<PAGE> 1
OPPENHEIMER MORTGAGE INCOME FUND
Semiannual Report March 31, 1995
"We need more
[PHOTO] money
to help pay
for extras."
[LOGO] OPPENHEIMER FUNDS
<PAGE> 2
This Fund is for people who want high monthly income.
NEWS
STANDARDIZED YIELD
For the 30 Days Ended 3/31/95:(1)
Class A
7.20%
Class B
6.76%
BEAT THE AVERAGE
Total Return for the Year
Ended 3/31/95:(2)
Oppenheimer
Mortgage Income Fund
Class A (at NAV)(2)
5.28%
Class B (at NAV)(2)
4.34%
Lipper U.S. Mortgage
Funds Average(3)
3.11%
- -------------------------------------------------------------------------------
HOW YOUR FUND IS MANAGED
- -------------------------------------------------------------------------------
Oppenheimer Mortgage Income Fund seeks high current income by investing in
mortgage-backed securities, including those issued or guaranteed by the U.S.
government, and privately issued mortgage and asset-backed securities.
- -------------------------------------------------------------------------------
PERFORMANCE
- -------------------------------------------------------------------------------
Total returns at net asset value for the 6 months ended 3/31/95 for Class A and
B shares were 5.12% and 4.63%, respectively.(2)
Your Fund's average annual total returns at maximum offering price for
Class A shares for the 1- and 5-year periods ended 3/31/95 and since inception
of the Class on 9/11/86 were 0.27%, 6.91% and 7.04%, respectively. For Class B
shares, average annual total returns for the 1-year period ended 3/31/95 and
since inception of the Class on 5/17/93 were -0.50% and 1.19%, respectively.(4)
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OUTLOOK
- -------------------------------------------------------------------------------
"Mortgage-backed securities continue to provide yield advantage over traditional
Treasury securities. And with our emphasis on high-quality private-label issues,
this Fund expects to deliver an attractive level of current income and relative
net asset value stability."
Eva Zeff, Portfolio Manager
March 31, 1995
All figures assume reinvestment of dividends and capital gains distributions.
Past performance is not indicative of future results. Investment and principal
value on an investment in the Fund will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than the original cost.
1. Standardized yield is net investment income calculated on a yield-to-maturity
basis for the 30-day period ended 3/31/95, divided by the maximum offering price
at the end of the period, compounded semiannually and then annualized. Falling
net asset values will tend to artificially raise yields.
2. Based on the change in net asset value per share for the periods shown,
without deducting any sales charges. Such performance would have been lower if
sales charges were taken into account.
3. Source: Lipper Analytical Services. The Lipper total return average for the
year was for 59 U.S. mortgage funds. The average is shown for comparative
purposes only. Oppenheimer Mortgage Income Fund is characterized by Lipper as a
U.S. mortgage fund. Lipper performance does not take sales charges into
consideration.
4. Class A returns show results of hypothetical investments on 4/1/94, 4/1/90
and 9/11/86 (inception of class), after deducting the current maximum initial
sales charge of 4.75%. Class B returns show results of hypothetical investments
on 4/1/94 and 5/17/93 (inception of class), and the deduction of the applicable
contingent deferred sales charge of 5% (1-year) and 4% (since inception). An
explanation of the different total returns is in the Fund's prospectus.
2 Oppenheimer Mortgage Income Fund
<PAGE> 3
[PHOTO]
Donald W. Spiro
President
Oppenheimer
Mortgage Income Fund
[PHOTO]
Jon S. Fossel
Chairman and CEO
Oppenheimer
Management Corporation
Dear OppenheimerFunds Shareholder,
1994 was marked by one of the greatest tests the bond markets faced in more than
six decades. As the U.S. Federal Reserve undertook the most aggressive moves in
its history to raise interest rates, bond prices and bond mutual funds declined
across the board. Changing interest rates are a fact of life and they affect the
short-term performance of all bond markets. That is why we believe the best
measure of any fixed income mutual fund is its performance over the long term.
And we believe the long-term outlook for the bond markets is very positive.
To see how greatly the U.S. bond market has improved since last fall, we
need look no further than the market's reaction to the Fed's most recent
short-term rate increase in February. While the markets had already anticipated
this move, unlike previous rate increases, long-term interest rates continued to
decline and bonds rallied further. Although the Fed could raise rates again, we
believe that this positive environment will prove more than momentary as a
result of several factors.
First, concerns about the effects of inflation on bond prices are fading
fast. By most indicators, economic growth is slowing to a pace that can be
sustained without reigniting inflation or causing a recession. Second, at
current prices, intermediate and long-term bonds are producing some of the best
inflation-adjusted returns in years. With the actual inflation rate running just
over 3 percent today, many fixed income investors are clearly being rewarded.
Attracted by the strong, real returns intermediate and long-term bonds offer,
investors are returning to bonds in a significant way. This rising demand is
providing solid support for bond prices. Third, as the Fed concludes its
tightening efforts--and recent reports suggest that point is near--long-term
interest rates will likely stay within their current range, and could decline
further. Of course, rates could rise later this year if future reports indicate
that the economy isn't slowing as quickly as it seems to be today; however, we
believe that over the longer term, the downward trend of rates will continue.
Two uncertainties affecting the fixed income markets are foreign
investors' attitudes toward U.S. debt and the weakness of the U.S. dollar abroad
relative to other major currencies. But investors' attitudes overseas and the
dollar's decline, in our view, should prove temporary. Both have been driven by
the government's moves to support the Mexican peso, a widening trade deficit,
and Congress's apparent inability to limit the Federal budget deficit.
We believe the trade deficit will narrow with increasing U.S. exports as
European economies come out of recession and emerging world markets stabilize.
Additionally, the need to support the peso has begun to decline as Mexico's
tough domestic economic policy has gained credibility. Finally, we are confident
that Congress will be able to get the budget deficit issue dealt with because
Americans are demanding it.
Of course, no one can predict the future with perfect clarity. The bond
markets are always subject to fluctuations and, as we saw in 1994, the shifts
can sometimes be sharp. Overall, however, we believe the outlook for the bond
markets today appears positive.
Your portfolio manager discusses the outlook for your Fund on the
following pages. We appreciate your trust, and we'll continue to do our best to
help you meet your long-term investment objectives.
/s/ Donald W. Spiro /s/ Jon S. Fossel
- ------------------- -----------------
Donald W. Spiro Jon S. Fossel
April 24, 1995
3 Oppenheimer Mortgage Income Fund
<PAGE> 4
Q+A
An interview with your Fund's manager.
EVA ZEFF
Portfolio Manager
THE FUND TURNED IN A GOOD PERFORMANCE OVER THE PAST SIX MONTHS, PROVIDING
SHAREHOLDERS WITH AN ATTRACTIVE LEVEL OF INCOME AND HOLDING ITS PRINCIPAL VALUE
RELATIVELY WELL. WHAT'S BEHIND THAT PERFORMANCE?
It's partly related to the nature of the Fund's portfolio and partly to
our management approach.
Looking first at the portfolio, mortgage-backed securities have
historically provided a significant yield advantage over Treasury securities
(which have no credit risk), so shareholders benefit from our basic investment
emphasis.
At the same time--and just as important--we don't over-reach for return
in managing the Fund. Instead of stretching for yield or taking unnecessary
risks, our goal is to produce a competitive level of income while holding price
volatility to an acceptable level. Shareholders expect an attractive yield and
relative stability in a mortgage fund, and that is what we intend to deliver.
DOESN'T LIMITING RISK LIMIT LONG-TERM RETURNS?
Not necessarily. There's more to achieving good long-term returns than simply
maximizing gains in favorable markets. It's just as important not to give those
gains back--to maintain principal value--when the market turns down. As we saw
last year, the bond markets are subject to shifts, and sometimes those shifts
can be sharp. Our conservative approach to management has produced good returns
in the past, and we believe that it will continue to do so.
ARE YOU FINDING OPPORTUNITIES TO IMPROVE YIELD AND REDUCE RISK TODAY?
Yes, and we're taking full advantage of them in three ways. First, we're
carefully controlling the portfolio's duration--a technical measure of a bond
portfolio's sensitivity to changing interest rates. The Federal Reserve may be
nearing the end of its tightening, but we don't have a crystal ball that tells
us where interest rates will be up ahead, so we're still taking a cautious
approach. At this point, the duration of the Fund's portfolio is somewhat short
compared to the mortgage-backed security index. We've lengthened maturities and
the Fund's duration over the past few months to improve yield, but we're still
in a conservative posture.
Second, we've increased the quality of the private-label portion of the
portfolio.
Third, we're concentrating on securities maturing in five to seven years.
That's where we're finding the best overall risk/reward relationship in the
market today.(1)
WHAT'S YOUR OUTLOOK FOR THE FUND AND THE MORTGAGE-BACKED SECURITIES MARKET?
In the near term we remain cautious, given all the uncertainties hanging over
the economy. The mortgage-backed yield advantage over Treasuries has tightened
significantly over the last few months, and while we always seek opportunities
to increase yield, we don't want to sacrifice quality.
Looking out longer, we're extremely optimistic. This sector has
historically offered income-oriented investors solid returns, and we feel the
Fund is well positioned to take advantage of all the opportunities the mortgage
market offers.
1. The Fund's portfolio is subject to change.
4 Oppenheimer Mortgage Income Fund
<PAGE> 5
- -------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS March 31, 1995 (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT SEE NOTE 1
==========================================================================================================
<S> <C> <C>
MORTGAGE-BACKED OBLIGATIONS--83.6%
- ----------------------------------------------------------------------------------------------------------
GOVERNMENT AGENCY--26.7%
- ----------------------------------------------------------------------------------------------------------
FHLMC/FNMA/SPONSORED--3.2%
Federal Home Loan Mortgage Corp., Collateralized Mtg.
Obligations, Series 1548, Cl. C, 7%, 4/15/21 $3,000,000 $ 2,728,230
- ----------------------------------------------------------------------------------------------------------
GNMA/GUARANTEED--23.5%
Government National Mortgage Assn.:
7.50%, 9/15/22 3,012,751 2,923,031
8%, 1/15/23 6,673,515 6,632,139
9%, 7/15/02-8/15/21 6,027,031 6,247,259
9.50%, 7/15/18-1/15/20 2,067,198 2,174,542
10%, 5/15/19 1,029,572 1,113,205
10.50%, 9/15/17-4/15/21 1,210,944 1,335,975
-----------
20,426,151
- ----------------------------------------------------------------------------------------------------------
PRIVATE--56.9%
- ----------------------------------------------------------------------------------------------------------
AGRICULTURAL--2.8%
Prudential Agricultural Credit, Inc., Farmer Mac Agricultural
Real Estate Trust Sr. Sub. Mtg. Pass-Through Certificates, Series 1992-2:
Cl. B2, 8.961%, 1/15/03(1)(2) 920,609 698,944
Cl. B3, 9.294%, 4/15/09(1)(2) 2,311,468 1,724,969
-----------
- ----------------------------------------------------------------------------------------------------------
COMMERCIAL--35.9%
CS First Boston Mortgage Securities Corp., Mtg.
Pass-Through Certificates, Cl. 1E-1, 11%, 2/15/14(4) 3,000,000 2,909,397
- ----------------------------------------------------------------------------------------------------------
FDIC Trust, Gtd. Real Estate Mtg. Investment Conduit
Pass-Through Certificates, Series 1994-C1, Cl. 2-G, 8.70%, 9/25/25 3,000,000 2,737,500
- ----------------------------------------------------------------------------------------------------------
Resolution Trust Corp., Commercial Mtg. Pass-Through Certificates:
Series 1991-M5, Cl. A, 9%, 3/25/17 1,290,130 1,315,127
Series 1992-CHF, Cl. C, 8.25%, 12/25/20 2,852,741 2,807,920
Series 1992-CHF, Cl. D, 8.25%, 12/25/20 1,201,620 1,167,449
Series 1991-M6, Cl. B4, 6.45%, 6/25/21(1) 3,339,467 3,221,542
Series 1992-M4, Cl. B, 7.20%, 9/25/21 1,787,316 1,747,940
Series 1992-16, Cl. B3, 10.622%, 5/24/24(1) 2,000,000 2,072,745
Series 1993-C1, Cl. D, 9.45%, 5/25/24 1,183,001 1,175,977
Series 1993-C1, Cl. E, 9.50%, 5/25/24 2,161,629 2,087,999
Series 1993-C2, Cl. E, 8.50%, 3/25/25 2,616,072 2,505,707
Series 1994-C2, Cl. D, 8%, 4/25/25 2,982,316 2,806,634
Series 1994-C1, Cl. E, 8%, 6/25/26 1,950,323 1,491,388
Series 1994-C1, Cl. C, 8%, 6/25/26 1,000,000 957,344
- ----------------------------------------------------------------------------------------------------------
SE Commercial Mortgage Pass-Through Certificates, Series
93-01, Cl. A1, 6.65%, 11/28/13 2,405,600 2,231,720
-----------
31,236,389
- ----------------------------------------------------------------------------------------------------------
MULTI-FAMILY--9.4%
Countrywide Funding Corp.:
Series 1993-11, Cl. B1, 6.25%, 1/25/09 1,417,377 1,201,670
Series 1993-11, Cl. B3, 6.25%, 2/25/09(2) 826,806 232,669
Series 1993-12, Cl. B1, 6.625%, 2/25/24 3,000,000 2,447,813
- ----------------------------------------------------------------------------------------------------------
CS First Boston Mortgage Securities Corp., Mtg. Pass-Through
Interest-Only Certificates, Series 94-M1:
.52%, Cl. A-X, 2/15/02(3) 88,100,000 688,281
.61%, Cl. B-X, 2/15/02(3) 19,300,000 156,813
.66%, Cl. C-X, 2/15/02(3) 15,400,000 129,938
.82%, Cl. D-X, 2/15/02(3) 2,968,000 25,970
Multi-family Capital Access One, Inc., Series 1, Cl. D, 10.585%, 1/15/24(1) 3,576,803 3,276,127
-----------
8,159,281
</TABLE>
5 Oppenheimer Mortgage Income Fund
<PAGE> 6
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STATEMENT OF INVESTMENTS March 31, 1995 (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT SEE NOTE 1
==========================================================================================================
<S> <C> <C>
RESIDENTIAL--8.8%
Chase Mortgage Finance Corp., Sub. Mtg. Pass-Through
Certificates, Series 1994-1:
Class B-11, 6.601%, 3/28/25(4) $ 1,075,853 $ 636,771
Class B-12, 6.601%, 3/28/25(4) 1,075,853 627,021
- ----------------------------------------------------------------------------------------------------------
Prudential Home Mortgage Securities Corp., Sub. Fixed
Rate Mtg. Securities, Real Estate Mtg. Investment Conduit
Pass-Through Certificates, Series 1995-A, Cl. B2, 8.684%, 3/28/25(4) 1,500,000 1,473,281
- ----------------------------------------------------------------------------------------------------------
Residential Funding Corp., Mtg. Pass-Through Certificates,
Series 1993-S10, Cl. A9, 8.50%, 2/25/23 2,899,122 2,891,526
- ----------------------------------------------------------------------------------------------------------
Ryland Mortgage Securities Corp., Sub. Bonds, Series
1993-3, Cl. B2, 6.7125%, 8/25/08(4) 1,374,135 1,044,343
- ----------------------------------------------------------------------------------------------------------
SKW Real Estate L.P., Sec. Nt., Cl. D,
9.05%, 4/15/04(1)(4) 1,000,000 987,188
-----------
7,660,130
-----------
Total Mortgage-Backed Obligations (Cost $74,437,181) 72,634,094
==========================================================================================================
U.S. GOVERNMENT OBLIGATIONS--15.4%
- ----------------------------------------------------------------------------------------------------------
TREASURY--15.4%
U.S. Treasury Bonds:
11.50%, 11/15/95 4,000,000 4,125,000
13.75%, 8/15/04 5,000,000 7,170,309
- ----------------------------------------------------------------------------------------------------------
U.S. Treasury Nts., 7.75%, 12/31/99 2,000,000 2,051,874
-----------
Total U.S. Government Obligations (Cost $13,300,302) 13,347,183
- ----------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $87,737,483) 99.0% 85,981,277
- ----------------------------------------------------------------------------------------------------------
OTHER ASSETS NET OF LIABILITIES 1.0 911,903
----------- -----------
NET ASSETS 100.0% $86,893,180
=========== ===========
</TABLE>
1. Represents the current interest rate for a variable rate security.
2. Identifies issues considered to be illiquid--See Note 5 of Notes to
Financial Statements.
3. Interest-Only Strips represent the right to receive the monthly interest
payments on an underlying pool of mortgage loans. These securities typically
decline in price as interest rates decline. Most other fixed-income
securities increase in price when interest rates decline. The principal
amount of the underlying pool represents the notional amount on which
current interest is calculated. The price of these securities is typically
more sensitive to changes in prepayment rates than traditional mortgage-
backed securities (for example, GNMA pass-throughs).
4. Represents a security sold under Rule 144A, which is exempt from
registration under the Securities Act of 1933, as amended. This security
has been determined to be liquid under guidelines established by the Board
of Trustees. These securities amount to $7,678,001, or 8.84% of the Fund's
net assets, at March 31, 1995.
See accompanying Notes to Financial Statements.
6 Oppenheimer Mortgage Income Fund
<PAGE> 7
- -------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES March 31, 1995 (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
==============================================================================================================
<S> <C>
ASSETS
Investments, at value (cost $87,737,483)--see accompanying statement $85,981,277
- --------------------------------------------------------------------------------------------------------------
Cash 119,874
- --------------------------------------------------------------------------------------------------------------
Receivables:
Interest and principal paydowns 1,046,798
Shares of beneficial interest sold 575,911
- --------------------------------------------------------------------------------------------------------------
Other 10,514
-----------
Total assets 87,734,374
==============================================================================================================
LIABILITIES
Payables and other liabilities:
Shares of beneficial interest redeemed 555,228
Dividends 180,294
Distribution and service plan fees--Note 4 50,031
Transfer and shareholder servicing agent fees--Note 4 10,375
Trustees' fees 4,368
Other 40,898
-----------
Total liabilities 841,194
==============================================================================================================
NET ASSETS $86,893,180
-----------
==============================================================================================================
COMPOSITION OF
NET ASSETS
Paid-in capital $91,771,992
- --------------------------------------------------------------------------------------------------------------
Overdistributed net investment income (382,917)
- --------------------------------------------------------------------------------------------------------------
Accumulated net realized loss from investment transactions (2,739,689)
- --------------------------------------------------------------------------------------------------------------
Net unrealized depreciation on investments--Note 3 (1,756,206)
-----------
Net assets $86,893,180
===========
==============================================================================================================
NET ASSET VALUE
PER SHARE
Class A Shares:
Net asset value and redemption price per share (based on net assets of
$82,103,519 and 6,220,269 shares of beneficial interest outstanding) $13.20
Maximum offering price per share (net asset value plus sales charge of 4.75% of offering price) $13.86
- --------------------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price and offering price per share
(based on net assets of $4,789,661 and 363,077 shares of beneficial interest outstanding) $13.19
</TABLE>
See accompanying Notes to Financial Statements.
7 Oppenheimer Mortgage Income Fund
<PAGE> 8
- -------------------------------------------------------------------------------
STATEMENT OF OPERATIONS For the Six Months Ended March 31, 1995 (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
==============================================================================================================
<S> <C>
INVESTMENT INCOME
Interest $ 3,979,646
==============================================================================================================
EXPENSES
Management fees--Note 4 265,961
- --------------------------------------------------------------------------------------------------------------
Distribution and service plan fees:
Class A--Note 4 92,914
Class B--Note 4 18,573
- --------------------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 4 58,615
- --------------------------------------------------------------------------------------------------------------
Shareholder reports 24,098
- --------------------------------------------------------------------------------------------------------------
Custodian fees and expenses 12,311
- --------------------------------------------------------------------------------------------------------------
Legal and auditing fees 5,992
- --------------------------------------------------------------------------------------------------------------
Trustees' fees and expenses 1,738
- --------------------------------------------------------------------------------------------------------------
Registration and filing fees:
Class A 640
Class B 698
- --------------------------------------------------------------------------------------------------------------
Other 24,879
-----------
Total expenses 506,419
==============================================================================================================
NET INVESTMENT INCOME 3,473,227
==============================================================================================================
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net realized loss on investments (960,668)
- --------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on investments 1,620,768
-----------
Net realized and unrealized gain on investments 660,100
==============================================================================================================
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 4,133,327
===========
</TABLE>
See accompanying Notes to Financial Statements.
8 Oppenheimer Mortgage Income Fund
<PAGE> 9
- -------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MARCH 31, 1995 SEPTEMBER 30,
(UNAUDITED) 1994
===========================================================================================================
<S> <C> <C>
OPERATIONS
Net investment income $ 3,473,227 $ 6,274,217
- -----------------------------------------------------------------------------------------------------------
Net realized loss on investments (960,668) (1,327,293)
- -----------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on investments 1,620,768 (5,744,870)
----------- -----------
Net increase (decrease) in net assets resulting from operations 4,133,327 (797,946)
===========================================================================================================
EQUALIZATION
Net change -- (385,171)
===========================================================================================================
DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS
Dividends from net investment income:
Class A ($.554 and $.947 per share, respectively) (3,322,950) (5,801,295)
Class B ($.503 and $.842 per share, respectively) (143,053) (118,798)
- -----------------------------------------------------------------------------------------------------------
Dividends in excess of net investment income:
Class A ($.005 per share) -- (30,088)
Class B ($.005 per share) -- (1,042)
- -----------------------------------------------------------------------------------------------------------
Tax return of capital distribution:
Class A ($.038 per share) -- (229,563)
Class B ($.038 per share) -- (7,948)
===========================================================================================================
BENEFICIAL INTEREST
TRANSACTIONS
Net increase (decrease) in net assets resulting from
Class A beneficial interest transactions--Note 2 2,881,340 (7,865,844)
- -----------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from
Class B beneficial interest transactions--Note 2 2,021,306 1,492,178
===========================================================================================================
NET ASSETS
Total increase (decrease) 5,569,970 (13,745,517)
- -----------------------------------------------------------------------------------------------------------
Beginning of period 81,323,210 95,068,727
----------- -----------
End of period (including overdistributed net investment income
of $382,917 and $390,141, respectively) $86,893,180 $81,323,210
=========== ===========
</TABLE>
See accompanying Notes to Financial Statements.
9 Oppenheimer Mortgage Income Fund
<PAGE> 10
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------------------------
SIX MONTHS
ENDED
MARCH 31, 1995 YEAR ENDED SEPTEMBER 30,
(UNAUDITED) 1994 1993 1992 1991 1990
=========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $13.10 $14.20 $14.14 $13.70 $13.18 $13.24
- -------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .55 .94 .92 .97 1.11 1.22
Net realized and unrealized gain
(loss) on investments .10 (1.04) .07 .45 .52 (.05)
------- ------- ------- ------- ------- -------
Total income (loss) from
investment operations .65 (.10) .99 1.42 1.63 1.17
- -------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.55) (.95) (.93) (.98) (1.11) (1.23)
Dividends in excess of net
investment income -- (.01) -- -- -- --
Tax return of capital -- (.04) -- -- -- --
------- ------- ------- ------- ------- -------
Total dividends and distributions
to shareholders (.55) (1.00) (.93) (.98) (1.11) (1.23)
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $13.20 $13.10 $14.20 $14.14 $13.70 $13.18
======= ======= ======= ======= ======= =======
=========================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(2) 5.12% (.80)% 7.29% 10.69% 12.85% 9.21%
=========================================================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $82,104 $78,602 $93,893 $99,579 $91,052 $67,234
- -------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $78,345 $85,181 $96,817 $97,712 $80,208 $60,699
- -------------------------------------------------------------------------------------------------------------------------
Number of shares outstanding at
end of period (in thousands) 6,220 5,999 6,610 7,042 6,648 5,102
- -------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 8.52%(3) 7.21% 6.49% 6.92% 8.22% 9.12%
Expenses 1.20%(3) 1.22% 1.39% 1.40% 1.29% 1.22%
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(4) 37.1% 78.4% 142.7% 144.6% 103.7% 47.9%
</TABLE>
<TABLE>
<CAPTION>
CLASS B
---------------------------------------
SIX MONTHS
ENDED
MARCH 31, 1995 YEAR ENDED SEPT. 30,
(UNAUDITED) 1994 1993(1)
======================================================================================
<S> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $13.10 $14.21 $14.14
- --------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .51 .90 .28
Net realized and unrealized gain
(loss) on investments .08 (1.12) .11
------ ------ ------
Total income (loss) from
investment operations .59 (.22) .39
- --------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.50) (.84) (.32)
Dividends in excess of net
investment income -- (.01) --
Tax return of capital -- (.04) --
------ ------ ------
Total dividends and distributions
to shareholders (.50) (.89) (.32)
- --------------------------------------------------------------------------------------
Net asset value, end of period $13.19 $13.10 $14.21
======= ====== ======
======================================================================================
TOTAL RETURN, AT NET ASSET VALUE(2) 4.63% (1.62)% 2.96%
======================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $4,790 $2,721 $1,176
- --------------------------------------------------------------------------------------
Average net assets (in thousands) $3,736 $1,951 $463
- --------------------------------------------------------------------------------------
Number of shares outstanding at
end of period (in thousands) 363 208 83
- --------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 7.69%(3) 6.60% 5.29%(3)
Expenses 2.00%(3) 1.93% 2.53%(3)
- --------------------------------------------------------------------------------------
Portfolio turnover rate(4) 37.1% 78.4% 142.7%
</TABLE>
1. For the period from May 17, 1993 (inception of offering) to September 30,
1993.
2. Assumes a hypothetical initial investment on the business day before
the first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption at
the net asset value calculated on the last business day of the fiscal
period. Sales charges are not reflected in the total returns. Total returns
are not annualized for periods of less than one full year.
3. Annualized.
4. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the time of acquisition of one year or less are excluded from the
calculation. Purchases and sales of investment securities (excluding
short-term securities) for the six months ended March 31, 1995 were
$42,415,268 and $30,108,536, respectively.
See accompanying Notes to Financial Statements.
10 Oppenheimer Mortgage Income Fund
<PAGE> 11
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Oppenheimer Mortgage Income Fund (the Fund) is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company. The Fund's investment advisor is Oppenheimer Management
Corporation (the Manager). The Fund offers both Class A and Class B shares.
Class A shares are sold with a front-end sales charge. Class B shares may be
subject to a contingent deferred sales charge. Both classes of shares have
identical rights to earnings, assets and voting privileges, except that each
class has its own distribution and/or service plan, expenses directly
attributable to a particular class and exclusive voting rights with respect to
matters affecting a single class. Class B shares will automatically convert to
Class A shares six years after the date of purchase. The following is a summary
of significant accounting policies consistently followed by the Fund.
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INVESTMENT VALUATION. Portfolio securities are valued at the close of the New
York Stock Exchange on each trading day. Listed and unlisted securities for
which such information is regularly reported are valued at the last sale price
of the day or, in the absence of sales, at values based on the closing bid or
asked price or the last sale price on the prior trading day. Long-term and
short-term "non-money market" debt securities are valued by a portfolio
pricing service approved by the Board of Trustees. Such securities which cannot
be valued by the approved portfolio pricing service are valued using
dealer-supplied valuations provided the Manager is satisfied that the firm
rendering the quotes is reliable and that the quotes reflect current market
value, or under consistently applied procedures established by the Board of
Trustees to determine fair value in good faith. Short-term "money market type"
debt securities having a remaining maturity of 60 days or less are valued at
cost (or last determined market value) adjusted for amortization to maturity of
any premium or discount. Forward contracts are valued based on the closing
prices of the forward currency contract rates in the London foreign exchange
markets on a daily basis as provided by a reliable bank or dealer. Options are
valued based upon the last sale price on the principal exchange on which the
option is traded or, in the absence of any transactions that day, the value is
based upon the last sale price on the prior trading date if it is within the
spread between the closing bid and asked prices. If the last sale price is
outside the spread, the closing bid or asked price closest to the last reported
sale price is used.
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ALLOCATION OF INCOME, EXPENSES AND GAINS AND LOSSES. Income, expenses (other
than those attributable to a specific class) and gains and losses are allocated
daily to each class of shares based upon the relative proportion of net assets
represented by such class. Operating expenses directly attributable to a
specific class are charged against the operations of that class.
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FEDERAL TAXES. The Fund intends to continue to comply with provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income, including any net realized gain on
investments not offset by loss carryovers, to shareholders. Therefore, no
federal income or excise tax provision is required.
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TRUSTEES' FEES AND EXPENSES. The Fund has adopted a nonfunded retirement plan
for the Fund's independent trustees. Benefits are based on years of service and
fees paid to each trustee during the years of service. During the six months
ended March 31, 1995, a payment of $507 was made to a retired director,
resulting in an accumulated liability for the Fund's projected benefit
obligations of $26,925 at March 31, 1995.
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EQUALIZATION. Prior to September 24, 1993, the Fund followed the accounting
practice of equalization, by which a portion of the proceeds from sales and
costs of redemption of Fund shares equivalent on a per share basis to the amount
of undistributed net investment income was credited or charged to undistributed
income. The cumulative effect of the change in accounting practice resulted in a
reclassification of $385,171 from undistributed net investment income to paid-in
capital.
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DISTRIBUTIONS TO SHAREHOLDERS. The Fund intends to declare dividends separately
for Class A and Class B shares from net investment income each day the New York
Stock Exchange is open for business and pay such dividends monthly.
Distributions from net realized gains on investments, if any, will be declared
at least once each year.
11 Oppenheimer Mortgage Income Fund
<PAGE> 12
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NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
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1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CLASSIFICATION OF DISTRIBUTIONS TO SHAREHOLDERS. Net investment income (loss)
and net realized gain (loss) may differ for financial statement and tax purposes
primarily because of paydown gains and losses. The character of the
distributions made during the year from net investment income or net realized
gains may differ from their ultimate characterization for federal income tax
purposes. Also, due to timing of dividend distributions, the fiscal year in
which amounts are distributed may differ from the year that the income or
realized gain (loss) was recorded by the Fund. Effective October 1, 1993, the
Fund adopted Statement of Position 93-2: Determination, Disclosure, and
Financial Statement Presentation of Income, Capital Gain, and Return of Capital
Distributions by Investment Companies. As a result, the Fund changed the
classification of distributions to shareholders to better disclose the
differences between financial statement amounts and distributions determined in
accordance with income tax regulations.
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OTHER. Investment transactions are accounted for on the date the investments are
purchased or sold (trade date). Discount on securities purchased is amortized
over the life of the respective securities, in accordance with federal income
tax requirements. Realized gains and losses on investments and unrealized
appreciation and depreciation are determined on an identified cost basis, which
is the same basis used for federal income tax purposes.
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2. SHARES OF BENEFICIAL INTEREST
The Fund has authorized an unlimited number of no par value shares of beneficial
interest of each class. Transactions in shares of beneficial interest were as
follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 31, 1995 YEAR ENDED SEPTEMBER 30, 1994
------------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
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<S> <C> <C> <C> <C>
Class A:
Sold 2,124,699 $27,715,697 5,291,328 $71,615,758
Dividends reinvested 183,996 2,399,708 250,875 4,502,560
Redeemed (2,087,386) (27,234,065) (6,153,140) (83,984,162)
---------- ----------- ---------- -----------
Net increase (decrease) 221,309 $2,881,340 (610,937) $(7,865,844)
---------- ----------- ---------- -----------
Class B:
Sold 260,143 $3,382,338 165,304 $2,352,715
Dividends reinvested 7,097 92,586 14,319 96,532
Redeemed (111,972) (1,453,618) (54,560) (957,069)
---------- ---------- ---------- -----------
Net increase 155,268 $2,021,306 125,063 $1,492,178
---------- ---------- ---------- -----------
</TABLE>
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3. UNREALIZED GAINS AND LOSSES ON INVESTMENTS
At March 31, 1995, net unrealized depreciation on investments of $1,756,206 was
composed of gross appreciation of $926,105, and gross depreciation of
$2,682,311.
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4. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Management fees paid to the Manager were in accordance with the investment
advisory agreement with the Fund which provides for an annual fee of .75% on the
first $200 million of aggregate net assets, .70% on the next $200 million, .65%
on the next $400 million and .60% on net assets in excess of $800 million. The
Manager has voluntarily reduced the management fee by reducing the rate at each
breakpoint by .10%. The Manager has agreed to reimburse the Fund if aggregate
expenses (with specified exceptions) exceed the most stringent state regulatory
limit on Fund expenses.
For the six months ended March 31, 1995, commissions (sales charges
paid by investors) on sales of Class A shares totaled $96,059, of which $31,986
was retained by Oppenheimer Funds Distributor, Inc. (OFDI), a subsidiary of the
Manager, as general distributor, and by an affiliated broker/dealer. Sales
charges advanced to broker/dealers by OFDI on sales of the Fund's Class B
shares totaled $62,962, of which $2,367 was paid to an affiliated broker/dealer.
During the six months ended March 31, 1995, OFDI received contingent deferred
sales charges of $4,920 upon redemption of Class B shares as reimbursement for
sales commissions advanced by OFDI at the time of sale of such shares.
Oppenheimer Shareholder Services (OSS), a division of the Manager,
is the transfer and shareholder servicing agent for the Fund, and for other
registered investment companies. OSS's total costs of providing such services
are allocated ratably to these companies.
12 Oppenheimer Mortgage Income Fund
<PAGE> 13
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4. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES (CONTINUED)
Under separate approved plans, each class may expend up to .25% of its net
assets annually to reimburse OFDI for costs incurred in connection with the
personal service and maintenance of accounts that hold shares of the Fund,
including amounts paid to brokers, dealers, banks and other institutions. In
addition, Class B shares are subject to an asset-based sales charge of .75% of
net assets annually, to reimburse OFDI for sales commissions paid from its own
resources at the time of sale and associated financing costs. In the event of
termination or discontinuance of the Class B plan, the Board of Trustees may
allow the Fund to continue payment of the asset-based sales charge to OFDI for
distribution expenses incurred on Class B shares sold prior to termination or
discontinuance of the plan. During the six months ended March 31, 1995, OFDI
paid $5,958 and $120, respectively, to an affiliated broker/dealer as
reimbursement for Class A and Class B personal service and maintenance expenses
and retained $16,820 as reimbursement for Class B sales commissions and service
fee advances, as well as financing costs.
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5. ILLIQUID SECURITIES
At March 31, 1995, investments in securities included issues that are illiquid
or restricted. The securities are often purchased in private placement
transactions, are not registered under the Securities Act of 1933, may have
contractual restrictions on resale, and are valued under methods approved by the
Board of Trustees as reflecting fair value. The Fund intends to invest no more
than 10% of its net assets (determined at the time of purchase) in illiquid or
restricted securities. The aggregate value of these securities subject to this
limitation at March 31, 1995 was $2,656,582 which represents 3.1% of the Fund's
net assets. Information concerning these securities is as follows:
<TABLE>
<CAPTION>
VALUATION
PER UNIT
ACQUISITION COST AS OF
SECURITY DATE PER UNIT MARCH 31, 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Countrywide Funding Corp.,
Series 1993-11, Cl. B3, 6.25%, 2/25/09 12/27/93 $50.63 $28.14
- --------------------------------------------------------------------------------------------------------------------
Prudential Agricultural Credit, Inc., Farmer Mac Agricultural
Real Estate Trust Sr. Sub. Mtg. Pass-Through Certificates:
Series 1992-2, Cl. B2, 8.961%, 1/15/03 5/26/93 $76.13 $75.92
Series 1992-2, Cl. B3, 9.294%, 4/15/09 5/26/93 $72.13 $74.63
</TABLE>
Pursuant to guidelines adopted by the Board of Trustees, certain unregistered
securities are determined to be liquid and are not included within the 10%
limitation specified above.
13 Oppenheimer Mortgage Income Fund
<PAGE> 14
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OPPENHEIMER MORTGAGE INCOME FUND
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OFFICERS AND TRUSTEES
Leon Levy, Chairman of the Board of Trustees
Leo Cherne, Trustee
Robert G. Galli, Trustee
Benjamin Lipstein, Trustee
Elizabeth B. Moynihan, Trustee
Kenneth A. Randall, Trustee
Edward V. Regan, Trustee
Russell S. Reynolds, Jr., Trustee
Sidney M. Robbins, Trustee
Donald W. Spiro, Trustee and President
Pauline Trigere, Trustee
Clayton K. Yeutter, Trustee
Eva A. Zeff, Vice President
George C. Bowen, Treasurer
Robert J. Bishop, Assistant Treasurer
Scott Farrar, Assistant Treasurer
Andrew J. Donohue, Secretary
Robert G. Zack, Assistant Secretary
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INVESTMENT ADVISOR
Oppenheimer Management Corporation
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DISTRIBUTOR
Oppenheimer Funds Distributor, Inc.
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TRANSFER AND SHAREHOLDER SERVICING AGENT
Oppenheimer Shareholder Services
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CUSTODIAN OF PORTFOLIO SECURITIES
Citibank, N.A.
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INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
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LEGAL COUNSEL
Gordon Altman Butowsky Weitzen Shalov & Wein
The financial statements included herein have been
taken from the records of the Fund without examination
by the independent auditors. This is a copy of a
report to shareholders of Oppenheimer Mortgage Income
Fund. This report must be preceded or accompanied by a
Prospectus of Oppenheimer Mortgage Income Fund. For
material information concerning the Fund, see the
Prospectus.
14 Oppenheimer Mortgage Income Fund
<PAGE> 15
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OppenheimerFunds Family
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================================================================================
OppenheimerFunds offers over 35 funds designed to fit virtually every investment
goal. Whether you're investing for retirement, your children's education or
tax-free income, we have the funds to help you seek your objective.
When you invest with OppenheimerFunds, you can feel comfortable knowing
that you are investing with a respected financial institution with over 30 years
of experience in helping people just like you reach their financial goals. And
you're investing with a leader in global, growth stock and flexible fixed income
investments--with over 2.4 million shareholder accounts and more than $30
billion under Oppenheimer's management and that of our affiliates.
At OppenheimerFunds, we don't charge a fee to exchange shares of eligible
funds of the same class. And you can exchange shares easily by mail or by
telephone.(1) For more information on OppenheimerFunds, please contact your
financial advisor or call us at 1-800-525-7048 for a prospectus. You may also
write us at the address shown on the back cover. As always, please read the
prospectus carefully before you invest.
<TABLE>
<S> <C> <C>
==========================================================================================
STOCK FUNDS Discovery Fund Global Fund
Global Emerging Growth Fund(2) Oppenheimer Fund
Time Fund Value Stock Fund
Target Fund Gold & Special Minerals Fund
Growth Fund(3)
============================================================================================
STOCK & BOND FUNDS Main Street Income & Growth Fund Equity Income Fund
Total Return Fund Asset Allocation Fund
Global Growth & Income Fund
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BOND FUNDS High Yield Fund Strategic Short-Term Income Fund
ChampionHigh Yield Fund Investment Grade Bond Fund
Strategic Income & Growth Fund Mortgage Income Fund
Strategic Income Fund U.S. Government Trust
Strategic Diversified Income Fund Limited-Term Government Fund
Strategic Investment Grade Bond Fund
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TAX-EXEMPT FUNDS New York Tax-Exempt Fund(4) New Jersey Tax-Exempt Fund(4)
California Tax-Exempt Fund(4) Tax-Free Bond Fund
Pennsylvania Tax-Exempt Fund(4) Insured Tax-Exempt Bond Fund
Florida Tax-Exempt Fund(4) Intermediate Tax-Exempt Bond Fund
============================================================================================
MONEY MARKET FUNDS Money Market Fund Cash Reserves
</TABLE>
1. Exchange privileges are subject to change or termination.
2. Formerly Global Bio-Tech Fund.
3. Formerly Special Fund.
4. Available only to residents of certain states.
OppenheimerFunds are distributed by Oppenheimer Funds Distributor, Inc., Two
World Trade Center, New York, NY 10048-0203.
(C) Copyright 1995 Oppenheimer Management Corporation. All rights reserved.
16 Oppenheimer Mortgage Income Fund
<PAGE> 16
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INFORMATION
GENERAL INFORMATION
Monday-Friday 8:30 a.m.-8 p.m. ET
Saturday 10 a.m.-2 p.m. ET
1-800-525-7048
TELEPHONE TRANSACTIONS
Monday-Friday 8:30 a.m.-8 p.m. ET
1-800-852-8457
PHONELINK
24 hours a day, automated
information and transactions
1-800-533-3310
TELECOMMUNICATIONS DEVICE
FOR THE DEAF (TDD)
Monday-Friday 8:30 a.m.-8 p.m. ET
1-800-843-4461
OPPENHEIMERFUNDS
INFORMATION HOTLINE
24 hours a day, timely and insightful
messages on the economy and
issues that affect your investments
1-800-835-3104
RS0490.001.0595 May 31, 1995
"HOW MAY I HELP YOU?"
As an OppenheimerFunds shareholder, you have some special privileges. Whether
it's automatic investment plans, informative newsletters and hotlines, or ready
account access, you can benefit from services designed to make investing simple.
And when you need help, our Customer Service Representatives are only a
toll-free phone call away. They can provide information about your account and
handle administrative requests. You can reach them at our General Information
number.
When you want to make a transaction, you can do it easily by calling our
toll-free Telephone Transactions number. And, by enrolling in AccountLink, a
convenient service that "links" your OppenheimerFunds accounts and your bank
checking or savings account, you can use the Telephone Transactions number to
make investments.
For added convenience, you can get automated information with
OppenheimerFunds PhoneLink service, available 24 hours a day, 7 days a week.
PhoneLink gives you access to a variety of fund, account, and market
information. Of course, you can always speak with a Customer Service
Representative during the General Information hours shown at the left.
[PHOTO]
Jennifer Leonard, Customer Service Representative
Oppenheimer Shareholder Services
You can count on us whenever you need assistance. That's why the
International Customer Service Association, an independent, nonprofit
organization made up of over 3,200 customer service management professionals
from around the country, honored the OppenheimerFunds' transfer agent,
Oppenheimer Shareholder Services, with their Award of Excellence in 1993.
So call us today--we're here to help.
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[LOGO] Oppenheimer Funds Distributor, Inc. Bulk Rate
P.O. Box 5270 U.S. Postage
Denver, CO 80217-5270 PAID
Permit No. 469
Denver, CO
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