PROSPECTUS
The
BOND FUND
FOR GROWTH
ROCHESTER FUND SERIES
350 Linden Oaks
Rochester, New York 14625-2807
1-800-552-1129
- --------------------------------------------------------------------------------
Rochester Fund Series, a Massachusetts business trust (the "Trust"), is an
open-end, non-diversified, management investment company consisting of one
portfolio, The Bond Fund For Growth (the "Fund"), which has three classes of
shares, Class A Shares, Class B Shares, and Class Y Shares. The Fund's
investment objective is to achieve a high level of total return on its assets
through a combination of current income and capital appreciation. The Fund
intends to achieve its objective by investing primarily in convertible fixed
income securities. There can be no assurance that the Fund will achieve its
objective.
This Prospectus sets forth concisely information about Class A Shares,
Class B Shares, and Class Y Shares of the Fund that prospective investors should
know before investing. Investors should read this Prospectus carefully before
they invest and retain it for future reference.
A Statement of Additional Information (the "SAI") of the Fund dated May 1,
1995, as revised on January 5, 1996, which is incorporated by reference in its
entirety in this Prospectus, has been filed with the Securities and Exchange
Commission and is available without charge upon request to Oppenheimer
Shareholder Services, the Fund's shareholder servicing agent (the "Agent"), at
1-800-552-1129 or by writing to the Agent. The SAI contains additional
information about Class A Shares, Class B Shares, and Class Y Shares of the Fund
and its management not included in this Prospectus.
The Fund invests a substantial portion of its assets in high-yield, lower rated
bonds which are commonly referred to as "junk bonds." Investments of this type
are subject to greater risk of loss of principal and interest. Purchasers should
carefully assess the risks associated with an investment in the Fund. See Risk
Factors.
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.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY FINANCIAL INSTITUTION, NOR ARE SHARES OF THE FUND FEDERALLY INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY
OTHER AGENCY. SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
The date of this Prospectus is May 1, 1995, as revised on January 5, 1996.
Table of Contents
Page
----
Shareholder Expense Information ............................... 2
Financial Highlights .......................................... 3
About the Fund ................................................ 4
Investment Strategies ......................................... 5
Risk Factors .................................................. 8
Dividends and Other Distributions ............................. 10
Alternative Sales Arrangements ................................ 10
How to Purchase Shares ........................................ 11
Distribution Plans ............................................ 15
Shareholder Services .......................................... 15
Retirement Plans Offering Tax Benefits ........................ 16
How to Redeem Shares .......................................... 17
Performance ................................................... 18
Tax Matters ................................................... 18
Management, Services and Distribution ......................... 19
Appendix A .................................................... 21
Account Application ........................................... 23
<PAGE>
SHAREHOLDER EXPENSE INFORMATION
The information contained in the following tables is intended to assist an
investor in understanding the various costs and expenses that a shareholder in
the Fund will bear directly or indirectly. The only class of shares of the Fund
outstanding prior to May 1, 1995 was redesignated as Class A Shares on May 1,
1995. The information for Class B Shares and Class Y Shares has been estimated
based on expenses expected to have been incurred through December 31, 1995. For
a further description of the various costs and expenses listed below, see How to
Purchase Shares, How to Redeem Shares, Shareholder Services, and Management,
Services and Distribution.
<TABLE>
Shareholder Transaction Expenses
<CAPTION>
Class A Shares Class B Shares Class Y Shares
-------------- -------------- --------------
<S> <C> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)(1) ................................ 3.25% NONE NONE
Maximum Contingent Deferred Sales Charge ............................... NONE 3.5% NONE
(declining to 0%
after six years)
</TABLE>
<TABLE>
Annual Fund Operating Expenses
As a Percentage of Average Net Assets
<CAPTION>
Class A Shares Class B Shares Class Y Shares
-------------- -------------- --------------
<S> <C> <C> <C>
Management Fees ......................................................... 0.56% 0.56% 0.56%
12b-1 Fees(2) ........................................................... 0.75% 1.00% 0.25%
Other Expenses .......................................................... 0.35% 0.36% 0.25%
Total Fund Operating Expenses(3) ........................................ 1.66% 1.92% 1.06%
</TABLE>
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(1) The Fund's maximum sales load on Class A Shares of 3.25% declines to 1.25%
on investments of $500,000 or more. In addition, the Fund offers several
methods by which investors may aggregate purchases to reduce the applicable
sales load. These methods, which include rights of accumulation, letters of
intent, and group purchases, are explained more fully in the section
entitled Purchasing Class A Shares.
(2) The 12b-1 fees for Class A Shares consist of an asset-based sales charge of
0.50% and a service fee (the "Service Fee") of 0.25%. The 12b-1 fees for
Class B Shares include an asset-based sales charge of 0.75% and a Service
Fee of 0.25%. The 12b-1 fees for Class Y Shares consist of a Service Fee of
0.25%. See Distribution Plans.
(3) Total Fund operating expenses for Class A Shares would have been 1.65%
excluding interest. For the fiscal year ended December 31, 1994, the Fund's
interest expense was substantially offset by the incremental interest
income generated on bonds purchased with borrowed funds. See Management,
Services, and Distribution.
Examples
Your investment of $1,000 would incur the following expenses, assuming 5%
annual return and redemption at the end of each period, and conversion from
Class B Shares to Class A Shares at the beginning of the seventh year:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A ........................ $49 $83 $120 $223
Class B ........................ $55 $85 $119 $212
Class Y ........................ $11 $34 $ 58 $129
Your same investment would incur the following expenses, assuming no
redemption, and conversion from Class B Shares to Class A Shares at the
beginning of the seventh year:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A ........................ $49 $83 $120 $223
Class B ........................ $20 $60 $104 $212
Class Y ........................ $11 $34 $ 58 $129
The above examples should not be considered a representation of past or
future expenses. Actual expenses may be greater or less than those shown. For
Class B Shares and Class Y Shares, the examples are based on estimated data for
the Fund's fiscal year ending December 31, 1995.
Long term shareholders of Class A Shares and Class B Shares may pay more
than the economic equivalent of the maximum front-end sales charge permitted by
the National Association of Securities Dealers, Inc.
For additional information regarding fees and expenses associated with
investing in Class A Shares, Class B Shares, and Class Y Shares of the Fund, see
Alternative Sales Arrangements. Sales representatives may receive different
compensation for sales of Class A Shares, Class B Shares, and Class Y Shares.
2
<PAGE>
FINANCIAL HIGHLIGHTS
Selected Per Share Data and Ratios
(For a Share Outstanding Throughout the Period)
The following table contains financial information for Class A Shares of
The Bond Fund For Growth for the period from June 3, 1986 to December 31, 1986
and for the eight one-year periods ended December 31, 1994. The information set
forth in this table has been derived from financial statements which have been
examined by Price Waterhouse LLP, independent accountants, whose report thereon
was unqualified. This information should be read in conjunction with the
financial statements and notes thereto which appear in the SAI. Financial
highlights are not presented for Class B Shares or Class Y Shares since no
shares of those classes were outstanding for the periods indicated.
<TABLE>
<CAPTION>
Periods Ended December 31,
----------------------------------------------------------------------------
1994 1993 1992+ 1991* 1990 1989 1988 1987 1986**
------- ---- ----- ----- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ..... $13.16 $11.43 $ 9.37 $ 7.88 $ 9.16 $ 9.03 $ 8.50 $ 9.96 $10.00
------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment income ................... 0.68 0.59 0.69 0.65 0.54 0.57 0.51 0.42 0.23
Net realized and unrealized gain
(loss) on investments .................. (0.81) 1.79 2.15 1.53 (1.26) 0.16 0.56 (1.27) (9.27)
------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment operations ......... (0.13) 2.38 2.84 2.18 (0.72) 0.73 1.07 (0.85) (0.04)
------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net investment income .... (0.69) (0.65) (0.78) (0.69) (0.56) (0.60) (0.54) (0.53) --
Distributions from capital gains ........ (0.14) -- -- -- -- -- -- (0.08) --
Total distributions ..................... (0.83) (0.65) (0.78) (0.69) (0.56) (0.60) (0.54) (0.61) --
------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of period .......... $12.20 $13.16 $11.43 $ 9.37 $ 7.88 $ 9.16 $ 9.03 $ 8.50 $ 9.96
====== ====== ====== ====== ====== ====== ====== ====== ======
Total return (excludes sales load) ....... (1.12%) 21.23% 31.19% 28.50% (8.14%) 8.13% 12.43% (9.34%) (0.40%)
Ratios/supplemental data:
Net assets, end of period (thousands) ... $126,691 $69,375 $10,241 $6,403 $6,035 $8,423 $6,008 $5,345 $3,332
Ratio of total expenses to average
net assets Y .......................... 1.66% 1.78% 1.93% 2.01% 2.92% 2.52% 2.67% 2.63% 1.03%
Ratio of total expenses (excluding
interest) to average net assets ........ 1.65% 1.75% 1.91% 1.94% 2.90% 2.43% 2.50% 2.63% 1.03%
Ratio of net investment income to
average net assets ..................... 5.24% 4.70% 6.62% 7.60% 6.37% 6.17% 5.53% 4.12% 2.28%
Portfolio turnover rate ................. 52.82% 88.66% 80.09% 48.55% 33.23% 54.46% 87.08% 107.5% 41.2%
</TABLE>
- ---------------------
+ Net of fees and expenses waived or reimbursed by Fielding Management
Company, Inc. which amounted to $0.01 per share. Without reimbursement, the
ratios would have been 2.06%, 2.04% and 6.50%, respectively.
* Net of fees and expenses waived or reimbursed by Fielding Management
Company, Inc. and Rochester Fund Services, Inc., which amounted to $0.07
per share. Without reimbursement, the ratios would have been 2.82%, 2.75%
and 6.79%, respectively.
** The Fund commenced operations on June 3, 1986.
Y During the periods shown above, the Fund's interest expense was
substantially offset by the incremental interest income generated on bonds
purchased with borrowed funds.
Per share information has been determined on the basis of the weighted
average number of Class A Shares outstanding during the period.
3
<PAGE>
<TABLE>
Information on Bank Loans
See Leverage through Borrowing
<CAPTION>
Periods ended December 31
--------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987 1986**
---- ---- ---- ---- ---- ---- ---- ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Bank loans outstanding at end of
period (000) ........................... $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $80 $0 $0
Monthly average amount of bank loans
outstanding during the period (000) .... $246 $213 $22 $45 $ 11 $47 $89 $0 $0
Monthly average number of shares of
the Fund outstanding during the
period (000) ........................... 8,206 2,941 716 702 764 661 645 498 167
Average amount of bank loans per share
outstanding during the period .......... $.03 $.07 $.03 $.06 $.01 $.07 $.14 $0 $0
</TABLE>
- ------------------
** The Fund commenced operations on June 3, 1986.
ABOUT THE FUND
The Fund is an open-end, non-diversified management investment company,
organized as a Massachusetts business trust on January 21, 1986. The Fund has
established three classes of shares, known as Class A Shares, Class B Shares,
and Class Y Shares (individually and collectively referred to as "Shares," as
the context may require). Except as otherwise noted in this Prospectus, Class A
Shares are sold subject to a sales charge of up to 3.25% and are redeemed at net
asset value. Class B Shares are sold at net asset value but may be subject to a
contingent deferred sales charge ("CDSC") of up to 3.5% upon redemption. Class Y
Shares are not subject to a sales charge or CDSC. Class A Shares are subject to
an asset-based sales charge of 0.50% and a Service Fee of 0.25%. Class B Shares
are subject to an asset-based sales charge of 0.75% and a Service Fee of 0.25%.
Class Y Shares are subject to a Service Fee of 0.25%. See How to Purchase Shares
and Distribution Plans.
Investment Objective
The Fund seeks a high level of total return on its assets through a
combination of current income and capital appreciation. The Fund invests
primarily in a portfolio that consists of a variety of convertible fixed income
securities which, in the opinion of OppenheimerFunds, Inc. (the "Adviser"), will
assist the Fund in achieving its investment objective. Convertible securities
include corporate bonds, notes and preferred stock which can be converted into
(exchanged for) common stock or other securities which provide an opportunity
for equity participation. See Investment Strategies--Convertible Securities.
Under normal market conditions, the Fund will invest at least 65% of its
total assets in convertible bonds. Many convertible bonds are lower rated,
speculative securities commonly referred to as "junk bonds." See Risk Factors.
The balance of up to 35% of the total assets comprising the Fund's portfolio may
be invested in other types of convertible securities as well as common stocks,
non-convertible fixed income securities, cash and money market securities,
including repurchase agreements. No more than 15% of the total assets of the
Fund, however, may be invested in non-dividend paying common stocks. If, at any
time, the market value of the Fund's investments in cash, common stocks and
non-convertible securities exceeds 35% of the market value of its total assets
as a result of market conditions or a call by an issuer of its convertible
securities, the Fund will (except when a temporary defensive position is deemed
advisable) thereafter invest only in convertible bonds until the 65% standard is
met. The Fund will not be required to sell any of its securities to comply with
the 65% standard.
The investment objective of the Fund is not a fundamental policy and, as
such, may be changed without shareholder approval. As a matter of policy,
however, the Fund will not change its objective without the approval of the
majority of the Board of Trustees. Although the Fund will seek to make
investments in accordance with its investment objective, there is no assurance
that the Fund will achieve its objective
4
<PAGE>
and there can be no guarantee that the value of an investment in Fund Shares
might not decline.
INVESTMENT STRATEGIES
Convertible Securities
A convertible security is a bond, debenture, note, preferred stock or other
security that may be converted into or exchanged for a prescribed amount of
common stock of the same or a different issue within a particular period of time
at a specified price or formula. A convertible security entitles the holder to
receive interest paid or accrued on debt or dividends paid on preferred stock
until the convertible security matures or is redeemed, converted or exchanged.
Convertible securities have unique investment characteristics in that they
generally (1) have higher yields than common stocks, but lower yields than
comparable non-convertible securities, (2) are less subject to fluctuation in
value than the underlying stock because they have fixed income characteristics,
and (3) provide the potential for capital appreciation if the market price of
the underlying common stock increases. See the SAI for a further discussion of
convertible securities.
The Fund may invest in various types of recently developed derivative
convertible securities, such as mandatory conversion securities, equity-linked
debt securities and convertible preferred stock. Mandatory conversion
securities, which provide a relatively high level of current income, may be
purchased as possible alternatives to direct investments in either the related
common stocks or fixed income securities in order to seek the higher returns
which are consistent with the Fund's investment objective. Such securities may
combine some of the features of debt securities and equity securities, including
both common stock and preferred stock. Unlike the more traditional convertible
securities, these securities are characterized by a mandatory conversion feature
and an adjustable conversion ratio. One type of mandatory conversion security
which may be purchased by the Fund is the equity-linked debt security, a debt
security whose principal amount at maturity is dependent upon the performance of
a specified equity security. The performance of these securities is dependent
upon the performance of the linked equity security and may be influenced by
interest rate changes. Such securities also are subject to credit risk with
respect to the issuer of the debt security. Certain of these convertible
securities offer limited potential for capital appreciation and, in some
instances, may involve losses equal to the value of the security. The Fund also
may be exposed to counterparty risk if the issuing firm of such a security
experiences financial or other difficulties that render it unable to perform
according to the terms of the security. The market for such securities is
relatively new and, therefore, it is not possible to predict how they might
trade in the secondary markets or whether such markets will be liquid or
illiquid. For a further description of these securities and other risks
associated with them, see the SAI.
The potential for higher returns sought by the Fund are in the opinion of
the Adviser, generally obtainable from investments in bonds which are rated in
the lower rating categories of nationally recognized statistical rating
organizations ("NRSROs"), including but not limited to Standard & Poor's Ratings
Group ("S&P") and Moody's Investors Service, Inc. ("Moody's") (BB and lower by
S&P and Ba and lower by Moody's), (commonly referred to as "junk bonds") or in
bonds which are unrated. The Fund will not, however, invest in convertible fixed
income securities having a rating by an NRSRO of less than C or in convertible
securities which are in default at the time of purchase. Convertible securities
rated C by S&P are described as having the highest degree of speculation with
respect to the capacity to pay interest and principal in accordance with the
terms of the obligation. Because investment in lower rated and unrated fixed
income securities involves greater investment risk, achievement of the Fund's
investment objectives will be more dependent on the Adviser's credit analysis
than would be the case if the Fund were investing in higher quality debt
securities. Since the ratings of rating agencies are used only as preliminary
indicators of investment quality, the Adviser employs its own credit research
and analyses from which it has developed a credit rating system based upon
comparative credit analyses of issuers within the same industry. These analyses
may take into consideration, among other things, the issuer's financial
soundness, its anticipated cash flow, interest or dividend coverage, asset
coverage, sinking fund provisions, responsiveness to changes in interest rates
and business conditions and liquidation value relative to the market price of
the security.
5
<PAGE>
Borrowing for Investment Purposes
As a fundamental policy, the Fund may borrow money, but only from banks, in
amounts up to 5% of its total net assets for temporary or emergency purposes, or
to purchase additional portfolio securities. See "Other Investment Restrictions"
in the SAI. The Investment Company Act of 1940 (the "Act") requires the Fund to
maintain asset coverage of at least 300% for all such borrowings and, should
such asset coverage at any time fall below 300%, the Fund would be required to
reduce its borrowings within three days to the extent necessary to meet the
requirements of the Act. The Fund might be required to sell securities at a time
when it would be disadvantageous to do so in order to reduce its borrowings.
Lending of Portfolio Securities
As a fundamental policy, the Fund may lend a portion of its portfolio
securities to broker-dealers, institutions and other persons as a means of
earning additional income on its portfolio assets. Any such loans will be
continuously secured by collateral consisting of cash, securities of the U.S.
government and its agencies and instrumentalities or approved bank letters of
credit, or any combination thereof, which will at all times equal at least 100%
of the market value of the loaned securities. Such loans will not be made if, as
a result thereof, the aggregate amount of all outstanding loans of the Fund's
portfolio securities would exceed the maximum percentage of its assets permitted
by law or applicable guidelines of the Securities and Exchange Commission
("SEC"). Guidelines established by the SEC currently permit the Fund to loan an
amount of its portfolio securities equal in value up to 33 1/3% of the value of
its total assets. The Fund will receive interest on the securities loaned and
simultaneously earn either interest on the investment of the cash collateral or
fee income if the collateral for the loan does not consist of cash. However, the
Fund will normally pay lending fees and related expenses from the interest
earned on invested collateral. If the borrower of the securities fails
financially, there could be a risk of delay in recovery of the securities or
loss of rights in the collateral. The Fund will attempt to minimize such risks,
however, by making loans to only such borrowers which are believed by the Fund's
Adviser to be of good financial standing.
Illiquid Securities
The Fund may invest up to an aggregate of 15% of its net assets in illiquid
securities which may include, but are not limited to, securities which have not
been registered under the Securities Act of 1933, as amended (the "1933 Act"),
repurchase agreements with remaining maturities of more than seven days, and
securities for which market quotations are not readily available. Securities
which have not been registered under the 1933 Act are deemed to be "restricted
securities" because they cannot be resold except in reliance upon an available
exemption from the registration requirements. Rule 144A under the 1933 Act
permits certain resales of restricted securities provided that such securities
have been determined to be eligible for resale under the provisions of Rule 144A
("Rule 144A Securities"). Rule 144A Securities which are deemed to be liquid by
the Fund's Adviser pursuant to certain guidelines and procedures as discussed in
the SAI are excluded from the Fund's 15% limitation on investments in Illiquid
Securities. See the SAI for further information. The Fund's policy with respect
to illiquid securities is non-fundamental and, as such, may be changed without
shareholder approval.
Eurodollar convertible securities are generally traded on the European
exchanges, are not registered under the 1933 Act and may not be sold to U.S.
investors except in reliance upon an available exemption from the 1933 Act.
However, there exists a liquid institutional market for many of these Eurodollar
convertible securities which are convertible into securities which trade on a
U.S. exchange, and one or more U.S. broker-dealers may make a market in the
security. Eurodollar securities trade without limitation and are not considered
illiquid securities for purposes of the Fund's non-fundamental policy of
investing no more than an aggregate of 15% of its net assets in such securities.
Foreign Securities
The Fund may invest up to 15% of its assets in securities of foreign
issuers which are generally denominated in foreign currencies. Investments in
securities of foreign issuers involve certain risks not ordinarily associated
with investments in the securities of domestic issuers. Such risks include, but
are not limited to: (1) political and financial instability abroad; (2) less
liquidity and greater volatility of foreign investments; (3) less public
information regarding
6
<PAGE>
foreign companies; (4) less government regulation and supervision of
foreign stock exchanges, brokers and listed companies; (5) lack of uniform
accounting, auditing and financial reporting standards; (6) delays in
transaction settlement in foreign markets; (7) possibility of an imposition of
confiscatory foreign taxes; (8) possible limitation on the removal of securities
or other assets of the Fund; (9) restrictions on foreign investments and
repatriation of capital; (10) currency fluctuations; (11) cost and possible
restriction of currency conversion; (12) withholding taxes on interest and
dividends earned in foreign countries; and (13) possibly higher commissions,
custodian fees and management costs than in the United States.
The Fund may purchase sponsored American Depository Receipts ("ADRs") or
U.S. dollar denominated securities of foreign issuers, which are not subject to
the 15% limitation on investments in securities of foreign issuers. ADRs are
receipts issued by U.S. banks or trust companies in respect of securities of
foreign issuers held on deposit for use in the U.S. securities markets. While
ADRs may not necessarily be denominated in the same currency as the securities
into which they may be converted, many of the risks associated with foreign
securities may also apply to ADRs, such as confiscatory taxation or
nationalization, and less comprehensive disclosure requirements for the
underlying securities.
Warrants, Options and Short Sales
The Fund may invest up to 5% of the value of its net assets at the time of
purchase in warrants. It also may utilize listed options trading and has limited
such trading to (1) writing (i.e. selling) covered call options on stocks it
owns and the underlying stock of its existing convertible positions; (2)
purchasing put options on stocks it owns, and underlying stock of its existing
convertible positions; (3) entering into closing purchase transactions with
respect to certain of such options, provided that all options written or
purchased by the Fund are listed on a national securities exchange. The Fund
also has the ability to purchase put options in an attempt to hedge its
portfolio to reduce investment risks. The Fund's covered call writing is
generally intended to provide income to the Fund beyond the level of income
available from convertible securities alone. The Fund may also make short sales
"against the box." See the SAI for a further discussion of these investment
strategies.
Repurchase Agreements
Under a repurchase agreement, the Fund may purchase U.S. Government
securities and concurrently enter into an agreement with the seller which agrees
to repurchase such securities at the Fund's cost plus an agreed rate of interest
within a specified time (normally seven days or less). Repurchase agreements
will be collateralized by the U.S. Government securities, and the value of such
collateral will be at least equal to the repurchase price, including any such
accrued interest. The Fund will only enter into repurchase agreements where the
custodian of the Fund has acquired actual or constructive possession of the
collateral, including transfer of U.S. Government securities by book-entry in
the Federal Reserve book-entry system. In the event of a default or bankruptcy
by a seller, the Fund may incur a loss, may have difficulty in perfecting
ownership of the collateral, and may incur expenses in selling the collateral.
Temporary Investments
Temporary investments may be made without limitation in periods of unusual
market conditions or when the Adviser determines that convertible securities may
not best achieve the Fund's investment objective and a temporary defensive
position may be warranted. Such investments may be made in money market
instruments consisting of obligations of, or guaranteed as to principal and
interest by, the U.S. Government or its agencies or instrumentalities,
certificates of deposit, bankers' acceptances and other obligations of domestic
banks having total assets of at least $500 million and which are regulated by
the U.S. Government, its agencies or instrumentalities, commercial paper rated
in the highest category by an NRSRO and repurchase agreements with banks or
broker-dealers in securities.
Other Investment Restrictions
Information about other investment restrictions on the Fund's investment
activities is set forth in "Other Investment Restrictions" in the SAI.
Portfolio Transactions
The Fund has no obligation to deal with any dealer or group of dealers in
the execution of transactions in securities
7
<PAGE>
of the Fund. Where advisable, the Fund deals directly with the dealers who
make a market in the securities involved except in those circumstances where the
Adviser believes that better prices and execution are available elsewhere. It is
the policy of the Fund to seek to obtain the best net results in conducting
portfolio transactions for the Fund, taking into account such factors as price
(including the applicable dealer spread), and the firm's general execution
capabilities. Where more than one dealer is able to provide the most competitive
price and the execution capabilities of the dealers are comparable, the sale of
shares of the Fund may be taken into consideration as a factor in the selection
of dealers to execute portfolio transactions for the Fund. The portfolio
securities of the Fund generally are traded on a net basis and normally do not
involve the payment of brokerage commissions. The cost of securities
transactions of the Fund primarily consists of paying dealer or underwriter
spreads.
RISK FACTORS
Credit Quality Considerations
The risks inherent in the Fund depend to a larger degree upon the maturity
and/or quality of securities in the Fund's portfolio, as well as on market and
general economic conditions. The Fund is designed for investors who seek a
higher total return than that offered by other fixed income securities and who
can accept greater levels of credit and other risks associated with lower
quality securities. The Fund may invest, without limit, in convertible bonds
which are in the lower rating categories of an NRSRO (such as those rated BB and
below by S&P or those rated Ba and below by Moody's), often referred to as "junk
bonds," or in convertible bonds which are unrated. Lower rated convertible debt
securities are considered speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with the terms of the obligation.
The Fund will not, however, invest in convertible fixed income securities having
a rating by an NRSRO of less than C or in convertible securities which are in
default at the time of purchase. Descriptions of S&P rating categories are set
forth in Appendix A to this prospectus. In addition, descriptions of rating
categories established by Moody's and Fitch are set forth in the SAI.
Certain risks are associated with applying credit ratings as a method for
evaluating high yield securities. Credit ratings evaluate the safety of
scheduled payments, not market value risk of high yield securities. Since credit
rating agencies may fail to timely change the credit ratings to reflect
subsequent events, the Adviser seeks to monitor the issuers of high yield
securities in its portfolio to seek to determine if the issuers will have
sufficient cash flow and profits to meet required payments, and to attempt to
assure the liquidity of the securities so the Fund can meet redemption requests.
If, after purchase by the Fund, the rating of a portfolio security is lost or
reduced, the Fund would not be required to sell the security, but the Adviser
would consider such a change in deciding whether the Fund should retain the
security in its portfolio. There is no guarantee that the Fund will achieve its
objective, nor can the Fund guarantee that payments of interest and principal on
portfolio securities will be timely made (or made at all).
The Fund's investments in high yield, lower rated securities and unrated
securities involve certain special risk factors. Medium to lower rated and
comparable unrated securities may offer yields which are higher than higher
rated securities with comparable maturities because the historical and/or
expected future financial condition of the issuers of such securities may not be
as strong as that of other issuers. Since medium to lower rated and comparable
unrated securities generally involve greater risk of loss of income and
principal than that of higher rated securities, investors should carefully
consider the relative risks associated with investments in securities which
carry medium to lower ratings and in comparable unrated securities.
The high yield fixed income securities markets are relatively new, and
their growth during the 1980s paralleled a long economic expansion. The lower
ratings of high yield securities reflect the greater possibility that adverse
changes in the economic environment, the financial condition of their issuers or
both could impair the ability of their issuers to service payment obligations,
to meet projected business goals and/or to obtain additional financing. Under
such circumstances, the value of high yield securities may be more volatile and
the markets for such securities may be less liquid than those for higher-rated
securities. A real or anticipated economic downturn is, therefore, likely to
have
8
<PAGE>
a negative effect on the high yield securities markets and on the value of
the high yield securities in the Fund's portfolio. If the issuer of a fixed
income security owned by the Fund defaults (or threatens to default), the Fund
may incur additional expenses seeking recovery and protecting the interests of
its shareholders.
Based upon the weighted average ratings of total Fund assets during the
twelve months ending December 31, 1994, the percentage of the Fund's total
investments represented by (1) bonds rated by S&P/Moody's separated into each of
their respective rating categories (AAA/Aaa, AA/Aa, A/A, BBB/Baa, BB/Ba, B/B,
CCC/Caa, CC/Ca or C/C) by monthly dollar weighted average were, respectively,
0.46%, 2.53%, 5.48%, 10.35%, 9.00%, 27.56%, 2.48%, 0%, and 0% for the Fund, and
(2) all unrated bonds as a group comprised 14.72% of the Fund's assets.
Marketability Considerations
Some issuers of convertible fixed income securities do not seek ratings for
their securities. Such unrated securities may be considered for investment by
the Fund when, in the opinion of the Adviser, the financial condition of the
issuer of such securities and/or the protection afforded by the terms of the
securities themselves seem to limit the risk to the Fund to a comparable degree
to that of rated securities which are consistent with the Fund's objective and
policies. The market for these unrated securities is usually less broad than the
market for rated securities, which could adversely affect their marketability.
Some of the high yield securities owned by the Fund may be held by
relatively few institutional investors and may be thinly traded. This may have a
negative impact on the Board of Trustees' ability to accurately value such
securities and the Fund's assets, as well as on the Fund's ability to dispose of
the securities. Adverse publicity and investor perceptions of the high yield
securities market or of specific issuers, whether or not based on fundamental
analysis, may decrease the values and liquidity of high yield securities,
especially in a thinly traded market.
Capitalization of Issuers
The Fund may invest in convertible securities issued by companies which are
in the small to medium size category, that is, with capital valued in the market
between $20 million and $1 billion, although investments may also be made in
convertible fixed income securities of larger companies which, in the opinion of
the Adviser, appear to have high long term total return potential. The Adviser
believes that investments in small capitalization companies may, in many cases,
offer greater opportunities for high total return than investments in larger,
more established companies. Investing in smaller, newer issuers generally
involves greater risks than investing in larger, more established issuers.
Companies in which the Fund is likely to invest may have limited product lines,
markets or financial resources and may lack management depth. The securities
issued by such companies may have limited marketability and may be subject to
more abrupt or erratic market movements than securities of larger, more
established companies or the market in general. Investors should consult with
their financial consultants as to what, if any, portion of their assets might be
appropriate for an investment in the Fund.
Interest Rate Risk
Like all fixed income securities, the price of a convertible security will
be affected by interest rate fluctuations. A decline in prevailing levels of
interest rates generally increases the value of fixed income securities in the
Fund's portfolio, while an increase in interest rates usually reduces the value
of those securities. As a result, interest rate fluctuations can be expected to
affect the Fund's net asset value, but not the actual income received by the
Fund from its existing portfolio securities. Because yields on convertible fixed
income securities available for purchase by the Fund vary over time, however, no
specific yield on shares of the Fund can be assured.
Non-Diversification
The Fund expects that it normally will invest in a substantial number of
issuers; however, as a non-diversified investment company, the Fund may invest a
greater portion of its assets in the securities of a limited number of issuers
than a diversified fund. The Fund's ability to invest a greater proportion of
its assets in the securities of a smaller number of issuers may enhance the
Fund's ability to achieve capital appreciation, but may also make the Fund more
susceptible to any single economic, political or regulatory occurrence. However,
as of the last day of each fiscal quarter, the Fund generally will be required
to meet certain tax-related
9
<PAGE>
diversification requirements, which would restrict, to some degree, the
amount of the securities of any one issuer that the Fund could hold.
DIVIDENDS AND OTHER DISTRIBUTIONS
There are two types of distributions which the Fund may make to its
shareholders, income dividends and capital gain distributions. Distributions
paid by the Fund with respect to Class Y Shares likely will be greater than
those paid with respect to Class A Shares and Class B Shares because expenses
attributable to Class A Shares and Class B Shares generally will be higher.
Distributions paid by the Fund with respect to Class A Shares likely will be
greater than those paid with respect to Class B Shares because expenses
attributable to Class B Shares generally will be higher.
Income Dividends. The Fund receives income in the form of interest and
dividends paid by its investments. This income, less the expenses incurred in
the Fund's operations, is referred to as net investment income. Income dividends
are declared and recorded each day based on estimated net investment income.
Such dividends are paid quarterly. Investors earn such dividends beginning on
the day payment for Shares is received to the day prior to the settlement date
of redemption. For federal tax purposes, all distributions declared in the
fourth quarter of any calendar year are deemed paid in that calendar year even
if they are distributed in January of the following year. Any net gain the Fund
may realize from transactions in securities held less than the period required
for long term capital gain recognition (taking into account any carryover of
capital losses from previous years), while technically a distribution from
capital gain, is taxed as an income dividend under the Internal Revenue Code of
1986, as amended (the "Code"). See Tax Matters.
Capital Gains Distributions. If, during any fiscal year, the Fund realizes
a net gain on transactions in securities held for more than one year, it has a
net long term capital gain. After deduction of the amount of any net short term
loss, the balance may be used to offset any carryover of capital losses from
previous years, or, if there is no loss carryover, will be paid out to
shareholders as a capital gain distribution. Capital gain distributions, if any,
will be paid to shareholders of record prior to the end of each calendar year.
Because the value of Fund Shares is based directly on the amount of its net
assets, rather than on the principle of supply and demand, any distribution of
income or capital gain will result in a decrease in the value of Fund Shares
equal to the amount of the distribution.
All dividends and capital gain distributions are paid in additional full
and fractional Shares at net asset value for each shareholder's account unless
otherwise requested on the Account Application or by notifying the Fund in
writing or by telephone. Notice will be effective for the current dividend or
distribution only if it is received by the Fund at least five business days
before the record date. Notice received thereafter will be effective commencing
with the next dividend or distribution. Income dividends and capital gain
distributions will be credited to a shareholder's account in additional shares
valued at the closing net asset value (without a sales load).
If the U.S. Postal Service cannot deliver a shareholder's check, or if a
shareholder's check remains uncashed for six months, the Fund reserves the right
to credit the shareholder's account with additional shares of the Fund at the
then current net asset value in lieu of the cash payment and to thereafter issue
such shareholder's dividends in additional Shares of the Fund.
Stock certificates will not be issued in connection with distributions
which are paid in additional Shares unless a written request is received and
certain other procedures are followed. Call the Agent at 1-800-552-1129 for more
information. Shareholders will be advised of the nature of a distribution, the
number of Shares purchased and the price following each such distribution.
ALTERNATIVE SALES ARRANGEMENTS
The three classes of Shares which the Fund offers incur sales charges in
different forms and amounts and incur different levels of expenses.
Class A Shares
Shareholders who purchase Class A Shares pay a sales charge at the time of
purchase. As a result, Class A Shares are not subject to any charges when they
are redeemed. Certain purchases of Class A Shares qualify for reduced sales
charges. Class A Shares currently incur an asset-based sales charge at an annual
rate of 0.50% and a Service Fee at
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<PAGE>
the annual rate of 0.25% of the Fund's average net assets attributable
to Class A Shares. See Purchasing Class A Shares.
Class B Shares
Class B Shares of the Fund are sold without an initial sales charge, but
are subject to a CDSC of up to 3.5% if redeemed within the first year, declining
to 0% after the sixth year. Class B Shares also incur an asset-based sales
charge, currently at the annual rate of 0.75% of the Fund's average daily net
assets attributable to Class B Shares, as well as a Service Fee at an annual
rate of 0.25%. Class B Shares provide shareholders the benefit of putting all of
the investor's dollars to work from the time the investment is made, but likely
will have a higher expense ratio and pay lower dividends than Class A Shares and
Class Y Shares due to the higher asset-based sales charge. Class B Shares will
convert into Class A Shares after approximately 6 years and thereafter will pay
the lower ongoing expenses associated with Class A Shares. See Purchasing Class
B Shares.
Class Y Shares
Class Y Shares are available to (1) discretionary accounts of registered
investment advisers who charge an investment advisory fee; (2) banks and trust
institutions investing for their own accounts or for accounts of their trust
customers; (3) qualified plans under the ERISA definition of fiduciary; and (4)
government entities or authorities (collectively, "Qualified Institutions").
Class Y Shares are sold without an initial sales charge or CDSC. Class Y Shares
are subject to a Service Fee of 0.25%. See Purchasing Class Y Shares.
Factors to Consider in Choosing a Class of Shares
The decision as to which class of Shares provides a more suitable
investment for an investor depends on a number of factors, including the amount
invested and the intended length of investment. Investors making large
investments, thus qualifying for a reduced sales charge, might consider Class A
Shares. Investors who prefer that 100% of their purchase be invested
immediately, or who want to spread the sales charge payment over time, might
consider Class B Shares. Orders for Class B Shares for $250,000 or more will be
declined because the investor would not realize the economies of scale available
to them through a similar investment in Class A Shares. Investors who meet the
above criteria for purchases of Class Y Shares and are able to meet the higher
minimum investment requirements should take advantage of the reduced expenses
that Class Y Shares offer. For more information about these sales arrangements,
contact your investment dealer or the Agent at 1-800-552-1129.
HOW TO PURCHASE SHARES
Shares of the Fund are being continuously offered through securities
dealers who have a sales agreement with OppenheimerFunds Distributor, Inc. (the
"Distributor"), Two World Trade Center, New York, New York 10048-0203, the
principal underwriter of the Fund. The minimum initial investment in Class A and
Class B Shares is $2,000 and subsequent investments must be $100 or more. The
minimum initial investment inClass Y Shares is $50,000 and subsequent
investments must be $1,000 or more. Such minimum investment requirements may be
modified at the discretion of the Distributor.
There Are Several Ways You Can Invest
Through the Distributor. Complete an Account Application and return it with
a check payable to the Distributor, who will act as your agent in purchasing
Shares.
Through Your Investment Dealer. Many investment dealers and financial
institutions have a sales agreement with the Distributor and will be glad to
accept your order. If you do not have an account with a dealer, the Distributor
can refer you to one.
Through the Automatic Bank Draft Plan. The Automatic Bank Draft Plan is
available as a convenience to all shareholders of the Fund. Under this plan, you
may elect to make investments ($100 minimum) automatically by arranging to have
pre-authorized checks drawn on your bank account by the Agent. This plan is
available only if your bank agrees to participate. There is no charge for this
service and it may be terminated at any time upon written notice to the Agent.
See Shareholder Services.
Automatic Investment Plan. Investments of $100 or more may be made through
a shareholder's checking account by Automated Clearing House ("ACH") funds. For
information on how to establish a plan contact the Agent at 1-800-552-1129.
11
<PAGE>
Certificates
To facilitate redemptions and transfers, most shareholders elect not to
receive share certificates; however, the Fund will issue them if requested in
writing or by telephone if you have owned the Shares for at least 30 days. If
you lose a stock certificate, you may incur an expense to replace it. Call the
Agent for more information.
Purchase Price of Shares
Shares of the Fund are offered at the public offering price (which is the
net asset value plus a sales charge for Class A Shares and the net asset value
for Class B Shares and Class Y Shares) next computed after receipt by the
Distributor of an order from a qualified securities dealer, by mail, or by
telephone from the investor directly, in good order. The net asset value of
Shares is determined once daily as of the close of the New York Stock Exchange
(the "Exchange") on each day that the Exchange is open.
For the purpose of the computation of the applicable public offering price,
orders for Shares placed by the mailing of an Account Application with a check
payable to the Fund are considered processed upon receipt by the Distributor.
Purchase of Shares through authorized dealers must be received by such dealers
prior to 4:00 p.m. New York time (the "Closing") in order to receive such
trading day's public offering price. Orders received by the Distributor
subsequent to the Closing are confirmed at the public offering price determined
as of the Closing on the next trading day. If a dealer who has a sales agreement
with the Distributor receives an order prior to the Closing and fails to
transmit such order to the Distributor prior to its close of business on that
day (5:00 p.m. New York time), any resulting loss will be borne by the dealer.
The net asset value per Share of each class of the Fund, the price at which
Shares of each class are redeemed, is computed by dividing the value of the
Fund's total assets, less its liabilities attributable to a class, by the total
number of Shares of that class outstanding. The net asset value of the Shares of
each class of the Fund fluctuate based on the market value of the Fund's
investments. Procedures describing the method of valuation of individual
securities are discussed in the SAI. The net asset value for Class A Shares,
Class B Shares, and Class Y Shares may differ primarily due to the variance in
daily net income and accrual of expenses realized by each class.
The Distributor may provide promotional incentives or compensation to
dealers that sell Shares of the Fund in addition to sales loads. In some
instances, these incentives may be made available only to certain dealers who
have sold specified amounts of Shares. Dealers may not use sales of the Fund's
Shares to qualify for such incentives to the extent that such sales may be
prohibited by the laws of any state or self-regulatory agency such as the
National Association of Securities Dealers, Inc.
PURCHASING CLASS A SHARES
The public offering price of Class A Shares is the net asset value plus a
sales load. The following table shows the sales load at various investment
levels for the purchase of Class A Shares of the Fund:
Sales Sales Reallow-
Load Load ance to
as % of as % of Dealers
Public Net as % of
Offering Amount Offering
Amount of Purchase Price Invested Price
------------------ ----- -------- -----
Less than $250,000 ...................... 3.25% 3.36% 3.00%
$250,000 to $499,000 .................... 2.25% 2.30% 2.00%
$500,000 to $999,999 .................... 1.25% 1.27% 1.00%
Purchases of $1,000,000 or more will be made without a sales load. The
Distributor may make a payment out of its own resources to dealers in an amount
not to exceed 0.25% of purchases of $1,000,000 or more.
Information with regard to any of the following special purchase plans or
methods may be obtained from the Distributor.
Reduced Sales Loads
Class A Shares of the Fund may be purchased under a variety of plans which
provide for reduced sales loads. To obtain the reduction of a sales load you or
your dealer must notify the Distributor at the time of the sale which qualifies
for the reduction.
Right of Accumulation. The total value (at the public offering price) of
Class A Shares of the Fund and shares of Eligible Funds (as described in
Exchange Privilege) registered to you, your spouse or your children under 21,
may be combined with the amount of your current purchase in determining the
sales load to be paid.
12
<PAGE>
Letter of Intent. Reduced sales loads will apply to purchases of Class A
Shares made within a period of thirteen months by any person pursuant to a
non-binding Letter of Intent. A shareholder may include the combined value (at
the applicable public offering price) of Class A Shares of the Fund, and of
Shares of Eligible Funds (as described in Exchange Privilege) held by the
shareholder of record as of the date of the Letter of Intent as an "accumulation
credit" toward the completion of the intention expressed in the Letter of
Intent. A shareholder's holdings in the Class A Shares of the Fund and Shares of
any Eligible Funds acquired more than 90 days before the Letter of Intent is
filed, will be counted towards completion of the Letter of Intent, but will not
be entitled to a retroactive downward adjustment of sales load.
Group Purchases. An individual who is a member of a qualified group may
also purchase Class A Shares of the Fund at the reduced sales load applicable to
the group taken as a whole. The sales load is based upon the aggregate amount of
Class A Shares previously purchased and still owned by the group, plus the
securities currently being purchased. A "qualified group" is one with more than
10 members and which (1) has been in existence for more than six months, (2) has
a purpose other than acquiring Class A Shares of the Fund at a discount and (3)
satisfies uniform criteria which enables the Distributor to realize economies of
scale in its costs of distributing Class A Shares
Other Discounts
The Fund may also sell Class A Shares at net asset value to the following
investors: (a) the Adviser or its affiliates, (b) present or former officers,
directors, trustees and employees (and their "immediate families" as defined in
the SAI) of the Fund, the Adviser and its affiliates, and retirement plans
established by them for their employees, (c) registered management investment
companies, or separate accounts of insurance companies having an agreement with
the Adviser or the Distributor for that purpose, (d) 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, (e) 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), (f) 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 (those clients
may be charged a transaction fee by their dealer, broker or adviser on the
purchase of Fund shares), and (g) 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.
PURCHASING CLASS B SHARES
Class B Shares of the Fund are sold without an initial sales charge,
although a CDSC will be imposed if you redeem Class B Shares of the Fund within
six years of purchase. The following types of Class B Shares may be redeemed
without charge at any time: (1) Class B Shares acquired by reinvestment of
distributions and (2) Class B Shares held for more than six full years from the
date of purchase. Subject to the foregoing exclusions, the amount of the charge
is determined as a percentage of the lesser of the current market value or the
cost of the Class B Shares at the time of purchase. Therefore, when a Class B
Share is redeemed, any increase in value above the initial purchase price is not
subject to any CDSC. The amount of the CDSC, which depends on the number of
years since you invested and the dollar amount redeemed, will be calculated
according to the following tables:
CDSC As a Percentage
Years Since Purchase of Dollar
Payment Made Amount Subject to Charge
------------ ------------------------
0-1 ...................... 3.5%
1-2 ...................... 3.0%
2-3 ...................... 2.5%
3-4 ...................... 2.0%
4-5 ...................... 1.5%
5-6 ...................... 1.0%
6 and thereafter ......... NONE
In determining whether a CDSC is applicable to a redemption, the
calculation will be determined in a manner that results in the lowest possible
charge to the shareholder. In computing the CDSC it will be assumed that
redemptions occur in the following order: (1) any Class A Shares in the
shareholder account; (2) Class B Shares acquired pursuant
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<PAGE>
to the reinvestment of dividends or distributions; (3) Class B Shares held
for more than six years from the date of purchase; and (4) Class B Shares held
longest, if redeemed before six years from the purchase date. The charge will
not be applied to amounts representing increases in net asset value above the
original purchase price. Upon exchange of shares, the CDSC schedule of the fund
into which you exchanged your shares will apply. See the prospectus of that fund
for the applicable CDSC schedule. For information on how sales charges are
calculated on exchanges of Class B Shares, see Exchange Privilege. The
Distributor receives the entire amount of any CDSC you pay.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of Class B Shares until the time of
redemption of such Shares. For example, assume you purchased 100 Class B Shares
at a price of $10 per Class B Share for a total cost of $1,000. You then
received an additional five Class B Shares through dividend reinvestment and net
asset value has increased to $12 per share. During the second year after your
original purchase you elect to redeem 50 Class B Shares ($600 in proceeds). In
calculating your proceeds, the five Class B Shares received through dividend
reinvestment ($60) would not be subject to any charge. With respect to the
remaining 45 Class B Shares, the charge would be applied to the original price
per Class B Share ($10) of these Class B Shares or $450. The charge would not
apply to the increase in net asset value of $2. Therefore, you would expect to
pay a charge of 3.00% of $450 or $13.50.
Waiver of the CDSC
The CDSC will be waived with respect to the following redemptions: (1)
redemptions following the death or disability, as defined in Section 72(m)(7) of
the Code, of a shareholder; and (2) involuntary redemptions by the Fund of
Shares in shareholder accounts that do not comply with the minimum balance
requirements. Shareholders must notify the Distributor in writing that they are
entitled to the waiver. The Trustees may discontinue the waiver of the CDSC at
any time, although shareholders will be notified of such termination. Any Shares
purchased prior to the discontinuation of the waiver would continue to have the
CDSC waived as provided in the prospectus at the time those Shares were
purchased.
Conversion of Class B Shares
Class B Shares of the Fund will convert into Class A Shares automatically
approximately six years after the purchase date, except as noted below. Class B
Shares acquired by exchange from Class B Shares of another of the Eligible Funds
will convert into Class A Shares based on the time of the initial purchase. Each
time any Class B Shares in the Shareholder's account convert to Class A Shares,
the same percentage of Class B Shares acquired through payment of dividends and
distributions will also convert to Class A Shares. The conversion of Class B
Shares to Class A Shares is subject to the continuing availability of a ruling
from the Internal Revenue Service or an opinion of counsel that such conversions
will not constitute taxable events for Federal tax purposes. There can be no
assurance that such ruling or opinion will be available, and no conversions of
Class B Shares to Class A Shares will occur if such ruling or opinion is not
available. In such event, Class B Shares would continue to be subject to higher
expenses than Class A Shares for an indefinite period. Shareholders holding
Class B Shares may be affected by changes to the Class A Shares Distribution
Plan. The Board will monitor for conflicts of interest among classes and will
take any action necessary to eliminate conflicts.
PURCHASING CLASS Y SHARES
Qualified Institutions may open an account for $50,000 or more by
completing and returning a signed account application. Dealers and brokers who
have a sales agreement with the Distributor may enter confirmed purchase orders
for Class Y Shares on behalf of customers by telephone. The Fund and the
Distributor reserve the right to suspend the offering of Class Y Shares for a
period of time and to reject any order for the purchase of Class Y Shares.
Purchase orders may be refused if, in the opinion of the Adviser, they are of a
size that would disrupt the management of the Fund. Investors interested in
purchasing Class Y Shares of the Fund should contact their sales representative
or the Distributor for specific information on opening an account.
14
<PAGE>
DISTRIBUTION PLANS
Pursuant to Rule 12b-1 under the Act, the Fund has adopted a Distribution
and/or Service Plan and Agreement with respect to each class of Shares
(collectively, the "Plans") which permits the Fund to pay to the Distributor a
Service Fee in connection with the distribution of each class of Shares in an
amount of up to 0.25% per annum of the relative net assets attributable to each
class of Shares. In the case of the Plans for the Class A Shares and the Class Y
Shares, the Service Fee is paid to the Distributor as reimbursement for payment
by the Distributor to compensate brokers, dealers and banks for service
performed and/or maintenance of shareholder accounts pursuant to the provisions
of the service agreement. In the case of the Plan for the Class B Shares, the
Service Fee is paid to the Distributor as compensation. The Distributor also
makes payments to brokers, dealers and banks to compensate them for providing
personal services to Class B Shareholders and for maintaining accounts of Class
B Shareholders. The Fund may also pay the Distributor an asset-based sales
charge of up to 0.50% per annum of the relative net assets attributable to Class
A Shares and up to 0.75% per annum of the relative net assets attributable to
Class B Shares which is used by the Distributor primarily to compensate brokers
and dealers in connection with the sales of Class A and Class B Shares. Up to
0.25% of the Class A Shares' asset-based sales charge may be paid to brokers,
dealers, banks, and other institutions for reimbursement of sales related
expenses, and up to 0.25% may be retained by the Distributor as reimbursement
for expenses incurred by it in connection with the distribution of Class A
Shares, including, but not limited to, compensation of sales personnel,
telephone, overhead, printing of sales literature and prospectuses, seminars and
similar promotional items, including broker incentives. The asset based sales
charge of up to 0.75% per annum which the Fund may pay to the Distributor with
respect to relative net assets attributable to Class B Shares is paid to the
Distributor as compensation for services rendered and expenses borne by the
Distributor in connection with the distribution of Class B Shares. See the SAI
for further information about the Plans.
Although Class B Shares of the Fund are sold without an initial sales
charge, the Distributor pays a sales commission equal to 3.00% (including a
prepaid service fee of 0.25%) to dealers who sell Class B Shares of the Fund.
These commissions are not paid on exchanges from other Eligible Funds or on
sales to investors exempt from the CDSC.
Banks and other financial institutions may be subject to various state laws
regarding the services described above and may be required to register as
dealers pursuant to state law.
SHAREHOLDER SERVICES
Account Information
Shareholders with inquiries on accounts not held by their dealer may call
the Fund or the Agent at 1-800-552-1129 (9:00 a.m.-5:00 p.m. New York time) or
write to the Agent.
Exchange Privilege
The Rochester Funds group currently consists of two investment companies in
addition to the Fund, Rochester Fund Municipals and Limited Term New York
Municipal Fund, each of which has distinct investment objectives and policies.
As described below, a shareholder may exchange Shares of the Fund for the same
class of shares of another of The Rochester Funds or of certain other funds
which are managed by the Adviser (the "Oppenheimer" funds) which are eligible
for sale in the Shareholder's state of residence (collectively the "Eligible
Funds"). A list indicating which funds are Eligible Funds can be obtained by
calling the Agent at 1-800-552-1129. Not all of the Eligible Funds offer more
than one class of shares. If the other Eligible Fund offers only one class of
shares, only Class A Shares may be exchanged for such class. Shareholders
wishing to make an exchange into an Eligible Fund should obtain and review a
prospectus of the appropriate Eligible Fund before making the exchange. No
exchange of shares of an Oppenheimer fund for shares of any fund in The
Rochester Funds group is allowed.
If you exchange Shares subject to a CDSC, the transaction will not be
subject to the CDSC. However, when you redeem the Shares acquired through the
exchange, the redemption may be subject to the CDSC, depending upon when you
originally purchased the Shares. You will pay the CDSC of the Fund from which
you are redeeming without regard to any exchanges unless the exchange was from
the Fund to Limited Term New York Municipal Fund. In that case, you will pay the
CDSC of the Fund. For purposes of
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<PAGE>
computing the CDSC, the length of time you have owned your Shares will be
measured from the date of original purchase, as determined by the Fund (see
Purchasing Class B Shares) and will not be affected by any exchange.
Shares of an Eligible Fund may be exchanged for shares of the same class of
another Eligible Fund on the basis of the relative net asset value of each
Fund's shares at the time of the exchange (without sales charge).
Shareholders may effect exchanges of noncertificated shares by telephone.
The privilege is available to all shareholders unless requested otherwise by the
shareholder on the Account Application. Telephone Exchange Authorization Forms
are available from the Distributor upon request. In order to effect an exchange
by telephone shareholders may call the Agent weekdays (except holidays) between
9:00 a.m. and 5:00 p.m. (New York time). All exchanges will be made on the basis
of the relative net asset value of the two funds next determined after the
request is received in good order. Exchange requests received after the close of
regular trading on the New York Stock Exchange, generally 4:00 p.m. (New York
time) will be processed at the net asset value determined as of the close of
business on the following business day. Telephone exchanges are available only
in nonretirement accounts registered in the same name. Shareholders are limited
to one telephone exchange within any 30-day period for each account authorized
to make such exchanges.
The Fund, the Agent and their affiliates will not be liable for any loss,
damage, cost or expense arising out of any instruction (or any interpretation of
such instruction) received by telephone which they reasonably believe to be
authentic. In acting upon telephone instructions, the Agent utilizes procedures
which are reasonably designed to ensure that such instructions are genuine. Your
telephone call will be recorded and a written confirmation of the exchange will
be mailed to you. If reasonable procedures are not followed by the Fund, it may
be liable for losses due to unauthorized or fraudulent telephone exchanges. The
Fund reserves the right, in its sole discretion, upon 60 days' notice, to
materially modify or discontinue the telephone exchange privilege. During times
of drastic economic or market conditions, telephone exchanges may be difficult
to implement. If you experience difficulty in making a telephone exchange, you
may transmit your request in writing to the Agent and it will be implemented at
the next determined net asset value (subject to any applicable sales load)
following receipt in good order by the Agent.
See Tax Matters for an explanation of the tax consequences of exercising
the exchange privilege.
Reinvestment Privilege
If you redeem Class A Shares or Class B Shares of the Fund and you decide
to reinvest in Shares of the Fund, you may, within 90 calendar days of the date
of redemption, use all or any part of the proceeds of the redemption to
reinvest, free of sales load, in Class A Shares of the Fund. The Fund will not,
however, refund any CDSC paid as a result of a redemption of Class B Shares.
Your investment will be reinvested at the net asset value per Class A Share next
determined after your request is accepted. You must inform the Agent that this
purchase represents a reinvestment. If you redeem Class A Shares or Class B
Shares of the Fund and immediately invest the proceeds of the redemption in a
money market fund, you may, upon notification to the Fund within one year of
such transaction, reinvest, free of sales load, the exact amount of the proceeds
of the redemption in Class A Shares of the Fund. Your investment will be
reinvested at the net asset value per Class A Share established at the close of
business of the Exchange on the day your request is accepted. There may be
certain limits on facilitating such a transaction with respect to wire orders.
Shareholders should consult with their dealers with respect to facilitating such
transactions. The Fund reserves the right to require proof of the validity of
any request for reinvestment pursuant to this service. You may use these
respective reinvestment privileges only once a calendar year.
See Tax Matters for an explanation of the tax consequences of exercising
the reinvestment privilege.
RETIREMENT PLANS OFFERING TAX BENEFITS
The Federal tax laws provide for a variety of retirement plans which may
offer tax benefits. The following plans may be funded with Shares of the Fund:
o Individual retirement accounts (IRAs)
o Simplified employee pension plans (SEP-IRAs)
If a shareholder is a participant in such a retirement plan, any capital
gain and ordinary income earned by the assets held in the plan on the
shareholder's behalf will be exempt
16
<PAGE>
from taxation until distributed to the shareholder pursuant to the plan. In
addition, contributions to the various types of plans may be deductible (within
prescribed limitations) from gross income for federal income tax purposes in the
year for which the contribution is designated. Upon distribution, capital gains
and other income distributed will be taxed as ordinary income, and under certain
circumstances, such as a "premature" distribution, the distribution will be
subject to a penalty. Explanations of the eligibility requirements, allowable
tax advantages and penalties, fees and charges of the custodian bank, forms for
adoption, and additional information are available from the Distributor.
A shareholder who believes it would be beneficial to establish or continue
an investment in Fund Shares utilizing either plan should first seek the advice
of legal counsel or another qualified tax adviser who can explain the applicable
tax laws. A shareholder who chooses to participate in any such a plan is
required to bear the cost of such participation.
HOW TO REDEEM SHARES
By Mail. A shareholder may redeem Shares at any time and receive the value
of such Fund's Shares by forwarding a written request signed by all registered
owners to the Agent. The shareholder will then receive from the Fund the value
of the shares based upon the net asset value per Share, less any applicable CDSC
on Class B Shares, next computed after a written request in good order is
received by the Agent. Redemption requests received after the time at which the
net asset value is calculated each day (at the close of the Exchange) will
receive the price calculated on the following business day. Any certificates
representing Fund shares being redeemed must be submitted with the written
redemption request.
For the shareholder's protection, and to be considered in good order,
signature(s) must be guaranteed if the redemption request involves any of the
following:
(1) the proceeds of the redemption are over $100,000;
(2) the proceeds (in any amount) are to be paid to someone other than the
registered owner(s) of the account; or
(3) the proceeds (in any amount) are to be sent to any address other than
the shareholder's address of record, pre-authorized bank account or
brokerage firm account.
Eligible signature guarantors are determined in accordance with standards
and procedures adopted by the Agent from time to time. A notarized signature is
not acceptable.
Payment for the redeemed Shares will be sent to the shareholder within
seven days after receipt of the request in good order, except that the Fund may
delay the mailing of the redemption check or a portion thereof until the Fund's
depository bank has made fully available for withdrawal the check used to
purchase Fund Shares, which may take up to 15 days.
Through your Investment Dealer. For the convenience of its shareholders,
the Fund has authorized the Distributor to act as its agent to accept orders
from dealers' authorized order rooms for the redemption of Fund Shares. The Fund
may revoke or suspend this authorization at any time. The redemption price is
the net asset value, less any applicable CDSC on Class B Shares, next determined
following the time at which the Shares are offered for redemption to the dealer.
Payment of the redemption proceeds is made to the dealer who placed the order
within five days after receipt of the order provided that within this time,
delivery of certificates for Shares in good order is received, or for open
accounts, upon the receipt of a written request for redemption as described
above, and, if required, any supporting documents. Neither the Fund nor the
Distributor may make a charge upon such a redemption, other than any applicable
CDSC on Class B Shares. However, a dealer may make a charge as agent for the
shareholder in the redemption of Fund Shares. If a shareholder is unable to
execute a transaction by telephone to his dealer, or a dealer is unable to
execute a transaction by telephone to the Distributor (for example, during times
of unusual market activity), the Shareholder or dealer should consider placing
the order by mail.
Systematic Withdrawal Plan. A Systematic Withdrawal Plan ("SWP") is
available to Shareholders which provides for monthly payments by ACH funds or
check. Withdrawals of Class B Shares through the SWP may be subject to a CDSC.
For information on how to establish an SWP, contact the Agent at 1-800-552-1129.
Required Redemption. The Fund may, in order to reduce its expenses, require
any shareholder with Shares
17
<PAGE>
having a net asset value in the aggregate of less than $1,500, to redeem
such Shares. Such required redemption would relate only to a shareholder whose
holdings had fallen below $1,500 by reason of redemption. Notice of any required
redemption (which would be made only in cash at net asset value without payment
of any CDSC) would be given to any such shareholder at least 30 days prior to
any such required redemption, during which time the shareholder would have the
opportunity to bring the account to a value of $1,500. The provisions relating
to the reinvestment privilege would not be applicable to any such redeemed
shares. Required redemptions are not applicable where a shareholder is making
continuous regular investments in the Fund through an Automatic Bank Draft Plan.
PERFORMANCE
Advertisements and other sales literature for each class of Shares of the
Fund may refer to its "yield" and "average annual total return." When the Fund
advertises the yield of a class of Shares it will also advertise the average
annual total return for the most recent one-year period, five-year period and
for the life of that class of Shares of the Fund. Such calculations are
determined in accordance with rules established by the SEC and are applicable to
all investment companies and are not indicative of the dividends or other
distributions which were or will be paid to the Fund's shareholders. Dividends
or distributions paid to shareholders are reflected in the current distribution
rate or taxable equivalent distribution rate which may be quoted to
shareholders.
The advertised yield of a class of Shares of the Fund will be based upon a
30-day period stated in the advertisement. Yield is calculated by dividing the
net investment income per Share of a class earned during the period by the
maximum offering price per Share of that class on the last day of the period.
The result is then "annualized" using a formula that provides for semiannual
compounding of income. The Fund's yield for a class reflects the deduction of
the maximum initial sales charge but does not reflect the deduction of any CDSC.
The average annual total return of Shares of the Fund is computed by
finding the average annual compounded rate of return of a class over a period
that would equate the initial amount invested in that class to the ending
redeemable value. The calculation assumes that the maximum sales load charge is
deducted from an initial $1,000 investment in Class A Shares, and that the CDSC
is deducted in the case of Class B Shares. The calculation also assumes that
dividends and capital gains distributions are reinvested at net asset value. The
calculation includes all recurring fees that are charged to all shareholder
accounts.
For additional information regarding the calculation of yield and total
return, see "Performance of the Fund" in the SAI. Further information about the
Fund's performance is set forth in the Fund's Annual Report to Shareholders,
which may be obtained upon request without charge.
TAX MATTERS
During the taxable year ended December 31, 1995, the Fund qualified for
treatment as a regulated investment company under Subchapter M of the Code. The
Fund intends to continue to so qualify for the current and future taxable years.
The Fund intends to avoid incurring liability for federal income tax on its
investment company taxable income (consisting generally of net investment
income, any net short-term capital gain, and any net gains from certain foreign
currency transactions) and net capital gain (the excess of net long-term capital
gain over net short-term capital loss) and a 4% federal excise tax on certain
undistributed income and gains, by distributing substantially all of that income
and gain and by meeting other applicable requirements of the Code.
Except with respect to distributions to qualified retirement plans,
dividends from investment company taxable income generally are taxable to
shareholders as ordinary income, whether received in cash or in additional
Shares. Distributions of net capital gain, when designated as such, are treated
as long-term capital gains to shareholders, other than qualified retirement
plans, whether received in cash or additional Shares and regardless of the
length of time Shares have been held. Any net gain the Fund may realize from
transactions in securities held less than the period required for long term
capital gain recognition (taking into account any carryover of capital losses
from previous years), while technically a distribution from capital gains, is
taxed as an income dividend under the Code.
The Fund is required to withhold 31% of all dividends, capital gain
distributions and redemption proceeds (includ-
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<PAGE>
ing any applicable CDSC) payable to individuals and certain other noncorporate
shareholders who do not furnish the Fund with a correct taxpayer identification
number. Withholding at that rate from dividends and capital gain distributions
also is required for such shareholders who otherwise are subject to backup
withholding.
A redemption of Fund Shares may result in taxable gain or loss to the
redeeming shareholder, depending on whether the redemption proceeds are more or
less than the shareholder's adjusted basis for the redeemed Shares (which
normally includes any sales load paid). An exchange of Fund Shares for shares of
any Eligible Fund generally will have similar tax consequences. However, special
rules apply when a shareholder (1) disposes of Fund Shares through an exchange
or redemption within 90 days after purchase thereof and (2) subsequently
acquires Shares of an Eligible Fund or reacquires Fund Shares without paying a
sales load due to the exchange privilege or 90-day reinvestment privilege. See
Shareholder Services. In these cases, any gain on the disposition of the
original Fund Shares will be increased, or loss decreased, by the amount of the
sales load paid when those Shares were acquired, and that amount will increase
the basis of the subsequently acquired Shares. In addition, if a shareholder
purchases Fund Shares (whether pursuant to the reinvestment privileges or
otherwise) within 30 days before or after redeeming other Fund Shares at a loss,
all or a portion of that loss will not be deductible and will increase the basis
of the newly purchased Shares.
Information as to the character of Fund distributions will be provided
annually. Shareholders who have not been in the Fund for a full taxable year may
get distributions of income and/or capital gains which are not equivalent to the
actual amount applicable to the period for which they have held Shares.
The foregoing is only a summary of some of the important federal tax
considerations generally affecting the Fund and its shareholders--see the SAI
for a further discussion--and is not intended to be a substitute for careful tax
planning. There may be tax considerations involved with the automatic conversion
of Class B Shares to Class A Shares--see Conversion of Class B Shares for
further information. There may also be other federal, state or local tax
considerations applicable to a particular investor. Prospective investors
therefore are urged to consult their own tax advisers.
MANAGEMENT, SERVICES AND DISTRIBUTION
The Bond Fund For Growth. The Fund offers an unlimited number of Shares of
beneficial interest, divided into three classes, each Share of which is entitled
to one vote. Fractional Shares have the same rights as full Shares to the extent
of their proportionate interest. All Shares of each class in the Trust have
equal voting rights, except that, in matters affecting only a particular
portfolio or class, only Shares of that portfolio or class are entitled to vote.
The Fund acts as its own transfer agent and dividend paying agent.
The Fund has a Board of Trustees which has the primary responsibility for
the overall management of the Fund. The Trustees elect the officers of the Fund
who are responsible for administering its day-to-day operations. Under the
Fund's Declaration of Trust, no annual or regular meeting of shareholders is
required, but special meetings will be called for certain purposes such as
electing trustees, changing fundamental policies or approving a management
contract. The Declaration of Trust of the Fund provides that the trustees shall
call and give notice of a meeting of shareholders for the purpose of voting
upon removal of any trustee when requested in writing by shareholders holding
not less than 10% of the shares of the Fund.
The Adviser. The Fund is managed by the Adviser, OppenheimerFunds, Inc.,
which is responsible for selecting the Fund's investments and handles its
day-to-day business. The Adviser carries out its duties, subject to the policies
established by the Board of Trustees, under the Investment Advisory Agreement
with the Fund, which states the Adviser's responsibilities. The Adviser is
entitled to receive, pursuant to the Investment Advisory Agreement, an annual
fee, payable monthly, of 0.625% of its average daily net assets up to
$50,000,000, 0.50% of its average daily net assets on the next $250,000,000, and
0.4375% of its average daily net assets in excess of $300,000,000.
The Adviser, an investment adviser registered under the Investment Advisers
Act of 1940, has operated as an investment adviser since 1959. The Adviser
(including a subsidiary) currently manages investment companies, including other
Oppenheimer funds, with assets of more
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<PAGE>
than $40 billion as of November 30, 1995 and with more than 2.8 million
shareholder accounts. The Adviser is owned by Oppenheimer Acquisition Corp., a
holding company that is owned in part by senior officers of the Adviser and
controlled by Massachusetts Mutual Life Insurance Company.
On or about the date of this Prospectus, the Adviser acquired business
relationships and certain assets and liabilities of the previous adviser and
distributor to the Fund. Pursuant to this acquisition and Fund shareholder
approval received on December 20, 1995, the Fund entered into the following
agreements, effective January 4, 1996: the Investment Advisory Agreement between
the Fund and the Adviser and the Distribution and Service Plans and Agreements
between the Fund and the Distributor.
Michael S. Rosen has been primarily responsible for matters relating to
portfolio strategy and day-to-day management of the Fund's portfolio since its
inception. Mr. Rosen has been Vice President of the Fund since 1988 and a
trustee of the Fund from 1992-January, 1996. He also has been an officer and a
director of Fielding Management Company, Inc., the Fund's previous adviser,
since 1988. Ronald H. Fielding, who is also responsible for matters relating to
portfolio strategy, was President and a trustee of the Fund from 1986-January,
1996 and has been President and a director of Fielding Management Company, Inc.,
the Fund's previous adviser, since 1982.
The Agent. The Fund acts as its own transfer agent and dividend paying
agent. The Fund's shareholder servicing agent is Oppenheimer Shareholder
Services, a division of the Adviser, which acts as servicing agent for the Fund
and as transfer agent for various other Oppenheimer funds. Shareholders should
direct inquiries about their accounts to the Agent at the toll-free number shown
on the back cover of this Prospectus.
The Distributor. The Fund's shares are sold through dealers and brokers
that have a sales agreement with OppenheimerFunds Distributor, Inc., a
subsidiary of the Adviser that acts as the Distributor. The Distributor also
distributes the shares of Oppenheimer funds and is sub-distributor for funds
managed by a subsidiary of the Adviser.
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APPENDIX A
DESCRIPTION OF BOND RATINGS
Standard & Poor's Rating Group Bond Ratings
AAA--This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA--Bonds rated AA also qualify as high-quality debt obligations. Capacity
to pay principal and interest is very strong, and in the majority of instances
they differ from AAA issues only in small degree.
A--Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this capacity
than for bonds in the A category.
BB--B--CCC--CC--Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and CC the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
C--The rating C is reserved for income bonds on which no interest is being
paid.
D--Bonds rated D are in default, and payment of principal and/or interest
is in arrears.
Plus (+) or minus (-):--The ratings from AA to BBB may be modified by the
addition of a plus or minus sign to show relative standing within the major
ratings categories.
Provisional Ratings:--The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the issuance of bonds being rated and indicates that
payment of debt service requirements is largely or entirely dependent upon the
successful and timely completion of the project, makes no comment on the
likelihood of, or the risk of default upon failure of such completion.
Accordingly, the investor should exercise his own judgement with respect to such
likelihood and risk.
Standard & Poor's Rating Group
Preferred Stock Rating Definitions
"AAA"--This is the highest rating that may be assigned by Standard & Poor's
to a preferred stock issue and indicates an extremely strong capacity to pay the
preferred stock obligations.
"AA"--A preferred stock issue rate "AA" also qualifies as a high-quality
fixed income security. The capacity to pay preferred stock obligations is very
strong, although not as overwhelming as for issues rated "AAA."
"A"--An issue rated "A" is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions.
"BBB"--An issue rated "BBB" is regarded as backed by an adequate capacity
to pay the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
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<PAGE>
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the "A" category.
"BB," "B," "CCC" Preferred stock rated "BB," "B," and "CCC" are regarded,
on balance, as predominantly speculative with respect to the issuer's capacity
to pay preferred stock obligations. "BB" indicates the lowest degree of
speculation and "CCC" the highest degree of speculation. While such issues will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
"CC"--The rating "CC" is reserved for a preferred stock issue in arrears on
dividends or sinking fund payments but that is currently paying.
"C"--A preferred stock rated "C" is a non-paying issue.
"D"--A preferred stock rated "D" is a non-paying issue with the issuer in
default on debt instruments.
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Account Application
The Rochester Funds
- --------------------------------------------------------------------------------
Mail completed The person or persons (the "Investor") who are executing this
application to: Account Application authorize Oppenheimer Shareholder
Oppenheimer Services to open or revise an account to purchase common
Shareholder shares of the Fund indicated below (collectively "The
Services Rochester Funds") in accordance with these instructions and
350 Linden Oaks all other applicable provisions in this Account Application,
Rochester, NY and all provisions in the current Prospectus of the indicated
14625 Fund, which Prospectus the investor acknowledges having
received from its Dealer prior to, or simultaneously with,
the execution of this Account Application.
- --------------------------------------------------------------------------------
Account Type/NAME (Please Print or Type)
[ ] Individual__________________________________________________________________
First Name Middle Initial Last Name
Joint [ ] JTTEN:
[ ] Owner [ ] Ten Com:__________________________________________________________
) First Name Middle Initial Last Name
Uniform Gift/
[ ] Transfer to Minor___________________________________________________________
[ ] UTMA [ ] UGMA Custodian First Name Middle Initial Last Name
as Custodian for___________________________ ______________________________
Name of Minor(s) State in which gift is made
[ ] Trust,______________________________________________________________________
Corporation, Name of Trust or Organization as it Appears on Trust Agreement
Partnership or
Other Entity ________________________________________________________________
Name of Trustee(s) or Officer
_______________________________________________ ___________________________
For the Benefit of Date of Trust
______________________________ ___________________ ______________ ________
Address City State Zip
(___)_________________ (___) ________________ Telephone numbers will be used
Day Phone Evening Phone for non-soliciting purposes only
(include area code) (include area code)
YOU MUST COMPLETE THIS SECTION FOR ALL ACCOUNT TYPES
- --------------------------------------------------------------------------------
Fund and Privilege Selections
Please indicate your Mutual Fund Investment Choice(s) and circle the appropriate
Share Class (if applicable). (Please notice the minimum required investment for
the fund you choose. Subsequent purchases must be in amount of $100 or more for
each fund.)
Fund Name Share Class Amount
[ ] Rochester Fund Municipals
(minimum $2,000)
RMUNX Class A only available $_________
[ ] Limited Term NY Municipal
Fund (minimum $5,000)
LTNYX Class A $_________
LTNBX Class B $_________
[ ] The Bond Fund for Growth
(minimum $2,000)
RCVGX Class A $_________
RCVBX Class B $_________
RCVYX (Institutional
Investors only) Class Y (minimum $50,000) $_________
TOTAL: $_________
Please enclose a check for this amount
payable to Oppenheimer Funds Distributor, Inc.
23
<PAGE>
Dividend and Capital Gain
(Distributions will be reinvested in additional shares, unless specified
otherwise.)
[ ] Reinvest dividends in shares and pay capital gains in cash
[ ] Pay dividends in cash and reinvest capital gains in shares
[ ] Pay all dividends and capital gains in cash
[ ] I do not want Telephone Exchange Privileges. Telephone Exchange is
automatic (where applicable) unless otherwise specified here.
Please complete the following if dividend distributions are to be mailed to
another address or will be payable to another payee:
_____________________ __________________________ _______________________
Name Address City/State/Zip
________________________________________________________________________________
Signature Guarantee required for above transaction
A signature guarantee may be obtained at any commercial bank or from your
broker dealer.
- --------------------------------------------------------------------------------
Signature and Taxpayer Certification
I (we) am of legal age to make this purchase. Under the penalties of perjury,
I certify that the tax identifying or social security number contained herein is
true, correct and complete and I am not subject to backup withholding under
section 3406(a)(1)(C) of the Internal Revenue Code. I (we) hereby agree that,
upon acceptance by Oppenheimer Funds Distributor, Inc. ("OFDI"), this Account
Application will be a contract governed by the laws of the State of New York.
In addition, I (we) hereby agree that any controversy arising out of or in
relation to my (our) account or this contract shall be settled by arbitration
before the National Association of Securities Dealers, Inc. or any other self-
regulatory organization of which OFDI is a member.
_____________________________________ ________________________________________
Owner's Signature Date Owner's Social Security/Tax ID State in
which signed (Minor's SS# if UGMA/UTMA)
_____________________________________________
Joint Owner's Signature (if any) Date
For Tax Purposes: (check appropriate box:)
[ ] I am a citizen of US [ ] Other_________
[ ] I am a resident of US [ ] Other_________
(Non-resident Aliens must provide the W-8 form)
- --------------------------------------------------------------------------------
Registered Representative Identification (Broker/Dealer Use Only)
__________________ ______________ __________________ _______________________
First Name Middle Initial Last Name Representative Number
_______________________________________________________ _______________________
Registered Representative Signature (required) Office Phone Number
_______________________________________________________ _______________________
Firm Name Branch Number
_________________________________ __________________ ____________ _________
Address City State Zip
Please make your check payable to Oppenheimer Funds Distributor, Inc.
and mail to: 350 Linden Oaks, Rochester, NY 14625. A shareholder package
containing fund privileges will be forwarded upon processing of your
application.
The broker-dealer ("Dealer") signing the Application hereby agrees to all
applicable provisions of this Application. The Dealer will act as principal in
all purchases by the Investor of Fund shares indicated herein and authorizes and
appoints OFDI to execute such purchases and to confirm such purchases to the
Investor. OFDI will remit monthly to the Dealer the amount of any commissions
due, except that no commissions will be paid to the Dealer on any transactions
for which the Dealer's net sales commissions are less than $5.00. The Dealer
also represents that it may lawfully sell shares of the indicated Fund in the
state designated as the Investor's record address, and that it has a currently
effective Dealer Agreement with OFDI authorizing the Dealer to sell common
shares of The Rochester Funds.
The Dealer signature guarantees the signature and legal capacity of the
Investor. If the Investor does not sign this Application, the Dealer warrants
that this application is completed in accordance with the Investor's
instructions and information and agrees to indemnify OFDI and the Oppenheimer
Funds from any loss or liability from acting or relying upon such instructions
and information.
24
<PAGE>
LOGO
The Rochester Funds
A Division of OppenheimerFunds, Inc.
350 Linden Oaks
Rochester, NY 14625
Investment Adviser
OppenheimerFunds, Inc.
Distributor
OppenheimerFunds Distributor, Inc.
Shareholder Servicing Agent
Oppenheimer Shareholder Services
(800) 552-1129
- ---------------------------------------------------
Custodian
Investors Bank & Trust Company
Boston, MA
Independent Accountants
Price Waterhouse LLP
Rochester, NY
Legal Counsel
Kirkpatrick & Lockhart LLP
Washington, D.C.
- ----------------------------------------------------
For further information with respect to the Fund and
the shares offered hereby, reference is made to the
Registration Statement filed with the Securities and
Exchange Commission.
- -----------------------------------------------------
LOGO OppenheimerFunds.
PRO345.001.0196 Item #ROC512451
THE
BOND FUND
FOR GROWTH
Prospectus and
New Account Application
As Revised January 5, 1996
Rochester Fund Series
350 Linden Oaks
Rochester, NY 14625
LOGO Oppenheimer Funds.
<PAGE>
ROCHESTER FUND SERIES-THE BOND FUND FOR GROWTH
350 Linden Oaks, Rochester, New York 14625
1-800-552-1129
STATEMENT OF ADDITIONAL INFORMATION DATED MAY 1, 1995,
AS REVISED ON JANUARY 5, 1996
This Statement of Additional Information of Rochester Fund Series-The Bond
Fund For Growth (the "Fund") is not a Prospectus. This document contains
additional information about the Fund and supplements information in the
Prospectus dated May 1, 1995, as revised on January 5, 1996. It should be read
together with the Prospectus, which may be obtained by writing to the Fund's
shareholder servicing agent, Oppenheimer Shareholder Services (the "Agent"), at
P.O. Box 5270, Denver, Colorado 80217 or by calling the Agent at the toll-free
number shown above.
TABLE OF CONTENTS
PAGE
ABOUT THE FUND
Investment Objectives and Policies ........................................ 2
Investment Policies and Strategies ................................... 2
Other Investment Techniques and Strategies ........................... 5
Other Investment Restrictions ........................................ 10
How the Fund is Managed ................................................... 12
Organization and History ............................................. 12
Trustees and Officers of the Fund .................................... 13
The Adviser and Its Affiliates ....................................... 18
Brokerage Policies of the Fund ............................................ 20
Performance of the Fund ................................................... 21
Distribution and Service Plans ............................................ 25
ABOUT YOUR ACCOUNT
How To Buy Shares ......................................................... 27
How To Sell Shares ........................................................ 30
How To Exchange Shares .................................................... 30
Dividends, Capital Gains and Taxes ........................................ 31
Additional Information About the Fund ..................................... 32
FINANCIAL INFORMATION ABOUT THE FUND
Financial Statements ...................................................... 35
Independent Auditors' Report .............................................. 35
Appendix A: Description of Bond Ratings .................................. A-1
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ABOUT THE FUND
INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT POLICIES AND STRATEGIES. The investment objectives 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
objectives. Capitalized terms used in this Statement of Additional Information
have the same meaning as those terms have in the Prospectus.
The Fund seeks a high level of total return on its assets through a
combination of current income and capital appreciation. The Fund invests
primarily in a portfolio which consists of a variety of fixed income securities,
including convertible securities, which in the opinion of OppenheimerFunds, Inc.
(the "Adviser") will assist the Fund in achieving its investment objective.
Convertible securities include corporate bonds, notes and preferred stock which
can be converted into (exchanged for) common stock or other securities which
provide an opportunity for participation. The Fund invests a substantial portion
of its assets in high-yield, lower rated bonds which are commonly referred to as
"junk bonds". Investments of this type are subject to greater risk of loss of
principal and interest. High yield bonds generally offer a higher yield to
maturity than bonds with higher ratings as compensation for holding an
obligation perceived to be of greater risk. The high yield opportunity has been
the result of wide yield spreads between high yield obligations and high grade
obligations, with actual losses resulting from default remaining low relative to
the values of outstanding high yield bonds. In addition to offering higher
absolute returns, high yield securities have greater potential than high-grade
bonds for better relative performance if their credit quality improves.
The Adviser evaluates the investment merits of fixed-income securities
primarily through the exercise of its own investment analysis. This may include
consideration of the financial strength of the issuer, including its historic
and current financial condition, the trading activity in its securities, present
and anticipated cash flow, estimated current value of assets in relation to
historical cost, the issuer's experience and managerial expertise,
responsiveness to changes in interest rates and business conditions, debt
maturity schedules, current and future borrowing requirements, and any change in
the financial condition of the issuer and its continuing ability to meet its
future obligations. The Adviser also may consider anticipated changes in
business conditions, levels of interest rates of bonds as contrasted with levels
of cash dividends, industry and regional prospects, the availability of new
investment opportunities, and the general economic, legislative and monetary
outlook for specific industries, the nation and the world.
The Fund is classified as non-diversified within the meaning of the
Investment Company Act of 1940, as amended, (the "Investment Company Act"),
which means that the Fund is not limited by the Investment Company Act in the
proportion of its assets that it may invest in obligations of a single issuer.
The Fund intends to continue to qualify as a "regulated investment company,"
however, under the Internal Revenue Code of 1986, as amended (the "Code"). See
Dividends, Capital Gains and Taxes. In addition to satisfying other requirements
to so qualify, the Fund will
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limit its investments so that, at the close of each quarter of its taxable year,
(i) not more than 25% of the market value of its total assets will be invested
in the securities of a single issuer and (ii) with respect to 50% of its total
assets, not more than 5% will be invested in the securities of a single issuer.
In contrast, a fund which elects to be classified as "diversified" under the
Investment Company Act must satisfy the foregoing 5% requirement with respect to
75% of its assets at all times. To the extent that the Fund assumes large
positions in the obligations of a small number of issuers, the Fund's total
return may fluctuate to a greater extent than that of a diversified company as a
result of changes in the financial condition or in the market's assessment of
the issuers.
-- CONVERTIBLE FIXED INCOME SECURITIES. Convertible securities are fixed
income securities which may be exchanged for or converted into the underlying
common stock of the issuer at the option of the holder during a specified period
of time. Convertible securities may take the form of convertible preferred
stock, convertible bonds or notes, or other fixed income securities with stock
purchase warrants, or a combination of the features of several of these
securities. Because of the conversion feature, the price of a convertible
security will normally vary in some proportion to changes in the price of the
underlying common stock. Convertible fixed income securities are generally
characterized by less price volatility than the common stocks into which they
are convertible because of their comparatively higher yields. The investment
characteristics of each convertible security vary widely, and such versatility
permits the Fund to use convertible securities in different ways in pursuing its
investment objective of high total return. For example, the Fund may invest in
convertible securities which provide a relatively high level of income, with
less appreciation potential as well as those with high appreciation potential
and a relatively low level of income or convertible securities which provide
some combination of both income and appreciation potential.
Convertible bonds and convertible preferred stocks are fixed income
securities that retain the investment characteristics of fixed income securities
until they have been converted. The holder is entitled to receive the fixed
income of a bond or the dividend preference of a preferred stock until the
holder elects to exercise the conversion privilege. Convertible securities are
senior securities, and therefore, have a claim to assets of the corporation
prior to the holders of common stock upon liquidation. Convertible securities,
however, are generally subordinated to similar non-convertible securities of the
same company. The interest income and dividends from convertible bonds and
preferred stocks provide a stable stream of income with yields which are
generally higher than common stocks, but lower than non-convertible securities
of similar quality.
As with all fixed income securities, various market forces influence the
market value of convertible securities, including changes in the level of
interest rates. As the level of interest rates increases, the market value of
convertible securities may decline and, conversely, as interest rates decline,
the market value of convertible securities may increase. The unique investment
characteristic of convertible securities, the right to be exchanged for the
issuer's common stock, causes the market value of convertible securities to
increase when the value of the underlying common stock increases. Since
securities prices fluctuate, however, there can be no assurance that the market
value of convertible securities will increase. Convertible securities generally
will not reflect quite as great a degree of capital appreciation as the
underlying stock. When the underlying common stock is experiencing a decline,
the value of the convertible security tends to decline to a level approximating
the yield-to-maturity basis of straight non-convertible debt of similar quality,
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often called "investment value," and may not experience the same decline as the
underlying common stock.
Many convertible securities sell at a premium over their conversion values
(i.e., the number of shares of common stock to be received upon conversion
multiplied by the current market price of the stock). This premium represents
the price investors are willing to pay for the privilege of purchasing a fixed
income security with a possibility of capital appreciation due to the conversion
privilege. There can be no assurance that the underlying common stock will
appreciate enough for this premium to be recovered by the Fund on any particular
convertible security.
-- INVESTMENT RISKS OF FIXED-INCOME SECURITIES. All fixed-income
securities are subject to two types of risks: credit risk and interest rate
risk. Credit risk relates to the ability of the issuer to meet interest or
principal payments on a security as they become due. Generally, higher yielding
lower-grade bonds are subject to credit risk to a greater extent than lower
yielding, investment grade bonds. Interest rate risk refers to the fluctuations
in value of fixed-income securities resulting solely from the inverse
relationship between price and yield of outstanding fixed-income securities. An
increase in prevailing interest rates will generally reduce the market value of
already-issued fixed-income investments, and a decline in interest rates will
tend to increase their value. In addition, debt securities with longer
maturities, which tend to produce higher yields, are subject to potentially
greater changes in their prices from changes in interest rates than obligations
with shorter maturities. Fluctuations in the market value of fixed-income
securities after the Fund buys them will not affect the interest payable on
those securities, nor the cash income from such securities. However, those price
fluctuations will be reflected in the valuations of these securities and
therefore the Fund's net asset values.
As stated in the Prospectus, the investments in which the Fund will
principally invest will be in the lower rating categories. The Fund may invest
in securities rated as low as "C" by a nationally recognized statistical rating
organization ("NRSRO") or in bonds which are unrated. The Adviser will not rely
solely on the ratings assigned by rating services and may invest, without limit,
in unrated securities which offer, in the opinion of the Adviser, yields and
risks comparable to those of rated securities in which the Fund may invest. The
Fund will not invest in securities which are in default at the time of purchase.
Because investment in lower rated and unrated fixed income securities involves
greater investment risk, achievement of the Fund's investment objectives will be
more dependent upon the Adviser's credit analysis than would be the case if the
Fund were investing in higher quality debt securities.
Some of the principal risks of high yield securities include: (i) limited
liquidity and secondary market support, (ii) substantial market price volatility
resulting from changes in prevailing interest rates, (iii) subordination of the
holder's claims to the prior claims of banks and other senior lenders in
bankruptcy proceedings, (iv) the operation of mandatory sinking fund or
call/redemption provisions during periods of declining interest rates, whereby
the holder might receive redemption proceeds at times when only lower-yielding
portfolio securities are available for investment, (v) the possibility that
earnings of the issuer may be insufficient to meet its debt service, and (vi)
the issuer's low creditworthiness and potential for insolvency during periods of
rising interest rates and economic downturn. Some high yield bonds pay interest
in kind rather than in cash.
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As a result of the limited liquidity of high yield securities, their prices
have at times experienced significant and rapid decline when a significant
number of holders of high yield securities simultaneously decided to sell them.
A decline is also likely in the high yield bond market during an economic
downturn. An economic downturn or an increase in interest rates could severely
disrupt the market for high yield securities and adversely affect the value of
outstanding securities and the ability of the issuers to repay principal and
interest. In addition, in recent years there have been several Congressional
attempts to limit the use or limit tax and other advantages of high yield bonds.
If enacted, such proposals could adversely affect the value of these securities
and consequently the Fund's net asset value per share. For example, federally
insured savings and loan associations have been required to divest their
investments in high yield securities.
-- CONVERTIBLE PREFERRED STOCK. The Fund may invest in a type of
convertible preferred stock that is an equity security with certain
characteristics of both a debt security and a call option. These securities can
be considered "derivative" securities because of their imbeddded option
component. These stock instruments trade under a variety of acronyms. They
typically provide for a three-year period prior to conversion to common stock
(although they are callable by the issuer prior to conversion) and pay a
cumulative, fixed dividend that is senior to, and expected to be in excess of,
the dividends paid on the common stock of the same issuer. At the mandatory
conversion date, the preferred stock is converted into not more than one share
of the issuer's common stock at the "call price" that was established at the
time the preferred stock was issued. Generally, the call price is 30% to 45%
above the price of the issuer's common stock at the time the preferred stock is
issued and may be subject to downward adjustment over time. If the price per
share of the related common stock on the mandatory conversion date is less than
the call price, the holder of the preferred stock will nonetheless receive only
one share of common stock for each share of preferred stock (plus cash in the
amount of any accrued but unpaid dividends). At any time prior to the mandatory
conversion date, the issuer may redeem the preferred stock upon issuing to the
holder a number of shares of common stock equal to the call price of the
preferred stock in effect on the date of redemption divided by the market value
of the common stock, with such market value typically determined one or two
trading days prior to the date notice of redemption is given. The issuer must
also pay the holder of the preferred stock cash in an amount equal to any
accrued but unpaid dividends on the preferred stock.
This convertible preferred stock is subject to the same market risk as the
common stock of the issuer, except to the extent that such risk is mitigated by
the higher dividend paid on the preferred stock. The opportunity for equity
appreciation afforded by an investment in such convertible preferred stock,
however, is limited, because in the event the market value of the issuer's
common stock increases to or above the call price of the preferred stock, the
issuer may (and would be expected to) call the preferred stock for redemption at
the call price. This convertible preferred stock is also subject to credit risk
with regard to the ability of the issuer to pay the dividend established upon
issuance of the preferred stock. Generally, convertible preferred stock is less
volatile than the related common stock of the issuer.
OTHER INVESTMENT TECHNIQUES AND STRATEGIES
-- SHORT SALES. Although the Fund may not make short sales generally, the
Fund may make short sales "against the box". While a short sale is made by
selling a security the Fund does
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not own, a short sale is said to have been made "against the box" to the extent
that the Fund contemporaneously owns or has the right to obtain securities
identical to those sold short at no added cost. The Fund will engage in this
type of transaction only when (i) the yield on the convertible bond or preferred
stock is substantially larger than that on the common stock so that the Fund may
benefit from this incremental cash flow without bearing any market risk; (ii)
the Adviser believes that the premium on the convertible bond or preferred stock
relative to the common stock is unusually small and will widen to a more normal
range; or (iii) there is a large unrealized gain in a portfolio security which
the Adviser wishes to sell and the Adviser believes that it will be advantageous
to defer the realization of the gain until a subsequent tax year. When a short
sale is effected, any decline in the value of the Fund's portfolio securities
would be reduced by a gain in the short sale transaction. Conversely, any
increase in the value of the Fund's portfolio securities would be reduced by a
loss in the short sale transaction. The extent to which such gains or losses are
reduced will depend upon the amount of the security sold short relative to the
amount the Fund owns, either directly or indirectly, and, in the case where the
Fund owns convertible securities, changes in the conversion premium (the
difference between a convertible security's market price and its value if it
were converted into its underlying common stock). As a fundamental policy, the
Fund may not make short sales or maintain a short position unless at all times
when a short position is open, not more than 10% of that Fund's total assets
(taken at current value) is held as collateral for such sales at any one time.
-- WARRANTS. The Fund has adopted as a fundamental policy that it may
invest up to 15% of the value of its net assets at the time of purchase in
warrants (other than those that have been acquired in units or attached to other
securities). This fundamental policy is currently limited by an operational
policy which provides that the Fund may not invest more than 5% of the value of
the Funds' net assets in warrants, valued at market. Included within that
amount, but not to exceed 2% of the value of the Funds' net assets, may be
warrants which are not listed in the New York or American Stock Exchange.
Warrants acquired by the Fund in units or attached to securities may be deemed
to be without value for purposes of the limitation imposed by the operational
policy. A warrant basically is an option to purchase common stock at a specific
price (usually at a premium above the market value of the optioned common stock
at issuance) valid for a specific period of time. Warrants may have a life
ranging from less than a year to twenty years or may be perpetual. However, many
warrants have expiration dates after which they are worthless unless such
warrants are exercised or sold before expiration. In addition, if the market
price of the common stock does not exceed the warrant's exercise price during
the life of the warrant, the warrant will expire worthless. Warrants have no
voting rights, pay no dividends and have no rights with respect to the assets of
the corporation issuing them. The percentage increase or decrease in the market
price of a warrant may tend to be greater than the percentage increase or
decrease in the market price of the optioned common stock.
-- FUND'S USE OF LISTED OPTIONS. The Fund will limit options trading
activity to: (1) writing (i.e. selling) covered call options on stocks and the
underlying stock of existing convertible positions; (2) purchasing put options
on stocks; and (3) entering into closing purchase transactions with respect to
certain of such options, provided that all options traded by the Fund are listed
on a national securities exchange.
The Fund will write covered call options in an attempt to increase its
income. The Fund may
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also purchase put options on stock in order to attempt to hedge its portfolio
and to reduce investment risks. Hedging strategies are defensive in nature; some
capital gain potential is forsaken in advancing markets for a reduction of risk
in declining markets. No assurances can be made that these options hedging
strategies will result in successful investments by the Fund.
-- CHARACTERISTICS OF LISTED OPTIONS. Because listed options can be
employed in a variety of ways to pursue a variety of investment objectives, it
follows that the risks and potential rewards of options trading depend in large
measure on the manner in which the options are used. Listed options are puts and
calls on common stock. A call option conveys the right to buy and a put option
conveys the right to sell. Although put options and call options are generally
traded on the same underlying securities, it should be clearly understood that
call options and put options are separate and distinct investment securities.
The purchase or sale of a call in no way involves a put. The purchase or sale of
a put in no way involves a call.
The option contract has a duration period of up to nine months and
precisely identifies the underlying security. Options traded on options
exchanges (the "Exchanges"), have standardized the terms of options contracts.
An options contract has four specifications: (1) the type (put or call); (2) the
underlying common stock name; (3) the expiration date; and (4) the exercise or
strike price. Option contracts give their holder the right to buy or sell a
stated number of shares, usually 100, of a particular underlying common stock,
at a fixed price (called the strike price) for a predetermined period of time
(called the expiration period). An option is a wasting asset; that is, it has
only an initial value that declines as time passes. It may expire having no
value, or the holder may have to exercise it in order to recover some value
before expiration. Of course, the holder may sell the option in the listed
option market before expiration.
Although an option is a security, it derives its value from the underlying
common stock. The option price fluctuates as the price of the underlying stock
rises or falls. Splits and stock dividends in the underlying stock affect the
terms of listed options, although cash dividends do not.
-- COVERED CALL OPTION WRITING. A call option gives the purchaser of the
option the right to buy, and imposes on the writer the obligation to sell, the
underlying security at the exercise price during the option period. The Fund may
write "covered" call options, that is, options on securities the Fund holds in
its portfolio or has an immediate right to acquire, without additional
consideration, upon conversion or exchange of securities currently held in its
portfolio. For writing a call option, the Fund is paid a sales price or premium.
If the call option expires unexercised, the Fund realizes a gain equal to the
amount of the premium received upon writing the option, less transaction costs.
So long as the obligation of a writer continues, he may be assigned an exercise
notice by the broker-dealer through whom such a call option was sold, requiring
him to deliver the underlying security against payment of the exercise price.
This obligation terminates upon expiration of the call option, or at such
earlier time at which the writer effects a closing purchase transaction (i.e.
the purchase of a call option on the same security with the same exercise price
and expiration date as the call option already written). Once a writer has been
assigned an exercise notice with respect to a call option, he will thereafter be
unable to effect a closing purchase transaction with respect to that option. In
return for the
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premium it receives, so long as the Fund's obligation as a writer continues, it
will forego the opportunity to profit from any price increase in the underlying
stock above the exercise price.
The Fund will write covered call options for hedging purposes in order to
protect against possible declines in the market values of the stocks or
convertible securities held in its portfolio. If, for example, the market price
of a common stock underlying a convertible security held by a Fund declines and
the convertible security also declines in value, such decline will be offset in
part (or wholly) by the receipt of the premium on covered call options written
by the Fund on such stock. However, if the market price of the underlying common
stock increases and the convertible security held by a Fund also increases in
value, such increases will be offset in part (or wholly) by any loss resulting
from the cancellation of the Fund's position through closing purchase
transactions on covered call options written by the Fund or the opportunity loss
if the option is exercised. The main risk of any covered call writing strategy
is that the common stock/covered call "package" (such as that embedded in a
mandatory conversion security) will underperform the common stock alone should
the stock's price rise substantially above the strike price of the call option.
The Fund may not sell any covered call options if, as a result of such
sale, the aggregate value of its securities underlying such options (valued at
the lower of the option price or market price) would exceed 25% of its net
assets. This limitation may not be changed by the Fund without shareholder
approval. Although the Fund may write covered call options on up to 25% of its
assets, the Fund has no present intention of writing covered call options on
more than 5% of its net assets in such securities. To secure its obligation to
deliver the underlying security, the Fund, as the writer of a call option, is
required to deposit in escrow with its custodian the underlying common stock or
a security immediately convertible into the underlying common stock in
accordance with the rules of the Options Clearing Corporation and of the various
Exchanges.
-- PURCHASE OF PUT OPTIONS. The Fund will also purchase put options in an
attempt to hedge its portfolio and to reduce investment risks. When a
convertible security is purchased because the Adviser believes the market price
of such security may rise, the Adviser may nonetheless wish to protect the
holdings of such security against a decline in market value by purchasing a put
option on the common stock underlying such security. A put option gives the
purchaser the right to sell the underlying common stock at the put exercise
price regardless of any decline in the underlying stock's market price.
Thus, the purchase of a put option when used as a defensive measure
provides profits should the underlying common stock decline, which would be of
use to offset losses from the corresponding decline in the value of the
convertible security held. The reduction in loss that this defensive strategy
provides is limited to the profit made on the put option transaction, less the
premium paid for the put option, less the transaction costs incurred in
connection with the put. Should the underlying common stock, and consequently
the convertible securities held, increase in value, the profit realized would be
reduced by the cost of the purchase of the put options.
-- RISKS OF TRANSACTIONS IN STOCK OPTIONS. An option position may be
closed out by the Fund only on an Exchange which provides a secondary market for
an option of the same series. Although the Fund will generally purchase or write
only those options for which there is
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an active secondary market, there is no assurance that a liquid secondary market
on an Exchange will exist for any particular option or at any particular time.
Absence of a liquid secondary market on an Exchange may result from a variety of
economic, market and regulatory factors including the suspension of trading or
an insufficient amount of trading interest. For example, if trading were
suspended in an option purchased or written by the Fund, the Fund would not be
able to close out the option. If the Fund, as a covered call option writer, is
unable to effect a closing purchase transaction in a secondary market, the Fund
will not be able to sell the underlying common stock until the option expires or
until it delivers the underlying common stock upon exercise. Similarly, in the
absence of a liquid secondary market, the Fund, as the purchaser of a put
option, would be able to realize a profit or limit a loss on such option only by
exercising such option and, in the case of a put option on stock, by incurring
additional transaction costs on the disposition of the underlying security.
The Exchanges have established limitations governing the maximum number of
calls and puts of each class which may be held or written by an investor or
group of investors acting in concert (regardless of whether the options are
written on the same or different Exchanges or are held or written in one or more
accounts or through one or more brokers). An Exchange may order the liquidation
of positions found to be in violation of these limits. The Adviser does not
anticipate that such limits will affect the Fund's option trading activities.
-- MANDATORY CONVERSION SECURITIES. In addition to the more traditional
convertible securities in which the Fund may invest as described in the
Prospectus, the Fund may also invest in more recently developed varieties of
convertible securities which are referred to herein as "mandatory conversion
securities". Such securities may combine several of the features of debt
securities and equity securities, including both preferred stock and common
stock. Unlike the more traditional convertible securities, however, many of
these securities are characterized by a mandatory conversion feature and an
adjustable conversion ratio. Thus, many of these securities offer limited
potential for capital appreciation and, in some instances, involve unlimited
potential for loss of capital. These securities are designed and marketed by
major investment banking firms and trade in the marketplace under various
acronyms which are proprietary to the investment banking firm. The Fund may be
exposed to counterparty risk to the extent it invests in "synthetic mandatory
conversion securities," which are issued by investment banking firms and are
unsecured obligations of the issuing firm. Should the issuing firm of such a
security experience financial difficulty, its ability to perform according to
the terms of the security may become impaired. The mandatory conversion
securities which may be purchased by the Fund include, but are not limited to,
the so-called equity-linked debt securities and certain varieties of convertible
preferred stock. The market for these securities is relatively new.
-- EQUITY-LINKED DEBT SECURITIES. The Fund may purchase debt securities
whose principal amount at maturity is dependant upon the performance of a
specified equity security. Equity-linked debt securities differ from ordinary
debt securities in that the principal amount received at maturity is not fixed,
but is based on the price of the linked equity security at the time the debt
security matures. Such debt securities usually mature in three to four years,
and during the years to maturity pay interest at a favorable fixed rate.
Although the debt securities are typically adjusted for diluting events such as
stock splits, stock dividends and certain other events affecting the market
value of the linked equity security, the debt securities are not adjusted for
subsequent issuances of
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the linked equity security for cash. Such an issuance could adversely affect the
price of the debt security. In general, however, such debt securities are less
volatile than the equity securities to which they are linked.
OTHER INVESTMENT RESTRICTIONS
Specific investment restrictions help the Fund limit investment risks for
shareholders. The following investment restrictions are fundamental investment
policies of the Fund and cannot be changed without approval of a majority of the
outstanding voting securities of the Fund (defined for purposes of the
Prospectus and this Statement as the lesser of: (i) 67% of the shares present or
represented by proxy at a meeting at which more than 50% of the outstanding
shares are present or represented by proxy; or (ii) more than 50% of the
outstanding shares). These restrictions provide that the Fund may not:
1. Invest more than 25% of the value of the Fund's total assets in the
securities of any one issuer or any group of issuers in the same industry,
which restriction will not, however, prevent it from investing more than
25% of such Fund's total assets in securities of the United States
Government, its agencies or instrumentalities.
2. Make any investment if, as a result thereof, less than 50% of the
Fund's total assets would be in cash, cash items, U.S. Government
securities, and securities of issuers in which its investment is limited to
not more than 5% of the value of the Fund's total assets and not more than
10% of the outstanding voting securities of any issuer.
3. Purchase securities on margin, but the Fund may obtain unsecured
loans to purchase securities and may also borrow amounts equivalent to up
to 5% of the Fund's net assets for temporary, extraordinary or emergency
purposes. The aggregate of all unsecured loans, however, may not exceed 50%
of the Fund's total assets.
4. Make short sales on securities or maintain a short position, unless
at all times when a short position is open, the Fund owns an equal amount
of such securities or owns securities which, without payment of any further
consideration, are convertible into or exchangeable for securities of the
same issue as, and equal in amount to, the securities sold short; no more
than 10% of the Fund's total assets will be held as collateral for such
short sales at any one time. See Short Sales.
5. Engage in the purchase and sale of put and call options or in
writing such options except as set forth hereinafter and in the Prospectus.
6. Invest in warrants other than warrants acquired by the Fund as part
of a unit or attached to securities at the time of purchase, and other than
the investment of no more than 15% of the value of its net assets in
warrants valued at the lower of cost or market (of which not more than 5%
of the Fund's net assets may be invested in warrants not listed on the New
York or American Stock Exchange).
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7. Make loans, provided that this policy does not prohibit the Fund
from (1) making loans of its portfolio securities, (2) purchasing notes,
bonds or other evidences of indebtedness or making deposits with banks and
other financial institutions, and (3) entering into repurchase agreements.
8. Purchase or sell real estate, or real estate mortgage loans
provided, however that the Fund may invest not more than 5% of its total
assets in marketable securities of real estate investment trusts.
9. Deal in commodities or commodities contracts.
10. Purchase or retain securities of any issuer if any of its officers
and trustees, or any of the officers and directors of the Adviser (as
hereinafter defined) or Distributor (as hereinafter defined), own
individually beneficially more than 0.5% of the outstanding securities of
such issuer, or if all of those persons together own more than 5% of that
issuer's securities.
11. Invest more than 5% of the value of its total assets in securities
of any company (including its predecessors) that has not been in business
for at least three consecutive years.
12. Issue any securities which are senior to shares of the Fund.
13. Underwrite securities of other issuers.
14. Acquire securities of any other investment company, if as a result
of such acquisition, the Fund would own in the aggregate: (i) more than 3%
of the voting stock of such investment company; (ii) securities of such
investment company having an aggregate value in excess of 5% of the value
of the total assets of the Fund; or (iii) securities of such investment
company and of any other investment companies (but excluding treasury stock
of those funds) having an aggregate value in excess of 10% of the total
assets of the Fund. However, none of these limitations is applicable to a
security received as a dividend or as a result of an offer of exchange, a
merger or plan of reorganization.
The percentage limitations on investments which are set forth herein are
applied at the time an investment is made. No violation of the percentage
limitation will occur unless the limitation is exceeded immediately after an
investment is made and as a result thereof.
-- OPERATIONAL POLICIES.
The following restrictions are operational investment policies of the Fund.
While these operating investment policies are not fundamental policies and do
not require shareholder approval to be changed and may be changed by the Board
of Trustees, the Fund has, as a matter of policy, agreed not to change these
policies without prior notice to its shareholders. These operating policies
provide that the Fund may not:
A. Invest in any issuer for the purpose of exercising control or
management of that issuer, unless approved by the Fund's Board of Trustees.
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<PAGE>
B. Invest any part of its total assets in interests in oil, gas, or
other mineral exploration or development programs, although it may invest
in securities of companies which invest in or sponsor such programs. The
Fund may not invest in oil, gas or other mineral leases.
C. Invest more than 5% of the value of the Fund's assets in warrants,
valued at the lower of cost or market. Included within that amount, but not
to exceed 2% of the value of the Fund's net assets, may be warrants which
are not listed on the New York or American Stock Exchange. Warrants
acquired by the Fund in units or attached to securities may be deemed to be
without value.
In addition, as a non-fundamental policy, the Fund may not invest more than
15% of the value of the Fund's net assets in Illiquid Securities. Certain
"restricted securities," as defined in the section entitled "Illiquid and
Restricted Securities" in the prospectus, may be excluded from the Fund's 15%
limitation on investments in Illiquid Securities. Rule 144A under the Securities
Act of 1933, as amended, permits certain resales of unregistered securities
(i.e., restricted securities) provided that such securities have been determined
to be eligible for resale under the provisions of Rule 144A. The Fund's Board of
Trustees has adopted guidelines and procedures to be utilized by the investment
adviser for determining the liquidity of such Rule 144A securities and for
monitoring the investment adviser's implementation of the guidelines and
procedures. Such determination will be based upon all relevant factors
including, among other things: (1) the unregistered nature of a Rule 144A
security; (2) the frequency of trades and quotes for the security; (3) the
number of dealers willing to purchase or sell the security and the number of
potential purchasers; (4) dealer undertakings to make a market in the security;
and (5) the nature of the security and the nature of marketplace trades,
including, the time needed to dispose of the security, the method of soliciting
offers and the mechanics of transfer.
HOW THE FUND IS MANAGED
ORGANIZATION AND HISTORY. 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. Shareholders have the right, upon the declaration in
writing or vote of two-thirds of the outstanding shares of the Fund, to remove a
Trustee. The Trustees will call a meeting of shareholders to vote on the removal
of a Trustee upon the written request of the record holders of 10% of its
outstanding shares. In addition, if the Trustees receive a request from at least
10 shareholders (who have been shareholders for at least six months) holding
shares of the Fund valued at $25,000 or more or holding at least 1% of the
Fund's outstanding shares, whichever is less, stating that they wish to
communicate with other shareholders to request a meeting to remove a Trustee,
the Trustees will then either make the Fund's shareholder list available to the
applicants or mail their communication to all other shareholders at the
applicants' expense, or the Trustees may take such other action as set forth
under Section 16(c) of the Investment Company Act.
Each share of the Fund represents an interest in the Fund proportionately
equal to the interest of each other share of the same class and entitles the
holder to one vote per share (and a fractional vote for a fractional share) on
matters submitted to their vote at shareholders' meetings. Shareholders of the
Fund vote together in the aggregate on certain matters at shareholders'
meetings,
-12-
<PAGE>
such as the election of Trustees and ratification of appointment of auditors for
the Fund. Shareholders of a particular series or class vote separately on
proposals which affect that series or class, and shareholders of a series or
class which is not affected by that matter are not entitled to vote on the
proposal.
The Trustees are authorized to create new series and classes of series. The
Trustees may reclassify unissued shares of the Fund or its series or classes
into additional series or classes of shares. The Trustees may also divide or
combine the shares of a class into a greater or lesser number of shares without
thereby changing the proportionate beneficial interest of a shareholder in the
Fund. Shares do not have cumulative voting rights or preemptive or subscription
rights. Shares may be voted in person or by proxy.
The Fund's Declaration of Trust contains an express disclaimer of
shareholder or Trustee liability for the Fund's obligations, and provides for
indemnification and reimbursement of expenses out of its property for any
shareholder held personally liable for its obligations. The Declaration of Trust
also provides that the Fund shall, upon request, assume the defense of any claim
made against any shareholder for any act or obligation of the Fund and satisfy
any judgment thereon. Thus, while Massachusetts law permits a shareholder of a
business trust (such as the Fund) to be held personally liable as a "partner"
under certain circumstances, the risk of a Fund shareholder incurring financial
loss on account of shareholder liability is limited to the relatively remote
circumstances in which the Fund would be unable to meet its obligations
described above. Any person doing business with the Trust, and any shareholder
of the Trust, agrees under the Trust's Declaration of Trust to look solely to
the assets of the Trust for satisfaction of any claim or demand which may arise
out of any dealings with the Trust, and the Trustees shall have no personal
liability to any such person, to the extent permitted by law.
TRUSTEES AND OFFICERS OF THE FUND. The Fund's Trustees and officers, one of
which is the Fund's portfolio manager, are listed below, together with principal
occupations and business affiliations during the past five years. The address of
each is Two World Trade Center, New York, New York 10048, except as noted. As of
January 4, 1996 the Trustees and officers of the Fund as a group owned less than
1% of the outstanding shares of class of the Fund.
BRIDGET A. MACASKILL, CHAIRMAN OF THE BOARD OF TRUSTEES AND PRESIDENT*; AGE: 47.
Chairman of the Board, President and Trustee of the Fund, Rochester Fund
Municipals and Rochester Portfolio Series-Limited Term New York Municipal Fund.;
Chief Executive Officer of the Adviser; President and Chief Operating Officer of
the Adviser; prior thereto, Chief Operating Officer of the Adviser and Executive
Vice President of the Adviser from 1987-1989. Vice President and a Director of
Oppenheimer Acquisition Corp., Director of Oppenheimer Partnership Holdings,
Inc., Chairman and a Director of Oppenheimer Shareholder Services, Director of
Main Street Advisers, Inc., and Director of HarbourView Asset Management
Corporation, all of which are subsidiaries of the Adviser; a Trustee of the New
York-based Oppenheimer funds.
- ----------
*A Trustee is an "interested person" as defined in the Investment Company Act.
-13-
<PAGE>
JOHN CANNON, TRUSTEE; AGE 65
620 Sentry Parkway West, Suite 220, Blue Bell, Pennsylvania 19422
Chairman and Treasurer, CDC Associates, Inc., registered investment adviser,
1993-present; prior thereto, President, AMA Investment Advisers, Inc., a mutual
fund investment adviser, 1976-1991; Senior Vice President AMA Investment
Advisers, Inc., 1991-1993; Director, Neuberger & Berman Income Managers Trust,
Neuberger & Berman Income Funds and Neuberger & Berman Income Trust,
1995-present; Trustee of Rochester Fund Municipals and Rochester Portfolio
Series-Limited Term New York Municipal Fund.
PAUL Y. CLINTON, DIRECTOR; AGE: 64
946 Morris Avenue, Bryn Mawr, Pennsylvania 19010
Director, External Affairs, Kravco Corporation, a national real estate owner and
property management corporation; formerly President of Essex Management
Corporation, a management consulting company; Trustee of Capital Cash Management
Trust, Prime Cash Fund and Short Term Asset Reserves, each of which is a
money-market fund; Director of Oppenheimer Quest Value Fund, Inc., Oppenheimer
Quest Global Value Fund, Inc., and Quest Cash Reserves, Inc. and Trustee of
Quest For Value Accumulation Trust, all of which are open-end investment
companies. Formerly a general partner of Capital Growth Fund, a venture capital
partnership; formerly a general partner of Essex Limited Partnership, an
investment partnership; formerly President of Geneve Corp., a venture capital
fund; formerly Chairman of Woodland Capital Corp., a small business investment
company; formerly Vice President of W.R. Grace & Co.; Trustee of Rochester Fund
Municipals and Rochester Portfolio Series-Limited Term New York Municipal Fund.
THOMAS W, COURTNEY, DIRECTOR; AGE: 62
P.O. Box 580, Sewickley, Pennsylvania 15143
Principal of Courtney Associates, Inc., a venture capital firm; former General
Partner of Trivest Venture Fund, a private venture capital fund; former
President of Investment Counseling Federated Investors, Inc.; Trustee of Cash
Assets Trust, a money market fund; Director of Quest Cash Reserves, Inc.,
Oppenheimer Quest Value Fund, Inc. and Oppenheimer Quest Global Value Fund, Inc.
and Trustee of Quest for Value Accumulation Trust, all of which are open-end
investment companies; former President of Boston Company Institutional
Investors; Trustee of Hawaiian Tax-Free Trust and Tax Free Trust of Arizona,
tax-exempt bond funds; Director of several privately owned corporations; former
Director of Financial Analysts Federation; Trustee of Rochester Fund Municipals
and Rochester Portfolio Series-Limited Term New York Municipal Fund.
LACY B. HERRMANN, DIRECTOR; AGE: 66
380 Madison Avenue, Suite 2300, New York, New York 10017
President and Chairman of the Board of Aquila Management Corporation, the
sponsoring organization and Administrator and/or Sub-Adviser to the following
open-end investment companies, and Chairman of the Board of Trustees and
President of each: Churchill Cash Reserves Trust, Short Term Asset Reserves,
Pacific Capital Cash Assets Trust, Pacific Capital U.S. Treasuries Cash Assets
Trust, Pacific Capital Tax-Free Cash Assets Trust, Prime Cash Fund, Narragansett
Insured Tax-Free Income Fund, Tax-Free Fund For Utah, Churchill Tax-Free Fund of
Kentucky, Tax-Free Fund of Colorado, Tax-Free Trust of Oregon, Tax-Free Trust of
Arizona, Hawaiian Tax-Free Trust, and Aquila Rocky Mountain Equity Fund; Vice
President, Director, Secretary, and formerly Treasurer of Aquila Distributors,
Inc., distributor of the above funds; President and Chairman of the Board of
Trustees of Capital Cash Management Trust ("CCMT"), and an Officer and
Trustee/Director of its
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<PAGE>
predecessors; President and Director of STCM Management Company, Inc., sponsor
and adviser to CCMT; Chairman, President and a Director of InCap Management
Corporation, formerly sub-adviser and administrator of Prime Cash Fund and Short
Term Asset Reserves; Director or Trustee of Quest Cash Reserves, Inc.,
Oppenheimer Quest Global Value Fund, Inc. and Oppenheimer Quest Value Fund, Inc.
and Trustee of Quest for Value Accumulation Trust and The Saratoga Advantage
Trust, each of which is an open-end investment company; Trustee of Rochester
Fund Municipals and Rochester Portfolio Series-Limited Term New York Municipal
Fund; Trustee of Brown University.
GEORGE LOFT, DIRECTOR; AGE: 80
51 Herrick Road
Sharon, Connecticut 06069
Private Investor; Director of Quest Cash Reserves, Inc., Oppenheimer Quest for
Value Fund, Inc. and Oppenheimer Quest Global Value Fund, Inc. and Trustee of
Quest for Value Accumulation Trust and The Saratoga Advantage Trust, all of
which are open-end investment companies, and Director of the Quest for Value
Dual Purpose Fund, Inc., a closed-end investment company; Trustee of Rochester
Fund Municipals and Rochester Portfolio Series-Limited Term New York Municipal
Fund.
MICHAEL S. ROSEN, VICE PRESIDENT; AGE 34
350 Linden Oaks, Rochester, New York 14625
Vice President and Portfolio Manager of the Fund, 1986-present; Vice President
of the Adviser, January 5, 1996-present; President of the Rochester Division of
the Adviser, January 5, 1996-present; Vice President of Rochester Fund
Municipals, 1986-January 4, 1996; Vice President of Rochester Portfolio
Series-Limited Term New York Municipal Fund, 1991-January 4, 1996; Vice
President of Rochester Tax Managed Fund, Inc., 1985-present; Trustee of the
Fund, Rochester Fund Municipals and Rochester Portfolio Series-Limited Term New
York Municipal Fund, 1993-January 4, 1996; Vice President and a director,
Fielding Management Company, Inc. (1988-present); President and a director,
Rochester Fund Distributors, Inc. (1990-present); Vice President and a director,
Rochester Capital Advisors, Inc. (1993-present); Vice President and a director,
Rochester Fund Services, Inc. (1986-present).
ANDREW J. DONOHUE, SECRETARY; AGE: 45
Secretary of the Fund, Rochester Fund Municipals and Rochester Portfolio
Series-Limited Term New York Municipal Fund; Executive Vice President and
General Counsel of the Adviser and the Distributor; an officer of other
Oppenheimer funds; formerly Senior Vice President and Associate General Counsel
of the Adviser 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), and a director
and an officer of First Investors Family of Funds and First Investors Life
Insurance Company.
GEORGE C. BOWEN, TREASURER; AGE: 59
3410 South Galena Street Denver, Colorado 80231
Treasurer of the Fund, Rochester Fund Municipals and Rochester Portfolio
Series-Limited Term New York Municipal Fund; Senior Vice President and Treasurer
of the Adviser; Vice President and Treasurer of the Distributor and HarbourView
Asset Management Corporation; Senior Vice President, Treasurer, Assistant
Secretary and a director of Centennial Asset Management Corporation, an
investment advisory subsidiary of the Adviser; Vice President, Treasurer and
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<PAGE>
Secretary of the Transfer Agent and Shareholder Financial Services, Inc., a
transfer agent subsidiary of the Adviser; an officer of other Oppenheimer funds.
ROBERT G. ZACK, ASSISTANT SECRETARY; AGE: 47
Assistant Secretary of the Fund, Rochester Fund Municipals and Rochester
Portfolio Series-Limited Term New York Municipal Fund; Senior Vice President and
Associate General Counsel of the Adviser; Assistant Secretary of SSI and SFSI;
an officer of other Oppenheimer funds.
ROBERT BISHOP, ASSISTANT TREASURER; AGE: 36
3410 South Galena Street, Denver, Colorado 80231
Assistant Treasurer of the Fund, Rochester Fund Municipals and Rochester
Portfolio Series-Limited Term New York Municipal Fund; Assistant Vice President
of the Adviser/Mutual Fund Accounting; an officer of other Oppenheimer funds;
previously a Fund Controller for the Adviser, prior to which he was an
Accountant for Yale & Seffinger, P.C., an accounting firm, and previously an
Accountant and Commissions Supervisor for Stuart James Company Inc., a
broker-dealer.
SCOTT FARRAR, ASSISTANT TREASURER; AGE: 30
3410 South Galena Street, Denver, Colorado 80231
Assistant Treasurer of the Fund, Rochester Fund Municipals and Rochester
Portfolio Series-Limited Term New York Municipal Fund; Assistant Vice President
of the Adviser/Mutual Fund Accounting; an officer of other Oppenheimer funds;
previously a Fund Controller for the Adviser, 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.
-16-
<PAGE>
-- REMUNERATION OF TRUSTEES. All officers of the Fund and Ms. Macaskill, a
Trustee and President, are officers or directors of the Adviser and receive no
salary or fee from the Fund. The following table sets forth the aggregate
compensation received by the non-interested Trustees from the Fund during the
fiscal year ended December 31, 1995.
<TABLE>
<CAPTION>
Pension or
Retirement
Aggregate Benefits Estimated Total
Compensation Accrued as Annual Compensation
from the Part of Fund Benefits Upon From Fund
Name of Person Fund(1) Expenses(2) Retirement(2) Complex(3)
- -------------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
John Cannon ................. $2,950 $43,667 $13,500 $29,400
Paul Y. Clinton ............. $ $
Thomas W. Courtney .......... $ $
Lacy B. Herrmann ............ $ $
George Loft ................. $ $
</TABLE>
- ----------
(1) During the fiscal year ended December 31, 1995, only one of the Fund's
current trustees, John Cannon, served as a Trustee of the Fund.
(2) The Board of Rochester Fund Municipals has adopted a Retirement Plan for
Independent Trustees of that Fund. Under the terms of the Retirement Plan,
as amended and restated on October 16, 1995, an eligible Trustee (an
Independent Trustee who has served as such for at least three years prior
to retirement) may receive an annual benefit equal to the product of $1500
multiplied by the number of years of service as an Independent Trustee up
to a maximum of nine years. The maximum annual benefit which may be paid to
an eligible Trustee under the Retirement Plan is $13,500. The Retirement
Plan will be effective for all eligible Trustees who have dates of
retirement occurring on or after December 31, 1995. Subject to certain
exceptions, retirement is mandatory at age 72 in order to qualify for the
Retirement Plan. Although the Retirement Plan permits Eligible Trustees to
elect early retirement at age 63, retirement benefits are not payable to
Eligible Trustees who elect early retirement until age 65. The Retirement
Plan provides that no Independent Trustee who is elected as a Trustee of
Rochester Fund Municipals after September 30, 1995, will be eligible
to receive benefits thereunder. Mr. Cannon is the only current Independent
Trustee who may be eligible to receive benefits under the Retirement Plan.
The estimate of annual benefits payable to Mr. Cannon under the Retirement
Plan is based upon the assumption that Mr. Cannon, who was first elected as
a Trustee of the Fund in 1992, will serve as an Independent Trustee for
nine years.
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<PAGE>
(3) Includes compensation received during the fiscal year ended December 31,
1995, from all registered investment companies within the Fund Complex
during that year which consisted of the Fund, Rochester Fund Municipals,
Rochester Portfolio Series-Limited Term New York Municipal Fund, and
Rochester Tax Managed Fund, Inc. On June 28, 1995, the Fund acquired all of
the assets and assumed all of the liabilities of Rochester Tax Managed
Fund, Inc.
- -- MAJOR SHAREHOLDERS. As of December 15, 1995, no person owned of record or
was known by the Fund to own beneficially 5% or more of the Fund as a whole or
the Fund's outstanding Class A, Class B or Class Y shares, except for Merrill
Lynch Pierce Fenner and Smith, Inc., 4800 Deer Lake Drive, EFL 3, Jacksonville,
Florida which was the record owner of 21% and 37% of the Fund's Class A Shares
and Class B Shares, respectively, then outstanding and the Fielding Management
Company, Inc. Pension Plan which was the beneficial owner and record owner of
99% of the Fund's Class Y Shares then outstanding.
THE ADVISER AND ITS AFFILIATES. The Adviser is wholly-owned by Oppenheimer
Acquisition Corp. ("OAC"), a holding company controlled by Massachusetts Mutual
Life Insurance Company. OAC is also owned in part by certain of the Adviser's
directors and officers, some of whom serve as officers of the Fund and one of
whom (Ms. Macaskill) serves as a Trustee of the Fund.
The Adviser and the Fund have a Code of Ethics. It is designed to detect and
prevent improper personal trading by certain employees, including portfolio
managers, that would compete with or take advantage of the Fund's portfolio
transactions. Compliance with the Code of Ethics is carefully monitored and
strictly enforced by the Adviser.
- -- THE INVESTMENT ADVISORY AGREEMENT. The Investment Advisory Agreement between
the Adviser and the Fund which was entered into on January 4, 1996 ("Advisory
Agreement") requires the Adviser, 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 the composition of proxy materials and
registration statements for continuous public sale of shares of the Fund. For
these services, the Adviser will receive from the Fund an annual fee, computed
and payable monthly as a percentage of average daily net assets, as follows:
average daily net assets up to $50 million, 0.625%; average daily net assets on
the next $250 million, 0.50%; and average daily net assets in excess of $300
million, 0.473%.
Expenses not expressly assumed by the Adviser under the Advisory Agreement
or by the Distributor 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 December 31, 1993, 1994 and 1995,
the management fees paid by the Fund to its previous investment adviser,
Fielding Management Company, Inc. were $225,722, $596,082 and $1,030,091,
respectively.
The Advisory Agreement contains no expense limitation. However,
independently of the
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<PAGE>
Agreement, the Adviser has voluntarily undertaken that the total expenses of the
Fund in any fiscal year (exclusive of taxes, interest, brokerage commissions,
and any extraordinary non-recurring expenses, such as litigation costs) shall
not exceed the most stringent state regulatory limitation on Fund expenses
applicable to the Fund. The payment of the management fee will be reduced so
that at no time will there be any accrued but unpaid liability under the above
expense limitation. The Adviser reserves the right to amend or terminate this
expense limitation at any time.
The Advisory Agreement provides that in the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard of its obligations and duties
thereunder, the Adviser shall not be liable for any loss sustained by reason of
good faith errors or omissions on its part with respect to any matters to which
the Advisory Agreement relates. The Agreement permits the Adviser to act as
investment adviser for any other person, firm or corporation and to use the name
"Oppenheimer" in connection with other investment companies for which it may act
as investment adviser. If the Adviser shall no longer act as investment adviser
to the Fund, the right of the Fund to use the name "Oppenheimer" as part of its
name may be withdrawn.
- -- THE DISTRIBUTOR. Under its General Distributor's Agreement with the Fund,
which was entered into on January 4, 1996, OppenheimerFunds Distributor, Inc.
(the "Distributor") acts as the Fund's principal underwriter in the continuous
public offering of the Fund's Class A, Class B and Class Y shares, but is not
obligated to sell a specific number of shares. Expenses normally attributable to
sales (other than those paid under the Distribution and Service Plans, but
including advertising and the cost of printing and mailing prospectuses, other
than those furnished to existing shareholders) are borne by the Distributor.
During the Fund's fiscal years ended December 31, 1993, 1994 and 1995, the
aggregate amount of sales charge on sales of the Fund's Class A Shares was
$1,625,106, $1,699,143, and $2,744,786 respectively, of which Rochester Fund
Distributors, Inc., the Fund's previous principal underwriter, retained
$148,714, $171,428 and $227,846 in those respective years. Class B Shares were
offered to the public commencing on May 2, 1995. During the period from May 2,
1995 through December 31, 1995, the contingent deferred sales charge collected
by Rochester Fund Distributors, Inc. on the redemption of Class B Shares
totalled $5,001. For additional information about distribution of the Fund's
shares and the payments made by the Fund to the Distributor in connection with
such activities, please refer to "Distribution and Service Plans," below.
- -- THE TRANSFER AGENT; THE SHAREHOLDER SERVICES AGENT. The Fund currently acts
as its own transfer agent. Oppenheimer Shareholder Services, the Fund's
shareholder services agent, a division of the Adviser, is responsible for
maintaining shareholder accounting records, and for shareholder servicing and
administrative functions. The Agent is compensated on the basis of a fixed fee
per account. The compensation paid by the Fund for such services under a
comparable arrangement with Rochester Fund Services, Inc., the Fund's previous
shareholder services agent, for the fiscal years ending December 31, 1993, 1994
and 1995 was $42,191, $129,352 and $243,643, respectively.
- -- ACCOUNTING AND RECORDKEEPING SERVICES; The Adviser also provides certain
accounting and recordkeeping services to the Fund pursuant to an Accounting and
Administration Agreement entered into on January 4, 1996. The services provided
pursuant to the Fund thereunder include the maintenance of general ledger
accounts and records relating to the business of the Fund in the form required
to comply with the Investment Company Act and the calculation of the daily net
asset value
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<PAGE>
of the Fund. The compensation paid by the Fund for these services to
Rochester Fund Services, Inc. its previous shareholder services agent, for the
fiscal years ended December 31, 1993, 1994 and 1995 was $19,450, $35,775 and
$62,450.
BROKERAGE POLICIES OF THE FUND
BROKERAGE PROVISIONS OF THE INVESTMENT ADVISORY AGREEMENT. One of the duties of
the Adviser 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 Adviser 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 Adviser 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 Adviser is authorized to select brokers
that provide brokerage and/or research services for the Fund and/or the other
accounts over which the Adviser or its affiliates have investment discretion.
The commissions paid to such brokers may be higher than that which would have
been charged by another qualified broker if a good faith determination is made
by the Adviser that the commission is fair and reasonable in relation to the
services provided. Subject to the foregoing considerations, the Adviser may also
consider sales of shares of the Fund and other investment companies managed by
the Adviser or its affiliates as a factor in the selection of brokers for the
Fund's portfolio transactions.
DESCRIPTION OF BROKERAGE PRACTICES FOLLOWED BY THE ADVISER. Subject to the
provisions of the Advisory Agreement and the procedures and rules described
above, allocations of brokerage are generally made by the Adviser's portfolio
traders based upon recommendations from the Adviser's portfolio managers. In
certain instances, portfolio managers may directly place trades and allocate
brokerage, also subject to the provisions of the Advisory Agreement and the
procedures and rules described above. In either case, brokerage is allocated
under the supervision of the Adviser'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. As stated in the prospectus,
the portfolio securities of the Fund are generally traded on a net basis and, as
such, do not involve the payment of brokerage commissions. It is the policy of
the Adviser to obtain the best net results in conducting portfolio transactions
for the Fund, taking into account such factors as price (including the
applicable dealer spread) and the firm's general execution capabilities. Where
more than one dealer is able to provide the most competitive price, both the
sale of Fund shares and the receipt of research may be taken into consideration
as factors in the selection of dealers to execute portfolio transactions for the
Fund. The transaction costs associated with such transactions consist primarily
of the payment of dealer and underwriter spreads. Brokerage commissions are paid
primarily for effecting transactions in listed securities and or for certain
fixed-income agency transactions, in the secondary market, 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
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<PAGE>
possible, concurrent orders to purchase or sell the same security by more
than one of the accounts managed by the Adviser or its affiliates are combined.
The transactions effected pursuant to such combined orders are averaged as to
price and allocated in accordance with the purchase or sale orders actually
placed for each account.
The research services provided by a particular broker may be useful in one
or more of the advisory accounts of the Adviser and its affiliates. The research
services provided by brokers broaden the scope and supplement the research
activities of the Adviser, by making available additional views for
consideration and comparisons. 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 Adviser as to the commissions paid to brokers furnishing such
services so that the Board may ascertain whether the amount of such commissions
was reasonably related to the value or benefit of such services. Total brokerage
commissions paid by the Fund (not including any spreads or concessions on
principal transactions on a net trade basis) for the fiscal years ended December
31, 1993, 1994 and 1995 were approximately $19,847, $44,872 and $6,680
respectively.
A change in securities held by the Fund is known as "portfolio turnover".
The Fund's options hedging and income strategies may increase the portfolio
turnover of the Fund. Therefore, the portfolio turnover of the Fund may be
higher than other investment companies not utilizing such options trading
techniques. As portfolio turnover increases, the Fund can be expected to incur
brokerage commission expenses and transaction costs which will be borne by the
Fund. In any particular year, however, market conditions could result in
portfolio activity at a greater or lesser rate than anticipated. For the fiscal
years ended December 31, 1993, 1994, and 1995 the Fund's portfolio turnover
rates were and 88.66%, 52.82% and ____% respectively.
PERFORMANCE OF THE FUND
YIELD AND TOTAL RETURN INFORMATION. As described in the Prospectus, from time to
time the "standardized yield," "dividend yield," "average annual total return,"
"cumulative total return," "average annual total return at net asset value" and
"total return at net asset value" of an investment in a class of shares of the
Fund may be advertised. An explanation of how these total returns are calculated
for each class and the components of those calculations is set forth below.
The Fund's advertisements of its performance data with respect to any class
must, under applicable rules of the Securities and Exchange Commission, include
the average annual total returns for that class of shares of the Fund for the 1,
5, and 10-year periods (or the life of the class, if less) ending as of the most
recently-ended calendar quarter prior to the publication of the advertisement.
This enables an investor to compare the Fund's performance to the performance of
other funds for the same periods. However, a number of factors should be
considered before using such information as a basis for comparison with other
investments. An investment in the Fund is not insured; its returns and share
prices are not guaranteed and normally will fluctuate on a daily basis. When
redeemed, an investor's shares may be worth more or less than their original
cost. Returns for any given past period are not a prediction or representation
by the Fund of future returns. The returns
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of each class of shares of the Fund are affected by portfolio quality, the type
of investments the Fund holds and its operating expenses allocated to the
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
Standarized Yield = 2 [(--- + 1) - 1]
cd
The symbols above represent the following factors:
a = dividends and interest earned during the 30-day period.
b = expenses accrued for the period (net of any expense reimbursements).
c = the average daily number of shares of that class outstanding during
the 30-day period that were entitled to receive dividends.
d = the maximum offering price per share of that class on the last day
of the period, adjusted for undistributed net investment income.
The standardized yield of a class of shares for a 30-day period may differ
from its yield for any other period. The SEC formula assumes that the
standardized yield for a 30-day period occurs at a constant rate for a six-month
period and is annualized at the end of the six-month period. This standardized
yield is not based on actual distributions paid by the Fund to shareholders in
the 30-day period, but is a hypothetical yield based upon the net investment
income from the Fund's portfolio investments calculated for that period. The
standardized yield may differ from the "dividend yield" of that class, described
below. Additionally, because each class of shares is subject to different
expenses, it is likely that the standardized yields of the Fund's classes of
shares will differ. For the 30-day period ended December 31, 1995, the
standardized yields for the Fund's Class A, Class B and Class Y Shares were
___%, ___% and ___%, respectively.
-- DIVIDEND YIELD AND DISTRIBUTION RETURN. From time to time the Fund may
quote a "dividend yield" or a "distribution return" for each class. Dividend
yield is based on the dividends paid on shares of a class from 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:
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Dividends of the Class
Dividend Yield of the Class = (Div. By) Number of days (accrual period) x 365
Max. Offering Price of the Class (last day of period)
The maximum offering price for Class A shares includes the maximum
front-end sales charge. For Class B or Class Y shares, the maximum offering
price is the net asset value per share, without, in the case of Class B Shares,
considering the effect of contingent deferred sales charges.
- -- TOTAL RETURN INFORMATION
-- AVERAGE ANNUAL TOTAL RETURNS. The "average annual total return" of each
class is an average annual compounded rate of return for each year in a
specified number of years. It is the rate of return based on the change in value
of a hypothetical initial investment of $1,000 ("P" in the formula below) held
for a number of years ("n") to achieve an Ending Redeemable Value ("ERV") of
that investment, according to the following formula:
(ERV)(superior1/n)
(---) - 1 = Average Annual Total Return
( P )
-- CUMULATIVE TOTAL RETURNS. The cumulative "total return" calculation
measures the change in value of a hypothetical investment of $1,000 over an
entire period of years. Its calculation uses some of the same factors as average
annual total return, but it does not average the rate of return on an annual
basis. Cumulative total return is determined as follows:
ERV - P
------- = Total Return
P
In calculating total returns for Class A shares, the current maximum sales
charge of 3.25% (as a percentage of the offering price) is deducted from the
initial investment ("P") (unless the return is shown at net asset value, as
described below). For Class B shares, payment of a contingent deferred sales
charge of 3.5% for the first year, 3.0% for the second year, 2.5% for the third
year, 2.0% for the fourth year, 1.5% for the fifth year and 1.0% for the sixth
year, and none thereafter, is applied, as described in the Prospectus. Total
returns also assume that all dividends and capital gains distributions during
the period are reinvested to buy additional shares at net asset value per share,
and that the investment is redeemed at the end of the period. The "average
annual total returns" on an investment in Class A shares of the Fund for the one
and five year periods ended
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<PAGE>
December 31, 1995 and for the period from June 3, 1986 through December 31,
1995, were 21.90%, 19.77% and 9.97%, respectively. The cumulative "total return"
on Class A shares for the period from June 3, 1986 through December 31, 1995 was
148.34%. The cumulative total returns on Class B Shares and Class Y Shares for
the period from May 1, 1995 (commencement of each class) through December 31,
1995 were 11.59% and 20.88%, respectively.
-- TOTAL RETURNS AT NET ASSET VALUE. From time to time the Fund may also
quote an average annual total return at net asset value or a cumulative total
return at net asset value for Class A, Class B or Class Y Shares. Each is based
on the difference in net asset value per share at the beginning and the end of
the period for a hypothetical investment in that class of shares (without
considering front-end or contingent deferred sales charges) and takes into
consideration the reinvestment of dividends and capital gains distributions. The
cumulative total return at net asset value of the Fund's Class A shares for the
one year period ended December 31, 1995 and the period from June 3, 1986 through
December 31, 1995 was 26.00% and 156.78%, respectively. The cumulative total
returns at net asset value for Class B Shares and Class Y Shares for the period
from May 1, 1995 (commencement of each class) through December 31, 1995 were
15.09% and 20.88%, respectively.
Total return information may be useful to investors in reviewing the
performance of the Fund's Class A, Class B or Class Y shares. However, when
comparing total return of an investment in Class A, Class B or Class Y Shares of
the Fund with that of other alternatives, investors should understand that as
the Fund invests in high yield securities, its shares are subject to greater
market risks than shares of funds having other investment objectives and that
the Fund is designed for investors who are willing to accept greater risk of
loss in the hopes of realizing greater gains.
OTHER PERFORMANCE COMPARISONS. From time to time the Fund may publish the
ranking of its Class A, Class B or Class Y shares by Lipper Analytical Services,
Inc. ("Lipper"), a widely-recognized independent service. Lipper monitors the
performance of regulated investment companies, including the Fund, and ranks
their performance for various periods based on categories relating to investment
objectives. The performance of the Fund's classes are ranked against (i) all
other funds (excluding money market funds), (ii) all other high current yield or
fixed income funds and (iii) all other such funds in a specific size category.
The Lipper performance rankings are based on total returns that include the
reinvestment of capital gain distributions and income dividends but do 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 Y shares by Morningstar, Inc., an independent
mutual fund monitoring service that ranks mutual funds, including the Fund,
monthly in broad investment categories (equity, taxable bond, municipal bond and
hybrid) based on risk-adjusted investment return. Investment return measures a
fund's three, five and ten-year average annual total returns (when available) in
excess of 90-day U.S. Treasury bill returns after considering sales charges and
expenses. Risk reflects fund performance below 90-day U.S. Treasury bill monthly
returns. Risk and return are combined to produce star rankings reflecting
performance relative to the average fund in a fund's category. Five stars is the
"highest" ranking (top 10%), four stars is "above average" (next 22.5%), three
stars is "average" (next 35%), two stars is "below average" (next 22.5%) and one
star is "lowest" (bottom 10%). Morningstar ranks the Class A, Class B and Class
Y shares of the Fund in relation to other rated high yield funds. Rankings are
subject to change.
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<PAGE>
The total return on an investment in the Fund's Class A, Class B or Class Y
Shares may be compared with performance for the same period of comparable
indices, including but not limited to The First Boston Convertible Securities
Index and the Goldman Sachs 100 Convertible Index. Both indices serve as a
standard of comparison and measurement of market opportunities for convertible
funds and illustrates the unique and dynamic characteristics of the convertible
securities market. The First Boston Convertible Securities index is calculated
at each month end. The Goldman Sachs 100 Convertible Index is comprised of 100
convertible securities. Index performance does not reflect any commissions or
expenses that would be incurred if an investor individually purchased or sold
the securities represented in an Index.
Investors may also wish to compare the return on the Fund's Class A, Class
B or Class Y Shares to the returns on fixed income investments available from
banks and thrift institutions, such as certificates of deposit, ordinary
interest-paying checking and savings accounts, and other forms of fixed or
variable time deposits, and various other instruments such as Treasury bills.
However, the Fund's returns and share price are not guaranteed by the FDIC or
any other agency and will fluctuate daily, while bank depository obligations may
be insured by the FDIC and may provide fixed rates of return, and Treasury bills
are guaranteed as to principal and interest by the U.S. government.
From time to time, the Fund's Adviser may publish rankings or ratings of
the Adviser (or other service providers) or the investor services provided by
them to shareholders of the Oppenheimer funds, other than performance rankings
of the Oppenheimer funds themselves. Those ratings or rankings of
shareholder/investor services by third parties may compare the OppenheimerFunds'
services to those of other mutual fund families selected by the rating or
ranking services and may be based upon the opinions of the rating or ranking
service itself, based on its research or judgment, or based upon surveys of
investors, brokers, shareholders or others.
The performance of the Fund's Class A, Class B or Class Y shares may also
be compared in publications to (i) the performance of various market indices or
to other investments for which reliable performance data is available, and (ii)
to averages, performance rankings or other benchmarks prepared by recognized
mutual fund statistical services.
DISTRIBUTION AND SERVICE PLANS
The Fund has adopted Distribution and Service Plans for Class A and Class B
Shares and a Service Plan for Class Y Shares under Rule 12b-1 of the Investment
Company Act, pursuant to which the Fund makes payment to the Distributor in
connection with the distribution and/or servicing of shares of that class as
described in the Prospectus (collectively, the "Plans"). 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. The fee
structure of each of the Plans, which became effective on January 4, 1996, is
identical to the fee structure of the Distribution Plan for each class of shares
as in effect prior to that time.
In addition, under the Plans, the Adviser and the Distributor, in their
sole discretion, from time to time, may use their own resources (which, in the
case of the Adviser, may include profits
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<PAGE>
from the advisory fee it receives from the Fund), to make payments to brokers,
dealers or other financial institutions (each is referred to as a "Recipient"
under the Plans) for distribution and administrative services they perform, at
no cost to the Fund. The Distributor and the Adviser may, in their sole
discretion, increase or decrease the amount of payments they make from their own
resources to Recipients.
Unless terminated as described below, each Plan continues in effect from
year to year but only as long as such continuance is specifically approved at
least annually by the Fund's Board of Trustees, including the Independent
Trustees, by a vote cast in person at a meeting called for the purpose of voting
on such continuance. Each Plan may be terminated at any time by the vote of a
majority of the Independent Trustees or by the vote of the holders of a
"majority" (as defined in the Investment Company Act) of the outstanding shares
of that class. No Plan may be amended to increase materially the amount of
payments to be made unless such amendment is approved by the class affected by
the amendment. In addition, because Class B shares of the Fund automatically
convert into Class A shares after six years, the Fund is required to obtain the
approval of Class B as well as Class A shareholders for a proposed amendment to
the Class A Plan that would materially increase the amount to be paid by Class A
shareholders under the Class A Plan. Such approval must be by a "majority" (as
defined in the Investment Company Act), of the Class A and Class B shares voting
separately by class. All material amendments must be approved by the Board and
the Independent Trustees.
While the Plans are in effect, the Treasurer of the Fund shall provide
separate written reports to the Fund's Board of Trustees at least quarterly for
its review, detailing the amount of all payments made pursuant to each Plan, the
identity of each Recipient that received any such payment, and the purpose of
the payments. Those reports 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 or replacement and nomination
of those Trustees of the Fund who are not "interested persons" of the Fund is
committed to the discretion of the Independent Trustees. This does not prevent
the involvement of others in such selection and nomination if the final decision
as to any such selection or nomination is approved by a majority of such
Independent Trustees.
For the fiscal year ended December 31, 1995, payments under the Class A
Plan totaled $1,324,659. Of that amount, $1,238,972 was paid to Rochester Fund
Distributors, Inc., the Fund's previous distributor as reimbursement for
expenses incurred by it under the Class A Plan. $780,467 was paid by Rochester
Fund Distributors, Inc. to Recipients as reimbursement for services and $458,505
was retained by Rochester Fund Distributors, Inc. for marketing and its services
in maintaining shareholder accounts. 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.
For the fiscal year ended December 31, 1995, payments under the Class B
Plan totaled $92,392. Of that amount, $92,392 was paid to Rochester Fund
Distributors, Inc., the Fund's previous distributor as reimbursement for
expenses incurred by it under the Class B Plan. $0 was paid by Rochester
Fund Distributors, Inc. to Recipients as reimbursement for services and $92,392
was retained by Rochester Fund Distributors, Inc. for its services in
maintaining shareholder accounts.
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<PAGE>
The Class B Plan allows the service fee payment to be paid by the
Distributor to Recipients in advance for the first year such shares are
outstanding, and thereafter on a quarterly basis, as described in the
Prospectus. The advance payment is based on the net assets of the shares sold.
An exchange of shares does not entitle the Recipient to an advance service fee
payment. In the event shares are redeemed during the first year such shares are
outstanding, the Recipient will be obligated to repay a pro rata portion of such
advance payment to the Distributor.
The Class B Plan provides for the Distributor to be compensated at a flat
rate, whether the Distributor's distribution expenses are more or less than the
amount paid by the Fund during that period. Such payments are made in
recognition that the Distributor (i) pays sales commissions to authorized
brokers and dealers to authorized brokers and dealers at the time of sale and
pays service fees as described in the Prospectus, (ii) may finance such
commissions and/or the advance of the service fee payment to Recipients under
those Plans, (iii) employs personnel to support distribution of shares, and (iv)
may bear the costs of sales literature, advertising and prospectuses (other than
those furnished to current shareholders) and state "blue sky" registration fees.
For the fiscal year ended December 31, 1995, payments under the Class Y
Plan totaled $3,032. Of that amount, $471 was paid by Rochester Fund
Distributors, Inc. to Recipients as reimbursement for services and $2,561 was
retained by Rochester Fund Distributors, Inc. for its services in maintaining
shareholder accounts. Any unreimbursed expenses incurred with respect to Class Y
shares for any fiscal quarter by the Distributor may not be recovered under the
Class Y Plan in subsequent fiscal quarters.
ABOUT YOUR ACCOUNT
HOW TO BUY SHARES
ALTERNATIVE SALES ARRANGEMENTS - CLASS A, CLASS B AND CLASS Y 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. Any salesperson or other person entitled to
receive compensation for selling Fund shares may receive different compensation
with respect to one class of shares than another.
The 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 A and Class B
Shares and the dividends payable on Class A and Class B Shares will be reduced
by incremental expenses borne by those classes, including the asset-based sales
charge to which Class A and Class B shares are subject.
The conversion of Class B shares to Class A shares after six years is
subject to the continuing availability of a private letter ruling from the
Internal Revenue Service, or an opinion of counsel or
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<PAGE>
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 Y shares recognizes two
types of expenses. General expenses that do not pertain specifically to any
class are allocated pro rata to the shares of each class, based on the
percentage of the net assets of such class to the Fund's total assets, and then
equally to each outstanding share within a given class. Such general expenses
include (i) management fees, (ii) legal, bookkeeping and audit fees, (iii)
printing and mailing costs of shareholder reports, Prospectuses, Statements of
Additional Information and other materials for current shareholders, (iv) fees
to unaffiliated Trustees, (v) custodian expenses, (vi) share issuance costs,
(vii) organization and start-up costs, (viii) interest, taxes and brokerage
commissions, and (ix) non-recurring expenses, such as litigation costs. Other
expenses that are directly attributable to a class are allocated equally to each
outstanding share within that class. Such expenses include (i) Distribution
and/or Service Plan fees, (ii) incremental transfer and shareholder servicing
agent fees and expenses, (iii) registration fees and (iv) shareholder meeting
expenses, to the extent that such expenses pertain to a specific class rather
than to the Fund as a whole.
DETERMINATION OF NET ASSET VALUE PER SHARE. The net asset values per share of
Class A, Class B and Class Y shares of the Fund are determined as of the close
of business of The New York Stock Exchange on each day that the Exchange is
open, by dividing the 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 on New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. It may also
close on other days. Trading may occur in debt securities and in foreign
securities when the Exchange is closed (including weekends and holidays).
Because the Fund's net asset values will not be calculated on those days, the
Fund's net asset value per share may be significantly affected on such days when
shareholders may not purchase or redeem shares.
The Fund's Board of Trustees has established procedures for the valuation
of the Fund's securities, generally as follows: (i) equity securities traded on
a securities exchange or on the Nasdaq National Market System ("Nasdaq") 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 sale
prices of the preceding trading day, or closing bid and asked prices); (ii)
securities actively traded on a foreign securities exchange are valued at the
last sales price available to the pricing service approved by the Fund's Board
of Trustees or to the Adviser as reported by the principal exchange on which the
security is traded; (iii) unlisted foreign securities or listed foreign
securities not actively traded are valued as in (i) above, if available, or at
the mean between "bid" and "asked" prices
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<PAGE>
obtained from active market makers in the security on the basis of reasonable
inquiry; (iv) long-term debt securities having a remaining maturity in excess of
60 days are valued at the mean between the "bid" and "asked" prices determined
by a portfolio pricing service approved by the Fund's Board of Trustees or
obtained from active market makers in the security on the basis of reasonable
inquiry; (v) debt instruments having a maturity of more than one year when
issued, and non-money market type instruments having a maturity of one year or
less when issued, which have a remaining maturity of 60 days or less are valued
at the mean between "bid" and "asked" prices determined by a pricing service
approved by the Fund's Board of Trustees or obtained from active market makers
in the security on the basis of reasonable inquiry; (vi) money market-type debt
securities having a maturity of less than one year when issued that having a
remaining maturity of 60 days or less are valued at cost, adjusted for
amortization of premiums and accretion of discounts; and (vii) securities
(including restricted securities) not having readily-available market quotations
are valued at fair value under the Board's procedures.
Trading in securities on European and Asian exchanges and over-the-counter
markets is normally completed before the close of the Exchange. Events affecting
the values of foreign securities traded in such markets that occur between the
time their prices are determined and the close of the Exchange will not be
reflected in the Fund's calculation of its net asset value unless the Board of
Trustees or the Adviser, under procedures established by the Board, determines
that the particular event would materially affect the Fund's net asset values,
in which case an adjustment would be made. Foreign currency will be valued as
close to the time fixed for the valuation date as is reasonably practicable. The
values of securities denominated in foreign currency will be converted to U.S.
dollars at the prevailing rates of exchange at the time of valuation. In the
case of U.S. government and foreign securities and corporate bonds, where last
sale information is not generally available, such pricing procedures may include
"matrix" comparisons to the prices for comparable instruments on the basis of
quality, yield, maturity and other special factors involved. The Trustees will
monitor the accuracy of pricing services by comparing prices used for portfolio
evaluation to actual sales prices of selected securities.
Puts and calls held by the Fund are valued at the last sales price on the
principal exchange on which they are traded, or on Nasdaq, as applicable as
determined by a pricing service approved by the Board of Directors or by the
Adviser, or, if there are no sales that day, in accordance with (i), above.
Forward currency contracts are valued at the closing price on the London foreign
exchange market as provided by a reliable bank, dealer or pricing service. When
the Fund writes an option, an amount equal to the premium received by the Fund
is included in the Fund's Statement of Assets and Liabilities as an asset, and
an equivalent deferred credit is included in the liability section. The deferred
credit is adjusted ("marked-to-market") to reflect the current market value of
the option. In determining the Fund's gain on investments, if a call written by
the Fund is exercised, the proceeds are increased by the premium received. If a
call or put written by the Fund expires, the Fund has a gain in the amount of
the premium; if the Fund enters into a closing purchase transaction, it will
have a gain or loss depending on whether the premium was more or less than the
cost of the closing transaction. If the Fund exercises a put it holds, the
amount the Fund receives on its sale of the underlying investment is reduced by
the amount of premium paid by the Fund.
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<PAGE>
See How to Purchase Shares in the Prospectus for a description of how shares of
each class are offered to the public and how the excess of public offering price
over the net amount invested, if any, is allocated to authorized dealers. The
Prospectus describes several special purchase plans and methods by which Shares
of each class may be purchased. As discussed in the Prospectus, a reduced sales
charge rate may be obtained for Class A shares under Right of Accumulation and
Letters of Intent because of the economies of sales efforts and expenses
realized by the Distributor, dealers and brokers making such sales. No sales
charge is imposed in certain circumstances described in the Prospectus because
the Distributor or dealer or broker incurs little or no selling expenses. The
term "immediate family" refers to one's spouse, children, grandchildren,
parents, grandparents, parents-in-law, brothers and sisters, sons- and
daughters-in-law, siblings, a sibling's spouse and a spouse's siblings.
HOW TO SELL SHARES
Information on how to sell shares of the Fund is stated in the Prospectus.
-- INVOLUNTARY REDEMPTIONS. As described in the Prospectus, the Fund's
Board of Trustees has the right to cause the involuntary redemption of the
shares held in any account if the aggregate net asset value of those shares is
less than $1,500 or such lesser amount as the Board may fix. The Board of
Trustees will not cause the involuntary redemption of shares in an account if
the aggregate net asset value of the shares has fallen below the stated minimum
solely as a result of market fluctuations. Should the Board elect to exercise
this right, it may also fix, in accordance with the Investment Company Act, the
requirements for any notice to be given to the shareholders in question (not
less than 30 days), or the Board may set requirements for granting permission to
the Shareholder to increase the investment, and set other terms and conditions
so that the shares would not be involuntarily redeemed.
HOW TO EXCHANGE SHARES
As stated in the Prospectus, shares of a particular class of the Fund or of
certain other funds which are managed by the Adviser ( the "Oppenheimer funds")
having more than one class of shares may be exchanged only for shares of the
same class of other Oppenheimer funds which are eligible for sale in the
shareholder's state of residence. For purposes of the Exchange Privilege as
defined in the Prospectus, the following funds in addition to the Fund are
referred to as "The Rochester Funds": Rochester Fund Municipals and Rochester
Portfolio Series--Limited Term New York Municipal Fund. Shares of the
Oppenheimer funds that have a single class without a class designation are
deemed "Class A" shares for this purpose. All of the Oppenheimer funds offer
Class A shares, but certain other Oppenheimer funds do not presently offer
either or both of Class B or Class Y shares. Shareholders of The Rochester Funds
may obtain a list showing which funds offer which class by calling the Agent at
1-800-552-1129. At the present time, shareholders of Oppenheimer funds other
than The Rochester Funds may not exchange their shares for shares of The
Rochester Funds.
When Class B Shares are redeemed to effect an exchange, the priorities
described in "Purchasing Class B Shares" in the Prospectus for the imposition of
the Class B contingent deferred sales charge will be followed in determining the
order in which the shares are exchanged.
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<PAGE>
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 Y shares.
The Fund reserves the right to reject telephone or written exchange
requests submitted in bulk by anyone on behalf of 10 or more accounts. The Fund
may accept requests for exchanges of up to 50 accounts per day from
representatives of authorized dealers that qualify for this privilege. In
connection with any exchange request, the number of shares exchanged may be less
than the number requested if the exchange or the number requested would include
shares subject to a restriction cited in the Prospectus or this Statement of
Additional Information or would include shares covered by a share certificate
that is not tendered with the request. In those cases, only the shares available
for exchange without restriction will be exchanged.
When exchanging shares by telephone, a shareholder must either have an
existing account in, or obtain and 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 dividend
reinvestment will be switched to the new account unless the 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 Agent
receives an exchange request in proper form (the "Redemption Date"). Normally,
shares of the fund to be acquired are purchased on the Redemption Date, but such
purchases may be delayed by either fund up to five business days if it
determines that it would be disadvantaged by an immediate transfer of the
redemption proceeds. The Fund reserves the right, in its discretion, to refuse
any exchange request that may disadvantage it (for example, if the receipt of
multiple exchange requests from a dealer might require the disposition of
portfolio securities at a time or at a price that might be disadvantageous to
the Fund).
The different Oppenheimer funds available for exchange have different
investment objectives, policies and risks, and a shareholder should assure that
the Fund selected is appropriate for his or her investment and should be aware
of the tax consequences of an exchange. For federal income tax purposes, an
exchange transaction is treated as a redemption of shares of one fund and a
purchase of shares of another. The Fund, the Distributor, and the Agent are
unable to provide investment, tax or legal advice to a shareholder in connection
with an exchange request or any other investment transaction.
DIVIDENDS, CAPITAL GAINS AND TAXES
DIVIDENDS AND DISTRIBUTIONS. Dividends will be payable on shares held of record
at the time of the previous determination of net asset value. However, daily
dividends on newly purchased shares will not be declared or paid until such time
as Federal Funds (funds credited to a member bank's account at the Federal
Reserve Bank) are available from the purchase payment for such shares. Normally,
purchase checks received from investors are converted to Federal Funds on the
next business day.
-31-
<PAGE>
If all shares in an account are redeemed, all dividends accrued on shares in the
account will be paid together with the redemption proceeds. Dividends will be
declared on shares repurchased by a dealer or broker for three business days
following the trade date (i.e., to and including the day prior to settlement of
the repurchase).
Dividends, distributions and the proceeds of the redemption of Fund shares
represented by checks returned to the Transfer Agent by the Postal Service as
undeliverable will be invested in shares of the Fund as promptly as possible
after the return of such checks to the Transfer Agent, in order to enable the
investor to earn a return on otherwise idle funds.
TAX STATUS OF THE FUND'S DIVIDENDS AND DISTRIBUTIONS. The Federal tax
treatment of the Fund's dividends and distributions is explained in the
Prospectus under the caption "Dividends, Distributions and Taxes." Special
provisions of the Code govern the dividends-received deduction for corporate
shareholders. Long-term capital gains distributions are not eligible for the
deduction. In addition, the amount of dividends paid by the Fund which may
qualify for the deduction is limited to the aggregate amount of qualifying
dividends (generally dividends from domestic corporations) which the Fund
derives from its portfolio investments held for a minimum period, usually 46
days. A corporate shareholder will not be eligible for the deduction on
dividends paid on shares held by the shareholder for 45 days or less. To the
extent that the Fund derives a substantial portion of its gross income from
option premiums, interest income or short-term gains from the sale of
securities, or dividends from foreign corporations, its dividends will not
qualify for the deduction.
Under the 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 to 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's distributions will meet those requirements, the Fund's Board and Adviser
might determine that in a particular year it would be in the best interest of
the Fund not to distribute income or capital gains at the mandated levels and to
pay the excise tax on the undistributed amounts, which would reduce the amount
available for distribution to shareholders.
The Code requires that a holder (such as the Fund) of a zero coupon
security accrue a portion of the discount at which the security was purchased as
income each year even though the Fund receives no interest payment in cash on
the security during the year. The Fund may also from time to time receive
payment-in-kind securities in lieu of cash interest payments. As an investment
company, the Fund must pay out substantially all of its net investment income
each year. Accordingly, the Fund may be required to pay out as an income
distribution each year an amount which is greater than the total amount of cash
interest the Fund actually received. Such distributions will be made from the
cash assets of the Fund or by liquidation of portfolio securities, if necessary.
If a distribution of cash necessitates the liquidation of portfolio securities,
the Fund may realize a gain or loss from such sales. In the event the Fund
realizes net capital gains from such transactions, its shareholders may receive
a larger capital gain distribution than they would have had in the absence of
such transactions.
-32-
<PAGE>
ADDITIONAL INFORMATION ABOUT THE FUND
THE CUSTODIAN. Investors Bank & Trust Company ("Custodian"), whose principal
business address is 89 South Street Boston, MA 02111 is the Custodian of the
Fund's assets. The Custodian's responsibilities include safeguarding and
controlling the Fund's portfolio securities and handling the delivery of such
securities to and from the Fund. 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 Adviser and its affiliates.
INDEPENDENT AUDITORS. Price Waterhouse LLP, 1900 Chase Square, Rochester, NY
14604, serves as the Fund's independent accountants. The services provided by
Price Waterhouse LLP include auditing services and review and consultations on
various filings by the Fund with the Securities and Exchange Commission and tax
authorities. They also act as auditors for certain other funds advised by the
Adviser and its affiliates.
-33-
<PAGE>
INVESTMENT ADVISER
OppenheimerFunds, Inc.
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
SHAREHOLDER SERVICES AGENT
Oppenheimer Shareholder Services
P.O. Box 5270
Denver, Colorado 80217
1-800-552-1129
CUSTODIAN OF PORTFOLIO SECURITIES
Investors Bank & Trust Company
89 South Street
Boston, MA 02111
INDEPENDENT AUDITORS
Price Waterhouse LLP
1900 Chase Square
Rochester, NY 14604
LEGAL COUNSEL
Kirkpatrick & Lockhart LLP
1800 M Street, N.W.
Washington, D.C. 20036
-34-
<PAGE>
FINANCIAL STATEMENT
THE
(LOGO) BOND FUND
FOR GROWTH
PORTFOLIO OVERVIEW
Based on the market value as of December 31, 1994
Total Net Assets $126,691,033
Shares Outstanding 10,384,466
Number of Issues 136
Industry Sectors:
-----------------
Apparel / Textile 1.3%
Banking 6.3%
Chemicals 0.1%
Computer Hardware 7.0%
Computer Software 5.1%
Construction / Building Supplies 2.3%
Diversified Manufacturing 0.8%
Electronics / Electrical / Mechanical Equip. 7.4%
Energy / Natural Resources 5.3%
Financial Services / Insurance 12.9%
Food / Beverage / Tobacco 5.6%
Forest / Paper Products 2.5%
Health Care / Medical Products 2.0%
Health Care Services 4.2%
Household Products 0.5%
Industrial Materials 0.6%
Machinery 1.1%
Pharmaceuticals 4.8%
Publishing / Broadcasting 3.2%
Real Estate 4.0%
Retailing 7.5%
Security Services 1.8%
Service Companies 0.4%
Telecommunications Equipment / Service 3.8%
Toys 0.4%
Transportation 0.5%
Travel / Recreation / Hotels 2.3%
Waste Management / Env. Services 2.8%
TOTAL INVESTMENTS AS A
PERCENTAGE OF NET ASSETS 96.5%
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Trustees of The Bond Fund For Growth
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The Bond Fund For Growth (the
"Fund") at December 31, 1994, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the five years in the period
then ended, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1994 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Price Waterhouse LLP
Rochester, New York
January 20, 1995
-35-
<PAGE>
<TABLE>
THE BOND FUND FOR GROWTH
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1994
<CAPTION>
Interest Maturity Market
Par Value Security Description Rate Date Value
- -------------------------------------------------------------------------------------------------------
CONVERTIBLE BONDS--70.6%
APPAREL/TEXTILE--1.3%
<S> <C> <C> <C>
$500,000 Fieldcrest Cannon, Inc. 6.00% 03/15/12 $375,000
$750,000 Graphic Industries, Inc. 7.00% 05/15/06 631,875
$800,000 Guilford Mills, Inc. 6.00% 09/15/12 702,000
------------
Total $1,708,875
- -------------------------------------------------------------------------------------------------------
BANKING--1.9%
$500,000 Bangkok Bank Public Co. Ltd. (a)(d) 3.25% 03/03/04 454,375
$2,050,000 First Republic Bancorp Inc. 7.25% 12/01/02 1,911,625
------------
Total $2,366,000
- -------------------------------------------------------------------------------------------------------
COMPUTER HARDWARE--3.9%
$300,000 Comptronix Corp. 6.75% 03/01/02 118,500
$2,000,000 Comverse Technology, Inc. 5.25% 12/01/03 1,590,000
$1,425,000 Conner Peripherals, Inc. 6.50% 03/01/02 997,500
$500,000 Data General Corp. 7.75% 06/01/01 432,500
$1,313,000 Iverson Technology Corp. (a)(b)(c) 8.25% 09/01/02 91,910
$300,000 LTX Corp. 13.50% 04/15/11 298,875
$855,000 Telxon Corp. 7.50% 06/01/12 658,350
$750,000 3Com Corp. (d) 10.25% 11/01/01 796,405
------------
Total $4,984,040
- -------------------------------------------------------------------------------------------------------
COMPUTER SOFTWARE--3.3%
$2,000,000 Bay Networks, Inc. (d) 5.25% 05/15/03 1,525,000
$2,402,000 MacNeal-Schwendler Corp. 7.875% 08/18/04 2,005,670
$500,000 Sierra On-Line, Inc. (d) 6.50% 04/01/01 638,750
------------
Total $4,169,420
- -------------------------------------------------------------------------------------------------------
CONSTRUCTION/BUILDING SUPPLIES--1.3%
$1,000,000 Empresas ICA Sociedad Controladora, SA de CV 5.00% 03/15/04 640,000
$750,000 Interface, Inc. 8.00% 09/15/13 683,438
$500,000 Nippon Denro Ispat Ltd. (a)(d) 3.00% 04/01/01 345,000
------------
Total $1,668,438
- -------------------------------------------------------------------------------------------------------
DIVERSIFIED MANUFACTURING--0.5%
$1,000,000 Mascotech, Inc. 4.50% 12/15/03 $672,500
- -------------------------------------------------------------------------------------------------------
ELECTRONICS/ELECTRICAL/MECHANICAL EQUIPMENT--6.6%
$1,000,000 Audiovox Corp.(d) 6.25% 03/15/01 705,000
$800,000 Aurora Electronics, Inc. 7.75% 04/15/01 580,000
$2,044,000 Ducommun Inc. 7.75% 03/31/11 1,747,620
$2,500,000 Fisher Scientific International Inc. 4.75% 03/01/03 2,262,500
$1,300,000 Recognition International, Inc. 7.25% 04/15/11 1,036,750
$1,000,000 Trinova Corp. 6.00% 10/15/02 870,000
$1,025,000 VLSI Technology, Inc. 7.00% 05/01/12 886,625
$430,000 Zenith Electronics Corp. 6.25% 04/01/11 291,863
------------
Total $8,380,358
- -------------------------------------------------------------------------------------------------------
ENERGY/NATURAL RESOURCES--3.0%
$1,400,000 Freeport--McMoRan Inc. 6.55% 01/15/01 1,270,500
$500,000 GE Capital Corp. Global Medium-Term Notes (a)(d) 2.50% 02/14/97 505,000
$980,000 IMC Global, Inc. 6.25% 12/01/01 894,250
$500,000 Inco Ltd. 5.75% 07/01/04 559,375
$750,000 Oryx Energy Co. 7.50% 05/15/14 521,250
------------
Total $3,750,375
- -------------------------------------------------------------------------------------------------------
</TABLE>
-36-
<PAGE>
<TABLE>
THE BOND FUND FOR GROWTH
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1994
<CAPTION>
Interest Maturity Market
Par Value Security Description Rate Date Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FINANCIAL SERVICES/INSURANCE--10.6%
$750,000 Alexander & Alexander Services, Inc. 11.00% 04/15/07 $746,250
$2,400,000 Chubb Corp. 6.00% 05/15/98 2,430,000
$600,000 Legg Mason, Inc. 7.00% 06/15/11 637,500
$750,000 Leucadia National Corp. 5.25% 02/01/03 695,625
$2,300,000 Lomas Financial Corp. 9.00% 10/31/03 1,451,875
$1,325,000 Old Republic International Corp. 5.75% 08/15/02 1,281,937
$1,000,000 RE Capital Corp. 5.50% 08/01/00 908,750
$1,300,000 Statesman Group, Inc. 6.25% 05/01/03 1,316,250
$1,000,000 Trenwick Group, Inc. 6.00% 12/15/99 995,000
$1,000,000 USLICO Corp. 8.50% 12/15/14 1,006,875
$2,830,000 Waterhouse Investor Services, Inc. 6.00% 12/15/03 1,903,175
------------
Total $13,373,237
- -------------------------------------------------------------------------------------------------------
FOOD/BEVERAGE/TOBACCO--4.7%
$2,325,000 American Brands, Inc. 7.75% 06/15/02 3,083,880
$1,325,000 Chock Full O' Nuts Corp. 8.00% 09/15/06 1,215,687
$500,000 Flagstar Companies Inc. 10.00% 11/01/14 362,500
$1,950,000 Standard Commercial Corp. 7.25% 03/31/07 1,296,750
------------
Total $5,958,817
- -------------------------------------------------------------------------------------------------------
FOREST/PAPER PRODUCTS--2.1%
$500,000 Albany International Corp. 5.25% 03/15/02 433,750
$500,000 International Paper Co. 5.75% 09/23/02 559,375
$500,000 Riverwood International Corp. 6.75% 09/15/03 528,750
$1,500,000 Stone Container Corp. 6.75% 02/15/07 1,128,750
------------
Total $2,650,625
- -------------------------------------------------------------------------------------------------------
HEALTH CARE/MEDICAL PRODUCTS--1.6%
$500,000 AMSCO International, Inc. 4.50% 10/15/02 380,000
$500,000 Maxxim Medical Inc. 6.75% 03/01/03 466,875
$1,450,000 MEDIQ Inc. (Nutramax Products Inc.) 7.50% 07/15/03 1,116,500
------------
Total $1,963,375
- -------------------------------------------------------------------------------------------------------
HEALTH CARE SERVICES--2.9%
$250,000 CareLine, Inc. (d) 8.00% 05/01/01 198,750
$1,900,000 Pacific Physicians Services, Inc. 5.50% 12/15/03 1,479,625
$850,000 Pharmaceutical Marketing Services, Inc. 6.25% 02/01/03 548,250
$500,000 Physicians Clinical Lab, Inc. (a)(d) 7.50% 08/15/00 453,750
$1,000,000 Synetic Inc. 7.00% 12/01/01 1,015,000
------------
Total $3,695,375
- -------------------------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS--0.5%
$700,000 McKesson Corp. (Armor All Products Corp.) 4.50% 03/01/04 $657,125
- -------------------------------------------------------------------------------------------------------
MACHINERY--1.1%
$1,250,000 Raymond Corp. 6.50% 12/15/03 $1,400,000
- -------------------------------------------------------------------------------------------------------
PHARMACEUTICALS--3.3%
$800,000 Bindley Western Industries, Inc. 6.50% 10/01/02 767,000
$1,175,000 Cabot Medical Corp. 7.50% 03/01/99 963,500
$800,000 Cetus Corp. (Chiron Corp.) 5.25% 05/21/02 640,000
-37-
</TABLE>
<PAGE>
<TABLE>
THE BOND FUND FOR GROWTH
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1994
<CAPTION>
Interest Maturity Market
Par Value Security Description Rate Date Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PHARMACEUTICALS (CONTINUED)
$750,000 Chiron Corp. (d) 1.90% 11/17/00 $543,750
$1,000,000 Elan Corp. 0.00% 10/16/12 410,000
$500,000 ICN Pharmaceuticals, Inc. 8.50% 11/15/99 478,125
$500,000 IVAX Corp. (d) 6.50% 11/15/01 435,625
------------
Total $4,238,000
- -------------------------------------------------------------------------------------------------------
PUBLISHING/BROADCASTING--3.2%
$1,800,000 Park Communications, Inc. 6.875% 03/15/11 2,596,500
$1,500,000 Time Warner, Inc. 8.75% 01/10/15 1,417,500
------------
Total $4,014,000
- -------------------------------------------------------------------------------------------------------
REAL ESTATE--4.0%
$1,750,000 Engle Homes, Inc. 7.00% 03/01/03 1,356,250
$1,150,000 Henderson Capital International Ltd. 4.50% 10/27/96 1,099,687
$2,885,000 Patten Corp. 8.25% 05/15/12 2,163,750
$500,000 Rouse Co. 5.75% 07/23/02 408,750
------------
Total $5,028,437
- -------------------------------------------------------------------------------------------------------
RETAILING--7.1%
$2,165,000 Bell Sports Corp. 4.25% 11/15/00 1,396,425
$1,200,000 Ben Franklin Retail Stores, Inc. 7.50% 06/01/03 894,000
$695,000 Big B, Inc. 6.50% 03/15/03 816,625
$500,000 CML Group, Inc. 5.50% 01/15/03 363,125
$400,000 Eagle Hardware & Garden, Inc. 6.25% 03/15/01 262,000
$500,000 General Host Corp. 8.00% 02/15/02 378,750
$1,800,000 Michaels Stores, Inc. 4.75% 01/15/03 1,881,000
$500,000 Pier 1 Imports, Inc. (General Host Corp.) (a)(d) 8.50% 12/01/00 472,500
$2,500,000 Proffitt's, Inc. 4.75% 11/01/03 1,937,500
$500,000 Sports & Recreation, Inc. 4.25% 11/01/00 532,500
------------
Total $8,934,425
- -------------------------------------------------------------------------------------------------------
SECURITY SERVICES--1.8%
$2,250,000 Laidlaw Inc. (ADT Ltd.) (d) 6.00% 01/15/99 $2,317,500
- -------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT/SERVICE--2.9%
$400,000 Arch Communications Group, Inc. (d) 6.75% 12/01/03 434,000
$2,500,000 IDB Communications Group, Inc. 5.00% 08/15/03 1,906,250
$1,800,000 Porta Systems Corp. 6.00% 07/01/02 832,500
$500,000 Telekom Malaysia Berhad (a) (d) 4.00% 10/03/04 443,750
------------
Total $3,616,500
- -------------------------------------------------------------------------------------------------------
TOYS--0.4%
$500,000 Hasbro, Inc. 6.00% 11/15/98 $528,125
- -------------------------------------------------------------------------------------------------------
TRAVEL/RECREATION/HOTELS--1.5%
$500,000 Alliance Gaming Corp. (a)(d) 7.50% 09/15/03 425,000
$1,500,000 Microtel Franchise & Development Corp. (a)(b)(e) 8.00% 02/01/04 1,500,000
------------
Total $1,925,000
- -------------------------------------------------------------------------------------------------------
-38-
</TABLE>
<PAGE>
<TABLE>
THE BOND FUND FOR GROWTH
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1994
<CAPTION>
Interest Maturity Market
Par Value Security Description Rate Date Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
WASTE MANAGEMENT/ENVIRONMENTAL SERVICES--1.1%
$335,000 Sanifill, Inc. 7.50% 06/01/06 $322,438
$250,000 USA Waste Services, Inc. 8.50% 10/15/02 251,250
$1,040,000 Roy F. Weston, Inc. 7.00% 04/15/02 834,600
------------
Total $1,408,288
- -------------------------------------------------------------------------------------------------------
Total convertible bonds (cost $96,509,877) $89,408,835
=======================================================================================================
<CAPTION>
Annual Market
Shares Security Description Dividend Value
- -------------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS--24.2%
BANKING--4.4%
60,000 ONBANCorp, Inc Series B $1.6875 1,267,500
142,800 Rochester Community Savings Bank $1.75 3,793,125
18,000 Union Planters Corp. $2.00 506,250
------------
Total $5,566,875
- -------------------------------------------------------------------------------------------------------
CHEMICALS--0.1%
2,150 LSB Industries, Inc. Series 2 $3.25 $76,863
- -------------------------------------------------------------------------------------------------------
COMPUTER HARDWARE--3.1%
75,000 Advanced Micro Devices, Inc. $3.00 $3,975,000
- -------------------------------------------------------------------------------------------------------
COMPUTER SOFTWARE--1.8%
25,000 Salomon Brothers Inc. Microsoft ELKS $3.99 $2,325,000
- -------------------------------------------------------------------------------------------------------
CONSTRUCTION/BUILDING SUPPLIES--1.0%
30,000 WHX Corp. Series B $3.75 $1,275,000
- -------------------------------------------------------------------------------------------------------
DIVERSIFIED MANUFACTURING--0.3%
30,000 Mascotech Inc. DECS $1.20 $412,500
- -------------------------------------------------------------------------------------------------------
ELECTRONICS/ELECTRICAL/MECHANICAL EQUIPMENT--0.8%
1,400 Cooper Industries, Inc. $1.60 28,700
20,000 Kaman Corp. $3.25 962,500
------------
Total $991,200
- -------------------------------------------------------------------------------------------------------
ENERGY/NATURAL RESOURCES--2.3%
10,000 Cyprus Amax Minerals Co. $4.00 588,125
20,000 Gerrity Oil & Gas Corp. $1.50 258,750
85,000 ICO, Inc. $1.6875 1,487,500
49,800 Kaiser Aluminum Corp. Series A $0.65 404,625
8,000 Western Gas Resources, Inc. $2.625 254,000
------------
Total $2,993,000
- -------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES/INSURANCE--2.3%
10,000 Alexander & Alexander Services, Inc. (d) $3.625 402,500
10,000 Aon Corp. $3.125 458,750
70,000 Capstead Mortgage Corp. $1.26 717,500
8,000 Conseco, Inc Series D $3.25 326,000
20,000 SunAmerica, Inc. PERCS Series D $2.78 735,000
5,400 Travelers, Inc. Series B $2.75 278,775
------------
Total $2,918,525
- -------------------------------------------------------------------------------------------------------
-39-
</TABLE>
<PAGE>
<TABLE>
THE BOND FUND FOR GROWTH
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1994
<CAPTION>
Annual Market
Shares Security Description Dividend Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
FOOD/BEVERAGE/TOBACCO--0.6%
120,000 RJR Nabisco Holdings Corp. PERCS $0.60125 $735,000
- -------------------------------------------------------------------------------------------------------
FOREST/PAPER PRODUCTS--0.4%
10,000 Sonoco Products Co. $2.25 $478,125
- -------------------------------------------------------------------------------------------------------
HEALTH CARE/MEDICAL PRODUCTS--0.4%
20,000 U.S. Surgical Corp. DECS $2.20 $455,000
- -------------------------------------------------------------------------------------------------------
HEALTH CARE SERVICES--1.3%
27,800 Beverly Enterprises, Inc. $2.75 $1,640,200
- -------------------------------------------------------------------------------------------------------
INDUSTRIAL MATERIALS--0.6%
15,000 Corning Delaware, L.P. MIPS $3.00 $701,250
- -------------------------------------------------------------------------------------------------------
PHARMACEUTICALS--1.5%
10,000 Bear Stearns Cos. Inc. Merck CHIPS $2.01 366,250
15,000 Lehman Brothers Holdings Inc. Amgen YEELDS $2.94 780,000
14,000 Salomon Brothers Inc. Amgen ELKS $3.19 731,500
-----------
Total $1,877,750
- -------------------------------------------------------------------------------------------------------
RETAILING--0.4%
10,000 Sears, Roebuck and Co. PERCS $3.75 $557,500
- -------------------------------------------------------------------------------------------------------
SERVICE COMPANIES--0.4%
10,000 SCI Finance LLC (Service Corp. Int.) TECONS $3.13 $520,000
- -------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT/SERVICE--0.9%
15,000 LCI International, Inc. $1.25 543,750
8,000 Morgan Stanley Gr. Inc. Telefonos de Mexico PERQS $3.78 376,000
4,000 Philippine Long Distance Telephone Co. $3.50 216,500
-----------
Total $1,136,250
- -------------------------------------------------------------------------------------------------------
TRANSPORTATION--0.5%
15,000 Arkansas Best Corp. $2.88 $614,063
- -------------------------------------------------------------------------------------------------------
TRAVEL/RECREATION/HOTELS--0.8%
40,700 Morgan Stanley Gr. Inc. Int'l Game Tech. PERQS $1.235 661,375
10,000 Salomon Brothers Inc. Promus ELKS $3.020 340,000
-----------
Total $1,001,375
- -------------------------------------------------------------------------------------------------------
WASTE MANAGEMENT/ENVIRONMENTAL SERVICES--0.3%
25,000 International Technology Corp. $1.75 $421,875
- -------------------------------------------------------------------------------------------------------
Total convertible preferred stocks (cost $32,144,619) $30,672,351
=======================================================================================================
<CAPTION>
<S> <C>
Market
Shares Security Description Value
- -------------------------------------------------------------------------------------------------------
COMMON STOCKS--1.7%
FOOD/BEVERAGE/TOBACCO--0.3%
60,000 RJR Nabisco Holdings Corp. (c) $330,000
- -------------------------------------------------------------------------------------------------------
-40-
</TABLE>
<PAGE>
<TABLE>
THE BOND FUND FOR GROWTH
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1994
<CAPTION>
Market
Shares Security Description Value
- -------------------------------------------------------------------------------------------------------
<S> <C>
WASTE MANAGEMENT/ENVIRONMENTAL SERVICES--1.4%
200,000 Chemical Waste Management, Inc. (c) $1,850,000
- --------------------------------------------------------------------------------------------------------
Total common stocks (cost $2,280,100) $2,180,000
------------
TOTAL INVESTMENTS (COST $130,934,596)--96.5% 122,261,186
------------
OTHER ASSETS AND LIABILITIES (NET)--3.5% 4,429,847
------------
NET ASSETS AT MARKET--100.0% $126,691,033
============
NET ASSET VALUE PER SHARE (10,384,466 SHARES OUTSTANDING) $12.20
============
<FN>
(a) Illiquid security.
(b) Fair valued security.
(c) Non-income producing security.
(d) Restricted security. This security, although not registered under the
Securities Act of 1933, as amended (the "Act"), may be resold to certain
qualified institutional buyers in reliance upon Rule 144A under the Act.
(e) Restricted security.
</FN>
</TABLE>
See accompanying notes to financial statements.
================================================================================
PORTFOLIO ABBREVIATIONS
CHIPS: Common-linked Higher Income Participation Securities
DECS: Dividend Enhanced Convertible Stock
ELKS: Equity Linked Securities
MIPS: Monthly Income Preferred Securities
PERCS: Preferred Equity Redemption Cumulative Stock
PERQS: Performance Equity-linked Redemption Quarterly-pay Securities
TECONS: Term Convertible Shares
YEELDS: Yield Enhanced Equity Linked Debt Securities
================================================================================
ASSET COMPOSITION TABLE
December 31, 1994
(Unaudited)
(As a percentage of bonds)
Percentage
Rating of Bonds
--------- ----------
AAA 0.6%
AA 4.1%
A 8.2%
BBB 15.5%
BB 13.4%
B 35.5%
Below B 3.2%
Not rated 19.5%
------
Total 100.0%
======
-41-
<PAGE>
THE BOND FUND FOR GROWTH
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES--DECEMBER 31, 1994
ASSETS
Investments at market (Cost $130,934,596) ..................... $122,261,186
Cash and cash equivalents ..................................... 3,350,969
Dividends and interest receivable ............................. 1,952,222
Receivable for capital shares sold ............................ 631,571
Other assets .................................................. 13,302
------------
Total assets ................................................ 128,209,250
------------
LIABILITIES
Payable for investments purchased ............................. 28,665
Payable for capital shares repurchased ........................ 829,202
Distribution payable to shareholders .......................... 657,687
Other liabilities ............................................. 2,663
------------
Total liabilities ........................................... 1,518,217
------------
NET ASSETS ...................................................... $126,691,033
============
REPRESENTED BY
Paid in capital ............................................... $135,728,559
Excess of distributions over net investment income ............ (24,929)
Accumulated net realized loss on investment transactions ...... (339,187)
Net unrealized depreciation of investments .................... (8,673,410
------------
Total--Representing net assets applicable to capital
shares outstanding ........................................... $126,691,033
============
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE
Net asset value and redemption price per share
($126,691,033 divided by 10,384,466 shares) .................. $12.20
============
Offering price per share (100/96.75 of $12.20)* ............... $12.61
============
*On single retail sales of less than $250,000. On sales of $250,000 or more
and on group sales the offering price is reduced.
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
Year ended December 31, 1994
INVESTMENT INCOME:
Dividends ..................................................... $1,519,262
Interest ...................................................... 5,793,550
------------
Total investment income ..................................... 7,312,812
------------
EXPENSES:
Distribution fees ............................................. 794,543
Management fees ............................................... 596,082
Shareholder servicing agent fees .............................. 129,352
Shareholder communications .................................... 74,859
Accounting and auditing ....................................... 52,716
Registration fees ............................................. 50,096
Legal fees .................................................... 25,981
Custodian fees ................................................ 6,785
Trustees' fees ................................................ 4,700
Miscellaneous ................................................. 9,250
Interest ...................................................... 16,427
------------
Total expenses .............................................. 1,760,791
------------
Net investment income ........................................... 5,552,021
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments .............................. 2,246,856
Net decrease in unrealized appreciation of investments ........ (10,516,166)
------------
Net loss on investments ......................................... (8,269,310)
------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ............ ($2,717,289)
============
STATEMENT OF CHANGES IN NET ASSETS
Year ended December 31,
---------------------------
1994 1993
---- ----
Increase in net assets--
Operations:
Net investment income ............................ $5,552,021 $1,740,752
Net realized gain from security transactions ..... 2,246,856 3,199,718
(Decrease) increase in unrealized appreciation ... (10,516,166) 1,621,918
------------ -----------
(Decrease) increase in net assets
resulting from operations ........................ (2,717,289) 6,562,388
------------ -----------
Distributions to shareholders from:
Net investment income ............................ (5,616,654) (1,872,328)
Capital gains .................................... (1,445,043)
------------ -----------
Total distributions to shareholders ............ (7,061,697) (1,872,328)
------------ -----------
Fund share transactions:
Net proceeds from shares sold .................... 74,824,458 60,318,269
Value of shares issued in reinvestment
of distributions ............................... 5,248,037 1,236,698
Cost of shares repurchased ....................... (12,977,435) (7,111,197)
------------ -----------
Increase in net assets derived from Fund
share transactions ............................. 67,095,060 54,443,770
------------ -----------
Increase in net assets ............................. 57,316,074 59,133,830
Net assets:
Beginning of year .................................. 69,374,959 10,241,129
------------ -----------
End of year (including excess of distributions
over net investment income of $24,929--1994
and $498,212--1993 ............................... $126,691,033 $69,374,959
============ ===========
See accompanying notes to financial statements.
-42-
<PAGE>
THE BOND FUND FOR GROWTH
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES:
The Bond Fund For Growth (the "Fund") is registered under the Investment Company
Act of 1940, as amended, as a non-diversified, open-end management investment
company. The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements:
SECURITY VALUATION. Investments in securities traded on a national securities
exchange are valued at the 4:00 p.m. sales price on the last business day of the
period; securities traded in the over-the-counter market, listed securities for
which no sale was reported on that date and exchange traded convertible bonds
where the last sales price is not considered to be representative of the most
recent bid and ask prices are valued at the mean between the bid and ask prices.
In some instances, securities which trade on an exchange or in the
over-the-counter market, but trade more actively in a dealer market, are valued
at the mean of the reported bid and ask price by a dealer. Securities for which
market quotations are not readily available are valued at fair value as
determined in good faith by the Board of Trustees.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME. Security transactions are
recorded on the trade date. Cost is determined and realized gains and losses are
based upon the specific identification method for both financial statement and
federal income tax purposes. Interest income is recorded on the accrual basis.
In computing net investment income, the Fund accretes original issue discount.
Market discount is accreted at the time of sale (to the extent of the lesser of
the accrued market discount or the disposition gain) and is treated as income,
rather than capital gain. Dividend income is recorded on the ex-dividend date.
CALL OPTIONS. Call options are written by the Fund only on securities owned by
the Fund and all such options are listed on a national securities exchange. When
the Fund sells an option, the premium received is recorded in the Statement of
Assets and Liabilities as an asset and as an equivalent liability. The amount of
the liability is subsequently adjusted to reflect the current market value of
the option written. The Fund's use of written options involves, to varying
degrees, elements of market risk in excess of the amount recognized in the
Statement of Assets and Liabilities. The contract amounts reflect the extent of
the Fund's involvement in these financial instruments. Risks arise from the
possible movements in securities' values underlying these instruments. The
Fund's activities in written options are conducted through regulated exchanges
which do not result in counterparty credit risks.
DISTRIBUTIONS TO SHAREHOLDERS. Income dividends are declared and recorded daily
by the Fund and are distributed to shareholders quarterly. Capital gain
distributions, if any, are recorded on the ex-dividend date and paid annually.
The excess of distributions over net investment income results from the
amortization of organizational expenses from 1986 through 1991, which reduced
net investment income for book purposes but were considered disallowed expenses
for tax purposes.
FEDERAL INCOME TAXES. During any particular year, the Fund is required to
distribute certain minimum amounts of net realized capital gains and net
investment income in order to avoid a federal income or excise tax. It is the
Fund's intention to comply with the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
taxable and tax-exempt income to shareholders. Therefore, the Fund was not
required to record a liability for either federal income or excise tax.
RECLASSIFICATION OF CAPITAL ACCOUNTS. In 1993, the Fund adopted the provisions
of Statement of Position 93-2 "Determination, Disclosure and Financial Statement
Presentation of Income, Capital Gain and Return of Capital Distributions by
Investment Companies" (SOP). The SOP requires the Fund to report the
undistributed net investment income (accumulated loss) and accumulated net
realized gain (loss) accounts in such a manner as to approximate amounts
available for future tax distributions (or to offset future realized capital
gains). The initial implementation of the SOP did not have a significant impact
on the Fund; however, in 1994, the Fund reclassified $537,915 from accumulated
net realized gain to undistributed net investment income. This reclassification,
which has no impact on net investment income or total net assets of the Fund, is
primarily caused by accumulated market discount on bonds sold, which is an
element of capital gains and losses for book purposes and is considered ordinary
income for tax purposes.
-43-
<PAGE>
THE BOND FUND FOR GROWTH
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
NOTE 2. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATED PARTIES:
Ronald H. Fielding, President and a trustee of the Fund, is also an officer,
director, and controlling shareholder of Fielding Management Company, Inc.
(FMC), the Fund's investment adviser, as well as an officer, director and
controlling shareholder of Rochester Fund Distributors, Inc. (RFD), the Fund's
principal underwriter, and an officer, director and controlling shareholder of
Rochester Fund Services, Inc. (RFS), the Fund's shareholder servicing,
accounting and pricing agent.
The management fee payable to FMC is based on an annual rate .625% of average
daily net assets up to $50 million, .50% of average daily net assets on the next
$250 million, and .4375% of average daily net assets in excess of $300 million.
During 1994, FMC received fees of $596,082 for management and investment
advisory services.
For the year ended December 31, 1994, RFD purchased shares of the Fund at net
asset value to fill orders received from dealers and retained net underwriting
discounts of $171,428. The Fund has adopted a distribution plan pursuant to Rule
12b-l of the Investment Company Act of 1940, as amended, which permits the Fund
to pay an asset based sales charge of up to .50% per annum of its average daily
net assets for certain sales related distribution expenses and a service fee of
up to .25% per annum of average daily net assets for expenses incurred in
connection with the maintenance of shareholder accounts. For the year ended
December 31, 1994, the Fund paid distribution fees of $794,543 to RFD. From this
amount, RFD made service fee payments of $509,750 to broker dealers and
financial institutions.
For the year ended December 31, 1994, RFS received $165,127 in shareholder
servicing agent, pricing and accounting fees from the Fund. The shareholder
servicing agent fee charged by RFS to the Fund is based on a monthly maintenance
fee of $2.01 for each shareholder account. During 1994, the Fund was charged
$35,775 for pricing and accounting services.
For the year ended December 31, 1994, the Fund directly purchased from the
Rochester Tax Managed Fund, Inc., an affiliated investment company, investments
at market value in the amount of $815,250. There were no commissions or other
charges associated with these transactions.
NOTE 3. PORTFOLIO INFORMATION:
Cost of purchases and proceeds from sales of investment securities for the year
ended December 31, 1994 were $116,625,329 and $55,062,603, respectively.
The Fund had no transactions in call options for the year ended December 31,
1994.
The Fund held $12,596,655 in restricted securities at December 31, 1994,
comprising approximately 9.9% of net assets.
Unrealized appreciation (depreciation) at December 31, 1994 based on cost of
securities for federal income tax purposes of $131,068,166 was:
Gross unrealized appreciation ..................... $3,597,014
Gross unrealized depreciation ..................... (12,403,993)
-----------
Net unrealized depreciation ....................... ($8,806,979)
===========
During 1994, all capital loss carryover available in the amount of $874,298 was
utilized to offset realized capital gains. The excess of realized capital gains
in the amount of $1,445,043 was distributed to shareholders.
-44-
<PAGE>
THE BOND FUND FOR GROWTH
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
NOTE 4. BANK BORROWINGS:
The Fund has available a $5,000,000 unsecured line of credit with a bank.
Borrowings are payable on demand and bear interest at the bank's prime rate.
The Fund had no borrowings outstanding at December 31, 1994. For the year ended
December 31, 1994, the average monthly loan balance was $246,073 at a weighted
average interest rate of 7.15%. The maximum amount of borrowings outstanding at
any month-end was $1,779,100.
NOTE 5. SHARES OF BENEFICIAL INTEREST:
The Agreement and Declaration of Trust permits the Fund to issue an unlimited
number of shares of beneficial interest, par value $.01 per share. Transactions
in capital stock were as follows:
Year ended December 31, 1994 1993
---- ----
Shares sold .................................. 5,704,417 4,833,792
Shares issued on reinvestment of
distributions .............................. 415,454 97,509
Shares repurchased ........................... (1,008,951) (553,777)
---------- ---------
Net increase in shares outstanding ........... 5,110,920 4,377,524
Shares outstanding, beginning of year ........ 5,273,546 896,022
---------- ---------
Shares outstanding, end of year .............. 10,384,466 5,273,546
========== =========
-45-
<PAGE>
THE BOND FUND FOR GROWTH
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Year ended December 31,
1994 1993 1992 1991 1990
------ ------ ------ ------ ------
Net asset value, beginning of year .. $13.16 $11.43 $9.37 $7.88 $9.16
------ ------ ------ ------ ------
Income from investment operations:
Net investment income ........... 0.68 0.59 0.69 0.65 0.54
Net realized and unrealized gain
(loss) on investments ......... (0.81) 1.79 2.15 1.53 (1.26)
------ ------ ------ ------ ------
Total from investment operations (0.13) 2.38 2.84 2.18 (0.72)
------ ------ ------ ------ ------
Less distributions:
Dividends from net investment
income ........................ (0.69) (0.65) (0.78) (0.69) (0.56)
Distributions from capital gains (0.14) -- -- -- --
Returns of capital .............. -- -- -- -- --
------ ------ ------ ------ ------
Total distributions ........... (0.83) (0.65) (0.78) (0.69) (0.56)
------ ------ ------ ------ ------
Net asset value, end of year ........ $12.20 $13.16 $11.43 $9.37 $7.88
====== ====== ====== ====== ======
Total return (excludes sales load ... (1.12%) 21.23% 31.19% 28.50% (8.14%)
Ratios/supplemental data:
Net assets, end of year
(000 omitted) .................... $126,691 $69,375 $10,241 $6,403 $6,035
Ratio of total expenses to
average net assets .............. 1.66% 1.78% 1.93%+ 2.01%* 2.92%
Ratio of total expenses
(excluding interest) to
average net assets** ............ 1.65% 1.75% 1.91%+ 1.94%* 2.90%
Ratio of net investment income to
average net assets .............. 5.24% 4.70% 6.62%+ 7.60%* 6.37%
Portfolio turnover rate ........... 52.82% 88.66% 80.09% 48.55% 33.23%
- --------------------------------------------------------------------------------
+ Net of fees and expenses waived or reimbursed by Fielding Management Company,
Inc. which amounted to $0.01 per share. Without reimbursement, the ratios
would have been 2.06%, 2.04% and 6.50%, respectively.
* Net of fees and expenses waived or reimbursed by Fielding Management Company,
Inc. and Rochester Fund Services, Inc., which amounted to $0.07 per share.
Without reimbursement, the ratios would have been 2.82%, 2.75% and 6.79%,
respectively.
** During the periods shown above, the Fund's interest expense was substantially
offset by the incremental interest income generated on bonds purchased with
borrowed funds.
Per share information has been determined on the basis of the weighted number of
shares outstanding during the period.
-46-
<PAGE>
APPENDIX A
DESCRIPTION OF BOND RATINGS
DESCRIPTION OF MOODY'S INVESTORS SERVICES, INC.
CORPORATE BOND RATINGS
Aaa -- Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamental strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best because margins of
protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long term risks appear somewhat larger than in Aaa
securities.
A -- Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both goods and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
-A1-
<PAGE>
Moody's applies numerical modifiers 1, 2 and 3 to show relative standing
within the major rating categories, except in the Aaa category. The modifier 1
indicates a ranking for the security in the higher end of a rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking
in the lower end of a rating category.
Con. (---) -- Bonds for which the security depends upon the completion of
some act of the fulfillment of some condition are rated conditionally. Theses
are bonds secured by (1) earnings of projects under construction, (2) earnings
of projects unseasoned in operation experiences, (3) rentals which begin when
facilities are completed, or (4) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of condition.
STANDARD & POOR'S RATING GROUP BOND RATINGS
AAA -- This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA -- Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degree.
A -- Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this capacity
then for bonds in the A category.
BB -- B -- CCC -- CC -- Bonds rated BB, B, CCC and CC are regarded, on balance,
as predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and CC the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
C -- The rating C is reserved for income bonds on which no interest is being
paid.
D -- Bonds rated D are in default, and payment of principal and/or interest is
in arrears.
Plus (+) or minus (-): The ratings from AA to BBB may be modified by the
addition of a plus or minus sign to show relative standing within the major
ratings categories.
Provisional Ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the issuance of bonds being rated and indicates that
payment of debt service requirements is largely or entirely dependent upon the
successful and timely completion of the project, makes no comment on the
likelihood of, or the
-A2-
<PAGE>
risk of default upon failure of such completion. Accordingly, the investor
should exercise his own judgement with respect to such likelihood and risk.
STANDARD & POOR'S RATING GROUP
PREFERRED STOCK RATING DEFINITIONS
"AAA" This is the highest rating that may be assigned by Standard & Poor's to a
preferred stock issue and indicates an extremely strong capacity to pay the
preferred stock obligations.
"AA" A preferred stock issue rate "AA" also qualifies as a high-quality fixed
income security. The capacity to pay preferred stock obligations is very strong,
although not as overwhelming as for issues rated "AAA."
"A" An issue rated "A" is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
"BBB" An issue rated "BBB" is regarded as backed by an adequate capacity to pay
the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the "A" category.
"BB," "B," "CCC" Preferred stock rated "BB," "B," and "CCC" are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay preferred stock obligations. "BB" indicates the lowest degree of speculation
and "CCC" the highest degree of speculation. While such issues will likely have
some quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
"CC" The rating "CC" is reserved for a preferred stock issue in arrears on
dividends or sinking fund payments but that is currently paying.
"C" A preferred stock rated "C" is a non-paying issue.
"D" A preferred stock rated "D" is a non-paying issues with the issuer in
default on debt instruments.
FITCH INVESTORS SERVICES, INC.
AAA bonds (highest quality): "the obligor has an extraordinary ability to pay
interest and repay principal which is unlikely to be affected by reasonably
foreseeable events."
AA bonds (high quality): "the obligor's ability to pay interest and repay
principal, while very strong, is somewhat less than for AAA rated securities or
more subject to possible change over the term of the issue."
-A3-
<PAGE>
A bonds (good quality): "the obligor's ability to pay interest and repay
principal is strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings."
BBB bonds (satisfactory bonds): "the obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to weaken this ability than bonds
with higher ratings."
