Registration No. 33-28598
File No. 81-5724
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
PRE-EFFECTIVE AMENDMENT NO. __ / /
POST-EFFECTIVE AMENDMENT NO. 8 / X /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / X /
Amendment No. 10 / X /
OPPENHEIMER STRATEGIC FUNDS TRUST
(Exact Name of Registrant as Specified in Charter)
3410 South Galena Street, Denver, Colorado 80231
(Address of Principal Executive Offices)
1-303-671-3200
(Registrant's Telephone Number)
ANDREW J. DONOHUE, ESQ.
Oppenheimer Management Corporation - Suite 3400
Two World Trade Center, New York, New York 10048-0203
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate
box):
/ / Immediately upon filing pursuant to paragraph (b)
/ X / On February 1, 1994 pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)
/ / On ________________ pursuant to paragraph (a) of Rule 485
The Registrant has registered an indefinite number of shares under the
Securities Act of 1933 pursuant to Rule 24f-2 promulgated under the
Investment Company Act of 1940. A Rule 24f-2 Notice for the Registrant's
fiscal year ended September 30, 1993, was filed on November 23, 1993.
<PAGE>
FORM N-1A
OPPENHEIMER STRATEGIC DIVERSIFIED INCOME FUND
Cross Reference Sheet
Part A of
Form N-1A
Item No. Prospectus Heading
1 Cover Page
2 Fund Expenses
3 Condensed Financial Information; Additional Information -
Yield and Total Return Information
4 Cover Page; The Fund and its Investment Policies; Special
Investment Methods; Investment Restrictions
5 Fund Expenses; Management of the Fund; Back Cover; Additional
Information - The Custodian and the Transfer Agent
6 Dividends, Distributions and Taxes; Additional Information
7 Exchanges of Shares and Retirement Plans; Class C
Distribution and Service Plan; How to Buy Shares; How to
Redeem Shares
8 How to Redeem Shares; Exchanges of Shares and Retirement
Plans
9 *
Part B of
Form N-1A
Item No. Statement of Additional Information Heading
10 Cover Page
11 Cover Page
12 *
13 Investment Objective and Policies; Investment Restrictions
14 Trustees and Officers; Investment Management Services
15 Trustees and Officers - Major Shareholders; Investment
Management Services
16 Investment Management Services; Distribution and Service
Plan; Additional Information
17 Brokerage
18 Additional Information - Description of the Fund
19 Purchase, Redemption and Pricing of Shares; Automatic
Withdrawal Plan Provisions
20 Performance, Dividend and Tax Information
21 Distribution and Service Plan; Additional Information -
Distribution Agreement; Investment Management Services;
Brokerage
22 Performance, Dividend and Tax Information
23 *
______________
* Not applicable or negative answer.
FORM N-1A
OPPENHEIMER STRATEGIC INCOME FUND
Cross Reference Sheet
Part A of
Form N-1A
Item No. Prospectus Heading
1 Cover Page
2 Expenses
3 Financial History; Performance of the Fund
4 Cover Page; Investment Objectives and Policies
5 Expenses; How the Fund is Managed; Back Cover
5A Performance of the Fund
6 Dividends, Capital Gains and Taxes
7 How to Exchange Shares; Special Investor Services;
Distribution Plan for Class A Shares; Distribution Plan for
Class B Shares; How to Buy Shares; How to Sell Shares
8 How to Sell Shares; How to Exchange Shares; Special Investor
Services
9 *
Part B of
Form N-1A
Item No. Statement of Additional Information Heading
10 Cover Page
11 Cover Page
12 *
13 Investment Objective and Policies; Investment Restrictions
14 Trustees and Officers; How the Fund is Managed
15 Trustees and Officers - Major Shareholders; How the Fund is
Managed
16 Investment Management Services; Distribution and Service
Plan; Additional Information
17 Brokerage
18 Additional Information - Description of the Fund
19 Purchase, Redemption and Pricing of Shares; Automatic
Withdrawal Plan Provisions
20 Performance, Dividend and Tax Information
21 Distribution and Service Plan; Additional Information -
General Distributor's Agreement; Investment Management
Services; Brokerage
22 Performance, Dividend and Tax Information
23 *
______________
* Not applicable or negative answer.
<PAGE>
Oppenheimer Strategic Income Fund
Prospectus dated February 1, 1994.
Oppenheimer Strategic Income Fund is a mutual fund that seeks a high
level of current income by investing mainly in debt securities and by
writing covered call options on them. The Fund invests principally in (1)
debt securities of foreign governments and companies, (2) U.S. government
securities, and (3) lower-rated, high-yield debt securities of U.S.
companies, commonly known as "junk bonds," which are subject to a greater
risk of loss of principal and non-payment of interest than higher-rated
securities. The Fund may invest some or all of its assets in any of these
three market sectors at any time. When it invests in more than one
sector, the Fund may reduce some of the risks of investing in only one
market sector, which may help to reduce the fluctuations in its net asset
value per share. The Fund is a diversified portfolio designed for
investors willing to assume additional risk in return for seeking high
current income. You should carefully review the risks associated with an
investment in the Fund. Please refer to "Special Risks-High Yield
Securities" on page ____.
The Fund offers two classes of shares: (1) Class A shares sold at a
public offering price that includes a front-end sales charge, and (2)
Class B shares, which are sold without a front-end sales charge, although
you may pay a sales charge when you redeem your shares, depending on how
long you own them. Class B shares are also subject to an annual "asset-
based sales charge." Each class of shares bears different expenses. In
deciding which class of shares to buy, you should consider how much you
plan to purchase, how long you plan to keep your shares, and other factors
discussed in "How to Buy Shares" on page ____.
This Prospectus explains concisely what you should know before
investing in the Fund. Please read it carefully and keep it for future
reference. You can find more detailed information about the Fund in the
February 1, 1994, Statement of Additional Information. For a free copy,
call Oppenheimer Shareholder Services, the Fund's Transfer Agent, at 1-
800-525-7048, or write to the Transfer Agent at the address on the back
cover. The Statement 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).
Shares of the Fund are not deposits or obligations of any bank, nor are
they guaranteed by any bank or insured by the F.D.I.C. or any other
agency, and involve investment risks including possible loss of principal.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
Contents Page
Information About the Fund
Expenses
Financial History
Investment Objective and Policies
How the Fund is Managed
Performance of the Fund
Your Investment Account
How to Buy Shares
Class A Shares
Class B Shares
Special Investor Services
AccountLink
Automatic Withdrawal and Exchange
Plans
Reinvestment Privilege
Retirement Plans
How to Sell Shares
By Mail
By Telephone
Checkwriting
How to Exchange Shares
Shareholder Account Rules and Policies
Dividends, Capital Gains and Taxes
Appendix: Description of Ratings Categories
<PAGE>
Information About the Fund
Expenses
The Fund pays a variety of expenses directly for management of its
assets, administration, distribution and other services and those expenses
are reflected in the Fund's net asset value per share. As a shareholder,
you pay these expenses indirectly. Shareholders pay other expenses
directly, such as sales charges. The following tables are provided to
help you understand your direct expenses of investing and your share of
the Fund's operating expenses you might expect to bear indirectly, based
on the Fund's expenses during its fiscal year ended September 30, 1993.
- Shareholder Transaction Expenses are charges you pay when you buy
or sell shares of the Fund. Please refer to pages ____ through _____ for
an explanation of how and when these charges apply.
Class A Shares Class B Shares
Maximum Sales Charge on Purchases
(as a % of offering price) 4.75% None
Sales Charge on Reinvested Dividends None None
Deferred Sales Charge
(as a % of the lower of the original
purchase price or redemption proceeds) None* 5% in the first
year, declining to
1% in the sixth
year and eliminated
thereafter
Exchange Fee $5.00** $5.00**
*If you invest more than $1 million in Class A shares, you may have to pay
a sales charge of up to 1% if you sell your shares within 18 calendar
months from the end of the calendar month during which you purchased those
shares. See "How to Buy Shares - Class A Shares," below.
**Fee is waived for automated exchanges on PhoneLink, described in "How
to Buy Shares."
- Annual Fund Operating Expenses are paid out of the Fund's assets.
The Fund pays management fees to its investment adviser, Oppenheimer
Management Corporation (the "Manager") and other regular expenses for
services, such as transfer agent fees, custodial fees, audit, legal and
other business expenses. The following numbers are projections based on
the Fund's historical expenses and are calculated as a percentage of
average net assets. The actual numbers may be more or less, depending on
a number of factors, including the Fund's actual net assets.
Class A Shares Class B Shares
Management Fees 0.61% 0.54%
12b-1 Distribution Plan Fees None 0.75%
Shareholder Service Plan Fees 0.25% 0.25%
Other Expenses 0.23% 0.26%
------ ------
Total Fund Operating Expenses 1.09% 1.80%
- Examples. Assume that you made a $1,000 investment in the Fund,
that the Fund's annual return is 5% and that its operating expenses are
as described above in the charts.
If you redeemed your shares at the end of each period below, your
investment would incur the following expenses:
1 year 3 years 5 years 10 years*
Class A Shares $58 $81 $105 $174
Class B Shares $68 $87 $117 $176
If you did not redeem your investment, it would incur the following
expenses:
1 year 3 years 5 years 10 years*
Class A Shares $58 $81 $105 $174
Class B Shares $18 $57 $97 $176
* The Class B expenses in years 7 through 10 are based on the Class A
expenses shown above, because the Fund automatically converts your Class
B shares into Class A shares after 6 years. Long-term Class B shareholders
could pay the economic equivalent of more than the maximum front-end sales
charge allowed under applicable regulations, because of the effect of the
asset-based sales charge and contingent deferred sales charge. The
automatic conversion is designed to minimize the likelihood that this will
occur. Please refer to "How to Buy Shares - Class B Shares" for more
information.
This example illustrates the effect of expenses on an investment, but
it is not meant to state or predict actual or expected costs or investment
returns, all of which will vary.
<PAGE>
Financial History
The table on this page presents selected per share data and ratios for
the Fund. This information has been audited by Deloitte & Touche, the
Fund's independent auditors, whose report on the Fund's financial
statements is included in the Annual Report in the Statement of Additional
Information. No Class B shares were publicly sold prior to November 30,
1992.
<TABLE>
<CAPTION>
Class A Class B
Year Ended Period Ended
September 30, September 30,
1993 1992 1991 1990+ 1993+++
<S> <C> <C> <C> <C> <C>
Per Share Operating Data:
Net asset value, beginning of period $ 5.07 $ 5.01 $ 4.87 $ 5.00 $ 4.89
Income from investment operations:
Net investment income .48 .46 .56 .59 .36
Net realized and unrealized gain (loss) on investments,
options written and foreign currencies .17 .14 .21 (.10) .34
Total income from investment operations .65 .60 .77 .49 .70
Dividends and distributions to shareholders:
Dividends from net investment income (.50) (.46) (.57) (.57) (.36)
Distributions from net realized gain on investments,
options written and foreign currency transactions (.01) (.08) (.06) (.05) (.01)
Total dividends and distributions to shareholders (.51) (.54) (.63) (.62) (.37)
Net asset value, end of period $ 5.21 $ 5.07 $ 5.01 $ 4.87 $ 5.22
Total Return, at Net Asset Value** 13.30% 12.56% 16.97% 10.20% 14.89%
Ratios/Supplemental Data:
Net assets, end of period (in thousands) $2,753,674 $1,735,692 $560,203 $177,346 $695,068
Average net assets (in thousands) $2,107,141 $1,083,977 $311,352 $ 92,713 $276,461
Number of shares outstanding at end of period
(in thousands) 528,587 342,034 111,739 36,418 133,235
Ratios to average net assets:
Net investment income 9.78% 9.39% 11.82% 12.79%* 8.13%*
Expenses 1.09% 1.16%++ 1.27%++ 1.36%* 1.80%*
Portfolio turnover rate*** 148.6% 208.2% 194.7% 424.6% 148.6%
<FN>
* Annualized.
** Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption at
the net asset value calculated on the last business day of the fiscal period.
Sales charges are not reflected in the total returns.
*** The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at the
time of acquisition of one year or less are excluded from the calculation.
Purchases and sales of investment securities (excluding short-term securities)
for the year ended September 30, 1993 were $4,555,598,376 and $3,269,648,451,
respectively.
+ For the period from October 16, 1989 (commencement of operations) to September 30, 1990.
++ Includes $.0002 and $.0020 per share of federal excise tax expense for 1992
and 1991, respectively. The expense ratio, exclusive of federal excise tax
expense, was 1.16% and 1.23%, respectively.
+++ For the period from November 30, 1992 (inception of offering) to September 30, 1993.
</TABLE>
<PAGE>
Investment Objective and Policies
Objective. The Fund seeks a high level of current income mainly from
interest on debt securities and also seeks to enhance its income by
writing covered call options on debt securities. The Fund does not invest
with the objective of seeking capital appreciation.
Investment Policies and Strategies. The Fund seeks its investment
objective by investing principally in three market sectors: (1) debt
securities of foreign governments and companies, (2) U.S. government
securities, and (3) lower-rated, high-yield debt securities of U.S.
companies. Under normal market conditions the Fund will invest in each of
these three sectors, but from time to time the Manager will adjust the
amounts the Fund invests in each sector.
By investing in all three sectors, the Fund seeks to reduce the
volatility of fluctuations in its net asset value per share, because the
overall securities price and interest rate movements in each of the
different sectors are not necessarily correlated with each other. Changes
in one sector may be offset by changes in another sector that moves in a
different direction. Therefore, this strategy may help reduce some of the
risks from negative market movements and interest rate changes in any one
sector. However, the Fund may invest up to 100% of its assets in any one
sector if the Manager believes that in doing so the Fund can achieve its
objective without undue risk to the Fund's assets.
When investing the Fund's assets, the Manager considers many factors,
including general economic conditions in the U.S. and abroad, prevailing
interest rates, and the relative yields of U.S. and foreign securities.
While the Fund may seek to earn income by writing covered call options,
market price movements may make it disadvantageous to do so. The Fund may
also try to hedge against losses by using hedging strategies described
below. When market conditions are unstable, the Fund may invest
substantial amounts of its assets in money market instruments for
defensive purposes. These strategies are described in greater detail
below and also in the Statement of Additional Information under the same
headings.
The amount of income the Fund may earn to distribute to shareholders
will fluctuate, depending on the securities the Fund owns and the sectors
in which it invests. The Fund is not a complete investment program and is
designed for investors willing to assume a higher degree of risk. There
is no assurance that the Fund will be able to achieve its investment
objective. Because of the high-yield securities in which the Fund invests,
the Fund is considered a speculative investment, and the value of your
shares may decline in adverse market conditions.
- Special Risks - High Yield Securities. In seeking high current
income, the Fund may invest in higher-yielding, lower-rated debt
securities, commonly known as "junk bonds." There is no restriction on the
amount of the Fund's assets that could be invested in these types of
securities. Lower-rated debt securities are those rated "Baa" or lower
by Moody's Investors Service, Inc. ("Moody's") or "BBB" or lower by
Standard & Poor's Corporation ("S&P"). These securities may be rated as
low as "C" or "D" or may be in default at time of purchase.
The Manager does not rely solely on ratings of securities by rating
agencies when selecting investments for the Fund, but evaluates other
economic and business factors as well. The Fund may invest in unrated
securities that the Manager believes offer yields and risks comparable to
rated securities. Lower rated securities are considered speculative and
involve greater risk. They may be less liquid than higher-rated
securities. If the Fund were forced to sell a lower-rated debt security
during a period of rapidly-declining prices, it might experience
significant losses especially if a substantial number of other holders
decide to sell at the same time.
Other risks may involve the default of the issuer or price changes in
the issuer's securities due to changes in the issuer's financial strength
or economic conditions. 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.
- 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, although it is not expected to be more
than 200% each year. 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.
- How the Fund's Portfolio Securities are Rated. As of September 30,
1993, the Fund's portfolio included corporate bonds in the following S&P
rating categories (the amounts shown are dollar-weighted average values
of the bonds in each category measured as a percentage of the Fund's total
assets): AAA, 26.08%; AA, 3.74%; A, .40%; BBB, 2.08%; BB, 4.02%; B,
16.05%; CCC, 3.50%; CC, 0%; C, 0%; D, 0%; unrated (by S&P or Moody's),
37.03%. The Appendix to this Prospectus describes the rating categories.
The allocation of the Fund's assets in securities in the different rating
categories will vary over time.
- 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 Standard
& Poor's 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.
- Can the Fund's Investment Objective and Policies Change? The Fund
has an investment objective, which is described above, as well as
investment policies that it follows to try to achieve its objective.
Additionally, it uses certain investment techniques and strategies in
carrying out those policies. The Fund's investment policies and practices
are not "fundamental" unless a particular policy is identified in this
Prospectus as "fundamental."
Fundamental policies are those that cannot be changed without the
approval of a "majority" of the Fund's outstanding voting shares. The term
"majority" is defined in the Investment Company Act to be a particular
level of shareholder approval (and this term is explained in the Statement
of Additional Information). The Fund's investment objective is a
"fundamental policy." The Fund's Board of Trustees may change non-
fundamental policies, strategies and techniques without shareholder
approval, although significant changes will be described in amendments to
this Prospectus.
Debt Securities of Foreign Governments and Companies. The Fund may invest
in debt securities issued or guaranteed by foreign companies,
"supranational" entities such as the World Bank, and foreign governments
or their agencies. These foreign securities may include debt obligations
such as government bonds, debentures issued by companies, as well as
notes. Some of these debt securities may have variable interest rates or
"floating" interest rates that change in different market conditions.
Those changes will affect the income the Fund receives. The Fund can also
invest in preferred stocks and "zero coupon" securities, which have
similar features to the one described below in "Debt Securities of U.S.
Companies." These securities are described in more detail in the
Statement of Additional Information.
The Fund will not invest more than 25% of its total assets in
government securities of any one foreign country. Otherwise, the Fund is
not restricted in the amount of its assets it may invest in foreign
countries or in which countries. However, if the Fund's assets are held
abroad, the countries in which they are held and the sub-custodians
holding them must be approved by the Fund's Board of Trustees.
The Fund may buy or sell foreign currencies and foreign currency
forward contracts (agreements to exchange one currency for another at a
future date) to hedge currency risks and to facilitate transactions in
foreign investments. Although currency forward contracts can be used to
protect the Fund from adverse exchange rate changes, there is a risk of
loss if the Manager fails to predict currency exchange movements
correctly.
- Risks of Foreign Securities. Investing in foreign securities,
especially those issued in underdeveloped countries, generally involves
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. If the Fund
distributes more income during a period than it earns because of
unfavorable currency exchange rates, those dividends may later have to be
considered a return of capital. Some of the foreign debt securities the
Fund may invest in, such as "Brady Bonds," have speculative
characteristics. More information about the risks and potential rewards
of foreign securities is contained in the Statement of Additional
Information.
U.S. Government Securities. The Fund may invest in debt securities issued
or guaranteed by the U.S. Government or its agencies and instrumentalities
("U.S. Government Securities"). Certain U.S. Government securities,
including U.S. Treasury bills, notes and bonds, and mortgage participation
certificates guaranteed by Government National Mortgage Association
("Ginnie Mae") are supported by the full faith and credit of the U.S.
government. Ginnie Mae certificates are one type of mortgage-related U.S.
Government Security the Fund invests in. Other mortgage-related U.S.
Government Securities the Fund invests in that are issued or guaranteed
by federal agencies or government-sponsored entities are not supported by
the full faith and credit of the U.S. government. Those securities
include obligations supported by the right of the issuer to borrow from
the U.S. Treasury, such as obligations of Federal Home Loan Mortgage
Corporation ("Freddie Mac") and obligations supported only by the credit
of the instrumentality, such as Federal National Mortgage Association
("Fannie Mae"). Other U.S. Government Securities the Funds invests in may
be zero coupon Treasury securities and collateralized mortgage obligations
("CMOs").
Although U.S. Government Securities involve little credit risk, their
values will fluctuate depending on prevailing interest rates. Because the
yields on U.S. Government Securities are generally lower than on corporate
debt securities, when the Fund holds U.S. Government Securities it may
attempt to increase the income it can earn from them by writing covered
call options against them, when market conditions are appropriate.
Writing covered calls is explained below, under "Other Investment
Techniques and Strategies."
- Zero Coupon Treasury Securities. Zero coupon Treasury securities
generally are U.S. Treasury notes or bonds that have been "stripped" of
their interest coupons, U.S. Treasury bills issued without interest
coupons, or certificates representing an interest in the stripped
securities. A zero coupon Treasury security pays no current interest and
trades at a deep discount from its face value and will be subject to
greater market fluctuations from changes in interest rates than interest-
paying securities. The Fund accrues interest on its holdings without
receiving the actual cash. As a result, the Fund may be forced to sell
portfolio securities to pay cash dividends or meet redemptions. The Fund
may invest up to 50% of its total assets in zero coupon securities issued
by either the U.S. government or U.S. companies.
- Mortgage-Backed U.S. Government Securities and CMOs. Certain
mortgage-backed U.S. Government securities "pass-through" to investors the
interest and principal payments generated by a pool of mortgages assembled
for sale by government agencies. Pass-through mortgage-backed securities
entail the risk that principal may be repaid at any time because of
prepayments on the underlying mortgages. That may result in greater price
and yield volatility than traditional fixed-income securities that have
a fixed maturity and interest rate.
The Fund may also invest in CMOs, which generally are obligations fully
collateralized by a portfolio of mortgages or mortgage-related securities.
Payment of the interest and principal generated by the pool of mortgages
is passed through to the holders as the payments are received. CMOs are
issued with a variety of classes or series which have different
maturities. Certain CMOs may be more volatile and less liquid than other
types of mortgage-related securities, because of the possibility of the
prepayment of principal due to prepayments on the underlying mortgage
loans.
The Fund may 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 of which receives some or all of the
interest. Stripped securities that receive interest only are subject to
increased volatility in price due to interest rate changes and have the
additional risk that if the principal underlying the CMO is 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.
The Fund may also enter into "forward roll" transactions with banks
with respect to the mortgage-related securities in which it can invest.
These require the Fund to secure its obligation in the transaction by
segregating assets with its custodian bank equal in amount to its
obligation under the roll.
Debt Securities of U.S. Companies. The Fund may invest in debt securities
and dividend-paying common stocks issued by U.S. companies, including
bonds, debentures, notes, preferred stocks, zero coupon securities,
participation interests, asset-backed securities and sinking fund and
callable bonds.The Fund may purchase these securities in public offerings
or through private placements. The Fund has no limitations on the
maturity, capitalization of the issuer or credit rating of the domestic
debt securities in which it invests, although it is expected that most
issuers will have total assets in excess of $100 million.
- Zero Coupon Corporate Securities. Zero coupon corporate securities
are similar to U.S. Government zero coupon securities but are issued by
companies. They have an additional risk that the issuing company may fail
to pay interest or repay the principal on the obligation.
- Corporate Asset-Backed Securities. Asset-backed securities are
fractional interests in pools of consumer loans and other trade
receivables, similar to mortgage-backed securities. They are issued by
trusts and special purpose corporations. They are backed by a pool of
assets, such as credit card or auto loan receivables, which are the
obligations of a number of different parties. The income from the
underlying pool is passed through to holders, such as the Fund. These
securities are frequently supported by a credit enhancement, such as a
letter of credit, a guarantee or a preference right. However, the extent
of the credit enhancement may be different for different securities and
generally applies to only a fraction of the security's value. These
securities present special risks. For example, in the case of credit card
receivables, the issuer of the security may have no security interest in
the related collateral.
- Participation Interests. Participation interests are interests in
fully-secured loans made to U.S. (or foreign) companies by banks that sell
or assign the interests to investors. The Fund may invest in
participation interests only if they mature in one year or less or if the
interest rate changes at least once a year. The Fund's investments in
them are also subject to its restrictions on investing in "Illiquid
Securities," described below. There are other limits on the Fund's
investments in these interests and certain risks of investing in them if
the borrowers under the loans fail to pay interest or principal on the
loans on time, as described in the Statement of Additional Information.
Special Risks - Borrowing for Leverage. The Fund may also borrow up to
50% of the value of its assets from banks on an unsecured basis to buy
securities. This is a speculative investment method known as "leverage."
Leveraging may subject an investment in the Fund to greater risks and
costs than funds that do not borrow, including the possible reduction of
income and increased fluctuation in the net asset value per share, since
the Fund pays interest on borrowings. Borrowing is subject to regulatory
limits, described in more detail in the Statement of Additional
Information.
Other Investment Techniques and Strategies. The Fund may also use the
investment techniques and strategies described below, which involve
certain risks. The Statement of Additional Information contains more
detailed information about these practices, including limitations designed
to reduce some of the risks. For more information, please refer to the
description of these techniques under the same headings in "Other
Investment Techniques and Strategies" in the Statement of Additional
Information.
- Temporary Defensive Investments. In times of unstable economic or
market conditions, the Manager may determine that it is appropriate for
the Fund to assume a temporary defensive position by investing some of its
assets (there is no limit on the amount) in short-term money market
instruments. These include U.S. Government Securities, bank obligations,
commercial paper, corporate obligations and other instruments approved by
the Fund's Board of Trustees.
- Loans of Portfolio Securities. The Fund may lend its portfolio
securities amounting to not more than 25% of its total assets to brokers,
dealers and other financial institutions, subject to certain conditions
described in the Statement of Additional Information. The Fund presently
does not intend to lend its portfolio securities, but if it does, the
value of securities loaned is not expected to exceed 5% of the value of
its total assets.
- Repurchase Agreements. The Fund may enter into repurchase
agreements. 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 re-sale price on the delivery date, the Fund may experience costs
in disposing of the collateral and losses if there is any delay in doing
so.
- Writing Covered Calls. As part of the Fund's investment objective,
to earn additional income the Fund may write (sell) call options on debt
securities. The Fund receives premiums from the calls it writes. The calls
are "covered" in that the Fund must own the securities that are subject
to the call (although it may substitute other qualifying securities).
There is no limit on the amount of the Fund's total assets that may be
subject to calls. In writing calls there are risks that the Fund may forgo
profits on an increase in the price of the underlying security if the call
is exercised. In addition, the Fund could experience capital losses that
might cause previously-distributed income to be re-characterized for tax
purposes as a return of capital to shareholders.
- Illiquid and Restricted Securities. Under the supervision of the
Fund's Board of Trustees, the Manager determines the liquidity of the
Fund's investments. Investments may be illiquid because of the absence
of a 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 resale or 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). Certain restricted
securities, eligible for resale to qualified institutional purchasers, are
not subject to that limit.
- Warrants and Rights. The Fund may invest up to 5% of its total
assets in warrants and rights, but only if they are part of a unit or
attached to other securities the Fund buys or are acquired in a
distribution by the issuer.
- "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.
- Hedging with Options and Futures Contracts. The Fund may buy and
sell options and futures contracts to manage its exposure to changing
interest rates, securities prices and currency exchange rates. Some of
these strategies, such as selling futures, buying puts and writing calls,
hedge the Fund's portfolio against price fluctuations. Other hedging
strategies, such as buying futures, writing puts and buying calls, tend
to increase market exposure. The Fund may invest in interest rate futures,
financial futures, forward contracts (which may involve "cross-hedging,"
a technique in which the Fund hedges changes in currencies other than the
currency in which the security it holds is denominated), interest rate
swap transactions, and call and put options on debt securities, futures,
bond indices and foreign currencies. All of these are referred to as
"hedging instruments."
A call or put may not be purchased if the value of all of the Fund's
call and put options would exceed 5% of the value of the Fund's total
assets. Writing puts requires the segregation of liquid assets to cover
the put. The Fund will not write a put if it will require more than 50%
of the Fund's net assets to be segregated to cover the put obligation. The
Fund does not use futures and options on futures for speculative purposes.
The use of hedging instruments may involve special risks. Options and
futures can be volatile investments and involve certain risks. 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.
There are special risks in particular hedging strategies. For example,
in writing puts, there is the risk that the Fund may be required to buy
the underlying security at a disadvantageous 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. To
limit its exposure in foreign currency exchange contracts, the Fund limits
its exposure to the amount of its assets denominated in the foreign
currency. Interest rate swaps are subject to credit risks (if the other
party fails to meet is obligations) and also to interest rate risks,
because the Fund could be obligated to pay more under its swap agreements
than it receives under them, as a result of interest rate changes. Cross-
hedging entails a risk of loss on both the value of the security that is
the basis of the hedge and the currency contract that was used in the
hedge. These risks and the hedging strategies the Fund may use are
described in greater detail in the Statement of Additional Information.
Other Investment Restrictions. The Fund has other investment restrictions
which, together with its investment objective, are "fundamental" policies,
that is, subject to change only by approval of a majority of shareholders.
Under the Fund's fundamental policies, it may not do any of the
following: (1) as to 75% of its total assets, the Fund may not buy
securities issued or guaranteed by a single issuer if, as a result, the
Fund would have invested more than 5% of its assets in the securities of
that issuer or would own more than 10% of the voting securities of that
issuer (purchases of U.S. Government Securities are not restricted by this
policy); (2) the Fund may not borrow money in excess of 50% of the value
of its total assets, and it may borrow only subject to the restrictions
described under "Borrowing for Leverage," above; (3) the Fund may not
invest more than 25% of its total assets in any one industry (this limit
does not apply to U.S. Government Securities but each foreign government
is treated as an "industry," and utilities are divided according to the
services they provide); and (4) the Fund may not invest more than 5% of
its total assets in securities of issuers (including their predecessors)
that have been in operation less than three years.
All of the percentage limitations described above and elsewhere in this
Prospectus apply to the Fund only at the time of purchasing a security,
and the Fund need not dispose of a security merely because the Fund's
assets have changed or the security has increased in value relative to the
size of the Fund. There are other fundamental policies discussed in
"Additional Investment Restrictions" the Statement of Additional
Information, along with more information about the Fund's non-fundamental
investment policies and strategies.
How the Fund is Managed
Organization and History. The Fund was organized in 1989 as a
Massachusetts business trust with one series, but in December 1993, that
business trust was reorganized to become a multi-series business trust
called Oppenheimer Strategic Funds Trust, and the Fund became a series of
it. That Trust is an open-end, diversified management investment company,
with an unlimited number of authorized shares of beneficial interest. Each
of the two series of the Trust is a fund that issues its own shares, has
its own investment portfolio, and its own assets and liabilities.
The Board of Trustees has the power, without shareholder approval, to
divide unissued shares of this Fund into two or more classes, each having
its own dividends, distributions and expenses. Each class may have a
different net asset value. The Board has done so, and the Fund currently
has two classes of shares, Class A and Class B. Each share has one vote
at shareholder meetings, with fractional shares voting proportionally.
Only shares of a class vote together on matters that affect that class
alone. Shares are freely transferrable.
The Fund is governed by a Board of Trustees, which is responsible for
protecting the interests of shareholders under Massachusetts law. The
Trustees meet throughout the year to oversee the Fund's activities, review
performance, and review the actions of the Manager. "Trustees and
Officers of the Fund" in the Statement of Additional Information names the
Trustees and provides more information about them and the officers of the
Fund. Although the Fund is not required by law to hold annual meetings,
it may hold meetings from time to time on important matters, and
shareholders have the right to call a meeting to remove Trustees or to
take other action described in the Declaration of Trust.
The Manager and its Affiliates. The Fund is managed by the Manager, which
chooses 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 and its fees, and describes the expenses that
the Fund pays to conduct its business.
The Manager has operated as an investment adviser since 1959. The
Manager and its affiliates currently manage investment companies,
including other OppenheimerFunds, with assets of more than $26 billion as
of December 31, 1993, and with more than 1.8 million shareholder accounts.
The Manager is owned by Oppenheimer Acquisition Corp., a holding company
that is owned in part by senior officers of the Manager and controlled by
Massachusetts Mutual Life Insurance Company, a mutual life insurance
company.
- Portfolio Managers. The Portfolio Managers of the Fund (who are
also Vice Presidents of the Fund) are Arthur P. Steinmetz, a Senior Vice
President, and David P. Negri, a Vice President of the Manager. They have
been responsible for the day-to-day management of the Fund's portfolio
since November 1989. They each serve as officers and portfolio managers
of other OppenheimerFunds. Before joining the Manager, Mr. Negri had been
a research analyst with Donaldson, Lufkin & Jenrette, a securities firm.
- 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: 0.75% of the first $200 million of the Fund's
average annual net assets, 0.72% of the next $200 million, 0.69% of the
next $200 million, 0.66% of the next $200 million, 0.60% of the next $200
million, and 0.50% of net assets in excess of $1 billion. The Fund's
management fee for its last fiscal year was 0.61% of average annual net
assets for Class A shares and 0.54% for Class B shares, which may be
higher than the rate paid by some other mutual funds.
The Fund pays expenses related to its daily operations, such as
custodian 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 affect 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
portfolio transactions in "Brokerage Policies of the Fund" in the
Statement of Additional Information. Because the Fund purchases most of
its portfolio securities directly from the sellers and not through
brokers, it therefore incurs relatively little expense for brokerage.
From time to time it may use brokers when buying portfolio securities.
When deciding which brokers to use in those cases, the investment advisory
agreement allows the Manager to consider whether brokers have sold shares
of the Fund or any other funds for which the Manager also serves as
investment adviser.
- The Distributor. The Fund's shares are sold through dealers or
brokers that have a sales agreement with Oppenheimer Funds Distributor,
Inc., a subsidiary of the Manager that acts as the Distributor. The
Distributor also distributes the shares of other mutual funds managed by
the Manager (the "OppenheimerFunds") and is sub-distributor for funds
managed by a subsidiary of the Manager.
- The Transfer Agent. The Fund's transfer agent is Oppenheimer
Shareholder Services, a division of the Manager, which acts as the
shareholder servicing agent for the Fund and the other OppenheimerFunds
on an "at-cost" basis. Shareholders should direct inquiries to the
Transfer Agent at the address and toll-free numbers shown elsewhere in
this Prospectus or on the back cover.
Performance of the Fund
Explanation of Performance Terminology. The Fund uses certain terms to
illustrate its performance: "total return" and "yield." These terms are
used to show the performance of each class of shares separately, because
the performance of each class of shares will usually be different, as a
result of the different kinds of expenses each class bears. This
performance information may be in advertisements about the Fund or in
communications to shareholders. It may be useful to help you see how well
your investment has done and to compare it to other funds or market
indices, as we have done below.
It is important to understand that the Fund's yields and total returns
represent past performance and should not be considered to be predictions
of future returns or performance. This performance data is described
below, but more detailed information about how total returns and yields
are calculated is contained in the Statement of Additional Information,
which also contains information about indices and other ways to compare
the Fund's performance. The Fund's investment performance will vary,
depending on market conditions, the composition of the portfolio, expenses
and which class of shares you purchase.
- Total Returns. There are different types of "total returns" used
to measure the Fund's performance. Total return is the change in value
of a hypothetical investment in the Fund over a given period, assuming
that all dividends and capital gains distributions are reinvested in
additional shares. The cumulative total return measures the change in
value over the entire period (for example, ten years). An average annual
total return shows the average rate of return for each year in a period
that would produce the cumulative total return over the entire period.
However, average annual total returns do not show the Fund's actual year-
by-year performance.
When total returns are quoted for Class A shares, they reflect the
payment of the maximum initial sales charge. Total returns may be quoted
"at net asset value," without considering the effect of the sales charge,
and these 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, or else they may be shown based just on the change
in net asset value, without considering the effect of the contingent
deferred sales charge.
- Yield. Each Class of shares calculates its yield by dividing the
annualized net investment income per share on the portfolio during a 30-
day period by the maximum offering price on the last day of the period.
The yield of each Class will differ because of the different expenses of
each Class of shares. The yield data represents a hypothetical investment
return on the portfolio, and does not measure an investment return based
on dividends actually paid to shareholders. To show that return, a
dividend yield may be calculated. Dividend yield is calculated by
dividing the dividends of a Class derived from net investment income
during a stated period by the maximum offering price on the last day of
the period. Yields and dividend yields for Class A shares reflect the
deduction of the maximum initial sales charge, but may also be shown based
on the Fund's net asset value per share. Yields for Class B shares 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, 1993,
followed by a graphical comparison of the Fund's performance to an
appropriate broad-based market index.
- Management's Discussion of Performance. During the past fiscal
year, prevailing interest rates in the U.S. continued to decline, and
industries showed sluggish growth. In that low-interest-rate environment,
the Manager emphasized investment in corporate bonds and foreign debt
securities more heavily than U.S. Government Securities. To take advantage
of a rise in price of long-term U.S. Treasury securities, the Manager sold
a portion of the Fund's holdings, which also reduced the average maturity
of the Fund's U.S. Government Securities holdings and reduced exposure to
risks associated with the possibility of rising interest rates. Because
of a general upward trend in the U.S. high yield bond market, the Fund's
investments in that sector appreciated in value overall, and the Fund
increased its holdings in bonds in the broadcast and media industries,
which the Manager expects to experience growth. The Fund also spread its
investments in different foreign markets, particularly emerging markets
where growth rates have been higher than in the U.S. To help guard against
the risks of a rise in interest rates, the Manager sought to maintain a
relatively short average maturity of the Fund's foreign debt securities.
- Comparing the Fund's Performance to the Market. The chart below
shows the performance of a hypothetical $10,000 investment in each Class
of shares of the Fund from the inception of the Class held through
September 30, 1993, with all dividends and capital gains distributions
reinvested in additional shares. The graph reflects the deduction of the
4.75% maximum initial sales charge on Class A shares and the maximum 5%
contingent deferred sales charge for Class B shares.
Because the Fund invests in a variety of debt securities in domestic
and foreign markets, the Fund's performance is compared to the performance
of two market indices: the Lehman Aggregate Bond Index, a broad-based,
unmanaged index of U.S. corporate bond issues, U.S. government securities
and mortgage-backed securities, to measure the performance of the domestic
debt securities market; and the Salomon Brothers World Government Bond
Index, an unmanaged index of fixed-rate bonds having a maturity of one
year or more, to provide a benchmark of fixed income performance on a
world-wide basis. Index performance reflects reinvestment of income but
not capital gains or transaction costs, and none of the data below shows
the effect of taxes. While index comparisons may be useful to provide a
benchmark for the Fund's performance, it must be noted that the Fund's
investments are not limited to the securities in any one index and the
index data does not reflect any assessment of the risk of the investments
included in the index.
Oppenheimer Strategic Income Fund
Comparison of Change in Value
of $10,000 Hypothetical Investment to
Lehman Aggregate Bond Index and
Salomon Brothers World Government Bond Index
(Graph)
Past Performance is not predictive of future performance.
Oppenheimer Strategic Income Fund
Average Annual Total Returns at 9/30/93
1 Year Life of Class
Class A: 8.19% 12.08% (from 10/16/89)
Class B: (not applicable) 11.99% (from 11/30/92)
Your Investment Account
How To Buy Shares
The Fund offers investors two 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). If you purchase Class A
shares as part of an investment of at least $1 million in shares of one
or more OppenheimerFunds, and you sell any of those shares within 18
months after your purchase, you will pay a contingent deferred sales
charge, which will vary depending on the amount you invested.
- Class B Shares. If you buy Class B shares, you pay no sales charge
at the time of purchase, but if you sell your shares within six years, you
will normally pay a contingent deferred sales charge that varies depending
on how long you own your shares.
- 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 advisors:
- How much do you plan to invest? If you plan to invest
a substantial amount, the reduced sales charges available for larger
purchases of Class A shares may be more beneficial to you, and for
purchases over $1 million, the contingent deferred sales charge on
Class A shares may be more beneficial. The Distributor will not accept any
order for $1 million or more for Class B shares on behalf of a single
investor for that reason.
- How long do you expect to hold your investment? While future
financial needs cannot be predicted with certainty, investors who prefer
not to pay an initial sales charge and who plan to hold their shares for
more than 6 years might consider Class B shares. Investors who plan to
redeem shares within 7 years might prefer Class A shares.
- Are there differences in account features that matter to you?
Because some account features may not be available for Class B
shareholders, such as checkwriting, you should carefully review how you
plan to use your investment account before deciding which class of shares
is better for you. Additionally, the dividends payable to Class B
shareholders will be reduced by the additional expenses borne solely by
that class, such as the asset-based sales charge to which Class B shares
are subject, as described below and in the Statement of Additional
Information.
- How does it affect payments to my broker? A salesperson 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 contingent deferred sales charge and asset-based sales
charge for Class B shares is the same as the purpose of the front-end
sales charge on sales of Class A shares.
- How much must you invest? You can open a Fund account with a
minimum initial investment of $1,000 and make additional investments at
any time with as little as $25. There are reduced minimum investments
under special investment plans:
- With Asset Builder Plans, Automatic Exchange Plans,
403(b)(7) custodial plans and military allotment plans, you can make
initial and subsequent investments for as little as $25; and subsequent
purchases of at least $25 can be made by telephone through AccountLink.
- Under pension and profit-sharing plans and Individual
Retirement Accounts (IRAs), you can make an initial investment of as
little as $250 (if your IRA is established under an Asset Builder Plan,
the $25 minimum applies), and subsequent investments may be as little as
$25.
- There is no minimum investment requirement if you are
buying shares by reinvesting dividends from the Fund or other
OppenheimerFunds (a list of them appears in the Statement of Additional
Information, or you can ask your dealer or call the Transfer Agent), or
by reinvesting distributions from unit investment trusts that have made
arrangements with the Distributor.
- How are shares purchased? You can buy shares several ways -- through
any dealer, broker or financial institution that has a sales agreement
with the Distributor, or directly through the Distributor, or
automatically from your bank account through an Asset Builder Plan under
the OppenheimerFunds AccountLink service. When you buy shares, be sure to
specify Class A or Class B shares. If you do not choose, your investment
will be made in Class A shares.
- Buying Shares Through Your Dealer. Your dealer will place your
order with the Distributor on your behalf.
- Buying Shares Through the Distributor. Complete an
OppenheimerFunds New Account Application and return it with a check
payable to "Oppenheimer Funds Distributor, Inc." Mail it to P.O. Box 5270,
Denver, Colorado 80217. If you don't list a dealer on the application,
the Distributor will act as your agent in buying the shares.
- 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, to transmit funds electronically to purchase shares, to send
redemption proceeds, and to transmit dividends and distributions. Shares
are purchased for your account on the regular business day the Distributor
is instructed by you to initiate the ACH transfer to buy shares. You can
provide those instructions automatically, under an Asset Builder Plan,
described below, or by telephone instructions using OppenheimerFunds
PhoneLink, also described below. You must request AccountLink privileges
on the application or dealer settlement instructions used to establish
your account. Please refer to "AccountLink," below for more details.
Shares are sold at the public offering price based on the net asset
value that is next determined after the Distributor receives the purchase
order in Denver. In most cases, to receive that day's offering price, the
Distributor must receive your order by 4:00 P.M., New York time (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 4:00 P.M., on a regular business day and transmit it to the
Distributor so that it is received before the Distributor's close of
business that day, which is normally 5:00 P.M. The Distributor may reject
any purchase order for the Fund's shares, in its sole discretion.
- Asset Builder Plans. You may purchase shares of the Fund (and up
to four other OppenheimerFunds) automatically each month from your account
at a bank or other financial institution under an Asset Builder Plan with
AccountLink. Details are on the Application and in the Statement of
Additional Information.
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, where purchases are not subject to an initial
sales charge, the offering price may be net asset value. In some cases,
reduced sales charges may be available, as described below. When you
invest, the Fund receives the net asset value for your account. The sales
charge varies depending on the amount of your purchase and a portion may
be retained by the Distributor and allocated to your dealer. The current
sales charge rates and commissions paid to dealers and brokers are as
follows:
Front-End Sales Charge Commission as
As a Percentage of: Percentage of
Amount of Purchase Offering Price Amount Invested Offering Price
Less than $50,000 4.75% 4.98% 4.00%
$50,000 or more but
less than $100,000 4.50% 4.71% 3.75%
$100,000 or more but
less than $250,000 3.50% 3.63% 2.75%
$250,000 or more but
less than $500,000 2.50% 2.56% 2.00%
$500,000 or more but
less than $1 million 2.00% 2.04% 1.60%
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 OppenheimerFunds
aggregating $1 million or more. However, the Distributor pays dealers of
record commissions on such purchases in an amount equal to the sum of 1.0%
of the first $2.5 million, plus 0.50% of the next $2.5 million, plus 0.25%
of share purchases over $5 million. However, that commission will be paid
only on the amount of those purchases in excess of $1 million that were
not previously subject to a front-end sales charge and dealer commission.
If you redeem any of those shares within 18 months of the end of the
calendar month of their purchase, a contingent deferred sales charge
(called the "Class A contingent deferred sales charge") will be deducted
from the redemption proceeds. That sales charge will be equal to 1.0% of
the aggregate net asset value of either (1) the redeemed shares (not
including shares purchased by reinvestment of dividends or capital gain
distributions) or (2) the original cost of the shares, whichever is less.
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 OppenheimerFunds you purchased subject to the Class A
contingent deferred sales charge. In determining whether a contingent
deferred sales charge is payable, the Fund will first redeem shares that
are not subject to the sales charge, including shares purchased by
reinvestment of dividends and capital gains, and then will redeem other
shares in the order that you purchased them. The Class A contingent
deferred sales charge is waived in certain cases described in "Waivers of
Class A Sales Charges" below.
No Class A contingent deferred sales charge is charged on exchanges of
shares under the Fund's Exchange Privilege (described below). However,
if the shares acquired by exchange are redeemed within 18 months of the
end of the calendar month of the purchase of the exchanged shares, the
sales charge will apply.
- Special arrangements with dealers. The Distributor may advance up
to 13 months' commissions to dealers that have established special
arrangements with the Distributor for Asset Builder Plans for their
clients. From time to time, the Distributor may make special arrangements
with dealers and make additional payments if the dealer meets specified
sales criteria and other requirements. Dealers whose sales of
OppenheimerFunds (other than money market funds) under OppenheimerFunds-
sponsored 403(b) 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. The Distributor may sponsor an annual sales
conference to which a dealer firm is eligible to send, with a guest, a
registered representative who sells more than $2.5 million of Class A
shares of OppenheimerFunds (other than money market funds) in a calendar
year, or the dealer may, at its option, receive the equivalent cash value
of that award as additional commission.
- 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. You and your spouse can cumulate
Class A shares you purchase for your own accounts, or jointly, or on
behalf of your children who are minors, under trust or custodial
accounts. A fiduciary can cumulate 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 cumulate current purchases of Class A shares of
the Fund and other OppenheimerFunds with Class A shares of
OppenheimerFunds you previously purchased subject to a sales charge,
provided that you still hold your investment in one of the
OppenheimerFunds; the value of those shares will be based on the
greater of the amount you paid for the shares or their current value
(at offering price). The OppenheimerFunds are listed in "Reduced Sales
Charges" in the Statement of Additional Information, or a list can be
obtained from the Transfer Agent. The reduced sales charge will apply
only to current purchases and must be requested when you buy your
shares.
- Letter of Intent. Under a Letter of Intent, you may purchase
Class A shares of the Fund and other OppenheimerFunds during a 13-month
period at the reduced sales charge rate that applies to the aggregate
amount of the intended purchases, including purchases made up to 90 days
before the date of the Letter. More information is contained in the
Application and in "Reduced Sales Charges" in the Statement of Additional
Information.
- Waivers of Class A Sales Charges. No sales charge is imposed on
sales of Class A shares to the following persons: (1) the Manager or its
affiliates; (2) present or former officers, directors, trustees and
employees (and their "immediate families" as defined in "Reduced Sales
Charges" in the Statement of Additional Information) of the Fund, the
Manager and its affiliates, and retirement plans established by them for
their employees; (3) registered management investment companies, or
separate accounts of insurance companies having an agreement with the
Manager or the Distributor for that purpose; (4) dealers or brokers that
have a sales agreement with the Distributor, if they purchase shares for
their own accounts or for retirement plans for their employees; (5)
employees (and their spouses) of dealers or brokers described above or
financial institutions that have entered into sales arrangements with such
dealers or brokers (and are identified to the Distributor) or with the
Distributor; the purchaser must certify to the Distributor at the time of
purchase that the purchase is for the purchaser's own account (or for the
benefit of such employee's spouse or minor children); (6) dealers, brokers
or registered investment advisers that have entered into an agreement with
the Distributor providing specifically for the use of shares of the Fund
in particular investment products made available to their clients.
Additionally, no sales charge is imposed on shares that are (a) issued
in plans of reorganization, such as mergers, asset acquisitions and
exchange offers, to which the Fund is a party or (b) purchased by the
reinvestment of loan repayments by a participant in a retirement plan for
which the Manager or its affiliates acts as sponsor, or (c) purchased by
the reinvestment of dividends or other distributions reinvested from the
Fund or other OppenheimerFunds (other than the Cash Reserves Funds) or
unit investment trusts for which reinvestment arrangements have been made
with the Distributor. There is a further discussion of this policy in
"Reduced Sales Charges" in the Statement of Additional Information.
The Class A contingent deferred sales charge is also waived if shares
are redeemed in the following cases: (1) retirement distributions or loans
to participants or beneficiaries from qualified retirement plans, deferred
compensation plans or other employee benefit plans ("Retirement Plans"),
(2) returns of excess contributions made to Retirement Plans, (3)
Automatic Withdrawal Plan payments that are limited to no more than 12%
of the original account value annually, and (4) involuntary redemptions
of shares by operation of law or under the procedures set forth in the
Fund's Declaration of Trust or adopted by the Board of Trustees.
- Service Plan for Class A Shares. The Fund has adopted a Service
Plan for Class A shares to reimburse the Distributor for a portion of its
costs incurred in connection with the personal service and maintenance of
accounts that hold Class A shares. Reimbursement is made quarterly at an
annual rate that may not exceed 0.25% of the average annual net assets of
Class A shares of the Fund. The Distributor uses all of those fees to
compensate dealers, brokers, banks and other financial institutions
quarterly for providing personal service and maintenance of accounts of
their customers that hold Class A shares and to reimburse itself (if the
Fund's Board of Trustees authorizes such reimbursements, which it has not
yet done) for its other expenditures under the Plan.
Services to be provided include, among others, answering customer
inquiries about the Fund, assisting in establishing and maintaining
accounts in the Fund, making the Fund's investment plans available and
providing other services at the request of the Fund or the Distributor.
Payments are made by the Distributor quarterly at an annual rate not to
exceed 0.25% of the average annual net assets of Class A shares held in
accounts of the dealer or its customers. The payments under the Plan
increase the annual expenses of Class A shares. For more details, please
refer to "Distribution and Service Plans" in the Statement of Additional
Information.
Class B Shares. Class B shares are sold at net asset value per share
without an initial sales charge. However, if Class B shares are redeemed
within 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 (including increases due to the
reinvestment of dividends and capital gains distributions). The Class B
contingent deferred sales charge is paid to the Distributor to reimburse
its expenses of providing distribution-related services to the Fund in
connection with the sale of Class B shares.
To determine whether the contingent deferred sales charge applies to
a redemption, the Fund redeems shares in the following order: (1) shares
acquired by reinvestment of dividends and capital gains distributions, (2)
shares held for over 6 years, and (3) shares held the longest during the
6-year period.
The amount of the contingent deferred sales charge will depend on the
number of years since you invested and the dollar amount being redeemed,
according to the following schedule:
Contingent Deferred Sales Charge
Years Since Purchase Payment on Redemptions in that Year
Was Made (As % of Amount Subject to Charge)
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.
- Waivers of Class B Sales Charge. The Class B contingent deferred
sales charge will be waived if the shareholder requests it for any of the
following redemptions: (1) distributions to participants or beneficiaries
from Retirement Plans, if the distributions are made (a) under an
Automatic Withdrawal Plan after the participant reaches age 59-1/2, as
long as the payments are no more than 10% of the account value annually
(measured from the date the Transfer Agent receives the request), or (b)
following the death or disability (as defined in the Internal Revenue
Code) of the participant or beneficiary; (2) redemptions from accounts
other than Retirement Plans following the death or disability of the
shareholder (as evidenced by a determination of disability by the Social
Security Administration), and (3) returns of excess contributions to
Retirement Plans.
The contingent deferred sales charge is also waived on Class B shares
in the following cases: (i) shares sold to the Manager or its affiliates;
(ii) shares sold to registered management investment companies or separate
accounts of insurance companies having an agreement with the Manager or
the Distributor for that purpose; (iii) shares issued in plans of
reorganization to which the Fund is a party; and (iv) shares redeemed in
involuntary redemptions as described above. Further details about this
policy are contained in "Reduced Sales Charges" in the Statement of
Additional Information.
- Automatic Conversion of Class B Shares. 72 months after you
purchase Class B shares, those shares will automatically convert to Class
A shares. This conversion feature relieves Class B shareholders of the
asset-based sales charge that applies to Class B shares under the Class
B Distribution 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 and Class B Shares" in the
Statement of Additional Information.
- Distribution and Service Plan for Class B Shares. The Fund has
adopted a Distribution and Service Plan for Class B shares to compensate
the Distributor for its services and costs in distributing Class B shares
and servicing accounts. Under the Plan, the Fund pays the Distributor an
annual "asset-based sales charge" of 0.75% per year on Class B shares that
are outstanding for 6 years or less. The Distributor also receives a
service fee of 0.25% per year. Both fees are computed on the average
annual net assets of Class B shares, determined as of the close of each
regular business day. The asset-based sales charge allows investors to buy
Class B shares without a front-end sales charge while allowing the
Distributor to compensate dealers that sell Class B shares.
The Distributor uses the service fee to compensate dealers for
providing personal service for accounts that hold Class B shares. Those
services are similar to those provided under the Class A Service Plan,
described above. The asset-based sales charge and service fees increase
Class B expenses by up to 1.00% of average net assets per year.
The Distributor pays the 0.25% service fee to dealers in advance for
the first year after Class B shares have been sold by the dealer. After
the shares have been held for a year, the Distributor pays the fee on a
quarterly basis. The Distributor pays sales commissions of 3.75% of the
purchase price to dealers from its own resources at the time of sale. The
Distributor retains the asset-based sales charge to recoup the sales
commissions it pays, the advances of service fee payments it makes, and
its financing costs.
If the Plan is terminated by the Fund, it provides for continuing
payments of the asset-based sales charge to the Distributor for certain
expenses already incurred. The accounting treatment for the Fund's
obligation under the Plan for those future payments is discussed in
"Distribution and Service Plans" in the Statement of Additional
Information. The accounting standards now used are currently under review
by the American Institute of Certified Public Accountants, and it is
possible that those standards will change and that the Fund's Class B Plan
would be changed as a result. At September 30, 1993, the end of the Plan
year, the Distributor had incurred unreimbursed expenses under the Plan
of $29,113,498 (equal to 4.19% of the Fund's net assets represented by
Class B shares on that date), which have been carried over into the
present Plan year.
Special Investor Services
AccountLink. OppenheimerFunds AccountLink links your Fund account to your
account at your bank or other financial institution to enable you to send
money electronically between those accounts to perform a number of types
of account transactions, including purchases of shares by telephone
(either through a service representative or by PhoneLink, described
below), automatic investments under Asset Builder Plans, and sending
dividends and distributions or Automatic Withdrawal Plan payments directly
to your bank account. Please refer to the Application for details or call
the Transfer Agent for more information.
AccountLink privileges must be requested on the Application you use to
buy shares, or on your dealer's settlement instructions if you buy your
shares through your dealer. After your account is established, you can
request AccountLink privileges on signature-guaranteed instructions to the
Transfer Agent. AccountLink privileges will apply to each shareholder
listed in the registration on your account as well as to your dealer
representative of record unless and until the Transfer Agent receives
written instructions terminating or changing those privileges. After you
establish AccountLink for your account, any change of bank account
information must be made by signature-guaranteed instructions to the
Transfer Agent signed by all shareholders who own the account.
- Using AccountLink to Buy Shares. Purchases may be made by telephone
only after your account has been established. To purchase shares in
amounts up to $250,000 through a telephone representative, call the
Distributor at 1-800-852-8457. The purchase payment will be debited from
your bank account.
- PhoneLink. PhoneLink is the OppenheimerFunds automated telephone
system that enables shareholders to perform a number of account
transactions automatically using a touch-tone phone. PhoneLink may be used
on already-established Fund accounts after you obtain a Personal
Identification Number (PIN), by calling the special PhoneLink number: 1-
800-533-3310.
- Purchasing Shares. You may purchase shares in amounts up to
$100,000 by phone, by calling 1-800-533-3310. You must have established
AccountLink privileges to link your bank account with the Fund, to pay for
these purchases.
- Exchanging Shares. With the OppenheimerFunds Exchange
Privilege, described below, you can exchange shares automatically by phone
from your Fund account to another OppenheimerFunds account you have
already established by calling the special PhoneLink number. Please refer
to "Exchange Privilege," below, for details.
- Selling Shares. You can redeem shares by telephone
automatically by calling the PhoneLink number and the Fund will send the
proceeds directly to your AccountLink bank account. Please refer to "How
to Sell Shares," below for details.
Automatic Withdrawal and Exchange Plans. The Fund has several plans that
enable you to sell shares automatically or exchange them to another
OppenheimerFunds account on a regular basis:
- Automatic Withdrawal Plans. If your Fund account is $5,000 or more,
you can establish an Automatic Withdrawal Plan to receive payments of at
least $50 on a monthly, quarterly, semi-annual or annual basis. The checks
may be sent to you or sent automatically to your bank account on
AccountLink. You may even set up certain types of Withdrawals of up to
$1,500 per month by telephone. You should consult the Application and
Statement of Additional Information for more details.
- Automatic Exchange Plans. You can authorize the Transfer Agent to
exchange an amount you establish in advance automatically for shares of
up to five other OppenheimerFunds on a monthly, quarterly, semi-annual or
annual basis under an Automatic Exchange Plan. The minimum purchase for
each other OppenheimerFunds account is $25. These exchanges are subject
to the terms of the Exchange Privilege, described below.
Reinvestment Privilege. If you redeem some or all of your Fund shares,
you have up to 6 months to reinvest all or part of the redemption proceeds
in Class A shares of the Fund or other OppenheimerFunds without paying
sales charge. This privilege applies to Class A shares that you sell, and
Class B shares on which you paid a contingent deferred sales charge when
you redeemed them. You must be sure to ask the Distributor for this
privilege when you send your payment. Please consult the Statement of
Additional Information for more details.
Retirement Plans. Fund shares are available as an investment for your
retirement plans. If you participate in a plan sponsored by your employer,
the plan trustee or administrator must make the purchase of shares for
your retirement plan account. The Distributor offers a number of different
retirement plans that can be used by individuals and employers:
- Individual Retirement Accounts including rollover IRAs, for
individuals and their spouses
- 403(b)(7) Custodial Plans for employees of eligible tax-exempt
organizations, such as schools, hospitals and charitable organizations
- SEP-IRAs (Simplified Employee Pension Plans) for small business
owners or people with income from self-employment
- Pension and Profit-Sharing Plans for self-employed persons and small
business owners
Please call the Distributor for the OppenheimerFunds plan documents,
which contain important information and applications.
How to Sell Shares
You can arrange to take money out of your account on any regular
business day by selling (redeeming) some or all of your shares. Your
shares will be sold at the next net asset value calculated after your
order is received and accepted by the Transfer Agent. The Fund offers you
a number of ways to sell your shares: in writing, 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.
- To sell shares in an OppenheimerFunds retirement account in your
name, call the Transfer Agent for a distribution request form. There are
special income tax withholding requirements for distributions from
retirement plans and you must submit a Withholding form with your request
to avoid delay. If your retirement plan account is held for you by your
employer, you must arrange for the distribution request to be sent by the
plan administrator or trustee. There are additional details in the
Statement of Additional Information.
- Certain Requests Require a Signature Guarantee. To protect you and
the Fund from fraud, certain redemption requests must be in writing and
must include a signature guarantee in the following situations (there may
be other situations also requiring a signature guarantee):
- You wish to redeem more than $50,000 worth of shares and receive a
check
- The check is not payable to all shareholders listed on the account
statement
- The check is not sent to the address of record on your statement
- Shares are being transferred to a Fund account with a different
owner or name
- Shares are redeemed by someone other than the owners (such as an
Executor)
- Where can I have my signature guaranteed? The Transfer Agent will
accept a guarantee of your signature by a number of financial
institutions, including: a U.S. bank, trust company, credit union or
savings association, or from a foreign bank that has a U.S. correspondent
bank, or from a U.S. registered dealer or broker in securities, municipal
securities or government securities, or from a U.S. national securities
exchange, a registered securities association or a clearing agency. If you
are signing as a fiduciary or on behalf of a corporation, partnership or
other business, you must also include your title in the signature.
Selling Shares by Mail. Write a "letter of instructions" that includes:
- Your name
- The Fund's name
- Your Fund account number (from your statement)
- The dollar amount or number of shares to be redeemed
- Any special payment instructions
- Any share certificates for the shares you are selling, and
- Any special requirements or documents requested by the Transfer
Agent to assure proper authorization of the person asking to sell
shares.
Use the following address Send courier or Express Mail
for requests by mail: requests to:
Oppenheimer Shareholder Services Oppenheimer Shareholder Services
P.O. Box 5270, Denver, Colorado 80217 10200 E. Girard Avenue, Building D
Denver, Colorado 80231-5099
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 4:00 P.M. You may not redeem shares held in an OppenheimerFunds
retirement plan or under a share certificate by telephone.
- - To redeem shares through a service representative, call 1-800-852-8457
- - To redeem shares automatically on PhoneLink, call 1-800-533-3310
Whichever method you use, you may have a check sent to the address on
the account, or, if you have linked your Fund account to your bank account
on AccountLink, you may have the proceeds wired to that account.
- Telephone Redemptions Paid by Check. Up to $50,000 may be redeemed
by telephone, once in each 30-day period. The check must be payable to
all owners of record of the shares and must be sent to the address on the
account. This service is not available within 30 days of changing the
address on an account.
- Telephone Redemptions Through AccountLink. There are no dollar
limits on telephone redemption proceeds sent to a bank account designated
when you establish AccountLink. Normally the ACH wire to your bank is
initiated on the business day after the redemption. You do not receive
dividends on the proceeds of the shares you redeemed while they are
waiting to be wired.
CheckWriting. To be able to write checks against your Fund account, you
may request that privilege on your account Application or you can contact
the Transfer Agent for signature cards, which must be signed (with a
signature guarantee) by all owners of the account and returned to the
Transfer Agent so that checks can be sent to you to use. Shareholders with
joint accounts can elect in writing to have checks paid over the signature
of one owner.
- Checks can be written to the order of whomever you wish, but may
not be cashed at the Fund's bank or custodian.
- Checkwriting privileges are not available for accounts holding
Class B shares or Class 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.
The Fund will charge a $10 fee for any check that is not paid because
(1) the owners of the account told the Fund not to pay the check, or (2)
the check was for more than the account balance, or (3) the check did not
have the proper signatures, (4) or the check was written for less than
$100.
How to Exchange Shares
Shares of the Fund may be exchanged for shares of certain
OppenheimerFunds at net asset value per share at the time of exchange,
without sales charge. A $5 service fee will be deducted from the fund
account you are exchanging into to help defray administrative costs. That
charge is waived for automated exchanges on PhoneLink described below. To
exchange shares, you must meet several conditions:
- - Shares of the fund selected for exchange must be available for sale in
your state of residence
- - The prospectuses of this Fund and the fund whose shares you want to buy
must offer the exchange privilege
- - You must hold the shares you buy when you establish your account for at
least 7 days before you can exchange them; after the account is open 7
days, you can exchange shares every regular business day
- - You must meet the minimum purchase requirements for the fund you
purchase by exchange
- - Before exchanging into a fund, you should obtain and read its prospectus
Shares of a particular class may be exchanged only for shares of the
same class in the other OppenheimerFunds. For example, you can exchange
Class A shares of this Fund only for Class A shares of another fund. At
present, not all of the OppenheimerFunds offer the same two classes of
shares. If a fund has only one class of shares that does not have a class
designation, they are "Class A" shares for exchange purposes. In some
cases, sales charges may be imposed on exchange transactions. Certain
OppenheimerFunds offer Class A, Class B and/or Class C shares, and a list
can be obtained by calling the Distributor at 1-800-525-7048. Please
refer to the Statement of Additional Information for more details about
this policy.
Exchanges may be requested in writing or by telephone:
- Written Exchange Requests. Submit an OppenheimerFunds Exchange
Request form, signed by all owners of the account. Send it to the
Transfer Agent at the addresses listed in "How to Sell Shares."
- Telephone Exchange Requests. Telephone exchange requests may be
made either by calling a service representative at 1-800-852-8457 or by
using PhoneLink for automated exchanges, by calling 1-800-533-3310.
Telephone exchanges may be made only between accounts that are registered
with the same names and address. Shares held under certificates may not
be exchanged by telephone.
You can obtain a list of eligible OppenheimerFunds in the Statement
of Additional Information or by calling the Transfer Agent at 1-800-525-
7048. Exchanges of shares involve a redemption of the shares of the fund
you own and a purchase of shares of the other fund.
There are certain exchange policies you should be aware of:
- Shares are normally redeemed from one fund and purchased from the
other fund in the exchange transaction on the same regular business
day on which the Transfer Agent receives an exchange request by 4:00
P.M. that is in proper form, but either fund may delay the purchase
of shares of the fund you are exchanging into if it determines it
would be disadvantaged by a same-day transfer of the proceeds to buy
shares. For example, the receipt of multiple exchange requests from
a dealer in a "market-timing" strategy might require the disposition
of securities at a time or price disadvantageous to the Fund.
- Because excessive trading can hurt fund performance and harm
shareholders, the Fund reserves the right to refuse any exchange
request that will disadvantage it, or to refuse multiple exchange
requests submitted by a shareholder or dealer.
- The Fund may amend, suspend or terminate the exchange privilege
at any time. Although the Fund will attempt to provide you notice
whenever it is reasonably able to do so, it may impose these changes
at any time.
- If the Transfer Agent cannot exchange all the shares you request
because of a restriction cited above, only the shares eligible for
exchange will be exchanged.
Shareholder Account Rules and Policies
- Net Asset Value Per Share is determined for each class of shares
as of 4:00 P.M. each day The New York Stock 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, short-term obligations for which market values
cannot be readily obtained, and call options and hedging instruments.
These procedures are described more completely in the Statement of
Additional Information.
- The offering of shares may be suspended during any period in which
the determination of net asset value is suspended, and the offering may
be suspended by the Board of Trustees at any time the Board believes it
is in the Fund's best interest to do so.
- Telephone Transaction Privileges for purchases, redemptions or
exchanges may be modified, suspended or terminated by the Fund at any
time. If an account has more than one owner, the Fund and the Transfer
Agent may rely on the instructions of any one owner. Telephone privileges
apply to each owner of the account and the dealer representative of record
for the account unless and until the Transfer Agent receives cancellation
instructions from an owner of the account.
- The Transfer Agent will record any telephone calls to verify data
concerning transactions and has adopted other procedures to confirm that
telephone instructions are genuine, by requiring callers to provide tax
identification numbers and other account data or by using PINs, and by
confirming such transactions in writing. If the Transfer Agent does not
use reasonable procedures it may be liable for losses due to unauthorized
transactions, but otherwise it will not 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 and Class B shares. Therefore, the redemption
value of your shares may be more or less than their original cost.
- Payment for redeemed shares is made ordinarily in cash and
forwarded by check or through AccountLink (as elected by the shareholder
under the redemption procedures described above) within 7 days after the
Transfer Agent receives redemption instructions in proper form, except
under unusual circumstances determined by the Securities and Exchange
Commission delaying or suspending such payments. The Transfer Agent may
delay forwarding a check or processing a payment via AccountLink for
recently purchased shares, but only until the purchase payment has
cleared. That delay may be as much as 15 days from the date the shares
were purchased. That delay may be avoided if you arrange with your bank
to provide telephone or written assurance to the Transfer Agent that your
purchase payment has cleared.
- Involuntary redemptions of small accounts may be made by the Fund
if the account value has fallen below $200 for reasons other than the fact
that the market value of shares has dropped, and in some cases involuntary
redemptions may be made to repay the Distributor for losses from the
cancellation of share purchase orders. Under unusual circumstances,
shares of the Fund may be redeemed "in kind," which means that the
redemption proceeds will be paid with securities from the Fund's
portfolio. Please refer to the Statement of Additional Information for
more details.
- "Backup Withholding" of Federal income tax may be applied at the
rate of 31% from dividends, distributions and redemption proceeds
(including exchanges) if you fail to furnish the Fund a certified Social
Security or taxpayer identification number when you sign your application,
or if you violate Internal Revenue Service regulations on tax reporting
of dividends.
- The Fund does not charge a redemption fee, but if your dealer or
broker handles your redemption, they may charge a fee. That fee can be
avoided by redeeming your Fund shares directly through the Transfer Agent.
Under the circumstances described in "How To Buy Shares," you may be
subject to a contingent deferred sales charges when redeeming certain
Class A and Class B shares.
Dividends, Capital Gains and Taxes
Dividends. The Fund declares dividends separately for Class A and Class
B shares from net investment income each regular business day and pays
those dividends to shareholders monthly. Normally, dividends are paid on
the fourth Wednesday 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. It is expected
that distributions paid with respect to Class A shares will generally be
higher than for Class B shares because expenses allocable to Class B
shares will generally be higher.
During the fiscal year ended September 30, 1993, the Fund sought to
pay dividends at a targeted level per share for Class A shares, to the
extent that target was consistent with available net investment income and
other distributable income. However, the amount of dividends and
distributions may vary from time to time, depending on market conditions,
the composition of the Fund's portfolio and expenses borne by that Class.
The Board of Trustees may change the targeted level at any time, and there
is otherwise no fixed dividend rate. During the last fiscal year, the Fund
was able to pay dividends on Class A shares at the targeted level from net
investment income and other distributable income without any impact on the
Manager's portfolio management strategies or practices, and without any
material impact on the Fund's net asset value for Class A shares.
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. 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.
Distribution Options. When you open your account, specify on your
application how you want to receive your distributions. For
OppenheimerFunds retirement accounts, all distributions are reinvested.
For other accounts, you have four options:
- Reinvest all distributions in the Fund. You can elect to
reinvest all dividends and long-term capital gains distributions
in additional shares of the Fund.
- Reinvest capital gains only. You can elect to reinvest long-term
capital gains in the Fund while receiving dividends by check or
sent to your bank account on AccountLink.
- Receive all distributions in cash. You can elect to receive a
check for all dividends and long-term capital gains distributions
or have them sent to your bank on AccountLink.
- Reinvest your distributions in another OppenheimerFunds account.
You can reinvest all distributions in another OppenheimerFunds
account you have established.
Taxes. If your account is not a tax-deferred retirement account, you
should be aware of the following tax implications of investing in the
Fund. Long-term capital gains are taxable as long-term capital gains when
distributed to shareholders. Dividends paid from short-term capital gains
and net investment income are taxable as ordinary income. Distributions
are subject to federal income tax and may be subject to state or local
taxes. Your distributions are taxable when paid, whether you reinvest
them in additional shares or take them in cash. Every year the Fund will
send you and the IRS a statement showing the amount of each taxable
distribution you received in the previous year.
- "Buying a Dividend": When a fund goes ex-dividend, its share
price is reduced by the amount of the distribution. If you buy
shares on or just before the ex-dividend date, you will pay the full
price for the shares and then receive a portion of the price back as
a taxable dividend.
- 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: If distributions made by the Fund must be
recharacterized at the end of a fiscal year because of the Fund's
investment policies (for example, due to losses on foreign currency
exchange), shareholders may have a non-taxable return of capital.
This will be identified in notices to shareholders.
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
advisor about the effect of an investment in the Fund on your particular
tax situation.
Appendix: Description of Ratings Categories of Rating Services
Description of Moody's Investors Service, Inc. Bond Ratings
Aaa: Bonds 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 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 rated "A" possess many favorable investment attributes and
are to be considered as upper-medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment sometime in
the future.
Baa: Bonds rated "Baa" are considered medium grade obligations, that
is, 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 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 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 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 rated "Ca" represent obligations which are speculative in
a high degree and are often in default or have other marked shortcomings.
C: Bonds rated "C" can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
Description of Standard & Poor's 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.
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, D: Bonds on which no interest is being paid are rated "C." Bonds
rated "D" are in default and payment of interest and/or repayment of
principal is in arrears.
<PAGE>
APPENDIX TO PROSPECTUS OF
OPPENHEIMER STRATEGIC INCOME FUND
Graphic material included in Prospectus of Oppenheimer Strategic
Income Fund: "Comparison of Total Return of Oppenheimer Strategic Income
Fund with The Lehman Aggregate Bond Index and The Salomon World Government
Bond Index - Change in Value of a $10,000 Hypothetical Investment"
A linear graph will be included in the Prospectus of Oppenheimer Strategic
Income Fund (the "Fund") depicting the initial account value and
subsequent account value of a hypothetical $10,000 investment in the Fund
during each of the Fund's fiscal years since the commencement of the
Fund's operations as to Class A shares (October 16, 1989) and Class B
shares (November 30, 1992) and comparing such values with the same
investments over the same time periods with The Lehman Aggregate Bond
Index and The Salomon World Government Bond Index. Set forth below are
the relevant data points that will appear on the linear graph. Additional
information with respect to the foregoing, including a description of The
Lehman Aggregate Bond Index and The Salomon World Government Bond Index,
is set forth in the Prospectus under "Fund Performance Information -
Management's Discussion of Performance."
Salomon World
Fiscal Year Oppenheimer Strategic Lehman Aggregate Government
(Period) Ended Income Fund A Bond Index Bond Index
10/31/89 $ 9,525 $10,000 $10,000
09/30/90 $10,489 $10,498 $10,664
09/30/91 $12,258 $12,177 $12,269
09/30/92 $13,794 $13,705 $14,514
09/30/93 $15,698 $15,072 $15,993
Salomon World
Fiscal Year Oppenheimer Strategic Lehman Aggregate Government
(Period) Ended Income Fund B Bond Index Bond Index
11/30/92(2) $10,000 $10,000 $10,000
09/30/93 $10,960 $11,141 $11,509
- ----------------------
(1) The Fund commenced operations on October 16, 1989.
(2) Class B shares of the Fund were first publicly offered on November 30,
1992.
<PAGE>
Oppenheimer Strategic Income Fund
3410 South Galena Street
Denver, CO 80231
Telephone: 1-800-525-7048
Investment Adviser
Oppenheimer Management Corporation
Two World Trade Center
New York, New York 10048-0203
Distributor
Oppenheimer Funds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer Agent
Oppenheimer Shareholder 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
1560 Broadway
Denver, Colorado 80202
Legal Counsel
Myer, Swanson & Adams, P.C.
1600 Broadway
Denver, Colorado 80202
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in
this Prospectus or the Additional Statement, and if given or made, such
information and representation must not be relied upon as having been
authorized by the Fund, Oppenheimer Management Corporation, Oppenheimer
Funds Distributor, Inc., or any affiliate thereof. This Prospectus does
not constitute an offer to sell or a solicitation of an offer to buy any
of the securities offered hereby in any state to any person to whom it is
unlawful to make such offer in such state.
PR230 (2/93) * Printed on recycled paper
Prospectus
OPPENHEIMER
Strategic Income
Fund
Dated February 1, 1994
(OppenheimerFunds Logo)
<PAGE>
Prospectus and
New Account Application
OPPENHEIMER
Strategic Income
Fund
Dated February 1, 1994
(OppenheimerFunds Logo)
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
OPPENHEIMER STRATEGIC INCOME FUND
3410 South Galena Street, Denver, Colorado 80231
1-800-525-7048
This Statement of Additional Information is not a Prospectus. This
Statement of Additional Information contains more complete information
about the investment policies and the account features of Oppenheimer
Strategic Income Fund (the "Fund") described in the Fund's Prospectus
dated February 1, 1994, and should be read together with the Prospectus.
A copy of the Prospectus may be obtained by writing to Oppenheimer
Shareholder Services ("the Transfer Agent"), P.O. Box 5270, Denver,
Colorado 80217 or by calling the Transfer Agent at the toll-free number
shown above.
TABLE OF CONTENTS
Page
Investment Objective and Policies . . . . . . . . . . . . . . .2
Other Investment Techniques and Strategies. . . . . . . . . . 12
Additional Investment Restrictions. . . . . . . . . . . . . . 25
Trustees and Officers of the Fund . . . . . . . . . . . . . . 26
How the Fund is Managed . . . . . . . . . . . . . . . . . . . 29
Brokerage Policies of the Fund. . . . . . . . . . . . . . . . 30
Your Investment Account . . . . . . . . . . . . . . . . . . . 31
Performance of the Fund . . . . . . . . . . . . . . . . . . . 43
Distribution and Service Plans. . . . . . . . . . . . . . . . 46
Dividends, Capital Gains and Taxes. . . . . . . . . . . . . . 49
Additional Information about the Fund . . . . . . . . . . . . 51
Independent Auditors' Report. . . . . . . . . . . . . . . . . 53
Financial Statements of the Fund. . . . . . . . . . . . . . . 54
This Statement of Additional Information is dated February 1, 1994.
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective and policies of the Fund are discussed in
the Prospectus. Set forth below is supplemental information about those
policies and the types of securities in which the Fund invests. Certain
capitalized terms used in this Statement of Additional Information have
the same meaning as those terms have in the Prospectus.
Investment Policies and Strategies. In selecting securities for the
Fund's portfolio, the Fund's investment manager, 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, among other things, consideration of the
financial strength of an issuer, including its historic and current
financial condition, the trading activity in its securities, present and
anticipated cash flow, estimated current value of its assets in relation
to their 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 an issuer and
the issuer's 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. 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 or
both as they become due. Generally, higher yielding bonds are subject to
credit risk to a greater extent than higher quality 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 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 capital appreciation and
depreciation than obligations with shorter maturities. Fluctuations in
the market value of fixed-income securities subsequent to their
acquisition will not affect the interest payable on those securities, and
thus the cash income from such securities, but will be reflected in the
valuations of these securities used to compute the Fund's net asset
values.
Risks of High Yield Securities. As stated in the Prospectus, the
corporate debt securities in which the Fund will principally invest may
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 limitation, in unrated securities which offer, in the
opinion of the Manager, comparable yields and risks as those rated
securities in which the Fund may invest.
Risks of high yield securities may include: (i) limited liquidity
and secondary market support, (ii) substantial market price volatility
resulting from changes in prevailing interest rates, (iii) subordination
to the prior claims of banks and other senior lenders, (iv) the operation
of mandatory sinking fund or call/redemption provisions during periods of
declining interest rates that could cause the Fund to be able to reinvest
premature redemption proceeds only in lower yielding portfolio securities,
(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. As a result of the limited liquidity of high yield
securities, their prices have at times experienced significant and rapid
decline when a substantial number of holders decided to sell. 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 bonds and adversely affect the value of
outstanding bonds and the ability of the issuers to repay principal and
interest. In addition, there have been several Congressional attempts to
limit the use of tax and other advantages of high yield bonds which, if
enacted, could adversely affect the value of these securities and the
Fund's net asset value. For example, federally-insured savings and loan
associations have been required to divest their investments in high yield
bonds.
Portfolio Maturity and Income. The Manager will monitor the Fund's
tax status under the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code") during periods in which the Fund's annual
turnover rate exceeds 100%. To the extent that increased portfolio
turnover results in sales of securities held less than three months, the
Fund's ability to qualify as "regulated investment company" under the
Internal Revenue Code may be affected (see "Dividends and Distributions,"
below). No limitations are placed on the weighted average maturity of the
portfolio, which will generally be of longer duration. Preferred stocks,
other than those of a finite maturity, will be assumed to have a 40 year
maturity for the purpose of calculating a weighted average maturity. The
Fund anticipates it will shift its investment focus to securities of
longer maturity as interest rates decline, and to securities of shorter
maturity as interest rates rise. Although changes in the value of the
Fund's portfolio securities subsequent to their acquisition are reflected
in the net asset value of the Fund's shares, such changes will not affect
the income received by the Fund from such securities. The dividends paid
by the Fund will increase or decrease in relation to the income received
by the Fund from its investments, which will in any case be reduced by the
Fund's expenses before being distributed to the Fund's shareholders.
Debt Securities of Foreign Governments and Companies. As stated in the
Prospectus, the Fund may invest in debt obligations and other securities
(which may be dominated 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 debt obligations and other securities issued by
U.S. corporations denominated in non-U.S. currencies. The types of
foreign debt obligations and other securities in which the Fund may invest
are the same types of debt obligations identified under "Debt Securities
of U.S. Companies," below.
The percentage of the Fund's assets that will be allocated to foreign
securities will vary depending on the relative yields of foreign and U.S.
securities, the economies of foreign countries, the condition of such
countries' financial markets, the interest rate climate of such countries
and the relationship of such countries' currency to the U.S. dollar.
These factors are judged on the basis of fundamental economic criteria
(e.g., relative inflation levels and trends, growth rate forecasts,
balance of payments status, and economic policies) as well as technical
and political data.
Investments in foreign securities offer potential benefits not
available from investments solely in securities of domestic issuers, by
offering 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 bond or
other markets that do not move in a manner parallel to U.S. markets. From
time to time, 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
reimposed.
Securities of foreign issuers that are represented by American
depository receipts, or that are listed on a U.S. securities exchange, or
are traded in the U.S. over-the-counter market are not considered "foreign
securities" when the Fund moves its investment focus among different
sectors, because they are not subject to many of the special
considerations and risks (discussed below) that apply to foreign
securities traded and held abroad. If the Fund's portfolio securities are
held abroad, the countries in which such securities may be held and the
sub-custodians holding them must be approved by the Fund's Board of
Trustees under applicable SEC rules.
Risks of Investing in Foreign Securities. Investment in foreign
securities involves considerations and risks not associated with
investment in securities of U.S. issuers. For example, foreign issuers
are not required to use generally-accepted accounting principles
("G.A.A.P."). If foreign securities are not registered under the
Securities Act of 1933, the issuer does not have to comply with the
disclosure requirements of the Securities Exchange Act of 1934. The
values of foreign securities investments will be affected by incomplete
or inaccurate information available as to foreign issuers, changes in
currency rates, exchange control regulations or currency blockage,
expropriation or nationalization of assets, application of foreign tax
laws (including withholding taxes), changes in governmental administration
or economic or monetary policy in the U.S. or abroad, or changed
circumstances in dealings between nations. In addition, it is generally
more difficult to obtain court judgments outside the United States. The
values of foreign securities will be affected by changes in currency rates
or exchange control regulations or currency blockage, application of
foreign tax laws, including withholding taxes, changes in governmental
administration or economic or monetary policy (in the U.S. or abroad) or
changed circumstances in dealings between nations. Costs will be incurred
in connection with conversions between various currencies. Foreign
brokerage commissions are generally higher than commissions in the U.S.,
and foreign securities markets may be less liquid, more volatile and less
subject to governmental regulation than in the U.S. Investments in foreign
countries could be affected by other factors not generally thought to be
present in the U.S., including expropriation or nationalization,
confiscatory taxation and potential difficulties in enforcing contractual
obligations, and could be subject to extended settlement periods.
The Fund may invest in U.S. dollar-denominated foreign securities
referred to as "Brady Bonds." These are debt obligations of foreign
entities that 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 that have the same maturity as
the Brady Bonds. However, the Fund may also invest in uncollateralized
Brady Bonds. Brady Bonds are generally viewed as having three or four
valuation components: (i) any 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 what is referred to as the "residual risk" of such bonds). 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 U.S. 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 by public and
private entities of countries issuing Brady Bonds, investments in Brady
Bonds are to be viewed as speculative.
The obligations of foreign governmental entities may or may not be
supported by the full faith and credit of a foreign government.
Obligations of "supranational entities" include those of international
organizations designated or supported by governmental entities to promote
economic reconstruction or development and of international banking
institutions and related government agencies. Examples include the
International Bank for Reconstruction and Development (the "World Bank"),
the European Coal and Steel Community, the Asian Development Bank and the
Inter-American Development Bank. The governmental members, or
"stockholders," usually make initial capital contributions to the
supranational entity and in many cases are committed to make additional
capital contributions if the supranational entity is unable to repay its
borrowings. Each supranational entity's lending activities are limited
to a percentage of its total capital (including "callable capital"
contributed by members at the entity's call), reserves and net income.
There is no assurance that foreign governments will be able or willing to
honor their commitments.
Because the Fund may purchase securities denominated in foreign
currencies, a change in the value of any such currency against the U.S.
dollar will result in a change in the U.S. dollar value of the Fund's
assets and its income available for distribution. In addition, although
a portion of the Fund's investment income may be received or realized in
foreign currencies, the Fund will be required to compute and distribute
its income in U.S. dollars, and absorb the cost of currency fluctuations.
The Fund may engage in foreign currency exchange transactions for hedging
purposes to protect against changes in future exchange rates. See
"Covered Calls and Hedging," below.
The values of foreign investments and the investment income derived
from them may also be affected unfavorably by changes in currency exchange
control regulations. Although the Fund will invest only in securities
denominated in foreign currencies that at the time of investment do not
have significant government-imposed restrictions on conversion into U.S.
dollars, there can be no assurance against subsequent imposition of
currency controls. In addition, the values of foreign securities will
fluctuate in response to a variety of factors, including changes in U.S.
and foreign interest rates.
U.S. Government Securities. U.S. Government Securities are debt
obligations issued or guaranteed by the U.S. Government or one of its
agencies or instrumentalities. The U.S. Government Securities the Fund
can invest in are described in the Prospectus and include U.S. Treasury
securities such as "zero coupon" Treasury securities, mortgage-backed
securities and CMOs.
Zero Coupon Treasury Securities. The Fund may invest in zero coupon
Treasury securities, which are U.S. Treasury bills issued without interest
coupons, U.S. Treasury notes and bonds which have been stripped of their
unmatured interest coupons, and receipts or certificates representing
interests in such stripped obligations and 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 lack of periodic interest
payments means that the interest rate is "locked in" and there is no risk
of having to reinvest periodic interest payments in securities having
lower rates.
Mortgage-Backed U.S. Government Securities. These securities
represent participation interests in pools of residential mortgage loans
made by lenders such as banks and savings and loan associations. The
pools are assembled for sale to investors (such as the Fund) by government
agencies, which issue or guarantee the securities relating to the pool.
Such securities differ from conventional debt securities which generally
provide for periodic payment of interest in fixed or determinable amounts
(usually semi-annually) with principal payments at maturity or specified
call dates. Some mortgage-backed U.S. Government 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 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
Mortgage Corporation); and some are backed by only the credit of the
issuer itself (e.g., Federal National Mortgage Association). Those
guarantees do not extend to the value or yield of the mortgage-backed
securities themselves or to the net asset value of the Fund's shares.
Those government agencies may also issue derivative mortgage backed
securities such as collateralized mortgage obligations ("CMOs"), discussed
below.
The yield on mortgage-backed securities 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
affected 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 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 to the extent that the values of other debt
securities rise, 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 times when available
investments offer higher or lower 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 the
Fund 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 their 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.
GNMA Certificates. Certificates of Government National Mortgage
Association ("GNMA") are mortgage-backed securities of GNMA that evidence
an undivided interest in a pool or pools of mortgages ("GNMA
Certificates"). 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 when due.
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 PC 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.
Collateralized Mortgage-Backed Obligations ("CMOs"). CMOs are debt
obligations issued by special purpose entities that are secured by
mortgage-backed certificates, such as GNMA, FNMA and FHLMC. The issuer
of the CMO is either the U.S. Government, a U.S. Government
instrumentality, or a private issuer. Such obligations generally are
secured by an assignment to a trustee (under the indenture pursuant to
which the bonds are issued) of collateral consisting of a pool of
mortgages. Payments with respect to the underlying mortgages generally
are made to the trustee under the indenture. Payments of principal and
interest on the underlying mortgages are not passed through to the holders
of the CMOs as such (i.e., the character of payments of principal and
interest is not passed through, and therefore payments to holders of CMOs
attributable to interest paid and principal repaid on the underlying
mortgages do not necessarily constitute income and return of capital,
respectively, to such holders), but such payments are dedicated to payment
of interest on and repayment of principal of the CMOs. CMOs often are
issued in two or more classes with different characteristics such as
varying maturities and stated rates of interest. Because interest and
principal payments on the underlying mortgages are not passed through to
holders of CMOs, CMOs of varying maturities may be secured by the same
pool of mortgages, the payments on which are used to pay interest on each
class and to retire successive maturities in sequence. Unlike other
mortgage-backed securities (discussed above), CMOs are designed to be
retired as the underlying mortgages are repaid. In the event of
prepayment on such mortgages, the class of CMO first to mature generally
will be paid down. Therefore, although in most cases the issuer of CMOs
will not supply additional collateral in the event of such prepayment,
there will be sufficient collateral to secure CMOs that remain
outstanding.
Stripped Mortgage-Backed Securities. These are derivative multi-
class mortgage back securities, that are usually structured with two
classes that receive different proportions of the interest and principal
distributions on a pool of GNMA, FNMA or FHLMC certificates. Commonly,
one class receives some of the interest and most of the principal, while
the other class will receive most of the interest and the rest of the
principal. In some cases, one class will receive all of the interest
("interest-only" securities) and the other will receive all of the
principal. The yield on interest-only securities is extremely sensitive
to the rate of principal payments (including prepayments) on the
underlying pool, and a rapid rate of principal prepayments may have a
material adverse effect on the yield of the interest-only class. If the
underlying pool experiences greater than anticipated principal
prepayments, the Fund may fail to fully recoup its initial investment.
Mortgage-Backed Security Rolls. The Fund may enter into "forward
roll" transactions with respect to mortgage-backed securities issued by
GNMA, FNMA or FHLMC. In a forward roll transaction, which is considered
to be a borrowing by the Fund, the Fund will sell a mortgage security to
selected banks or other entities and simultaneously agree to repurchase
a similar security (same type, coupon and maturity) from the institution
at a specified later date at an agreed upon price. The mortgage
securities that are repurchased will bear the same interest rate as those
sold, but generally will be collateralized by different pools of mortgages
with different prepayment histories than those sold. Risks of mortgage-
backed security rolls include: (i) the risk of prepayment prior to
maturity, (ii) the possibility that the Fund may not be entitled to
receive interest and principal payments on the securities sold and that
the proceeds of the sale may have to be invested in money market
instruments (typically repurchase agreements) maturing not later than the
expiration of the roll, and (iii) the possibility that the market value
of the securities sold by the Fund may decline below the price at which
the Fund is obligated to purchase the securities. The Fund will enter
into only "covered" rolls. Upon entering into a mortgage-backed security
roll, the Fund will be required to place cash, U.S. Government Securities
or other high-grade debt securities in a segregated account with its
Custodian in an amount equal to its obligation under the roll.
Debt Securities of U.S. Companies. The Fund's investments in fixed-income
securities issued by domestic companies and other issuers may include debt
obligations (bonds, debentures, notes, mortgage-backed and asset-backed
securities and CMOs) together with preferred stocks.
The risks attendant to investing in high-yielding, lower-rated bonds
are described above. If a sinking fund or callable bond held by the Fund
is selling at a premium (or discount) and the issuer exercises the call
or makes a mandatory sinking fund payment, the Fund would realize a loss
(or gain) in market value; the income from the reinvestment of the
proceeds would be determined by current market conditions, and
reinvestment of that income may be at times when rates are generally lower
than those on the called bond.
Preferred Stocks. Preferred stock, unlike common stock, offers a
stated dividend rate payable from the corporation's earnings. Such
preferred stock dividends may be cumulative or non-cumulative,
participating, or auction rate. If interest rates rise, the fixed
dividend on preferred stocks may be less attractive, causing the price of
preferred stocks to decline. Preferred stock may have mandatory sinking
fund provisions, as well as call/redemption provisions prior to maturity,
a negative feature when interest rates decline. Dividends on some
preferred stock may be "cumulative," requiring all or a portion of prior
unpaid dividends to be paid. Preferred stock also generally has a
preference over common stock on the distribution of a corporation's assets
in the event of liquidation of the corporation, and may be
"participating," which means that it may be entitled to a dividend
exceeding the stated dividend in certain cases. The rights of preferred
stocks on distribution of a corporation's assets in the event of a
liquidation are generally subordinate to the rights associated with a
corporation's debt securities.
Participation Interests. The Fund may invest in participation
interests, subject to the limitation, described in "Illiquid and
Restricted Securities" in the Prospectus, on investments by the Fund in
illiquid investments. Participation interests represent an undivided
interest in or assignment of a loan made by the issuing financial
institution. No more than 5% of the Fund's net assets can be invested in
participation interests of the same issuing bank. The Fund may purchase
only those participation interests that mature in one year or less, or
that, if maturing in more than one year, have a floating rate that is
automatically adjusted at least once each year according to a specified
rate for such investments, such as a percentage of a bank's prime rate.
Participation interests are primarily dependent upon the financial
strength of the borrowing corporation, which is obligated to make payments
of principal and interest on the loan, and there is a risk that such
borrowers may have difficulty making payments. Such borrowers may have
senior securities rated as low as "C" by Moody's or "D" by Standard &
Poor's. In the event the borrower fails to pay scheduled interest or
principal payments, the Fund could 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 financial institution to perform its
obligation 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. The Manager has set certain
creditworthiness standards for issuers of loan participation and monitors
their creditworthiness. These same standards apply to participation
interests in loans to foreign companies.
Warrants and Rights. The Fund may, to the limited extent described
in the Prospectus, invest in warrants and rights. Warrants basically are
options to purchase equity securities at specific prices valid for a
specific period of time. Their prices do not necessarily move parallel
to the prices of the underlying securities. Rights are similar to
warrants but normally have a short duration and are distributed by the
issuer to its shareholders. Warrants and rights have no voting rights,
receive no dividends and have no rights with respect to the assets of the
issuer.
Asset-Backed Securities. These securities, issued by trusts and
special purpose corporations, are backed by pools of assets, primarily
automobile and credit-card receivables and home equity loans, which pass
through the payments on the underlying obligations to the security holders
(less servicing fees paid to the originator or fees for any credit
enhancement). The value of an asset-backed security is affected by
changes in the market's perception of the asset backing the security, 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 any credit enhancement has been
exhausted. Payments of principal and interest passed through to holders
of asset-backed securities are typically supported by some form of credit
enhancement, such as a letter of credit, surety bond, limited guarantee
by another entity or having a priority to certain of the borrower's other
securities. The degree of credit enhancement varies, and generally
applies to only a fraction of the asset-backed security's par value until
exhausted. 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
experience losses or delays in receiving payment. The risks of investing
in asset-backed securities are ultimately dependent upon payment of
consumer loans by the individual borrowers. As a purchaser of an asset-
backed security, 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 above for prepayments of a pool of mortgage loans
underlying mortgage-backed securities. However, asset-backed securities
do not have the benefit of the same security interest in the underlying
collateral as do mortgage backed securities.
Zero Coupon Securities. The Fund may invest in zero coupon
securities issued by corporations. Corporate zero coupon securities are:
(i) notes or debentures which do not pay current interest and are issued
at substantial discounts from par value, or (ii) notes or debentures that
pay no current interest until a stated date one or more years into the
future, after which the issuer is obligated to pay interest until
maturity, usually at a higher rate than if interest were payable from the
date of issuance. Such corporate zero coupon securities, in addition to
the risks identified above under "U.S. Government Securities - Zero Coupon
Securities," are subject to the risk of the issuer's failure to pay
interest and repay principal in accordance with the terms of the
obligation.
Mortgage-Backed Securities. Mortgage-backed securities may also be
issued by private issuers such as commercial banks, savings and loan
associations, mortgage insurance companies and other secondary market
issuers that create pass-through pools of conventional residential
mortgage loans. They may be the originators of the underlying loans as
well as the guarantors of the mortgage-backed securities. There are no
direct or indirect government guarantees of payments on these pools.
However, timely payment of interest and principal of these pools is
generally supported by various forms of insurance or guarantees. The
insurance and guarantees are issued by government entities, private
insurers and the mortgage pollers. The insurance available, the
guarantees, and the creditworthiness of the issuers will be evaluated by
the Manager to determine whether a particular mortgage-backed security of
this type meets the Fund's investment standards. There can be no
assurance that the private insurers can meet their obligations under the
policies. Securities issued by certain private poolers may not be readily
marketable, and would be treated as illiquid securities subject to the
Fund's limitations on investments in such securities.
Temporary Defensive Investments. In times of unstable or uncertain
economic or market conditions, when the Manager determines it appropriate
to do so, the Fund may assume a temporary defensive position and invest
an unlimited amount of its assets in U.S. dollar-denominated debt
obligations issued by the U.S. or foreign governments and domestic or
foreign corporations or banks maturing in one year or less ("money market
securities"). The Fund will purchase money market securities to maintain
liquidity deemed necessary by the Manager for investment purposes, and to
minimize the impact of fluctuating interest rates on the net asset value
of the Fund. To the extent the Fund is so invested, it is not invested
to achieve its investment objective of seeking a high level of current
income.
The Fund may invest in the following types of money market
securities:
U.S. Government Securities. Obligations issued or guaranteed by the
U.S. Government or its agencies or instrumentalities.
Bank Obligations. Certificates of deposit, bankers' acceptances,
time deposits, and letters of credit if they are payable in the
United States or London, England, and are issued or guaranteed by a
domestic or foreign bank having total assets in excess of $1 billion.
Commercial Paper. Obligations rated at least "A-3" by Standard &
Poor's or at least "Prime-3" by Moody's or, if not rated, issued by
a corporation having an existing debt security rated at least "BBB"
or "Baa" by Standard & Poor's or Moody's, respectively. The Fund's
commercial paper investments may include variable amount master
demand notes and floating rate or variable rate notes.
Corporate Obligations. Corporate debt obligations (including master
demand notes but not including commercial paper) if they are issued
by domestic corporations and are rated at least "BBB" or "Baa" by
Standard & Poor's or Moody's, respectively, or unrated securities
which are of comparable quality in the opinion of the Manager.
Other Obligations. Obligations of the type listed in the four
preceding paragraphs, but not satisfying the standards set forth
therein, if they are (a) subject to repurchase agreements or (b)
guaranteed as to principal and interest by a domestic or foreign bank
having total assets in excess of $1 billion, by a corporation whose
commercial paper may be purchased by the Fund, or by a foreign
government having an existing debt security rated at least "BBB" or
"Baa."
Board-Approved Instruments. Other short-term investments of a type
which the Fund's Board of Trustees determines presents minimal credit
risks and which are of "high quality" as determined by any major
rating service or, in the case of an instrument that is not rated,
of comparable quality as determined by the Board.
OTHER INVESTMENT TECHNIQUES AND STRATEGIES
Repurchase Agreements. The Fund may acquire securities that are subject
to repurchase agreements, in order to generate income while providing
liquidity. In a repurchase transaction, the Fund acquires a security
from, and simultaneously resells it to, an approved vendor (a U.S.
commercial bank, U.S. branch of a foreign bank or a broker-dealer which
has been designated a primary dealer in government securities, which must
meet the credit requirements set by the Fund's Board of Trustees from time
to time), for delivery on an agreed upon future date. The sale price
exceeds the purchase price by an amount that reflects an agreed-upon
interest rate effective for the period during which the repurchase
agreement is in effect. The majority of these transactions run from day
to day, and delivery pursuant to resale typically will occur within one
to five days of the purchase. Repurchase agreements are considered
"loans" under the Investment Company Act, collateralized by the underlying
security. The Fund's repurchase agreements will require that at all times
while the repurchase agreement is in effect, the collateral's value must
equal or exceed the repurchase price to collateralize the loan fully.
Additionally, the Manager will impose creditworthiness requirements to
confirm that the vendor is financially sound and will continuously monitor
the collateral's value. If the vendor of a repurchase agreement fails to
pay the agreed-upon resale price on the delivery date, the Fund's risks
in such event may include any costs of disposing of the collateral, and
any loss from any delay in foreclosing on the collateral.
Illiquid and Restricted Securities. The Fund will not purchase or
otherwise acquire any security if, as a result, more than 10% of its net
assets (taken at current value) would be invested in securities that are
illiquid by virtue of the absence of a readily available market or because
of legal or contractual restrictions on resale ("restricted securities").
As noted in the prospectus, that amount may, in the future, increase to
15%. This policy applies to participation interests, bank time deposits,
master demand notes, repurchase transactions having a maturity beyond
seven days, over-the-counter options held by the Fund and that portion of
assets used to cover such options. This policy is not a fundamental
policy and does not limit purchases of restricted securities eligible for
resale to qualified institutional purchasers pursuant to Rule 144A under
the Securities Act of 1933 that are determined to be liquid by the Board
of Trustees or by the Manager under Board-approved guidelines. Such
guidelines take into account trading activity for such securities and the
availability of reliable pricing information, among other factors. If
there is a lack of trading interest in particular Rule 144A securities,
the Fund's holdings of those securities may be illiquid. There may be
undesirable delays in selling illiquid securities at prices representing
their fair value. The expenses of registration of restricted securities
that are subject to legal restrictions on resale (excluding securities
that may be resold by the Fund pursuant to Rule 144A, as explained in the
Prospectus) may be negotiated at the time such securities are purchased
by the Fund. When registration is required, a considerable period may
elapse between a decision to sell the securities and the time the Fund
would be permitted to sell them. Thus, the Fund might not be able to
obtain as favorable a price as that prevailing at the time of the decision
to sell. The Fund also may acquire, through private placements,
securities having contractual resale restrictions, which might lower the
amount realizable upon the sale of such securities.
Loans of Portfolio Securities. The Fund may lend its portfolio securities
(other than in repurchase transactions) to brokers, dealers and other
financial institutions meeting certain credit standards if the loan is
collateralized in accordance with applicable regulatory requirements, and
if, after any loan, the value of securities loaned does not exceed 25% of
the value of the Fund's total assets. Under applicable regulatory
requirements (which are subject to change), the loan collateral must, on
each business day, at least equal the market value of the loaned
securities and must consist of cash, bank letters of credit, U.S.
Government Securities, or other cash equivalents in which the Fund is
permitted to invest. To be acceptable as collateral, letters of credit
must obligate a bank to pay amounts demanded by the Fund if the demand
meets the terms of the letter. Such terms and the issuing bank must be
satisfactory to the Fund. In a portfolio securities lending transaction,
the Fund receives from the borrower an amount equal to the interest paid
or the dividends declared on the loaned securities during the term of the
loan as well as the interest on the collateral securities, less any
finders' or administrative fees the Fund pays in arranging the loan. The
Fund may share the interest it receives on the collateral securities with
the borrower as long as it realizes at least a minimum amount of interest
required by the lending guidelines established by its Board of Trustees.
In connection with securities lending, the Fund might experience risks of
delay in receiving additional collateral, or risks of delay in recovery
of the securities, or loss of rights in the collateral should the borrower
fail financially. The Fund will not lend its portfolio securities to any
officer, trustee, employee or affiliate of the Fund or its Manager. The
terms of the Fund's loans must meet certain tests under the Internal
Revenue Code and permit the Fund to reacquire loaned securities on five
business days' notice or in time to vote on any important matter.
Borrowing for Leverage. From time to time, the Fund may increase its
ownership of securities by borrowing from banks on a unsecured basis and
investing the borrowed funds, subject to the restrictions stated in the
Prospectus. Any such borrowing will be made only from banks, and pursuant
to the requirements of the Investment Company Act, will be made only to
the extent that the value of the Fund's assets, less its liabilities other
than borrowings, is equal to at least 300% of all borrowings including the
proposed borrowing and amounts covering the Fund's obligations under
"forward roll" transactions. If the value of the Fund's assets so computed
should fail to meet the 300% asset coverage requirement, the Fund is
required within three days to reduce its bank debt to the extent necessary
to meet such requirement and may have to sell a portion of its investments
at a time when independent investment judgment would not dictate such
sale. Borrowing for investment increases both investment opportunity and
risk. Since substantially all of the Fund's assets fluctuate in value,
but borrowing obligations are fixed, when the Fund has outstanding
borrowings, the net asset value per share of the Fund correspondingly will
tend to increase and decrease more when portfolio assets fluctuate in
value than otherwise would be the case.
"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.
Floating Rate/Variable Rate Obligations.
Floating rate and variable rate demand notes are debt obligations
that may have a stated maturity in excess of one year, but may include
features that permit the holder to recover the principal amount of the
underlying security at specified intervals not exceeding one year and upon
no more than 30 days' notice. The issuer of such notes normally has a
corresponding right, after a given period, in its discretion to prepay the
outstanding principal amount of the note plus accrued interest upon a
specified number of days' notice to the holder. The interest rate on a
floating rate demand note is based on a stated prevailing market rate,
such as a bank's prime rate, the 90-day U.S. Treasury Bill rate, or some
other standard, and is adjusted automatically each time such rate is
adjusted. The interest rate on a variable rate demand note is also based
on a stated prevailing market rate but is adjusted automatically at
specified intervals of no less than one year. Generally, the changes in
the interest rate on such securities reduce the fluctuation in their
market value. As interest rates decrease or increase, the potential for
capital appreciation or depreciation on these securities is less than that
for fixed-rate obligations of the same maturity. The Manager may
determine that an unrated floating rate or variable rate demand obligation
meets the Fund's quality standards by reason of being backed by a letter
of credit or guarantee issued by a bank that meets the Fund's quality
standards. Floating rate or variable rate obligations that do not provide
for recovery of principal and interest within seven days will be subject
to the limitations applicable to illiquid securities described in
"Illiquid and Restricted Securities." There is otherwise no limit on the
amount of the Fund's assets that may be invested in floating rate and
variable rate obligations.
Writing Covered Calls. The Fund may write (i.e. sell) call options
("calls") on debt securities that are traded on U.S. and foreign
securities exchanges and over-the-counter markets, to enhance income
through the receipt of premiums from expired calls and any net profits
from closing purchase transactions. After any such sale up to 100% of the
Fund's total assets may be subject to calls. All such calls written by
the Fund must be "covered" while the call is outstanding (i.e. the Fund
must own the securities subject to the call or other securities acceptable
for applicable escrow requirements). Calls on Futures (discussed below)
must be covered by deliverable securities or by liquid assets segregated
to satisfy the Futures contract. When the Fund writes a call on a
security it receives a premium and agrees to sell the callable investment
to a purchaser of a corresponding call on the same security during the
call period (usually not more than 9 months) at a fixed exercise price
(which may differ from the market price of the underlying security),
regardless of market price changes during the call period. The Fund has
retained the risk of loss should the price of the underlying security
decline during the call period, which may be offset to some extent by the
premium.
To terminate its obligation on a call it has written, the Fund may
purchase a corresponding call in a "closing purchase transaction." A
profit or loss will be realized, depending upon whether the net of the
amount of the option transaction costs and the premium received on the
call written was more or less than the price of the call subsequently
purchased. A profit may also be realized if the call lapses unexercised,
because the Fund retains the underlying investment and the premium
received. Any such profits are considered short-term capital gains for
Federal income tax purposes, and when distributed by the Fund are taxable
as ordinary income. If the Fund could not effect a closing purchase
transaction due to lack of a market, it would have to hold the callable
investments until the call lapsed or was exercised.
The Fund may also write calls on Futures without owning a futures
contract or a deliverable bond, provided that at the time the call is
written, the Fund covers the call by segregating in escrow an equivalent
dollar amount of liquid assets. The Fund will segregate additional liquid
assets if the value of the escrowed assets drops below 100% of the current
value of the Future. In no circumstances would an exercise notice require
the Fund to deliver a futures contract; it would simply put the Fund in
a short futures position, which is permitted by the Fund's hedging
policies.
Hedging with Options and Futures Contracts. As described in the
Prospectus, the Fund may employ one or more types of Hedging Instruments
for temporary defensive purposes. The Fund's strategy of hedging with
Futures and options on Futures will be incidental to the Fund's activities
in the underlying cash market. Puts may also be written on debt
securities to attempt to increase the Fund's income. For hedging
purposes, the Fund may use Interest Rate Futures; Financial Futures
(together with Interest Rate Futures, "Futures"); Forward Contracts
(defined below); and call and put options on debt securities, Futures,
bond indices and foreign currencies (all of the foregoing are referred to
as "Hedging Instruments"). Hedging Instruments may be used to attempt to:
(i) protect against possible declines in the market value of the Fund's
portfolio resulting from downward trends in the debt securities markets
(generally due to a rise in interest rates), (ii) protect unrealized gains
in the value of the Fund's debt securities which have appreciated, (iii)
facilitate selling debt securities for investment reasons, (iv) establish
a position in the debt securities markets as a temporary substitute for
purchasing particular debt securities, or (v) reduce the risk of adverse
currency fluctuations. A call or put may be purchased only if, after such
purchase, the value of all call and put options held by the Fund would not
exceed 5% of the Fund's total assets. The Fund will not use Futures and
options on Futures for speculation. The Hedging Instruments the Fund may
use are described below.
When hedging to attempt to protect against declines in the market
value of the Fund's portfolio, to permit the Fund to retain unrealized
gains in the value of portfolio securities which have appreciated, or to
facilitate selling securities for investment reasons, the Fund may: (i)
sell Futures, (ii) purchase puts on such Futures or securities, or (iii)
write calls on securities held by it or on Futures. When hedging to
attempt to protect against the possibility that portfolio securities are
not fully included in a rise in value of the debt securities market, the
Fund may: (i) purchase Futures, or (ii) purchase calls on such Futures or
on securities. Covered calls and puts may also be written on debt
securities to attempt to increase the Fund's income. 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 and on foreign currency Futures, (b) write calls on that currency
or on such Futures, or (c) enter into Forward Contracts at a lower rate
than the spot ("cash") rate.
The Fund's strategy of hedging with Futures and options on Futures
will be incidental to the Fund's activities in the underlying cash market.
Additional Information about the Hedging Instruments the Fund may use is
provided below. At present, the Fund does not intend to enter into
Futures, Forward Contracts and options on Futures if, after any such
purchase, the sum of margin deposits on Futures and premiums paid on
Futures options exceeds 5% of the value of the Fund's total assets. In
the future, the Fund may employ Hedging Instruments and strategies that
are not presently contemplated but which may be developed, to the extent
such investment methods are consistent with the Fund's investment
objective, legally permissible and adequately disclosed.
Writing Put Options. The Fund may write put options on debt
securities or Futures but only if such puts are covered by segregated
liquid assets. The Fund will not write puts if, as a result, more than
50% of the Fund's net assets would be required to be segregated to cover
such put obligations. In writing puts, there is the risk that the Fund
may be required to buy the underlying security at a disadvantageous price.
A put option on securities gives the purchaser the right to sell, and the
writer the obligation to buy, the underlying investment at the exercise
price during the option period. Writing a put covered by segregated
liquid assets equal to the exercise price of the put has the same economic
effect to the Fund as writing a covered call. The premium the Fund
receives from writing a put option represents a profit, as long as the
price of the underlying investment remains above the exercise price.
However, the Fund has also assumed the obligation during the option period
to buy the underlying investment from the buyer of the put at the exercise
price, even though the value of the investment may fall below the exercise
price. If the put lapses unexercised, the Fund (as the writer of the put)
realizes a gain in the amount of the premium. If the put is exercised,
the Fund must fulfill its obligation to purchase the underlying investment
at the exercise price, which will usually exceed the market value of the
investment at that time. In that case, the Fund may incur a loss, equal
to the sum of the current market value of the underlying investment and
the premium received minus the sum of the exercise price and any
transaction costs incurred.
When writing put options on securities, to secure its obligation to
pay for the underlying security, the Fund will deposit in escrow liquid
assets with a value equal to or greater than the exercise price of the put
option. The Fund therefore forgoes the opportunity of investing the
segregated assets or writing calls against those assets. As long as the
obligation of the Fund as the put writer continues, it may be assigned an
exercise notice by the broker-dealer through whom such option was sold,
requiring the Fund to take delivery of the underlying security against
payment of the exercise price. The Fund has no control over when it may
be required to purchase the underlying security, since it may be assigned
an exercise notice at any time prior to the termination of its obligation
as the writer of the put. This obligation terminates upon expiration of
the put, or such earlier time at which the Fund effects a closing purchase
transaction by purchasing a put of the same series as that previously
sold. Once the Fund has been assigned an exercise notice, it is
thereafter not allowed to effect a closing purchase transaction.
The Fund may effect a closing purchase transaction to realize a
profit on an outstanding put option it has written or to prevent an
underlying security from being put. Furthermore, effecting such a closing
purchase transaction will permit the Fund to write another put option to
the extent that the exercise price thereof is secured by the deposited
assets, or to utilize the proceeds from the sale of such assets for other
investments by the Fund. The Fund will realize a profit or loss from a
closing purchase transaction if the cost of the transaction is less or
more than the premium received from writing the option. As above for
writing covered calls, any and all such profits described herein from
writing puts are considered short-term gains for Federal tax purposes, and
when distributed by the Fund, are taxable as ordinary income.
Purchasing Calls and Puts. The Fund may purchase calls on debt
securities or on Futures that are traded on U.S. and foreign securities
exchanges and the U.S. over-the-counter markets, in order to protect
against the possibility that the Fund's portfolio will not fully
participate in an anticipated rise in value of the long-term debt
securities market. The value of debt securities underlying calls
purchased by the Fund will not exceed the value of the portion of the
Fund's portfolio invested in cash or cash equivalents (i.e. securities
with maturities of less than one year). When the Fund purchases a call
(other than in a closing purchase transaction), it pays a premium and,
except as to calls on indices or Futures, has the right to buy the
underlying investment from a seller of a corresponding call on the same
investment during the call period at a fixed exercise price. When the
Fund purchases a call on an index or Future, it pays a premium, but
settlement is in cash rather than by delivery of the underlying investment
to the Fund. In purchasing a call, the Fund benefits only if the call is
sold at a profit or if, during the call period, the market price of the
underlying investment is above the sum of the call price plus the
transaction costs and the premium paid and the call is exercised. If the
call is not exercised or sold (whether or not at a profit), it will become
worthless at its expiration date and the Fund will lose its premium
payment and the right to purchase the underlying investment.
The Fund may purchase put options ("puts") which relate to debt
securities (whether or not it holds such securities in its portfolio) or
Futures. When the Fund purchases a put, it pays a premium and, except as
to puts on indices, has the right to sell the underlying investment to a
seller of a corresponding put on the same investment during the put period
at a fixed exercise price. Buying a put on an investment the Fund owns
enables the Fund to protect itself during the put period against a decline
in the value of the underlying investment below the exercise price by
selling such underlying investment at the exercise price to a seller of
a corresponding put. If the market price of the underlying investment is
equal to or above the exercise price and as a result the put is not
exercised or resold, the put will become worthless at its expiration date,
and the Fund will lose its premium payment and the right to sell the
underlying investment. The put may, however, be sold prior to expiration
(whether or not at a profit.)
Buying a put on an investment it does not own, either a put on an
index or a put on a Future not held by the Fund, permits the Fund either
to resell the put or buy the underlying investment and sell it at the
exercise price. The resale price of the put will vary inversely with the
price of the underlying investment. If the market price of the underlying
investment is above the exercise price and as a result the put is not
exercised, the put will become worthless on its expiration date. In the
event of a decline in the stock market, the Fund could exercise or sell
the put at a profit to attempt to offset some or all of its loss on its
portfolio securities. When the Fund purchases a put on an index, or on
a Future not held by it, the put protects the Fund to the extent that the
index moves in a similar pattern to the securities held. In the case of
a put on an index or Future, settlement is in cash rather than by delivery
by the Fund of the underlying investment.
Puts and calls on broadly-based indices or Futures are similar to
puts and calls on securities or futures contracts except that all
settlements are in cash and gain or loss depends on changes in the index
in question (and thus on price movements in the stock market generally)
rather than on price movements in individual securities or futures
contracts. When the Fund buys a call on an index or 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 index and the exercise price of the call times a specified
multiple (the "multiplier") which determines the total dollar value for
each point of difference. When the Fund buys a put on an index or Future,
it pays a premium and has the right during the put period to require a
seller of a corresponding put, upon the Fund's exercise of its put, to
deliver to the Fund an amount of cash to settle the put if the closing
level of the index or Future upon which the put is based is less than the
exercise price of the put. That cash payment is determined by the
multiplier, in the same manner as described above as to calls.
An option position may be closed out only on a market which provides
secondary trading for options of the same series and there is no assurance
that a liquid secondary market will exist for any particular option. The
Fund's option activities may affect its turnover rate and brokerage
commissions. The exercise by the Fund of puts on securities will cause
the sale of related investments, increasing portfolio turnover. Although
such exercise is within the Fund's control, holding a put might cause the
Fund to sell the related investments for reasons which would not exist in
the absence of the put. The Fund will pay a brokerage commission each
time it buys a put or call, sells a call, or buys or sells an underlying
investment in connection with the exercise of a put or call. Such
commissions may be higher than those which would apply to direct purchases
or sales of such underlying investments. Premiums paid for options are
small in relation to the market value of the related investments, and
consequently, put and call options offer large amounts of leverage. The
leverage offered by trading in options could result in the Fund's net
asset value being more sensitive to changes in the value of the underlying
investments.
Options on Foreign Currencies. The Fund intends to write and
purchase calls on foreign currencies. The Fund may purchase and write
puts and calls on foreign currencies that are traded on a securities or
commodities exchange or quoted by major recognized dealers in such
options, for the purpose of protecting against declines in the dollar
value of foreign securities and against increases in the dollar cost of
foreign securities to be acquired. If a rise is anticipated in the dollar
value of a foreign currency in which securities to be acquired are
denominated, the increased cost of such securities may be partially offset
by purchasing calls or writing puts on that foreign currency. If a
decline in the dollar value of a foreign currency is anticipated, the
decline in value of portfolio securities denominated in that currency may
be partially offset by writing calls or purchasing puts on that foreign
currency. However, in the event of currency rate fluctuations adverse to
the Fund's position, it would lose the premium it paid and transactions
costs. 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 may be written by
the Fund on a foreign currency to provide a hedge against a decline due
to an expected adverse change in the exchange rate 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. This is a
cross-hedging strategy. In such circumstances, the Fund collateralizes
the option by maintaining in a segregated account with the Fund's
custodian, cash or U.S. Government Securities in an amount not less than
the value of the underlying foreign currency in U.S. dollars marked-to-
market daily.
Interest Rate Futures. The Fund may buy and sell Futures. No price
is paid or received upon the purchase or sale of an Interest Rate Future
or a foreign currency exchange contract ("Forward Contract"), discussed
below. An Interest Rate Future obligates the seller to deliver and the
purchaser to take a specific type of debt security at a specific future
date for a fixed price. That obligation may be satisfied by actual
delivery of the debt security or by entering into an offsetting contract.
A securities index assigns relative values to the securities included in
that index and is used as a basis for trading long-term Financial Futures
contracts. Financial Futures reflect the price movements of securities
included in the index. They differ from Interest Rate Futures in that
settlement is made in cash rather than by delivery of the underlying
investment.
Upon entering into a Futures transaction, the Fund will be required
to deposit an initial margin payment in cash or U.S. Treasury bills with
the futures commission merchant (the "futures broker"). The initial
margin will be deposited with the Fund's Custodian in an account
registered in the futures broker's name; however the futures broker can
gain access to that account only under specified conditions. As the
Future is marked to market to reflect changes in its market value,
subsequent margin payments, called variation margin, will be made to or
by the futures broker on a daily basis. Prior to expiration of the
Future, if the Fund elects to close out its position by taking an opposite
position, a final determination of variation margin is made, additional
cash is required to be paid by or released to the Fund, and any loss or
gain is realized for tax purposes. Although Interest Rate Futures by
their terms call for settlement by delivery or acquisition of debt
securities, in most cases the obligation is fulfilled by entering into an
offsetting position. All futures transactions are effected through a
clearinghouse associated with the exchange on which the contracts are
traded.
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. 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.
The Fund will not speculate in foreign currency exchange. 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 entered into with respect to position
hedges and cross hedges. 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.
Financial Futures. 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.
Interest Rate Swap Transactions. Swap agreements entail both
interest rate risk and credit risk. There is a risk that, based on
movements of interest rates in the future, the payments made by the Fund
under a swap agreement will have been greater than those received by it.
Credit risk arises from the possibility that the counterparty will
default. If the counterparty to an interest rate swap defaults, the
Fund's loss will consist of the net amount of contractual interest
payments that the Fund has not yet received. The Manager will monitor the
creditworthiness of counterparties to the Fund's interest rate swap
transactions on an ongoing basis. The Fund will enter into swap
transactions with appropriate counterparties pursuant to master netting
agreements. A master netting agreement provides that all swaps done
between the Fund and that counterparty under that master agreement shall
be regarded as parts of an integral agreement. If on any date amounts are
payable in the same currency in respect of one or more swap transactions,
the net amount payable on that date in that currency shall be paid. In
addition, the master netting agreement may provide that if one party
defaults generally or on one swap, the counterparty may terminate the
swaps with that party. Under such agreements, if there is a default
resulting in a loss to one party, the measure of that party's damages is
calculated by reference to the average cost of a replacement swap with
respect to each swap (i.e., the mark-to-market value at the time of the
termination of each swap). The gains and losses on all swaps are then
netted, and the result is the counterparty's gain or loss on termination.
The termination of all swaps and the netting of gains and losses on
termination is generally referred to as "aggregation".
Additional Information About Hedging Instruments and Their Use. The
Fund's Custodian, or a securities depository acting for the Custodian,
will act as the Fund's escrow agent, through the facilities of the Options
Clearing Corporation ("OCC"), as to the investments on which the Fund has
written options traded on exchanges or as to other acceptable escrow
securities, so that no margin will be required for such transactions. OCC
will release the securities on the expiration of the option or upon the
Fund's entering into a closing transaction. An option position may be
closed out only on a market which provides secondary trading for options
of the same series, and there is no assurance that a liquid secondary
market will exist for any particular option.
When the Fund writes an over-the-counter ("OTC") option, it will
enter into an arrangement with a primary U.S. Government securities
dealer, which would establish a formula price at which the Fund would have
the absolute right to repurchase that OTC option. That formula price
would generally be based on a multiple of the premium received for the
option, plus the amount by which the option is exercisable below the
market price of the underlying security (that is, the extent to which the
option "is in-the-money"). When the Fund writes an OTC option, it will
treat as illiquid (for purposes of the limit on its assets that may be
invested in illiquid securities, stated in the Prospectus) the mark-to-
market value of any OTC option held by it. The Securities and Exchange
Commission ("SEC") is evaluating whether OTC options should be considered
liquid securities, and the procedure described above could be affected by
the outcome of that evaluation.
Regulatory Aspects of Hedging Instruments. The Fund must operate
within certain restrictions as to its long and short positions in Futures
and options thereon under a rule (the "CFTC Rule") adopted by the
Commodity Futures Trading Commission (the "CFTC") under the Commodity
Exchange Act (the "CEA"), which exempts the Fund from registration with
the CFTC as a "commodity pool operator" (as defined in the CEA) if it
complies with the CFTC Rule. Under these restrictions the Fund will not,
as to any positions, whether short, long or a combination thereof, enter
into Futures and options thereon for which the aggregate initial margins
and premiums exceed 5% of the fair market value of its total assets, with
certain exclusions as defined in the CFTC Rule. Under the restrictions,
the Fund also must, as to its short positions, use Futures and options
thereon solely for bona-fide hedging purposes within the meaning and
intent of the applicable provisions under the CEA.
Transactions in options by the Fund are subject to limitations
established by each of the exchanges governing the maximum number of
options which may be written or held by a single investor or group of
investors acting in concert, regardless of whether the options were
written or purchased on the same or different exchanges or are held in one
or more accounts or through one or more exchanges or brokers. Thus, the
number of options which the Fund may write or hold may be affected by
options written or held by other entities, including other investment
companies having the same or an affiliated investment adviser. Position
limits also apply to Futures. An exchange may order the liquidation of
positions found to be in violation of those limits and may impose certain
other sanctions. 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 bank, cash or readily-marketable,
short-term (maturing in one year or less) debt instruments in an amount
equal to the market value of the securities underlying such Future, less
the margin deposit applicable to it.
Tax Aspects of Covered Calls and Hedging Instruments. The Fund
intends to qualify as a "regulated investment company" under the Internal
Revenue Code. One of the tests for such qualification is that less than
30% of its gross income (irrespective of losses) must be derived from
gains realized on the sale of securities held for less than three months.
Due to this limitation, the Fund will limit the extent to which it engages
in the following activities, but will not be precluded from them: (i)
selling investments, including Futures, held for less than three months,
whether or not they were purchased on the exercise of a call held by the
Fund; (ii) purchasing calls or puts which expire in less than three
months; (iii) effecting closing transactions with respect to calls or puts
purchased less than three months previously; (iv) exercising puts or calls
held by the Fund for less than three months; and (v) writing calls on
investments held for 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.
Possible Risk Factors in Hedging. In addition to the risks with
respect to options discussed in the Prospectus and above, there is a risk
in using short hedging by selling Futures to attempt to protect against
decline in value of the Fund's portfolio securities (due to an increase
in interest rates) that the prices of such Futures will correlate
imperfectly with the behavior of the cash (i.e., market value) prices of
the Fund's securities. The ordinary spreads between prices in the cash
and futures markets are subject to distortions due to differences in the
natures of those markets. First, all participants in the futures markets
are subject to margin deposit and maintenance requirements. Rather than
meeting additional margin deposit requirements, investors may close out
futures contracts through offsetting transactions which could distort the
normal relationship between the cash and futures markets. Second, the
liquidity of the futures markets depend on participants entering into
offsetting transactions rather than making or taking delivery. To the
extent participants decide to make or take delivery, liquidity in the
futures markets could be reduced, thus producing distortion. Third, from
the point of view of speculators, the deposit requirements in the futures
markets are less onerous than margin requirements in the securities
markets. Therefore, increased participation by speculators in the futures
markets may cause temporary price distortions.
If the Fund uses Hedging Instruments to establish a position in the
debt securities markets as a temporary substitute for the purchase of
individual debt securities (long hedging) by buying Futures and/or calls
on such Futures or on debt securities, it is possible that the market may
decline; if the Fund then concludes not to invest in such securities at
that time because of concerns as to possible further market decline or for
other reasons, the Fund will realize a loss on the Hedging Instruments
that is not offset by a reduction in the price of the debt securities
purchased.
ADDITIONAL INVESTMENT RESTRICTIONS
The most significant investment restrictions that apply to the Fund
are described in the Prospectus. There are additional investment
restrictions that the Fund must follow that are fundamental policies of
the Fund. Fundamental policies and the Fund's investment objective,
described in the Prospectus, cannot be changed without the vote of a
"majority" of the Fund's outstanding voting securities. Under the
Investment Company Act, such a "majority" vote is defined as the vote of
the holders of the lesser of (i) 67% or more of the shares present or
represented by proxy at such meeting, if the holders of more than 50% of
the outstanding shares are present, or (ii) more than 50% of the
outstanding shares.
Under these additional restrictions, the Fund cannot: (1) buy or
sell real estate, or commodities or commodity contracts; however, 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, and the Fund may buy and sell
Hedging Instruments; (2) buy securities on margin, except that the Fund
may make margin deposits in connection with any of the Hedging Instruments
which it may use; (3) underwrite securities issued by other persons except
to the extent that, in connection with the disposition of its portfolio
investments, it may be deemed to be an underwriter for purposes of the
Securities Act of 1933; (4) buy and retain securities of any issuer if
those officers, Trustees or Directors of the Fund or the Manager who
beneficially own more than .5% of the securities of such issuer together
own more than 5% of the securities of such issuer; (5) invest in oil, gas,
or other mineral exploration or development programs; (6) buy the
securities of any company for the purpose of exercising management
control; (7) make loans, except by purchasing debt obligations in
accordance with its investment objectives and policies, or by entering
into repurchase agreements, or as described in "Loans of Portfolio
Securities"; (8) buy securities of an issuer which, together with any
predecessor, has been in operation for less than three years, if as a
result, the aggregate of such investments would exceed 5% of the value of
the Fund's total assets; or (9) make short sales of securities or maintain
a short position, unless at all times when a short position is open it
owns an equal amount of such securities or by virtue of ownership of other
securities has the right, without payment of any further consideration,
to obtain an equal amount of securities sold short ("short sales against-
the-box"); short sales against-the-box may be made to defer realization
of gain or loss for Federal income tax purposes.
TRUSTEES AND OFFICERS OF THE FUND
The Fund's Trustees and officers and their principal occupations and
business affiliations during the past five years are listed below. All
of the Trustees are also trustees, directors or managing general partners
of Oppenheimer Total Return Fund, Inc., Oppenheimer Equity Income Fund,
Oppenheimer High Yield Fund, Oppenheimer Cash Reserves, Oppenheimer Tax-
Exempt Cash Reserves, Tax-Exempt Bond Fund, Oppenheimer Government
Securities Fund, The New York Tax-Exempt Income Fund, Inc., Centennial
America Fund, L.P., Oppenheimer Champion High Yield Fund, Oppenheimer Main
Street Funds, Inc., Oppenheimer Strategic Income & Growth Fund,
Oppenheimer Strategic Investment Grade Bond Fund, Oppenheimer Strategic
Short-Term Income Fund, Oppenheimer Variable Account Funds, and
Oppenheimer Integrity Funds; as well as the following "Centennial Funds":
Daily Cash Accumulation Fund, Inc., Centennial Money Market Trust,
Centennial Government Trust, Centennial New York Tax Exempt Trust,
Centennial Tax Exempt Trust and Centennial California Tax Exempt Trust,
(all of the foregoing funds are collectively referred to as the "Denver
OppenheimerFunds"). All of the Fund's officers except Messrs. Steinmetz
and Negri are officers of the Denver OppenheimerFunds. Mr. Fossel is
President and Mr. Swain is Chairman of the Denver OppenheimerFunds. As
of December 31, 1993, the Trustees and officers of the Fund as a group
owned less than 1% of the Fund's outstanding shares.
ROBERT G. AVIS, Trustee*
One North Jefferson Ave., St. Louis, Missouri 63103
Vice Chairman of A.G. Edwards & Sons, Inc. (a broker-dealer) and A.G.
Edwards, Inc. (its parent holding company); Chairman of A.G.E. Asset
Management and A.G. Edwards Trust Company (its affiliated investment
adviser and trust company, respectively).
WILLIAM A. BAKER, Trustee
197 Desert Lakes Drive, Palm Springs, California 92264
Management Consultant.
CHARLES CONRAD, JR., Trustee
5301 Bolsa Avenue, Huntington Beach, California 92647
Vice President of McDonnell Douglas Ltd.; formerly associated with the
National Aeronautics and Space Administration.
JON S. FOSSEL, President and Trustee*
Two World Trade Center, New York, New York 10048-0203
Chairman, Chief Executive Officer and a director of the Manager; President
and 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
44 Portland Drive, St. Louis, Missouri 63131
Formerly Vice Chairman and a director of A.G. Edwards, Inc., parent
holding company of A.G. Edwards & Sons, Inc. (a broker-dealer), of which
he was a Senior Vice President.
C. HOWARD KAST, Trustee
2552 East Alameda, Denver, Colorado 80209
Formerly the Managing Partner of Deloitte, Haskins & Sells (an accounting
firm).
ROBERT M. KIRCHNER, Trustee
7500 E. Arapahoe Road, Englewood, Colorado 80112
President of The Kirchner Company (management consultants).
NED M. STEEL, Trustee
3416 S. Race Street, Englewood, Colorado 80110
Chartered Property and Casualty Underwriter; formerly Senior Vice
President and a director of Van Gilder Insurance Corp. (insurance
brokers).
JAMES C. SWAIN, Chairman and Trustee*
3410 South Galena Street, Denver, Colorado 80231
Vice Chairman of the Manager; President and Director of Centennial Asset
Management Corporation, an investment adviser subsidiary of the Manager
("Centennial"); formerly President and Director of Oppenheimer Asset
Management Corporation ("OAMC"), an investment adviser which was a
subsidiary of the Manager, and Chairman of the Board of SSI.
ANDREW J. DONOHUE, Vice President
Executive Vice President and General Counsel of Oppenheimer Management
Corporation ("OMC") (the "Manager") and Oppenheimer Funds Distributor,
Inc. (the "Distributor"); an officer of other OppenheimerFunds; formerly
Senior Vice President and Associate General Counsel of the Manager and the
Distributor; Partner in, Kraft & McManimon (a law firm); an officer of
First Investors Corporation (a broker-dealer) and First Investors
Management Company, Inc. (broker-dealer and investment adviser); director
and an officer of First Investors Family of Funds and First Investors Life
Insurance Company.
GEORGE C. BOWEN, Vice President, Secretary and Treasurer
3410 South Galena Street Denver, Colorado 80231
Senior Vice President and Treasurer of the Manager; Vice President and
Treasurer of the Distributor and HarbourView; Senior Vice President,
Treasurer, Assistant Secretary and a director of Centennial; Vice
President, Treasurer and Secretary of SSI and SFSI; an officer of other
OppenheimerFunds; formerly Senior Vice President/Comptroller and Secretary
of OAMC.
ARTHUR P. STEINMETZ, Vice President and Portfolio Manager
Two World Trade Center, New York, New York 10048-0203
Senior Vice President of the Manager; an officer of other
OppenheimerFunds.
DAVID P. NEGRI, Vice President and Portfolio Manager
Two World Trade Center, New York, New York 10048-0203
Vice President of the Manager; an officer of other OppenheimerFunds.
ROBERT G. ZACK, Assistant Secretary
Two World Trade Center, New York, New York 10048-0203
Senior Vice President and Associate General Counsel of the Manager,
Assistant Secretary of SSI and SFSI; an officer of other OppenheimerFunds.
LYNN M. COLUCCY, Assistant Treasurer
3410 South Galena Street, Denver, Colorado 80231
Vice President and Assistant Treasurer of the Manager; an officer of other
OppenheimerFunds; formerly Vice President/Director of Internal Audit of
the Manager.
__________________
*A Trustee who is an "interested person" of the Fund as defined in the
Investment Company Act.
Remuneration of Trustees. The officers of the Fund (including Messrs.
Fossel and Swain) are affiliated with the Manager and receive no salary
or fee from the Fund. During the Fund's fiscal year ended September 30,
1993, the remuneration (including expense reimbursements) paid to all
Trustees of the Fund (excluding Messrs. Fossel and Swain) for services as
Trustees and as members of one or more committees totaled $49,256. The
Fund has an Audit and Review Committee, comprised of William A. Baker
(Chairman), Charles Conrad, Jr. and Robert M. Kirchner. This Committee
meets regularly to review audits, audit procedures, financial statements
and other financial and operational matters of the Fund.
Major Shareholders. As of December 31, 1993, no person owned of record
or was known by the Fund to own beneficially 5% or more of any class of
the Fund's outstanding shares.
HOW THE FUND IS MANAGED
The Fund's Manager is wholly-owned by Oppenheimer Acquisition
Corp., 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 may serve as officers of the Fund, and two of
whom (Messrs. Jon S. Fossel and James C. Swain) serve as Trustees of the
Fund.
A management fee is payable monthly to the Manager under the terms
of the investment advisory agreement between the Manager and the Fund (the
"Agreement"), and is computed on the aggregate net assets of the Fund as
of the close of business each day. The Agreement requires the Manager,
at its expense, to provide the Fund with adequate office space, facilities
and equipment, and to provide and supervise the activities of all
administrative and clerical personnel required to provide effective
administration for the Fund, including the compilation and maintenance of
records with respect to its operations, the preparation and filing of
specified reports, and composition of proxy materials and registration
statements for continuous public sale of shares of the Fund. Expenses not
expressly assumed by the Manager under the Agreement or by the Distributor
are paid by the Fund. The Agreement lists examples of expenses paid by
the Fund, the major categories of which relate to interest, taxes,
brokerage commissions, fees to unaffiliated trustees, legal, bookkeeping
and audit expenses, custodian and transfer agent expenses, share issuance
costs, certain printing and registration costs and non-recurring expenses,
including litigation. The Fund also pays its organizational and start-up
expenses, as explained in the notes to the accompanying Financial
Statements. During the Fund's fiscal years ended September 30, 1991,
1992, and 1993 the management fees paid by the Fund to the Manager were
$2,296,513, $7,128,280 and $14,044,913, respectively.
The Agreement contains no expense limitation. However,
independently of the Agreement, the Manager has voluntarily agreed to
reimburse the Fund if aggregate expenses (with specified exceptions)
exceed the most stringent state regulatory limitation on Fund expenses
applicable to the Fund. At present, this limitation, imposed by
California, limits such expenses to 2.5% of the first $30 million of
average annual net assets, 2.0% of the next $70 million, and 1.5% of
average annual net assets in excess of $100 million. The payment of the
management fee at the end of the month will be reduced so that there will
not be any accrued but unpaid liability under this expense limitation.
The Manager reserves the right to terminate or amend this undertaking at
any time. Any assumption of the Fund's expenses under this undertaking
would lower the Fund's overall expense ratio and increase its total return
during any period in which expenses are limited.
The Agreement provides that in the absence of willful misfeasance,
bad faith, gross negligence in the performance of its duties, or reckless
disregard of its obligations and duties under the Agreement, the Manager
is not liable for any loss sustained by reason of good faith errors or
omissions in connection with any matters to which the 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 or general distributor. If the Manager or one of its
affiliates 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.
BROKERAGE POLICIES OF THE FUND
Brokerage Provisions of the Investment Advisory Agreement. One of the
duties of the Manager under the Agreement is to arrange the portfolio
transactions of the Fund. In doing so, the Manager is authorized by the
Agreement to employ broker-dealers ("brokers"), 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
or base its selection on "posted" rates, but is expected to be aware of
the current rates of eligible brokers and to minimize the commissions paid
to the extent consistent with the provisions of the Agreement and the
interests and policies of the Fund as established by its Board of
Trustees.
Under the Agreement, the Manager is authorized to select brokers
which 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 the 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. Most purchases made by the Fund are principal
transactions at net prices, and the Fund incurs little or no brokerage
costs.
Description of Brokerage Practices Followed by the Manager. Subject to
the provisions of the Agreement, when brokers are used for the Fund's
portfolio transactions, allocations of brokerage are made by portfolio
managers 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 transactions 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. 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. Option
commissions may be relatively higher than those which would apply to
direct purchases and sales of portfolio securities.
Most purchases of money market instruments and debt obligations
are principal transactions at net prices. Instead of using a broker for
those transactions, the Fund normally deals directly with the selling or
purchasing principal or market maker unless it determines that a better
price or execution can be obtained using a broker. Purchases of these
securities from underwriters include a commission or concession paid by
the issuer to the underwriter, and purchases from dealers include a spread
between the bid and asked prices. The Fund seeks to obtain prompt
execution of such orders at the most favorable net price.
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 for in
commission dollars. 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 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" (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 Agreement, the Plans of Distribution described below or
in any agreements relating to those Plans), 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 the benefit of such
services. 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.
During the Fund's fiscal years ended September 30, 1991, 1992 and
1993, total brokerage commissions paid by the Fund (not including spreads
or concessions on principal transactions on a net trade basis) were
$2,953, $4,200 and $4,663, respectively. During the Fund's fiscal year
ended September 30, 1993, $1,176 was paid to brokers as commissions in
return for research services (including special research, statistical
information and execution); the aggregate amount of those transactions was
$127,400.
YOUR INVESTMENT ACCOUNT
How the Fund Determines Net Asset Value Per Share. The net asset values
per share of Class A and Class B shares of the Fund are determined as of
4:00 P.M., New York time each day The New York Stock Exchange (the "NYSE")
is open (a "regular business day") by dividing the value of the Fund's net
assets attributable to that class by the number of shares of that class
outstanding. The NYSE's most recent annual holiday schedule (which is
subject to change) states that it will close New Year's Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving
Day and Christmas Day; it may also close on other days. Trading may occur
in debt securities and in foreign securities at times when the NYSE is
closed (including weekends and holidays or after 4:00 P.M., New York time,
on a regular business day). Because the net asset values of the Fund will
not be calculated at such times, if securities held in the Fund's
portfolio are traded at such times, the net asset values per share of
Class A and Class B shares of the Fund may be significantly affected at
times when shareholders do not have the ability to purchase or redeem
shares.
The Fund's Board of Trustees has established procedures for the
valuation of the Fund's securities as follows: (i) equity securities
traded on a securities exchange or on NASDAQ are valued at the last sale
prices on their primary exchange or NASDAQ that day (or, in the absence
of sales that day, at values based on the last sales prices of the
preceding trading day, or closing bid and asked prices); (ii) NASDAQ and
other unlisted equity securities for which last sales prices are not
regularly reported but for which over-the-counter market quotations are
readily available are valued at the highest closing bid price at the time
of valuation, or, if no closing bid price is reported, on the basis of a
closing bid price obtained from a dealer who maintains an active market
in that security; (iii) securities (including restricted securities) not
having readily-available market quotations are valued at fair value under
the Board's procedures; (iv) unlisted debt securities having a maturity
in excess of 60 days are valued at the mean between the bid and asked
prices determined by a portfolio pricing service approved by the Fund's
Board of Trustees or obtained from active market makers in the security
on the basis of reasonable inquiry; (v) short-term debt securities having
a remaining maturity of 60 days or less are valued at cost, adjusted for
amortization of premiums and accretion of discounts; and (vi) securities
traded on foreign exchanges or in foreign over-the-counter markets are
valued as determined by a portfolio pricing service approved by the Board,
based upon 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 to convert their values to U.S. dollars. Foreign
currency will be valued as close to the time fixed for the valuation date
as is reasonably practicable. The value of securities denominated in
foreign currency will be converted to U.S. dollars at the prevailing rates
of exchange at the time of valuation.
Trading in securities on European and Asian exchanges and over-
the-counter markets is normally completed before the close of the NYSE.
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 NYSE 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 value, in which case an adjustment
would be made.
In the case of U.S. Government Securities, mortgage-backed
securities, foreign fixed-income securities and corporate bonds, when last
sale information is not generally available, such pricing procedures may
include "matrix" comparisons to the prices for comparable instruments on
the basis of quality, yield, maturity, and other special factors involved.
The Fund's Board of Trustees has authorized the Manager to employ a
pricing service to price U.S. Government Securities, mortgage-backed
securities, foreign government securities and corporate bonds. The
Trustees will monitor the accuracy of such pricing services by comparing
prices used for portfolio evaluation to actual sales prices of selected
securities.
Calls, puts and Futures are valued at the last sale prices on the
principal exchanges or on the NASDAQ National Market on which they are
traded, or, if there are no sales that day, in accordance with (i) above.
When the Fund writes an option, an amount equal to the premium received
by the Fund is included in its Statement of Assets and Liabilities as an
asset, and an equivalent deferred credit is included in the liability
section. The deferred credit is adjusted ("marked-to-market") to reflect
the current market value of the option.
Alternative Sales Arrangements - Class A and Class B Shares. The
Alternative Sales Arrangements permit an investor to choose the method of
purchasing shares that is more beneficial to the investor depending on the
amount of the purchase, the length of time the investor expects to hold
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 shares are the same as those of the
initial sales charge with respect to Class A shares. Any salesperson or
other person entitled to receive compensation for selling Fund shares may
receive different compensation with respect to one class of shares than
the other. The Distributor will not accept any order for $1 million or
more of Class B 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 two 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 shares and the dividends payable on Class B shares will be reduced by
incremental expenses borne solely by that class, including the asset-based
sales charge to which Class B shares are subject.
The conversion of Matured Class B shares to Class A shares is
subject to the continuing availability of a private letter ruling from the
Internal Revenue Service, or an opinion of counsel or tax adviser, to the
effect that the conversion of Matured Class B shares does not constitute
a taxable event for the holder under Federal income tax law. If such a
revenue ruling or opinion is no longer available, the automatic conversion
feature may be suspended, in which event no further conversions of Matured
Class B shares would occur while such suspension remained in effect.
Although Matured Class B shares could then be exchanged for Class A shares
on the basis of relative net asset value of the two classes, without the
imposition of a sales charge or fee, such exchange could constitute a
taxable event for the holder, and absent such exchange, Class B shares
might continue to be subject to the asset-based sales charge for longer
than six years.
The methodology for calculating the net asset value, dividends and
distributions of the Fund's Class A and Class B shares recognizes two
types of expenses. General expenses that do not pertain specifically to
either class are allocated pro rata to the shares of each class, based on
the percentage of the net assets of such class to the Fund's total net
assets, and then equally to each outstanding share within a given class.
Such general expenses include (i) management fees, (ii) legal, bookkeeping
and audit fees, (iii) printing and mailing costs of shareholder reports,
Prospectuses, Additional Statements and other materials for current
shareholders, (iv) fees to unaffiliated Trustees, (v) custodian expenses,
(vi) share issuance costs, (vii) organization and start-up costs, (viii)
interest, taxes and brokerage commissions, and (ix) non-recurring
expenses, such as litigation costs. Other expenses that are directly
attributable to a class are allocated equally to each outstanding share
within that class. Such expenses include (i) Distribution 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.
AccountLink. When shares are purchased through AccountLink, each purchase
must be at least $25.00. Shares will be purchased on the regular business
day the Distributor is instructed to initiate the Automated Clearing House
transfer to buy the shares. Dividends will begin to accrue on such shares
on the day the Fund receives Federal Funds for such purchase through the
ACH system before 4:00 P.M., which is normally 3 days after the ACH
transfer is initiated. The Distributor and the Fund are not responsible
for any delays. If the Federal Funds are received after 4:00 P.M.,
dividends will begin to accrue on the next regular business day after such
Federal Funds are received.
Reduced Sales Charges. As discussed in the Prospectus, a reduced sales
charge rate may be obtained for Class A shares under Right of Accumulation
and Letters of Intent because of the economies of sales efforts and
reduction in expenses realized by the Distributor, dealers and brokers
making such sales. No sales charge is imposed in certain other
circumstances described in the Prospectus because the Distributor incurs
little or no selling expenses. The term "immediate family" refers to
one's spouse, children, grandchildren, grandparents, parents, parents-in-
law, brothers and sisters, sons- and daughters-in-law, a sibling's spouse
and a spouse's siblings.
- The OppenheimerFunds. The OppenheimerFunds are those mutual
funds for which the Distributor acts as the distributor or the sub-
Distributor and include the following:
Oppenheimer Tax-Free Bond Fund
Oppenheimer New York Tax-Exempt Fund
Oppenheimer California Tax-Exempt Fund
Oppenheimer Intermediate Tax-Exempt Bond Fund
Oppenheimer Insured Tax-Exempt Bond Fund
Oppenheimer Main Street California Tax-Exempt Fund
Oppenheimer Florida Tax-Exempt Fund
Oppenheimer Pennsylvania Tax-Exempt Fund
Oppenheimer Fund
Oppenheimer Discovery Fund
Oppenheimer Time Fund
Oppenheimer Target Fund
Oppenheimer Special Fund
Oppenheimer Equity Income Fund
Oppenheimer Value Stock Fund
Oppenheimer Asset Allocation Fund
Oppenheimer Total Return Fund, Inc.
Oppenheimer Main Street Income & Growth Fund
Oppenheimer High Yield Fund
Oppenheimer Champion High Yield Fund
Oppenheimer Investment Grade Bond Fund
Oppenheimer U.S. Government Trust
Oppenheimer Government Securities Fund
Oppenheimer Mortgage Income Fund
Oppenheimer Global Fund
Oppenheimer Global Bio-Tech Fund
Oppenheimer Global Environment Fund
Oppenheimer Global Growth & Income Fund
Oppenheimer Gold & Special Minerals Fund
Oppenheimer Strategic Income Fund
Oppenheimer Strategic Investment Grade Bond Fund
Oppenheimer Strategic Short-Term Income Fund
Oppenheimer Strategic Income & Growth Fund
Oppenheimer Strategic Diversified Income Fund
the following "Money Market Funds":
Oppenheimer Money Market Fund, Inc.
Oppenheimer Cash Reserves
Oppenheimer Tax-Exempt 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 OppenheimerFunds except Money Market Funds (under certain
circumstances described herein, redemption proceeds of Money Market Fund
shares may be subject to a CDSC).
- Letters of Intent. A Letter of Intent ("Letter") is the
investor's statement of intention to purchase Class A shares of the Fund
(and other eligible OppenheimerFunds) sold with a front-end sales charge
during the 13-month period from the investor's first purchase pursuant to
the Letter (the "Letter of Intent period"), which may, at the investor's
request, include purchases made up to 90 days prior to the date of the
Letter. The Letter states the investor's intention to make the aggregate
amount of purchases (excluding any purchases made by reinvestments of
dividends or distributions or purchases made at net asset value without
sales charge), which together with the investor's holdings of such funds
(calculated at their respective public offering prices calculated on the
date of the Letter) will equal or exceed the amount specified in the
Letter to obtain the reduced sales charge rate (as set forth in the
Prospectus) applicable to purchases of shares in that amount (the
"intended amount"). Each purchase under the Letter will be made at the
public offering price applicable to a single lump-sum purchase of shares
in the intended amount, as described in the Prospectus.
In submitting a Letter, the investor makes no commitment to
purchase shares, but if the investor's purchases of shares within the
Letter of Intent period, when added to the value (at offering price) of
the investor's holdings of shares on the last day of that period, do not
equal or exceed the intended amount, the investor agrees to pay the
additional amount of sales charge applicable to such purchases, as set
forth in "Terms of Escrow," below (as those terms may be amended from time
to time). The investor agrees that shares equal in value to 5% of the
intended amount will be held in escrow by the Transfer Agent subject to
the Terms of Escrow. Also, the investor agrees to be bound by the terms
of the Prospectus, this Statement of Additional Information and the
Application used for such Letter of Intent, and if such terms are amended,
as they may be from time to time by the Fund, that those amendments will
apply automatically to existing Letters of Intent.
If the total eligible purchases made during the Letter of Intent
period do not equal or exceed the intended amount, the commissions
previously paid to the dealer of record for the account and the amount of
sales charge retained by the Distributor will be adjusted to the rates
applicable to actual total purchases. If total eligible purchases during
the Letter of Intent period exceed the intended amount and exceed the
amount needed to qualify for the next sales charge rate reduction set
forth in the applicable prospectus, the sales charges paid will be
adjusted to the lower rate, but only if and when the dealer returns to the
Distributor the excess of the amount of commissions allowed or paid to the
dealer over the amount of commissions that apply to the actual amount of
purchases. The excess commissions returned to the Distributor will be
used to purchase additional shares for the investor's account at the net
asset value per share in effect on the date of such purchase, promptly
after the Distributor's receipt thereof.
In determining the total amount of purchases made under a Letter,
shares redeemed by the investor prior to the termination of the Letter of
Intent period will be deducted. It is the responsibility of the dealer
of record and/or the investor to advise the Distributor about the Letter
in placing any purchase orders for the investor during the Letter of
Intent period. All of such purchases must be made through the
Distributor.
Terms of Escrow that Apply to Letters of Intent.
1. Out of the initial purchase (or subsequent purchases if
necessary) made pursuant to a Letter, shares of the Fund equal in value
to 5% of the intended amount specified in the Letter shall be held in
escrow by the Transfer Agent. For example, if the intended amount
specified under the Letter is $50,000, the escrow shall be shares valued
in the amount of $2,500 (computed at the public offering price adjusted
for a $50,000 purchase). Any dividends and capital gains distributions
on the escrowed shares will be credited to the investor's account.
2. If the total minimum investment specified under the Letter
is completed within the thirteen-month Letter of Intent period, the
escrowed shares will be promptly released to the investor.
3. If, at the end of the thirteen-month Letter of Intent
period the total purchases pursuant to the Letter are less than the
intended amount specified in the Letter, the investor must remit to the
Distributor an amount equal to the difference between the dollar amount
of sales charges actually paid and the amount of sales charges which would
have been paid if the total amount purchased had been made at a single
time. Such sales charge adjustment will apply to any shares redeemed
prior to the completion of the Letter. If such difference in sales
charges is not paid within twenty days after a request from the
Distributor or the dealer, the Distributor will, within sixty days of the
expiration of the Letter, redeem the number of escrowed shares necessary
to realize such difference in sales charges. Full and fractional shares
remaining after such redemption will be released from escrow. If a
request is received to redeem escrowed shares prior to the payment of such
additional sales charge, the sales charge will be withheld from the
redemption proceeds.
4. By signing the Letter, the investor irrevocably constitutes
and appoints the Transfer Agent as attorney-in-fact to surrender for
redemption any or all escrowed shares.
5. The shares eligible for purchase under the Letter (or the
holding of which may be counted toward completion of the Letter) do not
include any shares sold without a front-end sales charge or without being
subject to a Class A contingent deferred sales charge unless (for the
purpose of determining completion of the obligation to purchase shares
under the Letter) the shares were acquired in exchange for shares of one
of the OppenheimerFunds whose shares were acquired by payment of a sales
charge.
6. Shares held in escrow hereunder will automatically be
exchanged for shares of another fund to which an exchange is requested,
as described in the section of the Prospectus entitled "Exchange
Privilege," and the escrow will be transferred to that other fund.
Redemptions. Information on how to redeem shares of the Fund is provided
in the Prospectus. The Prospectus states that payment for shares tendered
for redemption is ordinarily made in cash. However, if the Board of
Trustees determines that it would be detrimental to the best interests of
the remaining shareholders of the Fund to make payment wholly in cash, the
Fund may pay the redemption price 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 Securities and Exchange Commission rules. The
Fund has elected to be governed by Rule 18f-1 under the Investment Company
Act, pursuant to which it is obligated to redeem shares of the Fund 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 converting the assets to cash. Any securities distributed by the Fund
pursuant to an "in-kind" redemption will be readily marketable. The
method of valuing securities used to make redemptions in kind will be the
same as the method of valuing portfolio securities described above under
"Determination of Net Asset Value Per Share," and such valuation will be
made as of the same time the redemption price is determined.
The Fund's Board of Trustees has the right to cause the
involuntary redemption of the shares held in any account if the aggregate
net asset value of such shares is less than $200 or such lesser amount as
the Board may fix. The Fund's Board of Trustees will not cause the
involuntary redemption of shares held in an account if the aggregate net
asset value of such shares has fallen below the stated minimum solely as
result of market fluctuations. Should the Board elect to exercise this
right, it may also fix, in accordance with the Investment Company Act,
the requirements for any notice to be given to the shareholders in
question (not less than 30 days), or may set requirements for permission
to allow the shareholder to increase the investment so that the shares
would not be involuntarily redeemed.
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 Tax-Exempt Cash Reserves or
Oppenheimer Cash Reserves to use those accounts for monthly automatic
purchases of shares of up to four other Eligible Funds.
There is a sales charge on the purchase of certain Eligible Funds.
An application should be obtained from the Transfer Agent, completed and
returned, and a prospectus of the selected fund(s) (available from the
Distributor) should be obtained 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.
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.
Reinvestment Privilege. Within six months of a redemption, a shareholder
may reinvest all or part of the redemption proceeds of (i) Class A shares,
or (ii) Class B shares that were subject to the Class B contingent
deferred sales charge when redeemed, in Class A shares of the Fund or any
of the other OppenheimerFunds into which shares of the Fund are
exchangeable as described below, at the net asset value next computed
after receipt by the Transfer Agent of the reinvestment order. The
shareholder must ask the Distributor for such privilege at the time of
reinvestment. Any capital gain that was realized when the shares were
redeemed is taxable, and reinvestment will not alter any capital gains tax
payable on that gain. If there has been a capital loss on the redemption,
some or all of the loss may not be tax deductible, depending on the timing
and amount of the reinvestment. Under the Internal Revenue Code, if the
redemption proceeds of Fund shares on which a sales charge was paid are
reinvested in shares of the Fund or another of the OppenheimerFunds within
90 days of payment of the sales charge, the shareholder's basis in the
shares of the Fund that were redeemed may not include the amount of the
sales charge paid. That would reduce the loss or increase the gain
recognized from the redemption. 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.
Transfer of Shares. Shares are not subject to the payment of a contingent
deferred sales charge of either class at the time of transfer to the name
of another person or entity (whether the transfer occurs by absolute
assignment, gift or bequest, not involving, directly or indirectly, a
public sale). The transferred shares will remain subject to the
contingent deferred sales charge, calculated as if the transferee
shareholder had acquired the transferred shares in the same manner and at
the same time as the transferring shareholder. If less than all shares
held in an account are transferred, and some but not all shares in the
account would be subject to a contingent deferred sales charge if redeemed
at the time of transfer, the priorities described in the Prospectus under
"How to Buy Shares" for the imposition of the Class B contingent deferred
sales charge will be followed in determining the order in which shares are
transferred.
Distributions From Retirement Plans. Requests for distributions from
OppenheimerFunds-sponsored IRAs, 403(b)(7) custodial plans, or pension or
profit-sharing plans should be addressed to "Trustee, OppenheimerFunds
Retirement Plans," c/o the Transfer Agent at its address listed in "How
To Sell Shares" in the Prospectus. The request must: (i) state the reason
for the distribution; (ii) state the owner's awareness of tax penalties
if the distribution is premature; and (iii) conform to the requirements
of the plan and the Fund's other redemption requirements. Participants
(other than self-employed persons) in OppenheimerFunds-sponsored pension
or profit-sharing plans may not directly request redemption of their
accounts. The employer or plan administrator must sign the request.
Distributions from pension and profit sharing plans are subject to special
requirements under the Internal Revenue Code and certain documents
(available from the Transfer Agent) must be completed before the
distribution may be made. Distributions from retirement plans are subject
to withholding requirements under the Internal Revenue Code, and IRS Form
W-4P (available from the Transfer Agent) must be submitted to the Transfer
Agent with the distribution request, or the distribution may be delayed.
Unless the shareholder has provided the Transfer Agent with a certified
tax identification number, the Internal Revenue Code requires that tax be
withheld from any distribution even if the shareholder elects not to have
tax withheld. The Fund, the Manager, the Distributor, the Trustee and the
Transfer Agent assume no responsibility to determine whether a
distribution satisfies the conditions of applicable tax laws and will not
be responsible for any tax penalties assessed in connection with a
distribution.
Special Arrangements for Repurchase of Shares from Dealers and Brokers.
The Distributor is the Fund's agent to repurchase its shares from
authorized dealers or brokers. The repurchase price will be the net asset
value next computed after the receipt of an order placed by such dealer
or broker, except that orders received from dealers or brokers after 4:00
P.M. on a regular business day will be processed at that day's net asset
value if such orders were received by the dealer or broker from its
customers prior to 4:00 P.M., and were transmitted to and received by the
Distributor prior to its close of business that day (normally 5:00 P.M.).
Payment ordinarily will be made within seven days after the Distributor's
receipt of the required documents, with signature(s) guaranteed as
described above.
Automatic Withdrawal and Exchange Plans. Investors owning shares of the
Fund valued at $5,000 or more can authorize the Transfer Agent to redeem
shares (minimum $50) automatically on a monthly, quarterly, semi-annual
or annual basis under an Automatic Withdrawal Plan. Shares will be
redeemed three business days prior to the date requested by the
shareholder for receipt of the payment. Automatic withdrawals of up to
$1,500 per month may be requested by telephone if payments are by check
payable to all shareholders of record and sent to the address of record
for the account (and if the address has not been changed within the prior
30 days). Required minimum distributions from OppenheimerFunds-sponsored
retirement plans may not be arranged on this basis. Payments are normally
made by check, but shareholders having AccountLink privileges (see "How
To Buy Shares") may arrange to have Automatic Withdrawal Plan payments
transferred to the bank account designated on the OppenheimerFunds New
Account Application or signature-guaranteed instructions. The Fund cannot
guarantee receipt of the payment on the date requested and reserves the
right to amend, suspend or discontinue offering such plans at any time
without prior notice. Because of the sales charge assessed on Class A
share purchases, shareholders should not make regular additional Class A
purchases while participating in an Automatic Withdrawal Plan. Class B
shareholders should not establish withdrawal plans, because of the
imposition of the Class B CDSC on such withdrawals (except where the Class
B CDSC is waived as described in "Class B Contingent Deferred Sales
Charge").
By requesting an Automatic Withdrawal or Exchange Plan, the
shareholder agrees to the terms and conditions applicable to such plans,
as stated below and in the provisions of the OppenheimerFunds Application
relating to such Plans, as well as the Prospectus. These provisions may
be amended from time to time by the Fund and/or the Distributor. When
adopted, such amendments will automatically apply to existing Plans.
- Automatic Exchange Plans. Shareholders can authorize the
Transfer Agent (on the OppenheimerFunds Application or signature-
guaranteed instructions) to exchange a pre-determined amount of shares of
the Fund for shares (of the same class) of other OppenheimerFunds
automatically on a monthly, quarterly, semi-annual or annual basis under
an Automatic Exchange Plan. The minimum amount that may be exchanged to
each other fund account is $25. Exchanges made under these plans are
subject to the restrictions that apply to exchanges as set forth in
"Exchange Privilege" in the Prospectus and "How to Exchange Shares" below
in this Statement of Additional Information.
- Automatic Withdrawal Plans. Fund shares will be redeemed as
necessary to meet withdrawal payments. Shares acquired without a sales
charge will be redeemed first and thereafter shares acquired with
reinvested dividends and capital gains distributions will be redeemed
next, followed by shares acquired with a sales charge, to the extent
necessary to make withdrawal payments. Depending upon the amount
withdrawn, the investor's principal may be depleted. Payments made under
such plans should not be considered as a yield or income on your
investment. It may not be desirable to purchases additional Class A
shares while making automatic withdrawals because of the sales charges
that apply to purchases when made. Accordingly, a shareholder normally
may not maintain an Automatic Withdrawal Plan while simultaneously making
regular purchases of Class A shares.
The transfer agent will administer the investor's Automatic
Withdrawal Plan (the "Plan") as agent for the investor (the "Planholder")
who executed the Plan authorization and application submitted to the
Transfer Agent. The Transfer Agent shall incur no liability to the
Planholder for any action taken or omitted by the Transfer Agent in good
faith to administer the Plan. Certificates will not be issued for shares
of the Fund purchased for and held under the Plan, but the Transfer Agent
will credit all such shares to the account of the Planholder on the
records of the Fund. Any share certificates held by a Planholder may be
surrendered unendorsed to the Transfer Agent with the Plan application so
that the shares represented by the certificate may be held under the Plan.
For accounts subject to Automatic Withdrawal Plans, distributions
of capital gains must be reinvested in shares of the Fund, which will be
done at net asset value without a sales charge. Dividends on shares held
in the account may be paid in cash or reinvested.
Redemptions of shares needed to make withdrawal payments will be
made at the net asset value per share determined on the redemption date.
Checks or AccountLink payments of the proceeds of Plan withdrawals will
normally be transmitted three business days prior to the date selected for
receipt of the payment (the date selected for receipt is an approximate
date), 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. The list of OppenheimerFunds to which exchanges
of shares may be made (subject to restrictions in the Prospectus and in
this Statement of Additional Information) is contained in "Reduced Sales
Charges," above.
Class A shares of OppenheimerFunds may be exchanged for shares of
any Money Market Fund; shares of any Money Market Fund purchased without
a sales charge may be exchanged for shares of OppenheimerFunds offered
with a sales charge upon payment of the sales charge (or, if applicable,
may be used to purchase shares of OppenheimerFunds subject to a CDSC); and
shares of this Fund acquired by reinvestment of dividends or distributions
from any other of the OppenheimerFunds or from any unit investment trust
for which reinvestment arrangements have been made with the Distributor
may be exchanged at net asset value for shares of any of the
OppenheimerFunds. No CDSC is imposed on exchanges of shares of either
class purchased subject to a CDSC. However, when Class A shares acquired
by exchange of Class A shares purchased subject to a Class A CDSC are
redeemed within 18 months of the end of the calendar month of the initial
purchase of the exchanged Class A shares, the Class A CDSC is imposed on
the redeemed shares (see "Class A Contingent Deferred Sales Charge" in the
Prospectus), and the Class B CDSC is imposed on Class B shares redeemed
within six years of the initial purchase of the exchanged Class B shares.
The Fund reserves the right to reject telephone or written
exchange requests submitted in bulk by anyone on behalf of 10 or more
accounts. The Fund may accept requests for exchanges of up to 50 accounts
per day from representatives of authorized dealers that qualify for this
privilege. In connection with any exchange request, the number of shares
exchanged may be less than the number requested if the exchange or the
number requested would include shares subject to a restriction cited in
the Prospectus or this Statement of Additional Information or shares
covered by a share certificate that is not tendered with the request. In
those cases, only the shares available for exchange without restriction
will be exchanged.
When Class B 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 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 both classes must specify whether they intend to exchange
Class A or Class B shares.
When exchanging shares by telephone, the shareholder must either
have an existing account in, or acknowledge receipt of a prospectus of,
the fund to which the exchange is to be made. For full or partial
exchanges of an account made by telephone, any special account features
such as Asset Builder Plans, Automatic Withdrawal Plans and retirement
plan contributions will be switched to the new account unless the Transfer
Agent is instructed otherwise. If all telephone lines are busy (which
might occur, for example, during periods of substantial market
fluctuations), shareholders might not be able to request exchanges by
telephone and would have to submit written exchange requests.
Shares to be exchanged are redeemed on the regular business day
the Transfer Agent receives an exchange request in proper form (the
"Redemption Date"). Normally, shares of the fund to be acquired are
purchased on the Redemption Date, but such purchases may be delayed by
either fund up to five business days if it determines that it would be
disadvantaged by an immediate transfer of the redemption proceeds. The
Fund reserves the right, in its discretion, to refuse any exchange request
that may disadvantage it (for example, if the receipt of multiple exchange
request from a dealer might require the disposition of portfolio
securities at a time or at a price that might be disadvantageous to the
Fund).
The different OppenheimerFunds available for exchange have
different investment objectives, policies and risks, and a shareholder
should assure that the Fund selected is appropriate for his or her
investment and should be aware of the tax consequences of an exchange.
For federal tax purposes, an exchange transaction is treated as a
redemption of shares of one fund and a purchase of shares of another.
"Reinvestment Privilege," above, discusses some of the tax consequences
of reinvestment of redemption proceeds in such cases. The Fund, the
Distributor, and the Transfer Agent are unable to provide investment, tax
or legal advice to a shareholder in connection with an exchange request
or any other transaction.
Exchanges of Class B Shares. As stated in the Prospectus, shares
of a particular class of OppenheimerFunds having more than one class of
shares may be exchanged only for shares of the same class of another of
the OppenheimerFunds. All of the OppenheimerFunds (except Oppenheimer
Strategic Diversified Income Fund) offer Class A shares; if the shares of
a fund offering one class are not denominated with a class designation in
the Prospectus, they are considered "Class A" shares. Only the following
other OppenheimerFunds offer Class B shares as of the date of this
Statement of Additional Information (this list may change from time to
time, and to obtain a current list, please call the Transfer Agent at 1-
800-525-7048):
Oppenheimer Strategic Income & Growth Fund
Oppenheimer Strategic Investment Grade Bond Fund
Oppenheimer Strategic Short-Term Income Fund
Oppenheimer New York Tax-Exempt Fund
Oppenheimer Tax-Free Bond Fund
Oppenheimer California Tax-Exempt Fund
Oppenheimer Pennsylvania Tax-Exempt Fund
Oppenheimer Insured Tax-Exempt Bond Fund
Oppenheimer Main Street California Tax-Exempt Fund
Oppenheimer Total Return Fund, Inc.
Oppenheimer Investment Grade Bond Fund
Oppenheimer Value Stock Fund
Oppenheimer Government Securities Fund
Oppenheimer High Yield Fund
Oppenheimer Mortgage Income Fund
Oppenheimer Cash Reserves (Class B shares are only
available by exchange)
Oppenheimer Special Fund
Oppenheimer Equity Income Fund
Oppenheimer Global Fund
The Transfer Agent. Oppenheimer Shareholder Services, as transfer agent,
is responsible for maintaining the Fund's shareholder registry and
shareholder accounting records, and for shareholder servicing and
administrative functions. For information about your account, call the
toll-free number or write to the address of the Transfer Agent on the
front cover.
PERFORMANCE OF THE FUND
As described in the Prospectus, from time to time the
"standardized yield," "dividend yield," "average annual total return",
"total return," and "total return at net asset value" of an investment in
each class of Fund shares may be advertised. An explanation of how yields
and total returns are calculated for each class and the components of
those calculations are set forth below.
Yield and total return information may be useful to investors in
reviewing the Fund's performance. The Fund's advertisement of its
performance must, under applicable SEC rules, include the average annual
total returns for each class of shares of the Fund for the 1, 5 and 10-
year period (or the life of the class, if less) as of the most recently
ended calendar quarter. 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 yield and total return 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.
Yield and total return for any given past period are not a prediction or
representation by the Fund of future yields or rates of return on its
shares. The yield and total returns of the Class A and Class B shares of
the Fund are affected by portfolio quality, portfolio maturity, the type
of investments the Fund holds and its operating expenses.
Standardized Yields. The Fund's "yield" (referred to as "standardized
yield") for a given 30-day period for a class of shares is calculated
using the following formula set forth in rules adopted by the Securities
and Exchange Commission that apply to all funds that quote yields:
a-b 6
Standardized Yield = 2 ((------ + 1) - 1)
cd
The symbols above represent the following factors:
a = dividends and interest earned during the 30-day period.
b = expenses accrued for the period (net of any expense
reimbursements).
c = the average daily number of shares of that class
outstanding during the 30-day period that were entitled to
receive dividends.
d = the maximum offering price per share of the class on the
last day of the period, 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, 1993, the standardized
yields for the Fund's Class A and Class B shares were 7.63% and 7.17%,
respectively.
Dividend Yield and Distribution Return. From time to time the Fund may
quote a "dividend yield" or a "distribution return" for each class.
Dividend yield is based on the Class A or Class B share dividends derived
from net investment income during a stated period. Distribution return
includes dividends derived from net investment income and from realized
capital gains declared during a stated period. Under those calculations,
the dividends and/or distributions for that class declared during a stated
period of one year or less (for example, 30 days) are added together, and
the sum is divided by the maximum offering price per share of that class)
on the last day of the period. When the result is annualized for a period
of less than one year, the "dividend yield" is calculated as follows:
Dividend Yield of the Class =
Dividends of the Class
- ----------------------------------------------------
Max Offering Price of the Class (last day of period)
Divided by number of days (accrual period) x 365
The maximum offering price for Class A shares includes the maximum
front-end sales charge. For Class B shares, the maximum offering price
is the net asset value per share, without considering the effect of
contingent deferred sales charges.
From time to time similar yield or distribution return
calculations may also be made using the Class A net asset value (instead
of its respective maximum offering price) at the end of the period. The
dividend yields on Class A shares for the 30-day period ended September
30, 1993, were 8.74% and 9.18% when calculated at maximum offering price
and at net asset value, respectively. The dividend yield on Class B
shares for the 30-day period ended September 30, 1993, was 8.34% when
calculated at net asset value.
Total Returns. The "average annual total return" of each class is an
average annual compounded rate of return for each year in a specified
number of years. It is the rate of return based on the change in value
of a hypothetical initial investment of $1,000 ("P" in the formula below)
held for a number of years ("n") to achieve an Ending Redeemable Value
("ERV"), according to the following formula:
( ERV ) 1/n
(-----) -1 = Average Annual Total Return
( P )
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. 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 discussed below). For Class B shares, the payment of
the applicable contingent deferred sales charge (5.0% for the first year,
4.0% for the second year, 3.0% for the third and fourth years, 2.0% in the
fifth year, 1.0% in the sixth year and none thereafter) is applied to the
investment result for the time period shown (unless the total return is
shown at net asset value, as described below). Total returns also assume
that all dividends and capital gains distributions during the period are
reinvested to buy additional shares at net asset value per share, and that
the investment is redeemed at the end of the period. The "average annual
total returns" on an investment in Class A shares of the Fund for the one
year period ended September 30, 1993 and for the period from October 16,
1989 (commencement of operations) to September 30, 1993, were 8.19% and
12.08%, respectively. The cumulative "total return" on Class A shares for
the latter period was 56.98%. For the fiscal period from November 30,
1992, through September 30, 1993, the average annual total return and the
cumulative total return on an investment in Class B shares of the Fund
were 11.99% and 9.89%, respectively.
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 or Class B shares. It is based on the difference
in net asset value per share at the beginning and the end of the period
for a hypothetical investment in that class of shares (without considering
front-end or contingent sales charges) and takes into consideration the
reinvestment of dividends and capital gains distributions. The cumulative
"total returns at net asset value" on the Fund's Class A shares for the
fiscal year ended September 30, 1993, and for the period from October 16,
1989 to September 30, 1993 were 13.58% and 64.81%, respectively. The
cumulative total return at net asset value on the Fund's Class B shares
for the fiscal period from November 30, 1992 through September 30, 1993.
Other Performance Comparisons. From time to time the Fund may publish the
ranking of the performance of its Class A or Class B shares by Lipper
Analytical Services, Inc. ("Lipper"), a widely-recognized independent
mutual fund monitoring service. Lipper monitors the performance of
regulated investment companies, including the Fund, and ranks their
performance for various periods based on categories relating to investment
objectives. The performance of the Fund's classes is ranked against (i)
all other funds, excluding money market funds, and (ii) all other general
bond funds. The Lipper performance rankings are based on total return
that includes the reinvestment of capital gains distributions and income
dividends but does not take sales charges or taxes into consideration.
The Fund's performance may also be compared to the performance of the
Lipper General Bond Fund Index, which is a net asset value weighted index
of general bond funds compiled by Lipper. It is calculated with
adjustments for income dividends and capital gains distributions as of the
ex-dividend date.
From time to time the Fund may publish the ranking of the
performance of its Class A or Class B shares by Morningstar, Inc., an
independent mutual fund monitoring service that ranks mutual funds,
including the Fund, in broad investment categories (equity, taxable bond,
tax-exempt and other) monthly, based upon each fund's three, five and ten-
year average annual total returns (when available) and a risk adjustment
factor that reflects Fund performance relative to three-month U.S.
Treasury bill monthly returns. Such returns are adjusted for fees and
sales loads. There are five ranking categories with a corresponding
number of stars: highest (5), above average (4), neutral (3), below
average (2) and lowest (1). Ten percent of the funds, series or classes
in an investment category receive 5 stars, 22.5% receive 4 stars, 35%
receive 3 stars, 22.5% receive 2 stars, and the bottom 10% receive one
star. Morningstar ranks the Class A and Class B shares of the Fund in
relation to other taxable bond funds.
The total return on an investment made in Class A or Class B
shares of the Fund may be compared with the performance for the same
period of one or more of the following indices: the Consumer Price Index,
the Salomon Brothers World Government Bond Index, the Standard & Poor's
500 Index, the Salomon Brothers High Grade Corporate Bond Index, the
Shearson Lehman Government/Corporate Bond Index, the Lehman Aggregate Bond
Index, and the J.P. Morgan Government Bond Index. Other indices may be
used from time to time. The Consumer Price Index is generally considered
to be a measure of inflation. The Salomon Brothers World Government Bond
Index generally represents the performance of government debt securities
of various markets throughout the world, including the United States. The
Salomon Brothers High Grade Corporate Bond Index generally represents the
performance of high grade long-term corporate bonds, and the Lehman
Government/Corporate Bond Index generally represents the performance of
intermediate and long-term government and investment grade corporate debt
securities. The Lehman Aggregate Bond Index measures the performance of
U.S. corporate bond issues, U.S. government securities and mortgage-backed
securities. The J.P. Morgan Government Bond Index generally represents
the performance of government bonds issued by various countries including
the United States. The S&P 500 Index is a composite index of 500 common
stocks generally regarded as an index of U.S. stock market performance.
The foregoing bond indices are unmanaged indices of securities that do not
reflect reinvestment of capital gains or take investment costs into
consideration, as these items are not applicable to indices.
From time to time the Fund may also include in its advertisements
and sales literature performance information about the Fund or rankings
of the Fund's performance cited in newspapers or periodicals, such as The
New York Times, Money, The Wall Street Journal, Fortune, or other
publications. These articles may include quotations of performance from
other sources, such as Lipper or Morningstar.
When comparing yield, total return and investment risk of an
investment in Class A or Class B shares of the Fund with other
investments, investors should understand that certain other investments
have different risk characteristics than an investment in shares of the
Fund. For example, certificates of deposit may have fixed rates of return
and may be insured as to principal and interest by the FDIC, while the
Fund's returns will fluctuate and its share values and returns are not
guaranteed. Money market accounts offered by banks also may be insured
by the FDIC and may offer stability of principal. U.S. Treasury
securities are guaranteed as to principal and interest by the full faith
and credit of the U.S. government. Money market mutual funds may seek to
offer a fixed price per share.
DISTRIBUTION AND SERVICE PLANS
The Fund has adopted a Service Plan for Class A Shares and a
Distribution and Service Plan for Class B shares of the Fund under Rule
12b-1 of the Investment Company Act, pursuant to which the Fund will
reimburse the Distributor for all or a portion of its costs incurred in
connection with the distribution and/or servicing of the shares of that
class, as described in the Prospectus. Each Plan has been approved by a
vote of (i) the Board of Trustees of the Fund, including a majority of the
Independent Trustees, cast in person at a meeting called for the purpose
of voting on that Plan, and (ii) the holders of a "majority" (as defined
in the Investment Company Act) of the shares of each class (for the
Distribution and Service Plan for the Class B shares, that vote was cast
by the Manager as the then-sole initial holder of Class B shares of the
Fund). In addition, the Manager and the Distributor may, under the Plans,
from time to time from their own resources (which, as to the Manager, may
include profits derived from the advisory fee it receives from the Fund)
make payments to Recipients for distribution and administrative services
they perform. The Distributor and the Manager may, in their sole
discretion, increase or decrease the amount of distribution assistance
payments they make to Recipients from their own assets. For further
details, see the discussions relating to the Plans in "How to Buy Shares"
in the Prospectus.
Unless terminated as described below, each Plan continues in
effect from year to year but only as long as such continuance is
specifically approved at least annually by the Fund's Board of Trustees
and its Independent Trustees by a vote cast in person at a meeting called
for the purpose of voting on such continuance. Either 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. Neither
Plan may be amended to increase materially the amount of payments to be
made unless such amendment is approved by shareholders of the respective
class, who vote exclusively on approval or amendment of the Plan for that
class. All material amendments must be approved by the Independent
Trustees.
While the Plans are in effect, the Treasurer of the Fund shall
provide separate written reports to the Fund's Board of Trustees at least
quarterly on the amount of all payments made pursuant to each Plan, the
purpose for which the payment was made and the identity of each Recipient
that received any such payment. The report for the Class B Plan shall
also include the distribution costs for that quarter, and such costs for
previous fiscal periods that are carried forward, as explained in the
Prospectus and below. Those reports, including the allocations on which
they are based, will be subject to the review and approval of the
Independent Trustees in the exercise of their fiduciary duty. Each Plan
further provides that while it is in effect, the selection and nomination
of those Trustees of the Fund who are not "interested persons" of the Fund
is committed to the discretion of the Independent Trustees. This does not
prevent the involvement of others in such selection and nomination if the
final decision on any such selection or nomination is approved by a
majority of the Independent Trustees.
Under the Plans, no payment will be made to any broker, dealer or
other financial institution under the Plan (each is referred to as a
"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 allowed under the Plans and
set no minimum amount.
For the fiscal year ended September 30, 1993, payments under the
Class A Plan totaled $5,500,486, all of which was paid by the
Distributor to Recipients, including $314,826 paid to an affiliate of the
Distributor. 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 Plan allows the service fee payment to be paid by the
Distributor to Recipients in advance for the first year Class B shares are
outstanding, and thereafter on a quarterly basis, as described in the
Prospectus. Service fee payments by the Distributor to Recipients will
be made (i) in advance for the first year Class B shares are outstanding,
following the purchase of shares, in an amount equal to 0.25% of the net
asset value of the shares purchased by the Recipient or its customers and
(ii) thereafter, on a quarterly basis, computed as of the close of
business each day at an annual rate of 0.25% of the average daily net
asset value of Class B shares held in accounts of the Recipient or its
customers. An exchange of shares does not entitle the Recipient to an
advance payment of the service fee. In the event Class B shares are
redeemed during the first year such shares are outstanding, the Recipient
will be obligated to repay a pro rata portion of the advance of the
service fee payment to the Distributor.
Although the Class B Plan permits the Distributor to retain both
the asset-based sales charges and the service fee on Class B shares, or
to pay Recipients the service fee on a quarterly basis, without payment
in advance, the Distributor presently intends to pay the service fee to
Recipients in the manner described above. A minimum holding period may
be established from time to time under the Class B Plan by the Board.
Initially, the Board has set no minimum holding period. All payments
under the Class B Plan become subject to the limitations imposed by the
National Association of Securities Dealers, Inc. Rules of Fair Practice
on payments of asset based sales charges and service fees. The
Distributor anticipates that it will take a number of years for it to
recoup (from the Fund's payments to the Distributor under the Class B
Plan) the sales commissions paid to authorized brokers or dealers. For
the Fiscal period from November 30, 1992 through September 30, 1993,
payments under the Class B plan totaled $2,282,239.
Asset-based sales charge payments are designed to permit an
investor to purchase shares of the Fund without the assessment of a front-
end sales load and at the same time permit the Distributor to compensate
brokers and dealers in connection with the sale of Class B shares of the
Fund. The Distributor's actual distribution expenses for any given year
may exceed the aggregate of payments received pursuant to the Class B Plan
and from contingent deferred sales charges, and such expenses will be
carried forward and paid in future years. The Fund will be charged only
for interest expenses, carrying charges or other financial costs that are
directly related to the carry-forward of actual distribution expenses.
For example, if the Distributor incurred distribution expenses of $4
million in a given fiscal year, of which $2,000,000 was recovered in the
form of contingent deferred sales charges paid by investors and $1,600,000
were reimbursed in the form of payments made by the Fund to the
Distributor under the Class B Plan, the balance of $400,000 (plus
interest) would be subject to recovery in future fiscal years from such
sources.
The Class B Plan allows for the carry-forward of distribution
expenses, to be recovered from asset-based sales charges in subsequent
fiscal periods, as described above and in the Prospectus. In the event
the Class B Plan is terminated, the Distributor is entitled to continue
to receive the asset-based sales charge of 0.75% per annum on Class B
shares sold prior to termination until the Distributor has recovered its
Class B distribution expenses incurred prior to termination from such
payments and from the Class B CDSC.
The Fund believes that current applicable accounting standards do
not require the Fund to record as a current liability its obligation under
the Class B Plan to carry over and continue payments of the asset-based
sales charge to the Distributor in the future to reimburse it for expenses
incurred as to Class B shares sold prior to the termination of the Plan.
Those accounting standards are currently being reviewed by the AICPA, as
discussed in the Prospectus. If those accounting standards should be
changed to require the Fund to recognize that obligation for future
payments as a current liability, the Fund's Board would consider other
alternatives to that provision of the Class B Plan, because otherwise the
treatment of such expenses as a current liability would affect all then-
outstanding Class B shares regardless of how long they had been held.
Furthermore, Class B shareholders whose shares had not matured would
continue to remain subject to the Class B CDSC.
The asset-based sales charge paid to the Distributor by the Fund
under the Class B Plan is intended to allow the Distributor to recoup the
cost of sales commissions paid to authorized brokers and dealers at the
time of sale, plus financing costs, as described in the Prospectus. Such
payments may also be used to pay for the following expenses in connection
with the distribution of Class B shares: (i) financing the advance of the
service fee payment to Recipients under the Class B Plan, (ii)
compensation and expenses of personnel employed by the Distributor to
support distribution of Class B shares, and (iii) costs of sales
literature, advertising and prospectuses (other than those furnished to
current shareholders) and state "blue sky" registration fees.
DIVIDENDS, CAPITAL GAINS AND TAXES
Dividends and Distributions. Dividends will be payable on shares held of
record at the time of the previous determination of net asset value, or
as otherwise described in "How to Buy Shares." Daily dividends on newly
purchased shares will not be declared or paid until such time as Federal
Funds (funds credited to a member bank's account at the Federal Reserve
Bank) are available from the purchase payment for such shares. Normally,
purchase checks received from investors are converted to Federal Funds on
the next business day. Dividends will be declared on shares repurchased
by a dealer or broker for four business days following the trade date
(i.e., to and including the day prior to settlement of the repurchase).
If all shares in an account are redeemed, all dividends accrued on shares
of the same class in the account will be paid together with the redemption
proceeds.
Dividends, distributions and the proceeds of the redemption of
Fund shares represented by checks returned to the Transfer Agent by the
Postal Service as undeliverable will be invested in shares of Oppenheimer
Money Market Fund, Inc., as promptly as possible after the return of such
checks to the Transfer Agent, to enable the investor to earn a return on
otherwise idle funds.
Special provisions of the Internal Revenue Code govern the
eligibility of the Fund's dividends for 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 that
shareholder for 45 days or less. To the extent the Fund's dividends are
derived from its gross income from option premiums, interest income or
short-term capital gains from the sale of securities, or dividends from
foreign corporations, its dividends will not qualify for the deduction.
It is expected that for the most part the Fund's dividends will not
qualify, because of the nature of the investments held by the Fund in its
portfolio.
The amount of a class's distributions may vary from time to time
depending on market conditions, the composition of the Fund's portfolio,
and expenses borne by the Fund or borne separately by a class, as
described in "Alternative Sales Arrangements -- Class A and Class B,"
above. Dividends are calculated in the same manner, at the same time and
on the same day for shares of each class. However, dividends on Class B
shares are expected to be lower as a result of the asset-based sales
charge on Class B shares, and Class B dividends will also differ in amount
as a consequence of any difference in net asset value between Class A and
Class B shares.
Distributions may be made annually in December out of any net
short-term or long-term capital gains realized from the sale of
securities, premiums from expired calls written by the Fund and net
profits from Hedging Instruments and closing purchase transactions
realized in the twelve months ending on October 31 of the current year.
Any difference between the net asset value of Class A and Class B shares
will be reflected in such distributions. Distributions from net short-
term capital gains are taxable to shareholders as ordinary income and when
paid by the Fund are considered "dividends." The Fund may make a
supplemental distribution of capital gains and ordinary income following
the end of its fiscal year. Any long-term capital gains distributions
will be identified separately when paid and when tax information is
distributed by the Fund. If prior distributions must be re-characterized
at the end of the fiscal year as a result of the effect of the Fund's
investment policies, shareholders may have a non-taxable return of
capital, which will be identified in notices to shareholders. There is
no fixed dividend rate (although the Fund may have a targeted dividend
rate for Class A shares) and there can be no assurance as to the payment
of any dividends or the realization of any capital gains.
If the Fund qualifies as a "regulated investment company" under
the Internal Revenue Code, it will not be liable for Federal income taxes
on amounts paid by it as dividends and distributions. The Fund qualified
as a regulated investment company in its last fiscal year and intends to
qualify in future years, but reserves the right not to qualify. The
Internal Revenue Code contains a number of complex tests to determine
whether the Fund will qualify, and the Fund might not meet those tests in
a particular year. For example, if the Fund derives 30% or more of its
gross income from the sale of securities held less than three months, it
may fail to qualify (see "Tax Aspects of Covered Calls and Hedging
Instruments," above). If it does not qualify, the Fund will be treated for
tax purposes as an ordinary corporation and will receive no tax deduction
for payments of dividends and distributions made to shareholders.
Under the Internal Revenue Code, by December 31 each year the Fund
must distribute 98% of its taxable investment income earned from January
1 through December 31 of that year and 98% of its capital gains realized
in the period from November 1 of the prior year through October 31 of the
current year, or else the Fund must pay an excise tax on the amounts not
distributed. The Manager might determine in a particular year that it
might be in the best interest of shareholders for the Fund not to make
distributions at the required levels and to pay the excise tax on the
undistributed amounts. That would reduce the amount of income or capital
gains available for distribution to shareholders.
The Internal Revenue Code requires that a holder (such as the
Fund) of a zero coupon security accrue as income each year a portion of
the discount at which the security was purchased even though the Fund
receives no interest payment in cash on the security during the year. As
an investment company, the Fund must pay out substantially all of its net
investment income each year or be subject to excise taxes, as described
above. Accordingly, when the Fund holds zero coupon securities, it 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 during that year. Such distributions will be made from the cash
assets of the Fund or by liquidation of portfolio securities, if
necessary. 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 OppenheimerFunds listed in "Reduced
Sales Charges" above at net asset value without sales charge. Not all
OppenheimerFunds currently offer Class B shares. The names of Funds that
offer Class B shares can be obtained by calling the Distributor at 1-800-
525-7048. To elect this option, the shareholder must notify the Transfer
Agent in writing and either must have an existing account in the fund
selected for reinvestment or must obtain a prospectus for that fund and
an application from the Distributor to establish an account. The
investment will be made at the net asset value per share in effect at the
close of business on the payable date of the dividend or distribution.
ADDITIONAL INFORMATION ABOUT THE FUND
Information about the Fund's Declaration of Trust and Business Structure.
Shares of the Fund represent an interest in the Fund proportionately equal
to the interest of each other share of the same class and entitle their
holders to one vote per share (and a proportional vote for a fractional
share) on matters submitted to their vote at shareholder meetings. Only
shareholders of a particular class vote on matters affecting only that
class. The Trustees may divide or combine the shares of a class into a
greater or lesser number of shares without thereby changing the
proportionate beneficial interest in the Fund. Shares do not have
cumulative voting rights or preemptive or subscription rights.
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 highly unlikely and is limited
to the relatively remote circumstances in which the Fund would be unable
to meet its obligations. 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 a defense of any claim made against any
shareholder for any act or obligation of the Fund and satisfy any judgment
thereon. Any person doing business with the Fund, and any shareholder of
the Fund, agrees under the Fund's Declaration of Trust to look solely to
the assets of the Fund for satisfaction of any claim or demand that may
arise out of any dealings with the Fund, and the Trustees shall have no
personal liability to any such person, to the extent permitted by law.
It is not contemplated that regular annual meetings of
shareholders will be held. The Fund will hold meetings when required to
do so by the Investment Company Act or other applicable law, or when a
shareholder meeting is called by the Trustees or upon proper request of
the shareholders. Shareholders have the right, upon the declaration in
writing or vote of 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
shareholders of 10% of its outstanding shares. In addition, if the
Trustees receive a request from at least 10 shareholders (who have been
shareholders for at least six months) holding in the aggregate shares of
the Fund valued at $25,000 or more or holding 1% or more of the Fund's
outstanding shares, whichever is less, that they wish to communicate with
other shareholders to request a meeting to remove a Trustee, the Trustees
will then either give the applicants access to the Fund's shareholder
list, mail their communication to all other shareholders at the
applicants' expense, or take alternative action as set forth in Section
16(c) of the Investment Company Act.
Information About the Custodian of the Fund's Portfolio Securities. The
Custodian of the assets of the Fund is The Bank of New York. The
Custodian's responsibilities include safeguarding and controlling the
Fund's portfolio securities, collecting income on the portfolio securities
and handling the delivery of such securities to and from the Fund. The
Manager and its affiliates have banking relationships with the Custodian.
The Manager has represented to the Fund that its banking relationships
with the Custodian have been and will continue to be unrelated to and
unaffected by the relationship between the Fund and the Custodian. It
will be the practice of the Fund to deal with the Custodian in a manner
uninfluenced by any banking relationship the Custodian may have with the
Manager and its affiliates. The Fund's cash balances with the Custodian
in excess of $100,000 are not protected by Federal deposit insurance.
Such uninsured balances may at times be substantial.
The Distributor. Under the General Distributor's Agreement between the
Fund and the Distributor, the Distributor acts as the Fund's principal
underwriter in the continuous public offering of the Fund's Class A and
Class B shares, but is not obligated to sell a specific number of shares.
Expenses normally attributable to sales (other than those paid under the
Class B Distribution and Service Plan), 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, 1991, 1992 and 1993, the aggregate amount
of sales charges on sales of the Fund's shares was $11,255,451,
$38,724,674 and $39,326,104, respectively, of which the Distributor and
an affiliated broker-dealer retained in the aggregate $2,532,638,
$10,331,365 and $9,834,389 in those respective years.
Independent Auditors. The independent auditors of the Fund examine the
Fund's financial statements and perform other related audit services.
They also act as auditors for the Manager and certain other funds advised
by the Manager and its affiliates.
<PAGE>
Independent Auditors' Report
The Board of Trustees and Shareholders of Oppenheimer Strategic Income Fund:
We have audited the accompanying statement of assets and liabilities,
including the statement of investments, of Oppenheimer Strategic Income Fund
as of September 30, 1993, the related statement of operations for the year
then ended, the statements of changes in net assets for the years ended
September 30, 1993 and 1992, and the financial highlights for the period
October 16, 1989 (commencement of operations) to September 30, 1993. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned at September 30, 1993 by correspondence with the custodian 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
Strategic Income Fund at September 30, 1993, the results of its operations,
the changes in its net assets, and the financial highlights for the respective
stated periods, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE
/s/ Deloitte & Touche
Denver, Colorado
October 21, 1993
<PAGE>
Statement of Investments September 30, 1993
<TABLE>
<CAPTION>
Face Market Value
Amount See Note 1
<S> <C> <C> <C>
Repurchase Agreements -- 3.3%
Repurchase agreement with J.P. Morgan
Securities, Inc., 3.375%, dated 9/30/93 and
maturing 10/1/93, collateralized by U.S.
Treasury Nts., 7.75%, 3/31/96, with a value of
$115,351,360 (Cost $113,000,000) $ 113,000,000 $113,000,000
International Securities -- 36.2%
Short-Term Foreign United Mexican States Treasury Bills, 0%,
Government 10/14/93-3/3/94
Obligations -- 2.4% 267,637,940+ 81,458,563
Long-Term Foreign Argentina (Republic of):
Government Bonds, Bonos de Consolidacion de Deudas:
Obligations -- 27.6% Series I, 3.1875%, 4/1/01 (2)(4) 91,500,000 75,830,625
Series I, 3.675%, 4/1/01 (2)(4) 82,100,000+ 57,866,529
Bonds, Bonos de Credito, Series III, 12%,
9/26/94 8,028,400+ 14,427,035
Bonds, Bonos del Tesoro:
Series II, 3.24%, 9/1/97 (2) 39,500,000 34,301,800
Series X, 3.30%, 4/1/00 (2) 21,192,460 20,021,894
New Money Bonds, 4.188%, 10/25/99 (2) 2,879,070 2,612,756
Nts., Banco de la Nacion Argentina, 4.1875%,
10/23/97 (2) 12,350,000 11,454,625
Par Bonds, 4%, 3/31/23 (3) 74,500,000 45,351,875
Past Due Interest Bonds, 4.25%, 3/31/05 (2)(5) 8,750,000 6,551,562
Australia (Government of) Bonds, 12%, 5/15/06 10,900,000+ 9,406,749
Brazil (Federal Republic of):
Bonds, Banco Do Brasil SA, 10.50%, 4/14/98 10,000,000 10,650,000
Bonds, Banco Do Nordeste Brasil, 10.375%,
11/6/95 (6) 21,000,000 21,485,625
Bonds, Banco Nacional de Desenvolvimento
Economico e Social:
9.25%, 5/14/95 (6) 18,940,000 19,342,475
6%, 9/15/96 6,880,000 6,553,200
10.375%, 4/27/98 (6) 10,000,000 10,531,250
Interest Due and Unpaid Bonds, 8.75%, 1/1/01 (2) 161,500,000 125,465,312
Nts., Banco Estado Minas Gerais, 10%, 1/15/96 7,940,000 8,029,325
Canada (Government of) Bonds, 9.25%, 10/1/96 20,000,000+ 16,178,034
Colombia (Republic of) 1989-1990 Integrated Loan
Facility
Bonds, 4.188%, 7/1/01 (2)(4) 3,000,000 2,670,000
First Australia National Mortgage Acceptance
Corp. Ltd. Bonds,
Series 17, 15%, 7/15/02 4,710,000+ 3,582,949
France (Republic of) Bonds, 8.50%, 4/25/03 120,000,000+ 24,665,904
Hydro-Ontario Global Bonds, 9%, 6/24/02 10,000,000+ 8,050,086
Hydro-Quebec Global Bonds:
10.875%, 7/25/01 9,200,000+ 8,114,558
10.25%, 5/15/03 10,000,000+ 8,274,687
Indonesia (Republic of) CD, Bank Negara, 0%,
4/24/95 56,500,000,000+ 21,470,955
International Bank for Reconstruction and
Development Bonds,
12.50%, 7/25/97 8,000,000+ 5,185,400
Italy (Republic of) Treasury Bonds:
12%, 10/1/95 54,000,000,000+ 35,668,678
11.50%, 3/1/98 16,000,000,000+ 10,918,367
Jamaica (Government of) 1990 Refinancing
Agreement Nts.,
Traunch B, 4.125%, 11/15/04 (2) 5,000,000 3,500,000
Quebec, Canada (Province of) Sr. Nts., 9.50%,
10/2/02 20,000,000+ 14,178,767
Queensland (Government of) Development Authority
Global
Transferable Registered Nts., 10.50%, 5/15/03 46,565,000+ 37,357,331
Long-Term Foreign Saskatchewan, Canada (Province of) Bonds, 11%, 1/9/01 20,000,000+ $ 17,335,479
Government Obligations South Australia Government Finance Authority
(continued) Bonds, 10%, 1/15/03 30,800,000+ 23,360,365
Spain (Kingdom of) Bonds:
11.45%, 8/30/98 (8) 1,300,000,000+ 10,880,298
10.25%, 11/30/98 (8) 1,500,000,000+ 11,872,200
10.50%, 10/30/03 (8) 1,000,000,000+ 8,217,910
Treasury Corp. of Victoria Gtd. Bonds:
8.25%, 10/15/03 57,350,000+ 39,421,972
Series 3, 12.50%, 10/15/03 23,000,000+ 20,230,288
United Kingdom Treasury Nts., 10%, 2/26/01 11,000,000+ 19,322,433
United Mexican States:
Banco Nacional de Comercio Exterior SNC
International Finance
BV Gtd. Matador Bonds:
13%, 1/29/97 (8) 1,250,000,000+ 9,981,125
12.65%, 6/21/98 (8) 1,900,000,000+ 15,261,294
Bonds, 12.25%, 12/3/98 19,500,000+ 32,902,424
Nts., Nacional Financiera SNC, 13.60%, 4/2/98
(8) 1,000,000,000+ 8,214,120
Venezuela (Republic of):
Bonds, Banco Venezuela TCI, 0%, 12/13/98 (6) $ 11,862,050 9,504,468
Front-Loaded Coupon Reduction Bonds:
Series A, 6%, 3/31/07 (2) 30,000,000 20,784,375
Series B, 6%, 3/31/07 (2) 10,000,000 6,928,125
5.88%, 3/31/07 (2) 20,000,000+ 8,815,504
Nts., 4.75%, 12/29/95 (2) 2,785,380 2,715,745
Gtd. Sr. Bonds, Bariven SA:
8.25%, 3/17/95 (6) 4,000,000 4,065,000
9%, 2/25/97 (6) 2,980,000 3,028,425
952,539,903
Short-Term Foreign Banco Bamerindus Do Brazil CD:
Corporate Bonds 0%, 5/6/94 11,200,000+ 8,010,612
and Notes -- 3.4% 0%, 5/20/94 11,000,000+ 6,702,219
13.50%, 6/3/94 (8) 15,000,000,000+ 8,665,135
Banco Provincial, 58% CD, 11/29/93 486,500,000+ 4,929,227
Citibank, 16.70%-20.50% CD, 10/8/93-8/18/94 (7) 47,200,000 47,129,128
Commermex, 13.375% CD, 6/6/94 (8) 36,500,000,000+ 21,063,785
Salomon, Inc., 18.25% Medium-Term Nts.,
2/18/94 (7) 20,000,000 19,989,680
Trizec Corp. Ltd., 6.125% Debs., 10/21/93 2,000,000+ 1,214,776
117,704,562
Long-Term Foreign Bancario San Paolo, 14.28% CD, 10/18/94 6,500,000,000+ 2,933,777
Corporate Bonds Comtroladora Commercial Mexicano SA,
and Notes -- 2.8% 8.75% Gtd. Nts., 4/21/98 (6) 3,000,000 3,082,500
Dofasco, Inc.:
10.375% SF Debs., 3/15/96 3,000,000+ 2,246,013
9.375% SF Debs., 2/15/97 3,000,000+ 2,246,013
Domtar, Inc.:
11.75% Sr. Nts., 3/15/99 4,500,000 4,725,000
10.35% Debs., 9/1/06 3,350,000+ 2,219,623
10% Debs., 4/15/11 700,000+ 447,031
Long-Term Foreign Empresas La Moderna SA, 10.25% Gtd. Nts.,
Corporate Bonds and 11/12/97 (6) $ 8,600,000 $ 9,159,000
Notes (continued) General Motors Acceptance Corp. Canada Ltd., 9.85%
Medium-Term Nts., 4/23/97 10,000,000+ 8,040,728
International Semi-Tech Microelectronics, Inc.,
0%/11.50%
Sr. Sec. Disc. Nts., 8/15/03 (1) 24,000,000 11,520,000
Noranda Forest, Inc., 11% Debs., 7/15/98 2,000,000+ 1,635,846
Rogers Cablesystems Ltd., 9.625% Sr. Sec. 2nd
Priority Nts., 8/1/02 3,900,000 4,231,500
Rogers Communications, Inc., 10.875% Sr. Debs.,
4/15/04 2,200,000 2,414,500
Royal Bank of Canada, 10.75% Bonds, 8/15/01 10,000,000+ 8,718,275
Sears Canada, Inc.:
11.75% Debs., 12/5/95 2,400,000+ 1,946,844
11.70% Debs., 7/10/00 10,150,000+ 8,465,299
Stelco, Inc.:
10.875% Debs., 9/15/94 4,500,000+ 3,242,682
10.25% Debs., 4/30/96 1,800,000+ 1,248,222
Telecom. Corp. of Australia Ltd., 11.50% Bonds,
10/15/02 15,300,000+ 12,470,606
Trizec Corp. Ltd.:
11.125% Sr. Debs., 6/18/96 8,500,000+ 4,104,589
10.25% Sr. Debs., 6/22/99 500,000+ 241,914
95,339,962
Total International Securities (Cost
$1,230,027,589) 1,247,042,990
Treasury -- 21.7%
U.S. Treasury Bonds:
8.125%, 8/15/19 100,000 123,249
7.125%, 2/15/23 (9) 250,000,000 280,389,978
6.25%, 8/15/23 (9) 150,000,000 154,451,981
U.S. Treasury Nts.:
4.625%, 11/30/94 11,000,000 11,133,979
5.125%, 11/15/95 150,000 153,748
4.625%, 2/15/96 6,000,000 6,080,579
5.75%, 10/31/97 10,000,000 10,428,099
5.625%, 1/31/98 10,000,000 10,378,099
5.125%, 3/31/98 10,000,000 10,178,099
5.125%, 6/30/98 70,000,000 71,115,091
4.75%, 8/31/98 130,000,000 129,836,191
6.375%, 7/15/99 54,000,000 57,965,213
6.375%, 8/15/02 5,000,000 5,343,700
Total Treasury (Cost $736,247,415) 747,578,006
Mortgage/Asset-Backed Obligations -- .9%
Private-Mortgage -- .9% Citicorp Mortgage Securities, Inc., 7% Sub.
Bonds, Series 1993-5:
Cl. B3, 4/25/23 1,681,260 1,367,862
Cl. B4, 4/25/23 1,621,216 226,464
Greate Bay Funding, 11.75% Bonds, 8/15/94 942,260 974,062
GSPI Corp., 10.15% Fst. Mtg. Bonds, 6/24/10 (6) 851,064 1,012,766
Prudential Agricultural Credit, Inc. Farmer Mac
Agricultural
Real Estate Trust Sr. Sub. Mtg. Pass-Through
Certificates:
9.37%, Series 1992-2, Cl. B2, 1/15/03 (2)(6) 6,018,434 4,637,955
9.39%, Series 1992-2, Cl. B3, 4/15/09 (2)(6) 5,920,809 4,322,191
Private- Residential Funding Corp. Mtg. Pass-Through
Mortgage (continued) Certificates, 7.785%, Series 1993-6, Cl. B5,
6/15/23 (6) $ 4,134,696 $ 3,561,653
Resolution Trust Corp. Commercial Mtg.
Pass-Through Certificates:
8.25%, Series 1992-CHF, Cl. C, 12/25/20 1,883,975 1,989,360
10.6323%, Series 1992-16, Cl. B3, 5/24/24 (2) 2,822,000 3,039,823
8.75%, Series 1993-C1, Cl. B, 5/25/24 8,700,000 9,504,750
8.50%, Series 1993-C2, Cl. E, 3/25/25 246,102 246,948
Total Mortgage/Asset-Backed Obligations (Cost
$29,536,547) 30,883,834
U.S. Corporate Bonds and Notes -- 35.7%
Aerospace/Defense -- .5% GPA Delaware, Inc.:
8.50% Medium-Term Nts., 2/10/97 (6) 10,500,000 8,557,500
8.75% Gtd. Nts., 12/15/98 9,000,000 6,997,500
GPA Netherlands BV, 8.50% Medium-Term Nts.,
3/3/97 (6) 3,500,000 2,852,500
18,407,500
Automobiles, Trucks Auburn Hills Trust, 14.875% Gtd Exch. Ctfs.,
and Parts -- 1.1% 5/1/20 (2) 16,825,000 25,279,563
Chrysler Corp., 13% Debs., 3/1/97 500,000 555,625
Envirotest Systems Corp., 9.625% Sr. Sub. Nts.,
4/1/03 11,940,000 11,760,900
Sealed Power Technologies LP, 14.50% Sr. Sub.
Debs., 5/15/99 1,200,000 1,311,000
38,907,088
Broadcast Media/ Adelphia Communications Corp.:
Cable TV-- 5.4% 10.25% Sr. Nts., Series A, 7/15/00 (6) 4,500,000 4,365,000
12.50% Sr. Nts., 5/15/02 6,040,000 6,387,300
Cablevision Industries Corp., 9.25% Sr. Debs.,
Series B, 4/1/08 7,000,000 6,475,000
Cablevision Systems Corp.:
14% Sr. Sub. Debs., 11/15/03 (2) 7,900,000 8,393,750
10.75% Sr. Sub. Debs., 4/1/04 2,150,000 2,246,750
9.875% Sr. Sub. Debs., 2/15/13 6,400,000 6,336,000
Continental Broadcasting Ltd./Continental
Broadcasting Capital Corp., 10.625% Sr. Sub.
Nts., 7/1/03 6,500,000 6,597,500
Continental Cablevision, Inc.:
8.875% Sr. Debs., 9/15/05 2,000,000 1,990,000
9.50% Sr. Debs., 8/1/13 5,500,000 5,582,500
Infinity Broadcasting Corp., 10.375% Sr. Sub.
Nts., 3/15/02 8,000,000 8,370,000
Lamar Advertising Co., 11% Sr. Sec. Nts.,
5/15/03 12,650,000 13,029,500
News America Holdings, Inc.:
12% Sr. Nts., 12/15/01 2,500,000 3,062,500
8.625% Sr. Nts., 2/1/03 10,400,000 11,648,000
8.50% Sr. Nts., 2/15/05 6,000,000 6,611,928
10.125% Gtd. Sr. Debs., 10/15/12 3,300,000 4,009,500
Outlet Broadcasting, Inc., 10.875% Sr. Sub.
Nts., 7/15/03 2,000,000 2,040,000
Panamsat LP/Panamsat Capital Corp.:
9.75% Sr. Sec. Nts., 8/1/00 3,600,000 3,681,000
0%/11.375% Sr. Sub. Disc. Nts., 8/1/03 (1) 29,700,000 18,042,750
SCI Television, Inc.:
11% Sr. Nts., Series 1, 6/30/05 17,000,000 17,595,000
Broadcast Media/ Bank Participation Interest Agreements:
Cable TV (continued) Series 1, 9/30/94 (6)* $ 7,500,000 $ 7,312,500
Series 3, 9/30/94 (6)* 6,000,000 5,850,000
SFX Broadcasting, Inc., 11.375% Sr. Sub. Nts.,
10/1/08 2,750,000 2,750,000
Time Warner, Inc.:
7.45% Nts., 2/1/98 800,000 840,000
7.95% Nts., 2/1/00 8,700,000 9,341,625
Time Warner, Inc./Time Warner Entertainment LP:
10.15% Sr. Nts., 5/1/12 1,000,000 1,155,000
8.375% Sr. Debs., 3/15/23 (6) 7,300,000 7,610,250
TKR Cable I, Inc., 10.50% Sr. Debs., 10/30/07 6,500,000 7,702,500
Univision Television Group, Inc., 11.75% Sr.
Sub. Nts., 1/15/01 5,500,000 5,967,500
184,993,353
Building Materials -- 1.3% Pacific Lumber Co., 10.50% Sr. Nts., 3/1/03 16,520,000 16,685,200
Scotia Pacific Holding Co., 7.95% Timber
Collateralized Nts., 7/20/15 2,741,480 2,861,260
Southdown, Inc., 14% Sr. Sub. Nts., Series B,
10/15/01 3,450,000 3,933,000
Triangle Wire & Cable, Inc., 13.50% Sr. Nts.,
1/15/02 (6) 5,500,000 1,375,000
USG Corp.:
10.25% Sr. Sec. Nts., 12/15/02 10,967,000 11,213,758
8.75% Debs., 3/1/17 11,250,000 10,434,375
46,502,593
Chemicals/Plastics -- 1.0% Atlantis Group, Inc., 11% Sr. Nts., 2/15/03 5,000,000 5,200,000
Quantum Chemical Corp.:
12.50% Sr. Sub. Nts., 3/15/99 2,000,000 2,160,000
10.375% Fst. Mtg. Bonds, 6/1/03 7,500,000 9,187,500
13% Sr. Sub. Debs., 3/15/04 6,025,000 6,627,500
9.875% SF Debs., 4/1/16 2,250,000 2,396,250
8.875% SF Debs., 3/1/17 4,000,000 4,235,000
11% SF Debs., 7/1/18 3,500,000 3,819,375
33,625,625
Consumer Goods - Amstar Corp., 11.375% Sr. Sub. Nts., 2/15/97 14,036,000 14,246,540
Manufacturing -- 2.7% Coleman Holdings, Inc., 0% Sr. Sec. Disc. Nts.,
5/27/98 (6) 18,900,000 11,434,500
Harman International Industries, Inc., 12% Sr.
Sub. Nts., 8/1/02 9,400,000 10,199,000
Interco, Inc.:
9% Sec. Nts., Series B, 6/1/04 7,830,000 7,771,275
9% Sec. Nts., Series B, 6/1/04 (6) 10,000,000 9,800,000
MacAndrews & Forbes Group, Inc., 12.25% Sub.
Debs., 7/1/96 1,250,000 1,289,062
MacAndrews & Forbes Holdings, Inc., 13% Sub.
Debs., 3/1/99 4,915,000 4,945,719
Revlon Consumer Products Corp.:
9.375% Sr. Nts., 4/1/01 2,600,000 2,483,000
10.50% Sr. Sub. Nts., 2/15/03 18,350,000 17,707,750
Revlon Worldwide Corp., 0% Sr. Sec. Disc. Nts.,
3/15/98 24,950,000 13,410,625
93,287,471
Containers - Metal and Calmar, Inc., 12% Sr. Sec. Nts., 12/15/97 7,000,000 7,105,000
Glass -- .4% Calmar Spraying Systems, Inc., 14% Sr. Sub.
Disc. Nts., 2/15/99 3,400,000 3,455,250
Containers - Metal and Owens-Illinois, Inc., 10% Sr. Sub. Nts., 8/1/02 $ 4,100,000 $ 4,325,500
Glass (continued) 14,885,750
Containers - Paper -- 1.2% Equitable Bag, Inc., 12.375% Sr. Nts., 8/15/02 8,150,000 6,316,250
Gaylord Container Corp.:
11.50% Sr. Nts., 5/15/01 8,450,000 8,344,375
0%/12.75% Sr. Sub. Disc. Debs., 5/15/05 (1) 2,350,000 1,609,750
Riverwood International Corp.:
10.75% Sr. Nts., 6/15/00 6,000,000 6,420,000
11.25% Sr. Sub. Nts., 6/15/02 8,500,000 9,180,000
Stone Container Corp., 12.625% Sr. Nts., 7/15/98
(6) 2,500,000 2,462,500
Stone Savannah River Pulp & Paper Corp., 14.125%
Sr. Sub. Nts., 12/15/00 8,970,000 7,489,950
41,822,825
Financial/Insurance -- 1.8% Acadia Partners LP, 13% Sub. Nts., 10/1/97 (6) 25,000,000 26,156,250
American Annuity Group, Inc., 11.125% Sr. Sub.
Nts., 2/1/03 3,000,000 3,135,000
Blue Bell Funding, Inc., 11.85% Extd. Sec. Nts.,
5/1/99 (2) 7,000,000 7,805,000
Chrysler Financial Corp., 13.25% Sr. Nts.,
10/15/99 4,500,000 6,052,500
Conseco, Inc., 8.125% Sr. Nts., 2/15/03 1,900,000 2,044,666
Life Partners Group, Inc., 12.75% Sr. Sub. Nts.,
7/15/02 3,000,000 3,532,500
Navistar Financial Corp.:
9.75% Medium-Term Nts., 8/15/95 3,500,000 3,709,929
9.50% Medium-Term Nts., 6/1/96 6,950,000 7,359,980
Republic American Corp., 9.50% Sub. Debs.,
8/1/02 662,000 704,033
Tiphook Finance Corp., 8% Gtd. Nts., 3/15/00 800,000 792,000
61,291,858
Food and American Restaurant Group, Inc., 12% Gtd. Sr.
Restaurants -- 3.0% Sec. Nts., 9/15/98 6,000,000 6,000,000
Carrols Corp., 11.50% Sr. Nts., 8/15/03 8,000,000 8,060,000
Di Giorgio Corp., 12% Sr. Nts., 2/15/03 9,180,000 9,730,800
Dr. Pepper Bottling Co. of Texas:
15.50% Sr. Sub. Disc. Nts., 11/1/98 5,350,000 5,858,250
10.25% Sr. Nts., 2/15/00 3,000,000 3,120,000
Dr. Pepper/Seven-Up Cos., Inc., 0%/11.50% Sr.
Sub. Disc. Nts., 11/1/02 (1) 4,118,000 3,037,025
Flagstar Corp.:
10.75% Sr. Nts., 9/15/01 1,000,000 1,003,750
10.875% Sr. Nts., 12/1/02 5,500,000 5,541,250
11.25% Sr. Sub. Debs., 11/1/04 3,908,000 3,927,540
Foodmaker, Inc.:
14.25% Sr. Sub. Nts., 5/15/98 15,000,000 16,125,000
9.25% Sr. Nts., 3/1/99 6,500,000 6,613,750
Pilgrim's Pride Corp., 10.875% Sr. Sub. Nts.,
8/1/03 10,200,000 9,945,000
RJR Nabisco, Inc., 8.625% Medium-Term Nts.,
12/1/02 20,000,000 19,259,097
Specialty Foods, 10.75% Sr. Nts., 8/15/01 (6) 6,100,000 6,100,000
104,321,462
Gaming/Hotels -- 1.6% Aztar Corp., 11% Sr. Sub. Nts., 10/1/02 7,250,000 7,358,750
Aztar Mortgage Funding, Inc., 13.50% Gtd. Fst.
Mtg. Nts., 9/15/96 2,250,000 2,401,875
Gaming/Hotels (continued) Embassy Suites, Inc., 10.875% Gtd. Sr. Sub.
Nts., 4/15/02 $ 5,250,000 $ 5,853,750
GNLV Finance Corp.:
11.25% Fst. Mtg. Nts., 7/15/96 2,000,000 2,030,000
12.75% Gtd. Nts., 4/1/99 6,863,000 6,880,158
Grand Casinos, Inc., 12.50% Nts., 2/1/00 7,000,000 7,577,500
Marriott Corp.:
8.125% Sr. Nts., Series C, 12/1/96 700,000 700,000
10% Sr. Nts., Series L, 5/1/12 5,000,000 5,050,000
MGM Grand Hotel Finance Corp.:
11.75% Fst. Mtg. Nts., Series A, 5/1/99 5,000,000 5,575,000
12% Fst. Mtg. Nts., 5/1/02 3,500,000 4,016,250
Station Casinos, Inc., 9.625% Sr. Sub. Nts.,
6/1/03 8,000,000 7,850,000
55,293,283
Healthcare/Medical Alco Health Distribution Corp., 11.25% Sr.
Products -- 1.6% Debs.,
7/15/05 (4) 5,100,000 4,980,471
American Medical International, Inc.:
11.25% Nts., 2/6/95 1,060,000+ 1,545,641
13.50% Sr. Sub. Nts., 8/15/01 1,200,000 1,398,000
Charter Medical Corp., 11.05% Sr. Sec. Disc.
Nts.,
12/31/97(3) 7,049,000 7,101,868
Epic Healthcare Group, Inc., 10.875% Sr. Sub.
Nts., 6/1/03 8,000,000 8,160,000
Epic Holdings, Inc., 0%/12% Sr. Def. Cpn. Nts.,
3/15/02 (1) 12,550,000 8,439,875
Epic Properties, Inc., 11.50% Gtd. Fst. Priority
Mtg. Nts., Cl. B-2, 7/15/01 1,178,824 1,326,176
Eye Care Centers of America, 12% Sr. Nts.,
10/1/03 (6) 7,000,000 7,017,500
Healthtrust, Inc. - The Hospital Co., 10.75%
Sub. Nts., 5/1/02 2,500,000 2,775,000
Mediq/PRN Life Support Services, Inc., 11.125%
Sr. Sec. Nts., 7/1/99 3,000,000 3,157,500
Multicare Cos., Inc. (The), 12.50% Sr. Sub.
Nts., 7/1/02 6,290,000 7,044,800
Quorum Health Group, Inc., 11.875% Sr. Sub.
Nts., 12/15/02 3,750,000 4,106,250
57,053,081
Home Building/ Baldwin Co., 10.375% Sr. Nts., 8/1/03 (6) 9,000,000 8,865,000
Development -- 1.4% Dal-Tile International, Inc., 0% Sr. Sec. Nts.,
7/15/98 21,500,000 12,120,625
Hovnanian K. Enterprises, Inc.:
11.25% Gtd. Sub. Nts., 4/15/02 6,950,000 7,471,250
9.75% Sub. Nts., 6/1/05 4,000,000 3,990,000
NVR, Inc., 11% Gtd. Sr. Nts., 4/15/03 9,050,000 9,140,500
UDC Homes, Inc., 11.75% Sr. Nts., 4/30/03 5,900,000 6,077,000
47,664,375
Information Bell & Howell Holdings Co.:
Technology -- 1.6% 10.75% Sr. Sub. Nts., Series B, 10/1/02 2,000,000 2,070,000
0%/11.50% Debs., Series B, 3/1/05 (1) 24,650,000 12,325,000
Berg Electronics Holdings Corp., 11.875% Sr.
Sub. Debs., 5/1/03 (2)(6) 7,000,000 7,245,000
Computervision Corp., 10.875% Sr. Nts., 8/15/97 9,500,000 8,502,500
Dell Computer Corp., 11% Sr. Nts., 8/15/00 (6) 8,000,000 8,010,000
Information Technology Unisys Corp.:
(continued) 9.75% Sr. Nts., 9/15/96 $ 2,000,000 $ 2,095,000
15% Credit Sensitive Nts., 7/1/97 4,200,000 4,893,000
8.875% Nts., 7/15/97 1,000,000 1,015,000
9.75% Sr. Nts., 9/15/16 7,100,000 7,295,250
53,450,750
Leisure/ Gillett Holdings, Inc., 12.25% Sr. Sub. Nts.,
Entertainment -- .6% Series A, 6/30/02 12,800,000 14,016,000
Kloster Cruise Ltd., 13% Sr. Sec. Nts., 5/1/03
(6) 6,000,000 6,300,000
20,316,000
Manufacturing - Collins & Aikman Group, Inc., 11.875% Sr. Sub.
Diversified -- 1.6% Debs., 6/1/01 16,520,000 15,941,800
Foamex LP/Foamex Capital Corp., 11.25% Sr. Nts.,
10/1/02 8,450,000 9,052,063
Haynes International, Inc.:
11.25% Sr. Sec. Nts., 6/15/98 (6) 3,000,000 3,003,750
13.50% Sr. Sub. Nts., 8/15/99 1,600,000 1,616,000
Imo Industries, Inc., 12.25% Sr. Sub. Debs.,
8/15/97 9,850,000 9,960,813
Insilco Corp., 10.375% Sr. Sec. Nts., 7/1/97 8,500,000 8,585,000
Itel Corp., 13% Sr. Sub. Nts., 1/15/99 3,825,000 4,044,938
Rexnord Corp., 10.75% Sr. Nts., 7/1/02 1,000,000 1,086,250
53,290,614
Metals/Mining -- 1.0% Addington Resources, Inc., 12% Sr. Sec. Nts.,
7/1/95 2,000,000 2,077,500
Armco, Inc.:
13.50% Sr. Nts., 6/15/94 5,868,000 6,161,400
11.375% Sr. Nts., 10/15/99 2,000,000 2,150,000
Carbide/Graphite Group, Inc., 11.50% Sr. Nts.,
9/1/03 15,000,000 15,131,250
Horsehead Industries, Inc.:
13.50% Extd. Nts., 6/1/97 (2) 4,566,000 4,531,755
14% Sub. Nts., 6/1/99 5,050,000 4,664,938
Jorgensen (Earle M.) Co., 10.75% Sr. Nts.,
3/1/00 1,000,000 1,032,500
35,749,343
Miscellaneous -- .1% ECM Fund L.P.I., 14% Sub. Nts., 6/10/02 (6) 2,314,368 2,418,515
Office Equipment -- .5% Eastman, Inc., 13% Sr. Sub. Nts., Series B,
12/15/02 5,000,000 6,350,000
Mosler, Inc., 11% Sr. Nts., Series A, 4/15/03
(6) 12,350,000 12,164,750
18,514,750
Oil and Gas - Equipment Global Marine, Inc., 12.75% Sr. Sec. Nts., 12/15/99
and Services -- .5% OPI International, Inc., 12.875% Gtd. Sr. Nts.,
7/15/02 5,000,000 5,725,000
Rowan Cos., Inc., 11.875% Sr. Nts., 12/1/01 8,000,000 8,920,000
Southwest Gas Corp., 9.75% Debs., Series F,
6/15/02 125,000 143,212
17,687,212
Oil and Gas - Exploration Maxus Energy Corp.:
and Production -- 1.4% 9.875% Nts., 10/15/02 1,000,000 1,072,500
11.50% Debs., 11/15/15 3,500,000 3,753,750
Oil and Gas - Exploration Mesa Capital Corp.:
and Production (continued) 0%/12.75% Disc. Nts., 6/30/96 (1) $ 9,340,000 $ 7,180,125
0%/12.75% Cv. Disc. Nts., 6/30/98 (1) 966,000 1,771,403
0%/12.75% Sec. Disc. Nts., 6/30/98 (1) 17,049,000 13,852,313
Presidio Oil Co.:
11.50% Sr. Sec. Nts., Series A, 9/15/00 (6) 4,688,000 4,934,120
13.85% Sr. Gas Indexed Nts., Series A, 7/15/02
(2)(6) 6,250,000 6,468,750
Triton Energy Corp., 0% Sr. Sub. Disc. Nts.,
11/1/97 10,300,000 6,823,750
TGX Corp., 12.675% Sr. Sub. Exch. Nts., 4/1/94 * 6,920,000 2,802,600
48,659,311
Oil and Gas - Clark R&M Holdings, Inc., 0% Sr. Sec. Nts., 2/15/00 17,555,000 8,755,556
Integrated -- .3%
Oil and Gas - PDV America, Inc., 7.25% Gtd. Sr. Nts., 8/1/98 1,000,000 1,006,287
Refining -- .2% Wainoco Oil Corp., 12% Sr. Nts., 8/1/02 4,675,000 4,850,313
5,856,600
Publishing -- .2% Harcourt Brace Jovanovich, Inc., 14.25% Sub.
Debs., 11/15/04 1,000,000 1,075,000
Sullivan Graphics, Inc., 15% Sr. Sub. Debs.,
2/1/00 5,000,000 5,325,000
6,400,000
Railroads/Equipment -- .2% Rio Grande Industries, Inc., 13.625% Sr. Sub.
Nts., 5/15/95 2,050,000 2,050,000
Southern Pacific Transportation Co., 10.50% Sr.
Sec. Nts., 7/1/99 (6) 4,000,000 4,335,000
6,385,000
Retail - Food and Cullum Cos., Inc., 0%/16% Sub. Disc. Debs.,
Drug -- 1.3% 12/1/03 (1) 7,750,000 7,691,875
Duane Reade, 12% Sr. Nts., Series B, 9/15/02 3,000,000 3,232,500
Eckerd (Jack) Corp., 13% Sub. Disc. Debs.,
5/1/06 410,000 415,125
Farm Fresh, Inc., 12.25% Sr. Nts., 10/1/00 10,000,000 10,550,000
Food 4 Less Supermarkets, Inc., 13.75% Sr. Sub.
Nts., 6/15/01 1,500,000 1,627,500
Grand Union Co., 11.25% Sr. Nts., 7/15/00 12,850,000 13,315,813
Purity Supreme, Inc., 11.75% Sr. Sec. Nts.,
Series B, 8/1/99 3,750,000 3,581,250
Southland Corp., 4.50% 2nd Priority Sr. Sub.
Debs., Series A, 6/15/04 4,850,000 3,231,313
43,645,376
Retail - Specialty -- 1.3% AnnTaylor, Inc., 13.75% Sub. Nts., 7/15/99 500,000 535,000
Finlay Fine Jewelry Corp., 10.625% Sr. Nts.,
5/1/03 7,100,000 6,940,250
Mary Kay Corp.:
12.75% Gtd. Sr. Nts., Series B, 12/6/00 (6) 1,000,000 1,065,000
10.25% Sr. Nts., 12/31/00 (6) 6,000,000 6,120,000
Musicland Group, Inc. (The), 9% Sr. Sub. Nts.,
6/15/03 500,000 501,250
Parisian, Inc., 9.875% Sr. Sub. Nts., 7/15/03 12,000,000 11,610,000
Payless Cashways, Inc., 14.50% Sr. Sub. Debs.,
11/1/00 10,750,000 11,287,500
Speciality Retailers, Inc., 11% Sr. Sub. Nts.,
8/15/03 4,500,000 4,460,625
Zale Delaware Corp., 11% Sr. Sec. Nts., 6/1/00 2,000,000 2,065,000
44,584,625
Services -- .2% Envirosource, Inc., 9.75% Sr. Nts., 6/15/03 $ 9,000,000 $ 8,730,000
Telecommunications -- .7% Cellular, Inc., 0%/11.75% Sr. Sub. Disc. Nts.,
9/1/03 (1) 23,450,000 13,601,000
Horizon Cellular Telephone, 0%/11.375% Sr. Sub.
Disc. Nts., 10/10/00 (1)(6) 18,550,000 12,034,313
25,635,313
Textiles/Apparel -- .4% NTC Group, Inc., 13.875% Sr. Sub. Nts., 8/1/99 1,860,000 1,971,600
Synthetic Industries, Inc., 12.75% Sr. Sub.
Debs., 12/1/02 12,275,000 12,827,375
14,798,975
Transportation -- .5% Greyhound Lines, Inc., 10% Sr. Nts., 7/31/01 4,000,000 4,110,000
Sea Containers Ltd.:
9.50% Sr. Nts., 7/1/03 5,000,000 4,962,500
12.50% Sr. Sub. Debs., 12/1/04 5,600,000 6,230,000
12.50% Sr. Sub. Debs., Series B, 12/1/04 1,500,000 1,672,500
16,975,000
Utilities -- .1% Coastal Corp., 11.75% Sr. Debs., 6/15/06 2,500,000 2,953,125
Total U.S. Corporate Bonds and Notes (Cost
$1,212,280,766) 1,232,862,329
Shares
Common Stocks -- .0%
Berg Electronics Holdings Corp. (6) 15,922 206,986
ECM Fund L.P.I. (6)* 525 525,000
Ladish, Inc.* 806,000 806,000
Total Common Stocks (Cost $1,683,772) 1,537,986
Preferred Stocks -- .7%
Berg Electronics Holdings Corp. (4)(6) 83,788 2,147,068
Harvard Industries, Inc., Exch. (4) 177,000 4,402,875
K-III Communications Corp., Sr. Exch., Series A 80,000 2,190,000
K-III Communications Corp., Exch., Series B (4) 21,103 2,157,814
Unisys Corp., $3.75 Cv., Series A 254,800 12,230,400
Total Preferred Stocks (Cost $20,733,278) 23,128,157
Units
Rights, Warrants and Certificates -- .1%
Hollywood Casino Corp. Wts., Exp. 4/98 13,333 2,786,664
Triangle Wire & Cable, Inc. Wts., Exp. 1/98 (6) 55,000 550
Total Rights, Warrants and Certificates (Cost
$116,550) 2,787,214
Total Investments, at Value (Cost $3,343,625,917) 98.6% $ 3,398,820,516
Other Assets Net of Liabilities 1.4% 49,921,067
Net Assets 100.0% $ 3,448,741,583
<FN>
+ Face amount is reported in foreign currency.
* Non-income producing security.
(1) Represents a zero coupon bond that converts to a fixed rate of interest at
a designated future date.
(2) Represents the current interest rate for a variable rate security.
(3) Represents the current interest rate for an increasing rate security.
(4) Interest or dividend is paid in kind.
(5) When-issued security to be delivered and settled after September 30, 1993.
(6) Restricted security -- See Note 6 of notes to financial statements.
(7) Indexed instrument for which the principal amount due at maturity is
affected by the relative value of a foreign currency.
(8) Securities with an aggregate market value of $94,155,867 are segregated to
collateralize outstanding forward foreign currency exchange contracts. See
Note 8 of notes to the financial statements.
(9) Securities with an aggregate market value of $322,685,968 are held in
escrow to cover outstanding call options, as follows:
</TABLE>
<TABLE>
<CAPTION>
Face Amount Expiration Exercise Premium Market Value
Subject to Call Date Price Received See Note 1
<S> <C> <C> <C> <C> <C>
U.S. Treasury Bonds, 6.25%, 8/15/23 $100,000,000 10/93 $101.0000 $ 1,203,125 $ 2,187,500
U.S. Treasury Bonds, 6.25%, 8/15/23 50,000,000 10/93 100.5000 625,000 1,250,000
U.S. Treasury Bonds, 7.125%, 2/15/23 50,000,000 10/93 111.8594 664,062 617,187
U.S. Treasury Bonds, 7.125%, 2/15/23 100,000,000 11/93 115.4375 1,421,875 296,875
$ 3,914,062 $ 4,351,562
</TABLE>
See accompanying notes to financial statements.
Statement of Assets and Liabilities September 30, 1993
<TABLE>
<S> <C> <C>
Assets Investments, at value (cost $3,343,625,917) - see accompanying statement $3,398,820,516
Cash 12,491,405
Receivables:
Interest and dividends 70,981,500
Investments sold 64,192,906
Shares of beneficial interest sold 33,669,175
Deferred organization costs 2,645
Other 53,132
Total assets 3,580,211,279
Liabilities Options written, at value (premiums received $3,914,062) -
see accompanying statement - Note 4 4,351,562
Unrealized depreciation on forward foreign currency exchange
contracts - Note 8 3,782,200
Payables and other liabilities:
Investments purchased 102,318,818
Dividends 9,179,168
Shares of beneficial interest redeemed 8,134,807
Distribution assistance - Note 5 1,992,355
Other 1,710,786
Total liabilities 131,469,696
Net Assets $3,448,741,583
Composition of Paid-in capital $3,343,924,804
Net Assets Undistributed net investment income 2,865,362
Accumulated net realized gain from investment, written option
and foreign currency transactions 53,765,478
Net unrealized appreciation of investments and
options written - Note 3 94,660,555
Net unrealized depreciation on translation of assets and liabilities
denominated in foreign currencies (46,474,616)
Net Assets $3,448,741,583
Net Asset Value Class A Shares:
Per Share Net asset value and redemption price per share (based on net assets of
$2,753,674,083 and 528,587,101 shares of beneficial interest outstanding) $ 5.21
Maximum offering price per share
(net asset value plus sales charge of 4.75% of offering price) $ 5.47
Class B Shares:
Net asset value, redemption price and offering price per share
(based on net assets of $695,067,500 and 133,234,537 shares of
beneficial interest outstanding) $ 5.22
</TABLE>
See accompanying notes to financial statements.
Statement of Operations For the Year Ended September 30, 1993
<TABLE>
<S> <C> <C>
Investment Income Interest $250,619,872
Dividends 1,677,258
Total income 252,297,130
Expenses Management fees - Note 5 14,044,913
Distribution assistance:
Class A - Note 5 5,500,486
Class B - Note 5 2,282,239
Transfer and shareholder servicing agent fees - Note 5 2,996,971
Shareholder reports 1,039,628
Custodian fees and expenses 595,950
Registration and filing fees:
Class A 259,169
Class B 211,402
Legal and auditing fees 65,593
Trustees' fees and expenses 49,256
Other 44,407
Total expenses 27,090,014
Net Investment Income 225,207,116
Realized and Net realized gain on investments and options written
Unrealized Gain (including premiums on options exercised) 70,040,056
on Investments and Net realized gain on expiration of option contracts
Options Written written - Note 4 7,007,812
Net realized gain 77,047,868
Net change in unrealized appreciation of investments
and options written:
Beginning of year 20,678,221
End of year - Note 3 94,660,555
Net change 73,982,334
Net Realized and Unrealized Gain on Investments and Options Written 151,030,202
Net Increase in Net Assets Resulting from Operations Before Foreign Exchange Loss 376,237,318
Realized and Net realized loss on foreign currency transactions (13,357,433)
Unrealized Foreign Net change in unrealized depreciation on translation
Exchange Loss of assets and liabilities denominated in foreign currencies:
Beginning of year (4,616,456)
End of year (46,474,616)
Net change (41,858,160)
Net Realized and Unrealized Foreign Exchange Loss (55,215,593)
Net Increase in Net Assets Resulting From Operations $321,021,725
</TABLE>
See accompanying notes to financial statements.
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended September 30,
1993 1992
<S> <C> <C> <C>
Operations Net investment income $ 225,207,116 $ 101,800,883
Net realized gain on investments and options written 77,047,868 22,692,495
Net realized loss from foreign currency transactions (13,357,433) (8,405,836)
Net change in unrealized appreciation or depreciation
of investments and options written 73,982,334 13,009,739
Net change in unrealized appreciation or depreciation
on translation of assets and liabilities denominated
in foreign currencies (41,858,160) (5,172,650)
Net increase in net assets resulting from operations 321,021,725 123,924,631
Dividends and Dividends from net investment income:
Distributions to Class A ($.4960 and $.4553 per share, respectively) (210,522,530) (96,660,747)
Shareholders Class B ($.3637 per share) (18,595,592) --
Distributions from net realized gain on investments,
options written and foreign currency transactions:
Class A ($.0124 and $.0837 per share, respectively) (7,998,180) (16,399,257)
Class B ($.0124 per share) (36,330) --
Beneficial Interest Net increase in net assets resulting from Class A
Transactions beneficial interest transactions - Note 2 945,622,259 1,164,624,568
Net increase in net assets resulting from Class B
beneficial interest transactions - Note 2 683,558,019 --
Net Assets Total increase 1,713,049,371 1,175,489,195
Beginning of year 1,735,692,212 560,203,017
End of year (including undistributed net investment
income of $2,865,362 and $6,776,368, respectively) $3,448,741,583 $1,735,692,212
</TABLE>
See accompanying notes to financial statements.
Financial Highlights
<TABLE>
<CAPTION>
Class A Class B
Year Ended Period Ended
September 30, September 30,
1993 1992 1991 1990+ 1993+++
<S> <C> <C> <C> <C> <C>
Per Share Operating Data:
Net asset value, beginning of period $ 5.07 $ 5.01 $ 4.87 $ 5.00 $ 4.89
Income from investment operations:
Net investment income .48 .46 .56 .59 .36
Net realized and unrealized gain (loss) on investments,
options written and foreign currencies .17 .14 .21 (.10) .34
Total income from investment operations .65 .60 .77 .49 .70
Dividends and distributions to shareholders:
Dividends from net investment income (.50) (.46) (.57) (.57) (.36)
Distributions from net realized gain on investments,
options written and foreign currency transactions (.01) (.08) (.06) (.05) (.01)
Total dividends and distributions to shareholders (.51) (.54) (.63) (.62) (.37)
Net asset value, end of period $ 5.21 $ 5.07 $ 5.01 $ 4.87 $ 5.22
Total Return, at Net Asset Value** 13.30% 12.56% 16.97% 10.20% 14.89%
Ratios/Supplemental Data:
Net assets, end of period (in thousands) $2,753,674 $1,735,692 $560,203 $177,346 $695,068
Average net assets (in thousands) $2,107,141 $1,083,977 $311,352 $ 92,713 $276,461
Number of shares outstanding at end of period
(in thousands) 528,587 342,034 111,739 36,418 133,235
Ratios to average net assets:
Net investment income 9.78% 9.39% 11.82% 12.79%* 8.13%*
Expenses 1.09% 1.16%++ 1.27%++ 1.36%* 1.80%*
Portfolio turnover rate*** 148.6% 208.2% 194.7% 424.6% 148.6%
<FN>
* Annualized.
** Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption at
the net asset value calculated on the last business day of the fiscal period.
Sales charges are not reflected in the total returns.
*** The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at the
time of acquisition of one year or less are excluded from the calculation.
Purchases and sales of investment securities (excluding short-term securities)
for the year ended September 30, 1993 were $4,555,598,376 and $3,269,648,451,
respectively.
+ For the period from October 16, 1989 (commencement of operations) to September 30, 1990.
++ Includes $.0002 and $.0020 per share of federal excise tax expense for 1992
and 1991, respectively. The expense ratio, exclusive of federal excise tax
expense, was 1.16% and 1.23%, respectively.
+++ For the period from November 30, 1992 (inception of offering) to September 30, 1993.
</TABLE>
See accompanying notes to financial statements.
Notes to Financial Statements
1. Significant Accounting Policies
Oppenheimer Strategic Income Fund (the Fund) is registered under the
Investment Company Act of 1940, as amended, as a diversified, open- end
management investment company. The Fund's investment adviser is Oppenheimer
Management Corporation (the Manager). The Fund offers both Class A and Class B
shares. Class A shares are sold with a front-end sales charge. Class B shares
may be subject to a contingent deferred sales charge. Both classes of shares
have identical rights to earnings, assets and voting privileges, except that
each class has its own distribution plan, expenses directly attributable to a
particular class and exclusive voting rights with respect to matters affecting
a single class. Class B shares will automatically convert to Class A shares
six years after the date of purchase. The following is a summary of
significant accounting policies consistently followed by the Fund.
Investment Valuation - Portfolio securities are valued at 4:00 p.m. (New York
time) on each trading day. 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 debt securities are
valued by a portfolio pricing service approved by the Board of Trustees.
Long-term debt securities which cannot be valued by the approved portfolio
pricing service are valued by averaging the mean between the bid and asked
prices obtained from two active market makers in such securities. Short-term
debt securities having a remaining maturity of 60 days or less are valued at
cost (or last determined market value) adjusted for amortization to maturity
of any premium or discount. Securities for which market quotes are not readily
available are valued under procedures established by the Board of Trustees to
determine fair value in good faith. An option is valued based upon the last
sales price on the principal exchange on which the option is traded or, in the
absence of any transactions that day, the value is based upon the last sale on
the prior trading date if it is within the spread between the closing bid and
asked prices. If the last sale price is outside the spread, the closing bid or
asked price closest to the last reported sale price is used. Forward foreign
currency contracts are valued at the forward rate on a daily basis.
Security Credit Risk - The Fund invests in high yield securities, 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, 1993,
securities with an aggregate market value of $15,965,100, representing .45% of
the Fund's total assets, were in default.
Foreign Currency Translation - The accounting records of the Fund are
maintained in U.S. dollars. Prices of securities denominated in non-U.S.
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 net gain or loss resulting from changes in the foreign
currency exchange rates is reported separately in the Statement of Operations.
The Fund generally enters into forward foreign currency exchange 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 portfolio positions. A
forward exchange contract is a commitment to purchase or sell a foreign
currency at a future date, at a negotiated rate. Risks may arise from the
potential inability of the counterparty to meet the terms of the contract and
from unanticipated movements in the value of a foreign currency relative to
the U.S. dollar.
Repurchase Agreements - The Fund requires the custodian to take possession, to
have legally segregated in the Federal Reserve Book Entry System or to have
segregated within the custodian's vault, all securities held as collateral for
repurchase agreements. If the seller of the agreement defaults and the value
of the collateral declines, or if the seller enters an insolvency proceeding,
realization of the value of the collateral by the Fund may be delayed or
limited.
Options Written - The Fund may write covered call and put options. 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. In writing an option, the Fund bears the market risk of an unfavorable
change in the price of the security underlying the written option. Exercise of
an option written by the Fund could result in the Fund selling or purchasing a
security at a price different from the current market value. All securities
covering call options written are held in escrow by the custodian bank and the
Fund maintains liquid assets sufficient to cover written put options in the
event of exercise by the holder.
Allocation of Income, Expenses and Gains and Losses - Income, expenses (other
than those attributable to a specific class) and gains and losses are
allocated daily to each class of shares based upon the relative proportion of
net assets represented by such class. Operating expenses directly attributable
to a specific class are charged against the operations of that class.
Federal Income Taxes - The Fund intends to continue to comply with provisions
of the Internal Revenue Code applicable to regulated investment companies and
to distribute all of its taxable income, including any net realized gain on
investments not offset by loss carryovers, to shareholders. Therefore, no
federal income tax provision is required.
Organization Costs - The Manager advanced $13,675 for organization and
start-up costs of the Fund. Such expenses are being amortized over a five-year
period from the date operations commenced. In the event that all or part of
the Manager's initial investment in shares of the Fund is withdrawn during the
amortization period, the redemption proceeds will be reduced to reimburse the
Fund for any unamortized expenses, in the same ratio as the number of shares
redeemed bears to the number of initial shares outstanding at the time of such
redemption.
Distributions to Shareholders - The Fund intends to declare dividends
separately for Class A and Class B shares from net investment income each day
the New York Stock Exchange is open for business and pay such dividends
monthly. Distributions from net realized gains on investments, if any, will be
declared at least once each year.
Other - Investment transactions are accounted for on the date the investments
are purchased or sold (trade date) and dividend income is recorded on the
ex-dividend date. Discount on securities purchased is amortized over the life
of the respective securities, in accordance with federal income tax
requirements. Realized gains and losses on investments and options written 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 Beneficial Interest
The Fund has authorized an unlimited number of no par value shares of
beneficial interest of each class. Transactions in shares of beneficial
interest were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
September 30, 1993+ September 30, 1992
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Class A:
Sold 249,430,763 $1,264,793,607 258,282,014 $1,306,306,406
Dividends and distributions reinvested 29,150,165 147,612,098 14,443,679 72,983,888
Issued in connection with the
acquisition of Advance America
Strategic Income Fund - Note 7 -- -- 1,448,481 7,271,373
Redeemed (92,028,210) (466,783,446) (43,879,115) (221,937,099)
Net increase 186,552,718 $ 945,622,259 230,295,059 $1,164,624,568
Class B:
Sold 133,631,433 $ 685,673,857 -- $ --
Dividends and distributions reinvested 1,974,080 10,213,941 -- --
Redeemed (2,370,976) (12,329,779) -- --
Net increase 133,234,537 $ 683,558,019 -- $ --
</TABLE>
+ For the year ended September 30, 1993 for Class A shares and for the period
from November 30, 1992 (inception of offering) to September 30, 1993 for Class
B shares.
3. Unrealized Gains and Losses on Investments and Options Written
At September 30, 1993, net unrealized appreciation of investments and options
written of $94,660,555 was composed of gross appreciation of $97,934,313, and
gross depreciation of $3,273,758.
4. Call Option Activity
Call option activity for the year ended September 30, 1993 was as follows:
<TABLE>
<CAPTION>
Number of Amount of
Options Premiums
<S> <C> <C>
Options outstanding at September 30, 1992 35,000 $ 4,421,875
Options written 195,000 23,679,687
Options expired prior to exercise (55,000) (7,007,812)
Options exercised (145,000) (17,179,688)
Options outstanding at September 30, 1993 30,000 $ 3,914,062
</TABLE>
Premiums received on expired options resulted in a short-term capital gain of
$7,007,812.
5. Management Fees and Other Transactions with Affiliates
Management fees paid to the Manager were in accordance with the investment
advisory agreement with the Fund which provides for an annual fee of .75% on
the first $200 million of net assets with a reduction of .03% on each $200
million thereafter to $800 million, .60% on the next $200 million and .50% on
net assets in excess of $1 billion. The Manager has agreed to reimburse the
Fund if aggregate expenses (with specified exceptions) exceed the most
stringent applicable regulatory limit on Fund expenses.
For the year ended September 30, 1993, commissions (sales charges paid by
investors) on sales of Class A shares totaled $39,326,104, of which $9,834,389
was retained by Oppenheimer Funds Distributor, Inc. (OFDI), a subsidiary of
the Manager, as general distributor, and by an affiliated broker/dealer.
During the year ended September 30, 1993, OFDI received contingent deferred
sales charges of $281,835 upon redemption of Class B shares.
Oppenheimer Shareholder Services (OSS), a division of the Manager, is the
transfer and shareholder servicing agent for the Fund, and for other
registered investment companies. OSS's total costs of providing such services
are allocated ratably to these companies.
Under separate approved plans of distribution, each class may expend up to
.25% of its net assets annually to reimburse OFDI for costs incurred in
distributing shares of the Fund, including amounts paid to brokers, dealers,
banks and other institutions. In addition, Class B shares are subject to an
asset-based sales charge of .75% of net assets annually, to reimburse OFDI for
sales commissions paid from its own resources at the time of sale and
associated financing costs. In the event of termination or discontinuance of
the Class B plan of distribution, the Fund would be contractually obligated to
pay OFDI for any expenses not previously reimbursed or recovered through
contingent deferred sales charges. During the year ended September 30, 1993,
OFDI paid $314,826 to an affiliated broker/dealer as reimbursement for Class A
distribution-related expenses and retained $2,282,239 as reimbursement for
Class B distribution-related expenses and sales commissions.
6. Restricted Securities
The Fund owns securities purchased in private placement transactions, without
registration under the Securities Act of 1933 (the Act). The securities 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 restricted and illiquid securities,
excluding securities eligible for resale pursuant to Rule 144A of the Act that
are determined to be liquid by the Board of Trustees or by the Manager under
Board-approved guidelines. Restricted and illiquid securities amount to
$59,031,179, or 1.71% of the Fund's net assets, at September 30, 1993.
<TABLE>
<CAPTION>
Valuation Per
Acquisition Cost Unit as of
Security Date Per Unit September 30, 1993
<S> <C> <C> <C>
Acadia Partners LP, 13% Sub. Nts., 10/1/97+ 3/12/93 $ 100.00 $ 104.63
Adelphia Communications Corp., 10.25% Sr. Nts., Series A, 7/15/00+ 7/21/93 $ 98.80 $ 97.00
Baldwin Co., 10.375% Sr. Nts., 8/1/03+ 7/15/93-7/19/93 $ 100.50 $ 98.50
Berg Electronics Holdings Corp., 11.875% Sr. Sub. Debs., 5/1/03+ 4/21/93 $ 100.00 $ 103.50
Berg Electronics Holdings Corp., Common Stock+ 4/28/93 $ 11.23 $ 13.00
Berg Electronics Holdings Corp., Preferred Stock+ 4/28/93 $ 22.12 $ 25.63
Brazil (Federal Republic of):
Bonds, Banco Do Nordeste Brasil, 10.375%, 11/6/95+ 4/23/93-6/24/93 $ 101.03 $ 102.31
Bonds, Banco Nacional de Desenvolvimento Economico e Social:
9.25%, 5/14/95+ 9/2/92-3/17/93 $ 97.41 $ 102.13
10.375%, 4/27/98+ 3/31/93 $ 99.75 $ 105.31
Coleman Holdings, Inc., 0% Sr. Sec. Disc. Nts., 5/27/98+ 7/15/93-9/30/93 $ 60.43 $ 60.50
Comtroladora Commercial Mexicano SA, 8.75% Gtd. Nts., 4/21/98+ 4/2/93 $ 99.33 $ 102.75
Dell Computer Corp., 11% Sr. Nts., 8/15/00+ 8/19/93 $ 100.00 $ 100.13
ECM Fund L.P.I., 14% Sub. Nts., 6/10/02 4/14/92 $ 100.00 $ 104.50
ECM Fund L.P.I., Common Stock 4/14/92 $ 1,000.00 $ 1,000.00
Empresas La Moderna SA, 10.25% Gtd. Nts., 11/12/97+ 12/9/92 $ 97.35 $ 106.50
Eye Care Centers of America, 12% Sr. Nts., 10/1/03+ 9/28/93 $ 100.00 $ 100.25
GPA Delaware, Inc., 8.50% Medium-Term Nts., 2/10/97+ 6/30/93 $ 69.50 $ 81.50
GPA Netherlands BV, 8.50% Medium-Term Nts., 3/3/97+ 7/8/93 $ 72.75 $ 81.50
GSPI Corp., 10.15% Fst. Mtg. Bonds, 6/24/10+ 1/29/93 $ 102.40 $ 119.00
Haynes International, Inc., 11.25% Sr. Sec. Nts., 6/15/98+ 6/30/93 $ 100.00 $ 100.13
Horizon Cellular Telephone, 0%/11.375% Sr. Sub. Disc. Nts., 10/10/00+ 9/24/93 $ 64.24 $ 64.88
Interco, Inc., 9% Sec. Nts., Series B, 6/1/04 10/14/92 $ 91.50 $ 98.00
Kloster Cruise Ltd., 13% Sr. Sec. Nts., 5/1/03+ 5/6/93-5/28/93 $ 102.75 $ 105.00
Mary Kay Corp.:
12.75% Gtd. Sr. Nts., Series B, 12/6/00 12/11/92 $ 106.50 $ 106.50
10.25% Sr. Nts., 12/31/00 6/30/93 $ 100.00 $ 102.00
Mosler, Inc., 11% Sr. Nts., Series A, 4/15/03+ 7/22/93-9/30/93 $ 98.75 $ 98.50
Presidio Oil Co.:
11.50% Sr. Sec. Nts., Series A, 9/15/00+ 8/3/93 $ 100.00 $ 105.25
13.85% Sr. Gas Indexed Nts., Series A, 7/15/02+ 9/20/91-2/24/92 $ 102.25 $ 103.50
</TABLE>
<TABLE>
<CAPTION>
Valuation Per
Acquisition Cost Unit as of
Security Date Per Unit September 30, 1993
<S> <C> <C> <C>
Prudential Agricultural Credit, Inc.
Farmer Mac Agricultural Real Estate Trust Sr. Sub. Mtg.
Pass-Through Certificates:
9.37%, Series 1992-2, Cl. B2, 1/15/03 8/18/92 $ 74.47 $ 77.06
9.39%, Series 1992-2, Cl. B3, 4/15/09 8/18/92 $ 70.74 $ 73.00
Residential Funding Corp. Mtg. Pass-Through Certificates, 7.785%,
Series 1993-6, Cl. B5, 6/15/23+ 6/10/93 $ 82.11 $ 86.14
SCI Television, Inc. Bank Participation Interest Agreements:
Series 1, 9/30/94 3/25/93 $ 91.75 $ 97.50
Series 3, 9/30/94 5/6/93 $ 97.00 $ 97.50
Southern Pacific Transportation Co., 10.50% Sr. Sec. Nts., 7/1/99+ 3/4/93 $ 100.00 $ 108.38
Specialty Foods, 10.75% Sr. Nts., 8/15/01 8/10/93 $ 100.00 $ 100.00
Stone Container Corp., 12.625% Sr. Nts., 7/15/98+ 6/24/93 $ 100.00 $ 98.50
Time Warner, Inc./Time Warner Entertainment LP, 8.375% Sr. Debs., 3/15/23+ 5/18/93 $ 95.82 $ 104.25
Triangle Wire & Cable, Inc., 13.50% Sr. Nts., 1/15/02 1/13/92 $ 100.00 $ 25.00
Triangle Wire & Cable, Inc. Wts., Exp. 1/98 1/13/92 $ -- $ 0.01
Venezuela (Republic of):
Bonds, Banco Venezuela TCI, 0%, 12/13/98 7/13/93-7/15/93 $ 73.13 $ 80.13
Gtd. Sr. Bonds, Bariven SA:
8.25%, 3/17/95+ 11/24/92 $ 95.75 $ 101.63
9%, 2/25/97+ 12/10/92-1/26/93 $ 94.77 $ 101.63
</TABLE>
+Transferable under Rule 144A of the Act.
7. Acquisition of Advance America Strategic Income Fund
On October 18, 1991, the Fund acquired all of the net assets of Advance
America Strategic Income Fund (AASIF), pursuant to an Agreement and Plan of
Reorganization approved by the AASIF shareholders on October 17, 1991. The
Fund issued 1,448,481 shares of beneficial interest, valued at $7,271,373, in
exchange for the net assets, resulting in combined net assets of $604,718,076
on October 18, 1991. The net assets acquired included net unrealized
depreciation of $23,555 and capital loss carryovers for federal income tax
purposes of $389,201. The exchange was tax-free.
8. Forward Foreign Currency Exchange Contracts
At September 30, 1993, the Fund had outstanding forward exchange currency
contracts to sell foreign currencies as follows:
<TABLE>
<CAPTION>
Valuation as of Unrealized
Expiration Date Contract Amount September 30, 1993 Depreciation
<S> <C> <C> <C> <C>
Italian Lira 10/28/93 $24,994,532 $25,040,032 $ 45,500
Spanish Peseta 11/8/93 51,163,443 54,879,143 3,715,700
Spanish Peseta 12/28/93 7,430,525 7,451,525 21,000
$83,588,500 $87,370,700 $ 3,782,200
</TABLE>
<PAGE>
Investment Adviser
Oppenheimer Management Corporation
Two World Trade Center
New York, New York 10048
Distributor
Oppenheimer Funds Distributor, Inc.
Two World Trade Center
New York, New York 10048
Transfer Agent
Oppenheimer Shareholder 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
1560 Broadway
Denver, Colorado 80202
Legal Counsel
Myer, Swanson & Adams, P.C.
1600 Broadway
Denver, Colorado 80202
<PAGE>
Oppenheimer Strategic Diversified Income Fund
3410 South Galena Street, Denver, CO 80231
Telephone 1-800-525-7048
Oppenheimer Strategic Diversified Income Fund (the "Fund") is a mutual
fund with the investment objective of seeking a high level of current
income principally derived from interest on debt securities and to enhance
such income by writing covered call options on debt securities. The Fund
intends to invest principally in: (i) foreign government and corporate
debt securities, (ii) U.S. Government securities, and (iii) lower-rated
high yield domestic bonds, which may be considered to be speculative and
are commonly called "junk bonds." An investment in the Fund does not
constitute a complete investment program and is not appropriate for
persons unwilling or unable to assume the high degree of risk associated
with investing in high yield, lower rated securities.
This Prospectus sets forth concisely information about the Fund that
a prospective investor should know before investing. A Statement of
Additional Information about the Fund (the "Additional Statement") dated
February 1, 1994, has been filed with the Securities and Exchange
Commission ("SEC") and is available without charge upon written request
to Oppenheimer Shareholder Services ("the Transfer Agent"), P.O. Box 5270,
Denver, Colorado 80217, or by calling the Transfer Agent at the toll-free
number shown above. The Additional Statement (which is incorporated in
its entirety by reference in this Prospectus) contains more detailed
information about the Fund and its management.
Investors are advised to read and retain this Prospectus for future
reference. Shares of the Fund are not deposits or obligations of any
bank, and are not insured by the F.D.I.C. or any other agency, and involve
investment risks, including the possible loss of principal.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Prospectus is dated February 1, 1994.
<PAGE>
Table of Contents
Page
Fund Expenses
The Fund and Its Investment Policies
Special Investment Methods
Investment Restrictions
Management of the Fund
How to Buy Shares
Minimum Investment
Contingent Deferred Sales Charge
Distribution and Service Plan
Purchase Programs
AccountLink
PhoneLink
Asset Builder Plans
How to Redeem Shares
Regular Redemption Procedures
Telephone Redemptions
Distributions from Retirement Plans
Automatic Withdrawal and Exchange Plans
Repurchase
Reinvestment Privilege
General Information on Redemptions
Exchanges of Shares and Retirement Plans
Dividends, Distributions and Taxes
Fund Performance Information
Additional Information
Appendix: Description of Ratings
<PAGE>
Fund Expenses
The following table sets forth the fees that an investor in the Fund
might pay and the expenses expected to be paid by the Fund during its
fiscal year ending September 30, 1994.
Shareholder Transaction Expenses
Maximum Sales Charge on Purchases
(as a percentage of offering price) None
Sales Charge on Reinvested Dividends None
Maximum Contingent Deferred Sales
Charge on Redemptions 1.0%(1)
Redemption Fee None
Exchange Fee $5.00
Estimated Annual Fund Operating Expenses (as a percentage of average net
assets)
Management Fees .75%
12b-1 (Distribution and Service Plan) Fees
1.00%
Other Expenses .36%
------
Total Fund Operating Expenses 2.11%
_______________________
(1) A 1.0% contingent deferred sales charge is imposed on the proceeds
of shares redeemed within 12 months of their purchase, subject to
certain conditions. See "How to Buy Shares -Contingent Deferred
Sales Charge," below.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that an investor in the Fund will bear directly
(shareholder transaction expenses) or indirectly (annual fund operating
expenses). The Fund's shares were first publicly issued on February 1,
1994. Because the Fund is new and has not yet completed a twelve-month
fiscal year, the "Annual Fund Operating Expenses" are estimates based on
amounts expected to be paid in the Fund's first fiscal year ending
September 30, 1994. The actual amount of such fees and expenses in the
current and future years will depend on a number of factors, including the
actual average net assets of the Fund during such years. "Other Expenses"
includes such expenses as custodial and transfer agent fees, audit, legal
and other business operating expenses, but excludes extraordinary
expenses.
The following examples apply the above-stated expenses and the current
maximum sales charge to a hypothetical $1,000 investment in shares of the
Fund over the time periods shown below, assuming a 5% annual rate of
return on the investment. The amounts shown below are the cumulative
costs of such hypothetical $1,000 investment for the periods shown and,
in example 1, assume that the shares are redeemed at the end of each
stated period.
1 year 3 years 5 years 10 years(1)
1. Assuming Redemption $31 $66 $113 $244
2. Assuming no redemption $21 $66 $113 $244
_________________
(1) Long-term shareholders could pay the economic equivalent, through the
asset-based sales charge imposed on shares of more than the maximum
front-end sales charge permitted under applicable regulatory
requirements.
These examples should not be considered a representation of past or
future expenses or performance. Expenses are subject to change and actual
performance and expenses may be less or greater than those illustrated
above.
<PAGE>
The Fund and Its Investment Policies
The Fund is one of two investment portfolios or "series" of Oppenheimer
Strategic Funds Trust (the "Trust"), an open-end, diversified management
investment company. The Trust was organized as a Massachusetts business
trust in 1989. The Fund was organized as a separate series of the Trust
in November, 1993, and has the investment objective of seeking a high
level of current income principally derived from interest on debt
securities and to enhance such income by writing covered call options on
debt securities. Although the premiums received by the Fund from writing
covered calls are a form of capital gain, the Fund will not make
investments in securities with the objective of seeking capital
appreciation.
The Fund intends to invest principally in: (i) lower-rated high yield
domestic bonds; (ii) U.S. Government securities, and (iii) foreign
government and corporate debt securities. Under normal circumstances, the
Fund's assets will be invested in each of these three sectors. However,
the Fund may from time to time invest up to 100% of its total assets in
any one sector if, in the judgment of the Fund's investment adviser,
Oppenheimer Management Corporation (the "Manager"), the Fund has the
opportunity of seeking a high level of current income without undue risk
to principal. Accordingly, the Fund's investments should be considered
speculative. Distributable income will fluctuate as the Fund shifts
assets among the three sectors.
The investment policies and practices described below are not
"fundamental" policies unless a particular policy is identified as
"fundamental." "Fundamental" policies are those that cannot be changed
without the approval of a "majority," as defined in the Investment Company
Act of 1940 (the "Investment Company Act"), of the Fund's outstanding
voting securities. The Fund's Board of Trustees may change non-
fundamental investment policies without shareholder approval.
The Fund's assets may be invested in the following manner and will be
managed in accordance with the investment policies described below.
Further details are in the Additional Statement.
Special Risks - High Yield Securities
The higher yields and high income sought by the Fund are generally
obtainable from securities in the lower rating categories of the
established rating services. Such securities are rated "Baa" or lower by
Moody's Investors Service, Inc. ("Moody's") or "BBB" or lower by Standard
& Poor's Corporation ("Standard & Poor's") and are commonly referred to
as "junk bonds." The Fund may invest in securities rated as low as "C"
by Moody's or "D" by Standard & Poor's. Such ratings indicate that the
obligations are speculative in a high degree and may be in default. The
Fund is not obligated to dispose of securities whose issuers subsequently
are in default or if the rating of such securities is reduced. The
Appendix of this Prospectus describes these rating categories. The Fund
may also invest in unrated securities which, in the opinion of the
Manager, offer comparable yields and risks as those securities which are
rated.
Risks of high yield securities may include: (i) limited liquidity and
secondary market support, (ii) substantial market price volatility
resulting from changes in prevailing interest rates, (iii) subordination
to the prior claims of banks and other senior lenders, (iv) the operation
of mandatory sinking fund or call/redemption provisions during periods of
declining interest rates whereby the Fund may be able to reinvest
premature redemption proceeds only in lower yielding portfolio securities,
(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.
As a result of the limited liquidity of high yield securities, their
prices have at times experienced significant and rapid decline when a
substantial number of holders decided to sell. 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 bonds and adversely affect the value of outstanding
bonds and the ability of the issuers to repay principal and interest. In
addition, there have been several Congressional attempts to limit the use
of tax and other advantages of high yield bonds which, if enacted, could
adversely affect the value of these securities and the Fund's net asset
value. For example, federally-insured savings and loan associations have
been required to divest their investments in high yield bonds.
Special Risk Considerations -Borrowing
The Fund may also leverage its purchases of portfolio securities by
borrowing, which may be considered to be a speculative investment method
and subject an investment in the Fund to relatively greater risks and
costs that may not be present in a fund that does not borrow, including
possible reduction of income and increased fluctuation of net asset value
per share. See "Borrowing," below.
International Securities
The Fund may invest in debt obligations (which may be denominated in
U.S. dollars or in non-U.S. currencies) issued or guaranteed by foreign
corporations, certain supranational entities (such as the World Bank) and
foreign governments (including political subdivisions having taxing
authority) or their agencies or instrumentalities. These investments may
include (i) U.S. dollar-denominated 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 Treasury securities having the same
maturity, (ii) debt obligations such as bonds (including sinking fund and
callable bonds), (iii) debentures and notes (including variable and
floating rate instruments), and (iv) preferred stocks and zero coupon
securities. Further details on these various types of instruments are set
forth under "Domestic Securities," below and "Investment Objective and
Policies" in the Additional Statement.
The percentage of the Fund's assets that will be allocated to such
international securities will vary depending on the relative yields of
foreign and U.S. securities, the economies of foreign countries, the
condition of such countries' financial markets, the interest rate climate
of such countries and the relationship of such countries' currency to the
U.S. dollar. These factors are judged on the basis of fundamental
economic criteria (e.g., relative inflation levels and trends, growth rate
forecasts, balance of payments status, and economic policies) as well as
technical and political data. Subsequent foreign currency losses may
result in the Fund having previously distributed more income in a
particular period than was available from investment income, which could
result in a return of capital to shareholders.
No more than 25% of the Fund's total assets, at the time of purchase,
will be invested in government securities of any one foreign country (see
"Investment Restrictions," below). The Fund has no other restriction on
the amount of its assets that may be invested in foreign securities and
may purchase securities issued in any country, developed or
underdeveloped. Investments in securities of issuers in non-
industrialized countries generally involve more risk and may be considered
highly speculative. Securities of foreign issuers that are represented
by American Depository Receipts, or that are listed on a U.S. securities
exchange, or are traded in the U.S. over-the-counter market are not
considered "foreign securities" because they are not subject to many of
the special considerations and risks (discussed below and in the
Additional Statement) that apply to foreign securities traded and held
abroad. If the Fund's securities are held abroad, the countries in which
such securities may be held and the sub-custodians holding them must be
approved by the Fund's Board of Trustees under applicable SEC rules.
Investment in foreign securities involves considerations and risks not
associated with investment in securities of U.S. issuers. For example,
foreign issuers are not required to use generally-accepted accounting
principles ("G.A.A.P."). If foreign securities are not registered under
the Securities Act of 1933, the issuer does not have to comply with the
disclosure requirements of the Securities Exchange Act of 1934. The
values of foreign securities investments will be affected by incomplete
or inaccurate information available as to foreign issuers, changes in
currency rates, exchange control regulations or currency blockage,
expropriation or nationalization of assets, application of foreign tax
laws (including withholding taxes), changes in governmental administration
or economic or monetary policy in the U.S. or abroad, or changed
circumstances in dealings between nations. In addition, it is generally
more difficult to obtain court judgments outside the United States. See
"International Securities" in the Additional Statement for the risks and
possible rewards of investing in securities of foreign corporations and
governments.
U.S. Government Securities
The Fund may invest in debt instruments issued or guaranteed by the U.S.
Government or its agencies or instrumentalities ("U.S. Government
Securities"). Although U.S. Government Securities are considered among
the most creditworthy of fixed-income investments, their yields are
generally lower than the yields available from corporate debt securities.
The values of U.S. Government Securities (and of fixed-income securities
generally) will vary inversely to changes in prevailing interest rates.
To compensate for the lower yields available on U.S. Government
Securities, the Fund will attempt to augment these yields by writing
covered call options against them when market conditions are appropriate.
See "Writing Covered Calls," below.
U.S. Government Securities are debt obligations issued by or guaranteed
by the United States Government or one of its agencies or
instrumentalities. Certain of these obligations, including U.S. Treasury
notes and bonds, and mortgage-backed securities guaranteed by the
Government National Mortgage Association ("Ginnie Maes"), are supported
by the full faith and credit of the United States. Certain other U.S.
Government Securities, issued or guaranteed by Federal agencies or
government-sponsored enterprises, are not supported by the full faith and
credit of the United States. These latter securities may include
obligations supported by the ability of the issuer to borrow from the U.S.
Treasury, such as obligations of Federal Home Loan Mortgage Corporation
("Freddie Macs"), and obligations supported by the credit of the
instrumentality, such as Federal National Mortgage Association bonds
("Fannie Maes"). U.S. Government Securities in which the Fund may invest
include zero coupon U.S. Treasury securities, mortgage-backed securities
and money market instruments.
-Zero Coupon Treasury Securities. The Fund may invest in zero coupon
securities issued by the U.S. Treasury. Zero coupon Treasury securities
are: (i) U.S. Treasury notes and bonds which have been stripped of their
unmatured interest coupons and receipts; or (ii) certificates representing
interests in such stripped debt obligations or coupons. Because a zero
coupon security pays no interest to its holder during its life or for a
substantial period of time, it usually trades at a deep discount from its
face or par value and will be subject to greater fluctuations of market
value in response to changing interest rates than debt obligations of
comparable maturities which make current distributions of interest.
Because the Fund accrues taxable income from these securities without
receiving cash, the Fund may be required to sell portfolio securities in
order to pay a dividend, depending upon the proportion of shareholders who
elect to receive dividends in cash rather than reinvesting dividends in
additional shares of the Fund. The Fund might also sell portfolio
securities to maintain portfolio liquidity. In either case, cash
distributed or held by the Fund and not reinvested in Fund shares will
hinder the Fund in seeking a high level of current income. The Fund may
invest up to 50% of its total assets at the time of purchase in zero
coupon securities issued by either corporations or the U.S. Treasury (see
"Domestic Securities - Zero Coupon Securities," below).
-Mortgage-Backed Securities and CMOs. The Fund's investments may
include securities which 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 (e.g. Ginnie Maes, Freddie
Macs and Fannie Maes), including collateralized mortgage-backed
obligations ("CMOs"). 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. The issuer's obligation to make
interest and principal payments is secured by the underlying 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 enter into "forward roll" transactions with banks with
respect to the mortgage-backed securities in which it may invest. The
Fund would be required to place cash, U.S. Government securities or other
high-grade debt securities in a segregated account with its Custodian in
an amount equal to its obligation under the roll; that amount is subject
to the limitation on borrowing described below.
The Fund may 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. Stripped securities that receive interest only are subject to
increased volatility due to interest rate changes, and have the additional
risk that if the principal underlying the CMO is 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. See "Mortgage-backed Securities" in the Additional Statement for
more details.
Domestic Securities
The Fund may also invest in fixed-income securities and dividend-paying
common stocks issued by domestic corporations in any industry (industrial,
financial or utility) which may be denominated in U.S. dollars or in non-
U.S. currencies. There is no restriction as to the size of the issuer,
although most will have total assets in excess of $100 million. These
investments may include debt obligations such as bonds, debentures and
notes (including variable and floating rate instruments), preferred
stocks, zero coupon securities and sinking fund and callable bonds. If
a bond held by the Fund is selling at a premium (or discount) and the
issuer exercises the call or makes a mandatory sinking fund payment, the
Fund would realize a loss (or gain) in market value; the income from the
reinvestment of the proceeds would be determined by current market
conditions.
-Preferred Stocks. Preferred stock, unlike common stock, offers a
stated dividend rate payable from the corporation's earnings. Such
preferred stock dividends may be cumulative or non-cumulative,
participating, or auction rate. If interest rates rise, the fixed
dividend on preferred stocks may be less attractive, causing the price of
preferred stocks to decline. Preferred stock may have mandatory sinking
fund provisions, as well as call/redemption provisions prior to maturity,
a negative feature when interest rates decline.
-Participation Interests. The Fund may acquire participation interests
in U.S. dollar-denominated 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. The Manager has set certain
creditworthiness standards for issuers of loan participation, and monitors
their creditworthiness. Some borrowers may have senior securities rated
as low as "C" by Moody's or "D" by Standard & Poor's, but may be deemed
acceptable credit risks. Participation interests are considered
investments in illiquid securities (see "Illiquid and Restricted
Securities," below).
The Fund may purchase only those participation interests that mature in
one year or less, or, if maturing in more than one year, that have a
floating rate that is automatically adjusted at least once each year
according to a specified rate for such investments, such as a percentage
of a bank's prime rate. Their value primarily depends 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 reduction in its income and a decline in the net asset value
of its shares. Further details are set forth in the Additional Statement
under "Investment Objective and Policies."
-Zero Coupon Securities. The Fund may invest in zero coupon securities
issued by corporations. Corporate zero coupon securities are: (i) notes
or debentures which do not pay current interest and are issued at
substantial discounts from par value, or (ii) notes or debentures that pay
no current interest until a stated date one or more years into the future,
after which the issuer is obligated to pay interest until maturity,
usually at a higher rate than if interest were payable from the date of
issuance. Such corporate zero coupon securities, in addition to the risks
identified above under "U.S. Government Securities - Zero Coupon Treasury
Securities," are subject to the risk of the issuer's failure to pay
interest and repay principal in accordance with the terms of the
obligation.
-Asset-Backed Securities. The Fund may invest in securities that
represent fractional undivided interests in pools of consumer loans and
trade receivables, similar in structure to the mortgage-backed securities
in which the Fund may invest, described above. Payments of principal and
interest 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 having a
priority to certain of the borrower's other securities. The degree of
credit enhancement varies, and generally applies to only a fraction of the
asset-backed security's par value until exhausted. 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 experience losses
or delays in receiving payment. Further details are set forth in the
Additional Statement under "Domestic Securities - Asset-Backed
Securities."
Temporary Defensive Investments
In times of unstable economic or market conditions, when the Manager
determines it appropriate to do so, the Fund may assume a temporary
defensive position and invest an unlimited amount of its assets in U.S.
dollar-denominated debt obligations issued by the U.S. or foreign
governments and domestic or foreign corporations or banks maturing in one
year or less ("money market securities"). The Fund will purchase money
market securities to maintain liquidity deemed necessary by the Manager
for investment purposes, and to minimize the impact of fluctuating
interest rates on the net asset value of the Fund. To the extent the Fund
is so invested, it is not invested to achieve its investment objective of
seeking a high level of current income.
The Fund may invest in the following money market securities:
-U.S. Government Securities. Obligations issued or guaranteed by the
U.S. Government or its agencies or instrumentalities.
-Bank Obligations. Certificates of deposit, bankers' acceptances, time
deposits, and letters of credit if they are payable in the United States
or London, England, and are issued or guaranteed by a domestic or foreign
bank having total assets in excess of $1 billion.
-Commercial Paper. Obligations rated at least "A-3" by Standard &
Poor's or at least "Prime-3" by Moody's or, if not rated, issued by a
corporation having an existing debt security rated at least "BBB" or "Baa"
by Standard & Poor's or Moody's, respectively. The Fund's commercial
paper investments may include variable amount master demand notes and
floating rate or variable rate notes.
-Corporate Obligations. Corporate debt obligations (including master
demand notes but not including commercial paper) if they are issued by
domestic corporations and are rated at least "BBB" or "Baa" by Standard
& Poor's or Moody's, respectively, or unrated securities which are of
comparable quality in the opinion of the Manager.
-Other Obligations. Obligations of the type listed in the four
preceding paragraphs, but not satisfying the standards set forth therein,
if they are (a) subject to repurchase agreements or (b) guaranteed as to
principal and interest by a domestic or foreign bank having total assets
in excess of $1 billion, by a corporation whose commercial paper may be
purchased by the Fund, or by a foreign government having an existing debt
security rated at least "BBB" or "Baa."
-Board-Approved Instruments. Other short-term investments of a type
which the Board determines presents minimal credit risks and which are of
"high quality" as determined by any major rating service or, in the case
of an instrument that is not rated, of comparable quality as determined
by the Board.
Portfolio Characteristics
During periods of falling interest rates, the values of outstanding
fixed-income securities generally rise. Conversely, during periods of
rising interest rates, the values of such securities generally decline.
The magnitude of these fluctuations will generally be greater for
securities with longer maturities. Because the Fund will actively use
trading to benefit from short-term yield disparities among different
issues of fixed-income securities or otherwise to increase its income, the
Fund may be subject to a greater degree of portfolio turnover than might
be expected from investment companies which invest substantially all of
their assets on a long-term basis. The Fund cannot accurately predict its
portfolio turnover rate, but it is anticipated that its annual turnover
rate generally will not exceed 200% (excluding turnover of securities
having a maturity of one year or less). The Manager will monitor the
Fund's tax status under the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code") during periods in which the Fund's annual
turnover rate exceeds 100%. No attention will be given to the weighted
average maturity of the portfolio. It will generally be of longer
duration. Preferred stocks, other than those of a finite maturity, will
be assumed to have a 40 year maturity for the purpose of calculating a
weighted average maturity. The Fund anticipates it will move to
securities of longer maturity as interest rates decline, and to securities
of shorter maturity as interest rates rise.
Higher portfolio turnover results in increased Fund expenses,
including brokerage commissions, dealer mark-ups and other transaction
costs on the sale of securities and on the reinvestment in other
securities, and results in the acceleration of realization of capital
gains or losses for tax purposes. To the extent that increased portfolio
turnover results in sales of securities held less than three months, the
Fund's ability to qualify as a "regulated investment company" under the
Internal Revenue Code may be affected. Although changes in the value of
the Fund's portfolio securities subsequent to their acquisition are
reflected in the net asset value of the Fund's shares, such changes will
not affect the income received by the Fund from such securities. The
dividends paid by the Fund will increase or decrease in relation to the
income received by the Fund from its investments, which will in any case
be reduced by the Fund's expenses before being distributed to the Fund's
shareholders.
Special Investment Methods
In pursuing its investment objective, the Fund may use the following
special investment methods.
Loans of Portfolio Securities
To attempt to increase its income and for liquidity purposes, the
Fund may lend its portfolio securities (other than in repurchase
transactions) to brokers, dealers and other financial institutions meeting
certain specified credit conditions if the loan is collateralized in
accordance with applicable regulatory requirements, and if, after any
loan, the value of securities loaned does not exceed 25% of the value of
the Fund's total assets. The Fund presently does not intend that the
value of securities loaned will exceed 5% of the value of the Fund's total
assets. In connection with securities lending, the Fund might experience
risks of delay in receiving additional collateral, or risks of delay in
recovery of the securities, or loss of rights in the collateral should the
borrower fail financially. See "Special Investment Methods - Loans of
Portfolio Securities" in the Additional Statement for further information
on securities loans.
Repurchase Agreements
The Fund may acquire securities that are subject to repurchase
agreements, in order to generate income while providing liquidity. If the
vendor fails to pay the agreed-upon resale price on the delivery date, the
Fund's risks in such event may include any costs of disposing of the
collateral, and any loss from any delay in foreclosing on the collateral.
There is no limit on the amount of the Fund's net assets that may be
subject to repurchase agreements having a maturity of seven days or less.
See "Special Investment Methods - Repurchase Agreements" in the Additional
Statement for more details.
Writing Covered Calls
The Fund may write (i.e. sell) call options ("calls") on debt
securities that are traded on U.S. and foreign securities exchanges and
over-the-counter markets, to enhance income through the receipt of
premiums from expired calls and any net profits from closing purchase
transactions. After any such sale up to 100% of the Fund's total assets
may be subject to calls. All such calls written by the Fund must be
"covered" while the call is outstanding (i.e. the Fund must own the
securities subject to the call or other securities acceptable for
applicable escrow requirements). Calls on Futures (discussed below) must
be covered by deliverable securities or by liquid assets segregated to
satisfy the Futures contract.
Restricted and Illiquid Securities
The Fund will not purchase or otherwise acquire any security if, as
a result, more than 15% of its net assets (taken at current value) would
be invested in securities that are illiquid by virtue of the absence of
a readily available market or because of legal or contractual restrictions
on resale ("restricted securities"). This policy applies to participation
interests, bank time deposits, master demand notes, repurchase
transactions having a maturity beyond seven days, over-the-counter options
held by the Fund and that portion of assets used to cover such options.
This policy is not a fundamental policy and does not limit purchases of
restricted securities eligible for resale to qualified institutional
purchasers pursuant to Rule 144A under the Securities Act of 1933 that are
determined to be liquid by the Board of Trustees or by the Manager under
Board-approved guidelines. Such guidelines take into account trading
activity for such securities and the availability of reliable pricing
information, among other factors. If there is a lack of trading interest
in particular Rule 144A securities, the Fund's holdings of those
securities may be illiquid.
There may be undesirable delays in selling illiquid securities at
prices representing their fair value (see "Special Investment Methods -
Restricted and Illiquid Securities" in the Additional Statement for
further details). The Fund currently intends to invest no more than 10%
of its net assets in illiquid and restricted securities, excluding
securities eligible for resale pursuant to Rule 144A under the Securities
Act of 1933 that are determined to be liquid by the Board of Trustees or
by the Manager under Board-approved guidelines.
Warrants and Rights
The Fund may invest up to 5% of its net assets (at the time of
purchase) in warrants and rights. No more than 2% of the Fund's net
assets may be invested in warrants that are not listed on the New York or
American Stock Exchanges. The Fund will invest only in those warrants or
rights: (i) acquired as part of a unit or attached to other securities
purchased by the Fund, or (ii) acquired as part of a distribution from the
issuer. For further details, see the Additional Statement.
Borrowing
From time to time, the Fund may increase its ownership of securities
by borrowing up to 50% of the value of its total assets from banks on an
unsecured basis and investing the borrowed funds (on which the Fund will
pay interest), provided that immediately after any such borrowing, the
Fund's total assets, less its liabilities other than borrowings, are equal
to at least 300% of all borrowings. Interest on money borrowed is an
expense the Fund would not otherwise incur, so that it may have
substantially reduced net investment income during periods of substantial
borrowings. Further details are in the Additional Statement.
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. "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. 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. See "Special Investment Methods -
When-Issued and Delayed Delivery Transactions" in the Additional
Statement for further details.
Hedging
For hedging purposes, the Fund may use Interest Rate Futures;
Financial Futures (together with Interest Rate Futures, "Futures");
Forward Contracts (defined below); call and put options on debt
securities, Futures, bond indices and foreign currencies; and Interest
Rate Swap transactions (all of the foregoing are referred to as "Hedging
Instruments"). Hedging Instruments may be used to attempt to: (i) protect
against possible declines in the market value of the Fund's portfolio
resulting from downward trends in the debt securities markets (generally
due to a rise in interest rates), (ii) protect unrealized gains in the
value of the Fund's debt securities which have appreciated, (iii)
facilitate selling debt securities for investment reasons, (iv) establish
a position in the debt securities markets as a temporary substitute for
purchasing particular debt securities, or (v) reduce the risk of adverse
currency fluctuations. A call or put may be purchased only if, after such
purchase, the value of all call and put options held by the Fund would not
exceed 5% of the Fund's total assets. The Fund will not use Futures and
options on Futures for speculation. The Hedging Instruments the Fund may
use are described below.
-Interest Rate Futures and Financial Futures. The Fund may buy and
sell Futures. An Interest Rate Future obligates the seller to deliver and
the purchaser to take a specific type of debt security at a specific
future date for a fixed price. That obligation may be satisfied by actual
delivery of the debt security or by entering into an offsetting contract.
A securities index assigns relative values to the securities included in
that index and is used as a basis for trading long-term Financial Futures
contracts. Financial Futures reflect the price movements of securities
included in the index. They differ from Interest Rate Futures in that
settlement is made in cash rather than by delivery of the underlying
investment.
-Purchasing Calls on Securities and Futures. The Fund may purchase
calls on debt securities or on Futures that are traded on U.S. and foreign
securities exchanges and the U.S. over-the-counter markets, in order to
protect against the possibility that the Fund's portfolio will not fully
participate in an anticipated rise in value of the long-term debt
securities market. The value of debt securities underlying calls
purchased by the Fund will not exceed the value of the portion of the
Fund's portfolio invested in cash or cash equivalents (i.e. securities
with maturities of less than one year).
-Puts on Securities and Futures. The Fund may purchase put options
("puts") which relate to debt securities (whether or not it holds such
securities in its portfolio) or Futures. It may also write puts on debt
securities or Futures only if such puts are covered by segregated liquid
assets. The Fund will not write puts if, as a result, more than 50% of
the Fund's net assets would be required to be segregated to cover such put
obligations. In writing puts, there is the risk that the Fund may be
required to buy the underlying security at a disadvantageous price.
-Foreign Currency Options. The Fund may purchase and write puts and
calls on foreign currencies that are traded on a securities or commodities
exchange or quoted by major recognized dealers in such options, for the
purpose of protecting against declines in the dollar value of foreign
securities and against increases in the dollar cost of foreign securities
to be acquired. If a rise is anticipated in the dollar value of a foreign
currency in which securities to be acquired are denominated, the increased
cost of such securities may be partially offset by purchasing calls or
writing puts on that foreign currency. If a decline in the dollar value
of a foreign currency is anticipated, the decline in value of portfolio
securities denominated in that currency may be partially offset by writing
calls or purchasing puts on that foreign currency. However, in the event
of currency rate fluctuations adverse to the Fund's position, it would
lose the premium it paid and transactions costs.
-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. 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. 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 will not speculate in foreign currency exchange. 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" in the Additional Statement for a discussion of
the tax treatment of foreign currency exchange contracts.
- Interest Rate Swap Transactions. The Fund may enter into interest
rate swaps. In an interest rate swap, the Fund and another party exchange
their respective commitments to pay or receive interest on a security,
(e.g., an exchange of floating rate payments for fixed rate payments).
The Fund will not use interest rate swaps for leverage. Swap transactions
will be entered into only as to security positions held by the Fund. The
Fund may not enter into swap transactions with respect to more than 50%
of its total assets.
The Fund will segregate liquid assets (e.g., cash, U.S. Government
securities or other appropriate high grade debt obligations) equal to the
net excess, if any, of its obligations over its entitlements under the
swap and will mark to market that amount daily. Interest rate swaps are
subject to interest rate risks, in that the Fund could be obligated to pay
more under its swap agreements than it receives, as a result of interest
rate changes. There is a risk of loss on a swap equal to the net amount
of interest payments that the Fund is contractually obligated to make.
The credit risk of an interest rate swap depends on the counterparty's
ability to perform. The value of the swap may decline if the
counterparty's creditworthiness deteriorates. If the counterparty
defaults, the Fund risks the loss of the net amount of interest payments
that it is contractually entitled to receive. The Fund may be able to
reduce or eliminate its exposure to losses under swap agreements either
by assigning them to another party, or by entering into an offsetting swap
agreement with the same counterparty or another creditworthy counterparty.
See "Covered Calls and Hedging" in the Additional Statement for further
details.
-Risks of Options and Futures Trading. "Covered Calls and Hedging"
in the Additional Statement contains more information about options and
Futures, Forward Contracts, options on Futures contracts and foreign
currencies, asset segregation requirements for Forward contracts, the
payment of premiums for options trades, and on the tax effects, risks and
possible benefits to the Fund from options trading, and information as to
the Fund's other limitations (which are not fundamental policies) on
investment in Futures and options thereon.
There are certain risks in writing calls. If a call written by the
Fund is exercised, the Fund forgoes any profit from any increase in the
market price above the call price of the underlying investment on which
the call was written. In addition, the Fund could experience capital
losses that might cause previously distributed short-term capital gains
to be re-characterized as non-taxable returns of capital to shareholders.
In writing puts, there is the risk that the Fund may be required to buy
the underlying security at a disadvantageous price.
The principal risks of Futures trading are (a) possible imperfect
correlation between the prices of the Futures and the market value of the
debt securities in the Fund's portfolio; (b) possible lack of a liquid
secondary market for closing out a Futures position; (c) the need for
additional skills and techniques beyond those required for normal
portfolio management; and (d) losses on Futures resulting from interest
rate movements not anticipated by the Manager.
Investment Restrictions
The Fund has certain investment restrictions which, together with
its investment objective, are fundamental policies. Under some of those
restrictions, the Fund cannot: (1) purchase securities issued or
guaranteed by any one issuer (except the U.S. Government or its agencies
or instrumentalities), if, with respect to 75% of its total assets, more
than 5% of the Fund's assets would be invested in securities of that
issuer or the Fund would then own more than 10% of that issuer's voting
securities; (2) borrow money in excess of 50% of the value of its total
assets, subject to the restrictions set forth under "Special Investment
Methods - Borrowing"; (3) concentrate investments to the extent that more
than 25% of the value of its total assets is invested in securities of
issuers in the same industry (excluding the U.S. Government, its agencies
and instrumentalities) or in government securities of any one foreign
country; for purposes of this limitation, utilities will be divided
according to their services; for example, gas, gas transmission, electric
and telephone each will be considered a separate industry; (4) make loans,
except by purchasing debt obligations in accordance with its investment
objectives and policies, or by entering into repurchase agreements, or as
described in "Loans of Portfolio Securities"; (5) buy securities of an
issuer which, together with any predecessor, has been in operation for
less than three years, if as a result, the aggregate of such investments
would exceed 5% of the value of the Fund's total assets; or (6) make short
sales of securities or maintain a short position, unless at all times when
a short position is open it owns an equal amount of such securities or by
virtue of ownership of other securities has the right, without payment of
any further consideration, to obtain an equal amount of securities sold
short ("short sales against-the-box"); short sales against-the-box may be
made to defer realization of gain or loss for Federal income tax purposes.
The percentage restrictions described above and in the Additional
Statement are applicable only at the time of investment and require no
action by the Fund as a result of subsequent changes in value of the
investment or the size of the Fund. A supplementary list of investment
restrictions is contained in the Additional Statement, which also contains
further information regarding the Fund's investment policies.
Management of the Fund
The Board of Trustees of the Trust of which the Fund is a series has
overall responsibility for the management of the Fund under the laws of
Massachusetts governing the responsibilities of trustees of business
trusts. Subject to the authority of the Board, the Manager is responsible
for day-to-day management of the Fund's business, supervises the Fund's
investment operations and the composition of its portfolio and furnishes
the Fund advice and recommendations with respect to investments,
investment policies and the purchase and sale of securities, pursuant to
an investment advisory agreement with the Fund (the "Agreement").
Under the Agreement, the Fund pays a management fee to the Manager
at the following annual rates, which are higher than those paid by most
other investment companies: .75% of the first $200 million of average
annual net assets, .72% of the next $200 million, .69% of the next $200
million, .66% of the next $200 million, .60% of the next $200 million, and
.50% of the net assets in excess of $1 billion.
The Agreement contains provisions relating to the selection of
brokers and dealers ("brokers") for the Fund's portfolio transactions.
Subject to the Agreement, the Manager may consider sales of shares of the
Fund and of the other investment companies advised by the Manager and its
affiliates as a factor in the selection of brokers for the Fund's
portfolio transactions. "Investment Management Services" in the
Additional Statement contains additional information about the Agreement,
including a description of expense arrangements, exculpation provisions,
and brokerage practices.
Arthur P. Steinmetz, a Senior Vice President of the Manager, and
David P. Negri, a Vice President of the Manager, are Vice Presidents of
the Trust who act as the Fund's Portfolio Managers. They each serve as
officers and portfolio managers of other OppenheimerFunds. Before joining
the Manager, Mr. Negri had been a research analyst with Donaldson, Lufkin
& Jenrette, a securities firm.
The Manager has operated as an investment adviser since April 30,
1959. It and its affiliates currently advise U.S. investment companies
with assets aggregating over $26 billion as of December 31, 1993, and
having more than 1.8 million shareholder accounts. The Manager is owned
by Oppenheimer Acquisition Corp., a holding company owned in part by
senior management of the Manager and ultimately controlled by
Massachusetts Mutual Life Insurance Company, a mutual life insurance
company which also advises pension plans and investment companies.
How to Buy Shares
The Fund's shares may be purchased through any dealer or broker
which has a sales agreement with the Distributor, a subsidiary of the
Manager. There are two ways to make an initial investment: either (1)
complete an OppenheimerFunds New Account Application and mail it with
payment to the Fund's distributor, Oppenheimer Funds Distributor, Inc.
(the "Distributor") at P.O. Box 5270, Denver, Colorado 80217 (if no dealer
or broker is named in the Application, the Distributor will be listed as
the dealer of record), or (2) order the shares through your dealer or
broker.
The minimum initial investment is $1,000, except as otherwise
described in this Prospectus. Subsequent purchases must be at least $25,
and may be made (1) through authorized dealers or brokers, (2) by
forwarding payment to the Distributor at the above address with the names
of all account owners, the account number and the name of the Fund, (3)
automatically through Asset Builder Plans, or (4) by telephone using
AccountLink or PhoneLink, described below. Under an Asset Builder Plan,
Automatic Exchange Plan, 403(b)(7) custodial plan or military allotment
plan, initial and subsequent investments must be at least $25. The
minimum initial and subsequent purchase requirements are waived on
purchases made by reinvesting dividends from any of the "Eligible Funds"
listed in "Exchange Privilege" below, or by reinvesting distributions from
unit investment trusts for which reinvestment arrangements have been made
with the Distributor. No share certificates will be issued for the Fund's
shares.
The Fund currently offers one class of shares, denominated as "Class
C" shares. Shares are sold at net asset value per share without the
imposition of a sales charge at the time of purchase. The net asset value
per share is determined as of 4:00 P.M. (all references to time in this
Prospectus mean New York time) each day The New York Stock Exchange is
open (a "regular business day") by dividing the value of the Fund's net
assets by the number of shares outstanding. The Board of Trustees has
established procedures for valuing the Fund's securities. In general,
those valuations are based on market value, with special provisions for:
(i) securities (including restricted securities) not having readily-
available market quotations, (ii) short-term debt securities and (iii)
covered calls and Hedging Instruments. Further details are in "Purchase,
Redemption and Pricing of Shares" in the Additional Statement.
All purchase orders received by the Distributor at its office in
Denver, Colorado prior to 4:00 P.M. on a regular business day are
processed at that day's offering price. However, an order received by the
Distributor from a dealer or broker after the offering price is determined
that day will receive such offering price if the order was received by the
dealer or broker from its customer prior to 4:00 P.M., and was transmitted
to and received by the Distributor prior to its close of business that day
(normally 5:00 P.M.). Purchase orders received on other than a regular
business day will be executed on the next regular business day. The
Distributor, in its sole discretion, may accept or reject any order for
purchase of the Fund's shares. The sale of shares will be suspended
during any period when the determination of net asset value is suspended
and may be suspended by the Board of Trustees whenever the Board judges
it in the Fund's best interest to do so.
- Contingent Deferred Sales Charge. A contingent deferred sales
charge (the "CDSC") will be deducted from the redemption proceeds of
shares redeemed within 12 months of their purchase (not including shares
purchased by reinvestment of dividends or capital gains). The CDSC shall
be an amount equal to 1.0% of the lesser of the then net asset value or
the original purchase price of the shares being redeemed. Accordingly,
no CDSC will be imposed on amounts representing increases in net asset
value above the initial purchase price (including increases due to
reinvestment of dividends or capital gains). In determining whether a
CDSC is payable and the amount of any such CDSC, shares not subject to a
CDSC are redeemed first, including shares purchased by reinvestment of
dividends and capital gains distributions, and then other shares are
redeemed in the order of purchase.
Proceeds from the CDSC are paid to the Distributor to reimburse it
for its expenses related to providing distribution-related services to the
Fund in connection with the sale of shares. The combination of the CDSC
and the distribution fee retained by the Distributor (as described under
"Distribution and Service Plan") facilitate the sale of shares without a
sales charge being deducted at the time of purchase.
In determining the amount of the CDSC that applies, all purchases
shall be considered as having been made on the first regular business day
of the month in which the purchase was made. The CDSC will be waived upon
the request of the investor in the case of redemptions of shares made for:
(1) distributions to participants or beneficiaries from Retirement Plans,
which distributions are made either (a) under an Automatic Withdrawal Plan
(described under "How to Redeem Shares") after the participant attains age
59-1/2, and which are limited to no more than 10% of the account value
annually (determined in the first year, as of the date the redemption
request is received by the Transfer Agent, and in subsequent years, as of
the most recent anniversary of that date) or (b) following the death or
disability (as defined in the Internal Revenue Code) of the participant
or beneficiary; (2) 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) and (3) returns of excess contributions to such Retirement
Plans. In addition, no CDSC is imposed on shares of the Fund (i) sold to
the Manager or its affiliates; (ii) sold to registered investment
companies or separate accounts of insurance companies having an agreement
with the Manager or the Distributor; (iii) issued in plans of
reorganization, such as mergers, asset acquisitions and exchange offers
to which the Fund is a party; or (iv) redeemed in Involuntary Redemptions.
See "Transfer of Shares" in the Additional Statement for further details.
- Distribution and Service Plan. The Fund has adopted a plan of
distribution (the "Plan") under Rule 12b-1 of the Investment Company Act,
pursuant to which it will compensate the Distributor for its services and
costs incurred in connection with the distribution and service of the
Fund's shares. Pursuant to the Plan, the Fund will pay the Distributor
an asset-based sales charge of 0.75% per annum, plus a service fee of
0.25% per annum, each of which is computed on the average net assets of
shares of the Fund determined as of the close of each business day.
The Distributor will use the service fee payment to compensate
brokers, dealers, banks and other financial institutions ("Recipients")
for providing personal service and the maintenance of shareholder accounts
that hold shares. Examples of such services include, but are not limited
to, the following: answering routine inquiries from the Recipient's
customers about the Fund, providing customers with information about their
investment in the Fund, assisting in the establishment and maintenance of
accounts or subaccounts in the Fund, making the Fund's investment plans
and dividend payment options available and providing other information and
services as the Distributor or the Fund may reasonably request. Service
fee payments by the Distributor to Recipients will be made (i) in advance
for the first year shares are outstanding, following the purchase of
shares, in an amount equal to 0.25% of the average daily net asset value
of the shares purchased by the Recipient or its customers and (ii)
thereafter, on a quarterly basis, computed as of the close of business
each day at an annual rate of 0.25% of the net asset value of shares held
in accounts of the Recipient or its customers. Other terms and options
under the Plan for payment of the service fee by the Distributor to
Recipients, and other terms and conditions of the Plan are described under
"Distribution and Service Plan" in the Additional Statement. Asset-based
sales charges and service fees will be paid by the Fund to the Distributor
monthly and quarterly, respectively.
The Distributor currently expects to pay sales commissions from its
own resources to authorized dealers or brokers at the time of sale equal
to 0.75% of the purchase price of Fund shares sold by such dealer or
broker, and to advance the first year's service fee of 0.25%. The asset-
based sales charge and service fee payments by the Fund to the Distributor
during the initial year the shares are outstanding under the Plan are
intended to allow the Distributor to recoup such sales commissions and
service fee advances. After the first year that shares are outstanding,
the Distributor expects to pay the asset-based sales charge on such shares
to authorized dealers or brokers as an ongoing sales commission.
Asset-based sales charge payments are designed to permit an investor
to purchase shares of the Fund without the assessment of a front-end sales
load and at the same time permit the Distributor to compensate brokers and
dealers in connection with the sale of shares of the Fund. The
Distributor's actual distribution expenses for any given year may exceed
the aggregate of payments received pursuant to the Plan and contingent
deferred sales charges, and such expenses will be carried forward and paid
in future years. The Fund will be charged only for interest expenses,
carrying charges or other financial costs that are directly related to the
carry-forward of actual distribution expenses. For example, if the
Distributor incurred distribution expenses of $4 million in a given fiscal
year, of which $2,000,000 was recovered in the form of contingent deferred
sales charges paid by investors and $1,600,000 were reimbursed in the form
of payments made by the Fund to the Distributor under the Plan, the
balance of $400,000 (plus interest) would be subject to recovery in future
fiscal years from such sources.
The Plan contains a provision which allows the Board to permit the
Fund to continue payments to the Distributor for certain expenses it
incurred for shares sold prior to termination of the Plan. If the Plan
were terminated and the Board gave such permission, the Distributor would
be entitled to continue to receive the asset-based sales charge of 0.75%
per annum on shares sold prior to termination until the Distributor has
recovered its distribution expenses (incurred prior to termination) from
such payments and from the CDSC. The accounting treatment for the Fund's
distributions under the Plan for those future payments is discussed in
"Distribution and Service Plan" in the Additional Statement. The
accounting standards now used are currently under review by the American
Institute of Certified Public Accountants, and it is possible that those
standards will change and that the Plan would be changed as a result.
The Plan has the effect of increasing annual expenses of the Fund by
up to 1.00% of its average annual net assets from what its expenses would
otherwise be. In addition, the Manager and the Distributor may, under the
Plan, from time to time from their own resources (which, as to the
Manager, may include profits derived from the advisory fee it receives
from the Fund) make payments to Recipients for distribution and
administrative services they perform. For further details, see
"Distribution and Service Plan" in the Additional Statement.
Purchase Programs
-AccountLink. OppenheimerFunds AccountLink is a means to link a
shareholder's Fund account with an account at a U.S. bank or other
financial institution that is an Automated Clearing House ("ACH") member.
AccountLink can be used to transmit funds by electronic funds transfers
for account transactions, including subsequent share purchases. The
minimum investment by AccountLink is $25. Purchases of up to $250,000 may
be made by telephone using AccountLink (the maximum is $100,000 if the
transaction is done by PhoneLink, described below).
To speak to service operators to initiate such purchases, call the
Distributor at 1-800-852-8457. All such calls will be recorded. To
initiate such purchases automatically using PhoneLink, call 1-800-533-
3310. Shares will be purchased on the regular business day the
Distributor is instructed to initiate the ACH transfer to buy the shares.
Dividends will begin to accrue on such shares on the day the Fund receives
Federal Funds for such purchase through the ACH system before 4:00 P.M.,
which is normally three days after the ACH transfer is initiated. If such
Federal Funds are received after that time, dividends will begin to accrue
on the next regular business day after such Federal Funds are received.
AccountLink may also be used as a means of transmitting redemption
proceeds to a designated bank account (see "How to Redeem Shares") or to
transmit distributions paid by the Fund directly to a bank account (see
"Dividends, Distributions and Taxes - Dividends and Distributions").
AccountLink privileges must be requested on the application used to buy
shares or the dealer settlement instructions establishing the account, or
on subsequent signature-guaranteed instructions to the Transfer Agent from
all shareholders of record for an account, and such privileges thereupon
apply to each shareholder of record and the dealer representative of
record unless and until the Transfer Agent receives written instructions
from a shareholder of record cancelling such privileges. Changes of bank
account information must be made by signature-guaranteed instructions to
the Transfer Agent by all shareholders of record for an account.
The Transfer Agent, the Fund and the Distributor have adopted
reasonable procedures to confirm that telephone instructions under
AccountLink and "PhoneLink," "Telephone Redemptions" and the "Exchange
Privilege" (described below) are genuine, by requiring callers to provide
tax identification number(s) and other account data and by recording calls
and confirming such transactions in writing. If the Transfer Agent and
the Distributor do not use such procedures, they may be liable for losses
due to unauthorized transactions, but otherwise they will not be
responsible for losses or expenses arising out of telephone instructions
reasonably believed to be genuine. The Fund reserves the right to amend,
suspend or discontinue AccountLink privileges at any time without prior
notice.
-PhoneLink. PhoneLink is the OppenheimerFunds automated telephone
system which enables shareholders of the Fund to initiate account
transactions automatically by telephone, including exchanges between
existing accounts (see "Exchange Privilege" below), redemptions (see "How
to Redeem Shares - Telephone Redemptions," below) and purchases (see
"AccountLink" above). Certain PhoneLink transactions may be done
automatically using a touchtone telephone provided that the shareholder
uses a Personal Identification Number ("PIN") which may be obtained
through PhoneLink by calling 1-800-533-3310. If an account has multiple
owners, the Transfer Agent or the Distributor may rely on any instructions
initiated through PhoneLink using a PIN. The Fund reserves the right to
amend, suspend or discontinue PhoneLink privileges at any time without
prior notice.
-Asset Builder Plans. Investors may purchase shares of the Fund
(and up to four other Eligible Funds) automatically under Asset Builder
Plans. With AccountLink, Asset Builder Plans may be used to make regular
monthly investments ($25 minimum) from the investor's account at a bank
or other financial institution. See "AccountLink" in "How To Buy Shares"
for details. To establish an Asset Builder Plan from a bank account, a
check (minimum $25) for the initial purchase must accompany the
application. Shares purchased by Asset Builder Plan payments from bank
accounts are subject to the redemption restrictions for recent purchases
described in "How To Redeem Shares." Asset Builder Plans also enable
shareholders of Oppenheimer Tax-Exempt Cash Reserves or Oppenheimer Cash
Reserves to use those accounts for monthly automatic purchases of shares
of up to four other Eligible Funds.
There is a sales charge on the purchase of certain Eligible Funds,
and an application should be obtained from the Transfer Agent and
completed and a prospectus of the selected fund(s) (available from the
Distributor) should be obtained before initiating payments. The amount
of the Asset Builder investment may be changed or the automatic
investments terminated at any time by writing to the Transfer Agent. A
reasonable period (approximately 15 days) is required after receipt of
such instructions to implement them. The Fund reserves the right to
amend, suspend, or discontinue offering such plans at any time without
prior notice.
How to Redeem Shares
Regular Redemption Procedures
To redeem some or all shares in an account (whether or not
represented by certificates), under the Fund's regular redemption
procedures, a shareholder must send the following to the Fund's Transfer
Agent, Oppenheimer Shareholder Services, P.O. Box 5270, Denver, Colorado
80217 (send courier or express mail deliveries to 10200 E. Girard Avenue,
Building D, Denver, Colorado 80231): (1) a written request for redemption
signed by all registered owners exactly as the shares are registered,
including fiduciary titles, if any, and specifying the account number and
the dollar amount or number of shares to be redeemed; (2) a guarantee of
the signatures of all registered owners on the redemption request or on
the endorsement on the share certificate or accompanying stock power, by
a U.S. bank, trust company, credit union or savings association, or a
foreign bank having 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, registered
securities association or clearing agency; (3) any share certificates
issued for any of the shares to be redeemed; and (4) any additional
documents which may be required by the Transfer Agent for redemption by
corporations, partnerships or other organizations, executors,
administrators, trustees, custodians, guardians, or from an
OppenheimerFunds-sponsored Retirement Plan, or if the redemption is
requested by anyone other than the shareholder(s) of record, or to
demonstrate eligibility for waiver of the CDSC on the grounds of age or
disability. Transfers of shares are subject to similar requirements.
A signature guarantee is not required for redemptions of $50,000 or
less, requested by and payable to all shareholders of record, to be sent
to the address of record for that account. To avoid delay in redemption
or transfer, shareholders having questions about these requirements should
contact the Transfer Agent in writing or by calling 1-800-525-7048 before
submitting a request. From time to time the Transfer Agent in its
discretion may waive any or certain of the foregoing requirements in
particular cases. Redemption or transfer requests will not be honored
until the Transfer Agent receives all required documents in proper form.
Telephone Redemptions
To redeem shares by telephone through a service representative, call
the Transfer Agent at 1-800-852-8457. To use PhoneLink to redeem shares
automatically, without a service representative, call 1-800-533-3310.
Under either method of telephone redemption, proceeds may be paid by check
or through AccountLink as described below. The Transfer Agent may record
any calls. Telephone redemptions may not be available if all lines are
busy, and shareholders would have to use the Fund's regular redemption
procedure described above. Requests received by the Transfer Agent prior
to 4:00 P.M., on a regular business day will be processed at the net asset
value per share determined that day. Telephone redemption privileges are
not available for OppenheimerFunds-sponsored Retirement Plans, or for
shares represented by certificates.
Telephone redemption privileges apply automatically to each
shareholder and the dealer representative of record unless the Transfer
Agent receives cancellation instructions from a shareholder of record.
If an account has multiple owners, the Transfer Agent may rely on the
instructions of any one owner. Telephone redemption privileges may be
amended, suspended or discontinued by the Fund at any time without prior
notice.
-Telephone Redemptions Paid by Check. For redemption proceeds paid
by check, amounts up to $50,000 may be redeemed by telephone, once in each
seven-day period. The check must be payable to the shareholder(s) of
record and sent to the address of record for the account. Telephone
redemptions paid by check are not available within 30 days of a change of
the address of record.
-Redemptions Paid Through AccountLink. If AccountLink privileges
have been established for an account, any amount may be redeemed by
telephone, wire or written instructions to the Transfer Agent, and the ACH
transfer of the redemption proceeds to the designated bank account
normally will be initiated by the Transfer Agent on the next bank business
day after the redemption. There are no dollar or frequency limitations
on telephone redemptions sent to a designated bank account through
AccountLink. No dividends are paid on the proceeds of redeemed shares
awaiting transmittal by ACH transfer. See "AccountLink" under "Purchase
Programs" above for instructions on establishing this privilege.
Distributions From Retirement Plans
Requests for distributions from OppenheimerFunds-sponsored IRAs,
403(b)(7) custodial plans, or pension or profit-sharing plans for which
the Manager or its affiliates act as sponsors should be addressed to
"Trustee, OppenheimerFunds Retirement Plans, c/o Oppenheimer Shareholder
Services" at the above address, and must: (i) state the reason for the
distribution; (ii) state the owner's awareness of tax penalties if the
distribution is premature; and (iii) conform to the requirements of the
plan and the Fund's redemption requirements above. Participants (other
than self-employed persons) in OppenheimerFunds-sponsored pension or
profit-sharing plans may not directly request redemption of their
accounts. The employer or plan administrator must sign the request.
Distributions from such plans are subject to additional requirements under
the Internal Revenue Code and certain documents (available from the
Transfer Agent) must be completed before the distribution may be made.
Distributions from retirement plans are subject to withholding
requirements under the Internal Revenue Code, and IRS Form W-4P (available
from the Transfer Agent) must be submitted to the Transfer Agent with the
distribution request, or the distribution may be delayed. Unless the
shareholder has provided the Transfer Agent with a certified tax
identification number, the Internal Revenue Code requires that tax be
withheld from any distribution even if the shareholder elects not to have
tax withheld. The Fund, the Manager, the Distributor, the Trustee and the
Transfer Agent assume no responsibility to determine whether a
distribution satisfies the conditions of applicable tax laws and will not
be responsible for any penalties assessed.
Automatic Withdrawal and Exchange Plans
Investors owning shares of the Fund valued at $5,000 or more can
authorize the Transfer Agent to redeem shares (minimum $50) automatically
on a monthly, quarterly, semi-annual or annual basis under an Automatic
Withdrawal Plan. Shares will be redeemed three business days prior to the
date requested by the shareholder for receipt of the payment. Automatic
withdrawals of up to $1,500 per month may be requested by telephone if
payments are by check payable to all shareholders of record and sent to
the address of record for the account (and if the address has not been
changed within the prior 30 days). Required minimum distributions from
OppenheimerFunds-sponsored retirement plans may not be arranged on this
basis. Payments are normally made by check, but shareholders having
AccountLink privileges (see "How To Buy Shares") may arrange to have
Automatic Withdrawal Plan payments transferred to the bank account
designated on the OppenheimerFunds New Account Application or signature-
guaranteed instructions. The Fund cannot guarantee receipt of the payment
on the date requested and reserves the right to amend, suspend or
discontinue offering such plans at any time without prior notice.
Shareholders normally should not establish withdrawal plans, because of
the imposition of the CDSC on such withdrawals (except where the CDSC is
waived as described in "Contingent Deferred Sales Charge"). For further
details, refer to "Automatic Withdrawal Plan Provisions" in the Additional
Statement.
Shareholders can also authorize the Transfer Agent to exchange a
pre-determined amount of shares of the Fund for Class C shares of up to
five other "Eligible Funds" that offer such shares (minimum purchase is
$25 per fund account) automatically on a monthly, quarterly, semi-annual
or annual basis under an Automatic Exchange Plan. Exchanges made pursuant
to such plans are subject to the conditions and terms applicable to
exchanges described in "Exchange Privilege," below.
Repurchase
The Distributor is the Fund's agent to repurchase its shares from
authorized dealers or brokers. The repurchase price will be the net asset
value next computed after the receipt of an order placed by such dealer
or broker, except that orders received from dealers or brokers after 4:00
P.M. on a regular business day will be processed at that day's net asset
value if such orders were received by the dealer or broker from its
customers prior to 4:00 P.M., and were transmitted to and received by the
Distributor prior to its close of business that day (normally 5:00 P.M.).
Payment ordinarily will be made within seven days after the Distributor's
receipt of the required documents, with signature(s) guaranteed as
described above.
Reinvestment Privilege
Within six months of a redemption, a shareholder may reinvest all or
part of the redemption proceeds of shares that were subject to the CDSC
when redeemed, in Class A shares of the Eligible Funds into which shares
of the Fund are exchangeable as described below, at the net asset value
next computed after receipt by the Transfer Agent of the reinvestment
order. The shareholder must ask the Distributor for such entitlement at
the time of reinvestment. Because of the imposition of the CDSC on shares
of the Fund, reinvestment of redemption proceeds of Fund shares is not
permitted in the Fund.
A realized gain on the redemption is taxable, and reinvestment will
not alter any capital gains tax payable on that gain. If there has been
a loss on the redemption, some or all of the loss may not be tax
deductible, depending on the timing and amount of the reinvestment in the
Fund. Under the Internal Revenue Code, if the redemption proceeds of Fund
shares on which a sales charge was paid are reinvested in shares of
another Eligible Fund within 90 days of payment of the sales charge, the
shareholder's basis in the Fund shares redeemed may not include the amount
of the sales charge paid, thereby reducing the loss or increasing the gain
recognized from the redemption. The Fund may amend, suspend or cease
offering this reinvestment privilege at any time as to shares redeemed
after the date of such amendment, suspension or cessation.
General Information on Redemptions
The redemption price will be the net asset value per share next
determined after the Transfer Agent receives redemption instructions in
proper form. The market value of the securities in the Fund's portfolio
is subject to daily fluctuations and the net asset value of the Fund's
shares will fluctuate accordingly. Therefore, the redemption value may
be more or less than the investor's cost. Under certain unusual
circumstances, shares may be redeemed in kind (i.e., by payment in
portfolio securities). Under certain circumstances, the Fund may
involuntarily redeem small accounts (if the value of the account has
fallen below $200 for reasons other than market value fluctuation) and may
redeem shares in amounts sufficient to compensate the Distributor for any
loss due to cancellation of a share purchase order; for details, see
"Purchase, Redemption and Pricing of Shares" in the Additional Statement.
Under the Internal Revenue Code, the Fund may be required to impose
"backup" withholding of Federal income tax at the rate of 31% from
dividends, distributions and redemption proceeds (including exchanges),
if the shareholder has not furnished the Fund a certified tax
identification number or has not complied with provisions of the Code
relating to reporting dividends.
Payment for redeemed shares is made ordinarily in cash and forwarded
within seven days after receipt by the Transfer Agent of redemption
instructions in proper form, except under unusual circumstances as
determined by the SEC. The Transfer Agent may delay forwarding a
redemption check for recently purchased shares only until the purchase
payment has cleared, which may take up to 15 or more days from the
purchase date. Such delay may be avoided if the shareholder arranges
telephone or written assurance satisfactory to the Transfer Agent from the
bank on which the purchase payment was drawn.
The Fund makes no charge for redemption. Dealers or brokers may
charge a fee for handling redemption transactions, but such charge can be
avoided by requesting the redemption directly by the Fund through the
Transfer Agent.
Exchanges of Shares and Retirement Plans
Exchange Privilege
Shares of the Fund and of the other Eligible Funds listed below that
offer Class C shares may be exchanged at net asset value per share at the
time of exchange, without sales charge, if all of the following conditions
are met: (1) shares of the fund selected for exchange are available for
sale in the investor's state of residence; (2) the respective prospectuses
of the funds whose shares are to be exchanged and acquired offer the
Exchange Privilege to the investor; (3) newly-purchased (by initial or
subsequent investment) shares are held in an account for at least 7 days
and all other shares at least 1 day prior to the exchange; and (4) the
aggregate net asset value of shares surrendered for exchange is at least
equal to the minimum investment requirements of the fund whose shares are
to be acquired.
In addition to the conditions stated above, shares of a particular
class of an Eligible Fund may be exchanged only for shares of the same
class of another Eligible Fund. If a Fund has only one class of shares
that is not otherwise denominated, its shares shall be considered "Class
A" shares for this purpose. As of the date of this Prospectus,
shareholders of the Fund should be aware that only certain Eligible Funds
(referred to as the "OppenheimerFunds Advisors Portfolio") offer Class C
shares. The names of those Eligible Funds can be obtained by calling the
Distributor at 1-800-525-7048. No CDSC is imposed on exchanges of shares
purchased subject to a CDSC. However, the CDSC is imposed on shares
redeemed within 12 months of the initial purchase of the exchanged shares
(see "Contingent Deferred Sales Charge" above).
The Eligible Funds are those for which the Distributor or an
affiliate acts as the distributor and include the following: (i) the Fund,
Oppenheimer Time Fund, Oppenheimer Target Fund, Oppenheimer Tax-Free Bond
Fund, Oppenheimer New York Tax-Exempt Fund, Oppenheimer California Tax-
Exempt Fund, Oppenheimer High Yield Fund, Oppenheimer Champion High Yield
Fund, Oppenheimer Total Return Fund, Inc., Oppenheimer Asset Allocation
Fund, Oppenheimer Mortgage Income Fund, Oppenheimer Discovery Fund,
Oppenheimer U.S. Government Trust, Oppenheimer Global Bio-Tech Fund,
Oppenheimer Global Environment Fund, Oppenheimer Global Growth & Income
Fund, Oppenheimer Pennsylvania Tax-Exempt Fund, Oppenheimer Florida Tax-
Exempt Fund, Oppenheimer Global Fund, Oppenheimer Fund, Oppenheimer
Special Fund, Oppenheimer Equity Income Fund, Oppenheimer Gold & Special
Minerals Fund, Oppenheimer Investment Grade Bond Fund, Oppenheimer Value
Stock Fund, Oppenheimer Intermediate Tax-Exempt Bond Fund, Oppenheimer
Insured Tax-Exempt Bond Fund, Oppenheimer Government Securities Fund,
Oppenheimer Strategic Income & Growth Fund, Oppenheimer Strategic
Investment Grade Bond Fund, Oppenheimer Strategic Short-Term Income Fund,
Oppenheimer Strategic Income Fund, Oppenheimer Main Street Income & Growth
Fund, Oppenheimer Main Street California Tax-Exempt Fund and (ii) the
following "Money Market Funds": Centennial Money Market Trust, Centennial
Tax Exempt Trust, Centennial Government Trust, Centennial New York Tax
Exempt Trust, Centennial California Tax Exempt Trust, Centennial America
Fund, L.P., Oppenheimer Money Market Fund, Inc., Daily Cash Accumulation
Fund, Inc., Oppenheimer Cash Reserves and Oppenheimer Tax-Exempt Cash
Reserves.
-How to Exchange Shares. An exchange may be made by either: (1)
submitting an OppenheimerFunds Exchange Authorization Form to the Transfer
Agent, signed by all registered owners, or (2) telephone exchange
instructions to the Transfer Agent by a shareholder or the dealer
representative of record for an account. The Fund may modify, suspend or
discontinue either of these exchange privileges at any time and will do
so on 60 days' notice if such notice is required by regulations adopted
under the Investment Company Act. The Fund reserves the right to reject
telephone or written exchange requests submitted in bulk on behalf of 10
or more accounts. Telephone and written exchange requests must be
received by the Transfer Agent by 4:00 P.M. on a regular business day to
be effected that day. The number of shares exchanged may be less than the
number requested if the number requested would include shares subject to
a restriction cited above or shares covered by a certificate that is not
tendered with such request. Only the shares available for exchange
without restriction will be exchanged.
When shares of the Fund are redeemed to effect an exchange, the
priorities described in "How to Buy Shares" for the imposition of the CDSC
will be followed in determining the order in which shares are exchanged.
Shareholders should take into account the effect of any exchange on the
applicability and rate of any CDSC that may be imposed in the subsequent
redemption of remaining shares.
-Telephone Exchanges. Telephone exchange requests may either be
placed through a service representative by calling the Transfer Agent at
1-800-852-8457 or automatically by PhoneLink, by calling 1-800-533-3310.
If all telephone lines are busy (which might occur, for example, during
periods of substantial market fluctuations), shareholders might not be
able to request telephone exchanges and would have to submit written
exchange requests. Telephone exchange calls may be recorded by the
Transfer Agent. Telephone exchanges are subject to the rules described
above. By exchanging shares by telephone, the shareholder is
acknowledging receipt of a prospectus of the fund to which the exchange
is made and that for full or partial exchanges, any special account
features such as Asset Builder Plans, Automatic Withdrawal or Exchange
Plans and retirement plan contributions will be switched to the new
account unless the Transfer Agent is otherwise instructed.
Telephone exchange privileges automatically apply to each
shareholder of record and the dealer representative of record unless and
until the Transfer Agent receives written instructions from a shareholder
of record canceling such privileges. If an account has multiple owners,
the Transfer Agent may rely on the instructions of any one owner. The
Transfer Agent reserves the right to require shareholders to confirm in
writing their election of telephone exchange privileges for an account.
Shares acquired by telephone exchange must be registered exactly as the
account from which the exchange was made. Certificated shares are not
eligible for telephone exchange.
-General Information on Exchanges. Shares to be exchanged are
redeemed on the regular business day the Transfer Agent receives an
exchange request in proper form (the "Redemption Date"). Normally, shares
of the fund to be acquired are purchased on the Redemption Date, but such
purchases may be delayed by either fund up to five business days if it
determines that it would be disadvantaged by an immediate transfer of the
redemption proceeds. The Fund in its discretion reserves the right to
refuse any exchange request that will disadvantage it, for example, if the
receipt of multiple exchange requests from a dealer might require the
disposition of securities at a time or at a price disadvantageous to the
Fund.
The Eligible Funds have different investment objectives and
policies. For complete information, including sales charges and expenses,
a prospectus of the fund into which the exchange is being made should be
read prior to an exchange. A $5 service charge will be deducted from the
account to which the exchange is made to help defray administrative costs.
That charge is waived for telephone exchanges made by PhoneLink. Dealers
or brokers who process exchange orders on behalf of customers may charge
for their services. Those charges may be avoided by requesting the Fund
directly to exchange shares. For Federal tax purposes an exchange is
treated as a redemption and purchase of shares (see "How to Redeem Shares
- - Reinvestment Privilege" for a discussion of certain tax effects of
exchanges). No sales commissions are paid by the Distributor on exchanges
of shares (unless a front-end sales charge is assessed on the exchange).
Retirement Plans
The Distributor has available forms of: (i) pension and profit-
sharing plans for corporations and self-employed individuals, (ii)
Individual Retirement Accounts ("IRAs"), including Simplified Employee
Pension Plans ("SEP IRAs"), and (iii) 403(b)(7) tax-deferred custodial
plans for employees of qualified employers. The minimum initial
investment for pension and profit-sharing plans is $250, and for IRAs also
unless made under an Asset Builder Plan. The Fund reserves the right to
discontinue offering its shares to such plans at any time without prior
notice. For further details, including the administrative fees, the
appropriate retirement plan should be requested from the Distributor.
Dividends, Distributions and Taxes
This discussion relates solely to Federal tax laws. The Fund's
dividends and distributions may also be subject to state and local
taxation. See "Tax Aspects of Covered Calls and Hedging Instruments" and
"Tax Status of the Fund's Dividends and Distributions" in the Additional
Statement for more information on tax aspects of the Fund's investments
in Hedging Instruments and other tax matters. This discussion is not
exhaustive, and a qualified tax adviser should be consulted.
Dividends and Distributions
The Fund intends to declare dividends from net investment income, if
any, on each regular business day, and to pay such dividends monthly.
Dividends will normally be paid on the fourth Wednesday of each month, or
such other day as the Board of Trustees may select. In addition,
distributions may be made monthly out of any net short-term capital gains
realized from the sale of securities. The amount of distributions may
vary from time to time depending upon market conditions, the composition
of the Fund's portfolio, and expenses borne by the Fund.
Dividends will be payable on shares held of record at the time of
the previous determination of net asset value, or as otherwise described
in "How to Buy Shares". Daily dividends on newly purchased shares will
not be declared or paid until such time as Federal Funds (funds credited
to a member bank's account at the Federal Reserve Bank) are available from
the purchase payment for such shares. Normally, purchase checks received
from investors are converted to Federal Funds on the next business day.
Dividends will be declared on shares repurchased by a dealer or broker for
four business days following the trade date (i.e., to and including the
day prior to settlement of the repurchase). If all shares in an account
are redeemed, all dividends accrued on shares of the same class in the
account will be paid together with the redemption proceeds.
In addition, distributions may be made annually in December out of
any net short-term or long-term capital gains realized from the sale of
securities, premiums from expired calls written by the Fund, and net
profits from Hedging Instruments and closing purchase transactions
realized in the twelve months ending on October 31 of the current year.
Distributions from net short-term capital gains are taxable to
shareholders as ordinary income and when paid are considered "dividends."
The Fund may make a supplemental distribution of capital gains and
ordinary income following the end of its fiscal year. Any long-term
capital gains distributions will be identified separately when paid and
when tax information is distributed by the Fund. If prior distributions
must be recharacterized at the end of the fiscal year as a result of the
effect of the Fund's investment policies, shareholders may have a non-
taxable return of capital which will be identified in notices to
shareholders. There is no fixed dividend rate and there can be no
assurance as to the payment of any dividends or the realization of any
capital gains.
All dividends and capital gains distributions are automatically
reinvested in shares of the Fund at net asset value, as of a date selected
by the Board of Trustees, unless the shareholder notifies the Transfer
Agent in writing to pay dividends and capital gains distributions in cash,
or to reinvest them in another Eligible Fund, as described in "Additional
Information" in the Additional Statement. That request must be received
prior to the record date for a dividend to be effective as to that
dividend. Under AccountLink, dividends and distributions may be
automatically transferred to a designated account at a financial
institution. See "AccountLink" in "How to Buy Shares" and the
OppenheimerFunds New Account Application for more details. For existing
accounts, such privileges may be established only by signature-guaranteed
instructions from all shareholders to the Transfer Agent. Dividends,
distributions and the proceeds of the redemption of Fund shares
represented by checks returned to the Transfer Agent by the Postal Service
as undeliverable will be invested in shares of Oppenheimer Money Market
Fund, Inc., as promptly as possible after the return of such checks to the
Transfer Agent, to enable the investor to earn a return on otherwise idle
funds.
Tax Status of the Fund's Dividends and Distributions
Dividends paid by the Fund derived from net investment income or net
short-term capital gains are taxable to shareholders as ordinary income,
whether received in cash or reinvested. Long-term capital gains
distributions, if any, are taxable as long-term capital gains whether
received in cash or reinvested and regardless of how long Fund shares
have been held. A shareholder purchasing Fund shares immediately prior
to the declaration of a capital gains distribution will receive a
distribution subject to income tax, and the distribution will have the
effect of reducing a class's net asset value per share by the amount of
the distribution. For information as to "backup" withholding on
dividends, see "How to Redeem Shares."
Tax Status of the Fund
If the Fund qualifies as a "regulated investment company" under the
Internal Revenue Code, it will not be liable for Federal income taxes on
amounts paid by it as dividends and distributions. The Fund intends to
qualify in current and future fiscal years, but reserves the right not to
do so. The Code contains a number of complex tests relating to
qualification which the Fund might not meet in any particular year. For
example, if the Fund derives 30% or more of its gross income from the sale
of securities held less than 3 months, it may fail to qualify (see
"Investment Objective and Policies - Tax Aspects of Covered Calls and
Hedging Instruments" in the Additional Statement for more information).
If it did not qualify, the Fund would be treated for tax purposes as an
ordinary corporation and receive no tax deduction for payments made to
shareholders.
Fund Performance Information
Yield and Total Return Information
From time to time the "standardized yield," "dividend yield,"
"average annual total return," "total return," and "total return at net
asset value" of an investment in the Fund may be advertised. Under rules
adopted by the SEC, the "standardized yield" will be computed in a
standardized manner for mutual funds, by dividing the net investment
income per share earned during a 30-day base period by the maximum
offering price per share on the last day of the period. This yield
calculation is compounded on a semi-annual basis, and multiplied by 2 to
provide an annualized yield.
Total return is the change in value of a hypothetical investment in
shares of the Fund over a given period, assuming that all dividends and
capital gains distributions are reinvested. The cumulative total return
measures the change in value over the entire period (for example, ten
years). An average annual total return shows the average rate of return
for each year in a period that would produce the cumulative total return
over the entire period. However, average annual total returns do not show
the actual year-by-year performance of shares. Total returns may be
quoted at "net asset value," without considering the sales charge, and
those returns would be reduced if sales charges were deducted. When total
returns are shown for the Fund's shares, they reflect the effect of the
contingent deferred sales charge that applies to the period for which the
total return is shown, or else they may be shown based on the change in
net asset value without considering the sales charge. All total returns
are based on historical earnings and are not intended to predict future
performance. The Additional Statement contains more information about the
calculation of the performance data used by the Fund.
The "dividend yield" represents dividends derived from net
investment income during a stated period divided by the maximum offering
price on the last day of the period, to show the rate of return based on
actual distributions paid to shareholders. Yields and returns are based
on historical per share earnings and are not intended to indicate future
performance. See "Performance, Dividend and Tax Information" in the
Additional Statement for more detailed information on calculating the
Fund's yields, returns, and other performance information.
Additional Information
Description of the Fund and Its Shares
The Board of Trustees of the Trust of which the Fund is a series is
empowered to cause the Trust to issue full and fractional shares of one
or more series and classes of series. The Trust currently has two series,
one of which is the Fund, and each series has separate assets and
liabilities. Classes of a series represent an identical interest in a
particular series but each class has different dividends, distributions
and expenses, and may have different net asset values. The Fund has
shares of one class (Class C) which constitute the shares of beneficial
interest described herein.
Shares of the Fund represent an interest in the Fund proportionately
equal to the interest of each other share and entitle their holders to one
vote per share (and a fractional vote for a fractional share) on matters
submitted to their vote. The Trustees may divide or combine the shares
of a series into a greater or lesser number of shares without thereby
changing the proportionate beneficial interest. Shares do not have
cumulative voting rights or preemptive or subscription rights. The Fund
does not anticipate holding annual meetings. Under certain circumstances,
shareholders of the Fund have the right to remove a Trustee. Although the
Declaration of Trust states that when issued, shares are fully-paid and
nonassessable, shareholders may be held personally liable as "partners"
for the Fund's obligations; however, the risk of a shareholder incurring
any financial loss is limited to the relatively remote circumstances in
which the Fund is unable to meet its obligations. See "Additional
Information" in the Additional Statement for details.
The Custodian
The Custodian of the assets of the Fund is The Bank of New York.
The Manager and its affiliates have banking relationships with the
Custodian. See "Additional Information" in the Additional Statement for
further information. The Fund's cash balances with the Custodian in
excess of $100,000 are not protected by Federal deposit insurance. Such
uninsured balances may at times be substantial.
The Transfer Agent
The Transfer Agent, a division of the Manager, acts as transfer and
shareholder servicing agent on an at-cost basis for the Fund and certain
other open-end funds advised by the Manager. Shareholders should direct
any inquiries to the Transfer Agent at the address or toll-free phone
number listed on the back cover of this Prospectus.
Appendix: Description of Ratings
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.
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" can be regarded as having extremely
poor prospects of ever attaining any real investment standing.
Description of Standard & Poor's 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.
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, D: Bonds on which no interest is being paid are rated "C."
Bonds rated "D" are in default and payment of interest and/or repayment
of principal is in arrears.
<PAGE>
Investment Adviser
Oppenheimer Management Corporation
Two World Trade Center
New York, New York 10048-0203
Distributor
Oppenheimer Funds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer Agent
Oppenheimer Shareholder 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
1560 Broadway
Denver, Colorado 80202
Legal Counsel
Myer, Swanson & Adams, P.C.
1600 Broadway
Denver, Colorado 80202
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in
this Prospectus or the Additional Statement, and if given or made, such
information and representation must not be relied upon as having been
authorized by the Fund, Oppenheimer Management Corporation, Oppenheimer
Funds Distributor, Inc., or any affiliate thereof. This Prospectus does
not constitute an offer to sell or a solicitation of an offer to buy any
of the securities offered hereby in any state to any person to whom it is
unlawful to make such offer in such state.
PR230 (2/94) * Printed on recycled paper
<PAGE>
Advisors Portfolio
Prospectus
OPPENHEIMER
Strategic Diversified Income Fund
Effective February 1, 1994
(OppenheimerFunds Logo)
<PAGE>
Advisors Portfolio
Prospectus and
New Account Application
OPPENHEIMER
Strategic Diversified Income Fund
Effective February 1, 1994
(OppenheimerFunds Logo)
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
OPPENHEIMER STRATEGIC DIVERSIFIED INCOME FUND
3410 South Galena Street, Denver, Colorado 80231
1-800-525-7048
This Statement of Additional Information (the "Additional Statement")
is not a Prospectus. This Additional Statement should be read in
conjunction with the Prospectus (the "Prospectus") dated February 1, 1994,
of Oppenheimer Strategic Diversified Income Fund (the "Fund"), which may
be obtained by written request to Oppenheimer Shareholder Services ("the
Transfer Agent"), P.O. Box 5270, Denver, Colorado 80217 or by calling the
Transfer Agent at the toll-free number shown above.
TABLE OF CONTENTS
Page
Investment Objective and Policies . . . . . . . . . . . . . . .2
Special Investment Methods. . . . . . . . . . . . . . . . . . .8
Investment Restrictions . . . . . . . . . . . . . . . . . . . 20
Trustees and Officers . . . . . . . . . . . . . . . . . . . . 21
Investment Management Services. . . . . . . . . . . . . . . . 23
Brokerage . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Purchase, Redemption and Pricing of Shares. . . . . . . . . . 26
Distribution and Service Plan . . . . . . . . . . . . . . . . 29
Performance, Dividend and Tax Information . . . . . . . . . . 30
Additional Information. . . . . . . . . . . . . . . . . . . . 34
Automatic Withdrawal Plan Provisions. . . . . . . . . . . . . 35
This Additional Statement is dated February 1, 1994.
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective and policies of the Fund are discussed in
the Prospectus. Set forth below is supplemental information about those
policies. Certain capitalized terms used in this Additional Statement are
defined in the Prospectus.
In selecting securities for the Fund's portfolio, the Fund's
investment manager, 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,
among other things, consideration of the financial strength of an issuer,
including its historic and current financial condition, the trading
activity in its securities, present and anticipated cash flow, estimated
current value of its assets in relation to their 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 an issuer and the issuer's 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.
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 or both as they
become due. Generally, higher yielding bonds are subject to credit risk
to a greater extent than higher quality 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 interest rates will generally
reduce the market value of 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 capital appreciation and depreciation
than obligations with shorter maturities. Fluctuations in the market
value of fixed-income securities subsequent to their acquisition will not
affect the interest payable on those securities, and thus the cash income
from such securities, but will be reflected in the valuations of these
securities used to compute the Fund's net asset values.
As stated in the Prospectus, the U.S. corporate debt securities
investments in which the Fund will principally invest may 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
limitation, in unrated securities which offer, in the opinion of the
Manager, comparable yields and risks as those rated securities in which
the Fund may invest.
International Securities. As noted in the Prospectus, the Fund may invest
in debt obligations and other securities (which may be dominated 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 debt
obligations and other securities issued by U.S. corporations denominated
in non-U.S. currencies. The types of foreign debt obligations and other
securities in which the Fund may invest are the same types of debt
obligations identified under "Domestic Securities," below.
The Fund may invest in U.S. dollar-denominated "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 that have the same maturity as the Brady
Bonds. However, the Fund may also invest in uncollateralized Brady Bonds.
Brady Bonds are often viewed as having three or four valuation components:
(i) any 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 U.S. 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 by public and private
entities of countries issuing Brady Bonds, investments in Brady Bonds are
to be viewed as speculative.
The obligations of foreign governmental entities may or may not be
supported by the full faith and credit of a foreign government.
Obligations of supranational entities include those of international
organizations designated or supported by governmental entities to promote
economic reconstruction or development and of international banking
institutions and related government agencies. Examples include the
International Bank for Reconstruction and Development (the "World Bank"),
the European Coal and Steel Community, the Asian Development Bank and the
Inter-American Development Bank. The governmental members, or
"stockholders," usually make initial capital contributions to the
supranational entity and in many cases are committed to make additional
capital contributions if the supranational entity is unable to repay its
borrowings. Each supranational entity's lending activities are limited
to a percentage of its total capital (including "callable capital"
contributed by members at the entity's call), reserves and net income.
There is no assurance that foreign governments will be able or willing to
honor their commitments.
Investing in foreign securities involves considerations and possible
risks not typically associated with investing in securities in the U.S.
The values of foreign securities will be affected by changes in currency
rates or exchange control regulations or currency blockage, application
of foreign tax laws, including withholding taxes, changes in governmental
administration or economic or monetary policy (in the U.S. or abroad) or
changed circumstances in dealings between nations. Costs will be incurred
in connection with conversions between various currencies. Foreign
brokerage commissions are generally higher than commissions in the U.S.,
and foreign securities markets may be less liquid, more volatile and less
subject to governmental regulation than in the U.S. Investments in foreign
countries could be affected by other factors not generally thought to be
present in the U.S., including expropriation or nationalization,
confiscatory taxation and potential difficulties in enforcing contractual
obligations, and could be subject to extended settlement periods.
Because the Fund may purchase securities denominated in foreign
currencies, a change in the value of any such currency against the U.S.
dollar will result in a change in the U.S. dollar value of the Fund's
assets and its income available for distribution. In addition, although
a portion of the Fund's investment income may be received or realized in
foreign currencies, the Fund will be required to compute and distribute
its income in U.S. dollars, and absorb the cost of currency fluctuations.
The Fund may engage in foreign currency exchange transactions for hedging
purposes to protect against changes in future exchange rates. See
"Special Investment Methods - Covered Calls and Hedging."
The values of foreign investments and the investment income derived
from them may also be affected unfavorably by changes in currency exchange
control regulations. Although the Fund will invest only in securities
denominated in foreign currencies that at the time of investment do not
have significant government-imposed restrictions on conversion into U.S.
dollars, there can be no assurance against subsequent imposition of
currency controls. In addition, the values of foreign securities will
fluctuate in response to a variety of factors, including changes in U.S.
and foreign interest rates.
Investments in foreign securities offer potential benefits not
available from investments solely in securities of domestic issuers, by
offering 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 bond or
other markets that do not move in a manner parallel to U.S. markets. From
time to time, 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
reimposed.
U.S. Government Securities. U.S. Government Securities are debt
obligations issued or guaranteed by the U.S. Government or one of its
agencies or instrumentalities, and include "zero coupon" Treasury
securities, mortgage-backed securities and money market instruments.
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 generally
provide for periodic payment of interest in fixed or determinable 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 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 Mortgage
Corporation); and some are backed by only the credit of the issuer itself.
Those guarantees do not extend to the value or yield of the mortgage-
backed securities themselves or to the net asset value of the Fund's
shares. Any of those government agencies may also issue collateralized
mortgage-backed obligations, discussed below.
The yield on mortgage-backed securities 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
affected 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 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 to the extent that the values of other debt
securities rise, 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 times when available
investments offer higher or lower 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 the
Fund 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 their 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
purchase mortgage-backed securities at a premium or 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 Government National Mortgage
Association ("GNMA") are mortgage-backed securities of GNMA that evidence
an undivided interest in a pool or pools of mortgages ("GNMA
Certificates"). 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 PC 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.
Collateralized Mortgage-Backed Obligations ("CMOs"). CMOs are fully-
collateralized bonds that are the general obligations of the issuer
thereof, either the U.S. Government, a U.S. Government instrumentality,
or a private issuer. Such bonds generally are secured by an assignment
to a trustee (under the indenture pursuant to which the bonds are issued)
of collateral consisting of a pool of mortgages. Payments with respect
to the underlying mortgages generally are made to the trustee under the
indenture. Payments of principal and interest on the underlying mortgages
are not passed through to the holders of the CMOs as such (i.e., the
character of payments of principal and interest is not passed through, and
therefore payments to holders of CMOs attributable to interest paid and
principal repaid on the underlying mortgages do not necessarily constitute
income and return of capital, respectively, to such holders), but such
payments are dedicated to payment of interest on and repayment of
principal of the CMOs. CMOs often are issued in two or more classes with
different characteristics such as varying maturities and stated rates of
interest. Because interest and principal payments on the underlying
mortgages are not passed through to holders of CMOs, CMOs of varying
maturities may be secured by the same pool of mortgages, the payments on
which are used to pay interest on each class and to retire successive
maturities in sequence. Unlike other mortgage-backed securities
(discussed above), CMOs are designed to be retired as the underlying
mortgages are repaid. In the event of prepayment on such mortgages, the
class of CMO first to mature generally will be paid down. Therefore,
although in most cases the issuer of CMOs will not supply additional
collateral in the event of such prepayment, there will be sufficient
collateral to secure CMOs that remain outstanding.
Mortgage-Backed Security Rolls. The Fund may enter into "forward
roll" transactions with respect to mortgage-backed securities issued by
GNMA, FNMA or FHLMC. In a forward roll transaction, which is considered
to be a borrowing by the Fund, the Fund will sell a mortgage security to
a bank or other permitted entity and simultaneously agree to repurchase
a similar security from the institution at a later date at an agreed upon
price. The mortgage securities that are repurchased will bear the same
interest rate as those sold, but generally will be collateralized by
different pools of mortgages with different prepayment histories than
those sold. Risks of mortgage-backed security rolls include: (i) the risk
of prepayment prior to maturity, (ii) the possibility that the Fund may
not be entitled to receive interest and principal payments on the
securities sold and that the proceeds of the sale may have to be invested
in money market instruments (typically repurchase agreements) maturing not
later than the expiration of the roll, and (iii) the possibility that the
market value of the securities sold by the Fund may decline below the
price at which the Fund is obligated to purchase the securities. Upon
entering into a mortgage-backed security roll, the Fund will be required
to place cash, U.S. Government Securities or other high-grade debt
securities in a segregated account with its Custodian in an amount equal
to its obligation under the roll.
Domestic Securities. The Fund's investments in fixed-income securities
issued by domestic corporations may include debt obligations (bonds,
debentures, notes and CMOs) together with preferred stocks.
Preferred Stocks. Dividends on some preferred stock may be
"cumulative," requiring all or a portion of prior unpaid dividends to be
paid. Preferred stock also generally has a preference over common stock
on the distribution of a corporation's assets in the event of liquidation
of the corporation, and may be "participating," which means that it may
be entitled to a dividend exceeding the stated dividend in certain cases.
The rights of preferred stocks on distribution of a corporation's assets
in the event of a liquidation are generally subordinate to the rights
associated with a corporation's debt securities.
Participation Interests. The Fund may invest in participation
interests, subject to the limitation, described in "Restricted and
Illiquid Securities" in the Prospectus, on investments by the Fund in
illiquid investments. Participation interests provide the Fund an
undivided interest in a loan made by the issuing financial institution 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 issuing bank.
Participation interests are primarily dependent upon the creditworthiness
of the borrowing corporation, which is obligated to make payments of
principal and interest on the loan, and there is a risk that such
borrowers may have difficulty making payments. In the event the borrower
fails to pay scheduled interest or principal payments, the Fund could
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 financial
institution to perform its obligation 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.
Warrants and Rights. The Fund may, to the limited extent described
in the Prospectus, invest in warrants and rights. Warrants basically are
options to purchase equity securities at specific prices valid for a
specific period of time. Their prices do not necessarily move parallel
to the prices of the underlying securities. Rights are similar to
warrants but normally have a short duration and are distributed by the
issuer to its shareholders. Warrants and rights have no voting rights,
receive no dividends and have no rights with respect to the assets of the
issuer.
Asset-Backed Securities. The value of an asset-backed security is
affected by changes in the market's perception of the asset backing the
security, 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 any credit enhancement has
been exhausted. The risks of investing in asset-backed securities are
ultimately dependent upon payment of consumer loans by the individual
borrowers. As a purchaser of an asset-backed security, 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
above for prepayments of a pool of mortgage loans underlying mortgage-
backed securities.
SPECIAL INVESTMENT METHODS
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, U.S. branch of a foreign bank or a broker-dealer
which has been designated a primary dealer in government securities, which
must meet the credit requirements set by the Fund's Board of Trustees from
time to time), for delivery on an agreed upon future date. The sale price
exceeds the purchase price by an amount that reflects an agreed-upon
interest rate effective for the period during which the repurchase
agreement is in effect. The majority of these transactions run from day
to day, and delivery pursuant to resale typically will occur within one
to five days of the purchase. Repurchase agreements are considered
"loans" under the Investment Company Act, collateralized by the underlying
security. The Fund's repurchase agreements will require that at all times
while the repurchase agreement is in effect, the collateral's value must
equal or exceed the repurchase price to collateralize the loan fully.
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. The expenses of registration of
restricted securities that are subject to legal restrictions on resale
(excluding securities that may be resold by the Fund pursuant to Rule
144A, as explained in the Prospectus) may be negotiated at the time such
securities are purchased by the Fund. When registration is required, a
considerable period may elapse between a decision to sell the securities
and the time the Fund would be permitted to sell them. Thus, the Fund
might not be able to obtain as favorable a price as that prevailing at the
time of the decision to sell. The Fund also may acquire, through private
placements, securities having contractual resale restrictions, which might
lower the amount realizable upon the sale of such securities.
Loans of Portfolio Securities. The Fund may lend its portfolio securities
subject to the restrictions stated in the Prospectus. Under applicable
regulatory requirements (which are subject to change), the loan collateral
must, on each business day, at least equal the market value of the loaned
securities and must consist of cash, bank letters of credit, U.S.
Government Securities, or other cash equivalents in which the Fund is
permitted to invest. To be acceptable as collateral, letters of credit
must obligate a bank to pay amounts demanded by the Fund if the demand
meets the terms of the letter. Such terms and the issuing bank must be
satisfactory to the Fund. In a portfolio securities lending transaction,
the Fund receives from the borrower an amount equal to the interest paid
or the dividends declared on the loaned securities during the term of the
loan as well as the interest on the collateral securities, less any
finders' or administrative fees the Fund pays in arranging the loan. The
Fund may share the interest it receives on the collateral securities with
the borrower as long as it realizes at least a minimum amount of interest
required by the lending guidelines established by its Board of Trustees.
The Fund will not lend its portfolio securities to any officer, trustee,
employee or affiliate of the Fund or its Manager. The terms of the Fund's
loans must meet certain tests under the Internal Revenue Code and permit
the Fund to reacquire loaned securities on five business days' notice or
in time to vote on any important matter.
Borrowing. From time to time, the Fund may increase its ownership of
securities by borrowing from banks on a unsecured basis and investing the
borrowed funds, subject to the restrictions stated in the Prospectus. Any
such borrowing will be made only from banks, and pursuant to the
requirements of the Investment Company Act, will be made only to the
extent that the value of the Fund's assets, less its liabilities other
than borrowings, is equal to at least 300% of all borrowings including the
proposed borrowing and amounts covering the Fund's obligations under
"forward roll" transactions. If the value of the Fund's assets so computed
should fail to meet the 300% asset coverage requirement, the Fund is
required within three days to reduce its bank debt to the extent necessary
to meet such requirement and may have to sell a portion of its investments
at a time when independent investment judgment would not dictate such
sale. Borrowing for investment increases both investment opportunity and
risk. Since substantially all of the Fund's assets fluctuate in value,
but borrowing obligations are fixed, when the Fund has outstanding
borrowings, the net asset value per share of the Fund correspondingly will
tend to increase and decrease more when portfolio assets fluctuate in
value than otherwise would be the case.
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. 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.
Temporary Defensive Investments. The money market securities in which the
Fund may invest for temporary defensive purposes include the following:
Bank Obligations and Instruments Secured Thereby. These include time
deposits, certificates of deposit and bankers' acceptances if they are:
(i) obligations of a domestic bank with total assets of at least $1
billion or (ii) U.S. dollar-denominated obligations of a foreign bank with
total assets of at least U.S. $1 billion. The Fund may also invest in
instruments secured by such obligations (e.g. debt which is guaranteed by
the bank). For purposes of this section, the term "bank" includes
commercial banks, savings banks, and savings and loan associations which
may or may not be members of the Federal Deposit Insurance Corporation.
Time deposits are non-negotiable deposits in a bank for a specified
period of time at a stated interest rate, whether or not subject to
withdrawal penalties. However, time deposits that are subject to
withdrawal penalties, other than those maturing in seven days or less, are
subject to the limitation on investments by the Fund in illiquid
investments, set forth in the Prospectus under "Illiquid and Restricted
Securities."
Banker's acceptances are marketable short-term credit instruments
used to finance the import, export, transfer or storage of goods. They
are deemed "accepted" when a bank guarantees their payment at maturity.
Commercial Paper. The Fund's commercial paper investments in
addition to those described in the Prospectus include the following:
Variable Amount Master Demand Notes. Master demand notes are
corporate obligations which permit the investment of fluctuating amounts
by the Fund at varying rates of interest pursuant to direct arrangements
between the Fund, as lender, and the borrower. They permit daily changes
in the amounts borrowed. The Fund has the right to increase the amount
under the note at any time up to the full amount provided by the note
agreement, or to decrease the amount, and the borrower may prepay up to
the full amount of the note without penalty. These notes may or may not
be backed by bank letters of credit. Because these notes are direct
lending arrangements between the lender and borrower, it is not generally
contemplated that they will be traded. There is no secondary market for
these notes, although they are redeemable (and thus immediately repayable
by the borrower) at principal amount, plus accrued interest, at any time.
Accordingly, the Fund's right to redeem is dependent upon the ability of
the borrower to pay principal and interest on demand. The Fund has no
limitations on the type of issuer from whom these notes will be purchased;
however, in connection with such purchases and on an ongoing basis, the
Manager will consider the earning power, cash flow and other liquidity
ratios of the issuer, and its ability to pay principal and interest on
demand, including a situation in which all holders of such notes made
demand simultaneously. Investments in master demand notes are subject to
the limitation on investments by the Fund in illiquid securities.
Floating Rate/Variable Rate Notes. Some of the notes the Fund may
purchase may have variable or floating interest rates. Variable rates are
adjustable at stated periodic intervals; floating rates are automatically
adjusted according to a specified market rate for such investments, such
as the percentage of the prime rate of a bank, or the 91-day U.S. Treasury
Bill rate. Such obligations may be secured by bank letters of credit or
other credit support arrangements.
Covered Calls and Hedging. As described in the Prospectus, the Fund may
write covered calls or employ one or more types of Hedging Instruments for
temporary defensive purposes. The Fund's strategy of hedging with Futures
and options on Futures will be incidental to the Fund's activities in the
underlying cash market. Covered calls and puts may also be written on
debt securities to attempt to increase the Fund's income. When hedging
to attempt to protect against 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 Futures, (ii)
purchase puts on such Futures or securities, or (iii) write calls on
securities held by it or on Futures. When hedging to attempt to protect
against the possibility that portfolio securities are not fully included
in a rise in value of the debt securities market, the Fund may: (i)
purchase Futures, or (ii) purchase calls on such Futures or on securities.
Covered calls and puts may also be written on debt securities to attempt
to increase the Fund's income. 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 and on foreign currency
Futures, (b) write calls on that currency or on such Futures, or (c) enter
into Forward Contracts at a lower rate than the spot ("cash") rate. The
Fund's strategy of hedging with Futures and option on Futures will be
incidental to the Fund's activities in the underlying cash market.
Additional Information about the Hedging Instruments the Fund may use is
provided below. At present, the Fund does not intend to enter into
Futures, Forward Contracts and options on Futures if, after any such
purchase, the sum of margin deposits on Futures and premiums paid on
Futures options exceeds 5% of the value of the Fund's total assets. In
the future, the Fund may employ Hedging Instruments and strategies that
are not presently contemplated but which may be developed, to the extent
such investment methods are consistent with the Fund's investment
objective, legally permissible and adequately disclosed.
Writing Covered Call Options. When the Fund writes a call on a
security it receives a premium and agrees to sell the callable investment
to a purchaser of a corresponding call on the same security during the
call period (usually not more than 9 months) at a fixed exercise price
(which may differ from the market price of the underlying security),
regardless of market price changes during the call period. The Fund has
retained the risk of loss should the price of the underlying security
decline during the call period, which may be offset to some extent by the
premium.
To terminate its obligation on a call it has written, the Fund may
purchase a corresponding call in a "closing purchase transaction." A
profit or loss will be realized, depending upon whether the net of the
amount of the option transaction costs and the premium received on the
call written was more or less than the price of the call subsequently
purchased. A profit may also be realized if the call lapses unexercised,
because the Fund retains the underlying investment and the premium
received. Any such profits are considered short-term capital gains for
Federal income tax purposes, and when distributed by the Fund are taxable
as ordinary income. If the Fund could not effect a closing purchase
transaction due to lack of a market, it would have to hold the callable
investments until the call lapsed or was exercised.
The Fund may also write calls on Futures without owning a futures
contract or a deliverable bond, provided that at the time the call is
written, the Fund covers the call by segregating in escrow an equivalent
dollar amount of liquid assets. The Fund will segregate additional liquid
assets if the value of the escrowed assets drops below 100% of the current
value of the Future. In no circumstances would an exercise notice require
the Fund to deliver a futures contract; it would simply put the Fund in
a short futures position, which is permitted by the Fund's hedging
policies.
Writing Put Options. A put option on securities gives the purchaser
the right to sell, and the writer the obligation to buy, the underlying
investment at the exercise price during the option period. Writing a put
covered by segregated liquid assets equal to the exercise price of the put
has the same economic effect to the Fund as writing a covered call. The
premium the Fund receives from writing a put option represents a profit,
as long as the price of the underlying investment remains above the
exercise price. However, the Fund has also assumed the obligation during
the option period to buy the underlying investment from the buyer of the
put at the exercise price, even though the value of the investment may
fall below the exercise price. If the put lapses unexercised, the Fund
(as the writer of the put) realizes a gain in the amount of the premium.
If the put is exercised, the Fund must fulfill its obligation to purchase
the underlying investment at the exercise price, which will usually exceed
the market value of the investment at that time. In that case, the Fund
may incur a loss, equal to the sum of the current market value of the
underlying investment and the premium received minus the sum of the
exercise price and any transaction costs incurred.
When writing put options on securities, to secure its obligation to
pay for the underlying security, the Fund will deposit in escrow liquid
assets with a value equal to or greater than the exercise price of the put
option. The Fund therefore forgoes the opportunity of investing the
segregated assets or writing calls against those assets. As long as the
obligation of the Fund as the put writer continues, it may be assigned an
exercise notice by the broker-dealer through whom such option was sold,
requiring the Fund to take delivery of the underlying security against
payment of the exercise price. The Fund has no control over when it may
be required to purchase the underlying security, since it may be assigned
an exercise notice at any time prior to the termination of its obligation
as the writer of the put. This obligation terminates upon expiration of
the put, or such earlier time at which the Fund effects a closing purchase
transaction by purchasing a put of the same series as that previously
sold. Once the Fund has been assigned an exercise notice, it is
thereafter not allowed to effect a closing purchase transaction.
The Fund may effect a closing purchase transaction to realize a
profit on an outstanding put option it has written or to prevent an
underlying security from being put. Furthermore, effecting such a closing
purchase transaction will permit the Fund to write another put option to
the extent that the exercise price thereof is secured by the deposited
assets, or to utilize the proceeds from the sale of such assets for other
investments by the Fund. The Fund will realize a profit or loss from a
closing purchase transaction if the cost of the transaction is less or
more than the premium received from writing the option. As above for
writing covered calls, any and all such profits described herein from
writing puts are considered short-term gains for Federal tax purposes, and
when distributed by the Fund, are taxable as ordinary income.
Purchasing Calls and Puts. When the Fund purchases a call (other
than in a closing purchase transaction), it pays a premium and, except as
to calls on indices or Futures, has the right to buy the underlying
investment from a seller of a corresponding call on the same investment
during the call period at a fixed exercise price. When the Fund purchases
a call on an index or Future, it pays a premium, but settlement is in cash
rather than by delivery of the underlying investment to the Fund. In
purchasing a call, the Fund benefits only if the call is sold at a profit
or if, during the call period, the market price of the underlying
investment is above the sum of the call price plus the transaction costs
and the premium paid and the call is exercised. If the call is not
exercised or sold (whether or not at a profit), it will become worthless
at its expiration date and the Fund will lose its premium payment and the
right to purchase the underlying investment.
When the Fund purchases a put, it pays a premium and, except as to
puts on indices, has the right to sell the underlying investment to a
seller of a corresponding put on the same investment during the put period
at a fixed exercise price. Buying a put on an investment the Fund owns
enables the Fund to protect itself during the put period against a decline
in the value of the underlying investment below the exercise price by
selling such underlying investment at the exercise price to a seller of
a corresponding put. If the market price of the underlying investment is
equal to or above the exercise price and as a result the put is not
exercised or resold, the put will become worthless at its expiration date,
and the Fund will lose its premium payment and the right to sell the
underlying investment. The put may, however, be sold prior to expiration
(whether or not at a profit.)
Buying a put on an investment it does not own, either a put on an
index or a put on a Future not held by the Fund, permits the Fund either
to resell the put or buy the underlying investment and sell it at the
exercise price. The resale price of the put will vary inversely with the
price of the underlying investment. If the market price of the underlying
investment is above the exercise price and as a result the put is not
exercised, the put will become worthless on its expiration date. In the
event of a decline in the stock market, the Fund could exercise or sell
the put at a profit to attempt to offset some or all of its loss on its
portfolio securities. When the Fund purchases a put on an index, or on
a Future not held by it, the put protects the Fund to the extent that the
index moves in a similar pattern to the securities held. In the case of
a put on an index or Future, settlement is in cash rather than by delivery
by the Fund of the underlying investment.
Puts and calls on broadly-based indices or Futures are similar to
puts and calls on securities or futures contracts except that all
settlements are in cash and gain or loss depends on changes in the index
in question (and thus on price movements in the stock market generally)
rather than on price movements in individual securities or futures
contracts. When the Fund buys a call on an index or 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 index and the exercise price of the call times a specified
multiple (the "multiplier") which determines the total dollar value for
each point of difference. When the Fund buys a put on an index or Future,
it pays a premium and has the right during the put period to require a
seller of a corresponding put, upon the Fund's exercise of its put, to
deliver to the Fund an amount of cash to settle the put if the closing
level of the index or Future upon which the put is based is less than the
exercise price of the put. That cash payment is determined by the
multiplier, in the same manner as described above as to calls.
An option position may be closed out only on a market which provides
secondary trading for options of the same series and there is no assurance
that a liquid secondary market will exist for any particular option. The
Fund's option activities may affect its turnover rate and brokerage
commissions. The exercise by the Fund of puts on securities will cause
the sale of related investments, increasing portfolio turnover. Although
such exercise is within the Fund's control, holding a put might cause the
Fund to sell the related investments for reasons which would not exist in
the absence of the put. The Fund will pay a brokerage commission each
time it buys a put or call, sells a call, or buys or sells an underlying
investment in connection with the exercise of a put
or call. Such commissions may be higher than those which would apply to
direct purchases or sales of such underlying investments. Premiums paid
for options are small in relation to the market value
of the related investments, and consequently, put and call options offer
large amounts of leverage. The leverage offered by trading in options
could result in the Fund's net asset value being more sensitive to changes
in the value of the underlying investments.
Options on Foreign Currencies. The Fund intends to 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 may be written by the Fund on a foreign currency
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 expected
adverse change in the exchange rate. This is a cross-hedging strategy.
In such circumstances, the Fund collateralizes the option by maintaining
in a segregated account with the Fund's custodian, cash or U.S. Government
Securities in an amount not less than the value of the underlying foreign
currency in U.S. dollars marked-to-market daily.
Interest Rate Futures and Forward Contracts. No price is paid or
received upon the purchase or sale of an Interest Rate Future or a foreign
currency exchange contract ("Forward Contract"), discussed below.
Interest Rate Futures obligate one party to deliver and the other to take
a specific debt security or amount of foreign currency, respectively, at
a specified price on a specified date. No price is paid or received upon
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 specified conditions. As the Future is marked to market to reflect
changes in its market value, subsequent margin payments, called variation
margin, will be made to or by the futures broker on a daily basis. Prior
to expiration of the Future, if the Fund elects to close out its position
by taking an opposite position, a final determination of variation margin
is made, additional cash is required to be paid by or released to the
Fund, and any loss or gain is realized for tax purposes. Although
Interest Rate Futures by their terms call for settlement by delivery or
acquisition of debt securities, in most cases the obligation is fulfilled
by entering into an offsetting position. All futures transactions are
effected through a clearinghouse associated with the exchange on which the
contracts are traded.
Forward Contracts. 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 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. The Fund will not speculate with Forward Contracts or foreign
currency exchange rates.
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 entered into with respect to position
hedges and cross hedges. 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.
Financial Futures. 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.
Interest Rate Swap Transactions. Swap agreements entail both
interest rate risk and credit risk. There is a risk that, based on
movements of interest rates in the future, the payments made by the Fund
under a swap agreement will have been greater than those received by it.
Credit risk arises from the possibility that the counterparty will
default. If the counterparty to an interest rate swap defaults, the
Fund's loss will consist of the net amount of contractual interest
payments that the Fund has not yet received. The Manager will monitor the
creditworthiness of counterparties to the Fund's interest rate swap
transactions on an ongoing basis. The Fund will enter into swap
transactions with appropriate counterparties pursuant to master netting
agreements. A master netting agreement provides that all swaps done
between the Fund and that counterparty under the master agreement shall
be regarded as parts of an integral agreement. If on any date amounts are
payable in the same currency in respect of one or more swap transactions,
the net amount payable on that date in that currency shall be paid. In
addition, the master netting agreement may provide that if one party
defaults generally or on one swap, the counterparty may terminate the
swaps with that party. Under such agreements, if there is a default
resulting in a loss to one party, the measure of that party's damages is
calculated by reference to the average cost of a replacement swap with
respect to each swap (i.e., the mark-to-market value at the time of the
termination of each swap). The gains and losses on all swaps are then
netted, and the result is the counterparty's gain or loss on termination.
The termination of all swaps and the netting of gains and losses on
termination is generally referred to as "aggregation."
Additional Information About Hedging Instruments and Their Use. The
Fund's Custodian, or a securities depository acting for the Custodian,
will act as the Fund's escrow agent, through the facilities of the Options
Clearing Corporation ("OCC"), as to the investments on which the Fund has
written options traded on exchanges or as to other acceptable escrow
securities, so that no margin will be required for such transactions. OCC
will release the securities on the expiration of the option or upon the
Fund's entering into a closing transaction. An option position may be
closed out only on a market which provides secondary trading for options
of the same series, and there is no assurance that a liquid secondary
market will exist for any particular option.
When the Fund writes an over-the-counter ("OTC") option, it will
enter into an arrangement with a primary U.S. Government securities
dealer, which would establish a formula price at which the Fund would have
the absolute right to repurchase that OTC option. That formula price
would generally be based on a multiple of the premium received for the
option, plus the amount by which the option is exercisable below the
market price of the underlying security (that is, the extent to which the
option "is in-the-money"). When the Fund writes an OTC option, it will
treat as illiquid (for purposes of the limit on its assets that may be
invested in illiquid securities, stated in the Prospectus) the market-to-
market value of any OTC option held by it. The Securities and Exchange
Commission ("SEC") is evaluating whether OTC options should be considered
liquid securities, and the procedure described above could be affected by
the outcome of that evaluation.
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 securities or Futures 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 investments for reasons which would not exist in the absence
of the put. The Fund will pay a brokerage commission each time it buys
or sells a call, a put or an underlying investment in connection with the
exercise of a put or call. Such commissions may be higher 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 investments.
Regulatory Aspects of Hedging Instruments. The Fund must operate
within certain restrictions as to its long and short positions in Futures
and options thereon under a rule (the "CFTC Rule") adopted by the
Commodity Futures Trading Commission (the "CFTC") under the Commodity
Exchange Act (the "CEA"), which exempts the Fund from registration with
the CFTC as a "commodity pool operator" (as defined in the CEA) if it
complies with the CFTC Rule. Under these restrictions the Fund will not,
as to any positions, whether short, long or a combination thereof, enter
into Futures and options thereon for which the aggregate initial margins
and premiums exceed 5% of the fair market value of its total assets, with
certain exclusions as defined in the CFTC Rule. Under the restrictions,
the Fund also must, as to its short positions, use Futures and options
thereon solely for bona-fide hedging purposes within the meaning and
intent of the applicable provisions under the CEA.
Transactions in options by the Fund are subject to limitations
established by each of the exchanges governing the maximum number of
options which may be written or held by a single investor or group of
investors acting in concert, regardless of whether the options were
written or purchased on the same or different exchanges or are held in one
or more accounts or through one or more exchanges or brokers. Thus, the
number of options which the Fund may write or hold may be affected by
options written or held by other entities, including other investment
companies having the same or an affiliated investment adviser. Position
limits also apply to Futures. An exchange may order the liquidation of
positions found to be in violation of those limits and may impose certain
other sanctions. 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 bank, cash or readily-marketable,
short-term (maturing in one year or less) debt instruments in an amount
equal to the market value of the securities underlying such Future, less
the margin deposit applicable to it.
Tax Aspects of Covered Calls and Hedging Instruments. The Fund
intends to qualify as a "regulated investment company" under the Internal
Revenue Code. One of the tests for such qualification is that less than
30% of its gross income (irrespective of losses) must be derived from
gains realized on the sale of securities held for less than three months.
Due to this limitation, the Fund will limit the extent to which it engages
in the following activities, but will not be precluded from them: (i)
selling investments, including Futures, held for less than three months,
whether or not they were purchased on the exercise of a call held by the
Fund; (ii) purchasing calls or puts which expire in less than three
months; (iii) effecting closing transactions with respect to calls or puts
purchased less than three months previously; (iv) exercising puts or calls
held by the Fund for less than three months; and (v) writing calls on
investments held for 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.
Possible Risk Factors in Hedging. In addition to the risks with
respect to options discussed in the Prospectus and above, there is a risk
in using short hedging by selling Futures to attempt to protect against
decline in value of the Fund's portfolio securities (due to an increase
in interest rates) that the prices of such Futures will correlate
imperfectly with the behavior of the cash (i.e., market value) prices of
the Fund's securities. The ordinary spreads between prices in the cash
and futures markets are subject to distortions due to differences in the
natures of those markets. First, all participants in the futures markets
are subject to margin deposit and maintenance requirements. Rather than
meeting additional margin deposit requirements, investors may close out
futures contracts through offsetting transactions which could distort the
normal relationship between the cash and futures markets. Second, the
liquidity of the futures markets depend on participants entering into
offsetting transactions rather than making or taking delivery. To the
extent participants decide to make or take delivery, liquidity in the
futures markets could be reduced, thus producing distortion. Third, from
the point of view of speculators, the deposit requirements in the futures
markets are less onerous than margin requirements in the securities
markets. Therefore, increased participation by speculators in the futures
markets may cause temporary price distortions.
If the Fund uses Hedging Instruments to establish a position in the
debt securities markets as a temporary substitute for the purchase of
individual debt securities (long hedging) by buying Futures and/or calls
on such Futures or on debt securities, it is possible that the market may
decline; if the Fund then concludes not to invest in such securities at
that time because of concerns as to possible further market decline or for
other reasons, the Fund will realize a loss on the Hedging Instruments
that is not offset by a reduction in the price of the debt securities
purchased.
INVESTMENT RESTRICTIONS
The Fund's significant investment restrictions are described in the
Prospectus. The following investment restrictions are also fundamental
policies of the Fund and, together with the Fund's fundamental policies
and investment objective described in the Prospectus, cannot be changed
without the vote of a "majority" of the Fund's outstanding voting
securities. Under the Investment Company Act, such a "majority" vote is
defined as the vote of the holders of the lesser of (i) 67% or more of the
shares present or represented by proxy at such meeting, if the holders of
more than 50% of the outstanding shares are present, or (ii) more than 50%
of the outstanding shares. Under these additional restrictions, the Fund
cannot: (1) buy or sell real estate, real estate limited partnerships, or
commodities or commodity contracts; however, 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, and the Fund may buy and sell Hedging
Instruments; (2) buy securities on margin, except that the Fund may make
margin deposits in connection with any of the Hedging Instruments which
it may use; (3) underwrite securities issued by other persons except to
the extent that, in connection with the disposition of its portfolio
investments, it may be deemed to be an underwriter for purposes of the
Securities Act of 1933; (4) buy and retain securities of any issuer if
those officers, Trustees or Directors of the Fund or the Manager who
beneficially own more than .5% of the securities of such issuer together
own more than 5% of the securities of such issuer; (5) invest in oil, gas,
or other mineral leases or exploration or development programs; (6) buy
the securities of any company for the purpose of exercising management
control; or (7) buy securities of other investment companies other than
investments of no more than 5% of its total assets in open-market
purchases of closed-end investment companies, or other than securities
acquired in connection with a merger, consolidation, reorganization or
acquisition of assets.
TRUSTEES AND OFFICERS
The Trustees and officers of the Trust and their principal
occupations and business affiliations during the past five years are
listed below. All of the Trustees are also trustees, directors or
managing general partners of Oppenheimer Total Return Fund, Inc.,
Oppenheimer Equity Income Fund, Oppenheimer High Yield Fund, Oppenheimer
Cash Reserves, Oppenheimer Tax-Exempt Cash Reserves, Oppenheimer Tax-
Exempt Bond Fund, Oppenheimer Government Securities Fund, The New York
Tax-Exempt Income Fund, Inc., Centennial America Fund, L.P., Oppenheimer
Champion High Yield Fund, Oppenheimer Main Street Funds, Inc., Oppenheimer
Strategic Income & Growth Fund, Oppenheimer Strategic Investment Grade
Bond Fund, Oppenheimer Strategic Short-Term Income Fund, Oppenheimer
Variable Account Funds, Oppenheimer Integrity Funds, and the following
"Centennial Funds": Daily Cash Accumulation Fund, Inc., Centennial Money
Market Trust, Centennial Government Trust, Centennial New York Tax Exempt
Trust, Centennial Tax Exempt Trust and Centennial California Tax Exempt
Trust, (all of the foregoing funds are collectively referred to as the
"Denver OppenheimerFunds"). Mr. Fossel is President and Mr. Swain is
Chairman of the Denver OppenheimerFunds. As of February 1, 1994, the
Trustees and officers of the Fund as a group owned none of the Fund's
outstanding shares.
ROBERT G. AVIS, Trustee*
One North Jefferson Ave., St. Louis, Missouri 63103
Vice Chairman of A.G. Edwards & Sons, Inc. (a broker-dealer) and A.G.
Edwards, Inc. (its parent holding company); Chairman of A.G.E. Asset
Management and A.G. Edwards Trust Company (its affiliated investment
adviser and trust company, respectively).
WILLIAM A. BAKER, Trustee
197 Desert Lakes Drive, Palm Springs, California 92264
Management Consultant.
CHARLES CONRAD, JR., Trustee
5301 Bolsa Avenue, Huntington Beach, California 92647
Vice President of McDonnell Douglas Ltd.; formerly associated with the
National Aeronautics and Space Administration.
JON S. FOSSEL, President and Trustee*
Two World Trade Center, New York, New York 10048-0203
Chairman, Chief Executive Officer and a director of the Manager; President
and 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
44 Portland Drive, St. Louis, Missouri 63131
Formerly Vice Chairman and a director of A.G. Edwards, Inc., parent
holding company of A.G. Edwards & Sons, Inc. (a broker-dealer), of which
he was a Senior Vice President.
C. HOWARD KAST, Trustee
2552 East Alameda, Denver, Colorado 80209
Formerly the Managing Partner of Deloitte, Haskins & Sells (an accounting
firm).
ROBERT M. KIRCHNER, Trustee
7500 E. Arapahoe Road, Englewood, Colorado 80112
President of The Kirchner Company (management consultants).
NED M. STEEL, Trustee
3416 S. Race Street, Englewood, Colorado 80110
Chartered Property and Casualty Underwriter; formerly Senior Vice
President and a director of Van Gilder Insurance Corp. (insurance
brokers).
JAMES C. SWAIN, Chairman and Trustee*
3410 South Galena Street, Denver, Colorado 80231
Vice Chairman of the Manager; President and Director of Centennial Asset
Management Corporation, an investment adviser subsidiary of the Manager
("Centennial"); formerly President and Director of Oppenheimer Asset
Management Corporation ("OAMC"), an investment adviser which was a
subsidiary of the Manager, and Chairman of the Board of SSI.
ANDREW J. DONOHUE, Vice President
Executive Vice President and General Counsel of Oppenheimer Management
Corporation ("OMC") (the "Manager") and Oppenheimer Funds Distributor,
Inc. (the "Distributor"); an officer of other OppenheimerFunds; formerly
Senior Vice President and Associate General Counsel of the Manager and the
Distributor; Partner in, Kraft & McManimon (a law firm); an officer of
First Investors Corporation (a broker-dealer) and First Investors
Management Company, Inc. (broker-dealer and investment adviser); director
and an officer of First Investors Family of Funds and First Investors Life
Insurance Company.
GEORGE C. BOWEN, Vice President, Secretary and Treasurer
3410 South Galena Street Denver, Colorado 80231
Senior Vice President and Treasurer of the Manager; Vice President and
Treasurer of the Distributor and HarbourView; Senior Vice President,
Treasurer, Assistant Secretary and a director of Centennial; Vice
President, Treasurer and Secretary of SSI and SFSI; an officer of other
OppenheimerFunds; formerly Senior Vice President/Comptroller and Secretary
of OAMC.
ARTHUR P. STEINMETZ, Vice President and Portfolio Manager
Two World Trade Center, New York, New York 10048-0203
Senior Vice President of the Manager; an officer of other
OppenheimerFunds.
DAVID P. NEGRI, Vice President and Portfolio Manager
Two World Trade Center, New York, New York 10048-0203
Vice President of the Manager; an officer of other OppenheimerFunds.
ROBERT G. ZACK, Assistant Secretary
Two World Trade Center, New York, New York 10048-0203
Senior Vice President and Associate General Counsel of the Manager,
Assistant Secretary of SSI and SFSI; an officer of other OppenheimerFunds.
LYNN M. COLUCCY, Assistant Treasurer
3410 South Galena Street, Denver, Colorado 80231
Vice President and Assistant Treasurer of the Manager; an officer of other
OppenheimerFunds; formerly Vice President/Director of Internal Audit of
the Manager.
_____________________________
*A Trustee who is an "interested person" of the Fund as defined in the
Investment Company Act.
Remuneration of Trustees. The officers of the Trust (including Messrs.
Fossel and Swain) are affiliated with the Manager and receive no salary
or fee from the Trust. The Trust has an Audit and Review Committee,
comprised of William A. Baker (Chairman), Charles Conrad, Jr. and Robert
M. Kirchner. This Committee meets regularly to review audits, audit
procedures, financial statements and other financial and operational
matters of the Fund.
Major Shareholders. As of February 1, 1994, the Manager was the sole
initial shareholder of the Fund's outstanding shares.
INVESTMENT MANAGEMENT SERVICES
The Manager is wholly-owned by Oppenheimer Acquisition Corp., 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 may serve as officers of the Trust, and two of whom
(Messrs. Jon S. Fossel and James C. Swain) serve as Trustees of the Trust.
The management fee is payable monthly to the Manager under the
terms of the investment advisory agreement between the Manager and the
Fund (the "Agreement"), and is computed on the aggregate net assets of the
Fund as of the close of business each day. The Agreement requires the
Manager, at its expense, to provide the Fund with adequate office space,
facilities and equipment, and to provide and supervise the activities of
all administrative and clerical personnel required to provide effective
administration for the Fund, including the compilation and maintenance of
records with respect to its operations, the preparation and filing of
specified reports, and composition of proxy materials and registration
statements for continuous public sale of shares of the Fund. Expenses not
expressly assumed by the Manager under the Agreement or by the Distributor
are paid by the Fund. The Agreement lists examples of expenses paid by
the Fund, the major categories of which relate to interest, taxes,
brokerage commissions, fees to unaffiliated trustees, legal, bookkeeping
and audit expenses, custodian and transfer agent expenses, share issuance
costs, certain printing and registration costs and non-recurring expenses,
including litigation. The Fund also pays its organizational and start-up
expenses, as explained in the notes to the accompanying Financial
Statements.
The Agreement contains no expense limitation. However,
independently of the Agreement, the Manager has voluntarily agreed to
reimburse the Fund if aggregate expenses (with specified exceptions)
exceed the most stringent state regulatory limitation on Fund expenses
applicable to the Fund. At present, this limitation, imposed by
California, limits such expenses to 2.5% of the first $30 million of
average annual net assets, 2.0% of the next $70 million, and 1.5% of
average annual net assets in excess of $100 million. The payment of the
management fee at the end of the month will be reduced so that there will
not be any accrued but unpaid liability under this expense limitation.
The Manager reserves the right to terminate or amend this undertaking at
any time. Any assumption of the Fund's expenses under this undertaking
would lower the Fund's overall expense ratio and increase its total return
during any period in which expenses are limited.
The Agreement provides that in the absence of willful misfeasance,
bad faith, gross negligence in the performance of its duties, or reckless
disregard of its obligations and duties under the Agreement, the Manager
is not liable for any loss sustained by reason of good faith errors or
omissions in connection with any matters to which the 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 or general distributor. If the Manager or one of its
affiliates 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.
BROKERAGE
Provisions of the Investment Advisory Agreement. One of the duties of the
Manager under the Agreement is to arrange the portfolio transactions of
the Fund. In doing so, the Manager is authorized by the Agreement to
employ broker-dealers ("brokers"), 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
or base its selection on "posted" rates, but is expected to be aware of
the current rates of eligible brokers and to minimize the commissions paid
to the extent consistent with the provisions of the Agreement and the
interests and policies of the Fund as established by its Board of
Trustees.
Under the Agreement, the Manager is authorized to select brokers
which 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 the 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. Most purchases made by the Fund are principal
transactions at net prices, and the Fund incurs little or no brokerage
costs.
Description of Brokerage Practices. Subject to the provisions of the
Agreement, when brokers are used for the Fund's portfolio transactions,
allocations of brokerage are made by portfolio managers 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 transactions 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. 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. Option
commissions may be relatively higher than those which would apply to
direct purchases and sales of portfolio securities.
Most purchases of money market instruments and debt obligations
are principal transactions at net prices. Instead of using a broker for
those transactions, the Fund normally deals directly with the selling or
purchasing principal or market maker unless it determines that a better
price or execution can be obtained using a broker. Purchases of these
securities from underwriters include a commission or concession paid by
the issuer to the underwriter, and purchases from dealers include a spread
between the bid and asked prices. The Fund seeks to obtain prompt
execution of such orders at the most favorable net price.
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 for in
commission dollars. 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 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" (those Trustees of the
Trust 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 Agreement, the Plans of Distribution described below or
in any agreements relating to those Plans), 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 the benefit of such
services. 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.
PURCHASE, REDEMPTION AND PRICING OF SHARES
Determination of Net Asset Value Per Share. The net asset value per share
of the Fund is determined as of 4:00 P.M., New York time each day The New
York Stock Exchange (the "NYSE") is open (a "regular business day") by
dividing the value of the Fund's net assets by the number of shares of the
Fund outstanding. The NYSE's most recent annual holiday schedule (which
is subject to change) states that it will close New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day; it may also close on other days.
Trading may occur in debt securities and in foreign securities at times
when the NYSE is closed (including weekends and holidays or after 4:00
P.M., New York time, on a regular business day). Because the net asset
values of the Fund will not be calculated at such times, if securities
held in the Fund's portfolio are traded at such times, the net asset
values per share of the Fund may be significantly affected at times when
shareholders do not have the ability to purchase or redeem shares.
The Board of Trustees has established procedures for the valuation
of the Fund's securities as follows: (i) equity securities traded on a
securities exchange or on NASDAQ are valued at the last sale prices on
their primary exchange or NASDAQ that day (or, in the absence of sales
that day, at values based on the last sales prices of the preceding
trading day, or closing bid and asked prices); (ii) NASDAQ and other
unlisted equity securities for which last sales prices are not regularly
reported but for which over-the-counter market quotations are readily
available are valued at the highest closing bid price at the time of
valuation, or, if no closing bid price is reported, on the basis of a
closing bid price obtained from a dealer who maintains an active market
in that security; (iii) securities (including restricted securities) not
having readily-available market quotations are valued at fair value under
the Board's procedures; (iv) unlisted debt securities having a maturity
in excess of 60 days are valued at the mean between the bid and asked
prices determined by a portfolio pricing service approved by the Fund's
Board of Trustees or obtained from active market makers in the security
on the basis of reasonable inquiry; (v) short-term debt securities having
a remaining maturity of 60 days or less are valued at cost, adjusted for
amortization of premiums and accretion of discounts; and (vi) securities
traded on foreign exchanges or in foreign over-the-counter markets are
valued as determined by a portfolio pricing service approved by the Board,
based upon 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 to convert their values to U.S. dollars. Foreign
currency will be valued as close to the time fixed for the valuation date
as is reasonably practicable. The value of securities denominated in
foreign currency will be converted to U.S. dollars at the prevailing rates
of exchange at the time of valuation.
Trading in securities on European and Asian exchanges and over-
the-counter markets is normally completed before the close of the NYSE.
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 NYSE 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 value, in which case an adjustment
would be made.
In the case of U.S. Government Securities, mortgage-backed
securities, foreign fixed-income securities and corporate bonds, when last
sale information is not generally available, such pricing procedures may
include "matrix" comparisons to the prices for comparable instruments on
the basis of quality, yield, maturity, and other special factors involved.
The Board of Trustees has authorized the Manager to employ a pricing
service to price U.S. Government Securities, mortgage-backed securities,
foreign government securities and corporate bonds. The Trustees will
monitor the accuracy of such pricing services by comparing prices used for
portfolio evaluation to actual sales prices of selected securities.
Calls, puts and Futures are valued at the last sale prices on the
principal exchanges or on the NASDAQ National Market on which they are
traded, or, if there are no sales that day, in accordance with (i) above.
When the Fund writes an option, an amount equal to the premium received
by the Fund is included in its Statement of Assets and Liabilities as an
asset, and an equivalent deferred credit is included in the liability
section. The deferred credit is adjusted ("marked-to-market") to reflect
the current market value of the option.
Redemptions. Information on how to redeem shares of the Fund is provided
in the Prospectus. The Prospectus states that payment for shares tendered
for redemption is ordinarily made in cash. However, if the Board of
Trustees determines that it would be detrimental to the best interests of
the remaining shareholders of the Fund to make payment wholly in cash, the
Fund may pay the redemption price 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 Securities and Exchange Commission rules. The
Fund has elected to be governed by Rule 18f-1 under the Investment Company
Act, pursuant to which it is obligated to redeem shares of the Fund 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 converting the assets to cash. Any securities distributed by the Fund
pursuant to an "in-kind" redemption will be readily marketable. The
method of valuing securities used to make redemptions in kind will be the
same as the method of valuing portfolio securities described above under
"Determination of Net Asset Value Per Share," and such valuation will be
made as of the same time the redemption price is determined.
The Board of Trustees has the right to cause the involuntary
redemption of the shares held in any account if the aggregate net asset
value of such shares is less than $200 or such lesser amount as the Board
may fix. The Board of Trustees will not cause the involuntary redemption
of shares held in an account if the aggregate net asset value of such
shares has fallen below the stated minimum solely as result of market
fluctuations. Should the Board elect to exercise this right, it may also
fix, in accordance with the Investment Company Act, the requirements for
any notice to be given to the shareholders in question (not less than 30
days), or may set requirements for permission to allow the shareholder to
increase the investment so that the shares would not be involuntarily
redeemed.
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 such decline in net asset value per
share multiplied by the number of shares in the purchase order. The
investor is responsible for that loss. If the investor fails to
compensate the Fund for the loss, the Distributor will do so. The Fund
may reimburse the Distributor for that amount by redeeming shares from any
account registered in that investor's name, or by seeking other redress.
Transfer of Shares. Shares are not subject to the payment of a contingent
deferred sales charge ("CDSC") at the time of transfer (by absolute
assignment, gift or bequest, not involving, directly or indirectly, a
public sale). The transferred shares will remain subject to the CDSC,
calculated as if the transferee shareholder had acquired the transferred
shares in the same manner and at the same time as the transferring
shareholder. If less than all shares held in an account are transferred,
and not all shares in the account would be subject to a CDSC if redeemed
at the time of transfer, then shares will be transferred in the order
described in "How to Buy Shares - Contingent Sales Charge" in the
Prospectus for the imposition of the CDSC on redemptions.
Exchanges of Shares. As stated in the Prospectus, shares of a particular
class of Eligible Funds having more than one class of shares may be
exchanged only for shares of the same class or another Eligible Fund. All
of the Eligible Funds except the Fund offer Class A shares. The Fund
offers only Class C shares. Only the following other Eligible Funds
(referred to as "Advisors Portfolio" funds) offer Class C shares:
Oppenheimer Target Fund
Oppenheimer Fund
Oppenheimer Global Growth & Income Fund
Oppenheimer Asset Allocation Fund
Oppenheimer Champion High Yield Fund
Oppenheimer U.S. Government Trust
Oppenheimer Intermediate Tax-Exempt Bond Fund
Oppenheimer Main Street Income & Growth Fund
Oppenheimer Cash Reserves (for exchanges only)
DISTRIBUTION AND SERVICE PLAN
The Fund has adopted a Distribution and Service Plan for shares
of the Fund under Rule 12b-1 of the Investment Company Act pursuant to
which the Fund will reimburse the Distributor for all or a portion of its
costs incurred in connection with the distribution and/or servicing of the
shares of that class. The Plan has been approved by a vote of (i) the
Board of Trustees of the Trust, 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 the Fund, (such vote having been
cast by the Manager as the sole initial holder of shares of the Fund).
The Plan shall, unless terminated as described below, continue in effect
from year to year but only as long as such continuance is specifically
approved at least annually by the Board of Trustees and its Independent
Trustees by a vote cast in person at a meeting called for the purpose of
voting on such continuance. The 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. The Plan may be amended to increase materially the
amount of payments to be made unless such amendment is approved by
shareholders of the Fund. All material amendments must be approved by the
Independent Trustees.
While the Plan is in effect, the Treasurer of the Trust shall
provide written reports to the Board of Trustees at least quarterly on the
amount of all payments made pursuant to the Plan, the purpose for which
the payment was made and the identity of each Recipient that received any
such payment. The report for the Plan shall also include the distribution
costs for that quarter, and such costs for previous fiscal periods that
are carried forward, as explained in the Prospectus and below. Those
reports, including the allocations on which they are based, will be
subject to the review and approval of the Independent Trustees in the
exercise of their fiduciary duty. The Plan further provides that while
it is in effect, the selection and nomination of those Trustees of the
Trust who are not "interested persons" of the Fund is committed to the
discretion of the Independent Trustees. This does not prevent the
involvement of others in such selection and nomination if the final
decision on any such selection or nomination is approved by a majority of
the Independent Trustees.
Under the Plan, 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. The Plan permits the
Distributor and the Manager to make additional distribution payments to
Recipients from their own resources (including profits from advisory fees)
at no cost to the Fund. The Distributor and the Manager may, in their
sole discretion, increase or decrease the amount of distribution
assistance payments they make to Recipients from their own assets.
The Plan allows the service fee payment to be paid by the
Distributor to Recipients in advance for the first year 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 Plan permits the Distributor to retain both the asset-based sales
charges and the service fee on 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 Plan by the Board. Initially, the Board has set no minimum
holding period. All payments under the Plan become subject to the
limitations imposed by the National Association of Securities Dealers,
Inc. Rules of Fair Practice. The 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. The Fund
believes that current applicable accounting standards do not require the
Fund to record as a current liability its obligation under the Plan to
carry over and continue payments of the asset-based sales charge to the
Distributor in the future to reimburse it for expenses incurred as to
shares sold prior to the termination of the Plan. Those accounting
standard are currently being reviewed by the AICPA, as discussed in the
prospectus. If those accounting standards should be changed to require
the Fund to recognize that obligation for future payments as a current
liability, the Fund's Board would consider other alternatives to that
provision of the Plan, because otherwise the treatment of such expenses
as a current liability would affect all then-outstanding shares regardless
of how long they had been held. Furthermore, shareholders whose shares
had not matured would continue to remain subject to the CDSC. As of the
date of this Additional Statement, no payments were made under the Plan,
as no shares were publicly issued prior to February 1, 1994.
The asset-based sales charge paid to the Distributor by the Fund
under the 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 shares: (i) financing the advance of the service fee
payment to Recipients under the Plan, (ii) compensation and expenses of
personnel employed by the Distributor to support distribution of shares,
and (iii) costs of sales literature, advertising and prospectuses (other
than those furnished to current shareholders) and state "blue sky"
registration fees.
PERFORMANCE, DIVIDEND AND TAX INFORMATION
Yield and Total Return Information. As described in the Prospectus, from
time to time the "standardized yield," "dividend yield," "average annual
total return", "total return", and "total return at net asset value" of
an investment in Fund shares may be advertised. An explanation of how
standardized yield, average annual total return and total return are
calculated for each class and the components of those calculations are set
forth below.
The Fund's "yield" or "standardized yield " for a given 30-day
period is calculated using the following formula set forth in the SEC
rules:
a-b 6
Standardized Yield = 2 ((------ + 1) - 1)
cd
The symbols above represent the following factors:
a = dividends and interest earned during the 30-day period.
b = expenses accrued for the period (net of any expense
reimbursements).
c = the average daily number of shares of that class
outstanding during the 30-day period that were entitled to
receive dividends.
d = the maximum offering price per share on the last day of
the period, adjusted for undistributed net investment
income.
The Fund's yield for a 30-day period may differ from its yield for
any other period. The SEC formula assumes that the yield for a 30-day
period occurs at a constant rate for a six-month period and is annualized
at the end of the six-month period. This "standardized" yield is not
based on distributions paid by the Fund to shareholders in the 30-day
period, but is a hypothetical yield based upon the return on the Fund's
portfolio investments, and may differ from the "dividend yield" described
below.
The Fund's "average annual total return" is an average annual
compounded rate of return. It is the rate of return based on factors
which include a hypothetical initial investment of $1,000 ("P" in the
formula below) held for a number of years ("n") with an Ending Redeemable
Value ("ERV") of that investment, according to the following formula:
( ERV ) 1/n
(-----) -1 = Average Annual Total Return
( P )
The "total return" calculation uses some of the same factors, but
does not average the rate of return on an annual basis. Total return
measures the cumulative (rather than average) change in value of a
hypothetical investment over a stated period. Total return is determined
as follows:
ERV - P
- ------- = Total Return
P
Both formulas assume the payment of the 1.0% Class C contingent
deferred sales charge, for the first 12 months applied as described in the
Prospectus. The formulas also assume that all dividends and capital gains
distributions during the period are reinvested at net asset value per
share, and that the investment is redeemed at the end of the period.
From time to time the Fund may also quote a "total return at net
asset value" for Class C shares. It is based on the difference in net
asset value per share at the beginning and the end of the period (without
considering the sales charges) and takes into consideration the
reinvestment of dividends and capital gains (as with total return,
described above).
From time to time the Fund may quote a "dividend yield" or a
"distribution return" for shares of the Fund. Dividend yield is based on
the dividends derived from net investment income during a stated period
and 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 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) on the last day of the period. When the result is annualized for
a period of less than one year, the "dividend yield" is calculated as
follows:
Dividend Yield of the Class =
Dividends of the Class
- ----------------------------------------------------
Max Offering Price of the Class (last day of period)
Divided by number of days (accrual period) x 365
From time to time similar calculations may also be made using the
net asset value of the Fund's shares (instead of maximum offering price)
at the end of the period.
From time to time the Fund may publish the ranking of its
performance 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 is ranked against (i)
all other funds, excluding money market funds, and (ii) all other general
bond funds. The Lipper performance analysis includes the reinvestment of
capital gains distributions and income dividends but does not take sales
charges or taxes into consideration. From time to time the Fund may
include in its advertisements and sales literature performance information
about the Fund cited in other newspapers and periodicals, such as The New
York Times, which may include performance quotations from other sources,
including Lipper and Morningstar.
From time to time the Fund may publish the ranking of its
performance by Morningstar, Inc., an independent mutual fund monitoring
service. Morningstar ranks mutual funds, including the Fund, based upon
the Fund's three, five and ten-year average annual returns (when
available) and a risk factor that reflects fund performance relative to
three-month U.S. Treasury bill monthly returns. There are five ranking
categories with a corresponding number of stars: highest (5), above
average (4), neutral (3), below average (2) and lowest (1). Morningstar
ranks the shares of the Fund in relation to other rated fixed income
funds.
The total return on an investment in the Fund may be compared with
the performance for the same period of one or more of the following
indices: the Consumer Price Index, the Salomon Brothers World Government
Bond Index, the Salomon Brothers High Grade Corporate Bond Index, the
Shearson Lehman Government/Corporate Bond Index and the J.P. Morgan
Government Bond Index. The Consumer Price Index is generally considered
to be a measure of inflation. The Salomon Brothers World Government Bond
Index generally represents the performance of government debt securities
of various markets throughout the world, including the United States. The
Salomon Brothers High Grade Corporate Bond Index generally represents the
performance of high grade long-term corporate bonds, and the Shearson
Lehman Government/Corporate Bond Index generally represents the
performance of intermediate and long-term government and investment grade
corporate debt securities. The J.P. Morgan Government Bond Index
generally represents the performance of government bonds issued by various
countries including the United States. The foregoing bond indices are
unmanaged, do not reflect reinvestment of capital gains or take sales
charges into consideration, as these items are not applicable to indices.
Yield and total return information may be useful to investors in
reviewing the Fund's performance. However, a number of factors should be
considered before using such information as a basis for comparison with
other investments. An investment in the Fund is not insured; its yield
and total return are not guaranteed and normally will fluctuate on a daily
basis. Yield and total return for any given past period are not an
indication or representation by the Fund of future yields or rates of
return on its shares. The yield and total return of the shares of the
Fund is affected by portfolio quality, portfolio maturity, type of
investments held and operating expenses. When comparing yield, total
return and investment risk of an investment in Class A or Class B shares
of the Fund with those of other investment instruments, investors should
understand that certain other investment alternatives such as money market
instruments, certificates of deposit ("CDs"), U.S. Government securities
or bank accounts provide yields that are fixed or that may vary above a
stated minimum, and may be insured or guaranteed.
Tax Status of the Fund's Dividends and Distributions. Special provisions
of the Internal Revenue Code govern the eligibility of the Fund's
dividends for 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 that shareholder for 45 days or less.
To the extent the Fund's dividends are derived from its gross income from
option premiums, interest income or short-term capital gains from the sale
of securities, or dividends from foreign corporations, its dividends will
not qualify for the deduction. It is expected that for the most part the
Fund's dividends will not qualify, because of the nature of the
investments held by the Fund in its portfolio.
Under the Internal Revenue Code, the Fund must distribute by
December 31 each year 98% of its taxable investment income earned from
January 1 through December 31 of that year and 98% of its capital gains
realized in the period from November 1 of the prior year through October
31 of that year, or else the Fund pay an excise tax on the amounts not
distributed. The Manager might determine that in a particular year it
might be in the best interest of shareholders not to make such
distributions at the required levels and to pay the excise tax on the
undistributed amounts, which would reduce the amount available for
distribution to shareholders. Such a determination was made, and an
excise tax was paid by the Fund during its fiscal year ended September 30,
1992.
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. As
an investment company, the Fund must pay out substantially all of its net
investment income each year. Accordingly, when the Fund holds zero coupon
securities, it 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. 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 funds listed in the Prospectus as
"Eligible Funds" (if they offer Class C shares) at net asset value without
sales charge. Shareholders should be aware that as of the date of this
Additional Statement, only a limited number of Eligible Funds offer Class
C shares. The names of these Funds are listed under "Exchanges of Class
C Shares" above. To elect this option, the shareholder must notify the
Transfer Agent in writing and either must have an existing account in the
fund selected for reinvestment or must obtain a prospectus for that fund
and an application from the Distributor to establish an account. The
investment will be made at the net asset value per share in effect at the
close of business on the payable date of the dividend or distribution.
ADDITIONAL INFORMATION
Description of the Fund. 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 a 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 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 highly unlikely and is limited
to the relatively remote circumstances in which the Fund would be unable
to meet its obligations described above. Any person doing business with
the Fund, and any shareholder of the Fund, agrees under the Declaration
of Trust to look solely to the assets of the Fund for satisfaction of any
claim or demand that may arise out of any dealings with the Fund, and the
Trustees shall have no personal liability to any such person, to the
extent permitted by law.
It is not contemplated that regular annual meetings of
shareholders will be held. The Fund will hold meetings when required to
do so by the Investment Company Act or other applicable law, or when a
shareholder meeting is called by the Trustees or upon proper request of
the shareholders. Shareholders have the right, upon the declaration in
writing or vote of 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
shareholders of 10% of its outstanding shares. In addition, if the
Trustees receive a request from at least 10 shareholders (who have been
shareholders for at least six months) holding in the aggregate shares of
the Fund valued at $25,000 or more or holding 1% or more of the Fund's
outstanding shares, whichever is less, that they wish to communicate with
other shareholders to request a meeting to remove a Trustee, the Trustees
will then either give the applicants access to the Fund's shareholder
list, mail their communication to all other shareholders at the
applicants' expense, or take alternative action as set forth in Section
16(c) of the Investment Company Act.
The Custodian and the Transfer Agent. The custodian's responsibilities
include safeguarding and controlling the Fund's portfolio securities,
collecting income on the portfolio securities and handling the delivery
of such securities to and from the Fund. The Manager has represented to
the Fund that its banking relationships with the Custodian have been and
will continue to be unrelated to and unaffected by the relationship
between the Fund and the Custodian. It will be the practice of the Fund
to deal with the Custodian in a manner uninfluenced by any banking
relationship the Custodian may have with the Manager and its affiliates.
Oppenheimer Shareholder Services, as transfer agent, is
responsible for maintaining the Fund's shareholder registry and
shareholder accounting records, and for shareholder servicing and
administrative functions.
General Distributor's Agreement. Under the General Distributor's
Agreement between the Fund and the Distributor, the Distributor acts as
the Fund's principal underwriter in the continuous public offering of the
Fund's shares, but is not obligated to sell a specific number of shares.
Expenses normally attributable to sales (other than those paid under the
Plans of Distribution), including advertising and the cost of printing and
mailing prospectuses (other than those furnished to existing
shareholders), are borne by the Distributor.
Independent Auditors. The independent auditors of the Fund examine the
Fund's financial statements and perform other related audit services.
They also act as auditors for the Manager and certain other funds advised
by the Manager and its affiliates.
AUTOMATIC WITHDRAWAL PLAN PROVISIONS
By requesting an Automatic Withdrawal Plan, the shareholder agrees
to the terms and conditions applicable to such plans, as stated below and
elsewhere in the Application for such Plans, and the Prospectus and this
Statement of Additional Information as they may be amended from time to
time by the Fund and/or the Distributor. When adopted, such amendments
will automatically apply to existing Plans.
Fund shares will be redeemed as necessary to meet withdrawal
payments. Shares acquired without a sales charge will be redeemed first
and thereafter shares acquired with reinvested dividends and distributions
followed by shares acquired with a sales charge will be redeemed to the
extent necessary to make withdrawal payments. Depending upon the amount
withdrawn, the investor's principal may be depleted. Payments made to
shareholders under such plans should not be considered as a yield or
income on investment. Purchases of additional shares concurrently with
withdrawals are undesirable because of sales charges on purchases when
made. Accordingly, a shareholder may not maintain an Automatic Withdrawal
Plan while simultaneously making regular purchases.
1. Oppenheimer Shareholder Services (the "Transfer Agent"), the
transfer agent of the Fund, will administer the Automatic Withdrawal Plan
(the "Plan") as agent for the person (the "Planholder") who executed the
Plan authorization and application submitted to the Transfer Agent.
2. Certificates will not be issued for shares of the Fund
purchased for and held under the Plan, but the Transfer Agent will credit
all such shares to the account of the Planholder on the records of the
Fund. Any share certificates now held by the Planholder may be
surrendered unendorsed to the Transfer Agent with the Plan application so
that the shares represented by the certificate may be held under the Plan.
Those shares will be carried on the Planholder's Plan Statement.
3. Distributions of capital gains must be reinvested in shares
of the Fund, which will be done at net asset value without a sales charge.
Dividends may be paid in cash or reinvested.
4. Redemptions of shares in connection with disbursement
payments will be made at the net asset value per share determined on the
redemption date.
5. Checks or ACH payments will be transmitted three business
days prior to the date selected for receipt of the monthly or quarterly
payment (the date of receipt is approximate), according to the choice
specified in writing by the Planholder.
6. The amount and the interval of disbursement payments and the
address to which checks are to be mailed may be changed at any time by the
Planholder on written notification to the Transfer Agent. The Planholder
should allow at least two weeks' time in mailing such notification before
the requested change can be put in effect.
7. The Planholder may, at any time, instruct the Transfer Agent
by written notice (in proper form in accordance with the requirements of
the then-current Prospectus of the Fund) to redeem all, or any part of,
the shares held under the Plan. In such case, the Transfer Agent will
redeem the number of shares requested at the net asset value per share in
effect in accordance with the Fund's usual redemption procedures and will
mail a check for the proceeds of such redemption to the Planholder.
8. The Plan may, at any time, be terminated by the Planholder
on written notice to the Transfer Agent, or by the Transfer Agent upon
receiving directions to that effect from the Fund. The Transfer Agent
will also terminate the Plan upon receipt of evidence satisfactory to it
of the death or legal incapacity of the Planholder. Upon termination of
the Plan by the Transfer Agent or the Fund, shares remaining unredeemed
will be held in an uncertificated account in the name of the Planholder,
and the account will continue as a dividend-reinvestment, uncertificated
account unless and until proper instructions are received from the
Planholder, his executor or guardian, or as otherwise appropriate.
9. For purposes of using shares held under the Plan as
collateral, the Planholder may request issuance of a portion of his shares
in certificated form. Upon written request from the Planholder, the
Transfer Agent will determine the number of shares as to which a
certificate may be issued, so as not to cause the withdrawal checks to
stop because of exhaustion of uncertificated shares needed to continue
payments. Should such uncertificated shares become exhausted, Plan
withdrawals will terminate.
10. The Transfer Agent shall incur no liability to the
Planholder for any action taken or omitted by the Transfer Agent in good
faith.
11. In the event that the Transfer Agent shall cease to act as
transfer agent for the Fund, the Planholder will be deemed to have
appointed any successor transfer agent to act as his agent in
administering the Plan.
<PAGE>
Investment Adviser
Oppenheimer Management Corporation
Two World Trade Center
New York, New York 10048
Distributor
Oppenheimer Funds Distributor, Inc.
Two World Trade Center
New York, New York 10048
Transfer Agent
Oppenheimer Shareholder 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
1560 Broadway
Denver, Colorado 80202
Legal Counsel
Myer, Swanson & Adams, P.C.
1600 Broadway
Denver, Colorado 80202
<PAGE>
OPPENHEIMER STRATEGIC FUNDS TRUST
FORM N-1A
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
(1) Condensed Financial Information
(i) For Oppenheimer Strategic Income Fund ("OSIF"): Filed
herewith.
(ii) For Oppenheimer Strategic Diversified Income Fund ("OSDIF"):
Not applicable.
(2) Independent Auditors' Report (See Part B)
(i) For OSIF: Filed herewith.
(ii) For OSDIF: Not applicable.
(3) Statement of Investments (See Part B)
(i) For OSIF: Filed herewith.
(ii) For OSDIF: Not applicable.
(4) Statement of Assets and Liabilities (See Part B)
(i) For OSIF: Filed herewith.
(ii) For OSDIF: Not applicable.
(5) Statement of Operations (See Part B)
(i) For OSIF: Filed herewith.
(ii) For OSDIF: Not applicable.
(6) Statement of Changes in Net Assets (See Part B)
(i) For OSIF: Filed herewith.
(ii) For OSDIF: Not applicable.
(7) Notes to Financial Statements (See Part B)
(i) For OSIF: Filed herewith.
(ii) For OSDIF: Not applicable.
(8) Independent Auditors' Consent
(i) For OSIF: Filed herewith.
(ii) For OSDIF: Not applicable.
(b) Exhibits:
(1) Registrant's Amended and Restated Declaration of Trust dated
December 14, 1993: Filed herewith.
(2) By-Laws as amended through 6/26/90: Filed with Post-Effective
Amendment No. 4, 1/27/92, and incorporated herein by reference.
(3) Not applicable.
(4) (i) OSIF Specimen Class A Share Certificate: Filed herewith.
(ii) OSIF Specimen Class B Share Certificate: Filed herewith.
(iii) OSDIF Specimen Class C Share Certificate: Filed herewith.
(5) (i) Investment Advisory Agreement for OSIF dated 10/22/90:
Filed with Registrant's Post-Effective Amendment No. 3, 11/26/90,
and incorporated herein by reference.
(ii) Investment Advisory Agreement for OSDIF dated 2/1/94:
Filed herewith.
(6) (i)(a) General Distributor's Agreement for OSIF dated 10/13/92:
Filed with Post-Effective Amendment No. 5, 12/3/92, and
incorporated herein by reference.
(b) General Distributor's Agreement for OSDIF: Filed herewith.
(ii) Form of Oppenheimer Fund Management, Inc. Dealer Agreement
- Filed with Post-Effective Amendment No. 12 to the Registration
Statement of Oppenheimer Government Securities Fund (Reg. No. 33-
02769), 12/2/92, and incorporated herein by reference.
(iii) Form of Oppenheimer Fund Management, Inc. Broker Agreement
- Filed with Post-Effective Amendment No. 12 to the Registration
Statement of Oppenheimer Government Securities Fund (Reg. No. 33-
02769), 12/2/92, and incorporated herein by reference.
(iv) Form of Oppenheimer Fund Management, Inc. Agency Agreement
- Filed with Post-Effective Amendment No. 12 to the Registration
Statement of Oppenheimer Government Securities Fund (Reg. No.
3302769), 12/2/92, and incorporated herein by reference.
(v) Broker Agreement between Oppenheimer Fund Management, Inc.
and Newbridge Securities, Inc. dated 10/1/86: Previously filed with
Post-Effective Amendment No. 25 to the Registration Statement of
Oppenheimer Special Fund (Reg. No. 2-45272), 11/1/86, and
incorporated herein by reference.
(7) Not applicable.
(8) Custody Agreement dated 10/6/92: Filed with Post-Effective
Amendment No. 5, 12/3/92, and incorporated herein by reference.
(9) Not applicable.
(10) (i) Opinion and Consent of Counsel for OSIF dated 8/30/89:
Previously filed with Registrant's Pre-Effective Amendment No. 2,
8/31/89, and incorporated herein by reference.
(ii) Opinion and Consent of Counsel for OSDIF: Filed herewith.
(11) Not applicable.
(12) Not applicable.
(13) Investment Letter from Oppenheimer Management Corporation to
Registrant dated 8/24/89: Filed with Post-Effective Amendment No.
6, 1/29/93, and incorporated herein by reference.
(14) (i) Form of prototype Standardized and Non-Standardized Profit-
Sharing Plans and Money Purchase Plans for self-employed persons
and corporations: Filed with Post-Effective Amendment No. 3 to the
Registration Statement of Oppenheimer Global Growth & Income Fund
(Reg. No. 33-23799), 1/31/92, and incorporated herein by reference.
(ii) Form of Individual Retirement Account Trust Agreement:
Filed with Post-Effective Amendment No. 21, of Oppenheimer U.S.
Government Trust (Reg. No. 2-76645), 8/25/93, and incorporated
herein by reference.
(iii) Form of Tax Sheltered Retirement Plan and Custody Agreement
for employees of public schools and tax-exempt organizations:
Previously filed with Post-Effective Amendment No. 22 to the
Registration Statement of Oppenheimer Directors Fund (File No. 2-
62240), 2/1/90, and incorporated herein by reference.
(iv) Form of Simplified Employee Pension IRA: Previously filed
with Post-Effective Amendment No. 36 to the Registration Statement
of Oppenheimer Equity Income Fund (Reg. No. 2-33043), 10/23/91, and
incorporated herein by reference.
(15) (i) Service Plan and Agreement for Class A shares of OSIF under
Rule 12b-1 dated 6/22/93: Filed herewith.
(ii) Distribution Plan and Agreement for Class B shares of OSIF
under Rule 12b-1 dated 6/22/93: Filed herewith.
(iii) Distribution and Service Plan and Agreement for Class C
shares of OSDIF under Rule 12b-1 dated 2/1/94: Filed herewith
(16) (i) Performance Calculations for OSIF: Filed herewith.
(ii) Performance Calculations for OSDIF: Not applicable.
- -- Powers of Attorney (including Certified Resolutions of the Board):
Filed with Post-Effective Amendment No. 7, 12/3/93, to the Registrant's
Registration Statement and incorporated herein by reference.
Item 25. Persons Controlled by or Under Common Control with Registrant
None
Item 26. Number of Holders of Securities
Number of Record Holders
as of December 31, 1993
Title of Class
OSIF Class A Shares of Beneficial Interest 141,739
OSIF Class B Shares of Beneficial Interest 46,658
OSDIF Class C Shares of Beneficial Interest None
Item 27. Indemnification
Reference is made to the provisions of Article Seventh of
Registrant's Declaration of Trust filed as Exhibit 24(b)(1) to this
Registration Statement.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers and
controlling persons of Registrant pursuant to the foregoing provisions or
otherwise, Registrant has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by Registrant of expenses incurred or
paid by a trustee, officer or controlling person of Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person, Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed
in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
Item 28. (a) Business and Other Connections of Investment Adviser
Oppenheimer Management Corporation is the investment adviser of
the Registrant; it and certain subsidiaries act in the same
capacity to other registered investment companies as described in
Parts A and B of this Registration Statement.
(b) Business and Other Connections of Officers and Directors of
Investment Adviser
For information as to the business, profession, vocation or
employment of a substantial nature of each of the officers and
directors of Oppenheimer Management Corporation, reference is
made to Part B of this Registration Statement and to the
registration on Form ADV of Oppenheimer Management Corporation
filed under the Investment Advisers Act of 1940, which is
incorporated herein by reference.
Item 29. Principal Underwriters
(a) Oppenheimer Funds Distributor, Inc. is the general distributor of
Registrant's shares. It is also the general distributor of
certain of the other registered open-end investment companies for
which Oppenheimer Management Corporation is the investment
adviser, as described in Parts A and B of this Registration
Statement.
(b) The information contained in the registration on Form BD of
Oppenheimer Funds Distributor, Inc., filed under the Securities
Exchange Act of 1934, is incorporated herein by reference.
(c) Not applicable.
Item 30. Location of Accounts and Records
The accounts, books and other documents required to be maintained
by Registrant pursuant to Section 31(a) of the Investment Company Act of
1940 and rules promulgated thereunder are in the possession of Oppenheimer
Management Corporation at its offices at 3410 South Galena Street, Denver,
Colorado 80231.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(a) Not applicable.
(b) Registrant undertakes to file a Post-Effective Amendment,
including financial statements which need not be audited, within
four to six months from the effective date of its 1933 Act
Registration Statement.
(c) Registrant undertakes to call a meeting of shareholders for the
purpose of voting upon the question of the removal of a Trustee
or Trustees when requested in writing to do so by the holders of
at least 10% of the Registrant's outstanding shares and in
connection with such meeting to comply with the provisions of
section 16(c) of the Investment Company Act of 1940 relating to
shareholder communications.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and/or the
Investment Company Act of 1940, the Registrant certifies that it meets all
of the requirements for effectiveness of this Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Denver and State
of Colorado on the 27th day of January, 1994.
OPPENHEIMER STRATEGIC FUNDS TRUST
/s/ James C. Swain*
by: --------------------------
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in
the capacities on the dates indicated:
Signatures: Title Date
/s/ James C. Swain* Chairman of the Board January 27, 1994
- ---------------------- of Trustees
James C. Swain
/s/ Jon S. Fossel* Trustee January 27, 1994
- ----------------------
Jon S. Fossel
/s/ George Bowen* Treasurer and January 27, 1994
- ---------------------- Principal Financial
George Bowen and Accounting Officer
/s/ Robert G. Avis* Trustee January 27, 1994
- ----------------------
Robert G. Avis
/s/ William A. Baker* Trustee January 27, 1994
- ----------------------
William A. Baker
/s/ Charles Conrad, Jr.* Trustee January 27, 1994
- ----------------------
Charles Conrad, Jr.
/s/ Ramond J. Kalinowski* Trustee January 27, 1994
- ----------------------
Raymond J. Kalinowski
/s/ C. Howard Kast* Trustee January 27, 1994
- ----------------------
C. Howard Kast
/s/ Robert M. Kirchner* Trustee January 27, 1994
- ----------------------
Robert M. Kirchner
/s/ Ned M. Steel* Trustee January 27, 1994
- ---------------------
Ned M. Steel
/s/ Robert G. Zack
*By: --------------------------------
Robert G. Zack, Attorney-in-Fact
<PAGE>
OPPENHEIMER STRATEGIC FUNDS TRUST
Exhibit Index
-------------
Form N-1A
Item No. Description
- --------- -----------
24(a)(8)(i) Independent Auditors' Consent for Oppenheimer
Strategic Income Fund dated 1/14/94
24(b)(1) Amended and Restated Declaration of Trust dated
12/14/93
24(b)(4)(i) Specimen Class A Share Certificate
24(b)(4)(ii) Specimen Class B Share Certificate
24(b)(4)(iii) Specimen Class C Share Certificate
24(b)(5)(ii) Investment Advisory Agreement for Oppenheimer
Strategic Diversified Income Fund dated 2/1/94
24(b)(6)(i)(b) General Distributor's Agreement for Oppenheimer
Strategic Diversified Income Fund dated 2/1/94
24(b)(10)(ii) Opinion and Consent of Counsel for Oppenheimer
Strategic Diversified Income Fund dated 1/31/94
24(b)(15)(i) Service Plan and Agreement for Class A Shares of
Oppenheimer Strategic Income Fund pursuant to Rule
12b-1 dated 6/22/93
24(b)(15)(ii) Distribution and Service Plan and Agreement for Class
B Shares of Oppenheimer Strategic Income Fund
pursuant to Rule 12b-1 dated 6/22/93
24(b)(15)(iii) Distribution and Service Plan and Agreement for Class
C Shares of Oppenheimer Strategic Diversified Income
Fund pursuant to Rule 12b-1 dated 2/1/94
24(b)(16) Performance Data Computation Schedule
INDEPENDENT AUDITORS' CONSENT
The Board of Trustees
Oppenheimer Strategic Diversified Income Fund:
We consent to the use of our report dated October 21, 1993 included herein
and to the reference to our firm under the heading "Financial Highlights"
in the Prospectus.
/s/Deloitte & Touche
DELOITTE & TOUCHE
Denver, Colorado
January 14, 1994
AMENDED AND RESTATED
DECLARATION OF TRUST
OF
OPPENHEIMER STRATEGIC FUNDS TRUST
This AMENDED AND RESTATED DECLARATION OF TRUST, made as of December
14, 1993 by and among the individuals executing this Amended and Restated
Declaration of Trust as the Trustees.
WHEREAS, the Trustees established Oppenheimer Strategic Funds Trust,
initially named "Oppenheimer Total Income Fund" (the "Trust"), a trust
fund under the laws of the Commonwealth of Massachusetts, for the
investment and reinvestment of funds contributed thereto, under a
Declaration of Trust dated May 1, 1989, as amended pursuant to an Amended
Declaration of Trust dated August 9, 1989, and further amended May 19,
1992, November 30, 1992 and November 26, 1993;
WHEREAS, the Trustees desire to make a permitted change to said
Declaration of Trust without shareholder approval to change the name of
"Oppenheimer Strategic Income Fund C," a Series of the Trust, to
"Oppenheimer Strategic Diversified Income Fund";
NOW, THEREFORE, the Trustees declare that all money and property
contributed to the trust fund hereunder shall henceforth be held and
managed under this Amended and Restated Declaration of Trust IN TRUST as
herein set forth below.
FIRST: This Trust shall be known as OPPENHEIMER STRATEGIC FUNDS
TRUST (formerly, "Oppenheimer Strategic Income Fund"). As of the date of
this Amended and Restated Declaration of Trust, the principal address of
Oppenheimer Strategic Funds Trust is 3410 S. Galena Street, Denver,
Colorado 80231, and its resident agent in the Commonwealth of
Massachusetts is Massachusetts Mutual Life Insurance Company, Attention:
Legal Department, 1295 State Street, Springfield, Massachusetts 01111.
SECOND: Whenever used herein, unless otherwise required by the
context or specifically provided:
1. All terms used in this Declaration of Trust that are defined in
the 1940 Act (defined below) shall have the meanings given to them in the
1940 Act.
2. "Board" or "Board of Trustees" or the "Trustees" means the Board
of Trustees of the Trust.
3. "By-Laws" means the By-Laws of the Trust as amended from time
to time.
4. "Class" means a class of a series of shares established and
designated under or in accordance with the provisions of Article FOURTH.
5. "Commission" means the Securities and Exchange Commission.
6. "Declaration of Trust" shall mean this Amended and Restated
Declaration of Trust as it may be amended or restated from time to time.
7. The "1940 Act" refers to the Investment Company Act of 1940 and
the Rules and Regulations of the Commission thereunder, all as amended
from time to time.
8. "Series" refers to series of shares established and designated
under or in accordance with the provisions of Article FOURTH.
9. "Shareholder" means a record owner of Shares of the Trust.
10. "Shares" refers to the transferable units of interest into which
the beneficial interest in the Trust or any Series or Class of the Trust
(as the context may require) shall be divided from time to time and
includes fractions of Shares as well as whole Shares.
11. The "Trust" refers to the Massachusetts business trust created
by this Declaration of Trust, as amended or restated from time to time.
12. "Trustees" refers to the individual trustees in their capacity
as trustees hereunder of the Trust and their successor or successors for
the time being in office as such trustees.
THIRD: The purpose or purposes for which the Trust is formed and the
business or objects to be transacted, carried on and promoted by it are
as follows:
1. To hold, invest or reinvest its funds, and in connection
therewith to hold part or all of its funds in cash, and to purchase or
otherwise acquire, hold for investment or otherwise, sell, sell short,
assign, negotiate, transfer, exchange or otherwise dispose of or turn to
account or realize upon, securities (which term "securities" shall for the
purposes of this Declaration of Trust, without limitation of the
generality thereof, be deemed to include any stocks, shares, bonds,
financial futures contracts, indexes, debentures, notes, mortgages or
other obligations, and any certificates, receipts, warrants or other
instruments representing rights to receive, purchase or subscribe for the
same, or evidencing or representing any other rights or interests therein,
or in any property or assets) created or issued by any issuer (which term
"issuer" shall for the purposes of this Declaration of Trust, without
limitation of the generality thereof be deemed to include any persons,
firms, associations, corporations, syndicates, business trusts,
partnerships, investment companies, combinations, organizations,
governments, or subdivisions thereof) and in financial instruments
(whether they are considered as securities or commodities); and to
exercise, as owner or holder of any securities or financial instruments,
all rights, powers and privileges in respect thereof; and to do any and
all acts and things for the preservation, protection, improvement and
enhancement in value of any or all such securities or financial
instruments.
2. To borrow money and pledge assets in connection with any of the
objects or purposes of the Trust, and to issue notes or other obligations
evidencing such borrowings, to the extent permitted by the 1940 Act and
by the Trust's fundamental investment policies under the 1940 Act.
3. To issue and sell its Shares in such Series and Classes and
amounts and on such terms and conditions, for such purposes and for such
amount or kind of consideration (including without limitation thereto,
securities) now or hereafter permitted by the laws of the Commonwealth of
Massachusetts and by this Declaration of Trust, as the Trustees may
determine.
4. To purchase or otherwise acquire, hold, dispose of, resell,
transfer, reissue or cancel its Shares, or to classify or reclassify any
unissued Shares or any Shares previously issued and reacquired of any
Series or Class into one or more Series or Classes that may have been
established and designated from time to time, all without the vote or
consent of the Shareholders of the Trust, in any manner and to the extent
now or hereafter permitted by this Declaration of Trust.
5. To conduct its business in all its branches at one or more
offices in New York, Colorado and elsewhere in any part of the world,
without restriction or limit as to extent.
6. To carry out all or any of the foregoing objects and purposes
as principal or agent, and alone or with associates or to the extent now
or hereafter permitted by the laws of Massachusetts, as a member of, or
as the owner or holder of any stock of, or share of interest in, any
issuer, and in connection therewith or make or enter into such deeds or
contracts with any issuers and to do such acts and things and to exercise
such powers, as a natural person could lawfully make, enter into, do or
exercise.
7. To do any and all such further acts and things and to exercise
any and all such further powers as may be necessary, incidental, relative,
conducive, appropriate or desirable for the accomplishment, carrying out
or attainment of all or any of the foregoing purposes or objects.
The foregoing objects and purposes shall, except as otherwise
expressly provided, be in no way limited or restricted by reference to,
or inference from, the terms of any other clause of this or any other
Article of this Declaration of Trust, and shall each be regarded as
independent and construed as powers as well as objects and purposes, and
the enumeration of specific purposes, objects and powers shall not be
construed to limit or restrict in any manner the meaning of general terms
or the general powers of the Trust now or hereafter conferred by the laws
of the Commonwealth of Massachusetts nor shall the expression of one thing
be deemed to exclude another, though it be of a similar or dissimilar
nature, not expressed; provided, however, that the Trust shall not carry
on any business, or exercise any powers, in any state, territory, district
or country except to the extent that the same may lawfully be carried on
or exercised under the laws thereof.
FOURTH:
1. The beneficial interest in the Trust shall be divided into
Shares, all without par value, but the Trustees shall have the authority
from time to time, without obtaining shareholder approval, to create one
or more Series of Shares in addition to the Series specifically
established and designated in part 3 of this Article FOURTH, and to divide
the shares of any Series into two or more Classes pursuant to Part 2 of
this Article FOURTH, all as they deem necessary or desirable, to establish
and designate such Series and Classes, and to fix and determine the
relative rights and preferences as between the different Series of Shares
or Classes as to right of redemption and the price, terms and manner of
redemption, liabilities and expenses to be borne by any Series or Class,
special and relative rights as to dividends and other distributions and
on liquidation, sinking or purchase fund provisions, conversion on
liquidation, conversion rights, and conditions under which the several
Series or Classes shall have individual voting rights or no voting rights.
Except as aforesaid, all Shares of the different Series shall be
identical.
(a) The number of authorized Shares and the number of Shares
of each Series and each Class of a Series that may be issued is unlimited,
and the Trustees may issue Shares of any Series or Class of any Series for
such consideration and on such terms as they may determine (or for no
consideration if pursuant to a Share dividend or split-up), all without
action or approval of the Shareholders. All Shares when so issued on the
terms determined by the Trustees shall be fully paid and non-assessable.
The Trustees may classify or reclassify any unissued Shares or any Shares
previously issued and reacquired of any Series into one or more Series or
Classes of Series that may be established and designated from time to
time. The Trustees may hold as treasury Shares (of the same or some other
Series), reissue for such consideration and on such terms as they may
determine, or cancel, at their discretion from time to time, any Shares
of any Series reacquired by the Trust.
(b) The establishment and designation of any Series or any
Class of any Series in addition to that established and designated in part
3 of this Article FOURTH shall be effective upon the execution by a
majority of the Trustees of an instrument setting forth such establishment
and designation and the relative rights and preferences of such Series or
such Class of such Series or as otherwise provided in such instrument.
At any time that there are no Shares outstanding of any particular Series
previously established and designated, the Trustees may by an instrument
executed by a majority of their number abolish that Series and the
establishment and designation thereof. Each instrument referred to in
this paragraph shall be an amendment to this Declaration of Trust, and the
Trustees may make any such amendment without shareholder approval.
(c) Any Trustee, officer or other agent of the Trust, and any
organization in which any such person is interested may acquire, own, hold
and dispose of Shares of any Series or Class of any Series of the Trust
to the same extent as if such person were not a Trustee, officer or other
agent of the Trust; and the Trust may issue and sell or cause to be issued
and sold and may purchase Shares of any Series or Class of any Series from
any such person or any such organization subject only to the general
limitations, restrictions or other provisions applicable to the sale or
purchase of Shares of such Series or Class generally.
2. The Trustees shall have the authority from time to time, without
obtaining shareholder approval, to divide the Shares of any Series into
two or more Classes as they deem necessary or desirable, and to establish
and designate such Classes. In such event, each Class of a Series shall
represent interests in the designated Series of the Trust and have such
voting, dividend, liquidation and other rights as may be established and
designated by the Trustees. Expenses related directly or indirectly to
the Shares of a Class of a Series may be borne solely by such Class (as
shall be determined by the Trustees) and, as provided in Article FIFTH,
a Class of a Series may have exclusive voting rights with respect to
matters relating solely to such Class. The bearing of expenses solely by
a Class of Shares of a Series shall be appropriately reflected (in the
manner determined by the Trustees) in the net asset value, dividend and
liquidation rights of the Shares of such Class of a Series. The division
of the Shares of a Series into Classes and the terms and conditions
pursuant to which the Shares of the Classes of a Series will be issued
must be made in compliance with the 1940 Act. No division of Shares of
a Series into Classes shall result in the creation of a Class of Shares
having a preference as to dividends or distributions or a preference in
the event of any liquidation, termination or winding up of the Trust, to
the extent such a preference is prohibited by Section 18 of the 1940 Act
as to the Trust.
(a) The relative rights and preferences of Shares of different
Classes of Shares of the same Series shall be the same in all respects
except that, and unless and until the Board of Trustees shall determine
otherwise: (i) when a vote of Shareholders is required under this
Declaration of Trust or when a meeting of Shareholders is called by the
Board of Trustees, the Shares of a Class shall vote exclusively on matters
that affect that Class only; (ii) the liability and expenses related to
a Class shall be borne solely by such Class (as determined and allocated
to such Class by the Trustees from time to time in a manner consistent
with parts 2 and 3 of Article FOURTH); and (iii) pursuant to paragraph 10
of Article NINTH, the Shares of each Class shall have such other rights
and preferences as are set forth from time to time in the then effective
prospectus and/or statement of additional information relating to the
Shares. Dividends and distributions on Shares of different Classes of the
same Series may differ and the net asset values of Shares of different
Classes of the same Series may differ.
3. Without limiting the authority of the Trustees set forth in part
1 of this Article FOURTH to establish and designate any further Series,
the Trust has two Series of Shares: "Oppenheimer Strategic Income Fund,"
established by the Declaration of Trust dated May 1, 1989; and
"Oppenheimer Strategic Diversified Income Fund" established by an Amended
and Restated Declaration of Trust dated November 26, 1993. The Shares of
Oppenheimer Strategic Income Fund are divided into two classes, which are
designated Class A and Class B, as follows: the Shares of the Class
outstanding since the inception of the Trust are designated Class A
Shares, and the Shares of the Class initially issued upon the division of
the Shares of that Series into two Classes on December 30, 1992 are
designated Class B Shares. The Shares of Oppenheimer Strategic
Diversified Income Fund consist of one class, which is designated Class
C. The Shares of these Series and any Shares of any further Series or
Classes that may from time to time be established and designated by the
Trustees shall (unless the Trustees otherwise determine with respect to
some further Series or Classes at the time of establishing and designating
the same) have the following relative rights and preferences:
(a) Assets Belonging to Series. All consideration received by
the Trust for the issue or sale of Shares of a particular Series, together
with all assets in which such consideration is invested or reinvested, all
income, earnings, profits, and proceeds thereof, including any proceeds
derived from the sale, exchange or liquidation of such assets, and any
funds or payments derived from any reinvestment of such proceeds in
whatever form the same may be, shall irrevocably belong to that Series
for all purposes, subject only to the rights of creditors, and shall be
so recorded upon the books of account of the Trust. Such consideration,
assets, income, earnings, profits, and proceeds thereof, including any
proceeds derived from the sale, exchange or liquidation of such assets,
and any funds or payments derived from any reinvestment of such proceeds,
in whatever form the same may be, together with any General Items
allocated to that Series as provided in the following sentence, are
herein referred to as "assets belonging to" that Series. In the event
that there are any assets, income, earnings, profits, and proceeds
thereof, funds, or payments which are not readily identifiable as
belonging to any particular Series (collectively "General Items"), the
Trustees shall allocate such General Items to and among any one or more
of the Series established and designated from time to time in such manner
and on such basis as they, in their sole discretion, deem fair and
equitable; and any General Items so allocated to a particular Series shall
belong to that Series. Each such allocation by the Trustees shall be
conclusive and binding upon the shareholders of all Series for all
purposes.
(b) (1) Liabilities Belonging to Series. The liabilities,
expenses, costs, charges and reserves attributable to each Series shall
be charged and allocated to the assets belonging to each particular
Series. Any general liabilities, expenses, costs, charges and reserves
of the Trust which are not identifiable as belong to any particular Series
shall be allocated and charged by the Trustees to and among any one or
more of the Series established and designated from time to time in such
manner and on such basis as the Trustees in their sole discretion deem
fair and equitable. The liabilities, expenses, costs, charges and
reserves allocated and so charged to each Series are herein referred to
as "liabilities belonging to" that Series. Each allocation of
liabilities, expenses, costs, charges and reserves by the Trustees shall
be conclusive and binding upon the shareholders of all Series for all
purposes.
(2) Liabilities Belonging to a Class. If a Series is
divided into more than one Class, the liabilities, expenses, costs,
charges and reserves attributable to a Class shall be charged and
allocated to the Class to which such liabilities, expenses, costs, charges
or reserves are attributable. Any general liabilities, expenses, costs,
charges or reserves belonging to the Series which are not identifiable as
belonging to any particular Class shall be allocated and charged by the
Trustees to and among any one or more of the Classes established and
designated from time to time in such manner and on such basis as the
Trustees in their sole discretion deem fair and equitable. The
allocations in the two preceding sentences shall be subject to the 1940
Act or any release, rule, regulation, interpretation or order thereunder,
relating to such allocations. The liabilities, expenses, costs, charges
and reserves allocated and so charged to each Class are herein referred
to as "liabilities belonging to" that Class. Each allocation of
liabilities, expenses, costs, charges and reserves by the Trustees shall
be conclusive and binding upon the holders of all Classes for all
purposes.
(c) Dividends. Dividends and distributions on Shares of a
particular Series or Class may be paid to the holders of Shares of that
Series or Class, with such frequency as the Trustees may determine, which
may be daily or otherwise pursuant to a standing resolution or resolutions
adopted only once or with such frequency as the Trustees may determine,
from such of the income, capital gains accrued or realized, and capital
and surplus, from the assets belonging to that Series, as the Trustees may
determine, after providing for actual and accrued liabilities belonging
to such Series or Class. All dividends and distributions on Shares of a
particular Series or Class shall be distributed pro rata to the holders
of such Series or Class in proportion to the number of Shares of such
Series or Class held by such holders at the date and time of record
established for the payment of such dividends or distributions, except
that in connection with any dividend or distribution program or procedure
the Trustees may determine that no dividend or distribution shall be
payable on Shares as to which the Shareholder's purchase order and/or
payment have not been received by the time or times established by the
Trustees under such program or procedure. Such dividends and
distributions may be made in cash or Shares or a combination thereof as
determined by the Trustees or pursuant to any program that the Trustees
may have in effect at the time for the election by each Shareholder of the
mode of the making of such dividend or distribution to that Shareholder.
Any such dividend or distribution paid in Shares will be paid at the net
asset value thereof as determined in accordance with paragraph 13 of
Article SEVENTH.
(d) Liquidation. In the event of the liquidation or
dissolution of the Trust, the Shareholders of each Series and all Classes
of each Series that has been established and designated shall be entitled
to receive, as a Series or Class, when and as declared by the Trustees,
the excess of the assets belonging to that Series over the liabilities
belonging to that Series or Class. The assets so distributable to the
Shareholders of any particular Class and Series shall be distributed among
such Shareholders in proportion to the number of Shares of such Class of
that Series held by them and recorded on the books of the Trust.
(e) Transfer. All Shares of each particular Series or Class
shall be transferable, but transfers of Shares of a particular Class and
Series will be recorded on the Share transfer records of the Trust
applicable to such Series or Class of that Series only at such times as
Shareholders shall have the right to require the Trust to redeem Shares
of such Series or Class of that Series and at such other times as may be
permitted by the Trustees.
(f) Equality. All Shares of each Series shall represent an
equal proportionate interest in the assets belonging to that Series
(subject to the liabilities belonging to such Series or any Class of that
Series), and each Share of any particular Series shall be equal to each
other Share of that Series; but the provisions of this sentence shall not
restrict any distinctions permissible under this Article FOURTH that may
exist with respect to Shares of the different Classes of a Series. The
Trustees may from time to time divide or combine the Shares of any
particular Class or Series into a greater or lesser number of Shares of
that Class or Series without thereby changing the proportionate beneficial
interest in the assets belonging to that Class or Series or in any way
affecting the rights of Shares of any other Class or Series and Shares of
each Class of a Series shall be equal to each other Share of such Class.
(g) Fractions. Any fractional Share of any Class and Series,
if any such fractional Share is outstanding, shall carry proportionately
all the rights and obligations of a whole Share of that Class and Series,
including those rights and obligations with respect to voting, receipt of
dividends and distributions, redemption of Shares, and liquidation of the
Trust.
(h) Conversion Rights. Subject to compliance with the
requirements of the 1940 Act, the Trustees shall have the authority to
provide whether (i) holders of Shares of any Series shall have the right
to exchange said Shares into Shares of one or more other Series of Shares,
(ii) holders of shares of any Class shall have the right to exchange said
Shares into Shares of one or more other Classes of the same or a different
Series, and/or (iii) the Trust shall have the right to carry out the
aforesaid exchanges, in each case in accordance with such requirements and
procedures as may be established by the Trustees.
(i) Ownership of Shares. The ownership of Shares shall be
recorded on the books of the Trust or of a transfer or similar agent for
the Trust, which books shall be maintained separately for the Shares of
each Class and Series that has been established and designated. No
certification certifying the ownership of Shares need be issued except as
the Trustees may otherwise determine from time to time. The Trustees may
make such rules as they consider appropriate for the issuance of Share
certificates, the use of facsimile signatures, the transfer of Shares and
similar matters. The record books of the Trust as kept by the Trust or
any transfer or similar agent, as the case may be, shall be conclusive as
to who are the Shareholders and as to the number of Shares of each Class
and Series held from time to time by each such Shareholder.
(j) Investments in the Trust. The Trustees may accept
investments in the Trust from such persons and on such terms and for such
consideration, not inconsistent with the provisions of the 1940 Act, as
they from time to time authorize. The Trustees may authorize any
distributor, principal underwriter, custodian, transfer agent or other
person to accept orders for the purchase or sale of Shares that conform
to such authorized terms and to reject any purchase or sale orders for
Shares whether or not conforming to such authorized terms.
FIFTH: The following provisions are hereby adopted with respect to
voting Shares of the Trust and certain other rights:
1. The Shareholders shall have the power to vote (a) for the
election of Trustees when that issue is submitted to them, (b) with
respect to the amendment of this Declaration of Trust except where the
Trustees are given authority to amend the Declaration of Trust without
shareholder approval, (c) to the same extent as the shareholders of a
Massachusetts business corporation, as to whether or not a court action,
proceeding or claim should be brought or maintained derivatively or as a
Class action on behalf of the Trust or the Shareholders, and (d) with
respect to those matters relating to the Trust as may be required by the
1940 Act or required by law, by this Declaration of Trust, or the By-Laws
of the Trust or any registration statement of the Trust filed with the
Commission or any State, or as the Trustees may consider desirable.
2. The Trust will not hold shareholder meetings unless required by
the 1940 Act, the provisions of this Declaration of Trust, or any other
applicable law, or unless the Trustees determine to call a meeting of
shareholders.
3. At all meetings of Shareholders, each Shareholder shall be
entitled to one vote on each matter submitted to a vote of the
Shareholders of the affected Series for each Share standing in his name
on the books of the Trust on the date, fixed in accordance with the By-
Laws, for determination of Shareholders of the affected Series entitled
to vote at such meeting (except, if the Board so determines, for Shares
redeemed prior to the meeting), and each such Series shall vote separately
("Individual Series Voting"); a Series shall be deemed to be affected when
a vote of the holders of that Series on a matter is required by the 1940
Act; provided, however, that as to any matter with respect to which a vote
of Shareholders is required by the 1940 Act or by any applicable law that
must be complied with, such requirements as to a vote by Shareholders
shall apply in lieu of Individual Series Voting as described above. If
the shares of a Series shall be divided into Classes as provided in
Article FOURTH, the shares of each Class shall have identical voting
rights except that the Trustees, in their discretion, may provide a Class
of a Series with exclusive voting rights with respect to matters which
relate solely to such Classes. If the Shares of any Series shall be
divided into Classes with a Class having exclusive voting rights with
respect to certain matters, the quorum and voting requirements described
below with respect to action to be taken by the Shareholders of the Class
of such Series on such matters shall be applicable only to the Shares of
such Class. Any fractional Share shall carry proportionately all the
rights of a whole Share, including the right to vote and the right to
receive dividends. The presence in person or by proxy of the holders of
one-third of the Shares, or of the Shares of any Series or Class of any
Series, outstanding and entitled to vote thereat shall constitute a
quorum at any meeting of the Shareholders or of that Series or Class,
respectively; provided however, that if any action to be taken by the
Shareholders or by a Series or Class at a meeting requires an affirmative
vote of a majority, or more than a majority, of the shares outstanding and
entitled to vote, then in such event the presence in person or by proxy
of the holders of a majority of the shares outstanding and entitled to
vote at such a meeting shall constitute a quorum for all purposes. At a
meeting at which is a quorum is present, a vote of a majority of the
quorum shall be sufficient to transact all business at the meeting. If
at any meeting of the Shareholders there shall be less than a quorum
present, the Shareholders or the Trustees present at such meeting may,
without further notice, adjourn the same from time to time until a quorum
shall attend, but no business shall be transacted at any such adjourned
meeting except such as might have been lawfully transacted had the meeting
not been adjourned.
4. Each Shareholder, upon request to the Trust in proper form
determined by the Trust, shall be entitled to require the Trust to redeem
from the net assets of that Series all or part of the Shares of such
Series and Class standing in the name of such Shareholder. The method of
computing such net asset value, the time at which such net asset value
shall be computed and the time within which the Trust shall make payment
therefor, shall be determined as hereinafter provided in Article SEVENTH
of this Declaration of Trust. Notwithstanding the foregoing, the
Trustees, when permitted or required to do so by the 1940 Act, may suspend
the right of the Shareholders to require the Trust to redeem Shares.
5. No Shareholder shall, as such holder, have any right to purchase
or subscribe for any Shares of the Trust which it may issue or sell, other
than such right, if any, as the Trustees, in their discretion, may
determine.
6. All persons who shall acquire Shares shall acquire the same
subject to the provisions of the Declaration of Trust.
7. Cumulative voting for the election of Trustees shall not be
allowed.
SIXTH:
1. The persons who shall act as initial Trustees until the first
meeting or until their successors are duly chosen and qualify are the
initial trustees executing this Declaration of Trust or any counterpart
thereof. However, the By-Laws of the Trust may fix the number of Trustees
at a number greater or lesser than the number of initial Trustees and may
authorize the Trustees to increase or decrease the number of Trustees, to
fill any vacancies on the Board which may occur for any reason including
any vacancies created by any such increase in the number of Trustees, to
set and alter the terms of office of the Trustees and to lengthen or
lessen their own terms of office or make their terms of office of
indefinite duration, all subject to the 1940 Act. Unless otherwise
provided by the By-Laws of the Trust, the Trustees need not be
Shareholders.
2. A Trustee at any time may be removed either with or without
cause by resolution duly adopted by the affirmative vote of the holders
of two-thirds of the outstanding Shares, present in person or by proxy at
any meeting of Shareholders called for such purpose; such a meeting shall
be called by the Trustees when requested in writing to do so by the record
holders of not less than ten per centum of the outstanding Shares. A
Trustee may also be removed by the Board of Trustees as provided in the
By-Laws of the Trust.
3. The Trustees shall make available a list of names and addresses
of all Shareholders as recorded on the books of the Trust, upon receipt
of the request in writing signed by not less than ten Shareholders (who
have been shareholders for at least six months) holding in the aggregate
shares of the Trust valued at not less than $25,000 at current offering
price (as defined in the then effective prospectus and/or statement of
additional information relating to the Shares under the Securities Act of
1933, as amended from time to time) or holding not less than 1% in amount
of the entire amount of Shares issued and outstanding; such request must
state that such Shareholders wish to communicate with other Shareholders
with a view to obtaining signatures to a request for a meeting to take
action pursuant to part 2 of this Article SIXTH and be accompanied by a
form of communication to the Shareholders. The Trustees may, in their
discretion, satisfy their obligation under this part 3 by either making
available the Shareholder list to such Shareholders at the principal
offices of the Trust, or at the offices of the Trust's transfer agent,
during regular business hours, or by mailing a copy of such communication
and form of request, at the expense of such requesting Shareholders, to
all other Shareholders, and the Trustees may also take such other action
as may be permitted under Section 16(c) of the 1940 Act.
4. The Trust may at any time or from time to time apply to the
Commission for one or more exemptions from all or part of said Section
16(c) of the 1940 Act and, if an exemptive order or orders are issued by
the Commission, such order or orders shall be deemed part of said Section
16(c) for the purposes of parts 2 and 3 of this Article SIXTH.
SEVENTH: The following provisions are hereby adopted for the purpose
of defining, limiting and regulating the powers of the Trust, the Trustees
and the Shareholders.
1. As soon as any Trustee is duly elected by the Shareholders or
the Trustees and shall have accepted this Trust, the Trust estate shall
vest in the new Trustee or Trustees, together with the continuing
Trustees, without any further act or conveyance, and he shall be deemed
a Trustee hereunder.
2. The death, declination, resignation, retirement, removal, or
incapacity of the Trustees, or any one of them shall not operate to annul
or terminate the Trust but the Trust shall continue in full force and
effect pursuant to the terms of this Declaration of Trust.
3. The assets of the Trust shall be held separate and apart from
any assets now or hereafter held in any capacity other than as Trustee
hereunder by the Trustees or any successor Trustees. All of the assets
of the Trust shall at all times be considered as vested in the Trustees.
No Shareholder shall have, as a holder of beneficial interest in the
Trust, any authority, power or right whatsoever to transact business for
or on behalf of the Trust, or on behalf of the Trustees, in connection
with the property or assets of the Trust, or in any part thereof.
4. The Trustees in all instances shall act as principals, and are
and shall be free from the control of the Shareholders. The Trustees
shall have full power and authority to do any and all acts and to make and
execute, and to authorize the officers and agents of the Trust to make and
execute, any and all contracts and instruments that they may consider
necessary or appropriate in connection with the management of the Trust.
The Trustees shall not in any way be bound or limited by present or future
laws or customs in regard to Trust investments, but shall have full
authority and power to make any and all investments which they, in their
uncontrolled discretion, shall deem proper to accomplish the purpose of
this Trust. Subject to any applicable limitation in this Declaration of
Trust or by the By-Laws of the Trust, the Trustees shall have power and
authority:
(a) to adopt By-Laws not inconsistent with this Declaration of
Trust providing for the conduct of the business of the Trust and to amend
and repeal them to the extent that they do not reserve that right to the
Shareholders;
(b) to elect and remove such officers and appoint and terminate
such officers as they consider appropriate with or without cause, and to
appoint and designate from among the Trustees such committees as the
Trustees may determine, and to terminate any such committee and remove any
member of such committee;
(c) to employ as custodian of any assets of the Trust a bank
or trust company or any other entity qualified and eligible to act as a
custodian, subject to any conditions set forth in this Declaration of
Trust or in the By-Laws;
(d) to retain a transfer agent and shareholder servicing agent,
or both;
(e) to provide for the distribution of Shares either through
a principal underwriter or the Trust itself or both;
(f) to set record dates in the manner provided for in the By-
Laws of the Trust;
(g) to delegate such authority as they consider desirable to
any officers of the Trust and to any agent, custodian or underwriter;
(h) to vote or give assent, or exercise any rights of
ownership, with respect to stock or other securities or property held in
Trust hereunder; and to execute and deliver powers of attorney to such
person or persons as the Trustees shall deem proper, granting to such
person or persons such power and discretion with relation to securities
or property as the Trustees shall deem proper;
(i) to exercise powers and rights of subscription or otherwise
which in any manner arise out of ownership of securities held in trust
hereunder;
(j) to hold any security or property in a form not indicating
any trust, whether in bearer, unregistered or other negotiable form,
either in its own name or in the name of a custodian or a nominee or
nominees, subject in either case to proper safeguards according to the
usual practice of Massachusetts business trusts or investment companies;
(k) to consent to or participate in any plan for the
reorganization, consolidation or merger of any corporation or concern, any
security of which is held in the Trust; to consent to any contract, lease,
mortgage, purchase, or sale of property by such corporation or concern,
and to pay calls or subscriptions with respect to any security held in the
Trust;
(l) to compromise, arbitrate, or otherwise adjust claims in
favor of or against the Trust or any matter in controversy including, but
not limited to, claims for taxes;
(m) to make, in the manner provided in the By-Laws,
distributions of income and of capital gains to Shareholders;
(n) to borrow money to the extent and in the manner permitted
by the 1940 Act and the Trust's fundamental policy thereunder as to
borrowing;
(o) to enter into investment advisory or management contracts,
subject to the 1940 Act, with any one or more corporations, partnerships,
trusts, associations or other persons;
(p) to change the name of the Trust or any Class or Series of
the Trust as they consider appropriate without prior shareholder approval;
and
(q) to establish officers' and Trustees' fees or compensation
and fees or compensation for committees of the Trustees to be paid by the
Trust or each Series thereof in such manner and amount as the Trustees may
determine.
5. No one dealing with the Trustees shall be under any obligation
to make any inquiry concerning the authority of the Trustees, or to see
to the application of any payments made or property transferred to the
Trustees or upon their order.
6. (a) The Trustees shall have no power to bind any Shareholder
personally or to call upon any Shareholder for the payment of any sum of
money or assessment whatsoever other than such as the Shareholder may at
any time personally agree to pay by way of subscription to any Shares or
otherwise. This paragraph shall not limit the right of the Trustees to
assert claims against any shareholder based upon the acts or omissions of
such shareholder or for any other reason. There is hereby expressly
disclaimed shareholder and Trustee liability for the acts and obligations
of the Trust. Every note, bond, contract or other undertaking issued by
or on behalf of the Trust or the Trustees relating to the Trust shall
include a notice and provision limiting the obligation represented thereby
to the Trust and its assets (but the omission of such notice and provision
shall not operate to impose any liability or obligation on any Shareholder
or Trustee).
(b) Whenever this Declaration of Trust calls for or permits any
action to be taken by the Trustees hereunder, such action shall mean that
taken by the Board of Trustees by vote of the majority of a quorum of
Trustees as set forth from time to time in the By-Laws of the Trust or as
required by the 1940 Act.
(c) The Trustees shall possess and exercise any and all such
additional powers as are reasonably implied from the powers herein
contained such as may be necessary or convenient in the conduct of any
business or enterprise of the Trust, to do and perform anything necessary,
suitable, or proper for the accomplishment of any of the purposes, or the
attainment of any one or more of the objects, herein enumerated, or which
shall at any time appear conducive to or expedient for the protection or
benefit of the Trust, and to do and perform all other acts and things
necessary or incidental to the purposes herein before set forth, or that
may be deemed necessary by the Trustees.
(d) The Trustees shall have the power, to the extent not
inconsistent with the 1940 Act, to determine conclusively whether any
moneys, securities, or other properties of the Trust are, for the purposes
of this Trust, to be considered as capital or income and in what manner
any expenses or disbursements are to be borne as between capital and
income whether or not in the absence of this provision such moneys,
securities, or other properties would be regarded as capital or income and
whether or not in the absence of this provision such expenses or
disbursements would ordinarily be charged to capital or to income.
7. The By-Laws of the Trust may divide the Trustees into Classes
and prescribe the tenure of office of the several Classes, but no Class
of Trustee shall be elected for a period shorter than that from the time
of the election following the division into Classes until the next meeting
and thereafter for a period shorter than the interval between meetings or
for a period longer than five years, and the term of office of at least
one Class shall expire each year.
8. The Shareholders shall have the right to inspect the records,
documents, accounts and books of the Trust, subject to reasonable
regulations of the Trustees, not contrary to Massachusetts law, as to
whether and to what extent, and at what times and places, and under what
conditions and regulations, such right shall be exercised.
9. Any officer elected or appointed by the Trustees or by the
Shareholders or otherwise, may be removed at any time, with or without
cause, in such lawful manner as may be provided in the By-Laws of the
Trust.
10. The Trustees shall have power to hold their meetings, to have
an office or offices and, subject to the provisions of the laws of
Massachusetts, to keep the books of the Trust outside of said Commonwealth
at such places as may from time to time be designated by them. Action may
be taken by the Trustees without a meeting by unanimous written consent
or by telephone or similar method of communication.
11. Securities held by the Trust shall be voted in person or by
proxy by the President or a Vice-President, or such officer or officers
of the Trust as the Trustees shall designate for the purpose, or by a
proxy or proxies thereunto duly authorized by the Trustees, except as
otherwise ordered by vote of the holders of a majority of the Shares
outstanding and entitled to vote in respect thereto.
12. (a) Subject to the provisions of the 1940 Act, any Trustee,
officer or employee, individually, or any partnership of which any
Trustee, officer or employee may be a member, or any corporation or
association of which any Trustee, officer or employee may be an officer,
partner, director, trustee, employee or stockholder, or otherwise may have
an interest, may be a party to, or may be pecuniarily or otherwise
interested in, any contract or transaction of the Trust, and in the
absence of fraud no contract or other transaction shall be thereby
affected or invalidated; provided that in such case a Trustee, officer or
employee or a partnership, corporation or association of which a Trustee,
officer or employee is a member, officer, director, trustee, employee or
stockholder is so interested, such fact shall be disclosed or shall have
been known to the Trustees including those Trustees who are not so
interested and who are neither "interested" nor "affiliated" persons as
those terms are defined in the 1940 Act, or a majority thereof; and any
Trustee who is so interested, or who is also a director, officer, partner,
trustee, employee or stockholder of such other corporation or a member of
such partnership or association which is so interested, may be counted in
determining the existence of a quorum at any meeting of the Trustees which
shall authorize any such contract or transaction, and may vote thereat to
authorize any such contract or transaction, with like force and effect as
if he were not so interested.
(b) Specifically, but without limitation of the foregoing, the
Trust may enter into a management or investment advisory contract or
underwriting contract and other contracts with, and may otherwise do
business with any manager or investment adviser for the Trust and/or
principal underwriter of the Shares of the Trust or any subsidiary or
affiliate of any such manager or investment adviser and/or principal
underwriter and may permit any such firm or corporation to enter into any
contracts or other arrangements with any other firm or corporation
relating to the Trust notwithstanding that the Trustees of the Trust may
be composed in part of partners, directors, officers or employees of any
such firm or corporation, and officers of the Trust may have been or may
be or become partners, directors, officers or employees of any such firm
or corporation, and in the absence of fraud the Trust and any such firm
or corporation may deal freely with each other, and no such contract or
transaction between the Trust and any such firm or corporation shall be
invalidated or in any way affected thereby, nor shall any Trustee or
officer of the Trust be liable to the Trust or to any Shareholder or
creditor thereof or to any other person for any loss incurred by it or him
solely because of the existence of any such contract or transaction;
provided that nothing herein shall protect any director or officer of the
Trust against any liability to the trust or to its security holders to
which he would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in
the conduct of his office.
(c) As used in this paragraph the following terms shall have
the meanings set forth below:
(i) the term "indemnitee" shall mean any present or
former Trustee, officer or employee of the Trust, any present or former
Trustee, partner, Director or officer of another trust, partnership,
corporation or association whose securities are or were owned by the Trust
or of which the Trust is or was a creditor and who served or serves in
such capacity at the request of the Trust, and the heirs, executors,
administrators, successors and assigns of any of the foregoing; however,
whenever conduct by an indemnitee is referred to, the conduct shall be
that of the original indemnitee rather than that of the heir, executor,
administrator, successor or assignee;
(ii) the term "covered proceeding" shall mean any
threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, to which an indemnitee
is or was a party or is threatened to be made a party by reason of the
fact or facts under which he or it is an indemnitee as defined above;
(iii) the term "disabling conduct" shall mean willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of the office in question;
(iv) the term "covered expenses" shall mean expenses
(including attorney's fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by an indemnitee in connection
with a covered proceeding; and
(v) the term "adjudication of liability" shall mean,
as to any covered proceeding and as to any indemnitee, an adverse
determination as to the indemnitee whether by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent.
(d) The Trust shall not indemnify any indemnitee for any
covered expenses in any covered proceeding if there has been an
adjudication of liability against such indemnitee expressly based on a
finding of disabling conduct.
(e) Except as set forth in paragraph (d) above, the Trust
shall indemnify any indemnitee for covered expenses in any covered
proceeding, whether or not there is an adjudication of liability as to
such indemnitee, such indemnification by the Trust to be to the fullest
extent now or hereafter permitted by any applicable law unless the By-laws
limit or restrict the indemnification to which any indemnitee may be
entitled. The Board of Trustees may adopt bylaw provisions to implement
sub-paragraphs (c), (d) and (e) hereof.
(f) Nothing herein shall be deemed to affect the right of
the Trust and/or any indemnitee to acquire and pay for any insurance
covering any or all indemnitees to the extent permitted by applicable law
or to affect any other indemnification rights to which any indemnitee may
be entitled to the extent permitted by applicable law. Such rights to
indemnification shall not, except as otherwise provided by law, be deemed
exclusive of any other rights to which such indemnitee may be entitled
under any statute now or hereafter enacted, By-Law, contract or otherwise.
13. The Trustees are empowered, in their absolute discretion, to
establish bases or times, or both, for determining the net asset value per
Share of any Class and Series in accordance with the 1940 Act and to
authorize the voluntary purchase by any Class and Series, either directly
or through an agent, of Shares of any Class and Series upon such terms and
conditions and for such consideration as the Trustees shall deem advisable
in accordance with the 1940 Act.
14. Payment of the net asset value per Share of any Class and
Series properly surrendered to it for redemption shall be made by the
Trust within seven days, or as specified in any applicable law or
regulation, after tender of such stock or request for redemption to the
Trust for such purpose together with any additional documentation that may
be reasonably required by the trust or its transfer agent to evidence the
authority of the tenderor to make such request, plus any period of time
during which the right of the holders of the shares of such Class of that
Series to require the Trust to redeem such shares has been suspended. Any
such payment may be made in portfolio securities of such Class of that
Series and/or in cash, as the Trustees shall deem advisable, and no
Shareholder shall have a right, other than as determined by the Trustees,
to have Shares redeemed in kind.
15. The Trust shall have the right, at any time and without prior
notice to the Shareholder, to redeem Shares of the Class and Series held
by such Shareholder held in any account registered in the name of such
Shareholder for its current net asset value, if and to the extent that
such redemption is necessary to reimburse either that Series or Class of
the Trust or the distributor (i.e., principal underwriter) of the Shares
for any loss either has sustained by reason of the failure of such
Shareholder to make timely and good payment for Shares purchased or
subscribed for by such Shareholder, regardless of whether such Shareholder
was a Shareholder at the time of such purchase or subscription; subject
to and upon such terms and conditions as the Trustees may from time to
time prescribe.
EIGHTH: The name "Oppenheimer" included in the name of the Trust
and of any Series shall be used pursuant to a royalty-free, non-exclusive
license from Oppenheimer Management Corporation ("OMC"), incidental to and
as part of any one or more advisory, management or supervisory contracts
which may be entered into by the Trust with OMC. Such license shall allow
OMC to inspect and subject to the control of the Board of Trustees to
control the nature and quality of services offered by the Trust under such
name. The license may be terminated by OMC upon termination of such
advisory, management or supervisory contracts or without cause upon 60
days' written notice, in which case neither the Trust nor any Series or
Class shall have any further right to use the name "Oppenheimer" in its
name or otherwise and the Trust, the Shareholders and its officers and
Trustees shall promptly take whatever action may be necessary to change
its name and the names of any Series or Classes accordingly.
NINTH:
1. In case any Shareholder or former Shareholder shall be held
to be personally liable solely by reason of his being or having been a
Shareholder and not because of his acts or omissions or for some other
reason, the Shareholder or former Shareholder (or the Shareholders, heirs,
executors, administrators or other legal representatives or in the case
of a corporation or other entity, its corporate or other general
successor) shall be entitled out of the Trust estate to be held harmless
from and indemnified against all loss and expense arising from such
liability. The Trust shall, upon request by the Shareholder, assume the
defense of any such claim made against any Shareholder for any act or
obligation of the Trust and satisfy any judgment thereon.
2. It is hereby expressly declared that a trust and not a
partnership is created hereby. No individual Trustee hereunder shall have
any power to bind the Trust, the Trust's officers or any Shareholder. All
persons extending credit to, doing business with, contracting with or
having or asserting any claim against the Trust or the Trustees shall look
only to the assets of the Trust for payment under any such credit,
transaction, contract or claim; and neither the Shareholders nor the
Trustees, nor any of their agents, whether past, present or future, shall
be personally liable therefor; notice of such disclaimer shall be given
in each agreement, obligation or instrument entered into or executed by
the Trust or the Trustees. Nothing in this Declaration of Trust shall
protect a Trustee
against any liability to which such Trustee would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of the office of Trustee
hereunder.
3. The exercise by the Trustees of their powers and discretion
hereunder in good faith and with reasonable care under the circumstances
then prevailing, shall be binding upon everyone interested. Subject to
the provisions of paragraph 2 of this Article NINTH, the Trustees shall
not be liable for errors of judgment or mistakes of fact or law. The
Trustees may take advice of counsel or other experts with respect to the
meaning and operations of this Declaration of Trust, applicable laws,
contracts, obligations, transactions or any other business the Trust may
enter into, and subject to the provisions of paragraph 2 of this Article
NINTH, shall be under no liability for any act or omission in accordance
with such advice or for failing to follow such advice. The Trustees shall
not be required to give any bond as such, nor any surety if a bond is
required.
4. This Trust shall continue without limitation of time but
subject to the provisions of sub-sections (a), (b), (c) and (d) of this
paragraph 4.
(a) The Trustees, with the favorable vote of the holders of
a majority of the outstanding voting securities, as defined in the 1940
Act, of any one or more Series entitled to vote, may sell and convey the
assets of that Series (which sale may be subject to the retention of
assets for the payment of liabilities and expenses) to another issuer for
a consideration which may be or include securities of such issuer. Upon
making provision for the payment of liabilities, by assumption by such
issuer or otherwise, the Trustees shall distribute the remaining proceeds
ratably among the holders of the outstanding Shares of the Series the
assets of which have been so transferred.
(b) The Trustees, with the favorable vote of the holders
of a majority of the outstanding voting securities, as defined in the 1940
Act, of any one or more Series entitled to vote, may at any time sell and
convert into money all the assets of that Series. Upon making provisions
for the payment of all outstanding obligations, taxes and other
liabilities, accrued or contingent, of that Series, the Trustees shall
distribute the remaining assets of that Series ratably among the holders
of the outstanding Shares of that Series.
(c) The Trustees, with the favorable vote of the holders of
a majority of the outstanding voting securities, as defined in the 1940
Act, of any one or more Series entitled to vote, may otherwise alter,
convert or transfer the assets of that Series or those Series.
(d) Upon completion of the distribution of the remaining
proceeds or the remaining assets as provided in sub-sections (a) and (b),
and in subsection (c) where applicable, the Series the assets of which
have been so transferred shall terminate, and if all the assets of the
Trust have been so transferred, the Trust shall terminate and the Trustees
shall be discharged of any and all further liabilities and duties
hereunder and the right, title and interest of all parties shall be
canceled and discharged.
5. The original or a copy of this instrument and of each
restated declaration of trust or instrument supplemental hereto shall be
kept at the office of the Trust where it may be inspected by any
Shareholder. A copy of this instrument and of each supplemental or
restated declaration of trust shall be filed with the Secretary of the
Commonwealth of Massachusetts, as well as any other governmental office
where such filing may from time to time be required. Anyone dealing with
the Trust may rely on a certificate by an officer of the Trust as to
whether or not any such supplemental or restated declarations of trust
have been made and as to any matters in connection with the Trust
hereunder, and, with the same effect as if it were the original, may rely
on a copy certified by an officer of the Trust to be a copy of this
instrument or of any such supplemental or restated declaration of trust.
In this instrument or in any such supplemental or restated declaration of
trust, references to this instrument, and all expressions like "herein",
"hereof" and "hereunder" shall be deemed to refer to this instrument as
amended or affected by any such supplemental or restated declaration of
trust. This instrument may be executed in any number of counterparts,
each of which shall be deemed as an original.
6. The Trust set forth in this instrument is created under and
is to be governed by and construed and administered according to the laws
of the Commonwealth of Massachusetts. The Trust shall be of the type
commonly called a Massachusetts business trust, and without limiting the
provisions hereof, the Trust may exercise all powers which are ordinarily
exercised by such a trust.
7. The Board of Trustees is empowered to cause the redemption
of the Shares held in any account if the aggregate net asset value of such
Shares has been reduced to $200 or less upon such notice to the
shareholder in question, with such permission to increase the investment
in question and upon such other terms and conditions as may be fixed by
the Board of Trustees in accordance with the 1940 Act.
8. In the event that any person advances the organizational
expenses of the Trust, such advances shall become an obligation of the
Trust subject to such terms and conditions as may be fixed by, and on a
date fixed by, or determined with criteria fixed by the Board of Trustees,
to be amortized over a period or periods to be fixed by the Board.
9. Whenever any action is taken under this Declaration of Trust
including action which is required or permitted by the 1940 Act or any
other applicable law, such action shall be deemed to have been properly
taken if such action is in accordance with the construction of the 1940
Act or such other applicable law then in effect as expressed in "no
action" letters of the staff of the Commission or any release, rule,
regulation or order under the 1940 Act or any decision of a court of
competent jurisdiction, notwithstanding that any of the foregoing shall
later be found to be invalid or otherwise reversed or modified by any of
the foregoing.
10. Any action which may be taken by the Board of Trustees under
this Declaration of Trust or its By-Laws may be taken by the description
thereof in the then effective prospectus and/or statement of additional
information relating to the Shares under the Securities Act of 1933 or in
any proxy statement of the Trust rather than by formal resolution of the
Board.
11. Whenever under this Declaration of Trust, the Board of
Trustees is permitted or required to place a value on assets of the Trust,
such action may be delegated by the Board, and/or determined in accordance
with a formula determined by the Board, to the extent permitted by the
1940 Act.
12. If authorized by vote of the Trustees and the favorable vote
of the holders of a majority of the outstanding voting securities, as
defined in the 1940 Act, entitled to vote, or by any larger vote which may
be required by applicable law in any particular case, the Trustees may
amend or otherwise supplement this instrument, by making a Restated
Declaration of Trust or a Declaration of Trust supplemental hereto, which
thereafter shall form a part hereof; any such Supplemental or Restated
Declaration of Trust may be executed by and on behalf of the Trust and the
Trustees by an officer or officers of the Trust.
IN WITNESS WHEREOF, the undersigned have executed this instrument
as of the 14th day of December, 1993.
/s/ William A. Baker /s/ Charles Conrad, Jr.
- ---------------------------- ----------------------------
William A. Baker, Trustee Charles Conrad, Jr., Trustee
197 Desert Lakes Drive 19411 Merion Court
Palm Springs, California 92264 Huntington Beach, California
92648
/s/ Ned M. Steel /s/ Robert M. Kirchner
- ---------------------------- ----------------------------
Ned M. Steel, Trustee Robert M. Kirchner, Trustee
3236 S. Steele Street 2800 S. University Boulevard
Denver, Colorado Denver, Colorado 80210
/s/ Raymond J. Kalinowski /s/ C. Howard Kast
- ---------------------------- ----------------------------
Raymond J. Kalinowski, Trustee C. Howard Kast, Trustee
44 Portland Drive 2552 East Alameda
St. Louis, Missouri Denver, Colorado 80209
/s/ James C. Swain /s/ Jon S. Fossel
- ---------------------------- ----------------------------
James C. Swain, Trustee Jon S. Fossel, Trustee
23554 Wayne's Way Box 44 - Mead Street
Golden, California 80401 Waccabuc, New York 10597
/s/ Robert G. Avis
- ----------------------------
Robert G. Avis, Trustee
1706 Warson Estates Drive
St. Louis, MO 63124
Exhibit 24(b)(4)(i)
OPPENHEIMER STRATEGIC INCOME FUND
Class A Share Certificate (8-1/2" x 11")
I. FRONT OF CERTIFICATE (All text and other matter lies within
decorative border 5/16" in width)
(upper left) box with heading: NUMBER [of shares]
(upper right) box with heading: CLASS A SHARES
(centered
below boxes) Oppenheimer Strategic Funds Trust
A MASSACHUSETTS BUSINESS TRUST
SERIES: OPPENHEIMER STRATEGIC INCOME FUND
(at left) THIS IS TO CERTIFY THAT (at right) SEE REVERSE FOR
CERTAIN DEFINITIONS
box: CUSIP 68380k 102
(at left) is the owner of
(centered) FULLY PAID CLASS A SHARES OF
BENEFICIAL INTEREST OF
OPPENHEIMER STRATEGIC INCOME FUND
a series of Oppenheimer Strategic Funds Trust (hereinafter
called the "Trust") transferable only on the books of the
Trust by the holder hereof in person or by duly authorized
attorney, upon surrender of this certificate properly
endorsed. This certificate and the shares represented
hereby are issued and shall be held subject to all of the
provisions of the Trust's Declaration of Trust to all of
which the holder by acceptance hereof assents. This
certificate is not valid until countersigned by the
Transfer Agent.
WITNESS the facsimile seal of the Trust and the signatures
of its duly authorized officers.
Dated:
(at left (at right
of seal) of seal)
(signature) (signature)
_______________________ ___________________
SECRETARY PRESIDENT
Exhibit 24(b)(4)(i)
Page 2
(centered at bottom)
1-1/2" diameter facsimile seal
with legend
OPPENHEIMER STRATEGIC FUNDS TRUST
SEAL
1989
COMMONWEALTH OF MASSACHUSETTS
(at lower right, printed
vertically) Countersigned
OPPENHEIMER SHAREHOLDER SERVICES
(A DIVISION OF OPPENHEIMER MANAGEMENT
CORPORATION)
Denver (Co) Transfer Agent
By ____________________________
Authorized Signature
II. BACK OF CERTIFICATE (text reads from top to bottom of 11"
dimension)
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out
in full according to applicable laws or regulations.
TEN COM - as tenants in common
TEN ENT - as tenants by the entirety
JT TEN WROS NOT TC - as joint tenants with
rights of survivorship and not
as tenants in common
UNIF GIFT/TRANSFER MIN ACT - __________________ Custodian _______________
(Cust) (Minor)
UNDER UGMA/UTMA ___________________
(State)
Additional abbreviations may also be used though not on above list.
For Value Received ................ hereby sell(s), assign(s) and
transfer(s) unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE
AND PROVIDE CERTIFICATION BY TRANSFEREE
(box for identifying number)
<PAGE>
Exhibit 24(b)(4)(i)
Page 3
_______________________________________________________________________
(Please print or type name and address of assignee)
______________________________________________________
________________________________________________Class A Shares of
beneficial interest represented by the within certificate, and do
hereby irrevocably constitute and appoint ___________________________
Attorney to transfer the said shares on the books of the within named
Trust with full power of substitution in the premises.
Dated: ______________________
Signed: __________________________
___________________________________
(Both must sign if joint owners)
Signature(s) __________________________
guaranteed Name of Guarantor
by: _____________________________
Signature of Officer/Title
(text printed NOTICE: The signature(s) to this assignment must
vertically to right correspond with the name(s) as written upon the
of above paragraph) face of the certificate in every particular
without alteration or enlargement or any change
whatever.
(text printed in Signatures must be guaranteed by a financial
box to left of institution of the type described in the current
signature(s)) prospectus of the Trust.
PLEASE NOTE: This document contains a watermark (OppenheimerFunds
when viewed at an angle. It is invalid without logo)
this watermark:
_______________________________________________________________________
THIS SPACE MUST NOT BE COVERED IN ANY WAY
Exhibit 24(b)(4)(ii)
OPPENHEIMER STRATEGIC INCOME FUND
Class B Share Certificate (8-1/2" x 11")
I. FRONT OF CERTIFICATE (All text and other matter lies within
decorative border 5/16" in width)
(upper left) box with heading: NUMBER [of shares]
(upper right) box with heading: CLASS B SHARES
(centered
below boxes) Oppenheimer Strategic Funds Trust
A MASSACHUSETTS BUSINESS TRUST
SERIES: OPPENHEIMER STRATEGIC INCOME FUND
(at left) THIS IS TO CERTIFY THAT (at right) SEE REVERSE FOR
CERTAIN DEFINITIONS
box: CUSIP 68380K 201
(at left) is the owner of
(centered) FULLY PAID CLASS B SHARES OF
BENEFICIAL INTEREST OF
OPPENHEIMER STRATEGIC INCOME FUND
a series of Oppenheimer Strategic Funds Trust (hereinafter
called the "Trust") transferable only on the books of the
Trust by the holder hereof in person or by duly authorized
attorney, upon surrender of this certificate properly
endorsed. This certificate and the shares represented
hereby are issued and shall be held subject to all of the
provisions of the Trust's Declaration of Trust to all of
which the holder by acceptance hereof assents. This
certificate is not valid until countersigned by the
Transfer Agent.
WITNESS the facsimile seal of the Trust and the signatures
of its duly authorized officers.
Dated:
(at left (at right
of seal) of seal)
(signature) (signature)
_______________________ ___________________
SECRETARY PRESIDENT
Exhibit 24(b)(4)(ii)
Page 2
(centered at bottom)
1-1/2" diameter facsimile seal
with legend
OPPENHEIMER STRATEGIC FUNDS TRUST
SEAL
1989
COMMONWEALTH OF MASSACHUSETTS
(at lower right, printed
vertically) Countersigned
OPPENHEIMER SHAREHOLDER SERVICES
(A DIVISION OF OPPENHEIMER MANAGEMENT
CORPORATION)
Denver (Co) Transfer Agent
By ____________________________
Authorized Signature
II. BACK OF CERTIFICATE (text reads from top to bottom of 11"
dimension)
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out
in full according to applicable laws or regulations.
TEN COM - as tenants in common
TEN ENT - as tenants by the entirety
JT TEN WROS NOT TC - as joint tenants with
rights of survivorship and not
as tenants in common
UNIF GIFT/TRANSFER MIN ACT - __________________ Custodian _______________
(Cust) (Minor)
UNDER UGMA/UTMA ___________________
(State)
Additional abbreviations may also be used though not on above list.
For Value Received ................ hereby sell(s), assign(s) and
transfer(s) unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE
AND PROVIDE CERTIFICATION BY TRANSFEREE
(box for identifying number)
<PAGE>
Exhibit 24(b)(4)(ii)
Page 3
_______________________________________________________________________
(Please print or type name and address of assignee)
______________________________________________________
________________________________________________Class B Shares of
beneficial interest represented by the within certificate, and do
hereby irrevocably constitute and appoint ___________________________
Attorney to transfer the said shares on the books of the within named
Trust with full power of substitution in the premises.
Dated: ______________________
Signed: __________________________
___________________________________
(Both must sign if joint owners)
Signature(s) __________________________
guaranteed Name of Guarantor
by: _____________________________
Signature of Officer/Title
(text printed NOTICE: The signature(s) to this assignment must
vertically to right correspond with the name(s) as written upon the
of above paragraph) face of the certificate in every particular
without alteration or enlargement or any change
whatever.
(text printed in Signatures must be guaranteed by a financial
box to left of institution of the type described in the current
signature(s)) prospectus of the Trust.
PLEASE NOTE: This document contains a watermark (OppenheimerFunds
when viewed at an angle. It is invalid without logo)
this watermark:
_______________________________________________________________________
THIS SPACE MUST NOT BE COVERED IN ANY WAY
EDGAR\CERTB
Exhibit 24(b)(4)(iii)
OPPENHEIMER STRATEGIC DIVERSIFIED INCOME FUND
Class C Share Certificate (8-1/2" x 11")
I. FRONT OF CERTIFICATE (All text and other matter lies within
decorative border 5/16" in width)
(upper left) box with heading: NUMBER [of shares]
(upper right) box with heading: CLASS C SHARES
(centered
below boxes) Oppenheimer Strategic Funds Trust
A MASSACHUSETTS BUSINESS TRUST
SERIES: OPPENHEIMER STRATEGIC DIVERSIFIED INCOME FUND
(at left) THIS IS TO CERTIFY THAT (at right) SEE REVERSE FOR
CERTAIN DEFINITIONS
box: CUSIP 68380K 300
(at left) is the owner of
(centered) FULLY PAID CLASS C SHARES OF
BENEFICIAL INTEREST OF
OPPENHEIMER STRATEGIC DIVERSIFIED INCOME FUND
a series of Oppenheimer Strategic Funds Trust (hereinafter
called the "Trust") transferable only on the books of the
Trust by the holder hereof in person or by duly authorized
attorney, upon surrender of this certificate properly
endorsed. This certificate and the shares represented
hereby are issued and shall be held subject to all of the
provisions of the Trust's Declaration of Trust to all of
which the holder by acceptance hereof assents. This
certificate is not valid until countersigned by the
Transfer Agent.
WITNESS the facsimile seal of the Trust and the signatures
of its duly authorized officers.
Dated:
(at left (at right
of seal) of seal)
(signature) (signature)
_______________________ ___________________
SECRETARY PRESIDENT
Exhibit 24(b)(4)(iii)
Page 2
(centered at bottom)
1-1/2" diameter facsimile seal
with legend
OPPENHEIMER STRATEGIC FUNDS TRUST
SEAL
1989
COMMONWEALTH OF MASSACHUSETTS
(at lower right, printed
vertically) Countersigned
OPPENHEIMER SHAREHOLDER SERVICES
(A DIVISION OF OPPENHEIMER MANAGEMENT
CORPORATION)
Denver (Co) Transfer Agent
By ____________________________
Authorized Signature
II. BACK OF CERTIFICATE (text reads from top to bottom of 11"
dimension)
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out
in full according to applicable laws or regulations.
TEN COM - as tenants in common
TEN ENT - as tenants by the entirety
JT TEN WROS NOT TC - as joint tenants with
rights of survivorship and not
as tenants in common
UNIF GIFT/TRANSFER MIN ACT - __________________ Custodian _______________
(Cust) (Minor)
UNDER UGMA/UTMA ___________________
(State)
Additional abbreviations may also be used though not on above list.
For Value Received ................ hereby sell(s), assign(s) and
transfer(s) unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE
AND PROVIDE CERTIFICATION BY TRANSFEREE
(box for identifying number)
<PAGE>
Exhibit 24(b)(4)(iii)
Page 3
_______________________________________________________________________
(Please print or type name and address of assignee)
______________________________________________________
________________________________________________Class C Shares of
beneficial interest represented by the within certificate, and do
hereby irrevocably constitute and appoint ___________________________
Attorney to transfer the said shares on the books of the within named
Trust with full power of substitution in the premises.
Dated: ______________________
Signed: __________________________
___________________________________
(Both must sign if joint owners)
Signature(s) __________________________
guaranteed Name of Guarantor
by: _____________________________
Signature of Officer/Title
(text printed NOTICE: The signature(s) to this assignment must
vertically to right correspond with the name(s) as written upon the
of above paragraph) face of the certificate in every particular
without alteration or enlargement or any change
whatever.
(text printed in Signatures must be guaranteed by a financial
box to left of institution of the type described in the current
signature(s)) prospectus of the Trust.
PLEASE NOTE: This document contains a watermark (OppenheimerFunds
when viewed at an angle. It is invalid without logo)
this watermark:
_______________________________________________________________________
THIS SPACE MUST NOT BE COVERED IN ANY WAY
EDGAR\CERTC
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made the 1st day of February, 1994, by and between OPPENHEIMER
STRATEGIC FUNDS TRUST, (the "Trust") on behalf of OPPENHEIMER STRATEGIC
DIVERSIFIED INCOME FUND (the "Fund"), and OPPENHEIMER MANAGEMENT
CORPORATION (hereinafter referred to as "OMC").
WHEREAS, the Fund is a series of an open-end, diversified management
investment company registered as such with the Securities and Exchange
Commission (the "Commission") pursuant to the Investment Company Act of
1940 (the "Investment Company Act"), and OMC is a registered investment
adviser;
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, it is agreed by and between the parties, as
follows:
1. General Provision.
The Fund hereby employs OMC and OMC hereby undertakes to act as the
investment adviser of the Fund and to perform for the Fund such other
duties and functions as are hereinafter set forth. OMC shall, in all
matters, give to the Fund and the Trust's Board of Trustees the
benefit of its best judgment, effort, advice and recommendations and
shall, at all times conform to, and use its best efforts to enable
the Fund to conform to (i) the provisions of the Investment Company
Act and any rules or regulations thereunder; (ii) any other
applicable provisions of state or federal law; (iii) the provisions
of the Declaration of Trust and By-Laws of the Fund as amended from
time to time; (iv) policies and determinations of the Board of
Trustees of the Trust; (v) the fundamental policies and investment
restrictions of the Fund as reflected in the Fund's registration
statement under the Investment Company Act or as such policies may,
from time to time, be amended by the Fund's shareholders; and (vi)
the Prospectus and Statement of Additional Information of the Fund
in effect from time to time. The appropriate officers and employees
of OMC shall be available upon reasonable notice for consultation
with any of the Trustees and officers of the Trust with respect to
any matters dealing with the business and affairs of the Fund
including the valuation of portfolio securities of the Fund which
securities are either not registered for public sale or not traded
on any securities market.
2. Investment Management.
(a) OMC shall, subject to the direction and control by the Trust's
Board of Trustees, (i) regularly provide investment advice and
recommendations to the Fund with respect to its investments,
investment policies and the purchase and sale of securities;
(ii) supervise continuously the investment program of the Fund
and the composition of its portfolio and determine what
securities shall be purchased or sold by the Fund; and (iii)
arrange, subject to the provisions of paragraph 7 hereof, for
the purchase of securities and other investments for the Fund
and the sale of securities and other investments held in the
portfolio of the Fund.
(b) Provided that the Fund shall not be required to pay any
compensation other than as provided by the terms of this
Agreement and subject to the provisions of paragraph 7 hereof,
OMC may obtain investment information, research or assistance
from any other person, firm or corporation to supplement, update
or otherwise improve its investment management services.
(c) Provided that nothing herein shall be deemed to protect OMC from
willful misfeasance, bad faith or gross negligence in the
performance of its duties, or reckless disregard of its
obligations and duties under this Agreement, OMC shall not be
liable for any loss sustained by reason of good faith errors or
omissions in connection with any matters to which this Agreement
relates.
(d) Nothing in this Agreement shall prevent OMC or any officer
thereof from acting as investment adviser for any other person,
firm or corporation and shall not in any way limit or restrict
OMC or any of its directors, officers, stockholders or employees
from buying, selling or trading any securities for its or their
own account or for the account of others for whom it or they may
be acting, provided that such activities will not adversely
affect or otherwise impair the performance by OMC of its duties
and obligations under this Agreement.
3. Other Duties of OMC.
OMC shall, at its own expense, provide and supervise the activities
of all administrative and clerical personnel as shall be required to
provide effective corporate administration for the Fund, including
the compilation and maintenance of such records with respect to its
operations as may reasonably be required; the preparation and filing
of such reports with respect thereto as shall be required by the
Commission; composition of periodic reports with respect to
operations of the Fund for its shareholders; composition of proxy
materials for meetings of the Fund's shareholders, and the
composition of such registration statements as may be required by
federal and state securities laws for continuous public sale of
shares of the Fund. OMC shall, at its own cost and expense, also
provide the Fund with adequate office space, facilities and
equipment. OMC shall, at its own expense, provide such officers for
the Fund as the Fund's Board may request.
4. Allocation of Expenses.
All other costs and expenses of the Fund not expressly assumed by OMC
under this Agreement, shall be paid by the Fund, including, but not
limited to: (i) interest and taxes; (ii) brokerage commissions; (iii)
insurance premiums for fidelity and other coverage requisite to its
operations; (iv) compensation and expenses of the Trust's trustees
other than those affiliated with OMC; (v) legal and audit expenses;
(vi) custodian and transfer agent fees and expenses; (vii) expenses
incident to the redemption of its shares; (viii) expenses incident
to the issuance of its shares against payment therefor by or on
behalf of the subscribers thereto; (ix) fees and expenses, other than
as hereinabove provided, incident to the registration under federal
and state securities laws of shares of the Fund for public sale; (x)
expenses of printing and mailing reports, notices and proxy materials
to shareholders of the Fund; (xi) except as noted above, all other
expenses incidental to holding meetings of the Fund's shareholders;
and (xii) such extraordinary non-recurring expenses as may arise,
including litigation, affecting the Fund and any legal obligation
which the Trust may have (on behalf of the Fund) to indemnify its
officers and trustees with respect thereto. Any officers or
employees of OMC or any entity controlling, controlled by or under
common control with OMC, who may also serve as officers, trustees or
employees of the Trust shall not receive any compensation from the
Fund for their services.
5. Compensation of OMC.
The Fund agrees to pay OMC and OMC agrees to accept as full
compensation for the performance of all functions and duties on its
part to be performed pursuant to the provisions hereof, a fee
computed on the aggregate net asset value of the Fund as of the close
of each business day and payable monthly at the annual rate of .75%
of the first $200 million of average annual net assets; .72% of the
next $200 million; .69% of the next $200 million; .66% of the next
$200 million; .60% of the next $200 million; and .50% of average
annual net assets in excess of $1 billion.
6. Use of Name "Oppenheimer."
OMC hereby grants to the Fund a royalty-free, non-exclusive license
to use the name "Oppenheimer" in the name of the Trust and the Fund
for the duration of this Agreement and any extensions or renewals
thereof. To the extent necessary to protect OMC's rights to the name
"Oppenheimer" under applicable law, such license shall allow OMC to
inspect and, subject to control by the Fund's Board, control the
nature and quality of services offered by the Fund under such name.
Such license may, upon termination of this Agreement, be terminated
by OMC, in which event the Trust and the Fund shall promptly take
whatever action may be necessary to change their respective names and
discontinue any further use of the name "Oppenheimer" in the name of
the Trust and the Fund or otherwise. The name "Oppenheimer" may be
used by OMC in connection with any of its activities, or licensed by
OMC to any other party.
7. Portfolio Transactions and Brokerage.
(a) OMC is authorized, in arranging the purchase and sale of the
Fund's portfolio securities, to employ or deal with such
members of securities exchanges, brokers or dealers (hereinafter
"broker-dealers"), including "affiliated" broker-dealers, as
that term is defined in the Investment Company Act, as may, in
its best judgment, implement the policy of the Fund to obtain,
at reasonable expense, the "best execution" (prompt and reliable
execution at the most favorable security price obtainable) of
the Fund's portfolio transactions as well as to obtain,
consistent with the provisions of subparagraph "(c)" of this
paragraph "7," the benefit of such investment information or
research as will be of significant assistance to the performance
by OMC of its investment management functions.
(b) OMC shall select broker-dealers to effect the Fund's portfolio
transactions on the basis of its estimate of their ability to
obtain best execution of particular and related portfolio
transactions. The abilities of a broker-dealer to obtain best
execution of particular portfolio transaction(s) will be judged
by OMC on the basis of all relevant factors and considerations
including, insofar as feasible, the execution capabilities
required by the transaction or transactions; the ability and
willingness of the broker-dealer to facilitate the Fund's
portfolio transactions by participating therein for its own
account; the importance to the Fund of speed, efficiency or
confidentiality; the broker-dealer's apparent familiarity with
sources from or to whom particular securities might be purchased
or sold; as well as any other matters relevant to the selection
of a broker-dealer for particular and related transactions of
the Fund.
(c) OMC shall have discretion, in the interests of the Fund, to
allocate brokerage on the Fund's portfolio transactions to
broker-dealers, other than affiliated broker-dealers, qualified
to obtain best execution of such transactions who provide
brokerage and/or research services (as such services are defined
in Section 28(e)(3) of the Securities Exchange Act of 1934) for
the Fund and/or other accounts for which OMC exercises
"investment discretion" (as that term is defined in Section
3(a)(35) of the Securities Exchange Act of 1934) and to cause
the Fund to pay such broker-dealers a commission for effecting
a portfolio transaction for the Fund that is in excess of the
amount of commission another broker-dealer adequately qualified
to effect such transaction would have charged for effecting that
transaction, if OMC determines, in good faith, that such
commission is reasonable in relation to the value of the
brokerage and/or research services provided by such broker-
dealer, viewed in terms of either that particular transaction
or OMC's overall responsibilities with respect to the accounts
as to which it exercises investment discretion. In reaching
such determination, OMC will not be required to place or attempt
to place a specific dollar value on the brokerage and/or
research services provided or being provided by such broker-
dealer. In demonstrating that such determinations were made in
good faith, OMC shall be prepared to show that all commissions
were allocated for purposes contemplated by this Agreement and
that the total commissions paid by the Fund over a
representative period selected by the Trust's Trustees were
reasonable in relation to the benefits to the Fund.
(d) OMC shall have no duty or obligation to seek advance competitive
bidding for the most favorable commission rate applicable to any
particular portfolio transactions or to select any broker-dealer
on the basis of its purported or "posted" commission rate but
will, to the best of its ability, endeavor to be aware of the
current level of the charges of eligible broker-dealers and to
minimize the expense
<PAGE>
incurred by the Fund for effecting its portfolio transactions
to the extent consistent with the interests and policies of the
Fund as established by the determinations of the Board of
Trustees and the provisions of this paragraph "7."
(e) Subject to the foregoing provisions of this paragraph "7," OMC
may also consider sales of shares of the Fund and the other
funds managed by the Manager and its affiliates as a factor in
the selection of broker-dealers for its portfolio transactions.
8. Duration.
This Agreement will take effect on the date first set forth above.
Unless earlier terminated pursuant to paragraph 9 hereof, this
Agreement shall remain in effect until December 31, 1994, and
thereafter will continue in effect from year to year, so long as such
continuance shall be approved at least annually by the Trust's Board
of Trustees, including the vote of the majority of the trustees of
the Fund who are not parties to this Agreement or "interested
persons" (as defined in the Investment Company Act) of any such
party, cast in person at a meeting called for the purpose of voting
on such approval, or by the holders of a "majority" (as defined in
the Investment Company Act) of the outstanding voting securities of
the Fund and by such a vote of the Fund's Board of Trustees.
9. Termination.
This Agreement may be terminated: (i) by OMC at any time without
penalty upon sixty days' written notice to the Fund (which notice may
be waived by the Fund); or (ii) by the Trust on behalf of the Fund
at any time without penalty upon sixty days' written notice to OMC
(which notice may be waived by OMC) provided that such termination
by the Trust shall be directed or approved by the vote of a majority
of all of the trustees of the Trust then in office or by the vote of
the holders of a "majority" of the outstanding voting securities of
the Fund (as defined in the Investment Company Act).
10. Assignment or Amendment.
This Agreement may not be amended or the rights of OMC hereunder
sold, transferred, pledged or otherwise in any manner encumbered
without the affirmative vote or written consent of the holders of the
"majority" of the outstanding voting securities of the Fund. This
Agreement shall automatically and immediately terminate in the event
of its "assignment."
11. Disclaimer of Shareholder Liability.
OMC understands that the obligations of the Fund under this Agreement
are not binding upon any Trustee or shareholder of the Fund
personally, but bind only the Fund and the Fund's property. OMC
represents that it has notice of the provisions of the Declaration
of Trust of the Trust disclaiming shareholder liability for acts or
obligations of the Fund.
12. Definitions. The terms and provisions of the Agreement shall be
interpreted and defined in a manner consistent with the provisions
and definitions of the Investment Company Act.
OPPENHEIMER STRATEGIC FUNDS TRUST,
on behalf of OPPENHEIMER STRATEGIC
DIVERSIFIED INCOME FUND
By: /s/ Robert G. Zack
-----------------------------------
Robert G. Zack, Assistant Secretary
OPPENHEIMER MANAGEMENT CORPORATION
By: /s/ Katherine P. Feld
-----------------------------------
Katherine P. Feld,
Vice President and Secretary
GENERAL DISTRIBUTOR'S AGREEMENT
BETWEEN
OPPENHEIMER STRATEGIC FUNDS TRUST
ON BEHALF OF
OPPENHEIMER STRATEGIC DIVERSIFIED INCOME FUND
AND
OPPENHEIMER FUNDS DISTRIBUTOR, INC.
Date: February 1, 1994
OPPENHEIMER FUNDS DISTRIBUTOR, INC.
Two World Trade Center, Suite 3400
New York, NY 10048
Dear Sirs:
OPPENHEIMER STRATEGIC DIVERSIFIED INCOME FUND (the "Series") is a
series of Oppenheimer Strategic Funds Trust (the "Fund"), a Massachusetts
business trust, registered as an investment company under the Investment
Company Act of 1940 (the "1940 Act"). An indefinite number of one or more
classes of the shares of beneficial interest of the Series ("Shares") have
been registered under the Securities Act of 1933 (the "1933 Act") to be
offered for sale to the public in a continuous public offering in
accordance with the terms and conditions set forth in the Prospectus and
Statement of Additional Information ("SAI") included in the Fund's
Registration Statement as it may be amended from time to time (the
"current Prospectus and/or SAI").
In this connection, the Fund desires that your firm (the "General
Distributor") act in a principal capacity as General Distributor for the
sale and distribution of Shares which have been registered as described
above and of any additional Shares which may become registered during the
term of this Agreement. You have advised the Fund that you are willing
to act as such General Distributor, and it is accordingly agreed by and
between us as follows:
1. Appointment of the Distributor. The Fund hereby appoints you
as the sole General Distributor, pursuant to the aforesaid continuous
public offering of its Shares, and the Fund further agrees from and after
the date of this Agreement, that it will not, without your consent, sell
or agree to sell any Shares otherwise than through you, except (a) the
Fund may itself sell shares without sales charge as an investment to the
officers, trustees or directors and bona fide present and former full-time
employees of the Fund, the Fund's Investment Adviser and affiliates
thereof, and to other investors who are identified in the current
Prospectus and/or SAI as having the privilege to buy Shares at net asset
value; (b) the Fund may issue shares in connection with a merger,
consolidation or acquisition of assets on such basis as may be authorized
or permitted under the 1940 Act; (c) the Fund may issue shares for the
reinvestment of dividends and other distributions of the Fund or of any
other Fund if permitted by the current Prospectus and/or SAI; and (d) the
Fund may issue shares as underlying securities of a unit investment trust
if such unit investment trust has elected to use Shares as an underlying
investment; provided that in no event as to any of the foregoing
exceptions shall Shares be issued and sold at less than the then-existing
net asset value.
2. Sale of Shares. You hereby accept such appointment and agree
to use your best efforts to sell Shares, provided, however, that when
requested by the Fund at any time because of market or other economic
considerations or abnormal circumstances of any kind, or when agreed to
by mutual consent of the Fund and the General Distributor, you will
suspend such efforts. The Fund may also withdraw the offering of Shares
at any time when required by the provisions of any statute, order, rule
or regulation of any governmental body having jurisdiction. It is
understood that you do not undertake to sell all or any specific number
of Shares.
3. Sales Charge. Shares shall be sold by you at net asset value
plus a front-end sales charge not in excess of 8.5% of the offering price,
but which front-end sales charge shall be proportionately reduced or
eliminated for larger sales and under other circumstances, in each case
on the basis set forth in the Fund's current Prospectus and/or SAI. The
redemption proceeds of Shares offered and sold at net asset value with or
without a front-end sales charge may be subject to a contingent deferred
sales charge ("CDSC") under the circumstances described in the current
Prospectus and/or SAI. You may reallow such portion of the front-end
sales charge to dealers or cause payment (which may exceed the front-end
sales charge, if any) of commissions to brokers through which sales are
made, as you may determine, and you may pay such amounts to dealers and
brokers on sales of shares from your own resources (such dealers and
brokers shall collectively include all domestic or foreign institutions
eligible to offer and sell the Shares), and in the event the Series has
more than one class of Shares outstanding, then you may impose a front-end
sales charge and/or a CDSC on Shares of one class that is different from
the charges imposed on Shares of the Series' other class(es), in each case
as set forth in the current Prospectus and/or SAI, provided the front-end
sales charge and CDSC to the ultimate purchaser do not exceed the
respective levels set forth for such category of purchaser in the Fund's
current Prospectus and/or SAI.
4. Purchase of Shares.
(a) As General Distributor, you shall have the right to accept
or reject orders for the purchase of Shares at your
discretion. Any consideration which you may receive in
connection with a rejected purchase order will be returned
promptly.
(b) You agree promptly to issue or to cause the duly appointed
transfer or shareholder servicing agent of the Fund to
issue as your agent confirmations of all accepted purchase
orders and to transmit a copy of such confirmations to the
Fund. The net asset value of all Shares which are the
subject of such confirmations, computed in accordance with
the applicable rules under the 1940 Act, shall be a
liability of the General Distributor to the Fund to be
paid promptly after receipt of payment from the
originating dealer or broker (or investor, in the case of
direct purchases) and not later than eleven business days
after such confirmation even if you have not actually
received payment from the originating dealer or broker or
investor. In no event shall the General Distributor make
payment to the Fund later than permitted by applicable
rules of the National Association of Securities Dealers,
Inc.
(c) If the originating dealer or broker shall fail to make
timely settlement of its purchase order in accordance with
applicable rules of the National Association of Securities
Dealers, Inc., or if a direct purchaser shall fail to make
good payment for shares in a timely manner, you shall have
the right to cancel such purchase order and, at your
account and risk, to hold responsible the originating
dealer or broker, or investor. You agree promptly to
reimburse the Fund for losses suffered by it that are
attributable to any such cancellation, or to errors on
your part in relation to the effective date of accepted
purchase orders, limited to the amount that such losses
exceed contemporaneous gains realized by the Fund for
either of such reasons with respect to other purchase
orders.
(d) In the case of a canceled purchase for the account of a
directly purchasing shareholder, the Fund agrees that if
such investor fails to make you whole for any loss you pay
to the Fund on such canceled purchase order, the Fund will
reimburse you for such loss to the extent of the aggregate
redemption proceeds of any other shares of the Fund owned
by such investor, on your demand that the Fund exercise
its right to claim such redemption proceeds. The Fund
shall register or cause to be registered all Shares sold
to you pursuant to the provisions hereof in such names and
amounts as you may request from time to time and the Fund
shall issue or cause to be issued certificates evidencing
such Shares for delivery to you or pursuant to your
direction if and to the extent that the shareholder
account in question contemplates the issuance of such
certificates. All Shares when so issued and paid for,
shall be fully paid and non-assessable by the Fund (which
shall not prevent the imposition of any CDSC that may
apply) to the extent set forth in the current Prospectus
and/or SAI.
5. Repurchase of Shares.
(a) In connection with the repurchase of Shares, you are
appointed and shall act as Agent of the Fund. You are
authorized, for so long as you act as General Distributor
of the Fund, to repurchase, from authorized dealers,
certificated or uncertificated shares of the Fund
("Shares") on the basis of orders received from each
dealer ("authorized dealer") with which you have a dealer
agreement for the sale of Shares and permitting resales of
Shares to you, provided that such authorized dealer, at
the time of placing such resale order, shall represent (i)
if such Shares are represented by certificate(s), that
certificate(s) for the Shares to be repurchased have been
delivered to it by the registered owner with a request for
the redemption of such Shares executed in the manner and
with the signature guarantee required by the then-
currently effective prospectus of the Fund, or (ii) if
such Shares are uncertificated, that the registered
owner(s) has delivered to the dealer a request for the
redemption of such Shares executed in the manner and with
the signature guarantee required by the then-currently
effective prospectus of the Fund.
(b) You shall (a) have the right in your discretion to accept
or reject orders for the repurchase of Shares; (b)
promptly transmit confirmations of all accepted repurchase
orders; and (c) transmit a copy of such confirmation to
the Fund, or, if so directed, to any duly appointed
transfer or shareholder servicing agent of the Fund. In
your discretion, you may accept repurchase requests made
by a financially responsible dealer which provides you
with indemnification in form satisfactory to you in
consideration of your acceptance of such dealer's request
in lieu of the written redemption request of the owner of
the account; you agree that the Fund shall be a third
party beneficiary of such indemnification.
(c) Upon receipt by the Fund or its duly appointed transfer or
shareholder servicing agent of any certificate(s) (if any
has been issued) for repurchased Shares and a written
redemption request of the registered owner(s) of such
Shares executed in the manner and bearing the signature
guarantee required by the then-currently effective
Prospectus or SAI of the Fund, the Fund will pay or cause
its duly appointed transfer or shareholder servicing agent
promptly to pay to the originating authorized dealer the
redemption price of the repurchased Shares (other than
repurchased Shares subject to the provisions of part (d)
of Section 5 of this Agreement) next determined after your
receipt of the dealer's repurchase order.
(d) Notwithstanding the provisions of part (c) of Section 5 of
this Agreement, repurchase orders received from an
authorized dealer after the determination of the Fund's
redemption price on a regular business day will receive
that day's redemption price if the request to the dealer
by its customer to arrange such repurchase prior to the
determination of the Fund's redemption price that day
complies with the requirements governing such requests as
stated in the current Prospectus and/or SAI.
(e) You will make every reasonable effort and take all
reasonably available measures to assure the accurate
performance of all services to be performed by you
hereunder within the requirements of any statute, rule or
regulation pertaining to the redemption of shares of a
regulated investment company and any requirements set
forth in the then-current Prospectus and/or SAI of the
Fund. You shall correct any error or omission made by you
in the performance of your duties hereunder of which you
shall have received notice in writing and any necessary
substantiating data; and you shall hold the Fund harmless
from the effect of any errors or omissions which might
cause an over- or under-redemption of the Fund's Shares
and/or an excess or non-payment of dividends, capital
gains distributions, or other distributions.
(f) In the event an authorized dealer initiating a repurchase
order shall fail to make delivery or otherwise settle such
order in accordance with the rules of the National
Association of Securities Dealers, Inc., you shall have
the right to cancel such repurchase order and, at your
account and risk, to hold responsible the originating
dealer. In the event that any cancellation of a Share
repurchase order or any error in the timing of the
acceptance of a Share repurchase order shall result in a
gain or loss to the Fund, you agree promptly to reimburse
the Fund for any amount by which any loss shall exceed
then-existing gains so arising.
6. 1933 Act Registration. The Fund has delivered to you a copy of
its current Prospectus and SAI. The Fund agrees that it will use its best
efforts to continue the effectiveness of the Registration Statement under
the 1933 Act. The Fund further agrees to prepare and file any amendments
to its Registration Statement as may be necessary and any supplemental
data in order to comply with the 1933 Act. The Fund will furnish you at
your expense with a reasonable number of copies of the Prospectus and SAI
and any amendments thereto for use in connection with the sale of Shares.
7. 1940 Act Registration. The Fund has already registered under
the 1940 Act as an investment company, and it will use its best efforts
to maintain such registration and to comply with the requirements of the
1940 Act.
8. State Blue Sky Qualification. At your request, the Fund will
take such steps as may be necessary and feasible to qualify Shares for
sale in states, territories or dependencies of the United States, the
District of Columbia, the Commonwealth of Puerto Rico and in foreign
countries, in accordance with the laws thereof, and to renew or extend any
such qualification; provided, however, that the Fund shall not be required
to qualify shares or to maintain the qualification of shares in any
jurisdiction where it shall deem such qualification disadvantageous to the
Fund.
9. Duties of Distributor. You agree that:
(a) Neither you nor any of your officers will take any long or
short position in the Shares, but this provision shall not
prevent you or your officers from acquiring Shares for
investment purposes only; and
(b) You shall furnish to the Fund any pertinent information
required to be inserted with respect to you as General
Distributor within the purview of the Securities Act of
1933 in any reports or registration required to be filed
with any governmental authority; and
(c) You will not make any representations inconsistent with
the information contained in the current Prospectus and/or
SAI; and
(d) You shall maintain such records as may be reasonably
required for the Fund or its transfer or shareholder
servicing agent to respond to shareholder requests or
complaints, and to permit the Fund to maintain proper
accounting records, and you shall make such records
available to the Fund and its transfer agent or
shareholder servicing agent upon request; and
(e) In performing under this Agreement, you shall comply with
all requirements of the Fund's current Prospectus and/or
SAI and all applicable laws, rules and regulations with
respect to the purchase, sale and distribution of Shares.
10. Allocation of Costs. The Fund shall pay the cost of composition
and printing of sufficient copies of its Prospectus and SAI as shall be
required for periodic distribution to its shareholders and the expense of
registering Shares for sale under federal securities laws. You shall pay
the expenses normally attributable to the sale of Shares, other than as
paid under the Fund's Distribution Plan under Rule 12b-1 of the 1940 Act,
including the cost of printing and mailing of the Prospectus (other than
those furnished to existing shareholders) and any sales literature used
by you in the public sale of the Shares and for registering such shares
under state blue sky laws pursuant to paragraph 8.
11. Duration. This Agreement shall take effect on the date first
written above, and shall supersede any and all prior General Distributor's
Agreements by and among the Fund and you. Unless earlier terminated
pursuant to paragraph 12 hereof, this Agreement shall remain in effect
until September 30, 1994. This Agreement shall continue in effect from
year to year thereafter, provided that such continuance shall be
specifically approved at least annually: (a) by the Fund's Board of
Trustees or by vote of a majority of the voting securities of the Fund;
and (b) by the vote of a majority of the Trustees, who are not parties to
this Agreement or "interested persons" (as defined the 1940 Act) of any
such person, cast in person at a meeting called for the purpose of voting
on such approval.
12. Termination. This Agreement may be terminated (a) by the
General Distributor at any time without penalty by giving sixty days'
written notice (which notice may be waived by the Fund); (b) by the Fund
at any time without penalty upon sixty days' written notice to the General
Distributor (which notice may be waived by the General Distributor); or
(c) by mutual consent of the Fund and the General Distributor, provided
that such termination by the Fund shall be directed or approved by the
Board of Trustees of the Fund or by the vote of the holders of a
"majority" of the outstanding voting securities of the Fund. In the event
this Agreement is terminated by the Fund, the General Distributor shall
be entitled to be paid the CDSC under paragraph 3 hereof on the redemption
proceeds of Shares sold prior to the effective date of such termination.
13. Assignment. This Agreement may not be amended or changed except
in writing and shall be binding upon and shall enure to the benefit of the
parties hereto and their respective successors; however, this Agreement
shall not be assigned by either party and shall automatically terminate
upon assignment.
14. Disclaimer of Shareholder Liability. The General Distributor
understands and agrees that the obligations of the Fund under this
Agreement are not binding upon any Trustee or shareholder of the Fund
personally, but bind only the Series and the Series' property; the General
Distributor represents that it has notice of the provisions of the
Declaration of Trust of the Fund disclaiming Trustee and shareholder
liability for acts or obligations of the Fund.
15. Section Headings. The heading of each section is for
descriptive purposes only, and such headings are not to be construed or
interpreted as part of this Agreement.
If the foregoing is in accordance with your understanding, so
indicate by signing in the space provided below.
OPPENHEIMER STRATEGIC FUNDS TRUST
on behalf of OPPENHEIMER STRATEGIC
DIVERSIFIED INCOME FUND
By /s/ Robert G. Zack
------------------------------------
Robert G. Zack, Assistant Secretary
Accepted:
OPPENHEIMER FUNDS DISTRIBUTOR, INC.
By /s/ Katherine P. Feld
- ------------------------------
Katherine P. Feld
Vice President and Secretary
January 31, 1994
Oppenheimer Strategic Funds Trust
3410 South Galena Street
Denver, Colorado 80231
Gentlemen:
In connection with the proposed public offering of shares of Oppenheimer
Strategic Diversified Income Fund (formerly named Oppenheimer Strategic
Income Fund C), herein referred to as the "Fund," which is a series of
Oppenheimer Strategic Funds Trust, (formerly named Oppenheimer Strategic
Income Fund), herein referred to as the "Trust," we have examined such
records and documents as we deem necessary for the purpose of this
opinion.
The Fund is a duly organized and validly existing Series of Oppenheimer
Strategic Funds Trust, a voluntary association, commonly known as a
Massachusetts business trust, organized under the laws of the Commonwealth
of Massachusetts. As of the date of this letter, it is our opinion that
the indefinite number of shares of the Fund covered by post-effective
amendment number 8 under the Securities Act of 1933, as amended, to the
registration statement of the Trust on Form N-1A, when issued and paid for
in accordance with the terms of the offering, as set forth in the
Prospectus and Statement of Additional Information forming a part of said
Registration Statement, will be, when such Registration Statement shall
have become effective, legally issued, and, subject to the matters set
forth in the next paragraph, fully paid and nonassessable by the Trust.
Under Massachusetts law, shareholders of the Trust may, under certain
circumstances, be held personally liable as partners for the obligations
of the Trust. The Declaration of Trust does, however, contain an express
disclaimer of shareholder liability for acts or obligations of the Trust
and requires that notice of such disclaimer be given in each agreement,
obligation, or instrument entered into or executed by the Trust or the
Trustees. The Declaration of Trust provides for indemnification out of
the Trust property of any shareholder held personally liable for the
obligations of the Trust. The Declaration of Trust also provides that the
Trust shall, upon request, assume the defense of any claim made against
any shareholder for any act or obligation of the Trust and satisfy any
judgment thereon.
We hereby consent to the filing of this opinion as an Exhibit to such
Registration Statement and to the reference to Counsel in such Prospectus
and/or Statement of Additional Information. We also consent to the filing
of this opinion with the authorities administering the securities laws of
any jurisdiction in connection with the registration or qualification
under such laws of the Trust and the Fund and its shares.
Very truly yours,
MYER, SWANSON & ADAMS, P.C.
By /s/ Allan B. Adams
----------------------
Allan B. Adams
SERVICE PLAN AND AGREEMENT
BETWEEN
OPPENHEIMER FUNDS DISTRIBUTOR, INC.
AND
OPPENHEIMER STRATEGIC INCOME FUND
FOR CLASS A SHARES
SERVICE PLAN AND AGREEMENT (the "Plan") dated the 22nd day of June, 1993,
by and between OPPENHEIMER STRATEGIC INCOME FUND (the "Fund") and
OPPENHEIMER FUNDS DISTRIBUTOR, INC. (the "Distributor").
1. The Plan. This Plan is the Fund's written service plan for its
Class A Shares described in the Fund's registration statement as of the
date this Plan takes effect, contemplated by and to comply with Article
III, Section 26 of the Rules of Fair Practice of the National Association
of Securities Dealers, pursuant to which the Fund will reimburse the
Distributor for a portion of its costs incurred in connection with the
personal service and the maintenance of shareholder accounts ("Accounts")
that hold Class A Shares (the "Shares") of such series and class of the
Fund. The Fund may be deemed to be acting as distributor of securities
of which it is the issuer, pursuant to Rule 12b-1 under the Investment
Company Act of 1940 (the "1940 Act"), according to the terms of this Plan.
The Distributor is authorized under the Plan to pay "Recipients," as
hereinafter defined, for rendering services and for the maintenance of
Accounts. Such Recipients are intended to have certain rights as third-
party beneficiaries under this Plan.
2. Definitions. As used in this Plan, the following terms shall have
the following meanings:
(a) "Recipient" shall mean any broker, dealer, bank or other
institution which: (i) has rendered services in connection with the
personal service and maintenance of Accounts; (ii) shall furnish the
Distributor (on behalf of the Fund) with such information as the
Distributor shall reasonably request to answer such questions as may
arise concerning such service; and (iii) has been selected by the
Distributor to receive payments under the Plan. Notwithstanding the
foregoing, a majority of the Fund's Board of Trustees (the "Board") who
are not "interested persons" (as defined in the 1940 Act) and who have
no direct or indirect financial interest in the operation of this Plan
or in any agreements relating to this Plan (the "Independent Trustees")
may remove any broker, dealer, bank or other institution as a
Recipient, whereupon such entity's rights as a third-party beneficiary
hereof shall terminate.
(b) "Qualified Holdings" shall mean, as to any Recipient, all Shares
owned beneficially or of record by: (i) such Recipient, or (ii) such
customers, clients and/or accounts as to which such Recipient is a
fiduciary or custodian or co-fiduciary or co-custodian (collectively,
the "Customers"), but in no event shall any such Shares be deemed owned
by more than one Recipient for purposes of this Plan. In the event
that two entities would otherwise qualify as Recipients as to the same
Shares, the Recipient which is the dealer of record on the Fund's
books shall be deemed the Recipient as to such Shares for purposes of
this Plan.
3. Payments.
(a) Under the Plan, the Fund will make payments to the Distributor,
within forty-five (45) days of the end of each calendar quarter, in the
amount of the lesser of: (i) .0625% (.25% on an annual basis) of the
average during the calendar quarter of the aggregate net asset value
of the Shares computed as of the close of each business day, or (ii)
the Distributor's actual expenses under the Plan for that quarter of
the type approved by the Board. The Distributor will use such fee
received from the Fund in its entirety to reimburse itself for payments
to Recipients incurred in connection with the personal service and
maintenance of Accounts including, but not limited to, the services
described in the following paragraph. The Distributor may make Plan
payments to any "affiliated person" (as defined in the 1940 Act) of the
Distributor if such affiliated person qualifies as a Recipient. No
portion of Plan payments will be retained by the Distributor.
The services to be rendered by Recipients in connection with the
personal service and the maintenance of Accounts may include, but shall
not be limited to, the following: answering routine inquiries from the
Recipient's customers concerning the Fund, providing such customers
with information on their investment in shares, assisting in the
establishment and maintenance of accounts or sub-accounts in the Fund,
making the Fund's investment plans and dividend payment options
available, and providing such other information and customer liaison
services and the maintenance of Accounts as the Distributor or the Fund
may reasonably request. It may be presumed that a Recipient has
provided services qualifying for compensation under the Plan if it has
Qualified Holdings of Shares to entitle it to payments under the Plan.
In the event that either the Distributor or the Board should have
reason to believe that, notwithstanding the level of Qualified
Holdings, a Recipient may not be rendering appropriate services, then
the Distributor, at the request of the Board, shall require the
Recipient to provide a written report or other information to verify
that said Recipient is providing appropriate services in this regard.
If the Distributor still is not satisfied, it may take appropriate
steps to terminate the Recipient's status as such under the Plan,
whereupon such entity's rights as a third-party beneficiary hereunder
shall terminate.
Payments received by the Distributor from the Fund under the Plan
will not be used to pay any interest expense, carrying charges or other
financial costs, or allocation of overhead by the Distributor, or for
any other purpose other than for the payments described in this Section
3. The amount payable to the Distributor each quarter will be reduced
to the extent that reimbursement payments otherwise permissible under
the Plan have not been authorized by the Board of Trustees for that
quarter. Any unreimbursed expenses incurred for any quarter by the
Distributor may not be recovered in later periods.
(b) The Distributor shall make payments to any Recipient quarterly,
within forty-five (45) days of the end of each calendar quarter, at a
rate not to exceed .0625% (.25% on an annual basis) of the average
during the calendar quarter of the aggregate net asset value of the
Shares computed as of the close of each business day, of Qualified
Holdings owned beneficially or of record by the Recipient or by its
Customers. However, no such payments shall be made to any Recipient
for any such quarter in which its Qualified Holdings do not equal or
exceed, at the end of such quarter, the minimum amount ("Minimum
Qualified Holdings"), if any, to be set from time to time by a majority
of the Independent Trustees. A majority of the Independent Trustees
may at any time or from time to time increase or decrease and
thereafter adjust the rate of fees to be paid to the Distributor or to
any Recipient, but not to exceed the rate set forth above, and/or
increase or decrease the number of shares constituting Minimum
Qualified Holdings. The Distributor shall notify all Recipients of the
Minimum Qualified Holdings and the rate of payments hereunder
applicable to Recipients, and shall provide each Recipient with written
notice within thirty (30) days after any change in these provisions.
Inclusion of such provisions or a change in such provisions in a
revised current prospectus shall constitute sufficient notice.
(c) Under the Plan, payments may be made to Recipients: (i) by
Oppenheimer Management Corporation ("OMC") from its own resources
(which may include profits derived from the advisory fee it receives
from the Fund), or (ii) by the Distributor (a subsidiary of OMC), from
its own resources.
4. Selection and Nomination of Trustees. While this Plan is in
effect, the selection or replacement of Independent Trustees and the
nomination of those persons to be Trustees of the Fund who are not
"interested persons" of the Fund shall be committed to the discretion of
the Independent Trustees. Nothing herein shall prevent the Independent
Trustees from soliciting the views or the involvement of others in such
selection or nomination if the final decision on any such selection and
nomination is approved by a majority of the incumbent Independent
Trustees.
5. Reports. While this Plan is in effect, the Treasurer of the Fund
shall provide at least quarterly a written report to the Fund's Board for
its review, detailing the amount of all payments made pursuant to this
Plan, the identity of the Recipient of each such payment, and the purposes
for which the payments were made. The report shall state whether all
provisions of Section 3 of this Plan have been complied with. The
Distributor shall annually certify to the Board the amount of its total
expenses incurred that year with respect to the personal service and
maintenance of Accounts in conjunction with the Board's annual review of
the continuation of the Plan.
6. Related Agreements. Any agreement related to this Plan shall be
in writing and shall provide that: (i) such agreement may be terminated
at any time, without payment of any penalty, by vote of a majority of the
Independent Trustees or by a vote of the holders of a "majority" (as
defined in the 1940 Act) of the Fund's outstanding voting securities of
the Class, on not more than sixty days written notice to any other party
to the agreement; (ii) such agreement shall automatically terminate in the
event of its "assignment" (as defined in the 1940 Act); (iii) it shall
go into effect when approved by a vote of the Board and its Independent
Trustees cast in person at a meeting called for the purpose of voting on
such agreement; and (iv) it shall, unless terminated as herein provided,
continue in effect from year to year only so long as such continuance is
specifically approved at least annually by the Board and its Independent
Trustees cast in person at a meeting called for the purpose of voting on
such continuance.
7. Effectiveness, Continuation, Termination and Amendment. This Plan
has been approved by a vote of the Board and its Independent Trustees cast
in person at a meeting called on June 22, 1993 for the purpose of voting
of this Plan, and takes effect as of July 1, 1993. Unless terminated as
hereinafter provided, it shall continue in effect until October 31, 1993
and from year to year thereafter or as the Board may otherwise determine
only so long as such continuance is specifically approved at least
annually by the Board and its Independent Trustees cast in person at a
meeting called for the purpose of voting on such continuance. This Plan
may be terminated at any time by vote of a majority of the Independent
Trustees or by the vote of the holders of a "majority" (as defined in the
1940 Act) of the Fund's outstanding voting securities of the Class. This
Plan may not be amended to increase materially the amount of payments to
be made without approval of the Class A Shareholders, in the manner
described above, and all material amendments must be approved by a vote
of the Board and of the Independent Trustees.
8. Disclaimer of Shareholder and Trustee Liability. The Distributor
understands that the obligations of the Fund under this Plan are not
binding upon any Trustee or shareholder of the Fund personally, but bind
only the Fund and the Fund's property. The Distributor represents that
it has notice of the provisions of the Declaration of Trust of the Fund
disclaiming shareholder and Trustee liability for acts or obligations of
the Fund.
OPPENHEIMER STRATEGIC INCOME FUND
By: /s/ Robert G. Zack
---------------------------------------
Robert G. Zack, Assistant Secretary
OPPENHEIMER FUNDS DISTRIBUTOR, INC.
By: /s/ Katherine P. Feld
---------------------------------------
Katherine P. Feld
Vice President & Secretary
DISTRIBUTION AND SERVICE PLAN AND AGREEMENT
WITH
OPPENHEIMER FUNDS DISTRIBUTOR, INC.
FOR CLASS B SHARES OF
OPPENHEIMER STRATEGIC INCOME FUND
DISTRIBUTION AND SERVICE PLAN AND AGREEMENT (the "Plan") dated the 22nd
day of June, 1993 by and between OPPENHEIMER STRATEGIC INCOME FUND (the
"Fund") and OPPENHEIMER FUNDS DISTRIBUTOR, INC. (the "Distributor").
1. The Plan. This Plan is the Fund's written distribution and service
plan for Class B shares of the Fund (the "Shares"), contemplated by Rule
12b-1 (the "Rule") under the Investment Company Act of 1940 (the "1940
Act"), pursuant to which the Fund will compensate the Distributor for a
portion of its costs incurred in connection with the distribution of
Shares, and the personal service and maintenance of shareholder accounts
that hold Shares ("Accounts"). The Fund may act as distributor of
securities of which it is the issuer, pursuant to the Rule, according to
the terms of this Plan. The Distributor is authorized under the Plan to
pay "Recipients," as hereinafter defined, for rendering (1) distribution
assistance in connection with the sale of Shares and/or (2) administrative
support services with respect to Accounts. Such Recipients are intended
to have certain rights as third-party beneficiaries under this Plan. The
terms and provisions of this Plan shall be interpreted and defined in a
manner consistent with the provisions and definitions contained in (i) the
1940 Act, (ii) the Rule, (iii) Article III, Section 26, of the Rules of
Fair Practice of the National Association of Securities Dealers, Inc., or
its successor (the "NASD Rules of Fair Practice") and (iv) any conditions
pertaining either to distribution related expenses or to a plan of
distribution, to which the Fund is subject under any order on which the
Fund relies, issued at any time by the Securities and Exchange Commission.
2. Definitions. As used in this Plan, the following terms shall have
the following meanings:
(a) "Recipient" shall mean any broker, dealer, bank or other
institution which: (i) has rendered assistance (whether direct,
administrative or both) in the distribution of Shares or has provided
administrative support services with respect to Shares held by
Customers (defined below) of the Recipient; (ii) shall furnish the
Distributor (on behalf of the Fund) with such information as the
Distributor shall reasonably request to answer such questions as may
arise concerning the sale of Shares; and (iii) has been selected by
the Distributor to receive payments under the Plan. Notwithstanding
the foregoing, a majority of the Fund's Board of Trustees (the
"Board") who are not "interested persons" (as defined in the 1940
Act) and who have no direct or indirect financial interest in the
operation of this Plan or in any agreements relating to this Plan
(the "Independent Trustees") may remove any broker, dealer, bank or
other institution as a Recipient, whereupon such entity's rights as
a third-party beneficiary hereof shall terminate.
(b) "Qualified Holdings" shall mean, as to any Recipient, all Shares
owned beneficially or of record by: (i) such Recipient, or (ii) such
customers, clients and/or accounts as to which such Recipient is a
fiduciary or custodian or co-fiduciary or co-custodian (collectively,
the "Customers"), but in no event shall any such Shares be deemed
owned by more than one Recipient for purposes of this Plan. In the
event that two entities would otherwise qualify as Recipients as to
the same Shares, the Recipient which is the dealer of record on the
Fund's books shall be deemed the Recipient as to such Shares for
purposes of this Plan.
3. Payments for Distribution Assistance and Administrative Support
Services.
(a) The Fund will make payments to the Distributor, (i) within
forty-five (45) days of the end of each calendar quarter, in the
aggregate amount of 0.0625% (0.25% on an annual basis) of the average
during the calendar quarter of the aggregate net asset value of the
Shares computed as of the close of each business day (the "Service
Fee"), plus (ii) within ten (10) days of the end of each month, in
the aggregate amount of 0.0625% (0.75% on an annual basis) of the
average during the month of the aggregate net asset value of Shares
computed as of the close of each business day (the "Asset Based Sales
Charge") outstanding for six years or less (the "Maximum Holding
Period"). Such Service Fee payments received from the Fund will
compensate the Distributor and Recipients for providing
administrative support services of the type approved by the Board
with respect to Accounts. Such Asset Based Sales Charge payments
received from the Fund will compensate the Distributor and Recipients
for providing distribution assistance in connection with the sales
of Shares.
The administrative support services in connection with the
Accounts to be rendered by Recipients may include, but shall not be
limited to, the following: answering routine inquiries concerning
the Fund, assisting in the establishment and maintenance of accounts
or sub-accounts in the Fund and processing Share redemption
transactions, making the Fund's investment plans and dividend payment
options available, and providing such other information and services
in connection with the rendering of personal services and/or the
maintenance of Accounts, as the Distributor or the Fund may
reasonably request.
The distribution assistance in connection with the sale of
Shares to be rendered by the Distributor and Recipients may include,
but shall not be limited to, the following: distributing sales
literature and prospectuses other than those furnished to current
holders of the Fund's Shares ("Shareholders"), and providing such
other information and services in connection with the distribution
of Shares as the Distributor or the Fund may reasonably request.
It may be presumed that a Recipient has provided distribution
assistance or administrative support services qualifying for payment
under the Plan if it has Qualified Holdings of Shares to entitle it
to payments under the Plan. In the event that either the Distributor
or the Board should have reason to believe that, notwithstanding the
level of Qualified Holdings, a Recipient may not be rendering
appropriate distribution assistance in connection with the sale of
Shares or administrative support services for Accounts, then the
Distributor, at the request of the Board, shall require the Recipient
to provide a written report or other information to verify that said
Recipient is providing appropriate distribution assistance and/or
services in this regard. If the Distributor still is not satisfied,
it may take appropriate steps to terminate the Recipient's status as
such under the Plan, whereupon such entity's rights as a third-party
beneficiary hereunder shall terminate.
(b) The Distributor shall make service fee payments to any Recipient
quarterly, within forty-five (45) days of the end of each calendar
quarter, at a rate not to exceed 0.0625% (0.25% on an annual basis)
of the average during the calendar quarter of the aggregate net asset
value of Shares computed as of the close of each business day,
constituting Qualified Holdings owned beneficially or of record by
the Recipient or by its Customers for a period of more than the
minimum period (the "Minimum Holding Period"), if any, to be set from
time to time by a majority of the Independent Trustees.
Alternatively, the Distributor may, at its sole option, make service
fee payments ("Advance Service Fee Payments") to any Recipient
quarterly, within forty-five (45) days of the end of each calendar
quarter, at a rate not to exceed (i) 0.25% of the average during the
calendar quarter of the aggregate net asset value of Shares, computed
as of the close of business on the day such Shares are sold,
constituting Qualified Holdings sold by the Recipient during that
quarter and owned beneficially or of record by the Recipient or by
its Customers, plus (ii) 0.0625% (0.25% on an annual basis) of the
average during the calendar quarter of the aggregate net asset value
of Shares computed as of the close of each business day, constituting
Qualified Holdings owned beneficially or of record by the Recipient
or by its Customers for a period of more than one (1) year, subject
to reduction or chargeback so that the Advance Service Fee Payments
do not exceed the limits on payments to Recipients that are, or may
be, imposed by Article III, Section 26, of the NASD Rules of Fair
Practice. In the event Shares are redeemed less than one year after
the date such Shares were sold, the Recipient is obligated and will
repay to the Distributor on demand a pro rata portion of such Advance
Service Fee Payments, based on the ratio of the time such shares were
held to one (1) year. The Advance Service Fee Payments described in
part (i) of the preceding sentence may, at the Distributor's sole
option, be made more often than quarterly, and sooner than the end
of the calendar quarter. However, no such payments shall be made to
any Recipient for any such quarter in which its Qualified Holdings
do not equal or exceed, at the end of such quarter, the minimum
amount ("Minimum Qualified Holdings"), if any, to be set from time
to time by a majority of the Independent Trustees. A majority of the
Independent Trustees may at any time or from time to time decrease
and thereafter adjust the rate of fees to be paid to the Distributor
or to any Recipient, but not to exceed the rate set forth above,
and/or direct the Distributor to increase or decrease the Maximum
Holding Period, the Minimum Holding Period or the Minimum Qualified
Holdings. The Distributor shall notify all Recipients of the Minimum
Qualified Holdings, Maximum Holding Period or Minimum Holding Period,
if any, and the rate of payments hereunder applicable to Recipients,
and shall provide each Recipient with written notice within thirty
(30) days after any change in these provisions. Inclusion of such
provisions or a change in such provisions in a revised current
prospectus shall constitute sufficient notice. The Distributor may
make Plan payments to any "affiliated person" (as defined in the 1940
Act) of the Distributor if such affiliated person qualifies as a
Recipient.
(c) The Distributor is entitled to retain from the payments
described in Section 3(a) the aggregate amount of (i) the Service Fee
on Shares outstanding for less than the Minimum Holding Period plus
(ii) the Asset-Based Sales Charge on Shares outstanding for not more
than the Maximum Holding Period, in each case computed as of the
close of each business day during that period and subject to
reduction or elimination of such amounts under the limits to which
the Distributor is, or may become, subject under Article III, Section
26, of the NASD Rules of Fair Practice. Such amount is collectively
referred to as the "Quarterly Limitation." The distribution
assistance and administrative support services in connection with the
sale of Shares to be rendered by the Distributor may include, but
shall not be limited to, the following: (i) paying sales commissions
to any broker, dealer, bank or other institution that sell Shares,
and/or paying such persons Advance Service Fee Payments in advance
of, and/or greater than, the amount provided for in Section 3(a) of
this Agreement; (ii) paying compensation to and expenses of personnel
of the Distributor who support distribution of Shares by Recipients;
(iii) paying of or reimbursing the Distributor for interest and
other borrowing costs on unreimbursed Carry Forward Expenses (as
hereafter defined) at the rate paid by the Distributor or, if such
amounts are financed by the Distributor from its own resources or by
an affiliate, at the rate of 1% per annum above the prime rate (which
shall mean the most preferential interest rate on corporate loans at
large U.S. money center commercial banks) then being reported in the
Eastern edition of the Wall Street Journal (or if such prime rate is
no longer so reported, such other rate as may be designated from time
to time by the Distributor with the approval of the Independent
Trustees); (iv) other direct distribution costs of the type approved
by the Board, including without limitation the costs of sales
literature, advertising and prospectuses (other than those furnished
to current Shareholders) and state "blue sky" registration expenses;
and (v) any service rendered by the Distributor that a Recipient may
render pursuant to part (a) of this Section 3. The Distributor's
costs of providing the above-mentioned services are hereinafter
collectively referred to as "Distribution and Service Costs." "Carry
Forward Expenses" are Distribution and Service Costs that are not
paid in the fiscal quarter in which they arise because they exceed
the Quarterly Limitation. In the event that the Board should have
reason to believe that the Distributor may not be rendering
appropriate distribution assistance or administrative support
services in connection with the sale of Shares, then the Distributor,
at the request of the Board, shall provide the Board with a written
report or other information to verify that the Distributor is
providing appropriate services in this regard.
(d) The excess in any fiscal quarter of (i) the Quarterly Limitation
plus any contingent deferred sales charge ("CDSC") payments recovered
by the Distributor on the proceeds of redemption of Shares over (ii)
Distribution and Service Costs during that quarter, shall be applied
in the following order of priority: first to interest on unreimbursed
Carry Forward Expenses, second to reduce any unreimbursed Carry
Forward Expenses, third to reduce Distribution and Service Costs
during that quarter, and fourth, to reduce the Asset Based Sales
Charge payments by the Fund to the Distributor in that quarter.
Carry Forward Expenses shall be carried forward by the Fund until
payment can be made under the Quarterly Limitation.
(e) Under the Plan, payments may be made to Recipients: (i) by
Oppenheimer Management Corporation ("OMC") from its own resources
(which may include profits derived from the advisory fee it receives
from the Fund), or (ii) by the Distributor (a subsidiary of OMC),
from its own resources, from Asset Based Sales Charge payments or
from its borrowings.
4. Selection and Nomination of Trustees. While this Plan is in effect,
the selection and nomination of those persons to be Trustees of the Fund
who are not "interested persons" of the Fund ("Disinterested Trustees")
shall be committed to the discretion of such Disinterested Trustees.
Nothing herein shall prevent the Disinterested Trustees from soliciting
the views or the involvement of others in such selection or nomination if
the final decision on any such selection and nomination is approved by a
majority of the incumbent Disinterested Trustees.
5. Reports. While this Plan is in effect, the Treasurer of the Fund
shall provide at least quarterly a written report to the Fund's Board for
its review, detailing distribution expenditures properly attributable to
the Shares, including the amount of all payments made pursuant to this
Plan, the identity of the Recipient of each such payment, the amount paid
to the Distributor and the Distribution and Service Costs and Carry
Forward Expenses for that period. The report shall state whether all
provisions of Section 3 of this Plan have been complied with. The
Distributor shall annually certify to the Board the amount of its total
expenses incurred that year and its total expenses incurred in prior years
and not previously recovered with respect to the distribution of Shares
in conjunction with the Board's annual review of the continuation of the
Plan.
6. Related Agreements. Any agreement related to this Plan shall be in
writing and shall provide that: (i) such agreement may be terminated at
any time, without payment of any penalty, by a vote of a majority of the
Independent Trustees or by a vote of the holders of a "majority" (as
defined in the 1940 Act) of the Fund's outstanding voting securities of
the Class, on not more than sixty days written notice to any other party
to the agreement; (ii) such agreement shall automatically terminate in the
event of its assignment (as defined in the 1940 Act); (iii) it shall go
into effect when approved by a vote of the Board and its Independent
Trustees cast in person at a meeting called for the purpose of voting on
such agreement; and (iv) it shall, unless terminated as herein provided,
continue in effect from year to year only so long as such continuance is
specifically approved at least annually by a vote of the Board and its
Independent Trustees cast in person at a meeting called for the purpose
of voting on such continuance.
7. Effectiveness, Continuation, Termination and Amendment. This Plan
has been approved by a vote of the Board and its Independent Trustees cast
in person at a meeting called on June 22, 1993 for the purpose of voting
on this Plan, and takes effect as of July 1, 1993. Unless terminated as
hereinafter provided, it shall continue in effect until October 31, 1993
and from year to year thereafter or as the Board may otherwise determine
only so long as such continuance is specifically approved at least
annually by a vote of the Board and its Independent Trustees cast in
person at a meeting called for the purpose of voting on such continuance.
This Plan may not be amended to increase materially the amount of payments
to be made without approval of the Class B Shareholders, in the manner
described above, and all material amendments must be approved by a vote
of the Board and of the Independent Trustees. This Plan may be terminated
at any time by vote of a majority of the Independent Trustees or by the
vote of the holders of a "majority" (as defined in the 1940 Act) of the
Fund's outstanding voting securities of the Class. Notwithstanding any
such termination, the Distributor shall be entitled to payment from the
Fund of all Carry Forward Expenses properly incurred in respect of Shares
sold prior to the effective date of such termination, and the Fund shall
continue to make payment to the Distributor in the amount the Distributor
is entitled to retain under part (c) of Section 3 hereof, until such time
as the Distributor has been reimbursed for all such amounts by the Fund
and by retaining CDSC payments.
8. Disclaimer of Shareholder Liability. The Distributor understands
that the obligations of the Fund under this Plan are not binding upon any
Trustee or shareholder of the Fund personally, but bind only the Fund and
the Fund's property. The Distributor represents that it has notice of the
provisions of the Declaration of Trust of the Fund disclaiming shareholder
and Trustee liability for acts or obligations of the Fund.
OPPENHEIMER STRATEGIC INCOME FUND
By: /s/ Robert G. Zack
--------------------------------------
Robert G. Zack, Assistant Secretary
OPPENHEIMER FUNDS DISTRIBUTOR, INC.
By: /s/ Katherine P. Feld
--------------------------------------
Katherine P. Feld
Vice President & Secretary
DISTRIBUTION AND SERVICE PLAN AND AGREEMENT
WITH
OPPENHEIMER FUNDS DISTRIBUTOR, INC.
FOR CLASS C SHARES OF
OPPENHEIMER STRATEGIC DIVERSIFIED INCOME FUND
DISTRIBUTION AND SERVICE PLAN AND AGREEMENT (the "Plan") dated the 1st day
of February, 1994, by and between OPPENHEIMER STRATEGIC FUNDS TRUST (the
"Trust") on behalf of OPPENHEIMER STRATEGIC DIVERSIFIED INCOME FUND (the
"Fund") and OPPENHEIMER FUNDS DISTRIBUTOR, INC. (the "Distributor").
1. The Plan. This Plan is the Fund's written distribution plan for
Class C shares of the Fund (the "Shares"), contemplated by Rule 12b-1 (the
"Rule") under the Investment Company Act of 1940 (the "1940 Act"),
pursuant to which the Fund will compensate the Distributor for a portion
of its costs incurred in connection with the distribution of Shares, and
the personal service and maintenance of shareholder accounts that hold
Shares ("Accounts"). The Trust may act as distributor of securities of
which it is the issuer, pursuant to the Rule, according to the terms of
this Plan. The Distributor is authorized under the Plan to pay
"Recipients," as hereinafter defined, for rendering (1) distribution
assistance in connection with the sale of Shares and/or (2) administrative
support services with respect to Accounts. Such Recipients are intended
to have certain rights as third-party beneficiaries under this Plan. The
terms and provisions of this Plan shall be interpreted and defined in a
manner consistent with the provisions and definitions contained in (i) the
1940 Act, (ii) the Rule, (iii) Article III, Section 26, of the Rules of
Fair Practice of the National Association of Securities Dealers, Inc., or
its successor (the "NASD Rules of Fair Practice") and (iv) any conditions
pertaining either to distribution related expenses or to a plan of
distribution, to which the Fund is subject under any order on which the
Fund relies, issued at any time by the Securities and Exchange Commission.
2. Definitions. As used in this Plan, the following terms shall have
the following meanings:
(a) "Recipient" shall mean any broker, dealer, bank or other institution
which: (i) has rendered assistance (whether direct, administrative or
both) in the distribution of Shares or has provided administrative
support services with respect to Shares held by Customers (defined
below) of the Recipient; (ii) shall furnish the Distributor (on behalf
of the Fund) with such information as the Distributor shall reasonably
request to answer such questions as may arise concerning the sale of
Shares; and (iii) has been selected by the Distributor to receive
payments under the Plan. Notwithstanding the foregoing, a majority of
the Trust's Board of Trustees (the "Board") who are not "interested
persons" (as defined in the 1940 Act) and who have no direct or
indirect financial interest in the operation of this Plan or in any
agreements relating to this Plan (the "Independent Trustees") may
remove any broker, dealer, bank or other institution as a Recipient,
whereupon such entity's rights as a third-party beneficiary hereof
shall terminate.
(b) "Qualified Holdings" shall mean, as to any Recipient, all Shares
owned beneficially or of record by: (i) such Recipient, or (ii) such
customers, clients and/or accounts as to which such Recipient is a
fiduciary or custodian or co-fiduciary or co-custodian (collectively,
the "Customers"), but in no event shall any such Shares be deemed owned
by more than one Recipient for purposes of this Plan. In the event
that two entities would otherwise qualify as Recipients as to the same
Shares, the Recipient which is the dealer of record on the Fund's books
shall be deemed the Recipient as to such Shares for purposes of this
Plan.
3. Payments for Distribution Assistance and Administrative Support
Services.
(a) The Fund will make payments to the Distributor, within forty-five
(45) days of the end of each calendar quarter, in the aggregate amount
(i) of 0.0625% (0.25% on an annual basis) of the average during the
calendar quarter of the aggregate net asset value of the Shares
computed as of the close of each business day (the "Service Fee"), plus
(ii) 0.1875% (0.75% on an annual basis) of the average during the
calendar quarter of the aggregate net asset value of the Shares
computed as of the close of each business day (the "Asset Based Sales
Charge"). Such Service Fee payments received from the Fund will
compensate the Distributor and Recipients for providing administrative
support services of the type approved by the Board with respect to
Accounts. Such Asset Based Sales Charge payments received from the
Fund will compensate the Distributor and Recipients for providing
distribution assistance in connection with the sale of Shares.
The administrative support services in connection with the Accounts
to be rendered by Recipients may include, but shall not be limited to,
the following: answering routine inquiries concerning the Fund,
assisting in establishing and maintaining accounts or sub-accounts in
the Fund and processing Share redemption transactions, making the
Fund's investment plans and dividend payment options available, and
providing such other information and services in connection with the
rendering of personal services and/or the maintenance of Accounts, as
the Distributor or the Fund may reasonably request. The distribution
assistance in connection with the sale of Shares to be rendered by
Recipients may include, but shall not be limited to, the following:
distributing sales literature and prospectuses other than those
furnished to current holders of the Fund's Shares ("Shareholders"), and
providing such other information and services in connection with the
distribution of Shares as the Distributor or the Fund may reasonably
request. It may be presumed that a Recipient has provided distribution
assistance or administrative support services qualifying for payment
under the Plan if it has Qualified Holdings of Shares to entitle it to
payments under the Plan. In the event that either the Distributor or
the Board should have reason to believe that, notwithstanding the level
of Qualified Holdings, a Recipient may not be rendering appropriate
distribution assistance in connection with the sale of Shares or
administrative support services for the Accounts, then the Distributor,
at the request of the Board, shall require the Recipient to provide a
written report or other information to verify that said Recipient is
providing appropriate distribution assistance and/or services in this
regard. If the Distributor still is not satisfied, it may take
appropriate steps to terminate the Recipient's status as such under the
Plan, whereupon such entity's rights as a third-party beneficiary
hereunder shall terminate.
(b) The Distributor shall make service fee payments to any Recipient
quarterly, within forty-five (45) days of the end of each calendar
quarter, at a rate not to exceed 0.0625% (0.25% on an annual basis) of
the average during the calendar quarter of the aggregate net asset
value of Shares, computed as of the close of each business day
constituting Qualified Holdings owned beneficially or of record by the
Recipient or by its Customers for a period of more than the minimum
period (the "Minimum Holding Period"), if any, to be set from time to
time by a majority of the Independent Trustees. Alternatively, the
Distributor may, at its sole option, make service fee payments
("Advance Service Fee Payments") to any Recipient quarterly, within
forty-five (45) days of the end of each calendar quarter, at a rate not
to exceed (i) 0.25% of the average during the calendar quarter of the
aggregate net asset value of Shares computed as of the close of
business on the day such Shares are sold, constituting Qualified
Holdings sold by the Recipient during that quarter and owned
beneficially or of record by the Recipient or by its Customers, plus
(ii) 0.0625% (0.25% on an annual basis) of the average during the
calendar quarter of the aggregate net asset value of Shares computed
as of the close of each business day, constituting Qualified Holdings
owned beneficially or of record by the Recipient or by its Customers
for a period of more than one (1) year, subject to reduction or
chargeback so that the Advance Service Fee Payments do not exceed the
limits on payments to Recipients that are, or may be, imposed by
Article III, Section 26, of the NASD Rules of Fair Practice. The
Advance Service Fee Payments described in part (i) of the preceding
sentence may, at the Distributor's sole option, be made more often than
quarterly, and sooner than the end of the calendar quarter. In
addition, the Distributor shall make asset-based sales charge payments
to any Recipient quarterly, within forty-five (45) days of the end of
each calendar quarter, at a rate not to exceed 0.1875% (0.75% on an
annual basis) of the average during the calendar quarter of the
aggregate net asset value of Shares computed as of the close of each
business day constituting Qualified Holdings owned beneficially or of
record by the Recipient or its Customers for a period of more than one
(1) year. However, no such service fee or asset-based sales charge
payments (collectively, the "Recipient Payments") shall be made to any
Recipient for any such quarter in which its Qualified Holdings do not
equal or exceed, at the end of such quarter, the minimum amount
("Minimum Qualified Holdings"), if any, to be set from time to time by
a majority of the Independent Trustees. A majority of the Independent
Trustees may at any time or from time to time decrease and thereafter
adjust the rate of fees to be paid to the Distributor or to any
Recipient, but not to exceed the rates set forth above, and/or direct
the Distributor to increase or decrease the Minimum Holding Period or
the Minimum Qualified Holdings. The Distributor shall notify all
Recipients of the Minimum Qualified Holdings or Minimum Holding Period,
if any, and the rates of Recipient Payments hereunder applicable to
Recipients, and shall provide each Recipient with written notice within
thirty (30) days after any change in these provisions. Inclusion of
such provisions or a change in such provisions in a revised current
prospectus shall constitute sufficient notice. The Distributor may
make Plan payments to any "affiliated person" (as defined in the 1940
Act) of the Distributor if such affiliated person qualifies as a
Recipient.
(c) The Distributor is entitled to retain from the payments described
in Section 3(a) the aggregate amount of (i) the Service Fee on Shares
outstanding for less than the Minimum Holding Period, (ii) the Asset-
Based Sales Charge on Shares outstanding for not more than one (1)
year, plus (iii) any additional Asset-Based Sales Charge payment which
no Recipient qualifies to receive, in each case computed as of the
close of each business day during that period and subject to reduction
or elimination of such amounts under the limits to which the
Distributor is, or may become, subject under Article III, Section 26,
of the NASD Rules of Fair Practice. Such amount is collectively
referred to as the "Quarterly Limitation." The distribution assistance
and administrative support services in connection with the sale of
Shares to be rendered by the Distributor may include, but shall not be
limited to, the following: (i) paying sales commissions to any broker,
dealer, bank or other institution that sell Shares, and/or paying such
persons Advance Service Fee Payments in advance of, and/or greater
than, the amount provided for in Section 3(a) of this Agreement; (ii)
paying compensation to and expenses of personnel of the Distributor who
support distribution of Shares by Recipients; (iii) paying of or
reimbursing the Distributor for interest and other borrowing costs on
unreimbursed Carry Forward Expenses (as hereafter defined) at the rate
paid by the Distributor or, if such amounts are financed by the
Distributor from its own resources or by an affiliate, at the rate of
1% per annum above the prime rate (which shall mean the most
preferential interest rate on corporate loans at large U.S. money
center commercial banks) then being reported in the Eastern edition of
the Wall Street Journal (or if such prime rate is no longer so
reported, such other rate as may be designated from time to time by the
Distributor with the approval of the Independent Trustees); (iv) other
direct distribution costs of the type approved by the Board, including
without limitation the costs of sales literature, advertising and
prospectuses (other than those furnished to current Shareholders) and
state "blue sky" registration expenses; and (v) any service rendered
by the Distributor that a Recipient may render pursuant to part (a) of
this Section 3. The Distributor's costs of providing the above-
mentioned services are hereinafter collectively referred to as
"Distribution and Service Costs." "Carry Forward Expenses" are
Distribution and Service Costs that are not paid in the fiscal quarter
in which they arise because they exceed the Quarterly Limitation. In
the event that the Board should have reason to believe that the
Distributor may not be rendering appropriate distribution assistance
or administrative support services in connection with the sale of
Shares, then the Distributor, at the request of the Board, shall
provide the Board with a written report or other information to verify
that the Distributor is providing appropriate services in this regard.
(d) The excess in any fiscal quarter of (i) the Quarterly Limitation
plus any contingent deferred sales charge ("CDSC") payments recovered
by the Distributor on the proceeds of redemption of Shares over (ii)
Distribution and Service Costs during that quarter, shall be applied
in the following order of priority: first to interest on unreimbursed
Carry Forward Expenses, second to reduce any unreimbursed Carry Forward
Expenses, third to reduce Distribution and Service Costs during that
quarter, and fourth, to reduce the Asset Based Sales Charge payments
by the Fund to the Distributor in that quarter. Carry Forward Expenses
shall be carried forward by the Fund until payment can be made under
the Quarterly Limitation.
(e) Under the Plan, payments may be made to Recipients: (i) by
Oppenheimer Management Corporation ("OMC") from its own resources
(which may include profits derived from the advisory fee it receives
from the Fund), or (ii) by the Distributor (a subsidiary of OMC), from
its own resources, from Asset Based Sales Charge payments or from its
borrowings.
4. Selection and Nomination of Trustees. While this Plan is in effect,
the selection and nomination of those persons to be Trustees of the Trust
who are not "interested persons" of the Trust ("Disinterested Trustees")
shall be committed to the discretion of such Disinterested Trustees.
Nothing herein shall prevent the Disinterested Trustees from soliciting
the views or the involvement of others in such selection or nomination if
the final decision on any such selection and nomination is approved by a
majority of the incumbent Disinterested Trustees.
5. Reports. While this Plan is in effect, the Treasurer of the Trust
shall provide at least quarterly a written report to the Trust's Board for
its review, detailing distribution expenditures properly attributable to
the Shares, including the amount of all payments made pursuant to this
Plan, the identity of the Recipient of each such payment, the amount paid
to the Distributor and the Distribution and Service Costs and Carry
Forward Expenses for that period. The report shall state whether all
provisions of Section 3 of this Plan have been complied with. The
Distributor shall annually certify to the Board the amount of its total
expenses incurred that year and its total expenses incurred in prior years
and not previously recovered with respect to the distribution of Shares
in conjunction with the Board's annual review of the continuation of the
Plan.
6. Related Agreements. Any agreement related to this Plan shall be in
writing and shall provide that: (i) such agreement may be terminated at
any time, without payment of any penalty, by a vote of a majority of the
Independent Trustees or by a vote of the holders of a "majority" (as
defined in the 1940 Act) of the Fund's outstanding voting securities of
the Class, on not more than sixty days written notice to any other party
to the agreement; (ii) such agreement shall automatically terminate in the
event of its assignment (as defined in the 1940 Act); (iii) it shall go
into effect when approved by a vote of the Board and its Independent
Trustees cast in person at a meeting called for the purpose of voting on
such agreement; and (iv) it shall, unless terminated as herein provided,
continue in effect from year to year only so long as such continuance is
specifically approved at least annually by a vote of the Board and its
Independent Trustees cast in person at a meeting called for the purpose
of voting on such continuance.
7. Effectiveness, Continuation, Termination and Amendment. This Plan
has been approved by a vote of the Board and its Independent Trustees cast
in person at a meeting called on October 26, 1993 for the purpose of
voting on this Plan, and takes effect as of the date first set forth
above. Unless terminated as hereinafter provided, it shall continue in
effect from year to year from the date first set forth above or as the
Board may otherwise determine only so long as such continuance is
specifically approved at least annually by a vote of the Board and its
Independent Trustees cast in person at a meeting called for the purpose
of voting on such continuance. This Plan may not be amended to increase
materially the amount of payments to be made without approval of the
Class C Shareholders, in the manner described above, and all material
amendments must be approved by a vote of the Board and of the Independent
Trustees. This Plan may be terminated at any time by vote of a majority
of the Independent Trustees or by the vote of the holders of a "majority"
(as defined in the 1940 Act) of the Fund's outstanding voting securities
of the Class. In the event of such termination, the Board and its
Independent Trustees shall determine whether the Distributor is entitled
to payment from the Fund of all Carry Forward Expenses and related costs
properly incurred in respect of Shares sold prior to the effective date
of such termination, and whether the Fund shall continue to make payment
to the Distributor in the amount the Distributor is entitled to retain
under part (c) of Section 3 hereof, until such time as the Distributor has
been reimbursed for all such amounts by the Fund and by retaining CDSC
payments.
8. Disclaimer of Shareholder and Trustee Liability. The Distributor
understands that the obligations of the Fund under this Plan are not
binding upon any Trustee or shareholder of the Fund personally, but bind
only the Fund and the Fund's property. The Distributor represents that
it has notice of the provisions of the Declaration of Trust of the Fund
disclaiming shareholder and Trustee liability for acts or obligations of
the Fund.
OPPENHEIMER STRATEGIC FUNDS TRUST on behalf of OPPENHEIMER
STRATEGIC DIVERSIFIED INCOME FUND
By: /s/ Robert G. Zack
--------------------------------------
Robert G. Zack, Assistant Secretary
OPPENHEIMER FUNDS DISTRIBUTOR, INC.
By: /s/ Katherine P. Feld
--------------------------------------
Katherine P. Feld
Vice President and Secretary
Oppenheimer Strategic Income Fund
Exhibit 24(b)(16) to Form N-1A
Performance Data Computation Schedule
The Fund's average annual total returns and total returns are calculated
as described below, on the basis of the Fund's distributions, which are
as follows:
Distribution Amount From Amount From
Reinvestment Investment Long or Short-Term Reinvestment
(Ex)Date Income Capital Gains Price
Class A Shares
11/22/89 0.0560 0.0100 5.010
12/29/89 0.0560 0.0100 5.000
01/24/90 0.0303726 0.0160 4.960
02/28/90 0.0520 0.0100 4.880
03/28/90 0.0496 0.0000 4.860
04/25/90 0.0496 0.0000 4.890
05/23/90 0.0496 0.0000 4.920
06/27/90 0.0620 0.0000 4.990
07/25/90 0.0496 0.0000 5.080
08/22/90 0.0496 0.0000 5.040
09/26/90 0.0620 0.0000 4.910
10/24/90 0.0316 0.0180 4.750
11/21/90 0.0403716 0.0110 4.760
12/31/90 0.0691000 0.0000 4.750
01/23/91 0.0407432 0.0000 4.750
02/27/91 0.0620000 0.0000 4.880
03/27/91 0.0496012 0.0000 4.910
04/24/91 0.0395992 0.0100 4.920
05/22/91 0.0496000 0.0000 4.910
06/26/91 0.0560000 0.0000 4.860
07/24/91 0.0418000 0.0030 4.900
08/28/91 0.0460000 0.0100 4.960
09/25/91 0.0398000 0.0050 5.000
10/23/91 0.0378000 0.0070 5.000
11/27/91 0.0465886 0.0070 5.020
12/31/91 0.0491229 0.0000 5.060
01/22/92 0.0000000 0.0327 5.040
02/26/92 0.0471000 0.0050 4.990
03/25/92 0.0416800 0.0000 4.990
04/22/92 0.0416800 0.0000 4.980
05/27/92 0.0521000 0.0000 5.020
06/24/92 0.0316800 0.0100 5.080
07/22/92 0.0306800 0.0110 5.120
08/26/92 0.0369500 0.0110 5.150
09/23/92 0.0383600 0.0000 5.070
10/28/92 0.0479500 0.0000 4.960
11/25/92 0.0397300 0.0090 4.890
12/31/92 0.0479463 0.0123545 4.890
01/27/93 0.0369900 0.0000 4.960
02/24/93 0.0383600 0.0000 5.020
03/24/93 0.0366800 0.0000 5.080
04/28/93 0.0458500 0.0000 5.100
05/26/93 0.0366800 0.0000 5.100
06/23/93 0.0366800 0.0000 5.170
07/28/93 0.0458500 0.0000 5.180
08/25/93 0.0366800 0.0000 5.230
09/22/93 0.0366800 0.0000 5.210
Class B Shares
12/31/92 0.0381071 0.0123545 4.900
01/27/93 0.0326789 0.0000 4.960
02/24/93 0.0337218 0.0000 5.030
03/24/93 0.0330603 0.0000 5.090
04/28/93 0.0415475 0.0000 5.110
05/26/93 0.0332916 0.0000 5.110
06/23/93 0.0333297 0.0000 5.180
07/28/93 0.0416565 0.0000 5.190
08/25/93 0.0333482 0.0000 5.240
09/22/93 0.0333847 0.0000 5.220
1. AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED 9/30/93:
The formula for calculating average annual total return is as
follows:
1 ERV n
--------------- = n (---) - 1 = average annual total return
number of years P
Where: ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the period
P = hypothetical initial investment of $1,000
Class A Shares
Examples, assuming a maximum sales charge of 4.75%:
One Year Inception
$1,081.88 1 $1,569.76 .2529
(---------) - 1 = 8.19% (---------) - 1 = 12.08%
$1,000 $1,000
Class B Shares
Examples, assuming a maximum contingent deferred sales charge of
5.00% for the first year:
Inception (11/30/92)
$1,098.92 1.2006
(---------) - 1 = 11.99%
$1,000
2. TOTAL RETURNS FOR THE PERIODS ENDED 9/30/93:
The formula for calculating total return is as follows:
ERV - P
------- = Total Return
P
Examples:
Class A Shares
Inception (at Maximum Sales Charge) Inception (at NAV)
$1,569.76 - $1,000 $1,648.05 - $1,000
-------------------- = 56.98% -------------------- = 64.81%
$1,000 $1,000
One Year (at NAV)
$1,135.83 - $1,000
-------------------- = 13.58%
$1,000
Class B Shares
Inception (11/30/92)(at Maximum Contingent Deferred Sales Charge)
$1,098.92 - $1,000
-------------------- = 9.89%
$1,000
Inception (11/30/92)(at NAV)
$1,148.92 - $1,000
-------------------- = 14.89%
$1,000
3. YIELDS FOR THE 30-DAY PERIOD ENDED 9/30/93:
The Fund's yields are calculated using the following formula set
forth in the SEC rules:
a - b 6
Yield = 2((----- + 1) - 1)
cd
The symbols above represent the following factors:
a = Dividends and interest earned during the 30-day period.
b = Expenses accrued for the period (net of any expense
reimbursements).
c = The average daily number of Fund shares outstanding during
the 30-day period that were entitled to receive dividends.
d = The Fund's maximum offering price (including sales charge)
per share on the last day of the period.
Examples:
Class A Shares
$20,073,999.36 - $2,265,181.00 6
2((------------------------------ + 1) - 1) = 7.63%
519,831,036 x $5.47
Class B Shares
$4,623,342.37 - $946,190.00 6
2((--------------------------- + 1) - 1) = 7.17%
119,703,799 x $5.22
4. DIVIDEND YIELDS FOR THE 30-DAY PERIOD ENDED 9/30/93:
The Fund's dividend yields are calculated using the following formula:
a/30 x 365
Dividend Yield = ----------
b or c
The symbols above represent the following factors:
a = The accrual dividend earned during the period.
b = The Fund's maximum offering price (including sales charge)
per share on the last day of the period.
c = The Fund's net asset value (excluding sales charge) per share
on the last day of the period.
Examples:
Class A Shares
Dividend Yield
at Maximum Offering $.0393000/30 x 365
------------------ = 8.74%
$5.47
Dividend Yield
at Net Asset Value $.0393000/30 x 365
------------------ = 9.18%
$5.21
Class B Shares
Dividend Yield
at Net Asset Value $.0357774/30 x 365
------------------ = 8.34%
$5.22
5. VALUES OF INVESTMENTS FOR A 10-YEAR PERIOD AT VARIOUS ASSUMED
AVERAGE
ANNUAL RATES OF RETURN:
Amount of Value at
Investment Assumed Average Annual Return
5% 10% 15% 20%
Single $1,000 $1,629 $2,594 $4,046 $6,192
Annual $1,000 13,208 17,533 23,350 31,151
Values are calculated assuming investment at the beginning of the
period (each year in the case of annual $1,000 investments) and
reinvestment of earnings at the end of each year.
