OPPENHEIMER CHAMPION INCOME FUND
Supplement dated January 25, 1996 to the
Prospectus dated January 25, 1996
The Prospectus is changed as follows:
In addition to paying dealers the regular commission for (1) sales
of Class A shares stated in the sales charge table in "Buying Class A
Shares" on page 29, (2) sales of Class B shares described in the fifth
paragraph in "Distribution and Service Plans for Class B and Class C
Shares" on page 35, or (3) sales of Class C shares described in the sixth
paragraph in "Distribution and Service Plans for Class B and Class C
Shares" on page 35, the Distributor will pay additional commission to each
participating broker, dealer and financial institution that has a sales
agreement with the Distributor (these are referred to as "participating
firms") for Class A, B and C shares of the Fund sold in "qualifying
transactions" (the "promotion"). The additional commission will be .75%
of the offering price of shares of the Fund sold by a registered
representative or sales representative of a participating firm during the
promotion. If the additional commission is paid on the sale of Class A
shares of $1 million or more and those shares are redeemed within 13
months from the end of the month in which they were purchased, the
participating firm will be required to return the additional commission.
"Qualifying transactions" are sales of Class A, Class B and/or Class
C shares of any one or more of the Oppenheimer funds (except money market
funds and tax-exempt funds) for (1) new Individual Retirement Accounts
("IRAs"), using the OppenheimerFunds prototype IRA agreement, including
rollover IRAs, SEP IRAs and SAR-SEP IRAs, where the IRA is established and
the purchase payment is received during the period from January 1, 1996
through April 15, 1996 (the "promotion period") or, (2) IRAs using the
A.G. Edwards & Sons, Inc. prototype IRA agreement, including rollover
IRAs, SEP IRAs and SAR-SEP IRAs, where the purchase payment is received
during the promotion period. "Qualifying transactions" also include
purchases of shares of Oppenheimer funds for existing OppenheimerFunds
or A.G. Edwards & Sons, Inc. prototype IRAs, rollover IRAs, SEP IRAs and
SAR-SEP IRAs effected through a rollover from an investor, or through a
direct rollover or trustee-to-trustee transfer from another retirement
plan trustee, of IRA assets or other employee benefit plan assets from an
account or investment other than an account or investment in the
Oppenheimer funds. To qualify, the payment for the shares purchased for
a rollover to an OppenheimerFunds prototype IRA or for a rollover, direct
rollover or trustee-to-trustee transfer to an A.G. Edwards & Sons, Inc.
prototype IRA must be received during the promotion period, or the
acceptance of a direct rollover or trustee-to-trustee transfer to an
OppenheimerFunds prototype IRA must be acknowledged by the trustee of the
OppenheimerFunds prototype IRA during the promotion period. "Qualifying
transactions" do not include (1) purchases of Class A shares intended but
not yet made under a Letter of Intent, and (2) purchases of Class A,
Class B and/or Class C shares with the redemption proceeds from an
existing OppenheimerFunds account.
January 25, 1996 PS0190.006
<PAGE>
OPPENHEIMER CHAMPION INCOME FUND
Supplement dated January 25, 1996 to the
Prospectus dated January 25, 1996
For Use by Residents of the State of Maryland
The Prospectus is amended as follows:
1. The following is added to the cover page, after the first sentence:
In selecting securities for the Fund's portfolio, the Fund's Manager
balances the anticipated income against the considerable risk that the
issuer may fail to make interest or principal payments on that security,
as explained on pages 10 through 12.
2. The eighth sentence under the caption "How Risky is the Fund?" on page
6 is revised to read as follows:
In the Oppenheimer Funds spectrum, the Fund is generally not as risky
as aggressive growth funds, but is more aggressive than investment grade
bond funds.
January 25, 1996 PS0190.007
<PAGE>
Oppenheimer Champion Income Fund
Prospectus dated January 25, 1996
Oppenheimer Champion Income Fund (the "Fund") is a mutual fund with the
primary investment objective of seeking a high level of current income
primarily by investing in a diversified portfolio of high-yield, lower-
rated, fixed-income securities (commonly known as "junk bonds") believed
by the Fund's investment manager not to involve undue risk. As a
secondary objective, the Fund seeks capital growth when consistent with
its primary objective. The Fund's name prior to October 1, 1995 was
"Oppenheimer Champion High Yield Fund."
The Fund may invest up to 100% of its assets in "junk bonds," which
are securities that are speculative and involve greater risks, including
risk of default, than higher-rated securities. An investment in the Fund
is not a complete investment program and is not appropriate for investors
unable or unwilling to assume the high degree of risk associated with
investing in lower-rated, high-yield securities. Investors should
carefully consider these risks before investing. Please refer to "Special
Risks of Lower-Rated Securities" on page 11.
This Prospectus explains concisely what you should know before
investing in the Fund. Please read this Prospectus carefully and keep it
for future reference. You can find more detailed information about the
Fund in the January 25, 1996 Statement of Additional Information. For a
free copy, call OppenheimerFunds Services, the Fund's Transfer Agent, at
1-800-525-7048, or write to the Transfer Agent at the address on the back
cover. The Statement of Additional Information has been filed with the
Securities and Exchange Commission and is incorporated into this
Prospectus by reference (which means that it is legally part of this
Prospectus).
Because of the Fund's investment policies and practices, the Fund's
shares may be considered to be speculative.
( OppenheimerFunds logo )
Shares of the Fund are not deposits or obligations of any bank, are not
guaranteed by any bank, and are not insured by the F.D.I.C. or any other
agency, and involve investment risks, including the possible loss of the
principal amount invested.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
Contents
ABOUT THE FUND
Expenses
A Brief Overview of the Fund
Financial Highlights
Investment Objective and Policies
How the Fund is Managed
Performance of the Fund
ABOUT YOUR ACCOUNT
How to Buy Shares
Class A Shares
Class B Shares
Class C Shares
Special Investor Services
AccountLink
Automatic Withdrawal and Exchange
Plans
Reinvestment Privilege
Retirement Plans
How to Sell Shares
By Mail
By Telephone
By Checkwriting
How to Exchange Shares
Shareholder Account Rules and Policies
Dividends, Capital Gains and Taxes
Appendix A: Description of Ratings
Appendix B: Special Sales Charge Arrangements for
Shareholders of the Fund
<PAGE>
ABOUT THE FUND
Expenses
The Fund pays a variety of expenses directly for management of its
assets, administration, distribution of its shares and other services, and
those expenses are subtracted from the Fund's assets to calculate the
Fund's net asset value per share. All shareholders therefore pay those
expenses indirectly. Shareholders pay other expenses directly, such as
sales charges and account transaction charges. The following tables are
provided to help you understand your direct expenses of investing in the
Fund and your share of the Fund's business operating expenses that you
will bear indirectly. The numbers below are based on the Fund's expenses
during its last fiscal year ended September 30, 1995.
- Shareholder Transaction Expenses are charges you pay when you buy
or sell shares of the Fund. Please refer to "About Your Account,"
starting on page 25 for an explanation of how and when these charges
apply.
<TABLE>
<CAPTION>
Class A Class B Class C
Shares Shares Shares
<S> <C> <C> <C>
Maximum Sales Charge on Purchases
(as a % of offering price) 4.75% None None
Sales Charge on Reinvested Dividends None None None
Deferred Sales Charge
(as a % of the lower of the original
purchase price or redemption proceeds None(1) 5% in the 1% if shares are
first year, redeemed within 12
declining to months of purchase(2)
1% in the
sixth year
and eliminated
thereafter(2)
Exchange Fee None None None
Redemption Fee None None None
<FN>
_____________________
(1) If you invest $1 million or more ($500,000 or more for purchases by OppenheimerFunds prototype 401(k) plans) in Class
A shares, you may have to pay a sales charge of up to 1% if you sell your shares within 18 calendar months from the end of
the calendar month during which you purchased those shares. See "How to Buy Shares - Buying Class A Shares" below.
(2) See "How to Buy Shares - Buying Class B Shares" and "How to Buy Shares - Buying Class C Shares" below.
</TABLE>
- Annual Fund Operating Expenses are paid out of the Fund's assets
and represent the Fund's expenses in operating its business. For example,
the Fund pays management fees to its investment adviser, OppenheimerFunds,
Inc. (which is referred to in this Prospectus as the "Manager"). The
rates of the Manager's fees are set forth in "How the Fund is Managed,"
below. The Fund has other regular expenses for services, such as transfer
agent fees, custodial fees paid to the bank that holds the Fund's
portfolio securities, audit fees and legal expenses. Those expenses are
detailed in the Fund's Financial Statements in the Statement of Additional
Information.
The numbers in the table below are projections of the Fund's business
expenses based on the Fund's expenses in its last fiscal year ended
September 30, 1995. These amounts are shown as a percentage of the
average net assets of each class of the Fund's shares for that year. The
12b-1 Distribution Plan Fees for Class A shares are service fees (which
can go up to a maximum of 0.25% of average annual net assets of that
class). For Class B and Class C shares, the 12b-1 Distribution Plan Fees
are service fees (which can go up to a maximum of 0.25% of average net
assets of that class), and the asset-based sales charge of 0.75%. Class
B shares were not publicly offered during the Fund's fiscal year ended
September 30, 1995. Therefore, the Annual Fund Operating Expenses for
Class B shares are estimates based on amounts that would have been payable
if Class B shares had been outstanding during that fiscal year. These
plans are described in greater detail in "How to Buy Shares."
The actual expenses for each class of shares in future years may be
more or less than the numbers in the chart, depending on a number of
factors, including the actual value of the Fund's assets represented by
each class of shares.
<TABLE>
<CAPTION>
Class A Class B Class C
Shares Shares Shares
<S> <C> <C> <C>
Management Fees 0.70% 0.70% 0.70%
12b-1 Distribution Plan
Fees 0.25% 1.00% 1.00%
Other Expenses 0.23% 0.25% 0.25%
Total Fund Operating Expenses 1.18% 1.95% 1.95%
</TABLE>
- Examples. To try to show the effect of these expenses on an
investment over time, we have created the hypothetical examples shown
below. Assume that you make a $1,000 investment in each class of shares
of the Fund, and that the Fund's annual return is 5%, and that its
operating expenses for each class are the ones shown in the Annual Fund
Operating Expenses table above. If you were to redeem your shares at the
end of each period shown below, your investment would incur the following
expenses by the end of 1, 3, 5 and 10 years:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years(1)
<S> <C> <C> <C> <C>
Class A Shares $59 $83 $109 $184
Class B Shares $70 $91 $125 $189
Class C Shares $30 $61 $105 $227
If you did not redeem your investment, it would incur the following expenses:
Class A Shares $59 $83 $109 $184
Class B Shares $20 $61 $105 $189
Class C Shares $20 $61 $105 $227
<FN>
_______________________
(1) The Class B expenses in years 7 through 10 are based on Class A expenses shown above, because the Fund automatically
converts your Class B shares into Class A shares after 6 years. Because of the effect of the asset-based sales charge and the
contingent deferred sales charge on Class B and Class C shares, long-term Class B and Class C shareholders could pay the
economic equivalent of an amount greater than the maximum front-end sales charge allowed under applicable regulations. For
Class B shareholders, the automatic conversion of Class B shares to Class A shares is designed to minimize the likelihood that
this will occur. Please refer to "How to Buy Shares -- Buying Class B Shares" for more information.
</TABLE>
These examples show the effect of expenses on an investment, but are not
meant to state or predict actual or expected costs or investment returns
of the Fund, all of which will vary.
A Brief Overview of the Fund
Some of the important facts about the Fund are summarized below, with
references to the section of this Prospectus where more complete
information can be found. You should carefully read the entire Prospectus
before making a decision about investing in the Fund. Keep the Prospectus
for reference after you invest, particularly for information about your
account, such as how to sell or exchange shares.
- What Are the Fund's Investment Objectives? The Fund's primary
investment objective is to seek a high level of current income primarily
by investing in a diversified portfolio of high- yield, lower-rated,
fixed-income securities believed by the Manager not to involve undue risk.
The Fund has a secondary objective to seek capital growth when consistent
with its primary objective.
- What Does the Fund Invest In? To seek high current income, the Fund
anticipates that under normal conditions at least 60% of its total assets
will be invested in high-yield, lower-rated fixed-income securities, such
as long-term debt and preferred stock issues (commonly referred to as
"junk bonds"). The Fund's remaining assets may be invested in cash or
cash equivalents, or in common stocks and other equity securities when
consistent with the Fund's investment objectives or if acquired as part
of a unit consisting of a combination of fixed-income securities and
equity investments. The Fund may purchase debt and equity securities of
U.S. and foreign companies and governments although it presently does not
intend that foreign investments will exceed 25% of its net assets. The
Fund may also use hedging instruments and some derivative investments to
try to manage investment risks or increase income. These investments are
more fully explained in "Investment Objectives and Policies," starting on
page 10.
- Who Manages the Fund? The Fund's investment adviser is
OppenheimerFunds, Inc. Prior to January 5, 1996, OppenheimerFunds, Inc.
was known as Oppenheimer Management Corporation. The Manager (including
a subsidiary) advises investment company portfolios having over $38
billion in assets at September 30, 1995. The Manager is paid an advisory
fee by the Fund, based on its assets. The Fund's portfolio manager, who
is employed by the Manager is primarily responsible for the selection of
the Fund's securities, is Ralph W. Stellmacher. The Fund's Board of
Trustees, elected by shareholders, oversees the investment adviser and the
portfolio manager. Please refer to "How the Fund is Managed," starting
on page 20 for more information about the Manager and its fees.
- How Risky is the Fund? All investments carry risks to some degree.
The Fund may invest all or any portion of its assets in high-yield, lower-
rated fixed-income securities. The primary advantage of high-yield
securities is their relatively higher investment return. However, such
securities are considered speculative and may be subject to greater market
fluctuations and risks of loss of income and principal and have less
liquidity than investments in higher-rated securities. Fixed-income
securities are also subject to interest rate risks and credit risks which
can negatively impact the value of the security and the Fund's net asset
value per share. There are certain risks associated with investments in
foreign securities, including those related to changes in foreign currency
rates, that are not present in domestic securities. These changes affect
the value of the Fund's investments and its price per share. In the
Oppenheimer funds spectrum, the Fund is generally not as risky as
aggressive growth funds, but is more aggressive than investment grade bond
funds. While the Manager tries to reduce risks by diversifying
investments, by carefully researching securities before they are purchased
for the portfolio, and in some cases by using hedging techniques, there
is no guarantee of success in achieving the Fund's objectives and your
shares may be worth more or less than their original cost when you redeem
them. Please refer to "Investment Objectives and Policies" starting on
page 10 for a more complete discussion.
- How Can I Buy Shares? You can buy shares through your dealer or
financial institution, or you can purchase shares directly through the
Distributor by completing an Application or by using an Automatic
Investment Plan under AccountLink. Please refer to "How to Buy Shares"
on page 25 for more details.
- Will I Pay a Sales Charge to Buy Shares? The Fund offers the
individual investor three classes of shares. All classes have the same
investment portfolio, but different expenses. Class A shares are offered
with a front-end sales charge, starting at 4.75%, and reduced for larger
purchases. Class B shares and Class C shares are offered without a front-
end sales charge, but may be subject to a contingent deferred sales charge
if redeemed within 6 years or 12 months of purchase, respectively. There
is also an annual asset-based sales charge on Class B shares and Class C
shares. Please review "How to Buy Shares" starting on page 25 for more
details, including a discussion about factors you and your financial
advisor should consider in determining which class may be appropriate for
you.
- How Can I Sell My Shares? Shares can be redeemed by mail or by
telephone call to the Transfer Agent on any business day, or through your
dealer or by writing a check against your current account (available for
Class A shares only). Please refer to "How to Sell Shares" on page 39.
The Fund also offers exchange privileges to other Oppenheimer funds,
described in "How to Exchange Shares" on page 42.
- How Has the Fund Performed? The Fund measures its performance by
quoting its yield and total returns, which measure historical performance.
Those yields and returns can be compared to the yields and returns (over
similar periods) of other funds. Of course, other funds may have
different objectives, investments, and levels of risk. The Fund's
performance can also be compared to broad-based market indices and
narrower market indices, which we have done on page 24. Please remember
that past performance does not guarantee future results.
<PAGE>
Financial Highlights
The table on the following pages presents selected financial information
about the Fund, including per share data and expense ratios and other data
based on the Fund's average net assets. This information has been audited
by Deloitte & Touche LLP, the Fund's independent auditors, whose report
on the Fund's financial statements for the fiscal year ended September 30,
1995, is included in the Statement of Additional Information. Class B
shares were not publicly offered during the periods shown. Accordingly,
no information on Class B shares is included in the table below or in the
Fund's other financial statements.
<TABLE>
<CAPTION>
--------------------
FINANCIAL HIGHLIGHTS
--------------------
CLASS A
--------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
==========================================================
===============================================
PER SHARE OPERATING DATA:
Net asset value, beginning of period $12.32 $12.90 $12.26 $11.49 $10.46
- ---------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 1.05 1.10 1.22 1.41 1.45
Net realized and unrealized gain
(loss) on investments, options written
and foreign currency transactions .14 (.38) .64 .77 1.04
------ ------ ------ ------ ------
Total income from investment
operations 1.19 .72 1.86 2.18 2.49
- ---------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (1.04) (1.10) (1.22) (1.41) (1.46)
Dividends in excess of net
investment income -- (.01) -- -- --
Distributions from net realized gain
on investments, options wrtitten
and foreign currency transactions --(4) -- -- -- --
Distributions in excess of net realized
gain on investments, options written
and foreign currency transactions -- (.19) -- -- --
------ ------ ------ ------ ------
Total dividends and distributions
to shareholders (1.04) (1.30) (1.22) (1.41) (1.46)
- ---------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.47 $12.32 $12.90 $12.26 $11.49
------ ------ ------ ------ ------
------ ------ ------ ------ ------
==========================================================
===============================================
TOTAL RETURN, AT NET ASSET VALUE(5) 10.09% 5.61% 15.92% 19.94% 25.62%
==========================================================
===============================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $255,139 $160,505 $104,465 $47,125 $16,044
- ---------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $204,917 $135,431 $73,334 $28,270 $14,057
- ---------------------------------------------------------------------------------------------------------
Number of shares outstanding at
end of period (in thousands) 20,464 13,026 8,096 3,844 1,397
- ---------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 8.45% 8.49% 9.52% 11.60% 13.49%
Expenses 1.18% 1.22% 1.24% 1.35% 1.49%
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover rate(7) 72.5% 108.0% 116.2% 121.5% 114.8%
</TABLE>
<TABLE>
<CAPTION>
--------------------
FINANCIAL HIGHLIGHTS
--------------------
CLASS A CLASS C
----------------------------------- -----------------------
YEAR ENDED
YEAR ENDED SEPTEMBER 30, SEPTEMBER 30,
1990 1989 1988(2) 1995 1994(1)
==========================================================
===============================================
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA:
Net asset value, beginning of period $11.53 $12.10 $11.43 $12.32 $13.13
- --------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 1.43 1.42(3) 1.24 .95 .75
Net realized and unrealized gain
(loss) on investments, options written
and foreign currency transactions (1.08) (.43) .67 .13 (.60)
------ ------ ------ ------ ------
Total income from investment
operations .35 .99 1.91 1.08 .15
- ---------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (1.42) (1.42) (1.24) (.94) (.77)
Dividends in excess of net
investment income -- -- -- -- --(4)
Distributions from net realized gain
on investments, options wrtitten
and foreign currency transactions -- (.14) -- --(4) --
Distributions in excess of net realized
gain on investments, options written
and foreign currency transactions -- -- -- -- (.19)
------ ------ ------ ------ ------
Total dividends and distributions
to shareholders (1.42) (1.56) (1.24) (.94) (.96)
- ---------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.46 $11.53 $12.10 $12.46 $12.32
------ ------ ------ ------ ------
------ ------ ------ ------ ------
==========================================================
===============================================
TOTAL RETURN, AT NET ASSET VALUE(5) 3.13% 8.53% 17.29% 9.16% 1.11%
==========================================================
===============================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $13,910 $20,642 $18,579 $64,932 $27,743
- ---------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $17,163 $21,349 $11,116 $43,584 $13,693
- ---------------------------------------------------------------------------------------------------------
Number of shares outstanding at
end of period (in thousands) 1,330 1,790 1,535 5,212 2,251
- ---------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 12.92% 11.87% 11.50%(6) 7.63% 7.24%(6)
Expenses 1.40% 1.19%(3) 1.05%(6) 1.95% 1.94%(6)
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover rate(7) 67.8% 98.5% 31.6% 72.5% 108.0%
<FN>
1. For the period from December 1, 1993 (inception of offering) to September 30, 1994.
2. For the period from November 16, 1987 (commencement of operations) to September 30, 1988.
3. Net investment income would have been $1.41 per share absent the voluntary expense
reimbursement, resulting in an expense ratio of 1.25%.
4. Less than $.005 per share.
5. 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.
6. Annualized.
7. The lesser of purchases or sales of portfolio securities for a period, divided by the
monthly average of the market value of portfolio securities owned during the period.
Securities with a maturity or expiration date at the time of acquisition of one year
or less are excluded from the calculation. Purchases and sales of investment securities
(excluding short-term securities) for the period ended September 30, 1995 were $283,471,759
and $137,564,816, respectively.
See accompanying Notes to Financial Statements.
</FN>
</TABLE>
<PAGE>
Investment Objectives and Policies
Objectives. The Fund has primary and secondary investment objectives.
The Fund's primary objective is to seek a high level of current income
primarily by investing in a diversified portfolio of high-yield, lower-
rated, fixed-income securities believed by the Manager not to involve
undue risk. Nevertheless, because the Fund may invest in lower-rated
securities without limit, the Fund's investments should be considered
speculative. As a secondary objective, the Fund seeks capital growth when
consistent with its primary objective. Since market risks are inherent
in all securities to varying degrees, there can be no assurance that the
Fund will achieve its objectives.
Investment Policies and Strategies. Consistent with its primary
investment objective of seeking a high level of current income, the Fund
anticipates that under normal conditions at least 60% of the value of its
total assets will be invested in high-yield, lower-rated fixed-income
securities. The Fund's remaining assets may be held in cash or cash
equivalents (commercial paper, Treasury bills and other short-term U.S.
Government securities maturing in less than one year), or invested in
common stock and other equity securities (such as warrants and rights)
when such investments are consistent with the Fund's investment objectives
or are acquired as part of a unit consisting of a combination of fixed-
income securities and equity investments. The average maturity of the
investments in the Fund's portfolio is expected to be between 7 and 15
years. The Fund anticipates it will invest in securities of longer
maturity as interest rates decline, and securities of shorter maturity as
interest rates rise.
The Fund may try to hedge against losses in the value of its portfolio
of securities by using hedging strategies and derivative investments
described below. The Fund's portfolio manager may employ special
investment techniques in selecting securities for the Fund. These are
also described below. More detailed information may be found about them
under the same headings in the Statement of Additional Information.
- Can the Fund's Investment Objectives and Policies Change? The Fund
has investment objectives, which are described above, as well as
investment policies it follows to try to achieve its objectives.
Additionally, the Fund uses certain investment techniques and strategies
in carrying out those investment policies. The Fund's investment policies
and techniques are not "fundamental" unless this Prospectus or the
Statement of Additional Information says that a particular policy is
"fundamental." The Fund's investment objectives are fundamental policies.
Fundamental policies are those that cannot be changed without the
approval of a "majority" of the Fund's outstanding voting shares. The
term "majority" is defined in the Investment Company Act to be a
particular percentage of outstanding voting shares (and this term is
explained in the Statement of Additional Information). The Fund's Board
of Trustees may change non-fundamental policies without shareholder
approval, although significant changes will be described in amendments to
this Prospectus.
- Special Risks of Lower-Rated Securities. The Fund invests in higher-
yielding, lower-rated debt securities, commonly known as "junk bonds,"
because these securities generally offer higher income potential than
investment grade securities. There is no restriction on the amount of the
Fund's assets that could be invested in these types of securities. Lower-
rated securities are also referred to as lower-grade securities. "Lower-
grade" debt securities are those rated below "investment grade," which
means they have a rating lower than "Baa" by Moody's Investors Service,
Inc. ("Moody's") or lower than "BBB" by Standard & Poor's Corporation
("S&P") or similar ratings by other rating organizations. The Fund may
invest in securities rated as low as "C" or "D" or which may be in default
at the time the Fund buys them. While securities rated "Baa" by Moody's
or "BBB" by S&P are investment grade and are not regarded as "junk bonds,"
those securities may be subject to greater market fluctuations and risks
of loss of income and principal than higher grade securities and may be
considered to have certain speculative characteristics. The Fund may
invest in unrated securities that the Manager believes offer yields and
risks comparable to rated securities.
High-yield, lower-grade securities, whether rated or unrated, often have
speculative characteristics. Lower-grade securities have special risks
that make them riskier investments than investment grade securities. They
may be subject to greater market fluctuations and risk of loss of income
and principal than lower yielding, investment grade securities. There may
be less of a market for them and therefore they may be harder to sell at
an acceptable price. There is a relatively greater possibility that the
issuer's earnings may be insufficient to make the payments of interest due
on the bonds. The issuer's low creditworthiness may increase the
potential for its insolvency. Further, a decline in the high-yield bond
market is likely 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 issuers to repay principal and interest.
These risks mean that the Fund may not achieve the expected income from
lower-grade securities, and that the Fund's net asset value per share may
be affected by declines in value of these securities. The Fund is not
obligated to dispose of securities when issuers are in default or if the
rating of the security is reduced. These risks are discussed in more
detail in the Statement of Additional Information.
- How the Fund's Portfolio Securities are Rated. As of September 30,
1995, the Fund's portfolio included corporate bonds in the following S&P
rating categories or if unrated, determined by the Manager to be
comparable to the category indicated (the amounts shown are the dollar-
weighted average values of the bonds in each category measured as a
percentage of the Fund's total assets): A, .06%; BBB, 1.61%; BB, 19.81%;
B, 42.62%; CCC, 5.84%; CC, .13%; and D, .25%. If a bond was not rated by
S&P but was rated by Moody's, it is included in the comparable S&P
category. The allocation of the Fund's assets in securities in the
different rating categories will vary over time, and the proportions
listed above should not be viewed as representing the Fund's current or
future proportionate ownership of securities in particular rating
categories. Appendix A to this Prospectus describes the rating
categories.
- Interest Rate Risks. In addition to credit risks, described below,
debt securities are subject to changes in value due to changes in
prevailing interest rates. When prevailing interest rates fall, the
values of outstanding debt securities generally rise. Conversely, when
interest rates rise, the values of outstanding debt securities generally
decline. The magnitude of these fluctuations will be greater when the
average maturity of the portfolio securities is longer.
- Credit Risks. Debt securities are also subject to credit risks.
Credit risk relates to the ability of the issuer of a debt security to
make interest or principal payments on the security as they
become due. Generally, higher-yielding, lower-rated bonds (which are the
type of bonds the Fund seeks to invest in) are subject to greater credit
risk than higher-rated bonds. Securities issued or guaranteed by the U.S.
Government are subject to little, if any, credit risk if they are backed
by the "full faith and credit of the U.S. Government," which in general
terms means that the U.S. Treasury stands behind the obligation to pay
interest and principal. While the Manager may rely to some extent on
credit ratings by nationally recognized rating agencies, such as S&P or
Moody's, in evaluating the credit risk of securities selected for the
Fund's portfolio, it may also use its own research and analysis. However,
many factors affect an issuer's ability to make timely payments, and there
can be no assurance that the credit risks of a particular security will
not change over time.
- Stock Investment Risks. The Fund may also invest a limited portion
of its assets in common stocks and other equity securities to help achieve
its investment objectives. Accordingly, the value of the Fund's portfolio
will be affected to a certain degree by changes in the stock markets. At
times, the stock markets can be volatile and stock prices can change
substantially. This market risk could affect the Fund's net asset value
per share, which will fluctuate as the values of the Fund's equity
portfolio securities change. Not all stock prices change uniformly or at
the same time, and other factors, not all of which can be predicted, can
affect a particular stock's prices.
- Portfolio Turnover. The length of time the Fund has held a security
is not generally a consideration in investment decisions. A change in the
securities held by the Fund is known as "portfolio turnover." As a result
of the Fund's investment policies and market factors, the Fund will trade
its portfolio actively to try to benefit from short-term yield differences
among debt securities and as a result the Fund's portfolio turnover may
be higher than other mutual funds. This strategy may involve greater
transaction costs from brokerage commissions and dealer mark-ups.
Additionally, high portfolio turnover may result in increased short-term
capital gains and affect the ability of the Fund to qualify for tax
deductions for payments made to shareholders as a "regulated investment
company" under the Internal Revenue Code. The Fund qualified in its last
fiscal year and intends to do so in the coming year, although it reserves
the right not to qualify.
- Foreign Securities. The Fund may purchase debt and equity securities
(which may be denominated in U. S. dollars or in non-U. S. currencies)
issued or guaranteed by foreign companies or foreign governments or their
agencies. The Fund may invest up to 100% of its assets in foreign
securities. However, the Fund presently does not intend that such
investments will exceed 25% of its net assets. The Fund may purchase
securities of companies in any country, developed or underdeveloped.
Investments in securities of issuers in underdeveloped countries generally
involve more risk and may be considered highly speculative. Foreign
currency will be held by the Fund only in connection with the purchase or
sale of foreign securities.
- Foreign securities have special risks. For example, foreign issuers
are not subject to the same accounting and disclosure requirements that
U.S. companies are subject to. The value of foreign investments may be
affected by changes in foreign currency rates, exchange control
regulations, expropriation or nationalization of a company's assets,
foreign taxes, delays in settlement of transactions, changes in
governmental economic or monetary policy in the U.S. or abroad, or other
political and economic factors. More information about the risks and
potential rewards of investing in foreign securities is contained in the
Statement of Additional Information.
- Warrants and Rights. Warrants basically are options to purchase stock
at set prices that are valid for a limited period of time. Rights are
options to purchase securities, normally granted to current holders by the
issuer. As a matter of fundamental policy, the Fund may invest up to 5%
of its assets in warrants and rights. No more than 2% of the Fund's
assets may be invested in warrants and rights that are not listed on The
New York Stock Exchange or American Stock Exchange. For further details
about these investments, see "Warrants and Rights" in the Statement of
Additional Information.
- "When-Issued" and Delayed Delivery Transactions. The Fund may
purchase securities on a "when-issued" basis and may purchase or sell
securities on a "delayed delivery" basis. These terms refer to securities
that have been created and for which a market exists, but which are not
available for immediate delivery. There may be a risk of loss to the Fund
if the value of the security declines prior to the settlement date.
- Zero Coupon Securities. The Fund may invest in zero coupon
securities issued by the U.S. Treasury or by private issuers. In general,
zero coupon U.S. Treasury securities include U.S. Treasury notes and bonds
that have been "stripped" of their interest coupons and certificates
representing interests in such stripped debt obligations. A zero coupon
Treasury security pays no current interest and trades at a deep discount
from its face value. It will be subject to greater market fluctuations
from changes in interest rates than interest-paying securities. The Fund
accrues interest on zero coupon securities without receiving the actual
cash. As a result of holding these securities, the Fund could possibly
be forced to sell portfolio securities to pay cash dividends or meet
redemptions. Zero coupon securities issued by non-government issuers are
similar to U.S. Government zero coupon securities. They have an
additional risk that the issuing company may fail to pay interest or repay
the principal on the obligation.
- Asset-Backed Securities. The Fund may invest in securities that
represent undivided fractional interests in pools of consumer loans,
similar in structure to mortgaged-backed securities, described below.
Payments of principal and interest on the underlying obligations are
passed through to holders of asset-backed securities and are typically
supported by some form of credit enhancement, such as a letter of credit,
surety bond, limited guarantee by another entity, or priority to other
securities of the borrower. The degree of credit enhancement varies, and
generally applies, until exhausted, to only a fraction of the asset-backed
security's par value. If the credit enhancement of an asset-backed
security held by the Fund has been exhausted, and if any required payments
of principal and interest are not made with respect to the underlying
loans, the Fund may then experience losses or delays in receiving payment
and a decrease in the value of the mortgage-backed security. Further
details are set forth in the Statement of Additional Information.
- Mortgage-Backed Securities and CMOs. The Fund's investments may
include securities which represent participation interests in pools of
residential mortgage loans, including collateralized mortgage-backed
obligations ("CMOs"), which may be issued or guaranteed by (i) agencies
or instrumentalities of the U.S. Government (e.g., Ginnie Maes, Freddie
Macs and Fannie Maes) or (ii) private issuers. Such securities differ
from conventional debt securities which provide for periodic payment of
interest in fixed amounts (usually semi-annually) with principal payments
at maturity or specified call dates. Mortgage-backed securities provide
monthly payments which are, in effect, a "pass-through" of the monthly
interest and principal payments (including any prepayments) made by the
individual borrowers on the pooled mortgage loans. The Fund's
reinvestment of scheduled principal payments and unscheduled prepayments
it receives may occur at lower rates than the original investment, thus
reducing the yield of the Fund. CMOs in which the Fund may invest are
securities issued by a U.S. Government instrumentality that are
collateralized by a portfolio of mortgages or mortgage-backed securities.
Mortgage-backed securities may be less effective than debt obligations of
similar maturity at maintaining yields during periods of declining
interest rates. The Fund may also invest in CMOs that are "stripped";
that is, the security is divided into two parts, one of which receives
some or all of the principal payments and the other which receives some
or all of the interest. The yield to maturity on the class that receives
only interest is extremely sensitive to the rate of payment of the
principal on the underlying mortgages. Principal prepayments increase
that sensitivity. Stripped securities that pay interest only are
therefore subject to greater price volatility when interest rates change,
and have the additional risk that if the underlying mortgages are prepaid,
which is more likely to happen if interest rates fall, the Fund will lose
the anticipated cash flow from the interest on the mortgages that were
prepaid. Stripped securities that receive principal payments only are
also subject to increased volatility in price due to interest rate changes
and have the additional risk that the security will be less liquid during
demand or supply imbalances. The Fund may also enter into "forward roll"
transactions with banks or other buyers that provide for future delivery
of the mortgage-backed securities in which the Fund may invest. The Fund
would be required to identify cash, U.S. Government securities or other
high-grade debt securities to its custodian bank in an amount equal to its
purchase payment obligation under the roll. Further details are set forth
in the Statement of Additional Information under "Mortgage-Backed
Securities."
Other Investment Techniques and Strategies. The Fund may also use the
investment techniques and strategies described below. These techniques
involve certain risks. The Statement of Additional Information contains
more information about these practices, including limitations on their use
that are designed to reduce some of the risks.
- Loans of Portfolio Securities. To attempt to increase its income,
the Fund may lend its portfolio securities (other than in repurchase
transactions) to brokers, dealers and other financial institutions. The
Fund must receive collateral for a loan. These loans are limited to not
more than 25% of the Fund's net assets and are subject to other conditions
described in the Statement of Additional Information. The Fund presently
does not intend that the value of securities loaned will exceed 5% of the
value of the Fund's total assets in the coming year. See "Loans of
Portfolio Securities" in the Statement of Additional Information for
further information on securities loans.
- Repurchase Agreements. The Fund may enter into repurchase agreements.
In a repurchase transaction, the Fund buys a security and simultaneously
sells it to the vendor for delivery at a future date. There is no limit
on the amount of the Fund's net assets that may be subject to repurchase
agreements of seven days or less. Repurchase agreements must be fully
collateralized. However, if the vendor fails to pay the resale price on
the delivery date, the Fund may incur costs in disposing of the collateral
and may experience losses if there is any delay in its ability to do so.
The Fund will not enter into a repurchase agreement that causes more than
10% of its net assets to be subject to repurchase agreements having a
maturity beyond seven days.
- Temporary Defensive Investments. Under unusual market or economic
conditions, for temporary defensive purposes, the Fund may invest all or
a portion of its assets in defensive securities. Securities selected for
defensive purposes may include (i) obligations issued or guaranteed by the
U.S Government, its instrumentalities or agencies, (ii) certificates of
deposit, (iii) bankers' acceptances and other bank obligations, (iv)
commercial paper rated in the highest category by an established rating
agency, or (v) securities rated "Baa" or higher by Moody's or "BBB" or
higher by S&P. In the alternative, the Fund may hold its assets in cash
or cash equivalents. While the Fund holds assets in cash, it has no
income from such assets while expenses continue. The yield on securities
selected for defensive purposes generally will be lower than the yield on
lower-rated, fixed-income securities.
- Illiquid and Restricted Securities. Under the policies and procedures
established by the Fund's Board of Trustees, the Manager determines the
liquidity of certain of the Fund's investments. Investments may be
illiquid because of the absence of an active trading market, making it
difficult to value them or dispose of them promptly at an acceptable
price. A restricted security is one that has a contractual restriction
on its resale or which cannot be sold publicly until it is registered
under the Securities Act of 1933. The Fund will not invest more than 10%
of its net assets in illiquid or restricted securities (that limit may
increase to 15% if certain state laws are changed or the Fund's shares are
no longer sold in those states). The Fund's percentage limitation on
these investments does not apply to certain restricted securities that are
eligible for resale to qualified institutional purchasers.
- Participation Interests. The Fund may acquire participation
interests in loans that are made to U.S. or foreign companies (the
"borrower"). They may be interests in, or assignments of, the loan and
are acquired from banks or brokers that have made the loan or are members
of the lending syndicate. No more than 5% of the Fund's net assets can
be invested in participation interests of the same issuer. The Manager
has set certain creditworthiness standards for issuers of loan
participations, and monitors their creditworthiness. The value of loan
participation interests depends primarily upon the creditworthiness of the
borrower, and its ability to pay interest and principal. Borrowers may
have difficulty making payments. If a borrower fails to make scheduled
interest or principal payments, the Fund could experience a decline in the
net asset value of its shares. Some borrowers may have senior securities
rated as low as "C" by Moody's or "D" by S&P, but may be deemed acceptable
credit risks. Participation interests are subject to the Fund's
limitations on investments in illiquid securities. See "Illiquid and
Restricted Securities."
- Hedging. As described below, the Fund may purchase and sell certain
kinds of futures contracts, put and call options, forward contracts, and
options on futures, securities indices and securities, or enter into
interest rate swap agreements. These are all referred to as "hedging
instruments." The Fund does not use hedging instruments for speculative
purposes, and has limits on the use of them, described below. The hedging
instruments the Fund may use are also described in greater detail in
"Other Investment Techniques and Strategies" in the Statement of
Additional Information.
The Fund may buy and sell options, futures and forward contracts for a
number of purposes. It may do so to try to manage its exposure to the
possibility that the prices of its portfolio securities may decline, or
to establish a position in the securities market as a temporary substitute
for purchasing individual securities. It may do so to try to manage its
exposure to changing interest rates. Some of these strategies, such as
selling futures, buying puts and writing covered calls, hedge the Fund's
portfolio against price fluctuations.
Other hedging strategies, such as buying futures and call options, tend
to increase the Fund's exposure to the securities market. Forward
contracts are used to try to manage foreign currency risks on the Fund's
foreign investments. Foreign currency options are used to try to protect
against declines in the dollar value of foreign securities the Fund owns,
or to protect against an increase in the dollar cost of buying foreign
securities. Writing covered call options may also provide income to the
Fund for liquidity purposes or to raise cash to distribute to
shareholders.
- Futures. The Fund may buy and sell futures contracts but, as a matter
of fundamental policy, only if they relate to (1) securities indices
(these are referred to as Financial Futures) and (2) debt securities
(these are referred to as Interest Rate Futures). These types of Futures
are described in "Hedging With Options and Futures Contracts" in the
Statement of Additional Information.
- Put and Call Options. The Fund may buy and sell certain kinds of put
options (puts) and call options (calls).
The Fund may buy calls only on debt or equity securities, security
indices, foreign currencies and Interest Rate Futures or to terminate its
obligation on a call the Fund previously wrote. The Fund may write (that
is, sell) covered call options. When the Fund writes a call, it receives
cash (called a premium). The call gives the buyer the ability to buy the
investment on which the call was written from the Fund at the call price
during the period in which the call may be exercised. If the value of the
investment does not rise above the call price, it is likely that the call
will lapse without being exercised, while the Fund keeps the cash premium
(and the investment).
The Fund may purchase put options. Buying a put on an investment gives
the Fund the right to sell the investment at a set price to a seller of
a put on that investment. The Fund can buy only those puts that relate to
(1) debt or equity securities and (2) securities indices.
The Fund may buy and sell puts and calls only if certain conditions are
met: (1) as a matter of fundamental policy, calls the Fund buys or sells
must be listed on a domestic securities or commodities exchange, or quoted
on the Automated Quotation System of the National Association of
Securities Dealers, Inc. (NASDAQ); (2) in the case of puts and calls on
foreign currency, they must be traded on a securities or commodities
exchange, or quoted by recognized dealers in those options; (3) as a
matter of fundamental policy, each call the Fund writes must be "covered"
while it is outstanding: that means the Fund must own the investment on
which the call was written or it must own other securities that are
acceptable for the escrow arrangements required for calls; (4) as a matter
of fundamental policy, puts the Fund buys and sells must be listed on a
domestic securities or commodities exchange or quoted on NASDAQ (and as
a matter of non-fundamental policy, puts on debt securities may be written
in the over-the-counter market) and any put sold must be covered by
segregated liquid assets with not more than 50% of the Fund's assets
subject to puts; (5) the Fund may write calls on Futures contracts it
owns, but these calls must be covered by securities or other liquid assets
the Fund owns and segregates to enable it to satisfy its obligations if
the call is exercised; and (6) a call or put option may not be purchased
if the value of all of the Fund's put and call options would exceed 5% of
the Fund's total assets. As a matter of fundamental policy, the Fund will
not write puts on Interest Rate Futures.
- Forward Contracts. Forward contracts are foreign currency exchange
contracts. They are used to buy or sell foreign currency for future
delivery at a fixed price. The Fund uses them to try to "lock in" the
U.S. dollar price of a security denominated in a foreign currency that the
Fund has bought or sold, or to protect against possible losses from
changes in the relative values of the U.S. dollar and a foreign currency.
The Fund may also use "cross hedging" where the Fund hedges against
changes in currencies other than the currency in which a security it holds
is denominated.
- Interest Rate Swaps. In an interest rate swap, the Fund and another
party exchange their right to receive or their obligation to pay interest
on a security. For example, they may swap a right to receive floating
rate payments for fixed rate payments. The Fund enters into swaps only
on securities it owns. The Fund may not enter into swaps with respect to
more than 25% of its total assets. Also, the Fund will segregate liquid
assets (such as cash or U.S. Government securities) to cover any amounts
it could owe under swaps that exceed the amounts it is entitled to
receive, and it will adjust that amount daily, as needed.
- Hedging instruments can be volatile investments and may involve
special risks. The use of hedging instruments requires special skills and
knowledge of investment techniques that are different than what is
required for normal portfolio management. If the Manager uses a hedging
instrument at the wrong time or judges market conditions incorrectly,
hedging strategies may reduce the Fund's return. The Fund could also
experience losses if the prices of its futures and options positions were
not correlated with its other investments or if it could not close out a
position because of an illiquid market for the future or option.
Options trading involves the payment of premiums and has special tax
effects on the Fund. There are also special risks in particular hedging
strategies. For example, if a covered call written by the Fund is
exercised on an investment that has increased in value, the Fund will be
required to sell the investment at the call price and will not be able to
realize any profit if the investment has increased in value above the call
price. The use of forward contracts may reduce the gain that would
otherwise result from a change in the relationship between the U.S. dollar
and a foreign currency. Interest rate swaps are subject to credit risks
(if the other party fails to meet its obligations) and also to interest
rate risks. The Fund could be obligated to pay more under its swap
agreements than it receives under them, as a result of interest rate
changes. These risks are described in greater detail in the Statement of
Additional Information.
- Derivative Investments. The Fund can invest in a number of different
kinds of "derivative investments." The Fund may use some types of
derivatives for hedging purposes, and may invest in others because they
offer the potential for increased income and principal value. In general,
a "derivative investment" is a specially-designed investment whose
performance is linked to the performance of another investment or
security, such as an option, future, index or currency. In the broadest
sense, derivative investments include exchange-traded options and futures
contracts (discussed in "Hedging," above).
The Fund may invest in different types of derivatives. "Index-linked"
or "commodity-linked" notes are debt securities of companies that call for
interest payments and/or payment on the maturity of the note in different
terms than the typical note where the borrower agrees to make fixed
interest payments and/or to pay a fixed sum on the maturity of the note.
Principal and/or interest payments on an index-linked note depends on the
performance of one or more market indices, such as the S&P 500 Index or
a weighted index of commodity futures, such as crude oil, gasoline and
natural gas. The Fund may invest in "debt exchangeable for common stock"
of an issuer or "equity-linked" debt securities of an issuer. At
maturity, the principal amount of the debt security is exchanged for
common stock of the issuer or is payable in an amount based on the
issuer's common stock price at the time of maturity. In either case there
is a risk that the amount payable at maturity will be less than the
expected principal amount of the debt.
The Fund may also invest in currency-indexed securities. Typically,
these are short-term or intermediate-term debt securities having a value
at maturity, and/or an interest rate, determined by reference to one or
more foreign currencies. The currency-indexed securities purchased by the
Fund may make payments based on a formula. The payment of principal or
periodic interest may be calculated as a multiple of the movement of one
currency against another currency, or against an index. These investments
may entail increased risk to principal and increased price volatility.
There are special risks in investing in derivative investments. The
company issuing the instrument may fail to pay the amount due on the
maturity of the instrument. Also, the underlying investment or security
might not perform the way the Manager expected it to perform. Markets,
underlying securities and indices may move in a direction not anticipated
by the Manager. Performance of derivative investments may also be
influenced by interest rate and stock market changes in the U.S. and
abroad. All of this can mean that the Fund will realize less principal
or income from the investment than expected. Certain derivative
investments held by the Fund may be illiquid. Please refer to "Illiquid
and Restricted Securities."
Other Investment Restrictions. The Fund has other investment restrictions
which are fundamental policies. Under these fundamental policies, the
Fund cannot do any of the following:
- Buy securities issued or guaranteed by any one issuer (except the U.S.
Government or any of its agencies or instrumentalities) if, with respect
to 75% of its total assets, more than 5% of the Fund's total assets would
be invested in securities of that issuer, or the Fund would then own more
than 10% of that issuer's voting securities;
- Concentrate investments to the extent of 25% of its assets (at the
time of investment) in any industry (there is no limitation, however, as
to investments in obligations issued by the U.S. Government or any of its
agencies or instrumentalities); for purposes of this limitation, utilities
will be divided into "industries" according to their services (e.g., gas,
gas transmission, electric and telephone utilities will each be considered
a separate industry).
All of the percentage restrictions described above and elsewhere in this
Prospectus and in the Statement of Additional Information apply only at
the time the Fund purchases a security, and the Fund need not dispose of
a security merely because the size of the Fund's assets has changed or the
security has increased in value relative to the size of the Fund. There
are other fundamental policies discussed in the Statement of Additional
Information.
How the Fund is Managed
Organization and History. The Fund was organized in 1987 as a
Massachusetts business trust. The Fund is an open-end, diversified
management investment company, with an unlimited number of authorized
shares of beneficial interest.
The Fund is governed by a Board of Trustees, which is responsible under
Massachusetts law for protecting the interests of shareholders. The
Trustees meet periodically throughout the year to oversee the Fund's
activities, review its performance, and review the actions of the Manager.
"Trustees and Officers of the Fund" in the Statement of Additional
Information names the Trustees and officers of the Fund and provides more
information about them. Although the Fund is not required by law to hold
annual meetings, it may hold shareholder meetings from time to time on
important matters, and shareholders have the right to call a meeting to
remove a Trustee or to take other action described in the Fund's
Declaration of Trust.
The Board of Trustees has the power, without shareholder approval, to
divide unissued shares of the Fund into two or more classes. The Board
has done so, and the Fund currently has three classes of shares, Class A,
Class B and Class C. All classes invest in the same investment portfolio.
Each class has its own dividends and distributions and pays certain
expenses which may be different for the different classes. Each class may
have a different net asset value. Each share has one vote at shareholder
meetings, with fractional shares voting proportionally on matters
submitted to the vote of shareholders. Shares of each class may have
separate voting rights on matters in which interests of one class are
different from interests of another class, and shares of a particular
class vote as a class on matters that affect that class alone. Shares are
freely transferrable. Please refer to "How the Fund is Managed" in the
Statement of Additional Information on voting of shares.
The Manager and Its Affiliates. The Fund is managed by the Manager,
OppenheimerFunds, Inc., which is responsible for selecting the Fund's
investments and handles its day-to-day business. The Manager carries out
its duties, subject to the policies established by the Board of Trustees,
under an Investment Advisory Agreement which states the Manager's
responsibilities. The Investment Advisory Agreement sets forth the fees
paid by the Fund to the Manager and describes the expenses that the Fund
is responsible to pay to conduct its business.
The Manager has operated as an investment adviser since 1959. The
Manager and its affiliates currently manages investment companies,
including other Oppenheimer funds, with assets of more than $38 billion
as of September 30, 1995, and with more than 2.8 million shareholder
accounts. The Manager is owned by Oppenheimer Acquisition Corp., a
holding company that is owned in part by senior officers of the Manager
and controlled by Massachusetts Mutual Life Insurance Company.
- Portfolio Manager. The Portfolio Manager of the Fund is Ralph W.
Stellmacher. He has been the person principally responsible for the day-
to-day management of the Fund's portfolio since the Fund's inception in
November, 1987. Mr. Stellmacher is a Senior Vice President of the Manager
and a Vice President of the Fund, and also serves as an officer of other
Oppenheimer funds. During the past five years, Mr. Stellmacher has also
served as an officer and portfolio manager for other mutual funds managed
by the Manager (with the Fund, the "Oppenheimer funds").
- Fees and Expenses. Under the Investment Advisory Agreement, the Fund
pays the Manager the following annual fees, which decline on additional
assets as the Fund grows: 0.70% of the first $250 million of net assets,
0.65% of the next $250 million of net assets, 0.60% of the next $500
million of net assets, and 0.55% of net assets in excess of $1 billion.
The Fund's management fee for its last fiscal year was 0.70% of average
annual net assets for both its Class A shares and for Class C shares.
The Fund pays expenses related to its daily operations, such as
custodian fees, Trustees' fees, transfer agency fees, legal and auditing
costs. Those expenses are paid out of the Fund's assets and are not paid
directly by shareholders. However, those expenses reduce the net asset
value of shares, and therefore are indirectly borne by shareholders
through their investment. More information about the Investment Advisory
Agreement and the other expenses paid by the Fund is contained in the
Statement of Additional Information.
There is also information about the Fund's brokerage policies and
practices in "Brokerage Policies of the Fund" in the Statement of
Additional Information. That section discusses how brokers and dealers are
selected for the Fund's portfolio transactions. When deciding which
brokers to use, the Manager is permitted by the Investment Advisory
Agreement to consider whether brokers have sold shares of the Fund or any
other funds for which the Manager serves as investment adviser.
- The Distributor. The Fund's shares are sold through dealers and
brokers that have a sales agreement with OppenheimerFunds Distributor,
Inc., a subsidiary of the Manager that acts as the Fund's Distributor.
The Distributor also distributes the shares of the other Oppenheimer funds
managed by the Manager and is sub-distributor for funds managed by a
subsidiary of the Manager.
- The Transfer Agent. The Fund's transfer agent is OppenheimerFunds
Services, a division of the Manager, which acts as the shareholder
servicing agent for the Fund on an "at-cost" basis. It also acts as the
shareholder servicing agent for the other Oppenheimer funds. Shareholders
should direct inquiries about their account to the Transfer Agent at the
address and toll-free number shown below in this Prospectus and on the
back cover.
Performance of the Fund
Explanation of Performance Terminology. The Fund uses the terms "total
return," "average annual total return" and "yield" to illustrate its
performance. The performance of each class of shares is shown separately,
because the performance of each class of shares will usually be different
as a result of the different kinds of expenses each class bears. These
returns measure the performance of a hypothetical account in the Fund over
various periods, and do not show the performance of each shareholder's
account (which will vary if dividends are received in cash, or shares are
sold or purchased). The Fund's performance data may help you see how well
your investment has done over time and to compare it to other funds or
market indices, as we have done below.
It is important to understand that the Fund's yields and total returns
represent past performance and should not be considered to be predictions
of future returns or performance. This performance data is described
below, but more detailed information about how yields and total returns
are calculated is contained in the Statement of Additional Information,
which also contains information about other ways to measure and compare
the Fund's performance. The Fund's investment performance will vary over
time, depending on market conditions, the composition of the portfolio,
expenses and which class of shares you purchase.
- Total Returns. There are different types of total returns used to
measure the Fund's performance. Total return is the change in value of
a hypothetical investment in the Fund over a given period, assuming that
all dividends and capital gains distributions are reinvested in additional
shares. The cumulative total return measures the change in value over the
entire period (for example, ten years). An average annual total return
shows the average rate of return for each year in a period that would
produce the cumulative total return over the entire period. However,
average annual total returns do not show the Fund's actual year-by-year
performance.
When total returns are quoted for Class A shares, normally they include
the payment of the current maximum initial sales charge. Total returns
may also be quoted "at net asset value," without including the sales
charge, and those returns would be reduced if sales charges were deducted.
When total returns are shown for Class B shares, they reflect the effect
of the contingent deferred sales charge that applies to the period for
which total return is shown. When total returns are shown for a one year
period (or less) for Class C shares, they reflect the effect of the
contingent deferred sales charge. They may also be shown based on the
change in net asset value, without including the effect of the appropriate
sales charge, and those returns would be reduced if sales charges were
deducted.
- Yield. Each class of shares calculates its yield by dividing the
annualized net investment income per share on the portfolio during a
30-day period by the maximum offering price on the last day of the period.
The yield of each class will differ because of the different expenses of
each class of shares. The yield data represents a hypothetical investment
return on the portfolio, and does not measure an investment return based
on dividends actually paid to shareholders. To show that return, a
dividend yield may be calculated. Dividend yield is calculated by
dividing the dividends of a class derived from net investment income
during a stated period by the maximum offering price on the last day of
the period. Yields and dividend yields for Class A shares reflect the
deduction of the maximum initial sales charge, but may also be shown based
on the Fund's net asset value per share. Yields for Class B and Class C
shares do not reflect the deduction of the contingent deferred sales
charge.
How Has the Fund Performed? Below is a discussion by the Manager of the
Fund's performance during its last fiscal year ended September 30, 1995,
followed by a graphical comparison of the Fund's performance to an
appropriate broad-based market index and a narrower market index.
- Management's Discussion of Performance. During the Fund's fiscal year
ended September 30, 1995, the Fund's performance was affected by a
generally improving high yield bond market. The Fund's net asset value
benefitted from the general decline in overall interest rates that took
place in 1995. In the fourth quarter of 1994, in anticipation of possible
increases in recessionary pressures, the Manager focused new investments
on issues in the upper grades of the below-investment-grade spectrum,
emphasizing relatively stronger companies with debt rated B, B+ and BB-.
The Manager avoided bonds rated in the lower rating categories because of
the high risk of default of principal and interest in a weakened economic
environment. Companies in the insurance, supermarket, restaurant and
media industries were among the investments chosen. In addition, the
Manager reduced the Fund's holdings in companies in the chemical, paper
and container board industries and in the retail sector.
- Comparing the Fund's Performance to the Market. The graphs below show
the performance of a hypothetical $10,000 investment in Class A and Class
C shares of the Fund held until September 30, 1995. In the case of Class
A shares, performance is measured from the Fund's inception on November
16, 1987, and in the case of Class C shares, performance is measured from
the inception of the class on December 1, 1993. In both cases, all
dividends and capital gains distributions were reinvested in additional
shares. The graph reflects the deduction of the 4.75% current maximum
initial sales charge on Class A shares. Class B shares were not publicly
offered during the fiscal year ended September 30, 1995. Accordingly, no
performance information is presented on Class B shares in the graphs
below.
The Fund's performance is compared to the performance of the Lehman
Brothers Corporate Bond Index and the Salomon Brothers High Yield Market
Index. The Lehman Brothers Corporate Bond Index is an unmanaged index of
publicly-issued nonconvertible investment grade corporate debt of U.S.
issuers, widely recognized as a measure of the U.S. fixed-rate corporate
bond market. The Salomon Brothers High Yield Market Index is an unmanaged
index of below-investment grade (but rated at least BB+/Ba1 by S&P or
Moody's, respectively) U.S. corporate debt obligations, widely recognized
as a measure of the performance of the high-yield corporate bond market,
the market in which the Fund principally invests. Index performance
reflects the reinvestment of dividends but does not consider the effect
of capital gains or transaction costs, and none of the data below shows
the effect of taxes. Also, the Fund's performance reflects the effect of
Fund business and operating expenses. While index comparisons may be
useful to provide a benchmark for the Fund's performance, it must be noted
that the Fund's investments are not limited to the securities in any one
index. Moreover, the index data does not reflect any assessment of the
risk of the investments included in the index.
Class A Shares
Comparison of Change in Value
of $10,000 Hypothetical Investment in:
Oppenheimer Champion Income Fund (Class A), the
Lehman Brothers Corporate Bond Index and
the Salomon Brothers High Yield Market
(Graph)
Average Annual Total Returns of the Fund at 9/30/95
1-Year 5-Year Life1
Class A: 4.86% 14.10% 12.57%
Class C Shares
Comparison of Change in Value
of $10,000 Hypothetical Investment in:
Oppenheimer Champion Income Fund (Class C),
the Lehman Brothers Corporate Bond Index and
the Salomon Brothers High Yield Market
(Graph)
Average Annual Total Return of the Fund at 9/30/95
1-Year2
Class C: 8.16%
_________________________________________
1 The inception date of the Fund (Class A shares) was 11/16/87. The
average annual total returns and ending account value in the graph reflect
reinvestment of all dividends and capital gains distributions and capital
gains distributions and are shown net of the applicable 4.75% maximum
initial sales charge.
2 Class C shares of the Fund were first publicly offered on 12/1/93.
The average annual total returns reflect reinvestment of all dividend and
capital gains distributions and are shown net of the applicable 1%
contingent deferred sales charge.
Past performance is not predictive of future performance.
Graphs are not drawn to same scale.
ABOUT YOUR ACCOUNT
How to Buy Shares
Classes of Shares. The Fund offers investors three different classes of
shares. The different classes of shares represent investments in the same
portfolio of securities but are subject to different expenses and will
likely have different share prices.
- Class A Shares. If you buy Class A shares, you pay an initial sales
charge on investments up to $1 million (up to $500,000 for purchases by
OppenheimerFunds prototype 401(k) plans.) If you purchase Class A shares
as part of an investment of at least $1 million ($500,000 for
OppenheimerFunds prototype 401(k) plans) in shares of one or more
Oppenheimer funds, you will not pay an initial sales charge but if you
sell any of those shares within 18 months of buying them, you may pay a
contingent deferred sales charge. The amount of that sales charge will
vary depending on the amount you invested. Sales charge rates are
described in "Buying Class A Shares" below.
- Class B Shares. If you buy Class B shares, you pay no sales charge
at the time of purchase, but if you sell your shares within six years of
buying them, you will normally pay a contingent deferred sales charge,
that varies depending on how long you own your shares. Sales charges are
described in "Buying Class B Shares" below.
- Class C Shares. If you buy Class C shares, you pay no sales charge
at the time of purchase, but if you sell your shares within 12 months of
buying them, you will normally pay a contingent deferred sales charge of
1%. Sales charges are described in "Buying Class C Shares" below.
Which Class of Shares Should You Choose? Once you decide that the Fund
is an appropriate investment for you, the decision as to which class of
shares is better suited to your needs depends on a number of factors which
you should discuss with your financial advisor. The Fund's operating
costs that apply to a class of shares and the effect of the different
types of sales charges on your investment will vary your investment
results over time. The most important factors are how much you plan to
invest and how long you plan to hold your investment. If your goals and
objectives change over time and you plan to purchase additional shares,
you should re-evaluate those factors to see if you should consider another
class of shares.
In the following discussion, to help provide you and your financial
advisor with a framework in which to choose a class, we have made some
assumptions using a hypothetical investment in the Fund. We used the
sales charge rates that apply to Class A, Class B and Class C shares and
considered the effect of the annual asset-based sales charge on Class B
and Class C expenses (which, like all expenses, will affect your
investment return). For the sake of comparison, we have assumed that
there is a 10% rate of appreciation in the investment each year. Of
course, the actual performance of your investment cannot be predicted and
will vary, based on the Fund's actual investment returns and the operating
expenses borne by each class of shares, and which class of shares you
invest in.
The factors discussed below are not intended to be investment advice or
recommendations, because each investor's financial considerations are
different. The discussion below of the factors to consider in purchasing
a particular class of shares assumes that you will purchase only one class
of shares and not a combination of shares of different classes.
- How Long Do You Expect to Hold Your Investment? While future
financial needs cannot be predicted with certainty, knowing how long you
expect to hold your investment will assist you in selecting the
appropriate class of shares. Because of the effect of class-based
expenses, your choice will also depend on how much you plan to invest.
For example, the reduced sales charges available for larger purchases of
Class A shares may, over time, offset the effect of paying an initial
sales charge on your investment (which reduces the amount of your
investment dollars used to buy shares for your account), compared to the
effect over time of higher class-based expenses on shares of Class B or
Class C for which no initial sales charge is paid.
- Investing for the Short Term. If you have a short-term investment
horizon (that is, you plan to hold your shares for not more than six
years), you should probably consider purchasing Class A or Class C shares
rather than Class B shares, because of the effect of the Class B
contingent deferred sales charge if you redeem in less than 7 years, as
well as the effect of the Class B asset-based sales charge on the
investment return for that class in the short-term. Class C shares might
be the appropriate choice (especially for investments of less than
$100,000), because there is no initial sales charge on Class C shares, and
the contingent deferred sales charge does not apply to amounts you sell
after holding them one year.
However, if you plan to invest more than $100,000 for the shorter term,
then the more you invest and the more your investment horizon increases
toward six years, Class C shares might not be as advantageous as Class A
shares. That is because the annual asset-based sales charge on Class C
shares will have a greater impact on your account over the longer term
than the reduced front-end sales charge available for larger purchases of
Class A shares. For example, Class A might be more advantageous than
Class C (as well as Class B) for investments of more than $100,000
expected to be held for 5 or 6 years (or more). For investments over
$250,000 expected to be held 4 to 6 years (or more), Class A shares may
become more advantageous than Class C (and Class B). If investing
$500,000 or more, Class A may be more advantageous as your investment
horizon approaches 3 years or more.
And for most investors who invest $1 million or more, in most cases
Class A shares will be the most advantageous choice, no matter how long
you intend to hold your shares. For that reason, the Distributor normally
will not accept purchase orders of $500,000 of Class B shares or $1
million or more of Class C shares from a single investor.
- Investing for the Longer Term. If you are investing for the longer-
term, for example, for retirement, and do not expect to need access to
your money for seven years or more, Class B shares may be an appropriate
consideration, if you plan to invest less than $100,000. If you plan to
invest more than $100,000 over the long term, Class A shares will likely
be more advantageous than Class B shares or Class C shares, as discussed
above, because of the effect of the expected lower expenses for Class A
shares and the reduced initial sales charges available for larger
investments in Class A shares under the Fund's Right of Accumulation.
Of course, these examples are based on approximations of the effect of
current sales charges and expenses on a hypothetical investment over time,
using the assumed annual performance return stated above, and you should
analyze your options carefully.
- Are There Differences in Account Features That Matter to You?
Because some account features may not be available to Class B or Class C
shareholders, you should carefully review how you plan to use your
investment account before deciding which class of shares is better for
you. For example, share certificates are not available for Class B or
Class C shares and if you are considering using your shares as collateral
for a loan, that may be a factor to consider. Also, checkwriting
privileges are not available for Class B or Class C shares. Additionally,
the dividends payable to Class B and Class C shareholders will be reduced
by the additional expenses borne by those classes, such as the asset-based
sales charges described below and in the Statement of Additional
Information.
- How Does It Affect Payments to My Broker? A salesperson, such as a
broker, or any other person who is entitled to receive compensation for
selling Fund shares may receive different compensation for selling one
class than for selling another class. It is important that investors
understand that the purpose of the Class B and Class C contingent deferred
sales charges and asset-based sales charges is the same as the purpose of
the front-end sales charge on sales of Class A shares: to compensate the
Distributor for commissions it pays to dealers and financial institutions
for selling shares.
How Much Must You Invest? You can open a Fund account with a minimum
initial investment of $1,000 and make additional investments at any time
with as little as $25. There are reduced minimum investments under special
investment plans:
With Asset Builder Plans, Automatic Exchange Plans, 403(b)(7)
custodial plans and military allotment plans, you can make initial and
subsequent investments for as little as $25; and subsequent purchases of
at least $25 can be made by telephone through AccountLink.
Under pension and profit-sharing plans and Individual Retirement
Accounts (IRAs), you can make an initial investment of as little as $250
(if your IRA is established under an Asset Builder Plan, the $25 minimum
applies), and subsequent investments may be as little as $25.
There is no minimum investment requirement if you are buying shares
by reinvesting dividends from the Fund or other Oppenheimer funds (a list
of them appears in the Statement of Additional Information, or you can ask
your dealer or call the Transfer Agent), or by reinvesting distributions
from unit investment trusts that have made arrangements with the
Distributor.
- How Are Shares Purchased? You can buy shares several ways -- through
any dealer, broker or financial institution that has a sales agreement
with the Distributor, or directly through the Distributor, or
automatically from your bank account through an Asset Builder Plan under
the OppenheimerFunds AccountLink service. When you buy shares, be sure
to specify Class A, Class B or Class C shares. If you do not choose, your
investment will be made in Class A shares.
- Buying Shares Through Your Dealer. Your dealer will place your order
with the Distributor on your behalf.
- Buying Shares Through the Distributor. Complete an OppenheimerFunds
New Account Application and return it with a check payable to
"OppenheimerFunds Distributor, Inc." Mail it to P.O. Box 5270, Denver,
Colorado 80217. If you don't list a dealer on the application, the
Distributor will act as your agent in buying the shares. However, we
recommend that you discuss your investment first with a financial advisor,
to be sure it is appropriate for you.
- Buying Shares Through OppenheimerFunds AccountLink. You can use
AccountLink to link your Fund account with an account at a U.S. bank or
other financial institution that is an Automated Clearing House (ACH)
member. You can then transmit funds electronically to purchase shares,
to have the Transfer Agent send redemption proceeds, or to transmit
dividends and distributions.
Shares are purchased for your account on AccountLink on the regular
business day the Distributor is instructed by you to initiate the ACH
transfer to buy shares. You can provide those instructions automatically,
under an Asset Builder Plan, described below, or by telephone instructions
using OppenheimerFunds PhoneLink, also described below. You should request
AccountLink privileges on the application or dealer settlement
instructions used to establish your account. Please refer to "AccountLink"
below for more details.
- Asset Builder Plans. You may purchase shares of the Fund (and up to
four other Oppenheimer funds) automatically each month from your account
at a bank or other financial institution under an Asset Builder Plan with
AccountLink. Details are on the Application and in the Statement of
Additional Information.
- At What Prices Are Shares Sold? Shares are sold at the public offering
price based on the net asset value (and any initial sales charge that
applies) that is next determined after the Distributor receives the
purchase order in Denver, Colorado. In most cases, to enable you to
receive that day's offering price, the Distributor must receive your order
by the time of day The New York Stock Exchange closes, which is normally
4:00 P.M., New York time, but may be earlier on some days (all references
to time in this Prospectus mean "New York time"). The net asset value of
each class of shares is determined as of that time on each day The New
York Stock Exchange is open (which is a "regular business day").
If you buy shares through a dealer, the dealer must receive your order
by the close of The New York Stock Exchange, on a regular business day and
transmit it to the Distributor so that it is received before the
Distributor's close of business that day, which is normally 5:00 P.M. The
Distributor in its sole discretion may reject any purchase order for the
Fund's shares.
Special Sales Charge Arrangements for Certain Persons. Appendix B to this
Prospectus sets forth conditions for the waiver of, or exemption from,
sales charges or the special sales charge rates that apply to purchases
of shares of the Fund (including purchases by exchange) by a person who
was a shareholder of one of the Former Quest for Value Funds (as defined
in that Appendix).
Buying Class A Shares. Class A shares are sold at their offering price,
which is normally net asset value plus an initial sales charge. However,
in some cases, described below, purchases are not subject to an initial
sales charge, and the offering price will be the net asset value. In some
cases, reduced sales charges may be available, as described below. Out
of the amount you invest, the Fund receives the net asset value to invest
for your account. The sales charge varies depending on the amount of your
purchase. A portion of the sales charge may be retained by the
Distributor and allocated to your dealer as a commission. The current
sales charge rates and commissions paid to dealers and brokers are as
follows:
<TABLE>
<CAPTION>
Front-End Front-End
Sales Charge Sales Charge Commission as
As a Percentage of As a Percentage of Percentage of
Amount of Purchase Offering Price Amount Invested Offering Price
- ------------------ ------------------ ------------------ --------------
<S> <C> <C> <C>
_________________________________________________________________________________
Less than $50,000 4.75% 4.98% 4.00%
$50,000 or more but
less than $100,000 4.50% 4.71% 3.75%
$100,000 or more but
less than $250,000 3.50% 3.63% 2.75%
$250,000 or more but
less than $500,000 2.50% 2.56% 2.00%
$500,000 or more but
less than $1 million 2.00% 2.04% 1.60%
________________________________________________________________________________
</TABLE>
The Distributor reserves the right to reallow the entire commission to
dealers. If that occurs, the dealer may be considered an "underwriter"
under Federal securities laws.
- Class A Contingent Deferred Sales Charge. There is no initial sales
charge on purchases of Class A shares of any one or more of the
Oppenheimer funds in the following cases:
- purchases aggregating $1 million or more, or
- purchases by an OppenheimerFunds prototype 401(k) plan that: (1)
buys shares costing $500,000 or more or (2) has, at the time of purchase,
100 or more eligible participants, or (3) certifies that it projects to
have annual plan purchases of $200,000 or more.
Shares of any of the Oppenheimer funds that offers only one class of
shares that has no designation are considered "Class A shares" for this
purpose. The Distributor pays dealers of record commissions on those
purchases in an amount equal to the sum of 1.0% of the first $2.5 million,
plus 0.50% of the next $2.5 million, plus 0.25% of purchases over $5
million. That commission will be paid only on the amount of those
purchases in excess of $1 million ($500,000 for purchases by
OppenheimerFunds 401(k) prototype plans) that were not previously subject
to a front-end sales charge and dealer commission.
If you redeem any of those shares within 18 months of the end of the
calendar month of their purchase, a contingent deferred sales charge
(called the "Class A contingent deferred sales charge") will be deducted
from the redemption proceeds. That sales charge will be equal to 1.0% of
either (1) the aggregate net asset value of the redeemed shares (not
including shares purchased by reinvestment of dividends or capital gain
distributions) or (2) the original cost of the shares, whichever is less.
However, the Class A contingent deferred sales charge will not exceed the
aggregate commissions the Distributor paid to your dealer on all Class A
shares of all Oppenheimer funds you purchased subject to the Class A
contingent deferred sales charge.
In determining whether a contingent deferred sales charge is payable,
the Fund will first redeem shares that are not subject to the sales
charge, including shares purchased by reinvestment of dividends and
capital gains, and then will redeem other shares in the order that you
purchased them. The Class A contingent deferred sales charge is waived
in certain cases described in "Waivers of Class A Sales Charges" below.
No Class A contingent deferred sales charge is charged on exchanges of
shares under the Fund's Exchange Privilege (described below). However,
if the shares acquired by exchange are redeemed within 18 months of the
end of the calendar month of the purchase of the exchanged shares, the
contingent deferred sales charge will apply.
- Special Arrangements With Dealers. The Distributor may advance up
to 13 months' commissions to dealers that have established special
arrangements with the Distributor for Asset Builder Plans for their
clients. Dealers whose sales of Class A shares of Oppenheimer funds
(other than money market funds) under OppenheimerFunds-sponsored 403(b)(7)
custodial plans exceed $5 million per year (calculated per quarter), will
receive monthly one-half of the Distributor's retained commissions on
those sales, and if those sales exceed $10 million per year, those dealers
will receive the Distributor's entire retained commission on those sales.
Reduced Sales Charges for Class A Share Purchases. You may be eligible
to buy Class A shares at reduced sales charge rates in one or more of the
following ways:
- Right of Accumulation. To qualify for the lower sales charge rates
that apply to larger purchases of Class A shares, you and your spouse can
add together Class A and Class B shares you purchase for your individual
accounts, or jointly, or for trust or custodial accounts on behalf of your
children who are minors. A fiduciary can count all shares purchased for
a trust, estate or other fiduciary account (including one or more employee
benefit plans of the same employer) that has multiple accounts.
Additionally, you can add together current purchases of Class A and
Class B shares of the Fund and other Oppenheimer funds to reduce the sales
charge rate that applies to current purchases of Class A shares. You can
also count Class A and Class B shares of Oppenheimer funds you previously
purchased subject to an initial or contingent deferred sales charge to
reduce the sales charge rate for current purchases of Class A shares,
provided that you still hold your investment in one of the Oppenheimer
funds. The value of those shares will be based on the greater of the
amount you paid for the shares or their current value (at offering price).
The Oppenheimer funds are listed in "Reduced Sales Charges" in the
Statement of Additional Information, or a list can be obtained from the
Distributor. The reduced sales charge will apply only to current purchases
and must be requested when you buy your shares.
- Letter of Intent. Under a Letter of Intent, if you purchase Class A
shares or Class A shares and Class B shares of the Fund and other
Oppenheimer funds during a 13-month period, you can reduce the sales
charge rate that applies to your purchases of Class A shares. The total
amount of your intended purchases of both Class A and Class B shares will
determine the reduced sales charge rate for the Class A shares purchased
during that period. This can include purchases made up to 90 days before
the date of the Letter. More information is contained in the Application
and in "Reduced Sales Charges" in the Statement of Additional Information.
- Waivers of Class A Sales Charges. The Class A sales charges are not
imposed in the circumstances described below. There is an explanation of
this policy in "Reduced Sales Charges" in the Statement of Additional
Information.
Waivers of Initial and Contingent Deferred Sales Charges for Certain
Purchasers. Class A shares purchased by the following investors are not
subject to any Class A sales charges:
- the Manager or its affiliates;
- present or former officers, directors, trustees and employees
(and their "immediate families" as defined in "Reduced Sales Charges" in
the Statement of Additional Information) of the Fund, the Manager and its
affiliates, and retirement plans established by them for their employees;
- registered management investment companies, or separate accounts
of insurance companies having an agreement with the Manager or the
Distributor for that purpose;
- 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;
- 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);
- dealers, brokers or registered investment advisers that have entered
into an agreement with the Distributor (1) 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 or sale of Fund shares) or (2)
to sell shares to defined contribution employee retirement plans for which
the dealer, broker or investment adviser provides administrative services;
- directors, trustees, officers or full-time employees of OpCap
Advisors or its affiliates, their relatives or any trust, pension, profit
sharing or other benefit plan which beneficially owns shares for those
persons;
- accounts for which Oppenheimer Capital is the investment adviser
(the Distributor must be advised of this arrangement) and persons who are
directors or trustees of the company or trust which is the beneficial
owner of such accounts;
- any unit investment trust that has entered into an appropriate
agreement with the Distributor;
- a TRAC-2000 401(k) plan (sponsored by the former Quest for Value
Advisors) whose Class B or Class C shares of a Former Quest for Value Fund
were exchanged for Class A shares of that Fund due to the termination of
the Class B and C TRAC-2000 program on November 24, 1995; or
- qualified retirement plans that had agreed with the former Quest
for Value Advisors to purchase shares of any of the Former Quest for Value
Funds at net asset value, with such shares to be held through DCXchange,
a sub-transfer agency mutual fund clearinghouse, provided that such
arrangements are consummated and share purchases commence by March 31,
1996.
Waivers of Initial and Contingent Deferred Sales Charges in Certain
Transactions. Class A shares issued or purchased in the following
transactions are not subject to Class A sales charges:
- shares issued in plans of reorganization, such as mergers, asset
acquisitions and exchange offers, to which the Fund is a party;
- shares purchased by the reinvestment of loan repayments by a
participant in a retirement plan for which the Manager or its affiliates
acts as sponsor;
- shares purchased by the reinvestment of dividends or other
distributions reinvested from the Fund or other Oppenheimer funds (other
than Oppenheimer Cash Reserves) or unit investment trusts for which
reinvestment arrangements have been made with the Distributor;
- shares purchased and paid for with the proceeds of shares redeemed in
the past 12 months from a mutual fund (other than a fund managed by the
Manager or any of its subsidiaries) on which an initial sales charge or
contingent deferred sales charge was paid (this waiver also applies to
shares purchased by exchange of shares of Oppenheimer Money Market Fund,
Inc. that were purchased and paid for in this manner); this waiver must
be requested when the purchase order is placed for your shares of the
Fund, and the Distributor may require evidence of your qualification for
this waiver; or
- shares purchased with the proceeds of maturing principal of units of
any Qualified Unit Investment Liquid Trust Series.
Waivers of the Class A Contingent Deferred Sales Charge for Certain
Redemptions . The Class A contingent deferred sales charge is also waived
if shares that would otherwise be subject to the contingent deferred sales
charge are redeemed in the following cases:
- for retirement distributions or loans to participants or beneficiaries
from qualified retirement plans, deferred compensation plans or other
employee benefit plans, including OppenheimerFunds prototype 401(k) plans
(these are all referred to as "Retirement Plans"); or
- to return excess contributions made to Retirement Plans; or
- to make Automatic Withdrawal Plan payments that are limited
annually to no more than 12% of the original account value; or
- involuntary redemptions of shares by operation of law or
involuntary redemptions of small accounts (see "Shareholder Account Rules
and Policies," below); or
- if, at the time a purchase order is placed for Class A shares that
would otherwise be subject to the Class A contingent deferred sales
charge, the dealer agrees in writing to accept the dealer's portion of the
commission payable on the sale in installments of 1/18th of the commission
per month (and no further commission will be payable if the shares are
redeemed within 18 months of purchase); or
- for distributions from OppenheimerFunds prototype 401(k) plans for
any of the following cases or purposes: (1) following the death or
disability (as defined in the Internal Revenue Code) of the participant
or beneficiary (the death or disability must occur after the participant's
account was established); (2) hardship withdrawals, as defined in the
plan; (3) under a Qualified Domestic Relations Order, as defined in the
Internal Revenue Code; (4) to meet the minimum distribution requirements
of the Internal Revenue Code; (5) to establish "substantially equal
periodic payments" as described in Section 72(t) of the Internal Revenue
Code; or (6) separation from service.
- Service Plan for Class A Shares. The Fund has adopted a Service Plan
for Class A shares to reimburse the Distributor for a portion of its costs
incurred in connection with the personal service and maintenance of
accounts that hold Class A shares. Reimbursement is made quarterly at an
annual rate that may not exceed 0.25% of the average annual net assets of
Class A shares of the Fund. The Distributor uses all of those fees to
compensate dealers, brokers, banks and other financial institutions
quarterly for providing personal service and maintenance of accounts of
their customers that hold Class A shares and to reimburse itself (if the
Fund's Board of Trustees authorizes such reimbursements, which it has not
yet done) for its other expenditures under the Plan.
Services to be provided include, among others, answering customer
inquiries about the Fund, assisting in establishing and maintaining
accounts in the Fund, making the Fund's investment plans available and
providing other services at the request of the Fund or the Distributor.
Payments are made by the Distributor quarterly at an annual rate not to
exceed 0.25% of the average annual net assets of Class A shares held in
accounts of the dealer or its customers. The payments under the Plan
increase the annual expenses of Class A shares. For more details, please
refer to "Distribution and Service Plans" in the Statement of Additional
Information.
Buying Class B Shares. Class B shares are sold at net asset value per
share without an initial sales charge. However, if Class B shares are
redeemed within 6 years of their purchase, a contingent deferred sales
charge will be deducted from the redemption proceeds. That sales charge
will not apply to shares purchased by the reinvestment of dividends or
capital gains distributions. The charge will be assessed on the lesser
of the net asset value of the shares at the time of redemption or the
original purchase price. The contingent deferred sales charge is not
imposed on the amount of your account value represented by the increase
in net asset value over the initial purchase price. The Class B
contingent deferred sales charge is paid to the Distributor to reimburse
its expenses of providing distribution-related services to the Fund in
connection with the sale of Class B shares.
To determine whether the contingent deferred sales charge applies to a
redemption, the Fund redeems shares in the following order: (1) shares
acquired by reinvestment of dividends and capital gains distributions, (2)
shares held for over 6 years, and (3) shares held the longest during the
6-year period. The contingent deferred sales charge is not imposed in the
circumstances described in "Waivers of Class B and Class C Sales Charges"
below.
The amount of the contingent deferred sales charge will depend on the
number of years since you invested and the dollar amount being redeemed,
according to the following schedule:
<TABLE>
<CAPTION>
Contingent Deferred Sales Charge
Years Since Beginning of Month In on Redemptions in that Year
Which Purchase Order Was Accepted (As % of Amount Subject to Charge)
<S> <C>
0 - 1 5.0%
1 - 2 4.0%
2 - 3 3.0%
3 - 4 3.0%
4 - 5 2.0%
5 - 6 1.0%
6 and following None
In the table, a "year" is a 12-month period. All purchases are
considered to have been made on the first regular business day of the
month in which the purchase was made.
- Automatic Conversion of Class B Shares. 72 months after you purchase
Class B shares, those shares will automatically convert to Class A shares.
This conversion feature relieves Class B shareholders of the asset-based
sales charge that applies to Class B shares under the Class B Distribution
and Service Plan, described below. The conversion is based on the relative
net asset value of the two classes, and no sales load or other charge is
imposed. When Class B shares convert, any other Class B shares that were
acquired by the reinvestment of dividends and distributions on the
converted shares will also convert to Class A shares. The conversion
feature is subject to the continued availability of a tax ruling described
in "Alternative Sales Arrangements - Class A, Class B and Class C Shares"
in the Statement of Additional Information.
Buying Class C Shares. Class C shares are sold at net asset value per
share without an initial sales charge. However, if Class C shares are
redeemed within 12 months of their purchase, a contingent deferred sales
charge of 1.0% will be deducted from the redemption proceeds. That sales
charge will not apply to shares purchased by the reinvestment of dividends
or capital gains distributions. The charge will be assessed on the lesser
of the net asset value of the shares at the time of redemption or the
original purchase price. The contingent deferred sales charge is not
imposed on the amount of your account value represented by the increase
in net asset value over the initial purchase price. The Class C
contingent deferred sales charge is paid to the Distributor to reimburse
its expenses of providing distribution-related services to the Fund in
connection with the sale of Class C shares.
To determine whether the contingent deferred sales charge applies to a
redemption, the Fund redeems shares in the following order: (1) shares
acquired by reinvestment of dividends and capital gains distributions, (2)
shares held for over 12 months, and (3) shares held the longest during the
12-month period.
- Distribution and Service Plans for Class B and Class C Shares. The
Fund has adopted Distribution and Service Plans for Class B and Class C
shares to compensate the Distributor for its services and costs in
distributing Class B and Class C shares and servicing accounts. Under the
Plans, the Fund pays the Distributor an annual "asset-based sales charge"
of 0.75% per year on Class B shares that are outstanding for 6 years or
less and on Class C shares. The Distributor also receives a service fee
of 0.25% per year. If either Plan is terminated by the Fund, the Board
of Trustees may allow the Fund to continue payments of the asset-based
sales charge to the Distributor for distributing shares before the Plan
was terminated.
Under each Plan, both fees are computed on the average of the net asset
value of shares in the respective class, determined as of the close of
each regular business day during the period. The asset-based sales charge
allows investors to buy Class B or Class C shares without a front-end
sales charge while allowing the Distributor to compensate dealers that
sell those shares.
The Distributor uses the service fee to compensate dealers for providing
personal services for accounts that hold Class B or Class C shares. Those
services are similar to those provided under the Class A Service Plan,
described above.
The Distributor pays the 0.25% service fee to dealers in advance for the
first year after Class B or Class C shares have been sold by the dealer
and retains the service fee paid by the Fund in that year. After the
shares have been held for a year, the Distributor pays the service fee on
a quarterly basis.
The Distributor pays sales commissions of 3.75% of the purchase price
of Class B shares to dealers from its own resources at the time of sale.
The total amount paid by the Distributor to the dealer at the time of sale
of Class B shares is therefore 4.00% of the purchase price. The Fund pays
the asset-based sales charge to the Distributor for its services rendered
in distributing Class B shares. Those payments, retained by the
Distributor, are at a fixed rate that is not related to the Distributor's
expenses. The services rendered by the Distributor include paying and
financing the payment of sales commissions, service fees and other costs
of distributing and selling Class B shares.
The Distributor currently pays sales commissions of 0.75% of the
purchase price of Class C shares to dealers from its own resources at the
time of sale. The total amount paid by the Distributor to the dealer at
the time of sale of Class C shares is therefore 1.00% of the purchase
price. The Distributor retains the asset-based sales charge during the
first year Class C shares are outstanding to recoup the sales commissions
it has paid, the advances of service fee payments it has made, and its
financing costs and other expenses. The Distributor plans to pay the
asset-based sales charge as an ongoing commission to the dealer on Class
C shares that have been outstanding for a year or more.
The Distributor's actual expenses in selling Class C shares may be more
than the payments it receives from contingent deferred sales charges
collected on redeemed shares and from the Fund under the Distribution and
Service Plan for Class C shares. Therefore, those expenses may be carried
over and paid in future years. At September 30, 1995, the end of the
Class C Plan year, the Distributor had incurred unreimbursed expenses
under the Class C Plan of $814,968 (equal to 1.26% of the Fund's net
assets represented by Class C shares on that date), which have been
carried over into the present Plan year.
- Waivers of Class B and Class C Sales Charges. The Class B and Class
C contingent deferred sales charges will not be applied to shares
purchased in certain types of transactions nor will it apply to Class B
and Class C shares redeemed in certain circumstances as described below.
The reasons for this policy are in "Reduced Sales Charges" in the
Statement of Additional Information.
Waivers for Redemptions in Certain Cases. The Class B and Class C
contingent deferred sales charges will be waived for redemptions of shares
in the following cases, if the Transfer Agent is notified that these
conditions apply to the redemption:
- distributions to participants or beneficiaries from Retirement Plans,
if the distributions are made (a) under an Automatic Withdrawal Plan after
the participant reaches age 59-1/2, as long as the payments are no more
than 10% of the account value annually (measured from the date the
Transfer Agent receives the request), or (b) following the death or
disability (as defined in the Internal Revenue Code) of the participant
or beneficiary (the death or disability must have occurred after the
account was established);
- redemptions from accounts other than Retirement Plans following the
death or disability of the last surviving shareholder (the death or
disability must have occurred after the account was established, and for
disability you must provide evidence of a determination of disability by
the Social Security Administration);
- returns of excess contributions to Retirement Plans;
- distributions from IRAs (including SEP-IRAs and SAR/SEP accounts)
before the participant is age 59-1/2, and distributions from 403(b)(7)
custodial plans or pension or profit sharing plans before the participant
is age 59-1/2 but only after the participant has separated from service,
if the distributions are made in substantially equal periodic payments
over the life (or life expectancy) of the participant or the joint lives
(or joint life and last survivor expectancy) of the participant and the
participant's designated beneficiary (and the distributions must comply
with other requirements for such distributions under the Internal Revenue
Code and may not exceed 10% of the account value annually, measured from
the date the Transfer Agent receives the request);
- shares redeemed involuntarily, as described in "Shareholder Account
Rules and Policies," below; or
- distributions from OppenheimerFunds prototype 401(k) plans (1) for
hardship withdrawals; (2) under a Qualified Domestic Relations Order, as
defined in the Internal Revenue Code; (3) to meet minimum distribution
requirements as defined in the Internal Revenue Code; (4) to make
"substantially equal periodic payments" as described in Section 72(t) of
the Internal Revenue Code; or (5) for separation from service.
Waivers for Shares Sold or Issued in Certain Transactions. The
contingent deferred sales charge is also waived on Class B and Class C
shares sold or issued in the following cases:
- shares sold to the Manager or its affiliates;
- shares sold to registered management investment companies or separate
accounts of insurance companies having an agreement with the Manager or
the Distributor for that purpose; and
- shares issued in plans of reorganization to which the Fund is a party.
Special Investor Services
AccountLink. OppenheimerFunds AccountLink links your Fund account to your
account at your bank or other financial institution to enable you to send
money electronically between those accounts to perform a number of types
of account transactions. These include purchases of shares by telephone
(either through a service representative or by PhoneLink, described
below), automatic investments under Asset Builder Plans, and sending
dividends and distributions or Automatic Withdrawal Plan payments directly
to your bank account. Please refer to the Application for details or call
the Transfer Agent for more information.
AccountLink privileges should be requested on the Application you use to
buy shares, or on your dealer's settlement instructions if you buy your
shares through your dealer. After your account is established, you can
request AccountLink privileges by sending signature-guaranteed
instructions to the Transfer Agent. AccountLink privileges will apply to
each shareholder listed in the registration on your account as well as to
your dealer representative of record unless and until the Transfer Agent
receives written instructions terminating or changing those privileges.
After you establish AccountLink for your account, any change of bank
account information must be made by signature-guaranteed instructions to
the Transfer Agent signed by all shareholders who own the account.
- Using AccountLink to Buy Shares. Purchases may be made by telephone
only after your account has been established. To purchase shares in
amounts up to $250,000 through a telephone representative, call the
Distributor at 1-800-852-8457. The purchase payment will be debited from
your bank account.
- PhoneLink. PhoneLink is the OppenheimerFunds automated telephone
system that enables shareholders to perform a number of account
transactions automatically using a touch-tone phone. PhoneLink may be used
on already-established Fund accounts after you obtain a Personal
Identification Number (PIN), by calling the special PhoneLink number: 1-
800-533-3310.
- Purchasing Shares. You may purchase shares in amounts up to $100,000
by phone, by calling 1-800-533-3310. You must have established
AccountLink privileges to link your bank account with the Fund, to pay for
these purchases.
- Exchanging Shares. With the OppenheimerFunds Exchange Privilege,
described below, you can exchange shares automatically by phone from your
Fund account to another Oppenheimer funds account you have already
established by calling the special PhoneLink number. Please refer to "How
to Exchange Shares," below, for details.
- Selling Shares. You can redeem shares by telephone automatically by
calling the PhoneLink number and the Fund will send the proceeds directly
to your AccountLink bank account. Please refer to "How to Sell Shares,"
below, for details.
Automatic Withdrawal and Exchange Plans. The Fund has several plans that
enable you to sell shares automatically or exchange them to another
Oppenheimer fund account on a regular basis:
- Automatic Withdrawal Plans. If your Fund account is worth $5,000 or
more, you can establish an Automatic Withdrawal Plan to receive payments
of at least $50 on a monthly, quarterly, semi-annual or annual basis. The
checks may be sent to you or sent automatically to your bank account on
AccountLink. You may even set up certain types of withdrawals of up to
$1,500 per month by telephone. You should consult the Application and
Statement of Additional Information for more details.
- Automatic Exchange Plans. You can authorize the Transfer Agent to
exchange an amount you establish in advance automatically for shares of
up to five other Oppenheimer funds on a monthly, quarterly, semi-annual
or annual basis under an Automatic Exchange Plan. The minimum purchase
for each Oppenheimer funds account is $25. These exchanges are subject
to the terms of the Exchange Privilege, described below.
Reinvestment Privilege. If you redeem some or all of your Class A or
Class B shares of the Fund, you have up to 6 months to reinvest all or
part of the redemption proceeds in Class A or Class B shares of the Fund
or other Oppenheimer funds without paying a sales charge. This privilege
applies to Class A shares that you purchased subject to an initial sales
charge and to Class A or Class B shares on which you paid a contingent
deferred sales charge when you redeemed them. This privilege does not
apply to Class C shares. You must be sure to ask the Distributor for this
privilege when you send your payment. Please consult the Statement of
Additional Information for more details.
Retirement Plans. Fund shares are available as an investment for your
retirement plans. If you participate in a plan sponsored by your employer,
the plan trustee or administrator must make the purchase of shares for
your retirement plan account. The Distributor offers a number of different
retirement plans that can be used by individuals and employers:
- Individual Retirement Accounts including rollover IRAs, for
individuals and their spouses
- 403(b)(7) Custodial Plans for employees of eligible tax-exempt
organizations, such as schools, hospitals and charitable organizations
- SEP-IRAs (Simplified Employee Pension Plans) for small business owners
or people with income from self-employment, including SAR/SEP-IRAs
- Pension and Profit-Sharing Plans for self-employed persons and other
employers
- 401(k) prototype retirement plans for businesses
Please call the Distributor for the OppenheimerFunds plan documents,
which contain important information and applications.
How to Sell Shares
You can arrange to take money out of your account by selling (redeeming)
some or all of your shares on any regular business day. Your shares will
be sold at the next net asset value calculated after your order is
received and accepted by the Transfer Agent. The Fund offers you a number
of ways to sell your shares: in writing, or by using the Fund's
checkwriting privilege or by telephone. You can also set up Automatic
Withdrawal Plans to redeem shares on a regular basis, as described above.
If you have questions about any of these procedures, and especially if you
are redeeming shares in a special situation, such as due to the death of
the owner, or from a retirement plan, please call the Transfer Agent
first, at 1-800-525-7048, for assistance.
- Retirement Accounts. To sell shares in an OppenheimerFunds retirement
account in your name, call the Transfer Agent for a distribution request
form. There are special income tax withholding requirements for
distributions from retirement plans and you must submit a withholding form
with your request to avoid delay. If your retirement plan account is held
for you by your employer, you must arrange for the distribution request
to be sent by the plan administrator or trustee. There are additional
details in the Statement of Additional Information.
- Certain Requests Require a Signature Guarantee. To protect you and
the Fund from fraud, certain redemption requests must be in writing and
must include a signature guarantee in the following situations (there may
be other situations also requiring a signature guarantee):
- You wish to redeem more than $50,000 worth of shares and receive a
check
- The redemption check is not payable to all shareholders listed on the
account statement
- The redemption check is not sent to the address of record on your
account statement
- Shares are being transferred to a Fund account with a different owner
or name
- Shares are redeemed by someone other than the owners (such as an
Executor)
- Where Can I Have My Signature Guaranteed? The Transfer Agent will
accept a guarantee of your signature by a number of financial
institutions, including: a U.S. bank, trust company, credit union or
savings association, or by a foreign bank that has a U.S. correspondent
bank, or by a U.S. registered dealer or broker in securities, municipal
securities or government securities, or by a U.S. national securities
exchange, a registered securities association or a clearing agency. If you
are signing on behalf of a corporation, partnership or other business, or
as a fiduciary, you must also include your title in the signature.
Selling Shares by Mail. Write a "letter of instructions" that includes:
- Your name
- The Fund's name
- Your Fund account number (from your account statement)
- The dollar amount or number of shares to be redeemed
- Any special payment instructions
- Any share certificates for the shares you are selling
- The signatures of all registered owners exactly as the account is
registered, and
- Any special requirements or documents requested by the Transfer
Agent to assure proper authorization of the person asking to sell shares.
Use the following address for requests by mail:
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217
Send courier or Express Mail requests to:
OppenheimerFunds Services
10200 E. Girard Avenue, Building D
Denver, Colorado 80231
Selling Shares by Telephone. You and your dealer representative of record
may also sell your shares by telephone. To receive the redemption price
on a regular business day, your call must be received by the Transfer
Agent by the close of The New York Stock Exchange that day, which is
normally 4:00 P.M., but may be earlier on some days. Shares held in an
OppenheimerFunds retirement plan or under a share certificate may not be
redeemed by telephone.
- To redeem shares through a service representative, call 1-800-852-8457
- To redeem shares automatically on PhoneLink, call 1-800-533-3310
Whichever method you use, you may have a check sent to the address on
the account statement, or, if you have linked your Fund account to your
bank account on AccountLink, you may have the proceeds transferred to that
bank account.
- Telephone Redemptions Paid by Check. Up to $50,000 may be redeemed
by telephone once in any 7-day period. The check must be payable to all
owners of record of the shares and must be sent to the address on the
account statement. This service is not available within 30 days of
changing the address on an account.
- Telephone Redemptions Through AccountLink. There are no dollar
limits on telephone redemption proceeds sent to a bank account designated
when you establish AccountLink. Normally the ACH transfer to your bank is
initiated on the business day after the redemption. You do not receive
dividends on the proceeds of the shares you redeemed while they are
waiting to be transferred.
Check Writing. To be able to write checks against your Fund account, you
may request that privilege on your account Application or you can contact
the Transfer Agent for signature cards, which must be signed (with a
signature guarantee) by all owners of the account and returned to the
Transfer Agent so that checks can be sent to you to use. Shareholders with
joint accounts can elect in writing to have checks paid over the signature
of one owner. If you previously signed a signature card to establish
checkwriting in one of the other Oppenheimer funds, you may call 1-800-
525-7048 to request check writing for an account in this Fund that has the
same registration as that other fund account.
- Checks can be written to the order of whomever you wish, but may not
be cashed at the Fund's bank or custodian.
- Check writing privileges are not available for accounts holding Class
B shares or Class C shares, or Class A shares that are subject to a
contingent deferred sales charge.
- Checks must be written for at least $100.
- Checks cannot be paid if they are written for more than your account
value.
Remember: your shares fluctuate in value and you should not write a
check close to the total account value.
- You may not write a check that would require the Fund to redeem shares
that were purchased by check or Asset Builder Plan payments within the
prior 15 days.
- Don't use your checks if you changed your Fund account number.
Selling Shares Through Your Dealer. The Distributor has made arrangements
to repurchase Fund shares from dealers and brokers on behalf of their
customers. Brokers or dealers may charge for that service. Please refer
to "Special Arrangements for Repurchase of Shares from Dealers and
Brokers" in the Statement of Additional Information for more details.
How to Exchange Shares
Shares of the Fund may be exchanged for shares of certain Oppenheimer
funds at net asset value per share at the time of exchange, without sales
charge. To exchange shares, you must meet several conditions:
- Shares of the fund selected for exchange must be available for sale
in your state of residence.
- The prospectuses of this Fund and the fund whose shares you want to
buy must offer the exchange privilege.
- You must hold the shares you buy when you establish your account for
at least 7 days before you can exchange them; after the account is open
7 days, you can exchange shares every regular business day.
- You must meet the minimum purchase requirements for the fund you
purchase by exchange.
- Before exchanging into a fund, you should obtain and read its
prospectus.
Shares of a particular class may be exchanged only for shares of the
same class in the other Oppenheimer funds. For example, you can exchange
Class A shares of this Fund only for Class A shares of another fund. At
present, Oppenheimer Money Market Fund, Inc. offers only one class of
shares which are considered to be "Class A shares" for this purpose. In
some cases, sales charges may be imposed on exchange transactions. Please
refer to "How to Exchange Shares" in the Statement of Additional
Information for more details.
Exchanges may be requested in writing or by telephone:
- Written Exchange Requests. Submit an OppenheimerFunds Exchange
Request form, signed by all owners of the account. Send it to the
Transfer Agent at the addresses listed in "How to Sell Shares."
- Telephone Exchange Requests. Telephone exchange requests may be made
either by calling a service representative at 1-800-852-8457 or by using
PhoneLink for automated exchanges, by calling 1-800-533-3310. Telephone
exchanges may be made only between accounts that are registered with the
same name(s) and address. Shares held under certificates may not be
exchanged by telephone.
You can find a list of Oppenheimer funds currently available for
exchanges in the Statement of Additional Information or obtain one by
calling a service representative at 1-800-525-7048. That list can change
from time to time.
There are certain exchange policies you should be aware of:
- Shares are normally redeemed from one fund and purchased from the
other fund in the exchange transaction on the same regular business day
on which the Transfer Agent receives an exchange request that is in proper
form by the close of The New York Stock Exchange that day, which is
normally 4:00 P.M. but may be earlier on some days. However, either fund
may delay the purchase of shares of the fund you are exchanging into up
to 7 days if it determines it would be disadvantaged by a same-day
transfer of the proceeds to buy shares. For example, the receipt of
multiple exchange requests from a dealer in a "market-timing" strategy
might require the disposition of securities at a time or price
disadvantageous to the Fund.
- Because excessive trading can hurt fund performance and harm
shareholders, the Fund reserves the right to refuse any exchange request
that will disadvantage it, or to refuse multiple exchange requests
submitted by a shareholder or dealer.
- The Fund may amend, suspend or terminate the exchange privilege at
any time. Although the Fund will attempt to provide you notice whenever
it is reasonably able to do so, it may impose these changes at any time.
- For tax purposes, exchanges of shares involve a redemption of the
shares of the Fund you own and a purchase of the shares of the other fund,
which may result in a capital gain or loss. For more information about
taxes affecting exchanges, please refer to "How to Exchange Shares" in the
Statement of Additional Information.
- If the Transfer Agent cannot exchange all the shares you request
because of a restriction cited above, only the shares eligible for
exchange will be exchanged.
Shareholder Account Rules and Policies
- Net Asset Value Per Share is determined for each class of shares as
of the close of The New York Stock Exchange, which is normally 4:00 P.M.
but may be earlier on some days, on each day the Exchange is open by
dividing the value of the Fund's net assets attributable to a class by the
number of shares of that class that are outstanding. The Fund's Board of
Trustees has established procedures to value the Fund's securities to
determine net asset value. In general, securities values are based on
market value. There are special procedures for valuing illiquid and
restricted securities, and obligations for which market values cannot be
readily obtained. These procedures are described more completely in the
Statement of Additional Information.
- The offering of shares may be suspended during any period in which
the determination of net asset value is suspended, and the offering may
be suspended by the Board of Trustees at any time the Board believes it
is in the Fund's best interest to do so.
- Telephone Transaction Privileges for purchases, redemptions or
exchanges may be modified, suspended or terminated by the Fund at any
time. If an account has more than one owner, the Fund and the Transfer
Agent may rely on the instructions of any one owner. Telephone privileges
apply to each owner of the account and the dealer representative of record
for the account unless and until the Transfer Agent receives cancellation
instructions from an owner of the account.
- The Transfer Agent will record any telephone calls to verify data
concerning transactions and has adopted other procedures to confirm that
telephone instructions are genuine, by requiring callers to provide tax
identification numbers and other account data or by using PINs, and by
confirming such transactions in writing. If the Transfer Agent does not
use reasonable procedures it may be liable for losses due to unauthorized
transactions, but otherwise neither the Transfer Agent nor the Fund will
be liable for losses or expenses arising out of telephone instructions
reasonably believed to be genuine. If you are unable to reach the
Transfer Agent during periods of unusual market activity, you may not be
able to complete a telephone transaction and should consider placing your
order by mail.
- Redemption or transfer requests will not be honored until the
Transfer Agent receives all required documents in proper form. From time
to time, the Transfer Agent in its discretion may waive certain of the
requirements for redemptions stated in this Prospectus.
- Dealers that can perform account transactions for their clients by
participating in NETWORKING through the National Securities Clearing
Corporation are responsible for obtaining their clients' permission to
perform those transactions and are responsible to their clients who are
shareholders of the Fund if the dealer performs any transaction
erroneously.
- The redemption price for shares will vary from day to day because the
value of the securities in the Fund's portfolio fluctuates, and the
redemption price, which is the net asset value per share, will normally
be different for Class A, Class B and Class C shares. Therefore, the
redemption value of your shares may be more or less than their original
cost.
- Payment for redeemed shares is made ordinarily in cash and forwarded
by check or through AccountLink (as elected by the shareholder under the
redemption procedures described above) within 7 days after the Transfer
Agent receives redemption instructions in proper form, except under
unusual circumstances determined by the Securities and Exchange Commission
delaying or suspending such payments. For accounts registered in the name
of a broker-dealer, payment will be forwarded within 3 business days. The
Transfer Agent may delay forwarding a check or processing a payment via
AccountLink for recently purchased shares, but only until the purchase
payment has cleared. That delay may be as much as 10 days from the date
the shares were purchased. That delay may be avoided if you purchase
shares by certified check or arrange to have your bank provide telephone
or written assurance to the Transfer Agent that your purchase payment has
cleared.
- Involuntary redemptions of small accounts may be made by the Fund if
the account value has fallen below $200 for reasons other than the fact
that the market value of shares has dropped, and in some cases involuntary
redemptions may be made to repay the Distributor for losses from the
cancellation of share purchase orders.
- Under unusual circumstances, shares of the Fund may be redeemed "in
kind," which means that the redemption proceeds will be paid with
securities from the Fund's portfolio. Please refer to "How to Sell
Shares" in the Statement of Additional Information for more details.
- "Backup Withholding" of Federal income tax may be applied at the rate
of 31% from dividends, distributions and redemption proceeds (including
exchanges) if you fail to furnish the Fund a certified Social Security or
Employer Identification Number when you sign your application, or if you
violate Internal Revenue Service regulations on tax reporting of income.
- The Fund does not charge a redemption fee, but if your dealer or
broker handles your redemption, they may charge a fee. That fee can be
avoided by redeeming your Fund shares directly through the Transfer Agent.
Under the circumstances described in "How to Buy Shares," you may be
subject to a contingent deferred sales charge when redeeming certain Class
A, Class B and Class C shares.
- To avoid sending duplicate copies of materials to households, the
Fund will mail only one copy of each annual and semi-annual report to
shareholders having the same last name and address on the Fund's records.
However, each shareholder may call the Transfer Agent at 1-800-525-7048
to ask that copies of those materials be sent personally to that
shareholder.
Dividends, Capital Gains and Taxes
Dividends. The Fund declares dividends separately for Class A, Class B
and Class C shares from net investment income on each regular business day
and pays those dividends to shareholders monthly. Normally, dividends are
paid on or about the last business day of every month, but the Board of
Trustees can change that date. Distributions may be made monthly from any
net short-term capital gains the Fund realizes in selling securities.
Dividends paid on Class A shares generally are expected to be higher than
for Class B and Class C shares because expenses allocable to Class B and
Class C shares will generally be higher. There is no fixed dividend rate
and there can be no assurance as to the payment of any dividends.
Capital Gains. The Fund may make distributions annually in December out
of any net short-term or long-term capital gains, and the Fund may make
supplemental distributions of dividends and capital gains following the
end of its fiscal year which is September 30th. Long-term capital gains
will be separately identified in the tax information the Fund sends you
after the end of the year. Short-term capital gains are treated as
dividends for tax purposes. There can be no assurance that the Fund will
pay any capital gains distributions in a particular year.
Distribution Options. When you open your account, specify on your
application how you want to receive your distributions. For
OppenheimerFunds retirement accounts, all distributions are reinvested.
For other accounts, you have four options:
- Reinvest All Distributions in the Fund. You can elect to reinvest all
dividends and long-term capital gains distributions in additional shares
of the Fund.
- Reinvest Long-Term Capital Gains Only. You can elect to reinvest long-
term capital gains in the Fund while receiving dividends by check or sent
to your bank account on AccountLink.
- Receive All Distributions in Cash. You can elect to receive a check
for all dividends and long-term capital gains distributions or have them
sent to your bank on AccountLink.
- Reinvest Your Distributions in Another Oppenheimer Fund Account. You
can reinvest all distributions in another Oppenheimer fund account you
have established.
Taxes. If your account is not a tax-deferred retirement account, you
should be aware of the following tax implications of investing in the
Fund. Long-term capital gains are taxable as long-term capital gains when
distributed to shareholders. It does not matter how long you held your
shares. Dividends paid from short-term capital gains and net investment
income are taxable as ordinary income. Distributions are subject to
federal income tax and may be subject to state or local taxes. Your
distributions are taxable when paid, whether you reinvest them in
additional shares or take them in cash. Every year the Fund will send you
and the IRS a statement showing the amount of each taxable distribution
you received in the previous year.
- "Buying a Dividend": When a fund goes ex-dividend, its share price is
reduced by the amount of the distribution. If you buy shares on or just
before the ex-dividend date, or just before the Fund declares a capital
gains distribution, you will pay the full price for the shares and then
receive a portion of the price back as a taxable dividend or capital gain.
- Taxes on Transactions: Share redemptions, including redemptions for
exchanges, are subject to capital gains tax. A capital gain or loss is
the difference between the price you paid for the shares and the price you
received when you sold them.
- Returns of Capital: In certain cases distributions made by the Fund
may be considered a non-taxable return of capital to shareholders. If
that occurs, it will be identified in notices to shareholders. A non-
taxable return of capital may reduce your tax basis in your Fund shares.
This information is only a summary of certain federal tax information
about your investment. More information is contained in the Statement of
Additional Information, and in addition you should consult with your tax
adviser about the effect of an investment in the Fund on your particular
tax situation.
<PAGE>
APPENDIX A: DESCRIPTION OF RATINGS
Categories of Rating Services
Description of Moody's Investors Service, Inc. Bond Ratings
Aaa: Bonds which are rated "Aaa" are judged to be the best quality and
to carry the smallest degree of investment risk. 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,
the changes that can be expected are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group, they comprise what are generally
known as "high-grade" bonds. They are rated lower than the best bonds
because margins of protection may not be as large as with "Aaa" securities
or fluctuation of protective elements may be of greater amplitude or there
may be other elements present which make the long-term risks appear
somewhat larger than those of "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.
The investments in which the Fund will principally invest will be in the
lower-rated categories described below.
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 have speculative
characteristics as well.
Ba: Bonds which are rated "Ba" are judged to have speculative elements;
their future cannot be considered well-assured. Often the protection of
interest and principal payments may be very moderate and not well
safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class.
B: Bonds which are rated "B" generally lack characteristics of
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 and 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 and are often in default or have other marked
shortcomings.
C: Bonds which are rated "C" are the lowest rated class of bonds and
can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Description of Standard & Poor's Corporation Bond Ratings
AAA: "AAA" is the highest rating assigned 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 adverse effects
of change in circumstances and economic conditions.
The investments in which the Fund will principally invest will be in the
lower-rated categories, described below.
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 category 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. 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: Bonds on which no interest is being paid are rated "C".
D: Bonds rated "D" are in payment default and payment of interest
and/or repayment of principal is in arrears.
<PAGE>
APPENDIX B
Special Sales Charge Arrangements for Shareholders of the Fund
Who Were Shareholders of the Former Quest for Value Funds
The initial and contingent deferred sales charge rates and waivers for
Class A, Class B and Class C shares of the Fund described elsewhere in
this Prospectus are modified as described below for those shareholders of
(i) Quest for Value Fund, Inc., Quest for Value Growth and Income Fund,
Quest for Value Opportunity Fund, Quest for Value Small Capitalization
Fund and Quest for Value Global Equity Fund, Inc. on November 24, 1995,
when OppenheimerFunds, Inc. became the investment adviser to those funds,
and (ii) Quest for Value U.S. Government Income Fund, Quest for Value
Investment Quality Income Fund, Quest for Value Global Income Fund, Quest
for Value New York Tax-Exempt Fund, Quest for Value National Tax-Exempt
Fund and Quest for Value California Tax-Exempt Fund when those funds
merged into various Oppenheimer funds on November 24, 1995. The funds
listed above are referred to in this Prospectus as the "Former Quest for
Value Funds." The waivers of initial and contingent deferred sales
charges described in this Appendix apply to shares of the Fund (i)
acquired by such shareholder pursuant to an exchange of shares of one of
the Oppenheimer funds that was one of the Former Quest for Value Funds or
(ii) received by such shareholder pursuant to the merger of any of the
Former Quest for Value Funds into an Oppenheimer fund on November 24,
1995.
Class A Sales Charges
- - Reduced Class A Initial Sales Charge Rates for Certain Former Quest
Shareholders
- - Purchases by Groups, Associations and Certain Qualified Retirement
Plans. The following table sets forth the initial sales charge rates for
Class A shares purchased by a "Qualified Retirement Plan" through a single
broker, dealer or financial institution, or by members of "Associations"
formed for any purpose other than the purchase of securities if that
Qualified Retirement Plan or that Association purchased shares of any of
the Former Quest for Value Funds or received a proposal to purchase such
shares from OCC Distributors prior to November 24, 1995. For this purpose
only, a "Qualified Retirement Plan" includes any 401(k) plan, 403(b) plan,
and SEP/IRA or IRA plan for employees of a single employer.
</TABLE>
<TABLE>
<CAPTION>
Front-End Front-End
Sales Sales Commission
Charge Charge as
as a as a Percentage
Number of Percentage Percentage of
Eligible Employees of Offering of Amount Offering
or Members Price Invested Price
- ------------------ ----------- ---------- ----------
<S> <C> <C> <C>
9 or fewer 2.50% 2.56% 2.00%
At least 10 but not
more than 49 2.00% 2.04% 1.60%
</TABLE>
For purchases by Qualified Retirement plans and Associations having
50 or more eligible employees or members, there is no initial sales charge
on purchases of Class A shares, but those shares are subject to the Class
A contingent deferred sales charge described on pages 29 and 30 of this
Prospectus.
Purchases made under this arrangement qualify for the lower of the
sales charge rate in the table based on the number of eligible employees
in a Qualified Retirement Plan or members of an Association or the sales
charge rate that applies under the Rights of Accumulation described above
in the Prospectus. In addition, purchases by 401(k) plans that are
Qualified Retirement Plans qualify for the waiver of the Class A initial
sales charge if they qualified to purchase shares of any of the Former
Quest For Value Funds by virtue of projected contributions or investments
of $1 millon or more each year. Individuals who qualify under this
arrangement for reduced sales charge rates as members of Associations, or
as eligible employees in Qualified Retirement Plans also may purchase
shares for their individual or custodial accounts at these reduced sales
charge rates, upon request to the Fund's Distributor.
- - Special Class A Contingent Deferred Sales Charge Rates
Class A shares of the Fund purchased by exchange of shares of other
Oppenheimer funds that were acquired as a result of the merger of Former
Quest for Value Funds into those Oppenheimer funds, and which shares were
subject to a Class A contingent deferred sales charge prior to November
24, 1995 will be subject to a contingent deferred sales charge at the
following rates: if they are redeemed within 18 months of the end of the
calendar month in which they were purchased, at a rate equal to 1.0% if
the redemption occurs within 12 months of their initial purchase and at
a rate of 0.50 of 1.0% if the redemption occurs in the subsequent six
months. Class A shares of any of the Former Quest for Value Funds
purchased without an initial sales charge on or before November 22, 1995
will continue to be subject to the applicable contingent deferred sales
charge in effect as of that date as set forth in the then-current
prospectus for such fund.
- - Waiver of Class A Sales Charges for Certain Shareholders
Class A shares of the Fund purchased by the following investors are not
subject to any Class A initial or contingent deferred sales charges:
- - Shareholders of the Fund who were shareholders of the AMA Family of
Funds on February 28, 1991 and who acquired shares of any of the Former
Quest for Value Funds by merger of a portfolio of the AMA Family of Funds.
- - Shareholders of the Fund who acquired shares of any Former Quest for
Value Fund by merger of any of the portfolios of the Unified Funds.
- - Waiver of Class A Contingent Deferred Sales Charge in Certain
Transactions
The Class A contingent deferred sales charge will not apply to redemptions
of Class A shares of the Fund purchased by the following investors who
were shareholders of any Former Quest for Value Fund:
- - Investors who purchased Class A shares from a dealer that is or was not
permitted to receive a sales load or redemption fee imposed on a
shareholder with whom that dealer has a fiduciary relationship under the
Employee Retirement Income Security Act of 1974 and regulations adopted
under that law.
- - Participants in Qualified Retirement Plans that purchased shares of any
of the Former Quest For Value Funds pursuant to a special "strategic
alliance" with the distributor of those funds. The Fund's Distributor
will pay a commission to the dealer for purchases of Fund shares as
described above in "Class A Contingent Deferred Sales Charge."
Class A, Class B and Class C Contingent Deferred Sales Charge Waivers
- - Waivers for Redemptions of Shares Purchased Prior to March 6, 1995
In the following cases, the contingent deferred sales charge will be
waived for redemptions of Class A, B or C shares of the Fund acquired by
merger of a Former Quest for Value Fund into the Fund or by exchange from
an Oppenheimer fund that was a Former Quest for Value Fund or into which
such fund merged, if those shares were purchased prior to March 6, 1995:
in connection with (i) distributions to participants or beneficiaries of
plans qualified under Section 401(a) of the Internal Revenue Code or from
custodial accounts under Section 403(b)(7) of the Code, Individual
Retirement Accounts, deferred compensation plans under Section 457 of the
Code, and other employee benefit plans, and returns of excess
contributions made to each type of plan, (ii) withdrawals under an
automatic withdrawal plan holding only either Class B or C shares if the
annual withdrawal does not exceed 10% of the initial value of the account,
and (iii) liquidation of a shareholder's account if the aggregate net
asset value of shares held in the account is less than the required
minimum value of such accounts.
- - Waivers for Redemptions of Shares Purchased on or After March 6, 1995
but Prior to November 24, 1995
In the following cases, the contingent deferred sales charge will be
waived for redemptions of Class A, B or C shares of the Fund acquired by
merger of a Former Quest for Value Fund into the Fund or by exchange from
an Oppenheimer fund that was a Former Quest For Value Fund or into which
such fund merged, if those shares were purchased on or after March 6,
1995, but prior to November 24, 1995: (1) distributions to participants
or beneficiaries from Individual Retirement Accounts under Section 408(a)
of the Internal Revenue Code or retirement plans under Section 401(a),
401(k), 403(b) and 457 of the Code, if those distributions are made either
(a) to an individual participant as a result of separation from service
or (b) following the death or disability (as defined in the Code) of the
participant or beneficiary; (2) returns of excess contributions to such
retirement plans; (3) redemptions other than from retirement plans
following the death or disability of the shareholder(s) (as evidenced by
a determination of total disability by the U.S. Social Security
Administration); (4) withdrawals under an automatic withdrawal plan (but
only for Class B or C shares) where the annual withdrawals do not exceed
10% of the initial value of the account; and (5) liquidation of a
shareholder's account if the aggregate net asset value of shares held in
the account is less than the required minimum account value. A
shareholder's account will be credited with the amount of any contingent
deferred sales charge paid on the redemption of any Class A, B or C shares
of the Fund described in this section if within 90 days after that
redemption, the proceeds are invested in the same Class of shares in this
Fund or another Oppenheimer fund.
Special Dealer Arrangements
Dealers who sold Class B shares of a Former Quest for Value Fund to Quest
for Value prototype 401(k) plans that were maintained on the TRAC-2000
recordkeeping system and that were transferred to an OppenheimerFunds
prototype 401(k) plan shall be eligible for an additional one-time payment
by the Distributor of 1% of the value of the plan assets transferred, but
that payment may not exceed $5,000 as to any one plan.
Dealers who sold Class C shares of a Former Quest for Value Fund to Quest
for Value prototype 401(k) plans that were maintained on the TRAC-2000
recordkeeping system and (i) the shares held by those plans were exchanged
for Class A shares, or (ii) the plan assets were transferred to an
OppenheimerFunds prototype 401(k) plan, shall be eligible for an
additional one-time payment by the Distributor of 1% of the value of the
plan assets transferred, but that payment may not exceed $5,000.
<PAGE>
APPENDIX TO PROSPECTUS OF
OPPENHEIMER CHAMPION INCOME FUND
Graphic material included in Prospectus of Oppenheimer Champion
Income Fund: "Comparison of Total Return of Oppenheimer Champion Income
Fund, the Lehman Bros. Corp. Bond Index and the Salomon Bros. High Yield
Market Index - Change in Value of a $10,000 Hypothetical Investment"
A linear graph will be included in the Prospectus of Oppenheimer Champion
Income Fund (the "Fund") depicting the initial account value and
subsequent account value of a hypothetical $10,000 investment in the Fund
through 9/30/95 from, in the case of Class A shares, the period since the
inception of the Fund (11/16/87) and in the case of Class C shares, the
period from the inception of the class (12/1/93). The graph will compare
such values with hypothetical $10,000 investments over the same time
periods in the Lehman Bros. Corp. Bond Index and the Salomon Bros. High
Yield Market Index. Set forth below are the relevant data points that
will appear on the linear graph. Additional information with respect to
the foregoing, including descriptions of the Lehman Bros. Corp. Bond Index
and the Salomon Bros. High Yield Market Index, is set forth in the
Prospectus under "Performance of the Fund - Comparing the Fund's
Performance to the Market."
<TABLE>
<CAPTION>
Salomon Bros.
Fiscal Year Oppenheimer Champion Lehman Bros. High Yield
(Period) Ended Income Fund A Corp. Bond Index Market Index
- -------------- -------------------- ---------------- -------------
<S> <C> <C> <C>
11/16/87 $ 9,525 $10,000 $10,000
09/30/88* $11,096 $11,000 $12,051
09/30/89 $12,252 $12,297 $12,833
09/30/90 $12,428 $13,058 $11,800
09/30/91 $15,594 $15,282 $15,577
09/30/92 $18,713 $17,452 $19,085
09/30/93 $21,838 $19,640 $21,906
09/30/94 $23,065 $18,881 $22,411
09/30/95 $25,393 $22,089 $25,959
______________________
*For the period from November 16, 1987 (commencement of operations) to September 30, 1988.
Fiscal Period Oppenheimer Champion Lehman Bros. Salomon Bros. High
Ended Income Fund C Corp. Bond Index Yield Market Index
12/1/93* $10,000 $10,000 $10,000
09/30/94 $10,017 $ 9,658 $ 9,981
09/30/95 $11,038 $11,677 $11,187
*Class C shares of the Fund were first publicly offered on December 1, 1993.
</TABLE>
<PAGE>
Oppenheimer Champion Income Fund
3410 South Galena Street
Denver, Colorado 80231
Investment Adviser
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048-0203
Distributor
OppenheimerFunds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer and Shareholder Servicing Agent
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian of Portfolio Securities
The Bank of New York
One Wall Street
New York, NY 10015
Independent Auditors
Deloitte & Touche LLP
555 Seventeenth Street
Denver, Colorado 80202
Legal Counsel
Myer, Swanson, Adams & Wolf, P.C.
1600 Broadway
Denver, Colorado 80202
No dealer, broker, salesperson or any other person has been authorized to
give any information or to make any representations other than those
contained in this Prospectus or the Statement of Additional Information,
and if given or made, such information and representations must not be
relied upon as having been authorized by the Fund, OppenheimerFunds, Inc.,
OppenheimerFunds Distributor, Inc. or any affiliate thereof. This
Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any of the securities offered hereby in any state to any
person to whom it is unlawful to make such offer in such state.
PR0190.001.0196 *Printed on recycled paper
<PAGE>
Oppenheimer Champion Income Fund
3410 South Galena Street, Denver, Colorado 80231
1-800-525-7048
Statement of Additional Information dated January 25, 1996
This Statement of Additional Information of Oppenheimer Income Fund
is not a Prospectus. This document contains additional information about
the Fund and supplements information in the Prospectus dated January 25,
1996. It should be read together with the Prospectus, which may be
obtained by writing to the Fund's Transfer Agent, OppenheimerFunds
Services, at P.O. Box 5270, Denver, Colorado 80217 or by calling the
Transfer 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 8
Other Investment Restrictions 20
How the Fund is Managed 21
Organization and History 21
Trustees and Officers of the Fund 22
The Manager and Its Affiliates 25
Brokerage Policies of the Fund 27
Performance of the Fund 28
Distribution and Service Plans 32
About Your Account
How To Buy Shares 34
How To Sell Shares 41
How To Exchange Shares 45
Dividends, Capital Gains and Taxes 46
Additional Information About the Fund 48
Financial Information About the Fund
Independent Auditors' Report 49
Financial Statements 50
Appendix A: Corporate Industry Classifications A-1
<PAGE>
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 to attain its primary objective of a high level of
current income by investing mainly in a diversified portfolio of high
yield fixed-income securities. As a secondary objective, the Fund seeks
capital growth when consistent with its primary objective. 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 Fund's investment adviser, Oppenheimer Management Corporation
(the "Manager"), 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
Manager 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.
- 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 Moody's or "D" by Standard &
Poor's. The Manager 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 Manager, yields and risks comparable to
those of rated securities in which the Fund may invest.
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.
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.
- Zero Coupon Securities. The Fund may invest in zero coupon
securities issued by the U.S. Treasury or by private issuers, such as
corporations. Zero coupon U.S. Treasury securities include: (1) U.S.
Treasury bills without interest coupons, (2) U.S. Treasury notes and bonds
that have been stripped of their unmatured interest coupons and (3)
receipts or certificates representing interests in such stripped debt
obligations or coupons. These securities usually trade at a deep discount
from their face or par value and will be subject to greater fluctuations
in market value in response to changing interest rates than debt
obligations of comparable maturities that make current payments of
interest. However, the interest rate is "locked in" and there is no risk
of having to reinvest periodic interest payments in securities having
lower rates.
Because the Fund accrues taxable income from zero coupon securities
without receiving cash, the Fund may be required to sell portfolio
securities in order to pay dividends or redemption proceeds for its
shares, which require the payment of cash. This will depend on several
factors: the proportion of shareholders who elect to receive dividends in
cash rather than reinvesting dividends in additional shares of the Fund,
and the amount of cash income the Fund receives from other investments and
the sale of shares. In either case, cash distributed or held by the Fund
that is not reinvested by investors in additional Fund shares will hinder
the Fund from seeking current income.
- Warrants and Rights. The Fund may, to the limited extent described
in the Prospectus, invest in warrants and rights. Their prices do not
necessarily move parallel to the prices of the underlying securities. The
amount paid for a warrant will be lost unless the warrant is exercised
prior to expiration. Warrants and rights have no voting rights, receive
no dividends and have no rights with respect to the assets of the issuer.
- Foreign Securities. As noted in the Prospectus, the Fund may
invest in securities (which may be denominated in U.S. dollars or non-U.S.
currencies) issued or guaranteed by foreign corporations, certain
supranational entities (described below) and foreign governments or their
agencies or instrumentalities, and in securities issued by U.S.
corporations denominated in non-U.S. currencies. "Foreign securities"
include equity and debt securities of companies organized under the laws
of countries other than the United States and debt securities of foreign
governments that are traded on foreign securities exchanges or in the
foreign over-the-counter markets. Securities of foreign issuers that are
represented by American Depository Receipts or that are listed on a U.S.
securities exchange or traded in the U.S. over-the-counter markets are not
considered "foreign securities" for the purpose of the Fund's investment
allocations, because they are not subject to many of the special
considerations and risks, discussed below, that apply to foreign
securities traded and held abroad.
The Fund may invest in U.S. dollar-denominated foreign debt
obligations known as "Brady Bonds," which are issued for the exchange of
existing commercial bank loans to foreign entities for new obligations
that are generally collateralized by zero coupon U.S. Treasury securities
having the same maturity. Because the Fund may purchase securities
denominated in foreign currencies, a change in the value of such foreign
currency against the U.S. dollar will result in a change in the amount of
income the Fund has available for distribution. Because a portion of the
Fund's investment income may be received in foreign currencies, the Fund
will be required to compute its income in U.S. dollars for distribution
to shareholders, and therefore the Fund will absorb the cost of currency
fluctuations. After the Fund has distributed income, subsequent foreign
currency losses may result in the Fund's having distributed more income
in a particular fiscal period than was available from investment income,
which could result in a return of capital to shareholders.
Investing in foreign securities offers the Fund potential benefits
not available from investing solely in securities of domestic issuers,
including the opportunity to invest in foreign issuers that appear to
offer growth potential, or in foreign countries with economic policies or
business cycles different from those of the U.S., or to reduce
fluctuations in portfolio value by taking advantage of foreign stock
markets that do not move in a manner parallel to U.S. markets. If the
Fund's portfolio securities are held abroad, the sub-custodians or
depositories holding them must be approved by the Fund's Board of Trustees
to the extent that approval is required under applicable rules of the
Securities and Exchange Commission.
- Risks of Foreign Investing. Investing in foreign securities
involves special additional risks and considerations not typically
associated with investing in securities of issuers traded in the U.S.
These include: reduction of income by foreign taxes; fluctuation in value
of foreign portfolio investments due to changes in currency rates and
control regulations (e.g., currency blockage); transaction charges for
currency exchange; lack of public information about foreign issuers; lack
of uniform accounting, auditing and financial reporting standards
comparable to those applicable to domestic issuers; less volume on foreign
exchanges than on U.S. exchanges; greater volatility and less liquidity
in foreign markets than in the U.S.; less regulation of foreign issuers,
stock exchanges and brokers than in the U.S.; greater difficulties in
commencing lawsuits against foreign issuers; higher brokerage commission
rates than in the U.S.; increased risks of delays in settlement of
portfolio transactions or loss of certificates for portfolio securities;
possibilities in some countries of expropriation or nationalization of
assets, confiscatory taxation, political, financial or social instability
or adverse diplomatic developments; and unfavorable differences between
the U.S. economy and foreign economies. In the past, U.S. Government
policies have discouraged certain investments abroad by U.S. investors,
through taxation or other restrictions, and it is possible that such
restrictions could be re-imposed.
- Special Risks of Emerging Market Countries. Investments in
emerging market countries may involve further risks in addition to those
identified above for investments in foreign securities. Securities issued
by emerging market countries and by companies located in those countries
may be subject to extended settlement periods, whereby the Fund might not
receive principal and/or income on a timely basis and its net asset value
could be affected. There may be a lack of liquidity for emerging market
securities; interest rates and foreign currency exchange rates may be more
volatile; sovereign limitations on foreign investments may be more likely
to be imposed; there may be significant balance of payment deficits; and
their economies and markets may respond in a more volatile manner to
economic changes than those of developed countries.
- Asset-Backed Securities. The value of an asset-backed security is
affected by changes in the market's perception of the creditworthiness of
the servicing agent for the loan pool, the originator of the loans, or the
financial institution providing any credit enhancement, and is also
affected if a credit enhancement is exhausted. The risks of investing in
asset-backed securities derive from the dependency upon payment of the
underlying consumer loans by the individual borrowers, and the Fund would
generally have no recourse to the entity that originated the loans in the
event of default by a borrower. The underlying loans are subject to
prepayments which shorten the weighted average life of asset-backed
securities and may lower their return, in the same manner as described
below for prepayments of a pool of mortgage loans underlying mortgage-
backed securities.
- Mortgage-Backed Securities. These securities represent
participation interests in pools of residential mortgage loans which may
or may not be guaranteed by agencies or instrumentalities of the U.S.
Government. Such securities differ from conventional debt securities
which provide for periodic payment of interest in fixed amounts (usually
semi-annually) with principal payments at maturity or specified call
dates. The mortgage-backed securities in which the Fund may invest may
be backed by the full faith and credit of the U.S. Treasury (e.g. direct
pass-through certificates of the Government National Mortgage
Association); some are supported by the right of the issuer to borrow from
the U.S. Government (e.g., obligations of Federal Home Loan Bank); and
some are backed by only the credit of the issuer itself. Any such
guarantees do not extend to the value of or yield of the mortgage-backed
securities themselves or to the net asset value of the Fund's shares.
The yield of a mortgage-backed security is based on the average
expected life of the underlying pool of mortgage loans. The actual life
of any particular pool will be shortened by any unscheduled or early
payments of principal and interest. Principal prepayments generally
result from the sale of the underlying property or the refinancing or
foreclosure of underlying mortgages. The occurrence of prepayments is
influenced by a wide range of economic, demographic and social factors
and, accordingly, it is not possible to predict accurately the average
life of a particular pool. Yield on such pools is usually computed by
using the historical record of prepayments for that pool, or, in the case
of newly-issued mortgages, the prepayment history of similar pools. The
actual prepayment experience of a pool of mortgage loans may cause the
yield realized by the Fund on the security backed by the pool to differ
from the yield calculated on the basis of the expected average life of the
pool.
Prepayments tend to increase during periods of falling interest
rates, while during periods of rising interest rates, prepayments will
most likely decline. When prevailing interest rates rise, the value of
a pass-through security may decrease as do the values of other debt
securities, but, when prevailing interest rates decline, the value of a
pass-through security is not likely to rise on a basis comparable to the
rise in value of other debt securities because of the prepayment feature
of pass-through securities. The Fund's reinvestment of scheduled
principal payments and unscheduled prepayments it receives may occur at
a time of higher or lower prevailing rates than the original investment,
thus affecting the yield of the Fund. Monthly interest payments received
by the Fund have a compounding effect which may increase the yield to
shareholders more than debt obligations that pay interest semi-annually.
Because of those factors, mortgage-backed securities may be less effective
than Treasury bonds of similar maturity at maintaining yields during
periods of declining interest rates. The Fund may purchase mortgage-
backed securities at a premium or at a discount. Accelerated prepayments
adversely affect yields for pass-through securities purchased at a premium
(i.e., at a price in excess of principal amount) and may involve
additional risk of loss of principal because the premium may not have been
fully amortized at the time the obligation is repaid. The opposite is
true for pass-through securities purchased at a discount.
The Fund may invest in "stripped" mortgage backed securities, in
which the principal and interest portions of the security are separated
and sold. Stripped mortgage-backed securities usually have at least two
classes each of which receives different proportions of interest and
principal distributions on the underlying pool of mortgage assets. One
common variety of stripped mortgage-backed security has one class that
receives some of the interest and most of the principal, while the other
class receives most of the interest and remainder of the principal. In
some cases, one class will receive all of the interest (the "interest-
only" or "IO" class), while the other class will receive all of the
principal (the "principal-only" or "PO" class). Interest only securities
are extremely sensitive to interest rate changes, and prepayments of
principal on the underlying mortgage assets. An increase in principal
payments or prepayments will reduce the income available to the IO
security. In other types of CMOs, the underlying principal payments may
apply to various classes in a particular order, and therefore the value
of certain classes or "tranches" of such securities may be more volatile
than the value of the pool as a whole, and losses may be more severe than
on other classes.
- GNMA Certificates. Certificates of the Government National
Mortgage Association ("GNMA Certificates") are mortgage-backed securities
which evidence an undivided interest in a pool or pools of mortgages. The
GNMA Certificates that the Fund may purchase are of the "modified pass-
through" type, which entitle the holder to receive timely payment of all
interest and principal payments due on the mortgage pool, net of fees paid
to the "issuer" and GNMA, regardless of whether the mortgagor actually
makes the payments.
The National Housing Act authorizes GNMA to guarantee the timely
payment of principal and interest on securities backed by a pool of
mortgages insured by the Federal Housing Administration ("FHA") or
guaranteed by the Veterans Administration ("VA"). The GNMA guarantee is
backed by the full faith and credit of the U.S. Government. GNMA is also
empowered to borrow without limitation from the U.S. Treasury if necessary
to make any payments required under its guarantee.
The average life of a GNMA Certificate is likely to be substantially
shorter than the original maturity of the mortgages underlying the
securities. Prepayments of principal by mortgagors and mortgage
foreclosures will usually result in the return of the greater part of
principal investment long before the maturity of the mortgages in the
pool. Foreclosures impose no risk to principal investment because of the
GNMA guarantee, except to the extent that the Fund has purchased the
certificates at a premium in the secondary market.
- FNMA Securities. The Federal National Mortgage Association
("FNMA") was established to create a secondary market in mortgages insured
by the FHA. FNMA issues guaranteed mortgage pass-through certificates
("FNMA Certificates"). FNMA Certificates resemble GNMA Certificates in
that each FNMA Certificate represents a pro rata share of all interest and
principal payments made and owed on the underlying pool. FNMA guarantees
timely payment of interest and principal on FNMA Certificates. The FNMA
guarantee is not backed by the full faith and credit of the U.S.
Government.
- FHLMC Securities. The Federal Home Loan Mortgage Corporation
("FHLMC") was created to promote development of a nationwide secondary
market for conventional residential mortgages. FHLMC issues two types of
mortgage pass-through securities ("FHLMC Certificates"): mortgage
participation certificates ("PCs") and guaranteed mortgage certificates
("GMCs"). PCs resemble GNMA Certificates in that each represents a pro
rata share of all interest and principal payments made and owed on the
underlying pool. FHMLC guarantees timely monthly payment of interest on
PCs and the ultimate payment of principal. GMCs also represent a pro rata
interest in a pool of mortgages. However, these instruments pay interest
semi-annually and return principal once a year in guaranteed minimum
payments. The expected average life of these securities is approximately
ten years. The FHLMC guarantee is not backed by the full faith and credit
of the U.S. Government.
- Participation Interests. The Fund may invest in participation
interests, subject to the limitation on its net assets that may be
invested in illiquid investments. Participation interests provide the
Fund an undivided interest in a loan made by the issuing bank in the
proportion that the Fund's participation interest bears to the total
principal amount of the loan. No more than 5% of the Fund's net assets
can be invested in participation interests of the same borrower. The Fund
must look to the creditworthiness of the borrowing corporation, which is
obligated to make payments of principal and interest on the loan. In the
event the borrower fails to pay scheduled interest or principal payments,
the Fund would experience a reduction in its income and might experience
a decline in the net asset value of its shares. In the event of a failure
by the bank to perform its obligations in connection with the
participation agreement, the Fund might incur certain costs and delays in
realizing payment or may suffer a loss of principal and/or interest.
- Brady Bonds. The Fund may invest in U.S. dollar-denominated,
collateralized Brady Bonds, as described in the Prospectus. These debt
obligations of foreign entities may be fixed-rate par bonds or floating
rate discount bonds and are generally collateralized in full as to
principal due at maturity by U. S. Treasury zero coupon obligations which
have the same maturity as the Brady Bonds. Brady Bonds are often viewed
as having three or four valuation components: (i) the collateralized
repayment of principal at final maturity; (ii) the collateralized interest
payments; (iii) the uncollateralized interest payments; and (iv) any
uncollateralized repayment of principal at maturity (these
uncollateralized amounts constitute the "residual risk"). In the event
of a default with respect to collateralized Brady Bonds as a result of
which the payment obligations of the issuer are accelerated, the zero
coupon Treasury securities held as collateral for the payment of principal
will not be distributed to investors nor will such obligations be sold and
the proceeds distributed. The collateral will be held by the collateral
agent to the scheduled maturity of the defaulted Brady Bonds, which will
continue to be outstanding, at which time the face amount of the
collateral will equal the principal payments which would have then been
due on the Brady Bonds in the normal course. In addition, in light of the
residual risk of Brady Bonds and, among other factors, the history of
defaults with respect to commercial bank loans to public and private
entities of countries issuing Brady Bonds, investments in Brady Bonds are
to be viewed as speculative.
Other Investment Techniques and Strategies
- Loans of Portfolio Securities. The Fund may lend its portfolio
securities subject to the restrictions stated in the Prospectus. Under
applicable regulatory requirements (which are subject to change), the loan
collateral on each business day must at least equal the value of the
loaned securities and must consist of cash, bank letters of credit or
securities of the U.S. Government (or its agencies or instrumentalities).
To be acceptable as collateral, letters of credit must obligate a bank to
pay amounts demanded by the Fund if the demand meets the terms of the
letter. Such terms and the issuing bank must be satisfactory to the Fund.
When it lends securities, the Fund receives amounts equal to the dividends
or interest on loaned securities and also receives one or more of (a)
negotiated loan fees, (b) interest on securities used as collateral, and
(c) interest on short-term debt securities purchased with such loan
collateral. Either type of interest may be shared with the borrower. The
Fund may also pay reasonable finder's, custodian and administrative or
other fees. The terms of the Fund's loans must meet applicable tests
under the Internal Revenue Code and must permit the Fund to reacquire
loaned securities on five days' notice or in time to vote on any important
matter.
- Repurchase Agreements. In a repurchase transaction, the Fund
acquires a security from, and simultaneously resells it to, an approved
vendor (a U.S. commercial bank or the U.S. branch of a foreign bank having
total domestic assets of at least $1 billion or a broker-dealer with a net
worth of at least $50 million and which has been designated a primary
dealer in government securities) for delivery on an agreed-on future date.
The resale price exceeds the purchase price by an amount that reflects an
agreed-upon interest rate effective for the period during which the
repurchase agreement is in effect. The majority of these transactions run
from day to day, and delivery pursuant to the resale typically will occur
within one to five days of the purchase. Repurchase agreements are
considered "loans" under the Investment Company Act, collateralized by the
underlying security. The Fund's repurchase agreements require that at all
times while the repurchase agreement is in effect, the collateral's value
must equal or exceed the repurchase price to fully collateralize the
repayment obligation. Additionally, the Manager will impose
creditworthiness requirements to confirm that the vendor is financially
sound and will continuously monitor the collateral's value.
- Restricted and Illiquid Securities. To enable the Fund to sell
restricted securities not registered under the Securities Act of 1933, the
Fund may have to cause those securities to be registered. The expenses
of registration of restricted securities may be negotiated by the Fund
with the issuer at the time such securities are purchased by the Fund,
if such registration is required before such securities may be sold
publicly. When registration must be arranged because the Fund wishes to
sell the security, a considerable period may elapse between the time the
decision is made to sell the securities and the time the Fund would be
permitted to sell them. The Fund would bear the risks of any downward
price fluctuation during that period. The Fund may also acquire, through
private placements, securities having contractual restrictions on their
resale, which might limit the Fund's ability to dispose of such securities
and might lower the amount realizable upon the sale of such securities.
The Fund has percentage limitations that apply to purchases of
restricted securities, as stated in the Prospectus. Those percentage
restrictions do not limit purchases of restricted securities that are
eligible for sale to qualified institutional purchasers pursuant to Rule
144A under the Securities Act of 1933, provided that those securities have
been determined to be liquid by the Board of Trustees of the Fund or by
the Manager under Board-approved guidelines. Those guidelines take into
account the trading activity for such securities and the availability of
reliable pricing information, among other factors. If there is a lack of
trading interest in a particular Rule 144A security, the Fund's holding
of that security may be deemed to be illiquid.
- "When-Issued" and Delayed Delivery Transactions. The Fund may
purchase securities on a "when-issued" basis, and may purchase or sell
such securities on a "delayed delivery" basis. Although the Fund will
enter into such transactions for the purpose of acquiring securities for
its portfolio or for delivery pursuant to options contracts it has entered
into, the Fund may dispose of a commitment prior to settlement. "When-
issued" or "delayed delivery" refers to securities whose terms and
indenture are available and for which a market exists, but which are not
available for immediate delivery. When such transactions are negotiated,
the price (which is generally expressed in yield terms) is fixed at the
time the commitment is made, but delivery and payment for the securities
take place at a later date. The Fund does not intend to make such
purchases for speculative purposes. Such securities may bear interest at
a lower rate than longer-term securities. The commitment to purchase a
security for which payment will be made on a future date may be deemed a
separate security and involve a risk of loss if the value of the security
declines prior to the settlement date. During the period between
commitment by the Fund and settlement (generally within two months but not
to exceed 120 days), no payment is made for the securities purchased by
the purchaser, and no interest accrues to the purchaser from the
transaction. Such securities are subject to market fluctuation; the value
at delivery may be less than the purchase price. The Fund will maintain
a segregated account with its Custodian, consisting of cash, U.S.
Government securities or other high grade debt obligations at least equal
to the value of purchase commitments until payment is made.
The Fund will engage in when-issued transactions in order to secure
what is considered to be an advantageous price and yield at the time of
entering into the obligation. When the Fund engages in when-issued or
delayed delivery transactions, it relies on the buyer or seller, as the
case may be, to consummate the transaction. Failure of the buyer or
seller to do so may result in the Fund losing the opportunity to obtain
a price and yield considered to be advantageous. At the time the Fund
makes a commitment to purchase or sell a security on a when-issued or
forward commitment basis, it records the transaction and reflects the
value of the security purchased, or if a sale, the proceeds to be
received, in determining its net asset value. If the Fund chooses to (i)
dispose of the right to acquire a when-issued security prior to its
acquisition or (ii) dispose of its right to deliver or receive against a
forward commitment, it may incur a gain or loss.
To the extent the Fund engages in when-issued and delayed delivery
transactions, it will do so for the purpose of acquiring or selling
securities consistent with its investment objective and policies and not
for the purposes of investment leverage. The Fund enters into such
transactions only with the intention of actually receiving or delivering
the securities, although (as noted above), when-issued securities and
forward commitments may be sold prior to settlement date. In addition,
changes in interest rates before settlement in a direction other than that
expected by the Manager will affect the value of such securities and may
cause a loss to the Fund.
When-issued transactions and forward commitments allow the Fund a
technique to use against anticipated changes in interest rates and prices.
For instance, in periods of rising interest rates and falling prices, the
Fund might sell securities in its portfolio on a forward commitment basis
to attempt to limit its exposure to anticipated falling prices. In
periods of falling interest rates and rising prices, the Fund might sell
portfolio securities and purchase the same or similar securities on a
when-issued or forward commitment basis, thereby obtaining the benefit of
currently higher cash yields.
- Hedging. The Fund may use hedging instruments for the purposes
described in the Prospectus. When hedging to attempt to protect against
declines in the market value of the Fund's portfolio, to permit the Fund
to retain unrealized gains in the value of portfolio securities which have
appreciated, or to facilitate selling securities for investment reasons,
the Fund may: (i) sell Interest Rate Futures or Financial Futures
(together with Interest Rate Futures, "Futures"), (ii) buy puts on
securities indices or on securities, or (iii) write covered calls on
securities, securities indices or on Futures. When hedging to permit the
Fund to establish a position in the debt securities market as a temporary
substitute for purchasing particular debt securities (which the Fund will
normally purchase, and then terminate that hedging position), the Fund
may: (i) buy Futures, or (ii) buy calls on Futures, securities indices or
on securities. When hedging to protect against declines in the dollar
value of a foreign currency-denominated security, the Fund may: (a)
purchase puts on that foreign currency, (b) write calls on that currency
or (c) enter into Forward Contracts at a lower rate than the spot ("cash")
rate.
When the Fund writes an over-the-counter ("OTC") option, it will
enter into an arrangement with a primary U.S. Government securities
dealer, which would establish a formula price at which the Fund would have
the absolute right to repurchase that OTC option. This formula price
would generally be based on a multiple of the premium received for the
option, plus the amount by which the option is "in-the-money," that is,
exercisable below (for a put) or above (for a call) the market price of
the underlying security. For any OTC option the Fund writes, it will
treat as illiquid (for purposes of the limit on its assets that may be
invested in illiquid securities) the amount of assets used to cover OTC
options it has written, equal to the formula price for the repurchase of
the OTC option less the amount by which the OTC option is "in-the-money."
The Fund will also treat as illiquid any OTC option held by it. The
Securities and Exchange Commission is evaluating whether OTC options
should be considered liquid securities, and the procedure described above
could be affected by the outcome of that evaluation.
The Fund's strategy of hedging with Futures and options on Futures
will be incidental to the Fund's investment activities in the underlying
cash market. In the future, the Fund may employ hedging instruments and
strategies that are not presently contemplated but which may be developed,
to the extent such investment methods are consistent with the Fund's
investment objective, and are legally permissible and disclosed in the
Prospectus. Additional information about the hedging instruments the Fund
may use is provided below.
- Futures. The Fund may buy and sell Interest Rate Futures and
Financial Futures. Interest Rate Futures obligate one party to deliver
and the other to take a specific debt security at a specified price on a
specified date. The contracts obligate the seller to deliver, and the
purchaser to take, cash to settle the futures transaction or to enter into
an offsetting contract. No physical delivery of the securities underlying
the index is made on settling the futures obligation. No monetary amount
is paid or received by the Fund on the purchase or sale of an Interest
Rate Future. Upon entering into a Futures transaction, the Fund will be
required to deposit an initial margin payment in cash or U.S. Treasury
bills with the futures commission merchant (the "futures broker"). The
initial margin will be deposited with the Fund's Custodian in an account
registered in the futures broker's name; however, the futures broker can
gain access to that account only under certain specified conditions. As
the Future is marked to market (that is, its value on the Fund's books is
changed) to reflect changes in its market value, subsequent margin
payments, called variation margin, will be paid to or by the futures
broker on a daily basis. Prior to expiration of the Future, if the Fund
elects to close out its position by taking an opposite position, a final
determination of variation margin is made, additional cash is required to
be paid by or released to the Fund, and any loss or gain is realized.
Although Interest Rate Futures, by their terms, call for settlement by
delivery or acquisition of debt securities, in most cases the obligation
is fulfilled by entering into an offsetting position. All futures
transactions are effected through a clearinghouse associated with the
exchange on which the contracts are traded.
Financial Futures are similar to Interest Rate Futures except that
settlement is made in cash, and net gain or loss on options on Financial
Futures depends on price movements of the securities included in the
index. The strategies which the Fund employs regarding Financial Futures
are similar to those described above with regard to Interest Rate Futures.
- Forward Contracts. The Fund may enter into foreign currency
exchange contracts ("Forward Contracts"), which obligate the seller to
deliver and the purchaser to take a specific amount of foreign currency
at a specific future date for a fixed price. A Forward Contract involves
bilateral obligations of one party to purchase, and another party to sell,
a specific currency at a future date (which may be any fixed number of
days from the date of the contract agreed upon by the parties), at a price
set at the time the contract is entered into. These contracts are traded
in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. The Fund may enter
into a Forward Contract in order to "lock in" the U.S. dollar price of a
security denominated in a foreign currency which it has purchased or sold
but which has not yet settled, or to protect against a possible loss
resulting from an adverse change in the relationship between the U.S.
dollar and a foreign currency.
There is a risk that use of Forward Contracts may reduce the gain
that would otherwise result from a change in the relationship between the
U.S. dollar and a foreign currency. To attempt to limit its exposure to
loss under Forward Contracts in a particular foreign currency, the Fund
limits its use of these contracts to the amount of its assets denominated
in that currency or denominated in a closely-correlated foreign currency.
Forward contracts include standardized foreign currency futures contracts
which are traded on exchanges and are subject to procedures and
regulations applicable to other Futures. The Fund may also enter into a
forward contract to sell a foreign currency denominated in a currency
other than that in which the underlying security is denominated. This is
done in the expectation that there is a greater correlation between the
foreign currency of the forward contract and the foreign currency of the
underlying investment than between the U.S. dollar and the foreign
currency of the underlying investment. This technique is referred to as
"cross hedging." The success of cross hedging is dependent on many
factors, including the ability of the Manager to correctly identify and
monitor the correlation between foreign currencies and the U.S. dollar.
To the extent that the correlation is not identical, the Fund may
experience losses or gains on both the underlying security and the cross
currency hedge.
The Fund may use Forward Contracts to protect against uncertainty in
the level of future exchange rates. The use of Forward Contracts does not
eliminate fluctuations in the prices of the underlying securities the Fund
owns or intends to acquire, but it does fix a rate of exchange in advance.
In addition, although Forward Contracts limit the risk of loss due to a
decline in the value of the hedged currencies, at the same time they limit
any potential gain that might result should the value of the currencies
increase.
There is no limitation as to the percentage of the Fund's assets that
may be committed to foreign currency exchange contracts. The Fund does
not enter into such forward contracts or maintain a net exposure in such
contracts to the extent that the Fund would be obligated to deliver an
amount of foreign currency in excess of the value of the Fund's assets
denominated in that currency, or enter into a "cross hedge," unless it is
denominated in a currency or currencies that the Manager believes will
have price movements that tend to correlate closely with the currency in
which the investment being hedged is denominated. See "Tax Aspects of
Covered Calls and Hedging Instruments" below for a discussion of the tax
treatment of foreign currency exchange contracts.
The Fund may enter into Forward Contracts with respect to specific
transactions. For example, when the Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency, or when
the Fund anticipates receipt of dividend payments in a foreign currency,
the Fund may desire to "lock-in" the U.S. dollar price of the security or
the U.S. dollar equivalent of such payment by entering into a Forward
Contract, for a fixed amount of U.S. dollars per unit of foreign currency,
for the purchase or sale of the amount of foreign currency involved in the
underlying transaction ("transaction hedge"). The Fund will thereby be
able to protect itself against a possible loss resulting from an adverse
change in the relationship between the currency exchange rates during the
period between the date on which the security is purchased or sold, or on
which the payment is declared, and the date on which such payments are
made or received.
The Fund may also use Forward Contracts to lock in the U.S. dollar
value of portfolio positions ("position hedge"). In a position hedge, for
example, when the Fund believes that foreign currency may suffer a
substantial decline against the U.S. dollar, it may enter into a forward
sale contract to sell an amount of that foreign currency approximating the
value of some or all of the Fund's portfolio securities denominated in
such foreign currency, or when the Fund believes that the U.S. dollar may
suffer a substantial decline against a foreign currency, it may enter into
a forward purchase contract to buy that foreign currency for a fixed
dollar amount. In this situation the Fund may, in the alternative, enter
into a forward contract to sell a different foreign currency for a fixed
U.S. dollar amount where the Fund believes that the U.S. dollar value of
the currency to be sold pursuant to the forward contract will fall
whenever there is a decline in the U.S. dollar value of the currency in
which portfolio securities of the Fund are denominated ("cross hedge").
The Fund's Custodian will place cash or U.S. Government securities
or other liquid high-quality debt securities in a separate account of the
Fund having a value equal to the aggregate amount of the Fund's
commitments under forward contracts to cover its short positions. If the
value of the securities placed in the separate account declines,
additional cash or securities will be placed in the account on a daily
basis so that the value of the account will equal the amount of the Fund's
commitments with respect to such contracts. As an alternative to
maintaining all or part of the separate account, the Fund may purchase a
call option permitting the Fund to purchase the amount of foreign currency
being hedged by a forward sale contract at a price no higher than the
forward contract price, or the Fund may purchase a put option permitting
the Fund to sell the amount of foreign currency subject to a forward
purchase contract at a price as high or higher than the forward contract
price. Unanticipated changes in currency prices may result in poorer
overall performance for the Fund than if it had not entered into such
contracts.
The precise matching of the Forward Contract amounts and the value
of the securities involved will not generally be possible because the
future value of such securities in foreign currencies will change as a
consequence of market movements in the value of these securities between
the date the Forward Contract is entered into and the date it is sold.
Accordingly, it may be necessary for the Fund to purchase additional
foreign currency on the spot (i.e., cash) market (and bear the expense of
such purchase), if the market value of the security is less than the
amount of foreign currency the Fund is obligated to deliver and if a
decision is made to sell the security and make delivery of the foreign
currency. Conversely, it may be necessary to sell on the spot market some
of the foreign currency received upon the sale of the portfolio security
if its market value exceeds the amount of foreign currency the Fund is
obligated to deliver. The projection of short-term currency market
movements is extremely difficult, and the successful execution of a short-
term hedging strategy is highly uncertain. Forward Contracts involve the
risk that anticipated currency movements will not be accurately predicted,
causing the Fund to sustain losses on these contracts and transactions
costs.
At or before the maturity of a Forward Contract requiring the Fund
to sell a currency, the Fund may either sell a portfolio security and use
the sale proceeds to make delivery of the currency or retain the security
and offset its contractual obligation to deliver the currency by
purchasing a second contract pursuant to which the Fund will obtain, on
the same maturity date, the same amount of the currency that it is
obligated to deliver. Similarly, the Fund may close out a Forward
Contract requiring it to purchase a specified currency by entering into
a second contract entitling it to sell the same amount of the same
currency on the maturity date of the first contract. The Fund would
realize a gain or loss as a result of entering into such an offsetting
Forward Contract under either circumstance to the extent the exchange rate
or rates between the currencies involved moved between the execution dates
of the first contract and offsetting contract.
The cost to the Fund of engaging in Forward Contracts varies with
factors such as the currencies involved, the length of the contract period
and the market conditions then prevailing. Because Forward Contracts are
usually entered into on a principal basis, no fees or commissions are
involved. Because such contracts are not traded on an exchange, the Fund
must evaluate the credit and performance risk of each particular
counterparty under a Forward Contract.
Although the Fund values its assets daily in terms of U.S. dollars,
it does not intend to convert its holdings of foreign currencies into U.S.
dollars on a daily basis. The Fund may convert foreign currency from time
to time, and investors should be aware of the costs of currency
conversion. Foreign exchange dealers do not charge a fee for conversion,
but they do seek to realize a profit based on the difference between the
prices at which they buy and sell various currencies. Thus, a dealer may
offer to sell a foreign currency to the Fund at one rate, while offering
a lesser rate of exchange should the Fund desire to resell that currency
to the dealer.
- Writing and Purchasing Calls. As described in the Prospectus, the
Fund may write covered calls. When the Fund writes a call on an
investment, it receives a premium and agrees to sell the callable
investment to a purchaser of a corresponding call during the call period
(usually not more than 9 months) at a fixed exercise price (which may
differ from the market price of the underlying investment) regardless of
market price changes during the call period. To terminate its obligation
on a call it has written, the Fund may purchase a corresponding call in
a "closing purchase transaction." A profit or loss will be realized,
depending upon whether the net of the amount of option transaction costs
and the premium received on the call the Fund has written is more or less
than the price of the call the Fund subsequently purchased. A profit may
also be realized if the call lapses unexercised because the Fund retains
the underlying investment and the premium received. Those profits are
considered short-term capital gains for Federal income tax purposes, as
are premiums on lapsed calls, and when distributed by the Fund are taxable
as ordinary income. If the Fund could not effect a closing purchase
transaction due to the lack of a market, it would have to hold the
callable investment until the call lapsed or was exercised.
The Fund may write and purchase calls on foreign currencies. A call
written on a foreign currency by the Fund is "covered" if the Fund owns
the underlying foreign currency covered by the call or has an absolute and
immediate right to acquire that foreign currency without additional cash
consideration (or for additional cash consideration held in a segregated
account by its custodian) upon conversion or exchange of other foreign
currency held in its portfolio. A call written by the Fund on a foreign
currency is for cross-hedging purposes if it is not covered, but is
designed to provide a hedge against a decline in the U.S. dollar value of
a security which the Fund owns or has the right to acquire and which is
denominated in the currency underlying the option due to an adverse change
in the exchange rate. In such circumstances, the Fund collateralizes the
option by maintaining in a segregated account with the Fund's custodian,
cash or Government Securities in an amount not less than the value of the
underlying foreign currency in U.S. dollars marked-to-market daily.
When the Fund buys a call (other than in a closing purchase
transaction), it pays a premium and, except as to calls on Interest Rate
Futures, has the right to buy the underlying investment from a seller of
a corresponding call on the same investment during the call period at a
fixed exercise price. The Fund benefits only if the call is sold at a
profit or if, during the call period, the market price of the underlying
investment is above the sum of the call price plus the transaction costs
and the premium paid for the call and the call is exercised. If the call
is not exercised or sold (whether or not at a profit), it will become
worthless at its expiration date and the Fund will lose its premium
payment and the right to purchase the underlying investment.
Calls on Futures are similar to calls on debt securities or futures
contracts except that all settlements are in cash (rather than by the
Fund's delivery of the underlying investment) and gain or loss depends on
changes in the index in question (and thus on price movements in the debt
securities market generally) rather than on price movements in individual
securities or futures contracts. The Fund may also write calls on Futures
without owning a futures contract or a deliverable bond, provided that at
the time the call is written, the Fund covers the call by segregating in
escrow an equivalent dollar amount of liquid assets. The Fund will
segregate additional liquid assets if the value of the escrowed assets
drops below 100% of the current value of the Future. In no circumstances
would an exercise notice require the Fund to deliver a futures contract;
it would simply put the Fund in a short futures position, which is
permitted by the Fund's hedging policies. When the Fund buys a call on
an Interest Rate Future it pays a premium. During the call period, upon
exercise of a call by the Fund, a seller of a corresponding call on the
same investment will pay the Fund an amount of cash to settle the call if
the closing level of the index or Future upon which the call is based is
greater than the exercise price of the call. That cash payment is equal
to the difference between the closing price of the call and the exercise
price of the call times a specified multiple (the "multiplier") which
determines the total dollar value for each point of difference.
- Writing and Purchasing Puts. A put option gives the purchaser the
right to sell, and the writer the obligation to buy, the underlying
investment at the exercise price during the option period. As noted above
under "Writing and Purchasing Calls," an additional reason for writing
options on a securities portfolio is to attempt to realize, through the
receipt of premiums, a greater return than would be realized on the
securities alone. Writing a put, covered by segregated liquid assets
equal to the exercise price of the put, has the same economic effect to
the Fund as writing a covered call.
The premium the Fund receives from writing a put option represents
a profit, as long as the price of the underlying investment remains above
the exercise price. However, the Fund has also assumed the obligation
during the option period to buy the underlying investment from the buyer
of the put at the exercise price, even though the value of the investment
may fall below the exercise price. If the put expires unexercised, the
Fund (as the writer of the put) realizes a gain in the amount of the
premium. If the put option is exercised, the Fund must fulfill its
obligation to purchase the underlying investment at the exercise price,
which will usually exceed the then market value of the underlying
investment at that time. In that case, the Fund may incur a loss, equal
to the sum of the sale price of the underlying investment and the premium
received minus the sum of the exercise price and any transaction costs
incurred.
When writing put options on securities, to secure its obligation to
pay for the underlying security, the Fund will deposit in escrow with its
Custodian liquid assets with a value equal to or greater than the exercise
price of the underlying securities. The Fund therefore forgoes the
opportunity of investing the segregated assets or writing calls against
those assets. As long as the obligation of the Fund as the put writer
continues, it may be assigned an exercise notice by the exchange or
broker-dealer through whom such option was sold, requiring the Fund to
take delivery of the underlying security against payment of the exercise
price. The Fund has no control over when it may be required to purchase
the underlying security, since it may be assigned an exercise notice at
any time prior to the termination of its obligation as the writer of the
put. This obligation terminates upon expiration of the put, or such
earlier time at which the Fund effects a closing purchase transaction by
purchasing a put of the same series as that previously sold. Once the
Fund has been assigned an exercise notice, it is thereafter not allowed
to effect a closing purchase transaction.
The Fund may effect a closing purchase transaction to realize a
profit on an outstanding put option it has written or to prevent an
underlying security from being put. Furthermore, effecting such a closing
purchase transaction will permit the Fund to write another put option to
the extent that the exercise price thereof is secured by the deposited
assets, or to utilize the proceeds from the sale of such assets for other
investments by the Fund. The Fund will realize a profit or loss from a
closing purchase transaction if the cost of the transaction is less or
more than the premium received from writing the option. As with writing
covered calls, any and all such profits described herein from writing puts
are considered short-term gains for Federal tax purposes, and when
distributed to the shareholders of the Fund, are taxable as ordinary
income.
When the Fund buys a put, it pays a premium and has the right to sell
the underlying investment to a seller of a put on a corresponding
investment during the put period at a fixed exercise price. Buying a put
on an investment the Fund owns enables the Fund to attempt to protect
itself during the put period against a decline in the value of the
underlying investment below the exercise price by selling the underlying
investment at the exercise price to a seller of a corresponding put. If
the market price of the underlying investment is above the exercise price
and, as a result, the put is not exercised or resold, the put will become
worthless at its expiration date and the Fund will lose its premium
payment and the right to sell the underlying investment; the put may,
however, be sold prior to expiration (whether or not at a profit).
Puts on Interest Rate Futures are similar to puts on debt securities
or futures contracts except that all settlements are in cash (rather than
by the Fund's delivery of the underlying investment) and gain or loss
depends on changes in the index in question (and thus on price movements
in the debt securities market generally) rather than on price movements
in individual securities or futures contracts. Purchasing a put on either
Futures or on securities it does not own permits the Fund either to resell
the put or, if applicable, to buy the underlying investment and sell it
at the exercise price. The resale price of the put will vary inversely
with the price of the underlying investment. If the market price of the
underlying investment is above the exercise price, and, as a result, the
put is not exercised, the put will become worthless on its expiration
date. In the event of a decline in price of the underlying investment,
the Fund could exercise or sell the put at a profit to attempt to offset
some or all of its loss on its portfolio securities. When the Fund
purchases a put on a Future or security not held by it, the put protects
the Fund to the extent that the prices of the underlying Future or
securities move in a similar pattern to the prices of the securities in
the Fund's portfolio.
- Interest Rate Swap Transactions. Swap agreements entail both
interest rate risk and credit risk. The interest rate risk of a swap is
that the Fund will incur a net payment obligation as a result of movements
in interest rates. Credit risk arises from the possibility that the
counterparty will default. If the counterparty to an interest rate swap
defaults, the Fund's loss will consist of the net amount of contractual
interest payments that the Fund has not yet received. The Manager will
monitor the creditworthiness of counterparties to the Fund's interest rate
swap transactions on an ongoing basis. The Fund will enter into swap
transactions with appropriate counterparties pursuant to master netting
agreements. A master netting agreement provides that all swaps done
between the Fund and that counterparty under the master agreement shall
be regarded as parts of an integral agreement. If on any date amounts are
payable in the same currency in respect of one or more swap transactions,
the net amount payable on that date in that currency shall be paid. In
addition, the master netting agreement may provide that if one party
defaults generally or on one swap, the counterparty may terminate the
swaps with that party. Under such agreements, if there is a default
resulting in a loss to one party, the measure of that party's damages is
calculated by reference to the average cost of a replacement swap with
respect to each swap (i.e., the mark-to-market value at the time of the
termination of each swap). The gains and losses on all swaps are then
netted, and the result is the counterparty's gain or loss on termination.
The termination of all swaps and the netting of gains and losses on
termination is generally referred to as "aggregation." The Fund will not
invest more than 25% of its assets in interest rate swap transactions.
- Additional Information about Hedging Instruments and Their Use.
The Fund's Custodian, or a securities depository acting for the Custodian,
will act as the Fund's escrow agent, through the facilities of the Options
Clearing Corporation ("OCC"), as to the securities on which the Fund has
written options traded on exchanges or as to other acceptable escrow
securities, so that no margin will be required for such transactions. OCC
will release the securities on the expiration of the option or upon the
Fund's entering into a closing transaction. An option position may be
closed out only on a market which provides secondary trading for options
of the same series, and there is no assurance that a liquid secondary
market will exist for any particular option.
The Fund's option activities may affect its turnover rate and
brokerage commissions. The exercise of calls written by the Fund may
cause the Fund to sell related portfolio securities, thus increasing its
turnover rate in a manner beyond the Fund's control. The exercise by the
Fund of puts on debt securities may cause the sale of related investments,
also increasing portfolio turnover. Although such exercise is within the
Fund's control, holding a put might cause the Fund to sell the related
investment for reasons which would not exist in the absence of the put.
The Fund will pay a brokerage commission each time it buys or sells a put,
a call, or a related investment in connection with the exercise of a put
or call. Such commissions may be higher on a relative basis than those
which would apply to direct purchases or sales of the underlying
investments. Premiums paid for options are small in relation to the
market value of such investments and consequently, put and call options
offer large amounts of leverage. The leverage offered by trading in
options could result in the Fund's net asset value being more sensitive
to changes in the value of the underlying investment.
- Regulatory Aspects of Hedging Instruments. The Fund is required
to operate within certain guidelines and restrictions with respect to its
use of futures and options thereon as established by the Commodities
Futures Trading Commission ("CFTC"). In particular, the Fund is excluded
from registration as a "commodity pool operator" if it complies with the
requirements of Rule 4.5 adopted by the CFTC. The Rule does not limit the
percentage of the Fund's assets that may be used for Futures margin and
related option premiums for a bona fide hedging position. However, under
the Rule the Fund must limit its aggregate initial futures margin and
related option premiums to no more than 5% of the Fund's net assets for
hedging strategies that are not considered bona fide hedging strategies
under the Rule.
Transactions in options by the Fund are subject to limitations
established by each of the exchanges governing the maximum number of
options which may be written or held by a single investor or group of
investors acting in concert, regardless of whether the options were
written or purchased on the same or different exchanges or are held in one
or more accounts or through one or more different exchanges or futures
brokers. Thus, the number of options which the Fund may write or hold may
be affected by options written or held by other entities, including other
investment companies having the same advisor as the Fund or having an
affiliated investment adviser. Position limits also apply to Futures.
An exchange may order the liquidation of positions found to be in
violation of those limits and may impose certain other sanctions. Due to
requirements under the Investment Company Act, when the Fund purchases a
Future, the Fund will maintain, in a segregated account or accounts with
its Custodian, cash or readily-marketable, short-term (maturing in one
year or less) debt instruments in an amount equal to the market value of
the securities underlying such Future, less the margin deposit applicable
to it.
- Tax Aspects of Hedging Instruments and Covered Calls. The Fund
intends to qualify as a "regulated investment company" under the Internal
Revenue Code (although it reserves the right not to qualify). That
qualification enables the Fund to "pass through" its income and realized
capital gains to shareholders without the Fund having to pay tax on them.
This avoids a "double tax" on that income and capital gains, since
shareholders normally will be taxed on the dividends and capital gains
they receive from the Fund (unless the Fund's shares are held in a
retirement account or the shareholder is otherwise exempt from tax). One
of the tests for the Fund's qualification as a regulated investment
company is that less than 30% of its gross income must be derived from
gains realized on the sale of securities held for less than three months.
To comply with that 30% cap, the Fund will limit the extent to which it
engages in the following activities, but will not be precluded from them:
(i) selling investments, including Stock Index Futures, held for less than
three months, whether or not they were purchased on the exercise of a call
held by the Fund; (ii) purchasing options which expire in less than three
months; (iii) effecting closing transactions with respect to calls or puts
written or purchased less than three months previously; (iv) exercising
puts or calls held by the Fund for less than three months; or (v) writing
calls on investments held less than three months.
Certain foreign currency exchange contracts ("Forward Contracts") in
which the Fund may invest are treated as "section 1256 contracts." Gains
or losses relating to section 1256 contracts generally are characterized
under the Internal Revenue Code as 60% long-term and 40% short-term
capital gains or losses. However, foreign currency gains or losses
arising from certain section 1256 contracts (including Forward Contracts)
generally are treated as ordinary income or loss. In addition, section
1256 contracts held by the Fund at the end of each taxable year are
"marked-to market" with the result that unrealized gains or losses are
treated as though they were realized. These contracts also may be marked-
to-market for purposes of the excise tax applicable to investment company
distributions and for other purposes under rules prescribed pursuant to
the Internal Revenue Code. An election can be made by the Fund to exempt
these transactions from this mark-to-market treatment.
Certain Forward Contracts entered into by the Fund may result in
"straddles" for Federal income tax purposes. The straddle rules may
affect the character of gains (or losses) realized by the Fund on straddle
positions. Generally, a loss sustained on the disposition of a position
making up a straddle is allowed only to the extent such loss exceeds any
unrecognized gain in the offsetting positions making up the straddle.
Disallowed loss is generally allowed at the point where there is no
unrecognized gain in the offsetting positions making up the straddle, or
the offsetting position is disposed of.
Under the Internal Revenue Code, gains or losses attributable to
fluctuations in exchange rates that occur between the time the Fund
accrues interest or other receivables or accrues expenses or other
liabilities denominated in a foreign currency and the time the Fund
actually collects such receivables or pays such liabilities generally are
treated as ordinary income or ordinary loss. Similarly, on disposition
of debt securities denominated in a foreign currency and on disposition
of foreign currency forward contracts, gains or losses attributable to
fluctuations in the value of a foreign currency between the date of
acquisition of the security or contract and the date of disposition also
are treated as ordinary gain or loss. Currency gains and losses are
offset against market gains and losses before determining a net "Section
988" gain or loss under the Internal Revenue Code, which may increase or
decrease the amount of the Fund's investment company income available for
distribution to its shareholders.
- Risks of Hedging With Options and Futures. An option position may
be closed out only on a market that provides secondary trading for options
of the same series, and there is no assurance that a liquid secondary
market will exist for any particular option. In addition to the risks
associated with hedging that are discussed in the Prospectus and above,
there is a risk in using short hedging by selling Futures to attempt to
protect against declines in the value of the Fund's portfolio securities
(due to an increase in interest rates) that the prices of such Futures
will correlate imperfectly with the behavior of the cash (i.e., market
value) prices of the Fund's securities. The ordinary spreads between
prices in the cash and futures markets are subject to distortions, due to
differences in the natures of those markets. First, all participants in
the futures markets are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit requirements,
investors may close out futures contracts through offsetting transactions
which could distort the normal relationship between the cash and futures
markets. Second, the liquidity of the futures markets depends on
participants entering into offsetting transactions rather than making or
taking delivery. To the extent participants decide to make or take
delivery, liquidity in the futures markets could be reduced, thus
producing distortion. Third, from the point of view of speculators, the
deposit requirements in the futures markets are less onerous than margin
requirements in the securities markets. Therefore, increased
participation by speculators in the futures markets may cause temporary
price distortions.
The risk of imperfect correlation increases as the composition of the
Fund's portfolio diverges from the securities included in the applicable
index. To compensate for the imperfect correlation of movements in the
price of the securities being hedged and movements in the price of the
hedging instruments, the Fund may use hedging instruments in a greater
dollar amount than the dollar amount of securities being hedged if the
historical volatility of the prices of the securities being hedged is more
than the historical volatility of the applicable index. It is also
possible that if the Fund has used hedging instruments in a short hedge,
the market may advance and the value of securities held in the Fund's
portfolio may decline. If that occurred, the Fund would lose money on the
hedging instruments and also experience a decline in value in its
portfolio securities. However, while this could occur for a very brief
period or to a very small degree, over time the value of a diversified
portfolio of securities will tend to move in the same direction as the
indices upon which the hedging instruments are based.
If the Fund uses hedging instruments to establish a position in the
securities markets as a temporary substitute for the purchase of
individual securities (long hedging) by buying Futures and/or calls on
such Futures, on securities or on securities indices, it is possible that
the market may decline. If the Fund then concludes not to invest in
securities at that time because of concerns as to a possible further
market decline or for other reasons, the Fund will realize a loss on the
hedging instruments that is not offset by a reduction in the price of the
securities purchased.
Other Investment Restrictions
The Fund's most significant investment restrictions are set forth in
the Prospectus. There are additional investment restrictions that the
Fund must follow that are also fundamental policies. Fundamental policies
and the Fund's investment objectives cannot be changed without the vote
of a "majority" of the Fund's outstanding voting securities.
Under the Investment Company Act, such a "majority" vote is
defined as the vote of the holders of the lesser of: (i) 67% or more of the
shares present or represented by proxy at such meeting, if the holders of
more than 50% of the outstanding shares are present or represented by proxy,
or (ii) more than 50% of the outstanding shares.
Under these additional restrictions, the Fund cannot:
(1) invest in real estate, but the Fund may invest in debt securities
secured by real estate or interests therein or issued by companies,
including real estate investment trusts, which invest in real estate or
interests therein;
(2) buy securities on margin or engage in short sales, except that
the Fund may make margin deposits in connection with any of the Hedging
Instruments which it may use as permitted by any of its other fundamental
policies;
(3) mortgage, hypothecate or pledge any of its assets; however, this
does not prohibit the escrow arrangements contemplated in connection with
the use of Hedging Instruments;
(4) underwrite securities of any issuer if those officers and
trustees or directors of the Fund or its adviser owning individually more
than 0.5% of the securities of such issuer together own more than 5% of
the securities of such issuer;
(5) invest in mineral-related programs or leases;
(6) invest in companies for the primary purpose of acquiring control
of management thereof;
(7) invest in other investment companies, except in connection with
a merger, consolidation, reorganization or acquisition of assets;
(8) borrow money in excess of 10% of the value of its assets (the
Fund may borrow only as a temporary measure for emergency purposes) or
make any investment at a time during which borrowing exceeds 5% of the
value of its assets;
(9) make loans, except through the purchase of portfolio securities
subject to repurchase agreements or through loans of portfolio securities
as described above under "Loans of Portfolio Securities";
(10) invest in commodities or commodity contracts; however, the Fund
may buy and sell any of the Hedging Instruments which it may use as
permitted by any of its other policies, whether or not such Hedging
Instrument is considered to be a commodity or commodity contract, subject
to the restrictions and limitations stated under "Hedging" in this
Prospectus; or
(11) invest more than 5% of the Fund's net assets in securities of
companies (including predecessors) that have operated less than three
years.
For purposes of the Fund's policy not to concentrate described under
"Other Investment Restrictions" in the Prospectus, the Fund has adopted
the industry classifications set forth in the Appendix to this Statement
of Additional Information. This is not a fundamental policy.
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 entitle 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, 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 and
their principal occupations and business affiliations during the past five
years are set forth below. Each Trustee is also a Trustee, Director or
Managing General Partner of Daily Cash Accumulation Fund, Inc., Centennial
Money Market Trust, Centennial Tax Exempt Trust, Centennial Government
Trust, Centennial New York Tax Exempt Trust, Centennial California Tax
Exempt Trust, Oppenheimer Total Return Fund, Inc., Oppenheimer Equity
Income Fund, Oppenheimer High Yield Fund, Oppenheimer Cash Reserves,
Oppenheimer Variable Account Funds, Oppenheimer Main Street Funds, Inc.,
Oppenheimer Integrity Funds, Oppenheimer Strategic Income Fund,
Oppenheimer Strategic Income & Growth Fund, Centennial America Fund, L.P.,
Oppenheimer Tax-Exempt Fund, Oppenheimer International Bond Fund,
Oppenheimer Limited-Term Government Fund, and The New York Tax-Exempt
Income Fund, Inc. (collectively, the "Denver-based Oppenheimer funds")
except Mr. Fossel, who is a Trustee, Director or Managing General Partner
of all of the Denver-based Oppenheimer funds except Oppenheimer Integrity
Funds and Oppenheimer Strategic Income Fund. Ms. Macaskill and Messrs.
Bishop, Bowen, Donohue, Farrar and Zack hold similar positions as officers
of all such funds. Mr. Swain is Chairman of each of the Denver-based
Oppenheimer funds. As of January 2, 1996, the Trustees and officers of
the Fund as a group owned of record or beneficially less than 1% of each
class of shares of the Fund. The foregoing statement does not reflect
ownership of shares held of record by an employee benefit plan for
employees of the Manager (for which plan two of the officers listed below,
Ms. Macaskill and Mr. Donohue, are trustees), other than the shares
beneficially owned under that plan by the officers of the Fund listed
above.
ROBERT G. AVIS, Trustee*; Age 64
One North Jefferson Avenue, St. Louis, Missouri 63103
Vice Chairman of A.G. Edwards & Sons, Inc. (a broker-dealer) and A.G.
Edwards, Inc. (its parent holding company); Chairman of A.G.E. Asset
Management and A.G. Edwards Trust Company (its affiliated investment
adviser and trust company, respectively.)
WILLIAM A. BAKER, Trustee; Age 80
197 Desert Lakes Drive, Palm Springs, California 92264
Management Consultant.
_____________________
*A Trustee who is an "interested person" of the Fund as defined in the
Investment Company Act.
CHARLES CONRAD, JR., Trustee; Age 65
19411 Merion Circle, Huntington Beach, California 92648
Vice President of McDonnell Douglas Space Systems Co.; formerly associated
with the National Aeronautics and Space Administration.
JON S. FOSSEL, Trustee*; Age 53
Two World Trade Center, New York, New York 10048-0203
Chairman and a Director of the Manager; President and a Director of
Oppenheimer Acquisition Corp. ("OAC"), the Manager's parent holding
company; President and a Director of HarbourView Asset Management
Corporation ("HarbourView"), a subsidiary of the Manager; a Director of
Shareholder Services, Inc. ("SSI") and Shareholder Financial Services,
Inc. ("SFSI"), transfer agent subsidiaries of the Manager; formerly
President of the Manager.
RAYMOND J. KALINOWSKI, Trustee; Age 66
44 Portland Drive, St. Louis, Missouri 63131
Director of International Inc.; formerly Vice Chairman and a Director of
A.G. Edwards, Inc., parent holding company of A.G. Edwards & Sons, Inc.
(a broker-dealer), of which he was a Senior Vice President.
C. HOWARD KAST, Trustee; Age 73
2552 East Alameda, Denver, Colorado 80209
Formerly Managing Partner of Deloitte, Haskins & Sells (an accounting
firm).
ROBERT M. KIRCHNER, Trustee; Age 73
7500 E. Arapahoe Road, Englewood, Colorado 80112
President of The Kirchner Company (management consultants).
BRIDGET A. MACASKILL, President and Trustee*; Age: 47
President, Chief Executive Officer and a Director of the Manager; Chairman
and a Director of SSI, Vice President and a Director of OAC; a Director
of HarbourView and of Oppenheimer Partnership Holdings, Inc., a holding
company subsidiary of the Manager; formerly an Executive Vice President
of the Manager.
NED M. STEEL, Trustee; Age 80
3416 South Race Street, Englewood, Colorado 80110
Chartered Property and Casualty Underwriter; Director of Visiting Nurse
Corporation of Colorado;formerly Senior Vice President and a Director of
Van Gilder Insurance Corp. (insurance brokers).
JAMES C. SWAIN, Chairman and Trustee*; Age 61
3410 South Galena Street, Denver, Colorado 80231
Vice Chairman and a director of the Manager; President and a Director of
Centennial Asset Management Corporation ("Centennial"), an investment
adviser subsidiary of the Manager; formerly Chairman of the Board of SSI.
_____________________
*A Trustee who is an "interested person" of the Fund as defined in the
Investment Company Act.
RALPH STELLMACHER, Vice President and Portfolio Manager; Age 36
Two World Trade Center, New York, New York 10048
Senior Vice President of the Manager; an officer of other Oppenheimer
funds.
ANDREW J. DONOHUE, Vice President; Age 45
Two World Trade Center, New York, New York 10048
Executive Vice President and General Counsel of Oppenheimer Management
Corporation ("OMC") (the "Manager") and Oppenheimer Funds Distributor,
Inc. (the "Distributor"); an officer of other Oppenheimer funds; formerly
Senior Vice President and Associate General Counsel of the Manager and the
Distributor; Partner in, Kraft & McManimon (a law firm); an officer of
First Investors Corporation (a broker-dealer) and First Investors
Management Company, Inc. (broker-dealer and investment adviser); director
and an officer of First Investors Family of Funds and First Investors Life
Insurance Company.
GEORGE C. BOWEN, Vice President, Secretary and Treasurer; Age 59
3410 South Galena Street, Denver, Colorado 80231
Senior Vice President and Treasurer of the Manager; Vice President and
Treasurer of the Distributor and HarbourView; Senior Vice President,
Treasurer, Assistant Secretary and a director of Centennial; Vice
President, Treasurer and Secretary of SSI and SFSI; an officer of other
Oppenheimer funds.
ROBERT BISHOP, Assistant Treasurer; Age 37
3410 South Galena Street, Denver, Colorado 80231
Assistant Vice President of the Manager/Mutual Fund Accounting; an officer
of other Oppenheimer funds; formerly a Fund Controller for the Manager,
prior to which he was an Accountant for Yale & Seffinger, P.C., an
accounting firm, and previously an Accountant and Commissions Supervisor
for Stuart James Company Inc., a broker-dealer.
SCOTT FARRAR, Assistant Treasurer; Age 30
3410 South Galena Street, Denver, Colorado 80231
Assistant Vice President of the Manager/Mutual Fund Accounting; an officer
of other Oppenheimer funds; formerly a Fund Controller for the Manager,
prior to which he was an International Mutual Fund Supervisor for Brown
Brothers Harriman & Co., a bank, and previously a Senior Fund Accountant
for State Street Bank & Trust Company.
ROBERT G. ZACK, Assistant Secretary; Age 47.
Two World Trade Center, New York, New York 10048
Senior Vice President and Associate General Counsel of the Manager;
Assistant Secretary of SSI and SFSI; an officer of other Oppenheimer
funds.
- Remuneration of Trustees. The officers of the Fund are affiliated
with the Manager; they and the Trustees of the Fund who are affiliated
with the Manager (Messrs. Fossel and Swain, who are both officers and
Trustees) receive no salary or fee from the Fund. The Trustees of the
Fund (excluding Messrs. Fossel and Swain) received the total amounts shown
below from all 21 of the Denver-based Oppenheimer funds (including the
Fund) listed in the first paragraph of this section (and from Oppenheimer
Tax-Exempt Cash Reserves, Oppenheimer Strategic Investment Grade Bond
Fund, Oppenheimer Strategic Diversified Income Fund, Oppenheimer Strategic
Short-Term Income Fund, which ceased operations following the acquisition
of their assets by certain other Oppenheimer funds), for services in the
positions shown:
<TABLE>
<CAPTION>
Total Compensation
Aggregate From All
Compensation Denver-based
Name and Position from Fund OppenheimerFunds1
- ----------------- ------------ -----------------
<S> <C> <C>
Robert G. Avis $221.79 $53,000.00
Trustee
William A. Baker $306.54 $73,254.66
Audit and Review
Committee Chairman
and Trustee
Charles Conrad, Jr. $269.11 $64,309.17
Audit and Review
Committee Member
and Trustee
Raymond J. Kalinowski $272.00 $65,000.00
Trustee
C. Howard Kast $272.00 $65,000.00
Trustee
Robert M. Kirchner $285.78 $68,292.00
Audit and Review
Committee Member
and Trustee
Ned M. Steel $221.79 $53,000.00
Trustee
<FN>
______________
1 For the 1995 calendar year.
</TABLE>
- Major Shareholders. As of January 2, 1996, no person owns of record
or is 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 C shares, except
Merrill Lynch Pierce Fenner & Smith Inc., 4800 Deer Lake Drive East, Floor
3, Jacksonville, Florida 32246, which was the record owner of 968,737.332
Class C shares (approximately 15.55% of the Class C shares then
outstanding). Class B shares were not publicly offered during the Fund's
fiscal year ended September 30, 1995.
The Manager and Its Affiliates. The Manager is wholly-owned by
Oppenheimer Acquisition Corp. ("OAC"), a holding company controlled by
Massachusetts Mutual Life Insurance Company. OAC is also owned in part
by certain of the Manager's directors and officers, some of whom serve as
officers of the Fund and three of whom (Ms. Macaskill and Messrs. Fossel
and Swain) serve as Trustees of the Fund.
The Manager and the Fund have a Code of Ethics. It is designed to
detect and prevent improper personal trading by certain employees,
including portfolio managers, that would compete with or take advantage
of the Fund's portfolio transactions. Compliance with the Code of Ethics
is carefully monitored and strictly enforced by the Manager.
- The Investment Advisory Agreement. The Investment Advisory
Agreement between the Manager and the Fund requires the Manager, at its
expense, to provide the Fund with adequate office space, facilities and
equipment, and to provide and supervise the activities of all
administrative and clerical personnel required to provide effective
corporate administration for the Fund, including the compilation and
maintenance of records with respect to its operations, the preparation and
filing of specified reports, and the composition of proxy materials and
registration statements for continuous public sale of shares of the Fund.
Expenses not expressly assumed by the Manager under the advisory
agreement or by the Distributor are paid by the Fund. The advisory
agreement lists examples of expenses paid by the Fund, the major
categories of which relate to interest, taxes, brokerage commissions, fees
to certain Trustees, legal and audit expenses, custodian and transfer
agent expenses, share issuance costs, certain printing and registration
costs, and non-recurring expenses, including litigation. For the Fund's
fiscal years ended September 30, 1993, 1994 and 1995, the management fees
paid by the Fund to the Manager were $513,057, $1,026,200 and $1,728,602,
respectively.
The advisory agreement contains no expense limitation. However,
independently of the Agreement, the Manager 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 Manager 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 Manager 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 Manager 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 Manager shall no longer act as investment
adviser to the Fund, the right of the Fund to use the name "Oppenheimer"
as part of its name may be withdrawn.
- The Distributor. Under its General Distributor's Agreement with the
Fund, the Distributor acts as the Fund's principal underwriter in the
continuous public offering of the Fund's Class A, Class B and Class C
shares but is not obligated to sell a specific number of shares. Expenses
normally attributable to sales (other than those paid under the
Distribution and Service Plans, but including advertising and the cost of
printing and mailing prospectuses, other than those furnished to existing
shareholders) are borne by the Distributor. During the Fund's fiscal
years ended September 30, 1993, 1994 and 1995, the aggregate amount of
sales charge on sales of the Fund's Class A shares was $1,401,952,
$2,343,545 and $2,642,892, respectively, of which the Distributor and an
affiliated broker-dealer retained $352,530, $595,684 and $650,296 in those
respective years. Class B shares were not publicly offered during those
periods, and no contingent deferred sales charges were collected. For the
fiscal year ended September 30, 1995, the contingent deferred sales charge
collected by the Distributor on the redemption of Class C shares totalled
$32,460. 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. OppenheimerFunds Services, the Fund's
transfer agent, is responsible for maintaining the Fund's shareholder
registry and shareholder accounting records, and for shareholder servicing
and administrative functions.
Brokerage Policies of the Fund
Brokerage Provisions of the Investment Advisory Agreement. One of the
duties of the Manager under the advisory agreement is to arrange the
portfolio transactions for the Fund. The advisory agreement contains
provisions relating to the employment of broker-dealers ("brokers") to
effect the Fund's portfolio transactions. In doing so, the Manager is
authorized by the advisory agreement to employ broker-dealers, including
"affiliated" brokers, as that term is defined in the Investment Company
Act, as may, in its best judgment based on all relevant factors, implement
the policy of the Fund to obtain, at reasonable expense, the "best
execution" (prompt and reliable execution at the most favorable price
obtainable) of such transactions. The Manager need not seek competitive
commission bidding but is expected to minimize the commissions paid to the
extent consistent with the interest and policies of the Fund as
established by its Board of Trustees.
Under the advisory agreement, the Manager is authorized to select
brokers that provide brokerage and/or research services for the Fund
and/or the other accounts over which the Manager or its affiliates have
investment discretion. The commissions paid to such brokers may be higher
than another qualified broker would have charged if a good faith
determination is made by the Manager that the commission is fair and
reasonable in relation to the services provided. Subject to the foregoing
considerations, the Manager may also consider sales of shares of the Fund
and other investment companies managed by the Manager or its affiliates
as a factor in the selection of brokers for the Fund's portfolio
transactions.
Description of Brokerage Practices Followed by the Manager. Subject to
the provisions of the advisory agreement and the procedures and rules
described above, allocations of brokerage are generally made by the
Manager's portfolio traders based upon recommendations from the Manager's
portfolio managers. In certain instances, portfolio managers may directly
place trades and allocate brokerage, also subject to the provisions of the
advisory agreement and the procedures and rules described above. In
either case, brokerage is allocated under the supervision of the Manager's
executive officers. Transactions in securities other than those for which
an exchange is the primary market are generally done with principals or
market makers. Brokerage commissions are paid primarily for effecting
transactions in listed securities and otherwise only if it appears likely
that a better price or execution can be obtained. When the Fund engages
in an option transaction, ordinarily the same broker will be used for the
purchase or sale of the option and any transaction in the securities to
which the option relates. When possible, concurrent orders to purchase
or sell the same security by more than one of the accounts managed by the
Manager 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
only to one or more of the advisory accounts of the Manager and its
affiliates, and investment research received for the commissions of those
other accounts may be useful both to the Fund and one or more of such
other accounts. Such research, which may be supplied by a third party at
the instance of a broker, includes information and analyses on particular
companies and industries as well as market or economic trends and
portfolio strategy, receipt of market quotations for portfolio
evaluations, information systems, computer hardware and similar products
and services. If a research service also assists the Manager in a non-
research capacity (such as bookkeeping or other administrative functions),
then only the percentage or component that provides assistance to the
Manager in the investment decision-making process may be paid in
commission dollars. The Board of Trustees has permitted the Manager to
use concessions on fixed price offerings to obtain research, in the same
manner as is permitted for agency transactions. The Board has also
permitted the Manager to use stated commissions on secondary fixed-income
trades to obtain research where the broker has represented to the Manger
that (i) the trade is not from the broker's own inventory, (ii) the trade
was executed by the broker on an agency basis at the stated commission,
and (iii) the trade is not a riskless principal transaction.
The research services provided by brokers broaden the scope and
supplement the research activities of the Manager, by making available
additional views for consideration and comparisons, and by enabling the
Manager to obtain market information for the valuation of securities held
in the Fund's portfolio or being considered for purchase. The Board of
Trustees, including the "independent" Trustees of the Fund (those Trustees
of the Fund who are not "interested persons" as defined in the Investment
Company Act, and who have no direct or indirect financial interest in the
operation of the advisory agreement or the Distribution Plans described
below) annually reviews information furnished by the Manager as to the
commissions paid to brokers furnishing such services so that the Board may
ascertain whether the amount of such commissions was reasonably related
to the value or benefit of such services.
During the Fund's fiscal years ended September 30, 1993, 1994 and
1995, total brokerage commissions paid by the Fund (not including any
spreads or concessions on principal transactions on a net trade basis)
amounted to $2,499, $6,760 and $41,266, respectively. During the fiscal
year ended September 30, 1995, $1,296 was paid to brokers as commissions
in return for research services; the aggregate dollar amount of these
transactions was $142,608. The transactions giving rise to those
commissions were allocated in accordance with the Manager's internal
allocation procedures.
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. No performance information is
presented below for Class B shares because no shares of that class were
publicly issued during the fiscal year ended September 30, 1995.
The Fund's advertisements of its performance data must, under
applicable rules of the Securities and Exchange Commission, include the
average annual total returns for each class of shares of the Fund for the
1, 5, and 10-year periods (or the life of the class, if less) 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 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:
Standardized Yield = 2[(a-b
--- + 1)6 - 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 September 30, 1995, the standardized yields for
the Fund's Class A and Class C shares were 7.66% and 7.27%, respectively.
No standardized yields are presented for Class B shares because no shares
of that class were publicly issued during the fiscal year ended September
30, 1995.
- Dividend Yield and Distribution Return. From time to time the Fund
may quote a "dividend yield" or a "distribution return" for each class.
Dividend yield is based on the dividends paid on shares of a class from
dividends derived from net investment income during a stated period.
Distribution return includes dividends derived from net investment income
and from realized capital gains declared during a stated period. Under
those calculations, the dividends and/or distributions for that class
declared during a stated period of one year or less (for example, 30 days)
are added together, and the sum is divided by the maximum offering price
per share of that class on the last day of the period. When the result
is annualized for a period of less than one year, the "dividend yield" is
calculated as follows:
Dividend Yield of the Class = Dividends of the Class
-----------------------
Max. Offering Price of the Class
(last day of period)
+ Number of days (accrual period) x 365
The maximum offering price for Class A shares includes the maximum
front-end sales charge. For Class B or Class C shares, the maximum
offering price is the net asset value per share, without considering the
effect of contingent deferred sales charges.
From time to time similar yield or distribution return calculations
may also be made using the Class A net asset value (instead of its maximum
offering price) at the end of the period. The dividend yields on Class A
shares for the 30-day period ended September 30, 1995, were 8.09% and
8.49% when calculated at maximum offering price and at net asset value,
respectively. The dividend yield on Class C shares for the 30-day period
ended September 30, 1995, was 7.74% when calculated at net asset value.
- Total Return Information
- Average Annual Total Returns. The "average annual total return" of
each class is an average annual compounded rate of return for each year
in a specified number of years. It is the rate of return based on the
change in value of a hypothetical initial investment of $1,000 ("P" in the
formula below) held for a number of years ("n") to achieve an Ending
Redeemable Value ("ERV") of that investment, according to the following
formula:
ERV 1/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 4.75% (as a percentage of the offering price) is deducted
from the initial investment ("P") (unless the return is shown at net asset
value, as described below). For Class B shares, payment of a contingent
deferred sales charge of 5.0% for the first year, 4.0% for the second
year, 3.0% for the third and fourth year, 2.0% for the fifth year and 1.0%
for the sixth year, and none thereafter, is applied, as described in the
Prospectus. For Class C shares, the payment of the 1% contingent deferred
sales charge for the first 12 months 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 September 30, 1995 and for the period from November 16, 1987 through
September 30, 1995 were 4.86%, 14.10% and 12.57%, respectively. The
cumulative "total return" on Class A shares for the period from November
16, 1987 through September 30, 1995 was 153.92%. The cumulative total
return on Class C shares for the period from December 1, 1993 through
September 30, 1995 was 10.37%.
- Total Returns at Net Asset Value. From time to time the Fund may
also quote an average annual total return at net asset value or a
cumulative total return at net asset value for Class A, Class B or Class
C shares. Each is based on the difference in net asset value per share
at the beginning and the end of the period for a hypothetical investment
in that class of shares (without considering front-end or contingent
deferred sales charges) and takes into consideration the reinvestment of
dividends and capital gains distributions. The cumulative total return
at net asset value of the Fund's Class A shares for the one year period
ended September 30, 1995 and the period from November 16, 1987 through
September 30, 1995 was 10.09% and 166.59%, respectively. The cumulative
total return at net asset value for Class C shares for the period from
December 1, 1993 through September 30, 1995 was 10.37%.
Total return information may be useful to investors in reviewing the
performance of the Fund's Class A, Class B or Class C shares. However,
when comparing total return of an investment in Class A, Class B or Class
C shares of the Fund with that of other alternatives, investors should
understand that as the Fund invests in high yield securities, its shares
are subject to greater market risks than shares of funds having other
investment objectives and that the Fund is designed for investors who are
willing to accept greater risk of loss in the hopes of realizing greater
gains.
Other Performance Comparisons. From time to time the Fund may publish the
ranking of its Class A, Class B or Class C shares by Lipper Analytical
Services, Inc. ("Lipper"), a widely-recognized independent 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 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 C shares by Morningstar, Inc., an
independent mutual fund monitoring service that ranks mutual funds,
including the Fund, monthly in broad investment categories (equity,
taxable bond, municipal bond and hybrid) based on risk-adjusted investment
return. Investment return measures a fund's three, five and ten-year
average annual total returns (when available) in excess of 90-day U.S.
Treasury bill returns after considering sales charges and expenses. Risk
reflects fund performance below 90-day U.S. Treasury bill monthly returns.
Risk and return are combined to produce star rankings reflecting
performance relative to the average fund in a fund's category. Five stars
is the "highest" ranking (top 10%), four stars is "above average" (next
22.5%), three stars is "average" (next 35%), two stars is "below average"
(next 22.5%) and one star is "lowest" (bottom 10%). Morningstar ranks the
Class A, Class B and Class C shares of the Fund in relation to other rated
high yield funds. Rankings are subject to change.
The total return on an investment in the Fund's Class A, Class B or
Class C shares may be compared with performance for the same period of the
Lehman Brothers Corporate Bond Index and the Salomon Brothers High Yield
Market Index. The Lehman Brothers Corporate Bond Index is an unmanaged
index of publicly-issued nonconvertible investment grade corporate debt
of U.S. issuers, widely recognized as a measure of the U.S. fixed-rate
corporate bond market. The Salomon Brothers High Yield Market Index is
an unmanaged index of below-investment grade (but rated at least BB+/Ba1
by Standard & Poor's or Moody's) U.S. corporate debt obligations, widely
recognized as a measure of the performance of the high-yield corporate
bond market, the market in which the Fund principally invests. Each Index
includes a factor for the reinvestment of interest but does not reflect
expenses or taxes.
Investors may also wish to compare the Fund's Class A, Class B or
Class C return 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 Manager may publish rankings or ratings
of the Manager (or Transfer Agent) 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 C 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 a Service Plan for Class A shares and
Distribution and Service Plans for Class B and Class C 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. Each
Plan has been approved by a vote of (i) the Board of Trustees of the Fund,
including a majority of the "Independent Trustees", cast in person at a
meeting called for the purpose of voting on that Plan, and (ii) the
holders of a "majority" (as defined in the Investment Company Act) of the
shares of each class. For the Distribution and Service Plan for the Class
B shares (the "Class B Plan") and Class C shares (the "Class C Plan"),
such votes were cast by the Manager as the sole initial holder of Class
B and Class C shares of the Fund.
In addition, under the Plans, the Manager and the Distributor, in
their sole discretion, from time to time, may use their own resources
(which, in the case of the Manager, may include profits from the advisory
fee it receives from the Fund), to make payments at no cost to the Fund
to brokers, dealers or other financial institutions (each is referred to
as a "Recipient" under the Plans) for distribution and administrative
services they perform. The Distributor and the Manager may, in their sole
discretion, increase or decrease the amount of payments they make 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 payments
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 for which the payments were made. The
report for the Class C Plan shall also include the Distributor's
distribution costs for that quarter, and such costs for previous fiscal
periods that have been carried forward, as explained in the Prospectus and
below. 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.
Under the Plans, no payment will be made to any Recipient in any
quarter if the aggregate net asset value of all Fund shares held by the
Recipient for itself and its customers did not exceed a minimum amount,
if any, that may be determined from time to time by a majority of the
Fund's Independent Trustees. Initially, the Board of Trustees has set the
fee at the maximum rate and set no minimum amount.
For the fiscal year ended September 30, 1995, payments under the
Class A Plan totaled $490,347, all of which was paid by the Distributor
to Recipients as reimbursement for services, including $16,344 paid to MML
Investor Services, Inc., an affiliate of the Distributor. Any
unreimbursed expenses incurred with respect to Class A shares for any
fiscal quarter by the Distributor may not be recovered under the Class A
Plan in subsequent fiscal quarters. Payments received by the Distributor
under the Class A Plan will not be used to pay any interest expense,
carrying charges, or other financial costs, or allocation of overhead by
the Distributor.
The Class B and Class C Plans allow the service fee payment to be
paid by the Distributor to Recipients in advance for the first year such
shares are outstanding, and thereafter on a quarterly basis, as described
in the Prospectus. The advance payment is based on the net assets of the
shares sold. An exchange of shares does not entitle the Recipient to an
advance 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.
Although the Class B and the Class C Plans permit the Distributor to
retain both the asset-based sales charges and the service fees on Class
B and Class C shares, or to pay Recipients the service fee on a quarterly
basis, without payment in advance, the Distributor intends to pay the
service fee to Recipients in the manner described above. A minimum
holding period may be established from time to time under the Class B and
Class C Plan by the Board. Initially, the Board has set no minimum
holding period. All payments under the Class B and Class C Plans are
subject to the limitations imposed by the Rules of Fair Practice of the
National Association of Securities Dealers, Inc. on payments of asset
based sales charges and service fees.
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. Since no Class B
shares were outstanding during the Fund's fiscal year end September 30,
1995, no payments were made under the Class B Plan.
The Class C Plan allows for the carry-forward of distribution
expenses, to be recovered from asset-based sales charges in subsequent
fiscal periods, as described in the Prospectus. For the fiscal year ended
September 30, 1995, payments under the Class C Plan totalled $435,523, of
which $3,619 was paid to MML Investor Services, Inc., an affiliate of the
Distributor.
The asset-based sales charge paid to the Distributor by the Fund
under the Class C Plan is intended to allow the Distributor to recoup the
cost of sales commissions paid to authorized brokers and dealers at the
time of sale, plus financing costs, as described in the Prospectus. Such
payments may also be used to pay for the following expenses in connection
with the distribution of Class C shares: (i) financing the advance of the
service fee payment to Recipients under the Class C Plan, (ii)
compensation and expenses of personnel employed by the Distributor to
support distribution of Class C shares, and (iii) costs of sales
literature, advertising and prospectuses (other than those furnished to
current shareholders) and state "blue sky" registration fees.
ABOUT YOUR ACCOUNT
How To Buy Shares
Alternative Sales Arrangements - Class A, Class B and Class C Shares.
The availability of three classes of shares permits an investor to choose
the method of purchasing shares that is more beneficial to the investor
depending on the amount of the purchase, the length of time the investor
expects to hold shares and other relevant circumstances. Investors should
understand that the purpose and function of the deferred sales charge and
asset-based sales charge with respect to Class B and Class C shares are
the same as those of the initial sales charge with respect to Class A
shares. Any salesperson or other person entitled to receive compensation
for selling Fund shares may receive different compensation with respect
to one class of shares than another. The Distributor will not accept (i)
any order for $500,000 or more of Class B or (ii) any order for $1 million
or more of Class C shares on behalf of a single investor (not including
dealer "street name" or omnibus accounts) because generally it will be
more advantageous for that investor to purchase Class A shares of the Fund
instead.
The three classes of shares each represent an interest in the same
portfolio investments of the Fund. However, each class has different
shareholder privileges and features. The net income attributable to Class
B and Class C shares and the dividends payable on Class B and Class C
shares will be reduced by incremental expenses borne by those classes,
including the asset-based sales charge to which Class B and Class C shares
are subject.
The conversion of Class B shares to Class A shares after six years
is subject to the continuing availability of a private letter ruling from
the Internal Revenue Service, or an opinion of counsel or tax adviser, to
the effect that the conversion of Class B shares does not constitute a
taxable event for the holder under Federal income tax law. If such a
revenue ruling or opinion is no longer available, the automatic conversion
feature may be suspended, in which event no further conversions of Class
B shares would occur while such suspension remained in effect. Although
Class B shares could then be exchanged for Class A shares on the basis of
relative net asset value of the two classes, without the imposition of a
sales charge or fee, such exchange could constitute a taxable event for
the holder, and absent such exchange, Class B shares might continue to be
subject to the asset-based sales charge for longer than six years.
The methodology for calculating the net asset value, dividends and
distributions of the Fund's Class A, Class B and Class C shares recognizes
two types of expenses. General expenses that do not pertain specifically
to any class are allocated pro rata to the shares of each class, based on
the percentage of the net assets of such class to the Fund's total assets,
and then equally to each outstanding share within a given class. Such
general expenses include (i) management fees, (ii) legal, bookkeeping and
audit fees, (iii) printing and mailing costs of shareholder reports,
Prospectuses, Statements of Additional Information and other materials for
current shareholders, (iv) fees to unaffiliated Trustees, (v) custodian
expenses, (vi) share issuance costs, (vii) organization and start-up
costs, (viii) interest, taxes and brokerage commissions, and (ix) non-
recurring expenses, such as litigation costs. Other expenses that are
directly attributable to a class are allocated equally to each outstanding
share within that class. Such expenses include (i) Distribution and/or
Service Plan fees, (ii) incremental transfer and shareholder servicing
agent fees and expenses, (iii) registration fees and (iv) shareholder
meeting expenses, to the extent that such expenses pertain to a specific
class rather than to the Fund as a whole.
Determination of Net Asset Value Per Share. The net asset values per
share of Class A, Class B and Class C shares of the Fund are determined
as of the close of business of The New York Stock Exchange on each day
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 Exchanges 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
Manager as reported by the principal exchange on which the security is
traded; (iii) unlisted foreign securities or listed foreign securities not
actively traded are valued as in (i) above, if available, or at the mean
between "bid" and "asked" prices obtained from active market makers in the
security on the basis of reasonable inquiry; (iv) long-term debt
securities having a remaining maturity in excess of 60 days are valued at
the mean between the "bid" and "asked" prices determined by a portfolio
pricing service approved by the Fund's Board of Trustees or obtained from
active market makers in the security on the basis of reasonable inquiry;
(v) debt instruments having a maturity of more than one year when issued,
and non-money market type instruments having a maturity of one year or
less when issued, which have a remaining maturity of 60 days or less are
valued at the mean between "bid" and "asked" prices determined by a
pricing service approved by the Fund's Board of Trustees or obtained from
active market makers in the security on the basis of reasonable inquiry;
(vi) money market-type debt securities having a maturity of less than one
year when issued that having a remaining maturity of 60 days or less are
valued at cost, adjusted for amortization of premiums and accretion of
discounts; (vii) securities (including restricted securities) not having
readily-available market quotations are valued at fair value under the
Board's procedures; and (viii) securities traded on foreign exchanges are
valued at the closing or last sales prices reported on a principal
exchange, or, if none, at the mean between closing bid and asked prices
and reflect prevailing rates of exchange taken from the closing price on
the London foreign exchange market that day as provided by a reliable
bank, dealer or pricing service.
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 Manager, 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, including forward contracts, will be
valued at the closing price in the London foreign exchange market that day
as provided by a reliable bank, dealer, or pricing service. The values
of securities denominated in foreign currency will be converted to U.S.
dollars at the closing price in the London foreign exchange market that
day as provided by a reliable bank, dealer or pricing service. 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, calls and Futures 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 Manager, 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.
AccountLink. When shares are purchased through AccountLink, each purchase
must be at least $25.00. Shares will be purchased on the regular business
day the Distributor is instructed to initiate the Automated Clearing House
transfer to buy shares. Dividends will begin to accrue on shares
purchased by the proceeds of ACH transfers on the business day the Fund
receives Federal Funds for the purchase through the ACH system before the
close of The New York Stock Exchange. The Exchange normally closes at
4:00 P.M., but may close earlier on certain days. If Federal Funds are
received on a business day after the close of the Exchange, the shares
will be purchased and dividends will begin to accrue on the next regular
business day. The proceeds of ACH transfers are normally received by the
Fund 3 days after the transfers are initiated. The Distributor and the
Fund are not responsible for any delays in purchasing shares resulting
from delays in ACH transmissions.
Reduced Sales Charges. As discussed in the Prospectus, a reduced sales
charge rate may be obtained for Class A shares under Right of Accumulation
and Letters of Intent because of the economies of sales efforts and
expenses realized by the Distributor in making such sales. No sales
charge is imposed in certain circumstances described in the Prospectus
because the Distributor incurs little or no selling expenses. The term
"immediate family" refers to one's spouse, children, grandchildren,
parents, grandparents, parents-in-law, brothers and sisters, sons-and
daughters-in-law, siblings, a sibling's spouse and a spouse's siblings.
- The Oppenheimer funds. The Oppenheimer funds are those mutual
funds for which the Distributor acts as the distributor or the sub-
distributor and include the following:
Oppenheimer Tax-Free Bond Fund
Oppenheimer New York Tax-Exempt Fund
Oppenheimer California Tax-Exempt Fund
Oppenheimer Intermediate Tax-Exempt Fund
Oppenheimer Insured Tax-Exempt Fund
Oppenheimer Main Street California Tax-Exempt Fund
Oppenheimer Florida Tax-Exempt Fund
Oppenheimer Pennsylvania Tax-Exempt Fund
Oppenheimer New Jersey Tax-Exempt Fund
Oppenheimer Fund
Oppenheimer Discovery Fund
Oppenheimer Target Fund
Oppenheimer Growth Fund
Oppenheimer Equity Income Fund
Oppenheimer Value Stock Fund
Oppenheimer Asset Allocation Fund
Oppenheimer Total Return Fund, Inc.
Oppenheimer Main Street Income & Growth Fund
Oppenheimer High Yield Fund
Oppenheimer Champion Income Fund
Oppenheimer U.S. Government Trust
Oppenheimer Limited-Term Government Fund
Oppenheimer Global Fund
Oppenheimer Global Emerging Growth Fund
Oppenheimer Global Growth & Income Fund
Oppenheimer Gold & Special Minerals Fund
Oppenheimer Strategic Income Fund
Oppenheimer Strategic Income & Growth Fund
Oppenheimer Bond Fund
Oppenheimer International Bond Fund
Oppenheimer Enterprise Fund
Oppenheimer Quest Growth & Income Value Fund
Oppenheimer Quest Officers Value Fund
Oppenheimer Quest Opportunity Value Fund
Oppenheimer Quest Small Cap Value Fund
Oppenheimer Quest Value Fund, Inc.
Oppenheimer Quest Global Value Fund, Inc.
Rochester Fund Municipals
Rochester Fund Series - The Bond Fund For
Growth
Rochester Portfolio Series - Limited Term
New York Municipal Fund
and the following "Money Market Funds":
Oppenheimer Money Market Fund, Inc.
Oppenheimer Cash Reserves
Centennial Money Market Trust
Centennial Tax Exempt Trust
Centennial Government Trust
Centennial New York Tax Exempt Trust
Centennial California Tax Exempt Trust
Centennial America Fund, L.P.
Daily Cash Accumulation Fund, Inc.
There is an initial sales charge on the purchase of Class A shares
of each of the Oppenheimer funds except Money Market Funds (under certain
circumstances described herein, redemption proceeds of Money Market Fund
shares may be subject to a contingent deferred sales charge). Current
shareholders of Rochester Fund Municipals, The Bond Fund for Growth or
Limited Term New York Municipal Fund (collectively referred to as the
"Rochester Funds") may exchange their shares for the same class of shares
in any of the Oppenheimer funds listed above. However, no exchange of
shares of any Oppenheimer fund for shares of any Rochester Funds is
currently permitted.
- Letters of Intent. A Letter of Intent (referred to as a "Letter")
is an investor's statement in writing to the Distributor of the intention
to purchase Class A shares of the Fund (or Class A and Class B shares of
the Fund (and other Oppenheimer funds) during a 13-month period (the
"Letter of Intend period"), which may, at the investor's request, include
purchases made up to 90 days prior to the date of the Letter. The Letter
states the investor's intention to make the aggregate amount of purchases
of shares which, when added to the investor's holdings of shares of those
funds, will equal or exceed the amount specified in the Letter. Purchases
made by reinvestment of dividends or distributions of capital gains and
purchases made at net asset value without sales charge do not count toward
satisfying the amount of the Letter. A Letter enables an investor to
count the Class A and Class B shares purchased under the Letter to obtain
the reduced sales charge rate on purchases of Class A shares of the Fund
(and other Oppenheimer funds) that applies under the Right of Accumulation
to current purchases of Class A shares. Each purchase of Class A shares
under the Letter will be made at the public offering price (including the
sales charge) that applies to a single lump-sum purchase of shares in the
amount intended to be purchased under the Letter.
In submitting a Letter, the investor makes no commitment to purchase
shares, but if the investor's purchases of shares within the Letter of
Intent period, when added to the value (at offering price) of the
investor's holdings of shares on the last day of that period, do not equal
or exceed the intended purchase amount, the investor agrees to pay the
additional amount of sales charge applicable to such purchases, as set
forth in "Terms of Escrow," below (as those terms may be amended from time
to time). The investor agrees that shares equal in value to 5% of the
intended purchase amount will be held in escrow by the Transfer Agent
subject to the Terms of Escrow. Also, the investor agrees to be bound by
the terms of the Prospectus, this Statement of Additional Information and
the Application used for such Letter of Intent, and if such terms are
amended, as they may be from time to time by the Fund, that those
amendments will apply automatically to existing Letters of Intent.
For purchases of shares of the Fund and other Oppenheimer funds by
OppenheimerFunds prototype 401(k) plans under a Letter of Intent, the
Transfer Agent will not hold shares in escrow. If the intended purchase
amount under the Letter entered into by an OppenheimerFunds prototype
401(k) plan is not purchased by the plan by the end of the Letter of
Intent period, there will be no adjustment of commissions paid to the
broker-dealer or financial institution of record for accounts held in the
name of that plan.
If the total eligible purchases made during the Letter of Intent
period do not equal or exceed the intended purchase amount, the
commissions previously paid to the dealer of record for the account and
the amount of sales charge retained by the Distributor will be adjusted
to the rates applicable to actual purchases. If total eligible purchases
during the Letter of Intent period exceed the intended purchase amount and
exceed the amount needed to qualify for the next sales charge rate
reduction set forth in the applicable prospectus, the sales charges paid
will be adjusted to the lower rate, but only if and when the dealer
returns to the Distributor the excess of the amount of commissions allowed
or paid to the dealer over the amount of commissions that apply to the
actual amount of purchases. The excess commissions returned to the
Distributor will be used to purchase additional shares for the investor's
account at the net asset value per share in effect on the date of such
purchase, promptly after the Distributor's receipt thereof.
In determining the total amount of purchases made under a Letter,
shares redeemed by the investor prior to the termination of the Letter of
Intent period will be deducted. It is the responsibility of the dealer
of record and/or the investor to advise the Distributor about the Letter
in placing any purchase orders for the investor during the Letter of
Intent period. All of such purchases must be made through the
Distributor.
- Terms of Escrow That Apply to Letters of Intent.
1. Out of the initial purchase (or subsequent purchases if
necessary) made pursuant to a Letter, shares of the Fund equal in value
up to 5% of the intended purchase amount specified in the Letter shall be
held in escrow by the Transfer Agent. For example, if the intended
purchase amount is $50,000, the escrow shall be shares valued in the
amount of $2,500 (computed at the public offering price adjusted for a
$50,000 purchase). Any dividends and capital gains distributions on the
escrowed shares will be credited to the investor's account.
2. If the intended purchase amount specified under the Letter is
completed within the thirteen-month Letter of Intent period, the escrowed
shares will be promptly released to the investor.
3. If, at the end of the thirteen-month Letter of Intent period the
total purchases pursuant to the Letter are less than the intended purchase
amount specified in the Letter, the investor must remit to the Distributor
an amount equal to the difference between the dollar amount of sales
charges actually paid and the amount of sales charges which would have
been paid if the total amount purchased had been made at a single time.
Such sales charge adjustment will apply to any shares redeemed prior to
the completion of the Letter. If such difference in sales charges is not
paid within twenty days after a request from the Distributor or the
dealer, the Distributor will, within sixty days of the expiration of the
Letter, redeem the number of escrowed shares necessary to realize such
difference in sales charges. Full and fractional shares remaining after
such redemption will be released from escrow. If a request is received
to redeem escrowed shares prior to the payment of such additional sales
charge, the sales charge will be withheld from the redemption proceeds.
4. By signing the Letter, the investor irrevocably constitutes and
appoints the Transfer Agent as attorney-in-fact to surrender for
redemption any or all escrowed shares.
5. The shares eligible for purchase under the Letter (or the holding
of which may be counted toward completion of a Letter) include (a) Class
A shares sold with a front-end sales charge or subject to a Class A
contingent deferred sales charge, (b) Class B shares of other Oppenheimer
funds acquired subject to a contingent deferred sales charge, and (c)
Class A shares or Class B shares acquired in exchange for either (i) Class
A shares of one of the other Oppenheimer funds that were acquired subject
to a Class A initial or contingent deferred sales charge or (ii) Class B
shares of one of the other Oppenheimer funds that were acquired subject
to a contingent deferred sales charge.
6. Shares held in escrow hereunder will automatically be exchanged
for shares of another fund to which an exchange is requested, as described
in the section of the Prospectus entitled "How to Exchange Shares," and
the escrow will be transferred to that other fund.
Asset Builder Plans. To establish an Asset Builder Plan from a bank
account, a check (minimum $25) for the initial purchase must accompany the
application. Shares purchased by Asset Builder Plan payments from bank
accounts are subject to the redemption restrictions for recent purchases
described in "How To Sell Shares," in the Prospectus. Asset Builder Plans
also enable shareholders of Oppenheimer Cash Reserves to use those
accounts for monthly automatic purchases of shares of up to four other
Oppenheimer funds.
There is a front-end sales charge on the purchase of certain
Oppenheimer funds, or a contingent deferred sales charge may apply to
shares purchased by Asset Builder payments. An application should be
obtained from the Distributor, completed and returned, and a prospectus
of the selected fund(s) should be obtained from the Distributor or your
financial advisor before initiating Asset Builder payments. The amount
of the Asset Builder investment may be changed or the automatic
investments may be terminated at any time by writing to the Transfer
Agent. A reasonable period (approximately 15 days) is required after the
Transfer Agent's receipt of such instructions to implement them. The Fund
reserves the right to amend, suspend, or discontinue offering such plans
at any time without prior notice.
Cancellation of Purchase Orders. Cancellation of purchase orders for the
Fund's shares (for example, when a purchase check is returned to the Fund
unpaid) causes a loss to be incurred when the net asset value of the
Fund's shares on the cancellation date is less than on the purchase date.
That loss is equal to the amount of the decline in the net asset value per
share multiplied by the number of shares in the purchase order. The
investor is responsible for that loss. If the investor fails to
compensate the Fund for the loss, the Distributor will do so. The Fund
may reimburse the Distributor for that amount by redeeming shares from any
account registered in that investor's name, or the Fund or the Distributor
may seek other redress.
How to Sell Shares
Information on how to sell shares of the Fund is stated in the
Prospectus. The information below supplements the terms and conditions for
redemptions set forth in the Prospectus.
- Checkwriting. When a check is presented to the Bank for clearance,
the Bank will ask the Fund to redeem a sufficient number of full and
fractional shares in the shareholder's account to cover the amount of the
check. This enables the shareholder to continue receiving dividends on
those shares until the check is presented to the Fund. Checks may not be
presented for payment at the offices of the Bank or the Fund's Custodian.
This limitation does not affect the use of checks for the payment of bills
or to obtain cash at other banks. The Fund reserves the right to amend,
suspend or discontinue offering checkwriting privileges at any time
without prior notice.
- Payments "In Kind". The Prospectus states that payment for shares
tendered for redemption is ordinarily made in cash. However, the Board of
Trustees of the Fund may determine that it would be detrimental to the
best interests of the remaining shareholders of the Fund to make payment
of a redemption order wholly or partly in cash. In that case the Fund may
pay the redemption proceeds in whole or in part by a distribution "in
kind" of securities from the portfolio of the Fund, in lieu of cash, in
conformity with applicable rules of the Securities and Exchange
Commission. The Fund has elected to be governed by Rule 18f-1 under the
Investment Company Act, pursuant to which the Fund is obligated to redeem
shares solely in cash up to the lesser of $250,000 or 1% of the net assets
of the Fund during any 90-day period for any one shareholder. If shares
are redeemed in kind, the redeeming shareholder might incur brokerage or
other costs in selling the securities for cash. The method of valuing
securities used to make redemptions in kind will be the same as the method
the Fund uses to value its portfolio securities described above under
"Determination of Net Asset Values Per Share" and that valuation will be
made as of the time the redemption price is determined.
- Involuntary Redemptions. The Fund's Board of Trustees has the
right to cause the involuntary redemption of the shares held in any
account if the aggregate net asset value of those shares is less than $200
or such lesser amount as the Board may fix. The Board of Trustees will
not cause the involuntary redemption of shares in an account if the
aggregate net asset value of the shares has fallen below the stated
minimum solely as a result of market fluctuations. Should the Board elect
to exercise this right, it may also fix, in accordance with the Investment
Company Act, the requirements for any notice to be given to the
shareholders in question (not less than 30 days), or the Board may set
requirements for granting permission to the Shareholder to increase the
investment, and set other terms and conditions so that the shares would
not be involuntarily redeemed.
Reinvestment Privilege. Within six months of a redemption, a shareholder
may reinvest all or part of the redemption proceeds of (i) Class A shares
that you purchased subject to an initial sales charge or the Class A
contingent deferred sales charge when you redeemed them, or (ii) Class B
shares that were subject to the Class B contingent deferred sales charge
when you redeemed them. This privilege does not apply to Class C shares.
The reinvestment may be made without sales charge only in Class A shares
of the Fund or any of the other Oppenheimer funds into which shares of the
Fund are exchangeable as described below, at the net asset value next
computed after the Transfer Agent receives the reinvestment order. The
shareholder must ask the Distributor for that privilege at the time of
reinvestment. Any capital gain that was realized when the shares were
redeemed is taxable, and reinvestment will not alter any capital gains tax
payable on that gain. If there has been a capital loss on the redemption,
some or all of the loss may not be tax deductible, depending on the timing
and amount of the reinvestment. Under the Internal Revenue Code, if the
redemption proceeds of Fund shares on which a sales charge was paid are
reinvested in shares of the Fund or another of the Oppenheimer funds
within 90 days of payment of the sales charge, the shareholder's basis in
the shares of the Fund that were redeemed may not include the amount of
the sales charge paid. That would reduce the loss or increase the gain
recognized from the redemption. However, in that case the sales charge
would be added to the basis of the shares acquired by the reinvestment of
the redemption proceeds. The Fund may amend, suspend or cease offering
this reinvestment privilege at any time as to shares redeemed after the
date of such amendment, suspension or cessation.
Transfers of Shares. Shares of any class are not subject to the payment
of a contingent deferred sales charge at the time of transfer to the name
of another person or entity (whether the transfer occurs by absolute
assignment, gift or bequest, not involving, directly or indirectly, a
public sale). The transferred shares will remain subject to the
contingent deferred sales charge, calculated as if the transferee
shareholder had acquired the transferred shares in the same manner and at
the same time as the transferring shareholder. If less than all shares
held in an account are transferred, and some but not all shares in the
account would be subject to a contingent deferred sales charge if redeemed
at the time of transfer, the priorities described in the Prospectus under
"How to Buy Shares" for the imposition of the Class B or Class C
contingent deferred sales charge will be followed in determining the order
in which shares are transferred.
Distributions From Retirement Plans. Requests for distributions from
OppenheimerFunds-sponsored IRAs, 403(b)(7) custodial plans, 401(k) plans
or pension or profit-sharing plans should be addressed to "Trustee,
OppenheimerFunds Retirement Plans," c/o the Transfer Agent at its address
listed in "How To Sell Shares" in the Prospectus or on the back cover of
this Statement of Additional Information. The request must: (i) state the
reason for the distribution; (ii) state the owner's awareness of tax
penalties if the distribution is premature; and (iii) conform to the
requirements of the plan and the Fund's other redemption requirements.
Participants (other than self-employed persons maintaining a plan account
in their own name) in OppenheimerFunds-sponsored prototype pension,
profit-sharing or 401(k) plans may not directly redeem or exchange shares
held for their account under those plans. The employer or plan
administrator must sign the request. Distributions from pension and
profit sharing plans are subject to special requirements under the
Internal Revenue Code and certain documents (available from the Transfer
Agent) must be completed before the distribution may be made.
Distributions from retirement plans are subject to withholding
requirements under the Internal Revenue Code, and IRS Form W-4P (available
from the Transfer Agent) must be submitted to the Transfer Agent with the
distribution request, or the distribution may be delayed. Unless the
shareholder has provided the Transfer Agent with a certified tax
identification number, the Internal Revenue Code requires that tax be
withheld from any distribution even if the shareholder elects not to have
tax withheld. The Fund, the Manager, the Distributor, the Trustee and the
Transfer Agent assume no responsibility to determine whether a
distribution satisfies the conditions of applicable tax laws and will not
be responsible for any tax penalties assessed in connection with a
distribution.
Special Arrangements for Repurchase of Shares from Dealers and Brokers.
The Distributor is the Fund's agent to repurchase its shares from
authorized dealers or brokers. The repurchase price per share will be the
net asset value next computed after the Distributor receives the order
placed by the dealer or broker, except that if the Distributor receives
a repurchase order from a dealer or broker after the close of The New York
Stock Exchange on a regular business day, it will be processed at that
day's net asset value if the order was received by the dealer or broker
from its customers prior to the time the Exchange closes (normally, that
is 4:00 P.M., but may be earlier on some days) and the order was
transmitted to and received by the Distributor prior to its close of
business that day (normally 5:00 P.M.). Ordinarily, for accounts redeemed
by a broker-dealer under this procedure, payment will be made within three
business days after the shares have been redeemed upon the Distributor's
receipt of the required redemption documents in proper form, with the
signature(s) of the registered owners guaranteed on the redemption
document as described in the Prospectus.
Automatic Withdrawal and Exchange Plans. Investors owning shares of the
Fund valued at $5,000 or more can authorize the Transfer Agent to redeem
shares (minimum $50) automatically on a monthly, quarterly, semi-annual
or annual basis under an Automatic Withdrawal Plan. Shares will be
redeemed three business days prior to the date requested by the
shareholder for receipt of the payment. Automatic withdrawals of up to
$1,500 per month may be requested by telephone if payments are to be made
by check payable to all shareholders of record and sent to the address of
record for the account (and if the address has not been changed within the
prior 30 days). Required minimum distributions from OppenheimerFunds-
sponsored retirement plans may not be arranged on this basis. Payments
are normally made by check, but shareholders having AccountLink privileges
(see "How To Buy Shares") may arrange to have Automatic Withdrawal Plan
payments transferred to the bank account designated on the
OppenheimerFunds New Account Application or signature-guaranteed
instructions. The Fund cannot guarantee receipt of a payment on the date
requested and reserves the right to amend, suspend or discontinue offering
such plans at any time without prior notice. Because of the sales charge
assessed on Class A share purchases, shareholders should not make regular
additional Class A share purchases while participating in an Automatic
Withdrawal Plan. Class B and Class C shareholders should not establish
withdrawal plans because of the imposition of the contingent deferred
sales charge on such withdrawals (except where the contingent deferred
sales charge is waived as described in the Prospectus under "Waivers of
Class B Contingent Deferred Sales Charge" or in "Waivers of Class C
Contingent Deferred Sales Charge").
By requesting an Automatic Withdrawal or Exchange Plan, the
shareholder agrees to the terms and conditions applicable to such plans,
as stated below and in the provisions of the OppenheimerFunds Application
relating to such Plans, as well as the Prospectus. These provisions may
be amended from time to time by the Fund and/or the Distributor. When
adopted, such amendments will automatically apply to existing Plans.
- Automatic Exchange Plans. Shareholders can authorize the Transfer
Agent (on the OppenheimerFunds Application or signature-guaranteed
instructions) to exchange a pre-determined amount of shares of the Fund
for shares (of the same class) of other Oppenheimer funds automatically
on a monthly, quarterly, semi-annual or annual basis under an Automatic
Exchange Plan. The minimum amount that may be exchanged to each other
fund account is $25. Exchanges made under these plans are subject to the
restrictions that apply to exchanges as set forth in "How to Exchange
Shares" in the Prospectus and below in this Statement of Additional
Information.
- Automatic Withdrawal Plans. Fund shares will be redeemed as
necessary to meet withdrawal payments. Shares acquired without a sales
charge will be redeemed first and shares acquired with reinvested
dividends and capital gains distributions will be redeemed next, followed
by shares acquired with a sales charge, to the extent necessary to make
withdrawal payments. Depending upon the amount withdrawn, the investor's
principal may be depleted. Payments made under withdrawal plans should
not be considered as a yield or income on your investment.
The Transfer Agent will administer the investor's Automatic
Withdrawal Plan (the "Plan") as agent for the investor (the "Planholder")
who executed the Plan authorization and application submitted to the
Transfer Agent. The Transfer Agent and the Fund shall incur no liability
to the Planholder for any action taken or omitted by the Transfer Agent
in good faith to administer the Plan. Certificates will not be issued for
shares of the Fund purchased for and held under the Plan, but the Transfer
Agent will credit all such shares to the account of the Planholder on the
records of the Fund. Any share certificates held by a Planholder may be
surrendered unendorsed to the Transfer Agent with the Plan application so
that the shares represented by the certificate may be held under the Plan.
For accounts subject to Automatic Withdrawal Plans, distributions of
capital gains must be reinvested in shares of the Fund, which will be done
at net asset value without a sales charge. Dividends on shares held in
the account may be paid in cash or reinvested.
Redemptions of shares needed to make withdrawal payments will be made
at the net asset value per share determined on the redemption date.
Checks or AccountLink payments of the proceeds of Plan withdrawals will
normally be transmitted three business days prior to the date selected for
receipt of the payment (receipt of payment on the date selected cannot be
guaranteed), according to the choice specified in writing by the
Planholder.
The amount and the interval of disbursement payments and the address
to which checks are to be mailed or AccountLink payments are to be sent
may be changed at any time by the Planholder by writing to the Transfer
Agent. The Planholder should allow at least two weeks' time in mailing
such notification for the requested change to be put in effect. The
Planholder may, at any time, instruct the Transfer Agent by written notice
(in proper form in accordance with the requirements of the then-current
Prospectus of the Fund) to redeem all, or any part of, the shares held
under the Plan. In that case, the Transfer Agent will redeem the number
of shares requested at the net asset value per share in effect in
accordance with the Fund's usual redemption procedures and will mail a
check for the proceeds to the Planholder.
The Plan may be terminated at any time by the Planholder by writing
to the Transfer Agent. A Plan may also be terminated at any time by the
Transfer Agent upon receiving directions to that effect from the Fund.
The Transfer Agent will also terminate a Plan upon receipt of evidence
satisfactory to it of the death or legal incapacity of the Planholder.
Upon termination of a Plan by the Transfer Agent or the Fund, shares that
have not been redeemed from the account will be held in uncertificated
form in the name of the Planholder, and the account will continue as a
dividend-reinvestment, uncertificated account unless and until proper
instructions are received from the Planholder or his or her executor or
guardian, or other authorized person.
To use shares held under the Plan as collateral for a debt, the
Planholder may request issuance of a portion of the shares in certificated
form. Upon written request from the Planholder, the Transfer Agent will
determine the number of shares for which a certificate may be issued
without causing the withdrawal checks to stop because of exhaustion of
uncertificated shares needed to continue payments. However, should such
uncertificated shares become exhausted, Plan withdrawals will terminate.
If the Transfer Agent ceases to act as transfer agent for the Fund,
the Planholder will be deemed to have appointed any successor transfer
agent to act as agent in administering the Plan.
How To Exchange Shares
As stated in the Prospectus, shares of a particular class of
Oppenheimer funds having more than one class of shares may be exchanged
only for shares of the same class of other Oppenheimer funds. Shares of
the Oppenheimer funds that have a single class without a class designation
are deemed "Class A" shares for this purpose. All Oppenheimer funds offer
Class A Class B and Class C shares except Oppenheimer Money Market Fund,
Inc., Centennial Money Market Trust, Centennial Tax Exempt Trust,
Centennial Government Trust, Centennial New York Tax Exempt Trust,
Centennial California Tax Exempt Trust, Centennial America Fund, L.P., and
Daily Cash Accumulation Fund, Inc., which only offer Class A shares and
Oppenheimer Main Street California Tax-Exempt Fund, which only offers
Class A and Class B shares (Class B and Class C shares of Oppenheimer Cash
reserves are generally available only by exchange from the same class of
shares of other Oppenheimer funds or through OppenheimerFunds sponsored
401(k) plans). A list showing which funds offer which class can be
obtained by calling the Distributor at 1-800-525-7048.
Class A shares of Oppenheimer funds may be exchanged at net asset
value for shares of any Money Market Fund. Shares of any Money Market
Fund purchased without a sales charge may be exchanged for shares of
Oppenheimer funds offered with a sales charge upon payment of the sales
charge (or, if applicable, may be used to purchase shares of Oppenheimer
funds subject to a contingent deferred sales charge). However, shares of
Oppenheimer Money Market Fund, Inc. purchased with the redemption proceeds
of shares of other mutual funds (other than funds managed by the Manager
or its subsidiaries) redeemed within the 12 months prior to that purchase
may subsequently be exchanged for shares of other Oppenheimer funds
without being subject to an initial or contingent deferred sales charge,
whichever is applicable. To qualify for that privilege, the investor or
the investor's dealer must notify the Distributor of eligibility for this
privilege at the time the shares of Oppenheimer Money Market Fund, Inc.
are purchased, and, if requested, must supply proof of entitlement to this
privilege. No contingent deferred sales charge is imposed on exchanges
of shares of either class purchased subject to a contingent deferred sales
charge. However, when Class A shares acquired by exchange of Class A
shares of other Oppenheimer funds purchased subject to a Class A
contingent deferred sales charge are redeemed within 18 months of the end
of the calendar month of the initial purchase of the exchanged Class A
shares, the Class A contingent deferred sales charge is imposed on the
redeemed shares (see "Class A Contingent Deferred Sales Charge" in the
Prospectus). The Class B contingent deferred sales charge is imposed on
Class B shares acquired by exchange if they are redeemed within 6 years
of the initial purchase of the exchanged Class B shares. The Class C
contingent deferred sales charge is imposed on Class C shares acquired by
exchange if they are redeemed within 12 months of the initial purchase of
the exchanged Class C shares.
When Class B or Class C shares are redeemed to effect an exchange,
the priorities described in "How To Buy Shares" in the Prospectus for the
imposition of the Class B or the Class C contingent deferred sales charge
will be followed in determining the order in which the shares are
exchanged. Shareholders should take into account the effect of any
exchange on the applicability and rate of any contingent deferred sales
charge that might be imposed in the subsequent redemption of remaining
shares. Shareholders owning shares of more than one class must specify
whether they intend to exchange Class A, Class B or Class C shares.
The Fund reserves the right to reject telephone or written exchange
requests submitted in bulk by anyone on behalf of 10 or more accounts. The
Fund may accept requests for exchanges of up to 50 accounts per day from
representatives of authorized dealers that qualify for this privilege. In
connection with any exchange request, the number of shares exchanged may
be less than the number requested if the exchange 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 open an account and 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 Asset Builder Plans, Automatic Withdrawal Plans,
Checkwriting, if available, and retirement plan contributions will be
switched to the new account unless the Transfer Agent is instructed
otherwise. If all telephone lines are busy (which might occur, for
example, during periods of substantial market fluctuations), shareholders
might not be able to request exchanges by telephone and would have to
submit written exchange requests.
Shares to be exchanged are redeemed on the regular business day the
Transfer Agent receives an exchange request in proper form (the
"Redemption Date"). Normally, shares of the fund to be acquired are
purchased on the Redemption Date, but such purchases may be delayed by
either fund up to five business days if it determines that it would be
disadvantaged by an immediate transfer of the redemption proceeds. The
Fund reserves the right, in its discretion, to refuse any exchange request
that may disadvantage it (for example, if the receipt of multiple exchange
requests from a dealer might require the disposition of portfolio
securities at a time or at a price that might be disadvantageous to the
Fund).
The different Oppenheimer funds available for exchange have different
investment objectives, policies and risks, and a shareholder should assure
that the Fund selected is appropriate for his or her investment and should
be aware of the tax consequences of an exchange. For federal income tax
purposes, an exchange transaction is treated as a redemption of shares of
one fund and a purchase of shares of another. "Reinvestment Privilege,"
above, discusses some of the tax consequences of reinvestment of
redemption proceeds in such cases. The Fund, the Distributor, and the
Transfer Agent are unable to provide investment, tax or legal advice to
a shareholder in connection with an exchange request or any other
investment transaction.
Dividends, Capital Gains and Taxes
Dividends and Distributions. Dividends will be payable on shares held of
record at the time of the previous determination of net asset value.
However, daily dividends on newly purchased shares will not be declared
or paid until such time as Federal Funds (funds credited to a member
bank's account at the Federal Reserve Bank) are available from the
purchase payment for such shares. Normally, purchase checks received from
investors are converted to Federal Funds on the next business day. If all
shares in an account are redeemed, all dividends accrued on shares in the
account will be paid together with the redemption proceeds. Dividends
will be declared on shares repurchased by a dealer or broker for three
business days following the trade date (i.e., to and including the day
prior to settlement of the repurchase).
Dividends, distributions and the proceeds of the redemption of Fund
shares represented by checks returned to the Transfer Agent by the Postal
Service as undeliverable will be invested in shares of Oppenheimer Money
Market Fund, Inc., as promptly as possible after the return of such checks
to the Transfer Agent, 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 Internal Revenue 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 Internal Revenue Code, by December 31 each year the Fund
must distribute 98% of its taxable investment income earned from January
1 through December 31 of that year and 98% of its capital gains realized
in the period from November 1 of the prior year 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 Manager
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 Internal Revenue 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.
Dividend Reinvestment in Another Fund. Shareholders of the Fund may
elect to reinvest all dividends and/or capital gains distributions in
shares of the same class of any of the other Oppenheimer funds listed in
"Reduced Sales Charges," above, at net asset value without sales charge.
To elect this option, the shareholder must notify the Transfer Agent in
writing and either must have an existing account in the fund selected for
reinvestment or must obtain a prospectus for that fund and an application
from the Transfer Agent to establish an account. The investment will be
made at the net asset value per share in effect at the close of business
on the payable date of the dividend or distribution. Dividends and/or
distributions from certain of the Oppenheimer funds may be invested in
shares of this Fund on the same basis.
Additional Information About the Fund
The Custodian. The Bank of New York 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. The Manager has represented to the
Fund that the banking relationships with the Custodian have been and will
continue to be unrelated to and unaffected by the relationship between the
Fund and the Custodian. It will be the practice of the Fund to deal with
the Custodian in a manner uninfluenced by any banking relationship the
Custodian may have with the Manager and its affiliates.
Independent Auditors. The independent auditors of the Fund audit the
Manager's and the Fund's financial statements and perform other related
audit services. They also act as auditors for certain other funds advised
by the Manager and its affiliates.
<PAGE>
----------------------------
INDEPENDENT AUDITORS' REPORT
----------------------------
==========================================================
======================
The Board of Trustees and Shareholders of Oppenheimer
Champion Income Fund:
We have audited the accompanying statement of assets and
liabilities, including the statement of investments, of
Oppenheimer Champion Income Fund as of September 30, 1995,
the related statement of operations for the year then ended,
the statements of changes in net assets for the years ended
September 30, 1995 and 1994, and the financial highlights
for the period November 16, 1987 (commencement of opera-
tions) to September 30, 1995. These financial statements
and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an
opinion on these financial statements and financial high-
lights based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance
about whether the financial statements and financial high-
lights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. Our procedures
included confirmation of securities owned at September 30,
1995 by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and financial
highlights present fairly, in all material respects, the
financial position of Oppenheimer Champion Income Fund at
September 30, 1995, the results of its operations, the
changes in its net assets, and the financial highlights for
the respective stated periods, in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
/s/ Deloitte & Touche LLP
-------------------------
Denver, Colorado
October 20, 1995
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------
STATEMENT OF INVESTMENTS September 30, 1995
---------------------------------------------
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
<S> <C> <C> <C>
==========================================================
==========================================================
===============
MORTGAGE-BACKED OBLIGATIONS--2.9%
- -----------------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., Interest-Only Stripped Mtg.-Backed Securities:
Trust 218, Cl. 2, 16.521%, 4/25/23(2) $ 4,861,270 $ 1,436,353
Trust 240, Cl. 2, 11.715%, 9/25/23(2) 3,063,474 961,405
Trust 252, Cl. 2, 13.914%, 11/25/23(2) 4,829,306 1,454,828
---------------------------------------------------------------------------------------------------------------
Government National Mortgage Assn., 6%, 10/1/25(13) 4,400,000 4,408,250
---------------------------------------------------------------------------------------------------------------
Resolution Trust Corp., Commercial Mtg. Pass-Through Certificates:
Series 1994-C2, Cl. E, 8%, 4/25/25 504,484 458,450
Series 1995-C1, Cl. F, 6.90%, 2/25/07 477,067 413,707
-----------
Total Mortgage-Backed Obligations (Cost $9,225,035) 9,132,993
==========================================================
==========================================================
===============
U.S. GOVERNMENT OBLIGATIONS--12.9%
- -----------------------------------------------------------------------------------------------------------------------------------
TREASURY--12.9% U.S. Treasury Nts.:
8.875%, 11/15/97 30,000,000 31,781,250
9.25%, 1/15/96 9,575,000 9,673,736
-----------
Total U.S. Government Obligations (Cost $41,386,078) 41,454,986
==========================================================
==========================================================
===============
FOREIGN GOVERNMENT OBLIGATIONS--1.0%
- -----------------------------------------------------------------------------------------------------------------------------------
Banco Nacional de Comercio Exterior SNC
International Finance BV Gtd. Bonds, 8%, 8/5/03 500,000 400,625
---------------------------------------------------------------------------------------------------------------
Ecuador (Republic of) Disc. Bonds, 6.812%, 2/28/25(3) 1,500,000 740,550
---------------------------------------------------------------------------------------------------------------
Germany (Republic of) Debs., Bundesrepublic Deutscheland,
Series 95, 7.375%, 1/3/05DEM 2,700,000 1,983,425
-----------
Total Foreign Government Obligations (Cost $3,209,535) 3,124,600
==========================================================
==========================================================
===============
MUNICIPAL BONDS AND NOTES--0.3%
- -----------------------------------------------------------------------------------------------------------------------------------
San Joaquin Hills, California Transportation Corridor
Agency Toll Road Capital Appreciation Revenue Bonds,
Jr. Lien, Zero Coupon, 1/1/28 (Cost $789,595) 13,500,000 1,016,861
==========================================================
==========================================================
===============
CORPORATE BONDS AND NOTES--74.1%
- -----------------------------------------------------------------------------------------------------------------------------------
BASIC INDUSTRY--9.1%
- -----------------------------------------------------------------------------------------------------------------------------------
CHEMICALS--1.5% NL Industries, Inc.:
0%/13% Sr. Sec. Disc. Nts., 10/15/05(4) 640,000 478,400
11.75% Sr. Sec. Nts., 10/15/03 1,600,000 1,696,000
---------------------------------------------------------------------------------------------------------------
OSI Specialties Holding Co., 0%/11.50% Sr. Sec. Disc. Debs., Series B, 4/15/04(4) 3,000,000
2,445,000
---------------------------------------------------------------------------------------------------------------
OSI Specialties, Inc., 9.25% Sr. Sub. Nts., 10/1/03 200,000 219,000
-----------
4,838,400
- -----------------------------------------------------------------------------------------------------------------------------------
CONTAINERS--1.7% Owens-Illinois, Inc., 11% Sr. Debs., 12/1/03 2,445,000
2,695,613
---------------------------------------------------------------------------------------------------------------
U.S. Can Co., 13.50% Sr. Sub. Nts., 1/15/02 2,500,000 2,750,000
-----------
5,445,613
- -----------------------------------------------------------------------------------------------------------------------------------
METALS/MINING--1.7% Carbide/Graphite Group, Inc. (The), 11.50% Sr. Nts., 9/1/03 2,000,000
2,135,000
---------------------------------------------------------------------------------------------------------------
Kaiser Aluminum & Chemical Corp., 9.875% Sr. Nts., 2/15/02 3,000,000 3,015,000
---------------------------------------------------------------------------------------------------------------
UCAR Global Enterprises, Inc., 12% Sr. Sub. Nts., 1/15/05 325,000 370,500
-----------
5,520,500
</TABLE>
6 Oppenheimer Champion Income Fund
<PAGE>
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
PAPER--3.8% APP International Finance Co. BV, 11.75% Gtd. Sec. Nts., 10/1/05 $ 500,000 $
503,750
---------------------------------------------------------------------------------------------------------------
Domtar, Inc.:
11.25% Debs., 9/15/17 190,000 207,575
12% Nts., 4/15/01 190,000 219,450
---------------------------------------------------------------------------------------------------------------
Gaylord Container Corp.:
0%/12.75% Sr. Sub. Disc. Debs., 5/15/05(4) 750,000 740,625
11.50% Sr. Nts., 5/15/01 250,000 261,250
---------------------------------------------------------------------------------------------------------------
Indah Kiat Finance Co. BV, 12.50% Sr. Gtd. Sec. Nts., Series C, 6/15/06 2,400,000 2,496,000
---------------------------------------------------------------------------------------------------------------
QUNO Corp., 9.125% Sr. Nts., 5/15/05 2,000,000 1,970,000
---------------------------------------------------------------------------------------------------------------
Repap New Brunswick, Inc., 9.875% First Priority Sr. Sec. Nts., 7/15/00 1,300,000 1,309,750
---------------------------------------------------------------------------------------------------------------
Riverwood International Corp., 11.25% Sr. Sub. Nts., 6/15/02 1,100,000 1,199,000
---------------------------------------------------------------------------------------------------------------
SD Warren Co., 12% Sr. Sub. Nts., 12/15/04 2,350,000 2,608,500
---------------------------------------------------------------------------------------------------------------
Stone Container Corp., 10.75% First Mtg. Nts., 10/1/02 650,000 677,625
-----------
12,193,525
- -----------------------------------------------------------------------------------------------------------------------------------
STEEL--0.4% AK Steel Corp., 10.75% Gtd. Sr. Nts., 4/1/04 800,000 858,000
---------------------------------------------------------------------------------------------------------------
Armco, Inc., 8.50% Sinking Fund Debs., 9/1/01 275,000 261,250
----------
1,119,250
- -----------------------------------------------------------------------------------------------------------------------------------
CONSUMER-RELATED--19.5%
- -----------------------------------------------------------------------------------------------------------------------------------
CONSUMER PRODUCTS Coleman Holdings, Inc., Zero Coupon Sr. Sec. Disc. Nts., Series B, 5/27/98 4,580,000
3,629,650
- --4.3% ---------------------------------------------------------------------------------------------------------------
Harman International Industries, Inc., 12% Sr. Sub. Nts., 8/1/02 2,400,000 2,652,000
---------------------------------------------------------------------------------------------------------------
International Semi-Tech Microelectronics, Inc.,
0%/11.50% Sr. Sec. Disc. Nts., 8/15/03(4) 4,440,000 2,375,400
---------------------------------------------------------------------------------------------------------------
Repap Wisconsin, Inc.:
9.25% First Priority Sr. Sec. Nts., 2/1/02 2,620,000 2,534,850
9.875% Sr. Nts., 5/1/06 545,000 528,650
---------------------------------------------------------------------------------------------------------------
Revlon Worldwide Corp., Zero Coupon Sr. Sec. Disc. Nts., 3/15/98 1,450,000 1,065,750
---------------------------------------------------------------------------------------------------------------
Samsonite Corp., 11.125% Sr. Sub. Nts., 7/15/05(5) 960,000 936,000
-----------
13,722,300
- -----------------------------------------------------------------------------------------------------------------------------------
FOOD/BEVERAGES/ Consolidated Cigar Corp., 10.50% Sr. Sub. Nts., 3/1/03 2,845,000
2,845,000
TOBACCO--2.4% ---------------------------------------------------------------------------------------------------------------
Cott Corp., 9.375% Sr. Nts., 7/1/05 1,500,000 1,526,250
---------------------------------------------------------------------------------------------------------------
Curtice-Burns Foods, Inc., 12.25% Sr. Sub. Nts., 2/1/05 1,000,000 1,062,500
---------------------------------------------------------------------------------------------------------------
Di Giorgio Corp., 12% Sr. Nts., 2/15/03 450,000 339,750
---------------------------------------------------------------------------------------------------------------
Dr. Pepper Bottling Holdings, Inc., 0%/11.625% Sr. Disc. Nts., 2/15/03(4) 300,000 226,500
---------------------------------------------------------------------------------------------------------------
Heileman Acquisition Corp., 9.625% Sr. Sub. Nts., 1/31/04 800,000 224,000
---------------------------------------------------------------------------------------------------------------
Specialty Foods Corp., 11.125% Sr. Nts., Series A, 10/1/02(5) 1,600,000 1,588,000
-----------
7,812,000
- -----------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE--4.2% AmeriSource Health Corp., 11.25% Sr. Debs., 7/15/05(6) 945,093
1,025,426
---------------------------------------------------------------------------------------------------------------
Capstone Capital Corp., 10.50% Cv. Sub. Debs., 4/1/02 900,000 1,042,875
---------------------------------------------------------------------------------------------------------------
Charter Medical Corp., 11.25% Sr. Sub. Nts., 4/15/04 3,070,000 3,330,950
---------------------------------------------------------------------------------------------------------------
Healthsouth Rehabilitation Corp., 9.50% Sr. Sub. Nts., 4/1/01 2,300,000 2,409,250
---------------------------------------------------------------------------------------------------------------
Multicare Cos., Inc. (The), 12.50% Sr. Sub. Nts., 7/1/02 500,000 567,500
---------------------------------------------------------------------------------------------------------------
OrNda Healthcorp, 12.25% Sr. Sub. Nts., 5/15/02 750,000 828,750
</TABLE>
7 Oppenheimer Champion Income Fund
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------
STATEMENT OF INVESTMENTS (Continued)
--------------------------------------
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE Quorum Health Group, Inc., 11.875% Sr. Sub. Nts., 12/15/02 $ 750,000 $
832,500
(CONTINUED) ---------------------------------------------------------------------------------------------------------------
Tenet Healthcare Corp., 10.125% Sr. Sub. Nts., 3/1/05 2,250,000 2,385,000
---------------------------------------------------------------------------------------------------------------
Total Renal Care, Inc., Units (each unit consists of $1,000 principal
amount of 0%/12% sr. sub. disc. nts., 8/15/04 and nine shares
of non-voting class B common stock)(4)(7) 1,000,000 955,000
-----------
13,377,251
- -----------------------------------------------------------------------------------------------------------------------------------
HOTEL/GAMING--4.8% Arizona Charlie's, Inc., 12% First Mtg. Nts., Series A, 11/15/00(8) 275,000
220,000
---------------------------------------------------------------------------------------------------------------
Aztar Corp., 13.75% Sr. Sub. Nts., 10/1/04 1,470,000 1,587,600
---------------------------------------------------------------------------------------------------------------
Bally's Casino Holdings, Inc., Zero Coupon Sr. Disc. Nts., 6/15/98 350,000 267,750
---------------------------------------------------------------------------------------------------------------
Bally's Park Place Funding, Inc., 9.25% Gtd. First Mtg. Nts., 3/15/04 1,100,000 1,075,250
---------------------------------------------------------------------------------------------------------------
Boyd Gaming Corp., 10.75% Sr. Sub. Nts., 9/1/03 500,000 522,500
---------------------------------------------------------------------------------------------------------------
Capital Gaming International, Inc. Promissory Nts. 7,500 --
---------------------------------------------------------------------------------------------------------------
Capitol Queen & Casino, Inc., 12% First Mtg. Nts., Series A, 11/15/00(8) 100,000 90,000
---------------------------------------------------------------------------------------------------------------
Empress River Casino Finance Corp., 10.75% Gtd. Sr. Nts., 4/1/02 1,800,000 1,813,500
---------------------------------------------------------------------------------------------------------------
GNF Corp., 10.625% Gtd. First Mtg. Nts., Series B, 4/1/03 200,000 175,000
---------------------------------------------------------------------------------------------------------------
Griffin Gaming & Entertainment, Inc., Zero Coupon First Mtg.
Non-Recourse Pass-Through Nts., 6/30/00 1,010,000 893,850
---------------------------------------------------------------------------------------------------------------
HMH Properties, Inc., 9.50% Sr. Sec. Nts., 5/15/05(5) 1,050,000 1,039,500
---------------------------------------------------------------------------------------------------------------
Maritime Group Ltd., Units (each unit consists of $1,000 principal amount of
14.25% first mtg. nts., series A, 2/15/97 and one warrant to purchase one share
of Palace Casinos, Inc., series A common stock)(5)(7)(9) 276,577 114,779
---------------------------------------------------------------------------------------------------------------
MGM Grand Hotel Finance Corp., 12% First Mtg. Nts., 5/1/02 1,295,000 1,427,738
---------------------------------------------------------------------------------------------------------------
Mohegan Tribal Gaming Authority, 13.50% Sr. Sec. Nts., 11/15/02(5) 1,000,000 1,042,500
---------------------------------------------------------------------------------------------------------------
Players International, Inc., 10.875% Sr. Nts., 4/15/05(5) 600,000 582,000
---------------------------------------------------------------------------------------------------------------
Rio Hotel & Casino, Inc., 10.625% Sr. Sub. Nts., 7/15/05(5) 1,150,000 1,119,813
---------------------------------------------------------------------------------------------------------------
Station Casinos, Inc., 9.625% Sr. Sub. Nts., 6/1/03 2,790,000 2,664,450
---------------------------------------------------------------------------------------------------------------
Trump Plaza Funding, Inc., 10.875% Gtd. Mtg. Nts., 6/15/01 350,000 324,625
---------------------------------------------------------------------------------------------------------------
Trump Taj Mahal Funding, Inc., 11.35% Debs., Series A, 11/15/99 300,000 255,542
---------------------------------------------------------------------------------------------------------------
Trump's Castle Funding, Inc., 13.875% Sub. Nts., 11/15/05(6) 40 30
-----------
15,216,427
- -----------------------------------------------------------------------------------------------------------------------------------
RESTAURANTS--1.6% Carrols Corp., 11.50% Sr. Nts., 8/15/03 2,620,000
2,606,900
---------------------------------------------------------------------------------------------------------------
Flagstar Corp., 10.75% Sr. Nts., 9/15/01 1,800,000 1,687,500
---------------------------------------------------------------------------------------------------------------
Foodmaker, Inc., 9.25% Sr. Nts., 3/1/99 1,015,000 941,413
----------
5,235,813
- -----------------------------------------------------------------------------------------------------------------------------------
TEXTILE/APPAREL Consoltex Group, Inc., 11% Gtd. Sr. Sub. Nts., Series B, 10/1/03 900,000
846,000
- --2.2% ---------------------------------------------------------------------------------------------------------------
Fieldcrest Cannon, Inc., 11.25% Sr. Sub. Debs., 6/15/04 200,000 209,500
---------------------------------------------------------------------------------------------------------------
Polymer Group, Inc., 12.75% Sr. Nts., 7/15/02(5) 750,000 776,250
---------------------------------------------------------------------------------------------------------------
PT Polysindo Eka Perkasa:
13% Sr. Nts., 6/15/01 350,000 362,250
Zero Coupon Promissory Nts., 10/23/96IDR 3,000,000,000 1,037,688
---------------------------------------------------------------------------------------------------------------
Synthetic Industries, Inc., 12.75% Sr. Sub. Debs., 12/1/02 1,550,000 1,534,500
---------------------------------------------------------------------------------------------------------------
WestPoint Stevens, Inc., 9.375% Sr. Sub. Debs., 12/15/05 2,400,000 2,346,000
-----------
7,112,188
</TABLE>
8 Oppenheimer Champion Income Fund
<PAGE>
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
ENERGY--6.4%
- -----------------------------------------------------------------------------------------------------------------------------------
AmeriGas Partners LP, 10.125% Sr. Nts., 4/15/07 $ 320,000 $ 337,600
---------------------------------------------------------------------------------------------------------------
Chesapeake Energy Corp., 10.50% Sr. Nts., 6/1/02 750,000 753,750
---------------------------------------------------------------------------------------------------------------
Crown Central Petroleum Corp., 10.875% Sr. Nts., 2/1/05 1,110,000 1,171,050
---------------------------------------------------------------------------------------------------------------
Ferrellgas LP/Ferrellgas Finance Corp., 10% Sr. Nts., 8/1/01 1,400,000 1,463,000
---------------------------------------------------------------------------------------------------------------
Giant Industries, Inc., 9.75% Sr. Sub. Nts., 11/15/03 1,850,000 1,831,500
---------------------------------------------------------------------------------------------------------------
Kelley Oil & Gas Corp., 13.50% Sr. Nts., 6/15/99 1,100,000 1,061,500
---------------------------------------------------------------------------------------------------------------
Maxus Energy Corp.:
11.50% Debs., 11/15/15 500,000 507,500
9.875% Nts., 10/15/02 1,100,000 1,078,000
---------------------------------------------------------------------------------------------------------------
Nuevo Energy Co., 12.50% Sr. Sub. Nts., 6/15/02 560,000 611,800
---------------------------------------------------------------------------------------------------------------
OPI International, Inc., 12.875% Gtd. Sr. Nts., 7/15/02 1,225,000 1,396,500
---------------------------------------------------------------------------------------------------------------
Petroleum Heat & Power Co., Inc.:
12.25% Sub. Debs., 2/1/05 2,035,000 2,207,975
9.375% Sub. Debs., 2/1/06 270,000 252,450
---------------------------------------------------------------------------------------------------------------
Plains Resources, Inc., 12% Sr. Sub. Nts., 10/1/99 400,000 414,000
---------------------------------------------------------------------------------------------------------------
Santa Fe Energy Resources, Inc., 11% Sr. Sub. Debs., 5/15/04 3,230,000 3,472,250
---------------------------------------------------------------------------------------------------------------
Triton Energy Corp., Zero Coupon Sr. Sub. Disc. Nts., 11/1/97 3,200,000 2,740,000
---------------------------------------------------------------------------------------------------------------
Wainoco Oil Corp., 12% Sr. Nts., 8/1/02 1,000,000 1,005,000
---------------------------------------------------------------------------------------------------------------
Wilrig AS, 11.25% Sr. Sec. Nts., 3/15/04 200,000 217,000
-----------
20,520,875
- -----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES--4.4%
- -----------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED ECM Fund, L.P.I., 14% Sub. Nts., 6/10/02(8) 477,959 525,755
FINANCIAL--1.0% ---------------------------------------------------------------------------------------------------------------
GPA Delaware, Inc., 8.75% Gtd. Nts., 12/15/98 2,250,000 2,016,563
---------------------------------------------------------------------------------------------------------------
GPA Holland BV, 8.94% Medium-Term Nts., Series C, 2/16/99 700,000 607,250
---------------------------------------------------------------------------------------------------------------
Lomas Financial Corp., 9% Cv. Sr. Nts., 10/31/03 600,000 103,500
---------
3,253,068
- -----------------------------------------------------------------------------------------------------------------------------------
INSURANCE--3.4% American Life Holding Co., 11.25% Sr. Sub. Nts., 9/15/04 2,220,000
2,353,200
---------------------------------------------------------------------------------------------------------------
Chartwell Re Corp., 10.25% Sr. Nts., 3/1/04 1,200,000 1,206,000
---------------------------------------------------------------------------------------------------------------
Life Partners Group, Inc., 12.75% Sr. Sub. Nts., 7/15/02 3,000,000 3,345,000
---------------------------------------------------------------------------------------------------------------
Reliance Group Holdings, Inc., 9.75% Sr. Sub. Debs., 11/15/03 2,250,000 2,227,500
---------------------------------------------------------------------------------------------------------------
Terra Nova Insurance (UK) Holdings PLC, 10.75% Sr. Nts., 7/1/05 1,600,000 1,708,000
-----------
10,839,700
- -----------------------------------------------------------------------------------------------------------------------------------
HOUSING-RELATED--3.3%
- -----------------------------------------------------------------------------------------------------------------------------------
BUILDING MATERIALS American Standard, Inc.:
- --1.8% 0%/10.50% Sr. Sub. Disc. Debs., 6/1/05(4) 2,075,000 1,691,125
10.875% Sr. Nts., 5/15/99 1,000,000 1,082,500
---------------------------------------------------------------------------------------------------------------
Pacific Lumber Co., 10.50% Sr. Nts., 3/1/03 800,000 756,000
---------------------------------------------------------------------------------------------------------------
Southdown, Inc., 14% Sr. Sub. Nts., Series B, 10/15/01 735,000 821,363
---------------------------------------------------------------------------------------------------------------
Triangle Pacific Corp., 10.50% Sr. Nts., 8/1/03 1,100,000 1,127,500
---------------------------------------------------------------------------------------------------------------
Walter Industries, Inc., 17% Sub. Nts., 1/1/96(9) 350,000 222,250
-----------
5,700,738
</TABLE>
9 Oppenheimer Champion Income Fund
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------
STATEMENT OF INVESTMENTS (Continued)
--------------------------------------
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
HOMEBUILDERS/ Beazer Homes USA, Inc., 9% Sr. Nts., 3/1/04 $1,200,000 $
1,122,000
REAL ESTATE--1.5% ---------------------------------------------------------------------------------------------------------------
NVR, Inc., 11% Gtd. Sr. Nts., 4/15/03 1,600,000 1,552,000
---------------------------------------------------------------------------------------------------------------
Olympia & York First Canadian Place Ltd., 11% Debs., Series 3, 11/4/49(10)CAD 1,250,000
634,541
---------------------------------------------------------------------------------------------------------------
Saul (B.F.) Real Estate Investment Trust, 11.625% Sr. Nts., 4/1/02 1,375,000 1,337,188
----------
4,645,729
- -----------------------------------------------------------------------------------------------------------------------------------
MANUFACTURING--3.0%
- -----------------------------------------------------------------------------------------------------------------------------------
AEROSPACE/ Berg Electronics Holdings Corp., 11.375% Sr. Sub. Debs., 5/1/03 1,000,000
1,060,000
ELECTRONICS/ ---------------------------------------------------------------------------------------------------------------
COMPUTERS--1.0% Businessland, Inc., 5.50% Sub. Debs., 3/1/07 805,000
241,500
---------------------------------------------------------------------------------------------------------------
Tracor, Inc., 10.875% Sr. Sub. Nts., 8/15/01 1,470,000 1,525,125
---------------------------------------------------------------------------------------------------------------
Unisys Corp., 13.50% Credit Sensitive Nts., 7/1/97(3) 200,000 217,000
-----------
3,043,625
- -----------------------------------------------------------------------------------------------------------------------------------
AUTOMOTIVE--1.7% Aftermarket Technology Corp., 12% Sr. Sub. Nts., Series B, 8/1/04 2,350,000
2,485,125
---------------------------------------------------------------------------------------------------------------
Foamex LP/Foamex Capital Corp.:
11.25% Sr. Nts., 10/1/02 450,000 461,250
9.50% Sr. Sec. Nts., 6/1/00 200,000 201,000
---------------------------------------------------------------------------------------------------------------
JPS Automotive Products Corp., 11.125% Sr. Nts., 6/15/01 450,000 457,313
---------------------------------------------------------------------------------------------------------------
Penda Corp., 10.75% Sr. Nts., Series B, 3/1/04 975,000 853,125
---------------------------------------------------------------------------------------------------------------
SPX Corp., 11.75% Sr. Sub. Nts., 6/1/02 950,000 1,009,375
-----------
5,467,188
- -----------------------------------------------------------------------------------------------------------------------------------
CAPITAL GOODS--0.3% Imo Industries, Inc.:
12% Sr. Sub. Debs., 11/1/01 500,000 516,250
12.25% Sr. Sub. Debs., 8/15/97 562,000 568,323
----------
1,084,573
- -----------------------------------------------------------------------------------------------------------------------------------
MEDIA--14.5%
- -----------------------------------------------------------------------------------------------------------------------------------
BROADCASTING--2.1% New World Communications Group Holding Corp.,
Zero Coupon Sr. Disc. Nts., Series B, 6/15/99 1,600,000 1,080,000
---------------------------------------------------------------------------------------------------------------
Outlet Broadcasting, Inc., 10.875% Sr. Sub. Nts., 7/15/03 1,000,000 1,055,000
---------------------------------------------------------------------------------------------------------------
Paxson Communications Corp., 11.625% Sr. Sub. Nts., 10/1/02(5) 2,000,000 1,967,500
---------------------------------------------------------------------------------------------------------------
Sinclair Broadcast Group, Inc.:
10% Sr. Sub. Nts., 12/15/03 250,000 255,625
10% Sr. Sub. Nts., 9/30/05 1,750,000 1,789,375
---------------------------------------------------------------------------------------------------------------
Univision Television Group, Inc., 11.75% Sr. Sub. Nts., 1/15/01 500,000 540,000
----------
6,687,500
- -----------------------------------------------------------------------------------------------------------------------------------
CABLE TELEVISION American Telecasting, Inc., 0%/14.50% Sr. Disc. Nts., 6/15/04(4) 968,211
559,142
- --9.6% ---------------------------------------------------------------------------------------------------------------
Australis Media Ltd., Units (each unit consists of $1,000 principal
amount of 0%/14% sr. sub. disc. nts., 5/15/03 and one warrant
to purchase 57.721 ordinary shares)(4)(7) 2,415,000 1,436,925
---------------------------------------------------------------------------------------------------------------
Bell Cablemedia PLC:
0%/11.875% Sr. Disc. Nts., 9/15/05(4)(5) 2,000,000 1,180,000
0%/11.95% Sr. Disc. Nts., 7/15/04(4) 2,050,000 1,383,750
</TABLE>
10 Oppenheimer Champion Income Fund
<PAGE>
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
CABLE TELEVISION Cablevision Industries Corp., 9.25% Sr. Debs., Series B, 4/1/08 $ 400,000 $
426,000
(CONTINUED) ---------------------------------------------------------------------------------------------------------------
Cablevision Systems Corp.:
10.75% Sr. Sub. Debs., 4/1/04 200,000 211,750
9.875% Sr. Sub. Debs., 2/15/13 600,000 627,000
9.875% Sr. Sub. Debs., 4/1/23 400,000 419,000
---------------------------------------------------------------------------------------------------------------
Century Communications Corp.:
11.875% Sr. Sub. Debs., 10/15/03 700,000 745,500
9.50% Sr. Nts., 3/1/05 1,500,000 1,511,250
---------------------------------------------------------------------------------------------------------------
Continental Cablevision, Inc.:
11% Sr. Sub. Debs., 6/1/07 270,000 299,700
9.50% Sr. Debs., 8/1/13 2,810,000 2,929,425
---------------------------------------------------------------------------------------------------------------
Diamond Cable Communications PLC, 0%/13.25% Sr. Disc. Nts., 9/30/04(4) 1,250,000
831,250
---------------------------------------------------------------------------------------------------------------
International CableTel, Inc.:
0%/10.875% Sr. Deferred Coupon Nts., 10/15/03(4) 160,000 108,000
0%/12.75% Sr. Deferred Coupon Nts., 4/15/05(4) 3,420,000 2,052,000
---------------------------------------------------------------------------------------------------------------
Marcus Cable Co., LP/Marcus Cable Capital Corp.,
0%/14.25% Sr. Disc. Nts., 12/15/05(4) 400,000 235,000
---------------------------------------------------------------------------------------------------------------
Marcus Cable Operating Co. LP/Marcus Cable Capital Corp.,
0%/13.50% Gtd. Sr. Sub. Disc. Nts., Series II, 8/1/04(4) 3,725,000 2,560,938
---------------------------------------------------------------------------------------------------------------
People's Choice TV Corp., Units (each unit consists of $1,000 principal
amount of 0%/13.125% sr. disc. nts., 6/1/04 and one warrant
to purchase 1.427 shares of common stock)(4)(7) 1,350,000 705,375
---------------------------------------------------------------------------------------------------------------
PriCellular Wireless Corp., 0%/12.25% Sr. Sub. Disc. Nts., 10/1/03(4) 3,000,000 2,145,000
---------------------------------------------------------------------------------------------------------------
Rogers Cablesystems, Inc., 10% Sr. Nts., 3/15/05(5) 1,000,000 1,050,000
---------------------------------------------------------------------------------------------------------------
TeleWest Communications PLC:
0%/11% Sr. Disc. Debs., 10/1/07(4)(13) 3,425,000 2,020,750
9.625% Sr. Debs., 10/1/06(13) 1,500,000 1,507,500
---------------------------------------------------------------------------------------------------------------
Time Warner, Inc.:
9.125% Debs., 1/15/13 1,650,000 1,769,137
9.15% Debs., 2/1/23 300,000 325,624
---------------------------------------------------------------------------------------------------------------
TKR Cable I, Inc., 10.50% Sr. Debs., 10/30/07 1,575,000 1,778,070
---------------------------------------------------------------------------------------------------------------
Videotron Holdings PLC, 0%/11% Sr. Disc. Nts., 8/15/05(4) 3,550,000 2,041,250
-----------
30,859,336
- -----------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED MEDIA Ackerley Communications, Inc., 10.75% Sr. Sec. Nts., Series A, 10/1/03 1,300,000
1,378,000
- --1.8% ---------------------------------------------------------------------------------------------------------------
News America Holdings, Inc., 10.125% Gtd. Sr. Debs., 10/15/12 700,000 807,995
---------------------------------------------------------------------------------------------------------------
Outdoor Systems, Inc., 10.75% Sr. Nts., 8/15/03 200,000 193,000
---------------------------------------------------------------------------------------------------------------
Panamsat LP/Panamsat Capital Corp.:
0%/11.375% Sr. Sub. Disc. Nts., 8/1/03(4) 3,850,000 2,993,375
9.75% Sr. Sec. Nts., 8/1/00 400,000 418,000
-----------
5,790,370
- -----------------------------------------------------------------------------------------------------------------------------------
ENTERTAINMENT/FILM AMC Entertainment, Inc., 11.875% Gtd. Sr. Nts., 8/1/00 200,000
219,000
- --0.6% ---------------------------------------------------------------------------------------------------------------
Imax Corp., 7% Sr. Nts., 3/1/01(11) 1,700,000 1,623,500
-----------
1,842,500
- -----------------------------------------------------------------------------------------------------------------------------------
PUBLISHING/PRINTING Bell & Howell Holdings Co., 0%/11.50% Sr. Disc. Debs., Series B, 3/1/05(4) 2,070,000
1,293,750
- --0.4%
</TABLE>
11 Oppenheimer Champion Income Fund
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------
STATEMENT OF INVESTMENTS (Continued)
--------------------------------------
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER--2.5%
- -----------------------------------------------------------------------------------------------------------------------------------
ENVIRONMENTAL EnviroSource, Inc., 9.75% Sr. Nts., 6/15/03 $ 690,000 $
621,000
- --0.3% ---------------------------------------------------------------------------------------------------------------
Mid-American Waste Systems, Inc., 12.25% Sr. Sub. Nts., 2/15/03 200,000 208,000
---------
829,000
- -----------------------------------------------------------------------------------------------------------------------------------
SERVICES--2.2% Acetex Corp., 9.75% Sr. Sec. Nts., 10/1/03(5)(13) 2,000,000 2,025,000
---------------------------------------------------------------------------------------------------------------
Borg-Warner Security Corp., 9.125% Sr. Sub. Nts., 5/1/03 2,000,000 1,665,000
---------------------------------------------------------------------------------------------------------------
Protection One Alarm Monitoring, Inc., Units (each unit consists of ten
$1,000 principal amount of 0%/13.625% sr. sub. disc. nts., 6/30/05 and 32
warrants, each warrant entitles holder to purchase one share of Protection
One, Inc. common stock)(4)(5)(7) 4,750,000 3,313,125
----------
7,003,125
- -----------------------------------------------------------------------------------------------------------------------------------
RETAIL--5.2%
- -----------------------------------------------------------------------------------------------------------------------------------
DRUG STORES--1.1% Duane Reade, 12% Sr. Nts., Series B, 9/15/02 700,000
633,500
---------------------------------------------------------------------------------------------------------------
Revco D.S., Inc., 9.125% Sr. Nts., 1/15/00 700,000 735,000
---------------------------------------------------------------------------------------------------------------
Thrifty Payless, Inc., 11.75% Sr. Nts., 4/15/03 2,000,000 2,095,000
-----------
3,463,500
- -----------------------------------------------------------------------------------------------------------------------------------
SPECIALTY RETAILING Brylane LP/Brylane Capital Corp., 10% Sr. Sub. Nts., Series B, 9/1/03 1,000,000
930,000
- --1.7% ---------------------------------------------------------------------------------------------------------------
Cole National Group, Inc., 11.25% Sr. Nts., 10/1/01 600,000 597,000
---------------------------------------------------------------------------------------------------------------
Eye Care Centers of America, Inc., 12% Sr. Nts., 10/1/03 800,000 680,000
---------------------------------------------------------------------------------------------------------------
Finlay Fine Jewelry Corp., 10.625% Sr. Nts., 5/1/03 1,285,000 1,252,875
---------------------------------------------------------------------------------------------------------------
United Stationers Supply Co., 12.75% Sr. Sub. Nts., 5/1/05(5) 2,000,000 2,145,000
-----------
5,604,875
- -----------------------------------------------------------------------------------------------------------------------------------
SUPERMARKETS--2.4% Grand Union Co., 12% Sr. Nts., 9/1/04 3,452,000
3,331,180
---------------------------------------------------------------------------------------------------------------
Kash 'N Karry Food Stores, Inc., 11.50% Sr. Nts., 2/1/03(6) 320,300 317,898
---------------------------------------------------------------------------------------------------------------
Penn Traffic Co., 9.625% Sr. Sub. Nts., 4/15/05 3,900,000 3,217,500
---------------------------------------------------------------------------------------------------------------
Purity Supreme, Inc., 11.75% Sr. Sec. Nts., Series B, 8/1/99 625,000 684,375
----------
7,550,953
- -----------------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--2.1%
- -----------------------------------------------------------------------------------------------------------------------------------
RAILROADS--0.6% Transtar Holdings LP/Transtar Capital Corp.,
0%/13.375% Sr. Disc. Nts., Series B, 12/15/03(4) 3,200,000 2,032,000
- -----------------------------------------------------------------------------------------------------------------------------------
SHIPPING--1.5% Gearbulk Holding Ltd., 11.25% Sr. Nts., 12/1/04 2,600,000 2,769,000
---------------------------------------------------------------------------------------------------------------
Sea Containers Ltd.:
12.50% Sr. Sub. Debs., Series A, 12/1/04 250,000 276,250
12.50% Sr. Sub. Debs., Series B, 12/1/04 100,000 108,000
9.50% Sr. Sub. Debs., 7/1/03 50,000 49,813
---------------------------------------------------------------------------------------------------------------
Trans Ocean Container Corp., 12.25% Sr. Sub. Nts., 7/1/04 1,700,000 1,742,500
-----------
4,945,563
- -----------------------------------------------------------------------------------------------------------------------------------
UTILITIES--4.1%
- -----------------------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES California Energy Co., 0%/10.25% Sr. Disc. Nts., 1/15/04(4) 2,220,000
1,992,152
- --0.6%
- -----------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS Cellular Communications International, Inc., Units (each unit consists
- --3.5% of $1,000 principal amount of zero coupon sr. disc. nts., 8/15/00 and
one warrant to purchase 1.126 shares of common stock)(7) 3,725,000 2,067,375
</TABLE>
12 Oppenheimer Champion Income Fund
<PAGE>
<TABLE>
<CAPTION>
FACE MARKET VALUE
AMOUNT(1) SEE NOTE 1
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS Cellular, Inc., 0%/11.75% Sr. Sub. Disc. Nts., 9/1/03(4) $2,250,000
$ 1,721,250
(CONTINUED) ---------------------------------------------------------------------------------------------------------------
Horizon Cellular Telephone LP/Horizon Finance Corp.,
0%/11.375% Sr. Sub. Disc. Nts., 10/1/00(4) 2,000,000 1,700,000
---------------------------------------------------------------------------------------------------------------
In Flight Phone Corp., Units (each unit consists of $1,000 principal
amount of 0%/14% sr. disc. nts., series A, 5/15/02 and one warrant
to purchase one share of common stock)(4)(5)(7) 1,600,000 640,000
---------------------------------------------------------------------------------------------------------------
IntelCom Group (USA), Inc. (ICG) and IntelCom Group, Inc., Units
(each unit consists of ten 0%/13.50% sr. disc. nts., 9/15/05 of ICG and
33 warrants to purchase an equal number of common shares of IntelCom
at an exercise price equal to $12.51 per share)(4)(5)(7) 4,900,000 2,731,750
---------------------------------------------------------------------------------------------------------------
MFS Communications, Inc., 0%/9.375% Sr. Disc. Nts., 1/15/04(4) 1,400,000 1,064,000
---------------------------------------------------------------------------------------------------------------
PriCellular Wireless Corp., 0%/14% Sr. Sub. Disc. Nts., 11/15/01(4) 810,000 672,300
---------------------------------------------------------------------------------------------------------------
USA Mobile Communications, Inc. II, 14% Sr. Nts., 11/1/04 500,000 572,500
-----------
11,169,175
-----------
Total Corporate Bonds and Notes (Cost $233,457,117) 237,212,562
SHARES
==========================================================
==========================================================
===============
COMMON STOCKS--0.1%
- -----------------------------------------------------------------------------------------------------------------------------------
ECM Fund, L.P.I.(8) 75 75,000
---------------------------------------------------------------------------------------------------------------
Equitable Bag, Inc.(12) 2,261 5,653
---------------------------------------------------------------------------------------------------------------
Finlay Enterprises, Inc.(12) 2,333 40,244
---------------------------------------------------------------------------------------------------------------
Gaylord Container Corp.(12) 914 8,626
---------------------------------------------------------------------------------------------------------------
Grand Union Co.(12) 1,767 22,971
---------------------------------------------------------------------------------------------------------------
Hollywood Casino Corp.(12) 10,000 70,000
---------------------------------------------------------------------------------------------------------------
Kash 'N Karry Food Stores, Inc.(12) 5,000 127,500
---------------------------------------------------------------------------------------------------------------
Triangle Wire & Cable, Inc.(8)(12) 9,500 19,000
---------------------------------------------------------------------------------------------------------------
Zale Corp.(12) 1,985 27,542
----------
Total Common Stocks (Cost $315,766) 396,536
==========================================================
==========================================================
===============
PREFERRED STOCKS--1.0%
- -----------------------------------------------------------------------------------------------------------------------------------
California Federal Bank, 10.625% Non-Cum., Series B 2,600 289,250
---------------------------------------------------------------------------------------------------------------
First Nationwide Bank, 11.50% Non-Cum. 13,700 1,520,700
---------------------------------------------------------------------------------------------------------------
K-III Communications Corp., $11.625 Exchangeable, Series B(6) 7,299 715,311
---------------------------------------------------------------------------------------------------------------
SDW Holdings Corp., Units (each unit consists of ten shares of sr.
exchangeable preferred stock and one cl. B warrant to purchase one
share of common stock)(5)(7)(12) 2,812 787,360
---------
Total Preferred Stocks (Cost $3,142,636) 3,312,621
UNITS
==========================================================
==========================================================
===============
RIGHTS, WARRANTS AND CERTIFICATES--0.2%
- -----------------------------------------------------------------------------------------------------------------------------------
American Telecasting, Inc. Wts., Exp. 6/99 3,500 9,625
---------------------------------------------------------------------------------------------------------------
Ames Department Stores, Inc.:
Excess Cash Flow Payment Certificates, Series AG-7A 6,200 62
Litigation Trust 19,829 198
---------------------------------------------------------------------------------------------------------------
Becker Gaming, Inc. Wts., Exp. 11/00(8) 12,500 18,750
---------------------------------------------------------------------------------------------------------------
Casino America, Inc. Wts., Exp. 11/96 1,631 245
---------------------------------------------------------------------------------------------------------------
Echostar Communications Corp. Wts., Exp. 6/04 5,340 58,740
</TABLE>
13 Oppenheimer Champion Income Fund
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------
STATEMENT OF INVESTMENTS (Continued)
--------------------------------------
MARKET VALUE
UNITS SEE NOTE 1
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
RIGHTS, WARRANTS Eye Care Centers of America, Inc. Wts., Exp. 10/03(5) 800 $
4,000
AND CERTIFICATES ---------------------------------------------------------------------------------------------------------------
(CONTINUED) Federated Department Stores, Inc. Wts.:
Cl. C, Exp. 12/99 6,741 61,512
Cl. D, Exp. 12/01 6,741 63,197
---------------------------------------------------------------------------------------------------------------
Gaylord Container Corp. Wts., Exp. 7/96 1,174 9,979
---------------------------------------------------------------------------------------------------------------
Interco, Inc. Wts., Series 1, Exp. 8/99 14,540 14,540
---------------------------------------------------------------------------------------------------------------
Jewel Recovery LP, Participation Units of Limited Partners' Interest 1,985 --
---------------------------------------------------------------------------------------------------------------
OSI Specialties Corp. Wts., 4/99(5) 3,000 19,500
---------------------------------------------------------------------------------------------------------------
Protection One, Inc. Wts., Exp. 11/03 28,000 248,500
---------------------------------------------------------------------------------------------------------------
Purity Supreme, Inc. Wts., Exp. 8/97(8) 1,733 35
---------------------------------------------------------------------------------------------------------------
Southland Corp. Wts., Exp. 3/96 300 450
---------------------------------------------------------------------------------------------------------------
Terex Corp. Rts., Exp. 7/97(5) 300 30
---------------------------------------------------------------------------------------------------------------
Trizec Corp. Wts., Exp. 7/99 1,985 2,874
---------------------------------------------------------------------------------------------------------------
UGI Corp. Wts., Exp. 3/98 4,750 238
----------
Total Rights, Warrants and Certificates (Cost $232,937) 512,475
FACE
AMOUNT(1)
==========================================================
==========================================================
===============
REPURCHASE Repurchase agreement with First Chicago Capital Markets, 6.35%, dated 9/29/95,
AGREEMENTS--9.8% to be repurchased at $31,286,547 on 10/2/95, collateralized by U.S. Treasury
Nts., 4.25%--8.75%, 11/30/95--8/15/00, with a value of $21,319,344, U.S.
Treasury Bills maturing 12/28/95--3/28/96, with a value of $4,840,122, and U.S.
Treasury Bonds, 8.50%--13.25%, 5/15/14--2/15/20, with a value of $5,795,452
(Cost $31,270,000) $31,270,000 31,270,000
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (Cost $323,028,699) 102.3%
327,433,634
- -----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES IN EXCESS OF OTHER ASSETS (2.3) (7,363,387)
------- ------------
NET ASSETS 100.0% $320,070,247
------- ------------
------- ------------
<FN>
1. Face amount is reported in U.S. Dollars, except for those denoted in the following currencies:
CAD--Canadian Dollar
DEM--German Deutsche Mark
IDR--Indonesian Rupiah
2. Interest-Only Strips represent the right to receive the monthly interest payments on an underlying pool of
mortgage loans. These securities typically decline in price as interest rates decline. Most other fixed-income
securities increase in price when interest rates decline. The principal amount of the underlying pool represents
the notional amount on which current interest is calculated. The price of these securities is typically more
sensitive to changes in prepay ment rates than traditional mortgage-backed securities (for example, GNMA pass-
throughs). Interest rates disclosed represent current yields based upon the current cost basis and estimated
timing and amount of future cash flows.
3. Represents the current interest rate for a variable rate security.
4. Represents a zero coupon bond that converts to a fixed rate of interest at a designated future date.
5. Represents a security sold under Rule 144A, which is exempt from registration under the Securities Act of
1933, as amended. This security has been determined to be liquid under guidelines established by the Board of
Trustees. These securities amount to $23,062,107 or 7.21% of the Fund's net assets, at September 30, 1995.
6. Interest or dividend is paid in kind.
7. Units may be comprised of several components, such as debt and equity and/or warrants to purchase equity
at
some point in the future.
8. Identifies issues considered to be illiquid--See Note 7 of Notes to Financial Statements.
9. Non-income producing--issuer is in default of interest payment.
10. Partial interest payment received.
11. Represents the current interest rate for an increasing rate security.
12. Non-income producing security.
13. When-issued security to be delivered and settled after September 30, 1995.
See accompanying Notes to Financial Statements.
</FN>
</TABLE>
14 Oppenheimer Champion Income Fund
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES September 30, 1995
--------------------------------------------------------
<S> <C> <C>
==========================================================
==========================================================
===============
ASSETS Investments, at value (cost $323,028,699)--see accompanying statement $327,433,634
---------------------------------------------------------------------------------------------------------------
Cash 63,697
---------------------------------------------------------------------------------------------------------------
Receivables:
Interest 6,418,536
Shares of beneficial interest sold 2,766,153
Investments sold 658,469
---------------------------------------------------------------------------------------------------------------
Other 6,497
------------
Total assets 337,346,986
==========================================================
==========================================================
===============
LIABILITIES Unrealized depreciation on forward foreign currency exchange contracts--Note 5 72,922
---------------------------------------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased 15,766,147
Shares of beneficial interest redeemed 758,052
Dividends 387,692
Distribution and service plan fees--Note 6 179,121
Transfer and shareholder servicing agent fees 15,302
Other 97,503
------------
Total liabilities 17,276,739
==========================================================
==========================================================
===============
NET ASSETS $320,070,247
============
==========================================================
==========================================================
===============
COMPOSITION OF Paid-in capital $319,662,117
NET ASSETS ---------------------------------------------------------------------------------------------------------------
Undistributed net investment income 83,753
---------------------------------------------------------------------------------------------------------------
Accumulated net realized loss from investments, written options
and foreign currency transactions (4,005,696)
---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments and translation
of assets and liabilities denominated in foreign currencies 4,330,073
------------
Net assets $320,070,247
============
==========================================================
==========================================================
===============
NET ASSET VALUE Class A Shares:
PER SHARE Net asset value and redemption price per share (based on net assets
of $255,138,637 and 20,463,959 shares of beneficial interest outstanding) $12.47
Maximum offering price per share (net asset value plus sales charge of 4.75% of
offering price) $13.09
---------------------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price and offering price per share (based on net
assets of $64,931,610 and 5,211,966 shares of beneficial interest outstanding) $12.46
</TABLE>
See accompanying Notes to Financial Statements.
15 Oppenheimer Champion Income Fund
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------
STATEMENT OF OPERATIONS For the Year Ended September 30, 1995
---------------------------------------------------------------
<S> <C> <C>
==========================================================
==========================================================
===============
INVESTMENT INCOME Interest (net of foreign withholding taxes of $6,629)
$23,754,025
---------------------------------------------------------------------------------------------------------------
Dividends (net of foreign withholding taxes of $546) 141,832
-----------
Total income 23,895,857
==========================================================
==========================================================
===============
EXPENSES Management fees--Note 6 1,728,602
---------------------------------------------------------------------------------------------------------------
Distribution and service plan fees--Note 6:
Class A 490,347
Class C 435,523
---------------------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 6 361,618
---------------------------------------------------------------------------------------------------------------
Shareholder reports 160,593
---------------------------------------------------------------------------------------------------------------
Registration and filing fees:
Class A 28,149
Class C 11,750
---------------------------------------------------------------------------------------------------------------
Custodian fees and expenses 30,901
---------------------------------------------------------------------------------------------------------------
Legal and auditing fees 7,436
---------------------------------------------------------------------------------------------------------------
Trustees' fees and expenses 1,849
---------------------------------------------------------------------------------------------------------------
Other 1,246
-----------
Total expenses 3,258,014
==========================================================
==========================================================
===============
NET INVESTMENT INCOME 20,637,843
==========================================================
==========================================================
===============
REALIZED AND Net realized gain (loss) from:
UNREALIZED GAIN Investments (3,446,180)
(LOSS) ON INVEST- Closing of options written (44,972)
MENTS, OPTIONS Foreign currency transactions 125,359
WRITTEN AND FOREIGN Closing of futures contracts 466,937
CURRENCY ----------
TRANSACTIONS Net realized loss (2,898,856)
---------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on:
Investments and options written 7,383,893
Translation of assets and liabilities denominated in foreign currencies (171,824)
----------
Net change 7,212,069
----------
Net realized and unrealized gain on investments, options written
and foreign currency transactions 4,313,213
==========================================================
==========================================================
===============
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
$24,951,056
===========
</TABLE>
See accompanying Notes to Financial Statements.
16 Oppenheimer Champion Income Fund
<PAGE>
<TABLE>
<CAPTION>
-------------------------------
STATEMENTS OF CHANGES IN ASSETS
-------------------------------
YEAR ENDED SEPTEMBER 30,
1995 1994
<S> <C> <C> <C>
==========================================================
==========================================================
===============
OPERATIONS Net investment income $ 20,637,843 $ 12,321,861
---------------------------------------------------------------------------------------------------------------
Net realized loss on investments, options written and
foreign currency transactions (2,898,856) (587,272)
---------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on investments, options
written and translation of assets and liabilities denominated in foreign
currencies 7,212,069 (5,840,526)
----------- -----------
Net increase in net assets resulting from operations 24,951,056 5,894,063
==========================================================
==========================================================
===============
DIVIDENDS AND Dividends from net investment income:
DISTRIBUTIONS TO Class A ($1.039 and $1.102 per share, respectively) (17,271,188)
(11,428,985)
SHAREHOLDERS Class C ($.944 and $.765 per share, respectively) (3,335,380)
(828,957)
---------------------------------------------------------------------------------------------------------------
Dividends in excess of net investment income:
Class A ($.006 per share) -- (59,802)
Class C ($.004 per share) -- (4,337)
---------------------------------------------------------------------------------------------------------------
Distributions from net realized gain on investments, options written and foreign
currency transactions:
Class A ($.002 per share) (26,483) --
Class C ($.002 per share) (4,572) --
---------------------------------------------------------------------------------------------------------------
Distributions in excess of net realized gain on investments, options written and
foreign currency transactions:
Class A ($.189 per share) -- (1,773,705)
Class C ($.189 per share) -- (25,332)
==========================================================
==========================================================
===============
BENEFICIAL INTEREST Net increase in net assets resulting from Class A beneficial
TRANSACTIONS interest transactions--Note 2 91,132,115 63,236,754
---------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from Class C beneficial
interest transactions--Note 2 36,376,191 28,773,777
==========================================================
==========================================================
===============
NET ASSETS Total increase 131,821,739 83,783,476
---------------------------------------------------------------------------------------------------------------
Beginning of period 188,248,508 104,465,032
----------- -----------
End of period [including undistributed (overdistributed) net
investment income of $83,753 and $(232,629), respectively] $320,070,247 $188,248,508
------------ ------------
------------ ------------
</TABLE>
See accompanying Notes to Financial Statements.
17 Oppenheimer Champion Income Fund
<PAGE>
<TABLE>
<CAPTION>
--------------------
FINANCIAL HIGHLIGHTS
--------------------
CLASS A
--------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
==========================================================
===============================================
PER SHARE OPERATING DATA:
Net asset value, beginning of period $12.32 $12.90 $12.26 $11.49 $10.46
- ---------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 1.05 1.10 1.22 1.41 1.45
Net realized and unrealized gain
(loss) on investments, options written
and foreign currency transactions .14 (.38) .64 .77 1.04
------ ------ ------ ------ ------
Total income from investment
operations 1.19 .72 1.86 2.18 2.49
- ---------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (1.04) (1.10) (1.22) (1.41) (1.46)
Dividends in excess of net
investment income -- (.01) -- -- --
Distributions from net realized gain
on investments, options wrtitten
and foreign currency transactions --(4) -- -- -- --
Distributions in excess of net realized
gain on investments, options written
and foreign currency transactions -- (.19) -- -- --
------ ------ ------ ------ ------
Total dividends and distributions
to shareholders (1.04) (1.30) (1.22) (1.41) (1.46)
- ---------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.47 $12.32 $12.90 $12.26 $11.49
------ ------ ------ ------ ------
------ ------ ------ ------ ------
==========================================================
===============================================
TOTAL RETURN, AT NET ASSET VALUE(5) 10.09% 5.61% 15.92% 19.94% 25.62%
==========================================================
===============================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $255,139 $160,505 $104,465 $47,125 $16,044
- ---------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $204,917 $135,431 $73,334 $28,270 $14,057
- ---------------------------------------------------------------------------------------------------------
Number of shares outstanding at
end of period (in thousands) 20,464 13,026 8,096 3,844 1,397
- ---------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 8.45% 8.49% 9.52% 11.60% 13.49%
Expenses 1.18% 1.22% 1.24% 1.35% 1.49%
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover rate(7) 72.5% 108.0% 116.2% 121.5% 114.8%
</TABLE>
<TABLE>
<CAPTION>
--------------------
FINANCIAL HIGHLIGHTS
--------------------
CLASS A CLASS C
----------------------------------- -----------------------
YEAR ENDED
YEAR ENDED SEPTEMBER 30, SEPTEMBER 30,
1990 1989 1988(2) 1995 1994(1)
==========================================================
===============================================
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA:
Net asset value, beginning of period $11.53 $12.10 $11.43 $12.32 $13.13
- --------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 1.43 1.42(3) 1.24 .95 .75
Net realized and unrealized gain
(loss) on investments, options written
and foreign currency transactions (1.08) (.43) .67 .13 (.60)
------ ------ ------ ------ ------
Total income from investment
operations .35 .99 1.91 1.08 .15
- ---------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (1.42) (1.42) (1.24) (.94) (.77)
Dividends in excess of net
investment income -- -- -- -- --(4)
Distributions from net realized gain
on investments, options wrtitten
and foreign currency transactions -- (.14) -- --(4) --
Distributions in excess of net realized
gain on investments, options written
and foreign currency transactions -- -- -- -- (.19)
------ ------ ------ ------ ------
Total dividends and distributions
to shareholders (1.42) (1.56) (1.24) (.94) (.96)
- ---------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.46 $11.53 $12.10 $12.46 $12.32
------ ------ ------ ------ ------
------ ------ ------ ------ ------
==========================================================
===============================================
TOTAL RETURN, AT NET ASSET VALUE(5) 3.13% 8.53% 17.29% 9.16% 1.11%
==========================================================
===============================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $13,910 $20,642 $18,579 $64,932 $27,743
- ---------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $17,163 $21,349 $11,116 $43,584 $13,693
- ---------------------------------------------------------------------------------------------------------
Number of shares outstanding at
end of period (in thousands) 1,330 1,790 1,535 5,212 2,251
- ---------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 12.92% 11.87% 11.50%(6) 7.63% 7.24%(6)
Expenses 1.40% 1.19%(3) 1.05%(6) 1.95% 1.94%(6)
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover rate(7) 67.8% 98.5% 31.6% 72.5% 108.0%
<FN>
1. For the period from December 1, 1993 (inception of offering) to September 30, 1994.
2. For the period from November 16, 1987 (commencement of operations) to September 30,
1988.
3. Net investment income would have been $1.41 per share absent the voluntary expense
reimbursement, resulting in an expense ratio of 1.25%.
4. Less than $.005 per share.
5. 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.
6. Annualized.
7. The lesser of purchases or sales of portfolio securities for a period, divided by
the monthly average of the market value of portfolio securities owned during the period.
Securities with a maturity or expiration date at the time of acquisition of one year
or less are excluded from the calculation. Purchases and sales of investment
securities (excluding short-term securities) for the period ended September 30, 1995 were $283,471,759 and
$137,564,816, respectively.
See accompanying Notes to Financial Statements.
</FN>
</TABLE>
18 Oppenheimer Champion Income Fund
<PAGE>
-----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
==========================================================
======================
1. SIGNIFICANT Oppenheimer Champion Income Fund (the Fund), operating under
ACCOUNTING the name Oppenheimer Champion High Yield Fund through
POLICIES September 30, 1995, 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 C shares. Class A shares
are sold with a front-end sales charge. Class C shares may
be subject to a contingent deferred sales charge. Both
classes of shares have identical rights to earnings, assets
and voting privileges, except that each class has its own
distribution and/or service plan, expenses directly attribu-
table to a particular class and exclusive voting rights with
respect to matters affecting a single class. The following
is a summary of significant accounting policies consistently
followed by the Fund.
-----------------------------------------------------------
INVESTMENT VALUATION. Portfolio securities are valued at the
close of the New York Stock Exchange on each trading day.
Listed and unlisted securities for which such information is
regularly reported are valued at the last sale price of the
day or, in the absence of sales, at values based on the
closing bid or asked price or the last sale price on the
prior trading day. Long-term and short-term "non-money
market" debt securities are valued by a portfolio pricing
service approved by the Board of Trustees. Such securities
which cannot be valued by the approved portfolio pricing
service are valued using dealer-supplied valuations provided
the Manager is satisfied that the firm rendering the quotes
is reliable and that the quotes reflect current market
value, or are valued under consistently applied procedures
established by the Board of Trustees to determine fair value
in good faith. Short-term "money market type" debt securi-
ties 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.
-----------------------------------------------------------
SECURITY CREDIT RISK. The Fund invests in high yield securi-
ties, which may be subject to a greater degree of credit
risk, greater market fluctuations and risk of loss of income
and principal, and may be more sensitive to economic
conditions than lower yielding, higher rated fixed income
securities. The Fund may acquire securities in default, and
is not obligated to dispose of securities whose issuers
subsequently default. At September 30, 1995, securities with
an aggregate market value of $971,570, representing .30% of
the Fund's net assets, were in default.
-----------------------------------------------------------
FOREIGN CURRENCY TRANSLATION. The accounting records of the
Fund are maintained in U.S. dollars. Prices of securities
denominated in foreign currencies are translated into U.S.
dollars at the closing rates of exchange. Amounts related
to the purchase and sale of securities and investment income
are translated at the rates of exchange prevailing on the
respective dates of such transactions.
The effect of changes in foreign currency exchange
rates on investments is separately identified from the fluc-
tuations arising from changes in market values of securities
held and reported with all other foreign currency gains and
losses in the Fund's Statement of Operations.
-----------------------------------------------------------
REPURCHASE AGREEMENTS. The Fund requires the custodian to
take possession, to have legally segregated in the Federal
Reserve Book Entry System or to have segregated within the
custodian's vault, all securities held as collateral for
repurchase agreements. The market value of the underlying
securities is required to be at least 102% of the resale
price at the time of purchase. If the seller of the agree-
ment defaults and the value of the collateral declines, or
if the seller enters an insolvency proceeding, realization
of the value of the collateral by the Fund may be delayed or
limited.
-----------------------------------------------------------
ALLOCATION OF INCOME, EXPENSES, 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.
19 Oppenheimer Champion Income Fund
<PAGE>
-------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
-------------------------------------------
==========================================================
======================
1. SIGNIFICANT FEDERAL TAXES. The Fund intends to continue to comply with
ACCOUNTING provisions of the Internal Revenue Code applicable to
POLICIES regulated investment companies and to distribute all of its
(CONTINUED) taxable income, including any net realized gain on
investments not offset by loss carryovers, to shareholders.
Therefore, no federal income or excise tax provision is
required. At September 30, 1995, the Fund had available for
federal income tax purposes an unused capital loss carryover
of approximately $811,000 expiring in 2003.
-----------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS. The Fund intends to declare
dividends separately for Class A and Class C shares from net
investment income each day the New York Stock Exchange is
open for business and pay such dividends monthly. Distribu-
tions from net realized gains on investments, if any, will
be declared at least once each year.
-----------------------------------------------------------
CLASSIFICATION OF DISTRIBUTIONS TO SHAREHOLDERS. Net invest-
ment income (loss) and net realized gain (loss) may differ
for financial statement and tax purposes primarily because
of paydown gains and losses and the recognition of certain
foreign currency gains (losses) as ordinary income (loss)
for tax purposes. 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 distri-
buted may differ from the year that the income or realized
gain (loss) was recorded by the Fund.
During the year ended September 30, 1995, the Fund
changed the classification of distributions to shareholders
to better disclose the differences between financial state-
ment amounts and distributions determined in accordance with
income tax regulations. During the year ended September 30,
1995, amounts have been reclassified to reflect an increase
in undistributed net investment income of $285,107. Accumu-
lated net realized loss on investments was increased by the
same amount.
-----------------------------------------------------------
OTHER. Investment transactions are accounted for on the date
the investments are purchased or sold (trade date) and
dividend income is recorded on the ex-dividend date. Dis-
count 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. Dividends in kind are
recognized as income on the ex-dividend date, at the current
market value of the underlying security. Interest on
payment-in-kind debt instruments is accrued as income at the
coupon rate and a market adjustment is made on the ex-date.
==========================================================
======================
2. SHARES OF The Fund has authorized an unlimited number of no par value
BENEFICIAL shares of beneficial interest of each class. Transactions in
INTEREST shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994(1)
------------------ ---------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A:
Sold 13,552,963 $166,240,526 10,281,508 $131,255,862
Dividends and distributions reinvested 941,789 11,588,722 665,353 8,503,155
Redeemed (7,056,689) (86,697,133) (6,017,355) (76,522,263)
----------- ------------- ----------- -------------
Net increase 7,438,063 $ 91,132,115 4,929,506 $ 63,236,754
----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
--------------------------------------------------------------------------------------------------------------
Class C:
Sold 3,640,178 $ 44,736,101 2,447,647 $ 31,251,062
Dividends and distributions reinvested 176,650 2,175,061 45,942 574,950
Redeemed (856,281) (10,534,971) (242,170) (3,052,235)
----------- ------------- ----------- -------------
Net increase 2,960,547 $ 36,376,191 2,251,419 $ 28,773,777
----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
</TABLE>
1. For the year ended September 30, 1994 for Class A shares
and for the period from December 1, 1993 (inception of
offering) to September 30, 1994 for Class C shares.
20 Oppenheimer Champion Income Fund
<PAGE>
==========================================================
=====================
3. UNREALIZED GAINS At September 30, 1995, net unrealized appreciation on
AND LOSSES ON investments of $4,404,935 was composed of gross appreciation
INVESTMENTS of $8,699,682, and gross depreciation of $4,294,747.
==========================================================
=====================
4. OPTION ACTIVITY The Fund may buy and sell put and call options, or write
covered put and call options on portfolio securities in
order to produce incremental earnings or protect against
changes in the value of portfolio securities.
The Fund generally purchases put options or writes
covered call options to hedge against adverse movements in
the value of portfolio holdings. When an option is written,
the Fund receives a premium and becomes obligated to sell or
purchase the underlying security at a fixed price, upon
exercise of the option.
Options are valued daily based upon the last sale price
on the principal exchange on which the option is traded and
unrealized appreciation or depreciation is recorded. The
Fund will realize a gain or loss upon the expiration or
closing of the option transaction. When an option is exer-
cised, the proceeds on sales for a written call option, the
purchase cost for a written put option, or the cost of the
security for a purchased put or call option is adjusted by
the amount of premium received or paid.
In this report, securities designated to cover
outstanding call options are noted in the Statement of
Investments. Shares subject to call, expiration date,
exercise price, premium received and market value are
detailed in a footnote to the Statement of Investments.
Options written are reported as a liability in the
Statement of Assets and Liabilities. Gains and losses are
reported in the Statement of Operations.
The risk in writing a call option is that the Fund
gives up the opportunity for profit if the market price of
the security increases and the option is exercised. The risk
in writing a put option is that the Fund may incur a loss if
the market price of the security decreases and the option is
exercised. The risk in buying an option is that the Fund
pays a premium whether or not the option is exercised. The
Fund also has the additional risk of not being able to enter
into a closing transaction if a liquid secondary market does
not exist.
<TABLE>
<CAPTION>
Written call option activity for the year ended September
30, 1995 was as follows:
NUMBER OF AMOUNT OF
OPTIONS PREMIUMS
<S> <C> <C>
------------------------------------------------------------------------------------
Options outstanding at September 30, 1994 2,321,848 $ 29,435
Options closed (2,321,848) (29,435)
---------- --------
Options outstanding at September 30, 1995 -- $ --
---------- --------
---------- --------
</TABLE>
==========================================================
======================
5. FORWARD A forward foreign currency exchange contract (forward
CONTRACTS contract) is a commitment to purchase or sell a foreign
currency at a future date, at a negotiated rate.
The Fund uses forward contracts to seek to manage
foreign currency risks. They may also be used to tactically
shift portfolio currency risk. The Fund generally enters
into forward contracts as a hedge upon the purchase or sale
of a security denominated in a foreign currency. In
addition, the Fund may enter into such contracts as a hedge
against changes in foreign currency exchange rates on port-
folio positions.
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. The Fund will realize a gain or
loss upon the closing or settlement of the forward trans-
action.
In this report, securities held in segregated accounts
to cover net exposure on outstanding forward contracts are
noted in the Statement of Investments where applicable.
Gains and losses on outstanding contracts (unrealized
appreciation or depreciation on forward contracts) are
reported in the Statement of Assets and Liabilities.
Realized gains and losses are reported with all other
foreign currency gains and losses in the Fund's Statement of
Operations.
Risks include the potential inability of the counter-
party to meet the terms of the contract and unanticipated
movements in the value of a foreign currency relative to the
U.S. dollar.
At September 30, 1995, outstanding forward contracts to sell
currencies were as follows:
<TABLE>
<CAPTION>
CONTRACT VALUATION AS OF UNREALIZED
SECURITY EXCHANGE DATE AMOUNT (000S) SEPTEMBER 30, 1995
DEPRECIATION
<S> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------
German Deutsche Mark (DEM) 10/11/95 2,800 DEM $1,968,912 $(72,922)
</TABLE>
21 Oppenheimer Champion Income Fund
<PAGE>
-------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
-------------------------------------------
==========================================================
======================
6. MANAGEMENT FEES Management fees paid to the Manager were in accordance with
AND OTHER the investment advisory agreement with the Fund which pro-
TRANSACTIONS vides for a fee of .70% on the first $250 million of average
WITH AFFILIATES annual net assets, .65% on the next $250 million, .60% on
the next $500 million and .55% on net assets in $1 billion.
The Manager has agreed to reimburse the Fund if aggregate
expenses (with specified exceptions) exceed the most strin-
gent applicable regulatory limit on Fund expenses.
For the year ended September 30, 1995, commissions
(sales charges paid by investors) on sales of Class A shares
totaled $2,642,892, of which $650,296 was retained by Oppen-
heimer 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 C shares totaled $412,950, of
which $5,197 was paid to an affiliated broker/dealer.
During the year ended September 30, 1995, OFDI received
contingent deferred sales charges of $32,460 upon redemption
of Class C shares, as reimbursement for sales commissions
advanced by OFDI at the time of sale of such shares.
Oppenheimer Shareholder Services (OSS), a division of
the Manager, is the transfer and shareholder servicing agent
for the Fund, and for other registered investment companies.
OSS's total costs of providing such services are allocated
ratably to these companies.
Under separate approved plans, each class may expend up
to .25% of its net assets annually to reimburse OFDI for
costs incurred in connection with the personal service and
maintenance of accounts that hold shares of the Fund,
including amounts paid to brokers, dealers, banks and other
institutions. In addition, Class C shares are subject to an
asset-based sales charge of .75% of net assets annually, to
reimburse OFDI for sales commissions paid from its own
resources at the time of sale and associated financing
costs. In the event of termination or discontinuance of the
Class C plan, the Board of Trustees may allow the Fund to
continue payment of the asset-based sales charge to OFDI for
distribution expenses incurred on Class C shares sold prior
to termination or discontinuance of the plan. At September
30, 1995, OFDI had incurred unreimbursed expenses of
$814,968. During the year ended September 30, 1995, OFDI
paid $16,334 and $3,619, respectively, to an affiliated
broker/dealer as reimbursement for Class A and Class C
personal service and maintenance expenses and retained
$347,154 as reimbursement for Class C sales commissions and
service fee advances, as well as financing costs.
==========================================================
======================
7. ILLIQUID AND At September 30, 1995, investments in securities included
RESTRICTED issues that are illiquid or restricted. The securities are
SECURITIES 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 September 30, 1995
was $948,540, which represents .30% of the Fund's net
assets. Information concerning these securities is as
follows:
<TABLE>
<CAPTION>
ACQUISITION VALUATION PER UNIT
SECURITY DATE COST PER UNIT AS OF SEPT. 30, 1995
<S> <C> <C> <C>
---------------------------------------------------------------------------------------------------------------
Arizona Charlie's, Inc., 12% First Mtg. Nts., Series A, 11/15/00 11/18/93 $ 100.00 $ 80.00
---------------------------------------------------------------------------------------------------------------
Becker Gaming, Inc. Wts., Exp., 11/00 11/18/93 $ 2.00 $ 1.50
---------------------------------------------------------------------------------------------------------------
Capitol Queen & Casino, Inc., 12% First Mtg. Nts.,
Series A, 11/15/00 11/18/93 $ 87.50 $ 90.00
---------------------------------------------------------------------------------------------------------------
ECM Fund L.P.I.:
14% Sub. Nts., 6/10/02 7/28/92 $ 100.50 $ 110.00
Common Stock 4/14/92 $1,000.00 $1,000.00
---------------------------------------------------------------------------------------------------------------
Purity Supreme, Inc. Wts., Exp. 8/97 10/25/93 $ -- $ .02
---------------------------------------------------------------------------------------------------------------
Triangle Wire & Cable, Inc. Common Stock 5/2/94 $ 9.50 $ 2.00
</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.
22 Oppenheimer Champion Income Fund
<PAGE>
==========================================================
======================
8. FUTURES The Fund may buy and sell interest rate futures contracts in
CONTRACTS order to gain exposure to or protect against changes in
interest rates. The Fund may also buy or write put or call
options on these futures contracts.
The Fund generally sells futures contracts to hedge
against increases in interest rates and the resulting nega-
tive effect on the value of fixed rate portfolio securities.
The Fund may also purchase futures contracts to gain
exposure to changes in interest rates as it may be more
efficient or cost effective than actually buying fixed
income securities.
Upon entering into a futures contract, the Fund is
required to deposit either cash or securities in an amount
(initial margin) equal to a certain percentage of the con-
tract value. Subsequent payments (variation margin) are
made or received by the Fund each day. The variation margin
payments are equal to the daily changes in the contract
value and are recorded as unrealized gains and losses. The
Fund recognizes a realized gain or loss when the contract is
closed or expires.
Risks of entering into futures contracts (and related
options) include the possibility that there may be an
illiquid market and that a change in the value of the con-
tract or option may not correlate with changes in the value
of the underlying securities.
<PAGE>
Appendix
Corporate Industry Classifications
Aerospace/Defense
Air Transportation
Auto Parts Distribution
Automotive
Bank Holding Companies
Banks
Beverages
Broadcasting
Broker-Dealers
Building Materials
Cable Television
Chemicals
Commercial Finance
Computer Hardware
Computer Software
Conglomerates
Consumer Finance
Containers
Convenience Stores
Department Stores
Diversified Financial
Diversified Media
Drug Stores
Drug Wholesalers
Durable Household Goods
Education
Electric Utilities*
Electrical Equipment
Electronics
Energy Services & Producers
Entertainment/Film
Environmental
Food
Gas Utilities*
Gold
Health Care/Drugs
Health Care/Supplies & Services
Homebuilders/Real Estate
Hotel/Gaming
Industrial Services
Insurance
Leasing & Factoring
Leisure
Manufacturing
Metals/Mining
Nondurable Household Goods
Oil - Integrated
Paper
Publishing/Printing
Railroads
Restaurants
Savings & Loans
Shipping
Special Purpose Financial
Specialty Retailing
Steel
Supermarkets
Telecommunications - Technology
Telephone - Utility*
Textile/Apparel
Tobacco
Toys
Trucking
___________________
* For purposes of the Fund's investment policy not to concentrate in
securities of issuers in the same industry, utilities are divided into
"industries" according to their services (e.g., gas utilities, gas
transmission utilities, electric utilities and telephone utilities are
each considered a separate industry)
<PAGE>
Investment Adviser
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048-0203
Distributor
OppenheimerFunds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer Agent
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian of Portfolio Securities
The Bank of New York
One Wall Street
New York, New York 10015
Independent Auditors
Deloitte & Touche LLP
555 Seventeenth Street
Denver, Colorado 80202
Legal Counsel
Myer, Swanson, Adams & Wolf, P.C.
1600 Broadway
Denver, Colorado 80202
