Registration No. 33-28598
File No. 811-5724
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. 9 / X /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / X /
Amendment No. 11 / 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, 1995 pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/ / On _______________ pursuant to paragraph (a)(2)
/ / 75 days after filing pursuant to paragraph (a)(2)
/ / On ________________ pursuant to paragraph (a)(2) 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, 1994, was filed on November 29, 1994.
<PAGE>
FORM N-1A
OPPENHEIMER STRATEGIC DIVERSIFIED INCOME FUND
Cross Reference Sheet
Part A of
Form N-1A
Item No. Prospectus Heading
- --------- ------------------
1 Front Cover Page
2 Expenses; Overview of the Fund
3 Financial Highlights; Performance of the Fund
4 Front Cover Page; How the Fund is Managed--Organization and
History; Investment Objectives and Policies
5 How the Fund is Managed; Expenses; Back Cover
5A Performance of the Fund
6 How the Fund is Managed-Organization and History; The
Transfer Agent; Dividends, Capital Gains and Taxes;
Investment Objective and Policies-Portfolio Turnover
7 Shareholder Account Rules and Policies; How To Buy Shares;
How to Exchange Shares; Special Investor Services;
Distribution and Service Plan; How to Sell Shares
8 How to Sell Shares; Special Investor Services
9 *
Part B of
Form N-1A
Item No. Heading In Statement of Additional Information
- --------- ----------------------------------------------
10 Cover Page
11 Cover Page
12 *
13 Investment Objectives and Policies; Other Investment
Techniques and Strategies; Additional Investment
Restrictions
14 How the Fund is Managed - Trustees and Officers of the Fund
15 How the Fund is Managed - Major Shareholders
16 How the Fund is Managed; Distribution and Service Plan
17 Brokerage Policies of the Fund
18 Additional Information About the Fund
19 Your Investment Account - How to Buy Shares; How to Sell
Shares; How to Exchange Shares
20 Dividends, Capital Gains and Taxes
21 How the Fund is Managed; Brokerage Policies of the Fund
22 Performance of the Fund
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 Front Cover Page
2 Expenses; Overview of the Fund
3 Financial Highlights; Performance of the Fund
4 Front Cover Page; How the Fund is Managed--Organization and
History; Investment Objectives and Policies
5 How the Fund is Managed; Expenses; Back Cover
5A Performance of the Fund
6 How the Fund is Managed-Organization and History; The
Transfer Agent; Dividends, Capital Gains and Taxes;
Investment Objective and Policies-Portfolio Turnover
7 Shareholder Account Rules and Policies; How To Buy Shares;
How to Exchange Shares; Special Investor Services; Service
Plan for Class A Shares; Distribution and Service Plan for
Class B Shares; How to Sell Shares
8 How to Sell Shares; Special Investor Services
9 *
Part B of
Form N-1A
Item No. Heading In Statement of Additional Information
- --------- ----------------------------------------------
10 Cover Page
11 Cover Page
12 *
13 Investment Objectives and Policies; Other Investment
Techniques and Strategies; Additional Investment
Restrictions
14 How the Fund is Managed - Trustees and Officers of the Fund
15 How the Fund is Managed - Major Shareholders
16 How the Fund is Managed; Distribution and Service Plans
17 Brokerage Policies of the Fund
18 Additional Information About the Fund
19 Your Investment Account - How to Buy Shares; How to Sell
Shares; How to Exchange Shares
20 Dividends, Capital Gains and Taxes
21 How the Fund is Managed; Brokerage Policies of the Fund
22 Performance of the Fund
23 *
- ----------------
* Not applicable or negative answer.
<PAGE>
Oppenheimer Strategic Income Fund
Prospectus dated February 1, 1995
Oppenheimer Strategic Income Fund (the "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." 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 may invest up to 100% of its assets in "junk bonds," or
foreign debt securities rated below investment grade, which are securities
that may be considered to be speculative and involve greater risks,
including risk of default, than higher-rated securities. 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 of Lower-Rated Securities" on page 17.
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 17.
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, 1995, Statement of Additional Information. For a free copy,
call Oppenheimer Shareholder Services, the Fund's Transfer Agent, at 1-
800-525-7048, or write to the Transfer Agent at the address on the back
cover. The Statement of Additional Information has been filed with the
Securities and Exchange Commission 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 the possible loss of the
principal amount invested.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
Contents
Page
ABOUT THE FUND
Expenses
Overview of the Fund
Financial Highlights
Objective and Policies
How the Fund is Managed
Performance of the Fund
ABOUT YOUR ACCOUNT
How to Buy Shares
Class A Shares
Class B Shares
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>
ABOUT THE FUND
Expenses
The Fund pays a variety of expenses directly for management of its
assets, administration, distribution of its shares and other services and
those expenses are subtracted from the Fund's assets to calculate the
Fund's net asset value per share. All shareholders therefore pay those
expenses indirectly. Shareholders pay other expenses directly, such as
sales charges and account transaction charges. The following tables are
provided to help you understand your direct expenses of investing in the
Fund and your share of the Fund's business operating expenses that you
will bear indirectly. The numbers below are based on the Fund's expenses
during its last fiscal year ended September 30, 1994.
- Shareholder Transaction Expenses are charges you pay when you
buy or sell shares of the Fund. Please refer to "About Your Account,"
from pages 17 through 26 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(1) 5% in the first
year, declining
to 1% in the
sixth year and
eliminated
thereafter
Exchange Fee $5.00(2) $5.00(2)
(1) If you invest more than $1 million in Class A shares, you may have to
pay a sales charge of up to 1% if you sell your shares within 18 calendar
months from the end of the calendar month during which you purchased those
shares. See "How to Buy Shares - Class A Shares," below.
(2) Fee is waived for automated exchanges, as described in "How to
Exchange Shares."
- Annual Fund Operating Expenses are paid out of the Fund's
assets and represent the Fund's expenses in operating its business. For
example, the Fund pays management fees to its investment adviser,
Oppenheimer Management Corporation (which is referred to in this
Prospectus as the "Manager"). The rates of the Manager's fees are set
forth in "How the Fund is Managed" below. The Fund has other regular
expenses for services, such as transfer agent fees, custodial fees paid
to the bank that holds its portfolio securities, audit fees and legal
expenses. Those expenses are detailed in the Fund's Financial Statements
in the Statement of Additional Information.
The numbers in the table below are projections of the Fund's
business expenses based on the Fund's expenses in its last fiscal year.
These amounts are shown as a percentage of the average net assets of each
class of the Fund's shares for that year. The 12b-1 Distribution Plan
Fees for Class A Shares are service fees. For Class B shares the 12b-1
Distribution Plan Fees are service fees and asset-based sales charges.
The service fee for each class is a maximum of 0.25% of average annual net
assets of the class and the asset-based sales charge for Class B shares
is 0.75%. These Plans are described in greater detail in "How to Buy
Shares."
The actual expenses for each class of shares in future years may
be more or less than the numbers in the table, depending on a number of
factors, including the actual value of the Fund's assets represented by
each class of shares.
Class A Shares Class B Shares
-------------- --------------
Management Fees 0.54% 0.54%
12b-1 Distribution Plan Fees 0.25% 1.00%
Other Expenses 0.16% 0.17%
Total Fund Operating Expenses 0.95% 1.71%
- Examples. To try to show the effect of these expenses on an
investment over time, we have created the hypothetical examples shown
below. Assume that you make a $1,000 investment in each class of shares
of the Fund, and the Fund's annual return is 5%, and that its operating
expenses for each class are the ones shown in the Annual Fund Operating
Expenses table above. If you were to redeem your shares at the end of
each period shown below, your investment would incur the following
expenses by the end of 1, 3, 5 and 10 years:
1 year 3 years 5 years 10 years*
------ ------- ------- --------
Class A Shares $57 $76 $98 $159
Class B Shares $67 $84 $113 $163
If you did not redeem your investment, it would incur the
following expenses:
1 year 3 years 5 years 10 years*
------ ------- ------- --------
Class A Shares $57 $76 $98 $159
Class B Shares $17 $54 $93 $163
* 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 of Class B shares to Class A shares is designed to
minimize the likelihood that this will occur. Please refer to "How to Buy
Shares - Class B Shares" for more information.
These examples show the effect of expenses on an investment, but
are not meant to state or predict actual or expected costs or investment
returns of the Fund, all of which will vary.
<PAGE>
Overview of the Fund
Some of the important facts about the Fund are summarized below,
with references to the section of this Prospectus where more complete
information can be found. You should carefully read the entire Prospectus
before making a decision about investing. Keep the Prospectus for
reference after you invest, particularly for information about your
account, such as how to sell or exchange shares.
- What Is The Fund's Investment Objective? The Fund's investment
objective is to seek a high level of current income by investing mainly
in debt securities and by writing covered call options on them.
- What Does the Fund Invest In? The Fund invests primarily in
debt securities of foreign governments and companies, U.S. Government
securities, and lower-rated high yield debt securities of U.S. companies.
The Fund may also write covered calls and use derivative investments to
enhance income, and may use hedging instruments, including some derivative
investments, to try to manage investment risks. These investments are
more fully explained in "Investment Objective and Policies," starting on
page 6.
- Who Manages the Fund? The Fund's investment advisor is
Oppenheimer Management Corporation, which (including a subsidiary) advises
investment company portfolios having over $29 billion in assets. The
Fund's portfolio managers, who are primarily responsible for the selection
of the Fund's securities, are David Negri and Arthur Steinmetz. The
Manager is paid an advisory fee by the Fund, based on its assets. The
Fund's Board of Trustees, elected by shareholders, oversees the investment
advisor and the portfolio manager. Please refer to "How the Fund is
Managed," starting on page 13 for more information about the Manager and
its fees.
- How Risky is the Fund? All investments carry risks to some
degree. The Fund's investments in foreign securities, especially those
issued by underdeveloped countries, generally involve special risks. The
value of foreign securities 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 transactions,
changes in governmental economic or monetary policy in the U.S. or abroad,
or other political or economic factors. The Fund's investments in lower-
rated securities are considered speculative, involve greater risks and may
be less liquid than higher-rated securities. In addition, the Fund's
investments in U.S. Government securities and bonds are subject to changes
in their value from a number of factors such as changes in general bond
and stock market movements, the change in value of particular stocks or
bonds because of an event affecting the issuer, or changes in interest
rates that can affect bond prices. These changes affect the value of the
Fund's investments and its price per share. In the OppenheimerFunds
spectrum, the Fund is generally more conservative than aggressive growth
funds, but more aggressive than money market or investment grade bond
funds. While the Manager tries to reduce risks by diversifying
investments, by carefully researching securities before they are purchased
for the portfolio, and in some cases by using hedging techniques, there
is no guarantee of success in achieving the Fund's objectives and your
shares may be worth more or less than their original cost when you redeem
them. Please refer to "Investment Objective and Policies" starting on
page 6 for a more complete discussion.
- How Can I Buy Shares? You can buy shares through your dealer
or financial institution, or you can purchase shares directly through the
Distributor by completing an Application or by using an Automatic
Investment Plan under AccountLink. Please refer to "How To Buy Shares"
on page 17 for more details.
- Will I Pay a Sales Charge to Buy Shares? The Fund has two
classes of shares. Class A shares are offered with a front-end sales
charge, starting at 4.75%, and reduced for larger purchases. Class B
shares are offered without a front-end sales charge, but may be subject
to a contingent deferred sales charge (starting at 5% and declining as
shares are held longer) if redeemed within 6 years of purchase. There is
also an annual asset-based sales charge on Class B shares. Please review
"How To Buy Shares" starting on page 17 for more details, including a
discussion about which class may be appropriate for you.
- How Can I Sell My Shares? Shares can be redeemed by mail, by
telephone call to the Transfer Agent on any business day, or through your
dealer, or by using the Checkwriting privilege (available for Class A
shares only). Please refer to "How To Sell Shares" on page 25.
- How Has the Fund Performed? The Fund measures its performance
by quoting its dividend yield, distribution return, average annual total
return and cumulative total return, which measure historical performance.
The Fund's yield and returns can be compared to the yield and returns
(over similar periods) of other funds. Of course, other funds may have
different objectives, investments, and levels of risk. The Fund's
performance can also be compared to broad market indices, which we have
done on page 17. Please remember that past performance does not guarantee
future results.
<PAGE>
Financial Highlights
The table on this page presents selected financial information
about the Fund, including per share data and expense ratios and other data
based on the Fund's average net assets. This information has been audited
by Deloitte & Touche LLP, the Fund's independent auditors, whose report
on the Fund's financial statements for the fiscal year ended September 30,
1994, is included in the Statement of Additional Information. Class B
shares were publicly offered only during a portion of that period,
commencing November 30, 1992.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Financial Highlights September 30, 1993
Class A Class B
------- -------
Year Ended Year Ended
September 30, September 30,
1994 1993 1992 1991 1990(2) 1994 1993(1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
<C>
Per Share Operating Data:
Net asset value, beginning of period $5.21 $5.07 $5.01 $4.87 $5.00 $5.22 $4.89
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .45 .48 .46 .56 .59 .42 .36
Net realized and unrealized gain (loss)
on investments, options written
and foreign currency transactions (.35) .17 .14 .21 (.10) (.36) .34
------ ------ ------ ------ ------ ------ ------
Total income from investment
operations .10 .65 .60 .77 .49 .06 .70
- ----------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to
shareholders:
Dividends from net investment income (.43) (.50) (.46) (.57) (.57) (.39) (.36)
Distributions from net realized gain
on investments, options written
and foreign currency transactions -- (.01) (.08) (.06) (.05) -- (.01)
Distributions in excess of net
realized gain on investments,
options written and foreign
currency transactions (.12) -- -- -- -- (.12) --
Tax return of capital (.01) -- -- -- -- (.01) --
------ ------ ------ ------ ------ ------ ------
Total dividends and distributions
to shareholders (.56) (.51) (.54) (.63) (.62) (.52) (.37)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.75 $5.21 $5.07 $5.01 $4.87 $4.76 $5.22
------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------
- ----------------------------------------------------------------------------------------------------------------------------------
Total Return, at Net Asset Value(3) 1.85% 13.30% 12.56% 16.97% 10.20% 1.07%
13.58%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data:
Net assets, end of period
(in millions) $3,143 $2,754 $1,736 $560 $177 $1,586 $695
- ----------------------------------------------------------------------------------------------------------------------------------
Average net assets (in millions) $3,082 $2,107 $1,084 $311 $93 $1,236 $276
- ----------------------------------------------------------------------------------------------------------------------------------
Number of shares outstanding
at end of period (in thousands) 661,897 528,587 342,034 111,739 36,418 333,489 133,235
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 8.72% 9.78% 9.39% 11.82% 12.79%(4) 7.90% 8.13%(4)
Expenses .95% 1.09% 1.16%(5) 1.27%(5) 1.36%(4) 1.71% 1.80%(4)
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 119.0% 148.6% 208.2% 194.7% 424.6% 119.0% 148.6%
<FN>
1. For the period from November 30, 1992 (inception of offering) to September
30, 1993.
2. For the period from October 16, 1989 (commencement of operations) to
September 30, 1990.
3. 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.
4. Annualized.
5. 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.
6. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at the
time of acquisition of one year or less are excluded from the calculation.
Purchases and sales of investment securities (excluding short-term
securities) for the year ended September 30, 1994 were $6,168,422,547 and
$4,642,399,344, respectively.
</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, lower-rated 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 of Lower-Rated 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 below "investment
grade," which means they have a rating of "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. High yield, lower-grade securities,
whether rated or unrated, often have speculative characteristics. Lower-
grade securities have special risks that make them riskier investments
than investment grade securities. They may be subject to greater market
fluctuations and risk of loss of income and principal than lower yielding,
investment grade securities. There may be less of a market for them and
therefore they may be harder to sell at an acceptable price. There is a
relatively greater possibility that the issuer's earnings may be
insufficient to make the payments of interest due on the bonds. The
issuer's low creditworthiness may increase the potential for its
insolvency ("credit risk"). All corporate debt securities (whether
foreign or domestic) are subject to some degree of credit risk.
These risks mean that the Fund may not achieve the expected income
from lower-grade securities, and that the Fund's net asset value per share
may be affected by declines in value of these securities. The Fund is not
obligated to dispose of securities when issuers are in default or if the
rating of the security is reduced. These risks are discussed in more
detail in the Statement of Additional Information.
- Portfolio Turnover. The length of time the Fund has held a
security is not generally a consideration in investment decisions. A
change in the securities held by the Fund is known as "portfolio
turnover." As a result of the Fund's investment policies and market
factors, the Fund will trade its portfolio actively to try to benefit from
short-term yield differences among debt securities and as a result the
Fund's portfolio turnover may be higher than other mutual funds. This
strategy may involve greater transaction costs from brokerage commissions
and dealer mark-ups. Additionally, high portfolio turnover may result in
increased short-term capital gains and affect the ability of the Fund to
qualify for tax deductions for payments made to shareholders as a
"regulated investment company" under the Internal Revenue Code. The Fund
qualified in its last fiscal year and intends to do so in the coming year,
although it reserves the right not to qualify.
- How the Fund's Portfolio Securities Are Rated. As of September
30, 1994, 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, .80%; AA, 0%; A, 0%; BBB, 1.25%; BB, 3.73%; B,
19.80%; CCC, 3.05%; CC, .71%; C, .18%; D, .58%; unrated (by S&P or
Moody's), 28.38%. 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
above, 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. Changes in the
value of securities held by the Fund mean that the Fund's share prices can
go up or down when interest rates change because of the effect of the
change on the value of the Fund's portfolio of debt securities.
- 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 investment policies. The Fund's investment policies
and techniques are not "fundamental" unless a particular policy is
identified in this Prospectus as "fundamental." 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.
Fundamental policies are those that cannot be changed without the approval
of a "majority" of the Fund's outstanding voting shares. The term
"majority" is defined in the Investment Company Act to be a particular
percentage of outstanding voting shares (and this term is explained in the
Statement of Additional Information).
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 ones described below in "Debt Securities of U.S.
Companies." Preferred stocks and zero coupon 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 emerging market debt, 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 the 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 Fund 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 also enter into "forward roll" transactions with
banks and dealers 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.
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. Stripped securities that receive principal payments only are
also subject to increased volatility in price due to interest rate changes
and have the additional risk that the security will be less liquid during
demand or supply imbalances. See "Mortgage-backed Securities" in the
Statement of Additional Information for more details.
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 treasury 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. The Fund may acquire participation
interests in loans that are made to U.S. or foreign companies (the
"borrower"). They may be interests in, or assignments of, the loan and
are acquired from banks or brokers that have made the loan or are members
of the lending syndicate. No more than 5% of the Fund's net assets can
be invested in participation interests of the same borrower. The Manager
has set certain creditworthiness standards for issuers of loan
participations, and monitors their creditworthiness. The value of loan
participation interests depends primarily upon the creditworthiness of the
borrower, and its ability to pay interest and principal. Borrowers may
have difficulty making payments. If a borrower fails to make scheduled
interest or principal payments, the Fund could experience a decline in the
net asset value of its shares. Some borrowers may have senior securities
rated as low as "C" by Moody's or "D" by Standard & Poor's, but may be
deemed acceptable credit risks. Participation interests are subject to
the Fund's limitations on investments in illiquid securities. See
"Illiquid and Restricted Securities".
- Special Risks - Borrowing for Leverage. The Fund may borrow
up to 50% of the value of its assets from banks to buy securities. The
Fund will borrow only if it can do so without putting up assets as
security for a loan. This is a speculative investment method known as
"leverage." This investing technique may subject the Fund to greater
risks and costs than funds that do not borrow. These risks may include
the possibility that the Fund's net asset value per share will fluctuate
more than the net asset value of funds that don't borrow, since the Fund
pays interest on borrowings and interest expense affects the Fund's share
price and yield. Borrowing for leverage is subject to limits under the
Investment Company Act, described in more detail in "Borrowing for
Leverage" in the Statement of Additional Information.
Other Investment Techniques and Strategies. The Fund may also use the
investment techniques and strategies described below. These techniques
involve certain risks. The Statement of Additional Information contains
more detailed information about these practices, including limitations on
their use that are 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. To attempt to increase its
income, 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. In a repurchase transaction, the Fund buys a security and
simultaneously sells it to the vendor for delivery at a future date.
There is no limit on the amount of the Fund's net assets that may be
subject to repurchase agreements of seven days or less. Repurchase
agreements must be fully collateralized. However, if the vendor fails to
pay the 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.
- Illiquid and Restricted Securities. Under the policies and
procedures established by the Fund's Board of Trustees, the Manager
determines the liquidity of certain of the Fund's investments.
Investments may be illiquid because of the absence of an active trading
market, making it difficult to value them or dispose of them promptly at
an acceptable price. A restricted security is one that has a contractual
restriction on its resale or which cannot be sold publicly until it is
registered under the Securities Act of 1933. The Fund will not invest
more than 10% of its net assets in illiquid or restricted securities (that
limit may increase to 15% if certain state laws are changed or the Fund's
shares are no longer sold in those states). The Fund's percentage
limitation on these investments does not apply to certain restricted
securities that are eligible for resale to qualified institutional
purchasers.
- Warrants and Rights. Warrants basically are options to
purchase stock at set prices that are valid for a limited period of time.
Rights are options to purchase securities, normally granted to current
holders by the issuer. The Fund may invest up to 5% of its total assets
in warrants or rights. That 5% does not apply to warrants and rights the
Fund acquired as part of units with other securities or that were attached
to other securities. No more than 2% of the Fund's assets may be invested
in warrants that are not listed on the New York or American Stock
Exchanges. For further details about these investments, please refer to
"Warrants and Rights" in the Statement of Additional Information.
- "When-Issued" and Delayed Delivery Transactions. The Fund may
purchase securities on a "when-issued" basis and may purchase or sell
securities on a "delayed delivery" basis. These terms refer to securities
that have been created and for which a market exists, but which are not
available for immediate delivery. There may be a risk of loss to the Fund
if the value of the security declines prior to the settlement date.
- Hedging. The Fund may purchase and sell certain kinds of
futures contracts, put and call options, forward contracts, and options
on futures and broadly-based securities indices, or enter into interest
rate swap agreements. These are all referred to as "hedging instruments."
The Fund does not use hedging instruments for speculative purposes, and
has limits on the use of them, described below. The hedging instruments
the Fund may use are described below and in greater detail in "Other
Investment Techniques and Strategies" in the Statement of Additional
Information.
The Fund may buy and sell options, futures and forward contracts
for a number of purposes. It may do so to try to manage its exposure to
the possibility that the prices of its portfolio securities may decline,
or to establish a position in the securities market as a temporary
substitute for purchasing individual securities. It may do so to try to
manage its exposure to changing interest rates. Some of these strategies,
such as selling futures, buying puts and writing covered calls, hedge the
Fund's portfolio against price fluctuations.
Other hedging strategies, such as buying futures and call options,
tend to increase the Fund's exposure to the securities market. Forward
contracts are used to try to manage foreign currency risks on the Fund's
foreign investments. Foreign currency options are used to try to protect
against declines in the dollar value of foreign securities the Fund owns,
or to protect against an increase in the dollar cost of buying foreign
securities. Writing covered call options may also provide income to the
Fund for liquidity purposes or defensive reasons or to raise cash to
distribute to shareholders.
Futures. The Fund may buy and sell futures contracts that relate
to (1) broadly-based securities indices (these are referred to as Stock
Index Futures and Bond Index Futures), and (2) interest rates (these are
referred to as Interest Rate Futures). All of these futures are described
in "Hedging With Options and Futures Contracts" in the Statement of
Additional Information. The Fund does not use futures and options on
futures for speculative purposes.
Put and Call Options. The Fund may buy and sell certain kinds of
put options (puts) and call options (calls).
The Fund may purchase calls on (1) debt securities, (2) Futures,
(3) broadly-based securities indices and (4) foreign currencies, or to
terminate its obligation on a call the Fund previously wrote. The Fund
may write (that is, sell) covered call options on debt securities to raise
cash for income to distribute to shareholders or for defensive reasons.
When the Fund writes a call, it receives cash (called a premium). The
call gives the buyer the ability to buy the investment on which the call
was written from the Fund at the call price during the period in which the
call may be exercised. If the value of the investment does not rise above
the call price, it is likely that the call will lapse without being
exercised, while the Fund keeps the cash premium (and the investment).
The Fund may purchase put options. Buying a put on an investment
gives the Fund the right to sell the investment at a set price to a seller
of a put on that investment. The Fund can purchase those puts that relate
to (1) debt securities (whether or not it holds such securities in its
portfolio), (2) Interest Rate Futures, (3) Stock or Bond Index Futures or
(4) foreign currencies. The Fund may purchase puts on investments it does
not own. 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 may buy or sell foreign currency puts and calls only if
they are traded on a securities or commodities exchange or on the over-
the-counter market, or are quoted by recognized dealers in those options.
Foreign currency options are used to try to protect against declines in
the dollar value of foreign securities the Fund owns, or to protect
against increases in the dollar cost of buying foreign securities.
The Fund may buy and sell calls if certain conditions are met: (1)
the calls must be listed on a domestic or foreign securities or
commodities exchange or quoted on the Automated Quotation System of the
National Association of Securities Dealers, Inc. or on the over-the-
counter market; and (2) each call must be "covered" while it is
outstanding; that means the Fund must own the securities on which the call
is written or it must own other securities that are acceptable for the
escrow arrangements required for calls. There is no limit on the amount
of the Fund's total assets that may be subject to covered calls. The Fund
can also write calls on foreign currencies (discussed below). The Fund
may also write covered calls on Futures Contracts it owns, but these calls
must be covered by securities or other liquid assets the Fund owns and
segregates to enable it to satisfy its obligations if the call is
exercised. A call or put option may not be purchased if the value of all
of the Fund's put and call options would exceed 5% of the Fund's total
assets.
Forward Contracts. Forward contracts are foreign currency
exchange contracts. They are used to buy or sell foreign currency for
future delivery at a fixed price. The Fund uses them to "lock-in" the
U.S. dollar price of a security denominated in a foreign currency that the
Fund has bought or sold, or to protect against losses from changes in the
relative values of the U.S. dollar and a foreign currency. The Fund may
also use "cross hedging," where the Fund hedges against changes in
currencies other than the currency in which a security it holds is
denominated.
Interest Rate Swaps. In an interest rate swap, the Fund and
another party exchange their right to receive or their obligation to pay
interest on a security. For example, they may swap a right to receive
floating rate payments for fixed rate payments. The Fund enters into
swaps only on securities it owns. The Fund may not enter into swaps with
respect to more than 25% of its total assets. Also, the Fund will
segregate liquid assets (such as cash or U.S. Government securities) to
cover any amounts it could owe under swaps that exceed the amounts it is
entitled to receive, and it will adjust that amount daily, as needed.
Hedging instruments can be volatile investments and may involve
special risks. The use of hedging instruments requires special skills and
knowledge of investment techniques that are different than what is
required for normal portfolio management. If the Manager uses a hedging
instrument at the wrong time or judges market conditions incorrectly,
hedging strategies may reduce the Fund's return. The Fund could also
experience losses if the prices of its futures and options positions were
not correlated with its other investments or if it could not close out a
position because of an illiquid market for the future or option.
Options trading involves the payment of premiums and has special
tax effects on the Fund. There are also special risks in particular
hedging strategies. If a covered call written by the Fund is exercised
on a security that has increased in value, the Fund will be required to
sell the security at the call price and will not be able to realize any
profit if the security has increased in value above the call price. The
use of forward contracts may reduce the gain that would otherwise result
from a change in the relationship between the U.S. dollar and a foreign
currency. 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 its obligations) and also to interest rate
risks. The Fund could be obligated to pay more under its swap agreements
than it receives under them, as a result of interest rate changes. These
risks are described in greater detail in the Statement of Additional
Information.
- Derivative Investments. The Fund can invest in a number of
different kinds of "derivative investments." The Fund may use some types
of derivatives for hedging purposes, and may invest in others because they
offer the potential for increased income and principal value. In general,
a "derivative investment" is a specially-designed investment whose
performance is linked to the performance of another investment or
security, such as an option, future, index or currency. In the broadest
sense, derivative investments include exchange-traded options and futures
contracts (please refer to "Hedging").
One risk of investing in derivative investments is that the
company issuing the instrument might not pay the amount due on the
maturity of the instrument. There is also the risk that the underlying
investment or security might not perform the way the Manager expected it
to perform. The performance of derivative investments may also be
influenced by interest rate changes in the U.S. and abroad. All of these
risks can mean that the Fund will realize less income than expected from
its investments, or that it can lose part of the value of its investments,
which will affect the Fund's share price. Certain derivative investments
held by the Fund may trade in the over-the-counter markets and may be
illiquid. If that is the case, the Fund's investment in them will be
limited, as discussed in "Illiquid and Restricted Securities".
Another type of derivative the Fund may invest in is an "index-
linked" note. On the maturity of this type of debt security, payment is
made based on the performance of an underlying index, rather than based
on a set principal amount for a typical note. Another derivative
investment the Fund may invest in is a currency-indexed security. These
are typically short-term or intermediate-term debt securities. Their
value at maturity or the interest rates at which they pay income are
determined by the change in value of the U.S. dollar against one or more
foreign currencies or an index. In some cases, these securities may pay
an amount at maturity based on a multiple of the amount of the relative
currency movements. This variety of index security offers the potential
for greater income but at a greater risk of loss.
Other derivative investments the Fund may invest in include "debt
exchangeable for common stock" of an issuer or "equity-linked debt
securities" of an issuer. At maturity, the debt security is exchanged for
common stock of the issuer or is payable in an amount based on the price
of the issuer's common stock at the time of maturity. In either case
there is a risk that the amount payable at maturity will be less than the
principal amount of the debt (because the price of the issuer's common
stock is not as high as was expected).
Other Investment Restrictions. The Fund has other investment
restrictions which are fundamental policies. Under these fundamental
policies, the Fund cannot do any of the following: (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,"
in the Statement of Additional Information; (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 and Statement of Additional Information apply only at
the time the Fund purchases a security, and the Fund need not dispose of
a security merely because the size of the Fund's assets has changed or the
security has increased in value relative to the size of the Fund. There
are other fundamental policies discussed in the Statement of Additional
Information.
How the Fund is Managed
Organization and History. The Fund was organized in 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 (the "Trust"), and the Fund
became a series of it. The 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. The
Board has done so, and the Fund currently has two classes of shares, Class
A and Class B. Each class has its own dividends and distributions and
pays certain expenses which may be different for the different classes.
Each class may have a different net asset value. Each share has one vote
at shareholder meetings, with fractional shares voting proportionally.
Only shares of a particular class vote together on matters that affect
that class alone. Shares are freely transferrable.
The Fund is governed by a Board of Trustees, which is responsible
for protecting the interests of shareholders under Massachusetts law. The
Trustees meet periodically throughout the year to oversee the Fund's
activities, review its performance, and review the actions of the Manager.
"Trustees and Officers of the Fund" in the Statement of Additional
Information names the Trustees and 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 shareholder meetings from time to
time on important matters, and shareholders have the right to call a
meeting to remove a Trustee or to take other action described in the
Fund's Declaration of Trust.
The Manager and its Affiliates. The Fund is managed by the Manager,
Oppenheimer Management Corporation, which is responsible for selecting the
Fund's investments and handles its day-to-day business. The Manager
carries out its duties, subject to the policies established by the Board
of Trustees, under an Investment Advisory Agreement which states the
Manager's responsibilities. The Agreement sets forth the fees paid by the
Fund to the Manager and describes the expenses that the Fund is
responsible to pay to conduct its business.
The Manager has operated as an investment adviser since 1959. The
Manager and its affiliates currently manage investment companies,
including other OppenheimerFunds, with assets of more than $29 billion as
of December 31, 1994, and with more than 1.8 million shareholder accounts.
The Manager is owned by Oppenheimer Acquisition Corp., a holding company
that is owned in part by senior officers of the Manager and controlled by
Massachusetts Mutual Life Insurance Company, a mutual life insurance
company.
- Portfolio Managers. The Portfolio Managers of the Fund are
Arthur P. Steinmetz and David P. Negri. They have been the individuals
principally responsible for the day-to-day management of the Fund's
portfolio since November 1989. Mr. Steinmetz, a Senior Vice President of
the Manager, and Mr. Negri, a Vice President of the Manager, are Vice
Presidents of the Trust. They each serve as officers and portfolio
managers of other OppenheimerFunds.
- 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 0.54% 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, Trustees' fees, transfer agency fees, legal and auditing
costs. Those expenses are paid out of the Fund's assets and are not paid
directly by shareholders. However, those expenses reduce the net asset
value of shares, and therefore are indirectly borne by shareholders
through their investment. More information about the investment advisory
agreement and the other expenses paid by the Fund is contained in the
Statement of Additional Information.
There is also information about the Fund's brokerage policies and
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 about their
accounts to the Transfer Agent at the address and toll-free numbers shown
below in this Prospectus and on the back cover.
Performance of the Fund
Explanation of Performance Terminology. The Fund uses the terms "total
return," "average annual total return" and "yield" to illustrate its
performance. The performance of each class of shares is shown separately,
because the performance of each class will usually be different, as a
result of the different kinds of expenses each class bears. This
performance information may be useful to help you see how 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 measure and compare the Fund's performance. The Fund's investment
performance will vary over time, depending on market conditions, the
composition of the portfolio, expenses and which class of shares you
purchase.
- Total Returns. There are different types of "total returns"
used to measure the Fund's performance. Total return is the change in
value of a hypothetical investment in the Fund over a given period,
assuming that all dividends and capital gains distributions are reinvested
in additional shares. The cumulative total return measures the change in
value over the entire period (for example, ten years). An average annual
total return shows the average rate of return for each year in a period
that would produce the cumulative total return over the entire period.
However, average annual total returns do not show the Fund's actual year-
by-year performance.
When total returns are quoted for Class A shares, they reflect the
payment of the current maximum initial sales charge. When total returns
are shown for Class B shares, they reflect the effect of the contingent
deferred sales charge that applies to the period for which total return
is shown. Total returns may also be quoted "at net asset value," without
considering the effect of the sales charge, and those returns would be
reduced if sales charges were deducted.
- Yield. Each class of shares calculates its yield by dividing
the annualized net investment income per share on the portfolio during a
30-day period by the maximum offering price on the last day of the period.
The yield of each class will differ because of the different expenses of
each class of shares. The yield data represents a hypothetical investment
return on the portfolio, and does not measure an investment return based
on dividends actually paid to shareholders. To show that return, a
dividend yield may be calculated. Dividend yield is calculated by
dividing the dividends of a class derived from net investment income
during a stated period by the maximum offering price on the last day of
the period. Yields and dividend yields for Class A shares reflect the
deduction of the maximum initial sales charge, but may also be shown based
on the Fund's net asset value per share. Yields for Class B shares do not
reflect the deduction of the contingent deferred sales charge.
How Has the Fund Performed? Below is a discussion by the Manager of the
Fund's performance during its last fiscal year ended September 30, 1994,
followed by a graphical comparison of the Fund's performance to an
appropriate broad-based market index.
- Management's Discussion of Performance. During the past fiscal
year, the Fund's performance was affected by the rise in short-term
interest rates, both in the U.S. and abroad. As interest rates rose, the
bond market declined. In response to rising interest rates in the U.S.,
the Manager reduced the Fund's exposure to long-term U.S. government
bonds, as well as high yield corporate bonds issued by companies whose
earnings are sensitive to interest rate changes. The proceeds from the
sale of those investments were used to increase the Fund's investment in
higher- yielding, lower-rated corporate bonds issued by companies whose
earnings tend to rise in the middle-to-late stages of an economic
expansion. In addition, the Manager used futures to hedge against
interest rate risk and thus avoided the sale of interest bearing
securities. As foreign interest rates rose and the dollar weakened
against major currencies, the Manager reduced the Fund's investments in
Latin America and other emerging markets which tend to perform poorly in
a rising interest rate environment. The Manager increased the Fund's
investments in foreign government bonds which the Manager believed would
benefit from economic growth.
- 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, 1994, 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 The Lehman Brothers Aggregate Bond Index and The Salomon
Brothers World Government Bond Index. The Lehman Brothers Aggregate Bond
Index is a broad-based, unmanaged index of U.S. corporate bond issues,
U.S. government securities and mortgage-backed securities widely regarded
as a measure of the performance of the domestic debt securities market.
The Salomon Brothers World Government Bond Index is an unmanaged index of
fixed-rate bonds having a maturity of one year or more, widely regarded
as a benchmark of fixed income performance on a world-wide basis. Index
performance reflects the reinvestment of income, but not capital gains or
transaction costs, and none of the data below shows the effect of taxes.
Also, the Fund's performance data reflects the effect of Fund business and
operating expenses. While index comparisons may be useful to provide a
benchmark for the Fund's performance, it must be noted that the Fund's
investments are not limited to the securities in any one index. Moreover,
the index data does not reflect any assessment of the risk of the
investments included in the index.
Oppenheimer Strategic Income Fund
Comparison of Change in Value
of $10,000 Hypothetical Investment to
Lehman Brothers 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 9/30/94
1 Year Life of Class*
Class A: <2.98%> 9.93%
Class B: <3.49%> 6.49%
_________________
* Class A shares were first publicly offered on 10/16/89.
Class B shares were first publicly offered on 11/30/92.
ABOUT YOUR ACCOUNT
How to Buy Shares
Classes of 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, you will not pay an initial sales charge but if
you sell any of those shares within 18 months after your purchase, you may
pay a contingent deferred sales charge, which will vary depending on the
amount you invested. Sales charges are described below.
- Class B Shares. If you buy Class B shares, you pay no sales
charge at the time of purchase, but if you sell your shares within six
years, you will normally pay a contingent deferred sales charge that
varies depending on how long you own your shares. It is described below.
Which Class of Shares Should You Choose? Once you decide that the Fund
is an appropriate investment for you, the decision as to which class of
shares is better suited to your needs depends on a number of factors which
you should discuss with your financial advisor. The Fund's operating
costs that apply to a class of shares and the effect of the different
types of sales charges on your investment will vary your investment
results over time. The most important factors are how much you plan to
invest, how long you plan to hold your investment, and whether you
anticipate exchanging your shares for shares of other OppenheimerFunds
(not all of which currently offer Class B shares). If your goals and
objectives change over time and you plan to purchase additional shares,
you should re-evaluate those factors to see if you should consider another
class of shares.
In the following discussion, to help provide you and your
financial advisor with a framework in which to choose a class, we have
made some assumptions using a hypothetical investment in the Fund. We
used the sales charge rates that apply to Class A and B, considering the
effect of the annual asset-based sales charge on Class B expenses (which,
like all expenses, will affect your investment return). For the sake of
comparison, we have assumed that there is a 10% rate of appreciation in
the investment each year. Of course, the actual performance of your
investment cannot be predicted and will vary, based on the Fund's actual
investment returns and the operating expenses borne by each class of
shares, and which class you invest in. The factors discussed below are
not intended to be investment advice or recommendations, because each
investor's financial considerations are different.
- How Long Do You Expect to Hold Your Investment? The Fund is
designed for long-term investment. While future financial needs cannot
be predicted with certainty, knowing how long you expect to hold your
investment will assist you in selecting the appropriate class of shares.
The effect of the sales charge over time, using our assumptions, will
generally depend on the amount invested. Because of the effect of class-
based expenses, your choice will also depend on how much you invest.
- How Much Do You Plan to Invest? If you plan to invest a
substantial amount over the long term, the reduced sales charges available
for larger purchases of Class A shares may offset the effect of paying an
initial sales charge on your investment (which reduces the amount of your
investment dollars used to buy shares for your account), compared to the
effect over time of higher expenses on Class B, for which no initial sales
charge is paid. Additionally, dividends payable to Class B shareholders
will be reduced by the additional expenses borne solely by Class B, such
as the asset-based sales charge described below.
In general, if you plan to invest less than $100,000, Class B
shares may be more advantageous than Class A shares, using the assumptions
in our hypothetical example. However, if you plan to invest more than
$100,000 (not only in the Fund, but possibly in other OppenheimerFunds as
well), then Class A shares generally will be more advantageous than Class
B, because of the effect of the reduction of initial sales charges on
larger purchases of Class A shares (described in "Reduced Sales Charges
for Class A Share Purchases," below). That is also the case because the
annual asset-based sales charge on Class B shares will have a greater
impact on larger investments than the initial sales charge on Class A
shares because of the reductions of initial sales charge available for
larger purchases.
And for investors who invest $1 million or more, in most cases
Class A shares will be the most advantageous choice, no matter how long
you intend to hold your shares. For that reason, the Distributor normally
will not accept purchase orders of $1 million or more of Class B shares
from a single investor.
Of course, these examples are based on approximations of the
effect of current sales charges and expenses on a hypothetical investment
over time, using the assumptions stated above. Therefore, these examples
should not be relied on as rigid guidelines.
- Are There Differences in Account Features That Matter to You?
Because some account features (such as Checkwriting) may not be available
to Class B shareholders, or other features (such as Automatic Withdrawal
Plans) might not be advisable (because of the effect of the contingent
deferred sales charge) in non-retirement accounts for Class B
shareholders, you should carefully review how you plan to use your
investment account before deciding which class of shares to buy. Also,
because not all OppenheimerFunds currently offer Class B shares, and
because exchanges are permitted only to the same class of shares in other
OppenheimerFunds, you should consider how important the exchange privilege
is likely to be for you.
- How Does It Affect Payments to My Broker? A salesperson, such
as a broker, or any other person who is entitled to receive compensation
for selling Fund shares may receive different compensation for selling one
class than another class. It is important that investors understand that
the purpose of the Class B contingent deferred sales charge and asset-
based sales charge is the same as the purpose of the front-end sales
charge on sales of Class A shares: to compensate the Distributor for
commissions it pays to dealers and financial institutions for selling
shares.
How Much Must You Invest? You can open a Fund account with a minimum
initial investment of $1,000 and make additional investments at any time
with as little as $25. There are reduced minimum investments under special
investment plans:
With Asset Builder Plans, Automatic Exchange Plans, 403(b)(7)
custodial plans and military allotment plans, you can make initial and
subsequent investments of 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. However, we
recommend that you discuss your investment first with a financial advisor,
to be sure it is appropriate for you.
- Buying Shares Through OppenheimerFunds AccountLink. You can
use AccountLink to link your Fund account with an account at a U.S. bank
or other financial institution that is an
Automated Clearing House (ACH) member. You can then transmit funds
electronically to purchase shares, to receive redemption proceeds, and to
transmit dividends and distributions.
Shares are purchased for your account on AccountLink on the
regular business day the Distributor is instructed by you to initiate the
ACH transfer to buy shares. You can provide those instructions
automatically, under an Asset Builder Plan, described below, or by
telephone instructions using OppenheimerFunds PhoneLink, also described
below. You should request AccountLink privileges on the application or
dealer settlement instructions used to establish your account. Please
refer to "AccountLink" below for more details.
- Asset Builder Plans. You may purchase shares of the Fund (and
up to four other OppenheimerFunds) automatically each month from your
account at a bank or other financial institution under an Asset Builder
Plan with AccountLink. Details are on the Application and in the Statement
of Additional Information.
- At What Price Are Shares Sold? Shares are sold at the public
offering price based on the net asset value (and any initial sales charge
that applies) that is next determined after the Distributor receives the
purchase order in Denver. In most cases, to enable you to receive that
day's offering price, the Distributor must receive your order by the time
of day The New York Stock Exchange closes, which is normally 4:00 P.M.,
New York time, but may be earlier on some days (all references to time in
this Prospectus mean "New York time"). The net asset value of each class
of shares is determined as of that time on each day The New York Stock
Exchange is open (which is a "regular business day").
If you buy shares through a dealer, the dealer must receive your
order by the close of The New York Stock Exchange, on a regular business
day and transmit it to the Distributor so that it is received before the
Distributor's close of business that day, which is normally 5:00 P.M. The
Distributor may reject any purchase order for the Fund's shares, in its
sole discretion.
Class A Shares. Class A shares are sold at their offering price, which
is normally net asset value plus an initial sales charge. However, in
some cases, described below, purchases are not subject to an initial sales
charge, and the offering price will be the net asset value. In some cases,
reduced sales charges may be available, as described below. Out of the
amount you invest, the Fund receives the net asset value to invest for
your account. The sales charge varies depending on the amount of your
purchase. A portion of the sales charge may be retained by the
Distributor and allocated to your dealer as commission. The current sales
charge rates and commissions paid to dealers and brokers are as follows:
<TABLE>
<CAPTION>
Front-End Front-End
Sales Charge Sales Charge Commission
as Percentage as Percentage as Percentage
of Offering of Amount of Offering
Amount of Purchase Price Invested Price
- ------------------ ------------- ------------- --------------
<S> <C> <C> <C>
Less than $50,000 4.75% 4.98% 4.00%
$50,000 or more but
less than $100,000 4.50% 4.71% 3.75%
$100,000 or more but
less than $250,000 3.50% 3.63% 2.75%
$250,000 or more but
less than $500,000 2.50% 2.56% 2.00%
$500,000 or more but
less than $1 million 2.00% 2.04% 1.60%
- ---------------------
<FN>
The Distributor reserves the right to reallow the entire commission to
dealers. If that occurs, the dealer may be considered an "underwriter"
under Federal securities laws.
</TABLE>
- Class A Contingent Deferred Sales Charge. There is no initial
sales charge on purchases of Class A shares of any one or more
OppenheimerFunds aggregating $1 million or more (shares of the Fund and
other OppenheimerFunds that offer only one class of shares that have no
class designation are considered "Class A shares" for this purpose).
However, the Distributor pays dealers of record commissions on such
purchases in an amount equal to the sum of 1.0% of the first $2.5 million,
plus 0.50% of the next $2.5 million, plus 0.25% of share purchases over
$5 million. That commission will be paid only on the amount of those
purchases in excess of $1 million that were not previously subject to a
front-end sales charge and dealer commission.
If you redeem any of those shares within 18 months of the end of
the calendar month of their purchase, a contingent deferred sales charge
(called the "Class A contingent deferred sales charge") will be deducted
from the redemption proceeds. That sales charge 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 amount of the commissions the Distributor paid to your dealer
on all Class A shares of all OppenheimerFunds you purchased subject to the
Class A contingent deferred sales charge.
In determining whether a contingent deferred sales charge is
payable, the Fund will first redeem shares that are not subject to the
sales charge, including shares purchased by reinvestment of dividends and
capital gains, and then will redeem other shares in the order that you
purchased them. The Class A contingent deferred sales charge is waived
in certain cases described in "Waivers of Class A Sales Charges" below.
No Class A contingent deferred sales charge is charged on
exchanges of shares under the Fund's Exchange Privilege (described below).
However, if the shares acquired by exchange are redeemed within 18 months
of the end of the calendar month of the purchase of the exchanged shares,
the sales charge will apply.
- Special Arrangements With Dealers. The Distributor may advance
up to 13 months' commissions to dealers that have established special
arrangements with the Distributor for Asset Builder Plans for their
clients. Dealers whose sales of Class A shares of OppenheimerFunds (other
than money market funds) under OppenheimerFunds-sponsored 403(b)(7)
custodial plans exceed $5 million per year (calculated per quarter), will
receive monthly one-half of the Distributor's retained commissions on
those sales, and if those sales exceed $10 million per year, those dealers
will receive the Distributor's entire retained commission on those sales.
Reduced Sales Charges for Class A Share Purchases. You may be eligible
to buy Class A shares at reduced sales charge rates in one or more of the
following ways:
- Right of Accumulation. To qualify for the lower sales charge
rates that apply to larger purchases for Class A shares, you and your
spouse can add together Class A shares you purchase for your individual
accounts, or jointly, or on behalf of your children who are minors, under
trust or custodial accounts. A fiduciary can count all shares purchased
for a trust, estate or other fiduciary account (including one or more
employee benefit plans of the same employer) that has multiple accounts.
Additionally, you can add together current purchases of Class A
shares of the Fund and other OppenheimerFunds 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 total amount
of the intended purchases. This can include purchases made up to 90 days
before the date of the Letter. More information is contained in the
Application and in "Reduced Sales Charges" in the Statement of Additional
Information.
- Waivers of Class A Sales Charges. No sales charge is imposed
on sales of Class A shares to the following investors: (1) the Manager or
its affiliates; (2) present or former officers, directors, trustees and
employees (and their "immediate families" as defined in "Reduced Sales
Charges" in the Statement of Additional Information) of the Fund, the
Manager and its affiliates, and retirement plans established by them for
their employees; (3) registered management investment companies, or
separate accounts of insurance companies having an agreement with the
Manager or the Distributor for that purpose; (4) dealers or brokers that
have a sales agreement with the Distributor, if they purchase shares for
their own accounts or for retirement plans for their employees; (5)
employees and registered representatives (and their spouses) of dealers
or brokers described above or financial institutions that have entered
into sales arrangements with such dealers or brokers (and are identified
to the Distributor) or with the Distributor; the purchaser must certify
to the Distributor at the time of purchase that the purchase is for the
purchaser's own account (or for the benefit of such employee's spouse or
minor children); (6) dealers, brokers or registered investment advisers
that have entered into an agreement with the Distributor providing
specifically for the use of shares of the Fund in particular investment
products made available to their clients; and (7) dealers, brokers or
registered investment advisers that have entered into an agreement with
the Distributor to sell shares to defined contribution employee retirement
plans for which the dealer, broker or investment adviser provides
administration services.
Additionally, no sales charge is imposed on shares that are (a)
issued in plans of reorganization, such as mergers, asset acquisitions and
exchange offers, to which the Fund is a party or (b) purchased by the
reinvestment of loan repayments by a participant in a retirement plan for
which the Manager or its affiliates acts as sponsor, or (c) purchased by
the reinvestment of dividends or other distributions reinvested from the
Fund or other OppenheimerFunds (other than Oppenheimer Cash Reserves) or
unit investment trusts for which reinvestment arrangements have been made
with the Distributor. There is a further discussion of this policy in
"Reduced Sales Charges" in the Statement of Additional Information.
The contingent deferred sales charge does not apply to purchases
of Class A shares at net asset value described above and is also waived
if shares are redeemed in the following cases: (1) retirement
distributions or loans to participants or beneficiaries from qualified
retirement plans, deferred compensation plans or other employee benefit
plans ("Retirement Plans"), (2) returns of excess contributions made to
Retirement Plans, (3) Automatic Withdrawal Plan payments that are limited
to no more than 12% of the original account value annually, (4)
involuntary redemptions of shares by operation of law or under the
procedures set forth in the Fund's Declaration of Trust or adopted by the
Board of Trustees, and (5) if at the time an order is placed for Class A
shares that would otherwise be subject to the Class A contingent deferred
sales charge, the dealer agrees to accept the dealer's portion of the
commission payable on the sale in installments of 1/18th of the commission
per month (with no further commission payable if the shares are redeemed
within 18 months of purchase).
- Service Plan for Class A Shares. The Fund has adopted a
Service Plan for Class A shares to reimburse the Distributor for a portion
of its costs incurred in connection with the personal service and
maintenance of accounts that hold Class A shares. Reimbursement is made
quarterly at an annual rate that may not exceed 0.25% of the average
annual net assets of Class A shares of the Fund. The Distributor uses all
of those fees to compensate dealers, brokers, banks and other financial
institutions quarterly for providing personal service and maintenance of
accounts of their customers that hold Class A shares and to reimburse
itself (if the Fund's Board of Trustees authorizes such reimbursements,
which it has not yet done) for its other expenditures under the Plan.
Services to be provided include, among others, answering customer
inquiries about the Fund, assisting in establishing and maintaining
accounts in the Fund, making the Fund's investment plans available and
providing other services at the request of the Fund or the Distributor.
Payments are made by the Distributor quarterly at an annual rate not to
exceed 0.25% of the average annual net assets of Class A shares held in
accounts of the dealer or its customers. The payments under the Plan
increase the annual expenses of Class A shares. For more details, please
refer to "Distribution and Service Plans" in the Statement of Additional
Information.
Class B Shares. Class B shares are sold at net asset value per share
without an initial sales charge. However, if Class B shares are redeemed
within 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:
Years Since Contingent Deferred Sales
Beginning of Month In Which Charge on Redemptions in that
Purchase Order was Accepted Year (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 (the disability must have occurred after the account was
established and you must provide evidence of a determination of disability
by the Social Security Administration); (3) returns of excess
contributions to Retirement Plans; and (4) distributions from IRAs
(including SEP-IRAs and SAR/SEP accounts) before the participant is age
59 1/2, and distributions from 403(b)(7) custodial plans or pension or
profit sharing plans before the participant is age 59 1/2 but only after
the participant has separated from service, if the distributions are made
in substantially equal periodic payments over the life (or life
expectancy) of the participant or the joint lives (or joint life and last
survivor expectancy) of the participant and the participant's designated
beneficiary (and the distributions must comply with the other requirements
for such distributions under the Internal Revenue Code and may not exceed
10% of the account value annually, measured from the date the Transfer
Agent receives the request).
The contingent deferred sales charge is also waived on Class B
shares in the following cases: (i) shares sold to the Manager or its
affiliates; (ii) shares sold to registered management investment companies
or separate accounts of insurance companies having an agreement with the
Manager or the Distributor for that purpose; (iii) shares issued in plans
of reorganization to which the Fund is a party; and (iv) shares redeemed
in involuntary redemptions as described below. Further details about this
policy are contained in "Reduced Sales Charges" in the Statement of
Additional Information.
- Automatic Conversion of Class B Shares. 72 months after you
purchase Class B shares, those shares will automatically convert to Class
A shares. This conversion feature relieves Class B shareholders of the
asset-based sales charge that applies to Class B shares under the Class
B Distribution 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 fee 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.
The Distributor's actual expenses in selling Class B shares may
be more than the payments it receives from contingent deferred sales
charges collected on redeemed shares and from the Fund under the
Distribution and Service Plan for Class B shares. Therefore, those
expenses may be carried over and paid in future years. At September 30,
1994, the end of the Plan year, the Distributor had incurred unreimbursed
expenses under the Plan of $64,673,369 (equal to 4.08% of the Fund's net
assets represented by Class B shares on that date), which have been
carried over into the present Plan year. If the Plan is terminated by the
Fund, the Board of Trustees may allow the Fund to continue payments of the
asset-based sales charge to the Distributor for expenses it incurred
before the Plan was terminated.
Special Investor Services
AccountLink. OppenheimerFunds AccountLink links your Fund account to your
account at your bank or other financial institution to enable you to send
money electronically between those accounts to perform a number of types
of account transactions. These include purchases of shares by telephone
(either through a service representative or by PhoneLink, described
below), automatic investments under Asset Builder Plans, and sending
dividends and distributions or Automatic Withdrawal Plan payments directly
to your bank account. Please refer to the Application for details or call
the Transfer Agent for more information.
AccountLink privileges must be requested on the Application you
use to buy shares, or on your dealer's settlement instructions if you buy
your shares through your dealer. After your account is established, you
can request AccountLink privileges on signature-guaranteed instructions
to the Transfer Agent. AccountLink privileges will apply to each
shareholder listed in the registration on your account as well as to your
dealer representative of record unless and until the Transfer Agent
receives written instructions terminating or changing those privileges.
After you establish AccountLink for your account, any change of bank
account information must be made by signature-guaranteed instructions to
the Transfer Agent signed by all shareholders who own the account.
- Using AccountLink to Buy Shares. Purchases may be made by
telephone only after your account has been established. To purchase shares
in amounts up to $250,000 through a telephone representative, call the
Distributor at 1-800-852-8457. The purchase payment will be debited from
your bank account.
- PhoneLink. PhoneLink is the OppenheimerFunds automated
telephone system that enables shareholders to perform a number of account
transactions automatically using a touch-tone phone. PhoneLink may be used
on already-established Fund accounts after you obtain a Personal
Identification Number (PIN), by calling the special PhoneLink number: 1-
800-533-3310.
- Purchasing Shares. You may purchase shares in amounts up to
$100,000 by phone, by calling 1-800-533-3310. You must have established
AccountLink privileges to link your bank account with the Fund, to pay for
these purchases.
- Exchanging Shares. With the OppenheimerFunds Exchange
Privilege, described below, you can exchange shares automatically by phone
from your Fund account to another OppenheimerFunds account you have
already established by calling the special PhoneLink number. Please refer
to "How to Exchange Shares," below, for details.
- Selling Shares. You can redeem shares by telephone
automatically by calling the PhoneLink number and the Fund will send the
proceeds directly to your AccountLink bank account. Please refer to "How
to Sell Shares," below, for details.
Automatic Withdrawal and Exchange Plans. The Fund has several plans
that enable you to sell shares automatically or exchange them to another
OppenheimerFunds account on a regular basis:
- Automatic Withdrawal Plans. If your Fund account is worth
$5,000 or more, you can establish an Automatic Withdrawal Plan to receive
payments of at least $50 on a monthly, quarterly, semi-annual or annual
basis. The checks may be sent to you or sent automatically to your bank
account on AccountLink. You may even set up certain types of withdrawals
of up to $1,500 per month by telephone. You should consult the
Application and Statement of Additional Information for more details.
- Automatic Exchange Plans. You can authorize the Transfer Agent
to automatically exchange an amount you establish in advance 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 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 a
sales charge. This privilege applies to Fund shares that you purchased
with an initial sales charge. It also applies to 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, including SAR/SEP-IRAs
- Pension and Profit-Sharing Plans for self-employed persons and
other employers
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.
- Retirement Accounts. To sell shares in an OppenheimerFunds
retirement account in your name, call the Transfer Agent for a
distribution request form. There are special income tax withholding
requirements for distributions from retirement plans and you must
submit a withholding form with your request to avoid delay. If your
retirement plan account is held for you by your employer, you must arrange
for the distribution request to be sent by the plan administrator or
trustee. There are additional details in the Statement of Additional
Information.
- Certain Requests Require a Signature Guarantee. To protect you
and the Fund from fraud, certain redemption requests must be in writing
and must include a signature guarantee in the following situations (there
may be other situations also requiring a signature guarantee):
- You wish to redeem more than $50,000 worth of shares and
receive a check
- A redemption check is not payable to all shareholders listed
on the account statement
- A redemption 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 on behalf of a corporation, partnership or other business, or
as a fiduciary, you must also include your title in the signature.
Selling Shares by Mail. Write a "letter of instructions" that includes:
- Your name
- The Fund's name
- Your Fund account number (from your statement)
- The dollar amount or number of shares to be redeemed
- Any special payment instructions
- Any share certificates for the shares you are selling, and
- Any special requirements or documents requested by the Transfer
Agent to assure proper authorization of the person asking to sell shares.
Use the following address for requests by mail:
Oppenheimer Shareholder Services
P.O. Box 5270, Denver, Colorado 80217
Send Courier or Express Mail to:
Oppenheimer Shareholder Services
10200 E. Girard Avenue,
Denver, Colorado 80231
Selling Shares by Telephone. You and your dealer representative of
record may also sell your shares by telephone. To receive the redemption
price on a regular business day, your call must be received by the
Transfer Agent by the close of The New York Stock Exchange that day, which
is normally 4:00 P.M., but may be earlier on some days. You may not
redeem shares held in an OppenheimerFunds retirement plan or under a share
certificate by telephone.
- To redeem shares through a service representative, call 1-800-
852-8457
- To redeem shares automatically on PhoneLink, call 1-800-533-
3310
Whichever method you use, you may have a check sent to the address
on the account statement, or, if you have linked your Fund account to your
bank account on AccountLink, you may have the proceeds wired to that bank
account.
- Telephone Redemptions Paid by Check. Up to $50,000 may be
redeemed by telephone in any 7-day period. The check must be payable to
all owners of record of the shares and must be sent to the address on the
account statement. This service is not available within 30 days of
changing the address on an account.
- Telephone Redemptions Through AccountLink. There are no dollar
limits on telephone redemption proceeds sent to a bank account designated
when you establish AccountLink. Normally the ACH 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.
Selling Shares Through Your Dealer. The Distributor has made
arrangements to repurchase Fund shares from dealers and brokers on behalf
of their customers. Brokers or dealers may charge for that service.
Please refer to "Special Arrangements for Repurchase of Shares from
Dealers and Brokers" in the Statement of Additional Information for more
details.
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 10
days.
- Don't use your checks if you changed your Fund account number.
The Fund will charge a $10 fee for any check that is not paid
because (1) the owners of the account told the Fund not to pay the check,
or (2) the check was for more than the account balance, or (3) the check
did not have the proper signatures, (4) or the check was written for less
than $100.
How to Exchange Shares
Shares of the Fund may be exchanged for shares of certain
OppenheimerFunds at net asset value per share at the time of exchange,
without sales charge. A $5 service fee will be deducted from the fund
account you are exchanging into to help defray administrative costs. That
charge is waived for automated exchanges made by brokers on Fund/SERV and
for automated exchanges between already established accounts on PhoneLink,
described below. To exchange shares, you must meet several conditions:
- Shares of the fund selected for exchange must be available for
sale in your state of residence
- The prospectuses of this Fund and the fund whose shares you want
to buy must offer the exchange privilege
- You must hold the shares you buy when you establish your account
for at least 7 days before you can exchange them; after the account is
open 7 days, you can exchange shares every regular business day
- You must meet the minimum purchase requirements for the fund you
purchase by exchange
- Before exchanging into a fund, you should obtain and read its
prospectus
Shares of a particular class may be exchanged only for shares of the
same class in the other OppenheimerFunds. For example, you can exchange
Class A shares of this Fund only for Class A shares of another fund. At
present, not all of the OppenheimerFunds offer the same classes of shares.
If a fund has only one class of shares that does not have a class
designation, they are "Class A" shares for exchange purposes. Certain
OppenheimerFunds offer Class A and Class B or Class C shares, and a list
can be obtained by calling the Distributor at 1-800-525-7048. In some
cases, sales charges may be imposed on exchange transactions. Please
refer to "How to Exchange Shares" in the Statement of Additional
Information for more details.
Exchanges may be requested in writing or by telephone:
- Written Exchange Requests. Submit an OppenheimerFunds Exchange
Request form, signed by all owners of the account. Send it to the
Transfer Agent at the addresses listed in "How to Sell Shares."
- Telephone Exchange Requests. Telephone exchange requests may be
made either by calling a service representative at 1-800-852-8457 or by
using PhoneLink for automated exchanges, by calling 1-800-533-3310.
Telephone exchanges may be made only between accounts that are registered
with the same name(s) and address. Shares held under certificates may not
be exchanged by telephone.
You can find a list of OppenheimerFunds currently available for
exchanges in the Statement of Additional Information or by calling a
service representative at 1-800-525-7048. Exchanges of shares involve a
redemption of the shares of the fund you own and a purchase of shares of
the other fund.
There are certain exchange policies you should be aware of:
- Shares are normally redeemed from one fund and purchased from the
other fund in the exchange transaction on the same regular business day
on which the Transfer Agent receives an exchange request that is in proper
form by the close of The New York Stock Exchange that day, which is
normally 4:00 P.M. but may be earlier on some days. However, either fund
may delay the purchase of shares of the fund you are exchanging into 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 portfolio securities at a time or price disadvantageous to
the Fund.
- Because excessive trading can hurt fund performance and harm
shareholders, the Fund reserves the right to refuse any exchange request
that will disadvantage it, or to refuse multiple exchange requests
submitted by a shareholder or dealer.
- The Fund may amend, suspend or terminate the exchange privilege
at any time. Although the Fund will attempt to provide you notice
whenever it is reasonably able to do so, it may impose these changes at
any time.
- If the Transfer Agent cannot exchange all the shares you request
because of a restriction cited above, only the shares eligible for
exchange will be exchanged.
Shareholder Account Rules and Policies
- Net Asset Value Per Share is determined for each class of shares
as of the close of The New York Stock Exchange on each regular business
day, by dividing the value of the Fund's net assets attributable to a
class by the number of shares of that class that are outstanding. The
Fund's Board of Trustees has established procedures to value the Fund's
securities to determine net asset value. In general, securities values
are based on market value. There are special procedures for valuing
illiquid and restricted securities, obligations for which market values
cannot be readily obtained, and call options and hedging instruments.
These procedures are described more completely in the Statement of
Additional Information.
- The offering of shares may be suspended during any period in which
the determination of net asset value is suspended, and the offering may
be suspended by the Board of Trustees at any time the Board believes it
is in the Fund's best interest to do so.
- Telephone Transaction Privileges for purchases, redemptions or
exchanges may be modified, suspended or terminated by the Fund at any
time. If an account has more than one owner, the Fund and the Transfer
Agent may rely on the instructions of any one owner. Telephone privileges
apply to each owner of the account and the dealer representative of record
for the account unless and until the Transfer Agent receives cancellation
instructions from an owner of the account.
- The Transfer Agent will record any telephone calls to verify data
concerning transactions and has adopted other procedures to confirm that
telephone instructions are genuine, by requiring callers to provide tax
identification numbers and other account data or by using PINs, and by
confirming such transactions in writing. If the Transfer Agent does not
use reasonable procedures it may be liable for losses due to unauthorized
transactions, but otherwise neither the Transfer Agent nor the Fund will
be liable for losses or expenses arising out of telephone instructions
reasonably believed to be genuine. If you are unable to reach the
Transfer Agent during periods of unusual market activity, you may not be
able to complete a telephone transaction and should consider placing your
order by mail.
- Redemption or transfer requests will not be honored until the
Transfer Agent receives all required documents in proper form. From time
to time, the Transfer Agent in its discretion may waive certain of the
requirements for redemptions stated in this Prospectus.
- Dealers that can perform account transactions for their clients
by participating in NETWORKING through the National Securities Clearing
Corporation are responsible for obtaining their clients' permission to
perform those transactions and are responsible to their clients who are
shareholders of the Fund if the dealer performs any transaction
erroneously or improperly.
- 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 10 days from the date the shares
were purchased. That delay may be avoided if you purchase shares by
certified check or arrange with your bank to provide telephone or written
assurance to the Transfer Agent that your purchase payment has cleared.
- Involuntary redemptions of small accounts may be made by the Fund
if the account value has fallen below $200 for reasons other than the fact
that the market value of shares has dropped, and in some cases involuntary
redemptions may be made to repay the Distributor for losses from the
cancellation of share purchase orders.
- Under unusual circumstances, shares of the Fund may be redeemed
"in kind," which means that the redemption proceeds will be paid with
securities from the Fund's portfolio. Please refer to "How to Sell
Shares" in the Statement of Additional Information for more details.
- "Backup Withholding" of Federal income tax may be applied at the
rate of 31% from dividends, distributions and redemption proceeds
(including exchanges) if you fail to furnish the Fund a certified Social
Security or Employer Identification Number when you sign your application,
or if you violate Internal Revenue Service regulations on tax reporting
of 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.
- To avoid sending duplicate copies of materials to households, the
Fund will mail only one copy of each annual and semi-annual report to
shareholders having the same last name and address on the Fund's records.
However, each shareholder may call the Transfer Agent at 1-800-525-7048
to ask that copies of those materials be sent personally to that
shareholder.
Dividends, Capital Gains and Taxes
Dividends. The Fund declares dividends separately for Class A 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 Fund's fiscal year ended September 30, 1994, the Fund
attempted to pay dividends on its Class A shares at a constant level.
That was done keeping in mind the amount of net investment income and
other distributable income available from the Fund's portfolio
investments. However, the amount of each dividend can change from time
to time (or there might not be a dividend at all on either class)
depending on market conditions, the Fund's expenses, and the composition
of the Fund's portfolio. Attempting to pay dividends at a constant level
required the Manager to monitor the Fund's income stream from its
investments and at times to select higher yielding securities (appropriate
to the Fund's objectives and investment restrictions) to maintain income
at the required level. This practice did not affect the net asset values
of either class of shares. The Board of Trustees may change or end the
Fund's targeted dividend level for Class A shares at any time. There is
no targeted dividend level for Class B 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 for tax purposes.
There can be no assurance that the Fund will pay any capital gains
distributions in a particular year.
Distribution Options. When you open your account, specify on your
application how you want to receive your distributions. For
OppenheimerFunds retirement accounts, all distributions are reinvested.
For other accounts, you have four options:
- Reinvest All Distributions in the Fund. You can elect to reinvest
all dividends and long-term capital gains distributions in additional
shares of the Fund.
- Reinvest Long-Term Capital Gains Only. You can elect to reinvest
long-term capital gains in the Fund while receiving dividends by check or
sent to your bank account on AccountLink.
- Receive All Distributions in Cash. You can elect to receive a
check for all dividends and long-term capital gains distributions or have
them sent to your bank on AccountLink.
- Reinvest Your Distributions in Another 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. It does not matter how long you held your
shares. Dividends paid from short-term capital gains and net investment
income are taxable as ordinary income. Distributions are subject to
federal income tax and may be subject to state or local taxes. Your
distributions are taxable when paid, whether you reinvest them in
additional shares or take them in cash. Every year the Fund will send you
and the IRS a statement showing the amount of each taxable distribution
you received in the previous year.
- "Buying a Dividend": When a fund goes ex-dividend, its share
price is reduced by the amount of the distribution. If you buy shares on
or just before the ex-dividend date, or just before the Fund declares a
capital gains distribution, you will pay the full price for the shares and
then receive a portion of the price back as a taxable dividend or capital
gain.
- Taxes on Transactions: Share redemptions, including redemptions
for exchanges, are subject to capital gains tax. Generally speaking, 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. If this
occurs, it will be identified in notices to shareholders. A non-taxable
return of capital may reduce the tax basis in your Fund shares.
This information is only a summary of certain federal tax information
about your investment. More information is contained in the Statement of
Additional Information, and in addition you should consult with your tax
adviser about the effect of an investment in the Fund on your particular
tax situation.
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 Brothers 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 Brothers Aggregate Bond Index and The Salomon Brothers World
Government Bond Index, is set forth in the Prospectus under "Fund
Performance Information - Management's Discussion of Performance."
<TABLE>
<CAPTION>
Lehman Bros. Salomon Brothers
Fiscal Year Oppenheimer Aggregate World Government
(Period) Ended Income Fund A Bond Index Bond Index
- -------------- ------------- ------------ ----------------
<S> <C> <C> <C>
10/16/89 $ 9,525 $10,000 $10,000
09/30/90 $10,489 $10,498 $10,664
09/30/91 $12,258 $12,177 $12,268
09/30/92 $13,794 $13,705 $14,513
09/30/93 $15,666 $15,072 $15,991
09/30/94 $15,988 $14,586 $16,126
Lehman Bros. Salomon Brothers
Fiscal Year Oppenheimer Aggregate World Government
(Period) Ended Income Fund B Bond Index Bond Index
- -------------- ------------- ------------ ----------------
11/30/92(2) $10,000 $10,000 $10,000
09/30/93 $11,468 $11,141 $11,509
09/30/94 $11,222 $10,782 $11,606
- ----------------------
<FN>
(1) The Fund commenced operations on October 16, 1989.
(2) Class B shares of the Fund were first publicly offered on November 30,
1992.
</TABLE>
<PAGE>
Oppenheimer Strategic Income Fund
3410 South Galena Street
Denver, CO 80231
Telephone: 1-800-525-7048
Investment Advisor
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 LLP
1560 Broadway
Denver, Colorado 80202
Legal Counsel
Myer, Swanson, Adams & Wolf, P.C.
1600 Broadway
Denver, Colorado 80202
No dealer, broker, salesperson or any other person has been authorized to
give any information or to make any representations other than those
contained in this Prospectus or the Statement of Additional Information,
and if given or made, such information and representations must not be
relied upon as having been authorized by the Fund, Oppenheimer Management
Corporation, Oppenheimer Funds Distributor, Inc., or any affiliate
thereof. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any of the securities offered hereby in
any state to any person to whom it is unlawful to make such offer in such
state.
PR0230.001.0295 * Printed on recycled paper
Prospectus
OPPENHEIMER
Strategic Income
Fund
Effective February 1, 1995
(OppenheimerFunds Logo)
<PAGE>
Prospectus and
New Account Application
OPPENHEIMER
Strategic Income
Fund
Effective February 1, 1995
(OppenheimerFunds Logo)
<PAGE>
Oppenheimer Strategic Income Fund
3410 South Galena Street, Denver, Colorado 80231
1-800-525-7048
Statement of Additional Information dated February 1, 1995
This Statement of Additional Information is not a Prospectus. This
document contains additional information about the Fund and supplements
information in the Prospectus dated February 1, 1995. It should be read
together with the Prospectus, which may be obtained by writing to the
Fund's Transfer Agent, Oppenheimer Shareholder Services, at P.O. Box 5270,
Denver, Colorado 80217 or by calling the Transfer Agent at the toll-free
number shown above.
TABLE OF CONTENTS
Page
About the Fund
Investment Objective and Policies
Investment Policies and Strategies
Other Investment Techniques and Strategies
Other Investment Restrictions
How the Fund is Managed
Organization and History
Trustees and Officers of the Fund
The Manager and Its Affiliates
Brokerage Policies of the Fund
Performance of the Fund
Distribution and Service Plans
About Your Account
How To Buy Shares
How To Sell Shares
How To Exchange Shares
Dividends, Capital Gains and Taxes
Additional Information About the Fund
Financial Information About the Fund
Independent Auditors' Report
Financial Statements
Appendix: Industry Classifications
<PAGE>
ABOUT THE FUND
Investment Objective and Policies
Investment Policies and Strategies. 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, as well as strategies the Fund may use to try
to achieve its objective. Capitalized terms used in this Statement of
Additional Information have the same meaning as those terms have in the
Prospectus.
In selecting securities for the Fund's portfolio, the Fund's
investment manager, Oppenheimer Management Corporation (the "Manager"),
evaluates the investment merits of debt 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. With the exception of U.S. Government Securities,
the debt securities the Fund invests in will have one or more types of
investment risk: credit risk, interest rate risk or foreign exchange rate
risk: 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 debt securities resulting solely
from the inverse relationship between price and yield of outstanding debt
securities. An increase in prevailing interest rates will generally
reduce the market value of debt securities, 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
debt 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. Foreign exchange rate risk
refers to the change in value of the currency in which a foreign security
the Fund holds is denominated against the U.S. dollar.
Special Risks - 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.
Portfolio Turnover. 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 denominated in U.S. dollars or non-U.S.
currencies) issued or guaranteed by foreign corporations, certain
"supranational entities" (described below) and foreign governments or
their agencies or instrumentalities, and in 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 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. In addition, it is generally more difficult to
obtain court judgments outside the United States. The values of foreign
securities will be affected by incomplete or inaccurate information
available as to foreign issuers, 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
"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.
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.
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 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 and CMOs. 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. 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.
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 occur 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. 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 Corporate 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.
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 and on commercial 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 poolers. 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, 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.
Other Investment Techniques and Strategies
Repurchase Agreements. The Fund may acquire securities that are
subject to repurchase agreements, in order to generate income while
providing liquidity. In a repurchase transaction, the Fund acquires a
security from, and simultaneously resells it to, an approved vendor (a
U.S. commercial bank, U.S. branch of a foreign bank or a broker-dealer
which has been designated a primary dealer in government securities, which
must meet the credit requirements set by the Fund's Board of Trustees from
time to time), for delivery on an agreed upon future date. The sale price
exceeds the purchase price by an amount that reflects an agreed-upon
interest rate effective for the period during which the repurchase
agreement is in effect. The majority of these transactions run from day
to day, and delivery pursuant to resale typically will occur within one
to five days of the purchase. Repurchase agreements are considered
"loans" under the Investment Company Act, collateralized by the underlying
security. The Fund's repurchase agreements will require that at all times
while the repurchase agreement is in effect, the collateral's value must
equal or exceed the repurchase price to collateralize the repayment
obligation 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 and certain derivative instruments.
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.
Special Risks - 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.
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 Call Options. 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.
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),
foreign currencies 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.
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.
Financial Futures are similar to Interest Rate Futures except that
settlement is made in cash, and net gain or loss on options on Financial
Futures depends on price movements of the securities included in the
index. The strategies which the Fund employs regarding Financial Futures
are similar to those described above with regard to Interest Rate Futures.
Forward Contracts. The Fund may enter into foreign currency
exchange contracts ("Forward Contracts"), which obligate the seller to
deliver and the purchaser to take a specific amount of foreign currency
at a specific future date for a fixed price. A Forward Contract involves
bilateral obligations of one party to purchase, and another party to sell,
a specific currency at a future date (which may be any fixed number of
days from the date of the contract agreed upon by the parties), at a price
set at the time the contract is entered into. These contracts are traded
in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. The Fund may enter
into a Forward Contract in order to "lock in" the U.S. dollar price of a
security denominated in a foreign currency which it has purchased or sold
but which has not yet settled, or to protect against a possible loss
resulting from an adverse change in the relationship between the U.S.
dollar and a foreign currency. There is a risk that use of Forward
Contracts may reduce the gain that would otherwise result from a change
in the relationship between the U.S. dollar and a foreign currency.
Forward contracts include standardized foreign currency futures contracts
which are traded on exchanges and are subject to procedures and
regulations applicable to other Futures. The Fund may also enter into a
forward contract to sell a foreign currency denominated in a currency
other than that in which the underlying security is denominated. This is
done in the expectation that there is a greater correlation between the
foreign currency of the forward contract and the foreign currency of the
underlying investment than between the U.S. dollar and the foreign
currency of the underlying investment. This technique is referred to as
"cross hedging." The success of cross hedging is dependent on many
factors, including the ability of the Manager to correctly identify and
monitor the correlation between foreign currencies and the U.S. dollar.
To the extent that the correlation is not identical, the Fund may
experience losses or gains on both the underlying security and the cross
currency hedge.
The Fund may use Forward Contracts to protect against uncertainty in
the level of future exchange rates. The use of Forward Contracts does not
eliminate fluctuations in the prices of the underlying securities the Fund
owns or intends to acquire, but it does fix a rate of exchange in advance.
In addition, although Forward Contracts limit the risk of loss due to a
decline in the value of the hedged currencies, at the same time they limit
any potential gain that might result should the value of the currencies
increase.
There is no limitation as to the percentage of the Fund's assets that
may be committed to foreign currency exchange contracts. The Fund does
not enter into such forward contracts or maintain a net exposure in such
contracts to the extent that the Fund would be obligated to deliver an
amount of foreign currency in excess of the value of the Fund's assets
denominated in that currency, or enter into a "cross hedge," unless it is
denominated in a currency or currencies that the Manager believes will
have price movements that tend to correlate closely with the currency in
which the investment being hedged is denominated. See "Tax Aspects of
Covered Calls and Hedging Instruments" below for a discussion of the tax
treatment of foreign currency exchange contracts.
The Fund may enter into Forward Contracts with respect to specific
transactions. For example, when the Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency, or when
the Fund anticipates receipt of dividend payments in a foreign currency,
the Fund may desire to "lock-in" the U.S. dollar price of the security or
the U.S. dollar equivalent of such payment by entering into a Forward
Contract, for a fixed amount of U.S. dollars per unit of foreign currency,
for the purchase or sale of the amount of foreign currency involved in the
underlying transaction ("transaction hedge"). The Fund will thereby be
able to protect itself against a possible loss resulting from an adverse
change in the relationship between the currency exchange rates during the
period between the date on which the security is purchased or sold, or on
which the payment is declared, and the date on which such payments are
made or received.
The Fund may also use Forward Contracts to lock in the U.S. dollar
value of portfolio positions ("position hedge"). In a position hedge, for
example, when the Fund believes that foreign currency may suffer a
substantial decline against the U.S. dollar, it may enter into a forward
sale contract to sell an amount of that foreign currency approximating the
value of some or all of the Fund's portfolio securities denominated in
such foreign currency, or when the Fund believes that the U.S. dollar may
suffer a substantial decline against a foreign currency, it may enter into
a forward purchase contract to buy that foreign currency for a fixed
dollar amount. In this situation the Fund may, in the alternative, enter
into a forward contract to sell a different foreign currency for a fixed
U.S. dollar amount where the Fund believes that the U.S. dollar value of
the currency to be sold pursuant to the forward contract will fall
whenever there is a decline in the U.S. dollar value of the currency in
which portfolio securities of the Fund are denominated ("cross hedge").
The Fund's Custodian will place cash or U.S. Government securities
or other liquid high-quality debt securities in a separate account of the
Fund with the Custodian 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 obligations 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.
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.
Other Investment Restrictions
The Fund's most significant investment restrictions are set forth in
the Prospectus. There are additional investment restrictions that the
Fund must follow that are fundamental policies of the Fund. Fundamental
policies and the Fund's investment objective cannot be changed without the
vote of a "majority" of the Fund's outstanding voting securities. Under
the Investment Company Act, such a "majority" vote is defined as the vote
of the holders of the lesser of (i) 67% or more of the shares present or
represented by proxy at a shareholders' meeting, if the holders of more
than 50% of the outstanding shares are present or represented by a proxy,
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.
For purposes of the Fund's policy not to concentrate described under
investment restriction number 3 in the Prospectus, the Fund has adopted
the industry classifications set forth in the Appendix to this Statement
of Additional Information.
How the Fund Is Managed
Organization and History. As a Massachusetts business trust, the Fund
is not required to hold, and does not plan to hold, regular annual
meetings of shareholders. The Fund will hold meetings when required to do
so by the Investment Company Act or other applicable law, or when a
shareholder meeting is called by the Trustees or upon proper request of
the shareholders. Shareholders have the right, upon the declaration in
writing or vote of two-thirds of the outstanding shares of the Fund, to
remove a Trustee. The Trustees will call a meeting of shareholders to
vote on the removal of a Trustee upon the written request of the record
holders of 10% of its outstanding shares. In addition, if the Trustees
receive a request from at least 10 shareholders (who have been
shareholders for at least six months) holding shares of the Fund valued
at $25,000 or more or holding at least 1% of the Fund's outstanding
shares, whichever is less, stating that they wish to communicate with
other shareholders to request a meeting to remove a Trustee, the Trustees
will then either make the Fund's shareholder list available to the
applicants or mail their communication to all other shareholders at the
applicants' expense, or the Trustees may take such other action as set
forth under Section 16(c) of the Investment Company Act.
The Fund's Declaration of Trust contains an express disclaimer of
shareholder or Trustee liability for the Fund's obligations, and provides
for indemnification and reimbursement of expenses out of its property for
any shareholder held personally liable for its obligations. The
Declaration of Trust also provides that the Fund shall, upon request,
assume the defense of any claim made against any shareholder for any act
or obligation of the Fund and satisfy any judgment thereon. Thus, while
Massachusetts law permits a shareholder of a business trust (such as the
Fund) to be held personally liable as a "partner" under certain
circumstances, the risk of a Fund shareholder incurring financial loss on
account of shareholder liability is limited to the relatively remote
circumstances in which the Fund would be unable to meet its obligations
described above. Any person doing business with the Trust, and any
shareholder of the Trust, agrees under the Trust's Declaration of Trust
to look solely to the assets of the Trust for satisfaction of any claim
or demand which may arise out of any dealings with the Trust, and the
Trustees shall have no personal liability to any such person, to the
extent permitted by law.
Trustees and Officers of the Fund. The Fund's Trustees and officers and
their principal occupations and business affiliations during the past five
years are listed below. All of the Trustees are also trustees, directors
or managing general partners of Oppenheimer Total Return Fund, Inc.,
Oppenheimer Equity Income Fund, Oppenheimer High Yield Fund, Oppenheimer
Cash Reserves, Oppenheimer Tax-Exempt Bond Fund, Oppenheimer Limited-Term
Government 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, 1994, the Trustees and officers of the Fund as a group
owned less than 1% of the outstanding shares of the Fund. The foregoing
statement does not reflect ownership of shares held of record by an
employee benefit plan for employees of the Manager (for which plan two
officers of the Fund, Jon S. Fossel and Andrew J. Donohue, are trustees),
other than the shares beneficially owned under that plan by officers of
the Fund listed above.
ROBERT G. AVIS, Trustee*; Age 63
One North Jefferson Ave., St. Louis, Missouri 63103
Vice Chairman of A.G. Edwards & Sons, Inc. (a broker-dealer) and A.G.
Edwards, Inc. (its parent holding company); Chairman of A.G.E. Asset
Management and A.G. Edwards Trust Company (its affiliated investment
adviser and trust company, respectively).
WILLIAM A. BAKER, Trustee; Age 80
197 Desert Lakes Drive, Palm Springs, California 92264
Management Consultant.
CHARLES CONRAD, JR., Trustee; Age 64
19411 Merion Circle, Huntington Beach, California 92648
Vice President of McDonnell Douglas Space Systems Co.; formerly associated
with the National Aeronautics and Space Administration.
JON S. FOSSEL, President and Trustee*; Age 52
Two World Trade Center, New York, New York 10048-0203
Chairman, Chief Executive Officer and a director of the Manager; President
and a director of Oppenheimer Acquisition Corp. ("OAC"), the Manager's
parent holding company; President and a director of HarbourView Asset
Management Corporation ("HarbourView"), a subsidiary of the Manager; a
director of Shareholder Services, Inc. ("SSI") and Shareholder Financial
Services, Inc. ("SFSI"), transfer agent subsidiaries of the Manager;
formerly President of the Manager.
RAYMOND J. KALINOWSKI, Trustee; Age 65
44 Portland Drive, St. Louis, Missouri 63131
Director of Wave Technologies International, Inc.; formerly Vice Chairman
and a director of A.G. Edwards, Inc., parent holding company of A.G.
Edwards & Sons, Inc. (a broker-dealer), of which he was a Senior Vice
President.
C. HOWARD KAST, Trustee; Age 73
2552 East Alameda, Denver, Colorado 80209
Formerly the Managing Partner of Deloitte, Haskins & Sells (an accounting
firm).
ROBERT M. KIRCHNER, Trustee; Age 73
7500 E. Arapahoe Road, Englewood, Colorado 80112
President of The Kirchner Company (management consultants).
NED M. STEEL, Trustee; Age 79
3416 S. Race Street, Englewood, Colorado 80110
Chartered Property and Casualty Underwriter; Director of Visiting Nurse
Corporation of Colorado; formerly Senior Vice President and a Director of
Van Gilder Insurance Corp. (insurance brokers).
__________________
*A Trustee who is an "interested person" of the Fund as defined in the
Investment Company Act.
JAMES C. SWAIN, Chairman and Trustee*; Age 61
3410 South Galena Street, Denver, Colorado 80231
Vice Chairman and a Director of the Manager; President and a Director of
Centennial Asset Management Corporation, an investment adviser subsidiary
of the Manager ("Centennial"); formerly Chairman of the Board of SSI.
ANDREW J. DONOHUE, Vice President; Age 44
Executive Vice President and General Counsel of Oppenheimer Management
Corporation ("OMC") (the "Manager") and Oppenheimer Funds Distributor,
Inc. (the "Distributor"); an officer of other OppenheimerFunds; formerly
Senior Vice President and Associate General Counsel of the Manager and the
Distributor; Partner in, Kraft & McManimon (a law firm); an officer of
First Investors Corporation (a broker-dealer) and First Investors
Management Company, Inc. (broker-dealer and investment adviser); director
and an officer of First Investors Family of Funds and First Investors Life
Insurance Company.
GEORGE C. BOWEN, Vice President, Secretary and Treasurer; Age 58
3410 South Galena Street Denver, Colorado 80231
Senior Vice President and Treasurer of the Manager; Vice President and
Treasurer of the Distributor and HarbourView; Senior Vice President,
Treasurer, Assistant Secretary and a director of Centennial; Vice
President, Treasurer and Secretary of SSI and SFSI; an officer of other
OppenheimerFunds.
ARTHUR P. STEINMETZ, Vice President and Portfolio Manager; Age 36
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; Age 40
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; Age 46
Two World Trade Center, New York, New York 10048-0203
Senior Vice President and Associate General Counsel of the Manager,
Assistant Secretary of SSI and SFSI; an officer of other
OppenheimerFunds.
ROBERT J. BISHOP, Assistant Treasurer; Age 36
3410 South Galena Street, Denver, Colorado 80231
Assistant Vice President of the Manager/Mutual Fund Accounting; an officer
of other OppenheimerFunds; previously a Fund Controller of the Manager,
prior to which he was an Accountant for Resolution Trust Corporation and
previously an Accountant and Commissions Supervisor for Stuart James
Company Inc., a broker-dealer.
__________________
*A Trustee who is an "interested person" of the Fund as defined in the
Investment Company Act.
SCOTT FARRAR, Assistant Treasurer; Age 29
3410 South Galena Street, Denver, Colorado 80231
Assistant Vice President of the Manager/Mutual Fund Accounting, an officer
of other OppenheimerFunds; previously a Fund Controller for the Manager,
prior to which he was an International Mutual Fund Supervisor for Brown
Brothers Harriman & Co. (a bank) and previously a Senior Fund Accountant
for State Street Bank & Trust Company.
Remuneration of Trustees. The officers of the Trust are affiliated
with the Manager; they and the Trustees of the Fund who are affiliated
with the Manager (Messrs. Fossel and Swain, who are both officers and
Trustees) receive no salary or fee from the Fund. The Trustees of the
Fund (excluding Messrs. Fossel and Swain) received the total amounts shown
below from all 22 of the Denver-based OppenheimerFunds (including the
Fund) listed in the first paragraph of this section, for services in the
positions shown:
Total Compensation From All
Name Position Denver-based OppenheimerFunds
Robert G. Avis Trustee $53,000.00
William A. BakerAudit and Review Committee$73,257.01
Chairman and Trustee
Charles Conrad, Jr.Audit and Review Committee$68,293.67
Member and Trustee
Raymond J. KalinowskiTrustee$53,000.00
C. Howard KastTrustee$53,000.00
Robert M. KirchnerAudit and Review Committee$68,293.67
Member and Trustee
Ned M. Steel Trustee $53,000.00
______________________
1 For the 1994 calendar year.
Major Shareholders. As of December 31, 1994, no person owned of
record or was known by the Fund to own beneficially 5% or more of the Fund
as a whole or either class of the Fund's outstanding shares.
The Manager and Its Affiliates. The Manager is wholly-owned by
Oppenheimer Acquisition Corp. ("OAC"), a holding company controlled by
Massachusetts Mutual Life Insurance Company. OAC is also owned in part
by certain of the Manager's directors and officers, some of whom also
serve as officers of the Fund, and two of whom (Mr. Fossel and Mr. Swain)
serve as Trustees of the Fund.
The Investment Advisory Agreement. A management fee is payable
monthly to the Manager under the terms of the investment advisory
agreement between the Manager and the Fund, and is computed on the
aggregate net assets of the Fund as of the close of business each day.
The investment advisory 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 advisory
agreement or by the Distributor are paid by the Fund. The advisory
agreement lists examples of expenses paid by the Fund, the major
categories of which relate to interest, taxes, brokerage commissions, fees
to 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, 1992, 1993 and 1994 the management fees
paid by the Fund to the Manager were $7,128,280, $14,044,913 and
$23,416,082, respectively.
The advisory agreement contains no expense limitation. However,
independently of the advisory 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 Manager has also
undertaken to assume the Fund's expenses (other than extraordinary non-
recurring expenses) to enable the Fund to pay a dividend of $0.438 per
share per annum. As a result of that expense assumption, the Fund's yield
and total return may have been higher during that period than they
otherwise would have been. The Manager may terminate that undertaking at
any time.
The advisory agreement provides that in the absence of willful
misfeasance, bad faith, gross negligence in the performance of its duties,
or reckless disregard of its obligations and duties under the advisory
agreement, the Manager is not liable for any loss sustained by reason of
good faith errors or omissions in connection with any matters to which the
Agreement relates. The advisory agreement permits the Manager to act as
investment adviser for any other person, firm or corporation 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.
The Distributor. Under its General Distributor's Agreement with the
Fund, the Distributor acts as the Fund's principal underwriter in the
continuous public offering of the Fund's Class A 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, 1992, 1993 and 1994, the aggregate amount of
sales charges on sales of the Fund's Class A shares was $38,724,674,
$39,326,104 and $31,059,937, respectively, of which the Distributor and
an affiliated broker-dealer retained in the aggregate $10,331,365,
$9,834,389 and $8,686,206 in those respective years. During the Fund's
fiscal period November 30, 1992 through September 30, 1993 and the fiscal
year ended September 30, 1994, the contingent deferred sales charges
collected on the Fund's Class B shares totalled 281,835 and 2,731,436,
respectively, all of which the Distributor retained. For additional
information about distribution of the Fund's shares and the expenses
connected with such activities, please refer to "Distribution and Service
Plans," below.
The Transfer Agent. Oppenheimer Shareholder Services, as transfer
agent, is responsible for maintaining the Fund's shareholder registry and
shareholder accounting records, and for shareholder servicing and
administrative functions.
Brokerage Policies of the Fund
Brokerage Provisions of the Investment Advisory Agreement. One of the
duties of the Manager under the advisory agreement is to arrange the
portfolio transactions of the Fund. The advisory agreement contains
provisions relating to the employment of broker-dealers ("brokers") to
effect the Fund's portfolio transactions. In doing so, the Manager is
authorized by the advisory agreement to employ broker-dealers, including
"affiliated" brokers, as that term is defined in the Investment Company
Act, as may, in its best judgment based on all relevant factors, implement
the policy of the Fund to obtain, at reasonable expense, the "best
execution" (prompt and reliable execution at the most favorable price
obtainable) of such transactions. The Manager need not seek competitive
commission bidding 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 advisory agreement and the interests and policies of the Fund as
established by its Board of Trustees.
Under the advisory 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 advisory agreement, when brokers are used for the
Fund's portfolio transactions, allocations of brokerage are generally made
by the Manager's portfolio traders based upon recommendations from the
Manager's portfolio managers. In certain circumstances, portfolio
managers may directly place trades and allocate brokerage, also subject
to the provisions of the advisory agreement and the procedures and rules
described above. Brokerage is allocated under the supervision of the
Manager's executive officers. Transactions in securities other than those
for which an exchange is the primary market are generally done with
principals or market makers. Brokerage commissions are paid primarily for
effecting transactions in listed securities and otherwise only if it
appears likely that a better price or execution can be obtained. When the
Fund engages in an option transaction, ordinarily the same broker will be
used for the purchase or sale of the option and any 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 Board of Trustees has permitted the Manager to
use concessions on fixed price offerings to obtain research in the same
manner as is permitted for agency transactions.
The research services provided by brokers 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.
During the Fund's fiscal years ended September 30, 1992, 1993 and
1994, total brokerage commissions paid by the Fund (not including spreads
or concessions on principal transactions on a net trade basis) were
$4,200, $4,663 and $46,217, respectively. During the Fund's fiscal year
ended September 30, 1994, $6,989 was paid to brokers as commissions in
return for research services; the aggregate amount of those transactions
was $1,329,858.
Performance of the Fund
Yield and Total Return Information. As described in the Prospectus,
from time to time the "standardized yield," "dividend yield," "average
annual total return", "cumulative total return," "average annual total
return at net asset value," and "total return at net asset value" of an
investment in 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 is set forth below.
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 expenses allocated
to the particular class.
Standardized Yields.
Yield. The Fund's "yield" (referred to as "standardized yield") for
a given 30-day period for a class of shares is calculated using the
following formula set forth in rules adopted by the Securities and
Exchange Commission that apply to all funds that quote yields:
a-b 6
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, 1994, the standardized yields for
the Fund's Class A and Class B shares were 8.65% and 8.31%, 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, 1994,
were 8.77% and 9.21% when calculated at maximum offering price and at net
asset value, respectively. The dividend yield on Class B shares for the
30-day period ended September 30, 1994, was 8.43% when calculated at net
asset value.
Total Return Information
Average Annual Total Returns. The "average annual total return" of
each class is an average annual compounded rate of return for each year
in a specified number of years. It is the rate of return based on the
change in value of a hypothetical initial investment of $1,000 ("P" in the
formula below) held for a number of years ("n") to achieve an Ending
Redeemable Value ("ERV"), according to the following formula:
( ERV ) 1/n
(-----) -1 = Average Annual Total Return
( P )
Cumulative Total Returns. The cumulative "total return"
calculation measures the change in value of a hypothetical investment of
$1,000 over an entire period of years. Its calculation uses some of the
same factors as average annual total return, but it does not average the
rate of return on an annual basis. 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, 1994 and for the period from October 16,
1989 (commencement of operations) to September 30, 1994, were <2.98> and
9.93%, respectively. The cumulative "total return" on Class A shares for
the latter period was 59.88%. For the fiscal year ended September 30,
1994 and the period from November 30, 1992 through September 30, 1994, the
average annual total return on an investment in Class B shares of the Fund
were <3.49>% and 6.49%, respectively. The cumulative total return on an
investment in Class B shares of the Fund for the period from November 30,
1992 to September 30, 1994 was 12.22%.
Total Returns at Net Asset Value. From time to time the Fund may
also quote an "average annual total return at net asset value" or a
cumulative "total return at net asset value" for Class A 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, 1994, and for the period from October 16, 1989 to September 30, 1994
were 1.85% and 67.85%, respectively. The cumulative total return at net
asset value on the Fund's Class B shares for the fiscal year ended
September 30, 1994 and for the period from November 30, 1992 through
September 30, 1994 was 1.07% and 16.11%, respectively.
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, municipal bond
and hybrid) monthly, based on risk-adjusted investment return. Investment
return measures a fund's three, five and ten-year average annual total
returns (when available) in excess of 90-day U.S. Treasury bill returns
after considering sales charges and expenses. Risk measures fund
performance below 90-day U.S. Treasury bill monthly returns. Risk and
return are combined to produce star rankings reflecting performance
relative to the average fund in a fund's category. Five stars is the
"highest" ranking (top 10%), four stars is "above average" (next 22.5%),
three stars is "average" (next 35%), two stars is "below average" (next
22.5%) and one star is "lowest" (bottom 10%). Morningstar ranks the Class
A and Class B shares of the Fund in relation to other taxable bond funds.
Rankings are subject to change.
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 Brothers 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 Brothers 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 Distributor's distribution costs for that quarter, and
such costs for previous fiscal periods that are carried forward, as
explained in the Prospectus and below. Those reports, including the
allocations on which they are based, will be subject to the review and
approval of the Independent Trustees in the exercise of their fiduciary
duty. Each Plan further provides that while it is in effect, the
selection and nomination of those Trustees of the Fund who are not
"interested persons" of the Fund is committed to the discretion of the
Independent Trustees. This does not prevent the involvement of others in
such selection and nomination if the final decision on any such selection
or nomination is approved by a majority of the Independent Trustees.
Under the Plans, no payment will be made to any 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, 1994, payments under the
Class A Plan totaled $7,673,295, all of which was paid by the Distributor
to Recipients, including $468,405 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 are 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 year ended September 30, 1994, payments under the Class B plan
totaled $12,329,469, including $17,712 paid to an affiliate of the
Distributor and $11,816,316 retained by the Distributor.
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
was 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. 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.
ABOUT YOUR ACCOUNT
How To Buy Shares
Alternative Sales Arrangements - Class A and Class B Shares. The
availability of two classes of shares permits an investor to choose the
method of purchasing shares that is more beneficial to the investor
depending on the amount of the purchase, the length of time the investor
expects to hold shares and other relevant circumstances. Investors should
understand that the purpose and function of the deferred sales charge and
asset-based sales charge with respect to Class B 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 Class B shares to Class A shares after six years
is subject to the continuing availability of a private letter ruling from
the Internal Revenue Service, or an opinion of counsel or tax adviser, to
the effect that the conversion of B shares does not constitute a taxable
event for the holder under Federal income tax law. If such a revenue
ruling or opinion is no longer available, the automatic conversion feature
may be suspended, in which event no further conversions of Class B shares
would occur while such suspension remained in effect. Although Class B
shares could then be exchanged for Class A shares on the basis of relative
net asset value of the two classes, without the imposition of a sales
charge or fee, such exchange could constitute a taxable event for the
holder, and absent such exchange, Class B shares might continue to be
subject to the asset-based sales charge for longer than six years.
The methodology for calculating the net asset value, dividends and
distributions of the Fund's Class A 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 assets,
and then equally to each outstanding share within a given class. Such
general expenses include (i) management fees, (ii) legal, bookkeeping and
audit fees, (iii) printing and mailing costs of shareholder reports,
Prospectuses, Statements of Additional Information and other materials for
current shareholders, (iv) fees to Independent 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.
Determination of Net Asset Values Per Share. The net asset values per
share of Class A and Class B shares of the Fund are determined as of the
close of business of The New York Stock Exchange on each day that the
Exchange is open by dividing the value of the Fund's net assets
attributable to a class by the number of shares of that class outstanding.
The Exchange normally closes at 4:00 P.M., New York time, but may close
earlier on some days (for example, in case of weather emergencies or on
days falling before a holiday). The 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 Exchange is closed, including weekends and holidays or after the
close of the Exchange 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 for which last sale
information is regularly reported are valued at the last reported sale
price on their primary exchange or NASDAQ that day (or, in the absence of
sales that day, at values based on the last sales prices of the preceding
trading day, or closing bid and asked prices); (ii) securities traded on
NASDAQ and other unlisted equity securities for which last sales prices
are not regularly reported but for which over-the-counter market
quotations are readily available are valued at the highest closing bid
price at the time of valuation, or, if no closing bid price is reported,
on the basis of a closing bid price obtained from a dealer who maintains
an active market in that security; (iii) securities (including restricted
securities) not having readily-available market quotations are valued at
fair value under the Board's procedures; (iv) debt securities having a
maturity in excess of 60 days are valued at the mean between the bid and
asked prices determined by a portfolio pricing service approved by the
Fund's Board of Trustees or obtained from active market makers in the
security on the basis of reasonable inquiry; (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 at the closing or last sales prices reported
on a principal exchange or, if none, at the mean between closing bid and
asked prices and reflect prevailing rates of exchange taken from the
closing price on the London foreign exchange market that day. 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.
Forward currency contracts are valued at the closing price on the London
foreign exchange market. 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.
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 shares purchased by the proceeds of ACH transfers on the business day
the Fund receives Federal Funds for the purchase through the ACH system
before the close of The New York Stock Exchange. The Exchange normally
closes at 4:00 P.M., but may close earlier on certain days. If Federal
Funds are received on a business day after the close of the Exchange, the
shares will begin to accrue dividends on the next regular business day.
The proceeds of ACH transfers are normally received by the Fund 3 days
after the transfers are initiated. The Distributor and the Fund are not
responsible for any delays in purchasing shares resulting from delays in
ACH transmissions.
Reduced Sales Charges. As discussed in the Prospectus, a reduced sales
charge rate may be obtained for Class A shares under Right of Accumulation
and Letters of Intent because of the economies of sales efforts and
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 Growth Fund
Oppenheimer Equity Income Fund
Oppenheimer Value Stock Fund
Oppenheimer Asset Allocation Fund
Oppenheimer Total Return Fund, Inc.
Oppenheimer Main Street Income & Growth Fund<PAGE>
Oppenheimer High Yield Fund
Oppenheimer Champion High Yield Fund
Oppenheimer Investment Grade Bond Fund
Oppenheimer U.S. Government Trust
Oppenheimer Limited-Term Government Fund
Oppenheimer Mortgage Income Fund
Oppenheimer Global Fund
Oppenheimer Global Emerging Growth Fund
Oppenheimer Global Growth & Income Fund
Oppenheimer Gold & Special Minerals Fund
Oppenheimer Strategic Income Fund
Oppenheimer Strategic Investment Grade Bond Fund
Oppenheimer Strategic Short-Term Income Fund
Oppenheimer Strategic Income & Growth Fund
Oppenheimer Strategic Diversified Income Fund
the following "Money Market Funds":
Oppenheimer Money Market Fund, Inc.
Oppenheimer Cash Reserves
Centennial Money Market Trust
Centennial Tax Exempt Trust<PAGE>
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.
Asset Builder Plans. To establish an Asset Builder Plan from a bank
account, a check (minimum $25) for the initial purchase must accompany the
application. Shares purchased by Asset Builder Plan payments from bank
accounts are subject to the redemption restrictions for recent purchases
described in "How To Sell Shares," in the Prospectus. Asset Builder Plans
also enable shareholders of Oppenheimer Cash Reserves to use those
accounts for monthly automatic purchases of shares of up to four other
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.
How to Sell Shares
Information on how to sell shares of the Fund is stated in the
Prospectus. The information below supplements the terms and conditions for
redemptions set forth in the Prospectus.
Checkwriting. When a check is presented to the Bank for clearance,
the Bank will ask the Fund to redeem a sufficient number of full and
fractional shares in the shareholder's account to cover the amount of the
check. This enables the shareholder to continue receiving dividends on
those shares until the check is presented to the Fund. Checks may not be
presented for payment at the offices of the Bank or the Fund's Custodian.
This limitation does not affect the use of checks for the payment of bills
or to obtain cash at other banks. The Fund reserves the right to amend,
suspend or discontinue offering checkwriting privileges at any time
without prior notice.
Involuntary Redemptions. The Fund's Board of Trustees has the right
to cause the involuntary redemption of the shares held in any account if
the aggregate net asset value of those shares is less than $200 or such
lesser amount as the Board may fix. The Board of Trustees will not cause
the involuntary redemption of shares in an account if the aggregate net
asset value of the shares has fallen below the stated minimum solely as
a result of market fluctuations. Should the Board elect to exercise this
right, it may also fix, in accordance with the Investment Company Act, the
requirements for any notice to be given to the shareholders in question
(not less than 30 days), or the Board may set requirements for granting
permission to the Shareholder to increase the investment, and set other
terms and conditions so that the shares would not be involuntarily
redeemed.
Payments "In Kind". The Prospectus states that payment for shares
tendered for redemption is ordinarily made in cash. However, the Board
of Trustees of the Fund may determine that it would be detrimental to the
best interests of the remaining shareholders of the Fund to make payment
of a redemption order wholly or partly in cash. In that case the Fund may
pay the redemption proceeds in whole or in part by a distribution "in
kind" of securities from the portfolio of the Fund, in lieu of cash, in
conformity with applicable rules of the Securities and Exchange
Commission. The Fund has elected to be governed by Rule 18f-1 under the
Investment Company Act, pursuant to which the Fund is obligated to redeem
shares solely in cash up to the lesser of $250,000 or 1% of the net assets
of the Fund during any 90-day period for any one shareholder. If shares
are redeemed in kind, the redeeming shareholder might incur brokerage or
other costs in selling the securities for cash. The method of valuing
securities used to make redemptions in kind will be the same as the method
the Fund uses to value its portfolio securities described above under the
"Determination of Net Asset Values Per Share" and that valuation will be
made as of the time the redemption price is determined.
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. However, in that case the sales charge
would be added to the basis of the shares acquired by the reinvestment of
the redemption proceeds. The Fund may amend, suspend or cease offering
this reinvestment privilege at any time as to shares redeemed after the
date of such amendment, suspension or cessation.
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 Distributor receives the order placed by the
dealer or broker, except that if the Distributor receives a repurchase
order from a dealer or broker after the close of The New York Stock
Exchange on a regular business day, it will be processed at that day's net
asset value if the order was received by the dealer or broker from its
customers prior to the time the Exchange closes (normally, that is 4:00
P.M., but may be earlier on some days) and the order was transmitted to
and received by the Distributor prior to its close of business that day
(normally 5:00 P.M.). 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 Fund and 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
As stated in the Prospectus, shares of a particular class of
OppenheimerFunds having more than one class of shares may be exchanged
only for shares of the same class of other OppenheimerFunds. Shares of
the OppenheimerFunds that have a single class without a class designation
are deemed "Class A" shares for this purpose. All OppenheimerFunds offer
Class A shares (except for Oppenheimer Strategic Diversified Income Fund),
but only the following other OppenheimerFunds currently offer Class B
shares:
Oppenheimer Main Street Income & Growth Fund
Oppenheimer Equity Income Fund
Oppenheimer Strategic Income & Growth Fund
Oppenheimer Strategic Investment Grade Bond Fund
Oppenheimer Strategic Short-Term Income Fund
Oppenheimer New York Tax-Exempt Fund
Oppenheimer Tax-Free Bond Fund
Oppenheimer California Tax-Exempt Fund
Oppenheimer Pennsylvania Tax-Exempt Fund
Oppenheimer Florida Tax-Exempt Fund
Oppenheimer New Jersey Tax-Exempt Fund
Oppenheimer Insured Tax-Exempt Bond Fund
Oppenheimer Main Street California Tax-Exempt Fund
Oppenheimer Total Return Fund, Inc.
Oppenheimer Investment Grade Bond Fund
Oppenheimer Value Stock Fund
Oppenheimer Limited-Term Government Fund
Oppenheimer High Yield Fund
Oppenheimer Mortgage Income Fund
Oppenheimer Cash Reserves (Class B shares are only
available by exchange)
Oppenheimer Growth Fund
Oppenheimer Global Fund
Oppenheimer Discovery Fund
Class A shares of OppenheimerFunds may be exchanged for shares of any
Money Market Fund; shares of any Money Market Fund purchased without a
sales charge may be exchanged for shares of OppenheimerFunds offered with
a sales charge upon payment of the sales charge (or, if applicable, may
be used to purchase shares of OppenheimerFunds subject to a 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.
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.
Tax Status of the Fund's Dividends and Distributions. The Federal tax
treatment of the Fund's dividends and capital gains distributions is
explained in the Prospectus under the caption "Dividends, Capital Gains
and Taxes." 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
Shares," 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. 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
The Custodian. 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.
Independent Auditors. The independent auditors of the Fund audit the
Fund's financial statements and perform other related audit services.
They also act as auditors for 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, 1994, the related statement of operations for the year then ended,
the statements of changes in net assets for the years ended September 30, 1994
and 1993, and the financial highlights for the period October 16, 1989
(commencement of operations) to September 30, 1994. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit also includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. Our procedures included confirmation of securities owned
at September 30, 1994 by correspondence with the custodian and brokers; 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, 1994, the results of its operations, the
changes in its net assets, and the financial highlights for the respective
stated periods, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Denver, Colorado
October 21, 1994
<PAGE>
- ------------------------------------------------------------------------------
Statement of Investments September 30, 1994
<TABLE>
<CAPTION>
Face Market Value
Amount See Note 1
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreements--0.9%
- ------------------------------------------------------------------------------------------------------------------------------------
Repurchase agreement with First Chicago Capital Markets, 4.95%, dated
9/30/94, to be repurchased at $40,716,789 on 10/3/94, collateralized by U.S.
Treasury Nts., 4.25%--8.50%, 4/15/95--7/15/98, with a value of $23,014,481
and U.S. Treasury Bills, 0%, 3/16/95--3/23/95, with a value of $18,537,281
(Cost $40,700,000) $40,700,000 $40,700,000
- ------------------------------------------------------------------------------------------------------------------------------------
Short-Term Government Obligations--0.3%
- ------------------------------------------------------------------------------------------------------------------------------------
Bonos de la Tesoreria la Federacion:
0%, 8/3/95 7,623,450(1) 2,103,222
0%, 8/10/95 12,197,520(1) 3,360,261
- ------------------------------------------------------------------------------------------------------------------------------------
United Mexican States Treasury Bills, 0%, 11/10/94 35,238,970(1) 10,203,270
- ------------------------------------------------------------------------------------------------------------------------------------
Total Short-Term Government Obligations (Cost $15,646,044) 15,666,753
- ------------------------------------------------------------------------------------------------------------------------------------
Long-Term Government Obligations--49.8%
- ------------------------------------------------------------------------------------------------------------------------------------
Argentina (Republic Of):
Bonos de Consolidacion de Deudas:
Bonds, 8.375%, 12/20/03 36,950,000 30,797,934
Bonds, Series I, 3.704%, 4/1/01(4)(6) 77,759,247(1) 45,377,982
Bonds, Series I, 4.375%, 4/1/01(4)(6) 27,007,821 20,469,552
Bonds, Series I, 4.8125%, 4/1/07(4)(6) 45,913,296 28,585,986
Bonds, Series I, 4.8125%, 9/1/02(4)(6) 15,634,644 10,528,088
Supplier Bocon (Pesos), 4.60%, 4/1/07 5,057,512(1) 2,118,317
Discount Bonds, 4.250%, 3/31/23 20,000,000 14,250,000
Par Bonds, 4.25%, 3/31/23(8) 30,000,000 14,925,000
Past Due Interest Bonds, 5%, 3/31/05(4)(6) 107,000,000 81,721,250
- ------------------------------------------------------------------------------------------------------------------------------------
Bariven SA Sr. Nts., Gtd. by Petroleos de Venezuela:
9.50%, 12/10/96 500,000 478,750
9%, 2/25/97(5) 1,000,000 930,000
- ------------------------------------------------------------------------------------------------------------------------------------
Brazil (Federal Republic of):
6% Debs., 9/15/13 32,000,000 17,220,000
Bonds, Banco do Brasil SA, 10.50%, 4/14/98 5,000,000 5,043,750
Bonds, Banco do Nordeste, Sr. Unsec. Debs, 9%, 11/12/96 8,200,000 7,779,750
Bonds, Nacional de Desenvolvimento Economico e Social:
10.375%, 4/27/98 3,850,000 3,854,813
Interest Due and Unpaid Bonds, 8.75%, 1/1/01(4) 19,061,000 15,844,456
Nts., Banco Estado Minas Gerais:
10%, 1/15/96 14,870,000 14,349,550
7.875%, 2/10/99(5) 4,000,000 3,290,000
8.25%, 2/10/00 9,000,000 7,245,000
8.25%, 2/10/00(5) 2,000,000 1,630,000
- ------------------------------------------------------------------------------------------------------------------------------------
Colombia (Republic of):
8.75%, Nts., 10/6/99 5,000,000 4,984,084
1989--1990 Integrated Loan Facility Bonds:
4.188%, 7/1/01(4)(5) 16,131,048 15,485,807
4.44%, 10/26/03(4)(5) 8,122,423 7,594,466
Empresa Columbiana de Petroleos, Nts., 7.25%, 7/8/98(5) 15,650,000 14,926,188
- ------------------------------------------------------------------------------------------------------------------------------------
Denmark (Kingdom of) Bonds:
9%, 11/15/98 158,160,000(1) 26,215,716
6%, 12/10/99 47,450,000(1) 6,929,474
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Face Market Value
Amount See Note 1
------ ------------
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Long-Term Government Obligations (continued)
First Australia National Mortgage Acceptance Corp. Ltd Bonds,
Series 17, 15%, 7/15/02 $3,740,000(1) $ 3,015,869
- ------------------------------------------------------------------------------------------------------------------------------------
Indonesia (Republic of) CD, Bank Negara, 0%, 4/24/95 56,500,000,000(1) 23,817,889
- ------------------------------------------------------------------------------------------------------------------------------------
Italy (Republic of) Treasury Bonds:
12%, 9/1/97 13,600,000,000(1) 8,843,486
12.50%, 1/1/98 13,500,000,000(1) 8,877,980
Buoni Pollennali del Tes:
12%, 1/1/96 13,720,000,000(1) 8,904,807
12%, 5/1/97 62,325,000,000(1) 40,491,269
12.50%, 6/16/97 12,300,000,000(1) 8,074,634
12.50%, 3/19/98 4,740,000,000(1) 3,135,692
12%, 1/17/99 10,000,000,000(1) 6,476,281
- ------------------------------------------------------------------------------------------------------------------------------------
Jamaica (Government of) 1990 Refinancing Agreement Nts.:
Tranche A, 4.125%, 10/15/00(4)(5) 900,000 738,000
Tranche B, 4.125%, 11/15/04(4)(5) 5,000,000 3,400,000
- ------------------------------------------------------------------------------------------------------------------------------------
Landeskredietbank Baden Sr. Unsec. Unsub. Nts., 11.625%, 6/24/99 5,000,000,000(1) 3,241,186
- ------------------------------------------------------------------------------------------------------------------------------------
Morocco (Kingdom of):
Loan Participation Agreement:
Tranche A, 5.938%, 1/1/09(4)(5) 55,950,000 40,843,500
Tranche B, 4.312%, 1/1/04(4)(5) 33,800,000 26,089,375
- ------------------------------------------------------------------------------------------------------------------------------------
New South Wales Treasury Corp., 7% Gtd. Bonds, 4/1/04 16,000,000(1) 9,375,719
- ------------------------------------------------------------------------------------------------------------------------------------
New Zealand (Republic of) Bonds:
9%, 11/15/96 65,570,000(1) 39,610,123
10%, 7/15/97 29,150,000(1) 18,009,173
- ------------------------------------------------------------------------------------------------------------------------------------
Oesterreich Kontrollbank Sr. Unsec. Unsub. Gtd. Nts., 10%, 8/10/99 3,700,000,000(1) 2,276,923
- ------------------------------------------------------------------------------------------------------------------------------------
Polish People's Republic Loan Participation Agreement, 5.0625%, 2/3/24(4)(5)(7) 20,750,000(1) 11,481,851
- ------------------------------------------------------------------------------------------------------------------------------------
Quebec, Canada (Province of), Sr. Nts., 9.50%, 10/2/02 20,000,000(1) 13,495,634
- ------------------------------------------------------------------------------------------------------------------------------------
South Africa (Republic of), Loan Participation Agreements:
Eskom 4.907%, 12/23/97(4)(5) 6,457,568 6,037,827
Eskom 4.651%, 1/15/98(4)(5) 8,750,000 8,137,500
Eskom 4.875%, 4/15/98(4)(5) 2,767,816 2,504,874
Eskom 4.75%, 9/15/99(4)(5) 8,578,951 7,763,951
Eskom 4.875%, 2/15/00(4)(5) 29,550,000 27,333,750
- ------------------------------------------------------------------------------------------------------------------------------------
South Australia Government Finance Authority Bonds, 10%, 1/15/03 34,200,000(1) 24,282,057
- ------------------------------------------------------------------------------------------------------------------------------------
Spain (Kingdom of):
Bonds, 11.45%, 8/30/98 10,236,000,000(1) 80,606,211
Bonds, 10.25%, 11/30/98 1,500,000,000(1) 11,351,344
Gtd. Bonds, Bonos y Obligacion del Estado, 12.25%, 3/25/00 9,781,000,000(1) 78,905,977
- ------------------------------------------------------------------------------------------------------------------------------------
Treasury Corp. of Victoria:
Bonds, 12%, 10/22/98 19,000,000(1) 15,100,310
Gtd. Bonds, 8.25%, 10/15/03 80,290,000(1) 51,130,130
- ------------------------------------------------------------------------------------------------------------------------------------
United Kingdom Treasury Nts., 12%, 11/20/98 43,743,000(1) 76,484,630
- ------------------------------------------------------------------------------------------------------------------------------------
United Mexican States:
1990 Combined Multi-Year Restructuring Agreement,
Restructured Sov. Loan, 4.28%, 12/23/06(4)(5) 26,277,514 21,876,031
Banco Nacional de Comercio Exterior SNC International Finance BV
Collateralized Fixed Rate Par Bonds:
Series A, 6.25%, 12/31/19 15,000,000 9,721,875
Series B, 6.25%, 12/31/19 15,000,000 9,721,875
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Statement of Investments (Continued)
Face Market Value
Amount See Note 1
------- --------------
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Long-Term Government Obligations (continued)
Gtd. Matador Bonds:
13%, 1/29/97 $1,250,000,000(1) $9,819,166
12.65%, 6/21/98 2,900,000,000(1) 21,652,719
12.25%, 12/3/98 19,500,000(1) 32,000,800
7.25% Debs., 2/2/04 1,750,000 1,467,821
Bankpesca Restructured Sov. Loan, 6.0625%, 10/26/06(4)(5) 5,310,128 4,420,682
Banobras Myra Loan Participation Agreement, Tranche 2,
6.125%, 11/16/06(4)(5) 3,271,125 2,723,213
- ------------------------------------------------------------------------------------------------------------------------------------
Myra Old Money Loan Participation Agreements:
5.6875%, 3/20/05(4)(5) 4,039,820 3,363,150
6.1725%, 3/20/05(4)(5) 167,589 139,518
- ------------------------------------------------------------------------------------------------------------------------------------
New New Money Loan Participation Agreements, 5.1825%, 3/25/05(4)(5) 1,203,817 1,002,178
Tranche A, 6.0625%, 3/25/05(4)(5) 2,659,208 2,213,791
Nts., Nacional Financiera SNC, 13.60%, 4/2/98 1,395,000,000(1) 10,998,875
- ------------------------------------------------------------------------------------------------------------------------------------
Petacalco Topolobampo Trust, Sr. Sec. Unsub. Nts.:
8.125%, 12/15/03(5) 1,950,000 1,674,563
8.125%, 12/15/03 10,975,000 9,424,781
- ------------------------------------------------------------------------------------------------------------------------------------
Petroleos Mexicanos Gtd. Medium Term Nts.:
7.60%, 6/15/00(5) 14,310,000 13,033,834
8.625%, 12/1/23 13,500,000 11,189,070
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds:
10.50%, 2/15/95(11) 190,000,000 193,443,750
10.375%, 5/15/95 25,000,000 25,703,125
8.125%, 8/15/19 100,100,000 101,726,250
7.875%, 2/15/21 197,500,000 195,031,250
6.25%, 8/15/23 48,000,000 38,984,971
7.125%, 2/15/23 100,000,000 90,906,189
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Nts.:
11.25%, 2/15/95 66,500,000 67,892,303
5.125%, 11/15/95 150,000 148,500
9.25%, 1/15/96 13,000,000 13,475,305
11.25%, 5/15/19 28,000,000 28,936,233
8.875%, 11/15/19(12) 128,719,000 135,637,646
9.50%, 11/15/19 85,000,000 88,107,761
8.50%, 11/15/20 44,000,000 46,392,500
- ------------------------------------------------------------------------------------------------------------------------------------
Venezuela (Republic of):
6.75% Debs., 9/20/95(5) 29,025,000 27,537,469
6.2364% Debs., 12/29/95(4) 8,048,318 7,364,211
8.2375% Unsub. Nts., 9/20/95(4) 2,500,000 2,360,738
9.125% Unsub., 3/11/96 7,500,000 7,106,250
9.00% Sr. Unsec. Unsub. Nts., 5/27/96(5) 23,025,000 21,557,156
- ------------------------------------------------------------------------------------------------------------------------------------
Bonds, Banco Venezuela TCI:
0% Debs, 12/13/94 456,558 442,862
0% Debs, 12/13/98(5) 9,885,056 6,326,436
- ------------------------------------------------------------------------------------------------------------------------------------
Western Australia Treasury Corp. Gtd. Bonds, 12.50%, 4/1/98 21,400,000(1) 17,192,205
- ------------------------------------------------------------------------------------------------------------------------------------
Total Long-Term Government Obligations (Cost $2,518,241,698) 2,355,130,917
- ------------------------------------------------------------------------------------------------------------------------------------
Mortgage/Asset-Backed Obligations--5.7%
- ------------------------------------------------------------------------------------------------------------------------------------
Chase Mortgage Finance Corp:
Nts., 6.75%, 4/25/24(5) 849,343 579,412
Nts., 6.75%, 2/25/25(5) 710,295 485,665
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Face Market Value
Amount See Note 1
------- ------------
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Mortgage/Asset-Backed
Obligations (continued)
Sub. Mtg. Pass-Through Certificates, Series 1994-1:
0%, Cl. B-8, 3/25/25(5) $2,184,269 $1,639,568
0%, Cl. B-9, 3/25/25(5) 2,184,269 1,566,531
0%, Cl B-10, 3/25/25(5) 1,092,134 779,511
- ------------------------------------------------------------------------------------------------------------------------------------
Citicorp Mortgage Securities, Inc., 7% Sub. Bonds, Series 1993-5:
Cl. B3, 4/25/23 1,662,792 1,189,417
Cl. B4, 4/25/23 1,603,408 217,963
- ------------------------------------------------------------------------------------------------------------------------------------
CMC Security Corp. III, 0% Collateralized Mtg. Oblig., Series 1994-E,
Cl. E-B3, 3/25/24(5) 4,957,267 3,389,532
- ------------------------------------------------------------------------------------------------------------------------------------
CSFOB 11%, Cl.E, 2/15/14(5) 12,000,000 11,701,248
- ------------------------------------------------------------------------------------------------------------------------------------
FDIC Trust, 1994-C1, Class 2-D, 8.70%, 9/25/25(5) 2,500,000 2,398,828
- ------------------------------------------------------------------------------------------------------------------------------------
FDIC Trust, 1994-C1, Class 2-E, 8.70%, 9/25/25(5) 2,500,000 2,312,109
- ------------------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., Series 176, Class F, 8.95%, 3/15/20 16,988,000 17,368,530
- ------------------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn. Interest-Only Stripped Mtg.-Backed
Security:
Trust 221, Class 2, 7.50%, 5/25/23(10) 63,848,072 23,923,063
Trust 240, Class 2, 7%, 9/25/23(10) 114,242,159 43,197,816
Trust 240, Class 2, 7%, 2/25/24(10) 170,646,483 65,485,589
Trust 252, Class 2, 7.50%, 11/30/23(10) 88,701,927 33,679,013
Trust 258, Class 2, 7%, 3/25/24(10) 35,135,718 12,714,738
- ------------------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn. Principal-Only Stripped
Mtg.-Backed Security, Series 1993-253 Class G, 0%, 11/25/23(9) 7,802,220 3,513,437
- ------------------------------------------------------------------------------------------------------------------------------------
GE Capital Mtg. Services, Inc.:
Series 1994-7 Cl. B3, 6% Sub. Bonds., 2/25/09 1,586,524 1,149,239
Series 1994-10 Cl. B3, 6.5% Sub. Bonds., 3/25/24(5) 4,763,001 3,328,148
Series 1994-11 Cl. B3, 6.5% Sub. Bonds., 5/25/24(5) 3,167,515 2,134,114
- ------------------------------------------------------------------------------------------------------------------------------------
Prudential Agricultural Credit, Inc. Farmer Mac Agricultural Real Estate
Trust Sr. Sub. Mtg. Pass-Through Certificates:
9.18%, Series 1992-2, Cl. B2, 1/15/03(4)(5) 5,681,627 4,320,255
9.47%, Series 1992-2, Cl. B3, 4/15/09(4)(5) 5,792,386 4,407,260
- ------------------------------------------------------------------------------------------------------------------------------------
Residential Funding Corp. 7.785% Mtg. Pass-Through Certificates,
Series 1993-6, Cl. B5, 6/15/23(5) 4,087,900 3,021,214
- ------------------------------------------------------------------------------------------------------------------------------------
Resolution Trust Corp. Commercial Mtg. Pass-Through Certificates:
8.25%, Series 1992-CHF, Cl.C, 12/25/20 1,776,220 1,726,265
10.638 %, Series 1992-16, Cl. B3, 5/24/24(4) 2,822,000 2,859,039
8.75%, Series 1993-C1, Cl.B, 5/25/24 7,572,000 7,496,280
8.50%, Series 1993-C2, Cl.E, 3/25/25 161,685 158,578
8%, Series 1994-C1, Cl.E, 6/25/26 5,000,000 3,781,250
- ------------------------------------------------------------------------------------------------------------------------------------
SKW Real Estate Limited Partnership, 9.05%, Secured
Note, Cl. E, 4/15/04(5) 9,500,000 9,048,750
- ------------------------------------------------------------------------------------------------------------------------------------
Total Mortgage/Asset-Backed Obligations (Cost $268,347,594) 269,572,362
- ------------------------------------------------------------------------------------------------------------------------------------
Corporate Bonds and Notes--35.6%
- ------------------------------------------------------------------------------------------------------------------------------------
Basic Materials--4.2%
- ------------------------------------------------------------------------------------------------------------------------------------
Chemicals--1.7%
Acme Metals, Inc., 12.50% Sr. Sec. Nts., 8/1/02 6,500,000 6,597,500
- ------------------------------------------------------------------------------------------------------------------------------------
Aftermarket Technology Corp., 12% Sr. Sub. Nts., 8/1/04(5) 2,000,000 2,030,000
- ------------------------------------------------------------------------------------------------------------------------------------
Atlantis Group, Inc., 11% Sr. Nts., 2/15/03 9,000,000 8,865,000
- ------------------------------------------------------------------------------------------------------------------------------------
Carbide/Graphite Group, Inc., 11.50% Sr. Nts., 9/1/03 15,500,000 15,848,750
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Statement of Investments (Continued)
Face Market Value
Amount See Note 1
------- ------------
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Chemicals (continued)
Harris Chemical North America, Inc.:
0%/10.25% Gtd. Sr. Sec. Disc. Nts., 7/15/01(3) $12,500,000 $10,187,500
10.75% Gtd. Sr. Sub. Nts., 10/15/03 1,000,000 942,500
- ------------------------------------------------------------------------------------------------------------------------------------
Malette, Inc., 12.25% Sr. Sec. Nts., 7/15/04 3,750,000 3,881,250
- ------------------------------------------------------------------------------------------------------------------------------------
NL Industries Inc.:
11.75% Sr. Sec. Nts., 10/15/03 500,000 516,250
0%/13% Sr. Sec. Disc. Nts., 10/15/05(3) 1,250,000 795,313
- ------------------------------------------------------------------------------------------------------------------------------------
Quantum Chemical Corp., 10.375% Fst. Mtg. Nts., 6/1/03 3,500,000 3,883,799
- ------------------------------------------------------------------------------------------------------------------------------------
Rexene Corp.:
9% Fst. Priority Nts., 11/15/99(8) 2,535,000 2,522,325
10% 2nd Priority Nts., 11/15/02(6) 3,706,000 3,536,143
- ------------------------------------------------------------------------------------------------------------------------------------
Sherritt, Inc., 11.00% Debs., 3/31/04 10,000,000(1) 7,175,639
- ------------------------------------------------------------------------------------------------------------------------------------
Synthetic Industries, Inc., 12.75% Sr. Sub. Debs., 12/01/02 12,275,000 12,397,750
USG Corp., 9.25%, 9/15/01 3,200,000 3,048,000
- ------------------------------------------------------------------------------------------------------------------------------------
82,227,719
- ------------------------------------------------------------------------------------------------------------------------------------
Metals--0.8%
Haynes International, Inc., 11.25% Sr. Sec. Nts., 6/15/98 3,000,000 2,565,000
- ------------------------------------------------------------------------------------------------------------------------------------
Horsehead Industries, Inc.:
13.50% Extd. Nts., 6/1/97(4) 4,566,000 4,702,980
14% Sub. Nts., 6/1/99 5,050,000 4,974,250
- ------------------------------------------------------------------------------------------------------------------------------------
Jorgensen (Earle M.) Co., 10.75% Sr. Nts., 3/1/00 2,000,000 2,000,000
- ------------------------------------------------------------------------------------------------------------------------------------
Kaiser Aluminum & Chemical Corp.:
9.875% Sr. Nts., 2/15/02 4,175,000 3,715,750
12.75% Sr. Sub. Nts., 2/1/03 16,850,000 16,386,625
- ------------------------------------------------------------------------------------------------------------------------------------
Stelco, Inc., 10.25% Debs., 4/30/96 4,300,000(1) 3,173,683
- ------------------------------------------------------------------------------------------------------------------------------------
37,518,288
- ------------------------------------------------------------------------------------------------------------------------------------
Paper and Forest
Products--1.7%
Domtar, Inc., 10.85% Debs., 8/15/17 2,500,000(1) 1,703,049
- ------------------------------------------------------------------------------------------------------------------------------------
Equitable Bag, Inc., 12.375% Sr. Nts., 8/15/02(2) 1,830,000 1,070,550
- ------------------------------------------------------------------------------------------------------------------------------------
Gaylord Container Corp., 11.50% Sr. Nts., 5/15/01 8,450,000 8,661,250
- ------------------------------------------------------------------------------------------------------------------------------------
Pacific Lumber Co., 10.50% Sr. Nts., 3/1/03 14,370,000 13,471,875
- ------------------------------------------------------------------------------------------------------------------------------------
PT Inti Indorayon Utama, 9.125% Sr. Nts., 10/15/00 17,500,000 15,312,500
- ------------------------------------------------------------------------------------------------------------------------------------
Rainy River Forest Products, 10.75% Sr. Sec. Nts., 10/15/01 3,250,000 3,258,125
- ------------------------------------------------------------------------------------------------------------------------------------
Riverwood International Corp.:
10.75% Sr. Nts., 6/15/00 5,000,000 5,225,000
11.25% Sr. Sub. Nts., 6/15/02 950,000 997,500
10.375% Sr. Sub. Nts., 6/30/04 3,600,000 3,681,000
- ------------------------------------------------------------------------------------------------------------------------------------
Scotia Pacific Holding Co., 7.95% Timber Collateralized Nts., 7/20/15 2,645,897 2,435,522
- ------------------------------------------------------------------------------------------------------------------------------------
Stone Container Corp.:
9.875% Sr. Nts., 2/1/01 18,300,000 17,224,875
10.75% Sr. Sub. Debs., 4/1/02 300,000 286,500
10.75% Fst. Mtg. Nts., 10/1/02 4,100,000 4,094,875
- ------------------------------------------------------------------------------------------------------------------------------------
Stone Consolidated Corp., 10.25% Sr. Sec. Nts., 12/15/00 5,125,000 5,060,938
- ------------------------------------------------------------------------------------------------------------------------------------
82,483,559
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Face Market Value
Amount See Note 1
------- ------------
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Consumer Cyclicals--9.7%
- ------------------------------------------------------------------------------------------------------------------------------------
Automotive--0.6% Envirotest Systems Corp.:
9.125% Sr. Nts., 3/15/01 $3,000,000 $2,782,500
9.625% Sr. Sub. Nts., 4/1/03 8,940,000 8,224,800
- ------------------------------------------------------------------------------------------------------------------------------------
Foamex LP/Foamex Capital Corp., 11.875% Sr. Sub. Debs., 10/1/04 2,600,000 2,626,000
- ------------------------------------------------------------------------------------------------------------------------------------
Foamex LP/JPS Automotive Corp., Units(5) 8,750,000 4,856,250
- ------------------------------------------------------------------------------------------------------------------------------------
JPS Automotive Products Corp., 11.125% Sr. Nts., 6/15/01 2,500,000 2,525,000
- ------------------------------------------------------------------------------------------------------------------------------------
Penda Corp., 10.75% Sr. Nts., Series B, 3/1/04 8,600,000 7,955,000
- ------------------------------------------------------------------------------------------------------------------------------------
SPX Corp., 11.75% Sr. Sub. Nts., 6/1/02 1,350,000 1,410,750
- ------------------------------------------------------------------------------------------------------------------------------------
30,380,300
- ------------------------------------------------------------------------------------------------------------------------------------
Construction Supplies and
Development--0.9%
Baldwin Co., 10.375% Sr. Nts., Series B, 8/1/03 9,000,000 7,605,000
- ------------------------------------------------------------------------------------------------------------------------------------
Dal-Tile International, Inc., 0% Sr. Sec. Nts., 7/15/98 21,500,000 13,491,250
- ------------------------------------------------------------------------------------------------------------------------------------
Hovnanian K. Enterprises, Inc., 11.25% Gtd. Sub. Nts., 4/15/02 6,900,000 6,555,000
- ------------------------------------------------------------------------------------------------------------------------------------
NVR, Inc., 11% Gtd. Sr. Nts., 4/15/03 3,490,000 3,193,350
- ------------------------------------------------------------------------------------------------------------------------------------
USG Corp., 10.25% Sr. Sec. Nts., 12/15/02 10,967,000 11,241,175
- ------------------------------------------------------------------------------------------------------------------------------------
Walter Industries, Inc., 14.625% Sr. Nts., Series B, 1/1/99(2) 742,000 1,253,980
- ------------------------------------------------------------------------------------------------------------------------------------
43,339,755
- ------------------------------------------------------------------------------------------------------------------------------------
Consumer Goods
and Services--2.6%
Amstar Corp., 11.375% Sr. Sub. Nts., 2/15/97 10,886,000 10,777,140
- ------------------------------------------------------------------------------------------------------------------------------------
Coleman Holdings, Inc., 0% Sr. Sec. Disc. Nts., Series B, 5/27/98 13,450,000 9,078,750
- ------------------------------------------------------------------------------------------------------------------------------------
Dr. Pepper Bottling Co. of Texas, 10.25% Sr. Nts., 2/15/00 3,000,000 3,030,000
- ------------------------------------------------------------------------------------------------------------------------------------
Dr. Pepper/Seven-Up Cos., Inc., 0%/11.50% Sr. Sub. Disc. Nts., 11/1/02(3) 4,118,000 3,294,400
- ------------------------------------------------------------------------------------------------------------------------------------
Harman International Industries, Inc., 12% Sr. Sub. Nts., 8/1/02 23,000,000 24,610,000
- ------------------------------------------------------------------------------------------------------------------------------------
Insilco Corp., 10.375% Sr. Sec. Nts., 7/1/97 5,866,000 5,961,323
- ------------------------------------------------------------------------------------------------------------------------------------
Interco, Inc., 9% Sec. Nts., Series B, 6/1/04(5) 17,826,000 17,539,045
- ------------------------------------------------------------------------------------------------------------------------------------
MacAndrews & Forbes Group, Inc., Sub. Nts., 12.25%, 7/1/96 1,565,000 1,561,088
- ------------------------------------------------------------------------------------------------------------------------------------
MacAndrews & Forbes Holdings, Inc., 13% Sub. Debs., 3/1/99 4,915,000 4,890,425
- ------------------------------------------------------------------------------------------------------------------------------------
Mary Kay Corp.:
12.75% Gtd. Sr. Nts., Series B, 12/6/00(5) 1,000,000 1,045,000
10.25% Sr. Nts., 12/31/00(5) 9,875,000 9,677,500
- ------------------------------------------------------------------------------------------------------------------------------------
PT Polysindo Eka Perkasa, 13% Sr. Nts., 6/15/01 4,150,000 3,934,893
- ------------------------------------------------------------------------------------------------------------------------------------
Protection One Alarm Monitoring, Inc., 12% Sr. Sub. Nts., Series B, 11/1/03 6,500,000 6,207,500
- ------------------------------------------------------------------------------------------------------------------------------------
Revlon Consumer Products Corp., 9.375% Sr. Nts., 4/1/01 5,200,000 4,563,041
- ------------------------------------------------------------------------------------------------------------------------------------
Revlon Worldwide Corp., 0% Sr. Sec. Disc. Nts., 3/15/98 15,450,000 7,184,250
- ------------------------------------------------------------------------------------------------------------------------------------
WestPoint Stevens, Inc., 9.375% Sr. Sub. Debs., 12/15/05 9,450,000 8,587,688
- ------------------------------------------------------------------------------------------------------------------------------------
121,942,043
- ------------------------------------------------------------------------------------------------------------------------------------
Entertainment--1.8%
Arizona Charlie's, Inc., 12% Fst. Mtg. Nts., Series A, 11/15/00(5) 5,775,000 5,053,125
- ------------------------------------------------------------------------------------------------------------------------------------
Aztar Corp., 11% Sr. Sub. Nts., 10/1/02 6,250,000 5,507,813
- ------------------------------------------------------------------------------------------------------------------------------------
Aztar Mortgage Funding, Inc., 13.50% Gtd. Fst. Mtg. Nts., 9/15/96 2,220,000 2,203,350
- ------------------------------------------------------------------------------------------------------------------------------------
Capital Gaming International, Inc., 11.50% Sr. Sec. Nts., 2/1/01 3,100,000 2,170,000
- ------------------------------------------------------------------------------------------------------------------------------------
Capitol Queen & Casino, Inc., 12% Fst. Mtg. Nts., Series A, 11/15/00(5) 4,200,000 3,255,000
- ------------------------------------------------------------------------------------------------------------------------------------
Gillett Holdings, Inc., 12.25% Sr. Sub. Nts., Series A, 6/30/02 12,800,000 13,600,000
- ------------------------------------------------------------------------------------------------------------------------------------
Hollywood Casino Corp., 13.50% Fst. Mtg. Nts., 9/30/98 3,500,000 2,992,500
- ------------------------------------------------------------------------------------------------------------------------------------
Hollywood Casino, 14%, 4/1/98 3,000,000 3,105,000
- ------------------------------------------------------------------------------------------------------------------------------------
Kloster Cruise Ltd., 13% Sr. Sec. Nts., 5/1/03 14,000,000 13,930,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Statement of Investments (Continued)
Face Market Value
Amount See Note 1
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Entertainment
(continued)
Lady Luck Gaming Finance Corp., 10.50% Fst. Mtg. Nts., 3/1/01 $4,020,000 $1,809,000
- ------------------------------------------------------------------------------------------------------------------------------------
MGM Grand Hotel Finance Corp, 11.75% Fst. Mtg. Nts., Series A, 5/1/99 5,000,000 5,337,500
- ------------------------------------------------------------------------------------------------------------------------------------
Maritime Group Ltd., Units(4)(5)(6) 2,939,466 2,330,262
- ------------------------------------------------------------------------------------------------------------------------------------
Marvel (Parent) Holdings, Inc., 0% Sr. Sec. Disc. Nts., 4/15/98 7,050,000 4,406,250
- ------------------------------------------------------------------------------------------------------------------------------------
Marvel Holdings, Inc., 0% Sr. Sec. Disc. Nts., Series B, 4/15/98 12,500,000 7,843,750
- ------------------------------------------------------------------------------------------------------------------------------------
Station Casinos, Inc., 9.625% Sr. Sub. Nts., 6/1/03 10,000,000 8,600,000
- ------------------------------------------------------------------------------------------------------------------------------------
Treasure Bay Gaming & Resorts, Inc., Units(5) 4,050,000 1,235,250
- ------------------------------------------------------------------------------------------------------------------------------------
Treasure Bay Gaming, 12.25% Fst. Mtg. Nts., 11/15/00(5) 1,125,000 354,375
- ------------------------------------------------------------------------------------------------------------------------------------
Trump Plaza Funding, 10.875%, 6/15/01 1,000,000 712,500
- ------------------------------------------------------------------------------------------------------------------------------------
United Gaming, Inc., 7.50% Cv. Sub. Debs., 9/15/03 1,540,000 1,287,825
- ------------------------------------------------------------------------------------------------------------------------------------
85,733,500
- ------------------------------------------------------------------------------------------------------------------------------------
Hotels/Lodging--0.1%
Embassy Suites, Inc., 10.875% Gtd. Sr. Sub. Nts., 4/15/02 2,250,000 2,340,000
- ------------------------------------------------------------------------------------------------------------------------------------
Host Marriott Hospitality, Inc., 11% Sr. Nts., Series L, 5/1/07 4,353,000 4,380,206
- ------------------------------------------------------------------------------------------------------------------------------------
6,720,206
- ------------------------------------------------------------------------------------------------------------------------------------
Media--1.8%
Ackerley Communications, Inc., 10.75% Sr. Sec. Nts., Series A, 10/1/03 8,850,000 8,584,500
- ------------------------------------------------------------------------------------------------------------------------------------
Act III Broadcasting, Inc., 9.625% Sr. Sub. Nts., 12/15/03 1,000,000 955,000
- ------------------------------------------------------------------------------------------------------------------------------------
GSPI Corp., 10.15% Fst. Mtg. Bonds, 6/24/10(5) 835,202 896,590
- ------------------------------------------------------------------------------------------------------------------------------------
General Media, Inc., 10.625% Sr. Sec. Nts., 12/31/00 4,000,000 3,740,000
- ------------------------------------------------------------------------------------------------------------------------------------
Infinity Broadcasting Corp., 10.375% Sr. Sub. Nts., 3/15/02 4,000,000 4,160,000
- ------------------------------------------------------------------------------------------------------------------------------------
Lamar Advertising Co., 11% Sr. Sec. Nts., 5/15/03 12,000,000 11,730,000
- ------------------------------------------------------------------------------------------------------------------------------------
News America Holdings, Inc.:
12% Sr. Nts., 12/15/01 2,500,000 2,849,190
8.50% Sr. Nts., 2/15/02 6,000,000 5,815,097
8.625%, Sr. Nts., 2/1/03 10,400,000 10,298,006
10.125% Gtd. Sr. Debs., 10/15/12 3,300,000 3,461,541
- ------------------------------------------------------------------------------------------------------------------------------------
SCI Television, Inc.:
7.50% Fst. Sec. Loan Nts., 6/30/98 4,380,331 4,281,774
11% Sr. Sec. Nts., 6/30/05 5,653,155 5,759,152
- ------------------------------------------------------------------------------------------------------------------------------------
SFX Broadcasting, Inc., 11.375% Sr. Sub. Nts., 10/1/08 3,000,000 3,127,500
- ------------------------------------------------------------------------------------------------------------------------------------
Sinclair Broadcasting Group, Inc., 10% Sr. Sub. Nts., 12/15/03 12,925,000 12,537,250
- ------------------------------------------------------------------------------------------------------------------------------------
Univision Television Group, Inc., 11.75% Sr. Sub. Nts., 1/15/01 5,500,000 5,836,875
- ------------------------------------------------------------------------------------------------------------------------------------
84,032,475
- ------------------------------------------------------------------------------------------------------------------------------------
Real Estate Development--0.5%
Casino Magic Finance Corp., 11.50% Fst. Mtg. Nts., 10/15/01 4,150,000 3,216,250
- ------------------------------------------------------------------------------------------------------------------------------------
Noranda Forest, Inc., 11% Debs., 7/15/98 2,000,000(1) 1,580,504
- ------------------------------------------------------------------------------------------------------------------------------------
Olympia & York First Canadian Place Ltd., 11% Debs., Series 3, 11/4/49(2) 5,150,000(1) 2,380,448
- ------------------------------------------------------------------------------------------------------------------------------------
Saul (B.F.) Real Estate Investment Trust, 11.625% Sr. Nts., 4/1/02 17,000,000 15,385,000
- ------------------------------------------------------------------------------------------------------------------------------------
22,562,202
- ------------------------------------------------------------------------------------------------------------------------------------
Retail--1.4%
Cole National Group, Inc., 11.25% Sr. Nts., 10/1/01 17,950,000 17,680,750
- ------------------------------------------------------------------------------------------------------------------------------------
Eye Care Centers of America, Inc., 12% Sr. Nts., 10/1/03 7,000,000 5,915,000
- ------------------------------------------------------------------------------------------------------------------------------------
Finlay Enterprises, Inc., 0%/12% Sr. Disc. Debs., 5/1/05(3) 750,000 435,000
- ------------------------------------------------------------------------------------------------------------------------------------
Finlay Fine Jewelry Corp., 10.625% Sr. Nts., 5/1/03 8,370,000 7,951,500
- ------------------------------------------------------------------------------------------------------------------------------------
Parisian, Inc., 9.875% Sr. Sub. Nts., 7/15/03 11,500,000 9,775,000
- ------------------------------------------------------------------------------------------------------------------------------------
R.H. Macy & Co., Inc., 14.50% Sr. Sub. Debs., 10/15/98(2) 7,450,000 5,364,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Face Market Value
Amount See Note 1
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Retail (continued)
Sears Canada, Inc.:
11.75% Debs., 12/5/95 $2,400,000(1) $1,874,240
11.70% Debs., 7/10/00 3,150,000(1) 2,542,133
- ------------------------------------------------------------------------------------------------------------------------------------
Southland Corp., 4.50% 2nd Priority Sr. Sub. Debs., Series A, 6/15/04 4,850,000 3,031,250
- ------------------------------------------------------------------------------------------------------------------------------------
Waban, Inc., 11% Sr. Sub. Nts., 5/15/04 8,000,000 7,920,000
- ------------------------------------------------------------------------------------------------------------------------------------
Zale Delaware, Inc., 11% Gtd. 2nd Priority Sr. Sec. Nts., 7/30/00 2,000,000 2,005,000
- ------------------------------------------------------------------------------------------------------------------------------------
64,493,873
- ------------------------------------------------------------------------------------------------------------------------------------
Consumer Non-Cyclicals--4.3%
- ------------------------------------------------------------------------------------------------------------------------------------
Food--2.6%
Family Restaurant, Inc.:
9.75% Sr. Nts., 2/1/02 8,000,000 7,040,000
0%/10.875% Sr. Sub. Disc. Nts., 2/1/04(3) 14,850,000 8,984,250
- ------------------------------------------------------------------------------------------------------------------------------------
Farm Fresh, Inc., 12.25% Sr. Nts., 10/1/00 10,350,000 8,952,750
- ------------------------------------------------------------------------------------------------------------------------------------
Flagstar Corp., 10.75% Sr. Nts., 9/15/01 4,000,000 3,790,000
- ------------------------------------------------------------------------------------------------------------------------------------
Food 4 Less Supermarkets, Inc., 13.75% Sr. Sub Nts., 6/15/01 1,500,000 1,620,000
- ------------------------------------------------------------------------------------------------------------------------------------
Foodmaker, Inc., 14.25% Sr. Sub. Nts., 5/15/98 15,000,000 15,768,750
- ------------------------------------------------------------------------------------------------------------------------------------
Heileman Acquisition Corp., 9.625% Sr. Sub. Nts., 1/31/04 8,050,000 6,862,625
- ------------------------------------------------------------------------------------------------------------------------------------
Kash 'N Karry Food Stores, Inc., 14% Sub. Debs., 2/1/01(2) 1,000,000 285,000
- ------------------------------------------------------------------------------------------------------------------------------------
Pulsar Internacional, S.A. de C.V.:
8%, Nts., 12/14/94(5) 30,000,000 30,000,000
9%, Nts., 9/19/95(5) 14,750,000 14,750,000
- ------------------------------------------------------------------------------------------------------------------------------------
RJR Nabisco, Inc., 8.625% Medium-Term Nts., 12/1/02 20,000,000 18,255,759
- ------------------------------------------------------------------------------------------------------------------------------------
Royal Crown Corp., 9.75% Sr. Sec. Nts., 8/1/00 2,000,000 1,865,000
- ------------------------------------------------------------------------------------------------------------------------------------
Specialty Foods, 10.25% Sr. Nts., 8/15/01 6,100,000 5,490,000
- ------------------------------------------------------------------------------------------------------------------------------------
123,664,134
- ------------------------------------------------------------------------------------------------------------------------------------
Food and Drug Distribution--1.1%
Alco Health Distribution Corp., 11.25% Sr. Debs., 7/15/05(6) 13,540,068 13,248,117
- ------------------------------------------------------------------------------------------------------------------------------------
Di Giorgio Corp., 12% Sr. Nts., 2/15/03 8,680,000 8,680,000
- ------------------------------------------------------------------------------------------------------------------------------------
Duane Reade, 12% Sr. Nts., Series B, 9/15/02 2,250,000 2,182,500
- ------------------------------------------------------------------------------------------------------------------------------------
Grand Union Co.:
11.25% Sr. Nts., 7/15/00 8,350,000 7,577,625
12.25% Sr. Sub. Nts., 7/15/02 8,200,000 6,068,000
- ------------------------------------------------------------------------------------------------------------------------------------
Purity Supreme, Inc., 11.75% Sr. Sec. Nts., Series B, 8/1/99 7,350,000 6,504,750
- ------------------------------------------------------------------------------------------------------------------------------------
Thrifty Payless Holdings, 12.25% Sr. Sub. Nts., 4/15/04 2,000,000 2,065,000
- ------------------------------------------------------------------------------------------------------------------------------------
Thrifty Payless, Inc., 11.75% Sr. Nts., 4/15/03 5,000,000 4,987,500
- ------------------------------------------------------------------------------------------------------------------------------------
51,313,492
- ------------------------------------------------------------------------------------------------------------------------------------
Healthcare--0.6%
Abbey Healthcare Group, Inc., 9.50% Sr. Sub. Nts., 11/1/02 2,000,000 1,835,000
- ------------------------------------------------------------------------------------------------------------------------------------
American Medical International, Inc.:
11.25% Nts., 2/6/95 1,060,000(1) 1,684,158
13.50% Sr. Sub. Nts., 8/15/01 1,200,000 1,342,500
- ------------------------------------------------------------------------------------------------------------------------------------
Charter Medical Corp., 11.25% Sr. Sub. Nts., 4/15/04(5) 3,000,000 3,105,000
- ------------------------------------------------------------------------------------------------------------------------------------
Mediq/PRN Life Support Services, Inc., 11.125% Sr. Sec. Nts., 7/1/99 3,000,000 2,835,000
- ------------------------------------------------------------------------------------------------------------------------------------
Multicare Cos., Inc. (The), 12.50% Sr. Sub. Nts., 7/1/02 6,290,000 7,327,850
- ------------------------------------------------------------------------------------------------------------------------------------
Quorum Health Group, Inc., 11.875% Sr. Sub. Nts., 12/15/02 3,750,000 4,003,125
- ------------------------------------------------------------------------------------------------------------------------------------
Total Renal Care, Inc., Units 9,700,000 6,984,000
- ------------------------------------------------------------------------------------------------------------------------------------
29,116,633
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Statement of Investments (Continued)
Face Market Value
Amount See Note 1
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Energy--1.9%
Global Marine, Inc., 12.75% Sr. Sec. Nts., 12/15/99 $2,600,000 $2,827,500
- ------------------------------------------------------------------------------------------------------------------------------------
Gulf Canada Resources Ltd., 9.25% Sr. Sub. Debs., 1/15/04 10,500,000 9,667,875
- ------------------------------------------------------------------------------------------------------------------------------------
HS Resources, Inc., 9.875% Sr. Sub. Nts., 12/1/03 3,750,000 3,543,750
- ------------------------------------------------------------------------------------------------------------------------------------
Maxus Energy Corp.:
9.875% Nts., 10/15/02 4,550,000 4,390,750
8.50% Debs., 4/1/08 5,000,000 4,306,250
11.50% Debs., 11/15/15 3,500,000 3,517,500
- ------------------------------------------------------------------------------------------------------------------------------------
Mesa Capital Corp., 0%/12.75% Sec. Disc. Nts., 6/30/98(3) 21,047,000 18,679,213
- ------------------------------------------------------------------------------------------------------------------------------------
OPI International, Inc., 12.875% Gtd. Sr. Nts., 7/15/02 13,000,000 14,852,500
- ------------------------------------------------------------------------------------------------------------------------------------
Petroleum Heat & Power Co., Inc., 9.375% Sub. Debs., 2/1/06 1,700,000 1,566,125
- ------------------------------------------------------------------------------------------------------------------------------------
Presidio Oil Co.:
11.50% Sr. Sec. Nts., Series B, 9/15/00 6,564,500 6,269,098
13.90% Sr. Sub. Gas Indexed Nts., Series B, 7/15/02(4) 5,250,000 4,672,500
- ------------------------------------------------------------------------------------------------------------------------------------
Rowan Cos., Inc., 11.875% Sr. Nts., 12/1/01 7,500,000 8,025,000
- ------------------------------------------------------------------------------------------------------------------------------------
TGX Corp., 12.675% Sr. Sub. Exch. Nts., 4/1/94(2) 6,920,000 2,802,600
- ------------------------------------------------------------------------------------------------------------------------------------
Triton Energy Corp., 0% Sr. Sub. Disc. Nts., 11/1/97 3,500,000 2,572,500
- ------------------------------------------------------------------------------------------------------------------------------------
87,693,161
- ------------------------------------------------------------------------------------------------------------------------------------
Financial--3.5%
Acadia Partners LP, 13% Sub.Nts., 10/1/97(5) 25,000,000 25,750,000
- ------------------------------------------------------------------------------------------------------------------------------------
Banco Ganadero SA, 9.75%, 8/26/99(5) 13,700,000 13,802,750
- ------------------------------------------------------------------------------------------------------------------------------------
Blue Bell Funding, Inc., 11.85% Extd. Sec. Nts., 5/1/99(4) 4,500,000 4,820,625
- ------------------------------------------------------------------------------------------------------------------------------------
Borg-Warner Security Corp, 9.125%, Sr. Sub. Nts., 5/1/03 5,360,000 4,837,400
- ------------------------------------------------------------------------------------------------------------------------------------
Card Establishment Services, Inc., 10% Sr. Sub. Nts., Series B, 10/1/03 17,275,000 16,324,875
- ------------------------------------------------------------------------------------------------------------------------------------
ECM Fund, L.P.I., 14% Sub. Nts., 6/10/02(5) 1,611,387 1,772,526
- ------------------------------------------------------------------------------------------------------------------------------------
Grupo Mexicano de Desarrollo S.A., 8.25%, Gtd. Nts., 2/17/01(5) 14,700,000 12,090,750
- ------------------------------------------------------------------------------------------------------------------------------------
International Bank for Reconstruction and Development Bonds, 12.50%, 7/25/97 60,320,000(1) 39,253,853
- ------------------------------------------------------------------------------------------------------------------------------------
Life Partners Group, Inc., 12.75% Sr. Sub. Nts., 7/15/02 2,500,000 2,718,750
- ------------------------------------------------------------------------------------------------------------------------------------
Nacolah Holding Corp., 9.50% Sr. Nts., 12/1/03 6,500,000 5,801,250
- ------------------------------------------------------------------------------------------------------------------------------------
Navistar Financial Corp., 9.50% Medium-Term Nts., 6/1/96 6,075,000 6,101,122
- ------------------------------------------------------------------------------------------------------------------------------------
Pioneer Finance, 13.50% Fst Mtg. Bonds, 12/1/98 18,205,000 16,839,625
- ------------------------------------------------------------------------------------------------------------------------------------
Reliance Group Holdings, Inc., 9.75% Sr. Sub. Debs., 11/15/03 3,200,000 2,896,016
- ------------------------------------------------------------------------------------------------------------------------------------
Tribasa Toll Road Trust, 10.50% Nts., Series 1993-A, 12/1/11(5) 13,700,000 12,364,250
- ------------------------------------------------------------------------------------------------------------------------------------
165,373,792
- ------------------------------------------------------------------------------------------------------------------------------------
Industrial--2.5%
- ------------------------------------------------------------------------------------------------------------------------------------
Containers--0.8%
Calmar, Inc., 12% Sr. Sec. Nts., 12/15/97 7,000,000 7,017,500
- ------------------------------------------------------------------------------------------------------------------------------------
Calmar Spraying Systems, Inc., 14% Sr. Sub. Disc. Nts., 2/15/99 3,850,000 3,869,250
- ------------------------------------------------------------------------------------------------------------------------------------
Owens-Illinois, Inc., 10% Sr. Sub. Nts., 8/1/02 2,100,000 2,110,500
- ------------------------------------------------------------------------------------------------------------------------------------
Sea Containers Ltd.:
9.50% Sr. Nts., 7/1/03 4,750,000 4,405,625
12.50% Sr. Sub. Debs., Series A, 12/1/04 2,850,000 2,985,375
- ------------------------------------------------------------------------------------------------------------------------------------
Terex Corp., 13% Sr. Nts., 8/1/96(5) 4,065,000 3,780,450
- ------------------------------------------------------------------------------------------------------------------------------------
Trans Ocean Container Corp., 12.25% Sr. Sub. Nts., 7/1/04 11,900,000 11,840,500
- ------------------------------------------------------------------------------------------------------------------------------------
36,009,200
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Face Market Value
Amount See Note 1
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
General Industrial--0.9%
EnviroSource, Inc., 9.75% Sr. Nts., 6/15/03 $15,785,000 $14,364,350
- ------------------------------------------------------------------------------------------------------------------------------------
Imo Industries, Inc., 12.25% Sr. Sub. Debs., 8/15/97 3,850,000 3,898,125
- ------------------------------------------------------------------------------------------------------------------------------------
Pace Industries, 10.625% Sr. Nts., 12/1/02 12,300,000 11,193,000
- ------------------------------------------------------------------------------------------------------------------------------------
Polymer Group, Inc., 12.25% Sr. Nts., 7/15/02(5) 3,900,000 3,900,000
- ------------------------------------------------------------------------------------------------------------------------------------
Southdown, Inc., 14% Sr. Sub. Nts., Series B, 10/15/01 3,450,000 3,907,125
- ------------------------------------------------------------------------------------------------------------------------------------
United States Banknote Corp., 11.625%, 8/1/02 4,220,000 3,776,900
- ------------------------------------------------------------------------------------------------------------------------------------
41,039,500
- ------------------------------------------------------------------------------------------------------------------------------------
Transportation--0.8%
Chrysler Corp., 13% Debs., 3/1/97 500,000 513,706
- ------------------------------------------------------------------------------------------------------------------------------------
Chrysler Financial Corp., 13.25% Sr. Nts., 10/15/99 4,500,000 5,485,211
- ------------------------------------------------------------------------------------------------------------------------------------
Tiphook Financial Corp.:
7.125% Gtd. Nts., 5/1/98 5,000,000 3,625,000
8% Gtd. Nts., 3/15/00 5,583,000 3,852,270
- ------------------------------------------------------------------------------------------------------------------------------------
Transportacion Maritima Mexicana S.A.:
8.50% Nts., 10/15/00 4,000,000 3,525,000
9.25% Nts., 5/15/03 11,000,000 9,693,750
- ------------------------------------------------------------------------------------------------------------------------------------
Transtar Holdings LP/Transtar Capital Corp., 0%/13.375% Sr. Disc. Nts.,
Series B, 12/15/03(3) 19,266,000 10,548,135
- ------------------------------------------------------------------------------------------------------------------------------------
Trism, Inc., 10.75% Sr. Sub. Nts., 12/15/00 1,250,000 1,226,563
- ------------------------------------------------------------------------------------------------------------------------------------
38,469,635
- ------------------------------------------------------------------------------------------------------------------------------------
Technology--7.5%
- ------------------------------------------------------------------------------------------------------------------------------------
Aerospace/Defense--1.0%
GPA Delaware, Inc.:
8.75% Gtd. Nts., 12/15/98 5,255,000 4,414,200
9.75%, 12/10/01 2,000,000 1,545,000
- ------------------------------------------------------------------------------------------------------------------------------------
GPA Holland BV:
8.50% Medium-Term Nts., 2/10/97(5) 10,500,000 9,318,750
8.625% Medium-Term Nts., Series C, 1/15/99(5) 4,750,000 3,752,500
8.94% Medium-Term Nts., Series C, 2/16/99 2,000,000 1,595,000
9.50% Medium-Term Nts., Series A, 12/15/01(5) 1,500,000 1,155,000
- ------------------------------------------------------------------------------------------------------------------------------------
GPA Investment BV, 6.40% Nts., 11/19/98 2,000,000 1,505,000
- ------------------------------------------------------------------------------------------------------------------------------------
GPA Netherlands BV, 8.50% Medium-Term Nts., 3/3/97(5) 6,500,000 5,752,500
- ------------------------------------------------------------------------------------------------------------------------------------
Rohr, Inc., 11.625% Sr. Nts., 5/15/03 1,800,000 1,845,000
- ------------------------------------------------------------------------------------------------------------------------------------
Sequa Corp., 8.75% Sr. Nts., 12/15/01 9,000,000 8,325,000
- ------------------------------------------------------------------------------------------------------------------------------------
Talley Industries, Inc., 0%/12.25% Sr. Disc. Debs., 10/15/05 17,296,000 9,080,400
- ------------------------------------------------------------------------------------------------------------------------------------
48,288,350
- ------------------------------------------------------------------------------------------------------------------------------------
Cable Television--2.7%
Adelphia Communications Corp.:
10.25% Sr. Nts., Series B, 7/15/00 2,000,000 1,840,000
12.50% Sr. Nts., 5/15/02 6,740,000 6,740,000
- ------------------------------------------------------------------------------------------------------------------------------------
American Telecasting, Inc., 12.50%, Sr. Disc. Nts., 6/15/04 17,600,000 8,624,000
- ------------------------------------------------------------------------------------------------------------------------------------
Bell Media Cable, 11.95%, 7/15/04 6,125,000 3,498,906
- ------------------------------------------------------------------------------------------------------------------------------------
Cablevision Systems Corp.:
14% Sr. Sub. Reset Debs., 11/15/03(4) 7,900,000 7,998,750
10.75% Sr. Sub. Debs., 4/1/04 2,525,000 2,575,500
9.875% Sr. Sub. Debs., 2/15/13 5,550,000 5,175,375
9.875% Sr. Sub. Debs., 2/15/13 2,000,000 1,840,000
- ------------------------------------------------------------------------------------------------------------------------------------
Celcaribe SA, 0%/13.50% Sr. Sec. Nts., 3/15/04(3)(5) 12,600,000 7,985,224
- ------------------------------------------------------------------------------------------------------------------------------------
Comcast Cellular Corp., 0% Nts., Series B, 3/5/00 6,600,000 4,092,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Statement of Investments (Continued)
Face Market Value
Amount See Note 1
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Cable Television
(continued)
Continental Broadcasting Ltd./Continental Broadcasting Capital Corp.,
10.625% Sr. Sub. Nts., 7/1/03 $7,150,000 $7,230,438
- ------------------------------------------------------------------------------------------------------------------------------------
Continental Cablevision, Inc., 9.50% Sr. Debs., 8/1/13 8,200,000 7,462,000
- ------------------------------------------------------------------------------------------------------------------------------------
Echostar Communications Corp., Units 23,250,000 11,160,000
- ------------------------------------------------------------------------------------------------------------------------------------
Helicon Group LP/Helicon Capital Corp., 9% Sr. Sec. Nts., Series B, 11/1/03(4) 17,500,000 15,837,500
- ------------------------------------------------------------------------------------------------------------------------------------
International CableTel, Inc., 0%/10.875% Sr. Def. Cpn. Nts., 10/15/03(3) 3,600,000 2,016,000
- ------------------------------------------------------------------------------------------------------------------------------------
Marcus Cable, 0%/13.5% Gtd. Sr. Sub. Disc. Nts., 8/1/04(3) 13,200,000 7,227,000
- ------------------------------------------------------------------------------------------------------------------------------------
New World Communications Holding Corp., 0%, 6/15/99(5) 17,000,000 9,201,250
- ------------------------------------------------------------------------------------------------------------------------------------
Outlet Broadcasting, Inc., 10.875% Sr. Sub. Nts., 7/15/03 2,000,000 2,010,000
- ------------------------------------------------------------------------------------------------------------------------------------
Time Warner, Inc.:
7.45% Nts., 2/1/98 800,000 787,000
7.95% Nts., 2/1/00 3,020,000 2,955,825
- ------------------------------------------------------------------------------------------------------------------------------------
Time Warner, Inc./Time Warner Entertainment LP, 10.15% Sr. Nts., 5/1/12 1,000,000 1,053,737
- ------------------------------------------------------------------------------------------------------------------------------------
TKR Cable I, Inc., 10.50% Sr. Debs., 10/30/07 8,000,000 8,690,000
- ------------------------------------------------------------------------------------------------------------------------------------
126,000,505
- ------------------------------------------------------------------------------------------------------------------------------------
Communications--2.4%
Cellular, Inc., 0%/11.75% Sr. Sub. Disc. Nts., 9/1/03(3) 26,626,000 17,573,160
- ------------------------------------------------------------------------------------------------------------------------------------
Centennial Cellular Corp., 8.875% Sr. Nts., 11/1/01 15,250,000 13,801,250
- ------------------------------------------------------------------------------------------------------------------------------------
Horizon Cellular Telephone LP/Horizon Finance Corp.,
0%/11.375% Sr. Sub. Disc. Nts., 10/1/00(3) 21,402,000 15,409,440
- ------------------------------------------------------------------------------------------------------------------------------------
MFS Communications, Inc., 0%/9.375% Sr. Disc. Nts., 1/15/04(3) 12,400,000 7,347,000
- ------------------------------------------------------------------------------------------------------------------------------------
New City Communications, Inc., 11.375%, Sr. Sub. Nts., 11/1/03 17,975,000 18,199,688
- ------------------------------------------------------------------------------------------------------------------------------------
Nextel Communications, Inc., 0%/9.75% Sr. Disc. Nts., 8/15/04(3) 4,675,000 2,314,125
- ------------------------------------------------------------------------------------------------------------------------------------
Panamsat LP/Panamsat Capital Corp.:
9.75% Sr. Sec. Nts., 8/1/00 3,600,000 3,591,000
0%/11.375% Sr. Sub. Disc. Nts., 8/1/03(3) 33,700,000 22,663,250
- ------------------------------------------------------------------------------------------------------------------------------------
Rogers Communications, Inc., 10.875% Sr. Debs., 4/15/04 2,200,000 2,249,500
- ------------------------------------------------------------------------------------------------------------------------------------
USA Mobile Communication, Inc. II, 9.50% Sr. Nts., 2/1/04 9,350,000 8,415,000
- ------------------------------------------------------------------------------------------------------------------------------------
111,563,413
- ------------------------------------------------------------------------------------------------------------------------------------
Technology--1.4%
Bell & Howell Holdings Co.:
10.75% Sr. Sub. Nts., Series B, 10/1/02 2,000,000 1,950,000
0%/10.75% Sr. Disc. Debs., Series B, 3/1/05(3) 28,450,000 14,936,250
- ------------------------------------------------------------------------------------------------------------------------------------
Berg Electronics Holdings Corp., 11.375% Sr. Sub. Debs., 5/1/03 2,100,000 2,147,250
- ------------------------------------------------------------------------------------------------------------------------------------
Computervision Corp., 10.875% Sr. Nts., 8/15/97 4,650,000 4,336,125
- ------------------------------------------------------------------------------------------------------------------------------------
Dell Computer Corp., 11% Sr. Nts, 8/15/00 9,500,000 9,951,250
- ------------------------------------------------------------------------------------------------------------------------------------
Imax Corp., 7% Sr. Nts., 3/1/01(8) 13,200,000 11,550,000
- ------------------------------------------------------------------------------------------------------------------------------------
International Semi-Tech Microelectronics, Inc.,
0%/11.50% Sr. Sec. Disc. Nts., 8/15/03(3) 24,000,000 11,340,000
- ------------------------------------------------------------------------------------------------------------------------------------
Unisys Corp.:
9.75% Sr. Nts., 9/15/96 2,000,000 2,026,100
13.50% Credit Sensitive Nts., 7/1/97 4,200,000 4,567,517
8.875% Nts., 7/15/97 1,000,000 977,135
9.75% Sr. Nts., 9/15/16 3,900,000 3,460,263
- ------------------------------------------------------------------------------------------------------------------------------------
67,241,890
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Face Market Value
Amount See Note 1
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Utilities--2.0%
Beaver Valley Funding Corp., 9% Debs., 6/1/17 $20,400,000 $15,520,666
- ------------------------------------------------------------------------------------------------------------------------------------
California Energy Co., 0%/10.25% Sr. Disc. Nts., 1/15/04(3) 17,575,000 12,610,063
- ------------------------------------------------------------------------------------------------------------------------------------
Coastal Corp., 11.75% Sr. Debs., 6/15/06 2,500,000 2,743,750
- ------------------------------------------------------------------------------------------------------------------------------------
Del Norte Funding Corp.:
9.95% Debs., 1/2/98(2) 5,000,000 2,601,765
11.25% Debs., 1/2/14(2) 3,350,000 1,744,459
- ------------------------------------------------------------------------------------------------------------------------------------
El Paso Electric Co.:
9.20% Debs., 7/2/97(2) 1,500,000 810,487
10.375% Lease Obligation Debs., 1/15/94(2) 12,750,000 6,895,735
- ------------------------------------------------------------------------------------------------------------------------------------
El Paso Funding Corp.:
9.375% Debs., 1/1/96(2) 6,000,000 3,241,415
10.75% Debs., 4/1/13(2) 11,900,000 6,485,500
- ------------------------------------------------------------------------------------------------------------------------------------
First PV Funding Corp., Lease Obligation Bonds:
10.30%, Series 1986A, 1/15/14 16,450,000 15,296,409
10.15%, Series 1986B, 1/15/16 20,100,000 18,484,870
- ------------------------------------------------------------------------------------------------------------------------------------
Southwest Gas Corp., 9.75% Debs., Series F, 6/15/02 125,000 131,362
- ------------------------------------------------------------------------------------------------------------------------------------
Subic Power Corp., 9.50% Sr. Sec. Nts., Series A, 12/28/08(5) 9,500,000 8,763,750
- ------------------------------------------------------------------------------------------------------------------------------------
95,330,231
- ------------------------------------------------------------------------------------------------------------------------------------
Total Corporate Bonds and Notes (Cost $1,779,466,288) 1,682,537,856
Shares
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stocks--0.2%
- ------------------------------------------------------------------------------------------------------------------------------------
Berg Electronics Holdings Corp.(2)(5) 159,220 716,490
- ------------------------------------------------------------------------------------------------------------------------------------
Capital Gaming, Inc.(6) 82,676 547,729
- ------------------------------------------------------------------------------------------------------------------------------------
Celcaribe SA(5) 2,048,760 2,504,275
- ------------------------------------------------------------------------------------------------------------------------------------
ECM Fund, L.P.I.(5) 525 525,000
- ------------------------------------------------------------------------------------------------------------------------------------
Ladish, Inc. 806,000 806,000
- ------------------------------------------------------------------------------------------------------------------------------------
New World Communications Group, Inc., Cl. A 44,672 636,576
- ------------------------------------------------------------------------------------------------------------------------------------
Triangle Wire & Cable, Inc. 232,222 2,264,165
- ------------------------------------------------------------------------------------------------------------------------------------
Trizec, Ltd. 52,913(1) 414,201
- ------------------------------------------------------------------------------------------------------------------------------------
Total Common Stocks (Cost $7,871,447) 8,414,436
- ------------------------------------------------------------------------------------------------------------------------------------
Preferred Stocks--0.6%
- ------------------------------------------------------------------------------------------------------------------------------------
Berg Electronic Holdings, Series E(6) 81,248 2,193,696
- ------------------------------------------------------------------------------------------------------------------------------------
Dell Computer Corp., $7.00 Cv., Series A(5) 23,500 3,724,750
- ------------------------------------------------------------------------------------------------------------------------------------
First Madison Bank, FSB, 11.50% 95,000 9,975,000
- ------------------------------------------------------------------------------------------------------------------------------------
K-III Communications Corp.:
Sr. Exch., Series A 80,000 2,060,000
$11.625 Exch., Series B(6)(13) 53,248 5,218,378
- ------------------------------------------------------------------------------------------------------------------------------------
Prime Retail, Inc., $19.00 Cv., Series B 50,000 1,206,250
- ------------------------------------------------------------------------------------------------------------------------------------
Unisys Corp., $3.75 Cv., Series A 118,800 4,336,200
- ------------------------------------------------------------------------------------------------------------------------------------
Total Preferred Stocks (Cost $27,762,014) 28,714,274
Units
- ------------------------------------------------------------------------------------------------------------------------------------
Rights, Warrants and Certificates--0.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Ames Department Stores, Inc.:
Excess Cash Flow Payment Ctfs. 37,200 372
Litigation Trust Units 118,975 1,190
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Statement of Investments (Continued)
Market Value
Units See Note 1
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Rights, Warrants and
Certificates (continued)
Becker Gaming, Inc. Wts., Exp. 11/00(5) 262,500 $525,000
- ------------------------------------------------------------------------------------------------------------------------------------
Capital Gaming International, Inc. Wts., Exp. 2/99 69,024 224,328
- ------------------------------------------------------------------------------------------------------------------------------------
Casino America, Inc. Wts., Exp. 11/96 9,789 14,684
- ------------------------------------------------------------------------------------------------------------------------------------
Eye Care Centers of America, Inc. Wts., Exp. 10/03 7,000 70,000
- ------------------------------------------------------------------------------------------------------------------------------------
General Media, Inc. Wts., Exp. 12/00(5) 4,000 40,000
- ------------------------------------------------------------------------------------------------------------------------------------
Hollywood Casino Corp. Wts., Exp. 4/98 13,333 1,439,999
- ------------------------------------------------------------------------------------------------------------------------------------
Protection One, Inc. Wts., Exp. 11/03 182,000 584,220
- ------------------------------------------------------------------------------------------------------------------------------------
Santa Fe Hotel, Inc., Wts., Exp. 12/96 100 55,500
- ------------------------------------------------------------------------------------------------------------------------------------
Terex Corp. Rts., Exp. 7/96(5) 13,935 20,903
- ------------------------------------------------------------------------------------------------------------------------------------
Triangle Wire & Cable, Inc. Wts., Exp. 1/98(5) 55,000 0
- ------------------------------------------------------------------------------------------------------------------------------------
Total Rights, Warrants, and Certificates (Cost $1,705,251) 2,976,196
<CAPTION>
Face
Date/Price Amount
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Put Options Purchased--0.0%
- ------------------------------------------------------------------------------------------------------------------------------------
OTC 96-20+ Put Tsy, 7.50%, 11/24 Oct. 12/.009531 $50,000,000 484,375
European OTC Deutsche Mark/U.S. Dollar Put Nov. 2/1.60DEM 338,733,106(1) 698,620
European OTC Deutsche Mark/U.S. Dollar Put Nov. 8/1.60DEM 169,366,553(1) 382,058
European OTC Deutsche Mark/U.S. Dollar Put Nov. 4/1.60DEM 169,366,553(1) 444,933
- ------------------------------------------------------------------------------------------------------------------------------------
Total Put Options Purchased (Cost $7,858,128) 2,009,986
- ------------------------------------------------------------------------------------------------------------------------------------
Structured Instruments--5.6%
- ------------------------------------------------------------------------------------------------------------------------------------
Argentina Local Market Securities Trust:
Series I, 14.75%, 9/1/02(5) 3,750,000 3,750,000
Series II, 11.30%, 4/1/00(5) 23,400,000 23,576,670
- ------------------------------------------------------------------------------------------------------------------------------------
Bancario San Paolo, 14.28% CD, 10/18/94 6,500,000,000(1) 2,419,583
- ------------------------------------------------------------------------------------------------------------------------------------
Bayerishe Landesbank, N.Y. Branch:
Italian Lira Linked Confidence Nt., Girozentrale Branch,
10%, 8/7/95(5) 12,500,000 11,818,750
Italian Lira/Deutsche Mark Linked Confidence Nt., Girozentrale Branch,
10%, 8/7/95 24,580,000 24,029,408
Mexican Peso Linked Confidence Nt., Girozentrale Branch,
35.50%, 12/30/94(5) 19,980,000 19,630,350
- ------------------------------------------------------------------------------------------------------------------------------------
Citibank, 10.50%-17% CD, 8/18/94--8/28/95 31,736,857,279(1) 84,366,061
- ------------------------------------------------------------------------------------------------------------------------------------
Goldman Sachs International Limited, 5.10%, 2/28/95 9,690,000 9,424,494
- ------------------------------------------------------------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc., Standard & Poor's 500 Indexed-Linked Nts.:
4.85%, 11/16/94(5) 3,250,000 4,195,100
4.85%, 11/25/94(5) 300,000 410,490
4.85%, 11/25/94(5) 2,212,500 3,165,645
5.038%, 12/22/94(5) 2,000,000 2,665,400
- ------------------------------------------------------------------------------------------------------------------------------------
Morgan Guaranty Trust Co. of New York
(Singapore Branch) CD, 12.15%, 2/3/95 14,898,412,500(1) 6,846,539
- ------------------------------------------------------------------------------------------------------------------------------------
Rabobank Certificate of Deposit:
Japanese Yen Maximum Rate Nts., 10%, 6/2/95(5) 12,500,000 11,620,000
British Pound Sterling Maximum Rate Nts., 10%, 6/2/95(5) 25,000,000 22,797,500
Structured Product Asset Return Certificates, 9.40%,
Series 94-2, 9/1/97(5) 10,000,000 9,969,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Face Market Value
Amount See Note 1
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Structured Instruments
(continued)
Swiss Bank Corporation Investment Banking, Inc.,
10% CD Sterling Rate Linked Nts., 7/3/95 $23,530,000 $23,209,992
- ------------------------------------------------------------------------------------------------------------------------------------
Total Structured Instruments (Cost $270,746,085) 263,894,982
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investments, at Value (Cost $4,938,344,549) 98.7% 4,669,617,762
- ------------------------------------------------------------------------------------------------------------------------------------
Other Assets Net of Liabilities 1.3 59,576,648
------- --------------
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets 100.00% $4,729,194,410
------- --------------
------- --------------
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
1. Face amount is reported in foreign currency.
2. Non-income producing security.
3. Represents a zero coupon bond that converts to a fixed rate of interest at a
designated date in the future.
4. Represents the current interest rate for a variable rate security.
5. Restricted security-see Note 6 of Notes to Financial Statements.
6. Interest or dividend is paid in kind.
7. Partial interest payment was received.
8. Represents the current interest rate for an increasing rate security.
9. Principal-Only Strips represent the right to receive the monthly principal
payments on an underlying pool of mortgage loans. The value of these
securities generally increases as interest rates decline and prepayment
rates rise. The price of these securities is typically more volatile than
that of coupon-bearing bonds of the same maturity.
10. Interest-Only Strips represent the right to receive the monthly interest
payments on an underlying pool of mortgage loans. These securities typically
decline in price as interest rates decline. Most other fixed-income
securities increase in price when interest rates decline. The principal
amount of the underlying pool represents the notional amount on which
current interest is calculated. The price of these securities is typically
more sensitive to changes in prepayment rates than traditional mortgage
backed securities (for example, GNMA pass-throughs).
11. Securities with an aggregate market value of $936,675 are held in escrow to
cover initial margin requirements on open interest rate futures sales
contracts, as follows:
Type of Contract Number of Contracts Face Amount
----------------------------------------------------------------------------
U.S. Treasury Nts., 12/94 245 $24,921,094
U.S. Treasury Bonds, 12/94 89 8,808,219
The market value of the open contracts was $33,665,282 at September 30,
1994, with a net unrealized gain of $64,031.
12. Securities with an aggregate market value of $22,128,750 are held in escrow
to cover outstanding call options, as follows:
Shares Expiration Exercise Premium Market Value
Subject to Call Date Price Received See Note 1
------------------------------------------------------------------------------------------------------
OTC 96-20 Put Tsy 7.50 11/24 300,000 10/12/94 1.000156 $609,375 $937,500
European OTC Deutsche Mark/U.S. Dollar 73,914,099 11/04/94 1.50 DEM 355,784 218,277
European OTC Deutsche Mark/U.S. Dollar 33,207,784 11/04/94 1.60 DEM 872,628 1,096,836
European OTC Deutsche Mark/U.S. Dollar 147,828,199 11/02/94 1.50 DEM 686,696 389,856
European OTC Deutsche Mark/U.S. Dollar 66,415,567 11/02/94 1.60 DEM 1,732,112 2,213,366
European OTC Deutsche Mark/U.S. Dollar 73,914,100 11/08/94 1.54 DEM 881,869 908,660
European OTC Deutsche Mark/U.S. Dollar 33,207,784 11/08/94 1.60 DEM 903,055 1,136,225
Argentina (Republic of) OTC U.S. Dollar 25,000 11/16/94 .7533 500,000 540,000
---------
------------------------------------------------------------------------------------------------------
$6,541,519 $7,440,720
13. Affiliated company. Represents ownership of at least 5% of the voting
securities of the issuer and is or was an affiliate, as defined in the
Investment Company Act of 1940, at or during the year ended September 30,
1994. The aggregate fair value of all securities of affiliated companies as
of September 30, 1994 amounted to $5,218,378. Transactions during the period
in which the issuer was an affiliate are as follows:
Balance Balance
September 30, 1993 Gross Additions Gross Reductions September 30, 1994
------------------------------ ---------------- ---------------- ------------------------------
Dividend
Shares Cost Shares Cost Shares Cost Shares Cost Income
-------- ------ ---------- ------ ---------- ------ ------- ------ ---------- --------
K-III Communications Corp., $11.625 21,103 $2,095,713 32,281 $3,301,943 136 $13,677 53,248 $5,383,979
$564,467
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities September 30, 1994
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Assets
Investments, at value (cost $4,938,344,549)--see accompanying statement $4,669,617,762
- ------------------------------------------------------------------------------------------------------------------------------------
Cash 4,400,431
- ------------------------------------------------------------------------------------------------------------------------------------
Unrealized appreciation on futures contracts--Note 7 64,031
- ------------------------------------------------------------------------------------------------------------------------------------
Receivables:
Interest and dividends 109,861,572
Investments sold 84,944,908
Shares of beneficial interest sold 16,958,955
- ------------------------------------------------------------------------------------------------------------------------------------
Other 141,704
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets 4,885,989,363
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities Options written, at value (premiums received $6,541,519)--see accompanying statement--Note 4 7,440,720
- ------------------------------------------------------------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased 114,847,063
Shares of beneficial interest redeemed 19,984,405
Distribution and service plan fees--Note 5 2,939,585
Dividends and distributions 10,331,176
- ------------------------------------------------------------------------------------------------------------------------------------
Other 1,252,004
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 156,794,953
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets $4,729,194,410
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Composition of
Net Assets
Paid-in capital $5,035,306,478
- ------------------------------------------------------------------------------------------------------------------------------------
Overdistributed net investment income (2,882,064)
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulated net realized loss from investment, written option and foreign
currency transactions (34,233,637)
- ------------------------------------------------------------------------------------------------------------------------------------
Net unrealized depreciation on investments, options written and translation of assets
and liabilities denominated in foreign currencies (268,996,367)
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets $4,729,194,410
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value
Per Share
Class A Shares:
Net asset value and redemption price per share (based on net assets of $3,143,103,010
and 661,897,244 shares of beneficial interest outstanding) $4.75
Maximum offering price per share
(net asset value plus sales charge of 4.75% of offering price) $4.99
- ------------------------------------------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price and offering price per share (based on net assets
of $1,586,091,400 and 333,489,354 shares of beneficial interest outstanding) $4.76
See accompanying Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Statement of Operations For the Year Ended September 30, 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment Income
Interest:
Unaffiliated companies (net of withholding taxes of $1,101,145) $413,257,729
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends:
Unaffiliated companies 3,242,246
Affiliated companies 564,467
- ------------------------------------------------------------------------------------------------------------------------------------
Total income $417,064,442
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses
Management fees--Note 5 23,416,082
- ------------------------------------------------------------------------------------------------------------------------------------
Distribution and service plan fees:
Class A--Note 5 7,673,295
Class B--Note 5 12,329,469
- ------------------------------------------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 5 4,218,280
- ------------------------------------------------------------------------------------------------------------------------------------
Shareholder reports 1,313,497
- ------------------------------------------------------------------------------------------------------------------------------------
Custodian fees and expenses 846,200
- ------------------------------------------------------------------------------------------------------------------------------------
Registration and filing fees:
Class A 156,391
Class B 324,858
- ------------------------------------------------------------------------------------------------------------------------------------
Legal and auditing fees 106,799
- ------------------------------------------------------------------------------------------------------------------------------------
Trustees' fees and expenses 54,980
- ------------------------------------------------------------------------------------------------------------------------------------
Other 78,098
- ------------------------------------------------------------------------------------------------------------------------------------
Total expenses 50,517,949
- ------------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 366,546,493
- ------------------------------------------------------------------------------------------------------------------------------------
Realized and Unrealized
Gain (Loss) on Investments,
Options Written and
Foreign Currency
Transactions
Net realized gain (loss) from:
Investments and options written (including premiums on options exercised) (4,635,548)
Closing and expiration of option contracts written--Note 4 9,145,220
Foreign currency transactions (21,719,790)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized loss (17,210,118)
- ------------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on:
Investments and options written (371,603,790)
Translation of assets and liabilities denominated in foreign currencies 54,421,484
- ------------------------------------------------------------------------------------------------------------------------------------
Net change (317,182,306)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized loss on investments, options written and foreign
currency transactions (334,392,424)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting From Operations $32,154,069
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets
Year Ended September 30,
1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income $366,546,493 $225,207,116
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments, options written and foreign
currency transactions (17,210,118) 63,690,435
- ------------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on investments,
options written and translation of assets and liabilities denominated
in foreign currencies (317,182,306) 32,124,174
----------- -----------
Net increase in net assets resulting from operations 32,154,069 321,021,725
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends and
Distributions to
Shareholders
Dividends from net investment income:
Class A ($.4329 and $.4960 per share, respectively) (236,741,649) (210,522,530)
Class B ($.3938 and $.3637 per share, respectively) (119,419,105) (18,595,592)
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain on investments, options written
and foreign currency transactions:
Class A ($.0124 per share) -- (7,998,180)
Class B ($.0124 per share) -- (36,330)
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions in excess of gains on investments, options written
and foreign currency transactions:
Class A ($.1179 per share) (57,628,697) --
Class B ($.1179 per share) (29,069,526) --
- ------------------------------------------------------------------------------------------------------------------------------------
Tax return of capital:
Class A ($.0135 per share) (8,947,314) --
Class B ($.0135 per share) (4,513,275) --
- ------------------------------------------------------------------------------------------------------------------------------------
Beneficial Interest
Transactions
Net increase in net assets resulting from Class A beneficial interest
transactions--Note 2 685,155,178 945,622,259
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from Class B beneficial interest
transactions--Note 2 1,019,463,146 683,558,019
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets
Total increase 1,280,452,827 1,713,049,371
- ------------------------------------------------------------------------------------------------------------------------------------
Beginning of year 3,448,741,583 1,735,692,212
-------------- --------------
End of year [including undistributed (overdistributed) net
investment income of ($2,882,064) and $2,865,362, respectively] $4,729,194,410 $3,448,741,583
-------------- --------------
-------------- --------------
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Financial Highlights September 30, 1993
Class A Class B
------- -------
Year Ended Year Ended
September 30, September 30,
1994 1993 1992 1991 1990(2) 1994 1993(1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
<C>
Per Share Operating Data:
Net asset value, beginning of period $5.21 $5.07 $5.01 $4.87 $5.00 $5.22 $4.89
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .45 .48 .46 .56 .59 .42 .36
Net realized and unrealized gain (loss)
on investments, options written
and foreign currency transactions (.35) .17 .14 .21 (.10) (.36) .34
------ ------ ------ ------ ------ ------ ------
Total income from investment
operations .10 .65 .60 .77 .49 .06 .70
- ----------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to
shareholders:
Dividends from net investment income (.43) (.50) (.46) (.57) (.57) (.39) (.36)
Distributions from net realized gain
on investments, options written
and foreign currency transactions -- (.01) (.08) (.06) (.05) -- (.01)
Distributions in excess of net
realized gain on investments,
options written and foreign
currency transactions (.12) -- -- -- -- (.12) --
Tax return of capital (.01) -- -- -- -- (.01) --
------ ------ ------ ------ ------ ------ ------
Total dividends and distributions
to shareholders (.56) (.51) (.54) (.63) (.62) (.52) (.37)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $4.75 $5.21 $5.07 $5.01 $4.87 $4.76 $5.22
------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------
- ----------------------------------------------------------------------------------------------------------------------------------
Total Return, at Net Asset Value(3) 1.85% 13.30% 12.56% 16.97% 10.20% 1.07%
13.58%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data:
Net assets, end of period
(in millions) $3,143 $2,754 $1,736 $560 $177 $1,586 $695
- ----------------------------------------------------------------------------------------------------------------------------------
Average net assets (in millions) $3,082 $2,107 $1,084 $311 $93 $1,236 $276
- ----------------------------------------------------------------------------------------------------------------------------------
Number of shares outstanding
at end of period (in thousands) 661,897 528,587 342,034 111,739 36,418 333,489 133,235
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 8.72% 9.78% 9.39% 11.82% 12.79%(4) 7.90% 8.13%(4)
Expenses .95% 1.09% 1.16%(5) 1.27%(5) 1.36%(4) 1.71% 1.80%(4)
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 119.0% 148.6% 208.2% 194.7% 424.6% 119.0% 148.6%
<FN>
1. For the period from November 30, 1992 (inception of offering) to September
30, 1993.
2. For the period from October 16, 1989 (commencement of operations) to
September 30, 1990.
3. 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.
4. Annualized.
5. 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.
6. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at the
time of acquisition of one year or less are excluded from the calculation.
Purchases and sales of investment securities (excluding short-term
securities) for the year ended September 30, 1994 were $6,168,422,547 and
$4,642,399,344, respectively.
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
- -------------------------------------------------------------------------------
Notes to Financial Statements
- -------------------------------------------------------------------------------
1. Significant Accounting Policies
Oppenheimer Strategic Income Fund (the Fund) is a separate series of
Oppenheimer Strategic Funds Trust, a diversified, open-end management investment
company registered under the Investment Company Act of 1940, as amended. The
Fund's investment advisor is Oppenheimer Management Corporation (the Manager).
The fund offers both Class A and Class B shares. Class A shares are sold with a
front-end sales charge. Class B shares may be subject to a contingent deferred
sales charge. Both classes of shares have identical rights to earnings, assets
and voting privileges, except that each class has its own distribution and/or
service plan, expenses directly attributable to a particular class and exclusive
voting rights with respect to matters affecting a single class. Class B shares
will automatically convert to Class A shares six years after the date of
purchase. The following is a summary of significant accounting policies
consistently followed by the Fund.
- -------------------------------------------------------------------------------
Investment Valuation. Portfolio securities are valued at 4:00 p.m. (New York
time) on each trading day. 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, 1994, securities with an
aggregate market value of $46,417,790, representing .95% 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 foreign currencies are
translated into U.S. dollars at the closing rates of exchange. Amounts related
to the purchase and sale of securities and investment income are translated at
the rates of exchange prevailing on the respective dates of such transactions.
The 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.
The effect of changes in foreign currency exchange rates on investments is
separately identified from the fluctuations arising from changes in market
values of securities held and reported with all other foreign currency gains and
losses in the Fund's results of operations.
- -------------------------------------------------------------------------------
Repurchase Agreements. The Fund requires the custodian to take possession, to
have legally segregated in the Federal Reserve Book Entry System or to have
segregated within the custodian's vault, all securities held as collateral for
repurchase agreements. 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.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1. Significant Accounting Policies (continued)
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.
- -------------------------------------------------------------------------------
Change in Accounting for Distributions to Shareholders. Effective October 1,
1993, the Fund adopted Statement of Position 93-2: Determination, Disclosure,
and Financial Statement Presentation of Income, Capital Gain, and Return of
Capital Distributions by Investment Companies. As a result, the Fund changed the
classification of distributions to shareholders to better disclose the
differences between financial statement amounts and distributions determined in
accordance with income tax regulations. Accordingly, subsequent to September 30,
1993, amounts have been reclassified to reflect an increase in paid-in capital
of $223,939, an increase in undistributed net investment loss of $9,032,371, and
a decrease in undistributed capital loss on investments of $8,808,432. During
the year ended September 30, 1994, in accordance with Statement of Position
93-2, paid-in capital was decreased by $13,460,589, undistributed net investment
loss was decreased by $6,359,795 and undistributed capital loss was decreased by
$7,100,794.
- -------------------------------------------------------------------------------
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.
<PAGE>
- -------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- -------------------------------------------------------------------------------
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 September 30, 1994 Period Ended September 30, 1993(1)
----------------------------- ----------------------------------
Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A:
Sold 236,638,548 $1,198,107,502 249,430,763 $1,264,793,607
Dividends and distributions reinvested 46,661,271 234,357,544 29,150,165 147,612,098
Redeemed (149,989,676) (747,309,868) (92,028,210) (466,783,446)
------------ -------------- ----------- --------------
Net increase 133,310,143 $685,155,178 186,552,718 $945,622,259
------------ -------------- ----------- --------------
------------ -------------- ----------- --------------
- --------------------------------------------------------------------------------------------------------------------------------
Class B:
Sold 211,514,941 $1,074,296,304 133,631,433 $685,673,857
Dividends and distributions reinvested 13,715,575 68,501,659 1,974,080 10,213,941
Redeemed (24,975,699) (123,334,817) (2,370,976) (12,329,779)
------------ -------------- ----------- --------------
Net increase 200,254,817 $1,019,463,146 133,234,537 $683,558,019
------------ -------------- ----------- --------------
------------ -------------- ----------- --------------
<FN>
1. 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, 1994, net unrealized depreciation on investments and
options written of $269,561,957 was composed of gross appreciation of
$34,252,245, and gross depreciation of $303,814,202.
- -------------------------------------------------------------------------------
4. Option Activity
Option activity for the year ended September 30, 1994 was as follows:
Call Options Put Options
------------ -----------
Number Amount Number Amount
of Options of Premiums of Options of Premiums
- --------------------------------------------------------------------------------------------------------------------------
Options outstanding at September 30, 1993 30,000 $3,914,062 -- $--
- --------------------------------------------------------------------------------------------------------------------------
Options written 428,562,283 14,188,394 525,152 1,670,220
- --------------------------------------------------------------------------------------------------------------------------
Options cancelled in closing purchase transactions (10,000) (1,734,375) -- --
- --------------------------------------------------------------------------------------------------------------------------
Options expired prior to exercise (39,750) (6,350,000) (225,152) (1,060,845)
- --------------------------------------------------------------------------------------------------------------------------
Options exercised (30,000) (4,085,937) -- --
----------- ---------- ------- --------
Options outstanding at September 30, 1994 428,512,533 $5,932,144 300,000 $609,375
----------- ---------- ------- --------
----------- ---------- ------- --------
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
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, 1994, commissions (sales charges paid by
investors) on sales of Class A shares totaled $31,059,937, of which $8,686,206
was retained by Oppenheimer Funds Distributor, Inc. (OFDI), a subsidiary of the
Manager, as general distributor, and by an affiliated broker/dealer. During the
year ended September 30, 1994, OFDI received contingent deferred sales charges
of $2,731,436 upon redemption of Class B shares as reimbursement for sales
commissions advanced by OFDI at the time of sale of such shares.
Oppenheimer Shareholder Services (OSS), a division of the Manager, is the
transfer and shareholder servicing agent for the Fund, and for other registered
investment companies. OSS's total costs of providing such services are allocated
ratably to these companies.
<PAGE>
- -------------------------------------------------------------------------------
5. Management Fees And Other Transactions With Affiliates (continued)
Under separate approved plans, each class may expend up to .25% of its net
assets annually to reimburse OFDI for costs incurred in connection with the
personal service and maintenance of accounts that hold shares of the Fund,
including amounts paid to brokers, dealers, banks and other financial
institutions. In addition, Class B shares are subject to an asset-based sales
charge of .75% of net assets annually, to reimburse OFDI for sales commissions
paid from its own resources at the time of sale and associated financing costs.
In the event of termination or discontinuance of the Class B plan, the Board of
Trustees may allow the Fund to continue payment of the asset-based sales charge
to OFDI for distribution expenses incurred on Class B shares sold prior to
termination or discontinuance of the plan. During the year ended September 30,
1994, OFDI paid $468,405 and $17,712, respectively, to an affiliated
broker/dealer as reimbursement for Class A and Class B personal service and
maintenance expenses and retained $11,816,316 as reimbursement for Class B sales
commissions and service fee advances, as well as financing costs.
- -------------------------------------------------------------------------------
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, excluding securities eligible
for resale pursuant to Rule 144A of the Act amount to $370,578,238, or 7.8% of
the Fund's net assets, at September 30, 1994. Illiquid and/or restricted
securities, including those restricted securities that are transferable under
Rule 144A of the Act are listed below.
<TABLE>
<CAPTION>
Valuation
Per Unit as of
Security Acquisition Date Cost Per Unit September 30, 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Acadia Partners LP, 13% Sub. Nts., 10/1/97(1) 3/12/93 $100.00 $103.00
- ------------------------------------------------------------------------------------------------------------------------------------
Aftermarket Technology Corp., 12% Sr. Sub. Nts., 8/1/04(1) 7/21/94 $100.00 $101.50
- ------------------------------------------------------------------------------------------------------------------------------------
Argentina Local Market Securities Trust:
Series I, 14.75%, 9/1/02(1) 9/19/94 $100.00 $100.76
Series II, 11.30%, 4/1/00(1) 8/24/94 $100.00 $100.76
- ------------------------------------------------------------------------------------------------------------------------------------
Arizona Charlie's, Inc., 12% Fst. Mtg. Nts., Series A, 11/15/00(1) 11/18/93--12/9/93 $100.00 $87.50
- ------------------------------------------------------------------------------------------------------------------------------------
Banco Ganadero SA, 9.75%, 8/26/99(1) 8/10/94 $99.58 $100.75
- ------------------------------------------------------------------------------------------------------------------------------------
Bariven SA, Sr. Nts., Gtd. by Petroleos de Venezuela, 9%, 2/25/97(1) 7/20/94 $85.38 $93.00
- ------------------------------------------------------------------------------------------------------------------------------------
Bayerische Landesbank N.Y. Branch:
Italian Lira Linked Confidence Nt.,
Girozentrale Branch, 10%, 8/7/95(1) 5/20/94 $100.00 $94.55
Mexican Peso Linked Confidence Nt.,
Girozentrale Branch, 35.50%, 12/30/94 9/23/94 $100.00 $98.25
- ------------------------------------------------------------------------------------------------------------------------------------
Becker Gaming, Inc. Wts., Exp. 11/00 11/18/93--12/9/93 $2.10 $2.00
- ------------------------------------------------------------------------------------------------------------------------------------
Berg Electronics Holdings Corp.(1) 4/28/93--8/11/93 $1.27 $4.50
- ------------------------------------------------------------------------------------------------------------------------------------
Brazil (Federal Republic of):
Nts., Banco Estado Minas Gerais:
7.875%, 2/10/99(1) 8/16/94--8/17/94 $79.66 $82.25
8.25%, 2/10/00(1) 8/15/94 $76.25 $81.50
- ------------------------------------------------------------------------------------------------------------------------------------
Capital Queen & Casino, Inc., 12% Fst. Mtg. Nts., Series A, 11/15/00 11/18/93--12/17/93 $87.70 $77.50
- ------------------------------------------------------------------------------------------------------------------------------------
Celcaribe SA(1) 5/17/94 $1.19 $1.22
- ------------------------------------------------------------------------------------------------------------------------------------
Celcaribe SA, 0%/13.50% Sr. Sec. Nts., 3/15/04(1) 5/17/94 $60.78 $63.37
- ------------------------------------------------------------------------------------------------------------------------------------
Charter Medical Corp., 11.25% Sr. Sub. Nts., 4/15/04(1) 4/22/94 $100.00 $103.50
- ------------------------------------------------------------------------------------------------------------------------------------
Chase Mortgage Finance Corp.:
Nts., 6.75%, 2/25/25(1) 3/21/94 $78.55 $68.38
Nts., 6.75%, 4/25/24(1) 3/21/94 $78.41 $68.22
Sub. Mtg. Pass-Through Certificates, Series 1994-1:
0%, Cl. B-8, 3/25/25(1) 3/22/94 $81.12 $75.06
0%, Cl. B-9, 3/25/25(1) 3/22/94 $80.89 $71.72
0%, Cl. B-10, 3/25/25(1) 3/22/94 $80.41 $71.38
</TABLE>
<PAGE>
- -------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
- -------------------------------------------------------------------------------
6. Restricted Securities (continued)
<TABLE>
<CAPTION>
Valuation
Per Unit as of
Security Acquisition Date Cost Per Unit September 30, 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CMC Security Corp. III, 0% Collateralized Mtg. Oblig.,
Series 1994-E, Cl. E-B3, 3/25/24(1) 3/21/94 $75.88 $68.38
- ------------------------------------------------------------------------------------------------------------------------------------
CSFOB 11%, Cl. E, 2/15/14 5/16/94 $98.85 $97.51
- ------------------------------------------------------------------------------------------------------------------------------------
Colombia (Republic of):
1989-1990 Integrated Loan Facility Bonds:
4.188%, 7/1/01 6/17/93--11/12/93 $91.78 $96.00
4.44%, 10/26/03 10/25/93--12/17/93 $89.77 $93.50
- ------------------------------------------------------------------------------------------------------------------------------------
Empresa Columbiana de Petroleos, Nts., 7.25%, 7/8/98(1) 4/25/94 $93.25 $95.38
- ------------------------------------------------------------------------------------------------------------------------------------
Dell Computer Corp. $7.00 Cv., Series A(1) 1/27/94--2/2/94 $103.57 $158.50
- ------------------------------------------------------------------------------------------------------------------------------------
ECM Fund, L.P.I. 4/14/92 $1,000.00 $1,000.00
- ------------------------------------------------------------------------------------------------------------------------------------
ECM Fund, L.P.I., 14% Sub. Nts., 6/10/02 4/14/92 $100.00 $110.00
- ------------------------------------------------------------------------------------------------------------------------------------
FDIC Trust, 1994-Cl Class 2-D, 8.70%, 9/25/25 8/10/94 $98.00 $95.95
- ------------------------------------------------------------------------------------------------------------------------------------
FDIC Trust, 1994-Cl Class 2-E, 8.70%, 9/25/25 8/10/94 $94.88 $92.48
- ------------------------------------------------------------------------------------------------------------------------------------
Foamex LP/JPS Automotive Corp., Units(1) 6/21/94 $51.39 $55.50
- ------------------------------------------------------------------------------------------------------------------------------------
GE Capital Mortgage Services, Inc.:
Series 1994-11 Cl. B3, 6.50%, 5/25/24(1) 3/11/94 $76.00 $67.38
Series 1994-10 Cl. B3, 6.50%, 3/25/24(1) 3/8/94 $77.45 $69.88
- ------------------------------------------------------------------------------------------------------------------------------------
General Media, Inc. Wts., Exp. 12/00(1) 12/15/93 $.01 $10.00
- ------------------------------------------------------------------------------------------------------------------------------------
GPA Holland BV:
8.50% Med.-Term Nts., 2/10/97(1) 6/30/93 $69.50 $88.75
8.625% Med.-Term Nts., Series C, 1/15/99 1/10/94 $78.13 $79.00
9.50% Med.-Term Nts., Series A, 12/15/01 1/27/94 $79.96 $77.00
- ------------------------------------------------------------------------------------------------------------------------------------
GPA Netherlands BV, 8.50% Med.-Term Nts., 3/3/97(1) 7/8/93--10/27/93 $76.63 $88.50
- ------------------------------------------------------------------------------------------------------------------------------------
Grupo Mexicano de Desarrollo SA, 8.25% Gtd. Nts., 2/17/01(1) 2/8/94 $100.00 $82.25
- ------------------------------------------------------------------------------------------------------------------------------------
GSPI Corp., 10.15% First Mtg. Bonds, 6/24/10 1/29/93 $102.40 $107.35
- ------------------------------------------------------------------------------------------------------------------------------------
Interco, Inc., 9% Sec. Nts., Series B, 6/1/04(1) 10/14/92 $91.50 $98.50
- ------------------------------------------------------------------------------------------------------------------------------------
Jamaica (Government of) 1990 Refinancing Agreement Nts.:
Tranche A, 4.25%, 10/15/00 4/15/94 $78.50 $82.00
Tranche B, 4.125%, 11/15/04 9/23/93 $70.00 $68.00
- ------------------------------------------------------------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc., Standard & Poor's
500 Indexed-Linked Nts.:
4.85%, 11/16/94 8/16/94 $139.20 $129.08
4.85%, 11/25/94 8/24/94 $132.00 $136.83
4.85%, 11/25/94 8/24/94 $139.00 $143.08
5.038%, 12/22/94 9/21/94 $146.40 $133.27
- ------------------------------------------------------------------------------------------------------------------------------------
Maritime Group Ltd., Units(1) 2/16/94--8/12/94 $99.60 $79.28
- ------------------------------------------------------------------------------------------------------------------------------------
Mary Kay Corp.:
12.75% Gtd. Sr. Nts., Series B, 12/6/00 12/11/92 $106.50 $104.50
10.25% Sr. Nts., 12/31/00 6/30/93--10/11/93 $101.03 $98.00
- ------------------------------------------------------------------------------------------------------------------------------------
Morocco (Kingdom of)
Loan Participation Agreement:
Tranche A, 5.938%, 1/1/09 2/23/94--9/15/94 $75.29 $73.00
Tranche B, 4.312%, 1/1/04 5/18/94--6/3/94 $80.02 $77.19
- ------------------------------------------------------------------------------------------------------------------------------------
New World Communications Holdings Corp., 0%, 6/15/99(1) 6/24/94 $52.32 $54.13
- ------------------------------------------------------------------------------------------------------------------------------------
Polish People's Republic Loan Participation Agreement,
5.0625%, 2/3/24 1/12/94--2/7/94 $63.71 $55.33
- ------------------------------------------------------------------------------------------------------------------------------------
Polymer Group, Inc., 12.25% Sr. Nts., 7/15/02(1) 6/17/94 $100.00 $100.00
- ------------------------------------------------------------------------------------------------------------------------------------
Prudential Agricultural Credit, Inc. Farmer Mac Agricultural
Real Estate Trust Sr. Sub. Mtg. Pass Through Certificates:
9.18%, Series 1992-2, Cl. B2, 1/15/03 8/18/92 $70.74 $76.04
9.47%, Series 1992-2, Cl. B3, 4/15/09 8/18/92 $74.47 $76.09
<PAGE>
- --------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
6. Restricted Securities (continued)
Valuation
Per Unit as of
Security Acquisition Date Cost Per Unit September 30, 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pulsar Internacional, S.A. de C.V.:
8% Nts., 12/14/94 12/14/93 $100.00 $100.00
9% Nts., 9/19/95 9/16/94 $99.62 $100.00
- ------------------------------------------------------------------------------------------------------------------------------------
Rabobank Certificate of Deposit:
Japanese Yen Maximum Rate Nts., 10%, 6/2/95 5/20/94 $100.00 $92.96
British Pound Sterling Maximum Rate Nts., 10%, 6/2/95 5/20/94 $100.00 $91.19
- ------------------------------------------------------------------------------------------------------------------------------------
Residential Funding Corp. 7.785% Mtg.
Pass Through Certificates, Series 1993-6, Cl. B5, 6/15/23(1) 6/10/93 $82.13 $73.91
- ------------------------------------------------------------------------------------------------------------------------------------
SKW Real Estate Limited Partnership, 9.05%,
Secured Note, Cl. E, 4/15/04(1) 4/14/94 $99.96 $95.25
- ------------------------------------------------------------------------------------------------------------------------------------
South Africa (Republic Of) Loan Participation Agreements:
Eskom, 4.907%, 12/23/97 11/18/93 $94.75 $93.50
Eskom, 4.651%, 1/15/98 2/9/94 $95.25 $93.00
Eskom, 4.875%, 4/15/98 11/18/93 $94.75 $90.50
Eskom, 4.75%, 9/15/99 12/17/93 $89.75 $90.50
Eskom, 4.875%, 2/15/00 12/3/93 $90.50 $92.50
- ------------------------------------------------------------------------------------------------------------------------------------
Structured Product Asset Return Certificates,
9.40%, Series 94-2, 9/1/97(1) 9/7/94 $100.00 $99.69
- ------------------------------------------------------------------------------------------------------------------------------------
Subic Power Corp., 9.50% Sr. Sec. Nts., Series A, 12/28/08(1) 12/20/93--12/22/93 $100.43 $92.25
- ------------------------------------------------------------------------------------------------------------------------------------
Terex Corp.:
13% Sr. Nts., 8/1/96(1) 4/5/94--5/13/94 $93.33 $93.00
Rts., Exp. 7/96(1) 4/5/94--6/29/94 $1.53 $1.50
- ------------------------------------------------------------------------------------------------------------------------------------
Treasure Bay Gaming & Resorts, Inc., Units(1) 11/10/93--9/12/94 $102.96 $30.50
- ------------------------------------------------------------------------------------------------------------------------------------
Treasure Bay Gaming, 12.25% Fst. Mtg. Nts., 11/15/00(1) 4/21/94--9/12/94 $92.19 $31.50
- ------------------------------------------------------------------------------------------------------------------------------------
Triangle Wire & Cable, Inc. Wts., Exp. 1/98 1/13/92--1/23/92 $0.00 $0.00
- ------------------------------------------------------------------------------------------------------------------------------------
Tribasa Toll Road Trust, 10.50% Nts., Series 1993-A, 12/1/11(1) 11/8/93--11/18/93 $100.02 $90.25
- ------------------------------------------------------------------------------------------------------------------------------------
United Mexican States:
1990 Combined Multi-Year Restructuring Agreement,
Restructured Sov. Loan, 4.28%, 12/23/06 1/11/94 $92.00 $83.25
Bankpesca Restructured Sov. Loan, 6.0625%, 10/26/06 1/13/94 $91.75 $83.25
Banobras Myra Loan Participation Agreement,
Tranche 2, 6.125%, 11/16/06 1/24/94 $91.75 $83.25
- ------------------------------------------------------------------------------------------------------------------------------------
Myra Old Money Loan Participation Agreements:
5.6875%, 3/20/05 1/24/94 $91.75 $83.25
6.1725%, 3/20/05 1/24/94 $91.75 $83.25
- ------------------------------------------------------------------------------------------------------------------------------------
New New Money Loan Participation Agreements:
5.1825%, 3/25/05 1/24/94 $91.75 $83.25
Tranche A, 6.0625%, 3/25/05 1/24/94 $91.75 $83.25
- ------------------------------------------------------------------------------------------------------------------------------------
Petacalco Topolobampo Trust, Sr. Sec. Unsub. Nts.,
8.125%, 12/15/03(1) 5/18/94--8/22/94 $87.92 $85.88
- ------------------------------------------------------------------------------------------------------------------------------------
Petroleos Mexicanos Gtd. Med.-Term Nts.,
7.60%, 6/15/00(1) 8/3/94--8/5/94 $84.94 $82.88
- ------------------------------------------------------------------------------------------------------------------------------------
Venezuela (Republic of):
6.75% Debs., 9/20/95(1) 4/6/94--5/19/94 $95.14 $94.88
9.00% Sr. Unsec. Unsub. Nts., 5/27/96(1) 5/3/94--7/15/94 $94.58 $93.63
- ------------------------------------------------------------------------------------------------------------------------------------
Bonds, Banco Venezuela TCI:
0% Debs., 12/13/98 7/13/93--7/15/93 $72.64 $64.00
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
7. Futures Contracts
At September 30, 1994, the Fund had outstanding futures contracts to sell
debt securities as follows:
<TABLE>
<CAPTION>
Expiration Number of Valuation as of Unrealized
Date Futures Contracts September 30, 1994 Appreciation
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Nts. 12/94 245 $24,859,844 $61,250
U.S. Treasury Bonds 12/94 89 8,805,438 2,781
--- ----------- -------
334 $33,665,282 $64,031
--- ----------- -------
--- ----------- -------
<FN>
1. Transferable under Rule 144A of the Act.
</TABLE>
<PAGE>
Appendix
Industry Classifications
Aerospace/Defense
Air Transportation
Auto Parts Distribution
Automotive
Bank Holding Companies
Banks
Beverages
Broadcasting
Broker-Dealers
Building Materials
Cable Television
Chemicals
Commercial Finance
Computer Hardware
Computer Software
Conglomerates
Consumer Finance
Containers
Convenience Stores
Department Stores
Diversified Financial
Diversified Media
Drug Stores
Drug Wholesalers
Durable Household Goods
Education
Electric Utilities
Electrical Equipment
Electronics
Energy Services & Producers
Entertainment/Film
Environmental
Food
Gas Utilities*
Gold
Health Care/Drugs
Health Care/Supplies & Services
Homebuilders/Real Estate
Hotel/Gaming
Industrial Services
Insurance
Leasing & Factoring
Leisure
Manufacturing
Metals/Mining
Nondurable Household Goods
Oil - Integrated
Paper
Publishing/Printing
Railroads
Restaurants
Savings & Loans
Shipping
Special Purpose Financial
Specialty Retailing
Steel
Supermarkets
Telecommunications - Technology
Telephone - Utility
Textile/Apparel
Tobacco
Toys
Trucking
________________________
* For purposes of the Fund's investment policy not to concentrate in
securities of issuers in the same industry, gas utilities and gas
transmission utilities each will be considered a separate industry.
<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 LLP
1560 Broadway
Denver, Colorado 80202
Legal Counsel
Myer, Swanson, Adams & Wolf, P.C.
1600 Broadway
Denver, Colorado 80202
<PAGE>
Oppenheimer Strategic Diversified Income Fund
Prospectus dated February 1, 1995
Oppenheimer Strategic Diversified Income Fund (the "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." 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 may invest up to 100% of its assets in "junk bonds," or
foreign debt securities rated below investment grade, which are securities
that may be considered to be speculative and involve greater risks,
including risk of default, than higher-rated securities. 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 of Lower-Rated Securities" 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, 1995 Statement of Additional Information. For a free copy,
call Oppenheimer Shareholder Services, the Fund's Transfer Agent, at 1-
800-525-7048, or write to the Transfer Agent at the address on the back
cover. The Statement of Additional Information has been filed with the
Securities and Exchange Commission 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 the possible loss of the
principal amount invested.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTA-
TION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
Contents
Page
About the Fund
Expenses
Overview of the Fund
Financial Highlights
Objective and Policies
How the Fund is Managed
Performance of the Fund
About Your Account
How to Buy Shares
Special Investor Services
AccountLink
Automatic Withdrawal and Exchange Plans
Retirement Plans
How to Sell Shares
By Mail
By Telephone
How to Exchange Shares
Shareholder Account Rules and Policies
Dividends, Capital Gains and Taxes
Appendix: Ratings of Investments
<PAGE>
ABOUT THE FUND
Expenses
The Fund pays a variety of expenses directly for management of its
assets, administration, distribution of its shares and other services, and
those expenses are subtracted from the Fund's assets to calculate the
Fund's net asset value per share. All shareholders therefore pay those
expenses indirectly. Shareholders pay other expenses directly, such as
sales charges and account transaction charges. The following tables are
provided to help you understand your direct expenses of investing in the
Fund and your share of the Fund's business operating expenses that you
will bear indirectly. The numbers below are based on the Fund's expenses
during its last fiscal year ended September 30, 1994.
- Shareholder Transaction Expenses are charges you pay when you buy
or sell shares of the Fund. Please refer to "About Your Account," from
pages ____ through ____, for an explanation of how and when these charges
apply.
Maximum Sales Charge on Purchases
(as a % of offering price) None
Sales Charge on Reinvested Dividends None
Deferred Sales Charge
(as a % of the lower of the original
purchase price or redemption proceeds) 1.0%(1)
Exchange Fee $5.00(2)
(1) If you redeem shares within 12 months of buying them, you may have
to pay a 1% contingent deferred sales charge. See "How to Buy
Shares," below.
(2) The fee is waived for automated exchanges, as described in "How to
Exchange Shares."
- Annual Fund Operating Expenses are paid out of the Fund's assets
and represent the Fund's expenses in operating its business. For example,
the Fund pays management fees to its investment adviser, Oppenheimer
Management Corporation (which is referred to in this Prospectus as the
"Manager"). The rates of the Manager's fees are set forth in "How the
Fund is Managed," below. The Fund has other regular expenses for
services, such as transfer agent fees, custodial fees paid to the bank
that holds its portfolio securities, audit fees and legal expenses. Those
expenses are detailed in the Fund's Financial Statements in the Statement
of Additional Information.
The numbers in the chart below are projections of the Fund's
business expenses based on the Fund's expenses in its last fiscal year.
These amounts are shown as a percentage of the average net assets of the
Fund's shares for that year. The 12b-1 Distribution and Service Plan Fee
includes both a service fee and an asset-based sales charge. The service
fee is a maximum of 0.25% of average annual net assets and the asset-based
sales charge is 0.75%. This plan is described in greater detail in "How
to Buy Shares." The Total Fund Operating Expenses shown are net of a
voluntary expense assumption by the Manager. The expense assumption
lowered the Fund's overall expense ratio. Without such expense assumption
by the Manager, the Management Fees for the Fund's shares would have been
0.92% of average net assets, and the "Total Fund Operating Expenses" for
the Fund's shares would have been 2.13%. The expense assumption is
described in the Statement of Additional Information and may be modified
or withdrawn by the Manager at any time.
The actual expenses in future years may be more or less than the
numbers in the chart, depending on a number of factors, including the
actual value of the Fund's assets. Shares of the Fund were not publicly
sold before February 1, 1994. Therefore, the Annual Fund Operating
Expenses are based only on expenses for the period from February 1, 1994
through September 30, 1994.
Management Fees (After Expense
Reimbursement) .33%
12b-1 Distribution Plan Fee .98%
Other Expenses
(After Expense Reimbursement) .40%
Total Fund Operating Expenses
(After Expense Reimbursement) 1.71%
- Examples. To try to show the effect of these expenses on an
investment over time, we have created the hypothetical examples shown
below. Assume that you make a $1,000 investment in shares of the Fund,
and the Fund's annual return is 5%, and that its operating expenses for
each class are the ones shown in the Annual Fund Operating Expenses chart
above. If you were to redeem your shares at the end of each period shown
below, your investment would incur the following expenses by the end of
1, 3, 5 and 10 years:
1 year 3 years 5 years 10 years*
$27 $54 $93 $202
If you did not redeem your investment, it would incur the following
expenses:
$17 $54 $93 $202
* Because of the asset-based sales charge imposed on shares of the Fund,
long term shareholders could pay the economic equivalent of more than the
maximum front-end sales charge allowed under applicable regulatory
requirements.
These examples show the effect of expenses on an investment, but are
not meant to state or predict actual or expected costs or investment
returns of the Fund, all of which will vary.
<PAGE>
Overview of the Fund
Some of the important facts about the Fund are summarized below,
with references to the section of this Prospectus where more complete
information can be found. You should carefully read the entire Prospectus
before making a decision about investing. Keep the Prospectus for
reference after you invest, particularly for information about your
account, such as how to sell or exchange shares.
- What Is The Fund's Investment Objective? The Fund's investment
objective is to seek a high level of current income by investing mainly
in debt securities and by writing covered call options on them.
- What Does the Fund Invest In? The Fund invests primarily in debt
securities of foreign governments and companies, U.S. Government
securities and lower-rated high yield debt securities of U.S. companies.
The Fund may also write covered calls and use derivative investments to
enhance income, and may use hedging instruments, including some derivative
investments, to try to manage investment risks. These investments are
more fully explained in "Investment Objective and Policies," starting on
page ___.
- Who Manages the Fund? The Fund's investment advisor is
Oppenheimer Management Corporation, which (including a subsidiary) advises
investment company portfolios having over $29 billion in assets. The
Fund's portfolio managers, who are primarily responsible for the selection
of the Fund's securities, are Arthur Steinmetz and David Negri. The
Manager is paid an advisory fee by the Fund, based on its assets. The
Fund's Board of Trustees, elected by shareholders, oversees the investment
advisor and the portfolio manager. Please refer to "How the Fund is
Managed," starting on page ___ for more information about the Manager and
its fees.
- How Risky is the Fund? All investments carry risks to some
degree. The Fund's investments in foreign securities, especially those
issued by underdeveloped countries, generally involve special risks. The
value of foreign securities 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 transactions,
changes in governmental economic or monetary policy in the U.S. or abroad,
or other political or economic factors. The Fund's investments in lower-
rated securities are considered speculative, involve greater risks and may
be less liquid than higher-rated securities. In addition, the Fund's
investments in U.S. Government securities and bonds are subject to changes
in their value from a number of factors such as changes in general bond
and stock market movements, the change in value of particular stocks or
bonds because of an event affecting the issuer, or changes in interest
rates that can affect bond prices. These changes affect the value of the
Fund's investments and its price per share. In the OppenheimerFunds
spectrum, the Fund is generally more conservative than aggressive growth
funds, but more aggressive than money market or investment grade bond
funds. While the Manager tries to reduce risks by diversifying invest-
ments, by carefully researching securities before they are purchased for
the portfolio, and in some cases by using hedging techniques, there is no
guarantee of success in achieving the Fund's objectives and your shares
may be worth more or less than their original cost when you redeem them.
Please refer to "Investment Objective and Policies" starting on page ___
for a more complete discussion.
- How Can I Buy Shares? You can buy shares through your dealer or
financial institution, or you can purchase shares directly through the
Distributor by completing an Application or by using an Automatic
Investment Plan under AccountLink. Please refer to "How To Buy Shares"
on page ___ for more details.
- Will I Pay a Sales Charge to Buy Shares? Shares of the Fund are
offered without a front-end sales charge, but may be subject to a
contingent deferred sales charge of 1% if redeemed within 12 months of
purchase. There is also an annual asset-based sales charge. Please
review "How To Buy Shares" starting on page ___ for more details.
- How Can I Sell My Shares? Shares can be redeemed by mail or by
telephone call to the Transfer Agent on any business day, or through your
dealer. Please refer to "How To Sell Shares" on page ___.
- How Has the Fund Performed? The Fund measures its performance
by quoting its dividend yield, distribution return, average annual total
return and cumulative total return, which measure historical performance.
The Fund's yield and returns can be compared to the yield and returns
(over similar periods) of other funds. Of course, other funds may have
different objectives, investments, and levels of risk. The Fund's
performance can also be compared to broad market indices, which we have
done on page ___. Please remember that past performance does not
guarantee future results.
<PAGE>
Financial Highlights
The table on this page presents selected financial information about
the Fund, including per share data and expense ratios and other data based
on the Fund's average net assets. This information has been audited by
Deloitte & Touche LLP, the Fund's independent auditors, whose report on
the Fund's financial statements for the fiscal year ended September 30,
1994, is included in the Statement of Additional Information. Shares of
the Fund were publicly offered only during a portion of that period,
commencing February 1, 1994.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
PERIOD ENDED
SEPTEMBER 30,
1994(1)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<S> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $ 5.00
- ----------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .23
Net realized and unrealized loss on
investments, options written and foreign currency
transactions (.20)
-------
Total income from investment operations .03
- ----------------------------------------------------------------------------
Dividends from net investment income (.23)
- ----------------------------------------------------------------------------
Net asset value, end of period $ 4.80
- ----------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(2) .58%
- ----------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $42,888
- ----------------------------------------------------------------------------
Average net assets (in thousands) $22,046
- ----------------------------------------------------------------------------
Number of shares outstanding at end of period
(in thousands) 8,944
- ----------------------------------------------------------------------------
Ratios to average net assets(3):
Net investment income 7.187%
Expenses, before voluntary reimbursement by the Manager 2.131%
Expenses net of voluntary reimbursement by the Manager 1.714%
- ----------------------------------------------------------------------------
Portfolio turnover rate(4) 108.8%
<FN>
1. For the period from February 1, 1994 (commencement of operations) to
September 30, 1994.
2. Assumes a hypothetical initial investment on February 1, 1994, 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.
3. Annualized.
4. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities owned
during the period. Securities with a maturity or expiration date at the time of
acquisition of one year or less are excluded from the calculation. Purchases
and sales of investment securities (excluding short-term securities) for the
period ended September 30, 1994 were $63,604,122 and $21,616,005, respectively.
</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, lower-rated 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 of Lower-Rated 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 below "investment
grade," which means they have a rating of "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. High yield, lower-grade securities, whether rated or
unrated, often have speculative characteristics. Lower-grade securities
have special risks that make them riskier investments than investment
grade securities. They may be subject to greater market fluctuations and
risk of loss of income and principal than lower yielding, investment grade
securities. There may be less of a market for them and therefore they may
be harder to sell at an acceptable price. There is a relatively greater
possibility that the issuer's earnings may be insufficient to make the
payments of interest due on the bonds. The issuer's low creditworthiness
may increase the potential for its insolvency ("credit risk"). All
corporate debt securities (whether foreign or domestic) are subject to
some degree of credit risk.
These risks mean that the Fund may not achieve the expected income
from lower-grade securities, and that the Fund's net asset value per share
may be affected by declines in value of these securities. The Fund is not
obligated to dispose of securities when issuers are in default or if the
rating of the security is reduced. These risks are discussed in more
detail in the Statement of Additional Information.
- 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 300% 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, 1994, 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, 1.44%; AA, 0%; A, 0%; BBB, 0%; BB, 2.11%; B,
20.50%; CCC, 2.91%; CC, 2.25%; C, .44%; D, .99%; unrated (by S&P or
Moody's), 9.37%. 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
above, 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. Changes in the
value of securities held by the Fund mean that the Fund's share prices can
go up or down when interest rates change because of the effect of the
change on the value of the Fund's portfolio of debt securities.
- 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 investment policies. The Fund's investment policies and
techniques are not "fundamental" unless a particular policy is identified
in this Prospectus as "fundamental." 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.
Fundamental policies are those that cannot be changed without the approval
of a "majority" of the Fund's outstanding voting shares. The term
"majority" is defined in the Investment Company Act to be a particular
percentage of outstanding voting shares (and this term is explained in the
Statement of Additional Information).
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 ones described below in "Debt Securities of U.S.
Companies." Preferred stocks and zero coupon 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 national-
ization 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 emerging market debt, 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 instrumen-
talities ("U.S. Government Securities"). Certain U.S. Government
Securities, including U.S. Treasury bills, notes and bonds, and mortgage
participation certificates guaranteed by the 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 Fund
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 possibili-
ty of the prepayment of principal due to prepayments on the underlying
mortgage loans.
The Fund may also enter into "forward roll" transactions with banks
and dealers 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.
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. Stripped securities that receive principal payments only are
also subject to increased volatility in price due to interest rate
changes, and have the additional risk that the security may be less liquid
during demand or supply imbalances. See "Mortgage-backed Securities" in
the Statement of Additional Information for more details.
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 those 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 Treasury 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 receiv-
ables, 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 receiv-
ables, the issuer of the security may have no security interest in the
related collateral.
- Participation Interests. The Fund may acquire participation
interests in loans that are made to U.S. or foreign companies (the
"borrower"). They may be interests in, or assignments of, the loan and
are acquired from banks or brokers that have made the loan or are members
of the lending syndicate. No more than 5% of the Fund's net assets can
be invested in participation interests of the same borrower. The Manager
has set certain creditworthiness standards for issuers of loan participat-
ions, and monitors their creditworthiness. The value of loan participa-
tion interests depends primarily upon the creditworthiness of the
borrower, and its ability to pay interest and principal. Borrowers may
have difficulty making payments. If a borrower fails to make scheduled
interest or principal payments, the Fund could experience a decline in the
net asset value of its shares. Some borrowers may have senior securities
rated as low as "C" by Moody's or "D" by Standard & Poor's, but may be
deemed acceptable credit risks. Participation interests are subject to
the Fund's limitations on investments in illiquid securities. See
"Illiquid and Restricted Securities".
- Special Risks - Borrowing for Leverage. The Fund may borrow up
to 50% of the value of its assets from banks to buy securities. The Fund
will borrow only if it can do so without putting up assets as security for
a loan. This is a speculative investment method known as "leverage."
This investing technique may subject the Fund to greater risks and costs
than funds that do not borrow. These risks may include the possibility
that the Fund's net asset value per share will fluctuate more than the net
asset value of funds that don't borrow, since the Fund pays interest on
borrowings and interest expense affects the Fund's share price and yield.
Borrowing for leverage is subject to limits under the Investment Company
Act, described in more detail in "Borrowing for Leverage" in the Statement
of Additional Information.
Other Investment Techniques and Strategies. The Fund may also use the
investment techniques and strategies described below. These techniques
involve certain risks. The Statement of Additional Information contains
more detailed information about these practices, including limitations on
their use that are 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. To attempt to increase its
income, 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. In a repurchase transaction, the Fund buys a security and
simultaneously sells it to the vendor for delivery at a future date.
There is no limit on the amount of the Fund's net assets that may be
subject to repurchase agreements of seven days or less. Repurchase
agreements must be fully collateralized. However, if the vendor fails to
pay the 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.
- Illiquid and Restricted Securities. Under the policies and
procedures established by the Fund's Board of Trustees, the Manager
determines the liquidity of certain of the Fund's investments. Investments
may be illiquid because of the absence of an active trading market, making
it difficult to value them or dispose of them promptly at an acceptable
price. A restricted security is one that has a contractual restriction on
its resale or which cannot be sold publicly until it is registered under
the Securities Act of 1933. The Fund will not invest more than 10% of its
net assets in illiquid or restricted securities (that limit may increase
to 15% if certain state laws are changed or the Fund's shares are no
longer sold in those states). The Fund's percentage limitation on these
investments does not apply to certain restricted securities that are
eligible for resale to qualified institutional purchasers.
- Warrants and Rights. Warrants basically are options to purchase
stock at set prices that are valid for a limited period of time. Rights
are options to purchase securities, normally granted to current holders
by the issuer. The Fund may invest up to 5% of its total assets in
warrants or rights. That 5% does not apply to warrants and rights the
Fund acquired as part of units with other securities or that were attached
to other securities. No more than 2% of the Fund's assets may be invested
in warrants that are not listed on the New York or American Stock
Exchanges. For further details about these investments, please refer to
"Warrants and Rights" in the Statement of Additional Information.
- "When-Issued" and Delayed Delivery Transactions. The Fund may
purchase securities on a "when-issued" basis and may purchase or sell
securities on a "delayed delivery" basis. These terms refer to securities
that have been created and for which a market exists, but which are not
available for immediate delivery. There may be a risk of loss to the Fund
if the value of the security declines prior to the settlement date.
- Hedging. The Fund may purchase and sell certain kinds of futures
contracts, put and call options, forward contracts, and options on futures
and broadly-based securities indices, or enter into interest rate swap
agreements. These are all referred to as "hedging instruments." The Fund
does not use hedging instruments for speculative purposes, and has limits
on the use of them, described below. The hedging instruments the Fund may
use are described below and in greater detail in "Other Investment
Techniques and Strategies" in the Statement of Additional Information.
The Fund may buy and sell options, futures and forward contracts for
a number of purposes. It may do so to try to manage its exposure to the
possibility that the prices of its portfolio securities may decline, or
to establish a position in the securities market as a temporary substitute
for purchasing individual securities. It may do so to try to manage its
exposure to changing interest rates. Some of these strategies, such as
selling futures, buying puts and writing covered calls, hedge the Fund's
portfolio against price fluctuations.
Other hedging strategies, such as buying futures and call options,
tend to increase the Fund's exposure to the securities market. Forward
contracts are used to try to manage foreign currency risks on the Fund's
foreign investments. Foreign currency options are used to try to protect
against declines in the dollar value of foreign securities the Fund owns,
or to protect against an increase in the dollar cost of buying foreign
securities. Writing covered call options may also provide income to the
Fund for liquidity purposes or defensive reasons or to raise cash to
distribute to shareholders.
Futures. The Fund may buy and sell futures contracts that relate
to (1) broadly-based securities indices (these are referred to as Stock
Index Futures and Bond Index Futures), and (2) interest rates (these are
referred to as Interest Rate Futures). All of these futures are described
in "Hedging With Options and Futures Contracts" in the Statement of
Additional Information. The Fund does not use futures and options on
futures for speculative purposes.
Put and Call Options. The Fund may buy and sell certain kinds of
put options (puts) and call options (calls).
The Fund may purchase calls on (1) debt securities, (2) Futures, (3)
broadly-based securities indices and (4) foreign currencies, or to
terminate its obligation on a call the Fund previously wrote. The Fund
may write (that is, sell) covered call options on debt securities to raise
cash for income to distribute to shareholders or for defensive reasons.
When the Fund writes a call, it receives cash (called a premium). The
call gives the buyer the ability to buy the investment on which the call
was written from the Fund at the call price during the period in which the
call may be exercised. If the value of the investment does not rise above
the call price, it is likely that the call will lapse without being
exercised, while the Fund keeps the cash premium (and the investment).
The Fund may purchase put options. Buying a put on an investment
gives the Fund the right to sell the investment at a set price to a seller
of a put on that investment. The Fund can purchase those puts that relate
to (1) debt securities (whether or not it holds such securities in its
portfolio), (2) Interest Rate Futures, (3) Stock or Bond Index Futures or
(4) foreign currencies. The Fund may purchase puts on investments it does
not own. 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 may buy or sell foreign currency puts and calls only if
they are traded on a securities or commodities exchange or over-the-
counter market, or are quoted by recognized dealers in those options.
Foreign currency options are used to try to protect against declines in
the dollar value of foreign securities the Fund owns, or to protect
against increases in the dollar cost of buying foreign securities.
The Fund may buy and sell calls if certain conditions are met: (1)
the calls must be listed on a domestic or foreign securities or commodi-
ties exchange or quoted on the Automated Quotation System of the National
Association of Securities Dealers, Inc. or on the over-the-counter market;
and (2) each call must be "covered" while it is outstanding; that means
the Fund must own the securities on which the call is written or it must
own other securities that are acceptable for the escrow arrangements
required for calls. There is no limit on the amount of the Fund's total
assets that may be subject to covered calls. The Fund can also write
calls on foreign currencies (discussed below). The Fund may also write
covered calls on Futures Contracts it owns, but these calls must be
covered by securities or other liquid assets the Fund owns and segregates
to enable it to satisfy its obligations if the call is exercised. A call
or put option may not be purchased if the value of all of the Fund's put
and call options would exceed 5% of the Fund's total assets.
Forward Contracts. Forward contracts are foreign currency exchange
contracts. They are used to buy or sell foreign currency for future
delivery at a fixed price. The Fund uses them to "lock-in" the U.S.
dollar price of a security denominated in a foreign currency that the Fund
has bought or sold, or to protect against losses from changes in the
relative values of the U.S. dollar and a foreign currency. The Fund may
also use "cross hedging," where the Fund hedges against changes in
currencies other than the currency in which a security it holds is
denominated.
Interest Rate Swaps. In an interest rate swap, the Fund and another
party exchange their right to receive or their obligation to pay interest
on a security. For example, they may swap a right to receive floating
rate payments for fixed rate payments. The Fund enters into swaps only
on securities it owns. The Fund may not enter into swaps with respect to
more than 25% of its total assets. Also, the Fund will segregate liquid
assets (such as cash or U.S. Government securities) to cover any amounts
it could owe under swaps that exceed the amounts it is entitled to
receive, and it will adjust that amount daily, as needed.
Hedging instruments can be volatile investments and may involve
special risks. The use of hedging instruments requires special skills and
knowledge of investment techniques that are different than what is
required for normal portfolio management. If the Manager uses a hedging
instrument at the wrong time or judges market conditions incorrectly,
hedging strategies may reduce the Fund's return. The Fund could also
experience losses if the prices of its futures and options positions were
not correlated with its other investments or if it could not close out a
position because of an illiquid market for the future or option.
Options trading involves the payment of premiums and has special tax
effects on the Fund. There are also special risks in particular hedging
strategies. If a covered call written by the Fund is exercised on a
security that has increased in value, the Fund will be required to sell
the security at the call price and will not be able to realize any profit
if the security has increased in value above the call price. The use of
forward contracts may reduce the gain that would otherwise result from a
change in the relationship between the U.S. dollar and a foreign currency.
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 its obligations) and also to interest rate risks. The
Fund could be obligated to pay more under its swap agreements than it
receives under them, as a result of interest rate changes. These risks
are described in greater detail in the Statement of Additional Informa-
tion.
- Derivative Investments. The Fund can invest in a number of
different kinds of "derivative investments." The Fund may use some types
of derivatives for hedging purposes, and may invest in others because they
offer the potential for increased income and principal value. In general,
a "derivative investment" is a specially-designed investment whose
performance is linked to the performance of another investment or
security, such as an option, future, index or currency. In the broadest
sense, derivative investments include exchange-traded options and futures
contracts (please refer to "Hedging").
One risk of investing in derivative investments is that the company
issuing the instrument might not pay the amount due on the maturity of the
instrument. There is also the risk that the underlying investment or
security might not perform the way the Manager expected it to perform.
The performance of derivative investments may also be influenced by
interest rate changes in the U.S. and abroad. All of these risks can mean
that the Fund will realize less income than expected from its investments,
or that it can lose part of the value of its investments, which will
affect the Fund's share price. Certain derivative investments held by the
Fund may trade in the over-the-counter markets and may be illiquid. If
that is the case, the Fund's investment in them will be limited, as
discussed in "Illiquid and Restricted Securities".
Another type of derivative the Fund may invest in is an "index-
linked" note. On the maturity of this type of debt security, payment is
made based on the performance of an underlying index, rather than based
on a set principal amount for a typical note. Another derivative
investment the Fund may invest in is a currency-indexed security. These
are typically short-term or intermediate-term debt securities. Their
value at maturity or the interest rates at which they pay income are
determined by the change in value of the U.S. dollar against one or more
foreign currencies or an index. In some cases, these securities may pay
an amount at maturity based on a multiple of the amount of the relative
currency movements. This variety of index security offers the potential
for greater income but at a greater risk of loss.
Other derivative investments the Fund may invest in include "debt
exchangeable for common stock" of an issuer or "equity-linked debt
securities" of an issuer. At maturity, the debt security is exchanged for
common stock of the issuer or is payable in an amount based on the price
of the issuer's common stock at the time of maturity. In either case
there is a risk that the amount payable at maturity will be less than the
principal amount of the debt (because the price of the issuer's common
stock is not as high as was expected).
Other Investment Restrictions. The Fund has other investment restrictions
which are fundamental policies. Under these fundamental policies, the Fund
cannot do any of the following: (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" in the
Statement of Additional Information; (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 and Statement of Additional Information apply only at the
time the Fund purchases a security, and the Fund need not dispose of a
security merely because the size of the Fund's assets has changed or the
security has increased in value relative to the size of the Fund. There
are other fundamental policies discussed in the Statement of Additional
Information.
How the Fund is Managed
Organization and History. The Fund is one of two investment
portfolios or "series" of Oppenheimer Strategic Funds Trust (the "Trust").
The Trust was organized in 1989 as a Massachusetts business trust with one
series, but in December 1993, the Trust was reorganized to become a multi-
series business trust and the Fund became a series of it. The 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 Fund is governed by a Board of Trustees, which is responsible
for protecting the interests of shareholders under Massachusetts law. The
Trustees meet periodically throughout the year to oversee the Fund's
activities, review its performance, and review the actions of the Manager.
"Trustees and Officers of the Fund" in the Statement of Additional
Information names the Trustees and 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 shareholder meetings from time to
time on important matters, and shareholders have the right to call a
meeting to remove a Trustee or to take other action described in the
Fund's Declaration of Trust.
Presently, the Fund has only one class of shares (Class C shares).
However, the Board of Trustees has the power, without shareholder
approval, to divide unissued shares of the Fund into two or more classes.
These classes could have different dividends and distributions and could
be subject to different expenses. Each share has one vote at shareholder
meetings, with fractional shares voting proportionally. Shares are freely
transferrable.
The Manager and its Affiliates. The Fund is managed by the Manager,
Oppenheimer Management Corporation, which is responsible for selecting the
Fund's investments and handles its day-to-day business. The Manager
carries out its duties, subject to the policies established by the Board
of Trustees, under an Investment Advisory Agreement which states the
Manager's responsibilities. The Agreement sets forth the fees paid by the
Fund to the Manager and describes the expenses that the Fund is responsi-
ble to pay to conduct its business.
The Manager has operated as an investment adviser since 1959. The
Manager and its affiliates currently manage investment companies,
including other OppenheimerFunds, with assets of more than $29 billion as
of September 30, 1994, and with more than 1.8 million shareholder
accounts. The Manager is owned by Oppenheimer Acquisition Corp., a
holding company that is owned in part by senior officers of the Manager
and controlled by Massachusetts Mutual Life Insurance Company, a mutual
life insurance company.
- Portfolio Managers. The Portfolio Managers of the Fund are
Arthur P. Steinmetz and David P. Negri. They have been the individuals
principally responsible for the day-to-day management of the Fund's
portfolio since February 1, 1994. Mr. Steinmetz, a Senior Vice President
of the Manager, and Mr. Negri, a Vice President of the Manager, are Vice
Presidents of the Trust. They each serve as officers and portfolio
managers of other OppenheimerFunds.
- 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
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 the net assets in excess of $1 billion. The Manager
has voluntarily agreed to assume any expenses of the fund to allow the
Fund to pay dividends at a set rate, as further described in the Statement
of Additional Information. The Fund's management fee for its last fiscal
year was 0.33% of average annual net assets after such expense reimburse-
ment.
The Fund pays expenses related to its daily operations, such as
custodian fees, Trustees' fees, transfer agency fees, legal and auditing
costs. Those expenses are paid out of the Fund's assets and are not paid
directly by shareholders. However, those expenses reduce the net asset
value of shares, and therefore are indirectly borne by shareholders
through their investment. More information about the investment advisory
agreement and the other expenses paid by the Fund is contained in the
Statement of Additional Information.
There is also information about the Fund's brokerage policies and
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 about their
accounts to the Transfer Agent at the address and toll-free numbers shown
below in this Prospectus and on the back cover.
Performance of the Fund
Explanation of Performance Terminology. The Fund uses the terms
"total return," "average annual total return" and "yield" to illustrate
its performance. This performance information 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 measure and compare the Fund's performance. The Fund's investment
performance will vary over time, depending on market conditions, the
composition of the portfolio and expenses.
- 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 shown for the entire period shares of the
Fund have been offered, they reflect the effect of the contingent deferred
sales charge that applies to the period for which total return is shown.
Total returns may also be quoted "at net asset value," without considering
the effect of the contingent deferred sales charge, and those returns
would be reduced if sales charges were deducted.
- Yield. The Fund's yield is calculated 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
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 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 the Fund's
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 for the period February 1, 1994 through September
30, 1994, followed by a graphical comparison of the Fund's performance to
an appropriate broad-based market index.
- Management's Discussion of Performance. During the past fiscal
year, the Fund's performance was affected by the rise in short-term
interest rates, both in the U.S. and abroad. As interest rates rose, the
bond market declined. In response to rising interest rates in the U.S.,
the Manager reduced the Fund's exposure to long-term U.S. government
bonds, as well as high yield corporate bonds issued by companies whose
earnings are sensitive to interest rate changes. The proceeds from the
sale of those investments were used to increase the Fund's investment in
higher- yielding, lower-rated corporate bonds issued by companies whose
earnings tend to rise in the middle-to-late stages of an economic
expansion. In addition, the Manager used futures to hedge against
interest rate risk and thus avoided the sale of interest bearing
securities. As foreign interest rates rose and the dollar weakened
against major currencies, the Manager reduced the Fund's investments in
Latin America and other emerging markets which tend to perform poorly in
a rising interest rate environment. The Manager increased the Fund's
investments in foreign government bonds which the Manager believed would
benefit from economic growth.
- Comparing the Fund's Performance to the Market. The chart below
shows the performance of a hypothetical $10,000 investment in shares of
the Fund held until September 30, 1994, with all dividends and capital
gains distributions reinvested in additional shares. The graph reflects
the deduction of the maximum 1% contingent deferred sales charge on shares
of the Fund.
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 the Lehman Brothers Aggregate Bond Index and the Salomon Brothers World
Government Bond Index. The Lehman Brothers Aggregate Bond Index is a
broad-based, unmanaged index of U.S. corporate bond issues, U.S.
Government Securities and mortgage-backed securities widely regarded as
a measure of the performance of the domestic debt securities market. The
Salomon Brothers World Government Bond Index is an unmanaged index of
fixed-rate bonds having a maturity of one year or more, widely regarded
as a benchmark of fixed income performance on a world-wide basis. Index
performance reflects the reinvestment of income, but not capital gains or
transaction costs, and none of the data below shows the effect of taxes.
Also, the Fund's performance data reflects the effect of Fund business and
operating expenses. While index comparisons may be useful to provide a
benchmark for the Fund's performance, it must be noted that the Fund's
investments are not limited to the securities in any one index. Moreover,
the index data does not reflect any assessment of the risk of the
investments included in the index.
Comparison of Change in Value
of a $10,000 Hypothetical Investment in
Oppenheimer Strategic Diversified Income Fund,
Lehman Brothers Aggregate Bond Index, and
Salomon World Government Bond Index
(Graph)
Past performance is not predictive of future performance.
Cumulative Total Return
of the Fund at 9/30/94
Life: *
-0.38
_____________________
*Shares of the Fund were first publicly offered on 2/1/94.
ABOUT YOUR ACCOUNT
How to Buy Shares
If you buy shares of the Fund, you pay no sales charge at the time
of purchase, but if you sell your shares within 12 months, you will
normally pay a contingent deferred sales charge of 1%, as described below.
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 of 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.
- Buying Shares Through Your Dealer. Your dealer will place your
order with the Distributor on your behalf.
- Buying Shares Through the Distributor. Complete an OppenheimerFu-
nds New Account Application and return it with a check payable to
"Oppenheimer Funds Distributor, Inc." Mail it to P.O. Box 5270, Denver,
Colorado 80217. If you don't list a dealer on the application, the
Distributor will act as your agent in buying the shares. However, we
recommend that you discuss your investment first with a financial advisor,
to be sure it is appropriate for you.
- Buying Shares Through OppenheimerFunds AccountLink. You can use
AccountLink to link your Fund account with an account at a U.S. bank or
other financial institution that is an Automated Clearing House (ACH)
member. You can then transmit funds electronically to purchase shares,
to receive redemption proceeds, and to transmit dividends and distribu-
tions.
Shares are purchased for your account on AccountLink on the regular
business day the Distributor is instructed by you to initiate the ACH
transfer to buy shares. You can provide those instructions automatically,
under an Asset Builder Plan, described below, or by telephone instructions
using OppenheimerFunds PhoneLink, also described below. You should request
AccountLink privileges on the application or dealer settlement instruc-
tions used to establish your account. Please refer to "AccountLink" below
for more details.
- Asset Builder Plans. You may purchase shares of the Fund (and up
to four other OppenheimerFunds) automatically each month from your account
at a bank or other financial institution under an Asset Builder Plan with
AccountLink. Details are on the Application and in the Statement of
Additional Information.
- At What Price Are Shares Sold? Shares are sold at net asset value
that is next determined after the Distributor receives the purchase order
in Denver. In most cases, to enable you to receive that day's offering
price, the Distributor must receive your order by the time of day The New
York Stock Exchange closes, which is normally 4:00 P.M., New York time,
but may be earlier on some days (all references to time in this Prospectus
mean "New York time"). The net asset value of the Fund's shares is
determined as of that time on each day The New York Stock Exchange is open
(which is a "regular business day").
If you buy shares through a dealer, the dealer must receive your
order by the close of The New York Stock Exchange, on a regular business
day and transmit it to the Distributor so that it is received before the
Distributor's close of business that day, which is normally 5:00 P.M. The
Distributor may reject any purchase order for the Fund's shares, in its
sole discretion.
Contingent Deferred Sales Charge. If shares are redeemed within 12 months
of their purchase, a contingent deferred sales charge of 1% 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 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 the Fund's shares.
To determine whether the contingent deferred sales charge applies to
a redemption, the Fund redeems shares in the following order: (1) shares
acquired by reinvestment of dividends and capital gains distributions, (2)
shares held for over 12 months, and (3) shares held the longest during the
12-month period.
- Waivers of Contingent Deferred Sales Charge. The 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 (the disability must have occurred after the account was
established and you must provide evidence of a determination of disability
by the Social Security Administration), (3) returns of excess contribu-
tions to Retirement Plans, and (4) distributions from IRAs (including SEP-
IRAs and SAR/SEP accounts) before the participant is age 591/2, and
distributions from 403(b)(7) custodial plans or pension or profit sharing
plans before the participant is age 591/2 but only after the participant
has separated from service, if the distributions are made in substantially
equal periodic payments over the life (or life expectancy) of the
participant or the joint lives (or joint life and last survivor expectan-
cy) of the participant and the participant's designated beneficiary (and
the distributions must comply with other requirements for such distribu-
tions under the Internal Revenue Code and may not exceed 10% of the
account value annually, measured from the date the Transfer Agent receives
the request).
The contingent deferred sales charge is also waived 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 Distribu-
tor for that purpose; (iii) shares issued in plans of reorganization to
which the Fund is a party; and (iv) shares redeemed in involuntary
redemptions as described below. Further details about this policy are
contained in "Reduced Sales Charges" in the Statement of Additional
Information.
- Distribution and Service Plan. The Fund has adopted a Distribu-
tion and Service Plan to compensate the Distributor for its services and
costs in distributing the Fund's shares and servicing accounts. Under the
Plan, the Fund pays the Distributor an annual "asset-based sales charge"
of 0.75% per year. The Distributor also receives a service fee of 0.25%
per year. Both fees are computed on the average annual net assets of the
Fund, determined as of the close of each regular business day. The asset-
based sales charge allows investors to buy shares without a front-end
sales charge while allowing the Distributor to compensate dealers that
sell shares of the Fund.
The Distributor uses the service fee to compensate dealers for
providing personal services for accounts that hold shares of the Fund.
The asset-based sales charge and service fee increase 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 the Fund's 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 0.75% 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.
The Distributor's actual expenses in selling shares of the Fund may
be more than the payments it receives from contingent deferred sales
charges collected on redeemed shares and from the Fund under the
Distribution and Service Plan. Therefore, those expenses may be carried
over and paid in future years. At September 30, 1994, the end of the Plan
year, the Distributor had incurred unreimbursed expenses under the Plan
of $748,070 (equal to 1.74% of the Fund's net assets on that date), which
have been carried over into the present Plan year. If the Plan is
terminated by the Fund, the Board of Trustees may allow the Fund to
continue payments of the asset-based sales charge to the Distributor for
expenses it incurred before the Plan was terminated.
Special Investor Services
AccountLink. OppenheimerFunds AccountLink links your Fund account to
your account at your bank or other financial institution to enable you to
send money electronically between those accounts to perform a number of
types of account transactions. These include purchases of shares by
telephone (either through a service representative or by PhoneLink,
described below), automatic investments under Asset Builder Plans, and
sending dividends and distributions or Automatic Withdrawal Plan payments
directly to your bank account. Please refer to the Application for details
or call the Transfer Agent for more information.
AccountLink privileges 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 transac-
tions automatically using a touch-tone phone. PhoneLink may be used on
already-established Fund accounts after you obtain a Personal Identifica-
tion Number (PIN), by calling the special PhoneLink number: 1-800-533-
3310.
- Purchasing Shares. You may purchase shares in amounts up to
$100,000 by phone, by calling 1-800-533-3310. You must have established
AccountLink privileges to link your bank account with the Fund, to pay for
these purchases.
- Exchanging Shares. With the OppenheimerFunds Exchange Privilege,
described below, you can exchange shares automatically by phone from your
Fund account to another OppenheimerFunds account you have already
established by calling the special PhoneLink number. Please refer to "How
to Exchange Shares," below, for details.
- Selling Shares. You can redeem shares by telephone automatically
by calling the PhoneLink number and the Fund will send the proceeds
directly to your AccountLink bank account. Please refer to "How to Sell
Shares," below, for details.
Automatic Withdrawal and Exchange Plans. The Fund has several plans
that enable you to sell shares automatically or exchange them to another
OppenheimerFunds account on a regular basis:
- Automatic Withdrawal Plans. If your Fund account is worth $5,000
or more, you can establish an Automatic Withdrawal Plan to receive
payments of at least $50 on a monthly, quarterly, semi-annual or annual
basis. The checks may be sent to you or sent automatically to your bank
account on AccountLink. You may even set up certain types of withdrawals
of up to $1,500 per month by telephone. You should consult the Applica-
tion and Statement of Additional Information for more details.
- Automatic Exchange Plans. You can authorize the Transfer Agent
to automatically exchange an amount you establish in advance for Class C
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 OppenheimerFunds account is $25. These exchanges are
subject to the terms of the Exchange Privilege, described below.
Retirement Plans. Fund shares are available as an investment for your
retirement plans. If you participate in a plan sponsored by your employer,
the plan trustee or administrator must make the purchase of shares for
your retirement plan account. The Distributor offers a number of different
retirement plans that can be used by individuals and employers:
- Individual Retirement Accounts including rollover IRAs, for
individuals and their spouses
- 403(b)(7) Custodial Plans for employees of eligible tax-exempt
organizations, such as schools, hospitals and charitable organizations
- SEP-IRAs (Simplified Employee Pension Plans) for small business
owners or people with income from self-employment, including SAR/SEP-IRAs
- Pension and Profit-Sharing Plans for self-employed persons and
other employers
Please call the Distributor for the OppenheimerFunds plan documents,
which contain important information and applications.
How to Sell Shares
You can arrange to take money out of your account on any regular
business day by selling (redeeming) some or all of your shares. Your
shares will be sold at the next net asset value calculated after your
order is received and accepted by the Transfer Agent. The Fund offers you
a number of ways to sell your shares: in writing or by telephone. You can
also set up Automatic Withdrawal Plans to redeem shares on a regular
basis, as described above. If you have questions about any of these
procedures, and especially if you are redeeming shares in a special
situation, such as due to the death of the owner, or from a retirement
plan, please call the Transfer Agent first, at 1-800-525-7048, for
assistance.
- Retirement Accounts. To sell shares in an OppenheimerFunds
retirement account in your name, call the Transfer Agent for a distribu-
tion 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
- A redemption check is not payable to all shareholders listed
on the account statement
- A redemption 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 on behalf of a corporation, partnership or other business, or
as a fiduciary, you must also include your title in the signature.
Selling Shares by Mail. Write a "letter of instructions" that includes:
- Your name
- The Fund's name
- Your Fund account number (from your statement)
- The dollar amount or number of shares to be redeemed
- Any special payment instructions
- Any share certificates for the shares you are selling, and
- Any special requirements or documents requested by the Transfer
Agent to assure proper authorization of the person asking to sell shares.
Use the following address for requests by mail:
Oppenheimer Shareholder Services
P.O. Box 5270, Denver, Colorado 80217
Send courier or Express Mail requests to:
Oppenheimer Shareholder Services
10200 E. Girard Avenue, Building D
Denver, Colorado 80231
Selling Shares by Telephone. You and your dealer representative of
record may also sell your shares by telephone. To receive the redemption
price on a regular business day, your call must be received by the
Transfer Agent by the close of The New York Stock Exchange that day, which
is normally 4:00 P.M., but may be earlier on some days. You may not
redeem shares held in an OppenheimerFunds retirement plan or under a share
certificate by telephone.
- To redeem shares through a service representative, call 1-800-852-
8457
- To redeem shares automatically on PhoneLink, call 1-800-533-3310
Whichever method you use, you may have a check sent to the address
on the account statement, or, if you have linked your Fund account to your
bank account on AccountLink, you may have the proceeds wired to that bank
account.
- Telephone Redemptions Paid by Check. Up to $50,000 may be
redeemed by telephone, in any 7-day period. The check must be payable to
all owners of record of the shares and must be sent to the address on the
account statement. This service is not available within 30 days of
changing the address on an account.
- Telephone Redemptions Through AccountLink. There are no dollar
limits on telephone redemption proceeds sent to a bank account designated
when you establish AccountLink. Normally the ACH 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.
Selling Shares Through Your Dealer. The Distributor has made arrangements
to repurchase Fund shares from dealers and brokers on behalf of their
customers. Brokers or dealers may charge for that service. Please refer
to "Special Arrangements for Repurchase of Shares from Dealers and
Brokers" in the Statement of Additional Information for more details.
How to Exchange Shares
Shares of the Fund may be exchanged for shares of certain Oppenheim-
erFunds at net asset value per share at the time of exchange, without
sales charge. A $5 service fee will be deducted from the fund account you
are exchanging into to help defray administrative costs. That charge is
waived for automated exchanges made by brokers on Fund/SERV and for
automated exchanges between already established accounts on PhoneLink
described below. To exchange shares, you must meet several conditions:
- Shares of the fund selected for exchange must be available for
sale in your state of residence
- The prospectuses of this Fund and the fund whose shares you want
to buy must offer the exchange privilege
- You must hold the shares you buy when you establish your account
for at least 7 days before you can exchange them; after the account is
open 7 days, you can exchange shares every regular business day
- You must meet the minimum purchase requirements for the fund you
purchase by exchange
- Before exchanging into a fund, you should obtain and read its
prospectus
Shares of the Fund may be exchanged only for Class C shares of other
OppenheimerFunds. At present, not all of the OppenheimerFunds offer the
same classes of shares. If a fund has only one class of shares that does
not have a class designation, they are "Class A" shares for exchange
purposes. Certain OppenheimerFunds offer Class A shares and Class B or
Class C shares, and a list can be obtained by calling the Distributor at
1-800-525-7048. In some cases, sales charges may be imposed on exchange
transactions. Please refer to "How to Exchange Shares" in the Statement
of Additional Information for more details.
Exchanges may be requested in writing or by telephone:
- Written Exchange Requests. Submit an OppenheimerFunds Exchange
Request form, signed by all owners of the account. Send it to the
Transfer Agent at the addresses listed in "How to Sell Shares."
- Telephone Exchange Requests. Telephone exchange requests may be
made either by calling a service representative at 1-800-852-8457 or by
using PhoneLink for automated exchanges, by calling 1-800-533-3310.
Telephone exchanges may be made only between accounts that are registered
with the same name(s) and address. Shares held under certificates may not
be exchanged by telephone.
You can find a list of OppenheimerFunds currently available for
exchanges in the Statement of Additional Information or by calling a
service representative at 1-800-525-7048. Exchanges of shares involve a
redemption of the shares of the fund you own and a purchase of shares of
the other fund.
There are certain exchange policies you should be aware of:
- Shares are normally redeemed from one fund and purchased from the
other fund in the exchange transaction on the same regular business day
on which the Transfer Agent receives an exchange request that is in proper
form by the close of The New York Stock Exchange that day, which is
normally 4:00 P.M., but may be earlier on some days. However, either fund
may delay the purchase of shares of the fund you are exchanging into 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 portfolio 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 as of the close of The
New York Stock Exchange on each regular business day by dividing the value
of the Fund's net assets by the number of shares of the Fund that are
outstanding. The Fund's Board of Trustees has established procedures to
value the Fund's securities to determine net asset value. In general,
securities values are based on market value. There are special procedures
for valuing illiquid and restricted securities, obligations for which
market values cannot be readily obtained, and call options and hedging
instruments. These procedures are described more completely in the
Statement of Additional Information.
- The offering of shares may be suspended during any period in
which the determination of net asset value is suspended, and the offering
may be suspended by the Board of Trustees at any time the Board believes
it is in the Fund's best interest to do so.
- Telephone Transaction Privileges for purchases, redemptions or
exchanges may be modified, suspended or terminated by the Fund at any
time. If an account has more than one owner, the Fund and the Transfer
Agent may rely on the instructions of any one owner. Telephone privileges
apply to each owner of the account and the dealer representative of record
for the account unless and until the Transfer Agent receives cancellation
instructions from an owner of the account.
- The Transfer Agent will record any telephone calls to verify data
concerning transactions and has adopted other procedures to confirm that
telephone instructions are genuine, by requiring callers to provide tax
identification numbers and other account data or by using PINs, and by
confirming such transactions in writing. If the Transfer Agent does not
use reasonable procedures it may be liable for losses due to unauthorized
transactions, but otherwise neither the Transfer Agent nor the Fund will
be liable for losses or expenses arising out of telephone instructions
reasonably believed to be genuine. If you are unable to reach the
Transfer Agent during periods of unusual market activity, you may not be
able to complete a telephone transaction and should consider placing your
order by mail.
- Redemption or transfer requests will not be honored until the
Transfer Agent receives all required documents in proper form. From time
to time, the Transfer Agent in its discretion may waive certain of the
requirements for redemptions stated in this Prospectus.
- Dealers that can perform account transactions for their clients
by participating in NETWORKING through the National Securities Clearing
Corporation are responsible for obtaining their clients' permission to
perform those transactions and are responsible to their clients who are
shareholders of the Fund if the dealer performs any transaction erroneous-
ly or improperly.
- The redemption price for shares will vary from day to day because
the value of the securities in the Fund's portfolio fluctuates.
Therefore, the redemption value of your shares may be more or less than
their original cost.
- Payment for redeemed shares is made ordinarily in cash and
forwarded by check or through AccountLink (as elected by the shareholder
under the redemption procedures described above) within 7 days after the
Transfer Agent receives redemption instructions in proper form, except
under unusual circumstances determined by the Securities and Exchange
Commission delaying or suspending such payments. The Transfer Agent may
delay forwarding a check or processing a payment via AccountLink for
recently purchased shares, but only until the purchase payment has
cleared. That delay may be as much as 10 days from the date the shares
were purchased. That delay may be avoided if you purchase shares by
certified check or arrange with your bank to provide telephone or written
assurance to the Transfer Agent that your purchase payment has cleared.
- Involuntary redemptions of small accounts may be made by the Fund
if the account value has fallen below $200 for reasons other than the fact
that the market value of shares has dropped, and in some cases involuntary
redemptions may be made to repay the Distributor for losses from the
cancellation of share purchase orders.
- Under unusual circumstances, shares of the Fund may be redeemed
"in kind," which means that the redemption proceeds will be paid with
securities from the Fund's portfolio. Please refer to "How to Sell
Shares" in the Statement of Additional Information for more details.
- "Backup Withholding" of Federal income tax may be applied at the
rate of 31% from dividends, distributions and redemption proceeds
(including exchanges) if you fail to furnish the Fund a certified Social
Security or Employer Identification Number when you sign your application,
or if you violate Internal Revenue Service regulations on tax reporting
of 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
shares of the Fund.
- To avoid sending duplicate copies of materials to households, the
Fund will mail only one copy of each annual and semi-annual report to
shareholders having the same last name and address on the Fund's records.
However, each shareholder may call the Transfer Agent at 1-800-525-7048
to ask that copies of those materials be sent personally to that
shareholder.
Dividends, Capital Gains and Taxes
Dividends. The Fund declares dividends 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.
During the Fund's fiscal year ended September 30, 1994, the Fund
attempted to pay dividends on its shares at a constant level. That was
done keeping in mind the amount of net investment income and other
distributable income available from the Fund's portfolio investments.
However, the amount of each dividend can change from time to time (or
there might not be a dividend at all) depending on market conditions, the
Fund's expenses, and the composition of the Fund's portfolio. Attempting
to pay dividends at a constant level required the Manager to monitor the
Fund's income stream from its investments and at times to select higher
yielding securities (appropriate to the Fund's objectives and investment
restrictions) to maintain income at the required level. This practice did
not affect the net asset value of the Fund's shares. The Board of
Trustees may change or end the Fund's targeted dividend level for shares
at any time.
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 for tax purposes.
There can be no assurance that the Fund will pay any capital gains
distributions in a particular year.
Distribution Options. When you open your account, specify on your
application how you want to receive your distributions. For
OppenheimerFunds retirement accounts, all distributions are reinvested.
For other accounts, you have four options:
- Reinvest All Distributions in the Fund. You can elect to reinvest
all dividends and long-term capital gains distributions in additional
shares of the Fund.
- Reinvest Long-Term Capital Gains Only. You can elect to reinvest
long-term capital gains in the Fund while receiving dividends by check or
sent to your bank account on AccountLink.
- Receive All Distributions in Cash. You can elect to receive a
check for all dividends and long-term capital gains distributions or have
them sent to your bank on AccountLink.
- Reinvest Your Distributions in Another 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. It does not matter how long you held your
shares. Dividends paid from short-term capital gains and net investment
income are taxable as ordinary income. Distributions are subject to
federal income tax and may be subject to state or local taxes. Your
distributions are taxable when paid, whether you reinvest them in
additional shares or take them in cash. Every year the Fund will send you
and the IRS a statement showing the amount of each taxable distribution
you received in the previous year.
- "Buying a Dividend": When a fund goes ex-dividend, its share
price is reduced by the amount of the distribution. If you buy shares on
or just before the ex-dividend date, or just before the Fund declares a
capital gains distribution, you will pay the full price for the shares and
then receive a portion of the price back as a taxable dividend or capital
gain.
- Taxes on Transactions: Share redemptions, including redemptions
for exchanges, are subject to capital gains tax. Generally speaking, 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. If that
occurs, it will be identified in notices to shareholders. A non-taxable
return of capital may reduce the tax basis in your Fund shares.
This information is only a summary of certain federal tax informa-
tion about your investment. More information is contained in the
Statement of Additional Information, and in addition you should consult
with your tax adviser about the effect of an investment in the Fund on
your particular tax situation.
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 uncertain-
ties 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>
Oppenheimer Strategic Diversified Income Fund
3410 South Galena Street
Denver, Colorado 80231
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 LLP
1560 Broadway
Denver, Colorado 80202
Legal Counsel
Myer, Swanson, Adams & Wolf, P.C.
1600 Broadway
Denver, Colorado 80202
No dealer, broker, salesperson or any other person has been authorized to
give any information or to make any representations other than those
contained in this Prospectus or the Statement of Additional Information,
and if given or made, such information and representations must not be
relied upon as having been authorized by the Fund, Oppenheimer Management
Corporation, Oppenheimer Funds Distributor, Inc., or any affiliate
thereof. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any of the securities offered hereby in
any state to any person to whom it is unlawful to make such an offer in
such state.
PR0387.001.0295 * Printed on recycled paper
<PAGE>
Prospectus
OPPENHEIMER
Strategic Diversified Income Fund
Effective February 1, 1995
(OppenheimerFunds Logo)
<PAGE>
Prospectus and
New Account Application
OPPENHEIMER
Strategic Diversified Income Fund
Effective February 1, 1995
(OppenheimerFunds Logo)
<PAGE>
Oppenheimer Strategic Diversified Income Fund
3410 South Galena Street, Denver, Colorado 80231
1-800-525-7048
Statement of Additional Information dated February 1, 1995
This Statement of Additional Information is not a Prospectus. This
document contains additional information about the Fund and supplements
information in the Prospectus dated February 1, 1995. It should be read
together with the Prospectus, which may be obtained by writing to the
Fund's Transfer Agent, Oppenheimer Shareholder Services, at P.O. Box 5270,
Denver, Colorado 80217 or by calling the Transfer Agent at the toll-free
number shown above.
TABLE OF CONTENTS
Page
About the Fund
Investment Objectives and Policies
Investment Policies and Strategies
Other Investment Techniques and Strategies
Other Investment Restrictions
How the Fund is Managed
Organization and History
Trustees and Officers of the Fund
The Manager and Its Affiliates
Brokerage Policies of the Fund
Performance of the Fund
Distribution and Service Plan
About Your Account
How To Buy Shares
How To Sell Shares
How To Exchange Shares
Dividends, Capital Gains and Taxes
Additional Information About the Fund
Financial Information About the Fund
Independent Auditors' Report
Financial Statements
Appendix: Industry Classifications
<PAGE>
Investment Objective and Policies
Investment Policies and Strategies. 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, as well as the strategies the Fund may use to
try to achieve its objectives. Certain capitalized terms used in this
Statement of Additional Information have the same meaning as those terms
have 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 debt 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. With the exception of U.S. Government
Securities, the debt securities the Fund invests in will have one or more
types of investment risk: credit risk, interest rate risk or foreign
exchange 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 debt securities resulting solely from the inverse
relationship between price and yield of outstanding debt securities. An
increase in prevailing interest rates will generally reduce the market
value of debt securities, and a decline in interest rates will tend to
increase their value. In addition, debt securities with longer maturi-
ties, 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 debt 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. Foreign exchange rate risk refers to the change
in value of the currency in which a foreign security the Fund holds is
denominated against the U.S. dollar.
- Special Risks - 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.
- Portfolio Turnover. 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 limita-
tions 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 denominated in U.S. dollars or non-U.S.
currencies) issued or guaranteed by foreign corporations, certain
supranational entities (described below) and foreign governments or their
agencies or instrumentalities, and in 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 fluctua-
tions 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 consider-
ations 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 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. In addition, it is generally more difficult to
obtain court judgments outside the United States. The values of foreign
securities will be affected by incomplete or inaccurate information
available as to foreign issuers, 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 circum-
stances in dealings between nations. Costs will be incurred in connection
with conversions between various currencies. Foreign brokerage commis-
sions 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" 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.
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 "stockhold-
ers," 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.
- 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.
- 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 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 and CMOs. 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. The Fund may
purchase mortgage-backed securities at a premium or 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 Certifi-
cates"). 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.
- 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.
- Stripped Mortgage-Backed Securities. These are derivatives 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 prepay-
ments, 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
(same type, coupon and maturity) to selected banks or other entities and
simultaneously agree to repurchase a similar security 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 reinvest-
ment of that income may occur 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, participat-
ing, 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 "Restricted and
Illiquid 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 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. 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 enhance-
ment, 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 Corporate 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.
- 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 and commercial 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 poolers. 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, 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.
Other Investment Techniques and Strategies
- Repurchase Agreements. The Fund may acquire securities that are
subject to repurchase agreements, in order to generate income while
providing liquidity. In a repurchase transaction, the Fund acquires a
security from, and simultaneously resells it to, an approved vendor (a
U.S. commercial bank, U.S. branch of a foreign bank or a broker-dealer
which has been designated a primary dealer in government securities, which
must meet the credit requirements set by the Fund's Board of Trustees from
time to time), for delivery on an agreed upon future date. The sale price
exceeds the purchase price by an amount that reflects an agreed-upon
interest rate effective for the period during which the repurchase
agreement is in effect. The majority of these transactions run from day
to day, and delivery pursuant to resale typically will occur within one
to five days of the purchase. Repurchase agreements are considered
"loans" under the Investment Company Act, collateralized by the underlying
security. The Fund's repurchase agreements will require that at all times
while the repurchase agreement is in effect, the collateral's value must
equal or exceed the repurchase price to collateralize the repayment
obligation 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.
- Restricted and Illiquid 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 and certain derivative
instruments. 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 contractu-
al 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.
- Special Risks - 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.
- 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 Call Options. 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.
- 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),
foreign currencies 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 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.
- 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.
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. 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.
Financial Futures are similar to Interest Rate Futures except that
settlement is made in cash, and net gain or loss on options on Financial
Futures depends on price movements of the securities included in the
index. The strategies which the Fund employs regarding Financial Futures
are similar to those described above with regard to Interest Rate Futures.
- Forward Contracts. The Fund may enter into foreign currency
exchange contracts ("Forward Contracts"), which obligate the seller to
deliver and the purchaser to take a specific amount of foreign currency
at a specific future date for a fixed price. A Forward Contract involves
bilateral obligations of one party to purchase, and another party to sell,
a specific currency at a future date (which may be any fixed number of
days from the date of the contract agreed upon by the parties), at a price
set at the time the contract is entered into. These contracts are traded
in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. The Fund may enter
into a Forward Contract in order to "lock in" the U.S. dollar price of a
security denominated in a foreign currency which it has purchased or sold
but which has not yet settled, or to protect against a possible loss
resulting from an adverse change in the relationship between the U.S.
dollar and a foreign currency. There is a risk that use of Forward
Contracts may reduce the gain that would otherwise result from a change
in the relationship between the U.S. dollar and a foreign currency.
Forward contracts include standardized foreign currency futures contracts
which are traded on exchanges and are subject to procedures and regula-
tions applicable to other Futures. The Fund may also enter into a forward
contract to sell a foreign currency denominated in a currency other than
that in which the underlying security is denominated. This is done in the
expectation that there is a greater correlation between the foreign
currency of the forward contract and the foreign currency of the
underlying investment than between the U.S. dollar and the foreign
currency of the underlying investment. This technique is referred to as
"cross hedging." The success of cross hedging is dependent on many
factors, including the ability of the Manager to correctly identify and
monitor the correlation between foreign currencies and the U.S. dollar.
To the extent that the correlation is not identical, the Fund may
experience losses or gains on both the underlying security and the cross
currency hedge.
The Fund may use Forward Contracts to protect against uncertainty in
the level of future exchange rates. The use of Forward Contracts does not
eliminate fluctuations in the prices of the underlying securities the Fund
owns or intends to acquire, but it does fix a rate of exchange in advance.
In addition, although Forward Contracts limit the risk of loss due to a
decline in the value of the hedged currencies, at the same time they limit
any potential gain that might result should the value of the currencies
increase.
There is no limitation as to the percentage of the Fund's assets that
may be committed to foreign currency exchange contracts. The Fund does
not enter into such forward contracts or maintain a net exposure in such
contracts to the extent that the Fund would be obligated to deliver an
amount of foreign currency in excess of the value of the Fund's assets
denominated in that currency, or enter into a "cross hedge," unless it is
denominated in a currency or currencies that the Manager believes will
have price movements that tend to correlate closely with the currency in
which the investment being hedged is denominated. See "Tax Aspects of
Covered Calls and Hedging Instruments" below for a discussion of the tax
treatment of foreign currency exchange contracts.
The Fund may enter into Forward Contracts with respect to specific
transactions. For example, when the Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency, or when
the Fund anticipates receipt of dividend payments in a foreign currency,
the Fund may desire to "lock-in" the U.S. dollar price of the security or
the U.S. dollar equivalent of such payment by entering into a Forward
Contract, for a fixed amount of U.S. dollars per unit of foreign currency,
for the purchase or sale of the amount of foreign currency involved in the
underlying transaction ("transaction hedge"). The Fund will thereby be
able to protect itself against a possible loss resulting from an adverse
change in the relationship between the currency exchange rates during the
period between the date on which the security is purchased or sold, or on
which the payment is declared, and the date on which such payments are
made or received.
The Fund may also use Forward Contracts to lock in the U.S. dollar
value of portfolio positions ("position hedge"). In a position hedge, for
example, when the Fund believes that foreign currency may suffer a
substantial decline against the U.S. dollar, it may enter into a forward
sale contract to sell an amount of that foreign currency approximating the
value of some or all of the Fund's portfolio securities denominated in
such foreign currency, or when the Fund believes that the U.S. dollar may
suffer a substantial decline against a foreign currency, it may enter into
a forward purchase contract to buy that foreign currency for a fixed
dollar amount. In this situation the Fund may, in the alternative, enter
into a forward contract to sell a different foreign currency for a fixed
U.S. dollar amount where the Fund believes that the U.S. dollar value of
the currency to be sold pursuant to the forward contract will fall
whenever there is a decline in the U.S. dollar value of the currency in
which portfolio securities of the Fund are denominated ("cross hedge").
The Fund's Custodian will place cash or U.S. Government securities
or other liquid high-quality debt securities in a separate account of the
Fund with the Custodian 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 obligations 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 conver-
sion. 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.
- 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.
Other Investment Restrictions
The Fund's most significant investment restrictions are set forth in
the Prospectus. There are additional investment restrictions that the
Fund must follow that are also fundamental policies. Fundamental policies
and the Fund's investment objective cannot be changed without the vote of
a "majority" of the Fund's outstanding voting securities. Under the
Investment Company Act, such a "majority" vote is defined as the vote of
the holders of the lesser of (i) 67% or more of the shares present or
represented by proxy at 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; (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; (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;
or (10) buy securities of other investment companies other than invest-
ments 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.
For purposes of the Fund's policy not to concentrate described under
investment restriction number 3 in the Prospectus, the Fund has adopted
the industry classifications set forth in the Appendix to this Statement
of Additional Information.
How the Fund Is Managed
Organization and History. As a Massachusetts business trust, the Fund
is not required to hold, and does not plan to hold, regular annual
meetings of shareholders. The Fund will hold meetings when required to do
so by the Investment Company Act or other applicable law, or when a
shareholder meeting is called by the Trustees or upon proper request of
the shareholders. Shareholders have the right, upon the declaration in
writing or vote of two-thirds of the outstanding shares of the Fund, to
remove a Trustee. The Trustees will call a meeting of shareholders to
vote on the removal of a Trustee upon the written request of the record
holders of 10% of its outstanding shares. In addition, if the Trustees
receive a request from at least 10 shareholders (who have been sharehold-
ers for at least six months) holding shares of the Fund valued at $25,000
or more or holding at least 1% of the Fund's outstanding shares, whichever
is less, stating that they wish to communicate with other shareholders to
request a meeting to remove a Trustee, the Trustees will then either make
the Fund's shareholder list available to the applicants or mail their
communication to all other shareholders at the applicants' expense, or the
Trustees may take such other action as set forth under Section 16(c) of
the Investment Company Act.
The Fund's Declaration of Trust contains an express disclaimer of
shareholder or Trustee liability for the Fund's obligations, and provides
for indemnification and reimbursement of expenses out of its property for
any shareholder held personally liable for its obligations. The
Declaration of Trust also provides that the Fund shall, upon request,
assume the defense of any claim made against any shareholder for any act
or obligation of the Fund and satisfy any judgment thereon. Thus, while
Massachusetts law permits a shareholder of a business trust (such as the
Fund) to be held personally liable as a "partner" under certain circum-
stances, the risk of a Fund shareholder incurring financial loss on
account of shareholder liability is limited to the relatively remote
circumstances in which the Fund would be unable to meet its obligations
described above. Any person doing business with the Trust, and any
shareholder of the Trust, agrees under the Trust's Declaration of Trust
to look solely to the assets of the Trust for satisfaction of any claim
or demand which may arise out of any dealings with the Trust, and the
Trustees shall have no personal liability to any such person, to the
extent permitted by law.
Trustees and Officers. 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 Bond Fund, Oppenheimer Limited-Term
Government 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 December 31, 1994, the Trustees and
officers of the Fund as a group owned less than 1% of the outstanding
shares of the Fund. The foregoing statement does not reflect ownership
of shares held of record by an employee benefit plan for employees of the
Manager (for which plan two officers of the Fund, Jon S. Fossel and Andrew
J. Donohue, are trustees), other than the shares beneficially owned under
that plan by officers of the Fund listed above.
ROBERT G. AVIS, Trustee*; Age 63
One North Jefferson Ave., St. Louis, Missouri 63103
Vice Chairman of A.G. Edwards & Sons, Inc. (a broker-dealer) and A.G.
Edwards, Inc. (its parent holding company); Chairman of A.G.E. Asset
Management and A.G. Edwards Trust Company (its affiliated investment
adviser and trust company, respectively).
WILLIAM A. BAKER, Trustee; Age 80
197 Desert Lakes Drive, Palm Springs, California 92264
Management Consultant.
CHARLES CONRAD, JR., Trustee; Age 64
19411 Merion Circle, Huntington Beach, California 92648
Vice President of McDonnell Douglas Space Systems Co.; formerly associated
with the National Aeronautics and Space Administration.
JON S. FOSSEL, President and Trustee*; Age 52
Two World Trade Center, New York, New York 10048-0203
Chairman, Chief Executive Officer and a director of the Manager; President
and a director of Oppenheimer Acquisition Corp. ("OAC"), the Manager's
parent holding company; President and a director of HarbourView Asset
Management Corporation ("HarbourView"), a subsidiary of the Manager; a
director of Shareholder Services, Inc. ("SSI") and Shareholder Financial
Services, Inc. ("SFSI"), transfer agent subsidiaries of the Manager;
formerly President of the Manager.
RAYMOND J. KALINOWSKI, Trustee; Age 65
44 Portland Drive, St. Louis, Missouri 63131
Director of Wave Technologies International, Inc.; formerly Vice Chairman
and a director of A.G. Edwards, Inc., parent holding company of A.G.
Edwards & Sons, Inc. (a broker-dealer), of which he was a Senior Vice
President.
C. HOWARD KAST, Trustee; Age 73
2552 East Alameda, Denver, Colorado 80209
Formerly the Managing Partner of Deloitte, Haskins & Sells (an accounting
firm).
ROBERT M. KIRCHNER, Trustee; Age 73
7500 E. Arapahoe Road, Englewood, Colorado 80112
President of The Kirchner Company (management consultants).
_____________________________
*A Trustee who is an "interested person" of the Fund as defined in the
Investment Company Act.
NED M. STEEL, Trustee; Age 79
3416 S. Race Street, Englewood, Colorado 80110
Chartered Property and Casualty Underwriter; Director of Visiting Nurse
Corporation of Colorado; formerly Senior Vice President and a Director of
Van Gilder Insurance Corp. (insurance brokers).
JAMES C. SWAIN, Chairman and Trustee*; Age 61
3410 South Galena Street, Denver, Colorado 80231
Vice Chairman and a Director of the Manager; President and a Director of
Centennial Asset Management Corporation, an investment adviser subsidiary
of the Manager ("Centennial"); formerly Chairman of the Board of SSI.
ANDREW J. DONOHUE, Vice President; Age 44
Executive Vice President and General Counsel of Oppenheimer Management
Corporation ("OMC") (the "Manager") and Oppenheimer Funds Distributor,
Inc. (the "Distributor"); an officer of other OppenheimerFunds; formerly
Senior Vice President and Associate General Counsel of the Manager and the
Distributor; Partner in, Kraft & McManimon (a law firm); an officer of
First Investors Corporation (a broker-dealer) and First Investors
Management Company, Inc. (broker-dealer and investment adviser); director
and an officer of First Investors Family of Funds and First Investors Life
Insurance Company.
GEORGE C. BOWEN, Vice President, Secretary and Treasurer; Age 58
3410 South Galena Street Denver, Colorado 80231
Senior Vice President and Treasurer of the Manager; Vice President and
Treasurer of the Distributor and HarbourView; Senior Vice President,
Treasurer, Assistant Secretary and a director of Centennial; Vice
President, Treasurer and Secretary of SSI and SFSI; an officer of other
OppenheimerFunds.
ARTHUR P. STEINMETZ, Vice President and Portfolio Manager; Age 36
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; Age 40
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; Age 46
Two World Trade Center, New York, New York 10048-0203
Senior Vice President and Associate General Counsel of the Manager,
Assistant Secretary of SSI and SFSI; an officer of other OppenheimerFunds.
_____________________________
*A Trustee who is an "interested person" of the Fund as defined in the
Investment Company Act.
ROBERT J. BISHOP, Assistant Treasurer; Age 36.
3410 South Galena Street, Denver, Colorado 80231
Assistant Vice President of the Manager/Mutual Fund Accounting; an officer
of other OppenheimerFunds; previously a Fund Controller of the Manager,
prior to which he was an Accountant for Resolution Trust Corporation and
previously an Accountant and Commissions Supervisor for Stuart James
Company Inc., a broker-dealer.
SCOTT FARRAR, Assistant Treasurer; Age 29.
3410 South Galena Street, Denver, Colorado 80231
Assistant Vice President of the Manager/Mutual Fund Accounting, an officer
of other OppenheimerFunds; previously a Fund Controller for the Manager,
prior to which he was an International Mutual Fund Supervisor for Brown
Brothers Harriman & Co. (a bank) and previously a Senior Fund Accountant
for State Street Bank & Trust Company, before which he was a sales
representative for Control Colorado Planning.
- Remuneration of Trustees. The officers of the Trust are
affiliated with the Manager; they and the Trustees of the Fund who are
affiliated with the Manager (Messrs. Fossel and Swain, who are both
officers and Trustees) receive no salary or fee from the Fund. The
Trustees of the Fund (excluding Messrs. Fossel and Swain) received the
total amounts shown below from all 22 of the Denver-based OppenheimerFunds
(including the Fund) listed in the first paragraph of this section, for
services in the positions shown:
Total Compensation From All
Name Position Denver-based OppenheimerFunds1
Robert G. Avis Trustee $53,000.00
William A. Baker Audit and Review Committee$73,257.01
Chairman and Trustee
Charles Conrad, Jr. Audit and Review Committee$68,293.67
Member and Trustee
Raymond J. KalinowskiTrustee$53,000.00
C. Howard Kast Trustee $53,000.00
Robert M. KirchnerAudit and Review Committee$68,293.67
Member and Trustee
Ned M. Steel Trustee $53,000.00
______________________
1 For the 1994 calendar year.
Major Shareholders. As of December 31, 1994, the only person(s) known
by the management of the Fund to be the record or beneficial owners of 5%
or more of the outstanding shares of the Fund were as follows: (1) R.
Duffield & C.R. Player, Jr., Co-Trustees of the Charitable Remainder
Unitrust for Lives of Donor Ruth McCormick Tankersley & Mark M. Miller,
P.O. Box 401, Barnesville, Maryland 20838-0401, which was the record owner
of 642,343.103 Class C shares (approximately 6.45% of the Class C shares
outstanding); (2) R. Duffield & C.R. Player, Jr., Co-Trustees of the
Charitable Remainder Unitrust for Lives of Donor Ruth McCormick Tankersley
& Kristie Miller, P.O. Box 401, Barnesville, Maryland 20838-0401, which
was the record owner of 642,343.103 Class C shares (approximately 6.45%
of the Class C shares outstanding); and (3) R. Duffield & C.R. Player,
Jr., Co-Trustees of the Charitable Remainder Unitrust for Lives of Donor
Ruth McCormick Tankersley & Tiffany Wolfe, P.O. Box 401, Barnesville,
Maryland 20838-0401, which was the record owner of 642,343.103 Class C
shares (approximately 6.45% of the Class C shares outstanding) (collec-
tively, the "Trusts"). Each such Trust has entered into an agreement with
the Fund which provides that as long as the Trust owns the shares of the
Fund, it will vote such shares on any matter presented at a shareholders
meeting in the same proportion as other shareholders.
The Manager and Its Affiliates. The Manager is wholly-owned by
Oppenheimer Acquisition Corp. ("OAC"), a holding company controlled by
Massachusetts Mutual Life Insurance Company. OAC is also owned in part
by certain of the Manager's directors and officers, some of whom also
serve as officers of the Trust, and two of whom (Mr. Fossel and Mr. Swain)
serve as Trustees of the Trust.
- The Investment Advisory Agreement. The management fee is
payable monthly to the Manager under the terms of the investment advisory
agreement between the Manager and the Fund, and is computed on the
aggregate net assets of the Fund as of the close of business each day.
The investment advisory 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 advisory
agreement or by the Distributor are paid by the Fund. The advisory
agreement lists examples of expenses paid by the Fund, the major
categories of which relate to interest, taxes, brokerage commissions, fees
to 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 fiscal
period February 1, 1994 through September 30, 1994, the management fee
paid by the Fund to the Manager was $109,624.
The Agreement contains no expense limitation. However, indepen-
dently of the advisory 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. In addition,
independently of the advisory agreement, the Manager has voluntarily
agreed to assume any expenses of the Fund in a fiscal year to the extent
required to enable the Fund to accrue income, net of expenses, to allow
the Fund to pay dividends at the annualized rate of $.3525 per share. The
Fund may not necessarily pay all of its accrued income as dividends each
month. 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
these expense limitations. The Manager reserves the right to terminate
or amend either of these undertakings at any time. Any assumption of the
Fund's expenses under either undertaking would lower the Fund's overall
expense ratio and increase its total return during any period in which
expenses are limited.
The advisory agreement provides that in the absence of willful
misfeasance, bad faith, gross negligence in the performance of its duties,
or reckless disregard of its obligations and duties under the advisory
agreement, the Manager is not liable for any loss sustained by reason of
good faith errors or omissions in connection with any matters to which the
Agreement relates. The advisory agreement permits the Manager to act as
investment adviser for any other person, firm or corporation 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.
- The Distributor. Under its General Distributor's Agreement
with the Fund, the Distributor acts as the Fund's principal underwriter
in the continuous public offering of the Fund's shares, but is not
obligated to sell a specific number of shares. Expenses normally
attributable to sales (excluding payments under the Distribution and
Service Plan, but including advertising and the cost of printing and
mailing prospectuses other than those furnished to existing shareholders),
are borne by the Distributor. During the Fund's fiscal period February
1, 1994 through September 30, 1994, the contingent deferred sales charge
collected on the Fund's shares totalled $18,270, all of which the
Distributor retained.
- The Transfer Agent. Oppenheimer Shareholder Services, the
Fund's Transfer Agent, is responsible for maintaining the Fund's
shareholder registry and shareholder accounting records, and for
shareholder servicing and administrative functions.
Brokerage Policies of the Fund
Brokerage Provisions of the Investment Advisory Agreement. One of the
duties of the Manager under the advisory agreement is to arrange the
portfolio transactions of the Fund. The advisory agreement contains
provisions relating to the employment of broker-dealers to effect the
Fund's portfolio transactions. In doing so, the Manager is authorized by
the advisory agreement to employ broker-dealers, including "affiliated"
brokers, as that term is defined in the Investment Company Act, as may,
in its best judgment based on all relevant factors, implement the policy
of the Fund to obtain, at reasonable expense, the "best execution" (prompt
and reliable execution at the most favorable price obtainable) of such
transactions. The Manager need not seek competitive commission bidding
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 advisory 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 advisory agreement, when brokers are used for the
Fund's portfolio transactions, allocations of brokerage are generally made
by the Manager's portfolio traders based upon recommendations from the
Manager's portfolio managers. In certain circumstances, portfolio
managers may directly place trades and allocate brokerage, also subject
to the provisions of the advisory agreement and the procedures and rules
described above. Brokerage is allocated under the supervision of the
Manager's executive officers. Transactions in securities other than those
for which an exchange is the primary market are generally done with
principals or market makers. Brokerage commissions are paid primarily for
effecting transactions in listed securities and otherwise only if it
appears likely that a better price or execution can be obtained. When the
Fund engages in an option transaction, ordinarily the same broker will be
used for the purchase or sale of the option and any 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.
As most purchases made by the Fund are principal transactions at
net prices, the Fund incurs little or no brokerage costs. The Fund
usually deals directly with the selling or purchasing principal or market
maker without incurring charges for the services of a broker on its behalf
unless it is determined that a better price or execution can be obtained
by utilizing the services of a broker. Purchases of portfolio 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 evalua-
tions, 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 Board of Trustees has permitted the Manager to
use concessions on fixed price offerings to obtain research in the same
manner as is permitted for agency transactions.
The research services provided by brokers 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.
Performance of the Fund
Yield and Total Return Information. As described in the Prospectus,
from time to time the "standardized yield," "dividend yield," "average
annual total return", "cumulative total return", "average annual total
return at net asset value," and "total return at net asset value" of an
investment in Fund shares may be advertised. An explanation of how yields
and total returns are calculated and the components of those calculations
are set forth below.
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 expenses allocated
to the particular class.
- Standardized Yields
- Yield. The Fund's "yield" (referred to as "standardized
yield") for a given 30-day period 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 outstand-
ing 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 standardized 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. For the 30-day period ended September 30, 1994, the
standardized yield for the Fund's shares was 7.11%.
Dividend Yield and Distribution Return. 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.
The maximum offering price for shares of the Fund is the net asset value
per share, without considering the effect of the contingent deferred sales
charge. 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
- Total Return Information
- Average Annual Total Returns. 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 )
- Cumulative Total Returns. The cumulative "total return"
calculation measures the change in value of a hypothetical investment of
$1,000 over an entire period of years. Its calculation uses some of the
same factors as average annual total return, but it does not average the
rate of return on an annual basis. Total return is determined as follows:
ERV - P
- ------- = Total Return
P
Both formulas assume the payment of the 1.0% 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. For
the fiscal period February 1, 1994 through September 30, 1994, the average
annual total return and the cumulative total return on an investment in
shares of the Fund were -.58 and -.38, respectively.
- Total Returns at Net Asset Value. From time to time the Fund
may also quote an "average annual total return at net asset value" or a
"cumulative total return at net asset value" for shares of the Fund. 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). The cumulative total return at
net asset value on the Fund's shares for the fiscal period February 1,
1994 through September 30, 1994 was .58.
Other Performance Comparisons. 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 distribu-
tions and income dividends but does not take sales charges or taxes into
consideration. From time to time the Fund may include in its advertise-
ments 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. 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 its
performance by Morningstar, Inc., an independent mutual fund monitoring
service that ranks mutual funds, including the Fund, monthly in broad
investment categories (equity, taxable bond, municipal bond and hybrid)
based on risk-adjusted investment return. Investment return measures a
fund's three, five and ten-year average annual total returns (when
available) in excess of 90-day U.S. Treasury bill returns after consider-
ing sales charges and expenses. Risk measures fund performance below 90-
day U.S. Treasury bill monthly returns. Risk and return are combined to
produce star rankings reflecting performance relative to the average fund
in a fund's category. Five stars is the "highest" ranking (top 10%), four
stars is "above average" (next 22.5%), three stars is "average" (next
35%), two stars is "below average" (next 22.5%) and one star is "lowest"
(bottom 10%). Morningstar ranks the shares of the Fund in relation to
other rated fixed income funds. Rankings are subject to change.
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 Brothers
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 Brothers 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 invest-
ments, 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 guaran-
teed. 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 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
Distributor's distribution costs for that quarter, and such costs for
previous fiscal periods that are carried forward, as explained in the
Prospectus and below. Those reports, including the allocations on which
they are based, will be subject to the review and approval of the
Independent Trustees in the exercise of their fiduciary duty. 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 are 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. For
the fiscal period February 1, 1994 through September 30, 1994 payments
under the plan totalled $143,650, all of which was paid by the Distributor
to Recipients.
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.
ABOUT YOUR ACCOUNT
How to Buy Shares
Determination of Net Asset Value Per Share. The net asset value per share
of the Fund is determined as of the close of business of The New York
Stock Exchange on each day that the Exchange is open by dividing the value
of the Fund's net assets by the number of shares of the Fund outstanding.
The Exchange normally closes at 4:00 P.M., New York time, but may close
earlier on some days (for example, in case of weather emergencies or on
days falling before a holiday). The 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 Exchange is closed, including weekends and holidays or after the
close of the Exchange, 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 for which last sale information is
regularly reported are valued at the last reported sale price on their
primary exchange or NASDAQ that day (or, in the absence of sales that day,
at values based on the last sales prices of the preceding trading day, or
closing bid and asked prices); (ii) securities traded on NASDAQ and other
unlisted equity securities for which last sales prices are not regularly
reported but for which over-the-counter market quotations are readily
available are valued at the highest closing bid price at the time of
valuation, or, if no closing bid price is reported, on the basis of a
closing bid price obtained from a dealer who maintains an active market
in that security; (iii) securities (including restricted securities) not
having readily-available market quotations are valued at fair value under
the Board's procedures; (iv) debt securities having a maturity in excess
of 60 days are valued at the mean between the bid and asked prices
determined by a portfolio pricing service approved by the Fund's Board of
Trustees or obtained from active market makers in the security on the
basis of reasonable inquiry; (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 at the closing or last sales prices reported on a principal
exchange or, if none, at the mean between closing bid and asked prices and
reflect prevailing rates of exchange taken from the closing price on the
London foreign exchange market that day. 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.
Forward currency contracts are valued at the closing price on the London
foreign exchange market. 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.
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 shares
purchased by the proceeds of the ACH transfers on the business day the
Fund receives Federal Funds for the purchase through the ACH system before
the close of The New York Stock Exchange. The Exchange normally closes
at 4:00 P.M., but may close earlier on certain days. If Federal Funds are
received on a business day after the close of the Exchange, the shares
will begin to accrue on the next regular business day. The proceeds of
ACH transfers are normally received by the Fund 3 days after the transfers
are initiated. The Distributor and the Fund are not responsible for any
delays in purchasing shares resulting from delays in ACH transmissions.
- 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 New Jersey Tax-Exempt Fund
Oppenheimer Fund
Oppenheimer Discovery Fund
Oppenheimer Time Fund
Oppenheimer Target Fund
Oppenheimer Growth Fund
Oppenheimer Equity Income Fund
Oppenheimer Value Stock Fund
Oppenheimer Asset Allocation Fund
Oppenheimer Total Return Fund, Inc.
Oppenheimer Main Street Income & Growth Fund
Oppenheimer High Yield Fund
Oppenheimer Champion High Yield Fund
Oppenheimer Investment Grade Bond Fund
Oppenheimer U.S. Government Trust
Oppenheimer Limited-Term Government Fund
Oppenheimer Mortgage Income Fund
Oppenheimer Global Fund
Oppenheimer Global Emerging Growth Fund
Oppenheimer Global Growth & Income Fund
Oppenheimer Gold & Special Minerals Fund
Oppenheimer Strategic Income Fund
Oppenheimer Strategic Investment Grade Bond Fund
Oppenheimer Strategic Short-Term Income Fund
Oppenheimer Strategic Income & Growth Fund
Oppenheimer Strategic Diversified Income Fund
and the following "Money Market Funds":
Oppenheimer Money Market Fund, Inc.
Oppenheimer Cash Reserves
Centennial Money Market Trust
Centennial Tax Exempt Trust
Centennial Government Trust
Centennial New York Tax Exempt Trust
Centennial California Tax Exempt Trust
Centennial America Fund, L.P.
Daily Cash Accumulation Fund, Inc.
There is an initial sales charge on the purchase of Class A shares
of each of the OppenheimerFunds except Money Market Funds (under certain
circumstances described herein, redemption proceeds of Money Market Fund
shares may be subject to a contingent deferred sales charge).
Asset Builder Plans. To establish an Asset Builder Plan from a bank
account, a check (minimum $25) for the initial purchase must accompany the
application. Shares purchased by Asset Builder Plan payments from bank
accounts are subject to the redemption restrictions for recent purchases
described in "How To Sell Shares," in the Prospectus. Asset Builder Plans
also enable shareholders of Oppenheimer Cash Reserves to use those
accounts for monthly automatic purchases of shares of up to four other
OppenheimerFunds.
There is a front-end sales charge on the purchase of certain
OppenheimerFunds, or a contingent deferred sales charge may apply to
shares purchased by Asset Builder payments. An application should be
obtained from the Distributor, completed and returned, and a prospectus
of the selected fund(s) should be obtained from the Distributor or your
financial advisor before initiating Asset Builder payments. The amount
of the Asset Builder investment may be changed or the automatic invest-
ments 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 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.
How to Sell Shares
Information on how to sell shares of the Fund is stated in the
Prospectus. The information below supplements the terms and conditions
for redemptions set forth in the Prospectus.
- Involuntary Redemptions. 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.
- Payments "In Kind." 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.
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 contingent deferred sales charge when redeemed. The
reinvestment may be made without sales charge only in Class A shares of
the Fund or any of the other OppenheimerFunds into which shares of the
Fund are exchangeable as described below, at the net asset value next
computed after the Transfer Agent receives the reinvestment order. The
shareholder must ask the Distributor for that privilege at the time of
reinvestment. Any capital gain that was realized when the shares were
redeemed is taxable, and reinvestment will not alter any capital gains tax
payable on that gain. If there has been a capital loss on the redemption,
some or all of the loss may not be tax deductible, depending on the timing
and amount of the reinvestment. Under the Internal Revenue Code, if the
redemption proceeds of Fund shares on which a sales charge was paid are
reinvested in shares of the Fund or another of the OppenheimerFunds within
90 days of payment of the sales charge, the shareholder's basis in the
shares of the Fund that were redeemed may not include the amount of the
sales charge paid. That would reduce the loss or increase the gain
recognized from the redemption. However, in that case the sales charge
would be added to the basis of the shares acquired by the reinvestment of
the redemption proceeds. The Fund may amend, suspend or cease offering
this reinvestment privilege at any time as to shares redeemed after the
date of such amendment, suspension or cessation.
Transfers of Shares. Shares are not subject to the payment of a
contingent deferred sales charge ("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.
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 or on the back cover of this Statement
of Additional Information. The request must: (i) state the reason for the
distribution; (ii) state the owner's awareness of tax penalties if the
distribution is premature; and (iii) conform to the requirements of the
plan and the Fund's other redemption requirements. Participants (other
than self-employed persons) 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 distribu-
tion satisfies the conditions of applicable tax laws and will not be
responsible for any tax penalties assessed in connection with a distribu-
tion.
Special Arrangements for Repurchase of Shares from Dealers and Brokers.
The Distributor is the Fund's agent to repurchase its shares from
authorized dealers or brokers. The repurchase price per share will be the
net asset value next computed after the Distributor receives the order
placed by the dealer or broker, except that if the Distributor receives
a repurchase order from a dealer or broker after the close of The New York
Stock Exchange on a regular business day, it will be processed at that
day's net asset value if the order was received by the dealer or broker
from its customers prior to the time the Exchange closes (normally, that
is 4:00 P.M., but may be earlier on some days) and the order was
transmitted to and received by the Distributor prior to its close of
business that day (normally 5:00 P.M.). Payment ordinarily will be made
within seven days after the Distributor's receipt of the required
redemption documents, with signature(s) guaranteed as described in the
Prospectus.
Automatic Withdrawal and Exchange Plans. Investors owning shares of the
Fund valued at $5,000 or more can authorize the Transfer Agent to redeem
shares (minimum $50) automatically on a monthly, quarterly, semi-annual
or annual basis under an Automatic Withdrawal Plan. Shares will be
redeemed three business days prior to the date requested by the sharehold-
er for receipt of the payment. Automatic withdrawals of up to $1,500 per
month may be requested by telephone if payments are to be made by check
payable to all shareholders of record and sent to the address of record
for the account (and if the address has not been changed within the prior
30 days). Required minimum distributions from OppenheimerFunds-sponsored
retirement plans may not be arranged on this basis. Payments are normally
made by check, but shareholders having AccountLink privileges (see "How
To Buy Shares") may arrange to have Automatic Withdrawal Plan payments
transferred to the bank account designated on the OppenheimerFunds New
Account Application or signature-guaranteed instructions. The Fund cannot
guarantee receipt of a payment on the date requested and reserves the
right to amend, suspend or discontinue offering such plans at any time
without prior notice. Shareholders normally should not establish
withdrawal plans because of the imposition of the contingent deferred
sales charge on such withdrawals (except where the contingent deferred
sales charge is waived as described in the Prospectus under "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 Class C shares of other OppenheimerFunds automatically on a
monthly, quarterly, semi-annual or annual basis under an Automatic
Exchange Plan. The minimum amount that may be exchanged to each other
fund account is $25. Exchanges made under these plans are subject to the
restrictions that apply to exchanges as set forth in "How to Exchange
Shares" in the Prospectus and below in this Statement of Additional
Information.
- Automatic Withdrawal Plans. Fund shares will be redeemed as
necessary to meet withdrawal payments. Shares acquired without a sales
charge will be redeemed first and shares acquired with reinvested
dividends and capital gains distributions will be redeemed next, followed
by shares acquired with a sales charge, to the extent necessary to make
withdrawal payments. Depending upon the amount withdrawn, the investor's
principal may be depleted. Payments made under withdrawal plans should
not be considered as a yield or income on your investment.
The Transfer Agent will administer the investor's Automatic
Withdrawal Plan (the "Plan") as agent for the investor (the "Planholder")
who executed the Plan authorization and application submitted to the
Transfer Agent. The Fund and the Transfer Agent shall incur no liability
to the Planholder for any action taken or omitted by the Transfer Agent
in good faith to administer the Plan. Certificates will not be issued for
shares of the Fund purchased for and held under the Plan, but the Transfer
Agent will credit all such shares to the account of the Planholder on the
records of the Fund. Any share certificates held by a Planholder may be
surrendered unendorsed to the Transfer Agent with the Plan application so
that the shares represented by the certificate may be held under the Plan.
For accounts subject to Automatic Withdrawal Plans, distributions
of capital gains must be reinvested in shares of the Fund, which will be
done at net asset value without a sales charge. Dividends on shares held
in the account may be paid in cash or reinvested.
Redemptions of shares needed to make withdrawal payments will be
made at the net asset value per share determined on the redemption date.
Checks or AccountLink payments of the proceeds of Plan withdrawals will
normally be transmitted three business days prior to the date selected for
receipt of the payment (receipt of payment on the date selected cannot be
guaranteed), according to the choice specified in writing by the
Planholder.
The amount and the interval of disbursement payments and the
address to which checks are to be mailed or AccountLink payments are to
be sent may be changed at any time by the Planholder by writing to the
Transfer Agent. The Planholder should allow at least two weeks' time in
mailing such notification for the requested change to be put in effect.
The Planholder may, at any time, instruct the Transfer Agent by written
notice (in proper form in accordance with the requirements of the then-
current Prospectus of the Fund) to redeem all, or any part of, the shares
held under the Plan. In that case, the Transfer Agent will redeem the
number of shares requested at the net asset value per share in effect in
accordance with the Fund's usual redemption procedures and will mail a
check for the proceeds to the Planholder.
The Plan may be terminated at any time by the Planholder by
writing to the Transfer Agent. A Plan may also be terminated at any time
by the Transfer Agent upon receiving directions to that effect from the
Fund. The Transfer Agent will also terminate a Plan upon receipt of
evidence satisfactory to it of the death or legal incapacity of the
Planholder. Upon termination of a Plan by the Transfer Agent or the Fund,
shares that have not been redeemed from the account will be held in
uncertificated form in the name of the Planholder, and the account will
continue as a dividend-reinvestment, uncertificated account unless and
until proper instructions are received from the Planholder or his or her
executor or guardian, or other authorized person.
To use shares held under the Plan as collateral for a debt, the
Planholder may request issuance of a portion of the shares in certificated
form. Upon written request from the Planholder, the Transfer Agent will
determine the number of shares for which a certificate may be issued
without causing the withdrawal checks to stop because of exhaustion of
uncertificated shares needed to continue payments. However, should such
uncertificated shares become exhausted, Plan withdrawals will terminate.
If the Transfer Agent ceases to act as transfer agent for the
Fund, the Planholder will be deemed to have appointed any successor
transfer agent to act as agent in administering the Plan.
How To Exchange Shares
As stated in the Prospectus, shares of a particular class of
OppenheimerFunds having more than one class of shares may be exchanged
only for shares of the same class of other OppenheimerFunds. Shares of
the OppenheimerFunds, except for the Fund, that have a single class
without a class designation are deemed "Class A" shares for this purpose.
The Fund offers only Class C shares. Only the following other
OppenheimerFunds currently offer Class C shares:
Oppenheimer Fund
Oppenheimer Target 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
Shares of this Fund acquired by reinvestment of dividends or
distributions from any other of the OppenheimerFunds or from any unit
investment trust for which reinvestment arrangements have been made with
the Distributor may be exchanged at net asset value for shares of any of
the OppenheimerFunds. No contingent deferred sales charge is imposed on
exchanges of shares of the Fund purchased subject to a contingent deferred
sales charge. A contingent deferred sales charge is imposed on shares of
the Fund acquired by exchange if they are redeemed within 12 months of the
initial purchase of the exchanged Class C shares.
When shares of the Fund are redeemed to effect an exchange, the
priorities described in "How To Buy Shares" in the Prospectus for the
imposition of the 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.
The Fund reserves the right to reject telephone or written
exchange requests submitted in bulk by anyone on behalf of 10 or more
accounts. The Fund may accept requests for exchanges of up to 50 accounts
per day from representatives of authorized dealers that qualify for this
privilege. In connection with any exchange request, the number of shares
exchanged may be less than the number requested if the exchange or the
number requested would include shares subject to a restriction cited in
the Prospectus or this Statement of Additional Information or would
include shares covered by a share certificate that is not tendered with
the request. In those cases, only the shares available for exchange
without restriction will be exchanged.
When exchanging shares by telephone, a shareholder must either
have an existing account in, or obtain and acknowledge receipt of a
prospectus of, the fund to which the exchange is to be made. For full or
partial exchanges of an account made by telephone, any special account
features such as 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
requests from a dealer might require the disposition of portfolio
securities at a time or at a price that might be disadvantageous to the
Fund).
The different 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 income tax purposes, an exchange transaction is treated as a
redemption of shares of one fund and a purchase of shares of another.
"Reinvestment Privilege," above, discusses some of the tax consequences
of reinvestment of redemption proceeds in such cases. The Fund, the
Distributor, and the Transfer Agent are unable to provide investment, tax
or legal advice to a shareholder in connection with an exchange request
or any other investment transaction.
Dividends, Capital Gains and Taxes
Dividends and Distributions. Dividends will be payable on shares held of
record at the time of the previous determination of net asset value, 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.
Tax Status of the Fund's Dividends and Distributions. The Federal tax
treatment of the Fund's dividends and capital gains distributions is
explained in the Prospectus under the caption "Dividends, Capital Gains
and Taxes." 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.
Distributions may be made annually in December out of any net
short-term or long-term capital gains realized from the sale of securi-
ties, 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, 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 must 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.
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 above 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.
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
The Custodian. 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.
Independent Auditors. The independent auditors of the Fund audit the
Fund's financial statements and perform other related audit services.
They also act as auditors for 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 Diversified Income Fund:
We have audited the accompanying statement of
assets and liabilities, including the statement of
investments, of Oppenheimer Strategic Diversified
Income Fund as of September 30, 1994, the related
statement of operations for the period from
February 1, 1994 (commencement of operations) to
September 30, 1994, the statement of changes in
net assets for the period from February 1, 1994
(commencement of operations) to September 30, 1994
and the financial highlights for the period
February 1, 1994 (commencement of operations) to
September 30, 1994. These financial statements
and financial highlights are the responsibility of
the Fund's management. Our responsibility is to
express an opinion on these financial statements
and financial highlights based on our audit.
We conducted our audit 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
includes examining, on a test basis, evidence
supporting the amounts and disclosures in the
financial statements and financial highlights.
Our procedures included confirmation of securities
owned at September 30, 1994, 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 audit provides
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 Diversified Income Fund at
September 30, 1994, the results of its operations,
the changes in its net assets and the financial
highlights for the above stated period, in
conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Denver, Colorado
October 21, 1994
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS September 30, 1994
FACE MARKET VALUE
AMOUNT SEE NOTE 1
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REPURCHASE AGREEMENTS--7.0%
- -------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with First Chicago Capital Markets, 4.95%, dated
9/30/94, to be repurchased at $3,001,238 on 10/03/94, collateralized by
U.S. Treasury Nts., 4.25%-8.5%, 4/15/95-7/15/98, with a value of
$1,696,399 and U.S. Treasury Bills, 0%, 3/16/95-3/23/95, with a value of
$1,366,384 (Cost $3,000,000)
$3,000,000 $3,000,000 7.00%
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
GOVERNMENT OBLIGATIONS--45.7%
- -------------------------------------------------------------------------------------------------------------------------
Argentina (Republic of):
Bonds, 8.375%, 12/20/03 800,000 666,802
Bonos de Consolidacion de Deudas, Series I, 4.8125%:
9/1/02 (4)(7) 267,900 180,399
4/1/07 (4)(7) 402,244 250,440
-----------------------------------------------------------------------------------------------------
Brazil (Federal Republic of):
Bonds, Banco Do Nordeste, 9% Sr. Unsec. Debs, 11/12/96 100,000 94,875
Bonds, Banco Nacional de Desenvolvimento Economico e Social,
10.375%, 4/27/98 100,000 100,125
Nts., Banco Estado Minas Gerais:
10%, 1/15/96 50,000 48,250
8.25%, 2/10/00 500,000 402,500
-----------------------------------------------------------------------------------------------------
Denmark (Kingdom of) Bonds:
6%, 12/10/99 2,600,000 (1) 379,697
9%, 11/15/98 1,500,000 (1) 248,632
-----------------------------------------------------------------------------------------------------
Empresa Columbiana de Petroleos, Nts., 7.25%,
7/8/98 (6) 150,000 143,063
-----------------------------------------------------------------------------------------------------
Italy (Republic of) Treasury Bonds:
12.50% 1/1/98 150,000,000 (1) 98,644
Buoni Pollennali del Tes:
12%, 5/1/97 700,000,000 (1) 454,776
12.50%, 6/16/97 300,000,000 (1) 196,942
-----------------------------------------------------------------------------------------------------
Morocco (Kingdom of) Loan Participation Agreements:
Tranche A, 4.50%, 1/1/09 (4)(6) 350,000 255,500
Tranche B, 4.312%, 1/1/04 (4)(6) 50,000 38,594
-----------------------------------------------------------------------------------------------------
New Zealand (Republic of) Bonds, 10%, 7/15/97 635,000 (1) 392,310
-----------------------------------------------------------------------------------------------------
South Australia Government Finance Authority Bonds, 10%, 1/15/03 1,080,000 (1) 766,802
-----------------------------------------------------------------------------------------------------
Spain (Kingdom of):
Bonds, 11.45%, 8/30/98 8,000,000 (1) 62,998
Bonds, 11.45%, 8/30/98 177,290,000 (1) 1,396,119
-----------------------------------------------------------------------------------------------------
Treasury Corp. of Victoria:
12%, 10/22/98 250,000 (1) 198,688
Gtd. Bonds, 8.25%, 10/15/03 180,000 (1) 114,627
-----------------------------------------------------------------------------------------------------
United Kingdom Treasury Nts.:
12%, 11/20/98 306,000 (1) 535,041
12.25%, 3/26/99 240,000 (1) 425,435
-----------------------------------------------------------------------------------------------------
United Mexican States:
Banco Nacional de Comercio Exterior SNC International Finance BV
Gtd. Matador Bonds, 7.25% Debs., 2/2/04 950,000 (1) 796,817
Petacalco Topolobampo Trust, Sr. Sec. Unsub. Nts.:
8.125%, 12/15/03 (6) 200,000 171,750
8.125%, 12/15/03 850,000 729,938
Petroleos Mexicanos Gtd. Medium term Nts., 7.60%, 6/15/00 50,000 45,541
-----------------------------------------------------------------------------------------------------
U.S. Treasury Bonds, 11.75%, 11/15/14 3,600,000 4,799,250
-----------------------------------------------------------------------------------------------------
U.S. Treasury Nts.:
8.875%, 11/15/97 (9)(10) 3,656,000 3,852,510
9.25%, 1/15/96 900,000 932,906
-----------------------------------------------------------------------------------------------------
Venezuela (Republic of):
6.75% Debs., 9/20/95 (6) 325,000 308,344
9% Sr. Unsec. Unsub. Nts., 5/27/96 (6) 125,000 117,031
-----------------------------------------------------------------------------------------------------
Western Australia Treasury Corp. Gtd. Bonds, 12.5%, 4/1/98 475,000 (1) 381,603
-----------
Total Government Obligations (Cost $19,892,873) 19,586,949
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
MORTGAGE-BACKED OBLIGATIONS--3.9%
- -------------------------------------------------------------------------------------------------------------------------
Government Federal National Mortgage Assn. Interest-Only Stripped Mtg.-Backed
Agency--3.9% Security, Trust 240, Class 2:
7%, 9/25/23 (8) 320,217 121,082
7%, 2/25/24 (8) 3,900,491 1,496,813
-----------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp., 8.95%, 3/15/20 78,000 79,747
-----------
Total Mortgage-Backed Obligations (Cost $1,627,755) 1,697,642
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES--36.0%
- -------------------------------------------------------------------------------------------------------------------------
BASIC MATERIALS--4.8%
- -------------------------------------------------------------------------------------------------------------------------
Chemicals--2.6% Harris Chemical North America, Inc., 0%/10.25% Gtd. Sr. Sec.
Disc. Nts., 7/15/01 (3) 400,000 326,000
-----------------------------------------------------------------------------------------------------
<PAGE>
<CAPTION>
FACE MARKET VALUE
AMOUNT SEE NOTE 1
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Chemicals NL Industries, Inc.:
(continued) 11.75% Sr. Sec. Nts., 10/15/03 $200,000 $206,500
0%/13% Sr. Sec. Disc. Nts., 10/15/05 (3) 400,000 254,500
-----------------------------------------------------------------------------------------------------
Rexene Corp.:
9% Fst. Priority Nts., 11/15/99 (5) 127,000 121,179
10% 2nd Priority Nts., 11/15/02 (7) 200,000 199,000
-----------
1,107,179
- -------------------------------------------------------------------------------------------------------------------------
Metals--0.8% Kaiser Aluminum & Chemical Corp.:
12.75% Sr. Sub. Nts., 2/15/02 250,000 222,500
9.875% Sr. Nts., 2/1/03 100,000 97,250
-----------
319,750
- -------------------------------------------------------------------------------------------------------------------------
Paper and Forest Rainy River Forest Products, 10.75% Sr. Sec. Nts., 10/15/01 50,000 50,125
Products--1.4% -----------------------------------------------------------------------------------------------------
Stone Consolidated, Corp., 10.25% Sr. Sec Nts., 12/15/00 250,000 246,875 *
-----------------------------------------------------------------------------------------------------
Stone Container Corp.:
9.875% Sr. Nts., 2/1/01 200,000 188,250
10.75% Fst. Mtg. Nts., 10/1/02 100,000 99,875
-----------
585,125
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
CONSUMER CYCLICALS-11.5%
- -------------------------------------------------------------------------------------------------------------------------
Automotive--2.2% Envirotest Systems Corp., 9.125% Sr. Nts., 3/15/01 350,000 324,625
-----------------------------------------------------------------------------------------------------
Foamex LP/Foamex Capital Corp., 11.875% Sr. Sub. Debs., 10/1/04 300,000 303,000
-----------------------------------------------------------------------------------------------------
Penda Corp., 10.75% Sr. Nts., Series B, 3/1/04 300,000 277,500
-----------------------------------------------------------------------------------------------------
SPX Corp., 11.75% Sr. Sub. Nts., 6/1/02 50,000 52,250 *
-----------
957,375
- -------------------------------------------------------------------------------------------------------------------------
Construction Triangle Pacific Corp., 10.50% Sr. Nts., 8/1/03 250,000 246,250
Supplies and -----------------------------------------------------------------------------------------------------
Development--1.8% USG Corp., 9.25% Sr. Sec. Nts., 9/15/01 200,000 190,500
-----------------------------------------------------------------------------------------------------
Walter Industries, Inc., 14.625% Sr. Nts., Series B, 1/1/49 (2) 200,000 338,000
-----------
774,750
- -------------------------------------------------------------------------------------------------------------------------
Consumer Goods MacAndrews & Forbes Holdings, Inc., 13% Sub. Debs., 3/1/99 300,000 298,500
and Services--3.3% -----------------------------------------------------------------------------------------------------
PT Polysindo Eka Perkasa, 13% Sr. Nts., 6/15/01 250,000 237,042
-----------------------------------------------------------------------------------------------------
Revlon Consumer Products Corp., 9.375% Sr. Nts., 4/1/01 350,000 307,128
-----------------------------------------------------------------------------------------------------
Synthetic Industries, Inc., 12.75% Sr. Sub. Debs., 12/1/02 300,000 303,000
-----------------------------------------------------------------------------------------------------
WestPoint Stevens, Inc., 9.375% Sr. Sub. Debs., 12/15/05 300,000 272,625
-----------
1,418,295
- -------------------------------------------------------------------------------------------------------------------------
Entertainment--1.6% Capital Gaming International, Inc., 11.50% Sr. Sec. Nts., 2/1/01 250,000 175,000
-----------------------------------------------------------------------------------------------------
Kloster Cruise Ltd., 13% Sr. Sec. Nts., 5/1/03 200,000 199,000
-----------------------------------------------------------------------------------------------------
Marvel (Parent) Holdings, Inc., 0% Sr. Sec. Disc. Nts., 4/15/98 500,000 312,500
-----------
686,500
- -------------------------------------------------------------------------------------------------------------------------
Media--1.1% Ackerley Communications, Inc., 10.75% Sr. Sec. Nts., Series A, 10/1/03 200,000 194,000
-----------------------------------------------------------------------------------------------------
Sinclair Broadcasting Group, Inc., 10% Sr. Sub. Nts., 12/15/03 300,000 291,000
-----------
485,000
- -------------------------------------------------------------------------------------------------------------------------
Real Estate
Development--0.6% Saul (B.F.) Real Estate Investment Trust, 11.625% Sr. Nts., 4/1/02 300,000 271,500
- -------------------------------------------------------------------------------------------------------------------------
Retail--0.9% Cole National Group, Inc., 11.25% Sr. Nts., 10/1/01 50,000 49,250
-----------------------------------------------------------------------------------------------------
R.H. Macy & Co., Inc., 14.50% Sr. Sub. Debs., 10/15/98 (2) 450,000 324,000
-----------
373,250
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
CONSUMER NON-CYCLICALS--6.2%
- -------------------------------------------------------------------------------------------------------------------------
Food--0.1% Kash 'N Karry Food Stores, Inc., 14% Sub. Debs., 2/1/01 (2) 200,000 57,000
- -------------------------------------------------------------------------------------------------------------------------
Food and Drug Di Giorgio Corp., 12% Sr. Nts., 2/15/03 150,000 150,000
Distribution--1.1% -----------------------------------------------------------------------------------------------------
Grand Union Co., 12.25% Sr. Sub. Nts., 7/15/02 400,000 296,000
-----------
446,000
- -------------------------------------------------------------------------------------------------------------------------
Healthcare--0.8% Total Renal Care, Inc., Units 500,000 360,000
- -------------------------------------------------------------------------------------------------------------------------
Financial--4.2% Banco Ganadero S.A., 9.75%, 8/26/99 (6) 300,000 302,250
-----------------------------------------------------------------------------------------------------
Borg-Warner Security Corp, 9.125% Sr. Sub. Nts., 5/1/03 400,000 361,000
-----------------------------------------------------------------------------------------------------
Card Establishment Services, Inc., 10% Sr. Sub. Nts.,
Series B, 10/1/03 300,000 283,500
-----------------------------------------------------------------------------------------------------
International Bank for Reconstruction and Development Bonds,
12.50%, 7/25/97 980,000 (1) 637,745
-----------------------------------------------------------------------------------------------------
Nacolah Holding Corp., 9.50% Sr. Nts., 12/1/03 250,000 223,125
-----------
1,807,620
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL--3.2%
- -------------------------------------------------------------------------------------------------------------------------
Containers--.9% Trans Ocean Container Corp., 12.25% Sr. Sub. Nts., 7/1/04 400,000 398,000
- -------------------------------------------------------------------------------------------------------------------------
General EnviroSource, Inc., 9.75% Sr. Nts., 6/15/03 350,000 318,500
Industrial--1.4% -----------------------------------------------------------------------------------------------------
Polymer Group, Inc., 12.25% Sr. Nts., 7/15/02 (6) 300,000 300,000
-----------
618,500
- -------------------------------------------------------------------------------------------------------------------------
Transportation--0.9% Tiphook Financial Corp., 7.125% Gtd. Nts., 5/1/98 500,000 362,500
- -------------------------------------------------------------------------------------------------------------------------
<PAGE>
<CAPTION>
FACE MARKET VALUE
AMOUNT SEE NOTE 1
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TECHNOLOGY--8.8%
- -------------------------------------------------------------------------------------------------------------------------
Aerospace/ GPA Delaware, Inc., 8.75% Gtd. Nts., 12/15/98 $200,000 $168,000
Defense--1.1% -----------------------------------------------------------------------------------------------------
Rohr, Inc., 11.625% Sr. Nts., 5/15/03 300,000 307,500
-----------
475,500
- -------------------------------------------------------------------------------------------------------------------------
Cable American Telecasting, Inc., 12.5% Sr. Disc. Nts., 6/15/04 400,000 196,000
Television--3.9% -----------------------------------------------------------------------------------------------------
Bell Media Cable, 11.95% Sr. Disc. Nts., 7/15/04 (5) 400,000 228,500
-----------------------------------------------------------------------------------------------------
Cablevision Systems Corp., 10.75% Sr. Sub. Debs., 4/1/04 300,000 306,000
-----------------------------------------------------------------------------------------------------
Celcaribe S.A., 0%/13.50% Sr. Sec. Nts., 3/15/04 (3)(6) 100,000 63,375
-----------------------------------------------------------------------------------------------------
Comcast Cellular Corp., 0% Nts., Series B, 3/5/00 500,000 310,000
-----------------------------------------------------------------------------------------------------
Continental Broadcasting Ltd./Continental Broadcasting Capital Corp.,
10.625% Sr. Sub. Nts., 7/1/03 250,000 252,813
-----------------------------------------------------------------------------------------------------
Echostar Communications Corp., Units 320,000 153,600
-----------------------------------------------------------------------------------------------------
Marcus Cable, 0% Gtd. Sr. Sub. Disc. Nts., 8/01/04 (3) 300,000 164,250
-----------
1,674,538
- -------------------------------------------------------------------------------------------------------------------------
Communications--3.6% Cellular, Inc., 0%/11.75% Sr. Sub. Disc. Nts., 9/1/03 (3) 280,000 184,800
-----------------------------------------------------------------------------------------------------
Horizon Cellular Telephone LP/Horizon Finance Corp.,
0%/11.375% Sr. Sub. Disc. Nts., 10/1/00 (3) 500,000 360,000
-----------------------------------------------------------------------------------------------------
MFS Communications, Inc., 0%/9.375% Sr. Disc. Nts., 1/15/04 (3) 600,000 355,500
-----------------------------------------------------------------------------------------------------
NewCity Communications, Inc., 11.375%, Sr. Sub. Nts., 11/1/03 300,000 303,750
-----------------------------------------------------------------------------------------------------
Panamsat LP/Panamsat Capital Corp., 0%/11.375% Sr.
Sub. Disc. Nts., 8/1/03 (3) 500,000 336,250
-----------
1,540,300
- -------------------------------------------------------------------------------------------------------------------------
Technology--0.2% Imax Corp., 7% Sr. Nts., 3/1/01 (5) 80,000 70,000
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
UTILITIES--1.5%
- -------------------------------------------------------------------------------------------------------------------------
Utility--1.5% Beaver Valley Funding Corp., 9.00% Debs., 6/1/17 300,000 228,245
-----------------------------------------------------------------------------------------------------
California Energy Co., 0%/10.25% Sr. Disc. Nts., 1/15/04 (3) 165,000 118,387
-----------------------------------------------------------------------------------------------------
El Paso Electric Co., 10.375% Lease Oblig. Debs., 1/2/11 (2) 210,000 113,577
-----------------------------------------------------------------------------------------------------
First PV Funding Corp., Lease Obligation Bonds, 10.15%,
Series 1986B, 1/15/16 200,000 183,929
-----------
644,138
-----------
Total Corporate Bonds and Notes (Cost $15,585,965) 15,432,820
<CAPTION>
SHARES
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS--0.2%
- -------------------------------------------------------------------------------------------------------------------------
Capital Gaming, Inc. (7) 6,667 44,169
-----------------------------------------------------------------------------------------------------
Celcaribe S.A. (6) 16,260 19,875
-----------
Total Common Stocks (Cost $70,007) 64,044
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
PREFERRED First Madison Bank, FSB, 11.50% 3,000 315,000
STOCKS--1.2%
- -------------------------------------------------------------------------------------------------------------------------
Prime Retail, Inc., $19.00 C.V., Series B 8,000 193,000
-----------
Total Preferred Stocks (Cost $498,000) 508,000
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
RIGHTS, WARRANTS, AND CERTIFICATES--0%
- -------------------------------------------------------------------------------------------------------------------------
Capital Gaming International, Inc. Wts., Exp. 2/99 5,062 16,451
-----------------------------------------------------------------------------------------------------
Terex Corp. Rts., Exp. 7/96 (6) 6 9
-----------
Total Rights, Warrants, and Certificates (Cost $22,524) 16,460
<CAPTION>
DATE/PRICE FACE AMOUNT
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PUT OPTIONS PURCHASED--0%
- -------------------------------------------------------------------------------------------------------------------------
European OTC Deutsche Mark/U.S. Dollar Put Nov. 2/1.60 DEM 1,522,819 (1) 3,141
European OTC Deutsche Mark/U.S. Dollar Put Nov. 8/1.60 DEM 761,409 (1) 2,000
European OTC Deutsche Mark/U.S. Dollar Put Nov. 4/1.60 DEM 761,409 (1) 1,718
-----------
Total Put Options Purchased (Cost $33,185) 6,859
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
STRUCTURED INSTRUMENTS--5.4%
- -------------------------------------------------------------------------------------------------------------------------
Argentina Local Market Securities Trust:
Series I, 14.75%, 9/1/02 (6) 250,000 250,000
Series II, 11.30%, 4/1/00 (6) 300,000 302,265
-----------------------------------------------------------------------------------------------------
Bayerische Landesbank, N.Y. Branch:
Mexican Peso Linked Confidence Nt., Girozentrale Branch,
35.50%, 12/30/94 (6) 200,000 196,500
Italian Lira Linked Confidence Nt., Girozentrale Branch,
10%, 8/7/95 140,000 136,864
-----------------------------------------------------------------------------------------------------
Citibank, 10.50%-16% CD, 12/12/94-8/17/95 274,189,082 (1) 814,731
-----------------------------------------------------------------------------------------------------
Goldman Sachs International Limited, 5.10%, 2/28/95 80,000 77,808
-----------------------------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc., Standard & Poor's 500
Index-Linked Nts.:
4.85%, 11/25/94 (6) 25,000 35,770
4.9125%, 12/14/94 (6) 25,000 34,505
-----------------------------------------------------------------------------------------------------
<PAGE>
<CAPTION>
FACE MARKET VALUE
AMOUNT SEE NOTE 1
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Structured Instruments (continued)
Pulsar Internacional, S.A. de C.V., 9%, 9/19/95 (6) $250,000 $250,000
-----------------------------------------------------------------------------------------------------
Swiss Bank Corporation Investment Banking, Inc.,
10% CD Sterling Rate Linked Nts., 7/3/95 230,000 226,872
-----------
Total Structured Instruments (Cost $2,315,444) 2,325,315
- -------------------------------------------------------------------------------------------------------------------------
Total Investments, at Value (Cost $43,045,753) 99.4% 42,638,089
- -------------------------------------------------------------------------------------------------------------------------
Other Assets Net of Liabilities 0.6% 249,652
----------- -----------
Net Assets 100.0% $42,887,741
----------- -----------
----------- -----------
<FN>
1. Face amount is reported in foreign currency.
2. Non-income producing security.
3. Represents a zero coupon bond that converts to a fixed rate of interest at a
designated future date.
4. Represents the current interest rate for a variable rate security.
5. Represents the current interest rate for an increasing rate security.
6. Restricted security-See Note 6 of Notes to Financial Statements.
7. Interest or dividend is paid in kind.
8. Interest-Only Strips represent the right to receive the monthly interest payments on
an underlying pool of mortgage loans. These securities typically decline in price as
interest rates decline. Most other fixed-income securities increase in price when
interest rates decline. The principal amount of the underlying pool represents the
notional amount on which current interest is calculated. The price of these
securities is typically more sensitive to changes in prepayment rates than
traditional mortgage backed securities (for example, GNMA pass-throughs).
9. Securities with an aggregate market value of $93,784 are held in escrow to cover
outstanding call options, as follows:
FACE
SUBJECT EXPIRATION EXERCISE PREMIUM MARKET
VALUE
TO CALL DATE PRICE RECEIVED SEE NOTE 1
- -------------------------------------------------------------------------------------------------------------------------------
European OTC Deutsche Mark/U.S. Dollar 332,290 11/4/94 1.50 DEM $1,599 $981
European OTC Deutsche Mark/U.S. Dollar 149,290 11/4/94 1.60 DEM 3,923 4,931
European OTC Deutsche Mark/U.S. Dollar 664,581 11/2/94 1.50 DEM 3,087 1,753
European OTC Deutsche Mark/U.S. Dollar 298,580 11/2/94 1.60 DEM 7,787 9,950
European OTC Deutsche Mark/U.S. Dollar 332,291 11/8/94 1.54 DEM 3,965 4,085
European OTC Deutsche Mark/U.S. Dollar 149,290 11/8/94 1.60 DEM 4,060 5,108
------- -------
$24,421 $26,808
10. Securities with an aggregate market value of $10,538 are held in escrow to cover
initial margin requirements on open interest rate futures sales contracts as
follows:
TYPE OF CONTRACT NUMBER OF CONTRACTS FACE
AMOUNT
----------------------------------------------------------------------------------------------------
U.S. Treasury Nts., 12/94 1 $101,719
The market value of the open contracts was $101,469 at September 30, 1994 with a net unrealized gain of $249.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES September 30, 1994
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS Investments, at value (cost $43,045,753) - see accompanying statement $42,638,089
------------------------------------------------------------------------------------------------
Cash 557,053
------------------------------------------------------------------------------------------------
Unrealized appreciation on futures contracts - Note 7 249
------------------------------------------------------------------------------------------------
Receivables:
Interest and dividends 945,838
Shares of beneficial interest sold 217,954
Investments sold 15,108
------------------------------------------------------------------------------------------------
Other 12,134
-----------
Total assets 44,386,425
- ------------------------------------------------------------------------------------------------------------------------------
LIABILITIES Options written, at value (premiums received $24,421) - see accompanying
statement - Note 4 26,808
------------------------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased 1,253,551
Shares of beneficial interest redeemed 78,804
Distribution and service plan fees - Note 5 21,780
Dividends 105,799
Other 11,942
-----------
Total liabilities 1,498,684
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $42,887,741
-----------
-----------
- ------------------------------------------------------------------------------------------------------------------------------
COMPOSITION OF Paid-in capital $43,752,822
NET ASSETS ------------------------------------------------------------------------------------------------
Undistributed net investment income 4,070
------------------------------------------------------------------------------------------------
Accumulated net realized loss from investment, written option
and foreign currency transactions (460,892)
------------------------------------------------------------------------------------------------
Net unrealized depreciation on investments, options written and
translation of assets and liabilities denominated in foreign
currencies (408,259)
------------------------------------------------------------------------------------------------
Net assets $42,887,741
-----------
-----------
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE Net asset value, redemption price and offering
PER SHARE price per share (based on net assets of $42,887,741 and 8,943,700
shares of beneficial interest outstanding) $ 4.80
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS For the Period from February 1, 1994 (commencement of operations)
to September 30, 1994
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME Interest $1,296,832
Dividends 4,250
----------
Total income 1,301,082
- ------------------------------------------------------------------------------------------------------------------------------
EXPENSES Service plan fees - Note 5 143,650
------------------------------------------------------------------------------------------------
Management fees - Note 5 109,624
------------------------------------------------------------------------------------------------
Registration and filing fees 13,505
------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees - Note 5 11,481
------------------------------------------------------------------------------------------------
Custodian fees and expenses 11,441
------------------------------------------------------------------------------------------------
Legal and auditing fees 10,501
------------------------------------------------------------------------------------------------
Shareholder reports 8,957
------------------------------------------------------------------------------------------------
Other 2,389
----------
Total expenses 311,548
------------------------------------------------------------------------------------------------
Less reimbursement from Oppenheimer Management Corporation - Note 5 (61,005)
----------
Net expenses 250,543
- ------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 1,050,539
- ------------------------------------------------------------------------------------------------------------------------------
REALIZED AND Net realized gain (loss) from:
UNREALIZED GAIN (LOSS) Investments and options written (443,166)
ON INVESTMENTS AND Closing and expiration of option contracts written - Note 4 5,502
FOREIGN CURRENCY Foreign currency transactions (23,228)
TRANSACTIONS ----------
Net realized loss (460,892)
------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on:
Investments and options written (555,781)
Translation of assets and liabilities denominated in foreign currencies 147,522
----------
Net change (408,259)
----------
Net realized and unrealized loss on investments, options written and foreign
currency transactions (869,151)
- ------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $
181,388
----------
----------
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
PERIOD ENDED
SEPTEMBER 30,
1994(1)
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS Net investment income $ 1,050,539
------------------------------------------------------------------------------------------------
Net realized loss on investments, options written and foreign
currency transactions (460,892)
------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on
investments, options written and translation of assets and
liabilities denominated in foreign currencies (408,259)
-----------
Net decrease in net assets resulting from operations 181,388
- ------------------------------------------------------------------------------------------------------------------------------
DIVIDENDS TO Dividends from net investment income
SHAREHOLDERS ($.228 per share) (1,046,469)
- ------------------------------------------------------------------------------------------------------------------------------
BENEFICIAL INTEREST Net increase in net assets resulting from
TRANSACTIONS beneficial interest transactions - Note 2 43,752,822
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSETS Total increase 42,887,741
------------------------------------------------------------------------------------------------
Beginning of period --
End of period (including undistributed net investment income of $4,070) $42,887,741
<FN>
1. For the period from February 1, 1994 (commencement of operations) to September 30, 1994.
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
PERIOD ENDED
SEPTEMBER 30,
1994(1)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<S> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $ 5.00
- ----------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .23
Net realized and unrealized loss on
investments, options written and foreign currency
transactions (.20)
-------
Total income from investment operations .03
- ----------------------------------------------------------------------------
Dividends from net investment income (.23)
- ----------------------------------------------------------------------------
Net asset value, end of period $ 4.80
- ----------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(2) .58%
- ----------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $42,888
- ----------------------------------------------------------------------------
Average net assets (in thousands) $22,046
- ----------------------------------------------------------------------------
Number of shares outstanding at end of period
(in thousands) 8,944
- ----------------------------------------------------------------------------
Ratios to average net assets(3):
Net investment income 7.187%
Expenses, before voluntary reimbursement by the Manager 2.131%
Expenses net of voluntary reimbursement by the Manager 1.714%
- ----------------------------------------------------------------------------
Portfolio turnover rate(4) 108.8%
<FN>
1. For the period from February 1, 1994 (commencement of operations) to
September 30, 1994.
2. Assumes a hypothetical initial investment on February 1, 1994, 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.
3. Annualized.
4. The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities owned
during the period. Securities with a maturity or expiration date at the time of
acquisition of one year or less are excluded from the calculation. Purchases
and sales of investment securities (excluding short-term securities) for the
period ended September 30, 1994 were $63,604,122 and $21,616,005, respectively.
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
----------------------------------------------------------
----------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SIGNIFICANT Oppenheimer Strategic Diversified Income Fund (the Fund)
ACCOUNTING POLICIES is a separate series of Oppenheimer Strategic Funds Trust,
a diversified, open-end management investment company
registered under the Investment Company Act of 1940, as
amended. The Fund's investment advisor is Oppenheimer
Management Corporation (the Manager). The Fund offers a
single class of shares, designated as Class C shares,
which may be subject to a contingent deferred sales
charge. 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 sale price on the principal exchange
on which the option is traded or, in the absence of any
transactions that day, the value is based upon the last
sale price on the prior trading date if it is within the
spread between the closing bid and asked prices. If the
last sale price is outside the spread, the closing bid or
asked price closest to the last reported sale price is
used. Forward foreign currency exchange 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,
1994, securities with an aggregate market value of
$832,577, representing 1.88% 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 foreign currencies are
translated into U.S. dollars at the closing rates of
exchange. Amounts related to the purchase and sale of
securities and investment income are translated at the
rates of exchange prevailing on the respective dates of
such transactions.
The Fund generally enters into forward 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.
The effect of changes in foreign currency exchange rates
on investments is separately identified from the
fluctuations arising from changes in market values of
securities held and reported with all other foreign
currency gains and losses in the Fund's results of
operations.
<PAGE>
----------------------------------------------------------
----------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 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.
----------------------------------------------------------
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.
----------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS. The Fund intends to
declare dividends 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.
<PAGE>
--------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
2. SHARES OF The Fund has authorized an unlimited number of no
BENEFICIAL INTEREST par value shares of beneficial interest.
Transactions in shares of beneficial interest were
as follows:
<TABLE>
<CAPTION>
PERIOD ENDED
SEPTEMBER 30, 1994(1)
----------------------
SHARES AMOUNT
--------------------------------------------------
<S> <C> <C>
Sold 9,579,653 $46,855,355
Dividends Reinvested 132,003 640,038
Redeemed (767,956) (3,742,571)
---------- ------------
Net increase 8,943,700 $43,752,822
---------- ------------
---------- ------------
</TABLE>
1. For the period from February 1, 1994
(commencement of operations) to September 30,
1994.
- --------------------------------------------------------------------------------
3. UNREALIZED GAINS At September 30, 1994, net unrealized
AND LOSSES ON depreciation on investments and options written
INVESTMENTS of $409,802 was composed of gross appreciation of
$382,008, and gross depreciation of $791,810.
- --------------------------------------------------------------------------------
4. OPTION ACTIVITY Option activity for the period from February 1,
1994 (commencement of operations) to
September 30, 1994 was as follows:
<TABLE>
<CAPTION>
CALL OPTIONS PUT OPTIONS
------------------------ --------------------------
NUMBER OF AMOUNT OF NUMBER OF AMOUNT OF
OPTIONS PREMIUMS OPTIONS PREMIUMS
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Options written 1,926,322 $ 24,421 3,132 $ 5,502
Options expired prior
to exercise -- -- (3,132) (5,502)
----------- --------- ----------- --------
Options outstanding at
September 30, 1994 1,926,322 $ 24,421 -- $ --
----------- --------- ----------- --------
----------- --------- ----------- --------
</TABLE>
- --------------------------------------------------------------------------------
5. MANAGEMENT FEES Management fees paid to the Manager were in
OTHER accordance with the investment advisory agreement
TRANSACTIONS WITH and with the Fund which provides for an annual fee
AFFILIATES 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. In addition,
the Manager has voluntarily undertaken to
reimburse Fund expenses to the level needed to
maintain a stable dividend.
During the eight months ended September 30, 1994,
Oppenheimer Funds Distributor, Inc. (OFDI)
received contingent deferred sales charges of
$18,270 upon redemption of Fund shares, as
reimbursement for sales commissions advanced by
OFDI at the time of sale of such shares.
<PAGE>
--------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
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 an approved distribution and service plan,
the Fund may expend up to .25% of its net assets
annually to reimburse OFDI for costs incurred in
connection with the personal service and
maintenance of accounts that hold shares of the
Fund, including amounts paid to brokers, dealers,
banks and other financial institutions. In
addition, the Fund's 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 plan, the
Board of Trustees may allow the Fund to continue
payment of the asset-based sales charge to OFDI
for distribution expenses incurred on Fund shares
sold prior to termination or discontinuance of the
plan. During the period ended September 30, 1994,
OFDI retained $143,650 as reimbursement for Class
C sales commissions and service fee advances, as
well as financing costs.
- --------------------------------------------------------------------------------
6. RESTRICTED The Fund owns securities purchased in private
SECURITIES 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, excluding securities eligible
for resale pursuant to Rule 144A of the Act amount
to $2,788,831, or 6.5% of the Fund's net assets,
at September 30, 1994. Illiquid and/or restricted
securities, including those restricted securities
that are transferable under Rule 144A of the Act
are listed below.
<TABLE>
<CAPTION>
VALUATION PER
ACQUISITION COST UNIT AS OF
SECURITY DATE PER UNIT SEPTEMBER 30, 1994
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Argentina Local Market Securities Trust:
Series I, 14.75%, 9/1/02(1) 9/19/94 $ 98.83 $100.00
Series II, 11.30%, 4/1/00(1) 8/24/94 $100.00 $100.76
Banco Ganadero S.A., 9.75%, 8/26/99(1) 8/10/94 $ 99.58 $100.75
Bayerische Landesbank, N.Y. Branch, Mexican Peso
Linked Confidence Nt., Girozentrale Branch,
35.50%, 12/30/94 9/23/94 $100.00 $ 98.25
Celcaribe S.A.(1) 5/17/94 $119.00 $122.23
Celcaribe S.A., 0%/13.50% Sr. Sec. Nts., 3/15/04(1) 5/17/94 $ 63.34 $ 63.37
Empresa Columbiana de Petroleos, Nts., 7.25%,
7/8/98(1) 4/25/94 $ 93.92 $ 95.38
Lehman Brothers Holdings, Inc., Standard &
Poor's 500 Index-Linked Nts:
4.85%, 11/25/94 8/24/94 $139.00 $143.08
4.9125%, 12/14/94 9/13/94 $137.00 $138.02
Morocco (Kingdom of) Loan Participation
Agreements:
Tranche A, 4.50%, 1/1/09 3/4/94-4/21/94 $ 70.29 $ 73.00
Tranche B, 4.312%, 1/1/04 5/25/94 $ 80.50 $ 77.19
Polymer Group, Inc., 12.25% Sr. Nts., 7/15/02(1) 6/17/94 $100.00 $100.00
Pulsar International, S.A. de C.V., 9%, 9/19/95 9/16/94 $ 99.63 $100.00
Terex Corp. Rts., Exp. 7/96(1) 6/28/94 $ 1.49 $ 1.50
United Mexican States, Petacalco Topolobampo
Trust, Sr. Sec. Unsub. Nts., 8.125%, 12/15/03(1) 8/22/94 $ 88.96 $ 85.88
Venezuela (Republic of):
6.75% Debs., 9/20/95(1) 4/7/94-5/19/94 $ 96.44 $ 94.88
9% Sr. Unsec. Unsub. Nts., 5/27/96(1) 5/3/94-5/19/94 $ 96.98 $ 93.63
<FN>
1. Transferable under Rule 144A of the Act.
</TABLE>
<PAGE>
--------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
7. FUTURES At September 30, 1994, the Fund had outstanding
CONTRACTS futures contracts to sell debt securities as
follows:
<TABLE>
<CAPTION>
EXPIRATION NUMBER OF VALUATION AS OF UNREALIZED
SECURITY DATE CONTRACTS SEPTEMBER 30, 1994
APPRECIATION
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Nts.,
12/94 12/20/94 1 $101,469 $249
</TABLE>
<PAGE>
Appendix
Industry Classifications
Aerospace/Defense
Air Transportation
Auto Parts Distribution
Automotive
Bank Holding Companies
Banks
Beverages
Broadcasting
Broker-Dealers
Building Materials
Cable Television
Chemicals
Commercial Finance
Computer Hardware
Computer Software
Conglomerates
Consumer Finance
Containers
Convenience Stores
Department Stores
Diversified Financial
Diversified Media
Drug Stores
Drug Wholesalers
Durable Household Goods
Education
Electric Utilities
Electrical Equipment
Electronics
Energy Services & Producers
Entertainment/Film
Environmental
Food
Gas Utilities*
Gold
Health Care/Drugs
Health Care/Supplies & Services
Homebuilders/Real Estate
Hotel/Gaming
Industrial Services
Insurance
Leasing & Factoring
Leisure
Manufacturing
Metals/Mining
Nondurable Household Goods
Oil - Integrated
Paper
Publishing/Printing
Railroads
Restaurants
Savings & Loans
Shipping
Special Purpose Financial
Specialty Retailing
Steel
Supermarkets
Telecommunications - Technology
Telephone - Utility
Textile/Apparel
Tobacco
Toys
Trucking
________________________
* For purposes of the Fund's investment policy not to concentrate in
securities of issuers in the same industry, gas utilities and gas
transmission utilities each will be considered a separate industry.
<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 LLP
1560 Broadway
Denver, Colorado 80202
Legal Counsel
Myer, Swanson, Adams & Wolf, 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"): Filed herewith.
(2) Independent Auditors' Report (See Part B)
(i) For OSIF: Filed herewith.
(ii) For OSDIF: Filed herewith.
(3) Statement of Investments (See Part B)
(i) For OSIF: Filed herewith.
(ii) For OSDIF: Filed herewith.
(4) Statement of Assets and Liabilities (See Part B)
(i) For OSIF: Filed herewith.
(ii) For OSDIF: Filed herewith.
(5) Statement of Operations (See Part B)
(i) For OSIF: Filed herewith.
(ii) For OSDIF: Filed herewith.
(6) Statement of Changes in Net Assets (See Part B)
(i) For OSIF: Filed herewith.
(ii) For OSDIF: Filed herewith.
(7) Notes to Financial Statements (See Part B)
(i) For OSIF: Filed herewith.
(ii) For OSDIF: Filed herewith.
(8) Independent Auditors' Consent
(i) For OSIF: Filed herewith.
(ii) For OSDIF: Filed herewith.
(b) Exhibits:
--------
(1) Registrant's Amended and Restated Declaration of Trust
dated December 14, 1993: Filed with Registrant's Post-
Effective Amendment No. 8, 2/1/94, and incorporated herein
by reference.
(2) By-Laws as amended through 6/26/90: Filed with Post-
Effective Amendment No. 4, 1/27/92, and refiled herewith
pursuant to Item 102 of Regulation S-T.
(3) Not applicable.
(4) (i) OSIF Specimen Class A Share Certificate: Filed
with Registrant's Post-Effective Amendment No. 8,
2/1/94, and incorporated herein by reference.
(ii) OSIF Specimen Class B Share Certificate: Filed
with Registrant's Post-Effective Amendment No. 8,
2/1/94, and incorporated herein by reference.
(iii) OSDIF Specimen Class C Share Certificate: Filed
with Registrant's Post-Effective Amendment No. 8,
2/1/94, and incorporated herein by reference.
(5) (i) Investment Advisory Agreement for OSIF dated 10/22/90:
Filed with Registrant's Post-Effective Amendment No.
3, 11/26/90, and refiled herewith pursuant to Item 102
of Regulation S-T.
(ii) Investment Advisory Agreement for OSDIF dated 2/1/94:
Filed with Registrant's Post-Effective Amendment No.
8, 2/1/94, and incorporated herein by reference.
(6) (i) (a) General Distributor's Agreement for OSIF dated
10/13/92: Filed with Post-Effective Amendment No.
5, 12/3/92, and refiled herewith pursuant to Item
102 of Regulation S-T.
(b) General Distributor's Agreement for OSDIF dated
2/1/94: Filed with Registrant's Post-Effective
Amendment No. 8, 2/1/94, and incorporated herein
by reference.
(ii) Form of Oppenheimer Funds Distributor, Inc. Dealer
Agreement - Filed with Post-Effective Amendment No. 14
to the Registration Statement of Oppenheimer Main
Street Funds, Inc. (Reg. No. 33-17850), 9/30/94, and
incorporated herein by reference.
(iii) Form of Oppenheimer Funds Distributor, Inc. Broker
Agreement - Filed with Post-Effective Amendment No.
14 to the Registration Statement of Oppenheimer Main
Street Funds, Inc. (Reg. No. 33-17850), 9/30/94, and
incorporated herein by reference.
(iv) Form of Oppenheimer Funds Distributor, Inc. Agency
Agreement - Filed with Post-Effective Amendment No. 14
to the Registration Statement of Oppenheimer Main
Street Funds, Inc. (Reg. No. 33-17850), 9/30/94, 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, refiled with Post-
Effective Amendment No. 45 of Oppenheimer Special Fund
(Reg. No. 2-45272), 8/22/94, pursuant to Item 102 of
Regulation S-T, 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 refiled herewith pursuant to
Item 102 of Regulation S-T.
(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 refiled herewith pursuant
to Item 102 of Regulation S-T.
(ii) Opinion and Consent of Counsel for OSDIF dated 12/31/94:
Filed with Registrant's Post-Effective Amendment No. 8,
2/1/94, and incorporated herein by reference.
(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 Pension Plans
for self-employed persons and corporations: Filed with
Post-Effective Amendment No. 15 to the Registration
Statement of Oppenheimer Mortgage Income Fund (Reg. No.
33-6614), 1/20/95, 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. 47 of Oppenheimer Growth Fund (File No.
2-45272), 10/21/94, 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, refiled with Post-
Effective Amendment No. 42 to the Registration Statement
of Oppenheimer Equity Income Fund (Reg. No. 2-33043),
10/28/94, pursuant to Item 102 of Regulation S-T, and
incorporated herein by reference.
(v) Form of SAR-SEP Simplified Employee Pension IRA: Filed
with Post-Effective Amendment No. 15 to the Registration
Statement of Oppenheimer Mortgage Income Fund (File No.
33-6614), 1/20/95, 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 with Registrant's
Post-Effective Amendment No. 8, 2/1/94, and incorporated
herein by reference.
(ii) Distribution Plan and Agreement for Class B shares of
OSIF under Rule 12b-1 dated 6/22/93: Filed with
Registrant's Post-Effective Amendment No. 8, 2/1/94, and
incorporated herein by reference..
(iii) Distribution and Service Plan and Agreement for Class
C shares of OSDIF under Rule 12b-1 dated 2/1/94: Filed
with Registrant's Post-Effective Amendment No. 8,
2/1/94, and incorporated herein by reference..
(16) (i) Performance Calculations for OSIF: Filed herewith.
(ii) Performance Calculations for OSDIF: Filed herewith.
(17) (i) Financial Data Schedule for Class A shares of OSIF:
Filed herewith.
(ii) Financial Data Schedule for Class B shares of OSIF:
Filed herewith.
(iii) Financial Data Schedule for Class C shares of OSDIF:
Filed herewith.
-- 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
Title of Class as of December 31, 1994
-------------- ------------------------
OSIF Class A Shares of
Beneficial Interest 164,984
OSIF Class B Shares of
Beneficial Interest 84,327
OSDIF Class C Shares of
Beneficial Interest 2,066
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 adjudica-
tion of such issue.
Item 28. Business and Other Connections of Investment Adviser
(a) Oppenheimer Management Corporation is the investment
adviser of the Registrant; it and certain subsidiaries and affiliates act
in the same capacity to other registered investment companies as described
in Parts A and B hereof and listed in Item 28(b) below.
(b) There is set forth below information as to any other
business, profession, vocation or employment of a substantial nature in
which each officer and director of Oppenheimer Management Corporation is,
or at any time during the past two fiscal years has been, engaged for
his/her own account or in the capacity of director, officer, employee,
partner or trustee.
<TABLE>
<CAPTION>
Name & Current Position
with Oppenheimer Other Business and Connections
Management Corporation During the Past Two Years
- ----------------------- ------------------------------
<S> <C>
Lawrence Apolito, None.
Vice President
James C. Ayer, Jr., Vice President and Portfolio Manager of
Assistant Vice President Oppenheimer Gold & Special Minerals Fund and
Oppenheimer Global Emerging Growth Fund.
Victor Babin, None.
Senior Vice President
Robert J. Bishop Assistant Treasurer of the OppenheimerFunds
Assistant Vice President (listed below); previously a Fund Controller
for Oppenheimer Management Corporation (the
"Manager").
Christopher O. Blunt, Vice President of Oppenheimer Funds
Vice President Distributor, Inc. Formerly a Vice President
of CIC/DISC Subsidiary.
George Bowen Treasurer of the New York-based
Senior Vice President OppenheimerFunds; Vice President, Secretary
and Treasurer and Treasurer of the Denver-based
OppenheimerFunds. Vice President and
Treasurer of Oppenheimer Funds Distributor,
Inc. (the "Distributor") and HarbourView
Asset Management Corporation
("HarbourView"), an investment adviser
subsidiary of OMC; Senior Vice President,
Treasurer, Assistant Secretary and a
director of Centennial Asset Management
Corporation ("Centennial"), an investment
adviser subsidiary of the Manager; Vice
President, Treasurer and Secretary of
Shareholder Services, Inc. ("SSI") and
Shareholder Financial Services, Inc.
("SFSI"), transfer agent subsidiaries of
OMC; President, Treasurer and Director of
Centennial Capital Corporation; Vice
President and Treasurer of Main Street
Advisers; formerly Senior Vice President/
Comptroller and Secretary of Oppenheimer
Asset Management Corporation ("OAMC"), an
investment adviser which was a subsidiary of
the OMC.
Michael A. Carbuto, Vice President and Portfolio Manager of
Vice President Oppenheimer Tax-Exempt Cash Reserves,
Centennial California Tax Exempt Trust,
Centennial New York Tax Exempt Trust and
Centennial Tax Exempt Trust; Vice President
of Centennial.
William Colbourne, Formerly, Director of Alternative Staffing
Assistant Vice President Resources, and Vice President of Human
Resources, American Cancer Society.
Lynn Coluccy, Vice President Formerly Vice President/Director of Internal
Audit of the Manager.
O. Leonard Darling, Formerly Co-Director of Fixed Income for
Executive Vice President State Street Research & Management Co.
Robert A. Densen, None.
Vice President
Robert Doll, Jr., Vice President and Portfolio Manager of
Executive Vice President Oppenheimer Growth Fund and Oppenheimer
Target Fund; Senior Vice President and
Portfolio Manager of Strategic Income &
Growth Fund.
John Doney, Vice President Vice President and Portfolio Manager of
Oppenheimer Equity Income Fund.
Andrew J. Donohue, Secretary of the New York-based
Executive Vice President OppenheimerFunds; Vice President of the
& General Counsel Denver-based OppenheimerFunds; Executive
Vice President, Director and General Counsel
of the Distributor; formerly Senior Vice
President and Associate General Counsel of
the Manager and the Distributor.
Kenneth C. Eich, Treasurer of Oppenheimer Acquisition
Executive Vice President/ Corporation
Chief Financial Officer
George Evans, Vice President Vice President and Portfolio Manager of
Oppenheimer Global Securities Fund.
Scott Farrar, Assistant Treasurer of the OppenheimerFunds;
Assistant Vice President previously a Fund Controller for the
Manager.
Katherine P.Feld Vice President and Secretary of Oppenheimer
Vice President and Funds Distributor, Inc.; Secretary of
Secretary HarbourView, Main Street Advisers, Inc. and
Centennial; Secretary, Vice President and
Director of Centennial Capital Corp.
Jon S. Fossel, President and director of Oppenheimer
Chairman of the Board, Acquisition Corp. ("OAC"), the Manager's
Chief Executive Officer parent holding company; President, CEO and
and Director a director of HarbourView; a director of SSI
and SFSI; President, Director, Trustee, and
Managing General Partner of the Denver-based
OppenheimerFunds; formerly President of the
Manager. President and Chairman of the Board
of Main Street Advisers, Inc.
Robert G. Galli, Trustee of the New York-based
Vice Chairman OppenheimerFunds; Vice President and Counsel
of OAC; formerly he held the following
positions: a director of the Distributor,
Vice President and a director of HarbourView
and Centennial, a director of SFSI and SSI,
an officer of other OppenheimerFunds and
Executive Vice President & General Counsel
of the Manager and the Distributor.
Linda Gardner, None.
Assistant Vice President
Ginger Gonzalez, Formerly 1st Vice President/Director of
Vice President Creative Services for Shearson Lehman
Brothers.
Dorothy Grunwager, None.
Assistant Vice President
Caryn Halbrecht, Vice President and Portfolio Manager of
Vice President Oppenheimer Insured Tax-Exempt Bond Fund and
Oppenheimer Intermediate Tax Exempt Bond
Fund; an officer of other OppenheimerFunds;
formerly Vice President of Fixed Income
Portfolio Management at Bankers Trust.
Barbara Hennigar, President and Director of Shareholder
President and Chief Financial Service, Inc.
Executive Officer of
Oppenheimer Shareholder
Services, a division of OMC.
Alan Hoden, Vice President None.
Merryl Hoffman, None.
Vice President
Scott T. Huebl, None.
Assistant Vice President
Jane Ingalls, Formerly a Senior Associate with Robinson,
Assistant Vice President Lake/Sawyer Miller.
Stephen Jobe, None.
Vice President
Avram Kornberg, Formerly a Vice President with Bankers
Vice President Trust.
Paul LaRocco, Portfolio Manager of Oppenheimer Capital
Assistant Vice President Appreciation Fund; Associate Portfolio
Manager of Oppenheimer Discovery Fund and
Oppenheimer Time Fund. Formerly a
Securities Analyst for Columbus Circle
Investors.
Mitchell J. Lindauer, None.
Vice President
Loretta McCarthy, None.
Senior Vice President
Bridget Macaskill, Director of HarbourView; Director of Main
President and Director Street Advisers, Inc.; and Chairman of
Shareholder Services, Inc.
Sally Marzouk, None.
Vice President
Denis R. Molleur, None.
Vice President
Kenneth Nadler, None.
Vice President
David Negri, Vice President and Portfolio Manager of
Vice President Oppenheimer Strategic Bond Fund, Oppenheimer
Multiple Strategies Fund, Oppenheimer
Strategic Investment Grade Bond Fund,
Oppenheimer Asset Allocation Fund,
Oppenheimer Strategic Diversified Income
Fund, Oppenheimer Strategic Income Fund,
Oppenheimer Strategic Income & Growth Fund,
Oppenheimer Strategic Short-Term Income
Fund, Oppenheimer High Income Fund and
Oppenheimer Bond Fund; an officer of other
OppenheimerFunds.
Barbara Niederbrach, None.
Assistant Vice President
Stuart Novek, Formerly a Director Account Supervisor for
Vice President J. Walter Thompson.
Robert A. Nowaczyk, None.
Vice President
Julia O'Neal, None.
Assistant Vice President
Robert E. Patterson, Vice President and Portfolio Manager of
Senior Vice President Oppenheimer Main Street California Tax-
Exempt Fund, Oppenheimer Insured Tax-Exempt
Bond Fund, Oppenheimer Intermediate Tax-
Exempt Bond Fund, Oppenheimer Florida Tax-
Exempt Fund, Oppenheimer New Jersey Tax-
Exempt Fund, Oppenheimer Pennsylvania Tax-
Exempt Fund, Oppenheimer California Tax-
Exempt Fund, Oppenheimer New York Tax-Exempt
Fund and Oppenheimer Tax-Free Bond Fund;
Vice President of the New York Tax-Exempt
Income Fund, Inc.; Vice President of
Oppenheimer Multi-Sector Income Trust.
Tilghman G. Pitts III, Chairman and Director of the Distributor.
Executive Vice President
and Director
Jane Putnam, Associate Portfolio Manager of Oppenheimer
Assistant Vice President Growth Fund and Oppenheimer Target Fund and
Portfolio Manager for Oppenheimer Variable
Account Funds-Growth Fund; Senior Investment
Officer and Portfolio Manager with Chemical
Bank.
Russell Read, Formerly an International Finance Consultant
Assistant Vice President for Dow Chemical.
Thomas Reedy, Vice President of Oppenheimer Multi-Sector
Vice President Income Trust and Oppenheimer Multi-
Government Trust; an officer of other
OppenheimerFunds; formerly a Securities
Analyst for the Manager.
David Rosenberg, Vice President and Portfolio Manager of
Vice President Oppenheimer Limited-Term Government Fund and
Oppenheimer U.S. Government Trust. Formerly
Vice President and Senior Portfolio Manager
for Delaware Investment Advisors.
Richard H. Rubinstein, Vice President and Portfolio Manager of
Vice President Oppenheimer Asset Allocation Fund,
Oppenheimer Fund and Oppenheimer Multiple
Strategies Fund; an officer of other
OppenheimerFunds; formerly Vice President
and Portfolio Manager/Security Analyst for
Oppenheimer Capital Corp., an investment
adviser.
Lawrence Rudnick, Formerly Vice President of Dollar Dry Dock
Assistant Vice President Bank.
Ellen Schoenfeld, None.
Assistant Vice President
Nancy Sperte, None.
Senior Vice President
Donald W. Spiro, President and Trustee of the New York-based
Chairman Emeritus OppenheimerFunds; formerly Chairman of the
and Director Manager and the Distributor.
Arthur Steinmetz, Vice President and Portfolio Manager of
Senior Vice President Oppenheimer Strategic Diversified Income
Fund, Oppenheimer Strategic Income Fund,
Oppenheimer Strategic Income & Growth Fund,
Oppenheimer Strategic Investment Grade Bond
Fund, Oppenheimer Strategic Short-Term
Income Fund; an officer of other
OppenheimerFunds.
Ralph Stellmacher, Vice President and Portfolio Manager of
Senior Vice President Oppenheimer Champion High Yield Fund and
Oppenheimer High Yield Fund; an officer of
other OppenheimerFunds.
John Stoma, Vice President Formerly Vice President of Pension Marketing
with Manulife Financial.
James C. Swain, Chairman, CEO and Trustee, Director or
Vice Chairman of the Managing Partner of the Denver-based
Board of Directors OppenheimerFunds; President and a Director
and Director of Centennial; formerly President and
Director of OAMC, and Chairman of the Board
of SSI.
James Tobin, Vice President None.
Jay Tracey, Vice President Vice President of the Manager; Vice
President and Portfolio Manager of
Oppenheimer Time Fund and Oppenheimer
Discovery Fund. Formerly Managing Director
of Buckingham Capital Management.
Gary Tyc, Vice President, Assistant Treasurer of the Distributor and
Assistant Secretary SFSI.
and Assistant Treasurer
Ashwin Vasan, Vice President of Oppenheimer Multi-Sector
Vice President Income Trust and Oppenheimer Multi-
Government Trust: an officer of other
OppenheimerFunds.
Valerie Victorson, None.
Vice President
John Wallace, Vice President and Portfolio Manager of
Vice President Oppenheimer Total Return Fund, and
Oppenheimer Main Street Income and Growth
Fund; an officer of other OppenheimerFunds;
formerly a Securities Analyst and Assistant
Portfolio Manager for the Manager.
Dorothy Warmack, Vice President and Portfolio Manager of
Vice President Daily Cash Accumulation Fund, Inc.,
Oppenheimer Cash Reserves, Centennial
America Fund, L.P., Centennial Government
Trust and Centennial Money Market Trust;
Vice President of Centennial.
Christine Wells, None.
Vice President
William L. Wilby, Vice President and Portfolio Manager of
Senior Vice President Oppenheimer Global Fund and Oppenheimer
Global Growth & Income Fund; Vice President
of HarbourView; an officer of other
OppenheimerFunds.
Carol Wolf, Vice President and Portfolio Manager of
Vice President Oppenheimer Money Market Fund, Inc.,
Centennial America Fund, L.P., Centennial
Government Trust, Centennial Money Market
Trust and Daily Cash Accumulation Fund,
Inc.; Vice President of Oppenheimer Multi-
Sector Income Trust; Vice President of
Centennial.
Robert G. Zack, Associate General Counsel of the Manager;
Senior Vice President Assistant Secretary of the OppenheimerFunds;
and Assistant Secretary Assistant Secretary of SSI, SFSI; an officer
of other OppenheimerFunds.
Eva A. Zeff, Vice President and Portfolio Manager of
Assistant Vice President Oppenheimer Mortgage Income Fund; an officer
of other OppenheimerFunds; formerly a
Securities Analyst for the Manager.
Arthur J. Zimmer, Vice President and Portfolio Manager of
Vice President Centennial America Fund, L.P., Oppenheimer
Money Fund, Centennial Government Trust,
Centennial Money Market Trust and Daily Cash
Accumulation Fund, Inc.; Vice President of
Oppenheimer Multi-Sector Income Trust; Vice
President of Centennial; an officer of other
OppenheimerFunds.
</TABLE>
The OppenheimerFunds include the New York-based OppenheimerFunds
and the Denver-based OppenheimerFunds set forth below:
New York-based OppenheimerFunds
Oppenheimer Asset Allocation Fund
Oppenheimer California Tax-Exempt Fund
Oppenheimer Discovery Fund
Oppenheimer Global Emerging Growth Fund
Oppenheimer Global Fund
Oppenheimer Global Growth & Income Fund
Oppenheimer Gold & Special Minerals Fund
Oppenheimer Growth Fund
Oppenheimer Money Market Fund, Inc.
Oppenheimer Mortgage Income Fund
Oppenheimer Multi-Government Trust
Oppenheimer Multi-Sector Income Trust
Oppenheimer Multi-State Tax-Exempt Trust
Oppenheimer New York Tax-Exempt Trust
Oppenheimer Fund
Oppenheimer Target Fund
Oppenheimer Tax-Free Bond Fund
Oppenheimer Time Fund
Oppenheimer U.S. Government Trust
Denver-based OppenheimerFunds
Oppenheimer Cash Reserves
Centennial America Fund, L.P.
Centennial California Tax Exempt Trust
Centennial Government Trust
Centennial Money Market Trust
Centennial New York Tax Exempt Trust
Centennial Tax Exempt Trust
Daily Cash Accumulation Fund, Inc.
The New York Tax-Exempt Income Fund, Inc.
Oppenheimer Champion High Yield Fund
Oppenheimer Equity Income Fund
Oppenheimer High Yield Fund
Oppenheimer Integrity Funds
Oppenheimer Limited-Term Government Fund
Oppenheimer Main Street Funds, Inc.
Oppenheimer Strategic Funds Trust
Oppenheimer Strategic Income & Growth Fund
Oppenheimer Strategic Investment Grade Bond Fund
Oppenheimer Strategic Short-Term Income Fund
Oppenheimer Tax-Exempt Bond Fund
Oppenheimer Total Return Fund, Inc.
Oppenheimer Variable Account Funds
The address of Oppenheimer Management Corporation, the New York-
based OppenheimerFunds, Oppenheimer Funds Distributor, Inc., Harbourview
Asset Management Corp., Oppenheimer Partnership Holdings, Inc., and
Oppenheimer Acquisition Corp. is Two World Trade Center, New York, New
York 10048-0203.
The address of the Denver-based OppenheimerFunds, Shareholder
Financial Services, Inc., Shareholder Services, Inc., Oppenheimer
Shareholder Services, Centennial Asset Management Corporation, Centennial
Capital Corp., and Main Street Advisers, Inc. is 3410 South Galena Street,
Denver, Colorado 80231.
Item 29. Principal Underwriter
(a) Oppenheimer Funds Distributor, Inc. is the Distributor of
Registrant's shares. It is also the Distributor of each of the other
registered open-end investment companies for which Oppenheimer Management
Corporation is the investment adviser, as described in Part A and B of
this Registration Statement and listed in Item 28(b) above.
(b) The directors and officers of the Registrant's principal
underwriter are:
<TABLE>
<CAPTION>
Positions and
Name & Principal Positions & Offices Offices with
Business Address with Underwriter Registrant
- ---------------- ------------------- -------------
<S> <C> <C>
George Clarence Bowen+ Vice President & Treasurer Vice
President,
Secretary,
and
Treasurer
Christopher Blunt Vice President None
6 Baker Avenue
Westport, CT 06880
Julie Bowers Vice President None
21 Dreamwold Road
Scituate, MA 02066
Peter W. Brennan Vice President None
1940 Cotswold Drive
Orlando, FL 32825
Mary Ann Bruce* Senior Vice President - None
Financial Institution Div.
Robert Coli Vice President None
12 Whitetail Lane
Bedminster, NJ 07921
Ronald T. Collins Vice President None
710-3 E. Ponce DeLeon Ave.
Decatur, GA 30030
Ronald Corlew Vice President None
1020 Montecito Drive
Los Angeles, CA 90031
Mary Crooks+ Vice President None
Paul Della Bovi Vice President None
750 West Broadway
Apt. 5M
Long Beach, NY 11561
Andrew John Donohue* Executive Vice Vice President
President & Director
Wendy H. Ehrlich Vice President None
4 Craig Street
Jericho, NY 11753
Kent Elwell Vice President None
41 Craig Place
Cranford, NJ 07016
John Ewalt Vice President None
2301 Overview Dr. NE
Tacoma, WA 98422
Gregory Farley Vice President - None
1116 Westbury Circle Financial Institution Div.
Eagan, MN 55123
Katherine P. Feld* Vice President & Secretary None
Mark Ferro Vice President None
43 Market Street
Breezy Point, NY 11697
Wendy Fishler* Vice President - None
Financial Institution Div.
Wayne Flanagan Vice President - None
36 West Hill Road Financial Institution Div.
Brookline, NH 03033
Ronald R. Foster Vice President - None
11339 Avant Lane Eastern Division Manager
Cincinnati, OH 45249
Patricia Gadecki Vice President None
6026 First Ave. South,
Apt. 10
St. Petersburg, FL 33707
Luiggino Galleto Vice President None
10239 Rougemont Lane
Charlotte, NC 28277
Mark Giles Vice President - None
5506 Bryn Mawr Financial Institution Div.
Dallas, TX 75209
Ralph Grant* Vice President/National None
Sales Manager - Financial
Institution Div.
Sharon Hamilton Vice President None
720 N. Juanita Ave. - #1
Redondo Beach, CA 90277
Carla Jiminez Vice President None
609 Chimney Bluff Drive
Mt. Pleasant, SC 29464
Terry Lee Kelley Vice President - None
1431 Woodview Lane Financial Institution Div.
Commerce Township, MI 48382
Michael Keogh* Vice President None
Richard Klein Vice President None
4011 Queen Avenue South
Minneapolis, MN 55410
Hans Klehmet II Vice President None
26542 Love Lane
Ramona, CA 92065
Ilene Kutno* Assistant Vice President None
Wayne A. LeBlang Vice President - None
23 Fox Trail Director Eastern Div.
Lincolnshire, IL 60069
Dawn Lind Vice President - None
7 Maize Court Financial Institution Div.
Melville, NY 11747
James Loehle Vice President None
30 John Street
Cranford, NJ 07016
Laura Mulhall* Vice President - None
Director of Key Accounts
Gina Munson Vice President None
120 Fisherville Road
Apt. 136
Concord, NH 03301
Charles Murray Vice President None
50 Deerwood Drive
Littleton, CO 80127
Patrick Palmer Vice President None
958 Blue Mountain Cr.
West Lake Village, CA 91362
Randall Payne Vice President - None
1307 Wandering Way Dr. Financial Institution Div.
Charlotte, NC 28226
Gayle Pereira Vice President None
2707 Via Arboleda
San Clemente, CA 92672
Charles K. Pettit Vice President None
1900 Eight Avenue
San Francisco, CA 94116
Tilghman G. Pitts, III* Chairman & Director None
Elaine Puleo* Vice President - None
Financial Institution Div.
Minnie Ra Vice President - None
109 Peach Street Financial Institution Div.
Avenel, NJ 07001
David Robertson Vice President None
9 Hawks View
Hoeoye Falls, NY 14472
Ian Robertson Vice President None
4204 Summit Wa
Marietta, GA 30066
Robert Romano Vice President None
1512 Fallingbrook Drive
Fishers, IN 46038
James Ruff* President None
Timothy Schoeffler Vice President None
3118 N. Military Road
Arlington, VA 22207
Mark Schon Vice President None
10483 E. Corrine Dr.
Scottsdale, AZ 85259
Michael Sciortino Vice President None
785 Beau Chene Dr.
Mandeville, LA 70448
James A. Shaw Vice President - None
5155 West Fair Place Financial Institution Div.
Littleton, CO 80123
Robert Shore Vice President - None
26 Baroness Lane Financial Institution Div.
Laguna Niguel, CA 92677
Peggy Spilker Vice President - None
2017 N. Cleveland, #2 Financial Institution Div.
Chicago, IL 60614
Michael Stenger Vice President None
C/O America Building
30 East Central Pkwy
Suite 1008
Cincinnati, OH 45202
Paul Stickney Vice President None
1314 Log Cabin Lane
St. Louis, MO 63124
George Sweeney Vice President None
1855 O'Hara Lane
Middletown, PA 17057
Philip St. John Trimble Vice President None
2213 West Homer
Chicago, IL 60647
Gary Paul Tyc+ Assistant Treasurer None
Mark Stephen Vandehey+ Vice President None
Gregory K. Wilson Vice President None
2 Side Hill Road
Westport, CT 06880
Bernard J. Wolocko Vice President None
33915 Grand River
Farmington, MI 48335
William Harvey Young+ Vice President None
* Two World Trade Center, New York, NY 10048-0203
+ 3410 South Galena St., Denver, CO 80231
</TABLE>
(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) Not applicable.
(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, 1995.
OPPENHEIMER STRATEGIC FUNDS TRUST
/s/ James C. Swain
by: --------------------------
James C. Swain, Chairman
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, Trustee January 27, 1995
- ---------------------- and Principal
James C. Swain Executive Officer
/s/ Jon S. Fossel* Trustee January 27, 1995
- ----------------------
Jon S. Fossel
/s/ George Bowen* Treasurer and January 27, 1995
- ---------------------- Principal Financial
George Bowen and Accounting Officer
/s/ Robert G. Avis* Trustee January 27, 1995
- ----------------------
Robert G. Avis
/s/ William A. Baker* Trustee January 27, 1995
- ----------------------
William A. Baker
/s/ Charles Conrad, Jr.* Trustee January 27, 1995
- ----------------------
Charles Conrad, Jr.
/s/ Raymond J. Kalinowski* Trustee January 27, 1995
- ----------------------
Raymond J. Kalinowski
/s/ C. Howard Kast* Trustee January 27, 1995
- ----------------------
C. Howard Kast
/s/ Robert M. Kirchner* Trustee January 27, 1995
- ----------------------
Robert M. Kirchner
/s/ Ned M. Steel* Trustee January 27, 1995
- ---------------------------
Ned M. Steel
*By: /s/ Robert G. Zack
-------------------------------------
Robert G. Zack, Attorney-in-Fact
<PAGE>
OPPENHEIMER STRATEGIC FUNDS TRUST
EXHIBIT INDEX
FORM N-1A
ITEM NO. DESCRIPTION
- --------- -----------
24(a)(2) Independent Auditors' Report for Oppenheimer Strategic
Funds Trust
24(b)(2) By-Laws as amended through 6/26/90
24(b)(5)(i) Investment Advisory Agreement for OSIF dated 10/22/90
24(b)(6)(i)(a) General Distributor's Agreement for OSIF dated 10/13/92
24(b)(8) Custody Agreement dated 10/6/92
24(b)(10)(i) Opinion and Consent of Counsel for OSIF dated 8/30/89
24(b)(16)(i) Performance Calculations for OSIF
24(b)(16)(ii) Performance Calculations for OSDIF
24(b)(17)(i) Financial Data Schedule for Class A shares of OSIF
24(b)(17)(ii) Financial Data Schedule for Class B shares of OSIF
24(b)(17)(iii) Financial Data Schedule for Class C shares of OSDIF
INDEPENDENT AUDITORS' CONSENT
The Board of Trustees
Oppenheimer Strategic Funds Trust:
We consent to the use of this Post-Effective Amendment No. 9 to the
Registration Statement No. 33-28598 of our report dated October 21, 1994
on the financial statements of Oppenheimer Strategic Income Fund and
Oppenheimer Strategic Diversified Income Fund appearing in the Statement
of Additional Information, which is a part of such Registration Statement,
and to the reference to us under the caption "Financial Highlights"
appearing in the Prospectus which is also a part of such Registration
Statement.
DELOITTE & TOUCHE LLP
Denver, Colorado
January 25, 1995
Exhibit 24(b)(2)
OPPENHEIMER STRATEGIC INCOME FUND
BY-LAWS
(as amended through June 26, 1990)
ARTICLE I
SHAREHOLDERS
Section 1. Place of Meeting. All meetings of the Shareholders
(which terms as used herein shall, together with all other terms defined
in the Declaration of Trust, have the same meaning as in the Declaration
of Trust) shall be held at the principal office of the Fund or at such
other place as may from time to time be designated by the Board of
Trustees and stated in the notice of meting.
Section 2. Shareholder Meetings. Meetings of the Shareholders for
any purpose or purposes may be called by the Chairman of the Board of
Trustees, if any, or by the President or by the Board of Trustees and
shall be called by the Secretary upon receipt of the request in writing
signed by Shareholders holding not less than one third of the entire
number of Shares issued and outstanding and entitled to vote thereat.
Such request shall state the purpose or purposes of the proposed meeting.
In addition, meetings of the Shareholders shall be called by the Board of
Trustees upon receipt of the request in writing signed by Shareholders
that hold not less than ten percent of the entire number of Shares issued
and outstanding and entitled to vote thereat, stating that the purpose of
the proposed meeting is the removal of a Trustee.
Section 3. Notice of Meetings of Shareholders. Not less than ten
days' and not more than 120 days' written notice of every meeting of
Shareholders, stating the time and place thereof (and the general nature
of the business proposed to be transacted at any special or extraordinary
meeting), shall be given to each Shareholder entitled to vote thereat by
leaving the same with him or at his residence or usual place of business
or by mailing it, postage prepaid and addressed to him at his address as
it appears upon the books of the Fund.
No notice of the time, place or purpose of any meeting of
Shareholders need be given to any Shareholder who attends in person or by
proxy or to any Shareholder who, in writing executed and filed with the
records of the meeting, either before or after the holding thereof, waives
such notice.
Section 4. Record Dates. The Board of Trustees may fix, in advance
or from time to time, a record date not exceeding 120 days and not less
than 10 days preceding the date of any meeting of Shareholders or any
Series for the determination of the Shareholders of record entitled to
notice of and to vote at a Shareholders' meeting; for the determination
of shareholders entitled to receive dividends, distributions, rights or
allotments of rights; or for any other purpose requiring the fixing of a
record date. Only Shareholders of record on such date shall be entitled
to notice of and to vote at such meeting, receive such dividends, rights
or allotments, or otherwise participate as the case may be.
Section 5. Access to Shareholder List. The Board of Trustees shall
make available a list of the names and addresses of all shareholders as
recorded on the books of the Fund, upon receipt of the request in writing
signed by not less than ten Shareholders (who have been such for at least
6 months) holding Shares of the Fund valued at $25,000 or more at current
offering price (as defined in the Fund's Prospectus) or holding not less
than one percent in amount of the entire number of shares of the Fund
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 remove one or more trustees
pursuant to Section 2 of Article I and Section 2 of Article II of these
By-Laws and be accompanied by a form of communication to the Shareholders.
The Board of Trustees may, in its discretion, satisfy its obligation under
this Section 5 by either, as required by Section 16(c) of the Investment
Company Act, making available the Shareholder List to such Shareholders
at the principal offices of the Fund, or at the offices of the Fund's
transfer agent, during regular business hours, or by mailing a copy of
such Shareholders' proposed communication and form of request, at their
expense, to all other Shareholders. Notwithstanding the foregoing, the
Board of Trustees may also take such other action as may be permitted
under Section 16(c) of the Investment Company Act.
Section 6. Quorum, Adjournment of Meetings. The presence in person
or by proxy of the holders of record of more than one-third of the Shares,
or of the shares of any Series, of the Fund issued and outstanding and
entitled to vote thereat, shall constitute a quorum, respectively, at all
meetings of the Shareholders; provided, however, that if any action to be
taken by the Shareholders or by a Series 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 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 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.
Section 7. Voting and Inspectors. 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 Fund on the date fixed 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 as an individual
class ("Individual Class 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
Investment Company Act of 1940; provided, however, that as to any matter
with respect to which a vote of Shareholders is required by the Investment
Company Act of 1940 or by any applicable law that must be complied with,
such requirements as to a vote by Shareholders shall apply in lieu of
Individual Class Voting as described above. Any fractional Share shall
carry proportionately all the rights of a whole Share, including the right
to vote and the right to receive dividends. Any Shareholder thus
entitled to vote at any such meeting of Shareholders shall be entitled to
vote either in person or by proxy appointed by instrument in writing
subscribed by such Shareholder or his duly authorized attorney-in-fact.
All elections of Trustees shall be had by a plurality of the votes
cast and all questions shall be decided by a majority of the votes cast,
in each case at a duly constituted meeting, except as otherwise provided
in the Declaration of Trust or in these By-Laws or by specific statutory
provision superseding the restrictions and limitations contained in the
Declaration of Trust or in these By-Laws.
At any election of Trustees, the Board of Trustees prior thereto may,
or, if they have not so acted, the Chairman of the meeting may, and upon
the request of the holders of ten percent (10%) of the Shares entitled to
vote at such election shall, appoint two inspectors of election who shall
first subscribe an oath or affirmation to execute faithfully the duties
of inspectors at such election with strict impartiality and according to
the best of their ability, and shall after the election make a certificate
of the result of the vote taken. No candidate for the office of Trustee
shall be appointed such Inspector.
The Chairman of the meeting may cause a vote by ballot to be taken
upon any election or matter, and such vote shall be taken upon the request
of the holders of ten percent (10%) of the Shares entitled to vote on such
election or matter.
Section 8. Conduct of Shareholders' Meetings. The meetings of the
Shareholders shall be presided over by the Chairman of the Board of
Trustees, if any, or if he shall not be present, by the President, or if
he shall not be present, by a Vice-President, or if none of the Chairman
of the Board of Trustees, the President or any Vice-President is present,
by a chairman to be elected at the meeting. The Secretary of the Fund,
if present, shall act as Secretary of such meetings, or if he is not
present, an Assistant Secretary shall so act, or if neither the Secretary
nor an Assistant Secretary is present, than the meeting shall elect its
secretary.
Section 9. Concerning Validity of Proxies, Ballots, Etc. At every
meeting of the Shareholders, all proxies shall be received and taken in
charge of and all ballots shall be received and canvassed by the secretary
of the meeting, who shall decide all questions touching the qualification
of voters, the validity of the proxies, and the acceptance or rejection
of votes, unless inspectors of election shall have been appointed as
provided in Section 7, in which event such inspectors of election shall
decide all such questions.
ARTICLE II
BOARD OF TRUSTEES
Section 1. Number and Tenure of Office. The business and affairs
of the Fund shall be conducted and managed by a Board of Trustees
consisting of the number of initial Trustees, which number may be
increased or decreased as provided in Section 2 of this Article. Each
Trustee shall, except as otherwise provided herein, hold office until the
next meeting of Shareholders of the Fund following his election called
for the purpose of electing Trustees or until his successor is duly
elected and qualifies. Trustees need not be Shareholders.
Section 2. Increase or Decrease in Number of Trustees; Removal. The
Board of Trustees, by the vote of a majority of the entire Board, may
increase the number of Trustees to a number not exceeding fifteen, and may
elect Trustees to fill the vacancies created by any such increase in the
number of Trustees until the next meeting called for the purpose of
electing Trustees or until their successors are duly elected and qualify;
the Board of Trustees, by the vote of a majority of the entire Board, may
likewise decrease the number of Trustees to a number not less than three
but the tenure of office of any Trustee shall not be affected by any such
decrease. Vacancies occurring other than by reason of any such increase
shall be filled by a vote of a majority of the entire Board then sitting.
In the event that after the proxy material has been printed for a meeting
of Shareholders at which Trustees are to be elected and any one or more
nominees named in such proxy material should die, become incapacitated or
fail to stand for election, the authorized number of Trustees shall be
automatically reduced by the number of such nominees, unless the Board of
Trustees prior to the meeting shall otherwise determine.
A Trustee at any time may be removed either with or without cause by
resolution duly adopted by the affirmative votes of the holders of not
less than two-thirds of the outstanding Shares of the Fund, present in
person or by proxy at any meeting of Shareholders at which such vote may
be taken, provided that a quorum is present. Any Trustee at any time may
be removed for cause by resolution duly adopted at any meeting of the
Board of Trustees provided that notice thereof is contained in the notice
of such meeting and that such resolution is adopted by the vote of at
least two thirds of the Trustees whose removal is not proposed. As used
herein, "for cause" shall mean any cause which under Massachusetts law
would permit the removal of a Trustee of a business trust.
Section 3. Place of Meeting. The Trustees may hold their meetings,
have one or more offices, and keep the books of the Fund outside
Massachusetts, at any office or offices of the Fund or at any other place
as they may from time to time by resolution determine, or, in the case of
meetings, as they may from time to time by resolution determine or as
shall be specified or fixed in the respective notices or waivers of notice
thereof.
Section 4. Regular Meetings. Regular meetings of the Board of
Trustees shall be held at such time and on such notice, if any, as the
Trustees may from time to time determine.
Section 5. Special Meetings. Special meetings of the Board of
Trustees may be held from time to time upon call of the Chairman of the
Board of Trustees, if any, the President or two or more of the Trustees,
by oral, telegraphic or written notice duly served on or sent or mailed
to each Trustee not less than one day before such meeting. No notice need
be given to any Trustee who attends in person or to any Trustee who in
writing executed and filed with the records of the meeting either before
or after the holding thereof, waives such notice. Such notice or waiver
of notice need not state the purpose or purposes of such meeting.
Section 6. Quorum. A majority of the Trustees then in office shall
constitute a quorum for the transaction of business, provided that a
quorum shall in no case be less than two Trustees. If at any meeting of
the Board there shall be less than a quorum present (in person or by open
telephone line, to the extent permitted by the Investment Company Act of
1940 (the "1940 Act")), a majority of those present may adjourn the
meeting from time to time until a quorum shall have been obtained. The
act of the majority of the Trustees present at any meeting at which there
is a quorum shall be the act of the Board, except as may be otherwise
specifically provided by statute, by the Declaration of Trust or by these
By-Laws.
Section 7. Executive Committee. The Board of Trustees may, by the
affirmative vote of a majority of the entire Board, elect from the
Trustees an Executive Committee to consist of such number of Trustees (but
not less than two) as the Board may from time to time determine. The Board
of Trustees by such affirmative vote shall have power at any time to
change the members of such Committee and may fill vacancies in the
Committee by election from the Trustees. When the Board of Trustees is
not in session, the Executive Committee shall have and may exercise any
or all of the powers of the Board of Trustees in the management of the
business and affairs of the Fund (including the power to authorize the
seal of the Fund to be affixed to all papers which may require it) except
as provided by law and except the power to increase or decrease the size
of, or fill vacancies on, the Board. The Executive Committee may fix its
own rules of procedure, and may meet, when and as provided by such rules
or by resolution of the Board of Trustees, but in every case the presence
of a majority shall be necessary to constitute a quorum. In the absence
of any member of the Executive Committee, the members thereof present at
any meeting, whether or not they constitute a quorum, may appoint a member
of the Board of Trustees to act in the place of such absent member.
Section 8. Other Committees. The Board of Trustees, by the
affirmative vote of a majority of the entire Board, may appoint other
committees which shall in each case consist of such number of members of
the Board (not less than two) and shall have and may exercise such powers
as the Board may determine in the resolution appointing them. A majority
of all members of any such committee may determine its action, and fix the
time and place of its meetings, unless the Board of Trustees shall
otherwise provide. The Board of Trustees shall have power at any time to
change the members and powers of any such committee, to fill vacancies,
and to discharge any such committee.
Section 9. Informal Action by and Telephone Meetings of Trustees and
Committees. Any action required or permitted to be taken at any meeting
of the Board of Trustees or any committee thereof may be taken without a
meeting, if a written consent to such action is signed by all members of
the Board, or of such committee, as the case may be. Trustees or members
of a committee of the Board of Trustees may participate in a meeting by
means of a conference telephone or similar communications equipment; such
participation shall, except as otherwise required by the 1940 Act, have
the same effect as presence in person.
Section 10. Compensation of Trustees and Committee Members.
Trustees and members of the Committees appointed by the Board shall be
entitled to receive such compensation from the Fund for their services
as may from time to time be voted by the Board of Trustees.
Section 11. Dividends. Dividends or distributions payable on the
Shares of any Series of the Fund may, but need not be, declared by
specific resolution of the Board as to each dividend or distribution; in
lieu of such specific resolutions, the Board may, by general resolution,
determine the method of computation thereof, the method of determining the
Shareholders of the Series to which they are payable and the methods of
determining whether and to which Shareholders they are to be paid in cash
or in additional Shares.
Section 12. Indemnification. Before an indemnitee shall be
indemnified by the Trust, there shall be a reasonable determination upon
review of the facts that the person to be indemnified was not liable by
reason of disabling conduct as defined in the Declaration of Trust. Such
determination may be made either by vote of a majority of a quorum of the
Board who are neither "interested persons" of the Trust or the investment
adviser nor parties to the proceeding or by independent legal counsel.
The Trust may advance attorneys' fees and expenses incurred in a covered
proceeding to the indemnitee if the indemnitee undertakes to repay the
advance unless it is determined that he is entitled to indemnification
under the Declaration of Trust. Also at least one of the following
conditions must be satisfied: (1) the indemnitee provides security for his
undertaking, or (2) the Trust is insured against losses arising by reason
of lawful advances, or (3) a majority of the disinterested nonparty
Trustees or independent legal counsel in a written opinion shall
determine, based upon review of all of the facts, that there is reason to
believe that the indemnitee will ultimately be found entitled to
indemnification.
ARTICLE III
OFFICERS
Section 1. Executive Officers. The executive officers of the Fund
shall include a Chairman of the Board of Trustees, a President, one or
more Vice-Presidents (the number thereof to be determined by the Board of
Trustees), a Secretary and a Treasurer. The Chairman of the Board and the
President shall be selected from among the Trustees. The Board of
Trustees may also in its discretion appoint Assistant Secretaries,
Assistant Treasurers, and other officers, agents and employees, who shall
have authority and perform such duties as the Board or the Executive
Committee may determine. The Board of Trustees may fill any vacancy which
may occur in any office. Any two offices, except those of Chairman of the
Board and Secretary and President and Secretary, may be held by the same
person, but no officer shall execute, acknowledge or verify any instrument
in more than one capacity, if such instrument is required by law or these
By-Laws to be executed, acknowledged or verified by two or more officers.
Section 2. Term of Office. The term of office of all officers shall
be until their respective successors are chosen and qualify; however, any
officer may be removed from office at any time with or without cause by
the vote of a majority of the entire Board of Trustees.
Section 3. Powers and Duties. The officers of the Fund shall have
such powers and duties as generally pertain to their respective offices,
as well as such powers and duties as may from time to time be conferred
by the Board of Trustees or the Executive Committee. Unless otherwise
ordered by the Board of Trustees, the Chairman of the Board shall be the
Chief Executive Officer.
ARTICLE IV
SHARES
Section 1. Share Certificates. Each Shareholder of any Series of
the Fund may be issued a certificate or certificates for his Shares of
that Series, in such form as the Board of Trustees may from time to time
prescribe, but only if and to the extent and on the conditions described
by the Board. Except as a Shareholder may be given the right by the
Fund's Registration Statement to have a certificate issued to him, all of
the Shares of the Fund or any Series shall be issued without certificates.
Section 2. Transfer of Shares. Shares of any Series shall be
transferable on the books of the Fund by the holder thereof in person or
by his duly authorized attorney or legal representative, upon surrender
and cancellation of certificates, if any, for the same number of Shares
of that Series, duly endorsed or accompanied by proper instruments of
assignment and transfer, with such proof of the authenticity of the
signature as the Fund or its agent may reasonably require; in the case of
shares not represented by certificates, the same or similar requirements
may be imposed by the Board of Trustees.
Section 3. Share Ledgers. The share ledgers of the Fund, containing
the name and address of the Shareholders of each Series of the Fund and
the number of shares of that Series, held by them respectively, shall be
kept at the principal offices of the Fund or, if the Fund employs a
transfer agent, at the offices of the transfer agent of the Fund.
Section 4. Lost, Stolen or Destroyed Certificates. The Board of
Trustees may determine the conditions upon which a new certificate may be
issued in place of a certificate which is alleged to have been lost,
stolen or destroyed; and may, in their discretion, require the owner of
such certificate or his legal representative to give bond, with sufficient
surety to the Fund and the transfer agent, if any, to indemnify it and
such transfer agent against any and all loss or claims which may arise by
reason of the issue of a new certificate in the place of the one so lost,
stolen or destroyed.
ARTICLE V
SEAL
The Board of Trustees shall provide a suitable seal of the Fund, in
such form and bearing such inscriptions as it may determine.
ARTICLE VI
FISCAL YEAR
The fiscal year of the Fund shall be fixed by the Board of Trustees.
ARTICLE VII
AMENDMENT OF BY-LAWS
The By-Laws of the Fund may be altered, amended, added to or repealed
by the Shareholders or by majority vote of the entire Board of Trustees,
but any such alteration, amendment, addition or repeal of the By-Laws by
action of the Board of Trustees may be altered or repealed by the
Shareholders.
ORGZN/230
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made the 22nd day of October, 1990, by and between OPPENHEIMER
STRATEGIC INCOME FUND (hereinafter referred to as the "Fund"), and
OPPENHEIMER MANAGEMENT CORPORATION (hereinafter referred to as "OMC").
WHEREAS, the Fund is 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 Fund'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 Fund; (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 Fund 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 Fund'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 its 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 Fund 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 Fund 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 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 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 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 Fund'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 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, 1991, and
thereafter will continue in effect from year to year, so long as such
continuance shall be approved at least annually by the Fund'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 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 Fund shall be
directed or approved by the vote of a majority of all of the trustees
of the Fund 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 Fund 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 INCOME FUND
Attest: By: /s/ Robert G. Galli
/s/ Mitchell J. Lindauer -------------------
- ------------------------ Robert G. Galli, Vice President
OPPENHEIMER MANAGEMENT CORPORATION
Attest: By: /s/ Robert G. Zack
-------------------
/s/ Mitchell J. Lindauer Robert G. Zack,
- ------------------------ Senior Vice President
advisory\230#2
Exhibit 24(b)(6)
GENERAL DISTRIBUTOR'S AGREEMENT
BETWEEN
OPPENHEIMER STRATEGIC INCOME FUND
AND
OPPENHEIMER FUND MANAGEMENT, INC.
Date: October 13, 1992
OPPENHEIMER FUND MANAGEMENT, INC.
Two World Trade Center, Suite 3400
New York, NY 10048
Dear Sirs:
OPPENHEIMER STRATEGIC INCOME FUND, a Massachusetts business trust
(the "Fund"), is registered as an investment company under the Investment
Company Act of 1940 (the "1940 Act"), and an indefinite number of one or
more classes of its shares of beneficial interest ("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 Fund 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 Fund's 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, 1993. 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 Fund and the Fund's 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 INCOME FUND
By: /s/ James C. Swain
_________________________________
Chairman
Accepted:
OPPENHEIMER FUND MANAGEMENT, INC.
By: /s/ George C. Bowen
_______________________________
Vice President
OFMI\230#3
OPPENHEIMER STRATEGIC INCOME FUND
CUSTODY AGREEMENT
Agreement made as of this 6th day of October, 1992, between
OPPENHEIMER STRATEGIC INCOME FUND, a business trust organized and existing
under the laws of the Commonwealth of Massachusetts, having its principal
office and place of business at 3410 South Galena Street, Denver, Colorado
80231 (hereinafter called the "Fund"), and THE BANK OF NEW YORK, a New
York corporation authorized to do a banking business, having its principal
office and place of business at 48 Wall Street, New York, New York 10286
(hereinafter called the "Custodian").
W I T N E S S E T H
that for and in consideration of the mutual promises hereinafter set
forth, the Fund and the Custodian agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and phrases,
shall have the following meanings:
1. "Agreement" shall mean this Custody Agreement and all Appendices
and Certifications described in the Exhibits delivered in connection
herewith.
2. "Authorized Person" shall mean any person, whether or not such
person is an Officer or employee of the Fund, duly authorized by the Board
of Trustees of the Fund to give Oral Instructions and Written Instructions
on behalf of the Fund and listed in the Certificate annexed hereto as
Appendix A or such other Certificate as may be received by the Custodian
from time to time, provided that each person who is designated in any such
Certificate as an "Officer of OSS" shall be an Authorized Person only for
purposes of Articles XII and XIII hereof.
3. "Book-Entry System" shall mean the Federal Reserve/Treasury book-
entry system for United States and federal agency securities, its
successor or successors and its nominee or nominees.
4. "Call Option" shall mean an exchange traded Option with respect
to Securities other than Index, Futures Contracts, and Futures Contract
Options entitling the holder, upon timely exercise and payment of the
exercise price, as specified therein, to purchase from the writer thereof
the specified underlying instruments, currency, or Securities.
5. "Certificate" shall mean any notice, instruction, or other
instrument in writing, authorized or required by this Agreement to be
given to the Custodian which is actually received (irrespective of
constructive receipt) by the Custodian and signed on behalf of the Fund
by any two Officers. The term Certificate shall also include instructions
by the Fund to the Custodian communicated by a Terminal Link.
6. "Clearing Member" shall mean a registered broker-dealer which
is a clearing member under the rules of O.C.C. and a member of a national
securities exchange qualified to act as a custodian for an investment
company, or any broker-dealer reasonably believed by the Custodian to be
such a clearing member.
7. "Collateral Account" shall mean a segregated account so de-
nominated which is specifically allocated to a Series and pledged to the
Custodian as security for, and in consideration of, the Custodian's
issuance of any Put Option guarantee letter or similar document described
in paragraph 8 of Article V herein.
8. "Covered Call Option" shall mean an exchange traded Option
entitling the holder, upon timely exercise and payment of the exercise
price, as specified therein, to purchase from the writer thereof the
specified underlying instruments, currency, or Securities (excluding
Futures Contracts) which are owned by the writer thereof.
9. "Depository" shall mean The Depository Trust Company ("DTC"),
a clearing agency registered with the Securities and Exchange Commission,
its successor or successors and its nominee or nominees. The term
"Depository" shall further mean and include any other person authorized
to act as a depository under the Investment Company Act of 1940, its
successor or successors and its nominee or nominees, specifically
identified in a certified copy of a resolution of the Fund's Board of
Trustees specifically approving deposits therein by the Custodian,
including, without limitation, a Foreign Depository.
10. "Financial Futures Contract" shall mean the firm commitment to
buy or sell financial instruments on a U.S. commodities exchange or board
of trade at a specified future time at an agreed upon price.
11. "Foreign Subcustodian" shall mean an "Eligible Foreign
Custodian" as defined in Rule 17-5 which is appointed by the Custodian to
perform or coordinate the receipt, custody and delivery of Foreign
Property of the Fund outside the United States in a manner consistent with
the provisions of this Agreement and whose written contract is approved
by the Board of Trustees of the Fund in accordance with Rule 17f-5.
References to the Custodian herein shall, when appropriate, include
reference to its Foreign Subcustodians.
12. "Foreign Depository" shall mean an entity organized under the
laws of a foreign country which operates a system outside the United
States in general use by foreign banks and securities brokers for the
central or transnational handling of securities or equivalent book-entries
which is regulated by a foreign government or agency thereof and which is
an "Eligible Foreign Custodian" as defined in Rule 17f-5.
13. "Foreign Securities" shall mean securities and/or short term
paper as defined in Rule 17f-5 under the Act, whether issued in registered
or bearer form.
14. "Foreign Property" shall mean Foreign Securities and money of
any currency which is held outside of the United States.
15. "Futures Contract" shall mean a Financial Futures Contract
and/or Index Futures Contracts.
16. "Futures Contract Option" shall mean an Option with respect to
a Futures Contract.
17. "Investment Company Act of 1940" shall mean the Investment
Company Act of 1940, as amended, and the rules and regulations thereunder.
18. "Index Futures Contract" shall mean a bilateral agreement
pursuant to which the parties agree to take or make delivery of an amount
of cash equal to a specified dollar amount times the difference between
the value of a particular index at the close of the last business day of
the contract and the price at which the futures contract is originally
struck.
19. "Index Option" shall mean an exchange traded Option entitling
the holder, upon timely exercise, to receive an amount of cash determined
by reference to the difference between the exercise price and the value
of the index on the date of exercise.
20. "Margin Account" shall mean a segregated account in the name of
a broker, dealer, futures commission merchant, or a Clearing Member, or
in the name of the Fund for the benefit of a broker, dealer, futures
commission merchant, or Clearing Member, or otherwise, in accordance with
an agreement between the Fund, the Custodian and a broker, dealer, futures
commission merchant or a Clearing Member (a "Margin Account Agreement"),
separate and distinct from the custody account, in which certain
Securities and/or money of the Fund shall be deposited and withdrawn from
time to time in connection with such transactions as the Fund may from
time to time determine. Securities held in the Book-Entry System or a
Depository shall be deemed to have been deposited in, or withdrawn from,
a Margin Account upon the Custodian's effecting an appropriate entry in
its books and records.
21. "Money Market Security" shall mean all instruments and ob-
ligations commonly known as a money market instruments, where the purchase
and sale of such securities normally requires settlement in federal funds
on the same day as such purchase or sale, including, without limitation,
certain Reverse Repurchase Agreements, debt obligations issued or
guaranteed as to interest and/or principal by the government of the United
States or agencies or instrumentalities thereof, any tax, bond or revenue
anticipation note issued by any state or municipal government or public
authority, commercial paper, certificates of deposit and bankers'
acceptances, repurchase agreements with respect to Securities and bank
time deposits.
22. "Nominee" shall mean, in addition to the name of the registered
nominee of the Custodian, (i) a partnership or other entity of a Foreign
Subcustodian which is used solely for the assets of its customers other
than the Custodian and the Foreign Subcustodian, if any, by which it was
appointed; or (ii) the nominee of a Foreign Depository which is used for
the securities and other assets of its customers, members or participants.
23. "O.C.C." shall mean the Options Clearing Corporation, a clearing
agency registered under Section 17A of the Securities Exchange Act of
1934, its successor or successors, and its nominee or nominees.
24. "Officers" shall mean the President, any Vice President, the
Secretary, the Treasurer, the Controller, any Assistant Secretary, any
Assistant Treasurer, and any other person or persons, whether or not any
such other person is an officer or employee of the Fund, but in each case
only if duly authorized by the Board of Trustees of the Fund to execute
any Certificate, instruction, notice or other instrument on behalf of the
Fund and listed in the Certificate annexed hereto as Appendix B or such
other Certificate as may be received by the Custodian from time to time;
provided that each person who is designated in any such Certificate as
holding the position of "Officer of OSS" shall be an Officer only for
purposes of Articles XII and XIII hereof.
25. "Option" shall mean a Call Option, Covered Call Option, Index
Option and/or a Put Option.
26. "Oral Instructions" shall mean verbal instructions actually
received (irrespective of constructive receipt) by the Custodian from an
Authorized Person or from a person reasonably believed by the Custodian
to be an Authorized Person.
27. "Put Option" shall mean an exchange traded Option with respect
to instruments, currency, or Securities other than Index Options, Futures
Contracts, and Futures Contract Options entitling the holder, upon timely
exercise and tender of the specified underlying instruments, currency, or
Securities, to sell such instruments, currency, or Securities to the
writer thereof for the exercise price.
28. "Repurchase Agreement" shall mean an agreement pursuant to which
the Fund buys Securities and agrees to resell such Securities at a
described or specified date and price.
29. "Reverse Repurchase Agreement" shall mean an agreement pursuant
to which the Fund sells Securities and agrees to repurchase such
Securities at a described or specified date and price.
30. "Rule 17f-5" shall mean Rule 17f-5 (Reg. 270.17f-5) promulgated
by the Securities and Exchange Commission under the Investment Company Act
of 1940, as amended.
31. "Security" shall be deemed to include, without limitation, Money
Market Securities, Call Options, Put Options, Index Options, Index Futures
Contracts, Index Futures Contract Options, Financial Futures Contracts,
Financial Futures Contract Options, Reverse Repurchase Agreements, over
the counter Options on Securities, common stocks and other securities
having characteristics similar to common stocks, preferred stocks, debt
obligations issued by state or municipal governments and by public
authorities, (including, without limitation, general obligation bonds,
revenue bonds, industrial bonds and industrial development bonds), bonds,
debentures, notes, mortgages or other obligations, and any certificates,
receipts, warrants or other instruments representing rights to receive,
purchase, sell or subscribe for the same, or evidencing or representing
any other rights or interest therein, or rights to any property or assets.
32. "Senior Security Account" shall mean an account maintained and
specifically allocated to a Series under the terms of this Agreement as
a segregated account, by recordation or otherwise, within the custody
account in which certain Securities and/or other assets of the Fund
specifically allocated to such Series shall be deposited and withdrawn
from time to time in accordance with Certificates received by the
Custodian in connection with such transactions as the Fund may from time
to time determine.
33. "Series" shall mean the various portfolios, if any, of the Fund
as described from time to time in the current and effective prospectus for
the Fund, except that if the Fund does not have more than one portfolio,
"Series" shall mean the Fund or be ignored where a requirement would be
imposed on the Fund or the Custodian which is unnecessary if there is only
one portfolio.
34. "Shares" shall mean the shares of beneficial interest of the
Fund and its Series.
35. "Terminal Link" shall mean an electronic data transmission link
between the Fund and the Custodian requiring in connection with each use
of the Terminal Link the use of an authorization code provided by the
Custodian and at least two access codes established by the Fund, provided,
that the Fund shall have delivered to the Custodian a Certificate
substantially in the form of Appendix C.
36. "Transfer Agent" shall mean Oppenheimer Shareholder Services,
a division of Oppenheimer Management Corporation, its successors and as-
signs.
37. "Transfer Agent Account" shall mean any account in the name of
the Fund, or the Transfer Agent, as agent for the Fund, maintained with
United Missouri Bank or such other Bank designated by the Fund in a
Certificate.
38. "Written Instructions" shall mean written communications
actually received (irrespective of constructive receipt) by the Custodian
from an Authorized Person or from a person reasonably believed by the
Custodian to be an Authorized Person by telex or any other such system
whereby the receiver of such communications is able to verify by codes or
otherwise with a reasonable degree of certainty the identity of the sender
of such communication.
ARTICLE II
APPOINTMENT OF CUSTODIAN
1. The Fund hereby constitutes and appoints the Custodian as
custodian of the Securities and moneys at any time owned or held by the
Fund during the period of this Agreement.
2. The Custodian hereby accepts appointment as such custodian and
agrees to perform the duties thereof as hereinafter set forth.
ARTICLE III
CUSTODY OF CASH AND SECURITIES
1. Except for monies received and maintained in the Transfer Agent
Account, or as otherwise provided in paragraph 7 of this Article or in
Article VIII or XV, the Fund will deliver or cause to be delivered to the
Custodian all Securities and all moneys owned by it, at any time during
the period of this Agreement, and shall specify with respect to such
Securities and money the Series to which the same are specifically
allocated, and the Custodian shall not be responsible for any Securities
or money not so delivered. Except for assets held at DTC, the Custodian
shall physically segregate, keep and maintain the Securities of the Series
separate and apart from each other Series and from other assets held by
the Custodian. Except as otherwise expressly provided in this Agreement,
the Custodian will not be responsible for any Securities and moneys not
actually received by it, unless the Custodian has been negligent or has
engaged in willful misconduct with respect thereto. The Custodian will
be entitled to reverse any credit of money made on the Fund's behalf where
such credits have been previously made and moneys are not finally col-
lected, unless the Custodian has been negligent or has engaged in willful
misconduct with respect thereto; provided that if such reversal is thirty
(30) days or more after the credit was issued, the Custodian will give
five (5) days' prior notice of such reversal. The Fund shall deliver to
the Custodian a certified resolution of the Board of Trustees of the Fund,
substantially in the form of Exhibit A hereto, approving, authorizing and
instructing the Custodian on a continuous and on-going basis to deposit
in the Book-Entry System all Securities eligible for deposit therein,
regardless of the Series to which the same are specifically allocated and
to utilize the Book-Entry System to the extent possible in connection with
its performance hereunder, including, without limitation, in connection
with settlements of purchases and sales of Securities, loans of Securities
and deliveries and returns of Securities collateral. Prior to a deposit
of Securities specifically allocated to a Series in any Depository, the
Fund shall deliver to the Custodian a certified resolution of the Board
of Trustees of the Fund, substantially in the form of Exhibit B hereto,
approving, authorizing and instructing the Custodian on a continuous and
ongoing basis until instructed to the contrary by a Certificate to deposit
in such Depository all Securities specifically allocated to such Series
eligible for deposit therein, and to utilize such Depository to the extent
possible with respect to such Securities in connection with its per-
formance hereunder, including, without limitation, in connection with
settlements of purchases and sales of Securities, loans of Securities, and
deliveries and returns of Securities collateral. Securities and moneys
deposited in either the Book-Entry System or a Depository will be
represented in accounts which include only assets held by the Custodian
for customers, including, but not limited to, accounts in which the Custo-
dian acts in a fiduciary or representative capacity and will be
specifically allocated on the Custodian's books to the separate account
for the applicable Series. Prior to the Custodian's accepting, utilizing
and acting with respect to Clearing Member confirmations for Options and
transactions in Options for a Series as provided in this Agreement, the
Custodian shall have received a certified resolution of the Fund's Board
of Trustees, substantially in the form of Exhibit C hereto, approving,
authorizing and instructing the Custodian on a continuous and on-going
basis, until instructed to the contrary by a Certificate to accept,
utilize and act in accordance with such confirmations as provided in this
Agreement with respect to such Series. All Securities are to be held or
disposed of by the Custodian for, and subject at all times to the
instructions of, the Fund pursuant to the terms of this Agreement. The
Custodian shall have no power or authority to assign, hypothecate, pledge
or otherwise dispose of any Securities except as provided by the terms of
this Agreement, and shall have the sole power to release and deliver
Securities held pursuant to this Agreement.
2. The Custodian shall establish and maintain separate accounts,
in the name of each Series, and shall credit to the separate account for
each Series all moneys received by it for the account of the Fund with
respect to such Series. Money credited to a separate account for a Series
shall be subject only to drafts, orders, or charges of the Custodian
pursuant to this Agreement and shall be disbursed by the Custodian only:
(a) As hereinafter provided;
(b) Pursuant to Certificates or Resolutions of the Fund's
Board of Trustees certified by an Officer and by the Secretary or
Assistant Secretary of the Fund setting forth the name and address of the
person to whom the payment is to be made, the Series account from which
payment is to be made, the purpose for which payment is to be made, and
declaring such purpose to be a proper corporate purpose; provided,
however, that amounts representing dividends, distributions, or
redemptions proceeds with respect to Shares shall be paid only to the
Transfer Agent Account;
(c) In payment of the fees and in reimbursement of the
expenses and liabilities of the Custodian attributable to such Series and
authorized by this Agreement; or
(d) Pursuant to Certificates to pay interest, taxes,
management fees or operating expenses (including, without limitation
thereto, Board of Trustees' fees and expenses, and fees for legal
accounting and auditing services), which Certificates set forth the name
and address of the person to whom payment is to be made, state the purpose
of such payment and designate the Series for whose account the payment is
to be made.
3. Promptly after the close of business on each day, the Custodian
shall furnish the Fund with confirmations and a summary, on a per Series
basis, of all transfers to or from the account of the Fund for a Series,
either hereunder or with any co-custodian or subcustodian appointed in
accordance with this Agreement during said day. Where Securities are
transferred to the account of the Fund for a Series but held in a
Depository, the Custodian shall upon such transfer also by book-entry or
otherwise identify such Securities as belonging to such Series in a
fungible bulk of Securities registered in the name of the Custodian (or
its nominee) or shown on the Custodian's account on the books of the Book-
Entry System or the Depository. At least monthly and from time to time,
the Custodian shall furnish the Fund with a detailed statement, on a per
Series basis, of the Securities and moneys held under this Agreement for
the Fund.
4. Except as otherwise provided in paragraph 7 of this Article and
in Article VIII, all Securities held by the Custodian hereunder, which are
issued or issuable only in bearer form, except such Securities as are held
in the Book-Entry System, shall be held by the Custodian in that form; all
other Securities held hereunder may be registered in the name of the Fund,
in the name of any duly appointed registered nominee of the Custodian as
the Custodian may from time to time determine, or in the name of the Book-
Entry System or a Depository or their successor or successors, or their
nominee or nominees. The Fund agrees to furnish to the Custodian
appropriate instruments to enable the Custodian to hold or deliver in
proper form for transfer, or to register in the name of its registered
nominee or in the name of the Book-Entry System or a Depository any
Securities which it may hold hereunder and which may from time to time be
registered in the name of the Fund. The Custodian shall hold all such
Securities specifically allocated to a Series which are not held in the
Book-Entry System or in a Depository in a separate account in the name of
such Series physically segregated at all times from those of any other
person or persons.
5. Except as otherwise provided in this Agreement and unless
otherwise instructed to the contrary by a Certificate, the Custodian by
itself, or through the use of the Book-Entry System or a Depository with
respect to Securities held hereunder and therein deposited, shall with
respect to all Securities held for the Fund hereunder in accordance with
preceding paragraph 4:
(a) Promptly collect all income, dividends and dis-
tributions due or payable;
(b) Promptly give notice to the Fund and promptly present
for payment and collect the amount of money or other consideration payable
upon such Securities which are called, but only if either (i) the
Custodian receives a written notice of such call, or (ii) notice of such
call appears in one or more of the publications listed in Appendix D
annexed hereto, which may be amended at any time by the Custodian without
the prior consent of the Fund, provided the Custodian gives prior notice
of such amendment to the Fund;
(c) Promptly present for payment and collect for the
Fund's account the amount payable upon all Securities which mature;
(d) Promptly surrender Securities in temporary form in
exchange for definitive Securities;
(e) Promptly execute, as custodian, any necessary de-
clarations or certificates of ownership under the Federal Income Tax Laws
or the laws or regulations of any other taxing authority now or hereafter
in effect;
(f) Hold directly, or through the Book-Entry System or the
Depository with respect to Securities therein deposited, for the account
of a Series, all rights and similar securities issued with respect to any
Securities held by the Custodian for such Series hereunder; and
(g) Promptly deliver to the Fund all notices, proxies,
proxy soliciting materials, consents and other written information
(including, without limitation, notices of tender offers and exchange
offers, pendency of calls, maturities of Securities and expiration of
rights) relating to Securities held pursuant to this Agreement which are
actually received by the Custodian, such proxies and other similar
materials to be executed by the registered holder (if Securities are
registered otherwise than in the name of the Fund), but without indicating
the manner in which proxies or consents are to be voted.
6. Upon receipt of a Certificate and not otherwise, the Custodian,
directly or through the use of the Book-Entry System or the Depository,
shall:
(a) Promptly execute and deliver to such persons as may
be designated in such Certificate proxies, consents, authorizations, and
any other instruments whereby the authority of the Fund as owner of any
Securities held hereunder for the Series specified in such Certificate may
be exercised;
(b) Promptly deliver any Securities held hereunder for the
Series specified in such Certificate in exchange for other Securities or
cash issued or paid in connection with the liquidation, reorganization,
refinancing, merger, consolidation or recapitalization of any corporation,
or the exercise of any right, warrant or conversion privilege and receive
and hold hereunder specifically allocated to such Series any cash or other
Securities received in exchange;
(c) Promptly deliver any Securities held hereunder for the
Series specified in such Certificate to any protective committee,
reorganization committee or other person in connection with the
reorganization, refinancing, merger, consolidation, recapitalization or
sale of assets of any corporation, and receive and hold hereunder
specifically allocated to such Series in exchange therefor such
certificates of deposit, interim receipts or other instruments or
documents as may be issued to it to evidence such delivery or such
Securities as may be issued upon such delivery; and
(d) Promptly present for payment and collect the amount
payable upon Securities which may be called as specified in the
Certificate.
7. Notwithstanding any provision elsewhere contained herein, the
Custodian shall not be required to obtain possession of any instrument or
certificate representing any Futures Contract, any Option, or any Futures
Contract Option until after it shall have determined, or shall have
received a Certificate from the Fund stating, that any such instruments
or certificates are available. The Fund shall deliver to the Custodian
such a Certificate no later than the business day preceding the
availability of any such instrument or certificate. Prior to such
availability, the Custodian shall comply with Section 17(f) of the
Investment Company Act of 1940 in connection with the purchase, sale,
settlement, closing out or writing of Futures Contracts, Options, or
Futures Contract Options by making payments or deliveries specified in
Certificates in connection with any such purchase, sale, writing,
settlement or closing out upon its receipt from a broker, dealer, or
futures commission merchant of a statement or confirmation reasonably
believed by the Custodian to be in the form customarily used by brokers,
dealers, or future commission merchants with respect to such Futures
Contracts, Options, or Futures Contract Options, as the case may be,
confirming that such Security is held by such broker, dealer or futures
commission merchant, in book-entry form or otherwise in the name the
Custodian (or any nominee of the Custodian) as custodian for the Fund;
provided, however, that notwithstanding the foregoing, payments to or
deliveries from the Margin Account and payments with respect to Securities
to which a Margin Account relates, shall be made in accordance with the
terms and conditions of the Margin Account Agreement. Whenever any such
instruments or certificates are available, the Custodian shall,
notwithstanding any provision in this Agreement to the contrary, make
payment for any Futures Contract, Option, or Futures Contract Option for
which such instruments or such certificates are available only against the
delivery to the Custodian of such instrument or such certificate, and
deliver any Futures Contract, Option or Futures Contract Option for which
such instruments or such certificates are available only against receipt
by the Custodian of payment therefor. Any such instrument or certificate
delivered to the Custodian shall be held by the Custodian hereunder in
accordance with, and subject to, the provisions of this Agreement.
ARTICLE IV
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
OTHER THAN OPTIONS, FUTURES CONTRACTS,
FUTURES CONTRACT OPTIONS, REPURCHASE AGREEMENTS,
REVERSE REPURCHASE AGREEMENTS AND SHORT SALES
1. Promptly after each execution of a purchase of Securities by the
Fund, other than a purchase of an Option, a Futures Contract, a Futures
Contract Option, a Repurchase Agreement, a Reverse Repurchase Agreement
or a Short Sale, the Fund shall deliver to the Custodian (i) with respect
to each purchase of Securities which are not Money Market Securities, a
Certificate, and (ii) with respect to each purchase of Money Market
Securities, a Certificate, oral Instructions or Written Instructions,
specifying with respect to each such purchase: (a) the Series to which
such Securities are to be specifically allocated; (b) the name of the
issuer and the title of the Securities; (c) the number of shares or the
principal amount purchased and accrued interest, if any; (d) the date of
purchase and settlement; (e) the purchase price per unit; (f) the total
amount payable upon such purchase; (g) the name of the person from whom
or the broker through whom the purchase was made, and the name of the
clearing broker, if any; and (h) the name of the broker or other party to
whom payment is to be made. Custodian shall, upon receipt of such
Securities purchased by or for the Fund, pay to the broker specified in
the Certificate out of the moneys held for the account of such Series the
total amount payable upon such purchase, provided that the same conforms
to the total amount payable as set forth in such Certificate, oral
Instructions or Written Instructions.
2. Promptly after each execution of a sale of Securities by the
Fund, other than a sale of any Option, Futures Contract, Futures Contract
Option, Repurchase Agreement, Reverse Repurchase Agreement or Short Sale,
the Fund shall deliver such to the Custodian (i) with respect to each sale
of Securities which are not Money Market Securities, a Certificate, and
(ii) with respect to each sale of Money Market Securities, a Certificate,
Oral Instructions or Written Instructions, specifying with respect to each
such sale: (a) the Series to which such Securities were specifically
allocated; (b) the name of the issuer and the title of the Security; (c)
the number of shares or principal amount sold, and accrued interest, if
any; (d) the date of sale and settlement; (e) the sale price per unit; (f)
the total amount payable to the Fund upon such sale; (g) the name of the
broker through whom or the person to whom the sale was made, and the name
of the clearing broker, if any; and (h) the name of the broker to whom the
Securities are to be delivered. On the settlement date, the Custodian
shall deliver the Securities specifically allocated to such Series to the
broker in accordance with generally accepted street practices and as
specified in the Certificate upon receipt of the total amount payable to
the Fund upon such sale, provided that the same conforms to the total
amount payable as set forth in such Certificate, oral Instructions or
Written Instructions.
ARTICLE V
OPTIONS
1. Promptly after each execution of a purchase of any Option by the
Fund other than a closing purchase transaction, the Fund shall deliver to
the Custodian a Certificate specifying with respect to each Option
purchased: (a) the Series to which such Option is specifically allocated;
(b) the type of Option (put or call); (c) the instrument, currency, or
Security underlying such Option and the number of Options, or the name of
the in the case of an Index Option, the index to which such Option relates
and the number of Index Options purchased; (d) the expiration date; (e)
the exercise price; (f) the dates of purchase and settlement; (g) the
total amount payable by the Fund in connection with such purchase; and (h)
the name of the Clearing Member through whom such Option was purchased.
The Custodian shall pay, upon receipt of a Clearing Member's written
statement confirming the purchase of such Option held by such Clearing
Member for the account of the Custodian (or any duly appointed and
registered nominee of the Custodian) as Custodian for the Fund, out of
moneys held for the account of the Series to which such Option is to be
specifically allocated, the total amount payable upon such purchase to the
Clearing Member through whom the purchase was made, provided that the same
conforms to the amount payable as set forth in such Certificate.
2. Promptly after the execution of a sale of any Option purchased
by the Fund, other than a closing sale transaction, pursuant to paragraph
1 hereof, the Fund shall deliver to the Custodian a Certificate specifying
with respect to each such sale: (a) the Series to which such Option was
specifically allocated; (b) the type of Option (put or call); (c) the
instrument, currency, or Security underlying such Option and the number
of Options, or the name of the issuer and the title and number of shares
subject to such Option or, in the case of a Index Option, the index to
which such Option relates and the number of Index Options sold; (d) the
date of sale; (e) the sale price; (f) the date of settlement; (g) the
total amount payable to the Fund upon such sale; and (h) the name of the
Clearing Member through whom the sale was made. The Custodian shall
consent to the delivery of the Option sold by the Clearing Member which
previously supplied the confirmation described in preceding paragraph of
this Article with respect to such Option upon receipt by the Custodian of
the total amount payable to the Fund, provided that the same conforms to
the total amount payable as set forth in such Certificate.
3. Promptly after the exercise by the Fund of any Call Option
purchased by the Fund pursuant to paragraph 1 hereof, the Fund shall
deliver to the Custodian a Certificate specifying with respect to such
Call Option: (a) the Series to which such Call Option was specifically
allocated; (b) the name of the issuer and the title and number of shares
subject to the Call Option; (c) the expiration date; (d) the date of
exercise and settlement; (e) the exercise price per share; (f) the total
amount to be paid by the Fund upon such exercise; and (g) the name of the
Clearing Member through whom such Call Option was exercised. The Custo-
dian shall, upon receipt of the Securities underlying the Call Option
which was exercised, pay out of the moneys held for the account of the
Series to which such Call Option was specifically allocated the total
amount payable to the Clearing Member through whom the Call Option was ex-
ercised, provided that the same conforms to the total amount payable as
set forth in such Certificate.
4. Promptly after the exercise by the Fund of any Put Option
purchased by the Fund pursuant to paragraph 1 hereof, the Fund shall
deliver to the Custodian a Certificate specifying with respect to such Put
Option: (a) the Series to which such Put Option was specifically
allocated; (b) the name of the issuer and the title and number of shares
subject to the Put Option; (c) the expiration date; (d) the date of
exercise and settlement; (e) the exercise price per share; (f) the total
amount to be paid to the Fund upon such exercise; and (g) the name of the
Clearing Member through whom such Put Option was exercised. The Custodian
shall, upon receipt of the amount payable upon the exercise of the Put
Option, deliver or direct a Depository to deliver the Securities
specifically allocated to such Series, provided the same conforms to the
amount payable to the Fund as set forth in such Certificate.
5. Promptly after the exercise by the Fund of any Index Option
purchased by the Fund pursuant to paragraph 1 hereof, the Fund shall
deliver to the Custodian a Certificate specifying with respect to such
Index Option: (a) the Series to which such Index Option was specifically
allocated; (b) the type of Index Option (put or call) (c) the number of
Options being exercised; (d) the index to which such Option relates; (e)
the expiration date; (f) the exercise price; (g) the total amount to be
received by the Fund in connection with such exercise; and (h) the
Clearing Member from whom such payment is to be received.
6. Whenever the Fund writes a Covered Call Option, the Fund shall
promptly deliver to the Custodian a Certificate specifying with respect
to such Covered Call Option: (a) the Series for which such Covered Call
Option was written; (b) the name of the issuer and the title and number
of shares for which the Covered Call Option was written and which underlie
the same; (c) the expiration date; (d) the exercise price; (e) the premium
to be received by the Fund; (f) the date such Covered Call Option was
written; and (g) the name of the Clearing Member through whom the premium
is to be received. The Custodian shall deliver or cause to be delivered,
upon receipt of the premium specified in the Certificate with respect to
such Covered Call Option, such receipts as are required in accordance with
the customs prevailing among Clearing Members dealing in Covered Call
Options and shall impose, or direct a Depository to impose, upon the
underlying Securities specified in the Certificate specifically allocated
to such Series such restrictions as may be required by such receipts.
Notwithstanding the foregoing, the Custodian has the right, upon prior
written notification to the Fund, at any time to refuse to issue any
receipts for Securities in the possession of the Custodian and not
deposited with a Depository underlying a Covered Call Option.
7. Whenever a Covered Call Option written by the Fund and described
in the preceding paragraph of this Article is exercised, the Fund shall
promptly deliver to the Custodian a Certificate instructing the Custodian
to deliver, or to direct the Depository to deliver, the Securities subject
to such Covered Call Option and specifying: (a) the Series for which such
Covered Call Option was written; (b) the name of the issuer and the title
and number of shares subject to the Covered Call Option; (c) the Clearing
Member to whom the underlying Securities are to be delivered; and (d) the
total amount payable to the Fund upon such delivery. Upon the return
and/or cancellation of any receipts delivered pursuant to paragraph 6 of
this Article, the Custodian shall deliver, or direct a Depository to
deliver, the underlying Securities as specified in the Certificate upon
payment of the amount to be received as set forth in such Certificate.
8. Whenever the Fund writes a Put Option, the Fund shall promptly
deliver to the Custodian a Certificate specifying with respect to such Put
Option: (a) the Series for which such Put Option was written; (b) the
name of the issuer and the title and number of shares for which the Put
Option is written and which underlie the same; (c) the expiration date;
(d) the exercise price; (e) the premium to be received by the Fund; (f)
the date such Put Option is written; (g) the name of the Clearing Member
through whom the premium is to be received and to whom a Put Option
guarantee letter is to be delivered; (h) the amount of cash, and/or the
amount and kind of Securities, if any, specifically allocated to such
Series to be deposited in the Senior Security Account for such Series; and
(i) the amount of cash and/or the amount and kind of Securities
specifically allocated to such Series to be deposited into the Collateral
Account for such Series. The Custodian shall, after making the deposits
into the Collateral Account specified in the Certificate, issue a Put
Option guarantee letter substantially in the form utilized by the
Custodian on the date hereof, and deliver the same to the Clearing Member
specified in the Certificate upon receipt of the premium specified in said
Certificate. Notwithstanding the foregoing, the Custodian shall be under
no obligation to issue any Put Option guarantee letter or similar document
if it is unable to make any of the representations contained therein.
9. Whenever a Put Option written by the Fund and described in the
preceding paragraph is exercised, the Fund shall promptly deliver to the
Custodian a Certificate specifying: (a) the Series to which such Put
Option was written; (b) the name of the issuer and title and number of
shares subject to the Put Option; (c) the Clearing Member from whom the
underlying Securities are to be received; (d) the total amount payable by
the Fund upon such delivery; (e) the amount of cash and/or the amount and
kind of Securities specifically allocated to such Series to be withdrawn
from the Collateral Account for such Series and (f) the amount of cash
and/or the amount and kind of Securities, specifically allocated to such
series, if any, to be withdrawn from the Senior Security Account. Upon
the return and/or cancellation of any Put Option guarantee letter or
similar document issued by the Custodian in connection with such Put
Option, the Custodian shall pay out of the moneys held for the account of
the series to which such Put Option was specifically allocated the total
amount payable to the Clearing Member specified in the Certificate as set
forth in such Certificate, upon delivery of such Securities, and shall
make the withdrawals specified in such Certificate.
10. Whenever the Fund writes an Index Option, the Fund shall
promptly deliver to the Custodian a Certificate specifying with respect
to such Index Option: (a) the Series for which such Index Option was
written; (b) whether such Index Option is a put or a call; (c) the number
of Options written; (d) the index to which such Option relates; (e) the
expiration date; (f) the exercise price; (g) the Clearing Member through
whom such Option was written; (h) the premium to be received by the Fund;
(i) the amount of cash and/or the amount and kind of Securities, if any,
specifically allocated to such Series to be deposited in the Senior
Security Account for such Series; (j) the amount of cash and/or the amount
and kind of Securities, if any, specifically allocated to such Series to
be deposited in the Collateral Account for such Series; and (k) the amount
of cash and/or the amount and kind of Securities, if any, specifically
allocated to such Series to be deposited in a Margin Account, and the name
in which such account is to be or has been established. The Custodian
shall, upon receipt of the premium specified in the Certificate, make the
deposits, if any, into the Senior Security Account specified in the
Certificate, and either (1) deliver such receipts, if any, which the
Custodian has specifically agreed to issue, which are in accordance with
the customs prevailing among Clearing Members in Index Options and make
the deposits into the Collateral Account specified in the Certificate, or
(2) make the deposits into the Margin Account specified in the Certi-
ficate.
11. Whenever an Index Option written by the Fund and described in
the preceding paragraph of this Article is exercised, the Fund shall
promptly deliver to the Custodian a Certificate specifying with respect
to such Index Option: (a) the Series for which such Index Option was
written; (b) such information as may be necessary to identify the Index
Option being exercised; (c) the Clearing Member through whom such Index
Option is being exercised; (d) the total amount payable upon such
exercise, and whether such amount is to be paid by or to the Fund; (e) the
amount of cash and/or amount and kind of Securities, if any, to be with-
drawn from the Margin Account; and (f) the amount of cash and/or amount
and kind of Securities, if any, to be withdrawn from the Senior Security
Account for such Series; and the amount of cash and/or the amount and kind
of Securities, if any, to be withdrawn from the Collateral Account for
such Series. Upon the return and/or cancellation of the receipt, if any,
delivered pursuant to the preceding paragraph of this Article, the
Custodian shall pay out of the moneys held for the account of the Series
to which such Stock Index Option was specifically allocated to the Clear-
ing Member specified in the Certificate the total amount payable, if any,
as specified therein.
12. Promptly after the execution of a purchase or sale by the Fund
of any Option identical to a previously written Option described in
paragraphs, 6, 8 or 10 of this Article in a transaction expressly
designated as a "Closing Purchase Transaction" or a "Closing Sale
Transaction", the Fund shall promptly deliver to the Custodian a
Certificate specifying with respect to the Option being purchased: (a)
that the transaction is a Closing Purchase Transaction or a Closing Sale
Transaction; (b) the Series for which the Option was written; (c) the
instrument, currency, or Security subject to the Option, or, in the case
of an Index Option, the index to which such Option relates and the number
of Options held; (d) the exercise price; (e) the premium to be paid by or
the amount to be paid to the Fund; (f) the expiration date; (g) the type
of Option (put or call); (h) the date of such purchase or sale; (i) the
name of the Clearing Member to whom the premium is to be paid or from whom
the amount is to be received; and (j) the amount of cash and/or the amount
and kind of Securities, if any, to be withdrawn from the Collateral
Account, a specified Margin Account, or the Senior Security Account for
such Series. Upon the Custodian's payment of the premium or receipt of
the amount, as the case may be, specified in the Certificate and the
return and/or cancellation of any receipt issued pursuant to paragraphs
6, 8 or 10 of this Article with respect to the Option being liquidated
through the Closing Purchase Transaction or the Closing Sale Transaction,
the Custodian shall remove, or direct a Depository to remove, the pre-
viously imposed restrictions on the Securities underlying the Call Option.
13. Upon the expiration, exercise or consummation of a Closing
Purchase Transaction with respect to any Option purchased or written by
the Fund and described in this Article, the Custodian shall delete such
Option from the statements delivered to the Fund pursuant to paragraph 3
Article III herein, and upon the return and/or cancellation of any
receipts issued by the Custodian, shall make such withdrawals from the
Collateral Account, and the Margin Account and/or the Senior Security
Account as may be specified in a Certificate received in connection with
such expiration, exercise, or consummation.
14. Securities acquired by the Fund through the exercise of an
Option described in this Article shall be subject to Article IV hereof.
ARTICLE VI
FUTURES CONTRACTS
1. Whenever the Fund shall enter into a Futures Contract, the Fund
shall deliver to the Custodian a Certificate specifying with respect to
such Futures Contract, (or with respect to any number of identical Futures
Contract (s)): (a) the Series for which the Futures Contract is being
entered; (b) the category of Futures Contract (the name of the underlying
index or financial instrument); (c) the number of identical Futures
Contracts entered into; (d) the delivery or settlement date of the Futures
Contract(s); (e) the date the Futures Contract(s) was (were) entered into
and the maturity date; (f) whether the Fund is buying (going long) or
selling (going short) such Futures Contract(s); (g) the amount of cash
and/or the amount and kind of Securities, if any, to be deposited in the
Senior Security Account for such Series; (h) the name of the broker,
dealer, or futures commission merchant through whom the Futures Contract
was entered into; and (i) the amount of fee or commission, if any, to be
paid and the name of the broker, dealer, or futures commission merchant
to whom such amount is to be paid. The Custodian shall make the deposits,
if any, to the Margin Account in accordance with the terms and conditions
of the Margin Account Agreement. The Custodian shall make payment out of
the moneys specifically allocated to such Series of the fee or commission,
if any, specified in the Certificate and deposit in the Senior Security
Account for such Series the amount of cash and/or the amount and kind of
Securities specified in said Certificate.
2. (a) Any variation margin payment or similar payment
required to be made by the Fund to a broker, dealer, or futures commission
merchant with respect to an outstanding Futures Contract shall be made by
the Custodian in accordance with the terms and conditions of the Margin
Account Agreement.
(b) Any variation margin payment or similar payment from
a broker, dealer, or futures commission merchant to the Fund with respect
to an outstanding Futures Contract shall be received and dealt with by the
Custodian in accordance with the terms and conditions of the Margin
Account Agreement.
3. Whenever a Futures Contract held by the Custodian hereunder is
retained by the Fund until delivery or settlement is made on such Futures
Contract, the Fund shall deliver to the Custodian prior to the delivery
or settlement date a Certificate specifying: (a) the Futures Contract and
the Series to which the same relates; (b) with respect to an Index Futures
Contract, the total cash settlement amount to be paid or received, and
with respect to a Financial Futures Contract, the Securities and/or amount
of cash to be delivered or received; (c) the broker, dealer, or futures
commission merchant to or from whom payment or delivery is to be made or
received; and (d) the amount of cash and/or Securities to be withdrawn
from the Senior Security Account for such Series. The Custodian shall
make the payment or delivery specified in the Certificate, and delete such
Futures Contract from the statements delivered to the Fund pursuant to
paragraph 3 of Article III herein.
4. Whenever the Fund shall enter into a Futures Contract to offset
a Futures Contract held by the Custodian hereunder, the Fund shall deliver
to the Custodian a Certificate specifying: (a) the items of information
required in a Certificate described in paragraph 1 of this Article, and
(b) the Futures Contract being offset. The Custodian shall make payment
out of the money specifically allocated to such Series of the fee or
commission, if any, specified in the Certificate and delete the Futures
Contract being offset from the statements delivered to the Fund pursuant
to paragraph 3 of Article III herein, and make such withdrawals from the
Senior Security Account for such Series as may be specified in the Cer-
tificate. The withdrawals, if any, to be made from the Margin Account
shall be made by the Custodian in accordance with the terms and conditions
of the Margin Account Agreement.
ARTICLE VII
FUTURES CONTRACT OPTIONS
1. Promptly after the execution of a purchase of any Futures
Contract Option by the Fund, the Fund shall deliver to the Custodian a
Certificate specifying with respect to such Futures Contract Option: (a)
the Series to which such Option is specifically allocated; (b) the type
of Futures Contract Option (put or call); (c) the type of Futures Contract
and such other information as may be necessary to identify the Futures
Contract underlying the Futures Contract Option purchased; (d) the
expiration date; (e) the exercise price; (f) the dates of purchase and
settlement; (g) the amount of premium to be paid by the Fund upon such
purchase; (h) the name of the broker or futures commission merchant
through whom such Option was purchased; and (i) the name of the broker,
or futures commission merchant, to whom payment is to be made. The Cus-
todian shall pay out of the moneys specifically allocated to such Series
the total amount to be paid upon such purchase to the broker or futures
commissions merchant through whom the purchase was made, provided that the
same conforms to the amount set forth in such Certificate.
2. Promptly after the execution of a sale of any Futures Contract
Option purchased by the Fund pursuant to paragraph 1 hereof, the Fund
shall deliver to the Custodian a Certificate specifying with respect to
each such sale: (a) Series to which such Futures Contract Option was
specifically allocated; (b) the type of Future Contract Option (put or
call); (c) the type of Futures Contract and such other information as may
be necessary to identify the Futures Contract underlying the Futures
Contract Option; (d) the date of sale; (e) the sale price; (f) the date
of settlement; (g) the total amount payable to the Fund upon such sale;
and (h) the name of the broker of futures commission merchant through whom
the sale was made. The Custodian shall consent to the cancellation of the
Futures Contract Option being closed against payment to the Custodian of
the total amount payable to the Fund, provided the same conforms to the
total amount payable as set forth in such Certificate.
3. Whenever a Futures Contract Option purchased by the Fund
pursuant to paragraph 1 is exercised by the Fund, the Fund shall promptly
deliver to the Custodian a Certificate specifying: (a) the Series to
which such Futures Contract Option was specifically allocated; (b) the
particular Futures Contract Option (put or call) being exercised; (c) the
type of Futures Contract underlying the Futures Contract Option; (d) the
date of exercise; (e) the name of the broker or futures commission
merchant through whom the Futures Contract Option is exercised; (f) the
net total amount, if any, payable by the Fund; (g) the amount, if any, to
be received by the Fund; and (h) the amount of cash and/or the amount and
kind of Securities to be deposited in the Senior Security Account for such
Series. The Custodian shall make, out of the moneys and Securities
specifically allocated to such Series, the payments of money, if any, and
the deposits of Securities, if any, into the Senior Security Account as
specified in the Certificate. The deposits, if any, to be made to the
Margin Account shall be made by the Custodian in accordance with the terms
and conditions of the Margin Account Agreement.
4. Whenever the Fund writes a Futures Contract Option, the Fund
shall promptly deliver to the Custodian a Certificate specifying with
respect to such Futures Contract Option: (a) the Series for which such
Futures Contract Option was written; (b) the type of Futures Contract
Option (put or call); (c) the type of Futures Contract and such other
information as may be necessary to identify the Futures Contract
underlying the Futures Contract Option; (d) the expiration date; (e) the
exercise price; (f) the premium to be received by the Fund; (g) the name
of the broker or futures commission merchant through whom the premium is
to be received; and (h) the amount of cash and/or the amount and kind of
Securities, if any, to be deposited in the Senior Security Account for
such Series. The Custodian shall, upon receipt of the premium specified
in the Certificate, make out of the moneys and Securities specifically
allocated to such Series the deposits into the Senior Security Account,
if any, as specified in the Certificate. The deposits, if any, to be made
to the Margin Account shall be made by the Custodian in accordance with
the terms and conditions of the Margin Account Agreement.
5. Whenever a Futures Contract Option written by the Fund which is
a call is exercised, the Fund shall promptly deliver to the Custodian a
Certificate specifying: (a) the Series to which such Futures Contract
Option was specifically allocated; (b) the particular Futures Contract
Option exercised; (c) the type of Futures Contract underlying the Futures
Contract Option; (d) the name of the broker or futures commission merchant
through whom such Futures Contract Option was exercised; (e) the net total
amount, if any, payable to the Fund upon such exercise; (f) the net total
amount, if any, payable by the Fund upon such exercise; and (g) the amount
of cash and/or the amount and kind of Securities to be deposited in the
Senior Security Account for such Series. The Custodian shall, upon its
receipt of the net total amount payable to the Fund, if any, specified in
such Certificate make the payments, if any, and the deposits, if any, into
the Senior Security Account as specified in the Certificate. The de-
posits, if any, to be made to the Margin Account shall be made by the
Custodian in accordance with the terms and conditions of the Margin
Account Agreement.
6. Whenever a Futures Contract Option which is written by the Fund
and which is a put is exercised, the Fund shall promptly deliver to the
Custodian a Certificate specifying: (a) the Series to which such Option
was specifically allocated; (b) the particular Futures Contract Option
exercised; (c) the type of Futures Contract underlying such Futures
Contract Option; (d) the name of the broker or futures commission merchant
through whom such Futures Contract Option is exercised; (e) the net total
amount, if any, payable to the Fund upon such exercise; (f) the net total
amount, if any, payable by the Fund upon such exercise; and (g) the amount
and kind of Securities and/or cash to be withdrawn from or deposited in,
the Senior Security Account for such Series, if any. The Custodian shall,
upon its receipt of the net total amount payable to the Fund, if any,
specified in the Certificate, make out of the moneys and Securities
specifically allocated to such Series, the payments, if any, and the
deposits, if any, into the Senior Security Account as specified in the
Certificate. The deposits to and/or withdrawals from the Margin Account,
if any, shall be made by the Custodian in accordance with the terms and
conditions of the Margin Account Agreement.
7. Promptly after the execution by the Fund of a purchase of any
Futures Contract Option identical to a previously written Futures Contract
Option described in this Article in order to liquidate its position as a
writer of such Futures Contract Option, the Fund shall deliver to the
Custodian a Certificate specifying with respect to the Futures Contract
Option being purchased: (a) the Series to which such Option is
specifically allocated; (b) that the transaction is a closing transaction;
(c) the type of Future Contract and such other information as may be
necessary to identify the Futures Contract underlying the Futures Option
Contract; (d) the exercise price; (e) the premium to be paid by the Fund;
(f) the expiration date; (g) the name of the broker or futures commission
merchant to whom the premium is to be paid; and (h) the amount of cash
and/or the amount and kind of Securities, if any, to be withdrawn from the
Senior Security Account for such Series. The Custodian shall effect the
withdrawals from the Senior Security Account specified in the Certificate.
The withdrawals, if any, to be made from the Margin Account shall be made
by the Custodian in accordance with the terms and conditions of the Margin
Account Agreement.
8. Upon the expiration, exercise, or consummation of a closing
transaction with respect to, any Futures Contract Option written or
purchased by the Fund and described in this Article, the Custodian shall
(a) delete such Futures Contract Option from the statements delivered to
the Fund pursuant to paragraph 3 of Article III herein and (b) make such
withdrawals from and/or in the case of an exercise such deposits into the
Senior Security Account as may be specified in a Certificate. The
deposits to and/or withdrawals from the Margin Account, if any, shall be
made by the Custodian in accordance with the terms and conditions of the
Margin Account Agreement.
9. Futures Contracts acquired by the Fund through the exercise of
a Futures Contract Option described in this Article shall be subject to
Article VI hereof.
ARTICLE VIII
SHORT SALES
1. Promptly after the execution of any short sales of Securities
by any Series of the Fund, the Fund shall deliver to the Custodian a
Certificate specifying: (a) the Series for which such short sale was
made; (b) the name of the issuer-and the title of the Security; (c) the
number of shares or principal amount sold, and accrued interest or
dividends, if any; (d) the dates of the sale and settlement; (e) the sale
price per unit; (f) the total amount credited to the Fund upon such sale,
if any, (g) the amount of cash and/or the amount and kind of Securities,
if any, which are to be deposited in a Margin Account and the name in
which such Margin Account has been or is to be established; (h) the amount
of cash and/or the amount and kind of Securities, if any, to be deposited
in a Senior Security Account, and (i) the name of the broker through whom
such short sale was made. The Custodian shall upon its receipt of a
statement from such broker confirming such sale and that the total amount
credited to the Fund upon such sale, if any, as specified in the
Certificate is held by such broker for the account of the Custodian (or
any nominee of the Custodian) as custodian of the Fund, issue a receipt
or make the deposits into the Margin Account and the Senior Security
Account specified in the Certificate.
2. Promptly after the execution of a purchase to close-out any
short sale of Securities, the Fund shall promptly deliver to the Custodian
a Certificate specifying with respect to each such closing out: (a) the
Series for which such transaction is being made; (b) the name of the
issuer and the title of the Security; (c) the number of shares or the
principal amount, and accrued interest or dividends, if any, required to
effect such closing-out to be delivered to the broker; (d) the dates of
closing-out and settlement; (e) the purchase price per unit; (f) the net
total amount payable to the Fund upon such closing-out; (g) the net total
amount payable to the broker upon such closing-out; (h) the amount of cash
and the amount and kind of Securities to be withdrawn, if any, from the
Margin Account; (i) the amount of cash and/or the amount and kind of
Securities, if any, to be withdrawn from the Senior Security Account; and
(j) the name of the broker through whom the Fund is effecting such
closing-out. The Custodian shall, upon receipt of the net total amount
payable to the Fund upon such closing-out, and the return and/or
cancellation of the receipts, if any, issued by the Custodian with respect
to the short sale being closed-out, pay out of the moneys held for the
account of the Fund to the broker the net total amount payable to the
broker, and make the withdrawals from the Margin Account and the Senior
Security Account, as the same are specified in the Certificate.
ARTICLE IX
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
1. Promptly after the Fund enters a Repurchase Agreement or a
Reverse Repurchase Agreement with respect to Securities and money held by
the Custodian hereunder, the Fund shall deliver to the Custodian a Certi-
ficate, or in the event such Repurchase Agreement or Reverse Repurchase
Agreement is a Money Market Security, a Certificate, Oral Instructions,
or Written Instructions specifying: (a) the Series for which the
Repurchase Agreement or Reverse Repurchase Agreement is entered; (b) the
total amount payable to or by the Fund in connection with such Repurchase
Agreement or Reverse Repurchase Agreement and specifically allocated to
such Series; (c) the broker, dealer, or financial institution with whom
the Repurchase Agreement or Reverse Repurchase Agreement is entered; (d)
the amount and kind of Securities to be delivered or received by the Fund
to or from such broker, dealer, or financial institution; (e) the date of
such Repurchase Agreement or Reverse Repurchase Agreement; and (f) the
amount of cash and/or the amount and kind of Securities, if any, specifi-
cally allocated to such Series to be deposited in a Senior Security Ac-
count for such Series in connection with such Reverse Repurchase
Agreement. The Custodian shall, upon receipt of the total amount payable
to or by the Fund specified in the Certificate, Oral Instructions, or
Written Instructions make or accept the delivery to or from the broker,
dealer, or financial institution and the deposits, if any, to the Senior
Security Account, specified in such Certificate, Oral Instructions, or
Written Instructions.
2. Upon the termination of a Repurchase Agreement or a Reverse
Repurchase Agreement described in preceding paragraph 1 of this Article,
the Fund shall promptly deliver a Certificate or, in the event such
Repurchase Agreement or Reverse Repurchase Agreement is a Money Market
Security, a Certificate, Oral Instructions, or Written Instructions to the
Custodian specifying: (a) the Repurchase Agreement or Reverse Repurchase
Agreement being terminated and the Series for which same was entered; (b)
the total amount payable to or by the Fund in connection with such
termination; (c) the amount and kind of Securities to be received or
delivered by the Fund and specifically allocated to such Series in
connection with such termination; (d) the date of termination; (e) the
name of the broker, dealer, or financial institution with whom the Repur-
chase Agreement or Reverse Repurchase Agreement is to be terminated; and
(f) the amount of cash and/or the amount and kind of Securities, if any,
to be withdrawn from the Senior Securities Account for such Series. The
Custodian shall, upon receipt or delivery of the amount and kind of
Securities or cash to be received or delivered by the Fund specified in
the Certificate, Oral Instructions, or Written Instructions, make or
receive the payment to or from the broker, dealer, or financial
institution and make the withdrawals, if any, from the Senior Security
Account, specified in such Certificate, Oral Instructions, or Written
Instructions.
3. The Certificates, Oral Instructions, or Written Instructions
described in paragraphs 1 and 2 of this Article may with respect to any
particular Repurchase Agreement or Reverse Repurchase Agreement be
combined and delivered to the Custodian at the time of entering into such
Repurchase Agreement or Reverse Repurchase Agreement.
ARTICLE X
LOANS OF PORTFOLIO SECURITIES OF THE FUND
1. Promptly after each loan of portfolio Securities specifically
allocated to a Series held by the Custodian hereunder, the Fund shall
deliver or cause to be delivered to the Custodian a Certificate specifying
with respect to each such loan: (a) the Series to which the loaned
Securities are specifically allocated; (b) the name of the issuer and the
title of the Securities, (c) the number of shares or the principal amount
loaned, (d) the date of loan and delivery, (e) the total amount to be
delivered to the Custodian against the loan of the Securities, including
the amount of cash collateral and the premium, if any, separately iden-
tified, and (f) the name of the broker, dealer, or financial institution
to which the loan was made. The Custodian shall deliver the Securities
thus designated to the broker, dealer or financial institution to which
the loan was made upon receipt of the total amount designated in the
Certificate as to be delivered against the loan of Securities. The
Custodian may accept payment in connection with a delivery otherwise than
through the Book-Entry System or a Depository only in the form of a
certified or bank cashier's check payable to the order of the Fund or the
Custodian drawn on New York Clearing House funds.
2. In connection with each termination of a loan of Securities by
the Fund, the Fund shall deliver or cause to be delivered to the Custodian
a Certificate specifying with respect to each such loan termination and
return of Securities: (a) the Series to which the loaned Securities are
specifically allocated; (b) the name of the issuer and the title of the
Securities to be returned, (c) the number of shares or the principal
amount to be returned, (d) the date of termination, (e) the total amount
to be delivered by the Custodian (including the cash collateral for such
Securities minus any offsetting credits as described in said Certificate),
and (f) the name of the broker, dealer, or financial institution from
which the Securities will be returned. The Custodian shall receive all
Securities returned from the broker, dealer, or financial institution to
which such Securities were loaned and upon receipt thereof shall pay, out
of the moneys held for the account of the Fund, the total amount payable
upon such return of Securities as set forth in the Certificate.
ARTICLE XI
CONCERNING MARGIN ACCOUNTS, SENIOR SECURITY
ACCOUNTS, AND COLLATERAL ACCOUNTS
1. The Custodian shall establish a Senior Security Account and from
time to time make such deposits thereto, or withdrawals therefrom, as
specified in a Certificate. Such Certificate shall specify the Series for
which such deposit or withdrawal is to be made and the amount of cash
and/or the amount and kind of Securities specifically allocated to such
Series to be deposited in, or withdrawn from, such Senior Security Account
for such Series. In the event that the Fund fails to specify in a
Certificate the Series, the name of the issuer, the title and the number
of shares or the principal amount of any particular Securities to be
deposited by the Custodian into, or withdrawn from, a Senior Securities
Account, the Custodian shall be under no obligation to make any such
deposit or withdrawal and shall promptly notify the Fund that no such
deposit has been made.
2. The Custodian shall make deliveries or payments from a Margin
Account to the broker, dealer, futures commission merchant or Clearing
Member in whose name, or for whose benefit, the account was established
as specified in the Margin Account Agreement.
3. Amounts received by the Custodian as payments or distributions
with respect to Securities deposited in any Margin Account shall be dealt
with in accordance with the terms and conditions of the Margin Account
Agreement.
4. The Custodian shall to the extent permitted by the Fund's
Declaration of Trust, investment restrictions and the Investment Company
Act of 1940 have a continuing lien and security interest in and to any
property at any time held by the Custodian in any Collateral Account
described herein. In accordance with applicable law the Custodian may
enforce its lien and realize on any such property whenever the Custodian
has made payment or delivery pursuant to any Put Option guarantee letter
or similar document or any receipt issued hereunder by the Custodian;
provided, however, that the Custodian shall not be required to issue any
Put Option guarantee letter unless it shall have received an opinion of
counsel to the Fund or its investment adviser that the issuance of such
letters is authorized by the Fund and that the Custodian's continuing lien
and security interest is valid, enforceable and not limited by the
Declaration of Trust, any investment restrictions or the Investment
Company Act of 1940. In the event the Custodian should realize on any
such property net proceeds which are less than the Custodian's obligations
under any Put Option guarantee letter or similar document or any receipt,
such deficiency shall be a debt owed the Custodian by the Fund within the
scope of Article XIV herein.
5. On each business day the Custodian shall furnish the Fund with
a statement with respect to each Margin Account in which money or
Securities are held specifying as of the close of business on the previous
business day: (a) the name of the Margin Account; (b) the amount and kind
of Securities held therein; and (c) the amount of money held therein. The
Custodian shall make available upon request to any broker, dealer, or
futures commission merchant specified in the name of a Margin Account a
copy of the statement furnished the Fund with respect to such Margin
Account.
6. The Custodian shall establish a Collateral Account and from time
to time shall make such deposits thereto as may be specified in a
Certificate. Promptly after the close of business on each business day
in which cash and/or Securities are maintained in a Collateral Account for
any Series, the Custodian shall furnish the Fund with a statement with
respect to such Collateral Account specifying the amount of cash and/or
the amount and kind of Securities held therein. No later than the close
of business next succeeding the delivery to the Fund of such statement,
the Fund shall furnish to the Custodian a Certificate or Written
Instructions specifying the then market value of the Securities described
in such statement. In the event such then market value is indicated to
be less than the Custodian's obligation with respect to any outstanding
Put Option guarantee letter or similar document, the Fund shall promptly
specify in a Certificate the additional cash and/or Securities to be
deposited in such Collateral Account to eliminate such deficiency.
ARTICLE XII
PAYMENT OF DIVIDENDS OR DISTRIBUTIONS
1. The Fund shall furnish to the Custodian a copy of the resolution
of the Board of Trustees of the Fund, certified by the Secretary or any
Assistant Secretary, either (i) setting forth with respect to the Series
specified therein the date of the declaration of a dividend or distribu-
tion, the date of payment thereof, the record date as of which
shareholders entitled to payment shall be determined, the amount payable
per Share of such Series to the shareholders of record as of that date and
the total amount payable to the Transfer Agent Account and any sub-
dividend agent or co-dividend agent of the Fund on the payment date, or
(ii) authorizing with respect to the Series specified therein and the
declaration of dividends and distributions thereon the Custodian to rely
on Oral Instructions, Written Instructions, or a Certificate setting forth
the date of the declaration of such dividend or distribution, the date of
payment thereof, the record date as of which shareholders entitled to
payment shall be determined, the amount payable per Share of such Series
to the shareholders of record as of that date and the total amount payable
to the Transfer Agent Account on the payment date.
2. Upon the payment date specified in such resolution, Oral
Instructions, Written Instructions, or Certificate, as the case may be,
the Custodian shall pay to the Transfer Agent Account out of the moneys
held for the account of the Series specified therein the total amount
payable to the Transfer Agent Account and with respect to such Series.
ARTICLE XIII
SALE AND REDEMPTION OF SHARES
1. Whenever the Fund shall sell any Shares, it shall deliver or
cause to be delivered, to the Custodian a Certificate duly specifying:
(a) The Series, the number of Shares sold, trade date, and
price; and
(b) The amount of money to be received by the Custodian
for the sale of such Shares and specifically allocated to the separate
account in the name of such Series.
2. Upon receipt of such money from the Fund's General Distributor,
the Custodian shall credit such money to the separate account in the name
of the Series for which such money was received.
3. Upon issuance of any Shares of any Series the Custodian shall
pay, out of the money held for the account of such Series, all original
issue or other taxes required to be paid by the Fund in connection with
such issuance upon the receipt of a Certificate specifying the amount to
be paid.
4. Except as provided hereinafter, whenever the Fund desires the
Custodian to make payment out of the money held by the Custodian hereunder
in connection with a redemption of any Shares, it shall furnish, or cause
to be furnished, to the Custodian a Certificate specifying:
(a) The number and Series of Shares redeemed; and
(b) The amount to be paid for such Shares.
5. Upon receipt of an advice from an Authorized Person setting
forth the Series and number of Shares received by the Transfer Agent for
redemption and that such Shares are in good form for redemption, the
Custodian shall make payment to the Transfer Agent Account out of the
moneys held in the separate account in the name of the Series the total
amount specified in the Certificate issued pursuant to the foregoing
paragraph 4 of this Article.
ARTICLE XIV
OVERDRAFTS OR INDEBTEDNESS
1. If the Custodian should in its sole discretion advance funds on
behalf of any Series which results in an overdraft because the moneys held
by the Custodian in the separate account for such Series shall be insuffi-
cient to pay the total amount payable upon a purchase of Securities
specifically allocated to such Series, as set forth in a Certificate, Oral
Instructions, or Written Instructions or which results in an overdraft in
the separate account of such Series for some other reason, or if the Fund
is for any other reason indebted to the Custodian with respect to a Ser-
ies, (except a borrowing for investment or for temporary or emergency
purposes using Securities as collateral pursuant to a separate agreement
and subject to the provisions of paragraph 2 of this Article), such
overdraft or indebtedness shall be deemed to be a loan made by the
Custodian to the Fund for such Series payable on demand and shall bear
interest from the date incurred at a rate per annum (based on a 360-day
year for the actual number of days involved) equal to the Federal Funds
Rate plus 1/2%, such rate to be adjusted on the effective date of any change
in such Federal Funds Rate but in no event to be less than 6% per annum.
In addition, unless the Fund has given a Certificate that the Custodian
shall not impose a lien and security interest to secure such overdrafts
(in which event it shall not do so), the Custodian shall have a continuing
lien and security interest in the aggregate amount of such overdrafts and
indebtedness as may from time to time exist in and to any property
specifically allocated to such Series at any time held by it for the
benefit of such Series or in which the Fund may have an interest which is
then in the Custodian's possession or control or in possession or control
of any third party acting in the Custodian's behalf. The Fund authorizes
the Custodian, in its sole discretion, at any time to charge any such
overdraft or indebtedness together with interest due thereon against any
money balance in an account standing in the name of such Series' credit
on the Custodian's books. In addition, the Fund hereby covenants that on
each Business Day on which either it intends to enter a Reverse Repurchase
Agreement and/or otherwise borrow from a third party, or which next
succeeds a Business Day on which at the close of business the Fund had
outstanding a Reverse Repurchase Agreement or such a borrowing, it shall
prior to 9 a.m., New York City time, advise the Custodian, in writing, of
each such borrowing, shall specify the Series to which the same relates,
and shall not incur any indebtedness, including pursuant to any Reverse
Repurchase Agreement, not so specified other than from the Custodian.
2. The Fund will cause to be delivered to the Custodian by any bank
(including, if the borrowing is pursuant to a separate agreement, the
Custodian) from which it borrows money for investment or for temporary or
emergency purposes using Securities held by the Custodian hereunder as
collateral for such borrowings, a notice or undertaking in the form
currently employed by any such bank setting forth the amount which such
bank will loan to the Fund against delivery of a stated amount of
collateral. The Fund shall promptly deliver to the Custodian a
Certificate specifying with respect to each such borrowing: (a) the
Series to which such borrowing relates; (b) the name of the bank, (c) the
amount and terms of the borrowing, which may be set forth by incorporating
by reference an attached promissory note, duly endorsed by the Fund, or
other loan agreement, (d) the time and date, if known, on which the loan
is to be entered into, (e) the date on which the loan becomes due and
payable, (f) the total amount payable to the Fund on the borrowing date,
(g) the market value of Securities to be delivered as collateral for such
loan, including the name of the issuer, the title and the number of shares
or the principal amount of any particular Securities, and (h) a statement
specifying whether such loan is for investment purposes or for temporary
or emergency purposes and that such loan is in conformance with the
Investment Company Act of 1940 and the Fund's prospectus and Statement of
Additional Information. The Custodian shall deliver on the borrowing date
specified in a Certificate the specified collateral and the executed
promissory note, if any, against delivery by the lending bank of the total
amount of the loan payable, provided that the same conforms to the total
amount payable as set forth in the Certificate. The Custodian may, at the
option of the lending bank, keep such collateral in its possession, but
such collateral shall be subject to all rights therein given the lending
bank by virtue of any promissory note or loan agreement. The Custodian
shall deliver such Securities as additional collateral as may be specified
in a Certificate to collateralize further any transaction described in
this paragraph. The Fund shall cause all Securities released from
collateral status to be returned directly to the Custodian, and the
Custodian shall receive from time to time such return of collateral as may
be tendered to it. In the event that the Fund fails to specify in a
Certificate the Series, the name of the issuer, the title and number of
shares or the principal amount of any particular Securities to be
delivered as collateral by the Custodian, to any such bank, the Custodian
shall not be under any obligation to deliver any Securities.
ARTICLE XV
CUSTODY OF ASSETS OUTSIDE THE U.S.
1. The Custodian is authorized and instructed to employ, as its
agent, as subcustodians for the securities and other assets of the Fund
maintained outside of the United States the Foreign Subcustodians and For-
eign Depositories designated on Schedule A hereto. Except as provided in
Schedule A, the Custodian shall employ no other Foreign Custodian or
Foreign Depository. The Custodian and the Fund may amend Schedule A
hereto from time to time to agree to designate any additional Foreign
Subcustodian or Foreign Depository with which the Custodian has an
agreement for such entity to act as the Custodian's agent, as subcus-
todian, and which the Custodian in its absolute discretion proposes to
utilize to hold any of the Fund's Foreign Property. Upon receipt of a
Certificate or Written Instructions from the Fund, the Custodian shall
cease the employment of any one or more of such subcustodians for
maintaining custody of the Fund's assets and such custodian shall be
deemed deleted from Schedule A.
2. The Custodian shall limit the securities and other assets
maintained in the custody of the Foreign Subcustodians to: (a) "foreign
securities," as defined in paragraph (c)(1) of Rule 17f-5 under the
Investment Company Act of 1940, and (b) cash and cash equivalents in such
amounts as the Fund may determine to be reasonably necessary to effect the
foreign securities transactions of the Fund.
3. The Custodian shall identify on its books as belonging to the
Fund, the Foreign Securities held by each Foreign Subcustodian.
4. Each agreement pursuant to which the Custodian employs a Foreign
Subcustodian shall be substantially in the form reviewed and approved by
the Fund and will not be amended in a way that materially affects the Fund
without the Fund's prior written consent and shall:
(a) require that such institution establish custody account(s)
for the Custodian on behalf of the Fund and physically segregate in each
such account securities and other assets of the fund, and, in the event
that such institution deposits the securities of the Fund in a Foreign
Depository, that it shall identify on its books as belonging to the Fund
or the Custodian, as agent for the Fund, the securities so deposited;
(b) provide that:
(1) the assets of the Fund will not be subject to any
right, charge, security interest, lien or claim of any kind in favor of
the Foreign Subcustodian or its creditors, except a claim of payment for
their safe custody or administration;
(2) beneficial ownership for the assets of the Fund will
be freely transferable without the payment of money or value other than
for custody or administration;
(3) adequate records will be maintained identifying the
assets as belonging to the Fund;
(4) the independent public accountants for the Fund will
be given access to the books and records of the Foreign Subcustodian
relating to its actions under its agreement with the Custodian or
confirmation of the contents of those records;
(5) the Fund will receive periodic reports with respect
to the safekeeping of the Fund's assets, including, but not necessarily
limited to, notification of any transfer to or from the custody
account(s); and
(6) assets of the Fund held by the Foreign Subcustodian
will be subject only to the instructions of the Custodian or its agents.
(c) Require the institution to exercise reasonable care in the
performance of its duties and to indemnify, and hold harmless, the
Custodian from and against any loss, damage, cost, expense, liability or
claim arising out of or in connection with the institution's performance
of such obligations, with the exception of any such losses, damages,
costs, expenses, liabilities or claims arising as a result of an act of
God. At the election of the Fund, it shall be entitled to be subrogated
to the rights of the Custodian with respect to any claims against a
Foreign Subcustodian as a consequence of any such loss, damage, cost,
expense, liability or claim of or to the Fund, if and to the extent that
the Fund has not been made whole for any such loss, damage, cost, expense,
liability or claim.
5. Upon receipt of a Certificate or Written Instructions, which may
be continuing instructions when deemed appropriate by the parties, the
Custodian shall on behalf of the Fund make or cause its Foreign
Subcustodian to transfer, exchange or deliver securities owned by the
Fund, except to the extent explicitly prohibited therein. Upon receipt
of a Certificate or Written Instructions, which may be continuing
instructions when deemed appropriate by the parties, the Custodian shall
on behalf of the fund pay out or cause its Foreign Subcustodians to pay
out monies of the Fund. The Custodian shall use all means reasonably
available to it, including, if specifically authorized by the Fund in a
Certificate, any necessary litigation at the cost and expense of the Fund
(except as to matters for which the Custodian is responsible hereunder)
to require or compel each Foreign Subcustodian or Foreign Depository to
perform the services required of it by the agreement between it and the
Custodian authorized pursuant to this Agreement.
6. The Custodian shall maintain all books and records as shall be
necessary to enable the Custodian readily to perform the services required
of it hereunder with respect to the Fund's Foreign Properties. The
Custodians shall supply to the Fund from time to time, as mutually agreed
upon, statements in respect of the Foreign Securities and other Foreign
Properties of the Fund held by Foreign Subcustodians, directly or through
Foreign Depositories, including but not limited to an identification of
entities having possession of the Fund's Foreign Securities and other
assets, an advice or other notification of any transfers of securities to
or from each custodial account maintained for the Fund or the Custodian
on behalf of the Fund indicating, as to securities acquired for the Fund,
the identity of the entity having physical possession of such securities.
The Custodian shall promptly and faithfully transmit all reports and
information received pertaining to the Foreign Property of the Fund,
including, without limitation, notices or reports of corporate action,
proxies and proxy soliciting materials.
7. Upon request of the Fund, the Custodian shall use reasonable
efforts to arrange for the independent accountants of the Fund to be
afforded access to the books and records of any Foreign Subcustodian, or
confirmation of the contents thereof, insofar as such books and records
relate to the Foreign Property of the Fund or the performance of such
Foreign Subcustodian under its agreement with the Custodian; provided that
any litigation to afford such access shall be at the sole cost and expense
of the Fund.
8. The Custodian recognizes that employment of a Foreign Sub-
custodian or Foreign Depository for the Fund's Foreign Securities and
Foreign Property is permitted by Section 17(f) of the Investment Company
Act of 1940 only upon compliance with Section (a) of Rule 17f-5
promulgated thereunder. With respect to the Foreign Subcustodians and
Foreign Depositories identified on Schedule A, the Custodian represents
that it has furnished the Fund with certain materials prepared by the
Custodian and with such other information in the possession of the Cus-
todian as the Fund advised the Custodian was reasonably necessary to
assist the Board of Trustees of the Fund in making the determinations
required of the Board of Trustees by Rule 17f-5, including, without
limitation, consideration of the matters set forth in the Notes to Rule
17f-5. If the Custodian recommends any additional Foreign Subcustodian
or Foreign Depository, the Custodian shall supply information similar in
kind and scope to that furnished pursuant to the preceding sentence. Fur-
ther, the Custodian shall furnish annually to the Fund, at such time as
the Fund and Custodian shall mutually agree, information concerning each
Foreign Subcustodian and Foreign Depository then identified on Schedule
A similar in kind and scope to that furnished pursuant to the preceding
two sentences.
9. The Custodian's employment of any Foreign Subcustodian or
Foreign Depository shall constitute a representation that the Custodian
believes in good faith that such Foreign Subcustodian or Foreign
Depository provides a level of safeguards for maintaining the Fund's
assets not materially different from that provided by the Custodian in
maintaining the Fund's securities in the United States. In addition, the
Custodian shall monitor the financial condition and general operational
performance of the Foreign Subcustodians and Foreign Depositories and
shall promptly inform the Fund in the event that the Custodian has actual
knowledge of a material adverse change in the financial condition thereof
or that there appears to be a substantial likelihood that the share-
holders' equity of any Foreign Subcustodian will decline below $200
million (U.S. dollars or the equivalent thereof) or that its shareholders'
equity has declined below $200 million , or that the Foreign Subcustodian
or Foreign Depository has breached the agreement between it and the
Custodian in a way that the Custodian believes adversely affects the Fund.
Further, the Custodian shall advise the Fund if it believes that there is
a material adverse change in the operating environment of any Foreign
Subcustodian or Foreign Depository.
ARTICLE XVI
CONCERNING THE CUSTODIAN
1. The Custodian shall use reasonable care in the performance of
its duties hereunder, and, except as hereinafter provided, neither the
Custodian nor its nominee shall be liable for any loss or damage,
including counsel fees, resulting from its action or omission to act or
otherwise, either hereunder or under any Margin Account Agreement, except
for any such loss or damage arising out of its own negligence, bad faith,
or willful misconduct or that of the subcustodians or co-custodians
appointed by the Custodian or of the officers, employees, or agents of any
of them. The Custodian may, with respect to questions of law arising
hereunder or under any Margin Account Agreement, apply for and obtain the
advice and opinion of counsel to the Fund, at the expense of the Fund, or
of its own counsel, at its own expense, and shall be fully protected with
respect to anything done or omitted by it in good faith in conformity with
such advice or opinion. The Custodian shall be liable to the Fund for any
loss or damage resulting from the use of the Book-Entry System or any
Depository arising by reason of any negligence, bad faith or willful mis-
conduct on the part of the Custodian or any of its employees or agents.
2. Notwithstanding the foregoing, the Custodian shall be under no
obligation to inquire into, and shall not be liable for:
(a) The validity (but not the authenticity) of the issue of any
Securities purchased, sold, or written by or for the Fund, the legality
of the purchase, sale or writing thereof, or the propriety of the amount
paid or received therefor, as specified in a Certificate, Oral
Instructions, or Written Instructions;
(b) The legality of the sale or redemption of any Shares, or
the propriety of the amount to be received or paid therefor, as specified
in a Certificate;
(c) The legality of the declaration or payment of any dividend
by the Fund, as specified in a resolution, Certificate, Oral Instructions,
or Written Instructions;
(d) The legality of any borrowing by the Fund using Securities
as collateral;
(e) The legality of any loan of portfolio Securities, nor shall
the Custodian be under any duty or obligation to see to it that the cash
collateral delivered to it by a broker, dealer, or financial institution
or held by it at any time as a result of such loan of portfolio Securities
of the Fund is adequate collateral for the Fund against any loss it might
sustain as a result of such loan, except that this subparagraph shall not
excuse any liability the Custodian may have for failing to act in accor-
dance with Article X hereof or any Certificate, Oral Instructions or
Written Instructions given in accordance with this Agreement. The Custo-
dian specifically, but not by way of limitation, shall not be under any
duty or obligation periodically to check or notify the Fund that the
amount of such cash collateral held by it for the Fund is sufficient
collateral for the Fund, but such duty or obligation shall be the sole
responsibility of the Fund. In addition, the Custodian shall be under no
duty or obligation to see that any broker, dealer or financial institution
to which portfolio Securities of the Fund are lent pursuant to Article X
of this Agreement makes payment to it of any dividends or interest which
are payable to or for the account of the Fund during the period of such
loan or at the termination of such loan, provided, however, that the
Custodian shall promptly notify the Fund in the event that such dividends
or interest are not paid and received when due; or
(f) The sufficiency or value of any amounts of money and/or
Securities held in any Margin Account, Senior Security Account or
Collateral Account in connection with transactions by the Fund, except
that this subparagraph shall not excuse any liability the Custodian may
have for failing to establish, maintain, make deposits to or withdrawals
from such accounts in accordance with this Agreement. In addition, the
Custodian shall be under no duty or obligation to see that any broker,
dealer, futures commission merchant or Clearing Member makes payment to
the Fund of any variation margin payment or similar payment which the Fund
may be entitled to receive from such broker, dealer, futures commission
merchant or Clearing Member, to see that any payment received by the
Custodian from any broker, dealer, futures commission merchant or Clearing
Member is the amount the Fund is entitled to receive, or to notify the
Fund of the Custodian's receipt or non-receipt of any such payment.
3. The Custodian shall not be liable for, or considered to be the
Custodian of, any money, whether or not represented by any check, draft,
or other instrument for the payment of money, received by it on behalf of
the Fund until the Custodian actually receives such money directly or by
the final crediting of the account representing the Fund's interest at the
Book-Entry System or the Depository.
4. With respect to Securities held in a Depository, except as
otherwise provided in paragraph 5(b) of Article III hereof, the Custodian
shall have no responsibility and shall not be liable for ascertaining or
acting upon any calls, conversions, exchange offers, tenders, interest
rate changes or similar matters relating to such Securities, unless the
Custodian shall have actually received timely notice from the Depository
in which such Securities are held. In no event shall the Custodian have
any responsibility or liability for the failure of a Depository to
collect, or for the late collection or late crediting by a Depository of
any amount payable upon Securities deposited in a Depository which may
mature or be redeemed, retired, called or otherwise become payable. How-
ever, upon receipt of a Certificate from the Fund of an overdue amount on
Securities held in a Depository the Custodian shall make a claim against
the Depository on behalf of the Fund, except that the Custodian shall not
be under any obligation to appear in, prosecute or defend any action suit
or proceeding in respect to any Securities held by a Depository which in
its opinion may involve it in expense or liability, unless indemnity
satisfactory to it against all expense and liability be furnished as often
as may be required, or alternatively, the Fund shall be subrogated to the
rights of the Custodian with respect to such claim against the Depository
should it so request in a Certificate. This paragraph shall not, however,
excuse any failure by the Custodian to act in accordance with a
Certificate, Oral Instructions, or Written Instructions given in
accordance with this Agreement.
5. The Custodian shall not be under any duty or obligation to take
action to effect collection of any amount due the Fund from the Transfer
Agent of the Fund nor to take any action to effect payment or distribution
by the Transfer Agent of the Fund of any amount paid by the Custodian to
the Transfer Agent of the Fund in accordance with this Agreement.
6. The Custodian shall not be under any duty or obligation to take
action to effect collection of any amount if the Securities upon which
such amount is payable are in default, or if payment is refused after the
Custodian has timely and properly, in accordance with this Agreement, made
due demand or presentation, unless and until (i) it shall be directed to
take such action by a Certificate and (ii) it shall be assured to its
satisfaction of reimbursement of its costs and expenses in connection with
any such action, but the Custodian shall have such a duty if the Secu-
rities were not in default on the payable date and the Custodian failed
to timely and properly make such demand for payment and such failure is
the reason for the non-receipt of payment.
7. The Custodian may, with the prior approval of the Board of
Trustees of the Fund, appoint one or more banking institutions as
subcustodian or subcustodians, or as co-Custodian or co-Custodians, of
Securities and moneys at any time owned by the Fund, upon such terms and
conditions as may be approved in a Certificate or contained in an
agreement executed by the Custodian, the Fund and the appointed
institution; provided, however, that appointment of any foreign banking
institution or depository shall be subject to the provisions of Article
XV hereof.
8. The Custodian agrees to indemnify the Fund against and save the
Fund harmless from all liability, claims, losses and demands whatsoever,
including attorney's fees, howsoever arising or incurred because of the
negligence, bad faith or willful misconduct of any subcustodian of the
Securities and moneys owned by the Fund.
9. The Custodian shall not be under any duty or obligation (a) to
ascertain whether any Securities at any time delivered to, or held by it,
for the account of the Fund and specifically allocated to a Series are
such as properly may be held by the Fund or such Series under the
provisions of its then current prospectus, or (b) to ascertain whether any
transactions by the Fund, whether or not involving the Custodian, are such
transactions as may properly be engaged in by the Fund.
10. The Custodian shall be entitled to receive and the Fund agrees
to pay to the Custodian all reasonable out-of-pocket expenses and such
compensation as may be agreed upon in writing from time to time between
the Custodian and the Fund. The Custodian may charge such compensation,
and any such expenses with respect to a Series incurred by the Custodian
in the performance of its duties under this Agreement against any money
specifically allocated to such Series. The Custodian shall also be
entitled to charge against any money held by it for the account of a
Series the amount of any loss, damage, liability or expense, including
counsel fees, for which it shall be entitled to reimbursement under the
provisions of this Agreement attributable to, or arising out of, its
serving as Custodian for such Series. The expenses for which the
Custodian shall be entitled to reimbursement hereunder shall include, but
are not limited to, the expenses of subcustodians and foreign branches of
the Custodian incurred in settling outside of New York City transactions
involving the purchase and sale of Securities of the Fund. Notwithstanding
the foregoing or anything else contained in this Agreement to the
contrary, the Custodian shall, prior to effecting any charge for
compensation, expenses, or any overdraft or indebtedness or interest
thereon, submit an invoice therefor to the Fund.
11. The Custodian shall be entitled to rely upon any Certificate,
notice or other instrument in writing, Oral Instructions, or Written
Instructions received by the Custodian and reasonably believed by the
Custodian to be genuine. The Fund agrees to forward to the Custodian a
Certificate or facsimile thereof confirming Oral Instructions or Written
Instructions in such manner so that such Certificate or facsimile thereof
is received by the Custodian, whether by hand delivery, telecopier or
other similar device, or otherwise, by the close of business of the same
day that such Oral Instructions or Written Instructions are given to the
Custodian. The Fund agrees that the fact that such confirming
instructions are not received by the Custodian shall in no way affect the
validity of the transactions or enforceability of the transactions thereby
authorized by the Fund. The Fund agrees that the Custodian shall incur
no liability to the Fund in acting upon Oral Instructions or Written
Instructions given to the Custodian hereunder concerning such transactions
provided such instructions reasonably appear to have been received from
an Authorized Person.
12. The Custodian shall be entitled to rely upon any instrument,
instruction or notice received by the Custodian and reasonably believed
by the Custodian to be given in accordance with the terms and conditions
of any Margin Account Agreement. Without limiting the generality of the
foregoing, the Custodian shall be under no duty to inquire into, and shall
not be liable for, the accuracy of any statements or representations
contained in any such instrument or other notice including, without limi-
tation, any specification of any amount to be paid to a broker, dealer,
futures commission merchant or Clearing Member. This paragraph shall not
excuse any failure by the Custodian to have acted in accordance with any
Margin Agreement it has executed or any Certificate, Oral Instructions,
or Written Instructions given in accordance with this Agreement.
13. The books and records pertaining to the Fund, as described in
Appendix E hereto, which are in the possession of the Custodian shall be
the property of the Fund. Such books and records shall be prepared and
maintained by the Custodian as required by the Investment Company Act of
1940, as amended, and other applicable Securities laws and rules and
regulations. The Fund, or the Fund's authorized representatives, shall
have access to such books and records during the Custodian's normal
business hours. Upon the reasonable request of the Fund, copies of any
such books and records shall be provided by the Custodian to the Fund or
the Fund's authorized representative, and the Fund shall reimburse the
Custodian its expenses of providing such copies. Upon reasonable request
of the Fund, the Custodian shall provide in hard copy or on micro-film,
whichever the Custodian elects, any records included in any such delivery
which are maintained by the Custodian on a computer disc, or are similarly
maintained, and the Fund shall reimburse the Custodian for its expenses
of providing such hard copy or micro-film.
14. The Custodian shall provide the Fund with any report obtained
by the Custodian on the system of internal accounting control of the Book-
Entry system, each Depository or O.C.C., and with such reports on its own
systems of internal accounting control as the Fund may reasonably request
from time to time.
15. The Custodian shall furnish upon request annually to the Fund
a letter prepared by the Custodian's accountants with respect to the
Custodian's internal systems and controls in the form generally provided
by the Custodian to other investment companies for which the Custodian
acts as custodian.
16. The Fund agrees to indemnify the Custodian against and save the
Custodian harmless from all liability, claims, losses and demands
whatsoever, including attorney's fees, howsoever arising out of, or
related to, the Custodian's performance of its obligations under this
Agreement, except for any such liability, claim, loss and demand arising
out of the negligence, bad faith, or willful misconduct of the Custodian,
any co-Custodian or subcustodian appointed by the Custodian, or that of
the officers, employees, or agents of any of them.
17. Subject to the foregoing provisions of this Agreement, the
Custodian shall deliver and receive Securities, and receipts with respect
to such Securities, and shall make and receive payments only in accordance
with the customs prevailing from time to time among brokers or dealers in
such Securities and, except as may otherwise be provided by this Agreement
or as may be in accordance with such customs, shall make payment for
Securities only against delivery thereof and deliveries of Securities only
against payment therefor.
18. The Custodian will comply with the procedures, guidelines or
restrictions ("Procedures") adopted by the Fund from time to time for par-
ticular types of investments or transactions, e.g., Repurchase Agreements
and Reverse Repurchase Agreements, provided that the Custodian has
received from the Fund a copy of such Procedures. If within ten days
after receipt of any such Procedures, the Custodian determines in good
faith that it is unreasonable for it to comply with any new procedures,
guidelines or restrictions set forth therein, it may within such ten day
period send notice to the Fund that it does not intend to comply with
those new procedures, guidelines or restrictions which it identifies with
particularity in such notice, in which event the Custodian shall not be
required to comply with such identified procedures, guidelines or
restrictions; provided, however, that, anything to the contrary set forth
herein or in any other agreement with the Fund, if the Custodian identi-
fies procedures, guidelines or restrictions with which it does not intend
to comply, the Fund shall be entitled to terminate this Agreement without
cost or penalty to the Fund upon thirty days' written notice.
19. Whenever the Custodian has the authority to deduct monies from
the account for a series without a Certificate, it shall notify the Fund
within one business day of such deduction and the reason for it. Whenever
the Custodian has the authority to sell Securities or any other property
of the Fund on behalf of any Series without a Certificate, the Custodian
will notify the Fund of its intention to do so and afford the Fund the
reasonable opportunity to select which Securities or other property it
wishes to sell on behalf of such Series. If the Fund does not promptly
sell sufficient Securities or Deposited Property on behalf of the Series,
then, after notice, the Custodian may proceed with the intended sale.
20. The Custodian shall have no duties or responsibilities
whatsoever except such duties and responsibilities as are specifically set
forth or referred to in this Agreement, and no covenant or obligation
shall be implied in this Agreement against the Custodian.
ARTICLE XVII
TERMINATION
1. Except as provided in paragraph 3 of this Article, this
Agreement shall continue until terminated by either the Custodian giving
to the Fund, or the Fund giving to the Custodian, a notice in writing
specifying the date of such termination, which date shall be not less than
60 days after the date of the giving of such notice. In the event such
notice or a notice pursuant to paragraph 3 of this Article is given by the
Fund, it shall be accompanied by a copy of a resolution of the Board of
Trustees of the Fund, certified by an Officer and the Secretary or an
Assistant Secretary of the Fund, electing to terminate this Agreement and
designating a successor custodian or custodians, each of which shall be
eligible to serve as a custodian for the Securities of a management
investment company under the Investment Company Act of 1940. In the event
such notice is given by the Custodian, the Fund shall, on or before the
termination date, deliver to the Custodian a copy of a resolution of the
Board of Trustees of the Fund, certified by the Secretary or any Assistant
Secretary, designating a successor custodian or custodians. In the ab-
sence of such designation by the Fund, the Custodian may designate a
successor custodian which shall be a bank or trust company eligible to
serve as a custodian for Securities of a management investment company
under the Investment Company Act of 1940 and which is acceptable to the
Fund. Upon the date set forth in such notice this Agreement shall
terminate, and the Custodian shall upon receipt of a notice of acceptance
by the successor custodian on that date deliver directly to the successor
custodian all Securities and moneys then owned by the Fund and held by it
as Custodian, after deducting all fees, expenses and other amounts for the
payment or reimbursement of which it shall then be entitled.
2. If a successor custodian is not designated by the Fund or the
Custodian in accordance with the preceding paragraph, the Fund shall upon
the date specified in the notice of termination of this Agreement and upon
the delivery by the Custodian of all Securities (other than Securities
held in the Book-Entry System which cannot be delivered to the Fund) and
moneys then owned by the Fund be deemed to be its own custodian and the
Custodian shall thereby be relieved of all duties and responsibilities
pursuant to this Agreement arising thereafter, other than the duty with
respect to Securities held in the Book Entry System which cannot be deliv-
ered to the Fund to hold such Securities hereunder in accordance with this
Agreement.
3. Notwithstanding the foregoing, the Fund may terminate this
Agreement upon the date specified in a written notice in the event of the
"Bankruptcy" of The Bank of New York. As used in this sub-paragraph, the
term "Bankruptcy" shall mean The Bank of New York's making a general
assignment, arrangement or composition with or for the benefit of its
creditors, or instituting or having instituted against it a proceeding
seeking a judgment of insolvency or bankruptcy or the entry of a order for
relief under any applicable bankruptcy law or any other relief under any
bankruptcy or insolvency law or other similar law affecting creditors
rights, or if a petition is presented for the winding up or liquidation
of the party or a resolution is passed for its winding up or liquidation,
or it seeks, or becomes subject to, the appointment of an administrator,
receiver, trustee, custodian or other similar official for it or for all
or substantially all of its assets or its taking any action in furtherance
of, or indicating its consent to approval of, or acquiescence in, any of
the foregoing.
ARTICLE XVIII
TERMINAL LINK
1. At no time and under no circumstances shall the Fund be
obligated to have or utilize the Terminal Link, and the provisions of this
Article shall apply if, but only if, the Fund in its sole and absolute
discretion elects to utilize the Terminal Link to transmit Certificates
to the Custodian.
2. The Terminal Link shall be utilized only for the purpose of the
Fund providing Certificates to the Custodian and the Custodian providing
notices to the Fund and only after the Fund shall have established access
codes and internal safekeeping procedures to safeguard and protect the
confidentiality and availability of such access codes. Each use of the
Terminal Link by the Fund shall constitute a representation and warranty
that at least two officers have each utilized an access code that such
internal safekeeping procedures have been established by the Fund, and
that such use does not contravene the Investment Company Act of 1940 and
the rules and regulations thereunder.
3. Each party shall obtain and maintain at its own cost and expense
all equipment and services, including, but not limited to communications
services, necessary for it to utilize the Terminal Link, and the other
party shall not be responsible for the reliability or availability of any
such equipment or services, except that the Custodian shall not pay any
communications costs of any line leased by the Fund, even if such line is
also used by the Custodian.
4. The Fund acknowledges that any data bases made available as part
of, or through the Terminal Link and any proprietary data, software,
processes, information and documentation (other than any such which are
or become part of the public domain or are legally required to be made
available to the public) (collectively, the "Information"), are the
exclusive and confidential property of the Custodian. The Fund shall, and
shall cause others to which it discloses the Information, to keep the
Information confidential by using the same care and discretion it uses
with respect to its own confidential property and trade secrets, and shall
neither make nor permit any disclosure without the express prior written
consent of the Custodian.
5. Upon termination of this Agreement for any reason, each Fund
shall return to the Custodian any and all copies of the Information which
are in the Fund's possession or under its control, or which the Fund
distributed to third parties. The provisions of this Article shall not
affect the copyright status of any of the Information which may be
copyrighted and shall apply to all Information whether or not copyrighted.
6. The Custodian reserves the right to modify the Terminal Link from
time to time without notice to the Fund, except that the Custodian shall
give the Fund notice not less than 75 days in advance of any modification
which would materially adversely affect the Fund's operation, and the Fund
agrees not to modify or attempt to modify the Terminal Link without the
Custodian's prior written consent. The Fund acknowledges that any
software provided by the Custodian as part of the Terminal Link is the
property of the Custodian and, accordingly, the Fund agrees that any
modifications to the same, whether by the Fund or the Custodian and
whether with or without the Custodian's consent, shall become the property
of the Custodian.
7. Neither the Custodian nor any manufacturers and suppliers it
utilizes or the Fund utilizes in connection with the Terminal Link makes
any warranties or representations, express or implied, in fact or in law,
including but not limited to warranties of merchantability and fitness for
a particular purpose.
8. Each party will cause its officers and employees to treat the
authorization codes and the access codes applicable to Terminal Link with
extreme care, and irrevocably authorizes the other to act in accordance
with and rely on Certificates and notices received by it through the
Terminal Link. Each party acknowledges that it is its responsibility to
assure that only its authorized persons use the Terminal Link on its
behalf, and that a party shall not be responsible nor liable for use of
the Terminal Link on behalf of the other party by unauthorized persons of
such other party.
9. Notwithstanding anything else in this Agreement to the contrary,
neither party shall have any liability to the other for any losses,
damages, injuries, claims, costs or expenses arising as a result of a
delay, omission or error in the transmission of a Certificate or notice
by use of the Terminal Link except for money damages for those suffered
as the result of the negligence, bad faith or willful misconduct of such
party or its officers, employees or agents in an amount not exceeding for
any incident $100,000; provided, however, that a party shall have no
liability under this Section 9 if the other party fails to comply with the
provisions of Section 11.
10. Without limiting the generality of the foregoing, in no event
shall either party or any manufacturer or supplier of its computer
equipment, software or services relating to the Terminal Link be
responsible for any special, indirect, incidental or consequential damages
which the other party may incur or experience by reason of its use of the
Terminal Link even if such party, manufacturer or supplier has been
advised of the possibility of such damages, nor with respect to the use
of the Terminal Link shall either party or any such manufacturer or
supplier be liable for acts of God, or with respect to the following to
the extent beyond such person's reasonable control: machine or computer
breakdown or malfunction, interruption or malfunction of communication
facilities, labor difficulties or any other similar or dissimilar cause.
11. The Fund shall notify the Custodian of any errors, omissions or
interruptions in, or delay or unavailability of, the Terminal Link as
promptly as practicable, and in any event within 24 hours after the
earliest of (i) discovery thereof, and (ii) in the case of any error, the
date of actual receipt of the earliest notice which reflects such error,
it being agreed that discovery and receipt of notice may only occur on a
business day. The Custodian shall promptly advise the Fund whenever the
Custodian learns of any errors, omissions or interruption in, or delay or
unavailability of, the Terminal Link.
12. Each party shall, as soon as practicable after its receipt of
a Certificate or a notice transmitted by the Terminal Link, verify to the
other party by use of the Terminal Link its receipt of such Certificate
or notice, and in the absence of such verification the party to which the
Certificate or notice is sent shall not be liable for any failure to act
in accordance with such Certificate or notice and the sending party may
not claim that such Certificate or notice was received by the other party.
ARTICLE XIX
MISCELLANEOUS
1. Annexed hereto as Appendix A is a Certificate signed by two of
the present Officers of the Fund under its seal, setting forth the names
and the signatures of the present Authorized Persons. The Fund agrees to
furnish to the Custodian a new Certificate in similar form in the event
that any such present Authorized Person ceases to be an Authorized Person
or in the event that other or additional Authorized Persons are elected
or appointed. Until such new Certificate shall be received, the Custodian
shall be entitled to rely and to act upon Oral Instructions, Written
Instructions, or signatures of the present Authorized Persons as set forth
in the last delivered Certificate to the extent provided by this
Agreement.
2. Annexed hereto as Appendix B is a Certificate signed by two of
the present Officers of the Fund under its seal, setting forth the names
and the signatures of the present Officers of the Fund. The Fund agrees
to furnish to the Custodian a new Certificate in similar form in the event
any such present officer ceases to be an officer of the Fund, or in the
event that other or additional officers are elected or appointed. Until
such new Certificate shall be received, the Custodian shall be entitled
to rely and to act upon the signatures of the officers as set forth in the
last delivered Certificate to the extent provided by this Agreement.
3. Any notice or other instrument in writing, authorized or
required by this Agreement to be given to the Custodian, other than any
Certificate or Written Instructions, shall be sufficiently given if
addressed to the Custodian and mailed or delivered to it at its offices
at 90 Washington Street, New York, New York 10286, or at such other place
as the Custodian may from time to time designate in writing.
4. Any notice or other instrument in writing, authorized or rehired
by this Agreement to be given to the Fund shall be sufficiently given if
addressed to the Fund and mailed or delivered to it at its office at the
address for the Fund first above written, or at such other place as the
Fund may from time to time designate in writing.
5. This Agreement constitutes the entire agreement between the
parties, replaces all prior agreements and may not be amended or modified
in any manner except by a written agreement executed by both parties with
the same formality as this Agreement and approved by a resolution of the
Board of Trustees of the Fund, except that Appendices A and B may be
amended unilaterally by the Fund without such an approving resolution.
6. This Agreement shall extend to and shall be binding upon the
parties hereto, and their respective successors and assigns; provided,
however, that this Agreement shall not be assignable by the Fund without
the written consent of the Custodian, or by the Custodian or The Bank of
New York without the written consent of the Fund, authorized or approved
by a resolution of the Fund's Board of Trustees. For purposes of this
paragraph, no merger, consolidation, or amalgamation of the Custodian, The
Bank of New York, or the Fund shall be deemed to constitute an assignment
of this Agreement.
7. This Agreement shall be construed in accordance with the laws
of the State of New York without giving effect to conflict of laws
principles thereof. Each party hereby consents to the jurisdiction of a
state or federal court situated in New York City, New York in connection
with any dispute arising hereunder and hereby waives its right to trial
by jury.
8. This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original, but such counterparts
shall, together, constitute only one instrument.
9. A copy of the Declaration of Trust of the Fund is on file with
the Secretary of The Commonwealth of Massachusetts, and notice is hereby
given that this instrument is executed on behalf of the Board of Trustees
of the Fund as Trustees and not individually and that the obligations of
the instrument are not binding upon any of the Trustees or shareholders
individually but are binding upon the assets and property of the Fund;
provided, however, that the Declaration of Trust of the Fund provides that
the assets of a particular series of the Fund shall under no circumstances
be charges with liabilities attributable to any other series of the Fund
and that all persons extending credit to, or contracting with or having
any claim against a particular series of the Fund shall look only to the
assets of that particular series for payment of such credit, contract or
claim.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective Officers, thereunto duly authorized and
their respective seals to be hereunto affixed, as of the day and year
first above written.
OPPENHEIMER STRATEGIC INCOME FUND
By: /s/ Robert G. Galli
_______________________________
Robert G. Galli, Vice President
[SEAL]
Attest:
/s/ Robert G. Zack
___________________________________
Robert G. Zack, Assistant Secretary
THE BANK OF NEW YORK
[SEAL] By: /s/
__________________________________
Attest:
/s/
___________________________________
<PAGE>
APPENDIX A
I, President and I,
, of Oppenheimer Fund,
a Massachusetts business trust (the "Fund") do hereby certify that:
The following individuals have been duly authorized by the Board of
Trustees of the Fund in conformity with the Fund's Declaration of Trust
and By-Laws to give Oral Instructions and Written Instructions on behalf
of the Fund, except that those persons designated as being an "Officer of
OSS" shall be an Authorized Person only for purposes of Articles XII and
XIII. The signatures set forth opposite their respective names are their
true and correct signatures:
Name Position Signature
__________________ _______________________ __________________
<PAGE>
APPENDIX B
I, President and I,
, of Oppenheimer Fund, a
Massachusetts business trust (the "Fund"), do hereby certify that:
The following individuals for whom a position other than "Officer of
OSS" is specified serve in the following positions with the Fund and each
has been duly elected or appointed by the Board of Trustees of the Fund
to each such position and qualified therefor in conformity with the Fund's
Declaration of Trust and By-Laws. With respect to the following
individuals for whom a position of "Officer of OSS" is specified, each
such individual has been designated by a resolution of the Board of
Trustees of the Fund to be an Officer for purposes of the Fund's Custody
Agreement with The Bank of New York, but only for purposes of Articles XII
and XIII thereof and a certified copy of such resolution is attached
hereto. The signatures of each individual below set forth opposite their
respective names are their true and correct signatures:
Name Position Signature
__________________ _______________________ __________________
<PAGE>
APPENDIX C
The undersigned, hereby
certifies that he or she is the duly elected and acting
of Oppenheimer Fund (the "Fund"),
further certifies that the following resolutions were adopted by the Board
of Trustees of the Fund at a meeting duly held on __________________, 199
, at which a quorum at all times present and that such resolutions have
not been modified or rescinded and are in full force an effect as of the
date hereof.
RESOLVED, that The Bank New York, as Custodian pursuant to
a Custody Agreement between The Bank of New York and the
Fund dated as of 199 (the "Custody Agreement") is
authorized and instructed on a continuous and ongoing basis
to act in accordance with, and to rely on instructions by
the Fund to the Custodian communicated by a Terminal Link as
defined in the Custody Agreement.
RESOLVED, that the Fund shall establish access codes and
grant use of such access codes only to officers of the Fund
as defined in the Custody Agreement, and shall establish
internal safekeeping procedures to safeguard and protect the
confidentiality and availability of such access codes.
RESOLVED, that Officers of the Fund as defined in the
Custody Agreement shall, following the establishment of such
access codes and such internal safekeeping procedures,
advise the Custodian that the same have been established by
delivering a Certificate, as defined in the Custody
Agreement, and the Custodian shall be entitled to rely upon
such advice.
IN WITNESS WHEREOF, I hereunto set my hand in the seal of
, as of the day of , 199 .
APPENDIX D
I, Richard P. Lando, an Assistant Vice President with THE BANK OF NEW
YORK do hereby designate the following publications:
The Bond Buyer
Depository Trust Company Notices
Financial Daily Card Service
JJ Kenney Municipal Bond Service
London Financial Times
New York Times
Standard & Poor's Called Bond Record
Wall Street Journal<PAGE>
APPENDIX E
The following books and records pertaining to Fund shall be prepared
and maintained by the Custodian and shall be the property of the Fund:
EXHIBIT A
CERTIFICATION
The undersigned, , hereby
certifies that he or she is the duly elected and acting
of Oppenheimer Fund, a Massachusetts business trust
(the "Fund"), and further certifies that the following resolution was
adopted by the Board of Trustees of the Fund at a meeting duly held on 199
, at which a quorum was at all times present and that such resolution has
not been modified or rescinded and is in full force and effect as of the
date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant
to a Custody Agreement between The Bank of New York and the
Fund dated as of , 199 (the "Custody Agreement")
is authorized and instructed on a continuous and ongoing
basis to deposit in the Book-Entry System, as defined in the
Custody Agreement, all Securities eligible for deposit
therein, regardless of the Series to which the same are
specifically allocated, and to utilize the Book-Entry System
to the extent possible in connection with its performance
thereunder, including, without limitation, In connection
with settlements of purchases and sales of Securities, loans
of Securities, and deliveries and returns of Securities col-
lateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal
of , as of the day of
, 199 .
__________________________
[SEAL]<PAGE>
EXHIBIT B
CERTIFICATION
The undersigned , hereby certifies
that he or she is the duly elected and acting
of Oppenheimer Fund, a Massachusetts business trust (the
"Fund"), and further certifies that the following resolution was adopted
by the Board of Trustees of the Fund at a meeting duly held on
, 199 , at which a quorum was at all times present and
that such resolution has not been modified or rescinded and is in full
force and effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant
to a Custody Agreement between The Bank of New York and the
Fund dated as of , 199 (the "Custody Agreement")
is authorized and instructed on a continuous and ongoing
basis until such time as it receives a Certificate, as
defined in the Custody Agreement, to the contrary to deposit
in The Depository Trust Company ("DTC") as a "Depository" as
defined in the Custody Agreement, all Securities eligible
for deposit therein, regardless of the Series to which the
same are specifically allocated, and to utilize DTC to the
extent possible in connection with its performance there-
under, including, without limitation, in connection with
settlements of purchases and sales of Securities, loans of
Securities, and deliveries and returns of Securities
collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of
as of the day of , 199 .
___________________________
[SEAL]<PAGE>
EXHIBIT B-1
CERTIFICATION
The undersigned, hereby certifies that he or she
is the duly elected and acting
of Oppenheimer Fund, a Massachusetts business trust (the
"Fund"), and further certifies that the following resolution was adopted
by the Board of Trustees of the Fund at a meeting duly held on
, 199 , at which a quorum was at all times present and that such
resolution has not been modified or rescinded and is in full force and
effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant
to a Custody Agreement between The Bank of New York and the
Fund dated as of 199 , (the "Custody Agreement") is
authorized and instructed on a continuous and ongoing basis
until such time as it receives a Certificate, as defined in
the Custody Agreement, to the contrary to deposit in the
Participants Trust Company as a Depository, as defined in
the Custody Agreement, all Securities eligible for deposit
therein, regardless of the Series to which the same are
specifically allocated, and to utilize the Participants
Trust Company to the extent possible in connection with its
performance thereunder, including, without limitation, in
connection with settlements of purchases and sales of
Securities, loans of Securities, and deliveries and returns
of Securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of
, as of the day of , 199 .
_______________________
[SEAL]
<PAGE>
EXHIBIT C
CERTIFICATION
The undersigned, , hereby certifies that
he or she is the duly elected and acting
of Oppenheimer Fund, a Massachusetts business trust (the
"Fund"), and further certifies that the following resolution was adopted
by the Board of Trustees of the Fund at a meeting duly held on
, 199 , at which a quorum was at all times present and that
such resolution has not been modified or rescinded and is in full force
and effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant
to a Custody Agreement between The Bank of New York and the
Fund dated as of , 199 (the "Custody Agreement")
is authorized and instructed on a continuous and ongoing
basis until such time as it receives a Certificate, as
defined in the Custody Agreement, to the contrary, to ac-
cept, utilize and act with respect to Clearing Member
confirmations for Options and transaction in Options,
regardless of the Series to which the same are specifically
allocated, as such terms are defined in the Custody
Agreement, as provided in the Custody Agreement.
IN WITNESS WHEREOF, I have hereunto set my hand and the
seal of , as of the day of , 199 .
____________________________
[SEAL]<PAGE>
EXHIBIT D
[FORM OF FOREIGN SUBCUSTODIAN AGREEMENT]<PAGE>
Appendix A
Article XIX.1 49
Appendix B
Article XIX.2 50
Exhibit A
Article III.1 7
Exhibit B
Article III.1 8
Exhibit C
Article III.1 8
Exhibit D 34
Article XV.4 34
Schedule A
Article XV.1 33
CUSTODY\230
Exhibit 24(b)(10)
HAMILTON, MYER, SWANSON & FAATZ
ATTORNEYS AT LAW
THE COLORADO STATE BANK BUILDING
1600 BROADWAY - SUITE 600
DENVER, COLORADO 80202-4988
August 30, 1989
Oppenheimer Strategic Income Fund
3410 South Galena Street
Denver, Colorado 80231
Gentlemen:
In connection with the proposed public offering of shares of beneficial
interest of Oppenheimer Strategic Income Fund (the "Fund"), we have
examined such records and documents as we deem necessary for the purpose
of this opinion.
The Fund is a business trust duly organized and validly existing 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 its Registration Statement on Form N-1A (SEC Reg. No. 33-28598), 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 the Registration Statement, will be, when such Registration
Statement shall have become effective, legally issued, fully paid and non-
assessable by the Fund subject to the matters set forth in the next
paragraph.
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 Fund or its shares.
Very truly yours,
Hamilton, Myer, Swanson & Faatz
by: /s/ Allan B. Adams
------------------
Allan B. Adams, Partner
OPINION\230
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, for the past 10
years 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
Oppenheimer Strategic Income Fund
Page 2
January 30, 1995
Distribution Amount From Amount From
Reinvestment Investment Long or Short-Term Reinvestment
(Ex)Date Income Capital Gains Price
Class A Shares (Continued)
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
10/27/93 0.0458500 0.0000 5.300
11/24/93 0.0379900 0.1036752 5.170
12/31/93 0.0471600 0.0000 5.220
01/26/94 0.0297132 0.0043468 5.260
02/23/94 0.0318752 0.0048048 5.220
03/23/94 0.0316010 0.0050790 5.050
04/26/94 0.0419650 0.0000 4.870
05/25/94 0.0335720 0.0000 4.870
06/22/94 0.0335720 0.0000 4.830
07/27/94 0.0419650 0.0000 4.780
08/24/94 0.0335720 0.0000 4.790
09/28/94 0.0419650 0.0000 4.750
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
10/27/93 0.0417660 0.0000 5.310
11/24/93 0.0346504 0.1036752 5.180
12/31/93 0.0430701 0.0000 5.230
01/26/94 0.0267343 0.0043468 5.270
02/23/94 0.0286258 0.0048048 5.230
03/23/94 0.0284952 0.0050790 5.060
04/26/94 0.0382979 0.0000 4.870
05/25/94 0.0309195 0.0000 4.880
06/22/94 0.0307173 0.0000 4.840
07/27/94 0.0384468 0.0000 4.790
08/24/94 0.0307600 0.0000 4.800
09/28/94 0.0384552 0.0000 4.760
Oppenheimer Strategic Income Fund
Page 3
January 30, 1995
1. Average Annual Total Returns for the Periods Ended 09/30/94:
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
$ 970.17 1 $1,598.80 .2018
(---------) - 1 = -2.98% (---------) - 1 = 9.93%
$1,000 $1,000
Class B Shares
Examples, assuming a maximum contingent deferred sales charge of 5.00% for the
first year, and 4.00% for the second year:
One Year Inception
$ 965.06 1 $1,122.17 .5448
(---------) - 1 = -3.49% (---------) - 1 = 6.49%
$1,000 $1,000
Examples at NAV:
Class A Shares
One Year Inception
$1,018.55 1 $1,678.53 .2018
(---------) - 1 = 1.86% (---------) - 1 = 11.02%
$1,000 $1,000
Class B Shares
One Year Inception
$1,010.65 1 $1,161.11 .5456
(---------) - 1 = 1.07% (---------) - 1 = 8.49%
$1,000 $1,000
Oppenheimer Strategic Income Fund
Page 4
January 30, 1995
2. Cumulative Total Returns for the Periods Ended 9/30/94:
The formula for calculating cumulative total return is as follows:
(ERV - P) / P = Cumulative Total Return
Class A Shares
Examples, assuming a maximum sales charge of 4.75%:
One Year Inception
$ 970.17 - $1,000 $1,598.80 - $1,000
------------------ = -2.98% ------------------ = 59.88%
$1,000 $1,000
Class B Shares
Examples, assuming a maximum contingent deferred sales charge of 5.00% for the
first year, and 4.00% the second year:
One Year Inception
$ 965.06 - $1,000 $1,122.17 - $1,000
------------------ = -3.49% ------------------ = 12.22%
$1,000 $1,000
Examples at NAV:
Class A Shares
One Year Inception
$1,018.55 - $1,000 $1,678.53 - $1,000
------------------ = 1.86% ------------------ = 67.85%
$1,000 $1,000
Class B Shares
One Year Inception
$1,010.65 - $1,000 $1,161.11 - $1,000
------------------ = 1.07% ------------------ = 16.11%
$1,000 $1,000
Oppenheimer Strategic Income Fund
Page 5
January 30, 1995
3. Standardized Yield for the 30-Day Period Ended 09/30/94:
The Fund's standardized yields are calculated using the following formula
set forth in the SEC rules:
a - b 6
Yield = 2 { (-------- + 1 ) - 1 }
cd or ce
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.
e = The Fund's net asset value (excluding contingent deferred
sales charge) per share on the last day of the period.
Class A Shares
Example, assuming a maximum sales charge of 4.75%:
$25,679,184.99 - $2,402,879.01 6
2{(------------------------------ + 1) - 1} = 8.65%
658,913,328 x $4.99
Class B Shares
Example at NAV:
$12,782.138.08 - $2,179,200.08 6
2{(------------------------------ + 1) - 1} = 8.31%
327,321,500 x $4.76
Oppenheimer Strategic Income Fund
Page 6
January 30, 1995
4. DIVIDEND YIELDS FOR THE 30-DAY PERIOD ENDED 9/30/94:
The Fund's dividend yields are calculated using the following formula:
Dividend Yield = { (a / 30) x 365 } / 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 $.0359700/30 x 365
------------------ = 8.77%
$4.99
Dividend Yield
at Net Asset Value $.0359700/30 x 365
------------------ = 9.21%
$4.75
Class B Shares
Dividend Yield
at Net Asset Value $.0329670/30 x 365
------------------ = 8.43%
$4.76
Oppenheimer Strategic Diversified 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, for the past 10
years which are as follows:
Distribution Amount From Amount From
Reinvestment Investment Long or Short-Term Reinvestment
(Ex)Date Income Capital Gains Price
Class C Shares
03/23/94 0.0431508 0.0000 4.930
04/26/94 0.0338030 0.0000 4.880
05/25/94 0.0270424 0.0000 4.910
06/22/94 0.0270424 0.0000 4.890
07/27/94 0.0338030 0.0000 4.830
08/24/94 0.0270424 0.0000 4.840
09/28/94 0.0338030 0.0000 4.800
1. Average Annual Total Returns for the Periods Ended 09/30/94:
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 C Shares
Example, assuming a maximum contingent deferred sales charge of 1.00% for the
first year:
Inception
$ 996.16 1.5082
(---------) - 1 = -0.58%
$1,000
Example at NAV:
Class C Shares
Inception
$1,005.76 1.5082
(---------) - 1 = 0.87%
$1,000
Oppenheimer Strategic Diversified Income Fund
Page 2
January 30, 1995
2. Cumulative Total Returns for the Periods Ended 9/30/94:
The formula for calculating cumulative total return is as follows:
(ERV - P) / P = Cumulative Total Return
Class C Shares
Example, assuming a maximum contingent deferred sales charge of 1.00% for the
first year:
Inception
$ 996.16 - $1,000
------------------ = -0.38%
$1,000
Example at NAV:
Class C Shares
Inception
$1,005.76 - $1,000
------------------ = 0.58%
$1,000
3. Standardized Yield for the 30-Day Period Ended 09/30/94:
The Fund's standardized yields are calculated using the following formula
set forth in the SEC rules:
a - b 6
Yield = 2 { (-------- + 1 ) - 1 }
cd or ce
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.
e = The Fund's net asset value (excluding contingent deferred
sales charge) per share on the last day of the period.
Oppenheimer Strategic Diversified Income Fund
Page 3
January 30, 1995
3. Standardized Yield for the 30-Day Period Ended 09/30/94 (Continued):
Class C Shares
Example at NAV:
$308,318.79 - $72,522.27 6
2{(------------------------ + 1) - 1} = 7.11%
8,412,864 x $4.80
4. DIVIDEND YIELDS FOR THE 30-DAY PERIOD ENDED 9/30/94:
The Fund's dividend yields are calculated using the following formula:
Dividend Yield = { (a / 30) x 365 } / 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.
Example:
Class C Shares
Dividend Yield
at Net Asset Value $.0289740/30 x 365
------------------ = 7.34%
$4.80
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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