLink may also be used as a means of transmitting redemption
proceeds to a designated bank account (see "How to Redeem Shares") or to
transmit distributions paid by the Fund directly to a bank account (see
"Dividends, Distributions and Taxes - Dividends and Distributions").
AccountLink privileges must be requested on the application used to buy
shares or the dealer settlement instructions establishing the account, or
on subsequent signature-guaranteed instructions to the Transfer Agent,
from all shareholders of record for an account, and such privileges
thereupon apply to each shareholder of record and the dealer
representative of record unless and until the Transfer Agent receives
written instructions from a shareholder of record canceling such
privileges. Changes of bank account information must be made by
signature-guaranteed instructions to the Transfer Agent by all
shareholders of record for an account. The Transfer Agent, the Fund and
the Distributor have adopted reasonable procedures to confirm that
telephone instructions under AccountLink (described above) and
"PhoneLink," "Telephone Redemptions" and the "Exchange Privilege"
(described below) are genuine, by requiring callers to provide tax
identification number(s) and other account data and by recording calls and
confirming such transactions in writing. If the Transfer Agent and the
Distributor do not use such procedures, they may be liable for losses due
to unauthorized transactions, but otherwise they will not be responsible
for losses or expenses arising out of telephone instructions reasonably
believed to be genuine. The Fund reserves the right to amend, suspend or
discontinue AccountLink privileges at any time without prior notice.
-PhoneLink. PhoneLink is the OppenheimerFunds automated telephone
system that enables shareholders of the Fund to initiate account
transactions automatically by telephone, including exchanges between
existing accounts (see "Exchange Privilege," below), redemptions (see "How
To Redeem Shares - Telephone Redemptions," below) and purchases (see
"AccountLink," above). PhoneLink transactions may be done automatically
using a touchtone telephone provided that the shareholder uses a Personal
Identification Number ("PIN") which may be obtained through PhoneLink by
calling 1-800-533-3310. If an account has multiple owners, the Transfer
Agent or the Distributor may rely on any instructions initiated through
PhoneLink using a PIN. The Fund reserves the right to amend, suspend or
discontinue PhoneLink privileges at any time without prior notice.
-Asset Builder Plans. Investors may purchase shares of the Fund (and
up to four other Eligible Funds) automatically under Asset Builder Plans.
With AccountLink, Asset Builder Plans may be used to make regular monthly
investments ($25 minimum) from the investor's account at a bank or other
financial institution. See "AccountLink," above for details. 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 Redeem
Shares." Asset Builder Plans also enable shareholders of Oppenheimer Tax-
Exempt Cash Reserves or Oppenheimer Cash Reserves to use those accounts
for monthly automatic purchases of shares of the Fund and up to four other
Eligible Funds.
There is a sales charge on the purchase of certain Eligible Funds, and
an application should be obtained from the Transfer Agent and completed
and a prospectus of the selected fund(s) (available from the Distributor)
should be obtained before initiating payments. The amount of the Asset
Builder investment may be changed or the automatic investments terminated
at any time by writing to the Transfer Agent. A reasonable period
(approximately 15 days) is required after 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.
How to Redeem Shares
Regular Redemption Procedures
To redeem some or all shares in an account (whether or not represented
by certificates) under the Fund's regular redemption procedures, a
shareholder must send the following items to the Transfer Agent,
Oppenheimer Shareholder Services, P.O. Box 5270, Denver, Colorado 80217
(send courier or express mail deliveries to 10200 E. Girard Avenue,
Building D, Denver, Colorado 80231): (1) a written request for redemption
signed by all registered owners exactly as the shares are registered,
including fiduciary titles, if any, and specifying the account number and
the dollar amount or number of shares to be redeemed; (2) a guarantee of
the signatures of all registered owners on the written redemption request
or on the endorsement on the share certificate or accompanying stock
power, by a U.S. bank, trust company, credit union, savings and loan
association, or a foreign bank having a U.S. correspondent bank, or by
U.S.-registered dealers or brokers in securities, municipal securities or
government securities, or by a U.S. national securities exchange,
registered securities association or clearing agency; (3) any share
certificates issued for any of the shares to be redeemed; and (4) any
additional documents which may be required by the Transfer Agent for
redemption by corporations, partnerships or other organizations,
executors, administrators, trustees, custodians, or guardians, or from an
OppenheimerFunds-sponsored retirement plan, or if the redemption is
requested by anyone other than the shareholder(s) of record, or to
demonstrate eligibility for waiver of the Class B CDSC on the grounds of
age or disability. Transfers of shares are subject to similar
requirements.
A signature guarantee is not required for redemptions of $50,000 or
less, requested by and payable to all shareholders of record, to be sent
to the address of record for that account. To avoid delay in redemption
or transfer, shareholders having questions about these requirements should
contact the Transfer Agent in writing or by calling 1-800-525-7048 before
submitting a request. From time to time, the Transfer Agent in its
discretion may waive any or certain of the foregoing requirements in
particular cases. Redemption or transfer requests will not be honored
until the Transfer Agent receives all required documents in proper form.
Shareholders owning shares of both classes must specify whether they
intend to redeem Class A or Class B shares.
Telephone Redemptions
To redeem shares by telephone through a service representative, call
the Transfer Agent at 1-800-852-8457. To use PhoneLink to redeem shares
automatically, without a service representative, call 1-800-533-3310.
Under either method of telephone redemptions, proceeds may be paid by
check or through AccountLink as described below. The Transfer Agent may
record any calls. Telephone redemptions may not be available if all lines
are busy, and shareholders would have to use the Fund's regular redemption
procedures described above. Requests received by the Transfer Agent prior
to 4:00 P.M. on a regular business day will be processed at the net asset
value per share determined that day. Telephone redemption privileges are
not available for newly purchased (within the prior 15 days) shares,
OppenheimerFunds-sponsored retirement plans, or for shares represented by
certificates.
Telephone redemption privileges apply automatically to each shareholder
and the dealer representative of record unless the Transfer Agent receives
cancellation instructions from a shareholder of record. If an account has
multiple owners, the Transfer Agent may rely on the instructions of any
one owner. Telephone redemption privileges may be amended, suspended or
discontinued by the Fund at any time without prior notice.
-Telephone Redemptions Paid by Check. For redemption proceeds paid by
check, amounts up to $50,000 may be redeemed by telephone, once in every
seven-day period. The check must be payable to the shareholder(s) of
record and sent to the address of record for the account. Telephone
redemptions paid by check are not available within 30 days of a change of
the address of record.
-Redemptions Paid Through AccountLink or Wire. Redemption proceeds may
be wired to a pre-designated account at another financial institution in
one of two ways.
(1) If AccountLink privileges have been established for an account,
any amount may be redeemed by telephone, wire or written instructions to
the Transfer Agent, and the ACH transfer of the redemption proceeds to the
designated bank account normally will be initiated by the Transfer Agent
on the next bank business day after the redemption. There are no dollar
or frequency limitations on telephone redemptions sent to a designated
bank account through AccountLink. No dividends are paid on the proceeds
of redeemed shares awaiting transmittal by ACH transfer. See
"AccountLink" under "How to Buy Shares - Purchase Programs for Class A and
Class B Shares" above, for instructions on establishing this privilege.
(2) Shareholders may also request wires of redemption proceeds of
$2,500 or more in Federal Funds to a designated commercial bank account
if the bank is a member of the Federal Reserve wire system. To place a
wire redemption request, call the Transfer Agent at 1-800-852-8457. There
is a $15 fee for each Federal Funds wire.
For both methods of wiring redemption proceeds, the account number of
the designated financial institution must be supplied to the Transfer
Agent on the application or dealer settlement instructions establishing
the account or may be added to existing accounts or changed only by
signature-guaranteed instructions to the Transfer Agent from all
shareholders of record. Such redemption requests may be made by
telephone, wire or written instructions to the Transfer Agent. The wire
for the redemption proceeds normally will be transmitted by the Transfer
Agent on the next bank business day after redemption. No dividends are
paid on the proceeds of redeemed shares awaiting transmittal by wire. See
"Purchase, Redemption and Pricing of Shares" in the Additional Statement
for more details.
Check Writing
Upon request, the Transfer Agent will provide shareholders whose shares
are not represented by certificates with forms of drafts ("checks")
payable through a bank selected by the Fund (the "Bank"). Check writing
privileges are not available for accounts holding Class B shares or Class
A shares subject to a CDSC. Checks may be written by the shareholder in
any amount not less than $100, payable to the order of anyone, and will
be subject to the Bank's rules and regulations governing checks. The
Transfer Agent will arrange for check writing after obtaining a specimen
signature card from the shareholder(s). If a check is presented for an
amount greater than the account value, it will not be paid. A check
should not be written in an amount close to the total value of the account
because the Fund's net asset value fluctuates from day to day. The Fund
will charge a handling fee of $10 for any check that is not paid because
of an insufficient share balance or at the request of a shareholder, or
because the check was written for less than the stated minimum.
Shareholders of joint accounts may elect to have checks honored with a
single signature. Checks issued for one account in the Fund must not be
used if the shareholder's account has been transferred to a new account
or if the account number or registration has been changed. Shares
purchased by check or Asset Builder payments within the prior 15 days may
not be redeemed by check writing. A check that would require the
redemption of some or all of the shares so purchased is subject to non-
payment.
The Bank will present checks to 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 equalling the amount being redeemed by check
until such time as the check is presented to the Fund. Checks may not be
presented for payment at the office 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 such privilege at any time without prior
notice.
Distributions From Retirement Plans
Requests for distributions from OppenheimerFunds-sponsored IRAs,
403(b)(7) custodial plans, or pension or profit-sharing plans for which
the Manager or its affiliates act as sponsors should be addressed to
"First Interstate Bank of Denver, N.A., c/o Oppenheimer Shareholder
Services" at the above address, and 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 redemption requirements, above. Participants (other
than self-employed persons) in OppenheimerFunds-sponsored pension or
profit-sharing plans may not directly request redemption of their
account(s); the employer or plan administrator must sign the request.
Distributions from such plans are subject to additional 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 penalties assessed.
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 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 the 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 purchases while
participating in an Automatic Withdrawal Plan. Class B shareholders
should not establish withdrawal plans, because of the imposition of the
Class B CDSC on such withdrawals (except where the Class B CDSC is waived
as described in "Class B Contingent Deferred Sales Charge"). For further
details, refer to "Automatic Withdrawal Plan Provisions" in the Additional
Statement.
Shareholders can also authorize the Transfer Agent to exchange a pre-
determined amount of shares of the Fund for shares of up to five other
"Eligible Funds" (minimum $25 per fund account) automatically on a
monthly, quarterly, semi-annual or annual basis under an Automatic
Exchange Plan. Exchanges made pursuant to such Plans are subject to the
conditions and terms applicable to exchanges described in "Exchange
Privilege," below.
Repurchase
The Distributor is the Fund's agent to repurchase its shares from
authorized dealers or brokers. The repurchase price will be the net asset
value next computed after the receipt of an order placed by such dealer
or broker, except that orders received by the Distributor from dealers or
brokers after 4:00 P.M. on a regular business day will be processed at
that day's net asset value if such orders are received by the dealer or
broker from its customers prior to 4:00 P.M. and were transmitted to and
received by the Distributor prior to its close of business that day
(normally 5:00 P.M.). Payment ordinarily will be made within seven days
after the Distributor's receipt of the required documents, with
signature(s) guaranteed as described above.
Reinvestment Privilege
Within six months of a redemption of Class A shares or Class B shares
on which a Class B CDSC was paid, the investor may reinvest all or part
of the redemption proceeds in Class A shares of the Fund or any of the
Eligible Funds into which shares of the Fund are exchangeable as described
below. The reinvestment price will be the net asset value next computed
after the Transfer Agent receives the reinvestment order, and will not be
subject to a sales charge, but only if the reinvestment order requests
this privilege. A realized gain on the redemption is taxable, and
reinvestment will not alter any capital gains tax payable on that gain.
If there has been a loss on the redemption, some or all of the loss may
not be tax deductible, depending on the timing and amount reinvested in
the Fund. 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 Eligible Fund within 90 days of the payment of the
sales charge, the shareholder's basis in the shares redeemed may not
include the amount of the sales charge paid, thereby reducing the loss or
increasing the gain recognized from the redemption. 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.
General Information on Redemptions
The redemption price will be the Fund's net asset value per share next
determined after the Transfer Agent receives redemption instructions in
proper form. The market value of the securities in the Fund's portfolio
is subject to daily fluctuations and the net asset value of each class of
the Fund's shares will fluctuate accordingly. Therefore, the redemption
value may be more or less than the investor's cost. Under certain unusual
circumstances, shares may be redeemed in kind (i.e., by payment in
portfolio securities). The Fund may involuntarily redeem small accounts
(if the account has fallen below $1,000 in value for reasons other than
market value fluctuation) and may redeem shares in amounts sufficient to
compensate the Distributor for any loss due to cancellation of a share
purchase order; for details, see "Purchase, Redemption and Pricing of
Shares" in the Additional Statement. Under the Internal Revenue Code, the
Fund may be required to impose "backup" withholding of Federal income tax
at the rate of 31% from dividends, distributions and redemption proceeds
(including exchanges), if the shareholder has not furnished the Fund a
certified tax identification number or has not complied with the
provisions of the Internal Revenue Code relating to reporting dividends.
Payment for redeemed shares is made ordinarily in cash and forwarded
within seven days of the Transfer Agent's receipt of redemption
instructions in proper form, except under unusual circumstances as
determined by the SEC. The Transfer Agent may delay forwarding a
redemption check for recently-purchased shares only until the purchase
payment has cleared, which may take up to 15 days or more from the
purchase date. Such delay may be avoided if the shareholder arranges
telephone or written assurance satisfactory to the Transfer Agent from the
bank upon which the purchase payment was drawn. The Fund makes no charge
for redemption. Dealers or brokers may charge a fee for handling
redemption transactions, but such charge can be avoided by requesting the
redemption directly by the Fund through the Transfer Agent. Under certain
circumstances, the Class A and Class B CDSCs described under "How to Buy
Shares" may apply to the proceeds of redemptions.
Exchanges of Shares and Retirement Plans
Exchange Privilege
Shares of the Fund and the Eligible Funds listed in "Right of
Accumulation" may be exchanged at net asset value per share at the time
of exchange without sales charge, if all of the following conditions are
met: (1) shares of the fund selected for exchange are available for sale
in the shareholder's state of residence; (2) the respective prospectuses
of the funds the shares of which are to be exchanged and acquired offer
the Exchange Privilege to the investor; (3) newly-purchased (by initial
or subsequent investment) shares are held in an account for at least seven
days and all other shares at least one day prior to the exchange; and (4)
the aggregate net asset value of shares surrendered for exchange is at
least equal to the minimum investment requirements of the fund the shares
of which are to be acquired.
In addition to the conditions stated above, shares of a particular
class of an Eligible Fund may be exchanged only for shares of the same
class of another Eligible Fund. If a Fund has only one class of shares
that is not otherwise denominated, its shares shall be considered "Class
A" shares for this purpose. Certain of the Eligible Funds offer Class A,
Class B and/or Class C shares, and a list can be obtained by calling the
Distributor at 1-800-525-7048, or by referring to "Purchase, Redemption
and Pricing of Shares" in the Additional Statement. Funds offering Class
C shares are referred to, as a group, as the "OppenheimerFunds Advisors
Portfolio." In addition, Class A shares of Eligible Funds may be
exchanged for shares of any Money Market Fund; shares of any Money Market
Fund purchased without a sales charge may be exchanged for shares of
Eligible Funds offered with a sales charge upon payment of the sales
charge or, if applicable, may be used to purchase shares of Eligible Funds
subject to a CDSC; and shares of the Fund acquired by reinvestment of
dividends or distributions from any other Eligible Fund 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
Eligible Fund. No CDSC is imposed on exchanges of shares of either class
purchased subject to a CDSC. However, when Class A shares acquired by
exchange of Class A shares purchased subject to a Class A CDSC are
redeemed within 18 months of the end of the calendar month of the initial
purchase of the exchanged Class A shares, the Class A CDSC is imposed on
the redeemed shares (see "Class A Contingent Deferred Sales Charge,"
above), and the Class B CDSC is imposed on Class B shares redeemed within
six years of the end of the calendar month of the initial purchase of the
exchanged Class B shares (see "Class B Contingent Deferred Sales Charge,"
above).
-How to Exchange Shares. An exchange may be made by either: (1)
submitting an OppenheimerFunds Exchange Authorization Form to the Transfer
Agent, signed by all registered owners, or (2) telephone exchange
instructions to the Transfer Agent by a shareholder or the dealer
representative of record for an account. The Fund may modify, suspend or
discontinue either of these exchange privileges at any time on 60 days'
notice, if such notice is required by regulations adopted under the
Investment Company Act. The Fund reserves the right to reject telephone
or written exchange requests submitted in bulk on behalf of 10 or more
accounts. Telephone and written exchange requests must be received by the
Transfer Agent by 4:00 P.M. on a regular business day to be effected that
day. The number of shares exchanged may be less than the number requested
if the number requested would include shares subject to a restriction
cited above or shares covered by a certificate that is not tendered with
such request. Only the shares available for exchange without restriction
will be exchanged.
When Class B shares are redeemed to effect an exchange, the priorities
described in "How to Buy Shares" for the imposition of the Class B CDSC
for redeeming such shares will be followed in determining the order in
which shares are exchanged. Shareholders should take into account the
effect of any exchange on the applicability and rate of any CDSC that may
be imposed in the subsequent redemption of remaining shares. Shareholders
owning shares of both classes must specify whether they intend to exchange
Class A or Class B shares.
-Telephone Exchanges. Telephone exchange requests may be placed
through a service representative by calling the Transfer Agent at 1-800-
852-8457 or automatically by PhoneLink, by calling 1-800-533-3310. If all
telephone exchange lines are busy (which might occur, for example, during
periods of substantial market fluctuations), shareholders might not be
able to request telephone exchanges and will have to submit written
exchange requests. Telephone exchange calls may be recorded by the
Transfer Agent. Telephone exchanges are subject to the rules described
above. By exchanging shares by telephone, the shareholder is
acknowledging receipt of a prospectus of the fund to which the exchange
is made and that for full or partial exchanges, any special account
features such as Asset Builder Plans, Automatic Withdrawal or Exchange
Plans and retirement plan contributions will be switched to the new
account unless the Transfer Agent is otherwise instructed. Telephone
exchange privileges automatically apply to each shareholder of record and
the dealer representative of record unless and until the Transfer Agent
receives written instructions from the shareholder(s) of record canceling
such privileges. If an account has multiple owners, the Transfer Agent
may rely on the instructions of any one owner. The Transfer Agent
reserves the right to require shareholders to confirm in writing their
election of telephone exchange privileges for an account. Shares acquired
by telephone exchange must be registered exactly as the account from which
the exchange was made. Certificated shares are not eligible for telephone
exchange.
-General Information on Exchanges. 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 in its discretion reserves the right to
refuse any exchange request that will disadvantage it, for example, if the
receipt of multiple exchange requests from a dealer might require the
disposition of securities at a time or price disadvantageous to the Fund.
The Eligible Funds have different investment objectives and policies.
For complete information, including sales charges and expenses, a
prospectus of the fund into which the exchange is being made should be
read prior to an exchange. A $5 service charge will be deducted from the
account to which the exchange is made to help defray administrative costs.
That charge is waived for telephone exchanges made by PhoneLink between
existing accounts. Dealers or brokers who process exchange orders on
behalf of customers may charge for their services. Those charges may be
avoided by requesting the Fund directly to exchange shares. For Federal
tax purposes, an exchange is treated as a redemption and purchase of
shares. (See "How to Redeem Shares - Reinvestment Privilege" for a
discussion of certain tax effects of exchanges.) No sales commissions are
paid by the Distributor on exchanges of shares (unless a front-end sales
charge is assessed on the exchange).
Retirement Plans
The Distributor has available forms of (i) pension and profit-sharing
plans for corporations and self-employed individuals, (ii) IRAs, including
Simplified Employee Pension Plans ("SEP IRAs") and (iii) 403(b)(7) tax-
deferred custodial plans for employees of qualified employers. The
minimum initial investment for pension or profit sharing plans is $250,
and also for IRAs unless they are purchased under an Asset Builder Plan.
The Fund and the Distributor reserve the right to discontinue offering
Fund shares to such plans at any time without prior notice. For further
details, including the administrative fees, the appropriate retirement
plan should be requested from the Distributor.
Dividends, Distributions and Taxes
This discussion relates solely to Federal tax laws and is not
exhaustive; a qualified tax adviser should be consulted. The Fund's
dividends and distributions may also be subject to state and local
taxation. Interest from securities issued by the U.S. Government may be
exempt from state and local income taxation by some state and local
governments, although interest from obligations which are merely
guaranteed by the U.S. Government or one of its agencies, such as mortgage
participation certificates guaranteed by GNMA, may not be entitled to such
exemptions. Dividends and distributions from the Fund will not be
eligible for the dividends-received deduction for corporations. The Fund
will report annually to shareholders the percentage of the Fund's
dividends derived from income received during the preceding year on such
securities. See "Investment Objective and Policies - Covered Calls and
Hedging" and "Performance, Dividend and Tax Information - Tax Status of
the Fund's Dividends and Distributions" in the Additional Statement for
more information on tax aspects of the Fund's investment in Hedging
Instruments and other tax matters.
Dividends and Distributions
The Fund intends to declare dividends separately for Class A and Class
B shares from net investment income, if any, on each regular business day
and to pay such dividends monthly on or about the last business day of the
month (or such other day as the Board may determine). The amount of a
class's distributions may vary from time to time depending upon market
conditions, the composition of the Fund's portfolio, and expenses borne
by the Fund, or borne separately by that class, as described under "Dual
Class Methodology" in the Additional Statement. Dividends are calculated
in the same manner, at the same time and on the same day for shares of
each class. However, dividends on Class B shares are expected to be lower
than on Class A shares on a pro rata basis as a result of the asset-based
sales charge on Class B shares, and such dividends will also differ in
amount as a consequence of any difference in net asset value between Class
A and Class B shares.
Such dividends for both classes of shares will be payable on shares
held of record at the time of the previous determination of net asset
value. Daily dividends will not be declared or paid on newly-purchased
shares until Federal Funds (funds credited to a member bank's account at
the Federal Reserve Bank) are available from the purchase payment for such
shares. Dividends will be paid with respect to shares repurchased by
dealer or broker order for four business days subsequent to the trade date
(i.e., to and including the day prior to settlement of the repurchase).
If all shares in an account are redeemed, all dividends accrued on shares
of the same class in the account will be paid together with the redemption
proceeds.
The net investment income of the Fund for dividend purposes consists
of interest and dividends earned on portfolio securities, less expenses,
in each case computed since the most recent determination of net asset
value. Expenses, including management fees and 12b-1 expenses, are
accrued daily. In addition, distributions may be made annually in
December out of any net short-term capital gains realized from the sale
of securities, premiums from expired calls written by the Fund and net
profits from closing purchase transactions on puts and calls. Any
difference in net asset value of Class A and Class B shares will be
reflected in such dividends. If the Fund has net realized long-term
capital gains during a fiscal year not offset by applicable losses, it may
pay an annual "long-term capital gains distribution" in December, which
will be identified separately when tax information is distributed. The
Fund may make a supplemental distribution of long-term capital gains
following the end of its fiscal year. There is no fixed dividend rate and
there can be no assurance as to the payment of any dividends or
distributions or the realization of any capital gains.
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." All dividends and capital gains distributions are
automatically reinvested in shares of the same class at net asset value,
as of a date selected by the Board, unless the shareholder notifies the
Transfer Agent in writing to pay dividends and capital gains distributions
in cash, or to reinvest them in another Eligible Fund as described in
"Performance, Dividend and Tax Information - Dividend Reinvestment in
Another Fund" in the Additional Statement. That request must be received
prior to the record date for a dividend to be effective as to that
dividend. Under AccountLink, dividends and distributions may be
automatically transferred to a designated account at a financial
institution. See "AccountLink" in "How to Buy Shares" for more details.
For existing accounts, such privileges may be established only by
signature-guaranteed instructions from all shareholders to the Transfer
Agent. 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 are reinvested in shares of Oppenheimer
Money Market Fund, Inc., as promptly as possible after the return of such
checks to the Transfer Agent, in order to enable the investor to earn a
return on otherwise idle funds.
Tax Status of the Fund's Dividends and Distributions
Dividends paid by the Fund derived from net investment income or net
short-term capital gains are taxable to shareholders as ordinary income,
whether received in cash or reinvested. Long-term capital gains
distributions, if any, are taxable as long-term capital gains whether
received in cash or reinvested and regardless of how long Fund shares have
been held. A shareholder purchasing Fund shares immediately prior to the
declaration of a dividend or capital gains distribution will receive a
distribution subject to income tax, and the distribution will have the
effect of reducing the Fund's net asset value per share by the amount of
the distribution. For information on "backup" withholding or dividends,
see "How to Redeem Shares."
Tax Status of the Fund
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
during its past fiscal year and intends to qualify in current and future
fiscal years but reserves the right not to do so. However, the Internal
Revenue Code contains a number of complex tests relating to such
qualification which the Fund might not meet in any particular fiscal 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.
If the Fund did not so qualify, it would be treated for tax purposes as
an ordinary corporation and receive no tax deduction for payments paid to
shareholders. See "Investment Objective and Policies - Covered Calls and
Hedging" and "Performance, Dividend and Tax Information - Tax Status of
the Fund" in the Additional Statement for more details.
Fund Performance Information
Yield and Total Return Information
From time to time the "standardized yield," "average annual total
return," "total return," "total return at net asset value" and "dividend
yield" of an investment in each class of shares of the Fund may be
advertised. Under rules adopted by the SEC, the "yield" is computed in
a standardized manner for mutual funds, by dividing the net investment
income per share earned during a 30-day base period by the maximum
offering price per share on the last day of the period. This yield
calculation is compounded on a semi-annual basis, and multiplied by 2 to
provide an annualized yield.
Total return is the change in value of a hypothetical investment in a
class of shares of the Fund over a given period, assuming that all
dividends and capital gains distributions are reinvested. The cumulative
total return measures the change in value over the entire period (for
example, ten years). An average annual total return shows the average rate
of return for each year in a period that would produce the cumulative
total return over the entire period. However, average annual total
returns do not show the actual year-by-year performance of a class of
shares.When total returns are quoted for Class A shares, they reflect the
payment of the maximum initial sales charge. Total returns may be quoted
at "net asset value," without considering the sales charge, and those
returns would be reduced if sales charges were deducted. When total
returns are shown for Class B shares, they reflect the effect of the
contingent deferred sales charge that applies to the period for which the
total return is shown, or else they may be shown based on the change in
net asset value without considering the sales charge. All total returns
are based on historical earnings and are not intended to predict future
performance. The Additional Statement contains more information about the
calculation of the performance data used by the Fund.
The "dividend yield" of a class of shares represents dividends derived
from net investment income during a stated period divided by the maximum
offering price of shares of that class on the last day of the period, to
show the rate of return based on actual distributions paid to shareholders
of that class. Yields and returns are calculated separately and will
differ for shares of each class, and the higher anticipated expense of
Class B shares should result in shares of that class having lower yields
than Class A shares for the same period of time. "Performance, Dividend
and Tax Information" in the Additional Statement contains more detailed
information about calculating such yields and returns and other
performance information.
Management's Discussion of Performance
During the Fund's fiscal year ended September 30, 1993, U.S. interest
rates continued to decline and the economy remained in a slow-growth mode.
During the past fiscal year, the Manager maintained a majority of the
Fund's investments in mortgage-backed securities, so as to help maximize
current income, and, to safeguard the Fund's portfolio from risks
associated with a rise in interest rates, shifted a portion of the Fund's
assets from long-term U.S. Treasury bonds to short-term U.S. Treasury
notes.
Comparison of Total Return of Oppenheimer Government Securities Fund
with the Lehman Brothers U.S. Government Bond Index-
Change in Value of a $10,000 Hypothetical Investment
(PERFORMANCE GRAPH)
Past performance is not predictive of future performance.
Oppenheimer Government Securities Fund
Average Annual Total Returns of Class A shares at 9/30/93
1 Year 5 Year Life of Fund
Class A 2.50% 9.10% 8.60%
Cumulative Total Return of Class B shares at 9/30/93
1 Year 5 Year Life of Class
Class B N/A N/A (5.25)%
The performance graph set forth above compares the Fund's total return
since (i) the commencement of its operations (March 10, 1986) with respect
to Class A shares and (ii) the public offering of Class B shares (May 3,
1993) with respect to Class B shares, in each case against the performance
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 corporation 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 Index includes a
factor for the reinvestment of interest but does not reflect expenses or
taxes. The Fund's return on Class A shares reflects the deduction of the
current maximum sales charge of 4.75%, on Class B shares reflects the
maximum Class B CDSC deduction, and, in each case, includes reinvestment
of all dividends and capital gains distributions, but does not consider
taxes.
Additional Information
Description of the Fund and Its Shares
The Board is empowered to issue full and fractional shares of one or
more series and classes of series. Shares of one series having two
classes (Class A and Class B) have been authorized, which constitute the
shares of beneficial interest described herein. As explained in this
Prospectus, each class has different dividends, distributions and
expenses, and may have different net asset values. Moreover, Class B
shares will automatically convert to Class A shares seventy-two months
after an investor's purchase order for Class B shares is accepted. See
"How to Buy Shares -Class B Conversion Feature."
Each shareholder is entitled to one vote per share held (and a
fractional vote for a fractional share) on matters submitted to his or her
vote. Only shareholders of a particular class vote on matters affecting
only that class. Except as required by applicable law, the Fund's
Declaration of Trust or By-laws, or as the Board may consider necessary
or desirable, shareholder voting is limited to the following matters, as
set forth and described in the Declaration of Trust: the election or
removal of Trustees, matters with respect to an investment advisor or
manager, the termination or reorganization of the Fund and derivative or
class actions. The Trustees may divide or combine the shares of a class
into a greater or lesser number of shares without thereby changing the
proportionate beneficial interest in the Fund. When issued, such shares
are fully-paid and nonassessable (except as described in the Additional
Statement under "Additional Information"), and have no preemptive,
subscription or cumulative voting rights. The Fund does not anticipate
holding annual meetings.
Under certain circumstances, shareholders of the Fund have the right
to remove a Trustee and may be held personally liable as "partners" for
the Fund's obligations; however, the risk of a shareholder incurring any
financial loss is limited to the relatively remote circumstances in which
the Fund is unable to meet its obligations. See "Additional Information"
in the Additional Statement for details.
The Custodian and the Transfer Agent
The Custodian of the assets of the Fund is Citibank, N.A. The Manager
and its affiliates presently have banking relationships with the
Custodian. See "Additional Information" in the Additional Statement for
further details. The Fund's cash balances in excess of $100,000 held by
the Custodian are not protected by Federal deposit insurance. Such
uninsured balances at times may be substantial.
The Transfer Agent, a division of the Manager, acts as transfer agent
and shareholder servicing agent on an at-cost basis for the Fund and
certain other open-end funds advised by the Manager, and as transfer agent
for unit investment trusts for the accumulation of shares of one of such
funds. Shareholders should direct any inquiries to the Transfer Agent at
the address or toll-free phone number listed on the back cover of this
Prospectus.
<PAGE>
APPENDIX TO PROSPECTUS OF
OPPENHEIMER GOVERNMENT SECURITIES FUND
Graphic material included in Prospectus of Oppenheimer Government
Securities Fund: "Comparison of Total Return of Oppenheimer Government
Securities Fund with the Lehman Brothers U.S. Government Bond Index -
Change in Value of a $10,000 Hypothetical Investment."
A linear graph will be included in the Prospectus of Oppenheimer
Government Securities (the "Fund") depicting the initial account value and
subsequent account value of a hypothetical $10,000 investment in (i) Class
A shares of the Fund during each of the Fund's fiscal years since the
commencement of the Fund's operations (March 10, 1986) and (ii) Class B
shares of the Fund during the period May 3, 1993 (first public offering
of Class B shares) to September 30, 1993, in each case comparing such
values with the same investments over the same time periods with the
Lehman Brothers U.S. Government Bond Index. Set forth below are the
relevant data points that will appear on the linear graph. Additional
information with respect to the foregoing, including a description of the
Lehman Brothers U.S. Government Bond Index, is set forth in the Prospectus
under "Fund Performance Information - Management's Discussion of
Performance."
Oppenheimer
Government
Fiscal Year Securities Fund Lehman Brothers U.S.
(Period) Ended Class A Shares Government Bond Index
03/10/86 * $ 9,525 $10,000
09/30/86 $ 9,999 (1) $10,330
09/30/87 $10,093 $10,266
09/30/88 $11,492 $11,500
09/30/89 $12,601 $12,780
09/30/90 $13,754 $13,666
09/30/91 $15,775 $15,778
09/30/92 $17,333 $17,817
09/30/93 $18,651 $19,791
Oppenheimer
Government
Fiscal Securities Fund Lehman Brothers U.S.
Period Ended Class B Shares Government Bond Index
5/03/93 $10,000 $10,000
9/30/93 $ 9,783 (2) $10,552
______________________________
* The Fund commenced operations on March 10, 1986.
(1) From commencement of operations (3/10/86) to 9/30/86.
(2) From commencement of first public offering of Class B shares
(5/03/93) to 9/30/93.
<PAGE>
Investment Adviser Prospectus and
Oppenheimer Management Corporation New Account Application
Two World Trade Center
New York, New York 10048-0203
Distributor
Oppenheimer Funds Distributor, Inc. OPPENHEIMER
Two World Trade Center Government Securities Fund
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 Effective February 1, 1994
Citibank, N.A.
399 Park Avenue
New York, New York 10043
Independent Auditors
Deloitte & Touche
1560 Broadway
Denver, Colorado 80202
Legal Counsel (OppenheimerFunds Logo)
Myer, Swanson & Adams, P.C.
1600 Broadway
Denver, Colorado 80202
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in
this Prospectus or the Additional Statement, and if given or made, such
information and representations must not be relied upon as having been
authorized by the Fund, Oppenheimer Management Corporation, Oppenheimer
Funds Distributor, Inc. or any affiliate thereof. This Prospectus does
not constitute an offer to sell or a solicitation of an offer to buy any
of the securities offered hereby in any state to any person to whom it is
unlawful to make such an offer in such state.
PR855 (2/94) *Printed on Recycled paper
<PAGE>
Investment Adviser Prospectus
Oppenheimer Management Corporation
Two World Trade Center
New York, New York 10048-0203
Distributor
Oppenheimer Funds
Distributor, Inc. OPPENHEIMER
Two World Trade Center Government Securities Fund
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 Effective February 1, 1994
Citibank, N.A.
399 Park Avenue
New York, New York 10043
Independent Auditors
Deloitte & Touche
1560 Broadway
Denver, Colorado 80202
Legal Counsel (OppenheimerFunds Logo)
Myer, Swanson & Adams, P.C.
1600 Broadway
Denver, Colorado 80202
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in
this Prospectus or the Additional Statement, and if given or made, such
information and representations must not be relied upon as having been
authorized by the Fund, Oppenheimer Management Corporation, Oppenheimer
Funds Distributor, Inc. or any affiliate thereof. This Prospectus does
not constitute an offer to sell or a solicitation of an offer to buy any
of the securities offered hereby in any state to any person to whom it is
unlawful to make such an offer in such state.
PR856 (2/94) *Printed on Recycled paper
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
OPPENHEIMER GOVERNMENT SECURITIES FUND
3410 South Galena Street, Denver, Colorado 80231
1-800-525-7048
This Statement of Additional Information (the "Additional Statement")
is not a Prospectus. This Additional Statement should be read in
conjunction with the Prospectus (the "Prospectus"), dated February 1,
1994, of Oppenheimer Government Securities Fund (the "Fund") which may be
obtained upon written request to Oppenheimer Shareholder Services (the
"Transfer Agent"), P.O. Box 5270, Denver, Colorado 80217 or by calling the
Transfer Agent at the toll-free number shown above.
TABLE OF CONTENTS
Page
Investment Objective and Policies 2
Investment Restrictions 9
Trustees and Officers 10
Investment Management Services 13
Purchase, Redemption and Pricing of Shares 14
Distribution and Service Plans 17
Performance, Dividend and Tax Information 19
Additional Information 23
Automatic Withdrawal Plan Provisions 25
Letter of Intent 26
Report of Independent Auditors 29
Financial Statements 30
This Additional Statement is effective February 1, 1994.
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective and policies of the Fund are described in
the Prospectus. Set forth below is supplemental information about those
policies. Certain capitalized terms used in this Additional Statement and
not otherwise defined herein are defined in the Prospectus.
U.S. Government Securities. Obligations of U.S. Government agencies or
instrumentalities 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. The Fund will
invest in U.S. Government Securities of such agencies and
instrumentalities only when 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 high current return 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 "Portfolio Transactions," below).
GNMA Certificates. The Government National Mortgage Association
("GNMA") is a wholly-owned corporate instrumentality of the United States
within the U.S. Department of Housing and Urban Development. GNMA's
principal programs involve its guarantees of privately-issued securities
backed by pools of mortgages. GNMA Certificates are debt securities
representing an interest in one or a pool of mortgages that are insured
by the Federal Housing Administration ("FHA") or the Farmers Home
Administration ("FMHA") or guaranteed by the Veterans Administration
("VA").
The GNMA Certificates in which the Fund invests are of the "fully
modified pass-through" type, that is, they provide that the registered
holders of the Certificates will receive timely monthly payments of the
pro-rata share of the scheduled principal payments on the underlying
mortgages, whether or not those amounts are collected by the issuers.
Amounts paid include, on a pro rata basis, any prepayment of principal of
such mortgages and interest (net of servicing and other charges) on the
aggregate unpaid principal balance of such GNMA Certificates, whether or
not the interest on the underlying mortgages has been collected by the
issuers.
The GNMA Certificates purchased by the Fund are guaranteed as to
timely payment of principal and interest by GNMA. It is expected that
payments received by the issuers of GNMA Certificates on account of the
mortgages backing the Certificates will be sufficient to make the required
payments of principal of and interest on such GNMA Certificates, but if
such payments are insufficient for that purpose, the guaranty agreements
between the issuers of the Certificates and GNMA require the issuers to
make advances sufficient for such payments. If the issuers fail to make
such payments, GNMA will do so.
Under Federal law, the full faith and credit of the United States is
pledged to the payment of all amounts which may be required to be paid
under any guaranty issued by GNMA as to such mortgage pools. An opinion
of an Assistant Attorney General of the United States, dated December 9,
1969, states that such guaranties "constitute general obligations of the
United States backed by its full faith and credit." GNMA is empowered to
borrow from the United States Treasury to the extent necessary to make any
payments of principal and interest required under such guaranties.
GNMA Certificates are backed by the aggregate indebtedness secured
by the underlying FHA-insured, FMHA-insured or VA-guaranteed mortgages
and, except to the extent of payments received by the issuers on account
of such mortgages, GNMA Certificates do not constitute a liability of, nor
evidence any recourse against, such issuers, but recourse is solely
against GNMA. Holders of GNMA Certificates (such as the Fund) have no
security interest in or lien on the underlying mortgages.
Monthly payments of principal will be made, and additional
prepayments of principal may be made, to the Fund with respect to the
mortgages underlying the GNMA Certificates held by the Fund. All of the
mortgages in the pools relating to the GNMA Certificates in the Fund are
subject to prepayment without any significant premium or penalty, at the
option of the mortgagors. While the mortgages on 1-to-4-family dwellings
underlying certain GNMA Certificates have a stated maturity of up to 30
years, it has been the experience of the mortgage industry that the
average life of comparable mortgages, as a result of prepayments,
refinancing and payments from foreclosures, is considerably less. Periods
of dropping interest rates may spur refinancing of existing mortgages,
accelerating the rate of prepayments. Prepayments on such mortgages
received by the Fund will be reinvested in additional GNMA Certificates
or other U.S. Government Securities. The yields on such additional
securities may not necessarily be the same as (and may be lower than) the
yields on the prepaid securities, which will affect the income the Fund
receives and pays to its shareholders.
Federal Home Loan Mortgage Corporation ("FHLMC") Certificates.
FHLMC, a corporate instrumentality of the United States, issues FHLMC
Certificates representing interests in mortgage loans. FHLMC guarantees
to each registered holder of a FHLMC Certificate timely payment of the
amounts representing a holder's proportionate share in (i) interest
payments less servicing and guarantee fees, (ii) principal prepayments and
(iii) the ultimate collection of amounts representing such holder's
proportionate interest in principal payments on the mortgage loans in the
pool represented by such FHLMC Certificate, in each case whether or not
such amounts are actually received. The obligations of FHLMC under its
guarantees are obligations solely of FHLMC and are not backed by the full
faith and credit of the United States.
Federal National Mortgage Association ("FNMA") Certificates. FNMA,
a federally-chartered and privately-owned corporation, issues FNMA
Certificates which are backed by a pool of mortgage loans. FNMA
guarantees to each registered holder of a FNMA Certificate that the holder
will receive amounts representing such holder's proportionate interest in
scheduled principal and interest payments, and any principal prepayments,
on the mortgage loans in the pool represented by such FNMA Certificate,
less servicing and guarantee fees, and such holder's proportionate
interest in the full principal amount of any foreclosed or other
liquidated mortgage loan, in each case whether or not such amounts are
actually received. The obligations of FNMA under its guarantees are
obligations solely of FNMA and are not backed by the full faith and credit
of the United States or any agency or instrumentality thereof other than
FNMA.
Repurchase Agreements. In a repurchase transaction, at the time the Fund
acquires a U.S. Government Security, it simultaneously resells it to an
approved vendor (a commercial bank with assets of at least $1 billion or
a broker-dealer meeting Board established credit standards and which has
been designated a primary dealer in government securities) for delivery
on an agreed-upon future date. The repurchase 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, as amended (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,
Oppenheimer Management Corporation, the Fund's investment adviser (the
"Manager"), will impose creditworthiness requirements to confirm that the
vendor is financially sound and will continuously monitor the collateral's
value.
Reverse Repurchase Agreements. The Fund will maintain, in a segregated
account with its Custodian, cash, Treasury bills or other U.S. Government
Securities having an aggregate value equal to the amount of such
commitment to repurchase, including accrued interest, until payment is
made. The Fund will use reverse repurchase agreements as a source of
funds on a short-term basis (and not for leverage), and will not enter
into reverse repurchase agreements in amounts exceeding 25% of the total
assets of the Fund. In determining whether to enter into a reverse
repurchase agreement with a bank or broker-dealer, the Fund will take into
account the creditworthiness of such party. The Fund will not enter into
reverse repurchase agreements in an amount which, when combined with all
other borrowings by the Fund, will exceed 5% of the Fund's total assets.
As a matter of fundamental policy, the Fund will not enter into a reverse
repurchase transaction unless the securities collateralizing the
transaction have a maturity date not later than the settlement date for
the transaction.
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, 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 the interest on the collateral securities,
less any finders' or administrative fees the Fund pays in arranging the
loan. The Fund may share the interest it receives on the collateral
securities with the borrower as long as it realizes at least a minimum
amount of interest required by the lending guidelines established by its
Board. The Fund will not lend its portfolio securities to any officer,
trustee, employee or affiliate of the Fund, the Manager, or the
Distributor. The terms of the Fund's loans must meet applicable tests
under the Internal Revenue Code of 1986, as amended (the "Internal Revenue
Code") ,and must permit the Fund to reacquire loaned securities on five
business days' notice or in time to vote on any important matter.
Covered Calls and Hedging. As described in the Prospectus, the Fund may
write covered calls or employ one or more types of Hedging Instruments.
When hedging to attempt to protect against declines in the market value
of the Fund's portfolio, to permit the Fund to retain unrealized gains in
the value of portfolio securities which have appreciated, or to facilitate
selling securities for investment reasons, the Fund may: (i) sell Interest
Rate Futures, (ii) purchase puts on such Futures or on U.S. Government
Securities; or (iii) write covered calls on U.S. Government Securities or
on Interest Rate Futures. Covered calls and puts may also be written on
debt securities to attempt to increase the Fund's income. When hedging
to attempt to protect against the possibility that portfolio securities
are not fully included in a rise in value of the bond market, the Fund
may: (i) purchase Interest Rate Futures, or (ii) purchase calls on such
Futures or on U.S. Government Securities. Additional information about
the Hedging Instruments the Fund may use is provided below.
Interest Rate Futures. No price is paid or received upon the
purchase of an Interest Rate Future. Upon entering into a Futures
transaction, the Fund will be required to deposit an initial margin
payment, equal to a specified percentage of the contract value, with the
futures commission merchant (the "broker"). Initial margin payments will
be deposited with the Fund's custodian bank in an account registered in
the broker's name; however, the 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 payments, called variation
margin, will be made to and from the broker on a daily basis. Prior to
expiration of the Future, if the Fund elects to close out its position by
taking an opposite position, a final determination of variation margin is
made, additional cash is required to be paid by or released to the Fund,
and any loss or gain is realized for tax purposes. Although Interest Rate
Futures by their terms call for the actual delivery or acquisition of the
specified debt security, in most cases the obligation is fulfilled by
closing out the position. All futures transactions are effected through
a clearing house associated with the exchange on which the contracts are
traded.
Writing Covered Call Options. 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 during the call period (usually not
more than nine months) at a fixed exercise price (which may differ from
the market price of the underlying investment) regardless of market price
changes during the call period. To terminate its obligation on a call it
has written, the Fund may purchase a corresponding call in a "closing
purchase transaction." A profit or loss will be realized, depending upon
whether the net of the amount of the option transaction costs and the
premium received on the call written is more or less than the price of the
call subsequently purchased. A profit may also be realized if the call
lapses unexercised, because the Fund retains the underlying security 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. An option position may be closed out only
on a market that provides secondary trading for options of the same
series, and there is no assurance that a liquid secondary market will
exist for a particular option. If the Fund could not effect a closing
purchase transaction due to lack of a market, it would have to hold the
callable investment until the call lapsed or was exercised.
The Fund may also write calls on Interest Rate 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 Interest Rate Futures. 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. A put option 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) realizes a gain in the amount of the premium. If the put is
exercised, the Fund must fulfill its obligation to purchase the underlying
investment at the exercise price, which will usually exceed the market
value of the investment at that time. In that case, the Fund may incur
a loss, equal to the sum of the sale price of the underlying investment
and the premium received minus the sum of the exercise price and any
transaction costs incurred.
When writing put options, to secure its obligation to pay for the
underlying security, the Fund will deposit in escrow liquid assets with
a value equal to or greater than the exercise price of the underlying
securities. The Fund therefore foregoes the opportunity of investing the
segregated assets or writing calls against those assets. As long as the
obligation of the Fund as the put writer continues, it may be assigned an
exercise notice by the broker-dealer through whom such option was sold,
requiring the Fund to take delivery of the underlying investment against
payment of the exercise price. The Fund has no control over when it may
be required to purchase the underlying investment, 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 Puts and Calls. When the Fund purchases a call (other
than in a closing purchase transaction), it pays a premium and 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. The Fund benefits only if the call is sold at a profit or if,
during the call period, the market price of the underlying investment is
above the sum of the call price plus the transaction costs and the premium
paid for the call and the call is exercised. If the call is not exercised
or sold (whether or not at a profit), it will become worthless at its
expiration date and the Fund will lose its premium payment and the right
to purchase the underlying investment.
When the Fund purchases a put, it pays a premium and has the right
to sell the underlying investment to a seller of a put on a corresponding
investment during the put period at a fixed exercise price. Buying a put
on U.S. Government Securities or Futures the Fund owns enables the Fund
to attempt to protect itself during the put period against a decline in
the value of the underlying investment below the exercise price by selling
the underlying investment at the exercise price to a seller of a
corresponding put. If the market price of the underlying investment is
equal to or above the exercise price and as a result the put is not
exercised or resold, the put will become worthless at its expiration 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).
Purchasing either a put on Interest Rate Futures or on U.S.
Government Securities it does not own permits the Fund either to resell
the put or to buy the underlying investment and sell it at the exercise
price. The resale price of the put will vary inversely with the price of
the underlying investment. If the market price of the underlying
investment is above the exercise price, and, as a result, the put is not
exercised, the put will become worthless on its expiration date. In the
event of a decline in price of the underlying investment, the Fund could
exercise or sell the put at a profit to attempt to offset some or all of
its loss on its portfolio securities. When the Fund purchases a put on
an Interest Rate Future or U.S. Government Security not held by it, the
put protects the Fund to the extent that the prices of the underlying
Future or U.S. Government Securities move in a similar pattern to the
prices of the U.S. Government Securities in the Fund's portfolio.
Interest Rate Swap Transactions. Swap agreements entail both
interest rate risk and credit risk. As to interest rate risk, the Fund
could be obligated to pay more under its swap agreements than it receives,
as a result of interest rate changes. Credit risk arises from the
possibility that the counterparty will default. If the counterparty to
an interest rate swap defaults, the Fund's loss will consist of the net
amount of contractual interest payments that the Fund has not yet
received. The Manager will monitor the creditworthiness of counterparties
to the Fund's interest rate swap transactions on an ongoing basis. The
Fund will enter into swap transactions with appropriate counterparties
pursuant to master netting agreements. A master netting agreement
provides that all swaps done between the Fund and that counterparty under
the master agreement shall be regarded as parts of an integral agreement.
If on any date amounts are payable in the same currency in respect of one
or more swap transactions, the net amount payable on that date in that
currency shall be paid. In addition, the master netting agreement may
provide that if one party defaults generally or on one swap, the
counterparty may terminate the swaps with that party. Under such
agreements, if there is a default resulting in a loss to one 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 securities on which the Fund has
written options traded on exchanges, or as to other acceptable escrow
securities, so that no margin will be required for such transactions. OCC
will release the securities on the expiration of the calls or when the
Fund enters 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 total 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 or not OTC options should be
considered liquid securities, and the procedure described above could be
affected by the outcome of that evaluation.
The Fund's option activities may affect its portfolio turnover rate
and brokerage commissions. The exercise of calls written by the Fund may
cause the Fund to sell related portfolio U.S. Government Securities, thus
increasing the turnover rate. The exercise by the Fund of puts on U.S.
Government Securities or Futures 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 investment for reasons which would not exist in the absence of the
put. The Fund will pay a brokerage commission each time it buys or sells
a call, a put or an underlying investment in connection with the exercise
of a put or call. Such commissions may be higher on a relative basis than
those which would apply to direct purchases or sales of such underlying
investments. Premiums paid for options as to underlying investments are
small in relation to the market value of such investments and
consequently, put and call options offer large amounts of leverage. The
leverage offered by trading in options could result in the Fund's net
asset value being more sensitive to changes in the value of the underlying
investments.
Regulatory Aspects of Hedging Instruments. The Fund must operate
within certain restrictions as to its positions in Futures and options
thereon under a rule ("CFTC Rule") adopted by the Commodity Futures
Trading Commission ("CFTC") under the Commodity Exchange Act (the "CEA"),
which exempts the Fund from registration with the CFTC as a "commodity
pool operator" (as defined under the CEA) if it complies with the CFTC
Rule. Under these restrictions, the Fund will not, as to any positions,
whether short, long 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 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.
Tax Aspects of Hedging Instruments and Covered Calls. The Fund
intends to qualify as a "regulated investment company" under the Internal
Revenue Code. One of the tests for such qualification is that less than
30% of its gross income must be derived from gains realized on the sale
of securities held for less than three months. Due to this limitation,
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 Interest Rate Futures, held for less than three months, whether
or not they were purchased on the exercise of a call held by the Fund;
(ii) writing calls on investments held less than three months; (iii)
purchasing calls or puts which expire in less than three months; (iv)
effecting closing transactions with respect to calls or puts purchased
less than three months previously; and (v) exercising puts or calls held
by the Fund for less than three months.
Possible Risk Factors in Hedging. In addition to the risks with
respect to options and futures discussed in the Prospectus and above,
there is a risk in using short hedging by selling Interest Rate Futures
to attempt to protect against decline in value of the Fund's portfolio
securities that the prices of Interest Rate 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 market
are subject to margin deposit and maintenance requirements. Rather than
meeting additional margin deposit requirements, investors may close
futures contracts through offsetting transactions which could distort the
normal relationship between the cash and futures markets. Second, the
liquidity of the futures market 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 market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the deposit requirements in the futures
market are less onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures market
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 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.
INVESTMENT RESTRICTIONS
The Fund's significant investment restrictions are described in the
Prospectus. The following investment restrictions are also fundamental
policies of the Fund and, together with the fundamental policies and
investment objective described in the Prospectus, cannot be changed
without the vote of a "majority" of the Fund's outstanding voting
securities. Under the Investment Company Act, such a "majority" vote is
defined as the vote of the holders of the lesser of (i) 67% or more of the
shares present or represented by proxy at a shareholders' meeting, if the
holders of more than 50% of the outstanding shares are present, or (ii)
more than 50% of the outstanding shares.
Under these additional restrictions, the Fund cannot: (1) Purchase
or sell real estate, commodities or commodity contracts; however, the Fund
may use hedging instruments approved by its Board whether or not such
hedging instruments are considered commodities or commodity contracts; (2)
Invest in interests in oil, gas, or other mineral exploration or
development programs; (3) Purchase securities on margin or make short
sales of securities; however the Fund may make margin deposits in
connection with its use of hedging instruments approved by its Board; (4)
Underwrite securities except to the extent the Fund may be deemed to be
an underwriter in connection with the sale of securities held in its
portfolio; (5) Invest in securities of other investment companies, except
as they may be acquired as part of a merger, consolidation or other
acquisition; (6) Enter into reverse repurchase agreements that will cause
more than 25% of the Fund's total assets to be subject to such agreements;
(7) Make investments for the purpose of exercising control of management;
(8) Purchase or retain securities of any company if, to the knowledge of
the Fund, its officers and trustees and officers and directors of the
Manager who individually own more than .5% of the securities of such
company together own beneficially more than 5% of such securities; (9)
Purchase or retain securities of issuers having a record of less than
three years' continuous operation (such period may include the operation
of predecessor companies or enterprises if the issuer came into existence
as a result of a merger, consolidation or reorganization, or the purchase
of substantially all of the assets of the predecessor companies or
enterprises); (10) Purchase or sell standby commitments; or (11) Invest
more than 25% of its assets in a single industry (neither the U.S.
Government nor any of its agencies or instrumentalities are considered an
industry for the purposes of this restriction).
TRUSTEES AND OFFICERS
The Fund's Trustees and officers and their principal occupations and
business affiliations during the past five years are set forth below.
Unless otherwise listed below, the address of each is 3410 South Galena
Street, Denver, Colorado 80231. Except for Mr. Rosenberg, each serves in
similar capacities with Oppenheimer Total Return Fund, Inc., Oppenheimer
Equity Income Fund, Oppenheimer Cash Reserves, Oppenheimer Tax-Exempt Cash
Reserves, Oppenheimer High Yield Fund, Oppenheimer Strategic Income Fund,
Oppenheimer Strategic Income & Growth Fund, Oppenheimer Strategic Short-
Term Income Fund, Oppenheimer Strategic Investment Grade Bond Fund,
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., Oppenheimer
Tax-Exempt Bond Fund, The New York Tax-Exempt Income Fund, Inc., Daily
Cash Accumulation Fund, Inc., Oppenheimer Variable Account Funds,
Oppenheimer Integrity Funds, Oppenheimer Champion High Yield Fund, and
Oppenheimer Main Street Funds, Inc. (the "Denver-based OppenheimerFunds").
Mr. Fossel is President and Mr. Swain is Chairman of the Denver-based
OppenheimerFunds. As of December 31, 1993, the Trustees and officers of
the Fund as a group owned less than 1% of the Fund's outstanding shares.
ROBERT G. AVIS, Trustee*
One North Jefferson Ave., St. Louis, Missouri 63103
Vice Chairman of A.G. Edwards & Sons, Inc. (a broker-dealer) and A.G.
Edwards, Inc. (its parent holding company); Chairman of A.G.E. Asset
Management and A.G. Edwards Trust Company (its affiliated investment
adviser and trust company, respectively).
WILLIAM A. BAKER, Trustee
197 Desert Lakes Drive, Palm Springs, California 92264
Management Consultant.
CHARLES CONRAD, JR., Trustee
5301 Bolsa Avenue, Huntington Beach, California 92647
Vice President of McDonnell Douglas Ltd.; formerly associated with the
National Aeronautics and Space Administration.
JON S. FOSSEL, President and Trustee*
Two World Trade Center, New York, New York 10048-0203
Chairman, Chief Executive Officer and a Director of the Manager;
President and director of Oppenheimer Acquisition Corp. ("OAC"), the
Manager's parent holding company; President and a director of
HarbourView Asset Management Corporation, a subsidiary of the Manager
("HarbourView"); a director of Shareholder Services, Inc. ("SSI") and
Shareholder Financial Services, Inc. ("SFSI"), transfer agent
subsidiaries of the Manager; formerly President of the Manager.
RAYMOND J. KALINOWSKI, Trustee
44 Portland Drive, St. Louis, Missouri 63131
Formerly Vice Chairman and a director of A.G. Edwards, Inc., parent
holding company of A.G. Edwards & Sons, Inc. (a broker-dealer), of
which he was a Senior Vice President.
C. HOWARD KAST, Trustee
2552 East Alameda, Denver, Colorado 80209
Formerly the Managing Partner of Deloitte, Haskins & Sells (an
accounting firm).
ROBERT M. KIRCHNER, Trustee
7500 E. Arapahoe Road, Englewood, Colorado 80112
President of The Kirchner Company (management consultants).
NED M. STEEL, Trustee
3416 South Race Street, Englewood, Colorado 80110
Chartered Property and Casualty Underwriter; formerly Senior Vice
President and a director of Van Gilder Insurance Corp. (insurance
brokers).
JAMES C. SWAIN, Chairman and Trustee*
3410 South Galena Street, Denver, Colorado 80231
Vice Chairman of the Manager; President and Director of Centennial
Asset Management Corporation, an investment adviser subsidiary of the
Manager ("Centennial"); formerly President and Director of Oppenheimer
Asset Management Corporation ("OAMC"), an investment adviser which was
a subsidiary of the Manager, and Chairman of the Board of SSI.
ANDREW J. DONOHUE, Vice President
Two World Trade Center, New York, New York 10048-0203
Executive Vice President and General Counsel of the Manager and
Oppenheimer Funds Distributor, Inc. (the "Distributor"); an officer of
other OppenheimerFunds; formerly Senior Vice President and Associate
General Counsel of the Manager and the Distributor, Partner in Kraft
& McManimon (a law firm), an officer of First Investors Corporation (a
broker-dealer) and First Investors Management Company, Inc. (broker-
dealer and investment adviser), director and an officer of First
Investors Family of Funds and First Investors Life Insurance Company.
DAVID ROSENBERG, Vice President and Portfolio Manager
Two World Trade Center, New York, New York 10048-0203
Vice President of the Manager; an officer of other OppenheimerFunds;
previously an officer and portfolio manager for Delaware Investment
Advisors and for one of its mutual funds.
GEORGE C. BOWEN, Vice President, Secretary and Treasurer
3410 South Galena Street, Denver, Colorado 80231
Senior Vice President and Treasurer of the Manager; Vice President and
Treasurer of the Distributor and HarbourView; Senior Vice President,
Treasurer, Assistant Secretary and a director of Centennial; Vice
President, Treasurer and Secretary of SSI and SFSI; an officer of other
OppenheimerFunds; formerly Senior Vice President/Comptroller and
Secretary of OAMC.
ROBERT G. ZACK, Assistant Secretary
Two World Trade Center, New York, New York 10048-0203
Senior Vice President and Associate General Counsel of the Manager;
Assistant Secretary of SSI and SFSI; an officer of other
OppenheimerFunds.
LYNN M. COLUCCY, Assistant Treasurer
3410 South Galena Street, Denver, Colorado 80231
Vice President and Assistant Treasurer of the Manager; an officer of
other OppenheimerFunds; formerly Vice President/Director of Internal
Audit of the Manager.
_________________________
* A Trustee who is an "interested person" of the Fund as defined in the
Investment Company Act of 1940 (the "Investment Company Act").
Remuneration of Trustees and Officers. The officers of the Fund
(including Mr. Swain and Mr. Fossel) are affiliated with the Manager and
receive no salary or fee from the Fund. During the Fund's fiscal year
ended September 30, 1993, the remuneration (including expense
reimbursements) paid by the Fund to the Trustees of the Fund as a group
(excluding Messrs. Fossel and Swain) in the aggregate for services as
Trustees and as members of one or more committees totaled $9,331. The
Fund has an Audit and Review Committee, comprised of Messrs. Baker
(Chairman), Conrad and Kirchner, which meets regularly to review audits,
audit procedures, financial statements and other financial and operational
matters of the Fund. Committee members receive fees based in part on the
number of meetings attended, and the Fund pays a pro-rata share of such
fees with all the other Denver-based OppenheimerFunds.
Major Shareholders. As of December 31, 1993, no person owned of record
or was known by the Fund to own beneficially 5% or more of the Fund's
outstanding Class A or Class B shares, except for the following (share
amounts and percentages as of 12/31/93): (i) Muir & Co., c/o Frost
National Bank, P.O. Box 1600, San Antonio, TX 78296, 992,438.864 Class A
shares (6.04%); (ii) Chillenden County Teachers Credit Union, P.O. Box 82,
1 Town Market Place, Essex Junction, VT 05452, 55,857.632 Class B shares
(8.17%); (iii) Census Federal Credit Union, P.O. Box 735, Suitland, MD
20752, 46,888.463 Class B shares (6.86%); and (iv) Klass Van Der Ploeg and
Mares Van Der Ploeg, 1224 S. Begole Road, Ithica MI 48847, 37,397.535
Class B shares (5.97%).
INVESTMENT MANAGEMENT SERVICES
The Manager is wholly owned by 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 its officers, some of whom may
also serve as officers of the Fund, and two of whom (Messrs. Fossel and
Swain) serve as Trustees of the Fund.
The management fee is payable monthly to the Manager under the terms
of the Investment Advisory Agreement between the Manager and the Fund (the
"Agreement"), and is computed on the aggregate net assets of the Fund as
of the close of business each day. Expenses not expressly assumed by the
Manager or by the Distributor under the Agreement are paid by the Fund.
The Agreement lists examples of expenses paid by the Fund, the major
categories of which relate to interest, taxes, fees to certain Trustees,
legal and audit expenses, the cost of calculating the Fund's net asset
value, brokerage, custodian and transfer agent expenses, share issuance
costs, certain printing and share registration costs, and non-recurring
expenses, including litigation.
Under the Agreement, the Manager has undertaken that if the total
expenses of the Fund in any fiscal year should exceed the most stringent
state regulatory requirements on expense limitations applicable to the
Fund, the Manager's compensation under the Agreement will be reduced by
the amount of such excess. For the purpose of such calculation, there
shall be excluded any expense borne directly or indirectly by the Fund
which is permitted to be excluded from the computation of such limitation
by such statute or state regulatory authority. At present, that
limitation is imposed by California, and limits expenses (with specific
exclusions) to 2.5% of the first $30 million of average net assets, 2% of
the next $70 million of average net assets and 1.5% of average net assets
in excess of $100 million.
The Agreement 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 administration for the Fund, including the
compilation and maintenance of records with respect to the Fund's
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. The Agreement provides that in the
absence of willful misfeasance, bad faith, or gross negligence in the
performance of its duties under the Agreement, or reckless disregard of
its obligations or duties thereunder, the Manager is not liable for any
loss sustained by reason of any good faith errors or omissions in
connection with any matter to which the Agreement relates. The Agreement
permits the Manager to act as investment adviser for any other person,
firm or corporation. Under a non-exclusive license, the Manager permits
the Fund to use the name "Oppenheimer" and the Manager retains the right
to use that name in connection with other investment companies for which
it may act as investment adviser or an affiliate may act as distributor.
If the Manager no longer acts as investment adviser to the Fund, the
Fund's right to use the name "Oppenheimer" may be withdrawn.
During the Fund's fiscal years ended September 30, 1991, 1992 and 1993,
the Fund paid management fees of $912,906, $773,822 and $781,718,
respectively, to the Manager. The Fund also paid the Manager $12,000
during each of the fiscal years ended September 30, 1991 and September 30,
1992 and $12,000 during the fiscal year ended September 30, 1993 for
accounting services permitted by the Agreement. In addition, the Fund
reimbursed the Manager its expenses of $1,125 and $1,500 during the fiscal
year ended September 30, 1992 and 1993, respectively, for tax services.
Portfolio Transactions. Portfolio decisions are made by portfolio
managers under the supervision of the Manager's executive officers. As
most purchases made by the Fund are principal transactions at net prices,
the Fund incurs little or no brokerage costs. The Fund usually deals
directly with the selling or purchasing principal or market maker without
incurring charges for the services of a broker on its behalf unless it is
determined that a better price or execution may be obtained by utilizing
the services of a broker. Purchases of portfolio securities from
underwriters include a commission or concession paid by the issuer to the
underwriter, and purchases from dealers include a spread between the bid
and asked prices. The Fund seeks to obtain prompt execution of orders at
the most favorable net price.
When brokerage costs are incurred, the Fund's policy is to pay a
reasonable commission in terms of the range and quality of the broker's
service which benefit the Fund, rather than always to seek the lowest
commission cost. The requirement to seek the lowest commission cost could
exclude the Fund and the Manager from information, analysis, research and
other services which are of value to the Fund, as well as proper
execution. In all cases, the Manager is required to be aware of a
broker's purported or "posted" commission rates, if any, as may be
applicable to the transaction, as well as other information available at
the time as to the level of commissions known to be charged on comparable
transactions by other qualified brokers. Transactions may be directed to
brokers or dealers in return for special research and statistical
information as well as for services rendered by such brokers or dealers
in the execution of orders. The allocation of transactions in order to
obtain additional research service permits the Manager to supplement its
own research and analysis activities and to make available to the Manager
the views and information of individuals and research staffs of other
securities firms. The Board has permitted the Manager to use concessions
on fixed price offerings to obtain research, in the same manner as is
permitted for agency transactions.
When the Fund engages in an option transaction, ordinarily the same
broker will be used for the purchase or sale of the option and any
transactions in the securities to which the option relates. The Board has
adopted a procedure permitting the combination of purchase or sale
transactions in instances in which more than one of the funds managed by
the Manager and its affiliates simultaneously elect to effect portfolio
transactions in the same security. It is recognized that in some cases
this procedure could have a detrimental effect on the price or volume of
such securities as far as the Fund is concerned. In other cases, however,
it is believed that the ability of the Fund to participate in volume
transactions will produce better execution for the Fund.
PURCHASE, REDEMPTION AND PRICING OF SHARES
Determination of Net Asset Value Per Share. The net asset values per
share of Class A and Class B shares of the Fund are determined as of 4:00
P.M. (all references to time mean New York time), each day The New York
Stock Exchange (the "NYSE") is open (a "regular business day"), by
dividing the value of the Fund's net assets attributable to that class by
the number of shares outstanding. The NYSE's most recent annual holiday
schedule (which is subject to change) states that it will close on New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. The NYSE may also close
on other days. Dealers other than NYSE members may conduct trading at
times when the NYSE is closed (including weekends and holidays), so that
securities held by the Fund may be traded and the net asset values per
share of its Class A and Class B shares may be significantly affected on
such days when shareholders do not have the ability to purchase or redeem
shares.
The Board has established procedures for the valuation of the Fund's
securities generally as follows: (i) equity securities traded on a
securities exchange or on the NASDAQ National Market System ("NASDAQ") are
valued at the last sale prices on their primary exchange or NASDAQ that
day (or, in the absence of sales that day, at values based on the last
sale prices of the preceding trading day, or closing bid and asked
prices); (ii) NASDAQ and other unlisted equity securities for which last
sale prices are not regularly reported but for which over-the-counter
market quotations are readily available are valued at the highest closing
bid price at the time of valuation, or, if no closing bid price is
reported, on the basis of a closing bid price obtained from a dealer who
maintains an active market in that security; (iii) securities (including
restricted securities) not having readily-available market quotations are
valued at fair value under the Board's procedures; (iv) debt securities
having a maturity in excess of 60 days are valued at the mean between the
asked and bid prices determined by a portfolio pricing service approved
by the Board or prices are obtained from an active market maker in the
security; and (v) short-term debt securities (having a remaining maturity
of 60 days or less) are valued at cost, adjusted for amortization of
premiums and accretion of discounts. In the case of U.S. Government
Securities for which 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. With the approval of the Board, the Manager may
employ a pricing service, bank or broker-dealer experienced in such
matters to perform any of the above-described functions. The Board has
authorized the Manager to employ a pricing service to price U.S.
Government Securities and mortgage-backed securities. The Trustees will
monitor the accuracy of such pricing service by comparing prices used for
portfolio evaluation to actual sales prices of selected securities.
Puts, calls and Futures are valued at the last sales price 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 amount of the premium
received by the Fund is included in its Statement of Assets and
Liabilities as an asset, and an equivalent deferred credit is included in
the liability section. The deferred credit is adjusted ("marked-to-
market") to reflect the current market value of the option.
Dual Class Methodology. The methodology for calculating the net asset
value, dividends and distributions of the Fund's Class A and Class B
shares recognizes two types of expenses. General expenses that do not
pertain specifically to either class are allocated pro rata to the shares
of each class, based on the percentage of the Fund's aggregate net assets
represented by the net assets of that class. Such general expenses
include (i) management fees, (ii) legal, bookkeeping and audit fees, (iii)
printing and mailing costs of shareholder reports, Prospectuses,
Additional Statements and other materials for current shareholders, (iv)
fees to independent Trustees, (v) custodian expenses, (vi) share issuance
costs, (vii) organization and start-up costs, (viii) interest, taxes and
brokerage commissions, and (ix) non-recurring expenses, such as litigation
costs. Other expenses that are directly attributable to a class are
allocated equally to each outstanding share within that class. Such
expenses include (a) Distribution and Service Plan fees, (b) incremental
transfer and shareholder servicing agent fees and expenses, (c)
registration fees and (d) shareholder meeting expenses, to the extent that
such expenses pertain to a specific class rather than to the Fund as a
whole.
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
reductions in expenses realized by the Distributor, dealers and brokers
making such sales. No sales charge is imposed in certain circumstances
described in the Prospectus because the Distributor or dealer or broker
incurs little or no selling expenses. The term "immediate family" refers
to one's spouse, children, grandchildren, parents, grandparents,
parents-in-law, brothers and sisters, sons-and daughters-in-law, siblings,
and a sibling's spouse and a spouse's siblings.
Redemptions. The Board has the right to cause the redemption of the
shares held in any account if the aggregate net asset value of such shares
is less than $1,000 or such lesser amount as the Board may decide. The
Board will not cause the involuntary redemption of shares in any account
if the aggregate net asset value of such 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 may set
requirements for permission to allow the shareholder to increase the
investment and other terms and conditions so that the shares are not
involuntarily redeemed.
Cancellation of Purchase Orders. Cancellation of purchase orders for Fund
shares (for example, when checks are 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 difference in 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 by seeking other redress.
Wire Redemption Procedures. Under the Wire Redemption Procedure discussed
in the Prospectus, the Federal Funds 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.
Transfers. Shareholders owning shares of both classes must specify
whether they intend to transfer Class A shares or Class B shares. Shares
are not subject to the payment of a CDSC of either class at the time of
transfer (to another related party, by absolute assignment, gift or
bequest, not involving, directly or indirectly, a public sale). The
transferred shares will remain subject to the CDSC, 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 CDSC if redeemed at the time of
transfer, then shares will be transferred in the order described in "How
to Buy Shares - Class B Contingent Deferred Sales Charge" in the
Prospectus for the imposition of the Class B CDSC on redemptions.
Exchanges of Class B Shares. As stated in the Prospectus, shares of a
particular class of Eligible Funds having more than one class of shares
may be exchanged only for shares of the same class of another Eligible
Fund. All of the Eligible Funds offer Class A shares, but only the
following other Eligible Funds offer Class B shares:
Oppenheimer Strategic Income Fund
Oppenheimer Strategic Income & Growth Fund
Oppenheimer Strategic Investment Grade Bond Fund
Oppenheimer Strategic Short-Term Income Fund
Oppenheimer New York Tax-Exempt Fund
Oppenheimer Tax-Free Bond Fund
Oppenheimer Total Return Fund, Inc.
Oppenheimer Investment Grade Bond Fund
Oppenheimer Value Stock Fund
Oppenheimer California Tax-Exempt Fund
Oppenheimer Pennsylvania Tax-Exempt Fund
Oppenheimer Florida Tax-Exempt Fund
Oppenheimer High Yield Fund
Oppenheimer Insured Tax-Exempt Bond Fund
Oppenheimer Mortgage Income Fund
Oppenheimer Cash Reserves
Oppenheimer Special Fund
Oppenheimer Equity Income Fund
Oppenheimer Global Fund
Oppenheimer Main Street California Tax-Exempt Fund . . .
DISTRIBUTION AND SERVICE PLANS
The Fund has adopted a separate Plan for each class of shares of the
Fund under Rule 12b-1 of the Investment Company Act pursuant to which the
Fund will reimburse the Distributor for all or a portion of its costs
incurred in connection with the distribution and/or servicing of the
shares of that class, as described in the Prospectus. Each Plan has been
approved: (i) by a vote of the Board, including a majority of the
"Independent Trustees" (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 Plans or in any
agreements relating to the Plans), 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 Class B Plan, such vote having been cast by the Manager as the
sole initial holder of Class B shares of the Fund).
Each Plan shall, unless terminated as described below, continue in
effect from year to year but only as long as such continuance is
specifically approved at least annually by the Board and its Independent
Trustees by a vote cast in person at a meeting called for the purpose of
voting on such continuance. A 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 the respective class. Neither Plan may be amended
to increase materially the amount of payments to be made unless such
amendment is approved by shareholders of the class affected by the
amendment. All material amendments must be approved by the Independent
Trustees.
While the Plans are in effect, the Treasurer of the Fund shall provide
separate written reports to the Board at least quarterly on 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. The report for the Class B Plan shall also include the
distribution costs for that quarter, and such costs for previous fiscal
periods that are carried forward, as explained in the Prospectus and
below. Those reports, including the allocations on which they are based,
will be subject to the review and approval of the Independent Trustees in
the exercise of their fiduciary duty. Each Plan further provides that
while it is in effect, the selection and nomination of those Trustees of
the Fund who are not "interested persons" of the Fund is committed to the
discretion of the Independent Trustees. This does not prevent the
involvement of others in such selection and nomination if the final
decision as to 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 has set the fee at the
maximum rate and set no minimum amount. The Plans permit the Distributor
and the Manager to make additional distribution payments to Recipients
from their own resources (including profits from advisory fees) at no cost
to the Fund. The Distributor and the Manager may, in their sole
discretion, increase or decrease the amount of distribution assistance
payments they make to Recipients from their own assets.
For the fiscal year ended September 30, 1993, payments under the Class
A Plan totalled $404,118, all of which was paid by the Distributor to
Recipients, including $1,339 paid to an affiliate of the Distributor. For
the period February 1, 1992 to September 30, 1992, pursuant to the Class
A Plan, the Fund reimbursed the Distributor $192,377, of which $117 was
paid to an affiliated broker and $2,431 was retained by the Distributor.
For the period October 1, 1991 to January 31, 1992, pursuant to the Plan
the Fund reimbursed Clayton Brown & Associates, Inc., the Fund's
distributor prior to February 1, 1992, $193,609, of which $125,883 was
paid to Recipients by that firm and $67,726 was retained by Clayton Brown.
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. Any unreimbursed
expenses incurred with respect to Class A shares for any fiscal quarter
by the Distributor may not be recovered under the Class A Plan in
subsequent fiscal quarters.
The Class B Plan allows the service fee payment to be paid by the
Distributor to Recipients in advance for the first year Class B shares are
outstanding, and thereafter on a quarterly basis, as described in the
Prospectus. The advance payment is based on the net assets of the Class
B shares sold. An exchange of shares does not entitle the Recipient to
an advance service fee payment. In the event Class B shares are redeemed
during the first year such shares are outstanding, the Recipient will be
obligated to repay a pro rata portion of such advance payment to the
Distributor. Although the Class B Plan permits the Distributor to retain
both the asset-based sales charges and the service fee on Class B shares,
or to pay Recipients the service fee on a quarterly basis, without payment
in advance, the Distributor intends to pay the service fee to Recipients
in the manner described above. A minimum holding period may be
established from time to time under the Class B Plan by the Board.
Initially, the Board has set no minimum holding period. All payments
under the Class B Plan are subject to the limitations on such plans
imposed by the National Association of Securities Dealers, Inc. Rules of
Fair Practice. The Class B Plan allows for the carry-forward of
distribution expenses, to be recovered from asset-based sales charges in
subsequent fiscal periods, as described in the Prospectus. For the fiscal
period from May 3, 1993 (inception of the class) to September 30, 1993,
payments under the Class B Plan totalled $10,203, which were retained by
the Distributor, and of which $7,652 was attributable to the asset-based
sale
s charge and the remainder attributable to the service fee.
The asset-based sales charge paid to the Distributor by the Fund under
the Class B Plan is intended to allow the Distributor to recoup the cost
of sales commissions paid to authorized brokers and dealers at the time
of sale, plus financing costs, as described in the Prospectus. Such
payments may also be used to pay for the following expenses in connection
with the distribution of Class B shares: (i) financing the advance of the
service fee payment to Recipients under the Class B Plan, (ii)
compensation and expenses of personnel employed by the Distributor to
support distribution of Class B shares, and (iii) costs of sales
literature, advertising and prospectuses (other than those furnished to
current shareholders).
The Glass-Steagall Act and other applicable laws and regulations, among
other things, generally prohibit Federally-chartered or supervised banks
from engaging in the business of underwriting, selling or distributing
securities as principals. In addition, certain banks and financial
institutions may be required to register as dealers under state law. It
is the understanding of the Manager and the Distributor that the Glass-
Steagall Act and other applicable laws and regulations do not prohibit
banks and other financial institutions from providing the services
required of a Recipient. Accordingly, the Distributor may pay banks only
for sales made on an agency basis or for the performance of administrative
and shareholder servicing functions.However, judicial or administrative
decisions or interpretations of such laws, as well as changes in either
Federal or state statutes or regulations relating to the permissible
activities of banks or their subsidiaries or affiliates, could prevent
certain banks from continuing to perform all or a part of these services.
If a bank were so prohibited, shareholders of the Fund who were clients
of such bank would be permitted to remain as shareholders, and if a bank
could no longer provide those service functions, alternate means for
continuing the servicing of such shareholders would be sought. In such
event, shareholders serviced by such bank might no longer be able to avail
themselves of any automatic investment or other services then being
provided by such bank. The Board will consider appropriate modifications
to the Fund's operations, including discontinuance of payments under the
Plan to such institutions, in the event of any future change in such laws
or regulations which may adversely affect the ability of such institutions
to provide these services. It is not expected that shareholders would
suffer any adverse financial consequences as a result of any of those
occurrences.
PERFORMANCE, DIVIDEND AND TAX INFORMATION
Yield, Total Return and Other Performance Information. As described in
the Prospectus, from time to time the "standardized yield," "average
annual total return," "total return," "total return at net asset value"
and "dividend yield" of an investment in each class of shares of the Fund
may be advertised. An explanation of how yields and returns are
calculated for each class and the components of those calculations are set
forth below. The public sale of Class B shares of the Fund commenced on
May 3, 1993.
The Fund's "standardized yield" for a 30-day period for a class of
shares is calculated using the following formula set forth in the SEC
rules:
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 (including sales charge) per
share on the last day of the period, adjusted for undistributed
net investment income.
The standardized yield of a class of shares for a 30-day period may
differ from its standardized 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 distributions
paid by the Fund to shareholders in the 30-day period, but is a
hypothetical yield based upon the return on the Fund's portfolio
investments and may differ from the "dividend yield" of that class
described below. For the 30-day period ended September 30, 1993, the
standardized yield for Class A and Class B shares of the Fund was 5.9% and
5.3%, respectively.
From time to time the Fund may quote a "dividend yield" or a
"distribution return" for each class. Dividend yield is based on the
Class A or Class B share dividends derived from net investment income
during a stated period and distribution return includes dividends derived
from net investment income and distributions from realized capital gains
declared during a stated period.
Under those calculations, the dividends 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 (including sales charges) on the last day of the period.
The result may be annualized if the period of measurement is less than one
year. From time to time similar calculations may also be made for Class
A shares using the Fund's net asset value at the end of the period. 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
In the formula above, "Dividend" is the sum of the class's dividends
declared during the stated dividend period, and "MOP" is the maximum
offering price on the last day of the period. For the 30-day period ended
September 30, 1993, the dividend yield on Class A shares was 5.82% (at
maximum offering price) and 6.11% (at net asset value) and the dividend
yield on Class B shares during this period was 5.22%.
The "average annual total return" of each class is an average annual
compounded rate of return. It is the rate of return based on factors
which include a hypothetical initial investment of $1,000 ("P" in the
formula below) held for a number of years ("n") with an Ending Redeemable
Value ("ERV") of that investment, according to the following formula:
( ERV ) 1/n
(-----) -1 = Average Annual Total Return
( P )
The "total return" calculation uses the same factors, but does not
average the rate of return on an annual basis. Total return measures the
cumulative (rather than average) change in value of a hypothetical
investment over a stated period. Total return is determined as follows:
ERV - P
- ------- = Total Return
P
Both formulas assume (i) for Class A shares, the payment of the current
maximum sales charge of 4.75% (as a percentage of the offering price) on
the initial investment ("P") and (ii) for Class B shares, the payment of
the CDSC (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). The formulas also assume that all dividends and capital
gains distributions during the period are reinvested 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 (using the methods described above) for the one and five-year
periods ended September 30, 1993 were 2.5% and 9.1%, respectively, and for
the period from March 10, 1986 (commencement of operations) through
September 30, 1993 was 8.6%. The total return on Class A shares for the
period from inception of the Fund through September 30, 1993 was 86.51%.
The "average annual total return" and "total return" on Class B shares for
the period May 3, 1993 to September 30, 1993 were (5.25)% and (2.18)%,
respectively.
From time to time the Fund may also quote a "total return at net asset
value" for Class A or Class B shares. It is based on the difference in
net asset value per share at the beginning and the end of the period for
that class of shares (without considering the sales charges) and takes
into consideration the reinvestment of dividends and capital gains (as
with total return, described above). The "total return at net asset
value" on the Fund's Class A shares for the one year period ended
September 30, 1993, was 7.61%. The "total return at net asset value" on
the Fund's Class B shares for the fiscal period from May 3, 1993 to
September 30, 1993 was 2.82%.
Yield and total return information may be useful to investors in
reviewing the Fund's performance. However, a number of factors should be
considered before using such information as a basis for comparison with
other investments. An investment in the Fund is not insured; the Fund's
yield is not guaranteed and normally will fluctuate on a daily basis. The
yield and total return of a class of shares for any given past period is
not an indication or representation by the Fund of future yields or rates
of return on its shares. The Fund's yield and total return of an
investment in Class A or Class B shares are affected by portfolio quality,
portfolio maturity, type of investments held, the Fund's operating
expenses and the level of unscheduled or early payment of principal and
interest on mortgages underlying mortgage-backed securities held by the
Fund. When comparing the Fund's yield, total return and investment risk
in an investment in Class A or Class B shares of the Fund with those of
other investment instruments, investors should understand that certain
other investment alternatives such as certificates of deposit, U.S.
Government Securities, money market instruments or bank accounts provide
fixed yields or yields that may vary above a stated minimum, and may be
insured or guaranteed.
From time to time the Fund may publish the ranking of its Class A or
Class B shares by Lipper Analytical Services, Inc. ("Lipper"), a widely-
recognized independent service that monitors the performance of regulated
investment companies, including the Fund, and ranks their performance for
various periods based on categories relating to investment objectives.
The performance of the Fund is ranked against (i) all other funds, (ii)
all other U.S. Government Securities funds, and (iii) all other U.S.
Government Securities funds in a specific size category. The Lipper
performance analysis includes the reinvestment of capital gain
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 its Class A or
Class B shares by Morningstar, Inc. ("Morningstar"), an independent mutual
fund monitoring service that ranks various mutual funds, including the
Fund, based upon the Fund's three, five and ten-year average annual total
returns (when available) and a risk factor that reflects fund performance
relative to three-month U.S. Treasury bill monthly returns. Such returns
are adjusted for fees and sales loads. There are five rankings with a
corresponding number of stars: highest (5 stars); above average (4);
neutral (3); below average (2); and lowest (1). Morningstar ranks the
Fund in relation to other taxable fixed-income funds.
The total return on an investment made in Class A or Class B shares of
the Fund may be compared with performance for the same period of the
Lehman Brothers U.S. Government Bond Index, as described in the
Prospectus. From time to time, the Fund may include in its advertisements
and sales literature performance information about the Fund's Class A or
Class B shares cited in other newspapers and periodicals, such as The New
York Times, which may include performance quotations from other sources,
including Lipper or Morningstar.
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 funds listed in the Prospectus as
"Eligible Funds" at net asset value without sales charge. Class B
shareholders should be aware that as of the date of this Additional
Statement, not all Eligible Funds offer Class B shares. The names of such
Funds are listed under "Exchanges of Class B Shares" above. 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
Distributor to establish an account. The investment will be made at the
net asset value per share in effect at the close of business on the
payable date of the dividend or distribution.
Tax Status of the Fund. The Fund intends to qualify as a "regulated
investment company" under Subchapter M of the Internal Revenue Code. By
so qualifying, the Fund will not be subject to Federal income taxes on
amounts paid by it as dividends and distributions, as described in the
Prospectus. In order to qualify as a "regulated investment company," at
the end of each quarter of its taxable year, at least 50% of the aggregate
value of the Fund's total assets must consist of cash, cash items,
government securities and other securities, limited with respect to each
issuer at the time of purchase to not more than 5% of the Fund's total
assets. The Fund will endeavor to insure that its assets are so invested
so that this requirement is satisfied, but there can be no assurance that
it will be successful in doing so.
Tax Status of the Fund's Dividends and Distributions. 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 that year or else the
Fund must pay an excise tax of 4% on the amounts not distributed. While
it is presently anticipated that the Fund will meet those requirements,
the Board and the Manager might determine in a particular year that it
would be in the best interests of the Fund not to distribute income or
capital gains at the mandated levels and to pay the excise tax on the
undistributed amounts, which would reduce the amount available for
distribution to shareholders.
ADDITIONAL INFORMATION
Description of the Fund. Until July 10, 1992, the Fund was named "First
Trust Fund -- U.S. Government Series." The Fund's Agreement and
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 a defense
of any claim made against any shareholder for any act or obligation of the
Fund and satisfy any judgment thereon. Thus, while under Massachusetts
law a shareholder of a trust (such as the Fund) could 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 highly unlikely and 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 Fund and any shareholder of the Fund
agrees under the Fund's Declaration of Trust to look solely to the assets
of the Fund for satisfaction of any claim or demand that may arise out of
any dealings with the Fund and the Trustees shall have no personal
liability to any such person, to the extent permitted by law.
It is not contemplated that regular annual meetings of shareholders
will be held. 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 a majority 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 in the aggregate shares of
the Fund valued at $25,000 or more or holding 1% or more of the Fund's
outstanding shares, whichever is less, that they wish to communicate with
other shareholders to request a meeting to remove a Trustee, the Trustees
will then either give the applicants access to the Fund's shareholder
list, mail their communication to all other shareholders at the
applicants' expense, or take alternative action as set forth in
Section 16(c) of the Investment Company Act.
Under the terms of the Agreement and Declaration of Trust, a Trustee
is liable for his or her own willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in conduct of
office, and shall not be liable for errors of judgment or mistakes of fact
or of law. The Agreement and Declaration of Trust provides for
indemnification by the Fund of the Trustees and the officers of the Fund
except with respect to any matter as to which such person did not act in
good faith in the reasonable belief that his or her action was in or not
opposed to the best interests of the Fund, but such person may not be
indemnified against any liability to the Fund or the Fund's shareholders
to which he or she would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of office. The Declaration of Trust also
provides that any agreement or undertaking by the Trustees on behalf of
the Fund is binding upon the Fund only and not on the Trustees personally.
General Distributor's Agreement. Oppenheimer Funds Distributor, Inc.
(formerly named "Oppenheimer Fund Management, Inc.") became the Fund's
Distributor on January 31, 1992. Prior to that date, Clayton Brown &
Associates, Inc. was the Fund's general distributor. Under the General
Distributor's Agreement between the Fund and the Distributor, the
Distributor acts as the Fund's principal underwriter in the continuous
public offering of the Fund's Class A and Class B shares, but is not
required to sell a specific amount of shares. Under the General
Distributor's Agreement, the Distributor pays the expenses of distributing
the Fund's shares, including the preparation and distribution of
prospectuses for use in sales to new investors and advertising and sales
literature. The Fund bears certain additional costs not paid by the
Distributor or the Manager or its affiliates, including the cost of
registering its shares with the SEC and printing prospectuses for
distribution to existing shareholders, and to maintain the qualification
of its shares for sale under state securities laws.
In the fiscal year ended September 30, 1991, Clayton Brown, as
distributor, retained commissions in the amount of $40,260 for selling
shares of the Fund and reallowed $150,908 in that year to other dealers.
In the fiscal year ended September 30, 1991, the Distributor, which served
as sub-distributor, received no reallowance of commissions from Clayton
Brown. For the fiscal year ended September 30, 1992 and 1993, commissions
(sales charges paid by investors) on sales of Fund shares totaled $192,406
and $289,261, respectively, of which $28,268 and $67,922 was retained by
the Distributor and an affiliated broker-dealer during those respective
years.
The Custodian and the Transfer Agent. The Custodian's responsibilities
include safeguarding and controlling the Fund's portfolio securities and
handling the delivery of such securities to and from the Fund. The
Manager has represented to the Fund that its banking relationships with
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 or its affiliates.
The Transfer Agent, a division of the Manager, is responsible for
maintaining the Fund's shareholder registry and shareholder accounting
records, and for shareholder servicing and administrative functions.
Independent Auditors. The independent auditors of the Fund examine the
Fund's financial statements and perform other related audit services. They
also act as auditors for the Manager and certain other funds advised by
the Manager.
AUTOMATIC WITHDRAWAL PLAN PROVISIONS
By requesting an Automatic Withdrawal Plan, the shareholder agrees to
the terms and conditions applicable to such Plans, as stated below and
elsewhere in the Application for such Plans, the Prospectus and this
Additional Statement as they may be amended from time to time by the Fund
and/or the Distributor. When adopted, such amendments will automatically
apply to existing 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 distributions
followed by shares acquired with a sales charge will be redeemed to the
extent necessary to make withdrawal payments. Depending upon the amount
withdrawn, the investor's principal may be depleted. Payments made to
shareholders under such plans should not be considered as a yield or
income on an investment. Purchases of additional shares concurrently with
withdrawals are undesirable because of sales charges on purchases.
Accordingly, a shareholder may not maintain an Automatic Withdrawal Plan
while simultaneously making regular purchases. The Fund reserves the
right to amend, suspend or discontinue such plans at any time without
prior notice.
1. Oppenheimer Shareholder Services, (the "Transfer Agent"), the
transfer agent of the Fund, will administer the Automatic Withdrawal Plan
(the "Plan") as agent for the person (the "Planholder") who executed the
Plan authorization and application submitted to the Transfer Agent.
2. 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 now held by the 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. Those
shares will be carried on the Planholder's Plan Statement.
3. 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 may be paid in cash or reinvested.
4. Redemptions of shares in connection with disbursement payments will
be made at the net asset value per share determined on the redemption
date.
5. Checks or ACH payments will be transmitted approximately three
business days prior to the date selected for receipt of the monthly or
quarterly payment (the date of receipt is approximate), according to the
choice specified in writing by the Planholder.
6. The amount and the interval of disbursement payments and the
address to which checks are to be mailed may be changed at any time by the
Planholder on written notification to the Transfer Agent. The Planholder
should allow at least two weeks' time in mailing such notification before
the requested change can be put in effect.
7. 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 such 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 of such redemption to the Planholder.
8. The Plan may, at any time, be terminated by the Planholder on
written notice to the Transfer Agent, or by the Transfer Agent upon
receiving directions to that effect from the Fund. The Transfer Agent
will also terminate the Plan upon receipt of evidence satisfactory to it
of the death or legal incapacity of the Planholder. Upon termination of
the Plan by the Transfer Agent or the Fund, shares remaining unredeemed
will be held in an uncertificated account 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, his executor or guardian, or as otherwise appropriate.
9. For purposes of using shares held under the Plan as collateral, the
Planholder may request issuance of a portion of his shares in certificated
form. Upon written request from the Planholder, the Transfer Agent will
determine the number of shares as to which a certificate may be issued,
so as not to cause the withdrawal checks to stop because of exhaustion of
uncertificated shares needed to continue payments. Should such
uncertificated shares become exhausted, Plan withdrawals will terminate.
10. The Transfer Agent shall incur no liability to the Planholder for
any action taken or omitted by the Transfer Agent in good faith.
11. In the event that the Transfer Agent shall cease to act as
transfer agent for the Fund, the Planholder will be deemed to have
appointed any successor transfer agent to act as his agent in
administering the Plan.
LETTER OF INTENT
In submitting a Letter of Intent ("Letter") to purchase Class A shares
of the Fund and other OppenheimerFunds at a reduced sales charge, the
investor agrees to the terms of the Prospectus, the Application used to
buy such shares and the language of this Additional Statement as to
Letters, as they may be amended from time to time by the Fund. Such
amendments will apply automatically to existing Letters.
A Letter is the investor's statement of intention to purchase Class A
shares of the Fund (and other eligible OppenheimerFunds sold with a sales
charge) during the 13-month period from the investor's first purchase
pursuant to the Letter (the "Letter of Intent period"), which may, at the
investor's request, include purchases made up to 90 days prior to the date
of the Letter. The investor states the intention to make the aggregate
amount of purchases (excluding any reinvestments of dividends or
distributions or purchases made at net asset value without sales charge),
which together with the investor's holdings of such funds (calculated at
their respective public offering prices calculated on the date of the
Letter) will equal or exceed the amount specified in the Letter to obtain
the reduced sales charge rate set forth in "How to Buy Shares" in the
Prospectus) applicable to purchases of shares in that amount (the
"intended amount"). Each purchase under the Letter will be made at the
public offering price applicable to a single lump-sum purchase of shares
in the intended amount, as described in the applicable prospectus.
In submitting a Letter, the investor makes no commitment to purchase
shares, but if the investor's purchases of shares within the Letter of
Intent period, when added to the value (at offering price) of the
investor's holdings of such fund shares on the last day of that period,
do not equal or exceed the intended 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 amount will be held in escrow by the Transfer Agent subject to
the Terms of Escrow.
If the total eligible purchases made during the Letter of Intent period
do not equal or exceed the intended 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 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 refer to 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
1. Out of the initial purchase (or subsequent purchases if necessary)
made pursuant to a Letter, shares of the Fund equal in value to 5% of the
intended amount specified in the Letter shall be held in escrow by the
Fund's transfer agent. For example, if the intended amount specified
under the Letter is $50,000, the escrow shall be shares valued in the
amount of $2,500 (computed at the public offering price adjusted for a
$50,000 purchase). Any dividends and capital gains distributions on the
escrowed shares will be credited to the investor's account.
2. If the total intended investment 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 13-month Letter of Intent period, the total
purchases pursuant to the Letter are less than the intended 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 of the Fund as attorney-in-fact to surrender
for redemption any or all escrowed shares.
5. The funds whose shares are eligible for purchase under the Letter
(or the holding of which may be counted toward completion of the Letter)
do not include any fund whose shares are sold without a front-end sales
charge or without being subject to a Class A contingent deferred sales
charge unless (for the purpose of determining completion of the obligation
to purchase shares under the Letter) the shares were acquired in exchange
for shares of a fund (as described as an "Eligible Fund" in the
Prospectus) whose shares were acquired by payment of a sales charge.
6. Shares held in escrow hereunder will automatically be exchanged for
shares of another fund to which an exchange is requested, as described in
the section of the Prospectus entitled "Exchange Privilege," and the
escrow will be transferred to that other fund.
<PAGE>
Independent Auditors' Report
The Board of Trustees and Shareholders of
Oppenheimer Government Securities Fund:
We have audited the accompanying statement of assets and liabilities,
including the statement of investments, of Oppenheimer Government
Securities Fund as of September 30, 1993, the related statement of
operations for the year then ended, the statements of changes in net
assets for the years ended September 30, 1993 and 1992, and the financial
highlights for the period October 1, 1989 to September 30, 1993. These
financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on
these financial statements and financial highlights based on our audits.
The financial highlights (except for total return) for the period March
10, 1986 (commencement of operations) to September 30, 1989 were audited
by other auditors whose report dated November 2, 1989, expressed an
unqualified opinion on those financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned at September 30, 1993 by correspondence
with the custodian. An audit also includes assessing the accounting
principles used and significant estimates made by management as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Oppenheimer
Government Securities Fund at September 30, 1993, the results of its
operations, the changes in its net assets, and the financial highlights
for the respective stated periods, in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE
/s/ Deloitte & Touche
Denver, Colorado
October 21, 1993
Statement of Investments September 30, 1993
<TABLE>
<CAPTION>
Face Market Value
Amount See Note 1
<S> <S> <C> <C>
Repurchase Agreements
- -- 3.4% Repurchase agreement with J.P. Morgan Securities, Inc., 3.30%, $ 6,300,000 $ 6,300,000
dated 9/30/93 and maturing 10/1/93, collateralized by U.S.
Treasury Bills, 3.05%, 3/24/94, with a value of $6,427,272 (Cost
$6,300,000)
Long-Term U.S. Government
Obligations -- 95.9%
Agency - Full Faith Government National Mortgage Assn.:
and Credit -- 19.8% 8%, 9/15/07 283,031 304,567
13%, 2/15/11 101,081 120,167
13%, 10/15/12 24,278 28,839
13%, 9/15/14 23,897 28,331
10.50%, 1/15/16 136,693 154,059
10.50%, 2/15/16 920,362 1,037,294
10.50%, 3/15/16 81,287 91,615
10.50%, 4/15/16 227,775 256,713
10.50%, 5/15/16 313,408 353,226
10.50%, 6/15/16 279,369 314,863
10.50%, 10/15/16 41,533 46,810
10.50%, 11/15/16 5,227,355 5,635,192
10.50%, 12/15/16 76,832 86,594
10.50%, 7/15/17 543,709 612,760
10.50%, 8/15/17 196,993 222,011
10.50%, 9/15/17 423,419 461,345
10.50%, 10/15/17 103,364 116,491
10.50%, 11/15/17 401,447 452,431
10.50%, 12/15/17 777,894 876,686
10.50%, 2/15/18 398,578 449,193
10.50%, 4/15/18 71,184 80,223
10.50%, 6/15/18 162,381 183,001
10.50%, 10/15/18 165,032 185,990
10.50%, 11/15/18 561,683 633,011
10.50%, 12/15/18 244,088 275,085
10.50%, 3/15/19 792,344 892,988
10.50%, 5/15/19 411,335 463,582
10.50%, 6/15/19 238,357 268,633
10.50%, 7/15/19 732,761 825,837
8.50%, 9/15/21 163,325 173,661
9%, 12/15/21 760,795 815,352
7%, 10/15/22 2,316,439 2,391,399
7.50%, 11/15/22 15,126,513 15,862,114
8.50%, 11/15/22 899,081 955,571
8%, 12/15/22 632,279 669,191
36,324,825
Agency - Government Federal Home Loan Mortgage Corp. Collateralized
Sponsored -- 48.6% Mtg. Obligations:
8%, 3/15/21 10,000,000 10,356,699
9%, 3/15/21 575,390 581,932
8.50%, 6/15/21 15,000,000 16,153,498
Agency - Government Federal National Mortgage Assn.:
Sponsored (continued) 13%, 8/1/10 $ 77,620 $ 89,506
13%, 6/1/15 101,101 116,485
9%, 8/1/19 2,524,993 2,695,784
8%, 1/1/23 480,063 502,626
7%, 8/1/23 26,409,807 27,070,053
Collateralized Mtg. Obligations, Guaranteed Real Estate
Mtg. Investment Conduit Pass-Through Certificates:
8.50%, 1/25/00 1,000,000 1,030,930
11.50%, 3/1/09 5,073,719 5,772,943
9%, 12/25/18 15,000,000 15,898,199
8%, 7/25/19 8,000,000 8,452,320
8%, 10/25/21 595,000 636,251
89,357,226
Treasury -- 27.5% U.S. Treasury Bonds:
STRIPS, 0%, 8/15/02 2,500,000 1,538,165
STRIPS, 0%, 11/15/07 6,000,000 2,512,458
8%, 11/15/21 4,000,000 4,904,960
7.125%, 2/15/23 2,400,000 2,691,744
U.S. Treasury Nts.:
5.50%, 11/30/93 600,000 602,436
13.125%, 5/15/94 3,400,000 3,607,161
3.875%, 4/30/95 2,900,000 2,907,221
4.625%, 8/15/95 1,400,000 1,420,552
5.125%, 11/15/95 6,500,000 6,662,434
4.25%, 5/15/96 3,000,000 3,010,290
6.25%, 1/31/97 2,000,000 2,114,980
6.875%, 3/31/97 152,000 163,968
6.75%, 5/31/97 50,000 53,796
5.50%, 9/30/97 2,000,000 2,068,120
5.75%, 10/31/97 1,800,000 1,877,058
5.125%, 3/31/98 1,000,000 1,017,810
5.125%, 4/30/98 2,880,000 2,929,478
5.375%, 5/31/98 10,000,000 10,265,599
6.375%, 7/15/99 100,000 107,343
7.50%, 11/15/01 200,000 229,062
50,684,635
Total Long-Term U.S. Government Obligations (Cost $169,139,102) 176,366,686
Total Investments, at Value (Cost $175,439,102) 99.3% 182,666,686
Other Assets Net of Liabilities .7 1,354,235
Net Assets 100.0% $184,020,921
</TABLE>
See accompanying notes to financial statements.
Statement of Assets and Liabilities September 30, 1993
<TABLE>
<S> <S> <C>
Assets Investments, at value (cost $175,439,102) - see accompanying statement $182,666,686
Cash 200,558
Receivables:
Interest and principal paydowns 1,842,389
Shares of beneficial interest sold 544,295
Other 13,414
Total assets 185,267,342
Liabilities Payables and other liabilities:
Shares of beneficial interest redeemed 796,365
Dividends 251,291
Distribution assistance - Note 4 112,549
Other 86,216
Total liabilities 1,246,421
Net Assets $184,020,921
Composition of Paid-in capital $184,486,738
Net Assets Accumulated net realized loss from investment transactions (7,693,401)
Net unrealized appreciation of investments - Note 3 7,227,584
Net Assets $184,020,921
Net Asset Value Class A Shares:
Per Share Net asset value and redemption price per share (based on net assets of
$178,944,257 and 16,206,365 shares of beneficial interest outstanding) $ 11.04
Maximum offering price per share (net asset value plus sales charge of 4.75% of $ 11.59
offering price)
Class B Shares:
Net asset value, redemption price and offering price per share (based on net $ 11.06
assets of $5,076,664 and 459,212 shares of beneficial interest outstanding)
</TABLE>
See accompanying notes to financial statements.
Statement of Operations For the Year Ended September 30, 1993
<TABLE>
<S> <S> <C>
Investment Income Interest $12,511,005
Expenses Management fees - Note 4 781,718
Distribution assistance:
Class A - Note 4 404,118
Class B - Note 4 10,203
Transfer and shareholder servicing agent fees - Note 4 194,925
Shareholder reports 100,269
Registration and filing fees:
Class A 86,223
Class B 3,037
Legal and auditing fees 31,802
Custodian fees and expenses 27,421
Trustees' fees and expenses 9,331
Other 9,206
Total expenses 1,658,253
Net Investment Income 10,852,752
Realized and Net realized loss on investments (1,271,113)
Unrealized Gain Net change in unrealized appreciation of investments - Note 5 2,440,150
(Loss) On Investments
Net Realized and Unrealized Gain on Investments 1,169,037
Net Increase in Net Assets Resulting from Operations $12,021,789
</TABLE>
See accompanying notes to financial statements.
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended September 30,
1993 1992
<S> <S> <C> <C>
Operations Net investment income $ 10,852,752 $ 11,976,156
Net realized gain (loss) on investments (1,271,113) 5,701,636
Net change in unrealized appreciation or
depreciation of investments 2,440,150 (2,278,258)
Net increase in net assets resulting from operations 12,021,789 15,399,534
Dividends to Class A ($.734 and $.81 per share, respectively) (10,773,584) (11,934,940)
Shareholders from Class B ($.226 per share) (79,168) --
Net Investment Income
Beneficial Interest Net increase (decrease) in net assets resulting from
Transactions Class A beneficial interest transactions - Note 2 19,721,192 (13,370,195)
Net increase in net assets resulting from Class B
beneficial interest transactions - Note 2 5,062,554 --
Net Assets Total increase (decrease) in net assets 25,952,783 (9,905,601)
Beginning of year 158,068,138 167,973,739
End of year $184,020,921 $158,068,138
</TABLE>
See accompanying notes to financial statements.
Financial Highlights
<TABLE>
<CAPTION>
Class A Class B
Year Ended Period Ended
September 30, September 30,
1993 1992 1991 1990+++ 1989 1988 1987 1986++ 1993++++
<S> <C> <C> <C> <C> <C> <C> <C> <C>
<C>
Per Share Operating Data:
Net asset value, beginning
of period $ 10.97 $ 10.75 $ 10.18 $ 10.17 $ 10.14 $ 9.72 $ 10.51 $ 10.56 $10.96
Income from investment
operations:
Net investment income .73 .81 .87 .89 .90 .89 .86+ .57+ .23
Net realized and
unrealized gain (loss)
on investments .07 .22 .57 .01 .03 .42 (.74) (.05) .10
Total income from
investment operations .80 1.03 1.44 .90 .93 1.31 .12 .52 .33
Dividends and
distributions to
shareholders:
Dividends from net
investment income (.73) (.81) (.87) (.89) (.90) (.89) (.86) (.57) (.23)
Distributions from net
realized gain on
investments -- -- -- -- -- -- (.05) -- --
Total dividends and
distributions to
shareholders (.73) (.81) (.87) (.89) (.90) (.89) (.91) (.57) (.23)
Net asset value, end of
period $ 11.04 $ 10.97 $ 10.75 $ 10.18 $ 10.17 $ 10.14 $ 9.72 $ 10.51 $11.06
Total Return, at Net Asset
Value** 7.61% 9.88% 14.69% 9.15% 9.65% 13.86% .95% 4.97% 3.02%
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) $178,944 $158,068 $167,974 $213,391 $237,819 $251,794 $287,181 $127,797 $5,077
Average net assets (in
thousands) $161,318 $160,830 $192,404 $218,528 $243,863 $267,557 $242,181 $105,123 $2,561
Number of shares
outstanding at end of
period (in thousands) 16,206 14,416 15,624 20,964 23,395 24,834 29,560 12,162 459
Ratios to average net
assets:
Net investment income 6.70% 7.44% 8.27% 8.77% 8.96% 8.75% 8.22% 7.93%*
4.81%*
Expenses 1.02% .97% .98% .90% .93% .96% .56%+ .08%*+ 1.87%*
Portfolio turnover rate*** 74% 154% 112% 60% 61% 78% 73% 471% 74%
<FN>
* Annualized.
** 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.
*** The lesser of purchases or sales of portfolio securities for a period, divided by the monthly average of the market
value of portfolio securities owned during the period. Securities with a maturity or expiration date at the time of
acquisition of one year or less are excluded from the calculation. Purchases and sales of investment securities
(excluding short-term securities) for the year ended September 30, 1993 were $129,069,391 and $118,835,073,
respectively.
+ Net investment income would have been $.84 and $.52 absent the voluntary reimbursement or waiver of expenses,
resulting in an expense ratio of 1.00% and 1.07% for 1987 and 1986, respectively.
++ For the period from March 10, 1986 (commencement of operations) to September 30, 1986.
+++ On April 7, 1990, Oppenheimer Management Corporation became the investment adviser to the Fund.
++++ For the period from May 3, 1993 (inception of offering) to September 30, 1993.
</TABLE>
See accompanying notes to financial statements.
Notes to Financial Statements
1. Significant Accounting Policies Oppenheimer Government Securities Fund (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
adviser is Oppenheimer Management Corporation (the Manager). The Fund offers
both Class A and Class B shares. Class A shares are sold with a front-end
sales charge. Class B shares may be subject to a contingent deferred sales
charge. Both classes of shares have identical rights to earnings, assets and
voting privileges, except that each class has its own distribution plan,
expenses directly attributable to a particular class and exclusive voting
rights with respect to matters affecting a single class. Class B shares will
automatically convert to Class A shares six years after the date of purchase.
The following is a summary of significant accounting policies consistently
followed by the Fund.
Investment Valuation - Portfolio securities are valued at 4:00 p.m. (New York
time) on each trading day. Long-term debt securities are valued by a portfolio
pricing service approved by the Board of Trustees. Long-term debt securities
which cannot be valued by the approved portfolio pricing service are valued by
averaging the mean between the bid and asked prices obtained from two active
market makers in such securities. Short-term debt securities having a
remaining maturity of 60 days or less are valued at cost (or last determined
market value) adjusted for amortization to maturity of any premium or
discount. Securities for which market quotes are not readily available are
valued under procedures established by the Board of Trustees to determine fair
value in good faith.
Repurchase Agreements - The Fund requires the custodian to take possession, to
have legally segregated in the Federal Reserve Book Entry System or to have
segregated within the custodian's vault, all securities held as collateral for
repurchase agreements. If the seller of the agreement defaults and the value
of the collateral declines, or if the seller enters an insolvency proceeding,
realization of the value of the collateral by the Fund may be delayed or
limited.
Allocation of Income, Expenses and Gains and Losses - Income, expenses (other
than those attributable to a specific class) and gains and losses are
allocated daily to each class of shares based upon the relative proportion of
net assets represented by such class. Operating expenses directly attributable
to a specific class are charged against the operations of that class.
Federal Income Taxes - The Fund intends to continue to comply with provisions
of the Internal Revenue Code applicable to regulated investment companies and
to distribute all of its taxable income, including any net realized gain on
investments not offset by loss carryovers, to shareholders. Therefore, no
federal income tax provision is required. At September 30, 1993, the Fund had
available for federal income tax purposes an unused capital loss carryover of
approximately $6,222,000, $3,182,000 of which will expire in 1996 and
$3,040,000 in 1997.
Distributions to Shareholders - The Fund intends to declare dividends
separately for Class A and Class B shares from net investment income each day
the New York Stock Exchange is open for business and pay such dividends
monthly. Distributions from net realized gains on investments, if any, will be
declared at least once each year.
Other - Investment transactions are accounted for on the date the investments
are purchased or sold (trade date). Discount on securities purchased is
amortized over the life of the respective securities, in accordance with
federal income tax requirements. Realized gains and losses on investments and
unrealized appreciation and depreciation are determined on an identified cost
basis, which is the same basis used for federal income tax purposes.
2. Shares of Beneficial Interest The Fund has authorized an unlimited number
of no par value shares of beneficial interest of each class. Transactions in
shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
Year Ended September 30, 1993+ Year Ended September 30, 1992
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Class A:
Sold 3,635,741 $ 39,788,867 2,643,007 $ 28,691,545
Dividends reinvested 653,622 7,145,654 656,421 7,130,596
Issued in connection with the acquisition
of Main Street Government Securities Fund - Note 5 898,047 9,977,301 -- --
Redeemed (3,396,764) (37,190,630) (4,507,573) (49,192,336)
Net increase (decrease) 1,790,646 $ 19,721,192 (1,208,145) $(13,370,195)
Class B:
Sold 462,985 $ 5,104,320 -- $ --
Dividends reinvested 3,699 40,944 -- --
Redeemed (7,472) (82,710) -- --
Net increase 459,212 $ 5,062,554 -- $ --
<FN>
+For the year ended September 30, 1993 for Class A shares and for the period from May 3, 1993 (inception of offering) to
September 30, 1993 for Class B shares.
</TABLE>
3. Unrealized Gains and Losses on Investments At September 30, 1993, net
unrealized appreciation of investments of $7,227,584 was composed of gross
appreciation of $7,564,312, and gross depreciation of $336,728.
4. Management Fees and Other Transactions with Affiliates Management fees paid
to the Manager were in accordance with the investment advisory agreement with
the Fund which provides for an annual fee of .50% on the first $100 million of
net assets, .45% on the next $150 million, .425% on the next $250 million and
.40% on net assets in excess of $500 million. The Manager has agreed to
reimburse the Fund if aggregate expenses (with specified exceptions) exceed
the most stringent applicable regulatory limit on Fund expenses.
The Manager acts as the accounting agent for the Fund at an annual fee of
$12,000, plus out-of-pocket costs and expenses reasonably incurred.
For the year ended September 30, 1993, commissions (sales charges paid by
investors) on sales of Class A shares totaled $289,261, of which $67,922 was
retained by Oppenheimer Funds Distributor, Inc. (OFDI), a subsidiary of the
Manager, as general distributor, and by an affiliated broker-dealer. During
the year ended September 30, 1993, OFDI received contingent deferred sales
charges of $361 upon redemption of Class B shares.
Oppenheimer Shareholder Services (OSS), a division of the Manager, is the
transfer and shareholder servicing agent for the Fund, and for other
registered investment companies. OSS's total costs of providing such services
are allocated ratably to these companies.
Under separate approved plans of distribution, each class may expend up to
.25% of its net assets annually to reimburse OFDI for costs incurred in
distributing shares of the Fund, including amounts paid to brokers, dealers,
banks and other institutions. In addition, Class B shares are subject to an
asset-based sales charge of .75% of net assets annually, to reimburse OFDI for
sales commissions paid from its own resources at the time of sale and
associated financing costs. In the event of termination or discontinuance of
the Class B plan of distribution, the Fund would be contractually obligated to
pay OFDI for any expenses not previously reimbursed or recovered through
contingent deferred sales charges. During the year ended September 30, 1993,
OFDI paid $1,339 to an affiliated broker-dealer as reimbursement for Class A
distribution-related expenses and retained $10,203 as reimbursement for Class
B distribution-related expenses and sales commissions.
5. Acquisition of Main Street Government Securities Fund On August 27, 1993,
the Fund acquired all of the net assets of Main Street Government Securities
Fund (MSGSF), pursuant to an Agreement and Plan of Reorganization approved by
the MSGSF shareholders on August 26, 1993. The Fund issued 898,047 shares of
beneficial interest, valued at $9,977,301, in exchange for the net assets,
resulting in combined net assets of $182,832,580 on August 27, 1993. The net
assets acquired included net unrealized appreciation of $402,810 and capital
loss carryovers for federal income tax purposes of $39,537. The exchange was
tax-free.
<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
Deloitte & Touche
1560 Broadway
Denver, Colorado 80202
Legal Counsel
Myer, Swanson & Adams, P.C.
1600 Broadway
Denver, Colorado 80202
