<PAGE>
OPPENHEIMER LIMITED-TERM GOVERNMENT FUND
Supplement dated February 1, 1995 to the
Prospectus dated February 1, 1995
The Prospectus is amended as follows:
In addition to paying dealers the regular commission for sales of
Class A shares stated in the sales charge table in "Class A Shares" on
page 18 and the commission for sales of Class B shares described in
"Distribution and Service Plan for Class B Shares" on pages 21 and 22, the
Distributor will pay the following additional commission for shares of the
Fund sold in "qualifying transactions" from January 16, 1995 through April
17, 1995: (1) .75% of the offering price of Class A shares and (2) .50%
of the offering price of Class B shares sold by a registered
representative of a participating broker or dealer or a sales
representative of a participating financial institution that has a sales
agreement with the Distributor. "Qualifying transactions" are sales in
the amount of $150,000 or more (calculated at offering price) of Class A
and/or Class B shares (if available) of any one or more of the following
OppenheimerFunds: the Fund, Oppenheimer Main Street Income & Growth Fund,
Oppenheimer Champion High Yield Fund, Oppenheimer Global Fund, Oppenheimer
Total Return Fund, Inc., Oppenheimer High Yield Fund and Oppenheimer
Strategic Income Fund. "Qualifying transactions" do not include sales of
Class A shares (a) at net asset value without sales charge, (b) subject
to a contingent deferred sales charge, or (c) intended but not yet
transacted under a Letter of Intent.
February 1, 1995 PS0855.001
<PAGE>
Oppenheimer
Limited-Term Government Fund
Prospectus dated February 1, 1995.
Oppenheimer Limited-Term Government Fund (the "Fund") is a mutual fund
that seeks high current return and safety of principal. In seeking its
objective, the Fund invests principally 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 may 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
values per share are subject to fluctuations due to changes in the value
of portfolio securities. The Fund also uses "hedging" instruments to seek
to reduce the risks of market and interest rate fluctuations that affect
the value of the securities the Fund holds.
Under normal circumstances, the Fund anticipates that it will
maintain an average effective portfolio duration on a dollar-weighted
basis of not more than three years. Please refer to "Investment Policies
and Strategies" for more information about the types of securities the
Fund invests in and the risks of investing in the Fund.
The Fund offers three classes of shares: (1) Class A shares, which
are sold at a public offering price that includes a front-end sales
charge, and (2) Class B and Class C shares, which are sold without a
front-end sales charge, although you may pay a sales charge when you
redeem your shares, depending on how long you own them. A contingent
deferred sales charge is imposed on most Class B shares redeemed within
five years of purchase. A contingent deferred sales charge is imposed on
most Class C shares redeemed within 12 months of purchase. Class B and
Class C shares are also subject to an annual "asset-based sales charge."
Each class of shares bears different expenses. In deciding which class of
shares to buy, you should consider how much you plan to purchase, how long
you plan to keep your shares, and other factors discussed in "How to Buy
Shares" starting on page 15.
This Prospectus explains concisely what you should know before
investing in the Fund. Please read this Prospectus carefully and keep it
for future reference. You can find more detailed information about the
Fund in the February 1, 1995 Statement of Additional Information. For a
free copy, call Oppenheimer Shareholder Services, the Fund's Transfer
Agent, at 1-800-525-7048, or write to the Transfer Agent at the address
on the back cover. The Statement of Additional Information has been filed
with the Securities and Exchange Commission ("SEC") and is incorporated
into this Prospectus by reference (which means that it is legally part of
this Prospectus).
Shares of the Fund are not deposits or obligations of any bank, are not
guaranteed by any bank, are not insured by the F.D.I.C. or any other
agency, and involve investment risks, including the possible loss of
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.
<PAGE>
Contents
A B O U T T H E F U N D
Expenses
Brief Overview of the Fund
Financial Highlights
Investment Objective and Policies
How the Fund is Managed
Performance of the Fund
A B O U T Y O U R A C C O U N T
How to Buy Shares
Class A Shares
Class B Shares
Class C Shares
Special Investor Services
AccountLink
Automatic Withdrawal and Exchange Plans
Reinvestment Privilege
Retirement Plans
How to Sell Shares
By Mail
By Telephone
Checkwriting
How to Exchange Shares
Shareholder Account Rules and Policies
Dividends, Capital Gains and Taxes
<PAGE>
A B O U T T H E F U N D
Expenses
The Fund pays a variety of expenses directly for management of its assets,
administration, distribution of its shares and other services and those
expenses are subtracted from the Fund's assets to calculate the Fund's net
asset value per share. All shareholders therefore pay those expenses
indirectly. Shareholders pay other expenses directly, such as sales
charges and account transaction charges. The following tables are
provided to help you understand your direct expenses of investing in the
Fund and your share of the Fund's business operating expenses that you
will bear indirectly. The numbers below are based on the Fund's expenses
during its last fiscal year ended September 30, 1994.
-- Shareholder Transaction Expenses are charges you pay when you buy
or sell shares of the Fund. Please refer to "About Your Account" on pages
15 through 29 for an explanation of how and when these charges apply.
<TABLE>
<CAPTION>
Class A Class B Class C
Shares Shares Shares
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales 3.50% None None
Charge on
Purchases (as a %
of offering price)
- ----------------------------------------------------------------------
Sales Charge on None None None
Reinvested
Dividends
- ----------------------------------------------------------------------
Deferred Sales None(1) 4% in the 1% if
Charge (as a % first year, shares are
of the lower declining redeemed
of the original to 1% in the within 12
purchase price fifth year and months of
or redemption eliminated purchase(2)
proceeds) thereafter(2)
- ----------------------------------------------------------------------
Exchange Fee $5.00(3) $5.00(3) $5.00(3)
(1)If you invest more than $1 million in Class A shares, you may have to pay a sales charge
of up to 1% if you sell your shares within 18 calendar months from the end of the
calendar month during which you purchased those shares. See "How to Buy Shares," below.
(2)See "How to Buy Shares," below, for more information on the contingent deferred sales
charges.
(3)Fee is waived for automated exchanges, described in "How to Exchange Shares."
</TABLE>
-- Annual Fund Operating Expenses are paid out of the Fund's assets
and represent the Fund's expenses in operating its business. For example,
the Fund pays management fees to its investment adviser, Oppenheimer
Management Corporation (which is referred to in this Prospectus as the
"Manager"). The rates of the Manager's fees are set forth in "How the
Fund is Managed," below. The Fund has other regular expenses for
services, such as transfer agent fees, custodial fees paid to the bank
that holds its portfolio securities, audit fees and legal expenses. Those
expenses are detailed in the Fund's Financial Statements in the Statement
of Additional Information.
The numbers in the chart below are projections of the Fund's business
expenses based on the Fund's expenses in its last fiscal year. These
amounts are shown as a percentage of average net assets of each class of
the Fund's shares for that year. The "12b-1 Distribution Plan Fees" for
Class A shares are the Service Plan Fees (which can be up to a maximum of
0.25% of average annual net assets of that class), and for Class B and
Class C shares, are the Service Plan Fees (which can be up to a maximum
of 0.25%) and the asset-based sales charges of 0.75%. These plans are
described in greater detail in "How to Buy Shares."
The actual expenses for each class of shares in future years may be
more or less than the numbers in the chart, depending on a number of
factors, including the actual amount of the Fund's assets represented by
each class of shares. Class C shares were not publicly offered during the
fiscal year ended September 30, 1994. Therefore, the Annual Fund
Operating Expenses shown for Class C shares are estimates based on amounts
that would have been payable in that period assuming that Class C shares
were outstanding during such fiscal year.
<TABLE>
<CAPTION>
Class A Class B Class C
Shares Shares Shares
- --------------------------------------------------------------------
<S> <C> <C> <C>
Management Fees 0.47% 0.47% 0.47%
- --------------------------------------------------------------------
12b-1 Distribution Plan Fees 0.25% 1.00% 1.00%
- --------------------------------------------------------------------
Other Expenses 0.27% 0.32% 0.32%
- --------------------------------------------------------------------
Total Fund Operating 0.99% 1.79% 1.79%
Expenses
</TABLE>
-- Examples. To try to show the effect of these expenses on an
investment over time, we have created the hypothetical examples shown
below. Assume that you make a $1,000 investment in each class of shares
of the Fund, and the Fund's annual return is 5%, and that its operating
expenses for each class are the ones shown in the chart above. If you
were to redeem your shares at the end of each period shown below, your
investment would incur the following expenses by the end of 1, 3, 5 and
10 years:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years*
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $45 $65 $ 88 $152
- -----------------------------------------------------------------
Class B Shares $68 $86 $117 $170
- -----------------------------------------------------------------
Class C Shares $28 $56 $ 97 $211
If you did not redeem your investment, it would incur the following
expenses:
Class A Shares $45 $65 $88 $152
- -----------------------------------------------------------------
Class B Shares $18 $56 $97 $170
- -----------------------------------------------------------------
Class C Shares $18 $56 $97 $211
*The Class B expenses in years 7 through 10 are based on the Class A expenses shown
above, because the Fund automatically converts your Class B shares into Class A shares
after 6 years. Because of the asset-based sales charge and the contingent deferred sales
charge on Class B and Class C shares, long-term Class B and Class C shareholders could
pay the economic equivalent of an amount greater than the maximum front-end sales charge
allowed under applicable regulatory requirements. The automatic conversion of Class B
shares is designed to minimize the likelihood that this will occur. Please refer to "How
to Buy Shares" for more information.
</TABLE>
These examples show the effect of expenses on an investment, but are
not meant to state or predict actual or expected costs or investment
returns of the Fund, all of which will vary.
A Brief Overview of the Fund
Some of the important facts about the Fund are summarized below, with
references to the section of this Prospectus where more complete
information can be found. You should carefully read the entire Prospectus
before making a decision about investing. Keep the Prospectus for
reference after you invest, particularly for information about your
account, such as how to sell or exchange shares.
-- What is The Fund's Investment Objective? The Fund's investment
objective is to seek high current return and safety of principal. The
Fund anticipates that under normal circumstances, it will maintain an
average effective portfolio duration on a dollar-weighted basis of not
more than three years.
-- What Does the Fund Invest In? The Fund invests only in
obligations issued or guaranteed by the U.S. Government or its agencies
or instrumentalities (these are called "U.S. Government Securities"), and
repurchase agreements on such securities. The Fund may also use hedging
instruments approved by its Board of Trustees to try to manage its
investment risks. The Fund's investments in U.S. Government Securities
may include collateralized mortgage obligations ("CMO's") whose payment
of principal and interest generated by the pool of mortgages is passed
through to the Fund. CMO's may be issued in a variety of classes or
series ("tranches") that have different maturities and levels of
volatility. The Fund may also invest in "stripped" CMO's or mortgage-
backed securities. Stripped mortgage-backed securities usually have two
classes that receive different proportions of the interest and principal
payments. In certain cases, one class will receive all of the interest
payments, while the other class will receive all of the principal value
on maturity. These investments are more fully explained in "Investment
Objectives and Policies," starting on page 7.
-- Who Manages the Fund? The Fund's investment advisor is
Oppenheimer Management Corporation, which (including a subsidiary) advises
investment company portfolios having over $29 billion in assets at
December 31, 1994. The Fund's portfolio manager, who is primarily
responsible for the selection of the Fund's securities, is David A.
Rosenberg. The Manager is paid an advisory fee by the Fund, based on its
net assets. The Fund's Board of Trustees, elected by shareholders,
oversees the investment advisor and the portfolio manager. Please refer
to "How the Fund is Managed," starting on page 12 for more information
about the Manager and its fees.
-- How Risky is the Fund? Although U.S. Government Securities
involve little credit risk, their values will fluctuate depending on
prevailing interest rates. When prevailing interest rates fall, the
values of already-issued debt securities generally rise. When interest
rates rise, the values of already-issued debt securities generally
decline. The magnitude of these fluctuations will often be greater for
longer-term debt securities than shorter-term securities. While the
Manager tries to reduce risks by diversifying investments, by carefully
researching securities before they are purchased for the portfolio, and
in some cases by using hedging techniques, there is no guarantee of
success in achieving the Fund's objective and your shares may be worth
more or less than their original cost when you redeem them. Please refer
to "Investment Objective and Policies" starting on page 7 for a more
complete discussion.
-- How Can I Buy Shares? You can buy shares through your dealer or
financial institution, or you can purchase shares directly through the
Distributor by completing an Application or by using an Automatic
Investment Plan under AccountLink. Please refer to "How To Buy Shares"
beginning on page 15 for more details.
-- Will I Pay a Sales Charge to Buy Shares? The Fund has three
classes of shares. Class A shares are offered with a front-end sales
charge, starting at 3.5% and reduced for larger purchases. Class B shares
and Class C shares are offered without a front-end sales charge, but may
be subject to a contingent deferred sales charge if redeemed within 5
years or 12 months, respectively, of purchase. Please review "How To Buy
Shares" starting on page 15 for more details, including a discussion about
which class may be appropriate for you.
-- How Can I Sell My Shares? Shares can be redeemed by mail or by
telephone call to the Transfer Agent on any business day, or through your
dealer. Please refer to "How To Sell Shares" on page 24.
-- How Has the Fund Performed? The Fund measures its performance by
quoting a yield, dividend yield, average annual total return and
cumulative total return, which measure historical performance. Those
returns can be compared to the yields and total returns (over similar
periods) of other funds. Of course, other funds may have different
objectives, investments, and levels of risk. The Fund's performance can
also be compared to U.S. Government bond indices, which we have done on
pages 14 and 15. Please remember that past performance does not guarantee
future results.
<PAGE>
Financial Highlights
The table on this page presents selected financial information about
the Fund, including per share data and expense ratios and other data based
on the Fund's average net assets. The information for the fiscal years
ended September 30, 1990, 1991, 1992, 1993 and 1994, has been audited by
Deloitte & Touche LLP, the Fund's independent auditors, whose report on
the Fund's Financial Statements for the fiscal year ended September 30,
1994 is included in the Statement of Additional Information. The
information in the table for the fiscal periods prior to October 1, 1989
(except for total return) was audited by the Fund's previous independent
auditors. Class C shares were not publicly offered during the fiscal year
ended September 30, 1994. Accordingly, no information on Class C shares
is reflected in the table below or in the Fund's other financial
statements.
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------------
YEAR ENDED
SEPTEMBER 30,
1994 1993 1992 1991 1990(3) 1989 1988
==========================================================
================================================
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $11.04 $10.97 $10.75 $10.18 $10.17 $10.14 $9.72
- ----------------------------------------------------------------------------------------------------------
Income (loss) from investment
operations:
Net investment income .72 .73 .81 .87 .89 .90 .89
Net realized and unrealized
gain (loss) on investments
and options written (.64) .07 .22 .57 .01 .03 .42
------ ------ ----- ------ ------ ------ -----
Total income (loss) from
investment operations .08 .80 1.03 1.44 .90 .93 1.31
- ----------------------------------------------------------------------------------------------------------
Dividends and distributions to
shareholders:
Dividends from net
investment income (.71) (.73) (.81) (.87) (.89) (.90) (.89)
Dividends in excess
of net investment income --(5) -- -- -- -- -- --
Tax return of capital distribution (.01) -- -- -- -- -- --
Distributions from net
realized gain on investments
and options written -- -- -- -- -- -- --
------ ------ ----- ------ ------ ------ -----
Total dividends and
distributions to shareholders (.72) (.73) (.81) (.87) (.89) (.90) (.89)
- ----------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.40 $11.04 $10.97 $10.75 $10.18 $10.17 $10.14
====== ====== ===== ====== ====== ======
=====
==========================================================
================================================
TOTAL RETURN, AT NET ASSET VALUE(6) .74% 7.61% 9.88% 14.69% 9.15% 9.65% 13.86%
==========================================================
================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $227,858 $178,944 $158,068 $167,974 $213,391 $237,819 $251,794
- ----------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $190,829 $161,318 $160,830 $192,404 $218,528 $243,863 $267,557
- ----------------------------------------------------------------------------------------------------------
Number of shares outstanding
at end of period (in thousands) 21,906 16,206 14,416 15,624 20,964 23,395 24,834
- ----------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 6.74% 6.70% 7.44% 8.27% 8.77% 8.96% 8.75%
Expenses .99% 1.02% .97% .98% .90% .93% .96%
- ----------------------------------------------------------------------------------------------------------
Portfolio turnover rate(8) 226% 74% 154% 112% 60% 61% 78%
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS B
--------------- -------------
YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
1987 1986(2) 1994 1993(1)
============================================================
===================
<S> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $10.51 $10.56 $11.06 $10.96
- ----------------------------------------------------------- ------------------
Income (loss) from investment
operations:
Net investment income .86(4) .57(4) .62 .23
Net realized and unrealized
gain (loss) on investments
and options written (.74) (.05) (.64) .10
------ ------ ------ ------
Total income (loss) from
investment operations .12 .52 (.02) .33
- ----------------------------------------------------------- -------------------
Dividends and distributions to
shareholders:
Dividends from net
investment income (.86) (.57) (.62) (.23)
Dividends in excess
of net investment income -- -- --(5) --
Tax return of capital distribution -- -- (.01) --
Distributions from net
realized gain on investments
and options written (.05) -- -- --
------ ------ ------ ------
Total dividends and
distributions to shareholders (.91) (.57) (.63) (.23)
- ----------------------------------------------------------- -------------------
Net asset value, end of period $9.72 $10.51 $10.41 $11.06
====== ====== ====== ======
===========================================================
===================
TOTAL RETURN, AT NET ASSET VALUE(6) .95% 4.97% (.17)% 3.02%
===========================================================
===================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $287,181 $127,797 $38,877 $5,077
- ----------------------------------------------------------- -------------------
Average net assets (in thousands) $242,181 $105,123 $15,801 $2,561
- ----------------------------------------------------------- -------------------
Number of shares outstanding
at end of period (in thousands) 29,560 12,162 3,734 459
- ----------------------------------------------------------- -------------------
Ratios to average net assets:
Net investment income 8.22% 7.93%(7) 5.91% 4.81%(7)
Expenses .56%(4) .08%(4)(7) 1.79% 1.87%(7)
- ----------------------------------------------------------- -------------------
Portfolio turnover rate(8) 73% 471% 226% 74%
</TABLE>
(1) For the period from May 3, 1993 (inception of offering) to September 30,
1993.
(2) For the period from March 10, 1986 (commencement of operations) to September
30, 1986.
(3) On April 7, 1990, Oppenheimer Management Corporation became the investment
advisor to the Fund.
(4) 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.
(5) Less than $.001 per share.
(6) 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.
(7) Annualized.
(8) 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, 1994 were $526,239,879 and $445,474,809,
respectively.
<PAGE>
Investment Objective and Policies
Objective. The Fund seeks high current return and safety of principal.
As a matter of fundamental policy the Fund seeks its objective by
investing 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. The Fund may also 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 when issued), Treasury Notes (which
have maturities of one to ten years when issued) and Treasury Bonds (which
have maturities generally greater than ten years when issued). U.S.
Treasury obligations are backed by the full faith and credit of the United
States.
-- 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"). Securities of agencies and
instrumentalities that 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 and Freddie Mac.
-- Mortgage-Backed Securities. 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 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.
Maturity differs from effective duration, which is a volatility
measure. See "Investment Policies and Strategies" on page 8.
The Fund may invest in collateralized mortgage obligations ("CMOs")
that are issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, or that are collateralized by a portfolio of mortgages
or mortgage-related securities guaranteed by such an agency or
instrumentality. Payment of the interest and principal generated by the
pool of mortgages is passed through to the holders as the payments are
received by the issuer of the CMO. CMOs may be issued in a variety of
classes or series ("tranches") that have different maturities. The
principal value of certain CMO tranches may be more volatile than other
types of mortgage-related securities, because of the possibility that the
principal value of the CMO may be prepaid earlier than the maturity of the
CMO as a result of prepayments of the underlying mortgage loans by the
borrowers.
The Fund may invest in "stripped" mortgage-backed securities or CMOs
or other securities issued by agencies or instrumentalities of the U.S.
Government. Stripped mortgage-backed securities usually have two classes.
The classes receive different proportions of the interest and principal
distributions on the pool of mortgage assets that act as collateral for
the security. In certain cases, one class will receive all of the
interest payments (and is known as an "I/O"), while the other class will
receive all of the principal value on maturity (and is known as a "P/O").
The yield to maturity on the class that receives only interest is
extremely sensitive to the rate of payment of the principal on the
underlying mortgages. Principal prepayments increase that sensitivity.
Stripped securities that pay "interest only" are therefore subject to
greater price volatility when interest rates change, and they have the
additional risk that if the underlying mortgages are prepaid, the Fund
will lose the anticipated cash flow from the interest on the prepaid
mortgages. That risk is increased when general interest rates fall, and
in times of rapidly falling interest rates, the Fund might receive back
less than its investment.
The value of "principal only" securities generally increases as
interest rates decline and prepayment rates rise. The price of these
securities is typically more volatile than that of coupon-bearing bonds
of the same maturity.
Stripped securities are generally purchased and sold by institutional
investors through investment banking firms. At present, established
trading markets have not yet developed for these securities. Therefore,
some stripped securities may be deemed "illiquid." If the Fund holds
illiquid stripped securities, the amount it can hold will be subject to
the Fund's fundamental investment policy limiting investments in illiquid
securities to 5% of the Fund's assets.
Investment Policies and Strategies. The Fund anticipates that under
normal circumstances, it will maintain an average effective portfolio
duration of not more than three years. That duration will be measured on
the Fund's portfolio on a "dollar-weighted" basis. "Effective portfolio
duration" refers to the expected percentage change in the value of a bond
resulting from a change in general interest rates (measured by each 1%
change in the rates on U.S. Treasury securities). For example, if a bond
has an effective duration of three years, a 1% increase in general
interest rates would be expected to cause the bond to decline about 3%.
It is a measure of portfolio volatility, and is one of the fundamental
tools used by the Manager in selecting securities for the Fund's
portfolio.
However, the calculation of a bond's duration (or the duration of the
entire portfolio of bonds, in the case of the Fund) cannot be considered
or relied on as an exact prediction of future volatility. Duration is
calculated by using a number of variables and assumptions based on the
historical performance of similar bonds, and duration can be affected by
unexpected economic or other events affecting a security. For example,
in the case of CMOs, duration calculations are based on historical rates
of prepayments of underlying mortgages, and if these mortgages are prepaid
more rapidly than expected, the calculation of duration for a particular
CMO may not be correct.
Because of unanticipated changes that may occur to change the
effective duration of securities subsequent to their acquisition by the
Fund, there can be no assurance that the Fund will achieve its targeted
effective duration at all times. Subject to the requirement that its
dollar-weighted average effective portfolio duration will generally not
exceed three years, the Fund may invest in individual debt obligations of
any maturity. See "Investment Objective and Policies" in the Statement
of Additional Information for more information on the Fund's calculation
of effective portfolio duration.
-- Risk Factors. Although U.S. Government Securities involve little
credit risk, their values will fluctuate depending on prevailing interest
rates. Because of this factor, 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 Statement of Additional Information for further information on U.S.
Government Securities. Because the yields on U.S. Government Securities
are generally lower than on corporate debt securities, the Fund may
attempt to increase the income it can earn from U.S. Government Securities
by writing covered call options against them, when market conditions are
appropriate. Writing covered calls is explained below, under "Other
Investment Techniques and Strategies."
-- Can the Fund's Investment Objective and Policies Change? The Fund
has an investment objective, described above, as well as investment
policies it follows to try to achieve its objective. Additionally, the
Fund uses certain investment techniques and strategies in carrying out
those policies. The Fund's investment policies and practices are not
"fundamental" unless the Prospectus or Statement of Additional Information
says that a particular policy is "fundamental."
Fundamental policies are those that cannot be changed without the
approval of a "majority" of the Fund's outstanding voting shares. The
term "majority" is defined in the Investment Company Act to be a
particular percentage of outstanding voting shares (and this term is
explained in the Statement of Additional Information). The Fund's Board
of Trustees may change non-fundamental policies without shareholder
approval, although significant changes will be described in amendments to
this Prospectus.
-- Portfolio Turnover. The Fund may buy or sell U.S. Government
Securities without regard to the length of time they have been held. The
Manager attempts to take advantage of short-term differentials in yields
when short-term trading is consistent with the objective of seeking high
current return and safety of principal. A change in the securities held
by the Fund is known as "portfolio turnover." While short-term trading
increases portfolio turnover, the Fund incurs little or no brokerage costs
for U.S. Government Securities. High portfolio turnover may affect the
ability of the Fund to qualify as a "regulated investment company" under
the Internal Revenue Code to enable the Fund to obtain tax deductions for
dividends and capital gains distributions paid to shareholders. The Fund
qualified in its last fiscal year end intends to do so in the coming year,
although it reserves the right not to qualify.
Other Investment Techniques and Strategies. The Fund may also use the
investment techniques and strategies described below, which involve
certain risks. The Statement of Additional Information contains more
detailed information about these practices, including limitations on their
use that are designed to reduce some of the risks.
-- Loans of Portfolio Securities. To attempt to increase its income,
the Fund may lend its portfolio securities to brokers, dealers and other
financial institutions. These loans are limited to not more than 25% of
the Fund's total assets and are subject to other conditions described in
the Statement of Additional Information. The Fund presently does not
intend to lend its portfolio securities, but if it does, the value of
securities loaned is not expected to exceed 5% of the value of the Fund's
total assets in the coming year.
-- "When-Issued" and Delayed Delivery Transactions. The Fund may
purchase securities on a "when-issued" basis and may purchase or sell
securities on a "delayed delivery" basis. These terms refer to securities
that have been created and for which a market exists, but which are not
available for immediate delivery. There may be a risk of loss to the Fund
if the value of the security declines prior to the settlement date. 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 enter into repurchase
agreements, subject to the following limits. As a matter of fundamental
policy, 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, or that will cause
more than 5% of the Fund's net assets to be subject to repurchase
agreements having a maturity beyond seven days. Also 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. Repurchase agreements must be fully
collateralized. However, if the vendor fails to pay the re-sale price on
the delivery date, the Fund may experience costs in disposing of the
collateral and losses if there is any delay in doing so.
-- 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 "Other Investment Techniques and Strategies -
Reverse Repurchase Agreements" in the Statement of Additional Information.
-- Illiquid and Restricted Securities. Under the policies
established by the Fund's Board of Trustees, the Manager determines the
liquidity of certain of the Fund's investments. Investments may be
illiquid because of the absence of an active trading market, making it
difficult to value them or dispose of them promptly at an acceptable
price. A restricted security is one that has a contractual restriction
on its resale or which cannot be sold publicly until it is registered
under the Securities Act of 1933. As a fundamental policy, the Fund will
not invest more than 5% of its total assets in illiquid or restricted
securities.
-- Hedging. As described below, the Fund may purchase and sell
certain kinds of futures contracts, put and call options, and options on
futures, or enter into interest rate swap agreements. These are all
referred to as "hedging instruments." The Fund does not use hedging
instruments for speculative purposes, and has limits on the use of them,
described below. The hedging instruments the Fund may use are described
below and in greater detail in "Other Investment Techniques and
Strategies" in the Statement of Additional Information.
The Fund may buy and sell options and futures for a number of
purposes. It may do so to try to manage its exposure to the possibility
that the prices of its portfolio securities may decline, or to establish
a position in the securities market as a temporary substitute for
purchasing individual securities. It may do so to try to manage its
exposure to changing interest rates. Some of these strategies, such as
selling futures, buying puts and writing covered calls, hedge the Fund's
portfolio against price fluctuations.
Other hedging strategies, such as buying futures and call options and
writing put options, tend to increase the Fund's exposure to the
securities market. Writing put options or covered call options may also
provide income to the Fund for liquidity purposes or raise cash for the
Fund to distribute to shareholders.
Futures. The Fund may buy and sell futures contracts that relate to
interest rates (these are referred to as Interest Rate Futures). Interest
Rate Futures are described in "Hedging With Options and Futures Contracts"
in the Statement of Additional Information.
Put and Call Options. The Fund may buy and sell certain kinds of put
options (puts) and call options (calls).
The Fund may buy calls only on securities or Interest Rate Futures,
or to terminate its obligation on a call the Fund previously wrote. The
Fund may write (that is, sell) covered call options. When the Fund writes
a call, it receives cash (called a premium). The call gives the buyer the
ability to buy the investment on which the call was written from the Fund
at the call price during the period in which the call may be exercised.
If the value of the investment does not rise above the call price, it is
likely that the call will lapse without being exercised, while the Fund
keeps the cash premium (and the investment).
The Fund may purchase put options. Buying a put on an investment
gives the Fund the right to sell the investment at a set price to a seller
of a put on that investment. The Fund can buy only those puts that relate
to (1) securities that the Fund owns, or (2) Interest Rate Futures. The
Fund can buy a put on an Interest Rate Future whether or not the Fund owns
the particular Future in its portfolio. The Fund may write puts on
securities or Interest Rate Futures in an amount up to 50% of its total
assets only if such puts are covered by segregated liquid assets. In
writing puts, there is a risk that the Fund may be required to buy the
underlying security at a disadvantageous price.
The Fund may buy and sell puts and calls only if certain conditions
are met: (1) after the Fund writes a call, not more than 25% of the Fund's
total assets may be subject to calls; (2) calls the Fund buys or sells
must be listed on a securities or commodities exchange, or quoted on the
Automated Quotation System of the National Association of Securities
Dealers, Inc. (NASDAQ), or traded in the over-the-counter market; (3) each
call the Fund writes must be "covered" while it is outstanding: that means
the Fund must own the investment on which the call was written or it must
own other securities that are acceptable for the escrow arrangements
required for calls; (4) the Fund may write calls on Futures contracts it
owns, but these calls must be covered by securities or other liquid assets
the Fund owns and segregates to enable it to satisfy its obligations if
the call is exercised; (5) a call or put option may not be purchased if
the value of all of the Fund's put and call options would exceed 5% of the
Fund's total assets.
Interest Rate Swaps. In an interest rate swap, the Fund and another
party exchange their right to receive or their obligation to pay interest
on a security. For example, they may swap a right to receive floating
rate payments for fixed rate payments. The Fund enters into swaps only
on securities it owns. The Fund may not enter into swaps with respect to
more than 25% of its total assets. Also, the Fund will segregate liquid
assets (such as cash or U.S. Government securities) to cover any amounts
it could owe under swaps that exceed the amounts it is entitled to
receive, and it will adjust that amount daily, as needed. Income from
interest rate swaps may be taxable.
Hedging instruments can be volatile investments and may involve
special risks. In the broadest sense, exchange-traded options and futures
contracts and other hedging instruments the Fund can use may be defined
as "derivative" investments. In general, a derivative investment is a
specially-designed investment whose performance is linked to the
performance of another investment or security. The use of hedging
instruments requires special skills and knowledge of investment techniques
that are different than what is required for normal portfolio management.
If the Manager uses a hedging instrument at the wrong time or judges
market conditions incorrectly, hedging strategies may reduce the Fund's
return. The Fund could also experience losses if the prices of its futures
and options positions were not correlated with its other investments or
if it could not close out a position because of an illiquid market for the
future or option.
Options trading involves the payment of premiums and has special tax
effects on the Fund. There are also special risks in particular hedging
strategies. If a covered call written by the Fund is exercised on an
investment that has increased in value, the Fund will be required to sell
the investment at the call price and will not be able to realize any
profit if the investment has increased in value above the call price.
Interest rate swaps are subject to credit risks (if the other party fails
to meet its obligations) and also to interest rate risks. The Fund could
be obligated to pay more under its swap agreements than it receives under
them, as a result of interest rate changes. These risks are described in
greater detail in the Statement of Additional Information.
Other Investment Restrictions. The Fund has other investment restrictions
which are "fundamental" policies.
Under these fundamental policies, the Fund cannot do any of the
following: (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 "Investment
Objective and Policies" and "Other Investment Techniques and Strategies"
in the Statement of Additional Information.
All of the percentage restrictions described above and elsewhere in
this Prospectus apply only at the time the Fund purchases a security, and
the Fund need not dispose of a security merely because the Fund's assets
have changed or the security has increased in value relative to the size
of the Fund. There are other fundamental policies discussed in the
Statement of Additional Information.
How the Fund is Managed
Organization and History. The Fund was organized in 1986 as a
Massachusetts business trust. The Fund is an open-end diversified
management investment company with an unlimited number of authorized
shares of beneficial interest. Organized as a series fund, the Fund
presently has only one series.
The Fund is governed by a Board of Trustees, which is responsible
under Massachusetts law for protecting the interests of shareholders. The
Trustees meet periodically throughout the year to oversee the Fund's
activities, review its performance, and review the actions of the Manager.
"Trustees and Officers of the Fund" in the Statement of Additional
Information names the Trustees and officers of the Fund and provides more
information about them. Although the Fund is not required by law to hold
annual meetings, it may hold shareholder meetings from time to time on
important matters, and shareholders have the right to call a meeting to
remove a Trustee or to take other action described in the Fund's
Declaration of Trust.
The Board of Trustees has the power, without shareholder approval,
to divide unissued shares of the Fund into two or more classes. The Board
has done so, and the Fund currently has three classes of shares, Class A,
Class B and Class C. Each class has its own dividends and distributions,
and pays certain expenses which may be different for the different
classes. Each class may have a different net asset value. Each share
has one vote at shareholder meetings, with fractional shares voting
proportionally. Only shares of a particular class vote together on
matters that affect that class alone. Shares are freely transferrable.
The Manager and Its Affiliates. The Fund is managed by the Manager, which
handles its day-to-day business. The Manager carries out its duties,
subject to the policies established by the Board of Trustees, under an
Investment Advisory Agreement which states the Manager's responsibilities
and its fees, and describes the expenses that the Fund pays to conduct its
business.
The Manager has operated as an investment adviser since 1959. The
Manager and its affiliates currently manage investment companies,
including other OppenheimerFunds, with assets of more than $29 billion as
of December 31, 1994, and with more than 1.8 million shareholder accounts.
The Manager is owned by Oppenheimer Acquisition Corp., a holding company
that is owned in part by senior officers of the Manager and controlled by
Massachusetts Mutual Life Insurance Company, a mutual life insurance
company.
-- Portfolio Manager. The Portfolio Manager of the Fund (who is also
a Vice President of the Fund) is David A. Rosenberg, a Vice President of
the Manager. He has been responsible for the day-to-day management of the
Fund's portfolio since January, 1994. Mr. Rosenberg also serves as a
portfolio manager of other OppenheimerFunds. Previously he was an officer
and portfolio manager for Delaware Investment Advisors and for one of its
mutual funds.
-- Fees and Expenses. Under the Investment Advisory Agreement, the
Fund pays the Manager the following annual fees, which decline on
additional assets as the Fund grows: 0.500% of the first $100 million of
the Fund's average annual net assets, 0.450% of the next $150 million,
0.425% of the next $250 million and 0.400% of net assets in excess of $500
million. The Fund's management fee for its last fiscal year was 0.47% of
average annual net assets for Class A shares and 0.47% for Class B shares.
The Fund pays expenses related to its daily operations, such as
custodian fees, Trustees' fees, transfer agency fees, legal and auditing
costs. Those expenses are paid out of the Fund's assets and are not paid
directly by shareholders. However, those expenses reduce the net asset
value of shares, and therefore are indirectly borne by shareholders
through their investment. More information about the investment advisory
agreement and the other expenses paid by the Fund is contained in the
Statement of Additional Information.
There is also information about the Fund's brokerage policies in
"Brokerage Policies of the Fund" in the Statement of Additional
Information. That section discusses how brokers and dealers are selected
for the Fund's portfolio transactions. Because the Fund purchases most
of its portfolio securities directly from the sellers and not through
brokers, it therefore incurs relatively little expense for brokerage.
From time to time it may use brokers when buying portfolio securities.
When deciding which brokers to use, the Manager is permitted by the
investment advisory agreement to consider whether brokers have sold shares
of the Fund or any other funds for which the Manager serves as investment
adviser.
-- The Distributor. The Fund's shares are sold through dealers and
brokers that have a sales agreement with Oppenheimer Funds Distributor,
Inc., a subsidiary of the Manager that acts as the Distributor. The
Distributor also distributes the shares of other mutual funds managed by
the Manager (the "OppenheimerFunds") and is sub-distributor for funds
managed by a subsidiary of the Manager.
-- The Transfer Agent. The Fund's transfer agent is Oppenheimer
Shareholder Services, a division of the Manager, which acts as the
shareholder servicing agent for the Fund and the other OppenheimerFunds
on an "at-cost" basis. Shareholders should direct inquiries about their
account to the Transfer Agent at the address and toll-free numbers shown
below in this Prospectus and on the back cover.
Performance of the Fund
Explanation of Performance Terminology. The Fund uses certain terms to
illustrate its performance: "total return" and "yield." These terms are
used to show the performance of each class of shares separately, because
the performance of each class of shares will usually be different, as a
result of the different kinds of expenses each class bears. This
performance information may be useful to help you see how your investment
has done and to compare it to other funds or market indices, as we have
done below.
It is important to understand that the Fund's yields and total
returns represent past performance and should not be considered to be
predictions of future returns or performance. This performance data is
described below, but more detailed information about how total returns and
yields are calculated is contained in the Statement of Additional
Information, which also contains information about other ways to measure
and compare the Fund's performance. The Fund's investment performance will
vary, depending on market conditions, the composition of the portfolio,
expenses and which class of shares you purchase.
-- Total Returns. There are different types of "total returns" used
to measure the Fund's performance. Total return is the change in value
of a hypothetical investment in the Fund over a given period, assuming
that all dividends and capital gains distributions are reinvested in
additional shares. The cumulative total return measures the change in
value over the entire period (for example, ten years). An average annual
total return shows the average rate of return for each year in a period
that would produce the cumulative total return over the entire period.
However, average annual total returns do not show the Fund's actual year-
by-year performance.
When total returns are quoted for Class A shares, they reflect the
payment of the maximum initial sales charge. 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 total return is shown.
When total returns are shown for a one-year period for Class C shares,
they reflect the effect of the contingent deferred sales charge. Total
returns may also be shown based on the change in net asset value, without
considering the effect of either the front-end or the contingent deferred
sales charge, as applicable, and those returns would be reduced if sales
charges were deducted.
-- Yield. Each Class of shares calculates its yield by dividing the
annualized net investment income per share on the portfolio during a 30-
day period by the maximum offering price on the last day of the period.
The yield of each Class will differ because of the different expenses of
each Class of shares. The yield data represents a hypothetical investment
return on the portfolio, and does not measure an investment return based
on dividends actually paid to shareholders. To show that return, a
dividend yield may be calculated. Dividend yield is calculated by
dividing the dividends of a Class derived from net investment income
during a stated period by the maximum offering price on the last day of
the period. Yields and dividend yields for Class A shares reflect the
deduction of the maximum initial sales charge, but may also be shown based
on the Fund's net asset value per share. Yields for Class B shares and
Class C shares do not reflect the deduction of the contingent deferred
sales charge.
How Has the Fund Performed? Below is a discussion by the Manager of the
Fund's performance during its last fiscal year ended September 30, 1994,
followed by a graphical comparison of the Fund's performance to an
appropriate broad-based market index.
-- Management's Discussion of Performance. During the past fiscal
year ended September 30, 1994, the Fund's performance was affected by
changes in the direction of the bond markets from the prior year. The
Federal Reserve Board aggressively increased short-term interest rates
from very low levels. As interest rates rose, the bond markets declined.
To enhance income as interest rates rose, the Fund shifted investments
away from traditional short-term U.S. Treasury securities, adding
significantly to investments in mortgage-backed securities issued by U.S.
Government agencies or instrumentalities, which generally offer
significant yield advantages over U.S. Treasury securities. The Fund will
continue to seek opportunities to enhance the Fund's yield while
conservatively managing risk to limit the impact if interest rates go
higher.
-- Comparing the Fund's Performance to the Market. The chart below
shows the performance of a hypothetical $10,000 investment in Class A and
Class B shares of the Fund held until September 30, 1994; in the case of
Class A shares, since March 10, 1986 (inception of the Fund), and in the
case of Class B shares, from the inception of the Class on May 3, 1993.
In both cases, all dividends and capital gains distributions were
reinvested in additional shares. The graph reflects the deduction of the
current 3.50% maximum initial sales charge on Class A shares and the
current 4% maximum contingent deferred sales charge on Class B shares.
Class C shares were not publicly offered during the fiscal year ended
September 30, 1994. Accordingly, no information is presented on Class C
shares in the graph below.
The performance graph below compares the Fund's performance against
the Lehman Brothers U.S. Government Bond Index, a broad-based unmanaged
index of U.S. Treasury issues, publicly-issued debt of U.S. Government
agencies and quasi-public corporations and corporate debt guaranteed by
the U.S. Government, which is widely used to measure the performance of
the U.S. Government securities market. The performance graph below also
compares the Fund's performance against the Lehman Brothers 1 - 3 Year
Government Bond Index, an unmanaged sector index of U.S. Treasury issues,
publicly-issued debt of U.S. Government agencies and quasi-public
corporations and corporate debt guaranteed by the U.S. Government with
maturities of one to three years. This secondary, sector index comparison
is included to reflect the adoption by the Fund, effective August 4, 1994,
of a non-fundamental investment policy that the Fund will, under normal
circumstances, maintain a dollar-weighted average portfolio effective
duration of not more than three years.
Index performance reflects reinvestment of dividends but does not
consider the effect of capital gains or transaction costs, and none of the
data below shows the effect of taxes. Also, the Fund's performance
reflects the effect of Fund business and operating expenses. While index
comparisons may be useful to provide a benchmark for the Fund's
performance, it must be noted that the Fund's investments are not limited
to the securities in any one index and the index data does not reflect any
assessment of the risk of the investments included in the index.
Comparison of Change in Value
of $10,000 Hypothetical Investments in:
Oppenheimer Limited-Term Government Fund,
Lehman Brothers U.S. Government Bond Index and
Lehman Brothers 1-3 Year Government Bond Index
[Graph]
Past performance is not predictive of future performance.
Oppenheimer Limited-Term Government Fund
Average Annual Total
Returns at 9/30/94
A Shares 1-Year 5-Year Life*
-2.78% 7.55% 7.81%
B Shares 1-Year Life:**
-3.94% -0.14%
- ----------------------
*The inception of the Fund (Class A shares) was 3/10/86.
**Class B shares of the Fund were first publicly offered on 5/3/93.
A B O U T Y O U R A C C O U N T
How to Buy Shares
Classes of Shares. The Fund offers investors three different classes of
shares. The different classes of shares represent investments in the same
portfolio of securities but are subject to different expenses and will
likely have different share prices.
-- Class A Shares. When you buy Class A shares, you pay an initial
sales charge (on investments up to $1 million). If you purchase Class A
shares as part of an investment of at least $1 million in shares of one
or more OppenheimerFunds, you will not pay an initial sales charge, but
if you sell any of those shares within 18 months after your purchase, you
may pay a contingent deferred sales charge, which will vary depending on
the amount you invested.
-- Class B Shares. If you buy Class B shares, you pay no sales
charge at the time of purchase, but if you sell your shares within five
years of buying them, you will normally pay a contingent deferred sales
charge that varies depending on how long you owned your shares.
-- Class C Shares. If you buy Class C shares, you pay no sales
charge at the time of purchase, but if you sell your shares within 12
months of buying them, you will normally pay a contingent deferred sales
charge of 1%.
Which Class of Shares Should You Choose? Once you decide that the Fund
is an appropriate investment for you, deciding which class of shares is
best suited to your needs depends on a number of factors which you should
discuss with your financial advisor. The Fund's operating costs that
apply to a class of shares and the effect of the different types of sales
charges on your investment will vary your investment results over time.
The most important factors are how much you plan to invest, how long you
plan to hold your investment, and whether you anticipate exchanging your
shares for shares of other OppenheimerFunds (not all of which offer
Class B or Class C shares). If your goals and objectives change over time
and you plan to purchase additional shares, you should re-evaluate those
factors to see if you should consider another class of shares.
In the following discussion, to help provide you and your financial
advisor with a framework in which to choose a class, we have made some
assumptions using a hypothetical investment in the Fund. We used the
sales charge rates that apply to each class, and considered the effect of
the asset-based sales charges on Class B and Class C expenses (which will
affect your investment return). For the sake of comparison, we have
assumed that there is a 10% rate of appreciation in your investment each
year. Of course, the actual performance of your investment cannot be
predicted and will vary, based on the Fund's actual investment returns,
and the operating expenses borne by each class of shares, and which class
of shares you invest in. The factors discussed below are not intended to
be investment advice, guidelines or recommendations, because each
investor's financial considerations are different.
-- How Long Do You Expect to Hold Your Investment? While future
financial needs cannot be predicted with certainty, knowing how long you
expect to hold your investment will assist you in selecting the
appropriate class of shares. The effect of the sales charge over time,
using our assumptions, will generally depend on the amount invested. The
effect of class-based expenses will also depend on how much you invest.
Investing for the Short Term. If you have a short term investment
horizon (that is, you plan to hold your shares less than five years), you
should probably consider purchasing Class C shares rather than Class A or
Class B shares. This is because there is no initial sales charge on Class
C shares, and the contingent deferred sales charge does not apply to
amounts you sell after holding them one year.
However, if you plan to invest more than $250,000 for the shorter
term, Class C shares might not be as advantageous as Class A shares. This
is because the annual asset-based sales charge on Class C shares will have
a greater impact on your account over the longer term than the reduced
sales charge available for larger purchases of Class A shares.
And for most investors who invest $1 million or more, in most cases
Class A shares will be the most advantageous choice, no matter how long
you intend to hold your shares. For that reason, the Distributor normally
will not accept purchase orders of $1 million or more of Class B or C
shares from a single investor.
Investing for the Longer Term. If you are investing for the longer
term, for example, for retirement, and do not expect to need access to
your money for six years or more, Class A shares will likely be more
advantageous than Class B or Class C shares. This is because of the
effect of expected lower expenses for Class A shares and the reduced
initial sales charges available for larger investments in Class A shares
under the Fund's Right of Accumulation. Class B shares may be appropriate
for smaller investments held for the longer term because there is no
initial sales charge on Class B shares, and Class B shares held six years
following their purchase convert into Class A shares.
Of course all of these examples are based on approximations of the
effect of current sales charges and expenses on a hypothetical investment
over time, using the assumed annual performance return stated above, and
you should analyze your options carefully.
-- Are There Differences in Account Features That Matter To You?
Because some features (such as checkwriting) may not be available to Class
B or C shareholders, or other features (such as Automatic Withdrawal
Plans) may not be advisable (because of the effect of the contingent
deferred sales charge in non-retirement accounts) for Class B or Class C
shareholders, you should carefully review how you plan to use your
investment account before deciding which class of shares to buy.
Additionally, dividends payable to Class B and Class C shareholders will
be reduced by the additional expenses borne by those classes that are not
borne by Class A, such as the Class B and Class C asset-based sales
charges described below and in the Statement of Additional Information.
Also, because not all of the OppenheimerFunds currently offer Class
B and Class C shares, and because exchanges are permitted only to the same
class of shares in another of the OppenheimerFunds, you should consider
how important the exchange privilege is likely to be for you.
-- How Does It Affect Payments to My Broker? A salesperson, such as
a broker, or any other person who is entitled to receive compensation for
selling Fund shares, may receive different compensation for selling or
servicing one class of shares than another class. It is important that
investors understand that the purpose of the Class B and Class C
contingent deferred sales charges is the same as the purpose of the front-
end sales charge on Class A shares: to reimburse the Distributor for
commissions it pays to dealers and financial institutions for sales of
shares.
How Much Must You Invest? You can open a Fund account with a minimum
initial investment of $1,000 and make additional investments at any time
with as little as $25. There are reduced minimum investments under special
investment plans:
With Asset Builder Plans, Automatic Exchange Plans, 403(b)(7)
custodial plans and military allotment plans, you can make initial and
subsequent investments for as little as $25; and subsequent purchases of
at least $25 can be made by telephone through AccountLink.
Under pension and profit-sharing plans and Individual Retirement
Accounts (IRAs), you can make an initial investment of as little as $250
(if your IRA is established under an Asset Builder Plan, the $25 minimum
applies), and subsequent investments may be as little as $25.
There is no minimum investment requirement if you are buying shares
by reinvesting dividends from the Fund or other OppenheimerFunds (a list
of them appears in the Statement of Additional Information, or you can ask
your dealer or call the Transfer Agent), or by reinvesting distributions
from unit investment trusts that have made arrangements with the
Distributor.
-- How Are Shares Purchased? You can buy shares several ways --
through any dealer, broker or financial institution that has a sales
agreement with the Distributor, or directly through the Distributor, or
automatically from your bank account through an Asset Builder Plan under
the OppenheimerFunds AccountLink service. When you buy shares, be sure to
specify Class A, Class B or Class C shares. If you do not choose, your
investment will be made in Class A shares.
-- Buying Shares Through Your Dealer. Your dealer will place your
order with the Distributor on your behalf.
-- Buying Shares Through the Distributor. Complete an
OppenheimerFunds New Account Application and return it with a check
payable to "Oppenheimer Funds Distributor, Inc." Mail it to P.O. Box 5270,
Denver, Colorado 80217. If you don't list a dealer on the application,
the Distributor will act as your agent in buying the shares. However, we
recommend that you discuss your investment first with a financial adviser,
to be sure it is appropriate for you.
-- Buying Shares Through OppenheimerFunds AccountLink. You can use
AccountLink to link your Fund account with an account at a U.S. bank or
other financial institution that is an Automated Clearing House (ACH)
member. You can then transmit funds electronically to purchase shares,
to send redemption proceeds, and to transmit dividends and distributions.
Shares are purchased for your account on the regular business day the
Distributor is instructed by you to initiate the ACH transfer to buy
shares. You can provide those instructions automatically, under an Asset
Builder Plan, described below, or by telephone instructions using
OppenheimerFunds PhoneLink, also described below. You must request
AccountLink privileges on the application or dealer settlement
instructions used to establish your account. Please refer to
"AccountLink," below for more details.
-- Asset Builder Plans. You may purchase shares of the Fund (and up
to four other OppenheimerFunds) automatically each month from your account
at a bank or other financial institution under an Asset Builder Plan with
AccountLink. Details are on the Application and in the Statement of
Additional Information.
-- At What Prices Are Shares Sold? Shares are sold at the public
offering price based on the net asset value that is next determined after
the Distributor receives the purchase order in Denver, Colorado. In most
cases, to enable you to receive that day's offering price, the Distributor
must receive your order by the time of day The New York Stock Exchange
closes, which is normally 4:00 P.M., New York time, but may be earlier on
some days (all references to time in this Prospectus mean "New York
time."). The net asset value of each class of shares is determined as of
that time on each day The New York Stock Exchange is open (which is a
"regular business day").
If you buy shares through a dealer, the dealer must receive your
order by the close of The New York Stock Exchange on a regular business
day and transmit it to the Distributor so that it is received before the
Distributor's close of business that day, which is normally 5:00 P.M. The
Distributor may reject any purchase order for the Fund's shares, in its
sole discretion.
Class A Shares. Class A shares are sold at their offering price, which
is normally net asset value plus an initial sales charge. However, in
some cases, described below, purchases are not subject to an initial sales
charge, and the offering price will be net asset value. In some cases,
reduced sales charges may be available, as described below. Out of the
amount you invest, the Fund receives the net asset value to invest for
your account. The sales charge varies depending on the amount of your
purchase. A portion of the sales charge may be retained by the Distributor
and allocated to your dealer as commission. Different sales charge rates
and commissions applied to sales of Class A shares prior to April 1, 1994.
The current sales charge rates and commissions paid to dealers and brokers
are as follows:
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
Front-End Sales Charge Commission as
As a Percentage of: Percentage of:
Offering Amount Offering
Amount of Purchase Price Invested Price
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000 3.50% 3.63% 3.00%
- ------------------------------------------------------------------------
$100,000 or more but
less than $250,000 3.00% 3.09% 2.50%
- ------------------------------------------------------------------------
$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% 1.50%
The Distributor reserves the right to reallow the entire commission to dealers. If that
occurs, the dealer may be considered an "underwriter" under Federal securities laws.
</TABLE>
-- Class A Contingent Deferred Sales Charge. There is no initial
sales charge on purchases of Class A shares of any one or more
OppenheimerFunds aggregating $1 million or more. However, the Distributor
pays dealers of record commissions on such purchases in an amount equal
to the sum of 1.0% of the first $2.5 million, plus 0.50% of the next $2.5
million, plus 0.25% of share purchases over $5 million. That commission
will be paid only on the amount of those purchases in excess of $1 million
that were not previously subject to a front-end sales charge and dealer
commission.
If you redeem any of those shares within 18 months of the end of the
calendar month of their purchase, a contingent deferred sales charge
(called the "Class A contingent deferred sales charge") will be deducted
from the redemption proceeds. That sales charge may be equal to 1.0% of
the aggregate net asset value of either (1) the redeemed shares (not
including shares purchased by reinvestment of dividends or capital gain
distributions) or (2) the original cost of the shares, whichever is less.
The Class A contingent deferred sales charge will not exceed the aggregate
commissions the Distributor paid to your dealer on all Class A shares of
all OppenheimerFunds you purchased subject to the Class A contingent
deferred sales charge.
In determining whether a contingent deferred sales charge is payable,
the Fund will first redeem shares that are not subject to the sales
charge, including shares purchased by reinvestment of dividends and
capital gains, and then will redeem other shares in the order that you
purchased them. The Class A contingent deferred sales charge is waived
in certain cases described in "Waivers of Class A Sales Charges" below.
No Class A contingent deferred sales charge is charged on exchanges
of shares under the Fund's Exchange Privilege (described below). However,
if the shares acquired by exchange are redeemed within 18 months of the
end of the calendar month of the purchase of the exchanged shares, the
sales charge will apply.
-- Special Arrangements With Dealers. The Distributor may advance
up to 13 months' commissions to dealers that have established special
arrangements with the Distributor for Asset Builder Plans for their
clients. Dealers whose sales of Class A shares of OppenheimerFunds (other
than money market funds) under OppenheimerFunds-sponsored 403(b)(7)
custodial plans exceed $5 million per year (calculated per quarter), will
receive monthly one-half of the Distributor's retained commissions on
those sales, and if those sales exceed $10 million per year, those dealers
will receive the Distributor's entire retained commission on those sales.
Reduced Sales Charges for Class A Share Purchases. You may be eligible
to buy Class A shares at reduced sales charge rates in one or more of the
following ways:
-- Right of Accumulation. To qualify for the lower sales charges
rates that apply to larger purchases of Class A shares, you and your
spouse can add together Class A shares you purchase for your own accounts,
or jointly, or on behalf of your children who are minors, under trust or
custodial accounts. A fiduciary can count all shares purchased for a
trust, estate or other fiduciary account (including one or more employee
benefit plans of the same employer) that has multiple accounts.
Additionally, you can add together current purchases of Class A
shares of the Fund and other OppenheimerFunds. You can also include Class
A shares of OppenheimerFunds you previously purchased subject to a sales
charge, provided that you still hold your investment in one of the
OppenheimerFunds. The value of those shares will be based on the greater
of the amount you paid for the shares or their current value (at offering
price). The OppenheimerFunds are listed in "Reduced Sales Charges" in the
Statement of Additional Information, or a list can be obtained from the
Transfer Agent. The reduced sales charge will apply only to current
purchases and must be requested when you buy your shares.
-- Letter of Intent. Under a Letter of Intent, you may purchase
Class A shares of the Fund and other OppenheimerFunds during a 13-month
period at the reduced sales charge rate that applies to the aggregate
amount of the intended purchases, including purchases made up to 90 days
before the date of the Letter. More information is contained in the
Application and in "Reduced Sales Charges" in the Statement of Additional
Information.
-- 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.
-- Waivers of Class A Sales Charges. No sales charge is imposed on
sales of Class A shares to the following investors: (1) the Manager or its
affiliates; (2) present or former officers, directors, trustees and
employees (and their "immediate families" as defined in "Reduced Sales
Charges" in the Statement of Additional Information) of the Fund, the
Manager and its affiliates, and retirement plans established by them for
their employees; (3) registered management investment companies, or
separate accounts of insurance companies having an agreement with the
Manager or the Distributor for that purpose; (4) dealers or brokers that
have a sales agreement with the Distributor, if they purchase shares for
their own accounts or for retirement plans for their employees; (5)
employees and registered representatives (and their spouses) of dealers
or brokers described above or financial institutions that have entered
into sales arrangements with such dealers or brokers (and are identified
to the Distributor) or with the Distributor; the purchaser must certify
to the Distributor at the time of purchase that the purchase is for the
purchaser's own account (or for the benefit of such employee's spouse or
minor children); (6) dealers, brokers or registered investment advisers
that have entered into an agreement with the Distributor providing
specifically for the use of shares of the Fund in particular investment
products made available to their clients; and (7) dealers, brokers or
registered investment advisers that have entered into an agreement with
the Distributor to sell shares to defined contribution employee retirement
plans for which the dealer, broker or investment adviser provides
administrative services.
Additionally, no sales charge is imposed on shares that are (a)
issued in plans of reorganization, such as mergers, asset acquisitions and
exchange offers, to which the Fund is a party or (b) purchased by the
reinvestment of loan repayments by a participant in a retirement plan for
which the Manager or its affiliates acts as sponsor, or (c) purchased by
the reinvestment of dividends or other distributions reinvested from the
Fund or other OppenheimerFunds (other than Oppenheimer Cash Reserves) or
unit investment trusts for which reinvestment arrangements have been made
with the Distributor. There is a further discussion of this policy in
"Reduced Sales Charges" in the Statement of Additional Information.
The Class A contingent deferred sales charge does not apply to
purchases of Class A shares at net asset value described above and is also
waived if shares are redeemed in the following cases: (1) retirement
distributions or loans to participants or beneficiaries from qualified
retirement plans, deferred compensation plans or other employee benefit
plans ("Retirement Plans"), (2) returns of excess contributions made to
Retirement Plans, (3) Automatic Withdrawal Plan payments that are limited
to no more than 12% of the original account value annually, (4)
involuntary redemptions of shares by operation of law or under the
procedures set forth in the Fund's Declaration of Trust or adopted by the
Board of Trustees, and (5) if at the time an order is placed for Class A
shares that would otherwise be subject to the Class A contingent deferred
sales charge, the dealer agrees to accept the dealer's portion of the
commission payable on the sale in installments of 1/18th of the commission
per month (with no further commission payable if the shares are redeemed
within 18 months of purchase).
-- Service Plan for Class A Shares. The Fund has adopted a Service
Plan for Class A shares to reimburse the Distributor for a portion of its
costs incurred in connection with the personal service and maintenance of
accounts that hold Class A shares. Reimbursement is made quarterly at an
annual rate that may not exceed 0.25% of the average annual net assets of
Class A shares of the Fund. The Distributor uses all of those fees to
compensate dealers, brokers, banks and other financial institutions
quarterly for providing personal service and maintenance of accounts of
their customers that hold Class A shares and to reimburse itself (if the
Fund's Board of Trustees authorizes such reimbursements, which it has not
yet done) for its other expenditures under the Plan.
Services to be provided include, among others, answering customer
inquiries about the Fund, assisting in establishing and maintaining
accounts in the Fund, making the Fund's investment plans available and
providing other services at the request of the Fund or the Distributor.
Payments are made by the Distributor quarterly at an annual rate not to
exceed 0.25% of the average annual net assets of Class A shares held in
accounts of the dealer or its customers. The payments under the Plan
increase the annual expenses of Class A shares. For more details, please
refer to "Distribution and Service Plans" in the Statement of Additional
Information.
Class B Shares. Class B shares are sold at net asset value per share
without an initial sales charge. However, if Class B shares are redeemed
within five years of their purchase, a contingent deferred sales charge
will be deducted from the redemption proceeds. That sales charge will not
apply to shares purchased by the reinvestment of dividends or capital
gains distributions. The charge will be assessed on the lesser of the net
asset value of the shares at the time of redemption or the original
purchase price. The contingent deferred sales charge is not imposed on the
amount of your account value represented by the increase in net asset
value over the initial purchase price (including increases due to the
reinvestment of dividends and capital gains distributions). The Class B
contingent deferred sales charge is paid to the Distributor to reimburse
its expenses of providing distribution-related services to the Fund in
connection with the sale of Class B shares.
To determine whether the contingent deferred sales charge applies to
a redemption, the Fund redeems shares in the following order: (1) shares
acquired by reinvestment of dividends and capital gains distributions, (2)
shares held for over 5 years, and (3) shares held the longest during the
5-year period.
The amount of the contingent deferred sales charge will depend on the
number of years since you invested and the dollar amount being redeemed,
according to the following schedule:
Years Since Beginning of Contingent Deferred Sales Charge
Month in which On Redemptions in That Year
Purchase Order Was Accepted (As % of Amount Subject to Charge)
- ------------------------------------------------------------------
0-1 4.0%
- ------------------------------------------------------------------
1-2 3.0%
- ------------------------------------------------------------------
2-3 2.0%
- ------------------------------------------------------------------
3-4 2.0%
- ------------------------------------------------------------------
4-5 1.0%
- ------------------------------------------------------------------
5 and following None
In the table, a "year" is a 12-month period. All purchases are
considered to have been made on the first regular business day of the
month in which the purchase was made. Different contingent deferred sales
charges applied to redemptions of Class B shares prior to April 1, 1994.
-- Waivers of Class B Sales Charge. The Class B contingent deferred
sales charge will be waived if the shareholder requests it for any of the
following redemptions: (1) distributions to participants or beneficiaries
from Retirement Plans, if the distributions are made (a) under an
Automatic Withdrawal Plan after the participant reaches age 59-1/2, as
long as the payments are no more than 10% of the account value annually
(measured from the date the Transfer Agent receives the request), or (b)
following the death or disability (as defined in the Internal Revenue
Code) of the participant or beneficiary; (2) redemptions from accounts
other than Retirement Plans following the death or disability of the
shareholder (you must provide evidence of a determination of disability
by the Social Security Administration), (3) returns of excess
contributions to Retirement Plans; and (4) distributions from IRAs
(including SEP-IRAs and SAR/SEP accounts) before the participant is age
59 1/2, and distributions from 403(b)(7) custodial plans or pension or
profit sharing plans before the participant is age 59 1/2 but only after
the participant has separated from service, if the distributions are made
in substantially equal periodic payments over the life (or life
expectancy) of the participant or the joint lives (or joint and last
survivor expectancy) of the participant and the participant's designated
beneficiary (and the distributions must comply with the other requirements
for such distributions under the Internal Revenue Code and may not exceed
10 % of the account value annually, measured from the date the Transfer
Agent receives the request).
The contingent deferred sales charge is also waived on Class B shares
in the following cases: (i) shares sold to the Manager or its affiliates;
(ii) shares sold to registered management investment companies or separate
accounts of insurance companies having an agreement with the Manager or
the Distributor for that purpose; (iii) shares issued in plans of
reorganization to which the Fund is a party; and (iv) shares redeemed in
involuntary redemptions as described below. Further details about this
policy are contained in "Reduced Sales Charges" in the Statement of
Additional Information.
-- Automatic Conversion of Class B Shares. 72 months after you
purchase Class B shares, those shares will automatically convert to Class
A shares. This conversion feature relieves Class B shareholders of the
asset-based sales charge that applies to Class B shares under the Class
B Distribution and Service Plan, described below. The conversion is based
on the relative net asset value of the two classes, and no sales load or
other charge is imposed. When Class B shares convert, any other Class B
shares that were acquired by the reinvestment of dividends and
distributions on the converted shares will also convert to Class A shares.
The conversion feature is subject to the continued availability of a tax
ruling described in "Alternative Sales Arrangements - Class A, Class B and
Class C Shares" in the Statement of Additional Information.
-- Distribution and Service Plan for Class B Shares. The Fund has
adopted a Distribution and Service Plan for Class B shares to reimburse
the Distributor for its services and costs in distributing Class B shares
and servicing accounts. Under the Plan, the Fund pays the Distributor an
annual "asset-based sales charge" of 0.75% per year on Class B shares that
are outstanding for 6 years or less. The Distributor also receives a
service fee of 0.25% per year. Both fees are computed on the average
annual net assets of Class B shares, determined as of the close of each
regular business day. The asset-based sales charge allows investors to buy
Class B shares without a front-end sales charge while allowing the
Distributor to compensate dealers that sell Class B shares.
The Distributor uses the service fee to compensate dealers for
providing personal services for accounts that hold Class B shares. Those
services are similar to those provided under the Class A Service Plan,
described above. The asset-based sales charge and service fees increase
Class B expenses by up to 1.00% of average net assets per year.
The Distributor pays the 0.25% service fee to dealers in advance for
the first year after Class B shares have been sold by the dealer and
retains the service fee paid by the Fund in that year. After the shares
have been held for a year, the Distributor pays the service fee on a
quarterly basis. The Distributor currently pays sales commissions of 2.75%
of the purchase price to dealers from its own resources at the time of
sale. The total up-front commission paid by the Distributor to the dealer
at the time of sale of Class B shares is 3.00% of the purchase price. The
Distributor retains the asset-based sales charge to recoup the sales
commissions it pays, the advances of service fee payments it makes, and
its financing costs.
The Distributor's actual expenses in selling Class B shares may be
more than the payments it receives from contingent deferred sales charges
collected on redeemed shares and from the Fund under the Distribution and
Service Plan for Class B shares. Therefore, those expenses may be carried
over and paid in future years. At September 30, 1994, the end of the Plan
year, the Distributor had incurred unreimbursed expenses under the Plan
of $1,289,388 (equal to 3.32% of the Fund's net assets represented by
Class B shares on that date), which have been carried over into the
present Plan year. If the Plan is terminated by the Fund, the Board of
Trustees may allow the Fund to continue payments of the asset-based sales
charge to the Distributor for certain expenses it incurred before the Plan
was terminated.
Class C Shares. Class C shares are sold at net asset value per share
without an initial sales charge. However, if Class C shares are redeemed
within 12 months of their purchase, a contingent deferred sales charge of
1.0% will be deducted from the redemption proceeds. That sales charge
will not apply to shares purchased by the reinvestment of dividends or
capital gains distributions. The charge will be assessed on the lesser of
the net asset value of the shares at the time of redemption or the
original purchase price. The contingent deferred sales charge is not
imposed on the amount of your account value represented by the increase
in net asset value over the initial purchase price (including increases
due to the reinvestment of dividends and capital gains distributions). The
Class C contingent deferred sales charge is paid to the Distributor to
reimburse its expenses of providing distribution-related services to the
Fund in connection with the sale of Class C shares.
To determine whether the contingent deferred sales charge applies to
a redemption, the Fund redeems shares in the following order: (1) shares
acquired by reinvestment of dividends and capital gains distributions, (2)
shares held for over 12 months, and (3) shares held the longest during the
12-month period.
-- Waivers of Class C Sales Charge. The Class C contingent deferred
sales charge will be waived if the shareholder requests it for any of the
redemptions or circumstances described above under "Waivers of Class B
Sales Charge."
-- Distribution and Service Plan for Class C Shares. The Fund has
adopted a Distribution and Service Plan for Class C shares to reimburse
the Distributor for its services and costs in distributing Class C shares
and servicing accounts. Under the Plan, the Fund pays the Distributor an
annual "asset-based sales charge" of 0.75% per year on Class C shares.
The Distributor also receives a service fee of 0.25% per year. Both fees
are computed on the average annual net assets of Class C shares,
determined as of the close of each regular business day. The asset-based
sales charge allows investors to buy Class C shares without a front-end
sales charge while allowing the Distributor to compensate dealers that
sell Class C shares.
The Distributor uses the service fee to compensate dealers for
providing personal services for accounts that hold Class C shares. Those
services are similar to those provided under the Class A Service Plan,
described above. The asset-based sales charge and service fees increase
Class C expenses by up to 1.00% of average net assets per year.
The Distributor pays the 0.25% service fee to dealers in advance for
the first year after Class C shares have been sold by the dealer and
retains the service fee paid by the Fund in that year. After the shares
have been held for a year, the Distributor pays the service fee on a
quarterly basis. The Distributor pays sales commissions of 0.75% of the
purchase price to dealers from its own resources at the time of sale. The
total up-front commission paid by the Distributor to the dealer at the
time of sale of Class C shares is 1.00% of the purchase price. The
Distributor retains the asset-based sales charge during the first year
shares are outstanding to recoup the sales commissions it pays, the
advances of service fee payments it makes, and its financing costs. The
Distributor plans to pay the asset-based sales charge as an ongoing
commission to the dealer on Class C shares that have been outstanding for
a year or more.
Because the Distributor's actual expenses in selling Class C shares
may be more than the payments it receives from contingent deferred sales
charges collected on redeemed shares and from the Fund under the
Distribution and Service Plan for Class C shares, those expenses may be
carried over and paid in future years. If the Plan is terminated by the
Fund, the Board of Directors may allow the Fund to continue payments of
the asset-based sales charge to the Distributor for certain expenses it
incurred before the plan was terminated.
Special Investor Services
AccountLink. OppenheimerFunds AccountLink links your Fund account to your
account at your bank or other financial institution to enable you to send
money electronically between those accounts to perform a number of types
of account transactions, including purchases of shares by telephone
(either through a service representative or by PhoneLink, described
below), automatic investments under Asset Builder Plans, and sending
dividends and distributions or Automatic Withdrawal Plan payments directly
to your bank account. Please refer to the Application for details or call
the Transfer Agent for more information.
AccountLink privileges must be requested on the Application you use
to buy shares, or on your dealer's settlement instructions if you buy your
shares through your dealer. After your account is established, you can
request AccountLink privileges on signature-guaranteed instructions to the
Transfer Agent. AccountLink privileges will apply to each shareholder
listed in the registration on your account as well as to your dealer
representative of record unless and until the Transfer Agent receives
written instructions terminating or changing those privileges. After you
establish AccountLink for your account, any change of bank account
information must be made by signature-guaranteed instructions to the
Transfer Agent signed by all shareholders who own the account.
-- Using AccountLink to Buy Shares. Purchases may be made by
telephone only after your account has been established. To purchase shares
in amounts up to $250,000 through a telephone representative, call the
Distributor at 1-800-852-8457. The purchase payment will be debited from
your bank account.
-- PhoneLink. PhoneLink is the OppenheimerFunds automated telephone
system that enables shareholders to perform a number of account
transactions automatically using a touch-tone phone. PhoneLink may be
used on already-established Fund accounts after you obtain a Personal
Identification Number (PIN), by calling the special PhoneLink number: 1-
800-533-3310.
-- Purchasing Shares. You may purchase shares in amounts up to
$100,000 by phone, by calling 1-800-533-3310. You must have established
AccountLink privileges to link your bank account with the Fund, to pay for
these purchases.
-- Exchanging Shares. With the OppenheimerFunds Exchange Privilege,
described below, you can exchange shares automatically by phone from your
Fund account to another OppenheimerFunds account you have already
established by calling the special PhoneLink number. Please refer to "How
to Exchange Shares," below, for details.
-- Selling Shares. You can redeem shares by telephone automatically
by calling the PhoneLink number and the Fund will send the proceeds
directly to your AccountLink bank account. Please refer to "How to Sell
Shares," below for details.
Automatic Withdrawal and Exchange Plans. The Fund has several plans that
enable you to sell shares automatically or exchange them to another
OppenheimerFunds account on a regular basis:
-- Automatic Withdrawal Plans. If your Fund account is $5,000 or
more, you can establish an Automatic Withdrawal Plan to receive payments
of at least $50 on a monthly, quarterly, semi-annual or annual basis. The
checks may be sent to you or sent automatically to your bank account on
AccountLink. You may even set up certain types of withdrawals of up to
$1,500 per month by telephone. You should consult the Application and
Statement of Additional Information for more details.
-- Automatic Exchange Plans. You can authorize the Transfer Agent to
exchange an amount you establish in advance automatically for shares of
up to five other OppenheimerFunds on a monthly, quarterly, semi-annual or
annual basis under an Automatic Exchange Plan. The minimum purchase for
each other OppenheimerFunds account is $25. These exchanges are subject
to the terms of the Exchange Privilege, described below.
Reinvestment Privilege. If you redeem some or all of your Fund shares,
you have up to 6 months to reinvest all or part of the redemption proceeds
in Class A shares of the Fund or other OppenheimerFunds without paying
sales charge. This privilege applies to Fund shares that you purchased
with an initial sales charge or on which you paid a contingent deferred
sales charge when you redeemed them. You must be sure to ask the
Distributor for this privilege when you send your payment. Please consult
the Statement of Additional Information for more details.
Retirement Plans. Fund shares are available as an investment for your
retirement plans. If you participate in a plan sponsored by your employer,
the plan trustee or administrator must make the purchase of shares for
your retirement plan account. The Distributor offers a number of different
retirement plans that can be used by individuals and employers:
-- Individual Retirement Accounts including rollover IRAs, for
individuals and their spouses
-- 403(b)(7) Custodial Plans for employees of eligible tax-exempt
organizations, such as schools, hospitals and charitable organizations
-- SEP-IRAs (Simplified Employee Pension Plans) for small business
owners or people with income from self-employment, including SARSEP-IRAs
-- Pension and Profit-Sharing Plans for self-employed persons and
small business owners
Please call the Distributor for the OppenheimerFunds plan documents,
which contain important information and applications.
How to Sell Shares
You can arrange to take money out of your account on any regular
business day by selling (redeeming) some or all of your shares. Your
shares will be sold at the next net asset value calculated after your
order is received and accepted by the Transfer Agent. The Fund offers you
a number of ways to sell your shares: in writing, or by using the Fund's
checkwriting privilege, or by telephone. You can also set up Automatic
Withdrawal Plans to redeem shares on a regular basis, as described above.
If you have questions about any of these procedures, and especially if you
are redeeming shares in a special situation, such as due to the death of
the owner, or from a retirement plan, please call the Transfer Agent
first, at 1-800-525-7048, for assistance.
-- Retirement Accounts. To sell shares in an OppenheimerFunds
retirement account in your name, call the Transfer Agent for a
distribution request form. There are special income tax withholding
requirements for distributions from retirement plans and you must submit
a withholding form with your request to avoid delay. If your retirement
plan account is held for you by your employer, you must arrange for the
distribution request to be sent by the plan administrator or trustee.
There are additional details in the Statement of Additional Information.
-- Certain Requests Require a Signature Guarantee. To protect you
and the Fund from fraud, certain redemption requests must be in writing
and must include a signature guarantee in the following situations (there
may be other situations also requiring a signature guarantee):
-- You wish to redeem more than $50,000 worth of shares and receive
a check
-- The check is not payable to all shareholders listed on the account
statement
-- The check is not sent to the address of record on your statement
-- Shares are being transferred to a Fund account with a different
owner or name
-- Shares are redeemed by someone other than the owners (such as an
Executor)
-- Where Can I Have My Signature Guaranteed? The Transfer Agent will
accept a guarantee of your signature by a number of financial
institutions, including: a U.S. bank, trust company, credit union or
savings association, or from a foreign bank that has a U.S. correspondent
bank, or by a U.S. registered dealer or broker in securities, municipal
securities or government securities, or by a U.S. national securities
exchange, a registered securities association or a clearing agency. If you
are signing as a fiduciary or on behalf of a corporation, partnership or
other business, you must also include your title in the signature.
Selling Shares by Mail. Write a "letter of instructions" that includes:
-- Your name
-- The Fund's name
-- Your Fund account number (from your account statement)
-- The dollar amount or number of shares to be redeemed
-- Any special payment instructions
-- Any share certificates for the shares you are selling, and
-- Any special requirements or documents requested by the Transfer
Agent to assure proper authorization of the person asking to sell shares.
Use the following address for requests by mail:
Oppenheimer Shareholder Services
P.O. Box 5270, Denver, Colorado 80217
Send courier or Express Mail requests to:
Oppenheimer Shareholder Services
10200 E. Girard Avenue, Building D
Denver, Colorado 80231
Selling Shares by Telephone. You and your dealer representative of record
may also sell your shares by telephone. To receive the redemption price
on a regular business day, your call must be received by the Transfer
Agent by the close of The New York Stock Exchange that day, which is
normally 4:00 P.M., but may be earlier on some days. You may not redeem
shares held in an OppenheimerFunds retirement plan or under a share
certificate by telephone.
-- To redeem shares through a service representative, call
1-800-852-8457
-- To redeem shares automatically on PhoneLink, call 1-800-533-3310
Whichever method you use, you may have a check sent to the address
on the account, or, if you have linked your Fund account to your bank
account on AccountLink, you may have the proceeds wired to that account.
-- Telephone Redemptions Paid by Check. Up to $50,000 may be redeemed
by telephone, in any 7-day period. The check must be payable to all
owners of record of the shares and must be sent to the address on the
account. This service is not available within 30 days of changing the
address on an account.
-- Telephone Redemptions Through AccountLink or Wire. There are no
dollar limits on telephone redemption proceeds sent to a bank account
designated when you establish AccountLink. Normally the ACH wire to your
bank is initiated on the business day after the redemption. You do not
receive dividends on the proceeds of the shares you redeemed while they
are waiting to be wired.
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.
Checkwriting. To be able to write checks against your Fund account, you
may request that privilege on your account Application or you can contact
the Transfer Agent for signature cards, which must be signed (with a
signature guarantee) by all owners of the account and returned to the
Transfer Agent so that checks can be sent to you to use. Shareholders with
joint accounts can elect in writing to have checks paid over the signature
of one owner.
-- Checks can be written to the order of whomever you wish, but may
not be cashed at the Fund's bank or custodian.
-- Checkwriting privileges are not available for accounts holding
Class B shares or Class C shares, or Class A shares that are subject to
a contingent deferred sales charge.
-- Checks must be written for at least $100.
-- Checks cannot be paid if they are written for more than your
account value. Remember: your shares fluctuate in value and you should
not write a check close to the total account value.
-- You may not write a check that would require the Fund to redeem
shares that were purchased by check or Asset Builder Plan payments within
the prior 10 days.
-- Don't use your checks if you changed your Fund account number.
The Fund will charge a $10 fee for any check that is not paid because
(1) the owners of the account told the Fund not to pay the check, or (2)
the check was for more than the account balance, or (3) the check did not
have the proper signatures, (4) or the check was written for less than
$100.
How to Exchange Shares
Shares of the Fund may be exchanged for shares of certain
OppenheimerFunds at net asset value per share at the time of exchange,
without sales charge. A $5 service fee will be deducted from the fund
account you are exchanging into to help defray administrative costs. That
charge is waived for automated exchanges made by brokers on Fund/SERV and
for automated exchanges between already established accounts on PhoneLink
described below. To exchange shares, you must meet several conditions:
-- Shares of the fund selected for exchange must be available for
sale in your state of residence.
-- The prospectuses of this Fund and the fund whose shares you want
to buy must offer the exchange privilege.
-- You must hold the shares you buy when you establish your account
for at least 7 days before you can exchange them; after the account is
open 7 days, you can exchange shares every regular business day.
-- You must meet the minimum purchase requirements for the fund you
purchase by exchange.
-- Before exchanging into a fund, you should obtain and read its
prospectus.
Shares of a particular class may be exchanged only for shares of the
same class in the other OppenheimerFunds. For example, you can exchange
Class A shares of this Fund only for Class A shares of another fund. At
present, not all of the OppenheimerFunds offer the same classes of shares.
If a fund has only one class of shares that does not have a class
designation, they are "Class A" shares for exchange purposes. In some
cases, sales charges may be imposed on exchange transactions. Certain
OppenheimerFunds offer Class A shares and either Class B or Class C
shares, and a list can be obtained by calling the Distributor at 1-800-
525-7048. Please refer to "How to Exchange Shares" in the Statement of
Additional Information for more details.
Exchanges may be requested in writing or by telephone:
-- Written Exchange Requests. Submit an OppenheimerFunds Exchange
Request form, signed by all owners of the account. Send it to the
Transfer Agent at the addresses listed in "How to Sell Shares."
-- Telephone Exchange Requests. Telephone exchange requests may be
made either by calling a service representative at 1-800-852-8457 or by
using PhoneLink for automated exchanges, by calling 1-800-533-3310.
Telephone exchanges may be made only between accounts that are registered
with the same names and address. Shares held under certificates may not
be exchanged by telephone.
You can find a list of OppenheimerFunds currently available for
exchanges in the Statement of Additional Information or by calling a
service representative at 1-800-525-7048. Exchanges of shares involve a
redemption of the shares of the fund you own and a purchase of shares of
the other fund.
There are certain exchange policies you should be aware of:
-- Shares are normally redeemed from one fund and purchased from the
other fund in the exchange transaction on the same regular business day
on which the Transfer Agent receives an exchange request in proper form
by the close of The New York Stock Exchange that day, which is normally
4:00 P.M. but may be earlier on some days. However, either fund may delay
the purchase of shares of the fund you are exchanging into if it
determines it would be disadvantaged by a same-day transfer of the
proceeds to buy shares. For example, the receipt of multiple exchange
requests from a dealer in a "market-timing" strategy might require the
disposition of securities at a time or price disadvantageous to the Fund.
-- Because excessive trading can hurt fund performance and harm
shareholders, the Fund reserves the right to refuse any exchange request
that will disadvantage it, or to refuse multiple exchange requests
submitted by a shareholder or dealer.
-- The Fund may amend, suspend or terminate the exchange privilege
at any time. Although the Fund will attempt to provide you notice
whenever it is reasonably able to do so, it may impose these changes at
any time.
-- If the Transfer Agent cannot exchange all the shares you request
because of a restriction cited above, only the shares eligible for
exchange will be exchanged.
Shareholder Account Rules and Policies
-- Net Asset Value Per Share is determined for each class of shares
as of the close of The New York Stock Exchange on each regular business
day by dividing the value of the Fund's net assets attributable to a class
by the number of shares of that class that are outstanding. The Fund's
Board of Trustees has established procedures to value the Fund's
securities to determine net asset value. In general, securities values
are based on market value. There are special procedures for valuing
illiquid and restricted securities, obligations for which market values
cannot be readily obtained, and call options and hedging instruments.
These procedures are described more completely in the Statement of
Additional Information.
-- The offering of shares may be suspended during any period in which
the determination of net asset value is suspended, and the offering may
be suspended by the Board of Trustees at any time the Board believes it
is in the Fund's best interest to do so.
-- Telephone Transaction Privileges for purchases, redemptions or
exchanges may be modified, suspended or terminated by the Fund at any
time. If an account has more than one owner, the Fund and the Transfer
Agent may rely on the instructions of any one owner. Telephone privileges
apply to each owner of the account and the dealer representative of record
for the account unless and until the Transfer Agent receives cancellation
instructions from an owner of the account.
-- The Transfer Agent will record any telephone calls to verify data
concerning transactions and has adopted other procedures to confirm that
telephone instructions are genuine, by requiring callers to provide tax
identification numbers and other account data or by using PINs, and by
confirming such transactions in writing. If the Transfer Agent does not
use reasonable procedures it may be liable for losses due to unauthorized
transactions, but otherwise neither it nor the Fund will be liable for
losses or expenses arising out of telephone instructions reasonably
believed to be genuine. If you are unable to reach the Transfer Agent
during periods of unusual market activity, you may not be able to complete
a telephone transaction and should consider placing your order by mail.
-- Redemption or transfer requests will not be honored until the
Transfer Agent receives all required documents in proper form. From time
to time, the Transfer Agent in its discretion may waive certain of the
requirements for redemptions stated in this Prospectus.
-- Dealers that can perform account transactions for their clients
by participating in NETWORKING through the National Securities Clearing
Corporation are responsible for obtaining their clients' permission to
perform those transactions and are responsible to their clients who are
shareholders of the Fund if the dealer performs any transaction
erroneously.
-- The redemption price for shares will vary from day to day because
the value of the securities in the Fund's portfolio fluctuates, and the
redemption price, which is the net asset value per share, will normally
be different for Class A, Class B and Class C shares. Therefore, the
redemption value of your shares may be more or less than their original
cost.
-- Payment for redeemed shares is made ordinarily in cash and
forwarded by check or through AccountLink (as elected by the shareholder
under the redemption procedures described above) within 7 days after the
Transfer Agent receives redemption instructions in proper form, except
under unusual circumstances determined by the Securities and Exchange
Commission delaying or suspending such payments. The Transfer Agent may
delay forwarding a check or processing a payment via AccountLink for
recently purchased shares, but only until the purchase payment has
cleared. That delay may be as much as 10 days from the date the shares
were purchased. That delay may be avoided if you purchase shares by
certified check or arrange with your bank to provide telephone or written
assurance to the Transfer Agent that your purchase payment has cleared.
-- Involuntary redemptions of small accounts may be made by the Fund
if the account value has fallen below $200 for reasons other than the fact
that the market value of shares has dropped, and in some cases involuntary
redemptions may be made to repay the Distributor for losses from the
cancellation of share purchase orders.
-- Under unusual circumstances, shares of the Fund may be redeemed
"in kind," which means that the redemption proceeds will be paid with
securities from the Fund's portfolio. Please refer to the Statement of
Additional Information for more details.
-- "Backup Withholding" of Federal income tax may be applied at the
rate of 31% from dividends, distributions and redemption proceeds
(including exchanges) if you fail to furnish the Fund a certified Social
Security or taxpayer identification number when you sign your application,
or if you violate Internal Revenue Service regulations on tax reporting
of income.
-- The Fund does not charge a redemption fee, but if your dealer or
broker handles your redemption, they may charge a fee. That fee can be
avoided by redeeming your Fund shares directly through the Transfer Agent.
Under the circumstances described in "How To Buy Shares," you may be
subject to a contingent deferred sales charges when redeeming certain
Class A, Class B and Class C shares.
-- To avoid sending duplicate copies of materials to households, the
Fund will mail only one copy of each annual and semi-annual report and
updated prospectus to shareholders having the same last name and address
on the Fund's records. However, each shareholder may call the Transfer
Agent at 1-800-525-7048 to ask that copies of those materials be sent
personally to that shareholder.
Dividends, Capital Gains and Taxes
Dividends. The Fund declares dividends separately for Class A, Class B and
Class C shares from net investment income each regular business day and
pays those dividends to shareholders monthly. Normally, dividends are paid
on the last business day every month, but the Board of Trustees can change
that date. Distributions may be made monthly from any net short-term
capital gains the Fund realizes in selling securities. Dividends paid on
Class A shares generally are expected to be higher than for Class B and
Class C shares because expenses allocable to Class B and Class C shares
will generally be higher.
Commencing with the Fund's fiscal quarter beginning July 1, 1994, the
Fund adopted the practice, to the extent consistent with the amount of the
Fund's net investment income and other distributable income, of attempting
to pay dividends on Class A shares at a constant level, although the
amount of such dividends are subject to change from time to time depending
on market conditions, the composition of the Fund's portfolio and expenses
borne by the Fund or borne separately by that Class. The practice of
attempting to pay dividends on Class A shares at a constant level requires
the Manager, consistent with the Fund's investment objective and
investment restrictions, to monitor the Fund's portfolio and select higher
yielding securities when deemed appropriate to maintain necessary net
investment income levels. The Fund anticipates paying dividends at the
targeted dividend level from net investment income and other distributable
income without any impact on the Fund's net asset value per share. The
Board of Trustees may change the Fund's targeted dividend level at any
time, without prior notice to shareholders; the Fund does not otherwise
have a fixed dividend rate and there can be no assurance as to the payment
of any dividends or the realization of any capital gains.
Capital Gains. The Fund may make distributions annually in December out
of any net short-term or long-term capital gains, and the Fund may make
supplemental distributions of dividends and capital gains following the
end of its fiscal year, which is September 30th. Long-term capital gains
will be separately identified in the tax information the Fund sends you
after the end of the year. Short-term capital gains are treated as
dividends for tax purposes. There can be no assurance that the Fund will
pay any capital gains distributions in a particular year.
Distribution Options. When you open your account, specify on your
application how you want to receive your distributions. For
OppenheimerFunds retirement accounts, all distributions are reinvested.
For other accounts, you have four options:
-- Reinvest All Distributions In The Fund. You can elect to reinvest
all dividends and long-term capital gains distributions in additional
shares of the Fund.
-- Reinvest Capital Gains Only. You can elect to reinvest long-term
capital gains in the Fund while receiving dividends by check or sent to
your bank account on AccountLink.
-- Receive All Distributions In Cash. You can elect to receive a
check for all dividends and long-term capital gains distributions or have
them sent to your bank on AccountLink.
-- Reinvest Your Distributions In Another OppenheimerFunds Account.
You can reinvest all distributions in another OppenheimerFunds account you
have established.
Taxes. If your account is not a tax-deferred retirement account, you
should be aware of the following tax implications of investing in the
Fund. Long-term capital gains are taxable as long-term capital gains when
distributed to shareholders. Dividends paid from short-term capital gains
and net investment income are taxable as ordinary income. Distributions
are subject to Federal income tax and may be subject to state or local
taxes. Your distributions are taxable when paid, whether you reinvest
them in additional shares or take them in cash. Every year the Fund will
send you and the IRS a statement showing the amount of each taxable
distribution you received in the previous year.
-- "Buying a Dividend". When a fund goes ex-dividend, its share
price is reduced by the amount of the distribution. If you buy shares on
or just before the ex-dividend date, or just before the Fund declares a
capital gains distribution, you will pay the full price for the shares and
then receive a portion of the price back as a taxable dividend or capital
gain.
-- Taxes on Transactions. Share redemptions, including redemptions
for exchanges, are subject to capital gains tax. A capital gain or loss
is the difference between the price you paid for the shares and the price
you received when you sold them.
-- Returns of Capital. In certain cases distributions made by the
Fund may be considered a non-taxable return of capital to shareholders.
If that occurs, it will be identified in notices to shareholders. A
non-taxable return of capital may reduce your tax basis in your Fund
shares.
This information is only a summary of certain federal tax information
about your investment. More information is contained in the Statement of
Additional Information, and in addition you should consult with your tax
adviser about the effect of an investment in the Fund on your particular
tax situation.
<PAGE>
APPENDIX TO PROSPECTUS OF
OPPENHEIMER LIMITED-TERM GOVERNMENT FUND
Graphic material included in Prospectus of Oppenheimer Limited-Term
Government Fund: "Comparison of Total Return of Oppenheimer Limited-Term
Government Fund with Lehman Brothers U.S. Government Bond Index and Lehman
Brothers 1-3 Year Government Bond Index - Change in Value of a $10,000
Hypothetical Investment."
A linear graph will be included in the Prospectus of Oppenheimer
Limited-Term Government Fund (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 from inception of the Fund (March 10,
1986) to fiscal year-end September 30, 1994 and (ii) Class B shares of the
Fund during the period May 3, 1993 (first public offering of Class B
shares) to September 30, 1994, in each case comparing such values with the
same investments over the same time periods with the Lehman Brothers U.S.
Government Bond Index and the Lehman Brothers 1-3 Year Government Bond
Index. No performance information is set forth on the Fund's Class C
shares because they were not publicly-offered during the fiscal year ended
September 30, 1994. 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 and the Lehman Brothers 1-3 Year Government Bond
Index, is set forth in the Prospectus under "Comparing the Fund's
Performance to the Market."
<TABLE>
<CAPTION>
Oppenheimer Lehman Bros. Lehman Bros.
Limited-Term U.S. Govt. 1-3 Yr Govt.
Government: A Bond Index Bond Index
<S> <C> <C> <C>
03/10/86 $ 9,650 $10,000 $10,000
09/30/86 $10,130 $10,330 $10,463
09/30/87 $10,226 $10,266 $10,880
09/30/88 $11,643 $11,500 $11,833
09/30/89 $12,767 $12,780 $12,884
09/30/90 $13,935 $13,666 $14,085
09/30/91 $15,982 $15,778 $15,671
09/30/92 $17,560 $17,817 $17,226
05/03/93 $18,312 $18,752 $17,700
09/30/93 $18,896 $19,791 $18,077
09/30/94 $19,037 $18,991 $18,284
Oppenheimer Lehman Bros. Lehman Bros.
Limited-Term U.S. Govt. 1-3 Yr Govt.
Government: B Bond Index Bond Index
05/03/93 $10,000 $10,000 $10,000
09/30/93 $10,282 $10,554 $10,213
09/30/94 $ 9,980 $10,128 $10,330
</TABLE>
<PAGE>
Oppenheimer Limited-Term Government Fund
3410 South Galena Street
Denver, Colorado 80231
1-800-525-7048
Investment Advisor
Oppenheimer Management Corporation
Two World Trade Center
New York, New York 10048-0203
Distributor
Oppenheimer Funds Distributor, Inc. OPPENHEIMER
Two World Trade Center Limited-Term
New York, New York 10048-0203 Government
Fund
Transfer and Shareholder Servicing Agent
Oppenheimer Shareholder Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Prospectus
Custodian of Portfolio Securities Effective February 1, 1995
Citibank, N.A.
399 Park Avenue
New York, New York 10043
</R?
Independent Auditors
Deloitte & Touche LLP
1560 Broadway
Denver, Colorado 80202
Legal Counsel
Myer, Swanson, Adams & Wolf, P.C.
1600 Broadway
Denver, Colorado 80202
No dealer, broker, salesperson or any
other person has been authorized to
give any information or to make any
representations other than those
contained in this Prospectus or the
Statement of Additional Information,
and if given or made, such information
and representations must not be relied
upon as having been authorized by the
Fund, Oppenheimer Management
Corporation, Oppenheimer Funds
Distributor, Inc. 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.
[OppenheimerFunds Logo]
PR856.0894.N *Printed on recycled paper
<PAGE>
Oppenheimer Limited-Term Government Fund
3410 South Galena Street
Denver, Colorado 80231
1-800-525-7048
Investment Advisor
Oppenheimer Management Corporation
Two World Trade Center
New York, New York 10048-0203
Distributor
Oppenheimer Funds Distributor, Inc. OPPENHEIMER
Two World Trade Center Limited-Term
New York, New York 10048-0203 Government
Fund
Transfer and Shareholder Servicing Agent
Oppenheimer Shareholder Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048 Prospectus and
New Account Application
Custodian of Portfolio Securities Effective February 1, 1995
Citibank, N.A.
399 Park Avenue
New York, New York 10043
Independent Auditors
Deloitte & Touche LLP
1560 Broadway
Denver, Colorado 80202
Legal Counsel
Myer, Swanson, Adams & Wolf, P.C.
1600 Broadway
Denver, Colorado 80202
No dealer, broker, salesperson or any
other person has been authorized to
give any information or to make any
representations other than those
contained in this Prospectus or the
Statement of Additional Information,
and if given or made, such information
and representations must not be relied
upon as having been authorized by the
Fund, Oppenheimer Management
Corporation, Oppenheimer Funds
Distributor, Inc. 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.
[OppenheimerFunds Logo]
PR855.0894.N *Printed on recycled paper
<PAGE>
Oppenheimer Limited-Term Government Fund
3410 South Galena Street, Denver, Colorado 80231
1-800-525-7048
Statement of Additional Information dated February 1, 1995.
This Statement of Additional Information of Oppenheimer Limited-Term
Government Fund is not a Prospectus. This document contains additional
information about the Fund and supplements information in the Prospectus
dated February 1, 1995. It should be read together with the Prospectus
which may be obtained by writing to the Fund's Transfer Agent, Oppenheimer
Shareholder Services, at P.O. Box 5270, Denver, Colorado 80217 or by
calling the Transfer Agent at the toll-free number shown above.
Contents
<TABLE>
<CAPTION>
Page
About the Fund
<S> <C>
Investment Objective and Policies. . . . . . . . . . . . . 2
Other Investment Techniques and Strategies. . . . . . . 4
Other Investment Restrictions . . . . . . . . . . . . . 13
How the Fund is Managed. . . . . . . . . . . . . . . . . . 13
Organization and History. . . . . . . . . . . . . . . . 13
Trustees and Officers of the Fund . . . . . . . . . . . 14
The Manager and Its Affiliates. . . . . . . . . . . . . 17
Brokerage Policies of the Fund . . . . . . . . . . . . . . 18
Performance of the Fund. . . . . . . . . . . . . . . . . . 20
Distribution and Service Plans . . . . . . . . . . . . . . 24
About Your Account
How to Buy Shares. . . . . . . . . . . . . . . . . . . . . 26
How to Sell Shares . . . . . . . . . . . . . . . . . . . . 32
How to Exchange Shares . . . . . . . . . . . . . . . . . . 36
Dividends, Capital Gains and Taxes . . . . . . . . . . . . 38
Additional Information about the Fund. . . . . . . . . . . 39
Financial Information About the Fund
Independent Auditors' Report . . . . . . . . . . . . . . . 41
Financial Statements . . . . . . . . . . . . . . . . . . . 42
Appendix: Industry Classifications . . . . . . . . . . . . A-1
</TABLE>
<PAGE>
ABOUT THE FUND
Investment Objective And Policies
Investment Policies and Strategies. The investment objective and policies
of the Fund are described in the Prospectus. Set forth below is
supplemental information about those policies and the types of securities
in which the Fund invests, as well as the strategies the Fund may use to
try to achieve its objective. Capitalized terms used in this Statement
of Additional Information have the same meaning as those terms have in the
Prospectus.
The obligations of U.S. Government agencies or instrumentalities in
which the Fund may invest may or may not be guaranteed or supported by the
"full faith and credit" of the United States. Some are backed by the
right of the issuer to borrow from the U.S. Treasury; others, by
discretionary authority of the U.S. Government to purchase the agencies'
obligations; while others are supported only by the credit of the
instrumentality. All U.S. Treasury obligations are backed by the full
faith and credit of the United States. If the securities are not backed
by the full faith and credit of the United States, the owner of the
securities must look principally to the agency issuing the obligation for
repayment and may not be able to assert a claim against the United States
in the event that the agency or instrumentality does not meet its
commitment. The Fund will invest in U.S. Government Securities of such
agencies and instrumentalities only when the Fund's investment manager,
Oppenheimer Management Corporation (the "Manager") is satisfied that the
credit risk with respect to such instrumentality is minimal.
General changes in prevailing interest rates will affect the values
of the Fund's portfolio securities. The value will vary inversely to
changes in such rates. For example, if such rates go up after a security
is purchased, the value of the security will generally decline. A
decrease in interest rates may affect the maturity and yield of mortgage-
backed securities by increasing unscheduled prepayments of the underlying
mortgages. With its objective of seeking high current return and safety
of principal, the Fund may purchase or sell securities without regard to
the length of time the security has been held, to take advantage of short-
term differentials in yields. While short-term trading increases the
portfolio turnover, the execution cost for U.S. Government Securities is
substantially less than for equivalent dollar values of equity securities
(see "Brokerage Provisions of the Investment Advisory Agreement," below).
Under normal circumstances, the Fund anticipates that it will
maintain a dollar-weighted average portfolio effective duration of not
more than three years. Subject to that limitation, the Fund may invest
in individual debt obligations of any maturity or duration. The Manager
will in good faith determine the effective duration of debt obligations
purchased by the Fund and will consider various factors applicable to each
type of debt obligation, including those set forth below. Duration
incorporates a bond's yield, coupon interest payments, final maturity and
call features into one measure. For generic fixed-income securities,
duration is calculated as the average time of present-value-weighted cash
flows divided by a small adjustment factor, pursuant to a calculation
known as modified Macaulay duration. Thus, for any generic fixed-income
security with interest payments occurring prior to the payment of
principal, duration is also less than maturity. Also, all other factors
being equal, the lower the stated or coupon rate of interest of a fixed-
income security, the longer the duration of the security; conversely, the
higher the stated or coupon rate of interest of a fixed-income security,
the shorter the duration of the security.
Futures, options and options on futures have durations which, in
general, are closely related to the duration of the securities which
underlie them. Holding long futures or call option positions (backed by
segregated liquid assets) will lengthen the portfolio's duration. There
are some situations, however, where the standard modified Macaulay
duration calculation does not properly reflect the interest rate exposure
of a security. For example, the interest rate exposure is not properly
captured by modified Macaulay duration in the case of mortgage pass-though
securities. The stated final maturity of such securities is generally 30
years, but changes in prepayment rates are more critical in determining
the securities' price exposure to interest rates. Indeed, the modified
Macaulay calculation even falls short in calculating the price sensitivity
of callable bonds to interest rates. In these and other similar
situations, the Manager will use more sophisticated analytical techniques
that incorporate the economic life of a security as well as relevant
macroeconomic factors (e.g., mortgage prepayment rates) into the
determination of the Fund's effective duration.
The U.S. Government Securities in which the Fund may invest include
the following:
-- 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.
Other Investment Techniques And Strategies
-- Repurchase Agreements. The Fund may acquire securities that are
subject to repurchase agreements, in order to generate income while
providing liquidity. In a repurchase transaction, the Fund acquires a
security from, and simultaneously resells it to, an approved vendor (a
U.S. commercial bank, U.S. branch of a foreign bank or a broker-dealer
which has been designated a primary dealer in government securities, which
must meet the credit requirements set by the Fund's Board of Trustees from
time to time), for delivery on an agreed upon future date. The sale price
exceeds the purchase price by an amount that reflects an agreed-upon
interest rate effective for the period during which the repurchase
agreement is in effect. The majority of these transactions run from day
to day, and delivery pursuant to resale typically will occur within one
to five days of the purchase. Repurchase agreements are considered
"loans" under the Investment Company Act, collateralized by the underlying
security. The Fund's repurchase agreements will require that at all times
while the repurchase agreement is in effect, the collateral's value must
equal or exceed the repurchase price to collateralize the repayment
obligation. Additionally, the Manager will impose creditworthiness
requirements to confirm that the vendor is financially sound and will
continuously monitor the collateral's value. If the vendor of a
repurchase agreement fails to pay the agreed-upon resale price on the
delivery date, the Fund's risks in such event may include any costs of
disposing of the collateral, and any loss from any delay in foreclosing
on the collateral.
-- 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). As a fundamental
policy, the Fund 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. 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.
-- Restricted and Illiquid Securities. To enable the Fund to sell
restricted securities not registered under the Securities Act of 1933, the
Fund may have to cause those securities to be registered. The expenses
of registration of restricted securities may be negotiated by the Fund
with the issuer at the time such securities are purchased by the Fund,
if such registration is required before such securities may be sold
publicly. When registration must be arranged because the Fund wishes to
sell the security, a considerable period may elapse between the time the
decision is made to sell the securities and the time the Fund would be
permitted to sell them. The Fund would bear the risks of any downward
price fluctuation during that period. The Fund may also acquire, through
private placements, securities having contractual restrictions on their
resale, which might limit the Fund's ability to dispose of such securities
and might lower the amount realizable upon the sale of such securities.
-- Loans of Portfolio Securities. The Fund may lend its portfolio
securities (other than in repurchase transactions) to brokers, dealers and
other financial institutions 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. Such terms 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 of Trustees. In connection with securities lending, the Fund might
experience risks of delay in receiving additional collateral, or risks of
delay in recovery of the securities, or loss of rights in the collateral
should the borrower fail financially. The Fund will not lend its
portfolio securities to any officer, trustee, employee or affiliate of
the Fund or its Manager. The terms of the Fund's loans must meet certain
tests under the Internal Revenue Code and permit the Fund to reacquire
loaned securities on five business days' notice or in time to vote on any
important matter.
-- "When-Issued" and Delayed Delivery Transactions. The Fund may
purchase securities on a "when-issued" basis, and may purchase or sell
such securities on a "delayed delivery" basis. Although the Fund will
enter into such transactions for the purpose of acquiring securities for
its portfolio or for delivery pursuant to options contracts it has entered
into, the Fund may dispose of a commitment prior to settlement. "When-
issued" or "delayed delivery" refers to securities whose terms and
indenture are available and for which a market exists, but which are not
available for immediate delivery. When such transactions are negotiated,
the price (which is generally expressed in yield terms) is fixed at the
time the commitment is made, but delivery and payment for the securities
take place at a later date. The Fund does not intend to make such
purchases for speculative purposes. Such securities may bear interest at
a lower rate than longer-term securities. The commitment to purchase a
security for which payment will be made on a future date may be deemed a
separate security and involve a risk of loss if the value of the security
declines prior to the settlement date. During the period between
commitment by the Fund and settlement (generally within two months but not
to exceed 120 days), no payment is made for the securities purchased by
the purchaser, and no interest accrues to the purchaser from the
transaction. Such securities are subject to market fluctuation; the value
at delivery may be less than the purchase price. The Fund will maintain
a segregated account with its Custodian, consisting of cash, U.S.
Government securities or other high grade debt obligations at least equal
to the value of purchase commitments until payment is made.
The Fund will engage in when-issued transactions in order to secure
what is considered to be an advantageous price and yield at the time of
entering into the obligation. When the Fund engages in when-issued or
delayed delivery transactions, it relies on the buyer or seller, as the
case may be, to consummate the transaction. Failure of the buyer or
seller to do so may result in the Fund losing the opportunity to obtain
a price and yield considered to be advantageous. At the time the Fund
makes a commitment to purchase or sell a security on a when-issued or
forward commitment basis, it records the transaction and reflects the
value of the security purchased, or if a sale, the proceeds to be
received, in determining its net asset value. If the Fund chooses to (i)
dispose of the right to acquire a when-issued security prior to its
acquisition or (ii) dispose of its right to deliver or receive against a
forward commitment, it may incur a gain or loss.
To the extent the Fund engages in when-issued and delayed delivery
transactions, it will do so for the purpose of acquiring or selling
securities consistent with its investment objective and policies and not
for the purposes of investment leverage. The Fund enters into such
transactions only with the intention of actually receiving or delivering
the securities, although (as noted above), when-issued securities and
forward commitments may be sold prior to settlement date. In addition,
changes in interest rates before settlement in a direction other than that
expected by the Manager will affect the value of such securities and may
cause a loss to the Fund.
When-issued transactions and forward commitments allow the Fund a
technique to use against anticipated changes in interest rates and prices.
For instance, in periods of rising interest rates and falling prices, the
Fund might sell securities in its portfolio on a forward commitment basis
to attempt to limit its exposure to anticipated falling prices. In
periods of falling interest rates and rising prices, the Fund might sell
portfolio securities and purchase the same or similar securities on a
when-issued or forward commitment basis, thereby obtaining the benefit of
currently higher cash yields.
-- Hedging with Options and Futures Contracts. As described in the
Prospectus, the Fund may employ one or more types of Hedging Instruments
to manage its exposure to changing interest rates and securities prices.
The Fund's strategy of hedging with Futures and options on Futures will
be incidental to the Fund's activities in the underlying cash market.
Puts and covered calls may also be written on U.S. Government Securities
to attempt to increase the Fund's income. For hedging purposes, the Fund
may use Interest Rate Futures and call and put options on debt securities
and Interest Rate Futures (all of the foregoing are referred to as
"Hedging Instruments"). Hedging Instruments may be used to attempt to:
(i) protect against possible declines in the market value of the Fund's
portfolio resulting from downward trends in the debt securities markets
(generally due to a rise in interest rates), (ii) protect unrealized gains
in the value of the Fund's debt securities which have appreciated, (iii)
facilitate selling debt securities for investment reasons, (iv) establish
a position in the debt securities markets as a temporary substitute for
purchasing particular debt securities, or (v) reduce the risk of adverse
currency fluctuations. A call or put may be purchased only if, after such
purchase, the value of all call and put options held by the Fund would not
exceed 5% of the Fund's total assets. The Fund will not use Futures and
options on Futures for speculation. The Hedging Instruments the Fund may
use are described below.
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 U.S.
Government Securities, or (iii) write calls on securities held by it or
on Futures. When hedging to attempt to protect against the possibility
that portfolio securities are not fully included in a rise in value of the
debt securities market, the Fund may: (i) purchase Futures, or (ii)
purchase calls on such Futures or on U.S. Government Securities. Covered
calls and puts may also be written on debt securities to attempt to
increase the Fund's income.
The Fund's strategy of hedging with Futures and options on Futures
will be incidental to the Fund's activities in the underlying cash market.
Additional Information about the Hedging Instruments the Fund may use is
provided below. At present, the Fund does not intend to enter into
Futures and options on Futures if, after any such purchase, the sum of
margin deposits on Futures and premiums paid on Futures options exceeds
5% of the value of the Fund's total assets. In the future, the Fund may
employ Hedging Instruments and strategies that are not presently
contemplated but which may be developed, to the extent such investment
methods are consistent with the Fund's investment objective, legally
permissible and adequately disclosed.
-- Writing Covered Calls. The Fund may write (i.e. sell) call
options ("calls") on U.S. Government Securities to enhance income through
the receipt of premiums from expired calls and any net profits from
closing purchase transactions, subject to the limitations stated in the
Prospectus. All such calls written by the Fund must be "covered" while
the call is outstanding (i.e. the Fund must own the securities subject to
the call or other securities acceptable for applicable escrow
requirements). Calls on Futures (discussed below) must be covered by
deliverable securities or by liquid assets segregated to satisfy the
Futures contract. When the Fund writes a call on a security, it receives
a premium and agrees to sell the callable investment to a purchaser of a
corresponding call on the same security during the call period (usually
not more than 9 months) at a fixed exercise price (which may differ from
the market price of the underlying security), regardless of market price
changes during the call period. The Fund has retained the risk of loss
should the price of the underlying security decline during the call
period, which may be offset to some extent by the premium.
To terminate its obligation on a call it has written, the Fund may
purchase a corresponding call in a "closing purchase transaction." A
profit or loss will be realized, depending upon whether the net of the
amount of the option transaction costs and the premium received on the
call written was more or less than the price of the call subsequently
purchased. A profit may also be realized if the call lapses unexercised,
because the Fund retains the underlying investment and the premium
received. Any such profits are considered short-term capital gains for
Federal income tax purposes, and when distributed by the Fund are taxable
as ordinary income. If the Fund could not effect a closing purchase
transaction due to lack of a market, it would have to hold the callable
investments until the call lapsed or was exercised.
The Fund may also write calls on Futures without owning a futures
contract or a deliverable bond, provided that at the time the call is
written, the Fund covers the call by segregating in escrow an equivalent
dollar amount of liquid assets. The Fund will segregate additional liquid
assets if the value of the escrowed assets drops below 100% of the current
value of the Future. In no circumstances would an exercise notice require
the Fund to deliver a futures contract; it would simply put the Fund in
a short futures position, which is permitted by the Fund's hedging
policies.
-- Writing Put Options. The Fund may write put options on U.S.
Government securities or Interest Rate Futures but only if such puts are
covered by segregated liquid assets. The Fund will not write puts if, as
a result, more than 50% of the Fund's net assets would be required to be
segregated to cover such put obligations. In writing puts, there is the
risk that the Fund may be required to buy the underlying security at a
disadvantageous price. A put option on securities gives the purchaser the
right to sell, and the writer the obligation to buy, the underlying
investment at the exercise price during the option period. Writing a put
covered by segregated liquid assets equal to the exercise price of the put
has the same economic effect to the Fund as writing a covered call. The
premium the Fund receives from writing a put option represents a profit,
as long as the price of the underlying investment remains above the
exercise price. However, the Fund has also assumed the obligation during
the option period to buy the underlying investment from the buyer of the
put at the exercise price, even though the value of the investment may
fall below the exercise price. If the put lapses unexercised, the Fund
(as the writer of the put) realizes a gain in the amount of the premium.
If the put is exercised, the Fund must fulfill its obligation to purchase
the underlying investment at the exercise price, which will usually exceed
the market value of the investment at that time. In that case, the Fund
may incur a loss, equal to the sum of the current market value of the
underlying investment and the premium received minus the sum of the
exercise price and any transaction costs incurred.
When writing put options on securities, to secure its obligation to
pay for the underlying security, the Fund will deposit in escrow liquid
assets with a value equal to or greater than the exercise price of the put
option. The Fund therefore forgoes the opportunity of investing the
segregated assets or writing calls against those assets. As long as the
obligation of the Fund as the put writer continues, it may be assigned an
exercise notice by the broker-dealer through whom such option was sold,
requiring the Fund to take delivery of the underlying security against
payment of the exercise price. The Fund has no control over when it may
be required to purchase the underlying security, since it may be assigned
an exercise notice at any time prior to the termination of its obligation
as the writer of the put. This obligation terminates upon expiration of
the put, or such earlier time at which the Fund effects a closing purchase
transaction by purchasing a put of the same series as that previously
sold. Once the Fund has been assigned an exercise notice, it is
thereafter not allowed to effect a closing purchase transaction.
The Fund may effect a closing purchase transaction to realize a
profit on an outstanding put option it has written or to prevent an
underlying security from being put. Furthermore, effecting such a closing
purchase transaction will permit the Fund to write another put option to
the extent that the exercise price thereof is secured by the deposited
assets, or to utilize the proceeds from the sale of such assets for other
investments by the Fund. The Fund will realize a profit or loss from a
closing purchase transaction if the cost of the transaction is less or
more than the premium received from writing the option. As above for
writing covered calls, any and all such profits described herein from
writing puts are considered short-term gains for Federal tax purposes, and
when distributed by the Fund, are taxable as ordinary income.
-- Purchasing Calls and Puts. The Fund may purchase calls on U.S.
Government Securities or on Interest Rate Futures, in order to protect
against the possibility that the Fund's portfolio will not fully
participate in an anticipated rise in value of the long-term debt
securities market. The value of U.S. Government Securities underlying
calls purchased by the Fund will not exceed the value of the portion of
the Fund's portfolio invested in cash or cash equivalents (i.e. securities
with maturities of less than one year). When the Fund purchases a call
(other than in a closing purchase transaction), it pays a premium and,
except as to calls on indices or Futures, has the right to buy the
underlying investment from a seller of a corresponding call on the same
investment during the call period at a fixed exercise price. When the
Fund purchases a call on a Future, it pays a premium, but settlement is
in cash rather than by delivery of the underlying investment to the Fund.
In purchasing a call, the Fund benefits only if the call is sold at a
profit or if, during the call period, the market price of the underlying
investment is above the sum of the exercise price, transaction costs and
the premium paid, and the call is exercised. If the call is not exercised
or sold (whether or not at a profit), it will become worthless at its
expiration date and the Fund will lose its premium payment and the right
to purchase the underlying investment.
The Fund may purchase put options ("puts") which relate to U.S.
Government Securities (whether or not it holds such securities in its
portfolio) or Futures. When the Fund purchases a put, it pays a premium
and, except as to puts on indices, has the right to sell the underlying
investment to a seller of a corresponding put on the same investment
during the put period at a fixed exercise price. Buying a put on an
investment the Fund owns enables the Fund to protect itself during the put
period against a decline in the value of the underlying investment below
the exercise price by selling such underlying investment at the exercise
price to a seller of a corresponding put. If the market price of the
underlying investment is equal to or above the exercise price and as a
result the put is not exercised or resold, the put will become worthless
at its expiration date, and the Fund will lose its premium payment and the
right to sell the underlying investment. The put may, however, be sold
prior to expiration (whether or not at a profit.)
Buying a put on Interest Rate Futures or U.S. Government Securities
permits the Fund either to resell the put or buy the underlying investment
and sell it at the exercise price. The resale price of the put will vary
inversely with the price of the underlying investment. If the market
price of the underlying investment is above the exercise price and as a
result the put is not exercised, the put will become worthless on its
expiration date. In the event of a decline in the bond market, the Fund
could exercise or sell the put at a profit to attempt to offset some or
all of its loss on its portfolio securities. When the Fund purchases a
put on Interest Rate Futures or U.S. Government Securities not held by it,
the put protects the Fund to the extent that the prices of the underlying
Future or U.S. Government Security move in a similar pattern to the prices
of the U.S. Government Securities in the Fund's portfolio.
An option position may be closed out only on a market which provides
secondary trading for options of the same series and there is no assurance
that a liquid secondary market will exist for any particular option. The
Fund's option activities may affect its turnover rate and brokerage
commissions. The exercise by the Fund of puts on securities will cause
the sale of related investments, increasing portfolio turnover. Although
such exercise is within the Fund's control, holding a put might cause the
Fund to sell the related investments for reasons which would not exist in
the absence of the put. The Fund may pay a brokerage commission each time
it buys a put or call, sells a call, or buys or sells an underlying
investment in connection with the exercise of a put or call. Such
commissions may be higher than those which would apply to direct purchases
or sales of such underlying investments. Premiums paid for options are
small in relation to the market value of the related investments, and
consequently, put and call options offer large amounts of leverage. The
leverage offered by trading in options could result in the Fund's net
asset value being more sensitive to changes in the value of the underlying
investments.
-- Interest Rate Futures. The Fund may buy and sell Interest Rate
Futures. No price is paid or received upon the purchase or sale of an
Interest Rate Future. An Interest Rate Future obligates the seller to
deliver and the purchaser to take a specific type of debt security at a
specific future date for a fixed price. That obligation may be satisfied
by actual delivery of the debt security or by entering into an offsetting
contract.
Upon entering into a Futures transaction, the Fund will be required
to deposit an initial margin payment in cash or U.S. Treasury bills with
the futures commission merchant (the "futures broker"). The initial
margin will be deposited with the Fund's Custodian in an account
registered in the futures broker's name; however the futures broker can
gain access to that account only under specified conditions. As the
Future is marked to market to reflect changes in its market value,
subsequent margin payments, called variation margin, will be made to or
by the futures broker on a daily basis. 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 settlement by delivery or acquisition of debt
securities, in most cases the obligation is fulfilled by entering into an
offsetting position. All futures transactions are effected through a
clearinghouse associated with the exchange on which the contracts are
traded.
-- Interest Rate Swap Transactions. Swap agreements entail both
interest rate risk and credit risk. There is a risk that, based on
movements of interest rates in the future, the payments made by the Fund
under a swap agreement will have been greater than those received by it.
Credit risk arises from the possibility that the counterparty will
default. If the counterparty to an interest rate swap defaults, the
Fund's loss will consist of the net amount of contractual interest
payments that the Fund has not yet received. The Manager will monitor the
creditworthiness of counterparties to the Fund's interest rate swap
transactions on an ongoing basis. The Fund may engage in interest rate
swaps only with respect to securities it holds, and not in excess of 25%
of its total assets.
The Fund will enter into swap transactions with appropriate
counterparties pursuant to master netting agreements. A master netting
agreement provides that all swaps done between the Fund and that
counterparty under that master agreement shall be regarded as parts of an
integral agreement. If on any date amounts are payable in the same
currency in respect of one or more swap transactions, the net amount
payable on that date in that currency shall be paid. In addition, the
master netting agreement may provide that if one party defaults generally
or on one swap, the counterparty may terminate the swaps with that party.
Under such agreements, if there is a default resulting in a loss to one
party, the measure of that party's damages is calculated by reference to
the average cost of a replacement swap with respect to each swap (i.e.,
the mark-to-market value at the time of the termination of each swap).
The gains and losses on all swaps are then netted, and the result is the
counterparty's gain or loss on termination. The termination of all swaps
and the netting of gains and losses on termination is generally referred
to as "aggregation".
-- Additional Information About Hedging Instruments and Their Use.
The Fund's Custodian, or a securities depository acting for the Custodian,
will act as the Fund's escrow agent, through the facilities of the Options
Clearing Corporation ("OCC"), as to the investments on which the Fund has
written options traded on exchanges or as to other acceptable escrow
securities, so that no margin will be required for such transactions. OCC
will release the securities on the expiration of the option or upon the
Fund's entering into a closing transaction. An option position may be
closed out only on a market which provides secondary trading for options
of the same series, and there is no assurance that a liquid secondary
market will exist for any particular option.
When the Fund writes an over-the-counter ("OTC") option, it will
enter into an arrangement with a primary U.S. Government securities
dealer, which would establish a formula price at which the Fund would have
the absolute right to repurchase that OTC option. That formula price
would generally be based on a multiple of the premium received for the
option, plus the amount by which the option is exercisable below the
market price of the underlying security (that is, the extent to which the
option "is in-the-money"). When the Fund writes an OTC option, it will
treat as illiquid (for purposes of the limit on its assets that may be
invested in illiquid securities, stated in the Prospectus) the mark-to-
market value of any OTC option held by it. The Securities and Exchange
Commission ("SEC") is evaluating whether OTC options should be considered
liquid securities, and the procedure described above could be affected by
the outcome of that evaluation.
-- Regulatory Aspects of Hedging Instruments. The Fund is required
to operate within certain guidelines and restrictions with respect to its
use of futures and options thereon as established by the Commodities
Futures Trading Commission ("CFTC"). In particular, the Fund is excluded
from registration as a "commodity pool operator" if it complies with the
requirements of Rule 4.5 adopted by the CFTC. The Rule does not limit the
percentage of the Fund's assets that may be used for Futures margin and
related options premiums for a bona fide hedging position. However, under
the Rule the Fund must limit its aggregate initial futures margin and
related option premiums to no more than 5% of the Fund's net assets for
hedging strategies that are not considered bona fide hedging strategies
under the Rule.
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 through one
or more or brokers. Thus, the number of options which the Fund may write
or hold may be affected by options written or held by other entities,
including other investment companies having the same or an affiliated
investment adviser. Position limits also apply to Futures. An exchange
may order the liquidation of positions found to be in violation of those
limits and may impose certain other sanctions. Due to requirements under
the Investment Company Act, when the Fund purchases a Future, the Fund
will maintain, in a segregated account or accounts with its Custodian,
cash or readily-marketable, short-term (maturing in one year or less) debt
instruments in an amount equal to the market value of the securities
underlying such Future, less the margin deposit applicable to it.
-- Tax Aspects of Covered Calls and Hedging Instruments. The Fund
intends to qualify as a "regulated investment company" under the Internal
Revenue Code. That qualification enables the Fund to "pass through" its
income and realized capital gains to shareholders without the Fund having
to pay tax on them. This avoids a "double tax" on that income and capital
gains, since shareholders will be taxed on the dividends and capital gains
they receive from the Fund. One of the tests for the Fund's qualification
is that less than 30% of its gross income (irrespective of losses) must
be derived from gains realized on the sale of securities held for less
than three months. To comply with that 30% cap, the Fund will limit the
extent to which it engages in the following activities, but will not be
precluded from them: (i) selling investments, including Futures, held for
less than three months, whether or not they were purchased on the exercise
of a call held by the Fund; (ii) purchasing calls or puts which expire in
less than three months; (iii) effecting closing transactions with respect
to calls or puts written or purchased less than three months previously;
(iv) exercising puts or calls held by the Fund for less than three months;
or (v) writing calls on investments held for less than three months.
-- Risks Of Hedging With Options and Futures. In addition to the
risks with respect to hedging discussed in the Prospectus and above, there
is a risk in using short hedging by selling Futures to attempt to protect
against decline in value of the Fund's portfolio securities (due to an
increase in interest rates) that the prices of such Futures will correlate
imperfectly with the behavior of the cash (i.e., market value) prices of
the Fund's securities. The ordinary spreads between prices in the cash
and futures markets are subject to distortions due to differences in the
natures of those markets. First, all participants in the futures markets
are subject to margin deposit and maintenance requirements. Rather than
meeting additional margin deposit requirements, investors may close out
futures contracts through offsetting transactions which could distort the
normal relationship between the cash and futures markets. Second, the
liquidity of the futures markets depends on participants entering into
offsetting transactions rather than making or taking delivery. To the
extent participants decide to make or take delivery, liquidity in the
futures markets could be reduced, thus producing distortion. Third, from
the point of view of speculators, the deposit requirements in the futures
markets are less onerous than margin requirements in the securities
markets. Therefore, increased participation by speculators in the futures
markets may cause temporary price distortions.
If the Fund uses Hedging Instruments to establish a position in the
U.S. Government Securities markets as a temporary substitute for the
purchase of individual U.S. Government Securities (long hedging) by buying
Interest Rate Futures and/or calls on such Futures or on U.S. Government
Securities, it is possible that the market may decline; if the Fund then
concludes not to invest in such securities at that time because of
concerns as to possible further market decline or for other reasons, the
Fund will realize a loss on the Hedging Instruments that is not offset by
a reduction in the price of the U.S. Government Securities purchased.
Other Investment Restrictions
The Fund's significant investment restrictions are set forth in the
Prospectus. There are additional investment restrictions that the Fund
must follow that are also fundamental policies. Fundamental policies and
the Fund's investment objective, cannot be changed without the vote of
a "majority" of the Fund's outstanding voting securities. Under the
Investment Company Act, such a "majority" vote is defined as the vote of
the holders of the lesser of (i) 67% or more of the shares present or
represented by proxy at a 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 may not: (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 0.5% 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).
For purposes of the Fund's policy not to concentrate its assets,
described in restriction number (11) above, the Fund has adopted the
industry classifications set forth in the Appendix to this Statement of
Additional Information.
How the Fund is Managed
Organization and History. The Fund was established in 1986 as First Trust
Fund-U.S. Government Series and changed its name to Oppenheimer Government
Securities Fund on July 10, 1992, and on May 1, 1994 to Oppenheimer
Limited-Term Government Fund.
As a Massachusetts business Trust, the Fund is not required to hold,
and does not plan to hold, regular annual meetings of shareholders. The
Fund will hold meetings when required to do so by the Investment Company
Act or other applicable law, or when a shareholder meeting is called by
the Trustees or upon proper request of the shareholders. Shareholders
have the right, upon the declaration in writing or vote of two-thirds of
the outstanding shares of the Fund, to remove a Trustee. The Trustees
will call a meeting of shareholders to vote on the removal of a Trustee
upon the written request of the record holders of at least 10% of its
outstanding shares. In addition, if the Trustees receive a request from
at least 10 shareholders (who have been shareholders for at least six
months) holding shares of the Fund valued at $25,000 or more or holding
at least 1% of the Fund's outstanding shares, whichever is less, stating
that they wish to communicate with other shareholders to request a meeting
to remove a Trustee, the Trustees will then either make the Fund's
shareholder list available to the applicants or mail their communication
to all other shareholders at the applicants' expense, or the Trustees may
take such other action as set forth under Section 16(c) of the Investment
Company Act.
The Fund's Declaration of Trust contains an express disclaimer of
shareholder or Trustee liability for the Fund's obligations, and provides
for indemnification and reimbursement of expenses out of its property for
any shareholder held personally liable for its obligations. The
Declaration of Trust also provides that the Fund shall, upon request,
assume the defense of any claim made against any shareholder for any act
or obligation of the Fund and satisfy any judgment thereon. Thus, while
Massachusetts law permits a shareholder of a business trust (such as the
Fund) to be held personally liable as a "partner" under certain
circumstances, the risk of a Fund shareholder incurring financial loss on
account of shareholder liability is limited to the relatively remote
circumstances in which the Fund would be unable to meet its obligations
described above. Any person doing business with the 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 which 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.
Trustees And Officers Of The Fund. The Fund's Trustees and officers and
their principal occupations and business affiliations during the past five
years are listed below. All of the Trustees are also trustees, directors
or managing general partners of Oppenheimer Total Return Fund, Inc.,
Oppenheimer Equity Income Fund, Oppenheimer High Yield Fund, Oppenheimer
Cash Reserves, Oppenheimer Tax-Exempt Bond Fund, The New York Tax-Exempt
Income Fund, Inc., Oppenheimer Champion High Yield Fund, Oppenheimer Main
Street Funds, Inc., Oppenheimer Strategic Funds Trust, Oppenheimer
Integrity Funds, Oppenheimer Strategic Income & Growth Fund, Oppenheimer
Strategic Investment Grade Bond Fund, Oppenheimer Strategic Short-Term
Income Fund and Oppenheimer Variable Account Funds; as well as the
following "Centennial Funds": Daily Cash Accumulation Fund, Inc.,
Centennial Money Market Trust, Centennial Government Trust, Centennial New
York Tax Exempt Trust, Centennial Tax Exempt Trust, Centennial California
Tax Exempt Trust and Centennial America Fund, L.P. (all of the foregoing
funds are collectively referred to as the "Denver-based
OppenheimerFunds"). Mr. Fossel is President and Mr. Swain is Chairman of
the Denver OppenheimerFunds. As of January 10, 1995, the Trustees and
officers of the Fund as a group owned less than 1% of the Fund's
outstanding Class A shares and less than 1% of the Fund's outstanding
Class B shares. As of that date, no Class C shares were outstanding. The
foregoing statement does not reflect ownership of shares held of record
by an employee benefit plan for employees of the Manager (for which plan
two of the officers listed below, Messrs. Fossel and Swain, are trustees),
other than the shares beneficially owned under that plan by the officers
of the Fund listed below.
Robert G. Avis, Trustee*; Age 63
One North Jefferson Ave., St. Louis, Missouri 63103
Vice Chairman of A.G. Edwards & Sons, Inc. (a broker-dealer) and A.G.
Edwards, Inc. (its parent holding company); Chairman of A.G.E. Asset
Management and A.G. Edwards Trust Company (its affiliated investment
adviser and trust company, respectively).
William A. Baker, Trustee; Age 80
197 Desert Lakes Drive, Palm Springs, California 92264
Management Consultant.
Charles Conrad, Jr., Trustee; Age 64
19411 Merion Circle, Huntington Beach, California 92648
Vice President of McDonnell Douglas Space Systems Co.; formerly
associated with the National Aeronautics and Space Administration.
Jon S. Fossel, President and Trustee*; Age 52
Two World Trade Center, New York, New York 10048-0203
Chairman, Chief Executive Officer and a director of the Manager;
President and a director of Oppenheimer Acquisition Corp. ("OAC"),
the Manager's parent holding company; President and a director of
HarbourView Asset Management Corporation, 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; Age 65
44 Portland Drive, St. Louis, Missouri 63131
Director of Wave Technologies International Inc.; formerly Vice
Chairman and a director of A.G. Edwards, Inc., parent holding company
of A.G. Edwards & Sons, Inc. (a broker-dealer), of which he was a
Senior Vice President.
C. Howard Kast, Trustee; Age 73
2552 East Alameda, Denver, Colorado 80209
Formerly Managing Partner of Deloitte, Haskins & Sells (an accounting
firm).
Robert M. Kirchner, Trustee; 73
7500 E. Arapahoe Road, Englewood, Colorado 80112
President of The Kirchner Company (management consultants).
Ned M. Steel, Trustee; age 79
3416 South Race Street, Englewood, Colorado 80110
Chartered Property and Casualty Underwriter; Director of Visiting
Nurse Corporation of Colorado; formerly Senior Vice President and a
director of Van Gilder Insurance Corp. (insurance brokers).
James C. Swain, Chairman and Trustee;* Age 61
3410 South Galena Street, Denver, Colorado 80231
Vice Chairman and a Director of the Manager; President and a Director
of Centennial Asset Management Corporation, an investment adviser
subsidiary of the Manager ("Centennial"); formerly Chairman of the
Board of SSI.
Andrew J. Donohue, Vice President; Age 44
Executive Vice President and General Counsel of Oppenheimer
Management Corporation ("OMC") (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.
George C. Bowen, Vice President, Secretary and Treasurer; Age 58
3410 South Galena Street Denver, Colorado 80231
Senior Vice President and Treasurer of the Manager; Vice President
and Treasurer of the Distributor and HarbourView; Senior Vice
President, Treasurer, Assistant Secretary and a director of
Centennial; Vice President, Treasurer and Secretary of SSI and SFSI;
an officer of other OppenheimerFunds.
David Rosenberg, Vice President and Portfolio Manager; Age 36
Two World Trade Center, New York, New York 10048-0203
Vice President of the Manager; an officer of other OppenheimerFunds;
formerly an officer and portfolio manager for Delaware Investment
Advisors and for one of its mutual funds.
Robert G. Zack, Assistant Secretary; Age 46
Two World Trade Center, New York, New York 10048-0203
Senior Vice President and Associate General Counsel of the Manager,
Assistant Secretary of SSI and SFSI; an officer of other
OppenheimerFunds.
Robert Bishop, Assistant Treasurer; Age 36
3410 South Galena Street, Denver, Colorado 80231
Assistant Vice President of the Manager/Mutual Fund Accounting; an
officer of other OppenheimerFunds; formerly a Fund Controller for the
Manager, prior to which he was an Accountant for Yale & Seffinger,
P.C., an accounting firm, and previously an Accountant and
Commissions Supervisor for Stuart James Company Inc., a broker-
dealer.
Scott Farrar, Assistant Treasurer; age 29
3410 South Galena Street, Denver, Colorado 80231
Assistant Vice President of the Manager/Mutual Fund Accounting; an
officer of other OppenheimerFunds; formerly a Fund Controller for the
Manager, prior to which he was an International Mutual Fund
Supervisor for Brown Brothers Harriman & Co., a bank, and previously
a Senior Fund Accountant for State Street Bank & Trust Company.
[FN]
- --------------------
*A Trustee who is an "interested person" of the Fund as defined in the
Investment Company Act.
-- Remuneration of Trustees. The officers of the Fund are affiliated
with the Manager; they and the Trustees of the Fund who are affiliated
with the Manager (Messrs. Fossel and Swain, who are both officers and
Trustees) receive no salary or fee from the Fund. The Trustees of the
Fund (excluding Messrs. Fossel and Swain) received the total amounts shown
below from all 22 of the Denver-based OppenheimerFunds (including the
Fund) listed in the first paragraph of this section, for services in the
positions shown:
<TABLE>
<CAPTION>
Total Compensation
From All
Denver-based
Name Position OppenheimerFunds1
<S> <C> <C>
Robert G. Avis Trustee $53,000.00
William A. Baker Study and Audit Committee Chairman$73,257.01
and Trustee
Charles Conrad, Jr. Study and Audit Committee Member$68,293.67
and Trustee
Raymond J. KalinowskiTrustee $53,000.00
C. Howard Kast Trustee $53,000.00
Robert M. Kirchner Study and Audit Committee Member$68,293.67
and Trustee
Ned M. Steel Trustee $53,000.00
______________________
1For the 1994 calendar year.
</TABLE>
Major Shareholders. As January 10, 1995, 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. As of that date, no Class C shares were
outstanding.
The Manager and Its Affiliates. The Manager is wholly-owned by
Oppenheimer Acquisition Corporation ("OAC"), a holding company controlled
by Massachusetts Mutual Life Insurance Company. OAC is also owned in part
by certain of the Manager's directors and officers, some of whom also
serve as officers of the Fund, and two of whom (Mr. Jon S. Fossel and Mr.
James C. Swain) serve as Trustees of the Fund.
-- The Investment Advisory Agreement. The investment advisory
agreement between the Manager and the Fund requires the Manager, at its
expense, to provide the Fund with adequate office space, facilities and
equipment, and to provide and supervise the activities of all
administrative and clerical personnel required to provide effective
corporate administration for the Fund, including the compilation and
maintenance of records with respect to its operations, the preparation and
filing of specified reports, and composition of proxy materials and
registration statements for continuous public sale of shares of the Fund.
Expenses not expressly assumed by the Manager under the advisory
agreement or by the Distributor under the Distribution Agreement are paid
by the Fund. The advisory agreement lists examples of expenses paid by
the Fund, the major categories of which relate to interest, taxes,
brokerage commissions, fees to certain Trustees, legal, and audit
expenses, custodian and transfer agent expenses, share issuance costs,
certain printing and registration costs and non-recurring expenses,
including litigation. For the Fund's fiscal years ended September 30,
1992, 1993, and 1994 the management fees paid by the Fund to the Manager
were $773,822, $781,718, and $976,513, respectively.
Under the advisory 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 advisory 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. Any
assumption of the Fund's expenses under this limitation would lower the
Fund's overall expense ratio and increase its total return during any
period in which expenses are limited.
The advisory agreement provides that in the absence of willful
misfeasance, bad faith, gross negligence in the performance of its duties,
or reckless disregard of its obligations and duties under the advisory
agreement, the Manager is not liable for any loss resulting from any good
faith errors or omissions in connection with any matters to which the
Agreement relates. The advisory agreement permits the Manager to act as
investment adviser for any other person, firm or corporation.
-- The Distributor. Under its Distribution Agreement with the Fund,
the Distributor acts as the Fund's principal underwriter in the continuous
public offering of the Fund's Class A, Class B and Class C shares but is
not obligated to sell a specific number of shares. Expenses normally
attributable to sales (other than those paid under the Distribution and
Service Plans, but including advertising and the cost of printing and
mailing prospectuses other than those furnished to existing shareholders),
are borne by the Distributor. For the fiscal year ended September 30,
1992, 1993, and 1994, the aggregate amount of sales charges on sales of
the Fund's Class A shares were $192,406, $289,261 and $1,006,962,
respectively, of which $28,268, $85,929 and $310,375 was retained by the
Distributor and an affiliated broker-dealer during those respective years.
Contingent deferred sales charges collected by the Distributor on the
redemption of Class B shares for the period May 3, 1993 (the commencement
of the offering of those shares) through September 30, 1993 and for the
fiscal year ended September 30, 1994 totaled $361 and $36,866,
respectively. For additional information about distribution of the Fund's
shares and the expenses connected with such activities, please refer to
"Distribution and Service Plans," below.
-- The Transfer Agent. Oppenheimer Shareholder Services, the Fund's
transfer agent, is responsible for maintaining the Fund's shareholder
registry and shareholder accounting records, and for shareholder servicing
and administrative functions.
Brokerage Policies Of The Fund
Brokerage Provisions of the Investment Advisory Agreement. One of the
duties of the Manager under the advisory agreement is to arrange the
portfolio transactions for the Fund. The advisory agreement contains
provisions relating to the employment of broker-dealers ("brokers") to
effect the Fund's portfolio transactions. In doing so, the Manager is
authorized by the advisory agreement to employ broker-dealers, including
"affiliated" brokers, as that term is defined in the Investment Company
Act, as may, in its best judgment based on all relevant factors, implement
the policy of the Fund to obtain, at reasonable expense, the "best
execution" (prompt and reliable execution at the most favorable price
obtainable) of such transactions. The Manager need not seek competitive
commission bidding, but is expected to minimize the commissions paid to
the extent consistent with the interest and policies of the Fund as
established by its Board of Trustees.
Under the advisory agreement, the Manager is authorized to select
brokers that provide brokerage and/or research services for the Fund
and/or the other accounts over which the Manager or its affiliates have
investment discretion. The commissions paid to such brokers may be higher
than another qualified broker would have charged, if a good faith
determination is made by the Manager that the commission is fair and
reasonable in relation to the services provided. Subject to the foregoing
considerations, the Manager may also consider sales of shares of the Fund
and other investment companies managed by the Manager or its affiliates
as a factor in the selection of brokers for the Fund's portfolio
transactions.
Description of Brokerage Practices Followed by the Manager. Most
purchases made by the Fund are principal transactions at net prices, and
the Fund incurs little or no brokerage costs. Subject to the provisions
of the advisory agreement, the procedures and rules described above,
allocations of brokerage are generally made by the Manager's portfolio
traders based upon recommendations from the Manager's portfolio managers.
In certain instances, portfolio managers may directly place trades and
allocate brokerage, also subject to the provisions of the advisory
agreement and the procedures and rules described above. In each case,
brokerage is allocated under the supervision of the Manager's executive
officers. Transactions in securities other than those for which an
exchange is the primary market are generally done with principals or
market makers. Brokerage commissions are paid primarily for effecting
transactions in listed securities and otherwise only if it appears likely
that a better price or execution can be obtained.
When the Fund engages in an option transaction, ordinarily the same
broker will be used for the purchase or sale of the option and any
transaction in the securities to which the option relates. When possible,
concurrent orders to purchase or sell the same security by more than one
of the accounts managed by the Manager and its affiliates are combined.
The transactions effected pursuant to such combined orders are averaged
as to price and allocated in accordance with the purchase or sale orders
actually placed for each account.
The research services provided by a particular broker may be useful
only to one or more of the advisory accounts of the Manager and its
affiliates, and investment research received for the commissions of those
other accounts may be useful both to the Fund and one or more of such
other accounts. Such research, which may be supplied by a third party at
the instance of a broker, includes information and analyses on particular
companies and industries as well as market or economic trends and
portfolio strategy, receipt of market quotations for portfolio
evaluations, information systems, computer hardware and similar products
and services. If a research service also assists the Manager in a non-
research capacity (such as bookkeeping or other administrative functions),
then only the percentage or component that provides assistance to the
Manager in the investment decision-making process may be paid in
commission dollars. The Board of Trustees has permitted the Manager to
use concessions on fixed price offerings to obtain research, in the same
manner as is permitted for agency transactions.
The research services provided by brokers broadens the scope and
supplement the research activities of the Manager, by making available
additional views for consideration and comparisons, and enabling the
Manager to obtain market information for the valuation of securities held
in the Fund's portfolio or being considered for purchase. The Board of
Trustees, including the "independent" Trustees of the Fund (those Trustees
of the Fund who are not "interested persons" as defined in the Investment
Company Act, and who have no direct or indirect financial interest in the
operation of the advisory agreement or the Distribution Plans described
below) annually reviews information furnished by the Manager as to the
commissions paid to brokers furnishing such services so that the Board may
ascertain whether the amount of such commissions was reasonably related
to the value or benefit of such services.
Performance of the Fund
Yield and Total Return Information. From time to time the "standardized
yield," "dividend yield," "average annual total return", "total return,"
and "total return at net asset value" of an investment in a class of the
Fund may be advertised. An explanation of how yields and total returns
are calculated for each class and the components of those calculations is
set forth below. No total return and yield calculations are presented
below for Class C shares because no shares of that class were publicly
issued during the fiscal year ended September 30, 1994. The Fund's
maximum sales charge rate on Class A shares was higher prior to April 1,
1994, and actual investment performance would be affected by that change.
The Fund's advertisement of its performance must, under applicable
rules of the Securities and Exchange Commission, include the average
annual total returns for each class of shares of the Fund for the 1, 5 and
10-year periods (or the life of the class, if less) as of the most
recently ended calendar quarter prior to the publication of the
advertisement. This enables an investor to compare the Fund's performance
to the performance of other funds for the same periods. However, a number
of factors should be considered before using such information as a basis
for comparison with other investments. An investment in the Fund is not
insured; its yields and total returns and share prices are not guaranteed
and normally will fluctuate on a daily basis. When redeemed, an
investor's shares may be worth more or less than their original cost.
Yields and total returns for any given past period are not a prediction
or representation by the Fund of future yields or rates of return on its
shares. The yields and total returns of Class A, Class B and Class C
shares of the Fund are affected by portfolio quality, the type of
investments the Fund holds and its operating expenses allocated to a
particular class.
- -- Standardized Yields
-- Yield. The Fund's "yield" (referred to as "standardized yield")
for a given 30-day period for a class of shares is calculated using the
following formula set forth in rules adopted by the Securities and
Exchange Commission that apply to all funds that quote yields:
(a-b) 6
Standardized Yield = 2 ((--- + 1) - 1)
( cd)
The symbols above represent the following factors:
a = dividends and interest earned during the 30-day period.
b = expenses accrued for the period (net of any expense
reimbursements).
c = the average daily number of shares of that class
outstanding during the 30-day period that were entitled to
receive dividends.
d = the maximum offering price per share of the class on the
last day of the period, using the current maximum sales
charge rate adjusted for undistributed net investment
income.
The standardized yield of a class of shares for a 30-day period may
differ from its yield for any other period. The SEC formula assumes that
the standardized yield for a 30-day period occurs at a constant rate for
a six-month period and is annualized at the end of the six-month period.
This standardized yield is not based on actual distributions paid by the
Fund to shareholders in the 30-day period, but is a hypothetical yield
based upon the net investment income from the Fund's portfolio investments
calculated for that period. The standardized yield may differ from the
"dividend yield" of that class, described below. Additionally, because
each class of shares is subject to different expenses, it is likely that
the standardized yields of the Fund's classes of shares will differ. For
the 30-day period ended September 30, 1994, the standardized yields for
the Fund's Class A and Class B shares were 6.14% and 5.55%, respectively.
-- Dividend Yield and Distribution Return. From time to time the
Fund may quote a "dividend yield" or a "distribution return" for each
class. Dividend yield is based on the Class A, Class B or Class C share
dividends derived from net investment income during a stated period.
Distribution return includes dividends derived from net investment income
and from realized capital gains declared during a stated period. Under
those calculations, the dividends and/or distributions for that class
declared during a stated period of one year or less (for example, 30 days)
are added together, and the sum is divided by the maximum offering price
per share of that class) on the last day of the period. When the result
is annualized for a period of less than one year, the "dividend yield" is
calculated as follows:
Dividend Yield of the Class =
Dividends of the Class
-----------------------------------------------------
Max. Offering Price of the Class (last day of period)
divided by Number of days (accrual period) x 365
The maximum offering price for Class A shares includes the current
maximum front-end sales charge. For Class B or Class C shares, the
maximum offering price is the net asset value per share, without
considering the effect of contingent deferred sales charges. From time
to time similar yield or distribution return calculations may also be made
using the Class A net asset value (instead of its respective maximum
offering price) at the end of the period.
The dividend yields on Class A shares for the 30-day period ended
September 30, 1994, were 6.51% and 6.75% when calculated at maximum
offering price and at net asset value, respectively. The dividend yield
on Class B shares for the 30-day period ended September 30, 1994, was
6.08% when calculated at net asset value. Distribution returns for the
30-day period ended September 30, 1994 are the same as the above-quoted
dividend yields. No portion of the Class A or Class B dividends for the
fiscal year ended September 30, 1994 were derived from realized capital
gains.
- -- Total Return Information
-- Average Annual Total Returns. The "average annual total return"
of each class is an average annual compounded rate of return for each year
in a specified number of years. It is the rate of return based on the
change in value of a hypothetical initial investment of $1,000 ("P" in the
formula below) held for a number of years ("n") to achieve an Ending
Redeemable Value ("ERV"), according to the following formula:
1/n
(ERV)
(---) -1 = Average Annual Total Return
( P )
-- Cumulative Total Returns. The cumulative "total return"
calculation measures the change in value of a hypothetical investment of
$1,000 over an entire period of years. Its calculation uses some of the
same factors as average annual total return, but it does not average the
rate of return on an annual basis. Cumulative total return is determined
as follows:
ERV - P
------- = Cumulative Total Return
P
In calculating total returns for Class A shares, the current maximum
sales charge of 3.50% (as a percentage of the offering price) is deducted
from the initial investment ("P") (unless the return is shown at net asset
value, as discussed below). For Class B shares, the payment of the
current contingent deferred sales charge (4.0% for the first year, 3.0%
for the second year, 2.0% for the third and fourth years, 1.0% in the
fifth year and none thereafter) is applied to the investment result for
the time period shown (unless the total return is shown at net asset
value, as described below). Total returns also assume that all dividends
and capital gains distributions during the period are reinvested to buy
additional shares at net asset value per share, and that the investment
is redeemed at the end of the period.
The "average annual total returns" on an investment in Class A shares
of the Fund for the one year and five year periods ended September 30,
1994 were -2.78% and 7.55%, respectively, and for the period from March
10, 1986 (inception of the Fund) to September 30, 1994, was 7.81%. The
cumulative "total return" on Class A shares for the period from March 10,
1986 through September 30, 1994 was 90.37%. For the fiscal year ended
September 30, 1994 and the period from May 3, 1993 (the date Class B
shares were first publicly offered) through September 30, 1994, the
average annual total returns on an investment in Class B shares of the
Fund were -3.94% and -0.14%, respectively. The cumulative total return
on an investment in Class B shares of the Fund for the period from May 3,
1993 through September 30, 1994 was -0.20%.
-- Total Returns at Net Asset Value. From time to time the Fund may
also quote an "average annual total return at net asset value" or a
cumulative "total return at net asset value" for Class A, Class B or Class
C shares. Each is based on the difference in net asset value per share
at the beginning and the end of the period for a hypothetical investment
in that class of shares (without considering front-end or contingent
deferred sales charges) and takes into consideration the reinvestment of
dividends and capital gains distributions.
The average annual total returns at net asset value on an investment
in Class A shares of the Fund for the one and five-year periods ended
September 30, 1994 and for the period from March 10, 1986 to September 30,
1994 were 0.74%, 8.32% and 8.27%, respectively. The average annual total
returns at net asset value on an investment in Class B shares of the Fund
for the fiscal year ended September 30, 1994 and for the period from May
3, 1993 to September 30, 1994 were -0.17% and 1.87%, respectively. The
cumulative "total returns at net asset value" on the Fund's Class A shares
for the period from March 10, 1986 to September 30, 1994, was 97.27%. The
cumulative total return at net asset value on the Fund's Class B shares
for the period from May 3, 1993 through September 30, 1994 was 2.65%.
Other Performance Comparisons. From time to time the Fund may publish the
ranking of its Class A, Class B or Class C shares by Lipper Analytical
Services, Inc. ("Lipper"), a widely-recognized independent mutual fund
monitoring service. Lipper monitors the performance of regulated
investment companies, including the Fund, and ranks their performance for
various periods based on categories relating to investment objectives.
The performance of the Fund's classes is ranked against (i) all other
funds, excluding money market funds, and (ii) all other short-term U.S.
Government funds. The Lipper performance rankings are based on total
return that includes the reinvestment of capital gains distributions and
income dividends but does not take sales charges or taxes into
consideration.
From time to time the Fund may publish the ranking of the performance
of its Class A, Class B or Class C shares by Morningstar, Inc., an
independent mutual fund monitoring service that ranks mutual funds,
including the Fund, monthly, in broad investment categories (equity,
taxable bond, municipal bond and hybrid) based on risk-adjusted investment
return. Investment return measures a fund's three, five and ten-year
average annual total returns (when available) in excess of 90-day U.S.
Treasury bill returns after considering sales charges and expenses. Risk
reflects fund performance below 90-day Treasury bill returns. Risk and
return are combined to produce star rankings reflecting performance
relative to the average fund in a fund's category. Five stars is the
"highest" ranking (top 10%), four stars is "above average" (next 22.5%),
three stars is "average" (next 35%), two stars is "below average" (next
22.5%) and one star is "lowest" (bottom 10%). Morningstar ranks the
Fund's Class A, Class B and Class C shares in relation to other taxable
bond funds. Rankings are subject to change.
The total return on an investment made in Class A, Class B or Class
C shares of the Fund may also be compared with the performance for the
same period of: (1) the Lehman Brothers U.S. Government Bond Index, an
unmanaged index including all U.S. Treasury issues, publicly- issued debt
of U.S. Government agencies and quasi-public corporations and U.S.
Government-guaranteed corporate debt that is widely regarded as a measure
of the performance of the U.S. Government bond market, (2) the Lehman
Brothers 1-3 Year Government Bond Index, an unmanaged sector index of U.S.
Treasury issues, publicly-issued debt of U.S. Government agencies and
quasi-public corporations and U.S. Government-guaranteed corporate debt
with maturities of one to three years, and (3) the Consumer Price Index,
which is generally considered to be a measure of inflation. The foregoing
bond indices include a factor for the reinvestment of interest but do not
reflect expenses or taxes. Other indices may be used from time to time.
From time to time the Fund may also include in its advertisements and
sales literature performance information about the Fund or rankings of the
Fund's performance cited in newspapers or periodicals, such as The New
York Times. These articles may include quotations of performance from
other sources, such as Lipper or Morningstar.
From time to time, the Fund's Manager may publish rankings or ratings
of the Manager (or the Transfer Agent), by independent third-parties, on
the investor services provided by them to shareholders of the
OppenheimerFunds, other than the performance rankings of the
OppenheimerFunds themselves. These ratings or rankings of
shareholder/investor services may compare the OppenheimerFunds services
to those of other mutual fund families selected by the rating or ranking
services, and may be based upon the opinions of the rating or ranking
service itself, using its own research or judgment, or based upon surveys
of investors, brokers, shareholders or others. in relation to other equity
funds.
When comparing yield, total return and investment risk of an
investment in Class A, Class B or Class C shares of the Fund with other
investments, investors should understand that certain other investments
have different risk characteristics than an investment in shares of the
Fund. For example, certificates of deposit may have fixed rates of return
and may be insured as to principal and interest by the FDIC, while the
Fund's returns will fluctuate and its share values and returns are not
guaranteed. U.S. Treasury securities are guaranteed as to principal and
interest by the full faith and credit of the U.S. government.
Distribution and Service Plans
The Fund has adopted a Service Plan for Class A Shares and
Distribution and Service Plans for Class B and Class C shares of the Fund
under Rule 12b-1 of the Investment Company Act, pursuant to which the Fund
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 by a
vote of (i) the Board of Trustees of the Fund, including a majority of the
Independent Trustees, cast in person at a meeting called for the purpose
of voting on that Plan, and (ii) the holders of a "majority" (as defined
in the Investment Company Act) of the shares of each class. For the
Distribution and Service Plans for the Class B and Class C shares, the
votes were cast by the Manager as the then-sole initial holder of Class
B and Class C shares of the Fund, respectively.
In addition, under the Plans, the Manager and the Distributor, in
their sole discretion, from time to time may use their own resources
(which, in the case of the Manager, may include profits from the advisory
fee it receives from the Fund) to make payments to brokers, dealers or
other financial institutions (each is referred to as a "Recipient" under
the Plans) for distribution and administrative services they perform. The
Distributor and the Manager may, in their sole discretion
increase or decrease the amount of payments they make to Recipients from
their own resources.
Unless terminated as described below, each Plan continues in effect
from year to year but only as long as such continuance is specifically
approved at least annually by the Fund's Board of Trustees and its
Independent Trustees by a vote cast in person at a meeting called for the
purpose of voting on such continuance. Any Plan may be terminated at any
time by the vote of a majority of the Independent Trustees or by the vote
of the holders of a "majority" (as defined in the Investment Company Act)
of the outstanding shares of that class. No Plan may be amended to
increase materially the amount of payments to be made unless such
amendment is approved by shareholders of the class affected by the
amendment. In addition, because Class B shares of the Fund automatically
convert into Class A shares after six years, the Fund is required by an
exemptive order issued by the Securities and Exchange Commission to obtain
the approval of Class B as well as Class A shareholders for a proposed
amendment to the Class A Plan that would materially increase the amount
to be paid by Class A shareholders under the Class A Plan. Such approval
must be by a "majority" of the Class A and Class B shares (as defined in
the Investment Company Act), voting separately by class. All material
amendments must be approved by the Independent Trustees.
While the Plans are in effect, the Treasurer of the Fund shall
provide separate written reports to the Fund's Board of Trustees 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 and Class
C Plan shall also include the Distributor's 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 on any such selection
or nomination is approved by a majority of the Independent Trustees.
Under the Plans, no payment will be made to any Recipient in any
quarter if the aggregate net asset value of all Fund shares held by the
Recipient for itself and its customers did not exceed a minimum amount,
if any, that may be determined from time to time by a majority of the
Fund's Independent Trustees. Initially, the Board of Trustees has set the
fee at the maximum rate and set no minimum amount. Any unreimbursed
expenses incurred 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. Payments received by the Distributor under
the Plan for Class A shares will not be used to pay any interest expense,
carrying charges, or other financial costs, or allocation of overhead by
the Distributor.
For the fiscal year ended September 30, 1994, payments under the
Class A Plan totaled $450,597, all of which was paid by the Distributor
to Recipients, including $4,697 paid to an affiliate of the Distributor.
The Class B and Class C Plans allow the service fee payments to be
paid by the Distributor to Recipients in advance for the first year Class
B and Class C shares are outstanding, and thereafter on a quarterly basis,
as described in the Prospectus. The advance payment is based on the net
asset value of the Class B and Class C shares sold. An exchange of shares
does not entitle the Recipient to an advance payment of the service fee.
In the event Class B or Class C shares are redeemed during the first year
such shares are outstanding, the Recipient will be obligated to repay a
pro rata portion of the advance of the service fee payment to the
Distributor.
Although the Class B and the Class C Plans permit the Distributor to
retain both the asset-based sales charges and the service fee, or to pay
Recipients the service fee on a quarterly basis, without payment in
advance, the Distributor presently intends to pay the service fee to
Recipients in the manner described above. A minimum holding period may
be established from time to time under the Class B Plan and the Class C
Plan by the Board. Initially, the Board has set no minimum holding
period. All payments under the Class B Plan and the Class C Plan are
subject to the limitations imposed by the Rules of Fair Practice of the
National Association of Securities Dealers, Inc. The Distributor
anticipates that it will take a number of years for it to recoup (from the
Fund's payments to the Distributor under the Class B or Class C Plan and
from contingent deferred sales charges collected on redeemed Class B or
Class C shares) the sales commissions paid to authorized brokers or
dealers. For the fiscal year ended September 30, 1994, payments under the
Class B plan totaled $156,771 (including $246 paid to an affiliate of the
Distributor), of which the Distributor retained $154,274.
Asset-based sales charge payments are designed to permit an investor
to purchase shares of the Fund without the assessment of a front-end sales
load and at the same time permit the Distributor to compensate brokers and
dealers in connection with the sale of Class B and Class C shares of the
Fund. The Distributor's actual distribution expenses for any given year
may exceed the aggregate of payments received pursuant to the Class B or
Class C Plan and from contingent deferred sales charges, and such expenses
will be carried forward into future fiscal years, to be recovered from
asset-based sales charges in subsequent fiscal periods, as described in
the Prospectus. The asset-based sales charge paid to the Distributor by
the Fund under the Class B Plan and the Class C Plan are 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 of the Distributor in connection with the
distribution of Class B and Class C shares: (i) financing the advance of
the service fee payment to Recipients under the Class B Plan and the Class
C Plan, (ii) compensation and expenses of personnel employed by the
Distributor to support distribution of Class B and Class C shares, and
(iii) costs of sales literature, advertising and prospectuses (other than
those furnished to current shareholders) and state "blue sky" registration
fees.
ABOUT YOUR ACCOUNT
How To Buy Shares
Alternative Sales Arrangements - Class A, Class B and Class C Shares. The
availability of three classes of shares permits an investor to choose the
method of purchasing shares that is more beneficial to the investor
depending on the amount of the purchase, the length of time the investor
expects to hold shares and other relevant circumstances. Investors should
understand that the purpose and function of the deferred sales charge and
asset-based sales charge with respect to Class B and Class C shares are
the same as those of the initial sales charge with respect to Class A
shares. Any salesperson or other person entitled to receive compensation
for selling Fund shares may receive different compensation with respect
to one class of shares than the other. The Distributor will not accept
any order for $1 million or more of Class B or Class C shares on behalf
of a single investor (not including dealer "street name" or omnibus
accounts) because generally it will be more advantageous for that investor
to purchase Class A shares of the Fund instead.
The three classes of shares each represent an interest in the same
portfolio investments of the Fund. However, each class has different
shareholder privileges and features. The net income attributable to Class
B and Class C shares and the dividends payable on Class B and Class C
shares will be reduced by incremental expenses borne solely by that class,
including the asset-based sales charge to which Class B and Class C shares
are subject.
The conversion of Class B shares to Class A shares is subject to the
continuing availability of a private letter ruling from the Internal
Revenue Service, or an opinion of counsel or tax adviser, to the effect
that the conversion of Class B shares does not constitute a taxable event
for the holder under Federal income tax law. If such a revenue ruling or
opinion is no longer available, the automatic conversion feature may be
suspended, in which event no further conversions of Class B shares would
occur while such suspension remained in effect. Although Class B shares
could then be exchanged for Class A shares on the basis of relative net
asset value of the two classes, without the imposition of a sales charge
or fee, such exchange could constitute a taxable event for the holder, and
absent such exchange, Class B shares might continue to be subject to the
asset-based sales charge for longer than six years.
The methodology for calculating the net asset value, dividends and
distributions of the Fund's Class A, Class B and Class C shares recognizes
two types of expenses. General expenses that do not pertain specifically
to any class are allocated pro rata to the shares of each class, based on
the percentage of the net assets of such class to the Fund's total net
assets, and then equally to each outstanding share within a given class.
Such general expenses include (i) management fees, (ii) legal, bookkeeping
and audit fees, (iii) printing and mailing costs of shareholder reports,
Prospectuses, Additional Statements and other materials for current
shareholders, (iv) fees to unaffiliated Trustees, (v) custodian expenses,
(vi) share issuance costs, (vii) organization and start-up costs, (viii)
interest, taxes and brokerage commissions, and (ix) non-recurring
expenses, such as litigation costs. Other expenses that are directly
attributable to a class are allocated equally to each outstanding share
within that class. Such expenses include (i) Distribution and/or Service
Plan fees, (ii) incremental transfer and shareholder servicing agent fees
and expenses, (iii) registration fees and (iv) shareholder meeting
expenses, to the extent that such expenses pertain to a specific class
rather than to the Fund as a whole.
Determination of Net Asset Value Per Share. The net asset values per
share of Class A, Class B and Class C shares of the Fund are determined
as of the close of business of The New York Stock Exchange on each day the
Exchange is open by dividing the value of the Fund's net assets
attributable to that class by the number of shares of that class
outstanding. The Exchange normally closes at 4:00 P.M., New York time,
but may close earlier on some days (for example, in case of weather
emergencies or on days falling before a holiday). The Exchange's most
recent annual holiday schedule (which is subject to change) states that
it will close New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day; it may
also close on other days. Trading may occur in U.S. Government Securities
at times when the Exchange is closed (including weekends and holidays or
after 4:00 P.M., on a regular business day). Because the net asset values
of the Fund will not be calculated at such times, if securities held in
the Fund's portfolio are traded at such times, the net asset values per
share of Class A, Class B and Class C shares of the Fund may be
significantly affected on such days when shareholders do not have the
ability to purchase or redeem shares.
The Fund's Board of Trustees has established procedures for the
valuation of the Fund's securities, generally as follows: (i) equity
securities traded on a securities exchange or on NASDAQ for which last
sale information is regularly reported are valued at the last reported
sale prices on their primary exchange or NASDAQ that day (or, in the
absence of sales that day, at values based on the last sales prices of the
preceding trading day, or closing bid and asked prices); (ii) securities
traded on NASDAQ and other unlisted equity securities for which last sales
prices are not regularly reported but for which over-the-counter market
quotations are readily available are valued at the highest closing bid
price at the time of valuation, or, if no closing bid price is reported,
on the basis of a closing bid price obtained from a dealer who maintains
an active market in that security; (iii) securities (including restricted
securities) not having readily-available market quotations are valued at
fair value under the Board's procedures; (iv) debt securities having a
maturity in excess of 60 days are valued at the mean between the bid and
asked prices determined by a portfolio pricing service approved by the
Fund's Board of Trustees or obtained from active market makers in the
security on the basis of reasonable inquiry; 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 and mortgage-backed
securities, when last sale information is not generally available, such
pricing procedures may include "matrix" comparisons to the prices for
comparable instruments on the basis of quality, yield, maturity, and other
special factors involved. The Fund's Board of Trustees has authorized the
Manager to employ a pricing service to price U.S. Government Securities
for which last sale information is not generally available. The Trustees
will monitor the accuracy of such pricing services by comparing prices
used for portfolio evaluation to actual sales prices of selected
securities.
Calls, puts and Futures held by the Fund are valued at the last sale
prices on the principal exchanges on which they are traded, or on NASDAQ,
as applicable, or, if there are no sales that day, in accordance with (i)
above. When the Fund writes an option, an amount equal to the premium
received by the Fund is included in the Fund's Statement of Assets and
Liabilities as an asset, and an equivalent deferred credit is included in
the liability section. The deferred credit is "marked-to-market" to
reflect the current market value of the option.
AccountLink. When shares are purchased through AccountLink, each purchase
must be at least $25.00. Shares will be purchased on the regular business
day the Distributor is instructed to initiate the Automated Clearing House
transfer to buy 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 the close of The New York Stock Exchange. The Exchange
normally closes at 4:00 P.M., but may close earlier on certain days. If
the Federal Funds are received on a business day after the close of the
Exchange, the shares will be purchased and dividends will begin to accrue
on the next regular business day. The proceeds of ACH transfers are
normally received by the Fund three days after the transfers are
initiated. The Distributor and the Fund are not responsible for any
delays.
Reduced Sales Charges. As discussed in the Prospectus, a reduced sales
charge rate may be obtained for Class A shares under Right of Accumulation
and Letters of Intent because of the economies of sales efforts and
reduction in expenses realized by the Distributor, dealers and brokers
making such sales. No sales charge is imposed in certain other
circumstances described in the Prospectus because the Distributor incurs
little or no selling expenses. The term "immediate family" refers to
one's spouse, children, grandchildren, grandparents, parents, parents-in-
law, brothers and sisters, sons- and daughters-in-law, a sibling's spouse
and a spouse's siblings.
-- The OppenheimerFunds. The OppenheimerFunds are those mutual funds
for which the Distributor acts as the distributor or the sub-Distributor
and include the following:
Oppenheimer Tax-Free Bond Fund
Oppenheimer New York Tax-Exempt Fund
Oppenheimer California Tax-Exempt Fund
Oppenheimer Intermediate Tax-Exempt Bond Fund
Oppenheimer Insured Tax-Exempt Bond Fund
Oppenheimer Main Street California Tax-Exempt Fund
Oppenheimer Florida Tax-Exempt Fund
Oppenheimer New Jersey Tax-Exempt Fund
Oppenheimer Pennsylvania Tax-Exempt Fund
Oppenheimer Fund
Oppenheimer Discovery Fund
Oppenheimer Time Fund
Oppenheimer Target Fund
Oppenheimer Growth Fund
Oppenheimer Equity Income Fund
Oppenheimer Value Stock Fund
Oppenheimer Asset Allocation Fund
Oppenheimer Total Return Fund, Inc.
Oppenheimer Main Street Income & Growth Fund
Oppenheimer High Yield Fund
Oppenheimer Champion High Yield Fund
Oppenheimer Investment Grade Bond Fund
Oppenheimer U.S. Government Trust
Oppenheimer Limited-Term Government Fund
Oppenheimer Mortgage Income Fund
Oppenheimer Global Fund
Oppenheimer Global Emerging Growth Fund
Oppenheimer Global Growth & Income Fund
Oppenheimer Gold & Special Minerals Fund
Oppenheimer Strategic Income Fund
Oppenheimer Strategic Investment Grade Bond Fund
Oppenheimer Strategic Short-Term Income Fund
Oppenheimer Strategic Income & Growth Fund
Oppenheimer Strategic Diversified Income Fund
the following "Money Market Funds":
Oppenheimer Money Market Fund, Inc.
Oppenheimer Cash Reserves
Centennial Money Market Trust
Centennial Tax Exempt Trust
Centennial Government Trust
Centennial New York Tax Exempt Trust
Centennial California Tax Exempt Trust
Centennial America Fund, L.P.
There is an initial sales charge on the purchase of Class A shares
of each of the OppenheimerFunds except Money Market Funds (under certain
circumstances described herein, redemption proceeds of Money Market Fund
shares may be subject to a CDSC).
-- Letters of Intent. A Letter of Intent ("Letter") is the
investor's statement of intention to purchase Class A shares of the Fund
(and other eligible OppenheimerFunds) sold with a front-end sales charge
during the 13-month period from the investor's first purchase pursuant to
the Letter (the "Letter of Intent period"), which may, at the investor's
request, include purchases made up to 90 days prior to the date of the
Letter. The Letter states the investor's intention to make the aggregate
amount of purchases (excluding any purchases made by 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 (as set forth 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 Prospectus.
In submitting a Letter, the investor makes no commitment to purchase
shares, but if the investor's purchases of shares within the Letter of
Intent period, when added to the value (at offering price) of the
investor's holdings of shares on the last day of that period, do not equal
or exceed the intended 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. Also, the investor agrees to be bound by the terms
of the Prospectus, this Statement of Additional Information and the
Application used for such Letter of Intent, and if such terms are amended,
as they may be from time to time by the Fund, that those amendments will
apply automatically to existing Letters of Intent.
If the total eligible purchases made during the Letter of Intent
period do not equal or exceed the intended 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 advise the Distributor about the Letter
in placing any purchase orders for the investor during the Letter of
Intent period. All of such purchases must be made through the
Distributor.
-- Terms of Escrow That Apply to Letters of Intent.
1. Out of the initial purchase (or subsequent purchases if
necessary) made pursuant to a Letter, shares of the Fund equal in value
to 5% of the intended amount specified in the Letter shall be held in
escrow by the 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 minimum 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 thirteen-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 as attorney-in-fact to surrender for
redemption any or all escrowed shares.
5. The shares eligible for purchase under the Letter (or the holding
of which may be counted toward completion of the Letter) do not include
any shares sold without a front-end sales charge or without being subject
to a Class A contingent deferred sales charge unless (for the purpose of
determining completion of the obligation to purchase shares under the
Letter) the shares were acquired in exchange for shares of one of the
OppenheimerFunds whose shares were acquired by payment of a sales charge.
6. Shares held in escrow hereunder will automatically be exchanged
for shares of another fund to which an exchange is requested, as described
in the section of the Prospectus entitled "Exchange Privilege," and the
escrow will be transferred to that other fund.
Asset Builder Plans. To establish an Asset Builder Plan from a bank
account, a check (minimum $25) for the initial purchase must accompany the
application. Shares purchased by Asset Builder Plan payments from bank
accounts are subject to the redemption restrictions for recent purchases
described in "How To Sell Shares," in the Prospectus. Asset Builder Plans
also enable shareholders of Oppenheimer Cash Reserves to use those
accounts for monthly automatic purchases of shares of up to four other
OppenheimerFunds.
There is a front-end sales charge on the purchase of Class A shares
of certain OppenheimerFunds, or a contingent deferred sales charge may
apply to shares purchased by Asset Builder payments. An application
should be obtained from the Transfer Agent, completed and returned, and
a prospectus of the selected fund(s) should be obtained from the
Distributor or your financial advisor before initiating Asset Builder
payments. The amount of the Asset Builder investment may be changed or
the automatic investments may be terminated at any time by writing to the
Transfer Agent. A reasonable period (approximately 15 days) is required
after the Transfer Agent's receipt of such instructions to implement them.
The Fund reserves the right to amend, suspend, or discontinue offering
such plans at any time without prior notice.
Cancellation of Purchase Orders. Cancellation of purchase orders for the
Fund's shares (for example, when a purchase check is returned to the Fund
unpaid) causes a loss to be incurred when the net asset value of the
Fund's shares on the cancellation date is less than on the purchase date.
That loss is equal to the amount of the decline in the net asset value per
share multiplied by the number of shares in the purchase order. The
investor is responsible for that loss. If the investor fails to
compensate the Fund for the loss, the Distributor will do so. The Fund
may reimburse the Distributor for that amount by redeeming shares from any
account registered in that investor's name, or the Fund or the Distributor
may seek other redress.
How to Sell Shares
Information on how to sell shares of the Fund is stated in the
Prospectus. The information below supplements the terms and conditions for
redemptions set forth in the Prospectus.
-- Checkwriting. When a check is presented to the Bank for
clearance, the Bank will ask the Fund to redeem a sufficient number of
full and fractional shares in the shareholder's account to cover the
amount of the check. This enables the shareholder to continue receiving
dividends on those shares until the check is presented to the Fund.
Checks may not be presented for payment at the offices of the Bank or the
Fund's Custodian. This limitation does not affect the use of checks for
the payment of bills or to obtain cash at other banks. The Fund reserves
the right to amend, suspend or discontinue offering checkwriting
privileges at any time without prior notice.
-- Involuntary Redemptions. The Fund's Board of Trustees has the
right to cause the involuntary redemption of the shares held in any
account if the aggregate net asset value of such shares is less than $200
or such lesser amount as the Board may fix. The Board of Trustees will
not cause the involuntary redemption of shares in an account if the
aggregate net asset value of 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 increase the investment, and other terms and conditions
so that the shares would not be involuntarily redeemed.
-- Payments "In Kind". The Prospectus states that payment for shares
tendered for redemption is ordinarily made in cash. However, if the Board
of Trustees of the Fund determines that it would be detrimental to the
best interests of the remaining shareholders of the Fund to make payment
of a redemption order wholly or partly in cash, the Fund may pay the
redemption proceeds in whole or in part by a distribution "in kind" of
securities from the portfolio of the Fund, in lieu of cash, in conformity
with applicable rules of the Securities and Exchange Commission. The Fund
has elected to be governed by Rule 18f-1 under the Investment Company Act,
pursuant to which the Fund is obligated to redeem shares solely in cash
up to the lesser of $250,000 or 1% of the net assets of the Fund during
any 90-day period for any one shareholder. If shares are redeemed in kind,
the redeeming shareholder might incur brokerage or other costs in selling
the securities for cash. The method of valuing securities used to make
redemptions in kind will be the same as the method the Fund uses to value
its portfolio securities described above under "Determination of Net Asset
Value Per Share" and such valuation will be made as of the time the
redemption price is determined.
-- 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's custodian bank is open for business.
No dividends will be paid on the proceeds of redeemed shares awaiting
transfer by wire.
Reinvestment Privilege. Within six months of a redemption, a shareholder
may reinvest all or part of the redemption proceeds of (i) Class A shares,
(ii) Class B shares that were subject to the Class B contingent deferred
sales charge when redeemed or (iii) Class C shares that were subject to
the Class C contingent deferred sales charge when redeemed. The
reinvestment may be made without sales charge only in Class A shares of
the Fund or any of the other OppenheimerFunds into which shares of the
Fund are exchangeable as described below, at the net asset value next
computed after receipt by the Transfer Agent of the reinvestment order.
The shareholder must ask the Distributor for such privilege at the time
of reinvestment. Any capital gain that was realized when the shares were
redeemed is taxable, and reinvestment will not alter any capital gains tax
payable on that gain. If there has been a capital loss on the redemption,
some or all of the loss may not be tax deductible, depending on the timing
and amount of the reinvestment. Under the Internal Revenue Code, if the
redemption proceeds of Fund shares on which a sales charge was paid are
reinvested in shares of the Fund or another of the OppenheimerFunds within
90 days of payment of the sales charge, the shareholder's basis in the
shares of the Fund that were redeemed may not include the amount of the
sales charge paid. That would reduce the loss or increase the gain
recognized from the redemption. However, in that case, the sales charge
would be added to the basis of the shares acquired by the reinvestment of
the redemption proceeds. The Fund may amend, suspend or cease offering
this reinvestment privilege at any time as to shares redeemed after the
date of such amendment, suspension or cessation.
Transfers of Shares. Shares are not subject to the payment of a
contingent deferred sales charge of either class at the time of transfer
to the name of another person or entity (whether the transfer occurs by
absolute assignment, gift or bequest, not involving, directly or
indirectly, a public sale). The transferred shares will remain subject
to the contingent deferred sales charge, calculated as if the transferee
shareholder had acquired the transferred shares in the same manner and at
the same time as the transferring shareholder. If less than all shares
held in an account are transferred, and some but not all shares in the
account would be subject to a contingent deferred sales charge if redeemed
at the time of transfer, the priorities described in the Prospectus under
"How to Buy Shares" for the imposition of the Class B and Class C
contingent deferred sales charge will be followed in determining the order
in which shares are transferred.
Distributions From Retirement Plans. Requests for distributions from
OppenheimerFunds-sponsored IRAs, 403(b)(7) custodial plans, or pension or
profit-sharing plans should be addressed to "Trustee, OppenheimerFunds
Retirement Plans," c/o the Transfer Agent at its address listed in "How
To Sell Shares" in the Prospectus. The request must: (i) state the reason
for the distribution; (ii) state the owner's awareness of tax penalties
if the distribution is premature; and (iii) conform to the requirements
of the plan and the Fund's other redemption requirements. Participants
(other than self-employed persons) in OppenheimerFunds-sponsored pension
or profit-sharing plans may not directly request redemption of their
accounts. The employer or plan administrator must sign the request.
Distributions from pension and profit sharing plans are subject to special
requirements under the Internal Revenue Code and certain documents
(available from the Transfer Agent) must be completed before the
distribution may be made. Distributions from retirement plans are subject
to withholding requirements under the Internal Revenue Code, and IRS Form
W-4P (available from the Transfer Agent) must be submitted to the Transfer
Agent with the distribution request, or the distribution may be delayed.
Unless the shareholder has provided the Transfer Agent with a certified
tax identification number, the Internal Revenue Code requires that tax be
withheld from any distribution even if the shareholder elects not to have
tax withheld. The Fund, the Manager, the Distributor, the Trustee and the
Transfer Agent assume no responsibility to determine whether a
distribution satisfies the conditions of applicable tax laws and will not
be responsible for any tax penalties assessed in connection with a
distribution.
Special Arrangements for Repurchase of Shares from Dealers and Brokers.
The Distributor is the Fund's agent to repurchase its shares from
authorized dealers or brokers. The repurchase price per share will be the
net asset value next computed after the Distributor receives the order
placed by the dealer or broker, except that if the Distributor receives
a repurchase order from a dealer or broker after the close of The New York
Stock Exchange on a regular business day, it will be processed at that
day's net asset value if the order was received by the dealer or broker
from its customer prior to the time the Exchange closes (normally, that
is 4:00 P.M., but may be earlier on some days) and the order was
transmitted to and received by the Distributor prior to its close of
business that day (normally 5:00 P.M.). Payment ordinarily will be made
within seven days after the Distributor's receipt of the required
documents, with signature(s) guaranteed as described in the Prospectus.
Automatic Withdrawal and Exchange Plans. Investors owning shares of the
Fund valued at $5,000 or more can authorize the Transfer Agent to redeem
shares (minimum $50) automatically on a monthly, quarterly, semi-annual
or annual basis under an Automatic Withdrawal Plan. Shares will be
redeemed three business days prior to the date requested by the
shareholder for receipt of the payment. Automatic withdrawals of up to
$1,500 per month may be requested by telephone if payments are 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
and Class C shareholders should not establish withdrawal plans, because
of the imposition of the contingent deferred sales charges on such
withdrawals (except where the Class B and Class C contingent deferred
sales charge is waived as described in the Prospectus under "Class B
Contingent Deferred Sales Charge" and "Class C Contingent Deferred Sales
Charge").
By requesting an Automatic Withdrawal or Exchange Plan, the
shareholder agrees to the terms and conditions applicable to such plans,
as stated below and in the provisions of the OppenheimerFunds Application
relating to such Plans, as well as the Prospectus. These provisions may
be amended from time to time by the Fund and/or the Distributor. When
adopted, such amendments will automatically apply to existing Plans.
-- Automatic Exchange Plans. Shareholders can authorize the Transfer
Agent (on the OppenheimerFunds Application or signature-guaranteed
instructions) to exchange a pre-determined amount of shares of the Fund
for shares (of the same class) of other OppenheimerFunds automatically on
a monthly, quarterly, semi-annual or annual basis under an Automatic
Exchange Plan. The minimum amount that may be exchanged to each other
fund account is $25. Exchanges made under these plans are subject to the
restrictions that apply to exchanges as set forth in "How to Exchange
Shares" in the Prospectus and below in this Statement of Additional
Information.
-- Automatic Withdrawal Plans. Fund shares will be redeemed as
necessary to meet withdrawal payments. Shares acquired without a sales
charge will be redeemed first and thereafter shares acquired with
reinvested dividends and capital gains distributions will be redeemed
next, followed by shares acquired with a sales charge, to the extent
necessary to make withdrawal payments. Depending upon the amount
withdrawn, the investor's principal may be depleted. Payments made under
such plans should not be considered as a yield or income on your
investment.
The transfer agent will administer the investor's Automatic
Withdrawal Plan (the "Plan") as agent for the investor (the "Planholder")
who executed the Plan authorization and application submitted to the
Transfer Agent. The Transfer Agent shall incur no liability to the
Planholder for any action taken or omitted by the Transfer Agent in good
faith to administer the Plan. Certificates will not be issued for shares
of the Fund purchased for and held under the Plan, but the Transfer Agent
will credit all such shares to the account of the Planholder on the
records of the Fund. Any share certificates held by a Planholder may be
surrendered unendorsed to the Transfer Agent with the Plan application so
that the shares represented by the certificate may be held under the Plan.
For accounts subject to Automatic Withdrawal Plans, distributions of
capital gains must be reinvested in shares of the Fund, which will be done
at net asset value without a sales charge. Dividends on shares held in
the account may be paid in cash or reinvested.
Redemptions of shares needed to make withdrawal payments will be made
at the net asset value per share determined on the redemption date.
Checks or AccountLink payments of the proceeds of Plan withdrawals will
normally be transmitted three business days prior to the date selected for
receipt of the payment (receipt of payment on the date selected cannot be
guaranteed), according to the choice specified in writing by the
Planholder.
The amount and the interval of disbursement payments and the address
to which checks are to be mailed or AccountLink payments are to be sent
may be changed at any time by the Planholder by writing to the Transfer
Agent. The Planholder should allow at least two weeks' time in mailing
such notification for the requested change to be put in effect. The
Planholder may, at any time, instruct the Transfer Agent by written notice
(in proper form in accordance with the requirements of the then-current
Prospectus of the Fund) to redeem all, or any part of, the shares held
under the Plan. In that case, the Transfer Agent will redeem the number
of shares requested at the net asset value per share in effect in
accordance with the Fund's usual redemption procedures and will mail a
check for the proceeds to the Planholder.
The Plan may be terminated at any time by the Planholder by writing
to the Transfer Agent. A Plan may also be terminated at any time by the
Transfer Agent upon receiving directions to that effect from the Fund.
The Transfer Agent will also terminate a Plan upon receipt of evidence
satisfactory to it of the death or legal incapacity of the Planholder.
Upon termination of a Plan by the Transfer Agent or the Fund, shares that
have not been redeemed from the account will be held in uncertificated
form in the name of the Planholder, and the account will continue as a
dividend-reinvestment, uncertificated account unless and until proper
instructions are received from the Planholder or his or her executor or
guardian, or other authorized person.
To use shares held under the Plan as collateral for a debt, the
Planholder may request issuance of a portion of the shares in certificated
form. Upon written request from the Planholder, the Transfer Agent will
determine the number of shares for which a certificate may be issued
without causing the withdrawal checks to stop because of exhaustion of
uncertificated shares needed to continue payments. However, should such
uncertificated shares become exhausted, Plan withdrawals will terminate.
If the Transfer Agent ceases to act as transfer agent for the Fund,
the Planholder will be deemed to have appointed any successor transfer
agent to act as agent in administering the Plan.
How to Exchange Shares. As stated in the Prospectus, shares of a
particular class of OppenheimerFunds having more than one class of shares
may be exchanged only for shares of the same class of other
OppenheimerFunds. Shares of the OppenheimerFunds that have a single class
without a class designation are deemed "Class A" shares for this purpose.
All of the OppenheimerFunds offer Class A shares (except for Oppenheimer
Strategic Diversified Income Fund), but only the following
OppenheimerFunds offer Class C shares:
Oppenheimer Limited-Term Government Fund
Oppenheimer Fund
Oppenheimer Global Growth & Income Fund
Oppenheimer Asset Allocation Fund
Oppenheimer Champion High Yield Fund
Oppenheimer U.S. Government Trust
Oppenheimer Intermediate Tax-Exempt Bond Fund
Oppenheimer Target Fund
Oppenheimer Cash Reserves (Class C shares are available only by
exchange)
Oppenheimer Strategic Diversified Income Fund
Oppenheimer Main Street Income & Growth Fund
The following OppenheimerFunds offer Class B shares:
Oppenheimer Limited-Term Government Fund
Oppenheimer Strategic Income Fund
Oppenheimer Strategic Income & Growth Fund
Oppenheimer Strategic Investment Grade Bond Fund
Oppenheimer Strategic Short-Term Income Fund
Oppenheimer New York Tax-Exempt Fund
Oppenheimer Tax-Free Bond Fund
Oppenheimer California Tax-Exempt Fund
Oppenheimer Pennsylvania Tax-Exempt Fund
Oppenheimer Florida Tax-Exempt Fund
Oppenheimer New Jersey Tax-Exempt Fund
Oppenheimer Insured Tax-Exempt Bond Fund
Oppenheimer Main Street Income & Growth Fund
Oppenheimer Main Street California Tax-Exempt Fund
Oppenheimer Total Return Fund, Inc.
Oppenheimer Value Stock Fund
Oppenheimer Investment Grade Bond Fund
Oppenheimer High Yield Fund
Oppenheimer Mortgage Income Fund
Oppenheimer Cash Reserves (Class B shares are only available by
exchange)
Oppenheimer Growth Fund
Oppenheimer Equity Income Fund
Oppenheimer Global Fund
Oppenheimer Discovery Fund
Class A shares of OppenheimerFunds 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 OppenheimerFunds offered with
a sales charge upon payment of the sales charge (or, if applicable, may
be used to purchase shares of OppenheimerFunds subject to a contingent
deferred sales charge); and shares of this Fund acquired by reinvestment
of dividends or distributions from any other of the OppenheimerFunds or
from any unit investment trust for which reinvestment arrangements have
been made with the Distributor may be exchanged at net asset value for
shares of any of the OppenheimerFunds.
No contingent deferred sales charge is imposed on exchanges of shares
of either class purchased subject to a contingent deferred sales charge.
However, when Class A shares acquired by exchange of Class A shares
purchased subject to a Class A contingent deferred sales charge are
redeemed within 18 months of the end of the calendar month of the initial
purchase of the exchanged Class A shares, the Class A contingent deferred
sales charge is imposed on the redeemed shares (see "Class A Contingent
Deferred Sales Charge" in the Prospectus). The Class B contingent
deferred sales charge is imposed on Class B shares redeemed within five
years of the initial purchase of the exchanged Class B shares. The Class
C contingent deferred sales charge is imposed on Class C shares acquired
by exchange if they are redeemed within 12 months of the initial purchase
of the exchanged Class C shares.
When Class B or Class C shares are redeemed to effect an exchange,
the priorities described in "How To Buy Shares" in the Prospectus for the
imposition of the Class B and Class C contingent deferred sales charge
will be followed in determining the order in which the shares are
exchanged. Shareholders should take into account the effect of any
exchange on the applicability and rate of any contingent deferred sales
charge that might be imposed in the subsequent redemption of remaining
shares. Shareholders owning shares of more than one class must specify
whether they intend to exchange Class A, Class B or Class C shares.
The Fund reserves the right to reject telephone or written exchange
requests submitted in bulk by anyone on behalf of 10 or more accounts. The
Fund may accept requests for exchanges of up to 50 accounts per day from
representatives of authorized dealers that qualify for this privilege. In
connection with any exchange request, the number of shares exchanged may
be less than the number requested if the exchange or the number requested
would include shares subject to a restriction cited in the Prospectus or
this Statement of Additional Information or shares covered by a share
certificate that is not tendered with the request. In those cases, only
the shares available for exchange without restriction will be exchanged.
When exchanging shares by telephone, the shareholder must either have
an existing account in, or acknowledge receipt of a prospectus of, the
fund to which the exchange is to be made. For full or partial exchanges
of an account made by telephone, any special account features such as
Asset Builder Plans, Automatic Withdrawal Plans and retirement plan
contributions will be switched to the new account unless the Transfer
Agent is instructed otherwise. If all telephone lines are busy (which
might occur, for example, during periods of substantial market
fluctuations), shareholders might not be able to request exchanges by
telephone and would have to submit written exchange requests.
Shares to be exchanged are redeemed on the regular business day the
Transfer Agent receives an exchange request in proper form (the
"Redemption Date"). Normally, shares of the fund to be acquired are
purchased on the Redemption Date, but such purchases may be delayed by
either fund up to five business days if it determines that it would be
disadvantaged by an immediate transfer of the redemption proceeds. The
Fund reserves the right, in its discretion, to refuse any exchange request
that may disadvantage it (for example, if the receipt of multiple exchange
request from a dealer might require the disposition of portfolio
securities at a time or at a price that might be disadvantageous to the
Fund).
The different OppenheimerFunds available for exchange have different
investment objectives, policies and risks, and a shareholder should assure
that the Fund selected is appropriate for his or her investment and should
be aware of the tax consequences of an exchange. For federal tax
purposes, an exchange transaction is treated as a redemption of shares of
one fund and a purchase of shares of another. "Reinvestment Privilege,"
above, discusses some of the tax consequences of reinvestment of
redemption proceeds in such cases. The Fund, the Distributor, and the
Transfer Agent are unable to provide investment, tax or legal advice to
a shareholder in connection with an exchange request or any other
transaction.
Dividends, Capital Gains and Taxes
Dividends and Distributions. Dividends will be payable on shares held of
record at the time of the previous determination of net asset value, or
as otherwise described in "How to Buy Shares." Daily dividends on newly
purchased shares will not be declared or paid until such time as Federal
Funds (funds credited to a member bank's account at the Federal Reserve
Bank) are available from the purchase payment for such shares. Normally,
purchase checks received from investors are converted to Federal Funds on
the next business day. Dividends will be declared on shares repurchased
by a dealer or broker for four business days following the trade date
(i.e., to and including the day prior to settlement of the repurchase).
If all shares in an account are redeemed, all dividends accrued on shares
of the same class in the account will be paid together with the redemption
proceeds.
Dividends, distributions and the proceeds of the redemption of Fund
shares represented by checks returned to the Transfer Agent by the Postal
Service as undeliverable will be invested in shares of Oppenheimer Money
Market Fund, Inc., as promptly as possible after the return of such checks
to the Transfer Agent, to enable the investor to earn a return on
otherwise idle funds.
The amount of a class's distributions may vary from time to time
depending on market conditions, the composition of the Fund's portfolio,
and expenses borne by the Fund or borne separately by a class, as
described in "Alternative Sales Arrangements -- Class A, Class B and
Class C," above. Dividends are calculated in the same manner, at the same
time and on the same day for shares of each class. However, dividends on
Class B and Class C shares are expected to be lower than dividends on
Class A shares as a result of the asset-based sales charges on Class B and
Class C shares, and will also differ in amount as a consequence of any
difference in net asset value between the classes.
Distributions may be made annually in December out of any net short-
term or long-term capital gains realized from the sale of securities,
premiums from expired calls written by the Fund and net profits from
Hedging Instruments and closing purchase transactions realized in the
twelve months ending on October 31 of the current year. Any difference
between the net asset value of Class A, Class B and Class C shares will
be reflected in such distributions. Distributions from net short-term
capital gains are taxable to shareholders as ordinary income and when paid
by the Fund are considered "dividends." The Fund may make a supplemental
distribution of capital gains and ordinary income following the end of its
fiscal year. Any long-term capital gains distributions will be identified
separately when paid and when tax information is distributed by the Fund.
If prior distributions must be re-characterized at the end of the fiscal
year as a result of the effect of the Fund's investment policies,
shareholders may have a non-taxable return of capital, which will be
identified in notices to shareholders. There is no fixed dividend rate
(although the Fund may have a targeted dividend rate for Class A shares)
and there can be no assurance as to the payment of any dividends or the
realization of any capital gains.
If the Fund qualifies as a "regulated investment company" under the
Internal Revenue Code, it will not be liable for Federal income taxes on
amounts paid by it as dividends and distributions. The Fund qualified as
a regulated investment company in its last fiscal year and intends to
qualify in future years, but reserves the right not to qualify. The
Internal Revenue Code contains a number of complex tests to determine
whether the Fund will qualify, and the Fund might not meet those tests in
a particular year. For example, if the Fund derives 30% or more of its
gross income from the sale of securities held less than three months, it
may fail to qualify (see "Tax Aspects of Covered Calls and Hedging
Instruments," above). If it does not qualify, the Fund will be treated for
tax purposes as an ordinary corporation and will receive no tax deduction
for payments of dividends and distributions made to shareholders.
Under the Internal Revenue Code, by December 31 each year the Fund
must distribute 98% of its taxable investment income earned from January
1 through December 31 of that year and 98% of its capital gains realized
in the period from November 1 of the prior year through October 31 of the
current year, or else the Fund must pay an excise tax on the amounts not
distributed. While it is presently anticipated that the Fund will meet
those requirements, the Fund's Board and the Manager might determine in
a particular year that it would be in the best interest of shareholders
for the Fund not to make such distributions at the required levels and to
pay the excise tax on the undistributed amounts. That would reduce the
amount of income or capital gains available for distribution to
shareholders.
Dividend Reinvestment in Another Fund. Shareholders of the Fund may elect
to reinvest all dividends and/or capital gains distributions in shares of
the same class of any of the other OppenheimerFunds listed in "Reduced
Sales Charges" above, at net asset value without sales charge. Class B
and Class C shareholders should be aware that as of the date of this
Statement of Additional Information, not all of the OppenheimerFunds offer
Class B and Class C shares. To elect this option, the shareholder must
notify the Transfer Agent in writing and either have an existing account
in the fund selected for reinvestment or must obtain a prospectus for that
fund and an application from the Distributor to establish an account. The
investment will be made at the net asset value per share in effect at the
close of business on the payable date of the dividend or distribution.
Dividends and/or distributions from certain of the OppenheimerFunds may
be invested in shares of this Fund on the same basis.
Additional Information About The Fund
The Custodian. Citibank, N.A. is the Custodian of the Fund's assets. The
Custodian's responsibilities include safeguarding and controlling the
Fund's portfolio securities, collecting income on the portfolio securities
and handling the delivery of such securities to and from the Fund. The
Manager has represented to the Fund that the banking relationships between
the Manager and 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 and its affiliates.
Independent Auditors. The independent auditors of the Fund audit the
Fund's financial statements and perform other related audit services.
They also act as auditors for certain other funds advised by the Manager
and its affiliates.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders of Oppenheimer Limited-Term
Government Fund:
We have audited the accompanying statement of assets and liabilities,
including the statement of investments, of Oppenheimer Limited-Term
Government Fund as of September 30, 1994, the related statement of
operations for the year then ended, the statements of changes in net
assets for the years ended September 30, 1994 and 1993, and the financial
highlights for the period October 1, 1989 to September 30, 1994. These
financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on
these financial statements and financial highlights based on our audits.
The financial highlights (except for total return) for the period 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, 1994 by
correspondence with the custodian and brokers. An audit also includes
assessing the accounting principles used and significant estimates made
by management as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, such financial statements and financial
highlights present fairly, in all material respects, the financial
position of Oppenheimer Limited-Term Government Fund at September 30,
1994, the results of its operations, the changes in its net assets, and
the financial highlights for the respective stated periods, in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
/s/ Deloitte & Touche LLP
Denver, Colorado
October 21, 1994
STATEMENT OF INVESTMENTS September 30, 1994
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT SEE NOTE 1
==========================================================
==========================================================
===
U.S. GOVERNMENT OBLIGATIONS--99.1%
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AGENCY: FULL FAITH Government National Mortgage Assn.:
AND CREDIT--16.3% 11%, 2/15/98 $ 58,509 $ 62,030
11%, 3/15/98 100,782 106,847
11%, 8/15/98 43,306 45,913
11%, 10/15/98 17,506 18,560
11%, 12/15/98 66,927 70,955
11%, 3/15/99 674 721
11%, 5/15/99 46,370 49,580
11%, 3/15/00 19,695 21,208
11%, 5/15/00 146,308 157,539
11%, 6/15/00 91,860 98,912
11%, 7/15/00 24,680 26,576
11%, 8/15/00 145,105 156,243
11%, 9/15/00 212,134 228,417
11%, 10/15/00 183,069 197,120
11%, 11/15/00 530,952 571,709
11%, 12/15/00 288,273 310,401
11%, 1/15/01 198,715 215,255
11%, 2/15/01 34,701 37,590
8%, 9/15/07 219,347 219,111
13%, 2/15/11 77,733 89,520
13%, 10/15/12 17,741 20,452
13%, 9/15/14 18,351 21,189
10.50%, 1/15/16 53,935 58,811
10.50%, 2/15/16 731,073 797,148
10.50%, 3/15/16 73,376 80,008
10.50%, 4/15/16 137,348 149,762
10.50%, 5/15/16 213,014 232,266
10.50%, 6/15/16 162,002 176,644
10.50%, 10/15/16 18,571 20,250
9%, 11/15/16 3,411,426 3,535,670
10.50%, 12/15/16 51,868 56,556
10.50%, 7/15/17 227,351 247,959
10.50%, 8/15/17 142,284 155,181
9.50%, 9/15/17 252,265 266,410
10.50%, 10/15/17 20,002 21,816
10.50%, 11/15/17 305,386 333,069
10.50%, 12/15/17 412,422 449,807
10.50%, 2/15/18 271,894 296,607
10.50%, 4/15/18 16,902 18,439
10.50%, 6/15/18 103,003 112,366
10.50%, 10/15/18 62,262 67,922
10.50%, 11/15/18 381,374 416,038
10.50%, 12/15/18 182,940 199,568
10.50%, 3/15/19 349,512 381,365
10.50%, 5/15/19 217,354 237,162
10.50%, 6/15/19 175,563 191,563
10.50%, 7/15/19 388,539 423,948
8.50%, 9/15/21 98,377 99,650
8%, 6/15/22 522,247 508,586
8.50%, 11/15/22 552,770 553,694
8%, 12/15/22 357,932 348,569
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT SEE NOTE 1
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AGENCY: FULL FAITH 8%, 7/15/23 $ 492,526 $ 479,292
AND CREDIT (CONTINUED) 8%, 8/15/24 1,011,632 983,813
8%, 9/15/24 29,589,266 28,760,847
------------
43,386,634
- -----------------------------------------------------------------------------------------------------------------------------
AGENCY: GOVERNMENT Federal Home Loan Mortgage Corp.
SPONSORED--50.6% Collateralized Mtg. Obligations:
8.60%, 2/15/06 3,000,000 3,040,110
9.25%, 11/1/08 549,414 567,567
11.75%, 1/1/16 1,220,932 1,338,814
9.50%, 12/15/18 2,884,956 2,958,437
8.20%, 7/15/19 1,486,723 1,513,811
8.50%, 10/15/19 20,287,989 20,784,639
10%, 11/15/19 14,136,921 14,730,106
8%, 3/15/21 7,370,553 7,423,694
6.65%, 4/15/21 12,500,000 11,259,499
8.50%, 6/15/21 15,000,000 15,156,299
8%, 8/1/21 1,582,755 1,685,366
10%, 8/1/21 2,845,112 3,030,044
------------------------------------------------------------------------------------------------
Federal National Mortgage Assn.:
STRIPS, 11.50%, 3/1/09 3,481,182 3,845,620
13%, 8/1/10-6/1/15 67,080 75,662
13%, 6/1/15 100,266 113,159
8%, 7/25/19 8,000,000 7,927,279
9%, 8/1/19 1,240,316 1,278,940
8%, 10/25/21 595,000 575,454
Principal-Only Stripped Mtg.-Backed
Security, Trust 157, Class E, 0%, 5/25/22(1) 8,229,466 5,588,383
8%, 1/1/23 378,172 369,781
Interest-Only Stripped Mtg.-Backed
Security, Trust 221, Class 2, 7.50%, 5/25/23(2) 24,914,713 9,335,232
Principal-Only Stripped Mtg.-Backed
Security, Trust 148, Class G, 0%, 8/25/23(1) 8,891,258 4,238,453
Interest-Only Stripped Mtg.-Backed
Security, Trust 240, Class 2, 7%, 9/25/23(2) 6,005,462 2,270,815
Interest-Only Stripped Mtg.-Backed
Security, Trust 252, Class 2, 7.50%, 11/30/23(2) 13,305,289 5,051,852
Interest-Only Stripped Mtg.-Backed
Security, Trust 252, Class 2, 7%, 2/25/24(2) 28,309,954 10,863,945
------------
135,022,961
- -----------------------------------------------------------------------------------------------------------------------------
TREASURY--32.2% U.S. Treasury Bonds:
8.50%, 11/15/95 18,100,000 18,569,458
------------------------------------------------------------------------------------------------
U.S. Treasury Nts.:
9.25%, 1/15/96 32,505,000 33,693,444
9.375%, 4/15/96(3) 25,300,000 26,406,875
7.625%, 5/31/96 7,000,000 7,133,433
------------
85,803,210
------------
Total U.S. Government Obligations (Cost $269,913,018) $264,212,805
</TABLE>
<PAGE>
STATEMENT OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
MARKET VALUE
DATE/PRICE UNITS SEE NOTE 1
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PUT OPTIONS PURCHASED--0.0% U.S. Treasury Nt., 7.50% (Cost $95,313) Oct./$96.67 10,000 $
98,438
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $270,008,331) 99.1%
264,311,243
- ------------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS NET OF LIABILITIES .9 2,424,414
------ ------------
NET ASSETS 100.0% $266,735,657
====== ============
</TABLE>
(1) Principal-Only Strips represent the
right to receive the monthly principal
payments on an underlying pool of
mortgage loans. The value of these
securities generally increases as
interest rates decline and prepayment
rates rise. The price of these securities
is typically more volatile than that of
coupon-bearing bonds of the same
maturity.
(2) Interest-Only Strips represent the
right to receive the monthly interest
payments on an underlying pool of
mortgage loans. These securities
typically decline in price as interest
rates decline. Most other fixed-income
securities increase in price when
interest rates decline. The principal
amount of the underlying pool represents
the notional amount on which current
interest is calculated. The price of
these securities is typically more
sensitive to changes in prepayment rates
than traditional mortgage-backed
securities (for example, GNMA
pass-throughs).
(3) Securities with an aggregate market
value of $5,218,750 are held in escrow to
cover initial margin requirements on open
interest rate futures sales contracts, as
follows:
<TABLE>
<CAPTION>
Number of
Type of Contract Contracts Face Amount
--------------------------------------------------------------------------------
<S> <C> <C>
U.S. Treasury Nts., 12/94 50 $5,000,000
</TABLE>
The market value of the open contracts
was $5,073,438 at September 30, 1994,
with a net unrealized gain of $17,188.
See accompanying Notes to Financial
Statements.
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES September 30, 1994
<TABLE>
<S> <C> <C>
==========================================================
==========================================================
=======
ASSETS Investments, at value (cost $270,008,331)--see accompanying statement $264,311,243
----------------------------------------------------------------------------------------------------
Unrealized appreciation on forward contracts 17,188
----------------------------------------------------------------------------------------------------
Receivables:
Interest and principal paydowns 4,767,307
Shares of beneficial interest sold 3,114,491
----------------------------------------------------------------------------------------------------
Other 10,905
------------
Total assets 272,221,134
==========================================================
==========================================================
======
LIABILITIES Bank overdraft 1,327,374
----------------------------------------------------------------------------------------------------
Options written at value (premiums received $121,875)--
see accompanying statement--Note 6 187,500
----------------------------------------------------------------------------------------------------
Payables and other liabilities:
Shares of beneficial interest redeemed 3,627,877
Distribution and service plan fees--Note 4 152,606
Other 190,120
------------
Total liabilities 5,485,477
==========================================================
==========================================================
======
NET ASSETS $266,735,657
------------
==========================================================
==========================================================
======
COMPOSITION OF Paid-in capital $279,146,214
NET ASSETS ----------------------------------------------------------------------------------------------------
Overdistributed net investment income (107,542)
----------------------------------------------------------------------------------------------------
Accumulated net realized loss from investment transactions (6,557,490)
----------------------------------------------------------------------------------------------------
Net unrealized depreciation on investments and options written--Note 3 (5,745,525)
------------
Net assets $266,735,657
============
==========================================================
==========================================================
======
NET ASSET VALUE Class A Shares:
PER SHARE Net asset value and redemption price per share (based on net assets
of $227,858,341 and 21,906,028 shares of beneficial interest outstanding) $10.40
Maximum offering price per share (net asset
value plus sales charge of 3.50% of offering price) $10.78
----------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price and offering price per share (based on
net assets of $38,877,316 and 3,734,115 shares of beneficial interest outstanding) $10.41
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
STATEMENT OF OPERATIONS For the Year Ended September 30, 1994
<TABLE>
<S> <C> <C>
==========================================================
==========================================================
=====
INVESTMENT INCOME Interest $15,966,654
==========================================================
==========================================================
=====
EXPENSES Management fees--Note 4 976,513
-------------------------------------------------------------------------------------------
Distribution and service plan fees:
Class A--Note 4 450,597
Class B--Note 4 156,771
-------------------------------------------------------------------------------------------
Registration and filing fees:
Class A 181,126
Class B 12,815
-------------------------------------------------------------------------------------------
Shareholder reports 154,767
-------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 4 121,480
-------------------------------------------------------------------------------------------
Custodian fees and expenses 37,490
-------------------------------------------------------------------------------------------
Legal and auditing fees 21,052
-------------------------------------------------------------------------------------------
Trustees' fees and expenses 6,654
-------------------------------------------------------------------------------------------
Other 59,341
-----------
Total expenses 2,178,606
==========================================================
==========================================================
=====
NET INVESTMENT INCOME 13,788,048
==========================================================
==========================================================
=====
REALIZED AND UNREALIZED Net realized gain on investments and options written 787,066
GAIN (LOSS) ON INVESTMENTS
-------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on investments
and options written (12,973,109)
-----------
Net realized and unrealized loss on investments and options written (12,186,043)
==========================================================
==========================================================
=====
NET INCREASE IN NET ASSETS $ 1,602,005
RESULTING FROM OPERATIONS ===========
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1994 1993
==========================================================
==========================================================
=======
<S> <C> <C> <C>
OPERATIONS Net investment income $ 13,788,048 $ 10,852,752
----------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and options written 787,066 (1,271,113)
----------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation
on investments and options written (12,973,109) 2,440,150
------------ ------------
Net increase in net assets resulting from operations 1,602,005 12,021,789
==========================================================
==========================================================
=======
DIVIDENDS AND Dividends from net investment income:
DISTRIBUTIONS TO Class A ($.709 and $.734 per share, respectively) (12,491,113) (10,773,584)
SHAREHOLDERS Class B ($.62 and $.226 per share, respectively) (900,631) (79,168)
----------------------------------------------------------------------------------------------
Dividends in excess of net investment income:
Class A ($.002 per share) (44,628) --
Class B ($.002 per share) (7,614) --
----------------------------------------------------------------------------------------------
Tax return of capital distribution:
Class A ($.01 per share) (213,840) --
Class B ($.01 per share) (36,486) --
==========================================================
==========================================================
=======
BENEFICIAL INTEREST Net increase in net assets resulting from Class A
TRANSACTIONS beneficial interest transactions--Note 2 60,069,439 19,721,192
----------------------------------------------------------------------------------------------
Net increase in net assets resulting from Class B
beneficial interest transactions--Note 2 34,737,604 5,062,554
==========================================================
==========================================================
=======
NET ASSETS Total increase 82,714,736 25,952,783
----------------------------------------------------------------------------------------------
Beginning of year 184,020,921 158,068,138
------------ ------------
End of year (including overdistributed net
investment income of $107,542 in 1994) $266,735,657 $184,020,921
------------ ------------
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------------
YEAR ENDED
SEPTEMBER 30,
1994 1993 1992 1991 1990(3) 1989 1988
==========================================================
================================================
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $11.04 $10.97 $10.75 $10.18 $10.17 $10.14 $9.72
- ----------------------------------------------------------------------------------------------------------
Income (loss) from investment
operations:
Net investment income .72 .73 .81 .87 .89 .90 .89
Net realized and unrealized
gain (loss) on investments
and options written (.64) .07 .22 .57 .01 .03 .42
------ ------ ----- ------ ------ ------ -----
Total income (loss) from
investment operations .08 .80 1.03 1.44 .90 .93 1.31
- ----------------------------------------------------------------------------------------------------------
Dividends and distributions to
shareholders:
Dividends from net
investment income (.71) (.73) (.81) (.87) (.89) (.90) (.89)
Dividends in excess
of net investment income --(5) -- -- -- -- -- --
Tax return of capital distribution (.01) -- -- -- -- -- --
Distributions from net
realized gain on investments
and options written -- -- -- -- -- -- --
------ ------ ----- ------ ------ ------ -----
Total dividends and
distributions to shareholders (.72) (.73) (.81) (.87) (.89) (.90) (.89)
- ----------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.40 $11.04 $10.97 $10.75 $10.18 $10.17 $10.14
====== ====== ===== ====== ====== ======
=====
==========================================================
================================================
TOTAL RETURN, AT NET ASSET VALUE(6) .74% 7.61% 9.88% 14.69% 9.15% 9.65% 13.86%
==========================================================
================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $227,858 $178,944 $158,068 $167,974 $213,391 $237,819 $251,794
- ----------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $190,829 $161,318 $160,830 $192,404 $218,528 $243,863 $267,557
- ----------------------------------------------------------------------------------------------------------
Number of shares outstanding
at end of period (in thousands) 21,906 16,206 14,416 15,624 20,964 23,395 24,834
- ----------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 6.74% 6.70% 7.44% 8.27% 8.77% 8.96% 8.75%
Expenses .99% 1.02% .97% .98% .90% .93% .96%
- ----------------------------------------------------------------------------------------------------------
Portfolio turnover rate(8) 226% 74% 154% 112% 60% 61% 78%
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS B
--------------- -------------
YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
1987 1986(2) 1994 1993(1)
============================================================
===================
<S> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $10.51 $10.56 $11.06 $10.96
- ----------------------------------------------------------- ------------------
Income (loss) from investment
operations:
Net investment income .86(4) .57(4) .62 .23
Net realized and unrealized
gain (loss) on investments
and options written (.74) (.05) (.64) .10
------ ------ ------ ------
Total income (loss) from
investment operations .12 .52 (.02) .33
- ----------------------------------------------------------- -------------------
Dividends and distributions to
shareholders:
Dividends from net
investment income (.86) (.57) (.62) (.23)
Dividends in excess
of net investment income -- -- --(5) --
Tax return of capital distribution -- -- (.01) --
Distributions from net
realized gain on investments
and options written (.05) -- -- --
------ ------ ------ ------
Total dividends and
distributions to shareholders (.91) (.57) (.63) (.23)
- ----------------------------------------------------------- -------------------
Net asset value, end of period $9.72 $10.51 $10.41 $11.06
====== ====== ====== ======
===========================================================
===================
TOTAL RETURN, AT NET ASSET VALUE(6) .95% 4.97% (.17)% 3.02%
===========================================================
===================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $287,181 $127,797 $38,877 $5,077
- ----------------------------------------------------------- -------------------
Average net assets (in thousands) $242,181 $105,123 $15,801 $2,561
- ----------------------------------------------------------- -------------------
Number of shares outstanding
at end of period (in thousands) 29,560 12,162 3,734 459
- ----------------------------------------------------------- -------------------
Ratios to average net assets:
Net investment income 8.22% 7.93%(7) 5.91% 4.81%(7)
Expenses .56%(4) .08%(4)(7) 1.79% 1.87%(7)
- ----------------------------------------------------------- -------------------
Portfolio turnover rate(8) 73% 471% 226% 74%
</TABLE>
(1) For the period from May 3, 1993 (inception of offering) to September 30,
1993.
(2) For the period from March 10, 1986 (commencement of operations) to September
30, 1986.
(3) On April 7, 1990, Oppenheimer Management Corporation became the investment
advisor to the Fund.
(4) 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.
(5) Less than $.001 per share.
(6) 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.
(7) Annualized.
(8) 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, 1994 were $526,239,879 and $445,474,809,
respectively.
See accompanying Notes to Financial Statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
==========================================================
==========================================================
==========
1. SIGNIFICANT Oppenheimer Limited-Term Government Fund (the Fund), formerly named Oppenheimer
ACCOUNTING POLICIES Government Securities Fund, is registered under the Investment Company Act of
1940, as
amended, as a diversified, open-end management investment company. The Fund's investment
advisor is Oppenheimer Management Corporation (the Manager). The Fund offers both Class
A and Class B shares. Class A shares are sold with a front-end sales charge. Class B
shares may be subject to a contingent deferred sales charge. Both classes of shares have
identical rights to earnings, assets and voting privileges, except that each class has its
own distribution and/or service plan, expenses directly attributable to a particular class
and exclusive voting rights with respect to matters affecting a single class. Class B
shares will automatically convert to Class A shares six years after the date of
purchase. The following is a summary of significant accounting policies consistently
followed by the Fund.
-------------------------------------------------------------------------------------------
INVESTMENT VALUATION. Portfolio securities are valued at 4:00 p.m. (New York time)
on each
trading day. Long-term debt securities are valued by a portfolio pricing service approved
by the Board of Trustees. Long-term debt securities which cannot be valued by the
approved portfolio pricing service are valued 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. An
option is valued based upon the last sale price on the principal exchange on which the
option is traded or, in the absence of any transactions that day, the value is based upon
the last sale on the prior trading date if it is within the spread between the closing
bid and asked prices. If the last sale price is outside the spread, the closing bid or
asked price closest to the last reported sale price is used.
-----------------------------------------------------------------------------
ALLOCATION OF INCOME, EXPENSES AND GAINS AND LOSSES. Income, expenses
(other than
those attributable to a specific class) and gains and losses are allocated daily to each
class of shares based upon the relative proportion of net assets represented by such class.
Operating expenses directly attributable to a specific class are charged against the
operations of that class.
-----------------------------------------------------------------------------
FEDERAL INCOME TAXES. The Fund intends to continue to comply with provisions of the
Internal Revenue Code applicable to regulated investment companies and to distribute all of
its taxable income, including any net realized gain on investments not offset by loss
carryovers, to shareholders. Therefore, no federal income tax provision is required. At
September 30, 1994, the Fund had available for federal income tax purposes an unused
capital loss carryover of approximately $6,558,000, $3,182,000 of which will expire in
1996, $3,040,000 in 1997, $40,000 in 2001 and $296,000 in 2002.
-----------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS. The Fund intends to declare dividends separately
for
Class A and Class B shares from net investment income each day the New York Stock Exchange
is open for business and pay such dividends monthly. Distributions from net realized gains
on investments, if any, will be declared at least once each year.
-----------------------------------------------------------------------------
CHANGE IN ACCOUNTING FOR DISTRIBUTIONS TO SHAREHOLDERS. Effective
October 1, 1993,
the Fund adopted Statement of Position 93-2: Determination, Disclosure, and Financial
Statement Presentation of Income, Capital Gain, and Return of Capital Distributions by
Investment Companies. As a result, the Fund changed the classification of distributions to
shareholders to better disclose the differences between financial statement amounts and
distributions determined in accordance with income tax regulations. Accordingly, subsequent
to September 30, 1993, amounts have been reclassified to reflect an increase in paid-in
capital of $102,759, a decrease in undistributed net investment income of $55,299, and a
decrease in undistributed capital loss on investments of $47,460. During the year ended
September 30, 1994, in accordance with Statement of Position 93-2, undistributed net
investment income was decreased by $145,791, paid-in capital was decreased by $250,326 and
undistributed capital loss was decreased by $396,117.
----------------------------------------------------------------------------
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.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
<TABLE>
<S> <C>
==========================================================
==========================================================
=============
2. SHARES OF The Fund has authorized an unlimited number of no par value shares of beneficial interest
BENEFICIAL INTEREST of each class. Transactions in shares of beneficial interest were as follows:
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1994 YEAR ENDED SEPTEMBER
30, 1993(1)
------------------------------ -----------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A:
Sold 11,073,786 $117,379,950 3,635,741 $39,788,867
Dividends reinvested 817,206 8,727,397 653,622 7,145,654
Issued in connection with the
acquisition of Main Street
Government Securities Fund--Note 5 -- -- 898,047 9,977,301
Redeemed (6,191,329) (66,037,908) (3,396,764) (37,190,630)
========== ============
========== ===========
Net increase 5,699,663 $ 60,069,439 1,790,646 $19,721,192
========== ============
========== ===========
-------------------------------------------------------------------------------------------------
CLASS B:
Sold 3,707,813 $ 39,327,532 462,985 $ 5,104,320
Dividends reinvested 68,487 725,648 3,699 40,944
Redeemed (501,397) (5,315,576) (7,472) (82,710)
========= ============ ==========
===========
Net increase 3,274,903 $ 34,737,604 459,212 $ 5,062,554
========= ============ ==========
===========
</TABLE>
(1) 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>
<S> <C>
==========================================================
==========================================================
=============
3. UNREALIZED GAINS AND At September 30, 1994, net unrealized depreciation on investments and options written
of
LOSSES ON INVESTMENTS $5,745,525 was composed of gross appreciation of $2,598,784, and gross depreciation
of
$8,344,309.
==========================================================
==========================================================
=============
4. MANAGEMENT FEES Management fees paid to the Manager were in accordance with the investment advisory
AND OTHER agreement with the Fund which provides for an annual fee of .50% on the first
TRANSACTIONS $100 million of net assets, .45% on the next $150 million, .425% on the next $250 million
WITH AFFILIATES 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, 1994, commissions (sales charges
paid by investors) on sales of Class A shares totaled $1,006,962, of which $310,375
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, 1994, OFDI received contingent deferred sales charges of $36,866 upon
redemption of Class B shares as reimbursement for sales commissions advanced by OFDI at
the time of sale of such shares.
Oppenheimer Shareholder Services (OSS), a division of the Manager, is
the transfer and shareholder servicing agent for the Fund, and for other registered
investment companies. OSS's total costs of providing such services are allocated ratably
to these companies.
Under separate approved plans, each class may expend up to .25% of
its net assets annually to reimburse OFDI for costs incurred in connection with the
personal service and maintenance of accounts that hold shares of the Fund, including
amounts paid to brokers, dealers, banks and other financial institutions. In addition,
Class B shares are subject to an asset-based sales charge of .75% of net assets annually,
to reimburse OFDI for sales commissions paid from its own resources at the time of sale
and associated financing costs. In the event of termination or discontinuance of the Class
B plan, the Board of Trustees may allow the Fund to continue payment of the asset-based
sales charge to OFDI for distribution expenses incurred on Class B shares sold prior to
termination or discontinuance of the plan. During the year ended September 30, 1994, OFDI
paid $4,697 and $246, respectively, to an affiliated broker/dealer as reimbursement for
Class A and Class B personal service and maintenance expenses and retained $154,274 as
reimbursement for Class B sales commissions and service plan advances, as well as
financing costs.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
==========================================================
==========================================================
=============
5. ACQUISITION OF On August 27, 1993, the Fund acquired all of the net assets of Main Street Government
MAIN STREET Securities Fund (MSGSF), pursuant to an Agreement and Plan of Reorganization
GOVERNMENT approved by the MSGSF shareholders on August 26, 1993. The Fund issued 898,047 shares
SECURITIES FUND 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.
==========================================================
==========================================================
=============
6. OPTION ACTIVITY Option activity for the year ended September 30, 1994 was as follows:
<CAPTION>
CALL OPTIONS PUT OPTIONS
------------------------ --------------------------
NUMBER AMOUNT OF NUMBER AMOUNT
OF
OF OPTIONS PREMIUMS OF OPTIONS PREMIUMS
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Options outstanding at September 30, 1993 -- $ -- -- $ --
Options written 25,800 120,938 95,000 262,500
Options expired prior to exercise -- -- -- --
Options exercised -- -- -- --
Options closed (25,800) (120,938) (35,000) (140,625)
========= ========= =======
=========
Options outstanding at September 30, 1994 -- $ -- 60,000 $ 121,875
========= ========= =======
=========
</TABLE>
At September 30, 1994, the Fund had outstanding
put options written with an expiration date of
10/12/94 and an exercise price of 100.018. The
market value was $187,500.
<PAGE>
Appendix A
Industry Classifications
Aerospace/Defense
Air Transportation
Auto Parts Distribution
Automotive
Bank Holding Companies
Banks
Beverages
Broadcasting
Broker-Dealers
Building Materials
Cable Television
Chemicals
Commercial Finance
Computer Hardware
Computer Software
Conglomerates
Consumer Finance
Containers
Convenience Stores
Department Stores
Diversified Financial
Diversified Media
Drug Stores
Drug Wholesalers
Durable Household Goods
Education
Electric Utilities
Electrical Equipment
Electronics
Energy Services & Producers
Entertainment/Film
Environmental
Food
Gas Utilities
Gold
Health Care/Drugs
Health Care/Supplies & Services
Homebuilders/Real Estate
Hotel/Gaming
Industrial Services
Insurance
Leasing & Factoring
Leisure
Manufacturing
Metals/Mining
Nondurable Household Goods
Oil - Integrated
Paper
Publishing/Printing
Railroads
Restaurants
Savings & Loans
Shipping
Special Purpose Financial
Specialty Retailing
Steel
Supermarkets
Telecommunications - Technology
Telephone - Utility
Textile/Apparel
Tobacco
Toys
Trucking
<PAGE>
Investment Adviser
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 LLP
1560 Broadway
Denver, Colorado 80202
Legal Counsel
Myer, Swanson, Adams & Wolf, P.C.
1600 Broadway
Denver, Colorado 80202
